Memorandum, Information for the President, 'Trade Promotion. Brazil-Iraq. Economic-Commercial Relations'

MINISTÉRIO DAS RELAÇÕES EXTERIORES

INFORMATION FOR THE PRESIDENT OF THE REPUBLIC

Date: August 26 1982

Subject. Trade promotion  Brazil-Iraq.

               Economic-commercial relations.

In spite of the geographical distance between them, Brazil and Iraq were able to identify, in the last few years, common points of interest, which generated a number of cooperation options between the two countries. At the beginning, collaboration was limited to supplies of crude oil by Iraq. With the passing of the years, and with a better reciprocal understanding of the difficulties and potential of each country, economic cooperation acquired a more intense and balanced shape, creating links in the commercial, financial, energy, technological and military fields.

2.  In the commercial field, relations between Brazil and Iraq, from 1971 to 1980, experienced an extraordinary development – global exchanges, which in 1971 were of US$40.842.000,00, reached at the end of 1980 the amount of uS$4.068.473.000,00, equivalent to practically 100 times the value of bilateral trade at the start of the period (1971). Significant results were achieved for Brazilian exports from 1979 on, relative to the immediately previous stage (in terms of value, we exported to Iraq  US$ 85 million, US$ 239,6 million, US$288,9 million and US$ 298,5 million in 1978, 1919, 1980 and 1981, respectively. Despite such results, substantial imbalance and asymmetry of benefits persisted in the trade between Brazil and Iraq, a fact that can be explained by our purchases of crude oil from that country.

3.   Recently, however, disquieting signs of loss of dynamism in the commercial field, lesser utilization of the complementary potential of the two economies and growing operational difficulties for the action of Brazilian companies in Iraq have arisen.  

4. In fact, the Brazilian presence in Iraq, in development projects or in the form of Brazilian products, is now facing barriers unknown in the past, which do not seem warranted by conjunctural factors or even, in the vast majority of the cases, by the action of market forces. As an example, a recent fact can be mentioned: in a public tender, with the participation of Construtora Mendes Júnior S.A., the building of theKirkuk-Haditha railroad was awarded to a consortium of four Korean companies, two of which were in bankruptcy (the Iraqi Government admitted subsequently the replacement of the consortium by other Korean companies, an unusual fact in a regular public bidding process). That decision was especially discouraging for Brazilian interests considering that Brazilian construction companies, demonstrating courage and confidence in the future of Iraq, which was recognized by Iraqi authorities, have kept – unlike most foreign companies – the largest part of their workers and their activities in the country during the whole duration of the conflict with Iran.

5.   Moreover, companies like Construtora Mendes Júnior and ENSUSA Engenharia e Construções S.A., face serious obstacles for the recognition of claims stemming from difficulties caused by that conflict. The increase in operational costs resulting from exceptional conjunctural  factors, such as armed conflict, requires the appropriate and timely  treatment of business legal claims and demands, based on special criteria, unusual in traditional business contracts, in order to avoid the rise of contentious  trade situations and the ensuing removal of companies active in the bilateral exchanges. The Iraqi Government has been creating difficulties for such treatment. Mendes Junior, for instance, says it has over 300 million dollars in claims to receive from the Iraqi Government for additional costs incurred because of the Iran-Iraq conflict in the construction of the railroad it is about to complete.

6.  This picture of difficulties in the development of commercial relations does not match the high level of understanding that the two countries maintain at the political level. It is feared that this trend, if increased, may compromise the common effort exerted over many years to create a strong and lasting community of interests between Brazil and Iraq in several sectors of bilateral cooperation.

7.  In this connection, the recent visit to Brazil of an Iraqi mission headed by then MinisterTaher Twfiq (a few days after his return to Baghdad that Minister, besides losing the post of Minister of Industry and Mineral resources, was excluded from the Revolutionary Command), did little to allay current doubts. The impression remains that Iraqi receptivity to Brazil – much extolled in the past – had started to be increasingly qualified, a fact that may be explained, in part, by the need on the part of the Iraqi Government, which is still politically isolated, to widen the scope of its external policy with a view to obtaining new trade partnerships and even to expand and strengthen its political relations with the big Western powers.

8.      While closely following  the evolution of the Iraqi conjuncture and reality, the Brazilian Government should adopt an attitude of understanding and expectation with regard to Iraq, as long as this does not harm the effort to push for a larger presence in the import market of that country. In the relationship with Iraq, prospects seem to indicate that its market will become increasingly competitive.

9.     Therefore, an initial special contact with the new Iraqi Ministry, formed  in the end of June, it would be interesting to designate a high level official to maintain conversations with the Iraqi Government, as a way of identifying trends and permitting the establishment of a new strategy regarding Iraq. This representative, who could be the bearer of a message from the President of the Republic to President Saddam Hussein, in the lines of the annexed text, would reaffirm the Brazilian willingness to explore in a systematic way the opportunities for cooperation under the perspective of objective actions, as suggested in the mentioned document.

10.        For that mission, I submit to Your Excellency the name of Ambassador Paulo Tarso Flecha de Lima, Head of the Trade Promotion Department of the Ministry of External Relations, who was in Baghdad several times, has worked consistently in bilateral economic relations and is in close contact with Brazilian companies having interests in that country.

(Signed) Ramiro Saraiva Guerreiro

                Minister of State of External Relations        

           (Documento s/n – Anexo ao doc. 7)

Text of the letter conveyed to the President of the Republic of Iraq, His Excellency Mr. Saddam Hussein

 [Attached]

To His Excellency Saddam Hussei

President of the Republic of Iraq

Great and Good Friend,

I have the honor to address Your Excellency to express my great satisfaction for the great development reached since 1979 in the relations between Brazil and Iraq, not only in the political field but also, very especially, in the commercial area. This is for me particularly welcome and significant, because this result began to appear at the start of my Government. I have, therefore, the responsibility to increasingly widen and deepen the bilateral relationship, taking advantage of the excellent bases of understanding and friendship that have been built over the years between our countries.

2.  The complementary features of the economies of both countries have been explored mainly in the field of commercial exchanges, without touching sufficiently the industrial and technological areas. These links can be expanded in a more balanced and beneficial way, if the political decision that is largely viable, and which I firmly support from the Brazilian side,  continue to express itself through concrete accomplishments. Conjunctural difficulties, in both countries, need to be recognized and analyzed in order to establish a viable project of joint action for the coming years. I am convinced that the experiences mutually gathered – with the exchange of visits  from authorities and entrepreneurs from both countries, with the exchange of ideas and information and the realization of the interdependence that exists in the bilateral relations – will be instrumental to highlight objectively the opportunities for cooperation in this decade of the 1980’s.

3.  Brazil is facing at present growing challenges for the achievement of the levels of economic and social development that I have set for the six years of my Administration, and this requires from all Brazilians effort and imagination to revert trends. It is therefore essential for Brazil, in the short, medium and long run, to expand exports, particularly for those countries that have a large import market, as is the case of Iraq, which enjoys moreover a considerable surplus in the bilateral trade. With the solidarity and understanding on the part of Iraq it will be possible to increase national productive capacity and also recover partially the levels of employment in specific sectors such as the steel, automobile, rails and electric equipment  industries, mainly affected by the world recession.

4.    Some Brazilian companies have been tasked with great projects in Iraq, such as the construction of the Baghdad-Al Qaim-Akashat railroad, the rail trunk for the cement factory in the High Eufrates, the superhighway no. 1 (section 10), and the building for the Novotel Al-Sadeer, in Baghdad.  Infrastructure works that continue without pause with a large contribution of Brazilian human and technological resources are nearing conclusion, but the prospects for the continuing presence of Brazil in large scale projects in this country are still unknown.

5.  For this reason, I wish to suggest that the implementation of the construction projects for the Baghdad- Kut-Nasria-Um Qaar railroads and of the Baghdad rail ring be bilaterally examined between the Governments of Brazil and Iraq, with a view to consolidate – in the commercial, industrial and technological fields – the complementary character of the two economies. In this way, it would become easier to present the Iraqi Government with integrated proposals for the above mentioned development projects, in which the Brazilian public and private sectors could cooperate within their specific spheres of competence. Besides the technical support that could be provided through the Federal Rail Network, the Ministry of Transportation and the Vale do Rio Doce Company, of the Ministry of Mines and Energy – agencies that have wide experience in the construction of modern rail systems – there would also exist the possibility, in case of need, to study the preparation of a financing scheme that would contribute to making possible the realization of the work and the purchase of equipment and materials.

6.   In the same spirit of cooperation and friendship that prevailed during the understandings with the mission of the Ministry of Industry and Mineral Resources of Iraq that visited Brazil last June, I consider that the joint development of specific projects under examination by Iraqi authorities may be the best option, at present, to strengthen cooperation between the two countries and to express the Brazilian support to Iraqi governmental programs. In this way, important guidelines for future action in a continuing process of bilateral collaboration in different fields will be established, with transfer of technology and utilization of the capacity of Brazilian industry to supply equipment and capital goods that are not yet produced in Iraq. The new rail projects, in that perspective, will show the degree of maturity and complentariness already achieved in a specific sector in which Brazil has already reached wide-ranging experience as a result of the continental dimensions of its territory.

7.    In reiterating formally to you the interest of the Brazilian Government in this matter, I would like to propose conversations between the two Governments  to deepen the details of the suggestions I now have the honor to convey to Your Excellency. For this end, I designate forthwith Ambassador Paulo Tarso Flecha de Lima, Head of the Department of Trade Promotion of the Ministry of External Relations and bearer of this message, to deal specifically, in the exchanges with Iraqi authorities, with the eventual Brazilian participation in those projects, as well as of any other issues that may still persist in the carrying out of public works and tasks previously committed to Brazilian companies. I fully trust the dedication and negotiating skills of Ambassador Flecha de Lima, who discharged with distinction and success all missions I have entrusted to him, as I am sure will also happen in this case with the help of Your Excellency.

I avail myself of this opportunity to reiterate to Your Excellency the assurances of my highest esteem, with wishes for your personal happiness and for the prosperity of the Republic of Iraq.

Your Loyal and Good Friend,

(Signed)  João Batista Figueiredo

                 Minister Saraiva Guerreiro