US embassy cable - 04BRASILIA1864

UNCLAS SECTION 01 OF 04 BRASILIA 001864 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR CRONIN 
TREASURY FOR OASIA - DAS LEE AND SSEGAL 
NSC FOR RENIGAR AND DEMPSEY 
STATE FOR E - TOM SMITHAM 
STATE FOR WHA/EPSC - URS 
USDOC FOR 4332/ITA/MAC/WH/OLAC/DMCDOUGALL/ADRISCOLL 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSON/WBASTIAN 
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, ECON, EAGR, PREL, BR, WTO, Trade 
SUBJECT:  U/S LARSON DISCUSSES IPR AND TRADE WITH GOB 
 
REF: A) BRASILIA 1835    B) BRASILIA 1832 
 
This cable is Sensitive But Unclassified, please protect 
accordingly. 
 
1.   (SBU) Summary:  In meetings with senior GoB officials 
and representatives of U.S. industry, U/S Larson emphasized 
that Intellectual Property Rights (IPR) protection was in 
the interests of both countries; he highlighted the losses 
that Brazilian artists and companies suffer from piracy. 
Larson expressed appreciation for the GoB's willingness to 
discuss actions that might be taken to improve IPR 
enforcement under the current 90-day extension of Brazil's 
access to benefits under the Generalized System of 
Preferences (GSP).  Larson welcomed the GoB's high level of 
engagement in critical ongoing efforts to advance Doha Round 
World Trade Organization (WTO) negotiations.  He urged 
Brazilian passage of a science-based biotechnology law. 
 
2.   (SBU) Minister of Development, Industry and Foreign 
Trade Furlan expressed concern that, despite growth in 
absolute levels of trade, the U.S. and Brazil had both seen 
their shares of each other's markets fall.  Furlan and his 
Secretary for Industrial Development, Roberto Jaguaribe, 
 
SIPDIS 
outlined the GoB's efforts to strengthen the Intellectual 
Property Institute (INPI) through staffing increases and 
equipment modernization.  They urged that the USG recognize 
these efforts and maintain Brazil's GSP access.  Both Furlan 
and Agricultural Minister Rodrigues were optimistic that 
progress would be made this month in reinvigorating Doha 
Round negotiations.  Foreign Ministry Economic Division 
Chief Tarrago said that while the GoB is hoping for a Geneva 
Doha Round breakthrough, it has some concerns with the 
Oshima text and about whether sectoral negotiations might be 
made mandatory.  Rodrigues was surprised at the recent break- 
off of EU-Mercosul FTA negotiations and said he was 
particularly disappointed with the back-loading of increased 
agricultural access within the 10-year phase-in period 
contained in the EU's latest offer (Ref B).  End Summary. 
 
3.   (U) Background: During a July 20-21 visit to Brazil, 
U/S Larson met in Sao Paulo with representatives of a cross 
section of U.S. businesses and in Brasilia with senior GoB 
officials to discuss the full breadth of the bilateral 
economic agenda.  He met with Minister of Development, 
Industry and Foreign Trade Luiz Furlan and his Secretary of 
Industrial Development (and newly-nominated INPI President) 
Roberto Jaguaribe to discuss trade and IPR.  Larson also met 
with Agriculture Minister Rodrigues, Congressman Julio 
Semeghini, one of the leading figures of the Congressional 
Investigatory Commission (CPI) into IPR piracy, and Foreign 
Ministry officials, including Economic Division Chief 
Piragibe Tarrago and Chief of Scientific, Technical and 
Technological Cooperation Antonino Marques Porto.  Ref A 
reported on U/S Larson's conversations concerning President 
Lula's hunger initiative.  Septel reports on Larson's 
meetings with Central Bank President Meirelles and Finance 
Ministry and Finance Ministry Executive Secretary Bernard 
Appy and International Secretary Luis Pereira on the broader 
economic situation and the reform agenda. 
 
IPR and GSP 
----------- 
 
4.   (SBU) In Sao Paulo, U/S Larson attended a dinner with 
10 senior representatives of U.S. companies operating in 
Brazil, including representatives of the banking, 
pharmaceutical, energy, agriculture, construction, and 
consumer-products sectors.  On IPR, the consensus was that 
Brazil's current legislation was good, but enforcement 
remained a serious problem.  A pharmaceutical-sector 
representative noted that serious backlogs remain in patent 
processing, and that the Intellectual Property Institute 
(INPI) has been starved for resources and leadership.  He 
expressed hope that the naming of a new INPI president 
(Roberto Jaguaribe) would result in operating improvements. 
 
5.   (SBU) In his meetings in Brasilia, U/S Larson 
emphasized the cost of piracy to Brazil, both directly to 
Brazilian industry and indirectly in lost tax revenues to 
the GoB.  U.S. business estimates of its losses to piracy 
($745 million), Larson noted, give an idea of the scope of 
the problem.  He welcomed the GoB's willingness to discuss 
actions under USTR's current 90-day extension of its review 
of Brazil's GSP access.  The USG wants to work 
collaboratively and quietly with the GoB on practical ways 
to address the problem, Larson stated. 
 
6.   (SBU) Minister Furlan stated that Brazil wants to 
maintain its GSP privileges.  Furlan claimed that his naming 
of the Secretary of Industrial Development, Roberto 
Jaguaribe, to be double-hatted as President of INPI, was a 
measure of the importance he attaches to the issue. 
Jaguaribe outlined the GoB's current efforts to improve 
INPI's functioning.  INPI has an increased budget, it is 
hiring additional patent examiners, renovating the building, 
investing in new information technology and restructuring 
the organization.  Jaguaribe stated he is in contact with 
Commerce U/S Dudas to explore cooperation between INPI and 
the U.S. Patent and Trademark Office. 
 
7.   (SBU) Jaguaribe argued that Brazil's patent backlog is 
an operational issue while copyright and trademark problems 
are both operational and enforcement issues.  By renovating 
INPI the GoB believes that it will create awareness of the 
IPR issue and thus enhance its ability to protect copyrights 
and trademarks.  Jaguaribe and U.S. Under Secretary of 
Commerce Dudas have discussed enforcement and patent 
cooperation programs.  Minister Furlan added that the GoB is 
studying special tax treatment for software, IT services, 
and computer hardware and capital goods that the GoB 
believes will act as a development incentive as well as a 
way to reduce piracy by making pricing of legitimate 
software more competitive. 
 
WTO Doha Round 
-------------- 
 
8.   (SBU) Larson welcomed Brazil's high level of engagement 
in efforts to advance the Doha Round.  Ministers Furlan and 
Rodrigues both expressed optimism that a deal could be 
reached this month.  Itamaraty Economic Division Chief 
Tarrago said the GoB had some specific concerns with the 
Oshima text currently being discussed in Geneva.  The GoB 
opposes making sectoral negotiations mandatory, Tarrago 
said.  This, along with agriculture, are the biggest issues 
for developing countries, he said.  The Oshima text did not 
go as deep into detail on these issues as developing 
countries expected, Tarrago cautioned. 
 
9.   (SBU) Minister Rodrigues stated that he understands 
that developed countries like the United States must 
maintain subsidies to protect their farmers, but argued that 
this support should not result in an exportable surplus. 
Such surpluses hurt developing countries that can't provide 
domestic subsidies.  The Undersecretary responded that he 
agrees with the principle of eliminating export subsidies 
and hopes that one result of the Doha Round will be to 
decouple payments from production.  He believes this is 
possible because of strong commercial interests and because 
it is a development issue. 
 
 
Bilateral Trade Issues 
---------------------- 
 
10.  (SBU) Minister Furlan expressed concern that, despite 
growth in absolute levels of trade, the U.S. and Brazil had 
both seen their shares of each other's import markets fall. 
Furlan said he had discussed this "under-performance" with 
Commerce Under Secretary Aldonas the previous month and that 
both agreed on a positive bilateral agenda for cooperation 
to increase trade.  Larson argued that working together on 
the FTAA could help address the fall-off in market share. 
 
11.  (SBU) Ethanol.  Furlan stated that Brazil wanted a 
level playing field in the U.S. ethanol market.  U.S. 
ethanol producers receive a 50% rebate on excise taxes and 
subsidies of 54 cents per gallon that create barriers to 
Brazil's sugar cane-based ethanol.  Furlan proposed allowing 
Brazil to export ethanol to California, a market that is a 
long distance from U.S. Midwestern ethanol producers. 
Larson noted that strong U.S. Congressional interest in corn- 
based ethanol production made a change in policy difficult. 
Only a negotiation on the scale of FTAA or the Doha Round, 
which had scope for broad-based trade-offs, would offer any 
chance for an outright change.  Larson also invited the GoB 
to try to show how they could grow the U.S. ethanol market 
so that Brazilian imports did not displace current U.S. 
production.  Furlan said he would like to invite Senator 
Grassley to visit Brazil to gain insight into the local 
ethanol industry. 
 
12.  (SBU) Shrimp, Fresh Beef and Soybeans.  Furlan, and 
separately Itamaraty's Tarrago, urged that the USG dismiss 
claims of dumping of farmed shrimp on the U.S. market by 
producers in Brazil's poor northeastern region.  Larson 
noted that a decision would be made towards the end of the 
month.  Tarrago also raised the issue of access to the U.S. 
market for Brazilian fresh (non-processed) beef.  Larson 
reassured Tarrago that while the USDA rule-making process 
might be lengthy, it was objective and scientifically sound. 
Larson related to Rodrigues that the USG recently had 
delivered a formal demarche to the Government of China 
protesting its barring, on questionable phytosanitary 
grounds, of several soybean shipments, primarily from Brazil 
but also affecting U.S. shippers.  Rodrigues stated his 
personal belief that the real reason Chinese soybean 
processors had rejected the shipments was to take advantage 
of the drop in world soybean prices.  Rodrigues alleged that 
Chinese soybean processors were looking for a reason to 
break the (high-priced) contracts and "we gave them one," in 
the form of shipments containing with relatively high levels 
of fungicide-treated soybean seeds. 
 
Biotech 
------- 
 
13.  (SBU) Larson urged Rodrigues to work for passage of a 
science-based law allowing the use of genetically modified 
(GM) crops.  Rodrigues said he leads the faction within the 
GoB that is in favor of the use of GM crops.  He told Larson 
that Congressional passage of a biosafety law, which would 
formalize the use of GM crops, may not occur in time for the 
planting season later this calendar year.  In the absence of 
a law, Rodrigues said, he had been able to convince the 
President to sign decrees, which provisionally allowed 
biotech soybean planting, but would expire this year. 
Rodrigues expressed confidence that the Congress eventually 
would pass a reasonably liberal biosafety law; he believed 
the Senate would reverse troublesome changes the Chamber of 
Deputies had made to the executive's original draft.  Those 
changes, however, would then need to go back to the Chamber. 
 
14.  (U) U/S Larson was unable to clear this message before 
departing Brazil. 
 
CHICOLA