U.S. Hints that Any Brazilian Retaliaton Will Be Met With Fitting Response

Talking to reporters in Brazil, the American Deputy Secretary of State, Robert B. Zoellick, said that the Brazilian announcement that it would retaliate against the U.S. because of American subsidies to cotton is a bad idea and would aggravate the situation instead of helping it.

Follows the transcript of the mini-press conference given by Secretary Zoellick and Brazilian Finance Minister, Antonio Palocci, in Brasí­lia, the Brazilian capital.

MINISTER PALOCCI: I will be very brief because the secretary is already late for his next appointment, at Itamaraty. I would just like to thank Secretary Zoellick for his presence in Brazil. He is an old friend of Brazil.

We met for the first time to address government issues, while still in a period of transitional administration, during the transition from President Fernando Henrique’s administration to President Lula’s.

At that time, Secretary Zoellick visited us to deal with questions related to our common portfolios. He is making a new visit to Brazil, on the eve of the Summit of the Americas, which is a meeting that has great significance for our economies and for the social and economic development of our countries.

I told him that he is very welcome and we discussed issues of common interest. In a special regard, I underscored with the secretary the good impression that he is having on the fine tuning between the Brazilian and U.S. economic teams through the Group for Growth, which was a working structure we created during the visit of President Lula to President Bush on June 2003.

This group has met regularly, and it has addressed issues of common interest. You in the press have been following the work done by this group. Therefore we have addressed these common questions.

As I promised to be quite brief, I will pass on to Secretary Zoellick so that you can pose some questions. I would ask for your understanding so this is a brief interview, given Secretary Zoellick’s tight agenda.

DEPUTY SECRETARY ZOELLICK: Well, thank you very much, Minister. I very much appreciate that the Minister could spare some time to talk today. We in the United States, and I personally, have the highest regard for his financial leadership.

I think he and his team have done a fantastic job for Brazil, so part of my purpose was to get a sense of the Brazilian economic agenda in the months and years ahead. But also I wanted to benefit from his insights and expertise in getting a better sense of some of the economic developments in the region more generally.

And we talked about some of the issues that I discussed with Foreign Policy Adviser, Minister Marco Aurélio Garcia this morning. I’ll have a chance to talk about them with Foreign Minister Amorim, and I very much appreciate the insights that he shared, and we discussed some ideas about, possibly, ways to add and deepen our cooperation.

MODERATOR: O Estado de São Paulo.

QUESTION: I’m from the newspaper O Estado de S. Paulo.  The first question is for both of you. Here it goes: was there a discussion about Brazil’s import tariff and particularly, from Mr. Zoellick, I would like to know if he is in favor of it, and if he believes that this is the best way for Brazil, and what would the United States be willing to offer in exchange for that? Another question, more specifically for Mr. Zoellick, is; it wasn’t clear from the press conference earlier this morning why the United States hasn’t responded to Brazil and Mercosur’s request for the negotiation of a bilateral agreement. This agreement effectively is not in the U.S. interest? I would like Minister Palocci to comment on Deputy Secretary Zoellick’s answer afterwards.

DEPUTY SECRETARY ZOELLICK: On your first question on tariffs, I have just finished a meeting with a number of business leaders, many of whom were kind enough to come up from São Paulo. And so I was trying to get the Minister’s assessment of not only the issue of tariffs but more generally the economic background for some of the issues of liberalization in the manufacturing sector, but also in the services sector and others. I’ll obviously let him comment in terms of Brazil’s views on tariffs.

As for the United States, you asked what we were willing to offer. When I was the U.S. Trade Representative, we made a proposal to eliminate all manufacturing tariffs, and you can’t really do much more than that in an offer.

Now I realize that there always have to be transition periods, but one of the observations I’ve had about Brazil’s economic future is that I actually suspect that in the years to come that Brazil, along with China and some others, will probably be some of the strongest competitors in world manufacturing.

It depends on what sector, but I would hope that as the Doha negotiations go forward, in addition to agricultural liberalization, where obviously Brazil would benefit, people would see over time the benefits in the goods and services area as well.

And in your second question, about Mercosur negotiations: the United States has, back again in 2003, has tried to come up with a framework for the ALCA, the FTAA negotiations, which will allow us to move forward with all the countries in the hemisphere and that would include a framework for negotiating some of these issues with Mercosur customs union, but we wanted to try to do that within the overall context of the ALCA because, frankly, the United States and Brazil were co-chairs.

It would seem a little odd if together we would sort of just go our own way and leave the others out of the process. But, for a variety of reasons, that idea of a baseline did not really develop in the ALCA negotiations and so it’s my sense now that the area where there is the greatest potential in the near term is to move forward Doha, the WTO negotiations.

MINISTER PALOCCI: He found out that I had dodged the question.


MINISTER PALOCCI: No, look, we have dialogued about the trade issue, not as a working meeting. You know that this is not a theme that is exclusive to the Finance Ministry, or even part of the new attributions of the Department of State’s secretary.

But we discussed this, especially under the perspective that we believe, considering developments that have taken place in recent weeks at various international forums where I and other Brazilian ministers have participated, as well as Secretary Zoellick and other U.S. officials, that there is a very favorable climate, as the secretary said, and there are very positive expectations, as the Secretary just said, there is a very positive perspective regarding the Doha Round in the WTO.

We believe that we can’t lose the opportunity of making advances that could result in improving the stability and economic growth of all nations. I think that there will be, in the preparation for this process in Hong Kong, a favorable environment for negotiations and liberalization.

I saw this in the presentations made by Brazilian ministers at the CAMEX. We had an important dialogue in the last Camex about this issue. There is great willingness on the part of Brazilian ministers that work in this area in the sense of seeking a broader agreement in the WTO, and I think that officials in Europe and in the United States, in the declarations we heard in the annual meetings of the Monetary Fund and the World Bank, were very positive in the sense of creating this environment. This is an expectation, and I hope that the world could be blessed with trade advances in this meeting. We will all work towards that.


QUESTION: First, for the secretary, then one for the minister as well. Secretary, Brazil has decided to exercise its right at the WTO to retaliate against the United States to the tune of a billion dollars because of subsidies in the agricultural area. I would like to know your opinion about this. For the minister: This afternoon the Senate president was here talking to you about Varig airlines, and when he left he said that you showed concern regarding the company’s situation, committed to finding a way out and examining alternatives. I would like to know which ways out, which solutions we could expect for that company, and when this could be announced?

DEPUTY SECRETARY ZOELLICK: On the cotton case, as I already said earlier today, when a country wins a WTO case, the purpose is to try to fix the problem, not to retaliate. Countries use retaliation if they feel a country is not fixing the problem. In the cotton case, we have proposed legislation with our Congress to try to fix the problem. We, like Brazil, have a constitutional system where the executive branch can’t dictate to the Congress, and so, in my view, a step towards retaliation at this point would actually aggravate the situation, make it harder to get the problem fixed.

But I would go a step beyond, which is that, I have long counseled that in dealing with the sensitive issue of agricultural subsidies, it’s best to try to reach that in the negotiation in the Doha agenda, and that there are, there should be a common goal between Brazil and the United States, not only to drastically cut subsidies, but also to open markets, to reduce tariffs, whether among developing countries, where Brazil has a lot of trade with other developing countries, or with developed countries. So, that is what I hope our ministerial colleagues will do in the context of the Hong Kong meeting, to move forward.

So I think that retaliation at any time is designed to prod someone to act, because if you think about the effect of retaliation, you’re just raising tariffs. If you raise tariffs, you’re just increasing costs for your own country. And ultimately that blocks trade, as opposed to open trade, so the goal should be to try to open trade.

So, at times the U.S. has retaliated, but they’ve been when we felt our trading partner was not acting to fix the problem. In this case, we are trying to act to fix the problem both directly with our Congress, and to try to do so as part of the Doha negotiations, so I think that would be the more constructive course.

There’s always a danger in trade relations these things start to slip out of control. You know, keep in mind, Brazil sells about two and a half billion dollars under a special preference program to the United States, under the Generalized System of Preferences. We have been working with Brazil because of the problems of intellectual property violations here, which could lead to their removal. It did in the case of Ukraine.

So, I think it dangerous for people to go down these paths because one retaliates, and all of a sudden you might find out that something else happens. We have felt – in the case of intellectual property rights – that Brazil is trying. We’ve decided to give time to work, to try. But, one decides to retaliate, well, who knows, maybe others will too.

MINISTER PALOCCI: We heard that the president of the Senate is concerned regarding the process Varig is currently undergoing, I would say that there isn’t a specific agenda for this issue that was addressed in the meeting. The Ministry worked for many years in the preparation of the law for the recuperation of companies.

Our role is preparing laws, in partnership with Congress. Varig is one of the companies that is benefiting from the company recuperation law, at a time in which it is facing difficulties.

Considering that it is an important sector and an important company, we have all been very forthcoming, we have been very open to balancing the company’s situation. Today’s meeting was just one among several that we have participated in to seek out a solution, the best possible solution, for this case.



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