BRAZILIAN INDUSTRY AND GOVERNMENT REACT TO THREAT TO GSP

UNCLAS SECTION 01 OF 02 BRASILIA 001706

SIPDIS

SIPDIS
SENSITIVE

STATE PASS USTR - MSULLIVAN
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
USTDA FOR AMCKINNEY
AID/W FOR LAC

E.O. 12958: N/A
TAGS: ETRD KIPR ECON BR
SUBJECT: BRAZILIAN INDUSTRY AND GOVERNMENT REACT TO THREAT TO GSP
BENEFITS

REF: STATE 128359


1. (SBU) Summary. During recent days, both local policymakers and
entrepreneurs have begun to marshal arguments in favor of Brazil
retaining eligibility for GSP benefits should that legislation be
renewed by the U.S. Congress. Economic and trade officials have
raised the issue with the Ambassador, noting, inter alia, that in
view of the progress Brazil has made on copyright piracy, the GOB
would see withdrawal of GSP benefits as "hitting below the belt."
Meanwhile, the Sao Paulo AmCham is contacting Congress directly,
particularly those members whose districts include ports where
Brazilian GSP imports enter. Our interlocutors have also employed
the argument that dropping Brazil from GSP would simply provide
China with greater space to increase its exports to the U.S. As far
as we know, the only U.S. company that publicly opposes Brazilian
graduation from GSP is Cummins, Inc, which has submitted comments to
USDOC. Others may make their views known as the debate progresses.
End Summary.

GOB Reaction
--------------

2. (SBU) In an August 8 meeting with the Ambassador (reported
septel),Minister of Development, Industry, and Commerce Luiz Furlan
said that in the wake of all that the GOB had done positively on
copyright piracy, if the USG were to exclude Brazil from GSP
policymakers here would take this badly. The early 2006 termination
of the U.S. copyright industry's petition to revoke Brazil's GSP
benefits reflected an implicit bargain, he declared: i.e., Brasilia
would continue to improve its performance on IPR enforcement while
Washington would maintain Brazil within GSP. Furlan noted that
recently Brazil and the U.S. had improved their trade relations
through the Commercial Dialogue that he and Secretary Gutierrez had
inaugurated during the latter's June 2006 visit to Rio de Janeiro.
He worried that a negative decision on GSP might halt momentum as
Brazil would see this as "hitting below the belt."


3. (SBU) On August 9, Central Bank Chief Henrique Meirelles echoed
this line in a conversation with the Ambassador, noting that if the
USG were to withdraw GSP benefits from Brazil such a move would
reinforce "negative elements" within the government community with
respect to the United States. Brazilian Ambassador to the U.S.
Roberto Abdenur has made similar comments in various meetings with
USG policymakers.

Private Sector Views
--------------

4. (U) Industry officials repeat the line that withdrawing GSP
would be contrary to the spirit of our mutual commitments on IPR.
As one influential private sector spokesman asked us, now that the
local business community is leading the fight against IPR piracy,
why punish Brazil now? Meanwhile, the Sao Paulo American Chamber
of Commerce (the largest AmCham in the world) estimates that Brazil
could face losses of US$300 million to US$ 400 million a year if
removed from the GSP. The AmCham is taking its case against
graduation directly to the U.S. Congress as it has just sent letters
to 55 representatives and 38 senators informing them of the
importance of GSP imports from Brazil for the companies in their
district. The AmCham has, in particular, targeted members whose
districts include ports which receive Brazilian GSP imports.


5. (U) For instance, in its correspondence to mid-Atlantic members
AmCham notes that in the 11th Customs District (comprising ports in
the Philadelphia area) 31.36 percent of its GSP imports
(representing US$126.7 million) come from Brazil. The principal
Brazilian GSP products exported to the 11th Customs District
included wood, aluminum, electrical machinery, fruits/nuts, and
nuclear reactor parts. The AmCham noted that duties for Brazil's
GSP exports to the district ranged from 0.4 percent to 29.8 percent,
with the averaging tariff coming in at 4 percent. All told, the
AmCham calcualates, U.S. firms in the 11th Customs District saved
over US$4.8 million because of Brazilian eligibility for GSP. The
AmCham presented similar figures for the Customs Districts of

BRASILIA 00001706 002 OF 002


Baltimore, Charleston, Chicago, Houston, Miami, Mobile, New York,
New Orleans, Norfolk, and Savannah.

The Possible Impact of China
--------------

6. (SBU) Finally, Brazil industry and government officials have
shown increasing concern about the impact domestically of rising
imports from China. Given their worries about GSP, they are now
broadening their focus to argue that graduating Brazil from GSP
would only further Chinese penetration (at their expense) into the
U.S. import market. In a recent meeting with the Ambassador,
Roberto Gianetti da Fonseca of the influential Industrial Federation
of the State of Sao Paulo employed precisely this line of thinking,
observing that Brazilian exports would simply be replaced by Chinese
goods. As the debate here progress on these issues, we expect that
other interlocutors will reiterate this point.

Sobel