The U.S.–Brazil relationship opportunity: Business synergies for a dynamic global environment
DOING BUSINESS IN
Authors
Sam H. L. Fouad,
Raul Gouvea
Abstract
The U.S.–Brazil relationship features an intersection of public and private sectors characteristic of the post-2000 dynamics of international business and governmental relations. As a triple helix reference for the private sector, the public sector, and academia, this article explores how further alignment of public and private interests of the United States and Brazil can improve the bilateral relationship between the two largest countries in the Western hemisphere. The first section recaps the U.S.–Brazil public relationship and cultural perspectives shared between Brazil and the United States. The second section reviews the relevance of the U.S.–Brazil relationship in Brazil's economy and business marketplace. Sections 3 through 5 discuss specific trade, investment, and tax agreements that can be mutually beneficial for the United States and Brazil. The final section recommends further areas for public–private cooperation between the United States and Brazil.
- Abstract
- 1 INTRODUCTION
- 2 GEOPOLITICAL AND CULTURAL BACKGROUND: THE U.S.–BRAZIL RELATIONSHIP
- 3 RELEVANCE OF THE U.S. –BRAZIL RELATIONSHIP FOR BRAZIL'S ECONOMY AND BUSINESS ENVIRONMENT
- 4 OPPORTUNITY FOR A TRADE AGREEMENT BETWEEN THE UNITED STATES AND BRAZIL
- 5 OPPORTUNITY FOR A U.S.–BRAZIL INVESTMENT AGREEMENT
- 6 OPPORTUNITY FOR A U.S.–BRAZIL BILATERAL TAX AGREEMENT
- 7 OTHER OPPORTUNITIES FOR U.S.–BRAZIL PUBLIC–PRIVATE COOPERATION
- 8 CONCLUSION
1 INTRODUCTION
In the early 2000s, numerous celebrated books and articles touted a new era of globalization for governments and multinational companies (MNCs) due to the rise of emerging markets, including Brazil, Russia, India, China, and South Africa (BRICS). Additional coverage was devoted to emerging-market MNCs (EM-MNCS), including the “multi-Latinas.” Throughout this research, there is ample evidence of the importance of the U.S.–Brazil public and private relationship (Casanova, 2009; Estévez, 2015; Friedman, 1999; O'Neill, 2001; Santiso, 2013).
Post-2000 coverage of globalization also included general interest books about Brazil and ongoing expert discussions of Brazil's progress and challenges in economic and social development. Various experts also commented on the curious state of the U.S.–Brazil relationship, recounting how political differences have limited the public relationship, while bilateral, cultural, and business relationships have strengthened (Council on Foreign Relations, 2013; Mendes, 2015; Montero, 2014; Reid, 2014; Rohter, 2012; Schneider, 2016; Sennes, 2015; Smith, 2010; Troyo, 2015, 2017).
The U.S.–Brazil relationship features an intersection of public and private sectors characteristic of the post-2000 dynamics of international business and governmental relations. As a triple helix reference for the private sector, the public sector, and academia, this article explores how further alignment of public and private interests of the United States and Brazil can improve the bilateral relationship between two of the largest countries in the Western hemisphere. The first section recaps the U.S.–Brazil public relationship and shared cultural perspectives between the two countries. The second section reviews the relevance of the U.S.–Brazil relationship in Brazil's economy and business marketplace. Sections 3 through 5 discuss specific trade, investment, and tax agreements that can be mutually beneficial for the United States and Brazil. The final section recommends further areas for public–private cooperation between the United States and Brazil.
2 GEOPOLITICAL AND CULTURAL BACKGROUND: THE U.S.–BRAZIL RELATIONSHIP
Since the end of World War II, Brazil has implemented an independent foreign policy and has aspired to be recognized as a leading global player, while at the same time receiving preferential or alternative treatment as an emerging market player. This paradox of global leadership aspirations and emerging-market expectations results in a sort-of “split-personality” for Brazil that often has been difficult for the U.S. government to understand and accommodate. Meanwhile, Brazil's government generally has perceived the U.S.–Brazil relationship as asymmetric and adopted a zero-sum approach toward the United States, where gains for the United States were seen as losses for Brazil. As a consequence, the U.S.–Brazil public relationship has become an “unwritten alliance” in which the United States and Brazil's national interests often converge, but also diverge at times, on hemispheric and global matters (Almeida, 2004, 2015; Brown, 2013; Hakim, 2014; Mello & Spektor, 2016; Meyer, 2016; Oliveira & Silveira, 2015).
In global debates, Brazil prefers to defer to national sovereignty, asserting its global and regional leadership as a soft power. Since 1985, democratically elected governments of Brazil generally have advanced social and economic policies enshrined in an ambitious 1988 constitution and politically styled in traditions of European social democratic parties or populist workers' parties. Since 2000, the combined elements of macroeconomic stability, social programs, state-led industrial development and domestic demand began to be referred to as the Brasilia Consensus—positioned between the Washington Consensus and Beijing Consensus. Most recently, Brazil has aspired to be a bridge power, as a representative of emerging markets or the southern hemisphere (Burges; 2013; Casanova, 2014; Costa, 2002; McClory, 2016).
Brazil and the United States share similar histories and cultural values. Both countries were once lands of indigenous peoples first colonized by Western European nations and then achieved independence in the 18th century, as democratic republics with similar institutions. Historic parallels in national aspirations, institutions, and identities have provided a cultural basis for mutual admiration and respect for more than two centuries (Bandeira, 2003; Sotero, 2015; Troyo, 2015; U.S. Department of State, 2015; Zibechi, 2015).
Throughout much of the last century, the United States has been one of Brazil's main public and private partners. Various public and professional institutions in Brazil were modeled based on U.S. institutions, exchanging perspectives, and sharing development agendas. U.S. investors historically (and still today) play a significant role in the development of Brazil's industry. Broad national cultural measures generally characterize Brazil's culture as informal and family/community oriented, compared to Americans as more formal and individual performance oriented. These general characteristics are also reflected in the public and private relationships, both within and between the United States and Brazil (Almeida, 2004, 2015; Lores, 2015; Otero, 2010; Weisbrot, 2013).
Today, citizens of the United States and Brazil interact along various cultural dimensions, such that Brazil's citizens developed an appreciation for U.S. culture and the United States' ways of doing business. For example, Brazil has the world's 10th-largest film market, and U.S. films hold an 80% share of Brazil's market. Brazilians have developed a taste for U.S. sports such as football, basketball, and mixed martial arts, and U.S. foods have been expanding in Brazil's supermarkets and restaurant franchises. Public perception of the United States continues to be relatively positive when compared to other countries of Latin America and the world. Specifically, 73% of Brazilians have a favorable impression of the United States—the highest level in Latin America. This rate has steadily improved from the low 60% range in recent years. Brazil's youth are more favorable toward the United States by 24%, meaning future generations of Brazil's public leaders could be more inclined to a robust bilateral relationship with the United States (Pew Research Center, 2015).
From an immigration perspective, there are far more immigrants coming from Brazil to the United States than any other country, and those numbers have increased steadily since 1990 (Migration Policy Institute, 2016). Nonetheless, of the more than 50 million people of Latin American origin within the United States, estimates of how many are in the United States legally as approximately 500,000, (or less than 1% of the total). A significant percentage of legal immigrants from Brazil to the United States continue to be students and professionals—including an increase in executives and entrepreneurs since the onset of Brazil's latest economic crisis. Recently released U.S. statistics also show that there are as many (or more) Brazilians entering the country illegally or overstaying visits to the United States on temporary visas (López & Patten, 2015; Zong & Batalova, 2017) .
In regards to short-term visitors (with improvements in Brazil's economy since 2000), the number of people from Brazil vacationing or doing business in the United States dramatically increased, prior to decreasing with Brazil's most recent severe recession. For example, in 2014, close to 2.3 million visitors arrived in the United States from Brazil—third only to visitors from the United Kingdom and Japan. Visitors from Brazil spent close to US$13.4 billion in the United States (U.S. Department of Commerce, International Trade Administration, 2015).
To compare U.S. public perceptions of Brazil, more than 50% of Americans have a positive impression, about 25% have a negative opinion, and the remaining 25% have no opinion. Interestingly, older Americans have a more favorable impression of Brazil by 10% over younger Americans. Furthermore, few Americans are aware of businesses in Brazil that trade or invest in the United States, whether that includes U.S. imports of Brazil's agricultural products or U.S. investments by Brazil's MNCs, such as JBS acquiring Swift, and 3G acquiring Anheuser-Busch, Burger King, and Heinz (Pew Research Center, 2015).
Interestingly, for tourist visitors, Brazil ranked only 22nd in destinations for American travelers, with only 400,000 out of the 62 million Americans who traveled in 2013. On the other hand, U.S. business travelers are by far the largest group of short-term business visitors to Brazil, notwithstanding challenging Brazil visa and tax requirements (International Trade Administration, 2015; World Tourism Organization, 2017).
The growth in cultural links between the private sectors of two of the largest nations of the Western hemisphere can be directly improved by new visa cooperation between the governments of United States and Brazil. Even within the restrictive views on immigration of the new Trump administration, this cooperation could expand first with reciprocal electronic visas for business and other frequent travelers. Cultural links will also indirectly benefit from the bilateral trade, investment, and tax agreements and other bilateral cooperation opportunities, as described below.
3 RELEVANCE OF THE U.S. –BRAZIL RELATIONSHIP FOR BRAZIL'S ECONOMY AND BUSINESS ENVIRONMENT
Almost every measure of international productivity and competitiveness concludes that Brazil's policies and actions are not fostering a vibrant and competitive economy or business environment. This has generally declined further with the 2015 onset of economic and political crises in Brazil. Various global index results for Brazil (including the United States' position for comparison), are summarized below:
- Index of Economic Freedom (Heritage Foundation, 2017): Brazil 140th and United States 17th out of 180 countries.
- Ease of Doing Business (World Bank, 2017a): Brazil 123rd and United States 8th out of 190 countries.
- Global Competitiveness Index (World Economic Forum, 2016–2017): Brazil 81st and the United States 3rd out of 138 countries
- Logistics Performance Index (World Bank, 2017b), 2016: Brazil 55th and United States 10th out of 160 countries.
- The Corruption Perception Index (Transparency International, 2016): Brazil 79th and United States 18th out of 176 countries.
- The Global Innovation Index (WIPO & Insead, 2016): Brazil 69th and United States 4th out of 128 countries.
- Program for International Student Assessment – PISA (Organization for Economic Cooperation and Development [OECD], 2015): Averages of Brazil 64th and United States 30th out of 72 countries.
- Environmental Performance Index (Yale University, 2016): Brazil 46th and United States 26th out of 180 countries.
The first four indices of general business confidence are low for Brazil due to broad-based policies, challenged institutions, or infrastructure and low economic stability. For example, the Heritage Foundation ranks Brazil's economy as “mostly unfree,” due to an intervening state, high levels of taxation as a share of gross domestic product (GDP), excessive regulation and red tape, low levels of investment freedom, and corruption. Similarly, the World Bank's “Doing Business 2017” (as it has every year since inception) concludes an overall low ranking for Brazil's economy, with heaviest criticisms for Brazil's taxation environment (181st), starting a business (175th), and cross-border trade (149th).
While efforts are continuously made to recognize and address Brazil's challenges and opportunities for improvement in productivity and international competitiveness measures, sustained progress in Brazil remains elusive. Other large Latin American countries—notably Chile, Colombia, Mexico, and Peru—have shown improvement by these measures. If managed well, public–private cooperation between Brazil and other major economies of the region and world (including the United States), can help improve Brazil's economy in the short run and also improve Brazil's productivity and international competitiveness in the long run.
The macroeconomic contexts and policies of Brazil and the United States differ in several important regards. First, macroeconomic performance cycles, both growth and contraction, tend to be more volatile in Brazil (compared to the United States). Next, comparisons across Latin America either place Brazil's economic policies and results in groupings according to increased reliance on commodities versus manufacturing and knowledge-intensive exports of goods and services, or in groupings according to socioeconomic or political policies. Others argue that aside from the difference in average wealth, the United States and Brazil share issues in inequality and comparable real “results” of public spending and taxation in relation to inequality (Higgins et al., 2014; Iakova, 2015; Robles, Wiese, & Torres-Baumgarten, 2014).
In recent decades, cyclical economic challenges and infrastructure shortcomings notwithstanding, Brazil's economy has steadily grown in size, joining the top 10 economies in the world. Most encouragingly, between 2000 and 2015, the improvement in global commodity prices and foreign direct investment (FDI) into Brazil accelerated the growth of Brazil's economy—and foreign reserves. Domestic consumer spending also soared, becoming another pillar of Brazil's improved macroeconomic performance. Brazil also steadily increased social spending, taxes, and the role of the state in business and finance, shifting its trade and financial relationships focus away from traditional markets of the United States and the European Union, toward China and other BRICS, or South–South emerging markets. By late 2014, amidst signs that Brazil has become a mature economy, a series of external events and internal decisions triggered a recession and political instability of historic proportions for Brazil in 2015, 2016, and beyond (Alston, Melo, Mueller, & Pereira, 2016; Bolle, 2016).
Asymmetries in respective macroeconomic cycles and policies aside, Brazil and the United States most meaningfully interact publicly during macroeconomic and financial governance initiatives of the G20 (and other global institutions), rather than via hemispheric or bilateral exchanges. As examples of bias for global rather than subglobal agreements, Brazil is an active leader in public international organizations such as the G20 and WTO—but has not joined the OECD. Brazil cooperated with OECD initiatives for more than 20 years, with full or observer rights, and since 2007 has remained a “key partner” with a standing invitation to open accession discussions. The 2016–2017 Brazil–OECD Program of Work reviews 18 OECD committees with involvement from Brazil, plus various initiatives for enhanced cooperation. Meanwhile other Latin American countries have moved forward to join the OECD, such as Mexico and Chile—and soon Colombia and Costa Rica, too (OECD, 2015).
In regards to the role of international development finance in macroeconomic policy and social development, for many decades before 2010 the United States provided substantial development assistance to Brazil, either via direct bilateral programs or via the U.S. public- and private-sector roles in international lending. Brazil has been a major recipient of public international lending for many years, but since 2010 direct U.S. aid to Brazil has diminished to nearly zero, and multilateral lending to Brazil also has shifted. As evidence of the new South–South paradigm, if Brazil needs public international financing support today, it will most likely access it through the BRICS Development Bank or Asian Infrastructure Investment Bank. Meanwhile, the United States and Brazil have been expanding their teaming on triangular global and hemispheric financial support to third countries, as recently provided in Africa and in Haiti. The United States and Brazil have developed significant depth in private international finance, as discussed later (Office of U.S. Trade Representative, 2017).
Brazil continues to operate a mixed economy, with a significant percentage of businesses directly or indirectly controlled by Brazil's federal, state, or local governments, and also a significant amount of market financing provided by Brazil's national development bank (known as BNDES) or other state banks. To steward industrial policy and prioritize social development, Brazil's national, state, and local governments must balance oversight roles as regulators with stakeholder roles as owners, in managing many businesses and finances. Brazil's government is involved in ownership, finance and/or management of businesses estimated to represent more than 20% of GDP. There are more than 111 federal state-owned enterprises (SOEs)—including many of the largest publicly traded MNCs from Brazil—and many more state and municipal SOEs. Also, various SOEs in Brazil are listed on stock exchanges, and report to a federal agency for SOEs, resulting in transparent reporting and challenging critiques regarding performance and governance (Deloitte, 2016; Ferraz, Kupfer, Marques, 2014; Haar, 2015; Musacchio & Lazzarini, 2014).
As in other emerging markets and Latin American countries, historically the leading players in Brazil's business marketplace have been SOEs, family-led industrial groups, inbound MNCs, and entrepreneurs. SOEs and family-led industrial groups have long been at the center of Brazil's economic and political power, as also evidenced by recent corruption scandals. Meanwhile, successful “EM MNCs” have evolved in sectors in Brazil, such as financial services (3G), agricultural products (BRFoods), natural resources (Vale), manufacturing (Embraer), and consumer products (Natura). As for the many inbound MNCs, operations are considered “high risk/average return” in Brazil compared to other major emerging markets. Finally, entrepreneurship in Brazil shows promise, especially in Sao Paulo. However, entrepreneurship in Brazil remains starved for affordable capital and cultural support, particularly for women and other diverse entrepreneurs (Holtbrügge & Baron, 2013).
Continued reliance on exports of primary products triggers debate regarding productivity and the possible deindustrialization of Brazil. For example, in 2016, out of Brazil's top 10 products, 7 were natural-resource-based goods, accounting for 38% of Brazil's total exports. The other three export products in Brazil's top 10 list include machine, engine and pumps (5.9%); vehicles (5%); and iron and steel (4.7%) One response calls for further integration of Brazil's economy into today's global and regional economies, including updated bilateral and multilateral agreements (Ministerio da Industria, Comercio Exterior e Servicos, 2016).
Industrial policy and innovation are generally considered most effective with strong linkages between the triple helix of government, business, and academia, as occurs in various countries of Asia, Europe, and North America—but is not as prominent in Brazil (aside from certain pockets of the energy and agribusiness industries). The competitiveness of the business marketplace in Brazil nonetheless is generally considered to have steadily improved in recent decades, as a result of liberalization in trade and macroeconomic policies, partial privatization of SOEs, increased investments in Brazil by inbound MNCs, and the emergence of entrepreneurs. The scale and complexity of the market in Brazil has enabled managers to evolve from earlier characterizations—such as hierarchical and reactive—toward an intriguing set of management skills that now include significant experience with people, processes, and structures in a competitive market enduring cyclical swings (Fleury & Fleury, 2011; Font, 2015; Parente, Cyrino, Spohr, & de Vasconcelos, 2013).
Modern business and financial management in Brazil has developed in close alignment to that of the United States. Business management education in Brazil was developed with the help of U.S. business schools. Accounting in Brazil also developed with reference to the U.S. generally accepted accounting principles (GAAP), before the recent adoption of International Financial Reporting Standards (IFRS) in Brazil (Rodrigues, Schmidt, & Santos, 2013). Finally, a high percentage of large companies in Brazil, including SOEs, have enterprise resource planning (ERP) systems and use other current state global management methodologies that typically originate in the U.S. business marketplace (Alcadipani, 2012; Ambrosius, 2016; Bronzo, 2013).
In Brazil, the state generally provides most financing., and Brazil's BNDES ranks second in the world after the Chinese development bank. In recent years, BNDES loans in Brazil have primarily financed privatizations of SOEs, exports, infrastructure projects, and international expansion of Brazil's national champion companies, while other state-owned banks provide credit to priority economic sectors, such as agriculture, home ownership, and consumer loans. State-owned banks also have extended financing to entrepreneurs and small and medium-sized enterprises (SMEs) in Brazil for various national priority economic initiatives, some featuring added social benefits. Many commentators agree that for developing capital markets there is an important role for state-owned development and commercial banks. There is less consensus, however, about whether state-owned banks should pull back to avoid crowding out development of private capital markets. Critics also contend that state-owned bank lending unduly favored SOEs and family-owned industrial groups closest to national industrial policy (Gouvea, 2004, 2012, Mendes, 2015; Musacchio & Lazzarini, 2014).
Among financial systems in Latin America, Brazil and Chile are most recognized for moving away from a bank-only-based financial system toward a “U.S. model” system that features more equity and bond listings and connects many financial and investment institutions. Generally, financial systems in Latin American countries pale in comparison to advanced economies and other emerging markets. In regards to private banks, the financial services industry in Brazil is generally characterized as sophisticated, having survived various hyperinflation and cyclical crises, and also as earning unusually high spreads and profits. Both multinational and local firms in Brazil, in particular from the United States and Spain, are significant players in Brazil's financial services industry, across banking, insurance, and other subsectors. In recent years, the depth and breadth of financing in Brazil is expanding via various new sources of private capital (Didier & Schmukler, 2013).
Brazil's stock exchange, BOVESPA, has in recent years been Latin America's leading stock exchange by most measures, with significant financial reporting and governance requirements applying consistently across its classifications. BOVESPA has seen an increase in firms listing under stronger governance requirements and also these listings have attracted as many as 70% foreign investors. Publicly available financial information in Brazil regarding all listed companies (including the many SOEs) has substantially improved investor confidence in the business marketplace. Between 2001 and 2012, total market capitalization of BOVESPA grew 10-fold, from $185 billion to $1.5 trillion and by the end of 2015, the BOVESPA exchange included more than 350 public companies. Many U.S. foreign direct investments into Brazil occur via the BOVESPA, including U.S. MNCs and U.S. institutional investors acquiring or investing in Brazilian listed companies, including SOEs (BOVESPA, 2017; Filho, 2017).
Many of the largest businesses in Brazil (including SOEs) have placed securities filings on U.S. exchanges, more so than on any other exchanges in Europe or Asia. For example, as of early 2016, more than 75 firms in Brazil have listings on the U.S. Securities and Exchange Commission (SEC) or over-the-counter exchanges. As a result, U.S. financial reporting, controls, and corporate governance practices became a common frame of reference in capital markets readiness of companies in Brazil. Historic shareholders in BOVESPA have also included U.S. exchanges, further helping BOVESPA's classifications of corporate governance to evolve with close reference to U.S. requirements. Similarly, as BOVESPA has begun to offer depository receipts in Brazil, U.S. MNCs have been the first issuers (Santana, Rathke, Lourenço, & Dalmácio, 2014).
The evolution of the financial management and governance infrastructure in Brazil has also provided confidence for international institutional investors to make passive investments in Brazil, and elsewhere in Latin America. For example, between 2009 and 2014, portfolio investment has been estimated at similar levels to traditional FDI, meaning nearly half of the approximately $350 billion invested into Latin America annually. The volatile nature of institutional investor flows requires careful monitoring by the Central Bank of Brazil (CEPAL, 2016; French & Li, 2012).
Furthermore, Brazil has successfully enabled private equity investments, resulting in additional FDI/private capital flows and further impacts on management and governance of Brazil's businesses. From 2005 to 2010 it is estimated that total private equity flows to Brazil grew from $8 billion to $41 billion, and in 2012, of the $7.9 billion invested by private equity (PE) in Latin America, approximately $5.7 billion was destined for Brazil. Private capital firms are enhancing Brazil's corporate governance and financial management, which are often derived from U.S. private capital markets practices (Fonseca Minardi, Ferrari, & Tavares, 2013; Latini, Fontes-Filho, & Chambers, 2014; C. F. Silva, 2014).
Additional large-scale institutional investment in Brazil relates to public–private partnerships, (PPPs), mainly for infrastructure. The Brasilia consensus regarding state-led development recognizes that the country's infrastructure needs cannot be met by public spending alone, and therefore PPPs have attracted increasing support in legal frameworks and amounts promised. Notwithstanding the declining completion rates and challenges to improving implementation, private investment in Brazil's infrastructure has been significant at federal, state, and city levels, estimated at nearly 700 projects worth more than $435 billion between 1990 and 2013. As a result, a significant percentage of the public civil service and private sectors in Brazil have had experience with the planning and execution of PPPs. However, Brazil's infrastructure requires higher levels of commitment and success. Completion levels have lagged as Brazil's corruption scandals hampered both the government, as well as various family-led industrial companies in the infrastructure industries. Infrastructure investments planned in Brazil's recent Growth Acceleration Program, or PAC, grew to the following levels of commitment and estimated completion: PAC 1 of $250 billion estimated at 50% completed; and PAC2, plus the extra PAC for the 2014 World Cup, of more than $900 billion estimated at 10% completed. Historically, in regards to the bidding for private investment in PPPs, the tendency has been for companies in Brazil to be awarded bids. Foreign investors' concerns have included low formal rates of return, weaknesses in planning and implementation management, and risks of partners abandoning projects. Since the 2015 recession, both the administrations of Dilma Rousseff and Michel Temer advanced measures to attract more foreign investors to PPPs in Brazil (Gouvea, 2012, 2014; Gouvea, & Montoya, 2014a,b; Gouvea, Kapelianis, & Montoya, 2014).
While considerable progress has been made in developing Brazil's business marketplace and capital markets, with significant reference to the United States, a necessary observation regarding business uncertainties is that many elements of the financial market infrastructure in Brazil are likely to be adopted in bureaucratic form, with further substantive change to follow later. As examples, in financial reporting and corporate governance businesses in Brazil tend to be slow to fully integrate new rules, due to the internal political dynamics of state ownership or family ownership. Brazil's civil legal system is generally regarded as having a robust commercial law framework but is notorious for its uncertainties and administrative delays. Tax authorities in Brazil also generally remain blatantly revenue driven, instituting new taxes and choosing form or substance depending on revenue benefits. The promise of Brazil's market size continues to be balanced against risks of economic and political instability, plus requirements for deep local knowledge and relationships (Spencer Stuart, 2016; Veirano Advogados, 2014).
4 OPPORTUNITY FOR A TRADE AGREEMENT BETWEEN THE UNITED STATES AND BRAZIL
The U.S. government recently characterized the relationship between the United States and Brazil as including various bilateral mechanisms, ranging from formal agreements, dialogues, and working groups, as part of a “strong, dynamic and growing partnership.” Since Brazil remains a country with few, and older, bilateral agreements compared with other large countries, the United States and Brazil have precious few bilateral agreements actually in force. This calls into question whether the myriad of U.S.–Brazil bilateral dialogues and working groups are merely well-intended activities, or whether they can be the basis for a more formal and robust bilateral relationship between the two largest countries of the western hemisphere. The two governments now have more than 20 such groups increasing cooperation in areas ranging from Global Partnership, Defense, Criminal Investigations, Economics and Finance, Trade and Investment, Energy Security, and Climate Change—including various groups considered relevant to the increased movement of trade, investment, and people. Recent momentum in the U.S.–Brazil trade and services relationships positively spurred the two governments to initiate a 2011 Economic and Trade Cooperation Agreement, or ECTA—a best-efforts commitment to ongoing dialogue about trade, investment, and other economic and social issues, including the facilitation of public–private cooperation (Sennes, 2015; U.S. Embassy Brazil, 2016).
For a new era in the U.S.–Brazil governmental relationship, the 2011 ECTA dialogues should lead to head-on bilateral negotiations and reprioritization from both sides. In the United States, the dispersion of the U.S.–Brazil relationship across numerous federal agencies generates recommendations for joint executive and congressional branch sponsorship for a series of bilateral agreements and commitments, or even a new “interagency Czar.” In Brazil, the ministries of Foreign Relations and Finance must jointly lead any commitments to the U.S.–Brazil relationship. Given the continuing 2017 economic and political instability in Brazil, it seems likely that the next opportunity for US-Brazil public re-alignment will be after the 2018 Brazil elections, when the two countries can mutually benefit from negotiating and ratifying new international trade and investment and tax agreements, as well as further increasing U.S.–Brazil public–private cooperation, as described below.
Recent government policies in Brazil have reduced protectionist trade measures that dated from Brazil's earlier eras of import substitution policies, but the World Trade Organization (WTO) still views Brazil as protectionist in its international trade policies. Evidence of Brazil's protectionist trade posture includes frequent WTO claims against Brazil; paucity of bilateral or regional trade, investment, and tax agreements; low levels of Global Value Chain activity in Brazil; and difficulties associated with operating global business models across Latin America, with a base in Brazil.
At the WTO level, Brazil continues to receive and lodge complaints relating to various developed and emerging countries, including the United States and the European Union. On average, Brazil's import tariffs on agricultural and nonagricultural products are 10% and 14%, respectively, as compared with averages in the European Union of 14% and 4% and averages in the United States of 5% and 3%. In regards to nontariff barriers, Brazil's government has required national credentials (in the case of public–private partnership concessions or national content in the case of equipment provided to Petrobras). Conversely, the United States maintains protectionist trade barriers for certain goods and industries important to emerging-market countries, including Brazil. Since Brazil's severe economic downturn began in 2015, the administrations of both Rousseff and Temer reduced Brazil's protectionist barriers in attempts to stimulate economic recovery (WTO, 2016).
With difficulties in reaching new global trade agreements, recent trends have shifted to bilateral trade agreements and superregional trade agreements that move beyond trade to include investment and intellectual property protections, services, competition, and other standards. The United States has now 20 bilateral trade agreements, often covering services and other matters (including 11 countries in Central and South America). Until recently, the United States was driving superregional trading blocs such as the Trans-Pacific Partnership (TPP), involving 12 countries; the Trans-Atlantic Trade and Investment Partnership (T-TIP), involving the United States and 28 European Union countries; and the Trade in Services Agreement (TiSA), involving 23 countries. It was further noted that shared cultural and business ties argue for a free trade agreement among the United States, the European Union, and Mercosur. However, recent public opinion in developed countries has trended forcefully against international trade liberalization, as evidenced by nationalist votes for Brexit in the United Kingdom, and election of the new Trump administration in the United States. The new Trump administration has adopted various protectionist perspectives regarding free trade in revisiting U.S. bilateral, regional, and global trade commitments. With the United States' focus shifting to bilateral trade dialogue, the next regional and global trade initiatives seem likely to be led by either the European Union or China (Aznar, 2013; OECD and World Bank, 2015; Stephenson, Ragoussis, & Sotelo, 2016; United Nations Conference on Trade and Development [UNCTAD], 2014; Williams, Dolven, Fergusson, Manyin, & Morrison, 2016).
Brazil has less than 15 bilateral and regional trade agreements, (generally older and only for trade in goods), with its Mercosur partners of Argentina, Bolivia, Paraguay, Uruguay and Venezuela—and in turn a few Mercosur free trade accords with various Central America, South America, and Middle Eastern countries. When earlier U.S. administrations were advocating a Free Trade Agreement of the Americas, policymakers in Brazil preferred to strive for a South American Free Trade Agreement, a bilateral trade agreement with the European Union and closer ties to China's economy. Meanwhile, increasing politicization of Mercosur led South America's dynamic economies of Chile, Colombia, Peru, and Mexico to create their own trading bloc (the Alliance of the Pacific), enter into bilateral agreements with the United States, and then join TPP and TiSA negotiations. Currently, no administration in Brazil has yet been able to move beyond procedural negotiations for a bilateral or Mercosur trade agreement with the European Union. Finally, as China became a major trading partner, Brazil found itself exporting mineral and agricultural commodities, while China's imports into Brazil included significant amounts of manufactured products. Commentators argued that Brazil missed opportunities to improve its productivity and international competitiveness by not entering into updated bilateral trade agreements or joining regional trading blocs such as TPP or TISA (Gouvea & Montoya, 2014b; Thorstensen, 2014).
In regards to the G20 and World Bank's Global Value Chain (GVC) measures of trade productivity, Brazil's relatively low GVC results are likely attributable to both the size of Brazil's domestic market and the low level of Latin American regional business integration involving Brazil. Comparatively, in recent years, China's trade policies have resulted in improved research and development (R&D) and production capabilities as measured by the new GVC measures (Blyde, 2015; OECD and World Bank Group, 2015).
For inbound MNCs striving to operate regionally in Latin America, Brazil's absence of trade agreements, protective trade policies and high taxes, and legal barriers generally mean that it will take time to integrate the region. U.S. MNCs have a long history of operating in Brazil and regionally, as compared to other MNCs operating in Brazil. For the increasing concentration of MNC's Latin American regional headquarters based in Sao Paulo, this commonly means first implementing global business models within the complex Brazilian business environment, while separately exploring linkages with the rest of South America or Latin America. Businesses headquartered in Brazil contribute to GVCs via export or import activities plus outward FDI (De la Torre, Esperanca, & Martinez, 2011).
In 2014, Brazil was the ninth-largest trading partner of the United States, falling to 14th largest by 2016. Recent top three markets for goods trade in Brazil have been with the European Union, China, and the United States—both for exports and imports—while Argentina also remains important (Gouvea & Montoya, 2013).
In recent decades, trade relations between the United States and Brazil have increased significantly, peaking in 2014 before Brazil's recession drove trade down for 2015 and 2016. U.S. bilateral trade with Brazil has been increasing faster than the United States' growth with many other countries in Latin America, and around the world. In 2014, the total trade in goods and services for U.S.–Brazil was $109 billion, comprised of trade in goods of $72 billion, and trade in services of $37 billion. By 2016, two-way trade had dropped to $88 billion, consisting of trade in goods of $56 billion, and trade in services of $32 billion (BEA, 2017; Hornbeck, 2014; USTR, 2017).
In regards to trade in goods, between 1995 and 2005, U.S. merchandise exports to Brazil generally remained stable, while U.S. merchandise imports from Brazil steadily increased, reflecting Brazil's expanding domestic economy. From 2005 through 2014, bilateral trade volumes accelerated and the trade balance shifted in favor of the United States—as U.S. merchandise exports to Brazil grew even faster than U.S. merchandise imports from Brazil. For 2015 and 2016, Brazil's recession brought trade volumes down precipitously (Ministerio da Industria, Comercio Exterior e Servicos, 2016; USITC, 2012).
U.S. exports to Brazil generally involve machinery, aircraft, electronics, optical and medical instruments, and petroleum products. Conversely, Brazil's exports to the United States involve agriculture, crude oil, vehicles, electronics, machinery, and airplanes. Close to 75% of Brazil's exports to the United States are semimanufactured and manufactured goods, contrasted with the Brazil–China trade relationship, where close to 95% of Brazil's exports to China are natural-resource-based goods (Jank, 2008; Ministerio da Industria, Comercio Exterior e Servicos, 2016).
In regards to services, U.S. exports of services to Brazil increased from US$ 5.1 billion in 2002 to US$ 32 billion in 2016. Major categories of services from the United States to Brazil included tourism, transportation, telecommunications, and intellectual property. In 2014 alone Brazilians spent US$ 13 billion in U.S. travel expenses (USTR, 2017).
The United States is also a major destination for Brazil's exports of services, (accounting for close to 49% of Brazilian exports, compared to only 2% for Mercosur). In various years between 2013 and 2016, Brazil's annual exports of services to the U.S. market totaled US$7 billion. In addition to financial and other business services, Brazil service exports to the United States include creative services, such as software and games (Ministerio da Industria, Comercio Exterior e Servicos, 2016).
In 2014, Brazil's exports lost market share in four out five of Brazil's top exporting markets, or 60% of Brazil's total exports, including in the European Union, China, Argentina, and Japan. The U.S. market was the only market where Brazil saw an increase in Brazilian imports of close to 12%. Brazil's Rousseff administration sought closer trade relations with the United States to support Brazil's export performance. With the 2015 recession, Brazil became more focused on bilateral trade relations with the United States In 2015 several trade-related measures were agreed on to expedite and foster U.S.–Brazil bilateral trade, including renewal of the U.S. Generalized System of Preferences. The U.S. Customs and Border Protection Agency and Brazil's Customs Authorities agreed to expedite imports and exports (Arslanian, 2016; Fagundes, 2015; Pupo, 2015).
Nevertheless, it is generally common for countries with long trading histories to enter into either a bilateral or regional trade agreements. Since 2015 Brazil has been experiencing the world's largest decline in levels of real exports and imports, requiring a recommitment to international trade flows, including with the United States, and to further develop productivity and international competitiveness. Private-sector trade momentum encourages the United States and Brazil to negotiate and ratify a new bilateral trade and services agreement. In the same spirit, to further access international trade flows, Brazil should consider joining regional trade blocs (OECD, 2016).
5 OPPORTUNITY FOR A U.S.–BRAZIL INVESTMENT AGREEMENT
FDI in Brazil is well chronicled. During the 20th century, British industrialists and MNCs were the first investors, succeeded by U.S. industrialists and MNCs, and finally overtaken by military governments that emphasized state-ownership and industrial policies. Since democratization in 1985, Brazil steadily has attracted inbound FDI, generally welcoming the foreign currency reserves but occasionally enacting taxes or otherwise regulating flows for foreign exchange or budgetary reasons (Baer, 2014).
While the European Union and the United States consistently have led global FDI inflow rankings, joined recently by China, inward FDI flows into Brazil have steadily risen since the mid-1990s, peaking at nearly $100 billion in 2011 before leveling at the $55–$75 billion range. Within Latin America, Brazil and Mexico have steadily attracted most FDI inflows. Since 2014, Brazil has declined in FDI attractiveness, such that in A.T. Kearney's 2017 Foreign Direct Investment Confidence Index, Brazil slipped to 16th (from 6th) as recently as 2015. Nonetheless, Brazil's inbound FDI has remained resilient for 2015 and 2016, due to long-term commitments by inbound MNCs and private capital investors seeking value purchases in Brazil's weakened economic conditions (A.T. Kearney, 2017).
Some commentators argue that institutions and policies in Brazil have been ineffective in attracting innovation and export-oriented inward FDI, when compared for example to China and India. As evidenced beyond the GVC measures described earlier, international investment protection agreements generally are considered to support FDI commitments, and in the 1990s Brazil negotiated 14 bilateral investment treaties (BITs). However, Brazil's Congress never approved them due to concerns with arbitration, most-favored-nation, and expropriation compensation clauses. Similarly, in 2015 a new model of South–South BIT was entered into by Brazil with Mozambique and with Angola, and Brazil also entered into investment cooperation and facilitation agreements with Chile, Colombia, Mexico, and several African countries—all still pending approval by Brazil's Congress. In summary, inbound FDI in Brazil is generally regarded as committed due to the size and opportunity of Brazil's marketplace, not due to the global or regional competitiveness of Brazil. Comparatively, the United States has BITs with 41 countries and includes similar investment protection commitments within 12 of its 14 regional trade and services agreements, and in the recently proposed regional agreements such as TPP, TTIP, and TISA (Akhtar & Weiss, 2013; Campello & Lemos, 2015; Egan, 2015).
Regarding outward FDI, for many years the European Union and the United States have been leading outward investors, again joined recently by China.
Outbound FDI has been somewhat modest given the size of Brazil's economy and recent BNDES support for national champions that are generally SOE MNCs or family-led industrial groups. While Brazil and Mexico lead Latin American's outbound FDI, using measures such as comparative GDP levels. Brazil's MNCs do not appear proportionately among the list of EM MNCs or the “multi-Latina” companies emerging from Chile, Colombia, and Mexico.) In the 2016 Fortune list of the Global 2000 Businesses, there are 19 companies representing Brazil, compared to other BRICS country results of China with 232 companies, India with 56 companies, Russia with 25 companies, and South Africa with 13 companies. In comparison with other Latin American countries, Brazil's companies represent a significant share of the “Global Latinas,” but the largest proportion of multi-Latina companies by far are Mexican companies, with the second-largest groups of countries including companies from Brazil, Chile, and Colombia (Deloitte). The scale and sophistication of Brazil's market generally prepares managers to lead businesses beyond Brazil's borders, as Latin American regional managers often do for inbound MNCs (Forbes, 2016; Ludena, 2016; Sheng & Carrera, 2016).
FDI flows and stocks between Brazil and the United States rose steadily between 2000 and 2012, according to the different perspectives reported to UNCTAD by Brazil's Central Bank and the U.S.’s Bureau of Economic Analysis (BEA). From 2013 to 2015, there continued to be strong FDI inward flows of $6.5 billion to $9 billion, and stocks of $65 to $75 billion into Brazil from the United States, but declining FDI inward flows and stocks into the United States from Brazil.
In the case of MNC investments, FDI flows and stocks reflect net positions after repatriations and reinvestments. Thus, additional perspectives on FDI reveal further insights. In recent years, U.S. FDI into Brazil has mostly been in sectors such as automotive, renewable energy, metals, communications, food, financial services, and semiconductors. From 2005 to 2010, U.S. MNCs acquired more than 450 companies and made more than 300 greenfield investments in Brazil. As a result, the United States often has the highest FDI inward stock invested in Brazil's economy—and Brazil represents more than half of the United States' FDI inflows into South America. Generally, U.S. businesses have earned “reasonable” profits from Brazil's investees and have repatriated, or reinvested, significant amounts of such earnings, subject to currency and tax issues. While other countries have recently increased annual amounts of FDI into Brazil (particularly China in the infrastructure and natural resources industries), the cumulative FDI stock of U.S. companies in Brazil has remained significant to Brazil's economy for many decades. The longstanding maturity of U.S. MNC operations in Brazil has meant higher levels of technology transfer, local management, and integration with other Latin American operations, which are factors that increase the productivity and international competitiveness of Brazil's economy (Apex-Brasil; 2015; Brazil-U.S. Business Council, 2013; Hennart, Sheng, & Pimenta, 2015).
Conversely, companies in Brazil have increased their investments in the U.S. market (in the past decade)—mostly in energy, software, and information technology (IT) services, aerospace, and manufacturing of metals, plastics, textile, and construction materials.
Notwithstanding these MNC investments and other private capital market bilateral investments (as described earlier), Brazil and the United States have never successfully negotiated an investment protection agreement. Since 2015, the United States and Brazil's governmental agencies responsible for FDI, SelectUSA and Apex-Brasil, agreed to cooperate more closely. If Brazil and the United States come to an agreement and ratify a bilateral or regional trade and services agreement, it should include investment protection provisions, or Brazil and the United States should separately agree and ratify a BIT that applies to all forms of FDI.
6 OPPORTUNITY FOR A U.S.–BRAZIL BILATERAL TAX AGREEMENT
Taxes are also a significant factor in both Brazil's and the United States' business marketplaces and remain an important financial matter in the U.S.–Brazil bilateral relationship, particularly in the absence of a bilateral income tax treaty.
As background, the U.S. tax system is characterized as having comparatively high income tax rates on businesses, significant individual tax revenues, and an absence of federal value-added taxes—U.S. states and municipalities impose sales taxes instead. Furthermore, U.S. tax policy is an important political issue focused on macroeconomic policy positions and business competitiveness. U.S. businesses have a significant influence on tax policy debates and outcomes via lobbying in the legislative and regulatory processes. In turn, the U.S. federal tax system contains provisions that incentivize specified economic and investment activities—or benefit geographic districts and U.S. businesses. U.S. tax reform has therefore remained elusive in recent years. U.S. tax administration is generally regarded as complex and relatively efficient. The relationship between U.S. tax authorities and taxpayers generally focuses on compliance and collaboration, to minimize adversarial conflict (EY, 2017).
From a competitive standpoint, while most countries recently reduced the corporate income tax rate to 25% or less to stimulate investment, the U.S. federal corporate income tax rate remains relatively high at 35%. While most countries are exploring ways to align international tax planning rules under the OECD/G20 Base Erosion and Profit-Shifting projects (BEPS), U.S. MNCs thus far have enjoyed U.S. international tax and financial statement rules that allow them to defer overseas earnings from U.S. taxation, thereby achieving significant financial statement benefits of low effective global tax rates. The early tax proposals by the new Trump administration, include reducing income tax rates, reducing taxes on repatriated income, and increasing tariffs on imports (OECD, 2013a, b).
By comparison, the tax system in Brazil is regarded as one of the most onerous in Latin America and the most administratively burdensome in the world. There are a large number of taxes in Brazil, and the burden of income taxation falls significantly on registered businesses. Brazil was one of the first countries to enact a value-added tax but later efforts to reform it have failed for political and revenue reasons. Thus, Brazil continues to have highly inefficient federal and state value-added tax systems. Labor taxes in Brazil are also the highest in the world (estimated at more than 70%), while other countries, such as France and China, are at just over 40%. Recent changes in the tax and financial accounting systems in Brazil clearly have the potential to reshape the tax system. However, the main political drivers for social programs and tax revenues show no signs of change—and there appears to be very little political capacity for tax reforms. In recent years, tax policy in Brazil generally has been driven by political decisions relating to budget demands, together with targeted protectionist trade measures (Rodrigues, Soares, & Castro, 2013; Paes, 2013; World Bank, 2016).
Taxes can have a significant impact on business operations and results, and historically taxes were a major uncertainty during due diligence in acquisitions of businesses by foreign investors in Brazil. The relationship between taxpayers and tax revenue authorities in Brazil is generally regarded as uncooperative and not collaborative. Tax administrative filings and procedures in Brazil include many types—antiquated, complex, uncertain, and even highly digitized. Businesses in Brazil commonly use tax, accounting, or constitutional arguments to challenge taxes via the administrative and litigation process, ultimately with positive results. In comparison with other countries, Brazil has unique international tax rules, such as formulaic rules for transfer pricing, an income tax treaty network that is outdated and overreaching antideferral rules for Brazil's MNCs. Since Brazil is considered a high-tax jurisdiction, for U.S. multinational companies, it is isolated as a likely source of double-taxation without potential for relief from symmetric systems or treaty provisions, not as an opportunity for deferral of low-taxed earnings or as a regional holding company (Ilarraz, 2014; Martins & Souza, 2014; Rocha, 2014; L. L. Rodrigues, Schmidt, & dos Santos, 2012; C. F. Silva, 2014).
Brazil's Congress often delays approval of tax agreements negotiated and agreed by Brazil's Ministry of Finance. The Congress finally ratified both a 2007 tax information exchange agreement with the United States as well as a 2015 tax information exchange agreement, known as FACTA, that is the common basis of combatting individual income tax evasion among OECD/G20 countries, although it has yet to ratify a bilateral Social Security Agreement that will benefit citizens and businesses of both countries. Both the United States and Brazil are participating in the OECD's global tax projects involving BEPS, and the multilateral competent authority agreement that standardizes MNC tax reporting (OECD, 2016; A. F. Silva Passos, Gallo, & Peters, M. 2013).
Most importantly, the Brazil and U.S. governments have never reached agreement on an income tax treaty, even though the United States has an extensive network of consistently formulated treaties with 65 countries, and Brazil has a wide array of older bilateral income tax treaties with nearly 30 countries. Of the BRICS, Brazil is the only country without an income tax treaty in force with the United States or the United Kingdom, which has 120 bilateral income tax treaties. In another example of its “split personality,” Brazil generally insists on tax sparing benefits in treaties with advanced economies, which the United States and other countries are unwilling to grant. The absence of a U.S.–Brazil income tax treaty means that citizens incur double taxation and businesses suffer higher withholding taxes on remittances, as well as taxes that are normally eliminated. It also means that there are fewer mechanisms to resolve uncertainties or double taxation that arise from differences in the two income tax systems. The levels of complexity and asymmetry of the Brazil and U.S. tax systems (combined with the significant levels of trade and investment between citizens and businesses of the two countries) recommends agreement and ratification of a new U.S.–Brazil bilateral income tax treaty as well as ratification of other tax accords (Rittner, 2015).
7 OTHER OPPORTUNITIES FOR U.S.–BRAZIL PUBLIC–PRIVATE COOPERATION
7.1 Public–private defense, anti-terrorism and anti-crime
Securing Brazil's borders and shores, and protecting the Amazon region are of paramount geostrategic importance to Brazil. For example, Brazil's “Tri-Border” frontier with Argentina and Paraguay has long been a region for illegal smuggling of firearms and drugs, and Colombian paramilitary and drug traffickers also pose additional challenges for Brazil to secure its borders.
Encouragingly, Brazil and the United States signed the U.S. Brazil Defense Cooperation Dialogue in 2012, and in 2015 signed additional agreements, to expand efforts in defense cooperation and military related information security. These agreements allow for further consolidation of exchange of bilateral information, trade in defense hardware and software, and trade in defense technologies and innovations. A bilateral 2016 Defense Industry Dialogue will further help the U.S. defense industry offer a number of solutions for Brazil's defense needs. For instance, Boeing and Embraer are currently engaged in a number of joint aerospace projects. Brazil is also reviving the agreement for the joint Brazil–U.S. use of the Alcantara satellite launching base. The global aerospace industry is going through substantial changes. Brazil should therefore capitalize and become an active player in the industry (Gielow, 2017).
Joint efforts to develop technological solutions and innovations to prevent illegal smuggling of drugs, natural resources, terrorism threats, and border security threats can be prioritized cooperatively. The United States and Brazil have recently increased cooperative efforts on terrorism in connection with Brazil's hosting of major international events like the 2014 World Cup and 2016 Olympic Games. American software and hardware can also play a very meaningful role in helping to secure Brazil's borders (Downes, 2012; Jungman, 2016).
Finally, recent corruption scandals have alleged involvement of many businesses in Brazil, such as JBS and Norberto Odebrecht, that are also listed in the United States. Therefore, the U.S. Securities and Exchange Commission (SEC), FBI, and Department of Justice (DOJ) have been supporting Brazil's government on investigations and agreements with relevant SOEs and family-owned industrial groups (Dunn, 2017; Gouvea, Kapelianis, & Montoya, 2014; Rubenfeld, 2017;).
7.2 Sustainable development
Yale University's 2016 “Environmental Performance Index” ranks Brazil 46th and the U.S. 26th out of 180 countries, emphasizing Brazil's lack of a comprehensive approach, but also noting some recent progress on main environmental issues. Brazil's carbon footprint is large because of continuing deforestation of the Amazon region, increasing use of thermoelectric power plants dependent on diesel and coal, and a carbon-intensive transportation system that relies on trucks for close to 60% of cargo. In addition, low levels of sewage treatment and the poor quality of housing for the poorer population aggravates social and environmental challenges in Brazil. Carbon emissions from energy generation in Brazil are nearly 450 million metric tons, and expected to reach 800 million tons by 2030, so “emissions per person” guidelines and future targets also offer opportunities for joint cooperation between the United States and Brazil (Chiaretti, 2015; Gouvea & Montoya, 2014a).
The United States and Brazil have reduced greenhouse gas emissions substantially since 2004, and Brazil is committed to transition from a “brown” to a “green-based economy” (Roberts, 2015). In recent years, energy generation and agriculture contributed to 40% of greenhouse gases in Brazil compared to only 15% for deforestation. The 2015 Paris Climate Conference aimed at climate goals for the next few years, although these commitments may be weakened in the case of the new Trump administration, or prove unattainable in the case of Brazil. Brazil made ambitious commitments to reforest 12 million hectares of deforested land, implement a zero-deforestation policy, and increase the share of renewables in Brazil's energy matrix to between 28% and 33% by 2030. On top of the share of hydro power, in 2015, Brazil's percentage of renewables was around 9%. Unfortunately, deforestation continues in Brazil, while agencies such as the Amazon's Biotechnological Center have suffered from lack of funding and exchange of research projects. Increased attention to the commercialization of products developed based on the Amazon's regional fauna and flora can create new industries and jobs related to Brazil's biodiversity. Brazil and the United States are natural trade partners in clean energy trade and investments, and American companies offer competitive advantages in green technologies and innovations, both at the product and service levels (EPA, 2017; Roberts & Edwards, 2015).
7.3 Education and innovation
In the 2015, Program for International Student Assessment (PISA) performance, ranked Brazil, on average, 64th, and the United States 30th out of 72 countries, underscoring the desperate need for Brazil to improve the quality and reach of its primary and secondary educational system. In recent years, Brazil made important progress in some measures of primary education, yet huge challenges still remain (Gouvea, 2012; Veloso, 2017).
Educational cooperation under Brazil's Scientific Mobility Program, and U.S. programs such as 100,000 Strong in the Americas and Education, create opportunities for higher education in Brazil and the U.S to develop joint programs. A greater exchange of educational experiences between the two countries has the potential to provide Brazil with important international know-how, but funding challenges in Brazil will require new forms of public–private cooperation.
In regards to innovation, Brazil is only spending on average 1.2% of its GDP on R&D and innovation, which is well below the country's needs to address its complex economic, social, and environmental challenges. The 2016 WIPO Global Innovation Index dropped Brazil's global ranking from 46th to 69th (the lowest among the BRICS). It is noteworthy that Brazil consistently ranks best among Latin American countries. An excellent example of corporate R&D by a SOE-MNC in Brazil was the recent global business innovation award to Petrobras for excellence in deep-sea oil and gas exploration and production. Meanwhile, U.S. MNCs with subsidiaries in Brazil conduct levels of R&D that are not at the same levels as in China or India, but the amounts have been increasingly significant. Thus, the longer and deeper commitments of U.S. MNCs in Brazil extends to levels of R&D, further helping to develop Brazil's productivity and international competitiveness. Moreover, efforts to deepen joint R&D and innovation between Brazil and the United States's R&D innovation agencies, such as the “CubeSat” bringing together the U.S. National Aeronautics and Space Administration agency (NASA) and Brazil's Instituto Nacional de Pesquisas Espaciais (Inpe) and Instituto Tecnologico da Aeronatica (ITA) may constitute the blueprint for further cooperation in innovation and R&D private and state-funded between the U.S and Brazil agencies (Egan, 2015; Gouvea & Kassicieh, 2012; Matsuura, 2017; Olavarrieta & Villena, 2014).
8 CONCLUSION
Public–private cooperation between the United States and Brazil can strengthen the relationship between two of the largest countries of the Western hemisphere. Private-sector links in culture and business provide momentum for the governments of Brazil and the United States to ratify trade, investment, and tax agreements and further cooperate across a range of interests for mutual benefit. Bilateral culture and business exchange in the private sector is closely related to successful bilateral public policy.
There are several opportunities for both countries to develop a closer political, economic, social and environmental bilateral relationship. The Trump administration has been keen in developing bilateral trade agreements, by withdrawing from the Trans-Pacific Partnership Agreement. The United States and Brazil should revisit the creation of a bilateral agreement. Segments of Brazil's industry, service, and agribusiness sectors would welcome such as move. For instance, the Trump administration could remove Brazil from the Generalized Preference List (GSP), further compromising Brazil's ability to expand its share in the United States' domestic market.
However, there are pending issues between the two countries. An agreement to sign several pending treaties could certainly move the countries close together. Brazil and the United States could sign a tax treaty, which would certainly improve economic and business transactions between the two countries. An investment treaty would also influence U.S. investors in relation to further investments in Brazil, making the business environment more competitive and attractive to U.S. investors. A visa agreement could also boost business and tourism between the two countries. If U.S. citizens were able to enjoy the same visa treatment that other Latin American countries offer to them and vice versa, this would highly benefit Brazil's economy.
Brazil and the United States can develop synergies in the areas of defense, where a number a U.S. defense contractors already play a role. Higher levels of transparency in Brazil's defense contracts will certainly attract more U.S. defense companies. A closer alignment of Brazil's defense forces with U.S. defense forces will certainly raise national security cooperation between the two countries. The co-participation of the United States in Brazil's Alcantara base could be the blueprint for the further cooperation between the two countries.
Brazil has also a lot to gain from developing closer innovation and R&D agreements with U.S. universities and research centers. At the environmental level, Brazil and the United States could expand their cooperation, including joint research projects in Brazil's Amazon region. The exchange of faculty, students, and researchers could foster the development of new ways to better manage and protect the Amazon region.
It is clear that there is an enormous potential for closer and further cooperation between the two countries. Improving relations with the United States is an important priority for Brazil.
Biographies
- Sam Fouad is an accountant and attorney with more than 30 years of experience in global business and education. Since 2014, Sam has been a professor of business and law in Brazil at Fundaçao Getulio Vargas in Rio de Janeiro and in the United States at the University of New Mexico's Anderson School of Management. Prior to 2014, Sam enjoyed a 30-year career at EY in various senior leadership roles, including as an international tax advisor for multinational businesses worldwide, as global vice chair of Tax & Legal Services, as global managing partner for people, and as an EY leader for Latin and South America. Sam is a citizen of the United States and Brazil, was educated primarily in the United States and has lived and worked in the United States, Asia, Latin America, and Europe.
- Raul Gouvea is a professor of international management at the FITE Department and Latin American studies at the Anderson School of Management, University of New Mexico. Professor Gouvea has been a consultant to the World Bank and consultant to a number of Brazilian federal agencies, foundations, and private companies. He has published in the areas of international trade, international business, innovation, creativity, indigenous entrepreneurship, and sustainability. He has created and chaired a number of international conferences dealing with sustainability-related issues (WITS, LIEGE), indigenous entrepreneurship (FIBEA), and sustainability and disability issues (SUDI).
