BRAZIL ATTEMPTS TO REGAIN TRADE INITIATIVE

As reported earlier, Brazil has suffered some severe reversals in its efforts to expand its trading bloc through MERCOSUR. These setbacks have strengthened the hand of the United States and the possibilities of the FTAA.

The inconsistencies of Brazil’s economic policy as it adjusted to the shocks of the last year have undermined relations with Argentina and, to a lesser extent, other trading partners. In addition, the failure to sign a trade agreement with the European Union (EU) has tarnished the image of Brazil’s leadership. Both of these questions were highlighted in March, when the EU signed a trade agreement with Mexico and the World Trade Organization (WTO) formalized a dispute panel requested by Argentina against Brazil. And despite the fact that Brazil and Argentina signed a new automotive agreement on March 23, Uruguay quickly rejected the pact and demanded equal treatment. Conflict also continues over Argentine industries lured to Brazil by better exchange rates and lower costs. José Luis Machinea, Argentina’s Minister of Economy, warned that “without a political agreement, MERCOSUR is moving toward suicide over a fiscal war between the Brazilian states and the Argentine provinces.”

To counteract these and other negative aspects of Brazil’s relations with its neighbors, President Fernando Henrique Cardoso sent a personal invitation to his counterparts throughout the region to meet on August 31 and September 1 in Brasília. All 11 South American presidents have accepted. Brazil’s Foreign Ministry denies that the meeting will aim to strengthen MERCOSUR’s negotiating position against the United States in the FTAA. However, the official declaration announcing the summit explains that it “offers the ideal opportunity for the experience acquired in the integration processes to be extended to the regional level to produce the necessary conditions to organize the South American area in tune with the characteristics, needs and potentials that are particular to this region.” To a close observer, Clovis Rossi of the newspaper Folha de São Paulo, this can be interpreted as saying that South America already has a trading bloc (MERCOSUR), even if it is in crisis and is painfully trying to attract the Andean Community to form a South American Free Trade Area, or SAFTA. This concept of “South American space” is a basic tenet of Cardoso’s policy.

Brazil has had more success in its negotiations for a trade agreement with Mexico. For the first time, the general outline of a possible agreement was discussed at meetings in Brasília on March 28-30. Brazil was represented by Ambassador José Alfredo Graça Lima, a top trade negotiator, and Mexico by the Secretariat of Commerce’s lead negotiator, Eduardo Solís. Work on an auto sector agreement is moving forward on a parallel track to this general agreement. The efforts are consistent with both countries’ concerns about the expansion of the US trade presence in the region.

It remains to be seen if South America’s “manifest destiny” can overcome the problems and crises rampant in the region to make a real difference in the FTAA negotiations.