Without WTO, Brazil’s export costs would rise 120%

Brazil’s trade with countries in the G20—the world’s 20 top economies—is likely to face tariffs 120 percent higher than they currently are, should the US–China commercial war and the rise of protectionism further reduce the reach of the World Trade Organization (WTO). The conclusion was reached by Brazil’s National Confederation of Industry, CNI.

The study shows that, from 1995—when the WTO was created—to 2017, the average import tariffs adopted by G20 countries fell from 11 to 5 percent. This simulation indicates that, if import taxes are brought back to pre-WTO levels, with the institution becoming weaker and weaker, Brazilian exporters would start paying an extra $6.3 billion in taxes in sales to G20 countries.

The projection for the yearly potential impact on Brazil’s exports, with no overhaul at the WTO, includes an increase in the payment of tariffs of $2.4 billion to China, $1.1 billion to India, over $1 billion to the European Union, and $540 million to the US.

Tariffs

Tariffs have started to rise, CNI reported. The commercial war between the US and China rose import taxes by up to 25 percent for over 3 thousand products and the European Union introduced 25 percent tariffs for imports of at least 26 metal goods.

In retaliation for the US policy of protection of steel and aluminum, Turkey rose the tariffs of strategic goods, like cars, and started paying 120 percent, alcoholic beverages (140 percent), and tobacco (60 percent). As a rule, the rise starts locally, and is subsequently expanded.

“Weakening the WTO, with a system with no rules, has a negative impact on global trade and brings about a lot of uncertainty,” said CNI’s International Negotiations Manager Fabrízio Panzini.

Concerns

The Brazilian private sector has tackled international pressure for a WTO reform that is capable of restoring the legitimacy of the multilateral commercial system. This week, in São Paulo, CNI and the International Chamber of Commerce (ICC) held an event that brought together business organizations from the US, Mexico, the EU, and Mercosur countries, to discuss and come up with a common direction for their governments with a view of implementing a WTO overhaul.

“Countries like Brazil tend to lose more than others if the WTO is made weaker, as we have a diversified agenda for exports, with the significant involvement of agribusiness. Only with WTO’s controversy resolution system did Brazil win a number of cases against subsidies,” Panzini said.

Panzini named a number of victories of the Brazilian government in disputes against subsidies from the US on cotton, from Canada for the airplane industry, and the EU for sugar. For the private sector, the WTO must be strengthened as it is the ultimate agency for guaranteeing stability and predictability in trade rules.

“If, on the one hand, the commercial war and the increase of protectionism threaten a multilateral system of commerce, on the other it increases the pressure for a WTO reform, whose negotiations are still stalled,” Panzini remarked.

Special treatment

Last month, during President Jair Bolsonaro's official visit to the US, the Brazilian government announced it will start foregoing the status of developing country in the WTO, in exchange for US support in Brazil’s efforts to join the Organization for Economic and Cooperation and Development (OECD), an international group made up of 36 developed countries.

The US is not a member of the WTO and opposes lists with different treatment for countries with less industrial development. This list—of which Brazil is part, along with dozens of other countries seen as developing nations—brings advantages like a longer term for fulfilling deals, cheaper international credit, and flexibility in the signing of free trade deals with developed countries.

Brazil, Panzini argued, is capable of foregoing its special status with the WTO, but this must come along with a far-reaching overhaul in the organization, in which this loss is compensated for with more favorable rules for the country in topics like farming subsidies adopted by other countries against Brazilian goods.

“The special treatment status is important in its own way; it’s something Brazil could indeed forego, but this has to come as part of a package negotiated with other gains the country is interested in, like subsidies in agriculture and industry,” he stated.