BRAZIL: CNI INDUSTRY ASSOCIATION PRIORITIES

UNCLAS SECTION 01 OF 02 BRASILIA 002177 SIPDIS DEPT PASS USTR FOR KATE DUCKWORTH DEPT PASS DOC/ITA/MAC/WH/OLAC ANNE DRISCOLL DEPT PASS TREASURY IA LUYEN TRAN SENSITIVE SIPDIS E.O. 12958:N/A TAGS: ETRD EINV EFIN BR SUBJECT: BRAZIL: CNI INDUSTRY ASSOCIATION PRIORITIES ¶1. (U) SUMMARY: The Executive Director and the Manager of the Economic Policy Unit at CNI explained the industry association's structure and priorities in a meeting with EconCouns. CNI is Brazil's manufacturing lobbying and export promotion association of state-level associations and also serves as the Secretariat to the association of all sectors industry associations for trade negotiations (CEB). With MRE encouragement, CEB has recently proposed negotiation of a Brazil-Mexico FTA, including an investment chapter. CNI priorities include regulatory reform, tax reform, pension reform and enhancing Brazilian competitiveness. CNI participates in the US-Brazil Business Council and highlighted enhanced company interest in negotiation of a US-Brazil bilateral tax treaty. END SUMMARY. -------------- OVERVIEW -------------- ¶2. (U) Jose Augusto Coelho Fernandes, Executive Director, and Flavio Castelo Branco, Executive Manager (and chief economist) of the Economic Policy Unit, of the National Confederation of Industry (CNI) met with EconCouns November 16. The CNI managers explained that industry association CNI serves as a "combination US Chamber and NAM" (National Association of Manufacturing) for Brazilian manufacturing companies. CNI membership includes Brazilian manufacturing, construction, utilities (electricity and water but not telecom). Petrobras is a member. CNI is the association of state level business associations (including FIESP, FIESC, FIERJ, etc). CNI supports export promotion as well as lobbying, providing tools to international business centers in each Brazilian state. -------------- TRADE NEGOTIATIONS -------------- ¶3. (U) CNI also serves as the Secretariat for the Brazilian Business Coalition (CEB). CEB includes associations from all sectors - NAMA, agriculture and services. As the CEB's secretariat, CNI coordinates Brazilian industry positions in all trade negotiations across sectors for presentation to the Brazilian government. On November 16, CEB sent a fully industry coordinated request to the President, MRE and MDIC for an FTA with Mexico. Coelho was extremely proud of the CNI secretariat's efforts in this regard, saying this marked the first time that all Brazilian industry - manufacturing, agriculture and services - had successfully agreed to speak with one voice in staking out a negotiating position with the government. The CEB Mexican FTA request includes agricultural and non-agricultural market access, services, and "productive investment." The request for an investment chapter includes coverage of NT and MFN principles and dispute settlement mechanisms that already exist in "ACE number 53" (NOTE: Acordos de Complementacao Economica" number 53 is a preferences agreement between Brazil and Mexico under ALADI covering about 800 products that entered into force in 2003. The agreement's chapter XII alludes to a "first additional protocol" governing disputes. This protocol permits both another ALADI party or a private commercial entity to be chosen to resolve disputes under the preferences agreement). ¶4. (U) Coelho said that when CNI went with President Lula to Mexico, industry indicated it wanted more ambitious tools to work with Mexico on trade and investment issues. After the trip, Foreign Minister Amorim reached out to CNI and asked the Secretariat to pursue and develop this idea, ultimately resulting in the CEB proposal after a lengthy intra-business sector consensus-building process. The CEB proposal is for Brazil-Mexico FTA negotiations only. CNI expects some reluctance to negotiate an FTA on Mexico's part, but not on Itamaraty's (see septels for discussion of Itamaraty's negotiating strategy). CEB hopes the fact that the proposal is based on the pre-existing Brazil-Mexico ACE number 53 agreement under ALADI will make it easier for Itamaraty to accept. The CEB proposal calls for a staged FTA implementation, with full implementation ten years after ratification. -------------- CNI PRIORITIES -------------- ¶5. (U) The Directors explained the areas CNI's goals and workplans focus on 1) entrepreneurial leadership (participate in formulation of public policy); 2) institutional and regulatory environment (including to reduce tax burden/simplify tax system, promote reduction in government bureaucracy, promote free competition and IPR, ensure legal safety and efficiency of legal system, foster permanent improvement of the political system, ensure well-defined regulatory systems, adjust labor laws to enhance competitiveness, BRASILIA 00002177 002 OF 002 and adjust laws and competencies of environmental regulatory institutions); and 3) education and health (strengthen professional education, promote digital inclusion, etc). Coelho said regulatory issues are of particular focus for CNI, which worked with the executive and legislative branches to pass new rules for sewage and water systems, and is currently working on a project to lobby for more autonomy for regulatory agencies from politicians as well as a lobbying effort to urge the government to privatize ports completely. ¶6. (U) On ports, CNI plans to release an advocacy report at the end of November. Coelho spoke approvingly of the new Ports Minister, "a good surprise" with a pro-private sector inclination. CNI also works intensively for pension reform, although any agreement with labor unions has to date been impossible in the tripartite business-labor-government commission. In 2008, CNI will be working with IFC and IBRD on a project to help decrease the time it takes to license a new business at the municipal level. CNI is also focusing on the contracting process, seeking improvements in the current system where government over-control of management and expenses leads to delay and inefficiencies, as does conflicting demands from the state and federal levels, according to CNI. CNI intends to release a report on Brazilian investment trends before the end of November. ¶7. (U) Coelho noted that at the recent annual meeting of the Brazil-US Business Council (where CNI participates for Brazil and the US Chamber represents the US side),many more companies now seemed interested in pursuing a bilateral tax treaty. Coelho expressed interest in receiving a copy of the model US bilateral tax treaty text and an overview of points of difference between the US and Brazil if possible. ¶8. (U) Finally, CNI expressed interest in organizing a trade mission to the United States, noting that trade missions to Europe seemed to be simpler in terms of paperwork and transportation than US missions. He would welcome the opportunity to discuss further with DOC how best to select and arrange sectoral focus, state(s) to visit, etc. Coelho underlined increased bilateral trade missions was an agreed priority at the US-Brazil Business Council annual meeting. (NOTE: FCS will follow up. FCS is working with APEX on trade shows and trade missions under the auspices of the Commercial Dialogue). ¶9. (SBU) COMMENT: CNI is conscious of the political environment it works in and how far it feels it can push in that context. For example, Coelho said that the "dream come true" position would be to call for the CPMF (the tax on financial transactions the Lula government is making an all-out political effort to extend) to be eliminated. However, CNI's official position is that the CPMF should be gradually eliminated, based on recognition that a more ambitious position would get no traction or credibility with the government. CNI is an important association with access to the government. USG should continue to deepen contacts with the organization as we work to achieve a regional infrastructure initiative, a bilateral tax treaty, and improved mechanisms for investment dispute resolution. END COMMENT. CHICOLA