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FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2752
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6806
RUEHSO/AMCONSUL SAO PAULO 2981
RUEHRG/AMCONSUL RECIFE 8639
RUEHGV/USMISSION GENEVA 1559

C O N F I D E N T I A L SECTION 01 OF 05 BRASILIA 001418 
 
SIPDIS 
 
STATE FOR EEB A/S SULLIVAN AND WHA A/S SHANNON 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EAGR BR
SUBJECT: Brazil: Scenesetter - Economic Partnership Dialogue October 
30, 2008 
 
REFS: selected recent reftels: A) Brasilia 1122 B) Brasilia 1254 
C)Brasilia 1265 D) Brasilia 1267 E) Brasilia 1267 F) Brasilia 1271 G) 
Brasilia 1299 H) Brasilia 1302 I) Brasilia 1325 J) Brasilia 1335 K) 
Brasilia 1366 L) Brasilia 1407 M) Sao Paulo 268 N) Sao Paulo 454 O) 
Sao Paulo 486 P) Sao Paulo 497 Q) Sao Paulo 548 R) Rio 236 
 
¶1. (SBU) SUMMARY: The third meeting of the Economic Partnership 
Dialogue (EPD) provides an excellent opportunity to reinforce the 
importance USG attaches to deepening and expanding the positive 
economic agenda between the United States and Brazil now, through the 
transition, and into a new Administration. This Dialogue is an 
opportunity to lay out our vision for the US-Brazil economic 
relationship as Brazil continues to develop as a significant regional 
and global economic player, potentially laying the foundation for 
expanded positive cooperation in other policy areas over time. The 
meeting will permit the two sides to cement a broader partnership 
under the Dialogue, expanding into areas such as development 
cooperation in Africa and a new sectoral initiative to support 
aeronautics industry cooperation.  Participants will welcome progress 
on initiatives such as the June civil aviation agreement expanding 
passenger and cargo services including to the under-developed 
north/northeast of Brazil, the October CPSC-IMETRO Memorandum of 
Understanding expanding information sharing and cooperation on 
consumer product safety issues, and roadshows in the United States 
showcasing infrastructure trade and investment opportunities in 
Brazil.  We also seek to continue dialogue on issues such as 
investment/tax agreements and OECD membership.  END SUMMARY 
 
STRATEGIC OVERVIEW 
- - - - - - - - - 
 
¶2. (C) Recalling the original EPD theme "Rising to the Challenge of 
Globalization," this third session, and the first with new MRE 
Economics U/S Mendonca, provides an important opportunity to lay out 
our vision for deeper and broader cooperation with Brazil on economic 
themes and, over time, increasingly in other policy areas.  Brazil is 
undergoing a transition, moving from a sense of itself as the 
inward-looking, beleaguered and put-upon poor relative to significant 
and constructive engagement on the world stage in certain areas. 
Most notable has been Brazil's engagement on multilateral trade and 
finance issues.  Brazil has moved from a debtor to a creditor nation, 
to a country that gives development assistance rather than only a 
recipient, from a country relying on an import substitution model to 
a country that recognizes it is a global player in the agricultural 
sector while continuing to struggle to manage protectionist interests 
on the manufactured goods side. Brazil achieved investment grade this 
year. Two-way FDI has increased considerably with the United States, 
and Brazil's significant investments abroad have begun to spark some 
interest in investor protections in riskier markets like Ecuador 
where Brazilian investors have experienced problems.  Brazil's sound 
fundamentals have allowed GOB to react to the global financial crisis 
without the sense of meltdown that marked previous crises. 
 
¶3. (C) This transition in self-perception and in defining itself on 
the global stage is not yet complete.  Mission sees this internal 
struggle play out across Ministries, inside Ministries, and even 
within specific Ministers.  For example, MDIC (Commerce Ministry) 
supports intellectual property rights protection as a spur to 
innovation, while the Health Ministry believes the best approach to 
pharmaceutical cost control is spurning these protections in the 
short-sighted hope this will foster development of local generics 
production.  MRE includes officials lobbying for global engagement 
and others with more parochial, "anti-Western" instincts.  Even 
specific key individuals, including at Planalto, struggle with hearts 
drawn to socialist, anti-Western and anti-private sector models and 
minds that know engagement and openness to cooperation with the 
private sector are the path toward Brazil's continued growth.  This 
evolution plays itself out even more publicly in the Congress, where 
members range from those that object to debt relief for Africa, not 
seeing the strategic value, to those actively lobbying for increased 
competitiveness, openness and global engagement.  Brazil's 
non-governmental "elite" is similarly evolving, with some key 
opinion-makers stuck in the past and others, particularly among the 
business sector, actively urging a new model for increased global 
engagement. 
 
¶4. (C) We see Brazil evolving toward a new definition of national 
interest as opinion-makers' perceptions of Brazil's place in the 
world, its importance, and its ability to influence evolve.  Brazil 
wants to be the best of the BRICS, they want to be a leader among 
developing countries, and they want to engage with powers like the 
United States and the European Union in areas of mutual interest 
(such as 4+1 trade talks or an EU "FTA") as well as advance their 
bilateral interests in fora such as the WTO.  We should not view this 
evolving strategy as inherently inconsistent. 
 
¶5. (C) Regional integration and loyalty to regional groupings and 
 
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mechanisms remain a policy priority, and Brazil's work to build 
consensus in these fora serve to enhance its status as a regional 
leader. Brazil is sensitive to its role in the region as a stable 
democracy with the tenth largest global economy in a neighborhood 
that includes partners making far less predictable and positive 
choices. Brazil defines its national interest as requiring 
constructive dialogue with all governments, including ones that 
openly criticize the United States.  This has also led Brazil to 
emphasize development assistance and economic cooperation that may 
make more political than economic sense in the short-term, but that 
is hoped will deepen longer-term integration based on a more stable 
model. This economic cooperation ranges from inducing its 
state-controlled companies to invest in markets that make less sense 
from a profit perspective, to signing numerous bilateral pledges to 
increase trade and investment ties that are not necessarily 
implemented but serve an important political objective.  Consistent 
with the priority it places on maintaining good relations with 
unstable neighbors and influencing from the inside, Brazil is 
sensitive to any perceived USG attempts to deliberately exclude these 
unpalatable partners while including Brazil and other USG-defined 
"good guys" in Latin American-specific conversations.  Interlocutors 
cite this reasoning in declining, for example, USG invitations to 
attend "Latin American" side meetings at the IDB and Bank/Fund annual 
meetings.  Brazil's initiative to host a Latin American regional 
summit is intended to signal the nation's leadership and commitment 
to the integration of the region. 
 
¶6. (C) Brazil places great importance on its role as a leader of the 
G20 and on demonstrating its commitment to Mercosul (an economic 
mechanism developed for political reasons).  It played a significant, 
and constructive, role in attempting to build G20 consensus for WTO 
liberalization and cajoled Argentina heavily for flexibility while 
staunching supporting their interests with negotiating partners.  At 
the same time, Brazil is defining its interests in a broader context, 
particularly in the economic area.  At the end of the day, Brazil 
defined its own national interest by breaking away from the 
inflexibilities demonstrated by partners such as India and Argentina 
and built a consensus with other trade partners for increased trade 
liberalization.  This decision to recognize that Brazil stood to gain 
enormously under a Doha agreement and needed to prioritize concluding 
an agreement, while simultaneously managing the political fall-out 
from its G20 and Mercosul partners, was not taken in a policy vacuum 
and was carefully coordinated internally.  It was no accident that, 
immediately following Brazil's participation in the so-called "G7" 
consensus, the government arranged an enormous delegation, including 
300 private sector participants, to Argentina to demonstrate the 
political as well as economic importance Brazil continued to place on 
that relationship.  It was not by chance that Amorim responded in a 
published op-ed, to aspersions cast in a press article, strongly 
asserting his G20 credentials and support for G20 positions in WTO 
negotiations.  USG engagement with Brazil must continue to recognize 
the government's need, and ability, to manage these interests as one 
policy whole as it defines its national interest. 
 
¶7. (C) On global issues, Brazil does not yet consistently see itself 
as having a constructive role to play, yet Brazil welcomes bilateral 
dialogue with the United States where it is treated as an equal 
partner. Brazil retains sensitivities as a developing country that it 
not automatically fall in line with US positions where it perceives 
no direct national interest.  In fact, Brazil often perceives its own 
national interest as not sitting in judgment on other nations as it 
manages its own very real internal sovereignty sensitivities.  Brazil 
has begun limited engagement via its lead of the UN mandate in Haiti, 
attractive as a UN-blessed mission in a country in the region that 
welcomed their presence, and its desire to participate in the 
Annapolis conference.  While Brazil is not yet convinced it could or 
should engage across global political issues, Brazil sees engagement 
on global economic issues as more tangibly in its national interest. 
GOB has responded responsibly and capably to the global financial 
crisis.  Recognizing policy choices in other countries can directly 
affect its own economic growth, Brazil has been eager to engage 
developed country partners in finding a way forward.  As chair of the 
G20, Brazil has recognized the need to bring that grouping together 
in addressing the crisis. 
 
¶8. (C) We have similarly found Brazil defining its national interest 
as intersecting the United States' more consistently on the economic 
agenda. The biofuels MOU has proven an excellent forum for 
cooperation which has produced tangible results and an increased 
sense of the value of working together.  This success can potentially 
be expanded to other areas of the economic relationship, such as 
broader energy cooperation and possibly a 4+1 trade discussion.  The 
energy agenda holds enormous potential for a new Administration as 
Brazil becomes a significant player in oil and alternative fuels. 
Trade discussions could be fruitful to explore. Similarly, as we 
build successes over time demonstrating bilateral cooperation yields 
mutual benefit, this economic cooperation may encourage bilateral 
 
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cooperation on broader global issues, including political and 
security questions. 
 
¶9. (C) Brazil is an emerging nation still feeling its way internally 
toward a new sense of itself and its place on the global stage.  As 
such, its definition of national interest will not always coincide 
with our own.  Mission suggestion would be to treat Brazil more as a 
"Japan" or a "France" - a partner that can be frustrating and that we 
may not always agree with, but one we can work with constructively 
with a shared assumption that areas of positive engagement and 
cooperation can be found.  Brazil is not yet a Japan or a France, but 
engaging with Brazil seriously will foster its growth into that role. 
 Brazil's competition group is the BRICS, its neighborhood is Latin 
America, and it will evolve as a significant global presence 
eventually.  It would be a mistake to treat Brazil as a third-tier 
country or to assume that the GOB is not focused on its national 
interest.  We should commit deeply to engagement with this large 
democracy and growing economy, recognizing our common interests and 
the potential to deepen cooperation in an gradually expanding range 
of policy topics where our respective national interests coincide. 
 
¶10. (SBU) EPD AGENDA TOPICS 
 
- SOCIAL INCLUSION/DEVELOPMENT COOPERATION: Following up USAID Fore's 
visit in August and earlier EPD discussions on the US MCC and the 
Brazilian Bolsa Familia, cooperation in third countries provides an 
excellent opportunity for us to benefit from each other's expertise 
and experience in complementary assistance projects in countries of 
common interest.  AID and ABC have agreed to further expand existing 
cooperation and initialized technical level meetings to enhance each 
others' knowledge of existing and planned USAID and ABC projects in 
Haiti and Mozambique and to seek further trilateral cooperation 
initiatives in African countries belonging to the Community of 
Portuguese-Speaking Countries.  USAID agreed that it would pursue 
Brazil's participation in donor coordination meetings where they 
provide development assistance, similar to Brazil's current 
participation in Haiti.  These steps represent the first tangible 
progress on social inclusion in the EPD. 
 
- AGRICULTURE:  MRE understands that USDA has the lead in USG on 
CODEX and on the CCA. Regardless, the Brazilians desire and intend to 
discuss their concerns regarding developing country participation in 
CODEX for State to hear.  MRE understands that FAS will respond on 
this agenda item. 
 
- INFRASTRUCTURE:  Infrastructure investment under the PAC remains an 
enormous political priority for the Lula government, both 
domestically and in terms of the regional integration agenda.  In the 
context of the global financial crisis, the President and Ministers 
have repeatedly emphasized that, whatever the government's response, 
commitment to the PAC will remain staunch. This commitment is both a 
political priority as the PT maneuvers toward the 2010 elections, and 
a policy priority based on lessons learned in past economic crises. 
In the past 20 years, Brazil chose to abandon infrastructure 
investment as it struggled to impose fiscal discipline, resulting in 
poorly maintained or in many cases non-existent infrastructure for 
roads, rail, ports, the electrical grid, and other examples. 
Recognizing profoundly inadequate infrastructure is constraining 
Brazil's potential growth prospects, policymakers are determined not 
to make this mistake in future.  This area has been cited as one 
where Brazil can offer valuable "lessons learned" to other developing 
countries working with IMF and other institutions.  To date, MRE's 
role has been limited to coordinating the infrastructure "roadshows" 
to the United States. 
 
- CIVIL AVIATION:  The EPD will welcome the agreement negotiated with 
ANAC in June. You may wish to note our hope that expanded flight 
possibilities into the north/northeast of Brazil will further social 
inclusion objectives, as potential increased American tourism and 
other business opportunities could also benefit development 
objectives in that region. 
 
- HOPE II:  In addition to underlining Brazilian business interest in 
taking advantage of HOPE II, MRE will present preliminary ideas for 
possibly designing a Brazilian equivalent of the HOPE program.  This 
would probably require new legislation in Brazil (rather than 
regulatory change).  MRE also needs to sort out internally whether it 
can act unilaterally or, more probably, would have to negotiate 
within Mercosul. At the EPD, MRE will principally be looking for 
feedback whether US textile producers would have any interest in an 
eventual potential Brazilian HOPE program for Haiti. 
 
- SECTORS:  In addition to proposing a sectoral event on aeronautics, 
MRE has invited MDIC to come to the EPD to present a proposal on 
cooperation in the software/IT sector.  The sectoral discussion 
presents a good opening to introduce IPR discussion into the 
conversation and its links to innovation and competitiveness in these 
 
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specific sectors. 
 
- IMPORT SAFETY:  The EPD will welcome the October 22 MOU between 
CPSC and IMETRO.  FCS understands there was MDIC sensitivity to MRE's 
proposal to sign at the EPD - Mission is grateful to avoid getting in 
the middle of that issue and believes simply welcoming the signed 
agreement will be acceptable to all parties.  If Ministry of 
Justice's proposal on product recall cooperation is ready, MRE may 
invite them to present at the EPD. 
 
- DISTINCTIVE PRODUCTS:  According to MRE, the question of Brazilian 
treatment of bourbon, bourbon whiskey, and Tennessee whiskey may be 
nearing a solution.  The technical experts at the agriculture 
ministry (MAPA) have indicated that two of the requests made via 
demarche are doable: retracting the current bourbon definition and 
including the products on the distinctive products list.  The 
suggested U.S. definition of bourbon however presents some technical 
problems that MAPA will discuss in detail at a bilateral meeting with 
Tobacco, Tax, and Trade Bureau's Bill Foster the day prior to the EPD 
meeting. 
 
- INNOVATION:  MRE/Economics has struggled internally to find its 
value-added in work already underway via MDIC, ABDI, the Science 
Ministry, and other parts of GOB. MRE rejects IPR as a positive area 
of engagement on the innovation agenda.  MRE will welcome OES' 
presentation and innovation work under the Joint Commission Meeting 
on Science and Technology process, which another part of MRE leads in 
conjunction with the Science Ministry and State/OES leads for the 
USG. 
 
- TELECOMMUNICATIONS/INTERNET: We understand that in addition to 
resource concerns involved in negotiating a highly technical Mutual 
Recognition Agreement (MRA), ANATEL and other parts of GOB may be 
reluctant to negotiate on product categories where domestic 
production exists.  Brazil will ask where USG thinking is on ICANN 
renewal and continues to believe internet governance should be 
further internationalized. 
 
- OECD:  MRE found the technical sessions in Washington and their 
diplomat's visit to USOECD extremely helpful in understanding how the 
USG organizes its staff and interagency work.  MRE prefers not to be 
pressed to accept more extensive offers of technical assistance.  You 
may wish to proactively seek Brazil's input and expertise in a 
specific work area of the OECD, such as biofuels, as a way to further 
draw Brazil into the OECD's work and as a signal that USG values the 
contribution and expertise Brazil can offer.  While opinions vary 
within both Ministries, the Finance Ministry at higher levels is 
generally more enthusiastic about eventual OECD membership as a way 
Brazil can gain more influence on global economic issues.  The upper 
levels of MRE, however, remain skeptical of the institution as a 
perceived rich country club imposing its will on developing 
economies. 
 
- INVESTMENT/TAX:  GOB remains uninterested in pursuing a BIT-style 
agreement, signaled again clearly even in MRE edits to the proposed 
agenda for the October 29 technical session.  GOB remains unwilling 
to consider the investor protections a BIT includes, and is not 
convinced that resources should be prioritized toward negotiating 
with the United States in any case given unprecedented levels of 
two-way FDI. MRE has not been moved by arguments that a BIT would 
attract deeper small and medium sized investment that form the 
backbone of a strong two-way investment relationship.  With Brazilian 
business concern focused more on major investment disputes in 
countries like Argentina and Ecuador and a thwarted experience in the 
Congress that failed to ratify MRE's 1990s BITs, MRE, Finance and 
MDIC  are reluctant to spend the political capital a BIT would 
require despite a CEO Forum recommendation to explore an arbitration 
mechanism.  As opinion in the Congress and among the business 
community continues to evolve, we should continue to press MRE on 
this issue. US-Brazil tax treaty discussions September 30-October 2 
confirmed most issues are resolvable through negotiation.  However, 
GOB indicated it would not be possible to change its legislative 
system to permit transfer pricing and dispute settlement. USG is 
seeking business feedback whether a BTT that does not include these 
elements would be of value. 
 
¶11. (SBU) Congressional Lunch, October 29 
 
This diverse group of Senators and Deputies will give a good flavor 
of the diversity of opinion on economic issues and the appropriate 
role of government.  Opinions range from PT Deputy Tatto, chair of 
the House Economics committee, who speaks with admiration and envy of 
the Chinese government's perceived ability to "control" its economy 
and who is highly protectionist, to Pedro Eugenio, Chair of House 
Finance, who is economically liberal and interested in increased ties 
with the United States.  The group will be interested in an exchange 
of views on the global financial crisis and response, the Doha Round, 
 
BRASILIA 00001418  005 OF 005 
 
 
and potential areas of bilateral cooperation. You may wish to 
initiate dialogue on other areas of US interest such as investment 
and tax agreements.  This group will have a diversity of views on 
regulatory reform in Brazil.  You should ask for their perspectives 
on the feasibility of the government getting particular initiatives 
through Congress by 2010 (from domestic tax reform to bilateral 
agreements). 
 
¶12. (SBU) MDB/CNI/Central Bank dinner, October 29 
 
This group brings together MDB representatives who help Brazil 
address its development needs, a business community representative 
who can speak to Brazil's current environment and the impact of the 
financial crisis, and Finance Ministry who plays a key role in 
addressing the crisis. The conversation could range from Brazil's 
infrastructure needs and US cooperation to address, the global 
financial crisis' impact, political and economic views on Brazil's 
evolution, and regional topics of interest.  The IDB and CAF 
representatives are Bolivian, adding additional perspectives to this 
conversation. 
 
SOBEL