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FM AMEMBASSY BRASILIA
TO RUEAHLC/DEPT OF HOMELAND SECURITY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1882
INFO RUEHRG/AMCONSUL RECIFE PRIORITY 8141
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 6266
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2236

C O N F I D E N T I A L SECTION 01 OF 06 BRASILIA 000823

SIPDIS

E.O. 12958: DECL: 06/05/2018
TAGS: PGOV PREL PTER KHLS OVIP ECON BR
SUBJECT: SCENESETTER FOR THE JUNE 18-22 VISIT OF SECRETARY
CHERTOFF

REF: A. BRASILIA 000043
¶B. BRASILIA 001664

Classified By: Ambassador Clifford Sobel. Reasons: 1.4 (B and D).

¶1. (U) Summary: The relationship between the United States
and Brazil is as productive and broad-based as it as ever
been, the result of the excellent relationship between
President Bush and President Luiz Inacio Lula da Silva, new
cooperation mechanisms on biofuels, business issues, and
economic matters, and our shared goals of fostering
hemispheric stability, promoting democracy, developing a
consensus on next steps regarding climate change, and
achieving a mutually satisfactory conclusion to the Doha
round of WTO negotiations. Cooperation on law enforcement
issues, such as counternarcotics, container security, and
intelligence sharing, are highlights of the bilateral
relationship. Brazilian officials at the policy level,
however, are always keen to underplay the range of organized
criminal activities, including arms and narcotics trafficking
and money laundering that takes place in the
Argentina/Brazil/Paraguay tri-border area (TBA). U.S.-Brazil
cooperation on foreign policy issues is often limited by the
GoB's unwillingness to speak out against anti-democratic
actions in the hemisphere (Venezuela and Cuba), take
proactive steps to address key issues such as nuclear
proliferation and counterterrorist concerns, and expand its
international leadership in meaningful ways. Brazil's
ethanol program has made it a global model for alternative
energy and offers potential for bilateral cooperation on an
important strategic issue. On the environment, Brazil has
long been on the defensive about the ongoing, extensive
deforestation of the Amazon, which has made Brazil one of the
leading producers of greenhouse gases. The Brazilian labor
movement is strong, well-organized, and very influential in
many key industrial sectors. Lula came out of the organized
labor movement and labor and social issues have always been
among his top priorities. Trafficking in Persons is present
in all of its forms in Brazil, but the GoB is making a
serious effort to combat it. End Summary.

----------------------------------
Lula Popular, but What Comes Next?
----------------------------------

¶2. (C) With a 67 percent approval rating, President Lula is
more popular than at any other point since he took office in
¶2003. Continuity and legacy are the guiding lights of Lula's
second term. Lula continues to shape his legacy as a friend
of the poor and builder of a foundation for prosperity for
the lower and middle classes through broad social welfare
programs and a vast, new economic growth program of public
works and growth incentives. At the same time, Lula has
failed to promote needed reforms to abolish a political
culture of corruption, clientelism, and spoils. Although a
seemingly endless series of corruption scandals has not
dented his personal popularity or that of his government,
these scandals have felled political allies, including
cabinet ministers, in recent years.

¶3. (U) Lula is concerned with finding an electable successor
for 2010, and appears to be grooming his top domestic policy
adviser, Minister Dilma Rousseff, while keeping other options
open. Attention in the media and among the political elite
is already focused on the race; the opposition governor of
Sao Paulo state and former presidential candidate, Jose
Serra, currently leads the pack of possible candidates.

-----------------------------------
Latin America's Economic Powerhouse
-----------------------------------

¶4. (U) President Lula and his economic team,s prudent fiscal
and monetary policies and reform efforts are a major reason
for his popularity and have resulted in Brazil,s position as
the tenth largest economy in the world, with a trade surplus
and, just this year, achievement of a BBB-minus (lowest
investment grade) credit rating. Annual GDP growth was
approximately 5.4 percent for 2007, with inflation within its
target range at 4 percent. Buoyed by exports and investment
inflows, Brazil's currency, the Real, has remained strong,
and the government has succeeded in paying down its external
debt. However, there are major structural challenges to long
term growth. Real interest rates are among the highest in
the world. The informal sector constitutes an estimated 40
percent of the economy, in part due to the tax burden (34.2
percent of GDP in 2006), one of the highest among large
developing economies. Brazil,s opaque and onerous
regulatory and legal system, as well as poor transport and

BRASILIA 00000823 002 OF 006


other infrastructure, continue to constrain growth.

-------------------------------------------
Friendly Cooperation, Not Strong Friendship
-------------------------------------------

¶5. (C) Bilaterally, the GoB has pursued generally friendly
relations with the United States and we continue to seek
opportunities for positive bilateral cooperation. Following
the signing of the biofuels MOU in March 2007, Brazil and the
United States have been seeking ways to increase our
collaboration toward the next generation of biofuels, as well
as in developing international standards on biofuels which
should facilitate greater international acceptance and use of
biofuels. The Economic Policy Dialogue (EPD) launched last
year provides an important opportunity to reinforce our view
of Brazil as partner. Cooperation to foster innovation and
agricultural coordination, to possibly include assistance to
African countries, are new topics of conversation
bilaterally. Additionally, we have been working to develop a
regional infrastructure initiative. We have been exploring
one another,s regulatory frameworks in hopes of addressing
barriers and achieving a Bilateral Tax Treaty and a Bilateral
Investment Treaty. Civil aviation is an area of renewed
focus with the next round of talks scheduled for the week of
June 23rd. There are also continuing efforts under the
auspices of the bilateral CEO Forum to address issues of
common interest.

¶6. (C) Nonetheless, the GoB continues to favor building ties
with developing nations over closer relations with the United
States and other developed nations. While seeking to expand
our bilateral dialogue, the GoB has studiously avoided
working closely with us on broad strategic issues important
to us. Those issues on which it has been willing to work
with us--biofuels, investment, and climate change, for
example--are areas where the GoB considers itself a visibly
equal partner. The exception may be security-related issues,
where the appointment of Nelson Jobim as Defense Minister has
brought new interest in cooperation. But it appears that in
this area, as with our efforts on counternarcotics,
environmental protection, counterterrorism, and other issues,
the Foreign Ministry is seeking to maintain its historic
dominance and distance from the United States, which it does
by controlling the agenda and throwing up barriers that delay
and sometimes scuttle bilateral efforts that other ministries
support.

¶7. (SBU) The Brazilian public has a mixed view of the United
States. Seventy-five percent say relations between Brazil
and the U.S. are very good or fairly good, and Brazilians by
a wide margin consider the U.S. the most important country in
the region for Brazil. Those who follow the news know that
U.S.-Brazil cooperation on trade issues has global importance
and new areas of cooperation such as biofuels are potentially
significant. There has been a much more positive view of
U.S.-Brazil cooperation since the signing of the biofuels MOU
last year. On the other hand, there is a good deal of
skepticism about U.S. foreign policy, particularly on issues
such as Iraq and Cuba. There is resentment over the long
wait times for U.S. visa applications, a product of a spike
in demand without commensurate increases in staffing.

--------------------------------------
Hesitant Globally; Cautious Regionally
--------------------------------------

¶8. (C) Brazil's foreign policy is dominated by symbolic steps
to burnish its South-South credentials and status as an
emerging leader, rather than by resolute attention to core
political and economic interests, including strengthening
bilateral political and trade relations with the United
States. The attainment of a permanent seat on the UN
Security Council has been a central tenet of Brazil's foreign
policy under President Lula's government, and most of its
actions on the international stage are geared toward that
goal. However, Brazil has largely failed to assume the
international leadership role that would make it a strong
candidate for such a position. Brazil's latest two-year
stint on the UNSC, which ended in January 2006, was
characterized by caution and equivocation rather than vision
and leadership. The GoB has so far not used its significant
contribution to stability in Haiti as a step along the road
to becoming a champion of international peace and security.
For example, the GoB has yet to respond to repeated requests
for assistance with peacekeeping in Darfur.

¶9. (C) Brazil's general desire not to be too closely
identified with the U.S. is borne out in non-proliferation.

BRASILIA 00000823 003 OF 006


The GoB has expressed approval of the Proliferation Security
Initiative (PSI), but has not yet endorsed the PSI statement
of principles. Brazil has also not yet signed the NPT
Additional Protocol, although it has not ruled out signing it
in the near future. The GoB consistently refused to take a
strong position against Iran's nuclear efforts, questioning
the effort to refer Iran to the Security Council until the
vote in the IAEA had become a foregone conclusion. Brazilian
officials consider their seat at the table in Annapolis as a
foreign policy success and see themselves as balanced in
their dealings with Israel and the Palestinians, but they
have yet to define a substantive role for Brazil. FM
Amorim's suggestion recently that Iran, Syria, Hamas, and
Hizbollah should be included in the negotiations suggest
continuing naivete regarding the peace process and Middle
East relations, as does his recent remark to a U.S. official
that Brazil's growing "friendship" with Iran will prove
useful should the United States, in the future, decide to
engage Iran.

¶10. (C) Regionally, Lula has maintained Brazil's historic
focus on stability, seeing dialogue and good relations with
all parties as the best way to achieve this goal. As a
result, Brazil maintains an active dialogue with and refuses
to criticize human rights violations in Venezuela and Cuba,
has worked hard to restore relations with Bolivia even at the
expense of its own economic interests, and stood firmly on
the principle of respect for sovereignty, with only minimal
mention of counterterrorism concerns, in responding to the
recent dispute between Colombia and Ecuador.

---------------------------
Law Enforcement Cooperation
---------------------------

¶11. (SBU) Cooperation on security and law enforcement issues
is a highlight of the bilateral relationship, and a potential
area for increased cooperation as public security is
frequently cited in opinion polls as the most pressing
concern for Brazilians. The newly arrived Resident Legal
Advisor is working in support of USG law enforcement agencies
and the political and economic sections to expand and
intensify our relations with the judiciary, prosecutors, and
Brazilian law enforcement. We hope this year to seat another
Brazilian observer at JIATF-S. Also, the GoB has expressed
interest in negotiating a General Security of Information
Agreement (GSOIA). The Narcotics Affairs Section (NAS)
expects to sign a new Letter of Agreement shorly, which
will allow us to move forward to expad cooperation on
counternarcotics and countercrie issues, including at the
state level. The GoBcooperates with the USG on the
operational level in the fight against terrorism, document
fraud, ad drug trafficking. Information sharing at the
orking level between Brazilian and US law enforcemnt and
intelligence agencies is productive. Brail has been a
valuable partner in the efforts to secure our own borders
against terrorism through ts support for DHS's Container
Security Initiatie (CSI), its implementation of enhanced
passenge screening at airports and its fulfillment of the
International Maritime Organization (IMO) ISPS code on port
and ship security. Immigration and Cusoms Enforcement (ICE)
is also currently working ith the Brazilian authorities to
detect financia and smuggling violations, financial crimes
and commercial fraud with the assistance of the Trade
Transparency Unit (TTU) initiative.

---------------------------
Cooperation on Cybercrimes
---------------------------

¶12. (U) Assisting Brazil in creating legislation to counter
cybercrimes, including online child pornography and tracking
of sex offenders, represents another potential area of
cooperation on law enforcement matters. Brazil lacks
cybercrime laws and the Congress has opened a Parliamentary
Committee of Inquiry (CPI) to look at the issue and come up
with draft legislation. As part of the CPI's work, the CPI
was able to obtain over 3,000 Google records of identified
child pornography that had been distributed on the Internet
from Brazil. The chairman of the CPI has voiced his concern
about, in his view, inadequate cooperation from Google and
its subsidiary Orkut, a relationship site. Google, Orkut,
Microsoft, and all other Internet service providers are
required to report the discovery of child pornography on the
Internet and DHS/ICE has established a mechanism to have
access to this information which has been reported. DHS/ICE
has already initiated the practice of sharing this
information with Brazilian Federal Police. Related to the
CPI, its Chairman has made inquiries to the Mission on the

BRASILIA 00000823 004 OF 006


case of DHS/ICE Deportation officer accused of child
exploitation at a hotel in Brazil. The U.S. is seeking the
toughest penalty possible, whether in Brazil or the U.S., and
is fully cooperating with Brazilian authorities.

--------------------------------------------- ----------------
Counterterrorism: Operational Cooperation; Policy-Level
Equivocation
--------------------------------------------- ----------------

¶13. (C) Cooperation on counterterrorism matters remains good
at the operational level, and we regularly obtain valuable
information from GoB sources on terrorism. The Lula
administration just re-structured its intelligence apparatus
to beef up their counterterrorism focus. The senior policy
levels of the GoB, however, have refused to publicly endorse
U.S. counterterrorism initiatives and, wary of Brazil's
large, prosperous and influential Arab population, make every
effort to downplay in public even the possibility of
terrorist fund-raising going on inside Brazil, a situation
exacerbated by their refusal to consider Hizballah or HAMAS
as terrorist organizations. The Lula administration failed
to introduce long-delayed draft legislation outlawing
terrorist-related activity, including its financing.

¶14. (U) The governments of Argentina, Brazil, and Paraguay
have long been concerned over illicit activities in the
tri-border area (TBA) joining Foz de Iguacu in Brazil, Ciudad
del Este in Paraguay, and Puerto Iguazu in Argentina. The
TBA concentrates a range of organized criminal activities,
including arms and narcotics trafficking, document fraud,
money laundering, as well as the manufacture and movement of
contraband goods. A wide variety of counterfeit goods,
including cigarettes, CDs, DVDs, and computer software, are
moved from Asia into Paraguay and transported primarily
across the border into Brazil. This inflow of illicit goods
stands to be increased with the potential passage of
legislation that purports to ease customs procedures for
small-scale importers but, due to a lack of enforcement
provisions, would likely serve to abet traffickers. The
United States remains concerned that Hizballah and HAMAS are
raising funds in the TBA by participating in illicit
activities and soliciting donations from extremists within
the sizable Muslim communities in the region.

¶15. (U) In the 1990s the three governments established a
mechanism, which the US joined in 2002 at their invitation,
to address illicit activities in the TBA. The "3 1 Group on
Tri-border Area Security" is intended to improve the
capabilities of the three TBA states to thwart cross-border
criminal activity and potential terrorist fundraising
activity. Brazil is an active partner within this mechanism,
but the effectiveness of this group is hampered by GoB
denials of any potential terrorist activity taking place in
their territory (see reftels). The suggestion that planning
for the 1994 bombing of AMIA, an Argentine Jewish center,
might have taken place in Brazil caused the GoB to abstain in
an international vote over whether to issue Interpol warrants
for Iranian officials accused in the case, an action that
disappointed and irritated Argentina. Nonetheless, Brazil
has established and hosts a Joint Intelligence Center (JIC)
in Foz de Iguacu to combat transnational criminal activity,
although staffing issues on the part of Argentina and
Paraguay continue to impede its full functioning.

--------------------------------------------- --------
Labor and Trafficking in Persons: An Improving Record
--------------------------------------------- --------

¶16. (SBU) The labor movement in Brazil is strong,
well-organized, and very influential in many key industrial
sectors. President Lula comes from the labor movement. He
worked his way up through the powerful metal workers union,
was one of the founders of the largest Brazilian labor
confederations -- the Unified Workers Confederation of Brazil
(CUT) -- and of the ruling Workers Party (PT). Labor and
related social issues, such as combating Trafficking in
Persons (TIP), and forced labor, are important priorities of
the Lula Administration. The Lula Government's commitment to
social issues is exemplified by its popular Bolsa Familia
(Family Stipend) program which involves direct cash pay outs
to over 11 million families as an incentive for low-income
Brazilians to keep their children in school and up-to-date
with their immunizations. Most economists and policymakers
agree that labor reform is necessary for the Brazilian
economy to grow at a faster rate and to reduce the large
informal sector, which employees close to 45 percent of all
Brazilian workers. However, comprehensive labor reform is
politically unpopular and unlikely to happen during the Lula

BRASILIA 00000823 005 OF 006


Administration.

¶17. (SBU) The use of child labor and the exploitation of
children for sexual purposes is widespread in Brazil. NGOs
estimate that there are at least 240,000 children working
illegally, although the number may be much higher. The
Federal Police estimate that at least 250,000 children are
involved in prostitution, while some NGO's put the number as
high as 500,000. Many work in the poor northeastern sector
of Brazil where there is a booming sex tourism industry
catering mostly to Europeans, and to a lesser extent,
Americans.

¶18. (U) Trafficking in Persons is present in all of its forms
in Brazil, including the trafficking of women and children
internally and internationally for purposes of sexual
exploitation, the internal trafficking of men for use in
slave or forced labor in the cattle-raising and agricultural
sectors, and in the production of charcoal, some of which is
used to produce pig iron. There are an undocumented number
of foreign laborers working in slave-like conditions in
factories in the city and state of Sao Paulo. However, the
GoB is making a serious effort to combat TIP and forced/slave
labor. It signed the Palermo Protocol in 2004 and is now
working to get implementing legislation passed by the
Congress. President Lula signed a decree in October 2006
establishing a national anti-TIP policy. A binding work plan
to implement that policy was publicly in January 2008.
Ministry of Labor mobile inspection teams have freed over
29,000 laborers from slave-like working conditions since
starting work in 1993. The inspection teams freed over 5,900
forced labor victims last year (2007) alone.

¶19. (SBU) As a result of reports of slave or forced labor in
the production of charcoal used to produce pig iron, in
September of last year the Mission requested the GoB's
concurrence in having DHS/ICE personnel work with the
appropriate ministries and agencies in the Brazilian
government to investigate allegations that American companies
may have received products produced in Brazil with the
possible use of forced labor. So far, the Brazilian
government has not responded to our requests.

--------------------------------------------- --------------
Protecting Brazil's Borders: Extreme Sensitivity on
Sovereignty
--------------------------------------------- --------------

¶20. (U) There is long-standing and widespread fear among
Brazilians that the United States or other foreigners want to
take over or internationalize the Amazon. Although
demonstrably unfounded, it surfaces regularly in official and
media circles, as with President Lula's recent assertions
that "The Amazon has an owner." More recently, the prospect
of enormous oil reserves off Brazil's coast have added new
fears that the United States or others might have designs on
these, as well. Some Brazilians have linked the
just-announced re-establishment of the U.S. Fourth Fleet to
these Brazilian oil discoveries. However, most Brazilians do
not realize that the Fourth Fleet consists solely of a
planning staff of approximately 80 people based in Florida,
and that it has no permanently assigned ships. Its main
missions will be support of peacekeeping operations, such as
in Haiti, respond to natural disasters, such as Hurricane
Felix in Nicaragua, organize humanitarian relief, typically
of a medical nature, and assist counternarcotics efforts.
Standing up the Fourth Fleet intends to demonstrate the
priority the United States places on its partnerships in
Latin America and will help ensure that Latin America remains
a high priority for U.S. engagement.

¶21. (U) There have also been some rumors about the permanent
stationing of a ship in Brazilian waters by the US Navy in
light of the recent the port visit of the USS George
Washington CVN-73. The U.S. Navy has no vessels in Brazilian
waters and has not had any since the USS George Washington
departed Brazilian territorial waters in early May. By
policy, the U.S. Navy will not enter territorial waters of
any national without diplomatic clearance and the cooperation
of the host nation.

¶22. (U) Defense Minister Nelson Jobim stated publicly in
early June that Brazil needed to improve security for its
off-shore oil resources and that, as permitted by the UN
Convention on the Law of the Sea (UNCLOS), Brazil was
planning to increase the 200-mile exclusive economic zone to
350 miles to include the Santos basin and other oil deposits
located on Brazil's continental shelf.. Although there were
suggestions in the press that the United States might not

BRASILIA 00000823 006 OF 006


respect such an extension because we have not ratified
UNCLOS, the U.S. does fully respect exclusive economic zones
established pursuant to customary international law as
reflected in UNCLOS. Furthermore, the US has established its
own exclusive economic zone according to the same customary
international law. UNCLOS recognizes the sovereign rights of
a coastal State over its continental shelf, which extends out
to 200 nautical miles--and beyond, if it meets specific
criteria. These rights include sovereign rights for the
purpose of exploring the continental shelf and exploiting its
natural resources, including oil, gas, and other energy
resources.




SOBEL