BRAZIL AND JAPAN DISCUSS ETHANOL

From "Valor Economico" - June 22nd, 2006

The article below was condensed during translation. H.O.

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Rivals in the field in today’s World Cup match, Brazil and Japan have been holding talks to discuss ways to increase trade between the two countries. High on the list of priorities for Japan is developing a supply chain of ethanol. Brazil’s strategic importance as a supplier of raw materials and biofuels is underscored by Japan’s recently-expressed desire to establish a free trade agreement with Brazil.

Japan has been surpassed by China as Brazil’s largest Asian trade partner. It now ranks sixth among buyers of Brazilian exports. Prime Minister Junichiro Koizumi wants to reverse this trend. In 2005, when President Lula visited Japan, Mr. Koizumi’s government waved with the possibility of signing a free trade agreement with Brazil. But talks did not progress, although ethanol was the star of the President’s visit.

Brazil has an enormous colony of Japanese descendants, concentrated in the state of Sao Paulo. Most of them immigrated to Brazil nearly 100 years ago, developing what has become the largest concentration of Japanese descendants outside of Japan.

2008 marks the one-hundredth anniversary of the arrival of the first ship bringing Japanese immigrants, who came to Brazil mainly to work in the fields of the booming coffee business. With the Japanese Immigration centennial approaching, the governments of the two country’s have created a bilateral committee of highly-respected businessmen, headed by Eliezer Batista, to study and propose means to strengthen ties between the two countries. One of the measures being considered is the establishment of a free trade agreement.

Brazil, however, remains wary of such proposals. It has been approached by other governments several times in the past to discuss such issues. “In the end, we discovered that the other parties’ true intention was to set up an agreement to protect investments”, says the Director for International Negotiations of the Brazilian State Department, Regis Arslanian.

The Brazilian government isn’t interested in these agreements because, according to Mr. Arslanian, the model proposed by developed countries demands total freedom for capital transfers, including from stock markets, and the power, given to foreign private investors, to take legal action against the Brazilian government should litigation arise. “Even when we talked with the Europeans”, says Mr. Arslanian, “we withdrew the issue of investment agreements; however, if Japan wants to discuss the theme, along with a cooperation agreement, we are open to negotiations”.

Japanese diplomats say that there is, indeed, a strong desire to establish a trade agreement. They say that, after Lula’s visit in 2005, the scene has changed in Japan, a country that has raised considerable barriers to protect its agricultural sector.

Free trade discussions have to overcome the resistance of Brazilian industrialists, who fear Japanese competition. And because Brazil is a member of Mercosur, any agreement would have to be established between Japan and the Southern Cone economic bloc, which also includes Argentina, Uruguay, and Paraguay.

In August, the bilateral committee headed by Mr. Batista will present to President Lula and Prime Minister Koizumi a series of suggestions to strengthen bilateral relations. The centerpiece is likely to revolve around the production and sale of ethanol to the Japanese market, as was the case during Lula’s visit to Japan.

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