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Brazil: Background and U.S. Relations

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Brazil-: Political and Economic Situation and U.S. Relations Peter J. Meyer Analyst in Latin American Affairs October 11, 2012 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 sixth largest in the world, Brazil has consolidated its power in South America and become increasingly prominent on the world stage. The Obama Administration 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, Brazil and the United States continue to engage on issues such as security, energy, trade, human rights, and the environment. Political Situation Dilma Rousseff of the ruling center-left Workers’ Party was inaugurated to a four-year presidential term on January 1, 2011. She inherited a country that had benefited from 16 years of stable and capable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010). Rousseff’s multiparty coalition holds significant majorities in both houses of Brazil’s legislature; however, keeping the unwieldy coalition together to advance her policy agenda has proven challenging. Although she has won approval for a federal worker pension reform, regulations for the 2014 World Cup, and a truth commission to investigate abuses during the military regime (1964-1985), other important initiatives have yet to advance. Rousseff has also lost several administration officials to corruption scandals but her efforts to clean up her cabinet have won popular support. In September 2012, 62% of Brazilians evaluated her administration as “good” or “very good.” Economic Conditions With a gross national income of $2.1 trillion, Brazil is the largest economy in Latin America. Over the past five 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. The country has also benefitted from a series of policy reforms implemented over the course of two decades that have reduced inflation, fostered growth, and enabled Brazil to better absorb international shocks like the recent global financial crisis. After contracting by 0.3% in 2009, the Brazilian economy quickly bounced back with 7.6% growth in 2010. The economy has since slowed; it grew by 2.7% in 2011 and is expected to grow by just 1.5% in 2012. Unemployment remains near a record low, however, and the Rousseff Administration is implementing several policies designed to stimulate the economy. Congressional Action The 112th Congress has maintained interest in U.S.-Brazil relations, with energy and trade issues receiving particular attention. Congress allowed a duty on imported ethanol to expire at the end of 2011, removing a long-standing barrier to U.S.-Brazil biofuels cooperation. A bill introduced in April 2012, H.R. 4621, would authorize the President to enter into negotiations with Brazil to obtain open and reciprocal market access for trade in ethanol products. H.R. 6539, introduced in September 2012, would create a U.S.-Brazil Joint Commission on Commerce and Trade to address bilateral trade issues and promote commercial opportunities in both countries. Several bills with implications for the long-standing U.S.-Brazil cotton dispute have also been introduced in the second session. H.R. 5143 would prohibit payments to the Brazil Cotton Institute and Congressional Research Service Brazil-U.S. Relations thereby prevent the United States from complying with the terms of a temporary bilateral agreement. Additionally, both versions of the 2012 farm bill, S. 3240 and H.R. 6083, include potential modifications of the U.S. cotton program. 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 Political Situation............................................................................................................................. 1 Background................................................................................................................................ 1 2010 Elections ........................................................................................................................... 3 Rousseff Administration ............................................................................................................ 4 Economic Conditions....................................................................................................................... 6 Background: Reform and Stabilization ..................................................................................... 7 Global Financial Crisis and Current Challenges ....................................................................... 7 Social Conditions....................................................................................................................... 9 Foreign Policy................................................................................................................................ 10 Regional Policy ....................................................................................................................... 10 South American Integration .............................................................................................. 10 Expansion of Influence into the Caribbean and Central America ..................................... 12 Emerging Global Role ............................................................................................................. 13 South-South Ties ............................................................................................................... 13 Democratization of Global Governance............................................................................ 14 U.S.-Brazil Relations ..................................................................................................................... 15 Security Cooperation ............................................................................................................... 16 Counternarcotics................................................................................................................ 17 Counterterrorism and the Tri-Border Area ........................................................................ 18 Defense.............................................................................................................................. 19 Energy Cooperation................................................................................................................. 20 Ethanol and Other Biofuels ............................................................................................... 20 Oil...................................................................................................................................... 21 Trade Relations........................................................................................................................ 22 Cotton Dispute .................................................................................................................. 23 Intellectual Property Rights............................................................................................... 24 Human Rights.......................................................................................................................... 25 Trafficking in Persons ....................................................................................................... 26 Violent Crime and Abuses by Police................................................................................. 27 Race and Discrimination ................................................................................................... 28 Amazon Conservation ............................................................................................................. 29 Figures Figure 1. Map of Brazil.................................................................................................................... 3 Contacts Author Contact Information........................................................................................................... 31 Acknowledgments ......................................................................................................................... 31 Congressional Research Service Brazil-U.S. Relations Political Situation Dilma Rousseff of the center-left1 Workers’ Party (Partido dos Trabalhadores, PT) is approaching the halfway point of her four-year presidential term that began on January 1, 2011. She inherited a country that had benefited from 16 years of capable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010), during whose terms Brazil made significant advances in economic stabilization and social inclusion.2 Rousseff has primarily focused on domestic challenges during her first two years in office, seeking to boost growth and protect employment in the near-term while implementing policies designed to strengthen Brazil’s mid- and long-term economic competitiveness. Rousseff has also taken a stronger stand against corruption than previous presidents, dismissing several cabinet officials accused of abusing the public’s trust. This has caused some tensions in her multiparty governing coalition, which holds significant majorities in both houses of Brazil’s legislature but has proven difficult to control. Rousseff’s efforts to strengthen the economy and clean up her cabinet have won her significant popular support. In September 2012, 62% of Brazilians rated the Rousseff Administration as “good” or “very good.”3 Background Brazil occupies almost half of the continent of South America and is the fifth most populous country in the world with 191 million (2010) citizens.4 The country has a federal structure, comprising 26 states, a federal district, and some 5,568 municipalities. Given its size and resources, Brazil has long held potential to become a world power. However, its rise to prominence has been hindered 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 some other South American countries. Although it nominally allowed the judiciary and Congress to function during its tenure, the Brazilian military stifled representative democracy and civic action, carefully preserving its influence during one of the most protracted transitions to democracy to occur in Latin America. During the first decade after the country’s return to civilian democratic rule, 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 died before taking office and the other was impeached on corruption charges. The political and economic situation only began to stabilize in the 1990s under President Fernando Henrique Cardoso. 1 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. 2 See, for example, “Brazil’s Presidential Election – Lula’s Legacy,” Economist, September 30, 2010; Juan Forero, “Cardoso vs. Lula: Two Brazilian Presidents Vie Over Who Turned Country Around,” Washington Post, October 30, 2010; and Cristiano Romero, “O Legado de Lula na Economia,” Valor Online (Brazil), December 29, 2010. 3 Jefferson Ribeiro, “Aprovação do Governo Dilma Sobe com Medidas Econômicas—CNI/Ibope,” Reuters Brasil, September 26, 2012 4 Instituto Brasileiro de Geografia e Estatística (IBGE), Censo Demográfico 2010, November 2010. Congressional Research Service 1 Brazil-U.S. Relations Cardoso, a prominent sociologist of the centrist5 Brazilian Social Democracy Party (Partido da Social Democracia Brasileira, PSDB), was elected president in 1994. His victory was largely the result of the success of the anti-inflation “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, gradually opened the Brazilian economy to trade and investment, and privatized a number of state-owned enterprises (see “Background: Reform and Stabilization” below). He also established several conditional cash transfer programs designed to improve social conditions in the country. Although Cardoso’s popularity declined considerably during his second term as Brazil struggled with a series of financial crises and economic growth remained weak, most analysts credit him with laying the foundation for the macroeconomic stability that Brazil has enjoyed since he left office.6 Luis Inácio Lula da Silva—known as Lula—was 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. During his first term, Lula maintained the marketoriented economic policies associated with his predecessor while placing a greater emphasis on reducing poverty. He tightly controlled expenditures, raised the primary budget surplus, granted additional autonomy to the Central Bank, and enacted social security and tax reforms. At the same time, he reorganized and expanded some of the social programs initiated under Cardoso. Lula’s most high profile program, Bolsa Familia (Family Grant), provides monthly cash transfers to some 13 million poor families (52 million people)7 in exchange for ensuring that their children attend school and receive proper medical care. Lula’s agenda stalled toward the end of his first term as several top PT officials were implicated in corruption scandals. A congressional inquiry eventually cleared the president of any direct responsibility, however, and Lula was elected to a second term in 2006. After primarily focusing on maintaining economic stability during his first term, Lula established a larger role for the Brazilian state in economic development 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, such as My House, My Life (Minha Casa, Minha Vida)—an attempt to increase formal housing for low-income Brazilians.8 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.9 (For more information, see “Oil” below.) Although some analysts have criticized Lula for allegedly protecting corrupt officials and not doing more to advance what they view as crucial economic, political, and social reforms,10 he won the support 5 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. Power and Zucco, 2009, op.cit. 6 See, for example, Riordan Roett, "How Reform Has Powered Brazil’s Rise," Current History, February 2010. 7 "Brazil Anti-Poverty Plan Fails to Tackle Causes," Oxford Analytica, June 15, 2011. 8 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. 9 “Brazil Congress Approves Oil Law,” Latin News Daily, December 2, 2010. 10 See, for example, 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,” Economist, September 30, 2010; and Paulo (continued...) Congressional Research Service 2 Brazil-U.S. Relations of the vast majority of the Brazilian public during his two terms, leaving office with an 87% approval rating.11 Figure 1. Map of Brazil Source: Map Resources. Adapted by CRS Graphics. 2010 Elections On October 31, 2010, Dilma Rousseff of the ruling PT won 56% of the vote to defeat José Serra of the PSDB in a second round presidential runoff election.12 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, 2010.13 Given the strength of the Brazilian economy and Lula’s (...continued) Kliass, “Lula’s Political Economy: Crisis and Continuity,” North American Congress on Latin America (NACLA), March/April 2011. 11 Bradley Brooks, “Lula’s Legacy, Leaving Behind a Transformed Brazil,” Associated Press, December 27, 2010. 12 “Brazil: Lula Will Bolster—and May Hinder—Rousseff,” Oxford Analytica, November 1, 2010. 13 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 (continued...) Congressional Research Service 3 Brazil-U.S. Relations overwhelming popularity, both major candidates had largely promised continuity during the campaign. Rousseff pledged to consolidate gains made during the Lula Administration and Serra proposed 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 chief of staff from 2005-2010, during which time she was in charge of strategic projects such as the government’s housing program, investments in infrastructure, and coordination of the design of a new regulatory framework for developing Brazil’s offshore oil reserves. Rousseff headed a multiparty electoral coalition with a running-mate from the ideologically heterogeneous 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 the Brazilian 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. Rousseff’s multiparty coalition holds over 60% of the seats in both houses of Congress, which are large enough majorities to amend the constitution.14 Rousseff Administration President Rousseff has primarily focused on domestic economic challenges since taking office. Early in her term, she sought to constrain spending in order to ease inflationary pressures and maintain a primary budget surplus of 3.1% of gross domestic product (GDP). She cut about $25 billion (R$50 billion) from the 2011 budget and limited the increase in the minimum wage (which is linked to public sector wages and pensions).15 As Brazil’s economy has slowed, however, Rousseff has favored more expansionary fiscal policies. She has maintained a strong role for the state in the economy, launching a series of short-term stimulus packages and increasing import tariffs to protect certain industries. At the same time, Rousseff has sought to encourage private investment in the country’s overburdened infrastructure, selling licenses to build and operate roads, railways, ports, and airports.16 Partially as a result of these measures, unemployment has remained below 6%—a historic low.17 Although Rousseff’s governing coalition enjoys significant majorities in Congress, it has presented her with a number of challenges. The seven parties in her cabinet are ideologically diverse, and while some support the policies of the PT, others—including the large PMDB—have demonstrated more interest in the distribution of government resources and the control of ministries and state enterprises.18 Almost immediately, some sectors of the coalition voiced discontent as a result of Rousseff’s cabinet appointments and her attempt to slow the growth of (...continued) 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. 14 Tribunal Superior Eleitoral (TSE), January 5, 2010, http://www.tse.gov.br/internet/index.html. 15 “Brazil: Rousseff’s Strong Start Boosts Confidence,” Oxford Analytica, April 7, 2011. 16 “Stimulus Measures Unlikely to Boost Brazilian Growth,” Oxford Analytica, July 9, 2012; Raymond Colitt, “ExGuerilla Rousseff Adopts Business Agenda to Spur Brazil,” Bloomberg, September 20, 2012. 17 “Country Report: Brazil,” Economist Intelligence Unit, September 2012. 18 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. Congressional Research Service 4 Brazil-U.S. Relations government spending.19 Rousseff’s unwillingness to throw her full support behind officials accused of corruption has exacerbated these intra-coalition differences. Seven of her cabinet ministers have been forced out by corruption allegations.20 In protest, some allied legislators have obstructed administration initiatives or even voted with the political opposition on key issues.21 Intra-coalition struggles may increase once again in the aftermath of the October 2012 municipal elections, with the parties that demonstrated greater political strength pushing for more influence in the government. Despite these economic and coalition challenges, President Rousseff has been able to advance portions of her policy agenda. In November 2011, Rousseff—who was imprisoned and tortured by the country’s military government as a result of her participation in a leftist guerilla organization—signed a law establishing a truth commission to investigate human rights abuses committed during the authoritarian period (1964-1985). Unlike many South American countries, Brazil has never taken steps to address human rights violations committed by the military. The truth commission will have subpoena power and complete access to government documents, but will not result in prosecutions since a 1979 amnesty law remains in place.22 Rousseff has also won approval for a federal worker pension reform and regulations for the 2014 World Cup.23 Several other controversial issues remain on the Rousseff Administration’s agenda, however, including a new revenue sharing framework that must be passed in order to begin developing the majority of the country’s recently discovered offshore oil reserves (see “Oil” below). Rousseff has maintained considerable popular support since taking office. In September 2012, 62% of Brazilians rated her administration as “good” or “very good” while just 7% rated it as “bad” or “terrible.” Moreover, President Rousseff received a personal approval rating of 77%. Rousseff’s strong public standing is largely the result of her efforts to improve economic conditions. According to the September poll, her administration receives its highest marks for reducing poverty and combating unemployment.24 Rousseff’s high approval rating also appears to have benefitted her party in the first round of the October 2012 municipal elections. The PT received the largest number of mayoral votes nationwide, and increased its total number of mayoral seats by 14% to 627.25 Many analysts expected the PT to lose support in the elections as a result of a high profile corruption case in front of the Supreme Court that has convicted a number of former party officials for their involvement in a Lula-era vote-buying scheme.26 Rousseff’s anti-corruption efforts appear to have helped shield the PT from the fallout. 19 Vera Rosa and Rafael Moraes Moura, “Ministério de Dilma Mantém Fatia de Poder do PT e Desagrada a Aliados,” Estado de São Paulo Digital, December 22, 2010. 20 “Coming Into Her Own,” Economist, February 18, 2012. 21 Juan Arias, “El Ala Izquierda del PT Critica la Política de Austeridad de Rousseff,” El País (Argentina), March 1, 2011; “Brazil’s Congress Calls ‘Go-Slow’ Strike,” Latin News Daily, August 11, 2011. 22 “Brazilian President Signs Truth Commission Law,” Associated Press, November 18, 2011. 23 Raymond Colitt, “Brazil Finds It Takes a Woman to Confront Congress without Fear,” Bloomberg, April 4, 2012. 24 Jefferson Ribeiro, “Aprovação do Governo Dilma Sobe com Medidas Econômicas—CNI/Ibope,” Reuters Brasil, September 26, 2012; Diogo Alcântara, “CNI/Ibope: Aprovação do Governo Dilma Sobe para 62%,” Terra (Brazil), September 26, 2012. 25 “PMDB é Campeão em Número de Prefeitos, PT Vence em Total de Votos,” Folha de São Paulo, October 8, 2012. 26 See, for example, Raymond Colitt, “Brazil Corruption Trial Chills Lula Legacy as Party Vote Suffers,” Bloomberg, August 1, 2012. Congressional Research Service 5 Brazil-U.S. Relations Economic Conditions With a gross national income (GNI) of $2.1 Brazil in Brief trillion,27 Brazil is the largest economy in Approximate Size: Slightly Smaller than the United States Latin America and the sixth largest in the Population: 191 Million (2010) world.28 Over the past five years, the country has enjoyed relative macroeconomic Ethnic Groups: African, Portuguese, Italian, German, Spanish, Japanese, Indigenous peoples, and people of Middle stability and average annual growth of Eastern descent. nearly 4.3%.29 This growth has been driven by a boom in international demand— Religion: 74% Roman Catholic particularly in Asia—for its commodity Official Language: Portuguese exports, and the increased purchasing power GNI (Atlas Method): $2.1 Trillion (2011) of Brazil’s fast-growing middle class, which GNI per Capita (Atlas Method): $10,720 (2011) has added some 40 million people since 2003 and now accounts for a majority of the Life Expectancy: 73 years (2011) population.30 In 2011, Brazil had a trade Infant Mortality Rate: 14 per 100,000 live births (2011) surplus of $29.8 billion, or 1.2% of GDP. Adult Literacy Rate: 90% (2008) The total value of its exports reached $256 billion (10.1% of GDP), with top exports Poverty Rate: 24.9% (2009) including commodities such as iron ore, oil, Indigence Rate: 7% (2009) soy, sugar, chicken, and beef, as well as Sources: Instituto Brasileiro de Geografia e Estatística, manufactured goods such as automobiles 31 U.S. State Department, World Bank, U.N. Economic and machinery. The country’s current Commission for Latin America and the Caribbean economic strength is at least partially the result a series of policy reforms implemented over the course of two decades that have reduced inflation, fostered growth, and enabled Brazil to better absorb international shocks like the recent global financial crisis.32 After contracting by 0.3% in 2009, the Brazilian economy quickly bounced back with 7.6% growth in 2010. Economic growth has since slowed, however, with GDP expanding by 2.7% in 2011 and private analysts forecasting an expansion of just 1.5% in 2012.33 The Rousseff Administration is currently implementing several measures designed to boost growth in the short-run and make the Brazilian economy more competitive in the future. 27 World Bank, “World Development Indicators,” http://data.worldbank.org/data-catalog/world-developmentindicators. 28 “Brazilian Economy Overtakes UK’s, Says CEBR,” BBC News, December 26, 2011. 29 “Country Report: Brazil,” Economist Intelligence Unit, March 2012. 30 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 $590 and $2,544 (R$1,200-5,174) per month, now account for over half of the Brazilian population. Marcelo Cortes Neri, Os Emergentes dos Emergentes: Reflexões Globais e Ações para a Nova Classe Média Brasileira, Fundação Getulio Vargas, Rio de Janeiro, June 27, 2011. 31 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, January 2011. 32 “Brazil Takes Off,” Economist, November 12, 2009. 33 “Country Report: Brazil,” Economist Intelligence Unit, September 2012. Congressional Research Service 6 Brazil-U.S. Relations Background: Reform and Stabilization Following the return to democracy in the late 1980s and early 1990s, Brazil struggled with persistent 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 annual 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 stateowned 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.34 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 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 relatively 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 2009.35 Global Financial Crisis and Current Challenges Brazil weathered the global financial crisis much better than previous international shocks. The country experienced a brief recession in 2009, with an economic contraction of 0.3%, before rebounding quickly with growth of 7.6% in 2010.36 Most analysts credit Brazil’s strong macroeconomic framework and the Lula Administration’s timely policy response for successfully mitigating the effects of the crisis.37 As the fallout of the financial crisis spread around the world, the Brazilian government injected additional liquidity into the local economy, provided support packages to productive sectors, and cut the key interest rate. President Lula also acted to boost 34 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. 35 Antonio Rodriguez, “Brazil Switches Roles with Helping Hand for IMF,” Agence France Presse, October 5, 2009. 36 “Country Report: Brazil,” Economist Intelligence Unit, September 2012. 37 See, for example, “IMF Executive Board Concludes 2010 Article IV Consultation with Brazil,” International Monetary Fund, August 5, 2010; and Cristiano Romero, “O Legado de Lula na Economia,” Valor Online (Brazil), December 29, 2010. Congressional Research Service 7 Brazil-U.S. Relations 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.38 Although Brazil recovered quickly from the financial crisis, the lingering effects of the global downturn have presented challenges for the country’s economy. Slow growth rates and expansionary monetary policies have kept interest rates low in Europe and the United States, and have encouraged investors looking for higher returns to flood Brazil and other developing nations with foreign capital. These policies have contributed to considerable appreciation of the Brazilian real,39 and have hurt the competitiveness of Brazilian industry.40 The Brazilian government has responded by accusing the United States and others of fueling “currency wars” through “competitive devaluations,”41 and by instituting measures designed to discourage inflows of foreign capital. It has imposed a financial operations tax, and the Brazilian Central Bank has been willing to tolerate inflation at the high end of its target range in order to reduce interest rates to a record low. As noted above, the Rousseff Administration has also implemented temporary policies designed to support local industry and stimulate growth, such as raising import tariffs on certain products and providing temporary tax cuts. Brazil’s economy, which grew by 2.7% in 2011, is forecast to grow by just 1.5% in 2012.42 A number of analysts maintain that Brazil’s slowing economic growth is the result of the country’s structural challenges, and that the government should implement policies designed to boost investment rather than domestic demand.43 While the Rousseff Administration has continued to support short-term stimulus policies, as noted above, it has also taken a number of actions in recent months to reduce business costs. It has cut payroll taxes, reduced energy costs, and encouraged private investment in the country’s overburdened infrastructure by selling licenses to build and operate roads, railways, ports, and airports.44 Rousseff has also announced her Administration’s intention to use new royalties from the oil industry to invest in education.45 Although significant structural challenges remain, it appears as though the Rousseff Administration recognizes the need to address them in order to foster Brazil’s long-term economic development. 38 “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. 39 Ian Talley, “IMF Says Capital Controls Can Slow Investment Flows in India, Brazil,” Wall Street Journal, January 6, 2011. 40 “Brazil: Reserve Requirements Will Not Weaken Real,” Oxford Analytica, January 11, 2011; Matthew Bristow, “Brazil Central Bank Moves to Curb Short Dollar Bets and Rein in Real Rally,” Bloomberg, July 10, 2011; “Brazil Taxes Derivatives to Brake Currency Rally,” Reuters, July 27, 2011. 41 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. 42 “Country Report: Brazil,” Economist Intelligence Unit, September 2012. 43 Paulo Vieira da Cunha and Vinod Thomas, “The Brazilian Economy: The Choices for Dilma,” Remarks at the InterAmerican Dialogue, Washington, DC, November 10, 2010; Arthur Carvalho and Gray Newman, “Brazil: Dismantling the Policy Mismatch?,” Morgan Stanley Research, August 10, 2012. 44 “Stimulus Measures Unlikely to Boost Brazilian Growth,” Oxford Analytica, July 9, 2012; Raymond Colitt, “ExGuerilla Rousseff Adopts Business Agenda to Spur Brazil,” Bloomberg, September 20, 2012. 45 “Brazil: Rousseff Pledges 100% of Offshore Oil Royalties to Education,” Latin American Weekly Report, August 23, 2012. Congressional Research Service 8 Brazil-U.S. Relations Social Conditions 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 10% of the population control about 45% of the country’s wealth while the poorest 10% control just 1.1% of the wealth.46 Like elsewhere in Latin America, Brazil’s high inequality is partially a legacy of extreme land concentration among the country’s elite. The Brazilian government has also acknowledged that there is a racial component to inequality. While over 50% of Brazilians identify themselves as black or mixed race, afro-Brazilians account for just 18% of the wealthiest section of society (the so-called “Class A”) and over 76% of the poorest section of society (the so-called “Class E”).47 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.48 More recent evidence, however, indicates that Brazil has made substantial progress in the last several years as a result of the country’s social policies and steady economic growth. Between 1999 and 2009, the percentage of the population living in poverty fell from 37.5% to 24.9%, and the percentage living in extreme poverty fell from 12.9% to 7%.49 Inequality was also reduced, with the Gini coefficient50 falling from 0.52 to 0.47.51 According to a recent study, these changes are mostly attributable to increased earnings, though increased government transfers through social security benefits and the Bolsa Familia program have also played a significant role.52 In June 2011, President Rousseff launched an anti-poverty program known as Brazil Without Poverty (Brasil Sem Miséria). The program is designed to eradicate extreme poverty by 2014. It will increase transfer payments provided through existing programs such as Bolsa Familia; increase access to public services such as education, electricity, health care, housing, and sanitation; and increase economic opportunities in urban and rural areas by providing access to microcredit, skills training, technical assistance, and new markets.53 46 “Brazil’s Income Gap Continues Wide in Brazil,” Associated Press, November 16, 2011. Tom Phillips, “Brazil Census Shows African-Brazilians in the Majority for the First Time,” Guardian, November 17, 2011. 48 OECD, Economic Survey of Brazil 2005, March 2005. 49 United Nations, Economic Commission for Latin America and the Caribbean (ECLAC), Social Panorama of Latin America, 2011, November 2011, http://www.eclac.cl/publicaciones/xml/5/45175/2011-819_PSI-Summary-WEB.pdf. 50 The Gini coefficient is a value between zero and one where zero represents complete equality and one represents complete inequality. 51 Clóvis Rossi, “Desigualdade, o Fracaso da Esquerda,” Folha de São Paulo, August 26, 2012. 52 Instituto de Pesquisa Econômica Aplicada (IPEA), A Década Inclusiva (2001-2011): Desigualdade, Pobreza e Políticas de Renda, Comunicados do Ipea N° 155, September 25, 2012. 53 Governo Federal do Brasil, Ministério do Desenvolvimento Social e Combate à Fome, Plano Brasil Sem Miséria, http://www.brasilsemmiseria.gov.br/wp-content/themes/bsm2nd/caderno_brasil_sem_miseria.pdf. 47 Congressional Research Service 9 Brazil-U.S. Relations 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 center of global influence. Brazilian foreign policy has traditionally been based on the principles of multilateralism, peaceful dispute settlement, and nonintervention in the affairs of other countries.54 Adherence to these principles has enabled Brazil to maintain peaceful relations with all 10 of its neighbors55 and to play a larger role in global affairs than its economic and geopolitical power would otherwise allow. Building on its traditional principles, Brazilian 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.56 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);57 however, it has demonstrated a preference for resolving issues, when possible, through regional forums that do not include the United States. South American Integration In 1991, Brazil joined with Argentina, Paraguay, and Uruguay to establish the Common Market of the South (Mercosur),58 an organization intended to promote economic integration and political cooperation among the countries. Although 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 54 Georges D. Landau, “The Decision Making Process in Foreign Policy: The Case of Brazil,” Center for Strategic and International Studies: Washington, DC: March 2003. 55 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). 56 “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. 57 For more information on the OAS, see CRS Report R42639, Organization of American States: Background and Issues for Congress, by Peter J. Meyer. 58 For more information on Mercosur, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F. Hornbeck. Congressional Research Service 10 Brazil-U.S. Relations calls for an incremental path to full economic integration, yet only a limited customs union has been achieved thus far. Member states finally agreed on a common customs code and the elimination of double tariffs on non-Mercosur goods transported between countries in August 2010;59 however, progress on other crucial issues has since stalled.60 In July 2012, Argentina, Brazil, and Uruguay suspended Paraguay from Mercosur as a result of the express impeachment of the Paraguayan president, which they maintain was undemocratic. At the same time, they agreed to admit Venezuela, whose accession had been blocked by the Paraguayan legislature. A number of analysts argue that these actions reflect the transformation of Mercosur into a political bloc with few prospects for further economic integration.61 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).62 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 2009.63 Brazilian diplomacy played an important role in convincing each of the Unasur member states to also join the associated South American Defense Council, designed to boost regional cooperation on security policies.64 Within the council, South American countries have discussed defense spending and reviewed defense agreements with extra-regional powers.65 Notwithstanding its many successes, Unasur’s capacities are currently rather 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.66 By promoting integration through organizations like Mercosur and Unasur, Brazil has been able to solidify its standing 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. 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. Some South American countries, however, are uncomfortable with Brazil’s growing economic and political influence in the region. This has already generated backlash against Brazilian companies in several cases, and led to tensions between Brazil and some of its 59 “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. 60 “Deathknell Sounds,” Latin American Regional Report: Brazil & Southern Cone, January 2009. 61 See, for example, Guido Nejamkis, “Analysis: Venezuela Joins Trade Bloc Big on Politics, Protectionism,” Reuters, July 30, 2012. 62 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. 63 “Unasur Assigns Itself Some Authority,” Latin News Daily, November 26, 2010. 64 “South American Defence Council,” Latin American Regional Report: Brazil & Southern Cone, April 2009. 65 “Brasil Propondrá Creación de un Consejo de Paz y Seguridad de la Unasur,” EFE News Service, January 13, 2010. 66 Andrés Serbin and Peter Hakim, “The Union of South American Nations (UNASUR),” Remarks at the InterAmerican Dialogue, Washington, DC, November 23, 2009; “Latin America: Regional Tensions Challenge UNASUR,” Oxford Analytica, August 21, 2009. Congressional Research Service 11 Brazil-U.S. Relations neighbors.67 Anxieties about Brazil’s intentions and role are likely to grow as Brazil continues to pursue its regional and global interests. Moreover, 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,68 it has been less willing to make unilateral concessions to foster development and good will among its neighbors. For example, when Lula agreed to pay Paraguay a higher price for energy generated by a jointly owned hydroelectric plant in July 2009, he was heavily criticized by some within Brazil and the Brazilian Congress blocked the agreement until May 2011.69 Given that the country is still resolving its own 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. Expansion of Influence into the Caribbean and Central America 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 nearly 1,900 police and troops currently on the ground, Brazil is the largest peacekeeping contingent in Haiti.70 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 $50 million (R$79 million) combined.71 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.72 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 Community of Latin American and Caribbean States, which includes all of the countries of the hemisphere except Canada and the United States. Although Brazil has 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.73 67 Simon Romero, “Brazil’s Long Shadow Vexes Some Neighbors,” New York Times, November 4, 2011. “Brazil Invested 1.7bn Dollars in International Cooperation 2005-2009,” BBC Monitoring, January 14, 2011. 69 “Lula Criticised for ‘Partisan’ Foreign Policy,” Latin American Weekly Report, January 22, 2009; Pedro Servin, “Paraguay-Brazil Energy Treaty Going Nowhere Fast,” Associated Press, December 16, 2009; Juliette Kerr, “Brazil – Paraguay: Brazilian Congress Concludes Voting on Accord Altering Payment Terms for Itaipu Hydroelectric Plant,” IHS Global Insight, May 12, 2011. 70 “Brasil Pide Compromiso Renovado de Comunidad Internacional con Haití,” Agence France Presse, January 12, 2011; Wilson Tosta and Glauber Goncalves, “Ex-Comandante Defende que Exército Continue no Haiti,” Estado de São Paulo, November 5, 2010; United Nations, “UN Mission’s Summary Detailed by Country,” August 31, 2012. 71 IPEA, Cooperação Brasileira Para o Desenvolvimento Internacional: 2005-2009, Brasília, December 2010. 72 "Chávez, Lula Promote Competing Visions," Miami Herald, August 10, 2007. 73 See, for example, 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; and Andres Oppenheimer, “Brazil Stretching Clout to Central America,” Miami Herald, June 7, 2009. 68 Congressional Research Service 12 Brazil-U.S. Relations Emerging Global Role As Brazil’s economy has grown to be the sixth 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 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, many 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.74 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.75 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.76 These diplomatic and development ties have coincided with increased commercial relations. While Brazil’s total world trade grew by nearly 350% between 2002 and 2011, trade with Latin America and the Caribbean grew by 380%; trade with Africa grew by nearly 450%; trade with India grew by over 650%; and trade with China grew by nearly 1,800%. China is now Brazil’s top trading partner, with total trade valued at $77.1 billion.77 Brazil’s focus on forging South-South ties under the PT has been criticized by a number of analysts within and outside 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.78 Another former Ambassador to Washington, Rubens Barbosa, has argued that while the 74 See, for example, Julia Sweig, “A New Global Player,” Foreign Affairs, November/December 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; and “Geopolitical Diary: A Boost for Brazil’s Military,” STRATFOR, December 24, 2008. 75 Larry Luxner, “Basking in Global Clout, Brazil Ponders Life After Lula,” Washington Diplomat, September 2010. 76 IPEA, December 2010, op.cit. 77 Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, March 2012. 78 Diego Schelp, “Diplomacia de Palanque,” Veja, September 8, 2010; Otávio Cabral, “Nem na Ditadura,” Veja, (continued...) Congressional Research Service 13 Brazil-U.S. Relations PT’s foreign policy has increased Brazil’s international influence, it has not been very costeffective in delivering concrete results. He also maintains that Brazil should devote the same amount of attention to relations with developed nations as it has devoted to South-South ties.79 Officials from the current and previous Brazilian administrations assert that increased SouthSouth 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.80 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.81 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-ChinaSouth Africa (BRICS) group and the India-Brazil-South Africa (IBSA) forum, as well as ad hoc arrangements. Brazil’s efforts have produced mixed results. On the one hand, the country has 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, emerging nation coalitions 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.82 Efforts to enlarge and reform the U.N. Security Council, however, have been unsuccessful thus far.83 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.84 In addition to seeking greater influence within 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 (...continued) February 7, 2007. 79 Rubens Barbosa, “Sobre uma Nova Política,” O Globo (Brazil), October 26, 2010. 80 “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. 81 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. 82 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. 83 William Maclean, “Brazil Says US Spat Signals Tough Security Reform,” Reuters, September 11, 2010. 84 Jorge G. Castañeda, “Not Ready for Prime Time,” Foreign Affairs, vol. 89, no. 5 (September/October 2010); Andrew F. Hart and Bruce D. Jones, “How Do Rising Powers Rise?,” Survival, vol. 52, no. 6 (November 29, 2010). Congressional Research Service 14 Brazil-U.S. Relations oversee negotiations between Israel and the Palestinians and emerging powers should be more involved.85 Brazil hosted the presidents of Israel and the Palestinian National Authority, and suggested that 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.86 At the September 2011 U.N. General Assembly, President Rousseff called for Palestine’s full membership in the United Nations.87 Additionally, Brazil has been involved in discussions regarding Iran’s nuclear program. In May 2010, Lula worked with his Turkish counterpart to negotiate a deal with Iran under which Iran’s enriched uranium would be reprocessed outside the country. The so-called “Tehran Declaration” was similar to a deal put forward in October 2009 by the United States, France, and Russia that had been supported by the International Atomic Energy Agency (IAEA). 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 viewed the agreement as a delaying tactic, noted that the October 2009 deal was no longer sufficient since Iran had continued to enrich uranium, and pushed ahead with sanctions.88 Brazil voted against U.N. Security Resolution 1929 (June 2010), saying the council had “lost a historic opportunity to peacefully negotiate the Iranian nuclear program,” but agreed to abide by the sanctions.89 While some analysts dismissed Brazil’s efforts as naive and unhelpful,90 others argued that the negotiation attempt demonstrated Brazil’s growing prominence and the potential for new states to play important roles in resolving issues of geopolitical importance.91 U.S.-Brazil Relations Relations between Brazil and the United States are generally friendly. According to U.S. officials, “as two of the world’s largest economies and democracies, with shared values and increasingly converging goals, Brazil and the United States are natural partners in a rapidly changing world.”92 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 85 Iuri Dantas and Fabiola Moura, “Lula Says U.S. Shouldn’t Broker Middle East Talks,” Bloomberg, November 20, 2009. 86 “Brazilian Minister on Middle East Role,” BBC Monitoring, January 4, 2010; Sean Goforth, “Brazil’s Middle East Roadmap,” World Politics Review, January 20, 2011. 87 “Statement by H.E. Dilma Rousseff, President of the Federative Republic of Brazil, at the Opening of the General Debate of the 66th Session of the United Nations General Assembly,” September 21, 2011, http://gadebate.un.org/sites/default/files/gastatements/66/BR_en_0.pdf. 88 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. 89 "Brazil's Lula Says UN Sanctions a Mistake," Latin News Daily, June 10, 2010; “Brazil Will Back Iran Sanctions,” Al Jazeera, August 11, 2010. 90 See, for example, Duda Teixeira, “Esperteza Atômica,” Veja, May 26, 2010; and “An Iranian Banana Skin,” Economist, June 17, 2010. 91 See, for example, Erich Follath and Jens Glüsing, “Brazil’s Lula Vaults into Big League of World Diplomacy,” Spiegel Online, May 25, 2010; Carlo Patti, "Brazil and the Nuclear Issues in the Years of the Luiz Inácio Lula da Silva Government (2003-2010)," Revista Brasileira de Política Internacional, vol. 53, no. 2 (2010). 92 William J. Burns, Deputy Secretary of State, “Building a Deeper Partnership with Brazil,” Remarks in Rio de Janeiro, Brazil, March 1, 2012. Congressional Research Service 15 Brazil-U.S. Relations on bilateral, hemispheric, and global issues.”93 The United States and Brazil have established over 25 dialogues to enhance coordination and cooperation on a wide variety of issues. Among other topics, the United States and Brazil engage on security, energy, trade, human rights, and the environment. Although Brazil and the United States share a number of common goals, the countries’ occasionally divergent national interests and independent foreign policies have led to disagreements on trade and political matters. Some long-running disputes include the stalled Doha trade negotiations and Brazilian opposition to U.S. support for cotton producers. Additional differences have emerged in recent years, many of which have centered around the countries’ approaches to foreign policy. In 2010 and 2011, for example, Brazil used its temporary seat on the U.N. Security Council to advocate engagement with internationally isolated regimes like Iran, Libya, and Syria, rather than sanctions, which it views as a prelude to armed conflict. Some analysts and policymakers 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.94 As a middle-income country, Brazil does not receive large amounts of U.S. foreign assistance. Brazil received $25.1 million in U.S. aid in FY2010, $23.3 million in FY2011, and an estimated $17.2 million in FY2012. The Obama Administration has requested just $6.1 million in foreign assistance for Brazil in FY2013. U.S. assistance to the country is transitioning from supporting development programs in Brazil to providing assistance designed to promote development in third countries. About one-third of the FY2013 aid request would be used to strengthen the Brazilian government's development agency (the Brazilian Cooperation Agency) and implement jointly funded projects in other developing countries.95 On September 28, 2012, President Obama signed into law the Continuing Appropriations Resolution, FY2013 (P.L. 112-175). The resolution funds regular foreign aid accounts at the same level as in FY2012 plus 0.612%. The aid allocations for particular countries, such as Brazil, are left to the discretion of the responsible agencies. Until a full year appropriation is approved, however, the State Department and the U.S. Agency for International Development (USAID) plan only to fund programs that are running out of resources or meet some urgent foreign policy priority. The Continuing Appropriations Resolution expires on March 27, 2013. Security Cooperation Although U.S.-Brazilian cooperation on security issues has traditionally been limited, law enforcement and military ties have increased in recent years. Areas of coordination include counternarcotics, counterterrorism, and defense. 93 White House, National Security Strategy, May 2010, p. 44, http://www.whitehouse.gov/sites/default/files/rss_viewer/national_security_strategy.pdf. 94 See, for example, Peter Hakim, “US-Brazil Relations: Expect More Conflict,” Infolatam, October 21, 2010; U.S. Ambassador Thomas Shannon, “Prospects for U.S.-Brazil Bilateral Relations,” Remarks at Brazil-U.S. Business Council Annual Plenary Meeting, December 7, 2010; and William J. Burns, Deputy Secretary of State, “Building a Deeper Partnership with Brazil,” Remarks in Rio de Janeiro, Brazil, March 1, 2012. 95 U.S. State Department, Congressional Budget Justification for Foreign Operations, Fiscal Year 2013, April 3, 2012, http://www.state.gov/documents/organization/185015.pdf. Congressional Research Service 16 Brazil-U.S. Relations Counternarcotics While Brazil is not a major drug-producing country, it is the second largest consumer of cocaine in the world and serves as a transit country for illicit drugs from neighboring Andean countries destined primarily for Europe. In recognition of these challenges, Brazil has taken several steps to improve its antidrug efforts. In 2004, it 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. Under its Strategic Border Plan, introduced in June 2011, the Brazilian government has deployed inter-agency resources to strengthen border security in high-risk locations, including unmanned aerial vehicles (UAVs) to monitor illicit activity along its borders and in the remote Amazon region.96 As part of this effort, Brazil has signed agreements and carried out joint operations with neighboring countries.97 According to the U.S. Department of State, “Brazil’s focus on inter-agency cooperation and border security resulted in significantly improved interdiction efforts in 2011.” Through October 2011, the federal police seized 15.2 metric tons of cocaine, 87.4 metric tons of marijuana, 194,776 dosage units of ecstasy, 72,492 dosage units of LSD, and 42,000 dosage unites of methamphetamine.98 The United States and Brazil cooperate on counternarcotics issues in a number of ways. U.S. counternarcotics assistance provides training for Brazilian law enforcement, assists interdiction programs at Brazil’s international airports, supports drug prevention programs, and is designed to improve Brazil’s capacity to dismantle criminal organizations. Brazil received $1 million in U.S. counternarcotics assistance in FY2010, $1 million in FY2011, and an estimated $2.9 million in FY2012. Under the Obama Administration’s request for FY2013, Brazil would receive $1.9 million in counternarcotics assistance.99 Brazil has also served as a bridge between the United States and Bolivia, which expelled the Drug Enforcement Administration (DEA) from its territory in 2008 as a result of alleged interference in the country’s internal affairs. Under a trilateral anti-drug cooperation agreement signed in January 2012, the United States and Brazil are providing assistance to Bolivia in the monitoring and eradication of coca crops. According to the agreement, the United States is responsible for providing monitoring equipment, Brazil is responsible for obtaining and interpreting satellite images, and Bolivia is responsible for conducting any necessary field work.100 96 U.S. Department of State, Bureau of International Narcotics and Law Enforcement Affairs, 2012 International Narcotics Control Strategy Report (INCSR), March 7, 2012, http://www.state.gov/j/inl/rls/nrcrpt/2012/index.htm; “Hermes 450: O Vigilante Das Fronteiras Brasileiras,” Terra (Brazil), August 25, 2011. 97 “Brazil-Region: Flying Start for the New ‘Border Strategy’,” Latin American Security & Strategic Review, July 2011. 98 INCSR, 2012, op.cit. 99 U.S. State Department, Congressional Budget Justification for Foreign Operations, Fiscal Year 2012, April 2011, and Congressional Budget Justification for Foreign Operations, Fiscal Year 2013, April 3, 2012. 100 “Signing of Trilateral Agreement on the Integrated Monitoring System for Surplus Coca Cultivation Reduction Pilot Project,” Joint Communiqué, January 20, 2012. Congressional Research Service 17 Brazil-U.S. Relations Counterterrorism and the Tri-Border Area101 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’s Country Reports on Terrorism, there are no known operational cells of al Qaeda or Hezbollahrelated groups in the hemisphere; however, the United States remains concerned that the proceeds from legal and illegal goods flowing through the TBA could potentially be diverted to support terrorist groups.102 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 transborder criminal organizations in the TBA in 2007. In December 2010, the U.S. Treasury Department sanctioned Hezbollah's chief representative in South America, Bilal Mohsen Wehbe, for transferring funds collected in Brazil to Hezbollah in Lebanon. According to the Treasury Department, Wehbe and an associate raised more than $500,000 from Lebanese businessmen in the TBA following the 2006 conflict between Israel and Hezbollah. Wehbe also reportedly has overseen Hezbollah’s counterintelligence activity in the TBA and has worked for the office of Iranian Supreme Leader Ayatollah Ali Khamene'i.103 Beyond efforts in the TBA, the United States has worked bilaterally with Brazil to improve its counterterrorism capabilities. The United States has worked with Brazil to implement the Container Security Initiative (CSI) at the port of Santos, and U.S. authorities are currently training Brazilian airline employees to identify fraudulent documents. The State Department’s Country Reports on Terrorism for 2011 states “the Brazilian government continued to support counterterrorism-related activities, including investigating potential terrorism financing, document forgery networks, and other illicit activity.”104 Brazil has yet to adopt legislation, however, to make terrorism and terrorism financing autonomous offenses. Like many other Latin American nations, Brazil 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.105 Nevertheless, some Brazilian officials have pushed for antiterrorism legislation, asserting that the country will face new threats as a result of hosting the 2014 World Cup and the 2016 Olympics.106 101 For more information, see CRS Report RS21049, Latin America: Terrorism Issues, by Mark P. Sullivan and June S. Beittel. 102 U.S. Department of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism 2011, July 31, 2012, http://www.state.gov/j/ct/rls/crt/2011/195546.htm. 103 U.S. Department of the Treasury, “Treasury Targets Hizballah Financial Network,” Press Release, December 9, 2010. 104 Country Reports on Terrorism 2011, 2012, op.cit. 105 “Anti-Terrorism Law Project Scrapped,” Latin American Security & Strategic Review, January 2008; Juliana Barbassa, “Brazil Denies Terrorists Operate Within Borders,” Associated Press, September 3, 2011. 106 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; “High Risk of Terror Attacks During 2014 World Cup: Police,” Agence France Presse, November 17, 2011. Congressional Research Service 18 Brazil-U.S. Relations Defense According to the U.S. Department of Defense, cooperation with Brazil’s Ministry of Defense and the Brazilian military is closer today than it has been at any point in over 30 years. The U.S. and Brazilian militaries have worked together closely in Haiti, where Brazil commands the U.N. Stabilization Mission (MINUSTAH). Joint efforts in the aftermath of Haiti’s January 2010 earthquake were the largest combined operations of U.S. and Brazilian military forces since World War II. In April 2010, the United States and Brazil signed a Defense Cooperation Agreement designed to promote cooperation in areas such as research and development, technology security, and acquisition of defense products and services. This was followed by a General Security of Military Information Agreement, signed in November 2010, which will facilitate the sharing of classified defense and military information. In an effort to elevate bilateral defense ties, President Rousseff joined with President Obama in April 2012 to launch a presidential-level Defense Cooperation Dialogue. Additional areas of defense cooperation include information exchanges, combined military training, and joint military exercises.107 Two pending defense procurement deals could impact future military ties between the United States and Brazil. The Brazilian air force intends to purchase 36 new fighter jets, and the Boeing F/A-18 Super Hornet is one of three finalists along with the Saab JAS-39 Gripen of Sweden and the Dassault Rafale of France. Brazil’s National Defense Strategy places significant emphasis on building the country’s domestic defense industry, and technology transfer is reportedly a top consideration in the fighter deal. According to U.S. officials, the technology transfer package the United States has offered is unprecedented in the U.S.-Brazil relationship and is the same type of package that the United States provides its closest partners in the North Atlantic Treaty Organization (NATO).108 Nevertheless, Brazilian officials remain wary of relying on U.S. hardware as a result of past experiences109 in which the U.S. government blocked sales of Brazilian arms containing U.S. technology.110 A final decision has been delayed for several years and is reportedly now scheduled for mid-2013.111 The U.S. Air Force is currently considering purchasing 20 A-29 Super Tucano light attack aircraft, produced by Brazil’s Embraer in partnership with U.S.-based Sierra Nevada, to be provided to the Afghan military for counterinsurgency and training purposes. The Air Force awarded the $355 million contract to Embraer in late December 2011, but the procurement process was challenged by U.S.-based Hawker Beechcraft. After temporarily suspending the contract in January 2012, the Air Force cancelled the order in late February 2012. Brazilian officials expressed displeasure with the sudden cancellation, and asserted that the decision would not be “conducive to strengthening relations between the two countries on defense affairs.” 112 Some reports have suggested that the cancellation was for political, rather than technical reasons, and Sierra Nevada is suing the Air Force to have the original contract reinstated. A second 107 U.S. Department of Defense, Office of the Secretary of Defense, “Fact Sheet: U.S.-Brazil Defense Cooperation,” March 14, 2011. 108 Jeb Blount and Guillermo Parra-Bernal, “US Jet Contract Decision ‘Surprised Brazil Gov’t,” Reuters, March 1, 2012. 109 In 2006, for example, the United States prevented Brazil from selling 24 Super Tucano light attack planes to Venezuela. 110 “No Brazil Fighter Jet Decision Before Lula Leaves,” Agence France Presse, December 7, 2010. 111 Brian Winter, “Brazil Delays Jets Decision Until 2013; Boeing Ascendant,” Reuters, September 24, 2012. 112 Joe Leahy, “Brazil Warns US Over Cancelled Aircraft Deal,” Financial Times, March 2, 2012. Congressional Research Service 19 Brazil-U.S. Relations bidding process between the two competitors is now closed and the Air Force expects to announce the winner in early 2013.113 Energy Cooperation Energy has been another important area of U.S-Brazilian cooperation in recent years. Brazil is widely regarded as a world leader in energy policy for successfully reducing its reliance on foreign oil through the development of alternative energy resources and increased domestic production. In addition to being the world’s second-largest producer of ethanol, Brazil currently generates 85% of its electricity through hydropower. Brazil also has recently discovered large offshore oil deposits that have the potential to turn the country into a major oil and gas producer and an important source of energy for the United States.114 To facilitate greater cooperation in the development of safe, secure, and affordable energy, President Obama and President Rousseff launched a Strategic Energy Dialogue in March 2011. Ethanol and Other Biofuels115 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 1975, in response to sharp increases in global oil prices, the Brazilian government began a national program to promote the production and consumption of sugarcane ethanol. Brazil now produces some 390,000 barrels per day.116 Within Brazil, pure ethanol is available at nearly every fueling station and gasoline is required to include a 20% 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 from pure ethanol to pure gasoline. As a result, ethanol accounts for over half of all fuel pumped in Brazil.117 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. 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.118 Over the past five years, the United States and Brazil have moved forward on all three facets of the agreement. Presidents Obama and Rousseff signed onto a partnership agreement for the development of aviation biofuels in March 2011,119 and in October 2011, Boeing and Brazil’s 113 Vinod Sreeharsha, “Embraer, Hawker Beechcraft Face Off Again Over Planes for Afghanistan,” McClatchy Newspapers, June 15, 2012. 114 Energy Information Administration (EIA), “Country Analysis Briefs: Brazil,” February 28, 2012. 115 For more information on biofuels, see CRS Report R41282, Agriculture-Based Biofuels: Overview and Emerging Issues, by Randy Schnepf . 116 EIA, 2012, op.cit. 117 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; Leonardo Goy, “Brazil to Cut Ethanol Blend in Gasoline from Oct. 1,” Reuters, August 30 2011. 118 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, http://www.state.gov/p/wha/rls/158654.htm. 119 The “Partnership for the Development of Aviation Biofuels” agreement is available at http://www.whitehouse.gov/sites/default/files/uploads/Partnership_Development_Aviation_Biofuels.pdf. Congressional Research Service 20 Brazil-U.S. Relations Embraer announced plans to build a joint research center.120 Brazil and the United States have also worked together in a number of Latin American, Caribbean, and African countries. In March 2011, Presidents Obama and Rousseff agreed to commit $3 million to support the development of legal regimes and domestic biofuels production in the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, and Senegal.121 Additionally, the United States and Brazil are working with other members of the International Biofuels Forum (IBF) to make biofuels standards and codes more uniform. Brazil and the United States have taken steps to liberalize trade in ethanol over the past year. In December 2011, the Brazilian government issued a resolution to extend its duty-free treatment of imported ethanol until December 31, 2015.122 Similarly, Congress allowed a 54-cent-per-gallon duty on imported ethanol to expire at the end of 2011. Prior to its expiration, the duty served as a significant barrier to direct imports of Brazilian ethanol in most years. Although some Brazilian ethanol was allowed to enter the United States duty-free after being reprocessed in Caribbean Basin Initiative (CBI) countries, such imports could only account for up to 7% of the U.S. ethanol market. A 2.5% ad valorem tariff on ethanol imports to the United States remains in place permanently unless the Harmonized Tariff Schedule code is changed. A bill introduced in April 2012, H.R. 4621 (Rangel), would authorize the President to enter into negotiations with Brazil to obtain open and reciprocal market access for trade in ethanol products. Oil In recent years, Brazil has discovered substantial new oil fields off its coast that have the potential to turn the country into one of the top five oil and gas producers in the world,123 and an important source of energy for the United States. The new discoveries are so-called “pre-salt” reserves, located beneath layers of rock and salt up to 23,000 feet below the ocean surface. Analysts have estimated that the total recoverable reserves of pre-salt oil and natural gas may exceed 50 billion barrels of oil equivalent.124 In December 2010, the Brazilian Congress approved a new regulatory framework for developing the approximately 70% of pre-salt reserves that have not already been auctioned off.125 The new framework 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 stateowned Petróleo Brasileiro S.A. (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 the Brazilian Congress to direct offshore revenues toward four key areas: education, infrastructure, science and technology, and poverty reduction.126 The development of these reserves may be 120 Brian Winter, “Insight-U.S. and Brazil: At Last, Friends on Ethanol,” Reuters, September 14, 2012. White House, Office of the Press Secretary, “Fact Sheet: U.S.-Brazil Strategic Energy Dialogue,” March 19, 2011. 122 Ministério do Desenvolvimiento, Indústria e Comércio Exterior, Câmara de Comércio Exterior (CAMEX), Resolução N° 94, de 8 de Dezembro de 2011. 123 Mark S. Langevin, Brazil's Hydrocarbon Bonanza: Can the State Manage Pre-Salt Production for National Development and Geopolitical Power?, Brazil-Works, Discussion Paper, May 2012. 124 EIA, 2012, op.cit. 125 Langevin, 2012, op.cit. 126 “Brazil Congress Passes Oil Industry Overhaul,” Reuters, December 1, 2010; “The Impact of Pre-Salt: A Long(continued...) 121 Congressional Research Service 21 Brazil-U.S. Relations delayed, however, as there is currently considerable debate within the Brazilian Congress regarding the distribution of oil royalties, and Petrobras is unable to auction the rights to the fields until a new royalties framework is in place.127 Exploiting the new fields will be difficult and costly. Some foreign investors have questioned whether Petrobras will be able to access sufficient finance to develop the pre-salt reserves 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.128 Other analysts maintain that the Brazilian reserves are becoming ever-more attractive as a result of the rising price of oil and Brazil’s political stability at a time of conflict in other oil producing nations.129 Petrobras intends to invest $141.8 billion in exploration and production between 2012 and 2016, $67.1 billion of which will go toward developing the pre-salt reserves.130 Brazil and the United States are working together under the Strategic Energy Dialogue to foster the safe and efficient development of oil reserves in both countries. Through technical workshops and other activities, government regulators and private industry have exchanged best practices on issues such as spill response, well integrity, subsea containment, the use of dispersants, and national contingency plans. Brazil and the United States have also cooperated on financing. In April 2009, the Export-Import Bank of the United States offered to consider up to $2 billion in financing to secure the purchase of U.S. goods and services by Petrobras. The Bank has approved $300 million in financing so far, and has told Petrobras that it would consider increasing its offer above $2 billion if requested.131 Trade Relations Trade issues play a central role in U.S.-Brazil relations. Although both countries have been closely involved in global, regional, and sub-regional trade talks, they have frequently disagreed on the substance of trade agreements. Within the World Trade Organization (WTO) Doha Round of multilateral trade negotiations132 that began in 2001, for example, Brazil has led the G-20 group of developing countries in insisting that developed countries agree to reduce and eventually eliminate agricultural subsidies as part of any settlement. Similarly, opposition from Brazil and other South American countries effectively killed the U.S.-backed Free Trade Area of the Americas (FTAA) in 2005. (...continued) Term Perspective,” Oxford Analytica, May 2010. 127 “Brazil: O Petróleo é Nosso,” Latin American Regional Report: Brazil & Southern Cone, November 2011; “No Brazil Oil Royalty Vote Before 2012-Minister,” Reuters, November 17, 2011. 128 “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. 129 Danielle Nogueira and Ramona Ordonez, “Conflitos no Oriente Médio Tornam Pré-Sal Mais Atraente,” O Globo Online (Brazil), March 2, 2011. 130 Janes Rocha, “Mesmo com Incertezas, Pré-sal Estimula Projetos,” Valor Online (Brazil), September 25, 2012. 131 Export-Import Bank of the United States, “Facts About Ex-Im Bank Loans to Support Petrobras’s Purchases of Goods and Services Made by American Workers,” May 27, 2011. 132 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 22 Brazil-U.S. Relations During President Obama’s March 2011 visit to Brazil, the U.S. and Brazilian governments concluded an Agreement on Trade and Economic Cooperation. The agreement creates a new bilateral trade dialogue designed to foster deeper cooperation on issues such as intellectual property rights, trade facilitation, and technical barriers to trade.133 During Secretary of State Clinton’s April 2012 visit to Brazil, she indicated that the United States is interested in furthering trade relations by negotiating a bilateral investment treaty and eventually a free trade agreement.134 It is unlikely that the United States and Brazil will complete such agreements in the near-term, however, as Brazil has never ratified a bilateral investment treaty, and the two countries continue to have significant differences regarding trade issues.135 Brazil currently benefits from the Generalized System of Preferences (GSP), which provides duty-free tariff treatment to certain products imported from developing countries. According to Brazil’s Ministry of Development, about 13% of Brazilian exports fall under the umbrella of GSP.136 Some Brazil-based subsidiaries of U.S. companies are among those that benefit. On October 21, 2011, the President signed the Trade Adjustment Assistance Extension Act of 2011 (P.L. 112-40), extending GSP until July 31, 2013.137 Trade between the United States and Brazil totaled $74.3 billion in 2011, an increase of 25% over 2010 levels. U.S. exports to Brazil were valued at $42.9 billion while U.S. imports from Brazil were valued at $31.4 billion. The United States is Brazil’s second-largest trading partner, behind China, and Brazil is the eighth-largest trading partner of the United States. Top U.S. exports to Brazil include machinery, oil and coal, and civilian aircraft and parts. The top U.S. imports from Brazil are crude oil, iron and steel, machinery, and coffee.138 In September 2012, H.R. 6539 (Nunes) was introduced in the House. The bill would establish a United States-Brazil Joint Commission on Commerce and Trade. Among other activities, the 16member bilateral commission would address bilateral trade matters, seek removal of trade barriers, and promote commercial opportunities between the United States and Brazil. Cotton Dispute139 Over the past eight years, Brazil and the United States have been involved in a dispute over U.S. government support 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 133 White House, Office of the Press Secretary, “Strengthening the U.S.-Brazil Economic Relationship,” March 19, 2011. 134 “Clinton: EEUU Quiere Avanzar Hacia Acuerdo de Libre Comercio con Brasil,” Agence France Presse, April 16, 2012. 135 See, for example, Doug Palmer and Brad Haynes, “U.S. Warns Brazil on Tariffs, Gets Stinging Rebuke,” Reuters, September 20, 2012. 136 “Deputados dos EUA Renovam Redução de Taxas,” Folha de São Paulo, September 9, 2011. 137 For more information on GSP, see CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by Vivian C. Jones 138 U.S. Department of Commerce and Brazilian Foreign Trade Secretariat data made available by Global Trade Atlas, March 2012. 139 For more information on the U.S.-Brazil WTO cotton dispute, see CRS Report RL32571, Brazil’s WTO Case Against the U.S. Cotton Program by Randy Schnepf. Congressional Research Service 23 Brazil-U.S. Relations 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.140 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. The United States reached a temporary agreement with Brazil in June 2010 to avoid the WTOsanctioned retaliatory measures. Under the agreement, the United States pledged to make some short-term changes to its export credit guarantees and provide the Brazil Cotton Institute with $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 an opportunity to adjust the subsidy program.141 A bill that would prohibit payments to the Brazil Cotton Institute, H.R. 5143 (Kind), was introduced in April 2012. If enacted, the United States would be unable to comply with the terms of the temporary agreement. Congress is currently considering changes to the cotton program as part of the 2012 farm bill. The Senate passed its version of the bill, S. 3240, on June 26, 2012. The House version, H.R. 6083, was reported out by the Committee on Agriculture on September 13, 2012. Both of the accompanying committee reports (S.Rept. 112-203142 and H.Rept. 112-669) assert that the bills would make modifications to the cotton program that should allow the United States to meet its WTO obligations and reach a permanent agreement with Brazil. The Brazilian government has objected to several of the provisions that are included in both bills, however, and maintains that some of the potential modifications “seem to have actually made things worse.”143 Intellectual Property Rights Brazil and the United States have periodically engaged in disputes over intellectual property rights. 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, 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, and thereby reduce treatment costs. In response, the United States submitted a complaint to the WTO—which it later withdrew—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 intellectual property rights, developing countries (like Brazil) countered that TRIPS inhibited their ability to fight public health 140 “WTO Tells U.S. to Act on Illegal Cotton Subsidies,” Financial Times, December 19, 2007. 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. 142 The Senate report is available at: http://www.ag.senate.gov/download/?id=5d91a4e4-d805-4623-ae718402bd6b912e. 143 Letter from Mauro Vieira, Ambassador of Brazil to the United States, to the Honorable Debbie Stabenow, Chairwoman of the Senate Committee on Agriculture, Nutrition & Forestry, July 13, 2012. For more information on the farm bill, see CRS Report R42552, The 2012 Farm Bill: A Comparison of Senate-Passed S. 3240 and the House Agriculture Committee’s H.R. 6083 with Current Law, coordinated by Ralph M. Chite. 141 Congressional Research Service 24 Brazil-U.S. Relations emergencies in a cost-effective manner. In 2003, the WTO temporarily waived some provisions of the TRIPS agreement 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. Since the public health exception to the TRIPS agreement was made permanent, 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 save the Brazilian government an estimated $240 million over five years.144 Brazil now produces 10 of the 20 drugs used to treat HIV/AIDS and distributes them to African and Latin American countries.145 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.146 According to the U.S. Trade Representative (USTR), Brazil has improved its record on protecting intellectual property rights in recent years. In recognition of this progress, USTR lowered Brazil from the Priority Watch List of countries with significant intellectual property rights violations to the Watch List in 2007. The country has remained on the Watch List every year since 2007, however, as USTR remains “concerned about the widespread availability of pirated and counterfeit products in Brazil.” In its 2012 Special 301 Report, USTR commended Brazil’s enforcement efforts, which led to the seizure of over $1 billion worth of pirated and counterfeit goods in 2011. USTR also urged Brazil to arrest and prosecute those responsible, and strengthen its copyright law.147 The United States and Brazil are currently working to improve their cooperation on intellectual property rights issues under the Agreement on Trade and Economic Cooperation signed in March 2011.148 Human Rights According to the U.S. State Department’s Country Reports on Human Rights Practices, the most significant human rights abuses reported in Brazil in 2011 were “substandard prison conditions; human trafficking, especially sex trafficking of children and adolescents; and forced labor.” Other human rights problems included “excessive force, beatings, abuse, and torture of detainees and inmates by police and prison security forces; prolonged pretrial detention and inordinate delays of trials; violence and discrimination against women; violence against children, including sexual abuse; violence based on sexual orientation; discrimination against indigenous persons and minorities; insufficient enforcement of labor laws; and child labor in the informal sector.” The report asserts that the Brazilian government prosecuted officials who committed abuses but lengthy appeals processes remained a problem.149 144 “Brazil to Break Merck AIDS Drug Patent: Government Wants Lower Price on Anti-retroviral Medication,” Associated Press, May 4, 2007. 145 “Brazil Says it has AIDS under Control,” Agence France Presse, November 29, 2011. 146 “Update: Argentina, Brazil Question Swine Flu Vaccine Patents,” CNN Money, July 24, 2009. 147 U.S. Trade Representative, Special 301 Report, April 2012, http://www.ustr.gov/sites/default/files/2012%20Special%20301%20Report_0.pdf. 148 The agreement is available at: http://www.whitehouse.gov/sites/default/files/uploads/Brazil_ATEC.pdf. 149 U.S. Department of State, Bureau of Democracy, Human Rights, and Labor, Country Reports on Human Rights Practices for 2011, May 24, 2012, http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper. Congressional Research Service 25 Brazil-U.S. Relations Trafficking in Persons150 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.151 Brazil is a large source country for men, women, and children trafficked for commercial sexual exploitation. Some are exploited in sex trafficking within the country while others are trafficked to neighboring countries or abroad to Europe and the United States. Brazil is also a source country for men and children subject to forced labor within the country.152 Between 25,000 and 40,000 Brazilian men have reportedly been recruited to labor in slave-like conditions, typically on cattle ranches, logging and mining camps, and sugar-cane plantations.153 Over the past year, the Brazilian government has taken a number of actions to address the problem of human trafficking. The Brazilian Tourism Ministry began a campaign against sex tourism, asking websites to remove content related to sex tourism and distributing posters warning of criminal penalties for the sexual exploitation of minors.154 The Ministry of Labor’s mobile units rescued 2,428 victims from slave-like labor conditions, provided $3.4 million in back-pay and damages to rescued workers, and maintained a “dirty list” of 294 employers that are responsible for slave-like labor. Additionally, the Brazilian government secured convictions in nine human trafficking cases. At the same time, government-provided services for trafficking victims remained inadequate, only 10% of slave-like labor cases were criminally prosecuted, and a significant number of those rescued from slave-like labor were re-trafficked. The State Department report offers a number of recommendations for Brazil. It calls for the Brazilian government to increase efforts to investigate and prosecute trafficking offenses, and adopt legislation to apply more stringent sentences to trafficking offenders. It also calls for the Brazilian government to increase dedicated funding to provide specialized services to trafficking victims. Moreover, the State Department report suggests that Brazil should enhance collaboration between government entities, and increase anti-trafficking training for law enforcement and judicial officials.155 150 For more information, see CRS Report RL33200, Trafficking in Persons in Latin America and the Caribbean, by Clare Ribando Seelke. 151 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 subject to U.S. sanctions since 2003. 152 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, Trafficking in Persons Report 2012, June 19, 2012, http://www.state.gov/j/tip/rls/tiprpt/2012/index.htm. 153 Christopher Looft, “Senator’s Trial Points to Modern-Day ‘Slaves’ in Brazil,” InSight: Organized Crime in the Americas, March 9, 2012. 154 “Brazil Takes on Websites that Promote Sex Tourism,” Associated Press, March 27, 2012. 155 U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, Trafficking in Persons Report 2012, June 19, 2012. Congressional Research Service 26 Brazil-U.S. Relations Violent Crime and Abuses by Police Most observers agree that the related problems of urban crime, illicit drug use, 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 prevalent in urban shanty towns (favelas) in Rio de Janeiro and São Paulo. Violence traditionally has been linked to turf wars being waged between rival gangs for control of the drug industry or to clashes between drug gangs and police officers, some of whom have formed paramilitary militias that rid their communities of drug gangs only to engage in the very same illicit activities. As police forces in São Paulo and Rio de Janeiro have employed strong-arm tactics designed to curb rampant criminality, some human rights groups have raised concerns over 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.”156 Indeed, more than 11,000 people were killed by the two police forces between 2003 and 2009. Although the officers involved reported nearly all of the killings as legitimate acts of self defense, or “resistance killings,” a 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 indicated 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 between 2000 and 2009, only 42 generated criminal charges by state prosecutors and just 4 led to convictions.157 Analysts have long 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, 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.158 Under the National Program for Public Safety with Citizenship (Programa Nacional de Segurança Pública com Cidadanía, PRONASCI), the Brazilian government improved coordination of federal violence prevention and law enforcement strategies, and placed greater emphasis on social policies and human rights.159 In September 2012, President Rousseff signed legislation criminalizing membership in militias, paramilitary organizations, and death squads. Affiliation with such groups—which often include members of the police, military, and fire squads—is now punishable with four to eight years in jail.160 Some state level efforts have also improved. One of the more high profile examples is the state of Rio de Janeiro’s “Favela Pacification Program.” Whereas previous law enforcement efforts generally centered around quick raids followed by long periods of government neglect, the favela pacification program is designed to establish a permanent state presence in areas controlled by 156 “Special Rapporteur on Extrajudicial, Summary, or Arbitrary Executions Concludes Visit to Brazil,” States News Service, November 15, 2007. 157 Human Rights Watch, Lethal Force: Police Violence and Public Security in Rio de Janeiro and São Paulo, December 2009, http://www.hrw.org/sites/default/files/reports/brazil1209webwcover.pdf. 158 “Recent Public Security Policies in Brazil,” Document provided in a meeting with officials from Brazil's Ministry of External Relations, December 9, 2010. 159 Joe Bateman, “Brazilian Citizen Security Policies: Variety of Experiences Useful in Regional Debates,” Washington Office on Latin America (WOLA), August 22, 2012. 160 “Brasil: Será Delito Integrar Groups de Exterminio, Milicias y Paramilitares,” Agence France Presse, September 28, 2012. Congressional Research Service 27 Brazil-U.S. Relations organized crime. Under the initiative, elite police units enter favelas and clear them of drug gangs. Newly recruited Police Pacification Units (Unidades de Polícia Pacificadora, UPPs) then set up a permanent security presence, and other governmental institutions establish basic social services. UPPs are now present in 28 favelas and have enjoyed considerable success thus far. According to a study of the first 13 UPPs established, intentional homicides decreased 58%, deaths for “resisting authority” declined 98%, and robbery decreased 54% over four-and-a-half years. Although there have been significant increases in reports of other criminal offenses—such as domestic violence (290%), rape (164%), and theft (55%)—some analysts think the increases may reflect a greater willingness by favela residents to report crimes to the police.161 Race and Discrimination People of African descent in Brazil, also known as Afro-Brazilians, have long been disproportionately affected by the country’s high level of inequality. Little concrete information was available, however, until the Brazilian government began to collect better statistics on AfroBrazilians 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 and affirmative action legislation 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. 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. In 2010, Brazil enacted 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. Most recently, in August 2012, Brazil adopted an affirmative action law that requires federal universities to reserve half of their spots for graduates of public high schools and distribute those spots according to the racial makeup of each state.162 Although most Brazilians favor government efforts to combat social exclusion, affirmative action initiatives have been somewhat controversial.163 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 recognizes that Brazil and the United States are multi-ethnic, multi-racial democracies, and seeks to promote equality of opportunity for the members of all racial and ethnic communities. To that end, Brazil and the United States share best practices through activities such as training programs, workshops, technical expert exchanges, scholarships, and public-private partnerships.164 Current areas of focus include: expanding access to education for students of African descent, eliminating racial health disparities, mitigating environmental 161 “UPPs Succeed in Lowering Violent Crime Rates,” Latin News Daily, September 19, 2012. Simon Romero, “Brazil Enacts Affirmative Action Law for Universities,” New York Times, August 30, 2012. 163 Diogo Schelp, “Queremos Dividir o Brasil como na Foto?” Veja, September 2, 2009; “Affirming a Divide,” Economist, January 28, 2012. 164 U.S. Department of State, Bureau of Western Hemisphere Affairs, “U.S.-Brazil Joint Action Plan Promotes Racial and Ethnic Equality,” April 11, 2012. 162 Congressional Research Service 28 Brazil-U.S. Relations impacts in communities of African descent, addressing challenges in criminal justice systems, and guaranteeing equal access to economic opportunities.165 Congress called for continued U.S. support for the Joint Action Plan in the report (H.Rept. 112-331) accompanying the Consolidated Appropriations Act of 2012 (P.L. 112-74). 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 mitigation of climate change. Approximately 60% of the Amazon falls within Brazilian borders, making Brazil home to 40% of the world’s remaining tropical forests.166 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. The human population grew from 6 million in 1960 to 25 million in 2010, and approximately 20% of the Brazilian Amazon has now been deforested as a result of settlements, roads, logging, farming and other activities.167 Recognizing that continued destruction of the Amazon is damaging to Brazil’s global image and could threaten energy generation and agricultural production in the future,168 the Brazilian government has implemented a series of policies designed to slow deforestation. For example, the Lula and Rousseff Administrations have significantly expanded the country’s nature reserves, bringing Brazil’s total area of protected land to nearly 300,000 square miles.169 Likewise, the Brazilian government adopted a plan 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. To meet these targets, the Brazilian government is increasing surveillance, replanting over 21,000 square miles of forest, and financing sustainable development projects in areas where the local economy depends on logging.170 Brazil appears to be on track to achieve its goals, as annual deforestation has fallen from about 10,700 square miles in 2004 to about 2,500 square miles in 2011.171 There is considerable debate as to whether these decreases are the result of government policies or changing economic circumstances, such as lower commodity prices. One recent study, which examined deforestation in the Brazilian 165 U.S. Department of State, Office of the Spokesperson, “U.S.-Brazil Joint Action Plan Technical Meeting,” August 20, 2012. 166 “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. 167 Bryan Walsh, “Amazonia: What’s Happening to the World’s Biggest Rain Forest?,” TIME, January 18, 2012. 168 See, for example, Fabiana Frayssinet, “Climate Change-Brazil: Farmers ‘Have Good Reason to Worry’,” Inter Press Service, September 21, 2011; and “Amazonian Deforestation May Cut Rainfall by a Fifth: Study,” Agence France Presse, September 5, 2012. 169 “Brazil: Government Policy for Amazon Still Ambiguous,” Latin News Weekly Report, May 22, 2008; “In Anticipation of Rio+20, Brazil Creates New Nature Reserves and Closes Major Land-fill,” MercoPress, June 7, 2012. 170 “Government Sets Targets to Cut Deforestation,” Latin American Regional Report: Brazil & Southern Cone, December 2008; “Brazil: Climate Credentials to the Fore in Copenhagen,” Oxford Analytica, November 19, 2009. 171 Fabiana Frayssinet, “Climate Change: Brazil Perfects Monitoring of Amazon Carbon Emissions,” Inter Press Service, August 27, 2012. Congressional Research Service 29 Brazil-U.S. Relations Amazon between 2005 and 2009, found that about half of the reduction in deforestation was attributable to the Brazilian government’s conservation policies.172 Some environmentalists are concerned that government policy changes may halt or even reverse Brazil’s recent progress in reducing deforestation. In December 2011, President Rousseff signed a law transferring responsibility for environmental oversight of non-federal lands from Brazil’s federal environmental agency, the Instituto Brasileiro do Meio Ambiente e dos Recursos (IBAMA), to local officials. While the federal government maintains that local officials are better placed to manage such resources, critics argue that local authorities lack the necessary finances and are more susceptible to intimidation and corruption.173 Many environmentalists are also concerned about potential changes to Brazil’s forest code—a law that requires rural landowners to set aside between 20% and 80% of their land for natural vegetation. The Brazilian Congress approved a major overhaul of the code in April 2012. Although President Rousseff vetoed some of the most controversial provisions, the final version relaxes conservation requirements for environmentally sensitive areas like river banks, reduces reforestation requirements for land that has already been deforested, and decreases the total amount of forest that must be preserved.174 Supporters of the reform assert that it is necessary in order to bring farmers into compliance with the law, and argue that the updated forest code remains among the strictest regulations of privately-owned property in the world.175 U.S. environment programs in Brazil are designed to 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, USAID initiated the Amazon Basin Conservation Initiative, which supports community groups, governments, and other organizations working throughout the Amazon Basin to conserve the forest’s biodiversity. USAID provided Brazil with $14 million for environmental programs in FY2010, $11.5 million in FY2011, and an estimated $10 million in FY2012.176 Although the Obama Administration did not request any aid for environmental programs in Brazil for FY2013, the report (S.Rept. 112-172) accompanying the Senate version of the annual foreign aid appropriations bill, S. 3241, recommends $10 million to continue USAID’s activities in the Brazilian Amazon. In August 2010, the United States and Brazil signed a debt-for-nature agreement under the Tropical Forest Conservation Act of 2008 (P.L. 105-214). According to the agreement, the United States will reduce Brazil’s debt payments by $21 million over 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 endangered areas outside of the Amazon such as the Atlantic Rainforest, Caatinga, and Cerrado ecosystems.177 172 Juliano Assunção, Clarissa C. e Grandour, and Rudi Rocha, Deforestation Slowdown in the Legal Amazon: Prices or Policies, Climate Policy Initiative, Working Paper, Rio de Janeiro, February 6, 2012, http://climatepolicyinitiative.org/wp-content/uploads/2012/03/Deforestation-Prices-or-Policies-Working-Paper.pdf. 173 Paulo Prada, “Special Report: Brazil Backslides on Protecting the Amazon,” Reuters, August 3, 2012. 174 “Environmental Law in Brazil: Compromise or Deadlock?,” Economist, June 2, 2012; Fernanda Krakovics, “Ruralistas Vencem, e Senado Aprova Novo Código Florestal,” O Globo (Brazil), September 26, 2012. 175 Reese Ewing, “Interview-Brazil Land Use Bill to Make Forests Profitable,” Reuters, June 1, 2011; Kátia Abreu, “Código Florestal e a Busca da Perfeição,” Folha de São Paulo, September 29, 2012. 176 U.S. Agency for International Development (USAID), CN #122, August 18, 2011; USAID, CN #90, July 12, 2012. 177 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. (continued...) 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. (...continued) Sheikh. Congressional Research Service 31March 27, 2014 Congressional Research Service 7-5700 www.crs.gov RL33456 Brazil: Political and Economic Situation and U.S. Relations Summary The United States has traditionally enjoyed cooperative relations with Brazil, which is the seventh-largest economy in the world and is recognized by the Obama Administration’s National Security Strategy as an emerging center of influence. Administration officials have often highlighted Brazil’s status as a multicultural democracy, referring to the country as a natural partner that shares values and goals with the United States. Bilateral ties have been strained from time to time, however, as the countries’ occasionally divergent national interests and independent foreign policies have led to disagreements. U.S.-Brazilian relations have been particularly strained over the past year as a result of alleged National Security Agency (NSA) activities inside Brazil. Nevertheless, the countries continue to engage on issues such as trade, energy, security, racial equality, and the environment. Political and Economic Situation Dilma Rousseff of the center-left Workers’ Party was inaugurated to a four-year presidential term on January 1, 2011, inheriting a country that had benefited from 16 years of stable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (20032010). She has spent much of her time in office focusing on domestic economic challenges. Brazil experienced a rapid economic expansion from 2004 to 2010, but growth began to slow in 2011. While Rousseff’s efforts to stimulate domestic consumption and protect domestic industry have helped keep unemployment near record lows, economic growth has yet to accelerate, averaging 2% annually during the first three years of her term. Rousseff has also had to contend with several political challenges. Mass demonstrations took place across Brazil in June 2013, with protesters calling for better quality public services, among other demands. Rousseff implemented some policy reforms in response to the demonstrations, but smaller-scale protests have continued to occur and could grow in size in the lead-up to Brazil hosting the World Cup in June and July 2014. The Brazilian Congress has provided additional challenges for Rousseff, with some sectors of her multiparty coalition opposing her legislative initiatives. Although Rousseff’s approval rating declined significantly during 2013, it has partially recovered and stood at 41% in February 2014. National and state elections are scheduled for October 2014, and early polling suggests Rousseff is favored to win reelection. Congressional Action Brazil has remained a subject of interest in the 113th Congress. In June 2013, the House Committee on Ways and Means, Subcommittee on Trade, held a hearing examining the opportunities and challenges of the U.S.-Brazil trade and investment relationship. As part of the farm bill reauthorization (P.L. 113-79), Congress approved modifications to the U.S. cotton program that could help resolve a long-running trade dispute with Brazil. Congress also continued to support conservation of the Amazon Rainforest, appropriating $10.5 million for environmental programs in the Brazilian Amazon in the Consolidated Appropriations Act, 2014 (P.L. 113-76). Other measures that have been introduced in the 113th Congress include two bills designed to pressure Brazil to amend its constitution and allow the extradition of Brazilian nationals; H.R. 571 would suspend foreign assistance to Brazil, and H.R. 572 would suspend the issuance of visas to Brazilian nationals until Brazil changes its extradition policy. Congressional Research Service Brazil: Political and Economic Situation and U.S. Relations Contents Political and Economic Situation ..................................................................................................... 1 Background................................................................................................................................ 1 Cardoso Administration (1995-2002).................................................................................. 3 Lula Administration (2003-2010)........................................................................................ 3 Rousseff Administration (2011-Present) ................................................................................... 5 Economic Challenges .......................................................................................................... 6 Mass Demonstrations .......................................................................................................... 7 2014 Elections ........................................................................................................................... 9 U.S.-Brazil Relations ..................................................................................................................... 10 U.S. Foreign Assistance and Trilateral Development Initiatives ............................................. 11 Commercial Relations ............................................................................................................. 12 Bilateral Trade and Investment ......................................................................................... 13 Cotton Dispute .................................................................................................................. 15 Energy Ties .............................................................................................................................. 16 Biofuels ............................................................................................................................. 16 Oil...................................................................................................................................... 17 Security Cooperation ............................................................................................................... 19 Counternarcotics................................................................................................................ 20 Counterterrorism ............................................................................................................... 21 Defense .............................................................................................................................. 22 Promotion of Racial Equality .................................................................................................. 23 Amazon Conservation ............................................................................................................. 24 Figures Figure 1. Map of Brazil.................................................................................................................... 2 Figure 2. U.S. Trade with Brazil: 2004-2013................................................................................. 14 Figure 3. U.S. Oil Trade with Brazil: 2004-2013 .......................................................................... 19 Figure 4. Deforestation in the Brazilian Amazon: 2004-2013 ....................................................... 25 Tables Table 1. U.S. Assistance to Brazil: FY2010-FY2015 .................................................................... 11 Appendixes Appendix. Legislative Initiatives in the 113th Congress ................................................................. 28 Contacts Author Contact Information........................................................................................................... 28 Congressional Research Service Brazil: Political and Economic Situation and U.S. Relations Political and Economic Situation President Dilma Rousseff of the center-left Workers Party took office on January 1, 2011, and is now in the final year of her term. She inherited a country that had benefited from 16 years of capable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010), during whose terms Brazil made significant advances in economic stabilization and social inclusion. Rousseff has faced a series of challenges in office, however, as the Brazilian economy has slowed and citizens have taken to the streets to express a variety of frustrations. While Rousseff has won support from the Brazilian Congress for portions of her policy agenda, she occasionally has been stymied by sectors of her own multiparty coalition. Brazil continues to face considerable economic challenges as the country prepares to host the World Cup in June and July 2014 and hold national and state elections in October 2014. Nevertheless, early polling suggests that Rousseff is favored to win a second term as president. Background Brazil occupies almost half of the continent of South America and is the fifth most populous country in the world with 201 million citizens.1 The country declared independence from Portugal in 1822, initially establishing a constitutional monarchy and retaining a slave-based, plantation economy. Brazil abolished slavery in 1888 and became a republic in 1889, but economic and political power remained concentrated in the hands of large rural landowners and the vast majority of Brazilians remained outside the political system. The authoritarian government of Getúlio Vargas (1930-1945) began the incorporation of the working classes but exerted strict control over labor as part of his broader push to centralize power. Vargas also increased the state’s role in the economy and pursued import-substitution industrialization. Brazil enjoyed multiparty democracy between 1945 and 1964, but experienced polarization and instability as economic growth slowed, inflation increased, and populism gained strength. The Brazilian military seized power in a 1964 coup, ushering in two decades of authoritarian rule (1964-1985). Although repressive—especially between 1969 and 1974, the Brazilian military was not as brutal as those in some other South American countries. It nominally allowed the judiciary and Congress to function during its tenure, but stifled representative democracy and civic action, carefully preserving its influence during one of the most protracted transitions to democracy to occur in Latin America. Brazil continued to pursue state-led development during most of the military era, and industrialization helped foster the transformation of Brazil into a predominantly urban society. Brazil restored civilian rule in 1985, and a national constituent assembly, elected in 1986, promulgated a new constitution in 1988. The constitution, as amended, established a liberal democracy with a strong president, a bicameral Congress consisting of the 513-member Chamber of Deputies and the 81-member Senate, and an independent judiciary. Power is somewhat decentralized under the country’s federal structure, which includes 26 states, a federal district, and some 5,570 municipalities. The reestablishment of democracy did not ensure stability, however, 1 United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Statistical Yearbook for Latin America and the Caribbean, 2013, December 2013, p.33, http://www.eclac.cl/publicaciones/xml/5/51945/ AnuarioEstadistico2013.pdf. Congressional Research Service 1 Brazil: Political and Economic Situation and U.S. Relations as Brazil experienced economic recession and political uncertainty during the first decade after the political transition. Numerous efforts to control runaway inflation failed and two elected presidents did not complete their terms; one died before taking office and the other was impeached on corruption charges.2 Figure 1. Map of Brazil Source: Map Resources. Adapted by CRS Graphics. 2 Brazil: A Country Study, ed. Rex A. Hudson, 5th ed. (Washington, DC: Library of Congress, 1998). Congressional Research Service 2 Brazil: Political and Economic Situation and U.S. Relations Cardoso Administration (1995-2002) Brazil’s economic and political situation began to stabilize under President Fernando Henrique Cardoso, who was elected to serve two terms between 1995 and 2002. A prominent sociologist of the centrist3 Brazilian Social Democracy Party (Partido da Social Democracia Brasileira, PSDB), Cardoso’s initial election in 1994 was largely the result of the success of the anti-inflation “Real Plan” that he implemented as finance minister under President Itamar Franco (1992-1994). 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 annual inflation falling from 2,730% in 1993 to about 18% in 1995.4 Cardoso continued the economic reform push after taking office, privatizing some state-owned enterprises and gradually opening the Brazilian economy to foreign trade and investment. Although these policies contributed to stronger growth rates for a few years, macroeconomic stability remained elusive. Foreign investors began flooding Brazil with large capital inflows that contributed to currency appreciation and the eventual overvaluation of the real. Following the 1997 East Asian and 1998 Russian financial crises, concerns about Brazil’s overvalued exchange rate and substantial fiscal deficits sparked a massive capital flight. Brazil was forced to adopt a floating exchange rate and the real lost 40% of its value.5 Cardoso’s popularity declined as Brazil struggled with these economic challenges; however, most analysts credit him with laying the foundation for the macroeconomic stability that Brazil has experienced since he left office. In the aftermath of the 1998-1999 financial crises, Brazil adopted the three main pillars of its macroeconomic policy: a floating exchange rate, a primary budget surplus, and an inflation-targeting monetary policy. Cardoso also established a series of targeted income transfer programs designed to alleviate poverty. These economic and social policies have been maintained and built upon by subsequent administrations. Lula Administration (2003-2010) Luis Inácio Lula da Silva—known as Lula—was elected president of Brazil in 2002, his fourth attempt at the presidency as the candidate of the center-left6 Workers Party (Partido dos Trabalhadores, PT) that he helped found as a metalworker and union leader. During his first term, Lula maintained the market-oriented economic policies associated with his predecessor. He tightly controlled expenditures, raised the primary budget surplus, and granted additional autonomy to the Central Bank. At the same time, he placed greater emphasis on reducing poverty, reorganizing and expanding some of the social programs that had been initiated under Cardoso. The most high profile program, Bolsa Familia (“Family Grant”), provides monthly cash transfers 3 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). It has moved to the right, however, 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. 4 CRS Report 98-987, Brazil's Economic Reform and the Global Financial Crisis, by J. F. Hornbeck. 5 Ibid; Riordan Roett, “How Reform has Powered Brazil’s Rise,” Current History, February 2010. 6 Although the PT was founded as a leftist party, it moved toward the ideological center upon taking office in 2002. Power and Zucco, 2009, op.cit. Congressional Research Service 3 Brazil: Political and Economic Situation and U.S. Relations to poor families that ensure their children attend school and receive proper medical care. Lula’s agenda stalled toward the end of his first term as several top PT officials were implicated in a vote-buying scheme. Although the scandal ultimately led to the convictions of 25 people— including Lula’s former chief of staff—in 2012,7 Lula was reelected in 2006. After primarily focusing on maintaining economic stability during his first term, Lula established a larger role for the Brazilian state in economic development during his second term. He expanded Bolsa Familia and launched new social welfare programs such as Minha Casa, Minha Vida (“My House, My Life”)—an attempt to increase formal housing for low-income Brazilians. He also continued to raise the minimum wage, which, adjusted for inflation, increased nearly 64% during his eight years in office.8 In response to the global financial crisis, the Lula Administration implemented a series of stimulus measures designed to offset declines in global demand with increased domestic consumption. Analysts have credited the administration’s timely policy response for mitigating the effects of the crisis and facilitating recovery;9 the Brazilian economy contracted by 0.3% in 2009 before rebounding with 7.5% growth in 2010.10 Moreover, Lula won legislative approval for a new regulatory framework that is designed to increase the state’s role in the exploitation of Brazil’s considerable offshore oil reserves and use the resources to fuel long-term economic and social development. Although some observers criticized Lula for not doing more to advance certain policy reforms,11 most give him credit for improving social inclusion in Brazil. Between 2001 and 2011, the percentage of the population living in poverty fell from 37.5% to 20.9%, and the percentage living in extreme poverty fell from 13.2% to 6.1%.12 Income inequality was also reduced, with the Gini coefficient13 falling from 0.64 to 0.56 during the same time period.14 While these advances were partially the result of stronger economic growth driven by a boom in international demand for Brazilian commodities, government policy also played a role. According to a 2012 study, about 28% of the decline in income inequality in Brazil between 2001 and 2009 was attributable to increases in the minimum wage and another 12.7% of the decline was attributable to the Bolsa Família program.15 7 “Brazil Politics: Supreme Court Gives Tough Sentences in ‘Mensalão’ Trial,” Economist Intelligence Unit, October 26, 2012. 8 Cristiano Romero, “O Legado de Lula na Economia,” Valor Online (Brazil), December 29, 2010. 9 See, for example, International Monetary Fund (IMF), “IMF Executive Board Concludes 2010 Article IV Consultation with Brazil,” August 5, 2010. 10 IMF, World Economic Outlook Database, October 2013, accessed February 2014. 11 See, for example, “Brazil's Presidential Election: Lula's Legacy,” Economist, September 30, 2010; and Paulo Kliass, “Lula's Political Economy: Crisis and Continuity,” North American Congress on Latin America (NACLA), March/April 2011. 12 ECLAC, Statistical Yearbook for Latin America and the Caribbean, 2012, December 2012, p.65, http://www.eclac.cl/publicaciones/xml/4/48864/AnuarioEstadistico2012_ing.pdf. 13 The Gini coefficient is a value between zero and one, where zero represents complete equality and one represents complete inequality. 14 ECLAC, December 2012, op.cit., p.70. 15 Pedro H. G. Ferreira de Souza, Poverty, Inequality and Social Policies in Brazil, 1995-2009, U.N. Development Programme, International Policy Centre for Inclusive Growth, Working Paper Number 87, Brasilia, February 2012, p.19, http://www.ipc-undp.org/pub/IPCWorkingPaper87.pdf. Congressional Research Service 4 Brazil: Political and Economic Situation and U.S. Relations Brazil at a Glance Land Area: 8.5 million sq. km. (slightly smaller than the United States) Population: 201.5 million (2014 est.) Race/Ethnicity: White—47.7%, Brown—43.1%, Black—7.6%, Asian—1.1%, Indigenous—0.4% (Self-identification, 2010) Religion: Catholic—65%, Evangelical Christian—22%, None—8%, Other—4% (2010) Official Language: Portuguese Gross Domestic Product (GDP): $2.2 trillion (2013 est.) GDP per Capita: $10,958 (2013 est.) Top Exports: iron ore, soy beans, oil, meat, motor vehicles and parts, machinery, and sugar (2013) Life Expectancy at Birth: 73.2 years (2010-2015 est.) Infant Mortality Rate: 19 per 1,000 live births (2010-2015 est.) Adult Literacy Rate: 90.4% (2011) Poverty Rate: 18.6% (2012) Indigence Rate: 5.4% (2012) Sources: Area, race/ethnicity, and religion statistics from the Instituto Brasileiro de Geografia e Estatística (IBGE); GDP estimates from the International Monetary Fund (IMF); trade data from Global Trade Atlas; population and social statistics from the U.N. Economic Commission for Latin America and the Caribbean (ECLAC). Rousseff Administration (2011-Present) Dilma Rousseff of the center-left PT was inaugurated to a four-year term in January 2011, becoming Brazil’s first woman president. She had never been elected to public office prior to winning the presidency,16 but was chosen by Lula to run as his successor. Rousseff served as minister of mines and energy from 2003 to 2005 and Lula’s chief of staff from 2005 to 2010, during which time she was in charge of strategic projects such as the government’s housing program, investments in infrastructure, and a new regulatory framework for developing Brazil’s offshore oil reserves. Rousseff is an economist by training. She originally became involved in politics by joining underground leftist groups that fought against the military regime; Rousseff was arrested, tortured, and imprisoned for nearly three years during the authoritarian period.17 Although her multiparty coalition nominally holds significant majorities in both houses of the Brazilian Congress, Rousseff has struggled throughout her term to hold the ideologically diverse coalition together. Given the fragmented nature of Brazil’s political system, presidents have traditionally distributed control of ministries and state enterprises to coalition partners in order to construct governing majorities. Rousseff’s distribution of appointments, which heavily favors the PT over the other seven parties with representation in the 39-member cabinet, has upset some sectors of the coalition. Her dismissal of six cabinet ministers accused of corruption during her 16 Rousseff won 56% of the vote to defeat José Serra of the PSDB in a second round runoff election on October 31, 2010. The second round was necessary since Rousseff had fallen just short of an absolute majority—with 47% of the vote—in the first round election held on October 3, 2010. In the first round, she was followed by Serra at 33%, and Marina Silva, a former Lula Administration environment minister that ran for president as the candidate of the Green Party (Partido Verde, PV), at 19%. 17 Presidência da República Federativa do Brasil, “Presidenta: Biografia,” July 4, 2011. Congressional Research Service 5 Brazil: Political and Economic Situation and U.S. Relations first year in office and periodic efforts to more tightly control government expenditures have exacerbated these intra-coalition divisions. In Brazil’s 513-seat Chamber of Deputies, for example, the number of deputies supporting the Rousseff Administration on at least 90% of votes fell from 306 (60%) in 2011 to 123 (24%) in 2013.18 While Rousseff has been able to win legislative support for portions of her policy agenda, she has lost key congressional votes on issues such as the distribution of oil royalties and reforms to Brazil’s forest conservation law.19 Economic Challenges Rousseff has spent the majority of her time in office focused on domestic economic challenges. With a gross domestic product (GDP) of $2.2 trillion,20 Brazil is the largest economy in Latin America and the seventh-largest economy in the world. The country experienced rapid economic growth from 2004 to 2010, driven by a boom in international demand—particularly from China— for Brazilian commodities such as meat, sugar, soybeans, iron ore, and crude oil. The initial expansion was reinforced by domestic consumption from Brazil’s fast-growing middle class,21 which now accounts for a majority of the population.22 As international commodity prices began to fall, however, economic growth slowed. The Rousseff Administration has sought to offset the weaker international economic situation by boosting domestic consumption and protecting domestic industry. The Administration has pursued an expansionary fiscal policy, implementing a series of short-term stimulus packages. It has also adopted a new industrial policy, known as Brasil Maior (“Bigger Brazil”), which has included targeted tax cuts and financing through the Brazilian Development Bank (BNDES) for domestic manufacturing, stronger preferences for locally produced goods in government procurement, and restrictions on imports.23 While these measures have helped keep unemployment near historic lows (5.1% in February 2014),24 economic growth has yet to recover. The Brazilian economy expanded by an average of about 2% annually from 2011 to 2013,25 and is forecast to grow by 2.3% in 2014.26 As a result of lower tax receipts, the Brazilian government has been forced to rely on accounting maneuvers and extraordinary revenue to meet its primary budget surplus target.27 Moreover, these economic 18 José Roberto de Toledo, Isadora Peron, and Rodrigo Burgarelli, “PSD e PSB Puxam Derrotas do Governo na Câmara; Núcleo Fiel a Dilma Fica 60% Menor,” O Estado de São Paulo, January 20, 2014. 19 Joe Leahy, “Brazil Grapples with Dysfunctional Congress; Controversy over Pastor Highlights Complexity of Dealing with a Congress Hostage to Diverse Interest Groups,” Financial Times, April 10, 2013. 20 IMF, World Economic Outlook Database, October 2013, accessed February 2014. 21 The Brazilian government breaks the population into five income classes: A, B, C, D, and E. Those in the “C” class, who earn approximately $760-$3,280 (R$1,734-7,475) per month, are generally referred to as the “new middle class.” 22 Marcelo Cortes Neri, Os Emergentes dos Emergentes: Reflexões Globais e Ações para a Nova Classe Média Brasileira, Fundação Getulio Vargas, Rio de Janeiro, June 27, 2011, p.35. 23 “Brazil: Propping Up Industry,” Economist Intelligence Unit, August 15, 2011; Howard Schneider, “Brazil’s Inward Turn Bothers U.S.” Washington Post, December 4, 2012. 24 Instituto Brasileiro de Geografia e Estatística (IBGE), “Unemployment Rate was 5.1% in February,” March 27, 2014. 25 IMF, World Economic Outlook Database, October 2013, accessed February 2014. 26 IMF, World Economic Outlook Update, Is the Tide Rising?, January 21, 2014. 27 Paulo Trevisani, “Brazil Changes Budget; Freezes Some Spending to Regain Markets’ Confidence,” Wall Street Journal, February 20, 2014. Congressional Research Service 6 Brazil: Political and Economic Situation and U.S. Relations policies have helped push inflation to the upper edge of the government’s targeted boundary (4.5% with a 2-point tolerance band), weakening citizens’ purchasing power and eroding national competitiveness. In order to keep inflation under control, the Brazilian Central Bank, which previously had reduced interest rates to record lows, was forced to reverse course and adopt a tighter monetary policy.28 Many analysts maintain that Brazil’s slower economic growth is the result of structural constraints such as “infrastructure deficiencies, high labor costs and low skill levels, a high tax burden and an onerous tax system, excessive administrative burdens, shallow credit markets, and barriers to international trade.”29 They argue that the Brazilian government should address these constraints and thereby improve productivity and boost investment, rather than continuing to try to stimulate consumption.30 It appears as though the Rousseff Administration recognizes these constraints on growth. Among other measures, it has cut taxes and encouraged private investment in the country’s overburdened infrastructure by tendering concessions to build and operate roads, railways, ports, and airports. Significant challenges remain, however, as Brazil is ranked 116th out of 189 countries in the World Banks’s 2014 “Ease of Doing Business” index,31 and gross domestic investment stands at 18.4% of GDP32—well below the 22%-23% of GDP that economists estimate is necessary to sustain higher economic growth.33 Mass Demonstrations Mass demonstrations took place across Brazil in June 2013, and smaller protests have continued to take place periodically since then. The protests began on June 6, 2013, when about 2,000 people took to the streets of São Paulo to oppose an increase in bus fares. The crowds started to grow as Brazilians shocked by the heavy-handed police response joined in subsequent demonstrations. The situation then rapidly evolved as Brazilians began to air a broader array of grievances and news of the demonstrations was relayed through social media. At the peak of the demonstrations on June 20, 2013, an estimated 1.2 million people protested in 80 cities across Brazil.34 While the protesters voiced a wide range of complaints, the underlying cause of the demonstrations appears to be the government’s failure to meet citizens’ rising expectations. Some 40 million Brazilians have joined the middle class since 2003,35 and many that have left poverty behind expect further improvements in their living standards. Public education, health, and transportation services are generally perceived to be low quality, however, and the slowing economy and rising cost of living have reinforced the precarious position of the new middle class. Moreover, inequality remains high by international standards despite a significant reduction over 28 Walter Brandimarte, “Insight – Brazil’s Tombini: An Inflation Hawk, Believe It or Not,” Reuters, August 23, 2013. Organisation for Economic Co-operation and Development (OECD), OECD Economic Surveys: Brazil, October 2013. 30 Ibid; “The Days of Easy Growth are Over for Now,” Latin America Monitor: Brazil, July 2013; IMF, Brazil: Staff Report for the 2013 Article IV Consultation, IMF Country Report No. 13/312, Washington, DC, October 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13312.pdf. 31 World Bank, “Ease of Doing Business in Brazil,” http://www.doingbusiness.org/data/exploreeconomies/brazil. 32 IMF, October 2013, op.cit., p.45. 33 Joe Leahy, “Investors Worry the Dilma Model is Unravelling in Brazil,” Financial Times, May 20, 2013. 34 “Brazil’s Stormy June: Not Turkey or Egypt,” Latin American Security & Strategic Review, June 2013. 35 Neri, 2011, op.cit., p.35. 29 Congressional Research Service 7 Brazil: Political and Economic Situation and U.S. Relations the past decade; the top 10% of Brazilians receive over 46% of all income—more than the bottom 80% of Brazilians combined.36 Although there continues to be broad support for Brazil’s development model, which includes relatively high taxes (36.3% of GDP in 2012)37 and an active role for the government in the economy,38 many Brazilians believe public funds are being squandered through corruption and unnecessary expenditures. Some 200 federal legislators are reportedly facing criminal charges,39 and, until recently, several legislators that had been convicted in high-profile corruption cases were allowed to keep their seats in Congress. The Confederations Cup soccer tournament that Brazil hosted in June 2013 as a prelude to the 2014 World Cup served as a useful backdrop for protesters seeking to highlight the divergence between the priorities of average citizens, who demand better public services, and Brazilian politicians, who are investing about $11.2 billion (R$25.6 billion)40 to upgrade soccer stadiums and related infrastructure. Over the course of June 2013, the percentage of Brazilians rating the Rousseff Administration as “good” or “excellent” fell 27 points to 30%.41 Politicians from other parties and at other levels of government saw similar declines, reflecting citizens’ general discontent with the Brazilian political class. The demonstrations appear to have caught Brazilian politicians off-guard.42 Prior to the protests, President Rousseff enjoyed high approval ratings, and many in the ruling coalition assumed that Brazilians would continue to reward them politically for Brazil’s decade-long rise in living standards. According to some analysts, however, it is precisely because Brazilians enjoy more economic security that they have been able to focus on broader quality of life and good governance issues.43 Moreover, while some labor unions and social movements have close ties to, and regularly consult with, the PT and other Brazilian political parties, the protests reportedly have been fueled by youth without strong connections to the political system.44 In an attempt to regain the initiative, Rousseff called on Brazilian policy makers to adopt a variety of policy changes—some of which she had previously proposed—to address the protesters’ demands. Her five so-called “pacts” related to fiscal responsibility, political reform, healthcare, public transportation, and education.45 While some of Rousseff’s initiatives have moved forward, others have not. Her political reform proposal found little support in the Brazilian Congress, but small-scale electoral changes and several anti-corruption and transparency measures have been enacted. The Brazilian Congress also adopted a measure to dedicate 75% of 36 ECLAC, December 2013, op.cit., p.77. OECD, ECLAC, and Inter-American Center of Tax Administrations, Revenue Statistics in Latin America, 19902012, January 2014. 38 For example, a November 2013 poll found that 67% of Brazilians think the government, rather than the private sector, should be most responsible for investing to produce economic growth. Ricardo Mendonça, “Brasileiros se Dividem sobre Impostos e Papel do Governo,” Folha de São Paulo, December 8, 2013. 39 Simon Romero, “Public Rage Catching Up With Brazil’s Congress,” New York Times, June 27, 2013. 40 República Federativa do Brasil, Ministério do Esporte, “Matriz de Responsabilidades Consolidada,” September 2013. 41 “Avaliação da Presidente Dilma Rousseff,” Datafolha, June 28, 2013. 42 Francisco Peregil, “Las Protestas Dejan a Brasil Perplejo,” El País (Spain), June 23, 2013; “A Direção do PT está em Pânico, Diz Historiador,” Folha de São Paulo, June 23, 2013. 43 Bob Moser, “Record Low Unemployment Fueling Protestor Confidence in Brazil,” MercoPress, July 2, 2013. 44 Fernando Rodrigues, “Movimento está Divorciado dos Políticos Tradicionais,” Folha de São Paulo, June 18, 2013. 45 Presidência da República Federativa do Brasil, “Discurso da Presidenta da República, Dilma Rousseff, durante Reunião com Governadores e Prefeitos de Capitais,” June 24, 2013. 37 Congressional Research Service 8 Brazil: Political and Economic Situation and U.S. Relations the funds generated by oil royalties to education and 25% to health care. For its part, the Rousseff Administration has increased expenditures for urban transportation projects, and created a program known as Mais Médicos (“More Doctors”) that has brought nearly 14,000 (mainly Cuban) doctors to Brazil to work in underserved communities.46 Although some Brazilians have continued to protest, the demonstrations have been less frequent and smaller in scale since June 2013. The protests also appear to have lost some public support as a result of so-called “Black Bloc” demonstrators that have engaged in confrontations with police and vandalism. Between June 2013 and February 2014, the percentage of Brazilians supporting the protests fell from 81% to 52% and the percentage opposed to the protests increased from 15% to 42%.47 Nevertheless, large-scale demonstrations could reemerge in the lead-up to the World Cup, which is scheduled to be played in Brazil between June 12 and July 13, 2014. 2014 Elections Brazil is scheduled to hold presidential, legislative, and state office elections on October 5, 2014. President Rousseff is running for reelection as the PT’s candidate and is currently attempting to solidify alliances with the rest of the parties in her ruling coalition. The principal opposition candidates appear to be Aécio Neves, a Senator from the state of Minas Gerais and the candidate of the PSDB, and Eduardo Campos, the governor of the state of Pernambuco and the candidate of the center-left Brazilian Socialist Party (Partido Socialista Brasileiro, PSB). Campos has forged an alliance with Marina Silva, who served as an environment minister in the Lula Administration and won 19% of the presidential vote in 2009. While the PSDB has led the political opposition since the PT first took power in 2003, the PSB was a member of the ruling coalition until September 2013. Neves and Campos have adopted similar campaign rhetoric, promising to maintain the successful social policies of the PT while increasing government efficiency, strengthening the economy, reducing crime, and improving the quality of public services.48 Early polling suggests that Rousseff is favored to win reelection. A February 2014 poll found that when asked to choose between the top three contenders, 47% of Brazilians would vote for Rousseff, 17% would vote for Neves, and 12% would vote for Campos. Nevertheless, there are some indications that the race could tighten. Rousseff’s approval rating has only partially recovered since its precipitous drop in June 2013 and currently stands at 41%. Likewise, 67% of Brazilians say they would prefer that the next president take different actions than those of President Rousseff. Rousseff also currently benefits from higher name recognition, which will likely change over the course of the campaign. While Rousseff is known to all Brazilians, 24% have never heard of Neves and 45% have never heard of Campos.49 If no candidate wins an absolute majority, a runoff election would be scheduled for October 26, 2014. 46 Paulo Victor Chagas, “Cinco Pactos Foram a Resposta do Governo Federal aos Protestos de Junho,” Agência Brasil, December 31, 2013; Johanna Nublat, “Com Nova Leva, Cubanos Serão 82% do Mais Médicos,” Folha de São Paulo, March 6, 2014. 47 Fabiano Maisonnave, “Aprovação à Realização da Copa é a Menor em 5 Anos,” Folha de São Paulo, February 24, 2014. 48 Gustavo Patu, “Críticas de Aécio e Campos ao PT são Quase Idênticas,” Folha de São Paulo, February 9, 2014. 49 Datafolha, Intenção de Voto para Presidente 2014, February 20, 2014; Fernando Rodrigues, “Dilma Para de Subir, Mas Seria Reeleita No 1° Turno,” Folha de São Paulo, February 23, 2014. Congressional Research Service 9 Brazil: Political and Economic Situation and U.S. Relations U.S.-Brazil Relations The United States and Brazil have traditionally enjoyed cooperative relations. The Obama Administration’s National Security Strategy recognizes Brazil as an emerging center of influence and asserts that the U.S. government welcomes Brazil’s leadership to “pursue progress on bilateral, hemispheric, and global issues.”50 To this end, the countries have at least 20 active bilateral dialogues, which serve as vehicles for policy coordination on issues of mutual concern.51 State Department officials maintain that the United States and Brazil are “natural partners” with “shared values and increasingly converging goals.”52 Through the Obama Administration’s 100,000 Strong in the Americas initiative and Brazil’s Science without Borders program, for example, both countries are seeking to create new academic and research partnerships and increase educational exchanges among U.S. and Brazilian students. Nevertheless, bilateral ties have been strained from time to time as the countries’ occasionally divergent national interests and independent foreign policies have led to disagreements. Several long-running disputes relate to trade, where Brazil has pushed the United States to reduce protections for U.S. agriculture and the United States has pushed Brazil to reduce protections for Brazilian industry (see “Commercial Relations”). Other disagreements have arisen as Brazil has taken on a larger role in international affairs. In 2010 and 2011, for example, Brazil used its temporary seat on the U.N. Security Council to advocate engagement with internationally isolated regimes like Iran, Libya, and Syria. While the United States and Brazil generally agreed on desired outcomes in these countries, Brazil’s long-standing commitment to the peaceful resolution of conflicts and its aversion to the use of military force (or economic sanctions, which it views as a prelude to the use of force) led it to approach the issues much differently than the United States. Bilateral relations have been particularly strained over the past year as the press has reported on alleged National Security Agency (NSA) activities in Brazil. The reports, which indicated that the NSA had spied on President Rousseff and the state-owned oil company Petróleo Brasileiro S.A. (Petrobras) in addition to engaging in broader electronic surveillance, led Brazil to indefinitely postpone a state visit to Washington that Rousseff was scheduled to make in October 2013. They also appear to have influenced Brazil’s decision to award a $4.5 billion fighter jet procurement deal to Sweden’s Saab AB over Boeing (see “Defense”). At the September 2013 U.N. General Assembly, Rousseff denounced alleged NSA activities as a breach of international law and a threat to democratic governance, stating, “I fought against authoritarianism and censorship, and I cannot but defend, in an uncompromising fashion, the right to privacy of individuals and the sovereignty of my country. In the absence of the right to privacy, there can be no true freedom of expression and opinion, and therefore no effective democracy.” She also asserted that “friendly governments and societies that seek to build a true strategic partnership ... cannot allow recurring illegal actions to take place as if they were normal. They are unacceptable.”53 50 White House, National Security Strategy, May 2010, p. 44. U.S. Department of State, Bureau of Western Hemisphere Affairs, “U.S. Relations with Brazil,” Fact Sheet, October 3, 2013. 52 William J. Burns, Deputy Secretary of State, “Building a Deeper Partnership with Brazil,” Remarks in Rio de Janeiro, Brazil, March 1, 2012. 53 President Dilma Rousseff, Statement by H.E. Dilma Rousseff, President of the Federative Republic of Brazil, at the Opening of the General Debate of the 68th Session of the United Nations General Assembly, September 24, 2013. 51 Congressional Research Service 10 Brazil: Political and Economic Situation and U.S. Relations U.S. Foreign Assistance and Trilateral Development Initiatives As a middle-income country, Brazil does not receive large amounts of U.S. assistance. The United States provided Brazil with $25.5 million in FY2011, $19 million in FY2012, and $15.2 million in FY2013. The Obama Administration estimates that $13.9 million will be provided to Brazil in FY2014 and has requested $3.4 million for Brazil in FY2015 (see Table 1). The majority of the assistance provided in recent years has supported conservation programs in the Brazilian Amazon (see “Amazon Conservation”). The FY2015 request is significantly lower than the FY2014 estimate as a result of the Administration not requesting additional funds for these environmental programs in Brazil. The United States has also provided Brazil with security assistance, much of which has focused on counternarcotics and military capacity building efforts (see “Security Cooperation”). Table 1. U.S. Assistance to Brazil: FY2010-FY2015 In thousands of U.S. dollars FY2010 FY2011 FY2012 FY2013 FY2014 (estimate) 25,099 23,321 18,038 15,185 13,865 3,365 16,789 15,000 12,800 11,462 12,500 2,000 GHP-State 1,300 1,300 1,300 881 500 500 GHP-USAID 5,000 4,990 0 0 0 0 INCLE 1,000 1,000 3,000 2,000 0 0 NADR 400 400 300 270 240 240 IMET 610 631 638 572 625 625 1,928 2,167 919 NA NA NA 583 1,012 557 NA NA NA 0 127 247 NA NA NA 1,345 1,028 115 NA NA NA 27,027 25,488 18,957 15,185 13,865 3,365 Account State Department and USAID, Subtotal DA DOD, Subtotala 1004 2249c 2561 Total FY2015 (request) Sources: U.S. Department of State, Congressional Budget Justifications for Foreign Operations, Fiscal Years 2012, 2013, 2014, and 2015; U.S. Department of Defense, Reports to Congress on Foreign-Assistance Related Programs, Fiscal Years 2010, 2011, and 2012. Notes: DA=Development Assistance; GHP=Global Health Programs; INCLE=International Narcotics Control and Law Enforcement; NADR=Nonproliferation Anti-terrorism, Demining, and Related programs; IMET=International Military Education and Training; 1004=DOD counternarcotics aid; 2249c=DOD counterterrorism education and training; and 2561=DOD humanitarian aid. a. DOD assistance data for FY2013, FY2014, and FY2015 are not yet available. Most U.S. assistance is provided through the State Department and U.S. Agency for International Development (USAID), and is funded through annual Department of State, Foreign Operations, and Related Programs appropriations measures. A small portion of U.S. assistance for Brazil is provided through the Department of Defense (DOD), and is funded through annual DOD appropriations measures. Congressional Research Service 11 Brazil: Political and Economic Situation and U.S. Relations In recent years, USAID has begun working with Brazil’s development agency, the Brazilian Cooperation Agency (Agência Brasileria de Cooperação, ABC), in third countries. Under these so-called trilateral development initiatives, the United States and Brazil share expertise and funding in order to accomplish common goals.54 The Administration’s FY2014 budget request included funding to strengthen ABC’s capacity and implement jointly funded food security projects in countries such as Haiti, Honduras, and Mozambique. It also included funding designed to foster collaboration between the Centers for Disease Control and Prevention (CDC) and the Brazilian Ministry of Health in order to combat HIV/AIDS in Brazil and Lusophone Africa.55 A measure introduced in the 113th Congress, H.R. 571 (T. Ryan), would suspend foreign assistance to Brazil until the country amends its constitution to allow the extradition of Brazilian nationals. The bill, which was prompted by the case of a Brazilian woman who allegedly killed her American husband before fleeing to Brazil, has yet to advance. Commercial Relations Trade policy has often been a contentious issue in U.S.-Brazilian relations. Over the past two decades, Brazil’s trade policy has prioritized regional integration through the Common Market of the South (Mercosur)56 and multilateral negotiations at the World Trade Organization (WTO).57 Brazil is the industrial hub of Mercosur, which was established in 1991 and also includes Argentina, Paraguay, Uruguay, and Venezuela. While the bloc was created with the intention of incrementally advancing toward full economic integration, only a limited customs union has been achieved thus far. The group has also been plagued by internal disputes and frequent rule changes. Instead of serving as a platform for insertion into the global economy as originally envisioned, Mercosur has evolved into a more protectionist arrangement, shielding its members from external competition. Beginning in the 1990s, the United States sought to incorporate Mercosur and other sub-regional trade blocs into a hemisphere-wide Free Trade Area of the Americas (FTAA).58 The initiative was effectively killed in 2005, however, when the United States was unable to persuade Brazil and the other members of Mercosur to continue the negotiations. At the WTO, Brazil has played a key role in the Doha Round59 of multilateral trade negotiations that began in 2001. It has led the G-20 group of developing nations in insisting that developed countries reduce agricultural tariffs and subsidies. Brazil has also resisted calls by the United States and other developed countries for increased access to developing nations’ industrial and 54 Paulo Sotero, Shaping U.S.-Brazil Relationship after the Snowden Affair: A Conversation with Ambassador Thomas A. Shannon, Woodrow Wilson International Center for Scholars, Brazil Institute, Special Report, Washington, DC, February 2014, http://www.wilsoncenter.org/sites/default/files/AmbassadorThomas%20Shannon%20-%20Final.pdf. 55 U.S. State Department, Congressional Budget Justification for Foreign Operations, Fiscal Year 2014, Annex: Regional Perspectives, July 2, 2013, http://www.state.gov/documents/organization/208291.pdf. 56 For background information on Mercosur, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F. Hornbeck. 57 João Augusto de Castro Neves, Brazil's Slow and Uncertain Shift from Protectionism to Free Trade, Inter-American Dialogue, Working Paper, January 2014, http://www.thedialogue.org/uploads/CastroNeves_Trade.pdf. 58 For background information on the FTAA see CRS Report RS20864, A Free Trade Area of the Americas: Major Policy Issues and Status of Negotiations, by J. F. Hornbeck. 59 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 12 Brazil: Political and Economic Situation and U.S. Relations services sectors. In 2013, Brazil’s widely respected diplomat and trade representative Roberto Azevêdo was appointed Director General of the WTO. He has sought to revive the Doha Round, successfully negotiating a small-scale agreement on trade facilitation measures in December 2013. Negotiations on more sensitive issues like agriculture reportedly remain stalled.60 Some Brazilian analysts have argued that the international trading system is undergoing a significant transformation and that Brazil should reconsider its current trade policy.61 They maintain that large-scale agreements like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP)62 could establish new and more comprehensive rules for trade and investment. By setting new global standards, the agreements could effectively bypass the current round of WTO negotiations and threaten Brazil’s ability to shape the international trading system. The agreements could also place Brazilian companies at a competitive disadvantage and threaten the global market share of Brazilian exports. In order to remain relevant and take advantage of changing opportunities, these analysts argue that Brazil should conclude trade negotiations with the European Union (EU) and consider pursuing a trade agreement with the United States. While major shifts in trade policy appear to be unlikely in the near term, Brazil has already placed renewed emphasis on concluding an agreement between Mercosur and the EU.63 Further policy shifts may depend on how the TPP and TTIP negotiations advance and economic conditions in Brazil. Bilateral Trade and Investment Despite these differences in trade policy and the lack of a free trade agreement, U.S.-Brazil trade has grown considerably over the past decade (see Figure 2). Whereas total U.S. merchandise trade with the world increased 68% between 2004 and 2013, U.S.-Brazil merchandise trade increased 105% to $71.7 billion during the same time period. U.S. goods exports to Brazil increased 218% to $44.1 billion and U.S. goods imports from Brazil increased 30% to $27.6 billion. As a result of the relatively faster growth of U.S. exports compared to imports (which declined significantly in the aftermath of the financial crisis), the United States has run a trade surplus in goods with Brazil since 2008. In 2013, the surplus was valued at $16.6 billion.64 Top U.S. goods exports to Brazil included heavy and electric machinery, refined oil products, and civilian aircraft and parts. Top U.S. goods imports from Brazil included crude oil, iron and steel, machinery, civilian aircraft, ethanol, and coffee. In 2013, Brazil was the United States’ ninthlargest trading partner, and the United States was Brazil’s second-largest trading partner, behind China.65 60 “The World Trade Organization: Unaccustomed Victory,” The Economist, December 14, 2013. See, for example, “Chances Perdidas,” Correio Braziliense, January 2, 2014; Sonia Filgueiras, “Olhar do Planalto – Sob o Risco do Isolamento,” Brasil Econômico, December 18, 2013; and Vera Thorstensen and Lucas Ferraz, The Impacts of TTIP on Brazil, Fundação Getulio Vargas, Study Sponsored by the Confederação Nacional da Industria (CNI), November 2013. 62 For more information on these agreements, see CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress, coordinated by Ian F. Fergusson; and CRS Report R43387, Transatlantic Trade and Investment Partnership (TTIP) Negotiations, by Shayerah Ilias Akhtar and Vivian C. Jones. 63 Carlos Caicedo, “Brazil Keen to Speed Up EU-Mercosur Free-Trade Deal at Expense of Argentina,” IHS Global Insight, March 13, 2014. 64 U.S. Department of Commerce data, as made available by the U.S. International Trade Commission, Interactive Tariff and Trade DataWeb, accessed March 2014. 65 U.S. Department of Commerce and República Federativa do Brasil, Secretaria de Comércio Exterior (SECEX) data, (continued...) 61 Congressional Research Service 13 Brazil: Political and Economic Situation and U.S. Relations Figure 2. U.S. Trade with Brazil: 2004-2013 In billions of U.S. dollars 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -10 -20 Goods Exports Services Exports Goods Trade Balance Goods Imports Services Imports Services Trade Balance Source: CRS presentation of U.S. Department of Commerce Data. Notes: Services trade data are not yet available for 2013. U.S.-Brazil services trade has grown even more quickly than merchandise trade, increasing by 356% between 2004 and 2012 (the most recent year for which data are available). In 2012, total trade in services amounted to $30.7 billion. The United States continued to run a substantial trade surplus, valued at $17 billion, as U.S. services exports to Brazil totaled $23.9 billion and U.S. services imports from Brazil totaled $6.9 billion. Travel, telecommunications, and royalties and license fees were the top categories of U.S. services exports to Brazil while business, professional, and technical services was the top category of U.S. services imports from Brazil.66 Brazil has traditionally benefited from the Generalized System of Preferences (GSP), which provides non-reciprocal, duty-free tariff treatment to certain products imported from designated developing countries. Legal authorization for the GSP program expired on July 31, 2013, and Congress has yet to renew it.67 In 2012, the last full year that the GSP was in effect, Brazil was the third-largest beneficiary of the program. The country’s duty free imports to the United States under the GSP program were valued at $2.3 billion, equivalent to about 7% of all U.S. imports from Brazil in 2012.68 Some observers have questioned the inclusion of Brazil and other upper- (...continued) as made available by Global Trade Atlas, accessed March 2014. 66 U.S. Department of Commerce data, as made available by the Bureau of Economic Analysis, accessed March 2014. 67 For more information on GSP and potential congressional reauthorization of the program, see CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by Vivian C. Jones. 68 U.S. Department of Commerce data, as made available by the U.S. International Trade Commission, Interactive Tariff and Trade DataWeb, accessed March 2014. Congressional Research Service 14 Brazil: Political and Economic Situation and U.S. Relations middle-income countries in the GSP; the European Union removed such countries from its GSP program as of 2014.69 Foreign direct investment (FDI) between the United States and Brazil currently flows mostly in one direction, towards Brazil. As of 2012 (the most recent year for which data are available), the accumulated stock of U.S. FDI in Brazil was $79.4 billion, with significant investments in manufacturing and finance, among other sectors. Brazilian FDI in the United States has increased considerably over the past decade, but remains low by comparison. In 2012, the stock of Brazilian FDI in the United States totaled $3.6 billion.70 Cotton Dispute71 For more than a decade, Brazil and the United States have been involved in a dispute over U.S. government support 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. 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. This included $591 million in higher tariffs on a range of U.S. products and $239 million through suspension of certain intellectual property rights obligations. The United States reached a temporary agreement with Brazil in June 2010 to avoid the WTOsanctioned retaliatory measures. Under the agreement, the United States pledged to make some short-term changes to its export credit guarantees and provide the Brazil Cotton Institute with $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 had an opportunity to adjust the subsidy program in the farm bill reauthorization.72 The U.S. government stopped complying with the temporary agreement in 2013, however, making only a portion of the required monthly payment in September 2013 and then stopping payments altogether as of October 2013. Secretary of Agriculture Tom Vilsack reportedly asserted that the partial payment was required by budget sequestration and that he had no authority to continue making payments once the farm bill expired at the end of September.73 The suspension of payments led the Brazilian government to once again explore retaliatory measures.74 69 European Commission, “New GSP as of 2014,” December 18, 2013. U.S. Bureau of Economic Analysis, “Balance of Payments and Direct Investment Position Data,” accessed March 2014. 71 For more information on the U.S.-Brazil WTO cotton dispute, see CRS Report R43336, Status of the WTO BrazilU.S. Cotton Case, by Randy Schnepf. 72 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. 73 William Mauldin, “U.S. to Stop Brazil Farm Payments; Sequester Will Stop Assistance Related to Cotton Dispute,” Wall Street Journal, August 7, 2013. 74 República Federativa do Brasil, Ministério do Desenvolvimento, Indústria e Comércio Exterior, Câmara de Comércio Exterior (CAMEX), Resolução N° 105, de 18 de Dezembro de 2013. 70 Congressional Research Service 15 Brazil: Political and Economic Situation and U.S. Relations Congress passed a new farm bill (P.L. 113-79) that President Obama signed into law on February 7, 2014. The conference report accompanying the act (H.Rept. 113-333) states that the legislation includes several substantive changes to U.S. cotton support programs and the export credit guarantee program in order to resolve the dispute with Brazil. Nevertheless, Brazil’s Foreign Trade Board (Câmara de Comércio Exterior, CAMEX) maintains that the new farm bill contains elements that will continue to distort the international cotton market, and it has authorized the Brazilian government to request a WTO panel to assess whether the farm bill brings the United States into compliance with previous rulings.75 The Brazilian government has reportedly decided not to immediately request such a panel and instead enter into negotiations with the United States in hope of achieving a mutually agreeable resolution.76 Energy Ties Energy has been another important area of U.S.-Brazilian cooperation in recent years. Brazil is widely regarded as a world leader in energy policy for successfully reducing its reliance on foreign oil through the development of alternative energy resources and increased domestic production. In addition to being the world’s second-largest producer of ethanol (after the United States), Brazil generates 80% of its electricity through hydropower.77 Brazil also has discovered large offshore oil deposits that have the potential to turn the country into a major oil and gas producer and an important source of energy for the United States. To facilitate greater cooperation in the development of safe, secure, and affordable energy, President Obama and President Rousseff launched a Strategic Energy Dialogue in March 2011. Biofuels In response to sharp increases in global oil prices in the 1970s, the Brazilian government began a national program to promote the production and consumption of sugarcane ethanol. Today, most cars in Brazil are capable of running on pure ethanol, which is available at nearly every fueling station, or gasoline, which is required to include a 20%-25% ethanol blend.78 Ethanol’s share of the Brazilian light-duty fuel market reportedly declined from 50% in 2009 to 30% in 2012, however, as the Brazilian government held down gasoline prices as part of its efforts to control inflation.79 Government policy and international sugar prices that have provided incentives for sugarcane processors to produce sugar rather than ethanol have contributed to lower levels of investment and production in the ethanol industry. In 2012, Brazil produced 405,000 barrels per day of ethanol, which was more than it produced in 2011 but less than it produced 2010.80 The Brazilian government has sought to provide some relief to the ethanol industry by raising gasoline prices, increasing the ethanol blend requirement from 20% to 25%, and reducing taxes on ethanol. Nevertheless, some analysts maintain that the lack of transparency and certainty 75 CAMEX, “CAMEX Autoriza Abertura de Painel na OMC sobre Legislação Agrícola Norte-Americana,” February 19, 2014. 76 “Brazil Threatens Compliance Panel Over Farm Bill; Pursues Negotiations First,” Inside U.S. Trade, February 20, 2014. 77 U.S. Energy Information Administration (EIA), Country Analysis Briefs: Brazil, October 1, 2013. 78 Ibid. 79 Claire Casey, “Is Brazil the Energy Power of the Future (and Always Will Be)?,” Americas Quarterly, (Summer 2013). 80 EIA, October 2013, op.cit. Congressional Research Service 16 Brazil: Political and Economic Situation and U.S. Relations regarding how gasoline prices are determined are likely to continue to discourage investment in the industry.81 In 2007, the United States and Brazil, the world’s two largest ethanol-producing and consuming countries, signed a memorandum of understanding to promote greater cooperation on ethanol and other biofuels. 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.82 Since then, the United States and Brazil have moved forward on all three facets of the agreement. Bilaterally, the U.S. and Brazilian governments are attempting to improve methods for modeling the sustainability of biofuels, including their effects on greenhouse gas emissions and land use, and exchanging information on how to maximize fuel economy in flex-fuel vehicles. They are also coordinating efforts to develop sustainable aviation biofuels. At the same time, the U.S. and Brazilian governments are working together in third countries, and have provided joint technical assistance designed to strengthen policy frameworks, implement blending laws, and develop domestic production capabilities in the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, and Senegal. Multilaterally, the United States and Brazil are working with other members of the Global Bioenergy Partnership (GBEP) to promote the sustainable production and use of modern bioenergy.83 In addition to these efforts, Brazil and the United States have taken steps to liberalize trade in ethanol. In December 2011, the Brazilian government issued a resolution to extend its duty-free treatment of imported ethanol until December 31, 2015.84 Similarly, the U.S. Congress allowed a 54-cent-per-gallon duty on imported ethanol to expire at the end of 2011. Prior to its expiration, the duty served as a significant barrier to direct imports of Brazilian ethanol in most years.85 Total bilateral ethanol trade has actually declined since then, however, falling from 33,000 barrels per day in 2011 to 19,000 barrels per day in 2013. This decline is the result of lower U.S. exports to Brazil, as imports from Brazil have increased from 7,000 barrels per day to 16,000 barrels per day during the same time period. In 2013, U.S. imports from Brazil were equivalent to about 1.8% of total U.S. ethanol consumption.86 Oil Since 2007, Brazil has discovered substantial new offshore oil fields that have the potential to turn the country into one of the top five oil and gas producers in the world87 and an important 81 Casey, 2013, op.cit. 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, http://www.state.gov/p/wha/rls/158654.htm. 83 White House, Office of the Press Secretary, “Fact Sheet: The U.S.-Brazil Strategic Energy Dialogue,” April 9, 2012. 84 Ministério do Desenvolvimiento, Indústria e Comércio Exterior, Câmara de Comércio Exterior (CAMEX), Resolução N° 94, de 8 de Dezembro de 2011. 85 Although some Brazilian ethanol was allowed to enter the United States duty-free after being reprocessed in Caribbean Basin Initiative (CBI) countries, such imports could only account for up to 7% of the U.S. ethanol market. A 2.5% ad valorem tariff on ethanol imports to the United States remains in place permanently unless the Harmonized Tariff Schedule code is changed. 86 EIA, “Petroleum & Other Liquids: Data,” accessed March 2014. 87 Mark S. Langevin, Brazil’s Hydrocarbon Bonanza: Can the State Manage Pre-Salt Production for National Development and Geopolitical Power?, Brazil-Works, Discussion Paper, May 2012. 82 Congressional Research Service 17 Brazil: Political and Economic Situation and U.S. Relations source of energy for the United States. The new discoveries are so-called “pre-salt” reserves, located beneath layers of rock and salt more than 18,000 feet below the ocean surface. Some energy analysts have estimated that the total recoverable reserves of pre-salt oil and natural gas may exceed 50 billion barrels of oil equivalent.88 Brazil’s proven oil reserves stood at 15.3 billion barrels at the end of 2012, accounting for slightly less than 1% of global reserves.89 Nearly 94% of Brazil’s proven reserves are located offshore.90 In December 2010, the Brazilian Congress approved a new regulatory framework for developing the approximately 70% of pre-salt reserves that had not already been auctioned off.91 The new framework increased the role of the Brazilian government and is designed to ensure that the country’s oil reserves are used to fuel long-term economic and social development. Among other provisions, the framework establishes state-owned Petróleo Brasileiro S.A. (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; increases local content requirements; and creates a new social fund overseen by the Brazilian Congress to direct offshore revenues toward four key areas: education, infrastructure, science and technology, and poverty reduction.92 The Brazilian Congress continued to debate a new law regarding the distribution of oil royalties until March 2013.93 The delay in approving the new regulatory framework and royalty distribution law prevented Brazil’s National Agency of Petroleum, Natural Gas, and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, ANP) from auctioning new concessions for nearly five years. As a result, oil production did not increase as quickly as originally predicted and actually slightly declined between 2011 and 2012 to 2.1 million barrels per day.94 Even so, the Brazilian government received record revenues from the oil industry in 2012 that amounted to about $14 billion (R$31.8 billion).95 The ANP held its first auction of pre-salt concessions under the new regulatory framework in October 2013. While the ANP reportedly had expected more than 40 companies to participate, only 11 companies signed up for the auction, and a consortium of five companies (Petrobras, Royal Dutch Shell, Total, China National Petroleum Corporation, and China National Offshore Oil Corporation) was the sole bidder.96 The Brazilian government declared the auction a success, but some energy analysts maintain that the country will need to modify the new regulatory 88 EIA, October 2013, op.cit. BP, BP Statistical Review of World Energy, June 2013, p. 6, http://www.bp.com/content/dam/bp/pdf/statisticalreview/statistical_review_of_world_energy_2013.pdf. 90 Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), Oil, Natural Gas and Biofuels Statistical Yearbook 2013, 2013, p. 26. 91 Langevin, 2012, op.cit. 92 “Brazil Congress Passes Oil Industry Overhaul,” Reuters, December 1, 2010; “The Impact of Pre-Salt: A Long-Term Perspective,” Oxford Analytica, May 2010. 93 The royalty distribution law has not yet gone into effect as it is being challenged in Brazil’s Supreme Court. 94 BP, June 2013, op.cit., p.8. 95 ANP, 2013, op.cit. 96 “Weak Libra Interest Rounds Out a Rough Week for Brazil’s Rousseff,” Latin News Daily Report, September 20, 2013; “Brazil’s Oil Revolution Gets Off to a Slippery Start,” Latin News Daily Report, October 22, 2013. 89 Congressional Research Service 18 Brazil: Political and Economic Situation and U.S. Relations framework prior to auctioning other concessions in order to attract the investment necessary to develop its reserves and accelerate production.97 U.S.-Brazilian oil trade has expanded significantly over the past decade (see Figure 3). U.S. crude oil imports from Brazil grew rapidly from 51,000 barrels per day in 2004 to 295,000 barrels per day in 2009. They have declined since then, however, as U.S. consumption has fallen and U.S. domestic production has increased. In 2013, the United States imported 109,000 barrels per day of crude oil from Brazil, which was equivalent to about 1.4% of total U.S. crude imports. U.S. exports of refined products to Brazil have also grown quickly, increasing 544% from 27,000 barrels per day in 2004 to 174,000 barrels per day in 2013. As a result, U.S. refined product exports to Brazil exceeded U.S. crude imports from Brazil for the first time in at least a decade in 2013.98 Brazil has been forced to increasingly rely on imports as its consumption has grown more quickly than its production and refinery capacity. Some energy analysts expect this trend to continue until at least 2017, when two new Brazilian refineries are scheduled to begin operations.99 Figure 3. U.S. Oil Trade with Brazil: 2004-2013 In thousands of barrels per day 350 300 250 200 150 100 50 0 2004 2005 2006 2007 U.S. Crude Oil Imports 2008 2009 2010 2011 2012 2013 U.S. Petroleum Product Exports Source: CRS presentation of U.S. Energy Information Administration (EIA) data. Security Cooperation Although U.S.-Brazilian cooperation on security issues has traditionally been limited, law enforcement and military ties have increased in recent years. Areas of coordination include counternarcotics, counterterrorism, and defense. 97 Matthew Cowley and Paulo Trevisani, “Brazil Seen Having to Alter Oil Rules,” Wall Street Journal, October 22, 2013. 98 EIA, “Petroleum & Other Liquids: Data,” accessed March 2014. 99 Jeb Blount, “Analysis: Petrobras Fuel Woes Make Brazil Dependent on U.S., India,” Reuters, January 22, 2014. Congressional Research Service 19 Brazil: Political and Economic Situation and U.S. Relations Counternarcotics While Brazil is not a major drug-producing country, it is the world’s second-largest consumer of cocaine hydrochloride and likely the world’s largest consumer of cocaine-base products. It also serves as a transit point for illicit drugs destined for Europe.100 Security analysts contend that organized crime in Brazil has increased in scope and scale over the past decade as the drug trade has expanded. Some of the country’s large, well-organized, and heavily armed criminal groups, such as the Red Command (Comando Vermelho, CV) and the First Capital Command (Primeiro Comando da Capital, PCC), have reportedly begun to operate transnationally, eliminating intermediaries in order to control cross-border trafficking.101 In recognition of these challenges, Brazil has taken several steps to improve its antidrug efforts. In 2004, it 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 sought to improve security along the 15,719 kilometer border that it shares with 10 nations, including the region’s cocaine producers— Bolivia, Colombia, and Peru. Under its Strategic Border Plan, introduced in June 2011, the Brazilian government has reportedly deployed inter-agency resources, including unmanned aerial vehicles (UAVs), to monitor illicit activity in high-risk locations along its borders and in the remote Amazon region. It has also signed agreements and carried out joint operations with neighboring countries.102 In 2013, Brazilian authorities reportedly seized 35.7 metric tons of cocaine and 220.8 metric tons of marijuana.103 In 2008, the U.S. and Brazilian governments signed a memorandum of understanding designed to enhance the capacity of Brazilian authorities to combat drug trafficking and reduce domestic drug demand. To these ends, the United States provided support to a canine unit and special investigation units within the Brazilian Federal Police, and provided support to non-governmental organizations that work with addicts and their families in 2013.104 U.S. counternarcotics assistance to Brazil amounted to $2 million in FY2011, $3.5 million in FY2012, and $1.9 million in FY2013.105 The Obama Administration did not request any counternarcotics assistance for Brazil in FY2014 or FY2015.106 100 U.S. Department of State, Bureau of International Narcotics and Law Enforcement Affairs, International Narcotics Control Strategy Report (INCSR), Volume I: Drug and Chemical Control, March 2014, http://www.state.gov/j/inl/rls/ nrcrpt/2014/vol1/222851.htm. 101 Robert Muggah and Guztavo Diniz, Securing the Border: Brazil’s “South America First” Approach to Transnational Organized Crime, Igarapé Institute, Strategic Paper 5, October 2013, http://pt.igarape.org.br/wp-content/ uploads/2013/10/SP_05_EN_Securing-the-border_7th_oct.pdf. 102 U.S. Department of State, Bureau of International Narcotics and Law Enforcement Affairs, International Narcotics Control Strategy Report (INCSR), Volume I: Drug and Chemical Control, March 7, 2012, http://www.state.gov/j/inl/ rls/nrcrpt/2012/vol1/184098.htm#Brazil; “Hermes 450: O Vigilante Das Fronteiras Brasileiras,” Terra (Brazil), August 25, 2011; “Brazil-Region: Flying Start for the New ‘Border Strategy’,” Latin American Security & Strategic Review, July 2011. 103 INCSR, 2014, op.cit. 104 Ibid. 105 U.S. Department of State, USAID, and U.S. Department of Defense data as presented by the Foreign Assistance Dashboard, accessed March 2014. 106 U.S. State Department, Congressional Budget Justification for Foreign Operations, Fiscal Year 2014, May 17, 2013, and Congressional Budget Justification, Department of State, Foreign Operations, and Related Programs, Fiscal Year 2015, March 4, 2014. Congressional Research Service 20 Brazil: Political and Economic Situation and U.S. Relations Counterterrorism107 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’s Country Reports on Terrorism, there are no known operational cells of al Qaeda or Hezbollahrelated groups in the Western Hemisphere; however, the United States remains concerned that proceeds from legal and illegal goods flowing through the TBA could potentially be diverted to support terrorist groups.108 For example, in December 2010, the U.S. Treasury Department sanctioned Hezbollah’s chief representative in South America, Bilal Mohsen Wehbe, for transferring funds collected in Brazil to Hezbollah in Lebanon. According to the Treasury Department, Wehbe and an associate raised more than $500,000 from Lebanese businessmen in the TBA following the 2006 conflict between Israel and Hezbollah. Wehbe also reportedly had overseen Hezbollah’s counterintelligence activity in the TBA and had worked for the office of Iranian Supreme Leader Ayatollah Ali Khamene'i.109 The U.S. government has worked with Brazil to address concerns about the TBA and strengthen the country’s counterterrorism capabilities. The countries of the TBA and the United States created 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 2007. Within Brazil, the United States has supported efforts to implement the Container Security Initiative (CSI) at the port of Santos, and has sought to strengthen Brazil’s capacity to secure its borders and conduct terrorism-related investigations. U.S. authorities are currently assisting Brazil with major event security management as it prepares to host the 2014 World Cup and 2016 Summer Olympic Games.110 The State Department’s Country Reports on Terrorism for 2012 recognized the Brazilian government’s continued support for counterterrorism-related activities, including investigating potential terrorism financing and document forgery networks.111 However, Brazil has yet to adopt legislation to make terrorism and terrorism financing autonomous offenses. Like many other Latin American nations, Brazil 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. Despite these challenges, some Brazilian legislators have renewed their efforts to enact an anti-terrorism law, maintaining that Brazil needs to strengthen its legal framework in advance of the upcoming major sporting events.112 107 For more information on terrorism concerns in Latin America, see CRS Report RS21049, Latin America: Terrorism Issues, by Mark P. Sullivan and June S. Beittel. 108 U.S. Department of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism 2012, May 30, 2013, http://www.state.gov/j/ct/rls/crt/2012/209984.htm. 109 U.S. Department of the Treasury, “Treasury Targets Hizballah Financial Network,” Press Release, December 9, 2010. 110 Country Reports on Terrorism 2012, May 2013, op.cit. 111 Ibid. 112 Fernanda Odilla and Gabriela Guerreiro, “Lei Antiterrorismo Pode Dar Pena de Até 40 Anos a Manifestantes,” Folha de São Paulo, February 12, 2014; Paloma Rodrigues, “Após Morte de Cinegrafista, Senado Tenta Acelerar ‘Lei Antiterror’,” CartaCapital, February 11, 2014. Congressional Research Service 21 Brazil: Political and Economic Situation and U.S. Relations Defense According to General John F. Kelly, Commander of U.S. Southern Command, challenges in broader bilateral relations have affected U.S.-Brazilian defense ties, but military-to-military cooperation at the operational and tactical levels remains strong.113 The U.S. and Brazilian militaries have worked together closely in Haiti, where Brazil commands the U.N. Stabilization Mission (MINUSTAH). Joint efforts in the aftermath of Haiti’s January 2010 earthquake were the largest combined operations of U.S. and Brazilian military forces since World War II. Other areas of military-to-military cooperation include information exchanges, combined military training, and joint military exercises. In April 2010, the U.S. and Brazilian governments signed a Defense Cooperation Agreement designed to promote cooperation in areas such as research and development, technology security, and acquisition of defense products and services. This was followed by a General Security of Military Information Agreement, signed in November 2010, which is designed to facilitate the sharing of classified defense and military information.114 Both agreements still need to be approved by the Brazilian Congress. Additional coordination takes place through a presidential-level Defense Cooperation Dialogue, which President Obama and President Rousseff launched in April 2012. As noted above, the United States provides International Military Education and Training (IMET) aid to Brazil. The assistance is designed to strengthen military-to-military relationships, increase the professionalization of Brazilian forces, and enhance Brazil’s capacity to assume a larger role in peacekeeping operations and in combating terrorism. IMET assistance amounted to $631,000 in FY2011, $638,000 in FY2012, and $572,000 in FY2013. Brazil is receiving an estimated $625,000 in IMET in FY2014, and the Administration has requested $625,000 in IMET assistance for Brazil in FY2015.115 Two defense procurement deals have received considerable attention in recent years. In February 2013, the U.S. Air Force awarded a $427 million contract for light air support aircraft and associated maintenance and training to Brazil’s Embraer S.A. and its U.S.-based partner, Sierra Nevada Corp. Under the contract, Embraer will provide 20 A-29 Super Tucano aircraft to the Afghan military for advanced flight training, surveillance, close air support, and air interdiction missions.116 The U.S. Air Force had originally awarded the contract to Embraer in December 2011, but the order was cancelled after U.S.-based Hawker Beechcraft challenged the procurement process. Some observers assumed that the U.S. contract with Embraer increased the likelihood that Brazil would award a contract for 36 new fighter jets to Boeing. Brazil awarded the $4.5 billion contract to Sweden’s Saab AB in December 2013, however, choosing the Gripen NG over Boeing’s F/A18 Super Hornet. While the decision appears to have been at least partially a reaction to alleged NSA surveillance activities inside Brazil, there were also other considerations.117 The Brazilian 113 General John F. Kelly, Commander, United States Southern Command, Posture Statement before the 113th Congress House Armed Services Committee, February 26, 2014, p. 21, http://www.southcom.mil/newsroom/ Documents/2014_SOUTHCOM_Posture_Statement_HASC_FINAL_PDF.pdf. 114 U.S. Department of Defense, Office of the Secretary of Defense, “Fact Sheet: U.S.-Brazil Defense Cooperation,” March 14, 2011. 115 U.S. Department of State, Congressional Budget Justifications for Foreign Operations, Fiscal Years 2013, 2014, and 2015, available at http://www.state.gov/f/releases/iab/index.htm. 116 “Brazilian Firm to Provide Aircraft to Afghan Air Force,” American Forces Press Service, February 27, 2013. 117 Alfonso Soto and Brian Winter, “Saab Wins Brazil Jet Deal after NSA Spying Sours Boeing Bid,” Reuters, (continued...) Congressional Research Service 22 Brazil: Political and Economic Situation and U.S. Relations Air Force announced its preference for the Gripen in January 2010, reportedly citing its lower purchase and maintenance costs and the ability to transfer more technology to Brazil.118 Given Brazil’s current economic challenges and the fact that some Brazilian officials were already wary of relying on U.S. hardware as a result of past experiences in which the U.S. government blocked sales of Brazilian arms containing U.S. technology,119 the NSA allegations may have been enough to push Boeing out of the running. Promotion of Racial Equality Brazil has experienced significant improvements in economic and social conditions over the past decade; however, considerable socioeconomic disparities between races persist. While AfroBrazilians comprise about half of the Brazilian population,120 they account for less than 25% of Brazilians that have completed post-secondary degrees and 17% of Brazilians that have completed graduate degrees.121 In 2010, the median income of Afro-Brazilians was 64% of the median income of white Brazilians.122 Even after controlling for education, occupation, and location, white Brazilians reportedly receive higher wages than Afro-Brazilians.123 Moreover, Afro-Brazilians are disproportionately the victims of Brazil’s high levels of crime and violence. In 2010, the homicide rate for Afro-Brazilians was 36.5 per 100,000—nearly two and a half times the rate of other Brazilians.124 In order to reduce racial disparities, the Brazilian government has enacted a series of antidiscrimination and affirmative action measures. Brazil became the first Latin American country to endorse racial quotas in government service in 2002, and became the first country in the world to establish a special secretariat with a ministerial rank to manage racial equity promotion policies in 2003. In 2010, Brazil enacted the Statute of Racial Equality. Among other provisions, the law offers tax incentives for businesses that undertake racial inclusion, calls on the government to adopt affirmative action programs, and reaffirms that African and Afro-Brazilian history should be taught in all elementary and middle schools. In 2012, Brazil adopted a law that requires federal universities to reserve half of their admissions spots for students who are AfroBrazilian, indigenous, or graduates of public high schools (which tend to serve the poorest students). The law gradually increases the admissions spots required to be reserved from 12.5% in 2013 to 50% in 2016, with half of the reserved spots set aside for low income students of all races with the highest grades and the other half divided in accordance with the racial makeup of each state.125 Most recently, President Rousseff has proposed reserving 20% of jobs in the federal (...continued) December 18, 2013. 118 Raymond Colitt, “Brazil Air Force Prefers Swedish Jets – Report,” Reuters, January 5, 2010. 119 In 2006, for example, the United States prevented Brazil from selling 24 Super Tucano light attack planes to Venezuela. 120 According to Brazil's 2010 census, 43.1% of Brazilians self-identify as parda (“brown”) and 7.6% self-identify as preta (“black”). IBGE, Censo Demográfico 2010, November 2011. 121 Tatiana Dias Silva and Fernanda Lira Goes, Igualdade Racial no Brasil: Reflexões no Ano Internacional dos Afrodescendentes, Instituto de Pesquisa Econômica Aplicada (IPEA), Rio de Janeiro, 2013, p. 20. 122 IBGE, 2011, op.cit. 123 Dias & Goes, 2013, op.cit., p.21. 124 Daniel R. C. Cerqueira and Rodrigo Leandro de Moura, Vidas Perdidas e Racismo no Brasil, IPEA, Nota Técnica N° 10, Brasília, November 2013, p. 6. 125 Simon Romero, “Brazil Enacts Affirmative Action Law for Universities,” New York Times, August 30, 2012; (continued...) Congressional Research Service 23 Brazil: Political and Economic Situation and U.S. Relations government for Afro-Brazilians.126 Although race-based affirmative action policies have been rather controversial among some sectors of the Brazilian population,127 they have been upheld as constitutional by the Brazilian Supreme Court. 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 recognizes that Brazil and the United States are multi-ethnic, multi-racial democracies, and seeks to promote equality of opportunity for the members of all racial and ethnic communities. To that end, Brazil and the United States share best practices through activities such as training programs, workshops, technical expert exchanges, scholarships, and public-private partnerships.128 Current areas of focus include expanding access to education for students of African descent, eliminating racial health disparities, mitigating environmental impacts in communities of African descent, addressing challenges in criminal justice systems, and guaranteeing equal access to economic opportunities.129 H.Rept. 113-185, which is considered part of the explanatory statement accompanying the Consolidated Appropriations Act, 2014 (P.L. 113-76), recognizes the work being done under the U.S.-Brazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality, and states that the legislation includes funds to continue the initiative in FY2014. Amazon Conservation The Amazon Basin is estimated to span more than 6.8 million square kilometers. It produces about 20% of the world’s fresh water discharge and contains the largest remaining rainforest on Earth.130 In addition to supporting significant biological diversity, the Amazon Rainforest is a global sink for carbon emissions and an important asset in the mitigation of climate change. The forest biomass is estimated to hold about 100 billion tons of carbon, which is equivalent to more than 10 years of global fossil fuel emissions.131 Although the Amazon Basin is shared by seven nations,132 69% of it lies within Brazil.133 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. Partially (...continued) “Rousseff Decrees Affirmative Action,” Latin News Daily Report, October 16, 2012. 126 Tatiana Dias Silva and Josenilton Marques da Silva, Reserva de Vagas para Negros em Concursos Públicos: Uma Análise a partir do Projeto de Lei 6.738/2013, (IPEA), Nota Técnica N° 17, Brasília, February 2014. 127 See, for example, Diogo Schelp, “Queremos Dividir o Brasil como na Foto?” Veja, September 2, 2009; and Julia Carvalho, “O Grande Erro das Cotas,” Veja, August 29, 2012. 128 U.S. Department of State, Bureau of Western Hemisphere Affairs, “U.S.-Brazil Joint Action Plan Promotes Racial and Ethnic Equality,” April 11, 2012. 129 U.S. Department of State, Office of the Spokesperson, “Steering Group Meeting of the U.S.-Brazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality,” Media Note, July 17, 2013. 130 United Nations Environment Programme (UNEP), Global International Waters Assessment: Amazon Basin, GIWA Regional Assessment 40b, Kalmar, Sweden, 2004, http://www.unep.org/dewa/giwa/areas/reports/r40b/ giwa_regional_assessment_40b.pdf. 131 Eric A. Davidson et al., “The Amazon Basin in Transition,” Nature, vol. 481 (January 19, 2012), p. 321. 132 The seven nations that share the Amazon Basin are Brazil, Bolivia, Colombia, Ecuador, Guyana, Peru, and Venezuela. The Amazon Rainforest extends beyond the Amazon Basin into Suriname and French Guiana. 133 UNEP, 2004, op.cit. Congressional Research Service 24 Brazil: Political and Economic Situation and U.S. Relations as a result of these incentives, the human population grew from 6 million in 1960 to 25 million in 2010. Forest cover in the Brazilian Amazon has declined to about 80% of its original area as a result of settlements, roads, logging, farming, and other activities in the region.134 Figure 4. Deforestation in the Brazilian Amazon: 2004-2013 In square kilometers 30,000 25,000 20,000 15,000 10,000 5,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: CRS presentation of data from the Brazilian government’s Instituto Nacional de Pesquisas Espaciais (INPE). Recognizing that continued destruction of the Amazon Rainforest is damaging to Brazil’s global image and could threaten energy generation and agricultural production in the future,135 the Brazilian government has implemented a series of policies designed to slow deforestation. From 2004 to 2011, for example, Brazil increased the size of its nature reserves by 500,000 square kilometers. Likewise, the Brazilian government adopted a plan to reduce the rate of Amazon deforestation by 80%—based on the 1996-2005 average—to 3,925 square kilometers per year by 2020. To meet this target, the Brazilian government is increasing surveillance, replanting forest, and financing sustainable development projects.136 Brazil appears to be on track to achieve its goal, as annual deforestation has fallen from 27,772 square kilometers in 2004 to 5,843 square kilometers in 2013 (see Figure 4).137 There is considerable debate, however, as to whether these decreases are the result of government policies or changing economic circumstances, such as lower commodity prices. According to a 2012 study, about half of the reduction in deforestation 134 Davidson et al., 2012, op.cit., p.321. See, for example, Fabiana Frayssinet, “Climate Change-Brazil: Farmers ‘Have Good Reason to Worry’,” Inter Press Service, September 21, 2011; and “Amazonian Deforestation May Cut Rainfall by a Fifth: Study,” Agence France Presse, September 5, 2012. 136 República Federativa do Brasil, Ministério do Meio Ambiente, Plano de Ação para Prevenção e Controle do Desmatamento na Amazônia Legal (PPCDAm): 3ª Fase (2012-2015), Brasília, June 2013. 137 República Federativa do Brasil, Ministério da Ciência, Tecnologia e Inovação, Instituto Nacional de Pesquisas Espaciais (INPE), Projeto PRODES, Monitoramento da Floresta Amazônica Brasileira por Satélite, accessed March 2013. 135 Congressional Research Service 25 Brazil: Political and Economic Situation and U.S. Relations in the Brazilian Amazon between 2005 and 2009 was attributable to the Brazilian government’s conservation policies.138 Despite recent progress, Brazil’s deforestation rate increased by nearly 28% between 2012 and 2013—a development that some analysts have attributed to government policy changes. In 2011, President Rousseff signed a law transferring responsibility for environmental oversight of nonfederal lands from Brazil’s federal environmental protection agency to local officials. While the federal government maintains that local officials are better placed to manage such resources, critics argue that local authorities lack the necessary finances and are more susceptible to intimidation and corruption.139 Many environmentalists are also concerned about changes to Brazil’s forest code—a law that requires rural landowners to set aside 20%-80% of their land for natural vegetation. The Brazilian Congress approved a major overhaul of the code in 2012. Although President Rousseff vetoed some of the most controversial provisions, the final version reportedly relaxed conservation requirements for environmentally sensitive areas like river banks, reduced reforestation requirements for land that had already been deforested, and decreased the total amount of forest that must be preserved.140 Supporters of the reform assert that it was necessary in order to bring farmers into compliance with the law, and argue that the updated forest code remains among the strictest regulations of privately owned property in the world.141 In recent years, the United States has provided assistance to Brazil designed to support tropical forest conservation through the promotion of sustainable 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 other organizations working throughout the Amazon Basin to conserve the forest’s biodiversity. USAID provided Brazil with $11.5 million for environmental programs in FY2011, $10.8 million in FY2012, and $9.6 million in FY2013.142 The explanatory statement143 accompanying the Consolidated Appropriations Act, 2014 (P.L. 113-76) stipulates that $10.5 million of the funds appropriated by the act should support environmental programs in the Brazilian Amazon in FY2014. As was the case in FY2013 and FY2014, the Obama Administration has not requested any funding for environmental programs in Brazil in FY2015.144 In addition to providing foreign aid, the United States has signed a debt-for-nature agreement with Brazil under the Tropical Forest Conservation Act of 2008 (P.L. 105-214). According to the August 2010 agreement, the United States is reducing Brazil’s debt payments by $21 million over five years. In exchange, the Brazilian government is committing those funds to activities to conserve protected areas, improve natural resource management, and develop sustainable 138 Juliano Assunção, Clarissa C. e Grandour, and Rudi Rocha, Deforestation Slowdown in the Legal Amazon: Prices or Policies, Climate Policy Initiative, Working Paper, Rio de Janeiro, February 6, 2012, http://climatepolicyinitiative.org/wp-content/uploads/2012/03/Deforestation-Prices-or-Policies-Working-Paper.pdf. 139 Paulo Prada, “Special Report: Brazil Backslides on Protecting the Amazon,” Reuters, August 3, 2012. 140 “Brazil President Makes Final Changes to Forestry Law,” Agence France Presse, October 18, 2012. 141 Reese Ewing, “Interview-Brazil Land Use Bill to Make Forests Profitable,” Reuters, June 1, 2011; Kátia Abreu, “Código Florestal e a Busca da Perfeição,” Folha de São Paulo, September 29, 2012. 142 USAID data, as presented by the Foreign Assistance Dashboard, accessed March 2014. 143 The joint explanatory statement is available from the House Committee on Rules at http://rules.house.gov/bill/113/ hr-3547-sa. 144 U.S. Department of State, Congressional Budget Justification, Department of State, Foreign Operations, and Related Programs, Fiscal Year 2015, March 4, 2014. Congressional Research Service 26 Brazil: Political and Economic Situation and U.S. Relations livelihoods in endangered areas outside of the Amazon Rainforest such as the Atlantic Rainforest, Caatinga, and Cerrado ecosystems.145 145 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 27 Brazil: Political and Economic Situation and U.S. Relations Appendix. Legislative Initiatives in the 113th Congress P.L. 113-79 (H.R. 2642). Agricultural Act of 2014. Signed into law on February 7, 2014. Includes changes to the U.S. cotton program that could allow for a resolution to a long-standing WTO dispute with Brazil. P.L. 113-76 (H.R. 3547). Consolidated Appropriations Act, 2014. Signed into law on January 17, 2014. The explanatory statement accompanying the act stipulates that $10.5 million of the funds appropriated should support environmental programs in the Brazilian Amazon. H.Rept. 113-185 (which accompanied H.R. 2855 and is considered part of the explanatory statement) recognizes the work being done under the U.S.-Brazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality, and states that the legislation includes funds to continue the initiative in FY2014. S. 744 (Schumer). Border Security, Economic Opportunity, and Immigration Modernization Act. Agreed to in the Senate on June 27, 2013. Includes a provision that would require U.S. consular missions to explore options for expanding visa processing capacity in Brazil. H.R. 1644 (Kind). Introduced April 18, 2013; referred to the House Committee on Agriculture. Among other provisions, would prohibit the Secretary of Agriculture from making payments to the Brazilian Cotton Institute. The payments are part of a temporary agreement between the United States and Brazil regarding the WTO cotton dispute. H.R. 571 (T. Ryan). Karl Hoerig Foreign Aid Suspension Act. Introduced February 6, 2013; referred to the House Committee on Foreign Affairs. Would suspend U.S. assistance to Brazil until it amends its constitution to allow the extradition of Brazilian nationals. H.R. 572 (T. Ryan). End Immunity for Brazilian Criminals Act. Introduced February 6, 2013; referred to the House Committee on the Judiciary. Would suspend the issuance of visas to Brazilians until Brazil amends its constitution to allow the extradition of Brazilian nationals. Author Contact Information Peter J. Meyer Analyst in Latin American Affairs pmeyer@crs.loc.gov, 7-5474 Congressional Research Service 28