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Economic Reforms, Not Trade Deals

29/04/2015 em Brazilian Business
By Peter Hakim, President Emeritus, Inter-American Dialogue, for the Brazilian Business Magazine*
Brazilians are not giving much attention to foreign affairs these days as their country confronts a profound crisis of governance, its worst since democracy was restored in 1985. Brazil is unsettled by a four-year economic slump—compounded by the nation’s worst corruption scandal ever, a fractious congress, wide distrust of national institutions, and a weakened president with limited public and congressional support.

Better relations with the US could help, however. In the long run, the advantages are heightened access to US consumer markets, investment capital, and advanced technologies. Reviving bilateral ties will not resolve Brazil’s immediate problems, but modest short term gains might be achieved—perhaps a boost in the government’s nearly depleted credibility, and in the shaken confidence of local and foreign investors. Knowing the benefits, President Dilma Rousseff has made clear her interest in rebuilding ties with Washington. For its part, the US government is painfully aware that a stronger political bond with Brazil is needed to pursue its own policy agenda in Latin America, economic and otherwise.

For both nations, bilateral economic issues are the only realistic basis for enduring cooperation. Time and again, the US has called for more robust economic links with Brazil. Every US presidents’ visit to Brazil in recent decades has emphasized commerce. In 2011, Obama brought his entire economic cabinet to Brazil along with 50 top CEOs. Successive Brazilian and US governments have shown little interest in cooperating on other matters. Even on trade and investment issues, the US and Brazil have been reluctant partners. The US has reached free trade pacts with 20 countries worldwide (11 in Latin America) and is negotiating new trade deals with the European Union and number of Asian countries. Yet, the US and Brazil have not signed a major economic treaty in 30 years.

Still, US-Brazil trade has grown substantially in recent years—more than doubling from 2000 to 2012, even as China replaced the US as Brazil’s leading trade partner. Brazil, nonetheless, accounts for only two percent of US trade, compared to Mexico’s 15 percent. True, Brazil is not a US neighbor, but neither is China—and its sales in the US are equal to Mexico’s. Brazil should be much more ambitious. Brazil should be able to double or triple its exports to the US, and attract considerably more investment.

The problem, however, is not how limited Brazil’s commerce is with the US. It is the small size of Brazil’s trade worldwide. Brazil is the world’s seventh largest economy, but only the 22nd largest trader. Brazil has been ranked as most protectionist country in the G-20 group of major global economies.

Progress toward robust US-Brazil economic relations does not depend on the two countries finding agreement or signing commercial pacts—or even patching up their friendship. What it requires is well understood by Dilma’s economic team. Brazil has to open itself up to trade and investment globally, lowering tariffs and other barriers to foreign goods and capital, and allowing them a prominent role in the Brazilian economy. Selling to and buying from Brazil should be facilitated by improving port facilities and transport infrastructure—and by making Brazil’s business environment easier to navigate with reforms in complex, time consuming tax and regulatory systems and archaic labor codes. A productive US-Brazil commercial relationship does not, to be sure, depend on Brazil alone. Washington will have to make changes as well. US agricultural subsidies and tariff need to be lowered, some substantially. Technology transfers need to be simplified and encouraged.

Trade deals will not produce the powerful US-Brazil economic ties that both countries now say they want. For Brazil, the strengthening and opening of its inward-looking economy will be the crucial determinant of commercial success with the United States and the rest of the world.

* Os artigos assinados são de total responsabilidade de seus autores, não representando necessariamente a opinião dos editores e da Câmara de Comércio Americana do Rio de Janeiro.
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