Identifier
Created
Classification
Origin
06BRASILIA1865
2006-09-05 18:56:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Brasilia
Cable title:  

BRAZIL: AMBASSADOR'S MEETING WITH FINANCE MINISTER MANTEGA

Tags:  ECON ETRD PGOV PREL EFIN EINV BR 
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
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UNCLAS SECTION 01 OF 02 BRASILIA 001865 

SIPDIS

SENSITIVE
SIPDIS

NSC FOR FEARS
TREASURY FOR OASIA - DAS LEE, D.DOUGLASS, J.HOEK
STATE PASS USTR FOR S.CRONIN/M.SULLIVAN
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
STATE PASS USAID FOR LAC

E.O. 12958: N/A
TAGS: ECON ETRD PGOV PREL EFIN EINV BR
SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH FINANCE MINISTER MANTEGA

REF: A) STATE 128359 B) BRASILIA 1709

This cable is sensitive but unclassified, please protect
accordingly.

UNCLAS SECTION 01 OF 02 BRASILIA 001865

SIPDIS

SENSITIVE
SIPDIS

NSC FOR FEARS
TREASURY FOR OASIA - DAS LEE, D.DOUGLASS, J.HOEK
STATE PASS USTR FOR S.CRONIN/M.SULLIVAN
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
STATE PASS USAID FOR LAC

E.O. 12958: N/A
TAGS: ECON ETRD PGOV PREL EFIN EINV BR
SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH FINANCE MINISTER MANTEGA

REF: A) STATE 128359 B) BRASILIA 1709

This cable is sensitive but unclassified, please protect
accordingly.


1. (SBU) Summary: In the Ambassador's August 18 initial call on
Finance Minister Guido Mantega, the two discussed Brazil's economy,
ethanol, and mechanisms for bilateral economic engagement, including
the Treasury-Fazenda Group for Growth meetings. Mantega raised the
USG's review of Generalized System of Preferences (GSP). He said
the exclusion of Brazil from GSP would be a "serious blow" to the
trading relationship given multiple points of friction such as the
WTO cotton case, ethanol duties, ORANGE juice barriers, anti-dumping
cases and the suspension of the Doha Round (DDA) negotiations over
the issue of agricultural subsidies. The Ambassador shared a copy
of ref A demarche points with Mantega, explained the history of the
GSP program and the need for a review. Mantega hopes to meet with
Secretary Paulson on the margins of the Singapore IMF meetings. End

SIPDIS
Summary.

Economy Solid
--------------


2. (SBU) The Ambassador congratulated the Finance Minister on the
GoB's economic achievements of the course of the Lula
Administration. Paying down external debt, the solid external
accounts, the reduction in Brazil risk and the emergence of Brazil
as a great trading nation were accomplishments of which to be proud.
The USG wants to support Brazil's economic transformation with a
solid trade and investment relationship, he said. Mantega welcomed
the sentiment, noting that Brazil has a great interest in increasing
its trade relationship with the United States. Although the
political discourse might at times make it seem that the GoB gives
greater emphasis to ties with other countries, Mantega noted,

President Lula is a pragmatist who realizes the importance of the
relationship with the U.S. Brazil's economy, moreover, has
undergone a structural shift, from one with perennial trade and
current account deficits to one with an overwhelmingly positive
trade balance and a desire to further integrate into the world
economy. Today Brazil has become a force for stability in the
region, Mantega averred, leading by the example of its sound
policies.

Trade
--------------


3. (SBU) Brazil works to increase trade with the United States even
when U.S. policy works against it, Mantega affirmed, singling out
U.S. agricultural subsidies as a barrier. Brazil doesn't subsidize
agriculture, he claimed. "It's hard to compete with Brazilian
agriculture," the Ambassador noted. "It's hard to compete with U.S.
services and high technology goods," Mantega replied. The
Ambassador reminded Mantega that USTR Susan Schwab's first stop
after the suspension of the WTO DDA negotiations in Geneva had been
in Brazil. This was because of the important role the USG believes
Brazil can play in bringing along some of the less flexible members
of the G-20, the Ambassador reminded Mantega. Finance Ministry
International Secretary Luiz Pereira noted the importance of the
DDA. Trade has been a great engine for growth for developing
countries, he said, and Brazil needs this to continue. Although the
tenor of offers on the agricultural side of the negotiations was
insufficient, Brazil, Pereira affirmed, was willing to put more on
the table in terms of improved non-agricultural market access
(NAMA).

GSP Review Could be "Serious Blow" to Relationship
-------------- --------------


BRASILIA 00001865 002 OF 002



4. (SBU) The GoB is concerned, Mantega said, by talk in Washington
of Brazil's possible exclusion from U.S. GSP benefits. The
Ambassador explained the history of the GSP as a program originally
intended to help young democracies prosper. The U.S.
Administration, independently of any Congressional action, had
undertaken to review the system and was inviting comments from
foreign governments and industry, the Ambassador explained. The
results of that review could not be predicted, he said. The
Ambassador also shared a copy of ref A talking points with Mantega.



5. (SBU) Mantega acknowledged the Ambassador's explanation but
argued forcefully that any USG decision to remove GSP benefits would
be viewed as a "serious blow" within the context of a sometimes
troubled trading relationship. Brazilian exports to the United
States, such as ORANGE juice, sugar, shrimp, and ethanol, Mantega
noted, are hit by high tariff rates and a series of non-tariff
barriers including quotas, state-level barriers (Florida for ORANGE
juice),a series of anti-dumping orders and subsidized domestic
production. Combined with what the GoB has termed USG reluctance to
comply fully with the WTO dispute board cotton ruling and the
suspension of WTO DDA negotiations over agriculture subsidies/market
access issues, removing GSP would be very "uncomfortable" from the
point of view of the bilateral relationship. The $1.5 billion in
Brazilian exports (comment: his figure, we understand it's closer to
$3.6 billion) to the U.S. that benefit from inclusion in GSP are a
drop in the bucket to the U.S. but would be a significant loss for
Brazilian producers, Mantega concluded. The Ambassador again urged
the GoB make formal comments to USTR as part of the review process.

Group for Growth
--------------


6. (SBU) Mantega said he hopes to meet new U.S. Treasury Secretary
Paulson on the margins of the Singapore IMF meetings. The
Ambassador noted that the Secretary had been to Brazil fairly
frequently in his prior private sector jobs, and he hoped that trend
would continue. The Ambassador also stated his interest in working
with the Treasury and Fazenda to develop the agenda for the next
Group for Growth meeting.


7. (SBU) Comment: The GSP review and the potential for the
withdrawal of Brazil's GSP benefits have elicited very strong
negative reactions from government and industry here. Foreign
Minister Amorim told the press August 20 that Brazil would consider
taking the USG to WTO dispute resolution were GSP benefits removed.
The forcefulness of Mantega's comments on GSP was nevertheless
surprising given that he does not oversee the trade portfolio. With
the influential State of Sao Paulo Industry Federation (FIESP)
hiring Washington lobbyists and mounting a media campaign in which
it claims that graduation from GSP would cost Brazil "at least"
20,000 jobs, it's clear that the issue has resonance well beyond the
foreign and trade ministries.

SOBEL