Cablegate: France/Brazil: The Economic Agenda

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C O N F I D E N T I A L SECTION 01 OF 03 PARIS 001553

STATE PASS USTR

SIPDIS

E.O. 19528: DECL:11/19/19
TAGS: ECON PREL EINV BEXP ETRD EAID SENV FR BR
SUBJECT: FRANCE/BRAZIL: THE ECONOMIC AGENDA

Ref A)Paris 1526; B) Brasilia 533; C) State 104985; D) Paris 1520; E)Paris 1099

PARIS 00001553 001.2 OF 003

CLASSIFIED BY ECON MINISTER COUNSELOR SETH WINNICK, REASONS 1.4 (B AND D)

1. (C) SUMMARY: Behind the cultural exchanges and warm diplomatic
relations with Brazil (Ref A), France is embarking on a long-term
strategy to court a country it sees as a resource-rich future global
powerhouse and foothold in Latin America. Since the 2005 "Year of
Brazil in France," commercial ties have flourished between the two
countries, and now 35 of the top 40 French companies operate in South
America's largest economy, focused on the energy, transportation, and
defense sectors. Brazil named 2009 "The Year of France in Brazil,"
an effort that ended this month, to further institutionalize this
relationship. Under France's new public diplomacy strategy,
dedicating one calendar year to cultural and economic cooperation
with a specific country has become a diplomatic tool to strengthen or
improve economic as well as political ties in emerging markets.
Beyond bilateral military and civilian economic cooperation, the
North-South firepower of the Franco-Brazilian strategic partnership
may extend globally into the G-20 and the UN Security Council and the
International Monetary Fund, as well as work on climate change issues
for the upcoming Copenhagen Summit. End Summary.

Substantial Economic Growth Between 2005 and 2009
--------------------------------------------- ----

2. (SBU) As President of the EU Council, Nicolas Sarkozy used the
second E.U.-Brazil Summit in December 2008 to reinvigorate ties with
Brazil. He and Brazilian President Luiz Inacio Lula da Silva agreed
on an Action Plan for the Implementation of a Strategic Partnership
(2008 Action Plan) that laid out broad areas for an enhanced civilian
and military partnership. Brazil then hosted the "Year of France in
Brazil" in 2009 -- a year packed with eight presidential meetings or
visits, four summits, and the creation of several high-level
public-private working groups focused on the economy, commerce,
civilian nuclear energy, biodiversity, and climate change. According
to the French employer's union (MEDEF), both countries saw a "window
of opportunity" to replace the EU-Mercosur relationship after trade
negotiations with Mercosur stalled. In March 2009, Brazil
established a chamber of commerce in Paris, complimenting the
century-old French chamber in Brazil. France's Junior Minister for
Trade Anne-Marie Idrac, bolstered by French transportation and
financial industry leaders, led talks with Brazilian counterparts on
investment in France and cooperation on (Brazilian) bio-fuels and
(French) nuclear energy in May 2009. During President Sarkozy's
visit to Brazil in September 2009, he signed a Joint Declaration with
President Lula that built on the 2008 Action Plan and laid out more
specific measures and areas of cooperation.

3. (U) Franco-Brazilian commercial activity has multiplied since
2005. The rising level of investment between the two countries
centers on complementary industrial interests and needs, with a focus
on manufacturing, chemicals, metal production, and services,
including transportation. From 2005 to 2008, Ubifrance, France's
agency for international business development, reported that
Brazilian exports to France grew 39 percent (from 2.8 billion euros
to 3.9 billion) and French exports to Brazil increased by 59 percent
(from 2.2 billion euros to 3.5 billion) While the overall volume of
trade is roughly balanced, the relative importance of the two trading
partners to each other is not. France was Brazil's eighth-largest
trading partner in 2008, while Brazil represented less than one
percent of France's bilateral trade. France has made Brazil a
priority developing country destination for foreign direct investment
(FDI), investing close to USD 15 billion in 2008, a 50 percent
increase from 2004. While Brazilian FDI in France is only half of
French FDI in Brazil, it has doubled over the last four years.
Ubifrance said approximately 350 French companies employed more than
250,000 people in Brazil as of October 2008. (Note: The French MFA
provided figures of 400 companies and 400,000 people. End note.)
More than 400 other French companies expressed interest in Brazil
following "The Year of France in Brazil," according to the MFA's
Brazil desk. Roughly 30 Brazilian companies and subsidiaries operate
in France.

Military Sales and Technology Transfer Take Off
--------------------------------------------- -

4. (U) Since signing the 2009 Joint Declaration in Brasilia, the
first products of the strategic partnership were two major military
sales in the form of a combined USD 12 billion helicopters and
submarine package. A third military deal (the Rafale jet sale -- Ref

A) is under consideration. According to Brazilian officials,
technology transfer provisions were key elements in all of these
deals. The Joint Declaration outlines further cooperation in
developing unmanned vehicles and better communication and territorial
surveillance networks along maritime and terrestrial borders,
including the border between French Guyana and Brazil.

Cooperation in Nuclear Energy, Transportation, Biodiversity, and Policing
--------------------------

5. (U) Civil nuclear energy and transportation infrastructure
development form two of the four major civilian pillars of the 2008
Action Plan. France's nuclear energy giant, Areva, is supplying
instrumentation for the currently inactive Angra III nuclear reactor
(Brazil's third). Areva and Brazil's Electronuclear plan to
co-manage the reactor, which is expected to come online again by 2014
after a 23-year hiatus and generate about 1,350 MW (Ref B). Brazil
also expects France to provide further expertise and training
programs in nuclear energy development, and the Action Plan expresses
hope for the construction of new nuclear reactors. Brazil gets
almost half of its energy from oil, 36 percent from hydroelectric
dams and seven percent from natural gas. French industry leaders GDF
Suez, Electricite de France, and Suez Environnement all have
hydroelectric subsidiaries in Brazil. GDF Suez currently leads
private sector electricity production in Brazil, with hydroelectric
output of more than 7,000 MW of power capacity. The company's CEO,
Gerard Mestrallet, co-chairs the high-level bilateral commercial
group created under Trade Minister Idrac. Sustainable transport is
one of the group's chosen sectoral themes; France's Alstom is
currently developing tram and metro infrastructure in Sao Paulo and
Brasilia, and hopes to begin building a high-speed train line between
Rio de Janeiro, Sao Paulo and Campinas by 2014. To facilitate
cross-border trade and transport, the state of Ampas and French
Guyana are building a bridge over the Oyapock River.

6. (SBU) Concerns related to policing 700 kilometers of rainforest
border between French Guyana and Brazil has reinforced cooperation in
border enforcement and management of Brazil's biodiversity, both on
the border and in the entire Brazilian Amazon. Brazil recently signed
a bilateral protocol on managing and developing its forest resources
after extensive lobbying by France. The agreement envisions future
economic exploitation by French companies. Some of this cooperative
management may be achieved through a Franco-Brazil Amazonian research
center, consisting of a network of researchers that would promote
technological development and the transfer of scientific and
technical knowledge and training. The Joint Declaration also calls
for mindfulness of international agreements, including those on
intellectual property. French Guyana and Brazil are also working
toward an accord to fight illegal gold mining on the border and
related clandestine immigration. The MFA also noted that French law
enforcement trainers are helping Brazil prepare for the security of
the upcoming soccer World Cup and Olympic Games; the MFA official
expected France to "gobble up" the upcoming security contracts in a
tender offer.

How France is Building This Relationship
----------------------------------------

7. (C) A network of new and preexisting public and private
organizations reinforce the Franco-Brazilian strategic partnership
from the federal to the local level. Vice President of the French
Senate Marquis Roland du Luart, who chairs the Senate Franco-Brazil
Friendship Committee, predicted that Brazil will be one of the
world's most important countries during the next 50 years. Du Luart
said Brazil compared favorably to other South American countries like
Argentina where French investments failed. At the regional level,
state governments forged cooperative relationships with French
regions during the past decade along technical strengths; the Parana
and Rhone Alps regions cooperate on common high-tech initiatives, and
Brasilia and Montpellier work together on transportation efforts
(with assistance provided by Alstom). Brazilian regions also
partnered with Aquitaine on aeronautics and Ile-de-France on
airports. The 2009 Joint Declaration also calls for partnerships
between French and Brazilian public agencies and high authorities
with an emphasis on scientific research, agricultural enterprise,
economic development, and financial regulation via central banks.

An Asymmetric, But Strategic Relationship
-----------------------------------------

9. (C) Brazilian embassy officials in Paris told Econoffs that Brazil
recognizes the asymmetrical nature of the strategic partnership and
understands that France could reap proportionally greater profits and
gain access to previously tightly-controlled Amazonian resources.
But Brazil is willing to make this bargain in exchange for
international recognition of its ascendance to the global stage. The
Brazilian officials also said that despite the imbalance in Brazilian
and French bilateral operations, France guaranteed technology
transfer, unlike the United States or Japan (or Sweden, in the case
of the jet fighter contract). France also has openly advocated for
Brazil to have "a seat at the table," including reform of the
International Monetary Fund to favor emerging countries and a
permanent seat on the UN Security Council (Ref A). In return, France
stands to gain a powerful partner in the developing world and a
launching point for its next planned forays into Mexico, Argentina
and Chile.

Global Ambitions: The G-20, Copenhagen Summit, and Development
--------------------------------------------- -----

10. (C) Brazilian contacts believe that France reinvigorated the
partnership out of a perceived necessity to partner with emerging
countries, and the French MFA's Brazil desk confirmed that the
partnership has global ambitions -- while striving to be "balanced
and mutually beneficial." According to the desk, France has "courted
the favor of the Southern giant" in order to have a clearer picture
of the aspirations of all countries in the Southern Hemisphere.

11. (SBU) At the Aquila Summit in July 2009, France and Brazil called
for an "Alliance for Change," or G-14 with South Africa, Brazil,
China, India, Mexico and Egypt, something for which Sarkozy has long
advocated and promised to implement during the French G-8 presidency
in 2011 (Ref A). The Alliance for Change would work on reforming the
international system and reorienting it toward the emerging economies
and their increasing importance as consumers of global production.
The formalization of the G-20 as the premier forum for international
economic issues has more than realized this objective. The September
2009 Franco-Brazilian Joint Declaration states that the G-20 summits
have "proved that the Franco-Brazilian dynamic is pertinent and
necessary." Both countries seem intent on using this new North-South
partnership as essential leverage in future international fora. The
global objectives of the strategic partnership became even more
evident on November 14 with announcement of a Franco-Brazilian
proposal to obtain an "ambitious" agreement at the upcoming
Copenhagen Summit on climate change (Ref D).

12. (C) Finally, France and Brazil, as global partners, plan to move
beyond international financial system and climate change issues to
development in third countries, notably Africa (Ref A). The MFA's
Brazil desk said France was encouraging Brazil's engagement in Africa
in order to counterbalance the rapidly increasing Chinese presence
there, especially in countries where France's colonial legacy has
left a precarious relationship. As part of the Alliance for Change
goals for sustainable growth and crisis prevention, France and Brazil
have focused on food security and agricultural development and the
eventual reform of the Food and Agricultural Organization. Concrete
three-party accords were signed this year to cooperate with Cameroon
in aquaculture and with Mozambique in conservation farming and soil
preservation, as well as work in Uganda. France and Brazil are also
founding members of the UN's innovative financing arm, UNITAID, which
currently taxes airline tickets to finance medication for HIV/AIDS,
tuberculosis, and malaria in poor countries (Ref E).

Comment
-------

13. (C) Under the aegis of cultural celebration and warm presidential
ties, France has forged a strategic partnership with Brazil with
sharp-eyed economic and geopolitical intentions. While France gains
a toehold in Latin America and an emerging economic ally, Brazil
gains legitimacy and clout. France and Brazil, two major
agricultural exporters, may face hurdles in this growing
relationship, as well as frictions over intellectual property and
problems related to the realities of military cooperation. But for
the moment, both countries are putting on a strong and convincing
show of mutual admiration and support.

RIVKIN

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