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Brazil: Background and U.S. Relations

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Brazil-U.S. Relations Peter J. Meyer Analyst in Latin American Affairs March 5, 2010 Congressional Research Service 7-5700 www.crs.gov RL33456 CRS Report for Congress Prepared for Members and Committees of Congress Brazil-U.S. Relations Summary On January 1, 2007, Luis Inácio Lula da Silva, of the leftist Workers’ Party (PT), was inaugurated to a second four-year term as President of Brazil. Lula was re-elected in the second round of voting with fairly broad popular support. His immediate tasks were to boost Brazil’s lagging economic growth and address the issues of crime, violence, and poverty. Despite President Lula’s significant personal popularity, occasional corruption scandals and inter-party rivalries within his governing coalition have made it difficult to advance his agenda through Brazil’s fractured legislature. Lula’s top priority for 2010 is legislative approval of a new regulatory framework that will increase the state’s role in the exploitation of Brazil’s considerable offshore oil reserves. A presidential election to choose Lula’s successor is scheduled to be held in October 2010. President Lula has benefitted from a strong economy throughout most of his second term. The global financial crisis, however, slowed Brazil’s economic growth and threatened to erase some of the social gains made in recent years. President Lula implemented a number of countercyclical policies to boost the economy and protect those most exposed to the effects of the economic downturn. These actions appear to have been reasonably successful, as the Brazilian economy was one of the first to recover from the global crisis and analysts now expect Brazil to experience significant growth in 2010. During the first Lula term, Brazil’s relations with the United States were generally positive despite the fact that President Lula prioritized strengthening relations with neighboring countries and expanding ties with nontraditional partners, including India and China. Brazil-U.S. cooperation has increased during President Lula’s second term, particularly on energy issues. Two presidential visits in March 2007 culminated in the signing of the Memorandum of Understanding (MOU) Between the United States and Brazil to Advance Cooperation on Biofuels; the agreement was expanded in November 2008. President Obama has made strengthening U.S.-Brazilian relations an important part of his policy toward Latin America. Although several differences between the countries have emerged in recent months, Brazil-U.S. relations remain friendly. Members of Congress demonstrated considerable interest in Brazil during the first session of the 111th Congress. Members expressed particular concern over an international custody case involving Brazil. Both houses passed resolutions (H.Res. 125 and S.Res. 37) calling on Brazil to comply with the requirements of the Convention on the Civil Aspects of International Child Abduction, and another measure (H.R. 2702, C. Smith) was introduced in the House, which would suspend the Generalized System of Preferences for Brazil until the country meets its Convention obligations. Several other initiatives relating to Brazil also were introduced in the first session of the 111th Congress: S.Res. 74 (Lugar) would recognize the importance of the U.S.Brazil partnership and call on the U.S. Treasury Secretary to pursue negotiations concerning a bilateral tax treaty; S. 587 (Lugar) would provide $6 million to expand U.S.-Brazil biofuels cooperation in FY2010; and S. 2044 (Menendez) would provide for re-liquidation of entries relating to certain Brazilian orange juice imports. This report analyzes Brazil’s political, economic, and social conditions, and how those conditions affect its role in the region and its relationship with the United States. Congressional Research Service Brazil-U.S. Relations Contents Political and Economic Background............................................................................................1 Political Situation........................................................................................................................2 The First Lula Administration ...............................................................................................2 The Second Lula Administration ...........................................................................................3 October 2010 Elections .........................................................................................................4 Economic Conditions ..................................................................................................................4 Economic Challenges............................................................................................................5 Slow Growth Rate...........................................................................................................5 Global Financial Crisis....................................................................................................5 Social Indicators ...................................................................................................................6 Foreign and Trade Policy ............................................................................................................7 Regional Integration and Leadership .....................................................................................7 Mercosur ........................................................................................................................7 Unasur and other Regional Organizations........................................................................8 Maintenance of Peace and Stability .................................................................................8 Expansion of Influence ...................................................................................................9 Regional Backlash ..........................................................................................................9 Emerging Global Role......................................................................................................... 10 Relations with the United States ................................................................................................ 11 Selected Issues in U.S.-Brazil Relations .................................................................................... 12 Counternarcotics ................................................................................................................. 12 Counterterrorism and the Tri-Border Area ........................................................................... 13 Energy Security .................................................................................................................. 14 Ethanol and Other Biofuels ........................................................................................... 14 Nuclear Energy ............................................................................................................. 15 Oil ................................................................................................................................ 15 Trade Issues ........................................................................................................................ 16 Doha Round of the World Trade Organization Talks ..................................................... 16 World Trade Organization Dispute ................................................................................ 17 Generalized System of Preferences ............................................................................... 17 Intellectual Property Rights ........................................................................................... 18 Human Rights ..................................................................................................................... 18 Violent Crime and Human Rights Abuses by Police....................................................... 18 Race and Discrimination .............................................................................................. 20 Trafficking in Persons for Forced Labor ....................................................................... 20 Convention on the Civil Aspects of International Child Abduction....................................... 21 HIV/AIDS .......................................................................................................................... 23 Amazon Conservation......................................................................................................... 23 Domestic Efforts ........................................................................................................... 24 Carbon Offsets and Other International Initiatives ......................................................... 25 Figures Figure A-1. Map of Brazil ......................................................................................................... 27 Congressional Research Service Brazil-U.S. Relations Appendixes Appendix. Map of Brazil........................................................................................................... 27 Contacts Author Contact Information ...................................................................................................... 28 Acknowledgments .................................................................................................................... 28 Congressional Research Service Brazil-U.S. Relations Political and Economic Background Brazil is considered a significant political and economic power in Latin America, and an emerging global leader. A former Portuguese colony that achieved independence in 1822, Brazil occupies almost half of the continent of South America and boasts immense biodiversity— including the vast Amazon rainforest—and significant natural resources. The country’s federal structure, comprising 26 states, a Federal District, and some 5,581 municipalities, evolved from the decentralized colonial structure devised by the Portuguese in an attempt to control Brazil’s sizable territory. Brazil is the fifth-most populous country in the world. Its 191 million citizens are primarily of European, African, or mixed African and European descent.1 With a gross national income (GNI) of $1.4 trillion in 2008, Brazil’s diversified economy is the tenth largest in the world, the largest in Latin America, and one of the largest in the developing world. Per capita GNI is only $7,350, however, and the country has an unequal income distribution. 2 Brazil has long held potential to become a world power, but its rise to prominence has been curtailed by setbacks, including 21 years of military rule, political instability, and uneven economic growth. Brazil’s military governments ruled from 1964-1985 and, while repressive, were not as brutal as those in other South American countries. Although nominally allowing the judiciary and Congress to function during its tenure, the Brazilian military stifled representative democracy and civic action in Brazil, carefully preserving its influence during one of the most protracted transitions to democracy to occur in Latin America. During the first decade after its return to democracy, Brazil experienced economic recession and political uncertainty as numerous efforts to control runaway inflation failed and two elected presidents did not complete their terms. One elected president died before taking office and the other was impeached on corruption charges. Brazil was one of the last countries in the region to move away from state-led development; significant market-oriented policies were not implemented until the government of Fernando Henrique Cardoso (1994-2002).3 In 1994, Cardoso, a prominent sociologist of the center-left Brazilian Social Democratic Party (PSDB), was elected by a wide margin over Luis Inácio Lula da Silva of the leftist Worker’s Party (PT).4 Cardoso’s election was largely a result of the success of the anti-inflation “Real Plan” that he implemented as Finance Minister. During his first term, Cardoso achieved macroeconomic stability, opened the Brazilian economy to trade and investment, and furthered privatization efforts. Despite these policy victories, Cardoso was unable to enact other political and social changes, such as social security, tax, or judicial reforms. A 1997 constitutional change allowed President Cardoso to run reelection, and he once again defeated Lula in October 1998. President Cardoso experienced a considerable decline in popularity during his second term, however, as 1 Brazil has never had a large indigenous population. Today, Brazil’s indigenous population consists of roughly 460,000 persons, many of whom reside in the Amazon. U.S. Department of State, Country Reports on Human Rights Practices 2007: Brazil, March 2008. 2 World Bank, World Development Report, 2010. 3 For a historical overview of Brazil’s political development, see Bolivar Lamounier, “Brazil: Inequality Against Democracy,” in Larry Diamond, Jonathan Hughes, Juan J. Linz, and Seymour Martin Lipset, eds., Democracy in Developing Countries: Latin America, Boulder, CO: Lynne Reiner, 1999. 4 In recent years, the PSDB has become ideologically centrist while the PT has move to the center-left. Timothy J. Power and Cesar Zucco Jr., "Estimating Ideology of Brazilian Legislative Parties, 1990-2005," Latin American Research Review, vol. 44, no. 1, 2009. Congressional Research Service 1 Brazil-U.S. Relations Brazil faced a series of financial crises. Most analysts credit Cardoso with restoring macroeconomic stability to Brazil’s economy and solidifying its role as leader of the Common Market of the South (Mercosur),5 but fault him for failing to implement more aggressive political and social reforms.6 Political Situation The First Lula Administration In 2002, Lula—a former metalworker and union leader who had led the Worker’s Party (PT) since the early 1980s—ran in his fourth campaign for the presidency of Brazil. Although he continued to advocate for greater social justice, Lula moderated his leftist rhetoric and promised to maintain the fiscal and monetary policies associated with Brazil’s standing International Monetary Fund (IMF) agreements. The election proved to be a referendum on Cardoso’s eight years in power. High unemployment rates and economic stagnation led voters to reject Cardoso’s designated successor, Minister of Health José Serra, and support Lula. During his first term, President Lula largely maintained the market-oriented economic policies associated with his predecessor, while placing a greater emphasis on addressing social problems. In 2003, the Lula government enacted social security and tax reforms, and committed to a primary budget surplus of 4.25% of GDP. Likewise, Lula implemented a law to allow more private investment in public infrastructure projects in 2004. Although the Lula Administration tightly controlled expenditures, it also reorganized and expanded some of the social programs initiated under Cardoso. One conditional cash transfer program, known as Bolsa Familia (Family Stipend), has provided monthly stipends to some 11.4 million poor families in exchange for compulsory school attendance for all school-age children. Supporters of the program credit it with reducing poverty and weakening the clientelist links between the poor and some local politicians. Critics argue that it has made poor households too dependent on government services. 7 Despite these initial legislative victories, Lula’s agenda stalled toward the end of his first term. Some left-leaning Brazilians criticized Lula for maintaining the orthodox economic policies of the Cardoso Administration and failing to do more to address social issues such as income inequality and land distribution. Criticism of Lula became more widespread with the onset of several corruption scandals involving top PT officials, although a congressional inquiry cleared President Lula of any direct responsibility in April 2006.8 5 Mercosur is a common market composed of Brazil, Argentina, Paraguay, and Uruguay that was established in 1991. See CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F. Hornbeck. 6 Susan Kaufman Purcell and Riordan Roett, eds., Brazil Under Cardoso, Boulder, CO: Lynne Reiner Publishers, 1997; Mauricio A. Font and Anthony Peter Spanakos, Reforming Brazil, New York: Lexington Books, 2004. 7 Anthony Hall, “From Fome Zero to Bolsa Familia: Social Policies and Poverty Alleviation Under Lula,” Journal of Latin American Studies, vol. 38, November 2006; Riorden Roett, “How Reform Has Powered Brazil’s Rise,” Current History, February 2010. 8 Wendy Hunter, “The Normalization of An Anomaly: The Worker’s Party in Brazil,” World Politics, vol. 59, no. 3, April 2007. Congressional Research Service 2 Brazil-U.S. Relations The Second Lula Administration President Lula defeated the PSDB’s Gerardo Alckmin in the second round of presidential elections held in October 2006, capturing 61% of the vote. Lula won handily in the poorer north and northeastern regions of the country, but failed to carry the more prosperous southern and western states or São Paulo. Some observers assessed that Brazilians, though divided by class and region, effectively voted in favor of continuing macroeconomic stability under a second Lula Administration. Others attribute his win to the success of the Bolsa Familia program, which led voters in poorer income brackets to overwhelmingly support him. 9 Although Lula was able to overcome the PT’s corruption scandals, his party did not fare as well. In concurrent legislative elections, the PT suffered a loss of nine seats in the Chamber of Deputies and four seats in the Senate. Despite his administration enjoying high approval ratings (73% in February 2010)10 and several years of strong economic growth, President Lula’s second term has been periodically hindered by corruption scandals and a lack of support from members of his coalition. Many of President Lula’s priorities—including significant tax and political reforms—have stalled in Brazil’s Congress, where the PT-allied but ideologically heterogeneous Party of the Brazilian Democratic Movement (PMDB) controls the presidencies of both the Senate and Chamber of Deputies. President Lula has done little to challenge the PMDB since the PT’s chances of maintaining the presidency in 2010 are likely dependent on a continued alliance.11 This has also led President Lula to vigorously defend Senate President José Sarney (President of Brazil 1985-1990) of the PMDB against a number of corruption allegations, ranging from nepotism to abuse of public funds.12 President Lula’s top priority for 2010 is legislative approval of a new regulatory framework that will increase the state’s role in the exploitation of Brazil’s considerable offshore oil reserves. (For more information, see “Oil” below). Among other provisions, the plan would make state-owned Petrobras the sole operator for all new offshore projects, replace the existing concessionary model with a production sharing regime, guarantee Petrobras a minimum 30% stake in all new joint ventures, create a new public company—Petrosal—for contract administration, and create a new social fund overseen by Congress that will direct offshore revenues toward four key areas: education, infrastructure, science and technology, and poverty reduction.13 Although the new regulatory framework is expected to pass, some analysts believe it is unlikely that the Brazilian Congress will act on the rest of President Lula’s agenda—such as politically sensitive, longstalled economic and political reforms—as the parties turn their attention toward the October 2010 presidential and legislative elections.14 9 Matt Moffett and Geraldo Samor, “In Brazil Campaign, A Barroom Brawl and a Class War,” Wall Street Journal, October 27, 2006; Wendy Hunter and Timothy J. Power, “Rewarding Lula: Executive Power, Social Policy, and the Brazilian Elections of 2006,” Latin American Politics and Society, Spring 2007. 10 “Support for Brazil’s President Lula Reaches Record – Poll,” Dow Jones, March 1, 2010. 11 “Power struggle exposes senate wrongdoings,” Latin American Weekly Report, March 26, 2009; “Brazil: PMDB powerbrokers may hold key in 2010,” Oxford Analytica, March 30, 2009. 12 Otávio Cabral, “Os Novos e Bons Companheiros,” Veja, July 22, 2009. 13 “Brazil’s Oil Law still awaiting approval,” Latin American Regional Report: Brazil & Southern Cone, February 2010. 14 “Country Report: Brazil,” Economist Intelligence Unit, January 2010. Congressional Research Service 3 Brazil-U.S. Relations October 2010 Elections While some of President Lula’s supporters have pushed for a constitutional amendment that would allow him to run for a third term in the October 2010 elections, Lula has stressed the importance of alternation of power, stating unequivocally that “Brazil should not have a third mandate.”15 The top candidates to replace him include former Health Minister and 2002 candidate José Serra of the PSDB and current Minister of the Presidency Dilma Rousseff of the PT. Other possible candidates include Deputy Ciro Gomes of the Brazilian Socialist Party (PSB) and former Lula Administration Environment Minister Marina Silva of the Green Party (PV). Although Serra has been the favorite in early polling, the lesser known Rousseff has begun to close the gap with the enthusiastic support of President Lula.16 Analysts believe that both Serra and Rouseff would maintain broad policy continuity, although Rousseff is more supportive of a strong state role in the economy than Serra.17 Economic Conditions Throughout the last two decades, Brazil’s fiscal and monetary policies have focused primarily on inflation control. When President Lula took office in 2003, Brazil had an extremely high level of public debt, virtually necessitating that he adopt austere economic policies. Despite his leftist political origins, President Lula has maintained restrained economic policies, even surpassing the IMF’s fiscal and monetary targets. As a result, Brazil began to experience some benefits, including lower inflation and a lower credit risk rating. In December 2005, the Lula government repaid its $15.5 billion debt to the IMF ahead of schedule and in 2009, Brazil became a net IMF creditor. Fiscal discipline has been accompanied by record exports. Brazil is a major exporter of agricultural and industrial products and plays a significant role in the world trading system. Since 2002, Brazil has been the world’s third-largest exporter of agricultural products after the United States and the European Union. Brazil is a leading exporter of coffee, orange juice, sugar, chicken, beef, soy, and tobacco. Demand for Brazilian commodity exports in Asia is strong, as is global demand for Brazil’s manufactured goods and services. Brazil is the world’s second-largest producer of ethanol (after the United States), and its state-run oil company, Petrobras, is a leader in deep-water oil drilling. In 2009, the value of Brazil’s exports reached some $153 billion, and the country’s trade surplus was over $25 billion.18 15 16 “Lula speaks out on third term,” Latin News Daily, June 3, 2009. David Fleischer, “Brazil Focus Special Report,” March 1, 2010. 17 “Political Economy: The debate begins,” Latin American Regional Report: Brazil & Southern Cone, February 2010; “Serra waits, a bit too patiently, for the presidency,” The Economist, February 4, 2010; “Brazil: Rousseff nomination leaves PT divisions open,” Oxford Analytica, February 19, 2010. 18 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, February 2010. Congressional Research Service 4 Brazil-U.S. Relations Economic Challenges Slow Growth Rate One of President Lula’s goals for his second term was to boost Brazil’s lagging economic growth rate, which averaged just 2.7% between 2000 and 2006. In 2007, President Lula launched the Program to Accelerate Growth (PAC), which aims to increase Brazil’s growth rate to 5% per year through public and private investment in infrastructure. The PAC provides tax breaks and incentives to spur investment and includes measures to improve and simplify Brazil’s regulatory framework. According to official figures, the PAC has only invested $225 billion and spent $143 billion of the $356 billion programmed for the 2007-2009 period. The private sector accounted for $49.5 billion (33%) of the spent funds while state companies, the federal government, states and municipalities, and other public sector financing accounted for the rest.19 Some have praised President Lula for the PAC’s investments in much-needed infrastructure projects, however, others have criticized him for increasing public spending and ignoring other factors that hamper economic growth. GDP growth in Brazil reached 6.1% in 2007 and 5.1% in 2008.20 Although the PAC appears to have been somewhat successful, some analysts have identified several factors that could constrain Brazil’s long-term growth potential. These include a sizeable public debt burden, significant government spending, high taxes and interest rates, low investment and savings rates, and an unwieldy public pension system that a 2006 report by the Organization for Economic Co-operation and Development (OECD) asserted is a significant obstacle to sustained economic growth. 21 Despite his popularity, President Lula has thus far not elected to use his political capital to enact the structural reforms needed to address these issues. Global Financial Crisis The global financial crisis further complicated President Lula’s attempts to accelerate economic growth. The Brazilian economy contracted by 3.4% in the last quarter of 2008 and 1% the first quarter of 2009, before returning to quarter-on-quarter growth in the second quarter of 2009.22 Although the recession was relatively short, export revenues fell by 22.2% and the country’s trade surplus fell by 1.4% in 2009. Brazil took several steps to minimize the impact of the crisis. The government injected at least $100 billion of additional liquidity into the local economy, provided support packages to productive sectors, and cut the key interest rate.23 President Lula also acted to maintain domestic consumption in hopes of partially offsetting declines in global demand. The government mandated an above-inflation increase to the minimum wage for 2009, provided temporary tax 19 Figures based on the March 2, 2010 currency conversion rate of 1 Brazilian Real: 0.5578 U.S. Dollars. “Political Economy: The debate begins,” Latin American Regional Report: Brazil & Southern Cone, February 2010. 20 “Brazil: Country Profile 2008,” Economist Intelligence Unit; “Country Report: Brazil,” Economist Intelligence Unit, February 2010. 21 Fabio Giambiagi and Luiz de Mello, “Social Security Reform in Brazil: Achievements and Remaining Challenges,” Organization for Economic Co-operation and Development (OECD), Economics Department Working Paper No. 534, December 6, 2006. 22 “Late in, first out,” The Economist, September 14, 2009. 23 “Will the economy grow in 2009?” Latin American Economy & Business, February 2009; “Brazil economy: Bottoming out?” Economist Intelligence Unit, May 7, 2009. Congressional Research Service 5 Brazil-U.S. Relations relief, announced its intention to increase investments in its Program to Accelerate Growth (PAC), and maintained its spending on social programs like Bolsa Familia.24 The Brazilian government’s actions appear to have been reasonably successful. The economy contracted by just 0.3% in 2009 and Brazil was one of the first Latin American nations to emerge from recession. Analysts believe that the Brazilian economy will rebound with 5% growth in 2010, even as the Brazilian government begins to remove the stimulus measures put in place over the course of 2009.25 Social Indicators Despite its well-developed economy and large resource base, Brazil has had problems solving deep-seated social problems like poverty and income inequality. Brazil has had one of the most unequal income distributions in Latin America, a region with the highest income inequality in the world. The wealthiest 5% of the population account for some 40% of the country’s wealth. 26 One major cause of poverty and inequality in Brazil has been the extreme concentration of land ownership among the country’s elites. A 2004 study found that 1% of the Brazilian population controlled 45% of the farmland. 27 The Brazilian government has also acknowledged that there is a racial component to poverty in Brazil. People of African descent in Brazil, also known as AfroBrazilians, represent roughly 45% of the country’s population, but constitute 64% of the poor and 69% of the extreme poor.28 Other factors that inhibit social mobility in Brazil include a lack of access to quality education and job training opportunities for the country’s poor. Brazil’s endemic poverty and inequality have, until recently, not been significantly affected by the government’s social programs. A March 2005 OECD study found that, even though Brazil had spent the same level or more of public spending on social programs as other countries with similar income levels, it had not achieved the same social indicators as those countries.29 There has been more recent evidence, however, that the Lula government’s Bolsa Familia (Family Stipend) program, combined with relative macroeconomic stability and growth over the past few years, has reduced poverty rates, particularly in the north and northeast regions of the country.30 According to the Getulio Vargas Foundation, the percentage of Brazilians considered middle class has increased from 37.6% in 2003 to over 49% today. Nonetheless, some 70 million people (nearly 40% of the population) still live below the poverty line. 31 24 “Will the economy grow in 2009?” Latin American Economy & Business, February 2009; Tax Relief for the Middle Classes,” Latin American Weekly Report, December 18, 2008. 25 “Country Report: Brazil,” Economist Intelligence Unit, February 2010; “Brazil to end tax breaks, reduce stimulus— report,” Reuters, January 29, 2010. 26 “Brazil: Middle class expands but inequality persists,” Oxford Analytica, February 8, 2010. 27 “Special Report: Land Report Dilemma,” Latin America Regional Report, December 21, 2004. 28 Ricardo Henriques, “Desigualdade racial no Brasil,” Brasilia: Instituto de Pesquisa Econômica Aplicada (IPEA), 2001. 29 Organization for Economic Cooperation and Development, “Economic Survey of Brazil 2005,” March 2005. 30 Anthony Hall, “From Fome Zero to Bolsa Familia: Social Policies and Poverty Alleviation Under Lula,” Journal of Latin American Studies, vol. 38, November 2006; United Nations Development Program, “Human Development Report 2007/8,” November 2007. 31 “Brazil: Middle class expands but inequality persists,” Oxford Analytica, February 8, 2010. Congressional Research Service 6 Brazil-U.S. Relations Foreign and Trade Policy Brazil’s foreign policy is a byproduct of the country’s unique position as a regional power in Latin America, a leader among developing countries in economic cooperation and collective security efforts, and an emerging world power. Brazilian foreign policy has been based on the principles of multilateralism, peaceful dispute settlement, and nonintervention in the affairs of other countries.32 Brazil engages in multilateral diplomacy through a variety of sub-regional organizations—including Mercosur, the Union of South American Nations (UNASUR), and the Rio Group—as well as through the Organization of America States (OAS) and the United Nations. Regional Integration and Leadership Over the past two decades, Brazil has pushed for greater integration among Latin American nations while consolidating its status as a regional power. Brazil has played an important role in establishing new multilateral organizations, although it has had much more success in developing political cohesion than true economic integration. Brazil has also played an important role in maintaining regional peace and stability, however, its growing commercial and political influence has received some pushback from neighboring countries. Mercosur Brazil joined with Argentina, Paraguay, and Uruguay to establish the Common Market of the South (Mercosur)33 in 1991. The organization was originally created in order to promote economic integration and political cooperation, however, its progress in terms of economic integration has been quite limited. The pact calls for an incremental path to full integration, yet only a limited customs union has been achieved in its nearly 20 year existence. Likewise, Mercosur’s internal resolution process has proved unable to resolve disputes between members, and the group has not addressed trade asymmetries, drafted a common customs code, or resolved the issue of double tariffs on some imports from outside the region. 34 Despite its lack of economic integration, Mercosur has been an influential body. Since its formation, it has greatly expanded its geographic reach. Chile, Mexico, and the members of the Andean Community of Nations (CAN)—Bolivia, Colombia, Ecuador, Peru, and Venezuela— have all become associate members.35 Venezuela will become the fifth full member of Mercosur once all four founding nations ratify its inclusion; Paraguay is the only country yet to ratify the accession.36 Mercosur has also played an important role on regional issues. For example, its opposition to the Free Trade Area of the Americas (FTAA) was the principle reason why the agreement stalled. 32 Georges D. Landau, “The Decision making Process in Foreign Policy: The Case of Brazil,” Center for Strategic and International Studies: Washington, DC: March 2003. 33 For more information on Mercosur, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F. Hornbeck. 34 “Deathknell Sounds,” Latin American Regional Report: Brazil & Southern Cone, January 2009. 35 Associate members have no voting rights and need not observe Mercosur’s common external tariff. 36 Maria Luiza Rabello, “Brazil Senators Approve Venezuela Entry into Mercosur,” Bloomberg, December 15, 2009. Congressional Research Service 7 Brazil-U.S. Relations Unasur and other Regional Organizations Even though Mercosur has largely abandoned its attempts to deepen integration among its members, Brazil has continued to push for broader regional integration. The 2004 trade agreement that provided CAN nations with associate membership in Mercosur led to the creation of the South American Community of Nations. In May 2008, this was reformulated as the Union of South American Nations (Unasur) in a pact that included all 12 independent countries of South America. Brazil has also pushed for the incorporation of more countries into the Rio Group, a political forum with no formal institutions that includes a variety of Latin American and Caribbean countries.37 Most recently, Brazil has supported the creation of a new Community of Latin American and Caribbean States, which would bring together all of the countries of the hemisphere except Canada and the United States.38 All of these organizations contribute to the region’s increasing independence, however, their capacities are limited. Although Unasur played an important role in resolving a political conflict in Bolivia in late 2008, it has shown a limited capacity to mediate regional differences since then.39 Likewise, the Rio Group was able to reduce regional tensions following a Colombian airstrike of a Revolutionary Armed Forces of Colombia (FARC) camp inside Ecuador in March 2008, but it lacks any of the formal institutions and mechanisms possessed by the Organization of American States (OAS). Nonetheless, these regional organizations provide Brazil with forums in which it can engage in multilateral diplomacy, develop consensus on regional issues, and peacefully resolve disputes without having to turn to extra-regional powers, such as the United States. Maintenance of Peace and Stability In addition to supporting the work of multilateral organizations, Brazil has used bilateral diplomacy to encourage the peaceful resolution of conflicts and maintain stability in the region. Brazil has commanded the U.N. Stabilization Mission in Haiti (MINUSTAH) since 2004. It maintains the largest number of peacekeeping troops on the ground, and doubled its forces there following the January 2010 earthquake. 40 Brazil has also worked with Colombia to end its longrunning conflict with the Revolutionary Armed Forces of Colombia (FARC) guerilla group. It has provided logistical assistance to the Colombian government in obtaining the release of political hostages held by the FARC, called on the FARC to end its armed rebellion and assimilate into the Colombian political system, and signed a bilateral agreement with Colombia to allow crossborder privileges in hot pursuit of the FARC.41 Additionally, Brazil used bilateral diplomacy to convince each of the 12 member nations of Unasur to sign onto its South American Defense 37 The Rio Group was created in 1986 when the Contadora Group and the Contadora Support Group merged. Both groups had favored a negotiated solution to the conflicts in Central America in the 1980s, rather than the U.S. push for a military solution. 38 “Region: New body to represent the region, sans US,” Latin American Security & Strategic Review, February 2010. 39 “Latin America: Regional tensions challenge UNASUR,” Oxford Analytica, August 21, 2009. 40 Fernanda Odilla, Simone Iglesias & Johanna Nublat, “Brasil vai dobrar efetivo militar no Haiti,” Folha de São Paulo, January 21, 2010. 41 “Agradece Colombia a Brasil apoyo en liberación de rehenes ,” Agencia Mexicana de Noticias, February 3, 2009; Stan Lehman, “Lula: FARC debe hacer juego democrático y liberar rehenes,” Associated Press, December 5, 2008; “Brazil Colombia: A Deal Signals Strategic Cooperation,” Stratfor, March 12, 2009. Congressional Research Service 8 Brazil-U.S. Relations Council in March 2009. The Council is designed to safeguard peace and security by boosting regional cooperation on defense and national security policies.42 Expansion of Influence While Brazil has consolidated its power within South America, it has not traditionally exerted much influence in Central America or the Caribbean. In recent years, Brazilian government and business officials have sought to change this by expanding the country’s political and commercial interests in the broader region. One initiative has involved the use of so-called “ethanol diplomacy, ” in which Brazil has signed bio-fuels partnership agreements with several Central American and Caribbean countries that would otherwise be dependent on expensive oil imports.43 Brazil has also become a regional observer of the Central American Integration System (SICA) and promoted a trade agreement between SICA and Mercosur.44 Moreover, following the June 2009 ouster of Honduran President Manuel Zelaya, Brazil was vocal in advocating for Zelaya’s reinstatement and allowed him to take refuge in its embassy. In doing so, it took on a much larger than expected role given its typical noninterventionist foreign policy. 45 Despite these growing ties to Central American and the Caribbean, analysts assert that Brazil’s influence remains mostly confined to South America for the time being.46 Regional Backlash Brazil’s expanding influence has generated some backlash in the region. Brazil was caught off guard by Bolivia’s May 2006 nationalization of the country’s natural gas industry as President Lula had hoped that Petrobras’ investments in Bolivia would prevent such an action.47 Paraguay has also confronted Brazil over energy issues, demanding a greater price for the electricity generated by the countries’ joint hydroelectric dam. 48 Venezuela—which has sought to increase its regional influence in recent years through the provision of discounted oil—has criticized Brazil’s promotion of biofuels, charging that biofuels were the principal cause of the recent food crisis. While Brazil has thus far been able to maintain constructive relations with its South American neighbors, reaching mutually acceptable compromises with Bolivia and Paraguay while avoiding open confrontations with Venezuela, some analysts assert that such conflicts are the result of a growing resentment in Latin America over Brazil’s expanding influence. They believe similar conflicts are likely to continue as Brazil’s geopolitical power grows.49 42 “South American Defence Council,” Latin American Regional Report: Brazil & Southern Cone, April 2009. “Chávez, Lula Promote Competing Visions,” Miami Herald, August 10, 2007. 44 Andres Oppenheimer, “Brazil stretching clout to Central America,” Miami Herald, June 7, 2009; “Brazil is Challenging Mexico and U.S. Domination of Isthmus,” Latin America Data Base NotiSur, June 11, 2009. 45 Jens Glüsin, “South America’s Gentle Giant – Brazil Flexes Muscles Over Honduras Crisis,” Der Spiegel, October 9, 2009. 46 Peter Hakim, “Rising Brazil: the Choices Ahead,” Cuadernos de la Fundacion M.Botin, February 22, 2010. 43 47 “Bolivia’s Populism Steps on Brazil,” Christian Science Monitor, May 8, 2006; “Brazil May Pay a Price for Generous Deal on Gas,” Financial Times, February 22, 2007; “Brazil Seeks to Lure Bolivia Away from Venezuela,” Reuters, December 13, 2007; “New chapter in gas dispute with Bolivia,” Latin News Daily, March 30, 2009. 48 Joshua Goodman, “Paraguay Pushes ‘Imperialist’ Brazil on Hydro Power: Week Ahead,” Bloomberg, July 20, 2009. 49 Miguel Diaz & Paulo Roberto Almeida, “Brazil’s Candidacy for Major Power Status,” Stanley Foundation, November 2008; Raúl Zibechi, “Is Brazil Creating Its Own ‘Backyard’?” Center for International Policy Americas Program, February 3, 2009. Congressional Research Service 9 Brazil-U.S. Relations Emerging Global Role As the country has consolidated its power in South America and extended its influence to the broader region, Brazil has also become increasingly prominent on the world stage. Brazil’s global reach is largely the result of its fast-growing economy, which is the tenth largest in the world. The country is rich in natural resources and possesses a dynamic agricultural sector. Brazil is the top exporter of coffee, orange juice, sugar, chicken, beef, and soy; the second largest producer of ethanol; and the third largest exporter of agricultural products. Brazil also has a relatively balanced trade regime: Its main trading partners in 2008 were the European Union (24% of exports, 22% of imports), the United States (14% of exports, 15% of imports), China (8% of exports, 12% of imports), and its neighbors in Mercosur (11% of exports, 9% of imports).50 These factors, in addition to President Lula’s focus on improving relations with other leaders of the developing “South,” have made Brazil one of the most important leaders of the G-20 group of emerging nations and a top player in the Doha Round of World Trade Organization (WTO) negotiations.51 In recent years, President Lula has utilized his country’s growing economic clout to assert Brazilian influence in other global matters. In the aftermath of the global financial crisis, Brazil became the foremost proponent of greater international financial regulation and a more democratic global financial system. 52 Brazil also played an active role at the 2009 U.N. Framework Convention on Climate Change Summit in Copenhagen, calling on developed countries to agree to more substantial green house gas emission reductions, proposing a fund to help poor nations cope with the effects of climate change, and helping craft the summit’s lastminute non-binding agreement.53 Additionally, Brazil has suggested that it might be able to act as a mediator in the Middle East, and has pushed for reform of, and a permanent seat on, the U.N. Security Council. 54 As Brazil has taken on a larger role in global affairs, its foreign policy has been subject to a number of critiques. Some domestic observers have criticized Brazilian foreign policy under Lula as being overly ideological. They have accused President Lula of catering to the demands of regional leftists and have suggested that his international initiatives are designed to maintain support among the base of the Worker’s Party, which is disillusioned with his Administration’s market-friendly economic policies. 55 Likewise, Roberto Abdenur, the former Brazilian Ambassador to Washington, has asserted that the “south-south” approach of the Brazilian Foreign Ministry indoctrinates Brazilian diplomats with “anti-imperialist” and “anti-American” attitudes. 56 International observers have criticized Brazil for not speaking out on human rights violations and undemocratic practices.57 The country’s acceptance of the 2009 Iranian elections and refusal to sanction Iran for its nuclear program have been particular baffling to many in the 50 Mercosur trade statistics only include the other full members of the trade bloc: Argentina, Uruguay, and Paraguay. 51 Peter Hakim, “Rising Brazil: the Choices Ahead,” Cuadernos de la Fundacion M.Botin, February 22, 2010; “Brazil takes off,” The Economist, November 12, 2009. 52 “Brasil defenderá mais regulação no G-20,” O Globo (Brazil), August 6, 2009. 53 Gaurav Singh, “China, India, Brazil Commit to Meet Copenhagen Accord Deadline,” Bloomberg, January 25, 2010. 54 “Brazilian minister on Middle East role,” BBC Monitoring, January 4, 2010. 55 “Lula criticised for ‘partisan’ foreign policy,” Latin American Weekly Report, January 22, 2009. 56 Otávio Cabral, “Nem na Ditadura,” Veja, February 7, 2007. 57 “Brazil: Diplomacy criticised for undermining human rights,” Latin American Weekly Report, July 16, 2009; “Whose side is Brazil on?,” Economist, August 13, 2009. Congressional Research Service 10 Brazil-U.S. Relations international community. Brazilian officials maintain that the country views confrontational policies as counterproductive and prefers to maintain friendly relations with all nations in hopes of fostering negotiated solutions to disagreements.58 Relations with the United States Currently, relations between the United States and Brazil may be characterized as friendly. The United States has increasingly regarded Brazil as a significant power, especially in its role as a stabilizing force in Latin America. U.S. officials assert that the United States seeks to increase cooperation with moderate leftist governments in Latin America (like Brazil) in order to ease mounting tensions among countries in South America, and to deal with populist governments in the region. Brazil under President Lula has helped diffuse potential political crises in Venezuela, Ecuador, and Bolivia, and supported Colombia’s ongoing struggle against terrorist organizations and drug traffickers. Brazil is also commanding the U.N. stabilization force in Haiti. Brazil and the United States have worked closely on a wide range of bilateral and regional issues, and Brazil-U.S. cooperation has increased in recent years, as reflected in the continuing highlevel contacts between the two governments, particularly on energy issues. Early in 2007, two high-level meetings between Presidents Bush and Lula culminated in the March 2007 signing of a U.S.-Brazil Memorandum of Understanding (MOU) to promote bio-fuels development in the Western Hemisphere.59 The initiative was expanded in November 2008 to include additional countries in Africa, Central America, and the Caribbean (See “Ethanol and Other Biofuels” section below).60 Although Brazil and the United States share common goals for regional stability, Brazil’s independent approach to foreign policy has led to periodic disputes with the United States on trade and political issues, including how (and whether) to create a Free Trade Area of the Americas (FTAA) and Brazil’s vocal opposition to the war in Iraq and the U.S. embargo of Cuba. Despite President Lula’s friendly relationship with President Obama, a number of differences between Brazil and the United States have emerged in recent months. In addition to ongoing disputes over the U.S. tariff on Brazilian ethanol and the Doha Round of WTO negotiations, Brazil has criticized the United States for failing to take a stronger stance on the political crisis in Honduras and has reacted negatively to a recent agreement that will provide the United States with access to seven Colombian military bases, which the Brazilian foreign minister described as “a strong military presence whose aim and capability seems to go well beyond what might be needed inside Colombia.”61 58 Bill Varner, “Brazil Resists Push for Tougher Sanctions on Iran, Envoy Says,” Bloomberg, February 17, 2010; Andres Oppenheimer, “Hubris is behind Brazil’s ties with Iran,” Miami Herald, February 21, 2010; “Brazil asserts its autonomy before Clinton,” Latin News Daily, March 4, 2010. 59 For more information, see CRS Report RL34191, Ethanol and Other Biofuels: Potential for U.S.-Brazil Energy Cooperation, by Clare Ribando Seelke and Brent D. Yacobucci. 60 U.S. Department of State, Office of the Spokesman, “Joint Statement by the United States and Brazil Announcing the Expansion of Cooperation on Biofuels to Advance Energy Security and Promote Sustainable Development,” November 20, 2008. 61 “Brazil-US rows building over Colombia, biofuel, trade: FM” Agence France Presse, August 2, 2009; “Brasil espera una actitud más firme de EEUU contre el golpe,” EFE News Service, August 4, 2009. Congressional Research Service 11 Brazil-U.S. Relations Brazil is considered a middle-income country and does not receive large amounts of U.S. foreign assistance. Brazil received $21.5 million in U.S. aid in FY2009, will receive an estimated $25 million in FY2010, and would receive $20.9 million under the Obama Administration’s request for FY2011. U.S. assistance priorities in Brazil include supporting environmental programs and the strengthening of local capacity to address threats to the Amazon, promoting renewable energy and energy efficiency to mitigate climate change, strengthening the professionalism and peacekeeping capabilities of the Brazilian military, and reducing the transmission of communicable diseases.62 Selected Issues in U.S.-Brazil Relations The Bush Administration came to view Brazil as a strong partner whose cooperation should be sought in order to solve regional and global problems, and the Obama Administration appears to view Brazil in a similar light. Current issues of concern to both Brazil and the United States include counternarcotics and counterterrorism efforts, energy security, trade, human rights, the fight against HIV/AIDS, and the environment. Counternarcotics Although Brazil is not a major drug-producing country, it serves as a major transit country for illicit drugs from neighboring Andean countries destined primarily for Europe. Urban gangs— such as São Paulo’s First Command of the Capital (PCC) and Rio de Janeiro’s Red Command (CV)—have begun playing greater roles in narcotics and weapons smuggling, establishing their presence in other countries in the region and forging ties with Colombian and Mexican traffickers. Brazil has also become the second-largest consumer (after the United States) of cocaine in the world. With U.S. support, Brazil has taken several steps to improve its counternarcotics capabilities. In 2004, Brazil implemented an Air Bridge Denial program, which authorizes lethal force for air interdiction, and in 2006, Brazil passed an anti-drug law that prohibits and penalizes the cultivation and trafficking of illicit drugs. Brazil has also worked with its neighbors to construct Joint Intelligence Centers at strategic points along its borders and invested in a sensor and radar project called the Amazon Vigilance System in an attempt to control illicit activity in its Amazon region. In 2009, Brazil’s federal police captured 18.9 metric tons of cocaine, 1.4 metric tons of cocaine base, 513 kilograms of crack cocaine, 150.6 metric tons of marijuana, 3.3 kilograms of heroin, and 183.3 tons of precursor chemicals.63 Brazil received $992,000 in U.S. counternarcotics assistance in FY2008, was expected to receive $1 million in FY2009, and an would receive an estimated $1 million in FY2010 under the Obama Administration’s request.64 U.S. counternarcotics assistance includes training for the Brazil’s federal police, support for interdiction programs at Brazil’s ports, and expanding the capabilities of special investigations units. 62 U.S. State Department, FY2010 Congressional Budget Justification for Foreign Operations, May 29, 2009; “Budget and Allocations for FY 2011 Rollout,” provided to CRS by the U.S. Department of State, January 29, 2010. 63 U.S. Department of State, International Narcotics Control Strategy Report 2010, Volume 1, March 1, 2010. 64 U.S. Department of State, “Summary and Highlights, International Affairs, Function 150, Fiscal Year 2010.” Congressional Research Service 12 Brazil-U.S. Relations Counterterrorism and the Tri-Border Area65 The Tri-Border Area (TBA) of Argentina, Brazil, and Paraguay has long been used for arms smuggling, money laundering, and other illicit purposes. According to the 2009 State Department Country Reports on Terrorism, the United States remains concerned that Hezbollah and Hamas are raising funds through illicit activities and from sympathizers in the sizable Middle Eastern communities in the region. Indeed, reports have indicated that Hezbollah earns over $10 million a year from criminal activities in the TBA. 66 Although it has been reported that al Qaeda’s operations chief Khalid Shaikh Mohammed lived in the Brazilian TBA city of Foz de Iguazu in 1995 and Brazilian authorities arrested Ali al-Mahdi Ibrahim—who was wanted by Egypt for his alleged role in the 1997 massacre of tourists at Luxor—in the TBA in 2003, the State Department report states that there have been no corroborated reports that any Islamic groups have an operational presence in the area.67 The United States joined with the countries of the TBA in the “3+1 Group on Tri-Border Area Security” in 2002 and the group built a Joint Intelligence Center to combat trans-border criminal organizations in the TBA in 2007. The United States has also worked bilaterally with Brazil to improve its counterterrorism capabilities. In addition to providing counterterrorism training, the United States has worked with Brazil to implement the Container Security Initiative (CSI) at the port of Santos. While the State Department Country Reports on Terrorism lauded the Brazilian government as a “cooperative partner in countering terrorism,” it also noted that Brazil’s failure to strengthen its legal counterterrorism framework by passing long-delayed anti-money laundering and counterterrorism bills “significantly undermined its overall commitment to combating terrorism.”68 Brazil, like many Latin American nations, has been reluctant to adopt specific antiterrorism legislation as a result of the difficulty of defining terrorism in a way that does not include the actions of social movements and other groups whose actions of political dissent were condemned as terrorism by repressive military regimes in the past.69 Nonetheless, some Brazilian officials continue to push for antiterrorism legislation, asserting that the country will face new threats as a result of hosting the 2014 World Cup and the 2016 Olympics.70 In January 2009, the Western Hemisphere Counterterrorism and Nonproliferation Act of 2009 (H.R. 375, Ros-Lehtinen) was introduced in the House. Among other provisions, the bill calls on the U.S. Secretary of State to negotiate with Brazil, Argentina, and Paraguay to establish a Regional Coordination Center (RCC) in the TBA to serve as a joint operational facility dedicated to coordinating efforts, capacity, and intelligence to counter current and emerging threats and prevent the proliferation of nuclear, chemical, and biological weapons. A similar provision can be found in the Foreign Relations Authorization and Reform Act for Fiscal Years 2010 and 2011 (H.R. 2475, Ros-Lehtinen), which was introduced in the House in May 2009. 65 For more information, see CRS Report RS21049, Latin America: Terrorism Issues, by Mark P. Sullivan. Alain Rodier, “Notes D’Actualité N˚168: Les Trafics de Drogue du Hezbollah en Amérique Latine,” Centre Français de Recherche sur le Rensignement, April 14, 2009. 67 “Latin America: A Safe Haven for Al Qaeda?” STRATFOR, September 4, 2003; U.S. Department of State, Office of the Coordinator for Counterterrorism, “Country Reports on Terrorism,” April 30, 2009. 68 Ibid. 69 “Anti-terrorism law project scrapped,” Latin American Security & Strategic Review, January 2008. 70 Guila Flint, “Jobim alerta para ameaça de atentados e diz que país deve se preparar para problemas durante Copa e Olimpíadas,” O Globo (Brazil), January 26, 2010. 66 Congressional Research Service 13 Brazil-U.S. Relations Energy Security In the last few years, there has been significant congressional interest in issues related to Western Hemisphere energy security. Brazil is widely regarded as a world leader in energy policy for successfully reducing its reliance on foreign oil through increased domestic production and the development of alternative energy resources. In addition to being the world’s second largest producer of ethanol, Brazil currently generates over 85% of its electricity through hydropower.71 At the same time, Brazil has attained the ability to produce large amounts of enriched uranium as part of its nuclear energy program. More recently, Brazil’s state-run oil company, Petrobras, a leader in deep-water oil drilling, has discovered what may be the world’s largest oil field find in 25 years.72 Ethanol and Other Biofuels73 Brazil stands out as an example of a country that has become a net exporter of energy, partially by increasing its use and production of ethanol. On March 9, 2007, the United States and Brazil, the world’s two largest ethanol-producing countries, signed a Memorandum of Understanding to promote greater cooperation on ethanol and biofuels in the Western Hemisphere. The agreement involves: (1) technology sharing between the United States and Brazil; (2) feasibility studies and technical assistance to build domestic biofuels industries in third countries; and, (3) multilateral efforts to advance the global development of biofuels. The first countries to receive U.S.Brazilian assistance were the Dominican Republic, El Salvador, Haiti, and St. Kitts and Nevis. 74 Since March 2007, the United States and Brazil have moved forward on all three facets of the agreement. U.S. and Brazilian consultants have carried out feasibility studies that identified shortterm technical assistance opportunities in Haiti, the Dominican Republic, and El Salvador. On November 20, 2008, the United States and Brazil announced an agreement to expand their biofuels cooperation and form new partnerships with Guatemala, Honduras, Jamaica, GuineaBissau, and Senegal.75 The United States and Brazil are also working with other members of the International Biofuels Forum (IBF) to make biofuels standards and codes more uniform. In March 2009, the Western Hemisphere Energy Compact (S. 587, Lugar) was introduced. The legislation would provide $6 million in FY2010 to expand U.S.-Brazil biofuels cooperation.76 Despite this progress, several potential obstacles to increased U.S.-Brazil cooperation on biofuels exist, including current U.S. tariffs on most Brazilian ethanol imports. The United States currently allows duty-free access on sugar-based ethanol imports from many countries through the Caribbean Basin Initiative, Central American Free Trade Agreement, and the Andean Trade 71 “Brazil: Hydrocarbons potential poses major challenges,” Oxford Analytica, November 20, 2007. “Brazil’s Now a Hot Commodity,” Los Angeles Times, January 3, 2008. 73 For more information, see CRS Report RL34191, Ethanol and Other Biofuels: Potential for U.S.-Brazil Energy Cooperation, by Clare Ribando Seelke and Brent D. Yacobucci. 74 U.S. Department of State, Office of the Spokesman, “Memorandum of Understanding Between the United States and Brazil to Advance Cooperation on Biofuels,” March 9, 2007. 75 U.S. Department of State, Office of the Spokesman, “Joint Statement by the United States and Brazil Announcing the Expansion of Cooperation on Biofuels to Advance Energy Security and Promote Sustainable Development,” November 20, 2008. 76 Senator Lugar had introduced a similar measure in the 110th Congress, S. 1007, reported out of the Senate Foreign Relations Committee on September 23, 2008. 72 Congressional Research Service 14 Brazil-U.S. Relations Preferences Act, among others.77 Some Brazilian ethanol is processed at plants in the Caribbean for duty-free entry into the United States, but exports arriving directly from Brazil are currently subject to a 54-cent-per-gallon tax, plus a 2.5% tariff. Several bills were introduced in the 110th Congress that would have eliminated or adjusted the ethanol tariff. Nuclear Energy Between the mid-1970s and the mid-1980s, Brazil sought to develop nuclear weapons as it competed with Argentina for political and military dominance of the Southern Cone. Brazil’s 1988 constitution limits nuclear activity to peaceful purposes, however, and in 1991, Brazil and Argentina reached an agreement not to pursue nuclear weapons. Although Brazil subsequently joined the Nuclear Nonproliferation Treaty (NPT) and a number of other multilateral nonproliferation regimes, some international observers became concerned when Brazil commissioned a uranium enrichment plant in 2004 and refused to give International Atomic Energy Agency (IAEA) inspectors full access to the centrifuge plant in 2005. The Brazilian government maintained that it needed to enrich uranium in order to produce its own fuel, and it justified its refusal to give IAEA inspectors access by citing security concerns over the proprietary aspects of the country’s nuclear technology. Negotiations between Brazil and the IAEA ended in October 2005 when the Bush Administration lent its support to Brazil by asserting that limited inspections should be enough for Brazil to comply with its international obligations.78 President Lula has stated Brazil’s intention to spend $540 million over the next eight years to build a third nuclear power plant and a nuclear-powered submarine. In September 2008, the Brazilian Minister for Energy and Mining announced that he would like Brazil to build 60 new nuclear energy plants over the next 50 years. He claimed this expansion of nuclear power is the only way that Brazil will be able to meet the energy needs of its growing population while avoiding massive carbon emissions through the burning of fossil fuels.79 Oil The recent discovery of substantial oil fields in the Santos Basin, which extends 500 miles along the Brazilian coast, has the potential to turn Brazil into a major oil and gas producer and an important source of energy for the United States. The Tupi field, discovered in November 2007, has confirmed oil reserves of between five and eight billion barrels, and it is estimated that the entire Santos Basin could hold up to 50 billion barrels of oil. President Lula asserts that the oil fields have the potential to transform Brazil and improve living conditions for its people. He intends to implement a new regulatory framework, which will increase the state’s role in the exploitation of the reserves while investing the profits in a new social fund for education, infrastructure, science and technology, and poverty reduction.80 77 For more information, see CRS Report RS21930, Ethanol Imports and the Caribbean Basin Initiative (CBI), by Brent D. Yacobucci. 78 “New Round of Nuclear Enrichment Scare Stories,” Latin American Weekly Report, February 12, 2006; Bernard Aronson, “Brazil’s Chance to Lead on Nuclear Containment,” Wall Street Journal, March 18, 2005; Sharon Squassoni and David Fite, “Brazil as Litmus Test: Resende and Restrictions on Uranium Enrichment,” Arms Control Today, October 2005. 79 “Brazil’s Nuclear Ambitions Expand,” Latin American Regional Report, November 2008. 80 “Brazil’s Oil Law still awaiting approval,” Latin American Regional Report: Brazil & Southern Cone, February 2010. Congressional Research Service 15 Brazil-U.S. Relations Exploiting the new fields will be difficult and costly, however, as the oil is located in the so-called “pre-salt” layer, beneath layers of rock and salt up to 7,000 meters below the seabed. Brazil’s state-owned oil company, Petrobras, has announced that it will need $270 billion in investment over the next 10 years to develop the reserves. 81 Some foreign investors have questioned whether the company will be able to access sufficient finance should the Brazilian government implement its proposed regulatory framework. 82 Nonetheless, Petrobras has already received several financing commitments. In April 2009, the Export-Import Bank of the United States approved a preliminary $2 billion loan commitment to Petrobras.83 Since then, the U.S. government has reportedly indicated that it is prepared to go beyond the original agreement to provide up to $10 billion in financing. 84 In May 2009, Brazil and China signed an agreement under which China will provide Petrobras with $10 billion in financing in exchange for guaranteed oil deliveries of 150,000 barrels per day (bdp) in 2009 and 200,000 bpd for the next decade.85 Brazil’s stateowned National Bank of Economic and Social Development (BNDES) will provide Petrobras with an additional $12.5 billion over 20 years.86 Trade Issues Trade issues are central to the bilateral relationship between Brazil and the United States, with both countries being heavily involved in subregional, regional, and global trade talks. Brazil has sought to strengthen Mercosur and to establish free trade agreements with most of the countries in South America, while also pursuing efforts to negotiate a Mercosur-European Union free trade agreement. The United States has been actively involved in the Doha negotiations and, until late 2005, pressed for action on the region-wide Free Trade Agreement of the Americas (FTAA). Since negotiations for the FTAA have been largely abandoned, the United States has continued to sign bilateral and subregional agreements with countries throughout Latin America. Bilateral trade between the United States and Brazil totaled $46.2 billion in 2009, a nearly 23% decline from 2008. U.S. exports to Brazil amounted to $26.2 billion while U.S. imports from Brazil amounted to $20.1 billion. 87 Doha Round of the World Trade Organization Talks 88 Brazil has had a leading role in the Doha round of the World Trade Organization (WTO) talks. In 2003, Brazil led the G-20 group of developing countries’ efforts to insist that developed countries agree to reduce and eventually eliminate agricultural subsidies as part of any settlement. In late July 2004, WTO members agreed on the framework for a possible Doha round agreement, but formal talks were suspended indefinitely in July 2006 after key negotiating groups failed to break a deadlock on the issue of agricultural tariffs and subsidies. In June 2007, negotiators from India 81 “Brazil needs $270 bln over 10-yrs for deepwater oil,” Reuters, March 19, 2009. 82 “Brazil’s Golden Times Start to Roll,” Latin News Daily, September 3, 2008; “Hydrocarbons Potential Poses Major Challenges,” Oxford Analytica, November, 20, 2007. 83 Export-Import Bank of the United States, Summary of Minutes of Board of Directors, April 14, 2009. 84 “Brazil: U.S.-Chinese Competition in Latin America,” Stratfor, August 12, 2009. 85 “Brazil: Da Silva Goes to China,” Stratfor, May 19, 2009. 86 “China’s Sinopec negotiating first oil exploration deal in Brazil,” EFE News Service, June 29, 2009. 87 U.S. Department of Commerce statistics, as presented by Global Trade Atlas, February 2010. 88 For more information on the Doha Round, see CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F. Fergusson. Congressional Research Service 16 Brazil-U.S. Relations and Brazil walked out of a round of informal talks with representatives from the United States and the European Union (EU), refusing to open their markets further unless U.S. and EU subsidies were substantially reduced. In recent years, trade ministers have repeatedly failed to reach an agreement to conclude the Doha round and the U.S. negotiating position remains a source of contention with Brazil. 89 World Trade Organization Dispute90 On December 21, 2009, Brazil announced that the WTO had authorized the country to impose trade retaliation measures worth $829.3 million in 2010 as a result of a nearly decade long dispute over U.S. cotton subsidies. Although Brazil has not yet finalized its decision to impose retaliatory measures, it has indicated that it may levy duties of up to 100% on a preliminary list of 222 goods of U.S. origin valued at $561 million and implement cross-retaliation in sectors outside the trade in goods—such as U.S. copyrights and patents—for the remaining $268.3 million.91 Brazil initiated the dispute with the United States in 2002, and a WTO dispute settlement panel ruled in Brazil’s favor in September 2004. The United States appealed the ruling but it was reaffirmed by the WTO appellate body in March 2005. Although the Bush Administration asked Congress to modify the cotton subsidy program in July 2005, a WTO dispute panel ruled in December 2007 that the United States was not moving quickly enough to comply with the 2004 ruling. 92 Brazil and the United States then went to arbitration over the level of trade sanctions Brazil has the right to impose against the United States, leading to an August 31, 2009 decision by a WTO arbitration panel, which largely favored Brazil’s retaliation request. Generalized System of Preferences 93 The Generalized System of Preferences (GSP) provides duty-free tariff treatment to certain products imported from developing countries. In the 109th Congress, renewal of the preference (as established by Title V of the Trade Act of 1974) was somewhat controversial, owing, in part, to concerns of some Members that a number of the more advanced developing countries (such as Brazil and India) were contributing to the impasse in the Doha round of WTO talks. Compromise language worked out between the House and Senate extended GSP for two years for all countries, while asserting that the President “should” revoke “competitive need limitation (CNL)” waivers for products from certain countries, based on the criteria specified. In June 2007, the Bush Administration decided to revoke the CNL waivers on Brazilian brake parts and ferrozirconium. 94 The 111th Congress extended GSP until December 31, 2010 with P.L. 111-124. 89 “Uncertainty Lies Ahead for WTO,” Oxford Analytica. July 31, 2008; “Brazil-US rows building over Colombia, biofuels, trade: FM,” Agence France Presse, August 2, 2009. 90 For more information on U.S.-Brazil WTO disputes, see CRS Report RL32571, Brazil’s WTO Case Against the U.S. Cotton Program and CRS Report RL34351, Brazil’s and Canada’s WTO Cases Against U.S. Agricultural Direct Payments, by Randy Schnepf. 91 BNA, International Trade Reporter, "Brazil Says Entitled to Impose $829 Million in Annual Sanctions on U.S. in Cotton Case," December 24, 2009. 92 “WTO Tells U.S. to Act on Illegal Cotton Subsidies,” Financial Times, December 19, 2007. 93 This section was drawn from CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by Vivian C. Jones. 94 “USTR Revokes GSP Waivers for India, Brazil Despite Rangel Objections,” Inside U.S. Trade, June 29, 2007. Congressional Research Service 17 Brazil-U.S. Relations On June 4, 2009, H.R. 2702 (C. Smith) was introduced in the House. The bill would suspend GSP for Brazil until the country meets its obligations under the Convention on the Civil Aspects of International Child Abduction. Intellectual Property Rights In the last few years, Brazil has taken steps to improve its record on protecting intellectual property rights (IPR). The Brazilian government has created a national action plan to address piracy and intellectual property crimes, which has included increased police actions. Brazil and the United States continue to work together to address intellectual property issues, primarily through the U.S.-Brazil Bilateral Consultative Mechanism and the U.S.-Brazil Commercial Dialogue. In recognition of this progress, the United States Trade Representative lowered Brazil from the Priority Watch List of countries with significant IPR violations to the Watch List in 2007. Brazil remained on the Watch List in 2008 and 2009. In order to build on progress that has been made, USTR recommends that Brazil should consider strengthening its IPR enforcement legislation, more vigorously addressing book and internet piracy, and signing the World Intellectual Property Organization Internet Treaties.95 The U.S. government has also expressed concerns about Brazil’s periodic threats to issue compulsory licenses for patented pharmaceutical products. In May 2007, Brazil broke a patent on a drug used to treat HIV/AIDS that is produced by Merck & Co. in order to import a cheaper version of that drug from India.96 In July 2009, President Lula suggested that developing countries should be allowed to lift patent rights to produce more vaccine to battle the A(H1N1) flu epidemic.97 Human Rights The U.S. State Department’s Country Report on Human Rights on Brazil covering 2008 states that while “the federal government generally respected the human rights of its citizens ... there continued to be numerous, serious abuses, and the records of several state governments were poor.” Some human rights issues of particular concern include ongoing crime and human rights abuses by police, race and discrimination, and trafficking in persons. Violent Crime and Human Rights Abuses by Police Most observers agree that the related problems of urban crime, drugs, and violence, on the one hand, and corruption and brutality in law enforcement and prisons, on the other, are threatening citizens’ security in Brazil. Crime is most rampant in the urban shanty towns (favelas) in Rio de Janeiro and São Paulo. Violence has traditionally been linked to turf wars being waged between rival drug gangs for control of the drug industry or to clashes between drug gangs and police officials, who have been criticized for the brutal manner in which they have responded to the gang violence. The weaknesses in Brazil’s criminal justice system have became dramatically apparent in recent years as gangs have launched violent attacks that have destabilized the cities of São Paulo and 95 U.S. Trade Representative, “Special 301 Report,” April 30, 2009. “Haggling Saves Brazil $1 Billion on AIDS Drugs,” Reuters News, November 13, 2007. 97 “Update: Argentina, Brazil Question Swine Flu Vaccine Patents,” CNN Money, July 24, 2009. 96 Congressional Research Service 18 Brazil-U.S. Relations Rio de Janeiro. In one such attack in May 2006, street combat and rioting organized by a prisonbased gang network, the First Capital Command (PCC), paralyzed the city of São Paulo for several days. 98 Officially, the violent gang attacks, which were followed by police reprisals, resulted in at least 186 deaths.99 More recently, in October 2009, gunmen of the Red Command (CV) launched a raid on the Morro dos Macacos favela to wrest control of the drug trade from the rival Friends of Friends gang. Over the course of several days, 31 people were killed, including three police sharpshooters whose helicopter was shot down as they tried to control the situation.100 As police forces in São Paulo and Rio de Janeiro have employed strong-arm tactics in hopes of curbing the rampant gang violence, some human rights groups have raised concerns over a rising number of extrajudicial killings. Upon completing a November 2007 visit to Brazil, a U.N. Special Rapporteur concluded that police in Brazil are allowed to “kill with impunity in the name of security.”101 Indeed, more than 11,000 people have been killed by the two police forces since 2003. Although the officers involved have reported nearly all of the killings as legitimate acts of self defense, or “resistance killings,” a recent two year investigation by Human Rights Watch concluded that “a substantial portion of the alleged resistance killings reported...[were] in fact extrajudicial executions.” The Human Rights Watch report also indicates that those police officers responsible for extrajudicial killings enjoy near total impunity. For example, of the over 7,800 complaints against police officers recorded by the Rio Police Ombudsman’s Office over the past decade, only 42 generated criminal charges by state prosecutors and just four led to convictions. 102 Despite these criticisms, some have defended the strong-arm tactics. São Paulo’s public security secretariat maintains that Human Rights Watch failed to take note of the fact that annual state killings by police have declined by 50% since 2003 while the homicide rate has been reduced by 70% over the past decade.103 Many analysts have asserted that Brazilian politicians at all levels of government have failed to devote the resources and political will necessary to confront the country’s serious public security problems, however, this may be changing. The state of Rio de Janeiro launched a new anticrime initiative in 2009 that considerably expands the number of personnel charged with maintaining security. Whereas previous police efforts generally centered around quick raids, the new initiative establishes Police Pacification Units (UPPs) that will maintain permanent presences in the favelas. After the favelas are cleared of drug gangs, the UPPs are charged with maintaining security and other governmental institutions are brought in to provide basic social services. The new initiative has been rather successful in reducing crime and violence without extensive 98 Formed in 1993 to protest the country’s poor prison conditions, the PCC now has at least 6,000 dues-paying members and reportedly exerts control over more than 140,000 prisoners in the São Paulo prison system. Stephen Hanson, “Brazil’s Powerful Prison Gang,” Council on Foreign Relations, September 26, 2006. 99 “Brazil: Battle of São Paulo Leaves a Disquieting Balance,” Latin American Weekly Report, May 23, 2006; “Police are Criticized in Wave of Gang Violence in Brazil,” New York Times, May 30, 2006; “Attacks in São Paulo Prompt Fears of Renewed Gang Offensive,” EFE News Service, February 7. 2007. 100 “Brazil: Rio police intervention in gang war leaves high toll,” Latin America Security & Strategic Review, October 2009. 101 “Special Rapporteur on Extrajudicial, Summary, or Arbitrary Executions Concludes Visit to Brazil,” States News Service, November 15, 2007. 102 “Lethal Force: Police Violence and Public Security in Rio de Janeiro and São Paulo,” Human Rights Watch, December 2009. 103 “Human Rights: Police violence under renewed scrutiny,” Latin American Regional Report: Brazil & Southern Cone, January 2010. Congressional Research Service 19 Brazil-U.S. Relations bloodshed. Rio de Janeiro’s government intends to expand the initiative from the seven pilot favelas targeted in 2009 to 40 additional favelas in 2010.104 Race and Discrimination 105 People of African descent in Brazil, also known as Afro-Brazilians, represent 45% of the country’s population, but constitute 64% of the poor and 69% of the extreme poor.106 During the Cardoso Administration, the Brazilian government began to collect better official statistics on Afro-Brazilians. These statistics found significant education, health, and wage disparities between Afro-Brazilians and Brazil’s general population. Brazil now has the most extensive anti-discrimination legislation geared towards Afrodescendants of any country in Latin America. In 2001, Brazil became the first Latin American country to endorse quotas in order to increase minority representation in government service. Since 2002, several state universities in Brazil have enacted quotas setting aside admission slots for black students. Although most Brazilians favor government programs to combat social exclusion, they disagree as to whether the beneficiaries of affirmative action programs should be selected on the basis of race or income. 107 In 2003, Brazil became the first country in the world to establish a Special Secretariat with a ministerial rank to manage Racial Equity Promotion Policies. Afro-Brazilian activists, while acknowledging recent government efforts on behalf of Afro-descendants, have noted that most universities have preferred not to implement quota systems, and that the Special Secretariat lacks the funding, staff, and clout necessary to advance its initiatives. 108 Despite these limitations, Brazil has taken a leadership role in advancing issues of race and discrimination within the Organization of American States, where it is leading the drafting of an Inter-American Convention for the Prevention of Racism and All Forms of Discrimination and Intolerance. In March 2008, Brazil and the Untied States signed an agreement known as the United States-Brazil Joint Action Plan Against Racial Discrimination to bilaterally promote racial equality in areas such as education, health, housing, and labor.109 On September 9, 2008, the House passed H.Res. 1254 (Engel), expressing congressional support for the U.S.-Brazil antidiscrimination plan. Trafficking in Persons for Forced Labor 110 According to the U.S. State Department’s Trafficking in Persons report, Brazil does not fully comply with the minimum standards for the elimination of trafficking, but is making significant 104 “Brazil: Forty Rio favelas targeted for ‘pacification,’” Latin American Security & Strategic Review, January 2010. For more information, see CRS Report RL32713, Afro-Latinos in Latin America and Considerations for U.S. Policy, by Clare Ribando Seelke and June S. Beittel. 106 Ricard Henriques, “Desigualdade racial no Brasil,” Brasilia: Instituto de Pesquisa Econômica Aplicada (IPEA), 2001 107 Livio Sansone, “Anti-Racism in Brazil,” NACLA Report on the Americas, September 1, 2004. 108 Dayanne Mikevis and Matthew Flynn, “Brazil’s Civil Rights Activists Achieving Overdue Policy Reform,” Citizen Action in the Americas, No. 17, April 2005. 109 “Partnering with U.S. to Fight Racial Bias,” Miami Herald, September 8, 2008. 110 For more information, see CRS Report RL33200, Trafficking in Persons in Latin America and the Caribbean, by Clare Ribando Seelke. 105 Congressional Research Service 20 Brazil-U.S. Relations efforts to do so. As a result, it is listed as a Tier 2 country.111 Brazil is a source, transit, and destination country for people, especially women and children, trafficked for commercial sexual exploitation. Brazilian Federal Police estimate that between 250,000 and 400,000 children are exploited in domestic prostitution, especially in the country’s coastal resort areas where child sex tourism is prevalent. Brazil is also a source country for men trafficked internally for forced labor. More than 25,000 men have reportedly been recruited to labor in slave-like conditions, many in the country’s agribusiness industry. Roughly half of the more than 11,000 people freed from debt slavery in 2007 and 2008 were found working on sugarcane plantations.112 While the Brazilian government announced an agreement with the sugar industry to provide decent working conditions for the country’s sugarcane cutters in June 2009, the accord does not establish minimum wages or formal obligations.113 Reports suggest that significant numbers of men working in cattle ranching, mining, and the production of charcoal for pig iron—a key ingredient of steel that is then purchased by major companies in the United States—are also subjected to slave labor.114 Over the past year, the Brazilian government has taken a number of actions to address the problem of human trafficking. Anti-slave labor mobile units under the Ministry of Labor increased their operations, inspecting remote areas, freeing victims, and forcing those responsible to pay fines and restitution. Slave labor victims received some $3.6 million in compensation as a result of the 2008 operations. The Brazilian government also continued prosecuting traffickers, providing assistance to victims, and broadcasting its anti-trafficking public awareness campaign. Additionally, the Brazilian government began implementing a national plan of action to prevent trafficking in persons. Despite these actions, Brazil has made only limited progress in bringing traffickers to justice and effectively penalizing those who exploit forced labor. 115 Convention on the Civil Aspects of International Child Abduction Over the past several years, a high-profile child custody case has focused attention on Brazil’s noncompliance with the Hague Convention on the Civil Aspects of International Child Abduction. 116 In June 2004, Sean Goldman was taken to Brazil by his mother, Bruna Bianchi 111 Since 2001, the U.S. State Department has evaluated foreign governments’ efforts to combat trafficking in persons in its annual Trafficking in Persons (TIP) reports, which are issued each June. Countries are grouped into four categories according to the U.S. assessment of efforts they are making to combat trafficking. Tier 1 is made up of countries deemed by the State Department to have a serious trafficking problem but fully complying with the minimum standards for the elimination of trafficking. Those standards are defined in the Victims of Trafficking and Violence Protection Act of 2000 (P.L. 106-386) as amended. Tier 2 is composed of governments not fully complying with those standards but which are seen as making significant efforts to comply. Tier 2 Watch List, first added as a category in the 2004 report, is made up of countries that are on the border between Tier 2 and Tier 3. Tier 3 includes those countries whose governments the State Department deems as not fully complying with TVPA’s anti-TIP standards and not making significant efforts to do so. Tier 3 countries have been made subject to U.S. sanctions since 2003. 112 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, “Trafficking in Persons Report,” June 4, 2008 & June 16, 2009. 113 “Brazil seeks decent working conditions for sugarcane cutters,” EFE News Service, June 26, 2009. 114 Michael Smith and David Voreacos, “The Secret World of Modern Slavery,” Bloomberg Markets, December 2006; U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, “Trafficking in Persons Report,” June 16, 2009. 115 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, “Trafficking in Persons Report,” June 16, 2009. 116 For more information on international parental child abductions, see CRS Report RS21261, International Parental (continued...) Congressional Research Service 21 Brazil-U.S. Relations Carneiro Ribeiro Goldman, a Brazilian native. Ms. Bianchi then divorced her husband David Goldman—a U.S. citizen—and asserted full custody of Sean. In August 2004, the Superior Court of New Jersey ruled that Ms. Bianchi’s continued retention of Sean constituted parental kidnapping under U.S. law and awarded Mr. Goldman custody.117 In September 2004, Mr. Goldman filed an application for Sean’s return under the 1980 Hague Convention on the Civil Aspects of International Child Abduction, to which both the United States and Brazil are party and which entered into force between the countries on December 1, 2003. Under the Convention, a child removed from a country in violation of a parent’s custodial rights should be promptly returned to the place of his or her habitual residence. The courts of the country of the child’s residence can then resolve the custody dispute. 118 In 2005, a Brazilian federal judge ruled that although Sean had been moved to Brazil wrongfully, he should remain in Brazil because he had become settled in his new location. 119 In August 2008, Ms. Bianchi died and a Brazilian state court judge granted temporary custody of Sean to the man Ms. Bianchi married following her move to Brazil, Joao Paulo Lins e Silva.120 The custody case then bounced between federal appeals courts and the Brazilian Supreme Court until December 22, 2009, when the Brazilian Supreme Court issued a definitive ruling that ordered that Sean be returned to his father. On December 24, 2009, Sean was handed over to Mr. Goldman at the U.S. Consulate in Rio de Janeiro.121 The U.S. State Department’s Report on Compliance with the Hague Convention on the Civil Aspects of International Child Abduction cites Brazil for patterns of noncompliance with the Convention. It faults Brazilian courts for treating Convention cases as custody decisions, demonstrating bias toward Brazilian citizens, and making the judicial process excessively lengthy. There are currently some 50 unresolved cases of children being retained in Brazil after having been wrongly removed from the United States.122 On March 11, 2009, the House unanimously passed H.Res. 125 (C. Smith), calling on Brazil to meet its obligations under the Hague Convention to return Sean Goldman to his father in the United States. On March 24, 2009, the Senate approved S.Res. 37 (Lautenberg) by unanimous consent, calling on Brazil to comply with the requirements of the Convention on the Civil Aspects of International Child Abduction and to assist in the safe return of Sean Goldman to his father in the United States. On June 4, 2009, H.R. 2702 (C. Smith) was introduced in the House. The bill (...continued) Child Abductions, by Alison M. Smith. 117 David G. Goldman V. Bruna B. Goldman, FD-13-395-05C (Superior Court of New Jersey 2004). 118 Hague Conference on Private International Law: Final Act, Draft Conventions on Civil Aspects of International Child Abduction and on International Access to Justice, Articles on the Law Applicable to Certain Consumer Sales, and Recommendations and Decisions of the Conference, Oct. 25, 1980, 19 I.L.M. 1501 (1980). 119 Under Article 12 of the Hague Convention, a judge may refuse to return a child if the child has become settled in his or her new home and more than one year has passed from the date of the child’s removal. 120 Joshua Partlow, “Fight for 8-Year-Old Colors Relationship Between U.S., Brazil,” Washington Post Foreign Service, March 13, 2009; Kirk Semple, “Court Battle Over a Child Strains Ties in 2 Nations,” New York Times, February 25, 2009. 121 Marcelo Soares & Chris Kraul, “Boy leaves brazil with his father: The long custody battle over Sean Goldman had strained U.S.-Brazil relations,” Los Angeles Times, December 25, 2009. 122 Kirk Semple, “Court Battle Over a Child Strains Ties in 2 Nations,” New York Times, February 25, 2009. Congressional Research Service 22 Brazil-U.S. Relations would suspend the Generalized System of Preferences for Brazil until the country meets its obligations under the Convention on the Civil Aspects of International Child Abduction. HIV/AIDS Internationally recognized as having one of the world’s most successful HIV/AIDS programs, Brazil has made the fight against the spread of HIV/AIDS a national priority. Initially focused on disease prevention, Brazil’s HIV/AIDS program expanded to providing antiretroviral therapy (ART) on a limited basis by 1991, and later guaranteeing universal access by 1996. Currently some 172,000 Brazilians have access to free generic versions of ART drugs, some of which are locally produced and financed by the Brazilian government. The incidence of HIV/AIDS in Brazil has stabilized since 1997, and universal free access to ART has increased average survival times from 18 months for those diagnosed in 1995, to 58 months for those diagnosed in 1996.123 HIV prevalence has been stable at 0.5% for the general population in Brazil since 2000, so most government prevention efforts are now targeted at high-risk groups where prevalence rates are still above 5%. Brazil’s decision to develop generic ART drugs to treat HIV/AIDS under the compulsory licensing provision of its patent law led to a subsequent 80% drop in the cost of treatment. That decision brought Brazil into conflict with the United States and the international pharmaceutical industry. In May 2001, the United States submitted a complaint to the WTO, which was later withdrawn, that Brazil’s practices violated the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and prevented companies from developing new products in Brazil. While the pharmaceutical industry argued that TRIPS was an essential tool to protect intellectual property rights, developing countries (like Brazil) countered that TRIPS inhibited their ability to fight public health emergencies in a cost-effective manner. In August 2003, a WTO decision temporarily waived part of the TRIPS rules to allow the export of generic drugs to countries confronting a grave public health challenge (such as HIV/AIDS, tuberculosis, or malaria). That temporary waiver became permanent in late 2005.124 Brazil currently manufactures older ART drugs for domestic consumption and export to several African countries but has to import newer medicines. According to Brazil’s Ministry of Health, tough negotiations with pharmaceutical companies have resulted in $1.1 billion in savings for the country’s HIV/AIDS program. Amazon Conservation The Amazon basin spans the borders of eight countries and is the most biodiverse tract of tropical rainforest in the world. It holds 20% of the Earth’s fresh water and 10% of all known species. Approximately 60% of the Amazon falls within Brazilian borders, making Brazil home to 40% of the world’s remaining tropical forests.125 123 Daniel R. Hogan and Joshua A. Salomon, “Prevention and Treatment of HIV/AIDS in Resource-Limited Settings,” World Health Organization, February 2005. 124 Mary Anastasia O’Grady, “Brazil Could Turn a Trade Victory into Defeat,” Wall Street Journal, December 16, 2005. 125 Lesley K. McAllister, “Sustainable Consumption Governance in the Amazon,” Environmental Law Reporter, December 2008; “Amazon: World’s largest tropical rainforest and river basin,” World Wildlife Fund, 2009. Congressional Research Service 23 Brazil-U.S. Relations The Brazilian Amazon was largely undeveloped until the 1960s, when the military government began subsidizing the settlement and development of the region as a matter of national security. Over the last 40 years, the human population has grown from 4 million to over 20 million, and the resulting settlements, roads, logging, cattle ranching, and subsistence and commercial agriculture have led to approximately 15% of the Brazilian Amazon being deforested. 126 In the 1980s, some predicted that deforestation would decline if the Brazilian government stopped providing tax incentives and credit subsidies to settlers and agricultural producers. Those predictions have not borne out, however, as the complex and often interrelated causes of deforestation have multiplied rather than decreased. 127 Between 1990 and 2000, Brazil lost an area of rainforest twice the size of Portugal, however, deforestation rates have generally declined since the peak year of 2004.128 Domestic Efforts Recognizing that deforestation threatens the biodiversity of the Amazon region and is responsible for 70% of Brazil’s annual greenhouse-gas emissions, the Lula Administration has expanded protected areas and implemented new environmental policies.129 During its first five years in office, the Lula Administration created 62 new natural reserves, bringing the total area of the Brazilian Amazon protected by law to nearly 110,000 square miles, the fourth-largest percentage of protected area in relation to territory in the world.130 President Lula has also signed a Public Forest Management Law that encourages sustainable development and placed a moratorium on soybean plantings and cattle ranching in the Amazon. Moreover, Brazil intends to reduce the rate of Amazon deforestation by half—based on the 1996-2005 average—to 2,300 square miles per year—by 2017 and reduce Amazon deforestation by 80% by 2020. Brazil plans to meet these goals by increasing federal patrols of forested areas, replanting over 21,000 square miles of forest, and financing sustainable development projects in areas where the local economy depends on logging. 131 The Lula Administration maintains that its efforts have been successful, highlighting the fact that just 2,706 square miles of the Amazon were deforested between July 2008 and July 2009, the lowest annual level since the National Institute for Space Studies began monitoring deforestation in 1988.132 Although some conservation groups have praised President Lula for his Administration’s actions, a number of environmentalists—including former Environment Minister Marina Silva and current Environment Minister Carlos Minc—have questioned the Administration’s commitment to sustainable development.133 Critics assert that the Administration favors agricultural interests over 126 Lesley K. McAllister, “Sustainable Consumption Governance in the Amazon,” Environmental Law Reporter, December 2008. 127 Some have suggested that access to pristine tracts of rainforests through roads is the primary driver of deforestation in the Amazon. Regional roads constructed by the government, as well as local roads created by logging operations, provide access to forested areas. Using these roads, farmers clear remaining forests and practice slash and burn agriculture until the land loses much of its soil fertility and it becomes more profitable to move to other forested tracts rather than resuscitate existing lands. After agriculture, pasture grasses are generally planted and cattle are raised. Eventually, cattle grazing and cyclical burning alter the ecosystem to the point that forests cannot regenerate. 128 “Government Sets Targets to Cut Deforestation,” Latin American Regional Report, December 2008. 129 “Brazil: The Land Cries for Amazonia,” Latin America Data Base NotiSur, February 13, 2009. 130 “Brazil: Government policy for Amazon still ambiguous,” Latin News Weekly Report, May 22, 2008. 131 “Government Sets Targets to Cut Deforestation,” Latin American Regional Report, December 2008; “Brazil: Climate credentials to the fore in Copenhagen,” Oxford Analytica, November 19, 2009. 132 “Brazil says Amazon deforestation slowest in 21 years,” Reuters, November 12, 2009. 133 Joshua Partlow, “Brazil’s Decision to Reduce Deforestation Praised,” Pittsburgh Post-Gazette, December 7, 2008; (continued...) Congressional Research Service 24 Brazil-U.S. Relations conservation. This claim was reinforced by President Lula’s June 2009 approval of an environmental law that grants nearly 260,000 square miles of the Amazon to illegal squatters, 72% of which will go to large land holders.134 Critics also maintain that Brazil’s occasional declines in deforestation rates are not the result of the Lula Administration’s initiatives, but correspond to declining global commodity prices that make it less profitable to clear the forests. They point out that deforestation rates only began falling as commodity prices collapsed in late 2008.135 In order to combat further deforestation, some analysts maintain that the Brazilian government will have to greatly increase the number of people employed to work in protected areas and do more to confront agricultural producers operating within the Amazon. 136 Carbon Offsets and Other International Initiatives The Amazon holds 10% of the carbon stores in the world’s ecosystem and absorbs nearly two billion tons of carbon dioxide each year, making it a sink for global carbon emissions and an important asset in the prevention of climate change.137 The Kyoto Protocol—of which Brazil is a signatory—created a Clean Development Mechanism (CDM), which allows emission reduction projects in developing countries to earn certified emission reduction credits (CERs) that can then be traded or sold to industrialized countries to meet their mandated emission reduction targets. Brazil has taken full advantage of the CDM, and is host to over 9% of the worldwide emission reduction projects. These projects represent 33.5 million CERs, or a reduction of 33.5 million tons of carbon dioxide. 138 The CDM allows for a wide variety of emission reduction projects, but in terms of forestry, CERs are only awarded for afforestation and reforestation projects, not forest conservation. As a result, forestry projects account for a very small percentage of the total CERs awarded. A number of industrialized countries that would like to achieve a greater percentage of their mandated emission reductions through carbon offsets have teamed with developing countries with substantial tropical forests to propose widening the CDM to include forest conservation. Brazil has opposed such a plan, arguing it would absolve rich countries from cutting their own emissions. 139 Brazil has supported the rise of voluntary offset markets, however, in which organizations and individuals not subject to mandatory emission reductions can buy carbon offsets to contribute to conservation and clean energy projects. Brazil believes Amazon conservation should be done through public funding rather than a carbon market. Accordingly, it launched the “Amazon Fund” in August 2008. The fund is intended to attract donations from countries, companies, and non-governmental organizations to assist in Brazil’s Amazon conservation efforts. Brazil intends to raise $21 billion by 2021 to support forest conservation, scientific research, and sustainable development. Norway has pledged $1 billion to (...continued) Ana Paula Paiva, “Brazil environment minister says lacks support,” Reuters, May 28, 2009. 134 Jose Pedro Martins, “Brazil: Environmentalists and Church Protest Legalization of Fraudulently Obtained Lands in the Amazon,” Latin America Data Base NotiSur, June 25, 2009. 135 Raymond Colitt, “Brazil on target in slowing Amazon deforestation,” Reuters, June 2, 2009. 136 Ibid; Joshua Partlow, “A Protected Forest’s Fast Decline,” Washington Post, February 6, 2009. 137 “Brazil: Global warming risks threaten Amazonia,” Oxford Analytica, March 16, 2009; Conor Foley, “The End of the Amazon?,” Foreign Policy, June 2009. 138 United Nations Framework Convention on Climate Change, “CDM Statistics,” August 2009. 139 “Rich, poor in dispute over rainforest cash,” Reuters, December 4, 2008. For more information on Forest Carbon Markets, see CRS Report RL34560, Forest Carbon Markets: Potential and Drawbacks, by Ross W. Gorte and Jonathan L. Ramseur. Congressional Research Service 25 Brazil-U.S. Relations the fund through 2015 and Germany has pledged $26.8 million. The first projects funded by the Amazon Fund were announced in December 2009. They include projects to regenerate degraded land, monitor land registration titles, and pay rubber tappers and other forest dwellers to protect the forest.140 USAID environment programs support Amazon conservation through the promotion of proper land-use and encouragement of environmentally friendly income generation activities for the rural poor. In FY2006, USAID initiated the Amazon Basin Conservation Initiative, which supports community groups, governments, and public and private organizations working throughout the Amazon Basin in their efforts to conserve the Amazon’s globally important biodiversity. USAID provided $5.2 million for environmental programs in Brazil in FY2007, $9.5 million in FY2008, and $10 million in FY2009. The Conference Report (H.Rept. 111-366) to the FY2010 Consolidated Appropriations Act (P.L. 111-117) asserts that, of the funds appropriated in the act for biodiversity programs, $25 million are to go to the Amazon Basin Conservation Initiative, $10 million of which is directed to activities in Brazil. 140 “Brazil unveils first foreign-funded Amazon projects,” Reuters, December 4, 2009. Congressional Research Service 26 Brazil-U.S. Relations Appendix. Map of Brazil Figure A-1. Map of Brazil Source: Map Resources. Adapted by CRS Graphics. Congressional Research Service 27 Brazil-U.S. Relations Author Contact Information Peter J. Meyer Analyst in Latin American Affairs pmeyer@crs.loc.gov, 7-5474 Acknowledgments Clare Ribando Seelke, Specialist in Latin American Affairs, contributed to this report. Congressional Research Service 28February 9, 2011 Congressional Research Service 7-5700 www.crs.gov RL33456 CRS Report for Congress Prepared for Members and Committees of Congress Brazil-U.S. Relations Summary As its economy has grown to be the eighth largest in the world, Brazil has consolidated its power in South America, extended its influence to the broader region, and become increasingly prominent on the world stage. The Obama Administration’s national security strategy regards Brazil as an emerging center of influence, whose leadership it welcomes “to pursue progress on bilateral, hemispheric, and global issues.” In recent years, U.S.-Brazil relations have generally been positive despite Brazil’s prioritization of strengthening relations with neighboring countries and expanding ties with nontraditional partners in the “developing South.” Although some disagreements have emerged over the past two years—such as different policy approaches toward the situations in Honduras and Iran—Brazil and the United States continue to engage on a number of issues, including counternarcotics, counterterrorism, energy security, trade, human rights, and the environment. Dilma Rousseff of the ruling center-left Workers’ Party (Partido dos Trabalhadores, PT) was inaugurated to a four-year presidential term on January 1, 2011. She is Brazil’s first female president. Rousseff inherits a country that has benefited from what many analysts consider 16 years of stable and capable governance under Presidents Cardoso (1995-2002) and Lula (20032010). She has pledged continuity, maintaining generally orthodox economic policies while continuing to assert a role for the state in development. Her 10-party electoral coalition holds significant majorities in both houses of Brazil’s legislature. Although this legislative strength should enable Rousseff to pursue her agenda, keeping the unwieldy coalition together will likely prove challenging. Additional challenges for the Rousseff Administration include strengthening public security, improving the quality of government services, and addressing the country’s overburdened infrastructure. With a gross national income (GNI) of $1.6 trillion, Brazil is the largest economy in Latin America. Over the past eight years, the country has enjoyed average annual growth of over 4%. This growth has been driven by a boom in international demand for its commodity exports and the increased purchasing power of Brazil’s fast-growing middle class, which has added 30 million people over the past eight years and now accounts for a majority of the population. In 2010, the value of Brazil’s exports reached some $202 billion, contributing to a trade surplus of $20.3 billion. The country’s current economic strength is the result of a series of policy reforms implemented over the course of two decades that reduced inflation, established stability, and fostered growth. These policies have also enabled Brazil to better absorb international shocks like the recent global financial crisis, from which Brazil emerged relatively unscathed. Although current conditions and Brazil’s recent performance suggest the country will sustain solid economic growth rates in the near term, several constraints on mid- and long-term growth remain. Previous Congresses have demonstrated considerable interest in U.S.-Brazil relations, particularly energy and trade issues. Several pieces of legislation were introduced during the 111th Congress, including a bill (S. 587) that would have provided $6 million to expand U.S.-Brazil biofuels cooperation, and a bill (H.R. 5439) that would have offset U.S. contributions to a fund for Brazilian cotton farmers—created as a result of a World Trade Organization dispute—by reducing subsidy payments for U.S. cotton farmers. These issues, as well as other topics in U.S.-Brazil relations, are likely to remain on the agenda of the 112th Congress. This report analyzes Brazil’s political, economic, and social conditions, and how those conditions affect its role in the world and its relationship with the United States. Congressional Research Service Brazil-U.S. Relations Contents Background ................................................................................................................................1 Political Situation........................................................................................................................3 The Lula Administration (2003-2010) ...................................................................................3 2010 Elections ......................................................................................................................4 Prospects for the Rousseff Administration .............................................................................5 Economic Conditions ..................................................................................................................6 Background on Reform and Stabilization ..............................................................................7 Global Financial Crisis..........................................................................................................8 Potential Constraints on Growth............................................................................................9 Social Indicators ...................................................................................................................9 Foreign Policy........................................................................................................................... 10 Regional Policy................................................................................................................... 11 South American Integration........................................................................................... 11 Expansion of Influence into Central America and the Caribbean.................................... 13 Emerging Global Role......................................................................................................... 13 South-South Ties........................................................................................................... 14 Democratization of Global Governance......................................................................... 15 Relations with the United States ................................................................................................ 16 Selected Issues in U.S.-Brazil Relations .................................................................................... 17 Counternarcotics ................................................................................................................. 17 Counterterrorism and the Tri-Border Area ........................................................................... 18 Energy Security .................................................................................................................. 19 Ethanol and Other Biofuels ........................................................................................... 19 Nuclear Energy ............................................................................................................. 20 Oil ................................................................................................................................ 21 Trade Issues ........................................................................................................................ 22 Doha Round of the World Trade Organization Talks ..................................................... 22 World Trade Organization Cotton Dispute ..................................................................... 23 Intellectual Property Rights ........................................................................................... 23 Human Rights ..................................................................................................................... 24 Violent Crime and Human Rights Abuses by Police....................................................... 24 Race and Discrimination ............................................................................................... 26 Trafficking in Persons for Forced Labor ........................................................................ 27 Amazon Conservation......................................................................................................... 28 Domestic Efforts ........................................................................................................... 29 International Initiatives ................................................................................................. 30 Figures Figure 1. Map of Brazil ...............................................................................................................2 Congressional Research Service Brazil-U.S. Relations Contacts Author Contact Information ...................................................................................................... 31 Acknowledgments .................................................................................................................... 31 Congressional Research Service Brazil-U.S. Relations Background A former Portuguese colony that achieved independence in 1822, Brazil occupies almost half of the continent of South America and boasts immense biodiversity—including 60% of the Amazon rainforest—and significant natural resources. The country’s federal structure, comprising 26 states, a Federal District, and some 5,581 municipalities, evolved from the decentralized colonial structure devised by the Portuguese in an attempt to control Brazil’s sizable territory. Brazil is the fifth-most populous country in the world with 201 million citizens, primarily of European, African, or mixed descent.1 With a gross national income (GNI) of $1.6 trillion in 2009, Brazil’s diversified economy is the eighth largest in the world and the largest in Latin America. Per capita GNI is only $8,040, however, and the country has an unequal income distribution. 2 Brazil has long held potential to become a Brazil in Brief world power, but its rise to prominence has Population: 201 Million been curtailed by setbacks, including 21 years of military rule, political instability, Ethnic Groups: African, Portuguese, Italian, German, Spanish, Japanese, Indigenous peoples, and people of Middle and uneven economic growth.3 Brazil’s Eastern descent. military governments ruled from 1964-1985 and, while repressive, were not as brutal as Religion: 74% Roman Catholic those in some other South American Official Language: Portuguese countries. Although nominally allowing the judiciary and Congress to function during its Life Expectancy: 72.6 years Literacy Rate: 88% tenure, the Brazilian military stifled representative democracy and civic action in Poverty Rate: 22.9% Brazil, carefully preserving its influence Approximate Size: Slightly Smaller than the United States during one of the most protracted transitions GNI (2009, Atlas Method): $1.6 Trillion to democracy to occur in Latin America. During the first decade after its return to GNI per Capita (2009, Atlas Method): $8,040 democracy, Brazil experienced economic Sources: State Department Background Note, Oxford recession and political uncertainty as Analytica, World Bank numerous efforts to control runaway inflation failed and two elected presidents did not complete their terms. One elected president died before taking office and the other was impeached on corruption charges. Brazil was one of the last countries in the region to move away from state-led development; significant market-oriented policies were not implemented until the administration of Fernando Henrique Cardoso (1995-2002). 1 Brazil has never had a large indigenous population. Today, Brazil’s indigenous population consists of roughly 600,000 persons, the majority of whom reside on indigenous lands in the Amazon and elsewhere. U.S. Department of State, Country Reports on Human Rights Practices 2009: Brazil, March 11, 2010. 2 World Bank, “World Development Indicators,” available at http://data.worldbank.org/data-catalog/worlddevelopment-indicators. 3 For a historical overview of Brazil’s political development, see Riordan Roett, The New Brazil (Washington, DC: Brookings Institution, 2010). Congressional Research Service 1 Brazil-U.S. Relations Cardoso, a prominent sociologist of the centrist4 Brazilian Social Democracy Party (Partido da Social Democracia Brasileira, PSDB), was elected in 1994 as a result of the success of the antiinflation “Real Plan” that he implemented as finance minister under President Itamar Franco (1992-1994). During his two terms in office, Cardoso brought inflation under control, opened the Brazilian economy to trade and investment, and furthered privatization efforts. Although Cardoso’s popularity declined considerably during his second term as Brazil dealt with a series of financial crises, most analysts credit him with laying the foundation for the macroeconomic stability that Brazil has enjoyed over the past decade. 5 Figure 1. Map of Brazil Source: Map Resources. Adapted by CRS Graphics. 4 The PSDB was founded as a center-left party by dissidents from the social democratic wing of the Party of the Brazilian Democratic Movement (Partido do Movimento Democrático Brasileiro, PMDB); however, it has steadily moved to the right since implementing market-oriented economic reforms during the Cardoso Administration. Timothy J. Power and Cesar Zucco Jr., "Estimating ideology of Brazilian legislative parties, 1990-2005," Latin American Research Review, vol. 44, no. 1, 2009. 5 Susan Kaufman Purcell and Riordan Roett, eds., Brazil Under Cardoso, Boulder, CO: Lynne Reiner Publishers, 1997; Mauricio A. Font and Anthony Peter Spanakos, Reforming Brazil, New York: Lexington Books, 2004. Congressional Research Service 2 Brazil-U.S. Relations Political Situation Dilma Rousseff of the ruling center-left6 Workers’ Party (Partido dos Trabalhadores, PT) was inaugurated to a four-year presidential term on January 1, 2011. She inherits a country that has benefited from what many analysts consider 16 years of stable and capable governance under Presidents Cardoso (1995-2002) and Lula (2003-2010), during whose administrations the foundations for the country’s current levels of economic growth and social inclusion were laid and built upon.7 Rousseff has pledged to consolidate and expand the economic and social gains made under her predecessor. Her multiparty electoral coalition—composed of 10 parties of varying sizes and ideologies—holds significant majorities in both houses of Brazil’s legislature. Although this legislative strength should enable Rousseff to pursue her policy agenda, keeping the unwieldy coalition together will likely prove challenging, especially when seeking passage of reforms that have previously stalled in Congress. Additional challenges for the Rousseff Administration include strengthening public security, improving the quality of government services, and addressing the country’s overburdened infrastructure. The Lula Administration (2003-2010) Luis Inácio Lula da Silva—known as Lula—was first elected president of Brazil in 2002. The election was Lula’s fourth attempt at the presidency as the candidate of the PT, which he helped found as a metalworker and union leader in the 1980s. Although Lula continued to advocate for stronger state support for Brazil’s poor during the campaign, he moderated his earlier leftist rhetoric and promised to maintain the fiscal and monetary policies associated with Brazil’s standing International Monetary Fund (IMF) agreements. In doing so, Lula was able to calm international investors and win over portions of the Brazilian electorate that were disenchanted by economic stagnation and high unemployment at the conclusion of President Fernando Henrique Cardoso’s eight years in power. After failing to win an absolute majority of the vote in the first round, Lula easily defeated the PSDB’s José Serra—who served in Cardoso’s cabinet—in the second round runoff election with over 61% of the vote. During his first term, President Lula maintained the market-oriented economic policies associated with his predecessor while placing a greater emphasis on reducing poverty. By the end of his term, President Cardoso had established a three-pronged macroeconomic policy consisting of a primary fiscal surplus, an inflation target, and a floating exchange rate. Lula strengthened the policy by raising the primary budget surplus, granting additional autonomy to the Central Bank, and enacting social security and tax reforms. Although the Lula Administration tightly controlled expenditures, it also reorganized and expanded some of the social programs initiated under Cardoso. One conditional cash transfer program, known as Bolsa Familia (Family Grant), provides monthly stipends to some 12.4 million poor families (49 million people) in exchange for 6 Although the PT was founded as a leftist party, it moved toward the ideological center upon taking office in 2002. Timothy J. Power and Cesar Zucco Jr., "Estimating ideology of Brazilian legislative parties, 1990-2005," Latin American Research Review, vol. 44, no. 1, 2009. 7 “Brazil’s presidential election – Lula’s legacy,” The Economist, September 30, 2010; Juan Forero, “Cardoso vs. Lula: Two Brazilian presidents vie over who turned country around,” Washington Post Foreign Service, October 30, 2010; Cristiano Romero, “O legado de Lula na economia,” Valor Online (Brazil), December 29, 2010. Congressional Research Service 3 Brazil-U.S. Relations ensuring that their children attend school and receive proper medical care.8 Lula’s agenda stalled toward the end of his first term as several top PT officials were implicated in corruption scandals. However, a congressional inquiry eventually cleared the president of any direct responsibility and Lula was elected to a second term in October 2006, defeating the PSDB’s Gerardo Alckmin in a second round runoff with 61% of the vote. After primarily focusing on economic stability during his first term, Lula established a larger role for the Brazilian state in the economy during his second term. He implemented several stimulus measures to accelerate economic growth and counteract the effects of the global financial crisis. He also expanded social programs like Bolsa Familia and launched new programs like Minha Casa, Minha Vida (My House, My Life), an attempt to increase formal housing for low-income Brazilians.9 Over the course of Lula’s eight years in office, Brazil’s per capita gross national income nearly tripled, and some 30 million people entered the middle class.10 Just before leaving office, Lula won legislative approval for a new regulatory framework that will increase the state’s role in the exploitation of Brazil’s considerable offshore oil reserves in hopes of using the resources to fuel long-term economic and social development.11 (For more information, see “Oil” below). Although some analysts have criticized Lula for allegedly protecting corrupt officials and not doing more to pass what they view as crucial political and economic reforms,12 he won the support of the vast majority of the Brazilian public during his two terms, leaving office with an 87% approval rating. 13 2010 Elections On October 31, 2010, Dilma Rousseff of the ruling center-left Workers’ Party (PT) won 56% of the vote to defeat José Serra of the centrist Brazilian Social Democracy Party (PSDB) in a second round presidential runoff election.14 The second round was necessary since Rousseff had fallen just short of an absolute majority—with 46.9% of the vote—in the first round election held on October 3, 2010.15 Given the strength of the Brazilian economy and Lula’s overwhelming popularity, both major candidates largely had promised continuity during the campaign, with 8 Some four million poor families exited the Bolsa Familia program between 2008 and 2010. 80% of those who left did so as a result of securing higher incomes and living standards and effectively graduating from the program. "Bolsa Família benefits 49 m Brazilians," Latin News Daily, June 1, 2010. 9 Andrew Downie, “Brazil’s stimulus with a ceiling (and four walls),” Time, April 22, 2009; “Brazil: Lula raises subsidies to poorest families,” Oxford Analytica, August 3, 2009; “Lula’s legacy to Brazil,” Latin American Regional Report: Brazil & Southern Cone, April 2010. 10 World Bank, “World Development Indicators,” available at http://data.worldbank.org/data-catalog/worlddevelopment-indicators; Juan Forero, “In Brazil, the ‘middle path’ helps expand the middle class,” Washington Post, January 3, 2010. 11 “Brazil congress approves oil law,” Latin News Daily, December 2, 2010. 12 Daniel Bramatti, “Lula, Sarney, Collor e Renan...por Lula, Sarney, Collor e Renan,” Estado de São Paulo, August 9, 2009; “Brazil’s presidential election – Lula’s legacy,” The Economist, September 30, 2010. 13 Bradley Brooks, “Lula’s legacy, leaving behind a transformed Brazil,” Associated Press, December 27, 2010. 14 “Brazil: Lula will bolster—and may hinder—Rousseff,” Oxford Analytica, November 1, 2010. 15 Marina Silva, a former Lula Administration environment minister who ran for president as the candidate of the Green Party (Partido Verde, PV), outperformed the pre-election polls by taking 19.3% of the first round vote. Her unexpectedly strong finish kept Rousseff under 50% and forced a second round runoff. Serra won 32.6% of the first round vote. “Brazil’s ‘green wave’ shocker,” Latin News Daily, October 4, 2010. Congressional Research Service 4 Brazil-U.S. Relations Rousseff pledging to consolidate gains made during the Lula Administration and Serra proposing only relatively minor policy changes. Rousseff had never been elected to public office previously but was chosen by Lula to run as his successor. She served as minister of mines and energy from 2003-2005 and minister of the presidency from 2005-2010, before resigning to seek the presidency. Rousseff headed a 10-party coalition with a running-mate from the centrist Party of the Brazilian Democratic Movement (Partido do Movimento Democrático Brasileiro, PMDB). In legislative elections conducted concurrently with the first round presidential election, Rousseff’s coalition made significant gains in both houses of Congress. The PT now holds 88 of the 513 seats in the Chamber of Deputies and 14 of the 81 seats in the Senate, making it the largest party in the lower house and the second-largest party in the upper house. Together, the 10 parties of Rousseff’s electoral coalition hold over 60% of the seats in both houses of Congress, large enough majorities to amend the constitution.16 President Dilma Rousseff • Born in 1947 (63 years old) to a Bulgarian immigrant father and a Brazilian mother. • Joined various clandestine leftist groups following the installation of a military government in 1964. She was arrested in 1970 and tortured and imprisoned by the military regime until 1972. • Upon her release, she completed a degree in economics. • Returned to politics in the late 1970s, taking part in the amnesty campaign for political prisoners and the founding of a center-left political party. • During the 1980s and 1990s, she worked as a consultant to political leaders and served in various positions in the state of Rio Grande do Sul, including president of the Economy and Statistics Foundation and State Secretary of Mines, Energy, and Communication. • Joined President Lula’s transition team in 2002 and served as Brazil’s minister of mines and energy from 20032005. • Named Lula’s chief of staff in 2005, where she was put in charge of strategic projects such as the government’s housing program, investments in infrastructure through the Growth Acceleration Program, and coordinating the design of the new regulatory framework for developing Brazil’s recently discovered offshore oil reserves. • Resigned as chief of staff to run for president in 2010. • Inaugurated to a four-year presidential term in January 2011. Source: Presidência da República Federativa do Brasil. Available at http://www.presidencia.gov.br/presidenta/view. Prospects for the Rousseff Administration Since taking office, President Rousseff has reiterated her pledge to consolidate and build upon the policies of the previous administration. On economic policy, she has signaled that she will maintain the mix of generally orthodox policies pursued under Lula, including a primary fiscal surplus and an autonomous Central Bank. Rousseff has also pledged to hold down—or even cut—government spending, and pursue reform of what many analysts consider to be an overly 16 Tribunal Superior Eleitoral, accessed on January 5, 2010, available at http://www.tse.gov.br/internet/index.html. Congressional Research Service 5 Brazil-U.S. Relations burdensome tax system. 17 Nonetheless, the new president has made it clear that she will continue to assert a key role for the state in fostering development. She will likely expand several of Lula’s social programs, like Bolsa Familia; continue implementing the new regulatory framework for Brazil’s recently discovered offshore oil reserves; and maintain the National Economic and Social Development Bank’s (BNDES) extensive financing for Brazilian industry.18 Other issues likely to require Rousseff’s attention include attracting investment to develop the country’s overburdened infrastructure, improving the quality of public education and health services, and reducing high rates of crime and violence in Brazil’s urban centers. Although Rousseff’s electoral coalition enjoys significant majorities in Congress, the new president will likely need to overcome a number of challenges in order to implement her agenda. The 10 parties that backed Rousseff are ideologically diverse, and while some support the policy agenda of the PT, others—including the large PMDB—have demonstrated more interest in the distribution of government resources through the federal budget and the control of ministries and state enterprises.19 Given that President Lula often struggled to hold together a similarly unwieldy coalition despite his considerable political acumen and public support, intra-coalition negotiations will likely prove challenging for the less experienced and less charismatic Rousseff.20 Indeed, some sectors of the coalition have already voiced discontentment as a result of Rousseff’s cabinet appointments.21 These intra-coalition differences are likely to increase as the administration moves from transition to governance. Rousseff may be able to win widespread support for expanding social programs and other spending priorities. However, it will likely be considerably more difficult to find majorities willing to slow the growth in government expenditures, simplify the tax system, and undertake other reforms that many analysts believe are necessary to maintain Brazil’s current rate of economic growth. 22 Economic Conditions With a gross national income (GNI) of $1.6 trillion, Brazil is the largest economy in Latin America and the eighth largest in the world.23 Over the past eight years, the country has enjoyed macroeconomic stability and average annual growth of over 4%. This growth has been driven by 17 Jonathan Wheatley & John Paul Rathbone, “Reformers fret as Brazilians mull voting for more of the same,” Financial Times, September 30, 2010; Carla Simoes & Alexander Cuadros, “Rousseff Vows to Eradicate Brazil Poverty Without Overspending,” Bloomberg, November 1, 2010; “Rousseff plans to cut Brazil payroll taxes—report,” Reuters, November 15, 2010. 18 Ian Bremmer and Chris Garman, “Embracing Lula’s pragmatic legacy,” New York Times, November 4, 2010. 19 Marco Antonio Villa, “PMDB será pedra no sapato da presidente,” Folha de São Paulo, November 20, 2010; Otávio Cabral, “A digestão do poder,” Veja; July 29, 2009. 20 “Will Rousseff be able to appease the PT and the PMDB?” Latin American Weekly Report, January 6, 2011; “Brazil: Rousseff risks rough ride, ‘Lula dependence,’” Oxford Analytica, January 6, 2011; “Brazil politics: Rousseff in charge,” Economist Intelligence Unit, December 29, 2010. 21 Vera Rosa & Rafael Moraes Moura, “Ministério de Dilma mantém fatia de poder do PT e desagrada a aliados,” Estado de São Paulo Digital, December 22, 2010. 22 “Lula’s legacy leaves Rousseff tough choices,” Financial Times, January 5, 2011; Brian Winter & Natuza Nery, “Special report: Dilma Rousseff, Brazil’s ‘automatic pilot,’” Reuters, September 23, 2010. 23 World Bank, “World Development Indicators,” available at http://data.worldbank.org/data-catalog/worlddevelopment-indicators. Congressional Research Service 6 Brazil-U.S. Relations a boom in international demand—particularly in Asia—for its commodity exports, and the increased purchasing power of Brazil’s fast-growing middle class, which has added 30 million people over the past eight years and now accounts for a majority of the population. 24 In 2010, the value of Brazil’s exports reached some $202 billion, with top exports including commodities such as iron ore, oil, sugar, soy, chicken, and beef, as well as manufactured goods such as automobiles and aircraft. Brazil’s 2010 trade surplus amounted to $20.3 billion.25 The country’s current economic strength is the result of a series of policy reforms implemented over the course of two decades that reduced inflation, established stability, and fostered growth. These policies have also enabled Brazil to better absorb international shocks like the recent global financial crisis, from which Brazil emerged relatively unscathed.26 Although current conditions and Brazil’s recent performance suggest the country will sustain solid economic growth rates in the near term, several constraints on mid- and long-term growth remain. Background on Reform and Stabilization Following the return to democracy in the late 1980s and early 1990s, Brazil struggled with persistently high inflation and slow growth. In order to address these issues, the Brazilian government launched the “Real Plan” in 1994. The plan consisted of a new currency (the real) pegged to the U.S. dollar, a more restrictive monetary policy, and a severe fiscal adjustment that included a 9% reduction in federal spending and an across-the-board tax increase of 5%. Prices immediately began to stabilize, with inflation falling from 2,730% in 1993 to 17.8% in 1995. Fernando Henrique Cardoso, who had been in charge of the Real Plan as finance minister, took office as president in 1995 and continued the economic reform push by privatizing state-owned enterprises and gradually opening the Brazilian economy to foreign trade and investment. Although Brazil enjoyed stronger growth rates for a few years following the Real Plan, macroeconomic stability remained elusive. In order to take advantage of the improved economic situation and high real interest rates, foreign investors began flooding Brazil with large capital inflows. The increase in foreign capital contributed to currency appreciation and the eventual overvaluation of the real. Following the 1997 East Asian and 1998 Russian financial crises, international investors began to worry about Brazil’s overvalued exchange rate and substantial fiscal deficits. The Brazilian government’s inability to pass legislation capable of addressing these issues sparked a massive capital flight. Brazil was forced to adopt a floating exchange rate, and the real lost 40% of its value.27 In the aftermath of the 1998-1999 financial crisis, Brazil adopted the three main pillars of its current macroeconomic policy: a floating exchange rate, a primary budget surplus, and an inflation-targeting monetary policy. Although these policies were introduced toward the end of 24 The Brazilian government breaks the population into five income classes: A, B, C, D, and E. Those in the “C” class, who earn between approximately $900 and $2,000 per month, now account for half of the Brazilian population. “Brazil: Poverty falls, but regional inequities remain,” Oxford Analytica, June 21, 2010; Cristiano Romero, “O Legado de Lula na economia,” Valor Online (Brazil), December 29, 2010. 25 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, January 2011. 26 “Brazil takes off,” The Economist, November 12, 2009. 27 Riordan Roett, “How reform has powered Brazil’s rise,” Current History, February 2010; CRS Report 98-987, Brazil's Economic Reform and the Global Financial Crisis, by J. F. Hornbeck. Congressional Research Service 7 Brazil-U.S. Relations the Cardoso Administration, they were maintained and strengthened under President Lula and now have support across the political spectrum. Under the current policy mix, inflation has remained low and economic growth has accelerated. Likewise, public debt has declined, with Brazil repaying its $15.5 billion debt to the International Monetary Fund (IMF) ahead of schedule in 2005, and becoming a net IMF creditor in 2009.28 Global Financial Crisis In stark contrast to previous international shocks, the recent global economic downturn has had only a limited effect on Brazil. The country experienced a brief recession in 2009, causing an economic contraction of 0.6%, before rebounding quickly with estimated growth of 7.7% in 2010.29 Most analysts credit Brazil’s strong macroeconomic framework and the Lula Administration’s timely policy response for successfully mitigating the effects of the crisis. 30 As the fallout of the financial crisis spread around the world, the Brazilian government injected at least $100 billion of additional liquidity into the local economy, provided support packages to productive sectors, and cut the key interest rate. President Lula also acted to boost domestic consumption in hopes of partially offsetting declines in global demand. The government mandated above-inflation increases to the minimum wage, provided temporary tax reductions, increased investments in its signature infrastructure program, and maintained its spending on social programs like Bolsa Familia.31 Although Brazil recovered quickly from the financial crisis, the lingering effects of the global downturn are now presenting challenges for the country’s economy. Slow growth rates have kept interest rates low in Europe and the United States, which has encouraged investors looking for higher returns to flood Brazil and other developing nations with foreign capital. In addition to fueling growth, these inflows are causing excessive appreciation of local currencies. 32 The value of the Brazilian real has increased nearly 40% against the dollar over the past two years.33 While this steep increase in value has boosted domestic purchasing power, it is putting inflationary pressure on the economy and hurting the competitiveness of Brazilian industry and agricultural exports. In addition to accusing China, the United States, and others of fueling “currency wars” by engaging in monetary interventions that amount to “competitive devaluation” of their currencies, 34 the Brazilian government has taken a number of steps to discourage inflows of 28 Antonio Rodriguez, “Brazil switches roles with helping hand for IMF,” Agence France Presse, October 5, 2009. “Country Report: Brazil,” Economist Intelligence Unit, January 2011. 30 “IMF Executive Board Concludes 2010 Article IV Consultation with Brazil,” International Monetary Fund, August 5, 2010; Cristiano Romero, “O Legado de Lula na economia,” Valor Online (Brazil), December 29, 2010. 31 “Brazil economy: Bottoming out?” Economist Intelligence Unit, May 7, 2009; “Will the economy grow in 2009?” Latin American Economy & Business, February 2009; “Tax relief for the middle classes,” Latin American Weekly Report, December 18, 2008. 32 Ian Talley, “IMF says capital controls can slow investment flows in India, Brazil,” Wall Street Journal, January 6, 2011. 33 Jonathan Wheatley & Joe Leahy, “Trade war looming, warns Brazil,” Financial Times, January 10, 2011 34 Brazil has been critical of the U.S. Federal Reserve’s policy of quantitative easing (QE2). For more information on the policy, see CRS Report R41540, Quantitative Easing and the Growth in the Federal Reserve’s Balance Sheet, by Marc Labonte; Ed Dolan, “Why Latin America Hates QE2,” Business Insider, January 20, 2011; “Brazil: Currency war begins to exact toll,” Latin American Weekly Report, January 6, 2011. 29 Congressional Research Service 8 Brazil-U.S. Relations foreign capital. These include instituting a financial operations tax on foreign capital inflows, which started at 2% and has since increased to 6%, and imposing reserve requirements on domestic banks’ foreign exchange positions. The measures appear to have had little effect to date, but the Rousseff Administration has indicated that it will pursue additional policies as needed.35 Potential Constraints on Growth Brazil’s current conditions and recent economic performance suggest the country will sustain solid growth rates in the near term; however, most analysts assert that several constraints on midand long-term growth remain. These include a sizeable public debt burden, high taxes and interest rates, low investment and savings rates, rigid labor laws, and overburdened transportation and energy infrastructure.36 Net public debt has been falling in recent years, but remains relatively high at 41% of gross domestic product (GDP).37 Likewise, the Brazilian government has slowed the rate of debt reduction by reducing its primary fiscal surplus—the budget surplus before debt payments—to enable increased government spending.38 According to some analysts, public expenditure is now growing faster than GDP and the quality of spending is declining. They assert that a greater percentage of public expenditure needs to be dedicated to long-term investments such as infrastructure, education, and research and development. 39 President Rousseff acknowledged the need for greater public investment during her inaugural address. She is expected to increase funding for education, implement a second phase of the Growth Acceleration Program—an infrastructure investment program introduced under President Lula—as well as offer incentives to attract significant private sector investment in roads, ports, and airports in preparation for hosting the 2014 World Cup and 2016 Olympics. 40 Social Indicators Despite its fast-growing economy and large resource base, Brazil has had problems solving deepseated social problems. The country has one of the most unequal income distributions in Latin America, a region with the highest income inequality in the world. The wealthiest 5% of the population account for some 40% of the country’s wealth.41 Like elsewhere in Latin America, Brazil’s high inequality is partially a legacy of extreme land concentration among the country’s 35 “Brazil: Reserve requirements will not weaken real,” Oxford Analytica, January 11, 2011. “Prospects 2011: Brazil,” Oxford Analytica, November 26, 2010; World Economic Forum, The Global Competitiveness Report 2010-2011, Geneva, 2010; National Confederation of Industry (CNI), Industry and Brazil: An agenda to grow more and better, Brasilia, 2010. 37 “Prospects 2011: Brazil,” Oxford Analytica, November 26, 2010. 36 38 Maria Luiza Rabello & Iuri Dantas, “IMF View of Brazil Finances is ‘Stupid,’ Mantega Says,” Business Week, January 28, 2011; “Brazil – Mantega’s clever accounting,” Latin News Daily, January 25, 2011. 39 Paulo Vieira da Cunha & Vinod Thomas, “The Brazilian Economy: The Choices for Dilma,” Remarks at the InterAmerican Dialogue, Washington, DC, November 10, 2010. 40 “Pronunciamento da Presidenta da República, Dilma Rousseff, à Nação Brasileira, no Parlatório do Palácio do Planalto,” Ministério das Relações Exteriores, January 1, 2011; Brian Ellsworth, “Brazilian infrastructure lags behind the boom,” Reuters, November 24, 2010. 41 “Brazil: Middle class expands but inequality persists,” Oxford Analytica, February 8, 2010. Congressional Research Service 9 Brazil-U.S. Relations elite. A 2004 study found that 1% of the Brazilian population controlled 45% of the farmland.42 The Brazilian government has also acknowledged that there is a racial component to inequality. People of African descent in Brazil, also known as Afro-Brazilians, constitute 67% of the poor.43 Other factors that inhibit social mobility in Brazil include a lack of access to quality education and job training opportunities. The Brazilian government’s efforts to reduce social disparities have recently begun to demonstrate results. As late as 2005, the Organization for Economic Cooperation and Development (OECD) asserted that Brazil had not achieved the same social indicators as countries with similar income levels despite having spent the same amount or more on social programs. 44 More recent evidence, however, indicates that Brazil has made substantial progress in the last few years as a result of the Lula Administration’s social policies and the country’s steady economic growth. Since 2003, the proportion of poor has fallen from 33.2% to 22.9% of the population, the gap between the wealthiest 10% and poorest 10% has fallen from 23 times to 18 times, and 30 million Brazilians have moved into the middle class.45 Likewise, infant mortality has fallen below 23 deaths per 1,000 live births and the proportion of underweight children has fallen below 2%.46 Transfer programs like Bolsa Familia have been credited for much of this progress. Although such efforts will continue to play a major role in Brazilian social policy, many observers assert that improving the quality of social services—especially in education and healthcare—is crucial for reducing social disparities and fostering development in the long run.47 Foreign Policy Brazil’s foreign policy is a byproduct of the country’s unique position as a regional power in Latin America, a leader among developing countries in economic cooperation and collective security efforts, and an emerging world power. Brazilian foreign policy has traditionally been based on the principles of multilateralism, peaceful dispute settlement, and nonintervention in the affairs of other countries.48 Adherence to these principles has enabled Brazil to maintain peaceful relations with all 10 of its neighbors49 and to play a larger role in global affairs than its economic and geopolitical power would otherwise allow. Building on its traditional principles, Brazilian 42 “Special Report: Land Report Dilemma,” Latin America Regional Report, December 21, 2004. Fabiana Frayssinet, “Controversy Dogs Brazil’s Racial Equality Law,” Inter Press Service, July 9, 2010. 44 Organization for Economic Cooperation and Development, Economic Survey of Brazil 2005, March 2005. 45 The Brazilian government breaks the population into five income classes: A, B, C, D, and E. Those in the “C” class, who earn between $900 and $2,000 per month, now account for half of the Brazilian population. “Brazil: Poverty falls, but regional inequities remain,” Oxford Analytica, June 21, 2010. 46 “Brazil claims it has eradicated extreme poverty,” EFE News Service, December 14, 2010. 47 “Bolsa Família benefits 49m Brazilians,” Latin News Daily, June 1, 2010; “How to get children out of jobs and into school: The limits of Brazil’s much admired and emulated anti-poverty programme,” The Economist, July 29, 2010; Alexei Barrionuevo, “Educational Gaps limit Brazil’s Reach,” New York Times, September 4, 2010; “Resuscitating Brazil’s health,” Latin News Daily, November 8, 2010. 48 Georges D. Landau, “The Decision making Process in Foreign Policy: The Case of Brazil,” Center for Strategic and International Studies: Washington, DC: March 2003. 49 In addition to bordering nine of the eleven other independent countries in South America, Brazil borders French Guiana—a territory of France (see Figure 1, for a map of Brazil and its neighbors). 43 Congressional Research Service 10 Brazil-U.S. Relations foreign policy under the PT administrations of Presidents Lula and Rousseff has emphasized three areas of action: (1) reinforcing relations with traditional partners such as its South American neighbors, the United States, and Europe; (2) diversifying relations by forging stronger economic and political ties with other nations of the developing world; and (3) supporting multilateralism by pushing for the democratization of global governance. 50 Regional Policy Over the past decade, Brazil has firmly established itself as a regional power. Within South America, Brazilian foreign policy supports economic and political integration efforts in order to reinforce long-standing relationships with its neighbors. Although integration is the primary purpose of organizations like the Common Market of the South (Mercosur) and the Union of South American Nations (Unasur), they also serve as forums in which Brazil can exercise its leadership and develop consensus around its positions on regional and global issues. Brazil’s emphasis on forging new ties has led to increased engagement with countries in Central America and the Caribbean, areas where Brazil has not traditionally had much influence. Brazil engages in multilateral regional diplomacy through the Organization of American States (OAS); however, it has demonstrated a preference for resolving issues, when possible, through regional forums that do not include the United States. South American Integration Brazil’s regional integration efforts began in 1991 when it joined with Argentina, Uruguay, and Paraguay to establish the Common Market of the South (Mercosur), an organization intended to promote economic integration and political cooperation among the countries.51 Although the member states have been able to achieve consensus on a number of political issues, progress on the economic front has been slow. The Mercosur pact calls for an incremental path to full economic integration, yet only a limited customs union has been achieved in its 20-year existence. The integration process received a boost in August 2010 when the member states finally agreed on long-stalled issues such as a common customs code and the elimination of double tariffs on non-Mercosur goods transported between countries.52 The agreement still needs to be ratified by each country’s legislature, however, and a number of other issues like the dispute resolution process and trade asymmetries still need to be addressed.53 Chile, Bolivia, Colombia, 50 “Ministro Patriota faz seu primeiro discurso no Itamaraty,” Ministério das Relações Exteriores, January 2, 2011; “Brazil has become the ‘unavoidable partner’ in the global decision-making process,” MercoPress, December 14, 2010. 51 For more information on Mercosur, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F. Hornbeck. 52 “Mercosur wraps up successful summit,” EFE News Service, August 3, 2010; “Las reglas comerciales comunes tendran que ser ratificadas por el Congreso de cada socio; Aprobaron el Código que regirá el comercio dentro del Mercosur,” Clarín, August 4, 2010. 53 “Deathknell Sounds,” Latin American Regional Report: Brazil & Southern Cone, January 2009. Congressional Research Service 11 Brazil-U.S. Relations Ecuador, Peru, and Venezuela have all become associate members54 of Mercosur, and Brazil has advocated full membership for each country.55 The ongoing problems with Mercosur have not prevented Brazil from pushing for broader regional integration. In 2008, all 12 independent countries of South America joined together to form the Union of South American Nations (Unasur).56 Primarily a political body, Unasur has served as a forum for dispute resolution and the formation of common policy positions. With Brazil playing an influential role, the organization helped resolve political conflicts in Bolivia in 2008 and Ecuador in September 2010, and took a strong stance against the ouster of the president of Honduras in 2009.57 Brazilian diplomacy also successfully convinced each of the Unasur member states to join the associated South American Defense Council, designed to boost regional cooperation on security policies. 58 Within the council, South American countries have discussed defense spending and reviewed defense agreements with extra-regional powers, such as a controversial proposal to provide the United States access to seven Colombian military bases.59 Notwithstanding its many successes, Unasur’s capacities are limited. Member states are reluctant to cede authority to the organization; it has largely been unable to mediate disputes when there is no regional consensus; and it is heavily reliant on presidential diplomacy since it lacks strong formal institutions. 60 By promoting integration through organizations like Mercosur and Unasur, Brazil has been able to solidify its role as a regional power. These organizations provide forums in which Brazil can exercise leadership and build broad support for its positions on regional and global issues. Likewise, the successes of Mercosur and Unasur have instilled a confidence in South American nations that the region can resolve internal problems without having to turn to extra-regional powers, such as the United States. Nonetheless, it is unclear if Brazil is willing to accept the costs and responsibilities associated with regional leadership. Although the country has shouldered the burden for multilateral integration efforts, such as providing 70% of the annual budget for Mercosur’s Structural Convergence and Institutional Strengthening Fund,61 it has been less willing to make unilateral concessions to foster development and good will among its neighbors. For example, when President Lula agreed to pay Paraguay a higher price for energy generated by a jointly owned hydroelectric plant, he was heavily criticized by some within Brazil and the Brazilian Congress blocked his efforts.62 Given that the country is still resolving its own 54 Associate members have no voting rights and need not observe Mercosur’s common external tariff. Venezuela will be a full member once its accession is ratified by the Paraguayan legislature. 55 Juliana Rocha, “Colômbia negocia sua adesão ao Mercosul,” Folha de São Paulo, January 20, 2011; “Lula defiende adhesión de Bolivia, Chile, Colombia, Ecuador y Perú a Mercosur,” EFE News Service, December 20, 2010. 56 The treaty establishing Unasur entered into force on November 30, 2010, when Uruguay became the ninth country to approve its ratification. “Uruguay ratificó Tradatdo de la Unasur, que completa nueve adhesiones,” Agence France Presse, November 30, 2010. 57 “Unasur assigns itself some authority,” Latin News Daily, November 26, 2010. 58 “South American Defence Council,” Latin American Regional Report: Brazil & Southern Cone, April 2009. 59 “Brasil propondrá creación de un Consejo de Paz y Seguridad de la Unasur,” EFE News Service, January 13, 2010. 60 Andrés Serbin & Peter Hakim, “The Union of South American Nations (UNASUR),” Remarks at the Inter-American Dialogue, Washington, DC, November 23, 2009; “Latin America: Regional tensions challenge UNASUR,” Oxford Analytica, August 21, 2009. 61 “Brazil invested 1.7bn dollars in international cooperation 2005-2009,” BBC Monitoring, January 14, 2011. 62 “Lula criticised for ‘partisan’ foreign policy,” Latin American Weekly Report, January 22, 2009; Pedro Servin, (continued...) Congressional Research Service 12 Brazil-U.S. Relations economic and social problems, it may be difficult to convince the Brazilian population that the somewhat intangible benefits of regional leadership outweigh the very visible costs.63 Expansion of Influence into Central America and the Caribbean In addition to consolidating its power within South America, Brazil has sought to expand its influence in the broader region by increasing its engagement in the Caribbean and Central America. Brazil has taken on considerable responsibilities in Haiti, where it has commanded the U.N. Stabilization Mission (MINUSTAH) since 2004. Some 10,000 Brazilian military personnel have rotated through the country since the start of MINUSTAH, and with 2,200 officers and soldiers currently on the ground, Brazil is the largest peacekeeping contingent in Haiti. 64 Brazil is also increasingly providing Caribbean and Central American nations with humanitarian and technical assistance. Between 2005 and 2009, Cuba, Haiti, and Honduras were three of the top four recipients of Brazilian humanitarian assistance, receiving over $47 million combined. 65 Technical assistance has taken many forms, such as so-called “ethanol diplomacy,” in which Brazil has signed bio-fuels partnership agreements with countries that would otherwise be dependent on expensive oil imports.66 Moreover, Brazil has become a regional observer of the Central American Integration System (SICA), promoted a trade agreement between SICA and Mercosur, and supported the creation of a regional group known as the of Latin American and Caribbean States, which includes all of the countries of the hemisphere except Canada and the United States. Although Brazil has certainly become much more visible as a result of these efforts, most analysts assert that country’s influence in Central America and the Caribbean remains limited. 67 Emerging Global Role As Brazil’s economy has grown to be the eighth largest in the world, the country has utilized its growing economic clout to assert Brazilian influence on a range of global matters. On global trade and financial issues, where Brazil’s economic weight ensures the country a principal role in policy discussions, Brazil has sought to coordinate with, and represent, other developing nations. This has coincided with a broader focus on “South-South” cooperation, in which Brazil has expanded diplomatic and commercial ties with countries throughout the developing world. With its increasing international prominence, Brazil has pushed for a democratization of global (...continued) “Paraguay-Brazil energy treaty going nowhere fast,” Associated Press, December 16, 2009. 63 “Brazil eager to be a force of change and moderation,” Deutsche Welle, December 30, 2010. 64 Brazil lost 18 soldiers and two civilians in the January 2010 Haitian earthquake. “Brasil pide compromiso renovado de comunidad internacional con Haití,” Agence France Presse, January 12, 2011; Wilson Tosta & Glauber Goncalves, “Ex-comandante defende que Exército continue no Haiti,” Estado de São Paulo, November 5, 2010. 65 $R790 million, converted on January 28, 2011. Instituto de Pesquisa Econômica Aplicada (Ipea), Cooperação Brasileira Para o Desenvolvimento Internacional : 2005-2009, Brasília, December 2010. 66 "Chávez, Lula Promote Competing Visions," Miami Herald, August 10, 2007. 67 Peter Hakim, “Rising Brazil: the Choices Ahead,” Cuadernos de la Fundacion M.Botin, February 22, 2010; “Brazil is Challenging Mexico and U.S. Domination of Isthmus,” Latin America Data Base NotiSur, June 11, 2009; Andres Oppenheimer, “Brazil stretching clout to Central America,” Miami Herald, June 7, 2009. Congressional Research Service 13 Brazil-U.S. Relations governance institutions and a greater role for emerging powers in resolving issues of geopolitical importance. Although few analysts deny that Brazil’s international stature has risen significantly over the past decade, most believe that the country must overcome considerable challenges to be considered a world power. These include undertaking reforms to maintain its current economic trajectory, addressing long-standing domestic security challenges, and modernizing and expanding its military capacity.68 South-South Ties Brazilian foreign policy under the PT administrations of Presidents Lula and Rousseff has prioritized relations with nontraditional partners in the developing world, or “South-South” ties. During the Lula Administration, the country significantly expanded its diplomatic presence in the developing world, opening 37 new embassies and 25 new consulates.69 Brazil also increased its international development assistance, which totaled $362 million (0.02% of GDP) in 2009. The majority of Brazil’s aid has gone to Latin America, the Caribbean, and Africa—with a special emphasis on fellow Portuguese-speaking nations. It includes humanitarian assistance and technical cooperation focused in sectors where Brazil has been particularly effective domestically, such as poverty reduction, tropical agriculture and biofuels production, and the prevention and treatment of HIV/AIDS and tropical diseases.70 These diplomatic and development ties have coincided with increased commercial relations. While Brazil’s total world trade expanded by over 350% between 2002 and 2010, trade with Africa, the Arab League, and Latin America and the Caribbean each expanded by nearly 400%. Likewise, trade with India grew by over 600% and trade with China grew by nearly 1400%. China is now Brazil’s top trading partner, with total trade valued at $56.4 billion. 71 Brazil’s focus on forging South-South ties under the PT has been criticized by a number of analysts within and outside of the country. Former Brazilian Ambassador to the United States Roberto Abdenur claimed that the South-South approach of the Brazilian Foreign Ministry indoctrinates Brazilian diplomats with “anti-imperialist” and “anti-American” attitudes. He also criticized Lula for embracing autocratic leaders and failing to speak up for democracy and human rights.72 Another former Ambassador to Washington, Rubens Barbosa, has argued that while the PT’s foreign policy has increased Brazil’s international influence, it has not been very costeffective in delivering concrete results. Likewise, he has argued that Brazil should devote the same amount of attention to relations with developed nations as it has devoted to South-South ties.73 Officials from the current and previous Brazilian administrations assert that increased 68 Julia Sweig, “A New Global Player,” Foreign Affairs, Nov/Dec. 2010; Hal Brands, Dilemmas of Brazilian Grand Strategy, U.S. Army War College, Strategic Studies Institute, Carlisle, PA, August 2010; Peter Hakim, “Rising Brazil: The Choices of a New Global Power,” Política Externa, July 1, 2010; “Geopolitical Diary: A Boost for Brazil’s Military,” Stratfor, December 24, 2008. 69 Larry Luxner, “Basking in Global Clout, Brazil Ponders Life After Lula,” Washington Diplomat, September 2010. 70 Instituto de Pesquisa Econômica Aplicada (Ipea), Cooperação Brasileira Para O Desenvolvimento Internacional: 2005-2009, Brasília, D.F., December 2010. 71 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, February 2011. 72 Diego Schelp, “Diplomacia de palanque,” Veja, September 8, 2010; Otávio Cabral, “Nem na Ditadura,” Veja, February 7, 2007. 73 Rubens Barbosa, “Sobre uma Nova Política,” O Globo (Brazil), October 26, 2010. Congressional Research Service 14 Brazil-U.S. Relations South-South ties have not come at the expense of relations with the developed world. Moreover, they assert that while Brazil supports the spread of democracy and human rights, it believes singling out countries with confrontational declarations and policies is counterproductive. 74 Nonetheless, President Rousseff has repeatedly stated that she intends to forge closer relations with the United States and speak out more on issues of democracy and human rights during her administration.75 Democratization of Global Governance Building off its traditional support for multilateralism and its more recent focus on South-South ties, Brazil has sought to reinvigorate multilateral institutions by making them more representative of the current geopolitical situation. Brazilian officials assert that the world is becoming multipolar, and global governance institutions—including the International Monetary Fund (IMF), the Group of Eight (G8), and the U.N. Security Council—lack legitimacy and efficacy since they are no longer representative of the global balance of power. 76 In order to address these issues, Brazil has joined with other emerging and developing nations to push for reform. These coalitions include more formal organizations, like the Brazil-Russia-India-China (BRIC) group and the India-Brazil-South Africa (IBSA) forum, as well as ad hoc arrangements. They have been successful in securing agreements to redistribute voting power within the IMF and replace the G8 with the more representative G20 as the premier forum for international economic coordination. Likewise, they have succeeded in blocking U.S. and European Union attempts to conclude international agreements, such as the Doha trade negotiations and the Copenhagen climate negotiations, without addressing developing nation demands. 77 Efforts to enlarge and reform the U.N. Security Council, however, have been unsuccessful.78 Some observers have expressed concerns that, by pushing for greater decision-making authority without being prepared for the corresponding responsibilities of leadership, the actions of Brazil and other emerging powers could create instability within the world system. 79 In addition to seeking greater influence within formal global governance institutions, Brazil has pushed for a greater role in resolving issues of geopolitical importance. During the Lula Administration, Brazil was somewhat critical of the U.S. role in the Middle East, arguing that the U.N. should oversee negotiations between Israel and the Palestinians and emerging powers should be more involved. 80 Brazil hosted the presidents of Israel and the Palestinian National 74 “Ministro Patriota faz seu primeiro discurso no Itamaraty,” Ministério das Relações Exteriores, January 2, 2011; Susan Glasser, “The Soft-Power Power,” Foreign Policy, December 2010. 75 Eleonora Gosman, “Dilma llega con apoyo al país, pero también marca diferencias,” Clarín (Argentina), January 30, 2011; Lally Weymouth, “An interview with Dilma Rousseff, Brazil’s president-elect,” Washington Post, December 3, 2010. 76 Meeting with official from Brazil's Ministry of External Relations, Financial Affairs Office, December 8, 2010; Celso Amorim, “Governance must reflect global reality,” Financial Times, November 15, 2010. 77 Celso Amorim, “The new geopolitics: Emerging Powers and the Challenges of a Multipolar World,” Remarks at the Carnegie Endowment for International Peace, Washington, DC, November 30, 2010; “Voting power shift just start of IMF reform, says Chinese official,” BBC Monitoring, November 5, 2010. 78 William Maclean, “Brazil says US spat signals tough security reform,” Reuters, September 11, 2010. 79 Andrew F. Hart & Bruce D. Jones, “How Do Rising Powers Rise?,” Survival, vol. 52, no. 6 (November 29, 2010). 80 Iuri Dantas & Fabiola Moura, “Lula Says U.S. Shouldn’t Broker Middle East Talks,” Bloomberg, November 20, (continued...) Congressional Research Service 15 Brazil-U.S. Relations Authority, suggesting it might be able to act as a mediator in the conflict. Brazil also recognized Palestine as an independent state within its 1967 borders—setting off a wave of similar recognitions throughout South America.81 Likewise, Brazil became involved in discussions regarding Iran’s nuclear program. In May 2010, President Lula worked with his Turkish counterpart, Prime Minister Erdoğan, to negotiate a nuclear swap deal with Iran that was similar to a deal put forward by the International Atomic Energy Agency (IAEA) in October 2009. The Brazilians saw the agreement as a confidence-building measure to bring Iran back to the negotiating table; however, the Obama Administration and European nations dismissed the agreement as a delaying tactic, and decided to push ahead with sanctions. Brazil then voted against the U.N. Security Council resolution to impose sanctions, saying the council had “lost a historic opportunity to peacefully negotiate the Iranian nuclear program.”82 Nonetheless, Brazil has agreed to abide by the sanctions. 83 Relations with the United States Relations between the United States and Brazil may be characterized as generally friendly despite a number of disagreements in recent years. The United States increasingly regards Brazil as a significant power, especially in its role as a stabilizing force in Latin America. The Obama Administration’s National Security Strategy states that the United States “welcome[s] Brazil’s leadership and seek[s] to move beyond dated North-South divisions to pursue progress on bilateral, hemispheric, and global issues.”84 Brazil and the United States have worked closely on a wide range of issues, from promoting bio-fuels development in the Western Hemisphere and Africa (see “Ethanol and Other Biofuels”) to providing security and fostering development in Haiti. Bilateral cooperation has increased in recent years, as reflected in the continuing high-level contacts between the two governments. Although Brazil and the United States share a number of common goals, the countries’ independent foreign policies have led to periodic disputes on trade and political matters. Some long-running disputes include Brazil’s opposition to the U.S. tariff on Brazilian ethanol and the stalled Doha Round of WTO negotiations. Additional differences have emerged in the past two years. After both countries condemned the ouster of the president of Honduras in June 2009, Brazil criticized the United States for failing to put more pressure on Honduras to reverse the situation and for immediately accepting the country’s November 2009 elections.85 Brazil also reacted negatively to an agreement between the United States and Colombia to provide the United (...continued) 2009. 81 Sean Goforth, “Brazil’s Middle East Roadmap,” World Politics Review, January 20, 2011; “Brazilian minister on Middle East role,” BBC Monitoring, January 4, 2010 82 Trita Parsi, “The Turkey-Brazil-Iran Deal: Can Washington take ‘yes’ for an answer?” Foreign Policy, May 17, 2010; “Unexpected US opposition overshadows Lula’s successful Iran nuclear deal,” Latin American Security & Strategic Review, May 2010; “Brazil’s Lula says UN sanctions a mistake,” Latin News Daily, June 10, 2010. 83 “Brazil will back Iran sanctions,” Al Jazeera English, August 11, 2010. 84 White House, National Security Strategy, May 2010, p. 44. 85 For more information on the Honduras political crisis, see CRS Report R41064, Honduran Political Crisis, June 2009-January 2010. Congressional Research Service 16 Brazil-U.S. Relations States access to seven Colombian military bases; however, it later signed its own Defense Cooperation Agreement with the United States.86 Most recently, Brazil and the United States have clashed over policy toward Iran. After Brazil and Turkey negotiated a nuclear swap agreement with Iran in May 2010, the United States rejected it as insufficient and pushed ahead with a new round of sanctions.87 Some analysts assert that Brazil’s increasing global prominence and involvement on an array of issues will inevitably lead to disputes with the United States and that managing those disputes in a transparent and respectful manner will be key to maintaining friendly relations moving forward.88 President Rousseff has indicated that building stronger relations with the United States will be one of the priorities of her administration, and President Obama announced he will visit Brazil for the first time in March 2011.89 As a middle-income country, Brazil does not receive large amounts of U.S. foreign assistance. Brazil received $21.5 million in U.S. aid in FY2009 and an estimated $25.1 million in FY2010. Under the Obama Administration’s request, Brazil would receive $20.9 million in FY2011. U.S. assistance priorities in Brazil include supporting environmental programs and strengthening local capacity to address threats to the Amazon, promoting renewable energy and energy efficiency to mitigate climate change, strengthening the professionalism and peacekeeping capabilities of the Brazilian military, and reducing the transmission of communicable diseases. 90 Selected Issues in U.S.-Brazil Relations As noted above, the Obama Administration’s National Security Strategy recognizes Brazil as an emerging center of influence whose cooperation should be sought when addressing regional and global problems. Current issues in U.S.-Brazil relations include counternarcotics and counterterrorism efforts, energy security, trade, human rights, and the environment. Counternarcotics Although Brazil is not a major drug-producing country, it serves as a major transit country for illicit drugs from neighboring Andean countries destined primarily for Europe. Urban gangs— such as São Paulo’s First Command of the Capital (Primeiro Comando da Capital, PCC) and Rio de Janeiro’s Red Command (Comando Vermelho, CV)—have begun playing greater roles in narcotics and weapons smuggling, establishing their presence in other countries in the region and forging ties with Colombian and Mexican traffickers. Brazil has also become the second-largest consumer (after the United States) of cocaine in the world. 86 “Brazil-US rows building over Colombia, biofuel, trade: FM” Agence France Presse, August 2, 2009. 87 “Unexpected US opposition overshadows Lula’s successful Iran nuclear deal,” Latin American Security & Strategic Review, May 2010; “Brazil’s Lula says UN sanctions a mistake,” Latin News Daily, June 10, 2010. 88 Tom Shannon, “Prospects for U.S.-Brazil bilateral relations,” Remarks at Brazil-U.S. Business Council Annual Plenary Meeting, December 7, 2010; Peter Hakim, “US-Brazil Relations: Expect More Conflict,” Infolatam, October 21, 2010. 89 Lally Weymouth, “An interview with Dilma Rousseff, Brazil’s president-elect,” Washington Post, December 3, 2010; Natuza Nery, “Por nova relação, Obama deve visitar Brasil em março,” Folha de São Paulo, January 25, 2011. 90 U.S. State Department, FY2011 Congressional Budget Justification for Foreign Operations, February 1, 2010. Congressional Research Service 17 Brazil-U.S. Relations With U.S. support, Brazil has taken several steps to improve its counternarcotics capabilities. In 2004, Brazil implemented an Air Bridge Denial program, which authorizes lethal force for air interdiction, and in 2006, Brazil passed an anti-drug law that prohibits and penalizes the cultivation and trafficking of illicit drugs. Brazil has also worked with its neighbors to construct Joint Intelligence Centers at strategic points along its borders and invested in a sensor and radar project called the Amazon Vigilance System in an attempt to control illicit activity in its Amazon region. In 2009, Brazil’s federal police captured 18.9 metric tons of cocaine, 1.4 metric tons of cocaine base, 513 kilograms of crack cocaine, 150.6 metric tons of marijuana, 3.3 kilograms of heroin, and 183.3 tons of precursor chemicals.91 Brazil received $1 million in U.S. counternarcotics assistance in FY2009 and again in FY2010, and would receive $1 million in FY2011 under the Obama Administration’s request. U.S. counternarcotics assistance includes training for Brazil’s federal police, support for interdiction programs at Brazil’s ports, and efforts to strengthen the capabilities of special investigations units.92 Counterterrorism and the Tri-Border Area93 The Tri-Border Area (TBA) of Argentina, Brazil, and Paraguay has long been used for arms smuggling, money laundering, and other illicit purposes. According to the State Department Country Reports on Terrorism, the United States remains concerned that Hezbollah and Hamas are raising funds through illicit activities and from sympathizers in the sizable Middle Eastern communities in the region. Indeed, reports have indicated that Hezbollah earns over $10 million per year from criminal activities in the TBA. 94 Although it has been reported that al Qaeda’s former operations chief, Khalid Shaikh Mohammed, lived in the Brazilian TBA city of Foz de Iguazu in 1995 and Brazilian authorities arrested Ali al-Mahdi Ibrahim—who was wanted by Egypt for his alleged role in the 1997 massacre of tourists at Luxor—in the TBA in 2003, the State Department report states that there have been no corroborated reports that any Islamic groups have an operational presence in the area.95 The United States joined with the countries of the TBA in the “3+1 Group on Tri-Border Area Security” in 2002 and the group built a Joint Intelligence Center to combat trans-border criminal organizations in the TBA in 2007. The United States has also worked bilaterally with Brazil to improve its counterterrorism capabilities. In addition to providing counterterrorism training, the United States has worked with Brazil to implement the Container Security Initiative (CSI) at the port of Santos. In 2010, Brazil and the United States signed a Defense Cooperation Agreement and gave initial approval to an Open Skies agreement that would safeguard aviation security.96 While the State Department 91 U.S. Department of State, International Narcotics Control Strategy Report 2010, Volume 1, March 1, 2010. U.S. State Department, FY2011 Congressional Budget Justification for Foreign Operations, February 1, 2010. 93 For more information, see CRS Report RS21049, Latin America: Terrorism Issues, by Mark P. Sullivan. 94 Alain Rodier, “Notes D’Actualité N˚168: Les Trafics de Drogue du Hezbollah en Amérique Latine,” Centre Français de Recherche sur le Rensignement, April 14, 2009. 95 “Latin America: A Safe Haven for Al Qaeda?” STRATFOR, September 4, 2003; U.S. Department of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism, August 5, 2010. 96 U.S. Department of State, Office of the Spokesman, “U.S.-Brazil Defense Cooperation Agreement,” April 12, 2010; and “United States and Brazil Agree on Open Skies,” December 6, 2010. 92 Congressional Research Service 18 Brazil-U.S. Relations Country Reports on Terrorism lauded the Brazilian government for a number of counterterrorism actions, it also noted that Brazil’s overall commitment to combating terrorism was undermined by the government’s failure to strengthen its legal counterterrorism framework by passing longstalled anti-money laundering and counterterrorism bills.97 Brazil, like many Latin American nations, has been reluctant to adopt specific antiterrorism legislation as a result of the difficulty of defining terrorism in a way that does not include the actions of social movements and other groups whose actions of political dissent were condemned as terrorism by repressive military regimes in the past.98 Nonetheless, some Brazilian officials continue to push for antiterrorism legislation, asserting that the country will face new threats as a result of hosting the 2014 World Cup and the 2016 Olympics. 99 Energy Security In the last few years, there has been significant congressional interest in issues related to Western Hemisphere energy security. Brazil is widely regarded as a world leader in energy policy for successfully reducing its reliance on foreign oil through increased domestic production and the development of alternative energy resources. In addition to being the world’s second-largest producer of ethanol, Brazil currently generates over 85% of its electricity through hydropower.100 At the same time, Brazil has attained the ability to produce large amounts of enriched uranium as part of its nuclear energy program. More recently, Brazil’s state-run oil company, Petrobras, a leader in deep-water oil drilling, has discovered what may be the world’s largest oil field find in 25 years.101 Ethanol and Other Biofuels102 Brazil stands out as an example of a country that has become a net exporter of energy, partially by increasing its use and production of ethanol. In response to sharp increases in oil prices, the Brazilian government began a national program to promote the production and consumption of sugarcane ethanol in 1975. Today, Brazil produces almost 27.8 billion liters (7.3 billion gallons) of ethanol annually. About 17% of the ethanol produced in Brazil is exported, and the remainder is consumed domestically. 103 Within Brazil, pure ethanol is available at nearly every fueling station and gasoline is required to include a 25% ethanol blend. About 90% of new cars sold in Brazil each year are fitted with “flex-fuel” engines capable of running on fuel blends ranging 97 U.S. Department of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism, August 5, 2010. 98 “Anti-terrorism law project scrapped,” Latin American Security & Strategic Review, January 2008. 99 Guila Flint, “Jobim alerta para ameaça de atentados e diz que país deve se preparar para problemas durante Copa e Olimpíadas,” O Globo (Brazil), January 26, 2010. 100 “Brazil: Hydrocarbons potential poses major challenges,” Oxford Analytica, November 20, 2007. 101 “Brazil’s Now a Hot Commodity,” Los Angeles Times, January 3, 2008. 102 For more information, see CRS Report RL34191, Ethanol and Other Biofuels: Potential for U.S.-Brazil Energy Cooperation, by Clare Ribando Seelke and Brent D. Yacobucci. 103 Brazilian Sugarcane Industry Association (UNICA), “Quotes & Stats,” available at http://english.unica.com.br/dadosCotacao/estatistica/. Congressional Research Service 19 Brazil-U.S. Relations from pure ethanol to pure gasoline. As a result, ethanol now accounts for over half of all fuel pumped in Brazil. 104 On March 9, 2007, the United States and Brazil, the world’s two largest ethanol-producing countries, signed a Memorandum of Understanding to promote greater cooperation on ethanol and biofuels in the Western Hemisphere. The agreement involves (1) technology sharing between the United States and Brazil; (2) feasibility studies and technical assistance to build domestic biofuels industries in third countries; and, (3) multilateral efforts to advance the global development of biofuels. The first countries to receive U.S.-Brazilian assistance were the Dominican Republic, El Salvador, Haiti, and St. Kitts and Nevis. 105 Since March 2007, the United States and Brazil have moved forward on all three facets of the agreement. U.S. and Brazilian consultants have carried out feasibility studies that identified shortterm technical assistance opportunities in Haiti, the Dominican Republic, and El Salvador. On November 20, 2008, the United States and Brazil announced an agreement to expand their biofuels cooperation and form new partnerships with Guatemala, Honduras, Jamaica, GuineaBissau, and Senegal.106 The United States and Brazil are also working with other members of the International Biofuels Forum (IBF) to make biofuels standards and codes more uniform. Despite this progress, several potential obstacles to increased U.S.-Brazil cooperation on biofuels exist, including current U.S. tariffs on most Brazilian ethanol imports. The United States currently allows duty-free access on sugar-based ethanol imports from many countries through the Caribbean Basin Initiative, Central American Free Trade Agreement, and the Andean Trade Preferences Act, among others.107 Some Brazilian ethanol is processed at plants in the Caribbean for duty-free entry into the United States, but exports arriving directly from Brazil are currently subject to a 54-cent-per-gallon tax, plus a 2.5% tariff. Nuclear Energy Between the mid-1970s and the mid-1980s, Brazil’s military government sought to develop nuclear weapons as it competed with Argentina for political and military dominance of the Southern Cone. Brazil’s 1988 constitution limits nuclear activity to peaceful purposes, however, and in 1991, Brazil and Argentina reached an agreement not to pursue nuclear weapons. Although Brazil subsequently joined the Nuclear Nonproliferation Treaty (NPT) and a number of other multilateral nonproliferation regimes, some international observers became concerned when Brazil commissioned a uranium enrichment plant in 2004 and refused to give International 104 Katia Cortes, “Brazil to Raise Ethanol Mixed with Gasoline to 25%,” Bloomberg, April 29, 2010; Chris Kraul, “Brazil raises cane over U.S. ethanol barriers; Proponents say sugar-based fuel is a better choice than corn,” Los Angeles Times, November 4, 2009; “Brazil: Long-term ethanol outlook remains bright,” Oxford Analytica, October 6, 2009. 105 U.S. Department of State, Office of the Spokesman, “Memorandum of Understanding Between the United States and Brazil to Advance Cooperation on Biofuels,” March 9, 2007. 106 U.S. Department of State, Office of the Spokesman, “Joint Statement by the United States and Brazil Announcing the Expansion of Cooperation on Biofuels to Advance Energy Security and Promote Sustainable Development,” November 20, 2008. 107 For more information, see CRS Report RS21930, Ethanol Imports and the Caribbean Basin Initiative (CBI), by Brent D. Yacobucci. Congressional Research Service 20 Brazil-U.S. Relations Atomic Energy Association (IAEA) inspectors full access to the centrifuge plant in 2005. The Brazilian government maintained that it needed to enrich uranium in order to produce its own fuel, and it justified its refusal to give IAEA inspectors access by citing security concerns over the proprietary aspects of the country’s nuclear technology. Negotiations between Brazil and the IAEA ended in October 2005 when the Bush Administration lent its support to Brazil by asserting that limited inspections should be enough for Brazil to comply with its international obligations.108 Brazil remains opposed to signing the NPT Additional Protocol, which would grant IAEA inspectors increased access to its nuclear program. 109 Although Brazil currently has just two operational nuclear power plants, the industry is expected to expand. Construction of a third nuclear plant was approved under the Lula Administration, and the current minister of mines and energy and has announced plans to approve four additional plants within the next year. The minister has asserted that the expansion of nuclear power is the only way that Brazil can meet the fast-growing energy demand of its population while avoiding massive carbon emissions.110 Brazil has 139,900-278,700 metric tons of indentified uranium resources.111 Oil The recent discovery of substantial oil fields in the Santos Basin, which extends 500 miles along the Brazilian coast, has the potential to turn Brazil into a major oil and gas producer and an important source of energy for the United States. The Tupi field, discovered in November 2007, has confirmed oil reserves of between 5 billion and 8 billion barrels, and it is estimated that the entire Santos Basin could hold up to 50 billion barrels of oil. In December 2010, the Brazilian Congress approved a new regulatory framework for developing the offshore reserves that will increase the state’s role in hopes of using the resources to fuel long-term economic and social development. Among other provisions, the framework establishes state-owned Petróleo Brasileiro (Petrobras) as the sole operator for all new offshore projects; replaces the existing concessionary model with a production sharing regime; guarantees Petrobras a minimum 30% stake in all new joint ventures; creates a new public company—Petrosal—to manage the development of the offshore reserves; and creates a new social fund overseen by Congress to direct offshore revenues toward four key areas: education, infrastructure, science and technology, and poverty reduction. 112 Exploiting the new fields will be difficult and costly, however, as the oil is located in the so-called “pre-salt” layer, beneath layers of rock and salt up to 7,000 meters below the seabed. Brazil’s 108 “New Round of Nuclear Enrichment Scare Stories,” Latin American Weekly Report, February 12, 2006; Bernard Aronson, “Brazil’s Chance to Lead on Nuclear Containment,” Wall Street Journal, March 18, 2005; Sharon Squassoni and David Fite, “Brazil as Litmus Test: Resende and Restrictions on Uranium Enrichment,” Arms Control Today, October 2005. 109 Bernard Gwertzman, “Brazil’s Take on Iran and the NPT,” Council on Foreign Relations, May 19, 2010. 110 “Brazil Eletrobras expects $2 bln loan for nuclear,” Reuters, January 18, 2011; “Brazil’s Nuclear Ambitions Expand,” Latin American Regional Report: Brazil & Southern Cone, November 2008. 111 Uranium 2009: Resources, Production and Demand, Organization for Economic Cooperation and Development Nuclear Energy Agency & the International Atomic Energy Agency, 2010. 112 “Brazil Congress passes oil industry overhaul,” Reuters, December 1, 2010; “The Impact of Pre-Salt: A Long-Term Perspective,” Oxford Analytica, May 2010. Congressional Research Service 21 Brazil-U.S. Relations state-owned oil company, Petrobras, has announced that it will need $270 billion in investment over the next 10 years to develop the reserves. 113 Some foreign investors have questioned whether the company will be able to access sufficient finance given the enlarged role of the Brazilian government under the new regulatory framework and increased concerns about offshore oil drilling as a result of the 2010 BP oil spill in the Gulf of Mexico.114 Nonetheless, Petrobras secured a record $41.5 billion from financial markets in 2009, including a preliminary commitment of $2 billion from the Export-Import Bank of the United States, $12.5 billion over 20 years from Brazil’s state-owned National Bank of Economic and Social Development (BNDES), and $10 billion over 10 years from China in exchange for guaranteed oil deliveries of 150,000 barrels per day (bdp) in 2009 and 200,000 bpd for the next decade.115 Trade Issues Trade issues are central to the bilateral relationship between Brazil and the United States. Both countries have been heavily involved in subregional, regional, and global trade talks; however, they have frequently disagreed on the substance of trade agreements. In 2005, opposition from Brazil and other South American countries effectively scuttled the U.S.-backed Free Trade Area of the Americas (FTAA). Since then, the United States has pushed for bilateral and subregional free trade agreements while Brazil has focused its efforts on strengthening the Common Market of the South (Mercosur). Despite these differences, trade between the United States and Brazil totaled $46.3 billion in 2010. Total trade increased nearly 30% over 2009, with U.S. exports to Brazil valued at $27 billion and U.S. imports from Brazil valued at $19.3 billion. The United States is now Brazil’s second-largest trading partner while Brazil is the 11th-largest trading partner of the United States.116 Brazil has traditionally benefited from the Generalized System of Preferences (GSP), which provides duty-free tariff treatment to certain products imported from developing countries. GSP expired on December 31, 2010.117 Doha Round of the World Trade Organization Talks 118 Brazil has had a leading role in the Doha round of the World Trade Organization (WTO) talks. In 2003, Brazil led the G-20 group of developing countries’ efforts to insist that developed countries agree to reduce and eventually eliminate agricultural subsidies as part of any settlement. In late July 2004, WTO members agreed on the framework for a possible Doha round agreement, but 113 “Brazil needs $270 bln over 10-yrs for deepwater oil,” Reuters, March 19, 2009. “Brazil’s Golden Times Start to Roll,” Latin News Daily, September 3, 2008; “Hydrocarbons Potential Poses Major Challenges,” Oxford Analytica, November, 20, 2007; “Brazil industry: Petrobras under pressure,” Economist Intelligence Unit, August 26, 2010. 115 Export-Import Bank of the United States, Summary of Minutes of Board of Directors, April 14, 2009; “Brazil: Da Silva Goes to China,” Stratfor, May 19, 2009; “China’s Sinopec negotiating first oil exploration deal in Brazil,” EFE News Service, June 29, 2009; “Brazil industry: Petrobras under pressure,” Economist Intelligence Unit, August 26, 2010. 116 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, February 2011. 117 For more information on GSP, see CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by Vivian C. Jonesa 118 For more information on the Doha Round, see CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F. Fergusson. 114 Congressional Research Service 22 Brazil-U.S. Relations formal talks were suspended indefinitely in July 2006 after key negotiating groups failed to break a deadlock on the issue of agricultural tariffs and subsidies. In June 2007, negotiators from India and Brazil walked out of a round of informal talks with representatives from the United States and the European Union (EU), refusing to open their markets further unless U.S. and EU subsidies were substantially reduced. In recent years, trade ministers have repeatedly failed to reach an agreement to conclude the Doha round and the U.S. negotiating position remains a source of contention with Brazil. 119 World Trade Organization Cotton Dispute120 Over the past eight years, Brazil and the United States have been involved in a dispute over U.S. subsidies for cotton farmers. In 2002, Brazil went to the WTO to challenge several provisions of the U.S. cotton program. A WTO dispute settlement panel ruled in Brazil’s favor in 2004, finding that certain U.S. agricultural support payments and export guarantees were inconsistent with its WTO commitments. Although Congress modified agricultural support programs in 2005, a WTO compliance panel ruled in 2007 that the U.S. actions were insufficient.121 Following a ruling from a WTO arbitration panel, Brazil announced in March 2010 that it intended to impose retaliatory measures against the United States worth $829 million, including $591 million in higher tariffs on a range of U.S. products and $239 million through suspension of certain intellectual property rights obligations. In order to avoid these retaliatory measures, the United States reached an agreement with Brazil in June 2010. Under the agreement, the United States pledged to make some short-term changes to its export credit guarantees and provide Brazil $147 million annually for a fund to assist Brazilian cotton farmers with technical assistance, marketing, and market research. In exchange, Brazil agreed to temporarily suspend its retaliation with the intention of reaching a permanent agreement with the United States after Congress has a chance to adjust the subsidy program in the 2012 farm bill.122 Intellectual Property Rights Brazil and the United States have periodically engaged in disputes over intellectual property rights (IPR). One issue of particular concern to the U.S. government has been Brazil’s threats to issue compulsory licenses for patented pharmaceutical products. Internationally recognized as having one of the world’s most successful HIV/AIDS programs, 123 Brazil has guaranteed its citizens universal free access to antiretroviral therapy (ART) since 1996. In 2001, Brazil decided to develop generic ART drugs under the compulsory licensing provision of its patent law, thereby 119 “Uncertainty Lies Ahead for WTO,” Oxford Analytica. July 31, 2008; “Brazil-US rows building over Colombia, biofuels, trade: FM,” Agence France Presse, August 2, 2009. 120 For more information on U.S.-Brazil WTO disputes, see CRS Report RL32571, Brazil’s WTO Case Against the U.S. Cotton Program by Randy Schnepf. 121 “WTO Tells U.S. to Act on Illegal Cotton Subsidies,” Financial Times, December 19, 2007. 122 Swell Chan, “U.S. and Brazil Reach Agreement on Cotton Dispute,” New York Times, April 6, 2010; Ana Nicolaci da Costa, “Brazil suspends retaliation in U.S. cotton row,” Reuters, June 17, 2010. 123 Universal free access to ART has increased average HIV/AIDS survival times from 18 months for those diagnosed in 1995, to 58 months for those diagnosed in 1996. HIV prevalence has been stable at 0.5% for the general population in Brazil since 2000. Daniel R. Hogan and Joshua A. Salomon, “Prevention and Treatment of HIV/AIDS in ResourceLimited Settings,” World Health Organization, February 2005. Congressional Research Service 23 Brazil-U.S. Relations reducing treatment costs by 80%. In response, the United States submitted a complaint to the WTO—which was later withdrawn—asserting that Brazil’s practices violated the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. While the pharmaceutical industry argued that TRIPS was an essential tool to protect IPR, developing countries (like Brazil) countered that TRIPS inhibited their ability to fight public health emergencies in a cost-effective manner. In 2003, the WTO temporarily waived part of the TRIPS rules to allow the export of generic drugs to countries confronting a grave public health challenge (such as HIV/AIDS, tuberculosis, or malaria). The waiver was made permanent in 2005.124 Since then, Brazil has issued, or threatened to issue, compulsory licenses on patented pharmaceutical products on several occasions. In 2007, Brazil broke a patent on a drug used to treat HIV/AIDS that is produced by Merck & Co. in order to import a cheaper version from India. In 2009, Brazil suggested that developing countries should be allowed to lift patent rights to produce more vaccine to battle the A(H1N1) flu epidemic.125 According to Brazil’s Ministry of Health, tough negotiations with pharmaceutical companies have saved the country $1.1 billion.126 According to the U.S. Trade Representative, Brazil has improved its record on protecting intellectual property rights in recent years. Brazil works with the United States to address IPR issues through the U.S.-Brazil Bilateral Consultative Mechanism and the U.S.-Brazil Commercial Dialogue. Likewise, the Brazilian government has a national action plan to address piracy and intellectual property crimes. In recognition of this progress, the United States Trade Representative lowered Brazil from the Priority Watch List of countries with significant IPR violations to the Watch List in 2007. Brazil has remained on the Watch List every year since 2007. In order to build on progress that has been made, USTR recommends that Brazil strengthen its IPR enforcement legislation, more vigorously address book and internet piracy, and sign the World Intellectual Property Organization Internet Treaties. 127 Human Rights The U.S. State Department’s Country Report on Human Rights on Brazil covering 2009 states that the “federal government generally respected the human rights of its citizens; however, there continued to be numerous, serious abuses, and the records of several state governments were poor.”128 Some human rights issues of particular concern include ongoing crime and human rights abuses by police, race and discrimination, and trafficking in persons. Violent Crime and Human Rights Abuses by Police Most observers agree that the related problems of urban crime, drugs, and violence, on the one hand, and corruption and brutality in law enforcement and prisons, on the other, are threatening 124 Mary Anastasia O’Grady, “Brazil Could Turn a Trade Victory into Defeat,” Wall Street Journal, December 16, 2005. 125 “Update: Argentina, Brazil Question Swine Flu Vaccine Patents,” CNN Money, July 24, 2009. 126 “Haggling Saves Brazil $1 Billion on AIDS Drugs,” Reuters News, November 13, 2007. 127 U.S. Trade Representative, Special 301 Report, April 30, 2010. 128 U.S. Department of State, Bureau of Democracy, Human Rights, and Labor, 2009 Country Reports on Human Rights Practices, March 11, 2010. Congressional Research Service 24 Brazil-U.S. Relations citizens’ security in Brazil. Crime is most rampant in the urban shanty towns (favelas) in Rio de Janeiro and São Paulo. Violence has traditionally been linked to turf wars being waged between rival drug gangs for control of the drug industry or to clashes between drug gangs and police officials, who have been criticized for the brutal manner in which they have responded to the gang violence. The weaknesses in Brazil’s criminal justice system have become dramatically apparent in recent years as gangs have launched violent attacks that have destabilized the cities of São Paulo and Rio de Janeiro. In one such attack in May 2006, street combat and rioting organized by a prisonbased gang network, the First Capital Command (Primeiro Comando da Capital, PCC), paralyzed the city of São Paulo for several days.129 Officially, the violent gang attacks, which were followed by police reprisals, resulted in at least 186 deaths.130 More recently, in October 2009, gunmen of the Red Command (Comando Vermelho, CV) launched a raid on the Morro dos Macacos favela to wrest control of the drug trade from the rival Friends of Friends (Amigos dos Amigos, ADA) gang. Over the course of several days, 31 people were killed, including three police sharpshooters whose helicopter was shot down as they tried to control the situation.131 As police forces in São Paulo and Rio de Janeiro have employed strong-arm tactics in hopes of curbing the rampant gang violence, some human rights groups have raised concerns over a rising number of extrajudicial killings. Upon completing a November 2007 visit to Brazil, a U.N. Special Rapporteur concluded that police in Brazil are allowed to “kill with impunity in the name of security.”132 Indeed, more than 11,000 people have been killed by the two police forces since 2003. Although the officers involved have reported nearly all of the killings as legitimate acts of self defense, or “resistance killings,” a recent two-year investigation by Human Rights Watch concluded that “a substantial portion of the alleged resistance killings reported ... [were] in fact extrajudicial executions.” The 2009 Human Rights Watch report also indicates that those police officers responsible for extrajudicial killings enjoy near total impunity. For example, of the over 7,800 complaints against police officers recorded by the Rio Police Ombudsman’s Office over the past decade, only 42 generated criminal charges by state prosecutors and just four led to convictions. 133 Despite these criticisms, some have defended the strong-arm tactics. São Paulo’s public security secretariat maintains that Human Rights Watch failed to take note of the fact that annual state killings by police have declined by 50% since 2003 while the homicide rate has been reduced by 70% over the past decade.134 129 Formed in 1993 to protest the country’s poor prison conditions, the PCC now has at least 6,000 dues-paying members and reportedly exerts control over more than 140,000 prisoners in the São Paulo prison system. Stephen Hanson, “Brazil’s Powerful Prison Gang,” Council on Foreign Relations, September 26, 2006. 130 “Brazil: Battle of São Paulo Leaves a Disquieting Balance,” Latin American Weekly Report, May 23, 2006; “Police are Criticized in Wave of Gang Violence in Brazil,” New York Times, May 30, 2006; “Attacks in São Paulo Prompt Fears of Renewed Gang Offensive,” EFE News Service, February 7. 2007. 131 “Brazil: Rio police intervention in gang war leaves high toll,” Latin American Security & Strategic Review, October 2009. 132 “Special Rapporteur on Extrajudicial, Summary, or Arbitrary Executions Concludes Visit to Brazil,” States News Service, November 15, 2007. 133 “Lethal Force: Police Violence and Public Security in Rio de Janeiro and São Paulo,” Human Rights Watch, December 2009. 134 “Human Rights: Police violence under renewed scrutiny,” Latin American Regional Report: Brazil & Southern Cone, January 2010. Congressional Research Service 25 Brazil-U.S. Relations Although many analysts assert that Brazilian politicians at all levels of government have failed to devote the resources and political will necessary to confront the country’s serious public security problems, there have been a number of efforts in recent years to improve the situation. During the Lula Administration, federal government expenditures on public security more than tripled.135 State level efforts have also increased. One particularly noteworthy example is the State of Rio de Janeiro’s “Favela Pacification Program” that was established in late 2008. Under the initiative, elite police units enter favelas and clear them of drug gangs, allowing newly recruited Police Pacification Units (Unidades de Polícia Pacificadora, UPPs) to set up a permanent security presence and other governmental institutions to establish basic social services. This is a significant change from previous law enforcement efforts, which generally centered around quick raids followed by long periods of government neglect. UPPs are now present in 13 favelas and the Rio de Janeiro government intends to extend their presence to 100 favelas by 2014 when Brazil hosts the World Cup. The initiative has moved ahead so quickly that the Brazilian military has had to temporarily take on some law enforcement duties while additional civilian personnel are trained. Although some have expressed concerns about the military taking on civilian responsibilities, most observers have reacted positively to the increased security cooperation between state and federal governments.136 Moreover, the new initiative appears to have been successful thus far; in 2010, Rio de Janeiro registered its lowest murder rate in 20 years.137 President Rousseff has indicated that she would like to incorporate the UPPs into her national public security policy.138 Race and Discrimination139 People of African descent in Brazil, also known as Afro-Brazilians, have long been disproportionately affected by the country’s high level of inequality. However, little concrete information was available until the Brazilian government began to collect better official statistics on Afro-Brazilians during the Cardoso Administration (1995-2002). These statistics—which found significant education, health, and wage disparities between Afro-Brazilians and Brazil’s general population—prompted the Brazilian government to enact antidiscrimination and affirmative action legislation. Brazil now has the most extensive antidiscrimination legislation geared towards Afro-descendants of any country in Latin America. In 2001, Brazil became the first Latin American country to endorse quotas to increase minority representation in government service. Several state universities in Brazil have also enacted quotas, setting aside admission slots for black students. In 135 “Recent Public Security Policies in Brazil,” Document provided in a meeting with officials from Brazil's Ministry of External Relations, December 9, 2010. 136 “Brazil: Forty Rio favelas targeted for ‘pacification,’” Latin American Security & Strategic Review, January 2010; Fabiana Frayssinet, “Police Occupation Hurts Improved Relations with Favelas,” Inter Press Service, December 1, 2010; Adam Isacson, “Rio de Janeiro’s Pacification Program,” Washington Office on Latin America, January 5, 2011; Fabiana Frayssinet & Mario Osava, “Brasil: La policía se gana corazones en Río de Janeiro,” Inter Press Service, November 29, 2010; Stuart Grudgings, "Rio slums open for business as gangs ousted,” Reuters, December 22, 2010. 137 “Officials: Rio has lowest murder rate in 20 years,” Associated Press, February 2, 2011. 138 “Brazil: Rio on alert after new wave of violence,” Latin American Weekly Report, November 25, 2010. 139 For more information, see CRS Report RL32713, Afro-Latinos in Latin America and Considerations for U.S. Policy, by Clare Ribando Seelke and June S. Beittel. Congressional Research Service 26 Brazil-U.S. Relations 2003, Brazil became the first country in the world to establish a Special Secretariat with a ministerial rank to manage racial equity promotion policies. In July 2010, President Lula signed the Statute of Racial Equality, which offers tax incentives for enterprises that undertake racial inclusion, stipulates that the government shall adopt affirmative action programs to reduce ethnic inequalities, and reaffirms that African and Brazilian black history should be taught in all elementary and middle schools, among other provisions. Afro-Brazilian activists, while acknowledging recent government efforts on behalf of Afro-descendants, have noted that some of the legislation was weakened before passing and many of the initiatives lack the funding, staff, and clout necessary to be effective. 140 Although most Brazilians favor government programs to combat social exclusion, they disagree as to whether the beneficiaries of affirmative action programs should be selected on the basis of race or income. 141 In March 2008, Brazil and the United States signed an agreement known as the United StatesBrazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality. The initiative seeks to promote equality of opportunity for the members of all racial and ethnic communities of the United States and Brazil. The six projects provided with initial funding under the Joint Action Plan seek to promote equal labor rights, strengthen linkages between U.S. and Brazilian universities, and improve educational and career opportunities for people of African decent.142 Trafficking in Persons for Forced Labor143 According to the U.S. State Department’s Trafficking in Persons report, Brazil does not fully comply with the minimum standards for the elimination of trafficking, but is making significant efforts to do so. As a result, it is listed as a Tier 2 country.144 Brazil is a source, transit, and destination country for people, especially women and children, trafficked for commercial sexual exploitation. Brazilian Federal Police estimate that between 250,000 and 400,000 children are exploited in domestic prostitution, especially in the country’s coastal resort areas where child sex tourism is prevalent. 140 Dayanne Mikevis and Matthew Flynn, “Brazil’s Civil Rights Activists Achieving Overdue Policy Reform,” Citizen Action in the Americas, No. 17, April 2005; Fabiana Frayssinet, “Controversy Dogs Brazil’s Racial Equality Law,” Inter Press Service, July 9, 2010; Arthur Brice, “Brazil enacts racial discrimination law, but some say it’s not needed,” CNN, July 21, 2010. 141 Livio Sansone, “Anti-Racism in Brazil,” NACLA Report on the Americas, September 1, 2004. 142 U.S. Department of State, Bureau of Western Hemisphere Affairs, “Linking Voices Through the U.S.-Brazil Joint Action Plan,” March 10, 2009. 143 For more information, see CRS Report RL33200, Trafficking in Persons in Latin America and the Caribbean, by Clare Ribando Seelke. 144 Since 2001, the U.S. State Department has evaluated foreign governments’ efforts to combat trafficking in persons in its annual Trafficking in Persons (TIP) reports, which are issued each June. Countries are grouped into four categories according to the U.S. assessment of efforts they are making to combat trafficking. Tier 1 is made up of countries deemed by the State Department to have a serious trafficking problem but fully complying with the minimum standards for the elimination of trafficking. Those standards are defined in the Victims of Trafficking and Violence Protection Act of 2000 (P.L. 106-386) as amended. Tier 2 is composed of governments not fully complying with those standards but which are seen as making significant efforts to comply. Tier 2 Watch List, first added as a category in the 2004 report, is made up of countries that are on the border between Tier 2 and Tier 3. Tier 3 includes those countries whose governments the State Department deems as not fully complying with TVPA’s anti-TIP standards and not making significant efforts to do so. Tier 3 countries have been made subject to U.S. sanctions since 2003. Congressional Research Service 27 Brazil-U.S. Relations Brazil is also a source country for men trafficked internally for forced labor. More than 25,000 men have reportedly been recruited to labor in slave-like conditions, many in the country’s agribusiness industry. Roughly half of the more than 11,000 people freed from debt slavery in 2007 and 2008 were found working on sugarcane plantations.145 While the Brazilian government announced an agreement with the sugar industry to provide decent working conditions for the country’s sugarcane cutters in June 2009, the accord does not establish minimum wages or formal obligations.146 Reports suggest that significant numbers of men working in cattle ranching, mining, and the production of charcoal for pig iron—a key ingredient of steel that is then purchased by major companies in the United States—are also subjected to slave labor.147 Over the past year, the Brazilian government has taken a number of actions to address the problem of human trafficking. Anti-slave labor mobile units under the Ministry of Labor increased their operations, inspecting remote areas, freeing 3,769 victims, and forcing those responsible to pay fines and restitution. Those responsible for slave labor paid some $3.3 million in fines as a result of the 2009 operations. The Brazilian government also continued prosecuting traffickers, providing assistance to victims, and broadcasting its anti-trafficking public awareness campaign. Additionally, the Brazilian government continued implementing a national plan of action to prevent trafficking in persons. Despite these actions, Brazil has made only limited progress in bringing traffickers to justice and effectively penalizing those who exploit forced labor.148 Amazon Conservation The Amazon basin spans the borders of eight countries and is the most biodiverse tract of tropical rainforest in the world. It holds 20% of the Earth’s fresh water and 10% of all known species. The Amazon also holds 10% of the world’s carbon stores and absorbs nearly 2 billion tons of carbon dioxide each year, making it a sink for global carbon emissions and an important asset in the prevention of climate change. Approximately 60% of the Amazon falls within Brazilian borders, making Brazil home to 40% of the world’s remaining tropical forests.149 The Brazilian Amazon was largely undeveloped until the 1960s, when the military government began subsidizing the settlement and development of the region as a matter of national security. Over the last 40 years, the human population has grown from 4 million to over 20 million, and the resulting settlements, roads, logging, cattle ranching, and subsistence and commercial agriculture 145 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, Trafficking in Persons Report, June 4, 2008 & June 16, 2009. 146 “Brazil seeks decent working conditions for sugarcane cutters,” EFE News Service, June 26, 2009. 147 Michael Smith and David Voreacos, “The Secret World of Modern Slavery,” Bloomberg Markets, December 2006; U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, Trafficking in Persons Report 2010, June 14, 2010. 148 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, Trafficking in Persons Report 2010, June 14, 2010. 149 “Brazil: Global warming risks threaten Amazonia,” Oxford Analytica, March 16, 2009; Conor Foley, “The End of the Amazon?,” Foreign Policy, June 2009; Lesley K. McAllister, “Sustainable Consumption Governance in the Amazon,” Environmental Law Reporter, December 2008; “Amazon: World’s largest tropical rainforest and river basin,” World Wildlife Fund, 2009. Congressional Research Service 28 Brazil-U.S. Relations have led to approximately 15% of the Brazilian Amazon being deforested. 150 In the 1980s, some predicted that deforestation would decline if the Brazilian government stopped providing tax incentives and credit subsidies to settlers and agricultural producers. Those predictions have not borne out, however, as the complex and often interrelated causes of deforestation have multiplied rather than decreased. 151 Between 1990 and 2000, Brazil lost approximately 70,000 square miles of forest; however, deforestation rates have generally declined since the peak year of 2004.152 Domestic Efforts Recognizing that deforestation threatens the biodiversity of the Amazon region and is responsible for 70% of Brazil’s annual greenhouse-gas emissions, the Brazilian government has expanded protected areas and implemented new environmental policies.153 The Lula Administration created over 60 new natural reserves, bringing the total area of the Brazilian Amazon protected by law to nearly 110,000 square miles, the fourth-largest percentage of protected area in relation to territory in the world. 154 President Lula also signed a Public Forest Management Law to encourage sustainable development and placed a moratorium on soybean plantings and cattle ranching in the Amazon. The Brazilian government intends to reduce the rate of Amazon deforestation by half— based on the 1996-2005 average—to 2,300 square miles per year—by 2017 and reduce Amazon deforestation by 80% by 2020. Brazil plans to meet these goals by increasing federal patrols of forested areas, replanting over 21,000 square miles of forest, and financing sustainable development projects in areas where the local economy depends on logging. 155 Between August 2009 and July 2010, some 2,490 square miles of the Amazon were deforested, a 14% drop from the year before and the lowest annual level since Brazil’s National Institute for Space Studies began monitoring deforestation in 1988.156 Although some conservation groups praised the Lula Administration’s actions, a number of environmentalists—including former Environment Ministers Marina Silva and Carlos Minc— questioned the Administration’s commitment to sustainable development. 157 Critics assert that the Lula Administration favored agricultural interests over conservation. This claim was reinforced by President Lula’s June 2009 approval of an environmental law that granted nearly 260,000 150 Lesley K. McAllister, “Sustainable Consumption Governance in the Amazon,” Environmental Law Reporter, December 2008. 151 Some have suggested that access to pristine tracts of rainforests through roads is the primary driver of deforestation in the Amazon. Regional roads constructed by the government, as well as local roads created by logging operations, provide access to forested areas. Using these roads, farmers clear remaining forests and practice slash and burn agriculture until the land loses much of its soil fertility and it becomes more profitable to move to other forested tracts rather than resuscitate existing lands. After agriculture, pasture grasses are generally planted and cattle are raised. Eventually, cattle grazing and cyclical burning alter the ecosystem to the point that forests cannot regenerate. 152 “Government Sets Targets to Cut Deforestation,” Latin American Regional Report, December 2008. 153 “Brazil: The Land Cries for Amazonia,” Latin America Data Base NotiSur, February 13, 2009. 154 “Brazil: Government policy for Amazon still ambiguous,” Latin News Weekly Report, May 22, 2008. 155 “Government Sets Targets to Cut Deforestation,” Latin American Regional Report, December 2008; “Brazil: Climate credentials to the fore in Copenhagen,” Oxford Analytica, November 19, 2009. 156 “Brazil: Deforestation reaches 22-year low,” Oxford Analytica, December 2, 2010. 157 Joshua Partlow, “Brazil’s Decision to Reduce Deforestation Praised,” Pittsburgh Post-Gazette, December 7, 2008; Ana Paula Paiva, “Brazil environment minister says lacks support,” Reuters, May 28, 2009. Congressional Research Service 29 Brazil-U.S. Relations square miles of the Amazon to illegal squatters, 72% of which was directed to large land holders.158 Critics also maintain that Brazil’s occasional declines in deforestation rates are not the result of the government’s initiatives, but correspond to declining global commodity prices that make it less profitable to clear the forests. They point out that deforestation rates only began falling as commodity prices collapsed in late 2008 as a result of the global financial crisis.159 In order to combat further deforestation, some analysts maintain that the Brazilian government will have to greatly increase the number of people employed to work in protected areas and do more to confront agricultural producers operating within the Amazon. 160 International Initiatives In August 2008, Brazil launched the “Amazon Fund” to attract donations from countries, companies, and non-governmental organizations to assist in Brazil’s Amazon conservation efforts. Brazil intends to raise $21 billion by 2021 to support forest conservation, scientific research, and sustainable development. Norway has pledged $1 billion to the fund through 2015 and Germany has pledged $26.8 million. The first projects funded by the Amazon Fund were announced in December 2009. They include projects to regenerate degraded land, monitor land registration titles, and pay rubber tappers and other forest dwellers to protect the forest.161 U.S. environment programs in Brazil support tropical forest conservation through the promotion of proper land-use and encouragement of environmentally friendly income generation activities for the rural poor. In FY2006, the U.S. Agency for International Development (USAID) initiated the Amazon Basin Conservation Initiative, which supports community groups, governments, and public and private organizations working throughout the Amazon Basin in their efforts to conserve the Amazon’s globally important biodiversity. USAID provided $9.5 million for environmental programs in Brazil in FY2008, $10 million in FY2009, and an estimated $14 million in FY2010. The Obama Administration’s FY2011 request included $7 million for environmental programs in Brazil.162 In August 2010, the United States and Brazil signed a debtfor-nature agreement under the Tropical Forest Conservation Act of 2008 (P.L. 105-214), which will reduce Brazil’s debt payments by $21 million over the next five years. In exchange, the Brazilian government will commit those funds to activities to conserve protected areas, improve natural resource management, and develop sustainable livelihoods in the Atlantic Rainforest, Caatinga, and Cerrado ecosystems. 163 158 Jose Pedro Martins, “Brazil: Environmentalists and Church Protest Legalization of Fraudulently Obtained Lands in the Amazon,” Latin America Data Base NotiSur, June 25, 2009. 159 Raymond Colitt, “Brazil on target in slowing Amazon deforestation,” Reuters, June 2, 2009. 160 Ibid; Joshua Partlow, “A Protected Forest’s Fast Decline,” Washington Post, February 6, 2009. 161 “Brazil unveils first foreign-funded Amazon projects,” Reuters, December 4, 2009. 162 U.S. State Department, FY2011 Congressional Budget Justification for Foreign Operations, February 1, 2010. 163 U.S. Department of State, Office of the Spokesman, “Debt-for-Nature Agreement to Conserve Brazil’s Tropical Forests,” August 12, 2010. For more information on the Tropical Forest Conservation Act, see CRS Report RL31286, Debt-for-Nature Initiatives and the Tropical Forest Conservation Act: Status and Implementation, by Pervaze A. Sheikh. Congressional Research Service 30 Brazil-U.S. Relations Author Contact Information Peter J. Meyer Analyst in Latin American Affairs pmeyer@crs.loc.gov, 7-5474 Acknowledgments Clare Ribando Seelke, Specialist in Latin American Affairs, contributed to this report. Congressional Research Service 31