By PAULO NOGUEIRA BATISTA JR.*

Pitfalls for a future Brazilian government.

Brazil is currently participating in two economic negotiations of strategic importance – much more negative than positive, as I will explain. I am referring to the Mercosur/European Union agreement and Brazil's entry into the Organization for Economic Cooperation and Development (OECD). Both date back to the Temer government, which decided to apply for membership of the OECD and resume old negotiations with the European Union. They were taken forward by the Bolsonaro government, but are basically paralyzed, due to its climate policies. They will hardly be completed until the government is replaced or changes its policies in this area (and the first hypothesis seems easier than the second!).

The two issues should be left to another government, which will begin in January 2023, assuming that Bolsonaro reaches the end of his term, but does not achieve re-election. (I leave aside, in this article, the possibility – the best for the country – that his mandate ends up being shortened, ending before the 2022 elections.)

From the Bolsonaro government, one of the few good results – completely involuntary – is that of having made, with its policies of environmental destruction, both the entry into the OECD and the ratification of the agreement with the European Union unfeasible. As my friend Gabriel Ciríaco says, “there are Salles that come for good”. By the way, a Mourão administration, which would presumably adopt a more civilized environmental policy, would have the disadvantage of perhaps making the completion of these two initiatives feasible, walling up the next government.

However, the most likely is that Lula or Ciro Gomes, both defenders of development policies, will be confronted, if elected, with two open questions: a) a ready or practically ready agreement, but not yet ratified, between Mercosur and the European Union; and b) a relatively advanced process of preparation for the country's entry into the OECD. As neither Ciro nor Lula would continue the current government's environmental disasters, the way would be open to finalize the ongoing international negotiations. Small problem: they clash head-on with the autonomy of national development policies.

If, on the other hand, the winner of the elections is someone from the traditional right, non-Bolsonarist, say Mandetta, Dória or Jereissati, it is likely that the question will be posed differently and without major difficulties, since the conclusion of the two negotiations falls within fit perfectly into the neoliberal agenda traditionally championed by the political forces they represent.

What are the neoliberal arguments? They are, to a large extent, generic or of an ideological nature, such as “Brazil needs to strengthen ties with the most advanced countries”, “we cannot be restricted to the emerging and developing world”, “we need to modernize and open up the economy”, “ we have to improve our laws and regulations and get a seal of quality”. A conversation that does not move any emerging country that is aware of its long-term goals and the importance of preserving room for maneuver in the definition of public policies.

OECD: heavily normative body

The OECD, reader, is not a cozy club in Paris with fluffy towels and other amenities. It's not just a discussion forum, where our voice would be heard if we became a member. It is an organism normative, which establishes different types of commitments and obligations for its member countries. It has existed since 1961 and has crystallized as an organization that unfailingly reflects the priorities and interests of the United States, the main countries of Europe and other developed nations. The emerging ones that appear there are mere supporting actors, without real weight in the definition of the institution's norms, consolidated for a long time by the developed ones. In practice, they are second-class partners, who accept limiting their policies in exchange for the prestige of participating in the “club of the rich”.

Brazil has been on the candidate list since 2017 and has been making efforts to meet the requirements and requirements. Symptomatic that the Secretary General of the OECD, the Mexican Angel Gurría, has recently stated that, among the six current candidates, “Brazil has an enormous advantage, it is part of the family and is already in the kitchen”. It won't leave there… It may even be accepted as a member, but it will remain in the OECD kitchen in the company of Mexico, Colombia, Chile and Costa Rica.

The commitments required by the OECD are broader than those of other multilateral institutions. In the field of international capital movements, for example, the OECD is much more rigorous than the IMF in seeking liberalization commitments. When I was director for Brazil and other countries at the IMF, there were attempts to import aspects of OECD standards in this area. As Brazil is not a member of the OECD, I could successfully oppose this, just as Minister Mantega did at the IMF ministerial council meetings.

It is no coincidence that none of the other BRICS countries is applying to join the OECD. Russia, India and China are large emerging countries that value their strategic autonomy. Even South Africa, smaller and potentially more vulnerable to Western pressures, is not keen (as far as I know) to join this club.

Mercosur/European Union agreement: few advantages, many limitations

The Mercosur/European Union agreement is also highly problematic. The negotiation itself has already been completed; the agreement is in the process of legal review and translation and will then be forwarded to parliaments. Anyone who thinks this is a free trade agreement is wrong. It is not. And for two reasons. First: Europeans reserve the right to protect their agriculture, in various ways, against competition from the most competitive producers in Mercosur. The deal actually provides little additional access to EU markets. But, on the other hand, it opens up Mercosur markets for European industrial exports by lowering import tariffs.

Second reason: the agreement goes far beyond trade in goods to establish obligations in areas such as services, investment, competition, dispute settlement, intellectual property (including geographical indications), government procurement and environmental protection. With regard to government purchases, for example, the agreement places Mercosur companies on an equal footing with European industrial and service companies, which are more technologically advanced and more competitive.

In the end, you get a little additional access to the European market in exchange for: a) opening up Mercosur markets to industrial exports from Germany and other countries; and b) severe limitation of government policies in several areas.

Not by chance, a European negotiator was caught confessing that “we got way with murder on this deal” (in free translation: we obtained so many concessions that the agreement was a murder). Infidelity is not surprising. In its main aspects, the agreement was concluded in 2019, in the first year of the incompetent Bolsonaro government and in the final stretch of a weak government in Argentina, that of Macri.

We're going to have to get rid of all this rubble.

What to do?

          A future Brazilian government can disable both traps (and others not addressed in this article) without confrontation and without fanfare. It would be doing something similar to what the Lula government did with the FTAA (Free Trade Area of ​​the Americas) in 2003 and 2004, an agreement that serves as a matrix, incidentally, for the Mercosur/European Union agreement. Thanks to the intelligent and skilful action of Celso Amorim, Samuel Pinheiro Guimarães and Adhemar Bahadian, without fuss and without fighting with anyone, Brazil prevented the implementation of the FTAA, which the Fernando Henrique Cardoso government, submissive to the guidelines of the United States, had practically left ready. The Americans had no choice but to negotiate bilateral agreements on the ALCA model with some Latin American countries. Mercosur was left out.

As far as the OECD is concerned, it is enough to abandon the application for membership and continue as a key partner of the organization, participating whenever possible and convenient in discussions on topics of interest to us. The regulations and practices recommended by the OECD that are useful for our economy and our development can be adopted at the national level, without narrowing the country's space for action in areas of strategic interest due to an international commitment.

With regard to the Mercosur/European Union agreement, the natural thing would be to seek a redefinition of the agreement, seeking greater balance in several areas. Europeans would not even be able to denounce a reversal, since they themselves have been trying to reopen the agreement concluded in 2019 to introduce more commitments and obligations in the environmental area. If it is possible to rebalance the agreement, great. If not, we will continue to value and develop our economic relations with the European bloc, without binding ourselves to unbalanced and invasive international commitments.

In all of this, the fundamental thing is never to forget that Brazil cannot give up its capacity for independent national development.

Paulo Nogueira Batista Jr. he was vice-president of the New Development Bank, established by the BRICS in Shanghai, and executive director at the IMF for Brazil and ten other countries. Author, among other books, of Brazil doesn't fit in anyone's backyard: backstage of the life of a Brazilian economist in the IMF and the BRICS and other texts on nationalism and our mongrel complex (LeYa).

Extended version of article published in the journal Capital letter, on May 28, 2021.