Brazil’s Balancing Act

Estudos Avançados (Advanced Studies),
Vol. 17, No. 48, May-August 2003, São Paulo

How badly will the recent breakdown of the World Trade Organization (WTO) talks in Cancún affect the ongoing negotiations for a Free Trade Area of the Americas (FTAA), a project that is supposed to create a single free trade zone among 34 nations in the Western Hemisphere by 2005?

To a large degree, the answer hinges on Brazil, Latin America’s largest economy and a key player in the coalition of developing countries that challenged rich nations in Cancún. A recent issue of the bimonthly Estudos Avançados, a journal associated with the University of São Paulo, sheds light upon the assumptions Brazil brings to the FTAA negotiating table and highlights the lively debate among Brazil’s business community, government, and civil society over the merits of the regional trade pact.

During Brazil’s 2002 presidential campaign, then candidate Luiz Inácio Lula da Silva famously warned that the FTAA would represent a U.S. "annexation" of Brazil. However, in the article "The PT Government and the FTAA: Foreign Policy and Pragmatism," Amâncio Jorge de Oliveira argues that President Lula has adopted a "pragmatic" position on the trade agreement. Oliveira, who directs the Center for International Negotiation Studies in São Paulo, explains that Lula has moderated his trade views once in office, taking a more proactive stance in the ongoing FTAA negotiations and arguing that Brazil must combat protectionism and expand export markets.

Oliveira notes that the Catholic Church and organized labor groups in Brazil have been the most vocal in their opposition to the agreement; they cite loss of sovereignty and fear that Latin American countries will become subordinate to the interests of the United States. Moreover, some industries in Brazil — such as the chemicals, electronics, and capital-goods sectors — also worry that the FTAA could be a losing proposition.

However, the author contends that most of the Brazilian business community prefers to forge ahead with the agreement rather than risk losing out on increased commerce in the Americas. Oliveira warns that if Brazil backs out of the negotiations, the United States will simply negotiate bilateral treaties throughout the region, which could pare Brazilian exports and divert foreign investment to other markets. While the far-left wing of the Lula government continues to fight the treaty, Oliveira believes that Lula and the moderates in his party understand that Brazil would pay a high price for isolation.

Economist Paulo Nogueira Batista of the Getulio Vargas Foundation offers a contrasting perspective, arguing that Brazil has much more to lose through the FTAA than it has to gain, and that the United States would be the treaty’s primary beneficiary. In particular, Nogueira believes that Brazilian industries are unprepared to take on North American producers. High domestic interest rates, poor infrastructure, and excessive taxation leave Brazil’s businesses at a disadvantage. "Can anyone in their right mind argue that our companies can compete as equals against the U.S. and other developed nations?" Nogueira demands. However, he takes some solace in recent trade measures by the Bush administration (such as subsidies for U.S. farmers and tariffs on steel imports), which he contends have revealed the United States’ protectionist colors, thus saving Brazil from the destructive impact of free regional trade.

The meeting of Latin American trade ministers in Miami last November likely strengthened such protectionist voices in Brazil; the negotiatiors issued only a vague declaration on the shape of a future FTAA. But regardless of how he ultimately leans on this debate, Lula seems intent on affirming his nation’s role as a regional leader. "As the largest economy in Latin America," Lula recently explained, "Brazil has not only the right, but the obligation to define a project that will be favorable to all countries, principally the poor countries." Of course, other Latin American nations may not necessarily trust Brazil’s leadership on trade. But seeing Brazil as a regional power and, by implication, a Latin American counterweight to the United States — now there’s a scenario that all Brazilians can embrace.