VZCZCXRO4169
RR RUEHRG
DE RUEHBR #2177/01 3271904
ZNR UUUUU ZZH
R 231904Z NOV 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0512
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5477
RUEHSO/AMCONSUL SAO PAULO 1214
RUEHRG/AMCONSUL RECIFE 7411
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 002177 
 
SIPDIS 
 
DEPT PASS USTR FOR KATE DUCKWORTH 
DEPT PASS DOC/ITA/MAC/WH/OLAC ANNE DRISCOLL 
DEPT PASS TREASURY IA LUYEN TRAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ETRD EINV EFIN BR
SUBJECT: BRAZIL: CNI INDUSTRY ASSOCIATION PRIORITIES 
 
 
¶1. (U) SUMMARY:  The Executive Director and the Manager of the 
Economic Policy Unit at CNI explained the industry association's 
structure and priorities in a meeting with EconCouns.  CNI is 
Brazil's manufacturing lobbying and export promotion association of 
state-level associations and also serves as the Secretariat to the 
association of all sectors industry associations for trade 
negotiations (CEB).  With MRE encouragement, CEB has recently 
proposed negotiation of a Brazil-Mexico FTA, including an investment 
chapter.  CNI priorities include regulatory reform, tax reform, 
pension reform and enhancing Brazilian competitiveness. CNI 
participates in the US-Brazil Business Council and highlighted 
enhanced company interest in negotiation of a US-Brazil bilateral 
tax treaty.  END SUMMARY. 
 
--------- 
OVERVIEW 
--------- 
 
¶2. (U) Jose Augusto Coelho Fernandes, Executive Director, and Flavio 
Castelo Branco, Executive Manager (and chief economist) of the 
Economic Policy Unit, of the National Confederation of Industry 
(CNI) met with EconCouns November 16.   The CNI managers explained 
that industry association CNI serves as a "combination US Chamber 
and NAM" (National Association of Manufacturing) for Brazilian 
manufacturing companies.  CNI membership includes Brazilian 
manufacturing, construction, utilities (electricity and water but 
not telecom). Petrobras is a member. CNI is the association of state 
level business associations (including FIESP, FIESC, FIERJ, etc). 
CNI supports export promotion as well as lobbying, providing tools 
to international business centers in each Brazilian state. 
 
------------------ 
TRADE NEGOTIATIONS 
------------------ 
 
¶3. (U) CNI also serves as the Secretariat for the Brazilian Business 
Coalition (CEB).  CEB includes associations from all sectors - NAMA, 
agriculture and services.  As the CEB's secretariat, CNI coordinates 
Brazilian industry positions in all trade negotiations across 
sectors for presentation to the Brazilian government.   On November 
16, CEB sent a fully industry coordinated request to the President, 
MRE and MDIC for an FTA with Mexico.  Coelho was extremely proud of 
the CNI secretariat's efforts in this regard, saying this marked the 
first time that all Brazilian industry - manufacturing, agriculture 
and services - had successfully agreed to speak with one voice in 
staking out a negotiating position with the government.  The CEB 
Mexican FTA request includes agricultural and non-agricultural 
market access, services, and "productive investment."  The request 
for an investment chapter includes coverage of NT and MFN principles 
and dispute settlement mechanisms that already exist in "ACE number 
53" (NOTE: Acordos de Complementacao  Economica" number 53 is a 
preferences agreement between Brazil and Mexico under ALADI covering 
about 800 products that entered into force in 2003.  The agreement's 
chapter XII alludes to a "first additional protocol" governing 
disputes.  This protocol permits both another ALADI party or a 
private commercial entity to be chosen to resolve disputes under the 
preferences agreement). 
 
¶4. (U) Coelho said that when CNI went with President Lula to Mexico, 
industry indicated it wanted more ambitious tools to work with 
Mexico on trade and investment issues.  After the trip, Foreign 
Minister Amorim reached out to CNI and asked the Secretariat to 
pursue and develop this idea, ultimately resulting in the CEB 
proposal after a lengthy intra-business sector consensus-building 
process.  The CEB proposal is for Brazil-Mexico FTA negotiations 
only.  CNI expects some reluctance to negotiate an FTA on Mexico's 
part, but not on Itamaraty's (see septels for discussion of 
Itamaraty's negotiating strategy).  CEB hopes the fact that the 
proposal is based on the pre-existing Brazil-Mexico ACE number 53 
agreement under ALADI will make it easier for Itamaraty to accept. 
The CEB proposal calls for a staged FTA implementation, with full 
implementation ten years after ratification. 
 
-------------- 
CNI PRIORITIES 
-------------- 
 
¶5. (U) The Directors explained the areas CNI's goals and workplans 
focus on 1) entrepreneurial leadership (participate in formulation 
of public policy); 2) institutional and regulatory environment 
(including to reduce tax burden/simplify tax system, promote 
reduction in government bureaucracy, promote free competition and 
IPR, ensure legal safety and efficiency of legal system, foster 
permanent improvement of the political system, ensure well-defined 
regulatory systems, adjust labor laws to enhance competitiveness, 
 
BRASILIA 00002177  002 OF 002 
 
 
and adjust laws and competencies of environmental regulatory 
institutions); and 3) education and health (strengthen professional 
education, promote digital inclusion, etc).  Coelho said regulatory 
issues are of particular focus for CNI, which worked with the 
executive and legislative branches to pass new rules for sewage and 
water systems, and is currently working on a project to lobby for 
more autonomy for regulatory agencies from politicians as well as a 
lobbying effort to urge the government to privatize ports 
completely. 
 
¶6. (U) On ports, CNI plans to release an advocacy report at the end 
of November.  Coelho spoke approvingly of the new Ports Minister, "a 
good surprise" with a pro-private sector inclination.  CNI also 
works intensively for pension reform, although any agreement with 
labor unions has to date been impossible in the tripartite 
business-labor-government commission.  In 2008, CNI will be working 
with IFC and IBRD on a project to help decrease the time it takes to 
license a new business at the municipal level.  CNI is also focusing 
on the contracting process, seeking improvements in the current 
system where government over-control of management and expenses 
leads to delay and inefficiencies, as does conflicting demands from 
the state and federal levels, according to CNI.  CNI intends to 
release a report on Brazilian investment trends before the end of 
November. 
 
¶7. (U) Coelho noted that at the recent annual meeting of the 
Brazil-US Business Council (where CNI participates for Brazil and 
the US Chamber represents the US side), many more companies now 
seemed interested in pursuing a bilateral tax treaty.  Coelho 
expressed interest in receiving a copy of the model US bilateral tax 
treaty text and an overview of points of difference between the US 
and Brazil if possible. 
 
¶8. (U) Finally, CNI expressed interest in organizing a trade mission 
to the United States, noting that trade missions to Europe seemed to 
be simpler in terms of paperwork and transportation than US 
missions.  He would welcome the opportunity to discuss further with 
DOC how best to select and arrange sectoral focus, state(s) to 
visit, etc.  Coelho underlined increased bilateral trade missions 
was an agreed priority at the US-Brazil Business Council annual 
meeting.  (NOTE: FCS will follow up.  FCS is working with APEX on 
trade shows and trade missions under the auspices of the Commercial 
Dialogue). 
 
¶9. (SBU) COMMENT: CNI is conscious of the political environment it 
works in and how far it feels it can push in that context. For 
example, Coelho said that the "dream come true" position would be to 
call for the CPMF (the tax on financial transactions the Lula 
government is making an all-out political effort to extend) to be 
eliminated.  However, CNI's official position is that the CPMF 
should be gradually eliminated, based on recognition that a more 
ambitious position would get no traction or credibility with the 
government. CNI is an important association with access to the 
government. USG should continue to deepen contacts with the 
organization as we work to achieve a regional infrastructure 
initiative, a bilateral tax treaty, and improved mechanisms for 
investment dispute resolution.  END COMMENT. 
 
CHICOLA