Brazil on the International Stage

Posted on July 21, 2009

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Originally published in CFR.org:
Introduction

In the past several years, Brazil has assumed a more prominent voice on global trade and energy issues. As the global financial crisis took hold in 2008, Brazil appeared poised to recover more quickly than many others due to strong industrial and agricultural exports. Brazil’s economic rise has led it to pursue greater influence in international forums at the same time that it fosters cooperation among countries in the developing world with “south-south” initiatives. Analysts say that the United States stands to benefit from a stronger Brazil that serves as a partner on energy and regional security initiatives, but it must be careful not to view Brazil’s rise as a challenge, or, during a time of great economic turmoil, neglect the relationship.

Strong Economic Foundations

In the past decade, Brazil has developed a robust and diversified economy that ranks eighth in the world with an estimated gross domestic product (GDP) of nearly $2 trillion in 2008 (PDF). Economists attribute Brazil’s growth to sound economic management, which has reduced inflation and attracted foreign investment, and the stabilization of its currency, the real. The country is well-positioned to weather the current economic downturn; its population of roughly 200 million has become a burgeoning consumer market, and its banking system has largely escaped the credit crisis. After several banks failed in the mid-1990s, Brazil tightened bank regulations. Some small distressed private banks were taken over by the government, and troubled state-owned banks were closed or purchased by foreign investors. As a result, Brazil’s banks “are strengthening the economy and making it more resistant to fluctuations in local and international markets,” says a 2009 article published in the online business journal of the University of Pennsylvania’s Wharton School. Yet some economists, including former director of international affairs at Brazil’s Central Bank, Paulo Vieria da Cunha, caution that future economic growth could be constrained by the large size of the Brazilian state. The state spends between 40 and 50 percent of GDP, but da Cunha notes that: “It’s very inefficient, very corrupt, and full of problems.”

Brazil’s economic growth is largely export driven-both agricultural and industrial. It is the world’s biggest exporter of sugar, chicken, beef, and coffee. Analysts agree that Brazil has the potential to produce even more agricultural exports. “No other country has such a large untapped reserve of land, water, and farmers with the technology and expertise to add value to natural resources,” wrote author Juan de Onis in a 2008 Foreign Affairs article.

Brazil also harbors a number of homegrown multinational corporations, such as Embraer, one of the world’s largest aerospace companies. These companies have major investments overseas, so “Brazil is learning to balance meaningful commercial diplomacy with political diplomacy in an unprecedented way,” writes Kellie Meiman in a March 2009 report (PDF) from the Center for American Progress. In 2008, Sao Paulo’s stock and commodity exchanges merged, which prompted a new inflow of foreign investment. Finally, Brazil discovered large deposits of offshore oil in 2008. Though the oil will be difficult to extract, industry analysts say the country could become a major oil exporter within the next decade.

Given Brazil’s strong economic position, analysts say that the Brazilian Foreign Ministry is intent on defining and cementing a new global leadership role for Brazil. “Brazil is a nation that no longer wants to be viewed simply as the largest country in Latin America,” writes foreign policy analyst David Rothkopf, who runs a consulting firm focused on emerging markets. “Brazil wants a say in international affairs, and to be an agent of peace and stability,” adds Paulo Sotero, director of the Brazil Institute at the Wilson Center.

U.S.-Brazil Relations

Brazil’s ascendancy poses opportunities and challenges for the United States, which would like to have a stronger partnership with the country on security, trade, and energy matters. Compared to Mexico’s Felipe Calderon and Colombia’s Alvaro Uribe, which maintain close U.S. ties, relations with the administration of Brazilian President Luiz Inacio Lula da Silva are limited. According to the U.S. Congressional Research Service, there are ten bilaterial mechanisms in place for the U.S. and Brazilian governments to discuss issues of mutual concern. Under the administration of U.S. President George W. Bush, the two countries forged a cooperation agreement on biofuels. But they disagreed on global trade talks, ethanol subsidies, and climate change. “Behind this failed agenda is an underlying resistance in the Brazilian political psyche to any hint of subservience to the United States,” writes Onis in Foreign Affairs. For instance, Brazil held a summit of Latin American leaders in late 2008 and did not include the United States. Yet Lula was the first Latin American leader to visit President Obama in Washington, and the two leaders have since met several times–at G-20 meetings as well as the Summit of the Americas. Analysts see these initial meetings as positive. However, they also say the United States finds it frustrating that Brazil doesn’t want to get too close. Brazil’s foreign policy is “maddeningly vague from a U.S. point of view,” says Thomas J. Trebat, executive director of Columbia University’s Institute of Latin American Studies.

Under Lula, Brazil has forged a moderate policy path that allows it to maintain positive relations with its neighbors, whether Venezuela, led by the leftist Hugo Chavez, or Colombia, a strong U.S. ally. It has served as a mediator in crises in Venezuela, Ecuador, and Bolivia. Brazil also commands the UN stabilization force in Haiti. Trebat suggests the United States should look to Brazil as an intermediary on regional security issues. “By not being too closely aligned with the United States, they can still be seen as an honest broker,” he says. Miami Herald columnist Andres Oppenheimer writes in a March 2009 column that Brazil has emerged as “the key interlocutor” between Latin America and the United States.

Some analysts believe the current economic crisis is an opportunity for the United States and Brazil to develop a deeper partnership. But others note that Brazil seems more interested in forging strong ties with countries in Africa and Asia, as opposed to the United States. For instance, Brazil has expressed its allegiance to the developing world on climate change talks. “A country that started its industrialization process 150 years ago has more responsibility than one starting yesterday; the United States has more responsibility than China, and Europe more than South America or Africa,” said Lula in July 2009. Brazil has also cultivated stronger ties with China, which is now its largest trading partner. Experts differ on how the United States should handle this tension. David Rothkopf suggests that the United States should seek “a new special relationship with Brazil,” to keep Brazil from feeling slighted by U.S. prioritization of other matters. If the Obama administration “only pays lip service to Brazil but slow walks the most important issues while seeking disproportionate payment in turn from the Brazilians … then tension and distrust are likely to manifest themselves,” he writes. Other analysts say the United States just needs to treat Brazil on more equal footing. “The willingness of the U.S. government to listen to Brazil is important,” says Sotero.

Energy

The United States and Brazil have forged cooperation agreements with the aim of increasing ethanol use throughout Latin America and creating a global market for biofuels, but frictions persist due to the U.S. tariff on Brazilian ethanol. The 54-cent per gallon tariff protects the U.S. domestic ethanol industry, which is corn-based, from Brazilian sugar-based ethanol, which is produced at a lower cost. Though some legislators have proposed ending the tariff, segments of the U.S. agriculture lobby strongly oppose such a measure. The Brazilian government has threatened to file a complaint with the World Trade Organization if the tariff is not reassessed, but Obama has signaled that he plans to continue the tariff. Experts are split on how serious this disagreement is, and what implications it has for the broader relationship. Some say the tariff prevents closer cooperation on energy issues, while others discount it, suggesting that Brazil understands why the United States can’t eliminate the tariff.

Some policymakers, including U.S. Assistant Secretary of State Thomas Shannon, have highlighted U.S.-Brazil cooperation on ethanol as grounds for a wider partnernship. The cooperation currently is based on a 2007 memorandum of understanding and an announcement, one year later, that both countries would help Guatemala, Honduras, Jamaica, Guinea-Bissau, and Senegal create biofuels industries. Some experts say these initiatives are too narrow. “This limited dialogue is not broad enough to help address U.S. energy needs, climate change, or to build a global market for ethanol,” writes Kellie Meiman. She recommends that the United States reduce its ethanol tariff.

Many experts believe the United States will seek stronger energy ties with Brazil in light of its substantial offshore oil resources. The United States obtains most of its oil from Western Hemisphere suppliers, including Canada, Mexico, and Venezuela. Mexico’s oil output is decreasing, and the United States would like to diversify itself away from Venezuelan oil because of the antagonistic relationship with Chavez.

Trade

On trade, Brazil has often taken a stance that aligns it with other developing nations and places it in opposition to developed countries, including the United States. Brazil’s trade policy is “not merely about making the nation wealthier, but making the nation more powerful,” says Matias Spektor, senior research fellow at CPDOC, a Brazilian research center. In Latin America, it stauchly opposed the  Free Trade Agreement of the Americas and announced its intention to increase trade within the Mercosur bloc of countries. An April 2008 report (PDF) from the Wilson Center’s Brazil Institute said that Brazil is reluctant to expand its trade relations with the United States and the European Union because “it fears that this would conflict with its south-south foreign policy strategy and potentially alienate its developing world allies.”

Some analysts believe that such a foreign policy goal runs counter to Brazil’s economic best interest. For instance, the Mercosur bloc has not yielded concrete trade benefits for Brazil. A 2009 Congressional Research Service report on U.S.-Brazil relations notes that “the Ministry of Foreign Relations continues to dominate trade policy, causing the country’s commercial interests to be (at times) subsumed by a larger foreign policy goal, namely, enhancing Brazil’s influence in Latin America and the world” (PDF). The CRS report suggests that Brazil’s focus on “south-south” initiatives has “yielded few concrete results for the country.”

Yet Sotero says there is growing recognition within Brazil’s policy circles that Mercosur has become a “problematic” and “limiting” relationship. Though there is no bilateral trade agreement between the two countries, the U.S.-Brazil trade relationship has grown substantantially in recent years; U.S. exports to Brazil rose from $12.3 billion in 2002 to $19.2 billion in 2006 (PDF). On the international stage, Brazil broke with India at the Doha round of global trade talks, pushing for lowered subsidies because they would make Brazilian goods more competitive. “Brazil was peacemaker between India and the United States and Europe. Brazil was willing to cut a deal and wanted to bring India along but couldn’t do it,” Trebat says. Many analysts believe Brazil will continue to support global south initiatives, but in the end, it does want to trade more with the United States. “Fundamentally Brazilians know what side of the bread the butter is on,” Trebat says.

A Seat at the Table: Multilateral Institutions

Underlying much of Brazil’s activism on the global stage is a belief that it should have a more influential role at multilateral bodies like the UN Security Council, the International Monetary Fund (IMF), and the G-8 group of advanced economies. Brazil would like U.S. support in its bid for a permanent seat on the UN Security Council. It would also like a decision-making role at the IMF. “The fact you become a potential creditor makes your voice stronger,” Claudio Loser, head of the IMF’s Western Hemisphere Department from 1994 to 2002, told Bloomberg in April 2009. “Brazil has been pushing very hard, together with countries such as India, China and Mexico, for the fund to better reflect the importance of emerging economies,” Some analysts note, however, that Brazil will need to contribute funds to the IMF if it hopes to have a stronger role within the body. In June 2009, Brazil announced it will invest up to $10 billion in notes issued by the IMF.

The Wilson Center’s Sotero says the United States should work with Brazil to assist countries in the global south with issues like food and energy security. The United States is interested in helping to increase agriculture yields across sub-Saharan Africa, and Brazil’s agriculture research agency already has an office in Ghana from which it aims to assist other African countries. “If local solutions are to be found for Africa’s chronic food deficiencies, Brazil’s expertise in tropical agriculture, supported by international financing, could prove vital,” Onis writes.

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