Whatever the extension or the depth of a debate on trade deals, even in the 21^st century, the duality between free trade and protectionism gains ground. While the advocates of the first one identify potential gains and opportunities for those involved in an agreement of this scope, from the perspective of comparative advantages based on traditional models of international trade, others argue that trade liberalization changes the composition of employment and its level, as well as other variables, such as wages, income and the trade flows themselves. The advances of the last global trade and investment deals have invigorated this debate. However, what is at stake in these deals surpasses this false dichotomy when we start to understand what is really being defined in these negotiations.

The Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are mega regional trade agreements formulated under the leadership of the United States, to the detriment of the multilateral negotiations under the World Trade Organization (WTO). The TPP consists of a partnership between 12 countries of the Pacific coast[1], which together account for 25% of world exports, about 40% of the global Gross Domestic Product (GDP) and over 800 million people. It is an American prerogative to increase its influence in Asia at the expense of China’s advance on the continent. This is reinforced by the fact that the United States already has trade agreements (low tariff barriers) with some of the countries involved, although these barriers are still high between the other members of the TPP. The TTIP, on the other hand, is a more thorough proposition of a trade and investments agreement between the United States and the European Union, bringing together 60% of the world’s GDP, one third of the world’s trade in goods and more than 40% of that of services.

In common, these two mega deals go beyond the barrier of trade in goods and services, emphasizing issues such as the reduction of nontariff barriers, dispute resolution mechanisms[2], intellectual property rights, labor standards, currency manipulation, government procurement, the environment, etc., that is, these mega deals inaugurate a new regulatory framework for international trade within the deepening of the current logic of production fragmentation and the global value chains.

From the establishment of these partnerships arises a natural discussion about their potential effects (direct and indirect, positive and negative) on the countries (independently of their being or not being members of the partnerships). However, a more accurate and thorough investigation has been made impossible due to the lack of access to the terms of the agreements, a behavior that has been widely criticized. In spite of the legitimate concerns caused by the lack of knowledge of the full texts of the agreements, it is clear that there will be winners and losers and benefits and drawbacks unevenly granted to the world economies. At the same time, challenges will be presented and opportunities will be created for every country.

Undoubtedly the mega deals will profoundly affect the trade relations and the flows of goods and services across national economies. At first, we can anticipate the potential outcomes for both the participating and the nonparticipating countries. Among such outcomes are: (a) trade creation and/or diversion; (b) deepening or isolation of global value chains; (c) erosion of special and differential provisions of previous bilateral negotiations; and (d) the effects on income and employment throughout the world.

For Brazil, it is understood that the intra-regional trade liberalization of the TPP and the TTIP countries, as well as the alignment of their regulatory frameworks, will affect their trade flows in all product categories (basic and industrial). As we can see in the table, most of the products that Brazil exports (47% of the total) are not highly significant in these markets. Nonetheless, the nations that participate in these partnerships are major exporters or importers of many of these products, which can generate negative indirect effects on Brazilian exports. Moreover, regarding the other 53%, the foreign sales of some products are largely dependent on the markets covered by the partnerships. At the same time, there are, in these regions, potential competitors to Brazil and expectations of a growing intra-regional trade, which could result in negative direct effects to the country’s exports.

In the case of the primary sector, the TPP may cause trade diversions between Brazil and Asia in favor of competitors such as the United States, Canada, Australia and New Zealand, specifically in the sectors of grains, milk, meat and sugar. Manufactured products sales may also undergo some adaptions, once some European markets and the United States are important destinations of these Brazilian products. On the other hand, the participation of countries such as Mexico and, most of all, Peru and Chile can create an open door for industrial products in South America, at Brazil’s expense. In addition, the granting of preferential tariff quotas by the European Union to the U.S. could also reduce Brazil’s access to European markets.

Participation of the 10 main products exported by Brazil and major source and destination markets — 2012-15 (%)

RAW DATA SOURCE: BRASIL. Ministério do Desenvolvimento, Indústria e Comércio Exterior. Aliceweb 2. 2016. Retrieved from on Mar. 8, 2016.

UNITED NATIONS. United Nations Comtrade Database. [2016]. Retrieved from on Mar. 8, 2016.

Some previous studies have estimated the effects of the TPP and the TTIP on the Brazilian economy. Simulations made by Thorstensen and Ferraz (2014)[3] indicate a reduction of the Brazilian trade with the TPP and the TTIP countries and Brazil’s participation in international trade as a whole, with more significant retractions when they simulate reductions in nontariff barriers — in addition to tariff barriers —, which is precisely the case of these mega deals. As the tariff barriers between member countries are already relatively low, the reduction of nontariff barriers would bring major negative effects to Brazil. With the adoption of the TPP, the most affected sectors in Brazil would be meat products, animal products, fruits, vegetables and coffee. On the other hand, the most benefited sector would be silviculture. With the TTIP, there would be even more deleterious effects on Brazilian trade: in the agricultural sector, most of the losses would be in the same sectors of the TPP. In the industrial sector, however, the most benefited segment would be wood products, while the most damaged would be the ones related to transports equipment, vehicles and parts, leather and nonmetallic minerals.

Another study, conducted by Fleischhaker et al. (2016)[4], simulates that the mega deals would have a limited effect on Brazil’s growth rate — for the country has a relatively closed economy —, but its trade structure would be severely compromised. Overall, the country would be even more isolated from the global trade and increasingly characterized as an exporter of commodities. Regarding the TPP, a trade growth with China is expected, strengthening the ties between two great outsiders. However, gains in exports to China would be counterbalanced by even greater losses in exports to the TPP members, especially the U.S. and Mexico. When it comes to the TTIP, even with the relative increase in exports of mineral raw materials for the European automotive industry, this would come as a cost for exports in other key markets for Brazilian products, with overall negative results in terms of trade and growth. The only sector that would not lose is mining, but not even other commodity-based industries would benefit due to the presence of other agricultural powers, such as Canada and Australia, which would have preferential access to important markets for these products, among which are Japan and the E.U. Moreover, the authors argue that the progress of these mega deals could aggravate the deindustrialization process of the Brazilian economy, making the manufacturing industry shrink in almost all its segments, starting with the automotive industry.

In times of increased interdependence of national economies, lower growth in world trade and fiercer foreign competition, the consummation of the mega deals may pose further challenges to a good integration of the Brazilian economy in the international arena and to a greater integration in the global value chain, especially in a downward period in the cycle of commodities, with unfavorable terms of trade and a rebalancing of the Chinese economy. In this sensitive scenario for Brazil, even with a large domestic market, advantages in some agricultural and mineral sectors and demand for its manufactured products from its strategic neighbors, it would be desirable that the country should adopt a strategy to at least reduce its relative isolation in terms of international trade and global value chains. While the TPP and the TTIP seem to represent serious threats to Brazil’s interests, with potential effects on the composition and the direction of its trade flows, these effects may worsen the Brazilian situation even more, by increasing its dependence on the exports of only a few commodities.

[1] Besides the U.S., the other TPP members are Canada, Mexico, Peru, Chile, Japan, Malaysia, Vietnam, Singapore,   Brunei,

Australia and New Zealand.

[2] In this respect, in The secret corporate takeover, published in Project Syndicate, on May 13^th, 2015, Stiglitz draws attention to the fact that mega deals consist of managed trade agreements, tailored to the corporate interests of the U.S. and the European Union, requiring fundamental changes to the legal, judiciary and regulatory frameworks of the nations involved. By allowing foreign investors to sue countries, it opens up the possibility of the latter indemnifying the former for losses on expected profits even in cases in which profits are made from public damage.

[3] THORSTENSEN, V.; FERRAZ, L. Brasil: entre acordos e mega-acordos comerciais. Revista Brasileira de Comércio Exterior,

Rio de Janeiro, n. 120, Jul./Sep., 2014.

[4] FLEISCHHAKER, C.; GEORGE, S.; FELBERMAYR, G.; AICHELE, R. A chain reaction? Effects of mega-trade agreements on Latin

America. Gütersloh: Bertelsmann Stiftung, 2016.