Brazil and the US: Key Partners

The United States and Brazil - the two largest countries of the Americas - have a strong mutual interest in building a more economically integrated and politically cooperative hemisphere. Brazil is potentially a vital partner for the US. It is not a rival, competing for leadership among Latin American countries.

Brazil recognizes that the US will remain the dominant power in the hemisphere for years to come. The US economy is, after all, more than 10 times larger than that of Brazil. The US is the main trading partner and source of investment capital for nearly every Latin American country. Nonetheless, Brazil - with Latin America's largest economy, land mass, and population - is important and influential in regional affairs. What happens in Brazil matters a great deal for the rest of Latin America.

Brazil's significance, moreover, has grown sharply in the past few years, largely because of its high-quality leadership and the success of its economic policies. Three years ago, Brazil's annual inflation exceeded 7,000 percent; today it is less than 10 percent. Although many trade barriers remain, tariffs on most imports have been cut deeply. Privatization and infrastructure development are proceeding, and there has been an explosion of foreign direct investment to Brazil, expanding from $2 billion in 1993 to $9 billion last year and a projected $15 billion this year. The Mercosur economic pact, led by Brazil and Argentina, has shown extraordinary dynamism. On the political front, Brazil is also demonstrating international leadership. It heads the four-nation group that brought peace to the Peru-Ecuador frontier, and it played a key role in stopping a military coup in Paraguay last year.

Staggering problems

Brazil still has staggering problems to deal with. Its public administration is bloated and inefficient; large budget and trade deficits leave the economy vulnerable; poverty, inequality, and social injustice are still endemic. Reform comes slowly in Brazil because it usually requires amending the country's unwieldy Constitution, which needs the approval of a three-fifths majority in both houses of Congress. President Fernando Henrique Cardoso's own authority to shape policy was strengthened recently when he gained (through a constitutional amendment) the right to stand for reelection - but, with elections now only 18 months away, the prospects of any substantial new reform initiatives are diminishing.

While there are no deep conflicts in US-Brazilian relations, serious differences have emerged, mainly over trade policy. The development of hemispheric free trade arrangements is one point of contention. Some US officials believe Brazil is an obstacle to the building of the Free Trade Area of the Americas (FTAA), as agreed at the 1994 Miami summit meeting of presidents and prime ministers. Brazil is seen as trying to slow negotiations, make the FTAA less comprehensive, and even postpone the accord beyond the agreed-upon 2005 start date.

This view is partly justified, although Brazil's decisions are driven mostly by domestic political considerations, not by international economic or political strategy. There is just not much political support in Brazil for accelerating or deepening trade liberalization. Opposition comes from many in the business community (including US-based multinational corporations) who fear international competition, as well as from labor unions and other traditional foes of free trade. Indeed, trade politics in Brazil are remarkably similar to those in the US preventing the passage of new fast-track legislation. These problems are compounded by large current account and fiscal deficits and an overvalued currency - all of which threaten Brazil's anti-inflation efforts and the credibility of its economic reforms.

Despite differences over trade, the US and Brazil share important economic interests. In the first instance, the US benefits from a high-performing Brazilian economy. The stronger the economy, the more willing and able the Brazilian government will be to promote trade liberalization and other reforms. A robust economy also makes Brazil a better customer for US goods and a more attractive setting for US investment. Most important, an economically dynamic Brazil will help to expand the US constituency for extending free trade beyond Mexico and to open the way for congressional approval of fast-track negotiating authority for President Clinton. The US and Brazil lead the two largest trade groups in the Americas. If these two trade groups find common ground, free trade in the Americas is inevitable. If they cannot, it is impossible.

For its part, Brazil benefits most from joining with the US - its major trade partner and source of foreign capital - in a hemispheric free trade pact, not from establishing a rival trade group. In addition, Brazil's interests in assuming a more active international role generally - for example, by gaining a permanent seat on the UN Security Council or by participating in the G-7 summits - depends largely on sustained support from the US.

Clinton's October visit

President Clinton is scheduled to visit Brazil (along with Argentina and Venezuela) in early October. That visit, some two years after the successful visit of Brazilian President Cardoso to Washington in early 1995, by itself will contribute constructively to US-Brazilian relations. Four other policy initiatives would reinforce the potential gains of the president's trip:

* First, the administration, as it has promised, should present a realistic fast-track proposal to Congress in September and subsequently go all out to secure its approval. Nothing would raise the credibility of the US more in Brazil and the rest of Latin America, and convey the message that the US is serious about a free trade agreement with other hemispheric countries.

* Second, in trade and other negotiations with Brazil, the US should not get bogged down over short-term, tactical issues. The focus should be on longer-term objectives. The precise path that governments choose for achieving free trade in the Americas - which has been the subject of intense differences between the US and Brazil - is less important than their reaching agreement on the principles and goals that should ultimately guide economic integration efforts.

* Third, together the US and Brazil should establish a sustained format for bilateral discussions on the full range of issues that affect the relationship between the two countries. The Brazilian government is prepared to negotiate and compromise if its concerns are given serious attention.

* Fourth, Washington should not let trade totally dominate the US-Brazil agenda. There are many other issues of importance to the two nations. Brazil's support is crucial to strengthening the Organization of American States and other inter-American institutions, promoting democracy and respect for human rights, expanding social opportunities in the hemisphere, and resolving internal and cross-border conflicts. Cooperation between the two countries is also important for dealing with environmental degradation, drugs and criminal violence, and proliferation of nuclear and conventional weapons.

The message should be clear. The US should treat Brazil as a partner, not a rival. Cooperation between the two countries is vital for making broader hemispheric cooperation work.

* Peter Hakim is president of the Inter-American Dialogue in Washington.