Cablegate: Brazil: Ustr Amb Kirk Sept 16-17 Visit to Brasilia and Sao

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FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5155
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 8243
RUEHSO/AMCONSUL SAO PAULO 4602
RUEHRG/AMCONSUL RECIFE 9980
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RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHBU/AMEMBASSY BUENOS AIRES 6362
RUEHMN/AMEMBASSY MONTEVIDEO 7824
RUEHAC/AMEMBASSY ASUNCION 0014

UNCLAS SECTION 01 OF 04 BRASILIA 001201

SENSITIVE BUT UNCLASSIFIED
SIPDIS

STATE PASS USTR
STATE FOR EEB AND WHA
TREASURY FOR NANCY LEE LUYEN TRAN AND MICHAEL MUNDACA
COMMERCE FOR WALTER BASTIAN ANNE DRISCOLL AND LORRIE FUSSELL

E.O. 12958: N/A
TAGS: ETRD ECON EINV EFIN BR
SUBJECT: BRAZIL: USTR Amb Kirk Sept 16-17 Visit to Brasilia and Sao
Paulo

REF: BRASILIA 1129

BRASILIA 00001201 001.23 OF 004

1. (SBU) SUMMARY: In meetings with the private sector and labor
representatives, as well as government officials, USTR Ambassador
Ron Kirk achieved significant success in re-framing the tone of the
U.S.-Brazil trade and investment relationship. Common themes,
including the need for a Bilateral Tax Treaty, the importance of
intellectual property protection and further exploration of elements
of an investment agreement, as well as the desire to maintain GSP
preferences, were raised by both private sector and government
interlocutors. The press was eager to discuss the WTO cotton case
and the U.S. decision on Chinese tires, but low-key responses from
USTR and the Minister of External Relations (MRE) ensured these
themes did not dominate the visit's take-away message stressing a
positive bilateral cooperation framework and deeper trade and
investment ties. FM Amorim agreed to work toward a new structural
framework for trade and investment discussions. END SUMMARY

AmCham Event
-----------

2. (SBU) USTR Kirk began his visit with well-received luncheon
remarks to approximately 100 senior members of the Sao Paulo
American Chamber of Commerce, the largest AmCham in the world.
Ambassador Kirk's speech emphasized the importance of U.S.-Brazil
relations and USG interest in deepening dialogue on bilateral trade
and investment issues. In response to written questions on the
cotton dispute narrowly and the U.S.-Brazil relationship broadly,
USTR Kirk noted the U.S. remains interested in concluding a Double
Taxation Treaty with Brazil and identified technology and innovation
sectors as key areas for future bilateral trade expansion, while
deferring to GOB to articulate next steps on cotton. On the margins
of the lunch, AmCham Executive Director Gabriel Rico and Board
Member Gaetano Crupi told Ambassador Kirk in reference to the recent
WTO ruling against U.S. cotton supports, that any cross-retaliation
by Brazil in the area of intellectual property rights would hurt
Brazil more by harming investment and the public health sector. USTR
Kirk encouraged the Brazilian private sector to raise this concern
with the GOB.

Private Sector Roundtable
-------------------------

3. (SBU) Following the AmCham luncheon, USTR Kirk held an
off-the-record roundtable with representatives from the Brazilian
business community. USTR Kirk opened by expressing USG interest in
expanding the bilateral trade and investment relationship.
Representatives from Embraer, Duke Energy, Abbott Pharmaceutical,
ADM, GM, the Sugar Growers' Association (UNICA), and the Sao Paulo
Federation of Industries (FIESP) stressed the continued importance
of the U.S. market for their goods, despite the increased focus on
Brazil by Asian customers. Most voiced concern that the prospect of
Brazil engaging in cross-retaliation on intellectual property rights
as part of the WTO cotton decision could harm investment and spark a
trade war with the U.S. The FIESP representative (also the head of
the Brazilian Beef Producers group) suggested compensation or even
an agreement to provide additional trade capacity-building
development assistance in African countries, rather than
retaliation, would be a preferred solution. Industry
representatives worried about the GOB increasing its presence in the
oil sector as both an investor and a regulator. Other issues of
interest to industry participants were the need for a bilateral tax
treaty, the protection of intellectual property rights, the
increasing size of China's trade with Brazil, ethanol tariffs in the
U.S., and opening the U.S. market for beef imports. In closing,
USTR Kirk expressed optimism that current differences with Brazil
could be resolved through dialogue. He reiterated USG interest in
establishing a bilateral framework to deepen positive cooperation on
trade and investment issues.

Labor Roundtable
----------------

4. (SBU) USTR Kirk concluded his Sao Paulo meetings with a
roundtable discussion with leaders of Brazil's three largest labor
unions, the Central Workers' Union (CUT), the General Workers Union
(UGT) and Forca Sindical, as well as the director of the Campinas
University Labor Studies Center. Ambassador Kirk opened by

BRASILIA 00001201 002 OF 004

discussing President Obama's commitment to ensuring increased trade
and also raised labor, environmental and social standards. These
Brazilian labor union representatives welcomed the President's
attendance at a national labor summit the previous day in Pittsburgh
in preparation for the G-20 Summit as evidence of the commitment to
engage unions in the economic agenda. They hailed USTR Kirk's visit
and desire to meet with them as an important symbol of openness.
They outlined the growing international cooperation among regional
unions, the improvement of working conditions, and a growing labor
voice in the development of economic social development policy
during President Lula's administration. They emphasized the
importance of trade for job growth and acknowledged that disputes
hurt all nations. USTR Kirk welcomed Brazilian labor's openness to
new market realities and emphasized the importance of continuing to
work together to maximize the benefits of trade for all sectors.

National Confederation of Industry (CNI)
---------------------------------- -----

5. (SBU) The President of CNI, the umbrella association of
state-level industry associations, accompanied by CNI Executive
Director and CNI International Negotiations head, as well as the
vice-president of FIRJAN (the Rio CNI branch) and the president of
FIERGS (Rio Grande do Sul branch), laid out priorities for the
U.S.-Brazil commercial relationship, including the Doha Round,
energy cooperation, and a bilateral tax treaty (BTT). The CNI
President (who is also a member of congress) particularly underlined
support for a BTT, noting that the Brazilian private sector needs to
exert strong pressure on GOB to support and that he has stressed the
importance of a BTT to the Brazilian congress as well: "This is very
much a point on my agenda." Interlocutors noted the private sector
is rethinking its position on bilateral investment treaties (BITs).
Noting BITs used to be "taboo," and many still worry that BITs can
also negatively affect the private sector, CNI representatives said
Brazil needs to explore a "new" kind of investment treaty, as
Brazilian companies have become more aggressive in the last ten
years pursuing FDI overseas. Noting that large service providers,
as well as industry, are already active in Europe and the United
States, and will eventually expand significantly in Asia, CNI is
beginning to urge a global approach to considering investment
protections. Recognizing the constraints of Mercosul membership,
CNI emphasized eagerness to seize opportunities for deeper bilateral
U.S.-Brazil cooperation on trade and investment issues. Noting the
United States has a bilateral TIFA with Uruguay "despite Mercosul,"
CNI believes latitude exists to create similar U.S.-Brazil ties.
Ambassador Kirk indicated USG interest in developing a more
structured framework to guide trade and investment relations;
negotiating a BIT that would help companies in both countries;
strengthening intellectual property rights cooperation to the
benefit of technology development, innovation, and entrepreneurship;
and exploring increased cooperation on services, including green
technologies. He also welcomed CNI participation in the OECD
Business and Industry Advisory Committee, as well as CNI's strong
support for eventual full GOB OECD membership.

6. (SBU) CNI representatives underlined their interest in preserving
GSP eligibility. Amb. Kirk noted Congress intends the program the
program to be a jumpstart rather than a lifeline. CNI participants
acknowledged that as trade and investment between the United States
and Brazil deepens and closer links are negotiated, eventually GSP
will become less important to Brazil. Turning to climate change,
CNI indicated concern regarding trade provisions in the
Waxman-Markey bill, underlined domestic measures to address climate
change, and stressed the importance of differentiated responsibility
based on different development levels.

7. (SBU) Regarding Argentina, CNI representatives emphasized that
Brazil, despite being Mercosul members, were experiencing
significant problems and delays due to Argentine licensing
requirements. As a tangible example, the FIERG representative noted
his state relies heavily on footwear exports, where licenses have
been held up six months per shipment, ensuring shoes actually arrive
long after the intended season has ended. CNI indicated the
Brazil/Argentine business forum had met the previous week, where
Argentine business made clear they saw no indication that GOA would
reverse these new requirements, in spite of the negative impact on
Argentine business as well. CNI President emphasized that Brazilian
companies are heavily integrated with Argentine companies, so

BRASILIA 00001201 003.20 OF 004

Argentina's "difficult political environment" is having a real
impact industry can only hope to "attenuate" rather than "solve."
Brazilian industry is losing market share in Argentina to China, an
issue of deep concern. CNI's executive secretary noted that CNI had
prepared a analysis for GOB with a recommendation the government
bring a WTO case against Argentina regarding the export licenses,
but did not get much GOB support given geopolitical interests. The
CNI President explained that weighing against these "very
deleterious practices" is Brazil's attempt to be a stabilizing force
in the region and to avoid divisive issues. Ultimately, he stated,
GOB is trying to support Argentina to stop the GOA from aligning
with Venezuela.

FM Amorim
---------

8. (SBU) FM Amorim, accompanied by his Chief of Staff as well as his
Undersecretary and Assistant Secretaries for economic affairs,
stated he had "no intellectual resistance" at all to an agreement
with the United States, repeatedly emphasizing "without detriment to
Mercosul commitments." He noted that due to Mercosul, Brazil would
not be able to address tariff issues bilaterally. Amorim stated
that "Mercosul for us is a political project to diminish our
conflicts and resolve our problems." Acknowledging that the
Mercosul tariff mechanism is "very imperfect," Brazil still needed
to respect the premise. That said, Amorim continued, Brazil had
economic agreements that did not address tariffs, suggesting
Switzerland and Turkey as good examples. Ambassador Kirk agreed
USTR would review those agreements (NOTE: emailed to USTR). Partly
as a result of the CEO Forum recommendation, MRE is interested in
exploring where deeper, "more imaginative" cooperation could be
possible. Such a framework would be positive in addressing aspects
of trade and other economic cooperation, Amorim felt. Amorim said
he would not call an agreement with the United States a "TIFA"
(Trade and Investment Framework Agreement), because he did not want
to be locked into a pre-determined model, suggesting a name such as
"economic cooperation" agreement might allow more flexibility. In a
separate meeting AUSTR Eissenstat held later in the day with CAMEX
ExecSec, Commerce Ministry (MDIC) U/S for International Trade, and
Minister Rousseff's international affairs advisor, interlocutors
indicated strong support in their organizations as well for
exploring TIFA possibilities. Both Amorim and MDIC noted that
mechanisms labeled "agreements" require congressional ratification,
which can take years to achieve. MDIC also noted "TIFA" is very
close to the Portuguese word for typhoid ("tifo") and did not sound
positive to Brazilian ears.

9. (SBU) Amorim said the U.S. and Brazil should deepen cooperation
toward a tax agreement. He noted that Receita Federal
(IRS-equivalent) is resisting a BTT, but that Brazilian companies
operating in the United States want an agreement, therefore a BTT
"is something we should do" even if not easy to achieve. For an
investment agreement, Amorim said Brazil was a "complicated
country." He recalled the dozen late-1990s BITs that the congress
rejected on the grounds that domestic industry had to use the court
system for disputes, while foreign companies could access
international arbitration. Commenting that while he "found that
logic shaky and frankly we could use" investment protections in
countries Brazil deals with, Amorim felt arbitration could be
difficult to tackle in an agreement. Nonetheless, he believed there
could be scope to address principles such as MFN, NT and other
aspects of an investment agreement.

10. (SBU) Amorim urged Congress renew GSP for Brazil, noting most
products are intra-firm trade and the small remainder benefit poor
regions in the north/northeast of Brazil. Amorim believed that,
were GSP withdrawn from Brazil, Chinese rather than U.S. producers
would benefit. Acknowledging Brazil would not be able to remain in
the GSP program in the long run, he stressed that Brazil needed
access as least during the global economic crisis.

11. (SBU) Amorim raised two SPS issues - beef access and the current
rule-making underway on Santa Catarina pork regionalization. Saying
there would be "big symbolic value" in gaining Santa Catarina pork
access, he was concerned that despite his understanding the
technical assessment went well, the rule-making might become
politicized. Noting he needed to be able to say he raised the
ethanol tariff issue, Amorim was well-aware of the previous Grassley

BRASILIA 00001201 004.24 OF 004

hold in the Senate and the strength of Congressional views on this
issue. On cotton, Amorim said he would tell the press MRE continues
to study next steps.

12. (SBU) Amorim indicated Haiti was a political more than economic
issue for Brazil, given interest in its stability. He said Brazil's
lead on the UN troops had generated great interest in GOB in finding
other ways Brazil can contribute, from development assistance to
forest conservation to dam construction (noting US assistance with
financing would be particularly welcome in the latter). (Note: in
the CAMEX/MDIC/Planalto meeting, interlocutors indicated that
President Lula had explicitly tasked all 34 Ministries to find ways
to assist Haiti - from trade preferences to sports exchanges. MDIC
is working on developing trade preferences ideas, but cautioned
preferences would require a Mercosul as well as WTO waiver). Amorim
reiterated GOB interest in HOPE II access for Brazilian companies to
produce in Haiti and export to the United States. He stated that
GOB is prepared to offer the United States reciprocal access,
contingent on a Mercosul waiver from Paraguay (which he indicated
was proving problematic) and congressional approval.

13. (SBU) Ambassador Kirk raised industry concerns regarding the
proposed new pre-salt legislation. Amorim said he would look into
the matter, but understood that the model GOB is proposing is
similar to the one most oil countries use and that many companies
have approached Brazil interested in participating. Amorim stated
the proposed model was not like Russia or Venezuela and Brazil's
intention is not to have a Petrobras monopoly, noting Brazil needs
foreign investment. Given this is Brazil's first experience with
extensive oil resources, he noted that there may be a bit of a
learning curve for Brazil.

14. (SBU) Amorim expressed strong support for intellectual property
protections, noting his main problems in negotiating TRIPs at the
time had been his constrained ability to guarantee enforcement
resources, given other GOB budget priorities. Ambassador Kirk and
Amorim discussed common piracy challenges in Asia. Amorim indicated
family members (he has three children in the film industry) had been
directly impacted by rampant piracy in Asia. GOB interlocutors were
visibly intrigued to learn that Canada poses a major piracy
challenge for the United States and was on the Special 301 Priority
Watch List.

15. (SBU) COMMENT: Ambassador Kirk's visit was highly successful in
re-framing the tone of U.S.-Brazil relations and in gaining strong
and widespread GOB and private sector support for a new framework
for bilateral cooperation. Cotton did not overwhelm MRE/USTR
discussions. Private sector interlocutors stressed concerns
regarding any potential cross-retaliation on intellectual property
rights and indicated compensation would be preferable to
retaliation. Press reporting on the visit was accurate and
favorable, although one editorial (Estado) the day after the trip
expressed disappointment that USG did not meet press-generated
expectations that the trip should have focused on cotton retaliation
and the Doha Round. The visit was a significant impetus to creating
deeper trade and investment ties between the United States and
Brazil, and Brazilian interlocutors both in the private sector and
the government expressed eagerness to explore concrete and tangible
cooperation. END COMMENT

Message drafted by CG Sao Paulo and EMB Brasilia. The delegation has
cleared this message.

KUBISKE

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