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Cablegate: Scenesetter for August 31-September 2 Visit Of

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ZNR UUUUU ZZH
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FM AMEMBASSY BRASILIA
TO RUEHZP/AMEMBASSY PANAMA IMMEDIATE 0300
RUEHC/SECSTATE WASHDC IMMEDIATE 2328
INFO RUEHBO/AMEMBASSY BOGOTA IMMEDIATE 4688
RUEHRG/AMCONSUL RECIFE PRIORITY 8385
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 6528
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2638

UNCLAS SECTION 01 OF 08 BRASILIA 001151

SENSITIVE
SIPDIS

FOR US EMBASSY PANAMA- PLEASE PASS TO CODEL HAGEL

E.O. 12958: N/A
TAGS: OREP PREL ECON BR
SUBJECT: SCENESETTER FOR AUGUST 31-SEPTEMBER 2 VISIT OF
CODEL HAGEL

1. (U) Summary: The relationship between the United States
and Brazil is as productive and broad-based as it has ever
been, the result of the excellent relationship between
President Bush and President Luiz Inacio Lula da Silva, new
cooperation mechanisms on biofuels, business issues, and
economic matters, and our shared goals of fostering
hemispheric stability, promoting democracy, developing a
consensus on next steps regarding climate change, and
achieving a mutually satisfactory conclusion to the Doha
round of WTO negotiations. U.S.-Brazil cooperation on
foreign policy issues is often limited by the GOB's
unwillingness to speak out against anti-democratic actions in
the hemisphere (Venezuela and Cuba), take key steps to
address key issues such as nuclear proliferation and
counterterrorist concerns, and expand its international
leadership in meaningful ways. Operational cooperation on
law enforcement issues, such as counternarcotics, container
security, and intelligence sharing, are highlights of the
bilateral relationship. Brazil's ethanol program has made it
a global model for alternative energy and offers potential
for bilateral cooperation on an important strategic issue.
On the environment, Brazil has long been on the defensive
about the ongoing, extensive deforestation of the Amazon,
which has made Brazil one of the leading producers of
greenhouse gases. The Brazilian labor movement is strong,
well-organized, and very influential in many key industrial
sectors. Lula came out of the organized labor movement and
labor and social issues have always been among his top
priorities. End Summary.

-----------------------------------
Lula Popular, but what comes next?
-----------------------------------

2. (SBU) With his approval ratings at over 70 percent,
President Lula is more popular than at any other point since
he took office in 2003. Continuity and legacy are the
guiding lights of Lula's second term. Lula continues to
shape his legacy as a friend of the poor and builder of a
foundation for prosperity for the lower and middle classes
through broad social welfare programs and a vast, new
economic growth program of public works and growth
incentives. At the same time, Lula has failed to promote
needed reforms to abolish a political culture of corruption,
clientelism, and spoils. Although a seemingly endless series
of corruption scandals has not dented his personal popularity
or that of his government, these scandals have felled
political allies, including cabinet ministers, in recent
years.

3. (SBU) Lula is concerned with finding an electable
successor for 2010, and appears to be grooming his top
domestic policy adviser, Minister Dilma Rousseff, while
keeping other options open. Attention in the media and among
the political elite is already focused on the race; the
opposition governor of Sao Paulo state and former
presidential candidate, Jose Serra, currently leads the pack
of possible candidates.

4. (U) Despite a healthy economy and a slight drop in
homicides registered over the past several years, public
opinion polls consistently show that the top concerns for
Brazilians continue to remain public security and lack of
jobs. These are normally followed by quality of health care
and education, corruption, low wages, and lack of
opportunities for youth. These will likely remain issues
heading into the municipal elections later this year, and
into the 2010 presidential elections.

-------------------------------------
Latin America's Economic Powerhouse
-------------------------------------

5. (U) Brazil is the tenth largest economy in the world, and
received investment grade from Standard and Poor,s and Fitch
this year. Annual GDP growth was 5.4% for 2007, and
inflation approximately 4%. GOB,s inflation target for 2008
is 4.5 percent (current estimated inflation is 6.54%) and the
government has taken a hawkish approach to managing interest
rates. The SELIC benchrate now stands at 13 percent and
market forecasts expect the SELIC could go as high as 15
percent by early 2009. The currency, the real, has
appreciated strongly, currently trading at 1.61 as of August
12. The probably over-valued real combined with the global
slowdown has impacted Brazil,s trade surplus -- for the

BRASILIA 00001151 002 OF 008


first seven months of 2008, Brazil posted a surplus of 14.65
billion USD, down from 23.92 billion the same period in 2007.
While the export sector has been dampened, the strong
currency has permitted Brazilian companies to ramp up
investment in capital equipment.

6. (U) Foreign direct investment in Brazil is 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).
The three key pillars of Lula,s Growth Acceleration Program
(PAC) to enhance infrastructure investment in Brazil are
energy, transportation and sanitation/housing. GOB recently
announced that federal government investment spending from
January 2008-May 2008 was 7.43 billion reais, representing a
24 percent increase from the same period one year ago.
However, Brazil,s investment to GDP ratio (17.6 percent in
2007) remains well below investment ratios in Russia (21
percent), India (34.6 percent) and China (40.4 percent).

7. (SBU) There are other major structural challenges to
long-term growth. Real interest rates are the highest in the
world at almost 7 percent. Growth-limiting distortions in
the economy, including a debt to GDP ratio of 47 percent
(2007), a burdensome tax and fiscal structure, and onerous
labor and business regulations continue to constrain growth.
The informal sector constitutes an estimated 40 percent of
the economy, in part due to the tax burden (36 percent of GDP
in 2007 and an estimated 38.9 percent first quarter 2008),
one of the highest among large developing economies. Brazil
is ranked 122 in the Doing Business report (with 152 days to
start a business) and ranks 92 out of 125 countries for trade
protectionism according to the World Bank. Lula's social
programs, combined with formal sector job growth and real
increases in the minimum wage, have reduced income
inequalities each year since 2004 (2007/08 GINI is 57).

-------------------------------------
An Emerging Player in the Oil Sector
-------------------------------------

8. (SBU) The discovery of massive offshore reserves of oil
and gas estimated to contain between 30-40 billion barrels of
oil equivalent could put Brazil within the top ten oil
countries by reserves. Though the possibilities have
generated a great deal of excitement, industry observers
caution that the technological challenges involved with
ultra-deepwater drilling are extensive, including a worldwide
shortage of equipment such as drilling rigs, meaning that
developments will probably be slow in coming. Petrobras
appears to be overextended internationally and is hamstrung
by limited equipment resources. However, it has launched a
multi-billion dollar procurement initiative and is
reexamining its international priorities so that it can focus
on domestic opportunities. U.S. oil companies are poised and
ready in many cases to take on more exploration opportunities
-- a message that we do not believe industry has adequately
conveyed to the GOB. Brazil has expressed interest in having
U.S. companies involved in the exploitation of Brazil,s oil
reserves as well as in receiving high-level U.S. visitors
with the intention of developing closer bilateral ties.

9. (SBU) Brazil's National Energy Policy Council will meet
later this year to consider competing proposals to manage the
new "pre-salt" (below the ocean,s salt layer at a depth of
over 4000 meters) reserves; one would maintain the current
concession model and increase royalties, the other would
nationalize petroleum reserves and use production sharing
agreements or service contracts to partner with oil companies
to develop them. Both options would yield similar revenue
levels for the government, but political factors will be the
driving force behind the decision on a way forward. Mines and
Energy Minister Lobao said publicly and in private meetings
with high level USG officials that he will propose
legislation that will allow the GOB to maintain the rights to
the pre-salt reserves. In response to criticisms that the
process to rewrite the current law would be too time
consuming, he notes that the Executive has fast track
legislative measures available to it that should enable the
legislation to be enacted early in 2009. The national oil
regulatory agency, industry, and analysts disagree and think
such a change of legislation would be much more complicated,
possibly lasting years, thus their interest in maintaining

BRASILIA 00001151 003 OF 008


the current model. Meanwhile, further leasing of offshore
pre-salt exploration blocks has been suspended; other
off-shore and on-shore blocks are planned for auction in
early 2009. According to Minister Lobao, there will be no new
development of the pre-salt reserves for the near future as
the GOB defines its approach to the presalt finds, focusing
instead on on-shore and shallow water exploration. This is a
very sensitive sovereignty issue for the government,
featuring minefields of bureaucratic infighting. We have
tended to approach the topic by offering the observations of
our industry and willingness to share our experiences in this
field, if so desired.

-------------------------
Brazil's Nuclear Program
-------------------------

10. (SBU) Brazil has recently announced its intentions to
resurrect its long dormant civilian nuclear program.
Although Brazil currently only has 2 plants operating in Rio
State contributing just 2% to the electrical supply, it has
recently announced its intention to complete the third
planned reactor and build several new ones. The GOB has
expressed interest in working with the United States as they
move toward developing their nuclear sector. They have not
signed the IAEA Additional protocol, despite our continued
urging that they do so but neither have they officially
refused. This creates an impediment for Argentina, which like
Brazil has a nuclear program and earlier had a weapons
program. Argentina will not sign an Additional Protocol
until Brazil does. Brazil says it is considering an
Additional Protocol and has not ruled out signing sometime in
the near future. Brazil does not currently have an active
military nuclear program, having voluntarily closed their
program decades ago.

--------
Trade
--------

11. (SBU) Brazil has traditionally cited the need to maintain
coherence with its Mercosul (known in Spanish as "Mercosur")
partners and its role as a leader of the G-20 as constraining
its flexibility in trade negotiations. Mercosul is an
economic mechanism created for political reasons. However, in
what could have been the end-game of the Doha Round, Brazil
calculated that the benefits to Brazil of agreeing to
compromise in an attempt to achieve a carefully balanced
agreement of industrial and agricultural liberalization
outweighed the political cost of moving beyond Argentina,s
preferred negotiating position. This decision drew the
praise of industry as well as the think-tank/academic
community, which has generally assessed that Brazil,s move
will not have a long-term negative effect on Brazil,s
position within the G-20 or Mercosul. Subsequently, President
Lula traveled to Argentina with 300 business representatives
to smooth relations and demonstrate continued interest in
deeper trade and investment ties.

12. (SBU) Although Brazil has made clear it will negotiate
FTAs or other trade agreements only together with its
Mercosul partners, its leadership in Mercosul is key to
concluding any agreement. Brazil,s continuing emergence as a
country willing to engage on trade and other economic issues
in its national interest may indicate further potential for
expanded interest in economic cooperation with the United
States. GOB has made clear its continued interest (and
efforts) in concluding a Doha agreement in the near term.

-------------------------
Brazil's Foreign Policy
-------------------------

13. (SBU) The United States and Brazil share the basic goals
of fostering hemispheric stability, promoting democracy,
preventing terrorist and drug transit activity, supporting
international non-proliferation regimes, and have been
working together to try to achieve a mutually satisfactory
conclusion to the Doha round of WTO negotiations. U.S.-Brazil
cooperation is often limited by the GOB's unwillingness to
take action regarding threats to democracy in specific
countries and to support aggressive action in multilateral
forums on such issues as non-proliferation, human rights, and
democracy. Many Brazilian leaders also take a cautious
approach to relations with the United States, sometimes

BRASILIA 00001151 004 OF 008


falling back on shopworn Latin American leftist rhetoric
about excessive U.S. influence. Brazil maintains an 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.

14. (SBU) With steady export-led economic growth having
become the norm in the recent past, Brazil has been a
supporter of reasoned foreign policy goals and has been
steadfast in its support of democracy in the hemisphere. The
attainment of a permanent seat on the UN Security Council has
been a central goal of Brazil's foreign policy under
President Lula da Silva's government.

15. (SBU) On the Middle East, the GOB is attempting to carve
out a more prominent role for itself, although their efforts
so far, from the U.S. perspective, have yielded mixed
results. Brazil is cautious about taking an active role in
non-proliferation efforts, and has consistently refused to
take a strong position against Iran's nuclear efforts.
Brazilian officials consider their seat at the table in the
Annapolis conference last year as a foreign policy success
and see themselves as balanced in their dealings with Israel
and the Palestinians, but they have yet to define a
substantive role for Brazil.

-------------------
Military Issues
------------------

16. (SBU) Brazil established a Ministry of Defense (MOD) for
the first time in June 1999, uniting the three services
(Army, Navy, and Air Force) under a single minister. Jobim
became Minister last year when the disastrous crash of a
Brazilian airliner highlighted weaknesses in the civil
aviation system, which comes under MOD purview. The Lula
administration,s focus on social reforms and programs has
meant continued lean years for military budgets, leading to
fewer training opportunities and equipment purchases. This
situation is changing as there is now near consensus among
Brazil,s leadership that the military is under-resourced and
under equipped to accomplish its missions. Decisions on
major systems will be influenced much more by access to
foreign technology and opportunities for Brazilian industry
than by the capabilities such systems will add to Brazil,s
military. The Lula government has tasked a new National
Defense strategy to be completed by this fall to provide a
framework for defense modernization.

17. (U) Brazil has advocated a South American Defense
Ministers Council to provide a forum for exchanges on defense
issues. Other governments have expressed willingness to
participate but are concerned that the new Council not
duplicate such existing institutions as the OAS.

------------------------------
The Bilateral Relationship
------------------------------

18. (SBU) The Brazilian public has a mixed view of the United
States. Seventy-five percent say relations between Brazil
and the United States 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 (which the USG is now making an all-out "surge"
effort to reduce), a product of a spike in demand without
commensurate increases in staffing. There is also an
unfounded fear that the U.S. or other foreigners want to take
over or internationalize the Amazon.

--------------------------------------------- --------------
The Bilateral Relationship: Expanding Economic Cooperation
--------------------------------------------- --------------

19. (SBU) We continue to seek opportunities for positive

BRASILIA 00001151 005 OF 008


bilateral cooperation through mechanisms including the
Economic Policy Dialogue (EPD), the second session of which
was held March 6 in Washington. The EPD provides an
important opportunity to reinforce our view of Brazil as
partner in areas of mutual interest. Cooperation to foster
innovation and agricultural coordination, to possibly include
assistance to African countries, are new topics of
conversation bilaterally. Additionally, we have been working
to develop a regional infrastructure initiative. We have
been exploring one another,s regulatory frameworks in hopes
of addressing barriers and achieving a Bilateral Tax Treaty
and a Bilateral Investment Treaty. Brazil has been a
significant leader in WTO Doha Round negotiations, opting to
focus on its own national interest in supporting a compromise
solution, despite the resistance of its Mercosul (Argentina)
and G-20 developing country partners (India and China) and
leading the charge to try to move beyond the apparent
dissolution of the round to try to salvage the work done so
far, hoping to move toward a successful conclusion.

--------------------------------------------- -----------
The Bilateral Relationship: Law Enforcement Cooperation
--------------------------------------------- -----------

20. (SBU) Cooperation on security and law enforcement issues
is a highlight of the bilateral relationship, and a potential
area for increased cooperation as public security is
frequently cited in opinion polls as the most pressing
concern for Brazilians. This concern reflects distressing
crime statistics, including a murder rate on the order of 25
per 100,000 people, over four times the murder rate in the
United States (5.7 per 100,000 in 2006). Newspapers earlier
this year trumpeted the headline that total homicides during
the last 30 years are approaching the staggering figure of 1
million (compared with a little over 500,000 for the U.S. in
the same time period). Since 1991, homicide trends in Brazil
and the United States have taken opposite courses: through
2006 the number of homicides in the U.S. had dropped 31
percent, while Brazil's rate increased 51 percent.

21. (SBU) The newly arrived Resident Legal Advisor is working
in support of USG law enforcement agencies and the political
and economic sections to expand and intensify our relations
with the judiciary, prosecutors, and Brazilian law
enforcement. We hope this year to seat another Brazilian
observer at JIATF-S. Also, the GOB has expressed interest in
negotiating a General Security of Information Agreement
(GSOIA). The Narcotics Affairs Section (NAS) just signed a
new Letter of Agreement with the GOB, which will allow us to
move forward to expand cooperation on counternarcotics and
countercrime issues, including at the state level. Brazil
has been a valuable partner in the efforts to secure our own
borders against terrorism through its support for DHS's
Container Security Initiative (CSI), its implementation of
enhanced passenger screening at airports and its fulfillment
of the International Maritime Organization (IMO) ISPS code on
port and ship security. Immigration and Customs Enforcement
(ICE) is also currently working with the Brazilian
authorities to detect financial and smuggling violations,
financial crimes and commercial fraud with the assistance of
the Trade Transparency Unit (TTU) initiative.

22. (SBU) Department of Homeland Security Secretary Michael
Chertoff's July 2008 visit to Brazil provided the latest
stimulus to an improved relationship in the area of law
enforcement and security between the United States and
Brazil, highlighting new areas of cooperation. The visit
succeded in indentifying potentially fruitful new areas for
cooperation in the areas of cyber-crimes, infrastructure
protection, and port security.

--------------------------------------------- -------------
The Bilateral Relationship: Counterterrorism Cooperation
--------------------------------------------- -------------

23. (SBU) Although senior policy levels of the GOB have not
publicly endorsed U.S. counterterrorism initiatives,
cooperation on counterterrorism matters is good at the
operational level. The Lula administration just restructured
its intelligence apparatus to beef up the counterterrorism
focus. Brazil has no legislation outlawing terrorist-related
activity or financing of such activity.

24. (U) The governments of Argentina, Brazil, and Paraguay
have long been concerned over illicit activities in the

BRASILIA 00001151 006 OF 008


tri-border area (TBA) joining Foz de Iguacu in Brazil, Ciudad
del Este in Paraguay, and Puerto Iguazu in Argentina. This
TBA concentrates a range of organized criminal activities,
including arms and narcotics trafficking, document fraud,
money laundering, as well as the manufacture and movement of
contraband goods. A wide variety of counterfeit goods,
including cigarettes, CDs, DVDs, and computer software, are
moved from Asia into Paraguay and transported primarily
across the border into Brazil. This inflow of illicit goods
stands to be increased with the potential passage of
legislation that purports to ease customs procedures for
small-scale importers but, due to a lack of enforcement
provisions, would likely serve to abet traffickers. The
United States remains concerned that Hizballah and HAMAS are
raising funds in the area by participating in illicit
activities and soliciting donations from extremists within
the sizable Muslim communities in the region. The GOB
publicly downplays the possibility of terrorist fund-raising
inside Brazil and does not consider Hizballah or HAMAS to be
terrorist organizations.

25. (U) In the 1990s, the three governments established a
mechanism, which the USG joined in 2002 at their invitation,
to address illicit activities in the TBA. The "3 1 Group on
Tri-border Area Security" is intended to improve the
capabilities of the three TBA states to thwart cross-border
criminal activity and potential terrorist fundraising
activity. Brazil is an active partner within this mechanism,
but the effectiveness of this group is hampered by GOB
denials of any potential terrorist activity taking place in
their territory. The suggestion that planning for the 1994
bombing of AMIA, an Argentine Jewish center, might have taken
place in Brazil caused the GOB to abstain in an international
vote over whether to issue Interpol warrants for Iranian
officials accused in the case, an action that disappointed
and irritated Argentina. Nonetheless, Brazil has established
and hosts a Joint Intelligence Center (JIC) in Foz de Iguacu
to combat transnational criminal activity, although staffing
issues on the part of Argentina and Paraguay continue to
impede its full functioning.

--------------------------------------------- -----
The Bilateral Relationship: Biofuels Cooperation
--------------------------------------------- -----

26. (SBU) Brazil has transformed a 1970s program to bolster
its large sugar-cane sector into a remarkable showcase for
biofuels. The success of Brazil's ethanol program has made
it a model for the world in terms of alternative energy and
presents the potential for bilateral cooperation on an
important strategic issue. Brazil's comparative advantage is
its ability to produce huge quantities of sugarcane, which is
currently the most efficient feedstock for ethanol. Cane
requires far less processing than corn to produce ethanol.
According to the World Bank, at current prices, Brazil can
make ethanol for about one US dollar per gallon, compared
with the international price of about USD 1.50 per gallon for
gasoline.

27. (U) The ethanol industry in Brazil continues to grow.
Petrobras just announced the formation of a new biofuels
company. In the coming year alone, Brazil's production of
sugarcane-based ethanol is projected to increase 14.8
percent. On the demand side, Brazil's use of modest tax
breaks have led new car purchasers to opt overwhelmingly for
"flex-fuel" cars that can run on either gasoline, ethanol, or
any combination of the two. This year ethanol surpassed
gasoline as the major automotive fuel. Domestic demand
consumes 85 percent of all production. The other 15 percent
is exported, primarily to the United States. The ethanol
private sector is increasingly partnering with international
companies in building production facilities, as well as
addressing the internal logistics problems that undermine the
profitability of ethanol exports. These include
infrastructure bottlenecks in Brazil as well as various
international tariff regimes.

28. (SBU) Following the signing of the MOU in March 2007,
Brazil and the United States have been seeking ways to
increase our collaboration in order to develop the next
generation of biofuels, as well as in developing
international standards on biofuels which should facilitate
their greater international acceptance and use. The biofuels
initiative has provided the groundwork for increasingly
positive bilateral relations and has produced some notable

BRASILIA 00001151 007 OF 008


results, including a model for biofuels standard regimes
internationally and cooperative efforts to aid Haiti, El
Salvador, St. Kitts and Nevis, and the Dominican Republic in
developing their own ethanol capacity, and now looking to
identify a new tranche of countries for further cooperation.
The GOB and USG are pursuing cooperative scientific
activities to develop the next generation of biofuels. The
more numerous and often better-funded U.S. scientists and
laboratories can benefit from this cooperation with Brazil's
world-class cadre of scientists and laboratories, which have
established an impressive record over the last 30 years.
Although the general relationship under the MOU has been
constructive and positive, there has been some increased
tension recently over public statements by some GOB
officials, including President Lula, differentiating between
corn and sugar-based ethanol and placing the blame for the
food for fuel crisis on corn based ethanol production.

29. (U) One interesting area that may be a potential focus
for future collaboration is bioelectricity, which has been
touted as the short-term solution to Brazil's potential
electricity shortages. It is a clean source of electricity
that requires little start-up time and is complementary to
Brazil's predominately hydroelectric generation.
Bioelectricity production in Brazil is likely to increase as
it provides another revenue stream for sugar and ethanol
producers and ultimately may be the decisive factor in
determining which operators stay in business. There are
prime opportunities for U.S.-Brazil bilateral cooperation on
technological development in
gasification that would advance the market for both biomass
products.

---------------------------------------
Extreme Sensitivity on Sovereignty
---------------------------------------

30. (U) There is long-standing and widespread fear among
Brazilians that the United States or other foreigners want to
take over or internationalize the Amazon. Although
demonstrably unfounded, it surfaces regularly in official and
media circles, as with President Lula's recent assertions
that "The Amazon has an owner." More recently, the prospect
of enormous oil reserves off Brazil's coast have added new
fears that the United States or others might have designs on
these, as well. Some Brazilians have linked the
just-announced re-establishment of the U.S. Fourth Fleet to
these Brazilian oil discoveries. Many Brazilians have
expressed concern over the fleet, including Foreign Minister
Amorim and four members of the Senate Foreign Affairs and
National Defense Committee, who visited Ambassador Sobel on
July 9 to express objections to the re-establishment of the
Fourth Fleet. Ambassador Sobel has stressed that no ships are
assigned permanently to the Fleet, it is not being
reactivated with an offensive purpose, and ships assigned to
it would not come into Brazilian waters without Brazilian
permission. Its main missions will be support of peacekeeping
operations, such as in Haiti, respond to natural disasters,
such as Hurricane Felix in Nicaragua, organize humanitarian
relief, typically of a medical nature, and assist
counternarcotics efforts. Standing up the Fourth Fleet
intends to demonstrate the priority the United States places
on its partnerships in Latin America and will help ensure
that Latin America remains a high priority for U.S.
engagement. Post has been conducting an information campaign
on the Fourth Fleet and is continuing to do all it can to
dispel any myths so that misconceptions about the Fourth
Fleet do not take hold, though the issue could come up during
the course of your meetings.

31. (U) Defense Minister Nelson Jobim stated publicly in
early June that Brazil needed to improve security for its
off-shore oil resources and that, as permitted by the UN
Convention on the Law of the Sea (UNCLOS), Brazil was
planning to increase the 200-mile exclusive economic zone to
350 miles to include the Santos basin and other oil deposits
located on Brazil's continental shelf. Although there were
suggestions in the press that the United States might not
respect such an extension because we have not ratified
UNCLOS, the United States does fully respect exclusive
economic zones established pursuant to customary
international law as reflected in UNCLOS. Furthermore, the
US has established its own exclusive economic zone according
to the same customary international law. UNCLOS recognizes
the sovereign rights of a coastal State over its continental

BRASILIA 00001151 008 OF 008


shelf, which extends out to 200 nautical miles--and beyond,
if it meets specific criteria. These rights include
sovereign rights for the purpose of exploring the continental
shelf and exploiting its natural resources, including oil,
gas, and other energy resources.


KUBISKE

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