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This article analyses the main diplomatic policy of the Lula government since 2003, in particular, South-South diplomacy, its ideal and limitations. Brazil has been traditionally played its diplomacy based upon South America. During 90s Mercosur has been served as efficient mechanism for its diplomacy with the United States in the failed FTAA. In Itamaraty, two currents exist in relation to foreign policy: autonomist diplomacy and liberalist diplomacy. The first current emphasizes on the importance of South America as main diplomacy place and the second gives more importance on international arena as international player. The Lula government favoured the autonomist diplomacy backed by the Workers’ Party (PT), with the introduction of preferential alliances as a basis for new South-South diplomacy. During Lula’s first term (2003-2006) he spent more time on the construction of preferential alliances with China, Russia, South Africa, India, forming IBSA, BRIC, G20, with very intensive agenda on multilateral relations. Mercosur and South American countries were discontent with the Brazilian foreign policy. In the beginning of his second term (2007-2010) he made some corrections in priorities, emphasizing the importance of surviving Mercosur. Brazil in coming to accept the idea of the creation of a supranational court of justice of Mercosur and the Parliament. However, it supports the creation of Unasur which pretends to join Mercosur and Pacto Andino together. There is a reasonable suspicion that Brazil is using Mercosur as a means for Unasur possible, a kind of South American Integration. However, the Latin American integration history from the independence period shows us that any tentative of integration with political intention never produced success story. The diplomacy of Lula in his second term in South America is coming to be trapped by the ghost of Simon Bolivar.