a n a l y s i s
Brazil Increasingly Unenthusiastic about U.S. FTAA Proposals
Has Bush’s “Century of the Americas” already come and gone?
by Matthew Flynn | February 1, 2002
During his two terms in office, Brazilian President Fernando Henrique
Cardoso has transformed his country’s formerly inward looking, state-dominated
economy into one of Latin America’s leading models of free trade reform.
Economic aftershocks following Brazil’s 1999 devaluation of its currency
were short-lived and the catastrophe now facing Argentina was avoided.
With its economic house more or less in order (though blaring social inequalities
persist) the world’s fourth largest democracy has now begun to play a
larger, more activist role in international affairs, often taking stances
contrary to those of the world’s industrial powers-including the United
States.
Brazil’s policy of distributing AIDS medications free of charge, for
instance, runs contrary to the interests of large pharmaceutical companies,
many of them based in the United States, and is eyed with distaste in
Washington.
At the latest World Trade Organization (WTO) meeting in Qatar, Brazil
successfully argued that AIDS medicines should be exempted from the TRIPS
accord-despite U.S. resistance.
Brazilian diplomats are now fighting for the inclusion of "traditional
knowledge"-for example, the herb-lore of Amazonian peoples-in the
international patent rights regime.
Brazil has also vigorously condemned the use of agricultural subsidies
by wealthy countries as protectionist measures intended to safeguard their
own agricultural sectors.
Similarly, in a dispute with Canada over export subsidies for regional
airplanes, Brazil has firmly stood its ground. And when that imbroglio
boiled over into other areas, Brazil responded to Canadian allegations
that its beef was contaminated by Mad Cow Disease by taking Canadian goods
off supermarket shelves and shunning companies backed by Canadian investors.
Of course, Brazil does not always assume adversarial positions vis a
vis the rich countries of the North. After the Sept. 11 terrorist attacks
on the United States, Cardoso quickly invoked the Rio Treaty mutual-defense
pact. Still, the move was more public relations than substance: Brazil
continues to look askance at U.S. policy in Colombia.
Brazil’s Stance in FTAA
Negotiations
While the application of the International Monetary Fund’s (IMF) neoliberal
recipe in Brazil has so far been successful in achieving macroeconomic
stability, over the last decade Brazil has experienced less-than-spectacular
growth-and has racked up recurring trade deficits. For 2001, economists
estimate that GDP grew a mere 2%, the result of the global slowdown, Argentina’s
downward spiral, and a domestic energy crisis.
The leading drag on Brazil’s economy is its need to annually send close
to $25 billion overseas in order to service its debt obligations and repatriate
profits. In the recent past, large sums of foreign direct investment-mainly
through the sale of state assets-covered Brazil’s accounts. But now that
the pace of privatization is slowing, Brazil is being forced to look elsewhere
for sources of income. In other words, as Cardoso has put it, Brazil must
"export or die!" Thus Brazil, like most other Latin America
countries negotiating the Free Trade Area of the Americas (FTAA) with
the United States, is interested in gaining greater access to the world’s
largest consumer market.
Currently, the United States imposes average tariffs of 3% on Brazilian
goods, compared to Brazilian duties of 16% on U.S. imports. However, Brazilians
are quick to point out that the disparity in tariffs is not as large as
it seems, since the 15 most important Brazilian exports to the United
States are charged, on average, a tariff of 45.6%. Brazilians add that
many of their exports also confront numerous phytosanitary barriers and
quotas, such as those applied to tobacco. When the quotas are surpassed,
U.S. tariffs on those commodities can reach 350%.
As a result, Brazilian resentment over U.S. trade policy is growing.
Even if the U.S. Senate George W. Bush Trade Promotion Authority, commonly
called ‘fast track’ authority, U.S. negotiators may find Brazil unimpressed-especially
since the version of the fast track bill passed by the House this past
November included measures which Brazilians say are protectionist and
targeted against their most competitive exports, soybeans, sugar and orange
juice.
"The United States has recently passed fast track for FTAA negotiations,
but with conditions which, if they are taken to the letter, mean that
there would be no FTAA," Cardoso said following the House vote.
One of Brazil’s most effective bargaining tools is its leadership role
in the Mercosur trade bloc-home to an estimated 50 million middle class
consumers and potential purchasers of U.S. goods.
Brazil recently played this card successfully when it garnered enough
support from other Latin American countries to overturn a U.S. motion
to inaugurate the proposed FTAA ahead of schedule in 2003, instead of
in 2005 as initially planned.
One reason behind the U.S. push to implement the FTAA earlier is the
fact that Mercosur is set to clinch a free-trade deal with the European
Community within the next two years. The United States would like to firm
up the FTAA before that happens.
Latin America’s southern cone receives more investment from Europe than
from the United States, but Mercosur’s turn to Europe has to do with more
than just trade and investment. There is also talk of the need for a "little
Maastricht" for countries of the Southern Cone, and European know-how
and experience is being sought in this regard.
Cardoso has praised Europe’s willingness to tackle the sticky problem
of wealth and development disparities within the European Union (EU) and
between Europe and nearby neighbors by establishing regional development
programs. "If we wish to move toward effective integration in the
hemisphere, the task should be to eliminate the differences between nations,
which are unjust; and the profound inequality of income and the quality
of life within nations as well as between nations," he has said.
Deepening Public Doubts
in Brazil Regarding the Free Trade Model
Alongside the Brazilian government’s independent stance on trade relations
comes deepening public dissatisfaction with the results of economic liberalization.
Presidential elections in this coming October make this trend even more
significant.
In a country where 23 million live in extreme poverty, the issue of improving
living standards touches nationalist sentiments. Though relieved to have
put the days of hyperinflation behind them, many Brazilians say they are
tired of the government’s neoliberal policies and doubt that free trade
will improve their situation. Public servants have had their salaries
frozen for seven years, while consumer prices have tripled. And some 570,000
factory jobs have been lost in the industrial suburbs of São Paulo
since the start of the Real Plan in 1994.
Additionally, while gaining greater access to the U.S. market has its
attractions, many Brazilian producers also fear being swallowed up by
an economy 18 times bigger than Brazil’s. Like other developing countries,
Brazil faces many disadvantages when competing head-to-head with firms
from advanced countries. These include inadequate infrastructure, heavy
taxes, high cost of capital and a lack of investment in export industries.
"Almost everything that we export [today,] from steel to orange
juice, from paper and pulp to iron ore, is the product of [historic] investments
from the end of the 1970s to the start of the 1980s," notes Rubens
Ricupero, former Finance Minister and current secretary-general of the
United Nations Conference on Trade and Development (UNCTAD).
In fact, there is a growing chorus in Brazil that the FTAA should be
abandoned altogether.
At the end of last year, the lower house of Brazil’s Congress unanimously
passed a non-binding measure to withdraw from FTAA talks.
"If the United States can pull out of the Anti-Ballistic Missile
Treaty because that doesn’t suit its interests, why shouldn’t we pull
out of negotiations that are not going to be of any benefit to us?"
asked Aloizio Mercadante, a legislator from the left-leaning Workers’
Party who sponsored the motion.
The alternative for Brazil-and probably the most optimal program, from
a Brazilian perspective-is to prioritize regional integration and expand
Mercosur.
Ambassador Samuel Pinheiro Guimarães, who was dismissed from his
position as the director of Brazil’s Foreign Service Research Institute
for his outspoken criticism of the FTAA, would like Mercosur to become
the "Free Trade Area of South America."
In Guimarães’ and many others’ view, U.S. competition will destroy
Brazil’s industrial base and lead to greater balance-of-payments problems
in the future. The logic goes that once the Mercosur common external tariff
(which reaches 35%) is removed, there will no longer be any incentive
to invest in Brazil. Transnational companies, instead, will establish
their factories along the U.S.-Mexico border and export to Brazil. Additionally,
a continent-wide bloc would mean even more bargaining power than that
provided by Mercosur.
FTAA or Bust?
If established, the FTAA would be the largest trade bloc in the world-an
area encompassing 800 million inhabitants and tallying a combined GDP
of $11.4 trillion. While still on the campaign trail, George W. Bush signaled
that creation of the FTAA would be one of the accomplishments of his administration,
the first step forward in what would be a U.S.-sparked "century of
the Americas."
But progress on that front has been negligible. Talks for easing restrictions
on the crossborder U.S.-Mexico labor market have foundered, and Bush barely
managed to win access for Mexico trucks to U.S. highways, as called for
by the 7-year-old North American Free Trade Agreement (NAFTA).
Most observers agree that resolving U.S.-Brazilian differences is a crucial
key for unlocking the FTAA talks. It is not clear, though, how willing
the United States will be to meet Brazilian demands.
The next pending hurdle for Washington’s FTAA plans relates to U.S. allegations
that Brazil is dumping steel. The International Trade Commission will
be ruling in coming months whether or not to impose quota and tariff restrictions
on Brazilian steel.
Celso Lafter, Brazil’s Foreign Minister, has already threatened that
Brazil will retaliate in the case of an unfavorable ruling.
If the country’s actions during the recent trade feud with Canada are
any indication, by pushing hard with charges of steel dumping, the United
States runs the risk of scuttling the already in-doubt FTAA negotiations.
The implosion of the FTAA talks would be a welcome development for many
fair-trade activist organizations in the United States and elsewhere in
the Americas. Neither the Brazilian government nor the Bush administration
favor including any mention of labor and environmental issues in the FTAA
text, as advocated by fair trade activists.
Also, if Bush fails to win fast track and is obligated to negotiate on
what members of Brazil’s diplomatic corps refer to as ‘slow track,’ there
is a chance that the U.S. Congress could include social clauses like those
in NAFTA’s side accords. The Brazilian government’s position, frequently
vocalized, is that such measures are nothing more than U.S. protectionism,
and are not acceptable.
While the Bush administration and Brazil are in general agreement on
the issue of excluding social clauses from the text of the FTAA, Brazil’s
stance on including provisions akin to NAFTA’s notorious Chapter 11 investor
protection language in the FTAA presents a much stickier wicket. Brazilian
negotiators have bluntly stated that Brazil will never sign a trade deal
that cedes similar rights to foreign investors.
Brazil, without a doubt, will be the United States’ toughest negotiator
during the FTAA talks. In Brazil there is already growing discontent due
to perceptions of U.S. unilateralism and disillusionment with the results
of neoliberal reform. With presidential elections coming and Luis Inacio
Lula da Silva from the left-leaning Workers’ Party leading in the polls,
there could be a dramatic shift in Brazilian economic and trade policy.
Washington could suddenly find Brazil, like Venezuela, and to a growing
extent, Argentina, a less-than-enthusiastic partner.
Matthew Flynn is a freelance journalist based in Brazil. A graduate
of Georgetown University and the London School of Economics, he has previously
written for the IRC on Mexico’s Plan Puebla Panama. He can be reached
at matthew.flynn@journalist.com .
Links:
"At Free-Trade
Summit, Bush Needs To Win Over Brazil" | Associated Press, April
21, 2001
http://www.globalexchange.org/campaigns/brazil/news/ap042101.html
"Brazil Fuera
de la ALCA"| FPIF Global Affairs Commentary, May 2001
http://www.fpif.org/outside/commentary/0105brazilSP.html
"Free Trade
and Medicines in the Americas" | Foreign Policy In Focus Brief, vol.
6 no. 13, April 2001
http://www.fpif.org/briefs/vol6/v6n13meds.html
Instituto Brasileiro
de Análises Sociais e Econômicas (Portuguese only)
http://www.ibase.org.br/
"Mercosur
& the European Union" | Latin Business Chronicle, January 21,
2002
http://www.latinbusinesschronicle.com/reports/columns/mecham.htm
WTO Review of Brazilian
Trade Policies | Secretariat and Government Summaries, November 2000
http://www.wto.org/english/tratop_e/tpr_e/tp140_e.htm
This brief is a
product of the Interhemispheric Resource Center’s Global
Affairs
and Americas Programs .
All rights reserved.
Recommended citation:
"Brazil Increasingly Unenthusiastic about U.S. FTAA Proposals,"
Americas Program Analytical Article (Interhemispheric Resource Center,
February 1, 2002).
Web location: http://www.americaspolicy.org/briefs/2002/0202brazil.html
