VZCZCXRO5772
PP RUEHRG
DE RUEHSO #0242/01 0851534
ZNR UUUUU ZZH
P 261534Z MAR 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 6644
INFO RUEHBR/AMEMBASSY BRASILIA 7768
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 0186
RUEHRI/AMCONSUL RIO DE JANEIRO 7928
RUEHRG/AMCONSUL RECIFE 3472
RUEHRC/USDA FAS WASHDC 0671
RUCPDOC/USDOC WASHDC 2752
RUEHFR/AMEMBASSY PARIS 0239

UNCLAS SECTION 01 OF 04 SAO PAULO 000242 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/TPP/MTA/MST FOR AARON SCHEIBE 
DEPT PASS USTR FOR SUE CRONIN 
USDOC FOR 4332/ITA/MAC/WH/OLAC/ ADRISCOLL/MCAMPOS 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DRAMBO 
USDA FOR DUS TERPSTRA, RIEMENSCHNEIDER AND CALEXANDER 
PARIS FOR ECON - TOM WHITE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD WTO BR
SUBJECT:  BRAZIL: USTR SCHWAB MEETINGS WITH BRAZILIAN INDUSTRY 
REPRESENTATIVES 
 
¶1. (SBU) Summary:  USTR Ambassador Susan Schwab pointed out recently 
to leading Brazilian industrialists and agriculture sector 
representatives in Sao Paulo meetings  the significance to Brazilian 
interests of the current Doha Round and affirmed that 
non-agricultural market access (NAMA) is key to successful 
conclusion of the trade negotiations - a message that seemed to 
resonate with her hosts.  In a March 9 session with manufacturers, 
hosted by the Federation of Industries of the State of Sao Paulo 
(FIESP), she stressed that the USG is committed to an "ambitious 
outcome" for Doha.  Brazilian industry leaders responded that the 
GOB is open to negotiations. On the non-agricultural market access 
(NAMA) Swiss formula coefficient, the GOB does not support the USG 
proposal of a 15 percent coefficient for developing countries. 
However, they did add that Brazil would be open to engaging in 
sectoral negotiations and would begin putting together a list of 
sectors where such talks might prove fruitful.  Agricultural issues 
cropped up at the meeting, with Brazilian business leaders 
expressing concern about subsidies contained in the current Farm 
Bill and the ethanol surcharge.  The imminent expiration of the 
President's Trade Promotion Authority (TPA) was also a concern. 
 
¶2.  (SBU) On March 10, Ambassador Schwab met with FIESP officials 
and representatives of some of the most powerful Brazilian 
agribusiness industries, again at FIESP headquarters.  Although the 
discussion centered mainly on the Doha negotiations, ethanol 
occupied about one third of the exchange, in the wake of the March 9 
signature of a U.S. - Brazil MOU on biofuels.  The Brazilians also 
raised bilateral agricultural issues regarding beef, orange juice 
and chicken.  Ambassador Schwab delivered a strong message on the 
need for market access for agricultural products, emphasizing that 
if significant "new trade" is not created, or if Brazil is too 
ambitious on domestic support, there will be no Doha agreement.  The 
Brazilians said that they need more market access from the EU, are 
wary of the EU retaining Uruguay Round safeguards and the 
possibility of restrictive safeguards for developing countries in 
Doha, and are very concerned that their government is not moving 
fast enough to counter trade restrictive proposals of the G-33. 
 
¶3. (U)  Key Brazilian participants included Paulo Skaf, President of 
FIESP; Roberto Gianetti da Fonseca, FIESP's General Director for 
International Affairs and Foreign Trade; Roberto Rodrigues, a large 
scale sugar cane producer, former GOB Minister of Agriculture and 
President of FIESP's Council on Agriculture; Rubens Barbosa, 
President of FIESP's Council on Foreign Trade and former Brazilian 
ambassador to the U.S.; Marcos Jank, President of the Brazilian 
Institute for International Trade Negotiations (ICONE) and former 
Special Counselor to the Brazilian Minister of Development; and Jose 
Cutrale, the largest producer of frozen concentrated orange juice 
(FCOJ) in Brazil who also holds a significant interest in Florida 
orange juice production.  End Summary. 
 
--------------------------------------------- --- 
Meeting on Non-Agricultural Market Access (NAMA) 
--------------------------------------------- --- 
 
¶4.  (SBU) FIESP is the leading regional manufacturing sector 
organization in Brazil, and is comprised of 132 sectoral trade 
associations representing over 40% of the country's industrial GDP 
and more than 140,000 companies. (FIESP has recently opened a 
Washington field office, which is co-located with the Brazil 
Information Center.) 
 
¶5.  (SBU) Ambassador Schwab told the group of 13 Brazilian business 
leaders that her three visits to Brazil since July 2006 underscored 
the importance of Brazil's role in the Doha Rounds.  Terming the 
current Doha Round a critical opportunity for all countries to 
address the future of global trade flows and relationships, 
Ambassador Schwab said the USG is committed to an "ambitious" 
outcome.  She told attendees only a multilateral outcome - not a 
bi-lateral or regional deal - will address Brazil's needs, and the 
GOB may have to choose between Brazilian industry and the interests 
of the other developing countries at some point in the negotiations. 
 Ambassador Schwab said the GOB has a "fundamental impact on 
influencing other countries such as India," and emphasized that a 
failed Doha Round would impact Brazil as hard as any country.  She 
noted that there is a building sense of momentum and urgency to the 
 
SAO PAULO 00000242  002 OF 004 
 
 
talks and called for a "robust and balanced outcome." 
 
¶6.  (SBU) Skaf agreed with Ambassador Schwab on the importance of 
the Doha negotiations, but said that, in the opinion of the GOB and 
Brazilian industry, balance is the key word in the negotiations. 
According to him, in the NAMA talks FIESP accepts the Swiss Formula, 
but feels the coefficient determination needs more objective 
discussion. 
 
------------------------ 
NAMA and the Coefficient 
------------------------ 
 
¶7.  (SBU) Skaf pointed to FIESP's designation of 2007 as the year 
for dialogue with the U.S., and called for clarity in the 
negotiations over the exception list, the Swiss coefficient and 
agricultural subsidies.  He emphasized Brazil's infrastructure 
problems which, coupled with an unfavorable exchange rate, have hurt 
the country's competitiveness.  Despite this, he felt the GOB is 
willing to reach a bearable coefficient cost and negotiate sector by 
sector.  Ambassador Schwab encouraged the private sector to remind 
governments that trade agreements generate economic growth.  Her 
message was that the GOB should be pushing NAMA and not let other 
countries hide behind agricultural issues. 
 
¶8.  (SBU) Ambassador Schwab reminded the group that, of all 
countries, Brazil has the greatest potential to lose should Doha 
fail.  She cautioned that Brazil is not going to be able to play a 
leadership role if it is "hiding behind the G-20" and encouraged 
each developing country to identify what it plans to shelter, in 
terms of tariff lines, without obsessing over the coefficient.  Skaf 
said there is no support in the GOB for a reduction to 15 per cent, 
which he termed "impossible."  He also questioned the figures USTR 
used to demonstrate the effect of the USG proposed coefficient on 
maximum tariff rates, referring to it as "alchemy." 
 
¶9.  (SBU) Skaf noted that his association (FIESP) is as ambitious as 
USTR, but within "realistic limits."  He acknowledged that his 
organization is prepared to engage in sectoral talks as a complement 
to Swiss formula negotiations.  He also said that, to move this 
effort forward, FIESP has been making contact with other similar 
associations such as the National Association of Manufacturers (NAM) 
in the U.S.  (FIESP will host a visit from NAM executives the second 
week in April.) 
 
------------------------------- 
Agricultural Issues Unavoidable 
------------------------------- 
 
¶10.  (SBU) Despite the meeting's NAMA focus, Skaf noted that 
agriculture was inextricable from the other topics in the Doha 
discussions and thought the GOB position might be flexible, but said 
he didn't see the same clarity in the USG position.  Ambassador 
Schwab countered that in 2005, the USG took the first step by 
putting forward a bill to "ambitiously cut" agricultural subsidies. 
That approach failed when the EU and G-20 responded with a proposal 
containing little real agricultural market access.  She said 
agriculture is clearly a fundamental part of the rounds and 
eliminating agricultural trade barriers is the single most important 
thing the world could do to contribute to development. 
 
 
¶11.  (SBU) Addressing the Farm Bill, Ambassador Schwab said the 
legislation proposed in February is not part of the USG Doha Round 
offer.  As the trade round was not completed last year, the bill was 
not written to conform to a Doha agreement.  She declared that the 
USG could not make commitments to cap farm support independent of 
trade discussions.  She assured the group that if there is a 
breakthrough this spring, it will be a year before it is in force 
and the Farm Bill could then be amended to reflect the negotiated 
agreement if needed. 
 
---------------------------------- 
Intellectual Property Rights (IPR) 
---------------------------------- 
 
 
SAO PAULO 00000242  003 OF 004 
 
 
¶12.  (SBU) Skaf noted his concern that USTR continued to list Brazil 
on its Special 301 "Priority Watch List."  Ambassador Schwab 
commended GOB anti-piracy efforts, but said that the position of the 
GOB on IPR in international fora, such as WIPO and WHO, has been 
detrimental to worldwide anti-piracy efforts and did not effectively 
represent the intellectual property rights (IPR) of Brazilian 
industry. 
 
--------------------------------- 
 Meeting with Agribusiness Leaders 
--------------------------------- 
 
¶13.  (SBU) In contrast to the meeting on NAMA the day before, much 
of the March 10 meeting was characterized by concise and 
well-rehearsed presentations and statements by participants to 
Ambassador Schwab.  Roberto Rodrigues, a large scale sugar cane 
producer, former GOB Minister of Agriculture and President of 
FIESP's Council on Agriculture, expanded on the importance of 
agriculture to Brazil by outlining its 33 percent contribution to 
GDP and 30 percent share of total exports in 2006.  He said that 
some 13 million hectares of grazing land alone could be converted 
within a short time period to produce other crops should greater 
market access be opened under Doha. 
 
¶14.  (SBU) Marcos Jank, President of the Brazilian Institute for 
International Trade Negotiations (ICONE), observed that Brazil and 
the U.S. are in general agreement on most Doha issues, including 
market access.  Nevertheless, he added, Brazil needs even more 
access from the European Union (EU) and Brazilian agricultural 
interests are concerned about blue box disciplines as well as 
restrictive safeguards and the composition of the eventual list of 
sensitive products.  Jank stated that Brazil's priorities include a 
75 percent cut of high tariffs; maximization of tariff rate quotas 
(TRQ) expansion; elimination of the Uruguay Round Special 
Agricultural Safeguard (used primarily by developed countries), 
fewer special products for developing countries (the G-33 proposal 
of 20 percent of tariff lines would be unacceptable) and limits on 
special safeguards for developing countries (no higher than Uruguay 
Round levels).  On particular priorities beyond the soybean complex 
initiative, Jank said Brazil remains interested in frozen 
concentrated orange juice (FCOJ) and sugar. 
 
¶15.  (SBU) Jank said that barring serious cuts in the amber box, 
overall subsidies would have to be capped, hence Brazil's concern 
with the Bush Administration's farm bill proposal that would create 
revenue based counter-cyclical payments and move payments from the 
amber box to the blue box.  He concluded that the U.S. and Brazil 
have common ground on market access but not domestic support. 
 
¶16.  (SBU) Ambassador Schwab agreed that Brazil and the U.S. are on 
the same side on 90 percent of agriculture issues, but firmly stated 
that "new market access" (effective and serious cuts in applied 
rates and ceilings) is critical for the U.S.  Only a balanced Doha 
agreement with ample market access and reasonable subsidy cuts will 
have a chance to clear the U.S. Congress.  Ambassador Schwab 
cautioned that if significant "new trade" is not created by the 
negotiations, or if Brazil is too ambitious on domestic support, 
there will be no Doha agreement on agriculture.  She added that 
serious access on NAMA is also needed - lack of ambition on NAMA 
would mean no cuts in domestic support for agriculture. 
 
--------------------- 
Ethanol - A Hot Topic 
--------------------- 
 
¶17.  (SBU) In the wake of the March 9 signing of a U.S.-Brazil MOU 
on ethanol cooperation, discussions on U.S. ethanol tariffs and 
taxes dominated much of the meeting.  Ambassador Schwab clarified 
that while the 2.5 percent U.S. tariff on ethanol imports is part of 
the Doha negotiations, the 54 cent U.S. surcharge on ethanol imports 
is not.  She told the group that ethanol is a major issue for U.S. 
corn producers. 
 
¶18.  (SBU) Robertto Gianetti da Fonseca (FIESP's Director for 
International Affairs and Foreign Trade) said his organization 
recognizes the position of the U.S. Renewable Fuels Association, and 
 
SAO PAULO 00000242  004 OF 004 
 
 
understands that the 54 cent surcharge will be in place while the 
U.S. ethanol industry develops.  He added that Brazil will have a 
limited supply available for export in the near term due to growing 
domestic demand.  He floated a proposal, recently developed by the 
Brazilians, which suggests the U.S. extend its surcharge for five 
years with an incremental phase out after that time in order to 
assure potential investors.  Sergio Amaral, Coordinator of FIESP's 
Business Councils, observed that the ethanol MOU created a paradox 
because Brazil would now promote ethanol production in countries 
that have duty free access to the U.S. market, while Brazil does 
not. 
 
----------------------- 
Other Bi-Lateral Issues 
----------------------- 
 
¶19.  (SBU) Jose Cutrale, the largest producer of FCOJ in Brazil, 
noted that U.S. tariffs for his product are 33 percent higher that 
those imposed by the EU and requested Ambassador Schwab consider 
promoting a reduction in U.S. FCOJ tariffs.  Jank (ICONE) said 
Brazil is interested in pursuing a line of discussion on chicken 
exports as Brazilian exporters may lose market share with the entry 
of Bulgaria and Romania into the EU.  A beef industry representative 
said U.S. based importers are interested in Brazilian fresh and 
frozen beef and that Brazil is working with the Organization of 
International Epizootics to regain its disease free status for foot 
and mouth disease (FMD) by May 2007. 
 
¶20.  (SBU) Comment: The meetings, designed to gauge the position of 
the Brazilian private sector as a prelude to further Doha 
negotiations, were open and the discourse frank on both sides. 
FIESP and its members have some influence on the inner circles of 
the GOB and the meetings provided valuable insight into the 
positions of Brazilian private industry.  End Comment. 
 
¶21.  (U) Embassy Brasilia contributed to this cable, which was 
cleared by USTR and Embassy Brasilia prior to transmission. 
 
McMullen