Brazil Continues to Emerge, has not Quite Arrived

Brazil Continues to Emerge, but has not Quite Arrived

• Despite internal discord and a reputation as Latin America’s reluctant giant, recent actions in the international arena reveal a Brazil which is rapidly maturing into a significant independent world player after having achieved the status of a powerful regional factor.

• Brazil deployed 1,200 peacekeeping troops to Haiti this summer and will direct an international force of 8,000 peacekeeping troops; this is meant to be a message to the world that the country desires and is worthy of a permanent seat on the United Nations Security Council.

• Brazil has solidified its position as a champion of developing countries and legitimized its role as a tough adversary on the international scene when it successfully challenged U.S. cotton subsidies before the World Trade Organization (WTO).

• In June, President Luiz Inácio Lula da Silva traveled to China in a trip aimed at strengthening economic ties between the two behemoths; he is also working to secure closer trade relations with the European Union (EU) through arrangements with the South American trading bloc Mercosur.

• Brazil has played a large role in forming the G-20 organization of developing nations, which has proven to be both a real and symbolic challenge to the developed world.

• For the first time since the fall of the Brazilian military dictatorship 20 years ago, two consecutive presidents, Cardoso and Lula, have stuck to one economic revitalization plan and international investors are remain optimistic because of this record of stability.

• Lula has a strong constituency, but it is a different one from which he originally based his presidential race – the left is now adrift.

• But, Brazil’s current economic progress could be challenged by domestic unrest, its growing dependence on China’s likely unsustainable high growth rate Brazil’s problems inside Mercosur and U.S. pressure over free trade issues.

Through a series of events unfolding this summer, Brazil’s charismatic president has demonstrated that his country is not only fast emerging as a powerful regional actor, but that it is also fast becoming an international factor that the developed world can no longer ignore. After decades of failing to reach it potential, Brazil’s recent progress has provided its own skeptical citizens as well as the leadership of the developing world with a new level of third world cooperation and the prospect for a more balanced global playing field. The autonomy and panache that President Lula has recently displayed in the realm of trade, military modernization and cooperation, and the development of far-flung oversea alliances have affected the policy of the poorer nations in a way that such countries had not anticipated.

Brazil Finds its Voice
Despite its considerable tangible assets, Brazil has historically limited its external responsibilities in the western hemisphere. Crippling domestic economic problems and the preemptive U.S. dominance in the Americas reinforced the country’s desire to shun the world and even the hemispheric stage. Since Brazil’s military dictatorship, which seized power in 1964 relinquished its control in 1985; the U.S. has let its preferences be known regarding both Brazil’s foreign independent and its domestic affairs.

This began to ease into a new order of achievement during former president Fernando Henrique Cardoso’s term (1994 to 2002). In this period, Brazil finally began to make progress in mending its own economic maladies and commenced to question its almost institutional policy of deference to Washington in the hemisphere. Following the failure of seven consecutive economic revitalization plans in the eight years prior to his election, Cardoso was able to implement the Plano Real, which finally curbed Brazil’s traditionally unmanageable hyperinflation problems and introduced a more disciplined and sustainable fiscal policy. This new strategy also involved the strengthening of the federal government’s influence over the nation’s economy, modifying the old system where powerful local states and municipalities maintain a plenary degree of control. This, coupled with the country’s growing economy, made it possible for Brazil to institute an increasingly autonomous foreign policy. Director of the Brazil Project at the Woodrow Wilson Center, Luis Bitencourt, maintains that “Fernando Cardoso was the starting point for a big change in the way Brazil perceived itself in the world. Now you see Brazil trying to be more consistent in seeking a permanent seat on the UN Security Council and being more active in the trade negotiations.”

Since his election in 2002, President Lula has been signaling Brazil’s increasing independence from the U.S. and the honing of its own negotiation skills. The country was one of the relatively few in Latin American that vehemently opposed U.S. military action in Iraq. Lula also has actively denounced the protectionist trade policies of the United States and the European Union, most notably by stalling World Trade Organization (WTO) negotiations at Cancún and Free Trade Area of the America’s (FTAA) talks with Washington. Brazil’s genuinely warm relations with both the Venezuelan and Cuban governments – two regimes that the Bush Administration has sought to isolate and discredit, and if possible, ultimately render ungovernable – have further frustrated Washington’s Latin American agenda. Brazil is not alone in its criticism of the hypocritical trade policies employed by the more developed countries, but it is the only one is secure enough to afford the political and economic costs of defiance. Now, possessing the world’s tenth largest economy, surpassing that of either Russia or Canada, as well as the fifth largest population, Brazil contains vast reserves of natural resources. It also possesses many of the physical and human elements to warrant being considered a significant world economic power.

Pursuit of Permanent Seat on UN Security Council
Beginning in June, Brazil dispatched 1200 peacekeeping troops to Haiti in its largest overseas military deployment since World War II. The presence of its troops in the Caribbean nation signals a significant modification in Brazil’s mainly passive foreign policy in Latin America.

Many experts interpret Lula’s adoption of a leadership role in the Haitian crisis as an attempt to signal that Brazil is a deserving candidate for a permanent seat on the United Nations Security Council. Brazil feels that such a council seat is long overdue and would only restore the status that Brazil held in the League of Nations. After the Allied victory in World War II and the subsequent formation of the UN, Brazil, with the modest backing of the U.S., pursued a permanent seat on the Security Council that was instead eventually awarded to France after some last-minute maneuvering by Great Britain. Lula highlighted Brazil’s qualifications for a seat on the Security Council and also its attitude towards the Haiti situation in a public speech on May 30, stating, “As a member of the UN Security Council, Brazil has sought to reflect the concerns of our region and to interpret the interests of the Haitian people and the international community. Because of that, we also decided to accept command of the peacekeeping operation established by the Security Council with, among its other tasks, the responsibility to protect civilians who are being threatened, support institutions that defend human rights and promote Haiti's national reconciliation… [These] are important challenges but they do not intimidate us.” If Brazil is able to meet the Haitian challenge and create an environment conducive to rebuilding the failed state’s devastated democratic institutions, it would establish undeniable credibility as a productive and conscientious international actor. But what does Lula’s rhetoric actually add up to? In fact, Brazil played no role in challenging Washington’s policy to rid itself of President Jean-Bertrand Aristide, and Brazilian’s acquiescence to the fait accompli maneuvered by Secretary of State Powell just before Aristide’s panicky flight from the country deserves to be further explained.

Challenging the International Trade System
In the realm of international trade, the U.S. and other modern nations have historically manipulated and taken advantage of weaker Latin American economies, a reality that has bred deep frustration in Brazil. Yet, particularly in the past year, the WTO decision against President Bush’s prohibitive steel tariffs was bu one of a number of Brazilian victories. On June 18, the WTO sided with Brazil when it declared that various U.S. cotton subsidies were illegal. According to an analyst, “The serious part of this case is Brazil’s argument that U.S. subsidies have affected world prices” and thus violate international trade laws. Currently, the United States pays over $3 billion in annual subsidies to help its 25,000 cotton farmers sell their product at competitive world prices.

This WTO decision did more than threaten U.S. cotton. The ruling has forced the developed world to confront the long ignored cries of third world nations that cotton and other similarly subsidized crops unfairly depress world prices and impoverish their domestic farmers. According to Bitencourt, “As long as the U.S. continues to support the WTO and abide by its rulings, the cotton decision will have implications as a kind of symbol for other countries and give hope to the developing world that it can affect the policies of the developed world, which had been traditionally very protectionist.” Brazil, meanwhile, has another suit pending against the EU regarding European sugar subsidies. The WTO cotton ruling also makes other agricultural products, such as soybeans and rice, vulnerable to future challenges.

Free Trade
In the 1990s, Brazil’s participation in Mercosur, an international trading bloc comprised of Argentina, Brazil, Uruguay and Paraguay, providentially boosted its economic growth and gave Brazil a stronger negotiating position against the developed world. Argentine President Néstor Kirchner’s recent adoption of protectionist tariffs against Brazilian products is the most recent of Mercosur’s frequent internal conflicts. Lula continues to deal with this threat while attempting to expand Mercosur’s reach to include Mexico, Latin America’s second largest economy. With the inclusion of Mexico, Mercosur would have a combined GDP of approximately $2.78 trillion, making it one of the world’s largest trading blocs. Mercosur members are also currently negotiating free trade agreements with both China and the EU. These alliances will serve to strengthen Brazil’s previously weak position in the Free Trade Area of the Americas (FTAA) negotiations.

So far, Brazil’s stubbornness in trade negotiations has paid off, but it has also placed it in a potentially perilous position: Washington has aggressively courted several Latin American nations to sign bilateral free trade pacts outside of FTAA negotiations. If Washington continues to steal nations away from the Brazilian-led alliance, it could ultimately sabotage President Lula’s ambitious attempt to use Brazil’s growing economic and political influence to make his country a more relevant international force. Recognizing this threat, Lula has reinforced his diplomatic team with international trade economists and sought to further diversify Brazil’s trading partners in order to minimize its dependency on any one market.

Revamped Sino-Brazilian Relationship
To combat U.S. political and economic pressure on Brazil, President Lula went on a six-day trip to China at the end of May to strengthen and expand the Sino-Brazilian alliance and decrease Brazil’s dependence on Washington. Brazil and China have had close economic ties for nearly 30 years and Lula has worked hard to expand this alliance since coming to office. He vigorously supports the one-China policy regarding the ultimate status of Taiwan and backs Beijing on its controversial human rights record. Brazil is also taking steps to encourage world recognition of China as a market economy. In return, China has backed Brazil’s aspirations to be a permanent member of the UN Security Council. As two of the world’s largest developing nations, Brazil and China are working to improve the state of developing countries worldwide.

China is an ideal partner for Brazil not only because of the trade opportunities it provides, but also because of its reputation as a leader among developing nations. China has forgiven hundreds of millions of dollars of debt owed by poorer countries over the years. By contributing $100 million to development programs in Asia and Africa, it has increased its support for poverty reducing policies. Lula, for his part, has increasingly tried to act as a counter-balance to U.S. dominance in the Americas, making it an important part of his agenda to gain influence in world trade negotiations and establish a global poverty policy.

The results of Lula’s efforts have thus far been positive. The Brazilian economy has recently shown mild improvement after years of sluggish growth, primarily as a result of a surge in exports to China, which include soybeans, iron ore, steel and lumber. Some 6.2 percent of Brazil’s $73 billion exports were sold to China last year, a dramatic increase from 1.4 percent in 1999. Last year, Brazil ran a $2.39 billion trade surplus with China, a 246 percent increase over 2002. Currently, Brazil is China’s number one trading partner in Latin America, while China comes in third among Brazilian world partners, following the U.S. and Argentina. Lula is determined to continue this trend in hopes of generating noticeable domestic economic growth, thus hopefully recovering some of his dwindling public support.

Brazil’s extensive supply of raw materials, cheap labor and up-to-date technology have long provided it with an excellent potential to achieve its longtime goal of becoming a global steel power. Increasing demand for steel from China’s ballooning economy is finally making this dream a reality. China’s economy is currently growing more rapidly than those of Japan, Germany, and Great Britain during their most memorable economic booms. In 2003, the Chinese GDP grew by a staggering 9.1 percent. To maintain this growth, China needs a guaranteed steady supply of raw materials, especially steel and iron ore, which Brazil has provided In fact, Brazil hopes to increase its steel production by 30 percent in the next four years, moving from the world’s ninth-largest steel producer to the sixth.

Success?
Brazil has been repeatedly labeled a rising nation on the verge of becoming a world power through much of the last century. This has been particularly true since its return to democracy in 1985. Yet these predictions have been consistently met with shortfalls. Even with its current promising successes in international trade and the development of fruitful alliances, Brazil is far from a global player. While Brazil develops a more dynamic international presence, domestic unrest continues to fracture Lula’s original leftist coalition comprised of the Landless Worker’s Movement, labor unions and his Partista Trabalhador or Worker’s Party. Compromise on issues such as budget spending and fiscal policy have delayed or marginalized many of the optimistic social reforms upon which Lula campaigned. His Zero Hunger program, anti-corruption campaign and wealth distribution promises have made scant progress. Nearly half of Brazilian citizens are considered poor, its homicide rate is the second highest in the world, and a recent scandal proved that Lula’s government, which once prided itself on its integrity, is not immune to corruption. After such little progress, many of Brazil’s landless and poverty stricken feel betrayed.

Internationally, the path is no less perilous. Lula’s election in 2002 led to a major financial crisis when many foreign investors fled the country due to misplaced fears that he would implement radical socialist policies. This process served to expose Brazil’s continued dependence on international investment and financial institutions. Others are concerned that if China’s economy begins to cool off, Brazil will be severely impacted by a decline in demand in one of its strongest export markets. Mercosur is also being threatened by internal conflict as Argentina recently enacted tariffs to protect itself from the present dramatic increase in Brazilian exports. Other issues involving possible negative consequences include Brazil’s present peacekeeping endeavor in Haiti which, while ambitious, could easily result in an expensive quagmire. Finally, while recent WTO decisions have been favorable to developing countries, the organization’s existence is entirely dependent upon the continued compliance of the United States – something that should never be taken for granted.

Such challenges, while formidable, are not expected to deter Brazilian policymakers from pursuing an assertive voice that thus far has fostered so much progress.

This analysis was prepared by Sandy Burke and Sam Goble, COHA Research Associates

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