VZCZCXRO1286
RR RUEHRG
DE RUEHSO #1197/01 3201752
ZNR UUUUU ZZH
R 161752Z NOV 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 6061
INFO RUEHBR/AMEMBASSY BRASILIA 7132
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2620
RUEHMN/AMEMBASSY MONTEVIDEO 2207
RUEHBU/AMEMBASSY BUENOS AIRES 2531
RUEHSG/AMEMBASSY SANTIAGO 1912
RUEHLP/AMEMBASSY LA PAZ 3116
RUEHPE/AMEMBASSY LIMA 1070
RUEHCV/AMEMBASSY CARACAS 0410
RUEHBO/AMEMBASSY BOGOTA 1454
RUEHRG/AMCONSUL RECIFE 3228
RUEHRI/AMCONSUL RIO DE JANEIRO 7596
RUEHAC/AMEMBASSY ASUNCION 2842
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 04 SAO PAULO 001197 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR SCRONIN/MSULLIVAN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
USDOC ALSO PASS PTO/OLIA 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
DOL FOR ILAB MMITTELHAUSER 
 
E.O. 12958:  N/A 
TAGS: KIPR ETRD ECON EINV KJUS BR
SUBJECT:  AUSTR EISSENSTAT VISIT TO SAO PAULO 
 
REF: A) SAO PAULO 675, B) BRASILIA 2314 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary.  Following their attendance at the Bilateral 
Consultative Mechanism Meeting in Brasilia on October 16 (Reftel B), 
AUSTR for Latin America Everett Eissenstat, AUSTR for Industry 
Meredith Broadbent, and USTR Brazil and Southern Cone Director Sue 
Cronin visited Sao Paulo.  They met with the Sao Paulo State 
Federation of Industries (FIESP) and the American Chamber of 
Commerce (Amcham) to discuss trade issues, and with private sector 
representatives in the copyright and pharmaceutical areas to discuss 
intellectual property rights (IPR) issues.  FIESP and Amcham urged 
the U.S. to maintain Brazil's participation in the Generalized 
System of Preferences (GSP) program and discussed the outlook for 
the Doha Round trade negotiations and ongoing bilateral regional 
trade negotiations in the Americas.  The USTR officials were 
interviewed by prominent news, business and economic publications, 
and received balanced press coverage on GSP issues in four articles 
the following day.  End Summary. 
 
Amcham:  Focus on Improving the Business Climate 
 
 
¶2.  (SBU) The USTR visitors had a productive exchange of information 
with members of Amcham's Executive Board, which has focused on 
improvement of Brazil's business environment as a priority. Amcham 
is targeting six major areas:  1) regulatory framework and 
infrastructure; (2) innovation and intellectual property protection; 
(3) taxation; (4) job creation; (5) international negotiations; and 
(6) education.  Amcham members repeatedly expressed the desire to 
maintain a good bilateral trade relationship with the U.S., 
concentrating on common trade interests and promoting "win/win" 
situations for both countries.  Although complicated, cooperation on 
ethanol and the bilateral Commercial Dialogue are two areas that 
have shown movement in the right direction.  According to Amcham, 
problems hindering movement in the bilateral economic relationship 
include: (1) the lack of a consistent Brazilian foreign policy 
(although according to Board Members, Finance Minister Mantega is 
providing positive direction); (2) the perception that alignment 
with the U.S. is unpopular with the Brazilian public, especially 
given the unpopularity in Brazil of the current U.S. administration, 
Lula's leftist background, and the priority he gives to promoting 
South-South ties; and, (3) concern that the sudden termination of 
the GSP program will negatively impact mostly U.S. companies based 
in Brazil and Brazilian companies that are producing items that 
would not ordinarily be produced in the U.S. 
 
Amcham's Concern Over Losing GSP Benefits 
 
 
¶3.  (SBU) Amcham views itself as a facilitator in the bilateral 
relationship, for example hosting a lunch meeting during the June 
visit of Secretary of Commerce Gutierrez.  Amcham voiced concern, 
however, over the possible non-renewal of GSP for Brazil and the 
negative impact such a decision would have on the present U.S. - 
Brazil relationship.  Amcham has recently advocated for the 
continuation of GSP benefits for Brazil and the reduction of U.S. 
import tariffs on ethanol.  In October, Amcham headed a delegation 
to meet with members of the U.S. Congress to support GSP renewal and 
sent a second delegation November 13 - 15, prior to GSP expiration 
on December 31, 2006. 
 
¶4.  (SBU) Brazilians appear to be shocked at the abruptness of a 
possible GSP termination.  A representative from 3M gave as an 
example the manufacture of ear plugs.  GSP benefits enable 3M to 
 
SAO PAULO 00001197  002 OF 004 
 
 
export them to the U.S. from Brazil at a competitive price; however, 
removal of the benefits would create a ripple effect making the 
production and export of this product unprofitable.  Eaton Truck 
Components offered a similar example.  The company produces gear 
boxes in a smaller volume than could be profitably produced in the 
U.S.  If GSP benefits are discontinued, the company might in the 
future move production to China's cheaper labor market.  The major 
issue expressed by Eaton, however, was the suddenness of GSP removal 
- if it were to happen - and the fear of the negative impact of such 
a decision on Brazil-U.S. bilateral relations.  A more palatable 
decision, in the company's view, would be the gradual phasing out of 
the GSP program. 
 
¶5.  (SBU) In response, AUSTR Broadbent explained in detail the 
original intent and purpose of the GSP program and the current 
review process.  She underscored that the entire program is under 
review, not just Brazil's participation.  USTR will make a 
recommendation, which will go to Congress for approval.  She noted 
the strong Brazilian response in favor of continuing GSP, with 
approximately 800 letters sent to USTR.  AUSTR Eissenstat followed 
with an overview of the U.S. trade agenda in the hemisphere, 
discussing the current status of NAFTA, the Chile Free Trade 
Agreement (FTA), CAFTA-DR, Colombia, Panama, Uruguay, and Peru.  He 
then gave his impressions of the five hour meeting in Brasilia the 
previous day with Rodrigo Azevedo, the Director of Monetary Policy, 
Brazilian Central Bank.  Sue Cronin closed the conversation with a 
short discussion of Mercosul, giving an explanation of the more 
comprehensive US perspective on trade with this organization. 
 
FIESP: Econ/Pol Outlook, Stalled Doha Round, GSP Worries 
 
 
¶6.  (SBU) During an afternoon lunch meeting at FIESP, the USTR 
visitors met with Deputy Director for International Affairs, Carlos 
Cavalcanti, former Brazilian Ambassador to the US (and FIESP 
advisor) Rubens Barbosa, International Negotiations Coordinator 
Diego Bonomo, and staff members.  Cavalcanti opened the meeting with 
his impressions of the economic and political outlook.  He thinks 
that Celso Amorim will continue as the Foreign Minister, as he has 
unfinished business with the WTO Doha Round.  In matters of trade, 
he believes the likelihood of meaningful official dialogue between 
the GoB and the USG is limited, given the official stance of the 
Lula government.  The only alternative is for the private sector to 
facilitate business, concentrating on more exports and investments, 
in the hope that trade can be separated from foreign policy.  Trade 
will have to continue to be conducted under the present regulations, 
as most changes contemplated would require amending the 
Constitution, which would be very difficult under a second Lula 
administration.  If there is no legislative movement on trade 
issues, then FIESP is prepared and committed to move forward on its 
own. 
 
¶7.  (SBU) One of FIESP's biggest concerns is what it feels is the 
misperception of Brazil's role in the Doha Round, especially among 
members of the U.S. Congress.  Cavalcanti clearly felt this during 
his visit to Washington in conjunction with the Amcham-led 
delegation to discuss GSP renewal.  (Comment:  In private 
conversations with various members of the delegation after their 
trip, most related that Brazil's role in the Doha Round negotiations 
was consistently brought up as a major point of contention in 
considering GSP renewal for Brazil.  One FIESP participant related 
that several of the congressional offices approached did not have 
any substantive discussions with the delegation, but instead 
referred them to Senator Grassley's office.  A CIESP (Sao Paulo 
State Industrial Center) representative said there was minimum 
reception at congressional offices and few meetings with actual 
 
SAO PAULO 00001197  003 OF 004 
 
 
Congressmen, leaving a less than positive perception of the 
delegation's treatment while in the U.S. End Comment.) 
 
¶8.  (SBU) During the discussion, AUSTR Broadbent stressed the need 
for Brazil to differentiate itself from India, especially with 
regard to non-agricultural market access (NAMA) issues.  AUSTR 
Eissenstat made similar comments concerning the Doha G-20 proposal, 
where both India and Brazil's name appear on the proposal.  In 
differentiating between Brazil and India, he suggested that it would 
be advisable for Brazil to bring a measurable offer to the table. 
FIESP was concerned that if GSP is not renewed, it would be seen as 
a "punishment" of Brazil, resulting in an official GOB response that 
would only exacerbate the negative perception of the U.S.  This 
scenario, according to Cavalcanti, would be a "lose/lose" situation 
for both Brazil and the U.S.  All three USTR officials stressed that 
the GSP program was never conceived as a permanent program, but 
rather as a temporary program with a stated end date.  Previous end 
dates received a similar review, and the program was renewed.  The 
ongoing program renewal review is administrative, objective and 
transparent, and is not solely a review of Brazil's participation, 
but a review of the entire program.  Thus, Brazil can best serve its 
own interests by continuing to dialogue with Congress and by 
offering viable, logical, and clearly understood arguments for GSP 
renewal, all the while keeping in mind that the program is not 
permanent, and its goal is to stimulate the development of 
competitive companies that eventually do not rely on GSP benefits. 
 
 
IPR: Movie Industry Satisfied, but Book Publishers Frustrated 
 
 
¶9.  (U) The USTR officials also held meetings with representatives 
of the various copyright industry associations.  Steve Solot, Senior 
Vice President for the Motion Picture Association (MPA) in the Latin 
American region, is relatively happy with the GOB's recent 
activities to combat piracy and IPR crime in Brazil.  At the MPA 
Annual Meeting this year, the head of the Brazilian National Council 
to Combat Piracy and Intellectual Property Crimes (CNCP) will be 
honored with the Association's first annual anti-piracy award in 
recognition of the Council's recent efforts to fight piracy.  Dalton 
Morato, Legal and Administrative Director for the Brazilian 
Association for Reproduction Rights (ABDR), which represents 90% of 
the publishers in Brazil, was very concerned with the actions of 
three major universities in Sao Paulo State, which allow 100% 
reproduction of foreign textbooks at their copy centers on campus. 
These are the University of Sao Paulo (USP), the Getulio Vargas 
Foundation (FGV - a major business school), and the Catholic 
University of Sao Paulo (PUC-SP).  This accounts for an annual loss 
to publishers of approximately USD 15 million.  ABDR has appealed to 
the Ministry of Education, which has ignored the appeals, stating 
that they cannot do anything since the universities are private. 
The CNCP has been unable to do anything either, as they have no 
control over university policies.  There has been some action on 
enforcement against this practice at the state level; however, 
police consider book-related crimes to be of lesser importance and 
of lower priority, and react accordingly. 
 
Pharmaceutical Industry: Problems with Patents and Piracy 
 
 
¶10.  (U) The pharmaceutical industry was represented by Gaetano 
Crupi, President of Eli Lilly; Joao Sanchez, Governmental Relations 
Director for Merck Sharp & Dohme; Walban Damasceno Souza, Director 
of Governmental Relations at Bristol Myers Squibb; and, Ronaldo 
Pires, IPR Specialist for Interfarma.  General discussion focused on 
the need for continued improvements with ANVISA, the regulatory 
 
SAO PAULO 00001197  004 OF 004 
 
 
agency responsible for pharmaceutical patents.  The patent system 
now protects the investment and investor, and new examiners were 
hired recently, but there is still a backlog.  All agreed that 
private companies are not investing enough to combat piracy and that 
the piracy issue is a cultural one as well, as the predominant 
Brazilian attitude does not yet consider piracy a crime and an 
economic drain on society.  In the area of research, there are 
currently 43 biotech parks in Brazil and 23 incubators of companies. 
 With regard to AIDS medications, the companies believe that Brazil 
is using the compulsory licensing issue to advance its reputation, 
gain support from the developing world and play a leadership role. 
All agreed that compulsory licensing should not be government 
policy. 
 
¶11.  (U) This cable was cleared with USTR and Embassy Brasilia.