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### Viewing cable 03BRASILIA2231, BRAZIL'S ARSLANIAN: FTAA COMPROMISE POSSIBLE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
03BRASILIA2231 | 2003-07-18 10:14 | 2011-07-11 00:00 | CONFIDENTIAL | Embassy Brasilia

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002231

    SIPDIS

    USTR FOR SCRONIN, KLEZNY
    DEPT FOR E:ALARSON; WHA:CSTRUBLE, SPINKHAM; EB:BMANOGUE
    NSC FOR JOANNA WALLACE
    USDA FOR JBPENN

    E.O. 12958: DECL: 07/16/2013
    TAGS: ETRD BR FTAA
    SUBJECT: BRAZIL'S ARSLANIAN: FTAA COMPROMISE POSSIBLE

    Classified By: Janice Fair, Economic Officer for Reason Section 1.5 (b)
     and (d)

    ¶1.  (C) Summary.  In an informal discussion with econoff on
    July 13, Regis Arslanian, the GOB's new director of FTAA and
    Mercosul-EU negotiations, acknowledged that Mercosul was
    disappointed with the reaction it received during the San
    Salvador TNC meeting to its proposal for restructuring the
    FTAA negotiations and suggested that Brazil could accept a
    compromise reformulation with the United States.  According
    to Arslanian, a bilateral structure for market access
    discussions is a key element for the GOB.  End Summary.

    ¶2. (C) On July 13, while traveling back to Brasilia from the
    FTAA Trade Negotiating Committee (TNC) meeting in San
    Salvador (July 8-11), econoff discussed Mercosul's take on
    the meeting with Regis Percy Arslanian.  Arslanian has been
    advisor to Itamaraty Secretary-General Pinheiro Guimaraes,
    but told Econoff that he has been chosen to replace
    Ambassador Carlos Simas Magalhaesas as Head of the
    International Negotiations Department (FTAA and Mercosul-EU
    negotiations) under Ambassador Luiz Filipe Macedo Soares, who
    is Under Secretary for South America and Brazil's lead FTAA
    negotiator at the Vice-Minister level.  Earlier, econoff was
    told by Tovar da Silva Nunes, the GOB's FTAA Coordinator,
    that Simas had been sacked on July 4 for not being in-sync
    with Itamaraty FTAA policy directives.

    ¶3. (C) According to Arslanian, Mercosul was extremely
    disappointed by the reaction it received at the TNC meeting
    to its three-track proposal for restructuring the FTAA.
    Roughly speaking, the three tracks refer to: Track 1-
    bilateral market access negotiations (industrial and
    agricultural goods, services, and investment) carried out
    under the FTAA umbrella; Track 2- minimal rules to support
    market access such as dispute settlement, rules of origin,
    civil society, institutional issues, Hemispheric Cooperation
    Program, etc.; and Track 3 - rules for services and
    investment, intellectual property, competition policy, market
    access and rules for government procurement, domestic
    support, and trade remedies, all of which would be considered
    only in the WTO.

    ¶4. (C) Mercosul presented its proposal in the TNC plenary,
    but the bulk of discussion took place in an informal session
    during which most countries expressed concern with, and to a
    certain extent criticism of, Mercosul's intention to reduce
    the scope of the FTAA.  Arslanian said that the United States
    and other countries did not fully appreciate the intense
    domestic political and social pressure the GOB is under, and
    reiterated that it would be impossible for Brazil/Mercosul to
    complete the FTAA negotiations as currently structured.

    ¶5. (C) While other countries have suggested that a
    comprehensive FTAA in both market access and rules is
    necessary to foster economic integration and prosperity in
    the region by encouraging strategic hemispheric partnerships
    and attracting foreign direct investment, Brazil sees its
    strategic needs differently.  Arslanian emphasized two
    points:  the importance of the U.S. market for Brazilian
    goods; and the importance of bilateral market access
    negotiations as envisioned in Mercosul's three-track
    proposal.

    ¶6.  (C) Arslanian stressed the GOB's interest in negotiating
    access to the U.S. market within the FTAA.  However, he
    registered disbelief that the U.S. is serious about giving
    duty-free treatment to certain sensitive products, citing
    orange juice and steel, in particular.  Econoff rebutted that
    in the initial U.S. goods offer every tariff item was within
    one of the four product baskets, each of which is slated to
    go to zero-duty at some time, but pointed out that with
    Mercosul's proposed wholesale removal of a number of issues
    of interest to the United States from the FTAA, the U.S.
    would undoubtedly have difficulty justifying such a
    comprehensive market opening.  In response, Arslanian said
    Mercosul would be willing to negotiate market access in
    financial services and telecommunications with the United
    States as trade-offs.  Pressed on whether Mercosul would
    really be offering anything new in these areas, he answered
    emphatically in the affirmative.

    ¶7. (C) In explaining Brazil's rationale for seeking a
    bilateral negotiating structure, Arslanian said that Brazil
    believes other countries in the region (Central Americans,
    etc.) are willing to give away much more than Brazil is in
    market access for services and investment to gain an opening
    of the U.S. goods market.   He reiterated several times that
    Brazil will not "level" its interests to those of other
    countries and would not accept a structure that would force
    Brazil to make concessions based on other countries'
    willingness to "give away the store."  Echoing comments made
    by Mercosul's Uruguayan lead during the TNC, Arslanian also
    said that a bilateral process could focus the negotiation
    more specifically on the interests of the parties involved
    and make it easier to identify for political leaders and
    society at large the trade-offs that are made to reach an
    agreement.  He claimed that Mercosul will not submit any
    offers in services, investment and government procurement
    until a bilateral negotiating structure is approved.

    ¶8. (C) Arslanian asked why the U.S. delegation to the TNC did
    not discuss a baseline agreement approach that he believed
    the USG had contemplated.  Econoff responded simply that the
    USG did not have an official proposal to put forward.
    Arslanian bemoaned the lack of such a discussion, opining
    that between the three-track proposal and a baseline
    agreement approach, a compromise could probably be reached,
    as long as it includes a bilateral market access structure.
    He intimidated that Mercosul could agree to include
    government procurement market access under the FTAA and that
    the negotiating forum for rules in services and investment,
    and IPR could be revisited.  Arslanian also wondered aloud
    about the possibility of a two-stage process, with deepening
    (read as rules) coming in stage two, but was silent when
    asked by econoff what guarantee the U.S. would have that
    Brazil would undertake stage two negotiations if it obtained
    the market access for goods that it wanted in stage one.

    ¶9. (C) Comment:  Arslanian seemed eager to encourage a dialog
    with the United States to develop a vision for the FTAA that
    would satisfy both countries' needs.  Given his past position
    in the Itamaraty Secretary-General's Office and his new
    position specifically overseeing the FTAA negotiations, we
    are inclined to view his statements on GOB priorities and
    possible flexibilities as credible.  See septel for Mission's
    overview and analysis of factors affecting the GOB's latest
    formulation of its FTAA policy.  End Comment.
    HRINAK

`