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UNCLAS SECTION 01 OF 08 SAO PAULO 000675 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/FO, WHA/BSC, WHA/EPSC, WHA/PDA, EB/CBA 
STATE PASS USTR M.SULLIVAN/K.LEZNY 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE 
STATE ALSO PASS TDA FOR ANGULO AND MCKINNEY 
DOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD 
USDOC ALSO FOR PTO AND NIST 
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS 
DOL FOR ILAB MMITTELHAUSER 
NSC FOR FEARS 
SOUTHCOM ALSO FOR POLAD 
AID/W FOR LAC/AA 
 
E.O. 12958: N/A 
TAGS: OVIP ETRD BEXP KIPR EINV PGOV EAGR ENRG BR
SUBJECT: COMMERCE SECRETARY PROMOTES U.S. EXPORTS, PUSHES 
ANTI-PIRACY FIGHT IN SAO PAULO 
 
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SUMMARY 
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¶1.  During his June 7-8 visit to Sao Paulo, Secretary of Commerce 
Carlos M. Gutierrez discussed intellectual property rights with the 
Governors of four states and attended a meeting of the Sao Paulo 
State Interagency Committee to Combat Piracy; met with leaders of 
major business and industrial groups and delivered a speech at the 
American Chamber of Commerce (AmCham) (reported septel); and toured 
a business apprenticeship center and spoke with a number of students 
there.  In all his meetings and appearances, Secretary Gutierrez 
took the opportunity to call for closer commercial ties between the 
United States and Brazil, for a more investment-friendly business 
climate in Brazil, and for increased efforts to combat piracy.  He 
spoke of the common challenge from China, noting that China is not 
only a major market but an economy in competition with the U.S. and 
Brazil.  The visit advanced our economic/commercial agenda, 
receiving positive media coverage, and offered an opportunity to 
spread our message on the benefits of free trade and the importance 
of fostering a business environment that punishes piracy.  END 
SUMMARY. 
 
¶2.  Following on his successful visits to Rio de Janeiro and 
Brasilia, Secretary of Commerce Carlos Gutierrez visited Sao Paulo 
June 7-8.  Members of the Secretary's delegation included: 
 
Robert Mosbacher, Jr., CEO, Overseas Private Investment Corporation 
(OPIC); 
Steven Pinkos, Deputy U/S for Intellectual Property; 
David Bohigian, A/S, Market Access and Compliance; 
Patrick Duddy, DAS, Western Hemisphere, State Department; 
Claire Buchan, Chief of Staff; 
John Andersen, Director, Latin America and Caribbean; 
Dulce Zahniser, OPIC; 
Albert Angulo, Trade and Development Agency (TDA); 
Anne McKinney, TDA; 
Dan Nelson, Office of Public Affairs; 
Dorian Mazurkevich, Patent and Trademark Office (PTO); 
Phillip T. Chicola, Charge d'Affaires, a.i.; 
Christopher J. McMullen, Consul General; and 
John Harris, Senior Commercial Officer 
 
---------------------------- 
BREAKFAST WITH THE GOVERNORS 
---------------------------- 
 
¶3.  The Secretary attended a breakfast hosted by Sao Paulo Governor 
Claudio Lembo and attended by three other state Governors: Germano 
Rigotto of Rio Grande do Sul, Eduardo Pinho Moreira of Santa 
Catarina, and Jose Orcirio Miranda dos Santos ("Zeca do PT") of Mato 
Grosso do Sul.  Two other Governors, Roberto Requiao of Parana and 
Aecio Neves of Minas Gerais, were invited but were unable to attend; 
however, Governor Neves was represented by his State Secretary for 
Economic Development, Wilson Nelio Brumer.  Several of the Governors 
were accompanied by their chief foreign affairs advisors or state 
Commerce Secretaries.  The discussion was very lively and 
constructive and focused on four major areas: intellectual property 
rights (IPR), investment and partnerships, facilitating commerce 
(including the key role of OPIC), and bilateral cooperation on 
biofuels. 
 
SAO PAULO 00000675  002 OF 008 
 
 
 
¶4.  Leading off the breakfast, Secretary Gutierrez briefed governors 
on his meeting with Minister for Development, Industry, and Foreign 
Trade Luiz Fernando Furlan  and the launching of the U.S.-Brazil 
Commercial Dialogue announced by Presidents Bush and Lula during the 
President's visit to Brazil last November.  The Secretary noted that 
the Commercial Dialogue would focus on facilitating trade by 
expediting customs, exchanging information that would benefit both 
sides, promoting IPR, and working together on common standards.  He 
said the U.S. wants to strengthen bilateral commercial relations 
with Brazil, work together to combat intellectual property piracy, 
promote two-way investment, and increase overall trade (currently at 
around USD 45 billion, which he said should be higher).  The 
Secretary observed that Brazil profits more from trade with the 
 
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U.S., which largely involves value-added products, than from trade 
with China, which involves mostly commodities. 
 
¶5.  Brazilian Ambassador to the United States Roberto Abdenur told 
the Governors that Secretary Gutierrez's visit had been very 
productive, with excellent meetings with Minister Furlan and other 
senior GoB officials.  He said the GoB will follow up with a visit 
to Washington this fall to try to move forward on issues identified 
in these meetings.   Minister Furlan is especially interested in 
making greater progress on biofuels, including increased cooperation 
on scientific research. 
 
---------------------------- 
INTELLECTUAL PROPERTY RIGHTS 
---------------------------- 
 
¶6.  Secretary Gutierrez congratulated the Governors on the progress 
to date in combating piracy, but urged them to do more.  He observed 
that better IPR enforcement would protect Brazilian companies that 
are producing innovative products and would help attract greater 
U.S. investment.  Rio Grande do Sul Governor Germano Rigotto 
stressed that all five states represented are taking strong measures 
to attack the IPR piracy problem because they are aware of the 
economic equities they have in their states.  For example, Dell has 
a major facility in Rigotto's state.  He noted the need to do a 
better job of information-sharing regarding cross-border piracy -- 
where the merchandise is coming from, who is bringing it in, where 
is it going.  Sao Paulo Governor Lembo affirmed that the state 
governments have the political will to combat the problem and 
welcomed continuing U.S. support.  Yet there remains a public 
perception, noted Minas Gerais State Secretary Brumer, that there is 
nothing wrong with piracy; this complicates and impedes law 
enforcement efforts.  Governor Pinho of Santa Catarina echoed 
Rigotto's point about the need to combat piracy as key to achieving 
the goal of attracting more U.S. investment.  Governor Zeca of Mato 
Grosso do Sul, which has a long border with Paraguay and Bolivia, 
called for a stronger partnership with the U.S. in the area of 
combating cross-border contraband. 
 
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BIOFUELS 
-------- 
 
¶7.  The Governors expressed great interest in the issue of 
developing biofuels.  Several of the states, including Rio Grande do 
Sul, are already intensifying their efforts in this area and are 
seeking partnerships.  Speaking for the GoB, Ambassador Abdenur 
 
SAO PAULO 00000675  003 OF 008 
 
 
recognized the need for closer cooperation with the U.S. and for 
more U.S. investment in Brazil.  He suggested the two countries form 
a working group to focus on building a global partnership on 
ethanol.  Both Abdenur and Governor Lembo called on the U.S. to 
eliminate the 54-cent per gallon surcharge on imported ethanol. 
Secretary Gutierrez noted that President Bush has committed the U.S. 
 
SIPDIS 
to developing alternative energy sources, including ethanol.  This 
initiative opens up possibilities to work with Brazil. There are 
U.S. investors who would be interested in working with Brazilian 
companies in developing this area.  Bilateral cooperation in this 
area would benefit both sides.  The Secretary said the U.S. could 
learn something in this area since Brazil is far ahead of the U.S. 
in alternative energy.  He promised to take the biofuels question 
back to Washington with him. 
 
------------------------- 
INFRASTRUCTURE INVESTMENT 
------------------------- 
 
¶8.  The Governors then raised the question of Brazil's critical need 
for infrastructure improvement and the GoB's public-private 
partnership (PPP) Program.  Governor Rigotto noted that all five 
states have the necessary legislation in place to implement PPPs, 
but the National Bank for Economic and Social Development (BNDES) 
needs to help facilitate financing of large infrastructure projects. 
 Several others chimed in, pointing out that it is difficult for 
states and municipalities to find funds for big infrastructure 
projects.  They are looking for partnerships with U.S. entities. 
For example, Minas Gerais has three big projects that would welcome 
U.S. investments -- highways, prisons, and basic sanitation 
facilities.  In this context, CEO Mosbacher explained the role of 
OPIC in supporting U.S. investors interested in infrastructure 
projects, particularly housing for low- and medium- income families. 
 He also underscored the importance of facilitating licenses and 
permits for such investments.  Several of the governors present 
indicated their interest in such programs, and Mosbacher committed 
to following up with them to outline possible housing programs and 
infrastructure activities in their states. 
 
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TRADE FACILITATION 
------------------ 
 
¶9.  In the area of trade facilitation, Senior Commercial Officer 
John Harris urged the Governors to promote greater participation in 
U.S. trade shows, and offered to facilitate broader Brazilian 
participation.  Governor Rigotto replied that the states would very 
much like to take advantage of these trade shows and asked that FCS 
provide information early enough to allow state governments to get 
word out to companies. 
 
----------------------------- 
ANTI-PIRACY COMMITTEE MEETING 
----------------------------- 
 
¶10.  Following the breakfast, the Secretary and the Governors met 
with the Sao Paulo State Anti-Piracy Committee, a group formed in 
January of this year by then Governor (and now Presidential 
candidate) Geraldo Alckmin.  The Committee is composed of the 
Governor, his Chief of Staff, the Attorney General, and six State 
Secretaries (Justice; Finance; Public Security; Labor; Culture; and 
 
SIPDIS 
 
SAO PAULO 00000675  004 OF 008 
 
 
Science, Technology, and Economic Development) and members of their 
staffs.  Sao Paulo is the second state to create an anti-piracy 
committee; the first was Rio Grande do Sul, whose committee includes 
representatives of the private sector as well.  The Sao Paulo 
Committee was created in response to strong and energetic advocacy 
by the Consulate. 
 
¶11.  Sao Paulo State Attorney General Elival da Silva Ramos began by 
commenting on the importance of public and private participation in 
fighting copyright piracy.  He criticized the federal government for 
its inability to control the traffic of pirated goods at the borders 
and ports.  He also commented on the deleterious effects of piracy 
in terms of lost tax revenue, competitiveness, and innovation.  The 
State Secretary of Finance, Luiz Tacca Junior, commented on the 
state of Sao Paulo's capacity to attack counterfeit goods, focusing 
on a recent campaign against what the state government calls 
"counterfeit fuel" - watered down ethanol and gasoline.  Recent 
successes in combating adulterated fuel were attributed to a 
successful public education campaign, aggressive prosecution of 
traffickers in diluted fuel, and stricter licensing requirements and 
closer state scrutiny of fuel distributors.  Tacca was grateful for 
cooperation received from the U.S. in training the state's Fiscal 
Intelligence Unit, which has become an effective police unit in the 
fight against money laundering.  Tacca emphasized the lost revenue 
angle, noting that much can be done to fight piracy on the tax 
evasion side of law enforcement.  He concluded by acknowledging that 
much work remains to be done in terms of encouraging businesses to 
participate in the "legal economy."  Brazil's rampant tax evasion, 
off-the-books transactions, and under-invoicing make it critical for 
the government to offer incentives for gray market and "irregular" 
businesses to enter the formal economy and operate within the law. 
 
 
¶12.  At this point, Attorney General Ramos noted that Sao Paulo is 
at the legal limit in terms of its power to enforce IPR.  In 
Brazil's federal system, all criminal legislation, including in the 
area of intellectual property, is made at the national level.  The 
state's only real power to fight piracy comes from the state tax 
laws.  This is the only angle that allows Sao Paulo to act above and 
beyond the federally mandated guidelines.  Nevertheless, Sao Paulo 
will remain active in pursuing tax evaders as a means of inhibiting 
counterfeiting. 
 
¶13.  Following Tacca's remarks, Sao Paulo State Deputy Secretary for 
Public Security, Marcelo Martins de Oliveira, gave an overview of 
Sao Paulo's recent successes in fighting piracy.  Oliveira praised 
the police department's organized crime division (DEIC), which 
includes a unit dedicated to piracy, or crimes against "immaterial 
property."  This unit has recently conducted 1,812 operations, 
resulting in 4,500 indictments, 2,103 prosecutions, and over 400 
imprisonments.  DEIC raids have netted 3.7 million toys, 8.16 
million CDs and DVDs, 300,000 tennis shoes, 400,000 watches, and 
450,000 pieces of counterfeit clothing.  Oliveira concluded by 
saying that despite DEIC's excellent track record, piracy will be an 
unsolvable problem until the federal government is better able to 
control its ports and borders.  Nevertheless, Sao Paulo's police 
force is "unequivocally" dedicated to the continued fight against 
piracy.  Oliveira concluded by personally thanking the U.S. 
Consulate General in Sao Paulo for its "invaluable and unceasing 
assistance in the fight against piracy and drug trafficking." 
 
 
SAO PAULO 00000675  005 OF 008 
 
 
 
¶14.  Secretary of Culture Joao Batista was the next to comment on 
the ills of piracy in Sao Paulo.  Batista criticized piracy as an 
attack on Brazilian culture, specifically in the music market, where 
75 percent of music sales in Brazil are of works by national artists 
and 52 percent of those are of counterfeit products.  In contrast 
with music sales, the Brazilian film market is dominated by foreign 
films.  Nevertheless, piracy is still a threat to Brazilian cinema. 
To reinforce the reality of this threat, Batista recounted the story 
of a pirated DVD version of the Brazilian blockbuster movie "Dois 
Filhos de Francisco" being watched aboard Brazilian President Lula's 
executive airplane.  [NOTE: Perhaps the most important, certainly 
the most popular film ever made in Brazil, "Francisco's Two Sons" 
was Brazil's top grossing film at the box office in 2005.  Filmed on 
a budget of less than USD 3 million, it outperformed several of the 
top twenty highest grossing films of all time, worldwide. 
"Francisco's Two Sons" was also nominated for an Oscar in the 
international film category.  END NOTE.]  Batista cited the failure 
of the federal government to secure the borders as the prime culprit 
behind the large market for pirated material in Sao Paulo.  He then 
reiterated the need for cooperation between state and federal 
authorities on this issue. 
 
¶15.  Governor Lembo issued an invitation for the U.S. Consul General 
to participate in the periodic meetings of the Sao Paulo Anti-Piracy 
Council.  He extended the invitation to other consulate staff to 
attend the public hearings of the council.  Executive Secretary of 
the Sao Paulo state Anti-Piracy Committee Marco Vaz Guimaraes de 
Souza Netto then outlined the Committee's approach to the issue. 
The Committee, which convened for the first time in May of this 
year, has the following priorities: pursuing tax evasion, cracking 
down on money laundering, improving the warehousing of seized goods, 
and perfecting the logistics of combating piracy -- meaning 
developing the process from seizure of goods through prosecution to 
storage and ultimate destruction.  Netto noted that many warehouses 
are currently donated by anti-piracy groups, such as, for example, 
the Motions Picture Association; however, warehouse capacity will 
soon be outstripped by the tidal wave of incoming seized 
contraband. 
 
¶16.  Echoing the State Secretary of Culture, Governor Rigotto 
complained that the federal government's inability to effectively 
police the borders was responsible for the problems of piracy 
arriving on the "our states'" doorsteps.  Noting that two of the 
states represented at the meeting - his own (which borders on 
Argentina and Uruguay) and Mato Grosso do Sul - bordered on other 
countries and that several others were home to major ports, he then 
made the bold suggestion that the Governors present form a working 
group comprised of the Secretaries in each government responsible 
for combating piracy, including the Secretaries of Finance, 
Security, and Culture, among others.  While recognizing that the 
states bordering on Paraguay (Mato Grosso do Sul; Parana was not 
represented at the meeting) face the largest challenges, Rigotto 
pointed out that the products that cross through these states 
ultimately end up on the streets of Sao Paulo and elsewhere. 
 
¶17.  Mato Grosso Do Sul Governor Miranda dos Santos (Zeca do PT) 
immediately seized on this idea, saying the border states and major 
markets could help each other immensely.  He noted that counterfeit 
fuel from Sao Paulo is sold in Mato Grosso do Sul, and that drugs 
from Bolivia and Paraguay make their way through his state to Sao 
 
SAO PAULO 00000675  006 OF 008 
 
 
Paulo.  Thus, they had a lot to learn from each other and much to 
gain by coordinating efforts.  Governor Zeca thanked the U.S. for 
its helpful drug enforcement presence in Paraguay and Bolivia and 
called for a greater U.S. presence in the Brazilian border states 
themselves.  Santa Catarina Governor Pinho denied that his state had 
a large problem with piracy but expressed a willingness to 
participate in a regional working group.  He also noted that Santa 
Catarina's Federation of Industries (FIESC) has great expertise to 
lend in this area. 
 
¶18.  Secretary Gutierrez thanked everyone for their comments and 
stated that in order to better fight piracy, we need better 
information.  For example, it would be good to know how much illicit 
material is being produced locally and how much is being imported, 
and from where.  In the United States, 70 percent of all counterfeit 
goods come from China; this is a useful figure for us to have when 
making policies to fight piracy.  He asked the participants to share 
information they may have with him.  In response, Governor Germano 
Rigotto clarified that most of Brazil's pirated goods comes from 
China via Paraguay and enters through weakly policed ports and 
borders in the form of textiles, computer software and hardware, 
CDs, and DVDs.  He noted that all counterfeit cigarettes in Brazil 
are manufactured in Paraguay, with falsified brand names.  No 
counterfeit cigarettes are made in Brazil.  There is, however, a 
large counterfeit computer industry in Brazil, for which all 
manufacturing takes place locally.  Rigotto advocated that the 
states play a stronger role in breaking up these illegal businesses. 
 
 
¶19.  Commerce Deputy Under Secretary Stephen Pinkos of the Patent 
and Trademark Office then commented that Brazil is to be 
congratulated on its recent successes in combating piracy.  He also 
highlighted training programs currently being conducted in Brazil by 
the Department of Homeland Security and the Department of Justice. 
Pinkos then described the success the U.S. has had in organizing 
federal task forces, which combine federal, state, and local police 
efforts to combat piracy, even though ultimately the charges that 
will be brought are federal.  He suggested that the U.S. could work 
with Brazil to share experiences from this model and help Brazilian 
authorities implement a similar framework to fight piracy.  He also 
emphasized the health costs of piracy, which go beyond lost tax 
revenue and unfair competition.  Ten percent of medication worldwide 
is counterfeited, as are many auto parts.  The public safety 
ramifications of this phenomenon are sobering and need to receive 
wider public attention. 
 
¶20.  Governor Lembo closed the Roundtable suggesting that the 
Governors' respective Chiefs of Staff contact each other to set up a 
sub-regional working group meeting.  Lembo offered to host the 
meeting in Sao Paulo, and suggested that the first meeting occur in 
the latter half of July, adding, "After the World Cup, of course." 
 
 
--------------------- 
VISIT TO SENAC CENTER 
--------------------- 
 
¶21.  Secretary Gutierrez next visited a branch of the National 
Commercial Apprenticeship Service (SENAC).  SENAC is a University 
system begun in 1946 with the support of different Federations of 
Industry, including FIESP, which wanted to begin a system of schools 
 
SAO PAULO 00000675  007 OF 008 
 
 
that would increase the country's stock of technically trained 
students.  SENAC has 56 units in Sao Paulo State alone.  The 
Secretary, Consul General, and Senior Commercial Officer were 
 
SIPDIS 
greeted by Joao Kulcsar, Director of the U.S. Study Center; Abram 
Szajman, President of SENAC and of the Federation of Commerce for 
Sco Paulo; and Emelio Umeoka, President of Microsoft.  The group 
toured SENAC's library, where they were given an overview of SENAC's 
activities and resources, and then went across campus to Microsoft's 
Center of Innovation learning center.  Umeoka provided an overview 
of Microsoft's investment in youth education and the goals of the 
Innovation Center, as well as a summary of other Microsoft corporate 
responsibility programs in Brazil.  Following a photo with some of 
the Center's students, the Secretary and others were escorted to a 
classroom, where they spent 30 minutes speaking to twelve students 
in a roundtable format about their different classes, incubator 
businesses, and hopes for future employment.  A brief interview with 
SENAC's internal television station followed, and Szajman and Umeoka 
and other SENAC representatives took their leave of the Secretary 
and his delegation. 
 
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POSITIVE PRESS PLAY 
------------------- 
 
¶22.  Media coverage of the visit was generally positive, 
comprehensive and objective.  There was much press interest in the 
Secretary - both his morning press conference with the Governors and 
 
SIPDIS 
his late afternoon media roundtable, as well as his speech at 
AmCham, were covered by all major dailies, all TV networks, business 
dailies and newsweeklies, and wire services.  The questions he 
received from Brazilian journalists at the roundtable were probing 
and well-informed, but neither hostile nor friendly.  The 
Secretary's statements were accurately represented, and the main 
 
SIPDIS 
points that he emphasized - greater Inter-American commercial and 
trade cooperation and integration; viewing China and India not only 
as potential markets, but also competitors; highlighting the 
positive steps that have been taken to combat piracy, but noting 
that more remains to be done - were covered.  "Folha de Sao Paulo," 
the largest circulation daily newspaper, noted that he didn't 
mention FTAA in public at all, but seemed to focus more on bilateral 
efforts. The reporting was much more factual than analytical. 
Overall, the reporting was comprehensive, fair, and, on balance, 
positive. 
 
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COMMENT 
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¶23.  This was a highly successful visit that advanced key aspects of 
our economic and commercial agenda.  The Secretary brought with him 
a clear, coherent message on the USG's trade policies and 
priorities, and he delivered it effectively to state government 
officials, business leaders, and the omnipresent Brazilian 
Ambassador.  He also demonstrated a keen awareness of Brazilian 
concerns on trade issues as well as a willingness to listen.  If, in 
the aftermath of his visit, Brazilian federal and state law 
enforcement agencies actually implement their proposal to 
communicate better with each other on issues related to combating 
IPR piracy, the visit will have accomplished something tangible and 
positive for both sides.  END COMMENT. 
 
 
SAO PAULO 00000675  008 OF 008 
 
 
¶24.  This cable was coordinated/cleared with Embassy Brasilia. 
 
MCMULLEN