Posted: May 25th, 2022
Brazil:Leading the BRICs? (HBS Case)
Before moving on to answer the question posed in the case study, there are several remarks to be made in relation to the role of Brazil in the world economy and in the international trade framework in the last decades, as well to the characteristics of the Brazilian economy during this period of time.
First of all, from the case study, one learns that the primary contribution that Brazil made to the development of the World Trade Organization was not necessarily focused on ways in which the organization could be made more adapted to the challenges of the 21st century, but rather on the defensive role of ensuring that some of the previous clauses that seemed to favor developed countries were no longer applied.
Primarily, its focus was on fighting agricultural subsidies that developed economies such as the European Union (29% of the agriculture subsidized) and the United States (12%) still enforced. Although there is a distinct claim that Brazil was also interested in areas such as intellectual properties, it does appear that obtaining increased regulations against agricultural subsidies was its primary project at the WTO.
At the same time, when discussing the three different scenarios (completion of the Doha Round, establishment of new Rio talks, or the pursuit of regional and bilateral agreements), when should take each in part and objectively analyze what each means and at what stage of development each scenario has achieved.
The Doha Round is equivalent to a decade of negotiations that have produced no result, either immediate or that can be foreseen for the next period of time. There is no guarantee that starting a new series of talks, like the Rio talks would be, would bring any potential changes to a WTO framework that doesn’t seem to be able to develop further and become more adapted to the 21st century. While the WTO had a great role throughout the Cold War, during the 1970s and 1980s in opening the countries of the world, caught in a Cold War rhetoric, to global trade, its role is no longer as important. Presently, companies are able to make transactions at a global scale and have, in many cases, successfully taken over the role of state trade.
With that in mind, Dilma should focus more on regional and bilateral agreements that would have at least two important roles in the development of the Brazilian economy. First of all, it would allow Brazil to access markets that are geographically much closer, with large populations and a medium to upper level income. This would mean that Brazil could serve these markets with manufactured products of good quality that would bring a higher added value than primary products.
At the same time, regional and bilateral agreement could be seen as an intermediary step that would help Brazilian producers become more trained and better adapted before aiming for the global market. The Brazilian economy and Brazilian companies are not yet able to fully compete with all foreign companies on all foreign markets. Starting lower, at a regional level, could make them more adaptable and better prepared.
There is another element that should be included in this analysis and in the argumentation. Brazil’s economy has performed well in the past decade and Lula’s government was very involved in promoting policies that would lead to a macroeconomic equilibrium, however, Brazil’s economy is likely still fragile and its involvement at an unsustainable level in global competition could potentially harm the country’s approach towards increasing living standards and, particularly, towards ensuring the needed macroeconomic stability. With that in mind, while still involved in world markets and participating in global exchanges, regional and bilateral trade agreements would give it a useful period of adaptation to the rigors of free trade and to potential challenges.
There are several macroeconomic elements that are still worrisome in Brazil’s economy. For one, as shown in Exhibit 7, the average lending interest rate in 2010 was 42.0%, about 14 times bigger than the one in the U.S. And 4 times bigger than other countries in BRIC such as Russia or India. This means that businesses find it more difficult to borrow money and finance their operations, making them less competitive on the open, global market.
Appendix 1 — Interest rates (money market and lending) Brazil vs. others
Appendix 2 — Ease of doing business: Brazil still ranks very low
Appendix 3 — subsidies for cotton: Brazil vs. U.S.
Ease of doing business
Ease of doing business (rank)
Brazil Russia India China United States
Lending interest rate 42.00% 11.50% 12.40% 2.30% 3.30%
Money market interest rate 9.90% 6.50% 6.30% 2.30% 0.30%
Ease of doing business 129-120 133-89 4
Ease of doing business
Ease of doing business (rank)
Subsidies for cotton
Brazil United States
Subsidies 420 3031
Subsidies for cotton
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