Brazil and the US Sign a New Trade Deal With Limited Scope

On October 19, 2020, Brazil and the United States announced the signing of a Protocol on Trade Rules and Transparency (Protocol). The Protocol updates the 2011 Agreement on Trade and Economic Cooperation (ATEC) between the two countries with new annexes in three areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, and Anti-Corruption. The agreement represents the culmination of a long process. In 2016, former Brazilian president Michel Temer signaled interest in receiving additional investment from the United States. This outreach intensified the dialogue between the two countries, and the discussions gained momentum until the elections of Donald Trump in 2016 and Jair Bolsonaro in 2018. After a meeting between the presidents at Mar-a-Lago in March 2020, there were high hopes in the business community for the negotiation of an ambitious trade deal between the two largest economies in the hemisphere. The revised Protocol, however, is not a comprehensive trade agreement. The agreement does not include tariff reductions, measures designed to promote cooperation in strategic sectors, such as energy or infrastructure, or disciplines on express shipments. Moreover, the Protocol does not address agriculture, nor does it cover digital trade issues, such as Brazil’s plan to impose a tax on electronic commerce, which has proven to be a flashpoint between the US and a number of its trading partners. Nevertheless, the Protocol does contain important provisions – primarily based on the relevant chapters of USMCA — that could help facilitate trade between the US and Brazil in the medium and long term:

• Trade Facilitation and Customs Administration: the Annex includes important provisions on advance rulings, penalties, single window, authorized economic operator, automation, and the use of electronic documentation in line with the parties’ obligations in the WTO Trade Facilitation Agreement.
• Good Regulatory Practices: the Annex addresses the importance of internal coordination and transparency in regulatory development, regulatory impact assessment, information quality, regulatory agendas, retrospective review of existing regulations, and other internationally-recognized GRPs.
• Anti-Corruption: the Annex contains provisions addressing money laundering, the recovery of proceeds of corruption, the denial of a safe haven for foreign public officials that engage in corruption, and additional protections for whistleblowers. For Brazil, including strong anticorruption provisions supports President Bolsonaro’s flagship project against corruption that has been criticized with the shutdown of Operation Car Wash.

Although bilateral discussions toward a comprehensive trade agreement appear highly unlikely in the short- or medium-term due to strong congressional opposition, the Protocol could have a positive impact on bilateral trade flows over time – if it is faithfully implemented. Issues encountered by businesses in the three areas covered by the Protocol can create barriers to trade that, in many cases, are more substantial with regard to market access from a cost perspective than tariffs. For this reason, stakeholders should take advantage of opportunities for formal and informal engagement during the implementation process (e.g., some provisions have transition periods) to shape emerging laws and policies and help ensure that the commitments are met, which will reduce the incidence of trade barriers and other bilateral irritants in the long-term. It is worth noting that the Administration’s mini-trade deals, including the recent ones with Japan and Brazil, have raised significant concerns from leading Democrats in Congress about executive branch circumvention of the congressional role in trade negotiations. As a result, Congress is likely to demand significantly more oversight of USTR as the price for any subsequent TPA legislation after the TPA Act expires next year.