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Cablegate: Brazil: Austr Visit to Recife Highlights Pursuit Of

VZCZCXYZ1768
RR RUEHWEB

DE RUEHBR #1500/01 3551902
ZNR UUUUU ZZH
R 211902Z DEC 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0196
INFO RUEHBR/AMEMBASSY BRASILIA
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS BRASILIA 001500

SENSITIVE
SIPDIS
STATE PASS USTR FOR EVERETT EISSENSTAT, KATE KALUTKIEWICZ
STATE FOR WHA AND EEB

E.O. 12958: N/A
TAGS: ETRD ECON EFIN EINV EAGR BR
SUBJECT: BRAZIL: AUSTR VISIT TO RECIFE HIGHLIGHTS PURSUIT OF
INNOVATION

1. (SBU) On December 10 and 11, Assistant United States Trade
Representative (AUSTR) for the Americas Everett Eissenstat,
accompanied by Director for Brazil and Southern Cone Katherine
Kalutkiewicz, visited Recife (in the Northeastern state of
Pernambuco) to discuss the economic potential of Brazil's
under-developed Northeast, visit the information technology
innovation cluster called Porto Digital and the Port of Suape, and
meet with local business representatives.

--------------------------------------------- -----

Porto Digital and CESAR: IT Innovation

--------------------------------------------- -----

--Porto Digital

1. (U) Porto Digital is an information and
communication technology (ICT) innovation cluster created in 2000
with initial funding from the state of Pernambuco. Porto Digital
companies (currently 123, 70% of which are micro or small
businesses, employing more than 4000 people) benefit from federal,
state, and local tax incentives including tax deductions of up to
75% of their income. Companies also benefit from the availability
of low-rent office space and excellent technology infrastructure in
the Porto Digital complex. Porto Digital is managed by an
administrative council comprised of 40% state and local government
officials and 60% private sector and academic representatives, with
the mission of developing Pernambuco's technology sector to compete
in the global market.

2. (SBU) Aurelio Molina, Director of Innovation
and Entrepreneurial Competitiveness, told AUSTR Eissenstat that
only about 35 of Porto Digital's companies do business outside of
Brazil. He thinks that because of a weak culture of exporting,
those businesses suffer from learning to export on a trial and
error basis. AUSTR Eissenstat asked if the companies would be
willing to share information about the impediments to exporting
they've experienced and suggested that representatives of Porto
Digital participate in a digital video conference with USTR to
discuss their experiences. These conversations could help
structure tangible items in a workplan for an updated U.S.-Brazil
trade dialogue to assist businesses in both Brazil and the United
States.

--CESAR

3. (U) The Center for Advanced Studies and Systems
(CESAR) is an anchor of the Porto Digital innovation cluster. In
1996, a group of professors from the Federal University of
Pernambuco (UFPE) founded CESAR in hopes of creating local jobs for
talented recent ICT graduates, since many graduates of UFPE's
high-quality ICT program were leaving Recife to work in Rio de
Janeiro or Sao Paulo. Since then, CESAR has incubated innovative
projects and start-up companies, always with a focus on taking
products to the market. CESAR has worked with several U.S.
companies in the past, and Motorola is a current partner. CESAR
also offers a masters degree program in information technology,
which is unique for its market-focused emphasis on practical
business methods rather than academic approaches. CESAR is now
working to adapt its model to get venture capital since the current
project-based model makes it very sensitive to economic ups and
downs.

4. (U) Though there were few incentives for
innovation when CESAR was created, today the Center and its
incubated companies benefit from tax incentives included in
Brazil's laws for innovation and informatics. It reinvests those
tax credits in research and development. CESAR's incubated
companies include three start-ups approved by the government of


Brazil to receive matching funds under the Innovation Law and one
company which is now successful enough to have joined the board.

5. (SBU) CESAR's institutional liaison, Claudia da
Cunha, told AUSTR Eissenstat that CESAR's companies have not
focused much on either intellectual property (IP) or exporting.
She explained that CESAR's researchers find IP "not worth the
fight" with the client companies, since software design is not
patentable in Brazil. As for exporting, she said some attempts had
been made to export products to England and that she would gather
some information from the member companies regarding their
experiences in foreign markets. AUSTR Eissenstat suggested that
CESAR participate in the digital video conference he also discussed
with Porto Digital.

6. (SBU) During a working lunch with IP lawyers
Monica Lustosa and Jose Pinteiro, AUSTR Eissenstat discussed
further CESAR's lack of emphasis on IP. Ms. Lustosa, founder and
former president of the Northeast Brazil Intellectual Property
Rights Association, previously served as a consultant for CESAR and
said the organization describes IP as being "on the radar, but not
on the agenda." She said the researchers tend to think that
confidentiality agreements will adequately protect their
discoveries, especially since the companies tend to be small and
over-worked. Mr. Pinteiro said he does not think that this
inattention to IP prevents foreign companies from coming to Brazil,
since "big companies have deep enough pockets to sell products at a
price even cheaper than a copy." Ms. Lustosa and Mr. Pinteiro also
commented that IT professionals may be deterred by the long
processing time for patent consideration (approximately ten years)
at the Brazilian patent and trademark office (INPI), especially
since hi-tech products change and improve so quickly. Both lawyers
think the future of Porto Digital is very bright, with proximity
breeding linkages among the different companies and facilitating
new ventures.

-----------------

Port of Suape

-----------------

7. (U) The Port and Industrial Complex of Suape,
located just outside Recife, is a huge driver of Pernambuco's
development. For the last 30 years, the port has been a priority
project for both the federal and state governments. Today it is
one of the largest, most technologically-advanced, and best-managed
ports in Brazil. The port has seen a 21% increase in cargo since
2007 and a dramatic increase in private investment. Its three main
enterprises (the Atlantico-Sul shipyard, Petrobras' Abreu e Lima
Oil Refinery, and the Bunge wheat mill) comprise investments of $15
billion and created 8000 direct jobs. With construction of the
Trans-Northeastern railroad planned to start in 2010, Suape has the
potential to serve the entire Northeast.

8. (SBU) During a meeting with local businessmen,
Marco Ladislau Petkovic (Director for International Relations of
Petrobras' Abreu e Lima Refinery) told AUSTR Eissenstat that the
refinery's scheduled completion has been delayed to at least April
2012. He also said, as did Silvio Leimig (Director of Suape
Global), that Venezuela's planned participation in the oil refinery
(expected to have been 40%) has not materialized. He explained
that the refinery is designed to process heavy crude oil, since
Brazil currently has to export heavy crude and import refined oil.

--------------------------------------------- ------------

Local Business: Opportunities and Challenges

--------------------------------------------- ------------


9. (SBU) Julio Freire, a member of the Recife
branch of the American Chamber of Commerce and President of the
only company manufacturing computers in the state of Pernambuco,
told AUSTR Eissenstat that Suape is the biggest story in the
Northeast but that it has drained the local supply of skilled
workers. He explained that while higher education is good quality,
fundamental education is very poor and there is a deficit of
skilled manual laborers. In order to help retain the focus on
Suape but also not neglect other projects, Mr. Freire's company is
participating in a Porto Digital initiative to visit incubators and
small companies to see what kind of training they need. AUSTR
Eissenstat remarked that projects like this, combined with
vocational education, could be a valuable way to extend the
benefits of trade to less-advantaged segments of the population.

10. (U) In addition to needed improvements in
education, Mr. Freire said the Northeast is lacking in
infrastructure, though some improvements are happening. For
example, Mr. Freire said, companies are currently laying lines for
broadband internet access in Recife, which is transforming
internet-based services.

11. (SBU) Professor Ricardo Chaves Lima of UFPE said
that when President Obama was elected, Brazil had the feeling that
there would be a shift on trade (for example, on discussions of
cotton and ethanol), but that shift has not seemed to materialize.
AUSTR Eissenstat urged Brazil to be patient. The bilateral trade
relationship is like a large ship, he said, and shifts of even a
few degrees can change the overall direction dramatically.
Ambassador Kirk came to Brazil to open conversations about real
cooperation, and AUSTR Eissenstat reiterated that he sought to
build on that during this visit and upon his return to Washington.

------------

Comment

------------

12. (SBU) AUSTR Eissenstat's trip to Recife presents a
valuable opportunity for Mission Brazil and Washington to better
visualize the concrete impact of trade issues on real companies and
institutions doing innovative work to bring development and social
inclusion to Brazil's Northeast. AUSTR Eissenstat was interviewed
by a local reporter, resulting in positive coverage highlighting
his impressions of the dynamism and potential of the Northeast and
the importance of the bilateral relationship with Brazil.
Discussions at Porto Digital and CESAR revealed opportunities for
concrete progress on U.S. priorities, such as promoting bilateral
trade and linking innovation and intellectual property protection.
The Port of Suape also presents opportunities, and both private and
public sector representatives welcomed the prospect of increased
U.S. engagement in the Northeast. As AUSTR Eissenstat commented,
the people he met with are not just dreaming about the future, they
are building it. As the future of the region begins to take shape
and influence Brazil's overall direction, this is an excellent time
for the United States to examine opportunities for increased
involvement in the Northeast. End comment.

13. This message was coordinated with Consulate Recife
and cleared by USTR.
KUBISKE

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