Search

 

Cablegate: Brazil's Expanding Trade with China

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 BRASILIA 003814

SIPDIS

SENSITIVE

STATE FOR WHA/BSC
USDA FOR U/S JB PENN AND FAS ADMINISTRATOR TERPSTRA
COMMERCE FOR 4332/ITA/MAC/WH/OLAC/TSHEILDS
SEOUL FOR AGCOUNS GRANT PETTRIE

E.O. 12958: N/A
TAGS: ETRD PGOV PREL KIPR BR CH
SUBJECT: BRAZIL'S EXPANDING TRADE WITH CHINA

REF: BRASILIA 3461

1. (U) Summary. The Lula administration has embarked on a
determined policy of export expansion in China, seeking to
build on the boom in this bilateral trade relationship that
began in 2000. The Chinese appear to welcome the approach,
sending at least five trade delegations to Brazil this year
and demonstrating their confidence with increased investment.
Brazil's surplus with China has led the latter to seek
relatively minor reciprocal market opening. Brazilian
diplomats and trade officials forecast continued growth in
trade with China over the long term, rejecting speculation
that the current boom will be short-lived as Chinese
production capacity catches up with demand for several key
products like steel. The Brazilian desire to strengthen ties
with China in the wake of the WTO Ministerial in Cancun and
the formation of the G-20( /-) developing country alliance
contributed to the increase in official visits, and may lead
to a Lula visit to China next year. There has been
speculation that China will officially join India, Brazil and
South Africa to form an expanded G-3. While strong
partnerships exist in several areas, trade is the leading
current attraction in the Sino-Brazilian relationship. End
Summary.

The Statistics
--------------

2. (U) Brazilian press and the Ministry of Development,
Industry and Foreign Trade have touted the fact that,
excluding the European Union (Brazilian trade stats list
European countries individually), China ranks this year as
Brazil's second largest export market, after the U.S. China
has advanced from Brazil's 12th largest export market to its
second largest since 2000, and now takes in 6.5 percent of
Brazil's exports. Over the last year, Brazilian exports to
China more than doubled while imports grew by 7.5 percent.
Brazil has exported more than $3.9 billion in goods to China
so far this year compared to $2.1 billion during the same
period last year. In comparison, Argentina and Holland
(third and fourth in export markets) each purchased
approximately $3.6 billion in Brazilian goods so far in 2003.
Soy and iron ore account for approximately seventy-five
percent of exports to China, with soy exports almost doubling
within the last year. The top ten list includes laminated or
semi-manufactured iron and steel, wood products, auto parts
and motors, soy oil, and animal furs and skins. Statistics
provided by the Chinese Embassy indicate that Brazil is
China's tenth largest trading partner, accounting for 1.5
percent of Chinese trade. While far behind the value of the
U.S. market to Brazilian exports ($13.9 billion so far this
year), not to mention the EU ($15 billion so far this year),
the Chinese market now merits, and is receiving, increased
attention from the Lula administration.

The Visits
----------

3. (U) The recent flurry of official visits and
deliverables with trade objectives underscore the importance
with which the GoB views this relationship. Minister of
Development Industry and Foreign Trade Luis Furlan visited
Macao in October to take part in the first Forum for Economic
and Trade Cooperation between China and Lusophone countries.
Minister of Agriculture Rodrigues followed suit in November
accompanied by a delegation of Brazilian business leaders.
Minister of Defense Viegas also made an official visit to
China in November. The number of Chinese delegations
visiting Brazil, especially study missions, has overwhelmed
the small Foreign Ministry staff dedicated to Asia and
Oceania, according to one diplomat. Recent high-level
Chinese visitors that have made stops in Brazil as part of
regional visits include Chinese Vice-Minister of Agriculture,
Fan Xiaojian, who held talks in Brazil in late November, and
senior Chinese Communist Party official, Zhang Dejiang, along
with a trade delegation from Guangdong province. Lower level
trade and investment missions have participated in trade
fairs and investigated individual sectors. The Chinese
government has also sent a study mission to research Brazil's
social security system. The strengthening of ties between
the two countries is also evident in an expanding partnership
in technology development (see reftel) and space activities.

4. (U) Press reports of the trips rarely fail to mention
the signing of cooperative agreements and the closing of
trade deals, the significance of which is often difficult to
determine. During Rodrigues' visit in early November the two
countries signed a phyto-sanitary protocol and agreed to
reciprocal technical exchanges to iron out difficulties in
certifying sanitary suitability of a range of agricultural
products including citrus, chicken, pork, and beef. Fan
Xiaojian's visit produced an accord establishing rules for
agricultural marketing and technology transfer, as well as an
MOU on cooperation in areas ranging from agricultural
biotechnology to food processing and environmental
protection. The trade delegation from Guangdong province
reportedly closed trade deals in Brazil worth $150 million.

5. (SBU) At the Forum for Economic and Trade Cooperation in
Macao, China and eight Portuguese speaking countries signed
on to an action plan covering joint efforts at trade
promotion and eliminating trade barriers, exchange of trade
and investment information, and cooperation in farming and
fisheries. Oswaldo Biato, head of the Ministry of Foreign
Relation's office that covers China told Econoff that he
believes the motivation behind this forum was not closer
trade ties, but Chinese central government support for Macao,
which would be the headquarters for the organization which
may eventually be founded. Macao's economy, he said, is
dependent on tourism and casinos and needed a special niche
that was not subject to such variability.

The Potential
-------------

6. (SBU) Despite the dubious trade significance of some of
the recent accords signed between China and Brazil, there is
little doubt that the GoB sees enormous potential beyond the
short term. Biato expects trade to reach $10 billion by
2006. China, the world's leader in attracting foreign direct
investment ($50 billion in 2003), one of the fastest-growing
economies in the world (7% in 2003), and in the second year
of its 5-year transition toward full WTO compliance, is
looking for strategic, long-term partners, according to
Biato. He maintains that even as China's production capacity
expands for some key imports like soy and steel, the trade
relationship will continue to be robust, especially to meet
the needs of a growing middle class. The pairing is natural,
as both are developing economic powerhouses in their regions,
China has excess capital to invest, and Brazil is
cash-starved. The Chinese already have small investments in
the Manaus free-trade zone, including a furniture factory and
a factory that manufactures televisions. The Chinese are now
starting to invest in Brazilian transport projects, including
port and railway upgrades, investments that are driven by
existing trade in primary products like soy and iron ore.
The recent Chinese investment missions focused on
electronics, pharmaceuticals, steel production facilities,
thermal electric plants, even fire cracker factories.

7. (U) The Chinese market is only just beginning to be
exploited by the Brazilian private sector, according to
Brazilian officials. Trade with China is concentrated among
40-50 Brazilian firms, many of them multi-nationals.
Embraer's joint venture with Harbin Aircraft Industry Group
and Hafei Aviation, and Vale do Rio Doce's joint venture
exploration company formed with China's Baogang are but two
of the better known examples of successful bilateral projects
based on the private sector's positive growth calculation of
bilateral trade. Export promotion officials have
criss-crossed the country encouraging small and medium sized
firms to follow the lead of their larger brethren. The GoB,
looking to expand exports of manufactured goods to China, has
contracted a Chinese consulting firm to research the 15
sectors where Brazil has the best prospects for growth in
exports to Asia. Minister Furlan's trade mission included
business representatives from sectors with increasing exports
to China, including the suppliers of medical equipment,
aluminum, shoes, meats, and home appliances.

Ag Trade
--------

8. (SBU) As China's population continues to grow wealthier,
Brazilians see potential for increasing the quantity and
variety of agricultural exports, including soy, meat,
chicken, pork, fruit, fruit juice, and coffee. Brazil's
Commodities and Futures Market exchange soon plans to open an
office in Shanghai. Press reports following Agriculture
Minister Rodrigues' visit announced that China had certified
Brazilian beef for import, predicting certification for
poultry exports soon. (Note: Hong Kong is the third largest
market for Brazilian pork and second largest for chicken
parts.) Officials on both sides have overcome earlier
difficulties with soy shipments regarding identification of
genetically modified product and the existence of a weed that
Chinese officials believed to be harmful. Biato told econoff
that the Chinese phyto-sanitary problems with Brazilian soy
mask other concerns regarding food security and
over-dependence on food imports. The Chinese government is
trying to encourage its farmers to grow soy, but is meeting
resistance, he said.

9. (SBU) Biato acknowledged that there was some truth to
press accounts of Chinese officials demanding reciprocity to
address China's unfavorable trade balance with Brazil. These
reports appeared in Brazilian media during Rodrigues' visit,
at about the same time as articles claiming that the U.S. was
pressuring China and Russia to buy more chicken and soy in an
attempt to reduce Brazilian sales. Biato said that Chinese
officials did press for market opening for garlic, corn,
tripe, apples, lychee and longan fruit. More significantly,
he noted, China has requested that Brazil apply market
economy status to China, thereby limiting the potential for
dumping cases. (Note: Brazil currently has a safeguard in
effect to protect its toy industry from the onslaught of
mostly Chinese produced competitors.) Brazil is considering
this, as well as a quota for Chinese garlic. Biato
underscored the mainly symbolic nature of this reciprocity,
saying a $2 billion trade deficit with Brazil is
insignificant for the Chinese.

Political bonds
---------------

10. (SBU) Despite rumblings that China would soon join the
India-Brazil-South Africa Dialogue Forum (IBSA), sometimes
called the G-3, Biato denied this, saying that IBSA was still
in its infancy and needed to focus on concrete bi- and
tri-lateral projects making use of the geographical realities
that join the three before branching out. Biato did not
speculate about potential difficulties with India should its
regional rival express a desire to join IBSA. However,
Brazil strongly encourages China's support for a development
agenda in other multilateral fora, like the WTO. According
to press reports, China supports Brazil's bid for a permanent
seat on the UN Security Council. Chinese participation in
the upcoming G-20 meeting in Brazil is expected, and Biato
confirmed the realistic possibility of a Lula trip to China
sometime next year. The relationship encompasses many areas
of cooperation, he said, but trade will be a growing area of
interest for Brazil.

11. (SBU) Comment: The GoB reserves a special place for
China in its export promotion efforts, and likewise counts
China as a partner in advancing its global trade agenda.
While the money to be made in strong trade links to China is
not lost on the Brazilians, they also are aware of potential
pitfalls in opening their own market to the export machine
that is China, as the toy safeguard demonstrates. Likewise,
Brazilian companies know that doing business with and in a
not-quite-yet market economy has its downside. Lax
intellectual property rights protection in China is one
example of a negative factor for Brazil. Contraband in
pirated goods, much of it originating from China, helps to
fuel organized crime in Brazil and frustrates the efforts of
the GoB to improve its IPR enforcement. A September "Estado
de Sao Paulo" article noted the case of Embraco, a Brazilian
company making compressors that launched a joint venture in
China to produce for the local market in 1995. The company's
operations director cited lack of patent protection for the
company's switch from local to foreign suppliers, as their
competitors could easily buy copies of their designs from the
local suppliers. In the quest for export markets and
building stronger south-south linkages, Brazil appears
willing to give its developing partners a break on points of
trade liberalization that do not seriously jeopardize the
relationship. While the trade stats continue to point to an
enriching relationship for Brazil, any bilateral irritants
are likely to be downplayed.

HRINAK

© Scoop Media

 
 
 
World Headlines

 

UN News: ‘Things Have To Change’ Canada’s Trudeau Declares Amid COVID-19 Pandemic

The COVID-19 pandemic has revealed that the world must change, as multilateral systems established decades ago are not working as they should, Prime Minister Justin Trudeau of Canada told the UN General Assembly on Friday. “The world is in crisis, and ... More>>

Assange's Hearing: Latest Observations From Court

Despite severe restrictions on observers, Reporters Without Borders (RSF) is the only NGO that has gained access to the hearing, and we’ve managed to monitor proceedings on most days. We will continue to do so whenever possible. Yesterday I was in court ... More>>

USA: Investors ‘freaking’ Over Possible Contested Outcome Of Election: Poll

A disputed result in November’s U.S. presidential election is now the number one concern for investors – even ahead of a second wave of Covid-19 – according to a new global survey. The poll carried out by deVere Group, one of the world’s largest ... More>>

ILO: Impact On Workers Of COVID-19 Is ‘catastrophic’

COVID-19 has had a “catastrophic” impact on workers, the head of the International Labour Organization ( ILO ) said on Wednesday, with lost working hours higher than originally forecast, and equivalent to 495 million full-time jobs globally in the ... More>>