The latest note from SECOM on the oil and gas auction….

On behalf of the Secretariat for Social Communication (SECOM) of the Presidency of Brazil, I am writing to provide you with some information on Brazil’s first “Pre-salt” oil reserve auction to be held on October 21, 2013.

As you may be aware, Brazil is home to significant oil reserves. The “Pre-salt” frontier, a series of ultra-deep oil fields that were discovered in recent years and stretch for 800 km off the coasts of the south-eastern states of Espirito Santo, Rio de Janeiro, São Paulo and Santa Catarina, could dramatically increase Brazil’s proven reserves and transform the country into a major crude exporter.

The first area to be auctioned is the prospect of the Libra oil field, deep in the Atlantic Ocean, off the coast of the Rio de Janeiro state. The expected recoverable volume is 8 to 12 billion barrels of oil.

Accessing the “Pre-salt” oil fields, which were named because they are located under a layer of salt beneath the Atlantic Ocean, is a technical challenge. But once reached, Libra is expected to produce 1 million barrels of oil equivalent a day – about 50 percent of Brazil’s present production.

The first “Pre-salt” bidding round on October 21 will be the first time Brazil uses a production sharing agreement (PSA). In the PSA model approved by Congress in 2010, oil companies pay a fixed signing bonus (for Libra, it is R$ 15 billion, or about US$ 7 billion), bear drilling and production expenses and use revenue from oil sales to recover costs. The remaining oil – known as ‘profit oil’ – is shared between the company or consortium and the Brazilian government.

The winner of the auction will be the company or consortium that pledges the highest share of profit oil to the government. The Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) has fixed a minimum of 41 percent of profit oil share for the Government during the 30-year contract but it estimates that the Brazilian government will receive a much higher percentage in the Libra oil field auction.

Another stipulation of the oil auction is that state-controlled Petrobras be the mandatory operator of each PSA and have a minimum 30 percent stake in all “Pre-salt” projects. The remaining 70 percent stake may be split among up to five other companies.

The winning bidder will also agree to comply with Brazil’s environmental regulations. Earlier this year in May, the 11^th Bidding Round for Oil and Gas Exploration Blocks showed tremendous international interest with 39 companies from 12 countries participating in the auctions.

The benefits of the sustainable exploration of the “Pre-salt” reserves will be shared by all Brazilians, with the promise of increased social inclusion and energy security.

For more information, please visit the ANP’s Oil & Gas Bidding Rounds website, available at this link:http://www.brasil-rounds.gov.br/index_e.asp

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Infrastructure Investment in Northeastern Brazil

Challenges and Opportunities in a Developing Region

A BrazilWorks Briefing Paper

Prepared by Chris Cote and Mark S. Langevin, Ph.D.

• The Northeast region is growing faster than the national average due to a high performing service sector, retail sales, and tourism.

• Brazil’s current infrastructure deficit is the result of several decades of declining public and private investment.

• To lessen this deficit, the Brazilian Federal Government has launched two national Growth Acceleration Programs (PACS 1 and 2) since 2007 to remedy insufficient physical infrastructure, especially in the energy and transportation sectors. 

• Transportation investments focus primarily on road and rail improvements, but the new port concession law should attract increased private sector investment to an expanding list of ports.

• Public investments in airport expansion are needed to confront the immediate challenge of the 2014 FIFA World Cup and the long-term growth in passengers and the tourism industry.

• Energy investments in the region are concentrated in oil refineries, thermoelectric plants, wind energy farms, and expansion of the transmission system.

• The private sector must take a greater role in expanding and improving transportation and energy infrastructure throughout the region to guarantee sustained economic growth.

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Chris Cote is the energy and economics research associate at BrazilWorks. He previously worked as a researcher with the Office of the Secretary of Defense and on the energy, economics, and Brazil programs at the Inter-American Dialogue. He is a contributing editor at Finding the Missing Link, a blog on environment, energy, and security issues. In 2011 he completed a Fulbright scholarship in Fortaleza, Brazil. He holds a B.A. in international relations from Tufts University and has completed coursework at the University of Buenos Aires.

E-mail: [email protected]

Selected Publications:

• Brazil’s Private Oil Industry: A Close Look at Petra Energia, Queiroz Galvão and OGX. BrazilWorks. 2013. (forthcoming)
• with Mark Langevin, “Infrastructure Investment in Northeastern Brazil: Challenges and Opportunities in a Developing Region,” BrazilWorks. July 2013.
• Hemisphere Petrocaribe, vol. 20, spring 2011, p. 34.
• with Genaro Arriagada,Hemisphere Petrobras Hemisphere, vol. 20, spring 2011, p. 34.
• Contributed to Paul Isbell, Energy and the Atlantic: The Shifting Energy Landscape of the Atlantic Basin, The German Marshall Fund and OCP Foundation, 2011.
• Petrobras, with Genaro Arriagada, Energy Working Paper, Inter-American Dialogue, 2010.

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Qual é a situação da cooperação energética entre esses dois países e quais oportunidades existem para o aprofundamento de tal cooperação, no futuro, por meio do diálogo estratégico? Se a energia é, agora, central para as relações Brasil-Estados Unidos, como essa importante área pode moldar a evolução das relações bilaterais nos anos vindouros?

Veja o novo artigo do Dr. Mark S. Langevin, Diretor de BrazilWorks.

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On June 12, 2013 the U.S. House of Representatives’ Ways and Means Committee (the subcommittee on Trade) held a hearing on the “U.S.-Brazil Trade and Investment Relationship: Opportunities and Challenges.”  The hearing featured testimony from a variety of voices in Washington, including:

Mr. Thomas F. McLarty III, Chairman, McLarty Associates

Dr. Andrés R. Gluski, Chief Executive Officer, AES Corporation

Mr. Doug Hundt, President of Underground Solutions, Vermeer Corporation

Mr. Roberto Marques, Company Group Chairman, Johnson & Johnson Consumer Companies of North America and speaking on behalf of the Brazil-U.S. Business Council.

Mr. Marques from the Brazil-U.S. Business Council identified four priorities for the BUSBC. You can read the excerpts of his testimony here.  Below is his description of the priorities…

“a. Bilateral Economic Partnership Agreement

Since the visit of Brazilian President Dilma Rousseff to the United States in April 2012, BUSBC has been actively promoting an all-encompassing bilateral trade agreement known informally as a Bilateral Economic Partnership Agreement. Today there is consensus between the U.S. Section and the Brazil Section of BUSBC on the need to explore such a partnership. This consensus opens the door for a more structured discussion with the Brazilian private sector and the U.S. and Brazilian governments.

Why pursue such an agreement? First and foremost, U.S.-Brazil trade in goods and services of $100 billion annually is still far from its potential. As Vice President Joseph Biden said in his recent trip to Brazil, “There’s no reason why that cannot be $400 billion to $500 billion a year.” Second, such an agreement could also boost two-way foreign direct investment flow to a more significant level. The stock of U.S. foreign direct investment in Brazil was $71.1 billion in 2011, up 10.8% from 2010. Brazilian foreign direct investment in the United States was $5.0 billion in 2011, up 266% from 2010. A Bilateral Economic Partnership Agreement would provide greater predictability and confidence to investors in both countries. With so much to gain on both sides, we hope Congress will support further exploration of this proposal.

b. A Bilateral Tax Treaty

BUSBC’s second priority is the launching of negotiations for a Bilateral Tax Treaty. This would provide for the elimination of double taxation, the reduction and/or elimination of taxes on royalties, interests, and dividends, and the establishment of a dispute settlement mechanism. Brazil is the largest market in the world with which the United States has not negotiated such an agreement, and doing so would spur growth and job creation in both countries.

On that front, we applaud the Brazilian Senate’s approval earlier this year of the 2007 U.S-Brazil Tax Information Exchange Agreement (TIEA). This agreement will greatly facilitate cooperation between the Brazilian Federal Revenue Service and the Internal Revenue Service, and by some measures makes the negotiation of a Bilateral Tax Treaty much easier. With the TIEA approved, there is an opportunity for the U.S. and Brazilian private sectors to advocate for the launching of formal Bilateral Tax Treaty negotiations. The upcoming State Visit of President Rousseff to Washington in October should create additional momentum in securing this goal, and we urge Congress to lend its support as well.

c. Visa-Free and Entry-Facilitated Travel

BUSBC advocates for entry-facilitated and ultimately visa-free travel between the United States and Brazil. To that end, BUSBC efforts focus on two complementary goals: the inclusion of Brazil in the U.S. Visa Waiver Program and in the U.S. Global Entry program. In both cases, we strongly support reciprocal actions by Brazil. One example of progress in this area is Brazil’s newly created expedited process for issuance of visas to temporary workers. This action will facilitate the entry of U.S. high-skilled workers on assignment in Brazil.

Visa-free travel is a win-win for both countries. Brazilians are among the highest- spending visitors to the United States in terms of outlays per traveler. The number of Brazilians visiting the United States has quadrupled since 2004, reaching 1.5 million in 2011, according to the U.S. Department of Commerce. Their total expenditures that year reached $8.5 billion, or more than $5,600 per visitor. Visa-free travel would multiply these visitors and the growth- driving, job-creating benefits it provides for the U.S. hospitality industry.

From the perspective of U.S. business and leisure travelers, the upcoming soccer World Cup and Olympic Games to be held in Brazil are likely to attract millions of U.S. tourists who would benefit from visa-free entry into Brazil. Visa-free travel would also be valuable for the many business people and temporary workers who travel frequently between the U.S. and Brazil. I must add that reflecting our deep involvement in Brazilian society, Johnson & Johnson is also proud to be the exclusive and official healthcare sponsor of the 2014 FIFA World Cup BrazilTM, the first health care company to be so honored in the history of the competition.

Deepening the Partnership through Dialogue

Brazil and the United States have a long history of positive relations. This relationship has strengthened in recent years, as demonstrated by high-level policy mechanisms between the two countries and the frequency of presidential meetings. There are approximately 30 dialogues between the two countries that involve key government agencies and both countries. Of all the dialogues in place, four of them are Presidential-level dialogues: the Global Partnership Dialogue (2010), the Strategic Energy Dialogue (2011), the Economic and Financial Dialogue (2011), and the more recent Defense Cooperation Dialogue (2012).

BUSBC stresses the importance of private sector participation in these dialogues. Such participation exists in the Strategic Energy Dialogue, the Commercial Dialogue, and the ICT and Internet Policy Dialogue. BUSBC has consistently seen positive results from such interaction. Ideally, we would like to duplicate the channels of communication created by the various government-to-government dialogues in the private sector. For that to happen, BUSBC advocates for formal participation of the private sector in all the dialogues and working groups already created by both governments.

While there is a great deal of potential in Brazil, speaking as a representative of one of the world’s largest health care companies, I must also note the importance of strengthened intellectual property rights protection, internationally consistent procedures for patent review, and an open and transparent regulatory process. We must be able to discuss our differences as well as our commonalities if we wish to have a truly productive bilateral relationship. If Brazil hopes to become a leader in innovation, it must be certain that is adequately protecting innovators.

One Roadblock: The Cotton Dispute

I would like to highlight one important issue vis-à-vis bettering the Brazil-U.S. trade relationship: the U.S.-Brazil cotton dispute. BUSBC, through its leadership role in the Brazil Trade Action Coalition, known as BRAZTAC, has worked with both governments and the U.S. Congress to deter WTO-sanctioned retaliation by Brazil relating to the cotton dispute — which could impact U.S. goods, services, and intellectual property valued as high as $1 billion by some estimates — and to encourage a definitive resolution to the dispute since 2010. BRAZTAC is comprised of a broad range of U.S. agricultural, manufacturing, services, and technology businesses and trade associations that support a solution to prevent Brazilian trade retaliation against U.S. goods and intellectual property rights.

Such a definitive resolution of the dispute is within reach. We trust that the U.S. Congress will pass a 2013 Farm Bill that brings the United States into compliance with its WTO obligations relating to this dispute, thus removing the risk of WTO-sanctioned trade retaliation against U.S. exports and intellectual property. It is important that the United States lead by example, and only by meeting our own trade obligations can we effectively urge all other countries to similarly meet their trade obligations. In the meantime, we appeal to Congress to maintain the temporary framework agreement that has deferred retaliation until the Farm Bill is passed.”

Mr. Marques’ testimony and the BUSBC’s priorities contribute toward framing the bilateral relationship and focusing both governments’ attention on those issues, from a broad ranging bilateral economic agreement to easing travel restrictions, that promise to accelerate the increasing engagement of the people, organizations, enterprises, and government agencies of these two nation-states.  Moreover, Marques’ reminder that the cotton dispute remains a significant obstacle to be overcome, largely through modifications of the U.S. Farm bill and a negotiated settlement to the WTO cotton dispute.  The promise of partnership is quickly becoming viable as both governments prepare for Brazilian President Dilma Rousseff’s state visit to Washington in October of this year, but it is the WTO cotton dispute which will test whether the Obama administration is pitched toward an enduring economic partnership or just interested in export promotion.

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Krista Tuomi and Lopo De Castro Neto (2013) provide an efficient description and comparison of the state of innovation policies in Brazil and South Africa to conclude,

“South Africa and Brazil have the potential to become important world players in innovative sectors. Both countries are not currently living up to their potential, however. Some constraints to growth are structural and/or external, but many of them can be alleviated by a more favorable policy environment (2013:43).”

With respect to Brazil, these authors note that Brazil has made progress through successive policy reforms, increased government investment, and a measurable increase in the numbers of researchers applying their expertise to research and development.  However, the authors note that government authorities are responsible for approximately 60% of all research and development expenditures and that only 26% of scientists are employed in the private sector. Yet, “Innovation and Venture Capital Policy in Brazil and South Africa” does not provide an historical account of precisely how government became responsible for organizing and financing efforts to advance research and technology, rather the authors prefer to focus on those policies that impact the behavior of venture capital in Brazil and South Africa.

Accordingly, the emphasis is upon exactly how the state hinders venture capital formation and its employment for innovation.  In the case of Brazil, Tuomi and Castro Neto document that venture capitalism,

“has made significant advances in the country over the past decade growing from eight VC fund managing companies in 1994 to 180 VC fund managing companies today. According to the sector’s Brazilian association, ABVCAP, in vested capital in 2004 was only $5.6 billion. This grew five- fold to $38 billion in 2010(2013:41).”

They attribute this growth to low inflation and economic stability since mid-1990s, but also point to a number of fiscal measures that provide greater incentives for private sector investment in research and development.  Certainly, economic stability coupled with tax expenditures to subsidize entrepreneurial activities provide important conditions for investment in high risk and potentially high return economic activities, and the authors document that indeed Brazilian venture capital firms have opted for dynamic start up companies over established corporations.  Yet, as the authors note, even Brazil’s venture capital firms required the centralized and often generous hand of government for direction and finance.

If venture capitalism is critical to innovation, then in Brazil’s case, the public sector played a critical role in shaping the evolution of venture capitalism in the national innovation system.  Indeed, Tuomi and Castro Neto carefully document how the public company FINEP, supervised by the Ministry of Science and Technology or MCTI, identified and actively responded to the underdevelopment of venture capitalism in Brazil during the past decade.  Towards this end,

“FINEP decided to address some of the problems with VC capital formation including: small numbers of domestic fund managers; an unwillingness by pension funds to invest in VC; a disconnect between investors and start-ups; and the fact that few Brazilian companies were familiar with VC. As such, FINEP introduced a number of measures aimed at fostering a Brazilian VC culture. First they instigated a series of panels on VC funds, to assess VC funds and provide advice on how to improve. Second, they organized forums with the intention of educating investors, start-up owners and researchers on VC. Lastly, they held training workshops on due diligence and other topics.”

Herein lies the big takeaway from this worthwhile article, if Brazil is to shift the burden of financing research and development upon the private sector, then government must both develop public policies that reward private sector investment in innovation as well as play an instrumental role in shaping capital markets to finance Brazilian firms with competitive advantages that lead to the production of tradable, high valued goods and services.  Will Brazil’s private sector respond to such policies and guidance if the state continues to provide the bulk of research and development financing?  And, what happens if Brazil’s private sector continues to shy away from shouldering such a burden and prefers to opt for state subsidies, either through tax expenditures or favorable interest rates and terms from BNDES?

Read the full article here.

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New research indicates that space-age technology and good old law enforcement may account for approximately half of the avoided deforestation in the Brazilian Amazon during the last six years.

The Climate Policy Initiative recently published, “DETERing Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement,” authored by Juliano Assunção, Clarissia Gandour, and Romero Rocha, researchers at the Núcleo de Avaliação de Políticas Climáticas of PUC-Rio.

This rigorous policy evaluation research effort attempts to reveal a causal chain that links the space-age technology of Brazil satellite based, “Real-Time System for Detection of Deforestation or DETER with federal government law enforcement, through the Brazilian Institute for the Environmental and Renewable Natural Resources (IBAMA) to bring about increasing numbers of fines and other law enforcement sanctions that serve to discourage and prevent deforestation activities.  This research suggests that such a causal chain, the result of a command and control public policy made possible by the creation of DETER by the Brazil’s National Institute of Space Research (INPE), is responsible for approximately one half of avoided deforestation in the Amazon basin between 2007 to 2011 through improved mechanisms for detecting and targeting law enforcement activities.

To reveal this causal chain, Assunção, Gandour and Rocha show that increases in the number of IBAMA issued fines led to measurable decreases in deforestation as measured at the municipal level.  Accordingly, the authors conclude,

“The adoption of DETER-based monitoring and targeting of law enforcement significantly increased IBAMA’s capacity to identify and reach deforestation activity as it happens, thereby also increasing its ability to punish illegal deforestation (2013:4).”

Moreover, the increasing capacity of Brazil’s federal government to monitor deforestation and punish it does not measurably impact local agricultural, although it may prove to push agricultural activity toward more intensive, productive methods now and in the future.

The authors are careful to separate the positive impact of monitoring and law enforcement from the overall federal government policy, “The Action Plan for Prevention and Control of Deforestation in the Legal Amazon (PPCDAm),” enacted in 2004 to provide an integrated approach to preventing deforestation which includes DETER, but also features incentives for sustainable economic activities.

This working paper seems to highlight the increased capacity of IBAMA to target its law enforcement assets in the Amazon region through DETER to achieve remarkable results.  As the authors note, “Deforestation [in the Amazon] observed from 2007 to 2011 was 75% smaller than it would have been in the absence of fines…” levied by IBAMA.  Moreover, the authors’ research leads to the sensible conclusion that such monitoring and law enforcement activities pay for themselves and more. Accordingly,

“Assuming that IBAMA’s annual budget from 2007 to 2011 was $560 USD (value of the 2011 budget) and that INPE’s annual budget in the same period was $125 million USD (value of its 2010 budget), any price of carbon set above $0.76 USD/tCO-2 would more than compensate the cost of environmental monitoring and law enforcement in the Amazon (2013:19).”

The authors also imply that continued technological innovation to improve DETER detection of deforestation through cloud coverage could pay even larger dividends in terms of avoided deforestation, the expenses of which would be more than compensated by the international market for carbon offset credits.

The conclusions alone deserve intense policy debate in Brazil and around the world, but the methodological framework also deserves applause since it attempts to apply sturdy propositions associated with law enforcement research upon the Amazon and its five hundred plus municipalities (the level of analysis for the study).  According to the authors, DETER’s inability to detect deforestation through cloud cover creates methodological rationale for comparing rates of IBAMA fines with deforestation rates at the municipal level, a methodological innovation worth greater scrutiny and recognition.

Overall, “DETERing Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement,” deserves a close read, reflection, and a prominent role in relevant policy debates in Brazil and around the world.

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Lídia Cabral and Alex Shankland of the Futures Agricultural Consortium (FAC) have released a concise descriptive and analytical treatment of Brazil’s expanding agricultural cooperation in Africa, “Narratives of Brazil-Africa Cooperation for Agricultural Development: New Paradigms?” This article is a must read for understanding Brazil’s foreign policy in the region as well as international efforts to assist Africans make the move toward commercial agriculture.

Brazil’s economic stability and growth during the last decade have opened up a number of possibilities for international cooperation, including, but not limited to a growing economic and political footprint in Africa.  This growth is best expressed through the evolution and increasing stature of the Brazilian Cooperation Agency (ABC) under the direction of the Foreign Ministry (Itamaraty). Indeed, ABC’s budget has grown threefold between 2008 and 2010 under the direction of Marco Farani (page 7).  ABC’s development assistance is framed through a set of criteria that reflect the Brazilian state’s overarching foreign policy principles, including: 1) joint diplomacy based on solidarity; 2) demand-driven action in response to demands made by recipient countries; 3) efforts to recognize local experience and adapt the Brazilian experience to local conditions; 4) no imposition of conditions; 5) no association with commercial interests or profit; and 6) no interference in domestic issue of partner countries.

Cabral and Shankland do not fully evaluate the application of these criteria, and certainly note that there are increasingly overlaps between ABC assistance and the increasing presence of Brazilian transnational corporations such as Vale and Odebrecht.  Rather than drawing direct linkage, the authors suggest that the activist foreign policy of former President Lula in the region, and his current non-official role in bring Brazil and Africa together, both drove ABC toward a greater role in Africa, especially the Portuguese speaking countries, and the growth of Brazilian FDI and expansion of Brazilian headquartered transnational enterprises into Africa.

In 2009, ABC spent $362 million USD or approximately 0.02% of the GDP of the country, but that 68% of this total was dedicated to membership payments to International Governmental Organizations with technical assistance comprising only 13% of the total (page 6).  Much of the technical assistance was provided in concert with Brazil’s Agricultural Research and Extension agency, EMBRAPA, whose role in Africa continues to expand and develop.  During the period from 2003 to 2009, the number of technical assistance projects directed by ABC grew from just 23 in 2003 to 418 by 2009, demonstrating both the growth of ABC and the new dimension of Brazilian foreign policy, international cooperation through development assistance.  Most of these technical assistance projects are administered by either EMBRAPA for agriculture or the Fundação Oswaldo Cruz (FIOCRUZ) in the area of public health.

Clearly Africa has become the focus for ABC and its technical assistance projects with 57% of all projects in 2010.  With the five Portuguese speaking countries accounting for 74% of all of the African projects and Mozambique becoming the largest recipient country (page 9).  In addition to the work of ABC, EMBRAPA and FIOCRUZ, Brazil’s development bank, the BNDES, has increased its activities as well, offering favorable credit facility programs aimed at Small and Medium sized Enterprises (SMEs) who are venturing into the African marketplace.

EMBRAPA presence in Africa has expanded in part due to Brazil’s growing foreign policy focus on the region and in part because the African savannah shares many of the same productive characteristics as the Brazilian Cerrado region that has now become the epicenter of modern Brazilian agriculture. Indeed, the announcement that EMBRAPA would create the Center for Strategic Studies and Training on Tropical Agriculture (CECAT) in part reflects the commitment of EMBRAPA to expanding its technical assistance programs in Africa.  Along with the emphasis on tropical agriculture, the ABC and EMBRAPA work in Africa also reflect Brazil’s dual commitment to developing family farming while also strengthening agribusiness through investments in infrastructure and the encouragement of profitable scales of economy.  Brazil’s cooperation through the “More Food Africa Program” and the “Food Acquisition Program” attempt to assist family farming in the region while also supporting efforts to obtain food security.  In addition, EMBRAPA supports a growing number of efforts launched by Brazilian agribusiness groups to develop commercial scale agricultural projects in such countries as Mozambique and at the invitation of recipient country governments.  Currently, the Brazilian and Japanese governments are working with Mozambique to implement a number of EMBRAPA administered technical assistance programs alongside a growing contingent of private firms and groups working with Mozambique organizations to deepen commercial agriculture in the country.

Cabral and Shankland suggest that such rapid growth of ABC and technical assistance in Africa will likely set off an institutional reform process to focus responsibilities and tasks, rather than mixing them with the direct and traditional diplomatic activities carried out by the Itamaraty; and that such reforms will likely evolve through a confluence of Brazil’s altruism in Africa alongside the growing private sector role in the region, all within Brazil’s growing projection of geopolitical power through its growing association with Africa.  These authors’ working paper provides a sturdy description and analysis of the process in recent years; and forms a foundation for future studies of Brazilian foreign policy in the region and efforts to contribute toward African rural development for some time to come.  Moreover, they suggest that Brazil’s role in Africa may indeed provide a new paradigm for development assistance. Stay tuned.

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Frustrated by congressional paralysis, the Obama administration is quickly deepening its foreign policy activism to make the second term much more internationalist.  In late May, Vice-President Joe Biden will travel to Latin American and the Caribbean and stop in Brazil where he will meet with Brazilian President Dilma Rousseff and Vice-President Michel Temer.  Accordingly, the White House announced that VP Biden would discuss bilateral commercial relations among other international issues. The lack of any publicly announced agenda, the recent extended visit of the U.S. Ambassador to the United Nations, Susan Rice, along with press reports of a possible State visit to Washington by President Dilma in later 2013 all suggest that the two governments are busy exploring avenues of cooperation that could lead to a series of executive agreements which promise to increase the importance of these bilateral relations.

There are a number of issues that continue to challenge, even plague U.S.-Brazil relations despite the positive tone expressed by leaders of both countries.  First,  Brazil continues to wait for Washington’s full endorsement of the country’s campaign for a permanent seat on the U.N. Security Council.  Ambassador Rice’s recent trip to Brasilia highlights the importance of the U.N. to bilateral relations and the possibility that the Obama administration is seriously considering a full endorsement of Brazil for a permanent seat should there be a future reform in the representational structure of the UNSC.

Second, there is the matter of the World Trade Organization’s judgment against U.S. cotton subsidies.  Since 2010, both governments have administered a temporary agreement that gives time for a reform of the U.S. Farm bill,  suspends Brazil’s right to impose stiff trade retaliation measures, and provides some compensation for Brazilian cotton producers.  As the U.S. Congress begins again its efforts to pass a new Farm bill (the bill expired last year without the House of Representatives taking up the matter for a floor vote), it is likely that the two governments will intensify efforts to find a final solution before any State visit by the Brazilian president.

Third, as the U.S. Congress bears down on an immigration reform, the two governments have met on a regular basis to explore easing the travel requirements of Brazilians traveling to the U.S. for business and pleasure.  The Obama government has already taken measures to speed up the Visa application process for Brazilian nationals, but a breakthrough in this area, including the possibility of waiving visa requirements, could put into place a new dynamic for bilateral relations and one that further deepens the already dense social relations that bring the populations of these two countries increasingly into the same orbit.

There are many other issues that VP Biden may pursue in Brasilia, and certainly President Dilma will be exploring avenues for increasing the bilateral commercial portfolio and better directly U.S. foreign direct investment into strategic areas for Brazilian economic development including infrastructure, power generation and transmission, and exploration and production of Brazil’s oil and gas reserves.   Biden’s trip may not answer all of our questions about the current state of bilateral relations, but it is likely to determine whether the next step will be rolling out the red carpet for President Dilma’s next visit to Washington.

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Brazil is undergoing a rapid transformation from inward oriented national development to a fully globalized political economy whose government is quickly learning how to craft public policies to guarantee economic stability, growth, and an ever increasing list of private sector opportunities. Brazil still faces significant challenges, including stagflation (slow growth with inflation), but the current governing coalition is committed to a sustainable set of heterodox measures to further liberalize the economy while providing significant public investment, especially in energy and infrastructure, to insure continued growth in the coming years. This favorable scenario provides ample opportunities for United States headquartered capital goods manufacturers to increase exports to Brazil, increase investments in Brazilian manufacturing, and deepen and develop strategic partnerships with Brazilian firms and producer associations. These opportunities come with significant challenges; therefore U.S. firms and investors must carefully identify and assess an expanding list of opportunities as well as a resilient set of institutional obstacles, weighing present market conditions with sensible forecasts of future possibilities.

For more information and analysis on Brazil’s capital good marketplace and its import opportunities, read BrazilWorks briefing paper,

The Brazilian Capital Goods Market: Recent Development and Future Prospects here.

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