SECRETARY SNOW'S AUGUST 1-3 MEETINGS IN BRAZIL -

C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 002146

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STATE PASS USTR FOR LEZNY/YANG
NSC FOR CRONIN
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON
TREASURY FOR DAS LEE AND F.PARODI

E.O. 12958: DECL: 08/11/2015
TAGS: EFIN ETRD ECON PREL BR
SUBJECT: SECRETARY SNOW'S AUGUST 1-3 MEETINGS IN BRAZIL -
TRADE THEMES

Classified By: Charge d'Affaires Patrick Linehan, reasons 1.5
(b) and (
d)


1. (C) Summary: During his bilateral meetings in Brasilia
and the Group for Growth (GfG) session in Rio de Janeiro,
U.S. Treasury Secretary Snow emphasized the importance of
trade liberalization to increasing productivity and economic
growth. Brazilian and U.S. businesses which participated in
a breakfast session of the GfG with the Secretary and Finance
Minister Palocci likewise called for greater trade
integration and a reenergizing of the Free Trade Area of the
Americas (FTAA) negotiations. In their private meeting and
then later with President Lula, Palocci emphasized the
importance he places on increased trade as an engine for
growth. Indeed, in the meeting with Lula, Palocci offered to
head an effort to give new momentum to trade talks,
particularly in the financial services area, in an apparent
move to prod the Foreign Ministry into a more pro-active
negotiating stance. Lula, however, demurred. End Summary.


2. (U) Background: Treasury Secretary Snow visited Brazil
July 31 to August 3, 2005, to participate in the fourth
session of the bilateral Group for Growth, an outgrowth of
the 2003 Summit between Presidents Bush and Lula. Secretary
Snow held bilateral meetings August 1 in Brasilia with
Central Bank President Henrique Meirelles, Finance Minister
Palocci and President Lula, in addition to meeting with
Brazilian venture capitalists. In Rio de Janeiro on August
2, the Secretary participated in Group for Growth meetings
(including a business breakfast),gave a speech sponsored by
the Brazilian Council on Foreign Relations (CEBRI),and held
a round-table discussion with representatives of the
financial services sector. On August 3, in Vitoria, the
capital of the Brazilian state of Espirito Santo, the
Secretary emphasized the themes of private sector

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infrastructure investment and the importance of good
governance in visits to the port of Tubarao and in a working
lunch with Governor Hartung and local business. The
Secretary concluded his stay in Vitoria with a visit to a

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favela (poor neighborhood) that benefited from an
Inter-American Development Bank (IDB)-financed basic services
project, aimed at providing running water, sewage hook-ups
and paved streets. This cable reports on the trade-related
portions of the discussions; macro-economic and financial
will be reported septel.

Business Wants Trade Liberalization
--------------


3. (SBU) Business representatives urged a renewed focus on
trade negotiations during the GfG August 2 breakfast,
attended by the Secretary and Palocci. Benny Parnes (a
former Central Bank director) of Banco BGM urged greater
commercial integration between the U.S. and Brazil,
specifically noting the advantages that Mexico obtained from
NAFTA. Roger Agnelli of mining giant CVRD observed that
Brazil and the U.S. have complementary economies that would
stand to gain substantially from integration. Nelio Weiss of
Price Waterhouse Coopers added that many of his Brazilian
clients had just begun to invest in Central America in order
to obtain greater access to the U.S. market under the
recently-approved CAFTA.

Secretary Snow/Minister Palocci

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


4. (C) During their bilateral meeting August 1, the Secretary
noted the importance of trade liberalization for fostering
growth. He declared that the recent U.S. congressional
approval of CAFTA showed that the USG still could muster the
political strength necessary to maintain a pro-free trade
policy. The USG wants, the Secretary said, to take that
momentum both to the FTAA negotiations and the WTO Doha
Round. With respect to the latter, he expressed
disappointment that there had been limited response to the
call for trade liberalization in the financial services arena.


5. (C) Palocci averred that conditions were ripe for a
renewed liberalization push both in the WTO and FTAA
contexts. President Lula, Palocci said, has an open vision
on trade and the Secretary,s visit could help renew
momentum. Brazilian Ambassador to the U.S., Roberto Abdenur
(who participated in most of the Secretary's meetings)
restated the (well-worn) GoB position that it is ready to
jump to four plus one (Mercosul-U.S.) market access
negotiations given the current lack of progress on the FTAA.

Snow/Lula
--------------


6. (C) During the Secretary's meeting with President Lula,
Palocci reported on the substance of their earlier meetings.
Palocci argued again that conditions were ripe to restart the
trade agenda and offered to spearhead a GoB interagency
effort to rebuild momentum in trade negotiations,
particularly in financial services. Lula did not respond
specifically to Palocci's offer.


7. (C) Comment: Palocci's request for a presidential mandate
to advance the trade agenda, which continues to be the
exclusive domain of the foreign ministry, was likely
motivated by a desire to find ways to spur productivity
growth in the economy. With the microeconomic reform agenda
completely stalled in the scandal-obsessed congress, pushing
for trade liberalization is one of Palocci's few remaining
reform options. That Lula did not oblige likely speaks in
equal measure to Itamaraty's entrenched position and to
Lula's distraction with the corruption scandal.


8. (U) This cable was cleared by Treasury.

LINEHA