Brazil joins the U.S. in taking WTO stand against China

. Jul 22, 2020
Brazil joins the U.S. in taking WTO stand against China WTO headquarters, in Geneva. Photo: Bernsten/Shutterstock

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We’re covering Brazil’s decision to take a stand against China at the WTO. The tiny tax reform presented by the government. And a decision on the 2015 Mariana dam collapse.

BREAKING

CNN Brasil, a network which enjoys privileged access to Jair Bolsonaro, has just reported that the president has tested positive for the coronavirus for a third time. He undertook the test on Tuesday and was hoping he could return to his normal schedule. Mr. Bolsonaro first tested positive two weeks ago. Despite the new result, Mr. Bolsonaro reportedly has no fever and has presented normal levels of blood saturation.

Brazil and the U.S. gang up on China at WTO

Brazil will reportedly support a proposal by the U.S.

at the World Trade Organization that is essentially a shot at China. The Americans defend that all members must abide by the principles of a market economy, especially when it comes to the notion of government interference in business decisions. The initiative is supported by the National Confederation of Industry (CNI), a lobbying entity for the sector. However, while CNI tries to frame this as a move in favor of domestic industry, analysts see it as a clear jab at <a href="https://www.wsj.com/articles/1989-and-the-birth-of-state-capitalism-in-china-11559313717">China&#8217;s model of state capitalism</a>.</p> <ul><li>&#8220;The WTO must be prepared to fulfill its fundamental role,&#8221; Brazilian Ambassador Alexandre Parola was quoted as saying on Monday. &#8220;We must put market-oriented principles at the center of the WTO once again, and the quest for open trade as the engine for economic growth, prosperity, and development.&#8221;</li></ul> <p><strong>Why it matters.</strong> Such a strategic move would never happen without presidential endorsement. Coming during a brewing &#8220;cold war&#8221; between China and the U.S., it suggests Brazil has picked a side in the fight between its two main trading partners.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3254435" data-url="https://flo.uri.sh/visualisation/3254435/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Context.</strong> Washington is pushing for WTO reforms, suggesting that the Chinese do not abide by the same rules. This argument has not fallen on deaf ears in Brazil. Industrial lobbying organization CNI published a set of reform proposals last year for the multilateral body, suggesting that state-owned companies distort trading and often move &#8220;according to governments&#8217; political objectives.&#8221;</p> <ul><li>U.S.-China relations are growing increasingly tense, with the Chinese Foreign Ministry saying the U.S. government gave China 72 hours to close its diplomatic consulate in Houston, Texas. According to the <a href="https://www.nytimes.com/2020/07/22/world/asia/us-china-houston-consulate.html">New York Times</a>, the Trump administration &#8220;is also considering a ban on travel to the U.S. by members of the Communist Party and their families, a move that would affect 270 million people.&#8221;</li></ul> <p><strong>What now?</strong> Political scientist Maurício Santoro, an international relations professor at the State University of Rio de Janeiro, says ganging up with the U.S. against China is a major shift in policy. “While Brazil has filed complaints against China before, they were always related to sporadic disagreements. This decision is a kind of ideological declaration of war, as it questions China’s legitimacy as a WTO member,” he told <strong>The Brazilian Report</strong>.</p> <p><strong>Trade.</strong> China is undisputedly Brazil&#8217;s main trading partner, and Mr. Santoro fears Beijing could use that status to retaliate. This could cost President Jair Bolsonaro allies among agricultural producers —&nbsp;who depend heavily on China for their profits. Agricultural entities have repeatedly voiced their displeasure with the Brazilian government&#8217;s often aggressive stances toward Beijing.</p> <p><strong>No comment.</strong> Until this time of publication, the Brazilian Foreign Affairs Ministry had not responded to questions submitted by <strong>The Brazilian Report</strong>.</p> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Guedes&#8217; tax reform bill: the beta version</h2> <p>Over a year after Congress began debating a tax reform, Economy Minister Paulo Guedes finally submitted his own version for an overhaul of Brazil&#8217;s highly complex tax framework. But 18 months after taking office, Mr. Guedes was only able to present a limited version — with only one core proposal: merging social contributions on consumer goods PIS and Cofins into a single 12-percent levy.</p> <p><strong>Why it matters.</strong> According to the Economy Ministry, the rules around PIS and Cofins payments amount to 2,000 pages (literally). And such a complex web of regulations leads to judicial battles — there are currently 71,000 pending lawsuits relating to these two taxes alone.</p> <p><strong>Reception.</strong> In a rare moment in which Congress seems keen to approve a tax reform, Mr. Guedes&#8217; decision to only present a &#8220;beta version&#8221; seems rather puzzling. Moreover, analysts fear that the government&#8217;s proposal isn&#8217;t bold enough and maintains privileges for several sectors — such as banks —&nbsp;which could increase the burden on regular taxpayers.</p> <p><strong>Next steps.</strong> The government promises to reduce corporate taxes and begin taxing dividends. However, no time frame for these proposals was given.&nbsp;</p> <div class="flourish-embed flourish-sankey" data-src="visualisation/3253356" data-url="https://flo.uri.sh/visualisation/3253356/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Court orders compensation for 2015 dam collapse</h2> <p>Today, a court in Manchester, England will begin hearing a case filed by 200,000 individuals — including 25 municipalities and 530 companies —&nbsp;against Anglo-Australian oil giant BHP. The company is sued for <a href="https://brazilian.report/newsletters/brazil-weekly/2020/07/20/the-future-for-work-in-brazil-seems-to-be-remote/">its role in the 2015 Mariana tragedy</a>, when an iron ore tailings dam owned by Samarco (a joint-venture between BHP and Vale) burst, <a href="https://brazilian.report/society/2018/11/05/mariana-disaster-2015-tragedy/">killing 19 people and burying entire towns under an avalanche of mud</a>. The hearing will establish whether the case can be heard in England and Wales — as plaintiffs say Brazilian authorities have been too slow to act.</p> <ul><li>With impressive timing, a Brazilian court published two decisions yesterday, dated from July 1 and 9, establishing that Samarco must compensate several workers with amounts ranging between BRL 23,000 and 94,000 (USD 4,500 and 18,200).</li></ul> <p><strong>Why it matters.</strong> Judge Mário de Paula Franco Jr. wrote: &#8220;[This is] maybe the most important ruling on the case to this moment. Almost five years after the dam collapse, it recognizes, for the first time, several workers&#8217; categories as being directly impacted by the tragedy — including those which operated under absolute informality, such as washing ladies and cart drivers.&#8221;</p> <p><strong>Still … </strong>No one has been held criminally responsible for the disaster.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Remote work.</strong> A provisional decree <a href="https://brazilian.report/newsletters/brazil-weekly/2020/07/20/the-future-for-work-in-brazil-seems-to-be-remote/">regulating remote work</a> signed in March has expired and loses effect. It had made labor rules more flexible and allowed employers to negotiate directly with workers — without trade union mediation. The decree passed in the House, but there was no consensus in the Senate — where over 1,000 amendment proposals were submitted. While the rules in the decree are no longer valid, the deals signed while it was still in force will remain binding.</li><li><strong>Education.</strong> The House should vote today on a proposal to make the National Fund for Basic Education Development (Fundeb) permanent. Responsible for BRL 160 billion, the fund is the main program to <a href="https://brazilian.report/newsletters/brazil-daily/2020/07/15/brazil-inferior-education-system-bad-business-pensions-coronavirus/">finance public education</a> in the country —&nbsp;helping states and municipalities pay for teachers&#8217; wages — but it was set to expire at the end of this year. Lawmakers want the federal government to increase contributions, from the current 10 percent to a share of 23 percent by 2026 — including an automatic bump to 12 percent in 2021.</li><li><strong>Fintech.</strong> Central Bank director João Manoel Pinho de Mello said during a webcast hosted by an investment brokerage firm that the money authority is ready to greenlight <a href="https://brazilian.report/tech/2020/06/16/how-disruptive-will-whatsapp-pay-be-in-brazil/">WhatsApp Pay</a> — an instant payment function by the Facebook-owned messaging app — &#8220;as long as all rules are respected.&#8221; Just after being launched, WhatsApp Pay was swiftly suspended by the Central Bank, which analyzes if the service is safe in terms of data protection and doesn&#8217;t hinder competition.

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