COURTING BRAZIL

Although most Latin American leaders complain that the United States has lost interest in the region since the September 11, 2001, terrorist attacks, Washington has courted the president of Brazil for the past year. Within weeks of his election to the presidency in October 2002, Luiz Inácio Lula da Silva, known as Lula, was invited to meet President George W. Bush at the White House. He returned last June for a summit meeting with Bush and ten key cabinet members. At the time, he was the only head of state publicly opposed to the war in Iraq to be welcomed at 1600 Pennsylvania Avenue.

The Bush administration has no more important task in the hemisphere than to cultivate a constructive working relationship with Brazil. As Latin America's largest and most influential country, Brazil will determine, to a large extent, whether the United States is able to advance its foreign policy agenda in Latin America, and on some issues it will affect U.S. success outside the region. Although Brazil may not be powerful enough to shape policy in Latin America as much as it might like, it often has enough muscle to substantially help -- or obstruct -- U.S. plans for the region. The main test of the relationship will not be whether Brazil and the United States can find areas of cooperation, but whether they are able to accommodate their divergent interests and goals, tolerate different practical perspectives and, in the end, avoid conflict.

Although security has taken over as the United States' first priority, the Bush administration's agenda for inter-American relations has not changed much in the past two years -- and is not very different from those of Bill Clinton or George H.W. Bush. The United States remains focused on making Latin America a more compatible and productive partner by strengthening democratic politics and market economics in the region; forging hemisphere-wide free trade and investment arrangements; and encouraging cooperative action to address common problems such as terrorism, drug trafficking, and threats to constitutional rule.

This agenda is at risk, however. A decade of slow or no economic growth, financial crises, and mounting political and social tensions has soured the region's mood and shaken public confidence in democratic institutions and leaders. Since security became a top priority after the September 11 terrorist attacks, the United States has been widely criticized for growing distant and disengaged, and anti-Americanism has resurfaced in Latin America.

In this context, Brazil's economic policies and performance are of special concern to Washington because they will have spillover consequences across South America. Brazil has averted a financial crisis, but its economy has stagnated for the past half-dozen years and social progress has been excruciatingly slow. An economic relapse in Brazil -- which accounts for one-half of South America's production of goods and services -- would cost U.S. investors and bondholders dearly, aggravate the continent's economic and political troubles, and further erode support for the trade policies and market reforms Washington recommends. Conversely, a thriving Brazil would translate into a more prosperous and stable region and help reinvigorate U.S.-Latin American ties.

Washington needs Brasília's cooperation to make progress on critical regional issues, such as the Free Trade Area of the Americas (FTAA), Venezuela's worsening political confrontation, and Colombia's criminal violence and guerrilla warfare. Brazil's voice also carries weight on broader international issues such as global trade negotiations and the struggle against AIDS. Just as surely, Brazil needs U.S. cooperation to advance its domestic and international agendas, particularly the central challenge of economic growth, which requires dependable access to U.S. markets, capital, and technology. Brazil needs the United States to have any chance of energizing its long-stagnant economy, expanding job opportunities, and accelerating social development. An adversarial relationship would be extremely damaging to U.S. policy and interests in Latin America, more so than ever given the region's unsettled politics and uneasy relations with the United States.

WHAT A DIFFERENCE A YEAR MAKES

In mid-2002, the rising odds that Lula might win the presidency of Brazil troubled many U.S. officials, who feared that, if elected, the left-leaning former labor leader would discard most of his predecessor's reforms and lead the country (and perhaps the rest of the region) into crisis. Some in Washington and in the media even feared that he might try to mobilize a region-wide, populist, antimarket, and anti-American movement. Early last year, soon after his inauguration, the BBC compared Lula to Cuba's Fidel Castro and Venezuela's Hugo Chávez, calling him a "veteran left-wing leader ... espousing a populist political agenda."

A year later Washington and Wall Street are applauding Lula's austere economic measures. Despite growing tension over trade, he has won praise from U.S. Treasury Secretary John Snow and Horst Köhler, the head of the International Monetary Fund (IMF), for bringing Brazil back from the edge of default and restoring its credit in international markets. He has managed to secure congressional approval to amend the constitution and overhaul Brazil's budget-busting public pension system, and he has similarly tackled tax reform and other necessary institutional changes that had long been postponed. Although Lula's market-oriented policies and stringent budgets have sometimes prompted virulent objections within his own party, he remains popular at home. Lula, in short, has proved to be more pragmatic than ideological, an effective leader who has managed Brazil's troubled economy with skill and aptly maintained support of diverse constituencies in Brazil and abroad.

This mostly encouraging news has contributed to a mainly cordial and constructive relationship with the United States over the past year -- and should help sustain it into the future. Yet there are disagreements with the Bush administration that cannot be easily reconciled, and the dangers of a more adversarial relationship are real. Brazil and the United States are involved in practical disputes over different national interests, largely because of the stark asymmetries in their respective wealth and power. Other disagreements reflect divergent political and ideological perspectives between a conservative U.S. White House and a Brazilian administration that, despite its mainstream economic policies, brings a leftward perspective to many issues. The two countries are often finely balanced between collaboration and contention on critical matters. The quality of their relationship in the future may depend more on their ability to tolerate conflicting approaches than on their success in pursuing mutual interests.

Trade could be the make-or-break issue, because it is so central to the United States' vision of its long-term relationship with Latin America and the rest of the world, and it also matters greatly to Brazil's economic future. Washington and Brasília have been at loggerheads over the creation of the FTAA, a 34-country free trade zone that has been in negotiation since 1994. Lula scorned the FTAA at the outset of his presidential campaign, calling it a U.S. plan to annex Latin America. Although he has tempered his rhetoric since then, his government, including the powerful Ministry of Foreign Affairs, remains openly skeptical of U.S. ambitions for the FTAA and has maintained that the economic integration of South America is a far higher priority.

Lula's stance on the FTAA reflects his country's politics. No strong constituency in Brazil enthusiastically supports hemispheric free trade, and even the Brazilian business community is divided on the matter. Brazil says it will refuse to endorse the FTAA agreement unless the United States curtails huge subsidies to U.S. farmers and reconsiders its antidumping and countervailing duty policies, which put crippling barriers in the way of Brazilian exporters. These issues, however, will not be easy to iron out at the FTAA talks. Washington is bound by its political constituencies at home, which oppose lifting existing protections. It can only consider making the concessions Brazil wants in global negotiations, in tandem with Europe and Japan. Yet, multilateral negotiations failed to advance at the September 2003 meeting of the World Trade Organization in Cancún, Mexico. The conference broke up prematurely when the parties deadlocked over a range of issues, including agricultural subsidies. Robert Zoellick, the U.S. trade negotiator, and Celso Amorim, Brazil's foreign minister and top negotiator, blamed the inflexibility of each other's government for the failure. Although seasoned observers have suggested that the parties were not that far apart and could have reached agreement had they continued to negotiate, the collapse at Cancún has at least temporarily set back U.S.-Brazil trade relations and the prospects for creating the FTAA.

Brazil has subsequently claimed that it wants "negotiations, not confrontation" on the trade issue, but it is proposing as a basis for discussion a skeletal version of the FTAA agreement that neither the United States nor most prospective Latin American partners find attractive. Just as the United States wants to leave agriculture to global talks, Brazil wants to do the same for some items of primary importance to the United States, such as government procurement, intellectual property, and trade in services. If the United States and Brazil, which now co-chair the FTAA negotiations, cannot broker an agreement by the current December 2004 deadline, talks are likely to be extended. Should the two countries get frustrated with each other's negotiating tactics, however, the FTAA talks could collapse in acrimony, and bilateral relations would suffer greatly.

FRIENDS AND NEIGHBORS

Another prickly issue for U.S.-Brazil relations is Washington's ongoing war against terrorism and rogue states. Although Brazil was supportive of the United States after September 11, 2001 -- it invoked the collective security agreement of the Organization of American States (OAS) to declare that the terrorist attacks were acts of aggression against all OAS members -- it has since become one of the region's harshest critics of the Iraq war. Last September, Lula made plain to the UN General Assembly that Brazil, like most Latin American states, opposes Washington's unrelenting unilateralism, its doctrine of military preemption, and its frequent disregard for the UN. Washington has largely ignored Brasília's objections so far, but playing deaf will become much more difficult this year, as Brazil takes a seat on the UN Security Council for a two-year term. The key questions are whether the United States will continue to take Brazil's criticism in stride and keep it from affecting the rest of their relationship and whether Brazil will intensify its criticism or tone it down.

Cuba is another issue on which the two countries do not see eye to eye. Last year, before both the UN and the OAS, Brazil refused to criticize Cuba's brutal treatment of dissidents, let alone endorse U.S. resolutions condemning Castro's appalling human rights record. During a visit to the island last September, Lula made clear that he intended to maintain his long-standing personal friendship with Castro and declined to raise any political issues with him or meet local dissidents. Lula did seem to take account of American sensibilities, however, by limiting his visit to a single day and asking that anti-American displays be avoided then. Brasília's relations with Havana may irritate Washington, but they are not likely to cause major friction, especially as Cuba's prominence in U.S. foreign policy is waning.

Brazil's involvement in Venezuela, on the other hand, is likely to be a more important feature of U.S.-Brazil relations. For the past year, Brazil has chaired the "friends of Venezuela," a six-country group that includes the United States and has urged the Venezuelan government and insurgents to resolve their political differences peaceably by holding a constitutionally authorized recall vote on President Chávez's term. At the same time, however, Lula has pursued direct negotiations with the Chávez administration, to foster bilateral economic ties and closer integration among South American states. Brazil has managed this precarious double act so far, but should the situation in Venezuela deteriorate, Brasília might have difficulty pursuing both tracks at once without alienating Washington.

The United States should be pleased with Brazil's change in approach to Colombia. Although proceeding cautiously and still wary of U.S. involvement, Brazil has shown increasing support for President Alvaro Uribe's security initiatives and grudgingly recognizes that Uribe's government may need help from the U.S. military. Moreover, with the approval of the Colombian government, Brazil has offered to host negotiations between the UN and Colombia's main guerrilla force. Brazil's policy shift largely reflects its concern about violence spreading in the Amazon region and about skyrocketing drug use and criminality in Brazilian cities. Still, Brazilian officials are wary of the presence of U.S. troops in a neighboring country, and any substantial escalation of American involvement there could turn Brazil, once again, into a severe critic of U.S. policies in Colombia. Lula signaled his concern about the U.S. role, as well as Brazil's expanding regional aspirations, when he invited Uribe to rely more on Brazil and less on the United States for help.

The Lula government has also stepped up efforts to turn Brazil into a regional leader by encouraging plans to make Mercosur -- a free trade arrangement among Argentina, Brazil, Paraguay, and Uruguay -- a central pillar of Brazil's foreign policy, negotiate an EU-Mercosur trade pact, and promote the economic integration of South America. The Clinton White House was annoyed by such initiatives but largely ignored them. The Bush administration appears to recognize that Brazil, by dint of its size and influence, should indeed occupy a special place in South America. It is not yet clear, however, just how much initiative Washington will tolerate.

The test will come when Brazil's ambitions directly challenge U.S. policy goals or interests in the region -- if, for example, they threaten to block an FTAA agreement, hamper resolution of the Venezuela imbroglio, or provoke wider opposition to U.S. military aid for Colombia. Many in Washington were angered by what they considered to be Brazil's spoiler role at the WTO meetings in Cancún. They were irritated as well by Lula's warm embrace of Castro and by his continuing criticism of U.S. policy in Iraq. Most Brazilians, in contrast, supported their government on all of these fronts. On issue after issue, the key questions are the same: How much dissent and independence will the United States tolerate from Brazil? And how much is Brazil prepared to accommodate U.S. views and interests?

A LIGHT TOUCH?

So far, trade has been the only issue to provoke open and potentially damaging friction between the two countries. They have been able to cooperate, at least minimally, on thorny issues such as Venezuela and Colombia, and they have managed to swallow harsh rhetoric and avoid public quarrels on others, such as Cuba and the Iraq war. And although they have strikingly different backgrounds, personal styles, and political perspectives, the two presidents have apparently developed sincere respect for each other.

To sustain constructive ties, Washington must keep its expectations realistic. Some analysts and U.S. officials have advocated a far tighter relationship between the two countries, with more regular and structured collaboration. But Brazilians have traditionally preferred pragmatic and opportunistic cooperation with the United States on specific issues. Still somewhat distrustful of Washington, Brasília is wary of creating the expectation that it will quasi-automatically support U.S. positions, compromise its ability to set an independent course for itself, or diminish the diversity of its other international relations. Brazil, in other words, has little interest in developing a privileged relationship with the United States of the type Argentina once sought. That leaves Washington with having to earn Brasília's cooperation issue by issue, without presuming it will be granted. Still, the relationship has been remarkably stable and consistent over the years. The two countries have not been steady allies or continuing adversaries, but they have usually worked productively together. Today the United States can usually count on Brazil for an important measure of collaboration on most issues and can usually avoid its outright opposition on others.

The Bush administration should continue its good start, bolstering friendly U.S.-Brazil relations. Lula's administration welcomed the White House's two invitations and U.S. recognition of Brazil's special role in South America. Washington must remain attentive to Brasília's interests. It would be good policy to systematically solicit Brazil's views on the full range of issues relevant to the hemisphere and take serious account of them. That will require Washington to pursue a less unilateral approach, particularly in South America, and be willing to accept compromises on its policies and programs. No U.S. administration yet has been able to do this on a sustained basis, and it may be particularly difficult for the Bush White House.

Brasília's ambivalence about its regional and international roles complicates Washington's task. Brazilian politicians have long argued that Brazil is among the world's great powers, alongside the United States, Russia, China, and India. As a result, Brazil has insisted on playing a lead part in shaping regional politics, resisting U.S. attempts to dominate them. At the same time, it subscribes to a traditional understanding of state sovereignty and frowns on intervention in a state's domestic affairs even in the name of human rights and democratization. (Lula said on his trip to Cuba, "I don't comment on the internal policies of other countries.") That view has led Brazil almost viscerally to oppose the United States' activist agenda in the hemisphere and elsewhere. Although the United States cannot change Brazil's position, it can moderate it in specific circumstances.

The United States should also try to highlight opportunities for cooperation with Brazil. Washington and Brasília have long focused mostly on a "negative agenda" -- on resolving their differences rather than exploiting opportunities and shared interests. Lately, however, Washington and Brasília have sought to create a "positive agenda," emphasizing such issues as health and education, poverty, and science and technology, on which they share a similar outlook. But none of these projects has yet offered a compelling basis for significant cooperation. The two countries may be looking in the wrong place, and they may be too modest in their ambitions. Despite their current disagreements, trade and economic policy is where Brazil and the United States share the greatest interests and where cooperation would have the greatest payoff.

LULA FIRST

Brazil has never aggressively challenged U.S. goals in Latin America. It has not questioned the U.S. vision for hemispheric free trade arrangements, enhanced security cooperation, or the collective defense of democracy; in fact, it has formally committed to working with Washington in each of these areas. Yet, more than any other Latin American nation, it has repeatedly demurred at Washington's ideas on how specific proposals and initiatives should work in practice. Brazil is the only country in the region that has sufficient weight and independence to credibly challenge the United States.

Traditionally, Brasília's differences with Washington have not been ideological or political -- as, for example, those of Venezuela's Chávez are. More often than not, Brazil's opposition has reflected its self-conception as one of the world's important nations and its complex and often erratic domestic politics. Now, although balanced by striking pragmatism, the Lula presidency adds an ideological twist to the bilateral relationship, particularly in contrast to Bush's conservative government. This new dimension could emerge as a source of contention, as some in Washington have feared, but it could also serve U.S. interests -- if the Bush administration is prepared to accept the diversity of Brazil's policy agenda and avoid pressing the Lula government to choose sides.

In his year in office, Lula has won supporters across the political spectrum, at home and abroad. His highly disciplined economic policies have won him the praise of Wall Street investors; his social commitments the respect of antiglobalization protesters. Last year he was hailed both at the Davos World Economic Forum and at the anti-corporate World Social Forum in Pôrto Alegre, Brazil. Few other leaders today -- and certainly none in Latin America -- command more trust among skeptics and opponents of market economics and free trade. As a result, Lula can do more than anyone else to rebuild Latin America's confidence in market-reform programs, restore credibility to IMF and World Bank policies, and open the way for a comprehensive hemispheric trade pact -- all of which are central elements of the U.S. agenda in Latin America.

Progress on these fronts will depend, most of all, on Lula's success in governing effectively at home -- that is, on his ability to revive economic growth, create jobs, advance ambitious social goals, and fight surging crime and violence. Any U.S. contribution to his efforts can only be indirect, but it may be significant nonetheless. Washington can help Lula best by making it easier for him to adopt policies that benefit both countries. Significant concessions on agricultural tariffs that affect Brazilian products, for example, might well give Lula's government the space to endorse a robust FTAA. Conversely, blatant pressure to adopt the agreement, or other economic or foreign policy measures Brazil currently opposes, would likely backfire. Washington must consistently remember that its interests in the hemisphere are more contingent on Lula's economic and political success at home than on winning Brazil's active cooperation on any specific issue, no matter how important.

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