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FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 4803
INFO RUEHBR/AMEMBASSY BRASILIA 5951
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RUCPDOC/USDOC WASHDC 2352
RUEHLP/AMEMBASSY LA PAZ 2689
RUEHRG/AMCONSUL RECIFE 2818
RUEHRI/AMCONSUL RIO DE JANEIRO 6966
RUEHAC/AMEMBASSY ASUNCION 2484
RUEHMN/AMEMBASSY MONTEVIDEO 1898
RUEHBU/AMEMBASSY BUENOS AIRES 2137
RUEHCV/AMEMBASSY CARACAS 0233
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCLRFA/USDA WASHINGTON DC

UNCLAS SECTION 01 OF 05 SAO PAULO 000357 
 
SIPDIS 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR MSULLIVAN/KLEZNY 
NSC FOR SUE CRONIN 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/USFCS/OIO/SHUPKA 
DEPT OF TREASURY FOR FPARODI 
DOL FOR ILAB MMITTELHAUSER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECIN KIPR PGOV PREL BR
SUBJECT:  ITAMARATY NEGOTIATOR TALKS TRADE 
 
REF: BRASILIA 362 
 
------- 
SUMMARY 
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¶1.  (SBU) EconOff recently attended an American Chamber of Commerce 
(AmCham) event featuring Ambassador Regis Percy Arslanian, Director 
of International Negotiations for the Brazilian MFA (Itamaraty). 
Well-known to U.S. diplomats from his tenure as Brazilian DCM in 
Washington as well as his stewardship of the FTAA talks, he can 
often be a very difficult interlocutor.  At the AmCham, Arslanian's 
very frank comments and the subsequent Q&A session were wide-ranging 
and covered the future of FTAA negotiations, Brazil-U.S. trade, 
Brazil-EU trade, South American trade, challenges facing Mercosul, 
Venezuelan participation in Mercosul, alleged anti-Americanism in 
Itamaraty, and much more.  END SUMMARY. 
 
------ 
CAVEAT 
------ 
 
¶2. (SBU) While Arslanian's candid remarks at the AmCham certainly 
represent his views, on a number of issues Foreign Ministry 
higher-ups likely would have configured the message differently. The 
best way to convey the tone and substance of Arslanian's 
presentation is to let him speak for himself. His preferred 
technique was to ask himself anticipated questions and then to 
answer them, as illustrated below.  Of course, U.S. trade officials, 
had they been afforded the opportunity, would have answered 
Arslanian's questions differently. 
 
---------------------------------- 
WHY IS SOUTH-SOUTH TRADE SUCH A PRIORITY FOR BRAZIL? 
---------------------------------- 
 
¶3.  (U) It's not that we don't want Free Trade Agreements (FTAs) 
with the U.S. or the European Union (EU); to say so would be 
irresponsible.  The purpose of an FTA is to reduce or zero out 
tariffs; reduce sanitary, technological, and other non-tariff 
barriers; and remove market access restrictions.  These efforts need 
to be reciprocal - give and take.  The cost-benefit of the 
negotiation must make sense; the FTA must create commerce.  There 
must be concessions on both sides.  We're not being ideological 
about this; in fact, I've never received orientation from [Minister 
of Foreign Affairs] Amorim to prioritize any negotiation.  They 
[Itamaraty leadership] want FTAs, and big markets are a priority. 
 
 
¶4. (U) Forming bilateral agreements is one way of advancing towards 
FTAA.  In a few years, if all the region's countries enter into 
bilateral agreements, it will be that much easier to reach a 
positive result with regards to the FTAA.  The phase-out periods of 
the individual bilateral agreements may be different among the 
respective countries, but after ten or twelve years all the tariffs 
would be at zero anyway.  And that's FTAA. 
 
------------------------------- 
WHAT ABOUT THE MERCOSUL-EU FTA? 
------------------------------- 
 
¶5.  (SBU) We weren't able to close the deal in October of 2004 
because Pascal Lamy (former Commissioner for Trade at the European 
Commission and current WTO Director General) left and our 
negotiations shut down.  The agricultural offers on the EU side were 
unacceptable.  They weren't willing to budge on the most important 
issue - agriculture.  We told the EU there's no point in making a 
deal without agriculture, and the EU said that at the time it 
couldn't put that on the table.  (NOTE: The AmCham event was held 
 
SAO PAULO 00000357  002 OF 005 
 
 
shortly before EU's most recent rejection of Mercosul's overtures. 
EU diplomats have told us that in the March 2006 negotiating session 
Brazil, and in particular Arslanian, appeared to want more to score 
points with the press than engage in any actual serious discussions. 
 The GOB leaked its latest offer to the press even before the EU had 
received it. END NOTE.) 
 
---------------------------- 
WHAT HAPPENED WITH THE FTAA? 
---------------------------- 
 
¶6.  (U) You need to understand that the FTAA is a very limited 
agreement.  We can't ignore the U.S., which receives 22 percent of 
Brazil's exports, but the U.S. is already very open to us.  But for 
agriculture, Brazil's most important sector, the U.S. is very 
closed; look at orange juice, for example.  The orange juice and 
steel anti-dumping cases have been very troublesome for Brazil. 
Moreover, there are problems with beef.  It has been eight years 
since Brazil asked the U.S. Department of Agriculture to certify 
Brazilian meat.  And, we're still waiting.  Some ask: Why does 
Brazil only talk about agriculture?  Well, it's because American 
industry is already very open to Brazil.  U.S. tariff rates are at 2 
percent for industrialized goods.  Brazil's industrial tariffs are 
at 14 percent.  If we both go to zero, it would be very hard for 
Brazil.  Brazil has a lot farther to go, from 14 percent to zero. 
The twenty most significant Brazilian agricultural products exported 
to the U.S. receive a 60 percent tariff.  In Brazil, these products 
receive only 14 percent tariffs.  Brazil doesn't distort like the 
U.S. does.  The FTAA will not go forward because U.S. industry is 
very open, but agriculture is closed. 
 
-------------------------- 
AND IF THE U.S. SAID, "WE'LL REDUCE OUR AGRICULTURE BARRIERS"? 
-------------------------- 
 
¶7.  (U) Even with the elimination of U.S. agriculture protection, 
the cost of zeroing out industrial tariffs is too high for Brazil. 
Brazil would have to reduce from 14 percent to zero, whereas the 
U.S. only has to reduce from 2 percent to zero.  There's no 
equilibrium.  As I mentioned before, trade negotiation needs to be 
reciprocal - give and take.  We'd be giving up 14 percent, and the 
U.S. would only be giving up 2 percent.  That's not balanced. 
There's more cost than benefit.  Moreover, the U.S would never lower 
its agricultural barriers.  It's not even an economic issue, it's 
political.  At the FTAA discussions in Miami, Governor Jeb Bush, 
President Bush's brother, spoke to us and said, "The U.S. will never 
open on agriculture.  If it did, orange juice producers in Florida 
would go out of business.  So forget about it."  At no time during 
the FTAA discussions did the U.S put a reduction of agriculture 
tariffs on the table.  Moreover, USTR Portman at the last Davos 
talks told Minister Amorim that FTAA is shut because of two 
impasses: Agriculture on the U.S. side and intellectual property 
rights (IPR) on the Brazil side.  Minister Amorim responded, "If we 
do what you ask on IPR, will you reduce tariffs on orange juice, 
tobacco, and sugar?"  USTR Portman's answer: "No, we can't do that 
right now."  So, for Brazil there's too much cost, and too little 
benefit.  And it all comes down to costs.  As a negotiator, I must 
look at costs, an equal give and take.  There is no room for a 
"light" or "diet" version of the FTAA. 
 
------------------------------------- 
SO WHAT ARE THE FTAA COSTS TO BRAZIL? 
------------------------------------- 
 
¶8.  (U) The costs to Brazil start with the fact that U.S. FTAs are 
based on the NAFTA model.  Look at Chile, CAFTA - they're 
NAFTA-based.  The NAFTA model might be a good fit for other 
countries, but not for Brazil.  Why?  Because the benefits are 
minimal.  We'd get little additional access for industrial goods, 
 
SAO PAULO 00000357  003 OF 005 
 
 
where our access to the U.S. market is already very good.  And we'd 
get no additional access in the most important area - agriculture. 
Also, a NAFTA-style FTA would require changes in Brazilian 
regulatory institutions and laws that cannot be made.  We saw the 
same thing in our EU negotiations.  The EU's FTA would require 
changes in 33 laws and 6 constitutional amendments.  It's the same 
with the FTAA.  Brazil would have to substantially change many of 
its laws, just to comply with the FTAA.  I'll give you two examples: 
 telecom and sovereign immunity. 
 
¶9.  (U) Under Brazilian telecommunications laws, if a company wants 
to operate in the telecommunications field, it needs to be 
physically established in Brazil.  Under the FTAA, the U.S., and the 
EU in their negotiations, asked for access to Brazilian telecom 
networks, without having a U.S. company installed here.  They want 
access to our telecom networks without bringing jobs, technology, or 
any benefit to Brazil.  Our telecom laws forbid this.  Participants 
in the telecom market must have an established, regulated operation 
in Brazil.  Brazil would have to rewrite the telecom law to 
accommodate the U.S. request.  For what benefit?  We would receive 
neither jobs nor technology transfer in return. 
 
¶10.  (U) Another example is the issue of sovereign immunity.  If a 
U.S. company sets up operations in Brazil, and can't get a 
regulatory license, let's say an environmental permit, then under 
the FTAA the U.S. company could sue the Brazilian government. 
Brazilian law allows states to sue states, but a company can't sue a 
state.  Can you imagine?  Accommodating this request would not only 
alter a founding principle of our legal system, but it would open 
the floodgates.  Everyone would sue the government.  There are many 
examples like these in both the FTAA and EU negotiations, where 
accommodating U.S. or EU demands would require Brazil to rewrite its 
own laws.  And I ask again, for what benefit?  So from Brazil's view 
there are three basic impasses with the FTAA: one, agriculture - 
from high tariffs to anti-dumping cases on orange juice; two, having 
to restructure Brazilian laws under the FTAA "NAFTA" model; and 
three, the Buy American Act. 
 
------------------------------------- 
WHAT ABOUT BRAZIL AND IPR UNDER FTAA? 
------------------------------------- 
 
¶11.  (U) The U.S. wants IPR enforcement.  Brazil already has WIPO 
(World intellectual Property Organization) obligations.  Brazil 
admits that it doesn't have the resources to enforce all of our IPR 
obligations.  But, then again, neither does the U.S.  Go to M street 
in Washington, DC and you can buy a fake Gucci purse.  Or go to 
Chinatown in Manhattan and you can buy a fake Rolex.  Brazil does 
recognize that piracy hurts Brazilian industry more than it hurts 
U.S. industries.  But Brazil doesn't want to accept additional IPR 
obligations under FTAA, because we can't enforce 100 percent the 
ones we already have. 
 
¶12.  (U) Some criticize Brazil saying we've had an IPR law for ten 
years with little effect.  That in ten years 20,000 patents have 
been applied for and only 200 granted.  That Brazil is not looking 
out for the interests of its own companies by refusing to accept IPR 
provisions in the FTAA.  That Brazil is not engaged on the issue and 
is therefore discouraging technology investment.  However, our 
accepting new IPR obligations under the FTAA that we cannot enforce 
is not going to resolve any of these problems.  The IPR issue will 
not be resolved in the FTAA forum, but through technical 
cooperation.  It is a symptom of Brazil's lack of resources.  That's 
why we say if the U.S. wants to increase Brazil's IPR effectiveness, 
why doesn't it give us technology and financial assistance?  IPR 
problems in Brazil are the result of a lack of resources, not a lack 
of will. 
 
--------------------- 
 
SAO PAULO 00000357  004 OF 005 
 
 
WHAT ABOUT SUBSIDIES? 
--------------------- 
 
¶13.  (U) Brazil doesn't have much of a basis to ask the U.S. to 
reduce subsidies.  If we zeroed our tariffs under an FTA, our own 
industries would be too vulnerable without subsidies.  If we were to 
ask anything it would be to not subsidize those products that are 
exported within the hemisphere. 
 
------------------------------ 
WHAT ABOUT 4 + 1 NEGOTIATIONS? 
------------------------------ 
 
¶14.  (U) Brazil believes that in general sub-regional bilateral 
agreements, for example, like the U.S. agreement with Chile, will 
facilitate the formation of the FTAA.  So that's what we prefer. 
Brazil, through Mercosul, has been trying to negotiate bilateral 
agreements with several countries.  Canada and Venezuela are two 
examples.  We like the FTAA, but we're not going to wait for it.  In 
the meantime, we'll go ahead with bilateral agreements.  Brazil 
asked for 4 + 1 from USTR Portman, and we are still waiting for a 
response. 
 
¶15.  (U) In November 2005, Brazil sent a letter to USTR to see if we 
could resolve the FTAA mandate.  We even suggested a date and an 
agenda.  We haven't heard back yet.  But Mercosul has every interest 
in pursuing 4 + 1 negotiations.  We're not just going to wait around 
for a resolution on the FTAA mandate to move ahead with more free 
trade between the U.S. and Brazil. We don't just want a dialogue, 
but negotiations.  The "Rose Garden" 4 + 1 was really just a 
dialogue.  This time around, we'd like to negotiate investment, 
services, and IPR, although not IPR enforcement.  Brazil and 
Mercosul already have formal proposals drafted for an FTA with the 
U.S.  There's no reason for us to cross our arms waiting on the 
FTAA. 
 
---------------------------------- 
ISN'T VENEZUELA'S JOINING MERCOSUL A POISON PILL FOR 4 + 1? 
---------------------------------- 
 
¶16.  (U) The 4 + 1 discussion has been on the table since December 
2004, long before any Mercosul discussions with Venezuela began. 
We're not worried about Chavez's participation in Mercosul. 
Venezuela meets its international obligations.  And we're sure it 
will continue to do so as a part of Mercosul.  Venezuela would never 
inhibit Mercosul from negotiating with the U.S.  Venezuela signed an 
adhesion agreement to stick with Mercosul and follow the group. 
It's analogous to the EU.  The EU recently added 10 new members. 
Hungary isn't going to suddenly start running the show.  Nor are any 
of the new EU countries going to start trying to spoil the 
EU-Mercosul talks.  The ten new EU states didn't start complaining 
about the EU-Mercosul negotiations, they agreed to join the EU and 
go along with what the EU already had in motion.  It will be the 
same with Venezuela.  The U.S. recognizes that Venezuela fulfills 
its international obligations.  If not, the U.S. wouldn't buy so 
much oil from Venezuela. 
 
------------------------- 
IS MERCOSUL A LOST CAUSE? 
------------------------- 
 
¶17.  (U) Some claim that little consensus and little power exists 
within Mercosul.  However, there is full understanding among the 
four members of Mercosul about our objectives.  Politically, we all 
believe in regional integration.  Moreover, commercially we're very 
diverse.  To really enact a customs union without a unified customs 
service is very difficult.  The recent Argentinian MAC accord 
(reftel), although not good for Mercosul, is the best of the evils 
available.  Without it, Argentina would just start acting 
 
SAO PAULO 00000357  005 OF 005 
 
 
unilaterally.  Such measures will help Mercosul evolve.  Although it 
looks like a step back, it will eventually result in several steps 
forward.  Many people forget that the EU took 50 years to get to 
where it is today.  It's going to take at least that long for 
Mercosul to reach that point, probably longer.  The press tends to 
evaluate things with a view of about 3 to 5 years out.  Government 
planning looks 10 to 20 years ahead.  But I think we need to look at 
20 to 30 years before anything really happens with Mercosul. 
 
----------------------------------------- 
WHY DOES ITAMARATY SEEM SO ANTI-AMERICAN? 
----------------------------------------- 
 
¶18.  (U) Some claim that Itamaraty, while reaching out to China, 
Venezuela, and Bolivia, is turning its back on the U.S.  Itamaraty 
is not anti-American.  However, we are anti-NAFTA, or rather against 
the NAFTA model for the FTAA.  Mexico, Chile, and Central America 
accepted the NAFTA model. But their circumstances are different than 
Brazil's.  Many feel that Chavez is only interested in Mercosul as a 
way to radicalize his neighbors against the U.S.  We, however, feel 
no hostility toward the U.S.  If we did, President Bush would have 
never come to visit President Lula.  Chavez would have to be very 
pretentious indeed to use Mercosul as an anti-American platform. 
Rather, we believe that Chavez wants to join Mercosul as a way to 
legitimize himself before the international community.  Brazil's 
population and economy dwarf Venezuela's.  There is no way that 
Chavez will set the Mercosul agenda.  Secretary Rice even recognizes 
that Brazil has an important role to play in balancing Chavez's 
rhetoric in the region. 
 
-------- 
BIO NOTE 
-------- 
 
¶19.  (U) Ambassador Regis Percy Arslanian has been Director of 
International Negotiations since July 2003.  Arslanian serves as 
deputy to Under Secretary for South America, Ambassador Jos Eduardo 
Felicio, who is also Brazil's Co-Chair for the Free Trade Area of 
the Americas negotiations.  Arslanian's department is responsible 
for conducting trade negotiations between Mercosul and partners 
outside Latin America, including the EU, India, South African 
Customs Union, and Israel, in addition to it leadership role in the 
FTAA negotiations.  For the first six months of 2003, Arslanian 
served as Advisor for Economic and Business Affairs to MFA Secretary 
General Samuel Pinheiros Guimaraes.  Arslanian is a career diplomat 
who entered the foreign service in 1975.  Prior to his current 
position, he served as DCM in Brazil's Embassy in Washington 
(1997-2001).  Arslanian also served in Brazil's embassies in Bonn 
(1978-81) and Caracas (1981-87).  He was Counselor for Economic 
Affairs in Brazil's Mission to the U.N. in New York (1990-94).  In 
the MFA, Arslanian served as Chief of the Commercial Policy Division 
twice, from 1987 to 1990 and from 1994 to 1997, participating in 
GATT and WTO negotiations as well as consulting on bilateral issues 
with the United States, Canada, and the European Union.  Arslanian 
was a member of the Brazilian delegation attending FTAA Ministerials 
in Denver (1995), Cartagena (1996) and Belo Horizonte (1997).  End 
Bio Note. 
 
¶20.  (U) This cable was coordinated with Embassy Brasilia. 
 
McMullen