The lime shovel in industrial policy

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By Gilberto Bercovici*

With the announced accession of Brazil to the GPA, the Bolsonaro government continues in stride with the policy established after the 2016 coup, seeking to derail any possibility of autonomous development in Brazil.

The recent announcement that Economy Minister Paulo Guedes will promote Brazil's accession to the GPA (“Agreement on Government Procurement” – Government Procurement Agreement), sponsored by the World Trade Organization (WTO)[I], did not have the necessary repercussions. The profound impacts that this adhesion will cause to the Brazilian economy were not properly perceived. The vast majority of writers limited themselves to mentioning the opening of the engineering market, with the possibility of attracting foreign contractors to replace the weakened national engineering sector. The issue would be limited to the end of the market reserve of national contractors[ii], the primary target of the destruction generated by “Operation Lava Jato”.

Unfortunately, the consequences of joining the GPA go beyond the ruin of national engineering, which, in itself, is already a disaster. In fact, alongside other measures taken by the Bolsonaro government, such as giving up the status of a developing country in the WTO, the intention of joining the OECD (Organization for Economic Cooperation and Development) and the signing of the terrible and asymmetrical free trade agreement between the European Union and Mercosur (whose negotiations were intensified even under the Lula government) , joining the GPA practically makes any possibility of resuming an industrial policy for Brazil unfeasible.

The definition of industrial policy can be based on two large groups of authors. There are those who defend the view of industrial policy merely as a policy oriented exclusively to the market, whose objective would be to correct market failures or improve its functioning. In this case, the role of the State would be more limited.

There are those who understand industrial policy in a broader perspective, including not only specific measures for the industry, but also macroeconomic policy measures that affect industrial competitiveness and the organization of the production process. Industrial policy, in this case, is the result of a political option for industrial development, implying that economic policy is primarily focused on expanding the industrial sector and the domestic market.[iii]. Historically, Brazil adopted the second model, until it started its deindustrialization process, starting in the 1990s.

One of the central elements of any country's industrial policy is government purchasing power. The state is the biggest buyer in any economy. Public procurement has the ability to induce and stimulate a range of sectors, from the textile industry to the defense or high technology industry. In Brazil, legislation has always sought to provide parameters for the State, at all federative levels, to use its purchasing power in order to stimulate and induce strategic sectors of the national economy.

An example is Article 171 of the original text of the 1988 Constitution, which differentiated the Brazilian company, that is, the company constituted under Brazilian laws, from the Brazilian company with national capital, determining that criteria be adopted to favor Brazilian companies with national capital. nationally in various sectors of the economy.

By the way, this is not a Brazilian exclusivity. In the United States, for example, all public procurement is regulated by the Buy American Act, from 1933, in effect until today. The US government has a legal obligation to give preference to its country's goods and services as a way of promoting the development of the national economy. Developed countries have never relinquished government purchasing power to the benefit of their companies, generating jobs, income and revenue in their economies.

Article 171 of the 1988 Constitution, which differentiated the Brazilian company from the Brazilian company with national capital, was revoked by Constitutional Amendment No. 6, of August 15, 1995, in an attempt to modify the nationalist orientation of the original text of the Constitution. The defense of the formation of a financially and technologically autonomous business sector in relation to large multinational companies was removed from the constitutional text.

The repeal of Article 171 of the 1988 Constitution, however, does not imply the unconstitutionality of the matter or its exclusion from the legal system as a whole. There was only the loss of status constitutional, competence shifted to the level of ordinary legislation. The granting of fiscal or tax incentives to Brazilian companies with national capital, as well as the State's preference for acquiring goods and services from these companies, continue to be admissible in general rules on public administration biddings and contracts.[iv].

Brazil's adherence to the GPA makes the use of the State's purchasing power unfeasible as a policy for the development and stimulation of industrial sectors in the country. By submitting to the agreement, Brazil loses the ability to dispose of this instrument and is prohibited from making any distinction between Brazilian companies and economic groups and companies and economic groups from the signatory countries, allowing the free operation of foreign companies, even without headquarters in the Brazil, in virtually all sectors of the economy, without any limits. The possibility of giving preferential treatment to Brazilian companies so that they could develop areas, techniques or sectors is prevented by joining the GPA. The differentiated treatment of small and medium-sized companies also suffers from a series of limitations and impediments[v]. In other words, what the Brazilian legal system allowed, the agreement forbids, imposing yet another severe restriction on State action in Brazil.

As we can see, the Bolsonaro government continues to take strides towards the policy introduced after the 2016 coup, seeking to make any possibility of autonomous development in Brazil unfeasible. The foreign trade policy has been implemented in order to create ties in international treaties and agreements that prevent the resumption of any Brazilian industrial policy by a future government.

The current government imposes through the international treaty profound changes in the Brazilian legal system. It is a strategy to withdraw from public discussion with society and parliamentary debate, generating a fait accompli. The Bolsonaro Government thus consolidates an ultraliberal framework, along the lines already exposed in the 1990s by Pedro Malan, Minister of Finance under Fernando Henrique Cardoso: “the best industrial policy is not to have an industrial policy”.

The policy of the Brazilian governments established in 2016 is to make the country completely unfeasible as an entity capable of exercising its sovereignty, it is a policy of dismantling the national State. The widespread opening to foreign capital and control of mineral resources and the oil sector, with the consequent dismantling and disruption of Petrobras, is accompanied by the possibility of losing national control over water (new basic sanitation law[vi]) and over the lands (the famous “land grabbing”, that is, foreign control over land, supported with paradoxical enthusiasm by the ruralist caucus[vii]). Adherence to the GPA is another step towards the complete destruction of the entire capacity of the Brazilian State to act.

Certainly there will be those who will defend these measures, after all they would be “modern”, in favor of “competitiveness” and the (subordinate) insertion of Brazil in the international economy. The curious thing is that these defenders of the end of industrial policy and of any remnant of national control over economic policy are the same ones who defend tooth and nail two of the still existing market reserves in Brazil: the limitation of foreign capital in newspaper companies and broadcasting (Article 222 of the Constitution)[viii] and in the legal sector[ix].

Coherence is the minimum to be demanded of those who defend so fiercely the interests of Brazilian journalistic companies and law firms. Or is the “national interest” exhausted in its corporatist or sectoral guidelines, relegating 200 million Brazilians to the misery of living in a giant factory?

*Gilberto Bercovici Professor of Economic Law and Political Economy at the Faculty of Law of USP.

Notes


[I] On GPA, see Sue ARROWSMITH & Robert D. ANDERSON (eds.), The WTO Regime on Government Procurement: Challenge and Reform, Cambridge/New York, Cambridge University Press, 2011.

[ii] The protection of national capital in the sector of major works was guaranteed by Decree No. 64.345, of April 10, 1969, which determines that the State can only contract for public works legal entities constituted in the country, with headquarters and jurisdiction in Brazil, with share control belonging to native or naturalized Brazilians residing in the country and who have at least half of their technical staff composed of native or naturalized Brazilians.

[iii] Wilson SUZIGAN & Annibal V. VILLELA, Industrial Policy in Brazil, Campinas, Institute of Economics at UNICAMP, 1997, pp. 15-30.

[iv] Eros Roberto GRAU, The Economic Order in the 1988 Constitution (Interpretation and Criticism), 12th ed, São Paulo, Malheiros, 2007, pp. 263 and 268-276; Eros Roberto GRAU, “Concept of Brazilian Company with National Capital and Tax Incentives¾ Revocation of Art. 171 of the Constitution¾ Interpretation of the Constitution”, Public Law Quarterly Magazine nº 13, São Paulo, 1996, pp. 88-94 and Celso Antônio BANDEIRA DE MELLO, “Bidding Preferences for Goods and Services Manufactured in Brazil and for Brazilian Companies with National Capital”, Hiring and Public Management Forum nº 13, Belo Horizonte, January 2003, pp. 1539-1543.

[v] Cf. John LINARELLI, “The Limited Case f[5]or Permitting SME Procurement Preferences in the Agreement on Government Procurement” in Sue ARROWSMITH & Robert D. ANDERSON (eds.), The WTO Regime on Government Procurement: Challenge and Reform, Cambridge/New York, Cambridge University Press, 2011, pp. 444-458.

[vi] Bill No. 4.162, of 2019, approved by the Chamber of Deputies and forwarded to the Federal Senate.

[vii] Today, several bills are being processed allowing the acquisition of land by foreigners. Among these projects, the most advanced in the National Congress is Bill No. 2.963, of 2019.

[viii] https://www.diariodocentrodomundo.com.br/o-novo-ministro-do-stf-defende-a-reserva-de-mercado-da-midia/

http://www.luisrobertobarroso.com.br/wp-content/uploads/2011/09/De-onde-vem-a-bola_Globo-26set2011.pdf

[ix] https://www.migalhas.com.br/Quentes/17,MI165724,101048-Juristas+opinam+sobre+atuacao+de+escritorios+estrangeiros+no+Brasil

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