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RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 06 BRASILIA 000809 
 
SENSITIVE 
 
SIPDIS 
 
NSC FOR DNSA FROMAN 
STATE PASS USTR KKALUTKIEWICZ 
DOC FOR ITA ADRISCOLL 
TREASURY FOR LTRAN MMUNDACA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN ENRG SENV KGHG EINV BR
SUBJECT: BRAZIL - DEPUTY NATL SECURITY ADVISOR FROMAN DISCUSSES CEO 
FORUM, DOHA, CLIMATE CHANGE, G8, G20, WITH GOB, JUNE 18-19 
 
BRASILIA 00000809  001.2 OF 006 
 
 
(U) This message is sensitive but unclassified, please treat 
accordingly. 
 
¶1.  (SBU) SUMMARY: Government of Brazil (GOB) meetings with Deputy 
National Security Advisor for International Economic Affairs Michael 
Froman in Brasilia June 18-19 focused on CEO Forum, G8 and G20 
preparations, Major Economies Forum (MEF) and Doha.  Casa Civil head 
Minister Dilma Rousseff and Mines and Energy (MME) Deputy Minister 
Marcio Zimmermann welcomed development of a strategic partnership on 
energy, both noting that U.S. company investment significantly 
trails European and Asian.  Rousseff supported adding energy to the 
CEO Forum, noting the private sector is an important voice in 
deepening the strategic relationship.  On climate change, Rousseff 
called USG new engagement and leadership a fundamental and welcome 
change, and committed to GOB engagement in the MEF process, with 
Environment (MMA) Deputy Minister Izabella Teixeira also supporting 
a more active GOB role.  However, External Affairs (MRE) Under 
Secretary Vera Machado deferred to MEF negotiator Luis Figueiredo 
Machado, who said GOB should not break ranks with the G77 and 
outlined his concerns with the MEF process and USG approach 
asserting that MEF should only be a listening platform rather than a 
negotiating forum.  On the CEO Forum's Bilateral Tax Treaty (BTT) 
recommendation, Rousseff said legislative changes (e.g., for 
OECD-standard transfer pricing) would be possible if the 
negotiations advance this year, as nothing would happen once the 
election cycle begins.  Stressing familiar concerns regarding tax 
revenue collection and perceived "asymmetries" between the United 
States and Brazil, Finance Deputy Minister Nelson Machado underlined 
difficulties in achieving a BTT that would be attractive to the 
government and congress.  On Doha negotiations, MRE Under Secretary 
Pedro Mendonca and Assistant Secretary Carlos Marcio Cozendey 
affirmed that the GOB is open to a dialogue where USG outlines its 
specific priorities for market access and what USG can offer in 
exchange.  Froman welcomed GOB input in the preparatory process for 
the G20 meeting in Pittsburgh.  Regarding the G8, Vera Machado 
indicated continued GOB dissatisfaction with the quantity and 
quality of G5 participation.  Froman's meetings June 19 in Sao Paulo 
will be reported septel.  END SUMMARY. 
 
ENERGY 
 
¶2.  (SBU) Rousseff affirmed continued GOB support for the CEO Forum. 
 She welcomed the Forum incorporating energy into its agenda, noting 
that the private sector is an important voice in seeking to deepen 
strategic USG-GOB energy cooperation.  Referring to FDI more 
generally, Rousseff noted that U.S. companies are not investing in 
infrastructure development to the extent European and Asian 
companies are, and even in the energy sector, U.S. companies' 
participation is down.  She emphasized that the USG and GOB need to 
develop a strategic relationship on energy overall, not simply focus 
on specific projects.  Rousseff welcomed more USTDA, EXIM and OPIC 
energy engagement in Brazil, noting Brazil had a long-established 
relationship with China and to date it had been easier to work with 
Japan and Korea than with the USG.  Rousseff emphasized the 
importance to Brazil that the strategic relationship with the USG 
becomes more significant.  "A long-term relationship with you in 
this sector is very important for us," she said. 
 
¶3.  (SBU) In a separate meeting, MME Deputy Minister Zimmermann 
agreed that the USG and the GOB should seize the opportunity to 
develop a strategic energy relationship and could benefit from each 
others' experience, particularly since Brazil had developed with a 
clean energy matrix relying highly on renewables.  He noted 
Petrobras' experiences with U.S. companies, including suppliers, 
create excellent possibilities for deeper partnerships given the 
pre-salt finds.  Noting the deficit of U.S. companies' participation 
in the energy sector overall compared to Europe and Asia, Zimmerman 
welcomed the CEO Forum incorporating energy into its purview. 
 
¶4.  (SBU) Touching on on-going GOB work to develop a structure to 
manage the pre-salt resources, Zimmermann indicated that the GOB was 
focused on developing a model that would attract investors and avoid 
Dutch disease.  Noting that environmental challenges mean Brazil can 
no longer construct large hydropower facilities, Zimmermann 
indicated Brazil would probably launch development of new nuclear 
plants next year.  (NOTE.  In May, Brazil restarted construction of 
a third reactor, Angra III.  END NOTE.)  Zimmermann said Brazil 
planned to liquefy natural gas at sea (in conjunction with oil 
 
BRASILIA 00000809  002.2 OF 006 
 
 
extraction) to sell, and expressed interest in oil refinery 
development projects with U.S. companies as Brazil seeks to deliver 
more value-added product in the future. 
 
CLIMATE CHANGE 
 
¶5.  (SBU) Rousseff acknowledged Brazil is well-positioned, given its 
clean energy matrix relying on renewables like hydropower and 
biofuels.  She noted a great challenge in climate change management 
is the global logistics infrastructure does not yet exist for 
alternative fuel delivery as it does for fossil fuels.  Rousseff 
noted wind and solar can only complement other power sources.  While 
nuclear power development will proceed in Brazil, she noted 
resistance in Europe.  Therefore, she viewed developed, particularly 
European, countries' goals for climate change with skepticism. 
Rousseff believed that China would try to prove it was equal to the 
challenge, and its still very centralized structure would allow it 
to do so.  She thought achieving India's buy-in would be 
particularly difficult. 
 
¶6.  (SBU) Meanwhile, she underlined, the GOB would remain committed 
to its domestic goals to tackle deforestation and would continue to 
work to regularize land rights and suppress illegal deforestation. 
Rousseff stressed that establishing land rights would be Brazil's 
"great contribution" and most difficult challenge in preserving the 
Amazon.  She noted that Brazil wanted to manage economic activity in 
the Amazon similarly to the way off-shore rigs are managed ("take 
people in to work, then take them out") so as to avoid creating 
cities/communities in the forest and minimizing the footprint of 
economic activity.  Brazil's ambition, Rousseff summarized, is to 
prove a model that is viable in using the forest's services without 
impacting the forest. 
 
¶7. (SBU) Rousseff was notably positive and intrigued regarding the 
provisions of the Waxman-Markey "American Clean Energy and Security 
Act of 2009" bill.  She opined that this represented an "extremely 
important strategic fundamental change" that the United States now 
is becoming the leader on climate change.  She thought this change 
represented the only way global climate change negotiations could go 
forward.  Rousseff emphatically confirmed that Brazil will give "all 
positive signals" in the MEF process.  Noting "common but 
differentiated responsibilities" does not mean a country should 
avoid what is clearly its responsibilities, Rousseff stated, "we can 
be very supportive of these initiatives" in MEF. In response to 
Rousseff's interest in climate change developments in the United 
States, Froman offered to send an expert to Brazil to brief in 
further depth. 
 
¶8.  (SBU) In a later meeting with Vera Machado, who is Brazil's 
Leader's Representative for the MEF process, she claimed that she 
hadn't had sufficient time to focus on this part of her portfolio. 
 She did not attend the MEF meeting in Paris in May, and she said 
she would not attend the MEF meeting in Mexico at the end of June. 
In an indication that MRE is not prioritizing the MEF Forum or 
contemplating a re-examination of its positions, Vera Machado left 
the discussion on climate change to her deputy, Figueiredo Machado, 
who would be going to Mexico.  Froman reviewed the key elements of 
the draft building blocks to be considered at the July MEF leaders 
meeting in Italy. 
 
¶9.  (SBU) Figueiredo Machado expressed concern about the MEF 
process.  When pressed, he explained that Brazil did not want to see 
the MEF process serve as a negotiating platform, which could 
undercut the ongoing negotiating process under the UN Framework 
Convention on Climate Change (UNFCCC).  He stressed that Brazil and 
the other MEF developing countries cannot negotiate positions that 
could affect the G-77 countries' negotiating position.  The UNFCCC 
process is "more democratic" than the MEF, he explained, which 
includes only a handful of G-77 members.  He didn't mind if the 
developed countries agreed to targets within the MEF process, but 
the MEF developing countries could not speak about what all 
developing countries would do.  If Brazil agrees to details within 
the MEF, he explained, then "we will have betrayed the G-77.  We 
will be lynched by them."  Figuereido Machado discounted Mexico's 
efforts to advance the negotiations saying that Mexico is not part 
of the G-77 and doesn't care about it.  Similarly, he downplayed the 
support by UN Secretary General Ban Ki-moon for the MEF process 
because he was just "following the South Korean line." 
 
BRASILIA 00000809  003.2 OF 006 
 
 
 
¶10.  (SBU) Figueiredo Machado assured that he did value the MEF 
process.  The MEF could produce a general, common vision on the 
UNFCCC negotiations, leaving the details to that body.  In this way, 
he opined, the MEF process could end well.  The participants could 
"create nice language to put in the mouths of our leaders."  As for 
the UNFCCC process, he hoped that there was a possibility for 
reaching agreement between the G-77 and the developed countries.  He 
added, "we are creative."  Figueiredo Machado acknowledged that 
President Obama and President Lula wanted to see progress on climate 
change.  Figueiredo Machado urged increasing contact between the 
Brazilian negotiators and the USG team.  He said that many times the 
problem is a lack of understanding between the two sides, rather 
than a real conflict.  He underlined that the US has known the 
Brazilian position for a year and that position had not changed. 
Froman countered, however, that the US position had changed and thus 
the need for real engagement and negotiation. 
 
¶11.  (SBU) With respect to the draft building blocks for 
consideration by MEF members, Figueiredo Machao said they had 
concerns about the details.  The detail that appeared to bother him 
the most was the lack of a clear statement about the paramount 
position of the UNFCCC process.  The current language seemed to 
suggest that the MEF process was a parallel negotiating process. 
Further, he disagreed with the concept of a "peak year" in the 
building blocks.  He said could not agree to the principle of 
developing countries taking on targets. 
 
¶12.  (SBU) Froman described the progress being made with the 
Waxman-Markey climate change legislation in the House of 
Representatives.  Figueiredo Machado responded cautiously to the 
possibility of offsets being included in U.S. legislation.  He said 
that this needed more discussion and better understanding.  "We are 
concerned by new mechanisms that may harm the climate, even though 
they may help some groups [such as Brazil with forest credits]," he 
said.  Brazil worries that offsets will lead to other countries 
eluding from their obligations to reduce emissions, he said.  In the 
long term what will save trees is not foreign aid, but solving the 
climate change problem that threatens them, he opined.  Moreover, he 
faulted offsets because the majority of the benefits would only go 
to a few developing countries, such as Brazil, China and India. 
Other developing countries would be left in the cold, such as Congo 
with its forests being cleared, he lamented. 
 
¶13.  (SBU) At a June 19 breakfast with the MMA Deputy Minister 
Izabella Teixeira and a key climate change advisor Branca Americano, 
Froman asked about how to make progress in the UNFCCC negotiations. 
Americano said that it seemed the negotiations within the UNFCC were 
"locked up" and she thought the MEF process could help unlock them. 
She cautioned that the MEF process could not appear to be dictating 
to the G-77.  Teixeira said that Rousseff can play a key role in the 
negotiations and after Copenhagen.  She can broaden the internal 
negotiations beyond just the MRE and the Ministry of Science and 
Technology (MCT), which have run the process to date.  She jokingly 
described MRE and MCT as "lovers" who were not interested in other 
Ministries' input.  Americano concurred with Froman that for Brazil 
climate change negotiations may be more of an opportunity than a 
constraint on economic growth.  Americano noted, with Teixeira's 
agreement, that MRE Minister Celso Amorim is open-minded and could 
possibly help produce movement within the Brazilian negotiating 
team.  Teixeira was supportive of the new initiatives to combat 
deforestation as part of climate change.  These ideas can help shape 
not only the national dialogue, but also Brazil's international 
position.  She also encouraged the USG to reach out to other 
ministries not usually involved in environmental and climate change 
debates - such as the Finance Ministry, the Ministry of Planning, 
Budget and Management, and the Ministry Of Development, Industry and 
Trade (MDIC). 
 
DOHA 
 
¶14.  (SBU) Emphasizing that the USG is not calling to re-negotiate 
modalities or re-open previous concessions, Froman indicated the 
United States needs to understand better what an agreement would 
concretely yield U.S. producers.  In particular, the United States 
needs to understand better how countries intend to apply 
flexibilities laid out in the formulae in order to see what new 
market access will be achieved.  In the meeting with MRE U/S 
 
BRASILIA 00000809  004.2 OF 006 
 
 
Mendonca, WTO negotiator A/S Carlos Marcio Cozendey noted it is 
fairly clear in most cases what sensitivities each country intends 
to capture in its flexibilities.  For example, he said, "everybody 
knows autos will be on our flexibilities list."  However, he stated, 
"it is different not to know versus not to be happy."  If the issue 
is the latter, Brazil would be very open to a dialogue where the 
United States says what it wants and what it is willing to pay for 
it.  Cozendey stressed that it is positive that the USG wants to 
engage in a dialogue.  He indicated Brazil wants certain things from 
the United States, citing agricultural access and the ethanol tariff 
as examples, and welcomed a chance to talk directly to the United 
States.  At the same time, Cozendey emphasized, the USG has to be 
clear with Brazil regarding what it is not happy with and where it 
wants more. 
 
¶15.  (SBU) U/S Mendonca emphasized that re-opening modalities would 
be a Pandora's box; Cozendey reminded that while Brazil had accepted 
the modalities text, Argentina did not.  This situation created 
intra-Mercosul tension; since Doha did not reach the end-game, 
bringing Argentina on-board was never fully resolved within 
Mercosul.  Brazil has had some discussion with Argentina about 
granting Argentina internal Mercosul concessions in order to achieve 
buy-in; this internal negotiation will need to be completed, 
preferably without the modalities text itself being thrown open for 
discussion, and Argentine objections, again. 
 
¶16.  (SBU) In his meeting with Rousseff, she emphasized that Doha's 
conclusion was an enormous priority for President Lula and welcomed 
USG openness to this discussion.  In response to a China question, 
Rousseff noted the relationship is challenging, because China is 
both Brazil's major industrial competitor and its biggest 
agricultural consumer.  Negotiations are not linear - Brazil can 
find itself winning and losing simultaneously and sometimes in the 
same degree.  "The greatest complicating factor in this story is how 
the U.S.-China relationship is."  On the other hand, Rousseff agreed 
there is no reason for U.S. and Brazilian industry to distrust one 
another.  "We have to bring our relationship closer together in the 
complicated environment of China's emergence, which would be good 
for both our economies," underlining again that a strategic 
partnership on energy would be an important step. 
 
G8 PLUS G5/FOOD SECURITY 
 
¶17.  (SBU) U/S Vera Machado reflected on the current global 
groupings.  She opined that they are willing to participate in the 
G8 plus 5 with the intention that it will become a larger grouping 
in the future.  The prior week, MRE Minister Celso Amorim on his way 
to the Brazil-Russia-India-China (BRIC) summit in Moscow had called 
the G8 process dead and added that it would be supplanted by a 
larger grouping.  Machado complained that Brazil was being excluded 
from the G8 Foreign Ministers meeting and the Finance Ministers 
meeting in Italy.  She said Brazil should at least be invited as an 
observer to these meetings.  "We feel excluded," she said.  Further, 
Brazil wants to participate further in the G8 process as a pathway 
to a larger group.  While the G20 was mentioned during the 
conversation, Machado never explicitly or implicitly suggested that 
it should replace the G8 or the G8 plus G5.  She was emphatic, 
however, that the G8 should expand to include Brazil.  She said this 
could be done in stages, with Brazil initially as an observer, as 
part of a long term path toward full membership. 
FOOD SECURITY 
 
¶18.  (SBU) MRE's Coordinator General for International Action to 
Combat Hunger, Milton Rondo noted progress on international food 
security efforts.  He described a two-track approach - emergency or 
immediate assistance, where he said the USG has been a leader for 
years, and long term help with seeds through international bodies 
(like the Food and Agriculture Organization (FAO) and the World Food 
Programme (WFP)).  He wanted to see strengthening of a "Right to 
Food."  Rondo agreed with the USG that the World Bank should play a 
greater role, and he advocated for crop insurance.  Paragraph 2 of 
Article 25 of the UN Declaration of Human Rights implicitly 
supported crop insurance, he said. 
 
¶19.  (SBU) Rondo listed areas where he saw a convergence of views 
with the USG: 
-access to seeds (he commented that Brazil is concerned about 
farmers becoming dependent on just a few sources of seeds); 
 
BRASILIA 00000809  005.2 OF 006 
 
 
-finance and credit; 
-infrastructure, particularly for storage (Brazil is working with 
Central America to improve their storage capacity); 
-women, since in many places women do most of the farm work, but 
rarely have title (e.g., he said in Kenya that 70% of the farm 
workers were women, who owned just 10% of the land); 
-research, both Brazil and the United States are leaders in this 
field; 
-South-South cooperation and maybe trilateral cooperation with the 
United States participating; and 
-Importance of concluding the Doha Round. 
 
¶20.  (SBU) U/S Vera Machado added that she saw a need for three 
steps on food security.  First, there should be a high level meeting 
on the subject.  Second, more agriculture research is called for and 
the results need to be widely disseminated.  Third, there should be 
better coordination of financing for food security.  Separately, 
Nelson Machado indicated that the Finance Ministry has not been 
engaged on the development of the G8 food security initiative. 
 
G20 
 
¶21.  (SBU) In the meetings with U/S Mendonca (G20 Sherpa, MRE) and 
U/S for International Affairs Galvao (G20 sous-Sherpa, Finance), as 
well as in the Finance Deputy Minister Nelson Machado meeting (which 
Galvao also attended), Froman welcomed on-going Brazilian input into 
the G20 preparatory process for the Pittsburgh meeting.  MRE and 
Finance stressed the continued importance of good inter-governmental 
communication in the preparatory process and the priority the GOB 
places on International Financial Institutions (IFI) governance 
reform. U/S Mendonca inquired how labor would be incorporated into 
the G20 discussion.  Froman noted that social safety net issues and 
issues regarding how best to prepare the labor force to succeed were 
under discussion.  In the Nelson Machado meeting, Galvao noted that 
Finance Minister Mantega would like to relaunch the dialogue with 
Treasury on bilateral and macroeconomic issues, in addition to 
on-going G20 discussions.  Galvao indicated that Mantega intended to 
discuss this proposal with Treasury Secretary Geithner. 
 
BILATERAL TAX TREATY 
 
¶22.  (SBU) Noting significant divergences between the United States 
and Brazil on BTT issues, Rousseff concurred negotiations should 
resume via DVC before the CEO Forum to examine the possibility of 
concluding an agreement.  She mentioned that services would need to 
be excluded from the BTT and that transfer pricing was a particular 
problem.  She noted that there was no subject that could not 
eventually be dealt with, including those that would require 
legislative changes, even if some elements would require a staged 
approach.  Rousseff noted that if the negotiation yielded a result 
this year, legislative changes would be possible to pursue; next 
year would be impossible, given the election cycle. In a separate 
meeting, Finance Deputy Minister Nelson Machado said the possibility 
of legislative changes was the last question to ask, not the first. 
Stressing familiar concerns regarding tax revenue collection and 
perceived "asymmetries" between the United States and Brazil, he 
underlined difficulties in achieving a BTT that would be attractive 
to the Brazilian government and congress.  He emphasized that 
information exchange was the most important element of a BTT for 
Brazil; consequently the GOB is expending much effort to see the 
U.S.-Brazil Tax Information Exchange Agreement (TIEA) passes 
congress.  Rousseff and Nelson Machado agreed that negotiators would 
meet again by DVC before the CEO Forum, to assess what progress is 
possible and the viability of continued negotiations in the near 
term. 
 
COMMENT 
 
¶23.  (SBU) GOB interlocutors affirmed the continued priority placed 
on the CEO Forum and welcomed moving toward a strategic partnership 
on energy issues.  Meetings highlighted the discrepancy in MEF 
ambition and engagement between the Casa Civil and Environment 
Ministry on one hand, and the Ministry of External Relations (MRE) 
with the lead in the negotiations on the other.  While the MRE and 
Finance generally are satisfied with G20 discussions, MRE expressed 
continued frustration with GOB participation in G8 mechanisms. 
Following her meeting with Froman, Rousseff commented to her 
International Affairs Advisor, Carlos Alfredo Teixeira, that she was 
 
BRASILIA 00000809  006.2 OF 006 
 
 
pleased with the positive tone and common interests discussed. 
Carlos Teixeira noted the early bilateral visit by the National 
Security Council was an important demonstration of the new 
Administration's desire to engage with Brazil.  END COMMENT. 
 
¶24. (U) MEETING PARTICIPANTS: 
 
Casa Civil 
 
Dilma Rousseff, Head of Casa Civil 
Carlos Alfredo Teixeira, International Affairs Advisor 
 
MRE - Economic Affairs 
 
Pedro Luiz Carneiro de Mendonca, U/S for Economic Affairs 
Luis Balduino, A/S Finance and Services Affairs 
Carlos Marcio Cozendey, A/S Economic Department 
Marco Galvao, Finance Ministry, U/S International Affairs 
Alvaro Vereda Oliveira, Finance Ministry, A/S Financial 
Organizations and Regional Integration 
 
MRE - Political, Environment, G8 Affairs 
 
Vera Barrouin Machado, U/S for Political Affairs 
Luis Figueiredo Machado, A/S Environment Department 
Milton Rondo, General Coordinator, International Action to Combat 
Hunger 
Joao Tabajara, General Coordinator, US/Canada desk 
Saulo Arantes Ceolin, U/S staff advisor 
 
Mines and Energy 
 
Marcio Zimmermann, Deputy Secretary 
Alexandre Peixoto, Chief of Staff 
Rubem Barbosa, International Affairs Advisor 
 
Finance 
 
Nelson Machado, Deputy Secretary 
Marcos Galvao, U/S International Affairs 
Nelson Barbosa, U/S Economic Policy 
Alberto Pinto Souza, Deputy General Coordinator, International Tax 
Affairs, Receita Federal (IRS-equivalent) 
Talmon de Paula Freitas, International Tax Affairs Advisor, Receita 
Federal 
Renato Stancato, MRE, Finance and Services staff 
 
Environment 
 
Izabella Teixeira, Deputy Secretary 
Branca Americano, Climate Change Advisor 
 
SOBEL