Foreign trade and the Election
Bernardo Rodrigues Veloso Leite
Marília Rodrigues Borges Andrade
Just a few days before the second round of the presidential elections and with steady worsening of the mood between supporters of finalists Fernando Haddad and Jair Bolsonaro, the proposals and general guidelines of each party still remain under a certain shroud of mystery.
Although a broadly discussed topic in the last few years by Brazil’s industrial sector, with renewed interest due to recent measures from the USA and China, foreign trade has not been given proper attention by the candidates, since neither has clearly indicated their proposals and orientation.
Historically, Brazil experienced prosperous growth in the 00’s, following the opening of the economy in the 90’s and a series of adjustments made regarding economic stabilization from the Real Plan, as well as a favorable international scenario with the appreciation of commodities.
In this period, Luiz Inácio Lula da Silva (2003-2011) from the Worker’s Party (PT) assumed the presidency, followed by his successor Dilma Rousseff (2011-2016).
During former President Lula’s terms, Brazilian foreign policy was known as “active and lofty”. Brazil sought to establish itself as a political and economic reference for the region and other developing countries. Trade partners were diversified, and the country aligned itself with developing nations that comprise the BRICS and the G20. Alongside its work on the multilateral level, a series of agreements were negotiated within the Mercosur, for instance, with Egypt, Israel and India. Negotiations with usual partners such as the USA and EU, however, remained stagnated.
On the other hand, Dilma´s term, inserted in the context of 2008’s post-crisis period, reduced the relevance of foreign trade policy in the governmental agenda, opting to focus on domestic policies to promote the industrial sector. The use of trade remedies, thus, took shape, guided mainly by the issuance of new antidumping regulations in 2013, period in which Brazil became one of the most prominent enforcers of this measure within the members of the WTO. At the same time, a series of incentive programs were established or became more relevant, such as the Tax-Exempt Zone of Manaus and even Inovar-Auto (which was considered illegal by the dispute settlement body of the WTO in 2017). Within this context, the Ministry of Development, Industry and Foreign Trade (MDIC) took a leading position on trade policy, conducting interventionist policies aimed at reducing the impact of the international crisis over the domestic industry.
In August 2016, following the impeachment of former president Dilma Roussef, her successor Michel Temer took the office, whom, without substantial political influence, was not able to adjust the domestic industrial policy. This, however, did not prevent a clear and strong shift of the Federal Government’s orientation and its center of decisions, where the Ministry of Finance became the focal point of foreign trade policy. Procedures such as the “analysis of the public interest” became fundamental to restrain the implementation and renovation of trade remedies, since the main goal of this Ministry was to promote trade liberalization, even if through a unilateral measure.
This liberal attempt to open up trade led to the negotiations on the long-awaited and complex Mercosur-EU agreement being resumed, in addition to talks with partners such as EFTA (Norway, Switzerland, Iceland and Liechtenstein), Canada and Singapore. Brazil also initiated the adoption of the Trade Facilitation Agreement from the WTO, as well as started to negotiate its admission to the Organization for Economic Cooperation and Development (OECD).
What can be expected from the foreign policies of the current presidential candidates?
Jair Bolsonaro, candidate from the PSL party, who presents himself as a conservative nationalist, nominated Paulo Guedes, Ph.D. from the University of Chicago, as the mentor of his liberally oriented economic agenda.
This liberal orientation was reaffirmed with declarations supporting the “reduction of many import duties and non-tariff barriers alongside the establishment of new international bilateral agreements”[1]. The negotiation of bilateral agreements, currently undertaken by Temer’s Government, is also named as one of the main priorities for Bolsonaro’s foreign trade policy[2], in conformity with the American government orientation.
As to the institutional design, there was a proposal to create the “Ministry of Economy” comprised of a “merger of the Ministry of Finance, Ministry of Planning and the Ministry of Industry and Commerce (MDIC), along with the Executive Office of the Investment Partnership Program (PPI)”[3]. Other than the clear differences between the proposals of each of these Ministries, the current prominence of the Ministry of Finance could suffocate the MDIC in this new arrangement. However, following a meeting with representatives of the nation’s main industrial segments[4], held this week, the candidate published a video confirming that he wishes to maintain MDIC as an independent body.
The candidate’s recent approach with the national industrial sector and its overhaul of certain proposals might indicate a future government that is less liberal than the model suggested by Paulo Guedes, and more similar to the current orientation of Temer’s Government. On the other hand, Temer’s efforts in the multilateral sphere, including its plurilateral actions within the scope of the Mercosur, might be weakened by Bolsonaro’s Government.
Fernando Haddad, PT’s candidate, has not yet indicated a name to head his economic program. His governmental plans indicate the strengthening of South and Latin-America integration, as well as other initiatives such as the Dialogue Forum India, Brazil and South Africa (IBAS) and BRICS, in addition to developing the relationship with African and Arabic countries, and the strengthening of the multilateralism[5]. Therefore, the governmental orientation seems to reinstate and align itself with what was done during Lula’s government, strengthening Brazil’s presence in international forums. Measures for the development and protection of the domestic industry are also addressed in the program.
During an interview, the candidate highlighted the increase of Brazilian exports to Mercosur and ALADI between 2003 and 2014, and that the main characteristic of our trade flows with these countries is the significant presence of high value-added products. The candidate also mentions that this “is the scenario that better aligns with our national interests” and criticized the position of Temer’s administration, that prioritizes the relationship with the USA[6]. Haddad also signals the need for increasing symmetrical free-trade agreements, in a way that they do no restrain development policies and the continuity of the Mercosur-UE agreement.
The candidate seems to reestablish Lula’s foreign policies that prioritize South-South relationships, especially regarding developing countries, increasing the country´s leadership. The continued negotiations of economic agreements and incentive programs for domestic industry are expected, as well as a review of the current liberal policy of unilateral tariff reduction.
[1]Available at http://divulgacandcontas.tse.jus.br/candidaturas/oficial/2018/BR/BR/2022802018/280000614517/proposta_1534284632231.pdf; Economic Commercial Openness Topic; page 65.
[2] Available at https://g1.globo.com/politica/eleicoes/2018/noticia/2018/10/23/saiba-mais-sobre-as-propostas-de-jair-bolsonaro-e-fernando-haddad-para-a-politica-externa.ghtml.
[3] Available at http://divulgacandcontas.tse.jus.br/candidaturas/oficial/2018/BR/BR/2022802018/280000614517/proposta_1534284632231.pdf; Economy and Infrastructure Topic; page. 53.
[4] Available at https://www1.folha.uol.com.br/mercado/2018/10/em-reuniao-com-bolsonaro-empresarios-fazem-criticas-a-abertura-comercial.shtml.
[5] Available at http://divulgacandcontas.tse.jus.br/candidaturas/oficial/2018/BR/BR/2022802018/280000629808/proposta_1536702143353.pdf; page 11.
[6] Available at https://exame.abril.com.br/mundo/eleicoes-2018-o-que-pensa-fernando-haddad-sobre-politica-externa/.
