VZCZCXYZ1768
RR RUEHWEB

DE RUEHBR #1500/01 3551902
ZNR UUUUU ZZH
R 211902Z DEC 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0196
INFO RUEHBR/AMEMBASSY BRASILIA
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS BRASILIA 001500 
 
SENSITIVE 
SIPDIS 
STATE PASS USTR FOR EVERETT EISSENSTAT, KATE KALUTKIEWICZ 
STATE FOR WHA AND EEB 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN EINV EAGR BR
SUBJECT: BRAZIL: AUSTR VISIT TO RECIFE HIGHLIGHTS PURSUIT OF 
INNOVATION 
 
¶1.   (SBU) On December 10 and 11, Assistant United States Trade 
Representative (AUSTR) for the Americas Everett Eissenstat, 
accompanied by Director for Brazil and Southern Cone Katherine 
Kalutkiewicz, visited Recife (in the Northeastern state of 
Pernambuco) to discuss the economic potential of Brazil's 
under-developed Northeast, visit the information technology 
innovation cluster called Porto Digital and the Port of Suape, and 
meet with local business representatives. 
 
 
 
--------------------------------------------- ----- 
 
Porto Digital and CESAR: IT Innovation 
 
--------------------------------------------- ----- 
 
 
 
--Porto Digital 
 
 
 
¶1.                  (U) Porto Digital is an information and 
communication technology (ICT) innovation cluster created in 2000 
with initial funding from the state of Pernambuco.  Porto Digital 
companies (currently 123, 70% of which are micro or small 
businesses, employing more than 4000 people) benefit from federal, 
state, and local tax incentives including tax deductions of up to 
75% of their income.  Companies also benefit from the availability 
of low-rent office space and excellent technology infrastructure in 
the Porto Digital complex.  Porto Digital is managed by an 
administrative council comprised of 40% state and local government 
officials and 60% private sector and academic representatives, with 
the mission of developing Pernambuco's technology sector to compete 
in the global market. 
 
 
 
¶2.                  (SBU) Aurelio Molina, Director of Innovation 
and Entrepreneurial Competitiveness, told AUSTR Eissenstat that 
only about 35 of Porto Digital's companies do business outside of 
Brazil.  He thinks that because of a weak culture of exporting, 
those businesses suffer from learning to export on a trial and 
error basis.  AUSTR Eissenstat asked if the companies would be 
willing to share information about the impediments to exporting 
they've experienced and suggested that representatives of Porto 
Digital participate in a digital video conference with USTR to 
discuss their experiences.  These conversations could help 
structure tangible items in a workplan for an updated U.S.-Brazil 
trade dialogue to assist businesses in both Brazil and the United 
States. 
 
 
 
--CESAR 
 
 
 
¶3.                  (U) The Center for Advanced Studies and Systems 
(CESAR) is an anchor of the Porto Digital innovation cluster.  In 
1996, a group of professors from the Federal University of 
Pernambuco (UFPE) founded CESAR in hopes of creating local jobs for 
talented recent ICT graduates, since many graduates of UFPE's 
high-quality ICT program were leaving Recife to work in Rio de 
Janeiro or Sao Paulo.  Since then, CESAR has incubated innovative 
projects and start-up companies, always with a focus on taking 
products to the market.  CESAR has worked with several U.S. 
companies in the past, and Motorola is a current partner.  CESAR 
also offers a masters degree program in information technology, 
which is unique for its market-focused emphasis on practical 
business methods rather than academic approaches.  CESAR is now 
working to adapt its model to get venture capital since the current 
project-based model makes it very sensitive to economic ups and 
downs. 
 
 
 
¶4.                  (U) Though there were few incentives for 
innovation when CESAR was created, today the Center and its 
incubated companies benefit from tax incentives included in 
Brazil's laws for innovation and informatics.  It reinvests those 
tax credits in research and development.  CESAR's incubated 
companies include three start-ups approved by the government of 
 
 
Brazil to receive matching funds under the Innovation Law and one 
company which is now successful enough to have joined the board. 
 
 
 
¶5.                  (SBU) CESAR's institutional liaison, Claudia da 
Cunha, told AUSTR Eissenstat that CESAR's companies have not 
focused much on either intellectual property (IP) or exporting. 
She explained that CESAR's researchers find IP "not worth the 
fight" with the client companies, since software design is not 
patentable in Brazil.  As for exporting, she said some attempts had 
been made to export products to England and that she would gather 
some information from the member companies regarding their 
experiences in foreign markets.  AUSTR Eissenstat suggested that 
CESAR participate in the digital video conference he also discussed 
with Porto Digital. 
 
 
 
¶6.                  (SBU) During a working lunch with IP lawyers 
Monica Lustosa and Jose Pinteiro, AUSTR Eissenstat discussed 
further CESAR's lack of emphasis on IP.  Ms. Lustosa, founder and 
former president of the Northeast Brazil Intellectual Property 
Rights Association, previously served as a consultant for CESAR and 
said the organization describes IP as being "on the radar, but not 
on the agenda." She said the researchers tend to think that 
confidentiality agreements will adequately protect their 
discoveries, especially since the companies tend to be small and 
over-worked.  Mr. Pinteiro said he does not think that this 
inattention to IP prevents foreign companies from coming to Brazil, 
since "big companies have deep enough pockets to sell products at a 
price even cheaper than a copy."  Ms. Lustosa and Mr. Pinteiro also 
commented that IT professionals may be deterred by the long 
processing time for patent consideration (approximately ten years) 
at the Brazilian patent and trademark office (INPI), especially 
since hi-tech products change and improve so quickly.  Both lawyers 
think the future of Porto Digital is very bright, with proximity 
breeding linkages among the different companies and facilitating 
new ventures. 
 
 
 
----------------- 
 
Port of Suape 
 
----------------- 
 
 
 
¶7.                  (U) The Port and Industrial Complex of Suape, 
located just outside Recife, is a huge driver of Pernambuco's 
development.  For the last 30 years, the port has been a priority 
project for both the federal and state governments.  Today it is 
one of the largest, most technologically-advanced, and best-managed 
ports in Brazil.  The port has seen a 21% increase in cargo since 
2007 and a dramatic increase in private investment.  Its three main 
enterprises (the Atlantico-Sul shipyard, Petrobras' Abreu e Lima 
Oil Refinery, and the Bunge wheat mill) comprise investments of $15 
billion and created 8000 direct jobs.  With construction of the 
Trans-Northeastern railroad planned to start in 2010, Suape has the 
potential to serve the entire Northeast. 
 
 
 
¶8.                  (SBU) During a meeting with local businessmen, 
Marco Ladislau Petkovic (Director for International Relations of 
Petrobras' Abreu e Lima Refinery) told AUSTR Eissenstat that the 
refinery's scheduled completion has been delayed to at least April 
¶2012.  He also said, as did Silvio Leimig (Director of Suape 
Global), that Venezuela's planned participation in the oil refinery 
(expected to have been 40%) has not materialized.  He explained 
that the refinery is designed to process heavy crude oil, since 
Brazil currently has to export heavy crude and import refined oil. 
 
 
 
--------------------------------------------- ------------ 
 
Local Business: Opportunities and Challenges 
 
--------------------------------------------- ------------ 
 
 
¶9.                  (SBU) Julio Freire, a member of the Recife 
branch of the American Chamber of Commerce and President of the 
only company manufacturing computers in the state of Pernambuco, 
told AUSTR Eissenstat that Suape is the biggest story in the 
Northeast but that it has drained the local supply of skilled 
workers.  He explained that while higher education is good quality, 
fundamental education is very poor and there is a deficit of 
skilled manual laborers.  In order to help retain the focus on 
Suape but also not neglect other projects, Mr. Freire's company is 
participating in a Porto Digital initiative to visit incubators and 
small companies to see what kind of training they need.  AUSTR 
Eissenstat remarked that projects like this, combined with 
vocational education, could be a valuable way to extend the 
benefits of trade to less-advantaged segments of the population. 
 
 
 
¶10.              (U) In addition to needed improvements in 
education, Mr. Freire said the Northeast is lacking in 
infrastructure, though some improvements are happening.  For 
example, Mr. Freire said, companies are currently laying lines for 
broadband internet access in Recife, which is transforming 
internet-based services. 
 
 
 
¶11.              (SBU) Professor Ricardo Chaves Lima of UFPE said 
that when President Obama was elected, Brazil had the feeling that 
there would be a shift on trade (for example, on discussions of 
cotton and ethanol), but that shift has not seemed to materialize. 
AUSTR Eissenstat urged Brazil to be patient.  The bilateral trade 
relationship is like a large ship, he said, and shifts of even a 
few degrees can change the overall direction dramatically. 
Ambassador Kirk came to Brazil to open conversations about real 
cooperation, and AUSTR Eissenstat reiterated that he sought to 
build on that during this visit and upon his return to Washington. 
 
 
 
------------ 
 
Comment 
 
------------ 
 
 
 
¶12.              (SBU) AUSTR Eissenstat's trip to Recife presents a 
valuable opportunity for Mission Brazil and Washington to better 
visualize the concrete impact of trade issues on real companies and 
institutions doing innovative work to bring development and social 
inclusion to Brazil's Northeast.  AUSTR Eissenstat was interviewed 
by a local reporter, resulting in positive coverage highlighting 
his impressions of the dynamism and potential of the Northeast and 
the importance of the bilateral relationship with Brazil. 
Discussions at Porto Digital and CESAR revealed opportunities for 
concrete progress on U.S. priorities, such as promoting bilateral 
trade and linking innovation and intellectual property protection. 
The Port of Suape also presents opportunities, and both private and 
public sector representatives welcomed the prospect of increased 
U.S. engagement in the Northeast.  As AUSTR Eissenstat commented, 
the people he met with are not just dreaming about the future, they 
are building it.  As the future of the region begins to take shape 
and influence Brazil's overall direction, this is an excellent time 
for the United States to examine opportunities for increased 
involvement in the Northeast. End comment. 
 
 
 
¶13.              This message was coordinated with Consulate Recife 
and cleared by USTR. 
KUBISKE