Photo Jonathan Blair

Wednesday, August 10, 2011

Harper in Brazil: inglorious--but useful--foray

In Brazil's main newspapers -- the Estado de Sao Paulo, the Folha de Sao Paulo, O Globo and the Correio Brasiliense-- the only article I could find that was specifically devoted to Harper's visit is a Folha piece revolving around his hiding a bathroom to get the Brazilians to change the timing of his speech... The episode is also the one thing about his trip that was picked up by the US press. Obviously, his arriving in a Brazil shaken by corruption scandals, on a dark day for global stock exchanges, and with London ablaze, kind of doomed the poor man to relative invisibility. But there is something real and true behind the apparent fiasco: there was not much for Harper to do there, although what was to be done he did.

Let's start with the not much: as he put it himself, trade between between Brazil and Canada, two of the world's ten largest economies, with a joint GDP of $4trillion (his numbers), is only $6bn, "little more than one tenth of one per cent of our joint gross domestic product." Joint investments are worth $23bn, not negligible but not impressive at all when you consider that Canada's global stock of investments is about $640bn. Now, Brazil's large economy and rapid growth mean huge opportunities for everybody to jump in and many are indeed interested: Scotia is getting a foothold in the banking sector and RIM will be producing smart phones locally, to mention only two of the 400 or so companies already there. But things are not easy for foreign companies in Brazil.

Brasilia is very keen on strengthening its own firms, holding equity in many and offering them subsidized credit. The National Bank for Economic and Social Development even helps Brazil champions to acquire foreign companies... The whole endeavour is explicit: on August the 2nd, the governament launched the "Greater Brazil Plan"--the Plano Brazil Maior--an industrial policy program involving "Buy Brazil" measures, tax cuts as well as targetted grants for business, in particular for the montadoras, i.e. the multinational corporations--Volkswagen, Ford, GM, Peugeot, etc.--that produce cars in Brazil. The plan is openly meant to protect  the national economy and compared to it Canada's past ventures in industrial policy look decidedly timid. Note that this type of initiative is also very popular, with most critics charging that Brazil Maior was "insufficient," and even the small-l liberal Estado de Sao Paulo basically agreeing with the importance of significant government support for local companies. To say the least, while this doesn't mean that foreigners are kept out--take the montadoras--it means that when foreigners compete with locals, the field is decidedly not level.

Trade is similarly hampered. Once again, Brazil is not a closed market. But since a big liberalizing shock at the beginning of the 1990s, little progress has been made and barriers, of all kinds, abound. The project of a free trade agreement between Brazil and Canada, which has been floated in the Canadian press, is patently absurd at the moment and probably for a while. Brazil, as a member of Mercosur, shares external tariffs with Argentina, Paraguay, Uruguay, and soon, with Venezuela, which means that any free trade arrangement has to involve all of them. In other words, as soon as the Paraguayan Senate relent and votes to let Venezuela in, which all other governments of the bloc have already done, Hugo Chavez will have a veto on any such agreement. In other words, unless global multilateral trade is freed up at the WTO--not in the cards for now--up and until Mercosur dissolves or morphs into a free trade area--which would be the same dissolving--Brazil is out of bound for free traders.

The main obstacle to change on both these fronts is that Brazil is doing really well right now, pursuing these kinds of policies. Poverty and inequality down, domestic demand up, GDP up, inflation down, FDI piling in in spite of the obstacles and Brazilian companies expanding out into the world. Why change what works to please Canada? Substance was thus missing, and the aggreements on tourism,  science and tech, fig leaves all, work well only because there is no much to hide.

Obviously, with an economy just this side of $2tn, crumbs can be huge and Harper's visit, along with the bilateral business council that he announced, may and probably will help Canadian companies pick them up. This is the second point I want to make: what could be done he did. The trip's potential lied on the political side of the ledger, both for bilateral relations and for Canadian foreign policy writ large. Harper was there to pay his respect to the new power on the bloc, essentially acknowledging that Brazil has arrived in the centre of global politics and, implicitly, that Canada, on its way out, recognizes it. The visit itself, particularly Harper's gushing speech in Sao Paulo, did the trick, coming on top of the massive diplomatic effort that spanned the better of the last ten years and that culminated in reciprocal visits of high-level civil servants from both governments in the last year. Brazil and Canada now have a mature relationship, one that recognizes the changed stature of each and that, without denying different and sometimes conflicting interests and views, won't be derailed by trade disputes or by the involvement of some loony expat in kidnappings, as it was before. Dilma Roussef's return visit, hopefully in the coming year, could once and for all turn the page.