SÃO PAULO, BRAZIL (April 7, 9:30 a.m. EDT) — Sergio Haberfeld, chairman of Brazilian packaging giant Dixie Toga SA, sees possibilities for his company if Brazil is able to reach a free- trade agreement with the United States — he expects a new joint venture to supply laminated toothpaste tubes to the United States.
The venture, which will bring in-line lamination technology from its Finnish partner, HuhtamÃ¤ki Oyj, is building a $12 million factory in Brazil. At first, the plant will supply the local market. But it is the prospect of shipping throughout the hemisphere that was a key reason for the investment, Haberfeld said. Previously, the laminate was imported from Europe, but now it will be manufactured in Brazil.
The SÃ£o Paulo-based firm sees much of its growth coming from international ventures — 20 percent of its $173 million in sales is projected to come from exports in five years, compared with less than 10 percent now.
Haberfeld seems bullish on the prospects for the Free Trade Area of the Americas, the treaty being discussed that would create an economic zone, similar to the North American Free Trade Agreement, running the length of the Americas. The United States and Brazil are leading the talks, which are to wrap up in 2005.
But other Brazilians are more cautious. Brazilian plastics industry executives and economists generally said the trade agreement will bring opportunities, but expressed concern that the United States has strong nontariff barriers to many of Brazil's most competitive exports. Some said those concerns have to be addressed in parallel talks at the World Trade Organization.
“We have to view it with a lot of caution because we get very little,” said Luciano Coutinho, a SÃ£o Paulo economist. “[In] the immediate areas in which Brazil is highly competitive, the U.S. has very high nontariff barriers, related to sugar and alcohol, steel, orange juice.”
Coutinho said he does not think the agreement will be completed on schedule. Still, he said a carefully negotiated FTAA would bring benefits to Brazil.
Merheg Cachum, president of Brazil's plastics processing trade association, Abiplast of SÃ£o Paulo, echoed those thoughts. He sees opportunities for Brazil's industry with a free-trade agreement, but he said the agreement must work for all sides.
Cachum said he worried that the focus on war in Iraq, and U.S. concerns over other looming problems, like North Korea, will distract Washington from its relationship with South America.
One U.S. business observer of Brazil, Mark Smith of the Brazil-U.S. Business Council, said he has become more optimistic recently that the FTAA will be completed.
“In the past year, the Brazilian industry, as opposed to the Brazilian government, has gone from talking about, 'Do we want the agreement?' to, 'What do we want in the agreement?'” said Smith, who is executive vice president of the council. The council is part of the U.S. Chamber of Commerce in Washington.
“That's a marked change that's very significant,” he said. “It gives me a sense that this is doable.”
Industry executives interviewed at the Brasilplast 2003 trade show did not seem to have a clear sense about how a free trade deal would affect plastics trade between the two countries.
Abiplast's Cachum said that the U.S. does not have protectionist barriers on its plastics industry. Brazil maintains tariffs on some of its plastics imports, particularly machines, where tariffs are generally 14-19 percent.
The impact of tariffs should not be overstated, though. Some North American companies said the currency fluctuations have a larger effect on their exports. And Brazilian observers said the country's high interest rates and outmoded tax and social security systems also impede their competitiveness.
The Brazilian-U.S. relationship is an important one, although it is a much smaller one in the volume of trade for plastics than either Mexico or China.
The United States plastics industry had its third-largest trade surplus in 2000 with Brazil, with American companies shipping $679 million more than Brazil sent north, according to a recent analysis from the Society of the Plastics Industry Inc. in Washington. The U.S. figure trails only Mexico's and Belgium's, SPI said.
More recent data shows a similar, though smaller, surplus now. The U.S. resin industry enjoyed a trade surplus of about $290 million in 2002, while the processing industry had a surplus of about $127 million with Brazil, according to U.S. government data.
That would seem to suggest that even with higher tariffs and a strong dollar, U.S. companies maintain competitive advantages in Brazil and could make further gains as part of a free-trade zone. Brazil's government and industry have tried programs to boost their exports, but thus far those efforts don't seem to have had much impact on trade with the United States.
Dixie Toga's Haberfeld said Brazil's industries will face challenges as trade barriers fall because many smaller companies are not prepared to face tough international competition. The country only began opening its economy in 1994. Larger companies like his, he said, are better equipped.
Dixie Toga sold one-third of its flexible packaging business in 1998 to Minneapolis-based Bemis Co. Inc., a decision Haberfeld said was “the best move I ever did in my professional life.”
“The most positive thing for us in Dixie Toga … is it professionalized totally the company,” he said. The company began making the transformation when it decided in 1995 to go public, but the Bemis alliance cemented it, he said.
Bemis brought coextrusion and co-lamination technology to the venture. Haberfeld said the integration of Bemis into Dixie Toga went slower than expected, but he said last year the joint venture, which is run as a separate company called Itap/Bemis Ltda., started to return the financial results both partners expected.
Last year was a strong one for the company, Haberfeld said, after a dismal 2001 that saw its earnings plunge and its stock price drop.
2002 saw improvements because several ventures did well, he said. The Argentine plastic packaging business, American Plast SA, did well because its base of multinational customers continued to pay it, while many of its smaller competitors went out of business because they were selling primarily to local firms that couldn't pay their bills.
And, Haberfeld said, Dixie Toga launched a facility to injection mold thin-wall polypropylene margarine cups for one of Brazil's largest producers, using Husky injection presses. The venture, with half a dozen presses, started six months ago.
Haberfeld said he expects his company to have a stronger presence in regional and international markets. But it's hard to predict how the country's economy will develop, he said.
“We have to grow in the South American market,” Haberfeld said. “If our company grows a lot and [FTAA] comes into effect, you have a huge scenario you have to work on. I have to not think too much about it because if I do, no one will think about the present.”