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Cablegate: Brazil Approves Venezuela's Entry Into Mercosul

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DE RUEHBR #1476/01 3502143
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R 162142Z DEC 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0154
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION
RUEHBR/AMEMBASSY BRASILIA
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RUEHCV/AMEMBASSY CARACAS
RUEHMN/AMEMBASSY MONTEVIDEO
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS BRASILIA 001476

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DEPT PASS NSC LROSSELLO
DEPT PASS USTR - KKALUTKIEWICZ
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TREASURY FOR LINDQUIST

E.O. 12958: N/A
TAGS: ECON ECIN EINT BR PA VE PREL
SUBJECT: Brazil approves Venezuela's entry into Mercosul

REF: SAO PAULO 0222; 08 SAO PAULO 497; BRASILIA 1271; BRASILIA 1254

1. (U) SUMMARY: On December 15, the Brazilian Senate approved
the Protocol to admit Venezuela as a member to the Southern Cone
trade bloc Mercosul (Mercosur). The issue now moves to Paraguay
for ratification by its Congress. In Brazil, there was some debate
and political maneuvering to delay the vote, but in the end, the
measure passed by a comfortable margin (35-27). GOB interest and
business support was a major factor in the passage.

THE PROCEDURE

2. (U) The proposal to admit Venezuela as a member to the trade
bloc Mercosul (Mercosur) was approved by the Brazilian Senate on
December 15 after a long (but standard) period of procedural
maneuvering, and after the parliaments of Venezuela, Argentina and
Uruguay had already voted to approve it. Venezuela requested
membership in December 2005 and the protocol was officially signed
on July 4, 2006 by the Presidents of Mercosul member countries and
Venezuela. In Brazil, the agreement was first submitted to the
Chamber of Deputies in October 2007. In December 2008, the Chamber
approved the protocol by a vote of 265 to 61, with 6 abstentions,
and sent the Legislative Decree bill to the Senate. The proposal
was discussed intensely in the Senate, with four public hearings
and various procedural delays by opposition Senators. The bill was
first approved by Senate Committees on Mercosul (in March) and
Foreign Affairs (in October). After a year of procedural delays,
committee consideration, and public hearings, the issue finally
came to a vote, with President Lula's support, just before Congress
is due to close for recess. The final floor vote was 35 versus 27.
The agreement still needs to be approved by the Paraguayan
Congress, where there are concerns that the opposition might turn
it down. If admitted, Venezuela will be subject to the 1998
Declaration of Ushuaia, which requires a commitment to democratic
principles. Mercosul-third parties agreements, such as the Free
Trade Framework Agreement with Israel and other tariff preferential
agreements, will not be binding on Venezuela; instead, there will
be an option for them to accede on a case-by-case basis.

ARGUMENTS FOR . . . .

3. (U) In the justification to the President requesting approval
of the Protocol, Minister of External Relations Celso Amorim
asserted that the integration of Venezuela into Mercosul was
important because the increased trade flow should result in
development of the transportation and telecommunications
infrastructure in the northern part of South America, and deepen
the region's economic and trade relations. Currently, Brazil
imports oil, oil derivatives, and coal from Venezuela and exports
food such as beef, chicken, and sugar to that country.

4. (SBU) Many senators seemed to focus on the argument given by
Senator Alo????sio Mercadante, government party (PT) leader in the
Senate, who asserted that the isolation of Venezuela would be worse
for Mercosul member nations than its accession. According to
Mercadante, while governments come and go, trade, political and
cultural integration have a lasting impact. Even stalwart
opposition Senator Francisco Dornelles, told Econoff and Poloff
that this was the determining factor in his support for the
protocol.

. . . . .AND AGAINST

5. (SBU) The main argument used by the opposition to Venezuela's
accession to Mercosul was that Mercosul should not accept as a
member any country run by a government with non-democratic
practices, such as limitations to press freedom and attempts to
consolidate power in the office of the Presidency in an
unconstitutional manner. In addition, the opposition argued, the
volume of trade does not justify including Venezuela in the bloc.
Moreover, according to Senator Eduardo Azeredo, the Chairman of the
Foreign Affairs Committee, based on testimony at the four public
hearings it appears that Venezuela falls short of meeting the

technical requirements (such as prepared lists of exceptions to the
common tariffs) to join Mercosul but a majority of the Senate was
willing to overlook these deficiencies to approve Venezuela's
admission. The opposition congressmen fear that the admission of
Venezuela could bring more instability to a union already
beleaguered by conflicts, such as the numerous disputes between
Brazil and Argentina and the go-it-alone approach often followed by
Uruguay.

THE POLITICS

6. (SBU) The vote broke down along governing coalition versus
opposition lines; the only senator in the governing coalition to
vote against the proposal was former President Fernando Collor
(PTB). President of the Senate Jose Sarney had previously
indicated his opposition but did not vote, per Senate tradition.
Many Senators were absent, traveling to participate in Climate
Change Negotiations in Copenhagen. Based on stated positions and
party affiliation, some project that a full Senate would likely
have provided a wider margin of victory, approximately 48-33.

7. (SBU) The vast majority of Senators from the government
coalition partner PMDB and the right-center small parties (PP, PTB,
PR), had long been well-disposed to support the government's
proposal for Venezuela's accession, thanks to strong support from
the business community. The vote along coalition lines masked the
fact that many senators did not see this vote in black-and-white
terms. Poloff, speaking to a number of members including
influential Senator Arthur Virgilio, leader of the opposition PSDB,
was told that several opposition senators were not vehemently
opposed to Venezuela's accession, but would ultimately vote as a
bloc against. On the other hand, many coalition senators, such as
Senator Sergio Zambiasi of the PTB, voted in favor but privately
admitted to Poloff to having reservations.

BUSINESS PERSPECTIVE

8. (SBU) Tomaz Zannoto of the Sao Paulo Federation of Industries
(FIESP) told Sao Paulo Econoff that over the last three years,
FIESP's position has been consistent: it does not have any
objection to Venezuela joining Mercosul, as long as Venezuela
abides by all technical and legal requirements. FIESP suspects
that Venezuela is not abiding by these requirements at this time
and assesses that Venezuela still has many issues to resolve - both
internally and amongst Mercosul members. He noted that FIESP
recognizes the importance of Venezuela and its potential as a
trading partner.

9. (U) According to the newspaper FOLHA de SAO PAULO, the
accession of Venezuela to Mercosul is commercially promising. In
their report the day after the vote, Folha noted that, with a low
level of Venezuelan imports to Brazil, the potential for increased
Brazilian exports could lead to a projected USD 4.6 Billion trade
surplus for Brazil. Growth is particularly likely in exports of
food (Venezuela imports 75% of food consumed) and industrial
durable goods. There is also potential for increased economic
growth along the underdeveloped northern Brazil border with
Venezuela due to increased trade.

10. (SBU) COMMENT: While there was some dissention and some
controversy, in the end a majority of Brazilian Senators sided with
the Lula administration in extending this opening to Venezuela.
There has been some concern about giving Chavez a platform, but
many seemed to believe that it was better to be inclusive and try
to influence his behavior in a democratically-based, trade oriented
regional group. Others no doubt felt less threatened by how Chavez
might use or impede Mercosul given the perspective held by some
that Mercosul is a largely ineffectual bloc kept together primarily

for the sake of regional unity. Business interests and the support
of the Lula government were also influential in Senate passage of
the protocol. While regional integration for economic purposes is
broadly supported in Congress, government and opposition coalitions
essentially voted along party lines, taking the opportunity to
emphasize the differences between them on foreign policy in Latin
America. However, as noted earlier, even the opposition was not
strongly opposed. Support for Venezuela's accession to Mercosul is
in keeping with the GOB's overall approach to foreign policy of
prioritizing positive constructive relations with its neighbors and
attempts to bring divisive actors, such as Chavez and Morales, into
the fold via engagement rather than isolation.
KUBISKE

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