BRAZILIAN FEDERAL GOVERNMENT CONTROLS SERVICES

UNCLAS BRASILIA 000320 SIPDIS USTR FOR AMAIN, PCOLLINS, SCRONIN STATE FOR EB/TPP/MTA/MST E.O. 12958: N/A TAGS: ECON ETRD BR WTRO SUBJECT: BRAZILIAN FEDERAL GOVERNMENT CONTROLS SERVICES REGULATION REF: (A) 2002 STATE 254964 (B) MONTEVIDEO 0076 ¶1. This cable responds to questions raised in reftel A regarding regulation of services at the federal and sub-federal level. ¶2. Brazil is a Federal Republic. Brazil's government is comprised of the Federal Government, 26 state governments, one Federal District government and approximately 5,500 municipalities. The Brazilian Constitution lays out the respective legislative responsibilities of each of these governmental layers. ¶3. Contrary to what was suggested in reftel B, regulatory authority over services in Brazil resides fundamentally with the Federal Government. For certain services, including conditions for the practice of professions, operation of communication services, energy services, transportation services, commercial services (distribution, wholesale, etc.),and financial services, the Constitution specifically assigns sole legislative/regulatory authority to the Federal Government. ¶4. For other areas (environmental services; educational and training services; recreational, cultural and sporting services; and health related services),both the Federal Government and states are allowed to concurrently pass legislation. However, the Constitution stipulates that in these areas, federal law overrides state law if the two are inconsistent. In areas of concurrent legislation, federal legislation is limited to the establishment of general rules, with state legislation providing more specificity. According to the Constitution, for areas in which no federal law exists, states may exercise full legislative competence. Municipalities are able to supplement federal and state legislation where pertinent, including in the areas of mass transportation, health services and protection of cultural heritage. ¶5. It should be noted that with ratification of an international agreement, its provisions become part of federal law. For service areas in which no federal legislation previously existed, the provisions of the international agreement would establish the federal regulation, and therefore limiting parameters, of any sub-federal regulations. ¶6. Officials within Itamaraty that are responsible for GOB services negotiations assert that sub-federal regulations are never inconsistent with federal regulation because all state and municipal regulations must by law comply with federal regulation. The argument goes that since the inconsistent state and municipal laws would automatically be struck down by the courts, no attempts are made to usurp federal purview. The clear delegation of regulatory authority as stipulated in the Constitution supports, but doesn't prove this contention. The only enforcement mechanisms that appear to be available are the threat of lawsuits or fines. ¶7. Post was able to identify one example of a state clearly defying federal regulators. During the Cardoso administration, then governor of Minas Gerais, Itamar Franco, refused to "deverticalize" the Minas Gerais Energy Company (Cemig) in defiance of a regulation promulgated by the federal energy regulator (Aneel); the regulation was related to privatization of the company, which still counted the state of Minas Gerais as the majority stake-holder. The company was fined, but the state never capitulated. The new Minister of Mines and Energy has recently expressed her opinion that Cemig is not obligated under law to deverticalize. HRINAK