U.S.-Brazil Trade and Investment Relationship: Opportunities and Challenges / by Mark Langevin

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

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

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

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

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

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

“a. Bilateral Economic Partnership Agreement

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

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

b. A Bilateral Tax Treaty

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

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

c. Visa-Free and Entry-Facilitated Travel

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

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

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

Deepening the Partnership through Dialogue

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

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

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

One Roadblock: The Cotton Dispute

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

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

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