BRAZIL THE NEW ECONOMIC SUPER- POWER OF THE 21ST CENTURY

For decades, the joke about Brazil has been that it's the country of the future-- and always will be. Despite enormous natural resources, it has long displayed an uncanny ability to squander its vast potential. Now it's beginning to look like Brazil might have the last laugh.

While Europe is consumed with debt and unemployment, and the mind is about fear of recession, Brazil is trying to figure out how to manage an economic boom. With the World Cup and the Olympics on their way, Brazil is about to make its grand entrance on the global stage.

Brazil has a population of 192 million, a GDP of $ 1.6 trillion forecast to grow at 4% for 2012, it is a huge country slightly larger than the continental U.S. with vast expanses of arable farmland, an abundance of natural resources, 14% of the world's fresh water, 80% of its electricity comes from hydropower, it has the most sophisticated biofuels industry in the world, and for its size the world's greenest economy. Brazil is already the largest producer of iron ore in the world, and the world's leading exporter of beef, chicken, orange juice, sugar, coffee and tobacco- much of it bound for China, which has replaced the U.S. as Brazil's leading trade partner. But it's not just commodities that are driving the Brazilian boom. The country has a substantial manufacturing base and a large auto industry. Aviation giant Embraer is the world's largest aircraft manufacturer, behind Boeing and Airbus and a main supplier of regional jets  to the U.S. market in particular.

Brazil will host the 2014 World Cup and the 2016 Olympics. For the World Cup this means $ 23 billion in construction, $ 10 billion in services, 600,000 international tourists, 3 million domestic tourists. For the Olympics, this means an urban revitalization project (Porto Maravilha) estimated at $ 4.15 billion by 2015, an $ 8 billion investment in expanded bus, rapid transit system, trains, subways, the installation of a new high-speed fiber-optic network in Rio's downtown, hundreds of millions of $ spent on public security by the Federal Government and the State of Rio deJaneiro. But this is not all, there are other infrastructure projects: $ 23 billion investment by 2015 including $ 4.5 billion to complete the Sao Paulo beltway, $ 116 billion in planned, long term railroad to improve the cost of bringing Brazilian goods to market, $ 21 billion in 34 ports investments, including dredging, logistic, intelligence, passenger terminals, a $ 7.6 billion for low income housing.

In the oil and gas sector, things are looking good too. Pre-salt oil and gas discoveries are attracting enormous amounts of capital. Pre-salt holds an estimated 50-100 bbl- almost 3 times the size of the 36 bbl pumped or in reserve in the North Slope of Alaska. The Tupi field (now renamed Lula) is already producing over 100,000 bpd from a pilot well drilled in 2010. It is estimated to contain 5-7 bbl increasing Brazil's reserves by 62% or an amount equivalent to Norway's proven reserves. This field alone is expected to require 100 wells and will require new refining and petrochemical facility on shore. Another recent find (The Libra field) is estimated to hold 2 to 3 times the amount of the Lula field. Beyond exploration and production growth in the oil and gas sector will drive significant demand for safety equipment. Brazil is also dramatically increasing its fleet of drilling platforms, FPSOs and support vessels throughout Brazil's shipyards. A number of refinery projects throughout the country will increase capacity from 2mbpd to 3.2 mbpd by 2015. Brazil's current consumption of 60 mm3/day of natural gas will rise to 125 by 2015. Domestic production is due to rise quickly. More than 7,500 kilometers of new oil and gas pipeline is being built at a cost of $ 8 billion.

The fifth EU-Brazil Business Summit took place in Brussels on 4 October 2011. Businesseurope, the National Confederation of Industry-Brazil (CNI) and Eurochambres put forward a pragmatic and ambitious agenda of issues, aimed at promoting trade and investments between the two economies. High level business leaders discussed cooperation in vital economic areas, such as innovation, financial services, investment opportunities, energy and climate change. In addition, the benefits of the EU-MERCOSUR Association Agreement and its far reaching free trade agreement were discussed with key policy leaders.

European and Brazilian business call on political leaders to advance integration between the two economies to promote sustained growth and jobs. European and Brazilian business believe the EU Brazil Strategic Partnership is an essential policy avenue to boost bilateral relations and build on past achievements. The 2011 review of the EU-Brazil Strategic Partnership allowed for the identification of the most important issues in the bilateral relationship.

In a recent joint study with the EUBRASIL asociation and with input from Businesseurope, CNI and Eurochambres, the business community developed the following recommendations:

a) Create a higher profile mechanism with active and centralized cabinet-level leadership to advance the Strategic Partnership in close cooperation with business representatives;

b) Improve mechanisms of coordination, monitoring and transparency of the several initiatives incorporated in the Joint Action Plan (JAP). This could be expedited through a centralized mechanism to monitor and publicize information and reports of different dialogues;

c) Update the agenda of the JAP to take into account the evolution of the international economic environment and its impact on Brazil and the EU performances;

d) Expand and upgrade trade issues in the JAP. Trade facilitation, technical barriers and sanitary and phytosanitary measures are some of the areas that should deserve more room or should be included in the agenda;

e) Review the sectors selected for the bilateral dialogues. JAP includes pilot sectoral industrial and regulatory dialogues, but it is necessary to review the selected sectors, goals and methodology in these dialogues, notably to include SMEs;

f) Pursue sector or issue-specific agreements. Deepening on the idea of reviewing the industrial dialogues, it is possible to engage in negotiations to agree on areas with common political and economic interests;

g) Improve tax regulation to reduce tax burden on investments. In the area of taxation on investment there are substantial proposals already prepared by the EU-Brazil Investment and Tax Council;

h) Strengthen bilateral dialogues on regulatory issues, in the areas particularly subject to regulations (as energy, telecommunications, infrastructure, raw materials);

i) Improve the mechanism of dialogue between the intergovernmental process and the business forum. From a business point of view, the most relevant initiatievs in the JAP should foster bilateral trade and investment flows or facilitate the emergence of new competitive advantages in Brazil and the EU. Such initiatives include measures geared at

1. Removing policy and regulatory obstacles to the free flow of goods, services and investments; Fostering innovation, mainly related to the new production and societal paradigm.

2. Financial Services Cross-border investment and cooperation between the EU and Brazil is very high in the financial sector. Consequently, there is a strong interest in boosting cooperation in regulatory issues in the years ahead. Brazil and the EU should notably look at issues such as the implementation of capital requirement rules and ensure that access to credit for the non-financial sector will continue to be strong. There should also be more EU-Brazil cooperation in the G20 context to deal with major macro-economic issues such as exchange rates.

3. Energy and Climate Change. The Copenhagen Summit in December 2009, did not deliver the breakthrough in climate negotiations that Brazil and European business wanted. However, the main players- among them Brazil and the EU- underlined their commitment to prevent the rise in global temperature by 2° C in 2050. Brazil has played an impressive leadership role in renewable energies specifically with the 2020 strategy and the raw materials initiative. However, there are many opportunities to work more closely together. There is scope, for example, for increased use of renewables as feedstock in EU industry. In addition, cooperation on infrastructure and energy investments could contribute positively to new joint investment projects in the EU and Brazil.

4. Investment. In the period preceding the crisis 2007-2008, the EU accounted for about 50% of direct investment uin Brazil. Starting in the 1990's European investments diversified significantly in terms of sectors' destination and country of origin flows. Investment in infrastructure services such as energy, telecommunications, finance and transportation increased rapidly. In the current decade, there is renewed diversification towards natural resource-intensive sectors such as mining, steel, oil and gas. Brazilian investments into the EU has increased rapidly in the past decades, and will become the main vector of deepening bilateral economic relations. However, to harness this potential, Brazilian and European companies need to find a favourable investment environment for new businesses. Therefore, it is imperative that the regulatory and tax environment are improved both in Brazil and the European Union.

5. Enhancing Competitiveness through Innovation. Innovation is crucial if countries and companies are to prosper in an increasingly global economy. The EU-Brazil Jointy Action Plan sets science, technology and innovation as one of its top priorities. More than ever, the EU faces the challenge of finding new ways to boost economic growth, while Brazil needs to ensure that its recent economic success is grounded on solid bases. However, the conventional, research-driven approach to innovation policy is outdated. Innovation is about successfully bringing ideas to markets; entrepreneurs and businesses are pivotal to this process. There is a need to focus and support a more entrepreneurial-driven approach to innovation within the EU-Brazil Strategic Partnership as well as the role that business linkages can play to enhance productivity and competitiveness. SMEs should be included in this process.

6. EU-MERCOSUR Association Agreement. Business calls for an ambitious and balanced Free Trade Agreement that contributes to economic growth and the well-being of societies. Defensive considerations in the agricultural or other specific sectors should not be exaggerated and should especially not be allowed to derail EU MERCOSUR negotiations. Businesseurope, CNI and Eurochambres are currently promoting dialogue between sectors to develop joint understanding and support for the opportunities that this agreement will provide. Since 1999, the MERCOSUR- European Union Business Forum (MEBF) has been formulating and disseminating specific recommendations on all relevant areas of negotiations. In this context, business representatives from both sides were able to overcome their dfiferences to produce joint recommendations in areas as diverse as trade liberalization, nontariff barriers, special and differential treatment, services, investment, among several others. The parties should take a pragmatic approach to find ways to achieve an ambitious result as soon as feasible, keeping all options on the table, the Strategic Partnership shall continue to expand and deepen to enhance its business content.

7. Taxation. The Brazil-EU Investment & Tax Council is the central focus of efforts to resolve the major difficulties in bilateral tax relationship. The establishment in June 2010 of the EU-Brazil Investment & Tax Council reaches a goal set by the Brazilian and European business during the Third EU-Brazil Summit in Stockholm, September 2009. The Council identified a number of barriers that negatively affect bilateral investment and, in particular, those directed to Brazil. Among them, are difficulties related to the Brazilian legislation on transfer pricing, the high tax burden on services and technology transfer, double taxation between Brazil and several European countries, and the complexity of the tax environment in Brazil. This also hampers the internationalization of Brazilian companies. These factors increase the cost of investment in Brazil, restrict the transfer of technology to the country, and hamper the consolidation of Brazil as a regional hub. Brazilian and European business believe the Brazil-EU Investment & Tax Council should be the main forum to concentrate the efforts of private and public sectors to improve the tax environment. Governments should take steps to remove barriers to trade and investment. The overall regulatory system on both sides creates problems for bilateral investment and trade.