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.

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OVERVIEW
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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.

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TRADE NEGOTIATIONS
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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.

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CNI PRIORITIES
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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,

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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