Sept. 18 (Bloomberg) -- Brazilian President Dilma Rousseff yesterday called off her state visit to Washington as allegations of U.S. espionage damage relations between the two biggest economies in the Americas.
Rousseff canceled the October meeting less than a day after President Barack Obama called her in an attempt to keep Brazil’s first state visit to the U.S. in almost two decades on track. Obama also held an unscheduled meeting with his Brazilian counterpart this month at the Group of 20 meeting in St. Petersburg as part of the U.S. effort to smooth relations.
The diplomatic setback is the latest fallout from revelations about U.S. interception of Internet and telephone traffic that was expanded after the Sept. 11 terrorist attacks. Rousseff said Sept. 6 she was outraged by allegations that the U.S. National Security Agency monitored her e-mail and telephone communications with top aides. The NSA also spied on state-controlled Petroleo Brasileiro SA, according to accusations presented by U.S. journalist Glenn Greenwald based on documents leaked by fugitive security analyst Edward Snowden.
“It’s a giant step back for U.S.-Brazil relations,” Carl Meacham, director of the Americas Program at the Center for Strategic and International Studies, a Washington policy center.
With no bilateral free-trade agreement or tax treaty, “a lot of what we were trying to do with this visit was build the necessary trust to do substantive things in the short term and the mid-term,” he said. “That’s now on hold.”
Taking a tough stance on U.S. surveillance activities may boost Rousseff’s popularity, which sank to a record low after more than 1 million people protested in June against government corruption, inflation and shortcomings in public services, said Rafael Cortez, a political analyst with consulting firm Tendencias.
“It’s a position that will work in her favor domestically,” Cortez said in a telephone interview from Sao Paulo. “It takes the focus off negative issues, such as a slow economy.”
Approval of Rousseff’s government fell to 30 percent on June 27-28 from a high of 65 percent in March, according to a survey by Datafolha published in the Folha de Sao Paulo newspaper. The government’s approval rating rose to 36 percent in an Aug. 7-9 Datafolha survey of 2,615 people that has a margin of error of two percentage points.
Rousseff’s decision marks the second head of state meeting with Obama that has been canceled because of documents leaked by Snowden.
The Russian government’s decision to grant temporary asylum to Snowden, along with several other points of friction, prompted Obama to cancel a scheduled one-on-one summit in Moscow with Russian President Vladimir Putin before the G-20 meetings. The two leaders eventually did sit for direct talks at the G-20 as the confrontation with Syria was heating up.
“It’s embarrassing for the U.S. and frustrating for Brazil but not all is lost,” Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson International Center in Washington, said in a phone interview. “They’ve made an effort to keep their options open -- the visit was postponed not canceled.”
Brazil’s trade deficit with the U.S. widened 161 percent in the first half of the year to $6 billion from a year earlier, compared with a surplus of $5.4 billion with China. Brazil also wants to attract U.S. investment for infrastructure and oil and gas projects.
Brazil has more to lose than the U.S. by canceling the trip, Gabrielle Trebat, a director at strategic advisory firm McLarty Associates in Washington, said.
“It throws a bucket of cold water on the bilateral trade relationship,” she said by phone before the announcement was made. “It jeopardizes numerous commercial interests, especially private sector investment in sensitive sectors that require good political cooperation.”
Opportunities that could stall include the opening of both countries’ beef markets, a bid by Chicago-based Boeing Co. to sell jet fighters, as well as technology cooperation, and nascent discussions to launch industry-specific trade negotiations, said Trebat, also a former executive director of the Brazil-U.S. Business Council.
Meacham said the impact may be felt by U.S. energy and technology companies.
“Will they be willing to buy American technology if they believe that the tech industry is in cahoots with the U.S. government?” he said. Companies in energy development may face similar suspicions, he said.
Rousseff is demanding a full explanation for allegations that the NSA monitored her communications. The lack of a clear commitment by the U.S. to stop intercepting phone calls and e-mails led to the cancellation of the October meeting, according to a statement e-mailed yesterday by the presidency.
Obama regrets concerns generated by the allegations and will work to improve relations with Brazil, White House press secretary Jay Carney said in a statement.
While calling off the trip, the first Brazil state visit to Washington since 1995, further sours bilateral ties, much of the damage had already been done by the surveillance allegations, said Luiz Augusto de Castro Neves, head of Cebri, a Rio de Janeiro-based foreign relations research institute.
“Without a doubt canceling the trip carries a cost,” Castro Neves said in a phone interview from Rio de Janeiro yesterday. “More assertive reassurances from the U.S. would have been in order.”
The alleged spying on Petrobras and Rousseff had nothing to do with anti-terrorist intelligence and required a more accommodating stance by Washington, said Castro Neves.
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