US Should Compromise With Brazil on Free Trade

US-Latin American relations, once filled with cold-war acrimony, have been harmonious throughout the 1990s. From fighting drugs to liberalizing trade, cooperation has blossomed.

Yet, within this sea of reconciliation and growing prosperity, Brazil and the United States, the hemispheric giants, are heading toward a showdown over the Free Trade Area of the Americas (FTAA). The 34 countries participating in the FTAA are meeting May 13-15 in Belo Horizonte, Brazil.

The push toward regional economic integration was given priority during the 1994 Miami "Summit of the Americas." In Miami, the FTAA's final implementation was set for the year 2005, but the US is now pressing for a faster time-table. Brazil opposes any acceleration, and President Fernando Henrique Cardoso says the US is impinging on Brazil's sovereignty.

Despite its enthusiasm during the Bush administration, the US also has been critical of the Southern Common Market (Mercosur), which includes Brazil, Argentina, Uruguay, and Paraguay. US trade officials have expressed concern that Mercosur works against the goal of regional free trade.

Brazil doesn't deny that some trade restrictions remain but argues that some domestic industries require time to adjust to the rigors of the global market. Mercosur's goal is to maintain barriers on imports from outside Mercosur, which will slowly be removed in time for the 2005 FTAA deadline.

"Instant" free trade, the Brazilians say, hurt their auto industry. Because of a tariff reduction on auto imports mandated by Mercosur, carmakers with manufacturing facilities in Brazil have been uncompetitive and have lost market share. To avoid a collapse of the industry, Mr. Cardoso gave the industry a multi-year moratorium. In return, auto companies pledged to invest $20 billion in Brazil to increase production efficiency and become more cost competitive.

BRAZIL and the US also disagree on how FTAA should be negotiated. The US prefers bilateral negotiations, while Brazil wants the discussions to be among trading blocs (Mercosur and NAFTA). To do otherwise, Brazilians say, would allow de facto US economic dominance of the region.

Stuart Eizenstat, US undersecretary of state for economic affairs, challenged Brazil to reciprocate US trade openness. Brazil retorted by citing a US $2 billion trade surplus with Brazil and called for greater US trade openness. The US imposes tariffs on many of Brazil's primary exports, including orange juice, meat products, tobacco, steel, textiles, shoes, and an array of agricultural products. Brazil lost an estimated $3 billion last year from such restrictions.

French President Jacques Chirac's visit to Brazil in March reinforced the Brazilians' negotiating position. Mr. Chirac, eschewing the idea that Latin America lies within the US sphere, proposed biannual summits between the European Union (EU) and Mercosur to create a new transatlantic partnership. Such discussions would undoubtedly slow progress in the FTAA talks, perhaps even end the process. Cardoso endorsed the Chirac idea by counterproposing that the first EU-Mercosur meeting be held in Rio de Janeiro.

Brazil's growing confidence will make the Belo Horizonte summit unlikely to succeed unless the US demonstrates a willingness to compromise on trade issues. Brazil's self-assurance stems from a stabilized currency and the belief that US businesses would continue to seek out the Brazilian market even if divergent views prevail at the FTAA meeting.

Despite Washington's rhetoric, chances are good that it will seek a compromise. The US can't jeopardize its increasing trade with Brazil. In 1997, US investments in Mercosur are estimated at $18 billion - 60 percent going to Brazil. The US also realizes the potential of the Brazilian market; last year Brazil received $27 billion in foreign investment, a 91 percent increase from the year before.

Whether or not consensus is reached in Belo Horizonte, trade in the American hemisphere will grow. If the US is reluctant to compromise, Latin Americans will interpret this as a renewal of traditional US behavior and will recoil from US pressure. The US can choose to shepherd regional consensus or once again polarize the hemispheric debate. Brazil and our other Latin American friends are too important to allow the latter.

* Matthew R. Slater is a PhD candidate in international studies at Old Dominion University.