SAO PAULO BUSINESSMEN PRESS ON NEGOTIATIONS FOR A US TRADE

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C O R R E C T E D C O P Y (SUBTRATED TEXT AT END OF CABLE)

E.O. 12958: N/A
TAGS: ECON EIND ETRD EINV BR
SUBJECT: SAO PAULO BUSINESSMEN PRESS ON NEGOTIATIONS FOR A US TRADE
AGREEMENT

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This Cable is Sensitive but Unclassified, please protect
accordingly.


1. (U) SUMMARY: Members of the Brazil-U.S. Business Council, a
bilateral business grouping, recently expressed lack of faith in the
resumption of FTAA negotiations and demanded greater commitment from
the GOB to begin negotiations for alternative mechanisms to enhance
bilateral trade relations. They believe FTAA is a "dead horse" and
there is urgent need to find alternative ways to increase
cooperation and trade relations between Brazil and the US, the
"largest single consumer market on the planet." Business leaders
advocated conclusion of a bilateral tax treaty as one such measure
and focused on biofuels as an area with substantial potential for
future cooperation. End Summary.


2. (U) On December 5 the Brazil-U.S. Business Council held its 25th
Plenary meeting at the Federation of Industries of the State of Sao
Paulo (FIESP) to celebrate the Council's 30th[P1] anniversary. This
event brought together prominent US and Brazilian business leaders,
and future diplomats from the Rio Branco institute in Brasilia. The
main topic of the meeting was on increasing trade relations between
Brazil and the US, with particular emphasis placed on closer
cooperation in the ethanol and bio-fuels area. All present agreed
that prospects in the bio-fuels arena are enormous not only in
Brazil but worldwide.

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FTAA SKEPTICISM
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3. (U) The majority of industry representatives expressed
skepticism over a positive outcome with the stalled FTAA
negotiations, and urged Brazilian authorities to engage more
seriously and vigorously in developing new initiatives to increase
trade with the U.S. Rubens Barbosa, former Brazilian Ambassador and
current President of the Foreign Trade Council of FIESP, defined
FTAA as a "dead horse" and asked the GOB to urgently identify and
negotiate alternatives for increasing trade with the U.S. especially
in sectors in which Brazil is competitive.


4. (U) GE Brazil President (and current AMCHAM President) Alexandre
Silva stated that FTAA is no longer a viable option due to the
complicated negotiations stalling passage. According to Silva, U.S.
company subsidiaries in Brazil are eager for a trade agreement, in
whatever form, that will permit them to do business without
obstacles in expand their exports to the US. Silva argued that
although not all industrial sectors would gain from bilateral
agreements with the U.S. the long term benefit for Brazil as a whole
would be substantial.

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NEED FOR STRONGER AND MORE DEFINED TRADE
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5. (U) The President of the Brazilian side of the Brazil-U.S.
Business Council and Vice President of EMBRAER, Henrique Rzezinski,
said that trade relations between Brazil and the US lacked strength
and definition, resulting in a proportionately modest exchange of
goods given the high consumer market potential in both countries.
He expressed dismay over both countries lack of perspective:
Brazil's decision to give priority to South-South relations while
the US concentrates on combating terrorism.


6. (U) Duke Energy Brazil President Mickey Peters noted that a
bilateral trade arrangement would be the best bet for strengthening
cooperation and expanding trade between the two countries. "A
country like the U.S. can invest much more in Brazil. Unfortunately
there are many obstacles to overcome in order to attract such
investments", he said. Peters cited four points which he considered
essential to attract investments: 1) capital costs and a

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predictable timetable for obtaining environmental licenses; 2)
prices that will guarantee reasonable profits; 3) the creation of a
strong and independent regulation agency; and 4) a fair payment for
energy transmission services.


7. (U) Natal Garcia, the president of Caterpillar, brought to the
table the lack of a treaty to avoid double taxation. The tax burden
in Brazil is one of the highest in the world and the lack of a
treaty continues to harm exports, as double taxation reduces the
competitiveness of manufactured products. In addition, royalty
payments and inter-company services continue to be taxed, creating
multiple problems with the IRS for many companies.

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OTHER OBSTACLES TO TRADE AGREEMENTS
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8. (U) The President of the Brazilian Center for International
Relations (CEBRI) Ambassador Jose Botafoco Goncalves expressed
pessimism vis-[P2]a-vis any kind of trade negotiations with the U.S.
at all, principally because it is only a remote possibility that
Congress will renew the Trade Promotion Authority (TPA) that allows
the executive branch to negotiate treaties with foreign countries.
He recommended instead that Brazil should negotiate bilateral trade
agreements with Mexico and Canada.


9. (U) Christian Lohbauer, of the Brazilian Poultry Exporters
Association (ABEF) said that a Brazil-U.S. bilateral agreement would
be the ideal step in increasing trade. However, he pointed out an
obstacle in the form of the Mercosul agreement, which does not
permit member countries to negotiate side agreements with other
nations. Lohbauer lamented that during his four years in office,
President Lula had done to find practical ways to increase trade
with the U.S. and the EU, which are the two largest trading blocs.
He criticized Brazil's current foreign policy which appears to be
based on ideological inclinations and urged Itamaraty to pursue
trade agreements which are in Brazil's best economic interest.

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THE PROMISE OF ETHANOL
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10. (U) On a more positive note, Marcos Jank, from the Institute
for Trade Studies and International Negotiations (ICONE) briefed
participants on the Brazilian ethanol program and its prospects for
the world in terms of renewable energy. He spoke at length on the
country's pioneer role in the development of ethanol. "Today Brazil
has a 44 percent participation in the production of renewable fuels
versus 14 percent for the rest of the world", Jank observed, as he
reminded the audience that Brazil also is the largest exporter of
bio-fuels in the world. He concluded pointing out the two important
advantages of ethanol as a renewable energy--- it causes less
pollution and has a low level of carbon.


11. (U) Brazilian Foreign Minister Celso Amorim had commented
earlier in the event on an equally positive note, stating that the
relationship between Brazil and the U.S. remains extremely important
and necessary, and suggested that both countries need to find
"niches" or areas of interest for future cooperation. Amorim cited
the ethanol and bio-fuels energy programs as a prime example for an
opportunity to work together. [P3](Comment: Amorim was not
physically present at the event, but delivered his comments via a
televised prepared statement, and therefore did not hear the other
speakers' direct criticism of his trade policies.)


12. (SBU) Comment: The annual meeting of the Brazil-U.S. Business
Council provided an opportunity for Sao Paulo based businessmen to
air their dissatisfaction with the Brazilian government's lack of
movement on bilateral trade agreements. They believe the FTAA is
lost, Mercosul membership structure thwarts possible bilateral trade

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agreements with the U.S., and that the Lula administration has
focused too exclusively on South-South relations rather than
fostering stronger relations with the U.S. and EU. This lack of
focus has also resulted in continuing important internal issues not
being addressed which affect trade and investment, such as the
double taxation issue. The current attitude in the private sector
appears to be that private business will have to begin to step up to
the plate, and more aggressively lobby government to act more
positively in the negotiation of fair and beneficial trade
agreements. Specifically business believes that after the recent
good news of the renewal of the Generalized Systems of Preferences,
Brazil should seize this positive momentum to push for trade
agreements with the U.S. Separately, given that Brazil shares top
ranking with the US in ethanol production, is the leading exporter
of ethanol and a role model in renewable bio-fuel technology, this
may be the most promising point of common interest for future
cooperation. [P4]End Comment.


13. (U) This Cable was coordinated with Embassy Brasilia.

MCMULLEN