Cablegate: Brazil: Investment Agreement Principles - Consolidated Gob

DE RUEHBR #0289/01 0631401
R 031401Z MAR 08





E.O. 12958:N/A
SUBJECT: Brazil: Investment Agreement Principles - consolidated GOB

REF: A) State 6424 B) Brasilia 89 C) 07 Brasilia 2206 D) 07

Brasilia 2177 E) e-mails Erath/DOS/DOC/TREAS/NSC 11/07-01/08

1. (SBU) SUMMARY: This message provides consolidated input to
Washington agencies regarding the status of intra-GOB discussions on
bilateral investment treaty principles. While no treaty "text"
comparable to the US model BIT exists, CAMEX (the Brazilian External
Trade Chamber) member ministries have developed "principles" for
investment treaty/investment FTA chapter negotiations. MRE, MDIC,
and Planning Ministry as well as CAMEX Secretariat contacts
characterize these "principles" as the final GOB position going
forward in negotiations with other countries, while Finance Ministry
indicates the internal battle is not over and that it continues to
push for more ambitious principles than MRE desires. Ministries
confirm the principles include only state to state dispute
resolution, and in a recent meeting with CEO Forum co-chair Tim
Solso and Brazilian CEO Forum members (septel), Casa Civil Dilma
Rousseff indicated it would be difficult for GOB to consider
arbitration mechanisms beyond those included in specific contract
provisions. Most interlocutors note that GOB wishes to negotiate
first 1) with an "easy" low economic impact country and/or 2) within
the region in order to gauge Brazilian Congressional reaction before
tackling more ambitious negotiations. END SUMMARY.

2. (SBU) Post has explored over the past months with member
Ministries of CAMEX (the External Trade Chamber) the GOB's position
on bilateral investment treaties, including specifically on
potential mechanisms for international arbitration of investor
disputes. Interlocutors have included Casa Civil Dilma Rousseff,
MDIC Minister Jorge and staff, Finance Ministry Chief of Staff
Melin, the Planning Ministry's chief economist Alex Pereira, MRE's
head of investment and services Costa and U/S Azevedo, and CAMEX
Executive Secretary Lytha Spinola.

3. (U) NOTE: CAMEX is in some ways comparable to the USG
TPSC/TPRG/Econ Deputies/Econ Principals process. Membership is
composed of MDIC (Commerce Ministry), Casa Civil (President's
staff), MRE (Foreign Relations Ministry), Finance, Agriculture,
Planning, and Agriculture Development Ministries. CAMEX has an
Executive Secretariat, and Lytha Spindola is the Executive
Secretary. CAMEX work is done in working groups progressively up

through a Council of Ministers that takes decisions. While TPRG
process is a good comparison, CAMEX actually has a broader mandate
since it is responsible for decisions on: trade defense measures;
trade facilitation; common external tariff changes decisions; export
guarantees; international negotiations; and trade security. That
is, CAMEX does everything from approving anti-dumping cases to
green-lighting MRE's proposed WTO negotiating positions to setting
tariff rates. Like our system, some issues are "easy" and never
rise to political level for debate while others receive high-level
engagement. END NOTE

4. (SBU) Reftel C reports in detail Congressional political, rather
than Constitutional, concerns regarding BITs, as well as MRE's
interpretation of its mandate from CAMEX going forward. Contacts in
the CAMEX Secretariat as well as Planning, Finance and MDIC
ministries have declined to share any written record of the CAMEX
investment negotiation principles - MRE, Planning and MDIC on the
grounds that these "final" principles are internal use only and
Finance also on the grounds that Ministries continue to debate
internally the principles' ambition level and with what countries
GOB should be negotiating. Ministry and CAMEX contacts all confirm
that the principles currently address only state to state
arbitration; investor-state international arbitration is not
included as an investment treaty principle.

5. (SBU) Ministries/CAMEX secretariat are consistent in their
understanding that GOB currently intends to focus investment
negotiations based on these principles on countries where FTA
negotiations are already underway or where the level of ambition is
low and where the country is close by (eg, small Latin American
neighbors). Ref C notes that MRE interprets the mandate to
prioritize negotiating investment agreements as part of FTAs rather
than as free-standing agreements. No interlocutor believed that
Brazil realistically would be ready or desire to negotiate with the
United States anytime soon on either a bilateral investment treaty
or on a discrete international arbitration mechanism, citing as
reasons the political difficulties with the Brazilian congress and
the high-profile, ambitious nature of any negotiation with a high
economic value investment partner such as the United States. In a
February 20 meeting with CEO Forum Co-Chair Tim Solso and several
Brazilian CEO Forum representatives, MDIC Minister Miguel Jorge
acknowledged that at some point GOB should discuss and consider
further the possibilities for international arbitration, while Casa

BRASILIA 00000289 002 OF 003

Civil Dilma Rousseff believed existing mechanisms for resolving
disputes through specific contract provisions were sufficient, had
been successful in her Petrobras experience, and that anything
further would be difficult to achieve (septel).

6. (SBU) Only Finance Ministry discussions indicated a firm desire
for more ambition at this point. The Chief of staff, noting that
"everyone is very concerned about putting a foot wrong on the first
"model"" investment agreement and recalling that a "vague reference"
to dispute settlement had created a furor that had risked holding up
the Mercosul/Chile FTA, nonetheless expressed impatience at least to
begin negotiations with Argentina on investment protections within
MERCOSUL. He estimated there would be no actual draft GOB
investment chapter/agreement "text" before August. He claimed
Finance is pushing hard for an explicit reference to an
investor-state dispute resolution mechanism in the principles and to
induce other CAMEX members (with a strong implied reference to MRE)
to accept that a "one-size fits all" negotiating approach will not
work as Brazil evolves into a country with offensive as well as
defensive interests. He underlined that Argentina is Finance's top
priority for an investment agreement, due to the perception of
Brazilian investors that GOA actively devises ways to disadvantage

7. (U) Further to information provided reftels, MRE's Investment and
Services office, led by Ronaldo Costa Filho, provided post with the
following informational text on February 15th:

BEGIN QUOTE: Foreign Arbitrage (sic - arbitration) Awards

Article 34 of the Brazilian Law 9.307 of 1996 defines a foreign
arbitrage (sic - arbitration) sentence as the sentence proffered
outside national territory. Before that Law, foreign sentences had
to be recognized twice by the judicial system, first in the foreign
Country where it had been issued and later in Brazil. The Law
established that it sufficed the recognition in Brazil. The
Constitutional Amendment No 45, in 1994, attributed the competence
to recognize foreign sentences, previously held by the Superior
Court of Justice (STJ), to the Federal Supreme Court (STF).

Law 9.307 also stipulates that the foreign sentence will [b]e
recognized or executed in Brazil in conformity with the
international agreements ratified by the Country and, in their
absence, with domestic law. Since the promulgation of that Law,
Brazil has ratified the three main multilateral agreements on the
subject: 1958 UN Convention on the Recognition and Enforcement of
Foreign Arbitrage Awards (New York Convention), ratified in 2002;
1975 Inter-American Convention on International Commercial
Arbitration (Panama Convention), ratified in 1996; 1979
Inter-American Convention on Extraterritorial Efficacy of Foreign
Sentences and Arbitration Awards (Montevideo Convention), ratified
in 1997.

According to a recent research elaborated by a Brazilian Law Firm
mentioned in the May 20, 2007 edition of Valor [note - a Brazilian
newspaper - end note], during the last 10 years 408 arbitrage awards
were taken to the Brazilian judicial system. Only 15 of those were
foreign arbitrage awards, 5 of which were not recognized by the
Brazilian tribunals.

Arbitrage awards, once submitted to the STJ, are subject to the
Brazilian process laws, as any other juridical action analyzed by
that Tribunal.

It should be noted that the vast majority of the countries,
including France, UK, USA and Italy, also demand that their judicial
system recognize the foreign sentence in order to execute them in
their territory. END QUOTE

8. (SBU) COMMENT: As previously noted refs, given Brazil's history
with investment agreements, GOB is extremely cautious and overall
appears disinclined to ambition in discussion with the United States
in the short-term. Post encourages further Washington/GOB technical
discussions on possible cooperative approaches to increase mutual
understanding of goals in concluding investment agreements and
mechanisms. Post believes intense Brazilian investor lobbying on
the Brazilian congress and executive for negotiations would be a
crucial component in any strategy to foster achievement of an
ambitious result in the short-term. (NOTE: While CNI, for example,
has told the Ambassador again recently that it is "studying"
investment protection this year in a working group and is
considering its strategy, they too express caution on ambition level
given court and congressional challenges (see also ref D)). END

BRASILIA 00000289 003 OF 003



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