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Lula, Brazil and the United States

Lula, Brazil and the United States

Council on Hemispheric Affairs
1444 I St. NW Suite 211
Washington DC 20005
(202) 216-9261

For Weekend Release
Saturday, October 5, 2002
Lula, Brazil and the United States

* The birth of a contentious relationship. Elections in Brazil this weekend will mark an historic watershed in that country's relations with the U.S. in the event of a victory by left-wing frontrunner Luiz Inácio Lula da Silva (Lula). With a population fast approaching 200 million within a matter of years and a geographical area larger than the contiguous United States, Brazil is now set to break out from its more than 100-year run as playing a subordinate role to that of the U.S., as it strikes out on a new, more independent position in its bilateral relations with its northern neighbor.

In recent months, behind-the-scene tensions have slowly developed between the two nations over Brazil's mounting assertions regarding its claim for a permanent position in the U.N. Security Council, its outrage over Washington's application of punitive tariffs on Brazilian steel exports and the Bush Administration's heavy subsidies of U.S. agricultural exports. The last undercuts the competitive standing in international markets of Brazilian commodities and industrial goods, most notably those of orange juice, sugar, cotton and soy beans.

In a weekend interview with Reuters television, Council on Hemispheric Affairs (COHA) director Larry Birns observed that Washington is ill-prepared to relate to Brazil in its new role as the hemisphere's other giant, and that U.S. negotiators will have to make tough concessions to Brazil in upcoming Free Trade Area of the Americas (FTAA) trade talks, once a Lula administration takes office, especially if it intends to keep the country within the hemispheric trade zone it is now fashioning, and not lose it and other regional nations to the European Union bloc.

While Lula certainly will not become another Fidel Castro, and while the likely new president has stated he will honor all of Brazil's current commitments to the international lending agencies, debt default cannot be entirely locked out, but would occur only in the most extreme of circumstances. There is no question that in terms of tone, style and content, Lula is not at all likely to follow the lead of current President Fernando Henrique Cardoso, who moved significantly to the right after taking office in 1994. Under Lula's leadership, Brazil is scheduled to have much closer relations with Cuba and cooler dealings with Mexican President Vincente Fox, who Lula is known to see as playing a surrogate role for the U.S. in pressuring Cuban reforms. Significantly, more budgeting weight and concern will be directed to the country's social needs, with less emphasis on privatization, deflation and contractionist fiscal policies.

Brazil's current growing role in the international system has its origins in the period of 1902-1912, when foreign minister Baron de Rio Branco developed the Ministry of External Relations, known as Itamaraty, as an important institution for administering the country's foreign policy. Rio Branco's tenure witnessed a singular evolution in Brazil's diplomacy, which defined the perimeters of the Brazilian nation and established inter-American commercial arrangements, legal processes and regulatory frameworks, but never challenged Washington's supremecy. Washington's perspective on Brazil's role in international and Latin American politics also has evolved, filling it with some unease, as the "sleeping giant" has gradually assumed a larger role in both regional and global politics and commerce.

In the mid 1980s, Brazil, like most Latin American countries, experienced an economic revolution resulting from increased access to the U.S. and global market. However, the imbalance in U.S.-Brazilian bilateral economic relations is evidenced by the often asymmetrical nature of both countries' trade ties. The tariff and non-tariff barriers affecting Brazilian goods, which has impeded the U.S. import of Brazil's relatively inexpensive product-line, and the overvaluation of the Real in the early 1990s, reduced Brazil's competitiveness and contributed to negative trade balances.

Recently, Lula's popularity has caused a stir in financial markets as he came to almost double his lead in poll results ahead of Cardoso's handpicked candidate, Jose Serra. International investors regard Lula's leftist leanings and inexperience in managing a national economy with uncertainty, if not outright apprehension. Lula, who opposed the FTAA in the past, says he will support it only if the U.S. and Brazil are treated as equals in negotiations. In this context, there is speculation that Lula, whose views differ from the current government's somewhat-idealized vision of hemispheric integration, would possibly be inclined to facilitate the establishment of bilateral negotiations over trade with the U.S., if he takes office. If a U.S.-Brazilian bilateral free trade area is established as an immediate step (which is highly unlikely at this time) the presently undefined future of FTAA could be relegated to a matter of secondary importance as the two continental giants end up turning their trade ties to their mutual advantage.

This analysis was prepared by John Galante, COHA research associate.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policymakers."

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