My Little Corner of the World

If you have any interest in the (quite lengthy) paper our class wrote and is presenting over the next few days, here it is. My goal is to blog after each day of meetings so I have some sort of record of how things went.

MEMO TO: The Obama Administration
FROM: University of North Florida “Real World” Political Science Class
DATE: April 7, 2010
RE: Strengthening US - Brazil Engagement

Brazil is increasingly important to the U.S., not only in terms of economic prosperity but also in meeting the myriad international challenges we face -- global warming, infectious diseases, terrorism, narcotics trafficking, reducing trade barriers, and the global financial crisis. While the U.S. has tended to look east and west, it is time to look south and forge a new partnership with the fastest growing economy in this hemisphere -- Brazil.

Ranked among the top ten world economies and the sixth largest population, Brazil has arrived on the global stage as a major player. Recently discovered oil deposits will only strengthen that position. While still a country struggling with poverty, corruption, crime, and social inequalities, its recent governments - both former President Fernando Henrique Cardoso and President Luis Inacio Lula da Silva -- have made real progress in addressing these challenges with visionary and responsible leadership.

A major participant in Haiti and other peacekeeping operations, an aspirant for a permanent seat on the UN Security Council, a leader not only in Latin America but also in the G-20, Brazil is poised to be a world political leader. Host to the World Cup in 2014 and Olympics in 2016, Brazil will be increasingly in the limelight. In recognition of the growing importance of Brazil, the Obama administration is intensifying U.S.-Brazil engagement, with a State Visit by President Lula in 2009, a visit by Secretary of State Hillary Clinton in March, and an upcoming visit by Secretary of Defense Robert Gates in mid-April. Handled right, the U.S.-Brazil relationship can enhance opportunities to advance US interests in trade, investment, counternarcotics, anti-terrorism issues, and expanding a political partnership to promote our shared interests.

With an estimated population of nearly 200 million, half of which is in the work force, Brazil provides great opportunities to enhance the prosperity of both our countries. USAID currently provides fund in five areas: (1) the deforestation and protection of biodiversity, (2) reduction of greenhouse gas emissions, increased employment for youth, (3) HIV/AIDS prevention, (4) the establishment of free trade and (5) small to medium size enterprise development. Further expansion of trade agreements is hampered by the current WTO dispute over cotton and U.S. ethanol subsidies. The Brazilian Cooperation Agency (ABC-Agência Brasileira de Cooperação) of the Brazilian Ministry of External Relations and the United States Agency for International Development (USAID) are the point of focus for this cooperation.

Our two governments also have a major disagreement over how to address Iran’s effort to acquire a nuclear weapon, with Brazil refusing to pressure Iran to abandon its quest or to support international sanctions. The history of U.S. activities in Latin America and Brazil’s strong nationalistic politics means we require a sophisticated approach to the bilateral relationship. We offer four areas in which to strengthen U.S.-Brazil engagement and advance our joint interests.

I. Enhanced bi-lateral US-Brazil Engagement: Establish a U.S.-Brazil Strategic, Economic, and Military Dialogue, expanding on the model currently used with China. The Dialogue would promote business, trade, transnational threats of nonproliferation and terrorism, peacekeeping, and help to better manage bilateral disagreements, such as Iran. It would vastly expand on the CEO Forum by engaging on a regular basis a broad range of cabinet officials in deepening and widening U.S.-Brazil relations. One of the goals of the enhanced engagement would be a U.S.-Brazil Bilateral Investment Treaty. As part of this enhanced engagement, President Obama should reciprocate President Lula’s DC visit by visiting Brazil this summer.

II. Updated International architecture/Transparency: The U.S. should recognize the growing importance of Brazil and endorse formally its candidacy for a permanent seat on the UN Security Council. In recognition of the growing importance of the G20, the U.S. should propose at the G20 meeting in Canada this June that the G-8 be formally disbanded over the next ten years. While being phased out, all G8 meeting should be partnered with a G8+5 (or G13) and G20 meeting to underscore the importance of the developing countries. The U.S. should also propose a new initiative on transparency, chaired by Brazil, to encourage best practices and open reporting on investment in strategic resources, as well as all military sales and bases in the hemisphere. Such transparency would help assuage Brazil’s concern over U.S. activities in Colombia. Such a step will build confidence not only in U.S.-Brazil relations but also throughout the hemisphere.

III. Regional Center of Excellence (RCE): The US should propose a regional Center of Excellence be established in Brazil to train regional security and judicial forces in peacekeeping, policing, judiciary, and forestry. Based on UN best practices and doctrine, the RCE would be run by the OAS. Eventually, the system would be global, with other RCS’s located in the world’s main regions of Asia, Africa, and Europe.

IV. EPECC: The U.S. and Brazil should build upon their 2007 MOU by forming an OPEC type of group for ethanol producers, the “Ethanol Producing and Exporting Countries Consortium” (EPECC). EPECC’s objectives will be to ensure stable and fair prices for ethanol producers, expand the market for ethanol, and ensure a fair return on capital to those investing in the industry.

Enhanced Bilateral US-Brazil Engagement
Brazil has become progressively more involved in both regional and global affairs, helping to stabilize troubled regions and leading UN peacekeeping missions in places like Haiti. It is in the best interest of the United States to ensure that U.S. plans for the region work effectively alongside Brazilian plans for the region, as it has the largest economy in South America. Brazil is growing at a quick pace, and many U.S. companies view Brazilian companies as an appealing place for investment. Suspicion is high among many Brazilians over past U.S. policies, including the more recent invasion of Iraq and other Middle East policies, U.S. policy toward Colombia, and the banning of Bolivian textile imports to the U.S.. The United States and Brazil do not always see eye to eye on all issues, but deeper engagement would enable progress on many areas.

Establish a U.S.-Brazil Strategic, Economic, and Military Dialogue
The US has in recent years expanded its engagement with Brazil, including with the Economic Partnership Dialogue between the Minister of External Relations and the U.S. Secretary of State but deeper engagement is required, perhaps modeled on our Dialogue with China. In recognition of the myriad interests between the U.S. and China, in 2006 President Bush initiated the Strategic and Economic Dialogue, involving regular visits between senior State Department officials and the Secretary of the Treasury. Hosted by Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Rodham Clinton, the first joint meeting of the U.S.-China Strategic and Economic Dialogue was held in Washington, D.C. from July 27-28, 2009. Such a forum underscores the growing influence of China in a range of issues and fosters better cooperation on issues and a similar group could foster better U.S.-Brazil cooperation.

Earlier this year, Secretary of State Clinton visited Brazil to sign the Memorandum of Understanding (MOU) which increases cooperation between the U.S. and Brazil on issues pertaining to technology, climate change and the advancement of women’s rights. A more formalized Dialogue would provide a broader framework for further engagement and help ameliorate areas of disagreement, such Brazil’s ongoing support for Iran in direct contrast to U.S. policy. It would also vastly expand on the CEO Forum by engaging on a regular basis a broad range of cabinet officials in deepening and widening US-Brazil relations. Given the importance of Brazil’s role in peacekeeping, the China model should be expanded to include a Dialogue between our Secrataries of Defense.

Recommendation: Establish a U.S.-Brazil Strategic, Economic, and Military Dialogue. The Dialogue would promote business, trade, transnational threats of nonproliferation and terrorism, peacekeeping, and help to better manage bilateral disagreements, such as Iran. It would involve annual meetings of State, Treasury, and Defense Cabinet Secretaries, with lower level meeting occurring regularly during the year.

US-Brazil Bilateral Investment Treaty
Despite the importance of foreign investment in Brazil, it is not a party to any bilateral investment treaties (BITs) and has not ratified the International Center for Settlement of Investment Disputes (ICSID) Convention. ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, with over 140 member states. Brazil is reluctant to bind itself to such agreements because of the legal uncertainty regarding whether ratification of such agreements is prohibited under Brazilian law on grounds that it impedes the sovereign right of the state. However, given Brazil’s growing economic strength, it is time for it to join ICSID. As the U.S. supports the growing role of Brazil in the international arena, it should encourage more engagement in such agreements, bilaterally and in the G13 and G20. A good place to start is with a bilateral investment treaty.

Recommendation: The U.S. and Brazil should seek to negotiate a Bilateral Investment Treaty (BIT). The BIT will help protect private investment, develop market-oriented policies in partnering countries, and promote exports in other industries.

Obama Visit to Brazil
In March 2009, President Lula visited Washington to strengthen bilateral relations, discuss the agenda for the meeting of Summit of the Americas last April, and review how the G-20 could best combat the financial crisis. President Obama promised a reciprocal visit, but none is currently scheduled. The U.S. has a tradition of meeting early in any new administration with the leaders of Mexico and Canada. An early meeting with Brazil should now be added to that practice. Since the new Brazilian administration will be elected in October, it would be prudent to conduct the first meeting this summer. That would establish a precedent for the meetings to continue with the new administration.

Recommendation: President Obama should visit Brazil this summer, well in advance of the presidential elections in October in Brazil. The U.S. should add Brazil to the list of meeting held early on for new U.S. presidents.

II. Updated International Architecture/Transparency

Endorse Brazil Seat on Security Council
Simply put, Brazil has earned a seat on the UN Security Council. It now clearly meets our own criteria that new permanent members have the economic size, population, military capacity, commitment to democracy and human rights, sufficient financial contributions to the UN, contributions to UN peacekeeping, and a strong record on counterterrorism and nonproliferation that reflect its global importance. Brazil has already served nine terms as an elected member of the Security Council.

When the UN last seriously addressed the issue in 2005, there was initial agreement that Germany, Japan, India, and Brazil would gain a permanent Security Council seat but agreement was never reached on how best to allocate the allotted 2 seats for Africa and the veto. Nigeria, South Africa, and Egypt were all leading candidates and African nations, in general, opposed joining the Council so long as the P-5 maintained its exclusive rights to the veto. To date, the U.S. has only formally endorsed the candidacy of Japan.

Recommendation: It is time the U.S. formally endorse Brazil, as well as Germany and Italy for a permanent seat on the UN Security Council. It should also initiate a new effort at the UN to secure expansion of the Council, perhaps by agreeing on a separate seat for an Arab nation, with Africa receiving two seats. Providing 7 additional permanent seats to the UN Security Council would not significantly hamper its effectiveness. With the 10 elected seats, the total membership would be 22, from the current 15. The contentious issue of the veto and whether the EU and AU should evolve into assuming the region’s permanent seat should be discussed after the new Council has been in place for ten years.

Phase Out G8/G13 and Focus on G20
The G8, which includes the United States, Russia, France, Germany, Italy, United Kingdom, Japan, and Canada, has been the most influential forum for the world’s leading economies to discuss major international affairs. In recognition of the growing influence of the developing world, the G8 regularly meets with the “Outreach 5” (O5), which was formed in 2005. The group consists of Brazil, China, India, Mexico, and South Africa, the top developing economies. In 2006, the G8+5 formed the Climate Change Dialog to collaborate on environmental issues. Although a permanent relationship was formed between the two groups in 2007, the G8+5 have met only rarely.

The G20 has traditionally only been a meeting place for the top 19 countries and the European Union to discuss financial matters. However, at the G20 meeting in Pittsburgh last September, it was decided that the G20 would become the official body in charge of international economic collaboration. As a result, the G8 will now cover issues mostly pertaining to international security topics such as nuclear non-proliferation and counternarcotics measures. But the gatherings are increasingly resented by those not included. The United Kingdom and France have each independently supported of the integration of the O5 to the G8 (a new G13). However, the United States and Japan argue that officially enlarging the group will decrease its effectiveness and defeat the purpose of the larger G20.

Recommendation: One way to minimize frustration would be to agree to phase out over 10 years the G8 and G8+5 meetings, leaving the G20 as the key forum for discussions. During that time, the G8 and G8+5 would each meet preceding any G20 meeting. In order to address the concerns of the US and Japan on effectiveness, the G20 would form subcommittees on the key issues of concern, thus limiting the discussions to a manageable size. The US should support holding the G20 in Brazil as soon as possible.

Transparency Initiative in the global investment and financial system
When the world’s largest economies - the G20 - meet in Toronto on June 26-27, 2010 they will have an unprecedented opportunity to institute changes to create a transparent global financial system that is open, accountable, fair and beneficial for all. Corruption is widespread not only in Brazil but also across Latin America. Of particular concern is the lack of transparency in the oil industry. For instance, China’s state run China Development Bank signed a $10 billion agreement with the Brazilian government and Petrobras, exchanging financing for 150,000-200,000 barrels of crude oil per day for the next 10 years. On February 1, 2010 Royal Dutch Shell invested $21 billion in Cosan to make the largest biofuels joint venture in the world. The US would benefit from increased engagement in the oil industry in Brazil, which is very stable compared to the other sources of our oil such as Saudi Arabia and Venezuela. A new effort to make public the investment decisions will help reduce corrupt practices in the region and open the region to fairer competition. Illicit outflows of capital from developing countries are a severe drain on their development potentials. Such an initiative would assist in poverty alleviation and economic development.

Recommendation: The US should work with Brazil to propose at the G20 summit in June a new initiative on transparency. All foreign investment must be reported to the G20 and the International Accounting Standards Board on an annual basis, including multinational corporation and state-owned corporations. Each must also report their income and taxes paid on a country-by-country basis. The ownership of all companies, trusts, foundations, and charities must also be reported.

III. Regional Center of Excellence (RCE)

Brazil faces many challenges in developing effective forces to address its challenges in policing, the judiciary, forestry protection, and peacekeeping.

Police and judiciary
Brazil is one of the many Latin American countries with corruption on all levels of police and the criminal justice system. Homicide rates are at an all-time high and Brazil faces extra-judicial murders. Its criminal system is underfunded and many of the accused lack aspects of a fair trial, such as a thorough investigation. In many cases, people who are arrested are held in jail for years without any trial. The jails in Brazil are much more corrupt than the U.S. jails, and trafficking and prisoner abuse are very common. Brazil regularly faces riots. Drug trafficking, trafficking of children, and forced labor are common. Brazil and other countries in the region could benefit greatly from increased police and judicial training.

Forestry Protection
A major problem is Brazil’s continued environmental challenges and the ongoing deforestation of the Amazon Rain Forest. The importance of the Amazon Rainforest cannot be understated, as it accounts for one of the largest sources of fresh water and zoological diversity on the Earth. Continued deforestation occurs due to a myriad of factors, most of which are economic. In 2007 alone, almost 3200 square kilometers (sq km) of Amazon Rainforest was lost to deforestation and logging, and the number of square kilometers lost continues to grow. The continued escalation of market prices for agricultural products is the primary economic factor, but the demands for timber and grazing land have also had an impact. Conflicts between powerful ranchers and poor farmers over land rights have led to 1,200 murders across Brazil in the last 20 years. A top activist for land reform in Brazil's Amazon was recently murdered, hours after a delay in the trial of a man accused of masterminding the slaying of another rain forest activist, an American nun named Dorothy Stang, who was shot and killed in 2005 in the notoriously violent Para state.

The Lula administration has attempted to put in place policies to help farmers work the land they already have. In addition to farming best practices, some of the programs the government in Brasilia has established include: setting aside land as natural habitats and wildlife reserves, installing sensors and monitoring stations throughout the Amazonian borders to catch illegal logging, and increasing the number of military and police patrols in the Amazon regions. Yet, these efforts are insufficient to meet the challenge of protecting the vast Amazon.

Peacekeeping
Brazil has consistently contributed to UN peacekeeping across the globe, including in the Middle East, the Belgian Congo, Cyprus, Mozambique, Angola, East Timor, and Haiti (where Brazil is currently the largest contributor of peacekeeping troops). As such, Brazil is well placed to lead an international effort to train and equip other regional forces in peacekeeping. Currently, each country involved in these peacekeeping missions currently trains its own soldiers, without standard UN doctrines and the benefit of best practices.

Recommendation: The U.S. should encourage the formation of Regional Centers of Excellence (RCE) for training through the UN in the areas of peacekeeping, policing, judiciary, and forestry management. Brazil should host the RCE that would service the Western Hemisphere. The UN should develop a standard doctrine and best practices that would eventually be used in RCEs worldwide. The Department of Defense could help develop training modules and help monitor compliance of standards.

IV. Establish Ethanol Producing and Exporting Countries Consortium (EPECC)

The U.S. and Brazil, the world’s two largest ethanol producing countries, signed a Memorandum of Understanding (MOU) in 2007 to “promote greater cooperation on ethanol and biofuels in the Western Hemisphere. The agreement involves: (1) technology sharing between the United States and Brazil; (2) feasibility studies and technical assistance to build domestic biofuels industries in third party countries; and, (3) multilateral efforts to advance the global development of biofuels.” Both countries have moved forward on all three points. The MOU to date has produced positive results in the Caribbean and Central American countries and is expected to begin soon in African countries.

However, a thorny problem exists in the form of the U.S. tariff on Brazilian ethanol and US subsidies of its own ethanol industry. The U.S. government subsidizes the corn ethanol industries with over $7 billion in subsidies, which translates to 73 percent of all U.S. renewable energy tax breaks. The U.S. also imposes a 2.5 % ad valorem and a 54 cent per gallon tax on ethanol, effectively placing a 30% tariff on imported Brazilian ethanol. President Lula has made no secret of Brazil’s desire to have that tariff reduced or eliminated. Brazil’s ethanol industry is not subsidized by its national government. In a signal of growing competition in the market, China recently lowered its Brazilian ethanol tariffs from 30 percent to 5 percent, which opens that market to Brazil.

Corn based ethanol, however, is increasingly viewed as too expensive and a significant source of carbon emissions, especially when compared to sugar or other non-corn based sources, such as the new generation of biofuels involving cellulosic ethanol made from algae, grasses, and non-edible plant material. Demand for ethanol in the U.S. is increasing and the U.S. Congress has passed legislation requiring the increased use of advanced biofuels, such as ethanol. The mandate requires all gasoline sold by 2015 will contain 10% ethanol and the blending ethanol into gasoline of at least 36 billion gallons per year of biofuels into U.S. gasoline supply by 2022, triple the current level. California’s new law will take effect in 2011, requiring a phased-in carbon emission reduction by 2020.

The increase in US demand is unlikely to be met by domestically produced corn-based ethanol. Therefore, the US should begin to prepare now for a shift away from its domestically produced corn-based ethanol and work to achieve market dominance in other types of ethanol. The way to do this is to work with Brazil to develop and control where possible the ethanol market.

Recommendation: The US and Brazil should form an OPEC-type group for ethanol producers, the Ethanol Producing and Exporting Countries Consortium (EPECC). EPECC will coordinate and unify the ethanol policies of its member countries. EPECC’s objectives will be to secure fair and stable prices for ethanol producers, efficient, economic and regular supply of ethanol to consuming nations, and a fair return on capital to those investing in the industry. EPECC will improve and advance all three points in the 2007 MOU. While the current US domestic politics will prevent an elimination of the U.S. protection of its corn-based ethanol industry in the near term, over time, EPECC will help pave the way for new market opportunities for the U.S. which can help ease a transition from such subsidies and corn based ethanol. Eventually, EPECC can include any country in the western hemisphere - and eventually worldwide - interested in developing domestic ethanol industries.