US embassy cable - 05ASUNCION708

C O N F I D E N T I A L SECTION 01 OF 02 ASUNCION 000708 
 
SIPDIS 
 
STATE PASS TO USAID LAC/AA 
STATE PASS TO USTR FOR SCRONIN AND LYANG 
STATE FOR WHA/BSC 
TREASURY FOR OSIA MAUREEN WAFER 
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR 
COMMERCE FOR ITA SARAH COOK 
NSC FOR KIMBERLY BREIER 
SOUTHCOM FOR POLAD DAN JOHNSON 
 
E.O. 12958: DECL: 02/17/2015 
TAGS: PGOV, PREL, PINR, PA 
SUBJECT: PARAGUAY: REACTIONS TO BRAZILIAN CRACKDOWN ON THE 
FRIENDSHIP BRIDGE 
 
REF: A. 2004 ASUNCION 01473 
     B. ASUNCION 00484 
 
Classified By: Ambassador John F. Keane for reasons: 1.4(b) and (d). 
 
1. SUMMARY:  Recently, PolOff and Department of Treasury,s 
Resident Enforcement Advisor (REA) traveled to Ciudad del 
Este (CDE) to observe trade and traffic across the Friendship 
Bridge, linking Paraguay and Brazil, in the wake of stepped 
up enforcement measures by Brazilian authorities to counter 
the smuggling of contraband and pirated goods and to meet 
with GOP and GOB officials.  Several Paraguayans complained 
that the Brazilians were unfairly punishing Paraguay and did 
not view the Brazilian tactics as effective.  Also, Brazilian 
officials noted their enforcement efforts will build over the 
next several months, but may be complemented by GOB projects 
to provide economic assistance. END SUMMARY. 
 
----------------------------- 
The View from Ciudad del Este 
----------------------------- 
 
2.  (C) Prosecutor Agusto Salas from the financial crimes 
unit in CDE cited Brazil as the source of the region's 
problems with the smuggling of contraband and pirated goods. 
He blamed Brazil,s recent enforcement efforts on the bridge 
for the closing of businesses, a loss of jobs, and an 
increase in crime within the city.  American Chamber of 
Commerce (AmCham) Representative Jeff Hessler told PolOff and 
REA in meetings that stepped-up Brazilian controls on trade 
across the Friendship Bridge have impacted businesses in 
Ciudad del Este, but to a lesser degree than what is 
highlighted in local press.  He noted that in particular 
Taiwanese businesses seem to have been more affected, 
however, other Embassy contacts state that businesses owned 
by Arabs, Brazilians, and Paraguayans have been equally 
affected by the economic conditions in the city.  Hessler 
also described the mayor of Ciudad del Este as a close 
personal friend of President Duarte and one who is more 
concerned about cleaning up the city and making it "pretty" 
for tourists than actually combating contraband and piracy. 
(Comment:  Increasing tourism and other legitimate business 
is vital to sustaining support for crack-downs on illegal 
activity.  These efforts are complementary, rather than 
competing efforts.  End Comment.) 
 
4.  (C) Ciudad del Este Mayor Ernesto Zacarias Irun, 
accompanied by his Secretary of Tourism Mauro Cespedes, told 
PolOff and REA that he is hoping to create a city that is 
pleasant looking and welcoming to tourists.  He defined 
tourists as those who come to CDE to shop for electronics, 
perfumes, compact discs, etc.  Zacarias also maintained that 
CDE's reputation for contraband does not track with reality, 
alleging that only four percent of goods sold in CDE are 
contraband.  Both PolOff and REA rebuffed this statistic and 
questioned the source.   Zacarias also boasted that early in 
his mandate he kicked out all of the illegal cigarette 
operations in the city and stated that the illegal cigarettes 
traded in the area were brought from other parts of the 
country, such as Asuncion and Caagauzu, to be sold in CDE. 
(Note:  Mayor Zacarias is a former congressman and a member 
of the Colorado Party.  In his mid-30s, he is energetic and 
well-spoken. End Note.) 
 
 
--------------------------------------------- ------- 
The Friendship Bridge from the Brazilian Perspective 
--------------------------------------------- ------- 
 
 
5.  (U) Poloff accompanied by REA met with the Brazilian 
Consul General to Ciudad del Este Antonio Fernando Cruz de 
Mello, Juan Carlos Araujo of the Brazilian Federal Police, 
and Roberto Miranda of the Brazilian intelligence community 
to learn about Brazil,s enforcement efforts in the 
tri-border area, specifically targeting smuggling of 
contraband and pirated goods flowing across the Friendship 
Bridge.  The Brazilians told us their increase in customs' 
inspections of goods transferred over the bridge from 
Paraguay into Brazil is a continuation of Operation 
Cataratas. The GOB also maintained their efforts will be 
sustained and may increase gradually over the course of the 
next several months to avoid extensive GOP outcry.  The 
Brazilian Government initiated Operation Cataratas in 
November 2004 as an effort to crackdown on smuggling flowing 
from CDE into Foz do Iguacu, Brazil.  Initially, the 
operation caused large-scale demonstrations and closure of 
the Friendship Bridge for four days (ref A). Since then, the 
issue has dominated the local press and has been a source of 
strain between Asuncion and Brasilia.  On April 16, the two 
countries signed an agreement raising the quota for duty-free 
personal purchases from US$150 to US$300 to quell the border 
dispute (ref B). 
 
6.  (C) The Brazilian officials related that corruption was 
their biggest challenge in dealings with the GOP.  Miranda 
told PolOff and REA that a Paraguayan navy officer had 
offered a bribe to Brazilian officials to let up on the 
controls on the Friendship Bridge.  The Consul General 
confided that he did not trust anyone within the GOP, 
including police, prosecutors, and Margarita Diaz de Vivar, 
the Director of Paraguayan Customs. (Note: EmbOffs have found 
Diaz de Vivar honest and responsive to our concerns.  End 
Note). 
 
7.  (C) Cruz de Mello mentioned that Brazil is considering 
complementing its enforcement actions with an economic 
development plan, to include assisting the Paraguayans in 
building a soy production plant for example.  (Note: This 
announcement parallels what Brazilian Embassy officers have 
told PolOff in previous meetings in Asuncion.  End Note). 
 
8.  (C) Comment:  It is becoming clear that Brazil has no 
plans to decrease enforcement efforts in the region, as 
stated by these Brazilian officials and echoed by their 
counterparts in Asuncion.  Rather, Brazil is looking to 
reshape its policy towards Paraguay by adding an economic 
development component.  Historically, concerned about the 
economic and political repercussions, Paraguay has been 
reluctant to combat contraband and piracy in the tri-border 
area.  Instead, many Paraguayan officials tend to downplay 
the extent of the smuggling problem and cast blame at 
others--namely Brazil--for implementing unfair policies. 
However, there are signs of a GOP shift in attitudes and 
approach.  The GOP is slowly implementing systems to augment 
Brazil,s stepped up enforcement.  Local press reported on 
May 2 that the GOP implemented an integrated customs control 
system, making international transactions between Brazil and 
Paraguay more transparent.  It is also noteworthy that over 
the course of the Duarte administration the government has 
stepped-up efforts, however uneven and intermittent, to 
crackdown on businesses producing contraband and pirated 
goods.  These efforts run up against strong economic and 
political interests.  Paraguay's ability to recast CDE's 
image as a haven for smuggling will ultimately hinge on its 
determination to end the legacy of impunity enjoyed by those 
interests. 
 
9.  (C) Comment continued:  The GOP has its own complaints 
about Brazil's willingness to cooperate on IPR protection. 
In July 2004, President Duarte sent a letter to President 
Lula suggesting that the two countries discuss increased 
information sharing with respect to IPR enforcement.  The 
letter was never answered.  In March 2005, at bilateral 
meetings in CDE, IPR was placed on the agenda at the 
insistence of the GOP, and Brazil responded by only sending 
one Brazilian embassy officer to attend that session.  In 
early May, Brazil presented the GOP with a draft memorandum 
of understanding on IPR enforcement cooperation, which the 
two countries are expected to sign in June.  It will take 
time to build trust between the two sides, but the agreement 
should be a step in the right direction. 
KEANE