CIAO DATE: 08/01
A Letter to the President and a Memorandum on U.S. Policy Toward Brazil
Stephen Robert, Chair
Kenneth Maxwell, Project Director
February 2001
Table of Contents
Foreword
Following the global financial crisis of the late 1990s the Council on Foreign Relations sponsored four Independent Task Forces to examine in detail the U.S. economic relations with China, Japan, Russia, and Brazil and other matters as they bear on economic policy. The Task Force on Brazil has done its work with clarity and force in the form of a memorandum to the president. In this memorandum the Task Force argues that Brazil is the fulcrum of any successful U.S. policy initiatives in South America. If we want to sustain economic reform and democracy, promote free trade and open markets, and combat the scourge of drugs, terrorism, and transnational crime, Brazil is the essential partner. This report succinctly outlines the reasons Brazil is important to the United States. It stresses the urgency of developing a cooperative agenda with Brazil given the tightness of upcoming deadlines for trade negotiations, as well as the deteriorating conditions among many of Brazil's neighbors, not least in Colombia and Venezuela. The memorandum to the president also frankly lays out the obstacles to a positive agenda on both sides.
As the memorandum makes clear, we are at one of those watershed moments in history where the United States and Brazil share many key objectives and values. The Task Force recommends that the president initiate without delay a thoroughgoing review of U.S. policy toward Brazil and examine where the United States and Brazil can work together on vital matters such as trade, drugs, and regional security and move thereafter to engage in a high-level sustained and cooperative strategic dialogue with Brazilian leaders.
The Task Force reached a strong and meaningful policy consensus, with all Task Force members endorsing the general policy thrust and judgments reached by the group, though not necessarily every finding and recommendation.
I am very grateful to Steve Robert for leading this important initiative and to Kenneth Maxwell, the project director, ably assisted by Latin America Research Associate Tomás Amorim. We also want to express our gratitude to the Arthur Ross Foundation for providing funding for this endeavor.
Leslie H. Gelb President Council on Foreign Relations
We are indebted over the course of almost two years and 18 sessions for the hard work all the Task Force members put in under the leadership of Chairman Steve Robert. This was truly a collective effort where the individual contributions of our distinguished Task Force members provided a wide range of knowledge and experience that enriched our discussions as well as the substance of the final memorandum to the president.
We are also grateful for the very frank off-the-record discussions the Task Force had in lengthy meetings with Robert Rubin, former U.S. secretary of the Treasury, with Brazilian Vice President Marco Maciel, with ArmÌnio Fraga, the president of Brazil's Central Bank, with then Foreign Minister Luiz Felipe Lampreia, and with Rubens AntÛnio Barbosa, Brazil's ambassador in Washington, as well as the private discussions individual Task Force members had with leading Brazilians across the political spectrum. We are also grateful to Ambassador Gelson Fonseca Jr., Permanent Representative of Brazil to the United Nations, for hosting the Task Force meeting with Minister Lampreia at his residence in New York.
We counted on the wise advice of Council President Leslie H. Gelb, and his unfailing ability to cut to the essence of an issue and sharpen our focus. Mike Peters, the Council's chief operating officer and Jan Murray, Council treasurer, were unfailingly supportive, as was Marie-XaviËre Strauss, special assistant to the president. We also counted on the legendary skills of Trisha Dorff and Leah Scholer in Publications, and on April Palmerlee in the Council Communications office. The Council support staff were as always quietly effective behind the scenes, making our working sessions comfortable and smooth running, especially Mark Hudson's event managing skills. Valuable assistance was also provided by our Latin America Program interns, Jaime Salas, Katalyn Vidal, and Heather Singmaster. Last but by no means least, Tomás Amorim, research associate in our program, went far beyond the call of duty in his commitment to the success of this project, bringing as he does to all his activities an infectious enthusiasm and efficiency.
Kenneth Maxwell Project Director Council on Foreign Relations
February 12, 2001
The Honorable George W. Bush, President of the United States,
The Honorable Richard B. Cheney, Vice President,
The Honorable Colin L. Powell, Secretary of State,
The Honorable Paul H. O'Neill, Secretary of the Treasury,
The Honorable Donald H. Rumsfeld, Secretary of Defense,
The Honorable Donald L. Evans, Secretary of Commerce,
The Honorable Robert B. Zoellick, United States Trade Representative,
The Honorable Condoleezza Rice, Assistant to the President for National Security Affairs,
The Assistant Secretary of State for Western Hemisphere Affairs,
The Honorable John F. Maisto, Special Assistant to the President and Senior Director for Inter-American Affairs,
The Honorable Jesse Helms, Chairman, Senate Foreign Relations Committee,
The Honorable Joseph R. Biden Jr., Ranking Democratic Member, Senate Foreign Relations Committee,
The Honorable Henry J. Hyde, Chairman, House International Relations Committee,
The Honorable Tom Lantos, Ranking Democratic Member, House International Relations Committee,
The Honorable Cass Ballenger, Chairman, House Subcommittee on the Western Hemisphere,
The Ranking Democratic Member, House Subcommittee on the Western Hemisphere
Dear Mr. President:
We are an Independent Task Force, sponsored by the Council on Foreign Relations, which has been working over the past 18 months on future U.S. policy toward Brazil.
Brazil, we believe, can and should be a crucial player with the United States in promoting economic reform and free trade, in sustaining democracy and open markets, and in combating narcotics, terrorism, and transregional crime. The United States cannot act alone in South America, and there is no better strategic partner than Brazil in tackling these problems. A realistic and sustained dialogue with Brazil is central to any successful U.S. policy in the Western Hemisphere. Brazil is the fulcrum. Brazil is too important to everything that is going to happen in South America for a policy of benign neglect.
We urge you to move quickly to build a high-level working relationship with Brazil based on common interests. We recognize that this will not always be easy. Any new initiative toward Brazil will need to manage mutual differences. It cannot be seen as a relationship that excludes other South American neighbors. Nor will Brazil react favorably if it believes that the United States aims only to co-opt Brazil for exclusively American purposes.
We recommend:
It is time to rethink and reenergize U.S.-Brazilian relations. Both nations have much to gain from an enhanced relationship. Now is the time to act.
Respectfully,
Independent Task Force on Brazil
We are an Independent Task Force sponsored by the Council on Foreign Relations working on future U.S. policy toward Brazil. We believe that Brazil is central to a successful U.S. policy in the Western Hemisphere. Brazil can be a serious partner, and we urge that a sustained dialogue be initiated to examine where the United States and Brazil can work more effectively together for mutual benefit.
We are approaching a seminal moment when Brazil and the United States share many key objectives in the hemisphere. But this moment may not last, and it should not be allowed to slip away because of lack of attention on the part of the U.S. government. Brazil is too important to everything that is going to happen in South America for a policy of benign neglect.
Brazil can and should be a crucial player with the United States in sustaining economic reform and democracy, in promoting free trade and open markets, and in combating narcotics, terrorism, and transregional crime. If we want to expand the Free Trade Area from North America into South America, Brazil is going to be the critical nation. If we want to tackle drug problems on a hemisphere-wide basis, Brazil is key to getting that organized. If we want to sustain democracy, it won't happen if democracy fails in Brazil. None of these fundamental U.S. policies will work in the end without Brazil. Brazil is the fulcrum.
We believe this is an opportune moment for action. Brazil-U.S. relations are good. Brazil has successfully emerged from an authoritarian past and is a vibrant democracy, the world's third largest. Brazil's economy is improving. With a new administration in place in the United States, and with Brazil approaching its own presidential election in 2002, Washington needs to think ahead. And it needs to do so with urgency.
The United States faces a tight upcoming agenda on trade negotiations. Around Brazil much is coming unglued. Whether or not the United States agrees with Brazil, it is the major player in South America because it borders many of the countries that are in increasingly bad shapefrom Colombia to Peru, from Paraguay to Argentina. For all these reasons, we should begin to listen to Brazilian perspectives and consider Brazil as a major strategic partner, treating it accordingly. It is vital that the United States develop a specific policy for Brazil and work hard with Brazil toward developing areas of common interests. A strategic relationship with Brazil becomes a strategic relationship with South America.
We therefore urge you to move quickly:
Brazil is the world's third-largest democracy. After decades of military rule, Brazil now sustains a vibrant open society, with a lively media and a large participatory civil society and middle class. Elections have been hard fought but clean. In the year 2000, the votes of 110 million Brazilians for 367,371 candidates were counted flawlessly in 5,559 municipalities across Brazil by electronic voting machines. Political reforms are still incomplete, but much has been achieved for which Brazilians can be justifiably proud, including the removal by impeachment of a president for corruption. And on the economic front, since 1994 Brazil has tamed inflation, a truly historic breakthrough. We flag four reasons why Brazil is important to the United States: its economic power; its central location within South America; its status as a trading partner and as a recipient of U.S. investment; and its diplomatic role both within South America and international agencies.
Both the United States and Brazil face an escalating crisis in Colombia, instability in the Andean region, and an increasingly complicated relationship with Venezuela. Domestically Brazil still faces obstacles to its economic and political reform agenda. The United States and Brazil both face an important agenda of trade negotiations. We flag three areas of urgency: sustaining economic growth and reform; the trade agenda for the hemisphere where Brazil and the United States are central players; and the growing challenges to democracy and economic reform in South America.
There are risks to the United States from inaction. Brazil convened the first Summit of South American Nations in August 2000. Strengthening its ties to its South American neighbors is a major objective of Brazilian foreign policy. Brazil has also strengthened its relationship with the EU. Both are seen as means to increase Brazil's, and by extension Mercosul's and South America's, bargaining power with North America and reflect Brazil's attempt to balance its international relations rather than commit to exclusivity. In fact, European investment in Brazil (especially in telecommunications, financial services, and utilities) has increased massively in the last few years, and EU-Mercosul total trade has increased by over 120 percent since 1990. In 2000, Spain surpassed the United States as Brazil's top foreign investor. In terms of exports, the Europeans clearly outstrip U.S. exports both in numbers and growth. Without a proactive agenda from Washington, this process could pose a potential threat to future U.S. economic prospects in the Brazilian market, with an impact in the United States as well in terms of lost jobs and financial and business opportunities. It should not be forgotten that if France gives in on agricultural issues, a major EU-Brazil deal could be cut that would leave the United States out. The United States thus risks finding the space already occupied once the Europeans have established strategic relationships. In terms of the "new economy" investments, for example, the United States recently missed a major opportunity when the Brazilian telecommunications regulatory agency officially announced the selection of the European over the U.S. standard for Brazil's latest generation cellular service. The adoption of the European standard not only eliminates U.S. hardware companies, such as Qualcomm, from this high-growth sector but also puts U.S. software and content companies at a disadvantage. This need not have occurred.
There is also a downside for Brazil if it fails to move aggressively on a hemispheric trade pact. Brazil needs to trade more, not less. The U.S. market is the greatest prize. The failure of Brazil to expand its trade is one of the central problems in current policy. If a deal with Brazil and Mercosul fails, the United States will most likely move toward more bilateral free trade pacts, such as the one under negotiation with Chile; and as the region also moves toward greater dollarization, Brazil risks finding itself isolated. In our view both the United States and Brazil have an interest in expanding and sustaining growth in international trade. This is not a zero-sum game; nor do free trade pacts exclude others. Chile, for example, is also negotiating a free trade pact with Europe. Mexico, in addition to the NAFTA pact with the United States and Canada, also has a free trade agreement with Europe. Both the United States and Brazil, moreover, have an interest in a less volatile international financial environment. There are common interests the United States and Mercosul share in negotiating with Europe. Both are major agricultural exporters, for example, and both are interested in seeing subsidies and agricultural tariffs lowered in the EU. For all these reasons, the United States quickly needs to define a positive agenda toward Mercosul.
Any new relationship with Brazil must be based on common interests. U.S. approaches will fail if they are seen to be unilateral, exclusive, or aim to co-opt Brazil. Not only will such an approach be unacceptable in Brazilian politics, but it will also be unacceptable to Brazil's South American neighbors. It is vital to be sensitive to the obstacles to a redefinition of U.S. policy toward Brazil. The opponents to free trade and open markets are not confined to Brazil. Many in the United States will need to be persuaded that the process is also beneficial to them. We do not believe any of these obstacles to be insurmountable, but they do need to be acknowledged if both nations aim to work together toward common goals. It is important for policymakers, therefore, to anticipate areas of potential misunderstanding and disagreement. We flag five of them: the legacy and ambiguity of past U.S. policy toward Brazil; the fear in Brazil (and for some within the United States) that free trade in the hemisphere will harm them; the perception in Brazil that the United States seeks to diminish Brazilian sovereignty in the Amazon region; wariness both domestically and among Brazil's neighbors of too close a relationship between Brazil and the United States; and the elements of competition as well as cooperation that exist between the United States and Brazil.
Yet the contradictory role of the United States in supporting the military regime in the 1960s and then castigating its human rights abuses estranged former colleagues at both ends of the political spectrum. More recently, antidumping measures against Brazilian shoes, orange juice, steel, and other products have continued to perturb the relationship. The Brazilian Foreign Ministry in particular came to regard the U.S.-Brazil relationship as a one-way street, with Brazil taking unnecessary criticism with no corresponding benefits from the United States. This eventually led to the Brazilian denunciation in 1977 of the oldest military treaty in the hemisphere. Under any new agreement, Brazilians are likely to test the relationship by asking for something that they know will be difficult to obtain.
IV. What are the Critical Issues?
We believe that neglect of Brazil by the United States, punctuated by sporadic attention prompted by crises, has reduced U.S. influence and brings with it costs. An impasse in the free trade agenda can mean the loss of Brazilian marketsthe largest in the hemisphere outside the United Statesand it means that the United States will not have a reliable partner in the future on issues such as drugs and fighting corruption. We flag four areaseconomic reform, sustaining democratic reform, free trade, drugs and regional securitythat need attention urgently by the new administration:
We urge the United States to build on the leadership role it took in sustaining economic reform in Brazil during the critical last five years. Economic reform requires long-term and consistent attention, and it will be a major point of concern as the 2002 Brazilian presidential succession approaches. Brazil's success here is the bedrock. It is important to recognize that challenges remain in managing domestic and international debt, completing structural reform, and continuing fiscal and monetary discipline in the face of a new electoral cycle. It is vital to stay alert to the potential for renewed crisis and to remain committed to reforming the overall global financial architecture.
We urge special attention to the potential for collaboration and a strategic partnership within the "new economy." This sector can have dramatic effects on Brazil's young population. We believe there are great opportunities to use new technologies and the Internet in education to help diminish the so-called digital divide those same technologies have often created. Coordination of governments, nongovernmental organizations (NGOs), and the private sector is needed. U.S. companies already spend millions for entertainment. We recommend using these connectors for education and developing infrastructure for this purpose. Education is the central part of "second-generation reform," and Brazil is already seeking to upgrade primary and secondary schooling. Here the United States can help with a combination of NGOs, the private sector, and government agencies to leapfrog technological and educational legacies.
Brazil and the United States should work together to encourage greater exchanges with educational, social, and cultural programs. This includes looking at recent progress of the U.S.-Brazil Education Partnership; improving dispute resolution mechanisms; and looking into models for the private sector in education such as the School and Libraries Corporation, a nonprofit created by Congress and the Federal Communications Commission that provides discounts of up to U.S. $2.25 billion annually to elementary and secondary schools and public libraries for the purchase of telecommunications and networking services. We urge an examination of the problem of the lack of study of Portuguese in the United Statesonly about 6,000 undergraduate and graduate students were enrolled in Portuguese classes in the 1990s.
The continuing success of Brazilian democracy is a central interest of the United States, not only because of Brazil's importance in South America but also because of the increasing challenges to democracy within the region, particularly among several important neighbors of Brazil such as Peru, Venezuela, and Colombia, as well as Ecuador and Paraguay. Promotion of democracy has been a central plank of U.S. policy over the past decade through both Republican and Democratic administrations, and Brazil has acted aggressively in recent years in protecting democratic processes in its neighbors, such as Paraguay.
We urge a fresh look at what role the U.S. private and the independent sector (U.S. private foundations, NGOs, and quasi-governmental organizations such as the National Endowment for Democracy, as well as universities and think tanks) can play in strengthening democratic institutions and civil society, and where common approaches might be helpful and enhance private public partnerships and cooperation between U.S. and Brazilian NGOs.
Brazil, like both South Africa and the United States, is committed to transforming itself into a true racial democracy, something it has long aspired to. As democratic multiracial societies, Brazil and the United States can share areas for important mutual learning and collaboration as they seek to provide greater equity and participation for all citizens. The goal is to increase the participation of Latin Americans of African descent in the national development processes of their countries. We urge new development strategies building on initiatives already pioneered by the World Bank and the Inter-American Development Bank to better integrate indigenous and Afro-Latin populations into national economies. We believe this is crucial to democratic sustainability and that here the United States and Brazil have much they can learn from one another.
The United States remains committed in principle to a hemisphere-wide free trade agenda. But this agenda has not moved forward, and there are tight upcoming deadlines on the trade agenda for immediate attention. We urge that the new administration quickly define its priorities with respect to the FTAA and Mercosul, and decide how to proceed. The window of opportunity here will not be open for long. In the absence of a clear medium-term agenda, the U.S.-Brazil relationship has been shaped by interest group concerns in the United States (orange juice, steel, etc.), which poisons the larger relationship. Brazilians, given these circumstances, not unreasonably conclude that special business interests dominate the U.S. trade agenda. Hard issues here will need to be negotiated. The United States should not wait for Brazil and the EU to conclude an agreement; there is urgency to a proactive U.S. policy.
Brazil must be engaged as a leading player in combating the threat of narco terrorism and its corrupting influence on governments, public sectors, and public safety throughout the hemisphere. It behooves the United States to work with Brazil as a strategic partner. We recommend strengthening the ongoing defense ministerials and reviving military-to-military cooperation within the context of civilian leadership. Fernando Henrique Cardoso was the first president to appoint a civilian minister of defense. The United States can help in establishing a broader range of contacts aimed at strengthening civilian control and congressional oversight, as well as in improving cooperation in the struggle against corruption, in judicial reform, and in international transparency. Narco corruption is global in reach. Unilateral approaches will not work. The problem is not only to stop the drug flow through Brazil but also to help diminish its corroding impact within Brazil. There is a new urgency and common interest in combating the drug scourge.
In sum, Brazil is the essential partner for the United States in South America. It is in the interest of both our great nations to work together, to explore points of common interest, and to resolve outstanding differences in a frank and forward-looking manner. We have much to learn from each other and we share fundamental values. South America cannot be reshaped from Washington. In an increasingly diverse and differentiated region, the United States cannot act on all fronts simultaneously if it wishes to successfully promote and sustain strong democracies, freer trade, economic reforms, and growth, and to tackle the drug problem.
We believe that the time is ripe to initiate a high-level dialogue between the United States and Brazil. We believe it is worthwhile for the new administration to spend time up front to put this relationship into a coherent context. It is time to rethink and re-energize U.S.-Brazilian relationsboth nations have much to gain from an enhanced relationship. Now is the time to act.
Independent Task Force on Brazil
Chair:
Stephen Robert, Chairman, Robert Capital Management, LLC; Chancellor of Brown University; former Chairman and CEO of Oppenheimer Group, Inc.
Signatory Task Force Members:
Diego C. Asencio, President, Diego Asencio & Associates; former U.S. Ambassador to Brazil
Mario L. Baeza, Chairman and CEO, TCW/Latin America Partners, LLC
Alain Belda, Chairman, President, and CEO, Alcoa Inc.
Nancy Birdsall, Senior Associate, Carnegie Endowment for International Peace; former Executive Vice President, Inter-American Development Bank
Christopher W. Brody, Chairman, Vantage Partners, LLC
Robert J. Chaves, Managing Partner, Key Emerging Markets Group
Eli Whitney Debevoise II, Senior Partner, Arnold & Porter (Arnold & Porter acts as legal counsel to Brazil on certain transactional and litigation matters)
Albert Fishlow, Senior Economist, Violy, Byorum & Partners, LLC
Gail D. Fosler, Senior Vice President and Chief Economist, The Conference Board
Richard L. Huber, Senior Director, Kissinger McLarty Associates; former Chairman, President and CEO, Aetna Inc.
Oivind Lorentzen III, President, Northern Navigation America, Inc.
Thomas E. McNamara, President, Council of the Americas; former Special Assistant to the President for National Security Affairs
Brian D. O'Neill, Managing Director and Chairman, Latin America, J.P. Morgan & Company
Arturo C. Porzecanski, Managing Director and Head of Emerging Markets Economics & Debt Strategy, ABN AMRO Inc.
Riordan Roett, Director, Western Hemisphere Program, Nitze School of Advanced International Studies, The Johns Hopkins University
John Thomas Ryan III, Chairman and CEO, Mine Safety Appliances Co.
James Baker Sitrick, Senior Partner, Coudert Brothers
Thomas E. Skidmore, Carlos Manuel de CÈspedes Professor of History, Brown University
Alfred C. Stepan, Wallace Sayre Professor of Government, Columbia University
J. Michael Turner, Professor of History, Hunter College-CUNY
Staff:
Project Director:
Kenneth Maxwell, Nelson and David Rockefeller Senior Fellow for Inter-American Affairs, and Director, Latin America Program, Council on Foreign Relations
Research Associate:
Tomás Amorim, Research Associate, Latin America Program, Council on Foreign Relations