BRAZIL - CVRD ON CHAVEZ AND CHINA

UNCLAS SECTION 01 OF 02 BRASILIA 001056

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR
DEPARTMENT FOR EB/ESC SUE SAARNIO
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
DOE FOR SLADISLAW

E.O. 12958: N/A
TAGS: EMIN EPET PREL BR CH VE
SUBJECT: BRAZIL - CVRD ON CHAVEZ AND CHINA


1. (SBU) Charge, CG and Econoff spoke to Brazilian mining giant
Companhia Vale Rio Doce (CVRD) Director of Foreign Affairs, Renato
Amorim, on May 26 about the company's stake in the current turmoil
in the Latin American business climate and the increasing influence,
often to Brazil's detriment, of Venezuelan petrodollars in the
region. Amorim stated that Chavez's tactics ultimately would
backfire, as had his criticism of Alan Garcia in the Peruvian
elections. He criticized Chavez's attempt to strong-arm Brazilian
companies active in Venezuela, including CVRD, into participating in
a "trade mission" to Bolivia. With respect to China, Amorim argued
that although CVRD is growing rich off of the huge China market,
Beijing had over-promised and not lived up to the extravagant
investment commitments made during the 2004 Hu Jintao visit. End
Summary.

ON CHAVEZ's NEW CAUDILLISMO
--------------


2. (SBU) Charge opened the meeting noting US concerns with
Venezuela's unhelpful attempts to introduce issues into Latin
America that are unconnected with the region, such as relations
towards Iran and Iraq. Amorim declared that Caracas' tactics would
backfire, mostly due to Chavez's new "Caudillismo," pointing out
that the Venezuelan leader's recent call to CVRD's president
requesting that he accompany him on a trade mission to Bolivia was
an example of how Chavez gets it wrong or simply does not get it.


3. (SBU) Amorim observed that the irony of the Venezuelan president
asking a Brazilian company to participate in a trade mission to
Bolivia, a country that had just kicked out one Brazilian company
(EBX) and threatened another with nationalization, was not lost on
CVRD. While CVRD got the message that if companies wanted to stay
in the game in Venezuela, they would have to play ball with Chavez
in Bolivia, CVRD's response speaks for itself, he said. "We are a
60 billion dollar company with interests all over the world (18
countries on all continents except Antarctica); we have no interest
in Bolivia, an unstable investment climate," Amorim stated. He
pointedly added that had CVRD gone on the trade mission with Chavez,
the company would have drawn significant criticism in Brazil. While
CVRD is following the Bolivia situation for clues to how other
countries' leaders might deal with foreign investors, Bolivia is a
non-issue for CVRD.


4. (SBU) With respect to Peru-Venezuela relations, Amorim said that
Chavez's openly harsh criticism of Peruvian presidential candidate
Alan Garcia would do nothing but ensure his victory in the June
run-off elections. Chavez, he felt, has only heightened Peruvians'
resolve to go against Chavez's influence (and therefore elect
Garcia).

CHINA'S CLUMSINESS
--------------


4. (SBU) Amorim sees no real Chinese threat to U.S. interests in
Latin America and does not see Brazil as a future Chinese outpost,
as it only supplies primary exports to China. (Note: CVRD is one of
Brazil's principal exporters to China and company President Roger
Agnelli is head of the Brazil-China Business Council.) The Charge
reminded Amorim that while playing the role of commodity supplier to
China can be lucrative in the short-run, it is problematical in the
long-term. Latin America and Asia were once at the same level of
development, but Latin American countries had fallen back when they
became relegated to role of primary materials suppliers, providing
very little value added to their products.


5. (SBU) Amorim, a former Brazilian diplomat (10 years in the
service) who spent the bulk of his career in China, opined that the
Chinese are too clumsy in Latin America (and in Brazil). They are

BRASILIA 00001056 002 OF 002


not living up to the promise of what he called the bluster and
heightened expectations created from Chinese President Hu Jintao's
2004 visit. Amorim noted that the promised investments levels in
Latin America have not been realized and probably wouldn't be. He
could count only two new Chinese investment projects in Brazil since
the Jintao visit, and pointed to China's practice of tied-aid and
lack of transparency as not endearing it to Latin America.


6. (SBU) Finally, Amorim felt that China needed to recognize that
Latin America was much more sophisticated than Africa and could not
be treated in the high-handed manner that Beijing dealt with that
continent. Indeed, he said, the Chinese are now suffering a
backlash to its attempts at "colonizing" Africa, pointing to recent
car bombs in Nigeria as a warning against the expansion of Chinese
interests in Nigerian oil and the increasing resistance to Chinese
interests in Mozambique and Tunisia.

COMMENT
--------------


7. (SBU) While Amorim was sanguine about the ability of the U.S. and
China to avoid conflict over Latin America, real questions are
starting to emerge whether, at least on trade issues, Brazil and
China will be able to do the same. GOB export figures show that
after several years of healthy trade surpluses with China, over the
first four months of 2006 Brazil registered a US$90 million trade
deficit with Beijing. Indeed, Chinese imports registered a 56%
increase compared to the corresponding time period in 2005. With
its ability to produce low-cost items such as electronic goods,
textiles, and footwear, China has now displaced Argentina as the
second largest exporter to Brazil -- behind only the United States.



8. (U) This cable was coordinated with AmEmbassy Brasilia.

ATKINS