VZCZCXRO5734
PP RUEHRG
DE RUEHSO #0292/01 1621546
ZNR UUUUU ZZH
P 101546Z JUN 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8283
INFO RUEHBR/AMEMBASSY BRASILIA 9414
RUEHAC/AMEMBASSY ASUNCION 3421
RUEHBU/AMEMBASSY BUENOS AIRES 3173
RUEHMN/AMEMBASSY MONTEVIDEO 2723
RUEHLP/AMEMBASSY LA PAZ 3832
RUEHCV/AMEMBASSY CARACAS 0749
RUEHSG/AMEMBASSY SANTIAGO 2421
RUEHRG/AMCONSUL RECIFE 4130
RUEHRI/AMCONSUL RIO DE JANEIRO 8749
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 000292 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC AND DRL/ILCSR 
NSC FOR TOMASULO 
SOUTHCOM ALSO FOR POLAD 
USAID FOR LAC/AA 
DOL FOR ILAB 
 
TAGS: ELAB PGOV ECON BR
SUBJECT: ORGANIZED LABOR DOING WELL WITH LULA 
 
REF: SAO PAULO 129 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
------- 
SUMMARY 
------- 
¶1. (SBU) A year and a half into his second term, President Lula has 
won back the approval of many in organized labor who had expressed 
disenchantment with him during his first term.  By signing 
legislation granting legal recognition and government funding to the 
large labor Centrals while vetoing a provision that would have 
required the Centrals to account for the funds, Lula earned the 
gratitude even of those elements of the labor movement that had 
previously opposed him.  Unions and employers' associations are 
negotiating with the government on alternatives to the mandatory 
"imposto sindical" or union tax but are reportedly making little 
progress.  An unprecedented number of trade union leaders now hold 
positions in the federal government and are not inclined to rock the 
boat.  End Summary. 
 
----------------------------------------- 
CENTRALS GET FUNDS WITHOUT ACCOUNTABILITY 
----------------------------------------- 
 
¶2. (U) In mid-March (reftel), Congress passed legislation granting 
legal recognition to labor Centrals and making them eligible to 
receive some of the proceeds of the mandatory "imposto sindical" 
worker tax.  When President Lula signed the bill into law on March 
31, he vetoed an article that would have required unions, labor 
federations and confederations, and Centrals to account for the 
funds by submitting reports to the National Auditing Tribunal (TCU). 
 Lula asserted that such a requirement violated the principle of 
union autonomy and freedom from government interference.  The 
enactment of this legislation was greeted by labor leaders as a 
great victory.  It not only made the Centrals eligible for the first 
time to receive government funds - possibly as much as USD 50 
million per year - but relieved them of any reporting or accounting 
requirements.  An attempt to make the "imposto sindical" (union tax) 
voluntary was defeated in the Chamber of Deputies.  All registered 
workers, whether union members or not, will continue to contribute 
one day's wages per year, most of which goes to fund trade unions 
and federations. 
 
¶3.  (U) Passage of the legislation set off a scramble among the 
Centrals to qualify for the funds.  Each Central is required to show 
it has at least 100 unions under its umbrella, spread across 
Brazil's five geographic regions and at least five economic sectors, 
and that they represent at least 7 percent of unionized workers 
nationwide.   The two largest Centrals, the United Workers Center 
(CUT) and Forca Sindical, are virtually guaranteed to qualify, but 
others may have a harder time.  For example, the General Union of 
Workers (UGT), formed in July 2007 from the merger of three smaller 
Centrals along with some unions previously affiliated with Forca 
Sindical, claims to represent over one million workers, mostly in 
the commercial and energy sectors.  It is not clear, however, how 
many of these are actually union members.  (Note: Under the 
Brazilian labor regime, a single union is deemed to represent all 
the workers in a given workplace, regardless of whether they are 
members or not.  Approximately 18 percent of workers in Brazil 
belong to a union.  End Note.) 
 
¶4. (SBU) Although Congress voted to keep the union tax mandatory, 
there is widespread recognition that some new mechanism is needed to 
fund union activity.  Luiz Antonio de Medeiros, Secretary for Labor 
Relations at MTE, is in charge of negotiations with business and 
labor on ways to replace the union tax.  However, this is a 
complicated enterprise that implies a reform of Brazil's antiquated 
industrial relations system, and Medeiros acknowledges that progress 
is slow.  He noted that while CUT and Forca Sindical, the largest, 
oldest, and most powerful Centrals, are receptive to possible change 
and more than likely able to adapt, others are resistant.  UGT 
recognizes that change is inevitable due to global challenges and is 
willing to discuss options, but is wary of any modification that 
 
SAO PAULO 00000292  002 OF 003 
 
 
might disadvantage its members.  The New Central of Workers' Unions 
(NCST), which represents transportation, industrial, and commercial 
workers, was founded in 2005 as a force against change.  Luiz 
Goncalves, President of the Sao Paulo NCST and a former president of 
the Sao Paulo Bus Drivers' Union, told Poloff that NCST will oppose 
any initiative that would erode rights hard-won by workers in 
Getulio Vargas's 1943 Consolidation of Labor Laws (CLT). 
 
----------------------------------- 
LABOR LEADERS: GOOD JOBS, BAD IMAGE 
----------------------------------- 
 
¶5. (U) During Lula's first term, CUT was the primary beneficiary of 
government jobs in various Ministries.  Founded in 1984 by many of 
the same people who had earlier founded the Workers' Party (PT), 
with its base among metalworkers in the "ABC" industrial suburbs of 
Sao Paulo, the CUT operates as an autonomous social movement of the 
PT and is an important base of Lula's labor support.  In 2005, Lula 
named former CUT President Luiz Marinho to be Labor Minister. 
 
¶6. (SBU) After re-election, Lula sought to broaden the base of his 
government coalition.  One of the parties whose support he sought 
was the Democratic Labor Party (PDT).  To this end, in early 2007 he 
transferred Marinho to the Social Security Ministry and named PDT 
President Carlos Lupi Minister of Labor.  One of Lupi's key allies 
is Paulo Pereira da Silva, aka Paulinho da Forca, a PDT federal 
deputy from Sao Paulo and president of the Forca Sindical labor 
central.  Forca Sindical was founded in 1991 as a rival to CUT and 
subsequently grew into the second largest labor Central.  Now the 
two are on the same side.  By allying with the PDT, Lula was 
essentially opening the doors of the federal government to Forca 
Sindical.  Since then, he has gradually offered other labor leaders 
government jobs, to the point that, according to a recent study by 
Professor Maria Celina d'Araujo of the Getulio Vargas Foundation, 
approximately 45 percent of upper-echelon politically appointed 
positions (nearly 600 prestigious jobs) in the federal government 
are held by current or former trade unionists.   Trade union leaders 
from across the spectrum have eschewed confrontation with the 
government in favor of accepting lucrative government sinecures and 
other forms of largesse such as contracts to promote professional 
development and social assistance for workers.  They now have ample 
influence in a number of Ministries with responsibility for social 
issues and a strong interest in preserving that influence in the 
next administration.  Some business leaders, for example, have 
expressed concern that the Centrals will use their government funds 
as a war chest for the 2010 national elections. 
 
¶7. (SBU) The augmented role of organized labor in government has 
brought with it some impropriety and the appearance thereof. Paulo 
Pereira da Silva has been implicated in a high-profile Federal 
Police investigation into alleged diversion of funds from the 
National Social and Economic Development Bank (BNDES).  In addition, 
he has been accused of abusing his membership on the Board of 
various government commissions to steer contracts to 
non-governmental organizations allied with Forca Sindical and the 
PDT.  As a result, he now faces an investigation by the Chamber of 
Deputies' Ethics Council, which could potentially lead to his 
expulsion from the body. 
 
------- 
COMMENT 
------- 
 
¶8. (SBU) President Lula has by no means neglected the workers.  The 
minimum wage has risen steadily on his watch, and his administration 
supports legislation to reduce the work week and to ratify two ILO 
conventions, including one that would make it more difficult for 
employers to fire workers without cause or lay them off.  But he has 
also put labor and industrial relations reform on the back burner, 
in large part because such reforms would require tough concessions 
from organized labor.  While business, government, and workers all 
have an interest in devising a simplified, less costly labor regime 
that would make it possible to hire more workers and reduce the size 
of the informal economy, nobody seems prepared to make the first 
 
SAO PAULO 00000292  003 OF 003 
 
 
move.  It appears increasingly likely that Lula will depart office 
with the same anachronistic structure in place as when he took 
office, and Brazil will have missed an important opportunity to 
address one of the principal elements of the "custo Brasil" that 
acts as a drag on Brazil's global competitiveness and productivity. 
End Comment. 
 
¶9. (U) This cable was coordinated with and cleared by Embassy 
Brasilia. 
 
WHITE