Cablegate: Charge Meeting with Brazilian Private Sector Co-Chair Of

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FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 9677
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
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RUEHBU/AMEMBASSY BUENOS AIRES 3661
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RUEHMN/AMEMBASSY MONTEVIDEO 2973
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RUEHPU/AMEMBASSY PORT AU PRINCE 0052

UNCLAS SECTION 01 OF 02 SAO PAULO 000599

SENSITIVE
SIPDIS

STATE PASS USTR FOR EISSENSTAT AND ROHDE
NSC PASS FROMAN AND RESTREPO
NEC SUMMERS
COMMERCE FOR ITA DRISCOLL AND FUSSELL
TREASURY FOR MMUDACA AND HLOUIE

E.O. 12958: N/A
TAGS: ECON BEXP ETRD EFIN PREL PGOV BR
SUBJECT: CHARGE MEETING WITH BRAZILIAN PRIVATE SECTOR CO-CHAIR OF
CEO FORUM

REF: (A) SAO PAULO 367; (B) BRASILIA 1201

1. (SBU) SUMMARY: Charge d'Affaires, Sao Paulo Consul General and
Senior Commercial Officer met October 1 with Josue Gomes da Silva,
President of leading textile maker Coteminas and the Brazilian
private sector co-chair for the U.S.-Brazil CEO Forum. In a long
informal meeting, Gomes da Silva said the Forum was making progress
on priority issues, expressed hope for a bilateral tax treaty,
encouraged a 'pro-trade' alternative to cross retaliation on cotton
subsidies, and proposed a U.S.-Brazil bilateral trade preferences
program for Haiti and other low-income countries. Gomes da Silva
said he was working with the GoB to schedule the next Forum meeting
in Brazil for March 8-9, 2010. END SUMMARY.

Great Potential Following July Meeting
--------------------------------------

2. (SBU) Da Silva commended the last CEO Forum meeting held in
Washington July 20-21 and the new administration's efforts. He
specifically thanked Commerce Secretary Locke, Deputy National
Security Council (NSC) Director Froman and National Economic Council
(NEC) Director Summers for their time and said that President
Obama's drop-by with General Jones demonstrated the Forum has the
interest at the highest levels in both governments. He applauded
the engagement for giving the Forum a "good restart and opportunity
to re-engage on certain issues." Nevertheless, Gomes da Silva
warned of difficulty moving ahead with a bilateral tax treaty (BTT)
and a bilateral investment treaty (BIT). He was optimistic,
however, that the Forum could make quick progress on other issues
such as transportation cooperation, increased frequency of flights,
and reform of visa regulations.

Holding Out Hope on BTT
-----------------------

3. (SBU) Specifically on the BTT, Gomes da Silva remained
optimistic, and said he will try to restart the process toward a BTT
in the next two months by encouraging the GOB to bring back into the
process certain key personnel, such as Marcos Vinicius Pontes who
had led the international tax affairs division at Receita Federal
and was previously the lead on the tax treaty negotiations. Gomes
da Silva told Charge he would also try to bring Lytha Spindola into
the process. Spindola currently is the executive secretary for the
interagency Chamber of External Trade (CAMEX) and reports to the
Minister of Development, Industry and Trade (MDIC), but previously
worked in Receita Federal and is widely respected within the
government and private sector. He felt that "under the old team"
both governments had gotten near an agreement on the remaining key
issues. However, he blamed massive changes in Receita Federal after
former head Jorge Rachid left for a loss in momentum.

4. (SBU) Gomes da Silva added that ex-Minister of Finance and
current Chamber Deputy Palocci had recently mentioned some possible
solutions without elaborating. [COMMENT: He was likely referring to
tax sparing and Receita Federal support of a Tax Information
Exchange Agreement (TIEA).] He then noted Brazilian private sector
concerns that if a TIEA is passed, the GOB would not complete a BTT.
He added that this "misperception" is even more prevalent now,
given the "lame duck" nature of the current government.

WTO Cotton Dispute-Look for a Pro-Trade Way Forward
--------------------------------------------- ------

5. (SBU) Gomes da Silva told the Charge that constructive proposals
on a WTO cotton resolution are needed as good faith gesture to move
the Foreign Ministry away from their focus on "retaliation." While
admitting that Brazilian diplomacy has a bias toward retaliation, he
proposed the GOB focus instead on ideas that open the U.S. market to
Brazilian goods. Specifically, he suggested an offset in import
duties for an amount equal to the WTO authorized retaliation. Gomes
da Silva informed the Charge that he and U.S. private sector
co-chair Tim Solso have sent a letter to United States Trade
Representative (USTR) Kirk and Foreign Minister Amorim advocating

SAO PAULO 00000599 002 OF 002

this approach to the cotton dispute. Moreover, Gomes da Silva said
Brazil should focus on duty free access for goods that do not hurt
U.S. domestic producers, but instead displace goods coming from
third countries. He told the Charge he is pressing the GOB for this
"pro-trade" response as a mechanism for the two countries to "send a
message to the world" that they are serious about trade cooperation.
[NOTE: Sao Paulo Federation of Industries (FIESP) International
Relations Director Mario Marconini made a similar third country
pro-trade suggestion to NSC Director Froman during his June visit to
Brazil (ref A) and FIESP International Trade Director Roberto
Gianetti da Fonseca echoed the concept to USTR Kirk in September
(ref B). END NOTE.]

6. (SBU) In the vein of potential third country trade cooperation as
another alternative to retaliation, Gomes da Silva suggested the
United States and Brazil create a two-way trade preference program
modeled on HOPE II for Haiti or nations in Sub-Sahara Africa. Under
his vision, Brazil would open its market for certain goods (e.g.,
U.S. tennis shoes assembled in Haiti with U.S. synthetic materials)
for sale in Brazil, and the United States would open its market for
certain goods (e.g., apparel, which he pointed out his company
Coteminas does not make) assembled in Haiti from Brazilian cotton.
Gomes da Silva, who made a similar suggestion during NSC Director
Froman's visit, argued such a program would create jobs in Haiti and
market opportunities for U.S. and Brazilian companies and
potentially serve as mechanism for establishing offsets to cotton
retaliation. In addition to sidestepping a market-closing
retaliation, a proposal based on cooperating on trade benefits to
third countries could appeal to GOB interests in development
cooperation in Africa and Haiti, Gomes da Silva suggested. He was
optimistic that the GOB would approve this concept and asked for
U.S. Government support.

Next CEO Forum Meeting
----------------------

7. (SBU) As for the next CEO Forum, Gomes da Silva said he is
checking to make sure GOB leadership is available March 8-9, 2010.
He said his U.S. counterpart, Tim Solso, is also checking with the
U.S. CEOs and government leaders to confirm the March 8-9 date.
Gomes da Silva was unaware of any other potential dates being
considered by the GOB or the CEOs.

Comment
-------

8. (SBU) Gomes da Silva's confidence in the CEO Forum process along
with his and the various other recent private sector suggestions for
a pro-trade solution, whether compensation or assistance in
third-country developing markets, to the WTO cotton dispute
underscores a broad desire among Brazilian business to avoid a
bilateral trade conflict with the United States. Brazilian industry
voices pressing for alternatives to retaliation in the cotton
dispute will be one of the factors GOB considers in determining how
it will proceed in addressing next steps.

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