VZCZCXRO1286
RR RUEHRG
DE RUEHSO #1197/01 3201752
ZNR UUUUU ZZH
R 161752Z NOV 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 6061
INFO RUEHBR/AMEMBASSY BRASILIA 7132
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2620
RUEHMN/AMEMBASSY MONTEVIDEO 2207
RUEHBU/AMEMBASSY BUENOS AIRES 2531
RUEHSG/AMEMBASSY SANTIAGO 1912
RUEHLP/AMEMBASSY LA PAZ 3116
RUEHPE/AMEMBASSY LIMA 1070
RUEHCV/AMEMBASSY CARACAS 0410
RUEHBO/AMEMBASSY BOGOTA 1454
RUEHRG/AMCONSUL RECIFE 3228
RUEHRI/AMCONSUL RIO DE JANEIRO 7596
RUEHAC/AMEMBASSY ASUNCION 2842
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 04 SAO PAULO 001197 

SIPDIS 

SIPDIS 

DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR SCRONIN/MSULLIVAN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO USDOC ALSO PASS PTO/OLIA TREASURY FOR OASIA, DAS LEE AND JHOEK DOL FOR ILAB MMITTELHAUSER 

E.O. 12958: N/A TAGS: KIPR ETRD ECON EINV KJUS BR

REF: A) SAO PAULO 675, 
B) BRASILIA 

2314 SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 

¶1. (SBU) Summary. Following their attendance at the Bilateral Consultative Mechanism Meeting in Brasilia on October 16 (Reftel B), AUSTR for Latin America Everett Eissenstat, AUSTR for Industry Meredith Broadbent, and USTR Brazil and Southern Cone Director Sue Cronin visited Sao Paulo. They met with the Sao Paulo State Federation of Industries (FIESP) and the American Chamber of Commerce (Amcham) to discuss trade issues, and with private sector representatives in the copyright and pharmaceutical areas to discuss intellectual property rights (IPR) issues. FIESP and Amcham urged the U.S. to maintain Brazil's participation in the Generalized System of Preferences (GSP) program and discussed the outlook for the Doha Round trade negotiations and ongoing bilateral regional trade negotiations in the Americas. The USTR officials were interviewed by prominent news, business and economic publications, and received balanced press coverage on GSP issues in four articles the following day. End Summary. Amcham: Focus on Improving the Business Climate 

¶2. (SBU) The USTR visitors had a productive exchange of information with members of Amcham's Executive Board, which has focused on improvement of Brazil's business environment as a priority. Amcham is targeting six major areas: 1) regulatory framework and infrastructure; (2) innovation and intellectual property protection; (3) taxation; (4) job creation; (5) international negotiations; and (6) education. Amcham members repeatedly expressed the desire to maintain a good bilateral trade relationship with the U.S., concentrating on common trade interests and promoting "win/win" situations for both countries. Although complicated, cooperation on ethanol and the bilateral Commercial Dialogue are two areas that have shown movement in the right direction. According to Amcham, problems hindering movement in the bilateral economic relationship include: (1) the lack of a consistent Brazilian foreign policy (although according to Board Members, Finance Minister Mantega is providing positive direction); (2) the perception that alignment with the U.S. is unpopular with the Brazilian public, especially given the unpopularity in Brazil of the current U.S. administration, Lula's leftist background, and the priority he gives to promoting South-South ties; and, (3) concern that the sudden termination of the GSP program will negatively impact mostly U.S. companies based in Brazil and Brazilian companies that are producing items that would not ordinarily be produced in the U.S. Amcham's Concern Over Losing GSP Benefits 

¶3. (SBU) Amcham views itself as a facilitator in the bilateral relationship, for example hosting a lunch meeting during the June visit of Secretary of Commerce Gutierrez. Amcham voiced concern, however, over the possible non-renewal of GSP for Brazil and the negative impact such a decision would have on the present U.S. - Brazil relationship. Amcham has recently advocated for the continuation of GSP benefits for Brazil and the reduction of U.S. import tariffs on ethanol. In October, Amcham headed a delegation to meet with members of the U.S. Congress to support GSP renewal and sent a second delegation November 13 - 15, prior to GSP expiration on December 31, 2006. 

¶4. (SBU) Brazilians appear to be shocked at the abruptness of a possible GSP termination. A representative from 3M gave as an example the manufacture of ear plugs. GSP benefits enable 3M to  export them to the U.S. from Brazil at a competitive price; however, removal of the benefits would create a ripple effect making the production and export of this product unprofitable. Eaton Truck Components offered a similar example. The company produces gear boxes in a smaller volume than could be profitably produced in the U.S. If GSP benefits are discontinued, the company might in the future move production to China's cheaper labor market. The major issue expressed by Eaton, however, was the suddenness of GSP removal - if it were to happen - and the fear of the negative impact of such a decision on Brazil-U.S. bilateral relations. A more palatable decision, in the company's view, would be the gradual phasing out of the GSP program. 

¶5. (SBU) In response, AUSTR Broadbent explained in detail the original intent and purpose of the GSP program and the current review process. She underscored that the entire program is under review, not just Brazil's participation. USTR will make a recommendation, which will go to Congress for approval. She noted the strong Brazilian response in favor of continuing GSP, with approximately 800 letters sent to USTR. AUSTR Eissenstat followed with an overview of the U.S. trade agenda in the hemisphere, discussing the current status of NAFTA, the Chile Free Trade Agreement (FTA), CAFTA-DR, Colombia, Panama, Uruguay, and Peru. He then gave his impressions of the five hour meeting in Brasilia the previous day with Rodrigo Azevedo, the Director of Monetary Policy, Brazilian Central Bank. Sue Cronin closed the conversation with a short discussion of Mercosul, giving an explanation of the more comprehensive US perspective on trade with this organization. FIESP: Econ/Pol Outlook, Stalled Doha Round, GSP Worries 

¶6. (SBU) During an afternoon lunch meeting at FIESP, the USTR visitors met with Deputy Director for International Affairs, Carlos Cavalcanti, former Brazilian Ambassador to the US (and FIESP advisor) Rubens Barbosa, International Negotiations Coordinator Diego Bonomo, and staff members. Cavalcanti opened the meeting with his impressions of the economic and political outlook. He thinks that Celso Amorim will continue as the Foreign Minister, as he has unfinished business with the WTO Doha Round. In matters of trade, he believes the likelihood of meaningful official dialogue between the GoB and the USG is limited, given the official stance of the Lula government. The only alternative is for the private sector to facilitate business, concentrating on more exports and investments, in the hope that trade can be separated from foreign policy. Trade will have to continue to be conducted under the present regulations, as most changes contemplated would require amending the Constitution, which would be very difficult under a second Lula administration. If there is no legislative movement on trade issues, then FIESP is prepared and committed to move forward on its own. 

¶7. (SBU) One of FIESP's biggest concerns is what it feels is the misperception of Brazil's role in the Doha Round, especially among members of the U.S. Congress. Cavalcanti clearly felt this during his visit to Washington in conjunction with the Amcham-led delegation to discuss GSP renewal. (Comment: In private conversations with various members of the delegation after their trip, most related that Brazil's role in the Doha Round negotiations was consistently brought up as a major point of contention in considering GSP renewal for Brazil. One FIESP participant related that several of the congressional offices approached did not have any substantive discussions with the delegation, but instead referred them to Senator Grassley's office. A CIESP (Sao Paulo State Industrial Center) representative said there was minimum reception at congressional offices and few meetings with actual  Congressmen, leaving a less than positive perception of the delegation's treatment while in the U.S. End Comment.) 

¶8. (SBU) During the discussion, AUSTR Broadbent stressed the need for Brazil to differentiate itself from India, especially with regard to non-agricultural market access (NAMA) issues. AUSTR Eissenstat made similar comments concerning the Doha G-20 proposal, where both India and Brazil's name appear on the proposal. In differentiating between Brazil and India, he suggested that it would be advisable for Brazil to bring a measurable offer to the table. FIESP was concerned that if GSP is not renewed, it would be seen as a "punishment" of Brazil, resulting in an official GOB response that would only exacerbate the negative perception of the U.S. This scenario, according to Cavalcanti, would be a "lose/lose" situation for both Brazil and the U.S. All three USTR officials stressed that the GSP program was never conceived as a permanent program, but rather as a temporary program with a stated end date. Previous end dates received a similar review, and the program was renewed. The ongoing program renewal review is administrative, objective and transparent, and is not solely a review of Brazil's participation, but a review of the entire program. Thus, Brazil can best serve its own interests by continuing to dialogue with Congress and by offering viable, logical, and clearly understood arguments for GSP renewal, all the while keeping in mind that the program is not permanent, and its goal is to stimulate the development of competitive companies that eventually do not rely on GSP benefits. 

IPR: Movie Industry Satisfied, but Book Publishers Frustrated 

¶9. (U) The USTR officials also held meetings with representatives of the various copyright industry associations. Steve Solot, Senior Vice President for the Motion Picture Association (MPA) in the Latin American region, is relatively happy with the GOB's recent activities to combat piracy and IPR crime in Brazil. At the MPA Annual Meeting this year, the head of the Brazilian National Council to Combat Piracy and Intellectual Property Crimes (CNCP) will be honored with the Association's first annual anti-piracy award in recognition of the Council's recent efforts to fight piracy. Dalton Morato, Legal and Administrative Director for the Brazilian Association for Reproduction Rights (ABDR), which represents 90% of the publishers in Brazil, was very concerned with the actions of three major universities in Sao Paulo State, which allow 100% reproduction of foreign textbooks at their copy centers on campus. These are the University of Sao Paulo (USP), the Getulio Vargas Foundation (FGV - a major business school), and the Catholic University of Sao Paulo (PUC-SP). This accounts for an annual loss to publishers of approximately USD 15 million. ABDR has appealed to the Ministry of Education, which has ignored the appeals, stating that they cannot do anything since the universities are private. The CNCP has been unable to do anything either, as they have no control over university policies. There has been some action on enforcement against this practice at the state level; however, police consider book-related crimes to be of lesser importance and of lower priority, and react accordingly. Pharmaceutical Industry: Problems with Patents and Piracy 

¶10. (U) The pharmaceutical industry was represented by Gaetano Crupi, President of Eli Lilly; Joao Sanchez, Governmental Relations Director for Merck Sharp & Dohme; Walban Damasceno Souza, Director of Governmental Relations at Bristol Myers Squibb; and, Ronaldo Pires, IPR Specialist for Interfarma. General discussion focused on the need for continued improvements with ANVISA, the regulatory agency responsible for pharmaceutical patents. The patent system now protects the investment and investor, and new examiners were hired recently, but there is still a backlog. All agreed that private companies are not investing enough to combat piracy and that the piracy issue is a cultural one as well, as the predominant Brazilian attitude does not yet consider piracy a crime and an economic drain on society. In the area of research, there are currently 43 biotech parks in Brazil and 23 incubators of companies. With regard to AIDS medications, the companies believe that Brazil is using the compulsory licensing issue to advance its reputation, gain support from the developing world and play a leadership role. All agreed that compulsory licensing should not be government policy.

 ¶11. (U) This cable was cleared with USTR and Embassy Brasilia.