Argentina-Brazil Relations: Urgent Challenges Come to the Forefront

Council On Hemispheric Affairs
MONITORING POLITICAL, ECONOMIC AND DIPLOMATIC ISSUES AFFECTING THE WESTERN HEMISPHERE
Tuesday, July 12 2005
COHA MEMORANDUM TO THE PRESS

www.coha.org/NEW_PRESS_RELEASES/New_Press_Releases_2005/05.73_
Argentina_Brazil_Relations_Urgent_Challenges_Come_to_the_Forefront.htm

• Brazilian President Luiz Inácio “Lula” da Silva has been badly wounded by the corruption scandals in the nation’s legislature as well as in his Workers’ Party which could have devastating repercussions for his political future.
• Now, at a time of Lula’s greatest political weakness, rupturing Brazil’s de facto political alliance with Argentina would be a tragic mistake.
• Although Argentina and Brazil were unabashed rivals in the past, in recent years, both countries have made a concerted effort to encourage augmented cooperation.
• Successful political and economic bridge-building between the two countries through their rapprochement over nuclear matters and the advent of MERCOSUR has played a major role in strengthening newfound ties between Argentina and Brazil.
• However, in recent months, challenges have surfaced that threaten the constructive bonds that were achieved in political as well as economic spheres.

Over the past twenty years, Argentine and Brazilian officials have worked overtime to reduce the fierce rivalry that once stood between them, by focusing on political and economic cooperation. In recent months, however, certain obstacles have surfaced that threaten to freeze these fraternal ties. Despite these challenges, those working on bilateral relations between the two South American countries still contend that Brazil and Argentina must not lose sight of their new transcendent roles as important regional leaders and the possibilities for counterbalancing what both see as an overbearing U.S. presence in the region. However, with Brazil being perhaps the more important of the two nations and with Argentina fading as a regional power but with strong prospects of revival under President Néstor Kirchner, both regional leaders see themselves as having the ear of the rest of Latin America.

Scandal in Brazil, Implications for the Future
Recent revelations of corruption scandals in Brazilian President Luiz Inácio “Lula” da Silva’s Workers’ Party (PT) has weakened his standing in the PT and among his countrymen. The scandal also has seriously diminished Brazil’s and Lula’s strategy vis-à-vis Argentina and Kirchner. In June, Roberto Jefferson, head of the PT’s allied Labor Party, when testifying as to his innocence in a kickback scandal, broke the news that Lula’s party had paid $12,500 monthly to Brazilian legislators to secure their votes. Since Jefferson testified, several high cabinet officials have resigned after acknowledging that they were aware of the arrangement. Furthermore, recent polls suggest that 70 percent of the public now believes that there is corruption throughout Lula’s administration. The corruption scandal has been particularly damaging for Lula’s PT which ran on an anti-corruption platform in 2002; yet, ironically Lula himself remains popular, polling in the mid 50s.

Despite Lula’s relatively positive poll reports, the preisdent has considerably less negotiating room in Brazil’s congress. If he wishes to secure a signature political victory that could improve his popularity raise and put the corruption scandals behind him and his government, he might try knocking on Argentina’s door, either to pacify or outrage. Lula might try to patch up the recent round of spats between himself and Kirchner over a possible UN Security Council (UNSC) expansion that would have included Brazil among other new nations as permanent members of the UNSC. Argentina had adamently opposed this initative. Lula might also introduce trade safeguards that would apply to MERCOSUR, a southern cone free trade agreement which includes Argentina, Brazil, Uruguay and Paraguay, by settling the trade dispute between the two nations that have been snarling at each other since late 2004. The proposed Competitiveness Adaptation Clause (CAC) to MERCOSUR would have a good chance of being popular both at home for Lula, and in Argentina, because both venues have been pressing for a quota system to protect their respective endangered home industries. The clause would protect appliances, footwear and cotton goods in the case of Argentina and rice, wines and fruit in Brazil, from an influx of goods that the other nation produces at a competitive price advantage.

The Historic Root of Brazil-Argentina Relations: The Past is Not an Impediment to Improved Ties
During an extensive epoch of past rivalry, the mutual distrust between Argentina and Brazil was evident in many international forums as each made a concerted, if subtle, effort to counteract the growing influence of the other. In order to achieve this goal, both countries lobbied for the support of other regional actors, such as Bolivia, Paraguay and Uruguay.

In the early part of the twentieth century, the status of each country’s relationship with the U.S. emerged as a major factor versus the other. Brazil continued to align itself closely with the North American superpower, particularly through the significant supporting role it played alongside the U.S. in World War II. Conversely, Argentina’s pro-axis neutrality during that conflict led to a failed economic relationship with Great Britain. While Brazil continued to reap the economic and political benefits of its preferential relationship with the U.S., concern mounted among Argentine political elites over their feared inability to compete with Brazil’s growing entente with Washington.

After a failed attempt at another limited economic partnership, this time with the Soviet Union, some Argentine analysts identified a need to cooperate with neighboring Brazil in order to strengthen their country’s regional and international position. Although some Brazilian authorities recognized the potential advantages of this collaboration, sporadic efforts to reach an agreement failed to produce any tangible results.

In the late 1970s, a major land dispute surfaced in which Argentine authorities asserted that Brazil and Paraguay had violated Argentina’s sovereignty through their cooperation in building the Itaipu Dam in which they failed to recognize Argentina’s vested rights in the venture. Buenos Aires claimed that the project would negatively affect water flows to its downstream terrain and that as a result, the affected countries deserved to be consulted before such projects went beyond conceptualization. Furthermore, Argentina argued that should any such project present complications for the affected countries, like itself, compensation would be warranted and expected. Although this issue plagued Argentina-Brazil relations for nearly a century, the two states, in addition to Paraguay, reached an accord through the 1979 Tripartite Agreement, opening a new door for diplomatic efforts for the first time in several decades.

Nuclear Rapprochement: A Major Stepping Stone in Strengthened Relations
Nuclear rapprochement between Argentina and Brazil represented a major breakthrough in the two southern cone countries’ historically hostile relationship. The two regional giants had been nuclear rivals since the 1950s when both governments launched parallel nuclear programs (even though Brazil’s program was secret) in order to project their hemispheric preeminence among developing countries. Ironically, nuclear issues later presented a prime opportunity for Buenos Aires and Brasilia to improve upon their otherwise fractured relationship.

In 1980, discussions led to the signing of the Agreement on Cooperation for the Development and Application, encouraging “cooperation” and “trust” on nuclear matters between Argentina and Brazil. But prospects for improved relations were put on hold as each nation struggled with economic turbulence and the stressful transition to democratic governance taking place at the time. A turning point in Argentina-Brazil relations occurred in 1985 when Argentine President Raúl Alfonsin and Brazilian President José Sarney renewed discussions on nuclear issues, resulting in the signing of the Joint Declaration of Nuclear Policy, which stressed that both nations’ nuclear programs were intended for peaceful means only, and emphasized “confidence” in the other nation instead of hands-on “inspection” or “control.”

By the time Presidents Carlos Menem of Argentina and Fernando Collor of Brazil had each taken office, the two nations had reached an agreement in the early 1990s that would ensure inspection of each others’ nuclear programs. These agreements paved the way for the signing of the Guadalajara Treaty which created the Argentina-Brazil Agency for Accounting and Control of Nuclear Materials (ABACC), “establishing a common system of accounting and control which would apply to all nuclear activities of both countries.” In 1994, Buenos Aires and Brasilia finalized their nuclear cooperation when they signed the Tlatelolco Treaty along with most of Latin America (excluding Cuba), setting clear terms for the exclusion of nuclear weapons from the hemisphere, as well as prohibiting the manufacturing, production and acquisition of nuclear weapons in any form.

The ban resulting from nuclear negotiations between Argentina and Brazil represented a historical achievement. After finally settling the Itaipu Dam dispute in 1979, nuclear talks proved to be the perfect vehicle for the neighbors to strengthen their often rocky relationship.

MERCOSUR, Opening the Door for Economic Cooperation
After the Cold War’s end, Brazil began to extricate itself from its close military ties with the U.S., which included Brazil’s wartime role in Italy. Meanwhile, Argentina was aggressively trying to draw closer to Washington, but a trade imbalance that favored the U.S. led to only short-lived U.S.-Argentina economic ties. This not particularly productive trade relationship provided Brasilia with the motivation to pursue stronger economic ties with Buenos Aires through the enactment of MERCOSUR. That trade agreement resulted from the convergence of two very different agendas: Brasilia’s desire to push Buenos Aires’ economic dependence in its own geopolitical direction and Buenos Aires’ economic aspirations to expand its exports to neighboring Brazilian consumers.

Although the Brazilian and Argentine governments achieved successful economic integration with MERCOSUR, they faced a new challenge with Washington’s promotion of hemispheric free trade through the Free Trade Area of the Americas (FTAA), a pact that has inspired marked skepticism in both countries. Although Washington courted Buenos Aires’ support for the FTAA through the promise of strengthening bilateral trade between the two countries, its efforts ultimately proved unsuccessful in October 2003, when Argentina’s then foreign minister, Rafael Bielsa stated that his country would not compromise its relations with Brazil in order to improve economic cooperation with the U.S. In this respect, MERCOSUR has served as another major vehicle for improving relations between Brazil and Argentina.
Competition Arises Yet Again
Despite Argentina and Brazil’s cooperative efforts on nuclear and trade issues, certain challenges have emerged in recent years that have inhibited further progress toward conciliation. When the Brazilian government delinked the real to the dollar in 1999, its currency fell to three reals to one dollar, while Argentina continued to uphold the U.S. currency. As a result, now inexpensive Brazilian products flooded Argentina, bankrupting Argentine commercial producers and persuading many of them to relocate to Brazil, where labor was now cheap. Needless to say, Buenos Aires was not amused and relations between the two countries stiffened. Tensions were assuaged, however, by Argentine economists who recognized that for many years, Brazil was in effect subsidizing Argentine gas and grain exports there by paying an artificially high price for those commodities.
But in 2004, when Brazil’s trade surplus reached $1.7 billion, Kirchner enforced new trade restraints (which he emphasized at a MERCOSUR Summit in December 2004) on Brazilian goods, arguing that the asymmetrical trade in effect was hindering Argentina’s industrial recovery. Brazil countered Argentina’s proposal for new trade restrictions by threatening to impose a range of quotas on certain key Argentine exports. In a recent COHA interview, a U.S. government official commenting on the trade imbalance observed, “To Brazil, the Argentine government’s enactment of safeguards could significantly inhibit the progress of MERCOSUR. However despite their bumping heads, it is most likely that the two nations will continue to align themselves closely with one another due to the advantages they can gain from their cooperation.” Although both countries have negotiated to solve these trade discrepancies, a clear solution has yet to be settled.

This past May, tensions rose again, this time at the South American-Arab Summit held in Brasilia, when Kirchner insulted Brazil with his early departure from the conference. A frustrated Kirchner, resentful of Brazil’s growing economic dominance in Latin America (Brazilian farmers own one-third of Bolivia’s entire soy crop and Brazil is also a major creditor to other Latin American nations), expressed his dissatisfaction for Lula’s administration and his increasingly “imperialistic” regional position. In addition to its significant economic presence in the region, Brazil’s recent failed bid for a permanent seat on the UNSC served to further antagonize Argentina. As a result of increasing Brazilian dominance and assertiveness, Kirchner concluded that “relations with Brazil needed to be hardened.”

Despite Kirchner’s assertions regarding Lula’s imperialistic tendencies and the latter’s denial, Brazil undoubtedly sees itself as the region’s most dominant player on the international stage and thus felt entitled to a UNSC seat on the grounds that it could aggressively advocate a Latin American, let alone its own agenda. As another, if lesser force in the region, the Argentine government took offense to Brazil’s assumption that Argentina could not play a comparable role in the global community. Several weeks after Kirchner left the South American-Arab Summit, as Argentina sharpened its hostile rhetoric regarding Brazil’s UNSC bid, Foreign Minister Rafael Bielsa claimed that Brazil’s actions were both “elitist and not very democratic.” On May 27, Argentina’s efforts to prevent Brazil from obtaining a permanent seat on the UNSC ultimately proved successful as both Brazil and Japan, citing regional opposition, jointly announced the withdrawal of their own names from a proposal that would have granted them permanent seats on the UNSC.

An Imminent Need for Cooperation
Although Brazil’s bid for a permanent seat on the UNSC provoked tensions between Brazil and Argentina, such a prominent role could have provided an outlet for the region to effectively project Latin American interests on the international stage. The rivalry that once existed, and could reappear if not adequately contained, would do well to remain an issue of the past, as it is imperative that both countries recognize their important leadership roles not only as individual actors, but as a bilateral force. If Buenos Aires and Brasilia fail to improve on their cooperative efforts, they would not only inhibit the potential success of both of their respective countries, but also undermine the diplomatic leadership of the new autonomy movement which is attracting more and more Latin American countries to its roster.
 
This commentary was prepared by COHA Research Associates Hampden Macbeth and Shana Ramirez.

Additional research was provided by COHA Research Associate Teddy Chestnut.
July 12, 2005
For More Information:
“Brazil Nuclear Milestones.” Wisconsin Project on Nuclear Arms Control. 2005.

“Evolution of the Argentine-Brazilian Nuclear Rapprochement.” Dr. Ariel Levite. Institute for Science and International Security. 1996.
“Itaipu Dam.” Kent National Grid for Learning website. 2004.
“Treaty for Tlatelolco.” Nuclear Threat Initiative. 2003.
Zobel,Gibby. “Lula Hit as Top Aid quits Over Bribes.” The Guardian. 18 June 2005.
The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being “one of the nation’s most respected bodies of scholars and policy makers.” For more information, please see our web page at www.coha.org; or contact our Washington offices by phone (202) 223-4975, fax (202) 223-4979, or email coha@coha.org.

To subscribe to our free press releases, send an email to coha@coha.org with “subscribe” as the subject. 1

Memorandum to the Press 05.73
Word Count: 2200