TRADE-AMERICAS: Brazil Split on FTAA

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Apr 20 2001 (IPS) - Brazil, one of the biggest participants in the Summit of the Americas, which opened Friday in Quebec, Canada, cannot stand on the margins of a projected Free Trade Area of the Americas (FTAA) because half of its total exports and 70 percent of its industrial exports are sold within the Americas.

However, that argument, put forth by Foreign Minister Celso Lafer, has not overcome resistance here to the U.S.-led free trade project.

Remaining outside an FTAA would mean huge losses for this country of 170 million, because its producers would continue to face the trade barriers that would gradually be eliminated among the rest of the countries in the Americas.

Lafer’s argument has not silenced the resistance to hemisphere wide integration, which is fed primarily by the fear that key industrial sectors would collapse in the face of unequal competition with the United States.

Many sectors believe an FTAA would put an end to Brazil’s dream of industrialisation, and that this country would become a mere supplier of raw materials, farm commodities and simple manufactured goods like textiles or footwear.

Strategic industries like machine tools, chemicals and electronics would gradually disappear, critics argue.

The dilemma does not only divide productive sectors, political factions and academics according to their position on the FTAA, but has led the Brazilian government to manifest ambiguity, which annoys Washington and Latin America countries which unlike Brazil have no industrial development to preserve.

In the words of the foreign minister, the FTAA must only be “an option, not a destiny” like the Southern Common Market (Mercosur) trade bloc linking Brazil, Argentina, Uruguay and Paraguay. But Lafer rules out isolation as a viable alternative, because that would mean a loss of trade to the rest of the countries in the region involved in the hemispheric free trade agreement.

Nevertheless, the minister underlined this week that Brazil would only agree to a “balanced” accord that represents benefits for all.

However, if Brazil did refuse to participate in an eventual agreement, that would not stand in the way of the Americas’ wide integration process, as argued by some critics, Deputy Foreign Minister Luiz Felipe Seixas Correia told parliament Thursday.

Brazil’s producers are split on the issue. Exporters of textiles, footwear and orange juice are interested in moving up the deadline for implementation of the FTAA, because they are confident in their ability to compete and are ready to take advantage of the opening of new markets.

Brazil could see a fivefold increase in sales of footwear to the United States, because the slashing of tariffs, which currently range from 8.5 to 17 percent in the U.S. market, would enable it to compete with Chinese products, which are currently 10 percent cheaper, said the head of the association of footwear producers, Nestor de Paula.

The national association of the machine tools industry, on the other hand, fears losing, to U.S. competitors, Brazil’s domestic market and the rest of the Latin American market, where preferential duties currently give it an edge.

But the problem is not just one of productivity and protectionist tariffs, according to the president of the machine tool association, Luis Delben Leite. Potentially competitive Brazilian products are made uncompetitive by a heavy internal tax burden and shortcomings in national infrastructure and financing.

Brazil’s industrial products pay dozens of taxes, from which outside competitors are exempt. Without a reform of the tax system to eliminate that imbalance, the country will not be able to participate in the FTAA, said Roberto Giannetti da Fonseca, secretary of the Interministerial Chamber of Foreign Trade.

Financing is another problem, since loans for trade and investment are much more expensive in Brazil than in industrialised countries, noted Boris Tabacoff, the head of the association of the paper and cellulose industry.

Moreover, the difference in scale of production makes it difficult for Brazilian companies to compete with U.S.-based firms, Tabacoff added.

Brazil’s business community is also afraid that the United States will not make concessions regarding non-tariff trade barriers, which constitute the main obstacles to leading Brazilian exports like orange juice, sugar, textiles and steel.

Brazil thus sees a modification of U.S. anti-dumping laws, as well as that country’s farm subsidies, as indispensable, while Washington is reluctant to include such questions in the FTAA talks.

The opposition, social movements and non-governmental organisations in South America’s giant are generally opposed to an FTAA in the conditions under which it is being negotiated, arguing that it would entail a loss of national sovereignty and a renunciation of development goals, because the country would be subordinated to U.S. interests.

Resistance to an FTAA has even been observed within the Foreign Ministry. Samuel Pinheiro Magalhaes, one of the negotiators of the closer ties to Argentina that led to the creation of the Mercosur, a market of over 210 million, termed the FTAA a “catastrophe” and a “gallows” for Brazil in lectures and interviews in recent months.

According to Magalhaes, a hemisphere wide bloc would inevitably “dissolve” the Mercosur, and lead to the concentration of industrial production in the richest countries, the United States and Canada.

Lafer, meanwhile, ordered diplomats to refrain from making statements on the FTAA without his authorisation, and ended up removing Magalhaes from his post at the head of the Research Institute on International Relations, in order to keep the discrepancies within the government quiet.

But analysts point out that refusing to take part in the FTAA would not necessarily lead to Brazil’s isolation, since existing bilateral trade deals could be maintained and new ones signed.

Closer ties between the Mercosur and the European Union could be another alternative. Studies by the Getulio Vargas Foundation indicate that free trade with Europe would bring about faster economic growth in the South American trade bloc.

But closer ties with Europe would mean an increase in exports of farm products, while the FTAA would fuel growth in exports of manufactured goods, stressed the author of the study, Lia Valls.

Brazil is thus taking part in this weekend’s Summit of the Americas in Quebec, Canada with a large part of the nation fearing that the talks for the creation of a trade bloc stretching from Alaska to Tierra del Fuego will impose a route which they do not see as the best path to development.