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Brazzil - Foreign Relations - May 2004

Brazil Plays Its China Card

Brazilian Minister of Foreign Relations, Celso Amorim, in China
with President Lula, said that the world is aware of Brazil's policy
on behalf of a new global economic map. Nevertheless, Amorim
stressed that, instead of representing a break with the developed
countries, this new economic geography can benefit all.

Edla Lula


Picture Twenty-four agreements are expected to be signed during President Luiz Inácio Lula da Silva's visit to China. Ten are memoranda of intention between the two countries, and the other 14 are between private firms.

The agreements cover the areas of science and technology, trade, and services. "We are giving a new momentum to the relationship between Brazil and China," declared the Minister of Foreign Relations, Celso Amorim.

At the government level, the most eagerly awaited agreements are those on cooperation to restore the Brazilian railway system and authorization by both sides of visas for business travel.

As far as private enterprise is concerned, the Vale do Rio Doce (mining), Telemar (telecommunications), Embraer (aircraft manufacturing), Petrobras (oil and natural gas), and Varig (air transport) are among the large firms that will conclude business transactions.

Amorim said that the world is aware of President Luiz Inácio Lula da Silva's policy on behalf of a new global economic map. Nevertheless, the Brazilian Chancellor stressed that, instead of representing a kind of break with the developed countries, this new economic geography can be beneficial to all.

"What we are doing is not against anyone, it is in our favor. If Brazil grows, and China grows, and trade between the two grows, and trade between South America and China grows, this will make our market more attractive to the United States," he said.

He remarked that the agreement between the Mercosur and the European Union, which should be discussed at the meeting in Guadalajara, Mexico, this week, is making headway.

"In international trade I don't perceive a competitive relationship with one thing taking another's place. One thing adds to another. This is good for everybody," he argued.

Amorim said that the United States is too big to be bothered over advances in Brazil's foreign policy, in a reference to an editorial dealing with this issue in this Saturday's edition of the Financial Times newspaper.

Old Brazilian Dream

The physical integration of South America, one of the Brazilian government's foreign policy goals, can become a reality. China, which is a big buyer of Brazilian soybeans, around US$ 1.3 billion per year, is going to invest in the recovery of Brazil's railway system, mainly in the segments used to transport this product.

The memorandum of understandings, which will be signed during President Lula's visit to China, foresees the construction of railways along a route terminating in Antofagasta, Chile.

It is in the Chinese government's interest to have a channel for the exportation of Brazilian products, especially soybeans, from ports on the Pacific Ocean. The investment will permit China to reduce its import costs.

For Brazil, the agreement will open the way to restoring infrastructure and communications throughout the region. The idea is to enable Brazilian products to cross the Andes and arrive at a Pacific port.

"We are all increasingly convinced that the term integration presupposes physical integration, and we are all searching for instruments to provide the resources necessary for bringing about this integration," said President Lula.

The Brazilian President commented that the trip to China has a strong relationship to Brazil's interest in effectuating the project of regional integration. "Without the investments, this integration will be much more rhetoric than anything else. We want a concrete and objective integration."

The project, which was formulated in partnership with the Brazilian Ministry of Planning, envisions the possibility of Brazilian participation in kind, by furnishing soybeans and other food products.

"This proposal is very important to Brazil. It meets Brazil's need to correct a serious lag in our lines of communication, our ports, and our railways," says the Brazilian Ambassador to China, Afonso Celso Ouro Preto.

He observes, however, that this is a medium-term process and the first step is being taken now. "We should not imagine that the results will spring forth overnight," he says.

President Lula will also demonstrate to his Chinese counterpart, Hu Jintao, the advantages of China's investing in the entire region. "An improvement in the relations between Brazil and China means an improvement in the relations between China and the Mercosur, because Brazil is a gateway.

"We have every interest in encouraging other Mercosur and Latin American countries to broaden their relations with China," Lula says. "We want to make the Mercosur a solid and strong economic bloc, and it is for this reason that we are working to strengthen the economy of the other countries," he adds.

A route to the Pacific is an old Brazilian dream that is gaining momentum at a juncture in which the country is intensifying its commercial relations with the Far East.

Reason for Worry

Lula's China trip is taking place while foreign direct investments in Brazil are dropping. The director of Invest Brazil, Clementino Fraga Neto, informed that the net result of foreign direct investments in April, US$ 381 million, 52 percent less than the US$ 796 million recorded in April, 2003, can be explained by the adverse international situation and, also, the transfer of earnings abroad by the Telefônica Company.

The director of Invest Brazil pointed out, however, that, despite the decline, Brazil retained its sixth-place position in the ranking of global investment flows. From January to April, foreign direct investments in Brazil came to US$ 3.1 billion. Invest Brazil is the country's investment promotion agency, fruit of a partnership between the federal government and the private sector.

The rise in oil prices and the complicated situation in the Middle East, including the crisis in Iraq, signal that the flow of foreign investments in 2004 should end the year at around US$ 13 billion, the target forecast by the Central Bank, Fraga Neto estimated.

The United States, with US$ 203 million, led the ranking of investors in April, followed by Italy, with US$ 132 million, and the Netherlands, with US$ 73 million. The sector that received the largest influx of resources in April was the energy sector, US$ 134 million.

The inflow of foreign direct investments to Brazil in May should suffer the effects of the rise in international oil prices, Fraga Neto said. In line with Central Bank data on currency exchange transactions concluded up to the moment, the market expects foreign direct investments in May to hit the mark of US$ 600 million.

Edla Lula works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br.
Translated from the Portuguese by David Silberstein.

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