Since Mercosur and the European Union (EU) agreed on a free trade deal in June, the Brazilian government has announced its desire to expedite plans to open up the country’s economy by signing other such deals. But negotiating with other governments may prove to be the easier step in the long road to establish a new era of “unbiased trade”, promised by the government.

</span></p> <p><span style="font-weight: 400;">According to </span><a href=""><span style="font-weight: 400;">plans announced</span></a><span style="font-weight: 400;"> by Foreign Minister Ernesto Araújo, Brazil will target trade deals with economic heavy-weights like the EFTA countries (Switzerland, Norway, Iceland, and Liechtenstein</span><span style="font-weight: 400;">), </span><span style="font-weight: 400;">Canada, South Korea, and Singapore. President Bolsonaro himself said during the G20 that Brazil has also proposed </span><a href=""><span style="font-weight: 400;">a free trade agreement with the United States</span></a><span style="font-weight: 400;">, in a meeting with President Donald Trump. </span></p> <p><span style="font-weight: 400;">But in order to achieve this, Brazil must first untangle its relationship with Mercosur. Before the deal with the EU was struck, the South American trade bloc was perceived by the Bolsonaro administration as a roadblock to further Brazilian integration with global markets.</span></p> <p><span style="font-weight: 400;">That’s because, as a Mercosur member, </span><a href=""><span style="font-weight: 400;">Brazil cannot negotiate bilateral trade deals</span></a><span style="font-weight: 400;"> with other countries offering cheaper tariffs than Mercosur’s common tariff (TEC), which </span><a href=""><span style="font-weight: 400;">reaches 20%</span></a><span style="font-weight: 400;">, depending on the product.</span></p> <p><span style="font-weight: 400;">Until the EU deal, the bloc had only signed a few trade deals, with smaller markets like Israel and Egypt. In terms of internal trade, Uruguay and Paraguay represent a small share of Brazilian exports, making the bloc’s trade very dependent on a deal between Brazil and Argentina on automotive products. But as the Argentinian economy languishes, Brazilian </span><a href=""><span style="font-weight: 400;">auto exports also suffer</span></a><span style="font-weight: 400;">. </span></p> <p><span style="font-weight: 400;">“Argentina is our third biggest trade partner, with USD 5 billion in exports this year. But this amount could be easily multiplied if Brazil came closer to other partners, like the U.S. or the Trans-Pacific Partnership,” says Francisco Americo Cassano, an international relations professor at Mackenzie Presbyterian University. </span></p> <p><span style="font-weight: 400;">Both Brazilian and Argentinian governments have already demonstrated </span><a href=""><span style="font-weight: 400;">a desire to overhaul Mercosur</span></a><span style="font-weight: 400;">, getting rid of protectionist measures that have contributed to its relative global isolation. Mr. Araújo </span><a href=""><span style="font-weight: 400;">told </span><i><span style="font-weight: 400;">Agência Brasil</span></i></a><span style="font-weight: 400;"> that the trade deal with the EU may be an opportunity to expedite the overhaul.</span></p> <p><span style="font-weight: 400;">But Professor Cassano highlights that this will only be possible should the results of the </span><a href=""><span style="font-weight: 400;">Argentinian presidential election</span></a><span style="font-weight: 400;"> go a certain way. Presidents Bolsonaro and Mauricio Macri </span><a href=""><span style="font-weight: 400;">have been banking on the ideological affinity</span></a><span style="font-weight: 400;"> they share with President Donald Trump in order to achieve an eventual free trade deal with the US. For Mr. Macri, who is aiming for a second term, the potential such a partnership represents for the embattled Argentinian economy would be a powerful argument in his favor in the upcoming election.</span></p> <p><span style="font-weight: 400;">However, at this point, the opposition center-left coalition is ahead in the polls, indicating a possible return of Ms. Cristina Fernandez to the Casa Rosada, this time as vice president. “If ‘Kirchnerism’ is back in Argentina, it would be a big blow to Mercosur’s efforts. Everything we’ve accomplished so far will be lost,” Mr. Cassano argued to </span><b>The Brazilian Report</b><span style="font-weight: 400;">.</span></p> <h2>Step by step</h2> <p><span style="font-weight: 400;">The challenges for Brazil’s trade deals do not come only from abroad. Brazil’s sometimes infamous bureaucracy is also taking its toll on the enforcement process. </span><a href=",burocracia-emperra-acordos-bilaterais-do-brasil-com-outro-pais,70002048693"><span style="font-weight: 400;">A study by the National Industry Confederation</span></a><span style="font-weight: 400;"> released in 2017 showed that Brazil takes 1,509 days—or four years—to enforce deals signed with other countries. This is a result of a long internal process to transform a trade deal into law, involving congressional, cabinet, and finally presidential approval. A report by the </span><i><span style="font-weight: 400;">Estado de S.Paulo</span></i><span style="font-weight: 400;"> newspaper shows that </span><a href=",pais-tem-35-acordos-comerciais-fechados-que-nao-saem-do-papel-por-burocracia,70002862006"><span style="font-weight: 400;">35 deals are currently stalled</span></a><span style="font-weight: 400;"> due to political wrangling. </span></p> <p><span style="font-weight: 400;">Such is the case with a free trade deal signed with Chile during Michel Temer’s tenure as president. While the negotiations took only seven months, it has yet to come into effect, hindering the implementation of lower tariffs, a faster flow of imports and exports, and the end of roaming fees for Brazilian travelers. </span></p> <p><span style="font-weight: 400;">The Mercosur-EU deal will face the same obstacles but, in this case, an extra USD 87.5 billion over the next 15 years are at stake for the Brazilian economy,</span> <span style="font-weight: 400;">according to </span><a href=""><span style="font-weight: 400;">estimates</span></a><span style="font-weight: 400;"> by the Economy Ministry.</span></p> <p><span style="font-weight: 400;">“The governments will have to act very fast, otherwise, all the benefits we are talking about, such as updating our industry with better and cheaper equipment, will be lost,” says Mr. Cassano.

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OpinionJul 15, 2019

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BY Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.