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ZNR UUUUU ZZH
R 011537Z DEC 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5517
INFO RUEHSO/AMCONSUL SAO PAULO 0136
RUEHRG/AMCONSUL RECIFE 0157
RUEHRI/AMCONSUL RIO DE JANEIRO 0085

UNCLAS SECTION 01 OF 07 BRASILIA 001385 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR EVERETT EISSENSTAT, KATE KALUTKIEWICZ 
STATE FOR WHA AND EEB 
 
E.O. 12958: N/A 
TAGS: ETRD KIRP ECON EFIN EINV EAGR BR
SUBJECT: BRAZIL: SCENE SETTER, USTR/MRE BCM DECEMBER 9 
 
REF: A) Brasilia 1042, B) Brasilia 1175, C) Brasilia 1338 
 
¶1.  (SBU) SUMMARY: The relationship between the United States and 
Brazil is productive and broad-based, with growing economic and 
trade ties.  The visit provides an important opportunity to 
highlight the potential for increased bilateral cooperation, 
emphasizing that specific trade disputes need not define our overall 
positive relationship.  While disputes including cotton must be 
managed, excellent opportunities for increased bilateral trade and 
investment cooperation exist. Private sector interlocutors in Sao 
Paulo will be eager to explore possible scenarios to resolve the 
cotton dispute, will lobby for GSP renewal, and may raise the 
GOB-proposed legislation that would provide a significant government 
role in development of potentially vast new off-shore oil resources. 
 Your trip to Recife provides an opportunity to discuss the 
importance of intellectual property rights and an enabling 
environment to foster innovation, particularly in a region that has 
traditionally lagged behind other areas in Brazil.  END SUMMARY. 
 
POLITICAL OVERVIEW 
------------------ 
 
¶2.  (SBU) With democracy re-established in 1988 after decades of 
military dictatorship, Brazil's democratic institutions are 
generally strong and stable.  President Luiz Inacio "Lula" da Silva 
remains a popular president -- one of the most popular in Brazil's 
history and indeed in the world today, with recent approval ratings 
still as high as 75 percent nearly seven years into his presidency. 
This sustained popularity is based on a combination of his personal 
connection with the country's lower classes, orthodox economic 
policies, and expanded social programs.  Ongoing public scandals 
involving the leadership of the Senate and various members of 
Congress have further eroded the legislature's power vis-a-vis the 
executive and its ratings among the Brazilian public.  The court 
system remains cumbersome and unreliable, but has recently taken 
limited steps to curb impunity among public officials, which have 
been well received by a public accustomed to abuses by authorities. 
The Brazilian political elite and media are already focused on the 
October 2010 national elections for president, governors of all 26 
states and the federal district, two-thirds of the senate, and all 
federal deputies.  Lula is constitutionally barred from seeking a 
third term and has designated Civil Household Minister (Prime 
Minister-equivalent) Dilma Rousseff as his party's candidate to 
succeed him.  At this point, Rousseff is a distant second in the 
polls to likely opposition candidate Sao Paulo Governor Jose Serra, 
but with almost a year to go, the race remains unpredictable. 
 
¶3.  (SBU) The United States and Brazil share the basic goals of 
fostering hemispheric stability and integration, promoting democracy 
and human rights, and preventing transnational illicit activity. 
The attainment of a permanent seat on the UN Security Council has 
been a central goal of Brazil's foreign policy under President 
Lula's government.  Regionally, Lula has maintained Brazil's 
historic focus on stability, seeing good relations with all parties 
as the best way to achieve this goal.  As a result, Brazil maintains 
an active dialogue with Venezuela and Cuba, has worked to foster 
good relations with Bolivia and Ecuador, and has stood firmly on the 
principle of respect for sovereignty in the region.  In line with 
Lula's demonstrated interest in Brazil playing a larger role in 
global issues, as well as expanding Brazil's commercial ties, Lula 
hosted separate visits from Iranian President Ahmadinejad, Israeli 
President Peres, and Palestinian President Abbas, among others, in 
November. 
 
ECONOMIC OVERVIEW 
----------------- 
 
¶4.  (SBU) Brazil is the ninth largest economy in the world and holds 
investment grade status from the major rating entities.  Annual 
Gross Domestic Product (GDP) grew 5.1 percent in 2008, and inflation 
was 5.8 percent.  The global economic crisis eroded previous 
predictions for annual GDP growth for 2009 from four per cent to 
essentially flat or slightly negative.  Despite this decline in 
immediate prospects, Brazil has thus far weathered the crisis better 
than most major economies and has recently shown signs of a 
recovery, led by strong domestic demand.  Conservative macroeconomic 
policies in the years prior to the crisis, and targeted responses 
during the crisis -- including credit injections in the financial 
system and tax cuts on automobiles and consumer durables -- played a 
role in lessening the impact of the global crisis on Brazil. 
 
¶5.  (SBU) Brazil's relatively successful management of the crisis 
has encouraged the GOB to engage proactively and constructively in 
the debate over how to handle the economic crisis including through 
the G20 process.  Brazil has called for increased regulation of the 
global financial system, increased global access to trade finance, 
and an expanded voice and vote for large emerging countries like 
 
BRASILIA 00001385  002 OF 007 
 
 
Brazil in the International Financial Institutions. 
 
¶6.  (SBU) Brazil is a major producer and exporter.  Agriculture 
makes up 36 percent of exports, and the agribusiness sector accounts 
for 25 percent of Brazil's GDP.  Brazil is a leading exporter of 
soybeans, beef, sugar, coffee, and orange juice.  Brazil also 
distinguishes itself as a major exporter of civilian aircraft, 
steel, and petrochemicals.  The United States is Brazil's top 
trading partner overall, although in March China became Brazil's 
primary export destination.  Prior to the current financial crisis, 
U.S.-Brazil trade experienced significant annual growth, surpassing 
USD 60 billion in 2008.Brazil typically experiences a slight 
positive balance in the trade relationship. 
 
----------------- 
BCM AGENDA TOPICS 
----------------- 
 
TRADE AND INVESTMENT FRAMEWORK AGREEMENT (TIFA) 
--------------------------------------------- -- 
 
¶7.  (SBU) The GOB, including the Ministry of External Relations 
(MRE), the Ministry of Development, Industry and Trade (MDIC), and 
the External Trade Chamber (CAMEX) Secretariat, has indicated 
interest in exploring ways to deepen bilateral trade cooperation 
with the United States.  There is a great deal of GOB interest in 
implementing the CEO Forum recommendation to pursue a TIFA  with the 
United States - albeit by another name, given negative connotations 
associated the word "tifo" (typhoid) in Portuguese. While tariff 
negotiations could only occur in 4+1 format with Brazil's Mercosul 
partners, Embassy interlocutors agree there is scope for bilateral 
cooperation, with the potential to expand eventually to 4+1 
cooperation if there is mutual interest (NOTE: given recent forward 
movement in the Brazilian Congress on Venezuela's Mercosul 
membership application, you may wish to ask your interlocutors how 
Venezuela's potential membership in Mercosul will affect cooperation 
among the four existing members and potential third country 
partners.  END NOTE). In areas of joint interest, Brazil and the 
United States could potentially make common cause in approaches to 
third countries.  Some in the Brazilian trade associations (Sao 
Paulo-based FIESP and its umbrella association CNI) have indicated 
interest in more strategic bilateral engagement.  Possible areas to 
explore with the GOB or that may be raised in your Sao Paulo private 
sector discussions include: 
 
BILATERAL INVESTMENT TREATY (BIT) 
--------------------------------- 
 
¶8. (SBU) With respect to investment, the USG and the Brazilian 
government have had productive consultations on BIT elements, 
although Brazil is still cautious about negotiating BITs given 
historical congressional opposition.  CNI has traditionally been 
cautious about BITs, seeing them as a constraint on industrial 
policy, but has recently begun re-examining this position as 
Brazil's overseas FDI increases.  MRE plans a side session on the 
margins of the December 14 EPD to further discuss investment 
agreement elements. 
 
TRADE FACILITATION 
------------------ 
 
¶9.  (SBU) GOB and Brazilian industry have provided significant 
feedback that intensified cooperation on trade facilitation would be 
welcome.  USDOC and CAMEX have sponsored two week-long trips this 
year for GOB agencies to learn how customs clearance and 
inter-agency coordination works in the United States.  Other 
activities include seminars held by CBP in Brazil for Brazilian 
Customs and the Federal Police, and a Commercial Dialogue Trade 
Facilitation meeting which was held in Manaus in November.  The CEO 
Forum has also prioritized trade facilitation.  There is some 
sensitivity regarding the CBP Trade Facilitation and Supply Chain 
Security Program within MRE.  While CAMEX, MDIC and the trade 
promotion department within MRE support and welcome the program, the 
MRE transnational crimes office is not familiar with the program and 
would benefit from a briefing explaining the advantages to Brazil in 
participating.  MRE has also requested to add this topic to the 
December 14 U.S.-Brazil Economic Partnership Dialogue agenda in 
Washington. 
 
WTO COTTON DECISION 
------------------- 
 
¶10.  (SBU) On November 11, the Brazilian External Trade Chamber 
(CAMEX) published for public comment a list of goods that could 
potentially be subject to increased tariffs (100 percentage points) 
as part of Brazil's retaliation against U.S. cotton subsidies. 
CAMEX accepted public feedback on the list until November 30 and is 
 
BRASILIA 00001385  003 OF 007 
 
 
expected to present a refined list to CAMEX ministers by 
mid-December.  If approved, the increased tariffs could take effect 
as early as January, 2010. 
 
¶11.  (SBU) Press reports indicate that CAMEX has also prepared a 
draft law on cross-retaliation against U.S. intellectual property 
and submitted it to the Office of the Presidency (Casa Civil) for 
analysis.  The draft reportedly proposes to tax IP royalties and to 
withdraw IP rights.  The Casa Civil can decide to send the draft law 
to Congress as a provisional measure (which would give it procedural 
precedence over other agenda items), a new draft law, or as a 
substitute for an existing draft law on cross-retaliation (sponsored 
by Deputy Paulo Teixeira).  Whether MRE would actually invoke 
cross-retaliation remains an open question.  While MRE sees the 
threat of cross-retaliation as a potential tool to encourage US 
compliance with the cotton decision, the Ministry is aware of 
potential repercussions on the Brazilian investment climate were it 
actually to revoke or tax IPR.  Mission has no indication that GOB 
is considering cross-retaliation on services at this time. 
 
¶12.  (SBU) Brazilian business groups have stated opposition to 
cross-retaliation.  Business contacts have encouraged focus on 
compensation rather than retaliation, and if necessary prefer 
retaliation to focus on goods.  Some have also suggested increased 
U.S. trade assistance in third countries, such as low-income African 
nations, as an offset to increased Brazilian tariffs.  Mission 
understands that CNI and the US Chamber are working to develop joint 
Brazil-United States Business Council (BUSBC) recommendations to 
resolve the cotton dispute, with a hope to finalize their proposal 
by the December 4 BUSBC Plenary in Washington. 
 
DOHA ROUND 
---------- 
 
¶13.  (SBU) Brazil has been a significant voice in the WTO's Doha 
Round negotiations and concluding Doha remains a high priority for 
Brazil.  However, Brazil has been clear that while it is interested 
to hear what specific access USG seeks, it is reluctant to engage in 
bilateral negotiations on scheduling.  Foreign Minister Amorim has 
criticized the United States for "greed" in the negotiations and 
called for, on behalf of developing countries, a new negotiating 
meeting in March.  GOB, reflecting FIESP/CNI industry positions, has 
been resistant to WTO sectorals, including electronics or chemicals. 
 Amorim's public rhetoric puts responsibility for progress on the 
Doha Round on the USG's shoulders. 
 
GSP 
--- 
 
¶14.  (U) Private sector representatives at your Sao Paulo AmCham 
event or business roundtable at the Sao Paulo Federation of 
Industries (FIESP) may raise this issue.  Industry keeps a close eye 
on developments in the U.S. Congress on GSP renewal, and strongly 
advocates remaining in the GSP program.  MRE will press for 
continued inclusion in GSP, arguing the program benefits US 
producers and disadvantaged suppliers in the Northeast of Brazil. 
 
STANDARDS AND SPS MEASURES 
-------------------------- 
 
--Beef and Pork Regulations: 
 
¶15.  (SBU) Brazil prohibits imports of live cattle, beef, and beef 
products from the United States and has proposed new regulations 
that are more restrictive than international guidelines for safe 
trade in such products, particularly with respect to Bovine 
Spongiform Encephalopathy (BSE).  In October 2008, Brazil notified 
to the WTO a draft regulation (G/SPS/N/BRA/483) tat establishes its 
sanitary requirements for importation of ruminants and ruminant 
products from cuntries affected by BSE.  Brazil's draft regulatio 
exceeds World Organization for Animal Health (OE) guidelines for 
trade of these products from cntrolled-risk countries, such as the 
United States.  The USDA Animal and Plant Health Inspection Serice 
(APHIS) presented technical comments to Brazl's draft regulation 
requesting Brazil's MAPA relign its import regulation with OIE 
guidelines. During September 2008 bilateral technical discussions, 
USDA-APHIS responded to a MAPA risk assessmen questionnaire on the 
U.S. control and surveillace system for BSE.  To date, there has 
been no ation by Brazil's MAPA to move forward on this issu. 
 
¶16.  (SBU) Brazil restricts imports of pork and pork products from 
the United States due to reqirements for Trichinosis.  USDA-APHIS 
received nw requirements for imports of these products from APA. 
USDA-APHIS has established a voluntary certfication program for 
Trichinosis and presented a certification proposal to MAPA in May 
¶2009.  MAPArejected the USDA proposal in October 2009.  MAPA s 
currently insisting on testing and will not alow for certification 
 
BRASILIA 00001385  004 OF 007 
 
 
or treatment. 
 
¶17.  (SBU) At the same time, MRE will press USTR for forward 
movement in the APHIS rule-making process for access for pork from 
the State of Santa Catarina as well as overall progress in the APHIS 
assessment of Brazil for foot and mouth disease. 
 
-- Medical Devices: 
 
¶18.  (SBU) In late 2006, Brazil adopted a regulation (Resolution 
185) which requires companies to submit economic information (some 
of it proprietary), including projected worldwide pricing 
intentions, in order to register and re-register certain medical 
devices.  Registration is a requirement for these products to be 
placed on the Brazilian market.  The United States continues to 
express its concern that Brazil's National Health Surveillance 
Agency (ANVISA) requires the submission of certain economic data 
with each registration that does not appear to be related to the 
safety and efficacy of medical devices and is unnecessarily costly 
and burdensome.  U.S. industry has indicated that it would be very 
challenging to comply since some of the information required by 
ANVISA either does not exist, is sensitive commercial information, 
or is only available if obtained from other companies, which raises 
potential antitrust issues.  Brazil and the United States are 
currently engaged in discussions aimed at resolving the issue. 
 
¶19.  (SBU) ANVISA's Resolution 25, implemented on May 18, 2009 
requires ANVISA inspections of facilities that produce certain "high 
risk" medical devices to be sold in the Brazilian market.  Industry 
alleges that ANVISA does not have sufficient resources to inspect 
all overseas facilities by the May 22, 2010 deadline, and that 
failure to do so by the deadline could lead to the disruption of 
hundreds of millions of dollars in trade.  Brazil and the United 
States are coordinating meetings with the private sector to address 
their concerns about the implementation of the regulation.  On 
November 4, ANVISA chaired a seminar with members of the medical 
device industry to discuss the regulation.  ANVISA committed to 
publish a technical note clarifying the regulation and answering 
industry-submitted questions and also to post instructions on their 
website regarding how to request an inspection appointment.  In the 
last week of November, ANVISA did publish a technical note with 
clarifications of some definitions and procedures, but has not yet 
published answers to specific industry-submitted questions. 
 
--Toys 
 
¶20.  (SBU) In late 2007, U.S. industry reported that toy exports to 
Brazil were being affected by a new Brazilian measure requiring 
certification and testing of toys.  On October 16, 2007, Brazil 
notified the WTO TBT Committee of additional requirements for 
toxicological test methods for toys marketed in Brazil.  Industry 
argued that the regulation discriminated against imports in 
requiring testing by lots in Brazil, noting that the additional 
costs for importers were projected at 8-12 percent of the toy's unit 
costs and $30-50 million for toy importers annually, with the 
possibility of those figures running much higher.  After extensive 
USG advocacy efforts, on November 5, 2009, Brazil notified to the 
WTO the final toy regulation which included many recommendations 
suggested by U.S. industry.   The discriminatory provisions have 
been removed and testing by ILAC accredited labs will be allowed. 
Industry has also requested a transition period to comply with the 
new rules.  Post is consulting with industry to see if any 
clarification is needed from the Brazilian National Institute of 
Metrology, Standardization, and Industrial Quality (INMETRO) 
regarding the final regulation. 
 
--Standards Cooperation 
 
¶21.  (SBU) On November 20 at the Joint Commission Meeting on Science 
and Technology, the U.S. National Institute for Standards and 
Technology and INMETRO signed a Memorandum of Understanding (MOU) 
for physics, chemistry, and standards cooperation.  A similar MOU 
between the two organizations expired in 2007. 
 
TRADE AND ENVIRONMENT 
--------------------- 
 
¶22.  (SBU) On November 13, the GOB unveiled its position for the 
Conference of the Parties-15 (COP-15) to the UN Framework Convention 
on Climate Change (UNFCCC) in Copenhagen.  The GOB has announced 
that it will seek to reduce its economy-wide greenhouse gas 
emissions by between 36.1 and 38.9 percent by 2020 compared with 
projected "business as usual" emissions.  This position represents a 
significant advance over Brazil's previous position that only the 
developed countries should have emissions reductions targets and the 
developing ones needed to preserve room for growth.  Brazil, 
however, insists that developed countries provide substantial 
 
BRASILIA 00001385  005 OF 007 
 
 
technology transfer and financial assistance to developing countries 
so that they can take mitigation and adaptation measures.  Moreover, 
Brazil has joined with China, India, and South Africa in vigorously 
demanding that developed countries agree at Copenhagen not to create 
trade measures related to climate change.  MRE plans to raise its 
concerns regarding Waxman-Markey legislation provisions that would 
allow imposition of trade measures.  Brazil has opposed efforts to 
reduce or eliminate tariffs on "green" goods because the list of 
products in last year's initiative did not include biofuels. 
 
INTELLECTUAL PROPERTY 
--------------------- 
 
--Anti-Piracy: 
 
¶23.  (SBU) Post has previously reported on the GOB's anti-piracy 
efforts, which are led by the Ministry of Justice's National 
Anti-Piracy Council (CNCP).  Ref A details the CNCP's current 
priority projects which include: working with municipal authorities 
to create legal markets and "cities free of piracy," developing an 
anti-piracy website, partnering with internet service providers to 
prevent the online distribution of pirated products, and working 
with merchants to raise awareness of the negative economic effects 
of piracy and counterfeiting.  CNCP told Econoff on November 19 that 
the projects are on track to make "significant progress" by the end 
of 2009. 
 
--Patents and Innovation: 
 
¶24.  (SBU) The Brazilian judicial and legislative branches are in 
the process of examining two key pharmaceutical patent-related 
issues - the role of the national health vigilance agency (ANVISA) 
in reviewing pharmaceutical patent applications and the 
constitutionality of Brazil's pipeline patent system.  There has 
been no resolution of a disagreement between the Brazilian patent 
office (INPI) and the Inter-Ministerial Intellectual Property Group 
(GIPI) regarding patents for polymorphs and second uses.  In 
addition, INPI's stated reasoning for a recent patent denial (lack 
of inventive step) raises potential questions about the treatment of 
incrementally innovative pharmaceutical patent applications - though 
underlying political pressure to lower costs for Brazil's AIDS 
program may have been at work in that case. 
 
¶25.  (SBU) Brazilian government officials continue to state that 
innovation is one of their highest priorities and have indicated 
interest in cooperation on specific initiatives (ref B). Continuing 
our bilateral discussions on innovation also provides the USG with 
an excellent opportunity to highlight the importance of intellectual 
property rights (IPR) as a pillar of innovation.  While some 
Ministries' officials acknowledge the importance of IPR to 
innovation, the GOB writ large does not consistently draw a link 
between IPR and the development and commercialization of new 
technology and invention (ref C).  The GOB's consideration of 
cross-retaliation on IPR (in the WTO cotton dispute) could be 
perceived as a lack of commitment to the long-term value of IPR to 
attracting and promoting innovation as a key element of economic 
growth.  MRE and Casa Civil interlocutors will not eagerly seize on 
the theme of innovation's ties to IPR protection.  However, MDIC and 
CAMEX are well aware of IPR's importance to economic development and 
growth, and FIESP has indicated concerns regarding proposals to 
cross-retaliate on IPR in the cotton case. 
 
--Copyright: 
 
¶26.  (U) Brazil is not a party to the World Intellectual Property 
Organization (WIPO) Copyright Treaty or the WIPO Performances and 
Phonograms Treaty (collectively the "WIPO Internet Treaties").  The 
Ministry of Culture has held a series of public debates on amending 
Brazil's Copyright Law No. 9.610 of 1998.  It is expected that such 
proposed amendments will be publicly released by end of 2009. 
 
¶27.  (U) In Recife, you will discuss the concrete impact of 
intellectual property rights protection and other business climate 
issues that impact the development of small business, technological 
innovation, and the overall development of the impoverished 
Northeast.  You will visit the Center for Advanced Studies and 
Systems (CESAR), which serves as an incubator for technology 
projects and small businesses including and information and 
communication technology cluster focusing on software development 
known as Portodigital.   You will also visit the port of Suape 
facilities encompassing an extensive area for industries and port 
services based on the concept of port-industry integration.  Several 
U.S. companies are active in CESAR and Suape. 
 
BIOFUELS 
-------- 
 
 
BRASILIA 00001385  006 OF 007 
 
 
¶28.  (SBU) For Brazil, turning ethanol into a world commodity is a 
key aspect of increasing energy security.  Though Brazilian ethanol 
is produced from sugar cane, Brazil sees expansion of the global 
ethanol market, regardless of feed stock, as a key interest.  In 
March 2007, the United States and Brazil signed a Memorandum of 
Understanding (MOU) on biofuels cooperation.  As a result, 
scientists and laboratories from the two countries are 
collaboratively researching next generation biofuels technologies. 
The United States and Brazil are also working together in various 
multilateral fora and the bilateral Commercial Dialogue to develop 
international biofuels standards and sustainability criteria.  By 
making it easier to treat biofuels as a tradable commodity, these 
standards should foster the emergence of a vibrant global biofuels 
market.  The U.S.-Brazil Biofuels Steering Group will meet December 
15 in Washington. 
 
¶29.  (SBU) One irritant in the biofuels relationship is the 54 cents 
per gallon surcharge/tariff charged to imported biofuels.  The 
Brazilians view the tariff as a measure which supports the corn 
ethanol industry to the detriment of more efficient sugar ethanol 
and regularly question why there should be a trade barrier to a 
clean fuel when there is no such barrier for petroleum.  Another 
issue of concern is the proposed EPA rule making for a renewable 
fuel standard, which the Brazilians view as a non-tariff trade 
barrier.  The Brazilians contest the modeling that was done to 
assess the greenhouse gas effects of fuel lifecycles and fear that 
such assessments could be used to unfairly impede exports of 
sugar-cane based biofuels from Brazil and the third countries where 
we are working together to establish domestic ethanol capabilities. 
In a welcome and well-received outreach effort, the EPA sent a team 
to Brazil in August to share their modeling methodology and hear the 
suggestions and concerns of the Brazilians. 
 
PRE-SALT 
-------- 
 
¶30.  (SBU) The discovery in 2007 of potentially massive offshore 
("pre-salt") reserves of oil and gas estimated to contain between 
30-80 billion barrels of oil equivalent could put Brazil within the 
top ten oil countries in terms of reserves.  Though the discoveries 
have generated a great deal of excitement, industry observers 
caution that development will probably be slow in coming due to the 
expensive technological challenges involved with ultra-deepwater 
drilling, including a worldwide shortage of equipment such as 
drilling rigs. 
 
¶31.  (SBU) On August 31, the GOB unveiled its long-awaited proposal 
for a new oil regime to administer its ultra deepwater pre-salt 
reserves.  The proposal, which has been submitted to Congress for 
consideration, has been somewhat politicized in this pre-election 
year and will likely undergo significant changes.  The proposed 
legislation would replace the old concessions model and make 
parastatal Petrobras, with a required minimum of 30 percent 
participation, the operator on each block, responsible for choosing 
the contractors, technology, and personnel.  It also creates a new 
government entity known as Petrosal to represent the government to 
manage the service contracts, and establishes a Social Fund to 
direct anticipated new oil state revenues against poverty 
alleviation, education, and scientific and technological innovation. 
 Finally, the legislation provides for up to USD 50 billion to 
increase Petrobras' capacity to serve its designated role in the 
pre-salt exploration. 
 
¶32.  (SBU) U.S. oil companies operating in Brazil are concerned 
about the new nationalistic model and warn that it could make their 
future operations in Brazil commercially non-viable.  They are 
particularly concerned about the potential for Petrobras' 
designation as sole operator to relegate them to essentially a 
financing role, and they cite a high degree of uncertainty regarding 
the model's potential impact on their investments in Brazil.  ExIm 
Bank has extended a USD 2 billion line of credit to support US 
equipment and services in development of these reserves. 
 
CITEL MRA AGREEMENT 
------------------- 
 
¶33.  (SBU) A U.S./Brazil Mutual Recognition Agreement (MRA) on 
telecommunications/information technology products has been explored 
with Brazil's telecommunications regulator ANATEL through direct 
dialogue, and with Brazil's Ministry of Foreign Relations (MRE) 
through the U.S./ Brazil Economic Partnership Dialogue (EPD) 
mechanism.  At the EPD in Brazil in 2008, Department of State 
Assistant Secretary Sullivan reaffirmed USG and industry interest in 
a U.S./Brazil MRA as a "win-win" for consumers and manufacturers. 
During the meeting, MRE noted that Brazilian legislation in general 
requires certification tests to be performed in Brazil but that some 
exceptions exist for telecommunications/information technology 
 
BRASILIA 00001385  007 OF 007 
 
 
products.  MRE conceded that product coverage of a potential MRA 
would be limited, but committed to provide a paper detailing what 
products potentially could be included. 
 
¶34.  (SBU) Despite several meetings with ANATEL and MRE since the 
2008 EPD to obtain details of the list, to date nothing has been 
produced. In MRA seminars in the United States and in meetings with 
U.S. industry, ANATEL officials expressed interest in a U.S./Brazil 
MRA, but cautioned that the potential transfer of certification 
responsibilities to U.S. labs could jeopardize the Brazilian 
priority of preserving and developing Brazilian certification labs. 
ANATEL offered a limited list proposal to MRE for EPD inclusion that 
was rejected.  ANATEL understands the importance timing plays in 
introducing IT products to market, yet does not want to pursue this 
at the expense of Brazilian certification labs.  MRE has indicated 
that there are "no real exports" on the Brazilian side to the United 
States that would create a win/win scenario and that there is 
domestic interest in protecting/fostering development of the 
Brazilian certifying labs.  Consequently, any GOB MRA proposal will 
probably cover only whatever small list of products that are 
currently allowed, due to complexity/lack of domestic testing 
facility, to be tested outside Brazil. 
 
COMMENT 
------- 
 
¶35.  (SBU) With growing economic clout and increasing interest in 
engaging in global economic issues, Brazil has seen its importance 
in the region and on the world stage expand significantly.  While 
the government is largely friendly and open to the United States, it 
does not and will not always see eye to eye with us.  Your visit 
provides an opportunity for the United States to advance key trade 
and investment interests while once again highlighting the many 
positive economic and trade ties that unite the United States and 
Brazil. 
 
KUBISKE