Cablegate: Brazil: Charge Discusses Tax, Trade and Cotton with Amcham

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TO RUEHC/SECSTATE WASHDC IMMEDIATE 0235
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RUEHSO/AMCONSUL SAO PAULO

UNCLAS SECTION 01 OF 02 SAO PAULO 000702

SENSITIVE
SIPDIS
STATE PASS TO USTR KKALUTKIEWICZ

E.O. 12958: N/A
TAGS: ETRD ECON PGOV BR EFIN KPAO
SUBJECT: BRAZIL: Charge Discusses Tax, Trade and Cotton with AmCham

REF: BRASILIA 1271

1. (SBU) Summary: In a November 20 meeting with Charg???? d'Affaires
(CDA) Kubiske, Sao Paulo American Chamber of Commerce (AMCHAM)
Director Gabriel Rico stressed the Brazilian private sector's
interest in continued collaboration with the United States.
Specifically, Rico suggested that the new Ambassador visit AMCHAM
as part of his first official visit to Sao Paulo to establish ties
with the business community. Rico also expressed confidence for
progress on a bilateral tax treaty in 2010, avoiding
cross-retaliation in the WTO Cotton dispute, and opportunities for
cooperation on innovation policy. End Summary.

Engagement with New Ambassador

------------------------------

2. (SBU) AMCHAM Director Rico began by expressing the Sao Paulo
business community's interest in welcoming a new U.S. Ambassador
and continuing the private sector's close engagement with the
United States. Rico suggested to the CDA that the Ambassador
participate in a high-profile event, maybe a luncheon, with the
private sector during his first visit to Sao Paulo. He suggested
that AMCHAM could arrange this as a joint event with FIESP
(Federation of Industries in the state of S????o Paulo), so that the
new U.S. ambassador could meet a larger portion of the Sao Paulo
business community at one time.

Bilateral Tax Treaty

--------------------

3. (SBU) Rico emphasized that the Bilateral Tax Treaty (BTT)
continues to be one of AMCHAM's top five priorities for 2010. In
particular, AMCHAM has been increasingly engaging the Brazil-USA
parliamentary caucus in the Brazilian Congress, which the AMCHAM
believes can play a crucial role in pushing the Lula administration
towards approving a BTT. Following a joint AMCHAM and
caucus-hosted tax policy seminar in Brasilia October 27 (ref A),
Rico said he now anticipates the Brazilian Senate will approve the
pending Tax Information Exchange Agreement (TIEA) as a step to an
eventual BTT. AMCHAM is also planning to deliver a joint statement
from the caucus and U.S. Senator Lugar to the Brazilian Executive
Branch in support of a TIEA and BTT.

4. (SBU) Rico told the CDA, however, that resistance from some
private sector representatives persisted due to fear of
international investment disclosure requirements, and could slow
approval. (COMMENT: This issue also impacts support for the broader
information exchange requirements required under a BTT. END
COMMENT). Rico asserted the Foreign Ministry, Finance Ministry and
Brazil's tax authority, Receita Federal all support the TIEA and
BTT. Receita Federal, however, is less enthusiastic about a BTT, as
they are concerned about minimizing loss of revenue collected.
Nonetheless, they are willing to support a BTT, according to Rico.
(COMMENT: This optimistic assertion does not track with feedback
received from Fazenda and Receita in Brasilia, who have only gone
so far in recent conversations as to assert that a BTT "may some
day be possible." END COMMENT) He expressed confidence that the
Brazilian Congress will approve the TIEA by June 2010. According
to Rico, both Dilma Rousseff (PT) and Jos???? Serra (PSDB) support
the
concept of a BTT. Rico emphasized that a Serra government would be
more pro-U.S., due to its more pragmatic pro-business approach -
PSDB has historically been more supportive of close ties with the
United States.

SAO PAULO 00000702 002 OF 002

Way Forward on Cotton Dispute

-----------------------------

5. (SBU) Rico said AMCHAM agrees with the GOB's right to retaliate
against the USG under the WTO cotton subsidy dispute, but is
seeking ways to amplify dialogue between the U.S. and GOB to avoid
an escalation of trade tensions or cross-retaliation in unrelated
sectors. Rico echoed U.S. Trade Representative Kirk's September 16
speech at the AMCHAM, stressing that the issue is specifically
trade-related and should not become a broader political issue.
Rico said the cotton issue is not exclusively in the hands of the
Foreign Ministry for the time being, but rather being addressed
through a robust interagency process (CAMEX), which is beneficial,
in his view, for the United States. He said Brazilian industry
sees this issue as a purely agricultural one and hopes that the GOB
will not retaliate against intellectual property rights. Rico
expressed a high regard for CAMEX and its executive secretary Lytha
Spindola for the handling of the issue to date and said AMCHAM is
providing info and assistance to CAMEX. Rico suggested that
positive movement from the USG on the dispute would be conducive to
expanding dialogue for a resolution. CDA Kubiske noted Brazilian
companies operating in the USA could play a constructive role with
the GOB in urging dialogue and an amicable solution.

Supporting Innovation

---------------------

6. (SBU) Looking ahead, the CDA and Rico discussed the future of
innovation in Brazil and an apparent missing link between academics
and business opportunities. Rico noted that most business
innovation still originates from the S????o Paulo area, but said that
bureaucracy in patent approval and a lack of integration between
academic researchers and industry are the main obstacles to
stimulating greater innovation across Brazil. Specifically, Rico
lamented the lack of staff at INPE and complexity of Brazilian
patent law which have led to an average wait time of 10 years for
patent approval. Rico suggested the need for further exchange of
ideas between Brazil and the United States on innovation policy,
citing training for Brazilians in U.S. innovation clusters as one
way to bridge this gap.

7. (U) This cable was coordinated/cleared by Embassy Brasilia.
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