FIESP CALLS FOR A BILATERAL TRADE DIALOGUE

C O N F I D E N T I A L SECTION 01 OF 02 SAO PAULO 000067 SIPDIS STATE FOR WHA/BSC E.O. 12958: DECL: 03/14/2018 TAGS: ECON ETRD EFIN EINV ENRG BR SUBJECT: FIESP CALLS FOR A BILATERAL TRADE DIALOGUE REF: 08 SAO PAULO 0423 Classified By: Consul General Thomas White; Reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: On Monday, January 19, Ambassador Sobel met with FIESP (Federation of Industries of Sao Paulo) President Paulo Skaf, FIESP's chief trade negotiator, Mario Marconini, and others. Skaf and Marconini underscored FIESP's concerns over the perceived Foreign Ministry's inactivity on the trade agenda (including bilateral investment and tax treaties) and would like to pursue a "bilateral dialogue" with USTR. Skaf also expressed an interest in further discussing the new Energy Compact for the Americas and finding an appropriate role for FIESP. Continuing to engage the private sector in general and FIESP in particular could be helpful in reinforcing that the private sector in Brazil stands to benefit from successful negotiations on investment, double taxation, and other trade issues. END SUMMARY. ¶2. (C) According to Marconini, FIESP's chief international trade negotiator, Foreign Minister Celso Amorim has so far been unwilling, in their view, to engage actively on the issues of bilateral investment and tax treaties and the trade agenda in general. Marconini stated that the private sector should apply pressure on the GOB, and thus he called for FIESP to engage directly with USTR. FIESP will draft a letter inviting USTR to Brazil to open a bilateral dialogue with the private sector; however, Marconini asked to limit the issues to discuss to no more than five. ¶3. (C) As regards the specific bilateral tax treaty, Skaf told the Ambassador that FIESP does not oppose a tax treaty, but instead is "totally in favor of this." Deputy General Director Thomaz Zanotto expressed concerns that the Brazilian companies' legal departments are not technically prepared for such a treaty, but for Skaf, this reiterates the importance of including FIESP in the process. Skaf cited Brazilian Senator Francisco Dornelles as the chief political opposition to the tax treaty. (Comment: During a follow-on conversation with Marconini, he informed Econoff that FIESP is not institutionally prepared to help with the tax treaty, but instead would prefer to focus on the investment treaty. End Comment.) (Note: Tax treaties are negotiated by Receita Federal, which reports to the Finance Ministry. End note.) ¶4. (C) Paulo Skaf expressed FIESP's curiosity regarding the new Energy Compact for the Americas. He suggested creating a working group between FIESP and the U.S. Chamber of Commerce to explore the issue. (Note: Econoffs met with Carlos Cavalcanti, FIESP's Director for Energy Issues, on this issue and are further exploring this option. End Note.) Zanotto also believes that Brazilian organizations such as the Brazilian Sugarcane Growers Association (UNICA) are taking the wrong approach on the ethanol compact with the United States, when they advocate for the abolition of the U.S. tariff. FIESP would like to focus on engaging the United States with duty-free imports of E85 ethanol (reftel). According to Roberto Giannetti de Fonseca, Director for International Relations, the strategy would include allowing the duty-free import of E85 into the United States to help supply that market, while U.S. producers would supply the blended-E10 market. (Note: Giannetti de Fonseca previously shared these thoughts with Deputy Secretary of Energy Kupfer as well as other high-level visitors and with Consulate General staff. End Note.) ¶5. (C) COMMENT: FIESP is the most powerful trade organization in Brazil, representing 42 percent of the country's GDP. The organization has tremendous influence within the Brazilian government and could provide the impetus for GOB action on an investment treaty, a tax treaty, and a general bilateral trade dialogue. Any discussions between USTR and FIESP should focus on building political consensus on next steps and take pains to not isolate the Foreign Ministry. Intensified Brazilian private sector engagement SAO PAULO 00000067 002 OF 002 with the highest levels of the Lula Administration, its Ministries, and with Congress may help in moving the investment, tax, and trade agenda forward. However, anything that appears to be a formal dialogue between the USG and the Brazilian private sector would be seen by the GOB as interference in its internal policy making process. MRE has already indicated (reftels) interest in pursuing an expanded trade discussion with the new Administration. We want to encourage these discussions, as well as private sector engagement with their own government, rather than create a parallel negotiating process. END COMMENT. ¶6. This cable was cleared by Embassy Brasilia and Ambassador Sobel. WHITE