Letter IEDI n. 871–Competitiveness and International Integration of Brazil
Countries that have built a fast and consistent economic success story have at least one common trait: all have established deep and robust connections with the international economy. Brazil, on the other hand, has made little progress in this field, reinforcing its tradition as country excessively dependent on the domestic market. This is undoubtedly one of the factors that explain our increasing competitiveness deficit, seriously jeopardizing the economic growth we so badly need to face the serious social demands of the country.
Reducing our gap in global integration is a crucial aspect to be considered in formulating a national project, as there is a clear relationship between development and international insertion. This Letter IEDI aims to emphasize aspects relevant for a beneficial approximation with the rest of the world. To do so, it presents the main arguments and suggestions of IEDI consultant Daniel Godinho, Director of Corporate Strategies at WEG, former Senior Consultant of the IDB and former Secretary of Foreign Trade of the MDIC, whose work is available on our website (in Portuguese). This is one of the studies that supported the elaboration of the IEDI industrial strategy.
According to the author, for Brazil to assume a leading role in international trade four aspects are fundamental. The first is identifying the right direction and designing a consistent and permanent strategy, avoiding the pitfalls of a polarized debate. The conception that advocates an abrupt and sudden reduction in import rates as a shock treatment is not correct. Similarly, economic openness can not be allowed to be postponed indefinitely on the grounds that local firms are not prepared to face international competition.
The second aspect is creating an agenda that dramatically reduces the so-called "Brazil Cost" or systemic cost. Brazilian companies need time to adapt to the new reality and, in this way, will be motivated by the simultaneous reduction of the Brazil Cost. This agenda would include initiatives to modify and simplify the tax structure and to rebuild an infrastructure that has been deteriorating due to lack of investment.
The third aspect concerns heavily investing in innovation and technology, to increase the share of technology-intensive products in our export basket, without, of course, compromising our strength in the global market for commodities. It is strategic to encourage research on specific topics to build solutions for some of our shortcomings.
The fourth aspect, in turn, is to elaborate and execute a true Foreign Trade Policy, guaranteeing predictability for all actors, based on three main aspects: trade agreements, trade facilitation and export financing. In this sense, the following actions would be crucial:
• Simplifying, rationalizing and improving the legislation that regulates foreign trade with the objective of creating a beneficial environment for the industry and services to reach foreign markets.
• Unblock export financing channels, so that they acquire the necessary dynamism to support our foreign sales. Existing instruments —such as PROEX, BNDES-EXIM and Export Credit Insurance— should be more agile and transparent.
• In Brazil, export financing is confused with unjustified subsidies for companies that do not need support. Therefore, there should be special care in establishing and disseminating information about the return that such instruments will bring to society as a whole.
• Participating in large trade agreements is the fastest, most effective and most promising way to overcome the isolationism that the country has imposed on itself. These treaties cover the majority of international trade, provide a wide range of benefits and impose rules (technical, sanitary, investment, government procurement, services, etc.) that stimulate the internal regulation of the economy with high standards of requirements.
• Opening as many negotiation fronts as possible, always taking into account their strategic interest and the concrete gains they can bring. Brazil must adopt a pragmatic position and avoid dichotomies such as the prioritization of the so-called South-South or South-North agreements.
• Establishing a gradual negotiation and implementation agenda on specific issues that can boost trade. Gradualism provides the opportunity for the various players to adapt; also, the results obtained in each of the phases constitute a powerful argument in favor of the commercial approximation of the economies involved.
• Promoting a commercial rapprochement with the United States, whose trade flow close to US$ 3.7 trillion in 2016 is strategic for Brazil to acquire relevance in international trade.
• Strengthening ties with Mexico, the second largest economy in Latin America, taking advantage of the fact that most of Brazilian exports is composed of products of greater complexity and value added.
• Designing a bold new strategy to approach the countries of Southeast Asia, a region whose economic strength and dynamism point to several opportunities for Brazilian companies.
• Establishing a new dynamic for Mercosur, with a greater degree of flexibility. The possibility of qualified majority voting for certain types of matter must be discussed.