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Doing Business in Brazil: Political and economic landscape

Licks Attorneys' COMPLIANCE Blog

Bolsonaro and the future of Mercosul

During the visit of Argentina’s President, Mauricio Macri, to Brazil mid-January 2019, Jair Bolsonaro stated his government would work towards a more efficient and depoliticized Mercosul, taking distance from earlier statements that the bloc would not be a priority.

In his view, Mercosul needs to value commercial opening, reduce barriers and eliminate bureaucracy by giving continuity to negotiations of trade agreements and simultaneously reducing unilateral tariffs. He specially called for a revision of the Common External Tariff (CET). Though the new Government had indicated a preference for bilateral agreements, Bolsonaro also said he hoped for a quick conclusion of the negotiations for the trade talk between Mercosul and the European Union (EU).

Mercosul and the European Union (EU): Will they come to an agreement?

The negotiations between the blocs started in 1999 and were interrupted from 2004 to 2010, but gained strength after political changes took place in some of the countries in South America. The EU is Mercosul’s and Brazil’s biggest foreign investor as well as Mercosul’s biggest trading partner (22% of the bloc’s total trade in 2016) and Brazil’s second-biggest trading partner (18.3% of its total trade in 2017). Yet, some ultimate difficulties remain for both blocs to finally sign the agreement:

  • Insufficient market opening by the EU to Mercosul’s agricultural products. While rejected by more protectionist European governments, it is the South American bloc’s main issue of interest, since it would lead to increasing exports of meat, sugar and ethanol.  
  • Greater commitment by Mercosul to open the industrial sector, especially in relation to the automobile market and product protection.  

For representatives of the industry, the EU-Mercosul agreement is really important, since it gives Brazil access to 27 markets at once for a total of 500 million consumers with an average income capacity of US$ 32 thousand. Brazil, the economy of which is unusually closed as measured by trade penetration, has only signed few free-trade agreements. Meanwhile, the number of free-trade agreements worldwide surged from 88 in 1991-2000 to 158 in 2001-2012.  

With the signature of the agreement, Brazil could widen the access of up to 1,100 Brazilian products to the EU market. Of this total, about 65% face import tariffs that would be eliminated with the implementation of the accord. The expectation is that, in the medium-term, Brazil could triple its exports of manufactured goods to the EU.

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