May 7 (Bloomberg) -- Latin America’s two largest nations are vying for economic and diplomatic clout as their candidates face off as finalists to head the World Trade Organization.
The WTO is scheduled to name by May 8 the first director-general from Latin America in its 18-year history. It will choose between Roberto Azevedo, Brazil’s representative to the Geneva-based group, and Herminio Blanco, a former Mexico trade minister who led the nation’s negotiations for the North American Free Trade Agreement with the U.S. and Canada. The winner will replace the outgoing WTO chief, France’s Pascal Lamy, in September.
The race is a contest for diplomatic prowess as Mexico draws on its faster growth and more open economy to fortify its candidate, said Michael Shifter, president of Inter-American Dialogue in Washington. Analysts polled by Bloomberg forecast Mexico will outgrow its southern peer for the third straight year in 2013, reversing a trend that allowed Brazil to pull ahead as the region’s largest market in 2005.
“There’s rivalry and competition there,” Shifter said by telephone from Washington. “Mexico is feeling very confident. As they seek to gain more international clout, Brazil is on their mind.”
The two have opposed each other before as emerging markets push for more say in global forums. Mexico has balked at Brazil’s ambition to represent Latin America through a permanent seat on the United Nations Security Council, while Brazil in 2011 endorsed France’s Christine Lagarde over Mexican candidate Agustin Carstens to run the International Monetary Fund.
Blanco, 62, said by phone on May 3 from Brussels that his appointment would be a recognition of Mexico’s increased clout in the world.
Most European Union nations will support Blanco, Bloomberg BNA reported yesterday, citing officials following the process. Two rounds of voting during EU meetings in Brussels this week yielded the same result: 15 member states preferring Blanco and 12 the Brazilian candidate, according to the officials.
Azevedo, in a telephone interview from Geneva on May 4, said his long experience in WTO talks would make him “immediately operational” in helping the group’s members pursue trade liberalization. “I think I am trusted by members at all sides of the negotiating table,” said the 55-year-old diplomat.
China in March gave its support to Azevedo during a meeting in South Africa between Brazilian President Dilma Rousseff and her Chinese counterpart Xi Jinping.
Blanco’s selection would give Mexico leadership at two of the world’s biggest economic groups. Angel Gurria, the nation’s former finance minister, became head of the Paris-based Organization for Economic Cooperation and Development in 2006.
Clinching the WTO job would represent not only world recognition of regional leadership but also a choice between opposing economic models, said Christopher Garman, Latin America director at New York-based consulting firm Eurasia Group, in a telephone interview from Washington.
While Mexico has cut import duties by joining Nafta and the Pacific Alliance with Chile, Colombia and Peru, Brazil last year boosted tariffs on 100 goods to protect its manufacturers. Brazil is a member of Mercosur, a trade zone that includes Argentina, Paraguay, Uruguay and Venezuela and has closed only minor deals elsewhere, said Tony Volpon, head of research for the Americas at Nomura Holdings Inc., in a telephone interview from New York.
The average tariff applied by Brazil to countries with most-favored-nation status was 13.7 percent in 2011, compared with 8.3 percent for Mexico, according to a report published last year by the WTO.
The U.S. has criticized Brazilian tariff increases, saying they would “significantly hit” exports to the South American nation.
Finance Minister Guido Mantega rejected the criticism as absurd, saying “the U.S. has adopted many more protectionist measures than Brazil.”
Multiplying trade barriers have accompanied slower economic expansion in Brazil, where growth eased to 0.9 percent last year from 2.7 percent in 2011. Mexico’s economy expanded more than four times faster last year, by 3.9 percent, and will outpace Brazil in 2013 by 3.5 percent to 3.1 percent, according to analysts surveyed by Bloomberg.
Equity markets tracked the reversing economic fortunes. Mexico’s IPC stock exchange index gained 43 percent in dollar terms in the past three years, while Brazil’s Ibovespa index dropped 20 percent.
Brazil, whose gross domestic product totaled $2.5 trillion last year, compared with Mexico’s $1.2 trillion, runs the risk of losing its spot as Latin America’s largest economy by 2022 if its growth continues to lag that of its rival, said Nomura’s Volpon.
From 2005 to 2010, Brazil grew at more than double Mexico’s pace, spurred by spending from a growing middle class. Now the stimulus once provided by consumer spending is under threat as faster inflation reduces purchasing power. Over the three years through March, Brazil’s inflation rate rose 1.4 percentage point to 6.59 percent, while Mexico’s dropped 72 basis points to 4.25 percent.
Traders in the credit-default swaps market also have reversed their bets on the two countries, as the cost of insuring Brazil’s sovereign bonds has overtaken the price of insuring Mexico’s since 2010. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.
Insuring Brazilian debt against default for five years in the swaps market now costs 30 basis points more than insuring Mexican bonds. At the close of 2010, it cost two basis points less to insure Brazil sovereigns.
Governments from both countries have lobbied for their candidates. Rousseff promoted Azevedo in her meetings with African presidents during a tour in February, and her Mexican counterpart, Enrique Pena Nieto, in January touted Blanco during a summit with European and Latin American leaders in Santiago. Azevedo can help the WTO relaunch multilateral trade negotiations, one of its founding principals, Brazil’s Foreign Ministry said in an e-mailed statement.
The decision will be made by the WTO’s General Council based on consultations with the group’s 159 members.
Both candidates said they would promote a global rather than Mexican or Brazilian agenda.
A key challenge facing the new WTO head will be deciding the future of the Doha Round of talks that have been pending for more than a decade. While discussions initially snagged over farm subsidies in rich nations, the U.S. and the EU have in recent years demanded that India, China and Brazil reduce tariffs on manufactured products.
Bond markets probably will have a muted reaction to the WTO decision and may react slightly more favorably to Blanco given Mexico’s commitment to free trade, Enrique Alvarez, head of Latin America for fixed income research company IDEAglobal, said by phone from New York.
While having finalists from Latin America says much about the region’s advances over the past decade, cooperation between Brazil and Mexico could multiply such gains, Shifter said. “If they ever got together and had a free-trade agreement, that could be very powerful,” he said.
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