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Cablegate: Brazil: Head of Fta Unit Discusses Current Negotiations

VZCZCXRO3995
RR RUEHRG
DE RUEHBR #2174/01 3271449
ZNR UUUUU ZZH
R 231449Z NOV 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0507
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5472
RUEHSO/AMCONSUL SAO PAULO 1209
RUEHRG/AMCONSUL RECIFE 7406
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 BRASILIA 002174

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR KATE DUCKWORTH

E.O. 12958:N/A
TAGS: ETRD ECON PREL BR
SUBJECT: BRAZIL: HEAD OF FTA UNIT DISCUSSES CURRENT NEGOTIATIONS


1. (U) SUMMARY: In a recent meeting with Evandro Didonet, Director
of the Department of International Negotiations at Itamaraty,
Didonet reviewed the status of ongoing Mercosul FTA negotiations,
including Israel, GCC, India, EU and the preferential agreement with
SACU. Brazil does not negotiate FTAs bilaterally, but only with
Mercosul partners. No FTA has yet completed the negotiation,
signature and ratification process. A cumbersome Congressional
ratification process will be a challenge for any eventual FTA
ratification. END SUMMARY

-----------------------------------------
MRE International Negotiations Department
-----------------------------------------

2. (U) Evandro Didonet, Director of the Department of International
Negotiations at Itamaraty, explained the Foreign Ministry's
structure dealing with trade policy in a recent meeting with
EconCouns and PolCouns. There are three departments for trade
policy. Director Alfonso do Cardoso leads the department
responsible for Mercosul and for regional integration. Director
Carlos Marcio Cozendey leads the Department of Economic Affairs,
covering WTO and other international negotiations. Director
Didonet's department is responsible for FTA negotiations. While the
Mercosul office handles regional integration work within Latin
America, Didonet's office handles the United States and Canada.
Didonet's Department includes five senior diplomats and ten junior
diplomats, who coordinate with AgMin, MDIC and other ministries to
lead trade negotiations.

3. (U) Didonet explained that Brazil always negotiates FTAs jointly
with the Mercosul bloc. However, he emphasized, negotiations always
build in "flexibility" for each Mercosul partner. For example, he
offered, Argentina has sensitivities regarding agrochemicals, so
only the other three Mercosul members made market access offers in
this area in negotiations with Israel. Similarly, part of Israel's
agricultural offer applies only to Paraguay and Uruguay; Brazil and
Argentina ceded certain opportunities so that Israel would not feel
threatened by too much access, Didonet explained. This
"flexibility" is an internal principle as well, said Didonet
alluding to member exemptions to the Mercosul common external
tariff, "allowing countries to feel more comfortable to be in
Mercosul." Mercosul FTAs do not necessarily include services, IPR
or investment chapters. No Mercosul FTAs have been signed, ratified
and implemented, according to Didonet.

-----------------
FTAs and Congress
-----------------

4. (U) The process to ratify international agreements, including
trade agreements, is lengthy in Brazil, according to Didonet.
Agreements must go first to the Chamber of Deputies, where they are
reviewed (consecutively, not in parallel) by the Foreign Affairs
committee, Economic Affairs committee, Justice and Legal Affairs
committee, plus environment or other relevant committees. Each
committee must approve the agreement before it goes on to the next
committee and eventually to the plenary for a full Chamber vote.
The agreement then goes to the Senate, where a similar process
unfolds. The situation is further complicated, added Didonet, by
the rule that Congress must first consider any executive order
signed by the President to decide whether to turn it into
legislation before any other legislative business can be taken up.
This requirement considerably disrupts legislative calendar
planning. (Note: the November 19 Gazeta Mercantil reported that
overall 165 international treaties are backlogged in Congress for
ratification).

--------------------
Current Negotiations
--------------------

5. (SBU) Turning to specific negotiations, Didonet indicated that
negotiations on a goods-only FTA with Israel are close to
completion; the sticking point remains agricultural market access,
where Brazil and Argentina are satisfied but Paraguay and Uruguay
have remaining concerns. In Mercosul negotiations with the GCC
(which include investment and services sections), "we are not as
close as it may seem," Didonet explained. While texts and product
lists are well advanced, a fundamental issue remains. GCC's most
competitive sector and primary area of interest is petrochemicals,
the area where Brazilian industry has significant concerns. Didonet
underlined that as far as GCC is concerned, petrochemicals market
access is the only reason to negotiate an FTA. Mercosul agreed on a
framework for FTA negotiations with both Israel and GCC in 2005 and
began negotiating in 2006, according to Didonet.

6. (SBU) The agreement Mercosul has been negotiting with SACU is

BRASILIA 00002174 002 OF 002


not an FTA, but rather a preference agreement. In October in
Pretoria, negotiators closed agricultural and non-agricultural
market access sections of the text. The agreement covers only 1000
eight-digit tariff lines (15 percent of two-way trade in tariff-line
terms; Brazil exports about 1.5 billion USD to SACU and SACU exports
400-500 million dollars to Brazil, per Didonet). The parties hope
to sign the agreement soon, possibly at the Mercosul Summit.
Remaining work includes rules of origin and free trade zones (a SACU
concern). SPS and TBT are done and are very short sections
acknowledging their importance and welcoming possible future work
toward mutual recognition of standards. The SACU agreement includes
an annex on customs cooperation, a first step toward negotiating an
FTA in the future, according to Didonet. Brazilian industry had
wanted more access into SACU, but the African parties simply were
not ready yet. As would be the process for FTAs, the agreement will
go through all four Mercosul members' congresses after signature for
ratification. However, SACU's internal procedures to agree to the
text and to sign are apparently lengthy and complex and may delay
beyond the Mercosul Summit. Didonet hinted at some frustration in
negotiating with SACU; before the October negotiations, the last
negotiating session had been in August 2006 and "ever since, we've
been knocking on the door - it seems hard for them to get ready."

7. (SBU) Mercosul is also negotiating a small agreement with India.
Five percent of eight-digit tariff lines (450 lines) are under
negotiation. According to Didonet, India is not interested in
broadening the negotiations until a 2005 agreement with Mercosul is
ratified (only Paraguay congress has ratified, while Argentina,
Uraguay and Brazil have not). The agreement awaits a vote on the
floor of the Brazilian Chamber of Deputies before proceeding to the
Senate. Per Didonet, Amorim made a personal effort to get the
agreement through committees in the Chamber, but inertia in
congress, rather than any political objection, continues to delay
progress.

8. (SBU) Didonet acknowledged that negotiations with the EU have
stalled. Lists have been exchanged and texts prepared, but
unresolved demands remain on both sides. The EU has indicated it
wants "clarity" on Doha negotiations before re-engaging with
Mercosul. He emphasized that EU claims both sides await this
"clarity" before proceeding, but it is really just the EU. The EU
is offering quotas for agricultural trade rather than unrestricted
access and needs to see what it gets overall in Doha before deciding
what subset Mercosul can have - a position Brazil is not sympathetic
to support.

9. (SBU) In addition to negotiations, Mercosul also has "dialogues,"
with Australia, Japan, Korea, China, and is starting a dialogue with
Russia.

-------------------
FUTURE NEGOTIATIONS
-------------------

10. (SBU) Didonet noted that Mercosul is in internal discussions on
whether and which new negotiations to launch next year. The
priority is to complete on-going negotiations, particularly the EU
agreement, according to Didonet. In addition, Mercosul is
discussing whether to agree in future only to negotiate full FTAs
and to avoid interim agreements like the preference agreement with
SACU. Didonet advocates only negotiating full FTAs rather than ad
hoc time-consuming lesser value agreements. Asked about the effect
Venezuela's entry into Mercosul might have on the various
negotiations, Didonet confirmed that Venezuelan representatives are
currently sitting in on various negotiations as observers. He said
that negotiators would address Venezuelan participation once their
entry is approved, but was clearly aware that it held the potential
for complicating negotiations enormously.

11. (SBU) COMMENT: Evandro Didonet is a knowledgeable and
experienced trade diplomat. He travels frequently and is relatively
rarely in Brasilia. He is a pragmatic negotiator, clearly as
well-versed in the political priorities that are central to
Mercosul's existence as he is in the economic issues that shape
Mercosul's negotiating positions. Taken together, Didonet's
comments on the various negotiations under way between Mercosul and
other groups provide a remarkably candid assessment of both the
highly political nature of these negotiations and the fact that most
of them are either stalled or economically insignificant. END
COMMENT

CHICOLA

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