CHARGE MEETING WITH BRAZILIAN PRIVATE SECTOR CO-CHAIR OF

UNCLAS SECTION 01 OF 02 SAO PAULO 000599 SENSITIVE SIPDIS STATE PASS USTR FOR EISSENSTAT AND ROHDE NSC PASS FROMAN AND RESTREPO NEC SUMMERS COMMERCE FOR ITA DRISCOLL AND FUSSELL TREASURY FOR MMUDACA AND HLOUIE E.O. 12958: N/A TAGS: ECON BEXP ETRD EFIN PREL PGOV BR SUBJECT: CHARGE MEETING WITH BRAZILIAN PRIVATE SECTOR CO-CHAIR OF CEO FORUM REF: (A) SAO PAULO 367; (B) BRASILIA 1201 ¶1. (SBU) SUMMARY: Charge d'Affaires, Sao Paulo Consul General and Senior Commercial Officer met October 1 with Josue Gomes da Silva, President of leading textile maker Coteminas and the Brazilian private sector co-chair for the U.S.-Brazil CEO Forum. In a long informal meeting, Gomes da Silva said the Forum was making progress on priority issues, expressed hope for a bilateral tax treaty, encouraged a 'pro-trade' alternative to cross retaliation on cotton subsidies, and proposed a U.S.-Brazil bilateral trade preferences program for Haiti and other low-income countries. Gomes da Silva said he was working with the GoB to schedule the next Forum meeting in Brazil for March 8-9, 2010. END SUMMARY. Great Potential Following July Meeting -------------- ¶2. (SBU) Da Silva commended the last CEO Forum meeting held in Washington July 20-21 and the new administration's efforts. He specifically thanked Commerce Secretary Locke, Deputy National Security Council (NSC) Director Froman and National Economic Council (NEC) Director Summers for their time and said that President Obama's drop-by with General Jones demonstrated the Forum has the interest at the highest levels in both governments. He applauded the engagement for giving the Forum a "good restart and opportunity to re-engage on certain issues." Nevertheless, Gomes da Silva warned of difficulty moving ahead with a bilateral tax treaty (BTT) and a bilateral investment treaty (BIT). He was optimistic, however, that the Forum could make quick progress on other issues such as transportation cooperation, increased frequency of flights, and reform of visa regulations. Holding Out Hope on BTT -------------- ¶3. (SBU) Specifically on the BTT, Gomes da Silva remained optimistic, and said he will try to restart the process toward a BTT in the next two months by encouraging the GOB to bring back into the process certain key personnel, such as Marcos Vinicius Pontes who had led the international tax affairs division at Receita Federal and was previously the lead on the tax treaty negotiations. Gomes da Silva told Charge he would also try to bring Lytha Spindola into the process. Spindola currently is the executive secretary for the interagency Chamber of External Trade (CAMEX) and reports to the Minister of Development, Industry and Trade (MDIC),but previously worked in Receita Federal and is widely respected within the government and private sector. He felt that "under the old team" both governments had gotten near an agreement on the remaining key issues. However, he blamed massive changes in Receita Federal after former head Jorge Rachid left for a loss in momentum. ¶4. (SBU) Gomes da Silva added that ex-Minister of Finance and current Chamber Deputy Palocci had recently mentioned some possible solutions without elaborating. [COMMENT: He was likely referring to tax sparing and Receita Federal support of a Tax Information Exchange Agreement (TIEA).] He then noted Brazilian private sector concerns that if a TIEA is passed, the GOB would not complete a BTT. He added that this "misperception" is even more prevalent now, given the "lame duck" nature of the current government. WTO Cotton Dispute-Look for a Pro-Trade Way Forward -------------- -------------- ¶5. (SBU) Gomes da Silva told the Charge that constructive proposals on a WTO cotton resolution are needed as good faith gesture to move the Foreign Ministry away from their focus on "retaliation." While admitting that Brazilian diplomacy has a bias toward retaliation, he proposed the GOB focus instead on ideas that open the U.S. market to Brazilian goods. Specifically, he suggested an offset in import duties for an amount equal to the WTO authorized retaliation. Gomes da Silva informed the Charge that he and U.S. private sector co-chair Tim Solso have sent a letter to United States Trade Representative (USTR) Kirk and Foreign Minister Amorim advocating SAO PAULO 00000599 002 OF 002 this approach to the cotton dispute. Moreover, Gomes da Silva said Brazil should focus on duty free access for goods that do not hurt U.S. domestic producers, but instead displace goods coming from third countries. He told the Charge he is pressing the GOB for this "pro-trade" response as a mechanism for the two countries to "send a message to the world" that they are serious about trade cooperation. [NOTE: Sao Paulo Federation of Industries (FIESP) International Relations Director Mario Marconini made a similar third country pro-trade suggestion to NSC Director Froman during his June visit to Brazil (ref A) and FIESP International Trade Director Roberto Gianetti da Fonseca echoed the concept to USTR Kirk in September (ref B). END NOTE.] ¶6. (SBU) In the vein of potential third country trade cooperation as another alternative to retaliation, Gomes da Silva suggested the United States and Brazil create a two-way trade preference program modeled on HOPE II for Haiti or nations in Sub-Sahara Africa. Under his vision, Brazil would open its market for certain goods (e.g., U.S. tennis shoes assembled in Haiti with U.S. synthetic materials) for sale in Brazil, and the United States would open its market for certain goods (e.g., apparel, which he pointed out his company Coteminas does not make) assembled in Haiti from Brazilian cotton. Gomes da Silva, who made a similar suggestion during NSC Director Froman's visit, argued such a program would create jobs in Haiti and market opportunities for U.S. and Brazilian companies and potentially serve as mechanism for establishing offsets to cotton retaliation. In addition to sidestepping a market-closing retaliation, a proposal based on cooperating on trade benefits to third countries could appeal to GOB interests in development cooperation in Africa and Haiti, Gomes da Silva suggested. He was optimistic that the GOB would approve this concept and asked for U.S. Government support. Next CEO Forum Meeting -------------- ¶7. (SBU) As for the next CEO Forum, Gomes da Silva said he is checking to make sure GOB leadership is available March 8-9, 2010. He said his U.S. counterpart, Tim Solso, is also checking with the U.S. CEOs and government leaders to confirm the March 8-9 date. Gomes da Silva was unaware of any other potential dates being considered by the GOB or the CEOs. Comment -------------- ¶8. (SBU) Gomes da Silva's confidence in the CEO Forum process along with his and the various other recent private sector suggestions for a pro-trade solution, whether compensation or assistance in third-country developing markets, to the WTO cotton dispute underscores a broad desire among Brazilian business to avoid a bilateral trade conflict with the United States. Brazilian industry voices pressing for alternatives to retaliation in the cotton dispute will be one of the factors GOB considers in determining how it will proceed in addressing next steps. WHITE