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DE RUEHSO #0003/01 0031503
ZNR UUUUU ZZH
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FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 6223
INFO RUEHBR/AMEMBASSY BRASILIA 7305
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RUEHRI/AMCONSUL RIO DE JANEIRO 7683
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UNCLAS SECTION 01 OF 03 SAO PAULO 000003 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO USTR FOR SCRONIN 
STATE PASS EXIMBANK 
STATE PASS USTR FOR SULLIVAN/LEZNY 
DEPT OF TREASURY FOR OASIA, DAS LEE AND JHOEK 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC ALSO FOR 3134/USFCS/OIO/EOLSON/DANDERSON 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
DOL FOR ILAB PEREZ-PKOPEZ AND WHOLEY 
 
C O R R E C T E D    C O P Y    (SUBTRATED TEXT AT END OF CABLE) 
 
E.O. 12958: N/A 
TAGS: ECON EIND ETRD EINV BR
SUBJECT: SAO PAULO BUSINESSMEN PRESS ON NEGOTIATIONS FOR A US TRADE 
AGREEMENT 
 
SAO PAULO 00000003  001.2 OF 003 
 
 
This Cable is Sensitive but Unclassified, please protect 
accordingly. 
 
¶1.  (U) SUMMARY:  Members of the Brazil-U.S. Business Council, a 
bilateral business grouping, recently expressed lack of faith in the 
resumption of FTAA negotiations and demanded greater commitment from 
the GOB to begin negotiations for alternative mechanisms to enhance 
bilateral trade relations.   They believe FTAA is a "dead horse" and 
there is urgent need to find alternative ways to increase 
cooperation and trade relations between Brazil and the US, the 
"largest single consumer market on the planet."  Business leaders 
advocated conclusion of a bilateral tax treaty as one such measure 
and focused on biofuels as an area with substantial potential for 
future cooperation.  End Summary. 
 
¶2.  (U) On December 5 the Brazil-U.S. Business Council held its 25th 
Plenary meeting at the Federation of Industries of the State of Sao 
Paulo (FIESP) to celebrate the Council's 30th[P1] anniversary.  This 
event brought together prominent US and Brazilian business leaders, 
and future diplomats from the Rio Branco institute in Brasilia.  The 
main topic of the meeting was on increasing trade relations between 
Brazil and the US, with particular emphasis placed on closer 
cooperation in the ethanol and bio-fuels area.  All present agreed 
that prospects in the bio-fuels arena are enormous not only in 
Brazil but worldwide. 
 
--------------- 
FTAA SKEPTICISM 
--------------- 
 
¶3.  (U) The majority of industry representatives expressed 
skepticism over a positive outcome with the stalled FTAA 
negotiations, and urged Brazilian authorities to engage more 
seriously and vigorously in developing new initiatives to increase 
trade with the U.S.  Rubens Barbosa, former Brazilian Ambassador and 
current President of the Foreign Trade Council of FIESP, defined 
FTAA as a "dead horse" and asked the GOB to urgently identify and 
negotiate alternatives for increasing trade with the U.S. especially 
in sectors in which Brazil is competitive. 
 
¶4.  (U) GE Brazil President (and current AMCHAM President) Alexandre 
Silva stated that FTAA is no longer a viable option due to the 
complicated negotiations stalling passage.  According to Silva, U.S. 
company subsidiaries in Brazil are eager for a trade agreement, in 
whatever form, that will permit them to do business without 
obstacles in expand their exports to the US.  Silva argued that 
although not all industrial sectors would gain from bilateral 
agreements with the U.S. the long term benefit for Brazil as a whole 
would be substantial. 
 
---------------------------------------- 
NEED FOR STRONGER AND MORE DEFINED TRADE 
---------------------------------------- 
 
¶5.  (U) The President of the Brazilian side of the Brazil-U.S. 
Business Council and Vice President of EMBRAER, Henrique Rzezinski, 
said that trade relations between Brazil and the US lacked strength 
and definition, resulting in a proportionately modest exchange of 
goods given the high consumer market potential in both countries. 
He expressed dismay over both countries lack of perspective: 
Brazil's decision to give priority to South-South relations while 
the US concentrates on combating terrorism. 
 
¶6.  (U) Duke Energy Brazil President Mickey Peters noted that a 
bilateral trade arrangement would be the best bet for strengthening 
cooperation and expanding trade between the two countries.  "A 
country like the U.S. can invest much more in Brazil.  Unfortunately 
there are many obstacles to overcome in order to attract such 
investments", he said.  Peters cited four points which he considered 
essential to attract investments:  1) capital costs and a 
 
SAO PAULO 00000003  002.2 OF 003 
 
 
predictable timetable for obtaining environmental licenses; 2) 
prices that will guarantee reasonable profits; 3) the creation of a 
strong and independent regulation agency; and 4) a fair payment for 
energy transmission services. 
 
¶7.  (U) Natal Garcia, the president of Caterpillar, brought to the 
table the lack of a treaty to avoid double taxation.  The tax burden 
in Brazil is one of the highest in the world and the lack of a 
treaty continues to harm exports, as double taxation reduces the 
competitiveness of manufactured products.  In addition, royalty 
payments and inter-company services continue to be taxed, creating 
multiple problems with the IRS for many companies. 
 
----------------------------------- 
OTHER OBSTACLES TO TRADE AGREEMENTS 
----------------------------------- 
 
¶8.  (U) The President of the Brazilian Center for International 
Relations (CEBRI) Ambassador Jose Botafoco Goncalves expressed 
pessimism vis-[P2]a-vis any kind of trade negotiations with the U.S. 
at all, principally because it is only a remote possibility that 
Congress will renew the Trade Promotion Authority (TPA) that allows 
the executive branch to negotiate treaties with foreign countries. 
He recommended instead that Brazil should negotiate bilateral trade 
agreements with Mexico and Canada. 
 
¶9.  (U) Christian Lohbauer, of the Brazilian Poultry Exporters 
Association (ABEF) said that a Brazil-U.S. bilateral agreement would 
be the ideal step in increasing trade.  However, he pointed out an 
obstacle in the form of the Mercosul agreement, which does not 
permit member countries to negotiate side agreements with other 
nations.  Lohbauer lamented that during his four years in office, 
President Lula had done to find practical ways to increase trade 
with the U.S. and the EU, which are the two largest trading blocs. 
He criticized Brazil's current foreign policy which appears to be 
based on ideological inclinations and urged Itamaraty to pursue 
trade agreements which are in Brazil's best economic interest. 
 
-------------------------- 
THE PROMISE OF ETHANOL 
-------------------------- 
 
¶10.  (U) On a more positive note, Marcos Jank, from the Institute 
for Trade Studies and International Negotiations (ICONE) briefed 
participants on the Brazilian ethanol program and its prospects for 
the world in terms of renewable energy.  He spoke at length on the 
country's pioneer role in the development of ethanol.  "Today Brazil 
has a 44 percent participation in the production of renewable fuels 
versus 14 percent for the rest of the world", Jank observed, as he 
reminded the audience that Brazil also is the largest exporter of 
bio-fuels in the world.  He concluded pointing out the two important 
advantages of ethanol as a renewable energy--- it causes less 
pollution and has a low level of carbon. 
 
¶11.  (U) Brazilian Foreign Minister Celso Amorim had commented 
earlier in the event on an equally positive note, stating that the 
relationship between Brazil and the U.S. remains extremely important 
and necessary, and suggested that both countries need to find 
"niches" or areas of interest for future cooperation.  Amorim cited 
the ethanol and bio-fuels energy programs as a prime example for an 
opportunity to work together.  [P3](Comment: Amorim was not 
physically present at the event, but delivered his comments via a 
televised prepared statement, and therefore did not hear the other 
speakers' direct criticism of his trade policies.) 
 
¶12.  (SBU) Comment:  The annual meeting of the Brazil-U.S. Business 
Council provided an opportunity for Sao Paulo based businessmen to 
air their dissatisfaction with the Brazilian government's lack of 
movement on bilateral trade agreements.  They believe the FTAA is 
lost, Mercosul membership structure thwarts possible bilateral trade 
 
SAO PAULO 00000003  003.2 OF 003 
 
 
agreements with the U.S., and that the Lula administration has 
focused too exclusively on South-South relations rather than 
fostering stronger relations with the U.S. and EU.  This lack of 
focus has also resulted in continuing important internal issues not 
being addressed which affect trade and investment, such as the 
double taxation issue.  The current attitude in the private sector 
appears to be that private business will have to begin to step up to 
the plate, and more aggressively lobby government to act more 
positively in the negotiation of fair and beneficial trade 
agreements.  Specifically business believes that after the recent 
good news of the renewal of the Generalized Systems of Preferences, 
Brazil should seize this positive momentum to push for trade 
agreements with the U.S.  Separately, given that Brazil shares top 
ranking with the US in ethanol production, is the leading exporter 
of ethanol and a role model in renewable bio-fuel technology, this 
may be the most promising point of common interest for future 
cooperation.  [P4]End Comment. 
 
¶13. (U) This Cable was coordinated with Embassy Brasilia. 
 
MCMULLEN