VZCZCXRO3394
PP RUEHRG
DE RUEHBR #0094/01 0161005
ZNR UUUUU ZZH
P 161005Z JAN 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 0863
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5700
RUEHRG/AMCONSUL RECIFE 7612
RUEHSO/AMCONSUL SAO PAULO 1487
RUEHAC/AMEMBASSY ASUNCION 6538
RUEHBU/AMEMBASSY BUENOS AIRES 5262
RUEHCV/AMEMBASSY CARACAS 3945
RUEHME/AMEMBASSY MEXICO 2113
RUEHMN/AMEMBASSY MONTEVIDEO 7196
RUEHLP/AMEMBASSY LA PAZ 5903
RUEHSG/AMEMBASSY SANTIAGO 0119
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 05 BRASILIA 000094 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/EPSC AND EEB/TRA 
STATE PASS USTR FOR KATE DUCKWORTH 
FAA FOR CCAPESTANY, KBERQUIST, GBURDICK 
DEPT OF TRANSPORTATION FOR MSTREET, BHEDBERG 
BUENOS AIRES FOR TSA ATTACHE 
MEXICO CITY FOR TSA ATTACHE MGALVAN 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC ALSO FOR 3134/USFCS/OIO 
USDOC ALSO FOR 6710/EALFORD 
NSC FOR TOMASULO 
TREASURY FOR JHOEK 
SOUTHCOM FOR POLAD 
USAID FOR LAC/AA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON MARR PGOV PREL EINV BEXP BR
SUBJECT: BRAZIL CIVAIR: AVIATION BILATERALS HELD IN RIO DEC. 5-6, 
2007 
 
REF: A) Brasilia 2124 B) USG Nonpaper delivered by Amb. Sobel to 
ANAC 12/20/07 C) 12/21/07 ANAC response letter faxed/e-mailed 
Sarrano/Robl 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary: U.S. and Brazilian delegations met in Rio de 
Janeiro December 5-6, 2007 for their first formal bilateral aviation 
consultations in 10 years to focus on liberalization.  While the 
Brazilian negotiators offered a limited number of increased 
frequencies to limited destinations in the north and northeast, and 
were open to additional U.S. carriers serving Brazil, they were 
unwilling to explore liberalization in key areas for the United 
States, including third-country codesharing to intermediate points, 
additional all-cargo frequencies, and additional service to 
Brazilian destinations south of Brasilia.  The delegations signed a 
Memorandum of Consultations expressing their intent to meet again 
before the end of 2008. 
 
¶2.  (SBU) Since the conclusion of the negotiations, Ambassador Sobel 
has informally engaged with Minister of Defense Nelson Jobim and two 
of the five new directors of the Agencia Nacional de Aviacao Civil, 
"ANAC" (the new Director-President, Solange Paiva Vieira, and the 
new Director for International Aviation, Ronaldo Seroa da Motta), 
regarding increased frequencies and destinations for U.S. carriers. 
In response to a U.S. nonpaper delivered on December 20 (ref B), 
ANAC on December 21 offered a list of proposed new routes eligible 
for twenty-one proposed additional frequencies.  This proposal is 
currently under U.S. interagency and industry review. End Summary. 
 
---------------- 
ANAC: Background 
---------------- 
 
¶3.  (U) Our current bilateral air services agreement was signed on 
March 21, 1989.  Moderate expansion of bilateral rights was achieved 
through an amendment negotiated in 1996 (entered into force in 1997) 
and a proposed amendment applied on the basis of comity and 
reciprocity since late 1997.  The December sessions were the first 
formal consultations between U.S. and Brazilian civil aviation 
negotiators since 1997. 
 
¶4.  (SBU) In March 2006, Brazil began a complete restructuring of 
its civil aviation authority, transitioning from a military entity, 
the Departamento de Aviacao Civil ("DAC"), to the current Agencia 
Nacional de Aviacao Civil ("ANAC").  In theory, ANAC is an 
independent, civilian regulatory authority based in Brasilia.  In 
practice, due to resistance from the DAC military personnel who 
transitioned to ANAC to provide continuity and are being phased out 
over a period of five years, ANAC continues to operate largely from 
Rio.  In addition, ANAC retains a "dotted line" relationship to the 
Ministry of Defense. Air traffic control remains directly under 
military control via another agency, the Departamento de Controle de 
Espaco Aereo ("DECEA"). 
 
¶5.  (SBU) Brigadier General (Ret.) Eliezer Negri, part of the "old 
guard" from the DAC who transitioned to ANAC as Superintendent of 
 
BRASILIA 00000094  002 OF 005 
 
 
International Relations, led the Brazilian delegation for the 
December 5-6 talks.  While Negri has been accommodating with the 
Federal Aviation Administration on technical and air traffic control 
issues, he clearly had been authorized no flexibility on certain key 
areas for liberalization of our bilateral aviation agreement. 
 
----------- 
Discussions 
----------- 
 
¶6. (SBU) EEB Director for Aviation Negotiations Terri Robl, U.S. 
delegation head, set the stage by discussing aviation liberalization 
in the context of our broader bilateral economic and commercial 
dialogue.  Robl stressed Brazil's importance as a trade partner, 
citing the boom in trade flows (more than double from 20 billion USD 
in 1996 to 46 billion in 2006) and healthy increases in passenger 
(6%) and cargo (12%) traffic over the past year.  She noted that our 
agreement had not been updated in more than 10 years, and that it 
remains one of our most restrictive agreements in South America, 
thereby inhibiting market growth.  The U.S. ideal, she pursued, 
would be an Open Skies agreement that could be phased in. 
 
¶7. (SBU) Brazilian delegation head Negri reviewed with USDel the 
previously agreed agenda of frequency, designation, routes, 
codesharing, tariffs, and transit visas.  He then contrasted the 
relative importance of the aviation markets in the U.S. and Brazil, 
calling the U.S. the "hulk" and Brazil the "dwarf."  He asserted 
that Brazil only represents 3.6% of traffic from U.S. airlines, 
while Brazil's flights to and from the U.S. represent 25% of the 
international business for TAM, the country's only carrier currently 
flying those routes.  He also gave a cargo example, saying that 
Brazil represented only 2.9 percent of U.S. cargo carrier Polar's 
business, but the U.S. represented 33 percent of Brazilian carrier 
VarigLog's business.  Negri repeated the "unbalanced markets" theme 
over the next two days. 
 
--------------------------------- 
Key points - Brazilian Delegation 
--------------------------------- 
 
¶8.  (SBU) Summary of negotiating points presented by the Brazilian 
delegation: 
 
- Brazil would not be able to offer unlimited frequencies, and would 
want to know exactly how many frequencies U.S. carriers needed to 
each approved city.  He used the term "predetermination of 
capacity", harkening back to previous rounds where Brazil doled out 
a few additional frequencies during each round of negotiations. 
 
- As of June 2007, the official Brazilian position was that no 
additional frequencies could be approved for Sao Paulo airports, but 
that the GOB would honor its bilateral obligations for frequencies 
already contained in its international agreements.  Negri attributed 
this position to the need to restructure airport infrastructure, air 
space and air traffic control in and around Sao Paulo. 
 
- 21 additional frequencies could be offered, but only to 
 
BRASILIA 00000094  003 OF 005 
 
 
north/northeast points in Brazil. 
 
- Brazilian infrastructure shortcomings precluded any additional 
frequencies to points south of Brasilia, and the delegation could 
offer no timeframe for resolution of these infrastructure issues. 
 
- Brazil requested that the U.S. eliminate its transit visa 
requirement for passengers traveling to and from Brazil. 
 
- Brazil sought an "open route" schedule that would allow for 
services from behind Brazil, via Brazil and intermediate points, to 
the United States and beyond.. 
 
- Brazil's view is that third country codesharing would benefit the 
third country airlines, rather than those of Brazil or the U.S., and 
that Brazilian aviation policy does not allow for such operation 
through intermediate points.  He did offer to permit such operations 
beyond Brazil to points south. 
 
- Brazil could permit unlimited  designation of U.S. carriers for 
both combination and all-cargo flights, provided that the frequency 
restrictions remained. 
 
¶9.  Furthermore, Negri committed to raise U.S. concerns regarding 
the business climate (see below for details) with appropriate (e.g., 
customs) officials, and proposed signing a Memorandum of 
Consultations. 
 
---------------------------- 
Key points - U.S. Delegation 
---------------------------- 
 
¶10. (SBU) Following are the U.S. points presented by USDel: 
 
-  Frequencies, designations, and third-country codesharing to 
intermediate points are linked in terms of how companies use 
flexibilities to plan and "test the market" to determine optimal 
operations  between the U.S. and Brazil.  Third-country codesharing 
allows airlines to use resources more efficiently by testing markets 
before committing their own aircraft and other resources.  U.S. and 
European carriers have used this strategy successfully for more than 
10 years. 
 
-  Experience has shown that once a U.S. carrier enters a market 
through codesharing, additional passenger and cargo traffic is 
stimulated.  This in turn creates additional feeder traffic to other 
parts of Brazil, which stimulates the tourism sector, creates jobs 
in airport and related services, and has other multiplier effects on 
the broader economy. 
 
- The positive marketing effects of codesharing and alliance 
partners marketing Brazil routes could promote broad economic 
development and benefit Brazilian companies through increased 
exposure to potential customers in Asia, Europe and North America. 
 
 
- As part of a good overall package, the U.S. could accept 
 
BRASILIA 00000094  004 OF 005 
 
 
limitations on frequencies at Sao Paulo and possibly Rio, if the cap 
on frequencies to the rest of the country were eliminated. 
 
¶11.  (U) On visa issues, USDel explained that it had no authority to 
address the Brazilian request, and that the transit visa requirement 
was a response to security concerns and not applicable only to 
Brazil.  USDel relayed information about how wait times had been 
reduced through U.S. consulate initiatives and conveyed USG concerns 
with the difficulty and expense U.S. company personnel have reported 
encountering trying to get business visas for Brazil.  USDel 
suggested the upcoming January 2008 annual bilateral consular 
dialogue as an appropriate forum for visa issues. 
 
¶12.  (U) USDel also raised other "doing business" challenges, mainly 
related to costs and difficulties in getting recognition of tax 
exempt status for certain U.S. carrier activities. 
 
----------------- 
A Good First Step 
----------------- 
 
¶13.  After a thorough discussion within the delegation and with 
senior State and DOT representatives back in Washington, USDel 
responded to the Brazilian proposal as follows:  In the absence of 
broad third country codesharing or other indications of Brazilian 
negotiating flexibility for a more systemic approach to 
liberalization, the U.S. preferred to wait until Brazil was able to 
agree to broader opening of bilateral aviation market.  While the 
talks had been very useful in terms of reestablishing consultations 
after a long hiatus, it was clear that the gap between the two sides 
was too wide to permit an agreement at this juncture.  The U.S. team 
invited the Brazilian team to Washington for more consultations 
before the end of 2008. 
 
¶14.  (SBU) The heads of delegation signed a Memorandum of 
Consultations (MoC) documenting the Rio discussions, including their 
intent to meet again before the end of 2008.   The MoC and a full 
list of the participants may be found at 
www.state.gov/documents/organization/97802.pd f 
 
¶15.  (SBU) Subsequent to the negotiations, Ambassador Sobel has 
engaged Defense Minister Jobim as well as new (as of December 19) 
ANAC Director-President Solange Vieira, Director of International 
Aviation Ronaldo Seroa da Motta, and negotiations head Negri to try 
to reopen the discussion of cities previously excluded (i.e., cities 
below the 16th parallel).  The Ambassador delivered ref B non-paper 
on December 20 to Vieira, da Motta and Negri.  Without committing to 
anything regarding cargo, code-shares or other US concerns, 
Brazilian interlocutors indicated some flexibility could be possible 
on frequencies.  In ANAC's December 21 response (ref C), Brazil 
offered twenty-one new frequencies exclusively for service to Belem, 
Belo Horizonte, Brasilia, Fortaleza, Manaus, Recife, and/or Salvador 
and unrestricted designations. Post awaits the results of 
interagency and industry consultations on this issue before taking 
additional action with the GOB. 
 
¶16.  (U) This cable has been cleared with the Washington 
 
BRASILIA 00000094  005 OF 005 
 
 
delegation. 
 
SOBEL