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BRAZIL-U.S. “HOT” ISSUES The Brazil-U.S. economic and commercial relationship has reached historic heights and continues to grow. As a consequence, there are an increasing number of “trade irritants” and trade disputes between the two countries. In addition, political and macroeconomic developments in either country have caused friction in the bilateral trade. Please see the BrazilU.S. Political Relations document on this tab for further information. The Brazil-U.S. Business Council (BUSBC) actively works to prevent these matters from disrupting the bilateral relationship. Below are the most important current irritants — or “hot” issues—in the bilateral commercial and economic agenda. 1) World Trade Organization (WTO) Cotton Dispute In September 2002, Brazil successfully challenged a number of U.S. Government cotton programs in the World Trade Organization (WTO). After seven years of litigation and side negotiations in Geneva, the WTO Dispute Settlement Body concluded that the United States had not sufficiently changed its programs to comply with WTO rules. As a consequence, it authorized Brazil to impose trade retaliation against U.S. goods and “cross-retaliation” against U.S. intellectual property rights. In 2010, both countries reached a temporary agreement to avoid retaliation and work toward a definitive solution in the context of the 2012 Farm Bill. In 2011, Congress attempted, four times, to dismantle the temporary agreement as it includes a monetary compensation clause that requires the U.S. to transfer $147.3 million annually to the Brazilian Cotton Institute (IBA). For the past three years, the Brazil-U.S. Business Council has lead a coalition of companies – called BRAZTAC – in an effort to lobby for a definitive solution to the case. The BRAZTAC position is that without a definitive solution, the U.S. government should maintain the payments in compliance with the temporary agreement. The U.S. government did not pass a Farm Bill in 2012. The story is repeating itself in 2013 with a more damaging twist. Both the House and the Senate passed their versions of the Farm Bill, but it is unclear if they will go to conference any time soon. However, the United States transferred less than the agreed amount to IBA in September in violation of the temporary agreement. The U.S. Department of Agriculture has stated repeatedly that there is no authorized money in the budget to make additional transferences to IBA this year. In response to the U.S. breach of the temporary agreement, the CAMEX (Brazilian Foreign Trade Board) established an inter-governmental task force to report on possible measures of trade retaliation by November 30. 2) Data Center Localization Requirement on the Internet Framework Bill The Internet Framework Bill (P.L. 2126/2010) was developed as part of a collaborative process between the public sector, private sector, and civil society to codify the rights and duties of internet users, servers and public authorities. The project received over 800 comments and was introduced in the House in August 2010. The three pillars which the bill is based on are: network neutrality; data privacy; and freedom of expression. The recent allegations of U.S. spying activities triggered a national discussion in Brazil on the need to speed up the voting process of the Internet Legal Framework by Congress. The bill 2013 Annual Advocacy Mission

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now is under a “Constitutional urgency” process – a special fast track procedure. It should be voted on in 45 days if there are no other bills under the same process ahead of it. The latest report is that the bill will be voted on October 30. In addition, the Executive branch is now pressuring the bill’s rapporteur, Allessandro Molon (PT), to add a provision to the bill that would require data centers to be established in Brazil. This is now a national security issue for Brazil. Internet companies have been actively trying to dissuade the government from adding such a requirement to the text of the bill. Last month the BUSBC, the U.S. Chamber of Commerce, and several foreign associations submitted a letter to the National Congress urging its members to consider the broad negative effects within the Brazilian economy of any proposal that would include in-country data storage requirements. 3) U.S. Export Controls and the Sales of Military Aircraft For many years, BUSBC member Boeing has been a contender in a bidding process led by the Brazilian Air Force (FAB) to buy modern jet fighters. The U.S. competitors are the French and the Swedish. In 2010, then Brazilian President Luiz Inácio Lula da Silva made public statements in favor of the French proposal, but no formal decision was issued. Brazilian President Dilma Rousseff already demonstrated interest in revisiting the three proposals, increasing U.S. chances. On a positive note, earlier this year the United States Air Force (USAF) awarded Brazil’s Embraer a bid for light support aircraft—the Super Tucanos – after a contentious bidding process. It is worth noting that the deals are of different magnitudes: the sale of Embraer’s Super Tucanos amounts to a few hundred million dollars, while the sale of the U.S. jet fighters amounts to a couple billion dollars. There is a perception in Brazil that U.S. export controls and the role played by Congress in sales of military aircraft are major political risks for Brazil. In 2005, for instance, the U.S. blocked a Brazilian sale of Super Tucanos to Venezuela because the light aircrafts use American technology. A more recently example is the sale of several Blackhawk helicopters purchased by the Brazilian Air Force from Sikorsky Aircraft. The helicopters software has a technical problem whose fix apparently needs a U.S. export license which has not been forthcoming. When Brazilian President Rousseff visited Washington, D.C. on April 9, 2012, she and President Barack Obama agreed to create a presidential-level U.S.-Brazil Defense Cooperation Dialogue (DCD). The creation of the DCD and the Embraer bidding win reversed some of the previous estrangement between the two countries. Nonetheless, the recent allegations of U.S. spying have created political friction between Brazil and the United States over the defense sector. FAB’s bidding process decision was postponed to 2014 due to budgetary constraints, while USAF is expected to issue a decision on its new bidding in January 2013. This past summer, the two countries informally agreed to create a working group to share best practices and to resolve questions regarding the application of export control laws - the BrazilU.S. Strategic Trade Working Group (“STWG”). As of now, the United States is waiting for a confirmation from Brazil on the establishment of the STWG.

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