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Cablegate: Brazil: Ustr/Mre Bcm Positive and Productive


DE RUEHBR #1498/01 3551853
R 211852Z DEC 09



E.O. 12958: N/A

REF: 2009 BRASILIA 1129; 2009 BRASILIA 1385; 2009 BRASILIA 1042
2009 BRASILIA 1175; 2009 BRASILIA 1338

1. (SBU) SUMMARY: On December 9, Assistant United States Trade
Representative (AUSTR) for the Americas Everett Eissenstat,
accompanied by Director for Brazil and Southern Cone Katherine
Kalutkiewicz, led the U.S. delegation during a positive and
productive meeting of the Bilateral Consultative Mechanism (BCM).
Carlos Marcio Cozendey, Director of the Ministry of Exterior
Relations' (MRE) Economic Department, led the Brazilian delegation.
Throughout a wide-ranging agenda, both sides expressed eagerness to
engage on tangible bilateral cooperation and agreed to exchange
drafts of a framework agreement for trade and investment by the end
of January 2010. In discussing difficult issues, the U.S. and
Brazilian delegations exchanged viewpoints constructively and
emphasized that areas of disagreement should not define the overall
bilateral relationship. END SUMMARY.

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2. (SBU) In a private meeting before the start of the BCM, Under
Secretary for Economic and Technological Affairs Pedro Mendonca
told AUSTR Eissenstat that Brazil is glad for the opportunity
presented by the BCM to discuss issues frankly. AUSTR Eissenstat
emphasized the U.S. commitment to the BCM and repeated the desire
of U.S. Trade Representative (USTR) Ambassador Ron Kirk (expressed
in a September 2009 visit to Brazil - ref A) that all bilateral
trade dialogues become more goal-oriented, concrete, and robust.

3. (SBU) Ambassador Mendonca said Brazil bears "no hard feelings"
toward the United States on the issue of the WTO cotton dispute and
is "looking for a way out." AUSTR Eissenstat urged U/S Mendonca to
communicate frankly as Brazil goes through its internal process of
deciding on retaliation measures and to consider the dangers of
inflexibility. Both agreed that the United States and Brazil
should manage the cotton dispute in the context of the overall
bilateral relationship.

Agenda Item: Institutional Framework of Trade Relations

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4. (SBU) Following up on a suggestion made by
Ambassador Kirk in his September 2009 visit to Brazil, the
Brazilian delegation expressed interest in establishing a more
stable framework for trade relations with the United States.
Minister Cozendey said that Brazil had examined some similar U.S.
agreements, some of which were general in tone, while others
included specific programs of work. He asked what characteristics
and level of detail the United States envisioned for a U.S.-Brazil

5. (SBU) AUSTR Eissenstat said that he would
consult with others in the USG but that he thinks the framework
should be broad, allowing the specific workplan to develop in line
with changing political and economic objectives. He cited similar
Brazilian agreements with Turkey and Switzerland and the United
States' agreement with Uruguay as examples where the agreements
have broad objectives and work plans that can meet changing needs
and priorities.

6. (SBU) Minister Cozendey explained that anything
called an "agreement" must be approved by the Brazilian Congress
and indicated that an executive branch mechanism without the term
"agreement" would not require Congressional approval. AUSTR
Eissenstat explained that Trade and Investment Framework Agreements
(TIFAs) do not require approval by the United States Congress and
said the United States can be flexible on the name and terms for
developing a framework, as well as on the timeframe.

7. (SBU) Minister Cozendey said he would seek
approval from the Brazilian External Trade Chamber (CAMEX) at a
meeting during the week of December 14 and forward a draft
framework to USTR by the end of January or beginning of February
2010. AUSTR Eissenstat committed that USTR would also work to
develop ideas and would be available for further technical
discussions if desired. He later explained that the USG would be
developing a proposed draft text during this period as well.

Agenda Item: Investment Policy


8. (SBU) AUSTR Eissenstat expressed the United
States' continued interest in a Bilateral Investment Treaty (BIT)
with Brazil. Minister Cozendey observed that interest in a BIT is
growing as Brazilian investment overseas grows. He cautioned,
however, that the Brazilian government's view is that a BIT with
the United States continues to have policy difficulties,
specifically mentioning a difference of opinion on international
arbitration. He recalled that in the 1990s, Brazil signed some
agreements which had difficulty gaining Congressional approval.
MRE decided not to pursue those agreements because they found the
existing Brazilian legal framework very stable and sufficiently
safe for investors. More recently, he said, there had been some
discussion about a new BIT model, and Brazil has begun discussions
with Chile utilizing the new model. Minister Cozendey said that any
future Brazil BIT would not be based on the tradition Organization
for Economic Cooperation and Development (OECD) model, since Brazil
sees problems with that model including an absence of guarantees
that measures such as direct expropriation would not be misused.

9. (SBU) In response to Minister Cozendey's
question about the progress of the U.S. BIT review, AUSTR
Eissenstat said that an internal U.S. review of investment policy
principles may be done by the end of the year. Minister Cozendey
and AUSTR Eissentat noted that other bilateral dialogues such as
the CEO Forum have endorsed the concept of an investment treaty,
and agreed that it was worthwhile to continue discussing the issue
at a technical level, noting that experts were scheduled to meet
alongside the December 14 meeting of the Economic Partnership
Dialogue (EPD) in Washington.

10. (SBU) Minister Cozendey indicated his interest in
investment promotion. AUSTR Eissenstat suggested looking for ways
to include invest promotion in existing mechanisms. He committed
to coordinate with the Department of Commerce to investigate
whether this would fit into the CEO Forum dialogue.

Agenda Item: Bilateral Trade and Investments

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11. (SBU) Minister Cozendey expressed Brazil's
disappointment in the diminishing overall volume of trade between
the United States and Brazil. He said exports up to November 2009
had decreased 45% and imports decreased 29% compared to 2008. He
said Brazil understands that the overall volume of trade and
Brazil's current trade deficit with the United States is likely a
consequence of the international financial crisis and strong

currency and is not expected to be permanent. However, he said, it
is concerning that these effects seem to be different from those in
other countries, and the role of the U.S. as a trading partner had
decreased in relation to others. Marcela Carvalho, International
Affairs Advisor for the Ministry of Development, Industry, and
Commerce (MDIC), explained that overall Brazilian trade has
decreased 30%, but trade with the United States has decreased 45%.

12. (SBU) Minister Cozendey said the Brazilian
short-hand for describing trade categorizes trading partners into
"the United States, the European Union, Latin America, China, and
all the others." He said that Brazil worries when U.S. trade
decreases because it is mostly trade in manufactured goods which
results in Brazil's overall composition of exports heavy on raw
material (traded, for example, with China). He emphasized that the
concern is not with the country's current trade deficit but rather
with the overall reduction in trade.

13. (SBU) AUSTR Eissenstat, noting that there seems to
be a shift in the U.S. economy toward more saving and less
consumption, indicated that there seems to be the potential for
substantial growth in bilateral trade for both economies and said
it could be valuable to examine the data more in depth to
potentially identify regions and products that are underdeveloped
in the bilateral trade relationship. According to AUSTR Eissenstat
it may be possible to build on significant advances in trade
between Brazil and the United States, for example by determining if
any sectors are under-represented.

Agenda Item: WTO and Doha


14. (SBU) Minister Cozendey said Brazil is not
optimistic about the prospects for the Doha Round. While many
countries say they are engaged and invested in reaching a positive
conclusion, he said, there has been little progress. He said the
United States is the only country that objects to the text agreed
on in November 2008 and that Brazil is in a difficult position
since the United States is asking for more concessions from Brazil,
Russia, India, and China. He asked the United States to narrow
its list of priorities, though he admitted Brazil has a general
idea of the U.S. goals and simply finds the priorities
unacceptable. Minister Cozendey also said that delays in
concluding the round have already undermined the credibility of the
World Trade Organization (WTO) and have led to loss of interest
among some Brazilian ministries and private sector representatives.
He pointed out that attention to the Round will be even more
difficult to sustain as the country heads into the 2010 election

15. (SBU) While AUSTR Eissenstat is not the primary
spokesperson on this issue, he said he would convey the Brazilian
concerns to the appropriate representative. He said the United
States appreciates the effort so far on the Doha round but that the
USG requires more meaningful market access guarantees. Without
that, he said, an agreement could actually be detrimental. He said
he does not know what would be required to reach consensus but that
he understands the potential impact of the Brazilian election cycle
and would take that message back to Washington.

Agenda Item: WTO Dispute Settlement

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16. (SBU) On orange juice, Minister Cozendey said that
Brazil is now in the phase of trying to constitute a dispute panel.
Both sides refused each others' nominations for panel members, and

Brazil now expects arbitration on panelists to begin early next
year. AUSTR Eissenstat expressed disappointment that a panel was
requested. He said that Ambassador Kirk and the USTR General
Counsel are very interested in working to resolve the issue and do
not want continued irritants in the relationship. However, he
said, the current decision by Brazil to seek the panel actually
makes it more difficult for the United States to address the
underlying question of zeroing. Minister Cozendey said Brazil was
not at liberty to withhold the case in the face of private sector
interest but would also prefer and would be happy to discuss a more
general solution, rather than continuing with arbitration on a
case-by-case basis.

17. (SBU) On cotton, Minister Cozendey explained that
CAMEX published for public comment an initial list of goods that
could possibly be subject to increased tariffs (a decision that
does not require Congressional approval, since the Brazilian
executive branch has the authority to define tariffs) and is
currently analyzing approximately 450 comments received. CAMEX
expects to finish its technical analysis (which Minister Cozendey
said will not be publicly available) and present a refined list for
ministerial decision by the end of January. (Note: CAMEX has now
said publicly that its next meeting will be scheduled for early
February, so no decision is expected before then. End note.)

18. (SBU) On a parallel track, CAMEX also drafted and
forwarded to the Office of the President legislation authorizing
cross-retaliation on intellectual property (which Minister Cozendey
said will not be submitted for public comment). Minister Cozendey
said that technically the WTO decision has the weight of law in
Brazil, so legislation authorizing cross-retaliation is not
strictly required. However, CAMEX decided to draft the legislation
in order to ensure judicial clarity on this very delicate issue.
MRE recommends that the President's office send the draft
legislation to Congress as a provisional measure (which would take
effect immediately and then be subject to Congressional review) by
the end of January so that Brazil could implement both the tariffs
and the cross-retaliation portion simultaneously (the exact
effective date would have to be decided by CAMEX ministers) and
"minimize uncertainty for business."

19. (SBU) Minister Cozendey said Brazil's objective is
to see that the recommendations of the Dispute Settlement Body
(DSB) are implemented (both on subsidies and guarantees) and that
Brazil would prefer compliance to retaliation. He explained that
Brazil intends to chose measures it views as reversible and would
lift any retaliation as soon as the United States complies with the
DSB recommendations. He said it is likely Brazil will have some
form of retaliation in place by the end of January (and will base
the 2010 retaliation value on 2008 data provided by the United
States, since 2009 data is not yet available).

20. (SBU) AUSTR Eissenstat asked that Brazil continue
to work closely with the United States and guard against unintended
or unpredictable consequences. He emphasized that the U.S.
Congress has its own process and priorities, but USTR wants to
manage this "potentially corrosive" issue such that the
relationship can still grow in the long term.

Agenda Item: Trade Facilitation


21. (SBU) Minister Cozendey said CAMEX is looking for
ways to simplify trade and is very interested in ongoing
cooperation on trade facilitation. AUSTR Eissenstat suggested the
topic as part of the work plan under the new framework agreement.

22. Calling the Department of Homeland Security's
Customs-Trade Partnership Against Terrorism (C-TPAT) a valuable
mechanism, Minister Cozendey said that Brazil nonetheless has
difficulty with some requirements like 100% scanning. Embassy
Brasilia's Commercial Attache passed to the Brazilian delegation a
fact sheet on C-TPAT and highlighted several recent and successful
meetings and visits on trade facilitation. She also asked the
Brazilian delegation to clarify recent visa refusals for C-TPAT
inspectors, which she said hurt Brazilian exporters.

23. (SBU) Minister Cozendey said MRE recognizes the
importance of C-TPAT and would like to continue to discuss the
issue at the EPD. The immediate solution to the visa problem, he
said, is for inspectors to specify trade facilitation rather than
anti-terrorism activities on their visa applications so that the
applications are channeled to the appropriate MRE division.

Agenda Item: GSP Renewal


24. (SBU) Minister Cozendey registered MRE's interest
in renewal of the Generalized System of Preferences (GSP) program
and asked about Brazil's prospects for continued inclusion. He
argued that loss of GSP status would further inhibit bilateral
trade flows and said some regions in Brazil use the GSP program as
an important opportunity to engage in trade with the United States.
He also argued that withdrawing Brazil's GSP status would only
benefit other advanced developing economies since lesser-developed
countries do not produce the goods that would be needed to fill the
space left by Brazil. AUSTR Eissenstat described the short-term
prospects for GSP renewal as good but said the program will
probably be subject to broad reform in 2010. Given the U.S.
Congress' interest in ensuring that the program apply only to the
most needy countries, AUSTR Eissenstat asked Brazil to provide more
data on the benefit of GSP inclusion for particular Brazilian
products and regions (for example, the under-developed North and

Agenda Item: Preferential Regime for Haiti

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25. (SBU) Minister Cozendey explained that the
Brazilian government is still pursuing a unilateral preference
program for Haiti that is similar to the HOPE II program. Minister
Cozendey explained that the Brazilian private sector is discussing
a proposal that would include reciprocity with HOPE II that should
be presented to CAMEX early in 2010. MRE sees some opportunities
in the current formulation of the HOPE II preferential regime, but
some products are excluded under the present rules. Minister
Cozendey also cited some opposition from within the Brazilian
textile industry in pursuing a preferential regime for Haiti,
saying some have questioned assistance to Haiti rather than to
under-developed domestic regions. Minister Cozendey acknowledged
that the U.S. Congress would be responsible for making the sorts of
changes to HOPE II that are likely to be advocated by the Brazilian
private sector.

26. (SBU) AUSTR Eissenstat stressed the United States'
shared interest in stability and economic growth for Haiti, but
explained that legislative modification of the program would be
very difficult. He asked Minister Cozendey whether the Brazilian
private sector had spoken with the U.S. private sector as the USG
had previously suggested. Cozendey noted that the Brazilian
private sector had reported that a meeting of both private sectors
would occur in early 2010. In addition, AUSTR Eissenstat said
USTR's textile negotiator has concerns that some products being
proposed for inclusion by Brazil could hurt the development of
Haiti's domestic production capacity. Minister Cozendey requested
further details, which AUSTR Eissenstat agreed to provide. AUSTR

Eissenstat noted that there was nothing to inhibit Brazil from
establishing a preferential trading regime for Haiti immediately
without waiting for new legislative action by the United States.

Agenda Item: Technical Regulations and SPS Measures

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--Beef and Pork

27. (SBU) Minister Cozendey expressed concern that the
United States has not yet proposed a rule on Brazilian pork exports
from Santa Catarina after a technical evaluation was completed in
February 2009. He also said that the situation for Brazilian beef
is even worse, since Brazil has controlled foot and mouth disease
for many years and is certified by the World Organization for
Animal Health (OIE).

28. (SBU) AUSTR Eissenstat said that the pork process
is proceeding through normal rule-making channels and emphasized
that technical regulations and sanitary and phyto-sanitary (SPS)
measures should be purely science-based and not politicized. He
asked whether Brazil has any draft regulations to bring the country
in line with international guidelines on Bovine Spongiform
Encephalopathy (BSE) following submission of comments by the U.S.
Animal and Plant Health Inspection Service (APHIS). Minister
Cozendey committed to following up with the Ministry of
Agriculture. He asked that USTR reach out to the U.S. Department
of Agriculture in order to help schedule the next meeting of the
Consultative Committee on Agriculture.

--Medical Devices

29. (SBU) AUSTR Eissenstat thanked the Brazilian
health vigilance agency (ANVISA) for its efforts to address
industry concerns, offered to work as a facilitator where helpful,
and committed to helping continue ANVISA's engagement with the Food
and Drug Administration (FDA). He asked for ANVISA clarification
on the publication date for a promised technical note regarding
Resolution 25 and continued concerns from U.S. industry regarding
possible disruption of trade resulting from Resolution 25's
inspection requirements. Commercial Attache thanked ANVISA for its
work thus far to answer industry concerns and suggested that
another public forum could be helpful.

30. (SBU) Ana Paula Juc????, from the international
relations office of ANVISA, said the technical note would be
available on ANVISA's website by the end of December. Minister
Cozendey further explained that ANVISA has scheduled most of the
inspection requests for the remainder of 2009 and approximately 30
for 2010. He also said that ANVISA remains interested in increased
cooperation with FDA.


31. (SBU) AUSTR Eissenstat thanked Brazil for the
revisions in the toy licensing regulations published in November
and welcomed additional information clarifying the accreditation
process, particularly regarding the samples and locations for
testing. Minister Cozendey regretted that the Brazilian National
Institute of Metrology, Standardization, and Industrial Quality
(INMETRO) could not be present at the BCM and asked that USTR pass
its questions in writing.

Agenda Item: Biofuels


32. (SBU) Minister Cozendey asked for an update on the
administration's position regarding the ethanol tariff. He said
the issue of cooperation in biofuels would be discussed at the
December 15 Biofuels Steering Committee meeting in Washington but
wanted to raise the tariff in the BCM because it could have
consequences for cooperation on international biofuels standards
and in third countries. AUSTR Eissenstat referred Minister
Cozendey to the Administration's letter on ethanol written
following Ambassador-designate Tom Shannon's confirmation hearing.

Agenda Item: Trade and Environment

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33. (SBU) Minister Cozendey asked for more information
regarding the content of climate-related trade legislation pending
before the U.S. Congress and conveyed Brazil's interest in assuring
that any measures taken comply with WTO obligations and are
discussed multilaterally. Minister Cozendey indicated that the
Brazilian government was unclear about whether the draft
legislation contains clear guidelines on border measures. AUSTR
Eissenstat requested the questions in writing and offered to
facilitate the appropriate technical contacts.

Agenda Item: Subsidies in the Pulp and Paper Industries

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34. (SBU) Minister Cozendey inquired about "worrisome"
efforts by U.S. industry to maintain the subsidies beyond their
scheduled expiry in 2009, which he said would "pose a serious
problem." He said that Canada had been obliged to match the U.S.
subsidy but would withdraw it when the United States does. AUSTR
Eissenstat said that the Obama Administration has proposed to
terminate the subsidy but is aware of industry's attempts to pursue
additional avenues. He asked that Brazil please contact USTR if
they see new developments within industry.

Agenda Item: Subsidies for the Aircraft Sector in Third Countries

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35. (SBU) Minister Cozendey said that Brazil is
concerned about federal and provincial subsidies for the aircraft
industry in Canada and hopes to meet with the United States early
in 2010 to discuss the applicability of WTO rules and a possible
future dispute. AUSTR Eissenstat said that USTR is reviewing the
issue and would like to keep sharing information. He committed to
discuss the possibility of a meeting and respond to MRE in the near

Agenda Item: Intellectual Property (IP)

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--Brazilian National Plan for Combating Piracy

36. (SBU) Andre Barcellos, Executive Secretary of the
Brazilian National Anti-Piracy Council (CNCP), gave a brief
presentation on CNCP's history and current priority projects. The
priority projects include "Cities free of piracy" (agreements were
signed on December 1 with Sao Paulo and Curitiba), "Legal Markets,"
cooperation with internet service providers, an anti-piracy
internet portal, and "Commerce against Piracy" (ref C). He agreed
to supply more details on the municipal agreements. AUSTR
Eissenstat said that while there is still work to undertake, the
CNCP's interagency effort was to be commended, and suggested that
further opportunities for cooperation on IP could perhaps be
included in the previously discussed trade framework agreement.

--Google Books

37. (SBU) Minister Cozendey and expressed great
interest in the outcome of the Google Books case, particularly
regarding whether Brazilian authors would be required to "opt-out"
of the final settlement in order to maintain their ability to file
separate suits against Google. The U.S. Patent and Trademark
Office's (USPTO) Regional IP Specialist explained that the
situation is fluid, with the court currently analyzing a second
draft of the proposed settlement. In response to Brazil's
questions, the USPTO representative said the current draft does not
require foreign authors to be covered by this settlement unless
they are registered USPTO or published in Canada, Australia, or the
United Kingdom.

--Orphan Works

38. (SBU) Minister Cozendey asked whether there was a
current proposal in the U.S. Congress concerning "orphan works" and
inquired about the United States' experience in cases where the
rightsholder is not found. A representative from the Ministry of
Culture said that Brazil does not have a tradition of registering
works so no comprehensive database exists, unlike in the United
States where tradition has obligated the registration of works at
the USPTO. Post's Regional IP Specialist explained that that there
is currently no legislation on "orphan works" pending before the
U.S. Congress.

--Competition Policy and IP

39. (SBU) Citing the European Union's research on
anti-competitive practices by brand-name pharmaceutical
manufacturers and a July court filing by the U.S. Department of
Justice's antitrust division regarding the unlawful nature of
settlements aimed at delaying the introduction of generic drugs,
Minister Cozendey asked for further updates and for the U.S.
delegation to identify an appropriate competition policy contact
for further discussion, which Embassy Brasilia has provided in
coordination with USTR and the Federal Trade Commission.

--Patent Matters

40. (SBU) AUSTR Eissenstat said that U.S. industry has
expressed concern about the role of ANVISA in reviewing
pharmaceutical patent applications. He also asked for further
information on a November opinion by the Brazilian Attorney General
(AGU) which ruled that only the Brazilian patent and trademark
office (INPI) is competent to review patentability requirements
(ref E). Minister Cozendey said he could not clarify much as there
is division within the government. The AGU opinion, which does not

carry the force of law or regulation, is awaiting analysis by the
Office of the President, with an unknown timetable for decision or
next steps.

Agenda Item: CITEL Mutual Recognition Agreement (MRA)

--------------------------------------------- ----------------------

41. (SBU) Minister Cozendey explained that the
Brazilian telecommunication authority (ANATEL) has reviewed the
issue and found no interest on the Brazilian side in exports and a
strong interest in developing a domestic testing laboratory
network. He said that while he does not expect the United States
to abandon the issue, prospects are not positive, though he did
propose the creation of a cooperative working group between U.S.
and Brazilian regulatory agencies to maintain an open dialogue,
perhaps including exchanges between Brazilian and United States

Agenda Item: Pre-Salt Legislation


42. (SBU) AUSTR Eissenstat said that the USG has been
hearing from many stakeholders concerned about the lack of a
transparent regime that maximizes the opportunities for
development. Eissenstat said the United States is concerned about
this issue from an investment standpoint, but also has concerns
that Brazil may not be able to adequately meet its own goals.
Andre do Lago, Director of MRE's Energy Department, said it is
lucky for Brazil that it discovered oil now, when it has an
established democracy and strong institutions. He said that the
proposed legislation attempts to address fears regarding the
negative consequences that "out of control exploitation" of the
pre-salt oil reserves could provoke. Minister do Lago acknowledged
that Petrobras alone cannot meet its goal of investing funds
equivalent to its own value over the next five years and that
Brazil will need large investments of capital and equipment to
exploit the oil reserves. He acknowledged that the final law will
likely provide preferences for Brazilian inputs, but noted the need
for flexibility in case the Brazilian private sector is unable to
meet all of the needs. Some segments of the population are more
"nationalistic" than others, he said, but he is confident they will
reach the right balance.




43. (SBU) The commitment of both Brazil and the United
States to begin work on a framework agreement for trade and
investment early in 2010 represents a significant achievement. The
framework can make the bilateral trade dialogue more concrete and
goal-oriented, while also moving away from disputes and toward
results. The overall tone of cooperation during the BCM, even on
difficult topics, represents a positive shift from prior, more
confrontational meetings, one that will be very helpful in
progressing on many issues. END COMMENT.

44. This message has been cleared by USTR.

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