Order Code RL33456
CRS Report for Congress
Received through the CRS Web
Brazil-U.S. Relations
Updated June 12, 2006
Clare M. Ribando
Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Brazil-U.S. Relations
Summary
In January 2003, President Luis Inácio “Lula” da Silva, of the leftist Workers’
Party (PT), began a four-year term as President of Brazil. Despite winning on a
leftist platform, President Lula has maintained the orthodox economic policies
associated with his predecessor, even surpassing fiscal and monetary targets.
Inflation and interest rates have been on a downward trend, Brazil’s credit rating has
improved, but economic growth remains modest (2.3% in 2005). In 2003, President
Lula gained congressional approval of social security and tax reforms and in 2004 a
new law to increase private investment in public infrastructure projects. Despite these
achievements, legislative progress stalled in 2005, and President Lula has been
criticized for failing to develop effective social programs to address Brazil’s
persistent problems concerning land redistribution, social inequality, and crime.
The next national elections are scheduled for October 2006. The leading
presidential candidates are President Lula and Geraldo Alckmin, former governor of
the state of São Paulo, of the Brazilian Social Democratic Party (PSDB). In late
2005, a series of corruption scandals involving senior PT officials, legislators, and
cabinet officials weakened the Lula government. President Lula has since recovered
popular support, however, and is currently leading in opinion polls. Opposition
parties are forming electoral alliances to attempt to defeat President Lula and the PT.
Relations with the United States have been generally positive, although
President Lula has made relations with neighboring countries in the Southern
Common Market (Mercosul or Mercosur) his first priority, and has sought to
strengthen ties with nontraditional partners, including India and China. Trade issues
are central to the bilateral U.S.-Brazilian relationship, with both countries being
heavily involved in subregional, regional, and global trade talks in the Doha round
of the World Trade Organization (WTO) negotiations. The United States and Brazil
have different approaches to trade liberalization, which have put the two countries
at odds over how to proceed with the Free Trade Area of the Americas (FTAA)
negotiations.
In addition to trade policy, U.S. interest in Brazil centers on its role as a
stabilizing force in Latin America, especially with respect to populist governments
in Venezuela and Bolivia. Brazil’s nuclear enrichment capabilities and its role as an
ethanol producer have generated growing interest in the Unite States. Brazil is also
a key U.S. ally whose cooperation is sought on issues that include counter-narcotics
efforts; human rights concerns, such as race relations and trafficking in persons; the
environment, including protection of the Amazon; and HIV/AIDS prevention.
This report analyzes Brazil’s political, economic, and social conditions, and how
those conditions affect its role in the region and its relationship with the United
States. For additional information, see CRS Report RL33258, Brazilian Trade
Policy and the United States, by J.F. Hornbeck. This report will be updated
periodically.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lula Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Corruption Scandals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
October 2006 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Economic and Social Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Social Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Foreign and Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Relations with the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selected Issues in U.S.- Brazil Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Counter-Narcotics and Counter-Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . 13
Energy Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Ethanol Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nuclear Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
World Trade Organization (WTO) Negotiations . . . . . . . . . . . . . . . . . 16
Free Trade Area of the Americas (FTAA) . . . . . . . . . . . . . . . . . . . . . . 17
Trade Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Violent Crime and Human Rights Abuses by Police . . . . . . . . . . . . . . 18
Race and Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Trafficking in Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
HIV/AIDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Environmental Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Amazon Deforestation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Land Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Figures
Figure 1. Map of Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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Brazil-U.S. Relations
Background
Brazil is a significant political and economic power in Latin America, but deep-
seated social and economic problems have kept it from realizing its goal of becoming
a truly global leader. A former Portuguese colony that achieved independence in
1822, Brazil occupies almost half of the continent of South America and boasts
immense biodiversity, including the vast Amazon rainforest, and significant natural
resources. Brazil is the fifth most populous country in the world with a population
of some 188 million that is primarily composed of people of European, African, or
mixed African and European descent. With an estimated gross domestic product
(GDP) of $769 billion in 2005, Brazil’s diversified economy is the eleventh largest
in the world, the largest in Latin America, and one of the largest in the developing
world, but per capita gross national income is only $3,090, and the country has a
highly unequal income distribution. Brazil has long held potential to become a major
world power, but its rise to prominence has been held back by political setbacks,
including twenty-one years of military rule (1964-1985), social problems, and slow
and uneven economic growth. This apparent failure to live up to its enormous
potential has resulted in the common adage, “Brazil is the land of the future, and
always will be.”1
Between World War II and 1990, both democratic and military governments
sought to expand Brazil’s influence in the world by pursuing a state-led industrial
policy and an independent foreign policy. Brazilian foreign policy has recently aimed
to strengthen ties with other South American countries, engage in multilateral
diplomacy through the United Nations (UN) and the Organization of American States
(OAS), and act at times as a countervailing force to U.S. political and economic
influence in Latin America. In addition to its active engagement in regional and
multilateral trade talks, Brazil under President Luis Inácio “Lula” da Silva has helped
diffuse potential political crises in Venezuela, Ecuador, and Bolivia, and supported
Colombia’s ongoing struggle against terrorist organizations and drug traffickers.
Brazil is also currently commanding the UN stabilization force in Haiti.
Currently, relations between the United States and Brazil are characterized as
warm and friendly, and leaders from both countries have recently asserted that “the
economic and political environment in the Americas is changing rapidly, creating
1 Lincoln Gordon, Brazil’s Second Change En Route Toward the First World, Washington,
D.C.: The Century Foundation, 2001; Iêda Wiarda Siqueira, “Brazil: The Politics of A New
Order and Progress,” in Latin American Politics and Development, Howard J. Wiarda and
Harvey F. Kline, eds., Boulder, CO: Westview Press, 2000.

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CRS-2
new challenges that we can meet better if we do so together.”2 The United States has
increasingly regarded Brazil as a significant power, especially in its role as a
stabilizing force and skillful interlocutor in Latin America. U.S. officials tend to
describe Brazil, similar to Chile, as a friendly country governed by a moderate leftist
government that shares the U.S. commitment to democratic practices, human rights,
and prudent macroeconomic policies. They assert that the United States seeks to
increase cooperation with moderate leftist governments in Latin America in order to
diffuse mounting tensions among the countries in South America, and to deal with
populist governments in the region. The latter, including those in Bolivia and
Venezuela, have taken increasingly antagonistic stances towards both foreign-owned
companies and the United States.
Although they share common goals for regional stability, Brazil’s independent
approach to foreign policy has led to periodic disputes with the United States on trade
and political issues, including Brazil’s vocal opposition to the war in Iraq. Despite
these disagreements, Brazil and the United States have worked closely on a wide
range of bilateral and regional issues. In addition to trade matters, these issues
include counter-narcotics and terrorism, energy security, human rights protection,
environmental issues (including protection of the Amazon), and HIV/AIDS.
Political Situation
The Brazilian political system has several unique characteristics that distinguish
it from other countries in Latin America. The country’s federal structure,
comprising 26 states, a Federal District, and some 5,581 municipalities, evolved from
the decentralized colonial structure devised by the Portuguese in an attempt to
control Brazil’s sizable territory. Even during the centralizing government of Getúlio
Vargas and the Estado Novo, or New State, (1937-1945), landowning remained the
source of local power in Brazil and states retained considerable autonomy from the
federal government. Brazil’s military governments ruled from 1964-1985 and, while
repressive, were not as brutal as their counterparts in other South American countries.
Although nominally allowing a two-party system, judiciary, and Congress to function
during its tenure, the Brazilian military stifled representative democracy and civic
action in Brazil, carefully preserving its influence during one of the most protracted
transitions to democracy to take place in Latin America. Brazil also stands out as one
of the last countries in the region to abandon state-led economic policies, originally
adopted as part of the import-substitution industrial model, in favor of market
reforms. Significant reforms of the state-led economic model did not occur until the
government of Fernando Henrique Cardoso (1994-2002).3
2 Richard G. Lugar and Roberto Abdenur, “U.S.-Brazil: Friends Working on Common Goals
on Economy, Energy,” Miami Herald, May 6, 2006.
3 For a historical overview of Brazil’s political development, see Bolivar Lamounier,
“Brazil: Inequality Against Democracy,” in Larry Diamond, Jonathan Hughes, Juan J. Linz,
and Seymour Martin Lipset, eds., Democracy in Developing Countries: Latin America,
Boulder, CO: Lynne Reiner, 1999.

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CRS-3
During the first decade after its return to democracy in 1985, Brazil experienced
economic recession and political uncertainty as numerous efforts to control runaway
inflation failed and two elected presidents did not complete their terms. One elected
president died before taking office; the other was impeached on corruption charges.
In 1994, Cardoso, a prominent sociologist of the center-left Brazilian Social
Democratic Party (PSDB), was elected by a wide margin over Luis Inácio “Lula” da
Silva of the Worker’s Party (PT), a former metalworker and union leader who had
led the PT since the early 1980s. Cardoso was elected largely on the basis of the
success of the anti-inflation “Real Plan” that he implemented as Finance Minister
earlier that year. The plan resulted in a new currency (the real) pegged to the dollar
beginning in July of 1994. During his first term, Cardoso achieved macroeconomic
stability, opened the Brazilian economy to trade and investment, and furthered
privatization efforts begun in the early 1990s. Despite those achievements, the
Cardoso government was unable to enact much needed political and social changes,
such as social security, tax, or judicial reforms.
President Cardoso sought a second presidential term after a constitutional
reform was passed in 1997 to allow for reelection, and he defeated Lula da Silva in
the first presidential election round in October 1998 with 53% of the vote. President
Cardoso’s popularity fell towards the end of his second term, however, as Brazil
faced a major financial crisis in 1998 that resulted in a major currency devaluation
and a return to a floating exchange rate in 1999, as well as contagion effects from
Argentina’s financial collapse in 2001. On balance, most analysts credit Cardoso
with restoring macroeconomic stability to Brazil’s economy and solidifying its role
as leader of the Southern Common Market (Mercosul)4, but fault him for failing to
implement more aggressive political reforms or more effective social programs. In
2002, Brazilian voters appeared to punish the Cardoso government for those apparent
shortcomings by failing to elect Cardoso’s designated successor, José Serra, the
Minister of Health and Senator from São Paulo, who led the coalition of parties that
had governed since 1994.5
Lula Administration
In 2002, Lula da Silva ran in his fourth campaign for the presidency of Brazil.
Unlike in his previous failed campaigns, he moderated his leftist rhetoric and, while
still advocating greater attention to social issues, promised on several occasions to
maintain the fiscal and monetary policies associated with Brazil’s standing
International Monetary Fund (IMF) agreements. Lula, as he prefers to be known,
argued for a more aggressive foreign policy and for strengthening of Mercosul, but
4 Mercosul is the Portuguese variation of the more widely seen Spanish acronym, Mercosur.
It is a common market composed of Brazil, Argentina, Paraguay, and Uruguay that was
established in 1991.
5 For background on Brazil during the Cardoso government, see CRS Report RL30121,
Brazil Under Cardoso, by K. Larry Storrs. See also Mauricio A. Font and Anthony Peter
Spanakos, Reforming Brazil, New York: Lexington Books, 2004; Rex Hudson, ed., Brazil:
A Country Study, Washington D.C.: Federal Research Division, Library of Congress, 1998;
and Susan Kaufman Purcell and Riordan Roett, eds., Brazil Under Cardoso, Boulder, CO:
Lynne Reiner Publishers, 1997.

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CRS-4
was often critical of the proposed Free Trade Area of the Americas (FTAA). He led
in the public opinion polls throughout the campaign.
The 2002 presidential election proved to be a referendum on eight years of “neo-
liberal” policies enacted by the Cardoso government. High unemployment rates and
continued economic stagnation led voters to support Lula, a sharp critic of
neoliberalism. Although Lula did not win outright in the first round of voting, he
was elected decisively in the second round with 61% of the valid vote, as compared
to José Serra with 39%. Several factors may account for Lula’s commanding
presidential victory and the PT’s strong showing in the 2002 congressional elections.
They include the PT’s reputation as a “clean” political party untainted by corruption;
the PT’s promise to increase state investment in education, health care, and agrarian
reform; and Lula’s compelling personal story.6 By 2002, it appeared that a majority
of Brazilians were ready to give Lula and the PT a chance to govern Brazil based on
the principle that the solution to Brazil’s political and social problems lay in
measures aimed to attack poverty and inequality.7
In January 2003, Lula da Silva was inaugurated for a four-year term as President
of Brazil. President Lula has maintained the restrained economic policies associated
with his predecessor, even surpassing the IMF’s fiscal and monetary targets. In 2003,
the Lula government enacted social security and tax reforms, and in 2004, a new law
to allow more private investment in public infrastructure projects.
Despite these achievements, legislative progress stalled in 2005, and President
Lula has been increasingly criticized for failing to develop effective social programs
to address Brazil’s ongoing problems with land distribution, social inequity, and
crime. President Lula’s flagship social programs, including Fome Zero (Zero
Hunger) and Bolsa Familia (Family Purse), have received considerable press
attention, but their success has been limited by bureaucratic problems, local
corruption, and tight budget constraints.8 Many critics of Lula believe that, ironically,
one of the Lula government’s only major achievements has been maintaining the
orthodox economic policies of the Cardoso administration. President Lula’s
relatively successful early efforts to expand Brazil’s international profile as a leader
among developing countries has been seen as “a relatively inexpensive [tactic] to
6 Wendy Hunter and Timothy J. Power, “The Lula Government at Mid-Term: Shaping a
Third Decade of Democracy in Brazil,” Journal of Democracy, July 2005.
7 Anna Ozorio de Almeida, “Continuity and Change in the PT Government,” CESPI,
September 2004.
8 Launched in 2003, Zero Hunger is President Lula’s flagship anti-poverty initiative. It is
a broad-based set of policies and programs aimed to combat food insecurity and poverty.
The Family Stipend program is a conditional cash transfer program that provides monthly
stipends to families in exchange for compulsory school attendance for all school-age
children. As of December 2005, the Family Stipend program served some 8 million
Brazilian families. See “Zero Hunger: A Food Security Policy for Brazil, Embassy of
Brazil, available at [http://www.brasilemb.org/social_issues/zero_hunger_program.shtml];
Kathy Lindert, “Bolsa Familia Program — Scaling Up Cash Transfers for the Poor,” World
Bank, available at [http://www.mfdr.org/sourcebook/6-1Brazil-BolsaFamilia.pdf].

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CRS-5
shore up domestic support, even when news on the home front is not encouraging.”9
The efficacy of Lula’s diplomatic efforts has also recently been questioned as he has
not attempted to mediate the paper mills dispute between Argentina and Uruguay that
threatens to fracture Mercosul, or to vigorously defend Brazil’s energy interests in
Bolivia that are threatened by Evo Morales’ recent decision to nationalize his
country’s natural gas industry.10
Corruption Scandals. Many political scientists have long asserted that the
fragmented nature of Brazil’s electoral and party systems have made the country
extremely difficult to govern. They maintain that the country’s institutions create
incentives that encourage politicians to concentrate on delivering pork-barrel
programs to their political benefactors rather than legislating issues of national
concern. In addition, most Brazilian political parties tend to be more personalistic
than ideological, and many are locally or regionally based rather than national in
scope. As a result, forming successful governing coalitions in Brazil often has less
to do with finding political parties with ideological similarities than with distributing
ministries or other patronage in exchange for political support.11 Many Brazilians
had hoped that the PT would be able to clean up Brazilian politics, but those hopes
seemed dashed in the wake of a major corruption scandal involving top PT officials
that erupted in May 2005. As the PT moderated its leftist programmatic focus in an
attempt to appeal to more Brazilian voters, it seemed to abandon its original
supporters (including the landless movement, non-governmental organizations
(NGOs), human rights groups, and the Catholic Church), and also fell prey to the
temptation to engage in corrupt practices.12
The main corruption scandal, which resulted in the resignation of several senior
PT officials and the impeachment of several legislators, including President Lula’s
former Chief of Staff who had since returned to Congress, involved the President’s
party allegedly paying monthly bribes (mensalãos) to congressmen of the allied
parties in the governing coalition to guarantee their support. Another facet to the
scandal is that the PT and other parties have used off-the-books accounting systems
that do not comply with campaign finance laws to pay for campaigns and other
political activities. In late March 2006, Finance Minister Antonio Palocci was forced
to resign amidst allegations of corruption, but a congressional inquiry has cleared
9 Jeffrey Cason, “Hopes Dashed? Lula’s Brazil,” Current History, February 2006; Jeffrey
W. Rubin, “Can Democracy Challenge Empire in Lula’s Brazil?” NACLA Report on the
Americas, September/October 2005.
10 “One Year on, Small Dispute Threatens Mercosul,” Latin American Regional Report:
Brazil and Southern Cone, April 2006; “Bolivia’s Populism Steps on Brazil,” Christian
Science Monitor, May 8, 2006.
11 Barry Ames, The Deadlock of Democracy in Brazil, Ann Arbor, MI: University of
Michigan Press, 2001.
12 Wendy Hunter, “The Normalization of An Anomaly: The Worker’s Party in Brazil,” Paper
Presented at the Latin American Studies Association Conference, San Juan, Puerto Rico,
March 2006.

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CRS-6
President Lula of any direct responsibility for the scandals.13 Brazil’s Attorney
General later announced criminal charges against 40 individuals implicated by that
congressional inquiry. Although some political analysts believe President Lula had
to be aware of the bribery and irregular financing schemes, they also assert that there
seems to be little political will in Brazil to attempt to impeach a sitting president for
corruption in an election year. In another unrelated incident, Brazil’s federal police
released a list of 60 congressmen in May 2006 who were allegedly involved in
another scandal involving the release of money from the health ministry for the
purchase of ambulances without public notification.
As a result of the corruption scandals, both President Lula and the Worker’s
Party lost significant popular support and credibility. In December 2005, only 16%
of voters identified themselves with the PT as compared to 24% the year before.
President Lula’s approval rating also fell from 58% in March to 42% in December
2005.14 Despite the initial popular outrage in response to the scandal, the PT has
decided not to investigate or punish any party members allegedly involved in the
scandals until 2007, after the election campaign.
October 2006 Elections. Brazilians will head to the polls to elect a new
President and Vice President, federal legislators (all Deputies and one third of the
Senate), and governors in October 2006. The electoral campaign will begin once all
the official candidates are announced by the end of June 2006. Although many of the
major parties’ candidates, including President Lula, have yet to be officially selected,
the most likely presidential election scenario involves President Lula facing Geraldo
Alckmin, governor of the state of São Paulo of the centrist PSDB, which is aligned
with the rightist Party of the Liberal Front (PFL). Brazil’s electoral court has ruled
that a constitutional clause that makes it mandatory for parties to repeat the same
electoral alliances at the local and national levels should remain in place for the
October elections (a practice known as verticalization). This ruling may make it
more difficult for Lula and the PT to form coalition electoral alliances at the national
level with parties like the center-right Party of the Brazilian Democratic Movement
(PMDB) that are highly competitive against the PT in some states and municipalities.
It may be that the PT will seek to form “flexible”(informal) alliances with the PMDB
and other parties, against the PSDB, PFL, and possibly others. Recent polls show
President Lula with a significant lead over Mr. Alckmin, and most analysts are
predicting that he will be reelected.15
13 “Brazil: Lula Cleared as He Prepares For Re-Election Bid,” Latinnews Weekly Report,
April 4, 2006.
14 Jeffrey Cason, “Hopes Dashed? Lula’s Brazil,” Current History, February 2006;”Brazil:
A Country Report,” Economist Intelligence Unit, January 2006.
15 “Lula Leaves Other Candidates Lagging Behind,” Latinnews Daily, May 25, 2006.

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CRS-7
Economic and Social Conditions
Brazil is a regional leader in Latin America, but its rise to global prominence has
been hindered by significant economic and social problems.
Economic Conditions
Throughout the last two decades, Brazil’s fiscal and monetary policies have
achieved mixed results by focusing primarily on inflation control. When President
Lula took office in 2003, Brazil had an extremely high level of public debt, virtually
necessitating that he adopt austere economic policies. Despite his leftist political
origins, President Lula has maintained restrained economic policies, even surpassing
the IMF’s fiscal and monetary targets. As a result of these restrained economic
policies, Brazil has begun to experience some benefits, including lower inflation
(5.1% in 2005) and a lower credit risk rating. In December 2005, the Lula
government repaid its $15.5 billion debt to the IMF ahead of schedule. Fiscal
discipline has also been accompanied by record exports that enabled Brazil to post
GDP growth of 4.9% in 2004 and record trade surpluses in 2004 and 2005.

Some analysts predict that the economy, which grew only 2.3% in 2005 but is
expected to expand more rapidly in 2006, will be an asset for President Lula during
the presidential campaign. They argue that President Lula should be credited for
allowing his economic team to pursue cautious policies despite pressure from the PT
to increase government spending. Even as the minimum wage expanded by some
13% in April 2006 and spending on infrastructure expands in the months leading up
to the elections, many analysts predict that Brazil will continue to meet its current
fiscal targets. Others are less certain, however, because of Finance Minister Antonio
Palocci’s ouster in late March 2006 related to the corruption scandals. His
replacement has vowed not to increase spending or decrease interest rates too
rapidly.16
Brazil is a major exporter of agricultural and industrial products, with estimated
exports of $120 billion in 2005, and plays a significant role in the world trading
system. In 2004, Brazil was the world’s third largest exporter of agricultural products
after the United States and the European Union; it was the leading exporter of coffee,
orange juice, sugar, and soy products, and a leading exporter of meat products.
Primary products accounted for only 30% of 2004 exports, with manufactured
products (including automobiles and aircraft) accounting for 55% and semi-
manufactured goods accounting for 14%. In both 2004 and 2005, Brazil had a
relatively balanced trade regime. Its main trading partners in 2005 were the
European Union (22% of exports and 25% of imports), the United States (19% of
exports, 17% of imports), Asia (20% of exports, 27% of imports, with China alone
accounting for 6% of exports and 7% of imports), Latin America (22% of exports,
15% of imports), Africa (4% of exports, 9% of imports), and the Middle East (4%
of exports and imports). Brazil’s exports increased 32% in 2004 to $96 billion, and
16 “Brazil: Optimism Reigns,” Latinnews Economy and Business, November 2005; “Brazil:
Country Report,” Economist Intelligence Unit, March 2006; “Scandal Topples Brazil’s
Finance Minister,” Miami Herald, March 28, 2006.

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CRS-8
produced a trade surplus of $33.7 billion. In 2005, the value of Brazil’s exports
reached $120 billion and the country’s trade surplus was $45 billion.17
Despite these positive economic and trade indicators, the United Nations and
other observers have taken a sobering view of Brazil’s economic situation. A
January 2006 UN report predicts that, compared to other emerging economies, Brazil
will underperform in 2006. The UN predicts that Brazil is likely to grow at only
about 3% as compared to a predicted 5.6% average growth rate among the 25 largest
emerging economies. Brazil’s growth rates have been constrained by a high public
debt burden, excessive taxation, and lack of investment. Investment in Brazil has
been limited by the country’s high interest rates, extremely complex tax system, weak
regulatory framework, and lack of a competitive labor force. Although growth has
picked up in the last two years, it has not been fast enough to significantly improve
the country’s socioeconomic indicators. The Organization for Economic Co-
operation and Development (OECD) and the Brazilian Bishop’s Conference have
recently questioned the adequacy and effectiveness of funds dedicated to social
programs in Brazil.18 Unemployment and excessive employment in the informal
economy are also major problems.19
Social Indicators
Brazil has a well-developed economy and large resource base, but has had major
problems solving deep-seated social problems like poverty and income inequality.
Brazil has one of the most unequal income distributions in Latin America, a region
with the highest income inequality in the world, and a 2004 World Bank study
reported that some 50 million Brazilians live in poverty.20 The United Nations
Development Program (UNDP) has identified 600 Brazilian municipalities, many in
the north and northeastern part of the country, in which poverty levels are similar to
those present in poor African countries. One major cause of poverty and inequality
in Brazil is historically extreme land concentration among the country’s elites. In
Brazil, 1% of the population controls 45% of the farmland.21 In addition to the
country’s regional income disparities and unequal land distribution, the Brazilian
government has acknowledged that there is a racial component to poverty in Brazil.
People of African descent in Brazil, also known as Afro-Brazilians, represent 45%
of the country’s population, but constitute 64% of the poor and 69% of the extreme
17 Trade data is from the reports available on the website of the Brazilian Ministry of
Development, Industry and Trade and from the World Trade Atlas, accessed May 25, 2006.
18 United Nations, World Economic Situation and Prospects, January 2006; “Social
Expenditure Criticized,” Latinnews Daily, March 3, 2006.
19 The “informal economy” generally refers to any economic activity by workers or other
economic units that are — by law or in practice — not covered or insufficiently covered by
formal labor laws.
20 David De Ferranti et al., Inequality in Latin America: Breaking with History?
Washington, DC: The World Bank, 2004.
21 “Special Report: Land Report Dilemma,” Latin America Regional Report, December 21,
2004.

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CRS-9
poor.22 Other factors that inhibit the social mobility of Brazil’s poor include a lack
of access to quality education, and a lack of opportunity for job training and
improvement.
Brazil’s endemic poverty and inequality have yet to be significantly affected by
the government’s social programs. A March 2005 OECD study found that, even
though Brazil has spent the same level or more of public spending on social programs
as other countries with similar income levels, it has not achieved the same social
indicators as those countries.23
Foreign and Trade Policy
Brazil’s foreign policy is a byproduct of the country’s unique position as a
regional power in Latin America, a leader among developing countries, and an
emerging world power. Brazilian foreign policy is based on the principles of
multilateralism, peaceful dispute settlement, and nonintervention in the affairs of
other countries.24 These principles, which have periodically put Brazil at odds with
the United States (such as Brazil’s vocal opposition to the war in Iraq), developed
because Brazil possesses neither a strong military nor strong ideological or
geopolitical ambitions. Instead of pursuing unilateral prerogatives, Brazilian foreign
policy has tended to emphasize regional integration, first through the Common
Market of the South (Mercosul) and now the South American Community of
Nations. Brazil engages in multilateral diplomacy through the OAS and the UN, and
has recently increased ties with developing countries in Africa and Asia.
Brazil has traditionally been a leader in South America.25 Since the mid-1990s,
Brazil has had much more success in developing political cohesion than true
economic integration amongst its neighbors in the Southern Cone. Mercosul was
established in 1991 by Brazil, Argentina, Paraguay, and Uruguay. In 1996, Chile
and Bolivia became “associate members”; Peru followed in 2003 (not implemented)
and Venezuela and Mexico in 2004. Associate members have no voting rights and
need not observe the common external tariff. In October 2004, after years of talks,
Mercosul and the Andean Community of Nations signed a trade pact, giving all
Andean countries — Bolivia, Colombia, Ecuador, Peru, and Venezuela — the
equivalent of associate membership. This breakthrough led to the creation of the
22 Ricard Henriques, “Desigualdade racial no Brasil,” Brasilia: Instituto de Pesquisa
Econômica Aplicada (IPEA), 2001.
23 “Economic Survey of Brazil 2005,”Organization for Economic Cooperation and
Development, March 2005.
24 Georges D. Landau, “The Decisionmaking Process in Foreign Policy: The Case of Brazil,”
Center for Strategic and International Studies: Washington, DC: March 2003.
25 Some would argue that Venezuela, buoyed by its recent oil wealth, is now attempting to
overtake Brazil’s role as a leader in the region. Rather than strengthening relations among
its neighboring countries, some assert that Chávez’s aggressive foreign policy has created
tension within Latin America. See Juan Forero, “Seeking United Latin America,
Venezuela’s Chávez is a Divider,” New York Times, May 20, 2006.

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CRS-10
South American Community of Nations two months later in a pact that included 12
countries (those in Mercosul, the Andean Community, along with Chile, Guyana, and
Suriname). In December 2005, Mercosul agreed to the accession of Venezuela as a
full member of the pact, but the process may take some time to finalize.26
Recent events have not boded well for the future of South American integration
efforts. The weakness of Mercosul’s internal dispute resolution process has become
apparent as a dispute between Argentina and Uruguay has escalated to the point that
it now threatens the future of the trade bloc. The dispute is over whether to allow
European companies to construct two paper mills along the river that demarcates
their border. Uruguay has threatened to withdraw from Mercosul, arguing that it
seems to serve only the needs of Argentina and Brazil, at the same time that
Venezuela, angered by Peru’s and Colombia’s decisions to pursue FTAs with the
United States, has withdrawn from the Andean Community.
In addition to expanding its regional profile through established political and
economic channels, Brazilian government and business officials have, at times,
worked together to expand the country’s commercial interests in the region.
Petrobras, Brazil’s state-owned oil company, has made extensive investments in
Bolivia’s natural gas sector. Most analysts predicted that since Petrobras produces
some 15-20% of Bolivia’s GDP, Brazil would be able to exert important economic
and political leverage over the new Bolivian government led by populist Evo
Morales. Analysts, government officials, and the Brazilian public have criticized
President Lula for failing to more vigorously defend Brazil’s energy interests in
Bolivia after Morales’ surprise decision to nationalize his country’s natural gas
industry on May 1, 2006. In response, Petrobras has halted all new investments in
Bolivia.27
Bolivia’s nationalization decision, which has been supported by the Chávez
government in Venezuela, may make other sectoral initiatives that have been recently
proposed — including a South American gas pipeline that would carry Venezuela’s
gas through Brazil to Argentina — less likely to be pursued. The Bolivian
government has also indicated that nationalization of the natural gas industry would
be followed by new measures to re-distribute some 54,000 square miles of land that
it asserts is either idle or has been acquired illegally. Any land reform proposal is
likely to adversely affect lands acquired by Brazilians in Bolivia, particularly in the
fertile Santa Cruz province, and would place added strain on Brazil-Bolivian
relations.28
26 For more information, see CRS Report RS22408, Mercosul and U.S. Trade Policy and
CRS Report RS20864, A Free Trade Area of the Americas: Major Policy Issues and Status
of Negotiations, both by J.F. Hornbeck, and CRS Report RL33162, Trade Integration in the
Americas, by M. Angeles Villarreal.
27 Andres Oppenheimer, “Powerful Brazil is Becoming an Encircled Giant,” Miami Herald,
May 14, 2006; “Bolivia’s Populism Steps on Brazil,” Christian Science Monitor, May 8,
2006.
28 “Brazilian Farmers in Bolivia Fear Being Targeted in Land Reform Push,” Associated
Press, May 12, 2006.

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CRS-11
Brazil’s political, business, and military ventures are complemented by the
country’s trade policy. In Brazil, the Ministry of Foreign Relations continues to
dominate trade policy, causing the country’s commercial interests to be (at times)
subsumed by a larger foreign policy goal, namely, enhancing Brazil’s influence in
Latin America and the world.29 For example, while concluding meaningful trade
agreements with developed economies (such as the United States and the European
Union) would probably be beneficial to Brazil’s long-term economic self-interest, the
Brazilian government has instead prioritized its leadership role within Mercosul and
expanded trade ties with countries in Africa, Asia and the Middle East. Brazil has
also become the leading voice of developing countries at the World Trade
Organization (WTO), forming the Group of 20 countries to push demands that the
EU, U.S., and Japan open up their agricultural sectors to outsiders.30
Brazil has long been recognized for its diplomatic activism, especially through
the OAS and the UN. During the Lula administration, the Brazilian government has
helped diffuse potential political crises in Venezuela, Ecuador, and Bolivia, and
supported Colombia’s ongoing struggle against terrorist groups and drug traffickers.
Brazil is also currently commanding a multinational UN stabilization force of some
8,900 police and military personnel in Haiti.31 Some analysts assert that these
initiatives have enhanced Brazil’s international profile and its prospects for
eventually attaining a permanent seat on the UN Security Council. Others have noted
that these moves sometimes irk other regional powers, including Argentina and
Mexico; that the success of the UN Mission has been somewhat dubious; and that
Brazil may have overestimated its potential to be a world power.32
Relations with the United States
As a result of its significant political and economic clout, Brazil’s leaders have
traditionally “preferred pragmatic and opportunistic cooperation with the United
States on specific issues” rather than seeking to develop an all-encompassing,
privileged relationship with the United States. The United States, in turn, has
increasingly regarded Brazil as a stabilizing force and skillful interlocutor in the
hemisphere. While the two nations may disagree on trade issues, they agree on the
importance of maintaining regional stability and security, fighting terrorism
29 See CRS Report RL33258, Brazilian Trade Policy and the United States, by J.F.
Hornbeck.
30 See CRS Report 98-928, The World Trade Organization: Background and Issues, by Ian
F. Fergusson.
31 United Nations Stabilization Mission in Haiti (MINUSTAH) Facts and Figures. Available
at [http://www.un.org/Depts/dpko/missions/minustah/facts.html], accessed May 18, 2006.
32 “EUA Tem Novo Rival Real Na America Latina,” Folha de São Paulo, February 19,
2006; Andres Oppenheimer,”Brazil May Be Overplaying Hand as South American
Superpower,” Miami Herald, May 8, 2005.

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CRS-12
(especially in the Tri-Border region of Brazil, Argentina, and Paraguay), and
combating narcotics, arms, and human trafficking.33
Current bilateral relations between the countries are characterized as warm and
friendly, despite the differing political approaches of President Lula and President
Bush on some issues, and have been strengthened by a number of high-level visits
during the past three years. On June 20, 2003, President Lula made an official visit
to the United States, and he and President Bush resolved “to create a closer and
qualitatively stronger [bilateral] relationship.” The Presidents agreed to enhance
cooperation in science and nuclear energy; to jointly promote HIV/AIDS treatment
in the Portuguese-speaking African countries of Mozambique and Angola; and to
establish an energy partnership for cooperation on alternative energy sources.
This early commitment to bilateral cooperation was strengthened by a number
of high-level visits by U.S. officials to Brazil that took place in 2005, including those
of Secretary of Defense Rumsfeld, Secretary of State Rice, and Secretary of the
Treasury Snow. On November 6, 2005, President Bush visited Brasília on his return
from the Summit of the Americas in Argentina, and the two leaders reaffirmed the
good relations between the countries and pledged to work together to advance peace,
democracy, and a successful conclusion of the Doha round of global trade talks.
President Bush thanked Brazil for exercising leadership in the world and in the
hemisphere, including Brazil’s role in the peacekeeping force in Haiti, and worldwide
efforts to control HIV/AIDS.34
Brazil is considered a middle-income country and does not receive large
amounts of U.S. foreign assistance. The FY2006 estimated allocation for Brazil was
$18.12 million, the FY2007 request is for $19.2 million. Brazil has not concluded
an Article 98 Agreement with the United States exempting U.S. personnel operating
in Brazil from the jurisdiction of the International Criminal Court. Brazil is therefore
subject to sanctions on U.S. military assistance, which is mandated by the American
Servicemembers’ Protection Act (P.L. 107-206, Title II). Brazil could lose $50,000
in military training assistance in FY2006 and FY2007 if it does not conclude an
Article 98 agreement or receive a waiver from the Bush Administration.35
33 Peter Hakim, “The Reluctant Partner,” Foreign Affairs, Jan/Feb 2004; Carlos Eduardo
Lins, “La Casa Blanca y El Planalto: Respeto y Solidaridad,” Foreign Affairs En Español,
January-March 2003.
34 See “President Bush Meets with President Lula of Brazil” and “Joint Statement on the
Visit by President George W. Bush to Brazil,” November 6, 2005, on the White House
website.
35 For more information, see CRS Report RL33337, Article 98 Agreements and Sanctions
on U.S. Foreign Aid to Latin America, by Clare M. Ribando.

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CRS-13
Selected Issues in U.S.- Brazil Relations
The Bush Administration has come to view Brazil as a strong partner whose
cooperation must be sought to solve regional and global problems. Current issues of
concern to both Brazil and the United States include counter-narcotics and terrorism,
energy security, trade, environmental issues, human rights, and HIV/AIDS.
Counter-Narcotics and Counter-Terrorism
Brazil is not a significant drug producing country, but is a major conduit for the
transit of cocaine, marijuana, and some heroin from neighboring Andean countries
destined primarily for Europe, the United States, and local markets. It is also the
second largest consumer (after the United States) of cocaine in the western
hemisphere. The Bush Administration includes Brazil on a list of major drug-
producing or drug-transit countries.36 In FY2006 Brazil received an estimated $5.9
million in U.S. counter-narcotics assistance through the Andean Counterdrug
Initiative (ACI). FY2007 ACI funds requested for Brazil total $4 million mainly for
interdiction and law enforcement activities.
In recent years, Brazil has cooperated extensively with neighboring countries in
counter-narcotics activities, adopted a new strategy against money laundering, and
implemented a law permitting the shooting down of civilian aircraft (with adequate
safeguards) suspected of being engaged in the trafficking of illicit narcotics. Brazil
has also constructed a $1.4 billion sensor and radar project called the Amazon
Vigilance System (SIVAM from its acronym in Portuguese) in an attempt to control
illicit activity in its Amazon region. Brazil has offered to share data from this system
with neighboring countries and the United States. In 2005, Brazil’s federal police,
which generally are responsible for about 75% of total Brazilian drug seizures and
detentions, captured 15.8 metric tons of cocaine and 126 kilograms of crack
cocaine.37 In May 2006, Brazilian police, participating in a coordinated law
enforcement effort run by the U.S. Drug Enforcement Administration, arrested a
major Colombian-born drug trafficker accused of smuggling more than 70 tons of
cocaine to the United States. These seizures and arrests are likely to increase as
Brazil expands it cooperation with neighboring countries by establishing joint
intelligence centers, including one soon to open on the Brazilian/Bolivian border.
The U.S. State Department’s Country Report on Terrorism covering 2005 notes
that Brazil “continues to improve its counterterrorism capabilities.” The United
States is working with Brazilian officials to combat money laundering and arms
trafficking. These efforts include increasing penalties for terrorist financing,
particularly in the Tri-Border region of Brazil, Paraguay, and Argentina.38 U.S.
36 “Bush Cites 20 Nations as Major Drug-Transit/Producer Countries,” September 15, 2005,
U.S. Department of State, Washington File, [http://usinfo.state.gov].
37 U.S. Department of State, International Narcotics Control Strategy Report, March 2006.
38 For more information, see CRS Report RS21049, Latin America: Terrorism Issues, by
Mark P. Sullivan.

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CRS-14
Homeland Security officials will also soon be helping Brazilian law enforcement
officials set up special units to investigate and prosecute a variety of financial crimes.
Energy Security
In recent months, there has been significant congressional interest in issues
related to energy security. On March 2, 2006, the House International Relations
Committee held a subcommittee hearing on energy security in the Western
Hemisphere. Brazil was mentioned as a country that has successfully reduced its
reliance on foreign oil by using alternative energies (such as ethanol) to satisfy its
energy needs. Brazil has also recently attained the ability to produce large amounts
of enriched uranium as part of its nuclear energy program.
Ethanol Production. In the past year, as oil and gas prices have risen
dramatically, there has been increasing attention in the United States on the
importance of decreasing dependence on foreign oil. 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 alternative energy sources, including ethanol. Brazil is currently
the world’s largest consumer and producer of ethanol from sugarcane. Its sugar-
based ethanol is considered more efficient than corn-based derivatives developed in
the United States.
Brazil’s ethanol program began in 1975 but did not become competitive with
gasoline until very recently. For decades, before ethanol became competitive with
gasoline, the Brazilian government spent billions of dollars on subsidies and tax
incentives to keep the struggling ethanol industry afloat. Now, ethanol supplies some
40% of the motor fuel used in Brazil and is extremely competitive with gasoline.
Ethanol use has accelerated since 2003, when automakers introduced “flex fuel”
motors in Brazil designed to run on ethanol, gasoline, or a mixture of the two. In
2005, flex-fuel vehicles represented more than 50% of new cars sold in Brazil.39
Brazil’s experience with ethanol has not been without its share of problems,
however. For instance, Brazil has at times had to import large amounts of ethanol
when its sugarcane crop has been damaged by drought or simply fallen short of rising
demand. In addition, the expansion of sugarcane production has occurred in areas
previously used for cattle ranching and accompanying meat production, another
important Brazilian export. Finally, human rights groups argue that the increasing
demand for sugarcane has put undo pressure on the peasants forced to harvest the
sugar under extremely difficult working conditions.40
Fuel ethanol consumption in the United States has grown significantly in the
past several years, and it will likely continue to grow with the establishment of
renewable fuel standards in the Energy Policy Act of 2005 (P.L. 109-58). This
standard requires U.S. gasoline to contain a minimum amount of renewable fuel,
including ethanol. Many observers predict that the United States will have to
39 See David Sandalow, “Ethanol: Lessons from Brazil,” Brookings Institution, May 2006.
40 “With Big Boost From Sugar Cane, Brazil is Satisfying Its Fuel Needs,”New York Times,
April 10, 2006.

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CRS-15
increase, perhaps by double, its imports of foreign ethanol in 2006 as U.S. oil refiners
switch from methyl tertiary butyl ether (MBTE), a water pollutant and possible
carcinogen, to ethanol as a component of U.S. gasoline.41
The United States currently allows duty-free access on sugar-based ethanol
imports from many countries through the Caribbean Basin Initiative, Central
American Free Trade Agreement, and the Andean Trade Preferences Act, among
others.42 Some Brazilian ethanol is processed at plants in the Caribbean for duty-free
entry into the United States, but exports arriving directly from Brazil are currently
subject to a 54-cent-per-gallon tax, plus a 2.5% tariff.
In the 109th Congress, legislation has been introduced that would eliminate the
these two taxes on foreign ethanol: H.R. 5170 (Shadegg) and S. 2760 (Feinstein), the
Ethanol Tax Relief Act of 2006. Senate Finance Committee Chairman Charles
Grassley and other Members of Congress have openly opposed those proposals.43
Nuclear Energy. Between World War II and the mid-1980s, Brazil sought
to develop nuclear weapons as it competed with Argentina for political and military
dominance of the Southern Cone. In 1991, Brazil and Argentina reached an
agreement to use nuclear energy for peaceful purposes only, although one scientist
has recently asserted that the Brazilian military continued nuclear weapons efforts
into the early 1990s.44 Brazil joined the Nuclear Nonproliferation Treaty (NPT) in
1998 and since then has participated in several multilateral nonproliferation regimes,
including the Missile Technology Control Regime and the Nuclear Suppliers Group
(NSG). It is also a party to the Treaty of Tlatelolco, which establishes Latin America
as a nuclear-weapon-free zone. Brazil chaired the May 2006 NSG plenary at which
the United States tried to convince other NSG members to adopt an exception to the
NSG guidelines to allow increased U.S.-Indian nuclear cooperation.
Despite its nonproliferation credentials, some international observers were
concerned when Brazil commissioned a uranium enrichment plant in 2004 to be
located at the Resende nuclear facility outside Rio de Janeiro. Uranium enrichment
can be used for peaceful purposes (such as fuel for nuclear power plants) or for
military purposes (nuclear weapons). In 2005, Brazilian officials refused to give
International Atomic Energy Agency (IAEA) inspectors full access to the centrifuge
plant, citing security concerns and proprietary aspects of the country’s nuclear
technology. Negotiations between Brazil and the IAEA ended in October 2005 when
the Bush Administration lent its support to Brazil by asserting that limited
inspections should be enough for Brazil to comply with its international obligations.45
41 “Commodities Corner: The Rush for Ethanol,” Barron’s, May 1, 2006.
42 For more information, see CRS Report RS21930, Ethanol Imports and the Caribbean
Basin Initiative, by Brent D. Yacobucci.
43 “Ethanol Tariffs Defended as U.S. Producers Fear High Fuel Price Blame,” Inside U.S.
Trade, April 21, 2006.
44 “Brazil Nearly Built Bomb in 1990s, Scientist Says,” Associated Press, August 30, 2005.
45 “New Round of Nuclear Enrichment Scare Stories,” Latin American Weekly Report,
(continued...)

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CRS-16
Brazil is now the ninth country in the world capable of enriching uranium to
generate energy. Brazil’s reluctance to allow international inspectors to fully inspect
the Resende facility has caused some observers to wonder whether Brazil’s “new
enrichment capability ... suggests South America’s biggest country may be rethinking
its commitment to non-proliferation.”46 Some observers have called for Brazil to
abandon its uranium enrichment plans in order to counter such concerns. The Bush
Administration, however, considers Brazil to have a fully operational nuclear
enrichment capability and should not be required to abandon its uranium enrichment
projects.47 Brazilian officials have rejected the notion that Brazil should be treated
like Iran and prohibited from owning sensitive nuclear technology.
Trade Issues
Trade issues are central to the bilateral relationship between Brazil and the
United States, with both countries being heavily involved in subregional, regional,
and global trade talks. Brazil has sought to strengthen Mercosul and to establish free
trade agreements with most of the countries in South America, while also pursuing
efforts to negotiate a Mercosul-European Union free trade agreement and to advance
the global trade talks through the Doha Development Round. The United States has
been actively involved in the Doha negotiations and has pressed for action on the
region-wide Free Trade Agreement of the Americas (FTAA), while simultaneously
undertaking a series of bilateral or subregional agreements with many hemispheric
countries.
World Trade Organization (WTO) Negotiations.48 The WTO Doha
round talks were revived in 2004 after stalling in September 2003 in Cancun,
Mexico, when Brazil led the G-20 group of developing countries that insisted that
developed countries agree to reduce and eventually eliminate agricultural subsidies
as part of any settlement. In late July 2004, WTO members agreed on the framework
for a possible Doha round agreement, and negotiators worked throughout the year to
achieve preliminary agreements by the Sixth WTO Ministerial Conference in mid-
December 2005 in Hong Kong. For most observers, the Hong Kong Conference
produced a mixed bag with modest results. In a result that was disappointing to
Brazil, the ministers, bowing to the demands of the European Union, delayed the
elimination of agricultural export subsidies until 2013 (not 2010), although subsidies
for cotton were to be eliminated by 2006. In a result that was disappointing to the
45 (...continued)
February 12, 2006.
46 “Brazil’s Enrichment Program Overshadowed by Iran’s: Could Produce Nuclear
Weapons,” Montreal Gazette, April 24, 2006.
47 Bernard Aronson, “Brazil’s Chance to Lead on Nuclear Containment,” Wall Street
Journal, March 18, 2005; Sharon Squassoni and David Fite, “Brazil as Litmus Test:
Resende and Restrictions on Uranium Enrichment,” Arms Control Today, October 2005.
48 For more information, see CRS Report RL32060, World Trade Organization
Negotiations: The Doha Development Agenda, by Ian. F. Fergusson.

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CRS-17
United States, formulas for reducing tariff barriers in the manufactured goods and
service sectors were largely postponed.49
Deadlines were established in Hong Kong for concluding negotiations by the
end of 2006. Agreements on modalities for agriculture and non-agriculture market
access (NAMA) were due by April 2006. Further deadlines set for July 31, 2006,
include the submission of tariff schedules for agriculture and NAMA, the submission
of revised services offers, the submission of a consolidated text on rules and trade
facilitation, and for recommendations to implement the “aid for trade” language in
the Hong Kong declaration. On April 21, 2006, WTO Director-General Pascal Lamy
announced there was no consensus for agreements on modalities by the April 30
deadline. Instead, he committed to six weeks of continuous talks to reach an
agreement. It is commonly assumed that even if the talks were moving forward in
reaching their deadlines, it would take many months to develop a final schedule of
concessions and to verify the schedules of others.
Free Trade Area of the Americas (FTAA). In 1994, 34 countries in the
Western Hemisphere announced a plan for creating a Free Trade Area of the
Americas (FTAA) at the first Summit of the Americas. Twelve years later, the
FTAA has yet to be established, and negotiations for its creation have been put off
indefinitely, primarily due to differences of opinion between the United States and
Brazil, co-chairs of the FTAA Trade Negotiation Committee.50
Brazil asserts that the FTAA must include measures to curtail agricultural
subsidies and to reduce the use of anti-dumping and countervailing duties, while the
United States emphasizes investment and intellectual property rights and argues that
agricultural subsidy issues should be resolved in the Doha round of WTO talks.
Disagreements on the terms of the FTAA came to a head in the November 2003
Ministerial Meeting in Miami, Florida, where the parties finally agreed on a formula
called by some an “FTAA light.” Under the formula, all of the countries would agree
to a set of core obligations, while countries which favored a more ambitious
agreement would negotiate plurilateral agreements. When the Trade Negotiations
Committee (TNC) met in Puebla, Mexico, in early February 2004, the delegates were
unable to agree on the FTAA common obligations, and continuing disagreements
between the co-chairs, and involvement in other negotiations have prevented further
meetings. A U.S. effort, in early November 2005 at the fourth Summit of the
Americas in Mar del Plata, Argentina, to set a date for new FTAA negotiations was
resisted by Venezuela and Mercosul countries, who argued that such talks should be
put off until progress is made on agricultural subsidy issues in the global WTO Doha
round talks.
Trade Disputes. Brazil won a WTO dispute settlement case against U.S.
cotton subsidies in September 2004, which the United States appealed, but Brazil’s
position was reaffirmed by the WTO appellate body in March 2005. In keeping with
49 See “WTO Ministerial Agrees on Setting Course for Final Stage of Talks; Some
Disappointed,” International Trade Reporter, December 22, 2005.
50 For more information, see CRS Report RS20864, A Free Trade Area of the Americas:
Major Policy Issues and Status of Negotiations, by J.F. Hornbeck.

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CRS-18
the requirement that the United States modify its policies or negotiate a mutually
satisfactory settlement with Brazil, the Bush Administration in early July 2005 asked
Congress to modify the cotton subsidy program and Brazil agreed to temporarily
suspend retaliatory action.51
Human Rights
The U.S. State Department’s Country Report on Human Rights on Brazil
covering 2005 states that while “the federal government generally respected human
rights of its citizens...there continued to be numerous, serious abuses, and the record
of several state governments was poor.” Three human rights issues of particular
concern include crime and human rights abuses by police in Brazil, race and
discrimination, and trafficking in persons.
Violent Crime and Human Rights Abuses by Police. The related
problems of urban crime and violence, on the one hand, and corruption and brutality
in law enforcement and prisons, on the other, are viewed by some as undermining
democratic governance and citizen’s sense of security in Brazil. Five Brazilian cities
are among the fifteen cities in Latin America, the world’s most violent region, with
the highest murder rates.52 Crime is most rampant in the urban shanty towns
(favelas) in Rio de Janeiro and São Paulo. In addition to rising crime rates, human
rights groups have identified extrajudicial killings by police and prison authorities
as Brazil’s most pressing human rights problem.53 In the first nine months of 2005,
authorities reported that São Paulo state police killed 263 civilians compared to 322
in 2004, while Rio de Janeiro police killed 584 civilians in the first eight months of
2005 as compared to 983 in 2004. Amnesty International estimates that police in
those two states continue to kill some 2,000 persons annually.54 On March 31, 2005,
police were linked to a massacre in Rio de Janeiro that claimed 30 civilian lives, the
worst incident of its kind in the city since 1993. Prison conditions range from “poor
to extremely harsh and life threatening,”55 and the countrywide prison system, which
housed more than 361,000 inmates in 2005, had an accommodation deficit of some
90,360.56
51 See “USDA Calls for Repeal of Cotton Subsidy to Achieve WTO Compliance,” Inside
U.S. Trade, July 8, 2005. For more information, see CRS Report RL32571, Background on
the U.S.-Brazil WTO Cotton Subsidy Dispute, by Randy Schnepf.
52 William C. Prillaman, “Crime, Democracy, and Development in Latin America,” Center
for Strategic and International Studies, June 2003.
53 Human Rights Watch, “Brazil: World Report 2006,” January 2006. Available at
[http://www.hrw.org/wr2k6/].
54 U.S. Department of State, Country Reports on Human Rights Practices 2005: Brazil,
February 2006.
55 Ibid.
56 “Brazil: Battle of São Paulo Leaves a Disquieting Balance,” Latin American Weekly
Report, May 23, 2006.

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These weaknesses in Brazil’s criminal justice system became apparent in mid-
May 2006 as street combat and rioting organized by a prison-based gang network, the
First Capital Command, paralyzed the city of São Paulo for several days. Officially,
the violent gang attacks, which were followed by police reprisals, resulted in at least
186 deaths, including “110 ‘bandits’ killed by the police, 42 law enforcement
officials, 18 jailed criminals, and 16 civilians.”57 Although state officials have denied
that negotiations occurred, Brazilian press accounts reported that the violence did
not end until a high-level truce was reached between state officials and gang leaders.
Brazilian police, which initially refused to release the names of those killed by
security forces, have been widely criticized for the brutal manner in which they
responded to the gang violence.
President Lula has not launched a major anti-crime initiative, but has taken
some steps to combat police brutality in Brazil. In June 2004, the Brazilian
government created a free hotline for citizens to report police and labor abuses. At
that time, the Special Secretary for Human Rights also reported that Brazil would
strive to transfer jurisdiction over human rights abuses committed by police from
state to federal courts, which are less vulnerable to coercion by local authorities;
reduce firearms sales; and give police officers more extensive human rights
training.58 Aside from periodically sending federal troops to back up state and local
forces at their request, federal officials have tended not to intervene in cases of
alleged human rights violations by state authorities. In response to the May riots in
São Paulo, the Brazilian Senate has recently passed 11 emergency measures to
combat violent crime and improve prison security. The measures are currently being
debated in Brazil’s Chamber of Deputies. Crime and law enforcement reform are
likely to become major issues in the country’s upcoming elections.
Race and Discrimination.59 People of African descent in Brazil, also known
as Afro-Brazilians, represent 45% of the country’s population, but constitute 64% of
the poor and 69% of the extreme poor.60 During the Cardoso administration, the
Brazilian government began to collect better official statistics on Afro-Brazilians.
These statistics found significant education, health, and wage disparities between
Afro-Brazilians and Brazil’s general population. Successive State Department
Human Rights Reports covering Brazil in the late 1990s also reported frequent
discrimination against Afro-Brazilians, including abuse by police officials, and a
limited access to justice. These findings and other evidence challenged the notion
57 “Police are Criticized in Wave of Gang Violence in Brazil,” New York Times, May 30,
2006.
58 “Brazil: New Rights Hotline Set Up to Fight Police and Labor Abuses,” Inter Press
Service, June 22, 2004.
59 For more information, see CRS Report RL32713, Afro-Latinos in Latin America and
Considerations for U.S. Policy, by Clare Ribando.
60 Ricard Henriques, “Desigualdade racial no Brasil,” Brasilia: Instituto de Pesquisa
Econômica Aplicada (IPEA), 2001

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that Brazil was a “racial democracy,”61 and confirmed the perception that specific
public policies were needed to improve the socioeconomic status of Afro-Brazilians.
Brazil now has the most extensive anti-discrimination legislation geared towards
Afro-descendants of any country in Latin America. In 2001, Brazil became the first
Latin American country to endorse quotas in order to increase minority representation
in government service. Since 2002, several state universities in Brazil have enacted
quotas setting aside admission slots for black students. Although most Brazilians
favor government programs to combat social exclusion, they disagree as to whether
the beneficiaries of affirmative action programs should be selected on the basis of
race or income.62 In 2003, Brazil became the first country in the world to establish
a Special Secretariat with a ministerial rank to manage Racial Equity Promotion
Policies. Afro-Brazilian activists, while acknowledging recent government efforts on
behalf of Afro-descendants, have noted that most universities have preferred not to
implement quota systems, and that the Special Secretariat lacks the funding, staff,
and clout necessary to advance its initiatives.63 Despite these limitations, Brazil has
also stepped forward to take a leadership role in advancing issues of race and
discrimination within the Organization of American States and is leading the drafting
of an Inter-American Convention for the Prevention of Racism and All Forms of
Discrimination and Intolerance.
Five years ago the term “Afro-Latino” was relatively uncommon. Today the
U.S. government, spurred by multilateral organizations, NGOs, and some Members
of Congress, is playing an active role in supporting Afro-Latinos in Latin America
through both bilateral and multilateral assistance programs. U.S. and other regional
officials are now looking to Brazil as an example of how to address the related issues
of race and discrimination.
Trafficking in Persons.64 Brazil is a source, transit, and destination country
for people, especially women and children, trafficked for forced labor or sexual
exploitation. In the 2005 State Department Trafficking in Persons report, Brazil was
listed as a Tier 2 country. Tier 2 consists of the countries the State Department
identifies as not fully complying with adequate standards for dealing with trafficking
in persons, but making “significant efforts to bring themselves into compliance.” In
2006, Brazil’s ranking fell to the Tier 2 Watch List and the Brazilian government was
61 Racial democracy attributes the different conditions under which blacks and whites or
mestizos live in Latin America to class differences, not racial discrimination. See Robert J.
Cottrol, “The Long Lingering Shadow,” Tulane Law Review, 2001.
62 Livio Sansone, “Anti-Racism in Brazil,” NACLA Report on the Americas, September 1,
2004.
63 Dayanne Mikevis and Matthew Flynn, “Brazil’s Civil Rights Activists Achieving Overdue
Policy Reform,” Citizen Action in the Americas, No. 17, April 2005.
64 For more information, see CRS Report RL33200, Trafficking in Persons in Latin America
and the Caribbean, by Clare M. Ribando.

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cited for making only limited progress in bringing traffickers to justice and for failing
to apply effective penalties for those who exploit forced labor.65
Brazil has been working closely with U.S. officials and representatives from
several different international organizations to improve its anti-trafficking programs.
In July 2004, President Bush announced that Brazil was one of eight countries
selected to receive $50 million in strategic anti-trafficking-in-persons assistance.
Some $8.2 million in funds have been approved by the Senior Policy Operating
Group (SPOG) on trafficking for Brazil. These funds will support programs to
prevent labor trafficking in the Southern Amazon; shelters for sex tourism victims
in Rio de Janeiro, Recife, and São Paulo; reintegration and border shelters in the Tri-
border region (Brazil, Paraguay, and Argentina); and strengthening mobile law-
enforcement teams to fight forced labor in the interior, as well as training judges and
prosecutors. The funds are also supporting public awareness campaigns to deter
American and other foreign travelers from engaging in child sex tourism in Brazil.
In FY2005, U.S. support helped the Brazilian government provide a variety of
legal and social services to more than 1,000 trafficking victims. In addition, more
than 6,530 government and NGO representatives received training on how to
improve assistance to trafficking victims. Finally, Brazil, with USAID support,
revised its penal code to make internal and transborder trafficking for commercial
sexual exploitation federal crimes with similar penalties, and eliminated language
that made the previous law applicable strictly to cases involving female victims. The
legislative changes did not include provisions addressing trafficking for forced labor,
which is also a major problem in Brazil. Brazilian collaboration with police forces
from other countries led to busts of several trafficking rings that sent Brazilians to
Italy, Switzerland, and the United States.
HIV/AIDS
Successive governments in Brazil have made the fight against the spread of
HIV/AIDS a national priority. In 1985, Brazil’s national AIDS program began within
the context of the country’s transition to democracy as a result of activism from
Brazilian civil society. Initially focused on disease prevention, Brazil’s HIV/AIDS
program expanded to providing antiretroviral (ART) drugs on a limited basis by
1991, and then to all people living with the disease by 1996. Currently some 150,000
Brazilians have access to free generic versions of ART drugs, many of which are
locally produced and financed by the Brazilian government.66 The incidence of
HIV/AIDS in Brazil has stabilized since 1997, and universal free access to ART has
increased average survival times from 18 months for those diagnosed in 1995, to 58
months for those diagnosed in 1996.67 HIV prevalence is under 1% for the general
65 U.S. Department of State, Trafficking in Persons Report, 2006, June 5, 2006,
[http://www.state.gov/g/tip/rls/tiprpt/2006/65983.htm].
66 United Nations Programme on HIV/AIDS, 2005, available at [http://www.unaids.org].
67 Daniel R. Hogan and Joshua A. Salomon, “Prevention and Treatment of HIV/AIDS in
Resource-Limited Settings,” World Health Organization, February 2005.

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population in Brazil, so most government prevention efforts are now targeted at high-
risk groups where prevalence rates are still above 5%.
Brazil’s decision to develop generic ART drugs to treat HIV/AIDS under the
compulsory licensing provision of its patent law led to a subsequent 80% drop in the
cost of treatment there. That decision also brought Brazil into conflict with the
United States and the international pharmaceutical industry. In May 2001, the United
States submitted a complaint to the WTO, which was later withdrawn, that Brazil’s
practices violated the Trade-Related Aspects of Intellectual Property Rights (TRIPS)
agreement and prevented companies from developing new products there. While the
pharmaceutical industry argued that TRIPS was an essential tool to protect
intellectual property rights, developing countries (like Brazil) countered that TRIPS
inhibited their ability to fight public health emergencies in a cost-effective manner.
In August 2003, a WTO decision temporarily waived part of the TRIPS rules to allow
the export of generic drugs to countries confronting a grave public health challenge
(such as HIV/AIDS, tuberculosis, or malaria) under compulsory licensing
agreements. That temporary waiver became permanent in late 2005.68 Brazil currently
manufactures ART drugs both for domestic consumption and for export to several
African countries.
Brazil and the United States have also disagreed as to whether prostitutes should
be enlisted to help combat the spread of HIV/AIDS. In 2003, Congress passed an
amendment to H.R. 1298 (P.L. 108-25), which authorizes the President’s Emergency
Plan for AIDS Relief (PEPFAR), prohibiting U.S. funds from being distributed to
any group or organization that does not have a policy “explicitly opposing
prostitution and sex trafficking.” Brazil has rejected U.S. support for its HIV/AIDS
programs because it is opposed to the new restrictions. That decision could cost
Brazil some $48 million in USAID funding for HIV/AIDS programs.69
Environmental Concerns
Amazon Deforestation. The Amazon Basin contains over half of the
world’s remaining tropical rainforests and is the most biodiverse tract of tropical
rainforest in the world. Some 22% of the world’s known plant species exist in Brazil
and 20% of the world’s fresh water lies in the Amazon basin. The Amazon is also
thought to be home to one third of all species in the world, including some 2.5
million types of insects, and 2,000 types of birds and mammals. Further, the Amazon
rainforest is a sink for global carbon dioxide, and is considered by many to be an
important asset in moderating climate change. Proper management of Brazil’s
portion of the Amazon rainforest holds global significance and is a top concern of
Brazil, the United States, and the international community.
Throughout the last forty years, the Brazilian Amazon has been increasingly
deforested for development that includes roads, settlements, logging, subsistence and
commercial agriculture, as well as cattle ranching. In 1960, the Amazon was largely
68 Mary Anastasia O’Grady, Wall Street Journal, December 16, 2005.
69 Monte Reel, “Where Prostitutes Also Fight AIDS,” Washington Post, March 2, 2006.

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undeveloped, but today approximately 15%-20% of the rainforest has been
deforested. Deforestation threatens the biodiversity of the Amazon region and is a
concern for climate change. In the 1980s, some predicted that deforestation would
decline if the Brazilian government stopped providing tax incentives and credit
subsidies to settlers and agricultural producers. Those predictions have not borne
out, however, as the complex and often interrelated causes of deforestation have
multiplied rather than decreased.70 Between 1990 and 2000, Brazil lost an area of
rainforest twice the size of Portugal. Deforestation rates, which have been fueled by
increases in cattle ranching, soybean farming, and road building, spiked in 2002 and
2004 (reaching the second-highest level ever) before declining by 32% in 2005.71
The Brazilian government attributes the recent decline in the deforestation rate
to its creation of new conservation areas and stricter enforcement of environmental
regulations. The Lula government created some 7 million hectares of new
conservation reserves in 2004 and 2005. It also launched a special operation to
combat deforestation and illegal logging that resulted in the arrest of more than 100
people between June 2005 and January 2006. In March 2006, President Lula signed
the Public Forest Management Law that aims to decrease illegal logging by allowing
companies access to 3% of the Amazon on the condition that they carry out
sustainable operations. Although some environmental groups have praised this
progress, others fear that it may be too little too late. Further, some believe that
continued road building in the Amazon will drive deforestation rates higher because
of easier access to undisturbed forests and reserves. Skeptics assert that the declining
deforestation rate in 2005 was a fluke resulting from a temporary decline in farming
that occurred as a result of adverse weather conditions and declining commodity
prices rather than the positive result of concerted government efforts.
In order to combat further deforestation, most observers agree that cooperative
efforts will have to be made between the Brazilian government, private companies,
landowners, and the international community (including the United States). These
efforts might include funding to pay farmers not to exploit the environment,
conservation projects, and environmental certification of commodities such as beef,
timber, and soybeans. Coordinated efforts could significantly reduce carbon
emissions and the loss of Amazon diversity that is otherwise likely to occur.72
70 David Kaimowitz, “Amazon Deforestation Revisited,” Latin American Research Review,
2002: 37, 2.
71 Some have suggested that access to pristine tracts of rainforests through roads is the
primary driver of deforestation in the Amazon. Regional roads constructed by the
government, as well as local roads created by logging operations, provide access to forested
areas. Using these roads, farmers clear remaining forests and practice slash and burn
agriculture until the land loses much of its soil fertility and it becomes more profitable to
move to other forested tracts rather than resuscitate their existing lands. After agriculture,
pastures grasses are generally planted and cattle are raised. Eventually, cattle grazing and
cyclical burning (either accidental or induced) will alter the ecosystem sufficiently that
forests cannot regenerate.
72 Soares-Filho et al., “Modelling Conservation in the Amazon Basin,” Nature, March 2006.

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USAID environment programs directly support the U.S.-Brazil Common
Agenda for the Environment. USAID environment programs seek to promote proper
land-use trends over large geographic areas while encouraging environmentally-
friendly income generation activities for the rural poor. The FY2005 allocation for
USAID environmental programs in Brazil was $6.1 million, whereas the FY2006
estimated allocation fell to $5.1 million. USAID also initiated the Amazon Basin
Conservation Initiative in FY2006. From FY2006-FY2011, USAID plans to make
an initial investment of US $50 million to support community groups, governments,
and public and private organizations in their efforts to conserve the Amazon’s
globally important biodiversity.73 For FY2006, $10 million was appropriated for this
program.
Land Conflicts. A related development challenge for Brazil that has caught
the attention of both environmentalists and human rights groups in the United States
has been how to allow the country’s agribusinesses to expand while simultaneously
protecting the environment and providing land to millions of landless peasants. In
Brazil, 1% of the population controls 45% of the farmland. While close to half of
Brazil’s fertile land is used for cattle ranching, nearly one third lies uncultivated.74
In the 1980s, landless rural workers in the south of Brazil began to organize in order
to demand land redistribution. By 2004, the most powerful landless organization,
the Landless Workers’ Movement (MST), claimed some 1.5 million affiliates
nationwide and was capable of skillfully organizing mass demonstrations and land
invasions to pressure the Brazilian government to fulfill its promises of land
distribution. As the MST became more mobilized throughout the 1990s, land
disputes between loggers, ranchers, and peasants increased, and dealing with land
reform and land invasions became a major challenge for the Cardoso government.75
In 2002, partially because of overlapping membership and good relations at the
local level between MST and PT leaders, landless leaders backed the Lula da Silva
presidential campaign in hopes that he would pursue more effective agrarian reform
policies than President Cardoso did. In fact, during his first two years in office,
President Lula da Silva spent 24% less on land reform than the Cardoso
administration had in the previous two years. By early 2006, the Lula administration
had distributed land to some 245,000 families, just over half the number of families
he vowed to reach over his four-year term, which ends in January 2007. Recent
Brazilian government statistics indicate that the number of peasants waiting in
temporary camps to be resettled has increased from 60,000 in 2003 to 230,000 in
2006. At the same time, the number of land conflicts between peasants, farmers, and
73 See [http://www.usaid.gov/locations/latin_america_caribbean/environment/abci.html] for
more information, accessed May 9, 2006.
74 “Special Report: Land Report Dillemma,” Latin America Regional Report, December 21,
2004.
75 Miguel Carter, “The Landless Workers’ Movement (MST) and Democracy in Brazil,”
Center for Brazilian Studies, University of Oxford, 2005.

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land speculators rose to almost 1,900 in 2005, twice the 925 recorded in 2002. Some
38 people were thought to be murdered in 2005 as a result of struggles over land.76
According to the Catholic Church’s Pastoral Land Commision (PLC), Pará, a
rural state in the isolated Amazon region, has long been at the epicenter of land
disputes between peasants, farmers, and land speculators. Some 40% of the 1,237
land-related killings in Brazil between 1985 and 2001took place there. The February
2005 murder in Pará of U.S. missionary and landless activist, Dorothy Stang, brought
increasing national and international attention to Brazil’s land distribution problem.77
The recent conviction of a third suspect in connection with Sister Stang’s death has
led some observers to hope that more perpetrators of land-related crimes in Pará may
finally be brought to justice. Some 750 land activists have died there in the last 30
years, but only nine killers have been convicted for those deaths.78 Some assert that
Sister Stang’s death incited the Brazilian government to enact several aggressive
measures that resulted in recent reductions in Amazon deforestation in Brazil.
International environmental groups and human rights organizations have increased
scrutiny on the Lula government’s handling of the related problems of promoting
sustainable development in the Amazon and providing land to the country’s
thousands of landless peasants.
76 “Brazilians Wonder: Where’s the Reform?” Christian Science Monitor, March 22, 2006;
“Number of Landless Waiting for Resettlement Increases,” Latinnews Daily, May 30, 2006;
“Rural Violence at Record Levels in Brazil,” BBC Monitoring Americas, April 20, 2006.
77 “Brazil: A Nun’s Murder Triggers Action Against Landgrabbers,” Latin News Weekly
Report, February 22, 2005; “Human Rights Violations in the Amazon: Conflict and
Violence in the State of Pará,” CommisSão Pastoral da Terra, Global Justice, and Terra de
Direitos, November 2005.
78 “Third Man Jailed for U.S. Nun Death,” BBC News Online, April 27, 2006.

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Figure 1. Map of Brazil

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