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Despite winning top world trade job, even Brazil looks beyond WTO

Brazil's President Dilma Rousseff gives a joint statement with her Argentine counterpart Cristina Fernandez de Kirchner (not pictured) at th
Brazil's President Dilma Rousseff gives a joint statement with her Argentine counterpart Cristina Fernandez de Kirchner (not pictured) at th

By Alonso Soto

BRASILIA (Reuters) - Brazil campaigned hard to get the top job at the World Trade Organization this week but behind closed doors even it acknowledges that the WTO's main mission - pushing forward in global trade talks - looks for the moment like a lost cause.

Instead, President Dilma Rousseff's government is moving, albeit cautiously, towards less ambitious bilateral and regional deals that may have a greater chance of success. Rousseff's hope is that more trade could shake Latin America's most insular major economy from a surprisingly deep recent slump.

Rousseff was thrilled that Brazilian diplomat Roberto Azevedo won an election on Tuesday to head the Geneva-based WTO, cheering the choice as a victory for developing nations in a trade club long dominated by the rich.

Azevedo's victory over a Mexican candidate, made possible by support from African nations with which Brazil has worked hard to cultivate ties during the past decade, was also hailed as another sign of Brazil's growing economic clout.

Yet officials in Brasilia who do the heavy lifting on trade matters say their focus remains elsewhere.

With WTO-led talks in limbo for years, several officials told Reuters they have been instructed to prioritize greater integration with the United States and the European Union.

"Brazil made a bet on the WTO years ago. Now we see that the WTO is unlikely to advance any time soon so we need to move toward other deals," said one official who, like the others, asked for anonymity. "We are waking up to the fact that we are losing market share to others. We need to act."

Those close to Rousseff say she is not a knee-jerk protectionist but has been reluctant to explore trade talks because of economic imbalances still lingering from the 2008-09 global crisis. She has complained that rich nations are waging a "currency war" to weaken their currencies through expansionary monetary policies, unfairly favoring their own exports.

As a result, Rousseff hiked duties on dozens of imported products from cars to glass and iron pipes last year, ruffling the feathers of many trading partners and closing Brazil even further. Trade accounts for just 25 percent of its economy, easily the lowest ratio in Latin America according to the International Monetary Fund, behind peers Venezuela (52 percent), Mexico (59 percent), and Chile (71 percent).

Brazil had long had a reputation more for torpedoing trade talks, rather than pushing them forward. Rousseff's predecessor, Luiz Inacio Lula da Silva, was instrumental in killing U.S.-led plans for an Americas-wide trade pact last decade, and he also helped stall the Doha round of trade talks by insisting that Washington and Brussels dismantle their agriculture subsidies.

Yet the persistent slump in the economy, which grew just 0.9 percent last year and is struggling again in 2013, appears to be nudging Rousseff toward greater integration, observers say. Although her Workers' Party holds deep leftist ideals, she has also shown a more pragmatic side than Lula by privatizing some airports and roads, for example, to boost growth.

"You finally have a government that knows that the country cannot remain isolated," said Vera Thorstensen, head of the Global Trade and Investment Center at the Getulio Vargas Foundation, a Brazilian think-tank.

Thorstensen, a former advisor to Brazil's mission at the WTO, said the country seeks to be more assertive in developing world trade policy instead of standing on the sidelines. "Brazil now wants to be a rule maker not rule taker."

SEVERAL RECENT SIGNS

Officially, Rousseff's government says it plans to advance on both multilateral WTO talks and more focused trade deals.

"Brazil continues to favor trade liberalization via multilateralism," the trade ministry's press office said in an emailed response to Reuters questions. "This effort has been combined with the commitment to deepen regional integration agreements with selected partners."

Still, the most encouraging tangible signs have clearly been on the bilateral front.

Several diplomats said they were surprised by a meeting of U.S. and Brazilian executives earlier this year, where senior Brazilian officials including Trade Minister Fernando Pimentel vowed to accelerate talks for bilateral investment and service deals with Washington.

What was largely thought to be an uneventful meeting in Brasilia turned into a "breath of fresh air" for trade between both countries, a diplomat said.

There are also signs that business leaders may be starting to slowly shift away from protectionism. For instance, officials said a recent government survey of business leaders showed wide support for accelerating talks with the European Union.

"We are living in a world where most countries are lowering tariffs, trading more and becoming more competitive. We, on the other hand, are losing competitiveness," said Carlos Abijaodi, director of industrial development of one of Brazil's largest business trade groups, CNI.

Part of that shift can be explained by recent developments. Despite a record soy crop, Brazil's trade balance has deteriorated so much this year that some fear the commodities powerhouse could post its first annual trade deficit in 13 years.

The sense of urgency has also been fueled by a series of regional trade pacts in the works between the United States, Europe and other countries in Asia and Latin America that could leave Brazil on the sidelines.

Yet there will be major obstacles to greater integration.

Local businesses and multinationals here struggle with high business costs that could make Brazilian goods uncompetitive if tariffs suddenly fell. Brazil has one of the most complex tax systems in the world, scarce and expensive labor and an infrastructure so dilapidated that trucks have sometimes to sit idle for days to load grain in congested ports.

Brazil's ability to negotiate trade deals is also restricted under the rules of the Mercosur, a regional trade bloc that also includes Argentina, Uruguay, Paraguay and Venezuela.

Mercosur rules forbid countries from unilaterally signing deals that involve the trade of goods. However, at a time of high tensions with its main Mercosur partner Argentina, Brazil is warming to the idea of bending the rules to allow each member to negotiate trade deals at its own pace, business and government officials say.

(Additional reporting by Brian Winter; editing by Kieran Murray and Jackie Frank)

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