Managerial Economic Course- Brazil, Case Study Example

Introduction

The general overview of Brazil’s economic history and industrial patterns which most significantly influenced its industrial growth throughout the year reveals that the majority of its economic difficulties stem from its currency manipulation and inability enforce its patents. On January 1, 2011, newly elected president, Dilma Rousseff, announced her desire to consolidate the socioeconomic transitions that happened as a byproduct of policies implemented by President Luis Inácio Lula da Silva. Rousseff made this claim due to sustained GDP growth of 4% from 2000 to 2011.  Between 2002 and 2009, there was also a decline in inequality and poverty accounting for over 30 million Brazilians advancing from a lower economic status to middle class. These advances in growth were less compared to the BRIC (Brazil, Russia, India, and China) countries, but they still positioned Brazil politically to have influence in multilateral trade negotiations. This was especially true in regards to The World Trade Organization, which allowed Brazil to break patents, as well as diplomatic negotiations. Politically, this has resulted in conflict between Brazil and regions like the European Union and the United States, as the disputes over issues like intellectual property patents and agricultural subsidies has escalated beyond bilateral negations.

Should Brazil push for bilateral talk or work through the World Trading Organization and/or similar sponsored companies

Based on the data presented in the case study it appears it’s in Brazil’s best interest to work through The World Trade Organization WTO as opposed to relying on bilateral talks to resolve conflicts. This seems to be especially true as it relates to intellectual property policy issues. During the 2004 ruling by the WTO, it was found that the cotton policies of the United States were bias against Brazil, and they substantial impeded the successful trade of cotton. The most telling aspect of the WTO dispute settlement can be seen in the fact that despite the U.S. was able to achieve GATT agreements the WTO still ruled in favor of Brazil. The case notes that the WTO found “that U.S. cotton policies had “result[ed] in serious prejudice to Brazil’s interests in the form of price suppression in the world market. The panel held that the AoA peace clause did not preclude the WTO from considering Brazil’s claims against the United States under other GATT agreements” (Daemmrich, & Musacchio, 2011). The main reason for Brazil’s financial economic crisis that occurred in 1998 and its most recent crisis in 2013 can be attributed to the government placing too much confidence in the continued interest of foreign investors. This same economic policy is what triggered Brazil’s financial crisis in 1998 as well as the cause of the crisis that most recently occurred in 2013. The main difference between the crisis in 1998 and the 2013 can be seen in how Brazil created the real specifically to counteract economic volatility. Crisis is that in 1998 Brazil had just created the real for the purpose of reducing inflation. Much of the economic volatility that arose from interest rates can be attributed to economic policies implemented by the U.S. which reduced Brazil’s ability to trade commodities. The case notes that, “after eight years of WTO adjudication, Brazil could claim success. Brazil’s trade minister, Miguel Jorge, explained: “The dispute helped the WTO system, since it demonstrated that developing countries can win if they have a properly prepared case. Agricultural subsidies will never be reduced through bilateral agreements, so we need Doha to be completed” (Daemmrich, & Musacchio, 2011). The most clear advantage the WTO presents for Brazil is that bilateral negotiations have an alternative path towards resolutions.

Should Brazil improve their intellectual Property laws to help with their economical planning and infrastructure?

The case reveals that substantial conflicts have emerged from Brazil’s handling of intellectual property rights, specifically in regards to their stability and the ability of Brazil to enforce its patents. Despite the fact that Brazil started off early in 1809 implementing intellectual property (IP) rights, the case notes that, “under its 1946 constitution, however, Brazil banned product patents for pharmaceuticals, other chemicals, and foodstuffs” (Daemmrich,  & Musacchio, 2011). The study further points out that by the 1970s, Brazil established a record of not enforcing its intellectual property rights which resulted in a wide range of legal disputes with other nations.  Lapses in judgment as it relates to weak intellectual property laws and their impact on emerging industries and potential growth for Brazil in expanding markets can particularly be seen with how the country dealt with their healthcare system and HIV research. The case sheds light on this regarding their interactions with the company Merck. It was widely considered that Brazil’s economic status put it in the position to use its patents and currency to purchase significantly more HIV medicine than other countries and to do more research that in turn could make the drugs more readily available for the global community. The countries intellectual property policies come under fire in 2007, when as the case notes, Brazil decides to seize their patents and end discussions with Merck.   The U.S. Chamber of Commerce states that, “Breaking off discussions with Merck and seizing its intellectual property sends a dangerous signal to the investment community. Brazil is working to attract investment in innovative industries that rely on IP, and this move will likely cause investments to go elsewhere” (Daemmrich,  & Musacchio, 2011). In addition to their being a moral level of social responsibility to the global community which Brazil disregards through this IP policy decision, there was also a potential for substantial economic growth in a new medical/technology based industry on which Brazil essentially passed. This is a prime example taken from the case of how Brazil can develop more optimal economic planning and infrastructure through improved intellectual property laws.

The example mentioned in the case is demonstrates how Brazil’s intellectual property laws can be counterproductive to their progress. To date, many of the economic pitfalls Brazil faces can be attributed to these missed opportunities and the subsequent need to manipulate the real that occurs when Brazil is navigating an economic crisis. Inman (2013) notes that, “the country appeared to shrug off a brief recession. GDP growth reached 7.5% – the highest rate for 25 years. But rising inflation forced the government to cool the economy just as the eurozone crisis unsettled international markets. The economy slowed, growing just 2.7% in 2011, and 1.3% in 2012” (Inman, 2013). The cooling off of the economy meant that Brazil felt a need to increase interest rates interest rates. The benefit of increasing interest rates is that the company becomes more attractive to foreign investment, but in order ot purchase Brazilian assets people must first purchase the real which subsequently results in inflation of the exchange rate. This is an example of the type of faulty economic planning on which Brazil can improve.

Should Brazil go back to becoming a major commodity exporter ( sugar coffee tobacco etc) or should they focus on improving and developing more industrial projects ?

Commodity markets are slowly declining and as the value of natural resources become less valuable in global trade, it will become increasingly more important for Brazil to expand into new markets (Cardoso & Teles, 2010). One way they could achieve this goal is through the marketing and distribution of intellectual property patents in the form of medical research or other industries. This can free of new streams of revenue and reduce Brazil’s inclination to place too much emphasis on the value of the real. Another advantage to Brazil eliminating its dependence on commodities is that it reduces their vulnerability to trade policy manipulation. The case provided an example of this when the WTO found that the U.S. drafted cotton trade policies that put Brazil at a disadvantage. Through developing more sophisticated intellectual property based markets, Brazil can diversify its revenue stream which will also make it less vulnerable during financial crisis. When investors who were “attracted by high interest rates, poured money into the Brazilian economy at unprecedented rates, in 1997 foreign direct investment grew by 140% over the year before” (Evangelist and Sathe, 2006). The issue that arose from this was that Brazil overvalued the real in response to the high upward trend and eventually had their interest rate far exceed the value of gold, which is their most precious commodity (Cardoso and Teles, 2010). This demonstrates how a movement towards more industrial projects that empower Brazil to avoid these types of situations.

Conclusion

In sum, the case does an excellent job of demonstrating how Brazil still coincides with economic analysis from a world trading perspective in that the issues presented are based on the impact of social responsibility, the value of protecting patents IP agreements, the management of currency exposure to global markets, and how international regulations can influence GDP. Brazil, as an emerging market within the BRICs is establishing a sound position in global markets with many options for increased revenue through possibly amending intellectual property policy. Brazil also demonstrates an ability to continue in commodity trade for the time being, while commodities still hold an inherent value. Past experiences navigating through global economic crisis, specifically in regards to negative impacts on Brazil’s economy due to increase interest rates and inflation as a result of high currency exchange rates should be taken into consideration as Brazil goes forward as a major player in the global economy.

References

Cardoso, E., & Teles, V. (2010). A brief history of Brazil’s growth. Growth and Sustainability in Brazil, China, India, Indonesia and South Africa, 19-50.

Daemmrich, A. A., & Musacchio, A. (2011). Brazil: Leading the BRICs?. Harvard Business Review

Evangelist, M., & Sathe, V. (2006). Brazil’s 1998-1999 Currency Crisis. Unpublished manuscript.

Inman, P. (2013). Brazil’s real economic crisis lies in its overvalued currency. The Guardian.