Two different perspectives on solving the world’s problems faced off when U.S. President George W. Bush met with Brazil’s President Luiz Inacio Lula da Silva on June 25, in Washington, DC.

The Bush agenda emphasizes fighting terrorism and ensuring stability by
combining the big stick of preemptive military intervention threats and the
big carrot of free trade agreements. In contrast, Lula’s vision calls for
the world’s most powerful countries to work together to reduce global poverty,
in the belief that the failure to do so is the root of instability.

This profound difference has important implications for the prospects of
the proposed Free Trade Area of the Americas (FTAA). The negotiations are
co-chaired by the United States and Brazil.

At the latest G-8 meeting in France, Lula proposed a small tax on the arms
trade to finance hunger relief programs in Third World countries. The representatives
of the world’s eight most-powerful nations seated at the G-8 table did not
even refer to the proposal in the summit’s closing statement. Still, Bush
will be hard pressed to simply ignore the policy agenda of South America’s
largest country.

Negotiating the creation of the world’s largest free trade area–which
would stretch from Canada to Argentina, encompass some 800 million people,
and represent a combined GDP of $11.4 trillion–is one of the Bush administration’s
top priorities on the trade front. As South America’s largest economy, Brazil
is a key player in that plan.

Despite differences, Lula joined with Bush in the June meeting to reaffirm
intentions to implement the FTAA by 2005. But many of Lula’s own constituents,
along with those of other Latin American countries, have serious political
and economic concerns that run counter to the free-trade scheme. Several obstacles
have threatened to derail the talks.

First, the war in Iraq and Bush’s withdrawal from key arms control agreements
have reduced U.S. credibility in the eyes of its Latin American neighbors.
Brazil was against any intervention in Iraq that lacked full UN backing, and
hard feelings were created between the Brazilian and U.S. administrations
over the latter’s insistence on intervention without consensus.

While Bush and Lula might be able to overcome those feelings, Philippe
Bruno, a Washington, DC-based trade lawyer, points out another obstacle. Bruno
notes that during the height of the Iraq conflict, trade negotiations ground
to a halt and doubts arose over the U.S. commitment to stick to commercial

The Bush administration made an effort to push the agenda forward in May,
dispatching U.S. Trade Representative Robert Zoellick to Brazil to make headway.
But the top U.S. trade negotiator encountered increased skepticism from Brazilian

Another obstacle to the FTAA–and a prime source of concern among Latin
American countries–is the shallowness of U.S. offers at the bargaining table.
"We see that the deal proposed by the United States does not respond
to our interests. It implies the abdication by Brazil of a development project,"
says Paulo Nogueira Batista, an economist at the Instituto de Estudos Avançados
da Universidade de São Paulo

Brazil’s development project, which centers on technological advancement
and job creation, would be compromised if its markets were opened wide to
foreign competition. The United States, with an economy 18 times the size
of Brazil’s, would dominate not only the technology sector but almost all
other markets if protections are not assured. Many in the Southern hemisphere
warn that their markets will be swallowed up by more competitive, better-capitalized
U.S. firms.

Many Brazilians also believe that even an FTAA will not necessarily lead
to the promised land of full access to the U.S. markets. Currently, the United
States imposes average tariffs of 3% on Brazilian goods, compared to Brazilian
duties of 16% on U.S. imports. However, Brazilians are quick to point out
that the disparity in tariffs is not as large as it seems, since the 15 most
important Brazilian exports to the United States are charged an average tariff
of 45.6%.

The Latin American perception is that the United States throws up barriers
to free trade whenever another country becomes competitive in an industry.
Trade in steel trade is a case in point for this mistrust. The U.S. steel
industry, saddled with high pension liabilities and antiquated facilities,
has successfully pressured the U.S. government to impose safeguards against
more competitive steel imports. As a result, Brazilian steelmakers, some of
the lowest-cost producers in the world, feel that their investments, aimed
at increasing exports to the United States, have been wasted.

Two trade topics that Brazilian diplomats would like to include in the
discussions are agricultural subsidies and U.S. anti-dumping laws. But the
United States remains adamant those issues will only be negotiated in the
ambit of the World Trade Organization (WTO). To counter the U.S. position,
Brazil has proposed that government procurement, industrial policies, and
intellectual property also be left out of the FTAA and be negotiated at the
WTO. The United States and other countries, including Mexico, Chile, and Colombia,
disagreed with the Brazilian proposal, made at a secretive meeting at the
Wye River Plantation near Washington, DC, in which 15 trade ministers tried
to reach a consensus.

The United States has threatened that Brazil will lose out if it does not
join the party, and has tried to isolate it by negotiating separate trade
deals with its neighbors, such as Chile. Yet Brazil continues to fortify its
position in South America and hopes to have even more bargaining power when
the trade ministers are slated to meet in Cancun, Mexico, this November.


An Alternative Bloc?

Brazil is not alone in its desire to deepen local integration. On May 25,
President Nestor Kirchner assumed office in Argentina, where the economy has
suffered its worst economic crisis ever, after following the advice of Washington
for the past 10 years. The Kirchner administration is banking on recovery
through the close ties between Argentina and Brazil institutionalized in the
Mercosur trade bloc, which also includes Uruguay and Paraguay.

Celso Amorin, Brazil’s foreign minister, says his country wants to revitalize
relations between members of the Mercosur due to "the need for more integration
between us in benefit of our industrial, agricultural producers, etc., and
also the external dimension of fortifying our capacity to bargain with other
countries and trade blocs."

Too, Brazil is working to establish closer ties with other South American
countries outside the Mercosur. Henrique Rattner, a political economist at
the University of São Paulo, said that all of Brazil’s policy is aimed
at fortifying both Brazil’s bargaining position vis-à-vis the United
States and that of the rest of South America. "If each one of these countries
bargains by themselves they won’t be able to obtain anything," he said.

Through the federally owned development bank, BNDES (Banco Nacional
de Desenvolvimento Economico e Social
), Brazil is providing much-needed
financing to neighboring countries. Its first cooperation deal under the Lula
administration was signed with Venezuela. The BNDES will provide up to $1
billion in credits for the country to buy Brazilian goods and services. And
the guarantee is Venezuela oil.

Similar deals are being negotiated with Argentina and Bolivia, expected
to total $1 billion and $600 million, respectively. Brazil also is looking
to become the largest shareholder in the Andean Development Corporation by
increasing its stake to 20% with a $400 million investment.

The cooperation deals and many intergovernmental visits involve cross-boundary
infrastructure projects designed to erase one of the reasons for historical
divisions between South American countries: the lack of an adequate transport
network. "Infrastructure is the base. We want infrastructure that allows
for a great circulation of goods and services, but also goods and services
produced in the region," said Brazil’s Amorin.

Brazil’s actions in the United States’ extended backyard evidently are
ruffling feathers in Washington. In October 2002, House International Relations
Committee Chairman Henry Hyde sent a letter to Bush that cast Lula as part
of a South American "Axis of Evil" along with President Fidel Castro
in Cuba and President Hugo Chávez in Venezuela.

Most U.S. policymakers view Brazil as a stable, democratic force in the
region. Yet a consolidated South American market led by the continent’s largest
country could create a new political terrain. "If Mercosur re-establishes
itself, the U.S. would have to re-think its relations with the bloc,"
Rattner notes.

With these considerations in mind, economists remain doubtful that the
complicated FTAA pact can be hammered out in the set timeframe. Meanwhile,
Lula continues to drum up support for a unified front in South America. "For
South American nations to obtain real benefits in long-term trade negotiations,
it is important to … successfully coordinate our positions," he said
in a meeting with presidents from the Andean pact on June 29.

Real FTAA benefits for Lula and other South American leaders mean improving
the lives of the region’s poor. Brazil’s president was elected to office to
raise living standards for some 50 million Brazilians who live below the poverty
line. Should not Bush see it in the U.S. national interest to seek the same
ends throughout the region it wants to secure with the hemispheric trade agreement?