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

| November 19, 2018

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.

 

 

 

 

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