BRAZIL-CHINA: ‘Market Economy’ of Convenience

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 12 2004 (IPS) - Brazilian President Luiz Inácio Lula da Silva, in keeping with his well-known pragmatism, decided to recognise China as a market economy, when he met with Chinese President Hu Jintao in the Brazilian capital Friday.

In exchange for that concession, Brazil is signing ten agreements with China that will strengthen bilateral trade, mainly in favour of Brazilian agribusiness, and provide a strong boost to Chinese investment and tourism in Brazil.

China joined the World Trade Organisation (WTO) in 2001, but as a "non-market" economy, which makes its exports more vulnerable to trade barriers and anti-dumping measures in other countries. However, more than 20 countries have agreed to regard it as a market economy, including Australia.

President Lula said Brazil’s "strategic partnership" with China is a top priority for his government, and that bilateral trade should double, to 20 billion dollars, by 2007.

Brazil wants to export more beef, chicken, minerals, fruit and juice to China, "as well as products with greater value added," Lula said Friday.

Brazil’s Minister of Development, Industry and Foreign Trade, Luiz Fernando Furlán, said the government accords and private sector business deals between the two countries clinched during this week’s visit by the Chinese delegation should lead to an increase in Chinese investment in Brazil, to a total of 10 billion dollars, over the next two years.

An estimated 22 million Chinese travel abroad every year, a figure that could rise to 100 million by 2020, says the World Tourism Organisation.

The recognition of its "socialist market economy" was China’s main exigency during the current official visit by President Jintao, who is accompanied by 240 government officials and business leaders.

Furlán said he was "bombarded" with that request "28 times" in the meetings he held Wednesday and Thursday with Chinese Deputy Minister of Trade, Ma Xiuhong.

Brazilian ministers and diplomats had stated that China is not technically a full market economy, and Furlán said the recognition of it as such would only be granted as part of a "balanced" negotiation.

The decision fell to President Lula, who argued – according to Furlán – that a truly free market is not even seen in the rich countries that advocate it, like the United States, which distort trade with different barriers, like farm subsidies.

Brazil’s decision is of immense political importance to China, in its desire to gain the same recognition from other countries. Brazil, with a population of 180 million, was the first giant country to take the step.

Furlán made haste to calm the Brazilian business community, giving assurances that Brazil was not renouncing tools like anti-dumping measures (used when another country is deemed to be exporting products at artificially low prices) in the case of China.

But with Friday’s decision, Brazil loses the possibility of adopting unilateral safeguards and other measures to defend local industry, and must follow World Trade Organisation (WTO) rules, which provide for lengthy procedures when one member nation files a complaint against another.

In the 1990s, the Brazilian umbrella industry was decimated by the influx of Chinese umbrellas, most of which were smuggled in, and the country was forced to adopt safeguards to protect its toy industry from a flood of cheap Chinese products.

These and other manufacturing sectors, like the footwear and garment industries, are fearful of greater opening to competition from China, which can offer merchandise at much more economical prices thanks to low labour costs.

Contraband Chinese merchandise is another major threat. Forza Sindical, Brazil’s second largest trade union confederation, held a demonstration in Brasilia on Thursday to protest "piracy", referring to the illegal entry of false brand name goods produced in China and other Asian countries, most of which are smuggled in through Paraguay.

Brazil and China signed agreements on Friday in Brasilia that will facilitate the export of Brazilian beef and chicken to China, settling prior disagreements over health regulations. Another agreement involved the sale of Brazilian aircraft and parts to the Asian giant.

In the technological sector, the two countries have decided to jointly build a fourth satellite, to be launched in 2006, and sell the images generated to third parties.

But one of the most decisive aspects in the "strategic alliance" between the two countries is Chinese investment in Brazil. The fact that the South American country still possesses an abundance of natural resources, while China’s are being rapidly depleted by its dizzying economic growth, offers significant potential for mutually complementary cooperation.

China plans to lease land in Brazil to produce food and raw materials for its own population, and much of its investment will be devoted to transportation infrastructure, to ensure a consistent supply. Mining, iron and steel, energy and biotechnology will be other key areas of bilateral cooperation.

China will continue to seek closer ties with Brazil and the rest of Latin America, Jintao pledged in the Brazilian Congress, where he was received as an honoured guest.

"This will be the century of the Pacific and Latin America," he declared, noting that trade between his country and this region grew six-fold between 1993 and 2003, and doubled in the last three years, with signs of increasing even further in the future.

Jintao also pointed out that his country’s GDP has reached 1.4 trillion dollars, ten times more than in 1978. China is now the world’s sixth largest economy, although it is ranked in 110th place in terms of per capita GDP.

Brazil was the Chinese leader’s first stop on a 12-day tour of four Latin American countries, which will also take him to Argentina, Chile and Cuba.