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

C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 001550 
 
SIPDIS 
 
DEPT PLEASE PASS TO USTR FOR JWOLFE, SCRONIN 
 
E.O. 12958: DECL: 05/19/2013 
TAGS: ETRD BR FTAA
SUBJECT: BRAZIL CONTINUES TO DEBATE TRADE POLICY ON EVE OF 
USTR ZOELLICK'S VISIT 
 
REF: BRASILIA 01321 
 
Classified By: Economic Officer Janice Fair for Reasons 1.5 (b) and (d) 
. 
 
¶1. (U) This is an Action Request; please see para 15. 
 
¶2.  (SBU) Summary.  In the run-up to USTR Zoellick's May 
27-28 visit, debate has 
intensified publicly, within the GoB, and perhaps most of all 
in the Foreign Ministry, on 
Brazil's participation in the FTAA negotiations.  A number of 
policy options are 
reportedly under consideration, including delay or 
reformulation of the FTAA 
negotiations, and tying the FTAA negotiations to a parallel, 
more limited four-plus-one 
(Mercosul-U.S.) agreement.  FTAA skeptics within Brazil's 
Ministry of Foreign 
Relations (Itamaraty) appear pitted against certain other 
ministries, such as Finance, 
Agriculture and to some extent the Ministry of Development, 
which favor a more forward 
leaning GoB posture in the FTAA negotiations.  President Lula 
is expected to convene an 
interministerial meeting to forge a policy consensus before 
USTR Zoellick's arrival. 
Itamaraty has indicated that USTR Zoellick should be prepared 
to discuss the possibility 
of a four-plus-one negotiation during his meeting with 
Minister Amorim on May 28.  End 
Summary. 
 
Who's In Charge? 
--------------------- 
 
¶3. (SBU) Despite campaign rhetoric asserting that the FTAA 
would result in Brazil's 
"annexation" to the United States, President Lula after 
assuming power quickly 
committed to continuing negotiations in good faith.  However, 
the GoB's commitment to 
the negotiations came under new question following Brazil's 
decision not to submit 
initial offers in the areas of services, investment and 
government procurement according 
to the previous negotiation schedule.  Since then, the 
internal policy debates have plainly 
intensified. 
 
¶4. (C) Major re-casting of the GoB's official attitudes could 
be on the way. 
Reorganization and personnel changes within Itamaraty have 
placed officials with known 
anti-FTAA sentiments in apparent de facto control of Brazil's 
negotiating team.  Leading 
this group is Samuel Pinheiro Guimaraes, currently the number 
two at Itamaraty as 
Secretary-General.  Pinheiro Guimaraes was exiled to an 
 
SIPDIS 
academic sinecure by then- 
Foreign Minister Celso Lafer during the previous 
administration because of his 
outspoken public posture against the FTAA.  Guimaraes' 
advisor, Regis Percy Arslanian, 
was part of the Brazilian delegation attending the recent 
Trade Negotiating Committee 
meeting in Puebla, Mexico; Arslanian was DCM of Brazil's 
Embassy in Washington 
until 2001. 
 
¶5. (C) In what appears to be a consolidation of control, in 
early May, responsibility for 
FTAA negotiations was removed from Clodoaldo Hugueney, 
Undersecretary General for 
Integration, Economy and Trade Affairs and previously 
co-chair of the FTAA at the vice- 
ministerial level along with DUSTR Peter Allgeier.  In the 
move, FTAA as well as 
Mercosul-EU negotiations were shifted to Itamaraty's new 
Undersecretariat for South 
America Affairs (ref a), headed by Luiz Felipe Macedo Soares, 
Brazil's former 
Ambassador to Mexico.  On May 14, Hugueney's assistant, 
Pompeu Neto, implied that 
Hugueney was removed because of his pro-FTAA views; Hugueney 
had argued 
unsuccessfully that Brazil should comply with the schedule 
for initial offers. 
 
¶6. (U) On May 16, Itamaraty announced that Adhemar Bahadian, 
Brazil's Consul 
General in Buenos Aires and a personal friend of Minister 
Amorim and Pinheiro 
Guimaraes, would take over the FTAA co-chair 
responsibilities.  Bahadian is reported to 
have extensive trade experience including negotiations under 
GATT, work at the World 
Intellectual Property Organization and he served as Amorim's 
alternate in the WTO from 
2000 to 2002.  Bahadian was a Brazilian point person on 
Summit of the Americas in the 
late nineties and has served a total of ten years at the 
United Nations.  He was an 
Embassy contact while he was Chief of Staff for the Secretary 
General from 1994 to 
¶1996.  Carlos Alberto Simas Magalhaes will remain Brazil's 
lead FTAA negotiator, a 
position to which he was named in February by the new GoB. 
 
Internal Policy Debate 
-------------------------- 
 
¶7.  (C) Pinheiro Guimaraes' evidently ascending role over 
FTAA policy within Itamaraty 
does not bode well for close, collaborative efforts on FTAA. 
Neto expressed to us his 
judgment that the intellectual formation of Pinheiro 
Guimaraes and his allies dates back 
to the seventies and is characterized by suspicion that the 
United States aims to dominate 
the hemisphere, as well as by an inward-focus relating to 
economic development. 
Despite the economic benefits that Brazil could gain through 
an FTAA, Neto claims that 
these decision-makers are guided by their suspicion and 
ideological aversion to projects 
supported by the United States. 
 
¶8. (C) In a strange twist, other ministries within the 
government now seem to be out in 
front of Itamaraty on trade liberalization.  After Finance 
Minister Palocci's recent trip to 
Washington, press reported (and Neto has confirmed to us) 
that the Finance Ministry has 
been trying to insert itself more into trade deliberations 
out of concern over Itamaraty's 
faltering support for the FTAA.  Chief of Staff Dirceu 
confirmed to Ambassador during 
their May 6 meeting that President Lula intends to convene a 
meeting with ministers prior 
to USTR Zoellick's arrival in order to arrive at a single GoB 
position regarding trade 
strategy. 
 
FTAA Policy Options 
-------------------------- 
 
¶9. (SBU) As reported in reftel, Itamaraty interlocutors claim 
that proceeding with the 
FTAA status quo is untenable for Brazil, given the current 
impasse in WTO Doha 
Development Agenda (DDA) negotiations, the absence of key 
Brazilian issues within the 
scope of FTAA negotiations, and public hostility toward the 
FTAA.  Specifically, they 
point to the unwillingness of the United States to negotiate 
new disciplines covering 
domestic support for agriculture and unfair trade remedies 
within the FTAA, and the U.S. 
market access offers for goods, which were least favorable 
for Mercosul, as limiting their 
political flexibility to move forward in negotiations. 
 
¶10. (SBU) Therefore, the GoB is considering and will likely 
propose to USTR Zoellick a 
new approach toward bilateral trade relations and/or 
reformulation of the FTAA 
negotiations.  Local press has identified the following 
policy options as under 
consideration: 
 
--negotiation of a U.S.-Mercosul (four-plus-one) agreement is 
the most often cited option. 
Antonio Simoes, Economic Adviser to Foreign Minister Amorim, 
has conveyed that 
USTR Zoellick should be prepared to discuss this possibility 
during his meeting with 
Amorim on May 28.  Itamaraty interlocutors stress that the 
four-plus-one would be 
narrow in scope, perhaps limited to tariff-only, and 
especially that it would be 
supplemental to FTAA negotiations, not in lieu of. 
--a reformulation of the FTAA to focus on tariffs, leaving 
contentious issues for 
negotiation within the WTO.  The GoB is concerned that 
certain investment and 
government procurement rules sought by the United States 
would limit Brazil's ability to 
pursue an economic development strategy utilizing industrial 
policies. 
 
--bifurcation of the FTAA process into two stages - the first 
stage of tariff-only 
negotiations to be completed by 2005 with subsequent 
launching of negotiations on the 
remaining issues.  NOTE: However, once tariff negotiations 
are complete, there would be 
no guarantee that Brazil would feel compelled to participate 
in negotiations in the areas it 
has identified as problematic. END NOTE. 
 
--seeking a delay in the end date of the FTAA negotiations 
until 2007.  Proponents argue 
that progress cannot be made in the FTAA until the thorny 
issues of domestic support and 
unfair trade remedies are dealt with in the DDA negotiations, 
which are unlikely to 
conclude by 2005. 
 
--the more remote possibility of a U.S.-Brazil supplemental 
negotiation.   We judge it 
unlikely that Brazil would pursue such an option at this 
time, particularly since Nestor 
Kirchner, Argentina's President-elect, reaffirmed Argentina's 
solidarity with Brazil's 
intention to strengthen Mercosul during his trip to Brasilia 
May 8. 
 
Implications 
--------------- 
 
¶11. (SBU) Itamaraty interlocutors have stressed that all 
options, even ones they are not 
promoting, involve continuation of FTAA negotiations. 
However, cynics warn that delay 
of the process or reformulation of the negotiations are only 
more subtle ways of 
deliberately undermining the FTAA and leading to its eventual 
demise. 
 
¶12. (C) If the United States does not agree to any alteration 
of FTAA substance or 
process, or to the pursuit of a "supplemental" U.S.-Mercosul 
agreement, post believes 
that a "do nothing" strategy by the USG would not precipitate 
an immediate withdrawal 
of Brazil from the FTAA.  However, it would likely lead to a 
hardening of Brazilian 
positions as it seeks to slow down the process and elicit 
support from other FTAA 
countries on contentious issues such as domestic support 
disciplines. 
 
¶13. (SBU) Complicating Brazil's FTAA analysis is its domestic 
political scene. 
Although Lula has widespread support to undertake thorny 
social security and tax reform, 
as the administration moves forward with its specific 
proposals, the debate is bound to 
become more polarized.  Five months into the administration, 
the government is also 
walking a fine line between kudos from the market on its 
stringent macroeconomic 
policies and the political backlash that may emerge due to 
the scarcity of resources for 
social spending that these policies yield.  On top of that, 
PT radicals, supported by some 
intellectuals and religious leaders, are pressing the 
government for a referendum on 
continuing with the FTAA.  The GoB would be politically hard 
pressed at this time to 
take on additional enemies in support of the currently 
envisioned FTAA. 
 
¶14. (C) According to Neto, the Pinheiro Guimaraes group is 
convinced that Brazil's 
negotiating position is stronger in a bilateral (4 1) than in 
a regional negotiation. 
Itamaraty believes that through a four-plus-one negotiation 
Brazil can more quickly attain 
market access for its key products (OJ, textiles, sugar, 
footwear, etc.), scoring economic 
and political success that would make continued participation 
in the FTAA palatable. 
Underlying this perception is the GoB's fear that the United 
States will not come forward 
in the FTAA with substantial, timely market access for key 
Brazilian products.  The 
policy options being considered by the GoB are designed to 
avoid a disastrous end-of-day 
scenario in which Brazil has negotiated issues of interest to 
the United States (investment, 
government procurement), and even though not getting what it 
needs in return, is 
compelled to sign the FTAA because diplomatically it cannot 
be left outside the 
hemispheric pact. 
 
Action Request 
------------------ 
 
¶15. (SBU) In pursuing a four-plus-one negotiation, the GoB 
may feel emboldened by 
U.S. negotiations with other countries in the region. 
However, it seems the GoB may 
underestimate the obstacles to providing Brazil with the 
market access concessions it 
seeks on sensitive products that would be inherent in such an 
agreement.  If the four-plus- 
one option is a non-starter from the USG perspective, post 
would appreciate guidance 
from Washington agencies concerning the need to subtly 
downplay it prior to USTR 
Zoellick's arrival.   When deliberating on possible USG 
reactions to GoB trade proposals, 
post also suggests that Washington consider potential market 
access carrots, such as 
movement on some key Brazilian products in the revised U.S. 
FTAA offer, to provide the 
GoB with something tangible, but that would keep 
deliberations squarely within the 
FTAA and premised on Brazilian movement in all other FTAA 
areas.  Additionally, any 
forward movement on "discussing" domestic support within the 
FTAA along the lines 
envisioned in instructions from the April 8-11 TNC meeting in 
Puebla could help 
establish for Brazilians U.S. sincerity in claiming that 
"everything is on the table" and 
assist in diffusing the most contentious issue for Brazil in 
the FTAA. 
VIRDEN