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### Viewing cable 04BRASILIA1185, SCENE SETTER: PRESIDENT LULA'S VISIT TO CHINA

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
04BRASILIA1185 | 2004-05-14 17:01 | 2011-07-11 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Brasilia

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 07 BRASILIA 001185

    SIPDIS

    SENSITIVE

    STATE FOR WHA/BSC AND EAP/CM
    USDA FOR U/S JB PENN AND FAS ADMINISTRATOR TERPSTRA
    SEOUL FOR AGCOUNS GRANT PETTRIE
    COMMERCE FOR
    4332/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL

    E.O. 12958: N/A
    TAGS: BR BTIO EAGR ECON EFIN EINV EMIN ENRG EPET ETRD KIPR PGOV PREL CH UNSC WTRO
    SUBJECT: SCENE SETTER: PRESIDENT LULA'S VISIT TO CHINA

    REF: A) BRASILIA 1087 B) 2003 BRASILIA 3814 C) 2003
         BRASILIA 3416

    Sensitive but unclassified; please protect accordingly.

    ¶1. (U)  Summary:  Brazil's President Luis Inacio Lula da
    Silva visits China May 22 - 27, accompanied by a huge
    entourage of Ministers and business leaders, determined to
    put Brazil-China relations at the center of his quest for
    strategic alliances.  Trade and investment may be the most
    visible items on the agenda, but China figures prominently in
    the Lula administration's campaign to tighten relations with
    other like-minded regional heavyweights (i.e., India, South
    Africa), diversifying its foreign policy alliances and
    augmenting its own reputation on the world stage.
    Cooperative activities in science and technology, defense,
    tourism, environment, and agriculture, invigorated by the
    higher-profile exchanges within the last year, will likely
    benefit from a flurry of MOUs and agreements signed during
    the visit.  While the U.S. was Brazil's largest
    single-country export market in 2003, China came in third,
    nearly edging out neighbor Argentina, and has been buying
    even more this year.  The GoB seeks deeper trade ties with
    China, hopes to get its share of China's excess investment
    capital and would have more to lose from a cooling of China's
    economy than would many other countries.  At the same time,
    Mercosul and the PRC are discussing the initial phases of a
    free-trade agreement.  While Sino-Brazilian relations,
    political and commercial, are relatively young, there appears
    to be no shortage of Brazilian enthusiasm for overcoming the
    obstacles of inexperience in forging a stronger partnership.
    The question is whether the PRC shares Brazil's vision of an
    important strategic relationship, or prefers a marriage of
    convenience based on short-term interests.   End summary.

    The Trip of the Century
    -----------------------

    ¶2. (SBU)  President Lula, who visited China once before
    becoming President, has characterized this trip as perhaps
    the most important of his government.  The sheer size of the
    delegation supports this assessment.  Lula will reportedly
    bring nine Ministers, at least five governors, and a business
    delegation of over 400.  The trip includes stops in Shanghai
    and Beijing.  In recent remarks to the press, Lula said he
    wants a "relationship of equals without dependency" with
    China and, in reference to the bilateral trade relationship,
    that Brazil needs to do more than just sell.  While
    expectations for greater trade and investment gains are high,
    the political optic for Brazil is not to be underestimated.
    Lula views his administration's foreign policy, and perhaps
    much of his personal legacy, in the context of
    coalition-building among developing nations.  In particular,
    the GoB considers China a partner in counter-balancing the
    influence of wealthier nations in multilateral institutions.
    In the lead-up to the trip, the administration has
    characterized Brazil and China as nations with much in
    common.

    Common Political Ground?
    ------------------------

    ¶3. (SBU) Perhaps no other non-western-hemisphere country
    figures more prominently in the GoB strategic calculus than
    China.  President Lula's visit to Beijing, following
    high-profile travel to India, South Africa and the Middle
    East last year, provides ample evidence of the
    administration's aims to build a formidable bloc of
    developing countries.  A key GoB focus is consensus building
    among like-minded countries for UN reform that would expand
    permanent membership of the UN Security Council - presumably
    to include regional powers such as Brazil.  Brazil's Foreign
    Ministry (MRE) perceives China, already a permanent UNSC
    member, as sympathetic to this GoB objective.  The MRE also
    believes the two countries share a "political understanding"
    concerning an emphasis on "multilateralism" and the need to
    counterbalance U.S. hegemony.

    ¶4. (SBU)  President Lula's Workers' Party (PT) has also
    discovered its own "China card."  On April 23 in Beijing, PT
    President Jose Genoino signed a protocol of collaboration
    between the Chinese Communist Party and the PT.  According to
    press reports, Genoino affirmed that the GoB sought to
    construct a "diplomatic, political, and economic axis" among
    India, South Africa, Brazil and China.  He praised China's
    integrated public administration and said it was important
    for the PT to study what has occurred in China over the last
    twenty years.  Comment:  Genoino's visit should not just be
    viewed as a precursor to the President's upcoming trip.  The
    PT is likely also seeking to score points with Brazil's
    leftists, including those within the PT itself.  End comment.

    ¶5. (SBU)  During recent UN Commission on Human Rights (UNCHR)
    meetings in Geneva, Brazil was careful not to favor
    resolutions critical of China's human rights record, a
    position criticized by some editorials in the Brazilian
    press.  Brazilian diplomats claim they are not ignorant of
    the human rights situation in China.  The Chief of MRE's Asia
    and Oceania Division Oswaldo Biato indicated to poloff the
    GoB perceived China's human rights situation as "serious but
    improving."  In any case, Biato noted, President Lula
    preferred to deal with this topic directly with his Chinese
    counterpart.  (In a side comment, he said the MRE would
    welcome any specific human rights information the USG could
    provide to be placed within the President's brief.)  However,
    other observers doubted very much whether in the swirl of
    excitement in the Great Hall, Lula would bring up the topic
    of human rights or whether, if he did, the Chinese would even
    deign to discuss the matter.

    ¶6. (U)  Despite Brazil's multi-ethnic makeup, citizens of
    Chinese descent represent a tiny fraction of Brazil's
    population, compared, for example, to Brazilians of Japanese
    ancestry.  Illegal immigration and extradition may yet become
    an issue between the two countries.  The majority of the
    estimated 50,000 Chinese in Brazil, mostly residing in Sao
    Paulo, are believed to be in-country illegally.

    ¶7. (U)  The GoB has also identified China as a major source
    of pirated goods entering the country.  To address Brazilian
    concerns about illegal immigrations and IPR, a legal
    cooperation agreement will reportedly be discussed during the
    visit.  A Brazilian Congressional investigation of IPR
    piracy, underway since June 2003, has highlighted the growing
    influence of the "Chinese mafia" in Sao Paulo's criminal
    network of contraband and pirated goods peddlers.

    ¶8. (SBU)  Escola Euro-Americana Professor Ricardo Caichiolo,
    an expert on Chinese-Brazil relations, bemoaned to poloff the
    lack of understanding among Brazilians, even among so-called
    experts, of China.  Within the Foreign Ministry, Caichiolo
    believed that not one official can speak passable Mandarin
    (Caichiolo himself does not speak Chinese.)  Within Brazilian
    academia, he pointed to a paucity of Chinese Studies
    programs, although the University of Sao Paulo's and National
    University of Brasilia's own programs, he commented, were
    notable exceptions.  Academic exchanges are very few, due in
    part to the strong desire among the youth in both countries
    to seek English-speaking programs, according to MRE's Biato.
    However, he expects the development of exchange programs to
    increase following the visit.
    Trade and Investment
    --------------------

    ¶9. (U)  Despite poor communication, weak historic links, and
    divergent policy orientations, Brazil and China have recently
    made significant strides in expanding trade.  Commercial
    linkages which progressed slowly following the first
    bilateral accord in 1978 have boomed over the last three
    years.  China advanced from 12th place among Brazil's
    single-country export markets in 2000 to its third largest in
    2003, and its expansion continued in the first months of
    ¶2004.  (Note:  The EU, counted as a single market, is
    Brazil's biggest trading partner, accounting for over U.S.
    $30 billion in 2003 trade compared to U.S. $26 billion with
    the United States.)  Brazil's trade with China in the first
    trimester of 2004 is already over 25 percent of Brazil's
    trade with the U.S. during the same period.

    ¶10.  (U)  Note: While Brazil does not recognize Taiwan as a
    sovereign nation, trade is up approximately 20 percent with
    the island so far this year; total trade in 2003 was U.S.
    $676 million.  Brazil's trade data identifies Macao and Hong
    Kong as separate markets from China, as each has separate
    customs and tariff arrangements, although politically Brazil
    recognizes the two territories as falling under Chinese
    sovereignty.  Trade with Hong Kong totaled U.S. $944 million
    in 2003; trade with Macao was U.S. $7 million.  Brazilian
    exports to Hong Kong are up over 30 percent from last year.
    End note.

    ¶11. (U)  The PRC is now Brazil's biggest trading partner in
    Asia, a bilateral relationship worth US $6.7 billion in 2003
    and projected by the GoB to rise to US $10 billion this year,
    not including Hong Kong and Macao.  Brazil enjoyed a US $456
    million trade surplus with China for the first trimester of
    2004, up from US $330 million during the same period in 2003.
    Emphasizing the mutual benefits of the growing trade
    relationship, Minister of Development, Industry, and Foreign
    Trade, Luis Furlan, confirmed to Chinese and Brazilian
    business audiences last month that both imports and exports
    have increased approximately 60 percent in the last trimester
    over the same period in 2003.  China's top exports to Brazil
    include transmitter parts, electronics, textiles, liquid
    crystal displays, computers, coal, electric motors and stereo
    equipment.

    ¶12. (U)  Soybeans, iron ore and steel products accounted for
    approximately 75 percent of the value of 2003 Brazilian
    exports to China.  China is the largest buyer of Brazilian
    soy and iron ore, and the second largest importer of
    Brazilian steel.  Other top exports include cellulose and
    other wood products, laminated iron or steel sheets, leather,
    and automobile motors and parts.  While seeking to export
    higher value-added, manufactured goods to the Chinese, the
    GoB recognizes that China's demand for primary products like
    soy and steel currently drive the relationship.  The desire
    for uninterrupted supply of these primary-product exports
    will fuel the GoB-estimated US $5 billion of Chinese
    investment during the next three years in Brazilian mining,
    steel, transport infrastructure, energy and agribusiness.
    The Lula administration has launched an ambitious
    Public-Private Partnership (PPP) initiative to help improve
    the country's woefully inadequate infrastructure using mostly
    private capital (ref A).  While the implementing PPP
    legislation still awaits final Congressional approval, the
    GoB would like to see PPPs used as the vehicle for some of
    the hoped-for Chinese investment.

    ¶13. (U)   MRE's Biato told econoff of Chinese interest in
    further joint venture projects with Companhia Vale do Rio
    Dolce (CVRD), which could duplicate the success of Harbin
    Aircraft/Hafei Aviation's joint venture with Embraer to build
    regional jets.  CVRD plans to inaugurate a steel mill in the
    state of Maranhao in the coming months, the result of a
    Chinese joint venture with Baosteel Group.  CVRD is also
    discussing with Chinese investors exploration of a recently
    discovered copper mine in the same state.  CVRD
    representatives announced plans to build the world's largest
    solid cargo transport ship at a trade seminar last month, to
    deliver iron ore to China.  Brazil is a partner in the
    construction of the world's largest hydropower project at
    Three Gorges, and recent press reports have speculated on
    joint ventures in the farming and processing of soybeans as
    well as exploration of uranium deposits in Brazil.

    ¶14. (U) Citing economic complementarities between the two
    countries, MDIC trade promotion officials interpret China's
    growing energy needs as offering great potential for
    innovative Brazilian technology -- flex-fuel technology,
    ethanol production and sales, hydroelectric machinery, as
    well as deepwater oil and gas sector know-how and equipment.
    Petrobras and the China National Petroleum Corp. have
    reportedly held talks on forming an oil exploration venture.
    The complementarity projections extend to China's need to
    invest its excess capital and Brazil's cash-starved
    infrastructure projects as well as the growing Chinese middle
    class's expected desire for increasing amounts of Brazilian
    meats, frozen chicken, orange juice, furniture, medical
    equipment and shoes.  The Brazilian Ministry of Agriculture
    announced in February that Chinese officials had expressed
    interest in building railways, roads and other infrastructure
    in exchange for Brazilian soy, cotton and ethanol.  While the
    mechanics of such a barter arrangement would likely present
    problems for Brazil's private growers, the idea of investing
    in infrastructure projects linked to transporting commodities
    persists.  The Chinese Ambassador to Brazil recently told
    participants at a Brazil-China investment conference that
    China is studying the possibility of investing in road
    networks through Brazil to Pacific ports.

    ¶15.  (U) In advance of the trip, both GoB and Chinese
    diplomats here are downplaying the decreased growth
    expectations of the Chinese economy, despite the significant
    effect that dampened demand for commodities like soy and iron
    ore would have on Brazil in particular.  Chinese officials
    prefer to spotlight the 2008 Olympics and the government's
    promise to raise the median income level and double GDP by
    2020, longer-term goals that a temporary economic slowdown
    will not heavily impact.  The Brazilians, in turn, do not
    appear concerned that the investment they seek might
    diminish, secure in their belief that Chinese financial
    authorities acting early will prevent a crisis.

    ¶16. (U) Since few academics or public servants, let alone
    business people, are knowledgeable about China, the GoB
    argues that expanded bilateral trade, tourism, and cultural
    promotion efforts are the keys to solidifying and expanding
    mutually enriching exchanges.  In the run-up to Lula's visit,
    several high-level exchanges of trade and investment missions
    have laid the ground-work for the official inauguration of
    the Brazil-China Business Council (CEBC), an entity
    comprising representatives of China's and Brazil's largest
    and most successful companies.  The CEBC Co-Presidency will
    be shared between CVRD's President Roger Agnelli and China's
    Minmetal's President Miao Gengshu.  President Lula will
    inaugurate the CEBC during his visit.

    ¶17. (U) In addition to the CEBC being an effective tool of
    business promotion, the GoB views it as the embodiment of
    both countries' highest-level dedication to exploiting the
    other's untapped potential, ending a period of unintended
    benign neglect.  Along with the CEBC's inauguration, two
    match-making business seminars are slated for the
    accompanying 400-member business delegation: one in Beijing,
    the other in Shanghai.  While this business delegation is
    organized by the MRE's Trade Promotion Department, Biato
    explained that the CEBC will undertake activities across the
    two countries that official trade promotion agencies are too
    small and inexperienced to handle.

    ¶18.  (U) APEX, Brazil's export promotion agency linked to the
    Ministry of Development, Industry and Foreign Trade, plans a
    mid-June trade mission to Shanghai focused on sectors
    identified by a private consultant as having the greatest
    export potential to China, including specialty coffees,
    software, cosmetics, gemstones, sports equipment, wine and
    biotechnology products.  A Chinese business delegation from
    Shanghai Sugar, Cigarettes and Wine plans to visit Brazil
    next week for meetings with over 50 Brazilian makers of
    retail items of interest to China's wealthy, a reverse trade
    mission organized by APEX.

    ¶19. (U) In March, Brazilian news outlets reported that
    China's WTO Ambassador, Sun Zhenyu, had announced the
    country's desire to explore the possibility of a free trade
    agreement with Mercosul, as well as with South Africa, Chile,
    Australia and New Zealand.  He highlighted China's ongoing
    trade agreement discussions with ASEAN and several individual
    Asia nations.  After a visit to Beijing in April, Brazilian
    Foreign Minister Amorim announced that Mercosul and China
    would initiate the project of a free trade agreement in May.
    Mercosul is currently pursuing a wide-ranging FTA with the
    EU, but has initiated limited preferential trade agreements
    (PTA) with India and South Africa as precursors to broader
    future agreements.  The agreement with China would also
    likely start as a PTA focused on gradual tariff reductions
    for negotiated sets of products of interest to each party.
    The Lula administration's emphasis on strengthening
    Mercosul's global reach complements its designs to lead the
    block of developing nations in the multilateral trade arena.
    Brazil counts China among the founding members of the G-20
    and expects high-level Chinese participation at the June 2004
    UNCTAD meeting to be held in Sao Paulo.

    Bilateral Cooperation Efforts
    -----------------------------

    ¶20. (SBU) Science and Technology: Brazil's cooperation with
    China in science and technology fields (ref C) has expanded
    in recent years, most notably with the China-Brazil Earth
    Resources Satellite program (CBERS).  In October 2003, the
    second of a series of 4 satellites was launched from a base
    in northern China.  The satellites are equipped with cameras
    to monitor environmental and natural resource indicators.
    CBERS has paved the way for partnerships in space research.
    Further discussions regarding energy cooperation, including
    renewable and nuclear, are likely during the visit.  (Note:
    Brazil's nuclear program has been the focus of recent
    attention due to pending issues regarding the Additional
    Protocol of the NPT and the yet-to-be agreed safeguards at
    one Brazilian nuclear facility. End note.)  In April, the two
    countries inaugurated a Sino-Brazilian software center in the
    northeastern Brazilian state of Paraiba.  The TecOut center
    will provide specialized services for the creation and
    international marketing of software products, including
    market studies and product adaptations.  The visit will
    likely spawn similar joint initiatives.

    ¶21. (SBU) Defense:  The Brazilians will explore opportunities
    to expand mil-mil cooperation.  Military contacts indicate
    that while the military relationship is growing via
    familiarization visits and training exchanges, military sales
    between the two countries are unlikely, insisting that
    defense is not a driving force in the relationship.  Defense
    Minister Viegas visited China in November 2003, but he is not
    expected to accompany the President on this trip.

    ¶22.  (U)  Tourism:  MRE officials portray tourism cooperation
    as contributing to expanded trade and investment, citing the
    fact that Chinese tourism is on the rise worldwide,
    accounting for the third largest number of non-European
    tourists to visit Europe last year. According to Brazilian
    press reports, the Chinese government will soon announce a
    change in its visa policy to encourage more tourism --
    Chinese will be able to travel to Brazil without obtaining an
    exit visa.

    Agricultural Trade and Cooperation
    ----------------------------------

    ¶23. (U)  Minister of Agriculture Rodrigues' visit to China
    last November and Chinese Vice Agriculture Minister Fan
    Xiaojian's visit to Brazil that same month produced import
    certifications for Brazilian beef, phytosanitary protocols,
    and technical exchanges designed to ease difficulties in
    certifying the sanitary suitability of a range of
    agricultural products including citrus, chicken, and pork.
    Last month President Lula and Chinese Vice Premier Hui Langyu
    signed a preliminary agricultural commodities accord aimed at
    eliminating tariff and non-tariff barriers.  Despite the
    professed goodwill, Chinese soy concerns over properly
    identified biotech varieties and quality issues like
    excessive humidity, aflatoxin, damaged grains, and impurities
    continue to occasionally hamper Brazilian soy exports.  Only
    after considerable negotiation did China accept Brazil's
    export certificates regarding biotech content, as the GoB had
    not approved the use or safety of biotech soy for its own
    consumers but expected the Chinese to accept the GoB safety
    certification based on the claim that the Brazilian variety
    is the same as those grown in Argentina and the U.S., which
    have both been accepted by China.

    ¶24. (U) While these obstacles may in part mask broader
    Chinese concerns over food security and an over-reliance on
    imports, GoB officials expect progress on more binding
    farm-commodity agreements during the visit.  Representatives
    of the Brazilian meat exporters association, ABIEC, will join
    the business delegation to China seeking direct sales to
    mainland China to augment established relationships with
    importers in Hong Kong.  ABIEC's current President is former
    Agriculture Minister Pratini de Moreas.  Cooperation
    agreements on biotech and fisheries research are under
    discussion, and there is reportedly Chinese interest in
    Brazil's booming farmed shrimp industry.  (Note: Both Brazil
    and China, along with four other shrimp exporting nations,
    are currently the targets of an on-going U.S. anti-dumping
    investigation.)

    Comment:  Too Much Hype?
    ------------------------

    ¶25. (SBU)  The number of Chinese high-level visits to Latin
    America, along with growing trade, suggest that China is not
    discounting the region as it continues to open its markets
    and expand its own influence, even if economic growth cools.
    Brazil, with the region's largest economy and biggest
    population, figures prominently in that context.  There is,
    however, a lot of ground to cover before achieving the kind
    of strategic partnership that the GoB envisions.  Does
    China's current administration seek to change the geopolitics
    of trade with a formula compatible with the GoB's?  In a
    relationship among equals, disagreements are aired, but it
    seems unlikely that trade irritants, not to mention weightier
    topics such as democratization and human rights, will figure
    prominently during this visit.  Perhaps social issues
    affecting both countries, such as HIV/AIDS, social
    inequalities, and poor income distribution will figure on the
    agenda. Even if the political bond is immature, there are
    sufficient financial interests to move the relationship
    forward and this visit should showcase them.  For the
    Brazilians, even a marriage of convenience (as opposed to
    commitment) is preferable to a perpetual date.

    HRINAK

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