11/2: Brazil's "Lula II" Government: Agricultural and Trade Policy Coordination Challenges 11/3/06

Lula II: Agricultural and Trade Policy Coordination Challenges /
TRANSLATED from O Estado de Sao Paulo & Marcus Jank [11/1/06]

O Estado de Sao Paulo 11/1/06 (Subscription Required)

President Luis Inacio Lula da Silva (Lula) was reelected with 61 % of valid votes.

Immediately after his victory came the traditional calls for reuniting segments of the country, around a national project to grow the economy and reduce poverty.

However the crux of the slow growth problem resides in the government itself, a big and ineffective spender.

Rather than unify the two Brazils which will emerge from this and other elections, what is needed is to avoid wasting time advancing reforms.

I (Jank) am convinced that the major problem in Brazil is not poverty, nor inequality nor an insensitive elite, but lack of organization and lack of solid institutions.

There exists enormous agreement, or consensus that the burden imposed by, and the contradicitons within the Brazilian government need to be reduced.

This should begin with greater efficiency and coordination among the "elite" of the government.

Confused strategies, and un-resolved conflicts cause inefficient use of public resources.

A first example is in agriculture.
In the '80's, the Brazilian government chose to change the focus of agricultural policy. Prior to this change, subsidies went to minimum support price policies, intervention stocks, and interest subsidies which put real interest rates for farming loans below zero percent.

But the government chose to re-direct agricultural policy towards family agriculture and agrarian reform, the two areas which yet today receive the greatest share of public resources devoted to agriculture. The Sarney government of the '80's created a second Ministry devoted to family agriculture and agrarian reform.

The situation has worsened in the past two decades, and today the two Ministries compete for still scarcer resources with antagonistic visions, which create conflicts among the public policies in Agriculture. Bureaucrats fed the false premise that agri-business would oppose family farming and that large and small producers would drift into two separate worlds. The result has been major confusion and failure to coordinate between the two ministries, their staffs, and between agricultural and land reform programs.

Trade policy offers a second example of failed coordination.
Lula's government attempted to re-direct trade policy toward developing markets, seeking to distinguish his policies from those of the prior PSDB Government of Fernando Henrique Cardoso (1984-2002.)

Lula thus focused on South America rather than the US's Free Trade of the Americas proposal (ALCA/FTAA); and on Africa and on Asia's great emerging nations rather than on developing countries.

But the problem with this is that the Pacific side of Latin America had already chosen close integration with the USA, Europe, and Asia, and finds it difficult to accept the current Mercosul integration model, which today includes Venezuela, as well as the original four partners Argentina, Brazil, Paraguay, and Uruguay.

Africa's trade significance is relatively small and the continent's umbillical trade link is through market access concessions granted with few or no reciprical requirements by the wealthy countries, mostly in Europe.

Brazil's trade with Africa thus depends more on 'good neighbor' foreign policies, rather than on more comprehensive trade agreements, more difficult to negotiate and implement.

Similarly our trade with Asia is heavily concentrated in exports of agricultural and livestock commodities and minerals, and Brazil's imports from Asia are largely manufactured goods.

Both Brazil and Asian countries have strongly resisted negotiating trade agreements which could weaken protection of their less competitive sectors.

Trade policy has been marked by growing disconnects between the concerns of the private sector, which would prefer to finish the FTAA as well as the European Union / Latin America Free Trade Agreement, versus the Brazilian government, which has insisted on South-South trade agreements.

But these South-South agreements have not been completed, despite persistant Brazilian diplomacy.

The 'disonnance' between the government and the private sector ended up causing conflicts within the government itself, where Ministers stood up for opposing positions, leading to paralysis in negotiations regarding South America, regarding Mercosul, and between the EU and South America, not to mention paralized talks regarding preliminary agreements with the rest of the developing world.

Realistically, family agriculture and agrarian reform can not advance nor survive without integrated production systems for food, fiber and bio-energy. Such systems are conceptually described as 'agri-business'.

Productive complexes coordinated from genetic research through to the final consumer should not be fought, but embraced, particularly in view of the fact they represent the survival conditions for large, mid-sized, and small scale producers.

There are no examples of countries which have advanced while Ministries fight over their powers and push conflicting visions in a given area of responsibility.

Successful trade policies in the beginning of the 21 st Century, are focused and coordinated.
The focus must be on agreements which can create trade and investment.
Foreign policies and trade policies should be developed with the largest possible number of countries.
Trade agreements, by their very nature, must be extremely selective, and bringing them to successful conclusion requires great coordinating efforts, not just between the government and the private sector, but first of all, within the government itself.

The obvious options for bilateral accords, and regional agrements, which could benefit Brazil are within Latin America; with the United States; and with the European Union.
Brazil needs to give high priority to trade relations with its major export clients and with investor countries, with pragmatism and without pre-determined positions.
Each trade agreement brought to conclusion in the world without Brazil's inclusion and participation generates, by definition, the potential for lost or diverted trade and investment, to Brazil's detriment.

In a democratic system it is natural that a country can be divided by a presidentail election, and that this very division is reflected in the new Congress. However, the Judiciary and the Executive branches are obliged to work without divisions and without ambiguity. The Executive needs to advocate strict respect for a government of laws. And the Judiciary needs to be managed according to efficiency criteria, arbitrating eventual disputes based on national interests, rather than based on the interests of the most strident pressure groups.

Rather than attempting to unify the multiple Brazils which will emerge from this election, the re-elected President would do better by to take advantage of the large majority received to build an efficient government which reduces waste of resources on mistaken or conflicting policies, and which moves quickly toward the reforms so needed in Brazil, in the domains of politics, economic policies, justice, and social policies.

Jank is Director of ICONE, the Brazilian Institute for the Study of Trade and Trade Negotiations, a part of USP, the University of Sao Paulo. Previously he served as an Economist at the Inter-American Development Bank in Washington.
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