TRADE/POLITICS-LATAM: Brazil Feels Betrayed by Chile

By Mario Osava Reprint | | Print |

Commentary Mario Osava

RIO DE JANEIRO, Dec 6 2000 (IPS) - Brazil’s attempts to draw Chile into South America’s leading trade bloc, the Southern Common Market (Mercosur), have ended in frustration, like a courtship based on deceit.

Surprise, perplexity and frustration were the terms used by members of Brazil’s diplomatic corps when they heard about Chile’s decision to negotiate a free trade deal with the United States, rather than continuing to seek full membership in the bloc comprised of Argentina, Brazil, Paraguay and Uruguay, in which Chile already has associate status.

The fact that they heard the news from Washington, rather than Santiago, only aggravated their sense of “betrayal,” although the terms used were not nearly so diplomatic.

The trade talks have been suspended, announced Brazilian Foreign Minister Luiz Felipe Lampreia. Chile will have to offer its neighbours the compensation stipulated by the Latin American Integration Association, if the agreement with the United States goes through, he stressed.

The president of the Association of Brazilian Companies for Integration in Mercosur, Michel Alaby, meanwhile, described the reaction by the government of Fernando Henrique Cardoso as “a storm in a teacup.”

The enormous gap in tariffs makes Chile’s full commercial integration in the bloc impossible.

The presidents acknowledged that difficulty in September, when they decided to put off Chile’s adhesion, originally set to be announced at the Dec 14-15 summit of Mercosur leaders in the southern Brazilian resort city of Florianopolis.

While Chile has a single nine percent tariff, to be scaled down to six percent by 2003, Mercosur duties range from zero to 35 percent, averaging 14 percent.

The tariff gap looks even more difficult to overcome today, with Argentina in crisis and Brazil plagued by trade balance troubles, factors that even stand in the way of removing the three percentage points added – in what was to be an emergency two-year measure – to the bloc’s common foreign tariff in December 1997.

Chile has never concealed its aim of joining the North American Free Trade Agreement (NAFTA), and has attempted to do so before. “It already has agreements with Canada and Mexico; only the United States is left,” noted Alaby.

In an attempt to calm tempers in Brazil, Chilean President Ricardo Lagos repeated what he has always held: that for his country, the Mercosur “is not merely a trade accord,” but a political and strategic alliance.

Chile is also negotiating with European nations and with Japan, and needs to penetrate new markets, since exports account for more than half of its Gross Domestic Product (GDP), Lagos underlined.

In its talks with Mercosur, Chile insisted on maintaining its autonomy and freedom to sign agreements with other countries and blocs, while demanding that Mercosur members slash their tariffs.

But Minister Lampreia rejected those conditions, maintaining that a new partner had to pay the price of admission by accepting the rules that were already in place.

Brazil would like to see the regionwide integration of South America, in order to put the region in a stronger bargaining position vis-á-vis the negotiations towards a Free Trade Area of the Americas (FTAA). Chile’s full incorporation into the Mercosur was essential to that strategy.

The overtures that led Chile to the category of Mercosur associate with the right to participate in the bloc’s meetings also postponed tackling the real obstacles standing in the way of full adhesion, such as the differences with respect to tariffs and foreign and economic policy.

“There was a great deal of rhetoric,” said Alaby, who even pointed to the personal friendship between presidents Lagos and Cardoso. But “trade speaks louder, as it does the world over,” he added.

As an exporter of commodities like copper, fruit and fish, Chile’s interests differ from those of a country like Brazil, which is concerned with protecting its industry, generally considered not very competitive.

One of the strong points that make Chile a coveted commercial partner is the international prestige it enjoys as a widely touted Latin American success story, given that it is further along the path towards opening up its economy and implementing economic reforms than the rest of Latin America.

In commercial terms, it represents very little for the United States: its GDP is just one-tenth of Brazil’s.

The “surprising” announcement of Chile’s growing closeness with the United States has torn down the self-deception of Chile and Brazil, said the head of integration affairs at Brazil’s Foreign Ministry, José Alfredo Graça Lima. But even more serious, he added, it could encourage other South American countries to seek trade deals with the North.

Argentine Economy Minister José Luis Machinea and Uruguayan President Jorge Batlle, meanwhile, praised Chile’s decision.

Internal differences are also beginning to dent the Brazilian consensus on the need to strengthen and expand the Mercosur before negotiating with the United States.

Brazil needs to make a clean break with its protectionist tendencies, which were useful to it in the past, and let down its resistance to the creation of the FTAA, said former minister Luiz Carlos Bresser Pereira, an economist close to President Cardoso and a prominent thinker in the co-governing Social Democracy Party.

Brazil lost the chance – of which Mexico did take advantage – to join the North American bloc, lamented Bresser Pereira. By insisting on its strategy, this country could end up isolated and in a weaker bargaining position, since other nations in the region will tend towards joining ranks with the United States due to Brazil’s delays, he maintained.