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

UNCLAS SECTION 01 OF 03 BRASILIA 002589 
 
SIPDIS 
 
DEPT FOR WHA/BSC, WHA/EPSC AND EB/TPP 
DEPT PLEASE PASS TO USTR SBOVIM AND LYANG 
TREASURY FOR FPARODI 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
NSC FOR SCRONIN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON WTO
SUBJECT: BRAZIL'S FINANCE MINISTRY MAKES PITCH FOR 
AGGRESSIVE TARIFF REDUCTIONS IN NAMA NEGOTIATIONS 
 
¶1. (U) Summary. An aggressive tariff cutting proposal for 
WTO Doha Development Agenda (DDA) non-agricultural market 
access negotiations (NAMA), put forward internally by 
Brazil's Finance Ministry, has generated a storm of protest 
by the country's private sector and largest labor union, and 
angst for Brazilian negotiators who are concerned that 
public discussion of the proposal has exposed Brazil's 
bottom line.  In government deliberations, the Finance 
Ministry has proposed the GoB advocate a simple Swiss 
formula approach to tariff reduction for industrial products 
utilizing 15 as the formula coefficient; the Finance 
Ministry proposal is in line with USG calls for adoption of 
a Swiss formula in the NAMA negotiations with two different 
coefficients, one for developed countries, the other for 
developing countries.  However, Finance's proposal is at 
odds with the approach Brazil previously formulated with 
Argentina and India and which continues to define the GoB's 
official position.  On September 19, Brazil's inter- 
ministerial trade chamber, CAMEX, decided to continue 
deliberation on four tariff reduction proposals, including 
Finance's, in order to analyze new studies, expand 
consultations with the private sector and interested social 
groups, and assess prospects for significant advances in the 
WTO agricultural negotiations.  Even if not adopted by the 
GoB as is, Finance's proposal may give some glimpse into 
Brazil's potential market opening for industrial products. 
End Summary. 
 
¶2. (U) On September 6, the coordinating committee for 
Brazil's inter-ministerial Trade Chamber (CAMEX) received 
four proposals on the level of market opening Brazil would 
be willing to provide for non-agricultural products in the 
NAMA negotiations should adequate advances be made in the 
agriculture talks.   An aggressive tariff cutting proposal 
put forward by the Finance Ministry sparked substantial 
criticism from other ministries and the private sector. 
Finance's proposal differed significantly from the three 
proposals put forward by the Ministry of Development, 
Industry and Trade (MDIC), the Foreign Ministry, and the 
Coalizao Empresarial (Business Coalition) not only in the 
level of market opening recommended, but also in that it was 
based on a simple Swiss formula; the other proposals were 
premised on the April 2005 Argentina-Brazil-India (ABI) NAMA 
tariff cutting proposal, which links a country's item- 
specific tariff cuts, and establishment of bindings, to its 
existing overall level of tariff protection. 
 
¶3. (SBU) According to Maria Elisa Maia (please protect), of 
the Foreign Ministry's Market Access Division, the Finance 
Ministry had not been active in internal discussions on the 
NAMA negotiations until April of this year, at which point, 
as it searched for new policy tools, it seized on the idea 
of reducing Brazil's import tariffs as a means of inducing 
economic growth.  Maia told Econoff that sharp differences 
then emerged between Finance and MDIC, industry's principal 
advocate.  Finally in an attempt to overcome the internal 
impasse, the Foreign Ministry and MDIC asked Finance to 
produce something in writing to give better definition to 
their vision.  The result was the September 6 Finance 
proposal, unexpected in its form (simple Swiss formula) and 
aggressiveness. 
 
¶4. (U) According to press reports, Finance used 15 as the 
formula coefficient, which would reduce Brazil's maximum 
consolidated tariff rate from 35 percent to 10.5 percent; 
its average consolidated tariff rate from 30 percent to 9.78 
percent; and its average applied tariff rate from 10.5 
percent to 7.4 percent (some reports cited a drop from 10.77 
percent to 7.39 percent in the Mercosul bloc average applied 
tariff).  As a result, final tariff levels would be below 
current applied tariff rates for 62 percent of the 8,822 
tariff lines Brazil has registered with the WTO.  In arguing 
that its proposal is not too aggressive, Finance said it had 
proposed flexibility for 5 percent of the tariff lines and 
implementation would be over 10 years. 
 
¶5. (U) On September 8, daily Folha de Sao Paulo published 
the following table with eighteen examples of how the 
Finance Ministry'S tariff cutting formula would affect 
certain groups of products: 
 
                               Average   Effective 
                                Bound     Applied  Proposed 
                                 Rate       Rate    Tariff 
Autos, tractors, auto parts     33.31      24.44     10.31 
Clothes and accessories         35.00      20.00     10.50 
Cotton                          35.00      16.30     10.50 
Shoes and gaiters               35.00      19.64     10.50 
Toys and Games                  35.00      20.00     10.50 
Arms and munitions              34.52      20.00     10.45 
Umbrellas, walking sticks       35.00      19.25     10.50 
Organic chemical prods          23.39      12.55      8.92 
Pharmaceutical prods            34.78      13.79     10.47 
Electronics - TVs, stereos      32.65      16.18     10.14 
Glass                           34.79      14.64     10.48 
Pearls, precious and 
 semiprecious stones            35.00      15.24     10.50 
Perfumes and essential oils     24.42      17.46      9.28 
Instruments/apparatus, optical, 
 photo, med-surgical, 
 cinematographic                33.02      15.22     10.18 
Iron, cast iron, and steel      35.00      12.77     10.50 
Books, periodicals, engravings  35.00      16.00     10.50 
Paper, cartons, other 
 cellulose products             33.74      13.66     10.17 
Furniture, lamps, mattresses, 
 furnishings                    32.73      17.65     10.02 
 
 
¶6. (SBU) Much to the consternation of Foreign Ministry 
negotiators, details of Finance's proposal were leaked to 
the press and widely reported.  Maia claimed the leaked 
proposal was not the final, but implied there was not much 
difference between the two versions. 
 
¶7. (U) The Finance Ministry has publicly defended its 
proposal on macroeconomic grounds.  While acknowledging that 
NAMA tariff concessions constitute part of Brazil's mix for 
trade-offs in the DDA negotiations, the Finance Ministry 
argues that aggressive tariff reductions would have the 
further benefit of enhancing Brazil's overall 
competitiveness and thereby helping to spur economic growth. 
Not surprisingly, the Ministry of Agriculture was mentioned 
as supporting Finance's proposal, arguing that the country 
should be more forward leaning in the NAMA negotiations to 
obtain desired concessions in agriculture. 
 
¶8. (U) Opponents to Finance's proposal mobilized quickly. 
MDIC Minister Furlan publicly opposed Finance's proposal as 
too aggressive as did Paulo Skaf, president of Sao Paulo's 
Federation of Industries (FIESP).  Ministers in a September 
19 CAMEX meeting, used in part to prepare for the WTO quad 
(US, EU, Brazil, India) meeting in Paris September 22-23, 
listened to criticism of the proposal from representatives 
of the private sector, and received studies done by the 
Institute of Applied Economic Research (Ipea) and the 
Brazilian Agency for Industrial Development (Abdi), which 
predict decimation of certain industrial sectors under 
Finance's proposal.  The powerful CUT labor union argued for 
slower liberalization citing a study by Unicamp (University 
Campinas) that links protection, with government support for 
modernization, to increased productivity.  However, while 
not supporting such an aggressive opening as advocated in 
Finance's proposal, Soraya Rosar of the National 
Confederation of Industries (CNI) told reporters that her 
organization could accept use of a simple Swiss formula, 
depending on the coefficient used. 
 
¶9. (U) Despite the outcry over Finance's proposal, CAMEX 
ministers did not discard it; a final decision has been 
postponed to allow for further analysis of the proposals and 
consultation with the private sector, as well as to enable 
Ministers to better assess the overall DDA negotiating 
environment.  Brazil would have to consult with its Mercosul 
partners before offering specific tariff concessions and 
would likely consult with its G-20 partners as well. 
 
¶10. (SBU) While some local commentators argue that Brazil 
needs to make a bold gesture in NAMA negotiations in order 
to pressure the EU and US into wanted concessions in 
agriculture, statements by Foreign Ministry officials 
suggest an entrenched reluctance to signal any flexibility 
in NAMA without first obtaining sufficient concrete advances 
in agriculture.  Maia confirmed as much, saying the Foreign 
Ministry had prevailed in maintaining instructions for its 
NAMA negotiators on both support for the ABI proposal and 
for conditioning movement in NAMA on advances in 
agriculture. 
 
¶11. (SBU) In discussing the predicament of a limbo in which 
all sides are waiting for others to expose their potential 
for concessions, Maia implied, what negotiators had feared, 
that the Finance proposal provides some insight into 
Brazil's bottom line.  Maia phrased it as follows: it's 
reasonable to conclude that the powerful and technically 
competent Finance Ministry would not have produced a 
proposal without having a good idea of what is possible. 
But, according to Maia, the proposal generated such a strong 
reaction because it is too extreme in applying an aggressive 
formula across the entire range of industrial products 
without incorporating sufficient flexibilities.  She added, 
however, that one very positive outcome of the debate over 
Finance's proposal had been a clarification of the country's 
sensitivities. 
 
Comment 
 
¶12. (SBU) Although it is unlikely the Finance Ministry's 
market access proposal will be adopted as is, it may at 
least pull Brazil's final position toward one of greater 
market opening.  By providing the GoB with a ready analysis 
of the implications of using a simple Swiss formula (with at 
least with one coefficient), the Finance Ministry proposal 
also may prove useful in lowering the barrier to an eventual 
acceptance by the GoB of this methodology. 
 
CHICOLA