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### Viewing cable 08BRASILIA1406, BRAZIL: SCENESETTER FOR USDEL TO PREP MEETING FOR THE JOINT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08BRASILIA1406 | 2008-10-27 09:51 | 2011-07-11 00:00 | UNCLASSIFIED | Embassy Brasilia

`

    VZCZCXRO5442
    RR RUEHRG
    DE RUEHBR #1406/01 3010951
    ZNR UUUUU ZZH
    R 270951Z OCT 08
    FM AMEMBASSY BRASILIA
    TO RUEHC/SECSTATE WASHDC 2732
    INFO RUEHRG/AMCONSUL RECIFE 8625
    RUEHRI/AMCONSUL RIO DE JANEIRO 6792
    RUEHSO/AMCONSUL SAO PAULO 2965

` `

    UNCLAS SECTION 01 OF 04 BRASILIA 001406

    SIPDIS

    DEPARTMENT FOR OES/STC AND WHA/BSC

    E.O. 12958: N/A
    TAGS: KSCA SENV ENRG BR
    SUBJECT: BRAZIL: SCENESETTER FOR USDEL TO PREP MEETING FOR THE JOINT
    COMMISSION ON SCIENCE AND TECHNOLOGY, OCT. 30-31

    ¶1.  SUMMARY:  The overall relationship between the United States and
    Brazil is as productive and broad-based as it has ever been, with an
    excellent relationship between President Bush and President Luiz
    Inacio Lula da Silva.  A variety of cooperative mechanisms have been
    created or revitalized in recent years, including the Joint
    Commission Meeting (JCM) on Science and Technology (which met for
    the first time in July 2006 in Washington), the CEO Forum (which
    focuses on private sector concerns), the Economic Partnership
    Dialogue, the Biofuels Memorandum of Understanding (MOU), and the
    Common Agenda for the Environment.  Brazil and the United States
    share the goals of fostering hemispheric stability, promoting
    democracy, developing a consensus on next steps regarding climate
    change, achieving a mutually satisfactory conclusion to the Doha
    round of WTO negotiations in the near-term, and supporting their
    science and technology (S&T) communities.  The bilateral S&T
    relationship has been expanding and maturing, moving out from a
    solid base of cooperation in agriculture, health, basic sciences,
    and earth sciences.  Most notably, there has been substantial
    progress in collaboration on next generation of biofuels research.
    END SUMMARY.

    ¶2.  The U.S. delegation's participation in the October 30-31
    preparatory, technical-level meeting in Brasilia of the Joint
    Commission (JCM) on Science and Technology (S&T) is an opportunity
    to help shape the direction and pace of U.S.-Brazil S&T cooperation.
     There is potential to build on well-established S&T cooperative
    areas (such as in agriculture and health), to develop new fields
    (such as in biofuels), and to revive previously more active areas
    (such as in remote sensing, biodiversity and climate change).  Our
    bilateral relationship has been strong in recent years and
    Brazilians are acutely aware of the upcoming change of
    administrations and want to know what it means for them.  Although
    the S&T sphere tends to be less buffeted by political winds than
    others, Brazilian counterparts are likely to be keenly interested in
    learning what will be the impact of cooperation with a new
    administration.  We expect that a significant portion of the meeting
    will revolve around discussion of the transition.

    SCIENCE AND TECHNOLOGY IN BRAZIL

    ¶3.  The Ministry of Science and Technology (MCT) and its agencies,
    such as the National Institute for Space Research (INPE) and the
    National Council on Scientific and Technological Development (CNPq),
    play leading roles in developing S&T policy and funding research.
    MCT Minister Sergio Rezende, a graduate of MIT, has sought to
    increase S&T funding and is receptive to cooperation with the USG.
    Moreover, some key research areas are outside of the purview of MCT,
    including:  agricultural research, which the Ministry of Agriculture
    (MAPA) conducts through its research arm (EMBRAPA), and the health
    research, which the Ministry of Health oversees through
    laboratories, such as FIOCRUZ.  In addition, federal universities,
    state and private universities, and the private sector (such as
    Petrobras, Embraer and Dedini) are home to some world class
    scientists and laboratories.

    ¶4.  In November of 2007, Brazil launched its National Science and
    Technology Plan.  The Plan covers the period 2008 to 2010 and calls
    for record funding of approximately Reais 22.8 billion (around USD
    10 billion).  The Plan holds four general priorities: (1) expansion
    and consolidation of the Brazilian National Science and Technology
    system; (2) promotion of technological innovation in the private
    sector; (3) research and development in strategic areas; and (4)
    science and technology for social development.

    ¶5.  In August 2008, MCT working with the CNPq, the graduate level
    education support agency (CAPES), and with state-level research
    institutes launched a plan to create a "Network of National
    Institutes of Science and Technology".  This involves providing over
    the next two years Reais 435 million (or about USD 200 million) to
    about 60 existing institutes to do research in strategic areas:
    biotechnology, biodiversity and climate change, nanotechnology,
    information technology, health, agriculture, nuclear, space and
    Antarctic, and defense and public security.

    ¶6.  The Ministry of External Relations (MRE) is involved in
    international S&T cooperation.  MRE recently created a new Under
    Secretary position responsible for S&T, as well as energy, which is
    filled by Amb. Andre Amado.  The MRE has had a special focus on
    promoting south-south relations in Brazil's foreign policy,
    including in the S&T area.  The MRE also recognizes the value of
    Brazilian scientists and laboratories working with U.S. counterparts
    and the MRE has been supportive of developing collaborative research
    projects, in such  areas as biofuels and health.

    BILATERAL SCIENCE AND TECHNOLOGY RELATIONSHIP

    ¶7.  There is an overarching U.S.-Brazil S&T Framework Agreement
    dating back to 1984, which provides a legal framework for

    BRASILIA 00001406  002 OF 004

    cooperation highlighted by the JCM on S&T.  In addition, there are
    numerous MOUs and other arrangements between USG agencies and
    Brazilian ones.  Unfortunately, delays have arisen because the MRE
    will decide that it needs to send an agreement to Congress for
    approval, which can take years to obtain, or the MRE moves slowly or
    not at all on proposals.  For example, the NASA agreement on the
    Large-scale Biosphere-Atmosphere (LBA) program, which was signed in
    2006, has not yet been transmitted to the Brazilian Congress for
    approval.

    ¶8.  The U.S.-Brazil bilateral S&T relationship has a long and
    positive history, involving a wide swath of USG technical agencies.
    In the last ten years, some of the most important S&T activities
    involved:

    - agriculture research (U.S. Department of Agriculture's Agriculture
    Research Service and the Brazilian counterpart EMBRAPA through the
    LABEX program);

    - health research (the National Institutes of Health with Brazilian
    health researchers);

    - earth sciences (the U.S. Geological Survey and Brazilian
    counterparts);

    - remote sensing and the environment (NASA, NOAA, the Smithsonian
    Institution working with INPE and other Brazilian counterparts);
    and

    - basic science (the National Science Foundation and CNPq).

    ¶9.  With the signing of the bilateral Biofuels MOU in March 2007,
    Brazil and the United States have been vigorously pursuing
    collaborative research on the next-generation of biofuels.
    Scientists from both countries have made exchange visits, the most
    recent in Brazil during the month of June.  The scientists have
    presented a joint work plan and proposals for cooperation are now
    moving from the drawing board into the implementation stage.  Apart
    from biofuels, both sides of signaled an interest are looking at
    possibilities of other types of collaborative energy research, such
    as with clean coal, energy efficiency, and renewable energy.
    Petrobras' research laboratory CENPES and the Energy Department's
    National Renewable Energy Laboratory (NREL) have recently signed an
    MOU to cooperate on next generation biofuels research.  The
    NREL-CENPES MOU will be announced at the November 17 - 21
    International Biofuels Conference being held in Sao Paulo.

    BACKGROUND - FINANCIAL CRISIS

    ¶10.  In response to the financial crisis, Brazil's Central Bank has
    responded appropriately in selling reserves, offering derivatives,
    and deferring higher bank reserve requirements in hopes of freeing
    up credit.  Also, it has indicated that future interest rate hikes
    are unlikely given the diminishing threat of inflation due to a
    global slowdown and falling commodity prices.  Brazilian officials
    acknowledge the effects of the global slowdown but confirm the
    country is well-placed to weather the crisis.  President Lula has
    criticized the United States for a lack of financial regulation,
    claiming that a global regulatory body is needed to address the
    situation.  Although Brazilian markets have taken a beating in
    recent weeks and the Real has seen an erosion of its strength from
    earlier this year, large Brazilian companies are confident that they
    will weather the storm, though there are worries about the effect of
    a tightened credit market for smaller enterprises.  President Lula
    has spoken to President Bush several times in relation to the crisis
    and has confirmed his participation in the November 15 summit in
    Washington.

    BACKGROUND - POLITICAL AND FOREIGN POLICY

    ¶11.  Brazil's democratic institutions are generally strong and
    stable.  President Lula remains a personally popular president as a
    result of his orthodox economic policies and expanded social
    programs.  Ongoing scandals involving the leadership of the
    legislature and almost every Minister have led to low ratings for
    these institutions among the Brazilian public but have not touched
    Lula.

    ¶12.  The United States and Brazil share the basic goals of fostering
    hemispheric stability, promoting democracy, preventing terrorist and
    drug transit activity and supporting international non-proliferation
    regimes.  Wehave been working to try to achieve a conclusion to the
    Doha round of WTO negotiations.  The attainment of a permanent seat
    on the United Nations Security Council has been a key goal of
    Brazil's foreign policy under President Lula's government.
    Regionally, Lula has maintained Brazil's historic focus on
    stability, seeing dialogue and good relations with all parties as
    the best way to achieve this goal.  As a result, Brazil maintains an

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    active dialogue with Venezuela and Cuba, has worked hard to restore
    relations with Bolivia, and has stood firmly on the principle of
    respect for sovereignty in responding to the dispute between
    Colombia and Ecuador, preferring to work through the Organization of
    American States.

    ¶13.  The Brazilian public has a mixed view of the United States.
    Seventy-five percent say relations between Brazil and the U.S. are
    very good or fairly good, and Brazilians by a wide margin consider
    the United States the most important country in the region for
    Brazil.  Those who follow the news know that U.S.-Brazil cooperation
    on trade issues has global importance and new areas of cooperation
    such as biofuels are potentially significant.  There has been a much
    more positive view of U.S.-Brazil cooperation since the signing of
    the biofuels MOU last year.  On the other hand, there is a good deal
    of skepticism about U.S. foreign policy, particularly on issues such
    as Iraq and Cuba.  There is resentment over the long wait times for
    U.S. visa applications, a product of a spike in demand without
    commensurate increases in staffing.

    BACKGROUND - ECONOMIC SITUATION

    ¶14.  Brazil is now the tenth largest economy in the world, with a
    trade surplus and investment grade credit rating from S&P and Fitch
    this year.  Annual GDP growth was 5.4% for 2007, and inflation about
    4%.  Prior to the financial crisis, foreign direct investment in
    Brazil had been increasing, with net flow of USD 34.6 billion in
    2007 (versus USD 18.8 billion in 2006).  Of total gross inflow of
    USD 34.3 billion in 2007, USD 6.1 billion came from the United
    States.  Brazilian investment in the United States has almost
    tripled between 2001 (USD 1.4 billion) and 2006 (USD 3.9 billion).

    ¶15.  However, there are major structural challenges to Brazil's
    long-term growth.  Real interest rates are the highest in the world
    at over 7 percent.  The informal sector constitutes an estimated 40
    percent of the economy, in part due to the tax burden (36 percent of
    GDP in 2007), one of the highest among large developing economies.
    Growth-limiting distortions in the economy, a burdensome tax and
    fiscal structure, and onerous labor and business regulations
    continue to constrain growth.

    ¶16.  Despite significant progress toward stabilizing the economy,
    Brazil remains unequal in income distribution, with 10 percent of
    the population making up over 50 percent of the nation's wealth.
    Brazil is home to 50 percent of the people who live in extreme
    poverty in Latin America.  President Lula in his first term launched
    social programs, which combined with formal sector job growth and
    real increases in the minimum wage, have markedly reduced income
    inequalities since 2004.  Energy, transportation and
    sanitation/housing are the three key pillars of Lula's Growth
    Acceleration Program (PAC) to enhance infrastructure investment in
    Brazil.

    ¶17.  The discovery of massive offshore reserves of oil and gas
    estimated to contain between 30-80 billion barrels of oil could put
    Brazil within the top ten oil countries by reserves.  The reserves
    are located in the Santos Basin off the coast of Sao Paulo.  Though
    the possibilities have generated a great deal of excitement,
    industry observers caution that the technological challenges
    involved are extensive, including a lack of equipment such as
    drilling rigs for deposits of this depth.  Such challenges mean that
    developments will probably be slow in coming.  Brazil will look to
    the United States and other partners for assistance in the
    exploration and production of these new reserves.  Some have
    questioned whether the financial crisis will mean a slowing of
    exploration as financing for the necessary infrastructure investment
    becomes more difficult, but government statements so far dismiss
    that concern.

    ENVIRONMENT, DEFORESTATION AND CLIMATE CHANGE

    ¶18.  Tropical forests with bountiful biodiversity cover more than
    half of Brazil.  Unfortunately, high rates of deforestation have
    resulted in the clearing of nearly 20% of the Amazon forest.  With
    70% of the Amazon forest within its territory, Brazil plays a key
    role in environmental conservation and in decreasing the levels of
    greenhouse gas emissions from deforestation worldwide.  Recent
    modeling shows that a combination of rising temperatures, frequent
    droughts and fires caused by global warming could exacerbate forest
    degradation and could lead to a "tipping point", where the rainfall
    patterns in the Amazon are so disrupted that the rainforest
    collapses and is replaced over large areas by a mixture of savannah
    and semi-arid ecosystems.  The implications of this massive
    ecosystem shift for biodiversity, global climate change, and human
    livelihoods would be profound.

    ¶19.  Brazil is a key player in the ongoing negotiations for a new
    international climate change agreement to succeed the Kyoto

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    Protocol.  It has become an active participant in the Major
    Economies process.  While a fierce defender of the principle of
    "common, but differentiated responsibilities," Brazil sees a need
    for an appropriate balancing of environmental and economic concerns
    when addressing the problem.  Brazil recognizes the importance of
    reducing deforestation, but is fearful of accepting binding goals
    which might be used to justify trade sanctions or other punitive
    measures.

    SOBEL

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