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Volume
16, Number 7 |
Also in this
section: Brazil-China
commercial ties blossom despite limitations, while Brazil-US diplomatic ties
remain on course, with some exceptions The Chinese and the
Brazilians
by Stephanie Lloyd --- Council on Hemispheric Affairs According
to the Estado de São Paulo, the Chinese state-run oil company Sinopec has
agreed to buy stakes in two offshore oil blocks from Brazil's state-owned
Petrobras. President Hu arrived in Brazil at the end of May for a meeting of
the BRIC nations. Sinopec will probably take a twenty percent stake in these
two oil blocks, strengthening the relations between Brazil and China. Sinopec
and Petrobras are also expected to draw up a further agreement dealing with
refining and supplying oil-sector services.Trade between Brazil and China has
been booming as Brazil's diplomatic and commercial relations improve due to the
country's increasing role on the world stage. For example, China recently
expanded its embassy personnel in Brasilia. China has become the largest market
for Brazilian exports, and Chinese exports to Latin America have risen 26 percent
since 2005. The
popular media has promulgated a number of explanations for the recent market
surge between Brazil and China. A few explanations include: Brazil's growing
importance on the international stage, both countries' similar degree of
development, along with the country's desire to balance the influence of the
United States. Although any one of these theories might be valid, the purpose
of the partnership between Beijing and Brasilia is to expand commercial ties in
oil, imports, exports, services, companies, refineries, and factories, as shown
in a 2009 agreement and other pacts signed this year. This pragmatic alliance
does not imply an adversarial relationship with the United States, but rather a
commercially competitive one that has become common throughout the business
world. China
seeks to diversify the areas from which it obtains oil and the extremely high
demand for one of its products: eight billion gallons of oil per day. According
to the BBC, China and Brazil signed a trade deal, which also features a
"pact to build a Chinese steel plant in Brazil," on April 15, 2010,
"aimed at boosting trade and energy cooperation between the two
states." This pact is a follow-up to the 2009 agreement which included a loan-in-exchange-for-oil
deal with which Brazil could obtain investment. The pact is just one of a
number of indications that, although China's presence in Brazil is currently
limited, it would be commercially beneficial to both countries for the relationship
to expand. Financial
crisis One
factor driving the strengthening commercial ties was the world financial crisis
of 2007, which drove several nations closer together in order to ensure that a
similar kind of crisis would be warded off in the future. Specifically,
Brazil's economy has done relatively well, exemplified by a 5.1 percent GDP
growth rate in 2008, only a slight decline in growth in the past year, and a 2
percent growth rate in January 2010. As a result of Brazil's recent fiscal and
monetary discipline and its discovery of additional off-shore oil reserves, the
financial crisis has had a limited effect on Brazil thus far, as illustrated by
its low rate of inflation. Consequently, the United States, China and Brazil
felt more at liberty to fortify their commercial ties so as to avoid a
recession. According
to Enrique Garcia, president and CEO of the Andean Development Corporation
(CAF), Latin America has learned from internal and external lessons that have
contributed to its relative economic stability. Over the past thirty years,
Latin America has suffered no fewer than thirty financial crises of various
magnitudes. Internally, lessons from past inflation have led to conservative
fiscal and monetary policy measures, making Latin America less likely to
undergo large investment risks. Externally, Garcia pointed out that Latin
America benefits from a positive external environment: the region's
concentration on exports remains high compared to the rest of the world. Given
Brazil's vast oil export industry, this regional economic practice allows the
country to emerge as a regional hegemon. China has also emerged as a regional
hegemon and boasts a GDP growth rate of nine percent. China's improving
internal economic situation has allowed its commercial relationship with Latin
America to progress rapidly. The fact that the financial crisis had little
impact on Brazil made a Brazil-China commercial alliance even more alluring. Increasing
commercial ties, increased competition In
2009, China overtook the United States as Brazil's largest trading partner,
following a successful conference between President Lula and President Hu. In
the meeting, it was clear that China needed an increase in raw material imports
from Brazil, such as aluminum and iron, in order to manufacture more capital
goods. Brazil sought increased commercial ties with China so that it might
attract augmented funding to aid in the exploration of the Santos Basin, a
potential oil site. This site requires extensive funding for further
exploration and is still unreachable despite the increasing amount of trade
flowing between China and Brazil. According to Expo Shanghai 2010, "trade
flow (the sum of exports and imports) [between Brazil and China represents]
$36.1 billion (in 2009). This represents a growth of 433% in six years."
(All money figures here are in US dollars.) In addition, two-hundred thousand
Chinese citizens reside in Brazil, contributing to a higher likelihood of
commercial ties between the two nations. Millions of consumers indicate that
Sino-Brazilian trade agreements can only increase. However,
according to Jonathan Lynn in a May 27, 2010 Reuters filing, the existing Doha
round of trade negotiations, the current negotiation conducted by the World
Trade Organization (WTO), is presently deadlocked. Lynn writes that ministers
have recently argued that "opening up global trade would boost the world
economy without hitting budgets." Unfortunately, public attempts at
negotiations to open such trade, have been unsuccessful for the past eight and
half years. Thus, trade ministers from around the world believe that serious
negotiations "away from the glare of media and public diplomacy" are
necessary to reach a breakthrough in the WTO negotiations. The aim of the
agreement is to shrink rich countries' protectionist measures to cushion their
domestic farmers and agro-industry, which in turn would allow developing
countries to become more competitive. However, specific details of the package
have yet to be determined. The United States believes that it has compromised
as much as possible on the issue and that it is now up to emerging economies,
such as Brazil and China, to be increasingly flexible. Given that Brazil and
China are expected to contribute more to mitigate the Doha Round impasse, their
commercial ties are scheduled to increase as they negotiate individual
agreements on a bilateral basis behind closed doors. In
addition to contributing to the current DOHA Round by initiating individual
negotiations, Brazil and China are also expected to aid each other's
development as a result of their commercial ties. According to Chai Yu,
assistant director of the Institute of Latin America Studies at the Chinese
Academy of Social Sciences, China's principal task is to find new ways to
promote cooperation, especially concerning the economic aspects of the
relationship. China has had a 2.5 percent growth contribution to Latin American
exports, according to Mauricio Mesquita Moreira, a principal economist and
research coordinator at the Integration and Trade Sector of the Inter-American
Development Bank. Although this growth is significant, China and Brazil still
have untapped potential for increasing their ties with each other. China's
dependency on oil as well as Brazil's abundance of natural resources will
likely bring about an even tighter connection between the two nations. Oil
agreements Last
year, China and Brazil engaged in an "oil for credit" scheme, in
which the China Development Bank lent Petrobras $10 billion in exchange for
150,000 barrels of oil by 2010. COHA Research Associate Adam Trombly explained
this deal in a March 2010 article. China is scheduled to expand its role in
Brazil, as illustrated by Paul Ausick in his May 21, 2010 article on 24/7Wall
Street, where he writes, "Norway's Statoil ASA has agreed to sell a forty
percent stake in its deepwater Peregrino field offshore Brazil to China's
Sinochem Group for $3.07 billion." China needs to increase its commitments
from Brazil because it discovered on May 27 that, according to the Calgary Herald,
"a big new oil find trumpeted by PetroChina three years ago is turning out
to be smaller than first thought, showing how difficult it will be for China to
slow its rising need for energy imports." Therefore, China's need for
Brazilian oil has grown even more urgent. The
Calgary Herald also writes that current Chinese "foreign equity output
makes up less than ten percent of Chinese oil demand." Given Brazil's
untapped potential of onshore reserves, this small percentage is yet another
reason why oil agreements contracted between Brazil and China will only
increase. According to Philip Yang, one of the founders of the Board of
PetraEnergia S.A and a former Brazilian diplomat, Brazil has largely performed
off-shore drilling thus far due to a lack of funding for onshore exploration
and a history of neglecting onshore exploration since the 1960s. Brazil's
neglect of onshore exploration was based on an American geologist's thesis that
offshore exploration would prove more fruitful. Historically, Brazil's discovery
of offshore oil has proved much more profitable than its discovery of onshore
oil. However, if Brazil abandoned this line of thinking, then China could begin
to fund Brazil's oil exploration. If this scenario comes to fruition, the
latter would gain funding while China would be guaranteed a steady supply of
fossil fuel. Limitations Despite
past and potential oil agreements, there are limitations to the Sino-Brazilian
commercial relationship. These barriers may make future prospects of such
contracts difficult to negotiate. One important limitation is China's lack of
confidence in Brazil's stability, which may discourage China from providing
Brazil with adequate Foreign Direct Investment (FDI). According to Philip Yang,
China invests in two categories of countries: highly stable societies and
countries with an extremely loose regulatory framework. Brazil is neither
highly stable nor a particularly loosely regulated country. Yang theorizes that
China is thus reluctant to provide FDI to Brazil because China prefers
suppliers such as Australia, China's top FDI destination because it is a low
risk country due to its high development level. Beijing, in turn, is confident
that a country with relatively low risk investment figures will most likely
lead to a profitable investment. Another
limitation is that trade competition, while inevitable, may undermine Brazilian
efforts at development. Opening trade barriers further would bring a flood of
Chinese goods into the Brazilian market. Moreover, neither country is as
developed as the United States. This lower level of development suggests that
the Sino-Brazilian economic relationship will be limited. Another factor could
be that favoritism between the two developing countries may alienate the United
States; however, both countries will require US monetary and technical
assistance in the near future. The United States must establish a strong
relationship with Brazil in order to have a strong ally. Expanded commercial
ties with China will bring such a strong alliance. Nevertheless, the United
States has some worries about a competitive economic relationship with China
and Brazil. Thus far, the China-Brazil commercial relationship has not
significantly altered to diplomatic relations between the United States and
Brazil, but relations could change if certain conditions are not met. Brazilian,
Chinese, and US relations Brazil
and the Unitdd States have enjoyed a close relationship due to their common
historical and cultural ties. Both were colonized by Europeans; both imported
slaves and later abolished slavery; both Brazil and the United States are very
culturally diverse, with immigrants from many different nations. In addition,
Brazil and the United States are both hegemons in their respective regions.
Both nations are also similar in size and have similar political systems, as
Brazil adopted a democratic system based on the US model after the end of its
military dictatorship. This close relationship is still in place today,as
illustrated by the agreement between Presidents Bush and Lula to increase world
trade in ethanol; bilateral cooperation in controlling narcotics distribution
across Latin America; and their failed attempts to create a Free Trade Areas of
the Americas (FTAA). The
United States has publicly decried Brazil's overly warm attitude towards Iran,
as Brazil has refused to join other Western powers in sanctioning Tehran; the
United States also believes that Iran is manipulating Brazil. However, this
resentment is a separate issue unrelated to the optimistic prospects for
Sino-Brazilian commercial ties. Further evidence of close diplomatic ties
between Brazil and the United States is demonstrated by the fact that Brazilian
visas are now valid for 10 years for American citizens instead of the previous
length of five years, thanks to a new agreement reached between US and
Brazilian consular officials. China
and Brazil have generally positive links, although they might be at times
rather distant given historical and cultural differences. The geographic
distance between China and Brazil in contrast to the proximity between the
United States and Brazil is more apparent than real. Contributing to the
Sino-Brazilian bond is the fact that China and Brazil are both part of the BRIC
(Brazil, Russia, India, and China) group, an informal collection of countries
economically stronger than other developing countries, but still not at the
strength of developed countries. Both the United States and Brazil have a
shared interest in their modernization. The United States also is deeply
interested in an economically vibrant Brazil so that illegal immigration from
Brazil to the US decreases and prospects for future trading agreements are
given a boost. At
the same time, China and the United States have a positive commercial
relationship yet still face some discordant issues given China's human rights
abuses and undemocratic system of governance. However, the US imports a huge
bulk of goods from China and thus needs to maintain a positive commercial
relationship to level the connection. Their closeness has improved in recent
years, especially since China ultimately supported the hard-pressed US
sanctions on Iran to prevent it from developing nuclear weapons. Given the
three countries' past and current relations with one another, several policy
accommodations can be made (we prefer active voice here, but that may be a
stylistic choice) to maintain a stable diplomatic relationship among the three. Brazil
policy recommendations According
to Moreira, China has invested in Brazil thus far due to an increasing need for
economic diversification. When asked by COHA if Moreira believed that Brazil
could learn from China's economic successes as well as its failures, he
responded that tariffs are weighted by trade and are not helpful in trade
diversification. Politically, Brazil is very different from China, so it is
nearly impossible to adopt China's authoritarian economic model to suit
Brazil's democratic political system. Moreira recommends that Brazil can
prosper from learning about heavy Chinese investment in infrastructure; he
recommends that Brazil should do the same to take advantage of the beneficial
long-term returns produced by such spending. However, even though Chinese goods
are cheaper, Brazil should not abandon its ongoing commercial relationship with
the United States. Instead, Brazil should aim to strike a reasonable balance
with both trading partners to ensure continuing positive diplomatic ties with
both, rather than merely focusing on commercial ties. Brazil should also
continue its high volume of trade with China but broaden its oil exportation to
other nations, as well as diversify its range of export products. China
policy recommendations The
Chinese government exercises central control over the economy. Its commercial
relationships flourish with many countries primarily due to China's menu of
cheaply produces goods, though China's diplomatic role may sometimes be seen as
adversarial by the United States. China is very different culturally and
historically from the Western Hemisphere, and this must be respected by all
countries. Therefore, China would be wise to host more cross-cultural exchanges
between itself, Brazil, and the United States so that both Western cultures
understand Chinese culture better. Moreover, China should also work to portray
itself as "less of a dragon and more as a panda," according to Nelson
W. Cunningham, a member of the board of the Institute of the Americas,
following the example of Japan. US
policy recommendations According
to economist Alessandra Ribeiro, "the United States just didn't care so
much for Latin America in recent years, and China is really looking to Latin
America." In general, this type of pessimism over the future of the
hemisphere has largely dominated thinking about Brazil. In the past, Brazil did
not play the role of spokesperson for Latin America, making the United States
less likely to relate to its giant counterpart. According to Regina Scharf,
Brazilian blogger of Deep Brazil, "I was in high school in the 1970s and
in the beginning of the 1980s. I did not have a single class on history and
literature of other Latin American countries. I never learned about Bolivar or
San Martin. There was not a single mention of them." However, since Brazil
was instrumental in founding the Union of South American Nations (UNASUL in
Portuguese) in 2008 and is in the process of becoming a greater factor on the
world stage, developing stronger connections with Brazil constitutes an
increasingly important US interest. Although Brazil's interactions with Iran have
been disagreeable to the United States, Washington needs to put this issue
aside when addressing bilateral US-Brazil commercial relations by trying to
convince Brazil to deal with Iran in a manner similar to that of the rest of
the Western powers without belittling President Lula. Conclusion Since
Brazil and China have very different cultural and historical backgrounds, the
United States faces little threat that Brasilia will align with Beijing against
the United States. In fact, Secretary of State Hillary Clinton made no mention
of Latin America at US-China talks in Beijing at the end of May. The results of
the meetings indicate that diplomatic links between Brazil and the United
States are likely to remain amicable rather than adversarial even though the
deepening commercial relationship between China and Brazil is likely to
intensify trade competition between the United States and China. This
competitive attitude should be kept in check, and neither country should
actively seek to gain primary trading partner status with Brazil. Although
Brazil and China's commercial ties have blossomed as a means of advancing their
shared economic interests, their diplomatic relations still remain somewhat
limited. Cultural and historical factors ensure that the United States and
Brazil will maintain a strong relationship, with the exception of the position
that Brazil has taken on Iran. Also in this
section: News
| Economy
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| Lifestyle
| Nature
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