VZCZCXRO3394
PP RUEHRG
DE RUEHBR #0094/01 0161005
ZNR UUUUU ZZH
P 161005Z JAN 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 0863
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5700
RUEHRG/AMCONSUL RECIFE 7612
RUEHSO/AMCONSUL SAO PAULO 1487
RUEHAC/AMEMBASSY ASUNCION 6538
RUEHBU/AMEMBASSY BUENOS AIRES 5262
RUEHCV/AMEMBASSY CARACAS 3945
RUEHME/AMEMBASSY MEXICO 2113
RUEHMN/AMEMBASSY MONTEVIDEO 7196
RUEHLP/AMEMBASSY LA PAZ 5903
RUEHSG/AMEMBASSY SANTIAGO 0119
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHC/DEPT OF LABOR WASHDC
UNCLAS SECTION 01 OF 05 BRASILIA 000094
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/EPSC AND EEB/TRA
STATE PASS USTR FOR KATE DUCKWORTH
FAA FOR CCAPESTANY, KBERQUIST, GBURDICK
DEPT OF TRANSPORTATION FOR MSTREET, BHEDBERG
BUENOS AIRES FOR TSA ATTACHE
MEXICO CITY FOR TSA ATTACHE MGALVAN
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC ALSO FOR 3134/USFCS/OIO
USDOC ALSO FOR 6710/EALFORD
NSC FOR TOMASULO
TREASURY FOR JHOEK
SOUTHCOM FOR POLAD
USAID FOR LAC/AA
E.O. 12958: N/A
TAGS: EAIR ECON MARR PGOV PREL EINV BEXP BR
SUBJECT: BRAZIL CIVAIR: AVIATION BILATERALS HELD IN RIO DEC. 5-6,
2007
REF: A) Brasilia 2124 B) USG Nonpaper delivered by Amb. Sobel to
ANAC 12/20/07 C) 12/21/07 ANAC response letter faxed/e-mailed
Sarrano/Robl
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY
1. (SBU) Summary: U.S. and Brazilian delegations met in Rio de
Janeiro December 5-6, 2007 for their first formal bilateral aviation
consultations in 10 years to focus on liberalization. While the
Brazilian negotiators offered a limited number of increased
frequencies to limited destinations in the north and northeast, and
were open to additional U.S. carriers serving Brazil, they were
unwilling to explore liberalization in key areas for the United
States, including third-country codesharing to intermediate points,
additional all-cargo frequencies, and additional service to
Brazilian destinations south of Brasilia. The delegations signed a
Memorandum of Consultations expressing their intent to meet again
before the end of 2008.
2. (SBU) Since the conclusion of the negotiations, Ambassador Sobel
has informally engaged with Minister of Defense Nelson Jobim and two
of the five new directors of the Agencia Nacional de Aviacao Civil,
"ANAC" (the new Director-President, Solange Paiva Vieira, and the
new Director for International Aviation, Ronaldo Seroa da Motta),
regarding increased frequencies and destinations for U.S. carriers.
In response to a U.S. nonpaper delivered on December 20 (ref B),
ANAC on December 21 offered a list of proposed new routes eligible
for twenty-one proposed additional frequencies. This proposal is
currently under U.S. interagency and industry review. End Summary.
----------------
ANAC: Background
----------------
3. (U) Our current bilateral air services agreement was signed on
March 21, 1989. Moderate expansion of bilateral rights was achieved
through an amendment negotiated in 1996 (entered into force in 1997)
and a proposed amendment applied on the basis of comity and
reciprocity since late 1997. The December sessions were the first
formal consultations between U.S. and Brazilian civil aviation
negotiators since 1997.
4. (SBU) In March 2006, Brazil began a complete restructuring of
its civil aviation authority, transitioning from a military entity,
the Departamento de Aviacao Civil ("DAC"), to the current Agencia
Nacional de Aviacao Civil ("ANAC"). In theory, ANAC is an
independent, civilian regulatory authority based in Brasilia. In
practice, due to resistance from the DAC military personnel who
transitioned to ANAC to provide continuity and are being phased out
over a period of five years, ANAC continues to operate largely from
Rio. In addition, ANAC retains a "dotted line" relationship to the
Ministry of Defense. Air traffic control remains directly under
military control via another agency, the Departamento de Controle de
Espaco Aereo ("DECEA").
5. (SBU) Brigadier General (Ret.) Eliezer Negri, part of the "old
guard" from the DAC who transitioned to ANAC as Superintendent of
BRASILIA 00000094 002 OF 005
International Relations, led the Brazilian delegation for the
December 5-6 talks. While Negri has been accommodating with the
Federal Aviation Administration on technical and air traffic control
issues, he clearly had been authorized no flexibility on certain key
areas for liberalization of our bilateral aviation agreement.
-----------
Discussions
-----------
6. (SBU) EEB Director for Aviation Negotiations Terri Robl, U.S.
delegation head, set the stage by discussing aviation liberalization
in the context of our broader bilateral economic and commercial
dialogue. Robl stressed Brazil's importance as a trade partner,
citing the boom in trade flows (more than double from 20 billion USD
in 1996 to 46 billion in 2006) and healthy increases in passenger
(6%) and cargo (12%) traffic over the past year. She noted that our
agreement had not been updated in more than 10 years, and that it
remains one of our most restrictive agreements in South America,
thereby inhibiting market growth. The U.S. ideal, she pursued,
would be an Open Skies agreement that could be phased in.
7. (SBU) Brazilian delegation head Negri reviewed with USDel the
previously agreed agenda of frequency, designation, routes,
codesharing, tariffs, and transit visas. He then contrasted the
relative importance of the aviation markets in the U.S. and Brazil,
calling the U.S. the "hulk" and Brazil the "dwarf." He asserted
that Brazil only represents 3.6% of traffic from U.S. airlines,
while Brazil's flights to and from the U.S. represent 25% of the
international business for TAM, the country's only carrier currently
flying those routes. He also gave a cargo example, saying that
Brazil represented only 2.9 percent of U.S. cargo carrier Polar's
business, but the U.S. represented 33 percent of Brazilian carrier
VarigLog's business. Negri repeated the "unbalanced markets" theme
over the next two days.
---------------------------------
Key points - Brazilian Delegation
---------------------------------
8. (SBU) Summary of negotiating points presented by the Brazilian
delegation:
- Brazil would not be able to offer unlimited frequencies, and would
want to know exactly how many frequencies U.S. carriers needed to
each approved city. He used the term "predetermination of
capacity", harkening back to previous rounds where Brazil doled out
a few additional frequencies during each round of negotiations.
- As of June 2007, the official Brazilian position was that no
additional frequencies could be approved for Sao Paulo airports, but
that the GOB would honor its bilateral obligations for frequencies
already contained in its international agreements. Negri attributed
this position to the need to restructure airport infrastructure, air
space and air traffic control in and around Sao Paulo.
- 21 additional frequencies could be offered, but only to
BRASILIA 00000094 003 OF 005
north/northeast points in Brazil.
- Brazilian infrastructure shortcomings precluded any additional
frequencies to points south of Brasilia, and the delegation could
offer no timeframe for resolution of these infrastructure issues.
- Brazil requested that the U.S. eliminate its transit visa
requirement for passengers traveling to and from Brazil.
- Brazil sought an "open route" schedule that would allow for
services from behind Brazil, via Brazil and intermediate points, to
the United States and beyond..
- Brazil's view is that third country codesharing would benefit the
third country airlines, rather than those of Brazil or the U.S., and
that Brazilian aviation policy does not allow for such operation
through intermediate points. He did offer to permit such operations
beyond Brazil to points south.
- Brazil could permit unlimited designation of U.S. carriers for
both combination and all-cargo flights, provided that the frequency
restrictions remained.
9. Furthermore, Negri committed to raise U.S. concerns regarding
the business climate (see below for details) with appropriate (e.g.,
customs) officials, and proposed signing a Memorandum of
Consultations.
----------------------------
Key points - U.S. Delegation
----------------------------
10. (SBU) Following are the U.S. points presented by USDel:
- Frequencies, designations, and third-country codesharing to
intermediate points are linked in terms of how companies use
flexibilities to plan and "test the market" to determine optimal
operations between the U.S. and Brazil. Third-country codesharing
allows airlines to use resources more efficiently by testing markets
before committing their own aircraft and other resources. U.S. and
European carriers have used this strategy successfully for more than
10 years.
- Experience has shown that once a U.S. carrier enters a market
through codesharing, additional passenger and cargo traffic is
stimulated. This in turn creates additional feeder traffic to other
parts of Brazil, which stimulates the tourism sector, creates jobs
in airport and related services, and has other multiplier effects on
the broader economy.
- The positive marketing effects of codesharing and alliance
partners marketing Brazil routes could promote broad economic
development and benefit Brazilian companies through increased
exposure to potential customers in Asia, Europe and North America.
- As part of a good overall package, the U.S. could accept
BRASILIA 00000094 004 OF 005
limitations on frequencies at Sao Paulo and possibly Rio, if the cap
on frequencies to the rest of the country were eliminated.
11. (U) On visa issues, USDel explained that it had no authority to
address the Brazilian request, and that the transit visa requirement
was a response to security concerns and not applicable only to
Brazil. USDel relayed information about how wait times had been
reduced through U.S. consulate initiatives and conveyed USG concerns
with the difficulty and expense U.S. company personnel have reported
encountering trying to get business visas for Brazil. USDel
suggested the upcoming January 2008 annual bilateral consular
dialogue as an appropriate forum for visa issues.
12. (U) USDel also raised other "doing business" challenges, mainly
related to costs and difficulties in getting recognition of tax
exempt status for certain U.S. carrier activities.
-----------------
A Good First Step
-----------------
13. After a thorough discussion within the delegation and with
senior State and DOT representatives back in Washington, USDel
responded to the Brazilian proposal as follows: In the absence of
broad third country codesharing or other indications of Brazilian
negotiating flexibility for a more systemic approach to
liberalization, the U.S. preferred to wait until Brazil was able to
agree to broader opening of bilateral aviation market. While the
talks had been very useful in terms of reestablishing consultations
after a long hiatus, it was clear that the gap between the two sides
was too wide to permit an agreement at this juncture. The U.S. team
invited the Brazilian team to Washington for more consultations
before the end of 2008.
14. (SBU) The heads of delegation signed a Memorandum of
Consultations (MoC) documenting the Rio discussions, including their
intent to meet again before the end of 2008. The MoC and a full
list of the participants may be found at
www.state.gov/documents/organization/97802.pd f
15. (SBU) Subsequent to the negotiations, Ambassador Sobel has
engaged Defense Minister Jobim as well as new (as of December 19)
ANAC Director-President Solange Vieira, Director of International
Aviation Ronaldo Seroa da Motta, and negotiations head Negri to try
to reopen the discussion of cities previously excluded (i.e., cities
below the 16th parallel). The Ambassador delivered ref B non-paper
on December 20 to Vieira, da Motta and Negri. Without committing to
anything regarding cargo, code-shares or other US concerns,
Brazilian interlocutors indicated some flexibility could be possible
on frequencies. In ANAC's December 21 response (ref C), Brazil
offered twenty-one new frequencies exclusively for service to Belem,
Belo Horizonte, Brasilia, Fortaleza, Manaus, Recife, and/or Salvador
and unrestricted designations. Post awaits the results of
interagency and industry consultations on this issue before taking
additional action with the GOB.
16. (U) This cable has been cleared with the Washington
BRASILIA 00000094 005 OF 005
delegation.
SOBEL