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Brazil Post Cancun - A Stratfor Analysis

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Brazilian President Luiz Inacio “Lula” da Silva views the recent collapse of the World Trade Organization (WTO) talks at the Mexican tourism resort of Cancun as a great geopolitical victory for Brazil. “We scored an exceptional goal,” he said, using a soccer metaphor to describe the outcome.

Brazilian President Luiz Inacio “Lula” da Silva views the recent collapse of the World Trade Organization (WTO) talks at the Mexican tourism resort of Cancun as a great geopolitical victory for Brazil. “We scored an exceptional goal,” he said, using a soccer metaphor to describe the outcome.

Da Silva claims that Cancun was the start of “a strong new bloc in South America” that will face the United States and European Union in future negotiations on trade and other political issues. He was referring to the Group of 22 (G22) nations that deadlocked with the United States and EU over agriculture: 13 of the 22 members are Latin American countries—Argentina, Brazil, Bolivia, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Mexico,
Paraguay, Peru, Cuba and Venezuela.

Da Silva apparently believes that the failure of the talks at Cancun strengthened Brazil geopolitically on several fronts. For example, he sees Brazil as the regional bloc’s natural spokesman in negotiations with the United States to create a Free Trade Area of the Americas (FTAA) by 2005. Moreover, he apparently views this post-Cancun bloc as a new pillar in Brazil’s efforts to create a multi-polar network of alliances to challenge U.S. economic and political hegemony in the Western Hemisphere.

Also, he believes that Brazil’s chances of expanding the South American Customs Union (Mercosur) have improved significantly because Latin American countries that failed to win any U.S. concessions on agriculture at Cancun may be more inclined to align themselves with Brazil in ongoing FTAA negotiations. Mercosur’s members include Brazil, Argentina, Paraguay and Uruguay; Chile, Bolivia and, most recently, Peru are associate members, which means that they have political status in Mercosur but are not voting members and do not have full trading
privileges.

Since they returned from Cancun, Brazilian trade officials have accelerated talks on a bilateral trade agreement with the five- nation Andean Community (Ancom), whose members include Bolivia, Colombia, Ecuador, Peru and Venezuela. Da Silva is certain that Mercosur and Ancom will soon have a free trade agreement (FTA) that will bind 10 South American countries politically and commercially into a single unit.

However, da Silva’s perception that Brazil has been geopolitically strengthened by the WTO’s failure at Cancun may prove to be mistaken. Other Latin American countries in the G22 don’t necessarily agree with his opinion that the region is now united with one voice in ongoing trade negotiations with the United States.

For example, El Salvador already has said it will quit the G22 because its trade concerns differ from Brazil’s. Colombia expects to launch negotiations on a bilateral FTA with the United States before the end of 2004. And while Peru and Bolivia are associate Mercosur associate members, the governments of both countries are eager to sign FTAs with Washington. FTA talks also are moving forward rapidly between Washington and five Central American countries—Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

Da Silva’s vision of Brazil’s new role in Latin America will be tested in November, when Brazil and the United States co-chair a meeting of FTAA trade ministers in Miami. That meeting is meant to be the platform for launching final negotiations, which would conclude in January 2005 with a framework for a hemispheric free trade agreement.

Brazilian Foreign Minister Celso Amorim has already called on Washington to “simplify” the FTAA negotiating agenda. Specifically, Brazil wants the United States to include agriculture and anti-dumping rules in the agenda for Miami but remove any discussion of services, investment and intellectual property.

However, U.S. trade negotiators have a completely different view of what’s important. The United States believes that agriculture should be left for the WTO to work out, doesn’t want to address the issue of anti-dumping rules and insists that services, investment and intellectual property must be part of the FTAA’s negotiating agenda.

These conflicting priorities may produce clashes at Miami that could cause the FTAA negotiations to break down in the same way that the WTO’s Doha Round seemed to in Cancun. If this happens, multilateral and regional momentum toward greater trade
liberalization in the Western Hemisphere could stall for years.

Officials at the office of the U.S. Trade Representative (USTR) aren’t particularly worried by the possibility that FTAA negotiations could break down in Miami. If regional progress is halted there, the United States will push even harder to lock up bilateral trade agreements with individual countries.

This approach is consistent with longstanding U.S. trade policy, which for the past half-century has always sought to advance U.S. interests on parallel multilateral, regional and bilateral tracks. When progress stalls on one track, U.S. negotiators push harder on others. Ultimately, all three tracks lead to the paramount goal of U.S. trade policy—to persuade other countries to dismantle their tariff and non-tariff barriers to trade, and agree to abide by a set of rules dictated primarily by U.S. trade negotiators.

USTR Robert Zoellick already has warned that if the United States cannot advance its trade interests multilaterally or regionally, it would pursue bilateral deals more aggressively. He also noted that many developing countries are interested in signing trade deals with the United States, including G22 countries that da Silva claims are following Brazil’s lead.

During his election campaign last year, da Silva described the FTAA as “annexation politics” and vowed that Brazil would “not be enclosed,” meaning that Brazil would not permit Washington to force U.S. trade rules down Brazilian throats. However, size does count in global trade.

The United States has a $10 trillion economy—Brazil’s is less than one-tenth that size. U.S. markets are larger, U.S. technology is more advanced and U.S. investors have much deeper pockets than their Brazilian counterparts. If da Silva and Brazil seek to stymie Washington on trade liberalization, U.S. negotiators are likely to simply ignore Brazil and cut deals with other countries in Latin America, cutting Brazil off from U.S. commercial markets.


Published Thursday, September 25th, 2003 - 07:06pm GMT
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