VZCZCXRO5446
RR RUEHRG
DE RUEHBR #1407/01 3010952
ZNR UUUUU ZZH
R 270952Z OCT 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 2736
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6796
RUEHSO/AMCONSUL SAO PAULO 2969
RUEHRG/AMCONSUL RECIFE 8629
RUEHGV/USMISSION GENEVA 1557

UNCLAS SECTION 01 OF 02 BRASILIA 001407 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR FOR KDUCKWORTH SDEMIRJIAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EIND EAGR BR
SUBJECT: Brazil: WTO Amb Azevedo Meeting with DUSTR Veroneau 
 
1)  (SBU) SUMMARY. On the margins of the October 10 CEO Forum, DUSTR 
John Veroneau met with new WTO Ambassador (and former MRE Economics 
Undersecretary) Roberto Azevedo.  Veroneau emphasized the importance 
of sectorals and sought Azevedo's perspective on the the U.S.-Brazil 
trading relationship.  Azevedo explained industry lack of interest 
in sectorals, explored the potential for bilateral trade 
discussions, and offered his perspective on the Doha Development 
Round.  END SUMMARY 
 
SECTORALS 
- - - - - 
 
¶2.  (SBU) Veroneau indicated that sectoral tariff initiatives in the 
Doha Round are essential for the U.S. to accept a modalities 
agreement in the non-agricultural market access (NAMA) negotiations. 
 Azevedo noted that Brazilian industry sectors are not in general 
competitive worldwide.  Brazil does have globally competitive 
agricultural sectors, but agricultural producers have for the most 
part already turned their attention to bilateral agreement 
opportunities rather than additional WTO efforts.  On the industrial 
side, especially autos, sectors mainly have defensive rather than 
offensive interests and do not want to pursue sectoral agreements. 
 
 
BILATERAL FTA NEGOTIATIONS 
- - - - - - -- - - - - - - 
 
¶3.  (SBU) Azevedo noted that, with regard to Brazil's bilateral 
trade, there is considerable momentum in Brazil to complete the FTA 
with the European Union, with industry, agriculture and services 
interests all pressing for an agreement.  Azevedo indicated that, if 
the Round stalls, negotiations will probably move forward on a much 
more reciprocal footing than was the case in 2004.  The Brazilian 
textile sector strongly supports an EU FTA, the auto sector sees 
opportunities, and even the footwear industry supports as its 
production is complementary to the EU's output.  Azevedo stated the 
EU thinks concluding an FTA will be possible on their side if their 
agricultural commitments are manageable.  The agreement draft is 
"pretty comprehensive" in market access terms, but does not contain 
IPR, investment or services commitments, Azevedo confirmed. 
 
¶4. (SBU) In contrast, exploration of an FTA with Korea is more 
problematic, as Brazilian industry directly competes with Korean 
production and is not interested in an agreement.  Azevedo commented 
that FTAs with tiny developing country markets such as South Africa 
are easy to negotiate because they are so small without much trade 
effect. He offered that it is easier, in his view, to work 
bilaterally with mature markets like the US and the EU than with 
other countries.  He used the example of the unproductive GCC 
FTA-Mercosul negotiations:  Brazil imports no chemicals from the 
GCC, but the Brazilian chemicals industry is still against an FTA, 
because they feel GCC members are investing now to become a player 
eventually in the chemical production sector.  Industry is more 
comfortable with the United States, a well-known, large and mature 
market, with a "smaller number of variables" than negotiating access 
with countries like Vietnam, India, and "god knows what will come 
from the Middle East" that "are on the periphery today but won't be 
in the future." 
 
¶5. (SBU) Veroneau noted that, for the last several years, the 
U.S.-Brazil bilateral trade relationship has been defined by the WTO 
Doha Round.  He asked Azevedo how he sees the trade relationship 
over the next few years. Azevedo underlined that trade negotiations 
with the United States is a primary objective of the Brazilian 
private sector.  He commented that a model similar to the EU FTA 
would be doable.  Azevedo noted Uruguay and Paraguay support 
negotiations and Argentina would need some convincing.  He commented 
that Mode 3 (pre-estabishment) investment commitments would be easy 
to include, but the investor protections/ arbitration mechanism 
included in US BITs would be unlikely to be feasible.  Similarly, 
Brazil is unlikely to be able to include IPR in an agreement; 
Azevedo recalled that TRIPs was almost a dealbreaker in convincing 
Congress to ratify the WTO agreements.  That said, Azevedo commented 
that opinions in Congress are slowly evolving - "people are getting 
used to the thought that IP speeds innovation, but (this mindset 
change) takes time."  Azevedo also referenced the IPR politics 
surrounding pharmaceutical pricing/public health policy in Brazil, 
but felt that issue could ultimately be contained through WTO rules 
already in place.  He emphasized IPR enforcement is a primary 
sticking point - while there is growing sentiment in Brazil that IP 
should be protected, GOB does not currently have the means to 
enforce effectively.  In addition, more effective enforcement 
mechanisms would require legislative changes that, in Azevedo's 
view, are highly unlikely to receive a receptive hearing throughout 
the Congress at this time - a "dealbreaker, more than anything else" 
in Azevedo's words. 
 
 
BRASILIA 00001407  002 OF 002 
 
 
¶6. (SBU) After confirming Brazil would "not want to negotiate a 
package like other US FTAs in Latin America," Azevedo again stressed 
that "if we could moderate the appetite in some areas, we could do 
something, because there is appetite" in Brazil for an agreement 
with the United States.  Noting the conversation would be in 4+1 
format, he noted Venezuela's eventual entry into Mercosul would pose 
additional challenges.  He stated that FTAA "got stigmatized" for 
GOB and a similar structure would not work this time.  He said the 
sensitive auto sector wants an agreement with the US, while strongly 
resisting a WTO agreement; similarly the textile sector supports 
bilateral negotiations with the US.  Nonetheless, Azevedo noted, 
securing a multilateral agreement lays the foundation for future 
bilateral agreements. 
 
WTO - DOHA 
- - - - - - 
 
¶7. (SBU) Azevedo believed that Doha would be concluded in the next 
few years, because the substance is mostly done; "the challenges are 
political."  He pointed to the SSM and Japan/G10 demands for 
agricultural exceptions as political issues.  India's objections are 
based on politics.  He thought issues like ethanol or cotton were 
not dealbreakers today, but hard to predict in a couple of years if 
the politics change.  He commented other non-issues today could 
become volatile in the future.  He said President Lula recognized 
the risks in managing the politics of an agreement, but was 
comfortable in deciding to take on those risks and press for an 
agreement.  Finally, he stated that issues like subsidies, rules, 
investment and IPR can only be addressed in multilateral 
negotiations and opined that, while tariffs can be addressed in 
bilats, "two Rounds from today" tariffs will be minimal/a marginal 
issue. 
 
TRADE NEGOTIATIONS CONTEXT - BRAZIL TODAY 
- - - - - - - - - - - - - - - - - - - - - 
 
¶8.  (SBU) Azevedo offered his perspective on challenges Brazil must 
manage as it approaches multilateral and bilateral negotiations. 
Brazil is no longer "cheap" in terms of land or labor, he commented. 
 Brazil's infrastructure (roads, energy access, etc) leave much to 
be desired.  Brazil has "a lot of work to do" to be "completely open 
and competitive worldwide."  In this context, opening Brazilian 
markets to others' competitiveness "feels nervous" to key 
stakeholders.  He noted that Brazilian industry complains it does 
not have a domestic environment to foster competitiveness.  Azevedo 
enumerated examples like changes in labor law Brazil must make to 
create the conditions for a more open economy and an insufficiently 
dense financial system that can not make enough credit available. 
With many Brazil companies not confident they can compete 
internationally (COMMENT: and with legislative reforms, such as tax, 
IPR enforcement, regulatory system and labor reforms, politically 
extremely challenging to advance in Brazil), resistance to 
liberalization must be continually managed. 
 
¶9.  (SBU) COMMENT: Not surprisingly in the extremely well 
coordinated Ministry of External Relations, Ambassador Azevedo's 
comments tracked closely with Mission conversations with other parts 
of MRE and with industry and agricultural interests in Brazil 
regarding both multilateral and bilateral negotiations 
possibilities.  Brazil is doing all it can to achieve a Round 
conclusion this year, including FM Amorim (accompanied by Azevedo) 
and President Lula discussions with India October 12 on the margins 
of the Brazil-India-South Africa Summit in New Delhi.  At the same 
time, Brazil recognizes the significant political challenges 
complicating this objective.   END COMMENT 
 
USTR has cleared this message. 
 
SOBEL