VZCZCXRO2043
RR RUEHRG
DE RUEHBR #0366/01 0601612
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R 011612Z MAR 07
FM AMEMBASSY BRASILIA
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UNCLAS SECTION 01 OF 02 BRASILIA 000366 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR - SCRONIN 
STATE PASS USPTO 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MCAMPOS 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DRAMBO 
AID/W FOR LAC 
DOE FOR GWARD 
TREASURY FOR OASIA - JHOEK 
 
E.O. 12958:  N/A 
TAGS: ETRD ENRG KIPR EAGR SENV BR
SUBJECT: Brazil:  Under Secretary Burns Meets with Minister of 
Development, Industry, and Commerce Furlan 
 
¶1.  (SBU) Summary.  During Under Secretary of State for Political 
Affairs R. Nicholas Burns' February 7-8, 2007 visit to Brasilia, he 
met with Minister of Development, Industry and Commerce Luiz 
Fernando Furlan and his management team.  The friendly, wide-ranging 
conversation touched upon issues such as the bilateral Commercial 
Dialogue, IPR enforcement, expanding trade between the two 
countries, prospects for a bilateral investment treaty and a 
bilateral tax treaty, and biofuels.  On biofuels, Minister Furlan 
urged the USG to eliminate its 54 cent per gallon levy on certain 
ethanol imports as he said that this measure made it more difficult 
for Brazil to supply U.S. consumers.  Ambassador will continue to 
press the USG's agenda in his continuing dialogue with the Minister. 
 End Summary. 
 
 
¶2.  (SBU)  On February 8, U/S Burns, accompanied by WHA A/S Thomas 
Shannon, Special Energy Coordinator Greg Manuel, S/P Member William 
McIlhenny, P Special Assistant Heide Bronke and the Ambassador, met 
with Brazilian Minister of Development, Industry, and Commerce Luiz 
Fernando Furlan.  Joining Minister Furlan was his entire management 
team:  Secretary of Production Development Antonio Sergio Martins 
Mello, Secretary of Foreign Trade Armando de Mello Meziat, Foreign 
Trade Chamber Director Mario Mugnaini, Export Promotion Agency Chief 
Juan Quiroz, and International Affairs Advisor Jose Mauro da Couto. 
 
 
The U.S.-Brazil Commercial Dialogue 
----------------------------------- 
 
¶3.  (SBU) Minister Furlan opened the meeting by expressing his 
satisfaction with the useful exchanges over the past eight months 
pursuant to the U.S.-Brazil Commercial Dialogue, which Furlan chairs 
along with USDOC Secretary Gutierrez.  The Dialogue's IPR Working 
Group had made a great deal of progress on IPR, he noted, with the 
GOB patent agency hiring 440 new examiners in an effort to clear its 
patent backlog.  The Standard's Working Group was also proceeding 
well as NIST was moving forward with its Brazilian counterpart 
"INMETRO" on creating a common standard for ethanol.  Also, in 
November 2006, MDIC officials responsible for the Customs 
Facilitation Working Group had visited express delivery service 
facilities in Tennessee. 
 
Increasing Bilateral Engagement 
------------------------------- 
 
¶4.  (SBU) Furlan declared that Brazil and the U.S. needed to do more 
to strengthen trade and investment ties between the two countries. 
Now that the U.S. Congress had extended the GSP program, he did not 
have to raise this as an issue with U/S Burns, he noted. 
Intensifying our bilateral relationship would require concrete 
actions, Furlan continued, much like the ideas floated in former D/S 
Zoellick's January 8 Wall Street Journal op-ed.  (Note: That article 
called for greater hemispheric integration, including a multilateral 
trade pact of the willing, to counter populist voices. End note.) 
While U.S.-Brazil trade had increased, it was not keep pace with the 
gains in trade between Brazil and other regions of the world.  Five 
years ago the region which traded most with Brazil was the United 
States, followed by the E.U., he observed.  Now, although the U.S. 
is still Brazil's largest single-country trading partner, in terms 
of regions, Latin America was number one, followed by the EU and 
then the U.S.  Amb. Sobel pointed out that for the United States, 
our trade with Brazil was relatively small as a percentage of our 
total world trade:  2.4 percent several years ago versus only 1.9 
percent now. 
 
¶5.  (SBU) U/S Burns stated that U.S. relations with Brazil were good 
but that they could be better.  Our two presidents would meet twice 
within the next month, he said, and given the excellent relationship 
they enjoyed, this was an opportunity to find the best way forward 
on trade.  In view of the large size of our respective markets, he 
 
BRASILIA 00000366  002 OF 002 
 
 
continued, it was hard to believe that the two countries did not 
have in place a Bilateral Investment Treaty (BIT) or a Bilateral Tax 
Treaty (BTT).  Furlan replied that the GOB's interagency Foreign 
Trade Chamber was working on a model BIT.  (Post Comment: They have 
started, but the model text does not contain key provisions such as 
binding arbitration for investor-state disputes.  End Comment.)  As 
for a BTT, Furlan acknowledged that Brazilian companies are 
investing more and more in the United States and would benefit from 
the signature of such an accord.  However, he said that the problem 
was that the Finance Ministry would likely oppose any measure that 
resulted in the loss of tax revenue - no matter the amount. 
 
¶6.  (SBU) Furlan noted that a number of economic/commercial ideas 
were on the table as policymakers from both sides prepared for the 
upcoming POTUS visit.  He pointed out that he supported the concept 
of a bilateral CEO Forum, which could be set up as an informal fifth 
working group under the bilateral Commercial Dialogue.  U/S Burns 
stated that a similar mechanism had been established between the 
U.S. and India and had enjoyed great success.  The U.S.-India Forum, 
he said, had helped to dismantle key non-tariff barriers and 
increase business confidence. 
 
Biofuels Cooperation 
-------------------- 
 
¶7.  (SBU) On biofuels, Furlan declared that this was an issue on 
which Brazil and the U.S. could cooperate to both countries' mutual 
benefit.  Already, he observed, U.S. companies were investing in the 
Brazilian ethanol industry.  He related that he had recently dined 
with ADM executives visiting Brazil and they reported that the firm 
was establishing a biodiesel facility in Argentina which would 
produce 140,000 tons per year.  Furlan then embarked upon an 
extended pitch to get the USG to eliminate its 54 cent per gallon 
tax on certain ethanol imports.  Brazilian policymakers would be 
raising the 54 cent per gallon tariff with their USG counterparts, 
he warned, at every opportunity. He stated while that the impact of 
such a move in the United States would be small, in Brazil it would 
be big.  It might be more cost-effective to supply California with 
duty-free ethanol from Brazil, he speculated, rather than transport 
ethanol from the mid-western United States.  Finally, Furlan mused 
that it might be worthwhile for the USG to establish a specific 
ethanol quota for Brazil, much as had been done for the Central 
American countries under CAFTA. 
 
¶8.  (SBU) U/S Burns responded that the debate within the U.S. on 
energy was entering a dynamic phase given the distorting effect that 
oil was having on key suppliers such as Iran and Venezuela.  With 
respect to ethanol imports, he pointed out that under the U.S. 
system the Congress has responsibility for setting tariffs and that 
the Executive Branch could not speak for the Congress.  That said, 
he noted that the idea of eliminating the tariff on imported ethanol 
had sparked considerable debate within the United States.  He 
wondered whether this issue was academic as it did not appear that 
Brazil currently had sufficient excess capacity to send significant 
amounts of additional exports to the U.S.  Furlan acknowledged the 
capacity problem, but averred that the sugar cane producers planned 
to bring on significant additional acreage within the next few 
years. 
 
¶9.  (U) This cable was cleared by U/S Burns' delegation prior to 
transmission. 
 
Sobel