PARAGUAY: REACTIONS TO BRAZILIAN CRACKDOWN ON THE

C O N F I D E N T I A L SECTION 01 OF 02 ASUNCION 000708

SIPDIS

STATE PASS TO USAID LAC/AA
STATE PASS TO USTR FOR SCRONIN AND LYANG
STATE FOR WHA/BSC
TREASURY FOR OSIA MAUREEN WAFER
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR
COMMERCE FOR ITA SARAH COOK
NSC FOR KIMBERLY BREIER
SOUTHCOM FOR POLAD DAN JOHNSON

E.O. 12958: DECL: 02/17/2015
TAGS: PGOV PREL PINR PA
SUBJECT: PARAGUAY: REACTIONS TO BRAZILIAN CRACKDOWN ON THE
FRIENDSHIP BRIDGE

REF: A. 2004 ASUNCION 01473

B. ASUNCION 00484

Classified By: Ambassador John F. Keane for reasons: 1.4(b) and (d).


1. SUMMARY: Recently, PolOff and Department of Treasury,s
Resident Enforcement Advisor (REA) traveled to Ciudad del
Este (CDE) to observe trade and traffic across the Friendship
Bridge, linking Paraguay and Brazil, in the wake of stepped
up enforcement measures by Brazilian authorities to counter
the smuggling of contraband and pirated goods and to meet
with GOP and GOB officials. Several Paraguayans complained
that the Brazilians were unfairly punishing Paraguay and did
not view the Brazilian tactics as effective. Also, Brazilian
officials noted their enforcement efforts will build over the
next several months, but may be complemented by GOB projects
to provide economic assistance. END SUMMARY.

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The View from Ciudad del Este
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2. (C) Prosecutor Agusto Salas from the financial crimes
unit in CDE cited Brazil as the source of the region's
problems with the smuggling of contraband and pirated goods.
He blamed Brazil,s recent enforcement efforts on the bridge
for the closing of businesses, a loss of jobs, and an
increase in crime within the city. American Chamber of
Commerce (AmCham) Representative Jeff Hessler told PolOff and
REA in meetings that stepped-up Brazilian controls on trade
across the Friendship Bridge have impacted businesses in
Ciudad del Este, but to a lesser degree than what is
highlighted in local press. He noted that in particular
Taiwanese businesses seem to have been more affected,
however, other Embassy contacts state that businesses owned
by Arabs, Brazilians, and Paraguayans have been equally
affected by the economic conditions in the city. Hessler
also described the mayor of Ciudad del Este as a close
personal friend of President Duarte and one who is more
concerned about cleaning up the city and making it "pretty"
for tourists than actually combating contraband and piracy.
(Comment: Increasing tourism and other legitimate business
is vital to sustaining support for crack-downs on illegal
activity. These efforts are complementary, rather than
competing efforts. End Comment.)


4. (C) Ciudad del Este Mayor Ernesto Zacarias Irun,
accompanied by his Secretary of Tourism Mauro Cespedes, told
PolOff and REA that he is hoping to create a city that is
pleasant looking and welcoming to tourists. He defined
tourists as those who come to CDE to shop for electronics,
perfumes, compact discs, etc. Zacarias also maintained that
CDE's reputation for contraband does not track with reality,
alleging that only four percent of goods sold in CDE are
contraband. Both PolOff and REA rebuffed this statistic and
questioned the source. Zacarias also boasted that early in
his mandate he kicked out all of the illegal cigarette
operations in the city and stated that the illegal cigarettes
traded in the area were brought from other parts of the
country, such as Asuncion and Caagauzu, to be sold in CDE.
(Note: Mayor Zacarias is a former congressman and a member
of the Colorado Party. In his mid-30s, he is energetic and
well-spoken. End Note.)


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The Friendship Bridge from the Brazilian Perspective
-------------- --------------



5. (U) Poloff accompanied by REA met with the Brazilian
Consul General to Ciudad del Este Antonio Fernando Cruz de
Mello, Juan Carlos Araujo of the Brazilian Federal Police,
and Roberto Miranda of the Brazilian intelligence community
to learn about Brazil,s enforcement efforts in the
tri-border area, specifically targeting smuggling of
contraband and pirated goods flowing across the Friendship
Bridge. The Brazilians told us their increase in customs'
inspections of goods transferred over the bridge from
Paraguay into Brazil is a continuation of Operation
Cataratas. The GOB also maintained their efforts will be
sustained and may increase gradually over the course of the
next several months to avoid extensive GOP outcry. The
Brazilian Government initiated Operation Cataratas in
November 2004 as an effort to crackdown on smuggling flowing
from CDE into Foz do Iguacu, Brazil. Initially, the
operation caused large-scale demonstrations and closure of
the Friendship Bridge for four days (ref A). Since then, the
issue has dominated the local press and has been a source of
strain between Asuncion and Brasilia. On April 16, the two
countries signed an agreement raising the quota for duty-free
personal purchases from US$150 to US$300 to quell the border
dispute (ref B).


6. (C) The Brazilian officials related that corruption was
their biggest challenge in dealings with the GOP. Miranda
told PolOff and REA that a Paraguayan navy officer had
offered a bribe to Brazilian officials to let up on the
controls on the Friendship Bridge. The Consul General
confided that he did not trust anyone within the GOP,
including police, prosecutors, and Margarita Diaz de Vivar,
the Director of Paraguayan Customs. (Note: EmbOffs have found
Diaz de Vivar honest and responsive to our concerns. End
Note).


7. (C) Cruz de Mello mentioned that Brazil is considering
complementing its enforcement actions with an economic
development plan, to include assisting the Paraguayans in
building a soy production plant for example. (Note: This
announcement parallels what Brazilian Embassy officers have
told PolOff in previous meetings in Asuncion. End Note).


8. (C) Comment: It is becoming clear that Brazil has no
plans to decrease enforcement efforts in the region, as
stated by these Brazilian officials and echoed by their
counterparts in Asuncion. Rather, Brazil is looking to
reshape its policy towards Paraguay by adding an economic
development component. Historically, concerned about the
economic and political repercussions, Paraguay has been
reluctant to combat contraband and piracy in the tri-border
area. Instead, many Paraguayan officials tend to downplay
the extent of the smuggling problem and cast blame at
others--namely Brazil--for implementing unfair policies.
However, there are signs of a GOP shift in attitudes and
approach. The GOP is slowly implementing systems to augment
Brazil,s stepped up enforcement. Local press reported on
May 2 that the GOP implemented an integrated customs control
system, making international transactions between Brazil and
Paraguay more transparent. It is also noteworthy that over
the course of the Duarte administration the government has
stepped-up efforts, however uneven and intermittent, to
crackdown on businesses producing contraband and pirated
goods. These efforts run up against strong economic and
political interests. Paraguay's ability to recast CDE's
image as a haven for smuggling will ultimately hinge on its
determination to end the legacy of impunity enjoyed by those
interests.


9. (C) Comment continued: The GOP has its own complaints
about Brazil's willingness to cooperate on IPR protection.
In July 2004, President Duarte sent a letter to President
Lula suggesting that the two countries discuss increased
information sharing with respect to IPR enforcement. The
letter was never answered. In March 2005, at bilateral
meetings in CDE, IPR was placed on the agenda at the
insistence of the GOP, and Brazil responded by only sending
one Brazilian embassy officer to attend that session. In
early May, Brazil presented the GOP with a draft memorandum
of understanding on IPR enforcement cooperation, which the
two countries are expected to sign in June. It will take
time to build trust between the two sides, but the agreement
should be a step in the right direction.
KEANE