A LEGACY AND A FUTURE — INITIAL OBSERVATIONS ON BRAZIL - U.S RELATIONS

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06BRASILIA1859 5 September 2006 Confidencial Embassy Brasilia

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C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 001859

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SENSITIVE
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FOR WHA ASSISTANT SECRETARY SHANNON FROM AMBASSADOR SOBEL

E.O. 12958: DECL: 05/25/2016
TAGS: PREL, BR
SUBJECT: A LEGACY AND A FUTURE — INITIAL OBSERVATIONS ON
BRAZIL - U.S RELATIONS

REF: A. BRASILIA 1784
B. BRASILIA 1722
C. BRASILIA 1670

Classified By: POLITICAL COUNSELOR DENNIS HEARNE. REASONS: 1.4 (B)(D).

1. (SBU) In my first weeks in Brazil, I reached out to a
wide group of government policy makers, political leaders,
business representatives, leading journalists, and
representatives of civil society. I found a remarkable
interest in strengthening bilateral relations. I met early
on with Foreign Minister Amorim and Lula’s foreign policy
advisor, Marco Aurelio Garcia, and also had highly productive
discussions with Justice Minister Bastos, Lula’s Chief of
Staff for Policy Dilma Rousseff, Finance Minister Mantega,
Trade Minister Furlan, Central Bank President Meirelles,
Supreme Court President Ellen Gracie Northfleet,
congressional leaders Renan Calheiros (Senate President) and
Aldo Rebelo (Chamber of Deputies President) and former
President Fernando Henrique Cardoso, among many others. I
met with most of the CEOs of the largest U.S. and Brazilian
companies, including the media companies.

2. (SBU) In these meetings, there emerged a number of key
themes that I believe we must focus on going forward.

— Business and investment are on everyone’s mind;

— There is a skepticism about the level of the U.S.
commitment to Brazil and South America, and a lack of
visibility in Brazil of the positive side of America — and
what we have done and what we can do;

— The Lula government has been tensely balanced until now
with a conservative fiscal policy on one end, and an
ideologically leftist foreign policy on the other; questions
abound as to whether this will change in a second Lula
government, and whether there are ways to shift the balance
in a promising way. (Bio-fuels may be one important tool for
doing this.)

Business and Investment


3. (SBU) Across the range of my contacts with business,
government, and political figures, I heard one message:
There is a high degree of interest in increasing U.S. trade
and investment, expanding existing commercial relations, and
creating new public-private partnerships. This sentiment
could even be heard from Dilma Rousseff, whose ideological
history as a militant leftist would hardly suggest such an
entrepreneurial spirit (see ref A). The energy is
generalized, but often focused on specific questions of the
moment.

4. (SBU) A common refrain, for example, was Brazil’s desire
to retain eligibility under GSP as the U.S. Congress debates
renewal of the authorizing statute. After moving our way on
copyright piracy over the past 18 months, under the threat of
USG revocation of GSP, the Brazilians now believe that it is
unfair to cast them out of the program because of unrelated
factors. I am concerned that should we proceed down that
direction, this could cast a shadow over the increasingly
positive dialogue that we are constructing, and could play
into the hands of the far left here. We need to keep
flexibility on this, as GSP can be a powerful tool in the
future. Many are also enthused about the Commercial Dialogue
that Secretary Gutierrez and the Minister of Trade initiated
in June, and the latter is seeking a return meeting with the
Secretary in October. We are also looking forward to

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Treasury Secretary Paulson’s visit, which will hopefully
focus on more of the micro details of the Brazilian economy

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which Lula’s government says would be their focus in a second
term.

5. (SBU) There is also an increase in investments between
Brazil and the U.S. with Petrobras, Embraer, steel,
construction and textiles firms all playing major roles.
The increasing importance of large industrial companies —
both U.S. and Brazilian — cannot be overstated. Just
recently, Lula reached out to 25 of the largest companies at
a dinner that included American companies. Large Brazilian
companies (e.g., Petrobras) are interested in IPR and
international tax treatment. In the future they will begin to
change the balance of the debate. Many large companies also
are voicing their deep concern about Venezuela’s
participation in Mercosul. I believe we should be able to
leverage the concerns of these companies to effect salutary
changes in policy in a GOB that is ever more attentive to the
views of these powerful actors, the "stakeholders" in
Brazil’s economy.

Skepticism and Visibility


6. (SBU) There is skepticism here about the depth of U.S.
commitment to its relationship with Brazil, and to the region
as a whole. There is a related dearth of visibility on the
positive side of America, of what America has done, including
our historic concern for the common welfare and our tradition
of corporate responsibility and community service. We should
find ways to change these perceptions, focusing on specific
projects and partnerships that demonstrate our commitment and
genuine concern for Brazil’s people.

7. (SBU) For example, we should be more engaged in Brazil’s
northeast, a region of more than 50 million people, with huge
disparities in income distribution and a living standard
below that of Bolivia. In fact, this region could be the
second largest country in size and population in South
America. We need to restore and energize our AID programs and
work with our corporate community, which is already very much
engaged in corporate responsibility. A re-energized focus
through USAID on health issues - especially TB, Malaria, and
HIV-AIDS - would be one place to start, using our own direct
action and seed money, and I believe we could then bring
private sector partners in to multiply our impact.

8. (SBU) Crime is a perennial concern in this violent
country and an area where we can have a significant impact.
In my meeting with Justice Minister Bastos (ref B), he asked
urgently when our Attorney General could come to Brazil, and
this presents a sterling opportunity to both address a
Brazilian plea for immediate assistance in dealing with their
public security crisis, and to establish the basis for a
regular consultative process, biannually, between our AG and
the Justice Minister.

9. (SBU) Indeed, I am convinced that bringing high-level USG
officials to Brazil can pave the way for dramatically
enhanced cooperation, building a top-down momentum that can
help Brazil address these critical democracy and stability
issues, while changing perceptions that we are not committed
or engaged. In addition to the AG visit, we could bring the
DEA Administrator and an expert delegation to discuss crime
and narcotrafficking. In fact, the Governor of Sao Paulo and
the Mayor of Rio are also requesting high visibility visits
from law enforcement officials. It is also important to
maintain a regular schedule for our existing bilateral
meetings, such as our P level political talks. U.S. Supreme
Court Justices could bring their perspectives to Brazilian
counterparts grappling with judicial reform.

Balancing Acts - Ideology, Pragmatism and Democracy

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10. (C) The conservative and pragmatic fiscal policy pursued
successfully by Lula has been in tense balance with a foreign
policy that is ideologically-skewed to the left, in
strategic, trade and commercial issues. The south-south
orientation that saw Brazil clumsily declare China a market
economy, fumble its campaign for a permanent UNSC seat, and
embark on dubious efforts to strengthen economic ties with
Arab states and other marginal players at the expense of
traditional relations with the U.S. and Europe, has
established a foreign policy record that is tough to defend
against attacks in the opposition and the media. There is
some concern that Lula and his Amorim-led foreign policy team
could, in a second term, radicalize Brazil’s foreign policy
further away from interests and partnerships that can best
serve Brazil and our bilateral relationship. I believe we
can help to diminish this risk by taking a practical approach
that draws Brazil into collaboration with us in areas that
clearly hold promise for both countries, such as energy and
law enforcement.

11. (SBU) We need to get away from ideological labels and
find common ground. A superb means for doing this is
cooperation on bio-fuels. The Brazilians’ view that
bio-fuels represent a transformational technology in which
they are global leaders is one we should embrace and use as
the basis for cooperation on a strategic level. It is very
evident to me that in research and development, in
elaboration of poverty alleviation initiatives for third
countries, and in building new multilateral fora for policy
discussions, we have the potential to work closely with the
Brazilians in bio-fuels. They want this, we want it, and it
can potentially serve as a vehicle for improving bilateral
relations across the board without any ideological
considerations.

12. (SBU) There is a broad consensus that Brazil must
continue to strengthen its already robust democracy, and, in
the words of Presidential advisor Marco Aurelio Garcia,
"bring the benefits of democracy to our poorest citizens."
The sentiment is universal; however, the initial reaction to
Dr. Krasner’s trip clearly illustrates the concerns of Brazil
of being too aligned with American foreign policy interest
(ref c). As Itamaraty Under Secretary for Political Affairs
Antonio de Aguiar Patriota related to me: Brazil does not
want to be stereotyped as being in "Our Camp." I think that a
follow up trip, perhaps by Under Secretary Paula Dobriansky,
that revisits the democratic governance issue will be more
successful, if it is not perceived as exclusively an American
policy initiative. We need to get away from labels that are
seen as ideological, such as FTAA. What we need to do is
progress incrementally, without labels, perhaps taking a
slower approach that will eventually achieve our foreign
policy objectives.

A Legacy and a Future


13. (SBU) Lula in a second term (should he win one) will be
thinking of his legacy, his opponents will be looking toward
the future, but most Brazilians seem to want many of the same
things. It was interesting to talk to former President
Fernando Henrique Cardoso about his interest in a grand
coalition. President Lula clearly has an ability to build
upon his economic achievements and perhaps redefine his
government in a possible second term, without the need to
balance it with a strongly ideological foreign policy. We
cannot tell Brazilians how to shape their legacy and future,
how to build up their democracy or bring in more investment
or institute vital reforms, but we can offer our own
experiences in relevant areas, and continue to press the

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message that their ability to build the prosperity they seek
rides on achieving these changes. There are ways we can
help, and in so doing, we also will bolster the bilateral
relationship and our own vital interests.

Chicola