CODEL GRASSLEY MEETS WITH BRAZILIAN GOVERNMENT

UNCLAS SECTION 01 OF 04 BRASILIA 000637 SIPDIS SENSITIVE SIPDIS H-PASS STATE PASS TO USTR FOR MSULLIVAN/KLEZNY NSC FOR SUE CRONIN DEPT OF TREASURY FOR FPARODI USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDOC FOR 3134/USFCS/OIO/SHUPKA E.O. 12958: N/A TAGS: ETRD EAGR WTRO ENRG PGOV PREL BR SUBJECT: CODEL GRASSLEY MEETS WITH BRAZILIAN GOVERNMENT POLICYMAKERS ¶1. (SBU) Summary and Introduction. During a March 19-23 trip to Brazil, a Congressional delegation led by Senate Finance Committee Chairman, Senator Chuck Grassley (IA),visited Manaus, Santarem (Para state),Brasilia, Maringa (Parana state),and Sao Paulo. This cable reports on the Codel's March 21 meetings in Brasilia with Foreign Minister Amorim, Trade Minister Furlan, and Agriculture Minister Rodrigues. The delegation's session with Foreign Minister Celso Amorim focused almost exclusively on the WTO Doha Round trade negotiations. Amorim declined to provide details of Brazil's next move in the talks, but reiterated general statements about the GOB's intent to improve its offers on industrial products (NAMA) and services. Noting that he agreed with Senator Grassley that time was running short, Amorim said he saw services and the outline of a final deal falling into the June/July timeframe rather than the end of April. Trade Minister Furlan's principal message was that U.S. agricultural subsidies distort world markets and disadvantage Brazil. The session with Minister of Agriculture Rodrigues was very positive, with both sides expressing a desire to cooperate, particularly on WTO Doha Round issues. Although each meeting was held separately, the three ministers delivered a coordinated message that the U.S. and Brazil need to do more to develop third country markets for renewable fuels such as ethanol. A report on the meetings in Sao Paulo and Maringa with private sector and NGO representatives, which covered the same general topics though our interlocutors there adopted a harsher tone -- will be sent septel. End Summary and Introduction. -------------- The Delegation -------------- ¶2. (U) In addition to Senator Grassley, the delegation consisted of: --Senator Mike Crapo (ID),Senate Finance Committee --Senator Wayne Allard (CO),Senate Appropriations Committee --Representative Collin Peterson (MN),Ranking Member, House Ag Committee --Representative Steve King (IA),House Agriculture Committee --Representative Phil English (PA),House Ways and Means Committee --Representative Darrell Issa (CA),House International Relations Committee --Representative Russ Carnahan (MO),House Transportation & Infrastructure Committee --Everett Eissenstat, Assistant U.S. Trade Representative for the Americas -------------- Meeting with the Minister of Foreign Affairs -------------- ¶3. (SBU) Minister Amorim welcomed the delegation, stating that relations between Brazil and the United States were good and noting the excellent chemistry between Presidents Bush and Lula as well as his own positive relationship with USTR Portman. Amorim characterized the WTO as a forum for mutual cooperation, although he described Brazilian and U.S. interests as not identical, but "concurrent." Specifically, he spoke of the need to identify future areas of bilateral cooperation, such as assistance to Lusophone African countries and expansion of ethanol markets (given the increased interest in the United States in renewable fuels). Doha Negotiations -------------- ¶4. (SBU) Senator Grassley pointed out that timing for completion of the Doha Round is very tight given expiration of Trade Promotion Authority (TPA) in mid-2007, adding that the U.S. Congress does not appear inclined to extend TPA. He emphasized the importance of the April deadline for decisions on full modalities for agriculture and NAMA. On the substance of the negotiations, Grassley said the U.S. is willing to trade subsidies for market access and that the U.S. should get credit for its good faith effort within its existing agricultural offer. Now is not the time for the U.S. to make a new offer, he declared. Should the Doha Round fail, Grassley predicted that U.S. farm programs would look s they had in the past. BRASILIA 00000637 002 OF 004 ¶5. (SBU) Amorim agreed that time was short for the Doha negotiations. He portrayed the Hong Kong Ministerial as an important step in the process as was WTO Director General Lamy's end of April deadline, but identified the June/July timeframe for movement in services and suggested there should be an outline of a final deal by the beginning of July. To reach a final deal, he sketched out the major contributions necessary by the main actors: EU would have to give on market access, Japan on anti-dumping (rules); the U.S. on domestic support; and Brazil would offer "something" on NAMA and services. ¶6. (SBU) Amorim declined to provide greater specificity on the "something" to be offered in NAMA and services, but commented that proposed legislation pending in the Brazilian congress would make it easier for Brazil to improve its offer in mode 3 for services. In response to a question by Representative English, Amorim argued that while the Doha negotiations on rules were very important, specifically zeroing and de minimis provisions within antidumping proceedings, the outcome on this would not end up being a deal-breaker. ¶7. (SBU) Extension of TPA was possible, Amorim opined, though he acknowledged that it couldn't be counted on. Consistent with public statements, Amorim portrayed the U.S. agricultural offer as "important" but "not sufficient," stating that Brazil wants the elimination of all subsidies, although he acknowledged that elimination would not be possible without improved market access. While the U.S. offer is not enough, Amorim said he still prefers to work quietly through negotiation rather than through litigation, arguing that if Brazil and the United States couldn't solve trade issues, how could they solve other troublesome issues such as efforts to combat terrorism. ¶8. (SBU) Finally, Amorim remarked that Brazil is not looking for special and differential (S&D) treatment within agriculture, despite the fact that rich countries enjoy S&D through their ability to offer domestic subsidies. He characterized collaboration with the U.S. to press the EU for improvements in market access as in Brazil's interest, and suggested that Brazil has the ability to move India toward greater market access concessions. Potentially isolated in the end, India would not hold back conclusion of the Doha Round, Amorim commented. The principal point for him was that Brazil and the United States need to reach agreement. FTAA Negotiations -------------- ¶9. (SBU) Amorim touched briefly on the Free Trade Area of the Americas (FTAA) negotiations, providing several reasons for why they have not flourished -- among them that the talks were initiated in a different context than today, i.e., prior to the launching of the Doha Round. He also claimed that diversity among the FTAA partners made a final deal difficult since "what is good for El Salvador may not be good for Brazil." Ethanol and Embraer -------------- ¶10. (SBU) In response to a query from Senator Allard regarding ethanol, Amorim made a pitch for greater bilateral cooperation in developing third country markets for Brazilian and US-produced ethanol. In closing, Amorim complained about USG interference, which ultimately aborted Embraer's sale of Super Tucano aircraft to Venezuela. -------------- Meeting with Minister of Trade -------------- ¶11. (SBU) Furlan opened the friendly, hour and a half discussion by stating that Brazil is highly competitive in agribusiness due to productivity gains made through process improvements and advances in farming technologies. He recounted his meeting with President Bush BRASILIA 00000637 003 OF 004 in November, and how he had demonstrated to the latter a strong connection between Brazilian agriculture and the U.S. economy - i.e., three of the four major agribusiness conglomerates operating in Brazil have significant U.S. shareholdings. Furlan stated his belief that President Bush understands that Brazil is "winning the war against agricultural subsidies," and that it will be hard for the United States to compete with Brazil on a level playing field. Even with the recent outbreaks of bovine hoof-and-mouth disease and avian influenza, Furlan believes Brazil to be more competitive on sanitary issues. ¶12. (SBU) The Minister stated that the Brazilian economy continues to grow, as social development and increased employment under the Lula administration have led to increased consumption. Industrial goods account for 55% of Brazilian exports, and Brazil actively seeks to diversify its products and export markets. With a US$45 billion dollar trade surplus and a strengthening currency, Furlan said that he worries that Brazil is not importing enough inputs. WTO Talks -------------- ¶13. (SBU) In response to a question from Senator Allard, Furlan responded that, for the most part, he believed that Brazil was aligned with the United States on most WTO issues. He stated that since the United States agreed to reduce agricultural subsidies on the condition that the EU do the same, this shows that the U.S. recognizes that the current system is unsustainable in the long term. He also went on to say that Brazil understands that it needs to open it own markets, and not be as defensive on services. He thought that Brazil could compete fairly on services, particularly banking, e-commerce and e-government applications. ¶14. (SBU) Rep. English mentioned that the USG was pleased with the constructive role Brazil played during the December Hong Kong meeting, and asked how Furlan thought the WTO Doha Round would evolve and whether he envisioned further opportunities for finding common ground. Furlan commented that since the Uruguay round, multilateral trade negotiation meetings have largely been a waste of time. In his view, all depended upon major moves coming from the US and EU. He felt that the formation of the G-20 was useful, because it helped define common ground between smaller countries which were similarly aligned. Biotech -------------- ¶15. (SBU) On the issue of biotech labeling requirements, Furlan stated his belief that Brazil was one of the few countries in the world that knows how to properly segregate GMO crops, and said that Brazilian farmers will continue to produce whatever the market dictates. Furlan went on to compare cattle production in Brazil and the United States, likening U.S. feed lots to "cattle hotels," while Brazilian cattle were pasture-fed the "old-fashioned way" with natural grasses. Flex-fuel Vehicles -------------- ¶16. (SBU) Furlan praised Brazil flex-fuel vehicle programs and opined that Brazil sees increasing ethanol consumption not only as a future commodity, but as a way to improve air quality around the planet. He stated that flex-fuel cars represent 70% of GM's Brazilian production, adding that in Brazil the difference in price between flex and non-flex vehicles is much smaller than in the U.S. because of less complicated technology. ¶17. (SBU) The meeting ended with Furlan sending his regards to Senator Grassley (who was unable to attend the meeting) and expressing his desire to meet with him during the Minister's next trip to Washington. In addition, the Minister stated that he is looking forward to hosting visits by USTR Portman, Energy Secretary Bodman, and Commerce Secretary Gutierrez in the near future. BRASILIA 00000637 004 OF 004 -------------- Meeting with Agriculture Minister -------------- ¶18. (SBU) In the session with Minister of Agriculture Rodrigues, Senator Grassley reiterated the point that TPA expires soon and that without greater market access opportunities it will be difficult to get any Doha Round accord through Congress. For his part, Rodrigues said he had participated in the recent London meetings and that there appears to be little flexibility in current negotiating positions. Like ForMin Amorim, he conceded that Brazil must offer more on industrial products and services in order to gain improved market access for agriculture. ¶19. (SBU) Turning to other issues, Minister Rodrigues, as did Amorim and Furlan, emphasized that Brazil and the US should cooperate on biofuels, thus providing a model for the world to follow. When queried about prospects for biotech soybeans, the Minister said that the current crop is about 20 percent biotech and that within a few years it will increase to 50 percent. Both Rodrigues and the Codel felt that there was room for Brazil-U.S. cooperation on biotech, especially with regard to the EU. Senator Grassley mentioned the need for Brazil to ensure adequate IPR protection for GMO soybeans, acknowledging that progress has been made but that additional GOB enforcement efforts would help. ¶20. (SBU) Finally, Rep. English invited Rodrigues to visit Capitol Hill, citing the ongoing work being done in the Congressional Brazil Caucus. From the Senate side, Senator Grassley extended a similar invitation. (Rodrigues is scheduled to visit Washington April 25 and is seeking a meeting at that time with Secretary Johanns.) Overall, Rodrigues and his team felt that the meeting was a good step forward in improving the bilateral relationship. ¶21. (U) This cable was cleared by Codel Grassley prior to transmission. Linehan