BRAZIL: USTR SCHWAB MEETINGS WITH BRAZILIAN INDUSTRY

UNCLAS SECTION 01 OF 04 SAO PAULO 000242

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DEPT FOR EEB/TPP/MTA/MST FOR AARON SCHEIBE
DEPT PASS USTR FOR SUE CRONIN
USDOC FOR 4332/ITA/MAC/WH/OLAC/ ADRISCOLL/MCAMPOS
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DRAMBO
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PARIS FOR ECON - TOM WHITE

E.O. 12958: N/A
TAGS: ECON ETRD WTO BR
SUBJECT: BRAZIL: USTR SCHWAB MEETINGS WITH BRAZILIAN INDUSTRY
REPRESENTATIVES


1. (SBU) Summary: USTR Ambassador Susan Schwab pointed out recently
to leading Brazilian industrialists and agriculture sector
representatives in Sao Paulo meetings the significance to Brazilian
interests of the current Doha Round and affirmed that
non-agricultural market access (NAMA) is key to successful
conclusion of the trade negotiations - a message that seemed to
resonate with her hosts. In a March 9 session with manufacturers,
hosted by the Federation of Industries of the State of Sao Paulo
(FIESP),she stressed that the USG is committed to an "ambitious
outcome" for Doha. Brazilian industry leaders responded that the
GOB is open to negotiations. On the non-agricultural market access
(NAMA) Swiss formula coefficient, the GOB does not support the USG
proposal of a 15 percent coefficient for developing countries.
However, they did add that Brazil would be open to engaging in
sectoral negotiations and would begin putting together a list of
sectors where such talks might prove fruitful. Agricultural issues
cropped up at the meeting, with Brazilian business leaders
expressing concern about subsidies contained in the current Farm
Bill and the ethanol surcharge. The imminent expiration of the
President's Trade Promotion Authority (TPA) was also a concern.


2. (SBU) On March 10, Ambassador Schwab met with FIESP officials
and representatives of some of the most powerful Brazilian
agribusiness industries, again at FIESP headquarters. Although the
discussion centered mainly on the Doha negotiations, ethanol
occupied about one third of the exchange, in the wake of the March 9
signature of a U.S. - Brazil MOU on biofuels. The Brazilians also
raised bilateral agricultural issues regarding beef, orange juice
and chicken. Ambassador Schwab delivered a strong message on the
need for market access for agricultural products, emphasizing that
if significant "new trade" is not created, or if Brazil is too
ambitious on domestic support, there will be no Doha agreement. The
Brazilians said that they need more market access from the EU, are
wary of the EU retaining Uruguay Round safeguards and the
possibility of restrictive safeguards for developing countries in
Doha, and are very concerned that their government is not moving
fast enough to counter trade restrictive proposals of the G-33.


3. (U) Key Brazilian participants included Paulo Skaf, President of
FIESP; Roberto Gianetti da Fonseca, FIESP's General Director for
International Affairs and Foreign Trade; Roberto Rodrigues, a large
scale sugar cane producer, former GOB Minister of Agriculture and
President of FIESP's Council on Agriculture; Rubens Barbosa,
President of FIESP's Council on Foreign Trade and former Brazilian
ambassador to the U.S.; Marcos Jank, President of the Brazilian
Institute for International Trade Negotiations (ICONE) and former
Special Counselor to the Brazilian Minister of Development; and Jose
Cutrale, the largest producer of frozen concentrated orange juice
(FCOJ) in Brazil who also holds a significant interest in Florida
orange juice production. End Summary.

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Meeting on Non-Agricultural Market Access (NAMA)
-------------- ---


4. (SBU) FIESP is the leading regional manufacturing sector
organization in Brazil, and is comprised of 132 sectoral trade
associations representing over 40% of the country's industrial GDP
and more than 140,000 companies. (FIESP has recently opened a
Washington field office, which is co-located with the Brazil
Information Center.)


5. (SBU) Ambassador Schwab told the group of 13 Brazilian business
leaders that her three visits to Brazil since July 2006 underscored
the importance of Brazil's role in the Doha Rounds. Terming the
current Doha Round a critical opportunity for all countries to
address the future of global trade flows and relationships,
Ambassador Schwab said the USG is committed to an "ambitious"
outcome. She told attendees only a multilateral outcome - not a
bi-lateral or regional deal - will address Brazil's needs, and the
GOB may have to choose between Brazilian industry and the interests
of the other developing countries at some point in the negotiations.
Ambassador Schwab said the GOB has a "fundamental impact on
influencing other countries such as India," and emphasized that a
failed Doha Round would impact Brazil as hard as any country. She
noted that there is a building sense of momentum and urgency to the

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talks and called for a "robust and balanced outcome."


6. (SBU) Skaf agreed with Ambassador Schwab on the importance of
the Doha negotiations, but said that, in the opinion of the GOB and
Brazilian industry, balance is the key word in the negotiations.
According to him, in the NAMA talks FIESP accepts the Swiss Formula,
but feels the coefficient determination needs more objective
discussion.

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NAMA and the Coefficient
--------------


7. (SBU) Skaf pointed to FIESP's designation of 2007 as the year
for dialogue with the U.S., and called for clarity in the
negotiations over the exception list, the Swiss coefficient and
agricultural subsidies. He emphasized Brazil's infrastructure
problems which, coupled with an unfavorable exchange rate, have hurt
the country's competitiveness. Despite this, he felt the GOB is
willing to reach a bearable coefficient cost and negotiate sector by
sector. Ambassador Schwab encouraged the private sector to remind
governments that trade agreements generate economic growth. Her
message was that the GOB should be pushing NAMA and not let other
countries hide behind agricultural issues.


8. (SBU) Ambassador Schwab reminded the group that, of all
countries, Brazil has the greatest potential to lose should Doha
fail. She cautioned that Brazil is not going to be able to play a
leadership role if it is "hiding behind the G-20" and encouraged
each developing country to identify what it plans to shelter, in
terms of tariff lines, without obsessing over the coefficient. Skaf
said there is no support in the GOB for a reduction to 15 per cent,
which he termed "impossible." He also questioned the figures USTR
used to demonstrate the effect of the USG proposed coefficient on
maximum tariff rates, referring to it as "alchemy."


9. (SBU) Skaf noted that his association (FIESP) is as ambitious as
USTR, but within "realistic limits." He acknowledged that his
organization is prepared to engage in sectoral talks as a complement
to Swiss formula negotiations. He also said that, to move this
effort forward, FIESP has been making contact with other similar
associations such as the National Association of Manufacturers (NAM)
in the U.S. (FIESP will host a visit from NAM executives the second
week in April.)

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Agricultural Issues Unavoidable
--------------


10. (SBU) Despite the meeting's NAMA focus, Skaf noted that
agriculture was inextricable from the other topics in the Doha
discussions and thought the GOB position might be flexible, but said
he didn't see the same clarity in the USG position. Ambassador
Schwab countered that in 2005, the USG took the first step by
putting forward a bill to "ambitiously cut" agricultural subsidies.
That approach failed when the EU and G-20 responded with a proposal
containing little real agricultural market access. She said
agriculture is clearly a fundamental part of the rounds and
eliminating agricultural trade barriers is the single most important
thing the world could do to contribute to development.



11. (SBU) Addressing the Farm Bill, Ambassador Schwab said the
legislation proposed in February is not part of the USG Doha Round
offer. As the trade round was not completed last year, the bill was
not written to conform to a Doha agreement. She declared that the
USG could not make commitments to cap farm support independent of
trade discussions. She assured the group that if there is a
breakthrough this spring, it will be a year before it is in force
and the Farm Bill could then be amended to reflect the negotiated
agreement if needed.

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Intellectual Property Rights (IPR)
--------------


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12. (SBU) Skaf noted his concern that USTR continued to list Brazil
on its Special 301 "Priority Watch List." Ambassador Schwab
commended GOB anti-piracy efforts, but said that the position of the
GOB on IPR in international fora, such as WIPO and WHO, has been
detrimental to worldwide anti-piracy efforts and did not effectively
represent the intellectual property rights (IPR) of Brazilian
industry.

--------------
Meeting with Agribusiness Leaders
--------------


13. (SBU) In contrast to the meeting on NAMA the day before, much
of the March 10 meeting was characterized by concise and
well-rehearsed presentations and statements by participants to
Ambassador Schwab. Roberto Rodrigues, a large scale sugar cane
producer, former GOB Minister of Agriculture and President of
FIESP's Council on Agriculture, expanded on the importance of
agriculture to Brazil by outlining its 33 percent contribution to
GDP and 30 percent share of total exports in 2006. He said that
some 13 million hectares of grazing land alone could be converted
within a short time period to produce other crops should greater
market access be opened under Doha.


14. (SBU) Marcos Jank, President of the Brazilian Institute for
International Trade Negotiations (ICONE),observed that Brazil and
the U.S. are in general agreement on most Doha issues, including
market access. Nevertheless, he added, Brazil needs even more
access from the European Union (EU) and Brazilian agricultural
interests are concerned about blue box disciplines as well as
restrictive safeguards and the composition of the eventual list of
sensitive products. Jank stated that Brazil's priorities include a
75 percent cut of high tariffs; maximization of tariff rate quotas
(TRQ) expansion; elimination of the Uruguay Round Special
Agricultural Safeguard (used primarily by developed countries),
fewer special products for developing countries (the G-33 proposal
of 20 percent of tariff lines would be unacceptable) and limits on
special safeguards for developing countries (no higher than Uruguay
Round levels). On particular priorities beyond the soybean complex
initiative, Jank said Brazil remains interested in frozen
concentrated orange juice (FCOJ) and sugar.


15. (SBU) Jank said that barring serious cuts in the amber box,
overall subsidies would have to be capped, hence Brazil's concern
with the Bush Administration's farm bill proposal that would create
revenue based counter-cyclical payments and move payments from the
amber box to the blue box. He concluded that the U.S. and Brazil
have common ground on market access but not domestic support.


16. (SBU) Ambassador Schwab agreed that Brazil and the U.S. are on
the same side on 90 percent of agriculture issues, but firmly stated
that "new market access" (effective and serious cuts in applied
rates and ceilings) is critical for the U.S. Only a balanced Doha
agreement with ample market access and reasonable subsidy cuts will
have a chance to clear the U.S. Congress. Ambassador Schwab
cautioned that if significant "new trade" is not created by the
negotiations, or if Brazil is too ambitious on domestic support,
there will be no Doha agreement on agriculture. She added that
serious access on NAMA is also needed - lack of ambition on NAMA
would mean no cuts in domestic support for agriculture.

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Ethanol - A Hot Topic
--------------


17. (SBU) In the wake of the March 9 signing of a U.S.-Brazil MOU
on ethanol cooperation, discussions on U.S. ethanol tariffs and
taxes dominated much of the meeting. Ambassador Schwab clarified
that while the 2.5 percent U.S. tariff on ethanol imports is part of
the Doha negotiations, the 54 cent U.S. surcharge on ethanol imports
is not. She told the group that ethanol is a major issue for U.S.
corn producers.


18. (SBU) Robertto Gianetti da Fonseca (FIESP's Director for
International Affairs and Foreign Trade) said his organization
recognizes the position of the U.S. Renewable Fuels Association, and

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understands that the 54 cent surcharge will be in place while the
U.S. ethanol industry develops. He added that Brazil will have a
limited supply available for export in the near term due to growing
domestic demand. He floated a proposal, recently developed by the
Brazilians, which suggests the U.S. extend its surcharge for five
years with an incremental phase out after that time in order to
assure potential investors. Sergio Amaral, Coordinator of FIESP's
Business Councils, observed that the ethanol MOU created a paradox
because Brazil would now promote ethanol production in countries
that have duty free access to the U.S. market, while Brazil does
not.

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Other Bi-Lateral Issues
--------------


19. (SBU) Jose Cutrale, the largest producer of FCOJ in Brazil,
noted that U.S. tariffs for his product are 33 percent higher that
those imposed by the EU and requested Ambassador Schwab consider
promoting a reduction in U.S. FCOJ tariffs. Jank (ICONE) said
Brazil is interested in pursuing a line of discussion on chicken
exports as Brazilian exporters may lose market share with the entry
of Bulgaria and Romania into the EU. A beef industry representative
said U.S. based importers are interested in Brazilian fresh and
frozen beef and that Brazil is working with the Organization of
International Epizootics to regain its disease free status for foot
and mouth disease (FMD) by May 2007.


20. (SBU) Comment: The meetings, designed to gauge the position of
the Brazilian private sector as a prelude to further Doha
negotiations, were open and the discourse frank on both sides.
FIESP and its members have some influence on the inner circles of
the GOB and the meetings provided valuable insight into the
positions of Brazilian private industry. End Comment.


21. (U) Embassy Brasilia contributed to this cable, which was
cleared by USTR and Embassy Brasilia prior to transmission.

McMullen