VZCZCXRO8256
RR RUEHRG
DE RUEHBR #1552 3390938
ZNR UUUUU ZZH
R 040938Z DEC 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 3013
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6944
RUEHSO/AMCONSUL SAO PAULO 3143
RUEHRG/AMCONSUL RECIFE 8767

UNCLAS BRASILIA 001552 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/BSC, WHA/EPSC 
 
E.O. 12958: N/A 
TAGS: EINV ECON BR
SUBJECT: Brazil: Investment Agreement Discussion on EPD Margins 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) Summary: DOS and USTR representatives met with Brazilian 
Ministry of External Relations officials Carlos Marcio Cozendey, 
Minister, Director of the Economic Development Department and 
Marcello Salum, Gabinete to the Under-Secretary for Economic and 
Technology Affairs, on October 29, in advance of the Economic 
Partnership Dialogues (EPD) on the 30, to continue 
investment-agreement-related discussions.  Cozendey acknowledged 
that Brazil is still not ready to begin negotiating a Bilateral 
Investment Treaty (BIT), but does see internal Brazilian movement in 
this direction.  Cozendey proposed a detailed agenda for the next 
round of investment discussions, including CFIUS and indirect 
expropriation.  End summary. 
¶2. (SBU) Cozendey stated that BITs suffered from a negative 
perception, explaining that many politicians felt Brazilian 
investors would be discriminated against in terms of dispute 
resolution, based on the Brazilian investors only having local 
remedies available in Brazil whereas foreign investors would also 
have international arbitration available.  He also reiterated some 
of the same GOB concerns expressed at the investments talks on the 
margins of the last EPD, including provisions relating to 
investor-state arbitration, indirect expropriation, coverage, and 
transfers. Cozendey contrasted a more stable Brazilian business 
environment today with that of the early 90's in arguing for a 
smaller BIT role in Brazil. 
¶3. (SBU) Despite a perceived lack of political interest in moving 
forward with BIT negotiations, Cozendey conceded that recent direct 
expropriations of Brazilian investments in Bolivia and Ecuador 
prompted increase attention on FDI protection mechanisms on the part 
of the Brazilian business community. However, Cozendey noted that 
this concern is primarily born from Brazilian investment domiciled 
in less stable markets, adding that the private business community 
is still not pressing for legislative changes. 
¶4. (SBU) Cozendey described key principles in Brazil's new 
investment agreement model while acknowledging that they were not as 
extensive as the USG BIT requirements. Cozendey explained that the 
new GOB approach did not include provisions for mandatory 
investor-State arbitration, nor protections against "indirect" 
expropriation in which government actions destroy the value of an 
investment. Instead, Cozendey clarified that it provided protection 
only with respect to direct expropriation in which a government 
takes property's legal title.  Cozendey added that the new GOB 
approach limits the scope of investments covered by the agreement to 
direct but not portfolio investments and that the model includes 
significant cross-references to national legislation, rather than a 
reliance on international standards.  Cozendey stressed that this 
new approach was intended to address concerns in Brazil's Congress 
that led to the GOB's failure to win ratification approval for the 
BITs negotiated in the 1990s. 
¶5. (SBU) GOB suggested continuing to hold periodic investment policy 
discussions on the margins of the bi-annual EPD. Cozendey expressed 
interest in CFIUS reform and suggested an earlier meeting should 
more details become available on proposed regulations implementing 
the Foreign Investment and National Security Act of 2007 (FINSA). 
Cozendey suggested a more expansive agenda for the next meeting to 
included discussions on indirect expropriation and related cases 
handled under NAFTA, and a further update on CFIUS; he expects to 
bring Finance Ministry officials to the next meeting.  Salum added 
that he would like to discuss and examine dispute resolution cases 
involving FDI in public utilities and parastatal companies at the 
next meeting. 
¶6. (SBU) Comment: Although no breakthrough was achieved during the 
meeting, there were definite signs that the GOB is interested in 
continuing an investment dialogue, especially in light of increased 
Brazilian investment abroad. End Comment