US embassy cable - 05BRASILIA285

UNCLAS SECTION 01 OF 04 BRASILIA 000285 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR AND OPIC 
PARIS FOR USOECD 
NSC FOR MIKE DEMPSEY 
DEPT OF TREASURY FOR FPARODI 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
LABOR FOR MBRODSKY 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, EINV, BR, OECD, Economic Policy & General Analysis 
SUBJECT:  BRAZIL AND THE OECD:  CO-HABITATING FOR NOW, BUT 
MAYBE MARRIAGE IN THE FUTURE 
 
REF:  A) 04 PARIS 7565, B) 04 PARIS 7595, C) BRASILIA 172, 
 
D) BRASILIA 43 
 
1. (U) THIS CABLE WAS COORDINATED WITH AMCONSULATES RECIFE, 
RIO DE JANEIRO, AND SAO PAULO. 
 
2. (U) SUMMARY. WHILE PRESIDENT LULA AND FOREIGN MINISTER 
AMORIM SUPPORT THE IDEA OF EVENTUAL BRAZILIAN ACCESSION TO 
THE OECD, ENTRY INTO THAT ORGANIZATION IN THE SHORT-TERM IS 
NOT CURRENTLY ONE OF THE GOB'S HIGHER PRIORITIES.  INSTEAD, 
THE GOB PREFERS TO GRADUALLY INCREASE ITS PARTICIPATION IN 
VARIOUS OECD COMMITTEES AND WORKING GROUPS UNTIL BRAZILIAN 
ACCESSION BECOMES A FOREGONE CONCLUSION.  FOREIGN MINISTRY 
DIPLOMATS BELIEVE THAT SUCH A POLICY (I.E. ENGAGEMENT 
LEADING UP TO ENLARGEMENT) WILL ENABLE BRAZIL TO REAP THE 
ECONOMIC/TECHNICAL BENEFITS OF WORKING WITH THE OECD, 
WHILE, ON THE POLITICAL SIDE, MAINTAINING THE COUNTRY'S 
DESIRED ROLE AS A BRIDGE BETWEEN THE DEVELOPED AND THE 
DEVELOPING WORLD.  WHILE THE LOCAL PRESS HAS SPECULATED 
ABOUT THE GOB'S PROSPECTS FOR SOON JOINING THE SO-CALLED 
"RICH COUNTRIES' CLUB," OFFICIALS IN BRAZIL'S OECD SUPPORT 
SECRETARIAT, WHO MAY BE EVEN MORE FORWARD-LEANING ON THE 
 
SIPDIS 
MEMBERSHIP ISSUE THAN THOSE AT THE POLICY LEVEL, STRESS 
THAT THE GOVERNMENT DOES NOT NOW HAVE SUFFICIENT 
INFRASTRUCTURE IN PLACE INTERAGENCY TO FULFILL THE DEMANDS 
THAT ACTIVE MEMBERSHIP WOULD IMPOSE.  MEANWHILE, THE GOB 
CONTEMPLATES PROCEEDING IN TANDEM WITH DEVELOPING COUNTRY 
POWERS SUCH AS CHINA, INDIA, AND SOUTH AFRICA AS IT SEEKS 
TO INTENSIFY ITS RELATIONSHIP WITH THE OECD.  END SUMMARY. 
 
BRAZILIAN THINKING REGARDING MEMBERSHIP 
 
3. (SBU) IN A WIDE-RANGING JANUARY 12 MEETING, ANTONIO 
SIMOES, ECONOMIC ADVISOR TO FOREIGN MINISTER CELSO AMORIM, 
TOUCHED UPON THE GOB'S CURRENT APPROACH TO OECD ISSUES. 
THE POSITION THAT PRESIDENT LULA AND FORMIN HAD ADOPTED, HE 
SAID, WAS THAT MEMBERSHIP IN THE OECD WOULD NOT BE AVERSE 
TO BRAZILIAN NATIONAL INTERESTS AND, INDEED, WOULD BE A 
POSITIVE STEP FOR THE COUNTRY.  ENTRY INTO THE OECD WOULD 
DEMONSTRATE THAT THE OFT-QUOTED LINE ABOUT BRAZIL ETERNALLY 
BEING THE COUNTRY OF THE FUTURE WAS OUT-OF-DATE, HE STATED. 
 
4. (SBU) HOWEVER, SIMOES ADDED, BRAZIL DID NOT WANT TO TAKE 
THE APPROACH THAT MEXICO DID IN ITS ACCESSION TALKS, WHICH 
HAD LEFT SOME DEVELOPING COUNTRIES WITH HURT FEELINGS WHEN 
THE GOM ABRUPTLY DUMPED THE G-77 TO WOO THE OECD.  DRAWING 
UPON THE ROMANTIC LIAISON ANALOGY EVEN FURTHER, HE OBSERVED 
THAT THE BEST STRATEGY WAS FOR BRAZIL TO CONTINUE 
INTENSIFYING ITS ENGAGEMENT WITH THE OECD TO SUCH A POINT 
THAT IT WOULD SEEM NATURAL FOR THE TWO PARTIES TO TIE THE 
KNOT.  IDEALLY, SIMOES DECLARED, BRAZIL WOULD JOIN AT THE 
SAME TIME AS OTHER DEVELOPING COUNTRY POWERS LIKE INDIA AND 
SOUTH AFRICA.  SUCH AN APPROACH WOULD FIT WITH LULA'S 
VISION THAT BRAZIL'S ROLE ON THE INTERNATIONAL STAGE SHOULD 
BE AS A BRIDGE-BUILDER BETWEEN NORTH AND SOUTH.  THE WORST 
SCENARIO, SIMOES OPINED, WOULD BE FOR BRAZIL TO LOUDLY 
KNOCK AT THE OECD'S DOOR, ONLY TO BE LATER TOLD THAT ENTRY 
WAS NOT POSSIBLE - AS WAS THE CASE WITH ARGENTINA. 
 
5. (SBU) COMMENT. AS LULA HAS SPOKEN ON THE MATTER OF 
PURSUING OECD MEMBERSHIP (OR AT LEAST, THE FOREIGN MINISTRY 
HAS SPOKEN FOR HIM), GOB POLICY ON THIS ISSUE HAS BEEN SET. 
GIVEN THEIR DRUTHERS, HOWEVER, IT APPEARS THAT THE 
MINISTRIES OF FINANCE, AGRICULTURE, AND 
DEVELOPMENT/INDUSTRY, AS WELL AS SOME PARTS OF THE FOREIGN 
MINISTRY'S ECONOMIC DIRECTORATE, WOULD PREFER A MORE 
AGGRESSIVE STANCE.  THEIR ENTHUSIASM, THOUGH, IS COUNTER- 
BALANCED BY OPPOSITION FROM THE MORE ORTHODOX LEFTIST WING 
OF THE PRESIDENT'S PARTY (THE PT, I.E., THE WORKER'S 
PARTY). 
 
6. (SBU) AS FOR THE PRIVATE SECTOR'S VIEWS, A SENIOR 
ECONOMIST AT THE NATIONAL CONFEDERATION OF INDUSTRIES 
(CNI), TOLD EMBOFF THAT BRAZILIAN INDUSTRY BELIEVED OECD 
MEMBERSHIP WOULD BE POSITIVE FOR BRAZIL.  INDEED, CNI 
ALREADY HAS PARTICIPATED IN SOME OECD EVENTS, HE SAID, MOST 
RECENTLY AS PART OF THE BRAZILIAN DELEGATION TO THE NON- 
MEMBER REVIEW OF BRAZIL IN LATE 2004.  THAT SAID, THE 
ECONOMIST ADMITTED THAT BRAZILIAN BUSINESS HAD LITTLE IDEA 
WHAT BRAZIL WOULD BE REQUIRED TO DO TO BECOME AN OECD 
MEMBER.  THE LULA/AMORIM FORMULATION - AS ARTICULATED BY 
SIMOES - APPEARS TO BE A PRAGMATIC SOLUTION DESIGNED TO 
MAKE ALL CAMPS HAPPY:  MEMBERSHIP IS NOT PRECLUDED, BUT 
WHEN AND IF THAT HAPPENS IT WOULD TAKE PLACE IN CONJUNCTION 
WITH FELLOW THIRD WORLD TRAVELERS.  END COMMENT. 
 
FOCUS ON FIRST INCREASING TECHNICAL CAPACITY 
 
7. (SBU) WORKING-LEVEL DIPLOMATS WITHIN THE FOREIGN 
MINISTRY (ITAMARATY) EMPHASIZE THAT EVEN IF THE ACCESSION 
ISSUE WERE RIPE FOR DISCUSSION, BRAZIL STILL WOULD HAVE A 
GREAT DEAL OF WORK TO DO BEFORE IT COULD TAKE FULL 
ADVANTAGE OF THE BENEFITS OF MEMBERSHIP.  SINCE 1993, WHEN 
BRAZIL FIRST BEGAN PARTICIPATING IN OECD COMMITTEES, THE 
FOREIGN MINISTRY HAD VIEWED OECD MATTERS AS FALLING 
EXCLUSIVELY WITHIN THEIR PURVIEW.  AWARE THAT THE SMALL 
OFFICE WITHIN ITAMARATY THAT HANDLED THESE MATTERS WAS 
UNABLE TO COORDINATE ON A GOVERNMENT-WIDE BASIS, IN APRIL 
2003 THE GOB CREATED A HIGH-LEVEL INTERAGENCY COMMITTEE TO 
LOOK AT THIS CLUSTER OF ISSUES.  LED BY FOREIGN MINISTRY 
U/S CLODOALDO HUGUENEY, WHO SOON WILL BE DEPARTING BRASILIA 
TO BECOME GOB AMBASSADOR TO THE WTO, THE COMMITTEE THEN 
CREATED WORKING GROUPS TO MONITOR EACH OF THOSE OECD 
COMMITTEES IN WHICH BRAZIL PARTICIPATES.  HOWEVER, 
ITAMARATY OFFICIALS POINT OUT THAT OECD WORK IS NEW TO A 
NUMBER OF MINISTRIES, AND, IN PARTICULAR, BRAZIL NEEDS TO 
WORK HARDER TO UPGRADE ITS PARTICIPATION ON TECHNICAL AND 
STATISTICAL ISSUES. 
 
8. (SBU) IN ADDITION, STAFFERS FROM BOTH THE MINISTRY OF 
FOREIGN AFFAIRS AND THE MINISTRY OF DEVELOPMENT AND 
INDUSTRY NOTE AS COLLABORATING WITH THE OECD IS AN ENDEAVOR 
THAT WILL LIKELY ONLY BRING SIGNIFICANT BENEFITS IN THE 
LONG-TERM, THIS ISSUE SOMETIMES LOSES OUT TO HIGHER 
PRIORITY ECONOMIC ISSUES.  WITHIN THE MINISTRIES, ONE 
DIPLOMAT TOLD US, THERE IS SIMPLY GREATER ATTENTION PAID TO 
PRESSING SHORT AND MEDIUM RUN CONCERNS, SUCH AS MACRO- 
ECONOMIC POLICY AND EXPORT AND TRADE PROMOTION. 
 
WAITING IS JUST FINE 
 
9. (SBU) IN THE WAKE OF HUGUENEY'S SEPTEMBER 15, 2004 
MEETING WITH AMBASSADOR MORELLA, FOREIGN MINISTRY OFFICIALS 
ARE INTIMATELY FAMILIAR WITH THE USG POSITION ON 
ENLARGEMENT AND REALIZE THAT VERY LITTLE IS LIKELY TO 
HAPPEN IN TERMS OF MEMBERSHIP DISCUSSIONS UNTIL THE OECD'S 
ON-GOING EFFORTS AT STRUCTURAL REFORM ARE COMPLETE.  (REFS 
A AND B).  INDEED, GIVEN THE GOB'S GO-SLOW POLICY AND ITS 
DESIRE TO DEEPEN ITS INTERAGENCY SUPPORT INFRASTRUCTURE, 
BRAZIL'S STANCE APPEARS TO MESH WITH THE USG VIEW THAT 
ENLARGEMENT IS AN ISSUE THAT NEEDS TO BE DEALT WITH ONCE 
THE ORGANIZATION STREAMLINES ITS GOVERNING PROCESS. 
WAITING IS JUST FINE FOR THE GOB, AS LONG AS NO OTHER 
DEVELOPING COUNTRY - I.E., CHINA, RUSSIA, INDIA, SOUTH 
AFRICA OR ARGENTINA -- STEPS TO THE HEAD OF THE LINE. 
(MINISTRY SOURCES HAD NO PROBLEM, HOWEVER, WITH CHILE OR 
ISRAEL ENTERING AHEAD OF BRAZIL, AS THEY FELT THAT THESE 
WERE "DONE DEALS.")  IN THE MEANTIME, ITAMARATY STAFFERS 
SAY THAT THEY WILL CONTINUE TO EXPAND THEIR PARTICIPATION 
IN OECD COMMITTEES/WORKING GROUPS AND BEEF UP THEIR OECD 
UNIT AT THE GOB EMBASSY IN PARIS. 
 
OECD ENGAGEMENT WOULD BOLSTER USG BILATERAL ECONOMIC AGENDA 
 
10. (SBU) OUR VIEW HERE IS THAT GETTING-TO-KNOW-YOU EVENTS 
SUCH AS THE DECEMBER OECD GLOBAL DIALOGUE ON ENERGY WITH 
BRAZIL, RUSSIA, AND CHINA ARE AN IDEAL RECIPE FOR MOVING 
FORWARD IN THE FUTURE.  THE MISSION'S BILATERAL ECONOMIC 
AGENDA WITH BRAZIL INCLUDES TOPICS LIKE IMPLEMENTING AN 
EVEN-HANDED REGULATORY POLICY, ANTI-CORRUPTION, PROMOTION 
OF SMALL AND MEDIUM-SIZED ENTERPRISES (SME), FAIR TREATMENT 
FOR INVESTORS, AND RESPECT FOR INTELLECTUAL PROPERTY RIGHTS 
- ALL ISSUES OF IMPORTANCE TO BRAZIL AND ON WHICH THE OECD 
HAS A STRONG VOICE.  INDEED, BRAZIL ITSELF HAS MOVED TO 
PROMOTE EXPANDED EXCHANGES ON THESE QUESTIONS.  IN 
SEPTEMBER 2004, IT HOSTED AN OECD CONFERENCE ON 
IMPLEMENTATION OF THAT ORGANIZATION'S ANTI-BRIBERY 
CONVENTION, AND THE GOB IS PLANNING TO HOST AN OECD 
INVESTMENT CONFERENCE THIS YEAR AND AN EVENT ON FINANCING 
FOR SME'S IN 2006.  BRAZIL ALSO APPEARS TO BE EMBRACING 
PARTICIPATION IN RENEGOTIATING THE OECD SECTORAL 
UNDERSTANDING ON AIRCRAFT FINANCING, AN OBVIOUS TIE-IN 
GIVEN THE COUNTRY'S STATUS AS THE WORLD'S FOURTH LARGEST 
AIRCRAFT PRODUCER. 
 
11. (SBU) FROM A BILATERAL PERSPECTIVE, SHORT-TERM 
BRAZILIAN ENGAGEMENT WITH, FOLLOWED BY EVENTUAL ENTRY INTO, 
THE OECD WOULD BE IN THE USG'S INTEREST.  WHILE THE USG AND 
BRAZIL HAVE A HEALTHY DIALOGUE ON ECONOMIC ISSUES, CONSTANT 
USG "NAGGING" MAY HAVE MADE THE GOB TONE DEAF TO SOME OF 
OUR COMPLAINTS.  HAVING THE OECD - VIEWED HERE AS A WELL- 
RESPECTED FORUM FOR SHARING TECHNICAL AND POLICY EXPERTISE 
- MAKE SUBSTANTIALLY THE SAME POINTS MIGHT HELP THE MESSAGE 
SINK IN.  AND THE FACT THAT THE GOB VIEWS ACCESS TO SOUND 
POLICY TECHNICAL ADVICE AS ONE OF THE CHIEF BENEFITS OF A 
CLOSER RELATIONSHIP WITH THE OECD, MEANS THAT POLICYMAKERS 
HERE SHOULD GENERALLY PROVE RECEPTIVE TO COUNSEL COMING 
FROM THAT ORGANIZATION. 
 
CONTINUED ECONOMIC EXPANSION KEY TO ENHANCED ENGAGEMENT 
 
12. (SBU) ULTIMATELY, THE SUCCESS THE GOB ENCOUNTERS IN ITS 
EFFORTS TO INTENSIFY ITS COOPERATION WITH THE OECD WILL 
LIKELY DEPEND UPON THE COURSE OF THE COUNTRY'S ECONOMY. 
CURRENTLY, BRAZIL IS ENJOYING ITS BEST MACRO-ECONOMIC 
MOMENT IN YEARS, WITH GDP GROWTH AT 5 PERCENT, INFLATION AT 
7 PERCENT, A US$11.7 BILLION CURRENT ACCOUNT SURPLUS, AND A 
RECORD US$33.6 BILLION TRADE SURPLUS (REF C).  TO ENSURE 
CONTINUED GROWTH IN THE LONG-TERM, THE LULA ADMINISTRATION 
IS SEEKING CONGRESSIONAL PASSAGE OF A SERIES OF MICRO- 
REFORMS DESIGNED TO CUT GOVERNMENT SPENDING, REMOVE 
BARRIERS TO EXPORT, MODERNIZE TRANSPORTATION 
INFRASTRUCTURE, AND STREAMLINE GOVERNMENT BUREAUCRACY (REF 
D). 
 
13. (SBU) IF ALL GOES WELL - WITH BOTH THE MACRO-ECONOMY 
AND THE IMPLEMENTATION OF THE MICRO-REFORMS - BRAZIL WILL 
MOVE CLOSER TO OECD NORMS IN TERMS OF TRANSPARENCY, EVEN- 
HANDEDNESS, AND BALANCED PUBLIC ACCOUNTS.  HOWEVER, SHOULD 
THE GOB'S MICRO-REFORM AGENDA STUMBLE, IT MAY PROVE 
DIFFICULT FOR THE GOB TO BRING ABOUT LONG-TERM, SUSTAINABLE 
GROWTH.  AND SHOULD THE MACRO-ECONOMY FALTER, MANY WITH THE 
WORKER'S PARTY (I.E., THE PRESIDENT'S PARTY) MAY CALL FOR 
POPULIST SOLUTIONS WHICH LULA, EVER THE PRAGMATIST, MAY BE 
HARD PRESSED TO REJECT.  SUCH A COURSE WOULD MOVE BRAZIL 
FURTHER AWAY FROM OECD NORMS AND PRACTICES. 
WHAT KIND OF COURTSHIP CAN WE EXPECT? 
 
14. (SBU) ASSUMING ALL GOES WELL WITH THE BRAZILIAN 
ECONOMY, WHAT MIGHT THE USG EXPECT AS BRAZIL AND THE OECD 
DRAW CLOSER TOGETHER?  IN LINE WITH ITS DESIRE TO SERVE AS 
A USEFUL BRIDGE BETWEEN NORTH AND SOUTH, THE GOB MIGHT 
INJECT A DEVELOPING COUNTRY PERSPECTIVE INTO OECD 
DISCUSSIONS ON DEVELOPING COUNTRY CONCERNS SUCH AS HUNGER, 
POVERTY, AND TECHNOLOGY TRANSFER WHILE EXPOUNDING OECD 
VIRTUES SUCH AS TRANSPARENCY AND FISCAL DISCIPLINE TO THE 
G-77.  (LULA'S ATTENDANCE IN LATE JANUARY AT BOTH THE WORLD 
ECONOMIC FORUM IN DAVOS AND THE ALTERNATIVE WORLD SOCIAL 
FORUM IN PORTO ALEGRE IS A GOOD EXAMPLE OF THE GOB'S DUAL 
VISION.)  INDEED IN MANY WAYS, BRAZIL IS WELL-SUITED TO 
PLAY THIS ROLE IN VIEW OF THE COUNTRY'S STRONG DIPLOMATIC 
TRADITION AND ITS MIX OF FIRST WORLD INDUSTRY WITH THIRD 
WORLD POVERTY.  FROM THE OECD'S PERSPECTIVE, THE ADDITION 
OF BRAZIL TO ITS LIST OF CLOSE PARTNERS - OR, 
ALTERNATIVELY, AS A FULL-FLEDGED MEMBER - WOULD DO MUCH TO 
ENHANCE THE ORGANIZATION'S GLOBAL INFLUENCE. 
 
15. (SBU) HOWEVER, THE QUESTION OF WHETHER ULTIMATELY THE 
TWO PARTNERS ARE REALLY COMPATIBLE STILL REMAINS.  WHEN 
BOTH SIDES START CONVERSING REGARDING THE SPECIFICS OF 
ACCESSION, AT SOME POINT BRAZIL WILL BE ASKED TO COMMIT 
FULLY TO THE BASIC PILLARS OF THE OECD'S "ACQUIS," (AT A 
MINIMUM, THE CONVENTION ON THE OECD, THE RULES/REGULATIONS 
OF THE ORGANIZATION, THE INTERNAL DECISION OF THE COUNCIL, 
THE JUDGMENTS OF THE OECD ADMINISTRATIVE TRIBUNAL, AND ALL 
SUBSTANTIVE OECD INSTRUMENTS).  WHILE BRAZIL HAS ALREADY 
EMBRACED SOME KEY OECD DOCUMENTS (FOR INSTANCE, THE GOB 
RATIFIED THE ANTI-BRIBERY CONVENTION IN 2000) IT BY NO 
MEANS HAS SIGNED ON TO THE FULL SET OF COMMITMENTS. - NOR 
HAS IT DEMONSTRATED THAT IS HAS SERIOUSLY CONSIDERED A 
STRATEGY FOR OBTAINING A DOMESTIC CONSENSUS FOR ACCEPTANCE 
OF SUCH OBLIGATIONS.  AND THE ACQUIS, OF COURSE, WOULD BE 
THE MINIMUM REQUIRED FOR ENTRY - INDIVIDUAL OECD COMMITTEES 
COULD CONCEIVABLY SEEK ADDITIONAL ACCESSION REQUIREMENTS. 
ONE REQUIREMENT THAT THE GOB MIGHT FIND A PARTICULARLY HARD 
PILL TO SWALLOW - WERE THE OECD TO REQUEST THIS - WOULD BE 
SURRENDER OF THE COUNTRY'S DEVELOPING COUNTRY STATUS IN THE 
WTO:  A DESIGNATION WHICH BENEFITS BRAZIL IN TRADE 
NEGOTIATIONS. 
 
DANILOVICH