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Presidents Donald Trump and Jair Bolsonaro at Mar-a-Lago on March 7, 2020. (Photo: Brazilian Embassy in the United States)
Wednesday, June 24, 2020
Perspectives

Brazil-US FTA: Good Goal, But Not Likely Now


A long-anticipated US-Brazil free trade agreement faces opposition in the US and Brazil.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Nearly a year ago, U.S. President Donald Trump said he would pursue a free-trade agreement with Brazil, suggesting that a warm relationship with Brazilian President Jair Bolsonaro could lead to lower trade barriers between the Western Hemisphere’s two largest economies. But Democrats in the U.S. House of Representatives this month signaled that they would block a trade deal, citing human rights concerns under the Bolsonaro administration. Are plans for a U.S.-Brazil free-trade agreement on track, and how strong is opposition to the effort in Brazil and the United States? What would an agreement mean for the two countries? What are the biggest sticking points that could prevent a deal?

Gabrielle Trebat, managing director for Brazil and the Southern Cone at McLarty Associates: The U.S.-Brazil relationship is experiencing its most positive moment of the past decade with numerous commitments made between Presidents Trump and Bolsonaro to bring the two countries closer together diplomatically. Notwithstanding the political approximation, money is being left on the table economically in the absence of a comprehensive free-trade agreement, with total bilateral trade just over $100 billion. For U.S. industry, an FTA has long been an objective, but political realities in both countries, including a complexity of viewpoints in the U.S. Congress and Brazil’s commitments under Mercosur, mean that achieving an FTA with market access commitments is neither feasible nor realistic at this time. As such, both presidents made the practical decision to focus on what is achievable with negotiations underway to address non-tariff barriers. The chapters under discussion—good regulatory practices, trade facilitation and digital trade—would improve the business environment for U.S. investors in Brazil while reaffirming Brazil’s commitment to implementing OECD standards in these areas. Inclusion of a robust digital trade chapter is particularly important to many U.S. companies, especially with the following points: 1.) requiring intermediary liability safeguards to ensure that Internet services can host content and communications from users without automatically becoming liable for that content; 2.) guaranteeing the free flow and storage of data across borders and prohibiting the localization of data and computing facilities in all sectors; 3.) reaching a multilateral solution to tax challenges arising from the digitalization of the economy and prohibiting discriminatory digital taxation measures that contravene international taxation principles; and 4.) allowing for modern uses of data, such as fair use and text, and data mining rules to enable digital analysis and use of information for artificial intelligence, machine learning and related purposes.

Rubens Barbosa, former ambassador of Brazil to the United States: A free-trade agreement between Brazil and the United States is not on the table. I like to say that a U.S.-Brazil FTA is not a serious proposition for 32 reasons: the first one is that the United States is not interested. Imagine the opposition of the U.S. agricultural states against an FTA to compete with Brazilian agricultural business. Restrictions by vested interests in the agricultural area and by environmentalists are difficult to overcome. In Brazil, opposition would come from political parties and the business community both in agribusiness and in the industrial sector for different reasons. Strong political opposition would emerge in both countries. And last but not least, Mercosur rules don’t allow Brazil to negotiate unilaterally with the United States. The United States and Brazil are currently discussing an enhanced economic cooperation agreement, not a free-trade agreement. U.S. political opposition has appeared even in a partial agreement to advance trade facilitation and trade liberalization. I very much favor an expansion and diversification of trade cooperation between the two countries and hope the current exercise succeeds. But we don’t need a free trade agreement in order to achieve that.”

John F. Maisto, member of the Advisor board, former senior director for the Western Hemisphere at the U.S. National Security Council and former U.S. ambassador to the Organization of American States: A U.S.-Brazil free-trade agreement and increased foreign direct investment have been objectives of both countries for decades. The economic basics provide the rationale. They are the two largest economies of the Americas; Brazil is the fifth-largest country and the ninth-largest economy in the world. Its trade relationship with the United States is robust; total U.S. exports to Brazil exceed those to Brazil’s BRIC partners—Russia, India and South Africa—combined. Brazil’s investment interests in manufacturing in the United States have increased significantly; 75 percent of Brazilian exports to the United States are manufactured products. The United States enjoys a trade surplus with Brazil. An FTA would be mutually beneficial and would be built as well on geopolitical realities—distance, people, educational, institutional and shared Western values. And though just a few months ago both presidents made public statements stating the FTA objective, there is much work ahead. Brazil still has a protected economy (tax and foreign exchange reform and the cost of doing business are issues), and prior trade facilitation talks to establish the foundation for a future broader agreement would be a U.S. requirement. Brazil would have to deal with Mercosur rules to negotiate with the United States. Also, the United States has congressional interests and demands; key Democrats have voiced opposition to an FTA based on Brazil’s record on labor, human rights and the environment. Political will on both sides will determine if an FTA will go forward, and post-Covid realities will not make the tasks easier. 

Jon E. Huenemann, member of the Advisor board and former corporate and government senior executive: Presidents Trump and Bolsonaro have both identified the achievement of a trade agreement and deeper economic relations as a strategic goal. More than ever, it is a sensible goal if done right. However, progress toward that goal has been halting for valid reasons, and now we are faced with particularly rancorous politics in a tumultuous U.S. election year as most recently evidenced by a letter from the leadership of the U.S. House Ways and Means Committee. The cold long-standing reality is that, absent sufficient symmetry and the exercise of resolute leadership across all germane institutions in both nations, the vexing nature of this matter will continue, irrespective of unprecedented levels of support from societal actors. While concerns over human rights and the environment should be expected to continue, agriculture is still fraught with very deep-seated difficulties as are other long-standing trade, investment and tax concerns that need to be put in a better place. Make no mistake: it is essential that the Trump and Bolsonaro administrations pursue a systematic effort to build momentum via incremental progress on these and other relevant fronts. But there should be no illusions about the likelihood of achieving an implemented FTA without a symmetry of inspired active leaders at the top of necessary institutions of governance in both countries, which does not now exist. Moreover, the issue of Mercosur symmetry remains, as does the necessary preoccupation with Covid-19 and its ghastly implications. I wish I could see more encouraging signs in the near term, given that we have for the first time two sitting presidents who are interested. 

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

 

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