Select Committee on Trade and Industry Seventh Report



Brazil is a key emerging economy, and is an increasingly important global player both in itself and though coalitions with other developing countries. Brazil also dominates Mercosur—the Common Market of the South made up of Argentina, Paraguay, Uruguay and more recently joined by Venezuela—in area, population and economic terms.

However, when considering where to trade and which countries to invest in, UK businesses often overlook Brazil in favour of faster-growing China and India, such that the UK fares poorly in trade and investment relationships with Brazil when compared with its competitors.

The key reasons behind this appear to be a lack of knowledge among UK businesses of the opportunities available in Brazil—in aerospace, financial services, healthcare, environmental technology, Information and Communications Technology, and oil and gas, for example—and insufficient understanding of the barriers—such as bureaucracy, tariffs and taxes—which, while significant, are not insurmountable. The UK and Brazilian governments have set up a Joint Economic and Trade Committee (JETCO) which is looking to tackle these barriers bilaterally. This initiative is welcome, but after around six months of the JETCO process progress appears slow in certain key areas.

The new strategy of UK Trade and Investment (which provides advice and support to exporters), the subject of a concurrent inquiry by the Committee, trains the organisation's focus on emerging markets away from mature markets in the EU and the US. This has benefited Brazil, where new posts are being established; this is welcome although resources still remain below levels seen in the recent past, with no clear intention to reverse this situation.

This is also the UK-Brazil Year of Science. Brazil has much to offer in this area, through its biodiversity and its expertise in the field of bio-ethanol and areas such as the development of vaccines. The UK Government has previously identified Brazil as a key strategic partner in science, and the various events taking place will result in useful linkages and raise understanding of Brazil's potential in related sectors.

Among the other Mercosur members, Argentina similarly offers opportunities while also presenting barriers to trade and investment, and Uruguay has also attracted investors, in part due to its stability and proximity to Argentina and Brazil. The UKTI strategy has not had the positive effects seen in Brazil in these other countries: UKTI presence in Uruguay is to be removed, while UKTI has already closed its offices in Paraguay.

Although modelled on the European Union, Mercosur's economic and political development has been slow, with difficulties arising from Brazil's dominance, internal disputes and tariff issues within what is intended to be a customs union. Despite this, the EU and Mercosur are currently negotiating a bilateral free trade agreement which would help open the Brazilian and Argentine markets to UK industrial products imports, while reducing the UK prices of agricultural exports from those countries. However, the multilateral Doha Round negotiations at the World Trade Organisation must remain the highest priority for the UK and EU negotiators, as regional agreements are a second-best route to trade liberalisation, and multilateral fora present the best means to address broader concerns that are unlikely to be resolved on a bilateral basis.

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Prepared 13 June 2007