VZCZCXRO2252
RR RUEHRG
DE RUEHBR #1706/01 2281852
ZNR UUUUU ZZH
R 161852Z AUG 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 6392
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2695
RUEHRG/AMCONSUL RECIFE 5303
RUEHSO/AMCONSUL SAO PAULO 7765
RUEHBU/AMEMBASSY BUENOS AIRES 4203
RUEHAC/AMEMBASSY ASUNCION 5595
RUEHMN/AMEMBASSY MONTEVIDEO 6408
RUEHSG/AMEMBASSY SANTIAGO 5688
RUEHPE/AMEMBASSY LIMA 3128
RUEHCV/AMEMBASSY CARACAS 3392
RUEHQT/AMEMBASSY QUITO 1939
RUEHLP/AMEMBASSY LA PAZ 4784
RUEHBO/AMEMBASSY BOGOTA 3888
RUCPDO/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 001706 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR - MSULLIVAN 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
USTDA FOR AMCKINNEY 
AID/W FOR LAC 
 
E.O. 12958:  N/A 
TAGS: ETRD KIPR ECON BR
SUBJECT: BRAZILIAN INDUSTRY AND GOVERNMENT REACT TO THREAT TO GSP 
BENEFITS 
 
REF:  STATE 128359 
 
¶1. (SBU)  Summary.  During recent days, both local policymakers and 
entrepreneurs have begun to marshal arguments in favor of Brazil 
retaining eligibility for GSP benefits should that legislation be 
renewed by the U.S. Congress.  Economic and trade officials have 
raised the issue with the Ambassador, noting, inter alia, that in 
view of the progress Brazil has made on copyright piracy, the GOB 
would see withdrawal of GSP benefits as "hitting below the belt." 
Meanwhile, the Sao Paulo AmCham is contacting Congress directly, 
particularly those members whose districts include ports where 
Brazilian GSP imports enter.  Our interlocutors have also employed 
the argument that dropping Brazil from GSP would simply provide 
China with greater space to increase its exports to the U.S. As far 
as we know, the only U.S. company that publicly opposes Brazilian 
graduation from GSP is Cummins, Inc, which has submitted comments to 
USDOC.  Others may make their views known as the debate progresses. 
End Summary. 
 
GOB Reaction 
------------ 
¶2. (SBU)  In an August 8 meeting with the Ambassador (reported 
septel), Minister of Development, Industry, and Commerce Luiz Furlan 
said that in the wake of all that the GOB had done positively on 
copyright piracy, if the USG were to exclude Brazil from GSP 
policymakers here would take this badly.  The early 2006 termination 
of the U.S. copyright industry's petition to revoke Brazil's GSP 
benefits reflected an implicit bargain, he declared:  i.e., Brasilia 
would continue to improve its performance on IPR enforcement while 
Washington would maintain Brazil within GSP.  Furlan noted that 
recently Brazil and the U.S. had improved their trade relations 
through the Commercial Dialogue that he and Secretary Gutierrez had 
inaugurated during the latter's June 2006 visit to Rio de Janeiro. 
He worried that a negative decision on GSP might halt momentum as 
Brazil would see this as "hitting below the belt." 
 
¶3.  (SBU)  On August 9, Central Bank Chief Henrique Meirelles echoed 
this line in a conversation with the Ambassador, noting that if the 
USG were to withdraw GSP benefits from Brazil such a move would 
reinforce "negative elements" within the government community with 
respect to the United States.  Brazilian Ambassador to the U.S. 
Roberto Abdenur has made similar comments in various meetings with 
USG policymakers. 
 
Private Sector Views 
-------------------- 
¶4. (U)  Industry officials repeat the line that withdrawing GSP 
would be contrary to the spirit of our mutual commitments on IPR. 
As one influential private sector spokesman asked us, now that the 
local business community is leading the fight against IPR piracy, 
why punish Brazil now?   Meanwhile, the Sao Paulo American Chamber 
of Commerce (the largest AmCham in the world) estimates that Brazil 
could face losses of US$300 million to US$ 400 million a year if 
removed from the GSP.  The AmCham is taking its case against 
graduation directly to the U.S. Congress as it has just sent letters 
to 55 representatives and 38 senators informing them of the 
importance of GSP imports from Brazil for the companies in their 
district.  The AmCham has, in particular, targeted members whose 
districts include ports which receive Brazilian GSP imports. 
 
¶5. (U)  For instance, in its correspondence to mid-Atlantic members 
AmCham notes that in the 11th Customs District (comprising ports in 
the Philadelphia area) 31.36 percent of its GSP imports 
(representing US$126.7 million) come from Brazil.  The principal 
Brazilian GSP products exported to the 11th Customs District 
included wood, aluminum, electrical machinery, fruits/nuts, and 
nuclear reactor parts.  The AmCham noted that duties for Brazil's 
GSP exports to the district ranged from 0.4 percent to 29.8 percent, 
with the averaging tariff coming in at 4 percent.  All told, the 
AmCham calcualates, U.S. firms in the 11th Customs District saved 
over US$4.8 million because of Brazilian eligibility for GSP.  The 
AmCham presented similar figures for the Customs Districts of 
 
BRASILIA 00001706  002 OF 002 
 
 
Baltimore, Charleston, Chicago, Houston, Miami, Mobile, New York, 
New Orleans, Norfolk, and Savannah. 
 
The Possible Impact of China 
---------------------------- 
¶6.  (SBU)  Finally, Brazil industry and government officials have 
shown increasing concern about the impact domestically of rising 
imports from China.  Given their worries about GSP, they are now 
broadening their focus to argue that graduating Brazil from GSP 
would only further Chinese penetration (at their expense) into the 
U.S. import market.  In a recent meeting with the Ambassador, 
Roberto Gianetti da Fonseca of the influential Industrial Federation 
of the State of Sao Paulo employed precisely this line of thinking, 
observing that Brazilian exports would simply be replaced by Chinese 
goods.  As the debate here progress on these issues, we expect that 
other interlocutors will reiterate this point. 
 
Sobel