What are the advantages and disadvantages of Brazil joining the OECD

Brazil is one of the six candidates to join the OECD (Organization for Economic Cooperation and Development) in 2022. The international body includes 38 countries that are among the richest in the world.

Joining this group is one of the priorities of the government of Jair Bolsonaro, which is constantly reinforced by the economic team of Minister Paulo Guedes (Economy).

Understand the advantages and disadvantages of Brazil’s entry into the organization.

The OECD was founded in 1961 in the context of the post-World War II era. It started with the rich European countries and the United States. Later, other nations were included. The organization is known for defending representative democracy and the market economy.

Ambassador José Buainain Sarquis, Itamaraty’s secretary for foreign trade and economic affairs, explains that Brazil’s relationship with the OECD began in the 1990s.

In 1991, Itamaraty conducted its first mission to the OECD. In 1996, the country joined the Steel Committee and has been invited to participate in all ministerial meetings of the organization since 1999.

In 2007, the organization’s Ministerial Council created a program for greater engagement with Brazil, China, India, Indonesia, and South Africa. In 2012, these countries were designated as “key partners.”

In 1994, Mexico became the first Latin American country to join the club. Chile joined in 2010, Colombia in 2020, and Costa Rica in 2021.

Brazil officially expressed its interest in becoming a full member of the organization in 2017, during the government of Michel Temer. The organization’s board approved a formal invitation for the country to join the group only in 2022.

Sarquis said that the countries in the group are diverse and that convergence among nations is sought through the compilation of statistics, the preparation of studies and the formulation of international rules.

The panel’s work is based on three pillars:

• Inform – through the collection, analysis, and dissemination of global data to develop and improve public policy in education, taxation, the environment, and others;
• Influencing – through partnerships and dialogue with diverse leaders; and
• Create benchmarks – through productivity-enhancing research;

ADVANTAGES

On an economic level, being part of the group is like a stamp or seal on the viability of companies and investments.

A study by IPEA (Institute of Applied Economic Research) indicates that Brazilian GDP can increase by 0.4% per year due to membership.

Constanza Negri, head of corporate diplomacy and trade competitiveness at the CNI (National Confederation of Industry), said that joining the group is an opportunity to improve the country’s regulation and the way public policies are formed.

To join the group, the expert said, several reforms must be carried out to adapt to the standards set by the organization, such as the de-bureaucratization of processes and tax regulations.

A country that bears the OECD label must have the best government practices, the best public administration, a consolidated democracy, solid institutions, and a sustainable economy.

Brazilian and foreign multinationals will have great advantages if Brazil fully joins the group. One of the commitments is not to create bottlenecks for capital movements.

Brazil needs to reform its tax model to avoid taxing more or less the activities of companies belonging to the same group, as is the case with exports of services. Agreements to avoid double taxation are in the queue of items to be implemented.

Just by eliminating the IOF (tax on financial transactions) on foreign exchange and credit cards, the government will not collect R$19.1 billion by 2029.

Lia Valls, a researcher at FGV IBRE, believes that Brazil’s accession to the OECD will raise its profile on the environmental agenda. Therefore, the next government – whichever it will be – should continue to invest in the organization.

Cisbra’s Director of Foreign Trade, Arno Gleisner, believes that joining the OECD can also improve the statistics produced on Brazil, which tends to boost confidence and stimulate growth. “Regardless of the government, this process of joining the OECD will take place.”

CONTRAS

To join the group, Brazil must follow guidelines for the degree of government interference in the economy. There are guidelines for practices related to the control of interest and exchange rates and the taxation of foreign capital.

In other words, the country could lose “some of its autonomy.” For example, in 2008, during the international crisis, Brazil increased the IOF tax to reduce the inflow of speculative funds. Now the tax is being abolished, and the country will lose this control mechanism.

The OECD has guidelines on tax legislation that some economists consider outdated.

Member states have introduced isonomic measures for public tenders and procurements to allow foreign companies to participate in these procedures. It could limit the ability of future governments to use local content policies to strengthen domestic companies.

There are also guidelines for the recognition of patents and the use of subsidies by the government.

Overall, joining an organization will likely take another 3 to 5 years. That is, it will depend on the will of the next government. Poder360 assumes that the organization is not a priority for the PT. The party’s candidate for President of the Republic, Lula, is ahead in the polls.

For former Foreign Minister Celso Amorim, membership in the OECD is not a prerequisite for a country to receive more foreign investment.

He pointed out that no BRICS country other than Brazil is a member of the OECD and continues to receive capital and investment. The BRICS are made up so far of Brazil, Russia, India, China, and South Africa. Countries like Argentina, Iran, and Egypt want to join.

“The OECD is a seal of approval, but Brazil already follows most of the rules,” Amorim said.

The country has already joined 112 of 258 OECD instruments. To join the group, it must meet 229 items. Other interested countries are further behind.

With information from Poder360