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How Commodity Markets Drive USA-Brazil Trade Relations

  Brazil, as the largest and most influential country in Latin America, has become a prominent advocate for developing nations in establishing regional and multilateral trade policies. The United States and Brazil have developed a productive relationship as they work towards promoting trade liberalization. They have made efforts to find a compromise with the European Union in the World Trade Organization's Doha Round and have established bilateral working groups to address trade and other related matters. However, they have contrasting approaches to trade policy, disagree on the regional implementation of the Free Trade Area of the Americas (FTAA), and have shared concerns on certain trade policies and practices. The trading policy of Brazil is influenced to some extent by economic considerations. The "trade preferences" also mirror deeply ingrained macroeconomic, industrial, and foreign policy. While the trade strategy of the United States prioritizes the negotiation of

How Commodity Markets Drive USA-Brazil Trade Relations

 Brazil, as the largest and most influential country in Latin America, has become a prominent advocate for developing nations in establishing regional and multilateral trade policies. The United States and Brazil have developed a productive relationship as they work towards promoting trade liberalization. They have made efforts to find a compromise with the European Union in the World Trade Organization's Doha Round and have established bilateral working groups to address trade and other related matters. However, they have contrasting approaches to trade policy, disagree on the regional implementation of the Free Trade Area of the Americas (FTAA), and have shared concerns on certain trade policies and practices.

The trading policy of Brazil is influenced to some extent by economic considerations. The "trade preferences" also mirror deeply ingrained macroeconomic, industrial, and foreign policy. While the trade strategy of the United States prioritizes the negotiation of extensive trade agreements on various fronts, Brazil's main focus is on addressing market access difficulties, particularly in relation to its economic dominance in South America. Brazil demonstrates its commitment to this principle in several trade forums, including advocating for modifications to agricultural policies within the World Trade Organization (WTO), seeking to enhance the Southern Common Market (Mercosul) in South America, and opposing the Free Trade Area of the Americas (FTAA) due to its perceived imbalance in favor of other countries rather than Brazilian interests.

Brazil possesses a contemporary and varied economy, with services constituting 53% of its Gross Domestic Product (GDP), followed by industry and manufacturing at 37%, and agriculture at 9%. The agribusiness sector, which includes both commodity and processed goods, contributes around 30% to Brazil's Gross Domestic Product (GDP). This is why Brazil places significant importance on agriculture policies during trade negotiations. Brazil holds the title of being the foremost global producer of sugar cane, oranges, and coffee. Additionally, it ranks as the second largest producer of soybean, cattle, chicken, and corn. Additionally, it is a significant manufacturer of steel, aircraft, vehicles, and auto components. However, it is rather insignificant in terms of global trade. Brazil's largest trading partner, in terms of a single country, is the United States.

Brazil strongly opposes U.S. trade policies, particularly the Byrd Amendment (which has been repealed but remains in effect until October 1, 2007). Brazil criticizes this policy for directing duties from trade remedy cases to affected industries, the administration of trade remedy rules, and what it perceives as unfair treatment in the U.S. expansion of free trade agreements in Latin America. The organization also opposes trade barriers that are particular to certain products, such as tariff rate caps on sugar, orange juice, ethanol, and tobacco. It also objects to subsidies for cotton, ethanol, and soybeans, as well as the extension of antidumping orders on steel and orange juice. Although there are variations between the two countries, they both acknowledge the possibility of significant benefits that might be achieved through trade liberalization that is mutually agreeable at all levels. Being a growing nation, Brazil has the potential to experience significant growth in its exports and imports. Therefore, it stands to benefit the most from eliminating foreign trade barriers and further opening up its economy unilaterally.

Brazil's transformation has been propelled by several key factors, including advancements in agricultural research that have led to higher crop yields, the expansion of arable land, significant investments in production technologies to cultivate various crops and forage varieties, and a growing global demand for food and animal feed, particularly in the past decade. What sets Brazil apart from other countries that produce grain and soybeans is its exceptional capability to cultivate two to three crops year on the same piece of land. Additional factors encompass export-oriented macroeconomic policies, prolonged periods of devaluation for Brazil's currency (the real), crop-specific agricultural policy incentives, enhanced sanitary controls, acquisition of foreign competitors, and an expanding multinational presence and foreign investment in the country.

Crop and livestock production constituted 8 percent of Brazil's Gross Domestic Product (GDP) in 2021. According to the University of São Paulo's Center for Advanced Studies on Applied Economics, Brazil's agriculture and food sector contributes 29 percent to the country's GDP, which amounts to $1.8 trillion in 2021, when considering operations like processing and distribution. According to Brazil's most recent agricultural census, the agricultural sector employs 15.1 million individuals in rural firms, which accounts for 15 percent of the total labor force.

From 2000 to 2020, Brazil's agriculture, which includes crop cultivation and livestock production, experienced an average annual growth rate of 8 percent when measured in U.S. dollars. During this period, agricultural output doubled and livestock production tripled. Starting in the mid-2000s, Brazil has significantly increased its shift from mostly exporting tropical agricultural products like coffee, sugar, citrus, and cocoa to being a significant worldwide provider of commodities such as soybeans, cereals, cotton, ethanol, and meats. Soybeans are a vital commodity in Brazil's agricultural industry, contributing to the country's rise as a leading global provider of agricultural products. In the year 2000, Brazil's soybean exports accounted for 40 percent of the United States' exports. Currently, Brazil's soybean exports exceed U.S. exports by 20 percent. Brazil accounts for about 50 percent of the global soybean trade, with crops cultivated on only 17 percent of the country's arable territory. From 2000 to 2021, Brazil's agricultural exports, including processed products, have experienced an average annual growth rate of 9.4%. These exports make up 37% of Brazil's overall exports. Brazil currently exports significant agricultural commodities and food items to 222 nations and territories, making it the third largest global exporter of agricultural products, trailing only the European Union (EU) and the United States.

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