Brazilian Protectionism

Brazil is one of the most isolated countries in the world. It ranks 8th amongst the 134 countries with the highest import tariffs on industrial goods (14.1%) compared to the World Trade Organization’s (WTO) average of 8%. The trade/GDP ratio is also amongst the lowest in the world. In addition, we disconnect ourselves from the world by not signing any relevant trade agreements and practically not participating in the great value chains that mark the development of capitalism in the 21st century.

The solution is more market and less government, moving towards integration into global value chains.

In fact, our protectionism is almost 100 years old, considering that its origin, the national-development model of import substitution, was created By Getúlio Vargas in 1930.

It is a fact that at the beginning of the 90s there was an effort to open the economy, but this wasn’t enough to integrate Brazil into the world economy. From 2000, the opening suffered a severe setback, considering the eccentric procedures that characterise what has come to be known as “Brazilian protectionism”.

We could, for example, highlight the implementation of antidumping on drawback operations, import taxes on capital goods (one of highest intermediates on the planet), the anachronistic rules of “local content”, the transient benefits granted though ex-tariffs and industrial politics criteria that are incompatible with the current patterns of production, such as inter-ministerial ordinances that define the so-called Basic Productive Process (Processo Produtivo Básico – PPB), a concept that only exists in Brazil.

Despite having USD 400 billion in foreign exchange, Brazil can’t seem to escape from its protectionist heritage, focusing on the centuries-old import substitution system. An example is the discriminatory incentives of the Inovar-Auto program, launched in 2012 and condemned by the WTO in August. Another example is the introduction of unprecedented numbers of restrictions on agribusiness imports, an area in which Brazil has unequivocal comparative advantages and should lead by example.

From the viewpoint of political and economic protectionism, one of the typical flaws of trade regimes aimed at seeking autarchy is to strengthen the bureaucratic power of the systems that control trade. In 2016, in addition to the recent escalation in the application of anti-dumping measures, the Attorney General’s Office (Advocacia Geral da União – AGU) considered that the Commerce Department’s Decom-Mdic opinions on anti-dumping investigations would be binding on the decisions of the Foreign Trade Chamber (Câmara de Defesa Comercial – Camex). This has created a paradoxical situation in which the Camex Council of Ministers surprisingly has no power to review decisions of Decom, except in cases where the so-called “public interest” clause applies.

The good news is that the subject of trade liberalisation is at least being set. In November, the Special Secretariat for Strategic Affairs of the Presidency of the Republic (SAE), and the Ministries of Finance and Industry, Foreign Trade and Services, held the event “Strategic Dialogues: Economic Opening for Development and Welfare “, in order to discuss such matters.   We hope the matter will gain momentum at a time when we are finally moving forward with reforms and we are entering an election year that could define a new development model.

 Today we only hear whining about Brazil’s cost, loss of competitivity and low growth; some are only able to propose solutions that must pass through more levels of state discussion.   But the real exit is in more market and less government, deepening the reforms  and advancing in the agenda of integration to key countries, as well as to the global value chains.

Written by Marcos Sawaya Jank, José Tavares de Araujo Jr. – Folha de São Paulo