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Could Jair Bolsonaro be a boon for #Brazil-EU trade?

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The controversial Jair Bolsonaro will become the 38th president of Brazil on the 1st January 2019 following a sweeping victory in last month’s election. With less than a month and half until he takes office, many experts are predicting that his appointment will have major ramifications for the Latin American economy, but what about for the EU? Might populist Bolsonaro create opportunities for European trade? - writes Leonardo Gonzalez Dellan.

Bolsonaro plans to implement one of Brazil’s biggest foreign policy shifts in decades, which aims to overhaul two multilateral agreements pivotal to Brazil-EU relations. His outlook is undoubtedly more global than his electoral opposition’s, but with his politics bringing uncertainty and division, the question remains whether the EU will profit from this instability.

First, Bolsonaro and his Argentinian counterpart, Mauricio Macri, wish to overhaul Mercosur in a bid to create greater flexibility and freedom when creating bilateral trade agreements. Wary of the bureaucracy that the bloc could bring, Bolsonaro has stated that Brazil would like to see restrictions on trading outside of the South American trading bloc lifted. If promise becomes policy, the likelihood of completing the EU-Mercosur trade deal, that has been in the works for two decades, will diminish to almost nothing as a breakthrough would require compliance from all states, especially the two which make up 95% of the bloc’s GDP. This would almost certainly be the final nail in the trade deal’s coffin, which after so many negotiations would likely cause some annoyance among the EU trade team.

Nevertheless, despite putting noses out of joint with his blunt proposal to Mercosur, there may be some truth to Bolsonaro’s idea that an EU-Brazil trade deal would be much easier than an EU-Mercosur one. The EU and Mercosur have struggled for some time to deal with the finer details of the proposed deal, failing to agree on meat export and car import deals. Reducing the complexity and allowing an EU-Brazil deal, like the EU-Mexico deal of April this year, would mean that Brazil would benefit sooner, however at the expense of cooperation with smaller Mercosur partners, like Paraguay.

Bolsonaro, much like Trump, is also highly critical of the Paris Climate Agreement and has threatened to withdraw Brazil completely if elected. Although not a direct trade issue, this will have ramifications for Brazil-EU relations, as the EU believes economic cooperation and development go hand in hand with ‘high environmental standards’. A withdrawal from the agreement will not prohibit trade as such, but it will make cooperation between both sets of leaders far more complex.

What may be good news for the EU is that Bolsonaro seeks to reform Brazil’s economy away from statism and protectionism and towards a more liberal orientated model. Brazil is notorious for its closed economy and is seen as an anomaly within the OECD due to its abnormally high tariffs. The 2018 OECD report stated that Brazil had an average external tariff of 13.5%, as well as the lowest level of trade integration in the organisation. Bolsonaro, driven by his liberal economic adviser Paulo Guedes, seeks to reform this through reduction of both tariff and non-tariff barriers. As well as this, Bolsonaro rejects the doctrine of South-South cooperation which has been so prevalent in the agenda of the workers party (PT), which was in power from 2002 until 2016. In a recent radio interview, he stated that he wanted Brazil to open up to the ‘first world’ and wishes to trade more with developed countries rather than neighbours and developing states.

This has to be viewed as a positive sign for the EU. The EU Commission’s report on Brazil states that it “encourages Brazil to reduce tariff and non-tariff barriers and to promote a stable and more open regulatory environment for European investors and traders” and Bolsonaro may be doing just that with proposed tariff reductions. The EU is currently Brazil’s largest trade partner, accounting for 18.3% of total trade, with this number looking set to increase in the coming years. Whilst this would be at the expense of trade with Latin America and the ‘Global South’, such an increased emphasis on trade with the developed world is no doubt a good sign for EU investors and traders.

Populists like Bolsonaro are masters of drastic and fiery rhetoric and it remains to be seen whether his promises of reform and liberalisation will turn into reality. What is certain though is a liberalisation in Brazil’s trade policy has the potential to work in the EU’s favour.

 

 

 

 

Brazil

#Brazil chamber of deputies chief warns against shunning #Huawei

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The head of Brazil’s Chamber of Deputies warned the country’s 5G auction policies should not be swayed by ideology, Reuters reported, days after rumours emerged the US was potentially offering incentives for operators to shun Huawei equipment, writes Chris Donkin of Mobile World Live.

Rodrigo Maia, who leads Brazil’s lower house, said communications regulator Anatel should be left to focus on encouraging free and fair competition designed to keep consumer prices low in its 5G auction policies, rather than getting involved in political debates about China.

The country is yet to hold its 5G spectrum auction, which had been scheduled for March but was pushed back earlier this year with a new date yet to be revealed.

Maia’s comments follow widespread reports of the US offering to provide finance to help operators in Brazil purchase equipment from alternative suppliers to Huawei.

If a funding deal materializes, it would be a significant step-up a US campaign to try and persuade allied countries to follow its own policies and shut Huawei and other vendors it deems a security risk out of 5G.

So far few other countries have slapped outright bans on operators using equipment from specific vendors, though a number have introduced various limits or restrictions to ensure a mix of suppliers.

Huawei has consistently denied all allegations related to the security of its equipment and Chinese state influence.

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US ‘in talks’ to finance #5G in #Brazil and keep #Huawei out

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network, 5gThe US is in talks with Brazil around financing its 5G infrastructure projects in order to lock Huawei out of the country’s next-generation networks, the US ambassador to Brazil said in a newspaper interview, writes Matthew Broersma.

The US ambassador to Brazil, Todd Chapman, said in an interview with newspaper Folha de S.Paulo that the US was also looking to carry out similar financing projects “in other parts of the world”.

Chapman said barring Chinese-made equipment was “a matter of national security and the security of the economy itself”.

The financing would be backed by the International Development Finance Corporation, a development bank created by the US in late 2018 to counter China’s own wide-ranging international development projects.

The White House. Image credit: US governmentInvestment climate

It would focus on bringing in 5G equipment from Ericsson and Nokia, Chapman said.

“There have been some conversations in Brazil, including with my participation,” he told the paper.  “And this is also happening in other parts of the world, it’s not only in Brazil that we want to work with Ericsson and Nokia.”

He mentioned that the US is bringing in a programme called 5G Clean Path on 1 August that will bar US diplomatic facilities from using the services of network operators that use Chinese equipment.

He argued that international investors could become wary of countries that make use of Huawei components.

“Who wants to make investments in countries where their information will not be protected?” Chapman told the paper.

“All of this has an impact on the investment climate in the country.”

‘Security interest’

The US has been urging its allies to bar Chinese-made equipment from their 5G infrastructure programmes, but so far only a handful, including Australia and New Zealand, have done so.

“I hope that we will have, here in Brazil, a decision that will satisfy your national, economic and security interest,” Chapman said.

The US argues that the Chinese government could compel Huawei to spy on countries that use its equipment, while Huawei says it could not be compelled and does not have the means to do so.

Most recently, the US said it would alter export laws in order to cut off Huawei’s supply of microprocessors manufactured by overseas companies that use US equipment or software.

The company has accused the US of using national security as a pretext to hobble free competition.

Commitment

Huawei has had a presence in Brazil for 20 years – as in the UK – and is helping telecommunications companies upgrade their networks ahead of an expected 5G spectrum auction.

The company has carried out 5G tests with all four major carriers in Brazil and last year was reportedly planning to build another factory in Sao Paolo state by 2022.

Huawei earlier this month launched an advertising campaign in the UK marking the 20th anniversary of its presence in the British market and saying it was committed to the country.

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#FinnishEUPresidency urged to toughen up human rights rules on business

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The tragic dam collapse in Brumadinho, Brazil, on 25 January, which saw at least 150 lives lost and thousands of livelihoods destroyed, highlights the human cost of weak regulations on business operating in the global south. Yet despite these dangers, most European companies’ approach to human and labour rights remains superficial, putting lives at risk and fuelling distrust of government and business, write Phil Bloomer and Sharan Burrow.

The Finnish EU Presidency this year presents an opportunity to change this. A group of civil society and trade union leaders issued an open letter this week calling on the Finnish government to step up the EU’s ambition in addressing the impact of business on human rights. The letter calls for a serious drive to require human rights due diligence from companies at an EU level – a cause gaining ground due to the weak implementation of transparency requirements on business.

Today 50 of the world’s largest companies rely on a hidden workforce. These workers make up 94% of the companies’ total labour force, yet have no direct relationship with the multinational itself, whose CEOs take no responsibility for the welfare of the people who generate wealth for their shareholders. This exposes the scale of the crisis of human and labour rights in global supply chains.

Last year the EU’s Non-Financial Reporting Directive came into force, requiring companies to include statements on their environmental impact and respect for human rights in their annual reports. The first analysis of how this is being implemented across all the criteria finds companies are demonstrating superficial engagement at best.

Out of 100 companies analyzed by the Alliance of Corporate Transparency, over 90% reported a commitment to respect human rights. But only 36% describe their human rights due diligence system, while 26% provide a clear statement of salient human rights issues, and just ten percent describe examples or indicators to demonstrate effective management of these high risk issues.

Under the UN Guiding Principles on Business and Human Rights, all companies have a responsibility to engage in human rights due diligence in order to identify, prevent and mitigate human rights impacts. This responsibility is echoed in the OECD Due Diligence framework, which has been used in other EU regulations to address conflict minerals.

Yet the Alliance for Corporate Transparency’s report finds that the lack of clarity in the EU Non-Financial Reporting Directive has resulted in companies opting for bare minimum compliance instead of deeper engagement in line with these international standards.

This lacklustre response by companies reflects the experience in other jurisdictions with mandatory transparency requirements, such as the UK’s Modern Slavery Act which has not delivered the transformational change many hoped for. The latest analysis found that 70% of FTSE 100 companies are not reporting sufficient measures to tackle slavery under the Act. An independent review is currently being carried out and an interim report recently recommended strengthening on the Act by introducing sanctions. Similarly, 28% of British companies assessed under the EU directive do not even mention modern slavery in their annual reports.

As noted by European Parliament Vice-President Heidi Hautala: “It is difficult to require sustainable decisions from investors if they have no visibility on sustainability of company’s actions.” Investors including the Investor Alliance for Human Rights, the UN Principles for Responsible Investment, and even the world’s largest asset manager BlackRock, are increasingly calling for companies to step up their engagement on social and environmental issues.

Some leading companies are heeding to this call, but they remain in the minority. Companies such as Finnish multinational Nokia and more than 70 other Finnish companies are also increasingly recognizing the business case for regulation in order to level the playing field.

There are signs that the call for human rights due diligence regulations is growing stronger across Europe. Under its National Action Plan on business and human rights, the German government has opened the possibility of legislative action if less than 50 percent of German companies implement human rights due diligence by 2020. A draft law is now under discussion reportedly requiring German companies with over 250 employees and more than €40 million in annual turnover to undertake human rights due diligence in their supply chains. Other governments including Switzerland, Luxembourg, the Netherlands and Austria are considering legislative proposals to examine the introduction of such legislation as well. All eyes are now on France, the first country to adopt such a requirement under its Duty of Vigilance law. While these national-level initiatives are important and welcome, they could lead to only piecemeal solutions.

To avoid this, the EU could play an important role in unifying and harmonizing these initiatives, and Finland is well-placed to take on this challenge during its EU Presidency. Finland is one of the first countries to issue a National Action Plan on business and human rights and has a strong movement of civil society groups, trade unions and companies calling for mandatory human rights due diligence legislation.

While more and more CEOs are recognizing the scandals of exploitation and even slavery in their supply chains, the pressure to act as responsible employers across their entire operations requires mandated due diligence. There can be no more excuses for business. They will be held for responsible for their failure to take action to prevent the risk of human and labour rights through their supply chains.

Stronger and more harmonized human rights due diligence requirements would go a long way in providing investors and civil society with better information to assess whether companies are doing enough to fulfil their human rights responsibilities and for companies to make more informed investment and purchasing decisions.

More importantly, if done right, they could save lives and livelihoods. To win back the confidence of workers and voters it will take the rule of law, and the guarantee of a secure and just future.

Sharan Burrow is secretary general of the International Trade Union Confederation. Phil Bloomer is executive director of the Business & Human Rights Resource Centre.

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