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Cablegate: Brazilian Federal Government Controls Services

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BRASILIA 000320

SIPDIS

USTR FOR AMAIN, PCOLLINS, SCRONIN
STATE FOR EB/TPP/MTA/MST

E.O. 12958: N/A
TAGS: ECON ETRD BR WTRO
SUBJECT: BRAZILIAN FEDERAL GOVERNMENT CONTROLS SERVICES
REGULATION

REF: (A) 2002 STATE 254964 (B) MONTEVIDEO 0076

1. This cable responds to questions raised in reftel A
regarding regulation of services at the federal and
sub-federal level.

2. Brazil is a Federal Republic. Brazil's government is
comprised of the Federal Government, 26 state governments,
one Federal District government and approximately 5,500
municipalities. The Brazilian Constitution lays out the
respective legislative responsibilities of each of these
governmental layers.

3. Contrary to what was suggested in reftel B, regulatory
authority over services in Brazil resides fundamentally with
the Federal Government. For certain services, including
conditions for the practice of professions, operation of
communication services, energy services, transportation
services, commercial services (distribution, wholesale,
etc.), and financial services, the Constitution specifically
assigns sole legislative/regulatory authority to the Federal
Government.

4. For other areas (environmental services; educational and
training services; recreational, cultural and sporting
services; and health related services), both the Federal
Government and states are allowed to concurrently pass
legislation. However, the Constitution stipulates that in
these areas, federal law overrides state law if the two are
inconsistent. In areas of concurrent legislation, federal
legislation is limited to the establishment of general rules,
with state legislation providing more specificity. According
to the Constitution, for areas in which no federal law
exists, states may exercise full legislative competence.
Municipalities are able to supplement federal and state
legislation where pertinent, including in the areas of mass
transportation, health services and protection of cultural
heritage.

5. It should be noted that with ratification of an
international agreement, its provisions become part of
federal law. For service areas in which no federal
legislation previously existed, the provisions of the
international agreement would establish the federal
regulation, and therefore limiting parameters, of any
sub-federal regulations.

6. Officials within Itamaraty that are responsible for GOB
services negotiations assert that sub-federal regulations are
never inconsistent with federal regulation because all state
and municipal regulations must by law comply with federal
regulation. The argument goes that since the inconsistent
state and municipal laws would automatically be struck down
by the courts, no attempts are made to usurp federal purview.
The clear delegation of regulatory authority as stipulated
in the Constitution supports, but doesn't prove this
contention. The only enforcement mechanisms that appear to
be available are the threat of lawsuits or fines.

7. Post was able to identify one example of a state clearly
defying federal regulators. During the Cardoso
administration, then governor of Minas Gerais, Itamar Franco,
refused to "deverticalize" the Minas Gerais Energy Company
(Cemig) in defiance of a regulation promulgated by the
federal energy regulator (Aneel); the regulation was related
to privatization of the company, which still counted the
state of Minas Gerais as the majority stake-holder. The
company was fined, but the state never capitulated. The new
Minister of Mines and Energy has recently expressed her
opinion that Cemig is not obligated under law to
deverticalize.
HRINAK

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