Toward the beginning of the summer, President Temer officially submitted a request to join the OECD. For anyone who has followed Brazilian foreign and trade policy, this move is quite the departure from its historically closed economy and its nationalistic tendencies. The OECD is a group of mostly developed, wealthy nations. Only two Latin American countries, Chile and Mexico are currently members while Colombia and Costa Rica are currently in talks and negotiations to join. By initiating a request, Brazil essentially acknowledges its willingness to reform its policies to meet the requirements of a body whose members are keen on international cooperation, trade, and transparency. The OECD website, after all, states that “They can culminate in formal agreements by countries, for example on combating bribery, on arrangements for export credits, or on the treatment of capital movements. They may produce standards and models, for example in the application of bilateral treaties on taxation, or recommendations, for example on cross-border co-operation in enforcing laws against spam. They may also result in guidelines, for example on corporate governance or environmental practices.”
That Brazil is seeking admission into the OECD is a bit of a shocker on various fronts. The first is because, as mentioned above, Brazil has historically been hesitant to open up its economy and the bureaucracy tends to side on interventionism. Second, Brazil as a major emerging market has more often than not favored regional partnerships such as Mercosur and preferential agreements such as with countries that form the “BRICS” group and the South-South Cooperation. Ricardo Zuniga, the Consul General of the United States in Sao Paulo, made an interesting point during one of our classes at Fundação Getulio Vargas. He said that of the reasons that Brazil has generally avoided creating strategic partnerships with some of the more developed nations, especially the United States, is because it resents having to be the junior partner. That Brazil resented having the ability to be a potent power but not being used by the US which lead to it seeking strategic alliances with other countries, especially other developing nations. Lastly, it was a bit of a surprise that the current administration would seek such a move considering that it is massively unpopular and it is facing deep legal troubles that could threaten the viability of Temer’s presidency.
If the OECD were to actually consider granting Brazil full membership, there are a number of stipulations to which Brazil would have to concede. Among other things, Brazil would have to agree to open up its economy. The latest WTO Trade Policy Review on Brazil states that it remains an inward-oriented country that tries to protect its domestic industries. My Airbnb host, who is a professional photographer, constantly complained to me about how expensive equipment is in Brazil compared to the US. This is because of the taxes Brazil imposes on certain imported product to protect its industries and/or incentivize these companies to open plants in Brazil. The taxing brings me to another point; membership in the OECD would force Brazil to simplify its convoluted tax code which has restricted trade. Lastly, Brazil would have to commit to greater transparency in its policymaking and economic rulemaking.
It will be very interesting to see how these talks unfold if and when the OECD decides to seriously consider Brazil’s bid. There is no doubt that there is much Brazil would have to work on in order to become fully compliant with the OECD’s rules and regulations. Even more interesting will be to see whether the domestic political crises in Brazil allows this bid to become a reality. No one knows whether Temer will survive his scandal and there is even greater uncertainty in regard to the 2018 elections. We will know in the next several months who the candidates will be and that will give us an idea on where the country may be headed in terms of its policies. One thing that is for sure is the fact that there are various bureaucratic elements that are extremely opposed to the reforms that would make joining the OECD a reality.