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Summary | Statistics | Links |
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Summary | Statistics | Links |
The President and the IMF
During his two terms in office (1995-2002), Brazilian President Fernando Henrique Cardoso has transformed his country's formerly insulated and state-controlled economy into one of Latin America's leading models of free trade reform. The economic aftershocks of Brazil's 1999 currency devaluation were short-lived, and the calamity now facing Argentina was averted. Cardoso was criticized at home, however, for not being firm enough in defending the country's interests internationally, for neglecting social issues, and for a lack of effort to lessen the extensive gap between the wealthy and poor.
On 1 January 2003, Luiz Inacio Lula Da Silva will be inaugurated as Brazil's first leftist leader in almost 40 years. Under the terms of its IMF package, the country is required to achieve a fiscal surplus of 3.75% of its GDP. This condition was agreed upon in July 2002 after investors fled Brazilian markets for fear that Lula would induce a default like Argentina's on Brazil's own $230 billion in foreign debt. It is most likely that the IMF will approve the second installment of US$3 billion to the US$30 billion bailout, and that the remaining US$24 billion will be disbursed in 2003. Following a successful meeting with the President-elect in December, IMF Managing Director Horst Kohler commented that he was impressed with Lula's professed dedication to fight corruption and create a positive climate for investment in South America's largest economy.
Labor Standards
The Brazilian government has generally held that labor standards will, like anti-dumping rules, inevitably be exploited to protect domestic industries in rich countries. Aiming to achieve true improvements in quality of life for the world's poor, Brazil has sought economic growth through rapid trade liberalization, opposing labor standards and considering the US's pursuit of them to be hypocritical. It is uncertain, however, how president-elect Lula, one-time metal worker and labor leader who now casts himself as a responsible business leader, will lead Brazil on the issue of labor standards. Though he had pledged a 20 percent increase in the minimum wage during the election campaign, his Workers Party (PT) has found that the government can only afford a 5.5 percent increase for 2003. A larger increase would bring the government deeper into the red, signaling to investors a failure in Lula's intents and efforts to stabilize the debt.
Anti-dumping Regulations and Dispute Settlement
Brazil and Canada have been caught up in a six-year trade war involving their national jet makers, Brazil's Embraer SA and Canada's Bombardier. The two companies have both used government subsidies to finance exports of medium-sized aircraft, and each has consequently complained of the other's transgression. In an earlier ruling issued in response to the Canadian complaint, the WTO Dispute Settlement Body decided against Embraer, authorizing Canada to apply $2.1 billion in retaliatory trade sanctions against Brazil. A similar decision is expected in early 2003 with regard to the amount of sanctions that Brazil might impose on Canada in retaliation for the same measures. [1] Hoping to reach an agreement via concessions, however, neither country is likely to in fact impose the sanctions authorized.
During this Dispute Settlement Body session, Canada was backed by the US and the EU, which defended the application of special OECD provisions within the WTO. In response, Brazil is pushing for reforms of the WTO Agreement on Subsidies and Countervailing Measures in order to keep the Organization from, according to Brazilian ambassador to the WTO Seixas Correa, "stacking the cards against some members, in particular against developing countries. " [2] Brazil has challenged the world's two trade superpowers by initiating dispute settlement processes against them at the WTO. In July it joined seven other WTO members in lodging a complaint against US tariffs on steel imports; in September it formally challenged US subsidies to cotton producers and exporters and confronted EU sugar subsidies. The latter two complaints are significant first efforts to engage the WTO in handling lawsuits involving farm commodity subsidies.
Agriculture
As the world's largest exporter of agricultural commodities such as coffee and sugar, Brazil supports the liberalization of agriculture laws. It has joined with 16 other small and medium-sized agricultural exporting countries in the Cairns Group to push for the elimination of export subsidies, maximum possible reductions in trade-distorting domestic support, as well as improved market access for all agriculture and food products. This Australian-led group is working to build alliances with two relatively new players in the WTO, China and a bloc of African countries, in order to boost its bargaining position against the EU and Japan for greater trade liberalization in agriculture. Brazil has objected specifically to the 2001/02 level of $3.9bn in cotton subsidies distributed in the US, citing them as the single biggest force driving down world prices and resulting in the deepest crisis in world cotton markets since the Great Depression. [3]
Brazil is also part of the Global Sugar Alliance, which is targeting sugar subsidies and demanding access to cane ethanol and sugar markets in the EU, US and Japan. The US has called Brazil hypocritical, however, due to the fact that Brazil itself has been subsidizing these products for years and now has the largest sugar and fuel ethanol industries in the world.
Intellectual Property Rights
Brazil has also recently had some disagreement with the US over Trade Related Intellectual Property Rights (TRIPS), specifically concerning AIDS medications. Developing countries, led by South Africa and Brazil, are continuing to push for better access to cheap medicines, while the US and other rich countries fight to protect their pharmaceutical industries. For years, Brazil has provided free medication to all its AIDS patients and endorsed Brazilian companies who create generic brands of the drugs. Buying the drugs from their original manufacturers would be very costly and would render the successful AIDS program unsustainable. The WTO's TRIPS council was instructed to solve this conflict by the end of 2002; though if the issue of access to medicines is not agreed upon in a timely manner, it is likely to get bogged down in the wider trade talks of 2003.
Tariff Reduction
In November 2002, the United States proposed a plan to cut all duties on manufactured goods worldwide to less than eight percent by 2010, and then to slowly whittle that number to zero over the next five years. Though the move was touted as a lever to raise hundreds of millions of people out of poverty, developing states like Brazil would face the daunting task of slashing tariffs as high as 40% in some fledgling manufacturing sectors to zero within 13 years. US Trade Representative Robert Zoellick signaled that if the world did not accept this means, then Washington would continue with a network of bilateral trade pacts, condemned by some for inhibiting progress toward a global trade settlement.
Conclusion
One of Brazil's most effective bargaining tools is its leadership role in the Mercosur trade bloc, home to a market of about 50 million middle class consumers. It recently used this power position to overturn the US motion to inaugurate the proposed Free Trade Agreement of the Americas (FTAA) ahead of schedule in 2003, instead of in 2005 as initially planned. If established, the FTAA would become the world's largest trade bloc, covering a potential 800 million inhabitants with a combined GDP of $11.4 trillion. [4] Many fear, however, that U.S. competition would destroy Brazil's industrial base and lead to greater balance-of-payments problems in the future. While Brazil has not altogether abandoned the idea of the FTAA, it remains focused on prioritizing regional integration and expanding Mercosur's influence in world trade.
[1] Shalom, Francois. "Peace on the horizon in Brazil-Canada airplane trade war: Benefits of World Trade Organization rulings are more psychological than monetary." Montreal Gazette, page B3. 3 December 2002.
[2] Capdevila, Gustavo. "Trade: WTO Rules Against Canada in Dispute with Brazil." Inter Press Service. 19 February 2002.
[3]"Cultivating Poverty: The Impact of US Cotton Subsidies on Africa." Oxfam Briefing Paper 30, page 2. September 2002.
[4] Flynn, Matthew. "Brazil Increasingly Unenthusiastic about U.S. FTAA Proposals." Americas Program, The Interhemispheric Resource Center. 1 February 2002.
Last updated December 2002