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The handle http://hdl.handle.net/1887/45261 holds various files of this Leiden University dissertation.

Author: Marcuzzo do Canto Cavalheiro, C. Title: Assessing the Brazilian-Chilean bilateral relations: public diplomacy, nation branding and presidential diplomacy Issue Date: 2017-01-18

Chapter 3 Brazil-Chile Bilateral Relations since the 1990s

This chapter explores the ways Brazil and Chile take their relationship beyond traditional diplomatic links. Both countries have indeed developed significant links in terms of political, scientific, energy, multilateral and decentralised cooperation. Brazilian and Chilean links have also been gradually adjusted to strengthen ties with non-official groups, such as public-private partnerships, in which the private sector assumes a key role in bilateral relations. Beyond the democratic regimes of Brazil and Chile in the 1990s, other aspects have also helped strengthen bilateral links. Brazilian President Cardoso (1995-2002) had a longstanding friendship with Chilean President Ricardo Lagos (2000-2006) and this was an important element that strengthened bilateral cooperation. Moreover, in the governments of President Lula (2003-2007) and President Bachelet (2006-2010), important pragmatic policies were set out in terms of trade cooperation and infrastructure projects between Brazil and Chile, such as the Brazil-Chile- Bolivia bioceanic corridor. Since the 1990s, Brazilian-Chilean links have not been restricted to traditional diplomacy and public diplomacy has also been carried out by decentralised actors, such as NGOs, civil society and the private sector, who all play a key role in bilateral affairs.

3.1. Linking the ABC Pact with Brazil-Chile Ties from the 1990s Onwards

The origin of previous cooperation initiatives between Brazil and Chile goes back to 1904 and the Friendly Intelligence Policy Treaty - the well-known ABC Pact - in which Brazil sought to foster cooperation between the three main Southern Cone countries of Brazil, Argentina and Chile. However, as a Brazilian foreign policy initiative, the ABC Pact was not supported by the opposition and the latter’s opinion on the subject was reported in the media. Creating a more appreciative diplomatic environment was connected to counterbalancing the United States’ power in the region (Almeida, 1998: 51). The ABC Pact served to maintain peace in South America by

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developing a relationship of trust between the three actors. Strengthening southern ties provided an effective context in which to agree on a common policy of resistance against the United States. The strategy of Brazil’s foreign policy was that a good relationship with Chile should be maintained to guarantee the geopolitical balance of power within the region (Gardini, 2010: 20). Moreover, the Brazil-Chile partnership was important as a diplomatic mechanism to contain neighbouring Argentina. Brazil-Chile’s stable friendship was demonstrated in the episode when, the rights to exploit mining territories of a company from the United States, Alsop & Co., were transferred from Bolivia to Chile because of the War of the Pacific (1880-1883). The United States sent an ultimatum to force Chile to pay an indemnity of one million dollars in ten days, given that the latter did not recognise the company’s mining rights. The Brazilian Minister of International Relations, Rio Branco, decided to defend the allied country and Brazil even threatened to break diplomatic ties with the United States. To settle the dispute, Chile proposed that Brazil act as arbitrator, but that idea was rejected by the United States. As a result of Brazil’s diplomacy, the United States withdrew their ultimatum and the topic was submitted to the international arbitration of the King of England, Edward VII.1 Thus, the Alsop episode served to strengthen Brazil-Chile links. Although the ABC Pact was not ratified, it became a key element in the analysis of Brazil-Chile links since it encouraged a closer friendship between the two countries. The importance of the ABC Pact was twofold: it contributed to the geopolitical balance among the three main actors of the Southern Cone and provided a strategic perception of Chile as a reliable ally for Brazil in the region. The ABC Pact also had strong support from Argentina and Perón argued in his articles the need to strengthen Brazil- Argentina ties through the pact (Cavlak, 2008: 171). Since the pact played a fundamental role in Brazil-Chile ties and showed that their relationship was characterised by mutual trust, it is mentioned in the second and third chapters. Understanding the pact allows us to connect the countries’ historical backgrounds to the current Brazil-Chile relationship. The issue of a partnership with Chile was a long-standing concern of

1 See Adelar, Heinsfeld. “As relações Brasil-Chile: o pacto ABC de 1915”. ANPUH, Simpósio Nacional de História – Fortaleza, 2009. pp. 6-8. http://anpuh.org/anais/wp- content/uploads/mp/pdf/ANPUH.S25.1436.pdf. Accessed on 12 April 2013.

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Brazil’s foreign policy targets. Although Brazil’s ambition of a leadership role in South America has gone through a number of phases and at certain times in history seems to be more related to rhetoric rather than substance, the components of fostering regional ties have played an important role since the emergence of its very first foreign policy aims (Bonis, 2008: 12). The ABC idea contributed to maintaining Brazil’s long-term interest in Chile. Concordantly, it created the perception of Chile as an important ally and part of Brazil’s long-term broad geopolitical strategy. Therefore, the role of Chile within Brazil’s geopolitical plans should not be underestimated, given that the former was part of later traditional diplomacy goals. Since the nineteenth century Brazil and Chile have built up a good long- term relationship, with the official Chilean diplomatic presence in Rio de Janeiro illustrating this point. As the current Chilean Ambassador in Brazil, Jaime Gazmuri, argued, “Brazil and Chile share stable diplomacy, they have developed a trusting relationship since the nineteenth century and they have lived through military periods cooperation in ‘Operation Condor’.2 The democratic-period strengthened bilateral links, given that both states shared similar values and exerted an active role in Latin America through initiatives such as the Community of Latin America and Caribbean States (CELAC) and the Union of South America Nations (UNASUR)”.3 Their historical background has strengthened their partnership in the long-run and their stable bilateral relationship has increased their multilateral political ambitions. Therefore, the ABC theory has borne fruit by shaping geopolitical strategy and situating Chile as a significant actor in the regional sphere. Regardless of prior initiatives, Brazil-Chile bilateral relations have long been determined by the absence of strong links, limiting the scope of possibly stronger ties. At the same time it has been argued that the lack of conflicts encouraged further steps forward to improve the bilateral relationship. A spirit of mutual understanding and respect has permeated the relationship between both countries in the long-run. The mutual perception

2 Finished by the early 1980s, Operation Condor involved the cooperation of the intelligence services of Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay. Rocío Montes (2015), “O horror da Operação Condor”, El País, 11th September. http:// brasil.elpais.com/brasil/2015/09/10/internacional/ 1441836066_190161.html. 3 Interview with the Chilean Ambassador, Jaime Gazmuri, on 12 September 2015.

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that each is a reliable partner has laid a firm foundation for developing further cooperation within the democratic period. In this sense, the period from the 1990s onwards has been described as being at the heart of increased cooperation efforts between Brazil and Chile.

3.1.1 The Brazil-Chile decentralised approach

This study considers that a profound transformation of both countries’ military regimes on the road to democracy in the 1990s was a key component of Brazil-Chile bilateral ties. The new democratic order facilitated the development of closer relations between the two countries. Furthermore, the combination of democratic restoration in the 1990s and the strength of formal and informal integration mechanisms laid the groundwork for more cooperational initiatives between Brazil and Chile. In other words, promoting official and non-official actors within the international arena paved the way for understanding Brazil-Chile ties from a public diplomacy perspective. The difficulties of the Brazil-Chile relationship mean that there are no formal specific links between the two states. This means that Brazil’s approach to Chile has been dissolved in the context of Brazilian continental policy. Despite its abstract character, Brazil-Chile interaction is pragmatic and this is an essential component of their bilateral ties. Due to the absence of strict formal links, it is difficult to make a distinction vis-à-vis Brazilian foreign policy towards that of South America as a whole.4 In this sense, dynamic new forums of dialogue like UNASUR, CELAC and the Rio Group played a crucial role in building a new structure for regional and possible bilateral relations. They represented the possibility of constant dialogue and participation, in which strengthening and widening links on an increasing number of issues demanded further cooperation

4 The difficulties of the Brazil-Chile relationship mean that there are no formal specific links between the two states. This means that Brazil’s approach to Chile has been dissolved in the context of Brazilian continental policy. Due to the absence of strict formal links, it is difficult to make a distinction vis-à-vis Brazilian foreign policy towards South America as a whole. Ángel Soto; Rogelio Núñez and Cristián Garay. Las relaciones chileno-brasileñas: de la amistad sin límites al pragmatism del gigante (1945-1964). Santiago: RIL Editores, 2012, pp. 18-19.

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efforts (Knight, 2014: 23). In this way, regular presidential summits have also played an important role in creating constant and distinguished cycles of regional participation.5 The convenience of frequent summits has represented the most significant step forward in strengthening Brazil-Chile bilateral relations, since they gave rise to the meetings needed to strengthen cooperation links. However, the difference between Brazil and Chile’s foreign policy strategies must be stressed, since Chile’s foreign policy has clearly been oriented towards the outward-market. Chile’s decision to adopt ‘neutral’ policies without having a strong political influence in foreign policy was illustrated by the negotiation of bilateral agreements worldwide. While Chilean foreign policy focuses on trade, public diplomacy favours the analysis of Brazil-Chile ties, given the importance of non-state actors in bilateral relations. Chile’s focused policy was the result of a coordinated trade reform and the elimination of trade barriers. Chile’s rapid negotiation of trade agreements worldwide can, at some point, be explained by its professional government bureaucracy. However, the existence of a business association with trade expertise played a core role in Chile’s foreign policy strategy (Bull, 2008: 195-196). Working with this is the core element to explaining the differences between how Brazil and Chile carry out their foreign policies. Obviously, the nature of Chile’s policy has a direct correlation with the obstacles it faces to regional insertion. In other words, Chile would not give up the openness of its regional project, even if this threatened the regional integration programme. From the point of view of Brazilian foreign policy, the protectionist economic model highlights a different approach to that of its Chilean counterpart. The logic behind Brazil’s policy is to protect domestic industry. However, the different nature of their economic models does not mean that mutual trade and investment links between both states are reduced (Baer, 2001: 3-4). Instead of bilateral trade decreasing, Brazil-Chile commercial activities are in a state of flux, which is a sign of their complementary economies. High-level bilateral trade dialogue demonstrates what some

5Presidential diplomacy occupies an important role in a democratic context. Brazilian President Cardoso’s support of the anti-democratic regime of Peruvian President Alberto Fujimori garnered criticism in Brazil. BBC Brazil (2000), “Vargas Llosa diz que Brasil é cúmplice da ditadura peruana”, 25th October. http://www.bbc.com/portuguese/ noticias/ 2000/001025_vargasllosa.shtml.

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specialists argue as a conflict-free relationship. Increasing trade brings with it the advantage of intensifying cooperation in the business sector, either directly or indirectly to the extent that some people use the term ‘business diplomacy’.

Chile’s Exports to Brazil (Millions of US$) Exports 2011 2011 2012 2012 2012 2012 2012 Destination Fourth (Total) First Second Third Fourth (Total) Quarter Quarter Quarter Quarter Quarter Brazil 1,083,2 4,489,6 976,2 1,206,6 935,1 1,188,0 4,305,9 Source: Central Bank of Chile. Foreign Trade Indicators. http://www.bcentral.cl/index.asp.

Brazil’s Exports to Chile (Millions of US$) Exports 2011 2011 2012 2012 2012 2012 2012 Destination First (Total) First Second Third Fourth (Total) Quarter Quarter Quarter Quarter Quarter Chile 1,548,0 6,225,2 1,296,9 1,185,6 1,228,1 1,479,0 5,189,7 Source: Central Bank of Chile. Foreign Trade Indicators. http://www.bcentral.cl/index.asp.

The Most Important Destinations of Chile’s Exports (Millions of US$) Countries 2011 2011 2012 2012 2012 2012 2012 First (Total) First Second Third Fourth (Total) Quarter Quarter Quarter Quarter Quarter China 5,501,5 18,600,9 4,259,5 4,142,2 4,299,3 6,120,9 18,821,8 United 1,941,8 9,047,0 2,632,8 2,365,3 1,877,3 2,660,4 9,535,9 States Japan 2,540,8 9,009,4 2,218,8 2,241,1 1,836,5 2,059,2 8,355,6 South 1,124,0 4,448,4 1,235,7 1,167,8 1,051,8 1,091,5 4,546,8 Korea Brazil 1,083,2 4,489,6 976,2 1,206,6 935,1 1,188,0 4,305,9 Source: Central Bank of Chile. Foreign Trade Indicators. http://www.bcentral.cl/index.asp.

In general terms, Brazil is the fourth-ranking destination of Chilean exports, which situates it as one of Chile’s main markets. It should be observed that no country deserves to have political problems with strong trading partners.

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Trading links exert an influence by spreading the relationship into other areas. It should be remembered how difficult it is to establish definitive boundaries between the political and economic aspects of bilateral relations. The adoption of public diplomacy, paradiplomacy, nation branding and presidential diplomacy serve to show the tenuous dividing line between Brazil-Chile ties, sustaining the idea that ignoring their bilateral links leads to misconceptions in the Brazil-Chile approach.

Chile’s Imports by Main Countries of Origin (Millions of US$) Countries 2011 2011 2012 2012 2012 2012 2012 First (Total) First Second Third Fourth (Total) Quarter Quarter Quarter Quarter Quarter United 4,034,6 15,092,3 4,095,1 4,462,0 4,532,3 4,796,2 17,885,6 States China 3,346,7 12,696,0 3,103,6 3,511,0 3,953,7 3,875,5 14,443,8 Argentina 1,312,5 4,750,3 1,263,3 1,227,1 1,307,3 1,493,4 5,291,0 Brazil 1,5048,0 6,225,2 1,296,9 1,185,6 1,228,1 1,479,0 5,189,7 Source: Central Bank of Chile. Foreign Trade Indicators. Selected and sorted by amount imported over $ 30 million in 2012. Source: Statements of Income. http://www.bcentral.cl/ index.asp.

The restoration of democracy in 1990 began a new period in the history of Chile’s international insertion. After 17 years of international isolation, Chile started its reintegration into the world economy. The reestablishment of the democratic regime was accompanied by talks with the members of the ALADI in an attempt to strengthen the integration process.6 From Chile’s perspective, the possibility of developing some kind of broader integration did not go any further, therefore the country focused on building bilateral agreements with ALADI members separately. With regard to Brazil, there

6 The Latin America Integration Association is the largest Latin American integration group. It contains 13 member countries: Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Panama, Paraguay, Uruguay, Peru and Venezuela. The ALADI encourages the creation of an area of economic preferences in the region, with the ultimate goal of achieving a Latin American common market. Asociación Latinoamericana de Integración. Acerca de ALADI ¿Quiénes somos? http://www.aladi.org/nsfaladi/ arquitec. nsf/ VSITIOWEB/quienes_somos.

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were several instances of dialogue, such as the Bilateral Trade Commission, the Consultative Committee on Agriculture and the Executive Work Group on Trade Promotion of the Programme for the Competitive Substitution of Imports.7 The rapidly growing bilateral trade relationship should also be analysed in order to consider its impact on other areas of Brazil-Chile relations. The trade relationship between the two countries is broad, significant and has seen unprecedented growth in trade and foreign direct investment (FDI), which means commerce is an important way of understanding their bilateral affairs.8 From 1974 until the beginning of President Aylwin’s administration the aperture of Chile’s economy involved a unilateral liberalisation policy (Foxley, 2005: 133-134). In fact, multilateral commitment to economic liberalisation began through the GATT and at that time bilateral negotiations had very little weight.9 During the Concertación administration, unilateral and multilateral policies were maintained through a specific policy of bilateral trade negotiations. Since 1991, signing economic bilateral agreements has reinforced trade strategy and what occurred in the 1990s was twofold: recovering the growth of Latin America countries after the lost decade of the 1980s and generalised structural reforms in the region’s economies that favoured an opening towards trade liberalisation. These policies were implemented during a period of economic recession, in which protectionist policies were implemented in the region with negative effects on Chile.10 As observed in the second chapter on historical backgrounds, the history of their relationship is linked to the way both countries strongly complement

7 Embajada de Chile en Brasil. “Bilateral Relations”. http://chileabroad.gov.cl/brasil/ en/relacion-bilateral/comercio-relaciones-bilaterales/. 8 As long as international economic relations are relevant in diplomatic sphere of influence, so-called ‘economic diplomacy’ plays a significant role in the Brazil-Chile relationship. More information about economic diplomacy in Peter A. G. van Bergeijk (2009), Economic diplomacy and the geography of international trade. Cheltenham: Edward Elgar Publishing. 9 After seven and a half years of protracted negotiations, the Uruguay Round of GATT was finally completed in April 1994 with 111 of the 125 participating states signing the final document. See Peter Malanczuk (1997), Modern introduction to international law. New York: Routledge, p. 231. 10 Dirección General de Relaciones Económicas Internacionales, Direcon, Ministerio de Relaciones Exteriores de Chile. “Chile 20 años de negociaciones comerciales”. Santiago: B&B Impresores, 2009, p. 73.

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each other in commerce. Increasing trade has provided the opportunity to strengthen ties on major political, diplomatic and economic issues. This extensive network has also influenced para-diplomatic ties for instance. However, from Brazil’s perspective para-diplomatic policies are fundamentally connected to central foreign policy, as will be studied in the following sections. The absence of political conflicts and existing similar political values serve to measure the possibility of strengthening bilateral relations. Given that the two countries had not gone into serious political issues and shared similar positions in the multilateral field, their bilateral approach allowed the development of further multi-faceted links (Brands, 2010: 3-4). The special relationship between Brazil and Chile goes hand-in- hand with the fact that public diplomacy’s perspective is not state-centric. The important role played by nation branding in Chile’s foreign policy strategy helps explain the nature of the Brazil-Chile approach.

3.1.2 Brazil’s international insertion vis-à-vis Chile

The Brazil-Chile relationship should go well beyond mere trade issues, since the current regional scenario has profoundly modified in the way in which Brazil becomes the new emerging global power. Brazil’s deeper integration into the global economy has produced important changes regarding Chile’s perception of this huge South American country and has demanded the reformulation of Chilean foreign policy vis-à-vis Brazil’s current geopolitical position. Some authors believe that Brazil will be one of greatest global powers by the year 2030, given that it is the world’s fifth largest country and seventh largest economy (Reid, 2014: 110-111). There is room for strengthening bilateral links by understanding the mutual benefits generated by stronger long-term partnership. For obvious reasons, the fact that Brazil has become an object of fascination among diverse actors, such as academics, economists, policymakers and business groups encourages the need to recreate the Brazil-Chile approach. The new context has led to certain aspects of Chilean and Brazilian foreign policies converging as far as the region is concerned with both states having gained a respected visibility worldwide. The highs and lows of South America’s complex issues have not allowed for a regional bloc to be

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continually projected, given the idea that strengthening a common position with other Southern American countries would have high costs to the detriment of domestic and international aims. Now that everything points to luck being on Brazil’s side and the country has achieved a major say in global affairs, the elites’ perception of regional gains has decrease. According to the neo-functionalism theory, regional integration is a product of many and varied forces, as will be observed (Mattli, 1999: 3). However, Brazil’s public debt and the need for long-term economic reform requires solid political measures.11 The disappointing results of the Brazilian economy during President Dilma Rousseff’s first term (2011-2014) shifted the diplomatic focus towards a more active foreign policy in her second term.12 Defining all its borders as part of the BRICS, IBSA and G20 and its position - as an energy power with pre-salt discoveries and as a sugar-cane ethanol exporter - has demonstrated the political and economic consequences of Brazil’s international insertion.13 The increasing prices of

11 Brianna Lee (2015), “Brazil economic crisis: Rousseff impeachment talks grows, but potential presidential replacements garner little enthusiasm”, International Business Times, 8th November 2015. http://www.ibtimes.com/brazil-economic-crisis-rousseff-impeach ment-talk-grows-potential-presidential-2104323. 12 The Economist, “Brazilian waxing and waning”, 30 October 2015. http://www. economist.com/ blogs/graphicdetail/2015/10/economic-backgrounder. 13 G20 is the bloc of twenty developing nations that was created at the fifth ministerial WTO conference, held in Cancún, Mexico. As some sources show, the origins of this coalition can be traced back to the Brazilian Declaration signed between Brazil, India and South Africa in June 2003. Others argue that the coalition emerged as an immediate response to the EU-United States text on agriculture despite the fact that cooperation among some of the G20 has precedents in both trade and other issues. Amrita Narlikar and Diana Tussie. “The G20 at the Cancún Ministerial: Developing countries and their evolving coalitions in the WTO”, p. 5. http://www.flacso.org.ar/rrii/publicaciones/g20-developing- wto.pdf. The creation of BRICS in 2011 by Goldman Sachs’ Jim O’Neill, became a symbol of the perceived rise of emerging nations and their increasing economic power. In contrast the BRIC (latter BRICS), the so-called BIITS (Brazil, India, Indonesia, Turkey and South Africa) showed that investors’ concerns about emerging markets defined BIITS as the most vulnerable emerging markets. In Brazil, the solvency problems of former billionaire Eike Batista and his various businesses resulted in large losses for lenders as well as for the state-owned Brazilian Development Bank. Brazil’s 2014 Football World Cup and the 2016 Olympic Games, have absorbed resources at the expense of essential infrastructure. However, policy makers do not want to believe that an emerging market crisis is possible. Also see also Satyajit Das. “The return of the emerging market crisis”. Economonitor. 25th September 2013. See Shobhana Chandra. “BIITS replacing BRICS as emerging markets not a blanket by”. Blomberg. 21 October 2013.

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agricultural commodities show that the world market has not reached a desirable equilibrium between agricultural raw materials for food, feed and fuel. There is no correlation between the world shortage of agricultural commodities and structural shortages of food. On the contrary, self- sufficiency has become a necessary condition for guaranteeing the food security. As Nassar points out, “We will see in the next few years countries with an availability of natural resources (like land and water), competitive agricultural sectors, and non-users of discriminatory policies against agriculture (the use of export taxes) responding higher prices by increasing production. Brazil fits into this group” (Nassar, 2009: 55). In this scenario, it can be argued that Brazil and Chile are in privileged positions within the world commodity debate - Brazil as an agricultural energy power and Chile as a mining power – meaning that both countries can take advantage of the current change in the world’s commodity prices. Another important multilateral initiatives also occurred with the meeting of the so-called G8+5, when Brazil, India, China, Mexico and South Africa participated as guests at a meeting of the most influential international club on the economy.14 Their participation was hoped to consolidate a stronger and well-represented group that would encourage trade talks at Doha and focus on the need for better cooperation on climate change. Despite there being little evidence of significant results, Brazil is a permanent participant of another international club, the other G20, the Group of 20 Finance Ministers and Central Bank Governors.15 Brazil has played an active role in G20 summits through the participation of its Labour and Finance Ministers. Brazilian foreign policy places G20 as

14 Membership of the G8 is made up of the main industrialised countries. It is not an international organisation, nor does it have and administrative staff with a permanent secretariat; rather it is a process that culminates in an annual summit at which the heads of state and government of the member countries hold talks with a view to finding solutions to main world issues, which are summed up in the Final Statement. http://www. g8italia2009.it/G8/Home/Approfondimenti/G8-G8_Layout_locale-1199882116809_Come FunzionaG8.htm. Over the years the G7/G8 duty presidencies have begun inviting a number of emerging countries to specific sessions of talks on an ad hoc basis. http://www.g8italia2009.it/G8/Home/Summit/Partecipanti/G8-G8_Layout_locale-119988 211 6809_PaesiG5.htm 15 The G20 was created as a response to both the financial crises of the late 1990s and a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance. About G20, Origins,http://www. g20.org/about_what_is_g20.aspx

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the foremost international forum for discussing world economic matters.16 Among other issues, an exchange of information about lowering dependence on fossil fuels has taken place at various seminars during G20 meetings. The initiative to lower the use of fossil fuels in Brazil’s energy matrix has gained special attention in the last few years, as seen in the chapter on energy.17 Thus, Brazil encourages adopting policies that increase the use of alternative energy sources and currently face difficulties because of strong dependence on non-renewable energy sources. Given that the energy sector is one of the most politicised in the Brazilian economy, the perfect scenario is created to help understand how other sectors permeate foreign policy. Brazil’s ethanol brand certainly has a significant influence worldwide, to the extent that Brazil-Chile relations cannot be considered without Brazil’s international insertion. Rebranding Brazil’s projection promotes Chile’s growing interest in strengthening dialogue with this new emerging international power. For obvious reasons, Brazil’s new international position has altered Chile’s perception of the importance of establishing closer bilateral ties and changes to the Brazil- Chile international position greatly influence their bilateral approach.

3.1.3 Brazil-Chile dialogue within the multilateral perspective

The 1990s led to fundamental changes on a global scale, which cannot be underestimated given the end of the Cold War and the introduction of new technologies. The connection of computers worldwide and the emergence of the internet brought new actors onto the international scene. As previously analysed, the technological revolution encouraged companies to invest in other states, creating new instruments for international relations. The

16 Globalism poses a severe challenge to the nation state, most dramatically expressed in the global financial crisis of 2008-2009, in which the questionable lending practices of a number of United States’ banks ended up enveloping much of the world global economy and triggering the greatest financial crisis in eighty years. It was this very crisis that led to the creation of the G20 at a leaders’ level - the ‘steering committee of the world economy’ - as it became apparent that only collective action could deal with fall out from the crisis, and attempt to prevent the eruption of new ones”. Jorge Heine, “From club to network diplomacy”, in Cooper, Andrew F.; Heine, Jorge and Thakur Ramesh. The Oxford Handbook of Modern Diplomacy. Oxford: Oxford University Press. 17 Ministry of Foreign Affairs, “Financial-G20”, http://www.itamaraty.gov.br/ temas/ governanca-global/g-20-financeiro

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emerging context shows that politics is not the only way to achieve power within the international arena, since it gives way to other mechanisms for profits, as well as the growing role of non-officials in foreign affairs. Distance is now irrelevant to communications because of the internet and the change in telephone tariffs. At the same time, new forces such as globalisation and international migration have changed people’s perception of distance (Cairncross, 2001: 11-12). The rapid effects of increasing connectivity have led to the rapid strengthening of interstate relations and demanding new forms of international approach. The 1990s can be portrayed as the decade of the legitimate route taken to the creation of globalisation patterns – in other words - the international effort to discuss global issues on a wider scale. Globalisation brings together different sectors that interact, making things faster, cheaper and better than ever before requiring constant cooperation between sectors that used to be isolated from each other.18 The conferences that took place at the United Nations from the 1990s onwards on diverse matters illustrate this point (Fonseca, 2006: 128). Multilateralism exerts an overwhelming influence on the Brazil-Chile approach since the two countries have similar standpoints regarding international values. As Lazarou argues, beyond official state actors, NGOs and regional and civil society organisations demanded participation in international relations (Lazarou, 2014: 14). In this contemporary environment the foreign policy of the two countries was formed. In that context, it is important to stress that President Lagos accepted an invitation from President Lula to join him in his announcement of the Initiative to Fight World Hunger on January 2004 in Geneva. Fonseca highlights the strength of their common positions in a multilateral context, in which President Chirac and the Secretary-General of the UN Kofi Annan, also participated, contributing to the creation of horizontal links between

18 “Both law and economics largely ignored the norms until the 1990s, with norms remaining the exclusive province of the social sciences. Norms include patterns of behaviour, impulses, and spontaneous ordering initially enforceable by non-legal sanctions (they cannot initially be adjudicated and are passed by private parties)”. Juliet Kostritsky. “The law and economics of norms”. Texas International Law Journal, vol. 48, Summer 2013. Number 3. Texas: The Universiy of Texas School of Law, p. 467. Additional information in Caroline Bouchard and John Peterson (2014), “Conceituando o multilateralismo”, in Elena Lazarou (Ed.), Multilateralismo nas relações internacionais. Rio de Janeiro: Elsevier, pp. 1-29.

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both countries (Fonseca, 2006: 130). The fact that both countries supported the nomination of Farouk Hosny, the Minister of Culture of Egypt as General Director of UNESCO in October 2009 shows how they maintained the defence of their common positions.19 Furthermore, it means that their relationship was not restricted to trade issues, due to the way this initiative cemented relations in the multilateral arena. In this study of bilateral relations between Chile and Brazil, it can be demonstrated that the two states share certain features, reinforcing their closer relations and indicating changes to regional geopolitics. Among other things, Diamint indicates that “the addition of social concerns to issues of political stability and governance enlarges the security agenda, transforming social matters into state security matters” (Diamint, 2004: 48). In this context, the armed forces, who considered citizens their enemies for many years, are nowadays more inclined to protect people and even promote peacekeeping operations outside their countries. Another way to state the same point is by saying that the Chilean and Brazilian military played the role of democracy exporters within a multilateral context. It is interesting that, in order to carry out a peacekeeping mission, the military needs to act in the same terrain as NGOs, health workers, observers from multilateral organisations and soldiers.20 The new tasks undertaken by the armed forces require they adopt a more cooperative attitude to offer humanitarian assistance, health care and the demobilisation of combatants (Diamint, 2004: 48-49). In this way, security can be considered an important field of cooperation between Chile and Brazil, with the cooperation of both countries in Haiti illustrating this point (Fonseca, 2006: 131). Since 2004, both countries have looked for solutions to the Haitian crisis, with its roots in the failure of the Haitian state together. As Hirst states, the active participation of Chile and Brazil helped create a new structure for hemispheric cooperation initiatives, regarding the new paradigm of

19 Folha de São Paulo, Saturday, 30th May 2009, caderno Brasil, “Egípcio divide países, e 9 vão disputar Unesco”. 20 Since its foundation, the UN has undertaken 53 peacekeeping missions. Given that not every fight involving armed groups is a civil war, various qualitative measures are necessary to help distinguish mere conflict from war. Moreover, different types of civil war require different solutions. “How to stop the fighting, sometimes”, The Economist, 9th November 2013, pp. 26-29. See Ricardo Seitenfus (2013), Relações internacionais. Barueri: Manole.

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multilateral action in local situations of institutional collapse (Hirst, 2008: 53-54). Thus, it is impossible to confine Brazilian-Chilean bilateral relations to traditional diplomacy, reducing them to the domain of interstate relations like Chile-Argentina cooperation through United Nations peacekeeping missions worldwide, which led to stronger links among the military sector illustrated by the creation of the Permanent Chile-Argentina Security Committee (COMPERSEG).21 Bilateral cooperation within the United Nations’ peacekeeping missions created a new form of dialogue between Brazil and Chile.22 Thus, a social perspective was also introduced in this new context regarding military missions, which have a strong civil component and involve many different military and civilian agencies logistically and in communications and medical support (Diamint, 2004: 45). Indeed, when Brazil performs well in these military missions, it gains legitimacy before other countries in the international arena.23 As already stated in this chapter, new topics are currently emerging in the international agenda such as environmental degradation, organised crime, migration, human rights, and energy issues. Therefore, traditional diplomacy alone cannot deal with the current domain of foreign affairs, taking concepts such as public diplomacy, nation branding, presidential diplomacy and paradiplomacy as prerequisite for the study of bilateral relations between Chile and Brazil. Briefly, it is possible to generalise by saying that, in broad terms, this set of concepts is an increasingly standard component in the analysis of foreign affairs. An increasing number of interdependent situations demand harmonisation to reach a certain level of consensus in the dialogue.

21 Strengthening military cooperation boosts greater bilateral ties between Chile and Argentina. Ministerio de Relaciones Exteriores de Chile. Subsecretaria participa en inauguración de Reunión del COMPERSEG. Tuesday, 30th August 2011. http://www.minrel.gob.cl/prontus_minrel/site/artic/20110830/pags/ 20110830143332.php 22 See C.F. Amerashinghe. Principles of Institutional Law of International Organisations. New York: Cambridge University Press, 2005. 23 Debates over a variety of subjects such as human rights, social development, the environment and women rights were held. An attempt to define special rules for the flow of economics (the Uruguayan Rond) also emerged in this context. Additional information about human rights in Chile in Deborah Thomas (1995), “Human rights and the politics of agreements: Chile during President Aylwin’s first year”. USA: An American Watch Report, p. 36.

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3.1.4 Redefining the Brazil-Chile bilateral approach

Sharing democratic values influenced the stability of both countries’ democratic institutions. Their respect for democratic values, together with the lack of contentious issues between them, meant there was a chance to strengthening their relationship. Brazil and Chile share universal values and have policies that promote the interests that other countries share, like democracy, human rights, a mutual interest in regulating the WTO’s financial flow and similar positions on various issues in the international agenda among others. Brazil and Chile had already built up a partnership in the multilateral context with similar opinions on significant matters.24 The lack of a strong political relationship between the two countries led to a pragmatic approach when building horizontal links between the diverging sectors. As Ambassador Jaime Gazmuri argues, “Brazil and Chile have effective cooperation on logistical issues, in other words, trade, infrastructure and science and technology. Common bilateral scientific research projects in Antarctica show that both countries have similar interests in the area”.25 The Brazilian military base in Antarctica (called Comandante Ferraz) and the Chilean military base (called Eduardo Frei) carry out common research projects.26 The bioceanic corridor is another relevant point of bilateral cooperation, considering that the project was officially launched by Presidents Bachelet, Lula and Morales in 2000. According to Ambassador Jaime Gazmuri, “Bolivia’s demand for the exclusive use of Bolivian transport, which is against Mercosur clauses, is a point of conflict with Brazil. Indeed, the lack of planned economic investments has led to a delay

24 Not only in the democratic period, but also during the military regime Brazil was a permanent presence in multilateral forums bringing together states with the most diverse perspectives, from cultural to economic. See Shiguenoli Miyamoto (2000), “O Brasil e as negociações multilaterais”, Revista Brasileira de Política Internacional, vol. 43, no 1. Brasília: UnB Editora, pp. 119-137. 25 Interview with the Chilean Ambassador in Brazil, Jaime Gazmuri, on 12th September 2015. 26 Brazil and Chile were among the countries that ratified the Antarctic Treaty. Together with Argentina and Australia, Chile was one of the last three countries to simultaneously ratify the Antarctic Treaty on 23rd June 1961, on which date the Treaty came into force. Davor Vidas (2000), Implementing the environmental protection regime for the Antarctic. Dordrecht: Kluwer Academic Publishers, p. 339.

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in implementing the initiative”.27 However, the bioceanic corridor project demonstrates the pragmatic nature of the Brazil-Chile bilateral relationship. Furthermore, it should be considered that the two countries have a positive nation brand worldwide, which means that strengthening bilateral ties benefits them both. The two states share convenient nation brand projections, which are recognised in the international community. Despite natural differences between each country’s brand, they are similar because they do not emphasise regional roots.28 Neither Chile nor Brazil Latin America and their respective countries, since both present themselves as disconnected from the region. Obviously, Brazil occupies the position as the only Latin America country with Portuguese roots, which has contributed to its sense of isolation. Chile, on the other hand, insists on presenting itself as a pillar of stability in a volatile region. At the same time, President Dilma Rousseff (2015-2016) paid her first official visit to Chile on 26th February 2016 during the term of President Michelle Bachelet (2014-2018), which illustrates the long-term relationship between the two countries. Although Brazil and Chile do not share particularly strong relations with Latin America, the Bachelet administration sought to strengthen relations with Brazil and other Latin American states. Moreover, increasing trade between Brazil and Chile had laid the groundwork for encouraging economic relations. Brazil is the main destination of Chilean investments. Since 2010, the favourable balance of bilateral trade to Brazil, together with the lack of import tax on Brazilian goods in Chile, has promoted a pragmatic approach to strengthening bilateral links.29 As opposed to the idea that Mercosur and the Pacific Alliance are opposing initiatives, President Bachelet considered the possibility of strengthening bilateral relations. The Chilean attitude of ‘convergence in

27 Interview with the Chilean Ambassador in Brazil, Jaime Gazmuri, on 12th September 2015. 28 In Chile, the partnership of both private and public sectors were strategic concerning wine and salmon exports. The government provided a stable economic environment to promote a national brand for wine. Jean-Philippe (2004), Trade and competitiveness in Argentina, Brazil and Chile. Paris: Organisation for Economic Cooperation and Development, OECD, p. 186. 29 See Portal Brasil, “Visita da presidenta Dilma ao Chile coroa parceria entre os dois países”, Relações Internacionais, 26/02/2016. http://www.brasil.gov.br/governo/2016/02/ visita-da-presidenta-dilma-ao-chile-coroa-parceria-entre-os-dois-paises.

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diversity’, which means the opportunity to strengthen Brazil-Chile bilateral links despite the countries belonging to two different regional projects, encouraged a closer bilateral approach. President Rousseff’s official visit illustrates the quality of current bilateral relations, embracing policies, encouraging trade and providing significant tax benefits. In 2015, Brazil was Chile’s third most important trade partner.30 The development of closer economic links has shown the continuing importance of the bilateral relationship beyond traditional diplomacy. Therefore, the most important concept for understanding Brazil-Chile relationship is not traditional diplomacy, but the focus on the decentralised standpoint. This also means that more inter-sector topics are up for discussion, such as public diplomacy, presidential diplomacy and paradiplomacy. The increasing importance of public diplomacy should not be underestimated, since the Itamaraty recognised the important role played by public diplomacy in the formal foreign policy approach.31 As mentioned in the first chapter, the concept of nation branding also plays an important role in explaining both states’ mutual perception and to what extent the particular message injected into each country’s domestic field corresponded to its aspirations. Moreover, the new multilateral agenda implied widening Chile-Brazil cooperation in world affairs. The new world order demanded thinking and acting globally, establishing increasing new foreign policy issues in the multilateral field (Bernal-Meza and Christensen, 2012: 19-20). At the present time, Brazil and Chile share similar values on international insertion, promoting the defence of human rights, social development, women’s rights and environmental topics among others. The two countries behaviour turned from regionally-oriented to globally-oriented and their new ties highlighted the complex new international agenda.32 Together with

30 See Jornal do Brasil, “Dilma inicia visita ao Chile em meio à reaproximação”, Internacional, 26/02/2016. http://www.jb.com.br/internacional/noticias/2016/02/26/dilma- inicia-visita-ao-chile-em-meio-a-reaproximacao/. 31 On 11th June 2013, the Brazilian Ministry of Foreign Affairs announced a new tool for promoting dialogue with the Brazilian community, as well providing information on foreign politics and the Itamaraty’s proceedings in a platform that allowed readers to interact by posting comments, questions and suggestions. The blog called “Diplomacia Pública” (Public Diplomacy), can be assessed at http://diplomaciapublica. itamaraty. gov.br/. 32 With respect to civil rights, Brazil also signed up to all the regional and international human rights protocols and conventions, is an active backer of the UN system of human

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this come emerging new regional issues in the foreseeable future, such as drug trafficking, immigration, energy sources, preventing phytosanitary diseases and money laundering among others.33 The new regional agenda requires constant dialogue between both states, due to the countless transnational issues that have emerged in the last few years. Beyond cooperation initiatives, the harmonising methods and tools to tackle common problems demand a stronger partnership between Brazil and Chile. The big shift from the past means that the present context brings new actors to the forefront and go-it-alone policies are replaced by enthusiasm for fostering regional and bilateral ties. The fact that Brazil and Chile do not share a partisan foreign policy can be seen as a sign that not only short-term bilateral alliances can be formed, but that long-standing coherent bilateral links can also be built. Indeed, Brazil and Chile’s foreign policies are characterised by the continuity of essential courses of action, despite the particular emphasis they are given by each government. Although Brazil and Chile are stable and trustworthy countries in the region, major steps must be taken towards constructing pragmatic bilateral cooperation. In addition, Brazil’s new status as an emerging power on the international scene should encourage Chile to build closer relations with the giant of the south, seeking substantial benefits from this partnership.

3.2 The Background of the Latin American Context During the 1980s

Before the 1980s, the traditional hypothesis of conflict in the Southern Cone prevented any possibility of cooperation in the region. At that time, each

rights protection and has been engaged in a gradual rapprochement with the Inter-American system. Fiona Macaulay. “Human rights in context: Brazil”; In Mónica Serrano and Vesselin Popovski. Human rights regimes in the Americas. New York: United Nations University Press, 2010. p. 133. Historically, Chile had been one of the most active Latin American players in international forums on human rights, as demonstrated by its significant role in the drafting of the Universal Declaration of Human Rights and the American Convention on Human Rights. Felipe González. “Human rights and democracy in Chile”. In Mónica Serrano and Vesselin Popovski (2010), Human rights regimes in the Americas. New York: United Nations University Press, 2010, p. 159. 33 Issues such as the adoption of new regional industrial policies to promote enhanced specialization, based on knowledge, is also part of the regional dialogue. Ninth World Economic Forum for Latin America in Panama City from 1-3 April 2014. https://agenda.weforum.org/2014/03/three-big-issues-facing-latin-america/.

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country perceived the other as its main rival and a potential military aggressor, which led to difficulties in building a cooperative environment in regional security matters. Indeed, the debt crisis of the 1980s, with high rates of inflation prevented any economic and political cooperation in the region.34 The abrupt macroeconomic over adjustment, as a result of the shifting abundance of external funding, led to serious economic debt. Decreasing regional production capacity, reduced revenue from tax collection, currency devaluation and weak financial transfers caused a conjuctural regional crisis (Moniz Bandeira, 2010). Given these economic problems, countries were less inclined to support cooperation initiatives and placed greater emphasis on the domestic market. Given the absence of significant regional dialogue between Latin American states, the international context of the 1980s transformed cooperation efforts through the creation of a favourable environment for building partnership. During this period, the international scenario chipped away the Berlin Wall, which led to the end of the Cold War. Consequently, international affairs became less defensive to some extent, which led to foreign policies worldwide being expanded. However, the top exporters and importers in world trade were the United States, Germany, France, Japan and the United Kingdom, accounting for 39% of world exports and 40% of world imports. At that time, the trade of goods accounted for 81% of total trade.35 Moreover, in the late 1980s, interest in the regional approach with a focus on trade liberalisation increased. The substantial changes that took place in that period also had their origins in the emergence of information and communication technology, which led to a reduction in transport and communications costs. The participation of emerging markets has grown rapidly in recent decades, leading to a quadrupling of trade volume in goods

34 In this context, the start of the 1990s led Latin America to attempt international reinsertion into the global economy and abandon the import-substitution economic model. Andrew Crawley (2006), “Europe-Latin America relations: towards interregional coalition building”, in Heiner Hänggi et al Interregionalism and international relations. New York: Routledge, p. 177. 35 Department for Business Innovation & Skills, Department for International Development.“Global Context – how has world trade and investment developed, what’s next?, p. 4. https://www.gov.uk/government/ uploads/system/uploads/attachment_data/file/ 43309/11-722-global-context-world-trade-and-investment.pdf

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between 1980 and 2008.36 As a result, the phenomenon of the transnationalisation of companies occurred at the same time as the growth of intra-company trade. This combination caused an increase in total world trade (Van Rompay, 2001: 6). From the Latin American perspective, the United States’ rising dollar policy combined with increasing interest rates led to a problem with the growth of debt services duties, which increased foreign debt.37 Another case in point that explains South America’s lost decade in the 1980s is due to the fact that the region had to confront a situation in which the continent was no longer considered as strategically important to the United States as it was during the Cold War.38 Moreover, a decrease in foreign direct investment, the slow economic rise of developed countries, the instability of the world economy and a fall in the number of primary products, among others, contributed to the effects of the recession the Latin American states lived through in the 1980s (Marangoni, 2012). Another interesting aspect is that the 1980s caused an increase in international links between states and subnational actors as will be seen further on. As a result of this period’s difficult economic features, states, provinces and municipalities turned to international relations to minimize the domestic economic consequences of the crisis. Therefore, the democratic transition of Latin American states should be considered a consequence of the economic crisis, worsened by the second oil shock, the recession that came afterwards and the general crisis in society, in combination with the systematic collapse of policies in the region. The disastrous economic performance demanded macro and structural policy reforms. In general terms, the military governments’ lacked the resources to deal with social issues and the plurality of diverging society

36 Ibid. 37 As a consequence, in August 1985, the Contadora Support Group was established, with its first members being Brazil, Argentina, Peru and Uruguay. Shortly thereafter, its members started to act as a group in relation to other countries. This situation led to the establishment of the Group of 8, expanding its sphere of influence to many of the problems faced by Latin America, especially foreign debt (Ayerbe, 2002: 206). 38 During the Cold War, the United States destabilised governments in Argentina, Brazil, Chile, Uruguay, British Guyana, Bolivia, the Dominican Republic, Ecuador, El Salvador, Guatemala and Nicaragua. Stephen G. Rabe (2013), “Cold War memories: Latin America versus the United States”, Análisis Político, vol. 26, no 79, Sep/Dec 2013. Bogotá: UN Periódico, pp. 5-18.

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interests in the economic, political and social scope (Ayerbe, 2002: 210- 211). These difficulties sidelined the relationship between the Latin American countries. The urgent reforms varied from country to country but in general included a combination of fiscal and monetary tightening of belts, greater aperture to foreign trade, privatisation and deregulation.39 As well as aforementioned situation, the lack of attention paid to South America is linked to the collapse of the Eastern bloc, which meant diplomatic efforts were focused on Eastern Europe. Moreover, other international circumstances also served to divert attention from the continent, such as the war in the former Yugoslavia and the Gulf War. In summary, these circumstances led to South America occupying a lower profile in international affairs (Mullins, 2006: 105). In this scenario, Latin American countries had to look to one another as possible partners because of the unfavourable international context. The combination of these circumstances provides the context for the fostering of closer regional ties and obviously created the scenario for Brazil-Chile bilateral relations.

3.2.1 The military influence in the transitional period

By analysing the Chilean-Brazilian foreign policy in the transitional period, the topic of whether or not the armed forces maintained their extensive functions and privileges during civilian governments should be addressed, depending on the nature of those transitions. There has not been a sudden institutional rupture in Chile and Brazil’s transitional process. As a result, after the withdrawal of the military from power, the two countries’ foreign policies did not go through remarkable strategic changes. In this way, both countries adopted a low profile in foreign affairs, which means that civilian governments did not engage in confrontational foreign policies.40

39 Arminio Fraga. “Latin America since the 1990s: Rising from the sickbed?” Journal of Economic Perspectives, Volume 18, Number 2, Spring 2004, pp. 89-106. http://faculty. nps.edu/relooney/00_New_23.pdf 40 As some authors point out, only a few countries in Latin American can be considered as increasingly stable, such as Chile, Costa Rica and Ecuador, despite these countries also having political divisions and conflicts. See Laura Tedesco and Jonathan R. Barton (2004), The state of democracy in Latin America: Post-transitional conflicts in Argentina and Chile. New York: Routledge, p. 1.

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Nonetheless, it is essential to mention that Brazil’s democratic constitution passed in 1988 produced a formal rupture between the military regime and the democratic government. When studying the Chilean transitional period, it should be highlighted that no other country in the region has been so influenced by the past. Chile’s foreign policy throughout the transitional period was overly focused on trade, an emphasis inherited from Pinochet’s regime. Although there was a degree of continuity between the economically focused military foreign policy and the civil foreign policy that came afterwards, there are some remarkable differences. The main one lies in the defence of human rights as the most important focus since the restoration of democracy, although it should be remembered that the civilian government remained concentrated on the economic foreign policy of the former regime and even reinforced it.41 One way of understanding the transitional period is by observing that Aylwin’s government pursued a strategy of maintaining a low profile on the international stage, due to Chile’s international political isolation during the military regime. In this respect, the transitional period’s complex foreign policy had its origins in the domestic political scene and the military’s continuing influence. Hirst stresses that “not only is regime change important, but the nature of any transition to democracy is also critical. In terms of the creation of foreign policy making among the principal countries of the Southern Cone, the nature of the transition to democracy is seen as a crucial determinant of foreign policy in the 1990s” (Hirst apud Martin, 2006: 104). Another concern for Chilean foreign policy was that the military retained, to some extent, their political influence in the system of governance, even though they were not key to driving the political system. In this regard, Chilean political reform processes have been consistently low-profile and cautions. Military influence was exercised through political allies in the Chilean Congress, this lasted until 2004 when the constituion’s mechanisms were reformed (Mulins, 2006: 104). In this way, the main difficulty in

41 It is important to remember that, unlike other countries in Latin America, Chile had significant experience in human rights. Chileans generally expected the State to respect civil and political liberties. Darren G. Hawkins (2002), International human rights and authoritarian rule in Chile. Lincoln: University of Nebraska Press, p. 67.

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establishing closer links with other Latin American countries arose from the fact that the military still retained a high degree of autonomy, which constrained civilian authorities’ options in foreign policy.42 Similar to Chile to some extent, Brazil also adopted a low-profile foreign policy, which tended not to align itself to government by the armed forces. After Brazil’s military regime, power was peacefully transferred to civilian rules in 1985.43 Interestingly, the Itamaraty’s long-term strategy of maintaining a low-profile consisted of outlining issues instead of confronting them directly. The Itamaraty sought to delay difficult decisions and avoid creating new areas of conflict. However, it should be highlighted that Brazil’s position as a global player has changed this strategy somewhat, given the country’s new aspirations, as will be analysed in more detail, later on. In Brazil, the military still played an important role during democracy, as demonstrated by their participation in President Itamar Franco’s government (1992-1994). Itamar Franco expanded the number of military ministers from five to seven military officers (Codato, 2005). Furthermore, the civilian Ministry of Defence was created in 1999 and as a result, many of the Brazilian democratic government’s tasks remained in the hands of the armed

42 In Chile, the military period ended on 11th March 1990, when the first democratic authorities since 1973 were elected. The post-dictatorial regime gave way to democratically elected governments, Parliament expressed partially popular volition. This meant that the arbitrary electoral system imposed by the military government allowed the military to have the same number of deputies and senators as the majority of the Concertación coalition. Despite maintaining of the democratic government, it cannot be concluded that Chile had largely democratic institutions. Although this situation improved with the constitutional reforms in 2005, it did not generate a completely democratic system. Manuel Antonio Garretón. “Reflexiones sobre la democratización política chilena”, pp.167-168 in Cave, Rose. Brazil y Chile: una mirada hacia América Latina y sus perspectivas. Santiago: RIL Editores, 2006. The military’s importance not only extended to politics, but also exerted an important influence on investment measures. The Taxable Profit Funds or FUT, a mechanism set up by the military government in 1984 to encourage investment – still exists. This mechanism allows companies to indefinitely defer payment of some of the tax on their retained profits. “Reform in Chile: the lady’s for turning”, The Economist, vol. 411, 24 May 2014, p. 32. 43 The military dictatorship in Brazil lasted for 25 years, from 1964 to 1989 (only in 1989 did the country hold direct presidential elections). This period included six different presidential administrations, one of which had a civilian at its head. Adriano Nervo Codato (2006), “A political history of the Brazilian transition from military dictatorship to democracy”, Revista de Sociologia e Política, vol. 2. Curitiba: Relume-Dumará, pp. 83- 106.

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forces and diplomacy did not suffer restrictions as it had in the Chilean foreign affairs during the Pinochet government.44 In contrast, Brazil’s foreign policy was carried out by the Itamaraty, distinguishing itself from the military’s influence in Chile on the construction of foreign policy strategy. It is important to bear in mind that the military played a much more significant role in Chile’s foreign policy aims than in those of its Brazilian counterpart. There are considerable similarities between Brazil and Chile’s military periods, in the sense that the two countries inherited their economic foundations from their military years. However, the totally different economic focus each country has adopted should be highlighted. What is important in this study is that Chile has continued to adopt the same neoliberal model that was initiated in 1975.45 Interestingly enough, the Concertación government not only maintained the same economic system, but also sought to strengthen the existing neoliberal policy. Like Chile, Brazil also built up its economic structural base of domestic development during the military years and Brazil’s military policy focused on the need to develop domestic industry. Brazil and Chile shared a strategy of not creating a rupture with the military government particularly regarding the economy. During the military period, Brazil achieved the so-called economic miracle (1968- 1973), with the country experiencing spectacular economic growth. As opposed to the Argentine military regime that led to financial disaster, the Chilean Chicago Boys’ economic strategy helped the regime gain some legitimacy in the international financial community. In the economic realm, the economic model involved imposing a rigid free market system with privatisation becoming a key tool. The other economic measures taken by

44 In countries with civilian defence ministers such as Brazil, Chile, Argentina and Uruguay relevant changes took place. Therefore, civilian management of the defence policy was considered a prerequisite of democracy. Uruguay, for instance one of the countries in which civilian state institutions remained the strongest, established full civilian supremacy in its defence policy. Rut Diamint (2003), “The military”, in Jorge I. Domínguez and Michael Shifter (eds), Constructing democratic governance in Latin America. Baltimore: The Johns Hopkins University Press, p. 63. 45 The fact that Chile has maintained the same economic model since the military years led to students making demands for fundamental changes in the economic model and more democracy for the country in 2011. See Andrés Solimano (2012), Chile and the neoliberal trap: The post-Pinochet era. Cambridge: Cambridge University Press.

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the government were designed to deregulate the economy and to encourage trade using the concept of comparative advantage (Oppenheim, 2007: 113- 14). Independent of whether Brazil’s foreign policy is carried out by the Itamaraty, it can be seen that the military is still considered an important actor in the country’s foreign affairs. It should be pointed out that General Pinochet won a tightly controlled referendum to institutionalise his regime in 1978. He won another tightly controlled referendum in 1980, which approved the constitution that continues to govern Chile today.46 Although Brazil did not face significant problems during the transitional period, the fact that Chile’s constitution has been the same since the military period is a fundamental argument for understanding the strong connection between the military and foreign policy strategy. The fact that Chile has maintained strong military links within foreign policy up to the present time should be taken into account when studying Brazil-Chile bilateral relations. As Pizarro says:

“The consensus around the importance of the military is shared among the Chileans. The military possess relevant background knowledge, which is essential to understanding Chile’s foreign policy up to the present time. Understanding Chile’s foreign policy demands the study of the military perspective, since the sector has formulated and conducted foreign policy in the recent past. Considering that the country did not undergo complete rupture with the military regime, the military are still significant actors in Chile’s foreign affairs. Moreover, in Chile, we don’t have a traditional diplomatic academy like Brazil’s venerable Itamaraty. Therefore, the military plays a major role in explaining Chilean foreign policy strategy throughout the years (interview with Roberto Pizarro, Santiago de Chile, 24th August 2011)”.47

From Brazil and Chile’s perspectives the transitional period was not

46 In 1982, the international environment was an important factor that led to the downfall of the Pinochet regime, as well as the subsequent rise of democracy. Alejandro Ortega (2010), “International effects on the democratic onset in Chile”, Stanford Journal of International Relations, vol. XI, no 2. https://web. stanford.edu/group/sjir/pdf/Chile_11.2.pdf. 47 Roberto Pizarro is an economist, academic, consultant and Chilean socialist politician and former Minister of State during the government of President Eduardo Frei-Ruiz Tagle. He currently serves as President of the Universidad Academia de Humanismo Cristiano.

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accompanied by a significant rupture with the military regime. From both countries’ view, there was a kind of consensus about not making dramatic changes to the previous organisation, especially concerning the economy. Interestingly, the two countries did not significantly modify their military foundations, showing to some extent a certain degree of continuity with their military roots. It is important for our analysis that Chile has maintained the same commercial foreign policy focus during the democratic period and has tended to prioritise economic links to the detriment of political cooperation ties.

3.2.2 Brazil and Chile’s regional policy during the 1980s

The international context explains Brazil’s redefinition of its foreign policy throughout the 1980s. The difficult international scenario helped Brazil to direct the focus of its foreign policy towards strengthening its ties with Latin America. From Chile’s perspective, the 1980s did not usher in significant changes to the country’s foreign policy strategy. It should be stated that the transitional period brought with it key changes to Chile’s international reinsertion, even if the country tended to maintain the theoretical discourse of strengthening regional ties to the detriment of definite attitudes towards integration (Mares and Aravenas, 2001: 20-21). In practical terms, Chile maintained its isolation during the military years and began to develop cooperation ties with the region afterwards, maintaining a low profile and as will be studied as part of the following topics. From Brazil’s perspective, the lack of attention to central states shifted the focus of its foreign policy towards building up regional ties. Brazil’s positon on foreign policy had two aims, the first of which was related to the difficulties faced by its attempt to maintain relations with central countries. The inflationary process as well as the foreign debt crisis demonstrated Brazil’s vulnerability in the international system. Secondly, increasing inflation and the protectionism of industrialised countries at that time contributed to a worsening debt crisis (Altemani, 2005: 201). The unfavourable international context set the stage for changing Brazil’s regional perception and therefore promoted cooperation initiatives among the continent’s countries.

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As a result, Brazil tended to adopt a more autonomous position in commercial and economic fields. Adoption of an independent position is also reflected in Brazilian bilateral relations with the United States, which were characterised by a defensive approach from that period onwards. Indeed, the Falklands War brought with it the perception that the inter- American defence system only came into effect when attending to the United States’ regional interests (Ayerbe, 2002: 210). In this context, Brazil opted to carry out a policy of ‘encapsulating the crisis’, which meant that the respective crisis with the United States would be encapsulated in order to avoid crisis from one sphere overflowing into another. With the re-establishment of democracy Brazil attempted to minimise the negative image of the country generated during the military years. Shifting the national image was an important factor that contributed to redirecting foreign policy strategies towards the continent. In other words, it contributed to changing the nation branding and distancing it from past perceptions. The democratic period urged the reformulation of Brazil and Chile’s nation branding to project an attractive national image.48 The two countries had to distance their image from the military period and build a modern democratic image approach. Furthermore, it should be taken into consideration that the difficulties imposed by the international system on maintaining foreign relations with Africa and the Middle East also contributed to redirecting Brazil’s foreign policy towards the continent (Altemani, 2005: 194). Given the changes in global geopolitics, it is not surprising that improvements to South American relations led to peace and the region’s countries began to look to one another as both diplomatic and possible trading partners.49

48 Despite the 30th anniversary of the return to democracy in Brazil, the second mandate of President Dilma Rousseff will have important effects on its future. David Rockefeller Center for Latin American Studies, “Brazil+30: The legacy of 30 years of democracy and challenges to come, 18th April 2015. http:// drclas.harvard.edu/event/brazil-30-legacy-30- years-democracy-and-challenges-come. Unpopular economic measures carried out by President Dilma Finance Minister Joaquim Levy, led to internal problems among the National Congress and population. Edna Simão et al. (2015), “Levy: Dilma paga o preço politico do realinhamento da economia”, Valor Econômico, 11 November 2015. http:// www.valor.com.br/brasil/4311864/levy-dilma-paga-o-preco-politico-do-realinhamento-da- economia. 49 See for a detailed approach to the nature of the present international system, see Joseph Tulchin and Ralph Espach (Eds). Latin America in the new international system. Boulder:

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Like Brazil, Chile also underwent significant changes regarding its foreign policy image, though to a much greater degree. This means that Chile’s process of rebuilding its image occurred at a much more profound level. During the military period, Chile’s complete isolation from international affairs should be considered, which led to its foreign policy being considered as ice age. Facing a domestically declared war against communism and internal subversion in the Cold War context, Chile’s internal policy went hand-in-hand with its foreign policy scope (Neack, 2003: 194). This means that the result of the almost complete absence of foreign policy strategy during the period led to difficulties in carrying out regional alliances. This explains the lack of any possibility of building links with other countries in the region. In contrast to the military period, the main goal of Chile’s foreign policy after the dictatorship was its focus on international reinsertion. As will be stated in this chapter, due to a well-coordinated effort, Chilean democratic reconstruction policy gained a lot of foreign support, to the extent that the country sought to rapidly recover its international status vis-à-vis the previous period. Chile’s reforms promoted neutral policies and the negotiation of bilateral agreements that led to important trade reforms. These reforms included the elimination of trade barriers, a tariff reduction and the introduction of the uniform tariff policy, aimed at promoting development based on integration into the world economy.50 In this regard, bilateral agreements function as a key tool to promoting international insertion. As Parker states:

“Moreover, the congruence between Chile’s economic development policy and its international insertion strategy illustrated by several trade agreements worldwide laid the groundwork for creating rapid international links. Chile’s focus on trade as the development mechanism to liberalise trade policy has had significant results for its economy. The strategy was complemented by a strong commitment to the multilateral trade system, which encompassed a wide number of free-trade agreements worldwide.”51

Lynne Rienner, 2001. 50 Dirección General de Relaciones Económicas Internacionales (Direcon). “Chile 20 años de negociaciones comerciales”. Impresión: B&B impresores, November 2009. 51 Interview with Carlos Parker, Santiago de Chile, 23 August 2011. Carlos Parker dedicated 18 years to working for the Ministry of Foreign Affairs. He held the post of

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In this context, cooperation among South American nations improved substantially, with agreements made, constructive dialogue and economic integration initiatives renewed, as well as the capacity to enforce arrangements and treaties. Latin American interstate commerce grew with the aim of fostering industrialisation and domestic development during the 1980s. Promoting trade was a result of the opposite perspective that free trade and privatisation were essential for guaranteeing sustainable economic growth. Moreover, industrialisation was not to be left to the market, but was to be the product of government intervention. The existing complementary nature of primary production and industrialisation meant that the manufacturing sector was not to develop at the expense of agriculture. The strategy used was to promote exports of primary products in order to allow financial resources to buy imported capital goods, machinery and equipment, for instance, which were indispensable to sustaining industrialisation policies.52 Dialogue existed between Brazil and Argentina in the early 1980s, since closer ties between the two important regional actors paved the way to strengthening Latin America integration.53 As Fonseca highlights, at a regional level, two essential facts come into play. First is the emergence of the previously mentioned democratic regimes

Chilean Ambassador to Romania and Bulgaria. 52 Brid, Juan Carlos Moreno and Caldentey, Esteban Pérez. “Trade and economic growth: a Latin America perspective on rhetoric and reality”. ECLAC, Sub-regional Office in Mexico, D.F., December 2009, p. 9. http://www.eclac.org/publicaciones/xml/3/38143/L945.pdf 53 It should be remembered that, until 1979, rivalry and a lack of friendship were the key components to Brazil-Argentina relations. From the 1980s onwards, an alliance between Latin American countries has been the mechanism for encouraging States insertion into the international system. Regional agreements – even without integration projection models – play an important role in linking the region to the international scenario. The new type of relationship that emerged between Brazil and Argentina, which was symbolised by a summit in Buenos Aires in November 1981, had wider implications for regional geopolitics. Firstly, the initiative was carried out by the Argentine Council for International Relations with the cooperation of the Getulio Vargas Foundation and the Argentine- Brazilian Business Council. Second, closer bilateral dialogue occurred not only between official diplomacy, with the business sector and academics also participated in the process. Cavalheiro, Carmela Marcuzzo do Canto. “Desde la ALALC hasta el Mercosur: la integración entre Argentina y Brasil desde la perspectiva brasileña”. Departamento de Estudios Latinoamericanos (TCLA), Universidad de Leiden, June 2004. Supervisor Prof. P. Silva, pp. 29-30. The reformulation of Argentina-Brazil ties laid the groundwork for Brazil- Chile ties, given the importance of multifaceted analysis within the latter’s.

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and the second is the enforcement of integration mechanisms in combination with the expansion of Latin American conferences. This new scenario facilitated closer relations and dynamic dialogue between the countries in the region and moreover, created a common diplomatic language, which was important for generating a trusting environment (Fonseca, 2006: 128). As was already stated in the first chapter, the emergence of presidential diplomacy during the 1980s meant that presidents’ foreign policy was more active and dynamic. The advantages and disadvantages of this fact is that periods of presidential affinity tended to lead to fruitful gains, while a lack of affinity translated into a lack of prospects. In the following sections, how presidential diplomacy exerts an influence on the Brazil-Chile bilateral context will be studied. Therefore not only presidential diplomacy, but also public diplomacy, nation branding and paradiplomacy contribute to the analysis of the way in which these concepts involve the participation of different actors, apart from the already well-known and traditional entities in Brazil-Chile bilateral cooperation. Indeed, successful nation branding creates significant rewards for fostering cooperation links between countries, with far-reaching consequences for other areas and influence exerted on public diplomacy, presidential diplomacy and paradiplomacy. In our opinion, these theories provide a more realistic approach to understanding the transformation of both states’ bilateral relations from the 1990s to the present. The misconception that in periods in which there is a predominant lack of official links there is also an absence of any ties between Chile and Brazil should be avoided.

3.2.3 The development of Brazil-Chile links from the 1990s onwards

The 1990s should be highlighted as the period in which a dual process of change occurred in the Latin American context: the economic recovery of the region’s states after the lost decade, as well as the general economic structural reforms adopted by the countries, which facilitated the aperture and liberalization of trade. As has been mentioned, this took place at a time when industrialised countries faced a recession, which led to protectionist

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policies towards other countries like Chile and Brazil. The adoption of trade aperture policies within the context of the LAIA contributed to widening and strengthening intra-regional relations. The 1990s were marked by increasing levels of trade and the creation of a favourable environment for emerging integration initiatives such as the Mercosur. Many facts laid the groundwork for strengthening links between Brazil and Chile from the 1990s onwards, although the key element was the restoration of democratic regimes in both states. A consolidated democracy should be considered a key element for studying long-term Brazil-Chile cooperation. As already pointed out, Brazil and Chile do not share as profound a sense of cooperation as has been developed with their neighbour, Argentina and they probably never will. However, since the democratic government, the gap between Brazil and Chile has narrowed significantly and, despite some ups and downs during this period, the possibility that they will improve their ties cannot be underestimated. Brazilian-Chilean trade intensified from the 1990s onwards, in synch with the emergence of both countries’ democratic governments. The return to democracy was the main element for understanding the increase in bilateral trade.54 The fall of Pinochet’s government in Chile marked the end of disagreements between both countries’ regimes and the end of 17 years of military government and international absence. The success of the transitional period was significantly connected to economic indicators, so Chile sought international insertion through increasing trade (Gamboa, 2011: 57). The need for high levels of economic development was a favourable context for the development of Chilean-Brazilian bilateral relations, particularly regarding trade. Another way of explaining the lack of bilateral relations between the two countries before the 1990s is Chile’s neoliberal economic model, implemented since the 1970s and which prioritised relations with developed countries (Leite, 2016). This policy tended to distance Chile from other Latin American countries. In contrast, Brazil redefined its foreign policy

54 Since the 1990s, Brazil’s foreign trade policy has gone through important changes. The trade liberalisation that began during the Collor administration and was extended to the administration of President Fernando Henrique Cardoso integrated Brazil into the new globalised world order. André Averbug (2000), “Brazilian trade liberalisation and integration in the 1990s”, BNDES-PNUD. Associationhttp://www.bndespar.gov.br/ SiteBNDES/export/sites/default/bndes_en/Galerias/Download/studies/trade.pdf.

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throughout the 1980s and tended to prioritise closer relations with other Latin American countries, especially Argentina, as already pointed out.55 Moreover, both countries initially focused on establishing relations with their neighbours instead of aiming to strengthen bilateral ties. The development of Brazil-Chile ties was, at some point, the result of Brazil’s foreign policy, which had encouraged dialogue with other Latin America states since the 1980s. However, since the 1990s, President Patricio Aylwin’s government programme sought to establish Chile’s regional reinsertion. The initiative was a step towards the project of incorporating the world into Chile’s development plans. The fact that the Latin American Free Trade Association (LAFTA) was updated with the Treaty of Montevideo in 1980, transforming LAFTA into the Latin America Integration Association (LAIA), helped strengthen the cooperation process. The LAIA oversees bilateral agreements between these countries and favours the creation of a preferred market within the region. The LAIA organisation made an important contribution to fostering intra-regional trade, since it created a more flexible mechanism of cooperation. The LAIA encouraged bilateral agreements between Chile and other Latin American countries, for example Chile’s complementary economic and free trade agreements with Mexico signed in September 1991; with Venezuela in April 1993 and with Colombia in November 1993. Chile also signed an agreement with Argentina in August 1991 that did not involve free trade but focused on other commitments, particularly physical integration.56 In contrast to the perception that Chile made no effort to integrate itself

55 The neoliberal model in Mexico emerged in the 1980s, characterised by stabilisation policies such as measures to control inflation, the public deficit, restrictions on domestic consumption and public spending. In this context, the productive restructuring of large companies was carried out in Mexico. Such restructuring policies led to the introduction of modern technologies and new forms of labour organisations. The neoliberal model was implemented in Mexico - as in other Latin American countries - through the idea of productive restructuring. Enrique de la Garza Toleto. “El modelo económico neoliberal y los límites de las configuraciones productivas en México”. In: Enrique de la GarzaToledo and Júlio César Neffa. Trabajo y modelos productivos en América Latina: Argentina, Brasil, Colombia, México y Venezuela luego de la crisis del modo de desarrollo neoliberal. Buenos Aires: CLACSO, 2010, pp. 53-54. 56 Dirección General de Relaciones Económicas Internacionales (Direcon). “Chile, 20 años de negociaciones comerciales”. Impresión: B&B impresores, November 2009, p. 124.

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regionally, it should be considered that to re-establish democracy, talks on integration were conducted with members of the LAIA. The new framework for action facilitated agreement among the region’s states on certain points and allowed Chile and Brazil to build up regional links contributing in an important way to strengthening their bilateral ties. In this sense, the LAIA’s institutionality has provided legal protection in the negotiation of many agreements. LAIA’s aim is to implement in a gradual and progressive way the Latin America common market gradually and progressively, mainly characterised by the adoption of tariff preferences and the elimination of non-tariff restrictions.57 It should be highlighted that integration projects in Chile were to a certain extent limited. Instead of carrying out integration initiatives, Chile opted to close bilateral agreements as its core foreign policy strategy. The return of democracy can be explained through the re-establishing of traditional relations with central countries, which means emphasising links with Europe and the United States, as already studied in the second chapter. However, re-establishing ties with central states does not indicate that there was lack of attention paid towards Latin America, since trade agreements were reached with Mercosur (1996), Peru (1998) and Central America (1999). This study will focus on the analysis of Mercosur (Direcon, 2009: 67). Indeed, Chile’s foreign policy strategy seeks to establish regional agreements as a mechanism to broaden trade and investments, which facilitate networks between non-state actors. In this way public diplomacy became a fundamental concept for observing Chilean foreign policy. Furthermore, it can be argued that the process of regional integration was not homogeneous, since it was more intense on the eastern side of the Andes and between Brazil and Argentina. In this respect, Chilean foreign policy was different to other countries in the continent, since after Pinochet’s term the re-establishment of ties with its neighbours was not automatic process, as will be seen in this chapter. Chile needed to formulate a nation brand in order to invest in a positive international image to benefit from economic gains. According to Maira:

57 INTAL, Institute for the Integration of Latin America and the Caribbean, Inter-American Development Bank. http://www.iadb.org/intal/detalle_articulo.asp?idioma=eng&aid=121 &cid=789

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“Chile’s foreign policy with diplomats without academia led to foreign policy being carried out conservatively and as a consequence to a cautious approach to international affairs. Chile lacks a strong connection with the Ministry of Foreign Affairs and with civil society”.58

In this sense, Chile’s relations with the regions’ countries and with Mercosur were somewhat reticent and did not improve immediately. On the one hand, Chile’s foreign policy was not subject to as many ups and downs as other policies in the region and as has been pointed out, a stable Chilean foreign policy scenario favours the development of Brazil-Chile long-term bilateral relations. On the other, the country’s foreign policy strategy maintained conservative forms of international trade insertion. Insulza, the Foreign Minister in the mid-1990’s, said:

“We think that Chile has to define itself as a Latin American country, not just for historical reasons or due to values, but also for the national interest in this period of democracy. Chile, due to its size, economic capacity and geographical location cannot function isolated in the world.”59

While studying Brazil-Chile bilateral relations, it is important to bear in mind in the first place that Chile has its own economic development strategy and the country’s go-it-alone policy does not lead to regional integration being prioritised. Secondly, since the restoration of democracy, Chile has sought to strengthen its ties with the region, even though multilateral and permanent dialogue with Europe and the United States has to be considered.60 It has been argued that, even when adopting regional integration policies, Chile did not give up its decision-making autonomy to

58 Interview with Luis Maira, Santiago de Chile, 30th August 2011. Luis Maira. Minister of Planning and Cooperation, 1994-1996 during the administration of President Eduardo Frei Ruiz-Tagle, Ambassador to Mexico, 1997-2003 and Ambassador to Argentina, 2004-2010. 59 José Miguel Insulza, Ensayos sobre Política Exterior de Chile (Santiago, 1998), p. 64 apud Mulins and Martin (2006: 105). 60 The Chilean government signed the Rome Statute of 1998 which created the International Criminal Court, and under Pinochet’s regime, signed the United Nations Convention against Torture. As a democratic government Chile had to act in accordance with the rule of law. Many Chilean citizens demanded that justice be done in the case of the Pinochet regime. See Laura Neack (2003), The new foreign policy: U S. and comparative foreign policy in the 21st century. Maryland: Rowman & Littlefield.

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focus on integration. At the same time, Chile has had to maintain and strengthen its ties with South American countries, ensuring some kind of relationship with regional actors. However, the United States is key to understanding Chile’s foreign policy and the correlation between traditional ties between the United States and Chile and the capacity to enforce Latin American links.61 For obvious reasons, the extent of the Chile-United States relationship has shown some correlation with the former capacity to strengthen its links with Brazil. Another important issue is that Mercosur represents the possibility of strengthening ties with Southern Cone countries. Indeed, Mercosur illustrates the total impossibility of incorporating Chile as a permanent member for several reasons, the most important of which is the country’s inability to raise its external tariffs. As Chilean Ambassador Gazmuri argued, “Brazil suggested a special regime for Chile’s incorporation as a full member of Mercosur, however there was opposition from the group’s smaller members”.62 The nature of Chilean foreign policy does not mean the lack of a bilateral relationship or the impossibility of strengthening ties between Chile and Brazil. Importantly, the theories explained in the first chapter help understand why Brazil-Chile links cannot be examined from a traditional diplomacy perspective, but why horizontal links should be considered instead of main lines of cooperation exclusively. In this scenario, public diplomacy, nation branding, presidential diplomacy and paradiplomacy play an important role in the direction of this study and demonstrate the establishment of cooperation initiatives between the two countries from the 1990s up to present time. Therefore, the focus is not only a state-centric view and new players are introduced into the agenda of bilateral cooperation between the two countries. This does not mean that diplomacy is not carried out by diplomats or that their activities are relegated. In fact, opinion shared is that the importance of public diplomacy for this study lies in considering the

61 Chile has maintained friendly relations with the US since its transition back to civilian rule in 1990. Bilateral commercial relations are particularly strong and total trade in goods and services has more than tripled since the implementation of a free trade agreement in 2004. Peter J. Meyer (2014), “Chile: political and economic conditions and United States relations”, CRS Report, Congressional Research Service. 62 Interview with the Chilean Ambassador in Brazil, Jaime Gazmuri, 12 September 2015.

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emergence of new actors as an important component in the development of world affairs. In brief, according to public diplomacy special relationships between countries can be constructed on the basis of diplomacy, even though diplomats are not the only actors allowed to retain control over the process.63 Moreover, the dynamism of the international scenario has undeniable implications for the way foreign affairs are carried out. Thus, the traditional diplomacy perspective is limited due to the changing world scenario. Given the shifting global context, there are emerging topics in the international arena that cannot be treated exclusively from a nation-state perspective. The new reality groups together topics such as the energy crisis, pandemic concerns, environmental discussions, transnational organised crime, civil society organisations and NGOs among others which demand a multisector partnership beyond the idea of states as single actors. Therefore, Chilean- Brazilian bilateral relations should not be studied from an intra-state standpoint and non-central actors should be taken into account as concepts of public diplomacy and paradiplomacy.

3.3 Mercosur vis-à-vis Brazil-Chile Bilateral Relations

The complementary N° 35 (ACE N° 35) economic agreement between Chile and Mercosur was signed on 25th June 1996 and came into force on 1st October of the same year. The main explanation for Chile’s inability to be incorporated as a permanent member of the bloc was that total membership would limit its autonomy concerning its trade policy and the ability to continue reducing general tariffs unilaterally. Assuming the role of a full member would also imply subordinating future trade negotiations to Mercosur interests, which was vehemently opposed to Chile’s foreign policy strategy. Moreover, a position of full membership contradicted Chile’s access to NAFTA negotiations. What is fundamental to the approach in this study is the role played by

63 It is important to note that public diplomacy does not imply a decrease in the diplomats’ role, on the contrary, they remain a key players in foreign affairs and in turn, other actors like groups and leaders in authority may also implement their decisions in the public sphere. Luis Melo Lecaros. “El Estado, fuente único de la diplomacia”. Lecaros, Luis Melo. Diplomacia contemporánea: teroría y práctica. Santiago de Chile: Adica/RIL Editores, 2004.

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trade in terms of Brazil-Chile bilateral ties and the degree of influence trade exerts over this relationship. Of course, the public diplomacy concept serves to help understand the importance of these links in developing greater bilateral cooperation in a range of areas beyond trade. Like Brazil, Chile would also take advantage of Mercosur as an export market especially for manufactured products given that, according to both countries’ a growing trade in manufactured goods occurs within the common market. For instance, in the mid-1990s, around 60% of manufactured Chilean exports were destined to Mercosur. Among the manufactured goods that Chile exports are chemicals and metallurgical and transport equipment (Dirección General de Relaciones Económicas Internacionales or Direcon, 2009: 97). Although Chile became an associate member of Mercosur, it can be argued that any form of economic integration demands negotiation. Indeed, Chile’s foreign policy on free trade, backed by its neoliberal development model was not aligned with Mercosur integration. However, Chile’s associate membership cannot be linked to lessening interest in intensifying relations with the region. According to Baeza:

“The perception of Chile was that there was a state of insensitivity on the part Mercosur members with regard to Chile’s particularities. Therefore, harmonising Chile’s aims with those of other Mercosur members would be a step towards greater cooperation. Chile viewpoint is based on the argument that its economic features were not taken into account by either Mercosur or Brazil. The fact that Chile adopted a free trade policy does not mean a lack of interest in regional approach projects. On the contrary, it is possible to think about reformulating mechanisms to take into consideration the country’s special situation. It is easier to argue about Chile’s neoliberal policy as an impediment to regional integration.” (Jaime Baeza, professor at the University of Chile, interviewed on 30 August 2011, Santiago de Chile).

Chilean demands received very little attention during the negotiation process because of the country’s high external tariffs. In this situation, the manufacturing export sector voiced concern about Mercosur’s high tariffs, since these meant a lack of opportunities for manufacturers. That is why Chile sought full association with Mercosur from the very beginning through the signing of a complementary economic agreement in the LAIA.

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The ACE would serve as a mechanism for negotiating a broad integration agenda of topics, which comprise: incorporating methods to achieve a reciprocal liberalisation of trade, basic disciplines to regulate goods and services and complementarity economics between the members. However, differing perceptions accounted for difficulties within the negotiations. Chile aimed to negotiate with each member separately and bilaterally, whereas Mercosur stated that negotiations must occur multilaterally.64 The bloc’s vision stated that different levels of tariff reduction would interfere with the rules of the common external tariff, therefore tariff levels needed to be the same for each member. Among other issues, Chile argued that, after the negotiations, no good would come from lowering access conditions even more. This was one of the most significant points of the negotiation process. In practical terms, the 4 + 1 negotiation form implies that each proposal first had to be studied by Mercosur members that, afterwards, all of the members had to agree on a common proposal. The problem with this was the lack of flexibility within the bloc, making it impossible to achieve reasonable result. The need for total consensus within the bloc caused signficant barriers in terms of the negotiation process with Chile. Several rounds of negotiations were transformed into summits among Mercosur members, with a large range of responses to the Chilean delegation. Therefore, the downside to this kind of negotiation process was very visible, especially regarding the invisible benefits of using this way to segment negotiations.65 Despite the difficulties concerning the negotiation process, it should be remembered that there is no quick way of negotiating a preferential agreement. Furthermore, the importance of public diplomacy when analysing Brazil-Chile bilateral relations is essential to this study, since the

64 Chile’s external negotiations with Mercosur had similar rules for the bloc in the area of non-trade barriers, rules of origin, safeguards and dispute settlement and physical integration protocols. Paolo Giordano (2003), The external dimension of Mercosur: Prospects for north-south integration with the European Union. Washington D.C.: INTAL, p. 7. 65 The Complementary Economic Agreement between Chile and Mercosur became part of national legal internalisation on July 17th 1996 and was approved on 12th September of the same year. The ACE Nº 35 was passed by Supreme Decree Nº 1,441 on 30th September 1996 and published in the Official Gazette on 14th October 1996. This agreement was stipulated in its text, entering into force on 1st October 1996. Direcon: 115

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role played by trade in their bilateral ties is highlighted. The international multilateral environment characterised by multiple links demands a new focus for analysing Brazil-Chile bilateral ties. The question is raised as to what extent trade influences the political relationship between the two countries. In other words, is it possible to correlate two distinct sectors based on the argument that intra-sector cooperation should foster inter- sector links? How do intra-sector ties affect inter-sector relations? This is crucial for studying whether trade relations are separate from policy issues within the Brazil-Chile relationship. As discussed in the first chapter regarding the importance of nation branding in Chile’s foreign policy strategy, a new perspective should be adopted when studying Brazil-Chile bilateral links, placing the work of public diplomacy and nation branding into a perspective of traditional diplomacy. As already stated, Chile foreign policy mechanisms require the engagement of various sectors to carry out foreign policy goals. In the same way, Brazil’s foreign policy strategy demands a growing inter-sector partnership in order to coordinate core interests ranging from economic issues to energy policies. The different dimensions of the two countries explain the decision to try and understand inter-sector coordinated efforts from Chile’s standpoint. Chile illustrates the work of many sectors regarding foreign policy, making advocacy its objectives. Furthermore, in the case of Chile, it is easier to see the concise and systematic propagation of the country’s foreign policy, since many of the reforms the country underwent in the 1990s were actually implemented in the 1970s.66 The fact that Chile has achieved a sustained expansion of its economy goes hand-in-hand with the country’s projected foreign policy image. Chile’s strategic planning included the participation of various actors and paved the way for understanding public diplomacy campaigns, which were goal-oriented and needed private-public partnership. Since Chile’s economic reform was strongly associated with its international insertion strategy, an increase in the strength of financial, technical and marketing ties can be highlighted, helping to build a coherent foreign policy strategy.

66 Economic reform in Chile according to free-market principles started in the 1970s and was endorsed by social emphasis in the 1990s. Andrés Solimano et al (2000), “Introduction and Synthesis” in Andrés Solimano, Distributive justice and economic development: The case of Chile and developing countries. Ann Arbor: University of Michigan Press, p. 1.

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Harmonising Chile-Brazil trade was a significant step towards greater bilateral cooperation, in accordance with the role played by public diplomacy in strengthening bilateral links between both states. In this way, the ACE Nº 35 was a mechanism to stimulate bilateral trade with business between the two countries experiencing considerable growth. The ACE No 35 benefits specific sectors such as agriculture by means of increasing existing quotas for some products. The liberalisation of the chemical sector within the agreement was another important step. Bilateral dialogue seeking access to automotive products demonstrated the growth of the reciprocal trade partnership.67 According to Camargo:

“Increasing trade between Chile and Brazil in the last few years is due to two factors: first, the implementation of the ACE Nº 35 which delimited the legal mechanisms and second the entry of Chilean companies to Brazilian market, taking advantage of the latter’s colossal south Chilean private investors and companies identify trade opportunities in Brazil. The first group of Chilean companies encountered difficulties due to Brazilian law. By tackling initial barriers, investors understood the real benefits of local opportunities. For instance, the entry of the Cencosud Group to North-east Brazil through the acquisition of the supermarket chains, G. Barbosa in Sergipe, Superfamília in Ceará, and Perini in Salvador.”68

Following the trend of Chilean investments in Brazil, the Cencosud Group expanded by acquiring the Bretas supermarkets in Minas Gerais in 2010.69 In this regard, the ACE Nº 35 helped form a free trade zone and encouraged reciprocal investments. In 1999, important advances in terms of improving the architecture of the ACE No 35 were achieved, with the approval of procedures providing safeguards and dispute resolutions. From 1st January 2006, 97.7% of goods were free from taxation which meant a preference of 100%. Goods (2.3%) reached a zero tariff from 1st January 2011 onwards,

67 Ministério das Relações Exteriores, Brasil. “Reunião bilateral Brasil-Chile”, nota no 301. Accessed on 3rd May 2013. http://www.itamaraty.gov.br/sala-de-imprensa/notas-a- imprensa/2001/08/09/-bilateral-brasil-chile/?searchterm=ACE%2035 68 Álvaro Camargo, Interim Director of ProChile São Paulo/SP and Representative of ProChile Salvador/BA- interviewed on 26th July 2011, São Paulo. 69 Cencosud. Accessed on 30th July 2011. http://www.cencosud.cl/eng/unidades_ gbarbosa.htm

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with the exception of products which were more sensitive for Chile which reached preference margins from 1st January 2012 (sugar) and 1st January 2014 onwards (wheat and wheat flour).70 Despite the growth in Brazil-Chile trade in the last few years, it is necessary to take into account that a certain degree of cooperation in the political field is required for bilateral relations, although the question is to what extent. It can be seen that Brazil-Chile trade has grown enormously and therefore the question is whether or not policy has played an important role in commerce. Some argue that while there is an intense level of Brazil- Chile bilateral trade, progress has been made without policy influence. In this analysis, questions about the impossibility of cooperation based on only one sector are raised. Indeed, it should be remembered that no country wants political problems with a strong trading partner.71 Although there has been little visible effort to strengthen political ties between the two countries, the states have never faced major conflicts.72 The lack of serious conflicts in the past and up to the present has encouraged the growth of bilateral trade. In this sense, a stable political relationship contributes to promoting trade links between the two countries instead of discouraging the building of trade ties. Since the foremost aspect of public diplomacy is its coordinated campaign with various sectors of society, trade and policy cannot be studied as separate institutions as if they did not exerted any degree of influence over each other. Therefore, both policy and trade are considered as significant elements of long and short-term foreign policy aims within the study of public

70 Ministério das Relações Exteriores, Brazil.“Mercosul-Chile ACE 35”, accessed on 3rd May 2013. http://www.itamaraty.gov.br/temas/mercado-do-sul-e-integracao-regional/aladi/ mercosul-chile-ace-35/?searchterm=ACE%20n%2035 71 When a country opens itself up to trade, there is a capital and labour shift towards industry and these are used more efficiently. Brad McDonald (2012), “International trade: Commerce among nations”, International Monetary Fund. http://www.imf.org/external/ pubs/ft/fandd/basics/trade.htm. 72 Even stable bilateral relationships change the level of the relations. For instance, Obama’s foreign policy with traditional allies such as Brazil and Argentina has been cordial but, at the same time, tension has arisen. The United States has refused to accept the increasing independence of Brazil and to a lesser extent, Argentina in foreign affairs. Gary Prevost and Carlos Oliva Campos (Eds) (2011), Cuban-Latin American relations in the context of a changing hemisphere. New York: Cambria Press.

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diplomacy. According to the analysis of public diplomacy, trade and policy - along with informal sectors - play an important role in explaining the Brazil-Chile bilateral relationship. Since public diplomacy involves the desire to create a positive image of the advocating country and is clearly tied to foreign policy aims, trade and policy can be considered as complementary actors focused on the same target. Therefore, the absence of the influence that trade exerts over policy and the fact that each sector could be studied separately may not be considered. Considering this liberal perspective, countries are less inclined to enter into conflict with those with whom they can do business. Therefore, business can serve to prevent conflict and, to a greater extent, foster political cooperation. It should be remembered that public and traditional diplomacy serve the same purposes and should be used in a coordinated fashion in order to lead to significant gains. What is most interesting for this study is that no one concept implies the exclusion of the other – in other words - traditional diplomacy and public diplomacy are totally complementary. Indeed, trade pertaining to the idea of multi-criteria analysis can play a supporting role, making traditional diplomacy more persuasive when building an approach to foreign policy. The increasing role of other actors in foreign affairs helps create strong links through diverse ties. The fundamental issue for this study is whether Chile restricting political aims affects its relationship with Brazil or whether there is a misconception about Chile’s participation in the regional agenda. Chile exerts political diplomacy by participating in some multilateral events, for example, the country has been an active participant of the OAS and supported the formation of the UNASUR. Along with Chile’s participation in the multilateral field, presidential diplomacy plays an important role in building up bilateral relations. It can be argued that presidential diplomacy helps to either foster trade ties in a way that cements relations between various sectors or has a negative effect on trade. To illustrate this point, the Chile- Mercosur negotiation process will continue to be analysed. From Chile’s perspective, it is essential to understand how the negotiations were conducted. As Pizarro argues:

“Negotiations to establish the conditions and timetable for Chile’s entry as a full member began in September 2000. The negotiations were carried out to create the

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document which would be submitted for approval by the XIV Presidents Summit of Mercosur scheduled for December 2000, in Florianópolis, Brazil. However, the possibility of full membership was jeopardised by Chile’s negotiation of a free trade agreement with the United States. The occasion brought about unpleasant consequences for Brazil-Chile diplomatic relations, since Brazil found out about Chile’s actions via the US during the Florianópolis summit. For obvious reasons, Chile’s actions caused an unpleasant reaction within Brazilian diplomatic circles” (interview with Roberto Pizarro, 24 August 2011, Santiago de Chile).

The consequences were two-fold: first, Brazil found out about Chile’s actions from the United States. This fact aggravated the consequences in terms of Chile’s relationship with Mercosur members, especially Brazil. Secondly, Chile chose to favour its relationship with the United States instead of strengthening regional links.73 For obvious reasons, Chile’s decision to start FTA negotiations with the United States, accompanied by how Brazil became aware of Chile’s actions led to Brazilian diplomatic bemoaning, particularly taking into consideration the fact that the negotiations occurred during the government of President Lagos and President Cardoso in a period of supposed closeness between the two.74 Interestingly enough, diplomatic reticence remained up until Chile’s support of Brazil as a permanent member of the UN Security Council. The fact that President Lagos announced the negotiation of a FTA with the United States in California on 29th November 2000 did not fit in well with Brazilian diplomacy, which remembered that Chile had interrupted its Mercosur negotiations to negotiate a Chile-United States FTA, which it had

73 An interesting aspect about the integration of the United States, Canada and México into NAFTA is that the agreement encompasses the only example so far of a economic integration scheme involving two advanced economies and one emerging or developing economy. Prospects for trade growth have been good for all three countries. However, considerable volatility has characterized their trade. When the Mexican economy was recording growth in 1994, the United States had a US$ 5 billion trade surplus with Mexico. Robert N.Gwynne (1999), “Globalization, neoliberalism and economic change in South America and Mexico”, in Robert N. Gwynne and Cristóbal Kay (eds) (2014), Latin America transformed: globalisation and modernity. London: Arnold, p. 93. 74 Ibid. Cardoso and Lagos were colleagues at Flacso and were together in the Latin American Council of Social Science. The close friendship between the two presidentes can be observed on the occasion of the lunch offered for the President of Chile on 13th July 2000. http://www.itamaraty.gov.br/sala-de-imprensa/notas-a-imprensa/2000/07/13/discurso -do-presidente-fernando-henrique-cardoso.

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found out through the United Sates causing a certain amount of diplomatic discomfort between Brazil and Chile. In this context, the Chilean Minister Soledad Alvear stated that negotiating with the United States did not mean that the Mercosur Project was lagging behind, highlighting that Chile’s aim was not incorporation into NAFTA, but to sign a bilateral free trade agreement with the United States. Although the bloc was kept informed about negotiations with the United States, Chile’s policy towards the United States shifted their focus somewhat. Despite the difficulties with the Mercosur negotiation process, some benefits of Chile-Brazil trade links were already visible. In May 2008 the administrative procedure of the ACE Nº 35 amended Article 12 of the agreement allowing products from free zones located in member countries to be eligible for the liberalisation programme of tariff benefits. Therefore, Chile negotiated bilaterally with each member country of Mercosur about which goods could be included in this provision.75 After the ACE Nº 35 came into force, Chile made progress in its political negotiations with Mercosur. Much of this progress was due to the incorporation of a mechanism for consultation and political coordination in the bloc - not the ACE Nº 35 per se – but something that was related to it.76 This association was strengthened in December 1998 with the creation of the Mercosur Forum for Political Consultation and Concertation in which Chile participated seeking to widen the political cooperation between member states and associated members. Its main aim was to coordinate issues regarding foreign policy and common policy agenda. From Chile’s perspective, the ACE Nº 35 is not only significant because of trade, but also because policy plays an important role in the integration process. In this way, Chile’s membership of Mercosur brought with it the possibility for the country to play a more active role in regional dialogue.77

75 Ministério do Desenvolvimento Indústria e Comércio Exterior. Acordo de Complementação Econômica No 35, Quinquagésimo Terceiro Protocolo Adicional, accessed on 3rd May 2013. To that date only Chile and Brazil had managed trade harmonisation. www.desenvolvimento.gov.br/arquivos/dwnl_1244571281.doc 76 Chile has participated in this since the second summit of political dialogue for Mercosur members held in Asunción, Paraguay on 23rd July 1997. 77 Chile also aims to expand the group’s economic and political field to include the liberalization of services and investment. Global Investment & Business Center (2015), “Chile: Investment, trade laws and regulations handbook”, vol. 1, strategic information and basic laws. Washington D.C.: International Business Publications, p. 60.

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The Mercosur association paved the way for constant dialogue on diverse topics such as: migration issues, public safety (a working group on firearms), international security and humanitarian affairs among others. This means that Chile considers Mercosur a relevant part of the regional integration process and a valuable tool for coordinating positions in multilateral agencies and the country has demonstrated its interest in maintaining and increasing its participation in the Mercosur agenda. Efforts to build up regional links were more visible during President Bachelet’s government, since substantial progress was made in terms of strengthening bilateral and multilateral ties in Latin America and the Caribbean. This does not mean that a certain degree of regional cooperation was not achieved by her successor. During President Bachelet’s term, Chile addressed Mercosur as a very relevant opportunity for encouraging the regional integration process. According to Riquelme and Gusmán:

“Mercosur also plays a major role in coordinating positions in the multilateral field. For example, Mercosur has requested the redefinition of positions between countries, taking a common approach to critical issues in the United Nations’ agenda. Beyond strengthening trade cooperation, Mercosur also promotes fundamental dialogue about bilateral, transnational and multilateral topics in the international agenda.”78

Chile’s participation in Mercosur through the ACE Nº 35 is a clear example of how public diplomacy works together with traditional diplomacy in order to offer tangible gains to a country’s foreign policy within the Southern Cone. The ACE Nº 35 contributed to creating of more diverse environment, bringing trade and policy into the same sphere of importance when strengthening bilateral ties between Chile and Brazil. Most importantly, a coordinated effort from various sectors is seen in order to create foreign policy goals. Increasing trade helps build up common positions with regards to diverse issues, from trade links to civil society topics.79 The new foreign

78 Jorge Riquelme, Official from the Multilateral Policy Office/Ministry of Foreign Affairs of Chile, professor at the University of Chile. Alvaro Gusmán, Official of International Security/Ministry of Foreign Affairs of Chile. Interviewed on 29 August 2011 at the Ministry of Foreign Affairs, Santiago de Chile. 79 The strategic importance of trade has grown over the years. In general terms, trade includes investment, shipping, tourism and the management of enterprises. Michael B.

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policy agenda demands the coordinated mobilisation of diverging areas, which cannot be achieved by conventional diplomacy. One of the most interesting aspects of this study is that public diplomacy varies from country to country, to the extent that, in some countries it can be seen that advocacy demands much of the State’s attention, while, in others, branding programming deserves the majority of the efforts. What probably makes the creation of Brazil-Chile ties easier is the coherence of Chile’s public diplomacy message, demonstrated in the congruence between the three activities traditional diplomacy, relationship-building between diverse sectors and branding programming and cultural events.80 Chile’s well- coordinated policy helps develop possible long-term bilateral links.81 In the public diplomacy context, the benefits of the Mercosur Forum for Political Consultation and Concentration were visible in shaping political ties and enforcing regional links.82 Together with fostering regional cooperation, the strengthening of Brazil-Chile bilateral relations in the long run can be seen as an opportunity for constant dialogue between regional actors. Building cooperation in diversified areas has emerged as a key factor for strengthening bilateral ties, as well as creating indirect closer links. Having said that, diverse cooperation links are prerequisite for any long- term progress in bilateral aims.

Froman (2014), “The strategic logic of trade: New rules of the road for the global market”, Foreign Affairs. November/December. New York: William S. Hein & Co. 80 Public diplomacy in the twentieth century has its origins in two world wars and the Cold War between the communist east and the capitalist west. The twenty-first century is a post- September 11th environment dominated by military invasions, information and communication technologies. Nancy Snow and Philip M. Taylor (2009), “Preface and introduction” in Nancy Snow and Philip M. Taylor (Eds), Routledge handbook of public diplomacy. New York: Routledge, p. 9. 81 The new public diplomacy demands a national reputation strategy. In its beginnings public diplomacy was conceived as propaganda, whose idea was to persuade and coordinate social consensus. Today, public diplomacy has to take into account the participation of social networks in foreign policy. Aleix Sanmartín (2015), “Chile: Nueva diplomacia pública para una mejor reputación”, Diario Financiero, Thursday, 19th November. https://www.df.cl/noticias/opinion/columnistas/chile-nueva-diplomacia-publica-para-una- mejor-reputacion/2014-09-30/212606.html. 82 Two new forums emerged within Mercosur, the Forum for Political Consultation and Concertation with three working groups and the Forum for Consultation with Municipalities, Federal States, Provinces and Districts. Olivier Dabène (2009), The politics of regional integration in Latin America: Theoretical and comparative explorations. New York: Palgrave Macmillan, p. 98.

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3.3.1 The potential benefits of UNASUR regarding Brazil-Chile relations

A analysis of the Union of South America Nations (UNASUR) is twofold, since the initiative is extremely important for encouraging integration among its 12 members, creating a multilateral space for dialogue. Another positive feature is that UNASUR illustrates the relevant aspects of presidential or summit diplomacy within regional integration projects. Presidential politics provide the fundamentals for facing contemporary issues, serving as a priceless tool for strengthening the dialogue between regional actors (Acosta, 2009: 97). The combination of these two aspects is remarkable encouraging Brazil-Chile cooperation, because of UNASUR’s pragmatic features. UNASUR has its origins in a sequence of summits of heads of states, heads of governments, foreign ministers, council delegates and working groups, which, at that time, gave the union an institutional character that is still recognised as the South American Community of Nations, later known as UNASUR.83 With its roots in leader-to-leader diplomacy, UNASUR reshaped regional relations by exploring new areas of cooperation.84 The lack of trade in UNASUR conferred great importance on cooperation, since the initiative is focused on strategic political partnerships. The idea of a South America institution that could tackle transnational issues with a view to ensuring greater regional dialogue is something new. At the Second Summit of Heads of State and Governments, in Brasilia in May 2008, the sub-region’s members signed the Constituent Treaty, which formally institutionalised the Union of South American Nations (UNASUR). The institutionalisation of UNASUR occurred without prejudice and still had to be approved by the Chilean National Congress to fully enter into force. At the same time, Chile assumed pro tempore presidency of the body (2008-2009). The UNASUR Constituent Treaty was

83 “Perspectivas, proyecciones y desafios de la política exterior de Chile”. Gobierno de Chile, February 2010, p. 40. 84 The convergence of integrationist positions in the three regional powers of Argentina, Brazil and Venezuela led to the emergence of the bloc. See João Carlos Amoroso Botelho (2013), La evolución y la creación de UNASUR. Paraná: Juruá Editora.

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approved by the Brazilian Senate on 7th July 2011. This step ended the legislative procedure, allowing Brazil to participate as a full member. UNASUR emerged because of the need for a transnational body in which to discuss issues that could not be relegated to the domestic field, because of the national limitations to facing complex matters. In this scenario, the formation of cooperative links was necessary to deal with strategic topics, making countries increasingly interconnected. Transnational demands stress the need to create public opportunities for facing issues pertaining to new phenomena that will be ineffective if only treated within the nation-state (Jácome, 2010: 21-22). It should be pointed out that transnational demands not only deal with economic globalisation topics, but also with safety, the environment, energy, health, infrastructure and drug trafficking among others. Moreover, the transnational agenda has to deal with fundamental rights’ issues related to the survival of human beings. UNASUR provides a coherent regional voice, seeking to strengthen the mechanisms and the rule of law in international relations to achieve a multipolar, balanced and fair opportunity for the sovereign equality of states in a world of nuclear weapons and mass destruction. One of UNASUR’s most effective policies is that of helping to solve problems that affect the region, such as poverty, exclusion and social inequality.85 Indeed, UNASUR bring matters such as energy and infrastructure to the foreground, serving to complement initiatives like IIRSA, whose goal is to create a common agenda related to infrastructure, energy and communications.86 Interestingly enough, neither UNASUR nor IIRSA has strong presidential diplomacy as its core element for carrying out these initiatives. Brazil assumed its role as regional leader within the field of UNASUR. Even though many regional matters arose, UNASUR provided a more appreciative and focused scenario in which to deal with regional issues. Indeed, President Lula exerted his regional leadership role there more than the international sphere. For obvious reasons, the settlement of centre-left

85 Nota: Tratado Constitutivo da UNASUL 14.02.pdf.p.1. http://www.itamaraty.gov.br/ temas/america-do-sul-e-integracao-regional/unasul 86 In Chile the IIRSA includes the region of Coquimbo, Valparaíso, Libertador O’Higging and Maule. In Brazil it includes Rio Grande do Sul, Santa Catarina, Paraná, São Paulo and Minas Gerais. Iniciativa para la Integración de la Infraestructura Regional Suramericana, IIRSA, “Mercosur-Chile hub”. http://www.iirsa.org/Page/PageDetail?id=124&menuItemId =57.

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governments in the region in the last few years, combined with the increasing role played by presidential diplomacy, advocated for shared priorities to be established. In this context, presidential diplomacy paved the way for common positions from which to face regional issues (Yopo, 2010: 222). Personal interactions has shown itself to be an important way of strengthening bilateral foreign policy, especially considering the possibility of establishing a more intense dialogue within the Southern Cone. Bringing foreign policy affairs closer to civil society is congruent with public diplomacy, nation branding and paradiplomacy, highlighting approaches to new areas of issues as a way of creating new cooperation ties. Actions taken by the president and reported by the press go hand-in-hand with the increasing public interest in foreign policy. Moreover, the president’s more active role encourages domestic actors to get involved in international affairs and leads, therefore, to the closer participation of inter-sector players foreign policy strategy.87 In a similar way, Chile and Brazil have assumed a kind of intermediate degree of presidential diplomacy, to the extent that the concept has translated into a more active role for the president. As has already been said, the fact that the two countries had centre-left governments favours the building of closer bilateral links during periods when policy is headed in a similar direction. Of course, the charismatic figures of President Lula and President Bachelet have largely contributed to the establishment of increasing cooperation between the two countries.88 Increasing presidential ties has laid the groundwork for strengthening regional links and for embarking on cooperation initiatives such as UNASUR. However, this does not mean that in the context of Brazil-Chile foreign policy the president takes over foreign policy replacing the function of the Department of Foreign Affairs. On the contrary, neither the creation of Chilean foreign policy making nor Brazilian foreign policy strategy

87 Souza, Matilde and Ramos Bahia, Bernardo. “Democratisation and the new deliberative and contested spaces in Brazil’s South America Policy.” 2011: 2. http://www. saopaulo2011.ipsa.org 88 Lula and Bachelet were often said to be part of Latin America’s responsible left, whilst Chávez and Morales represented the radical or popular left. Ted G. Goertzel (2011), Brazil’s Lula: The most popular politician on earth. Boca Raton: Brown Walker Press, p. 151.

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indicates that foreign policy is based on short-term perspectives or subject to the ups and downs of foreign policy. At the same time, it cannot be denied that presidential diplomacy has been influential and that it cannot be supplanted without major consequences for the strengthening of regional ties. In this respect, UNASUR is similar to other hemispheric initiatives, such as the Contadora Group, the Contadora Support Group, and later the Rio Group, which means that, despite their cooperation and multilateral cooperation links, all share a kind of informal character.89 Since the beginning, UNASUR has aimed to converge with other systems of Latin American integration such as Mercosur and CAN (the Andean Community). UNASUR does not attempt to duplicate cooperation efforts, but rather strengthen country’s participation in regional concerns. Chile considers UNASUR an important opportunity for carrying out integration.90 In this regard, through the creation of a multilateral environment in which to deal with concrete issues, UNASUR accounts for the development of further bilateral links due to closer relations between the countries when facing regional issues.91 UNASUR can be seen as one of the core mechanisms for establishing cooperation between the regions’ countries. As opposed to the European

89 The aim of Latin American unity in the peace process was to find an indigenous solution to regional problems, such as the Contadora Group in 1987. The idea was that Central America’s upheavals were primarily indigenous and therefore the conflict needed a regional solution. Mary K. Meyer (2009), “Cooperation in conflict: The Latin American diplomatic style of cooperation in the face of foreign threats” in Douglas P. Fry and Kaj Björkqvist (Eds), Cultural variation in conflict resolution: Alternatives to violence. New Jersey: Psychology Press, p. 168. 90 Ministerio de Relaciones Exteriores de Chile. “Hitos de la política exterior 2006-2010. http://www.minrel.gob.cl/prontus_minrel/site/artic/20091230/pags/20091230083503.php 91 The UNASUR has made definite progress in solving regional conflicts, such as the solution of the internal crisis in Bolivia in 2008. The South American diplomatic reaction to this conflict was markedly different, demonstrating the importance of new emerging actors such as UNASUR in regional politics. “The Bolivian crisis, the OAS&UNASUR”. Densidad regional de América del Sur. September 2008. http://www.densidadregional. com/?p=29. Moreover, in response to the institutional crisis that occurred in Ecuador in September 2010, the heads of state of UNASUR decided to incorporate an additional protocol into the Constitutional Treaty, which established concrete measures to be adopted by the member states of UNASUR in case of the breakdown of constitutional order. “UNASUL”, Ministério das Relacões Exteriores. http://www.itamaraty.gov.br/temas/ conteúd-do-sul-e-integracao-regional/unasul

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Union or other global integration models based on a single solid institution, the South American integration process is made up of countless networks of different sizes and scopes, each with a different function. In fact, UNASUR has not replaced Mercosur as the main Southern Cone body for integration and on the contrary, Mercosur and UNASUR should be studied as complementary regional institutions. Furthermore, both UNASUR and Mercosur are relevant to regional integration and create a valuable multilateral arena in which to coordinate common positions and discuss diverse issues. In addition to its convergence when facing regional matters, it should be pointed out that the importance of UNASUR is linked to Brazil’s ability to strengthen its role as a regional power. Brazil’s capacity to exert its authority as a regional leader is aligned with that confirmed by integration bodies such as UNASUR. Chile’s support for Brazil’s regional leadership represents a significant step forward in Brazil-Chile relations, even if Chile did not make relevant changes to its foreign policy goals as a result of its support. For authors such as Malamud, Brazil would probably consolidate itself as a middle global power before achieving its aim of being a regional leader (Malamud, 2011: 3-4). Despite this, Chile recognises Brazil’s leadership as long as it does not interfere in its own international insertion strategy. The core element to understanding Chile’s support – apart from being supportive in itself – is related to its cooperation aims. However, Chile’s international insertion does not signify a lack of support for regional integration projects or Brazil’s initiatives. Their mutual trust and perception of each other as stable partners commits the two countries to working towards common ground, even though isolated positions may cause concerns about their foreign policy targets. However, it should be remembered that, during their bilateral relationship, Brazil and Chile have never been through serious conflicts and both states share a long- term foreign policy strategy. These two elements should be considered as important features for fostering bilateral links within UNASUR. Indeed, UNASUR encourages closer dialogue in different areas, which goes hand- in-hand with the features of public diplomacy, presidential diplomacy, nation branding and paradiplomacy that serve as core elements for our study.

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3.3.2 Brazil-Chile relations in the democratic context

Under democratic governments, Brazil and Chile strengthened their bilateral relations. Due to the new international and regional multilateral agendas, the two countries had to define their relationship one way or another. The fact that the two countries shared similar values and had libertarian vocation helped strengthen bilateral ties. Indeed, Chile and Brazil underwent a transitional period that was crucially important, since both countries needed to consolidate their strategic international reinsertion in order to prevent regressing to an authoritarian regime. Sharing common demands for consolidating democratic regimes marked both countries’ foreign policy and therefore, the way bilateral ties were created. The combination of a favourable regional context and their commitment to multilateral institutions made room for the development of bilateral relations. Brazil and Chile share similar values regarding social, political and economic multilateral issues in the debates within the field of the United Nations. The defence of democratic values facilitated closer relations between the two countries. In this context, they agreed on the importance of rules and norms to establish a harmonious and stable order in international relations. The construction of common positions in diverse and sensitive topics like the environment, human rights, social development, women rights and reproductive health can be seen. Thanks to the proliferation of inter-sector cooperation in the twenty-first century, broadening horizons connected more sectors of the two countries as pointed out by the concept of public diplomacy and paradiplomacy. Most importantly, emerging new issues proved that the nation-state as a single actor had been unable to deal with present international relations (Agirreazkuenaga, 2009: 209). The long-term stable relationship between the two countries was illustrated by Brazil’s rapid assistance after the earthquake that took place in Chile on 27th February 2010. President Lula sent rescue units and medical equipment, including dialysis machines, to assist Chile in its relief efforts, after one of the biggest earthquakes in Chilean history.92 Brazil also announced the deployment of a field hospital to help treat victims. The

92 The Wall Street Journal, U.S. Edition. Posted by Jeff Fick and Charles Roth. “Brazil sending rescue teams and equipment to Chile”, O Globo Mundo. 1st March 2010. http://blogs.wsj.com/dispatch/2010/03/01/brazil-sending-rescue-teams-equipment-to-chile/

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rescue team was transported on an Aircraft from the Brazil Air Force (Força Aérea Brasileira or FAB) and was mobilised by the National Secretary for Civil Defence.93 In this respect, Brazil and Chile not only held similar positions in terms of vital standpoints, but also shared a positive attitude towards a consensus on the discussion of emerging new issues.94 The most important point on which they agreed was that Brazil and Chile had similar views about the reform of the United Nations, particularly in what the amplification of the Security Council and the creation of the Peace and Human Rights Councils. Moreover, Chile supported Brazil’s aspirations of occupying a permanent seat on the UN Security Council, revealed for the first time by Chancellor Insulza support of Brazil in 1997 and reconfirmed by the state visit of President Lagos to Brazil in 2003. In fact, Chile also supported expanding the UN Security Council to include Germany, Japan, India and Brazil. Chile’s support for Brazil’s aspirations can be understood as an important element for the climate of trust that has existed since the 1990s.95 Like Brazil, Chile argued that the Security Council should adapt to the new realities of the present and therefore should become more democratic. Its static structure, which had existed since the Second World War and which maintained the Cold War’s power framework urged a rapid change, as a way of renewing public confidence in the UN by almost quadrupling

93 O Globo, Mundo. “Lula promete ajuda ao Chile e resgate aos brasileiros”. 1 March 2010. http://g1.globo.com/Noticias/Mundo/0,MUL1511096-5602,00.html 94 The sharing of common positions can be demonstrated in initiatives such as the Cairns Group, which was created in 1986 to establish the liberalisation of agricultural-trade. Among the founding countries were Chile and Brazil, coming together as a third force and working during the Uruguay round, in response to the United States and European Union’s policies. The idea behind this group was a commitment to achieving free and fair trade in agriculture that would provide real and sustainable benefits for the developing world. http://www.cairnsgroup.org/introduction.html 95 President José Mujica of Uruguay, made a declaration supporting of Brazil as a permanent member of the UN Security Council. Curiously, Argentina did not support Brazil’s aspirations to be a permanent member. Martín Pintos. La ruptura: historias secretas del conflicto con Argentina. Montevideo: Fin de Siglo Editorial, 2010, pp. 285- 290. Brazil’s aspirations for a permanent seat on the UN Security Council lay in the perception that developing countries should play a more central role on international agenda, assuming credentials to the maintenance of international peace and security. Virgílio Arraes, “O Brasil e a ONU, de 1990 a nossos dias: das grandes conferências às grandes pretensões”, in Henrique Altemani and Antônio Carlos Lessa. Relações internacionais do Brasil: temas e agendas. vol. 2. São Paulo: Saraiva 2006, p. 28.

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the number of countries affiliated to it. The inability of the current Security Council to represent the emerging multipolar order demanded a new structure and the inclusion of new members. In this context, Yopo highlights:

“Chile’s support for Brazil as the Latin American permanent member of the Security Council, goes hand-in-hand with its regional weight and the history of trust between the two countries. Indeed, Chile supported a rotating chair for the region, sharing the same view as Argentina. There were speculations that Chile’s support occurred in a scenario of exchanging favours, since we see a parallel between the support of the latter and Brazil’s support for Insulza as a candidate for the OAS.”96

President Piñera reconfirmed his predecessors’ view and shared the same opinion as President Dilma concerning the need for an urgent reform of the UN Security Council and other international institutions such as the World Bank and the International Monetary Fund (IMF). According to him, there was an urgent need to modernise international organisations, starting with the Security Council and then expanding to other organisations (Josephson, 2013). Like Brazilian diplomacy, Chile foreign policy sustains the same political values and both countries claimed there was a need for the re- democratisation of the UN.97 What is missing is not only the lack of studies on Brazil-Chile bilateral relations, but also the analysis of the factors which led to their closer

96 Mladen Yopo Herrera, Deputy Director of the National Academy of Political and Strategic Studies (ANEPE), Chile. Interviewed in Santiago de Chile on 4 November 2011. 97 Brazil’s international insertion as an emerging global power demands a different approach on Chile’s part. Understanding Brazil’s changing role in foreign affairs is the core element for re-establishing foreign policy strategy. Among other global issues, the important role played by Brazil in international organisations should be highlighted. For instance, the removal of Brazil’s Ambassador, José Maurício Bustani, from the Organisation for the Prohibition of Chemical Weapons (OPCW) needs cautious analysis. Eduardo Salgado, “Briga com os EUA”. Revista Veja, 1st May 2002. São Paulo: Editora Abril. Today, the head of the OPCW’s inspectors is a Brazilian engineer, which shows the country’s participation in multilateral forums. Lidy Nicolasen, “Onbekende international club met een opmerkelijk snel succes”. Profiel Organisatie voor het Verbop op Chemische Wapens (OPCW). De Volkskrant. Saturday 12th October 2013. p. 6. Rob Goor. “VS steekt lont aan in OPCW”, Haagschese Courant, 20th April 2002 in Crisis in de OPCW: de verwijdering van Directeur-Generaal Bustani. PENN-NL Facts and Reports Nr. 6, May 2002.

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cooperation, combined with a growing convergence on aspects of their foreign policy. These points are valuable in order to understand contemporary Chilean-Brazilian foreign affairs. From Chile’s standpoint, the apparent resistance to strengthening political ties could not continue over the following years, given Brazil’s regional influence and the country’s new status as an emerging global player. From Brazil’s perspective, Chile represented an opportunity for access to the Pacific with it, worth remembering that Brazil is the only BRIC without an outlet to the Pacific. In this context, infrastructure integration plays a major role in terms of Brazil- Chile foreign policy priorities.

3.3.3 Brazil-Chile cooperation in infrastructure

Analysis of international trade flows demonstrates that the main route that today is still the Atlantic Ocean will shift to the Pacific in the foreseeable future because of the growth of China and other Asian nations. Moreover, trade with the Middle East is becoming more intense. Therefore, the goal of bioceanic routes is congruent with international demands, backed by the fact that Brazil regained its ability to invest in infrastructure through the Growth Acceleration Programme (PAC). This means that new investment in transportation received specific attention from the Brazil government’s political strategy that sought to promote infrastructure integration in the region.98 The implementation of the bioceanic corridor project constitutes a series of investments by governments in partnership with national and international transport infrastructure (road, rail and waterways). After being deployed, the corridor would connect Brazil and Chile to both the Atlantic and Pacific coasts. Therefore, the origin of the ‘bioceanic’ concept refers to

98 See Gelson Fonseca Jr. (2004) “A visita do Presidente Luiz Inácio Lula da Silva ao Chile, 22 a 24 de agosto de 2004”, Embajada de Brasil en Chile. Concha y Toro: LOM Ediciones, pp. 9-10. However, infrastructure initiative face costly and difficult bureaucratic procedures. Internal administrative problems of Mercosur illustrates this point considering the lack of consensus towards fuel tax distribution, tax collection, dimensions and wights of vehicles among others. See Clarissa Dri and Maria Eduarda Paiva (2012), “Parlasul, um novo ator no processo decisório do Mercosul”, 36o Encontro Annual da ANPOCS, Política Internacional, p. 12.

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the possibility for moving goods (exports/imports) and capital through the two oceans. The logic inherent to the project is based on the search for a greater movement of goods and capital to expand geographically, whilst disrupting political boundaries and physical and cultural order by spreading a nexus of consumption and money. The systematic study of the bioceanic corridor was executed during the administration of President Fernando Henrique Cardoso in 1996. The study supported the idea of trans-oceanic corridors that allowed access to the ports of Brazil and Chile, from where the Brazilian products would be moved to Asia and the Middle East.99 More recently, during the two terms of President Lula (2003-2006 and 2007-2010), the project gained consistency and public-private investments. The project also facilitated market access and the countries involved achieved economic growth, taking advantage of regional comparative advantages to expand their presence in international markets.100 In this sense, building up new connections tackles real demands. Such an approach recognises that Brazil and Chile share a pragmatic vision of cooperation and demonstrates that substantial initiatives are carried out in order to expand physical links. The restoration and modernisation of ports reduces logistic costs, boosts competitiveness and improves operational efficiency (Ding, 2008: 119). Reducing geographical proximity represents a core element to bridging the gap in Brazil and Chile’s relationship in the long-run. Furthermore, transportation links promote private-public bilateral dialogue, sustaining the argument that Brazil-Chile ties deserve a much broader and deeper interpretation than that highlighted by traditional diplomacy. Importantly, Brazil’s new role as an emerging global power demands

99 The IIRSA emerged as a cooperation initiative of President Fernando Henrique Cardoso at the South American Presidential Summit held in Brasília on 30th August 2000. The aim of the initiative was to build corridors that serve as multinational strips to concentrate on potential and current flows of trade. Manuela Garza Ascencio and Raúl Zibechi (2006), “Brazil-the difficult path to multilateralism”, Alterinfos América Latina, 7 April 2015. http://www.alterinfos.org/spip.php?article282. 100 On 23 May 2015, China’s Prime Minister Li Keqiang, met with Peruvian President Ollanta Humala to sign the implementation of feasibility studies on a bioceanic railway corridor through the Amazonian rainforest, connecting Brazil to Peruvian ports. Martin de Angelis (2015), “South America’s bi-oceanic railway”, Global Risk Insights, 31 May 2015. http://globalriskinsights.com/2015/05/south-americas-bi-oceanic-railway/.

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more investment in infrastructure. In this way, the need for a physical regional connection assumes two directions: on one hand, the need for Brazil to develop closer regional ties, which includes fostering the Brazil- Chile relationship with the goal of strengthening their economies and political dialogue.101 On the other hand, Brazil’s rise on the international scene promotes the need for an organised and efficient network of infrastructure to deal with increasing foreign demands. Therefore, an efficient infrastructure network is a prerequisite for expanding bilateral and inter-regional links, besides being a critical element for determining Brazil’s new geopolitical position.102 In this context, the PAC is a mechanism for Brazil to carry out its management initiatives. In this scenario, the PAC was a crucial tool for engaging in definite initiatives regarding physical regional integration efforts. The PAC 2 is one of the largest strategic projects carried out by the Brazilian government, making significant changes to how investments are planned and executed. Likewise the first phase of the programme, the main goal of the PAC 2 was to boost the economy and maintain sustainable growth, taking advantage of the great potential for business expansion and the favourable historical climate in the country. The PAC 2 seeks to promote public-private investments in a rapid build-up of infrastructure to leverage economic development. In road and railway sector construction, growth was six times higher than the average in previous administrations. Public-private partnerships have advanced on the topic of credit policy and the contracts of services concessions. Indeed, the PAC 2 also helped the country face the international crisis of 2008-2009. While other countries had to mobilise 103 public investments, Brazil was already planning the work-in-progress.

101 The IIRSA goes beyond an infrastructure approach and is part of a wider case of south- south integration, as an instrument to encourage higher productivity, equity and growth. Mauricio Mesquita Moreira (2007), Trade costs and economic fundamentals of the initiative for integration of regional infrastructure in South America (IIRSA). Buenos Aires: INTAL ITD, p. 3. 102 At the turn of the century, strengthening integration in Latin America under the initiative of the Free Trade Area of the Americas (FTAA) and United States hegemony seemed unthinkable. However, two regional initiatives emerged in this scenario, the Union of South America Nations (UNASUR) and the Bolivarian Alternative for the Americas (ALBA). See Paul Kellogg (2007), “Regional Integration in Latin America: Dawn of an alternative to neoliberalism”, New Political Science, vol. 29, Issue 2. New York: Routledge. 103 Ministério dos Transportes, Relatório 1-PAC 2, pp. 6-7, http://www.transportes.gov.br/

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For obvious reasons, territorial planning combined with bilateral public- private coordination paved the way for Brazil-Chile relations this century. The first and foremost effect of the bioceanic corridor on their bilateral ties was twofold: the focus on pragmatic diplomacy regarding the way Brazil- Chile interact and the multi-criteria analysis that demands infrastructure coordination efforts, taking into account the partnership between several diversified sectors in order to carry out such an initiative. In our view, the context of the bioceanic corridor demands the use of the public diplomacy, nation branding and paradiplomacy theories to understand how various actors interact in Brazil-Chile links.104 In summary, the bioceanic project combined management initiatives and public administration as core mechanisms for executing contemporary dynamic bilateral links. Bioceanic corridors involve a series of investments made by national governments and international organisations, led by a coordinated initiative in the infrastructure and transport sectors (road, railways and waterways). The investments aim to link opposite sides of the region, linking the Pacific with the Atlantic Oceans through a multimodal transport system. The project relies on public-private partnerships and serves to reinforce the idea that Brazil-Chile ties demand a broader approach in order to explain bilateral connections. In this sense, the project is to be carried out with the support of the following financial institutions: the Andean Development Corporation (CAF), the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA), the Inter-American Development Bank (BID), the Plata Basin Financial Development Fund (FONPLATA)

index/204onteúdo/id/38152 104 Local governments are increasingly important for infrastructure projects, wich illustrates the growing role of paradiplomacy in foreign affairs. For instance, central governments are uninformed about local needs and unable to monitor service allocations. Pranab Bardhan and Dilip Mookherjee (2006), “Decentralisation and accountability in infrastructure delivery in developing countries”, The Economic Journal, vol. 116, Issue 508. Malden: John Wiley Sons. pp. 101-127. Decentralisation should also take into account efficiency and corruption levels. Theoretical literature makes ambiguous predictions about this relationship, despite the cross-country relationship between fiscal decentralisation and corruption being measured by criteria such as a number of different index. Fiscal decentralisation in government expenditure is strongly associated to lower corruption. Raymond Fisman and Roberta Gatti (2002), “Decentralisation and corruption: Evidence across countries”, Journal of Public Economics, vol. 83, Issue 3. London: Elsevier, pp. 325- 345.

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and the actions of the Integrated Zone of the Center West of South America (ZICOSUL).105 As will be seen, the continental structure, which is made up of the bioceanic routes has mainly been supported by IIRSA, which offers the opportunity for a coordinated approach to infrastructure. The fact that IIRSA is the main executor of the route means that it helps governments set priorities for integration and trade while strengthening regional dialogue, as well as promoting regulatory and legal harmonisation. It is interesting how various sectors interact to consolidate the bioceanic route and other infrastructure projects to the extent that new councils were created to expand logistical networks. Once again the fact that in Brazil-Chile foreign policy dialogue, political-economic aspects are interrelated brought into the discussion.106 The bioceanic corridor project embraces four bioceanic corridors. One of the bioceanic corridor projects was launched in 2010 during the administrations of Presidents Bachelet, Morales and Lula and UNASUR prioritised five regional integration projects based on infrastructure.107 In

105 The corridors are segments of the transport system, linking areas (producers/consumers) to operating systems integrated between two or more methods (waterways, rail or road). The main purpose of the bioceanic corridor is the possibility of accessing Brazilian exports and imports from the Chilean coast, specifically the ports of Iquique, Antofagasta and Mejillones on the Pacific coast. The integration of transport infrastructure would allow Brazilian exports, which are currently confined to the Atlantic Ocean (the Port of Santos-SP and Paranagua-PR) to have a direct route to the Pacific and easier access to Asian and Middle Eastern markets. Valquíria de Araújo Oliveira. “A infraestrutura de transportes como política governamental para o desenvolvimento regional e a integração Sul- Americana: uma análise sobre as rotas bioceânicas em Mato Grosso do Sul”. Universidade Federal de Grande Dourados, 2010, p. 16. 106 For instance, the South American Council of Infrastructure and Planning (COSIPLAN) is linked to UNASUR and was created in August 2009 to meet existing demands. The council intended to replace the Executive Steering Committee of the IIRSA by a Council of Ministers level within the institutional structure of the UNASUR. By adopting this measure, the countries sought to give greater political support to activities in the area of infrastructure integration, to ensure investments for the implementation of priority projects. Conselho de Infraestrutura e Planejamento (COSIPLAN) da UNASUL, Rio de Janeiro, 28th April 2011. Ministério das Relações Exteriores. http://www.itamaraty.gov.br/sala-de- imprensa/notas-a-imprensa/conselho-de-infraestrutura-e-planejamento-cosiplan-da-unasul- rio-de-janeiro-28-de-abril-de-2011 107 Gabriela Mañana (2014), “UNASUR priorizará el corredor bioceánico que incluye a Bolivia”, La Razón, Economía, 8 December 2014. http://www.la-razon.com/economia/ Unasur-priorizara-corredor-bioceanico-Bolivia_0_2176582349.html.

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practical terms, the Chilean-Bolivian-Brazilian bioceanic corridor faces investment problems. PAC 2 INVESTIMENTS in US$ billion (R$ billion) PAC 2 INITIATIVES 2011-2014 POST 2014 TOTAL BETTER CITY 31.3 (57.1) - 31.3 (57.1) BRINGING CITIZENSHIP TO 12.6 (23.0) - 12.6 (23.0) THE COMMUNITY HOUSING 152.5 (278.2) - 152.5 (278.2) WATER AND 16.6 (30.6) - 16.6 (30.6) LIGHT FOR ALL TRANSPORTATION 57.3 (104.5) 2.4 (4.5) 59.7 (109.0) ENERGY 255.3 (465.5) 343.9 (627.1) 599.2 (1,092.6) TOTAL 526.0 (958.9) 346.4 (631.6) 872.3 (1,590.5)

Source: Growth Acceleration Programme. Ministério do Planejamento, Desenvolvimento e Gestão.http://www.planejamento.gov.br/servicos/faq/pac-programa-de-aceleracao-do-cresci mento/visao-geral

As the Chilean Ambassador Jaime Gazmuri points out, “Bolivia’s demands for exclusive transport rights increased the difficulties faced by the project, since Brazil wanted transportation to be carried out by the Brazilian counterpart. Brazil argued that Bolivia had to respect the legal provisions of Mercosur which allowed transportation to be conducted by Brazil”.108 The main problem with regard to the Chilean-Bolivian-Brazilian project lies in the Brazil-Bolivia conflict. Brazil and Chile, on the other hand, enjoyed a long-term relationship and had been developing a stable partnership in infrastructure initiatives. Despite Brazilian-Bolivian issues, the road linking Brazil and Chile has made significant progress and will link the Brazilian ports of Santos and Mato Grosso with the Chilean terminals of Arica and Iquique. Brazil has already finished constructing their connections to the border of Bolivia and Chile has complied with the section that corresponds to the bioceanic corridor that will link the country to Brazil across Bolivia. Work on the

108 Interview with the Chilean Ambassador in Brazil, Jaime Gazmuri, on 1 September 2015.

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bridge over the Isluga River has been completed, which will benefit trade and tourism between the two countries.109 Infrastructure cooperation is meaningful in the way that it demonstrates that there is planning to physical integration and that it does not only involve theoretical projects that are never applied. As opposed to the road corridor, the establishment of a railway line between the two states demands further study and effort. Source: Ecologia e Ação (ECOA), “Corredores Ferroviários Bioceânicos na América do

Sul”.http://riosvivos.org.br/a/Noticia/Corredores+Ferroviarios+Bioceânicos+na+America+ do+Sul/18999.

Regardless in late 2009, a delegation of 18 Chileans visited the port of Rio Grande to discuss the issue. Despite the debate on strengthening Brazil- Chile political bilateral dialogue, strengthening bilateral cooperation will come in the following years. Inter-sector connection will lead to public- private partnerships, especially in the domain of infrastructure. Brazil’s international insertion as an emerging global player demands an efficient infrastructure to reduce transport costs. The current scenario encourages a pragmatic bilateral approach to new market demands. As the Brazilian Ambassador to Chile, Frederico Cezar de Araujo argues:

109 Clarise Árduz. “Chile termian seu trecho de corredor bioceânico”, Construção Latino- americana, 12th January 2012. http://www.khl.com/magazines/construcao-latino- americana/ detail/item70195/Chile-termina-seu-trecho-do-corredor-bioceanico/

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“In one way or another, Brazil and Chile took major steps towards bilateral infrastructure cooperation, regardless of their respective governments and foreign policy targets. Therefore, the two countries pushed forward pragmatic cooperation in order to achieve closer ties. Both countries’ long-term foreign policy aims contribute to strengthening their ties in the following years. For obvious reasons, the idea that Brazil-Chile would not become close partners should be replaced by the fact that physical proximity is their goal and would bring closer bilateral dialogue” (Brazilian Ambassador Frederico Cezar de Araujo, interviewed on 23rd August 2011 at the Embassy of Brazil in Santiago de Chile).

President Dilma Rousseff and her counterpart, President Sebastián Piñera complied with their promise of inaugurating the bioceanic corridor (road corridor) linking the port of Santos in São Paulo with Arica and Iquique in Chile in 2012. This initiative expanded and strengthened the ties between Chile, Brazil and Bolivia with direct benefits for these countries’ economies. Firstly, physical integration allows for more dynamic trade between the three states. Secondly, the project promotes economic development, social progress and quality of life, through access to health care and better economic conditions.110 It is worth mentioning that the bioceanic corridor is more than 4,000 kilometres long and involves railroads and highways that are part of the IIRSA. One of the bioceanic corridor projects is the creation of a railway to link the ports of Brazil and Chile, as already mentioned.111 One of the proposed routes for these railway lines connects the Brazilian ports of Rio Grande, Paranagua and Santos or some part of Santa Catarina. The Chilean proposal involves connecting the cities of Valparaíso in Chile, Mendoza and Cordoba in Argentina, Montevideo in Uruguay and Rio Grande do Sul and Santa Catarina in Brazil. Another route considered by Brazil is the

110 “De Leste a Oeste de oceano para oceano”. Odebrecht Informa Online. http://www. odebrechtonline.com.br/materias/01801-01900/1872/ 111 Among the obstacles mentioned by experts is each country’s bureaucracy related to the project. At the same time, the project will reduce the trip from the port of Santos to the port of Arica to around 11 days. Soy Arica, “El corredor bioceánico Chile-Brasil reducirá de once a dos días el viaje terrestre entre los puertos de Arica y Santos”, 6 December 2012. http://www.soychile.cl/Arica/Sociedad/2012/12/06/139322/El-corredor-bioceanico-Chile Brasil-reducira-de-once-a-dos-dias-el-viaje-terrestre-entre-los-puertos-de-Arica-y- Santos.aspx.

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construction of a railway to connect the ports of Santos and Paranagua to the Chilean ports of Antofagasta and Mejillones, across Paraguay and Argentina. This route is only a project and has not been started.112 As already stated, IIRSA is an important institutional mechanism for coordinating intergovernmental actions and the physical integration of Brazil and Chile. It comprises a series of projects organised around the concept of integration hubs, the environment and social sustainability. The IIRSA project was organised around five main parameters divided into ten integration zones, conferring a pragmatic dimension to the project. In this respect, most of the axes are interconnected. For instance, the Mercosur- Chile axis shares a common territory with five other ones (Andino do Sul, Capricórnio, Hidrovia Paraguai-Paraná, Interoceânico Central and Eixo do Sul). Brazil gave special attention to projects linking Mercosur and Chile, which includes nine railroads and bridges and six ports and airports. It should be considered that either the road or the railway corridor would generate important savings for the logistics of exports. The development of the road corridor serves to illustrate that infrastructure cooperation existed, even though South America’s huge territorial dimensions make governmental decisions crucial when deciding on specific initiatives (Luchetti, 2015: 96-97). Of course, the consolidation of democracy in Brazil and Chile, accompanied by the process of an aperture to trade, the multiplication of regional agreements, the growth of bilateral trade and the impact of government policies ranging from sub-national governments to local authorities, play a critical role in developing physical integration. In this sense, cooperation initiatives are not only implemented by governments, but also by subnational entities, a fundamental element in the networking process. From Chile’s perspective, an infrastructure partnership seeks to strengthen soy and rubber trade relations from Brazil towards the Chinese market.113 The bioceanic corridor would allow exports from Brazil to reach

112 Although the port of Santos’ terminal operations planned to invest in order to foster efficiency and cut load times, there is little room at Santos port for expansion. Even after Paranagua’s expansion to 32 berths from the previous 20, the port’s capacity is below that of Santos, which has 63 berths. American Journal of Transportation (AJOT), “Paranagua ports plan major expansion”, 24 July 2011. http://www. ajot.com/news/paranagua-port- plans-major-expansion. 113 China’s goal of obtaining raw material with a lower added value and of processing grain

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boarding platforms at the port terminals in Chile. The COSIPLAN of which Chile is a member, announced at the summit that took place in Brasília in December 2011 that it would invest $ 994 million to enable the corridor between Paranagua (in southern Brazil) and Antofagasta (in northern Chile).114 Resources would be allocated to construct and improve the railway network in Chile, Bolivia, Argentina, Paraguay and Brazil, as well as investments in roads and ports. Chile is committed to carrying out a regional infrastructure project in the context of COSIPLAN. In this new phase, Chile will focus on three projects: the Paranagua-Antofagasta bioceanic rail corridor, the Christ the Redeemer border-crossing system and the bi-national Black Water Tunnel. The development of these projects promotes regional economic-political integration and brings Chile in to closer contact with regional actors. One of the advantages of this project is the possibility of transferring loads to Asia- Pacific ports in northern Chile. The mayor of Antofagasta argues that the project has been under discussion since 1990-1993, with the city taking specific measures and implementing infrastructure initiative. The port of Mejillones features that facilitate further investments in technology. The investment of US$320 million already made in concession routes in Antofagasta, Mejillones and Sierra Gorda illustrates this point.115 Since coordination initiatives would first be decided directly by national governments, without any prior understanding of private stakeholders, there could be clashes during the railway negotiation process. However, attracting private investment is critical element to ensuring a stable regulatory for domestic consumption increased Brazilian imports. Valdemar João Wesz Junior (2011), Dinâmicas e estratégias das agroindústrias de soja no Brasil. Rio de Janeiro: E-papers serviços editoriais, p. 50. 114 Ministério das Relações Exteriores, “Conselho de Infraestrutura e Planejamento (COSIPLAN) da UNASUL – Rio de Janeiro, 28th April 2011”. http://www.itamaraty.gov. br/index.php?option=om_tags&view=tag&id=836-cosiplan-conselho-sul-americano-de- infraestrutura-e-planejamento&lang=pt-BR. 114 “Anuncian inversiones por US$ 944 millones en Corredor bioceánico que Unirá Antofagasta y Brasil”, LosTiempos.com, Economia, Wednesday 7 March 2012, http://www.lostiempos.com/diario/actualidad/economia/20111202/anuncian-inversiones- por- us-944-millones-en-corredor-bioceanico-que-unira_151810_315273.html 115 “Anuncian inversiones por US$ 944 millones en Corredor bioceánico que Unirá Antofagasta y Brasil”, LosTiempos.com, Economia, Wednesday 7 March 2012, http:// www.lostiempos.com/diario/actualidad/economia/20111202/anuncian-inversiones-por-us- 944-millones-en-corredor-bioceanico-que-unira_151810_315273.html

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framework for the railway operation. The public-private sector has to reach a consensus in order to tackle the major obstacles involving the heterogeneity of the agents involved, covering the instruments of grant holders (Brazil) and holders of railway lines (Chile).116 Indeed, the bioceanic partnership is a complex issue, which demands the participation of political-judicial sectors to regulate the concession contracts already signed and in force. In summary, infrastructure cooperation requires multi- sector coordination efforts to execute its projects. As a result, the bioceanic route would strengthen Brazil-Chile bilateral dialogue, building trust between its partners.117 Although the railway corridor demands further steps, studies are being carried out to quantify the route’s socio-economic impacts. A clear benefit is helping trucks and private vehicles to load. Another advantage would be the reduction of road accidents. The significant benefits obtained by the reduction of accidents are typical of major investments in rail, particularly regarding developing economies like Brazil’s.118 Brazil’s position as an emerging power demands a change in regional political strategies, which means that ideological theories gives way to a pragmatic approach and a strengthening of initiatives involving physical integration links.119 The point

116 The ways public-private partnerships embrace the contracting-out of services, the business management of public utilities and the formation of hybrid organisations for risk- sharing and co-production between government and private agents. Chris Skelcher, “Public management: The word, the movement, the science” in Ewan Ferlie et al. (2005), Public- private partnerships and hybridity. Oxford: Oxford University Press. 117 Infrastructure projects demand a high level of investment. The bi-national railway corridor between Brazil and Peru illustrates this point, since the initiative has investment from China. Portal do Governo do Estado de Rondônia, “Comitê integrador e empresários debatem a ferrovia binacional Brasil-Peru”, 23rd November 2015. http://www. rondonia.ro.gov.br/2015/09/85106/. 118 Economic benefits together with the importance of paradiplomacy to carrying out the bioceanic corridor initiative are clear. The region of Coquimbo is carrying out the project in Chile. Portogente Transporte/Logística, “Corredor bioceânico central ampliará logística para produtos do Sul”, 1st June 2015. https://portogente.com.br/noticias/transporte- logistica/corredor-bioceanico-central-ampliara-logistica-para-produtos-do-sul-86282. 119 Brazil’s pragmatic approach towards Latin America has been pointed out. Brazil favours a market-oriented position, whilst Venezuela has developed a state-orientated approach. Brazil’s neo-structuralist option is congruent with a pragmatic vision, as opposed to Venezuela’s state-centric approach. See Sean W. Burges (2007), “Building a global southern coalition: The competing approaches of Brazil’s Lula and Venezuela’s Chávez”, Third World Quarterly, vol. 28, Issue 7, pp. 1343-1358.

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is that Brazil and Chile share the same pragmatic values, grounded in trade benefits, as an essential ingredient for the future of long-term bilateral ties. The greater movement of goods and geographical capital expansion would disrupt political boundaries, boost potential socio-economic benefits and expand cultural links. Public diplomacy aims to answer many practical questions about bilateral cooperation ties and inter-sector partnerships. The gap between foreign policy and domestic policy is closing, to the degree that the Brazilian PAC focuses on the benefits of domestic infrastructure projects, while working together with the IIRSA initiative. This means that the increasing participation of non-official groups in international affairs demands another analytical perspective, studying foreign affairs from the perspective of the constant communication between asymmetrical actors.120 The significant developments made in transport infrastructure serves to show how public- private partners from different countries interact when building diplomatic links. The responsibilities of the actors in international relations are not clearly defined, given that foreign policy strategy is not only carried out by diplomats, but also by a variety of emerging actors who play an important role in the scenario.121 Increasing economic-political and public-private interdependence brings up new issues to be addressed and changes the approach of international affairs. In this sense, cooperation in critical sectors cannot be considered less important than security cooperation, considering that trade, investments, infrastructure and transportation are also core elements in the relationship between the two states. The combination of all these sectors promotes substantial links for fostering and sustaining long- term partnership. The infrastructure that has begun to be constructed has caused a profound shift in the way regional actors interact, strengthening cooperation and showing the importance of decentralisation in international affairs. The

120 When practising public diplomacy, politics highlight common interests and global public goods. Specifically, non-official actors play an increasing role in public diplomacy. Jan Melissen (2013), “Public diplomacy”, in Andrew F. Copper et al. (2013), The Oxford handbook of modern diplomacy. Oxford: Oxford University Press, p. 450. 121 New instruments of communication favour a closer dialogue with civil society. Eduardo Mello (2015), “Relatos de motocicleta-ator global”, Jovens Diplomatas, 15th November 2015. https:// jovensdiplomatas.wordpress.com/.

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physical connection between Brazil and Chile by means of railroads, highways, ports and waterways, linking the Atlantic Ocean to the Pacific, serves a purpose beyond trade, to the extent that it offers an opportunity to rebuild the Brazil-Chile relationship in a much broader way. This new physical infrastructure is essential to embracing mid and long-term growth prospects. Another significant aspect is that Brazil and Chile demand further interaction in terms of fiscal-tributary policies, public-private partnerships and political-subnational dialogue in order to make substantial progress on bilateral relations. The bioceanic route has played a strategic role in shaping consistent and increasing dialogue between the partners.

3.3.4 Brazil-Chile background of paradiplomacy

The transformations that occurred in international relations in the 1990s laid the groundwork for the emergence of new forms of integration, as illustrated by the institutionalisation of intergovernmental and regional organisations. In this scenario, subnational and local powers strengthened the legitimacy of participating in international affairs. Multilateral organisations recognised sub-local entities as being able to participate in international discussions, even though subnational governments are not considered the subjects of international law. From the 1990s onwards, the increasing participation of provinces and municipalities gaining legal and administrative powers is seen, although some claim that the term already existed in the 1980s. In fact, the concept paradiplomacy means the international relations between states, provinces and municipalities, which reflect the participation of autonomous subnational entities in the external scenario.122 The key word for understanding paradiplomacy is as a ‘partnership’ between different actors within the international arena. Like the concept of public diplomacy that has already been studied, the idea of decentralised cooperation was brought into effect in the 1980s and early 1990s in OECD donor countries, firstly in countries such as the United

122 The concept of paradiplomacy has grown in Brazil, even though in developed countries the idea is already widespread. Fábio Pereira Ribeiro (2014), “Paradiplomacia: Enfoque estratégico para Estados e municípios”, Exame, Brazil no Mundo, 28/05/2014. São Paulo: Editora Abril.

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States. Like public diplomacy, the approach’s key element is the growing conviction that the State should not be in charge of every international links at a national level. In this context, the proliferation of public-private partnerships in sectors such as public goods and social services such as water, energy and health among others can be seen.123 This was accompanied by a greater emphasis on reducing poverty and on social development favoured by the creation of agencies such as the Human Development Index in 1990 by the United Nations Development Programme. This initiative boosted micro-enterprise activities and intervention from donor countries to recipient countries. In practice, new actors have emerged on the international scene such as NGOs, specialised consulting companies, chambers of commerce and local governments.124 The idea of multi-sector partnerships is congruent with the concept of public diplomacy, nation branding and presidential diplomacy, which confer a new dynamic on foreign affairs. For obvious reasons, Brazil and Chile benefit from the growing influence of paradiplomatic ties, since such links contribute to fostering inter-sector partnerships to the extent that they create a more ambitious approach to connecting the two countries. Brazil and Chile’s paradiplomatic links create political-economic opportunities that emerge from the diverse networks developed, given the relationship’s dynamism.125 Therefore, paradiplomacy has significant implications insofar as it deals with several issues concerning

123 Public-private partnerships have increased their participation in Latin American public administration. M. Rivas (2014), “Parcerias público-privadas, solução para as turbulências econômicas?” El País, August. http://brasil.elpais.com/brasil/2014/12/04/economia/ 1417729410_750723.html. 124 Hafteck, Pierre. “An introduction to decentralised cooperation: definitions, origins and conceptual mapping”. Published online on 28 July 2003 in Wiley InterScience. www. interscience.wiley.com, p. 337. 125 Paradiplomatic cooperation has been developed by the Brazilian Department of Federal Affairs. Paula Ravanelli Losada (2015), “Cooperação descentralizada do Brasil”, III Reunião da Cooperação Descentralizada do Brasil, Subchefia de Assuntos Federativos/SRI. http://www.relacoesinstitucionais.gov.br/portal-federativo/articulacao-federativa/assessoria- internacional/eventos-e-reunioes/ii-reuniao-da-cooperacao-internacional-descentralizada- do-brasil-2013-brasilia-df/apresentacao_saf_- _cooperacao_internacional_descentralizada.pdf. Chile also emphasises the importance of paradiplomacy for boosting regional integration from the perspective of decentralized actors. Loreto Schnake (2015), “Paradiplomacía en Chile: El caso de la región metropolitana”, Relaciones Internacionales: Análisis y Propuestas. Friedrich Erbert Stifitung. http://library.fes.de/pdf-files/bueros/chile/08521.pdf.

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the economy, politics, culture and business. In practical terms, Brazil and Chile are already involved in some form of paradiplomatic relationship. It should be borne in mind that paradiplomacy is not dismantled by traditional diplomacy aims, since it maintains links with official foreign policy ones. In general, the term subnational/local governments refer to units of the federation that provide direct services to citizens. Despite the central role of a high governmental level in foreign affairs, especially with regards to Brazil’s long-term strategic targets, subnational entities become new actors in a regional context. For instance, in the Brazilian context, the political- administrative organisation of the Federal Republic of Brazil comprises the union, states, the federal district and the municipalities, all of which are autonomous entities (Article 18 of the Constitution of the Federal Republic of Brazil, 1988). Therefore, in principle, the already mentioned entities of the Brazilian federation are entitled to exercise all the powers not reserved to the central government. The Brazilian Constitution of 1988 encourages discussion about the capacity of decentralised international intervention. However, Article 21, item I of the Brazilian Constitution highlights that the union (federal state) shall have the ability to maintain relations with other states and participate in international organisations. This means that subnational actors are not allowed to explore further aspects of foreign affairs, although the increasing participation of decentralised entities in transnational affairs is allowed. In this respect, a constitutional amendment proposal is under discussion in the Brazilian National Congress (PEC 475/2005), which aims to add this paragraph to Article 23 to allow states, the federal district and municipalities to engage acts and agreements with foreign subnational entities. The proposal can only be passed with the approval of the Plenary Assembly.126 Various studies suggest that a significant element of paradiplomacy is the existence of a democratic government, accompanied by the federal government’s organisational structure.127 To a certain point, Brazil has fulfilled the prerequisites for

126 Projetos de Leis e outras Proposições, Câmara de Deputados. http://www.camara. gov.br/proposicoesWeb/fichadetramitacao?idProposicao=305376 127 Within the context of the Chile-Bolivia relationship, paradiplomacy has become an important tool to promote dialogue. The emerging participation of Chilean political and social actors, which demanded greater integration with Bolivia, has increased the relevance of paradiplomacy. Cristián Ovando Santana and Sergio González Miranda (2014), “La relación bilateral chileno-boliviana a partir de las demandas tarapaqueñas: aproximación

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strengthening paradiplomatic links and fostering subnational cooperation in the coming years. In Brazil, decentralised diplomacy began with Argentina-Brazil integration initiatives in the context of Mercosur. Afterwards, decentralised initiatives were also carried out with neighbouring countries such as Paraguay and Bolivia. The most significant tool for Mercosur members for strengthening paradiplomatic ties was the creation of the Advisory Forum of Municipalities, Federal States, Provinces and Mercosur Departments, which occurred during the XXVII Meeting of the Common Market Council in December 2004. Curiously, Brazil first recognised its significant paradiplomatic potential at a Mercosur level, while the idea of subnational interaction was not meaningful in the domestic context.128 Lula’s administration sought to explore the possibility of decentralised ties by strengthening certain health and education programmes that promoted transnational dialogue. Moreover, Lula’s term invested more in municipalities than in state interaction. Another important point is that Lula’s administration paid more attention to the Federal Pact than that of his predecessor Cardoso, to the extent that the former created the Office of Federative Affairs, which built up a dialogue with the Civil House (the Executive Branch). Subnational cooperation does not, however have the same impact on other financial economic centres, since the most important Brazilian ones are not located on the border and physical distance plays an important role. At the same time, improving decentralised international ties seeks to promote foreign trade, the search for investments and tourism. Brazil’s new role as an emerging power has also contributed to changing the process in some way, to the extent that municipalities and states have increased their chances of interacting with international actors. The teórica desde la paradiplomacia como heterología”, Estudios Internacionales, vol. 46, no 177. Santiago: Universidad de Chile, pp. 35-64. 128 The historical background of subnational entities within the Mercosur context led to the need to integrate municipalities, federated states, provinces and departments in Mercosur’s institutional structure. The initiatives and projects implemented by municipalities and states in several areas, such as education, physical integration and trade boosted regional integration aims. Therefore, the Consultative Forum focuses on a better articulation and coordination of cooperation initiatives. This forum intends to foster direct participation by helping to consolidate Mercosur as a coherent regional block. Mercosul, Foro Consultivo de Municípios, Estados Federados, Províncias e Departamentos do Mercosul, http://www.mercosur.int/msweb/ portal%20intermediario/pt/fccr/index.html

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perception that subnational entities can be economic agents provides a critical mechanism for the growing presence of decentralised actors in the international scenario. According to a World Bank report, “Decentralised decision-making can bring governments closer to the people, overcome information asymmetries, enhance transparency and accountability, allow for a better matching of local preferences (especially when these are heterogeneous across locations) and make for a more responsive government through competition between jurisdictions for investment.”129 Despite Chile and Brazil’s similar statuses as two of the most centralised countries in the region, changes to decentralisation occurred in Chile’s policy from the 1990s onwards. The redemocratisation period brought significant changes in terms of the decentralisation mechanisms used for subnational partnerships.130 According to Chile’s constitution, “Municipalities are public-law corporations with a legal capacity and patrimony of their own, whose aim is to satisfy the needs of the local community and ensure its participation in the economic, social and cultural progress of the district.”131 Interestingly, the authoritarian experience not only changed the political elite’s perception of subnational entities, but meant a commitment to organisational shifts that made the country more decentralised in the 1990s. One key element concerning subnational actors’ legitimacy is that some rules allow for greater decentralised processes than others. In general, indirect elections tend to weaken the ties between subnationally elected officials and their constituents. In contrast, direct

129 Kai Kaiser, “Decentralization reforms”, World Bank Resources, p. 2, http:// siteresources.worldbank.org/INTPSIA/Resources/490023-1120 130 Interestingly enough, despite national politicians still having cause to avoid decentralisation in the 1990s, there were divided partisan lines over the subnational changes that Pinochet had introduced. Curiously, the conflict led to a historic aperture to decentralisation as part of an interparty agreement to reform subnational institutions in 1991. Fearing exclusion from the national government, the right sought to bolster regional governments as political entities it could use to create a new democratic environment in Chile. Despite the lack of interest showed by the governing coalition, it acquiesced to these changes in exchange for the right’s support for the reintroduction of municipal elections. Pinochet sought to bolster his regime’s legitimacy and therefore channeled substantial resources towards municipalities. The decentralisation strategy made it politically risky for national political actors to recentralised changes after his government. Kent Eaton, “Designing Subnational Institutions: regional and municipal reforms in post-authoritarian Chile”, Comparative Political Studies, vol. 37, no 2, March 2004, pp. 220-221. 131 Article 107, Constitution of the Republic of Chile, Santiago de Chile, 21 October 1980.

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elections promote the legitimacy of subnational officials with regard to national authorities, seeking broader bargaining and legal power. Both Brazil and Chile have had to deal with the idea that paradiplomacy leads to a strong commitment from decentralised actors to fitting this activity into the official foreign policy context. The role played by paradiplomacy in foreign policy strategy should not be underestimated, since there is controversy over how to link decentralised diplomacy to national government aims.132 Not all subnational entities approach international relations in the same way and with a central government scope, meaning the implications of paradiplomacy in traditional foreign policy strategy need further study. At the same time, Brazil and Chile’s regions are already involved in some form of paradiplomacy in accordance with official foreign policy strategy, which has a consolidated process for encouraging subnational interests. The fact that subnational actors have engaged in transborder issues deserves much more attention from history and international relations. According to the public diplomacy approach, “diplomatic communication is only a flimsy part of the dense and multilateral transnational communication processes” (Melissen, 2005: 20). Contemporary foreign affairs embrace a multifaceted approach to deal with the increasing participation of actors that are not state-centric. In Brazil, what guarantees convergence between subnational entities and central diplomacy is the Special Assistance for Federate and Parliamentary Affairs (AFEPA), which is responsible for promoting coordination between the Ministry of Foreign Affairs and the National Congress. In the context of federal issues, AFEPA aims to coordinate between the Ministry, the State and local governments and between states and municipal assemblies to assist them with external initiatives. To encourage dialogue between states and municipalities, AFEPA is aided by Representative Offices of the Foreign Ministry that must coordinate and support local authorities in their

132 Local authorities’ initiatives created the Mercocities as a Mercosur version of the Eurocities in the European Union that demonstrated the significance of local governments in paradiplomatic activities. Latin America states boost the participation of decentralised actors in international affairs, particularly Brazil and Argentina. See Felipe Cordeiro de Almeida (2011), “O Mercosul, a paradiplomacia e as políticas nacionais para atuação dos governos subnacionais no processo de integração regional”, 3o Encontro Nacional Associação Brasileira de Relações Internacionais. http://www.proceedings.scielo.br/ pdf/enabri/n3v2/a08.pdf.

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areas of jurisdiction.133 In this sense, AFEPA illustrates the importance of paradiplomacy in contemporary Brazilian foreign policy. The initiative demonstrates a more flexible approach to traditional diplomacy policy strategy regarding decentralised actors. Like Brazil, Chile has the Ministry of Foreign Affairs Regional Coordination Directorate (DICORE), acting in the framework of institutional policy. DICORE supports international activities in the country of origin based on Service Order No 145 from 7th June 2000, which establishes regional coordination mechanisms. The aim of this initiative is to support regional government as they carry out projects in the international field, linking the regions and departments of the Ministry of Foreign Affairs, either in Chile or abroad. In practical terms, DICORE cooperates with regional governments, providing assistance and institutional support to authorities and regional bodies.134 Paradiplomacy boost subnational development to the extent that decentralised actors demand greater political and economic autonomy as a result of business opportunities in the context of globalisation. Paradiplomacy has a positive effect on development, as do the economic opportunities that emerge from networking with other decentralised entities. Furthermore, decentralised diplomacy can build bridges between politics and the economy, favouring cooperation and connection and creating a more comprehensive political relationship. In this sense, paradiplomacy should be considered as another mechanism for strengthening Brazil-Chile’s relationship from a broader perspective. Moreover, informal networks help strengthen formal international bilateral links, since they contribute to the promotion of several inter-sector partnerships, which can be transplanted into the context of Brazil-Chile foreign affairs. Moreover, informal initiatives have an enormous potential to expand sectors such as tourism, business and trade, for example. Strengthening informal relations brings different sectors into constant dialogue, which is important for sustaining relations. Indeed, informal ties produce multifaceted relationships, creating a significant potential for

133 Assessoria Especial de Assuntos Federativos e Parlamentares, AFEPA, http://www.itamaraty.gov.br/o-ministerio/o-ministerio/afepa-assessoria-especial-de- assuntos-federativos-e-parlamentares. 134 Paradiplomacia, Ministerio de las Relaciones Exteriores. http://paradiplomacia. wordpress.com/page/2/

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strengthening links and promoting closer ties. Informal connections pave the way to easier dynamic relations between both countries and it plays an important role in building up each other’s nation branding perception.135 The growing importance of paradiplomacy represents a significant step forward in Brazil-Chile cooperation links, since the dynamics of this is relevant to the cultivation of the harmonious scenario in which bilateral ties are shaped. Thus Brazil-Chile cooperation ranges from formal links in terms of foreign policy strategy - carried out by the Ministry of Foreign Affairs - to informal networks between Brazilian and Chilean counterparts. Such considerations help explain the endorsement of ‘cooperation twinnings’ in our study in order to elaborate the current scenario in which Brazil-Chile relations existed. The most important aspect of paradiplomacy is the dilemma faced by both countries, on the one hand, the alignment with national governments and close coordination with the Ministry of Foreign Affairs and on the other, the relatively autonomous way in which subnational actors operate in order to meet their specific requirements. Within the bilateral cooperation scenario, economic and trade policies are essential ingredients for Brazil-Chile links. Another important aspect is the role played by foreign direct investment (FDI) in bilateral affairs, as will be seen in the following sections. In this sense, decentralised diplomacy helps attract FDI, luring international companies to a local level. This means that the so-called ‘business diplomacy’ works in congruence with paradiplomacy, targeting profitable local markets to expand investments and producing multifaceted relationships as argued in the context of our study on public diplomacy. Simply put, the authority of subnational actors cannot be separated from that of central governments, since both are critical bridges towards strengthening Brazil-Chile relations.

3.3.5 The growing para-diplomatic approach to Brazil-Chile bilateral affairs Before going further into the construction of Brazil-Chile paradiplomatic

135 An interesting example of Brazil-Chile informal ties is the network of ‘Chilenos en Brasil’, which establishes dialogue between different areas and fosters a mutual understanding of each other’s culture. More information in Chile en Brasil, www.chilenosenbrasil.net

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ties, some important aspects of the idea of decentralised diplomacy should first be considered. First, the term ‘para-diplomacy’ identifies the generic international relations of municipalities, provincies and states.136 Secondly, Brazil tends to differentiate between federal foreign policy and federal diplomacy since the former refers to federal governments and the latter highlights the autonomy of subnational governments. On one hand, the study of federal foreign policy requires the parameters of democracy, integration and globalisation. On the other, multilateralism played a critical role in municipalities’ in the 1990s. As was pointed out in the previous section, neither are disconnected from national targets and in this way strengthening channels of cooperation and coordination are core elements in the process. Indeed, in the Brazilian context, globalisation and regional integration are not considered sufficient for fostering political discussion about the role of subnational governments in the international system. However, increasing concerns about the influence of decentralised actors in the economy boost a changing perception regarding the flexibility of these entities that enforce international economic cooperation links. The similarities between Brazil and Chile concerning the difficulties of creating a counterbalance to the possible diverging aspects between central government and decentralised entities should be mentioned. In contrast to Argentina, which instituted constitutional reform in 1994 to give federal units a greater international role, Brazil and Chile used political discussion about the importance of the topic to promote regional dynamic dialogue.137 Moreover, strategic decentralised diplomacy led to a beneficial bilateral relationship in the economic-political scenario.

136 In Europe in the 1970s, a new process occurred the emergence of regional groupings. These were defined as the associations formed between regional entities from different states whose aim was to pressure groups in the European institutions. Cooperation was based on common needs, aspirations and interests. More information over the origin of paradiplomacy in Europe in Michael Keating (2013), “Regions and international affairs: Motives, opportunities and strategies”, in Francisco Aldecoa and Michael Keating, Paradiplomacy in action: The foreign relations of subnational governments. London: Routledge. 137 Argentine constitutional reform went beyond re-election aspirations. Martín Dinatale (2014), “La constitución de 1994: una reforma que cambió la política”, La Nación, 22 August 2014. Buenos Aires. http://www.lanacion.com.ar/1720805-la-constitucion-de-1994- una-reforma-que-cambio-la-politica.

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Therefore, Brazil and Chile faced a dilemma about how to legalise subnational government’s foreign policies. Discussion about the participation of subnational governments in international policy refers to changing the law without altering constitutional limits. The Brazilian Constitution of 1987 and 1988 added federalism as an immutable clause. The impossibility of amending the Brazilian Constitution is a core element to understanding the scenario for decentralised diplomacy. However, the already mentioned PEC 475/2005 must be pointed out, which sought to amend Article 23 of the constitution and encourage acts and agreements with foreign subnational actors. The increasing role played by subnational entities in the international context led to new forms of dialogue, even though the pre-existing legal basis did not need any changes. The values of common law served to boost changing elements in domestic legislation (Vigevani, 2006: 14). The ambitious para-diplomatic aspect can be illustrated as a result of isolated initiatives carried out by subnational entities such as the north-east state of Ceará, which is one of the most developed Brazilian states, in terms of its commitment to paradiplomatic issues. The state has been characterised by an extremely dynamic and inspiring performance regarding foreign links, compared to other states. The initiative to foster paradiplomatic links was established during the administration of Tasso Jeiressatti in 1995. Since then, the state has worked to strengthen its international relations with various countries, including Chile. The state of Rio Grande do Sul (southern Brazil) has also established significant para-diplomatic ties with South American provinces. The geographical position of Rio Grande do Sul also favours this kind of initiative, given that it is a border state. Thus, the southern Brazilian state feels the effects of regional integration more intensely, considering that Mercosur’s impact on the production matrix is particularly strong. The state of Rio Grande do Sul has an active relationship with Mercosur members, especially the governments of Uruguay and Argentina. According to Núñez:

“In 2011, the government of Rio Grande do Sul began a dialogue with the Chilean province of Coquimbo. The latter already had a connection with the Argentine province of San Juan because of the project of the Black Water Tunnel project. The Argentine-Chilean project paved the way for the feasibility of a bioceanic

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corridor, which would leave from Porto Alegre/RS reaching the Pacific region of Coquimbo.”138

The fact that other states do not have advisory committees does not mean that they are indifferent to building international links. In any case, many states have boosted their exports and sought to attract foreign investment. Even states without long-term tradition of exports, such as Roraima and Acre, are already focused on programmes in the international area. For instance, Bahia (the state in the north-east) has been significantly dynamic in international political strategy, without having a specific advisory board for international affairs, although not necessarily a lack of foreign links. At the present time, Bahia has cooperation ties with the US, South Korea, Italy, Germany, Portugal, Malasia, Indonesia, Argentina and interestingly Chile. The Bahia International Business Centre part of the Secretariat of Industry, Commerce and Mining, plays an active role in attracting investments and promoting exports (Saraiva, 2004: 53). However, the relations of Brazil’s Federal States are not restricted to business, since the state government has engaged in five areas of international affairs, as Nune highlights:

1) international articulation: maintaining relations with international actors, mostly with an economic, political and cultural focus; 2) attracting productive investments: a policy to explore potential pos- sibilities to attract foreign investment;139 3) fostering trade and tourism: encouraging the export of culture, the

138 Tarson Núñez, Governor Adviser, Coordinator of International Relations. Interviewed on 15 February 2013. See also Mariano Alvarez, ‘Paradiplomacia en las relaciones chileno- argentinas: La integración desde Coquimbo y San Juan’, PhD Thesis, Leiden University, September 2016. 139 In a broad sense, investment is usually understood as a sum of money or other resources – including knowledge or time – spent with the expectation of a future return. Investments may, however, be viewed more narrowly and in different ways, depending upon the context and purpose. Although there are some differences regarding productive investments, some authors have adopted the idea that financial assets purchased by investors are newly issued by firms to raise funds to create productive capacity. In this context, the acquisitions of assets for non-profit purposes not used in production (for example, buying a house) are not considered investment. “Foreign Direct Investment and Transnational Corporations: concepts definitions and measurements”, IIA-International Investments Agreements, UNCTAD – Virtual Institute on Trade and development, pp. 4-7. http://vi.unctad.org/

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conquest of new markets, support for micro, small and medium-sized local business and their insertion into the international economy, as well as promoting the potential of tourism; 4) international cooperation: a relationship with organisations and international governments to obtain financial and technical resources to support regional development projects and; 5) institutional: defence of regional interests with regards to federal government and support for international actions by other state institutions.

The increasing role played by para-diplomacy in regional foreign policy goes hand-in- hand with the current scenario of the interdependence in which foreign affairs are carried out. In this context, subnational entities assume a crucial role in the international reorganisation of the Southern Cone regional ties. The so-called ‘federal diplomacy’, as pointed out at the beginning of this section, recognises the autonomous focus of subnational governments as an important element for conducting regional cooperation initiatives. The idea of para-diplomacy means foreign policy is carried out by non-central actors, which like traditional diplomacy’s foreign policy, are part of the country’s national interest. Combining the interests of states and municipalities with central government targets changes the scope of current foreign policy strategy. Para-diplomacy is an essential mechanism for analysing the Brazil-Chile bilateral approach, insofar as Chile’s foreign policy does not prioritise special links with the regional integration process as an international insertion strategy. Chile’s foreign policy focuses on bilateral agreements with the United States to the detriment of stronger Latin American ties and causing the perception of a lack of interest on the part of the former in regional integration initiatives. Para-diplomatic relations between Chile and Argentina together with the two countries’ closer ties in other areas as has been studied, shows the possibility of strengthening subnational links with other countries like Brazil. The bioceanic corridor project illustrates this point, since the official national governments’ project is combined with decentralised actors engaged in the initiative. Beyond the para-diplomatic standpoint, the increasing participation of the business sector sustains our argument about studying the Brazil-Chile relationship based using a decentralised approach.

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In contrast to the previous realist theory, which considers the State as central actor in the international arena, the current dynamic international scenario demands a more complex organisation to tackle its elaborate issues. Since contemporary states develop interdependent relationships, the new context endeavours to create a decentralised approach to the emerging international order. From an economic perspective, decentralised cooperation plays a significant role regarding the possibility of attracting foreign investment, increasing trade, investing in infrastructure and accessing markets. Moreover, the increasing importance of subnational actors helps to embrace key concepts such as public diplomacy, nation branding, presidential diplomacy and paradiplomacy, which have all laid the groundwork for an analysis of Brazil-Chile bilateral links.

3.4 Brazil-Chile Relations within the Economic Context

3.4.1 The Brazil-Chile relationship: economic background

As mentioned at the beginning of this chapter, hyperinflation in the lost decade of the 1980s caused considerable difficulties for Brazil-Chile cooperation in the business sector. Unstable inflation did not help promote bilateral cooperation efforts, since the lack of a long-term perspective discouraged both countries from building up an entrepreneurial approach or creating ongoing trade links.140 A long-term vision was essential for a transnational corporation to enter a foreign market, therefore hardly any businessmen invested in projects abroad without defining the political economic context of the target country for the next few years. The implementation of policy action by both states to tackle inflation brought strengthening of bilateral links. Chile was the first Latin American country to adopt the ‘inflation target model’ and as a result the country embraced transparency measures, which helped put inflation levels into a steady decline. Brazil is one of the emerging economies that opted to control inflation through the same model used by its Chilean counterpart, even

140 During the late 1980s and early 1990s, the price of goods in Brazil went up several times a week or even a day. Robert Plummer (2010), “Colour-code clue to Brazil’s inflation past”, BBC News, 27 October 2010. http://www.bbc.com/news/business-11477974.

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though the model varied according to the different domestic policies implemented by each state.141 However, the inflation target model needed more regulation through central banks, which meant important action from the latter with a view to controlling inflation. It should be state that inflation rates do not fall rapidly, but rather steadily and gradually. There are many reasons for a rise in inflation, but the consequences are almost always the same worldwide: a worsening of income distribution and the deregulation of the balance of payments and public finances along with limits to long-term planning, with uncertainty hampering the establishment of bilateral ties between countries and the development of foreign policy strategies. The inflationary period in the 1980s led to difficulties for exports because of the increasing prices of national goods compared to foreign ones. The unfavourable circumstances for exports led to a currency devaluation to promote exports. Indeed, a consequence of currency devaluation is a rise in import prices, which is related to the prices of goods and services, causing an increase in inflation.142 For obvious reasons, regarding Brazil-Chile bilateral links we had at that period the worst context because of the political circumstance combined with unstable economic scenario. The role played by the chaotic economic circumstances in the 1980s and at the beginning of the 1990s in the process of strengthening the Brazil- Chile partnership cannot be underestimated. Importantly, the economic situation combined with the military dictatorship gave way to a period with an uncertain scenario for the building of bilateral relations. The core element for understanding this in our study is the difficulty in establishing the boundaries between politics and the economy, given the tenuous border line between the two concepts that can lead to misconceptions about their importance when explaining foreign affairs. The stable economic scenario

141 The Inflation Target model was first adopted in New Zealand in 1990. Chile was the second country to adopt the same model in 1991. The implementation of the model occurred in Brazil in 1999 through presidential decree and its mechanisms serve as guidelines for monetary policy. José Claudio Securato, Economia brasileira: história, conceitos e atualidade. São Paulo: Saint Paul Editora, 2011, p. 88. 142 During the second half of the 1980s, fiscal accounts in Argentina, Brazil and Peru did not show any significant improvement. The core element for hyperinflation is the loss of the government’s decision-making capacity in driving economic policy. Gustavo H. B. Franco (1993), “Brazilian hyperinflation: The political economy of the fiscal crisis” in Maria D’Alva G Kinzo, Brazil: The challenges of the 1990s. London: British Academic Press.

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boosts initiatives that seek to establish ties and a long-term bilateral relationship.

3.4.2 The shifting scenario of the 1990s and the emerging power of the business sector

The favourable economic context laid the groundwork for the increasing participation of business actors in foreign policy strategy. In Chile, businessmen began to organise themselves in order to address the opportunities that arose during negotiations associated with the transition from LAFTA to LAIA. They started to attempt to influence foreign policy strategy, taking on a substantial role in the negotiation process. In this way and since the Treaty of Montevideo (1960), the business sector has had a different perspective to regional development regarding the visible benefits of increasing trade (Direcon, 207). In Chile, it was obvious how the public- private sector interacted to promote the country’s interests abroad, as already studied and cooperation became visible particularly regarding the Chilean nation branding strategy. Better public-private collaboration embraced the cooperative idea of public diplomacy to respond to the dynamic international scenario. In Brazil, the perception of the need for public-private interaction did not arise particularly early, but a shift in the context is seen during the administration of President Lula (2002-2010) which brought about the increasing participation of the private economic sector in foreign affairs. Since then, the critical role played by the private sector in that period is congruent with the concept of public diplomacy, which illustrates contemporary international affairs and the development of Brazil-Chile ties. Brazil’s continued integration into the world economy includes the private sector’s more active participation in foreign policy (Oliveira, 2007: 12-13). Moreover, Brazil’s economic success combined with the speed of globalisation and the shifting international agenda demanded the participation of corporate actors as an essential new constituency. The late participation of Brazilian private actors in international policies when compared to Chile can be explained by two points: the monopoly of Brazil’s Foreign Ministry in carrying out foreign policy and the totally

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different organisation of Brazil’s economic policy in comparison to that of Chile as already stated.143 A parallel study of Brazil and Chile serves to link important public-private sectors. The bilateral relationship embraces complex aspects and mutual respects as important elements. Therefore, the current growing role of the private sector has to do with certain factors: the influence of other ministries beyond the Itamaraty in foreign affairs and the influence of several private sector actors; the need for greater cohesiveness between domestic policies and foreign policy, due to growing international repercussions and the growing networks which expand continuously with the emerging demands of new economic actors.144 Since the international arena has become more dynamic several new topics have emerged and nowadays today transnational matters are accompanied by a high flux of trade and investment, which urges many actors to interact in order to face contemporary issues. As a result, the way foreign policy is carried out has changed, adapting to the current international scenario. The present context demands public-private interaction to tackle complex issues, hence powerful private sector economic actors with a global reach cannot be relegated to a secondary role in foreign affairs. President Lula’administration understood that private sector actors retained important responsibilities in foreign affairs and therefore, so-called ‘business diplomacy’ tended to play an increasing role in his foreign policy strategy. The absence of studies considering the important role played by the private sector in Brazil-Chile ties is not linked to the present scenario, whereby the two countries’ private sectors exert influence on how foreign

143 Only a comparison between Brazil and Chile’s different business environments allows for an understanding of Chile that encompasses a much more efficient investment environment, compared to that of Brazil. Chile has moved to deregulate the economy, attempting to rationalise prices, taxes and labour regulation and deregulation and privatise the financial sector. Chile has created the nation brand image of a liberal economy. Given the complexity of Brazil’s formal law, legal and regulatory processes, this country at some point limited the entry and growth of outsiders. The domestic system puts Brazilian industry at a competitive disadvantage compared to nations that have efficient legal and regulatory systems. Andrew Stone, Brian Levy and Ricardo Paredes. “Public institutions and private transactions: a comparative analysis of the legal and regulatory environment for business transactions in Brazil and Chile”. In: Leed J. Alston et al. (Eds), Political economy of institutions and decisions. Cambridge: University Cambridge Press, 1996, p. 102. 144 Joseph Marques. “Brazil: growing pains of an emerging power”. E-International Relations. Editorials. December, 2011. http://www.e-ir.info/?p=15713

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affairs are conducted. Obviously, the presence of the private sector in foreign policy is much more active in the case of Chile, since its direct influence began early in the 1960s in accordance with the country’s strategy of open regionalism. The lack of explicit participation in geopolitics does not mean that there is no foreign policy or an absence of bilateral links with Brazil. At the same time, it makes little sense to speak of idealism among Chile diplomacy since commerce and economy play an overwhelmingly important role in the country’s foreign policy. As an important exporter and a country with trade agreements worldwide, Chile’s national interest is congruent with how foreign policy is carried out.145 From Brazil’s perspective, the private sector’s more active participation occurred during the term of President Lula, favouring the initiative of a business mission between Chilean-Brazilian private actors. The bilateral relationship cannot only be observed from a public sector perspective. Importantly, private actors cannot be excluded from Brazil-Chile bilateral relations, given the growing trade and flow of investments in the last few years between the two countries and investment and trade activities account for a significant share of the two countries’ links. Thus, the Brazil-Chile business mission, a platform for integration’ project was launched between 1st-3rd April 2009 to promote the expansion of bilateral trade, with Brazil recognizing the role of Chile as a natural export platform for Brazilian products. The existing Chilean bilateral FTA worldwide had a clear set of benefits for Brazil’s economy in its quest to ensure the diversification of exported products and expand its destinations. The majority of these Chile FTAs are still in force while a few are still being negotiated. Aperture to trade has long been considered key element for local and multinational firms to be able to export goods and services to foreign countries while benefitting from the country’s FTA.146 As we will see in the

145 Among the Chilean international agreements, the Canada-Chile Free Trade Agreement includes sanitary and phytosanitary measures. Since it came into force in 1997, trade has more than tripled and Canada has become the largest source of new direct investment in Chile. Foreign Affairs, Trade and Development Canada (2015), “Canada-Chile Free Trade Agreement”. http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr- acc/chile-chili/index.aspx?lang=eng. 146 It should be highlighted that products exported from Chile do not have to be completely made in Chile to benefit from these agreements. The aim of using Chile as a platform includes the possibility that companies can import products from one country under preferential tariff conditions, add value to them in some way and afterwards export them to

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following sections, the benefits for Chile of acting as a platform go hand-in- hand with its policy of attracting foreign investment, paving the way for economic growth and employment. Indeed, the fact that Brazil is the only BRIC country without access to the Pacific demands physical infrastructure to be built, given that the largest flux for trade is located on the Pacific Rim. Like Chile, China is Brazil’s main trade partner and beyond facilitating access to the Chinese market, improvement to transport infrastructure between Brazil and Chile is key to enhancing physical links and strengthening bilateral ties. In this sense, physical integration between the two states seeking pragmatic links is carried out regardless of the political circumstances. This means that harmonising infrastructure is a critical mechanism for increasing access to regional and global markets. Chile, for its part, benefits from the huge Brazilian market, strengthening its export capacity. Given the impressive economic development of Brazil in the last few years and its market dimensions, the country has become an important market for Chilean products, such as copper, salmon, wine, fruit, cellulose and nitrates.147 For Brazil, Chile’s domestic market benefits several sectors of Brazilian industry, such as food, metals and industrial equipment. Moreover, Brazil can take advantage of the phytosanitary agreements already signed by Chile. Technical discussions aside, the prospects for the expansion of Brazil and Chile’s export market are encouraging and are part of a joint effort between the private and public sectors to boost bilateral trade relations and resize their strategic partnerships.148 In addition, the coordination of bilateral partnerships favours Chile

other countries. Multinational firms that comply with the rules of origin in Chile’s export markets can take advantage of zero or low import duties in many countries. Nora Balzarotti, “Platform Chile”, Magazine Business Chile, August 2010. http://www.businesschile.cl/ en/amcham/enfoque/platform-chile 147 Since the restoration of democracy in both countries, it must be stressed that Brazilian- Chilean trade has increased remarkably, especially in 2007 and 2008, when trade reached US$ 111.635 and US$ 124.065 million dollars. See Banco Central de Chile, Series de Indicadores. Accessed on 10 December 2012. http://www.bcentral.cl/estadisticas-econo micas/series-indicadores/index_se.htm 148 See “Parceria Brazil-Chile requer análise das regras de origem”. International Centre for Trade and Sustainable Development. Pontes Quinzenal vol. 4, número 6, April 2009. http://ictsd.org/i/ news/pontesquinzenal/44935/

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finding new trade partners through Brazil, such as Africa. In this sense through close relations with Brazil, Chile improves relations with other Latin American countries and gains access to African markets.149 As stated earlier, an important factor that contributes to developing closer ties between Latin America and other countries is the continent’s regional stability.150 From a Brazilian standpoint, Chile’s market dimensions are not attractive, although Chile’s preferential trade agreements worldwide serve as a bridge for Brazilian exports. In this way, Chile can be used as an export-platform for Brazilian trade (López and Muñoz, 2008: 28). Although the idea of Chile as a Latin American export platform is not new, the recognition of Chile as an export platform is illustrated through the initiative of the business mission organised by the Ministry of Development, Industry and Foreign Trade. With the aim of strengthening business ties between both countries and exploring new partnerships, the mission in Chile also seeks greater market diversification as a way to mitigate the effects of the crisis as well as to decrease the effects of stoppages by the World Trade Organisation. A Brazil-Chile partnership in the business sector creates alternative markets for Brazil’s exports.151 At present, the liberalisation of the flow of trade and investment,

149 Even though there is not a consensus that Chilean foreign policy seeks access to African markets through Brazil, some studies are being developed within academic circles that explores Chile’s interest in Africa. Despite the lack of studies regarding this issue, the possibility of widening ties with Africa has begun to be explored within Chile’s international relations field. 150 Current foreign policy in the continent should be compared with the constant occurrence of conflicts in the past in order to observe that today there is much more consent in diversified areas, even if each country has its own targets. One way to understand how Latin American foreign affairs became more stable is to examine the continent’s geopolitics from a historical perspective. Argentine’s security measures in the past to avoid simultaneous troubles with Chile and Brazil and Brazil’s attempts to construct the ‘informal alliance’ with Chile as a way to constrain Argentine power demonstrate the development that cooperation initiatives have acquired. More detail in: Luiz Alberto Moniz Bandeira. Conflito e integração na América do Sul: Brasil, Argentina e Estados Unidos, da Tríplice Aliança ao Mercosul. Rio de Janeiro: Revan, 2003. 151 The delegation headed by the Executive Secretary of the Ministry of Development, Industry and Foreign Trade, Ivan Ramalho, was partnered with the Ministry of Foreign Affairs, the Brazilian Trade and Investment Promotion Agency and the Federation of the Industries of the State of São Paulo. Chile occupies the eighth place in the ranking of Brazilian market targets. http://www.mdic.gov.br/sitio/interna/noticia.php?area=5¬ici =8907

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economic competitiveness, technological changes and the intense search for new platforms for production and export are important features of the international business context (Veiga, 2004). In this sense, companies from different countries seek to make gains in efficiency, either in their main activities or by outsourcing specialist posses or internationalising their operations. It is important to highlight that, in order to reduce costs and achieve scale economies, the flow of foreign investment has increased in different areas of the world. The rising influence of other actors in the international arena as introduced in the first chapter can be recognised when discussing the concept of public diplomacy. Besides the multi-level cooperation implied in the concept, this trend will come to exert even more influence over foreign affairs in the foreseeable future. According to public diplomacy, foreign policy cannot be understood solely as a state activity and in turn a broader coalition should be encouraged between diplomats and other government officials in combination with non-official agents. Despite the expected growth of the role played by diverse actors in foreign affairs, it can be stated that the balance between the state and business has already strengthened bilateral cooperation. With the increased internationalisation of firms, there is a greater probability that important economic actors affect the country’s external policies, with it becoming increasingly difficult to maintain the line between public and private influence on foreign affairs. It should be pointed out that emphasis on the business sector played a major role during President Lula’s term, more so than under the previous government of President Cardoso. Lula’s term brought with it a closer dialogue between the two countries’ business areas. In contrast to the term of President Cardoso, whose foreign policy focused on regional negotiations, Lula’s government stressed the internationalisation of Brazilian industries (Oliveira, 2006: 405). Moreover, the growth of Chile’s investments in Brazil is also inter-related to the economic growth experienced under President Lula’s administration, which maintained the previous administration’s low rates of inflation combined with a positive evaluation criteria of country risk.152

152 Country risks refers to the economic, political and business risks that are unique to a specific country and that might result in unexpected investment losses. Usually investors consider two factors: the economic risk which refers to a country’s ability to pay back its

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This means that the private sector was now more clearly interconnected with government policies than it had been in the past. However, this does not mean that TNEs did not play an important role in Brazil-Chile bilateral relations in previous administrations as will be seen in this section. Instead, business partnerships are now much more fruitful than in the past, as illustrated by ‘the Brazil-Chile business mission, a platform for integration’ in 2009. Furthermore, the increasing participation of the business sector in diplomacy does not mean giving up traditional prerogatives to the detriment of the private sector, but rather that international affairs in the twenty-first century requires much more public-private coordination than in the past.

3.4.3 The growing influence of foreign direct investment on bilateral affairs

Foreign direct investment cannot be relegated to a secondary position in Brazil-Chile links, since economic ties do not only involve imports and exports. Several actors come into play in bilateral economic-political relations. In this respect, our main line of thought argues that the role played by non-state relations in diplomacy is growing and therefore transnational companies can be important partners in the context of strengthening Brazil- Chile bilateral ties. Transnational companies play a crucial role in current foreign policy strategy, helping to increase the openness of borders and foster bilateral links. The development of specific mechanisms favours bilateral integration to the extent that both countries become attractive to investors after signing trade and bilateral tax agreements153. In addition,

debts, with a country with stable finances and a stronger economy providing more reliable investments than a country with weaker finances or an unsound economy; and the political risk which refers to the political decisions made within a country that might result in an unanticipated loss for investors. Even if a country’s economy is strong, if the political climate is unfriendly to outside investors, the country may not be a good candidate for investors. “Evaluating country risk for international investing”. Investopedia. 22nd October 2008.http://www.investopedia.com/articles/stocks/08/country-risk-for-international-invest ing.asp#axzz1juk7FloR 153 On 2nd October 2003, Brazil and Chile passed an international agreement in which labour income received in one of the contracting states would be exclusively taxable in the country where it was performed. In Brazil, this was issued as Decree 4853. Ricardo Alexandre (2009), Direito Tributário. Rio de Janeiro: Forense, p. 211.

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economic closeness between the two states reflects a strong confidence in both business areas that cannot be separated from the political context. However, certain initiatives should be taken into account when considering the reasons for the possible influence of FDI on Brazil-Chile relations. In this context, the growing impact of FDI on bilateral ties suggests that falling transports and communication costs help strengthen links. Indeed, such investment tends to rise in accordance with the market size of partner states and the possibility of reaping scale economies. Moreover, participation in free-trade areas also plays a crucial role in explaining private investment initiatives. In this regard, the gigantic Brazilian market combined with Chile’s FTAs worldwide promotes the creation of scale economies. Indeed, the importance of internationalisation, particularly that of Brazilian companies to Brazil-Chile ties should not be underestimated in the study of the initial steps taken towards mutual investment networks. The time when companies were only marginal players in the global economy has passed and internationalisation is becoming relevant to companies’ strategies. However, internationalisation is not an automatic process, since it occurs when the company gets more involved in international commerce, distribution and production.154 On the one hand, direct investment depends on market imperfections in the host country. On the other, the company must have certain skills and advantages over its competitors in order to justify direct investment. Among other things, the effects of FDI depend on the features of the country on the receiving end and, in this sense, it relies on the circumstances of Brazil and Chile’s domestic markets. FDI has a significant effect on both the receiving economies, since it increases output and the volume of investment and on the sending economies, since it reduces export costs, sustains internal advantages abroad and provides knowledge of the other market. In practical terms, most Brazilian companies first develop their competitive advantages in the domestic market and then, after several years, move to international markets via exports. Usually, companies opt to first

154 This involvement is usually based on the knowledge acquired after experiences that involve a lesser commitment, such as exportations or licences. “Brazilian companies’ internationalisation: Brazil’s multinationals corporations cases and challenges”. São Paulo, SP, July 2007, p. 23. www.factordesolucao.com.br

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enter similar markets, for instance in Latin America, which shares similar features such as culture, economic values, administrative aspects and geographic facilities. In this scenario, the internationalisation of companies has been carried out autonomously by Brazilian enterprises, paying special attention to the federal government’s interests.155 In most cases, the internationalisation process is slow and gradual and depends on the interaction of various sectors, as well as a commitment to a particular foreign market. The internationalisation of companies demands a political- economic partnership such as the participation of the Ministry of Foreign Affairs combined with the Ministry of Finance, which is a core element for creating a business cooperation network.156 Although this recent phenomenon emerged in the 1990s, it has played a major role in the twenty-first century. As mentioned above, there are several reasons for this: (1) the relative size and ability of scale economies to explore other markets, and (2) government support of a political and strategic nature, through special forms of financing from the National Bank of Economic and Social Development (BNDES), combined with logistical and intelligence support from the Ministry of Foreign Affairs. Internationalisation begins because of business interests, although the decisive role played by state interests cannot be ignored. In this context, large companies shaped by the public sector now belong to the private one, as in the case of Vale do Rio Doce, now called Vale. Internationalisation occurred either through direct funding or through external support. To illustrate this point, the case of the large construction companies that received funding from BNDES should be noted.157

155 In fact, Brazil’s economic aperture began in 1992 during the administration of President Collor de Mello, who implemented a plan to gradually reduce the State’s role in the economy. His administration began selling off state-owned enterprises, dismantling protectionist trade policies and opening up the domestic economy to the world. Pran Tiku. “O brilho dos emergentes: obtenha lucros investindo no Brasil, Rússia, Índia, China, Coréia do Sul e México”; traducão Cid Knipel – Rio de Janeiro: Elsevier, 2009, p. 32. 156 The Office of International Affairs is an agency linked to the Finance Ministry that handles matters involving the economy, trade, financial negotiations with other countries and participation in negotiations on safeguards, antidumping and countervailing duty under trade agreements, the WTO and other international bodies. SAIN (Secretaria de Assuntos Internacionais- Ministério da Fazenda), http://www.fazenda. gov.br/sain/sobre_sain/ atribuicoes.asp 157 Ibid.

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There is a consensus on the part of the federal government regarding the relationship between the internationalisation of Brazilian enterprises and the growing emergence of the country on the international economic scene.158 In today’s environment of market and trade liberalisation, the importance of private enterprises in emerging economies as an engine of outward-oriented growth is increasing, to the extent that they become core actors in international affairs. Once domestic companies establish themselves as investors abroad, financial vulnerability decreases due to the repatriation of profits and gains related to overseas operations.159 The internationalisation process also contributes to building a nation brand, since it allows Brazil to communicate a positive economic context in the international arena, similar to that of Chile. Both public diplomacy and nation branding portray the new context in which traditional diplomacy turns dynamic. In the Brazil-Chile bilateral context, it should be remembered that FDI also measures a country’s competitiveness in infrastructure, macroeconomic stability and education. Therefore, it accounts for closer Brazil-Chile financial and economic ties, since both countries have to work out new ways of relating to each other. In contrast, Chilean companies entered the region sooner than their Brazilian counterparts, taking advantage of physical proximity and benefitting particularly from the huge Brazilian market. A limited Chilean market explains the rapid saturation of the domestic environment, which means the country needs to expand abroad. Therefore, the search for larger markets came to be a priority in the business sector, even though several factors played an important role in consolidating transnational firms, such as a consistent, good climate at home in combination with a stable macroeconomic context and the country’s endowment of natural resources. These factors served as key elements to domestic growth and allowed the country to acquire the skills needed to penetrate other markets.160

158 The first Brazilian who aspired to present Brazil as an international player was the Baron of Maua (Irineu Evangelista de Souza) who lived from 1813 to 1889. Afonso Fleury and Maria Tereza Leme Fleury (2011), Brazilian multinationals: Competence for internationalisation. Cambridge: Cambridge University Press. 159 Although greater economic interaction with the rest of the world means that the country is more vulnerable to shocks from outside and swings in the sentiment of investors. Dean Croushore (2007), Money and banking: A policy-oriented approach. New York: Cengage Learning, p. 14. 160 Karen Paniachik, “Chile’s FDI policy: past experience and future challenges”. OECD

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However, Chilean and Brazilian firms adopted similar strategies to access the foreign-partner market, based on a strategy for expansion through exports, with increased market knowledge and escalating commitments in the form of more investment. Entering regional markets has similar characteristics, such as proximity to consumer markets and similar cultural aspects. Furthermore, the lesser physical distance between regional partners is recognised as an important step towards managing the experience and gaining a competitive advantage. With the goal being goal to internationalise and compete in foreign markets, Chilean-Brazilian companies take advantage of geographical proximity before adventuring into more distant markets.

3.4.4 Nation branding within the foreign direct investment environment

Before getting into an analysis of Brazil-Chile foreign direct investment (FDI), the importance of nation branding in their bilateral ties should be taken into account. According to the first chapter, a successful nation brand can attract and sustain foreign investment, creating a wave of economic benefits. Along with public-private partnerships, the nation brand is related to how the country is seen and how it sees itself. Beyond the importance of other countries’ perceptions, nation branding must describe the country’s reality in order to achieve tangible gains. At the same time, it has to make the country unique and express its dynamic and modern aspects, combining different kinds of elements. On the contrary to the nation image analysed as a result of the question raised in the first chapter, which led to a stereotypical model of different groups of Brazilan and Chilean citizens, the business view of nation branding is the focus in this section. Instead of pointing out superficial perceptions of each nation’s image, the nation branding approach leads to a careful evaluation of the advantages of the country’s image building. It seeks objective goals, whereas citizens’ opinions refer to generalised perceptions.

Global Forum on International Investment, Shanghai 5th-6th December 2002, p. 3. www.oecd.org/dataoecd/54/27/2764423.pdf

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In sharing positive views on each other, Brazil and Chile’s nation brands are associated with stable, dynamic and rapidly growing economies, favouring closer economic dialogue between both states. From Brazil’s perspective, Chile is considered an example of a sustainable economy that acts rigorously regarding public accounts. Chile’s good reputation among foreign investors shows that the country has both a complete and advanced nation brand. According to the majority of Brazilian executives, “Brazil has yet to create any contingency plans like the ones recently adopted in Chile.”161 When considering the structural plan for dealing with any kind of conflict, Chile’s image as the region’s Asian Tiger is clearly associated with its pragmatic administration and we are reminded that it is an example of a reduction in public spending that led to effective and long-lasting results that helped tackle periods of crisis. Beyond Brazil’s nation brand that sells any product oriented at youngsters, holding two highly visible international events the 2014 World Cup and the 2016 Olympic Games has guaranteed overwhelming exposure for the country per se. This visibility has opened up an enormous market for several sectors. Nevertheless, the World Cup and the Olympics cannot be considered the only reasons for the fast-growing business environment, since the current good economic performance has also played a major role in the increase in foreign investment. Despite global turmoil in 2011, Brazil has settled itself into the international scenario and has shown great sensitivity when dealing with the global crisis (Cruz and Stefano, 2011: 36). Since Chile and Brazil consider each other as countries that share common values and similar features, such as democracy, human rights, peace, stable diplomacy, orderly economic growth, political stability, independent judiciaries, trade facilitation, competitiveness and the capacity for regional economic negotiations, the perfect scenario exists for boosting closer economic bilateral ties. The fact that both countries have positive perceptions of each other through their nation brands guarantees a favourable environment for strengthening bilateral relations. In this respect, the ACE No 35 signed between Chile and Mercosur

161 The contingency plans adopted by Chile in December 2011 included measures to boost employment and investment as ways of dealing with the crisis. “Chile põe em prática plano de contencão para enfrentar a crise econômica internacional”. O Hoje. Goiânia, 14th January 2012. http://www.ohoje.com.br/mundo/30-12-2011-chile-poe-em-pratica-plano-de- contencao-para-enfrentar-a-crise-economica-internacional/

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represented the most important step in bringing Chile closer to regional partners. The ACE No 35 can be considered as an essential mechanism for strengthening Brazil-Chile ties. Another important instrument for improving Brazil-Chile relations was the agreement signed on 24th October 2004 to avoid double taxation between Chile and Brazil, representing a significant step towards facilitating business.162 The Brazil-Chile tax agreement also served to encourage investments whilst promoting the abolition of double taxation. This tax agreement is congruent with the need for import-export sectors and in this way the absence of double taxation may favour gains from additional investments. The Brazil-Chile agreement to avoid double taxation demonstrates the increasing importance of bilateral relations, insofar as Brazil does not have a double taxation agreement with every Latin American country. Although signing an agreement to avoid double taxation has several benefits, the main interest lies in attracting and increasing a flow of foreign investment into the country. Having signed the agreement, Brazil and Chile not only had the task of preventing tax evasion, money laundering, corruption and mispriced commercial transactions among others, but the signing of this tax treaty also means enhancing economic relations between both states. It also meant that a person who provided services in one country was not taxed twice because of the Brazil-Chile agreement to avoid double taxation.163 In this economic context, Brazil and Chile began to establish long-lasting ties from 1985 onwards, when both countries’ economies grew. It should be pointed out that the trade balance has always been unfavourable to Chile, because the goods imported by Chile from Brazil basically consist of heavy machinery and highly industrialised products with a high added value and amount. However, from Chile’s viewpoint, the Brazilian market had always been considered extremely important not only because its export value, but also due to certain comparative advantages. For instance, the gigantic Brazilian market has common borders with other Mercosur members and little demand for sophistication compared to developed countries. Indeed, the percentage of value added to export goods

162 Doing Business in Brazil, “Double Tax Treaty Brazil and Chile. http://dbinbrazil. com/international-tax-treaties/double-tax-treaty-brazil-x-chile/. 163 Brazil signed the treaty preventing double taxation, inspired by Article 7 of the OECD Convention. Ricardo Lobo Torres (2013), Planejamento tributário: elisão abusive e evasão fiscal. Rio de Janeiro: Elsevier, p. 70.

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demonstrates that the use of technology and skilled labour directly favours the development of domestic economic activities. The importance of nation branding building must not be underestimated in the FDI scenario, since the value of the brand as an asset is an important indicator of the amount of foreign investment. Increasing bilateral FDI means that good image promotion contributes to attracting and sustaining foreign investment and therefore nation branding aspect plays a critical role in the process. The high-speed growth experienced by Brazil and the idea of Chile’s liberalised market go hand-in-hand with the policies of attracting investment. Being able to launch and maintain a positive national brand is a decisive element for increasing bilateral FDI.

3.4.5 FDI and the multi-faceted approach in bilateral affairs

Although the focus of this study is on the historical-political angle of Brazil- Chile bilateral relations, the economic field is important in terms of strengthening the countries’ ties to the extent that it cannot be separated from the historical standpoint. In this scenario, the interaction between the public and private sectors serves as a bridge to help understand their bilateral affairs. Trade and market liberalisation policies have made it imperative for firms to look for foreign markets when seeking to enhance their opportunities through economic dialogue. Being able to round up cooperation in diverse areas has strengthened bilateral links, since no country wishes to have political problems with a strong economic partner. Nation branding highlights the relevance of the country’s image to attracting trade and investments and serves as a central concept when analysing Brazil-Chile bilateral relations. FDI is one of the most controversial topics in international political economics, so it is the first that should be defined: FDI means that company shares or quotas in a country become the capital of non-residents. In other words, one of the main features of FDI is the partial or total take over of the company receiving the capital from foreign investors. Regarding FDI, maintaining foreign capital tends to occur in the long run in order for participation in productive ventures. Due to uncertainty about the returns of invested capital and the time needed for this to occur, FDI is to a certain

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point considered risky.164 In this regard, two important facts should be explained: firstly, transnational enterprises (TNEs) are considered the main agents for carrying out FDI; secondly, TNEs have extraordinary sources of economic and political power. Among other things, the high capability of TNEs to mobilise resources on a global scale and their maintaining of close links with the governments of their countries of origin should be stated (Gonçalves, 2005 Reinaldo: 181). Moreover, both in developed and developing countries, FDI plays an important role on the political agenda.165 This means that FDIs are not only in state of flux among developed states, investment flows among developing countries also show growth worldwide.166 The direct investor may be an individual, an incorporated or unincorporated private or public enterprise, a government or an associated group of individuals or enterprises.167 Ownership of 10% of ordinary shares or voting power is the main criteria for determining the existence of a direct investment relationship.168 Direct investment enterprises may be

164 Ministério da Fazenda, Banco Central do Brasil. Censo 2006 de Capitais Estrangeiros no País, p. 7 http://www.bcb.gov.br/rex/censo2005/port/ManualCenso2005.pdf. 165 According to the IMF, a direct investment enterprise is an incorporated or unincorporated enterprise in which a direct investor who is resident of another economy has 10% or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). As UNCTAD statistical reports shown, global FDI flows to developed countries rose by 37% in 2005 and those to developing countries went up by another 22%. In percentage terms, developed countries attracted 59% of global FDI and developing countries attracted 36%, UNCTAD, “Global FDI inflows rise for second consecutive year”, UNCTAD/Press/PR/2006/026/16/10/06. http://www.unctad. org/Templates/webflyer.asp?docid=7456&intItemID=1528&lang=1 166 The strong competitive pressures generated by the globalisation process forced firms to internationalise increasingly early, sometimes even when they were first established. Therefore the idea of being born global is an important concept that must be paid attention to in the following years. Karl P. Sauvant, Wolfgang A. Maschek, and Geraldine McAllister. “Foreign Direct Investment by emerging market multinational enterprises, the impact of financial crisis and recession and challenges ahead”. OECD Global Forum on International Investment, p. 4. www.oecd.org/dataoecd/9/2/44246197.pdf 167 A point made earlier on this topic is that the difference between financial investors and non-financial investors should be highlighted. That said, while the financial investor allocates resources marginally assigning risk ratings in Brazil, the non-financial investor - the TNEs - consider the country a preferential destination for investment. Franco, Gustavo, H. B. Franco (2006: 18). 168 International Monetary Fund, “Foreign Direct Investment Statistics, how countries

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subsidiaries, associates or branches. A subsidiary is an incorporated enterprise in which the foreign investor controls, either directly or indirectly (through another subsidiary) more than 50% of the shareholders’ voting power. An associate is considered an enterprise in which the control of the direct investor and its subsidiaries varies, going from 10% to 50% of the shares with a vote. A branch is a wholly or jointly-owned unincorporated enterprise. The choice between setting up either a subsidiary/associate or a branch in a foreign country depends on the existing regulations in the host country (Duce, 2001: 3). However, considering the role played by TNEs in terms of international investment, Dunning describes the integrated development of diverse constraints as the foremost agents for carrying out FDI instead of the TNEs. Continuing in this vein, Dunning’s eclectic model is based on the juxtaposition of three things: (1) the ownership advantages of existing or potential companies; (2) country location advantages and (3) internalisation advantages combined with external assets of the recipient country through FDI. Therefore, according to Dunning’s model, advantages concerning ownership are classified as specific advantages of the company itself, while location advantages are designated as specific advantages of the FDI recipient country (Amal and Seabra, 2007: 2). In this way, foreign investment strategies cannot be solely attributed to TNEs, but, more significantly to the combination of the diverse dynamics at play, such as ownership and location advantages as well as the capacity to form partnerships with local companies.169 Today, TNEs would rather focus their entry strategies into other markets on the acquisition of already operating local businesses. By acquiring local firms that have a consolidated position in the domestic market, a more favourable investment atmosphere is created (Lacerda, 2000: 130). Another idea is that multinationals help the economy access specialised intermediate input, which tends to be produced in developed economies and acquired abroad through multinationals. As a result, labour and other factors of the host economy become more productive. measure FDI”, p. 24, http://www.imf.org/external/pubs/ft/fdis/2003/fdistat.pdf 169 Today’s FDI is quite different to that of previous years, in that is much more concentrated on the service sector. For example, it includes many acquisitions of existing companies whereas the old way considered entirely new ventures, such as FDI. Franco, Gustavo H. B. p. 16- Antonio Corrêa de Lacerda.

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Gonçalves points out two different aspects of FDI the objective, anchored by the power of the FDI itself and the subjective, which implies a conflict of values. The subjective perspective imposes the importance of nationalism as a significant political aspect, either in terms of interstate relations or disputes among the states in the FDI scenario (Hobsbawm 1998: 181). Indeed, the domestic benefits of multinationals should be considered since they increase competition for local firms, therefore helping to redistribute income, the new technology that is brought to the host economy also favours job training for local firms. However, before deciding to promote FDI it is essential to evaluate possible sources of market failure associated with TNEs.170 Another important point to consider is the need for symmetrical information between domestic and foreign investors, promoting interaction between diverse actors from both countries. With this in mind, both FDI and TNEs play a significant role in Chile- Brazil bilateral relations, since both countries share similar features regarding progress in the liberalisation, deregulation and privatisation processes. As mentioned in the first chapter, it is not that public diplomacy is a new paradigm in international relations, although it does help analyse foreign affairs from a dynamic standpoint instead of the state-centric focus. The significance of public diplomacy encompassing public-private cooperation in Brazil-Chile relations has become a core element to understanding the two countries’ bilateral links. Public diplomacy combined with nation branding fosters exports, attracts investments, promotes the country’s image and determines the relevance of decentralised actors in contemporary foreign affairs.171 However, the specific features of each country should be examined. FDI is a key element to help understand the process of building up the real economy, facilitating the transfer of technology and the management

170 Gordon H. Hanson. “Should countries promote foreign direct investment?” United Nations Conference on Trade and Development, United Nations Publication, no 9, February 2009, Centre for International Development Harvard University, pp. 9-10. www.unctad.org/en/.../pogdsmdpbg24d9.en.pdf 171 The significance of FDI goes back to the late 1980s, when it became a key component for financing international current account imbalances. According to Graham and Krugman, “in 1989, nearly half of the US current account deficit was financed by inflows of direct investment”. Edward M. Graham and Paul R. Krugman (1993), “The surge in foreign direct investment in the 1980s”, in Kenneth A. Froot, Foreign Direct Investment. Chicago: The University of Chicago Press, p.14.

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capacity of the two states. In many respects, it establishes links – whether direct or indirect, commercial or financial – with the global economy overall and last, but by no means least, regarding creation and production capacity (Franco, 2006: 13). In contrast to speculative capital associated with volatility, the high probability of loss and short-term investment horizons, FDI potentially increases the recipient country’s savings and investments. For this purpose, Brazil-Chile cooperation within a FDI context is an important mechanism for establishing ties and strengthening the relationship.

3.4.6 Brazil’s FDI in Chile

The degree of internationalisation of the companies in the business sector in Chile and Brazil can be measured by the flow of foreign direct investment abroad. Increasing bilateral business ties demonstrates the important role played by decentralised links in bilateral affairs. With this in mind, the firms that invest possess specific advantages that enable them to operate in foreign markets where domestic companies already have the advantage of better knowledge of the local market. Brazil aims to exploit Chile’s liberalised market advantages and infrastructure support, providing an export platform for the Asian market, with Brazil’s interest in international expansion requiring more intense regional cooperation initiatives. At the present time, Brazil is considered one of the countries with the highest levels of production internationalisation. As a result of the liberalisation process circumscribed by a series of measures such as privatisation and deregulation, Brazil has witnessed an extraordinary increase in the internationalisation of its production. In the international scenario, this increase can be attributed to the re-establishment of world economic growth in 1993, which led to a global economic surplus and the expansion of FDI on an international scale (Gonçalves, 2005: 182). A shift in the world economy affects how the world’s economic surplus is distributed among countries and therefore their possibilities of carrying out FDI. Brazil’s participation in the set of FDI receiving countries increased in the mid-1990s, largely due the privatisations. Nonetheless, like Chile, investments were not continuous and there have been many ups and downs

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in terms of the foreign investment flow.172 Thus, the reception of FDI in Brazil has followed international standards and it can be seen that the main form of income in recent years has been through mergers and the acquisition of companies. There are parallels between the entrance of FDI and the volume of mergers and acquisitions involving non-residents, which have generally been as purchasers of domestic companies. This context shows that the evolution of FDI incomes has strong links with exogenous components and as a result the entrance of FDI to Brazil goes hand-in-hand with international fluctuations. One key fact to understanding the entrance of FDI in the country is that it consisted mainly of the transference of ownership from residents to non-residents (Gonçalves, 2005: 187-8). When analysing the proportion of Brazilian and Chilean FDI for each country, the circumstances that sharply differentiate the two countries should be studied. Brazil is Chile’s second direct investment destination in the world, while Brazilian investment in Chile does not reflect the same. Despite the increase in the flow of foreign capital towards Chile in recent years, as already stated in the first chapter, Brazilian investment is limited to a few sectors.173 This can be attributed to the following factors, in the first place, the restricted size of the Chilean market goes hand-in-hand with its lack of attraction for Brazilian companies. Secondly, Chile’s comparative advantages in terms of natural resources and geographical location have not attracted the interest of large Brazilian companies. Furthermore, all Latin American countries are classified as late investors due to the 1980s crisis and the costs that recovering from this crisis implied.174 At certain point,

172 During the 1990s in Chile, FDI represented an annual average of 8% between 1995 and 2000. After this surge, the amounts entering Chile dropped significantly. However, this did not reflect a change in Chile’s competitiveness but was the consequence of a sharp downturn in international economic conditions, which affected FDI in almost every country, with the exception of China. Foreign Investment Committee. 23rd August, 2009. “Foreign Investment in Chile/FDI Trends.tp://www.cinver.cl/english/ clima/inversion_ inversion.asp 173 To illustrate this point, it can be seen that both Chile and Brazil’s foreign direct investment did not include, in most cases, the transport sector. Therefore, the transport sector is not taken into account when analysing the FDI situation in both countries. Rolando Avendaño, Gøril Bjerkhol Havro and Javier Santiso. “Oportunidades na Ásia? Perspectivas para o comércio internacional da América Latina”. Política Externa, vol. 18, no 3, Dec/ Jan/Feb 2009-2010, São Paulo, p. 164. 174 Latin American governments decided to restrict capital movements seeking to avoid a shortage of foreign currency. In addition to this fact, United States banks decreased the

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this means that Chile was not a receptive environment for attracting Brazilian enterprises’ investment flows.175 However, the first Brazilian enterprise that saw an opportunity to invest in the Chilean market was the Gerdau S. A. metallurgic company in 1992. Due to the rising demand for steel in the Chilean market, Gerdau S. A. decided to invest in that market by purchasing domestic companies.176 In this way, the internationalisation process of Gerdau occurred through acquisitions and was motivated by better access to financing conditions in order to avoid Brazilian risks. The investment opportunity in Chile enhanced Gerdau’s regional influence and led to proximity with consumer markets, since inter-sector cooperation in business means a broader network in terms of consumer destination, distribution channels and strengthening bilateral dialogue between the countries.177 Furthermore, other Brazilian companies followed the same pattern of investment and chose Chile as an important partner for business-to-business cooperation. In this scenario, other firms entered the Chilean market, such as Odebrecht, which worked on the tunnel of the Pehuence hydroelectric adduction and in a consortium with other companies, built the new passenger terminal at Santiago airport.178 Continuing along these lines, the Brazilian Vale do Rio Doce mining company, whose work involved transforming mineral resources into essential ingredients for daily use, also

amount of credits available to the region and also the opportunity for Latin American companies to expand. Daniels, J.; L. “Foreign direct investment from Latin America and the Caribbean” apud Dorotea López G. And Felipe Muñoz N. Inversiones Brasilenãs en América del Sur. La perspectiva de los países andinos: el caso de Chile. Universidad de Chile, Santiago, 2008, p. 22. 175 Another important point to consider is that a significant number of Brazilian enterprises carry out transactions involving investment in fiscal paradises. Therefore, many projects developed with Brazilian capital do not account as Brazilian investment through receiving countries. As a result, it is difficult to quantify and measure the presence of Brazilian capital in such transactions. Dorotea López G. And Felipe Muñoz N. Inversiones Brasilenãs en América del Sur. La perspectiva de los países andinos: el caso de Chile. Universidad de Chile, Santiago, 2008, p. 23. 176 Gerdau (Chile), http://www.gerdauaza.cl/Empresa_Grupo.asp 177 “Brazilian companies’ internationalisation: Brazil’s multinationals corporation cases and challenges”. Kline affiliated company, São Paulo, SP July 2007, p. 11, www. Factor desolucao.com.br 178 “A organizacão internacional”, Odebrecht. http://www.odebrechtonline.com.br/ mate rias/00201-00300/249/

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started to develop mining projects in Chile.179 Unlike Gerdau S.A. and Vale do Rio Doce, however the Itau Bank is not considered an interesting example of FDI, since it is not related to traditional investment. In fact, Itau’s business operation does not involve the direct participation of Brazilian capital in the Chilean market. Despite Itau Bank’s appearance on the Chilean market, its expansion throughout Latin America has been carried out in conjunction with the Bank of America. In order to materialise Itau Bank’s expansion targets, shifting the control of their operations from the Bank of America to the Bank of Boston in Brazil, Chile and Uruguay was allowed. Whereas Itau Bank manages its operations throughout the region, the Bank of America co-participates with a percentage of the shares. The most important Brazilian company, Petrobras, strategically concluded the process of acquiring the distribution and logistics of ExxonMobil in Chile, paying $ 400 million net in cash and cash equivalents for the companies purchased. With this acquisition, Petrobras guaranteed its participation in the Chilean fuel distribution market, with a network of around 230 service stations, its presence in 11 airports, an interest in six distribution terminal, (four of which are their its own and two of which are joint ventures), a 22% interest in the Sociedad Nacional de Oleodutos and a 33.3% interest in the Sociedad de Inversiones de Aviación.180 One of the most remarkable aspects of business-to-business cooperation between the two countries is the creation of LATAM, the company with the most market value in the Americas. As argued, public diplomacy cannot be separated from the business sector, since public-private cooperation is a core element of Brazil-Chile relations. This airline was born as a result of the fusion between the Chilean LAN and the Brazilian TAM. The fusion between LAN and TAM occurred in August 2011 and generated a civil aviation giant with revenues of $ 8.5 billion and flights to 23 countries. LATAM will consolidate its position as the leader in passenger air transport in the Latin America market. In fact, in the company, LAN holds 79.6% of group’s shares and TAM has the other 20.4% informs a source close to the

179 Vale do Rio Doce. http://www.vale.com/vale_us/cgi/cgilua.exe/sys/start.htm?sid=6 180 “Petrobras in Chile”, Wikinvest, 19th November 2009. http://www.wikinvest.com/stock/ Petrobras_%28PBR%29/Chile

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Brazilian company.181 In brief, LAN’s share is larger than TAM’s. After being approved by the Chilean body that regulates monopolies the fusion still had to be evaluated in Brazil. The deal was authorised, although 11 conditions were imposed to ensure fair competition in Chile’s air transport market. In Brazil, the Secretariat for Economic Monitoring (Seae), the Ministry of Finance and the Secretariat of Economic Law of the Ministry of Justice (SDE) were involved in authorising the deal.182 The Vice- President of Finance of LAN, Alejandro de la Fuente, argued that “to be a major player in the sector, Chile must have a presence in the passenger business in Brazil”, explaining that TAM was the best option in this country because both companies had cargo operations, among other things.183 López and Muñoz state that the process of transnationalising foreign capital is something relatively new in Latin America. Putting this into perspective, at the beginning, the increase in investments was related to physical proximity rather than the consequence of a strategy to attract the same. Furthermore, despite Brazilian investments adding up to a low amount of the total, they had occurred in strategic economic sectors, such as mining, building, chemicals, energy, rubber and plastic among others. Brazilian investments come from companies of all different sizes. However, in the last few years Brazil’s presence in the Chilean market has increased and should not be underestimated. However, although at first glance the Chilean market’s small size did not appeared to be attractive, Brazilian companies thought that they could take advantage of Chilean preferential trade agreements by using this country as an export platform. Given Brazilian companies’ internationalisation aims, Chile became an important ally in the region, supporting this process. Nonetheless, another way of explaining the lack of investment is that Brazilian companies looked to increase their market share, achieve scale economies or explore natural resources. The precarious physical connection

181 “Latam é a aérea mais valiosa das Américas”, Estadão-Economia e Negócios, 14th August 2010. http://www.estadao.com.br/noticias/impresso,latam-e-a-aerea-mais-valiosa- das-americas,594868,0.htm 182 “Restricões do CADE não surpreendem a LATAM; aviacão decisão do Brasil seguiu posicão já anunciada no Chile”, Valor Econômico-Empresas e Servicos, Thursday, 15th December 2011, B5. 183 “Junta extraordinaria de accionistas de LAN aprueba fusión con aerolínea brasileña TAM”, Emol-Economía. http://www.emol.com/noticias/economia/2011/12/21/518137/ac cionistas-de-lan-aprueban-en-junta-extraordinaria-la-fusion-con-brasilena-tam.html

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between both states has also contributed to hampering cooperation policies. In this regard, physical connections function as a prerequisite for transforming Chile into a platform for Brazilian exports towards Asia (López and Muñoz, 2008: 30). Physical cooperation constitutes a significant form of engagement beyond traditional diplomatic links with public-private connections playing a central role in Brazil-Chile links, as pointed out by public diplomacy. Chile’s stable and liberalised market conditions, accompanied by access to the Pacific laid the groundwork for the increasing presence of Brazilian firms in the country.184 Given that internationalisation activities generally emerge in markets that are culturally and geographically close, Chile is the natural market for FDI by Brazilian firms. Moreover, FDI demands a long- term partnership to strengthen business-to-business dialogue and encourage bilateral cooperation ties. The firm’s relationship with other actors provides a broader framework for opportunities in diverse sectors in Brazil-Chile. The network approach infrastructure cooperation is congruent with the decentralised perspective of public diplomacy and the importance of nation branding to attracting business.

3.4.7 Chile’s FDI in Brazil

On the one hand, Chile is widely recognised by its policy of attracting FDI, favoured by its stable and transparent policy framework. On the other, Chile’s good domestic business climate has allowed the country to amass the capabilities required for investing in other countries. Chile’s territorial limitations mean that companies reach a saturation point fast, therefore a real need for growth and an excess of profits paved the way for investment abroad. The competitive advantage of physical proximity favours the entry of Chilean companies into countries like Brazil. The huge Brazilian market is obviously attractive to Chilean companies, since the possibility of developing scale economies and gaining access to the consumer market is clear.

184 The past decade was extraordinary for Brazil, considering the rapid growth in revenue of most sectors of Brazil’s economy. See Masao Ukon et al. (2012), “Brazil: facing the productive challenge”. The Boston Consulting Group.

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Chilean firms pursue a high level of outward investment that can be compared with economies such as Brazil. Chile has been one of the top three sources of FDI outflows in the region, joined in the ranking by Brazil and Mexico. Chile is also a major recipient of inward FDI, usually in third place in the region after Brazil and Mexico. The fact that neither Brazil nor Chile suffered dramatically during the international financial crisis of 2008- 2009 created a more favourable scenario for continuing with and increasing bilateral FDI flows. Another aspect is that most of the Chilean TNEs that invest in the Brazilian market are restricted to sectors that did not directly suffer from the effects of the financial crisis, such as food, forestry and beverages. Among many Chile TNEs that direct their investments towards Brazil, the most significant firms vis-à-vis the Brazil-Chile business dialogue should be mentioned. In this scenario, the wood-sector is increasing its investment in the Brazilian market, especially the CMPC and Arauco companies, part of the COPEC conglomerate that has replicated a model similar to the Chilean one in Brazil. It acts in a vertically integrated structure that handles forest management and processing wood into products. The wood is either sold in the host market or exported to other markets.185 The Cencosud is another important Chilean investor in the Brazilian market, given that the supermarket chain has superstores in north-eastern Brazil and 46 stores, distributed between the states of Bahia, Alagoas and Sergipe. This operation involved the transfer of all the companies’ shares and the acquisition of the companies’ capital assets, stock, personnel, marketing rights, brands and all assets guaranteeing the firm’s proper management.186 Between November 2007 and November 2011, Cencosud invested 3 billion reales in Brazil, buying 7 Brazilian retail chains ranked

185 CMPC is one of the largest Chilean companies with annual sales in 2010 of US$ 4.219 million and a market value of US$ 11.700 million. The company planned to invest US$ 600 million between 2011 and 2012, but that number ended up being more than double at US$ 1.300 million. The firm’s investment plan is very dynamic and includes pulp mills, paper and tissue in Chile, Brazil, Peru and Mexico. Entry into the Brazilian market was a very important step for the company, since it allowed it to double its production and in the tissue sector, represented an opportunity to access new markets. The company recently installed a new paper conversion plant in Guaíba, which facilitates market access to the south of Brazil. “CMPC: muchos productos del hemisferio norte no son viables”. El Mercurio, Economía y Negocios. B7, 10 August 2015. 186 Cencosud. Business Units. http://www.cencosud.cl/eng/unidades_gbarbosa.htm

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fourth among supermarket chains.187 In line with Chile’s increasing entry into the Brazilian market, the Chilean company Embotelladora Andina has also consolidated its presence in the Brazilian beverages market. Interestingly and unknown to most Brazilians, Embotelladora Andina holds 57.5% of the market share of soft drinks in Rio de Janeiro. Its operations in the Brazilian market have enhanced the company’s standards of quality, whilst guaranteeing its commitment to efficient processes.188 In technology, Sonda is an emerging actor in the Brazilian market. Chile’s Sonda has operated regionally as a system integrator and IT service provider. Its products and services include outsourcing, projects and systems integration, software solutions, servers, PCs and specialised consultancy and advice among others.189 According to Brazil’s Secretary of Economic Monitoring (SEAE), the Sonda company holds more than 5% participation in the social composition of companies operating in Brazil and Mercosur. In the Brazilian market, the Sonda group, which controls the Huerta company, provides solutions and services in the information technology sector aimed at the development, implementation and commercialisation and sale of hardware for companies.190 Transportation includes the Chilean company, Compañia Sud Americana de Vapores (CSAV). Despite the difficulty in determining the geographical location of their assets in the transportation sector, the company can be considered part of the Brazil-Chile business cooperation dynamic for fostering private partnership. Active communication within the transport area, through the provision of haulage and freight services by sea to major markets, should be considered as the infrastructure that led to proximity between the two actors.191 Instead of considering business as an institution isolated from the bilateral context, the Brazil-Chile cooperation ties are sufficiently diverse so as to address the needs of the multi-criteria, more

187 The real is Brazil’s currency. See Thiago Bronzatto and Ana Luiza Leal. “Em quatro anos, o varejista chileno Cencosud gastou 3 bilhões de reais em aquisições no Brasil”. Revista Exame, 30th October 2013. Editora Abril, pp. 64-66. 188 Embotelladora Andina. http://www.koandina.com/ 189 Sonda S.A., Business News Americas. http://www.bnamericas.com/company- profile/en/Sonda_S,A,-Sonda 190 Parecer no 06797/2010/RJ COGCE/SEAE/MF, Ministério da Fazenda Secretaria de Acompanhamento Econômico, 17 September 2010, pp. 3-4. 191 CSAV, http://www.csav.cl/index_en.htm

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flexible approach of the study. From the 1980 onwards, due to the reduced size of the country, Chilean firms have concentrated on looking for other markets. As part of this process, Chile’s natural resources provide a competitive advantage over foreign competitors. Furthermore, the good domestic climate has helped attract foreign investors, facilitating domestic firms’ development and contributing to their expansion abroad. Along these lines, the well-achieved entry into the Brazilian market is an important step towards achieving scale economies, gaining more consumers and functioning as a platform for Chile’s expansion in to other markets, for example Africa. Therefore, the FDI bilateral approach between Chile and Brazil has led to long-term benefits such as the transfer of technology, an increase in exports and the fostering of regional integration and domestic competition. Bilateral cooperation in different areas demonstrates the far-reaching focus of public diplomacy when studying Brazil-Chile links, since bilateral ties go beyond the state-centric approach.

3.4.8 The economic and historical FDI perspective

Although most studies focus on either the economic or historical perspective without developing an interrelated dialogue between the two, a separate analysis suggests that neither sector exerts influence on the other. Therefore, they are not considered in most of the studies. However, the economic context has social and historical roots which cannot be underestimated, to the detriment of one of the focuses’ perspectives and a lack of sensitivity regarding the historical influence on FDI, the tax system, imports and exports, and the economy in general.192 This study endeavours to understand the history of Brazil-Chile bilateral affairs, given that historical background is an important element for understanding public diplomacy and nation branding concepts. The increase in mutual foreign investment experienced by Chile and

192 The tax system important for understanding the pragmatic approach to Brazil-Chile relations. In her second term, President Michelle Bachelet promised to implement a tax reform. The government’s target was to raise an extra 3% of GDP to be spent on education. “An agreement on tax reform mars a turning-point for Chile”, The Economist, 19 July 2014, vol. 432. London, p. 32.

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Brazil since the 1990s enforced the international tendency for developing countries to become sources of foreign investment instead of mere recipients of it. The lowering of barriers to foreign investment also played a significant role in facilitating the flow of investment. Since Brazil and Chile have strong historical institutions, both democratic regimes and social stability help to provide a favourable scenario for mutual foreign investment. Moreover, Chile is taken as an example of public accounts, while Brazil has become a centre of international attention. In this context, strengthening ties favours both countries’ economies and further strengthen partnerships in other areas, such as cooperation in terms of macrocooperation (policy) and microcooperation (cooperation between Brazilian and Chilean cities as so- called paradiplomacy). When analysing a country like Chile, it is expected that the majority of FDI focuses on the exploitation of natural resources, particularly in sectors with major comparative advantages such as copper mining.193 At the same time, the majority of the FDI of countries with larger domestic markets, like Brazil, are supposedly to have most of their FDI orientated towards production for the supply of their own market (Zabala, 2008: 19). The following considerations endeavour to answer these assumptions. Despite Brazilian tax system being complex and unfair and demanding urgent reforms, this has not jeopardysed Chilean investments in the long- run. However, the first attempts at Chilean investment faced certain difficulties about how the Brazilian system of tax collection worked. For instance, the companies Iansa and Farmacias Ahumada faced several obstacles when trying to carry out a long-term investment strategy.194 As Camargo points out:

“The withdrawal of certain Chilean enterprises has to do with the difficulties of recovering credit for the Brazilian tax on the circulation of goods and services. The

193 Between 1974 and 2008 in Chile, 27.1% of the net accumulated FDI corresponded to the mining industry, followed by services (22.5%), electricity, gas and water (22.1%), transport and communications (12.5%) and manufacturing (11.4%). Foreign Investment Committee. 23rd August 2009. “Foreign Investment in Chile/Net accumulated DL 600 investment”. http://www.cinver.cl/english/clima/inversion_600.asp 194 Iansa is one of the principal agro-business groups in Chile and specialised in the sale and production of sugar and sugar-beet-subproducts. Iansa, “Our company”. http://www. iansa.cl/index.php/nuestra-empresa/?lang=en

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complex Brazilian tax system in which certain taxes are levied by the federal government, others by the state government and others by municipalities demands a certain degree of understanding on behalf of the taxpayer. The Brazilian taxation system complies with many taxpayer obligations and needs cautious analysis.”195

Although a discussion of Brazil’s complex tax system is the scope of this study, it should be highlighted that even Brazilian companies that seek internationalisation face the same problem. The major transformation that international affairs have undergone creates a contemporary scenario in which new topics and forms of interaction between diverse actors emerge.196 In this sense, the state-centre relationship has changed. Not only with regard to the sectors directly involved in foreign affairs but also subnational authorities have led a decentralised relationship between countries. This means that decentralisation initiatives have allowed new actors to participate in foreign policy, shifting the focus of bilateral relations somewhat and encouraging an increase in more flexible network links. With this in mind, cities, states and provinces also become critical actors in the international arena. The decentralised approach goes hand-in-hand with the idea of public diplomacy and paradiplomacy, given that both concepts highlight the significance of decentralised actors in foreign affairs. The Brazil-Chile bilateral approach encompasses a multi-criteria context in which flexibility is a core element to understanding the relationship between the two countries. Analysis from a political-economic perspective has a significant potential to help understand that Brazil-Chile links go beyond traditional diplomacy and that dynamic private sectors also play an important role in bilateral affairs. Insofar as official actors are not the only decision-makers in contemporary international relations, decentralised networks become relevant mechanisms for conducting foreign affairs. Moreover, Brazil-Chile relations provide a different picture of how diplomacy works, given the relevance of economic sectors in bilateral links. Another crucial point that must be considered is the importance of taxes in bilateral affairs, since trade is an important sector in bilateral relations. In

195 Álvaro Camargo, Director of ProChile in Brazil. Interviewed on 13 February 2014. 196 More information available at: Deloitte, “Overview of the Brazilian tax system”. Accessed on 6th May 2013. http://www.deloitte.com/assets/Dcom-Brazil/Local%20Assets/ Documents/Ind%C3%Bastrias/Petr%C3%B3leo%20e%20G%C3%A1s/ OverviewBrazilian Taxation.pdf

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this sense, initiatives that seek integration through the tax system and the search for economic similarities between both countries’ values encourage more efficient and effective tax collection procedures. In addition to economic cooperation efforts, investment in infrastructure in order to bring the countries into physical proximity produces clear benefits for bilateral relations. This approach recognises other elements as critical when bringing up broader cooperation between the two. The emerging role of non-official actors is considered an essential argument of the public diplomacy concept, which provides the central idea for understanding the Brazil-Chile decentralised approach.

3.5 Brazil-Chile Ties during the Administrations of Presidents Rousseff and Piñera

The persistent scepticism about Brazil-Chile relations during the term of the Brazilian President Dilma Rousseff and the Chilean President Sebastián Piñera compared to the previous governments of President Lula and President Bachelet, in which a more consistent dialogue was achieved led to misconceptions about how bilateral links were conducted. As observed in previous chapters, Brazil-Chile bilateral relations are not as intense as the relationship both states have with their common neighbour Argentina. At the same time, the Brazil-Chile relationship is not the most important bilateral partnership for either Brazil or Chile. In terms of foreign policy goals, President Piñera focused on the Pacific Alliance as part of his government’s platform. Brazil, on the other hand, prioritised its role as an emerging global player, as well as a continental leader. Piñera has defended the fact that the country’s foreign policy aim was the Pacific Alliance. This ambitious project aimed to coordinate trade policies of the Pacific Basin countries seeking better access to the Asian market. Linking Chile, Peru, Colombia and Mexico, the project also aimed at including Panama, Costa Rica and other Central American countries. The targets of its members were set out in the Lima Declaration on 29th April 2011, in which the presidents of the four states expressed their commitment to progressively moving towards the goal of achieving the free movement of goods, services, capital and people.197 Its position as a regional leader and as

197 Infolatam, Información y análisis de América Latina, “A Aliança do Pacífico: o

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an emerging global player and considering the structural changes that have marked the country since the beginning of the 1990s, Brazil employed diplomatic actions to achieve these aims. Brazil’s weight on the international scenario led to its increasing participation in multilateral forums and a foreign policy orientation that reflected its new role. However, as argued in this study, the fact that Brazil and Chile did not develop strong diplomatic ties does not indicate lack of bilateral relations. On the contrary, during the administration of Presidents Rousseff and Piñera, both countries signed agreements to share a military base in Antarctica. According to the agreement signed on 26th January 2013, Brazil was able to use the facilities provided by Chile’s military base while rebuilding its base, destroyed by fire in February 2012. As part of the announcement, Rousseff stated that this was a good opportunity to encourage closer links between the two nations.198 Furthermore, the two countries signed a memorandum of understanding between their Ministries of Education, which allowed for exchanges at graduate level and in higher and technical education, encouraging the learning of Portuguese and Spanish. President Piñera pointed out the possibility of cooperating in the bioceanic corridor project and in the area of generating ‘clean energy’.199 The possibility for cooperation among various sectors provided the circumstances for broadening and strengthening coordinated action. A diverging diplomatic focus does not interfere with the possibility of undertaking bilateral cooperation initiatives. The Brazil-Chile approach goes beyond traditional diplomacy, with the interaction of private groups in the two states, as well as of the new actors that emerged within the bilateral relationship, who demanded a new way of studying current bilateral ties. Public diplomacy encompasses the different dimensions in which bilateral relations develop. The increasing domestic relevance of foreign policy in the last few years shows that internal debate over foreign affairs has become nascimento de um colosso”. Madrid, 5th June 2012. http://www.infolatam.com.br/2012/ 06/06/a-alianca-do-pacifico-o-nascimento-de-um-colosso/ 198 R7 Noticias, “Brasil e Chile assinam acordo para compartilhar base na Antártida”. Accessed on 26th January 2013. http://noticias.r7.com/brasil/brasil-e-chile-assinam-acordo- para-compartilhar-base-na-antartida-26012013-4 199 Emol.Chile, Felipe Vargas. “Presidentes de Chile y Brasil firman acuerdos bilaterales en Educación, Cultura e Investigación”. Saturday, 26 January 2013. http://www. emol.com/noticias/nacional/2013/01/26/581050/presidente-pinera-y-dilma-rousseff-firman- acuerdo-de-cooperacion-educacion.html

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relevant in Brazil and that the importance of foreign policy in domestic politics demands a multifaceted approach. Strengthening Brazil-Chile dialogue will occur in the coming years through bilateral links and in multilateral forums. Furthermore, the two countries share the same values in the international arena and both want to maintain their support for key issues in the United Nations Security Council. The mutual perception they have of each other as stable allies provides the context in which Brazil and Chile have developed their relationship from the 1990s onwards. Public diplomacy, nation branding, presidential diplomacy and paradiplomacy sustain the multi-sector approach necessary to understanding the Brazil-Chile relationship. The growing participation of other actors beyond traditional diplomacy and the emerging role of transnational topics have demanded new mechanisms for studying foreign affairs. Considering Brazil’s huge dimensions, the nature of the country’s role in Brazil-Chile relations is of great importance. As long as Brazil exerts regional leadership, it will be easier to strengthen bilateral relations with Chile, since the latter will see solid benefits from the partnership. However, it should be argued that important steps towards the development of bilateral ties have already been put into action, through bilateral cooperation in diverse sectors, as demonstrated in this chapter. Brazil’s emerging role as a global player change Chile’s approach to the country at some point, insofar as the latter recognised the need to strengthen ties.

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