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DE RUEHSO #0129/01 0741553
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P 141553Z MAR 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8002
INFO RUEHBR/AMEMBASSY BRASILIA 9145
RUEHAC/AMEMBASSY ASUNCION 3342
RUEHBU/AMEMBASSY BUENOS AIRES 3095
RUEHMN/AMEMBASSY MONTEVIDEO 2647
RUEHLP/AMEMBASSY LA PAZ 3752
RUEHCV/AMEMBASSY CARACAS 0699
RUEHSG/AMEMBASSY SANTIAGO 2343
RUEHRG/AMCONSUL RECIFE 4043
RUEHRI/AMCONSUL RIO DE JANEIRO 8639
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000129 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC AND DRL/ILCSR 
NSC FOR TOMASULO 
SOUTHCOM ALSO FOR POLAD 
USAID FOR LAC/AA 
DOL FOR ILAB 
 
 
E.O. 12958: N/A 
TAGS: ELAB PGOV PHUM SOCI EFIN ECON BR
SUBJECT: BRAZIL'S WORKERS' CENTRALS GAIN LEGAL RECOGNITION, 
GOVERNMENT FUNDS 
 
REF: 06 SAO PAULO 280 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
------- 
SUMMARY 
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¶1.  (SBU) On March 11, Brazil's Chamber of Deputies passed a bill 
giving legal recognition to Brazil's labor Centrals.  Although they 
have been playing an important role in Brazilian political life for 
many years, the Centrals have not been considered part of the 
national labor system, but rather have been treated up to now as 
NGOs.  The legislation will enable such large organizations as the 
Unified Workers' Center (CUT) and Forca Sindical to share almost USD 
50 million a year from the "imposto sindical" (union tax) fund.  A 
provision that would have made the union tax voluntary was removed 
from the bill in the Senate after vigorous lobbying by labor 
leaders.  The union tax remains one of the main pillars of Brazil's 
anachronistic and rigid industrial relations regime, which drives 
many workers into the informal economy and is often blamed for 
undermining Brazil's competitiveness in the global economy. 
Increasingly, trade unionism has become an end in itself, and union 
leaders are perceived by the public as parasites with no concern for 
rank-and file workers, living off the government.  Hopes that 
President Lula, a renowned labor leader, would lead a vigorous fight 
for labor and industrial relations reform have been frustrated.  End 
Summary. 
 
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AN ARCHAIC SYSTEM 
----------------- 
 
¶2.  (U) Background: The Brazilian labor system was created in the 
early 1940s by President/dictator Getulio Vargas and was modeled in 
part after the corporatist regime then operating in Italy under 
Mussolini.  It is a pyramidal system with trade unions at the base 
and federations at the top.  Vargas, progenitor of the 1943 
Consolidation of Labor Laws (CLT) that still governs most aspects of 
Brazil's industrial labor relations, also created a compulsory tax, 
the imposto sindical, to fund the new system.  Every registered 
worker pays one day's wages to the government every year, regardless 
of whether or not he/she is a member of a union.  These funds, minus 
20 percent retained by the federal government to support Labor 
Ministry social programs, are distributed to trade unions and 
federations.  In 2006, the unions' total receipts were approximately 
USD 500 million. 
 
------------------------------- 
FUNDS FOR THE WORKERS' CENTRALS 
------------------------------- 
 
¶3.  (U) The legislation aims to incorporate the five large Centrals 
and fourteen smaller ones, which currently have no official status, 
into one unified system.  These Centrals are umbrella organizations 
which each encompass any number of unions and federations.  They 
operate with large scope and on a political level, defending 
workers' interests in general rather than any specific union demand 
or wage issue.  The bill will make the Centrals eligible to receive 
half of the 20 percent of imposto sindical revenues currently 
retained by the government, estimated at about USD 100 million. 
Funds will be allocated based on the size of each Central and the 
number of unions and workers affiliated with it.  Large 
organizations, such as CUT and Forca Sindical - the second-largest 
Central - could each receive up to USD 10 million per year.  The 
Centrals already receive funding from the Labor Ministry's Workers 
Support Funds (Portuguese acronym "FAT") for social programs and 
training, but the new revenues will double or treble their current 
budgets. 
 
¶4.  (U) (Note: The labor unions and federations have a counterpart 
in the private sector, which is also organized into associations and 
federations to represent employers' interests.  Companies likewise 
 
SAO PAULO 00000129  002 OF 003 
 
 
pay their own version of the imposto sindical with their 
contributions funding the National Confederation of Industries (CNI) 
and its constituent groups in the states.  These constituent groups 
include the very well-known Sao Paulo State Federation of Industries 
(FIESP), as well as groups such as Commercial Social Services 
(SESC), an organization directly supported by companies involved in 
trade.  The pending legislation will affect only funding of labor 
Centrals and not their business counterparts.  End Note.) 
 
¶5.  (U) In anticipation of this legislation, which now goes to the 
President to be signed, several new Centrals have been created, and 
previously existing ones have merged.  One of the newest is the 
General Union of Workers (UGT), launched in July 2007.  The UGT is 
the result of an agreement among three different unions and 
federations with some defectors from Forca Sindical, such as the Sao 
Paulo Union of Commercial Workers, and is expected to represent 
about 300,000 workers.  Another new organization, the Central of 
Workers of Brazil (CTB), is being established by unions controlled 
by members of the Communist Party of Brazil (PC do B) which are 
severing their ties with the CUT to go their own way. 
 
---------------------- 
A CONTROVERSIAL TAX... 
---------------------- 
 
¶6.  (SBU) The existence of the imposto sindical itself is highly 
controversial.  The tax is credited with making it profitable to be 
a union leader.  Though the funds that support the organizations 
derive from a compulsory tax, the unions and employers' associations 
are not required to comply with any requirements to qualify for the 
money.  There are no mandatory membership minimums, nor do unions 
have to commit to specific goals or objectives, or negotiating 
targets, on behalf of their membership.  As a result of this system 
of benefits without responsibilities, being a trade union leader has 
become for many an end in itself, and many labor leaders are 
publicly viewed as "pelegos" or stooges whose true loyalty is not to 
the workers but to the government that keeps the system alive and 
unchanged.  (Comment: One benefit of the new legislation is that it 
does provide for an oversight mechanism to keep track of how the 
union tax funds are spent.  End Comment.) 
 
¶7.  (U) A prime example of the operation of the current system can 
be found in the Sao Paulo Union of Commercial Workers.  While this 
union officially represents the 300,000 workers in the sector, and 
is allocated funds based on that number, fewer than six percent of 
the sector's commercial workers actually belong to the union.  The 
President of the Confederation of Commercial Workers, Antonio Alves 
de Almeida, has held his position for the past 40 years and was 
cited in recent press reports as the personification of the lifelong 
union leader syndrome. 
 
----------------------- 
...SURVIVES A CHALLENGE 
----------------------- 
 
¶8.  (SBU) There have been attempts to eliminate the union tax.  Last 
October, the Chamber of Deputies approved a version of the 
legislation with a provision that would make it a voluntary 
contribution instead of a mandatory tax.  The Senate, however, 
removed the provision from the text as a result of intense lobbying 
by representatives of labor unions, federations, and Centrals from 
all over the country.  Such organizations as the CUT, Brazil's 
largest labor Central, which traces its roots back to union 
activities in the 1970s in Sao Bernardo do Campo led by current 
Brazilian President Luiz Inacio Lula da Silva, and had as one of its 
major aims the abolition of the imposto sindical, are now advocating 
vigorously against making the tax voluntary.  Another long-time 
opponent of the union tax, Paulo Pereira da Silva, president of 
Forca Sindical, also lobbied to keep it mandatory.  As a result, the 
final text of the bill maintains the current obligatory system 
whereby the tax is automatically discounted from workers' paychecks, 
while at the same time enabling the Centrals to partake of half of 
the government's allocation of the tax.  The bill's rapporteur from 
 
SAO PAULO 00000129  003 OF 003 
 
 
the Labor and Public Service Administration Committee, Vincentinho 
(PT-Sao Paulo), a former CUT President and long-time Lula colleague 
in the labor movement, suggested that the government should, within 
90 days, propose an alternative to the mandatory union tax. 
 
¶9.  (SBU) According to attorney and labor expert Ericson Crivelli, 
the bill appears to be the result of a negotiation between the Lula 
administration and workers' organizations, in which the government 
proposed legislation to benefit the Centrals in return for the labor 
movement's political support.  Lula's labor roots and his popularity 
among workers help to explain the relative lack of high-profile and 
disruptive strikes in the country during his five years in office. 
Most of the strikes that did occur were carried out by public-sector 
workers led by Lula's second-tier political opponents, including the 
PC do B and Heloisa Helena's Socialism and Liberty Party (PSOL). 
(NOTE: While the PC do B is formally part of Lula's governing 
coalition, there is significant disaffection in the Communist ranks, 
and the PC do B is showing increasing independence and even 
opposition to the ruling coalition, as illustrated not only by the 
creation of the new labor Central but also by a movement to run its 
own candidates in municipal elections in Sao Paulo and several other 
cities this year.  End Note.)  The large Centrals and the PT 
celebrated the bill's passage as correcting a deficiency in the 
country's labor regime. 
 
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COMMENT 
------- 
 
¶10.  (SBU) The imposto sindical and the rigid labor relations system 
it supports are among key factors keeping Brazil's labor costs among 
the highest in the world (see ref A).  The labor regime is a major 
contributor, along with high taxes, education shortcomings and 
inadequate physical infrastructure, to the "custo Brasil" or cost of 
doing business in Brazil cited by so many observers as a major 
impediment to the country's competitiveness.  Most experts blame the 
high cost and rigidity of the labor system - which businesses claim 
makes it almost impossible to fire anyone - for the fact that 
possibly as many as 60 percent of Brazil's workers operate in the 
informal sector.  The strict rules are seen by legitimate companies 
as an obstacle to hiring.  Thus, many companies hire employees off 
the books, saving money and gaining flexibility in disciplinary 
matters and firing.  These informal workers make no contribution to 
government revenue collections that support education, public 
health, Bolsa Familia, and other social programs.  While there was 
initial optimism that the election of President Lula, a former labor 
leader, would translate into comprehensive labor reform, his 
administration has instead been responsible for perpetuating and 
expanding an existing system that most analysts agree is 
counterproductive to Brazil's economic health while concurrently not 
being particularly responsive to the needs of Brazilian workers. 
The passage of this legislation is unlikely to bring real benefits 
to Brazil's workers and further entrenches a system that has shown 
itself open to graft, corruption, and mismanagement.  While the 
inclusion of a new oversight mechanism is a welcome addition to this 
legislation, it does not compensate for the continuation of an 
archaic system.  End Comment. 
 
¶11.  (U) This cable was coordinated with and cleared by Embassy 
Brasilia. 
 
STORY