Growth of BRIC Countries: 2000-10
20
15
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-5
-10
Brazil Russia India China
Brazil: Leading the BRICS?
• Main learning points
• It is about tradeoffs for developing countries
associated
• with intellectual property rights (IPR)
• agricultural trade policies
• Tension associated with changing the
representations of rising middle-income countries
at International Organisations, notably the WTO.
• Brazil’s growth prospects considering the
country’s development strategy.
Brazil during 2000s
• During 2000-2010, Brazil benefitted from good economic growth and
stable policies under Dilma’s popular predecessor, Lula (Exhibit 2).
• Sharp decline in poverty (Exhibit 5).
• Economic gains were better distributed than in the past leading to a
drop in inequality (Exhibit 6).
• Over 30 million joined the middle class.
• It became a middle income country with GDP per capita in 2010
above $11,000 (PPP basis).
• Legacy of inadequate infrastructure investments and other barriers of
growth (Exhibit 7 for a comparison).
• Dilma pledged active government involvement in the economy (called
here Brazilian capitalism).
• Large fiscal expansion (See government consumption pattern)
• Conservative monetary policy (See the trend in interest rates)
• Not very clear how these would work fostering economic growth.
Brazil post 2010
• Dilma led the BRICS
• Spoke for smaller developing countries in multilateral negotiations,
particularly in WTO.
• At the same time, it enforced a compulsory license of a patented
therapy for HIV/AIDS.
• Got victory in a longstanding WTO dispute with the US over cotton
subsidies, and created tensions with major trading partners.
• What Dilma should do – whether to seek completion of the Doha
round (relating to dispute over global intellectual property, agri-
subsidies) or pursue regional trade agreements in South and Central
America.
• Growing commodity exports, international trade and developmental
strategy.
WTO: Rules out of Anarchy
• A fundamental problem of globalization
– Markets need rules to function
– But no institution with government backing has legitimacy and
authority to enforce rules internationally
• How to manage global markets in the absence of a global
government?
– GATT WTO are the agreed-upon rules for global trade
• Most-Favored-Nation: deals apply to everyone equally
• National Treatment: imported and domestic products face same taxes/regulations
• Dumping prohibited: cannot price exports at less than cost of production
• Special agreements: Services (GATS), Intellectual Property (TRIPS), Agriculture (AoA), etc.
• Dispute settlement body creates global common law
– DSB may become the world’s most influential international
institution
– Non-trivial lingering issues: enforcement, national sovereignty,
and accommodation by the strong
IPR and Economic Progress
Early stage: Countries As capacity increases, weaker IPR As the economy expands, strong
benefit from high IPR enables domestic imitation IPR rewards domestic innovations
that attract investments of foreign technologies
() a measure of IPR; a measure of economic progress.
The study analyzes data from 64 developing countries between 1975-2000.
The statistical results of the model confirm the U-shaped hypothesis:
“This suggests that countries tend to lower their IPRs initially as GDP [per
capita] begins to rise and then raise them after a certain point.”
"Many rich countries used weak IPR protection in their early stages of
industrialization to develop local technological bases, increasing protection as they
approached the leaders."
Brazil: Leading the BRICs
• Multilateral governance is shifting
– Cold-war institutions (U.N., G-8, GATT) must reform to retain
legitimacy and authority
• New members
• New issues
• An opening for Brazil
– An aggressive WTO strategy
• Compulsory licensing (efavirenz) - Compulsory licensing is when a
government allows someone else to produce the patented product or
process without the consent of the patent owner.
• Cross-sector retaliation (cotton dispute)
– That improved the WTO’s credibility in developing world
• At the cost of annoying developed countries
• Even as Brazil acts in its own interests
Brazilian Capitalism
• Government ownership stakes (or control) of large
firms
• With preferential loans to steer domestic champions
• Even as free trade and China’s growth pose risks
– Of Brazil becoming dependent on commodity exports with
price volatility
– While delaying investment to develop globally competitive
alternatives
Future of the WTO
• Continued conflict between “rules-based” and “case-
precedent” approaches
• Over 400 regional and bilateral trade agreements in
recent years
• Countries will game the system, but WTO is a success
story of international institution building
• Alternatives are almost certainly worse
– “When goods do not cross borders, soldiers will.” Frédéric Bastiat
Lessons for Business
• Compulsory license case
– Don’t pick fights with countries
– Find alternatives (e.g., give Brazil the lower evavirenz price
and make money on other drugs)
• Cotton subsidies
– The rules of the game are changing, finally
– Opportunities for productivity gains, both in Brazil and in
the United States
• Brazilian capitalism
– Get ready to run your business with the government
involved in its governance
How was it different?
Washington’s consensus Brazilian Capitalism
1. Fiscal policy discipline 1. Government playing the central
role
2. Tax reform, broadening the tax 2. Government owning the large
base and adopting moderate enterprises
marginal tax rates;
3. Redirection of public spending 3. Government subsidizing the
from subsidies loans to support national
champions
4. Interest rates that are market 4. Government-supported
determined and positive (but targeted scientific research
moderate) in real terms;
5. Competitive exchange rates 5. Government supported
conditional cash transfer
6. Trade liberalization
7. Liberalization of inward FDI
8. Privatization of state enterprises
9. Deregulation
10. Legal security for property rights
Dilma Rousseff (2011-16)
• First female President of Brazil.
• In October 2010, she was included in the Forbes' list of the most powerful
people in the world, at the 16th position.
• She became the first woman to open a session of the United Nations General
Assembly.
• In August 2011, Rousseff was included in the Forbes' list of the most powerful
women.
• She was featured on the cover of Newsweek magazine on 26 September
2011.
• In 2013, she was ranked the 3rd position in the world, behind Merkel and U.S.
Secretary of State Hillary Clinton.
• Rousseff was ranked fourth in Forbes' 2014.
• In 2015 she was the 7th.
• In 2016 she was no longer in the list.
Subsidy
What is a domestic subsidy?
A domestic subsidy is any form of government financial help to domestic businesses/farm.
The subsidy helps firms to lower their costs and thus become more competitive in home and
overseas markets
Domestic producers
Domestic producers gain from the subsidy – they get the world price + a subsidy
Higher revenues will lift profits and might therefore lead to a higher share price. Increased output
creates the possibility of economies of scale
Risk of a dependency culture emerging – i.e. businesses relying on the subsidies rather than taking
their own steps to become more competitive by increasing productivity, eliminating inefficiency
and accelerating the pace of process/product innovation
Consumers
Some price benefits
They may face higher taxes if expensive subsidies take up a high percentage of government
spending
Government
Subsidy can be an effective non-tariff barrier to reduce the volume of imports by encouraging
domestic production
Unlike a tariff, a subsidy does not generate tax revenues directly.
Increased spending on subsidies may cause a growing budget deficit
ASSIGNMENT 1
1. Are Brazil’s WTO actions serving the country’s long-term
economic and business interests?
- In the compulsory licensing issue, who is right, Brazil or Merck?
- What are the best arguments Brazil and the United States can
make to the WTO’s dispute settlement body concerning cotton
subsidies?
2. Will Brazilian capitalism sustain current GDP growth
levels?
3. Is Brazil the country of the future?
