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Brazil looks to shore up Mercosur, wary of US free trade plans.

SAO PAULO --The recent Mercosur summit on the island city of Florianopolis in southern Brazil was largely a disappointment. Before Brazil stepped down as the rotating chair of the organization, it had hoped to bring now associate member Chile into the fold as a full partner. But the meeting was marred by reports that Chile had begun talks to join the North American Free Trade Agreement (Nafta). Brazil and the other members Argentina, Uruguay and Paraguay have been trying to coax Chile to join the bloc for almost six years but staunch resistance on both sides to reducing tariffs on Chilean exports had derailed progress. Brazil was initially incensed by Chile's move, though the waters calmed somewhat after Chile expressed strong support for Mercosur.

The Chilean decision appears to have weakened the position of Brazilian Trade Minister Luis Lampreia and there is talk he may leave the government soon.

Chile's decision to focus on joining Nafta has made an agreement on reducing tariffs less likely Lampreia recently said that Brazil would not lower the 13% General Import Tariff (TEC) on goods coming into the bloc from nonmember countries. Sources say the TEC will continue to be used as means to pressure Chile into joining Mercosur.

Chile's President Ricardo Lagos is not budging on his country's demand that the tariff be dropped to levels equal to Chilean general import tariffs, currently well below the TEC. Brazil and Argentina raised the TEC for extra-bloc trade about three years ago to reduce imports after the Asian crisis hit emerging markets. The members had intended to lower it again in 2001 but Brazil balked and Mercosur decided to drop it only slightly and consider future reductions gradually.

Brazil has met many of its International Monetary Fund targets, some ahead of schedule, but one of the repeated embarrassments for the government had been its inability to deliver on its projections for a trade surplus. For the past two years, the government has projected large trade surpluses. Instead, the trade balance ended 1999 poorly and has been teetering in between the surplus and deficit since the beginning of the fourth quarter this year, a quarter in which imports typically surpass exports. Rocketing world oil prices have also taken their toll on the trade balance. Brazil is a net importer of oil. Its main export staples, agricultural commodities such as soybeans, coffee, sugar and meat, which account for half of all export revenues, have also been facing low world prices for the last two years.

South Africa seems to have broken through the cloud of Chile, however, as its membership in Mercosur seems likely. In early December Brazil's medium range aircraft maker Embrear - the country's leading exporter in terms of cash - dosed a billion dollar deal to supply South Africa's Airlink with up to 70 medium-range jets. South African President Thabo Mbeki announced the deal in Sad Paulo state while he was touring Brazil and also signed an accord to begin opening the way to membership in Mercosur. Logistically South Africa and Mercosur make sense. The time it takes to sail from tip to tip of the southern continents is much faster that to any of the other main consumer markets, such as the United States, the European Union or Asia. But South Africa is a relatively small economy compared to the economic worth of the bloc.

Commerce between the Mercosur bloc is TEC-free. Argentina and Brazil are major trading partners. But conflicts between the two over tariffs and regional crises, particularly the recession in Argentina, have weakened Mercosur during the past year.

Ironically; another potential cloud on the horizon is the US-backed Free Trade Area of the Americas. A draft of the accord is due out in 2005. FTAA has a lot to offer many Latin American countries, but Brazil and Argentina are skeptical it will bolster Mercosur or their individual interests because it would open them to cheap exports from poorer countries in the region.

Analysts agree that a larger Mercosur with Chile, Bolivia or South Africa as full or partial members is crucial to making the FTAA work because it would give the members leverage in negotiations with the United States and other countries in the region.
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Title Annotation:Chile has not been persuaded to join the group
Publication:America's Insider
Article Type:Brief Article
Geographic Code:3BRAZ
Date:Jan 4, 2001
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