U/S LARSON LAYS DOWN A MARKER ON INTERNATIONAL

UNCLAS SECTION 01 OF 03 BRASILIA 001835 SIPDIS SENSITIVE TREASURY FOR OASIA - DAS LEE AND SSEGAL NSC FOR DEPMSEY, DICARLO AND RENIGAR ROME FOR FODAG STATE FOR E - TOM SMITHAM STATE FOR WHA/EPSC - URS E.O. 12958: N/A TAGS: EFIN EAID SOCI PREL BR UN SUBJECT: U/S LARSON LAYS DOWN A MARKER ON INTERNATIONAL TAXATION WITH THE GOB REF: A. BRASILIA 1756 ¶B. USUN 1593 This cable is Sensitive but Unclassified, Please Protect Accordingly. ¶1. (SBU) Summary: In meetings across Brasilia September 21, U/S Larson made clear to GoB interlocutors that while the USG shares Brazil's deep commitment to fighting hunger on a global scale, elements of President Lula's anti-hunger initiative that call for international taxation were non-starters from the U.S. point of view. Larson argued against mechanisms that might try to short circuit legislative oversight of funding decisions. Noting that he wants to ensure that the U.S. and Brazil work together to develop specific and practical areas of cooperation, Larson presented a nonpaper containing U.S. suggestions. Thirty heads-of-state have accepted Lula's invitation to a September 20 meeting in New York in advance of the UNGA to explore ways to increase development finance, according to the Brazilians. Foreign Minister Amorim reiterated that President Bush is invited as well. While the agenda for the September 20 meeting is to discuss innovative financing mechanisms, the GoB reps stressed that their overriding goal is simply to reenergize the international dialogue on the issue. End Summary. ¶2. (SBU) In a July 21 call on Foreign Minister Amorim, which was preceded by extensive discussion with Amorim's Chief of Staff Antonio Patriota and advisor Maria Nazareth Farani, U/S Larson stated that the USG and GoB shared a common interest in fighting hunger and promoting development on a global scale. He expressed confidence that, despite clear differences of views on some of the financing mechanisms under discussion, the USG and GoB could identify areas, such as agricultural development, anti-hunger efforts and the fight against HIV/AIDs, in which they could enhance cooperation. Amorim stressed that Lula's initiative is serious and comes "from the heart," given his personal experience of hunger and poverty as a child. He welcomed USG willingness to engage on the issue. ¶3. (SBU) According to GoB point-person Farani, Brazil is elaborating along with Chile, France and Spain a paper that they hope will serve as a basis for discussion at the September 20 heads-of-state meeting. Patriota and Farani said that Lula recognizes that fighting hunger on a sustainable basis implies a broad development agenda. The GoB initiative aims to increase both the level and predictability of development financing above and beyond current ODA levels by identifying new financing sources. These monies would finance the work of the UN development agencies, which work within the framework of the UN Millennium development goals. Farani noted a recent World Bank report on progress towards those goals called for an additional USD 50 billion of ODA per year in order to achieve them. The overriding GoB goal for the September 20 meeting, Patriota said, is to reenergize the international dialogue on development finance. ¶4. (SBU) Turning to the substance of the initiative, Farani said that the first part envisions the taxation of international financial flows and major arms sales. These taxes would not be administered by a supranational authority, she said, but rather by national authorities coordinating their work internationally (see Ref A for a more extensive discussion). The initiative's framers envision this regime as mandatory, since ensuring compliance would require universal adherence by countries. This modified Tobin-tax would be notionally set at 0.01% of international financial flows, a figure estimated to yield about USD 17 billion. ¶5. (SBU) Farani added that a second, voluntary, part of the initiative would involve the promotion of socially responsible investment funds and making widespread the use of "incentive" credit cards, that donate a percentage of the transaction to a cause, in this case the UN development agencies. A third piece of the initiative envisions building political consensus to reduce the cost to immigrant communities of transmitting remittances home, which fees, Farani said, can be as high as 20%. Farani noted that while in New York recently, Lula launched a new service that would substantially reduce the cost of remitting money to Brazil. A second focus of the political consensus-building effort would build on work being done in the OECD to reduce tax evasion by reducing the role of tax havens. ¶6. (SBU) One of the very important conclusions of the Monterrey Development Summit, Larson stated, was the need to look at all resources for development comprehensively. Developing country exports amount to around USD 2 trillion. Foreign direct investment flows and remittances contribute additional significant amounts. Together, these privately generated flows dwarf ODA. The USG shares the goal of increasing ODA, Larson said, and expects by 2006 to have increased its own ODA by 75%. The increase in U.S. ODA, Larson pointed out, was accomplished by convincing Congress of its importance. The USG has serious concerns with efforts, such as the IFF proposal, that appear to be attempts to circumvent the legislative process. A debate over international taxation, Larson stated, would likewise distract attention from what has been a very successful effort to increase ODA. The USG is nevertheless open to the sort of dialogue and exploration that the GoB had identified as one of the goals of its initiative. ¶7. (SBU) Turning to specifics of potential bilateral cooperation to fight hunger on a global scale, Larson said he hoped Brazil would consider joining the food aid convention. Brazil's agricultural expertise, language and cultural ties to Lusophone Africa might facilitate joint efforts to help those African countries' agricultural development, Larson said. He emphasized that the trade policy agenda in the WTO, where the USG and GoB share the goal a more open trade regime in Africa, must complement these efforts. ¶8. (SBU) Comment: While perhaps disappointed that they did not change the USG view on taxation of international flows, these GoB representatives welcomed the constructive tone of the meetings. We do not expect major changes in GoB rhetoric on the initiative, but their recognition that the taxation schemes are not workable without universal participation may, in time, change its substance. ¶9. (U) This message was cleared by E staff. DUDDY