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Cablegate: U/S Larson Lays Down a Marker On International

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

UNCLAS SECTION 01 OF 03 BRASILIA 001835

SIPDIS

SENSITIVE

TREASURY FOR OASIA - DAS LEE AND SSEGAL
NSC FOR DEPMSEY, DICARLO AND RENIGAR
ROME FOR FODAG
STATE FOR E - TOM SMITHAM
STATE FOR WHA/EPSC - URS

E.O. 12958: N/A
TAGS: EFIN EAID SOCI PREL BR UN
SUBJECT: U/S LARSON LAYS DOWN A MARKER ON INTERNATIONAL
TAXATION WITH THE GOB

REF: A. BRASILIA 1756

B. USUN 1593

This cable is Sensitive but Unclassified, Please Protect
Accordingly.

1. (SBU) Summary: In meetings across Brasilia September 21,
U/S Larson made clear to GoB interlocutors that while the USG
shares Brazil's deep commitment to fighting hunger on a
global scale, elements of President Lula's anti-hunger
initiative that call for international taxation were
non-starters from the U.S. point of view. Larson argued
against mechanisms that might try to short circuit
legislative oversight of funding decisions. Noting that he
wants to ensure that the U.S. and Brazil work together to
develop specific and practical areas of cooperation, Larson
presented a nonpaper containing U.S. suggestions. Thirty
heads-of-state have accepted Lula's invitation to a September
20 meeting in New York in advance of the UNGA to explore ways
to increase development finance, according to the Brazilians.
Foreign Minister Amorim reiterated that President Bush is
invited as well. While the agenda for the September 20
meeting is to discuss innovative financing mechanisms, the
GoB reps stressed that their overriding goal is simply to
reenergize the international dialogue on the issue. End
Summary.

2. (SBU) In a July 21 call on Foreign Minister Amorim, which
was preceded by extensive discussion with Amorim's Chief of
Staff Antonio Patriota and advisor Maria Nazareth Farani, U/S
Larson stated that the USG and GoB shared a common interest
in fighting hunger and promoting development on a global
scale. He expressed confidence that, despite clear
differences of views on some of the financing mechanisms
under discussion, the USG and GoB could identify areas, such
as agricultural development, anti-hunger efforts and the
fight against HIV/AIDs, in which they could enhance
cooperation. Amorim stressed that Lula's initiative is
serious and comes "from the heart," given his personal
experience of hunger and poverty as a child. He welcomed USG
willingness to engage on the issue.

3. (SBU) According to GoB point-person Farani, Brazil is
elaborating along with Chile, France and Spain a paper that
they hope will serve as a basis for discussion at the
September 20 heads-of-state meeting. Patriota and Farani
said that Lula recognizes that fighting hunger on a
sustainable basis implies a broad development agenda. The
GoB initiative aims to increase both the level and
predictability of development financing above and beyond
current ODA levels by identifying new financing sources.
These monies would finance the work of the UN development
agencies, which work within the framework of the UN
Millennium development goals. Farani noted a recent World
Bank report on progress towards those goals called for an
additional USD 50 billion of ODA per year in order to achieve
them. The overriding GoB goal for the September 20 meeting,
Patriota said, is to reenergize the international dialogue on
development finance.

4. (SBU) Turning to the substance of the initiative, Farani
said that the first part envisions the taxation of
international financial flows and major arms sales. These
taxes would not be administered by a supranational authority,
she said, but rather by national authorities coordinating
their work internationally (see Ref A for a more extensive
discussion). The initiative's framers envision this regime
as mandatory, since ensuring compliance would require
universal adherence by countries. This modified Tobin-tax
would be notionally set at 0.01% of international financial
flows, a figure estimated to yield about USD 17 billion.

5. (SBU) Farani added that a second, voluntary, part of the
initiative would involve the promotion of socially
responsible investment funds and making widespread the use of
"incentive" credit cards, that donate a percentage of the
transaction to a cause, in this case the UN development
agencies. A third piece of the initiative envisions building
political consensus to reduce the cost to immigrant
communities of transmitting remittances home, which fees,
Farani said, can be as high as 20%. Farani noted that while
in New York recently, Lula launched a new service that would
substantially reduce the cost of remitting money to Brazil.
A second focus of the political consensus-building effort
would build on work being done in the OECD to reduce tax
evasion by reducing the role of tax havens.

6. (SBU) One of the very important conclusions of the
Monterrey Development Summit, Larson stated, was the need to
look at all resources for development comprehensively.
Developing country exports amount to around USD 2 trillion.
Foreign direct investment flows and remittances contribute
additional significant amounts. Together, these privately
generated flows dwarf ODA. The USG shares the goal of
increasing ODA, Larson said, and expects by 2006 to have
increased its own ODA by 75%. The increase in U.S. ODA,
Larson pointed out, was accomplished by convincing Congress
of its importance. The USG has serious concerns with
efforts, such as the IFF proposal, that appear to be attempts
to circumvent the legislative process. A debate over
international taxation, Larson stated, would likewise
distract attention from what has been a very successful
effort to increase ODA. The USG is nevertheless open to the
sort of dialogue and exploration that the GoB had identified
as one of the goals of its initiative.

7. (SBU) Turning to specifics of potential bilateral
cooperation to fight hunger on a global scale, Larson said he
hoped Brazil would consider joining the food aid convention.
Brazil's agricultural expertise, language and cultural ties
to Lusophone Africa might facilitate joint efforts to help
those African countries' agricultural development, Larson
said. He emphasized that the trade policy agenda in the WTO,
where the USG and GoB share the goal a more open trade regime
in Africa, must complement these efforts.

8. (SBU) Comment: While perhaps disappointed that they did
not change the USG view on taxation of international flows,
these GoB representatives welcomed the constructive tone of
the meetings. We do not expect major changes in GoB rhetoric
on the initiative, but their recognition that the taxation
schemes are not workable without universal participation may,
in time, change its substance.


9. (U) This message was cleared by E staff.
DUDDY

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