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Cablegate: Brazil's Workers' Centrals Gain Legal Recognition,

VZCZCXRO5517
PP RUEHRG
DE RUEHSO #0129/01 0741553
ZNR UUUUU ZZH
P 141553Z MAR 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8002
INFO RUEHBR/AMEMBASSY BRASILIA 9145
RUEHAC/AMEMBASSY ASUNCION 3342
RUEHBU/AMEMBASSY BUENOS AIRES 3095
RUEHMN/AMEMBASSY MONTEVIDEO 2647
RUEHLP/AMEMBASSY LA PAZ 3752
RUEHCV/AMEMBASSY CARACAS 0699
RUEHSG/AMEMBASSY SANTIAGO 2343
RUEHRG/AMCONSUL RECIFE 4043
RUEHRI/AMCONSUL RIO DE JANEIRO 8639
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000129

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC AND DRL/ILCSR
NSC FOR TOMASULO
SOUTHCOM ALSO FOR POLAD
USAID FOR LAC/AA
DOL FOR ILAB


E.O. 12958: N/A
TAGS: ELAB PGOV PHUM SOCI EFIN ECON BR
SUBJECT: BRAZIL'S WORKERS' CENTRALS GAIN LEGAL RECOGNITION,
GOVERNMENT FUNDS

REF: 06 SAO PAULO 280

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

-------
SUMMARY
-------

1. (SBU) On March 11, Brazil's Chamber of Deputies passed a bill
giving legal recognition to Brazil's labor Centrals. Although they
have been playing an important role in Brazilian political life for
many years, the Centrals have not been considered part of the
national labor system, but rather have been treated up to now as
NGOs. The legislation will enable such large organizations as the
Unified Workers' Center (CUT) and Forca Sindical to share almost USD
50 million a year from the "imposto sindical" (union tax) fund. A
provision that would have made the union tax voluntary was removed
from the bill in the Senate after vigorous lobbying by labor
leaders. The union tax remains one of the main pillars of Brazil's
anachronistic and rigid industrial relations regime, which drives
many workers into the informal economy and is often blamed for
undermining Brazil's competitiveness in the global economy.
Increasingly, trade unionism has become an end in itself, and union
leaders are perceived by the public as parasites with no concern for
rank-and file workers, living off the government. Hopes that
President Lula, a renowned labor leader, would lead a vigorous fight
for labor and industrial relations reform have been frustrated. End
Summary.

-----------------
AN ARCHAIC SYSTEM
-----------------

2. (U) Background: The Brazilian labor system was created in the
early 1940s by President/dictator Getulio Vargas and was modeled in
part after the corporatist regime then operating in Italy under
Mussolini. It is a pyramidal system with trade unions at the base
and federations at the top. Vargas, progenitor of the 1943
Consolidation of Labor Laws (CLT) that still governs most aspects of
Brazil's industrial labor relations, also created a compulsory tax,
the imposto sindical, to fund the new system. Every registered
worker pays one day's wages to the government every year, regardless
of whether or not he/she is a member of a union. These funds, minus
20 percent retained by the federal government to support Labor
Ministry social programs, are distributed to trade unions and
federations. In 2006, the unions' total receipts were approximately
USD 500 million.

-------------------------------
FUNDS FOR THE WORKERS' CENTRALS
-------------------------------

3. (U) The legislation aims to incorporate the five large Centrals
and fourteen smaller ones, which currently have no official status,
into one unified system. These Centrals are umbrella organizations
which each encompass any number of unions and federations. They
operate with large scope and on a political level, defending
workers' interests in general rather than any specific union demand
or wage issue. The bill will make the Centrals eligible to receive
half of the 20 percent of imposto sindical revenues currently
retained by the government, estimated at about USD 100 million.
Funds will be allocated based on the size of each Central and the
number of unions and workers affiliated with it. Large
organizations, such as CUT and Forca Sindical - the second-largest
Central - could each receive up to USD 10 million per year. The
Centrals already receive funding from the Labor Ministry's Workers
Support Funds (Portuguese acronym "FAT") for social programs and
training, but the new revenues will double or treble their current
budgets.

4. (U) (Note: The labor unions and federations have a counterpart
in the private sector, which is also organized into associations and
federations to represent employers' interests. Companies likewise

SAO PAULO 00000129 002 OF 003


pay their own version of the imposto sindical with their
contributions funding the National Confederation of Industries (CNI)
and its constituent groups in the states. These constituent groups
include the very well-known Sao Paulo State Federation of Industries
(FIESP), as well as groups such as Commercial Social Services
(SESC), an organization directly supported by companies involved in
trade. The pending legislation will affect only funding of labor
Centrals and not their business counterparts. End Note.)

5. (U) In anticipation of this legislation, which now goes to the
President to be signed, several new Centrals have been created, and
previously existing ones have merged. One of the newest is the
General Union of Workers (UGT), launched in July 2007. The UGT is
the result of an agreement among three different unions and
federations with some defectors from Forca Sindical, such as the Sao
Paulo Union of Commercial Workers, and is expected to represent
about 300,000 workers. Another new organization, the Central of
Workers of Brazil (CTB), is being established by unions controlled
by members of the Communist Party of Brazil (PC do B) which are
severing their ties with the CUT to go their own way.

----------------------
A CONTROVERSIAL TAX...
----------------------

6. (SBU) The existence of the imposto sindical itself is highly
controversial. The tax is credited with making it profitable to be
a union leader. Though the funds that support the organizations
derive from a compulsory tax, the unions and employers' associations
are not required to comply with any requirements to qualify for the
money. There are no mandatory membership minimums, nor do unions
have to commit to specific goals or objectives, or negotiating
targets, on behalf of their membership. As a result of this system
of benefits without responsibilities, being a trade union leader has
become for many an end in itself, and many labor leaders are
publicly viewed as "pelegos" or stooges whose true loyalty is not to
the workers but to the government that keeps the system alive and
unchanged. (Comment: One benefit of the new legislation is that it
does provide for an oversight mechanism to keep track of how the
union tax funds are spent. End Comment.)

7. (U) A prime example of the operation of the current system can
be found in the Sao Paulo Union of Commercial Workers. While this
union officially represents the 300,000 workers in the sector, and
is allocated funds based on that number, fewer than six percent of
the sector's commercial workers actually belong to the union. The
President of the Confederation of Commercial Workers, Antonio Alves
de Almeida, has held his position for the past 40 years and was
cited in recent press reports as the personification of the lifelong
union leader syndrome.

-----------------------
...SURVIVES A CHALLENGE
-----------------------

8. (SBU) There have been attempts to eliminate the union tax. Last
October, the Chamber of Deputies approved a version of the
legislation with a provision that would make it a voluntary
contribution instead of a mandatory tax. The Senate, however,
removed the provision from the text as a result of intense lobbying
by representatives of labor unions, federations, and Centrals from
all over the country. Such organizations as the CUT, Brazil's
largest labor Central, which traces its roots back to union
activities in the 1970s in Sao Bernardo do Campo led by current
Brazilian President Luiz Inacio Lula da Silva, and had as one of its
major aims the abolition of the imposto sindical, are now advocating
vigorously against making the tax voluntary. Another long-time
opponent of the union tax, Paulo Pereira da Silva, president of
Forca Sindical, also lobbied to keep it mandatory. As a result, the
final text of the bill maintains the current obligatory system
whereby the tax is automatically discounted from workers' paychecks,
while at the same time enabling the Centrals to partake of half of
the government's allocation of the tax. The bill's rapporteur from

SAO PAULO 00000129 003 OF 003


the Labor and Public Service Administration Committee, Vincentinho
(PT-Sao Paulo), a former CUT President and long-time Lula colleague
in the labor movement, suggested that the government should, within
90 days, propose an alternative to the mandatory union tax.

9. (SBU) According to attorney and labor expert Ericson Crivelli,
the bill appears to be the result of a negotiation between the Lula
administration and workers' organizations, in which the government
proposed legislation to benefit the Centrals in return for the labor
movement's political support. Lula's labor roots and his popularity
among workers help to explain the relative lack of high-profile and
disruptive strikes in the country during his five years in office.
Most of the strikes that did occur were carried out by public-sector
workers led by Lula's second-tier political opponents, including the
PC do B and Heloisa Helena's Socialism and Liberty Party (PSOL).
(NOTE: While the PC do B is formally part of Lula's governing
coalition, there is significant disaffection in the Communist ranks,
and the PC do B is showing increasing independence and even
opposition to the ruling coalition, as illustrated not only by the
creation of the new labor Central but also by a movement to run its
own candidates in municipal elections in Sao Paulo and several other
cities this year. End Note.) The large Centrals and the PT
celebrated the bill's passage as correcting a deficiency in the
country's labor regime.

-------
COMMENT
-------

10. (SBU) The imposto sindical and the rigid labor relations system
it supports are among key factors keeping Brazil's labor costs among
the highest in the world (see ref A). The labor regime is a major
contributor, along with high taxes, education shortcomings and
inadequate physical infrastructure, to the "custo Brasil" or cost of
doing business in Brazil cited by so many observers as a major
impediment to the country's competitiveness. Most experts blame the
high cost and rigidity of the labor system - which businesses claim
makes it almost impossible to fire anyone - for the fact that
possibly as many as 60 percent of Brazil's workers operate in the
informal sector. The strict rules are seen by legitimate companies
as an obstacle to hiring. Thus, many companies hire employees off
the books, saving money and gaining flexibility in disciplinary
matters and firing. These informal workers make no contribution to
government revenue collections that support education, public
health, Bolsa Familia, and other social programs. While there was
initial optimism that the election of President Lula, a former labor
leader, would translate into comprehensive labor reform, his
administration has instead been responsible for perpetuating and
expanding an existing system that most analysts agree is
counterproductive to Brazil's economic health while concurrently not
being particularly responsive to the needs of Brazilian workers.
The passage of this legislation is unlikely to bring real benefits
to Brazil's workers and further entrenches a system that has shown
itself open to graft, corruption, and mismanagement. While the
inclusion of a new oversight mechanism is a welcome addition to this
legislation, it does not compensate for the continuation of an
archaic system. End Comment.

11. (U) This cable was coordinated with and cleared by Embassy
Brasilia.

STORY

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