TCS Daily

What's at Stake When Bush Meets with Lula

By James K. Glassman - November 3, 2005 12:00 AM

The show must go on.

President Bush heads to the Argentine seaside resort of Mar del Plata later this week for a summit of Western Hemisphere leaders. Then he moves to Brasilia on Nov. 5 and 6 for talks with President Inacio Lula da Silva. These events are far more important than the nonsense swirling around our own capital over Harriet Miers and "Scooter" Libby.


Latin America has been enjoying good times, with stock markets hitting record highs. But there have been severe problems as well. Democratic reformers are struggling, and Venezuela's president, Hugo Chavez, a Castro with oil, has been making trouble.


As Roger Noriega, former assistant secretary of state for Western Hemisphere affairs and now a fellow at the American Enterprise Institute, points out, "Differences over President Bush's foreign policy -- exploited by Chavez's aggressive international campaign -- have damaged the U.S. image in a region that has traditionally liked and admired the United States."


But Brazil is the key. It is Latin America's powerhouse, the largest country in the region by far, with a population of 186 million (the size of Mexico, Argentina and Colombia combined) and a Gross Domestic Product ranked 11th in the world.


While much of Brazil is desperately poor, the country has many characteristics of a thriving, modern society, including low birth rates, a relatively small agricultural sector, strong economic growth and burgeoning high-technology. Brazil's Embraer is a top global producer of regional jets, with shares listed on the New York Stock Exchange.


The bad news is that, in trade matters, Brazil often acts in a retrograde, mercantilist and predatory fashion, hurting not just U.S. countries but its own citizens. The International Intellectual Property Alliance estimates that losses due to IP theft in Brazil amounted to $900 million in 2003 alone.


Among other things, Brazil has been blackmailing global drug companies in an effort -- successful so far in one case -- to get them to give up their patent rights. "I worry about rising antagonism (toward Brazil) in the U.S. press and especially in Congress," wrote former Secretary of Defense Frank Carlucci to the Brazilian ambassador to the United States earlier this year. "Yet I can understand this concern, since intellectual property rights underpin free-market prosperity."


It's true that IP -- the fruit of ideas and innovation -- is the crown jewel of the U.S. economy, generating $5 trillion per year, or 42 percent of our GDP, according to a new study by Kevin Hassett, also a colleague at AEI, and Robert Shapiro, a former economic adviser to President Bill Clinton.


Yet efforts to guard these treasures have been inadequate.


In a recent news article in the International Herald Tribune, Hassett and Shapiro called the Bush administration's record on defending America's IP rights abroad "disappointing and troubling." Between 1996 and 2000, the United States filed 15 cases with the World Trade Organization alleging violations of patent and copyright protections. But since 2001, only one new case has been brought, and most of the cases haven't been actively pursued.


Sadly, the administration so far has taken the same lax attitude toward Brazil. The United States placed Brazil on a trade watch list reserved for nations committing "the most egregious acts, policies or practices." But beyond that, nothing has been visible.


Bush may feel that if he pressures Lula on trade, he won't get Lula's help in keeping Chavez in a box. That's shortsighted. The answer to Chavez's aggressive socialism is a free and booming economy, and Brazil threatens its own chances to sustain such an economy if it continues its protectionist ways.


What to do? Brazil is included in the Generalized System of Preferences (GSP) program, created by Congress in 1974 to help the world's poorer countries. The GSP lets these nations export 4,700 products duty-free into the United States, and Brazil benefits to the tune of $2.5 billion a year.


A clear case can be made that it's time for Brazil to move beyond the GSP, as countries like Slovenia and Singapore have done already. At any rate, Brazil, as a flouter of IP protections, has no business enjoying the benefits of the program.


The U.S. Trade Representative holds a hearing Thursday on the future of the GSP. It's the perfect time to give Brazil an ultimatum: End your campaign of piracy and blackmail, or we'll revoke your GSP status on the day Bush meets with Lula.


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