International Trade is the branch of economics concerned with the exchange of goods and services with foreign countries. In the context of globalisation, International trade has become an even more important topic now that so many countries have begun to move from state-run to market-driven economies. This report aims to critically evaluate the Brazil's International Trade Policy.
The evaluation combined with some trade issues including trade barrier, export financing programmes, globalisation, controlling unfair trade practices, subsidies are discussed in the international trade context to identify the benefits and limitation of current trade policy. In addition, two International Trade theories in point are applied to analyze Brazilian perceived trade issues and select the appropriate option for the future trade policy. In the last part of the report, some recommendations for Brazil's future trade policy are summarize in a prioritized order.
Brazil, a country of 162 million inhabitants with a massive gross domestic product (GDP) of more than US$977 billion, is the largest economy in Latin America and the 10th largest in the world. Real GDP growth was approximately 3 percent in 2000, still in welcome comparing with the slowdown real growth in 1999. The Inflation has been kept in line with the Government's target of 8% in 2000(Country Commercial Guide, 2001). The process of economic liberalization initiated in 1990s has produced significant changes in Brazil's trade regime and investment regimes, resulting in a more open and competitive economy.
Developments in trade activity were better than expected after the financial crisis of late 1998, favourable economic and investment climate results in substantial increase of foreign direct investment (FDI) since 1997. (Trade Policy Review Body, 2000)With the substantial trade liberalisation, Brazil has become an important market for US and EU exporters of goods and services as well as an important source of imports. Imports have increased as a result of generally lower tariffs and reduced non-tariff barriers, but various barriers to trade still exists in different fields.
The Brazilian government is emphasizing increased trade opportunities for the different sectors through trade reform and the removal of trade barriers to improve foreign trade performance. The table 1 in appendix shows the recent economic performance of Brazil. Brazil's foreign trade environment divides into internal environment and external environment. Internal environment includes tariff and non-tariff trade barrier, subsidies, export financing programmes, foreign trade zone and other trade policies. External environment mainly refer to the opportunities and threat of globalisation and the global trade influence on Brazil. It is important to analyze the internal and external trade environment, overcoming current trade obstacle and maximize trade opportunities.
Tariff is a tax on goods that are shipped internationally. In general, Tariffs are the primary instrument in Brazil for regulating imports. Brazil and its Southern Common Market (MERCOSUR) partners, Argentina, Paraguay, and Uruguay, implemented the MERCOSUR common external tariff (CET) on January 1, 1995. The CET currently covers approximately 85 percent of 9,000 tariff items; most of the remaining 15 percent will be covered by 2001, and all will be covered by 2006. While after the adoption of the CET, virtually all imports from MERCOSUR entered Brazil duty-free with the notable exceptions of sugar and automobiles and parts (Bilateral Trade Relations, 2001).
And Brazilian government has begun to reduce import tariff rates and eliminate trade barriers in an effort to encourage trade. In 2002, Brazil's average applied tariff is 11.8% with the exceptions tariffs on certain items such as coal, petroleum, shoes, automobiles, consumer electronics and agricultural inputs. The average tariff in 1990, by contrast, was 32. However, most of consumer goods including automobiles, motorcycles toys and other certain foods and chemical products are still higher than applied rates and a number of imports are prohibited, including various used goods such as machinery, clothing, and other consumer goods(Richard.& Ramirez., 1996).
So the United States continues to encourage Brazilian government tariff reductions on products of interest to U.S. firms. In general, tariff of some products in Brazil still remain on restrictive levels and becomes a priced-based barrier. The economic effects of nontariff barrier (NTBs) to trade are roughly similar to those tariff. NTBs are inefficient distortions which reduce potential gains from trade. There are a wide range of NTBs such as Quotas, buy national restrictions, subsidies, antidumping legislation, technical barrier, quality and testing standards etc (Wall and Rees, 2001).
The main non-tariff trade irritants in Brazil have include government buy national policy, restrictive and intransparent import licensing, agricultural products export subsidies and incentives, Arbitrary Standards, restrictions on service imports and unnecessarily burdensome customs procedures. While some progress has been made in practically part of these issues, there is still lack of transparency regarding applicable rules and many elements of the trading regime still appear unnecessarily trade restrictive.