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DE RUEHSO #0924/01 2361306
ZNR UUUUU ZZH
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FM AMCONSUL SAO PAULO
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RUCPDOC/USDOC WASHDC 2552
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RUEHRG/AMCONSUL RECIFE 3106
RUEHRI/AMCONSUL RIO DE JANEIRO 7385
RUEHAC/AMEMBASSY ASUNCION 2745
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000924 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR SCRONIN/MSULLIVAN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
USDOC ALSO PASS PTO/OLIA 
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS 
DOL FOR ILAB MMITTELHAUSER 
 
E.O. 12958:  N/A 
TAGS: ETRD ECON KIPR EINV BR
SUBJECT:  FIESP Responds to Threat to Brazil's GSP Benefits 
 
 
¶1. (SBU) Summary.  The Federation of Industries of the State of Sao 
Paulo (FIESP), which represents approximately 34% of Brazil's 
industrial units and 39% of its manufacturing jobs, has concluded in 
a soon to be released study that if Brazil were to lose its 
eligibility for GSP benefits, the country would lose more than 
20,000 jobs and at least USD 386 million in exports. The most 
effected sectors would be the lumber and automotive (automobiles and 
auto parts) industries, with a combined loss of approximately 8,000 
jobs.  According to FIESP, the graduation of Brazil from GSP would 
negatively affect both Brazilian companies and many US companies 
that have subsidiaries and manufacturing branches located here.  End 
Summary. 
 
¶2. (U) In an as yet-to-be published study, FIESP estimates that 
approximately 650,000 jobs are related to the production of goods 
that fall under the GSP program, and if these benefits are not 
renewed, more than 20,000 of these jobs would be lost.  FIESP 
President Paulo Skaf, in a faxed letter to the Ambassador dated 
August 16, outlined the impending job losses and other potential 
negative consequences resulting from GSP exclusion. 
According to the FIESP study, the two major industries that would be 
most affected if the GSP benefits were withdrawn would be the lumber 
and automotive industries, with losses of 4,959 and 2,461 jobs, 
respectively.  The principal products exported by these industries 
under GSP in 2005 include: (1) automobile parts, USD 223.7 million, 
(2) lumber, USD 140.0 million, (3) machinery parts, USD 131.2 
million, (4) refined copper sheets, USD 107.8 million, (5) refined 
copper wire, USD 106.7 million, and (6) carpentry and cabinetry 
items, USD 93.6 million.  Other products such as wooden doors and 
frames, automobile gear boxes, and leather, account for 
approximately USD 71-79 million each. 
 
¶3. (U) FIESP argues that both Brazilian and U.S. companies will be 
negatively affected if GSP benefits are not renewed.  Only 9% of 
Brazilian exports under GSP constitute finished goods for the 
consumer, while 75% are raw materials or intermediary products. 
FIESP states that many of these materials are destined for 
subsidiaries of U.S. owned companies, which if forced to pay higher 
prices for the raw materials would then be forced to pass the 
increased cost to the final product.  In a recent press interview, 
Wilson Rocha, Director of Sales and Engineering at TRW, stated that 
"the exclusion of Brazil would be a hard blow, in a period when the 
company is already struggling to stay competitive with its products, 
because of the strong real versus the dollar."  Since TRW has 
contracts of 5 to 7 years, Rocha concluded that the cost increase 
could not be passed onto the price of the product and the "most 
difficult thing would be to obtain new contracts." 
 
¶4. (U) Meanwhile, the press quotes Humberto Barbatto, president of 
Santa Terezinha Ceramics, a manufacturer of electrical insulators, 
bemoaning the prospect of increased U.S. tariffs for his products: 
"We will have serious problems if our products face increased 
tariffs in the US.  Our clients are already tired of hearing us talk 
about a rise in prices." 
 
¶5. (U) In a tactical move, last month FIESP opened an office in 
Washington, DC, which is tasked with lobbying for the renewal of GSP 
benefits for Brazil.  Besides contacting government officials 
influential in the renewal process, FIESP has aligned itself with 
two pro-GSP organizations, the Coalition for GSP, and the Brazil GSP 
Coalition. The Acting Director of the International Relations 
Department for FIESP, Carlos  Cavalcanti, has suggested that the 
repercussions of GSP benefits not being renewed would be greater in 
the political arena than in the economic sphere, and that the USG 
tends to politicize such discussions instead of relying on technical 
 
SAO PAULO 00000924  002 OF 002 
 
 
considerations.  According to Cavalcanti, if GSP is not renewed, the 
results could be a new era of confrontation and distancing between 
the US and Brazil. 
 
¶6. (SBU) Comment:  FIESP and other business associations will likely 
offer many examples of Brazilian businesses being injured should the 
country be graduated from GSP, and are asserting that many U.S. 
businesses will likewise be hurt.  We expect they will come up with 
more specific examples of such U.S. businesses as they continue 
their campaign to prevent the loss of Brazil's GSP benefits.   End 
Comment. 
 
McMullen