At a time when global trade negotiations are on hold and protectionist sentiment is growing around the world, it must have felt good to sit in the audience at the U.S.-Brazil CEO Forum, held this autumn in Brasilia. Bi-national trade between the United States and Brazil is booming, and despite an overall trade deficit, American manufacturers recognize Brazil as one of the bright spots in the export sector.

“Brazil is one of the great economies of the world,” said U.S. Secretary of Commerce Carlos Gutierrez at a preliminary speech to the forum in Sao Paulo, hosted by the American Chamber of Commerce. “Brazil also has one of the most advanced industrial sectors in Latin America and a diverse and sophisticated services industry.”

Indeed, the Brazilian market is a case study for the ways in which the United States continues to lead in the manufacturing, parts, and capital equipment sectors. And as more developing countries follow Brazil’s lead and begin to deepen their links to the global economies, they will also likewise expand their imports of the kinds of goods the United States makes best—high-end, high-tech products.

That said, importing to Brazil is not easy, as even Gutierrez recognized. “Companies doing business frequently face high tariffs, a difficult customs system, a heavy and unpredictable tax burden and a legal system that is overloaded and slow to enforce business law,” he said.

In other words, Brazil is already a strong U.S. export destination, but one that has the potential to be even stronger. Watching how U.S.-Brazil trade relations and markets develop, then, will provide exporters with a blueprint to the future of the U.S. export economy.

The numbers tell it all. In 2003, the United States exported $11.2 billion in total goods and services to Brazil, while it imported $17.9 billion. In 2006, those numbers had exploded to $19.2 billion in exports and $26.4 billion in imports—still a deficit, but a significantly narrowing one.

“Exports to Brazil are very diverse, they’re not tied into a specific sector,” says Xiomara Creque, a Brazil specialist at the Export-Import Bank in Washington. “A few years ago, we saw a surge. Now, we see export growth in a combination of everything from agriculture to medical products.”

Some of this, say experts, is the natural result of the chronically weakening dollar; but only some. Much more important is the growth of the Brazilian economy in capital-intensive sectors like construction, medicine, aerospace, and agriculture—all areas in which U.S. manufacturers excel.

American exports to Brazil are so hot, in fact, that the United States is the number one destination of Brazilian exports and the largest source of its imports—way ahead of neighbors like Argentina and Chile, despite the mutual trade preferences those three nations grant each other under the Mercosur free-trade regime (the United States, with 16.2 percent of Brazil’s import share, nearly doubles that of second-place Argentina).

“U.S. Brazil bilateral commercial relations have never been stronger,” says David Bohigan, assistant secretary of commerce for market access and compliance.

Many of the leading sectors for U.S. exports are also those sectors that support Brazil’s own export economy: mining equipment, road construction vehicles, and aerospace parts. In fact, as a way of restarting global trade talks, U.S. and Brazilian trade negotiators are quietly discussing the possibility of a grand bargain in which the United States would lower its agricultural subsidies—a key demand of developing countries—in exchange for a drastic reduction in Brazilian trade barriers for U.S. manufactured and capital goods.

A quick look at some of the American executives involved in the recent CEO Forum gives a hint of the industries invested in expanding exports to Brazil: Among the nine were Tim Solso, chair and CEO of engine maker Cummins; Alain Belda, chair and CEO of Alcoa; Craig Barrett, chair of Intel; David Speer, chair and CEO of Illinois Tool Works; and Bill Rhodes, chair and CEO of Citibank.

The biggest area for U.S. export growth to Brazil is the agricultural sector. Brazil is the world’s largest exporter of beef, coffee, sugar, and orange juice, and it has experienced red-hot growth in its soy shipments. But global agricultural leadership requires a world-class processing and transportation infrastructure, something Brazil sorely lacks. Not surprisingly, between 2002 and 2006, U.S. chemical exports, primarily fertilizers and other agriculturally focused products, expanded from $1.6 billion to $2.4 billion.

Because many U.S. machinery manufacturers have strong local subsidiaries—both Deere and Caterpillar have had a Brazilian arm for decades—the United States doesn’t export many finished earthmovers or threshers. But it has seen an explosion in exports of the parts that go into building and maintaining such equipment.

Along with agricultural exports, Brazil is a fast growing purveyor of natural resources. As a result, supplying the natural-resource industry has become another leading export opportunity.

Brazil, like China, India, and other large, fast-developing nations, is an attractive export destination because its industry straddles the line between commodity production and high-end consumer-oriented goods and services. 

Similar growth is occurring in medical and laboratory equipment, which erupted from $668.6 million in 2002 to $985.9 million in 2006. “Brazil is particularly interested in bringing women’s health, as an issue, to the forefront, and that means more imports of particular medical equipment,” says the Ex-Im Bank’s Creque.

One of the most promising areas of potential export growth, say both Bohigan and Creque, is in the field of environmental technologies, including biofuels and clean coal. By international agreement, the Ex-Im Bank is allowed to write financing agreements for up to 50 years for environmentally related exports, making it an attractive area for future growth.

All of these bright spots, however, do not mean that the historical difficulties involved in U.S.-Brazil trade relations have disappeared.

The executives gathered at the CEO Forum, for example, developed a list of must-haves for the short and middle term. “The first issue for them was a bilateral tax treaty,” says Commerce’s Bohigan. “The CEOs believe that restricts trade between our countries.”

They’re probably not the only ones. Brazil requires all importers to register with a complex documentation and taxation system, which further requires extensive licensure. According to some estimates, it takes three times longer than average to move exports to Brazilian consumers.

“These measures have made importing into Brazil less transparent and more cumbersome for U.S. exporters,” said a recent report by the U.S. Trade Representative’s office. Even worse, it added, those non-automatic licensing requirements often appear capricious and arbitrary.

One area that has raised particular ire is in government procurement. Like Russia and India, Brazil is eager to enjoy the benefits of globalization, yet nervous about the extent to which foreign companies should participate in its domestic economy. As Brazil is not a signatory to the World Trade Organization’s Agreement on Government Procurement, it has much more leeway on how much it opens its public sector to foreign business.

Recognizing these barriers, the United States and Brazil have made several forays toward a resolution. Along with the CEO Forum and informal negotiations over multilateral trade talks, the two countries initiated a commercial dialogue in 2006 which has led to increased cooperation on patent standards, customs streamlining, and tradeshow promotion.

Such efforts, while helpful, really only dance around the core issues, however, of lowering the cost—in both time and money—of selling to Brazil. The country represents an enormous and often underappreciated market for U.S. goods, and one that will grow even larger as its economy matures.

At his speech in Sao Paulo before the CEO Forum, Gutierrez bluntly recognized the challenging nature of U.S.-Brazilian trade. “On a per capita basis,” he noted, “the United States has significantly more merchandise trade with the countries of Central America and the Dominican Republic and Chile than with Brazil.” That’s a sobering statement, but one that also illustrates the vast potential for growth in U.S. exports—all it takes is more cooperation. wt