The evolution of Brazil’s trade policy Jean-Christophe Defraigne defraigne@fusl.ac.be FUSL
A Brazilian trade policy guided by an active industrial policy The large domestic market enabled the possibility of national industrial policies since the 1930s: import substitution industrialisation The debt crisis of the 1980s and the hyperinflation forced some trade liberalization and further opening to FDI Not along the lines of the Washington consensus Some industries perceived as strategic continue to be protected (textile, automotive, chemicals, rubber, electric and electronics) Presence of MNEs in the protected industries Tax breaks for exports Use of antidumping to protect domestic oligopoly or monopoly (75% of the 247 cases up to 2008 are used for industry in monopoly or duopoly (Da Motta Veiga 2008) Privatization of state-owned firms in the 1980s-1990s but system of golden shares (Embraer, Vale), or ceiling of foreign participation (steel & Gerdau) and strategic use of national savings: unlike Argentina under Menem
Brazil’s tariff falling … (source: Mesquita-Moreira 2009 )
…but still high … (source: Mesquita-Moreira 2009 )
Brazil open to foreign investor : FDI inward stocks as a % of GDP in 2005 35 30 25 20 15 10 5 0 Japan China South Korea Indonesia Philippines Argentina Brazil
A Brazilian trade policy guided by an active industrial policy Emergence of large Brazilian national champions In Brazil traditional comparative advantages: agro-business (JBS) or in raw materials & energy (Vale, Petrobras, EBX, Votorantim) In industries and services where state protection, procurements and domestic market size is essential: engineering, construction, telecom (Odebrecht, Camargo-Correâ and Andrade Gutierez-Oi-Brasil Telecom), banking (Itau, Bradesco, Banco do Brasil) & airplanes (Embraer) Conglomerate (Votorantim: Cement, juice, mining, hydroelectric power), Camargo- Correâ (Construction, electricity, footwear, textile) Family-owned and run Small by world standards Mainly domestic oriented (or restricted to Latin America) except for primary goods (mining and agro-business) Typical in the first stage of development of large firms, not yet mature global competitors
A Brazilian trade policy guided by an active industrial policy Trade policy patterns offensive aspects agriculture liberalization (Ministry of Agriculture) defensive aspects industry and services (including Singapore Issues) Attempt to create coalitions in the multilateral trading system (G-20, IBSA Brasilia declaration in 2003, BRIC) to block Singapore Issues and other US and European regional trade arrangement (FTAA, Mercosur-EU) in order to keep various tools for an active industrial policy To block services liberalization to protect emerging national champions and promote agriculture liberalization Alternative outlets for primary exports thanks to the rising demands of emerging economies, most notably of China in the 2000s Strategic use of Mercosur: outlet for Brazil’s manufactured exports to enlarge the domestic market, tariff structure shelters manufactured capital goods produced in Brazil. Tensions, especially after Argentina’s crisis, welfare gains distribution in favour of Brazil Promotion of South-South agreements with large countries with similar strategy (Mercosur-India, Mercosur SACU, Mercosur-CAN, China market access status 2004)
China-Brazil trade 2001-2011 Period Trade Flow Reporter Partner Trade Value 2001 Import Brazil China $1,328,389,311 2002 Import Brazil China $1,553,993,640 2003 Import Brazil China $2,147,799,004 2004 Import Brazil China $3,710,477,153 2005 Import Brazil China $5,354,519,158 2006 Import Brazil China $7,989,343,057 2007 Import Brazil China $12,617,754,515 2008 Import Brazil China $20,040,022,368 2009 Import Brazil China $15,911,144,513 2010 Import Brazil China $25,535,684,189 2011 Import Brazil China $32,788,424,507
China-Brazil trade 2001-2011 Trade Period Reporter Partner Trade Value Flow 2001 Export Brazil China $1,902,122,203 2002 Export Brazil China $2,520,978,671 2003 Export Brazil China $4,533,363,162 2004 Export Brazil China $5,441,745,722 2005 Export Brazil China $6,834,996,980 2006 Export Brazil China $8,402,368,827 2007 Export Brazil China $10,748,813,792 2008 Export Brazil China $16,403,038,989 2009 Export Brazil China $20,190,831,368 2010 Export Brazil China $30,752,355,631 2011 Export Brazil China $44,314,595,336
The challenges of the Brazilian trade and industrial strategy South-South coalitions and agreements are contradictory and unstable 1. On the DDA talks on agricultural liberalization: problem of reaching a consensus on market access for the WTO G-20. In 2003 at Cancun “ Brazil had to reduce its ambition in market access issues in order to gather the support of India and China for its demands against developed countries’ domestic and export subsidies. ” (WTO 2012) Roberto Rodrigues, agricultural minister of Brazil 2005: “the G20 is like a group of friends setting off for a trip to the cinema. “Everyone wants to see the first movie, Export Subsidies ,” he says. “Then about a fifth go home before the second one, Domestic Subsidies . By the final movie, Market Access , only about 40 per cent are left. ”
The challenges of the Brazilian trade and industrial strategy 2. Internal tensions in the Mercosur on trade agreements : stagnation of the process, macroeconomic volatility, rising competition from China, rising protectionism from Argentina after the 2001 crisis 3. Many south-south agreements are limited to a narrow range of products: Mercosur- India, Mercosur SACU, Mercosur-CAN , Mexico 4. China-Brazil relations China-Brazil trade is north-south (iron ore, soya beans vs manufactured product): Brazil faces a deficit in automotive components in 2006 Loss of market shares in Latin American markets (30% in Chile, 13% in Mexico, Chinese penetration is twice faster in Argentina) market status (2004) but anti-dumping and safeguards One exception: Embraer & AVIC II: Harbin Embraer Aircraft industry joint venture
Intra-Mercosur exports share in total exports (in %) Source: European Commission (2007) p. 46. Intra-Mercosur import share in total imports (in %) Source: European Commission (2007) p. 46.
The challenges of the Brazilian trade and industrial strategy The problem of technology and diversification of Brazil’s export structure Brazil exports are still to dependent on primary products : it had it good since the 2000s but can it last? Commodities prices are still unstable in this period of crisis (notably due to the penetration of financial operators on the world commodity markets) even if likely to increase in the long run (problem of Vale: 44% profit loss this quarter compared to last year because of falling world demand) Currency problems, QE and Eurozone injection of liquidities which are in part channelled to Brazilian capital markets with high interest rates: appreciation of the real & Giudo Mantega mentions “currency wars” Shrinking trade surplus Fear of a return to the1998 crisis situation despite substantial reserves?
Source: World Bank 2012
The challenges of the Brazilian trade and industrial strategy Can Brazil upgrade its technological level to diversify and create global competitors in the manufacturing and services industries? Weak performance compared to other BRIC and the gap is widening. Brazil is not well inserted in the global production networks of MNEs: weak infrastructure due to insufficient investments and high transport costs distant from the economic centres and regional economic integration processes (Europe, NAFTA, ASEAN+3) limited strength in knowledge-based tradable services (outsourcing in software, health and medical services, law and accountancy). Limitation of the Portuguese language Limited technological spill-over generated by FDI
The challenges of the Brazilian trade and industrial strategy In the absence of major changes in these fields and if the lobbying power of the national champions in manufacturing is not deeply weakened by exogenous factors Brazil is likely to remain defensive: on non agricultural trade liberalization on Singapore Issues on North-South RTAs. Brazil is likely to try to keep Mercosur as a backyard for its manufactured exports and accept Argentina’s current protectionist stance
R&D expenditures as share of GDP (2011) 3,5 3 2,5 2 R&D expenditures as share of GDP (2011) 1,5 1 0,5 0 South Korea China Brazil
Researchers (per 100 000 people) 2005 350 300 250 200 Researchers (per 100 000 people) 2005 150 100 50 0 South Korea China Brazil
receipt of royalties and licence fees ($ million) 2005 2000 1800 1600 1400 1200 receipt of royalties and 1000 licence fees ($ million) 2005 800 600 400 200 0 South Korea China Brazil
35 30 25 High tech export (% of 20 manufactured exports) 1990 15 High tech export (% of 10 manufactured exports) 2005 5 0 South China Brazil Korea
firms in the global top 500 70 60 50 40 number of firms in the global 500 (2011) 30 20 10 0 South Korea China Brazil
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