By TATIANA BERRINGER & GUSTAVO BOTTO*
Foreign trade policy in the Lula III government: challenges in the face of neoliberalism
The last few years have presented increasing challenges for the Brazilian economic insertion. Domestically, the neoliberal economic policies carried out by the governments of Michel Temer and Jair Bolsonaro bequeathed a stagnant economy, high inflation and worsening socio-economic indicators to the third Lula administration. These policies deepened the process of Brazilian deindustrialization (REIS & BERRINGER, 2018), as well as accentuated the distributive conflicts between employers and employees (MARQUES, 2023).
At the international level, events such as the COVID-19 pandemic, the war in Ukraine and the rise of nationalisms contributed to a new scenario of conflicts and development strategy. Discussions about the return of industrialist, protectionist policies were rekindled, such as the idea of returning industrial plants to their countries of origin (restoring) and/or installation of these industries in nearby countries (nearshoring).
During the 2022 elections, the electoral debate focused very little on the economic program. However, there is a clear clash over interest rates, investment policy and the need to reverse the deindustrialization scenario and, especially, a new sustainability and innovation policy. Our text intends to understand how foreign policy is linked to this process and what are the interests and conflicts within the Brazilian internal bourgeoisie.
Our starting point is the fact that since the middle of the first government of Dilma Rousseff, the Brazilian internal bourgeoisie joined the orthodox neoliberal field composed of the associated bourgeoisie, the upper middle class and imperialism (Boito, 2018), defending changes in the insertion Brazilian international trade through a new regional policy, and the signing of trade agreements such as the Mercosur-European Union (Berringer, 2017; Berringer & Forlini, 2018) and the Brazilian membership of the OECD.
These demands were connected to the idea of integration in value chains and are supported by the defense of reducing the so-called “Custo Brasil” and labor costs. To this end, between 2016 and 2022, the Temer and Bolsonaro governments implemented neoliberal reforms such as: (i) the Labor Reform, (ii) the Outsourcing Law and; (iii) Social Security Reform. There is still interest in reforms in public administration and taxation. But that was not enough to guarantee a new Brazilian international insertion as the bloc in power had hoped.
In addition, we observe that even with the return of open regionalism in Mercosur and the abandonment of Unasur and CELAC, the proposal to reduce the Mercosur External Tariff (TEC) presented by the Bolsonaro government in 2020 did not obtain support from the Brazilian internal bourgeoisie, demonstrating that there is still interest in preserving this priority space for exports of Brazilian manufactured goods (BOTÃO, 2023). Added to this was the fact that the policy of environmental dismantling and respect for human rights and democracy became an obstacle to the ratification of the Mercosur-European Union Agreement, to accession to the OECD, and also to the relationship Brazil-United States from the Biden government. Thus, Brazilian foreign policy played an important role in the election of Lula in 2022, bringing the internal bourgeoisie back to its base of support.
The research in the position documents and declarations of the main business entities (CNI, FIESP, ANFAVEA, ABIMAQ, ABIT, CNA, ABAG and APROSOJA),[I] between 2018 and 2022, it was guided by the following themes: (i) negotiation of the Mercosur-European Union Agreement; (ii) joining the OECD; (iii) proposal to reduce the Common External Tariff (TEC)[ii] in 2020; (iv) environmental protection policies. We believe that this x-ray can contribute to understanding the interests and social conflicts in Brazil, in particular, between the two main segments that make up the internal bourgeoisie: industry and agribusiness. And with that, we intend to contribute to the public debate on the country's new international insertion.
Industry Positionings
With regard to the industrial bourgeoisie, we emphasize that, in relation to the revision of the Common External Tariff (TEC), all entities representing the industry were resistant to the tariff reduction for fear of facilitating the entry of manufactured products in the Mercosur market, the main destination of Brazilian industrialized products.
With the exception of ANFAVEA and ABIMAQ, which alert to the strong losses of local production, which may have great losses for the internal and regional (mercosuline) market, the analyzed entities converge in support of the ratification of the Mercosur-EU Agreement and the entry of the Brazil to the OECD. This is because they see both instruments as a means of (i) facilitating the participation of Brazilian industry in European value chains; (ii) attract productive investments to Brazil aiming at the modernization of industrial structures and; (iii) reduce the “Custo Brasil”, since the admission agenda includes a large part of the neoliberal reforms, making Brazil's accession to the OECD an instrument for conditioning domestic policy through participation in international commitments (lock in) (BUTTON, 2023).
FIESP and CNI have advocated on the need for an environmental policy and the incorporation of Environmental and Social Governance (ESG) as an opportunity for new investments and adaptation to the new international context. The other associations did not comment on this topic.
Below is a table with industry rankings:
Table 1: Positions of Brazilian industrial bourgeoisie entities in relation to international insertion
| Entities | Mercosur-EU Agreement | OECD | TEC reduction | Environmental defense policies |
| CNI | Favorable | Favorable | Contrary to | Favorable |
| FIESP | Favorable | Favorable | Contrary to | Favorable |
| ANFAVEA | Contrary to | Neutral Stainless - Steel | Contrary to | Neutral Stainless - Steel |
| ABIMAQ | Contrary to | Neutral Stainless - Steel | Contrary to | Neutral Stainless - Steel |
| ABIT | Favorable | Favorable | Contrary to | Neutral* |
Caption: * but is linked to the CNI's international insertion strategy, which is not neutral in this matter.
Agribusiness positioning
With regard to agribusiness, there is a strong consensus on the Mercosur-European Union Agreement and on Brazilian membership of the OECD, which indicates interest in increasing exports, attracting foreign capital, especially in the area of infrastructure aimed at the transportation of goods, and in reducing the cost of payroll and paying taxes.
The main divergence within agribusiness is to be found in the environmental issue, mainly due to the external pressure that the sector linked to export trade began to suffer from the European Union, the United States and the OECD itself. CNA and ABAG, representatives of the agroindustry, focus on increasing their exports to the European continent, leading both entities to adopt a position favorable to environmental conservation; And APROSOJA, in turn, representing the producers, has Asia as its main market and adopts a reactive position in relation to international criticism and reprisals against Brazilian products in the field of environmental preservation, even openly supporting the Bolsonaro government. We understand that this behavior by APROSOJA is due to the need for soybean farmers to expand their arable land to maintain the competitiveness of their products.
Fearing reprisals from Europeans over commodities of Brazilian origin, the former presidents of both the CNA and ABAG publicly supported Lula's candidacy, through their leaders, with a view to restoring the country's international credibility in protecting the environment and consequently facilitating dialogue with countries Europeans about the Mercosur-EU Agreement (BOTÃO, 2023; BOTÃO et al, 2022).
The division between agroindustry and producers can also be seen in relation to the reform of the TEC, with producers (APROSOJA) being the most vocal in defending the maintenance of tariff rates, in order to protect themselves from external competitors, and the agroindustry being more favorable to trade opening in the region.
The main data are shown in the table below:
Table 2: Positions of entities of the Brazilian agrarian bourgeoisie in relation to international insertion
| Entities | Mercosur-EU Agreement | OECD | TEC reduction | Environmental defense policies |
| CNA | Favorable | Favorable | Against** | Favorable |
| ABAG | Favorable | Favorable | Neutral Stainless - Steel | Favorable |
| APROSOJA | Favorable | Favorable | Contrary to | Contrary to |
Caption: ** Producer-centered resistance.
Final considerations (Proposals)
From the information collected in the position documents of employers' entities that politically represent the Brazilian internal bourgeoisie exposed in the previous sections, we can conclude that the internal bourgeoisie is betting on a process of greater participation in international trade. On the one hand, the industrial bourgeoisie (CNI, FIESP and ABIT) defends an industrialization model focused on exports (export-led industrialization) and, on the other hand, the agroindustry centered on CNA and ABAG defends a greater opening of the European market for its products. Thus, with the exception of ANFAVEA, ABIMAQ and APROSOJA, the entities analyzed here defend an insertion project associated with European value chains through the conclusion of the Mercosur-EU Agreement and Brazil's entry into the OECD.
However, the positions of the industrial bourgeoisie found indicate that there are ambivalences. A certain degree of protectionism can be seen from the resistance to the TEC reform, with, at the same time, an interest on the part of CNI, FIESP and ABIT in the modernization of industrial plants and the integration of Brazilian industry to European value chains , that is, in the association between local companies and European capital.
Although the industrial bourgeoisie sees benefits in this strategy of association with a regional productive integration led by European capital, this process results in something similar to what happens with the maquiladoras Mexican companies with NAFTA/USAMCA (SCHUTTE, 2020). The Brazilian internal bourgeoisie demonstrates political-ideological weakness and does not seem to take into account the technological and financial asymmetries between the two regions and the deleterious effects on local jobs.
Furthermore, the Mercosur-EU Agreement and membership of the OECD, in addition to being linked to a neoliberal agenda, may represent an obstacle to the implementation of a process of deepening Latin American regional integration, especially when thinking about productive integration, a of the Lula candidacy guidelines in the 2022 election campaign. It is also worth mentioning that these entities, notably the industrial ones, are not willing to lose their market in Mercosur to manufactured products from extra-regional competitors.
In this sense, initiatives such as the creation of a common exchange currency between Brazil and Argentina can help deepen economic integration between the two countries. This would contribute to the increase in exports of Brazilian manufactured products, and would allow greater competition against competing industrialized products, in particular, against the strong increase in Chinese imports.
In short, the internal bourgeoisie seems to defend agreements and partnerships that are articulated with the agenda of increasing investments, reducing the cost of the workforce and accessing markets, without paying attention to the risks of opening up the local market and to the inequalities contained in many of the commercial agreements. They lack a strategic vision that pays attention to the asymmetries and dependencies, in particular, between the Southern Cone and Europe. In addition, there is a conflict between local industry and agribusiness that deserves to be taken into account given the ratio of jobs generated by the former and the greater opportunities for GDP growth and Union revenue.
However, the current adverse international scenario may favor the use of Brazilian bargaining power. The policies of restoring adopted by the Europeans may have their objectives frustrated due to the increase in production costs – driven by oil imports from the United States since the beginning of the war in Ukraine –, favoring policies of nearshoring. In this scenario, Brazil can present itself as an interesting destination due to: (i) the productive capacities already installed here; (ii) the large domestic market; (iii) the existing bargaining power in Mercosur, which guarantees the conclusion of new agreements, favoring the exports of European companies in Brazil and; (iv) the great biodiversity, favoring the attraction of investments linked to the green industry. With this, the Brazilian State may have more strength to renegotiate certain points of the agreement, especially the clauses of government purchases and investments, thus guaranteeing the strengthening of the internal bourgeoisie and the return of a neo-developmentalist program.
*Tatiana Berringer Professor of International Relations at the Federal University of ABC (UFABC).
*Gustavo Button Master in International Relations from UFABC.
References
BUTTON, Gustavo. The Brazilian internal bourgeoisie and the neoliberal-orthodox reform of Mercosur (2019-2022). São Bernardo do Campo, 2023. Dissertation (Master). Center for Engineering, Modeling and Applied Social Sciences. Federal University of ABC.
BUTTON, Gustavo; ALENCAR, Renata; VENANCE, Thaís. “European Parliament approves proposal that restricts imports of commodities linked to deforestation”. Observatory of Foreign Policy and the International Insertion of Brazil, São Bernardo do Campo. 2022. Available at: https://opeb.org/2022/11/02/parlamento-europeu-aprova-proposta-que-restringe-importacao-de-commodities-ligadas-a-desmatamento/.
MARQUES, Pedro Romero. The reason for Lula's fiscal outrage (or, why has it become more difficult to raise the minimum wage in Brazil?). (Note No. 032). Research Center in Macroeconomics of Inequalities MADE/USP. São Paulo. 2023. Available at: https://madeusp.com.br/publicacoes/artigos/o-motivo-da-indignacao-fiscal-de-lula-ou-por-que-se-tornou-mais-dificil-aumentar-o-salario-minimo-no-brasil/.
REIS, Cristina Fróes de Borja; BERRINGER, Tatiana. “Decadent external insertion and dependent productive structure”. In: Dossier V of the Brazilian Keynesian Association: Post-recession Brazil: from the origins of the crisis to future perspectives and challenges. São Paulo: Associação Keynesiana Brasileira, 2018. pp. 137-149. Available in: https://associacaokeynesianabrasileira.org/dossie-v-2018/.
SCHUTTE, Giorgio. “European Union-Mercosur Agreement: false promises of growth and sustainability”. InMARINGONI, Gilberto; SCHUTTE, Giorgio; BERRINGER, Tatiana (orgs). International relations in a changing world: the foundations of Bolsonarist foreign policy. UFABC Publisher: São Bernardo do Campo, 2020. Available at: https://editora.ufabc.edu.br/images/Livros/Bases_da_politica_externa_bolsonarista.pdf.
Notes
[I] The entities are, respectively, the National Confederation of Industry, the Federation of Industries of São Paulo, the National Association of Automotive Vehicle Manufacturers, the Brazilian Association of Machinery and Equipment Industry, the Brazilian Association of Textile and Apparel Industry, the National Confederation of Agriculture and Livestock, the Brazilian Association of Agribusiness and the Brazilian Association of Soy Producers.
[ii] Conceived as the Mercosur import tariff, the tariff was created in 1994. The Bolsonaro government's proposal for reforming the tariff initially provided for its reduction by 50%. The government, however, backed down and started to support, in April 2021, the Uruguayan proposal to cut the tariff by 20%, with a reduction of half of the rate as soon as the agreement was signed, with the other half to be reduced at the end 2021, which would increase the average tariff from 11,7% to 9,48% (FERRAZ et al, 2021). As of August of the same year, the Brazilian government proposed another staggered tariff cut: 10% in 2021 and 10% in 2022. A further 10% reduction in the rate was announced, in March 2022, unilaterally by the Brazilian government .
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