S? PAULO, Brazil - At a huge Chinese art exhibition shortly after he took office in 2003, Brazilian President Luis In?io Lula da Silva was effusive about the bilateral relationship. "If the Chinese believe in China and the Brazilians believe in Brazil, this could be the two countries' century," he said.
A couple of years later, the trans-Pacific romance is on the rocks because of a massive tide of cheap Chinese imports flooding Brazil. Meanwhile, Mr. da Silva is facing criticism at home for having moved too quickly to embrace China in his effort to find a counterweight to U.S. influence.
For Brazil, China's booming market helped the Latin giant climb out of an economic hole earlier in the decade, with Brazilian exports of raw materials such as soybeans and iron ore key to its recovery. Now, the dispute with China shows that the Asian powerhouse may represent as much a headache as a help for Brazil.
"The expected investments and strategic alliance that loomed in 2004 between China and Brazil are far from becoming a reality," says Riordan Roett, a Latin America expert at Johns Hopkins University.
The two countries now are trying to pick up the pieces from trade negotiators' failure in Beijing last week to reach a deal that would lead to a voluntary restriction of some Chinese exports to Brazil. Like the U.S. and the European Union, Brazil was inundated with inexpensive Chinese textiles when a decades-old clothing-quota system was lifted at the beginning of this year. Both the U.S. and EU quickly imposed trade sanctions on certain Chinese clothing imports; since then the EU has reached an accord with China that allows for a gradual increase in Chinese imports. The U.S. and China are still at odds over how to control textile imports, with talks expected to resume Wednesday and Thursday in Beijing.
After its talks last week with China failed, Brazil issued a decree that will allow companies to ask the government to slap safeguards -- quotas or higher tariffs -- against Chinese imports. The move followed months of heavy lobbying by Brazilian shoe, toy and textile makers, which have been hurt by Chinese competition.
Brazilians are disappointed by the meager returns from the government's move last November to recognize China as a market economy. Such status makes it harder for Brazil to impose antidumping penalties on China. Brazil's complaint is that while it exports a lot to China -- $4.1 billion through the first eight months of the year -- the majority of its exports are commodities and low-value-added goods. Meanwhile, Brazil is experiencing a surge in imports of Chinese manufactured goods that has reduced its bilateral trade surplus 51% from the same period last year. And billions of dollars of promised Chinese investment in infrastructure have been slow in materializing.
Some analysts fault Brazilian negotiators for having moved too quickly to embrace China. "I think [Brazil] gave away a lot without obtaining much back," says Joao Marcus Marinho Nunes, an economist for the AgoraSenior brokerage firm. "Running after concessions after you've already given something away isn't good business."
China's ambassador to the World Trade Organization, Sun Zhenyu, said last week that Brazil's move to apply import restrictions "would not be positive for the relationship between the two countries." He said China had been under the impression that negotiations between the two countries would continue.
Some analysts say the Chinese aren't entirely to blame for the slow pace of expected infrastructure investments in Brazil. Mr. da Silva's administration delayed developing the investment rules and cutting the bureaucracy standing in the way of some of the planned Chinese investments, they say. Part of the problem is that the Brazilian government has been virtually paralyzed by a corruption scandal for the past several months.
Brazil isn't the only Latin American economy that feels let down by its recent expansion of trade ties with China. Argentina also granted China market status last November. In the first seven months of this year, Argentine imports from China grew 70% while exports grew 22%. Even though Argentina still runs a large trade surplus with China, in August Argentina slapped licensing requirements on imports of Chinese shoes and toys -- as well as those from Brazil.
For now, it doesn't appear as though the Brazil-China flap will affect the two nations' alliance in the so-called G-20 group of developing nations working together in World Trade Organization talks. That group, which also includes India and South Africa, is looking to force rich nations to open their agricultural markets.
"Brazil has a broader and more important game at the G-20 that does not involve China only," says Gilberto Dupas, foreign-policy specialist at the University of S? Paulo. "The G-20 goes beyond these perceived disappointments with China."
And taking a longer view, Brazil's trade relationship with China looks more favorable for the Latin nation. The eightfold increase in exports to China during the past five years has been of vital importance to Brazil as it stabilized its economy and emerged from a near meltdown in 2002. But now that Brazil's currency has enjoyed a huge rebound over the past two years, Brazilian industries are running into the same problems competing with the undervalued yuan that many developed countries are having.
The dispute has produced a rift within corporate Brazil. Huge commodities exporters such as mining giant Companhia Vale do Rio Doce are interested in keeping the best possible relations with China, while industries that are either harmed by a flood of cheap Chinese imports or have to compete against China in overseas markets have been pushing for a hard line.
