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INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5537
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RUEHRG/AMCONSUL RECIFE 7466
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UNCLAS SECTION 01 OF 03 BRASILIA 002243 
 
SIPDIS 
 
DEPT PASS USTR FOR KATE DUCKWORTH 
DEPT PASS DOC/ITA/MAC/WH/OLAC ANNE DRISCOLL 
DEPT PASS TREASURY IA LUYEN TRAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON ETRD EINV EFIN PREL BR
SUBJECT: BRAZIL: INTEGRATION A/S CARDOSO ON MERCOSUL 
 
Ref a) Brasilia 2174 b) Brasilia 2177 
 
¶1. (SBU) SUMMARY:  MRE A/S for Integration Afonso Cardoso stressed 
the political importance of Mercosul for Brazil as a unifying force 
for economic development in a recent meeting with EconCouns. 
Cardoso underlined his views on Mercosul's strengths, highlighted 
recent integration decisions he felt would have important political 
and economic implications in the region, and reviewed on-going 
internal and regional Mercosul progress on trade issues.  Cardoso 
stressed Mercosul had taught national companies how to compete 
globally, had helped the region acknowledge and address development 
disparities, was creating mechanisms to enhance political buy-in for 
economic integration, and fundamentally provided motivation for its 
members to work together rather than at cross-purposes.  END 
SUMMARY 
 
¶2. (U) Afonso Cardoso is the Director of the Integration Department 
(A/S equivalent) at MRE, reporting to U/S for South America Enio 
Cordeiro.  Cardoso expects to take up his new duties as Ambassador 
to Angola in January.  With his departure, MRE is splitting his 
Integration Department, which is responsible for Mercosul, into two 
Departments. The Internal Integration Department, headed by former 
DCM to Argentina Bruno Bath, is to be responsible for the "internal 
everyday life" of Mercosul (the various internal working groups and 
committees).  The External Integration Department, led by Paulo 
Franca coming from UNESCO Paris, is to be  responsible for ALADI 
negotiations as well as  Mercosul negotiations in the region, such 
as with Mexico and Central America (NOTE: see ref a regarding 
responsibility for Mercosul negotiations outside South America). 
Both new Department heads have previously served in the Integration 
Department. 
 
-------- 
Mercosul 
-------- 
 
¶3. (SBU) The ultimate objective of Mercosul, stated Cardoso, is not 
simply to create a strong customs union among Mercosul members. 
Mercosul countries aim to solidify their position internationally 
and become more effective as a united group voice.  He asserted that 
Mercosul is both a Customs Union and a Free Trade Area.  He 
acknowledged exceptions to the CXT, but said they were few and that 
Uruguay and Paraguay had more than Argentina and Brazil.  Cardoso 
claimed that the "only areas where trade is not completely free 
among us is sugar and automotive."  He said auto sector is now 
covered by a series of bilateral agreements between individual 
Mercosul members.  Member countries are currently working on a 
Mercosul Automotive Policy to liberalize intra-Mercosul trade, which 
Cardoso was "confident" would be agreed in 2008.  On sugar, "even 
our Mercosul partners are afraid of us," joked Cardoso.  However, he 
added, ethanol is beginning to change the equation as other Mercosul 
members begin to produce more of the biofuel, an evolution Brazil 
welcomes.  Cardoso said Brazil hopes, as a result, other Mercosul 
members' protectionism against its commodity sugar will decrease 
over time. 
 
¶4. (U) He emphasized that Mercosul had provided a space and an 
opportunity for companies in the region to have a first taste of 
expanding beyond their own borders, learning to become 
multinationals instead of national companies and developing 
strategies to expand globally.  Cardoso underlined that Mercosul had 
helped its economic actors learn regionally in order to qualify 
themselves to act internationally.  Cardoso emphasized both the 
political and economic significance of this development as Brazilian 
and partners companies become important players in the global 
economy. 
 
------------------------------------- 
Moving Toward Integration: Mercosul Structural Convergence Fund and 
Parliament 
------------------------------------- 
 
¶5. (U) Until 2003, Mercosul members did not discuss development 
assymetries among themselves, according to Cardoso.  From 2003 on, 
the four agreed that if they wanted to achieve real integration, not 
just trading relationships, assymetries would need to be recognized 
and addressed.  Cardoso characterized the establishment of the 
Mercosul Structural Convergence Fund in 2006 as "a turning point;" 
 
BRASILIA 00002243  002 OF 003 
 
 
the first time developing countries created a financing mechanism by 
themselves and for themselves.  Cardoso stressed that the political 
decision actually to acknowledge asymmetric development among 
Mercosul members had enormous implications in helping the four 
countries work more effectively together politically and 
economically.  Cardoso emphasized that countering limitations to 
further integration caused by fears that Paraguay and Uruguay could 
not keep pace was in Brazil and Argentina's interest as well as that 
of the smaller countries.  The Fund's annual endowment is 100 
million dollars (the lion's share from Brazil and Argentina and 
symbolic contributions from Uruguay and Paraguay; disbursements are 
in inverse proportion) to finance regional projects.  The fund is 
also intended to finance national projects to improve physical and 
social infrastructure.  For example, the fund is being used to 
combat Foot and Mouth Disease in the region and has, per Cardoso, 
funded a waste management project as well as a road repair project 
in Uruguay.  All projects must be approved by all four governments. 
 
 
¶6. (SBU) Cardoso felt that the decision to create a Mercosul 
Parliament in 2010 would also eventually be significant in 
Mercosul's evolution.  While details remain in negotiation (number 
of seats per country, etc), Cardoso felt the symbolic and, 
eventually, political impact of a Congress directly elected by the 
citizens of the region had enormous long-term implications for 
regional integration.  The Parliament would be "extremely important 
to create a political legitimacy for economic integration issues." 
Cardoso added he did not mean in the next two or three years, "more 
like twenty years." 
 
¶7. (U) Finally, Cardoso noted that Brazilian and Argentinean 
agreement to move toward settling accounts in local currencies was 
an important integration step that one day could be expanded to 
include Paraguay and Uruguay when their Central Banks are in a 
position to participate. 
 
---------------------- 
Mercosul Internal Work 
---------------------- 
 
¶8. (SBU) Cardoso commented that "it can be daunting to keep track" 
of all the work within Mercosul to ensure progress is made.  Cardoso 
said members discuss moving toward common SPS and TBT standards, 
"but progress is tough."  He added members are also working on 
Mutual Recognition Agreements (MRAs), "which are easier." He said 
Brazil's standards body IMMETRO is developing an inventory of 
standards to work on with Argentina and Uruguay.  With Paraguay, he 
said, work is more concentrated on helping that country develop 
standards competency; MRAs would be for a later stage.  On 
investment, there is "lots of talk, little progress."  Mercosul has 
an agreed services protocol, and in the near future, Cardoso 
expected Mercosul would conclude its first external agreement on 
services, with Chile. 
 
------------------------------------------- 
FTAs, ALADI, ASSOCIATE MEMBERS, NEW MEMBERS 
------------------------------------------- 
 
¶9. (SBU) Cardoso asserted that Brazil can no longer negotiate 
bilateral FTAs; new FTAs must be negotiated via Mercosul.  Cardoso 
affirmed that Brazil is pursuing starting FTA negotiations with 
Mexico (ref B).  Mercosul has put forward a request to negotiate, 
but Mexico has not as yet affirmed willingness to engage, according 
to Cardoso.  He noted that Mexico already has much more ambitious 
bilateral market access agreements with Argentina, Paraguay and 
Uruguay than with Brazil (Brazil's agreement only addresses the auto 
sector).  He predicted that Mexico's fear of Brazil's agro-business 
sector will be the main difficulty in convincing Mexico to negotiate 
with Brazil.  "Mexico tells us, 'one United States is enough for 
us.'" 
 
¶10. (U) He noted that individual Mercosul members also have many 
bilateral ALADI agreements with countries outside Mercosul.  These 
agreements predate Mercosul's creation.  Cardoso explained that all 
ALADI countries that have established FTAs with Mercosul (Chile, 
Bolivia and the Andeans) became Mercosul associate members.  These 
associate members are permitted to participate in non-trade 
discussions (for example, on health and social issues.  Cardoso 
 
BRASILIA 00002243  003 OF 003 
 
 
commented that Chile and Bolivia participate quite a bit). 
Associate members may not participate in or observe trade 
negotiations.   Cardoso explained that proposed new members, pending 
ratification (Venezuela), can participate in trade and other 
negotiating sessions, but have "voice but no vote." 
 
¶11. (SBU) COMMENT: Cardoso provided a thoughtful perspective on 
Mercosul at the end of his tour as Department Director.  By 
definition, Cardoso's job obligations require staunch assertions 
that the CXT and free trade area within Mercosul function well and 
with only very limited exceptions.  The realities of Mercosul's 
significant weaknesses by accepted definitions of a customs union 
tell a different story. The more interesting facet of the 
conversation was Cardoso's emphasis on how the political and the 
economic are inextricably linked in thinking about Mercosul, 
something we have heard from diplomats at all levels in Itamaraty. 
For Brazil, the creation of a forum that encourages these four 
countries to talk together and to work together is crucial for 
creating the political conditions that make economic integration and 
development possible.  With a keen appreciation of the political 
usefulness of the Mercosul concept, this was not an interlocutor 
eager to whine about the acknowledged challenges anticipated in 
economic negotiations when Venezuela becomes a full member. 
Instead, Cardoso emphasized the importance for Brazil of Mercosul as 
a unifying force in the region and beyond, a context in which 
Venezuelan membership is perceived as a positive. END COMMENT 
 
CHICOLA