The apparent insulation of Brazil from the recent emergence of mega-trade agreements and the adoption of measures in recent years to foster the industrial and technological deepening — as provided in Inovarauto[1] and the changes in the pre-salt oil exploration regime — have reignited the old debate on the advantages and disadvantages of protection. According to the conventional economic theory, trade liberalization tends to induce global society to a division of labor more conducive to the expansion of gains in productivity and income in the long term by contributing to the enhancement of the comparative advantages derived from the natural resource allocation among countries, despite possible sectoral losses in the short term. Alternative approaches, on the other hand, provide a number of arguments justifying intervention, such as infant industry protection — under the assumption that comparative advantages can be “created” through deliberate processes of industrialization —, income distribution, national security, food security, in addition to several problems that can result from the specialization of a country in the production of commodities.
Even if recognizing the need for the regulation of international trade by national governments, for the reasons described above and others, such as dumping and unfair trade, economic theory also points out the risk that any allocative distortions, resulted from government intervention in the functioning of markets, generate excessive costs to society. The conventional discourse points out the risk that the “government failures” will eventually become greater than the “market failures” that we seek to correct. In his article, Thomas Kang presents the recent academic debate about the costs and the benefits of trade protection, taking into account that in economic policy the discussion often assumes dogmatic proportions and seems to have no end. For Kang, the central issue apparently is not whether or not to protect, but “how and how much to protect.”
The World Trade Organization (WTO) was created in order to supervise and coordinate the adoption of international trade liberalization measures. Since 1995, the Organization has replaced the General Agreement on Tariffs and Trade (GATT), which emerged from a set of international institutions created in post-war times, from the Bretton Woods Agreements. The GATT intended to stimulate free trade multilaterally, arbitrating differences among countries in their liberalization processes, in order to avoid repeating the protectionist escalation observed in the interwar period. Such task, now performed by the WTO, has been complex, as it involves a number of disparities between countries, which have become even more evident after the subprime crisis in the U.S. Not surprisingly, therefore, the rounds of multilateral negotiations led by the WTO have advanced with difficulties. The Doha Round, launched in 2001 and without prospects for a conclusion, highlights this phenomenon.
In parallel with the negotiations through the WTO, regional trade agreements known as Preferential Trade Agreements (PTAs) have gained increasing importance. From this process, two mega trade agreements have recently emerged: the Trans-Pacific Partnership (TPP), involving 12 countries in Asia and the Americas, and the Transatlantic Trade and Investment Partnership (TTIP), involving the U.S. and the European Union. Such agreements transcend the tariff reduction process, covering broader issues, such as non-tariff barriers, the creation of supranational mechanisms for dispute settlement, intellectual property rights, labor standards, currency manipulation, government procurement, the environment, etc. In other words, those mega agreements establish a new regulatory framework for international trade. In his article, Robson Valdez addresses the PTAs in a historical perspective, highlighting the wave of regionalism that began with the European Community and the North American Free Trade Agreement (NAFTA) and reached its climax, in recent years, with the TTIP and the TPP.
For the good or the bad, the PTAs, and especially the last two mega deals, have put in check the international integration strategy of the Brazilian economy. The Brazilian foreign policy has always favored the multilateral negotiations in the WTO. So far, this strategy has been justified by the understanding that negotiating in bloc allows greater bargaining power for developing countries, which are relatively closed and have large and coveted domestic markets, such as Brazil and India. However, multilateral negotiations have been exhausted by the developed countries, in favor of the mega agreements. In her article, Beky Moron de Macadar explores the challenges that these mega agreements represent for the Brazilian foreign policy. In practice, the country is likely to face higher tariffs than its competitors in the markets of the U.S. and the European Union, at the same time that it may witness the undermining of its trade preferences with South and Central America. On the other hand, the possible accession of Brazil as a member would take place with “the scarce space to negotiate [its] interests”. For Macadar, despite the challenges, which are not few, the mega agreements are an opportunity for Brazil to review its strategy and to adopt measures that may contribute to increase productivity.
Still on the challenges that mega agreements inflict on Brazil, in his text, Tomás Amaral Torezani seeks to evaluate their potential effects on the sectors of the Brazilian economy in terms of both trade diversion and the possibility of the erosion of the preferential access obtained in previous negotiations. For Torezani, commodity trade diversion may occur from Brazil to Asia in favor of competitors such as the U.S., Canada, Australia and New Zealand. Also, there can be diversions in the Brazilian markets of goods manufactured in the U.S. and in South America. In terms of economic growth, the effects may not be significant, given that Brazil is still a relatively closed country. However, such moves can reinforce the Brazilian deindustrialization process, affecting, in particular, the automotive industry. For the author, the emergence of mega agreements and the nonparticipation of Brazil tend to reinforce both the fact that Brazil is a commodity exporter and its ties with China, both taken as outsiders.
The current issue’s interviewee is Prof. Jorge Arbache, from the University of Brasilia (UnB). The interview tackles not only the challenges that mega agreements represent for Brazil, but also some broader issues behind those agreements, especially the increasing integration of services markets, which has been his latest research area.
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[1] A Brazilian federal program created in 2012 to promote the production chains of the auto industry.
