BRAZIL - PROCESS FOR VENEZUELA'S MEMBERSHIP IN

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 003052

SIPDIS

DEPT FOR WHA/BSC, WHA/AND AND WHA/EPSC
DEPT PLEASE PASS TO USTR MSULLIVAN
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD
NSC FOR SCRONIN

E.O. 12958: DECL: 11/17/2015
TAGS: ECIN ETRD ECON VE BR
SUBJECT: BRAZIL - PROCESS FOR VENEZUELA'S MEMBERSHIP IN
MERCOSUL JUST BEGINNING

Classified By: Classified by Charge Phil Chicola for reasons 1.4
(b) an
d (d)


1. (SBU) Summary. Brazil's decision to approve Venezuela's
request for membership to Mercosul came from the top levels
of the GoB, without substantial internal debate. While the
process for admitting Venezuela to the bloc is moving
forward, the Foreign Ministry appears to be approaching the
issue in a measured way, stressing that Venezuela will have
to comply with a number of technical requirements to gain
entry. Mercosul Presidents are expected to okay a program
for Venezuela's accession during the December 9 summit,
however the timing, and even eventual completion, of
Venezuela's entry into the bloc remains an open question. The
Brazilian private sector is divided on the issue. End
Summary.


2. (SBU) On November 9, Emboff met with EconCouns at
Argentine Embassy to discuss, inter alia, the issue of
Mercosul expansion. Our contact there frankly admitted that
he was not aware of any official Argentine position in favor
of full Venezuelan membership in Mercosul and it could well
be that Buenos Aires eventually comes out the other way. To
date, we were told, virtually no discussion of the modalities
of Venezuela's assumption of full membership had taken place
and it was unlikely that Mercosul experts would be able to
hold such a conversation prior to the December 9 presidential
summit in Montevideo. Currently, Brazilian and Argentine
negotiators were working full-time in preparation for the
November 30 Brazil-Argentina Friendship Day celebrations in
Foz do Iguacu. Both Brazil and Argentina hope that the
crowning achievement for the November 30 event would be a
bilateral accord on safeguards on sensitive goods ) and
achieving the elusive consensus on this perennially
controversial issue would be difficult.


3. (SBU) Our contact then ticked off a host of reasons why
full Venezuela membership in Mercosul would be problematic:

-- Currently, Brazil and Argentina dominate Mercosul
decision-making with Paraguay and Uruguay trailing along
behind. Introducing oil-rich Venezuela into the mix could
prove to be a destabilizing element, with Caracas playing the
Brazilians against the Argentines and vice versus to increase
Venezuelan influence.

-- On regional trade issues, Mercosul is seeking 4 1 talks
with the U.S. and a FTA with the EU. A 5 1 agreement
(Venezuela being the fifth) with the USG looked to be a
non-starter and the addition of Venezuela would similarly
complicate talks with the EU.

-- There would be enormous technical difficulties in
reconciling Venezuela's Andean Pact common external tariffs
with those of Mercosul (and as of yet, work on this issue had
not even begun).

-- The admission of Venezuela would pose difficult questions
regarding the future of Mercosul, such as: if Mercosul is to
eventually embrace South America how would it differ from the
South America Community of Nations, and why not seek to offer
full membership to countries such as Mexico and Cuba?


4. (SBU) The claims of the Argentine EconCouns
notwithstanding, local press continues to report that it is
Argentina and Uruguay, not Brazil, which are pushing for
Venezuelan membership in the Mercosul club. They cite
Venezuela's purchase of Argentine debt and its ability to
supply fuel, along with political affinity between Kirchner
and Chavez, as underpinning Argentina's position, while
explaining Uruguay's support as deriving from its leftist
political leanings and Venezuela's decision to build a
refinery in that country.


5. (SBU) Brazil's decision to approve Venezuela's request for
membership came from the top levels of the GoB, without
substantial internal debate. A high-level Foreign Ministry
official responsible for Mercosul trade negotiations with
countries outside the region (e.g. EU, India, Southern
African Customs Union) told Econoff he was not party to
internal GoB deliberations and was taken by surprise by the
announcement made during the mid-October Ibero-American
Summit. The EU Trade Officer in Brasilia likewise told
Econoff that EU inquiries in all four Mercosul capitals
confirmed that no technical work had been done prior to the
announcement.


6. (SBU) The timing of any eventual Venezuelan entry into the
bloc is unclear at this point. According to Antonio Simoes,
Foreign Minister Amorim's economic advisor and Secretary of
Policy Planning, now that the political decision has been
taken to enable Venezuela to join, the admission process must
be negotiated. During the upcoming Mercosul summit, the
bloc's presidents are expected to take the first step by
signing-off on an accession program, which Mercosul
negotiators are still finalizing. While not having details,
Simoes assumed that Venezuela would be asked to take on all
the standard commitments of Mercosul members ) Treaty of
Asuncion, application of the Common External Tariff, etc.
After the summit, the process of negotiating with Venezuela
over the particular requirements will commence. Already the
issue of how/whether Venezuela can remain a member of the
Andean Pact as well as be a member of Mercosul has been
raised as an issue.


7. (U) The Brazilian private sector is split on the issue.
One group is focused on the potential export opportunities
and the "complementary nature of the Brazilian and Venezuelan
economies" ) i.e., export market for industrial goods.
Between January and October this year, Brazilian exports to
Venezuelan grew by about 60 percent in comparison with the
same period last year, reaching USD 1.8 billion. Imports
increased as well, 40 percent in the period, but still only
reached USD 218 million, providing Brazil will a sizable
trade surplus. The requirement that Venezuela would have to
open its market to the other four bloc members is also seen
as a vast improvement over the bilateral Mercosul-Venezuela
FTA in which 91.2 percent of Brazil's tariffs would be
eliminated within five years compared to only 16 percent for
Venezuela.


8. (U) On the other side, certain business people are worried
that Venezuela's admission to Mercosul will further
complicate Brazil/Mercosul's trade negotiations with other
partners. They point to Venezuela's vociferous opposition to
the FTAA, as well as its potential to undermine negotiations
with the EU. This, all at a time when trade friction between
Brazil and Argentina over the latter's demand for a safeguard
mechanism is highlighting strains among existing Mercosul
members. Rubens Barbosa, former Ambassador to the United
States and current chair of the Trade Council within Sao
Paulo's Trade Federation (FIESP) has characterized the
decision to include Venezuela as both an economic and
political mistake.


9. (SBU) In a conversation with Econoff November 16, Simoes
played down possible complications for Mercosul in on-going
trade negotiations, noting that Venezuela's only product of
interest is oil. (Note: This would seem to us to be a rather
naive perspective, that Venezuela would contain its impact
along the line of economic interests, rather than seek to use
the group to pursue wider foreign policy objectives. End
Note.) Simoes also mentioned two previous instances when
countries (Mexico and Chile) had planned to join Mercosul as
full members, but then backed-out once faced with the
specific conditions. While emphasizing that he was not
making comparisons, Simoes' comments suggest he sees the
possibility, if not the hope, that Venezuela might in the end
choose not to follow through with its stated intentions.

Comment
--------------

10. (C) In responding to inquiries, President Lula and the
Foreign Ministry always cast Venezuela's request to join
Mercosul in a positive light, although neither seem to be
going out of their way to actively promote the idea. In a
conversation with Mission's Senior Commercial Officer, the
Vice-Minister of Development, Industry and Trade implied a
lack of GoB enthusiasm by noting that Chavez's first two
attempts to join Mercosul were rebuffed and noting GoB
concern that Uruguay is trying to railroad the entry process.


11. (C) Politically it would have been difficult for
President Lula to oppose Venezuela's admission to the bloc
given his relationship with Chavez and his need to pacify the
left-wing of his party. However, Foreign Minister Amorim is
careful to point out that there will be certain requirements
for membership and a process to be followed. It will be
interesting to see whether President Lula and his political
advisors will continue to roll the Foreign Ministry's
technical people or not. That will give us a good reading on
how far Lula will go to please his left-wing constituency.

Chicola