Cablegate: Brazil: Investment Agreement Discussion On Epd Margins

DE RUEHBR #1552 3390938
R 040938Z DEC 08




E.O. 12958: N/A
SUBJECT: Brazil: Investment Agreement Discussion on EPD Margins


1. (SBU) Summary: DOS and USTR representatives met with Brazilian
Ministry of External Relations officials Carlos Marcio Cozendey,
Minister, Director of the Economic Development Department and
Marcello Salum, Gabinete to the Under-Secretary for Economic and
Technology Affairs, on October 29, in advance of the Economic
Partnership Dialogues (EPD) on the 30, to continue
investment-agreement-related discussions. Cozendey acknowledged
that Brazil is still not ready to begin negotiating a Bilateral
Investment Treaty (BIT), but does see internal Brazilian movement in
this direction. Cozendey proposed a detailed agenda for the next
round of investment discussions, including CFIUS and indirect
expropriation. End summary.
2. (SBU) Cozendey stated that BITs suffered from a negative
perception, explaining that many politicians felt Brazilian
investors would be discriminated against in terms of dispute
resolution, based on the Brazilian investors only having local
remedies available in Brazil whereas foreign investors would also
have international arbitration available. He also reiterated some
of the same GOB concerns expressed at the investments talks on the
margins of the last EPD, including provisions relating to
investor-state arbitration, indirect expropriation, coverage, and
transfers. Cozendey contrasted a more stable Brazilian business
environment today with that of the early 90's in arguing for a
smaller BIT role in Brazil.
3. (SBU) Despite a perceived lack of political interest in moving
forward with BIT negotiations, Cozendey conceded that recent direct
expropriations of Brazilian investments in Bolivia and Ecuador
prompted increase attention on FDI protection mechanisms on the part
of the Brazilian business community. However, Cozendey noted that
this concern is primarily born from Brazilian investment domiciled
in less stable markets, adding that the private business community
is still not pressing for legislative changes.
4. (SBU) Cozendey described key principles in Brazil's new
investment agreement model while acknowledging that they were not as
extensive as the USG BIT requirements. Cozendey explained that the
new GOB approach did not include provisions for mandatory
investor-State arbitration, nor protections against "indirect"
expropriation in which government actions destroy the value of an
investment. Instead, Cozendey clarified that it provided protection
only with respect to direct expropriation in which a government
takes property's legal title. Cozendey added that the new GOB
approach limits the scope of investments covered by the agreement to
direct but not portfolio investments and that the model includes
significant cross-references to national legislation, rather than a
reliance on international standards. Cozendey stressed that this
new approach was intended to address concerns in Brazil's Congress
that led to the GOB's failure to win ratification approval for the
BITs negotiated in the 1990s.
5. (SBU) GOB suggested continuing to hold periodic investment policy
discussions on the margins of the bi-annual EPD. Cozendey expressed
interest in CFIUS reform and suggested an earlier meeting should
more details become available on proposed regulations implementing
the Foreign Investment and National Security Act of 2007 (FINSA).
Cozendey suggested a more expansive agenda for the next meeting to
included discussions on indirect expropriation and related cases
handled under NAFTA, and a further update on CFIUS; he expects to
bring Finance Ministry officials to the next meeting. Salum added
that he would like to discuss and examine dispute resolution cases
involving FDI in public utilities and parastatal companies at the
next meeting.
6. (SBU) Comment: Although no breakthrough was achieved during the
meeting, there were definite signs that the GOB is interested in
continuing an investment dialogue, especially in light of increased
Brazilian investment abroad. End Comment

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