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Cablegate: Brazil: Wto Amb Azevedo Meeting with Dustr Veroneau

DE RUEHBR #1407/01 3010952
R 270952Z OCT 08




E.O. 12958: N/A
SUBJECT: Brazil: WTO Amb Azevedo Meeting with DUSTR Veroneau

1) (SBU) SUMMARY. On the margins of the October 10 CEO Forum, DUSTR
John Veroneau met with new WTO Ambassador (and former MRE Economics
Undersecretary) Roberto Azevedo. Veroneau emphasized the importance
of sectorals and sought Azevedo's perspective on the the U.S.-Brazil
trading relationship. Azevedo explained industry lack of interest
in sectorals, explored the potential for bilateral trade
discussions, and offered his perspective on the Doha Development

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2. (SBU) Veroneau indicated that sectoral tariff initiatives in the
Doha Round are essential for the U.S. to accept a modalities
agreement in the non-agricultural market access (NAMA) negotiations.
Azevedo noted that Brazilian industry sectors are not in general
competitive worldwide. Brazil does have globally competitive
agricultural sectors, but agricultural producers have for the most
part already turned their attention to bilateral agreement
opportunities rather than additional WTO efforts. On the industrial
side, especially autos, sectors mainly have defensive rather than
offensive interests and do not want to pursue sectoral agreements.

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3. (SBU) Azevedo noted that, with regard to Brazil's bilateral
trade, there is considerable momentum in Brazil to complete the FTA
with the European Union, with industry, agriculture and services
interests all pressing for an agreement. Azevedo indicated that, if
the Round stalls, negotiations will probably move forward on a much
more reciprocal footing than was the case in 2004. The Brazilian
textile sector strongly supports an EU FTA, the auto sector sees
opportunities, and even the footwear industry supports as its
production is complementary to the EU's output. Azevedo stated the
EU thinks concluding an FTA will be possible on their side if their
agricultural commitments are manageable. The agreement draft is
"pretty comprehensive" in market access terms, but does not contain
IPR, investment or services commitments, Azevedo confirmed.

4. (SBU) In contrast, exploration of an FTA with Korea is more
problematic, as Brazilian industry directly competes with Korean
production and is not interested in an agreement. Azevedo commented
that FTAs with tiny developing country markets such as South Africa
are easy to negotiate because they are so small without much trade
effect. He offered that it is easier, in his view, to work
bilaterally with mature markets like the US and the EU than with
other countries. He used the example of the unproductive GCC
FTA-Mercosul negotiations: Brazil imports no chemicals from the
GCC, but the Brazilian chemicals industry is still against an FTA,
because they feel GCC members are investing now to become a player
eventually in the chemical production sector. Industry is more
comfortable with the United States, a well-known, large and mature
market, with a "smaller number of variables" than negotiating access
with countries like Vietnam, India, and "god knows what will come
from the Middle East" that "are on the periphery today but won't be
in the future."

5. (SBU) Veroneau noted that, for the last several years, the
U.S.-Brazil bilateral trade relationship has been defined by the WTO
Doha Round. He asked Azevedo how he sees the trade relationship
over the next few years. Azevedo underlined that trade negotiations
with the United States is a primary objective of the Brazilian
private sector. He commented that a model similar to the EU FTA
would be doable. Azevedo noted Uruguay and Paraguay support
negotiations and Argentina would need some convincing. He commented
that Mode 3 (pre-estabishment) investment commitments would be easy
to include, but the investor protections/ arbitration mechanism
included in US BITs would be unlikely to be feasible. Similarly,
Brazil is unlikely to be able to include IPR in an agreement;
Azevedo recalled that TRIPs was almost a dealbreaker in convincing
Congress to ratify the WTO agreements. That said, Azevedo commented
that opinions in Congress are slowly evolving - "people are getting
used to the thought that IP speeds innovation, but (this mindset
change) takes time." Azevedo also referenced the IPR politics
surrounding pharmaceutical pricing/public health policy in Brazil,
but felt that issue could ultimately be contained through WTO rules
already in place. He emphasized IPR enforcement is a primary
sticking point - while there is growing sentiment in Brazil that IP
should be protected, GOB does not currently have the means to
enforce effectively. In addition, more effective enforcement
mechanisms would require legislative changes that, in Azevedo's
view, are highly unlikely to receive a receptive hearing throughout
the Congress at this time - a "dealbreaker, more than anything else"
in Azevedo's words.

BRASILIA 00001407 002 OF 002

6. (SBU) After confirming Brazil would "not want to negotiate a
package like other US FTAs in Latin America," Azevedo again stressed
that "if we could moderate the appetite in some areas, we could do
something, because there is appetite" in Brazil for an agreement
with the United States. Noting the conversation would be in 4+1
format, he noted Venezuela's eventual entry into Mercosul would pose
additional challenges. He stated that FTAA "got stigmatized" for
GOB and a similar structure would not work this time. He said the
sensitive auto sector wants an agreement with the US, while strongly
resisting a WTO agreement; similarly the textile sector supports
bilateral negotiations with the US. Nonetheless, Azevedo noted,
securing a multilateral agreement lays the foundation for future
bilateral agreements.

- - - - - -

7. (SBU) Azevedo believed that Doha would be concluded in the next
few years, because the substance is mostly done; "the challenges are
political." He pointed to the SSM and Japan/G10 demands for
agricultural exceptions as political issues. India's objections are
based on politics. He thought issues like ethanol or cotton were
not dealbreakers today, but hard to predict in a couple of years if
the politics change. He commented other non-issues today could
become volatile in the future. He said President Lula recognized
the risks in managing the politics of an agreement, but was
comfortable in deciding to take on those risks and press for an
agreement. Finally, he stated that issues like subsidies, rules,
investment and IPR can only be addressed in multilateral
negotiations and opined that, while tariffs can be addressed in
bilats, "two Rounds from today" tariffs will be minimal/a marginal

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8. (SBU) Azevedo offered his perspective on challenges Brazil must
manage as it approaches multilateral and bilateral negotiations.
Brazil is no longer "cheap" in terms of land or labor, he commented.
Brazil's infrastructure (roads, energy access, etc) leave much to
be desired. Brazil has "a lot of work to do" to be "completely open
and competitive worldwide." In this context, opening Brazilian
markets to others' competitiveness "feels nervous" to key
stakeholders. He noted that Brazilian industry complains it does
not have a domestic environment to foster competitiveness. Azevedo
enumerated examples like changes in labor law Brazil must make to
create the conditions for a more open economy and an insufficiently
dense financial system that can not make enough credit available.
With many Brazil companies not confident they can compete
internationally (COMMENT: and with legislative reforms, such as tax,
IPR enforcement, regulatory system and labor reforms, politically
extremely challenging to advance in Brazil), resistance to
liberalization must be continually managed.

9. (SBU) COMMENT: Not surprisingly in the extremely well
coordinated Ministry of External Relations, Ambassador Azevedo's
comments tracked closely with Mission conversations with other parts
of MRE and with industry and agricultural interests in Brazil
regarding both multilateral and bilateral negotiations
possibilities. Brazil is doing all it can to achieve a Round
conclusion this year, including FM Amorim (accompanied by Azevedo)
and President Lula discussions with India October 12 on the margins
of the Brazil-India-South Africa Summit in New Delhi. At the same
time, Brazil recognizes the significant political challenges
complicating this objective. END COMMENT

USTR has cleared this message.


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