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TO RUEHZP/AMEMBASSY PANAMA IMMEDIATE 0300
RUEHC/SECSTATE WASHDC IMMEDIATE 2328
INFO RUEHBO/AMEMBASSY BOGOTA IMMEDIATE 4688
RUEHRG/AMCONSUL RECIFE PRIORITY 8385
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 6528
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2638

UNCLAS SECTION 01 OF 08 BRASILIA 001151 
 
SENSITIVE 
SIPDIS 
 
FOR US EMBASSY PANAMA- PLEASE PASS TO CODEL HAGEL 
 
E.O. 12958: N/A 
TAGS: OREP PREL ECON BR
SUBJECT: SCENESETTER FOR AUGUST 31-SEPTEMBER 2 VISIT OF 
CODEL HAGEL 
 
¶1. (U) Summary:  The relationship between the United States 
and Brazil is as productive and broad-based as it has ever 
been, the result of the excellent relationship between 
President Bush and President Luiz Inacio Lula da Silva, new 
cooperation mechanisms on biofuels, business issues, and 
economic matters, and our shared goals of fostering 
hemispheric stability, promoting democracy, developing a 
consensus on next steps regarding climate change, and 
achieving a mutually satisfactory conclusion to the Doha 
round of WTO negotiations.  U.S.-Brazil cooperation on 
foreign policy issues is often limited by the GOB's 
unwillingness to speak out against anti-democratic actions in 
the hemisphere (Venezuela and Cuba), take key steps to 
address key issues such as nuclear proliferation and 
counterterrorist concerns, and expand its international 
leadership in meaningful ways.  Operational cooperation on 
law enforcement issues, such as counternarcotics, container 
security, and intelligence sharing, are highlights of the 
bilateral relationship.  Brazil's ethanol program has made it 
a global model for alternative energy and offers potential 
for bilateral cooperation on an important strategic issue. 
On the environment, Brazil has long been on the defensive 
about the ongoing, extensive deforestation of the Amazon, 
which has made Brazil one of the leading producers of 
greenhouse gases. The Brazilian labor movement is strong, 
well-organized, and very influential in many key industrial 
sectors.  Lula came out of the organized labor movement and 
labor and social issues have always been among his top 
priorities. End Summary. 
 
----------------------------------- 
Lula Popular, but what comes next? 
----------------------------------- 
 
¶2. (SBU) With his approval ratings at over 70 percent, 
President Lula is more popular than at any other point since 
he took office in 2003.  Continuity and legacy are the 
guiding lights of Lula's second term.  Lula continues to 
shape his legacy as a friend of the poor and builder of a 
foundation for prosperity for the lower and middle classes 
through broad social welfare programs and a vast, new 
economic growth program of public works and growth 
incentives.  At the same time, Lula has failed to promote 
needed reforms to abolish a political culture of corruption, 
clientelism, and spoils.  Although a seemingly endless series 
of corruption scandals has not dented his personal popularity 
or that of his government, these scandals have felled 
political allies, including cabinet ministers, in recent 
years. 
 
¶3. (SBU) Lula is concerned with finding an electable 
successor for 2010, and appears to be grooming his top 
domestic policy adviser, Minister Dilma Rousseff, while 
keeping other options open.  Attention in the media and among 
the political elite is already focused on the race; the 
opposition governor of Sao Paulo state and former 
presidential candidate, Jose Serra, currently leads the pack 
of possible candidates. 
 
¶4. (U) Despite a healthy economy and a slight drop in 
homicides registered over the past several years, public 
opinion polls consistently show that the top concerns for 
Brazilians continue to remain public security and lack of 
jobs.  These are normally followed by quality of health care 
and education, corruption, low wages, and lack of 
opportunities for youth.  These will likely remain issues 
heading into the municipal elections later this year, and 
into the 2010 presidential elections. 
 
------------------------------------- 
Latin America's Economic Powerhouse 
------------------------------------- 
 
¶5. (U) Brazil is the tenth largest economy in the world, and 
received investment grade from Standard and Poor,s and Fitch 
this year.  Annual GDP growth was 5.4% for 2007, and 
inflation approximately 4%. GOB,s inflation target for 2008 
is 4.5 percent (current estimated inflation is 6.54%) and the 
government has taken a hawkish approach to managing interest 
rates. The SELIC benchrate now stands at 13 percent and 
market forecasts expect the SELIC could go as high as 15 
percent by early 2009.  The currency, the real, has 
appreciated strongly, currently trading at 1.61 as of August 
¶12. The probably over-valued real combined with the global 
slowdown has impacted Brazil,s trade surplus -- for the 
 
BRASILIA 00001151  002 OF 008 
 
 
first seven months of 2008, Brazil posted a surplus of 14.65 
billion USD, down from 23.92 billion the same period in 2007. 
 While the export sector has been dampened, the strong 
currency has permitted Brazilian companies to ramp up 
investment in capital equipment. 
 
¶6. (U) Foreign direct investment in Brazil is increasing, 
with net flow of USD 34.6 billion in 2007 (versus USD 18.8 
billion in 2006).  Of total gross inflow of USD 34.3 billion 
in 2007, USD 6.1 billion came from the United States. 
Brazilian investment in the United States has almost tripled 
between 2001 (USD 1.4 billion) and 2006 (USD 3.9 billion). 
The three key pillars of Lula,s Growth Acceleration Program 
(PAC) to enhance infrastructure investment in Brazil are 
energy, transportation and sanitation/housing. GOB recently 
announced that federal government investment spending from 
January 2008-May 2008 was 7.43 billion reais, representing a 
24 percent increase from the same period one year ago. 
However, Brazil,s investment to GDP ratio (17.6 percent in 
2007) remains well below investment ratios in Russia (21 
percent), India (34.6 percent) and China (40.4 percent). 
 
¶7. (SBU) There are other major structural challenges to 
long-term growth.  Real interest rates are the highest in the 
world at almost 7 percent.  Growth-limiting distortions in 
the economy, including a debt to GDP ratio of 47 percent 
(2007), a burdensome tax and fiscal structure, and onerous 
labor and business regulations continue to constrain growth. 
The informal sector constitutes an estimated 40 percent of 
the economy, in part due to the tax burden (36 percent of GDP 
in 2007 and an estimated 38.9 percent first quarter 2008), 
one of the highest among large developing economies. Brazil 
is ranked 122 in the Doing Business report (with 152 days to 
start a business) and ranks 92 out of 125 countries for trade 
protectionism according to the World Bank.  Lula's social 
programs, combined with formal sector job growth and real 
increases in the minimum wage, have reduced income 
inequalities each year since 2004 (2007/08 GINI is 57). 
 
------------------------------------- 
An Emerging Player in the Oil Sector 
------------------------------------- 
 
¶8.  (SBU) The discovery of massive offshore reserves of oil 
and gas estimated to contain between 30-40 billion barrels of 
oil equivalent could put Brazil within the top ten oil 
countries by reserves.  Though the possibilities have 
generated a great deal of excitement, industry observers 
caution that the technological challenges involved with 
ultra-deepwater drilling are extensive, including a worldwide 
shortage of equipment such as drilling rigs, meaning that 
developments will probably be slow in coming.  Petrobras 
appears to be overextended internationally and is hamstrung 
by limited equipment resources. However, it has launched a 
multi-billion dollar procurement initiative and is 
reexamining its international priorities so that it can focus 
on domestic opportunities.  U.S. oil companies are poised and 
ready in many cases to take on more exploration opportunities 
-- a message that we do not believe industry has adequately 
conveyed to the GOB.  Brazil has expressed interest in having 
U.S. companies involved in the exploitation of Brazil,s oil 
reserves as well as in receiving high-level U.S. visitors 
with the intention of developing closer bilateral ties. 
 
¶9. (SBU) Brazil's National Energy Policy Council will meet 
later this year to consider competing proposals to manage the 
new "pre-salt" (below the ocean,s salt layer at a depth of 
over 4000 meters) reserves; one would maintain the current 
concession model and increase royalties, the other would 
nationalize petroleum reserves and use production sharing 
agreements or service contracts to partner with oil companies 
to develop them.  Both options would yield similar revenue 
levels for the government, but political factors will be the 
driving force behind the decision on a way forward. Mines and 
Energy Minister Lobao said publicly and in private meetings 
with high level USG officials that he will propose 
legislation that will allow the GOB to maintain the rights to 
the pre-salt reserves.  In response to criticisms that the 
process to rewrite the current law would be too time 
consuming, he notes that the Executive has fast track 
legislative measures available to it that should enable the 
legislation to be enacted early in 2009.  The national oil 
regulatory agency, industry, and analysts disagree and think 
such a change of legislation would be much more complicated, 
possibly lasting years, thus their interest in maintaining 
 
BRASILIA 00001151  003 OF 008 
 
 
the current model.  Meanwhile, further leasing of offshore 
pre-salt exploration blocks has been suspended; other 
off-shore and on-shore blocks are planned for auction in 
early 2009. According to Minister Lobao, there will be no new 
development of the pre-salt reserves for the near future as 
the GOB defines its approach to the presalt finds, focusing 
instead on on-shore and shallow water exploration. This is a 
very sensitive sovereignty issue for the government, 
featuring minefields of bureaucratic infighting.  We have 
tended to approach the topic by offering the observations of 
our industry and willingness to share our experiences in this 
field, if so desired. 
 
------------------------- 
Brazil's Nuclear Program 
------------------------- 
 
¶10. (SBU) Brazil has recently announced its intentions to 
resurrect its long dormant civilian nuclear program. 
Although Brazil currently only has 2 plants operating in Rio 
State contributing just 2% to the electrical supply, it has 
recently announced its intention to complete the third 
planned reactor and build several new ones.  The GOB has 
expressed interest in working with the United States as they 
move toward developing their nuclear sector. They have not 
signed the IAEA Additional protocol, despite our continued 
urging that they do so but neither have they officially 
refused. This creates an impediment for Argentina, which like 
Brazil has a nuclear program and earlier had a weapons 
program.  Argentina will not sign an Additional Protocol 
until Brazil does.  Brazil says it is considering an 
Additional Protocol and has not ruled out signing sometime in 
the near future. Brazil does not currently have an active 
military nuclear program, having voluntarily closed their 
program decades ago. 
 
-------- 
Trade 
-------- 
 
¶11. (SBU) Brazil has traditionally cited the need to maintain 
coherence with its Mercosul (known in Spanish as "Mercosur") 
partners and its role as a leader of the G-20 as constraining 
its flexibility in trade negotiations.  Mercosul is an 
economic mechanism created for political reasons. However, in 
what could have been the end-game of the Doha Round, Brazil 
calculated that the benefits to Brazil of agreeing to 
compromise in an attempt to achieve a carefully balanced 
agreement of industrial and agricultural liberalization 
outweighed the political cost of moving beyond Argentina,s 
preferred negotiating position.  This decision drew the 
praise of industry as well as the think-tank/academic 
community, which has generally assessed that Brazil,s move 
will not have a long-term negative effect on Brazil,s 
position within the G-20 or Mercosul. Subsequently, President 
Lula traveled to Argentina with 300 business representatives 
to smooth relations and demonstrate continued interest in 
deeper trade and investment ties. 
 
¶12. (SBU) Although Brazil has made clear it will negotiate 
FTAs or other trade agreements only together with its 
Mercosul partners, its leadership in Mercosul is key to 
concluding any agreement. Brazil,s continuing emergence as a 
country willing to engage on trade and other economic issues 
in its national interest may indicate further potential for 
expanded interest in economic cooperation with the United 
States.  GOB has made clear its continued interest (and 
efforts) in concluding a Doha agreement in the near term. 
 
------------------------- 
Brazil's Foreign Policy 
------------------------- 
 
¶13. (SBU) The United States and Brazil share the basic goals 
of fostering hemispheric stability, promoting democracy, 
preventing terrorist and drug transit activity, supporting 
international non-proliferation regimes, and have been 
working together to try to achieve a mutually satisfactory 
conclusion to the Doha round of WTO negotiations. U.S.-Brazil 
cooperation is often limited by the GOB's unwillingness to 
take action regarding threats to democracy in specific 
countries and to support aggressive action in multilateral 
forums on such issues as non-proliferation, human rights, and 
democracy.  Many Brazilian leaders also take a cautious 
approach to relations with the United States, sometimes 
 
BRASILIA 00001151  004 OF 008 
 
 
falling back on shopworn Latin American leftist rhetoric 
about excessive U.S. influence. Brazil maintains an active 
dialogue with Venezuela and Cuba, has worked hard to restore 
relations with Bolivia, and has stood firmly on the principle 
of respect for sovereignty in responding to the dispute 
between Colombia and Ecuador, preferring to work through the 
Organization of American States. 
 
¶14.  (SBU) With steady export-led economic growth having 
become the norm in the recent past, Brazil has been a 
supporter of reasoned foreign policy goals and has been 
steadfast in its support of democracy in the hemisphere.  The 
attainment of a permanent seat on the UN Security Council has 
been a central goal of Brazil's foreign policy under 
President Lula da Silva's government. 
 
¶15. (SBU) On the Middle East, the GOB is attempting to carve 
out a more prominent role for itself, although their efforts 
so far, from the U.S. perspective, have yielded mixed 
results.  Brazil is cautious about taking an active role in 
non-proliferation efforts, and has consistently refused to 
take a strong position against Iran's nuclear efforts. 
Brazilian officials consider their seat at the table in the 
Annapolis conference last year as a foreign policy success 
and see themselves as balanced in their dealings with Israel 
and the Palestinians, but they have yet to define a 
substantive role for Brazil. 
 
------------------- 
Military Issues 
------------------ 
 
¶16.  (SBU) Brazil established a Ministry of Defense (MOD) for 
the first time in June 1999, uniting the three services 
(Army, Navy, and Air Force) under a single minister.  Jobim 
became Minister last year when the disastrous crash of a 
Brazilian airliner highlighted weaknesses in the civil 
aviation system, which comes under MOD purview.   The Lula 
administration,s focus on social reforms and programs has 
meant continued lean years for military budgets, leading to 
fewer training opportunities and equipment purchases.  This 
situation is changing as there is now near consensus among 
Brazil,s leadership that the military is under-resourced and 
under equipped to accomplish its missions.   Decisions on 
major systems will be influenced much more by access to 
foreign technology and opportunities for Brazilian industry 
than by the capabilities such systems will add to Brazil,s 
military.  The Lula government has tasked a new National 
Defense strategy to be completed by this fall to provide a 
framework for defense modernization. 
 
¶17. (U) Brazil has advocated a South American Defense 
Ministers Council to provide a forum for exchanges on defense 
issues.  Other governments have expressed willingness to 
participate but are concerned that the new Council not 
duplicate such existing institutions as the OAS. 
 
------------------------------ 
The Bilateral Relationship 
------------------------------ 
 
¶18. (SBU) The Brazilian public has a mixed view of the United 
States.  Seventy-five percent say relations between Brazil 
and the United States are very good or fairly good, and 
Brazilians by a wide margin consider the United States the 
most important country in the region for Brazil.  Those who 
follow the news know that U.S.-Brazil cooperation on trade 
issues has global importance and new areas of cooperation 
such as biofuels are potentially significant.  There has been 
a much more positive view of U.S.-Brazil cooperation since 
the signing of the biofuels MOU last year.  On the other 
hand, there is a good deal of skepticism about U.S. foreign 
policy, particularly on issues such as Iraq and Cuba.  There 
is resentment over the long wait times for U.S. visa 
applications (which the USG is now making an all-out "surge" 
effort to reduce), a product of a spike in demand without 
commensurate increases in staffing.  There is also an 
unfounded fear that the U.S. or other foreigners want to take 
over or internationalize the Amazon. 
 
--------------------------------------------- -------------- 
The Bilateral Relationship: Expanding Economic Cooperation 
--------------------------------------------- -------------- 
 
¶19. (SBU) We continue to seek opportunities for positive 
 
BRASILIA 00001151  005 OF 008 
 
 
bilateral cooperation through mechanisms including the 
Economic Policy Dialogue (EPD), the second session of which 
was held March 6 in Washington.  The EPD provides an 
important opportunity to reinforce our view of Brazil as 
partner in areas of mutual interest.  Cooperation to foster 
innovation and agricultural coordination, to possibly include 
assistance to African countries, are new topics of 
conversation bilaterally.  Additionally, we have been working 
to develop a regional infrastructure initiative.  We have 
been exploring one another,s regulatory frameworks in hopes 
of addressing barriers and achieving a Bilateral Tax Treaty 
and a Bilateral Investment Treaty.  Brazil has been a 
significant leader in WTO Doha Round negotiations, opting to 
focus on its own national interest in supporting a compromise 
solution, despite the resistance of its Mercosul (Argentina) 
and G-20 developing country partners (India and China) and 
leading the charge to try to move beyond the apparent 
dissolution of the round to try to salvage the work done so 
far, hoping to move toward a successful conclusion. 
 
--------------------------------------------- ----------- 
The Bilateral Relationship: Law Enforcement Cooperation 
--------------------------------------------- ----------- 
 
¶20. (SBU) Cooperation on security and law enforcement issues 
is a highlight of the bilateral relationship, and a potential 
area for increased cooperation as public security is 
frequently cited in opinion polls as the most pressing 
concern for Brazilians.  This concern reflects distressing 
crime statistics, including a murder rate on the order of 25 
per 100,000 people, over four times the murder rate in the 
United States (5.7 per 100,000 in 2006).  Newspapers earlier 
this year trumpeted the headline that total homicides during 
the last 30 years are approaching the staggering figure of 1 
million (compared with a little over 500,000 for the U.S. in 
the same time period).  Since 1991, homicide trends in Brazil 
and the United States have taken opposite courses: through 
2006 the number of homicides in the U.S. had dropped 31 
percent, while Brazil's rate increased 51 percent. 
 
¶21. (SBU) The newly arrived Resident Legal Advisor is working 
in support of USG law enforcement agencies and the political 
and economic sections to expand and intensify our relations 
with the judiciary, prosecutors, and Brazilian law 
enforcement.  We hope this year to seat another Brazilian 
observer at JIATF-S.  Also, the GOB has expressed interest in 
negotiating a General Security of Information Agreement 
(GSOIA).  The Narcotics Affairs Section (NAS) just signed a 
new Letter of Agreement with the GOB, which will allow us to 
move forward to expand cooperation on counternarcotics and 
countercrime issues, including at the state level.  Brazil 
has been a valuable partner in the efforts to secure our own 
borders against terrorism through its support for DHS's 
Container Security Initiative (CSI), its implementation of 
enhanced passenger screening at airports and its fulfillment 
of the International Maritime Organization (IMO) ISPS code on 
port and ship security.  Immigration and Customs Enforcement 
(ICE) is also currently working with the Brazilian 
authorities to detect financial and smuggling violations, 
financial crimes and commercial fraud with the assistance of 
the Trade Transparency Unit (TTU) initiative. 
 
¶22.  (SBU) Department of Homeland Security Secretary Michael 
Chertoff's July 2008 visit to Brazil provided the latest 
stimulus to an improved relationship in the area of law 
enforcement and security between the United States and 
Brazil, highlighting new areas of cooperation.  The visit 
succeded in indentifying potentially fruitful new areas for 
cooperation in the areas of cyber-crimes, infrastructure 
protection, and port security. 
 
--------------------------------------------- ------------- 
The Bilateral Relationship: Counterterrorism Cooperation 
--------------------------------------------- ------------- 
 
¶23. (SBU) Although senior policy levels of the GOB have not 
publicly endorsed U.S. counterterrorism initiatives, 
cooperation on counterterrorism matters is good at the 
operational level.  The Lula administration just restructured 
its intelligence apparatus to beef up the counterterrorism 
focus.  Brazil has no legislation outlawing terrorist-related 
activity or financing of such activity. 
 
¶24. (U) The governments of Argentina, Brazil, and Paraguay 
have long been concerned over illicit activities in the 
 
BRASILIA 00001151  006 OF 008 
 
 
tri-border area (TBA) joining Foz de Iguacu in Brazil, Ciudad 
del Este in Paraguay, and Puerto Iguazu in Argentina.  This 
TBA concentrates a range of organized criminal activities, 
including arms and narcotics trafficking, document fraud, 
money laundering, as well as the manufacture and movement of 
contraband goods. A wide variety of counterfeit goods, 
including cigarettes, CDs, DVDs, and computer software, are 
moved from Asia into Paraguay and transported primarily 
across the border into Brazil. This inflow of illicit goods 
stands to be increased with the potential passage of 
legislation that purports to ease customs procedures for 
small-scale importers but, due to a lack of enforcement 
provisions, would likely serve to abet traffickers.  The 
United States remains concerned that Hizballah and HAMAS are 
raising funds in the area by participating in illicit 
activities and soliciting donations from extremists within 
the sizable Muslim communities in the region. The GOB 
publicly downplays the possibility of terrorist fund-raising 
inside Brazil and does not consider Hizballah or HAMAS to be 
terrorist organizations. 
 
¶25. (U) In the 1990s, the three governments established a 
mechanism, which the USG joined in 2002 at their invitation, 
to address illicit activities in the TBA.  The "3 1 Group on 
Tri-border Area Security" is intended to improve the 
capabilities of the three TBA states to thwart cross-border 
criminal activity and potential terrorist fundraising 
activity.  Brazil is an active partner within this mechanism, 
but the effectiveness of this group is hampered by GOB 
denials of any potential terrorist activity taking place in 
their territory.  The suggestion that planning for the 1994 
bombing of AMIA, an Argentine Jewish center, might have taken 
place in Brazil caused the GOB to abstain in an international 
vote over whether to issue Interpol warrants for Iranian 
officials accused in the case, an action that disappointed 
and irritated Argentina.  Nonetheless, Brazil has established 
and hosts a Joint Intelligence Center (JIC) in Foz de Iguacu 
to combat transnational criminal activity, although staffing 
issues on the part of Argentina and Paraguay continue to 
impede its full functioning. 
 
--------------------------------------------- ----- 
The Bilateral Relationship: Biofuels Cooperation 
--------------------------------------------- ----- 
 
¶26.  (SBU) Brazil has transformed a 1970s program to bolster 
its large sugar-cane sector into a remarkable showcase for 
biofuels.  The success of Brazil's ethanol program has made 
it a model for the world in terms of alternative energy and 
presents the potential for bilateral cooperation on an 
important strategic issue.  Brazil's comparative advantage is 
its ability to produce huge quantities of sugarcane, which is 
currently the most efficient feedstock for ethanol.  Cane 
requires far less processing than corn to produce ethanol. 
According to the World Bank, at current prices, Brazil can 
make ethanol for about one US dollar per gallon, compared 
with the international price of about USD 1.50 per gallon for 
gasoline. 
 
¶27. (U) The ethanol industry in Brazil continues to grow. 
Petrobras just announced the formation of a new biofuels 
company.  In the coming year alone, Brazil's production of 
sugarcane-based ethanol is projected to increase 14.8 
percent.  On the demand side, Brazil's use of modest tax 
breaks have led new car purchasers to opt overwhelmingly for 
"flex-fuel" cars that can run on either gasoline, ethanol, or 
any combination of the two.   This year ethanol surpassed 
gasoline as the major automotive fuel.  Domestic demand 
consumes 85 percent of all production.  The other 15 percent 
is exported, primarily to the United States.  The ethanol 
private sector is increasingly partnering with international 
companies in building production facilities, as well as 
addressing the internal logistics problems that undermine the 
profitability of ethanol exports. These include 
infrastructure bottlenecks in Brazil as well as various 
international tariff regimes. 
 
¶28. (SBU) Following the signing of the MOU in March 2007, 
Brazil and the United States have been seeking ways to 
increase our collaboration in order to develop the next 
generation of  biofuels, as well as in developing 
international standards on biofuels which should facilitate 
their greater international acceptance and use. The biofuels 
initiative has provided the groundwork for increasingly 
positive bilateral relations and has produced some notable 
 
BRASILIA 00001151  007 OF 008 
 
 
results, including a model for biofuels standard regimes 
internationally and cooperative efforts to aid Haiti, El 
Salvador, St. Kitts and Nevis, and the Dominican Republic in 
developing their own ethanol capacity, and now looking to 
identify a new tranche of countries for further cooperation. 
The GOB and USG are pursuing cooperative scientific 
activities to develop the next generation of biofuels.  The 
more numerous and often better-funded U.S. scientists and 
laboratories can benefit from this cooperation with Brazil's 
world-class cadre of scientists and laboratories, which have 
established an impressive record over the last 30 years. 
Although the general relationship under the MOU has been 
constructive and positive, there has been some increased 
tension recently over public statements by some GOB 
officials, including President Lula, differentiating between 
corn and sugar-based ethanol and placing the blame for the 
food for fuel crisis on corn based ethanol production. 
 
¶29. (U) One interesting area that may be a potential focus 
for future collaboration is bioelectricity, which has been 
touted as the short-term solution to Brazil's potential 
electricity shortages.  It is a clean source of electricity 
that requires little start-up time and is complementary to 
Brazil's predominately hydroelectric generation. 
Bioelectricity production in Brazil is likely to increase as 
it provides another revenue stream for sugar and ethanol 
producers and ultimately may be the decisive factor in 
determining which operators stay in business.  There are 
prime opportunities for U.S.-Brazil bilateral cooperation on 
technological development in 
gasification that would advance the market for both biomass 
products. 
 
--------------------------------------- 
Extreme Sensitivity on Sovereignty 
--------------------------------------- 
 
¶30. (U) There is long-standing and widespread fear among 
Brazilians that the United States or other foreigners want to 
take over or internationalize the Amazon.  Although 
demonstrably unfounded, it surfaces regularly in official and 
media circles, as with President Lula's recent assertions 
that "The Amazon has an owner."  More recently, the prospect 
of enormous oil reserves off Brazil's coast have added new 
fears that the United States or others might have designs on 
these, as well.  Some Brazilians have linked the 
just-announced re-establishment of the U.S. Fourth Fleet to 
these Brazilian oil discoveries.  Many Brazilians have 
expressed concern over the fleet, including Foreign Minister 
Amorim and four members of the Senate Foreign Affairs and 
National Defense Committee, who visited Ambassador Sobel on 
July 9 to express objections to the re-establishment of the 
Fourth Fleet. Ambassador Sobel has stressed that no ships are 
assigned permanently to the Fleet, it is not being 
reactivated with an offensive purpose, and ships assigned to 
it would not come into Brazilian waters without Brazilian 
permission. Its main missions will be support of peacekeeping 
operations, such as in Haiti, respond to natural disasters, 
such as Hurricane Felix in Nicaragua, organize humanitarian 
relief, typically of a medical nature, and assist 
counternarcotics efforts.   Standing up the Fourth Fleet 
intends to demonstrate the priority the United States places 
on its partnerships in Latin America and will help ensure 
that Latin America remains a high priority for U.S. 
engagement.  Post has been conducting an information campaign 
on the Fourth Fleet and is continuing to do all it can to 
dispel any myths so that misconceptions about the Fourth 
Fleet do not take hold, though the issue could come up during 
the course of your meetings. 
 
¶31. (U) Defense Minister Nelson Jobim stated publicly in 
early June that Brazil needed to improve security for its 
off-shore oil resources and that, as permitted by the UN 
Convention on the Law of the Sea (UNCLOS), Brazil was 
planning to increase the 200-mile exclusive economic zone to 
350 miles to include the Santos basin and other oil deposits 
located on Brazil's continental shelf.  Although there were 
suggestions in the press that the United States might not 
respect such an extension because we have not ratified 
UNCLOS, the United States does fully respect exclusive 
economic zones established pursuant to customary 
international law as reflected in UNCLOS.  Furthermore, the 
US has established its own exclusive economic zone according 
to the same customary international law.  UNCLOS recognizes 
the sovereign rights of a coastal State over its continental 
 
BRASILIA 00001151  008 OF 008 
 
 
shelf, which extends out to 200 nautical miles--and beyond, 
if it meets specific criteria.  These rights include 
sovereign rights for the purpose of exploring the continental 
shelf and exploiting its natural resources, including oil, 
gas, and other energy resources. 
 
 
KUBISKE