Brazilian-U.S. Overtures Bode Well for U.S. Companies

The United States is courting Brazil’s new president, Dilma Rousseff, about U.S. business interests in the country. President Obama will meet with Rousseff in Brazil on March 19-20 to lobby for Boeing to get a multibillion-dollar contract to make 36 fighter jets for the Brazilian Armed Forces, and to broker other economic opportunities for U.S companies around offshore oil reserve exploration, improving its tourism and transportation infrastructure, and strengthening its security operations before and during the 2014 World Cup soccer tournament and the 2016 Rio Olympics.

Sean Power

The United States wasted no time in courting Brazil’s new president, Dilma Rousseff, following her January 1 inauguration. Republican Senators John McCain and John Barrasso visited her on January 10 and Treasury Secretary Timothy Geithner paid a call on February 7. Much of the U.S. interest is about a $6 billion plan initiated under her predecessor Luiz Inácio “Lula” da Silva to purchase 36 fighter jets for the Brazilian Armed Forces, with the possibility of 120 more to be ordered at a later time.

While Lula sought to finalize a deal with the French company Dassault, Rousseff has expressed her interest in purchasing from the U.S. company Boeing. President Obama will meet with Rousseff in Brazil on March 19-20 to further lobby for Boeing and to broker other economic opportunities for U.S. companies in Brazil. Among these opportunities are the providing of financial capital for Brazil’s offshore oil reserve exploration, improving its tourism and transportation infrastructure, and strengthening its security operations before and during the 2014 World Cup soccer tournament and the 2016 Rio Olympics.

 

Brazil’s solicitation of bids to construct 36 military aircraft began in October 2008, after the three finalists for this contract were chosen — Dassault, Boeing, and the Swedish company Saab. Since Boeing’s bid was submitted, Washington has tried to make the case that its offer has been the best for Brazil. Yet, in the words of U.S. Embassy Charge d'Affaires Lisa Kubiske in a leaked May 2009 memo, “it [Boeing’s proposal] still has no better than a fifty/fifty chance of success because of political support for the French competitor and a lingering belief among some Brazilian leaders that a close relationship with the U.S. may not be to Brazil’s advantage.” This cautious ”lingering belief” may have stemmed from Brazil’s interest in positioning itself as a neutral arbitrator of international and hemispheric conflicts, and may have been heightened by the Brazilian-U.S. diplomatic discord over containing Iran’s nuclear weapons program.

 

Lula’s desire to contract with France for this aircraft purchase remained stalled when his second presidential term came to an end, leaving Rousseff to make the decision. Her announcement that she would re-open the bidding process (due to France’s proposal being the costliest) has given the United States and Sweden second opportunities to make their cases. Rousseff’s interest in “forg[ing] closer ties with the US,” as she told The Washington Post in a December 3 interview may also have influenced her decision.

 

By sending multiple high-ranking U.S. officials to Brazil to meet with Rousseff in the weeks following her inauguration, Washington has sought to avoid the mistake it made with Lula of not “show[ing] the United States government is supporting the sale strongly,” in the words of Charge d'Affaires Kubiske in a leaked May 2009 memo.On January 10 Senators McCain, Chairman of the U.S. Senate Armed Services Committee, and Barrasso, held an hour-long meeting with Rousseff about Boeing’s proposal and other matters. In their meeting, McCain promised “to ensure that the president of the United States and the Congress are clear that their will be a complete transfer of technology if the Brazilian government decides to purchase the FA-18,” as he told reporters following the discussion. Brazil has made the transfer of technology a priority for all proposals.

 

In their meeting, Barrasso also told Rousseff that Brazil could receive large investments from U.S. companies in theexploration of Brazil’s offshore petroleum reserves—conservatively estimated to hold between five and eight billion barrels. In late January, Brazil’s state-owned oil company, Petrobras, completed a $6 billion bond offering, Brazil’s largest ever, to raise cash for this offshore exploration. The company plans to raise $30 to $40 billion by 2014 to fund these activities. McCain and Barrasso’s visit must have been effective because in the February 7 meeting with U.S. Treasury Secretary Geithner, Rousseff told him that she prefered Boeing’s proposal. Before signing an agreement, however, Rousseff has indicated that she is seeking better conditions from Boeing, such as the provision of assistance in transportation, satellites, and war systems. And her administration’s announcement on March 1 that it would put an indefinite hold on this purchase as a way to reduce inflationary pressure may mean that no contractor will ever be chosen. Obama will have a face-to-face opportunity to convince Rousseff otherwise when he visits with her in Brazil on March 19-20, accompanied by ministers, advisors, and industry representatives. At the meeting, they are also expected to issue a joint statement announcing an agreement with the Export-Import Bank of the United States that would provide financing for infrastructure investments in Brazil by U.S.-based companies and U.S. subsidiaries of multinationals and pledging bilateral cooperation on sustainable energy technology.

Another area of talks that may open doors for U.S. companies in Brazil centers on the country’s security preparations for the 2014 World Cup and 2016 Olympics. The United States has long been concerned with Brazil’s readiness in this area, particularly in preventing a terrorist attack. According to leaked embassy cables, Washington has built up its embassy staff to assist Brazil with security preparations. In addition, as recently as September 2010, the U.S. Department of Commerce’s International Trade Administration led a trade delegation to Brazil to “tap immediate opportunities in the private and public security areas in Rio de Janeiro, Brasília and São Paulo.” According to the Department of Commerce, the public and private security market in Brazil was valued at $20 billion in 2009. This amount will only mushroom as the World Cup nears.

Commenting on the prospects for amicable Brazilian-U.S. relations, U.S. Assistant Secretary of State for Economic, Energy and Business Affairs Jose Fernandez told reporters on February 10, “We have what I would call a sweet spot: We have a new government in Brazil, we have our president coming here. We have a lot of opportunities and we believe now is the time to try to take advantage of those opportunities.” Talking about U.S. investment in Rio’s 2016 Olympics he added, "Stadiums, roads, power plants, electricity — those are areas where we believe U.S. companies can play a part.”

 

U.S. businesses are also benefitting from Rousseff’s continuance of Lula’s economic policies, especially his low restrictions on foreign direct investment. According to the Brazilian Finance Ministry, direct foreign investment rose from 43% to 72% of GDP between 2001 and 2009.

 

Though the United States may not overtake China as Brazil’s largest trading partner, Washington is steadily opening doors for U.S. businesses in the country. With Brazil’s economy expected to continue growing, there will be no shortage of U.S. interest in satisfying its rising consumer demand. 

 


Sean Power is a NACLA Research Associate.

 

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