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National Confederation of Industry
Brazil
HOW TO MOVE AHEAD
December, 2008
A New Time in Brazil - U.S. Relations
how to move ahead
National Confederation of Industry
Brazil
HOW TO MOVE AHEAD
December, 2008
* This document consolidates the main findings and conclusions of Huenemann, J. E. from Miller & Chevalier- A New Time in Brazil-U.S.Relations:
Defining the Landscape - Strategic Considerations for Advancing Beyond the Status Quo and of Motta Veiga, P. - Note on a Strategic Partnership
Between Brazil and the United States. Both background papers have been elaborated for the Brazilian Section of the Brazil-US Business Council.
This document was the object of discussion
between the Brazilian and American private
sectors in 2008. It contained the main findings of
various scholars and private sector representatives
from a seminar with the Brazil Institute at the
Woodrow Wilson Center in Washington, D.C. in
September, 2008.
This study was sponsored by the National
Confederation of Industry - CNI as a contribution for
the work that has been conducted by the Brazilian
Section of the Brazil-U.S Business Council (CEBEU).
© 2008. CNI – National Confederation of Industry.
CNI
Customer Service - SAC
National Industry Confederation – CNI
Tels.: (61) 3317-9989 / 3317-9992
Setor Bancário Norte
[email protected]
Quadra 1 – Bloco C
Edifício Roberto Simonsen
70040-903 – Brasília – DF
Tel.: (61) 3317- 9001
Fax: (61) 3317- 9994
http://www.cni.org.br
Contents
9
1 Introduction
2 The context: recent evolution
3 Ideas for intensifying and upgrading the bilateral relations between
4 Conclusion
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Brazil and the United States: agenda of priorities and tools 17
Annex 25
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1
Introduction
This paper represents an effort to help define the landscape that surrounds the pursuit of
a deeper Brazil-U.S. relationship. It also examines considerations and mechanisms in the
current relationship, a relationship that arguably is better than it ever has been, and it concludes with a discussion about moving ahead. Through an examination of the landscape
that exists, the hope is that we will help enable a more effective discussion about bringing
the Brazil-U.S. relationship to a more mutually rewarding, or strategic, level that sits among
the more important relationships in the world.
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A New Time in Brazil - U.S. Relations: how to move ahead
2
The context: recent evolution
It is important at the outset to recall that the policy establishments in Brazil and the United States look at the world differently in light of their respective starkly different circumstances. Brazil is a very large country and a democracy with an emerging economy that
is fundamentally market driven. Its external policy has been traditionally premised on its
evolving economic development agenda. The United States, while sharing some of Brazil’s
characteristics, has an external policy that has been reflective of its unique influence as the
world’s largest economy and the most potent military power for decades. Projecting power
by design or otherwise in all its forms has been a “given” for the United States in the postWorld War II era, while Brazil’s relative emergence in terms of power beyond its immediate
region has been more recent within a relatively narrow context.
Beyond the effects of these different looks on the bilateral relationship, two huge obstacles
have historically been in the way of efforts to upgrade the relationship between Brazil and
the United States. First, there has been an economic and political asymmetry between the
two countries and South America has not occupied a high priority place in the U.S. strategic view of the world, which combined have discouraged the United States from making
greater investments in a bilateral relationship1.
Secondly, from the Brazilian perspective, the asymmetry between the two countries was
perceived as a potential threat to Brazil’s “autonomous” economic development goals. The
paradigm of Brazil’s foreign policy in the last fifty years was based on seeking regional and
extra-regional alliances as mechanisms to “re-balance” power in the hemisphere or to reduce the effects of the asymmetry between Brazil and the United States.
2.1 Structural changes favor the hypothesis of a strategic partnership…
This long lasting situation has been changing as a result of evolutions both taking place in
the two countries and around the world. These evolutions deserve to be highlighted:
a) The global evolution towards a multi-polar world in which multilateralism is going
through a deep crisis. This evolution has several implications:
1
i.
The United States singular ability to determine global outcomes has waned with
the emergence of a number of powers - most notable among them China - leading
to the realization that U.S. strategies require adjustments. A prominent element of
these adjustments that have already commenced is a focus on defining “special”
strategies in the U.S. relations with the BRICs.
ii.
he consolidation of a “multipolarity cum crisis of multilateralism” scenario –
T
confirmed by the impasse of the Doha negotiations – reinforces the importance of
the evolving relationship between the now “main players” in the world economy
Measured by the traditional Atlas method as of 2007, the U.S. economy was ten times the size of Brazil’s economy.
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and the increasingly limited capacity of multilateral institutions to foster effective
global decision-making raising questions about of the structure of the governance
of the international system. There are several proposals for coping with this question and all of them advance the promotion of (bilateral or plurilateral) relations
hitherto not prioritized. The European Union has already set up strategic partnerships with all the BRICs and the U.S. has also augmented significantly it’s focus to
the BRICs, especially China and India.
b) Brazil’s greater relevance (i) in important issues of the international agenda and (ii) to
the interests of the United States in many issues of this agenda. The international agenda
has shifted to areas in which Brazil enjoys greater importance, and Brazil has increasingly
asserted its influence in relevant contexts.
A powerhouse in biofuels
Brazil has become a powerhouse in the production of biofuels. Together, Brazil and the U.S.
produce “almost 70% of the world’s ethanol,” and both are expected to play central roles
going forward in the development of this industry and related markets on a global scale.
At the same time, there is little question that Brazil is the most efficient producer of biofuels
and it has moved well beyond the OECD countries in the percentage of its energy needs being met by renewable fuels thus reducing Brazil’s “carbon footprint” when climate change
is emerging as a central issue in global policymaking. Thus, Brazil offers not only great
promise as a global supplier of biofuels going forward and as a partner of biofuels development with the United States, but it also stands out as a model in reducing carbon emissions
when the world is searching for answers with respect to climate change.
New oil and natural gas reserves
With respect to traditional and still preeminent forms of energy, Brazil is also now noticed for
its large, and apparently much larger than originally thought, oil and natural gas reserves. Not
all of the information is available to determine the true economic value of these reserves, but
Brazil is positioned to become a much larger producer of oil and gas, and possibly a significant
exporter. Some credible analysts have suggested Brazil will become one of the 10 largest oil
and gas producers in the world (among the top 5 in non-OPEC suppliers) while others have
noted similar projections . Brazil is now in a policy discussion about its future course in light
of these recent finds and building on existing capacities. Of course, it is important to caution
against jumping to conclusions about Brazil’s future role as a supplier in this sector, but there
is now certainly less doubt that there is major potential off of Brazil’s shores that, if realized,
would carry global implications in more ways than one, including for the United States.
A global power in agriculture
In agriculture, Brazil is an established global power. It is the world’s largest exporter of: sugar, orange juice, beef, poultry, tobacco and coffee; the second largest exporter of soybeans
and soymeal; and, the fourth largest exporter of corn and pork. Furthermore, its potential
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A New Time in Brazil - U.S. Relations: how to move ahead
to continue growth as an agricultural, agribusiness and food supplier to the world is widely
accepted to be enormous, thus explaining in part its strong interest in a successful conclusion to the Doha round within the WTO. While Brazil’s potential is perceived by some in the
U.S. as a threat, it also translates into large opportunities for others in the U.S. Furthermore,
global population and economic growth will require increasing supplies of agriculture and
food produced efficiently and sustainably, and no country is better positioned then Brazil to
provide increasing sustainable supplies as global demand continues to grow thus offering
the world an increased prospect of global food security.
Mining exports
Mining and export of minerals is another area where Brazil is a powerhouse. According to
the United States Geological Survey (USGS), Brazil ranks among the top holders of global
reserves and is a leading exporter as well. For example, Brazil is among the top 5 holders of
reserves in: bauxite, graphite, iron ore, magnesite, manganese, niobium, tantalum, tin and
vermiculite. Investment in this sector, including international investment, has been robust
up until the recent and rapid downturn in global growth and commodity prices. Given the
cyclical nature of commodity pricing and when global growth does resume again at more
robust levels, Brazil remains powerfully positioned to supply much of the world’s needs. It
is important to recall that many minerals play a critical role in a variety of technologies and
manufacturing. The U.S. is 100% reliant on certain mineral imports for supply, including
bauxite, graphite, niobium and tantalum, each of which Brazil is a supplier. The depth and
breadth of this Brazil-U. S. relationship in this area has more room to grow.
c) The structural changes in the Brazilian economy that are generating new - and more
optimistic than before - perceptions on the risks and opportunities involved in the participation of Brazil in global markets.
Sound economic policies
On the one side, the Brazilian economy has been consistently and effectively managed, particularly in the last fifteen years, offering better economic prospects for the future not only
in Brazil, but within South America and more broadly (including as a market for U.S. goods,
services and investment). In fact, Brazil’s macroeconomic management success means it has
improved its capacity to address some of the more discrete issues in economic management
and development, like infrastructure, R&D and technologies of all kinds, and healthcare
and education -- all areas where the U.S. is positioned to play a major role.
This year, Brazil was given an “investment grade” rating by Standard & Poor’s and Fitch
reflective of its consistent embrace of macro-economic management orthodoxy, improved
growth foundation, and net creditor status that makes it markedly less vulnerable to external shocks, which is especially important in light of the global financial crisis. More affordable market-based capital further leverages the prospects for growth in Brazil. Global
growth conditions permitting, Brazil should move even further up the global GDP rankings
over time, improving yet further its creditor status.
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Brazil: a major holder of U.S Treasury securities
In yet another indication of emerging trends, Brazil has very rapidly become a major holder
of U.S. Treasury securities thus helping to finance the ballooning U.S. federal budget deficit.
As of September of 2008 Brazil held nearly $142 billion in Treasury securities only to be exceeded by China ($585 billion), Japan ($572 billion) and the United Kingdom ($226 billion).
The oil exporters as a group for statistical purposes had slightly larger holdings ($182 billion) as did the combined Caribbean banking center countries ($185 billion) Treasury data
did not even list Brazil as a holder of these securities in 2001, and Brazil was only a marginal
purchaser up until 2006 when it held $52 billion and was ranked statistically as the 10th largest holder. By comparison, as of September 2008 Russia held not quite $70 billion in securities and India held only $14 billion.
Offensive interests affects policies
On the other side, Brazil’s economic evolution has enabled the emergence of powerful offensive interests that have encouraged the government to become more assertive in advancing efforts to open foreign markets.
The determining factor behind this change was the consolidation of a highly competitive exporting sector with geographically diversified offensive interests. To a considerable extent,
the agribusiness and mining sectors are the core of this “competitive bloc,” but it increasingly tends to include the manufacturing sectors. It is interesting to note that the driving force
behind this evolution was not simply a policy choice reflective of a change of construct, such
as the one that pushed forward the unilateral liberalization of the early 1990s, but rather the
fact that the Brazilian economy underwent a structural change related to the consolidation
of competitive exporting sectors.
As long as Brazil had only defensive interests, foreign and trade policies were assessed basically for their ability to “prevent damages” and to “mitigate external threats and risks”
for the strategy of “autonomous” industrial development. However, when powerful offensive-interest sectors emerged, a new driver emerged in foreign and trade policies. Accordingly, the expected results of foreign and trade policy can no longer be restricted to
minimizing risks and threats but rather ought to include the “capture” of opportunities in
global markets.
Brazilian FDI grows
One of these opportunities relates to investment in other countries. Outward FDI from Brazil has grown significantly in the last years and the U.S. has been one of the preferred destinations of these flows not surprisingly. Brazil has nearly doubled its FDI in the U.S. over
the last decade, with $1.3 billion in 2007 compared to $706 million in 1997, retaining a level
of investment that is greater than that of China (not to mention its significant investment in
other countries, including its regional neighbors). Although these levels of investment in the
U.S. are still small compared to those of Canada ($213 billion), Mexico ($5.9 billion), Japan
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A New Time in Brazil - U.S. Relations: how to move ahead
($233 billion) and the EU (an immense $1.3 trillion), Brazilian companies now increasingly
operate on a global platform and are positioned to continue their growth. In addition, and
despite the fact that U.S. FDI in Brazil has not grown dramatically over the last decade, the
long and significant tradition and upward trend of U.S. FDI in Brazil (over $41 billion is
significant) reflect a consistent and deep interest among U.S. investors in Brazil.
A new U.S. perception
On the US side, these evolutions favor the perception that Brazil has become more important for the interests of the United States in the world (and in the region). Among the BRICs,
Brazil is arguably the country that presents the fewest threats all things considered while it
offers significant and growing opportunities for the United States. While there are asymmetries between the U.S. and every country in the world given the immense American economy and military power, the emergence of new global challenges where Brazil is well positioned to play an important role in finding solutions combined with its large market should
engender a closer look at the Brazil-U.S. relationship. Furthermore, it plays a vital and
constructive role in a region in close proximity that remains politically and economically
challenged yet essentially void of military conflict in a globe filled with hot spots that could
explode in WMD facilitated conflict. While some may suggest in light of these traditional
national security realities in the broader world Brazil should not be the focus of increased
attention, others can argue that precisely because of Brazil’s critical role in the region right
next to the U.S. and in emerging global national security challenges the U.S. should heighten
its focus on Brazil.
In Brazil, these same evolutions reduce concerns about the “risks” of an asymmetrical association between the two countries, and above all attenuate the perception of antagonism between
the option of strategic relations with the United States and a multipolar foreign policy2.
2.2 But some obstacles still remain to achieve the upgrading of the bilateral relationship
However, if there are global tendencies underway that make the idea of upgrading bilateral
relations politically more palatable for the two countries, there is no doubt that recent evolutions in certain areas identified as priorities for deeper bilateral relations between Brazil and
the United States do not make it easier to chart deeper ties.
In fact, over the last two years the hypothesis of cooperation between Brazil and the United
States in the area of ethanol seems to have been “pushed out of the way” by concerns about
food security and the competition between production of biofuels and food. Although both
countries still share an interest in transforming ethanol into a commodity, associating with the
United States in this field today “contaminates” the Brazilian biofuels project in terms of global
perceptions, while the Brazilian biofuels industry does not suffer from the problems (competi2
A CEBRI study, now in its final stages, conducted with 150 policy-makers and opinion-formers in the area of foreign and trade policies in Brazil, revealed
that the economic power of the United States is perceived as a threat to Brazil by only 15% of those interviewed. In a similar survey carried out in 2001,
39% of those interviewed saw this factor as a threat to Brazil. In the same survey, the economic and technological inequality between North and South is
seen as a critical threat to Brazil by 38% of the respondents, a view that in 2001 was shared by 64% of the interviewees.
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tion with food production) already identified in the United States strategy in this area.
In the trade area too, the hypothesis of more ambitious bilateral negotiations is fraught
with significant opposition, at least in the short and medium term. Besides facing resistance
in Brazil, the idea remains distant due to the domestic environment for such agreements
within the U.S. In the U.S. context, whether it is Brazil or most any other potential partner,
there is no consensus on a way forward with comprehensive trade agreements and even
more discrete international economic accords have come under increased scrutiny (investment treaties, for example). An inability to advance a pro-active trade agreement agenda is
not in the interests of the United States, and not in the interest of Brazil or any other country
with a stake in an open markets-based global trading system given the history of the U.S.
and its role in the global economy and system. In fact, the lack of a consensus within the
United States is already an acutely troubling matter for certain trading partners, and has
the potential to become troubling to many others if not dealt with appropriately and with a
sense of purposeful urgency.
Even with a breakthrough in Doha in the immediate term, the U.S. political climate for multilateral agreements is relatively unsettled and is more uncertain than has been the case in the
past. The financial crisis and steep economic downturn in the U.S. will pre-occupy policymakers in the immediate future quite rightly, but it also may impede the ability to develop a coherent formula that eases the way for the U.S. to engage in new trade agreements.
Brazilian emergence
From a US perspective, although Brazil’s emergence has meant new recognition, and influence, beyond its neighbors in South America, it has not matched the sheer force of the
unprecedented economic emergence of China over the last two decades. Furthermore, in
comparison to Brazil, the Chinese political system and growth as a military power in Asia
presents a much different set of considerations for U.S. policy makers. Russia, with a growing economy currently about the same size as Brazil’s, in addition presents very substantial
traditional national security considerations - which Georgia exemplifies - along with a capacity (and some would argue a track record) to utilize resource nationalism (Russia may
not be unique). India, yet another growing BRIC, with a population nearly the size of China’
s, again presents a combination of both economic and traditional national security considerations as a fast growing economy and a nuclear weapons power in a region of the world
with inordinate tensions.
Capturing attention
As a result of these factors Brazil has not been positioned to easily capture the time, attention, and energy of those in the uppermost echelons of the U.S. policymaking establishment,
especially those policy makers focused on “war and peace”.
In addition, as an economic matter, and despite the size of Brazil as a country and economy,
the Brazil-U. S. relationship has not been in the very “top tier” from the U.S. perspective.
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A New Time in Brazil - U.S. Relations: how to move ahead
As of 2007, Brazil ranked 11th as a trading partner of the U.S. What is even more revealing
is the fact that, while Brazil’s total trade with the U.S. is larger than both Russia (by twice)
and India (by just $8 billion as of 2007), the relative growth in trade between Brazil and the
U.S. is lacking when compared to the other BRICs. U.S. exports to Brazil less-than-doubled
from 1997 to 2007, and U.S. imports from Brazil in that same period roughly tripled. In
comparison, U.S. exports to China - which started at about the same place in value terms in
1997 - have expanded five times, as have imports from China, now making China the second
largest trading partner of the US. Simply put, the United States’s trading relationship with
the other BRICs has been more dynamic.
U.S. international economic policy makers handle a spectrum of discrete policies. They detect the pressures of the market - both positively and negatively - when it comes to the press
of integration with foreign markets. From a policy maker’s perspective, there is no doubt
that Brazil gets its share of the market’s attention. But, given economic growth and trade/
investment trajectories in China and India compared to those in Brazil, it is not difficult
to discern why policy makers have focused so much on China and India’s upside market
potential in recent years. In addition, Canada, Mexico, Japan and the EU remain large “constants” with policy makers, given the sheer magnitudes. This data helps explain why U.S.
policy makers have not placed more emphasis on Brazil.
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Ideas for intensifying and upgrading the bilateral relations
between Brazil and the United States: agenda of priorities
and tools
3
The new US President and Congress will be faced with either putting together a newly
coherent approach to international economic policy and trade agreements, or the relevant
U.S. agenda will not advance, and may fall back, with adverse consequences in the U.S. and
abroad. For while the emergence of major emerging economies (among which Brazil) signals an important transition implying there are emerging “locomotives” pulling the larger
“global train” ahead, it is not in the interests of that train to have the largest locomotive
disengaging.
3.1 The agenda
Brazil and the United States working together pragmatically under an agreed strategic direction might be able to find a formula that works over time in both domestic contexts. Before
succumbing to what has happened (or not happened) in the past and relegating this idea to
the trash bin, such an outcome potentially offers an attractive economic “bang for the buck”
not to mention other tangible benefits that it could energize positively key stakeholders in
both countries unlike much of the recent bilateral Brazilian or U.S. trade and international
economic agendas.
It could even help leverage progress in the multilateral trade agenda. Furthermore, the
threats inherent to the heightened economic competition that would come with such an undertaking are certainly no greater, and arguably less, than the threats that would come from
other large industrial or other major emerging markets (unless one wants to relegate the
U.S. and Brazilian agendas to either small economy agreement initiatives or just multilateral
efforts). In any case, because it would likely be perceived to threaten a number of stakeholders in both countries (and elsewhere), a key tactical question would be whether elements
of a new paradigm approach would be sufficient in containing opposition and generating
more support from stakeholders to advance an agenda.
Calibrating a new paradigm
Rather than the current U.S. trade agreement model (while remaining consistent with WTO
disciplines pertaining to preferential agreements) which would not work with Brazil irrespective of the current U.S. political environment for trade agreements, the new paradigm
to be applied would be something calibrated differently. Such a new approach is necessary
in any case both in the United States and in Brazil, and it could spark a new more comprehensive approach to trade and development while remaining wholly consistent with deeper
market driven economic integration.
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A New Time in Brazil - U.S. Relations: how to move ahead
Such an agenda would imply a significant broadening of the scope of the typical trade agenda as well as contain a carefully vetted broader set of issues and arrangements consistent
with an effort to address a sufficient (for political leverage purposes) set of the most important strategic issues of interest to both countries. In the absence of a disciplined approach
like this the ability of both parties to secure what they may want from each other - as has
been proven to date - is in reality diminished and will likely prove insufficient. The stakes
in a comprehensive and deeper economic and trade relationship are simply too great to not
have enough on the table to maximize the chances for a bargain. What issues could be on
the table?
The issues to be on the table
a) Trade and investment issues
This is an issue where the unsettled US domestic political environment combined with
rapid onset of the financial and economic crisis has been far from favorable from the point
of view of the a bilateral agenda. However, it cannot be absent from a strategic agenda
between the two countries.
Brazil and the United States have diverging interests in the trade negotiations. These differences were present during the whole period of FTAA negotiations and were responsible for the failure of the project of hemispheric integration. Some taboos in the trade
agendas of the two countries will have to be overcome before addressing any sort of trade
agreement.
The structural evolution of the Brazilian economy over the last few years, with an impressive growth of exports and the expansion of outward foreign investments, creates
new conditions for Brazil to approach a multi-thematic agenda of negotiations in a less
defensive and reticent way. As for the United States, the positive value accorded to a special relationship with Brazil and the perception of the advances obtained by Brazil in the
economic and social areas can contribute to reducing political resistance to a new trade
agreement.
Despite the complexity of the agenda and the important divergences in some negotiating positions, constructive attitudes in the context of a more broadly focused agenda
and the search for “compromise solutions” on the part of the two countries could enable
them to overcome the main obstacles and push ahead a trade agreement involving Brazil
and the US. As counter-intuitive as it sounds, both the current financial and economic
crisis and the search for a new domestic formula for a way forward on trade agreements
within the U.S. combined with a new Administration and Congress in the U.S. present
an opportunity for Brazil to play a positive role that up until now has not been evident.
In short, the Obama agenda contains elements that could facilitate a deeper Brazil-U.S.
relationship.
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b) An energy agenda, including sustainable energy (biofuels, etc.) and secure energy
supply.
Brazil and the United States are deeply interested in ethanol becoming a global commodity and enhancing more broadly their respective energy security. In fact, a new energy
paradigm for the U.S. is a central plank in the policy agenda of the incoming Obama Administration. Energy cooperation to build more sustainable energy supplies can be a central tenant if the Brazil-U.S. relationship. A significant start has already been underway,
but more is possible.
In this context, a component of this discussion can advance the effort to consolidate ethanol as a commodity on the world market through appropriately defining international
standards for the product, and Brazil and the United States have been and can continue
to work together in this direction. Furthermore, special emphasis within the bilateral discussion should be placed on the potential production of cellulose-based ethanol, which is
still in the experimental stage in both countries. The US is earmarking funds to finance the
commercial production of cellulose ethanol. Brazil could produce large volumes of cellulose ethanol based on bagaço, the pulp residue of ground sugarcane that up to now has
been used to produce electricity.
On Brazil’s side, an additional reason for bilateral cooperation in this area is that the Energy Act of the United States (2005) and additional efforts underway may lead to the discovery of new technologies that call into question current biofuels production methods.
Ethanol, however it is produced, will face competitive challenges from other renewable
sources of energy such as hydrogen and electric. Accordingly, the two largest ethanol producers in the world have reasons to cooperate to accord the industry the best prospect of
not only surviving, but thriving. This will require additional investment in both countries
and the elimination of obstacles to market development.
Further as to energy, as observed in the Final Report of the Task Force Brazil in South
America coordinated by the CINDES3, “the new platform for oil prices, the recent discovery in the pre-salt zone, and Brazil’s technological leadership both in deep off-shore and
in the production of ethanol have opened new prospects for Brazil to participate in the
world energy market. Brazil can aspire to a strategic position both in offering security for
the energy supply of the OECD countries and in the process of transition from oil to alternative liquid fuels”. Brazil’s role in the international market will depend fundamentally
“on access to energy markets in the OECD where the consumption of imported oil is concentrated, as well as the capacity to attract financing for investments in the infrastructure
to put these resources on the market. Both access to markets and financing for investments
will be heavily conditioned by the offer of security for energy supply, which is the main
demand of our trading partners”. This complementarity between Brazil and the United
States in the energy area - ethanol and oil – should be explored in the scope of a strategic
bilateral dialogue .
3
O Brasil na América do Sul: Promovendo a Integração e a Cooperação Regionais, final report of the Task Force - CINDES, July 2008.
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A New Time in Brazil - U.S. Relations: how to move ahead
c) A multilateral governance and efficacy agenda, including with respect to the United
Nations, the UN Security Council and others, such as the international financial institutions, regarding global management.
Brazil has an explicit interest in becoming a permanent member of the Security Council of
the United Nations. In a certain way, this objective concretizes what analysts have called
Brazil’s historical “international aspiration”, as far as the recognition of its weight and
relevance. Brazil is taking part in the Heligendamm process, a policy dialogue forum that
brings together the G-8 and five BRICs. A bilateral dialogue to signal the US support of
the Brazilian ambition to join the UN Security Council on a permanent basis and of the
expansion of the G-8 to include the leading emerging countries, including Brazil, would
be a powerful incentive to attract the Brazilian authorities to the scope of a Strategic Dialogue mechanism.
d) Cooperation to strengthen trade multilateralism.
Brazil and the US are major actors in the multilateral trade negotiations, and today the crisis faced by trade multilateralism is self evident. Throughout the last few years, Brazil has
consolidated its key position in the WTO, confirming the priority that the Brazilian agenda assigns to strengthening the multilateral system while it continues to pursue deepening regional ties and other trade initiatives outside the region. The United States, despite
also increasingly combining its support of multilateralism with non-multilateral initiatives, also has a keen interest in improving the functioning of the WTO and its system of
governance. The incoming Obama Administration has signaled interest in a strong and
effective WTO system potentially offering opportunities anew for collaboration towards
a more effective WTO system.
Two major players in the WTO dedicated to strengthening the multilateral trade system
should cooperate for two purposes: (i) to formulate and present proposals to discuss the
reform of the WTO; and (ii) to contribute to the emergence of a new multilateral trade
agenda irrespective of the outcome of the Doha negotiations.
In the case of the reform of the WTO, it seems clear that any proposal based on a view
shared by Brazil and the United States will carry more weight than if Brazil and the U.S.
set forth separate and distinct views. At the same time, Brazil and the U.S. working together remain insufficient to bring about reform of the WTO system to the degree that is
desired. The incoming Obama Administration is not likely to be in a position in the near
term to elaborate a dialogue on this topic with Brazil no less commit the political muscle
necessary to spearhead a global effort given the immediate term financial and economic
crisis among other considerations. At the same time, the Obama Administration is likely
to welcome a dialogue with Brazil to determine common ground for purposes of advancing a constructive reform agenda in the WTO in the coming years.
The discussion about reforming the WTO re-emerges following the failure of the Miniministerial meeting held in Geneva in July 2008 For some governments and NGOs, the
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core purpose of the reform would be to grant more legitimacy to the decision-making
process within the institution, enhance its transparency, expand the participation of civilsociety entities, and so on. Others see the key focus of the reform to be on increasing the
efficiency of the decision-making process, jeopardized by the rule of consensus and the
facility to set up blocking coalitions. The reform of the WTO is at a standstill. The two
countries have the means and the interest to develop a common approach to the reform of
the WTO geared towards strengthening multilateralism.
On the other hand, one of the factors responsible for weakening the multilateral trade
system is the divergence between developed and developing countries – but also among
some of the leading actors in the negotiations – with regard to the scope of the negotiating agenda. Throughout the Doha Round, a series of agenda items of the original mandate were scored off the agenda because of resistance from different groups of countries.
Excluded from the multilateral agenda, these issues ended up being re-introduced in the
preferential trade agreements through rules and disciplines that vary from one agreement
to another, thereby weakening multilateralism all the more.
A body set up to discuss these matters bilaterally and geared towards proposing a postDoha multilateral agenda could be a relevant component of a Strategic Dialogue between
the two countries.
e) Sustainable economic development and climate change
As previously noted, to advance a comprehensive bilateral integration agenda between
Brazil and the U.S. requires going beyond the status quo. Furthermore, the scope of the
existing U.S. FTA model does not present a broad enough agenda to advance with Brazil.
Accordingly, agenda items need to be added that offer productive avenues for strategic
collaboration.
Brazil will have to play a prominent role in the global climate change discussion if they
are to advance in light of the Amazon and its critical environmental role, Brazil’s status as
a major developing economy, and given Brazil’s prowess in efficiently produced renewable fuels. Global climate change negotiations will ramp up in 2009 and the incoming
Obama Administration intends to play a prominent and pro-active role in those discussions. These circumstances should provide a significant opportunity to deepen a collaborative effort in the sustainable development and climate change policy space.
Sustainable development and climate change are one area that could constitute an area of
strategic collaboration, but others should be explored through consultations with stakeholders (of course the bilateral tax treaty and investment treaty are already are on the
agenda) in order to generate momentum for deeper ties.
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3.2 Tools and Tactics
To sustain the likelihood of institutional vibrancy in achieving deeper Brazil-U.S. relations
requires a coherent strategy from stakeholders. Governments simply cannot justify any sustained effort of this type in particular absent effectively organized stakeholder engagement.
The Brazil-U.S. relationship now has a number of bilateral mechanisms in place at both
senior levels of government and senior levels in the business world. Furthermore, the two
Presidents currently in office have a relationship that enables effective communications at
the highest levels of government. What more is needed, even assuming the same situation
were to exist post-U.S. elections?
The November 6, 2005 Joint Statement by the Presidents was significant in its coverage of
issues. Where it was less significant was in unequivocally defining precise objectives and
timeframes and a process to achieve the objectives. Something closer to a higher profile
SED-type mechanism with highly energized and centralized cabinet-level leadership could
help advance from the status quo especially under the right strategic direction. If nothing
else, it could enhance the rigor in determining priorities and achieving specific objectives if
properly empowered.
That said, an even more rigorous top level government to government approach with Brazil
and the United States is not sufficient in terms of institutions. The CEO Dialogue and the
other existing mechanisms have served a useful purpose in ensuring degrees of higher level
business community interaction with policymakers and in determining discrete priorities
and business to business initiatives. At the same time, organized business-only interaction
and input to policymakers is not always sufficient to move major agendas forward (trade
and other major international agreements in the U.S. are a case in point).
Numerous stakeholders have an interest in the Brazil-U. S. agenda and there is not as evident an outreach effort to non-business stakeholders as may be prudent in generating interest and support for a stronger bilateral relationship. There is fundamentally no compelling reason for not having enhanced and carefully organized input from stakeholders in
regards the Brazil-U.S. agenda, and there are ample examples of how such input can be
organized. Furthermore, a more coherent approach with public research institutions, for example, could help lay a stronger informational basis that could be used to carefully generate
greater interest in stronger Brazil-U.S. ties among other stakeholders internal and external
to government.
The Brazil-U.S. relationship involves two of the largest democracies in the world with legislative branches of government that wield power. In spite of the occasional Congressional
delegation visit and the keen interest of a limited number of legislators in both countries
in bilateral relations, more consistent organized input from interested legislators in bilateral relations deserves more consideration. The fact is that U.S. congressional oversight and
funding of executive branch activities tends to mean nothing of major consequence in U.S.
international economic policy, or in foreign relations more generally, is sustainable or occurs without Congressional acquiescence or support.
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Although the notion of broadening the base of policymakers and stakeholders involved
in the Brazil-U.S. relationship may instigate concerns about stakeholders with unreasonable expectations, a quagmire, and political sensitivities being pricked, there are potential
upsides in that it could yield a broader base of support over time for a deeper Brazil-U. S.
relationship on the economic and trade front if handled properly. There are many ways to
meaningfully involve interested parties in an ambitious bilateral agenda. But, building a
better information foundation regarding the value of deeper Brazil-U. S. relations and potentially broadening the base of political support for such an effort beyond the status quo
are arguably requirements rather than irrelevant distractions if historic progress in BrazilU.S. economic relations is the objective. A narrower dialogue that toils away in relatively
obscurity may be more comfortable for those involved, but it is also likely to be insufficient
if the agenda is deeper and broader.
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A New Time in Brazil - U.S. Relations: how to move ahead
4
Conclusion
This paper has tried to define the landscape that surrounds the pursuit of a deeper BrazilU.S relationship. It has presented a set of issues and mechanisms that could be developed
as to bring the Brazil-U.S. relationship to a more mutually rewarding, or strategic, level that
sits among the more important relationships in the world.
Maybe the main conclusion of the study refers to the fact that Brazil and the U.S. cannot
approach this goal and succeed with comprehensive deeper economic integration utilizing
either the current U.S. FTA model or the current dialogue that addresses a number of disparate topics (energy, tax treaty, investment treaty, etc.) with a higher degree of intensity.
Rather, the effort requires a commitment to building comprehensive economic relationship
through a disciplined and rigorous process and a broader agenda than has been the case
in the past. The purpose of the broader agenda is two-fold: to generate momentum and a
sense of mutual success and in order to have trade-offs to overcome the significant obstacles
that exist to deeper economic integration.
This is a novel concept in U.S. and Brazilian diplomatic history, but it is essential to succeed
beyond the status quo and at least in some respects is not without precedent (see Annex).
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A - U.S. Bilateral Mechanisms with the BRICs
One gains a sense of the sustained intensity level of a policy relationship, particularly when
it comes to gauging the desire to strengthen ties, by the depth and breadth of mechanisms
that have been created, remain active, and their success. For this reason it bears some comparative reviewing of what has happened with respect to the BRICs and the U.S. in light of
the Brazil-U. S. relationship.
India
India, driven by a combination of traditional national security and business interests, has
seen a rapid increase in the creation of bilateral mechanisms. A recent statement by one
senior U.S. official, Richard Boucher, Assistant Secretary for South And Central Asian Affairs, on June 27, 2008, sums it up: “Let me give you the bottom line at the very top: this is
the most exciting moment in U.S.-India relations in two generations. Years from now, when
people discuss our relationship, they will talk about the across the board transformation of
U.S.-India relations that took place in the first decade of the 21St century. We’ve long been
friends and we’ve always shared a commitment to democracy and peace. But for the first
time since India’s independence in 1947, our two governments are working jointly to craft
solutions to the defining challenges of our age: sustaining global growth; ending poverty;
fighting terror; defeating disease; and strengthening democracy around the world.
The U.S. and India relationship essentially notched up in intensity stemming from decisions
taken in the context of the Next Steps in Strategic Partnership (NSSP) initiative launched
earlier this decade. Within the NSSP, the U.S. and India have moved to advance in the areas
of export controls on duel-use technologies (those with military applications), civilian nuclear and space cooperation, and the issues of missile defense. In a joint statement issued in
January of 2004, President Bush and Prime Minister Vajpayee announced the creation of a
U.S.-India “strategic partnership,” noting expanded cooperation in all these areas and a
series of reciprocal steps.44 Subsequently, steps have been taken and the U.S. and India
have made historic strides in cementing full civil nuclear cooperation. The U.S. and India
have created a New Framework for the U.S.-India Defense Relationship (agreement signed
in June 2005) and an India-U.S. Defense Policy Group (DPG), as well as a number of other
mechanisms.45
Seizing on interest in India’s recent robust economic growth of 8 to 9 percent driven by more
orthodox economic policies and complementing the NSSP initiative, India and the U.S. also
launched in June 2005 a high level “India-U. S. Economic Dialogue” chaired by the President’s National Economic Advisor and India’s Deputy Chairman of its Planning Commission .46 The Dialogue includes an “India-U.S. Financial and Economic Forum” chaired by the
U.S. Treasury Secretary and the Indian counterpart; an “India-U. S. Commercial Dialogue”
chaired by the U.S. Commerce Secretary and the Indian Counterpart; an “India-U.S. HighTechnology Cooperation Group”; an “India
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U.S. Trade Policy Forum” chaired by the U.S. Trade Representative and the Indian Counterpart which includes a private sector advisory group; an “India-U.S. CEO Forum”; an
“India-U.S. Economic Summit Series” hosted by the American Chamber of Commerce; an
“India-U. S. Cooperation Framework Agreement” between the U.S. Trade and Development Agency and the Indian Ministry of Finance; an “India-U. S. Energy Dialogue”; and
an “Agricultural Knowledge Initiative” aimed at linking universities, technical institutions,
and businesses. There are also a number of environmental and science based bilateral forums that have been created.
In a relatively brief period, the India-U. S. relationship pivoted off of a focus on defenserelated technology trade and national security considerations into a robust (within limits)
effort in economics and trade relations as well as other issues (environment cooperation,
for example). The trade and economic agencies in the respective governments and the business communities have now notably taken on a prominent role in relationship management
along side the national security apparatus in both countries.
China
Treasury Secretary Paulson in a recent article in Foreign Affairs noted, “One of the first
challenges the next U.S. president will face will be how to respond to China’s emergence as
a global power. Some people suggest that China is a threat that must be countered or contained. Others argue that its growth is an opportunity for the U.S. economy and that Washington should manage this rising power through engagement. I believe that engagement is
the only path to success.”48 The relevant U.S. policymaking establishment in the Administration and in Congress has been seized by China, and the dialogue has predominantly been
about economics and trade. But the underpinnings of the dialogue go much further back to
China’s “challenge” given its different political system, and its formidable military and the
related security concerns of its neighbors, combined with its very rapid emergence as an
economic power on a regional and global scale with much more room to grow, particularly
as a manufacturer but in other ways too.
More than for any other relationship, the U.S. policy making establishment has been searching for how best to address the “power” China now presents. Some believe the U.S.-China
relationship is the most important in the world, and they further argue that the global institutional architecture needs to be modified to reflect the emergence of a “G2” and its growing
role in global economic and political decision-making. Economics and trade is the prism in
which the U.S. and China have found the most room to engage (again within limits as in the
case of India), and accordingly the “Strategic Economic Dialogue” (SED) is the predominant
forum in which the U.S. have dealt with China’s leadership since its launch in 2006.49 It is a
top-down bilateral forum by careful design. Paulson argues it is a mechanism that should be
continued by the subsequent U.S. administration. Whether it will be is a question, but there
is little doubt that the focus on China will remain.
Somewhat unlike the “India-U.S. Economic Dialogue” and the NSSP effort, the U.S.-China
bilateral dialogue is arguably more tightly coordinated under the SED mechanism. The SED
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is led, and with vigor, by the Treasury Secretary, the senior economic policy making official in the executive branch, and includes numerous other U.S. cabinet members (State,
Commerce, USTR, Health and Human Services, Environmental Protection Agency, Energy,
National Economic Advisor). On the Chinese side, the SED is led by the powerful Vice Premier and includes counterparts to the U.S. cabinet members. SED sessions involve twice a
year joint cabinet-level meetings with serious preparation taken in between these sessions
to advance a mutually coordinated agenda reflective of joint interest in tangible progress.
There are other mechanisms, such as the “U.S.-China Senior Dialogue” (which the State
Department leads and which serves in some respects as the genesis for the SED), the “U.S.China Security Dialogue,” and the “U.S.-China Human Rights Dialogue” which are not
coordinated by the SED, but the most energy is in the bilateral discussion in the SED. Other
economic dialogues, such as the Joint Commission on Commerce and Trade (JCCT) and the
“Energy Policy Dialogue” have been, in effect, brought within the SED while they retain
their specific focus within the broader agenda.
The scope of the SED is sweeping on the economic front, and includes in addition to those
mentioned above: a Joint Economic Committee; a Joint Commission on Science and Technology Cooperation; an Economic Development and Reform Dialogue; a Global Issues Forum; a
Health Care Forum; an Energy and Environment Cooperation Framework; a Food and Feed
Safety initiative; a Cooperation on Intellectual Property Rights Enforcement Memorandum;
Cooperation on Illegal Logging and Associated Trade; an Aviation Liberalization initiative;
a bilateral investment treaty initiative (as does the U.S.-India dialogue) and more.50 In short,
the SED covers a gamut of global to more discrete bilateral agenda items reflecting a depth
of U.S. interest that compares, certainly in intensity, to much longer-standing U.S. global
economic relationships such as Europe and Japan.
The SED has also developed more rapidly than the India-U.S. Economic Dialogue. A big
part of the urgency of the SED’s development was simply a reflection of the fear on the part
of the Administration that in the absence of a strong executive branch effort to manage the
China-U.S. economic relationship the Congress would succeed in filling the vacuum. This
fear (shared by some in the business community) is still very much in evidence, although
the SED is a sophisticated strategy to better leverage progress with China in light of U.S.
Congressional concerns.
Russia
In contrast to the India and China relationships, the relationship with Russia is on a different trajectory now in light of the situation in Georgia and other developments in spite of
growth in recent years in trade and investment. That said, a quick review of the scope of
bilateral mechanisms with this BRIC offers some additional context to examine Brazil-U.S.
relations.
Beyond any of the relationships with the other BRICs, the U.S.-Russian relationship has an
enormous military and traditional national security backdrop. The recent (now seems like a
long time ago) April 6, 2008, U.S.-Russia Strategic Framework Declaration reflected this and
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set forth and reinforced a number of areas of cooperation. These included: security promotion, including missile defense, post-START efforts, the INF treaty, arms sales and defense
technology cooperation; prevention of the spread of weapons of mass destruction, including issues like nuclear proliferation, Iran, North Korea and a proliferation security initiative; combating global terrorism; strategic economic cooperation, including WTO accession
for Russia, economic dialogue at the government to government and business to business
levels, a bilateral investment treaty, and an energy dialogue; and combating global climate
change.
It is hard to see how the Framework Declaration will advance in the immediate term for a
number of reasons. Furthermore, to the degree the economic dialogue has been ongoing, it
is a reflection of Russia’s desire - which appears to have faded in the Kremlin - to join the
WTO, in what was the mutual interest in an investment treaty, in enhanced energy cooperation, and in collaboration on climate change (the climate change discussion was not particularly advanced whereas Russia’s negotiations to enter the WTO had advanced significantly, for example). The U.S. had previously negotiated a bilateral investment treaty with
the USSR, but that treaty was never ratified by the U.S. Senate, so a new effort was called
for in the recent framework. The energy dialogue was viewed principally by the U.S. as a
discussion about advancing market driven and transparent mechanisms for hydro-carbon
based energy supplies given state dominance in Russia’s energy sector, among other things.
A significant agenda was put into place, and it included some opportunities to advance an
economic agenda in trade, investment and energy.
Brazil
Not unlike the other BRICs, the Brazil-U.S. relationship has taken on more intensity in some
respects and included the signing of a November 6, 2005, Joint Statement by the Presidents
of Brazil and the United States.52 In what is a relationship long fostered principally by
economic issues as opposed to “war and peace,” the relationship has also been augmented
by some political cooperation both within the hemisphere (Haiti, a variety of intra-South
American issues) and globally (Africa collaboration, international institutions). These were
noted in the 2005 Joint Statement and in other contexts.
Reflective of a relationship where both parties are primarily focused on trade and economics from their respective circumstances (Brazil on its development, and the U.S. on its prosperity), the relationship has seen a growth in relevant bilateral mechanisms. The 2005 Joint
Statement leveraged existing mechanisms, and built upon them or augmented them where
appropriate. Furthermore, as is the case with India, a number of the mechanisms are not
just government to government mechanisms, but include joint mechanisms between government and private stakeholders (primarily business associations and companies). For example, in addition to the Consultative Mechanism on Trade and Investment, the U.S.-Brazil
Consultative Committee on Agriculture, and the U.S.-Brazil Energy Partnership which were
all created prior to the 2005 Joint Statement (as well as other mechanisms long in place, including business dialogues like the Brazil¬U.S. Business Council), additional dialogues are
now underway like the CEO Forum, the U.S.-Brazil Commercial Dialogue, the Economic
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Partnership Dialogue, the Memorandum of Understanding on Biofuels dialogue and the
new Council on Competitiveness.
But unlike the SED with China, there is not a highly energized single overarching top-down
coordination mechanism at the cabinet level, and unlike India you do not have a parallel
national security related agreement agenda in play. Nonetheless, the bilateral dialogues in
some of the mechanisms that have been created occur at the cabinet level, sub-cabinet level,
and at senior levels among stakeholders. Furthermore, bilateral dialogues have been focused on specific agenda items like the prospect of a bilateral tax treaty; laying the groundwork for a hoped-for bilateral investment treaty (a U.S. agenda item for other BRICs also as
noted previously, but all are moving at a different - but none fast - pace); collaboration on a
number of fronts in biofuels, both bilaterally, with third countries, and multilaterally; and a
variety of other discrete policy (micro financing, intellectual property rights, etc.) and “doing business” items to help safeguard and enhance mutual economic interests. In addition,
the trade dialogue involving Brazil and the U.S. at the multilateral level has been significant
owing to Doha where, in spite of some differences, Brazil and the U.S. have both pragmatically attempted to find a “breakthrough” before this year is out. Such a breakthrough could
play a useful role in advancing the prospects for deeper trade and investment relations
between Brazil and the United States. At the same time, trade litigation within the WTO
remains a constant variable.
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