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Brazil warily eyes hemisphere-wide trade proposal

Latin America's economic powerhouse heads to the Quebec summit today with a list of demands.

Celso Lafer speaks softly, but in his spacious office overlooking the remarkable architecture and wide-open spaces of Brasilia, there is no sign of a big stick. No one should take the foreign minister's quiet demeanor for weakness, however.

As he prepares to lead the Brazilian delegation into the trade summit of the Americas, which begins in Quebec today, Mr. Lafer says that if the proposed trade bloc from Alaska to Argentina is to become a reality, then the United States must pay attention to Brazil.

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With half the region's GDP and population, Brazil is the world's second-largest market for executive jets and helicopters, the second for cellular telephones and fax machines, the third for soft drinks, the fourth for refrigerators, and the fifth for compact discs.

But with low quotas and high tariffs making it difficult for competitive Brazilian industries to penetrate the US market, and a looming deadline that could allow American companies to overrun unprepared Brazilian producers on their home turf, Lafer wants to know exactly what Brazil has to gain from the proposed Free Trade Area of the Americas (FTAA). His message to the Bush administration is blunt: "We're only joining the FTAA if it's convenient," he says. "What's in it for us?"

That stance could hold up an accord that would create a hemisphere-wide free-trade bloc of 800 million people and $10 trillion.

U.S. tariffs on tobacco and sugar that exceed quotas, anti-dumping measures imposed on steel and ethanol, and non-tariff barriers on goods from shrimp to sheets have caused considerable ill feeling in Brasilia.

"In all the sectors where we are competitive, the USA applies a range of barriers that effectively shuts us out of the market," says Paulo Skaf, president of the Brazilian Association of Clothes and Textiles Industries, one of the sectors prevented from exporting more because of a low US quota allowance. "We have to take it upon ourselves to demand the elimination of agricultural subsidies, the elimination of quotas on textiles, the elimination of antidumping (measures) for steel and the important exemptions made for sugar and ethanol. We have the conditions to be proactive and aggressive."

There are good reasons for both nations to look to a future of bilateral cooperation. Brazil can gain by entering lucrative US markets and the US can make a solid and important ally in a region the Bush administration has identified as a priority.

The US Council on Foreign Relations has stressed the importance of Brazil in formulating US policy in Latin America. "If we want to expand the Free Trade Area from North America into South America, Brazil is going to be the critical nation," the New York-based council said in an open letter to President Bush in February. "A realistic and sustained dialogue with Brazil is central to any successful US policy in the Western Hemisphere. Brazil is the fulcrum."

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Former US ambassador to Brazil Anthony Harrington notes that the country's economy is twice the size of Russia's and almost as large as China's. US direct investment in Brazil is greater than in Mexico, Harrington says, and some 400 of the Fortune 500 companies have a presence here.

"Brazil can - and should - play an increasingly prominent role in U.S. trade," he says. "From Embraer's regional commercial jets to top-of-the-line leather footwear, Brazil is making products that do very well in the US market. At the same time, Brazil needs US imports. As Brazil continues to modernize its infastructure, imports of US telecommunications equipment, computer parts, and industrial machinery are crucial to this nation's economic future."

For a long time, export was not crucial to Brazil's economy. With 170 million people, its domestic market was a powerhouse in itself. When Brazilian companies did try to expand beyond their borders, they invariably struggled to compete with leaner and meaner competitors. The crux of negotiations at Quebec will focus on when Brazil will be ready to face up to that foreign competition.

Although the United States, Canada, Panama and Costa Rica would all like to see an accord finalized by 2003, Brazil and most other nations say that their domestic industries need time to prepare and are sticking to the original deadline of 2005.

The Brazilians fear that if the tariffs come down too soon, their producers will be overwhelmed. Many of Brazil's biggest industries, including sectors like car parts, electronics, machined goods and toys, are vulnerable to US competitors.

"We have nothing to gain by the FTAA's introduction," says Synesio Batista da Costa, president of the Brazilian Association of Toy Manufacturers. American toy companies "have more capital, they are more high tech, and they are better organized."

Even though U.S. toys exported to Brazil face a tariff more than twice that which Brazilian toys face when entering the United States, many of the US playthings were actually made in places like China and India, where labor costs are cheaper and safety and environmental standards lower, da Costa says.

Eliminating similar non-tariff barriers is the priority for Brazil's negotiators in Quebec.

While Brazilian diplomats acknowledge that the US charges less import duty on Brazilian goods than the other way around, they add that 60 percent of Brazilian exports face some kind of nontariff obstacle in the United States.

US imports of steel and ethanol were cut after US authorities accused Brazil of dumping. Orange juice, tobacco, shrimp, and sugar all face restrictive quotas.

A classic case involves Brazil's textile manufacturers. After hard times during the 1980s and early 1990s, the industry invested heavily and is now considered one of the Brazilian sectors most able to compete in an unfettered market. But dreams of expansion into the American market are in tatters. Although 3.5 billion T-shirts are sold in the United States each year, the Brazilians produce only 24 million. If the quota were lifted, Brazilian companies could immediately sew up a significant market share, officials here say.

"The US is a huge market and we are capable of serving it," says enthusiastic free-trader Skaf.

"We would sell a lot more volume if we didn't have those limits imposed on us. It is not fair; conditions should be the same for us both. We don't impose any quotas on U.S. textiles. Why are they imposing quotas on us?"

(c) Copyright 2001. The Christian Science Monitor