ACTION MEMORANDUM

TO: The next President of the United States

FROM: Luiz Felipe Lampreia

DATE: December 1, 2007

SUBJECT: Forging a Positive U.S.-Brazilian Agenda

Despite the generally good state of U.S.-Brazilian bilateral affairs, our two governments lack a positive joint agenda. Above all, this is so because our national priorities do not coincide. Since 9/11, the United States has placed the fight against terrorism at the top of its agenda. Terrorism, however, is not a major problem for Brazil, which has been largely spared from this scourge. Energy security is a key, continuing concern for the United States; Brazil is basically self-sufficient in energy, thanks to abundant hydro-electric power plants, biofuels and oil resources. Likewise, immigration is important for the United States, but not for Brazil. Even where our governments agree concerning broad social and political trends in Latin America, they naturally approach them differently: Brazil, as an insider; the United States, as an outsider.

Brazil’s principal priorities in international relations are commercial and economic in nature. So while there may be limited opportunities to pursue a joint agenda on security or political fronts, there is plenty to be gained by both sides from a joint agenda on economics and trade. The United States is a crucial partner for Brazil. It buys 30 percent of all Brazil’s exported manufactured goods and is a major source of direct investment and financing. American companies have become increasingly vital partners in the international expansion of many major Brazilian companies. And the benefits of our trade are very much two-way. Brazil imports more from the United States than from China or India, and it is the largest market for U.S. exports in South America. It is also the recipient of more direct U.S. investment than Mexico in recent years.

The growing economic interdependence of the United States and Brazil can be strengthened and accelerated through a five-point agenda for policy coordination. The first point establishes some broad guidelines on the political and security fronts, while the following four points propose specific actions each country can take to nurture the U.S.-Brazilian economic relationship.

1. Don’t take Chávez’s bait. Strengthening democratic stability and preserving peace in Latin America must remain the cornerstones of U.S.-Brazilian cooperation. Brazil and the United States cooperated during the 1990s in two important instances: achieving the 1998 peace treaty between Peru and Ecuador (the last South American countries to go to war); and preserving democratic order in Paraguay after an attempted coup d’étât in 1997. We must work together in the future whenever threats to democracy and peace arise, but we must not wait for these crises to arise. One way to do this is to place a higher priority on fighting narcotrafficking and organized crime in the region through our specialized government agencies.

In this regard, special mention must be made of Venezuela, which has in recent months become more active as a conduit for drug smuggling into the United States and Brazil. We should certainly redouble our joint efforts to reverse this trend, but we must avoid linking such efforts to any high-profile political rhetoric. Although Hugo Chávez is certainly a drag on the process of democratic consolidation in the region, we must avoid becoming obsessed with his actions. Venezuelan democracy may be clouded by Chávez’s dictatorial methods, but his influence outside the Andean region is virtually non-existent. Creating an explicitly anti-Chávez “front” in South America would focus energy and attention on Chávez in a way that would help him domestically and regionally. The Venezuelan dictator’s cycle will eventually come to an end, as it does for all populist strongmen. Until it does, we must be careful not to fuel his politics of grievance and provocation.

2. Promote Brazil’s profile. Brazil has long resented what it views as insufficient attention by the United States. With the consolidation of its democratic institutions and economic stability, Brazil is now ready to play a larger role in the world. Clear American support for a larger Brazilian role in global decision processes is essential for Brazil’s admission to an expanded G-8 and the OECD. To be thus promoted up the ranks of nations would be a major source of pride for Brazil (as well as a great responsibility). It would have a very deep and positive impact on Brazilian perceptions of U.S. friendship.

3. Forge new trade agreements. Brazil and its Mercosul associates are currently the only Latin American countries without some form of preferential trade agreement with the United States. This makes little sense given the mutual importance of our economic relationship. Therefore, a regional trade agreement should be concluded as soon as possible.

Clearly, achieving such an ambitious agreement will not be easy, particularly without U.S. presidential “fast track” trade authority. But it is not impossible, if both sides make some compromises. Support for a deal in Brazil can be reinforced by U.S. reassurances that Washington will remain a vital source of financial support. (Brazilian leaders know that during the foreign exchange crisis of 1999 the U.S. Treasury played a key role in preventing the collapse of Brazilian foreign accounts.)

Surely, one element in a trade deal should concern alternative energy sources. Brazil and the United States are at the forefront of developing renewable sources of energy, particularly in biofuels, and we can both benefit greatly from closer cooperation. Together, we should launch an ambitious program for R&D; in this area, and we should promote regulatory and marketing initiatives to expand the role of biofuels and other non-petroleum energy sources. As a part of this effort, the United States should open up the American market to Brazilian ethanol, which is now severely taxed by U.S. customs authorities at the behest of the U.S. agribusiness lobby.

4. End double taxation. Even without a new trade agreement, we should find a way to avoid double taxation in all transactions between our countries. Several countries that compete directly with Brazil for U.S. investment dollars—such as China, Russia and India—have such agreements with the United States. The absence of an agreement already adversely affects investment decisions in the United States, but the mutual disadvantages of the status quo can only grow as Brazilian firms increase their investment in the United States.

5. Double educational exchanges. Expanded cooperation in the field of higher education could also bring our two nations closer. In the 1970s, the Fulbright program enabled a substantial number of Brazilian students to receive access to important universities in the United States. This program should be expanded, and an incentive package for U.S. students to study in Brazil should be devised. A two-way program would aid both countries, particularly if it is concentrated in economically relevant areas such as science and technology, engineering, and management. We should set a goal of doubling our educational exchanges over the next five years, and our respective education ministries should set up a new joint working group to develop a plan to do so.

This is a broad, ambitious agenda, but it is a feasible one if the leaderships of our two countries get behind it. It would constitute a major step forward in consolidating a balanced and dynamic relationship between Brazil and the United States. Our countries do well at responding cooperatively to sudden regional challenges. We have so far failed, however, to drive our cooperation forward in the absence of crises. It is time to take our relationship up to the next level. It is time to seize an opportunity of our own making.