Brazil is Back to Globalism
During his first month in office, President Luiz Inácio Lula da Silva (“Lula”) established a strong tone for his administration in both domestic and international affairs. Similar to President Biden, Lula reversed several actions implemented by his predecessor, Jair Bolsonaro, on his first day in office. Lula attended the COP27 climate conference, named Amazon activist Marina Silva as Minister of Environment and created a new Ministry of Native Peoples — all signalling a shift away from Bolsonaro-era environmental policies.
Lula’s previous two terms as president — 2003–2007 and 2007–2011, respectively — were characterized by a globalist attitude. Lula positioned Brazil as a leader in the region and a champion of multilateralism, encouraging Brazil’s engagement in the G20, the South-South Cooperation and emerging collectives such as BRICS and IBAS. Lula’s previous terms were marked by Brazilian diplomacy on issues in Iran, Haiti and the U.S. intervention in Iraq and Afghanistan. The impressive number of Heads of State who congratulated Lula on his election victory and attended his inauguration indicates a recognition of Brazil’s return to the international arena that goes beyond being a large market and important trade partner.
Trade, Diplomacy, Environmentalism: 5 Takeaways from the Early Lula Administration
U.S.-Brazil relations
Lula will meet with President Biden in Washington, D.C. on February 10. Democracy will likely be a shared theme for the two leaders, as Biden was one of the first global leaders to declare support to the Brazilian election’s legitimacy in the aftermath of the violent insurrection in Brasilia. Lula will attend the Summit for Democracy in Washington in March. The White House said climate change, food security, economic development, peace and security and regional migration would all be topics on the February agenda.
A recharge to Mercosur and regional integration
The Southern Common Market, known as Mercosur, was not a Brazilian priority during the Bolsonaro administration. The trading bloc is considered an imperfect customs union, as its common tariff has not yet been fully integrated. Brazil’s absence led other members to question the organization’s purpose and future.
In January, Lula’s state visit to Argentina and his attendance at the Community of Latin America and Caribbean States (CELAC) conference attempted to reinvigorate economic partnership. He offered finance to build a shale gas pipeline in the Argentinian region of Vaca Muerta despite broad criticism from the Brazilian public. He also introduced the idea of a common currency for trade between Mercosur members to supplant the U.S. dollar. CELAC members closed the Buenos Aires-hosted conference by signing environmental and economic commitments as part of the “Declaration of Buenos Aires”.
Mercosur trade issues in play
Lula’s visit to Uruguay proved more challenging. The country is negotiating a free trade agreement with China despite Mercosur obligations to negotiate trade deals as a bloc. If a free trade deal advances, Uruguay would likely be expelled from the bloc. Lula said the priority of the bloc should be to finalize an agreement with the European Union before signing others.
If ratified, a Mercosur-EU agreement would have significant trade implications for both Europe and the Americas. A 2021 study by the U.S. Department of Agriculture (USDA) claimed U.S. exports to the EU could fall by $4 billion as U.S. farm goods are replaced by South American products. USDA also warned that a deal would extend EU standards to South America, creating an advantage for European products over U.S. exports in Mercosur markets. But major impediments to a deal remain, including EU concerns about sustainability practices in Mercosur member states.
Support for Brazil’s environment
Lula’s team has defined the transition to clean energy and decarbonization of production chains as legislative priorities, reinforcing the understanding that this pivot represents a competitive advantage for the country. Marina Silva’s reinstatement as Minister of the Environment and the government’s commitment to halting deforestation in the Amazon signals important commitments to environmentalism. Key ministries are restructuring their bureaucracies to implement new policies. A new National Authority for Climate Change has been established.
The Amazon Fund, a UN-backed investment tool to counter deforestation, was suspended during Bolsonaro administration. Lula’s commitment to prioritize the environment has renewed international interest. During his visit to Brazil, German Chancellor Olaf Scholz announced a 203-million-euro investment in Brazilian environmental development initiatives. In May, Lula is planning an Amazon Summit with neighbouring countries to coordinate policies. He is publicly aiming for the ambitious goal of Brazil hosting COP 30 in Belém, in the heart of Amazon region. The vision, which must still be approved at COP 28 later this year, would be emblematic of Brazil’s re-emergence on the global stage and its renewed commitment to environmental causes.
Economic issues
Global companies will be watching Brazil’s economic policies. Lula has inherited a challenging economic landscape. Bolsonaro oversaw the return of hunger and malnutrition, a rise in poverty and led an ineffective fight against the COVID pandemic. Lula wants to scrap a constitutional cap on spending to boost welfare payments, he must negotiate a new budget with Congress, stimulate investment and economic growth and take on tax reform — all considerable political challenges amidst the country’s fragmented politics. Lula hopes his environmental policies will unlock new international investment. His skills as a pragmatic politician and negotiator will be needed now more than ever.
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