PORTUGAL: ECONOMIC DIPLOMACY TAKES CENTER STAGE

C O N F I D E N T I A L SECTION 01 OF 03 LISBON 000100 SIPDIS E.O. 12958: DECL: 02/14/2019 TAGS: ETRD PREL PGOV PO SUBJECT: PORTUGAL: ECONOMIC DIPLOMACY TAKES CENTER STAGE FOR GOP REF: A. 08 LISBON 2629 ¶B. 08 LISBON 2689 ¶C. LISBON 75 LISBON 00000100 001.2 OF 003 Classified By: Dana M. Brown, Pol-Econ Officer, Embassy Lisbon Reasons 1.4 (b) and (d) -------------- Summary -------------- ¶1. (C) Due to its small size and reach, Portugal has chosen to limit its international ambitions to three foreign policy pillars: transatlantic relations, former Portuguese colonies (the Lusophone world),and the European Union. In 2008, the GOP added a fourth focus - economic diplomacy - in order to secure energy supplies, achieve a balance of trade, and promote non traditional exports in developing markets. Portuguese PM Socrates went public with the new strategy last summer and launched a flurry of cabinet-level trade missions to support it. The GOP plans to continue its trade outreach in 2009 with high-level visits to Mexico, Vietnam, and Thailand with hopes of building on 2008's successes. While Portugal's trade diversification strategy makes economic sense, a side effect is that the GOP avoids taking a tough line on Russia, Venezuela, China, or other problematic trade partners. An optimist might suggest that once it has coherently integrated its trade and political strategies, the GOP will be in a better position to balance these competing demands. In the short-term, however, we believe Portugal will continue to tactically hide behind multilateral consensus and avoid criticizing current or potential trade partners. End summary. -------------- Locating New Trade Markets -------------- ¶2. (U) When he took office in 2005, Portuguese Prime Minister Jose Socrates inherited a stagnant economy and initially focused on austerity measures to spur modest domestic growth. The GOP then turned its attention outwards and began to consider how it could promote exports and trade. As a first step, in June 2007, Socrates fused the Portuguese investment agency and the export promotion office into one entity: Agencia para o Investimento e Comercio Externo de Portugal - the Agency for Investment and Portuguese External Trade (AICEP). At the same time, FM Amado established a new office of economic diplomacy in the Foreign Ministry. The two developed a strategy to increase Portuguese exports to new trade partners. The GOP told the press that it was especially focused on enhancing trade with nations where Portugal had "fallen behind" other EU competitors, such as Libya. ¶3. (C) The GOP's first major trade promotion campaign after the AICEP merger focused on Venezuela. After three years of ignoring Chavez' overtures, PM Socrates finally agreed to visit Venezuela and, in doing so, established a template for the GOP's new trade strategy. The GOP's three-part roll-out includes: multiple ministerial-level trade missions, an evaluation of underserved markets in energy producing nations, and the approval of multiple deliverables during an official PM visit. In Venezuela, Portuguese Ministers of Commerce and Public Works laid the groundwork with seven different trade missions to Caracas a few months before the official visit. Then, PM Socrates' three-day visit to Caracas in May 2008 finalized the deals and oversaw the approval of roughly thirty new commercial agreements trading Portuguese milk, prefabricated housing, and computers for Venezuelan oil. As a result of this new found closeness, President Chavez declared in September that, "Portugal opened the door to the world for Venezuela" and could help explain and defend Venezuela to its European partners (ref A). ¶4. (U) The GOP continued its export promotion work in August 2008 and sent the same two ministers and PM Socrates to Angola and Libya within days of each other. The GOP signed an agreement with Libya that closely resembled the Portuguese-Venezuelan template. As petroleum prices spiked in 2008, Socrates stressed that Portugal also needed to rectify its growing trade imbalances with Saudi Arabia, LISBON 00000100 002.2 OF 003 Algeria, and Angola. ¶5. (U) In addition to petroleum producers, the GOP made a concerted effort to export to large consumer markets. Portuguese Minister of Economy Mario Pinho led companies on trade missions to China, India, and Russia, while FM Luis Amado paid visits to several nations well outside Portugal's usual sphere of interest, including Equatorial Guinea, Paraguay, Singapore, and Qatar. President Cavaco Silva traveled to Poland and Slovakia, two of the EU's fastest growing economies, seeking to encourage foreign direct investment in Portugal. Portugal's export mix includes a wide range of machinery, wine, cork, clean energy technology, prefabricated houses, automotive part molds, minerals, and foodstuffs. ¶6. (U) As Portugal's established trade partners, Spain, the United States and UK tackle increasing unemployment and economic slowdown, Portugal has looked to locate new export markets that it hopes will make up for reduced traditional sales. The strategy worked in 2008 -- Portugal broke even despite the declines in developed markets because of new sales in emerging markets. The export missions also bore fruit in some of Portugal's established markets in the developing world; Angola surpassed the United States and became Portugal's top trade partner outside the EU in 2008. -------------- Savvy Diplomacy, or Selling Out? -------------- ¶7. (C) While the economic crisis makes trade promotion more difficult, Portugal is forging ahead with additional trade missions for 2009. Diplomatic Advisor to the Prime Minister Jorge Roza de Oliveira told us that PM Socrates plans to visit Mexico in 2009 to encourage more trade in building materials and automotive parts. In 2008, Portuguese exports to Mexico grew exponentially to make Mexico Portugal's thirteenth largest market worldwide and the second largest export market in Latin America after Brazil. Vietnam and Thailand are also partners that the GOP hopes to engage later this year. On February 10, President Cavaco Silva of the opposition Social Democrat Party backed Socialist PM Socrates' outreach telling the press that exports were "the key" to saving Portugal's economy. ¶8. (U) The public has taken note of the shift in Portugal's foreign trade policy, especially since Socrates' trip to Angola in July 2008. During this visit, PM Socrates praised the Angolan government for having accomplished, "notable work across the board," despite the GOA's well-known problems with corruption and election transparency. Fellow Socialist and parliamentarian Joao Soares said Socrates' comments were "cynical", and he remarked that Socrates was "selling Portugal at any price." PS Director for International Relations Jose Lello disagreed with Soares, however, and bluntly told weekly newspaper Expresso that Portugal must remain "objective and pragmatic and leave democracy and human rights to the UN." National political leaders from both major parties broadly support export promotion, and the Portuguese public seems to agree that trade policy should be the priority, except in the case of Angola, where Portugal has a historic link and continued political influence. -------------- -------------- Comment: If you don't have something nice to say... -------------- -------------- ¶9. (C) Portugal's export diversification is a sign of the Portuguese export market's maturity, developed production capabilities, and an increasingly global reach. Even before the consolidation of AICEP in 2007, Portuguese exports jumped from 28 billion euros in 2003 to 38 billion euros in 2007, and this trend is likely to continue with the GOP's concerted efforts and the relative low production costs compared to other EU manufacturers. Nevertheless, the economic outreach has political ramifications in areas outside Portugal's traditional policy bailiwicks -- as Portugal avoids criticizing trade partners, it puts additional pressure on the U.S., NATO, and EU partners to pick up the slack. In 2008, for example, the GOP adopted a soft stance on Russia (ref B),became "Venezuela's defender in Europe," and only LISBON 00000100 003.2 OF 003 agreed to mild EU sanctions against Burma and Zimbabwe because other states insisted. At present, the GOP gets away with its weak posture in multilateral fora like the EU and NATO because other nations take the lead. When Portugal assumes a leadership role, such as its current leadership of the Community of Democracies, its studied neutrality is problematic (ref C). Portugal is a good friend and ally, but this tendency will be something to watch and consider as we decide whether to support Portugal's bid for a seat on the UN Security Council in 2011-2012. Portugal's resolute pursuit of expanded trade means the GOP occasionally flinches when called to support principled consensus on tough issues. End comment. http://www.intelink.sgov.gov/wiki/portal:port ugal STEPHENSON