Brazil Gives China Early X-Mas Present…

When President Luiz Inacio Lula da Silva visited China in May of 2004, he was like an innocent abroad. He naively thought the Chinese would welcome his attempts to form a strategic partnership between two of the world's largest developing countries. Nothing of the sort happened.

No sooner had Lula returned home than the Chinese started blocking imports of Brazilian soybeans, on flimsy complaints that Brazil was shipping chemically-treated products. The Brazilian exporters lost millions of dollars as a result. This past week, it was Chinese president Hu Jintao's turn to visit Brazil as part of a Latin American tour.

The days of summit meetings concentrating on lofty subjects have long gone, and presidents are now nothing more than traveling salesmen. Hu arrived with a huge entourage of businessmen and journalists, and the trip centered on trade issues.

The Chinese want Brazilian commodities, such as soybeans, grain, iron ore and steel, and have even expressed interest in investing to upgrade Brazil's infrastructure, particularly railways and ports so that exports arrive promptly in China. Brazil , like every other nation in the world, wants greater access to China 's huge market, which is currently in the middle of a formidable economic boom.

Unfortunately, Lula showed that he has learned little from his experience with the Chinese, and made a great concession to the visitors – recognition that China is a "market economy". By doing so, Brazil has given up its right, under international trade regulations, to impose anti-dumping barriers on Chinese goods which are sold at less than the cost of production due to government intervention.

According to the Reuters news agency, about 20 countries have given China this status, but Brazil is the biggest. The Chinese must have thought Christmas had arrived early, since Lula's decision went against expectations – and common sense. Brazil's development, industry and trade minister, Luiz Fernando Furlan, had even complained light-heartedly about the Chinese obsession with gaining recognition, and said that his Chinese counterpart had raised the issue 28 times in less than two days.

More dumped products heading Brazil's way…

Lula admitted the decision had been taken for political reasons, which he said were part of a new world order in which emerging countries would become stronger. He also said he wanted bilateral trade with China to increase from its current level of US$8 billion to US$20 billion a year over the next three years.

Perhaps Lula was right to take this step, which should open the door to exports of Brazilian products such as meat and poultry, but he has paid a high price. Brazilian business representatives were not so enthusiastic. The powerful São Paulo state federation of industries, FIESP, registered its opposition to the move, which it said would put Brazilian industry in a vulnerable position.

The main fear expressed by Brazilian industry leaders is that the Chinese will dump products at artificially low prices, thereby harming domestic producers. Brazil has already imposed anti-dumping tariffs on certain Chinese products ranging from glass instruments to chemicals.

I have been unable to get any figures on the value of these dumped goods, but they must be having an enormous effect on the Brazilian economy. Just before writing this article I went to a shop to buy a punch for perforating paper. Among the cheaper models were one from China , retailing at around RS$2.50 (less than one American dollar) and one from Brazil retailing at R$4.65 (about US$1.60). The Brazilian one had a stick-on label with the plea "Give preference to the national product", and "Product made in Brazil – Like You" stamped on the packaging.

This shows how Brazilian manufacturers are feeling the effect of Chinese exports. For the record, I bought the Brazilian one since virtually everything Chinese I have bought has malfunctioned or broken shortly afterwards. Quality control is apparently not a Chinese strength.

This particular item was available in a well-known chain of stores and presumably had been legally imported, but many made-in-China products that make it to market in Brazil are contraband and counterfeit. A walk down any street in São Paulo reveals the extent to which cheap Chinese goods, generally of inferior quality, are on sale in markets and stalls.

Chinese Mafia at work

One of the worrying aspects of this trade is that it is often linked to crime. Well-organized criminals, known as the Chinese Mafia, smuggle the goods into Brazil from Paraguay , bribing corrupt officials on both sides of the border and taking advantage of the lax border controls.

Ironically, Paraguay does not recognize the Communist government in Peking, yet gangsters from mainland China operate in its territory. The Chinese Mafia also robs, intimidates and murders members of the Chinese community in São Paulo, which numbers an estimated 140 thousand.

Among the protocols the two presidents signed were two which touched on this shadowy area, one covering extradition and cooperation on organized cross-border crime, the other aimed at making it easier for Chinese tourists to visit Brazil. Since the Chinese top the list of illegal immigrants entering Brazil these days, giving them easier access seems a little strange but, as we have seen this week, the Chinese dragon seems to have intimidated the Brazilian giant.