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### Viewing cable 08BRASILIA226, SCENESETTER FOR CODEL SMITH

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08BRASILIA226 | 2008-02-19 10:39 | 2011-07-11 00:00 | UNCLASSIFIED | Embassy Brasilia

`

    VZCZCXRO1204
    OO RUEHRG
    DE RUEHBR #0226/01 0501039
    ZNR UUUUU ZZH
    O 191039Z FEB 08
    FM AMEMBASSY BRASILIA
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 1011
    INFO RUEHRG/AMCONSUL RECIFE IMMEDIATE 7685
    RUEHRI/AMCONSUL RIO DE JANEIRO IMMEDIATE 5784
    RUEHSO/AMCONSUL SAO PAULO IMMEDIATE 1601

` `

    UNCLAS SECTION 01 OF 03 BRASILIA 000226

    SIPDIS

    SIPDIS

    H PLEASE PASS TO CONGRESSMAN SMITH

    E.O. 12958: N/A
    TAGS: OREP PREL BR
    SUBJECT: SCENESETTER FOR CODEL SMITH

    REF: SECSTATE 16098

    ¶1. (SBU) Summary:  Brazil's democratic institutions are
    generally strong and stable, and President Luiz Inacio Lula
    da Silva remains popular because of his orthodox economic
    policies and expanded social programs.  Export-led economic
    growth has been the norm in the recent past, while Brazil has
    supported reasoned foreign policy goals and has steadfastly
    supported democracy in the hemisphere.  In the bilateral
    relationship, the U.S. and Brazil share many basic goals,
    although Lula seeks to balance good relations with the
    developed world with South-South foreign policy initiatives.
    Brazil's ethanol program has made it a global model for
    alternative energy and offers potential for bilateral
    cooperation on an important strategic issue.  On the
    environment, Brazil has long been on the defensive about the
    ongoing, extensive deforestation of the Amazon, which has
    made Brazil one of the leading producers of greenhouse gases.
     End summary.

    Latin America's Democratic and Economic Powerhouse
    --------------------------------------------- -----

    ¶2. (SBU) Brazil's democratic institutions are generally
    strong and stable, and the military dictatorship that ended
    over 20 years ago is consigned to the dustbin of history, as
    Brazil's armed forces today pursue a professional
    non-political identity.  A year following his re-election to
    a second term, and despite prosecution of high-level members
    of his administration on corruption charges, President Luiz
    Inacio Lula da Silva remains a personally popular president
    as a result of his orthodox economic policies and expanded
    social programs.  Ongoing and public scandals involving the
    leadership of the Senate and various members of congress have
    led to low ratings for the institution among the Brazilian
    public.  Increasingly, the court system has taken steps to
    curb impunity among public officials, which have been well
    received by a public accustomed to abuses by authorities.

    ¶3. (SBU) On the economic front, Lula's Finance Minister
    Mantega, Planning Minister Bernardo, and Central Bank
    President Meirelles have maintained broadly orthodox
    policies.  In January, Lula unveiled his Growth Acceleration
    Program (PAC), consisting of public investment promises and
    targeted tax breaks aimed primarily at construction and
    certain high tech sectors, which has become the economic
    policy centerpiece of his second administration.  Although
    the PAC contains many measures of incremental merit, it does
    not address some of the growth-limiting distortions in the
    economy, burdensome tax and fiscal structure and onerous
    labor and business regulations. Lula's social programs,
    combined with formal sector job growth and real increases in
    the minimum wage, have reduced income inequalities each year
    since 2004.  Higher economic growth will be required,
    however, to lift the masses out of poverty.

    ¶4. (SBU) With steady export-led economic growth having become
    the norm in the recent past, Brazil has been a supporter of
    reasoned foreign policy goals and has been steadfast in its
    support of democracy in the hemisphere.  The attainment of a
    permanent seat on the UN Security Council has been a central
    tenet of Brazil's foreign policy under President Lula da
    Silva's government.  More generally, Brazil seeks to play a
    leadership role on the global stage by, among other things,
    playing a central role in the G-20 at the WTO, and leading
    the UN peacekeeping force in Haiti, which could serve as a
    springboard to greater international leadership on democracy
    promotion and security issues.  Brazil's efforts to build
    South-South relations continue to dominate its foreign
    policy, sometimes to the detriment of core political and
    economic interests.  The GoB, along with India, has led the
    G-20, a group of developing nations coordinating negotiating
    positions for the WTO Doha Round.  The group's widely varying
    membership has made it difficult for them to reach consensus
    on negotiating positions.  Brazil has not yet signed an IAEA
    Additional Protocol, although it has not ruled out signing it
    in the near future.  Most recently, Brazil has announced its
    desire to join OPEC following the discovery of massive
    offshore reserves of oil and gas.

    The Bilateral Relationship
    --------------------------

    ¶5. (SBU) The U.S. and Brazil share the basic goals of
    fostering hemispheric stability, promoting democracy,
    achieving a mutually satisfactory conclusion to the Doha
    round of WTO negotiations, preventing terrorist and drug
    transit activity, and supporting international
    non-proliferation regimes.  U.S.-Brazil cooperation is often

    BRASILIA 00000226  002 OF 003

    limited by the GoB's unwillingness to take action regarding
    threats to democracy in specific countries and to support
    aggressive action in multilateral forums on such issues as
    non-proliferation, human rights, and democracy.

    ¶6. (SBU) Although under President Lula Brazil has stressed
    South-South relations, Brazil's status as a leader in
    biofuels, combined with the March 2007 signing our bilateral
    MOU on biofuels cooperation, offers a potential avenue for
    increasing bilateral cooperation in a strategically important
    area.  The two presidential summits in March 2007 (Sao Paulo
    and Camp David) have helped create a positive tone in our
    bilateral conversation.

    ¶7. (SBU) Our bilateral dialogue with the GoB on development
    assistance to Brazil and in third countries contains positive
    elements, including promising potential in biofuels.  It is
    constrained by differences in approach to anti-poverty
    efforts, with the GoB focusing on cash transfers, while the
    USG prefers more finely targeted assistance.  The Brazilian
    Government's multi-billion dollar poverty alleviation program
    -- Bolsa Familia (Family Stipend) -- receives technical
    assistance from the World Bank and IDB.  USG budget
    constraints and the fact that it is a cash transfer program
    (albeit with conditions) keep the USG from actively
    cooperating with the initiative.  USAID has sought to target
    its USD 8 million in programs for Brazil towards promoting
    sustainable livelihoods through working on issues such as
    health, the environment, and small and medium-sized
    enterprises.

    ¶8. (SBU) The GoB has a strong interest in hemispheric
    security issues, and cooperates with the USG on the
    operational level in the fight against terrorism and drug
    trafficking.  Brazil has been cautious about taking an active
    role in recent high-profile non-proliferation efforts.
    Brazil remains an active partner in the DHS's Container
    Security Initiative (CSI) and has expressed approval of the
    Proliferation Security Initiative (PSI).  However, the GoB
    has not yet endorsed the PSI statement of principles.

    Biofuels -- Potential for Strategic Cooperation
    --------------------------------------------- --

    ¶9. (U) Brazil has transformed a 1970s program to bolster its
    large sugar-cane sector into a remarkable showcase for
    biofuels.  The success of Brazil's ethanol program has made
    it a model for the world in terms of alternative energy and
    presents the potential for bilateral cooperation on an
    important strategic issue.  Brazil's comparative advantage is
    its ability to produce huge quantities of sugarcane, which is
    currently the most efficient feedstock for ethanol.  Cane
    requires far less processing than corn to produce ethanol.
    According to the World Bank, at current prices, Brazil can
    make ethanol for about one US dollar per gallon, compared
    with the international price of about USD 1.50 per gallon for
    gasoline.  On the demand side, Brazil's use of modest tax
    breaks have led new car purchasers to opt overwhelmingly for
    "flex-fuel" cars that can run on either gasoline, ethanol, or
    any combination of the two.

    ¶10. (SBU) Following the signing of the MOU in March, Brazil
    and the United States have been seeking ways to increase our
    collaboration in order to develop the next generation of
    biofuels, as well as in developing international standards on
    biofuels which should facilitate greater international
    acceptance and use of biofuels.

    Agriculture Trade Disputes
    --------------------------

    ¶11. (U) Brazil, like Canada, made a first request to
    establish a WTO Dispute Settlement panel on November 19,
    2007, to challenge US agricultural domestic support, claiming
    the US exceeded support caps 1999-2002 plus 2004-2005.  A
    second panel request and the establishment of the panel are
    expected on December 18.  In 2004, the WTO found mainly in
    Brazil's favor in the challenge against US cotton programs.
    Brazil challenged US compliance with the Panel report and the
    Panel found again primarily in Brazil's favor in October 2007
    (although the report remains WTO-confidential until formally
    released in December).  Some in the Brazilian congress
    threatened cross-retaliation against IPR in the cotton case,
    but to date legislative proposals have not moved forward.
    News reports have indicated that the Foreign Ministry is
    preparing such cross-retaliation measures should the WTO find
    in their favor.

    Deforestation and Climate Change

    BRASILIA 00000226  003 OF 003

    --------------------------------

    ¶12. (SBU) On the environment, Brazil has long been on the
    defensive about the ongoing, extensive deforestation of the
    Amazon, which has made Brazil one of the leading producers of
    greenhouse gases.  Over the last three years, the rate of
    deforestation has dropped sharply.  Brazil now views the
    debate over climate change as an opportunity.  It proposes
    that the international community provide financial incentives
    for avoiding deforestation and vigorously promotes the use of
    biofuels.  In the last five months of 2007, however, the rate
    of deforestation has risen dramatically.  The Environment
    Minister and independent experts attribute the increase in
    deforestation largely to the substantial increase in
    agriculture commodity prices.

    ¶13.  (SBU)  Brazil pursues two sometimes conflicting goals
    with regard to the Amazon region.  On the one hand, it seeks
    to preserve much of the natural resources and biodiversity
    found in the region.  The Forest Code requires the landowner
    to maintain 80 percent of the forests on the land.  Further,
    the GoB has placed large amounts of the forest into protected
    areas, such as national parks and indigenous reserves.  At
    the same time, the GoB seeks economic growth and
    redistribution of land.  Thus, since the 1970s it has built a
    network of roads through the Amazon, which has opened the
    region to timber and agriculture (mainly soybean) interests.
    The GoB has resettled many of the poor into settlements along
    the roads, and as a result, in 2004 the deforestation rate
    shot up to a high of 27 thousand square kilometers per year.
    High demand for charcoal to support a rapidly growing pig
    iron industry has also contributed to significant
    deforestation.  Nonetheless, a combination of market forces
    and government actions has led to an almost 50 percent
    reduction in the deforestation rate.

    ¶14.  (SBU)  The GoB created a Forest Service in 2006 and is
    seeking to obtain a stronger grip on forest management.  It
    also has ratcheted up somewhat the enforcement of existing
    rules against deforestation.  These measures are aimed at
    avoiding a return to the very high deforestation rates
    earlier in the decade.

    ¶15.  (SBU)  With respect to climate change, the GoB has
    proposed that the international community providing financial
    incentives for avoiding deforestation.  In addition, it uses
    the focus on renewable energy to promote greater use of
    biofuels.  The GoB, however, is adamantly opposed - as a
    developing country - to accepting international, binding
    obligations that would impede economic growth, such as
    restrictions on the use of its natural resources.  Brazil is
    sensitive about any suggestions on how it should manage the
    Amazon.

    ¶16. (U)  A more detailed review of Trafficking in Persons
    issues is being forwarded as a separate paper.
    SOBEL

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