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OECD to analyze Brazil’s practices, policies

Deforestation, trust in institutions among issues to be examined before admission

06/07/2022

OECD’s building in Paris — Foto: Hervé Cortinat/OECD

OECD’s building in Paris — Foto: Hervé Cortinat/OECD

The Organization for Economic Cooperation and Development (OECD) will examine from now Brazilian practices and policies in negotiations to evaluate the country’s admission to the organization. The assessment will range from trust in institutions to deforestation.

Valor found that the roadmap with the terms, conditions and process for Brazil’s ingress, has already received the green light from the OECD Council of Representatives, and will now be formally approved by the ministers of the 38 member countries on Thursday in Paris.

The way in is identical for the five membership candidates — Peru, Bulgaria, Croatia and Romania besides Brazil. Argentina had its invitation frozen as Alberto Fernández’s government did not commit to the organization’s values under the conditions the current members demand.

The list of core principles for technical evaluation in the different OECD committees is long and includes new recommendations approved recently by the entity.

A new subject for which Brazil and the other four candidates will be evaluated, in the field of governance, is people’s trust in their institutions. For the OECD, trust is the basis of the legitimacy of public institutions and of a functioning democratic system, and is crucial to maintaining political participation and social cohesion.

Trust is important for the success of a wide range of public policies that depend on behavioral responses from the public, such as respect for regulations and the tax system. In the long run, trust is considered necessary to address social challenges such as climate change, an aging population, and the automation of labor.

In the field of governance, the evaluation will also focus on issues such as the structure of governments, including separation of powers, and the integrity of the public sector, including the application of principles of high standards of behavior in public institutions.

Unsurprisingly, the environmental issue takes up more space on the roadmap for Brazil and the other candidates. Its policies and practices will be compared to OECD best practices. In fact, the environmental policy and chemicals committees have 40% of the OECD recommendations. The candidates will be examined based on at least 20 items on the environmental front, proportionally the largest number.

In the case of Brazil, the issue takes on a greater dimension because of the distrust with which the Bolsonaro administration is viewed on the environmental front. The map mentions the issue of deforestation in relation to the environment and agricultural production, according to a source.

The OECD wants to know what happens in the candidate country in line with the commitment made in Glasgow last year to “working collectively to halt and reverse forest loss and land degradation by 2030.”

The Environmental Policy Committee will also check how Brazil applies the principle that the polluter, rather than government subsidy, pays for prevention and control measures against pollution. It will also assess whether sectoral policies take into account the need to internalize environmental improvement. In the Agriculture Committee, one question is whether sectoral policies contribute to sustainability and improved environmental performance, and “green growth.”

In the discussion about the roadmap for Brazil, France was particularly active on environmental and agricultural issues, but without blocking the negotiation.

In the Fiscal Affairs Committee, the elimination of double taxation on income and capital will be examined, adopting the OECD convention model. On the financial front, the blockchain issue will also enter the evaluation, for example.

Economy Minister Paulo Guedes and Chief of Staff Ciro Nogueira will be at the OECD on Thursday for the approval of the roadmap.

From the 20th to the 24th of this month, a mission from the OECD, called the kick-off mission, will take part in the OECD/Brazil Forum with representatives from the Brazilian government, for the negotiations for the country to fit into the OECD standards.

Mathias Cormann, Secretary-General of the OECD, will be received by President Jair Bolsonaro on the 22nd in Brasília, symbolically launching the country’s admission process to the organization.

Source: Valor International

https://valorinternational.globo.com/
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Brazil vows again to eliminate tax on financial transactions to join OECD

OECD - Fórum Mundial de Bioeconomia

Brazil had already promised — in 2020 — to eliminate the Tax on Financial Transactions (IOF) in the discussions at the Organization for Economic Cooperation and Development (OECD). This tax, in any case, would not be an obstacle for Brazil to start membership negotiations, but certainly its elimination will facilitate the country’s adaptation to the entity’s rules, according to sources consulted by Valor.

Economy minister Paulo Guedes said Wednesday that the OECD invitation to Brazil was made possible after the Congress passed the Foreign Exchange Law at the end of last year. It allowed the Secretariat of Federal Revenue to commit to reducing IOF on international flows. And it also committed to do this in a letter sent last week to the OECD.

The Secretary of International Affairs of the Economy Ministry, Erivaldo Gomes, said: “In fact, it is not necessary to remove the IOF to start the accession process. But it is necessary to enter the codes of capital liberalization and invisible transactions, and to complete the accession process.”

In 2017, Brazil asked to join the OECD. At the same time, it anticipated and asked for accession to the Capital Movement Liberalization and Current Transactions Codes. These standards allow, for applying countries, gradual progress toward liberalization of capital, investment, and services, with an expectation of improvement in the business environment.

The OECD Investment Committee then created a specific group and analyzed policies in Brazil that were considered relevant to the accession to both codes. This group then mentioned the IOF, seen as discriminatory. Applying countries can have a list of exceptions, but those cannot be very different from the ones of other countries belonging to the entity.

In the discussions, it was agreed that Brazil would not eliminate the IOF but would zero the rates starting from a schedule that would begin in 2021. The measure was pending approval of the foreign exchange law in Congress. What Mr. Guedes did last week was to reaffirm this promise. With this, the Investment Committee will be able to finish its report on Brazil.

The report will go to the OECD board. Then, Brazil will approve the decree on the IOF, and the committee finally decides whether to approve Brazil’s treaty accession to the two codes. All of this happens in a process that is independent of OECD accession, but which in practice is essential for the country’s acceptance by the entity.

Mr. Gomes notes that the IOF on foreign exchange generates some distortions in economic transactions abroad, negatively affecting domestic and foreign investors, as well as citizens.

“One of the distortions condemned by the OECD and the IMF is multiple exchange rates, that is, different exchange rates for different transactions,” says the secretary, noting that the IOF has five rates for different types of exchange operations.

According to Mr. Gomes, this taxation “discourages and/or increases the cost of investments in Brazil since the mere flow of resources are punished with taxes before they produce any economic result.”

He notes that the OECD codes do not allow the use of this type of measure that is considered discriminatory, “but allow the use of macroprudential regulatory measures that are non-discriminatory.”

Source: Valor international

https://valorinternational.globo.com/

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OECD calls for reduced deforestation in Brazil

Mathias Cormann — Foto: Herve Cortinat/OECD
Mathias Cormann — Foto: Herve Cortinat/OECD

The Organization for Economic Cooperation and Development (OECD) on Tuesday invited Brazil to open membership discussions — but has imposed conditions: effective protection of the environment and action on climate, including halting deforestation, as well as the fight against corruption. The invitation to Brazil and five other countries — Argentina, Peru, Romania, Bulgaria, and Croatia — was approved by consensus by the 38 members of the OECD.

The invitation for talks come five years after Brasília formally requested membership – which has become a priority for the country’s foreign policy. It is a victory for Brazilian diplomacy, since the expectation in Europe was that this would hardly happen before the November 2022 presidential elections, due to the “great reticence” of some members towards President Jair Bolsonaro. France joined the consensus by signaling that it will be “demanding and vigilant” in negotiations with Brazil, according to European sources.

The OECD’s approval means just that — starting negotiations. The entity sent a letter to President Bolsonaro on Tuesday. And the understanding in the organization’s circles is that the country that responds first — confirming commitments to OECD values — starts the process first. In fact, there seems to be some concern that one or the other will take longer. The current government of Argentina may have some difficulty with capital controls, for example, notes one source.

Negotiations could take three to five years for the country to complete the process of compliance with the OECD’s 253 legal instruments. The invitation for membership will come after the negotiations, so not before 2025.

In a statement released early Tuesday evening, OECD Secretary-General Mathias Cormann said the process for acceptance as a member will include a strict and in-depth assessment by more than 20 technical committees of the candidate country’s alignment with OECD standards, policies and practices. As a result of those technical reviews — and prior to any invitation to candidate countries to join the organization as members — changes in the candidate country legislation, policy and practices will be required to align them with OECD standards and best practices, thus serving as a powerful catalyst for reform.

“Brazil has intensified its participation in the OECD since the request for accession [in 2017] and now we are well prepared to move forward,” said the Brazilian ambassador to the entity, Carlos Márcio Cozendey.

Last week, the Minister of Economy, Paulo Guedes, sent a letter to the OECD assuring commitment that Brazil will comply with the codes of capital liberalization and invisible transactions, the entity’s two main instruments in the economic aspect. This move strengthened “Brazil’s credentials” to finally receive the invitation, according to a government source. In any case, the parallel process in the OECD Council of Ministers was already underway. None of the other five candidate countries for membership has even begun the process of binding to the organization’s required codes.

These codes allow aspiring countries to make gradual progress toward liberalization of capital, investment, and services, with expectations of an improved business environment. And, according to sources, before sending the liberalization and intangibles codes to Congress, the government needs to comply with those requirements.

In Brazil, the new foreign exchange law has been approved. Being part of the OECD means having greater contact and more convergence with international best practices, as well as a boost to the domestic reform agenda, according to the government’s evaluation. But the OECD itself signaled that the candidates should commit themselves to other priority issues.

“The OECD invitation translates the international recognition for the agenda of structural economic reforms led by Minister Guedes and supported by President Bolsonaro,” said the Secretary of International Affairs of the Ministry of Economy, Erivaldo Gomes. “At the same time, it stresses the importance of following up on those reforms, especially the tax overhaul, a necessary condition to complete the process of joining the organization.”

For the National Confederation of Industry (CNI), this is “an extremely important step for the Brazilian productive sector,” which will serve as an impetus to leverage important reforms, increase the competitiveness of industry, and foster more sustainable growth in the country.

Brazil has been a key partner of the OECD since 2012 and formally applied to join the group in 2017. It is also admittedly the candidate country most convergent with the organization’s legal instruments — and the country most engaged with the organization’s committees and working groups, integrating discussions in more than 30 instances.

Source: Valor international

https://valorinternational.globo.com/

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