Text of presentation made at the International Seminar “A Criação da ALCA e a Questão Tributária nas Américas”, held by SINAFRESP – Sindicato dos Agentes Fiscais de Rendas do Estado de São Paulo, in Los Angeles, Califórnia (E.U.A.), from 09 to 12 April 2001.
I have divided today’s presentation in the following way:
1. Litigation in the WTO;
2. Brazil’s defeats in the WTO;
3. Foreign Trade and the Brazilian Ministry of Foreign Affairs Relations (The Itamaraty);
4. It The Itamaraty ready for a Trade War?;
5. The traps of the FTAA and;
6. Conclusion: The FTAA is bad news for Brazil.
1. Litigation in the WTO
At the close of the Uruguay Round of the GATT, in which the WTO, an inauspicious analysis by the World Bank warned that the developed countries had won the negotiations with 64% of the benefits, with just 36% being granted to the developing countries. The situation Brazil found herself in was even worse, since (President Collor’s) incompetent and moribund federal administration promoted an unilateral which conceded benefits to our trading partners without any countervailing demands of liberalisation, which is usual in commercial multilateral negotiations. As a consequence, in the 5 years subsequent to the creation of the WTO, Brazil participation in Foreign Trade decreased a most of our competitive products continued to be excluded from the markets of the developed countries, while their products and services were sold freely and ever increasingly on a national level.
In addition to this, at the same time, Brazil was the country to have suffered the most numerous and greatest defeats in the Resolution of Disputes System of the WTO. Which it had been received with great hopes by the developing countries that are the greatest victims of unilateral action and arbitration in international trade. By and large, the developing countries were those which were defeated most in the litigation of the WTO, thus losing more than two thirds of the disputes. The United States of America (USA) prevailed in more than 90% of the cases, and the European Union (EU) was close behind. These victories are not coincidental, since the system was created and works with the aim of benefiting the hegemonic nations.
In fact, according to WTO’s records, the developing countries are subject to a systematic procedural flaw, wich is both grotesque and bizarre. The procedure na actual physical process appropriate forensic nomenclature; fails to allow preliminary questions provides no protection to fundamental legal institutions as the cross-plaint limits; the right of action for it is conditional to the approval of the object of the action by the secretariat of the WTO; the procedural acts lack a complete set of laws are not publicised many procedural process; there is no system for providing of evidence; the arbiters lack independence; excessive powers are granted to the legal division of the secretariat of the WTO; the dissenting vote is not permitted; and there is no transparency regarding the performance of the boards and how much influence the secretariat has on their performance. As a matter of fact, the legal division of the secretariat of the WTO, which influences decisively the System of Resolution of Disputes, is controlled by the developed countries.
Cicero asks: “Cui bono?” Who benefits with the system? His the USA which does according to the statement made by the Commercial Representative at the time, Mrs. Charlene Barshefsky, in the US Congress on June 20th 2000, in which she boasted that the USA had prevailed in 37 of the 35 cases in which it was involved either by means of consultation or arbitrary decision. The EU’ s involvement is not far behind the USA officially affirmed that “ the rules of the Dispute Resolution System worked very well”. The EU, also officially declared, that The Dispute Resolution System in the WTO “ is one of the main results of the Uruguay Round, and constitutes the central element for assuring stability and the possibility to predict in multilateral commerce”.
This situation of underestimation of the legal order and of the state of law in international relations to proportion a complete and efficient spoliation of the developing countries is totally unjustifiable, even to sophists of the third millennium. The general perception of this fact by the international public opinion contributed decisively in the WTO’ s dramatic loss of credibility, despite the large-scale advertising campaign promoted by certain developed countries. A preliminary report by the Human Rights Commission declared that “ for the poor countries of the southern hemisphere, the WTO has become a real nightmare ”.
Brazil, in turn, defeated in 75% of the cases, including having the greatest commercial set-back in the history of GATT and the WTO, did not contribute to the reform of the Resolution of Disputes System. On the contrary, senior spokes of the Ministry of Foreign Affairs publicly declared their great satisfaction with its. This subject shall be discussed further in the next section.
2. Brazil’s defeats in the WTO
Without a doubt, Brazil has been the champion of defeats in the Resolution of Disputes System of the World Trade Organisation. It was defeated in two disputes against Canada in the aeronautic at industry, two against the European Union (EU), one concerning milk and dairy products and the other chicken; and one against the United States of America (USA), EU and Japan concerning the automobile system. Despite these defeats of extraordinary proportions and serious implications, Brazil had two victories. One of which was subsidiary to the case set in motion by Venezuela against the USA related to environmental standards of petrol. The other, was against the Philippines concerning coconut milk of which Brazil is an importer!
The defeats suffered by brazil are even move serious due to being related to sectors of fundamental importance to its economy, in light at the facts that i) the aeronautical industry is Brazil’s greatest exporter of manufactured products; ii) the automobile industry, the greatest recipient of foreign investments; iii) chicken is transformed vegetal protein and represents one of the few Brazilian agricultural products that can be sold abroad, due to the scandalous protectionism and devastating subsidies practised by the main hegemonic powers; iv) and milk is a well-known and notoriously extensively subsidised product by the EU, to such an extent that the world prices for the milk and dairy products is decreased by 50 %.
In case of the aeronautic industry, not only was Brazil’s conviction, for of US$ 1,7 billion, the biggest in the history of the multilateral commerce system of the GATT and the WTO since 1947, but it also implied two strategic losses of enormous proportions and a dangerous legal precedent, which will have an adverse effect on the foreign trade and the prosperity of the Brazilian economy in the near future. The first loss relates to the conviction of the exports financing programme, which makes Brazil the only one of the eight largest world economies to not have such a system already legal in the multilateral legal order, although, he is the smallest of these. The second is related to the derogation of basic rights bestowed by the International Monetary Fund Treaty and to the actual Treaties of the Uruguay Round, that grant special treatment to the developing countries. The legal precedent to Brazil, as well as all the other developing countries, was due to neglecting to plead in their defence, the conflict of international treaties, and by that denouncing the WTO’ s incompetence in resolving the question.
In reference to the latter, the precedent used against Brazil was established in the case motioned by the U.S.A. against India, regarding quantitative restrictions to imports of certain agricultural, textile and industrial products. The board decided, that despite lacking original and “contra legem”, jurisdiction there was no conflict in the above-mentioned treaties.The chairman of the board who made this unfortunate decision was Brazilian; Ambassador Celso Lafer. This injudicious arbitral decision, acknowledge in India as being written either partially or entirely by the legal department of the WTO’s secretariat, came hand in hand with a strategic policy of the U.S.A. mostly, but also the E.U., which disqualify the largest economies of the developing countries from this category, and thus them to maintain a greater competitive advantage against them. One of the most conflicting points of the difficult negotiations regarding the entry of the People’s Republic of China (China) into the WTO has been the U.S.A.’ s demand that China must renounce its condition as a developing country in the multilateral legal order of the international commerce.
In the milk and chicken cases, Brazil lost in formal aspects, although the grounds of action were eminently clear and unquestionable. With regards to the automobile industry, Brazil was during the official consultations, which gave Mrs. Barshefsky the opportunity to make boastful remarks representative of trade of the U.S.A. In all the litigious cases The Itamaraty used the services of the same Canadian the lawyer, partner of an American law firm for its defense. Even in the two cases concerning the aeronautic industry in which Canada was naturally represented by a Canadian lawyer; Brazil was represented by a Canadian…….; and the WTO’ s secretariat was represented by the chief of their legal division, who also happened to be a Canadian! It was a Brazilian however, the disgrace at establishing a precedent of defeat!
Brazil’s half hearted to defend its interests in the resolution of disputes system of multilateral trade has other collateral implications worthy at discussion such as encouraging other countries to take arbitrary and illegal unilateral measures against the country, as Canada recently did in the bovine meat case. One should not forget that, inspired by the U.S.A., the developed countries understand unilateral action to be an important catalyst in international trade, as Canada cared to show. Furthermore, the Brazilian commercial diplomacy’s performance, as much caricatural as self-destructive, discourages the use of litigious measures for the defence of national interests, in reference to the abuses suffered by the other countries, as those of the U.S.A. in the iron case.
Finally, having been the country which was defeated in the most crushing way by an evidently unjust legal system, how could one explain the fact that Brazil remained remiss in denouncing the flaws in the resolution of disputes of the WTO; in presenting broad and substantive renovations; and in the mobilisation of the other developing countries in the common defence of the legality and of the prevalence of the rule of law in the international relations? This is the subject of the second part of today’s presentation.
3. Foreign Trade and the Brazilian Ministry of Foreign Affairs (The Itamaraty)
The crushing and conflictive nature of the international trade relations made all the great economic powers, as well as important developing countries, transfer them from the diplomatic area of the foreign relations to the ministries or appropriate bodies. This was the case in the United States of America (U.S.A.); the European Union (E.U.); Japan; Canada; India and South Africa. These countries recognised the contradiction between diplomatic training and that of an international trade negotiator. In the former, the objective is understanding, and the common denominator is conciliation; in the latter, the emphasis is on litigation, conflicts disputes, and obtaining immediate and strategic commercial advantages. In Brazil, The Itamaraty has been dealing with this area this is a reason for this. For many years Brazil’s commercial policy aimed shutting out foreign markets the closure of the foreign area. Thus, the priority was the defend the national markets as supposed avanting the main economic partners access to the national markets. Consequently it was up to the Brazilian diplomatic body to play the defence game : make no demands and concede only the bare minimum. Many years of ghastly dictatorships damaged the transparency of the actions, as well as the possible of holding those involved legally liable for crimes of responsibility.
Even once the rule of law and democratic liberties had been restored, another factor caused the area of international commercial relations to remain in the Itamaraty: the absolute lack of choice caused by the obvious shortage of specialised men and women in the arcane sector, even after the very negative experience of the negotiations of the Uruguay Round. In fact, in the final phase of agreements, when the great majority of the concessions were made and the treaties were written, the Brazilian participation was, in retrospect, detrimental to the nation’s best interests, despite the great personal sacrifice made by many anonymous diplomats. In the Brazilian delegation in Geneva they did not have a computer or even a copy of the Constitution. Coincidently, the minister of state of foreign relations and the head of the delegation were the same as today!
A realistic analysis of the results of the last five years of Brazil’s participation in the WTO will lead to the inexorable conclusion that the Brazilian diplomats acted incompetently in the defence of national interests, not only in the litigious cases but institutionally, in reference to the renovation of the inequitable system that was implanted , as well as such the creation of internal defence mechanisms against unilateral action, as those in which Brazil has traditionally been the victim of the U.S.A., and more recently, Canada. Our diplomats, frequently more preoccupied with their own sinecures; confused by the small internecine disputes; inspired by political interests as opposed to merit; distanced from their country and its interests; badly prepared for the tough oppositions of commercial negotiations; repressed by the intrigue; gaunt by the haughtiness, the arrogance and superciliousness, they became small and caricatural satraps of the national policy of clientelism as opposed to defenders of national interests and agents of international legality.
Throughout the hole world today, in the area of the defence of international commercial interests, a policy of results is in force. When an American negotiator renders accounts to his congress, he discourses on national interests and how these were a preserved. When a Brazilian negotiator of the recent past speaks, he resorts to witholding information when dealing with the problems information suffered. This situation was exemplified by the declaration that the WTO’ s resolution disputes system was so fair and efficient that it allowed countries such as Brazil to have significant victories, such as the one against Canada, when they do not choose to discourse with gravity, in their tirades, sometimes by heart, on the sweet commerce of Montesquieu! In the WTO, the hegemonic countries, which are interested in controlling the secretariat and the legal division of the organisation, are the organs of actual power which explore their gigantic egos, and frequently delegate positions with impressive titles, but lacking actual substance , to diplomats of developing countries. Thus, while Brazil was the most defeated country in the WTO’ s resolution disputes system the co-ordinator of the respective organ was a Brazilian, The Ambassador Celso Lafer.
In addition to this the dreamy Brazilian diplomatic body was not inclined to get to the bottom of the nation’s civil society and its economic interests, and with their agents working together, as all main economic partners do, to the extent that in their domestic markets they seek technical subsidies to international negotiations. Furthermore, they lacked shape negotiation agendas, such as the ill-fated Millennium Round of the WTO. And most importantly, they failed to render accounts to civil society, indispensable under the of the Law! The next chapter of this presentation will analyse the question at whether or not Itamaraty is prepared for the next trade war?
4. Is The Itamaraty ready for a trade War?
The half-heartedness that characterises the Brazilian Ministry of Foreign Affairs was aggravated in the recent years by external and domestic factors. Nationally, the so-called presidential diplomacy reflected itself in the enormous influence of the political appointments and promotion, frequently competence. This had the prerogative to put the public service of the foreign affairs in the service of the national policy of clientelism and, therefore, alter the loyal relationship and decisively compromise discipline, which was a traditional attribute of the Ministry of Foreign Affairs. Abroad, diplomats in positions of responsability greatly committed to serve their political suzerains and usufruct their sinecures, were faced with an enormous work schedule, which was of vital seriousness to the Brazilian’s future.
In fact, today, more than ever, the future of the nations is dependent upon on the results of international trade negotiations. These negotiation imply a substantial resignation to sovereignty, and determine legislative standards within the public and private legal systems, assure or limit access to the domestic markets of the other commercial partners. Consequently, they determine the national economic increase, the creation of employment and the general prosperity of the nation, or, on the contrary, they cause ruin, despair and misery. Thus, the developed countries, with the use of specious rhetoric of free trade that for one hundred and fifty years have been legitimating all sorts of abuse and oppression, from the opium trade to colonialism, seek, as always, new markets and, at the same time, they maintain their economic sectors protected from any noticeable relevance by means of legal subtleties, subsidies and protectionism. In order to do so, the hegemonic powers dominate the international organisations; establish multilateral agendas; and, individually, seek even greater benefits in regional trade pacts in comparison the other members of the explorers cartel.
Therefore Brazil’s shaky diplomatic trade cone must interfere, with the use of its sinecures, in relevant negotiations and with extremely tough oppositions on several fronts. The first, and most obvious, but by no means the only one is the litigious, institutional or strategic relationship in the multilateral area of the World Trade Organisation (WTO). Another front of grave importance is related to the hegemonic initiative of the Free Trade Area of Americas (FTAA), a subject that shall be discussed in the following part of this presentation. It may Brazil abandoning the quality at the, becoming an appendix client of the United States of America (U.S.A.), and condemning the Brazilian people to the role of qualified workers and mere consumers of products and services which are produced masse by foreign entities. It is also important to mention the negotiations for a trade pact with the European Union (E.U.), that represent less risks than with the U.S.A. and greater opportunities in the quest for a greater access of Brazilian agricultural products in the domestic markets of that trade block. The intention to develop and strengther of taking further the MERCOSUL is of great strategic importance to Brazil, with for instance, the creation of a regional court of appeal, legislative uniformization, the monetary union; as well as its expansion, with the entry of new members from the continent as well as from afar such, as South Africa.
As one can gather, it involves a grave and ponderous agenda. Is the Itamaraty capable of representing the nation’s best interests in these matters? The analysis of its performance in the recent years implies an absolutely negative response. The situation became more obvious by the national public opinion of Canada’s unilateral action taken against Brazil in the meat case, which was an illegal act of retaliation on account of the aeronautic dispute. Once the act of violence had been suffered, the national reaction from the civil society’s indignation and not from the Ministry of Foreign Affairs, that did not even called back the ambassador in Canada, may be inclined not to interfere in the use of satrapy. Suspend the FTAA’s negotiations? Do not even think about it! Denounce the bi-tributation agreement? How many! Put forward a bill of economic defence against illegal unilateral action by other countries? Despite all it the arsenal available to firm their position, not only in front of Canada, but other economics powers, Brazil by means the President of Republic, only gave a three week deadline, which was internationally announced, for the suspension of the measure. This measure was by the angry reaction of Brazil’s civil society, and was not part of any institutional guidelines for the reaction of the commercial arbiter, which other countries have at hand for dissuasion and eventual use.
Today, the vast overwhelming majority of competent Brazilian professionals in the international commerce and law is outside The Itamaraty, contrary to the state of events at the end of the Uruguay Round of GATT. Therefore, it is urgent to the responsibility for the Brazilian international trade action, before it is too late!
5. The traps of the FTAA
Stimulated by the force at public opinion, Brazil sought alternatives to attain the free trade in the hemisphere, without falling under ambush the NAFTA. One of these alternatives is the creation of the South American Free Trade Association (SAFTA), a meritorious concept. (…)
6. Conclusion: the FTAA is bad news for Brazil
From the strictly commercial point of view, entering into the FTAA, which has been shaped by the NAFTA, would be an unprecedented disaster to countries such as Brazil and Argentina. This disaster would affect the service industry, which represents more than 50% of Brazil’s GNP. The agriculture sector in Brazil and in Argentina would be destroyed overnight, thus causing the loss of millions of rural. The soybean, sugar and animal protein sectors in Brazil Will not be able to compete with The American and Canadian subsidies. In Argentina, the wheat sector would suffer the same bad luck.
In addition to the harmful effect caused by losing of the tariff referential, one must add that the modernisation of Brazil’s institutional legislative pomp such as, for instance, the rational redesigned the of taxation system, is yet to be accomplished. Due to its back the Brazilian industrial production is being penalised and the country is becoming an impractical exportation platform due to of the oppressive taxation and corporate costs, compared with our trading partners. Political reforms are slow in Brazil, where democracy was reinstilled in 1986.
One can not that a FTAA based on the NAFTA would present opportunities to increase our exports. The U.S.A.’ s tariffs are already low enough, and, as a general rule the Brazilian economy would be severely damaged. Strategically, the FTAA would present Brazil with a much worse situation than the infamous Trade and Navigation Treaty sealed in 1827 with which England impeded the country’s industrialisation. Without tariff protection, which is legitimate according to the multilateral law and an indispensable instrument to soften competitivety for developing countries, most of Brazil’s industry will collapse.
Furthermore, Brazil’s foreign trade is carried out with the NAFTA’ s economic block only about 24% of, whereas the E.U. is responsible for approximately 25% and the ALADI (Latin American Integration Association) countries, for 26%. Nevertheless, the E.U. is currently responsible for 70% of the investments and 70% of the financings to Brazil, including in the export credits area. The FTAA will alienate our main trade partners and will substantially take away Brazil’ s attractireness as a investments receptor pole.
In fact, the investments will tend to concentrate in the cube, the U.S.A., from where the international investors will concentrate more continental operations and where they will buy products and services in a regional scale economy. Most of the Brazilian financial market, that accounts for about 18% of the GNP, would migrate to the U.S.A. this would occur in the area at the stock exchange, the commodity exchange and investment banks. Management consultants, auditors and lawyers would be contracted in the U.S.A. Due to the lack of perspectives in the service area, the Brazilian education sector would collapse, since the economic opportunities would be scarce and limited to activities that do not depend on a conventionally good education, such as the sale of quick snacks.
Furthermore, the FTAA faces the grave risk of becoming overdependent, which is rejected by the Brazilian public opinion, on the cultural reference of the U.S.A. for having been shaped in the alienating molds of the NAFTA, where volume Mexico and Canada’s of bilateral exchanges with the U.S.A. have increased to constitute approximately 90% of the world trade.
The concept of the FTAA, shaped around the NAFTA, presents a hypothesis in which Mercosul in general, and Brazil, in particular, have nothing to gain and everything to lose.