US embassy cable - 04BRASILIA1835

UNCLAS SECTION 01 OF 03 BRASILIA 001835 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR OASIA - DAS LEE AND SSEGAL 
NSC FOR DEPMSEY, DICARLO AND RENIGAR 
ROME FOR FODAG 
STATE FOR E - TOM SMITHAM 
STATE FOR WHA/EPSC - URS 
 
E.O. 12958: N/A 
TAGS: EFIN, EAID, SOCI, PREL, BR, UN, Economic Policy & General Analysis 
SUBJECT: U/S LARSON LAYS DOWN A MARKER ON INTERNATIONAL 
TAXATION WITH THE GOB 
 
REF: A. BRASILIA 1756 
 
     B. USUN 1593 
 
This cable is Sensitive but Unclassified, Please Protect 
Accordingly. 
 
1. (SBU) Summary:  In meetings across Brasilia September 21, 
U/S Larson made clear to GoB interlocutors that while the USG 
shares Brazil's deep commitment to fighting hunger on a 
global scale, elements of President Lula's anti-hunger 
initiative that call for international taxation were 
non-starters from the U.S. point of view.  Larson argued 
against mechanisms that might try to short circuit 
legislative oversight of funding decisions.   Noting that he 
wants to ensure that the U.S. and Brazil work together to 
develop specific and practical areas of cooperation, Larson 
presented a nonpaper containing U.S. suggestions.  Thirty 
heads-of-state have accepted Lula's invitation to a September 
20 meeting in New York in advance of the UNGA to explore ways 
to increase development finance, according to the Brazilians. 
 Foreign Minister Amorim reiterated that President Bush is 
invited as well.  While the agenda for the September 20 
meeting is to discuss innovative financing mechanisms, the 
GoB reps stressed that their overriding goal is simply to 
reenergize the international dialogue on the issue.  End 
Summary. 
 
2. (SBU) In a July 21 call on Foreign Minister Amorim, which 
was preceded by extensive discussion with Amorim's Chief of 
Staff Antonio Patriota and advisor Maria Nazareth Farani, U/S 
Larson stated that the USG and GoB shared a common interest 
in fighting hunger and promoting development on a global 
scale.  He expressed confidence that, despite clear 
differences of views on some of the financing mechanisms 
under discussion, the USG and GoB could identify areas, such 
as agricultural development, anti-hunger efforts and the 
fight against HIV/AIDs, in which they could enhance 
cooperation.  Amorim stressed that Lula's initiative is 
serious and comes "from the heart," given his personal 
experience of hunger and poverty as a child.  He welcomed USG 
willingness to engage on the issue. 
 
3. (SBU) According to GoB point-person Farani, Brazil is 
elaborating along with Chile, France and Spain a paper that 
they hope will serve as a basis for discussion at the 
September 20 heads-of-state meeting.  Patriota and Farani 
said that Lula recognizes that fighting hunger on a 
sustainable basis implies a broad development agenda.  The 
GoB initiative aims to increase both the level and 
predictability of development financing above and beyond 
current ODA levels by identifying new financing sources. 
These monies would finance the work of the UN development 
agencies, which work within the framework of the UN 
Millennium development goals.  Farani noted a recent World 
Bank report on progress towards those goals called for an 
additional USD 50 billion of ODA per year in order to achieve 
them.  The overriding GoB goal for the September 20 meeting, 
Patriota said, is to reenergize the international dialogue on 
development finance. 
 
4. (SBU) Turning to the substance of the initiative, Farani 
said that the first part envisions the taxation of 
international financial flows and major arms sales.  These 
taxes would not be administered by a supranational authority, 
she said, but rather by national authorities coordinating 
their work internationally (see Ref A for a more extensive 
discussion).  The initiative's framers envision this regime 
as mandatory, since ensuring compliance would require 
universal adherence by countries.  This modified Tobin-tax 
would be notionally set at 0.01% of international financial 
flows, a figure estimated to yield about USD 17 billion. 
 
5.  (SBU) Farani added that a second, voluntary, part of the 
initiative would involve the promotion of socially 
responsible investment funds and making widespread the use of 
"incentive" credit cards, that donate a percentage of the 
transaction to a cause, in this case the UN development 
agencies.  A third piece of the initiative envisions building 
political consensus to reduce the cost to immigrant 
communities of transmitting remittances home, which fees, 
Farani said, can be as high as 20%.  Farani noted that while 
in New York recently, Lula launched a new service that would 
substantially reduce the cost of remitting money to Brazil. 
A second focus of the political consensus-building effort 
would build on work being done in the OECD to reduce tax 
evasion by reducing the role of tax havens. 
 
6. (SBU) One of the very important conclusions of the 
Monterrey Development Summit, Larson stated, was the need to 
look at all resources for development comprehensively. 
Developing country exports amount to around USD 2 trillion. 
Foreign direct investment flows and remittances contribute 
additional significant amounts.  Together, these privately 
generated flows dwarf ODA.  The USG shares the goal of 
increasing ODA, Larson said, and expects by 2006 to have 
increased its own ODA by 75%.  The increase in U.S. ODA, 
Larson pointed out, was accomplished by convincing Congress 
of its importance.  The USG has serious concerns with 
efforts, such as the IFF proposal, that appear to be attempts 
to circumvent the legislative process.  A debate over 
international taxation, Larson stated, would likewise 
distract attention from what has been a very successful 
effort to increase ODA.  The USG is nevertheless open to the 
sort of dialogue and exploration that the GoB had identified 
as one of the goals of its initiative. 
 
7. (SBU) Turning to specifics of potential bilateral 
cooperation to fight hunger on a global scale, Larson said he 
hoped Brazil would consider joining the food aid convention. 
Brazil's agricultural expertise, language and cultural ties 
to Lusophone Africa might facilitate joint efforts to help 
those African countries' agricultural development, Larson 
said.  He emphasized that the trade policy agenda in the WTO, 
where the USG and GoB share the goal a more open trade regime 
in Africa, must complement these efforts. 
 
8. (SBU) Comment:  While perhaps disappointed that they did 
not change the USG view on taxation of international flows, 
these GoB representatives welcomed the constructive tone of 
the meetings.  We do not expect major changes in GoB rhetoric 
on the initiative, but their recognition that the taxation 
schemes are not workable without universal participation may, 
in time, change its substance. 
 
 
9. (U) This message was cleared by E staff. 
DUDDY