US-Brazil Economic Policies: Agriculture Sector Impacts

 

Brazil's Trade and Economic Policies

Brazil is the world's fifth-largest country and ninth-largest economy, with a $1.8 trillion GDP and $8,717 per capita in 2019.16 Services make up more than half of GDP, followed by industry and agriculture. Brazil's emphasis on agricultural policies in trade negotiations is due to the fact that agribusiness (commodity and processed commodities) accounts for around one-third of its GDP. Brazil is one of the world's leading producers of sugarcane, oranges, coffee, soybeans, meat, chicken, and corn. Brazil is South America's largest oil producer and the sixth largest in the world.17 It is a leading producer of steel, chemicals, aviation, autos, and auto components. However, compared to global standards, it is still a minor trader. In 2019, the United States was Brazil's second-largest single-country trade partner.18
Brazil's Historical Economic and Trade Policies
For much of the twentieth century, Brazil, like other Latin American countries, pursued an inward-oriented industrialization strategy known as "import-substitution industrialization" (ISI). To support industrial development, Brazil established government-sponsored or state-owned businesses (SOEs), which are protected from outside competition. While some have been privatized, many of these continue to operate today. These include the National Steel business (established in 1942), the National Bank for Economic and Social Development (BNDES, created in 1952), Petrobras, the national petroleum business (formed in 1953), and Embraer, a major aircraft maker (founded in 1969). BNDES was at the center of Brazil's ISI programs, providing funding for public infrastructure and strategic sectors. Brazil's unique financial system makes it a valuable source of long-term business funding even today.19
Brazil's industrial policy produced significant successes for decades, but with anticipated consequences.20 The import-oriented development approach protected domestic industries from global competition, but also reduced market incentives for innovation and efficiency. 

Trade policy was basically "administered protectionism."

The massive state bureaucracy, together with other policies, contributed to inefficiency and excessive corporate costs. Although privatization efforts in the 1990s enhanced Brazil's competitive landscape, corruption, bribery, complex rules, and an obsolete and burdensome tax code remain significant challenges.22 These obstacles negatively impact Brazilian productivity, investor attractiveness, and trade liberalization efforts. Until recently, Brazil prioritized protecting its regulatory regime and national production structure as part of its trade strategy, both unilaterally and regionally, to increase its influence in Latin America and beyond.23
Brazil is a regional leader due to its efforts to promote South American economic integration, support multilateral discussions, and avoid separate trade agreements with wealthy countries.24 In 1991, Brazil established MERCOSUR, a common market trade agreement with Argentina, Paraguay, and Uruguay, solidifying its status as a regional industrial hub (see to "MERCOSUR" section). MERCOSUR has maintained a defensive approach, relying on a high common external tariff (CET) and nontariff obstacles to protect itself from competition from the US and Europe.
Traditionally, Brazil has sought to integrate South America while countering or reducing the United States' economic influence in the region. 

The country took several initiatives to achieve this goal, particularly in the 1990s and early 2000s. The country was instrumental in establishing the South America Community of Nations, which exemplified political and economic union. It also opposed the US-led Free Trade Area of the Americas (FTAA) (see textbox).25 Furthermore, during the Doha Round of WTO multilateral trade negotiations, which began in 2001, and in the aftermath of their failure, Brazil played a critical role in rallying other developing countries into a powerful bloc within the WTO. In addition to lobbying for developing nation interests in multilateral and regional trade talks, Brazil, as a member of MERCOSUR, has signed trade agreements with a variety of other countries.27

Brazil, along with the US and Japan,

 

Brazil, along with the US and Japan, agreed at the WTO in October 2020 that "market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system, to ensure a level playing field for Members' enterprises for the benefit of their citizens."28 The Bolsonaro Administration has reduced regulatory burdens for businesses and used MERCOSUR rules to lower tariffs on over 2,300 products, including drugs, medical equipment, and heavy machinery, to boost Brazil's industrial sector.29 The President has committed to restructure BNDES, overhaul the pension system, privatize certain SOEs, and sell government assets.