BRAZIL: UNDER SECRETARY JEFFERY LEADS ECONOMIC DISCUSSION

UNCLAS SECTION 01 OF 03 BRASILIA 001819

SIPDIS

SENSITIVE
SIPDIS

STATE PASS TO E FOR TOM PIERCE
STATE FOR WHA/EPSC LISA KUBISKE
STATE FOR S/P WILLIAM MCILHENNY
STATE FOR EEB/CIP, EEB/TRA

E.0. 12958: N/A
TAGS: ECON ETRD ECIN EAIR ECPS TSPA BR
SUBJECT: BRAZIL: UNDER SECRETARY JEFFERY LEADS ECONOMIC DISCUSSION
WITH GOB COUNTERPART AZEVEDO

BRASILIA 00001819 001.2 OF 003



1. (U) Summary: Following up on a March conversation between the
Secretary and Foreign Minister Amorim, Under Secretary Jeffery,

SIPDIS
along with Ambassador Sobel and State Department officers, in an
August 20 discussed with Brazilian Ministry of External Affairs
(MRE) Under Secretary Roberto Azevedo and his economic team possible
topics for deeper economic engagement between the State Department
and MRE. Both sides agreed that an over-arching theme for dialogue
between State and MRE should be rising to the challenges of
globalization. Azevedo suggested that discussions might be most
useful if they focused on a positive agenda and did not try to
resolve issues, such as a tax treaty, that are already under
discussion in different fora or have gone unresolved for some time.
He proposed topics he had discussed with Foreign Minister Amorim,
including what Brazilian membership in the OECD might entail; the
Millennium Challenge Account Program; private sector engagement; the
investment climate; civil aviation cooperation; and financial
inter-connectivity of markets in a global economy. The GoB did not
rule out including some form of telecommunication discussion in
future economic meetings. Both sides agreed to consider these ideas
(and any others) as a possible agenda for a dialogue. Azevedo
suggested we work quickly toward an initial agenda so that we could
report to Secretary Rice and FM Amorim before their next meeting, as
yet unplanned. End summary.


2. (U) On August 20, Under Secretary Reuben Jeffery III, along with
Ambassador Sobel and State Department officers from E, S/P and WHA,
discussed with Brazilian Ministry of External Affairs (MRE) Under
Secretary Roberto Azevedo and his economic team possible topics for

SIPDIS
deeper economic engagement between the State Department and MRE.
Under Secretary Roberto Azevedo opened the meeting by espousing a
focus on a new and positive agenda, in lieu of readdressing topics
that have gone unresolved for years (such as double-taxation) or
issues that are covered in other bilateral forums. He noted that,
although the USG and GoB have a close relationship, there is no
ongoing (broad-ranging) economic discussion between the Department
of State and the MRE. Under Secretary Jeffery suggested that these
economic discussions could serve to formalize economic issues at the
policy level with a view towards moving forward existing issues in
some areas. Ambassador Sobel pointed out that we should not
discount the positive influence of our respective foreign ministries
and used Foreign Minister Amorim's influence on double taxation as
an example.


3. (U) The under secretaries agreed that rising to the challenges
of globalization is important to both countries and that a dialogue
between the foreign ministries could help develop consensus on
various economic issues within the respective governments and
facilitate progress. Azevedo said that the GoB had many ideas, but
was not sure which would work best. He called for engaging the
private sector in the economic discussion to the extent possible
(using the governments as "catalysts").


4. (U) Under Secretary Jeffery suggested that both countries remain
open to bilateral issues and to U.S. - Brazil cooperation in third
countries, if appropriate areas could be identified. Azevedo noted
that FM Amorim would favorably view this type of bilateral
cooperation, especially in Africa and in areas in which both
governments shared a common approach and complementary technologies.
Ambassador Sobel pointed to HHS Secretary Leavitt's health
initiatives in Africa as an example.

-------------- --------------
Organization for Economic Cooperation & Development (OECD)
-------------- --------------


5. (U) On the basis of a conversation with FM Amorim, Under
Secretary Azevedo offered several suggestions. The first concerned

SIPDIS
the Organization for Economic Cooperation and Development (OECD).
Azevedo noted that Brazil had been invited to deepen its cooperation
with the OECD at the organization's May meeting. He said Foreign
Minister Amorim thought it would be helpful for the USG and GoB to
discuss expectations for Brazil's involvement in the OECD, including
such issues as what membership entails. Azevedo added that
constructive U.S. - Brazil cooperation had made possible the recent
OECD agreement on civil aircraft. (Comment: In an earlier meeting,
Finance Ministry officials indicated to Under Secretary Jeffery that
such bilateral discussion in the civair area had been productive and
indeed led to an agreement that Brazil joined as a signatory. They
added that the GoB now would like to work with OECD on a
topic-by-topic, committee-by-committee basis for now in order to see
if Brazil was comfortable subscribing to the norms of each OECD
item. Within a couple of years, working in this fashion, Brazil
would probably be ready to join. End Comment.) Jeffery noted that
the OECD was indeed committed to enhanced engagement with Brazil and

BRASILIA 00001819 002.2 OF 003


thought the GoB's idea might be a worthwhile topic.

--------------
Sectorals
--------------


6. (U) Azevedo pointed out that Foreign Minister (FM) Celso Amorim
was concerned about the challenges of an increasingly globalized
world economy for traditional sectors such as textiles, steel and
footwear. He suggested that the MRE and the Department of State
facilitate a meeting between U.S. and Brazilian industries in these
areas so that the private sector groups together might find areas of
mutual cooperation. Perhaps, he suggested, the GoB and USG could
offer some assistance, such as facilitation of joint ventures or
market studies. All of this assumed, of course, that the industries
themselves were interested, Azevedo noted. Jeffery agreed that such
discussion must be demand driven. Ambassador Sobel suggested that
the automobile industry might, for example, be included in these
discussions.


7. (U) Referring to the April visit to Brazil by the Governor John
Engler, President of the National Association of Manufacturers
(NAM),Azevedo said one by-product of the visit was identification
by U.S. and Brazilian companies of possible areas for cooperation.
He said the MRE would like to approach Brazilian industry about
this.

--------------
Millennium Challenge Account
--------------


8. (SBU) Azevedo also raised the Millenium Challenge Account. The
GoB would be interested in hearing an explanation of the MCA
indicators and process. Brazil might like to emulate this idea, or
perhaps become a partner with the USG in offering the Millennium
Challenge Account in third countries. Under Secretary Jeffery
replied that the USG would welcome the opportunity to exchange
knowledge about the program.

--------------
Other Key Issues
--------------

--Infrastructure Investments


9. (U) Azevedo said the GoB was interested in working with the USG
to explore ways to maximize funds, technology and managerial skills
in infrastructure projects in the country, or possibly for the two
countries' entities to invest in third countries. He suggested that
both governments work together on implementation as well as
financing. To that end, he proposed a possible "tripod format"
(GoB, Brazilian company, US company) for encouraging infrastructure.


--Investment Promotion


10. (U) Azevedo was interested in discussing what steps Brazil
could take to create a more attractive investment environment. He
advised avoiding discussions within the State-MRE context of
investment agreements - specifically bilateral investment treaties
(BITs) - since there were other channels for those discussions. He
added that there was a lack of support for investment agreements in
the Brazilian congress, where 14 BITs were on hold.

--Civil Aviation


11. (U) The GoB expressed openness to exploring a possible civil
aviation agenda. Azevedo said this was a top priority in Brazil and
the GoB would like to find areas in which both countries could work
together and establish a positive agenda. He indicated that the MRE
would need to further explore this with the Ministry of Defense
(which oversees civil aviation in Brazil). Under Secretary Jeffery
noted that civil air cooperation has proven fruitful in the past
and, given transportation difficulties in the hemisphere, there was
an opportunity to make a difference in this area.

--Telecommunications


12. (U) Under Secretary Jeffery asked whether the MRE might be
interested in telecommunications. Azevedo said that the GoB was
interested in discussing telecommunications issues and observed that
the challenge would be to find out what areas were open to
discussion. He cautioned that, as with other objectives of the
economic discussions, both governments should avoid conflicting

BRASILIA 00001819 003.2 OF 003


agendas and look for areas of agreement.

-- Financial structure as it relates to the inter-connectivity of
markets in a global economy

--------------
The Way Forward
--------------


13. (U) Both sides agreed to consider further these ideas, and to
engage in outreach as needed (e.g., Brazil with its private sector).
Azevedo suggested working quickly toward an initial agenda so that
there would be progress to report to Secretary Rice and FM Amorim
before they next meet. Azevedo agreed each side could remain open
on the level at which a dialogue should be held (Under Secretary or
Assistant Secretary),but suggested that under secretary involvement
might be needed at times.


14. (U) This cable was cleared by Tom Pierce in E.

Sobel