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DE RUEHBR #1865/01 2481856
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FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6568
INFO RUEHRG/AMCONSUL RECIFE 5395
RUEHSO/AMCONSUL SAO PAULO 7934
RUEHRI/AMCONSUL RIO DE JANEIRO 2798
RUEHSG/AMEMBASSY SANTIAGO 5751
RUEHBU/AMEMBASSY BUENOS AIRES 4246
RUEHAC/AMEMBASSY ASUNCION 5643
RUEHMN/AMEMBASSY MONTEVIDEO 6447
RUEHQT/AMEMBASSY QUITO 1957
RUEHPE/AMEMBASSY LIMA 3154
RUEHLP/AMEMBASSY LA PAZ 4844
RUEHCV/AMEMBASSY CARACAS 3418
RUEHBO/AMEMBASSY BOGOTA 3913
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDO/USDOC WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 001865 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NSC FOR FEARS 
TREASURY FOR OASIA - DAS LEE, D.DOUGLASS, J.HOEK 
STATE PASS USTR FOR S.CRONIN/M.SULLIVAN 
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
STATE PASS USAID FOR LAC 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV PREL EFIN EINV BR
SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH FINANCE MINISTER MANTEGA 
 
REF: A) STATE 128359  B) BRASILIA 1709 
 
This cable is sensitive but unclassified, please protect 
accordingly. 
 
¶1. (SBU) Summary:  In the Ambassador's August 18 initial call on 
Finance Minister Guido Mantega, the two discussed Brazil's economy, 
ethanol, and mechanisms for bilateral economic engagement, including 
the Treasury-Fazenda Group for Growth meetings.  Mantega raised the 
USG's review of Generalized System of Preferences (GSP).  He said 
the exclusion of Brazil from GSP would be a "serious blow" to the 
trading relationship given multiple points of friction such as the 
WTO cotton case, ethanol duties, orange juice barriers, anti-dumping 
cases and the suspension of the Doha Round (DDA) negotiations over 
the issue of agricultural subsidies.  The Ambassador shared a copy 
of ref A demarche points with Mantega, explained the history of the 
GSP program and the need for a review.  Mantega hopes to meet with 
Secretary Paulson on the margins of the Singapore IMF meetings.  End 
 
SIPDIS 
Summary. 
 
Economy Solid 
------------- 
 
¶2. (SBU) The Ambassador congratulated the Finance Minister on the 
GoB's economic achievements of the course of the Lula 
Administration.  Paying down external debt, the solid external 
accounts, the reduction in Brazil risk and the emergence of Brazil 
as a great trading nation were accomplishments of which to be proud. 
 The USG wants to support Brazil's economic transformation with a 
solid trade and investment relationship, he said.  Mantega welcomed 
the sentiment, noting that Brazil has a great interest in increasing 
its trade relationship with the United States.  Although the 
political discourse might at times make it seem that the GoB gives 
greater emphasis to ties with other countries, Mantega noted, 
President Lula is a pragmatist who realizes the importance of the 
relationship with the U.S.  Brazil's economy, moreover, has 
undergone a structural shift, from one with perennial trade and 
current account deficits to one with an overwhelmingly positive 
trade balance and a desire to further integrate into the world 
economy.  Today Brazil has become a force for stability in the 
region, Mantega averred, leading by the example of its sound 
policies. 
 
Trade 
----- 
 
¶3. (SBU) Brazil works to increase trade with the United States even 
when U.S. policy works against it, Mantega affirmed, singling out 
U.S. agricultural subsidies as a barrier.  Brazil doesn't subsidize 
agriculture, he claimed.  "It's hard to compete with Brazilian 
agriculture," the Ambassador noted.  "It's hard to compete with U.S. 
services and high technology goods," Mantega replied.  The 
Ambassador reminded Mantega that USTR Susan Schwab's first stop 
after the suspension of the WTO DDA negotiations in Geneva had been 
in Brazil.  This was because of the important role the USG believes 
Brazil can play in bringing along some of the less flexible members 
of the G-20, the Ambassador reminded Mantega.  Finance Ministry 
International Secretary Luiz Pereira noted the importance of the 
DDA.  Trade has been a great engine for growth for developing 
countries, he said, and Brazil needs this to continue.  Although the 
tenor of offers on the agricultural side of the negotiations was 
insufficient, Brazil, Pereira affirmed, was willing to put more on 
the table in terms of improved non-agricultural market access 
(NAMA). 
 
GSP Review Could be "Serious Blow" to Relationship 
--------------------------------------------- ----- 
 
 
BRASILIA 00001865  002 OF 002 
 
 
¶4. (SBU) The GoB is concerned, Mantega said, by talk in Washington 
of Brazil's possible exclusion from U.S. GSP benefits.  The 
Ambassador explained the history of the GSP as a program originally 
intended to help young democracies prosper.  The U.S. 
Administration, independently of any Congressional action, had 
undertaken to review the system and was inviting comments from 
foreign governments and industry, the Ambassador explained.  The 
results of that review could not be predicted, he said.  The 
Ambassador also shared a copy of ref A talking points with Mantega. 
 
 
¶5. (SBU) Mantega acknowledged the Ambassador's explanation but 
argued forcefully that any USG decision to remove GSP benefits would 
be viewed as a "serious blow" within the context of a sometimes 
troubled trading relationship.  Brazilian exports to the United 
States, such as orange juice, sugar, shrimp, and ethanol, Mantega 
noted, are hit by high tariff rates and a series of non-tariff 
barriers including quotas, state-level barriers (Florida for orange 
juice), a series of anti-dumping orders and subsidized domestic 
production.  Combined with what the GoB has termed USG reluctance to 
comply fully with the WTO dispute board cotton ruling and the 
suspension of WTO DDA negotiations over agriculture subsidies/market 
access issues, removing GSP would be very "uncomfortable" from the 
point of view of the bilateral relationship.  The $1.5 billion in 
Brazilian exports (comment: his figure, we understand it's closer to 
$3.6 billion) to the U.S. that benefit from inclusion in GSP are a 
drop in the bucket to the U.S. but would be a significant loss for 
Brazilian producers, Mantega concluded.  The Ambassador again urged 
the GoB make formal comments to USTR as part of the review process. 
 
Group for Growth 
---------------- 
 
¶6. (SBU) Mantega said he hopes to meet new U.S. Treasury Secretary 
Paulson on the margins of the Singapore IMF meetings.  The 
Ambassador noted that the Secretary had been to Brazil fairly 
frequently in his prior private sector jobs, and he hoped that trend 
would continue.  The Ambassador also stated his interest in working 
with the Treasury and Fazenda to develop the agenda for the next 
Group for Growth meeting. 
 
¶7. (SBU) Comment:  The GSP review and the potential for the 
withdrawal of Brazil's GSP benefits have elicited very strong 
negative reactions from government and industry here.  Foreign 
Minister Amorim told the press August 20 that Brazil would consider 
taking the USG to WTO dispute resolution were GSP benefits removed. 
The forcefulness of Mantega's comments on GSP was nevertheless 
surprising given that he does not oversee the trade portfolio.  With 
the influential State of Sao Paulo Industry Federation (FIESP) 
hiring Washington lobbyists and mounting a media campaign in which 
it claims that graduation from GSP would cost Brazil "at least" 
20,000 jobs, it's clear that the issue has resonance well beyond the 
foreign and trade ministries. 
 
SOBEL