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Tuesday, January 28, 2003

U.S. encouraged by reforms in Brazil

cbs.marketwatch.com By Sital Patel, Medill News Service Last Update: 8:55 PM ET Jan. 27, 2003

WASHINGTON (CBS.MW) -- The Bush administration reiterated its commitment to improving trade relations with Brazil on Monday, saying it is encouraged that the new Brazilian government's proposed economic reforms already have spurred a drop in interest rates and strengthened the real.

Leftist President Luiz Inacio Lula da Silva took power three weeks ago. His election had sparked worries among many international investors who feared the former labor leader would not continue market-friendly policies as president.

However, since his inauguration interest rates charged by investors have dropped by more than 10 percent and the Brazilian exchange rate against the dollar has appreciated.

Lula has outlined economic policy reforms in four key areas: fiscal, monetary, trade and structural. His administration hopes these reforms will expand economic growth for Brazil.

"We have seen an agenda designed to fight poverty and increase economic growth and stability," said John Taylor, U.S. undersecretary of the treasury. Taylor spoke to the Brazil-U.S. Business Council.

John Shott, senior fellow at the Institute for International Economics, said both countries would gain from free trade "and recognizing that there are interlinkages in bilateral, regional and global trading involved is important."

Nearly every country in the Western Hemisphere has agreed to negotiate for a Free Trade Area of the Americas in November. The goal of the FTAA is to have in place a free trade agreement for the entire region by 2005, similar to the North American Free Trade Agreement.

Brazil and the United States will lead those talks this year.

The European Union's high tariffs on some of Brazil's major exports, including livestock and soybeans, have been a roadblock to expanding its economy. Thus the United States and most Latin American economies have a common interest in reaching a regional trade deal because of the high tariffs with Europe.

But Brazil, the largest Latin American economy, is the nation most skeptical of the plan. About a quarter of Brazil's total exports, about $15.5 billion, are shipped to the United States.

"In Brazil, lots of the new industries think they need more time to fully compete with richer countries," said Lincoln Gordon, a scholar in Latin American affairs at the Brookings Institution. Generally lowering trade barriers is good for everybody, but distributing these gains evenly is critical, he added.

Peter Allgeier, deputy U.S. trade representative, cited the U.S. trade agreement with Chile as an example of an ideal pact because it does not exclude any products and includes open trade in services as well as manufactured goods.

"It's important to remember it's a two-way street," said Allgeier, "both in economic development and eliminating poverty." He added that every country is different and any trade agreement reached would be catered to that economy and its special needs.

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