BRAZIL AND THE OECD: CO-HABITATING FOR NOW, BUT

UNCLAS SECTION 01 OF 04 BRASILIA 000285

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR AND OPIC
PARIS FOR USOECD
NSC FOR MIKE DEMPSEY
DEPT OF TREASURY FOR FPARODI
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD
LABOR FOR MBRODSKY

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV BR OECD
SUBJECT: BRAZIL AND THE OECD: CO-HABITATING FOR NOW, BUT
MAYBE MARRIAGE IN THE FUTURE

REF: A) 04 PARIS 7565, B) 04 PARIS 7595, C) BRASILIA 172,

D) BRASILIA 43


1. (U) THIS CABLE WAS COORDINATED WITH AMCONSULATES RECIFE,
RIO DE JANEIRO, AND SAO PAULO.


2. (U) SUMMARY. WHILE PRESIDENT LULA AND FOREIGN MINISTER
AMORIM SUPPORT THE IDEA OF EVENTUAL BRAZILIAN ACCESSION TO
THE OECD, ENTRY INTO THAT ORGANIZATION IN THE SHORT-TERM IS
NOT CURRENTLY ONE OF THE GOB'S HIGHER PRIORITIES. INSTEAD,
THE GOB PREFERS TO GRADUALLY INCREASE ITS PARTICIPATION IN
VARIOUS OECD COMMITTEES AND WORKING GROUPS UNTIL BRAZILIAN
ACCESSION BECOMES A FOREGONE CONCLUSION. FOREIGN MINISTRY
DIPLOMATS BELIEVE THAT SUCH A POLICY (I.E. ENGAGEMENT
LEADING UP TO ENLARGEMENT) WILL ENABLE BRAZIL TO REAP THE
ECONOMIC/TECHNICAL BENEFITS OF WORKING WITH THE OECD,
WHILE, ON THE POLITICAL SIDE, MAINTAINING THE COUNTRY'S
DESIRED ROLE AS A BRIDGE BETWEEN THE DEVELOPED AND THE
DEVELOPING WORLD. WHILE THE LOCAL PRESS HAS SPECULATED
ABOUT THE GOB'S PROSPECTS FOR SOON JOINING THE SO-CALLED
"RICH COUNTRIES' CLUB," OFFICIALS IN BRAZIL'S OECD SUPPORT
SECRETARIAT, WHO MAY BE EVEN MORE FORWARD-LEANING ON THE

SIPDIS
MEMBERSHIP ISSUE THAN THOSE AT THE POLICY LEVEL, STRESS
THAT THE GOVERNMENT DOES NOT NOW HAVE SUFFICIENT
INFRASTRUCTURE IN PLACE INTERAGENCY TO FULFILL THE DEMANDS
THAT ACTIVE MEMBERSHIP WOULD IMPOSE. MEANWHILE, THE GOB
CONTEMPLATES PROCEEDING IN TANDEM WITH DEVELOPING COUNTRY
POWERS SUCH AS CHINA, INDIA, AND SOUTH AFRICA AS IT SEEKS
TO INTENSIFY ITS RELATIONSHIP WITH THE OECD. END SUMMARY.

BRAZILIAN THINKING REGARDING MEMBERSHIP


3. (SBU) IN A WIDE-RANGING JANUARY 12 MEETING, ANTONIO
SIMOES, ECONOMIC ADVISOR TO FOREIGN MINISTER CELSO AMORIM,
TOUCHED UPON THE GOB'S CURRENT APPROACH TO OECD ISSUES.
THE POSITION THAT PRESIDENT LULA AND FORMIN HAD ADOPTED, HE
SAID, WAS THAT MEMBERSHIP IN THE OECD WOULD NOT BE AVERSE
TO BRAZILIAN NATIONAL INTERESTS AND, INDEED, WOULD BE A
POSITIVE STEP FOR THE COUNTRY. ENTRY INTO THE OECD WOULD
DEMONSTRATE THAT THE OFT-QUOTED LINE ABOUT BRAZIL ETERNALLY
BEING THE COUNTRY OF THE FUTURE WAS OUT-OF-DATE, HE STATED.


4. (SBU) HOWEVER, SIMOES ADDED, BRAZIL DID NOT WANT TO TAKE
THE APPROACH THAT MEXICO DID IN ITS ACCESSION TALKS, WHICH
HAD LEFT SOME DEVELOPING COUNTRIES WITH HURT FEELINGS WHEN
THE GOM ABRUPTLY DUMPED THE G-77 TO WOO THE OECD. DRAWING
UPON THE ROMANTIC LIAISON ANALOGY EVEN FURTHER, HE OBSERVED
THAT THE BEST STRATEGY WAS FOR BRAZIL TO CONTINUE
INTENSIFYING ITS ENGAGEMENT WITH THE OECD TO SUCH A POINT
THAT IT WOULD SEEM NATURAL FOR THE TWO PARTIES TO TIE THE
KNOT. IDEALLY, SIMOES DECLARED, BRAZIL WOULD JOIN AT THE
SAME TIME AS OTHER DEVELOPING COUNTRY POWERS LIKE INDIA AND
SOUTH AFRICA. SUCH AN APPROACH WOULD FIT WITH LULA'S
VISION THAT BRAZIL'S ROLE ON THE INTERNATIONAL STAGE SHOULD
BE AS A BRIDGE-BUILDER BETWEEN NORTH AND SOUTH. THE WORST
SCENARIO, SIMOES OPINED, WOULD BE FOR BRAZIL TO LOUDLY
KNOCK AT THE OECD'S DOOR, ONLY TO BE LATER TOLD THAT ENTRY
WAS NOT POSSIBLE - AS WAS THE CASE WITH ARGENTINA.


5. (SBU) COMMENT. AS LULA HAS SPOKEN ON THE MATTER OF
PURSUING OECD MEMBERSHIP (OR AT LEAST, THE FOREIGN MINISTRY
HAS SPOKEN FOR HIM),GOB POLICY ON THIS ISSUE HAS BEEN SET.
GIVEN THEIR DRUTHERS, HOWEVER, IT APPEARS THAT THE
MINISTRIES OF FINANCE, AGRICULTURE, AND
DEVELOPMENT/INDUSTRY, AS WELL AS SOME PARTS OF THE FOREIGN
MINISTRY'S ECONOMIC DIRECTORATE, WOULD PREFER A MORE
AGGRESSIVE STANCE. THEIR ENTHUSIASM, THOUGH, IS COUNTER-
BALANCED BY OPPOSITION FROM THE MORE ORTHODOX LEFTIST WING
OF THE PRESIDENT'S PARTY (THE PT, I.E., THE WORKER'S
PARTY).


6. (SBU) AS FOR THE PRIVATE SECTOR'S VIEWS, A SENIOR
ECONOMIST AT THE NATIONAL CONFEDERATION OF INDUSTRIES
(CNI),TOLD EMBOFF THAT BRAZILIAN INDUSTRY BELIEVED OECD
MEMBERSHIP WOULD BE POSITIVE FOR BRAZIL. INDEED, CNI
ALREADY HAS PARTICIPATED IN SOME OECD EVENTS, HE SAID, MOST
RECENTLY AS PART OF THE BRAZILIAN DELEGATION TO THE NON-
MEMBER REVIEW OF BRAZIL IN LATE 2004. THAT SAID, THE
ECONOMIST ADMITTED THAT BRAZILIAN BUSINESS HAD LITTLE IDEA
WHAT BRAZIL WOULD BE REQUIRED TO DO TO BECOME AN OECD
MEMBER. THE LULA/AMORIM FORMULATION - AS ARTICULATED BY
SIMOES - APPEARS TO BE A PRAGMATIC SOLUTION DESIGNED TO
MAKE ALL CAMPS HAPPY: MEMBERSHIP IS NOT PRECLUDED, BUT
WHEN AND IF THAT HAPPENS IT WOULD TAKE PLACE IN CONJUNCTION
WITH FELLOW THIRD WORLD TRAVELERS. END COMMENT.

FOCUS ON FIRST INCREASING TECHNICAL CAPACITY


7. (SBU) WORKING-LEVEL DIPLOMATS WITHIN THE FOREIGN
MINISTRY (ITAMARATY) EMPHASIZE THAT EVEN IF THE ACCESSION
ISSUE WERE RIPE FOR DISCUSSION, BRAZIL STILL WOULD HAVE A
GREAT DEAL OF WORK TO DO BEFORE IT COULD TAKE FULL
ADVANTAGE OF THE BENEFITS OF MEMBERSHIP. SINCE 1993, WHEN
BRAZIL FIRST BEGAN PARTICIPATING IN OECD COMMITTEES, THE
FOREIGN MINISTRY HAD VIEWED OECD MATTERS AS FALLING
EXCLUSIVELY WITHIN THEIR PURVIEW. AWARE THAT THE SMALL
OFFICE WITHIN ITAMARATY THAT HANDLED THESE MATTERS WAS
UNABLE TO COORDINATE ON A GOVERNMENT-WIDE BASIS, IN APRIL
2003 THE GOB CREATED A HIGH-LEVEL INTERAGENCY COMMITTEE TO
LOOK AT THIS CLUSTER OF ISSUES. LED BY FOREIGN MINISTRY
U/S CLODOALDO HUGUENEY, WHO SOON WILL BE DEPARTING BRASILIA
TO BECOME GOB AMBASSADOR TO THE WTO, THE COMMITTEE THEN
CREATED WORKING GROUPS TO MONITOR EACH OF THOSE OECD
COMMITTEES IN WHICH BRAZIL PARTICIPATES. HOWEVER,
ITAMARATY OFFICIALS POINT OUT THAT OECD WORK IS NEW TO A
NUMBER OF MINISTRIES, AND, IN PARTICULAR, BRAZIL NEEDS TO
WORK HARDER TO UPGRADE ITS PARTICIPATION ON TECHNICAL AND
STATISTICAL ISSUES.


8. (SBU) IN ADDITION, STAFFERS FROM BOTH THE MINISTRY OF
FOREIGN AFFAIRS AND THE MINISTRY OF DEVELOPMENT AND
INDUSTRY NOTE AS COLLABORATING WITH THE OECD IS AN ENDEAVOR
THAT WILL LIKELY ONLY BRING SIGNIFICANT BENEFITS IN THE
LONG-TERM, THIS ISSUE SOMETIMES LOSES OUT TO HIGHER
PRIORITY ECONOMIC ISSUES. WITHIN THE MINISTRIES, ONE
DIPLOMAT TOLD US, THERE IS SIMPLY GREATER ATTENTION PAID TO
PRESSING SHORT AND MEDIUM RUN CONCERNS, SUCH AS MACRO-
ECONOMIC POLICY AND EXPORT AND TRADE PROMOTION.

WAITING IS JUST FINE


9. (SBU) IN THE WAKE OF HUGUENEY'S SEPTEMBER 15, 2004
MEETING WITH AMBASSADOR MORELLA, FOREIGN MINISTRY OFFICIALS
ARE INTIMATELY FAMILIAR WITH THE USG POSITION ON
ENLARGEMENT AND REALIZE THAT VERY LITTLE IS LIKELY TO
HAPPEN IN TERMS OF MEMBERSHIP DISCUSSIONS UNTIL THE OECD'S
ON-GOING EFFORTS AT STRUCTURAL REFORM ARE COMPLETE. (REFS
A AND B). INDEED, GIVEN THE GOB'S GO-SLOW POLICY AND ITS
DESIRE TO DEEPEN ITS INTERAGENCY SUPPORT INFRASTRUCTURE,
BRAZIL'S STANCE APPEARS TO MESH WITH THE USG VIEW THAT
ENLARGEMENT IS AN ISSUE THAT NEEDS TO BE DEALT WITH ONCE
THE ORGANIZATION STREAMLINES ITS GOVERNING PROCESS.
WAITING IS JUST FINE FOR THE GOB, AS LONG AS NO OTHER
DEVELOPING COUNTRY - I.E., CHINA, RUSSIA, INDIA, SOUTH
AFRICA OR ARGENTINA -- STEPS TO THE HEAD OF THE LINE.
(MINISTRY SOURCES HAD NO PROBLEM, HOWEVER, WITH CHILE OR
ISRAEL ENTERING AHEAD OF BRAZIL, AS THEY FELT THAT THESE
WERE "DONE DEALS.") IN THE MEANTIME, ITAMARATY STAFFERS
SAY THAT THEY WILL CONTINUE TO EXPAND THEIR PARTICIPATION
IN OECD COMMITTEES/WORKING GROUPS AND BEEF UP THEIR OECD
UNIT AT THE GOB EMBASSY IN PARIS.

OECD ENGAGEMENT WOULD BOLSTER USG BILATERAL ECONOMIC AGENDA


10. (SBU) OUR VIEW HERE IS THAT GETTING-TO-KNOW-YOU EVENTS
SUCH AS THE DECEMBER OECD GLOBAL DIALOGUE ON ENERGY WITH
BRAZIL, RUSSIA, AND CHINA ARE AN IDEAL RECIPE FOR MOVING
FORWARD IN THE FUTURE. THE MISSION'S BILATERAL ECONOMIC
AGENDA WITH BRAZIL INCLUDES TOPICS LIKE IMPLEMENTING AN
EVEN-HANDED REGULATORY POLICY, ANTI-CORRUPTION, PROMOTION
OF SMALL AND MEDIUM-SIZED ENTERPRISES (SME),FAIR TREATMENT
FOR INVESTORS, AND RESPECT FOR INTELLECTUAL PROPERTY RIGHTS
- ALL ISSUES OF IMPORTANCE TO BRAZIL AND ON WHICH THE OECD
HAS A STRONG VOICE. INDEED, BRAZIL ITSELF HAS MOVED TO
PROMOTE EXPANDED EXCHANGES ON THESE QUESTIONS. IN
SEPTEMBER 2004, IT HOSTED AN OECD CONFERENCE ON
IMPLEMENTATION OF THAT ORGANIZATION'S ANTI-BRIBERY
CONVENTION, AND THE GOB IS PLANNING TO HOST AN OECD
INVESTMENT CONFERENCE THIS YEAR AND AN EVENT ON FINANCING
FOR SME'S IN 2006. BRAZIL ALSO APPEARS TO BE EMBRACING
PARTICIPATION IN RENEGOTIATING THE OECD SECTORAL
UNDERSTANDING ON AIRCRAFT FINANCING, AN OBVIOUS TIE-IN
GIVEN THE COUNTRY'S STATUS AS THE WORLD'S FOURTH LARGEST
AIRCRAFT PRODUCER.


11. (SBU) FROM A BILATERAL PERSPECTIVE, SHORT-TERM
BRAZILIAN ENGAGEMENT WITH, FOLLOWED BY EVENTUAL ENTRY INTO,
THE OECD WOULD BE IN THE USG'S INTEREST. WHILE THE USG AND
BRAZIL HAVE A HEALTHY DIALOGUE ON ECONOMIC ISSUES, CONSTANT
USG "NAGGING" MAY HAVE MADE THE GOB TONE DEAF TO SOME OF
OUR COMPLAINTS. HAVING THE OECD - VIEWED HERE AS A WELL-
RESPECTED FORUM FOR SHARING TECHNICAL AND POLICY EXPERTISE
- MAKE SUBSTANTIALLY THE SAME POINTS MIGHT HELP THE MESSAGE
SINK IN. AND THE FACT THAT THE GOB VIEWS ACCESS TO SOUND
POLICY TECHNICAL ADVICE AS ONE OF THE CHIEF BENEFITS OF A
CLOSER RELATIONSHIP WITH THE OECD, MEANS THAT POLICYMAKERS
HERE SHOULD GENERALLY PROVE RECEPTIVE TO COUNSEL COMING
FROM THAT ORGANIZATION.

CONTINUED ECONOMIC EXPANSION KEY TO ENHANCED ENGAGEMENT


12. (SBU) ULTIMATELY, THE SUCCESS THE GOB ENCOUNTERS IN ITS
EFFORTS TO INTENSIFY ITS COOPERATION WITH THE OECD WILL
LIKELY DEPEND UPON THE COURSE OF THE COUNTRY'S ECONOMY.
CURRENTLY, BRAZIL IS ENJOYING ITS BEST MACRO-ECONOMIC
MOMENT IN YEARS, WITH GDP GROWTH AT 5 PERCENT, INFLATION AT
7 PERCENT, A US$11.7 BILLION CURRENT ACCOUNT SURPLUS, AND A
RECORD US$33.6 BILLION TRADE SURPLUS (REF C). TO ENSURE
CONTINUED GROWTH IN THE LONG-TERM, THE LULA ADMINISTRATION
IS SEEKING CONGRESSIONAL PASSAGE OF A SERIES OF MICRO-
REFORMS DESIGNED TO CUT GOVERNMENT SPENDING, REMOVE
BARRIERS TO EXPORT, MODERNIZE TRANSPORTATION
INFRASTRUCTURE, AND STREAMLINE GOVERNMENT BUREAUCRACY (REF
D).


13. (SBU) IF ALL GOES WELL - WITH BOTH THE MACRO-ECONOMY
AND THE IMPLEMENTATION OF THE MICRO-REFORMS - BRAZIL WILL
MOVE CLOSER TO OECD NORMS IN TERMS OF TRANSPARENCY, EVEN-
HANDEDNESS, AND BALANCED PUBLIC ACCOUNTS. HOWEVER, SHOULD
THE GOB'S MICRO-REFORM AGENDA STUMBLE, IT MAY PROVE
DIFFICULT FOR THE GOB TO BRING ABOUT LONG-TERM, SUSTAINABLE
GROWTH. AND SHOULD THE MACRO-ECONOMY FALTER, MANY WITH THE
WORKER'S PARTY (I.E., THE PRESIDENT'S PARTY) MAY CALL FOR
POPULIST SOLUTIONS WHICH LULA, EVER THE PRAGMATIST, MAY BE
HARD PRESSED TO REJECT. SUCH A COURSE WOULD MOVE BRAZIL
FURTHER AWAY FROM OECD NORMS AND PRACTICES.
WHAT KIND OF COURTSHIP CAN WE EXPECT?


14. (SBU) ASSUMING ALL GOES WELL WITH THE BRAZILIAN
ECONOMY, WHAT MIGHT THE USG EXPECT AS BRAZIL AND THE OECD
DRAW CLOSER TOGETHER? IN LINE WITH ITS DESIRE TO SERVE AS
A USEFUL BRIDGE BETWEEN NORTH AND SOUTH, THE GOB MIGHT
INJECT A DEVELOPING COUNTRY PERSPECTIVE INTO OECD
DISCUSSIONS ON DEVELOPING COUNTRY CONCERNS SUCH AS HUNGER,
POVERTY, AND TECHNOLOGY TRANSFER WHILE EXPOUNDING OECD
VIRTUES SUCH AS TRANSPARENCY AND FISCAL DISCIPLINE TO THE
G-77. (LULA'S ATTENDANCE IN LATE JANUARY AT BOTH THE WORLD
ECONOMIC FORUM IN DAVOS AND THE ALTERNATIVE WORLD SOCIAL
FORUM IN PORTO ALEGRE IS A GOOD EXAMPLE OF THE GOB'S DUAL
VISION.) INDEED IN MANY WAYS, BRAZIL IS WELL-SUITED TO
PLAY THIS ROLE IN VIEW OF THE COUNTRY'S STRONG DIPLOMATIC
TRADITION AND ITS MIX OF FIRST WORLD INDUSTRY WITH THIRD
WORLD POVERTY. FROM THE OECD'S PERSPECTIVE, THE ADDITION
OF BRAZIL TO ITS LIST OF CLOSE PARTNERS - OR,
ALTERNATIVELY, AS A FULL-FLEDGED MEMBER - WOULD DO MUCH TO
ENHANCE THE ORGANIZATION'S GLOBAL INFLUENCE.


15. (SBU) HOWEVER, THE QUESTION OF WHETHER ULTIMATELY THE
TWO PARTNERS ARE REALLY COMPATIBLE STILL REMAINS. WHEN
BOTH SIDES START CONVERSING REGARDING THE SPECIFICS OF
ACCESSION, AT SOME POINT BRAZIL WILL BE ASKED TO COMMIT
FULLY TO THE BASIC PILLARS OF THE OECD'S "ACQUIS," (AT A
MINIMUM, THE CONVENTION ON THE OECD, THE RULES/REGULATIONS
OF THE ORGANIZATION, THE INTERNAL DECISION OF THE COUNCIL,
THE JUDGMENTS OF THE OECD ADMINISTRATIVE TRIBUNAL, AND ALL
SUBSTANTIVE OECD INSTRUMENTS). WHILE BRAZIL HAS ALREADY
EMBRACED SOME KEY OECD DOCUMENTS (FOR INSTANCE, THE GOB
RATIFIED THE ANTI-BRIBERY CONVENTION IN 2000) IT BY NO
MEANS HAS SIGNED ON TO THE FULL SET OF COMMITMENTS. - NOR
HAS IT DEMONSTRATED THAT IS HAS SERIOUSLY CONSIDERED A
STRATEGY FOR OBTAINING A DOMESTIC CONSENSUS FOR ACCEPTANCE
OF SUCH OBLIGATIONS. AND THE ACQUIS, OF COURSE, WOULD BE
THE MINIMUM REQUIRED FOR ENTRY - INDIVIDUAL OECD COMMITTEES
COULD CONCEIVABLY SEEK ADDITIONAL ACCESSION REQUIREMENTS.
ONE REQUIREMENT THAT THE GOB MIGHT FIND A PARTICULARLY HARD
PILL TO SWALLOW - WERE THE OECD TO REQUEST THIS - WOULD BE
SURRENDER OF THE COUNTRY'S DEVELOPING COUNTRY STATUS IN THE
WTO: A DESIGNATION WHICH BENEFITS BRAZIL IN TRADE
NEGOTIATIONS.

DANILOVICH