Cablegate: Mercosul/Eu Talks Break-Off: Not Just a Brazilian

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BRASILIA 001832

SIPDIS

SENSITIVE

STATE FOR EB/IFD/OMA/O'REILLY, AND WHA/EPSC
NSC FOR DEMPSEY
USTR FOR KLEZNY,SCRONIN
TREASURY FOR OASIA - SEGAL
USDA FOR FAS/FAA/TERPSTRA
USDOC FOR 4332/ITA/WH/OLAC
USDOC FOR 3134/USFCS/OIO/WH

E.O. 12958: N/A
TAGS: ETRD ECON EFIN EINV SOCI PGOV PREL BR
SUBJECT: MERCOSUL/EU TALKS BREAK-OFF: NOT JUST A BRAZILIAN
"TACTIC"

This Cable is Sensitive but Unclassified. Please Protect
Accordingly.

1. (U) Top GoB negotiators on Wednesday July 21 abruptly
broke off EU/Mercosul trade talks in Brussels and returned
to Brazil leaving only lower-level staff to continue
eventual exchanges on technical parameters or detail. The
GoB move was a reaction to the EU's latest agricultural
market access offer, presented on Monday, which the
disappointed Brazilians at once denounced as a retreat from
the previous EU offer. Inter alia, the Europeans reportedly
conditioned the ultimate definition of their agricultural
tariff/quota offers upon WTO Doha Round developments, and
made explicit that previously proposed agricultural-import
quotas would be phased-in, backloaded, over ten years.

2. (SBU) By all local accounts and appearances, the walk-out
came precipitously and shocked the Europeans -- as well as
Brazilian media and observers who have been fed a steady
recent diet of glowing GoB affirmations about achieving a
Mercosul-EU trade agreement before Lamy leaves his post in
October. It probably also caught much of the GoB's own
fifty-plus negotiating team on the hop. CAMEX (Foreign
Trade Chamber) executive secretary Mario Mugnaini, en route
to Brussels with the latest input from Brazil's private
sector after a Lula meeting with businessmen, landed to find
his trip OBE'd.

3. (U) As of Friday July 23, the declared GoB view is that
the walk-out was a necessary tough tactic to force the EU to
talk turkey about farm trade. "The agricultural offer is
the one that justifies this negotiation. Parceling out the
quotas makes the agricultural offer inexistent...The time
has come, once and for all, for the Europeans to understand
that they need to improve their agricultural offer," in the
words of the GoB delegation's new chief, Regis Arslanian.
Local reports cite the Europeans in turn as claiming that
the ten-year phase-in intention was previously notified and
blaming Mercosul's "inflexibility" for the suspension of
negotiations. Arslanian's EU counterpart Karl Falkenberg
noted that "Parceling is normal and it is, for example, in
our agreements with Chile and Mexico." No doubt the EU also
has cause for its own complaint that Mercosul's offers (or
lack thereof) on industrial trade, services and investment
fall comparably short of what European interests require.

4. (U) Both sides have underscored that negotiations have
not been called off. However, at least in Brazil it now
seems broadly expected that the main hope for their
resumption hinges on next week's events vis-a-vis Doha Round
negotiations. The always-optimistic Mugnaini has been
quoted as suggesting that a ten-year phase-in period for the
quotas might actually be acceptable, as long as the quotas
themselves were steeply raised, but Itamaraty has since
issued an apparent disavowal.

5. (SBU) In a development whose possible correlation with
the negotiations' progress has been lost on no-one here,
Arslanian last week unexpectedly displaced veteran GoB trade
negotiator and Ambassador to Brussels Graca Lima as head of
the Mercosul team. Itamaraty spokesmen up to and including
Foreign Minister Amorim assert there was no policy import to
this personnel shift. Nobody seems to accept this, and a
July 22 `Estado de Sao Paulo' editorial (Septel) reflected a
common view in calling Graca Lima's sidelining just the
latest in a series of ideologically-motivated underminings
of Brazil's best trade diplomats since Lula's
administration, and the new top Itamaraty leadership, took
over.

6. (U) Media have highlighted that Agriculture Minister
Rodrigues and Industry Minister Furlan both made calls of
solidarity to Graca Lima. (NOTE: U/S Larson heard of the
Brussels breakdown in his July 21 meeting with Rodrigues,
who expressed surprise at the development, but did not offer
a view as to how far-reaching its effect would be. END
NOTE.) Otherwise, general reaction in Brazil seems to have
been to feel vaguely let-down, but irresolute. The National
Agricultural Confederation (CNA) was forthright in
protesting the Mercosul walk-out, but the National
Confederation of Industries (CNI) considered it "sensible."

COMMENT
-------
7. (SBU) Itamaraty made this disruption happen, but should
be feeling very uneasy. It has invested enormously in
promoting the line that Brazil can gain improved trade
conditions vis-a-vis developed countries with or without
FTAA. So far, its institutional returns for doing so under
Lula have been rich. Now, though, Amorim and Guimaraes face
the prospect of the ballyhooed EU/Mercosul pact proving a
chimera, disappointing the expectations that they themselves
fueled. Their best hope at this point may be the chance of
last-minute WTO success in overcoming the Doha Round
impasse. Absent that, Amorim may have to choose between
outright failure to get any Mercosul/EU agreement at all by
October, or signing an "agreement" that is transparently
pallid.

DUDDY

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