Will the Sudden US-Brazil Romance Last? It Will Depend on Terror Factor

Brazilian women protest against BushIn the several pound issue of last Sunday’s Washington Post (3/11/07), President Bush’s Latin American trip attracted no more than two or three words – three words? – in the entire paper. This shocking fact is not so much a dereliction on the Post’s part, but that neither the trip has amounted to much, nor than one or two good ideas seemed to come out of it.

No home-runs; maybe only a bunt single or at best the odd double, but at least he didn’t strike out. Clearly the Bush trip to Latin America never should have been scheduled. One thing is for certain: the President doesn’t have a clue about Latin America and he should be prepared to acknowledge that Latin America is just one more casualty of the destruction brought on by Iraq.

Because of the brittle nature of the politics now found in Brazil and Uruguay, the planners of the Bush trip were lucky to get away without anything unpleasant happening. But that is a long way from saying that the trip was a success. The meeting with Uruguay’s president, Tabaré Vázquez, reminded the casual reader that trade issues between Uruguay, Brazil and the U.S. remain tense.

The one interesting issue that surfaced was the recommendations of expanding the Caribbean islands’ sugar cane industry, particularly as it affects the potential ethanol industry of the English-speaking CARICOM countries. The revival of their sugar cane industry could rejuvenate what is now little more than a series of near-defunct economies across the Caribbean.

One would have to listen very carefully to any praise being directed to President Bush’s trip to five carefully selected countries in the hemisphere. Given the terribly flawed nature of Colombia and Guatemala, the reasoning behind their being scheduled for a U.S. presidential visit strains credulity.

Political realities back home and the fact that the Republican Party – split by the immigration issue – may encounter more pain than pleasure from the Mexican segment of the trip, could cause it to explode in Bush’s face.

Bush’s Trip: BRAZIL

From March 8 to 14, President George W. Bush traveled to Latin America, with his second stop being in Brazil. A good deal of speculation had surrounded this visit – the fifth meeting of the two countries’ presidents – one which will be followed 23 days later by President Lula de Silva’s visit to Washington.

By the end of Bush’s stopover, the two presidents had integrated their efforts to achieve an advocacy program to persuade the rest of Latin America to convert to ethanol-based fuels. Brazil’s role in Common Market of the South (Mercosur) was also addressed.

Both Bush and Lula welcomed the visit since it came at a time when the two presidents both have been facing serious domestic perturbations, though each for quite different reasons. Bush’s vast unpopularity at home swelled in the aftermath of his administration’s botched Katrina relief efforts. Then came his tax cuts to the rich and his gross failures in Iraq, which prompted international disapproval and a stunning defeat in the Congressional mid-term elections.

At the same time, Lula was facing pressure at home due to endless corruption scandals indicting his party and its officials, as well as drawing heavy criticism for his inability to foster impressive economic growth. This trip serves Bush’s need to let matters in the U.S. calm down, as well as Lula’s own desire to better cultivate his image abroad as a world-class leader.

Although the two presidents could not come from more different backgrounds – Bush was born to privilege while Lula lived in abject poverty as a child – nor political perspectives – Bush is from the far right and Lula from the left – there was no indication that these dissimilarities would chill the presidential meetings.

Washington’s concerns over national security, whether provoked by the nation’s oil dependency or hostile foreign actors, is somewhat harmonious with Brasília’s desire to promote ethanol as an alternative source of energy and to consolidate itself as a major presence in the hemisphere. These interests are in fact entangled.

The war in Iraq escalated negative sentiments towards the U.S. in the Middle-East. The results can be felt in the effects of what has been dubbed the "terror factor," which is credited for causing an increase of almost 25 percent in the price of oil on the international market.

Hence, Latin America, with various national oil reserves, has recently attracted augmented U.S. interest. Currently, Mexico is the second largest exporter of oil to U.S., Colombia is the tenth, and 20 percent of all the oil imported by U.S. comes from Venezuela. The near future could witness even greater volumes of exports from the region to the U.S.

Diplomatically speaking, however, Latin America is no walk in the park for Washington. Several leftist leaders are directly confronting Washington’s agenda – most notably Hugo Chávez (Venezuela), Evo Morales (Bolivia) and Rafael Correa (Ecuador), in addition to the ever-present Fidel Castro (Cuba).

Washington thus needs a middle-man to mediate its relations with these leaders, and Brazil has been considering this interlocutor role as an avenue to consolidate its hemispheric leadership position.

There are two records that uniquely qualify Brazil for the job. First, Lula’s administration has already expressed its desire to be the spokesman for the region’s developing countries. To that end, Brazil forgave the external debts of Bolivia, Nicaragua and Cuba (in addition to other countries outside of Latin America).

Second, Brasília’s behavior since 1994 has been considered by Washington to be "responsible," as its set of rigid fiscal policies have been relatively successful in controlling inflation, though at the expense of faster economic growth.

Nonetheless, Brasília and Washington aren’t unconditionally aligned nor does their amenity necessarily project itself across the border. On the one hand, Washington did not aggressively support Brazil’s bid for a permanent seat at the UN Security Council and has been countering Brasília’s initiatives at the Doha Round to pressure the EU and the U.S. to lower their agriculture subsidies.

On the other hand, in a recent visit to Uruguay, President Lula reiterated his commitment to the Mercosur in his effort to dissuade Montevideo from expanding its recent Trade and Investment Framework Agreement (TIFA) with Washington into a Free Trade Agreement (FTA).

This is a particularly sensitive issue since an FTA between the U.S. and Uruguay would increase the chances of the fruition of the Free Trade Area of the Americas (FTAA), which Brasília adamantly opposes.

In addition, when La Paz broke its contract concerning the commercialization of Bolivian natural gas sales to Brazil in favor of its nationalistic extractives, Lula showed considerable leniency, regarding it as a fair Bolivian demand.

Moreover, Brasília has expressed support for Chávez’s proposal for a Great Pipeline of the South, and is currently studying the possibility of collaborating with Caracas on a non-military nuclear project. Both projects are heartily disapproved by Washington.

Despite these divergences of interests, using Brasília as an interlocutor between South America and Washington could even help Washington with its historic roadblock in Cuba. Brasília, as well as Madrid, is in a privileged position to influence any possible democratic transition on the island.

While Spain is the main financer of the Cuban cigar industry and a major source of investment capital, Brazil, with its sugarcane-based ethanol technology, could bolster the Cuban economy during whatever turns out to be the island’s next stage.

Only an urgent economic development matter would warrant Bush meeting Lula twice in less than a month, and what could be a more urgent matter for Washington that concerns Brazil, than the mutual development of ethanol as an alternative source of fuel?

It is now out in the open that the oil crisis is of paramount importance for both the U.S. and Brazil, even though the issue is only now barely bursting forth. Just several weeks ago, no such joint initiative on ethanol development had been advanced.

According to the Brazilian Sugar-Cane Union Industry (UNICA), Brazil and the U.S. alone are responsible for 70% of all ethanol produced in the world. The sugar-cane technology used by Brazil can produce ethanol for $0.83/gallon, while production costs for U.S. corn-based ethanol are $1.14/gallon, up to one third more.

Therefore, the U.S., to the great annoyance of Brasília, has established protective tariffs at $0.54/gallon for Brazilian ethanol refineries, which are anxious to send their product to the U.S. In spite of this high tariff, of the 3.8 billion liters of ethanol exported by Brazil in 2006, 2 billion went to the United States.

With these numbers in mind, President Lula commented on March 5 that "if we’re going to have free trade, let’s have some free trade where we have the opportunity of buying and selling. … The high taxes that the U.S. has imposed on Brazilian ethanol simply make no sense."

It is important to note that, according to Marco Jank, the president of the Brazilian Institute for International Trade and Negotiations (ICONE), ethanol currently constitutes 40 percent of Brazil’s domestic fuel consumption and the number is rapidly growing.

Moreover, the Brazilian domestic market is currently consuming 80 percent of Brazil’s ethanol yield. For Brazilian ethanol producers, it will only be profitable to expand their operations if there is clear indication that ethanol is on its way to becoming a major international commodity.

In order for that to happen, Washington would need to seriously promote ethanol consumption in the U.S., which was implied by President Bush in his January 22 State of the Union Address. Also, Washington has not indicated under whose auspices the ethanol mobilization effort would take place.

Would the Bush Administration sanction the promotion of ethanol under anything other than the traditional privately owned commercial channels? If public funds are to be used, will Exxon-Mobile win what could be a multi-hundred billion dollar gambit, over some worker-owned credit unit?

Brasília has been pushing Washington to create an international forum that promotes the biofuels market. This forum was finally created on March 2, 2007 at the UN headquarters in New York. Other participants in this group include China, India, South Africa and the EU.

The Brazilian ambassador Antonio Patriota commented during the forum’s inauguration that "the idea is to prepare the terrain for the International Conference on Biofuels to be hosted in Brazil in 2008."

In this light, Bush’s trip to Brazil, to be shortly followed by Lula’s trip to Washington, is likely the preparatory steps of a much greater international effort.

However, a final question remains: will Washington maintain its sudden interest in Brazil if the "terror factor" passes and oil prices drop in the international market?

This analysis was prepared by COHA Research Associate Thomaz Alvares de Azevedo e Almeida and with the assistance of COHA Research Associates Katherine Hancy Wheeler and Nicki Mokhtari.

The Council on Hemispheric Affairs (COHA) – www.coha.org – is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.


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