By PAULO NOGUEIRA BATISTA JR.*
A mixture of ignorance, servility and strategic disorientation led Brazil to sign an agreement of neoliberal essence
My friends, Brazilians who seek to defend Brazil often have a difficult life. We generally achieve little or no success and rarely have anything to celebrate. One reason is the sinister “fifth column.”
I don't know if the reader knows the origin of this expression. During the Spanish Civil War, the Republicans said that worse than General Franco's four columns that marched on Madrid was the Francoist fifth column that operated inside the capital. Well, our fifth column overshadows the Madrid one. It is a large army of opportunists and vassals of foreign interests. I can testify: throughout my life, I have spent a great deal of time fighting against these fifth columnists.
Take, for example, the recently concluded agreement between Mercosur and the European Union. It was received with some excitement in Brazil. On the one hand, liberal sectors and their spokespeople in the traditional media celebrated it. On the other, there were the government's staunch supporters, many of whom are poorly informed on the subject. The liberals want to expose the economy to the winds of European competition. The other supporters of the agreement simply do not accept the possibility that the government could make mistakes on fundamental issues. They are not part of the fifth column, of course, but they end up collaborating with it without realizing it.
At the end of last year and the beginning of this year, I wrote several articles explaining why this agreement, inherited from the government of Jair Bolsonaro, was a real bummer for Brazil (See, for example, “Is the deal with the European Union dead?”). The conclusion could not surprise anyone. After all, what positive thing did Jair Bolsonaro leave behind?
The Lula government obtained changes to some aspects of the agreement. Although they are not insignificant, they do not change the neoliberal essence of the agreement. It is this ideology, dominant at the time when negotiations with the Europeans were launched two decades ago, that sets the direction of the agreement.
The principle of liberalization underlies its main parts – the elimination of tariffs on imports, the prohibition of taxes on exports and the opening of government procurement to foreign companies. The central assumption is that liberalization is beneficial, so beneficial that it is worth enshrining it in an international agreement, protecting it from national decisions.
It should be noted that neoliberalism has been abandoned in the meantime almost everywhere, including in the United States and Europe. However, it has found a lifeline among us. As Millôr Fernandes said, when ideologies become decrepit, they come to live here in Brazil.
An interesting fact: the agreement with the European Union falls short of what would be a free trade agreement for goods and services. But it goes beyond that in several other areas, such as government procurement and the prohibition of taxation on exports of critical minerals.
Changes to the agreement
The changes obtained by the Lula government were in three main areas: (a) some leeway in government purchases; (b) some exceptions to the prohibition on taxing exports of critical minerals; and (c) a slight extension of the tariff reduction schedule in the automobile sector.
An essential point, reader. What was achieved was some damage control (loss control), and not exactly advantages. This point is not always understood. I will explain briefly.
In government procurement, there are currently no restrictions on its use as a way to promote production and job creation in Brazil. We are free to define margins of preference for domestic producers in public tenders, favoring them over foreign suppliers. The agreement with the European Union limits the use of this instrument of economic development and industrial policy.
What the government managed to do was to introduce sectoral exceptions to liberalization. With regard to purchases by the Unified Health System, family farming and small businesses, for example, the right to favor domestic producers over foreign ones was preserved. In other words, the damage was limited, but liberalization was essentially preserved.
With regard to critical minerals, essential for strategic areas such as the digital economy and energy, a short list of products has been defined on which the government may establish export taxes up to a limit of 25%. Today, the government can tax exports of these and other products without exception and without asking anyone for permission.
This could be important to guarantee our access to these inputs and encourage their production to be carried out on national soil, instead of exporting them in their raw state. Since these minerals are crucial for production in cutting-edge sectors, preserving this room for maneuver would have been essential. It was obtained as a damage control a short list on which taxes will be admissible up to a certain ceiling.
Regarding the elimination of tariffs on industrial goods by Mercosur, the reduction of this tax to zero for some types of vehicles has been postponed. In the case of electrified cars, the elimination of tariffs will take place in 18 years. In the case of hydrogen vehicles, the elimination will be extended to 25 years and for new technology vehicles, to 30 years.
For other industrial sectors, the original 15-year term remains. After this period, Brazilian industry, with the exceptions mentioned, will be exposed to unhindered competition with European industry, which has access to much more advantageous sources of financing and economies of scale.
In fact, reader, it was impossible to sufficiently improve the agreement reached during Jair Bolsonaro's time. It was not advisable to accept such an unfavorable starting point for the resumption of negotiations with the Europeans. It would have been better to simply abandon the agreement, as Australia recently did in similar negotiations with the European Union. And to explore other ways to increase economic relations with the Europeans in a balanced and mutually beneficial way.
What do we gain?
I repeat the question I asked in my previous articles. What exactly do we gain from this agreement, even if modified? I am not talking about damage control, but in concrete advantages. This question has never been answered.
Do we gain additional access to European markets for industrial products? Virtually none. European tariffs on industrial imports are already very low.
Have we gained additional access for our agriculture? Not much. Trade in these goods, in which Mercosur is highly competitive, will remain regulated by restrictive quotas. Therefore, it is not a free trade agreement.
In the areas where we are competitive, protectionism prevails. There will only be free trade for industrial goods in which Germany and other countries have large competitive advantages. It is no coincidence that Germany is committed to the agreement. After a transition period, import tariffs will be eliminated. We will thus export industrial jobs to Germany. Foreign automakers, many of them European, will be inclined to produce less or close factories in Brazil. The result: a likely replacement of local production by imports.
Our representatives accepted to negotiate within this asymmetric scheme…
Another area that is vulnerable to this agreement is family farming, a sector for which no safeguards are foreseen in the liberalization process. It is no coincidence that the MST has spoken out against this agreement several times. The Ministry of Agrarian Development, however, seems to have remained on the sidelines of the issue.
A well behaved flock
A curious aspect is that, even though the gains for Mercosur's agricultural sector are small, European farmers are fiercely resisting. France is therefore openly against ratifying the agreement, as are other countries with agricultural sectors that are vulnerable to competition with Mercosur.
It is argued that the agreement is not that bad. Proof of this would be that the CNI, FIESP and other industrial entities are in favor of it. This is a fallacious argument. It is necessary to consider what these entities really are. After decades of deindustrialization, they are industrial only in name. Their leaders, for the most part, are not industrial entrepreneurs, but bureaucrats from federations or confederations. Or importers and assemblers, interested in removing barriers. Or, even, subsidiaries of multinational companies, including European ones, without decision-making autonomy in relation to their parent companies.
The truth is that the Brazilian industrial bourgeoisie was crushed by decades of neoliberal economic policies, since Fernando Collor and Fernando Henrique Cardoso. Gone are the days when there was an Antônio Ermírio de Moraes, a Cláudio Bardella, a Paulo Cunha, a José Alencar. Now we have luminaries like Paulo Skaf or Robson de Andrade. Almost no one is left.
With the elimination of tariffs on industrial products, a new phase of deindustrialization of the Brazilian economy is likely to begin. The government talks a lot about “neo-industrialization.” It would be more realistic to talk about neo-industrialization.opportunities,industrialization.
A small suggestion: why not create a medal of merit in honor of Viscount Cairu, that disciple of Adam Smith who, in the early 19th century, advocated the unrestricted opening of the Brazilian economy? The negotiators of this agreement would be the first candidates to receive this honor.
Indeed, as Nelson Rodrigues said, underdevelopment cannot be improvised. It is the work of centuries.
A stillborn agreement?
I end the article on a (shameful) note of hope. What can save us from this trap are some European countries, notably France. We are in the hands of others, as if we were still colonies.
The best that can still happen is for France to form a coalition strong enough, in terms of number of countries and population, to constitute a “blocking minority”. Under European rules, if there is opposition from at least four countries with at least 35% of the bloc’s population, the deal will not pass. Even if this minority is not reached within the executive branches, it remains to be seen whether the European parliaments will approve it.
Ursula von der Leyen and Lula may have reached a stillborn agreement. President Lula even declared, with remarkable detachment from concrete gains, that it was not “so much for the money” that he sought to finalize the agreement, but rather because it was necessary to end negotiations that had been dragging on for more than 20 years…
I heard from a diplomat who actively participated in these negotiations that, although it would be of little advantage to us, the agreement with the Europeans would have the geopolitical value for Brazil of providing a counterbalance to China. It is a mystery to me that a disadvantageous agreement, which practically does not open up additional markets for our exports, could serve as a counterbalance to China, our largest trading partner by a large margin. They don't make diplomats like they used to.
This mixture of ignorance, servility and strategic disorientation has led us to this dead end. Now we can only passively hope that France and other European Union countries will make this damaging agreement unfeasible.
*Paulo Nogueira Batista Jr. is an economist. He was vice-president of the New Development Bank, established by the BRICS. Author of, among other books, Estilhaços (Countercurrent) [https://amzn.to/3ZulvOz]
Extended version of article published in the journal Capital letter, on December 13, 2024.
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