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UNCLAS SECTION 01 OF 05 BRASILIA 000089 
 
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: ECON ETRD EINV EFIN BR
SUBJECT: BRAZIL: LAUNCH OF ECONOMIC PARTNERSHIP DIALOGUE 
 
¶1. (SBU) SUMMARY: WHA Assistant Secretary Tom Shannon and EB 
Assistant Secretary Dan Sullivan, joined by Treasury Deputy 
Assistant Secretary for Latin America Brian O'Neill, led the US 
delegation to the successful December 13 Economic Partnership 
Dialogue (EPD) with Brazil's Ministry of External Affairs. 
Undersecretary for Economic and Technological Affairs Roberto 
Azevedo headed the Brazilian delegation.  The discussion focused 
largely on positive, forward-looking areas for potential expanded 
economic cooperation, including OECD, innovation (for example, 
scientific cooperation and IPR), infrastructure and investment, 
agriculture, import safety, civil aviation, telecommunications, and 
social inclusion.  Outcomes included: agreement to exchange 
information on respective US and Brazilian bilateral investment 
treaty (BIT) principles, and compare similarities and differences at 
the next meeting, with the possibility of future BIT negotiations; a 
US offer to host a Brazilian official at USOECD to see how we manage 
the range of OECD issues; agreement to pursue with relevant agencies 
setting a date for the next Consultative Committee on Agriculture 
meeting; agreement to pursue a MCC visit to Brazil to explore 
further cooperation on social inclusion issues; agreement to 
exchange information on import safety regulations and processes and 
to work together on this issue in the future; and a welcoming of 
further discussions by relevant agencies of issues such as air 
services and telecommunications equipment standards mutual 
recognition.  Brazil pressed for government action to bring our 
textile sectors into contact and was asked to develop a specific 
proposal for consideration.  The exchange overall was productive, 
setting the stage for enhanced cooperation with MRE on bilateral, 
regional, and global economy policy issues.  The public EPD joint 
statement is available on our website: 
http://www.embaixada-americana.org.br/ and on Itamaraty's site: 
www.mre.gov.br.   END SUMMARY 
 
-------- 
Overview 
-------- 
 
¶2. (U) U/S Azevedo welcomed the first meeting of the EPD, noting 
that avoiding difficult issues or leaving them at the technical 
level ensures they are not resolved.  He added that more "problems" 
between Brazil and US is a sign of the increasing substantive 
breadth and importance of the relationship.  A/S Shannon and A/S 
Sullivan noted that the EPD builds on the successful partnership 
between the US and Brazil on biofuels, and that the key will be to 
remain open and flexible as the discussions progress.  All agreed 
the EPD will focus on results, and A/S Shannon emphasized in 
particular that the EPD should impart a strategic vision that our 
broader economic dialogue should achieve greater social inclusion. 
 
---- 
OECD 
---- 
 
¶3. (SBU) Azevedo noted that Itamaraty is still at the beginning of a 
process to understand how the OECD works in practice.  The real 
extent of the OECD "acquis" is not clear, for example, with 
different OECD commentators offering different answers regarding the 
extent of accession requirements.  MRE finds disconcerting that OECD 
Secretariat officials seem to reach out to specific technical 
 
SIPDIS 
ministries in capitals, which is counter to MRE's desire in general 
to oversee and coordinate international interactions across 
portfolios.  In addition, Azevedo sought US feedback on his 
perception that OECD seems to be a group of countries that already 
think similarly and have similar backgrounds, and could usefully 
change to a "more representative, diverse perspective" by 
incorporating developing country viewpoints.  As an example, Azevedo 
noted OECD export credit discussions, saying there are other ways to 
mitigate risks based on other countries' experiences that could be a 
useful part of the conversation.  That said, he noted the value of 
OECD in this area, saying OECD was able to accomplish what would 
have taken ten years in the WTO. 
 
¶4. (U) A/S Sullivan noted the United States welcomes Brazil's 
interest in learning more about the OECD and is ready to engage at 
whatever pace Brazil desires.  He underlined that USG goals include 
broadening OECD participation beyond mainly European membership. 
A/S Shannon noted international economic institutions must 
incorporate new powerful global economies.  A/S Sullivan provided an 
 
BRASILIA 00000089  002 OF 005 
 
 
overview of the US OECD budget process and the internal USG 
coordination process.  A/S Sullivan offered to host a Brazilian 
official at USOECD and to design a productive program for the 
official to meet OECD Ambassadors and observe how USOECD manages 
issues for a few weeks.  Azevedo expressed a strong interest in 
accepting the U.S. offer. 
 
---------- 
INNOVATION 
---------- 
 
¶5. (SBU)  Participants highlighted the importance of initiatives 
like the Innovation Summit and the CEO Forum and agreed to encourage 
follow-up and  new ideas in this area.  A/S Sullivan also noted 
productive scientific exchanges and also pressed on the need for 
increased intellectual property rights protection, noting the 
critical link between IPR and innovation and investment.  He was 
struck in his IP meeting with Brazilian industry in Sao Paulo 
(septel) that the Brazilian business community cared deeply about 
IPR, both domestically and because they are now competing 
internationally.  Azevedo acknowledged new inventions will not 
happen absent IPR protection and stated that Brazil and the US do 
not diverge on the need to protect IP.  Instead, the two countries 
diverge on penalties, where the US wants strict penalties and Brazil 
still has issues in its developing court system that go far beyond 
IPR protection issues, in Azevedo's view.  Azevedo underlined that 
the concept of economic sanctions in international agreements is 
frightening to Brazil because the country does not know if it can 
meet such standards.  He emphasized that Brazil is not going to 
agree to international standards it knows it can not meet if 
agreements also contain sanctions provisions.  A/S Shannon noted DOS 
is working with OSTP on using funding to spur innovation, such as 
linking academic and research centers, and USG hopes to release a 
proposal soon. 
 
----------------------------- 
INFRASTRUCTURE AND INVESTMENT 
----------------------------- 
 
¶6. (SBU) Treasury DAS O'Neill noted three phases are needed for 
infrastructure investment to occur: (1) project identification, (2) 
project execution, and (3) financing.  The second area is Brazil's 
challenge.  Projects can be executed by the public sector only (for 
socially necessary projects that may not be commercially viable), by 
the private sector only, and as public-private projects.  Public 
sector projects may need an initial infusion of capital or operating 
subsidies.  For public-private projects, the subsidies need to be 
explicit.  O'Neill noted that Brazil's constraints are institutional 
weaknesses in project assessment and development within the sectoral 
ministries, as well as risks associated with the regulatory 
structure and the judicial system.  Some of these challenges are 
greater on transnational projects.  Azevedo accepted this assessment 
and was open to ideas to ameliorate the situation. 
 
¶7. (SBU) O'Neill described technical assistance offered by USG 
agencies as well as the World Bank and IDB to increase capacity in 
project assessment and design.  In the short-term, expertise can be 
contracted while in-house expertise is developed.   "We (USG) have 
thought of offering countries in the region a task force of experts 
who can reside in a ministry for a while to help with bringing 
projects to fruition."  For the longer-term, the World Bank and IDB 
can create a sector-focused loan aimed at strengthening 
institutional capacity.  The loan could be used for training and 
payment of expenses related to pre-feasibility, engineering, and 
environment impact studies.  Azevedo proposed possibly working 
together on a pilot project under the Dialogue.  MRE would try to 
develop and to engage other ministries who, while probably not 
receptive to admitting any deficiency, would probably welcome 
technical assistance.  O'Neill cautioned convincing the private 
sector to participate would remain a challenge due to institutional 
risk and that risk is even higher if cross-border projects are under 
consideration. 
 
¶8. (SBU) Regarding investment in general, Azevedo noted Brazilian 
outbound investment exceeded inbound for the first time in 2007 and 
is projected to do so again in 2008.  Recognizing the executive's 
previous poor experience with BITs not ratified by the Brazilian 
Congress, Azevedo said the government is proceeding with caution, 
 
BRASILIA 00000089  003 OF 005 
 
 
but looking to negotiate new investment agreements based on 
Brazilian interagency agreed principles, "particularly on our 
continent."  A/S Sullivan noted USG had also in recent years worked 
through an interagency process to design a new US model BIT and 
suggested Brazil and US exchange and compare their respective BIT 
principles and at the next EPD meeting discuss where the US and 
Brazil BIT principles are the same and where they differ.  A/S 
Sullivan also noted that given the extent of Brazilian outward FDI 
that Brazil now had many offensive interests that should make BITs 
more compelling for Brazil, both as a spur to inbound FDI and as a 
way to protect Brazilian outbound investment.  Azevedo emphasized 
Brazil was  cautious regarding arbitration, having seen decisions go 
the wrong way on pipeline investments in the past.  While new 
Brazilian investment negotiations may better balance offensive and 
defensive interests than in the past, Azevedo stated, 
"realistically, from BITs I have seen [the US] recently do, I think 
there really could be insurmountable issues."  Azevedo suggested 
perhaps US and Brazil could approach future BIT negotiations by 
breaking down the issues and agreeing in parts gradually. 
 
---------------------- 
Cooperation on Sectors 
---------------------- 
 
¶9. (SBU) Azevedo explained that MRE would like to work with USG to 
bring our textile sectors together so they could discuss ways to 
exploit third-country markets and design joint investments.  A/S 
Sullivan cautioned the issue was sensitive.  Azevedo explained the 
textile sector was selected because the companies already talk to 
each other.  The Brazilian delegation members proposed to send DoS 
an expanded description of their proposal.  A/S Sullivan emphasized 
the importance of having the US Department of Commerce play the lead 
role in responding to such an initiative given its expertise and 
knowledge of the US textile industry. 
 
----------- 
Agriculture 
----------- 
 
¶10. (SBU) Azevedo urged the Consultative Committee on Agriculture 
meet soon to discuss working together to develop third country 
markets and on promoting a deeper dialogue on SPS issues both 
countries face in third markets.  A/S Sullivan noted USDA is engaged 
on finding a date for the next CCA.  He raised the importance of 
working together on agricultural biotechnology and noted the joint 
2005 World Food Prize award to Brazilian and American scientists. 
Given Brazilian inter-agency battles on this issue, Azevedo 
cautioned that Brazil was unlikely to play a high-profile role in 
promoting acceptance of GMO crops internationally.  He welcomed 
further discussion of this topic in future EPD discussions but 
suggested moving it to the "innovation" section to lower its 
profile. 
 
------------- 
IMPORT SAFETY 
------------- 
 
¶11. (SBU) A/S Sullivan briefed on the September 10 import safety 
recommendations to President Bush and expressed interest in 
expanding cooperation with Brazil on import safety issues to ensure 
consumer protection while preserving trade flows.  Azevedo noted 
consumer safety is an area that has developed enormously in Brazil 
in recent years, and remains a growing concern.  He stated that 
Brazil has stricter standards than its neighbors, making regional 
negotiations more difficult.  He welcomed further information on US 
initiatives and suggested perhaps eventually Brazil and the US could 
adopt some common standards and develop cooperation with third 
countries. 
 
-------------- 
CIVIL AVIATION 
-------------- 
 
¶12. (U) Commenting on the recently launched US-Brazil civil aviation 
services negotiations, Azevedo indicated Brazilian-US civil aviation 
negotiations are a step-by-step process, given that Brazilian 
companies need time to adapt and respond to market opportunities. 
A/S Sullivan noted, at the same time, neither side would want to 
 
BRASILIA 00000089  004 OF 005 
 
 
lose the momentum of the potentially promising negotiations.  The 
Ambassador urged  -- and participants agreed -- there would be 
another negotiating session well before the end of 2008 as indicated 
in the Memorandum of Conversation signed by both parties at the 
conclusion of December 5-6 discussions in Rio. 
 
------------------ 
TELECOMMUNICATIONS 
------------------ 
 
¶13. (U) A/S Sullivan reviewed the potential for bilateral 
cooperation, particularly in Africa.  MRE Office Director for 
Services and Investment Ronaldo Costa Filho noted the Brazilian 
regulatory agency (ANATEL) had experience assisting developing 
countries interested in setting up their own regulatory agencies. 
A/S Sullivan indicated potential US-Brazil mutual recognition 
agreements on telecommunication equipment held great promise. 
Azevedo agreed. 
 
---------------- 
Social Inclusion 
---------------- 
¶14. (U)  Azevedo promoted further dialogue between experts in 
Brazil's Bolsa Familia and in US MCC in the future, characterizing 
the proposal as a win-win exchange of views, experiences, 
short-comings and lessons learned that would help both sides address 
flaws and maximize opportunities in learning from one another.  A/S 
Shannon agreed and noted this initiative could be a concrete success 
under the Dialogue.  A/S Shannon stressed that both sides need to 
highlight that economic growth is about social inclusion and is all 
about allowing people to access their own economy.  He underlined 
this is a new and useful way to think about economic growth.  A/S 
Sullivan noted the possibility of coordination in third-country 
assistance.  Using Mozambique as an example where MCC is engaged, 
A/S Sullivan suggested different donors can look at ways to 
complement each other's assistance.  Azevedo agreed and noted that 
Haiti would be an obvious example in Brazil's view. 
------------------- 
INTERNET GOVERNANCE 
------------------- 
 
¶15. (U) Jose Hansem, a staff member of the MRE Science and 
Technology office, provided a lengthy review of Brazil's 
disagreements with the United States regarding internet governance. 
A/S Sullivan thanked Brazil for hosting the November Internet 
Governance Forum.  He noted US focus on the security of the internet 
and the internet's potential as a force for democracy and economic 
growth.  The internet has functioned well to date. USG is open to 
receiving other countries' feedback.  Azevedo proposed perhaps a 
Brazilian team could travel to the United States to discuss these 
issues further and A/S Sullivan stated USG would be happy to 
receive. 
 
------- 
CACHACA 
------- 
 
¶16. (U) Philip Fox Drummond Gough of MRE's Market Access office 
reviewed Brazil's request to change cachaca (a sugar-based alcoholic 
beverage) from "rum" to "cachaca."  A/S Sullivan noted the Federal 
Register Notice with the proposed change would be published in early 
January, followed by a comment period.  Azevedo was pleased to hear 
of this progress. 
 
---------- 
ASSESSMENT 
---------- 
 
¶17. (SBU) The EPD meeting was a successful step in expanding and 
deepening cooperation with MRE on economic policy issues.  The group 
agreed to meet again within six months.  Progress on specific action 
items identified in the Dialogue will go far to ensure the next 
session is equally productive. 
¶18. (U) DELEGATION LISTS: 
MRE: 
 
Emb. Roberto Azevedo -U/S Economic and Technology Affairs 
Min. Carlos Marcio Cozendey - A/S Economic Affairs 
 
BRASILIA 00000089  005 OF 005 
 
 
Min. Carlos Henrique Moojen de Abreu - Brazil Embassy, Washington 
Min. Susan Kleebank - OffDir Economic Organizations 
Min. Flavio Damico - OffDir Agriculture and Commodities 
Min. Ronaldo Costa Filho - OffDir Services and Investment 
Cons. Joco Tabajara de Oliveira Jr- OffDir US/Canada desk 
Sec. Philip Fox Drummond Gough - Market Access 
Sec. Ricardo Jos Lustosa Leal - Trade Promotion Programs 
Sec. Marcelo Salum - Economic Organizations 
Sec. Jos Victor Hansem - Science and Technology 
Sec. Joco Carlos Storti - Intellectual Property 
Sec. Matheus Carvalho - Social Themes 
 
US: 
 
Thomas A. Shannon, A/S WHA 
Daniel S. Sullivan, A/S EEB 
Brian D. O'Neill, DAS, Western Hemisphere, Treasury Department 
William E. Craft, DAS, EEB/TPP 
Lisa Kubiske, Director, WHA/EPSC 
Alexei Monsarrat, Senior Advisor to Assistant Secretary Sullivan 
Matthew Rooney, Deputy Director, WHA/EPSC 
David Schnier, Brazil Desk Officer 
 
Ambassador Clifford M. Sobel 
Tara Feret Erath, EconCouns 
Rebecca Armand, Principal Commercial Officer, FCS 
 
Delegation has cleared this message. 
SOBEL