Action on US-Brazil trade in 2020 can help economic recovery long term

Last week, the United States imposed travel restrictions to bar non-citizens who have been to Brazil in the then-last 14 days from entering the U.S. The measure, implemented by President Trump to curtail the entry of those potentially infected with the novel coronavirus, went into effect on May 27 as Brazil’s daily virus-related death toll surpassed that of the United States. 

As COVID-19 continues to bring deep and distressing consequences for U.S. and Brazilian citizens, and for the world economy, working to accelerate trade and investment and to modernize supply chains can help position the two countries to more quickly recover in the longer term. 

As the two largest economies in the Western Hemisphere, the United States and Brazil long have enjoyed a mutually beneficial economic relationship.Though at times imperfect, the two countries share a longstanding partnership that spans the national and subnational levels, and that impacts a variety of industries. As the United States and Brazil debate measures to address the pandemic and strategize around post-pandemic economic repercussions, closing the loop in 2020 on a multi-chapter trade enhancement agreement that touches on critical areas of trade facilitation, digital trade, good regulatory practice, and anti-corruption could help with economic recovery once the virus is under control. It also will pave the way for an eventual free trade agreement, a long-term goal the two countries, under various administrations, for years have worked toward.

Significant disruptions in trade because of the coronavirus — reflected in weakened demand and supply-side restrictions — are likely to cause a precipitous drop in the volume of international trade. The consequences of this decline could be severe. Many countries rely on the global supply chain for essential goods and services, including crucial medical supplies. With the World Trade Organization projecting a 13 to 32 percent drop in trade, countries whose growth depends heavily on this are facing severe recessions.

Before downward pressure of the pandemic, international trade represented about 28 percent of the United States’s GDP and 29 percent of Brazil’s, per World Bank 2018 data. For Brazil, a projected 12 percent decrease in trade will result in an estimated 3 percent lower surplus and a slight drag on overall growth. Trade and foreign direct investment could be critical for both countries’ recoveries.

To that end, the conclusion of a multi-chapter trade enhancement agreement between the U.S. and Brazil is important. An Atlantic Council report, published in English on March 5 and released in Portuguese today, was written in consultation with key voices from the public and private sector of both countries. It outlines steps that Brazil and the U.S. could take this year to facilitate trade and foreign direct investment.

A multi-chapter trade enhancement agreement allows for immediate progress in several major areas, including improving customs administration to facilitate trade, sharing good regulatory practices, innovating around digital trade and implementing anti-corruption measures. Such an agreement will help to position a stronger bilateral relationship that far outlasts either country’s current leadership.

Crucially, this approach skirts the numerous procedural hurdles that have hindered past efforts in this area. Though a comprehensive free trade agreement would pay the highest long-term dividends, formally negotiating a free trade agreement involves congressional and International Trade Commission participation on the U.S. side and changes to the legal structure of the Southern Common Market or Mercosur on the Brazil side if it negotiates individually — to say nothing of the legal revisions and legislative approvals required for ratification. Thus, a multi-chapter trade enhancement agreement deals with imminent concerns and resolves several points of contention ahead of more intensive negotiations, creating space for further progress over the long term.

Encouraging reports from recent U.S.-Brazil trade talks suggest that officials are implementing many of the recommendations laid out in the March Atlantic Council report. Both countries should continue pushing forward on these issues and on other short-term opportunities, particularly around implementing mutual recognition of national trusted traders, using electronic phytosanitary certificates in lieu of paper documents and collaborating in support of Brazil’s OECD membership bid. 

As both Brazil and the U.S. continue grappling with the devastating effects of this health crisis, it is clear that time is no longer a luxury. To fully recover from the coronavirus, countries will need to optimize all the tools at their disposal. And a global crisis in trade will require a global response. The United States and Brazil have an opportunity to close the loop on a multi-chapter trade enhancement agreement to strengthen bilateral trade and investment, one step in a host of necessary measures that can help curtail the long-lasting effects this pandemic will continue to generate for both countries. 

Roberta Braga is an associate director at the Adrienne Arsht Latin America Center of the Atlantic Council and a contributor to the recently launched paper, US-Brazil Trade and FDI: Enhancing the Bilateral Economic Relationship. Follow her on Twitter @RobertaSBraga.