Asia-Pacific, Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

BRAZIL: Closer Ties With Asia a Mixed Blessing

Mario Osava

RIO DE JANEIRO, Nov 17 2004 (IPS) - China appears to be following in Japan’s footsteps by outsourcing to other countries the production of materials that require high levels of energy to produce, such as aluminium. And Brazil, especially its Amazon jungle region, is an obvious choice.

That warning sounded by journalist Lucio Flavio Pinto, who specialises in matters concerning the Amazon, calls into question the enthusiasm of Brazil and other South American countries over growing economic ties with emerging powers in Asia, and China in particular.

One of the projects agreed by Brazilian and Chinese business representatives during Chinese President Hu Jintao’s six-day visit to this country, which ended Tuesday, is aimed at acquiring alumina, into which bauxite is refined to obtain aluminium, for China.

To ensure itself supplies of bauxite, Japan became a partner in a large industrial complex in the eastern part of Brazil’s Amazon jungle region, which is rich in bauxite, in the 1970s. And to exploit and sell the mineral, Brazil built one of its huge hydropower dams, Tucuruí, in the region.

Like Japan, China is focusing its investments on ensuring supplies of commodities like farm products and iron ore. It has offered two billion dollars to complete an "export corridor", with railways linking Brazil’s central farming region to a port on its northern coast.

Brazil and China have established a "strategic alliance" and are designing "a new geography of trade", according to President Luiz Inácio Lula da Silva.

He was referring to the 11 governmental and six business accords signed after Brazil accepted China as a "market economy" last Friday.

Beijing lobbied hard for that recognition. Since it was admitted to the World Trade Organisation (WTO) in 2001, it has failed to escape "non-market economy" status, which allows the rest of the global forum’s members to adopt safeguards to protect themselves from the flood of low-cost Chinese merchandise.

"Brazil is discovering Asia and Asia is discovering Brazil," remarked Edmundo Fujita, the director of the Department of Asia and Oceania in Brazil’s Foreign Ministry, referring to the visit by Hu, who was followed by presidents Roh Moo-Hyun of South Korea and Tran Duc Luong of Vietnam, who are in Brazil between Tuesday and Thursday.

These Asian countries are seeking closer ties with other nations in the Southern Cone region as well. All three presidents are on tours that are also taking them to Argentina and Chile, which will host the Asia-Pacific Economic Cooperation (APEC) summit next weekend.

In Buenos Aires, Roh proposed a free trade agreement between his country and the Southern Common Market (Mercosur) trade bloc, comprised of Argentina, Brazil, Paraguay and Uruguay.

And Argentine President Néstor Kirchner signed letters of intent with Hu Tuesday, in which the Chinese government pledged nearly 20 billion dollars in investment in Argentina over the next 10 years, in railroad, energy, telecommunications and housing projects.

The "new geography" that Lula was talking about involves the expansion of South-South trade flows, which are often seen as more balanced and equal than trade between the industrialised North and the developing South.

But trade between the countries of South America and Asian nations like China and especially South Korea is mainly based on exports of raw materials by the former and exports of manufactured goods with greater value added by the latter.

Soybeans and iron ore accounted for nearly half of Brazil’s exports to China in 2003. And the accords signed during Hu’s visit will mainly expand Brazil’s sales of beef and chicken, as well as Chinese investment in South America’s giant.

Due to import duties and other trade barriers, Brazil’s soy exports to China mainly involve beans, and very little soy oil, which would allow the incorporation of added value while generating jobs.

China even wants to lease land in this country to produce its own food supplies.

Since the 1970s, Japan has invested in the production of foodstuffs in the "cerrado" savannah of central Brazil. Japan’s efforts have contributed to making infertile, arid land suitable for agriculture. In fact, that land now has high productivity levels.

But China cannot be compared to Japan, which suffers a huge shortage of farmland, because China’s immense territory generates a high level of agricultural production, Paul Liu, president of the Brazil-China Chamber of Economic Development, based in the southern city of Sao Paulo, told IPS.

The problem is that China’s population of 1.3 billion is ten times that of Japan, and consumption is growing apace with economic expansion, which has averaged 9.4 percent a year since 1978.

Like the agribusiness sector, which will soon start exporting large quantities of ethanol or fuel alcohol to China, Brazilian industry will discover "niches" in the Chinese market as the two countries get to know each other better, said Liu.

One illustration of that are electric showers that a Brazilian company is selling in China, where a market "niche" represents several million consumers, he added.

Nor is the alliance with China limited to trading commodities for industrial goods.

The two nations are involved, for example, in a joint space project, and have agreed to build and launch three new earth observation satellites by 2010, whose images will be sold on the international market.

In addition, Brazil exports car parts to China, while aircraft of Brazilian design and containing components produced here will begin to be manufactured in China.

It is a good idea, however, to avoid illusions over the prospect of doing business in the giant Chinese market, where many investors have run into disappointment, since "Chinese politics often brings unpredictable changes", warned Mario Marconini, executive director at the Brazilian Centre for International Relations.

There is also a risk of overly heavy reliance on Chinese imports, say analysts.

Furthermore, China must not be allowed, through its investments in transport infrastructure in Brazil, to assume "control of the logistics" of food exports, said Carlos Langoni, a former president of Brazil’s Central Bank.

Minister of Development, Industry and Foreign Trade, Luiz Fernando Furlán, who negotiated several of the accords with China, said the trade benefits gained in exchange for recognising China as a market economy were "satisfactory", although he had earlier complained about the imbalance of trade between the two countries, because of the scant added value in Brazilian exports.

The final result, however, will cost Brazil strong tension with local industry. The powerful Sao Paulo Federation of Industries (FIESP) criticised the government’s acceptance of China as a market economy as a "mistake" that will harm a number of productive sectors in this country.

A FIESP study shows the damaging effects of Chinese "dumping" (exporting goods at prices below production costs) in 17 branches of industry, ranging from electronic goods to car parts and paper, which will now face even greater difficulties in seeking recourse against unfair trade practices.