VZCZCXRO5442
RR RUEHRG
DE RUEHBR #1406/01 3010951
ZNR UUUUU ZZH
R 270951Z OCT 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 2732
INFO RUEHRG/AMCONSUL RECIFE 8625
RUEHRI/AMCONSUL RIO DE JANEIRO 6792
RUEHSO/AMCONSUL SAO PAULO 2965

UNCLAS SECTION 01 OF 04 BRASILIA 001406 
 
SIPDIS 
 
DEPARTMENT FOR OES/STC AND WHA/BSC 
 
E.O. 12958: N/A 
TAGS: KSCA SENV ENRG BR
SUBJECT: BRAZIL: SCENESETTER FOR USDEL TO PREP MEETING FOR THE JOINT 
COMMISSION ON SCIENCE AND TECHNOLOGY, OCT. 30-31 
 
¶1.  SUMMARY:  The overall relationship between the United States and 
Brazil is as productive and broad-based as it has ever been, with an 
excellent relationship between President Bush and President Luiz 
Inacio Lula da Silva.  A variety of cooperative mechanisms have been 
created or revitalized in recent years, including the Joint 
Commission Meeting (JCM) on Science and Technology (which met for 
the first time in July 2006 in Washington), the CEO Forum (which 
focuses on private sector concerns), the Economic Partnership 
Dialogue, the Biofuels Memorandum of Understanding (MOU), and the 
Common Agenda for the Environment.  Brazil and the United States 
share the goals of fostering hemispheric stability, promoting 
democracy, developing a consensus on next steps regarding climate 
change, achieving a mutually satisfactory conclusion to the Doha 
round of WTO negotiations in the near-term, and supporting their 
science and technology (S&T) communities.  The bilateral S&T 
relationship has been expanding and maturing, moving out from a 
solid base of cooperation in agriculture, health, basic sciences, 
and earth sciences.  Most notably, there has been substantial 
progress in collaboration on next generation of biofuels research. 
END SUMMARY. 
 
¶2.  The U.S. delegation's participation in the October 30-31 
preparatory, technical-level meeting in Brasilia of the Joint 
Commission (JCM) on Science and Technology (S&T) is an opportunity 
to help shape the direction and pace of U.S.-Brazil S&T cooperation. 
 There is potential to build on well-established S&T cooperative 
areas (such as in agriculture and health), to develop new fields 
(such as in biofuels), and to revive previously more active areas 
(such as in remote sensing, biodiversity and climate change).  Our 
bilateral relationship has been strong in recent years and 
Brazilians are acutely aware of the upcoming change of 
administrations and want to know what it means for them.  Although 
the S&T sphere tends to be less buffeted by political winds than 
others, Brazilian counterparts are likely to be keenly interested in 
learning what will be the impact of cooperation with a new 
administration.  We expect that a significant portion of the meeting 
will revolve around discussion of the transition. 
 
SCIENCE AND TECHNOLOGY IN BRAZIL 
 
¶3.  The Ministry of Science and Technology (MCT) and its agencies, 
such as the National Institute for Space Research (INPE) and the 
National Council on Scientific and Technological Development (CNPq), 
play leading roles in developing S&T policy and funding research. 
MCT Minister Sergio Rezende, a graduate of MIT, has sought to 
increase S&T funding and is receptive to cooperation with the USG. 
Moreover, some key research areas are outside of the purview of MCT, 
including:  agricultural research, which the Ministry of Agriculture 
(MAPA) conducts through its research arm (EMBRAPA), and the health 
research, which the Ministry of Health oversees through 
laboratories, such as FIOCRUZ.  In addition, federal universities, 
state and private universities, and the private sector (such as 
Petrobras, Embraer and Dedini) are home to some world class 
scientists and laboratories. 
 
¶4.  In November of 2007, Brazil launched its National Science and 
Technology Plan.  The Plan covers the period 2008 to 2010 and calls 
for record funding of approximately Reais 22.8 billion (around USD 
10 billion).  The Plan holds four general priorities: (1) expansion 
and consolidation of the Brazilian National Science and Technology 
system; (2) promotion of technological innovation in the private 
sector; (3) research and development in strategic areas; and (4) 
science and technology for social development. 
 
¶5.  In August 2008, MCT working with the CNPq, the graduate level 
education support agency (CAPES), and with state-level research 
institutes launched a plan to create a "Network of National 
Institutes of Science and Technology".  This involves providing over 
the next two years Reais 435 million (or about USD 200 million) to 
about 60 existing institutes to do research in strategic areas: 
biotechnology, biodiversity and climate change, nanotechnology, 
information technology, health, agriculture, nuclear, space and 
Antarctic, and defense and public security. 
 
¶6.  The Ministry of External Relations (MRE) is involved in 
international S&T cooperation.  MRE recently created a new Under 
Secretary position responsible for S&T, as well as energy, which is 
filled by Amb. Andre Amado.  The MRE has had a special focus on 
promoting south-south relations in Brazil's foreign policy, 
including in the S&T area.  The MRE also recognizes the value of 
Brazilian scientists and laboratories working with U.S. counterparts 
and the MRE has been supportive of developing collaborative research 
projects, in such  areas as biofuels and health. 
 
BILATERAL SCIENCE AND TECHNOLOGY RELATIONSHIP 
 
¶7.  There is an overarching U.S.-Brazil S&T Framework Agreement 
dating back to 1984, which provides a legal framework for 
 
BRASILIA 00001406  002 OF 004 
 
 
cooperation highlighted by the JCM on S&T.  In addition, there are 
numerous MOUs and other arrangements between USG agencies and 
Brazilian ones.  Unfortunately, delays have arisen because the MRE 
will decide that it needs to send an agreement to Congress for 
approval, which can take years to obtain, or the MRE moves slowly or 
not at all on proposals.  For example, the NASA agreement on the 
Large-scale Biosphere-Atmosphere (LBA) program, which was signed in 
2006, has not yet been transmitted to the Brazilian Congress for 
approval. 
 
¶8.  The U.S.-Brazil bilateral S&T relationship has a long and 
positive history, involving a wide swath of USG technical agencies. 
In the last ten years, some of the most important S&T activities 
involved: 
 
- agriculture research (U.S. Department of Agriculture's Agriculture 
Research Service and the Brazilian counterpart EMBRAPA through the 
LABEX program); 
 
- health research (the National Institutes of Health with Brazilian 
health researchers); 
 
- earth sciences (the U.S. Geological Survey and Brazilian 
counterparts); 
 
- remote sensing and the environment (NASA, NOAA, the Smithsonian 
Institution working with INPE and other Brazilian counterparts); 
and 
 
- basic science (the National Science Foundation and CNPq). 
 
¶9.  With the signing of the bilateral Biofuels MOU in March 2007, 
Brazil and the United States have been vigorously pursuing 
collaborative research on the next-generation of biofuels. 
Scientists from both countries have made exchange visits, the most 
recent in Brazil during the month of June.  The scientists have 
presented a joint work plan and proposals for cooperation are now 
moving from the drawing board into the implementation stage.  Apart 
from biofuels, both sides of signaled an interest are looking at 
possibilities of other types of collaborative energy research, such 
as with clean coal, energy efficiency, and renewable energy. 
Petrobras' research laboratory CENPES and the Energy Department's 
National Renewable Energy Laboratory (NREL) have recently signed an 
MOU to cooperate on next generation biofuels research.  The 
NREL-CENPES MOU will be announced at the November 17 - 21 
International Biofuels Conference being held in Sao Paulo. 
 
BACKGROUND - FINANCIAL CRISIS 
 
¶10.  In response to the financial crisis, Brazil's Central Bank has 
responded appropriately in selling reserves, offering derivatives, 
and deferring higher bank reserve requirements in hopes of freeing 
up credit.  Also, it has indicated that future interest rate hikes 
are unlikely given the diminishing threat of inflation due to a 
global slowdown and falling commodity prices.  Brazilian officials 
acknowledge the effects of the global slowdown but confirm the 
country is well-placed to weather the crisis.  President Lula has 
criticized the United States for a lack of financial regulation, 
claiming that a global regulatory body is needed to address the 
situation.  Although Brazilian markets have taken a beating in 
recent weeks and the Real has seen an erosion of its strength from 
earlier this year, large Brazilian companies are confident that they 
will weather the storm, though there are worries about the effect of 
a tightened credit market for smaller enterprises.  President Lula 
has spoken to President Bush several times in relation to the crisis 
and has confirmed his participation in the November 15 summit in 
Washington. 
 
BACKGROUND - POLITICAL AND FOREIGN POLICY 
 
¶11.  Brazil's democratic institutions are generally strong and 
stable.  President Lula remains a personally popular president as a 
result of his orthodox economic policies and expanded social 
programs.  Ongoing scandals involving the leadership of the 
legislature and almost every Minister have led to low ratings for 
these institutions among the Brazilian public but have not touched 
Lula. 
 
¶12.  The United States and Brazil share the basic goals of fostering 
hemispheric stability, promoting democracy, preventing terrorist and 
drug transit activity and supporting international non-proliferation 
regimes.  Wehave been working to try to achieve a conclusion to the 
Doha round of WTO negotiations.  The attainment of a permanent seat 
on the United Nations Security Council has been a key goal of 
Brazil's foreign policy under President Lula's government. 
Regionally, Lula has maintained Brazil's historic focus on 
stability, seeing dialogue and good relations with all parties as 
the best way to achieve this goal.  As a result, Brazil maintains an 
 
BRASILIA 00001406  003 OF 004 
 
 
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. 
 
¶13.  The Brazilian public has a mixed view of the United States. 
Seventy-five percent say relations between Brazil and the U.S. 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, a product of a spike in demand without 
commensurate increases in staffing. 
 
BACKGROUND - ECONOMIC SITUATION 
 
¶14.  Brazil is now the tenth largest economy in the world, with a 
trade surplus and investment grade credit rating from S&P and Fitch 
this year.  Annual GDP growth was 5.4% for 2007, and inflation about 
4%.  Prior to the financial crisis, foreign direct investment in 
Brazil had been 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). 
 
¶15.  However, there are major structural challenges to Brazil's 
long-term growth.  Real interest rates are the highest in the world 
at over 7 percent.  The informal sector constitutes an estimated 40 
percent of the economy, in part due to the tax burden (36 percent of 
GDP in 2007), one of the highest among large developing economies. 
Growth-limiting distortions in the economy, a burdensome tax and 
fiscal structure, and onerous labor and business regulations 
continue to constrain growth. 
 
¶16.  Despite significant progress toward stabilizing the economy, 
Brazil remains unequal in income distribution, with 10 percent of 
the population making up over 50 percent of the nation's wealth. 
Brazil is home to 50 percent of the people who live in extreme 
poverty in Latin America.  President Lula in his first term launched 
social programs, which combined with formal sector job growth and 
real increases in the minimum wage, have markedly reduced income 
inequalities since 2004.  Energy, transportation and 
sanitation/housing are the three key pillars of Lula's Growth 
Acceleration Program (PAC) to enhance infrastructure investment in 
Brazil. 
 
¶17.  The discovery of massive offshore reserves of oil and gas 
estimated to contain between 30-80 billion barrels of oil could put 
Brazil within the top ten oil countries by reserves.  The reserves 
are located in the Santos Basin off the coast of Sao Paulo.  Though 
the possibilities have generated a great deal of excitement, 
industry observers caution that the technological challenges 
involved are extensive, including a lack of equipment such as 
drilling rigs for deposits of this depth.  Such challenges mean that 
developments will probably be slow in coming.  Brazil will look to 
the United States and other partners for assistance in the 
exploration and production of these new reserves.  Some have 
questioned whether the financial crisis will mean a slowing of 
exploration as financing for the necessary infrastructure investment 
becomes more difficult, but government statements so far dismiss 
that concern. 
 
ENVIRONMENT, DEFORESTATION AND CLIMATE CHANGE 
 
¶18.  Tropical forests with bountiful biodiversity cover more than 
half of Brazil.  Unfortunately, high rates of deforestation have 
resulted in the clearing of nearly 20% of the Amazon forest.  With 
70% of the Amazon forest within its territory, Brazil plays a key 
role in environmental conservation and in decreasing the levels of 
greenhouse gas emissions from deforestation worldwide.  Recent 
modeling shows that a combination of rising temperatures, frequent 
droughts and fires caused by global warming could exacerbate forest 
degradation and could lead to a "tipping point", where the rainfall 
patterns in the Amazon are so disrupted that the rainforest 
collapses and is replaced over large areas by a mixture of savannah 
and semi-arid ecosystems.  The implications of this massive 
ecosystem shift for biodiversity, global climate change, and human 
livelihoods would be profound. 
 
¶19.  Brazil is a key player in the ongoing negotiations for a new 
international climate change agreement to succeed the Kyoto 
 
BRASILIA 00001406  004 OF 004 
 
 
Protocol.  It has become an active participant in the Major 
Economies process.  While a fierce defender of the principle of 
"common, but differentiated responsibilities," Brazil sees a need 
for an appropriate balancing of environmental and economic concerns 
when addressing the problem.  Brazil recognizes the importance of 
reducing deforestation, but is fearful of accepting binding goals 
which might be used to justify trade sanctions or other punitive 
measures. 
 
SOBEL