Remarks to the Commercial Association of Sao Paulo

Remarks to the Commercial Association of Sao Paulo (ACSP)

E. Anthony Wayne, Assistant Secretary for Bureau of Economic and Business Affairs

Sao Paulo, Brazil
April 6, 2006

As Prepared for Delivery

INTRODUCTION

Assistant Secretary Wayne speaking at the Commercial Association of Sao Paulo on April 6. State Department photo Thank you very much for that warm welcome. It's a great pleasure for me to be back in Brazil. I was last here in 2001 and am honored to be back to speak to such distinguished business leaders.

Brazil and the United States have a long history of strong relations, and we share many things in common. We both have big and diverse economies with diverse peoples. We share the same ideals of social justice and are partners in democracy. We both are working hard to permanently reduce poverty and create jobs in this Hemisphere. Both our nations want to make poverty a part of history, not only here but around the world. It may not be simple, but it is possible and essential.

Our strong relationship is important, not only for both our nations, but for the entire Latin American region. We want to create the conditions for global competitiveness, including a predictable business climate, and are pursuing comprehensive trade agreements around the world and in this region.

Sao Paulo's strong commercial and business environment makes it an engine of Brazil's economic growth and its trade expansion well beyond Brazil's borders.

The robust U.S. and Brazil economic relationship is a key element of Sao Paulo's economic vitality. Many Fortune 500 companies are located here in Sao Paulo, and U.S. investment in Brazil totals over $30 billion again, much of it right here in Sao Paulo.

But investment represents only a part of the U.S.-Brazil economic relationship. Our work with Brazil on trade, security, and energy also cultivates our mutual economic prosperity. Of course, there are areas where we can also deepen our relationship. But first, let me touch upon Brazil's solid macroeconomic performance and how competitiveness can help Brazil and other countries grow economically and sustainably.

MACROECONOMIC ENVIRONMENT

Brazil has experienced a very stable macroeconomic environment in recent years. The government's sound fiscal and monetary policies have helped produce moderate growth with low inflation.

We supported the government's decision to graduate from IMF programs in March of last year. We are confident the government will continue to pursue wise policies.

To maintain positive momentum, it will be important for Brazil to continue to reduce its level of debt, adopt more microeconomic reforms, and improve the investment climate.

COMPETITIVENESS

On competitiveness, both Brazil and the United States have examined the industrial competitiveness in our countries. We both considered ways to reduce government bureaucracy and increase innovation. We believe that creating the conditions necessary for economic growth also promote open markets, strengthen education and retraining, and increase productivity.

In today's global economy, manufacturers operate in one country, but source from multiple countries. So clearing customs quickly and easily is vital to staying competitive because time, as we all know, is money. This is all the more important in today's high-tech world, where so much moves in overnight package deliveries. And we applaud the Brazilian industry's advocacy for customs and tax reform. A recent study showed that every day saved in shipping time saves the equivalent of a 0.8% tariff on manufactured goods. That can add up to a lot of money.

Today, free market reforms have made Brazilian products competitive and respected throughout the world. Brazilian businesses are building and exporting airplanes, wireless communications, computer technology, and much more. Brazil's automotive industry is a world leader in using alternative energy to improve our shared environment.

TRADE

A key element of our economic relationship with Brazil is promoting freer trade. This is critical to Brazil and this region's economic successes and ability to not only remain competitive, but become more competitive.

Freeing trade:

Creates jobs, the fastest way to reduce poverty.

Pushes reforms needed to accelerate growth.

Encourages transparency and good government.

Provides opportunities for entrepreneurs and fosters social mobility.

Two-way trade between the U.S. and Latin America and the Caribbean was $427 billion in 2004, and this can grow substantially as we expand free trade.

At the Summit of the Americas in Mar del Plata last November, all countries except Venezuela supported the overall goal of further freeing trade, with 29 countries supporting rapid progress. For its part, Colombia is conducting informal consultations with all FTAA participants on how to move negotiations forward. We look forward to participating in these consultations.

We work closely with Brazil on a number of trade areas, from agriculture and intellectual property rights, to multilateral trade negotiations at the World Trade Organization. I'd like to briefly discuss these important areas.

AGRICULTURE

Together, agriculture and Brazil's growing agribusiness sector account for 33% of Brazil's GDP and 36% of exports. The tremendous success of Brazil's agricultural sector demonstrates its potential in leading your country to sustainable economic development.

An important element of Brazil's agricultural sector is its biotech crops, particularly in soybean and cotton seeds. Brazil has taken helpful steps in increasing its protection of intellectual property rights of those products. Its educational campaign and new Brazilian biosafety law are also helpful steps. Brazilian farmers have the potential to increase their competitive edge if they use biotech seeds. It can increase their crop yields and reduced input costs. We hope Brazilian law and regulators will promote rapid access to legal patented and safe seeds, while providing royalties to the developers of those legal seeds.

The third meeting of partners of the Cartagena Biosafety Protocol just concluded in Curitiba [Brazil]. As a major exporter of biotech crops, Brazil must carefully consider how to implement the new Biosafety Protocol documentation requirements so that agricultural exporters aren't saddled with undue burdens. Unfortunately, the decisions taken in Curitiba will increase the cost of international trade without commensurate benefit to health or environment. It's worth noting that these decisions specifically exclude trade between parties and non-parties, such as the U.S. and Argentina, your main competitors in soybean exports.

The competitiveness of Brazilian agricultural exports depends on timely and relatively inexpensive shipping costs. If Brazil requires increased testing or other measures, transportation costs will increase, shipments could be delayed, and Brazil's competitive advantages in agriculture could be undermined.

INTELLECTUAL PROPERTY

No discussion of the U.S.-Brazil economic relationship could be complete without touching on the important topic of intellectual property, or IP, protection.

It will surprise no one if I say that countries, like people, act in their self interest, and protecting IP protecting innovation is in every nation's self interest.

The vitality of a country's intellectual property protection regime is one of the key economic indicators investors look to when considering whether to invest in another country. Without assurances that its IP will be protected, investors are reluctant to put their most irreplaceable property at risk.

For that reason, countries that wish to attract international investment and what country in today's tough global economy doesn't? know it is in their interest to vigorously protect IP in order to remain competitive.

Recognizing the reasons for protecting IP, last year Brazil took the important decision to step up its protection of IP rights. In 2005, Brazil formed a National Committee to Combat Piracy. The Committee adopted a vigorous program to address IP crime and has made great strides in implementing it. Enforcement actions are up, and, most recently, Brazil launched an aggressive public awareness campaign to educate the public about the pitfalls of IP crime.

As a result, copyright piracy, which had reached record levels, has been reduced.

IP concerns still remain, however. Despite the important progress made on the copyright front, copyright piracy remains high and more work remains to be done, especially in the area of prosecutions. Likewise, strong patent protection is key to fueling innovation in high-technology development.

The U.S. recognizes and appreciates the significant progress Brazil has made in improving IP protection. We applaud these important efforts and look forward to working with your government to facilitate continued improvements.

TELECOMMUNICATIONS

I'd like to briefly discuss Brazil's vibrant telecommunications industry. I understand that President Lula is going to announce the selection of the Brazilian digital TV standard soon.

Of the several options on the table, we believe the ATSC standard [Advanced Television Systems Committee (the North American standard for digital TV, including high-definition)] offers the best combination of economic, social, and technical advantages. It has been adopted by the U.S., Canada, Mexico and South Korea. These countries that have adopted the ATSC standards are seeing a rapid increase in the sales of high definition television products. Brazil's adoption of the ATSC standard will ensure a hemispheric standard, creating a market of 800 million people for DTV products and services.

The U.S. no longer manufactures television sets. This poises Brazil to supply high definition television sets, converter boxes, and transmission equipment throughout the Hemisphere. Brazil's potential role as a leading supplier will help create high-paying, highly-skilled jobs and significant economic development.

The U.S. Overseas Private Investment Corporation has set aside $150 million for U.S. companies to invest in information technology development projects in Brazil. And U.S. companies have already expressed their intention of making significant investments in ATSC-related manufacturing in Brazil.

ATSC's open development process ensures Brazil a significant role in the evolution of the standard. Evolving ATSC standards present great opportunities for Brazilian-U.S. and Brazilian-South Korean collaboration and partnership.

WORLD TRADE ORGANIZATION AND DOHA ROUND

I'd like to turn now to the trade negotiations that are currently underway at the World Trade Organization (WTO), known as the Doha Development Agenda. These negotiations provide a once-in-a-generation opportunity to bring the benefits of the global trading system to all regions of the world.

WTO members, including Brazil and the United States, are working hard to achieve a successful Round. However, negotiations have reached a critical juncture, and we need to see significant progress in the next few weeks if we are to conclude an agreement by the end of this year that truly delivers on the goal of opening markets and fostering global economic growth and opportunity.

If the world fails to seize this moment, we may well miss the chance to capitalize on a favorable confluence of factors that contribute to prospects for a successful Doha Round including a relatively robust and growing global economy and strong and committed leadership in many of the world's major markets. Elections are scheduled later this year in a number of countries in this region including Brazil, Colombia, Ecuador, and Peru and new leadership is expected in Japan. And the trade promotion authority that the U.S. Administration needs to implement trade agreements expires next summer and is not likely to be renewed in the near future.

Earlier this year, trade ministers recommitted to the two critical deadlines and detailed work plan agreed at the WTO Hong Kong Ministerial last fall. The first of those deadlines is little more than three weeks away. They also agreed to pursue negotiations as a single undertaking. Simply put, that means movement in each of the core negotiating groups (manufactured goods, agriculture, and services) must be simultaneous.

Members are making incremental progress. But in order to break the logjam, the EU must table a more ambitious proposal in agriculture. At the same time, advanced developing countries, such as Brazil and India, need to agree to reduce tariffs on manufactured goods and increase market access in services. Everyone and especially larger WTO members -- is accountable.

It is important to remember that all countries lose if Doha fails. WTO members must show leadership and shoulder their respective responsibilities in order to bring all the pieces of the puzzle together. Now we need to undertake the political will in each of our countries to get that done. Naturally, that includes Brazil and the United States.

Brazil has a significant stake in the outcome of these negotiations. According to a recent Carnegie Endowment study on a successful Doha outcome, Brazil stands to benefit dramatically from agricultural liberalization, gaining some $250 million dollars in real income. Indeed, Brazil is the world's largest producer of sugar cane, coffee, tropical fruits, frozen concentrated orange juice, and has the world's largest commercial cattle herd (50% larger than the U.S.). Brazil is also a significant manufacturer, whose future growth and success is inextricably linked to global major growth markets, particularly in developing country markets.

For our part, our Trade Ambassador Portman was in Brazil last weekend, working with Minister Amorim and European Commissioner Mandelson to push the negotiations forward. Although there were no major breakthroughs in the meetings, we remain committed to working towards a successful outcome by the end of 2006.

The United States has been a leader in pushing for an ambitious result. We have shown that ambition across all three of the major negotiating areas, and we are urging others to join us.

In manufacturing, the United States has backed a tariff-cutting formula that would result in new trade opportunities for all countries by reducing the highest tariffs the most. We can just look at your nation's world-class aviation industry to know that manufacturing is an area in which Brazil excels. Yet Brazil still has a vast amount of untapped potential in the manufacture of industrial goods. Brazil can capitalize on the benefits of innovation and investment by making an ambitious offer in this area.

We have also presented the most progressive offer in agriculture. The U.S. Congress is keenly aware that our agriculture proposal has real consequences for our farmers. But we will not be able to leave our proposal on the table if others do not make comparable offers to open their markets and reduce their subsidies and other trade distorting practices.

Similarly, in the area of services, the United States has consistently advocated the biggest possible package of openings this includes areas such as financial services, telecommunications, computer related services, and express delivery.

Liberalization of the services sector has injected greater competitiveness into developing countries that have opened their services markets. It produces needed improvements in terms of infrastructure, efficiency, and modernizing their economies. So it's not just something that's important to the developed countries. It's also critical to the development objectives of the Round.

SECURITY

Security is the foundation for success in all areas. We are working with our Latin American neighbors on a broad front: on democracy and good governance, social development, and efforts to reduce crime.

Our relationship with Brazil on security issues is good. Brazil is implementing a healthy anti-money laundering and counterterrorist finance regime.

Brazil is serving as a regional leader on these efforts: It is a participant in the 3+1 Group on tri-border area security with Argentina, Paraguay, and the U.S. It is one of the only South American members of the Financial Action Task Force [FATF], and is the current president of the FATF-Style Regional Body in South America, known as GAFISUD.

We encourage Brazil to take its efforts one step further: To criminalize the financing of terrorism in order to further protect the Brazilian financial sector.

ENERGY

In energy, Brazil is a leader. In fact, Brazil remains many years ahead of the game with its embrace of ethanol. Your nation had the foresight to promote ethanol over the long-term, and to lead auto companies and fuel distributors to share its vision.

Today, 8 out of 10 new Brazilian vehicles are capable of running on ethanol. And, through its world renowned oil company, Petrobras, and with foreign partners, Brazil is pioneering deep water oil production.

Brazil is diversifying the energy mix even further with its hydropower and links with natural gas networks with its neighbors. This is gratifying, as I remember the energy shortage during my 2001 visit. I understand further steps are needed to ensure an adequate supply of electricity in the year ahead to avoid a repetition of earlier problems. Brazil has taken these bold steps to diversify the types and sources of fuels it uses. And by doing so, has augmented its own energy security and that of this Hemisphere as well as helped protect the environment.

We applaud Brazil's efforts for cleaner energy. Meanwhile, the U.S. is moving boldly on energy and the environment as well. Our Energy Bill and our Advanced Energy Initiative seek to diversify our fuel sources through biofuels and hydrogen and to restore our own oil and gas production. It also calls for investments in solar technologies, clean coal, nuclear and renewable energy.

Like Brazil, our federal government is trying to set an example. For instance, the cars that take our senior State Department diplomats around Washington for meetings are now almost completely powered by ethanol. And our shuttle bus fleet runs on Compressed Natural Gas.

PRIVATE SECTOR

I would like to talk briefly about the important role the private sector plays in economic development. As you know, many Fortune 500 corporations operate in Sao Paulo and have operated throughout Brazil for years. Small and medium-sized companies have also entered the Brazilian market and are making their presence known. I know there are many private-sector partnerships between Brazilian and U.S. companies.

The best companies don't measure their success simply in terms of dollars and cents, or simply in terms of profits. They know that economies flourish when people flourish. So they contribute to local communities and are committed to corporate social responsibility.

I'm pleased to remind you that Motorola was the 2004 winner of the Secretary of State's Award for Corporate Excellence for its great contributions to Brazil. Motorola worked with police chiefs and citizens across Brazil to help fight crime. They reached out to youth for mentoring programs and after-school programs. They also donated over $200 million to a technical college here in Sao Paulo, creating thousands of jobs.

Motorola's contributions are just one example of the many U.S. companies practicing good corporate citizenship overseas.

There is tremendous competition for capital investment around the world. Investors look for locations that are open to foreign investment, have transparent regulatory regimes, and offer predictable legal frameworks that can enforce contract and property rights. Brazil has made great progress on regulatory reforms over the past fifteen years, and it is important that such progress continues.

POVERTY REDUCTION

Finally, a word about the important task of poverty reduction. Not only have the people of Brazil called on its leaders to spread opportunity to those left out and left behind, but the people of this Hemisphere are doing the same.

Brazil has articulated a reform agenda very focused on the spread of opportunity. Already there are major gains in employment, particularly from the informal sector to the formal sector. Simplification and streamlining of the tax system will help businesses focus their energies on growing and being more competitive, both within Brazil and with other countries.

At last year's Summit of the Americas, President Bush proposed an innovative initiative, funded by the U.S. and the Inter-American Development Bank, for catalyzing much more private investment in infrastructure in this Hemisphere. Right now, public funds to build infrastructure are constrained in many parts of this region. It's imperative we find ways to unlock large volumes of private finance so that new businesses can start and existing ones grow. This of course helps those people who want to work to remain in the workforce. The U.S. will continue to work hard to realize this initiative. Similarly, we all know the vital importance of investing in our human infrastructure with better education and financing.

Trade is one of the most important tools for spreading opportunity to the poor. Indeed, economic studies confirm that countries with more open economies engage in increased international trade and have higher growth rates. The U.S. has taken the approach to linking trade, aid, and development with the Millennium Challenge Account (MCA) and trade capacity building initiatives. MCA funding will help this region: Honduras and Nicaragua have already negotiated projects and will receive $390 million in funding. Last fall El Salvador was selected to begin negotiations for an MCA compact, and Bolivia is currently negotiating one. Paraguay's Threshold Program has been approved, and Guyana is in the process of negotiating its own program.

CLOSING

Let me conclude by saying how optimistic I am about strengthening our relationship and achieving progress with Brazil and this Hemisphere.

Our two countries are committed to democracy, to market reforms and to economic freedom and opportunity. We are partners in security and prosperity for our peoples and for creating opportunities to those left behind.

And we value the democratic strength of our Latin American allies. By working side by side, we can help our citizens and people in the Americas and around the world take advantage of the ideals that democracy and freedom offer. Our work on sustainable development, trade liberalization and poverty reduction is a good start. The competitiveness of businesses in Brazil and the region will be maintained and improved if we continue to make real progress in these areas.

Our economic relationship with Brazil is unsurpassed in South America. We have a long history working together and we look forward to many more years of cooperation both with your government and with business leaders such as yourselves. Thank you.

Released on April 10, 2006

ENDS

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