Is there a need for protection?
The protectionism can become a trap before a globalized scenario, and its impact may be even greater to technological development of Brazil, which needs to review its industrial innovation policy.January-March | 2017
The world has witnessed an intense clash of visions in relation to globalization. The advancement of protectionist ideas and policies threatens to stop the continued internationalization of economic relations that we saw in previous decades.
Although challenging, this new scenario presents an opportunity for Brazil to review some of its positions deemed protectionists in its current industrial policy, with the aim of becoming more open and flexible to new agreements and also to take advantage of potential opportunities.
For the Brazilian Institute of Economics of the Getulio Vargas Foundation’s (FGV/IBRE) researcher Lia Valls, Brazil can benefit from the current global scenario if it also focuses its foreign policy on bilateral agreements, as the government seems to be planning, with attempts of agreements with Canada, for example. “Perhaps it is a push for Brazil to think better and make these agreements.”
“The greater implication from of the exit of United States (from the Transpacific Free Trade Partnership, one of the agreements that came to be subject of review by the American government) has to do with China, because it strengthens the country in that region.” According to Lia, President Donald Trump might want to develop a bilateral agreement with Japan. “The debate was that small countries that signed the treaty could take jobs from the United States. With Japan, this would not happen”, warns the analyst.
According to analysts, the challenge that lies on the topic of protectionism is finding a balanced solution for the rule to not become a double-edged sword: protect the local market at the same time that it creates bonds to technological development and innovation. The challenge for the Brazilian market when it comes to technology is to internally develop, at the same time that it does not cease to compete externally.
“The balance is achieved by the adoption of sensible measures. We need to be a little more open, if we do not want to lag behind in technological advancement, compared to other countries.”
Flavia Crosara, partner of Deloitte's Tax Consulting practice
“Brazil has already experienced strong protectionism in the 1980s, which was not good for the Country or for the consumers. In addition, it stopped projects and the technology development in national soil”, says Flavia Crosara, partner of Deloitte’s Tax Consulting practice.
Flavia warns that a market heavily protected against the entry of foreign competitors can hamper the competition and the stimulus to innovation in the country. “The balance is achieved by the adoption of sensible measures. We need to be a little more open, if we do not want to lag behind in technological advancement, compared to other countries”, she notes.
According to the World Trade Organization (WTO), in 2015, Brazil occupied the third place in the ranking among the countries that have adopted the highest number of trade barriers, in particular, anti-dumping measures (which neutralize harmful effects on the domestic industry). India was at the top, followed by the United States.
In the WTO’s crosshairs
Brazil has suffered one of the biggest blows at the international organization when it was questioned by the European Union and Japan about its industrial policy in relation to the WTO.
The entity deemed illegal, in November 2016, seven national programs, among them the Informatics Law, Inovar Auto, PADIS (semiconductors), the programs exempting exporting companies from taxes (Recap and PEC), PATVD (Digital TV), and programs for digital inclusion.
This is a preliminary defeat, from which Brazil can appeal. However, according to analysts, the Country runs the risk of retaliation on the part of other countries. And it is possible that it will have to review the industrial policies in force.
In the evaluation of sources from the Ministry of Science, Technology, Innovation and Communications (MCTIC) heard by Mundo Corporativo, the public policies of incentive to the national technology industry should involve three fronts: training of skilled labor, development of new products and production.
According to MCTIC, these incentives are not restrictions in relation to the origin of the company or of its controlling capital, which can include multinational companies, for example. In this way, the body defends that they should not be seen as protectionism.
There are controversies
In relation to the WTO’s positioning, MCTIC evaluates that several member countries of the organization practice incentives focused on different sectors of their economy to motivate the growth. And considers the questioning as legitimate when some WTO’s member countries understand that the incentives applied by other nations go against the best practices of international trade.
In accordance with the agency, discriminatory protectionist barriers that hinder the performance of certain companies based on arbitrary criteria, such as the origin of the capital or of the company itself, can be seen as obstacles to innovation. However, MCTIC believes that incentives through the Informatics Law work as catalysts and drive national innovation, since it allows any company willing to invest and to perform innovation in Brazil can be a part of the technological development of the country.
The reality is that today many companies still have difficulties in accessing innovation for its production processes and eventually use an inferior and more expensive technology. To be competitive in relation to the development of technologies, it is necessary to analyze several factors, such as training of specialized labor, development of technical infrastructure and logistics, simplification and agility in the tax and customs mechanisms, among others, argues the Ministry.
MCTIC underlines that it already operates in this chain of factors in relation to its competency, encouraging the competitiveness and the technological development in various sectors. One example is the public consultation for the Internet of Things National Plan, which proposes a digital agenda for Brazil, with the goal of expanding the digital inclusion of the population and to allow the various productive sectors to advance in the use of Information and Communication Technologies. The initiative covers issues such as investment in research and development, infrastructure, information security and the role of the State in this context.
To review policies of the national industry also deals with an old issue: The Tax Reform, so decanted to the whole country.
“Brazil is facing a heavy crisis, with States declaring bankruptcy. A reform in the collection of taxes would be very delicate. But I think that the Country will overcome its challenges, as we always have”, says Flavia Crosara, from Deloitte.
According to Flavia, the Brazilian industry is suffering the hardships of having left the sight of international investments and also having been away from various global trends. “I believe that the government and the States will consider alternatives and find a way out, because the crisis encourages analysis and creativity. There are other ways to stimulate innovation in the face of short money.”
Partnerships and exchange programs are good options, in the MCTIC’s opinion. The body says that, once structured and designed in the form of national policy, these practices can indeed be part of the set of instruments to encourage the national technological development and innovation.
An example of this is the Chinese information and communication technology company Huawei. In a partnership with the Sao Paulo’s State University Julio de Mesquita Filho (UNESP), the company launched at the end of last year an innovation partnership lab for the development of new network infrastructure technologies defined by software (SDN) and high performance computing (HPC) for use in research.
The initiative is part of Huawei’s institutional technical-scientific-cooperation program, Seeds for the future. “Through collaborations like these, Brazilian talents will have contact with advanced technologies, assisting in the development of their careers as researchers or professionals in an industry that lives in constant evolution”, says Jackey Wang, vice president of Huawei Enterprise Brazil.
Another important alliance to promote innovation in the Country was established with the University of São Paulo (USP). Huawei and the university have selected three students from the institution for training in China, where the headquarters of the company is located.
The initiative offers training on the most advanced Information and Communication Technologies (ICT). The students will participate in the development of Internet of Things (IoT) solutions as their task.
A successful technology plan applied to the business should consider the public-private ecosystem. To the extent that such concepts as smart cities and Internet of Things become more popular, the joint work between the government and private spheres is critical to promote the dissemination and ensure appropriate regulation of these technologies, available to raise businesses to a new level of innovation and technology.
Deseja receber conteúdos da Mundo Corporativo e da Deloitte em primeira mão?Cadastre-se