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Cablegate: Brazil: Ambassador's Meeting with Tax and Customs Chief

VZCZCXRO6414
PP RUEHRG
DE RUEHBR #1971/01 2611732
ZNR UUUUU ZZH
P 181732Z SEP 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6684
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2889
RUEHRG/AMCONSUL RECIFE 5457
RUEHSO/AMCONSUL SAO PAULO 8060
RUEHBU/AMEMBASSY BUENOS AIRES 4272
RUEHSG/AMEMBASSY SANTIAGO 5784
RUEHAC/AMEMBASSY ASUNCION 5667
RUEHMN/AMEMBASSY MONTEVIDEO 6468
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDO/USDOC WASHDC
RHEHNSC/NSC WASHDC
RUEAHLC/DHS WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 001971

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USAID FOR LAC
NSC FOR FEARS
TREASURY FOR OASIA - J.HOEK AND TAX OFFICE - P.BROWN
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
DHS FOR ICE

E.O. 12958: N/A
TAGS: EFIN ETTC PGOV PREL EINV BR
SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH TAX AND CUSTOMS CHIEF
RACHID


(U) This cable is Sensitive but Unclassified, please protect
accordingly.

1. (SBU) Jorge Rachid, Secretary of Brazil's Receita Federal, the
finance ministry agency which oversees both tax collection and
customs, assured the Ambassador in a September 14 meeting of the
GoB's continued intent to work closely with the USG on security and
law enforcement, including through the Container Security Initiative
(CSI). Rachid said he would welcome a visit by DHS Secretary
Chertoff. Rachid raised ongoing informal discussions between
Receita and Treasury on a potential tax treaty, noting that there
were large hurdles to be overcome. The Ambassador urged that
Receita participate actively in the Commercial Dialogue that
Commerce Secretary Gutierrez and Minister of Development, Industry
and Trade Furlan had launched. In a follow-up conversation
September 15, Rachid's international affairs advisor told Econoff
that Receita would be pleased to send representatives to visit U.S.
Customs operations and view express delivery service operations.
End Summary.

Security/Law Enforcement
------------------------

2. (SBU) The Ambassador thanked Rachid for Receita's close
cooperation on law enforcement and security. Rachid, a career
official who started out as an auditor, said that Receita's goal is
to facilitate commerce while maintaining appropriate security and
enforcement measures in place. Rachid noted Brazil's participation
in CSI and said he would welcome a visit to Brazil by DHS Secretary
Chertoff. The Ambassador suggested that it would be useful for
Rachid to send a senior representative to Washington DC ahead of any
such a visit in order to more sharply focus the agenda. Rachid
agreed.

Tax Treaty
----------

3. (SBU) Rachid raised ongoing informal discussions over the
potential for a bilateral tax treaty. He cautioned, despite the
enormous interest in a treaty by Brazilian and U.S. businesses, that
neither party allow expectations to get ahead of reality, for there
are serious differences to overcome. The GoB's two primary
concerns, he said, were the potential for revenue loss given the
mismatch in investment stocks and flows between the two countries,
as well as what he called an "adjustment mechanism," which if not
granted by the U.S., would create a problematic precedent for other
Brazilian tax treaties. (Comment: Rachid appeared to be referring
to the issue of "tax sparing," which Brazil has in the past insisted
on including in its tax treaties.) Despite these two major points,
Rachid expressed confidence in the professionalism of the
negotiating teams and their ability to bridge the gaps. The teams
were systematically tackling and resolving all other issues,
including that of information sharing, Rachid said. The Ambassador
urged that the teams not let the process grind to a halt once the
easy agreements had been achieved.

Business Facilitation/Customs Issues
------------------------------------

4. (SBU) The Ambassador briefed Rachid on the Commercial Dialogue
launched by Secretary Gutierrez and Minister Furlan. One of the
main areas of discussion in the business facilitation working group,
he noted, was to identify ways to give greater celerity to trade
flows. U.S. Customs, the Ambassador said, had invited Receita
representatives to visit their operations on the border with Canada,
where quick large-scale cargo clearing was key to the integrated
functioning of the automotive industry in both countries. The visit
also would include a stop at the operations center of a large
express delivery company, to view how Customs worked hand in hand
with industry to facilitate their operations. Rachid professed to
be unaware of the invitation, but welcomed the idea. In a follow-up
conversation September 15, Rachid's International Affairs Advisor,

BRASILIA 00001971 002 OF 002


Zayda Bastos, told Econoff that Receita would be pleased to accept
the invitation.

5. (SBU) Rachid reaffirmed his willingness to work with the USG to
facilitate trade flows. Although there are many agencies involved
in the process of clearing imports and exports, he stated, "if you
have a problem with customs, bring it to me". Rachid noted that
Receita already is working on methods to address some of the
bottlenecks that hinder express delivery services in Brazil. They
currently are working on getting Receita's computer system to
communicate directly with the companies' systems, a key step to
reducing clearance times.

6. (SBU) Comment: Given Rachid's apparently genuine willingness to
hear our issues, this direct channel of communication at a senior
level would seem to be a useful way to advance the Commercial
Dialogue.

SOBEL

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