Cablegate: Brazil: Scenesetter for October 27-30 Visit of Special Rep

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C O N F I D E N T I A L BRASILIA 001261

SIPDIS

E.O. 12958: DECL: 10/23/2019
TAGS: PREL KNNP IAEA ENRG ETTC BR
SUBJECT: BRAZIL: SCENESETTER FOR OCTOBER 27-30 VISIT OF SPECIAL REP
OF THE PRESIDENT FOR NON-PROLIFERATION-AMB BURK

Classified by: Political Counselor Stephen Liston, Reasons 1.4 (b)
and (d).

1. (C) SUMMARY. The visit of the Special Representative of the
President for Nuclear Non-Proliferation, Ambassador Susan Burk, comes
at an important time. Brazil is reviving its long dormant civilian
and military nuclear energy programs. It closed down its nuclear
weapons program in 1990 and joined the Nuclear Non-Proliferation
Treaty (NPT) in 1998, but of late Brazil has often not joined in
supporting, and on occasion has opposed, USG non-proliferation
efforts. President Obama's Prague speech created new interest in
Brazil in U.S. initiatives and positions related to
non-proliferation, but two trends in the nuclear field are cause for
concern. First, Brazil seeks to rapidly expand its nuclear
activities, in particular developing enrichment and reprocessing
(ENR) technologies and building up an unsafeguarded Naval nuclear
research facility. Second, Ministry of External Relations (MRE) and
other GoB officials are becoming less helpful in the
non-proliferation world, using the excuse that the nuclear weapon
states should do more on disarming first, despite all evidence of
U.S. progress in this area. If these trends continue, it could
complicate our global non-proliferation initiatives and at the same
time increase temptations for some future government to think about
possibly developing weapons technology, if not weapons themselves.

2. (U) With Brazil emerging rapidly from the global economic
downturn, President Lula's high popularity ratings, the country's new
stature in the G20, international trade and financial architecture
discussions, a tenth term on the UN Security Council set to begin in
January, and Rio de Janeiro's successful bid to host the 2016
Olympics on the heels of the 2014 Soccer World Cup, Brazil is rapidly
gaining international confidence and clout. The relationship between
the United States and Brazil is as productive and broad-based as it
has ever been, and the election of President Obama brought prospects
for additional improvements. At the same time, although Brazil and
the United States share many broad goals, it is often still a
challenge to develop concrete areas for cooperation. These
difficulties are likely to increase as the country gears up for
elections in October 2010 to determine Lula's successor. END
SUMMARY.

NUCLEAR NON-PROLIFERATION AND NUCLEAR ENERGY ISSUES

3. (C) With the return of democracy in both Brazil and Argentina,
the two countries abandoned their nuclear weapons programs in 1990.
Later in 1998, Brazil joined the NPT. As late as mid-2008, despite
growing resistance from the Ministry of Defense (MOD) some within the
GoB were considering the possibility of signing an International
Atomic Energy Agency (IAEA) Additional Protocol. In December 2008
the GoB adopted a new Defense Strategy that rejects accepting any new
non-proliferation measures unless the nuclear powers "disarm." This
hardening of position by Brazil undercut USG efforts to have the
Nuclear Suppliers Group (NSG) adopt a new rule regarding a criteria
based procedure for transferring enrichment and reprocessing (ENR)
technology, including the requirement that the recipient have an IAEA
Additional Protocol in place. Brazil's opposition to an IAEA
Additional Protocol has had the collateral effect of preventing
Argentina from signing one, both for legal reasons (Brazil and
Argentina are linked with the IAEA by the Quadpartite Agreement) and
political grounds, not wanting to upset its large neighbor.

4. (C) The GoB has not clearly articulated its rationale for
opposing an Additional Protocol; several reasons have been offered
from time to time. GoB officials have said that an Additional
Protocol would mean that the IAEA is suspicious of Brazil's
intentions regarding its future nuclear program. The MRE's Director
of the Division for Disarmament and Sensitive Technologies, Santiago
Mourao, opined that this would be treating Brazil "as if it were Iraq
or Iran." At the same time, Mourao and civilian officials from
National Commission on Nuclear Energy (CNEN) have indicated that
technically there is not a problem with complying with an Additional
Protocol. The obstacle is a political one, and Mourao and others
have consistently pointed to the MOD, particularly the Navy, as the
primary source of opposition. Admiral Othon Pinheiro, now the
President of Eletronuclear (the operator of Brazil's nuclear power
plants), commented that the Navy was very concerned about obtrusive
inspections, which could reveal to outsiders Brazil's most sensitive
technology. There is also a faction of the Brazilian leadership that
believes joining the NPT was a mistake because it meant accepting a
sort of second class status for Brazil. This group believes an
Additional Protocol would compound this mistake. Whatever the
reasons, the GoB has moved from a position of leaning toward signing
an IAEA Additional Protocol just a year ago to stiff opposition. It

is generally supposed that Brazilian enrichment technology may have
been illegally obtained from Germany, and Brazil may want to hide
evidence of this.

5. (C) Multilaterally, the GoB is cautious about taking an active
role on non-proliferation and has consistently refused to take a
strong position against Iran's nuclear efforts. Brazil strives not
to break ranks with the G-77. Although the GoB has been careful to
comply fully with UN sanctions against Iran and has asserted the
importance of Iranian compliance with UN resolutions, the GoB has
also stressed Iran's right to develop nuclear energy for peaceful
purposes and occasionally cast doubts on IAEA findings that certain
Iranian activities were inconsistent with a peaceful nuclear program.
The GoB is looking to improve political and economic ties with Iran.
President Lula met with Iran's President Ahmadinejad in New York in
September, and Ahmadinejad is planning to visit Brazil in the near
future. Citing efforts with North Korea, the GoB has made clear that
it believes dialogue is the best option to ensure Iran is not a
threat to the global community, and has commended P5+1 efforts to
engage Iran. North Korea's testing of a nuclear device earlier this
year only delayed Brazil's opening of an Embassy there temporarily.
In discussions on non-proliferation, GoB officials frequently avoid
supporting non-proliferation efforts by resorting to oft-repeated
protestations that the nuclear powers are not doing enough on
disarmament ignoring progress being made in this area.

6. (U) Brazil has decided to revive its civilian nuclear energy
program. Government-owned entities control over aspect of nuclear
energy, from mining uranium, to building nuclear reactors, to owning,
operating, and overseeing those reactors. Currently, two reactors at
Angra dos Reis, south of Rio de Janeiro, are completed and operating.
Westinghouse built Angra I, and Siemens constructed Angra II.
Siemens stopped work on a third reactor (Angra III) in 1986, but work
resumed in September after a 23-year lapse. For the mid-term, Brazil
plans to build 4-8 new reactors by 2030. The GoB has expressed
interest in working with the United States as they move toward
developing its nuclear sector. GoB officials would like U.S. firms
to compete for work on these new reactors, and Westinghouse has been
actively pursuing opportunities here. Further, GoB officials have
expressed interest in collaborating with the USG to improve nuclear
safety and security and its nuclear facilities and to help in
training the next generation of technicians and experts. In
addition, Brazil is struggling with a long-term solution to handling
nuclear wastes, which are currently stored on site. They are
interested in advice on this sensitive issue. Moreover, the GoB is
thinking of reorganizing CNEN, which currently oversees the nuclear
energy sector, into a new agency for regulation, along the lines of
the U.S. Nuclear Regulatory Commission and another entity for
promoting and developing nuclear energy. They are interested in
discussing this reorganization with the USG.

7. (C) In addition to building more reactors, Brazil is seeking to
complete the nuclear fuel cycle and master enrichment and
reprocessing (ENR) technologies. Brazil is installing cascades of
centrifuges to enrich uranium. While rich in uranium, with the sixth
largest reserves in the world, Brazil ships yellowcake to Canada and
then to Europe (URENCO) for processing into fuel. President Lula has
directed the GoB to develop the skills to do the processing itself
and become self-sufficient. This is estimated to take through 2030,
after which Brazil may become a supplier within South America and
possibly elsewhere of nuclear fuel. The Presidents of Brazil and
Argentina have announced that they will form a joint entity to
process nuclear fuel, but there has been little progress. While
Brazil uses centrifuges for enrichment, Argentina uses gas
technology. Brazilians sometimes regard efforts to urge them to join
the Additional Protocol with concern that such efforts could be part
of an agenda to deny Brazilian mastery of the full fuel cycle.

8. (C) Internationally, Brazil participates in the IAEA and the NSG.
It is an observer at the Global Nuclear Energy Partnership (GNEP),
though it may decide to join at some later date. During a visit to
Washington this summer, Minister of Mines and Energy Edison Lobao
expressed his openness to a suggestion from Department of Energy
Deputy Secretary Poneman that Brazil help lead an effort to encourage
nuclear responsibility among nations considering developing civilian
nuclear programs. The GoB has shown signs of interest in joining the
nuclear fusion research consortium (ITER). While it is not convinced
about the merits of the proposals to create a nuclear fuel bank, the
GoB seems open to discussing the idea further. Brazil supported the
G-77 candidate for Director General of the IAEA (South African Minty)
to the end, though it has not voiced public opposition to the winner
(Japanese Amano). Brazil is interested in renewing exchanges of
nuclear technology with India, but it still needs to change its laws

to permit this cooperation. Both India and Brazil are rich in
thorium, though the GoB has downplayed interest in developing a
reactor using thorium.

9. (C) The Brazilian Navy has revived its program to build a nuclear
powered submarine. This would be based on the hull of a French
conventional submarine. It is not clear whether the Navy will
receive sufficient funding for this project. Further, the GoB will
need to overcome the significant technological hurdles involved in
this project. However, Brazilian leaders perceive a nuclear powered
sub as an essential trapping of great power status and are unlikely
to abandon the program -- even if its completion is remote.

POLITICAL OVERVIEW

10. (U) With democracy re-established in 1988 after decades of
military dictatorship, Brazil's democratic institutions are generally
strong and stable. President Lula remains a popular president - one
of the most popular in Brazil's history and indeed in the world
today, with recent approval ratings as high as 68% - as a result of
his disciplined economic policies and expanded social programs. Most
recently he is basking in the glow from Rio de Janeiro winning the
rights to the 2016 Olympics, which even tops Rio gaining the 2014
World Cup. In the Congress, ongoing public scandals involving the
leadership of the Senate and various members of congress have led to
low ratings for the institution among the Brazilian public.
Increasingly, the court system has taken steps to curb impunity among
public officials. These steps have been well received by a public
accustomed to abuses by authorities.

11. (U) The campaign to replace Lula in the October 2010 elections
is well under way, unofficially, affecting most major decisions.
Lula is constitutionally barred from seeking a third term and has
designated his Chief of Staff, Dilma Rouseff as his successor.
Lula's personal popularity has thus far not transferred, and at this
point the race remains unpredictable. The opposition governor of Sao
Paulo state, Jose Serra, currently has a lead in the polls, only ten
percent of voters have a party affiliation and most are not yet
following the race. As a result, Rousseff, with the strong backing
of Lula, will almost certainly gain ground. Whoever wins is likely
to continue the sound economic management and aggressive
international outreach that have characterized Lula's presidency.

FOREIGN POLICY

12. (U) Under Lula, Brazil's priority has been to solidify its
regional leadership while reaching beyond traditional partners like
the United States and Europe to a broad range of players. Despite a
great deal of criticism from those in Brazil who question the value
of this so-called South-South strategy, the GoB has expanded its
diplomatic presence in Africa, Asia, the Middle East, and the
Caribbean and has promoted cross-regional meetings such as the Arab
States-South America Summit, the Africa-South America Summit, the
BRICs (Brazil, Russia, India, China) meetings, and the IBSA (India,
Brazil, South Africa) forum. At the same time, Brazil has sought to
create new regional mechanisms, such as the Union of South American
Nations (UNASUL), the South American Defense Council, and the Summit
of Latin America and the Caribbean (CALC) that serve to strengthen
its leadership in South America and the Western Hemisphere more
broadly. The attainment of a permanent seat on the UN Security
Council (UNSC) has been a central goal of Brazil's foreign policy
under President Lula's government, and Brazil has just been elected
to a tenth UNSC term, a record matched only by Japan. Brazil has
also taken a more visible role on major international negotiations,
including the Doha trade round, G20 discussions on the global
economic crisis, and post-Kyoto climate change talks, taken the lead
on peacekeeping in Haiti, and is seeking a role in the Middle East
peace process.

13. (U) The United States and Brazil share many interests in the
region, such as fostering hemispheric stability and preventing drug
transit activity. Regionally, Lula has maintained Brazil's historic
focus on stability, seeing dialogue and 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, has given its assistance in
resolving the FARC hostage crisis in Colombia, and has stood firmly
on the principle of respect for sovereignty in the region.

SECURITY ISSUES AND FIGHTER PURCHASE

14. (C) Brazil announced in December 2008 a new defense strategy,
which has three main elements: modernization of the armed forces;

revitalization of defense industries; and implementation of a new
regime of national service. For the Brazilian military, the key
result of the strategy process has been the reintegration of defense
goals into the country's overall development strategy and political
dialogue. The Defense Strategy notes that Brazil is prohibited from
having nuclear weapons, both by the NPT and its own constitution, but
identifies nuclear power instead as a key strategic interest.

15. (C) An important watershed in achieving a more robust defense
relationship with Brazil will be the US$4 billion decision on a next
generation fighter aircraft. Boeing's F-18 Super Hornet is a
finalist along with the French Rafale and Swedish Gripen. After
hosting French President Sarkozy in Brasilia for Brazilian
Independence Day celebrations, President Lula announced on September
7 that Brazil is entering advanced negotiations to purchase 36
French-made Rafale fighters. The following day Brazil's Defense
Ministry confirmed that the selection process was not closed and the
U.S. contender is still under consideration. With a lower cost and
stronger offset program, Boeing is well-positioned to win on the
merits of its bid, but faces a presumption in the Brazilian political
community that doing business with the United States is negative for
Brazil.

ECONOMIC OVERVIEW

16. (U) Brazil is the tenth largest economy in the world and
received investment grade status from Standard and Poor's and Fitch
in 2008, and from Moody's in 2009. Annual Gross Domestic Product
(GDP) grew 5.1 percent in 2008, and annual 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 appears to be entering into a solid recovery position,
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, a
reduction in interest rates, and tax cuts on automobiles and consumer
durables -- played a role in lessening the impact of the global
crisis on Brazil. Brazil is projected to return to a 4 to 5 percent
GDP growth rate in 2010.

17. (U) 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
Brazil in the international financial institutions.

18. (U) 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, and China as of March of this year moved into first position
as Brazil's primary export destination. Prior to the current
financial crisis, U.S.-Brazil trade experienced significant annual
growth surpassing USD 50 billion in 2008 -- Brazil typically
experiences a slight positive balance in the trade relationship.

19. (U) Foreign direct investment (FDI) in Brazil is increasing,
with inflows of USD 44 billion in 2008; USD 6.9 billion came from the
United States. Brazilian investment in the United States almost
tripled between 2001 (USD 1.4 billion) and 2006 (USD 3.9 billion).
President Lula has been actively selling Brazil as a solid investment
destination during the financial crisis due to its sound
macroeconomic policies and relatively strong economy. Brazil is
Latin America's biggest recipient of FDI, and in 2008 received
roughly twice the volume of inflow that Mexico received.

20. (U) Despite progress in recent years, income distribution in
Brazil remains grossly unequal, with 10 percent of the population
holding over 50 percent of the nation's wealth. With a total
population near 200 million, Brazil is also home to 50 percent of the
people who live in extreme poverty in Latin America. President
Lula's social programs, combined with formal sector job growth and
real increases in the minimum wage, have reduced income inequalities
each year since 2004.

BRAZILIAN MEDIA AND PUBLIC ATTITUDES TOWARDS THE USA

21. (U) In terms of general public opinion, the election of Barack
Obama as president seems to have influenced views of the United
States in a positive way. An Office of Research Opinion Analysis
released in March 2009 found that seven-in-10 Brazilians believe the
Obama presidency will be positive for Brazil and the world.
Economically, Brazilians say their future lies with the United States
and China. Majorities held a favorable view of the United States (57
percent) and saw bilateral relations as being good (65 percent).
However, Brazilians have often seen the United States as an
impediment to Brazil's aspirations for regional leadership.
Pluralities said last year that politically and economically, the
United States was as much a competitor as it was an ally and partner.
As of January, half lack confidence in the United States' ability to
deal responsibly with world problems.

22. (U) Brazilian journalists, generally speaking, are professional,
balanced, and strive for objectivity. Many are evenhanded in their
treatment of the United States, even if they do not personally agree
with U.S. policies. Some mainstream Brazilian opinion writers
demonstrate biases against U.S. policies, though the trend has
started to change with the election of President Obama. A small
segment of the Brazilian public accepts the notion that the United
States has a campaign to subjugate Brazil economically, undermine it
culturally, and occupy with troops at least part of its territory.
Such attitudes and beliefs have occasionally influenced Brazilian
reporting and commentary on issues such as the reestablishment of the
U.S. Navy's Fourth Fleet (which has been characterized as a threat to
Brazil), supposed U.S. nefarious intentions toward the Amazon, and
most recently, the announcement on U.S. access to Colombian military
bases. That said, the Brazilian media have reported favorably on
U.S. efforts at the recent meeting of the General Assembly of the
Organization of American States and the Summit of the Americas, and
the Obama Administration overall, portending a change in perspective
with regards to U.S. intentions in Brazil and the region at large.
Non-proliferation issues have a low profile with the Brazilian media
and raise little interest among the public.

CLIMATE CHANGE

23. (U) After intensive lobbying from senior USG officials and
pressure from other countries and domestic constituencies, President
Lula announced a major shift in Brazil's position in the
international climate change negotiations. He has said Brazil will
offer in Copenhagen a target of reducing the rate of deforestation of
the Amazon Forest by 80% by 2020, which would amount to about 20%
reduction in country-wide emissions. This represents a significant
advance over Brazil's previous position, which was 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 technology
transfer and financial assistance to developing countries so that
they can take mitigation and adaptation measures.

ENERGY

24. (U) Brazil is the world's leading exporter of biofuels, which
now have surpassed petroleum as the largest component of the domestic
transportation fuel sector. The GoB is proud of its energy matrix
which is largely made up of renewable sources of energy, over 80
percent of which is hydro-reliant. To further diversify the matrix
and help Brazil meet its goal of doubling its energy supply in the
next 20 years, the GoB is looking to increase its civilian nuclear
energy sector. Brazil also stands to become a world player in the
supply of oil with 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. The depth of
the area will make recovery challenging and expensive. The eventual
exploitation and investment in the attendant infrastructure could
provide rich opportunities for U.S. companies but recently proposed
legislation by the GoB to regulate the area has brought the extent of
that potential into doubt.

25. (U) The USG and the GoB have built a close and productive energy
relationship through the 2007 Biofuels Memorandum of Understanding in
which we agreed to work together to promote biofuels as a global
commodity, research and development in next generation biofuels, and
development of biofuels capacities in third countries. Building on
the success of this initiative, the United States and Brazil are
currently exploring other avenues for cooperation, such as a possible
Binational Commission on Energy, which could include cooperation on
commercial nuclear energy.

SECURITY SITUATION IN BRAZIL

26. (U) Crime throughout Brazil (especially Rio de Janeiro) has
reached very high levels. The Brazilian police and the Brazilian
press report that the rate of crime continues to rise, especially in
the major urban centers - though it is also spreading in rural areas.
Brazil's murder rate is more than four times higher than that of the
United States. Rates for other crimes are similarly high. The
majority of crimes are not solved.

27. (U) Street crime remains a problem for visitors and local
residents alike, especially in the evenings and late at night.
Foreign tourists are often targets of crime and Americans are not
exempt. This targeting occurs in all tourist areas but is especially
problematic in Rio de Janeiro, Salvador and Recife.

28. (U) At airports, hotel lobbies, bus stations and other public
places, incidents of pick pocketing, theft of hand carried luggage,
and laptop computers are common. Travelers should "dress down" when
outside and avoid carrying valuables or wearing jewelry or expensive
watches. "Good Samaritan" scams are common. If a tourist looks lost
or seems to be having trouble communicating, a seemingly innocent
bystander offering help may victimize them. Care should be taken at
and around banks and internationally connected automatic teller
machines that take U.S. credit or debit cards.

29. (U) Travelers using personal ATMs or credit cards sometimes
receive billing statements with non-authorized charges after
returning from a visit to Brazil. The Embassy and Consulates have
received numerous reports from both official Americans and tourists
who have had their cards cloned or duplicated without their
knowledge. Those using such payment methods should carefully monitor
their banking online for the duration of their visit.

KUBISKE

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