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Cablegate: Brazil: Next Steps On Free Trade Agreements

VZCZCXRO7626
PP RUEHRG
DE RUEHBR #0958/01 1461918
ZNR UUUUU ZZH
P 261918Z MAY 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 9052
INFO RUEHSO/AMCONSUL SAO PAULO 9965
RUEHRI/AMCONSUL RIO DE JANEIRO 4465
RUEHRG/AMCONSUL RECIFE 6712
RUCPDOC/USDOC WASHDC
RUEHAC/AMEMBASSY ASUNCION 6100
RUEHBU/AMEMBASSY BUENOS AIRES 4792
RUEHMN/AMEMBASSY MONTEVIDEO 6905
RUEHCV/AMEMBASSY CARACAS 3687
RUEHLP/AMEMBASSY LA PAZ 5376
RUEHTV/AMEMBASSY TEL AVIV 0142
RUEHME/AMEMBASSY MEXICO 2064
RUEHBJ/AMEMBASSY BEIJING 0328
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 1532

UNCLAS SECTION 01 OF 02 BRASILIA 000958

SIPDIS

SENSITIVE
SIPDIS

DEPT PLEASE PASS TO USTR SCRONIN/KLEZNY
USDOC FOR 3134/USFCS/OIO/WH
USDOC FOR 4332/ITA/MAC/WH/OLAC/MCAMPOS
AID/W FOR LAC/AA
TREASURY FOR OASIA
USTDA FOR AMCKINNEY
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD ECON BR
SUBJECT: BRAZIL: NEXT STEPS ON FREE TRADE AGREEMENTS


1. (SBU) Summary. On May 24, in a joint "NAFTA" approach to the
Ministry of External Relations, the Econ Counselors from the U.S.
and Canadian Embassies, along with the Commercial Counselor from the
Mexican Embassy, met with Evandro Didonet, the Ministry's
recently-appointed Chief of its International Trade Negotiations
Division. Didonet, who is responsible for the negotiations of FTAs
- but not for the WTO Doha Round talks - said that the most serious
FTA discussions currently on Mercosul's plate were with Israel and
the Gulf Council countries (GCC). As for the ongoing EU-Mercosul
FTA talks, he noted that while the EU saw these negotiations as a
fall-back plan in case the Doha Round failed, Mercosul hoped for an
agreement regardless of the outcome of Doha. He did not see much
significance to the EU's planned designation of Brazil as a
"strategic partner" at the upcoming July 4 EU-Brazil summit in
Brussels, calling it more show than substance. End Summary.

2. (SBU) Didonet, formerly the Deputy Chief of Mission at the
Brazilian Embassy in Washington, took charge of the International
Trade Negotiations Division in February. While under his
predecessor - Ambassador Regis Arslanian
-- the unit reported to the MRE U/S for South American Affairs, an
internal reorganization now has the division reporting to the U/S
for Economic Affairs. Thus, responsibility for the Doha Round,
FTAA, EU-Mercosul, and other trade talks now lies with the
Secretariat for Economic Affairs.

SIPDIS

3. (SBU) With respect to the substantive negotiations Brazil (and
Mercosul) were currently engaged in, Didonet made the following
comments:

-- On agriculture, the principal roadblock to conclusion of the
decade-long EU-Mercosul FTA negotiations, the EU has offered much
more on market access in the context of the Doha Round that it has
in the Mercosul talks. The EU would only get serious, he felt, if
the Doha Round were to stall - then it would aggressively seek to
conclude FTAs with Mercosul and other partners. For Brazil, he
said, the difficulty was not dealing with the EU, but coming to a
common position with its Mercosul allies -- Argentina, Uruguay, and
Paraguay. (As Venezuela had not implemented the Mercosul Common
External tariff, it is only an observer, and not a participant, in
the EU talks.)

-- Brazil is committed to the success of the Doha Round. There is
no "Plan B." Indeed, Didonet admitted, should the Doha Round fail,
the GOB would be left without a forum for pursuing the agricultural
subsidy cuts it wants so desperately from the USG.

-- China, not the U.S. or the EU, is Brazil's number one worry on
trade. The flood of low-cost Chinese imports into the country,
principally in the footwear, textile, and toy sectors, combined with
the rising exchange rate, meant that Brazil was not only in danger
of losing competitiveness overseas but vulnerable to "attack" in its
home market. Within a few years, it was possible that Chinese auto
imports could displace domestic Brazilian vehicle production. For
these reasons, he opined, Brazil was reluctant to agree to steep
cuts in non-agriculture tariffs in the Doha Round. Indeed, due to
the rising exchange rate, imports had already risen 20 percent this
year even in the absence of any tariff cuts.

-- Mercosul was closest to inking FTAs with Israel and the GCC
countries. The Israel pact was likely to be signed this year, while
the GCC agreement was "a little more difficult" because of the issue
of how to deal with the petrochemical sector, the source of much of
the GCC's exports to the bloc. For Brazil, he added, the most
important GCC countries were Saudi Arabia and the UAE, with Qatar,
Bahrain, Kuwait, and Oman being of much less significance.

-- While negotiations were ongoing with India and the Southern
African countries, these talks were more discussions of tariff

BRASILIA 00000958 002 OF 002


preferences as opposed to full-fledged FTAs.

Chicola

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