In general, emerging countries such as Brazil, China and India, which trade with all regions of the world, prefer to maintain their international trade negotiations within the framework of the World Trade Organization (WTO), in which multilateralism ensures a more equitable treatment for its member countries when defending their interests. Thus, in the case of Brazil, the few Preferential Trade Agreements (PTAs) signed by the country have a very limited scope and focus on negotiations with neighboring countries or with other countries of the South. Brazil is noteworthy for its closed economy, even when compared with other large nations, because it maintains low levels of trade with the rest of the world, imposes trade restrictions, creates nontariff barriers, especially certifications, and also for the level of its tariffs, which still are relatively high and subordinated to powerful economic interests.
Although the country stands as the 7th world economy, its trade with the rest of the world represented, in 2014, only 1.2% of the global exports (25th place) and 1.3% of the imports (22nd place).[1] In the same year, the ratio between the total merchandise trade and the Gross Domestic Product (GDP) reached 19.4%, while in countries such as China, Russia, South Africa, Chile, Mexico, South Korea and Turkey this ratio was above 50%. The latest data from the Organisation for Economic Cooperation and Development (OECD), in joint work with the WTO[2], indicate that, in 2011, the foreign content in the Brazilian gross exports reached 10.8%, while the average for 61 countries studied, including all OECD members, was 28.5%.
The Doha Development Round of the WTO negotiations, which started in 2001, has been the main recent Brazilian bet regarding its integration into the international trade, but progress has been unsatisfactory to date. For years, the European Union and the United States strived to impose, in the WTO, their interests over those of the emerging countries, but their attempts were unsuccessful. For this reason, they have chosen to create PTAs that reflect their interests and impose their own rules, thus weakening the WTO and everything it represents in terms of multilateralism. Consequently, as the developed countries have failed to co-opt the developing countries into adopting the trade rules which would lead to a deeper integration in the WTO, we can see, in recent years, an intensified activism concerning the PTAs.
However, what can really affect the functioning of the multilateral trading system radically are the so-called mega-trade agreements. Two negotiations call attention: (a) the Trans-Pacific Partnership (TPP)[3], which gathers 12 countries of Asia and the Americas (the United States, Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam); and (b) the launching of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. Thus, and after Japan’s admission to the TPP negotiations, all developed countries are included in some mega-agreement that will dictate the rules of international trade to be followed by a large number of countries.
The agreements between the developed countries can also be seen as a way to deal with the rise of large economies of average or low income, such as China and India, diverting the trade and investments directed to them to the countries which participate in such agreements. These negotiations allow not only to deal with the issues under discussion in the Doha Round, but also to advance on regulatory issues that affect the functioning of the global value chains (GVC), such as labor relations or environmental certifications. The consolidation of these agreements will limit Brazil’s ability to benefit from the opportunities that the fragmentation of the production process can offer and may further restrict its participation in global production chains. This is because the mega preferential trade agreements which emerged in the 21st century differ from the previous PTAs in many ways. Previously, the purpose was to obtain tariff reductions; currently, the PTAs have more ambitious goals. The countries that are part of these agreements represent a significant portion of the international trade and intend to establish a new system of rules that are both deeper than those in force in the WTO, such as in services and in intellectual property, and more comprehensive, involving themes that have not yet been incorporated, such as the environment, climate change, labor, investment and competition.
The expectation of the developed countries and the transnational corporations attached to them is that through the deep integration of this new generation of PTAs, including the mega agreements, many trade barriers between the member countries will be eliminated, leading to regulatory harmonization or, at least, to the acceptance of regulatory equivalence, thereby expanding the freedom for the functioning of the global production chains. This whole new configuration may adversely affect the non-member countries, not only in trade participation, but also in terms of growth prospects.
On the other hand, the multilateral trading system is under tension given the amount of rules that affect not only the trade in goods and services but also the production methods, the labor standards and the impact on the environment and climate. As a result, the developing countries face a multiplication of new barriers to their products. Thus, the diversity of regulations, standards and certifications can turn into barriers to trade which are even more significant than the old tariff barriers.
The WTO is facing major challenges due to the proliferation of PTAs and the new paradigm of production of goods and services of global value chains. Both issues bring concerns about the multilateral trading system, its possible exhaustion and the necessity for reforms. On the other hand, developing countries, including Brazil, which do not often participate in GVCs, but wish to do so, should review their trade policy and accept changes in the WTO.
Evidently, the geographical location of the countries and the profile of their industrial structure may restrict some of them from joining this pattern, as the GVCs are concentrated in Asia, Europe and North America. But Brazil has sufficient conditions to take advantage of the new pattern of international trade, such as: a strong technological base, as compared with other countries, and areas of excellence; a very significant stock of foreign capital and a fairly diversified sectoral distribution of foreign investment; cultural proximity to Europe and the United States; the possibility for developing its own value chains at the regional level; successful experiences in setting up GVCs in aeronautics and in the food industry.[4]
Not participating in the current outbreak of PTAs has several consequences, such as the fact that Brazilian exporters will face higher tariffs than their competitors in the markets of the U.S. and the E.U., since several Latin American economies — Mexico, Peru, Chile, Central American countries, etc. — have already signed PTAs with that country and that region. A predictable consequence is the erosion of the preferences obtained by Brazil from these and other nations in South America and Central America, as they are increasingly active, signing PTAs with developed countries and emerging economies. Moreover, the lack of preferential access to markets of the North hinders the competition of the Brazilian goods with exports from countries such as China and India, which, despite lacking preferential agreements signed in these markets, have advantages of scale and lower labor costs. But even if Brazil wished to change the current trade policy, an obstacle that the country faces to advance individually towards new trade agreements is the commitment made by the member states of Mercosur in 2000 to jointly negotiate trade agreements with third nations or blocs.
As already noted by Thorstensen[5], due to the changes in the framework of international trade, there are three options left for the countries not included in the new generation of PTAs: (a) following the negotiations passively and accepting what is imposed to them, since they did not make the rules; (b) accepting the new reality and deciding to participate as members of these new blocs while they are not fully consolidated, though recognizing the scarce space to negotiate their interests; (c) continuing to keep a limited number of deals and trying to boost the WTO as the main regulatory institution of international trade.
For all these reasons, Brazil is at a crossroads, because if, on the one hand, it fears to open its market to foreign competitors, on the other hand, joining relevant PTAs may have the advantage of fostering an increase in the foreign content of the exported products and enhancing the country’s competitiveness, facilitating its integration into the GVCs. The Brazilian participation in international trade is not on a par with the importance of its economy, and the erosion of its tariff preferences among trade partners in its region, which are the main purchasers of Brazil’s manufactured goods, will bring, as a result, a deeper reduction in exports in this category, strengthening its primary exporter profile. The current strategy of maintaining the preference for multilateral negotiations, and the restraints of Mercosur, limits Brazil’s activities in the scenario of international trade, so its costs and benefits should be examined more closely.
[1] WORLD TRADE ORGANIZATION. International Trade Statistics 2015. [2016]. Retrieved from
[2] ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. Measuring trade in value added: an OECD-WTO joint initiative. 2015. Retrieved from
[3] Agreement signed in February 2016, but not yet ratified by the countries and, therefore, not yet in force.
[4] MARKWALD, R. Inserção do país na economia mundial: qual a singularidade do Brasil? Revista Brasileira de Comércio Exterior, Rio de Janeiro, n. 118, jan./mar. 2014. Retrieved from
[5] THORSTENSEN, V. WTO — Challenges for the next 20. Mural Internacional, v. 6, n. 1, Jan./Jun. 2015.