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Cablegate: Brazil: Scenesetter for Usdel to Prep Meeting for the Joint

VZCZCXRO5442
RR RUEHRG
DE RUEHBR #1406/01 3010951
ZNR UUUUU ZZH
R 270951Z OCT 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 2732
INFO RUEHRG/AMCONSUL RECIFE 8625
RUEHRI/AMCONSUL RIO DE JANEIRO 6792
RUEHSO/AMCONSUL SAO PAULO 2965

UNCLAS SECTION 01 OF 04 BRASILIA 001406

SIPDIS

DEPARTMENT FOR OES/STC AND WHA/BSC

E.O. 12958: N/A
TAGS: KSCA SENV ENRG BR
SUBJECT: BRAZIL: SCENESETTER FOR USDEL TO PREP MEETING FOR THE JOINT
COMMISSION ON SCIENCE AND TECHNOLOGY, OCT. 30-31

1. SUMMARY: The overall relationship between the United States and
Brazil is as productive and broad-based as it has ever been, with an
excellent relationship between President Bush and President Luiz
Inacio Lula da Silva. A variety of cooperative mechanisms have been
created or revitalized in recent years, including the Joint
Commission Meeting (JCM) on Science and Technology (which met for
the first time in July 2006 in Washington), the CEO Forum (which
focuses on private sector concerns), the Economic Partnership
Dialogue, the Biofuels Memorandum of Understanding (MOU), and the
Common Agenda for the Environment. Brazil and the United States
share the goals of fostering hemispheric stability, promoting
democracy, developing a consensus on next steps regarding climate
change, achieving a mutually satisfactory conclusion to the Doha
round of WTO negotiations in the near-term, and supporting their
science and technology (S&T) communities. The bilateral S&T
relationship has been expanding and maturing, moving out from a
solid base of cooperation in agriculture, health, basic sciences,
and earth sciences. Most notably, there has been substantial
progress in collaboration on next generation of biofuels research.
END SUMMARY.

2. The U.S. delegation's participation in the October 30-31
preparatory, technical-level meeting in Brasilia of the Joint
Commission (JCM) on Science and Technology (S&T) is an opportunity
to help shape the direction and pace of U.S.-Brazil S&T cooperation.
There is potential to build on well-established S&T cooperative
areas (such as in agriculture and health), to develop new fields
(such as in biofuels), and to revive previously more active areas
(such as in remote sensing, biodiversity and climate change). Our
bilateral relationship has been strong in recent years and
Brazilians are acutely aware of the upcoming change of
administrations and want to know what it means for them. Although
the S&T sphere tends to be less buffeted by political winds than
others, Brazilian counterparts are likely to be keenly interested in
learning what will be the impact of cooperation with a new
administration. We expect that a significant portion of the meeting
will revolve around discussion of the transition.

SCIENCE AND TECHNOLOGY IN BRAZIL

3. The Ministry of Science and Technology (MCT) and its agencies,
such as the National Institute for Space Research (INPE) and the
National Council on Scientific and Technological Development (CNPq),
play leading roles in developing S&T policy and funding research.
MCT Minister Sergio Rezende, a graduate of MIT, has sought to
increase S&T funding and is receptive to cooperation with the USG.
Moreover, some key research areas are outside of the purview of MCT,
including: agricultural research, which the Ministry of Agriculture
(MAPA) conducts through its research arm (EMBRAPA), and the health
research, which the Ministry of Health oversees through
laboratories, such as FIOCRUZ. In addition, federal universities,
state and private universities, and the private sector (such as
Petrobras, Embraer and Dedini) are home to some world class
scientists and laboratories.

4. In November of 2007, Brazil launched its National Science and
Technology Plan. The Plan covers the period 2008 to 2010 and calls
for record funding of approximately Reais 22.8 billion (around USD
10 billion). The Plan holds four general priorities: (1) expansion
and consolidation of the Brazilian National Science and Technology
system; (2) promotion of technological innovation in the private
sector; (3) research and development in strategic areas; and (4)
science and technology for social development.

5. In August 2008, MCT working with the CNPq, the graduate level
education support agency (CAPES), and with state-level research
institutes launched a plan to create a "Network of National
Institutes of Science and Technology". This involves providing over
the next two years Reais 435 million (or about USD 200 million) to
about 60 existing institutes to do research in strategic areas:
biotechnology, biodiversity and climate change, nanotechnology,
information technology, health, agriculture, nuclear, space and
Antarctic, and defense and public security.

6. The Ministry of External Relations (MRE) is involved in
international S&T cooperation. MRE recently created a new Under
Secretary position responsible for S&T, as well as energy, which is
filled by Amb. Andre Amado. The MRE has had a special focus on
promoting south-south relations in Brazil's foreign policy,
including in the S&T area. The MRE also recognizes the value of
Brazilian scientists and laboratories working with U.S. counterparts
and the MRE has been supportive of developing collaborative research
projects, in such areas as biofuels and health.

BILATERAL SCIENCE AND TECHNOLOGY RELATIONSHIP

7. There is an overarching U.S.-Brazil S&T Framework Agreement
dating back to 1984, which provides a legal framework for

BRASILIA 00001406 002 OF 004


cooperation highlighted by the JCM on S&T. In addition, there are
numerous MOUs and other arrangements between USG agencies and
Brazilian ones. Unfortunately, delays have arisen because the MRE
will decide that it needs to send an agreement to Congress for
approval, which can take years to obtain, or the MRE moves slowly or
not at all on proposals. For example, the NASA agreement on the
Large-scale Biosphere-Atmosphere (LBA) program, which was signed in
2006, has not yet been transmitted to the Brazilian Congress for
approval.

8. The U.S.-Brazil bilateral S&T relationship has a long and
positive history, involving a wide swath of USG technical agencies.
In the last ten years, some of the most important S&T activities
involved:

- agriculture research (U.S. Department of Agriculture's Agriculture
Research Service and the Brazilian counterpart EMBRAPA through the
LABEX program);

- health research (the National Institutes of Health with Brazilian
health researchers);

- earth sciences (the U.S. Geological Survey and Brazilian
counterparts);

- remote sensing and the environment (NASA, NOAA, the Smithsonian
Institution working with INPE and other Brazilian counterparts);
and

- basic science (the National Science Foundation and CNPq).

9. With the signing of the bilateral Biofuels MOU in March 2007,
Brazil and the United States have been vigorously pursuing
collaborative research on the next-generation of biofuels.
Scientists from both countries have made exchange visits, the most
recent in Brazil during the month of June. The scientists have
presented a joint work plan and proposals for cooperation are now
moving from the drawing board into the implementation stage. Apart
from biofuels, both sides of signaled an interest are looking at
possibilities of other types of collaborative energy research, such
as with clean coal, energy efficiency, and renewable energy.
Petrobras' research laboratory CENPES and the Energy Department's
National Renewable Energy Laboratory (NREL) have recently signed an
MOU to cooperate on next generation biofuels research. The
NREL-CENPES MOU will be announced at the November 17 - 21
International Biofuels Conference being held in Sao Paulo.

BACKGROUND - FINANCIAL CRISIS

10. In response to the financial crisis, Brazil's Central Bank has
responded appropriately in selling reserves, offering derivatives,
and deferring higher bank reserve requirements in hopes of freeing
up credit. Also, it has indicated that future interest rate hikes
are unlikely given the diminishing threat of inflation due to a
global slowdown and falling commodity prices. Brazilian officials
acknowledge the effects of the global slowdown but confirm the
country is well-placed to weather the crisis. President Lula has
criticized the United States for a lack of financial regulation,
claiming that a global regulatory body is needed to address the
situation. Although Brazilian markets have taken a beating in
recent weeks and the Real has seen an erosion of its strength from
earlier this year, large Brazilian companies are confident that they
will weather the storm, though there are worries about the effect of
a tightened credit market for smaller enterprises. President Lula
has spoken to President Bush several times in relation to the crisis
and has confirmed his participation in the November 15 summit in
Washington.

BACKGROUND - POLITICAL AND FOREIGN POLICY

11. Brazil's democratic institutions are generally strong and
stable. President Lula remains a personally popular president as a
result of his orthodox economic policies and expanded social
programs. Ongoing scandals involving the leadership of the
legislature and almost every Minister have led to low ratings for
these institutions among the Brazilian public but have not touched
Lula.

12. The United States and Brazil share the basic goals of fostering
hemispheric stability, promoting democracy, preventing terrorist and
drug transit activity and supporting international non-proliferation
regimes. Wehave been working to try to achieve a conclusion to the
Doha round of WTO negotiations. The attainment of a permanent seat
on the United Nations Security Council has been a key goal of
Brazil's foreign policy under President Lula's government.
Regionally, Lula has maintained Brazil's historic focus on
stability, seeing dialogue and good relations with all parties as
the best way to achieve this goal. As a result, Brazil maintains an

BRASILIA 00001406 003 OF 004


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.

13. The Brazilian public has a mixed view of the United States.
Seventy-five percent say relations between Brazil and the U.S. 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, a product of a spike in demand without
commensurate increases in staffing.

BACKGROUND - ECONOMIC SITUATION

14. Brazil is now the tenth largest economy in the world, with a
trade surplus and investment grade credit rating from S&P and Fitch
this year. Annual GDP growth was 5.4% for 2007, and inflation about
4%. Prior to the financial crisis, foreign direct investment in
Brazil had been 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).

15. However, there are major structural challenges to Brazil's
long-term growth. Real interest rates are the highest in the world
at over 7 percent. The informal sector constitutes an estimated 40
percent of the economy, in part due to the tax burden (36 percent of
GDP in 2007), one of the highest among large developing economies.
Growth-limiting distortions in the economy, a burdensome tax and
fiscal structure, and onerous labor and business regulations
continue to constrain growth.

16. Despite significant progress toward stabilizing the economy,
Brazil remains unequal in income distribution, with 10 percent of
the population making up over 50 percent of the nation's wealth.
Brazil is home to 50 percent of the people who live in extreme
poverty in Latin America. President Lula in his first term launched
social programs, which combined with formal sector job growth and
real increases in the minimum wage, have markedly reduced income
inequalities since 2004. Energy, transportation and
sanitation/housing are the three key pillars of Lula's Growth
Acceleration Program (PAC) to enhance infrastructure investment in
Brazil.

17. The discovery of massive offshore reserves of oil and gas
estimated to contain between 30-80 billion barrels of oil could put
Brazil within the top ten oil countries by reserves. The reserves
are located in the Santos Basin off the coast of Sao Paulo. Though
the possibilities have generated a great deal of excitement,
industry observers caution that the technological challenges
involved are extensive, including a lack of equipment such as
drilling rigs for deposits of this depth. Such challenges mean that
developments will probably be slow in coming. Brazil will look to
the United States and other partners for assistance in the
exploration and production of these new reserves. Some have
questioned whether the financial crisis will mean a slowing of
exploration as financing for the necessary infrastructure investment
becomes more difficult, but government statements so far dismiss
that concern.

ENVIRONMENT, DEFORESTATION AND CLIMATE CHANGE

18. Tropical forests with bountiful biodiversity cover more than
half of Brazil. Unfortunately, high rates of deforestation have
resulted in the clearing of nearly 20% of the Amazon forest. With
70% of the Amazon forest within its territory, Brazil plays a key
role in environmental conservation and in decreasing the levels of
greenhouse gas emissions from deforestation worldwide. Recent
modeling shows that a combination of rising temperatures, frequent
droughts and fires caused by global warming could exacerbate forest
degradation and could lead to a "tipping point", where the rainfall
patterns in the Amazon are so disrupted that the rainforest
collapses and is replaced over large areas by a mixture of savannah
and semi-arid ecosystems. The implications of this massive
ecosystem shift for biodiversity, global climate change, and human
livelihoods would be profound.

19. Brazil is a key player in the ongoing negotiations for a new
international climate change agreement to succeed the Kyoto

BRASILIA 00001406 004 OF 004


Protocol. It has become an active participant in the Major
Economies process. While a fierce defender of the principle of
"common, but differentiated responsibilities," Brazil sees a need
for an appropriate balancing of environmental and economic concerns
when addressing the problem. Brazil recognizes the importance of
reducing deforestation, but is fearful of accepting binding goals
which might be used to justify trade sanctions or other punitive
measures.

SOBEL

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