Brazil and WTO - Protectionist or within rules?

I had earlier blogged about trends showing that Argentina and Brazil may be adopting certain "protectionist" measures in the context of the WTO. This piece in the Reuters tends to suggest that Brazil is seeking higher tariffs to counter growing imports and competition.

I found this interesting piece on views of 8 Brazilian economists on Brazil's "protectionist" tilt whether it is increased import tariff, local content requirement or currency valuation here:

"1. Mailson da Nobrega, Brazil’s former finance minister

“Industry leaders should pressure the government to attack the structural causes for the lack of competitiveness. Instead, they decided to pressure for falling interest rates, currency devaluation and market reserves. But they will be disappointed with the effects of protectionism. In the short term, we will see the increase in the prices of products, increasing inflationary pressures and reducing the competitive environment. In the medium and long term, Brazil might regress to its past patterns, the time of General (Ernesto) Geisel, in which the state protectionism leads to accommodation and inhibits the pursuit of industry efficiency. In addition, it also limits the gain in productivity and conspires against the country’s growth.”

2. Gustavo Franco, Brazil’s former Central Bank president

“The resort to protectionism is unfortunate. It is not only unjustified but it is also inconsistent. The solution to a foreign exchange bonanza is to spend the surplus dollars in the most useful manner. This is the worst possible time for policies like substituting imports by increasing domestic content, for example. That would make sense, albeit with restrictions, on currency board restrictions. The situation we have today is exactly the opposite. There is no war, no currency crisis, or anything. The authorities do not seem to be familiar with the real issues. ”

3. Kenneth Rogoff, former IMF Chief Economist and Harvard professor

“In the next decade the world will witness a considerable increase in financial protectionism. The public and private debt in the developed economies are at record levels, and as soon as interest rates get back to normal (since they’ve been close to 1% for a while), countries will have difficulties to finance their debt. Thus, the flow of money from developed countries in search of higher returns in emerging markets will increase, and certainly the capital control measures will continue. And it’s important to clarify that none of this is result of the actions of the ECB or the Fed, but from the accumulated effects of years of unsustainable budget deficit and borrowing from the private sector. ”

4. Vera Thorstensen, FGV professor

“Brazil has every right to protect its currency. There is in the World Trade Organization (WTO) the Article 15 of GATT (General Agreement on Tariffs and Trade) which provides that a country can protect itself from currency mis-alignments. The problem is that this is a new theme and no country is still familiarized with it. The government is trying. But it is clear that the problem behind this situation is the exchange rate plus the “Custo Brazil”, high interest rates and the high tax burden. For now, the country is attacking only interest and exchange rates.”

5. Samuel Pessoa, a partner at Tendências Consultoria

“There are two things that can be done without messing the current macroeconomic architecture in Brazil. Government can save or not save the industry. If it does not save, the exchange rate remains as it is and will appreciate. With this, the country will specialize in primary goods (natural resources) and become a big Australia with a services-oriented economy. The other alternative is to save the industry through microeconomic measures. The country could then create new taxes to other sectors of the economy that would provide a huge subsidy to the industry. This subsidies could then be tied to export goals and performance. This is an alternative to develop the industry. And this is a political decision that will cost money. Will the society want to afford it? ”

6. Roberto Rigobon, a professor at MIT’s Sloan School of Management

“Brazil can not just use monetary policies to control the exchange rates, because if a country prints too much money, it will have a huge, immediate increase in inflation. If you withdraw money from the economy, interest rates go up and attract more foreign capital, which makes the Real appreciate. Both consequences are bad and that is why the country is using capital controls – and that is why the International Monetary Fund (IMF) agreed with this. However, capital controls create distortions and adds costs to the economy. So those who think that this policy will not have a negative effect, they must be drinking the wrong “caipirinha”. The way to handle this would be to follow the example of countries like Chile, Norway and Singapore, and make a huge fiscal surplus of 8 % to 9% of GDP. ”

7. Luiz Carlos Bresser Pereira, Brazil’s former Minister of Finance

“Rich countries, which are in great difficulty, are right to print money and seek to devalue their currencies. We [Brazilians] are the wrong ones to respond to these measures in such a shy manner, with only a small IOF (tax on foreign capital). We need a greater IOF and to establish a variable tax on the commodities that Brazil exports, which are the source of the “Dutch disease.”

8. Jose Marcio Camargo, a professor at PUC-Rio

“The economic history of Brazil shows that when we adopt protectionist measures, the long-term outcome tends to be very negative in terms of productivity gains, cost of goods produced and the well-being of the population. In the short term, there may be some relief because you lessen competition, create monopolies and provide incentives. Then the consumer has to bear with the higher prices. The solution to this issue is to have policies that generate productivity gains. And that requires a more open market, not a closed one like we are witnessing. We must invest in education of the workforce and change the labor laws in order to discourage turnover and informality. You need to direct efforts to create a more efficient educational system and create incentives for incorporating modern technology instead of blocking it like the government does by increasing protectionism.”

The views are more in the context of Brazil's currency valuation steps but covers the general trend of "protectionist" measures. How much of these measures are legitimate policy decisions within the WTO obligations? Are all inward looking measures per se protectionist? The WTO itself allows for certain measures like safeguards, antidumping as well as taking measures under the public exceptions Article XX of the GATT to protect one's domestic industry. Careful analysis must be made of a measure in the context of WTO obligations to term it protectionist. After all, all countries do take measures to further their domestic industry which is not in itself protectionist.