Cablegate: Commerce Secretary Gutierrez Meets with Brazilian

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UNCLAS SECTION 01 OF 04 BRASILIA 001193

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STATE PASS USTR:MSULLIVAN
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AID/W FOR LAC/AA

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CORRECTED COPY (TAGS/PARAS 5, 13, 14)

E.O. 12958: N/A
TAGS: ETRD ECON KIPR EINV EPET KTFN BEXP BR
SUBJECT: COMMERCE SECRETARY GUTIERREZ MEETS WITH BRAZILIAN
POLICYMAKERS

1. (SBU) Summary. After Secretary Gutierrez's June 5-6 discussions
in Rio de Janeiro at the Association of American Chambers of
Commerce of Latin America (AACLA) annual meeting and the bilateral
U.S.-Brazil Commercial Dialogue (septels), he traveled to Brasilia
for sessions with government policymakers on June 7. Inter alia,
OPIC President Robert Mosbacher Jr., USDOC A/S David Bohigian, State
DAS Patrick Duddy, US Patent and Trademark Office Deputy Director
Steve Pinkos, USDOC Office Director for Latin America John Andersen,
and the Charge d'Affaires accompanied the Secretary on his calls in
Brasilia. In his meetings with Lula Chief of Staff Dilma Rousseff,
Vice-Minister of External Relations Samuel Pinheiro Guimaraes, and
Justice Minister Marcio Thomaz Bastos, the Secretary discussed
themes such as the need to reinvigorate Brazil-U.S. two-way trade,
the threat to Occidental Petroleum's interests in Ecuador, the
situation in Bolivia, peacekeeping in Haiti, Venezuela, American
industry's desire to help Brazil prepare for the 2007 Pan-American
Games, ethanol, GSP renewal, and protection of intellectual property
rights.

2. (SBU) Meanwhile, Brazilian Ambassador to the U.S. Abdenur
requested that the USG upgrade Brazil from its current Special 301
Priority Watch List status and maintain Brazil's GSP eligibility
when Congress renews that program. Finally, in a separate session
with resident Latin American Ambassadors, the Secretary reiterated
the President's commitment to promoting democracy and social justice
within the hemisphere. End Summary.

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Chief of Staff Rousseff
-----------------------

3. (SBU) In a friendly 40 minute meeting with Lula Chief of Staff
Dilma Rousseff, the Secretary underscored the USG's desire to deepen
trade trade relations with Brazil. The goal of the bilateral
Commercial Dialogue inaugurated in Rio de Janeiro the day before, he
explained, was to help both U.S. and Brazilian business take better
advantage of existing commercial opportunities. Both Rousseff and
the Secretary agreed on the need for a positive result in the
ongoing WTO Doha Round negotiations, with Rousseff emphasizing the
particular importance to Brazil of a breakthrough on agriculture.

4. (SBU) On energy issues, the Secretary observed that in the wake
of the Ecuadorian government's seizure of its assets, the American
company Occidental Petroluem faces a difficult situation in that
country. He stated that he hoped that the Brazilian government and
industry did not act in a way that divided our two nations.
Rousseff replied that while the Ecuadorians contemplated that a
state-run petroleum company (like Brazil's Petrobras) might be
recruited to develop Occidental's field, neither the GOB nor
Petrobras had any such intent to do so. Rousseff noted that while
it would continue to operate its other assets in Ecuador, Petrobras
(a respected player on the international scene) had no interest in
usurping Occidental's position. Should the GOB's position on this
issue change in any way, she added, Petrobras would consult first
with Occidental Petroleum to protect that company's interests.
Finally, in response to the Secretary's offer as to whether the USG
could help regarding the threat to Petrobras assets in Bolivia,
Rousseff stated that although difficult negotiations were still
ahead the situation in Bolivia appeared to have stabilized.

5. (SBU) OPIC President Mosbacher thanked Rousseff for the positive

BRASILIA 00001193 002 OF 004

role she played in resolving the investment dispute between
Petrobras and El Paso regarding the Macae thermoelectric plant.
Rousseff acknowledged the importance of attracting continued foreign
direct investment to Brazil. Switching gears, Mosbacher outlined
OPIC's plans to increase its support to overseas financial
institutions which provide residential mortgage lending. Rousseff
stated that strengthening access to housing was one of the GOB's
principal priorities and said that she would encourage Demian
Fiocca, the head of Brazil's National Development Bank (BNDES), to
meet with Mosbacher during Fiocca's trip to Washington the week of
June 12. (Note: this meeting subsequently occurred on Monday, June
12.)

-------------------------------
Vice-Foreign Minister Guimaraes
-------------------------------

6. (SBU) Accompanied by Ministry U/S for Political Affairs Antonio
Patriota, Acting U/S for Economic Affairs Antonino Porto e Santos,
and the Ministry's aides for North American Affairs and Intellectual
Property rights, Guimaraes welcomed the Gutierrez delegation. The
Secretary began by explaining that the Commercial Dialogue sprang

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from the desire to capitalize on the positive report between the
President and Lula, adding that both the Secretary and Trade
Minister Furlan were pushing for tangible results in the short-term.
Guimaraes (who is not noted for his pro-American stances) stated
that Lula values his excellent relationship with President Bush, and
that our two countries enjoy an excellent dialogue, notwithstanding
our differences.

7. (SBU) Both Guimaraes and the Secretary agreed on the importance
of coming to an agreement within the Doha Round on agricultural
subsidies, although the Secretary pointed out that whatever accord
reached would have to contain gains on NAMA and services if it were
to pass muster with the Administration and the U.S. Congress.
Ambassador Abdenur stated that Brazil was worried about statements
made by influential members of Congress to the effect that pending
legislation reauthorizing GSP benefits might not include Brazil
within that program. Abdenur noted that such a move would
negatively affect both the bilateral relationship and the image of
the U.S. in Brazil. The Secretary replied that within the U.S.
Congress, some had indeed begun to question whether Brazil should
continue to receive GSP but that debate on this issue was in a very
preliminary stage.

8. (SBU) The discussion on regional issues touched upon Haiti,
Bolivia, Venezuela, and Ecuador. The Secretary thanked Brazil for
the leadership it had shown on peacekeeping in Haiti and stated that
with respect to Bolivia, friends should help friends wherever
possible. Guimaraes said that Brazil's efforts on Bolivia were
proving effective as that issue was disappearing from the local
press. He observed that Brazil was not without leverage on Bolivia
as from 50,000 to 70,000 Bolivians lived in Brazil (versus 2,000 to
10,000 Brazilians in Bolivia), and gas represented a mere 4% of
Brazil national energy matrix (although 50% of that amount came from
Bolivia). In the context of comments on democratization within the
region, the Secretary noted that one country - i.e., Venezuela -
should not divide us. (Guimaraes, however, appeared to take this as
a reference to Bolivia.) Finally, the Secretary reiterated the
points he made to Chief of Staff Rousseff about protecting
Occidental Petroleum in Ecuador. Guimaraes' response was similar to

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that of Rousseff - i.e., that Petrobras would not usurp
Occidental's position.

9. (SBU) On the subject of ethanol, the Secretary stated that in
his meetings with Minister Furlan in Rio de Janeiro, he had urged
Brazil to attend a scheduled June 26-27 IDB meeting in Trinidad and
Tobago on ethanol-related issues. Discussions at the ICE talks
demonstrated that the U.S. and Brazil might be able to usefully
engage on ethanol at the technical level, he said. In closing,
Guimaraes stated that at the annual 3+1 (Brazil, Argentina, Paraguay
+ U.S.) talks on counter-terrorism all sides consistently agreed
that there was no evidence that terrorists had any footprint in
Brazil. Yet, he complained, in public remarks USG officials
sometimes stated otherwise, without offering any evidence to back
their claims up. Show us the names and the evidence, he declared,
and Brazil will take follow up action. Charge explained that in the
area of terrorist financing, often it was a question of the ultimate
destination of funds that were flowing out of the tri-border region
and the adjacent Sao Paulo area.

-----------------------
Justice Minister Bastos
-----------------------

10. (SBU) Bastos opened the meeting by noting the progress that
Brazil has made on copyright piracy from late 2004 to the present.
He stated that the government had put in place a National
Anti-piracy Council which was coordinating, in conjunction with
Brazilian law enforcement, tax, and customs authorities, the
country-wide campaign to stamp out piracy. Apprehensions of pirate
goods had increased dramatically, he continued, particularly along
the infamous tri-border (Brazil, Paraguay, and Argentina) area.

11. (SBU) CNCP Executive Secretary Marcio Goncalves (a Ministry of
Justice employee) added that the positive results the Council had
achieved would help reduce organized crime as the trade in pirate
goods had strong links to criminal elements. Given the danger posed
to the public by items such as counterfeit medical devices, auto
parts, and other safety-related products, he stated, the GOB's
crackdown had helped increase public security. Finally, Goncalves
stated that in addition to its law enforcement efforts, the GOB had
worked hard to educate the public about the human cost of piracy.
He hoped that affected industry would work more vigorously to do the
same.

12. (SBU) Secretary Gutierrez expressed his appreciation for the
GOB's efforts and noted that through ongoing dialogue with USG law
enforcement agencies the United States was being supportive. USPTO
Deputy Director Pinkos outlined his agency's plans to assist its
Brazilian counterpart through training and technical assistance.
Thereafter, the Brazilian Ambassador to the U.S., Roberto Abdenur,
asked that the USG do what it could to upgrade the Brazilian
government from its current Priority Watch List status.

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OPIC's Mosbacher Discusses Housing Finance
------------------------------------------

13. (SBU) Finally, in separate June 7 meetings, OPIC President
Mosbacher Jr. discussed prospects for development of Brazil's
housing finance market with Finance Ministry Economic Policy

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Secretary Sergio de Almeida and officials of Caixa Economica Federal

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(CEF), the parastatal bank that administers a fund dedicated to
financing housing for low income borrowers. While Brazil still has
a significant housing deficit, Almeida noted that the private
mortgage market, aided by reforms of the legal framework, was taking
off. A secondary market also was developing, with over Reals 7
billion (USD 3.2 billion) in mortgage-backed securities issued.
While construction and mortgage lending are booming, builders and
banks are targeting upper and middle income consumers given the
greater profitability of this market segment. The CEF officials
explained their bank uses a fund financed by payroll taxes to
finance low income housing but nevertheless has trouble reaching the
poorest. Moreover, its resources are modest in comparison to the
size of the housing deficit, which is concentrated among the poor.

14. (SBU) Mosbacher advocated for streamlined licensing and
permitting requirements for housing projects. Such measures, he
argued, could help niche builders turn a profit in lower-income
housing projects. The problem of licensing that many builders have
noted is exacerbated by the larger scale necessary for builders to
achieve profitability on low-margin low-cost housing projects.
There are also new cost-saving technologies that can help, Mosbacher
said. Almeida and the CEF officials expressed interest in the new
technologies and in the approach to financing low-income housing
taken in other countries; they welcomed the OPIC role in catalyzing
U.S. private investment in these markets in Brazil.

15. (U) This cable was cleared by the Gutierrez delegation prior to
transmission.

Chicola

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