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Opening Statement by the Discussant Ambassador Seokyoung CHOI
Permanent Representative of Republic of Korea at the 6th Trade Policy Review of Brazil on June 24 2013
Chairman Joakim Reiter,
Brazilian Delegation led by H.E. Estivallet de Mesquita, Ladies and gentlemen,
1. I wish to begin by welcoming the delegation of Brazil and thank you for your opening statement. In particular, I would like to thank Brazil and the Secretariat for their high quality reports as usual. They have provided us with a valuable basis for our discussions today and on Wednesday.
2. I am honored to take part in the TPR of Brazil as a discussant. In preparation, I have learned a lot regarding Brazil’s fascinating history, culture, economy, politics and huge development potential. One of my findings is the nexus between Brazil and trade. The country name of Brazil originated on account of the massive trade of brazilwood, a valuable red dye for the European cloth industry in the past. As such, the name “Brazil” is a symbol for foreign trade.
3. Against this backdrop, I will make my general observations focusing on two topics:
- One, a snapshot of Brazil’s economic environment and its trade policy framework; and - Two, Brazil’s trade policies by measure and sector;
Snapshot of Brazil’s Economic Environment and its Trade Policy Framework
4. Brazil is a big country with lots of diversity. It is the 5th largest country by area and the 7th largest in terms of economy. Its population of 190 million represents an exceptional degree of human potential. Its current GDP (PPP) per capita is $10,200. And, the Brazilian economy is predicted to become one of the five largest in the world in the decades to come.
And, equally diverse are its natural and cultural riches which have taken an important place on the global stage.
5. While we appreciate Brazil’s inspiring success and great potential for further development, it is important to recognize that such achievements were made by overcoming significant economic and social challenges in the 1990s. With able leadership and concerted efforts with its people, Brazil weathered the recent economic crisis and came into the top tier of economic output. As the Secretariat report notes, the Brazilian economy recorded strong performance during most of the period under review, with real GDP growth averaging 3.6%
per year and with foreign trade growth averaging 8.6% per annum. The review period was marked by a strengthening of Brazilian trade with Asia, in particular with China.
6. Notwithstanding the positive echoes of the assessment, Brazil’s economy has decelerated since the second half of 2011. During the period under review, import growth outpaced exports. This is partly due to the global economic slow-down and appreciation of the Brazilian Real. However, the Secretariat’s report identifies the long-standing structural
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problems affecting the Brazilian economy’s overall competitiveness such as import constraints, inadequate infrastructure, insufficient access to credit, and a high tax burden. In the WEF’s recent Global Competitiveness Report, the country’s overall infrastructure is ranked 107th out of 144 in terms of quality.
7. Taking a look at the trade policy framework, Brazil is one of the WTO’s most active participants, and remains committed to the strengthening of the MTS. Importantly, Brazil has acknowledged that the WTO is fundamental to attaining its development objectives and is committed to a successful conclusion of the DDA. Brazil also plans to ratify the 5th Protocol on financial services. At the regional level, Brazil has concluded preferential trade agreements with 8 neighboring countries, and is actively expanding its preferential trade network with other countries in other regions.
8. Brazil’s foreign investment regime remained largely unmodified during the period under review. In particular, Brazil has 14 bilateral investment agreements. Foreign investment is restricted in some areas including mass media, the aerospace industry as well as maritime and air transport. Brazil adhered to MIGA (Multilateral Investment Guarantee Agency) Convention in 1992 and joined the OECD Investment Committee in 1998 as an observer.
However, it has not joined the ICSID.
Trade Policies and Practices by Measure and Sector
9. As the Secretariat report notes, the Government of Brazil took steps to address structural issues and to enhance competitiveness under the Plano Brasil Maior (Greater Brazil Plan) in 2011. Under this plan, Brazil has developed a number of industrial, technological, and foreign trade policies to underpin its development objectives. In this context, I would like to draw your attention to some of the Brazil’s trade policy measures which deserve in depth discussion in today’s meeting.
Brazil took positive steps to simplify and modernize customs procedures. But its imports are still subject to various and complex internal taxes and import licensing, including IPI, which vary depending on the product type, competent authority, and importer’s tax regime status. In addition, Brazil maintains export taxes on items including hides and skins. Importantly, it also plans to simplify internal taxation schemes.
Brazil’s competition regime was overhauled in May 2012 with significant institutional restructuring. But, the changes to the notification criteria and the framework for calculating fines are expected to reduce the number of transaction subject to notification and lower the deterrent effect.
Brazil operates a decentralized procurement system. And it is neither a Party nor observer to the WTO/GPA. An OECD assessment study in 2011 on Brazil’s procurement practices commended its progress in promoting transparency and its management throughout the procurement cycle, but suggested at the same time, that efforts could be made to increase professionalism and develop performance indicators.
Brazil is a significant user of trade remedies, particularly anti-dumping and CVD
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measures. Trade defense has been identified as a component of the Plano Brasil Maior.
In the first nine months of 2012, Brazil initiated 47 new investigations in addition to 83 anti-dumping measures put in place in mid-2012.
Several export support programmes have been modified or expanded since the last review. Among them, the Export Financing Programme (PROEX) and the export credit schemes under the BNDES-EXIM programme are geared to promoting exports with local value added and often with a domestic content/production threshold.
10. Turning to sectors, Brazil has a dynamic agricultural sector that plays an important role in its economy. Brazil informed the WTO that it did not grant export subsidies for agricultural products between 2002-2007 and 2008-2010. However, the OECD contended in 2011 that about 2/3 of the PSE(Producer Support Equivalent) is provided “in the most production and trade distorting forms,” especially through price support measures and subsidized credit.
11. Brazil lost some dynamism in the manufacturing sector during the review period due to an erosion of competitiveness. High cost and scarce access to credit was recognized as a systematic issue. In response to this situation, Brazil introduced strong industrial policy measures through two comprehensive plans such as the ‘Productive Development Policy(2008-10) and ‘Plano Brazil Maior’(2011-14).’ It actively utilized instruments such as credit lines, public procurement and fiscal incentives, including the INOVAR-AUTO programme. With this, companies eligible for the programme may benefit from an IPI tax reduction of up to 30% on automotive products. In September 2012, concerns were raised on the incompatibility of some of the programme’s provisions with the WTO rules.
12. Turning to the services sectors, the IMF/World Bank Report noted in 2012 that Brazil’s financial system had grown in size, diversification and sophistication for the last 10 years, and at the same time recommended that policies be geared toward encouraging the development of private long-term finance. In areas such as electricity and telecommunications, private-sector participation has been expanding and has been granted more flexibility. Brazil’s telecommunication sector is fully open to competition and continues to attract new entrants. Concerning air transportation, the Government decision was made in May 2011 to allow private investors to build, manage and operate airports through concessions. It is a positive development.
Conclusion
13. All this said, I have covered a lot. But given its size and scale, as well as the inevitable complexity of the Brazilian economy, it may not have been sufficient. Considering all of these angles, we can safely say that Brazil is an economic giant with great power and great potential. Indeed, there is no question regarding the active role and leadership that Brazil has assumed in regional and global forums including, at the G20, among the BRICS, within MERCOSUR, and the WTO, which will be led by a Brazilian Director General from September 1 this year.
14. Thus far, it seems that Brazil is living up to what the French philosopher Voltaire once articulated “With Great Power Comes Great Responsibility” which was quoted perhaps most
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famously and less importantly in the recent movie Spider Man. It is not surprising that so many advance written questions were put forward on the operational details of trade measures and how Brazil looks at all these measures in light of relevant WTO rules. At this point, it would be interesting to hear the Member States’ views about the successes and challenges of Brazil. Thank you. /End/
