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Cablegate: Organized Labor Doing Well with Lula

VZCZCXRO5734
PP RUEHRG
DE RUEHSO #0292/01 1621546
ZNR UUUUU ZZH
P 101546Z JUN 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8283
INFO RUEHBR/AMEMBASSY BRASILIA 9414
RUEHAC/AMEMBASSY ASUNCION 3421
RUEHBU/AMEMBASSY BUENOS AIRES 3173
RUEHMN/AMEMBASSY MONTEVIDEO 2723
RUEHLP/AMEMBASSY LA PAZ 3832
RUEHCV/AMEMBASSY CARACAS 0749
RUEHSG/AMEMBASSY SANTIAGO 2421
RUEHRG/AMCONSUL RECIFE 4130
RUEHRI/AMCONSUL RIO DE JANEIRO 8749
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 000292

SENSITIVE
SIPDIS

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

TAGS: ELAB PGOV ECON BR
SUBJECT: ORGANIZED LABOR DOING WELL WITH LULA

REF: SAO PAULO 129

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

-------
SUMMARY
-------
1. (SBU) A year and a half into his second term, President Lula has
won back the approval of many in organized labor who had expressed
disenchantment with him during his first term. By signing
legislation granting legal recognition and government funding to the
large labor Centrals while vetoing a provision that would have
required the Centrals to account for the funds, Lula earned the
gratitude even of those elements of the labor movement that had
previously opposed him. Unions and employers' associations are
negotiating with the government on alternatives to the mandatory
"imposto sindical" or union tax but are reportedly making little
progress. An unprecedented number of trade union leaders now hold
positions in the federal government and are not inclined to rock the
boat. End Summary.

-----------------------------------------
CENTRALS GET FUNDS WITHOUT ACCOUNTABILITY
-----------------------------------------

2. (U) In mid-March (reftel), Congress passed legislation granting
legal recognition to labor Centrals and making them eligible to
receive some of the proceeds of the mandatory "imposto sindical"
worker tax. When President Lula signed the bill into law on March
31, he vetoed an article that would have required unions, labor
federations and confederations, and Centrals to account for the
funds by submitting reports to the National Auditing Tribunal (TCU).
Lula asserted that such a requirement violated the principle of
union autonomy and freedom from government interference. The
enactment of this legislation was greeted by labor leaders as a
great victory. It not only made the Centrals eligible for the first
time to receive government funds - possibly as much as USD 50
million per year - but relieved them of any reporting or accounting
requirements. An attempt to make the "imposto sindical" (union tax)
voluntary was defeated in the Chamber of Deputies. All registered
workers, whether union members or not, will continue to contribute
one day's wages per year, most of which goes to fund trade unions
and federations.

3. (U) Passage of the legislation set off a scramble among the
Centrals to qualify for the funds. Each Central is required to show
it has at least 100 unions under its umbrella, spread across
Brazil's five geographic regions and at least five economic sectors,
and that they represent at least 7 percent of unionized workers
nationwide. The two largest Centrals, the United Workers Center
(CUT) and Forca Sindical, are virtually guaranteed to qualify, but
others may have a harder time. For example, the General Union of
Workers (UGT), formed in July 2007 from the merger of three smaller
Centrals along with some unions previously affiliated with Forca
Sindical, claims to represent over one million workers, mostly in
the commercial and energy sectors. It is not clear, however, how
many of these are actually union members. (Note: Under the
Brazilian labor regime, a single union is deemed to represent all
the workers in a given workplace, regardless of whether they are
members or not. Approximately 18 percent of workers in Brazil
belong to a union. End Note.)

4. (SBU) Although Congress voted to keep the union tax mandatory,
there is widespread recognition that some new mechanism is needed to
fund union activity. Luiz Antonio de Medeiros, Secretary for Labor
Relations at MTE, is in charge of negotiations with business and
labor on ways to replace the union tax. However, this is a
complicated enterprise that implies a reform of Brazil's antiquated
industrial relations system, and Medeiros acknowledges that progress
is slow. He noted that while CUT and Forca Sindical, the largest,
oldest, and most powerful Centrals, are receptive to possible change
and more than likely able to adapt, others are resistant. UGT
recognizes that change is inevitable due to global challenges and is
willing to discuss options, but is wary of any modification that

SAO PAULO 00000292 002 OF 003


might disadvantage its members. The New Central of Workers' Unions
(NCST), which represents transportation, industrial, and commercial
workers, was founded in 2005 as a force against change. Luiz
Goncalves, President of the Sao Paulo NCST and a former president of
the Sao Paulo Bus Drivers' Union, told Poloff that NCST will oppose
any initiative that would erode rights hard-won by workers in
Getulio Vargas's 1943 Consolidation of Labor Laws (CLT).

-----------------------------------
LABOR LEADERS: GOOD JOBS, BAD IMAGE
-----------------------------------

5. (U) During Lula's first term, CUT was the primary beneficiary of
government jobs in various Ministries. Founded in 1984 by many of
the same people who had earlier founded the Workers' Party (PT),
with its base among metalworkers in the "ABC" industrial suburbs of
Sao Paulo, the CUT operates as an autonomous social movement of the
PT and is an important base of Lula's labor support. In 2005, Lula
named former CUT President Luiz Marinho to be Labor Minister.

6. (SBU) After re-election, Lula sought to broaden the base of his
government coalition. One of the parties whose support he sought
was the Democratic Labor Party (PDT). To this end, in early 2007 he
transferred Marinho to the Social Security Ministry and named PDT
President Carlos Lupi Minister of Labor. One of Lupi's key allies
is Paulo Pereira da Silva, aka Paulinho da Forca, a PDT federal
deputy from Sao Paulo and president of the Forca Sindical labor
central. Forca Sindical was founded in 1991 as a rival to CUT and
subsequently grew into the second largest labor Central. Now the
two are on the same side. By allying with the PDT, Lula was
essentially opening the doors of the federal government to Forca
Sindical. Since then, he has gradually offered other labor leaders
government jobs, to the point that, according to a recent study by
Professor Maria Celina d'Araujo of the Getulio Vargas Foundation,
approximately 45 percent of upper-echelon politically appointed
positions (nearly 600 prestigious jobs) in the federal government
are held by current or former trade unionists. Trade union leaders
from across the spectrum have eschewed confrontation with the
government in favor of accepting lucrative government sinecures and
other forms of largesse such as contracts to promote professional
development and social assistance for workers. They now have ample
influence in a number of Ministries with responsibility for social
issues and a strong interest in preserving that influence in the
next administration. Some business leaders, for example, have
expressed concern that the Centrals will use their government funds
as a war chest for the 2010 national elections.

7. (SBU) The augmented role of organized labor in government has
brought with it some impropriety and the appearance thereof. Paulo
Pereira da Silva has been implicated in a high-profile Federal
Police investigation into alleged diversion of funds from the
National Social and Economic Development Bank (BNDES). In addition,
he has been accused of abusing his membership on the Board of
various government commissions to steer contracts to
non-governmental organizations allied with Forca Sindical and the
PDT. As a result, he now faces an investigation by the Chamber of
Deputies' Ethics Council, which could potentially lead to his
expulsion from the body.

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

8. (SBU) President Lula has by no means neglected the workers. The
minimum wage has risen steadily on his watch, and his administration
supports legislation to reduce the work week and to ratify two ILO
conventions, including one that would make it more difficult for
employers to fire workers without cause or lay them off. But he has
also put labor and industrial relations reform on the back burner,
in large part because such reforms would require tough concessions
from organized labor. While business, government, and workers all
have an interest in devising a simplified, less costly labor regime
that would make it possible to hire more workers and reduce the size
of the informal economy, nobody seems prepared to make the first

SAO PAULO 00000292 003 OF 003


move. It appears increasingly likely that Lula will depart office
with the same anachronistic structure in place as when he took
office, and Brazil will have missed an important opportunity to
address one of the principal elements of the "custo Brasil" that
acts as a drag on Brazil's global competitiveness and productivity.
End Comment.

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

WHITE

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