Results of Brazilian Elections Will Affect US Trade, Investment

WHOEVER wins the Oct. 3 Brazilian presidential elections will help determine if United States-Brazil relations continue to improve or again become rocky.

The two major candidates for president offer sharply differing views on trade and foreign-investment issues, which are at the heart of US-Brazil economic relations. Front-runner Fernando Henrique Cardoso favors reducing tariffs and encouraging US investments; his main challenger, Luis Inacio Lula da Silva, advocates nationalist policies aimed at protecting Brazilian jobs. A recent opinion poll shows Mr. Cardoso with 45 percent of the prevote support and Mr. Da Silva with 21 percent. If no one wins a majority, the top two finishers from the field of nine face a runoff on Nov. 15.

The campaign reflects the different approaches Brazilians have taken toward US relations. Starting in the early 1980s, Brazil adopted nationalist policies of high tariffs with the stated aim of protecting domestic industries from foreign domination and increasing jobs. But under pressure from the US and multinational lending agencies, Brazil shifted gears in 1990.

The country dramatically lowered tariffs and passed laws protecting patents and other intellectual property. The US had launched an investigation to find out if Brazil violated intellectual property rights that could have led to trade sanctions, but the US ended the investigation earlier this year, citing favorable changes in Brazilian laws.

The US continues to pressure Brazil in a number of other trade areas, however. When the Brazilian government purchases goods, it must give first preference to domestic companies. US officials claim that this discriminates against American corporations. ``Given the significant influence of the state-controlled sector due to its large size, discriminatory government procurement polices are ... an important barrier to US exports,'' a report from the Office of the US Trade Representative states.

But Brazilian economists argue that their laws give preference to any company based in Brazil - whether owned domestically or by multinationals. Thus, they say, the law doesn't discriminate against US companies. They argue that this policy helps create jobs by making sure goods bought by the government are made inside Brazil.

Flavia Mello, a researcher with the Brazilian Institute for Economic and Social Analysis in Rio de Janeiro, says many countries give preference to domestic producers, and no international agreements compel them to do otherwise. ``Most countries still have great restrictions in this area,'' Mr. Mello says, ``so there is no legitimacy for the US to press for the opening of this sector in Brazil.''

The US is also pressuring Brazil to sell off nationalized industries such as oil and telecommunications. American investors have bought up shares in similar denationalized companies in other major countries of Latin America. ``One will get greater efficiency if they are operated by the private sector rather than the public sector,'' says Albert Fishlow, a former deputy assistant secretary of state for Latin America and now a professor at the University of California at Berkeley. ``Secondly, one can reduce the government deficit substantially'' with revenues from selling these valuable industries.

But such talk offends many in Brazil who see US pressure as a means of giving away vital sectors of the economy to foreign corporations. Presidential candidate Da Silva strongly opposes further privatization. He argues that denationalization may improve efficiency for the wealthy, but foreign corporations care little about providing services to poor people because there's little profit. The government spends billions of dollars studying and planning for privatization, Da Silva says, money ``that should have gone for education or other social services.''

Candidate Cardoso supports continued privatization, arguing that increased foreign investment helps develop the economy. But selling off oil and telecommunications remains a politically sensitive issue. Such privatization ``can't be decided by presidential fiat,'' says his adviser Bolivar Lamounier. ``It requires congressional approval because those are constitutional matters.'' Dr. Fishlow says Cardoso, if elected, would move ahead rapidly in all areas of privatization. Such policies will meet with US government approval and ``will certainly attract more foreign capital and increase investments.''

A Cardoso victory in the first round of the elections would greatly enhance the possibility of including Brazil in the North American Free Trade Agreement, Fishlow says. Such a resounding victory, he adds, ``would give both Brazil and the US enough confidence to enter serious discussions.''