The UK is to sign a bilateral defence co-operation agreement with Brazil – one of the world’s fastest-growing arms markets – as it competes to secure lucrative overseas contracts for its weapons industry against a background of defence spending cuts.

With the agreement, the UK government hopes to pave the way for a multi-billion dollar contract for BAE Systems, Europe’s largest defence contractor, to supply patrol ships and frigates to Brazil’s navy.

“Brazil has some very serious aspirations and they have the wherewithal to afford them,” said Ben Palmer, development director for BAE Systems surface ships division, adding: “There is an awful lot to fight for and a lot of competition.”

French defence contractors have made particular inroads in Brazil, which plans to boost its defence spending from 1.5 per cent of current gross domestic product to 2.2 per cent by 2030, by which time the country’s economy is expected to have expanded significantly given trend growth of 5 per cent.

In the past two years Nicholas Sarkozy, the French president, has helped secure €15bn-€20bn of business for French defence companies in Brazil in deals that include submarines and helicopters. Italy is also seen as a big competitor to the UK in Brazil. In comparison, some industry insiders say the UK has been dragging its feet.

If the BAE deal, which involves six patrol boats and five to six of the much more valuable Type-26 frigates, were to succeed, it could be worth as much as £2.9bn if the vessels were built in the UK.

The price tag is expected to be less, however, given that Brazil wants to boost its defence and manufacturing industry by building most of the vessels itself.

BAE said it was likely to build the first vessels in the UK, educate Brazilian shipbuilders in the process and then move the manufacturing to Brazil in a “technology transfer” agreement similar to those the company has made with Greece and Thailand.

In March, BAE won a £127m, four-year design contract for Type-26 frigates for the Royal Navy.

About 300 people from BAE and the Ministry of Defence are working in Filton, near Bristol, to move the vessel from concept design to manufacture. The first Type-26 is expected to go into service in the early 2020s.

The vessels are designed to be used in anti-submarine warfare, support for land operations, command and control functions and protection of high-value shipping and come with a price tag of £300m-£400m apiece when built in the UK.

Meanwhile, the six patrol boats, at about £60m-£80m apiece, would likely be used for surveillance and deterrence at Brazil’s big offshore oil fields and in more general maritime security and search and rescue operations. They are similar to those BAE has built for the coastguard of Trinidad and Tobago, which also has an offshore oil industry.

The biggest prize for BAE, however, would be a contract maintaining and upgrading the vessels over the next 20-30 years.

The deal comes at a critical time for BAE and other defence groups as they face steep cuts in spending in the UK and elsewhere. The UK is expected to cut its defence budget by as much as 15 per cent.

BAE, for example, has been told to prepare for the possibility that the UK scraps plans for a fleet of new aircraft carriers, even though the company already has two new ones under contract, with one already being built.

To compensate, the government has promised to help industry sell its equipment and services abroad, mainly to developing ­countries such as India and Brazil. Tuesday’s bilateral government agreement is to be signed by Gerald Howarth, minister for international security strategy.

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