The Foreign Service Journal, April 2006

Trade Area of the Americas. In fact, trade negotiations, both multilateral and bilateral, represent the fulcrum of the relationship. Multilaterally, even as it sides with Washington’s position on European Union agricultural subsidies, Brazil seeks a reduction in U.S. agricultural supports, as well as the elimination of anti-dumping and other restrictions on products ranging from steel to cotton to orange juice to sugar. For now, though, both sides have agreed to give priority to Doha Round work on these issues, essentially putting the FTAA on the shelf. Bilaterally, the challenge is finding a way to increase trade flows in both directions. U.S. sales to Brazil need to be a special focus — Brazil, with its 185 million res- idents, received only 1 percent of U.S. exports in 2004, a level below that of much smaller entities such as Taiwan, The Netherlands, Belgium and Hong Kong. The long-term solution here is undoubtedly tied to eco- nomic growth and a widening of the Brazilian market. However, some short-term redress in areas of U.S. con- cern, such as patent/copyright protection, could also improve north-to-south export prospects. Other major bilateral issues include narcotics con- trol (Brazil is a key transit country and has a significant drug-use problem of its own) and space (a technology safeguards agreement for the Alcantara space vehicle launch site still awaits submission to the Brazilian Congress). In the region, Venezuela looms increasingly large as an issue for both the U.S. and Brazil. Typically, Brasilia has taken a more nuanced approach to dealing with Venezuelan President Hugo Chavez than has Washington. The Brazilians are cool toward Chavez’s autocratic rule at home and erratic forays abroad, but have opted for a strategy of greater engagement with him — a course that also suits Lula’s overall interest in lessening Brazil’s dependence on the U.S. and Europe. Currently, there is a move afoot to finalize Venezuela’s full entry into the MERCOSUR (MERCOSUL in Portuguese) Common Market. With the election of Chavez ally Evo Morales as president of Bolivia, the game has become even more complex —Brazil has sub- stantial investment in Bolivia’s natural-gas industry and obtains a little less than half of its supply from Bolivian fields. At the same time, the Vene- zuelan/Bolivian connection is likely to prove highly problematic for MER- COSUR, already hobbled by trade tensions between Brazil and Argen- tina and other internal quarrels. Political Prospects What is the outlook for Brazilian- American relations, both in the short and the medium term? If President Lula can ride out the Mensalao scandal without being directly implicated, he may well remain the front-run- ner in this October’s presidential election. But even if he wins, Lula will still have to face the prospect of deal- ing with the fractious Brazilian Congress from what is likely to be a weakened personal and party base. In this situation, it is probable that Lula would strive to keep U.S.-Brazilian relations on an even keel and preserve his excellent personal relationship with President Bush. It is still early to handicap prospects for Lula’s chal- lengers. The Social Democrats — the party of former President Cardoso — have settled on a probable nomi- nee, Sao Paulo’s state governor, Geraldo Alckmin. Neither Alckmin nor any other potential candidate, most likely from the center-left, would be likely to present a significant ideological or policy problem for Washington. That being said, the next occupant of the Planalto Palace, whoever it may be, will face growing popular pressure to jettison the tight-money policies of the past decade. And movement in this direction might cause a large hiccup (or more) on world financial markets and risk a repeat of the currency exchange crisis of 1999. In the long run, the U.S. and Brazil are fated to work for accommodation — certainly in the hemisphere and perhaps in the broader international sphere. In the Americas, can the two countries eventually find the means to exploit the complementarities in their societies and to develop what could be a combined market of 500 million consumers? And in the wider world, will emerg- ing economic superpowers such as Brazil gain geopoliti- cal influence? U.S. interests would seem to be served by positive responses to both questions, for the two coun- tries’ common interests reinforce the case for sustained and serious engagement in the years to come. Working together, Brazil and the U.S. will certainly be larger than the abyss. n F O C U S 32 F O R E I G N S E R V I C E J O U R N A L / A P R I L 2 0 0 6 Brazil remains one of the three top locations in the world for American foreign direct investment.