Tax & Accounting Blog

FTA – New horizons for the Brazilian current scenario

Blog, Global Trade, ONESOURCE October 2, 2015

Given the current Brazilian scenario of instability due to various external and internal factors, the Brazilian Government has sought to create concrete measures to boost the economy, reducing the impact of a supposed economic crisis, by making the most of the exportation factor where the National Export Plan was created for such a context.

Aiming to further encourage exports and attract investment to the local economy, the Brazilian government has discussed with several countries issues related to international agreements (FTA), such as a tool that will boost international negotiations with several countries around the world.

Recently, the Government of Brazil, in compliance with the National Export Plan, through the Ministry of Development, Industry and Foreign Trade (MDIC), published two Public Consultations to provide updates on the position of the Brazilian private sector regarding commercial agreements (FTA), thereby encouraging the local industry to export utilizing FTA benefits. With this process, public associations and private industry associations are required to inform the Government of its concerns about preferential access to these markets and also on concessions for these countries to access the Brazilian market.

General Parameter

In the two Public Consultations, there are nine countries included: Mexico, Cuba, Canada, Lebanon, Tunisia and EFTA (European Free Trade Association, which includes Iceland, Liechtenstein, Norway and Switzerland). According to data from the Brazilian government, in 2014 Brazil’s exports to these nine countries totaled more than US$10 billion. The potential market in these countries (the sum of all imports) is more than $1 trillion.

New Agreements – Public Consult #48

Public Consultation Number 48 regulates the public opinion regarding all negotiations with the European Free Trade Association (EFTA). The Consult addresses the objectives outlined in the National Export Plan through the negotiation of new agreements. An added benefit is to the private sector in influencing the government’s actions by suggesting products to be covered in the negotiations, and to identify the best definition of the rules of origin for each product, as well as facilitating transactions between countries member of the agreements.

Agreements Expansion – Public Consult #49

In the bilateral negotiations with Mexico and Cuba, countries listed in Public Consultation #49, the main target is to extend tariff concessions provided for the Economic Complementation Agreement 53 (ACE 53)[1] and the current agreement between Mercosur and Cuba (ACE 62).

Both of these markets are very important for Brazil.  For instance, Mexico is the 11th Brazilian trading partner, accounting for 1.99% of the Brazilian foreign trade in 2014. Between 2010 and 2014, Brazil’s trade with Mexico grew 19.3%, from $7.57 billion to $10.03 billion.

Brazil is currently negotiating bilaterally to increase even more trade and investment over the next years by signing a series of agreements, which aims to significantly increase the tariff schedule provided for in the Economic Complementation Agreement 53[2] (ACE 53), which now includes about 800 items.

However, with Cuba, the proposal is to deepen the current agreement between Mercosur and Cuba (ACE 62). According to data from MDIC, Cuba is a very important market for the Brazilian economy, due to the imports from Cuba averaging around 20 products.  On the other hand, Cuba imports from Brazil top more than 1500 kinds of products. In other words, Cuba is a potential country for Brazilian exports to grow further with this agreement.

Upcoming: Partnerships

To further encourage partnering between the Government of Brazil and Japan and encourage trade and investment, both Government’s secretaries have been meeting to discuss new partnerships in various sectors such as mining; agriculture; automotive; solid waste; medical equipment; personal hygiene, perfumery and cosmetics, among others. This bilateral agenda also contains such matters as: attracting investments, establishment of channels for dispute settlement, investment agreement, and participation in the upcoming Logistics Investment Program (PIL in Portuguese), from the Brazilian government.

According to data from MDIC (Ministry of Development, Industry and Foreign Trade), in 2014 Japan was the 5th main destination for Brazilian exports (3% of Brazil export) and the 9th origin market for its imports. The bilateral trade flow was $12.6 billion, of which U.S. represented $6.7 billion in Brazilian sales with $5.9 billion in Brazilian in imports from Japan, with a surplus of US $860 million to Brazil. Brazilian exports were 70% of basic goods and 13% of industrial products.

Brazilian sales to the Japanese market were mainly iron ore and concentrates (36.4%); frozen, fresh or chilled chicken meat (16%), raw coffee beans (7.3%) and raw aluminum (6.6%). Purchases made in the Japanese market, 99.8% are manufactured goods, mainly: parts and components for automobiles and tractors (9.9%) and passenger cars (7.1%) in addition to instruments and measuring and checking devices (4.6%).

Japanese investment

There are about 250 Japanese companies operating in Brazil, in areas such as mining, steel, automotive, electronics, pulp and paper, agribusiness, chemicals and plastics. According to the Central Bank data, in the first six months of this year Japan held the 5th place in the ranking of economies that invest in Brazil. From January to June, the Japanese investment reached US $1.4 billion.

Current in Force Agreements

Currently, Brazil is participating of more than 16 international agreements:

– Regional Tariff Preference between ALADI countries (PTR-04);

– Seeds Agreement between ALADI countries (AG-02);

– Cultural Goods Agreement between ALADI countries (AR-07);

– Brazil – Uruguay (ACE-02);

– Brazil – Argentina (ACE-14);

– Mercosur (ACE-18);

– Mercosur – Chile (ACE-35);

– Mercosur – Bolivia (ACE-36);

– Brazil – Mexico (ACE-53);

– Mercosur – Mexico (ACE-54);

– Mercosur Automotive – Mexico (ACE-55);

– Mercosur – Peru (ACE-58);

– Mercosur – Colombia, Ecuador and Venezuela (ACE-59);

– Brazil – Guyana (ACE-38);

– Brazil – Suriname (ACE-41);

– Brazil – Venezuela (ACE-69);

– Mercosur – Cuba (ACE-62);

– MERCOSUR / India;

– Mercosur / Israel.

With the establishment and expansion of existing Agreements, Brazil can further grow its exports, thus encouraging local industry to grow and globalize. International negotiations (FTAs) are the perfect tool for the economy of a country.

Learn more about ONESOURCE Global Trade