Brazilian Trade Policy and the United States

Publication Date: February 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Coverage: Brazil

Abstract:

As the largest and one of the most influential countries in Latin America, Brazil has emerged as a leading voice for developing countries in setting regional and multilateral trade agendas. The United States and Brazil have cultivated a constructive relationship in pursuit of their respective efforts to promote trade liberalization, including attempting to broker a compromise with the European Union in the World Trade Organization (WTO) Doha Round and forming bilateral working groups on trade (and other) issues. Still, they approach trade policy quite differently, are at odds over how to proceed regionally with the Free Trade Area of the Americas (FTAA), and share concerns over specific trade policies and practices.

Brazil's trade strategy can be explained only in part by economic incentives. Its "trade preferences" also reflect deeply embedded macroeconomic, industrial, and foreign policies. Whereas U.S. trade strategy emphasizes the negotiation of comprehensive trade agreements on multiple fronts, Brazil is focused primarily on market access issues as they pertain to its economic dominance in South America. Brazil exercises this priority in all trade arenas, such as pursuing changes to agricultural policies in the WTO, expanding the Southern Common Market (Mercosul) in South America, and resisting the FTAA for lack of a balance conducive to Brazilian interests.

Brazil has a modern, diversified economy in which services account for 53% of GDP, followed by industry and manufacturing at 37%, and agriculture at 9%. Agribusiness (commodity and processed goods) account for some 30% of GDP, explaining Brazil's emphasis on agricultural policies in trade negotiations. Brazil is the world's largest producer of sugar cane, oranges, and coffee, and the second largest of soybean, beef, poultry, and corn. It is also a major producer of steel, aircraft, automobiles, and auto parts, yet surprisingly, a relatively small trader by world standards. The United States is Brazil's largest single-country trading partner.

Brazil is critical of U.S. trade policies such as the Byrd Amendment (repealed, but program in effect until October 1, 2007), which directs duties from trade remedy cases to affected industries, the administration of trade remedy rules, and what it considers to be discriminatory treatment in the U.S. expansion of free trade agreements in Latin America. It also objects to product-specific barriers such as tariff rate quotas on sugar, orange juice, ethanol, and tobacco; subsidies for cotton, ethanol, and soybeans; and prolonged antidumping orders on steel and orange juice. U.S. concerns focus on Brazil's comparatively high tariff structure, especially on industrial goods, Mercosul's common external tariff program, and Brazil's refusal to address issues of critical importance to the United States such as services trade, intellectual property rights, government procurement, and investment.

Despite these differences, both countries recognize the potential for important gains to be had from mutually acceptable trade liberalization at all levels. As a developing country with an opportunity for considerable growth in both exports and imports, however, Brazil may have the most to gain from addressing both foreign barriers to its trade, and unilaterally opening its economy further.