ETHANOL, THE WTO, AND THE PRIVATE SECTOR: ROOM TO TALK?

UNCLAS SECTION 01 OF 02 SAO PAULO 000443

SIPDIS
SENSITIVE

STATE FOR WHA/BSC, WHA/EPSC FOR FCORNEILLE, E FOR GMANUEL
STATE PASS USTR FOR KDUCKWORTH
STATE PASS DOE/NREL FOR HCHUM
DEPT OF TREASURY FOR JHOEK, BONEILL
DEPT OF ENERGY FOR AMIRANDA, GWARD, CGILLESPIE

E.O. 12958: N/A
TAGS: ENRG EAGR ETRD ECON EINV TRGY BR
SUBJECT: ETHANOL, THE WTO, AND THE PRIVATE SECTOR: ROOM TO TALK?

SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY

Ref: 08 Sao Paulo 0423

SUMMARY
--------------


1. (SBU) In the event of a WTO dispute over US tariffs on ethanol
imports from Brazil, Brazil's largest association of sugar and
ethanol producers (UNICA) would likely be asked to pay for the
litigation. Conversations with high-ranking UNICA representatives
show an organization ready for litigation, but hopeful for a
negotiated settlement. Mission is ready to support a strategy of
engagement with UNICA and Government of Brazil interlocutors to
forestall any possible WTO action. END SUMMARY.

UNICA WANTS TO SETTLE
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2. (SBU) During a reception for visiting Deputy Secretary of
Energy, Jeffrey Kupfer on August 6, Econoff discussed the potential
for WTO action over ethanol with UNICA President Marcos Jank. Jank
stated emphatically that a suit in the WTO that resulted in an
abolition of the tariff was in the interest of its constituents who
stand to gain not only from exports to the US, but also from rising
prices in the domestic market (reftel). However, Jank did state
that he understands the political sensitivity of any WTO dispute,
and is seeking interlocutors in the US with whom he can discuss
these issues during a planned trip to the US in October. While Jank
knows this is a Congressional mandate that goes to 2010, he believes
there are mechanisms for reducing the tariff from 54 to 45 cents per
gallon that would match the reduction in the blender's tax credit in
the US. He is also hopeful of negotiating a long-term strategy for
removing the tariff that he could sell to his member companies
instead of going straight to litigation in the WTO. (NOTE: Not
only did UNICA pay for the WTO case against the EU sugar regime, but
Jank is a well-known expert in these cases and did the economic
analysis behind the cotton case and the sugar regime case while
working at ICONE-Institute for Commercial and International
Relations Studies. END NOTE.)


3. (SBU) Director for Corporate Communications, Adhemar Altieri,
similarly stated that while UNICA stands prepared to seek formal
redress at the WTO, the organization is first seeking a negotiated
settlement that would avoid disruptions in the domestic market and
allow for producers in Brazil to ramp up production to meet
increased demand from the US. While UNICA seems to believe that
they may receive pressure to file a suit at the WTO, Altieri stated
that a system of quotas or a graduated reduction in the tariff would
be preferable to an immediate withdrawal of the tariff for the
Brazilian economy. When questioned whether the removal of the
tariff could lead to GOB export controls to maintain the domestic
supply of ethanol, Altieri responded that UNICA has approached Chief
of Staff equivalent, Dilma Rousseff, regarding the very negative
consequences of any export controls by the GOB. (NOTE: Altieri did
not indicate what Rousseff's response had been. END NOTE.)

COMMENT
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4. (SBU) Domestic industry will have to decide how hard to advocate
for taking the ethanol tariff to the WTO. While the GOB may wish to
lay down a marker that it is ready to consider a case in the wake of
the stalled Doha process, there is little chance for a case to go
forward if the industry is not firmly supportive. Jank genuinely
understands the political repercussions of taking on a new US
administration as it comes into office as well as the potential
impact this case could have in our bilateral efforts on biofuels
through our MOU. Jank and UNICA have been active players in the
biofuels MOU process and will likely participate in the upcoming
private sector advisory committee meeting being convened by
conference call August 20, as part of U/S Reuben Jeffery's visit to
Brazil.

SAO PAULO 00000443 002 OF 002




5. (SBU) Mission suggests we engage proactively with Jank and
support him in meeting with a series of relevant US interlocutors
during his next visit to the United States in October. Considering
that the industry would be required to pay for any WTO case,
proactive discussions with Jank could forestall the industry's
support for this litigation. These meetings could include, for
example, key interlocutors at USTR and other USG agencies as well as
in Congress. END COMMENT.


6. This cable was coordinated with and cleared by the Embassy in
Brasilia.

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