Lamy Visits Lula, Hoping To Jumpstart EU-Merocsur Talks

sg.biz.yahoo.com Saturday February 1, 5:45 AM By Terry Wade and Gerald Jeffris Of DOW JONES NEWSWIRES

BRASILIA (Dow Jones)--European Union Trade Commissioner Pascal Lamy paid a visit to Brazilian President Luiz Inacio Lula da Silva on Friday, hoping to jumpstart trade talks stalled by Europe's reluctance to scrap its agricultural subsidies.

ADVERTISEMENT Lamy, who earlier this week admitted E.U. trade growth in South America might be stymied by the competing U.S.-led Free Trade Area of the Americas initiative, said South America's Mercosur customs union was dragging its feet on coming up with a counterproposal to an E.U. offer.

He also spoke in general terms about what he characterized as a generous E.U. offer. But it's the specifics that are bothering Brazil, the leader of Mercosur, which also includes Argentina, Uruguay and Paraguay.

"The central proposal is to reduce domestic barriers by 55% and export support by 45%," Lamy said at a press conference. He added the E.U. proposal covers 90% of the goods traded between the two blocs.

Sounds good. Except to Brazil, where the specifics are all about agriculture. Brazil is the world's biggest grower of coffee, oranges, and sugarcane, has the globe's largest commercial cattle herd and is the second-largest soybean producer.

Agriculture has been a key source of much of Brazil's export expansion in recent quarters, a trend that, along with falling imports, has quickly narrowed the country's current account gap and should put the trade surplus north of $15 billion this year.

Despite the export growth, Lula wants more access abroad and says hefty agricultural protections in the U.S. and E.U. need to be taken down. With the local economy sluggish, a cheap currency that is fueling exports offers Lula one of the few means of boosting economic growth.

Though it's hyperbole, a common saying in Brazil's agricultural circles holds that that you could buy an apartment in Brazil for what it takes to produce a cow in France.

"The E.U. proposal is broad in numerical terms, but it still doesn't meet all of our interests," Brazilian Foreign Minister Celso Amorim said in his typically understated manner.

Amorim's aides said they will submit a counteroffer to the E.U. proposal by Feb. 28 as required.

Lamy said the E.U. offer does include agriculture.

"We've put our cards on the table, not all, but we've included agriculture, which we know is important to Mercosur," he said.

But the Brazilians say it's not enough and Lula, a legendary union negotiator, has made clear he won't sign any trade deal that fails to include Brazil's most competitive sector.

Unless Lamy can engineer support back at home for deep changes in Europe's Common Agricultural Policy, the sticking points with Mercosur won't go away.

Earlier this week, Lula lambasted U.S. agriculture subsidies while visiting French President Jacques Chirac.

He may well have been criticizing the E.U. too, as it's generally agreed E.U. tariffs exceed those in the U.S.

Besides being the leader of Mercosur, Brazil is the co-chair of talks with the U.S. to create the FTAA by 2005 and has repeatedly signaled it will pressure the U.S. and E.U. to make tariff concessions by negotiating on competing trade fronts at the same time.

-Terry Wade in Sao Paulo and Gerald Jeffris in Brasilia, Dow Jones Newswires; 5511-3145-1479; brazil@dowjones.com