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

UNCLAS SECTION 01 OF 07 BRASILIA 001185 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/BSC AND EAP/CM 
USDA FOR U/S JB PENN AND FAS ADMINISTRATOR TERPSTRA 
SEOUL FOR AGCOUNS GRANT PETTRIE 
COMMERCE FOR 
4332/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL 
 
E.O. 12958: N/A 
TAGS: BR BTIO EAGR ECON EFIN EINV EMIN ENRG EPET ETRD KIPR PGOV PREL CH UNSC WTRO
SUBJECT: SCENE SETTER: PRESIDENT LULA'S VISIT TO CHINA 
 
REF: A) BRASILIA 1087 B) 2003 BRASILIA 3814 C) 2003 
     BRASILIA 3416 
 
Sensitive but unclassified; please protect accordingly. 
 
¶1. (U)  Summary:  Brazil's President Luis Inacio Lula da 
Silva visits China May 22 - 27, accompanied by a huge 
entourage of Ministers and business leaders, determined to 
put Brazil-China relations at the center of his quest for 
strategic alliances.  Trade and investment may be the most 
visible items on the agenda, but China figures prominently in 
the Lula administration's campaign to tighten relations with 
other like-minded regional heavyweights (i.e., India, South 
Africa), diversifying its foreign policy alliances and 
augmenting its own reputation on the world stage. 
Cooperative activities in science and technology, defense, 
tourism, environment, and agriculture, invigorated by the 
higher-profile exchanges within the last year, will likely 
benefit from a flurry of MOUs and agreements signed during 
the visit.  While the U.S. was Brazil's largest 
single-country export market in 2003, China came in third, 
nearly edging out neighbor Argentina, and has been buying 
even more this year.  The GoB seeks deeper trade ties with 
China, hopes to get its share of China's excess investment 
capital and would have more to lose from a cooling of China's 
economy than would many other countries.  At the same time, 
Mercosul and the PRC are discussing the initial phases of a 
free-trade agreement.  While Sino-Brazilian relations, 
political and commercial, are relatively young, there appears 
to be no shortage of Brazilian enthusiasm for overcoming the 
obstacles of inexperience in forging a stronger partnership. 
The question is whether the PRC shares Brazil's vision of an 
important strategic relationship, or prefers a marriage of 
convenience based on short-term interests.   End summary. 
 
The Trip of the Century 
----------------------- 
 
¶2. (SBU)  President Lula, who visited China once before 
becoming President, has characterized this trip as perhaps 
the most important of his government.  The sheer size of the 
delegation supports this assessment.  Lula will reportedly 
bring nine Ministers, at least five governors, and a business 
delegation of over 400.  The trip includes stops in Shanghai 
and Beijing.  In recent remarks to the press, Lula said he 
wants a "relationship of equals without dependency" with 
China and, in reference to the bilateral trade relationship, 
that Brazil needs to do more than just sell.  While 
expectations for greater trade and investment gains are high, 
the political optic for Brazil is not to be underestimated. 
Lula views his administration's foreign policy, and perhaps 
much of his personal legacy, in the context of 
coalition-building among developing nations.  In particular, 
the GoB considers China a partner in counter-balancing the 
influence of wealthier nations in multilateral institutions. 
In the lead-up to the trip, the administration has 
characterized Brazil and China as nations with much in 
common. 
 
 
Common Political Ground? 
------------------------ 
 
¶3. (SBU) Perhaps no other non-western-hemisphere country 
figures more prominently in the GoB strategic calculus than 
China.  President Lula's visit to Beijing, following 
high-profile travel to India, South Africa and the Middle 
East last year, provides ample evidence of the 
administration's aims to build a formidable bloc of 
developing countries.  A key GoB focus is consensus building 
among like-minded countries for UN reform that would expand 
permanent membership of the UN Security Council - presumably 
to include regional powers such as Brazil.  Brazil's Foreign 
Ministry (MRE) perceives China, already a permanent UNSC 
member, as sympathetic to this GoB objective.  The MRE also 
believes the two countries share a "political understanding" 
concerning an emphasis on "multilateralism" and the need to 
counterbalance U.S. hegemony. 
 
¶4. (SBU)  President Lula's Workers' Party (PT) has also 
discovered its own "China card."  On April 23 in Beijing, PT 
President Jose Genoino signed a protocol of collaboration 
between the Chinese Communist Party and the PT.  According to 
press reports, Genoino affirmed that the GoB sought to 
construct a "diplomatic, political, and economic axis" among 
India, South Africa, Brazil and China.  He praised China's 
integrated public administration and said it was important 
for the PT to study what has occurred in China over the last 
twenty years.  Comment:  Genoino's visit should not just be 
viewed as a precursor to the President's upcoming trip.  The 
PT is likely also seeking to score points with Brazil's 
leftists, including those within the PT itself.  End comment. 
 
¶5. (SBU)  During recent UN Commission on Human Rights (UNCHR) 
meetings in Geneva, Brazil was careful not to favor 
resolutions critical of China's human rights record, a 
position criticized by some editorials in the Brazilian 
press.  Brazilian diplomats claim they are not ignorant of 
the human rights situation in China.  The Chief of MRE's Asia 
and Oceania Division Oswaldo Biato indicated to poloff the 
GoB perceived China's human rights situation as "serious but 
improving."  In any case, Biato noted, President Lula 
preferred to deal with this topic directly with his Chinese 
counterpart.  (In a side comment, he said the MRE would 
welcome any specific human rights information the USG could 
provide to be placed within the President's brief.)  However, 
other observers doubted very much whether in the swirl of 
excitement in the Great Hall, Lula would bring up the topic 
of human rights or whether, if he did, the Chinese would even 
deign to discuss the matter. 
 
¶6. (U)  Despite Brazil's multi-ethnic makeup, citizens of 
Chinese descent represent a tiny fraction of Brazil's 
population, compared, for example, to Brazilians of Japanese 
ancestry.  Illegal immigration and extradition may yet become 
an issue between the two countries.  The majority of the 
estimated 50,000 Chinese in Brazil, mostly residing in Sao 
Paulo, are believed to be in-country illegally. 
 
¶7. (U)  The GoB has also identified China as a major source 
of pirated goods entering the country.  To address Brazilian 
concerns about illegal immigrations and IPR, a legal 
cooperation agreement will reportedly be discussed during the 
visit.  A Brazilian Congressional investigation of IPR 
piracy, underway since June 2003, has highlighted the growing 
influence of the "Chinese mafia" in Sao Paulo's criminal 
network of contraband and pirated goods peddlers. 
 
¶8. (SBU)  Escola Euro-Americana Professor Ricardo Caichiolo, 
an expert on Chinese-Brazil relations, bemoaned to poloff the 
lack of understanding among Brazilians, even among so-called 
experts, of China.  Within the Foreign Ministry, Caichiolo 
believed that not one official can speak passable Mandarin 
(Caichiolo himself does not speak Chinese.)  Within Brazilian 
academia, he pointed to a paucity of Chinese Studies 
programs, although the University of Sao Paulo's and National 
University of Brasilia's own programs, he commented, were 
notable exceptions.  Academic exchanges are very few, due in 
part to the strong desire among the youth in both countries 
to seek English-speaking programs, according to MRE's Biato. 
However, he expects the development of exchange programs to 
increase following the visit. 
Trade and Investment 
-------------------- 
 
¶9. (U)  Despite poor communication, weak historic links, and 
divergent policy orientations, Brazil and China have recently 
made significant strides in expanding trade.  Commercial 
linkages which progressed slowly following the first 
bilateral accord in 1978 have boomed over the last three 
years.  China advanced from 12th place among Brazil's 
single-country export markets in 2000 to its third largest in 
2003, and its expansion continued in the first months of 
¶2004.  (Note:  The EU, counted as a single market, is 
Brazil's biggest trading partner, accounting for over U.S. 
$30 billion in 2003 trade compared to U.S. $26 billion with 
the United States.)  Brazil's trade with China in the first 
trimester of 2004 is already over 25 percent of Brazil's 
trade with the U.S. during the same period. 
 
¶10.  (U)  Note: While Brazil does not recognize Taiwan as a 
sovereign nation, trade is up approximately 20 percent with 
the island so far this year; total trade in 2003 was U.S. 
$676 million.  Brazil's trade data identifies Macao and Hong 
Kong as separate markets from China, as each has separate 
customs and tariff arrangements, although politically Brazil 
recognizes the two territories as falling under Chinese 
sovereignty.  Trade with Hong Kong totaled U.S. $944 million 
in 2003; trade with Macao was U.S. $7 million.  Brazilian 
exports to Hong Kong are up over 30 percent from last year. 
End note. 
 
¶11. (U)  The PRC is now Brazil's biggest trading partner in 
Asia, a bilateral relationship worth US $6.7 billion in 2003 
and projected by the GoB to rise to US $10 billion this year, 
not including Hong Kong and Macao.  Brazil enjoyed a US $456 
million trade surplus with China for the first trimester of 
2004, up from US $330 million during the same period in 2003. 
Emphasizing the mutual benefits of the growing trade 
relationship, Minister of Development, Industry, and Foreign 
Trade, Luis Furlan, confirmed to Chinese and Brazilian 
business audiences last month that both imports and exports 
have increased approximately 60 percent in the last trimester 
over the same period in 2003.  China's top exports to Brazil 
include transmitter parts, electronics, textiles, liquid 
crystal displays, computers, coal, electric motors and stereo 
equipment. 
 
¶12. (U)  Soybeans, iron ore and steel products accounted for 
approximately 75 percent of the value of 2003 Brazilian 
exports to China.  China is the largest buyer of Brazilian 
soy and iron ore, and the second largest importer of 
Brazilian steel.  Other top exports include cellulose and 
other wood products, laminated iron or steel sheets, leather, 
and automobile motors and parts.  While seeking to export 
higher value-added, manufactured goods to the Chinese, the 
GoB recognizes that China's demand for primary products like 
soy and steel currently drive the relationship.  The desire 
for uninterrupted supply of these primary-product exports 
will fuel the GoB-estimated US $5 billion of Chinese 
investment during the next three years in Brazilian mining, 
steel, transport infrastructure, energy and agribusiness. 
The Lula administration has launched an ambitious 
Public-Private Partnership (PPP) initiative to help improve 
the country's woefully inadequate infrastructure using mostly 
private capital (ref A).  While the implementing PPP 
legislation still awaits final Congressional approval, the 
GoB would like to see PPPs used as the vehicle for some of 
the hoped-for Chinese investment. 
 
¶13. (U)   MRE's Biato told econoff of Chinese interest in 
further joint venture projects with Companhia Vale do Rio 
Dolce (CVRD), which could duplicate the success of Harbin 
Aircraft/Hafei Aviation's joint venture with Embraer to build 
regional jets.  CVRD plans to inaugurate a steel mill in the 
state of Maranhao in the coming months, the result of a 
Chinese joint venture with Baosteel Group.  CVRD is also 
discussing with Chinese investors exploration of a recently 
discovered copper mine in the same state.  CVRD 
representatives announced plans to build the world's largest 
solid cargo transport ship at a trade seminar last month, to 
deliver iron ore to China.  Brazil is a partner in the 
construction of the world's largest hydropower project at 
Three Gorges, and recent press reports have speculated on 
joint ventures in the farming and processing of soybeans as 
well as exploration of uranium deposits in Brazil. 
 
¶14. (U) Citing economic complementarities between the two 
countries, MDIC trade promotion officials interpret China's 
growing energy needs as offering great potential for 
innovative Brazilian technology -- flex-fuel technology, 
ethanol production and sales, hydroelectric machinery, as 
well as deepwater oil and gas sector know-how and equipment. 
Petrobras and the China National Petroleum Corp. have 
reportedly held talks on forming an oil exploration venture. 
The complementarity projections extend to China's need to 
invest its excess capital and Brazil's cash-starved 
infrastructure projects as well as the growing Chinese middle 
class's expected desire for increasing amounts of Brazilian 
meats, frozen chicken, orange juice, furniture, medical 
equipment and shoes.  The Brazilian Ministry of Agriculture 
announced in February that Chinese officials had expressed 
interest in building railways, roads and other infrastructure 
in exchange for Brazilian soy, cotton and ethanol.  While the 
mechanics of such a barter arrangement would likely present 
problems for Brazil's private growers, the idea of investing 
in infrastructure projects linked to transporting commodities 
persists.  The Chinese Ambassador to Brazil recently told 
participants at a Brazil-China investment conference that 
China is studying the possibility of investing in road 
networks through Brazil to Pacific ports. 
 
¶15.  (U) In advance of the trip, both GoB and Chinese 
diplomats here are downplaying the decreased growth 
expectations of the Chinese economy, despite the significant 
effect that dampened demand for commodities like soy and iron 
ore would have on Brazil in particular.  Chinese officials 
prefer to spotlight the 2008 Olympics and the government's 
promise to raise the median income level and double GDP by 
2020, longer-term goals that a temporary economic slowdown 
will not heavily impact.  The Brazilians, in turn, do not 
appear concerned that the investment they seek might 
diminish, secure in their belief that Chinese financial 
authorities acting early will prevent a crisis. 
 
¶16. (U) Since few academics or public servants, let alone 
business people, are knowledgeable about China, the GoB 
argues that expanded bilateral trade, tourism, and cultural 
promotion efforts are the keys to solidifying and expanding 
mutually enriching exchanges.  In the run-up to Lula's visit, 
several high-level exchanges of trade and investment missions 
have laid the ground-work for the official inauguration of 
the Brazil-China Business Council (CEBC), an entity 
comprising representatives of China's and Brazil's largest 
and most successful companies.  The CEBC Co-Presidency will 
be shared between CVRD's President Roger Agnelli and China's 
Minmetal's President Miao Gengshu.  President Lula will 
inaugurate the CEBC during his visit. 
 
¶17. (U) In addition to the CEBC being an effective tool of 
business promotion, the GoB views it as the embodiment of 
both countries' highest-level dedication to exploiting the 
other's untapped potential, ending a period of unintended 
benign neglect.  Along with the CEBC's inauguration, two 
match-making business seminars are slated for the 
accompanying 400-member business delegation: one in Beijing, 
the other in Shanghai.  While this business delegation is 
organized by the MRE's Trade Promotion Department, Biato 
explained that the CEBC will undertake activities across the 
two countries that official trade promotion agencies are too 
small and inexperienced to handle. 
 
¶18.  (U) APEX, Brazil's export promotion agency linked to the 
Ministry of Development, Industry and Foreign Trade, plans a 
mid-June trade mission to Shanghai focused on sectors 
identified by a private consultant as having the greatest 
export potential to China, including specialty coffees, 
software, cosmetics, gemstones, sports equipment, wine and 
biotechnology products.  A Chinese business delegation from 
Shanghai Sugar, Cigarettes and Wine plans to visit Brazil 
next week for meetings with over 50 Brazilian makers of 
retail items of interest to China's wealthy, a reverse trade 
mission organized by APEX. 
 
¶19. (U) In March, Brazilian news outlets reported that 
China's WTO Ambassador, Sun Zhenyu, had announced the 
country's desire to explore the possibility of a free trade 
agreement with Mercosul, as well as with South Africa, Chile, 
Australia and New Zealand.  He highlighted China's ongoing 
trade agreement discussions with ASEAN and several individual 
Asia nations.  After a visit to Beijing in April, Brazilian 
Foreign Minister Amorim announced that Mercosul and China 
would initiate the project of a free trade agreement in May. 
Mercosul is currently pursuing a wide-ranging FTA with the 
EU, but has initiated limited preferential trade agreements 
(PTA) with India and South Africa as precursors to broader 
future agreements.  The agreement with China would also 
likely start as a PTA focused on gradual tariff reductions 
for negotiated sets of products of interest to each party. 
The Lula administration's emphasis on strengthening 
Mercosul's global reach complements its designs to lead the 
block of developing nations in the multilateral trade arena. 
Brazil counts China among the founding members of the G-20 
and expects high-level Chinese participation at the June 2004 
UNCTAD meeting to be held in Sao Paulo. 
 
Bilateral Cooperation Efforts 
----------------------------- 
 
¶20. (SBU) Science and Technology: Brazil's cooperation with 
China in science and technology fields (ref C) has expanded 
in recent years, most notably with the China-Brazil Earth 
Resources Satellite program (CBERS).  In October 2003, the 
second of a series of 4 satellites was launched from a base 
in northern China.  The satellites are equipped with cameras 
to monitor environmental and natural resource indicators. 
CBERS has paved the way for partnerships in space research. 
Further discussions regarding energy cooperation, including 
renewable and nuclear, are likely during the visit.  (Note: 
Brazil's nuclear program has been the focus of recent 
attention due to pending issues regarding the Additional 
Protocol of the NPT and the yet-to-be agreed safeguards at 
one Brazilian nuclear facility. End note.)  In April, the two 
countries inaugurated a Sino-Brazilian software center in the 
northeastern Brazilian state of Paraiba.  The TecOut center 
will provide specialized services for the creation and 
international marketing of software products, including 
market studies and product adaptations.  The visit will 
likely spawn similar joint initiatives. 
 
¶21. (SBU) Defense:  The Brazilians will explore opportunities 
to expand mil-mil cooperation.  Military contacts indicate 
that while the military relationship is growing via 
familiarization visits and training exchanges, military sales 
between the two countries are unlikely, insisting that 
defense is not a driving force in the relationship.  Defense 
Minister Viegas visited China in November 2003, but he is not 
expected to accompany the President on this trip. 
 
¶22.  (U)  Tourism:  MRE officials portray tourism cooperation 
as contributing to expanded trade and investment, citing the 
fact that Chinese tourism is on the rise worldwide, 
accounting for the third largest number of non-European 
tourists to visit Europe last year. According to Brazilian 
press reports, the Chinese government will soon announce a 
change in its visa policy to encourage more tourism -- 
Chinese will be able to travel to Brazil without obtaining an 
exit visa. 
 
Agricultural Trade and Cooperation 
---------------------------------- 
 
¶23. (U)  Minister of Agriculture Rodrigues' visit to China 
last November and Chinese Vice Agriculture Minister Fan 
Xiaojian's visit to Brazil that same month produced import 
certifications for Brazilian beef, phytosanitary protocols, 
and technical exchanges designed to ease difficulties in 
certifying the sanitary suitability of a range of 
agricultural products including citrus, chicken, and pork. 
Last month President Lula and Chinese Vice Premier Hui Langyu 
signed a preliminary agricultural commodities accord aimed at 
eliminating tariff and non-tariff barriers.  Despite the 
professed goodwill, Chinese soy concerns over properly 
identified biotech varieties and quality issues like 
excessive humidity, aflatoxin, damaged grains, and impurities 
continue to occasionally hamper Brazilian soy exports.  Only 
after considerable negotiation did China accept Brazil's 
export certificates regarding biotech content, as the GoB had 
not approved the use or safety of biotech soy for its own 
consumers but expected the Chinese to accept the GoB safety 
certification based on the claim that the Brazilian variety 
is the same as those grown in Argentina and the U.S., which 
have both been accepted by China. 
 
¶24. (U) While these obstacles may in part mask broader 
Chinese concerns over food security and an over-reliance on 
imports, GoB officials expect progress on more binding 
farm-commodity agreements during the visit.  Representatives 
of the Brazilian meat exporters association, ABIEC, will join 
the business delegation to China seeking direct sales to 
mainland China to augment established relationships with 
importers in Hong Kong.  ABIEC's current President is former 
Agriculture Minister Pratini de Moreas.  Cooperation 
agreements on biotech and fisheries research are under 
discussion, and there is reportedly Chinese interest in 
Brazil's booming farmed shrimp industry.  (Note: Both Brazil 
and China, along with four other shrimp exporting nations, 
are currently the targets of an on-going U.S. anti-dumping 
investigation.) 
 
Comment:  Too Much Hype? 
------------------------ 
 
¶25. (SBU)  The number of Chinese high-level visits to Latin 
America, along with growing trade, suggest that China is not 
discounting the region as it continues to open its markets 
and expand its own influence, even if economic growth cools. 
Brazil, with the region's largest economy and biggest 
population, figures prominently in that context.  There is, 
however, a lot of ground to cover before achieving the kind 
of strategic partnership that the GoB envisions.  Does 
China's current administration seek to change the geopolitics 
of trade with a formula compatible with the GoB's?  In a 
relationship among equals, disagreements are aired, but it 
seems unlikely that trade irritants, not to mention weightier 
topics such as democratization and human rights, will figure 
prominently during this visit.  Perhaps social issues 
affecting both countries, such as HIV/AIDS, social 
inequalities, and poor income distribution will figure on the 
agenda. Even if the political bond is immature, there are 
sufficient financial interests to move the relationship 
forward and this visit should showcase them.  For the 
Brazilians, even a marriage of convenience (as opposed to 
commitment) is preferable to a perpetual date. 
 
HRINAK