3 Jan 03(3:07 PM) |  E-mail Article to a Friend By Doug Palmer

WASHINGTON (Reuters) - U.S. trade negotiators must clear a number of difficult hurdles this year to achieve their goal of concluding two major new trade agreements by the end of President George W. Bush's first term, analysts say.

Although trade talks have a history of slipping past their deadlines, U.S. trade officials hope to make the most of the next 24 months to finish talks on a new World Trade Organization agreement to lower trade barriers in agriculture, services and manufactured goods.

The United States also hopes to complete negotiations on a proposed Western Hemisphere free trade zone in the same time frame, dispute ongoing turmoil in South America.

The WTO talks suffered a serious setback in late December, when negotiators failed to agree on provisions to guarantee poor countries that lack a pharmaceutical industry would have access to cheap life-saving drugs.

"This has put the U.S. in a pretty awkward political position on a highly emotional issue," said Ed Gresser, a trade policy analyst at the Progressive Policy Institute. "Until it's fixed, it's going to make it a lot harder for the U.S. to get support" on its priority issues in the WTO talks.

Other countries have accused the United States of blocking the deal at behest of its big drug manufacturers, which want to make sure patent waivers for generic manufacturers to supply the drugs are limited to HIV/AIDS, malaria and tuberculosis.

Developing countries are pushing for a broader list.

WTO members will try again in February to reach an agreement. If they are not successful, the issue could block progress on other issues and dim prospects for the WTO's next ministerial meeting in September in Cancun, Mexico.

In March, WTO members are supposed to decide on the basic framework for advancing agricultural trade talks.

Countries are still far apart, with Japan and the European Union resisting pressure from the United States and the developing world for significant agricultural reform.

HARD CHOICES

Failure to meet the March deadline could add one more item to the Cancun meeting, where members are already facing difficult decisions on whether to expand the scope of the WTO talks into areas such as investment and competition policy.

It would also bode badly for the proposed Free Trade Area of the Americas. The United States has balked at regional demands that it trim the $19 billion it spends annually on domestic farm subsidies unless Japan and the EU also agree to curb their farm spending as part of a new WTO pact.

Continued economic difficulties in Argentina and political turmoil in Venezuela have cast a pall over the Western Hemisphere talks. However, that could prompt Brazil to play more of a leadership role, even though new President Luiz Inacio Lula da Silva expressed skepticism about the proposed trade pact during last year's election campaign.

Sherman Katz, a trade scholar at the Center for Strategic and International Studies, said Lula already was showing signs of a more accommodating approach to the trade talks.

"We've already begun to see Lula come back to the center some. Politics is politics anywhere and statements made in an election to get votes are often not statements that lead to dramatic policy changes," Katz said.

At the same time, Bush's decision to send chief U.S. trade negotiator Robert Zoellick to Lula's inauguration on Monday was a sign of strong U.S. interest in working with the new leftist president to forge the trade pact, he said.

Jan 4 Michael Smith in Rio de Janeiro, Bloomberg

Jose Eduardo Dutra, a Workers' Party senator and former union leader, has been picked to head Petroleo Brasileiro SA, in a signal that Brazil's state oil company may focus more on the government's economic goals than on profit.

Andre Singer, spokesman for President Luiz Inacio Lula da Silva, confirmed the appointment, which Mr da Silva's aides said earlier in the week was imminent.

Mr Dutra, 43, will likely carry out Mr da Silva's promises to have Petrobras build oil platforms in Brazil and use the country's biggest company to create jobs. Mr da Silva's energy minister this week said the government might restore price controls and fuel subsidies to stem inflation.

More government intervention may hurt profits, and would mark a retreat from President Fernando Henrique Cardoso's effort to make Latin America's largest publicly traded company more accountable to investors, analysts said. President Cardoso sold $US5billion ($9billion) of Petrobras' shares since 2000, in part by pledging to let executives base decisions on profitability, not politics.

"The hope that this will be a new company, which sold investors into several share sales, has evaporated," said Bill Rudman, who helps manage about $US600million in bonds and stocks, including Petrobras, at Westdeutsche Landesbank asset management.

A geologist, Mr Dutra worked seven years at Petrobras in a mining unit that was transferred to then state-controlled iron-ore miner Cia Vale do Rio Doce. He was a union leader, and soon became a leader of Mr da Silva's Workers' party. In 1994, he was elected senator in Brazil's state of Sergipe and last year made an unsuccessful bid for state governor.

Mr da Silva likely chose Mr Dutra to have a strong advocate for greater government involvement, especially in trying to head off inflation by holding down fuel price increases, said Christopher Garman, a political analyst at Sao Paulo-based consultancy Tendencia Consultoria.

"He may be more swayed to lower gasoline prices than someone who has more experience in the sector and would be more interested in increasing profits for Petrobras," said Mr Garman.

Mr Dutra fought against President Cardoso's efforts to sell state-run industry, sponsoring a bill to block the sale of Rio Doce. After he failed, Mr Dutra tried unsuccessfully to have the Rio Doce sale investigated. Inflation is rising at the fastest annual pace since 1996, partly because of higher oil prices.

Da Silva meets with Chavez and Castro, but government promises free-market route KEVIN G. HALL Knight Ridder

RIO DE JANEIRO, Brazil - On his first day in office, Brazilian President Luiz Inacio Lula da Silva met Thursday with the leftist leader of Venezuela but also sought to calm investors' fears that he would abandon the free-market policies that Brazil has followed for more than a decade.

As president of Latin America's most populous nation, da Silva's first steps are being closely watched in Washington and throughout the Americas amid concern that he might team up with leftist leaders from the region.

Da Silva had a long working breakfast with Venezuela's embattled socialist president, Hugo Chavez, and was scheduled to dine with Cuban strongman Fidel Castro.

Da Silva's first day in office fell behind schedule because Chavez arrived almost an hour late for breakfast, after staying up until 4 a.m. talking with Castro. Chavez said da Silva agreed to consider his request to send state oil workers to Venezuela to help reactivate oil production there, which has been hurt by a monthlong national protest against his government. Chavez also wants state oil companies in the region to unite and form what he calls Petroamericas, one large, regional oil company.

Mindful that investors fear da Silva's leftist past and may be spooked by his chumminess with Castro and Chavez, his government signaled that Brazil would stick to the free-market policies that previous governments followed, which brought in more than $150 billion in direct foreign investment.

The new finance minister, Antonio Palocci, announced Thursday that da Silva will ask Brazil's Congress to grant operational autonomy to the Central Bank. That indicates to investors that da Silva seeks to remove politics from decisions about monetary policy. In a nod to investors last month, he named Henrique Meirelles, a former head of U.S.-based BankBoston, as Central Bank president.

Palocci also promised Thursday to announce economic goals for the da Silva administration by midmonth.

"These goals will make clear our commitment to management of a budget that is responsible and consistent," Palocci said, adding that incoming ministers will be ordered to cut their budgets.

He repeated da Silva's commitment to honoring agreements that predecessors had signed. Under the terms of a $30 billion rescue package that the International Monetary Fund provided in 2002, the new government must have a budget surplus equivalent to 3.75 percent of gross domestic product, the sum of all the country's goods and services.

Da Silva's presidency also began with a direct challenge to U.S. trade policy. His new foreign minister, Celso Amorim, named a vocal critic of U.S.-led regional trade negotiations as Brazil's second-highest-ranking diplomat Thursday. Amorim, Brazil's top trade negotiator, named Samuel Pinheiro Guimaraes the foreign ministry's secretary general. Amorim's predecessor fired Guimaraes from his post heading the ministry's International Relations Research Institute after he criticized Brazil's participation in talks to create a Free Trade Area of the Americas by 2005.

Brazil's President Luiz Inacio Lula da Silva hosted meals for fellow leftists Hugo Chavez of Venezuela and Cuba's Fidel Castro on Thursday as his government pledged responsible economic policies on its first working day.

During his first morning in the Planalto presidential palace, Lula had breakfast with Venezuelan firebrand Chavez, who together with Castro has cheered the election of a leftist to lead Latin America's largest country of 170 million people.

In the evening Lula dined with Castro, a long-time friend, at a presidential ranch on the outskirts of Brasilia.

Lula, the first Brazilian president elected from a leftist party, was sworn in on Wednesday. Jubilant supporters hope he will be able to help Brazil's millions of poor.

While Lula has promised to reduce the gap between rich and poor, analysts said his decision to break bread with prominent leftists on his first day in office did not signal future rocky relations with the United States, like Chavez and Castro have.

"This has no significance," said political analyst Ricardo Caldas from the University of Brasilia. "As he made many concessions to conservatives in the naming of his Cabinet, this is just for internal consumption."

Lula also met with several other foreign leaders who had come for his inauguration, including Sweden's prime minister and Portugal's president.

While Castro has long attracted the ire of the United States, a lengthy general strike to oust the Venezuelan president is of more immediate concern to Washington. The populist Chavez faces a crippling work stoppage at home by opponents who say he has destroyed the economy.

Venezuela's troubles have helped send oil prices close to two-year highs as the strike cut deeply into fuel supplies to the United States from the world's fifth largest oil exporter.

At Chavez's request, Brazil has sent an oil tanker to Venezuela loaded with fuel, outraging the striking opposition.

The populist Chavez said he was impressed with Lula's "zero famine" policy, which Lula has made his top priority to help Brazil's estimated 54 million poor.

"Change is the key word, he (Lula) said," Chavez told journalists after the breakfast meeting. "Change, agrarian reform, social justice."

Cuba's Castro described his dinner with Lula as a "family meeting to remember the first time I visited him."

"He has a very nice family which is very humble and very hospitable," Castro added.

Great challenges ahead

But for all the hopes of Latin American leftists that Lula will take South America's largest country toward greater social justice, he faces great challenges.

First of all, Lula won the presidency this time after sharply moderating the socialist rhetoric he espoused in three failed presidential bids, including respecting strict fiscal goals included in a $60 billion IMF loan deal.

He also inherits an economy hobbled by low growth, rising inflation, high interest rates and investor concerns over Brazil's $520 billion debt burden.

Antonio Palocci, who took up his post as Lula's finance minister on Thursday, promised there would be no surprises in economic policy but that the government would maintain tight spending, low inflation policies and a floating exchange rate.

"We are not going to reinvent the basic principles of economic policy," he said as he formally replaced Finance Minister Pedro Malan. "In a country like Brazil, lasting stability only comes with the conquest of sustained growth and social stability."

Palocci's comments attracted nearly as much support from business leaders as Lula did from Chavez and Castro.

"This is just what Brazil needs, he is 100% correct and it is up to everybody to help him achieve this as soon as possible," said Benjamin Steinbruck, head of a major Brazilian steel firm.

Lula has promised to boost growth and lower interest rates but with some investors still wary of the former union leader it will be no easy task, especially since it would take time to get key reforms of the pension and tax systems through Congress.

Still, financial markets rose on the first trading day of the year, cheered by Lula's inauguration speech on Wednesday of the need for reforms, as well as greater social policies.

January 3, 2003 BY ALAN CLENDENNING

BRASILIA, Brazil--Breakfast with Hugo Chavez, dinner with Fidel Castro.

The first day in office for Brazil's new president, Luiz Inacio Lula da Silva, projects the image of a leftist alliance in Latin America--one that Chavez, Venezuela's president, has already nicknamed the ''Axis of Good.''

Such an alliance could hinder U.S. efforts to create a Free Trade Area of the Americas stretching from Alaska to the tip of Argentina by 2005. www.suntimes.com Despite the perception of a new Latin American troika, doubts abound that Silva really wants to form a bloc with such close ties to Chavez and Castro, Cuba's leader.

But by giving Latin America's other two leftist leaders such a warm welcome a day after his inauguration, Silva gets huge political mileage in Brazil, where Castro and Chavez are revered by the far left of his party.

Silva angered his party's left wing by appointing fiscal moderates to key cabinet posts, but needs its help to push programs through Congress, where he lacks a majority.

The United States sent trade representative Robert Zoellick to the inauguration, seen by the Brazilians as something of a snub because Zoellick suggested last October that Brazil's only trading partner would be Antarctica if it did not join the hemispheric trade zone.

Silva responded by calling Zoellick ''the sub secretary of a sub secretary of a sub secretary'' during his election campaign. AP