Global Policy Forum

by Edmund L. Andrews

For a hint of the trouble lying ahead this week for the United States proposals for a free-trade pact with Latin America, consider Luiz Fernando Furlan's chicken problems. Mr. Furlan is chief executive of Sadia, a food-processing company based here that exports about $700 million worth of poultry, beef and pork products each year to European Union nations, the Middle East and parts of Asia.

Sadia sells nothing at all to the United States, mainly because the company's health and technical procedures do not precisely match American requirements. "Instead of holding out carrots, they are beating us with sticks," said Mr. Furlan, noting that Europe's finicky regulators have raised none of the obstacles imposed by the United States. "It's a form of protectionism."

This week in Ecuador, top trade negotiators from the United States will sit down with trade ministers from around the Western Hemisphere to develop a blueprint for negotiating a free-trade zone from Canada all the way to the southern tip of Argentina. The goal is to complete a "Free Trade Agreement for the Americas" by January 2005. It would be an ambitious expansion of the North American Free Trade Agreement of 1994, not only eliminating tariffs and quotas but also establishing common principles for regulating investment, labor practices and the environment.

But here in Brazil, home to 175 million people and Latin America's biggest economy, a large swath of business and political leaders are disillusioned and suspicious about their giant trading partner to the north. President-elect Luiz Inácio Lula da Silva, who won a landslide election victory on Sunday, has warned that a free-trade deal would be "tantamout to an annexation of Brazil by the United States." Mr. da Silva added to American annoyance by insisting at least twice that any agreement should include America's bíªte noire, Cuba.

Brazil is crucial to any free-trade agreement for the Americas. It accounts for 40 percent of South America's total economy. It is an American-scale competitor in global agriculture, with farms that are huge and highly mechanized. It is also a growing industrial power: its largest export is no longer coffee but small and medium-sized airplanes, produced by Embraer. It has been a huge magnet for direct foreign investment, drawing in more than $160 billion over the last five years.

But Mr. da Silva and his left-wing Workers' Party are hardly the only opponents here to a pan-American, free-trade zone. Many industrial manufacturers, still shielded behind Brazil's own import barriers, see themselves as net losers. Even those who salivate over huge new export opportunities — sugar growers, soybean farmers, textile producers — are skeptical. A free-trade pact would eliminate the steep American tariffs of more than 300 percent on tobacco and sugar and more than 100 percent on orange juice. Yet, farmers here are still seething about the farm bill that the United States Congress passed this spring, which authorized more than $100 billion in subsidies for cash crops, including cotton, soybeans and sugar.

Cotton farmers say the cotton subsidies sent world prices plunging and wiped out most of their profits this year. Brazil's soybean farmers, who are second only to the United States in production, say they would have suffered an even worse fate had it not been for bad weather conditions and low output in the United States. Food processors like Mr. Furlan are angry about what they consider backdoor protectionism through technical restrictions. Steel producers are furious about "anti-dumping" penalties on their products.

"Except for airplanes, all the other big export products face high barriers when you go to the United States," said Gilberto Dupas, director of the Institute for the Study of International Economics in Sí£o Paulo.

As Mr. da Silva's victory on Sunday made clear, Brazil is experiencing at least a partial backlash against both globalization and American prescriptions for prosperity. Many Brazilians blame their problems at least in part on the country's embrace of the "Washington consensus" for economic development — privatizing state-owned companies, opening markets to more competition, attracting foreign investment and doing everything possible to tame inflation.

Thanks largely to the global economic slowdown, Brazilian growth has slowed to a crawl. Interest rates, among the highest in the world, begin at 21 percent. The financial turmoil in Argentina has not helped matters. Argentina's financial collapse this year choked off one of Brazil's biggest trading partners. It also rattled foreign banks and investors, who feared that Brazil might slide down a similar path.

"Globalization doesn't have the same good meaning here that it did before," said Kjeld Jakobsen, director of international affairs at the Confederation of Labor Unions, Brazil's largest federation of unions. Despite the growing opposition to globalization, Brazilians remain deeply divided on free trade. Agricultural and textile exporters, who enjoy much lower costs than many American rivals, have everything to gain if the United States lowers its steep farm barriers. Many industrial companies, though, remain shielded by Brazilian import tariffs that run as high as 35 percent.

"There are really two negotiations that have to take place," said Celso Lafer, Brazil's departing foreign minister. "One is the negotiation with other countries. But the first negotiation has to be within the country itself, and there has been no internal negotiation of this type yet in Brazil." But almost everybody here agrees that Brazil should not accept any deal that does not include deep reductions in American agricultural barriers. Yet, that is precisely the area in which Brazilian experts are most suspicious.

Robert B. Zoellick, the United States trade representative, has proposed an ambitious plan that calls for huge reductions in agricultural tariffs and subsidies around the world. But Congress, in passing legislation that gives the administration enhanced authority to negotiate trade deals, pointedly insisted that Mr. Zoellick or his successor "consult" with Congress on a long list of "sensitive" agricultural products like sugar, cotton, orange juice and textiles.

"The signals are not good," said Marcos Jank, a former trade advisor to the Inter-American Development Bank and now a professor of economics at the University of Sí£o Paulo. "The sectors where Brazil is most competitive are the ones that are most protected in the United States."

Mr. da Silva's landslide victory on Sunday is likely to harden resistance even further here. Dorthea Werneck, director of Brazil's export promotion agency and an advocate of a trade deal, said the economic downturn has put all countries on the defensive and made trade talks even more difficult than usual.

Big Brazilian exporters like Sadia, which exports thousands of tons of frozen chicken and meat to more than 70 countries, maintain that they have almost everything to gain and nothing to lose from a deal. But even Mr. Furlan, Sadia's chief executive, often despairs of breaking through American intransigence.

"It is as if the wealthiest person in the neighborhood was inviting everybody to a big party," Mr. Furlan remarked. "But instead of sending out nice invitations, he tells you that you will have to buy tickets to get in and that you will have to pay a very high price."