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FM AMEMBASSY BRASILIA
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RUEHRI/AMCONSUL RIO DE JANEIRO 5458
RUEHSO/AMCONSUL SAO PAULO 1195

UNCLAS SECTION 01 OF 04 BRASILIA 002162 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO CONGRESSMAN ENGEL 
 
E.O. 12958: N/A 
TAGS: OREP PREL ECON BR
SUBJECT: SCENESETTER FOR THE NOVEMBER 25-DECEMBER 1 VISIT 
OF CODEL ENGEL 
 
 
BRASILIA 00002162  001.2 OF 004 
 
 
 ¶1.  (SBU) Summary:  Brazil's democratic institutions are 
generally strong and stable, and President Luiz Inacio Lula 
da Silva remains popular because of his orthodox economic 
policies and expanded social programs.  Export-led economic 
growth has been the norm in the recent past, while Brazil has 
supported reasoned foreign policy goals and has steadfastly 
supported democracy in the hemisphere.  In the bilateral 
relationship, the U.S. and Brazil share many basic goals, 
although Lula seeks to balance good relations with the 
developed world with South-South foreign policy initiatives. 
Brazil's ethanol program has made it a global model for 
alternative energy and offers potential for bilateral 
cooperation on an important strategic issue.  On the 
environment, Brazil has long been on the defensive about the 
ongoing, extensive deforestation of the Amazon, which has 
made Brazil one of the leading producers of greenhouse gases. 
 The tri-border area in southern Brazil concentrates a range 
of organized criminal activities, including arms and 
narcotics trafficking, money laundering, and others.  The 
Brazilian labor movement is strong, well-organized, and very 
influential in many key industrial sectors.  Lula came out of 
the organized labor movement and labor and social issues have 
always been among his top priorities.  Trafficking in Persons 
is present in all of its forms in Brazil, but the GoB is 
making a serious effort to combat it.  Brazil maintains good 
relations with Iran and Venezuela; energy giant Petrobras, 
majority-owned by the Gob, has joint business undertakings 
with Iran, and Brazil avoids criticizing Venezuelan president 
Hugo Chavez.  End summary. 
 
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Latin America's Democratic and Economic Powerhouse 
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¶2.  (SBU) Brazil's democratic institutions are generally 
strong and stable, and the military dictatorship that ended 
over 20 years ago is consigned to the dustbin of history, as 
Brazil's armed forces today pursue a professional 
non-political identity.  A year following his re-election to 
a second term, and despite prosecution of high-level members 
of his administration on corruption charges, President Luiz 
Inacio Lula da Silva remains a personally popular president 
as a result of his orthodox economic policies and expanded 
social programs.  Ongoing and public scandals involving the 
leadership of the Senate and various members of congress have 
led to low ratings for the institution among the Brazilian 
public.  Increasingly, the court system has taken steps to 
curb impunity among public officials, which have been well 
received by a public accustomed to abuses by authorities. 
 
¶3. (SBU) On the economic front, Lula's Finance Minister 
Mantega, Planning Minister Bernardo, and Central Bank 
President Meirelles have maintained broadly orthodox 
policies.  In January, Lula unveiled his Growth Acceleration 
Program (PAC), consisting of public investment promises and 
targeted tax breaks aimed primarily at construction and 
certain high tech sectors, which has become the economic 
policy centerpiece of his second administration.  Although 
the PAC contains many measures of incremental merit, it does 
not address some of the growth-limiting distortions in the 
economy, burdensome tax and fiscal structure and onerous 
labor and business regulations. Lula's social programs, 
combined with formal sector job growth and real increases in 
the minimum wage, have reduced income inequalities each year 
since 2004.  Higher economic growth will be required, 
however, to lift the masses out of poverty. 
 
¶4.  (SBU) With steady export-led economic growth having 
become the norm in the recent past, Brazil has been a 
supporter of reasoned foreign policy goals and has been 
steadfast in its support of democracy in the hemisphere.  The 
attainment of a permanent seat on the UN Security Council has 
been a central tenet of Brazil's foreign policy under 
President Lula da Silva's government.  More generally, Brazil 
seeks to play a leadership role on the global stage by, among 
other things, playing a central role in the G-20 at the WTO, 
and leading the UN peacekeeping force in Haiti, which could 
serve as a springboard to greater international leadership on 
democracy promotion and security issues.  Brazil's efforts to 
build South-South relations continue to dominate its foreign 
policy, sometimes to the detriment of core political and 
economic interests.  The GoB, along with India, has led the 
G-20, a group of developing nations coordinating negotiating 
positions for the WTO Doha Round.  The group's widely varying 
membership has made it difficult for them to reach consensus 
on negotiating positions.  Brazil has not yet signed the NPT 
Additional Protocol, although it has not ruled out signing it 
 
BRASILIA 00002162  002.2 OF 004 
 
 
in the near future.  Most recently, Brazil has announced its 
desire to join OPEC following the discovery of massive 
offshore reserves of oil and gas. 
 
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The Bilateral Relationship 
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¶5. (SBU) The U.S. and Brazil share the basic goals of 
fostering hemispheric stability, promoting democracy, 
achieving a mutually satisfactory conclusion to the Doha 
round of WTO negotiations, preventing terrorist and drug 
transit activity, and supporting international 
non-proliferation regimes.  U.S.-Brazil cooperation is often 
limited by the GoB's unwillingness to take action regarding 
threats to democracy in specific countries and to support 
aggressive action in multilateral forums on such issues as 
non-proliferation, human rights, and democracy. 
 
¶6. (SBU) Although under President Lula Brazil has stressed 
South-South relations, Brazil's status as a leader in 
biofuels, combined with the March 2007 signing our bilateral 
MOU on biofuels cooperation, offers a potential avenue for 
increasing bilateral cooperation in a strategically important 
area.  The two presidential summits in March 2007 (Sao Paulo 
and Camp David) have helped create a positive tone in our 
bilateral conversation. 
 
¶7.  (SBU) Our bilateral dialogue with the GoB on development 
assistance to Brazil and in third countries contains positive 
elements, including promising potential in biofuels.  It is 
constrained by differences in approach to anti-poverty 
efforts, with the GoB focusing on cash transfers, while the 
USG prefers more finely targeted assistance.  The Brazilian 
Government's multi-billion dollar poverty alleviation program 
-- Bolsa Familia (Family Stipend) -- receives technical 
assistance from the World Bank and IDB.  USG budget 
constraints and the fact that it is a cash transfer program 
(albeit with conditions) keep the USG from actively 
cooperating with the initiative.  USAID has sought to target 
its USD 8 million in programs for Brazil towards promoting 
sustainable livelihoods through working on issues such as 
health, the environment, and small and medium-sized 
enterprises. 
 
¶8.  (SBU) The GoB has a strong interest in hemispheric 
security issues, and cooperates with the USG on the 
operational level in the fight against terrorism and drug 
trafficking.  Brazil has been cautious about taking an active 
role in recent high-profile non-proliferation efforts. 
Brazil remains an active partner in the DHS's Container 
Security Initiative (CSI) and has expressed approval of the 
Proliferation Security Initiative (PSI).  However, the GoB 
has not yet endorsed the PSI statement of principles. 
 
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Biofuels -- Potential for Strategic Cooperation 
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¶9.  (U) Brazil has transformed a 1970s program to bolster its 
large sugar-cane sector into a remarkable showcase for 
biofuels.  The success of Brazil's ethanol program has made 
it a model for the world in terms of alternative energy and 
presents the potential for bilateral cooperation on an 
important strategic issue.  Brazil's comparative advantage is 
its ability to produce huge quantities of sugarcane, which is 
currently the most efficient feedstock for ethanol.  Cane 
requires far less processing than corn to produce ethanol. 
According to the World Bank, at current prices, Brazil can 
make ethanol for about one US dollar per gallon, compared 
with the international price of about USD 1.50 per gallon for 
gasoline.  On the demand side, Brazil's use of modest tax 
breaks have led new car purchasers to opt overwhelmingly for 
"flex-fuel" cars that can run on either gasoline, ethanol, or 
any combination of the two. 
 
¶10.  (SBU)  Following the signing of the MOU in March, Brazil 
and the United States have been seeking ways to increase our 
collaboration in order to develop the next generation of 
biofuels, as well as in developing international standards on 
biofuels which should facilitate greater international 
acceptance and use of biofuels. 
 
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Agriculture Trade Disputes 
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BRASILIA 00002162  003.2 OF 004 
 
 
¶11.  (U) Brazil, like Canada, made a first request to 
establish a WTO Dispute Settlement panel on November 19, 
2007, to challenge US agricultural domestic support, claiming 
the US exceeded support caps 1999-2002 plus 2004-2005.  A 
second panel request and the establishment of the panel are 
expected on December 18.  In 2004, the WTO found mainly in 
Brazil's favor in the challenge against US cotton programs. 
Brazil challenged US compliance with the Panel report and the 
Panel found again primarily in Brazil's favor in October 2007 
(although the report remains WTO-confidential until formally 
released in December).  Some in the Brazilian congress 
threatened cross-retaliation against IPR in the cotton case, 
but to date legislative proposals have not moved forward. 
News reports have indicated that the Foreign Ministry is 
preparing such cross-retaliation measures should the WTO find 
in their favor. 
 
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Deforestation and Climate Change 
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¶4.  (SBU) On the environment, Brazil has long been on the 
defensive about the ongoing, extensive deforestation of the 
Amazon, which has made Brazil one of the leading producers of 
greenhouse gases.  Over the last three years, the rate of 
deforestation has dropped sharply.  Brazil now views the 
debate over climate change as an opportunity.  It proposes 
that the international community provide financial incentives 
for avoiding deforestation and vigorously promotes the use of 
biofuels. 
 
¶12.  (SBU)  Brazil pursues two sometimes conflicting goals 
with regard to the Amazon region.  On the one hand, it seeks 
to preserve much of the natural resources and biodiversity 
found in the region.  The Forest Code requires the landowner 
to maintain 80 percent of the forests on the land.  Further, 
the GoB has placed large amounts of the forest into protected 
areas, such as national parks and indigenous reserves.  At 
the same time, the GoB seeks economic growth and 
redistribution of land.  Thus, since the 1970s it has built a 
network of roads through the Amazon, which has opened the 
region to timber and agriculture (mainly soybean) interests. 
The GoB has resettled many of the poor into settlements along 
the roads, and as a result, in 2004 the deforestation rate 
shot up to a high of 27 thousand square kilometers per year. 
High demand for charcoal to support a rapidly growing pig 
iron industry has also contributed to significant 
deforestation.  Nonetheless, a combination of market forces 
and government actions has led to an almost 50 percent 
reduction in the deforestation rate.  For 2007, the GoB 
expects that deforestation will fall under 10 thousand square 
kilometers.  There are worrisome signs, however, that the 
rate may be going up again, especially in light of higher 
prices for agriculture goods and increasing demand for 
charcoal. 
 
¶13.  (SBU)  The GoB created a Forest Service in 2006 and is 
seeking to obtain a stronger grip on forest management.  It 
also has ratcheted up somewhat the enforcement of existing 
rules against deforestation.  These measures are aimed at 
avoiding a return to the very high deforestation rates 
earlier in the decade. 
 
¶14.  (SBU)  With respect to climate change, the GoB has 
proposed that the international community providing financial 
incentives for avoiding deforestation.  In addition, it uses 
the focus on renewable energy to promote greater use of 
biofuels.  The GoB, however, is adamantly opposed ) as a 
developing country - to accepting international, binding 
obligations that would impede economic growth, such as 
restrictions on the use of its natural resources.  Brazil is 
sensitive about any suggestions on how it should manage the 
Amazon. 
 
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Tri-Border Area (TBA) 
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¶15.  (U) The Tri-border area (TBA) joining Foz de Iguacu in 
Brazil, Ciudad del Este in Paraguay, and Puerto Iguazu in 
Argentina, concentrates a range of organized criminal 
activities, including arms and narcotics trafficking, 
document fraud, money laundering, as well as the manufacture 
and movement of contraband goods.  A wide variety of 
counterfeit goods, including cigarettes, CDs, DVDs, and 
computer software, are moved from Asia into Paraguay and 
transported primarily across the border into Brazil.  The 
 
BRASILIA 00002162  004.2 OF 004 
 
 
United States remains concerned that Hizballah and HAMAS are 
raising funds in the TBA by participating in illicit 
activities and soliciting donations from extremists within 
the sizable Muslim communities in the region. 
 
¶16.  (U) The governments of the TBA countries have long been 
concerned over these illicit activities and in the 1990s 
established a mechanism, which the US joined in 2002 at their 
invitation, to address these illicit activities.  The "3 1 
Group on Tri-border Area Security" is intended to improve the 
capabilities of the three TBA states to thwart cross-border 
criminal activity and potential terrorist fundraising 
activity.  Brazil is an active partner within this mechanism, 
and established and hosts a Joint Intelligence Center (JIC) 
in Foz de Iguacu, although staffing issues on the part of 
Argentina and Paraguay continue to impede its full 
functioning. 
 
¶17.  (SBU) Despite a close bilateral working-level 
relationship on transnational criminal issues in the TBA, 
senior levels of the Brazilian government maintain that there 
is no evidence of an operational or fundraising terrorist 
presence in the TBA or in Brazil, and they are concerned that 
such characterizations  stigmatize the region's Muslim 
population and have a negative impact on local tourism. 
 
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Labor Issues 
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¶18.  (SBU)  The labor movement in Brazil is strong, 
well-organized, and very influential in many key industrial 
sectors.  President Lula comes from the labor movement.  He 
worked his way up through them powerful metal workers union, 
was one of the founders of the largest Brazilian labor 
confederations, the unified Workers Confederation of Brazil 
(CUT), and of the ruling Workers Party (PT).  Labor and 
related social issues, such as combating Trafficking in 
Persons (TIP), and forced labor, are top priorities of the 
Lula Administration. 
 
¶19.  (SBU)  Most economists and policymakers agree that labor 
reform is necessary for the Brazilian economy to grow at a 
faster rate and to reduce the large informal sector. 
However, comprehensive labor reform is politically unpopular 
and unlikely to happen during the Lula Administration. 
 
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Trafficking in Persons 
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¶20.  (SBU)  Trafficking in Persons is present in all of its 
forms in Brazil, including the trafficking of women and 
children internally and internationally for purposes of 
sexual exploitation, the internal trafficking of men for use 
in slave or forced labor in the cattle-raising, agricultural, 
and charcoal/pig iron production sectors, and the use of 
foreign laborers working in slave-like conditions in some 
factories in the city and state of Sao Paulo.  However, the 
GoB is making a serious effort to combat TIP and forced/slave 
labor.  It signed the Palermo Protocol in 2004 and is now 
working to get implementing legislation passed by the 
Congress.  President Lula signed a decree in October 2006 
establishing a national anti-TIP policy.  A binding work plan 
to implement that policy has been completed and will soon be 
launched publicly.  Ministry of Labor mobile inspection teams 
have freed over 23,000 laborers from slave-like working 
conditions since starting work in 1993. 
 
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Brazilian Relations with Iran and Venezuela 
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¶21. (SBU) Brazilian parastal energy giant Petrobras, 
majority-owned by the GoB, continues to conduct joint 
business undertakings with Iran.  Brazil disappointed and 
irritated its neighbor and fellow Mercosul member state 
Argentina when it recently abstained in an international vote 
over whether to issue Interpol warrants for Iranian officials 
accused in the bombing of AMIA, an Argentine Jewish center. 
Brazil avoids criticizing Veneuzelan president Hugo Chavez, 
the Gob supports its proposed accession to Mercosul, and 
President Lula recently publicly defended Chavez against 
accusations that Venezuela is not democratic. 
 
CHICOLA