Trade Outcomes from the Trump-Bolsonaro Meeting: More Than Meets the Eye?
March 20, 2019
On March 19, President Bolsonaro of Brazil met with President Trump at the White House. Trade was among the topics the two leaders discussed, and several agreements in that area were made. Brazil is the world’s ninth-largest economy, the largest economy in South America, and a top-15 trading partner of the United States in terms of total trade. Brazil’s largest trading partner is China, with the United States lagging far behind in second. President Bolsonaro was sworn into power this year pledging to improve trade relations with the United States while voicing skepticism about Brazil’s growing economic entanglement with China. Whether Bolsonaro’s visit to Washington was a one-off feel-good moment or sets the stage for deeper development of the U.S.-Brazil economic relationship remains to be seen.
Q1: What did the United States and Brazil agree to on trade?
A1: President Trump and President Bolsonaro finalized several agreements on trade. Brazil agreed to implement a tariff rate quota (TRQ) to allow for duty-free imports of 750,000 metric tons of wheat annually. Brazil had agreed to create the wheat TRQ when it joined the World Trade Organization (WTO) in 1995 but subsequently reneged on the market access. The United States and Brazil agreed to use science-based conditions to allow Brazil to import U.S. pork. Finally, on agriculture, the United States agreed to quickly send officials to audit Brazil’s raw beef inspection system in order to facilitate the resumption of Brazilian beef exports to the United States. The United States banned fresh beef imports from Brazil in 2017 after the industry there was rocked by a corruption scandal that involved bribes given to food safety inspectors.
Outside of the agricultural sector, President Trump announced support for Brazil undertaking the accession procedure to become a full member of the Organization for Economic Cooperation and Development (OECD). In exchange, President Bolsonaro agreed to no longer seek special and differential treatment in WTO negotiations, in essence no longer self-declaring as a developing country for purposes of trade talks in Geneva.
Additionally, the two leaders agreed to establish the U.S.-Brazil Energy Forum to facilitate energy-related trade and investment. The two countries will negotiate a Mutual Recognition Agreement regarding their Trusted Trader programs to cut costs on U.S. and Brazilian companies.
Q2: Why do the agreements matter for U.S. exporters?
A2: The wheat TRQ will give U.S. farmers an attractive new market to sell into. It was the largest wheat importer in South America in 2018, and when it opened the wheat TRQ temporarily in 2008, 2013, and 2014 amid a lack of supply, U.S. exporters accounted for more than 80 percent of exports outside of the Mercosur bloc, composed of Brazil, Argentina, Paraguay, Uruguay, and Venezuela., according to the U.S. Wheat Associates, the export market development organization for the U.S. wheat industry. U.S. Wheat Associates announced to invest in export market development in Brazil to encourage millers and bakers there to purchase U.S. wheat.
The agreement to allow U.S. pork to enter Brazil if it meets “science-based conditions” will be a boon for U.S. pork producers. For years, Brazil has shut out U.S. pork on the grounds of food safety issues. The United States has been the world’s top pork exporter on average for over a decade, and the U.S. pork industry sees Brazil’s 200 million-plus population with a per capita income of over $8,500 as a top potential export market.
Q3: What do the agreements mean for the WTO and OECD?
A3: The deal for U.S. support for Brazil’s OECD bid in exchange for Brazil abandoning special and differential treatment in WTO negotiations is important for both institutions. The deal is a victory for the United States at the WTO, and a win for Brazil’s campaign to join the OECD. Brazil first requested to join the OCED in May 2017 but ran into opposition from the United States, led by the Office of the U.S. Trade Representative, which cited restrictive trade policies in Brazil.
On the WTO front, U.S. Trade Representative Robert Lighthizer has criticized relatively wealthy countries for continuing to self-identify as developing for the purposes of WTO negotiations. The WTO does not have metrics to determine a country’s development status, so it is up to individual nations to classify themselves. Countries that have identified as developing have historically been provided special and differential treatment in trade agreements negotiated at the WTO, which provides longer periods of time to implement commitments or allows developing countries to take on lower ambition commitments altogether. Ambassador Lighthizer claims that the self-identification has allowed some of the richest countries in the world to shirk trade obligations and has made negotiations at the WTO more difficult.
In February, the United States put a proposal forward at the WTO that would set criteria for a country to be eligible for special and differential treatment and end the practice of self-designation. Under the U.S. proposal, countries would no longer be allowed special and differential treatment if they are determined to a be a “high income” country by the World Bank, are OECD members or acceding members, are a G20 nation, or account for 0.5 percent or more of world trade. The proposal has little chance of being adopted at the WTO, but Brazil’s decision to forgo special and differential treatment puts real wind in the U.S. sails on the issue. Brazil’s move aligns with the U.S. proposal and will put pressure on other countries who meet one of the four criteria to do the same.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jack Caporal is an associate fellow with the CSIS Scholl Chair in International Business.
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