BRAZIL: AUSTR VISIT TO RECIFE HIGHLIGHTS PURSUIT OF

UNCLAS BRASILIA 001500 SENSITIVE SIPDIS STATE PASS USTR FOR EVERETT EISSENSTAT, KATE KALUTKIEWICZ STATE FOR WHA AND EEB E.O. 12958: N/A TAGS: ETRD ECON EFIN EINV EAGR BR SUBJECT: BRAZIL: AUSTR VISIT TO RECIFE HIGHLIGHTS PURSUIT OF INNOVATION ¶1. (SBU) On December 10 and 11, Assistant United States Trade Representative (AUSTR) for the Americas Everett Eissenstat, accompanied by Director for Brazil and Southern Cone Katherine Kalutkiewicz, visited Recife (in the Northeastern state of Pernambuco) to discuss the economic potential of Brazil's under-developed Northeast, visit the information technology innovation cluster called Porto Digital and the Port of Suape, and meet with local business representatives. -------------- -------------- Porto Digital and CESAR: IT Innovation -------------- -------------- --Porto Digital ¶1. (U) Porto Digital is an information and communication technology (ICT) innovation cluster created in 2000 with initial funding from the state of Pernambuco. Porto Digital companies (currently 123, 70% of which are micro or small businesses, employing more than 4000 people) benefit from federal, state, and local tax incentives including tax deductions of up to 75% of their income. Companies also benefit from the availability of low-rent office space and excellent technology infrastructure in the Porto Digital complex. Porto Digital is managed by an administrative council comprised of 40% state and local government officials and 60% private sector and academic representatives, with the mission of developing Pernambuco's technology sector to compete in the global market. ¶2. (SBU) Aurelio Molina, Director of Innovation and Entrepreneurial Competitiveness, told AUSTR Eissenstat that only about 35 of Porto Digital's companies do business outside of Brazil. He thinks that because of a weak culture of exporting, those businesses suffer from learning to export on a trial and error basis. AUSTR Eissenstat asked if the companies would be willing to share information about the impediments to exporting they've experienced and suggested that representatives of Porto Digital participate in a digital video conference with USTR to discuss their experiences. These conversations could help structure tangible items in a workplan for an updated U.S.-Brazil trade dialogue to assist businesses in both Brazil and the United States. --CESAR 
 ¶3. (U) The Center for Advanced Studies and Systems (CESAR) is an anchor of the Porto Digital innovation cluster. In 1996, a group of professors from the Federal University of Pernambuco (UFPE) founded CESAR in hopes of creating local jobs for talented recent ICT graduates, since many graduates of UFPE's high-quality ICT program were leaving Recife to work in Rio de Janeiro or Sao Paulo. Since then, CESAR has incubated innovative projects and start-up companies, always with a focus on taking products to the market. CESAR has worked with several U.S. companies in the past, and Motorola is a current partner. CESAR also offers a masters degree program in information technology, which is unique for its market-focused emphasis on practical business methods rather than academic approaches. CESAR is now working to adapt its model to get venture capital since the current project-based model makes it very sensitive to economic ups and downs. ¶4. (U) Though there were few incentives for innovation when CESAR was created, today the Center and its incubated companies benefit from tax incentives included in Brazil's laws for innovation and informatics. It reinvests those tax credits in research and development. CESAR's incubated companies include three start-ups approved by the government of Brazil to receive matching funds under the Innovation Law and one company which is now successful enough to have joined the board. ¶5. (SBU) CESAR's institutional liaison, Claudia da Cunha, told AUSTR Eissenstat that CESAR's companies have not focused much on either intellectual property (IP) or exporting. She explained that CESAR's researchers find IP "not worth the fight" with the client companies, since software design is not patentable in Brazil. As for exporting, she said some attempts had been made to export products to England and that she would gather some information from the member companies regarding their experiences in foreign markets. AUSTR Eissenstat suggested that CESAR participate in the digital video conference he also discussed with Porto Digital. ¶6. (SBU) During a working lunch with IP lawyers Monica Lustosa and Jose Pinteiro, AUSTR Eissenstat discussed further CESAR's lack of emphasis on IP. Ms. Lustosa, founder and former president of the Northeast Brazil Intellectual Property Rights Association, previously served as a consultant for CESAR and said the organization describes IP as being "on the radar, but not on the agenda." She said the researchers tend to think that confidentiality agreements will adequately protect their discoveries, especially since the companies tend to be small and over-worked. Mr. Pinteiro said he does not think that this inattention to IP prevents foreign companies from coming to Brazil, since "big companies have deep enough pockets to sell products at a price even cheaper than a copy." Ms. Lustosa and Mr. Pinteiro also commented that IT professionals may be deterred by the long processing time for patent consideration (approximately ten years) at the Brazilian patent and trademark office (INPI),especially since hi-tech products change and improve so quickly. Both lawyers think the future of Porto Digital is very bright, with proximity breeding linkages among the different companies and facilitating new ventures. -------------- Port of Suape -------------- ¶7. (U) The Port and Industrial Complex of Suape, located just outside Recife, is a huge driver of Pernambuco's development. For the last 30 years, the port has been a priority project for both the federal and state governments. Today it is one of the largest, most technologically-advanced, and best-managed ports in Brazil. The port has seen a 21% increase in cargo since 2007 and a dramatic increase in private investment. Its three main enterprises (the Atlantico-Sul shipyard, Petrobras' Abreu e Lima Oil Refinery, and the Bunge wheat mill) comprise investments of $15 billion and created 8000 direct jobs. With construction of the Trans-Northeastern railroad planned to start in 2010, Suape has the potential to serve the entire Northeast. ¶8. (SBU) During a meeting with local businessmen, Marco Ladislau Petkovic (Director for International Relations of Petrobras' Abreu e Lima Refinery) told AUSTR Eissenstat that the refinery's scheduled completion has been delayed to at least April ¶2012. He also said, as did Silvio Leimig (Director of Suape Global),that Venezuela's planned participation in the oil refinery (expected to have been 40%) has not materialized. He explained that the refinery is designed to process heavy crude oil, since Brazil currently has to export heavy crude and import refined oil. -------------- -------------- Local Business: Opportunities and Challenges -------------- -------------- ¶9. (SBU) Julio Freire, a member of the Recife branch of the American Chamber of Commerce and President of the only company manufacturing computers in the state of Pernambuco, told AUSTR Eissenstat that Suape is the biggest story in the Northeast but that it has drained the local supply of skilled workers. He explained that while higher education is good quality, fundamental education is very poor and there is a deficit of skilled manual laborers. In order to help retain the focus on Suape but also not neglect other projects, Mr. Freire's company is participating in a Porto Digital initiative to visit incubators and small companies to see what kind of training they need. AUSTR Eissenstat remarked that projects like this, combined with vocational education, could be a valuable way to extend the benefits of trade to less-advantaged segments of the population. ¶10. (U) In addition to needed improvements in education, Mr. Freire said the Northeast is lacking in infrastructure, though some improvements are happening. For example, Mr. Freire said, companies are currently laying lines for broadband internet access in Recife, which is transforming internet-based services. ¶11. (SBU) Professor Ricardo Chaves Lima of UFPE said that when President Obama was elected, Brazil had the feeling that there would be a shift on trade (for example, on discussions of cotton and ethanol),but that shift has not seemed to materialize. AUSTR Eissenstat urged Brazil to be patient. The bilateral trade relationship is like a large ship, he said, and shifts of even a few degrees can change the overall direction dramatically. Ambassador Kirk came to Brazil to open conversations about real cooperation, and AUSTR Eissenstat reiterated that he sought to build on that during this visit and upon his return to Washington. -------------- Comment -------------- ¶12. (SBU) AUSTR Eissenstat's trip to Recife presents a valuable opportunity for Mission Brazil and Washington to better visualize the concrete impact of trade issues on real companies and institutions doing innovative work to bring development and social inclusion to Brazil's Northeast. AUSTR Eissenstat was interviewed by a local reporter, resulting in positive coverage highlighting his impressions of the dynamism and potential of the Northeast and the importance of the bilateral relationship with Brazil. Discussions at Porto Digital and CESAR revealed opportunities for concrete progress on U.S. priorities, such as promoting bilateral trade and linking innovation and intellectual property protection. The Port of Suape also presents opportunities, and both private and public sector representatives welcomed the prospect of increased U.S. engagement in the Northeast. As AUSTR Eissenstat commented, the people he met with are not just dreaming about the future, they are building it. As the future of the region begins to take shape and influence Brazil's overall direction, this is an excellent time for the United States to examine opportunities for increased involvement in the Northeast. End comment. ¶13. This message was coordinated with Consulate Recife and cleared by USTR. KUBISKE