Identifier
Created
Classification
Origin
06SAOPAULO675
2006-06-16 16:30:00
UNCLASSIFIED
Consulate Sao Paulo
Cable title:  

COMMERCE SECRETARY PROMOTES U.S. EXPORTS, PUSHES

Tags:  OVIP ETRD BEXP KIPR EINV PGOV EAGR ENRG BR 
pdf how-to read a cable
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RUEHAC/AMEMBASSY ASUNCION 2621
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RUEHRI/AMCONSUL RIO DE JANEIRO 7180
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RHMFISS/CDR USSOUTHCOM MIAMI FL
UNCLAS SECTION 01 OF 08 SAO PAULO 000675 

SIPDIS

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DEPT FOR WHA/FO, WHA/BSC, WHA/EPSC, WHA/PDA, EB/CBA
STATE PASS USTR M.SULLIVAN/K.LEZNY
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
STATE ALSO PASS TDA FOR ANGULO AND MCKINNEY
DOC FOR 4332/ITA/MAC/WH/OLAC
USDOC FOR 3134/ITA/USCS/OIO/WH/RD
USDOC ALSO FOR PTO AND NIST
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS
DOL FOR ILAB MMITTELHAUSER
NSC FOR FEARS
SOUTHCOM ALSO FOR POLAD
AID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: OVIP ETRD BEXP KIPR EINV PGOV EAGR ENRG BR
SUBJECT: COMMERCE SECRETARY PROMOTES U.S. EXPORTS, PUSHES
ANTI-PIRACY FIGHT IN SAO PAULO

-------
SUMMARY
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UNCLAS SECTION 01 OF 08 SAO PAULO 000675

SIPDIS

SIPDIS

DEPT FOR WHA/FO, WHA/BSC, WHA/EPSC, WHA/PDA, EB/CBA
STATE PASS USTR M.SULLIVAN/K.LEZNY
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
STATE ALSO PASS TDA FOR ANGULO AND MCKINNEY
DOC FOR 4332/ITA/MAC/WH/OLAC
USDOC FOR 3134/ITA/USCS/OIO/WH/RD
USDOC ALSO FOR PTO AND NIST
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS
DOL FOR ILAB MMITTELHAUSER
NSC FOR FEARS
SOUTHCOM ALSO FOR POLAD
AID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: OVIP ETRD BEXP KIPR EINV PGOV EAGR ENRG BR
SUBJECT: COMMERCE SECRETARY PROMOTES U.S. EXPORTS, PUSHES
ANTI-PIRACY FIGHT IN SAO PAULO

--------------
SUMMARY
--------------


1. During his June 7-8 visit to Sao Paulo, Secretary of Commerce
Carlos M. Gutierrez discussed intellectual property rights with the
Governors of four states and attended a meeting of the Sao Paulo
State Interagency Committee to Combat Piracy; met with leaders of
major business and industrial groups and delivered a speech at the
American Chamber of Commerce (AmCham) (reported septel); and toured
a business apprenticeship center and spoke with a number of students
there. In all his meetings and appearances, Secretary Gutierrez
took the opportunity to call for closer commercial ties between the
United States and Brazil, for a more investment-friendly business
climate in Brazil, and for increased efforts to combat piracy. He
spoke of the common challenge from China, noting that China is not
only a major market but an economy in competition with the U.S. and
Brazil. The visit advanced our economic/commercial agenda,
receiving positive media coverage, and offered an opportunity to
spread our message on the benefits of free trade and the importance
of fostering a business environment that punishes piracy. END
SUMMARY.


2. Following on his successful visits to Rio de Janeiro and
Brasilia, Secretary of Commerce Carlos Gutierrez visited Sao Paulo
June 7-8. Members of the Secretary's delegation included:

Robert Mosbacher, Jr., CEO, Overseas Private Investment Corporation
(OPIC);
Steven Pinkos, Deputy U/S for Intellectual Property;

David Bohigian, A/S, Market Access and Compliance;
Patrick Duddy, DAS, Western Hemisphere, State Department;
Claire Buchan, Chief of Staff;
John Andersen, Director, Latin America and Caribbean;
Dulce Zahniser, OPIC;
Albert Angulo, Trade and Development Agency (TDA);
Anne McKinney, TDA;
Dan Nelson, Office of Public Affairs;
Dorian Mazurkevich, Patent and Trademark Office (PTO);
Phillip T. Chicola, Charge d'Affaires, a.i.;
Christopher J. McMullen, Consul General; and
John Harris, Senior Commercial Officer

--------------
BREAKFAST WITH THE GOVERNORS
--------------


3. The Secretary attended a breakfast hosted by Sao Paulo Governor
Claudio Lembo and attended by three other state Governors: Germano
Rigotto of Rio Grande do Sul, Eduardo Pinho Moreira of Santa
Catarina, and Jose Orcirio Miranda dos Santos ("Zeca do PT") of Mato
Grosso do Sul. Two other Governors, Roberto Requiao of Parana and
Aecio Neves of Minas Gerais, were invited but were unable to attend;
however, Governor Neves was represented by his State Secretary for
Economic Development, Wilson Nelio Brumer. Several of the Governors
were accompanied by their chief foreign affairs advisors or state
Commerce Secretaries. The discussion was very lively and
constructive and focused on four major areas: intellectual property
rights (IPR),investment and partnerships, facilitating commerce
(including the key role of OPIC),and bilateral cooperation on
biofuels.

SAO PAULO 00000675 002 OF 008




4. Leading off the breakfast, Secretary Gutierrez briefed governors
on his meeting with Minister for Development, Industry, and Foreign
Trade Luiz Fernando Furlan and the launching of the U.S.-Brazil
Commercial Dialogue announced by Presidents Bush and Lula during the
President's visit to Brazil last November. The Secretary noted that
the Commercial Dialogue would focus on facilitating trade by
expediting customs, exchanging information that would benefit both
sides, promoting IPR, and working together on common standards. He
said the U.S. wants to strengthen bilateral commercial relations
with Brazil, work together to combat intellectual property piracy,
promote two-way investment, and increase overall trade (currently at
around USD 45 billion, which he said should be higher). The
Secretary observed that Brazil profits more from trade with the

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U.S., which largely involves value-added products, than from trade
with China, which involves mostly commodities.


5. Brazilian Ambassador to the United States Roberto Abdenur told
the Governors that Secretary Gutierrez's visit had been very
productive, with excellent meetings with Minister Furlan and other
senior GoB officials. He said the GoB will follow up with a visit
to Washington this fall to try to move forward on issues identified
in these meetings. Minister Furlan is especially interested in
making greater progress on biofuels, including increased cooperation
on scientific research.

--------------
INTELLECTUAL PROPERTY RIGHTS
--------------


6. Secretary Gutierrez congratulated the Governors on the progress
to date in combating piracy, but urged them to do more. He observed
that better IPR enforcement would protect Brazilian companies that
are producing innovative products and would help attract greater
U.S. investment. Rio Grande do Sul Governor Germano Rigotto
stressed that all five states represented are taking strong measures
to attack the IPR piracy problem because they are aware of the
economic equities they have in their states. For example, Dell has
a major facility in Rigotto's state. He noted the need to do a
better job of information-sharing regarding cross-border piracy --
where the merchandise is coming from, who is bringing it in, where
is it going. Sao Paulo Governor Lembo affirmed that the state
governments have the political will to combat the problem and
welcomed continuing U.S. support. Yet there remains a public
perception, noted Minas Gerais State Secretary Brumer, that there is
nothing wrong with piracy; this complicates and impedes law
enforcement efforts. Governor Pinho of Santa Catarina echoed
Rigotto's point about the need to combat piracy as key to achieving
the goal of attracting more U.S. investment. Governor Zeca of Mato
Grosso do Sul, which has a long border with Paraguay and Bolivia,
called for a stronger partnership with the U.S. in the area of
combating cross-border contraband.

--------------
BIOFUELS
--------------


7. The Governors expressed great interest in the issue of
developing biofuels. Several of the states, including Rio Grande do
Sul, are already intensifying their efforts in this area and are
seeking partnerships. Speaking for the GoB, Ambassador Abdenur

SAO PAULO 00000675 003 OF 008


recognized the need for closer cooperation with the U.S. and for
more U.S. investment in Brazil. He suggested the two countries form
a working group to focus on building a global partnership on
ethanol. Both Abdenur and Governor Lembo called on the U.S. to
eliminate the 54-cent per gallon surcharge on imported ethanol.
Secretary Gutierrez noted that President Bush has committed the U.S.

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to developing alternative energy sources, including ethanol. This
initiative opens up possibilities to work with Brazil. There are
U.S. investors who would be interested in working with Brazilian
companies in developing this area. Bilateral cooperation in this
area would benefit both sides. The Secretary said the U.S. could
learn something in this area since Brazil is far ahead of the U.S.
in alternative energy. He promised to take the biofuels question
back to Washington with him.

--------------
INFRASTRUCTURE INVESTMENT
--------------


8. The Governors then raised the question of Brazil's critical need
for infrastructure improvement and the GoB's public-private
partnership (PPP) Program. Governor Rigotto noted that all five
states have the necessary legislation in place to implement PPPs,
but the National Bank for Economic and Social Development (BNDES)
needs to help facilitate financing of large infrastructure projects.
Several others chimed in, pointing out that it is difficult for
states and municipalities to find funds for big infrastructure
projects. They are looking for partnerships with U.S. entities.
For example, Minas Gerais has three big projects that would welcome
U.S. investments -- highways, prisons, and basic sanitation
facilities. In this context, CEO Mosbacher explained the role of
OPIC in supporting U.S. investors interested in infrastructure
projects, particularly housing for low- and medium- income families.
He also underscored the importance of facilitating licenses and
permits for such investments. Several of the governors present
indicated their interest in such programs, and Mosbacher committed
to following up with them to outline possible housing programs and
infrastructure activities in their states.

--------------
TRADE FACILITATION
--------------


9. In the area of trade facilitation, Senior Commercial Officer
John Harris urged the Governors to promote greater participation in
U.S. trade shows, and offered to facilitate broader Brazilian
participation. Governor Rigotto replied that the states would very
much like to take advantage of these trade shows and asked that FCS
provide information early enough to allow state governments to get
word out to companies.

--------------
ANTI-PIRACY COMMITTEE MEETING
--------------


10. Following the breakfast, the Secretary and the Governors met
with the Sao Paulo State Anti-Piracy Committee, a group formed in
January of this year by then Governor (and now Presidential
candidate) Geraldo Alckmin. The Committee is composed of the
Governor, his Chief of Staff, the Attorney General, and six State
Secretaries (Justice; Finance; Public Security; Labor; Culture; and

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SAO PAULO 00000675 004 OF 008


Science, Technology, and Economic Development) and members of their
staffs. Sao Paulo is the second state to create an anti-piracy
committee; the first was Rio Grande do Sul, whose committee includes
representatives of the private sector as well. The Sao Paulo
Committee was created in response to strong and energetic advocacy
by the Consulate.


11. Sao Paulo State Attorney General Elival da Silva Ramos began by
commenting on the importance of public and private participation in
fighting copyright piracy. He criticized the federal government for
its inability to control the traffic of pirated goods at the borders
and ports. He also commented on the deleterious effects of piracy
in terms of lost tax revenue, competitiveness, and innovation. The
State Secretary of Finance, Luiz Tacca Junior, commented on the
state of Sao Paulo's capacity to attack counterfeit goods, focusing
on a recent campaign against what the state government calls
"counterfeit fuel" - watered down ethanol and gasoline. Recent
successes in combating adulterated fuel were attributed to a
successful public education campaign, aggressive prosecution of
traffickers in diluted fuel, and stricter licensing requirements and
closer state scrutiny of fuel distributors. Tacca was grateful for
cooperation received from the U.S. in training the state's Fiscal
Intelligence Unit, which has become an effective police unit in the
fight against money laundering. Tacca emphasized the lost revenue
angle, noting that much can be done to fight piracy on the tax
evasion side of law enforcement. He concluded by acknowledging that
much work remains to be done in terms of encouraging businesses to
participate in the "legal economy." Brazil's rampant tax evasion,
off-the-books transactions, and under-invoicing make it critical for
the government to offer incentives for gray market and "irregular"
businesses to enter the formal economy and operate within the law.



12. At this point, Attorney General Ramos noted that Sao Paulo is
at the legal limit in terms of its power to enforce IPR. In
Brazil's federal system, all criminal legislation, including in the
area of intellectual property, is made at the national level. The
state's only real power to fight piracy comes from the state tax
laws. This is the only angle that allows Sao Paulo to act above and
beyond the federally mandated guidelines. Nevertheless, Sao Paulo
will remain active in pursuing tax evaders as a means of inhibiting
counterfeiting.


13. Following Tacca's remarks, Sao Paulo State Deputy Secretary for
Public Security, Marcelo Martins de Oliveira, gave an overview of
Sao Paulo's recent successes in fighting piracy. Oliveira praised
the police department's organized crime division (DEIC),which
includes a unit dedicated to piracy, or crimes against "immaterial
property." This unit has recently conducted 1,812 operations,
resulting in 4,500 indictments, 2,103 prosecutions, and over 400
imprisonments. DEIC raids have netted 3.7 million toys, 8.16
million CDs and DVDs, 300,000 tennis shoes, 400,000 watches, and
450,000 pieces of counterfeit clothing. Oliveira concluded by
saying that despite DEIC's excellent track record, piracy will be an
unsolvable problem until the federal government is better able to
control its ports and borders. Nevertheless, Sao Paulo's police
force is "unequivocally" dedicated to the continued fight against
piracy. Oliveira concluded by personally thanking the U.S.
Consulate General in Sao Paulo for its "invaluable and unceasing
assistance in the fight against piracy and drug trafficking."


SAO PAULO 00000675 005 OF 008




14. Secretary of Culture Joao Batista was the next to comment on
the ills of piracy in Sao Paulo. Batista criticized piracy as an
attack on Brazilian culture, specifically in the music market, where
75 percent of music sales in Brazil are of works by national artists
and 52 percent of those are of counterfeit products. In contrast
with music sales, the Brazilian film market is dominated by foreign
films. Nevertheless, piracy is still a threat to Brazilian cinema.
To reinforce the reality of this threat, Batista recounted the story
of a pirated DVD version of the Brazilian blockbuster movie "Dois
Filhos de Francisco" being watched aboard Brazilian President Lula's
executive airplane. [NOTE: Perhaps the most important, certainly
the most popular film ever made in Brazil, "Francisco's Two Sons"
was Brazil's top grossing film at the box office in 2005. Filmed on
a budget of less than USD 3 million, it outperformed several of the
top twenty highest grossing films of all time, worldwide.
"Francisco's Two Sons" was also nominated for an Oscar in the
international film category. END NOTE.] Batista cited the failure
of the federal government to secure the borders as the prime culprit
behind the large market for pirated material in Sao Paulo. He then
reiterated the need for cooperation between state and federal
authorities on this issue.


15. Governor Lembo issued an invitation for the U.S. Consul General
to participate in the periodic meetings of the Sao Paulo Anti-Piracy
Council. He extended the invitation to other consulate staff to
attend the public hearings of the council. Executive Secretary of
the Sao Paulo state Anti-Piracy Committee Marco Vaz Guimaraes de
Souza Netto then outlined the Committee's approach to the issue.
The Committee, which convened for the first time in May of this
year, has the following priorities: pursuing tax evasion, cracking
down on money laundering, improving the warehousing of seized goods,
and perfecting the logistics of combating piracy -- meaning
developing the process from seizure of goods through prosecution to
storage and ultimate destruction. Netto noted that many warehouses
are currently donated by anti-piracy groups, such as, for example,
the Motions Picture Association; however, warehouse capacity will
soon be outstripped by the tidal wave of incoming seized
contraband.


16. Echoing the State Secretary of Culture, Governor Rigotto
complained that the federal government's inability to effectively
police the borders was responsible for the problems of piracy
arriving on the "our states'" doorsteps. Noting that two of the
states represented at the meeting - his own (which borders on
Argentina and Uruguay) and Mato Grosso do Sul - bordered on other
countries and that several others were home to major ports, he then
made the bold suggestion that the Governors present form a working
group comprised of the Secretaries in each government responsible
for combating piracy, including the Secretaries of Finance,
Security, and Culture, among others. While recognizing that the
states bordering on Paraguay (Mato Grosso do Sul; Parana was not
represented at the meeting) face the largest challenges, Rigotto
pointed out that the products that cross through these states
ultimately end up on the streets of Sao Paulo and elsewhere.


17. Mato Grosso Do Sul Governor Miranda dos Santos (Zeca do PT)
immediately seized on this idea, saying the border states and major
markets could help each other immensely. He noted that counterfeit
fuel from Sao Paulo is sold in Mato Grosso do Sul, and that drugs
from Bolivia and Paraguay make their way through his state to Sao

SAO PAULO 00000675 006 OF 008


Paulo. Thus, they had a lot to learn from each other and much to
gain by coordinating efforts. Governor Zeca thanked the U.S. for
its helpful drug enforcement presence in Paraguay and Bolivia and
called for a greater U.S. presence in the Brazilian border states
themselves. Santa Catarina Governor Pinho denied that his state had
a large problem with piracy but expressed a willingness to
participate in a regional working group. He also noted that Santa
Catarina's Federation of Industries (FIESC) has great expertise to
lend in this area.


18. Secretary Gutierrez thanked everyone for their comments and
stated that in order to better fight piracy, we need better
information. For example, it would be good to know how much illicit
material is being produced locally and how much is being imported,
and from where. In the United States, 70 percent of all counterfeit
goods come from China; this is a useful figure for us to have when
making policies to fight piracy. He asked the participants to share
information they may have with him. In response, Governor Germano
Rigotto clarified that most of Brazil's pirated goods comes from
China via Paraguay and enters through weakly policed ports and
borders in the form of textiles, computer software and hardware,
CDs, and DVDs. He noted that all counterfeit cigarettes in Brazil
are manufactured in Paraguay, with falsified brand names. No
counterfeit cigarettes are made in Brazil. There is, however, a
large counterfeit computer industry in Brazil, for which all
manufacturing takes place locally. Rigotto advocated that the
states play a stronger role in breaking up these illegal businesses.



19. Commerce Deputy Under Secretary Stephen Pinkos of the Patent
and Trademark Office then commented that Brazil is to be
congratulated on its recent successes in combating piracy. He also
highlighted training programs currently being conducted in Brazil by
the Department of Homeland Security and the Department of Justice.
Pinkos then described the success the U.S. has had in organizing
federal task forces, which combine federal, state, and local police
efforts to combat piracy, even though ultimately the charges that
will be brought are federal. He suggested that the U.S. could work
with Brazil to share experiences from this model and help Brazilian
authorities implement a similar framework to fight piracy. He also
emphasized the health costs of piracy, which go beyond lost tax
revenue and unfair competition. Ten percent of medication worldwide
is counterfeited, as are many auto parts. The public safety
ramifications of this phenomenon are sobering and need to receive
wider public attention.


20. Governor Lembo closed the Roundtable suggesting that the
Governors' respective Chiefs of Staff contact each other to set up a
sub-regional working group meeting. Lembo offered to host the
meeting in Sao Paulo, and suggested that the first meeting occur in
the latter half of July, adding, "After the World Cup, of course."


--------------
VISIT TO SENAC CENTER
--------------


21. Secretary Gutierrez next visited a branch of the National
Commercial Apprenticeship Service (SENAC). SENAC is a University
system begun in 1946 with the support of different Federations of
Industry, including FIESP, which wanted to begin a system of schools

SAO PAULO 00000675 007 OF 008


that would increase the country's stock of technically trained
students. SENAC has 56 units in Sao Paulo State alone. The
Secretary, Consul General, and Senior Commercial Officer were

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greeted by Joao Kulcsar, Director of the U.S. Study Center; Abram
Szajman, President of SENAC and of the Federation of Commerce for
Sco Paulo; and Emelio Umeoka, President of Microsoft. The group
toured SENAC's library, where they were given an overview of SENAC's
activities and resources, and then went across campus to Microsoft's
Center of Innovation learning center. Umeoka provided an overview
of Microsoft's investment in youth education and the goals of the
Innovation Center, as well as a summary of other Microsoft corporate
responsibility programs in Brazil. Following a photo with some of
the Center's students, the Secretary and others were escorted to a
classroom, where they spent 30 minutes speaking to twelve students
in a roundtable format about their different classes, incubator
businesses, and hopes for future employment. A brief interview with
SENAC's internal television station followed, and Szajman and Umeoka
and other SENAC representatives took their leave of the Secretary
and his delegation.

--------------
POSITIVE PRESS PLAY
--------------


22. Media coverage of the visit was generally positive,
comprehensive and objective. There was much press interest in the
Secretary - both his morning press conference with the Governors and

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his late afternoon media roundtable, as well as his speech at
AmCham, were covered by all major dailies, all TV networks, business
dailies and newsweeklies, and wire services. The questions he
received from Brazilian journalists at the roundtable were probing
and well-informed, but neither hostile nor friendly. The
Secretary's statements were accurately represented, and the main

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points that he emphasized - greater Inter-American commercial and
trade cooperation and integration; viewing China and India not only
as potential markets, but also competitors; highlighting the
positive steps that have been taken to combat piracy, but noting
that more remains to be done - were covered. "Folha de Sao Paulo,"
the largest circulation daily newspaper, noted that he didn't
mention FTAA in public at all, but seemed to focus more on bilateral
efforts. The reporting was much more factual than analytical.
Overall, the reporting was comprehensive, fair, and, on balance,
positive.

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


23. This was a highly successful visit that advanced key aspects of
our economic and commercial agenda. The Secretary brought with him
a clear, coherent message on the USG's trade policies and
priorities, and he delivered it effectively to state government
officials, business leaders, and the omnipresent Brazilian
Ambassador. He also demonstrated a keen awareness of Brazilian
concerns on trade issues as well as a willingness to listen. If, in
the aftermath of his visit, Brazilian federal and state law
enforcement agencies actually implement their proposal to
communicate better with each other on issues related to combating
IPR piracy, the visit will have accomplished something tangible and
positive for both sides. END COMMENT.


SAO PAULO 00000675 008 OF 008



24. This cable was coordinated/cleared with Embassy Brasilia.

MCMULLEN