Brazil, US executives seek to make up lost ground on trade

Dow Jones | October 10, 2007

Brazil, US Executives Seek To Make Up Lost Ground On Trade

— By Gerald Jeffris, Dow Jones Newswires

BRASILIA -(Dow Jones)- After the failure of talks on the Free Trade Area of the Americas and slow progress in advancing the Doha round agenda of the World Trade Organization, executives from Brazil and the U.S. have decided to take the matter of improving trade relations between their countries into their own hands.

This month, executives from top companies on both sides will hold two events - one in Brasilia and another in Washington - to try to set a path for advancing trade integration. On Thursday, trade authorities in Brasilia will host a meeting of top executives to discuss integration. And later this month on Oct. 16 and 17, the U.S. Chamber of Commerce will hold a seminar of the U.S.-Brazil Business Council in Washington.

According to their planners, the events will address trade integration matters that have been neglected in the wake of stalled bilateral and multi-lateral talks between the countries.

"When there are subjects that deserve strategic vision, commercial relations have greater relevance and deepen," said Henrique Rzezinski, vice president of international affairs for Brazilian aircraft manufacturer Embraer (ERJ). "In the case of the U.S. and Brazil, we want to identify what subjects can promote an upgrade in relations."

Organizers say these subjects will include industrial property protections; the high tax burden in Brazil; the need for a bilateral tax treaty; problems related to logistics, including roads, ports and energy supply; and the red tape that affects trade.

Thursday’s event will include discussions among chairmen of high-profile U.S. companies, including Rick Wagoner of General Motors Corp. (GM), Bill Rhodes of Citigroup Inc. (C), Craig Barrett of Intel Corp. (INTC), Neville Isdell of Coca- Cola Co. (KO), Greg Page of Cargill Inc., Alain Belda of Alcoa Inc. (AA), John Faraci of International Paper Co. (IP) and Greg Brown of Motorola Inc. (MOT).

They will be joined by such Brazilian executives as Roger Agnelli of miner Companhia Vale do Rio Doce (RIO), Mauricio Botelho of Embraer, Jorge Gerdau Johannpeter of steelmaker Grupo Gerdau (GNA) and Jose Roberto Ermirio de Moraes of industrial conglomerate Votorantim (VCP).

The idea for Thursday’s event and the call for increased private-sector efforts at integration came during a meeting between Brazilian President Luiz Inacio Lula da Silva and U.S. President George W. Bush at Camp David earlier this year.

"We believe there are business opportunities in the Brazil-U.S. relationship that are being left on the table," said U.S. Commerce Secretary Carlos Gutierrez, who will be present at the event. "We are nowhere near the full potential of our relationship."

Brazilian industrial authorities said the demand among local companies for intensifying the relationship has come about as Brazilian companies begin to take on a more globalized role.

Brazilian companies invested about $1 billion in the U.S. in 2006, or around 10% of Brazil’s total foreign investment. From January to August this year, that number jumped to $1.79 billion, or about 24% of Brazil’s foreign investment. U.S. companies invested about $4.4 billion in Brazil last year, accounting for around 20% of all foreign investment in Brazil. In the January-August period, U.S. investment totaled $4.2 billion, or about 17% of the total.

"We are looking to create a competitive platform that can integrate with U.S. commercial flows and at the same time compete with industry from countries such as China," said Jose Augusto Fernandes, executive director for Brazil’s National Confederation of Industries, or CNI. "To attract investment in integrated production chains within individual industries, we need to work with ’just-in- time’ and thus need an efficient foreign commerce system."

Among such industries are companies like Embraer, which has grown over recent years to become the world’s fourth-largest aircraft manufacturer and accounts for about 5% of Brazilian exports to the U.S.

"We have a very intense relationship with the U.S...they are our largest clients and our largest suppliers," Embraer’s Rzezinski said. "We have an interest in everything from repair facilities, component centers and defense contracts there."

Among the more promising matters that could be taken up during the talks is hammering out the details of an accord on dual taxation.

"Previously when we discussed accords on dual taxation it was mostly only a concern for U.S. companies with investments in Brazil," said CNI’s Fernandes. " Its now also a problem for our companies in the U.S. that are paying more taxes than they should."

In addition, executives showed enthusiasm over working out international standards for growing biofuel and ethanol trade between the two countries.

The more complicated matter of resuming work on bilateral and Doha round talks that have come nearly to a halt will also be on the agenda at both events.

This, industry officials said, may involve concessions such as investment and intellectual property protection treaties, and import tax reductions on manufactured goods that so far the Brazilian side has been hesitant to put on the table.

And though there appears to be good will on both sides, industry leaders said time may be running short to cement a deal at the WTO that would have meaningful positive results for both sides.

"Either the Doha round is concluded by the end of the year or it may not be at all," cautioned Alcoa’s Belda. "During the next political cycle in the U.S. we could see a Democratic administration that is less interested in advancing these talks."

(Tom Murphy in Sao Paulo contributed to this report.)

source: Dow Jones News