WTO Trade Policy Review of Brazil
Statement by U.S. Chargé d’Affaires Christopher Wilson
July 17, 2017
– as prepared for delivery –
Thank you, Chair.
The United States warmly welcomes the delegation of Brazil, led by Minister da Costa e Silva from the Ministry of External Relations. We would like to recognize the excellent work of the Secretariat and the Government of Brazil in compiling the comprehensive reports before us. The reports thoroughly detail Brazil’s key trade policy objectives since the government’s last Trade Policy Review in 2013, and they give us a more complete picture of Brazilian policies affecting trade. I would also like to take this opportunity to thank the discussant, Ambassador Gennady Ovechko, for sharing his views with us in the context of Brazil’s TPR.
The United States has always viewed Brazil as an important and valued trading partner. As the two largest economies and democracies in the Western Hemisphere, the United States and Brazil share important ties with respect to trade, capital flows, cross-border investment, and a wide range of educational, health, scientific and other joint activities. The United States and Brazil have established important mechanisms for discussing bilateral trade and investment issues, including the Commission on Economic and Trade Relations, the Commercial Dialogue and the Consultative Committee on Agriculture, to name a few.
We have heard this morning from the Chair, Discussant, and Brazil’s Head of Delegation regarding the economic challenges confronted by Brazil since its last TPR. The Brazilian economy enjoyed a prolonged period of robust growth from 2000 to 2013, coinciding with a commodity and export boom. Since the time of its last Trade Policy Review in 2013, however, Brazil has faced a series of economic and political challenges. The world’s seventh largest economy in 2013, Brazil dropped to the ninth largest economy in 2016. In addition, 2015 and 2016 marked Brazil’s first consecutive years of contraction since the 1930s and the deepest recession since record-keeping began in 1901. From the end of 2014 through 2016, real output contracted by over 7 percent, roughly 3 million formal sector jobs were lost, and the unemployment rate nearly doubled to over 11 percent. Political instability in Brazil has exacerbated the economic landscape.
These challenges are naturally reflected in our bilateral trade relationship. Brazil was the United States’ ninth largest trading partner in 2013, but fell to our 14th largest trading partner in 2016. Nevertheless, Brazil continues to be an important market for U.S. companies. Two-way U.S. goods and services trade with Brazil totaled $87.3 billion in 2016, and overall U.S. goods imports from Brazil are up 300 percent over the last 22 years (since the conclusion of the Uruguay Round). Services trade and two-way investment are also robust as reflected in the statement submitted for the record of this meeting. In 2016, U.S. exports of services to Brazil were $24.3 billion, while Brazil’s supply of services to the United States was $6.8 billion, both up 32 percent from 2010 levels. U.S. companies have directly invested $65.3 billion in Brazil, through 2015, down 2.5 percent from 2010 levels, while Brazilian companies and their subsidiaries have invested $23.7 billion in the U.S. through 2015, up 74 percent from 2010 levels.
Brazil resumed growth in the first quarter of 2017 (one percent, seasonally adjusted), and current projections for full year 2017 GDP growth are in the 0.42% range. As Brazil emerges from a difficult economic period, we believe the country would benefit from more liberalized trade and investment policies, including by lowering tariffs and eliminating pervasive local content requirements. Brazil represents a sort of paradox, as despite its status as the world’s ninth largest economy, Brazil accounted for only one percent of global goods trade in 2016. The structural bottlenecks — which include a very high tax burden, a complex and inefficient regulatory regime, inadequate primary infrastructure, limited access to credit, and a rigid labor market — threaten Brazil’s competitiveness and future growth prospects. Reflecting these challenges, the World Bank ranked Brazil 123rd [out of 190 countries] for ease of doing business in 2017.
In our view, there are some specific areas where Brazil could take action to improve its trade and investment regime for the purpose of creating additional growth and development opportunities. In addition to the issues addressed in our questions, today I would like to briefly call attention to Brazil’s high tariff structure, its continued reliance on local content requirements (notwithstanding some recent progress in the hydrocarbons sector), and shortcomings in some areas of IPR protection and enforcement.
While Brazil’s MFN applied tariff rate averaged 13.5 percent in 2015 (latest available data), its average bound tariff rate is significantly higher at 31.4 percent, with the maximum bound rates for industrial and agricultural goods set at 35 percent and 55 percent, respectively. Because of the large disparities between bound and applied rates, U.S. exporters face significant uncertainty in the Brazilian market. Unfortunately, frequent tariff increases and reductions are made by the Brazilian government to support domestic industries. These frequent and temporary changes in tariffs create an unpredictable business environment for importers and exporters, and have a chilling effect on investment.
We would like to acknowledge Brazil’s leadership in early ratification of the WTO Trade Facilitation Agreement in March 2016 and the progress Brazil has made thus far in implementing specific aspects of the Agreement. In this regard, Brazil serves as a positive example for other countries in the region. Brazil’s implementation of the TFA should lead to increased trade and economic growth by reducing the bureaucratic red tape and cost of doing business, as well as fostering greater certainty for the trading community. We are eager to learn more about specific steps Brazil is taking to implement the TFA.
We would also like to acknowledge the important and continued progress that Brazil has made to enforce intellectual property rights, including the country’s efforts to protect intellectual property during the 2014 World Cup and the 2016 Olympic and Paralympic Games. However, shortcomings remain and the lack of adequate IP protection continues to be an obstacle to U.S. exports and investment. For example, there are high levels of counterfeiting and piracy in Brazil, including online piracy, and enforcement measures remain inadequate throughout the country, but especially in the tri-border area with Paraguay and Argentina. Strong IP protection, available to both domestic and foreign right holders, is essential to fostering a reliable business climate ripe for investment and innovation. The United States stands ready to engage constructively with Brazil to build a strong IP environment and to address remaining IP concerns.
In closing, I would like to express my government’s hope and expectation that, going forward, Brazil will continue to pursue further reforms and more open markets that enable it to reap the benefits of expanding trade and global economic opportunity. In addition, we welcome further cooperation on trade matters with our excellent Brazilian colleagues both here at the WTO and in the context of our growing bilateral relationship. We deeply value in particular the excellent dialogue between our Missions here in Geneva. We look forward to studying Brazil’s answers to our questions and to those of other Members. We wish you a successful trade policy review.