September 2002

Geo Factsheet Number 136

Brazil - Changing Pattern of Trade: LEDC to NIC
Such changes correspond well to Fig 3, a model of the changing pattern of
Glossary
exports in LEDCs, which can be applied to most developing countries of a
Economic diversification - The broadening of the economic base across
significant size. Only forty years ago, nearly 80% of Brazil's exports by
all four sectors.
value came from three crops – coffee, cotton and cocoa, all of which could
NIC - A country which has experienced rapid and successful fail from bad weather or disease.
industrialisation in recent years – note there is an official World Bank
list of designated NICS which is updated annually. Fig 3. Model of changing pattern of exports in LEDCs
Protectionism - The institution of policies which protect a country’s
dominated other services begin to gain
manufacturing industries from competition from cheap imports – usually by tourism export markets e.g. finance
during early years of development.
100
Venture capital – Capital that is raised for high risk developments e.g. Tertiary Exports (services)
in R & D or biotechnology. low technology, based on
domestic raw materials.
Narrow product base
Introduction
Brazil’s economic history has been influenced to a considerable extent by
Secondary Exports (manufactured)
foreign trade trends and policies. Successive cycles of export booms in often one product
commodities such as sugar, gold and diamonds, rubber, and coffee played dominance
Percentage of Exports

significant roles in Brazilian development before World War II (Fig 1). export of higher
Fig 1. Brazilian development before World War II technology products
begins to grow

C E Primary Exports (agriculture/raw materials)

D
Growth

A
F
B

1500 1600 1700 1800 1900 a wider range of primary

Year products exported
Key
A = Brazilwood B = Spices C = Sugar cane 0
D = Precious metals and mining E = Coffee F = Rubber Economic Development/Time

• after World War II, industrial development was fostered through Exam Hint - Try to devise a similar diagram for changes in Brazil's
restrictive trade policies. These controlled the amount of imports to imports.
protect Brazil's own industries, making Brazil a relatively closed
economy by the mid-1960s.
• Only in the early 1990s did significant trade liberalisation occur, as Current Trade Analysis
Brazil joined Mercosur (Common Market of the Southern Cone). 1. Major trading partners
The United States is Brazil’s major trading partner (Table 1), although in
Changing Trade relative terms the relationship is not as strong as it once was. For example,
As Brazil has undergone economic diversification to achieve the status of in 1960 over half of Brazilian exports went to the USA.
a Newly Industrialised Country [NIC], its pattern of trade has changed
significantly. As Fig 2 shows, the balance between the exports of the primary Table 1. Brazil: top ten trading partners 2000
and secondary sectors has shifted very firmly in favour of the latter.
Exports ($ Billion) Imports ($ Billion)
Fig 2. Brazilian exports of primary products & manufactured goods
1 USA 13.2 1 USA 12.9
35000 2 Argentina 6.2 2 Argentina 6.8
30000 Key Total primary product export 3 Netherlands 2.8 3 Germany 4.4
Export $US million

Total manufactured product exports 4 Germany 2.5 4 Japan 3.0

25000 5 Japan 2.5 5 Italy 2.2
20000 6 Italy 2.1 6 France 1.9
7 Belgium-Luxembourg 1.9 7 Algeria 1.9
15000
8 France 1.7 8 South Korea 1.4
10000 9 Mexico 1.7 9 Venezuela 1.3
5000 10 UK 1.5 10 UK 1.2
0 Total (including others) 55.1 Total (including others) 55.8
1978 1986 1996
Year
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Brazil - the changing pattern of trade Geo Factsheet

Argentina is clearly in second place but thereafter the differences between Brazil has been anxious to reap the best rewards possible from its agricultural
the rest of Brazil’s top ten trading partners are less significant. The UK is exports. For example, together with the other members of the Association
in tenth position for both imports and exports. of Coffee Producing Countries, set up in 1994, Brazil agreed to several
measures designed to support international prices. Brazil, along with other
Brazilian trade flows to neighbouring Latin American countries are weak developing countries, is concerned about the high level of agricultural
even after six years of Mercosur. Until relatively recently, Brazilian exports subsidies provided to farmers in North America, the European Union and
to the rest of South America had averaged less than 10% of all exports. Japan. Such subsidies protect farmers in these world regions, making it
This is a result of: more difficult for developing nations to export their farm products to the
developed world.
• the relatively strong inward orientation of many of Brazil’s Latin
American trade partners during most of the early post-World War 2
Brazil produces and exports a wide range of minerals. The foreign trade
decades. Import-substitution policies were designed to protect domestic
balance for minerals is usually in deficit although if petroleum and gas are
industries from foreign competition. Thus, the more open economies
excluded from the total, there would be a surplus. Imports are significant
of North America and Europe continued to provide the most important
in the national energy balance:
markets for Brazilian exports. Conversely, Brazil is a relatively small
• Brazil imports almost 50% of its oil - much of it from Saudi Arabia
market for many of its Latin American neighbours (Fig 4).
• Coal is imported from the United States and Australia
Fig 4. Exports to Brazil from Latin American neighbours • Electricity imports come mainly from Paraguay’s share of production
from the giant Itaipu HEP plant which straddles the boundary between
35 Paraguay and Brazil
30.5 • Natural gas is imported from Bolivia.
Exports to Brazil (% of total exports)

30 Indeed, to solve its energy gap, Brazil has even started producing fuel for
cars from its surplus sugar cane.
25
20 With regard to its trade in energy, Brazil is most concerned about increases
in the price of oil which can have a significant impact on the economy. Oil
15 price rises affect Brazil in two significant ways.
10 (a) they pressure the trade deficit in that Brazil needs to export even more
5.4 to keep the value of its imports and exports in balance.
5 4.0 3.3 (b) because transportation is a cost factor in all industries, they push up a
0.9 0.8 0.7 range of other prices leading to inflation.
0
Argentina

Mexico

Ecuador
Chile

Peru

Venezuela

Colombia

As Table 2 shows, iron ore dominates the export trade in minerals. Exports
account for about three-quarters of Brazil’s total production of this mineral.
Most of the deposits are found in the states of Minas Gerais and Para.
With its huge forest resources it is not surprising that wood pulp also
• The historical domination of exports by primary and semi-processed ranks in the top ten list of exports.
products. The major markets for all these products were mainly in
high-income countries. For example, Brazil long depended on the USA Table 2. Brazil: Top 10 exports and imports 2000 (by value in $ Billion)
as its major market for coffee. Other important primary products,
such as soybeans, sugar and iron ore, were also sold mainly to high- Exports
income countries.
Aircraft 3.1
Iron Ore and Concentrates 3.0
Table 2 shows Brazil’s major exports and imports for the year 2000.
Soya (including powder) 2.2
Passenger Vehicles 1.8
Exam Hint - when analysing a table comment on general picture Soya (Bran) 1.7
(balance of trade overall), then details of exports and imports. Transmitting and Receiving Equipment 1.6
Footwear 1.6
Chemical Wood Pulp 1.6
2. Primary product exports Coffee 1.6
Brazil is a major exporter of foodstuffs. With its great size and climatic Parts for Cars and Tractors 1.2
diversity it is able to produce a wide variety of agricultural products ranging
from tropical products in the north to temperate foods in the south. Total for Top 10 19.4
However, farm products account for a much smaller share of Brazil’s
Imports
exports today than they used to. In 1978 the export of manufactured goods
Naphtha (a petroleum product) 1.9
exceeded primary products for the first time. Coffee, for instance, accounted
Telecommunications Equipment and Parts 1.4
for no less than 70% of total exports in the 1920s. Today it amounts to
Fuel Oils 1.3
about 3%. In fact, coffee is now Brazil’s second-ranking farm export after
Medical and Veterinary Supplies 1.3
soybeans and soy meal (see table 2). Orange juice concentrate ranks third,
Heterocyclics, Salts and Sulphonamides 0.9
tobacco (leaves) fourth and sugar fifth.
Wheat 0.9
Brazil trails only the USA in the production of soya with yields above the Potassium Chloride 0.6
world average but 6.5% behind those achieved in the USA. The soya boom Coal 0.5
began in the 1970s. The leading states of Rio Grande do Sul, Mato Grosso Aircraft 0.4
and Parana account for about two-thirds of production. Cotton (raw) 0.3

The expanding global market for soya has made it a popular crop in
Total for Top 10 9.5
agricultural frontier areas such as Amazonas. Brazil is the world’s largest
sugar producer and is easily the most important exporter.
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Brazil - the changing pattern of trade Geo Factsheet

3. The Growth of Manufacturing and Service Exports Another reason is that Brazil is poorly represented in high-technology
Following World War II industrialisation accelerated. In 1958 Brazil replaced products, an area in which world trade has grown particularly rapidly.
Argentina as the leading industrial nation in Latin America, a position the Most of Brazil’s exports derive from a relatively small number of large
country still holds. Brazil’s largest single exporter is Embraer, the aeronautics firms, the majority of them foreign-owned. In 1997, fewer than 500 firms
company. As the world’s fourth largest aircraft manufacturer, Embraer accounted for 80% of industrial exports, with almost half of this total
clocked up $2.5 billion worth of exports in the year 2000. After aircraft, emanating from local branches of multinationals. In general, multinationals
Brazil’s largest secondary sector export is motor vehicles (Table 2). Foreign export more than Brazilian-owned firms. However, the volume of such
car companies such as Volkswagen frequently see Brazil as a springboard multinational exports is not as much as from their operations in other
for other markets in South America. Of Brazil’s traditional manufacturing countries.
industries, footwear remains the largest exporter. To remain competitive in
a very crowded market, much of the footwear industry has relocated from Traditionally, multinationals have set up in Brazil to supply its huge
the Southeast to the Northeast to take advantage of lower wage costs. domestic market. With a population of almost 170 million, the size of
Brazil’s consumer base is 70% greater than that of second-place Mexico,
Services now account for more than 10% of Brazil’s exports and this and more than four times that of third place Colombia. However, in recent
percentage is expected to increase. Tourism is important, but is as yet years there have been signs of change, with more and more foreign companies
relatively undeveloped in an international sense. It is only in the last few starting to use Brazil as a base to supply the whole of Latin America.
years that Brazil has become a package tour destination. In recent years the Brazil-based multinationals’ exports to Latin America amounted to 47%
government has done much to encourage tourism, seeing the industry as a of their total exports in 1997, up from 26% in 1990.
major potential source of foreign currency. The country is so diverse that
The performance of Brazilian firms in the export market has been held back
it has enormous potential for tourism.
by four factors in particular:
• Protectionism by MEDCs. The Brazilian government estimate that
Further research: obtain a series of far away long haul brochures and
this factor alone costs the country at least $6 billion a year in lost
with the aid of a map of Brazil record the range and occurrences of
exports.
package routes
• Poor overseas marketing. The relatively rich pickings to be had in
Brazil’s large domestic market has resulted in a lack of ambition among
However, Brazil’s tertiary export base goes beyond tourism. For example,
many firms to export.
Brazil is the world’s biggest exporter of television programmes. Also
• The ‘Brazil cost’. This is a term used by business people to describe
Brazilian engineering companies participate in projects in a number of
a range of factors, such as poor infrastructure and government red-
other countries by providing consultancy. As the service sector comes to
tape, which they say handicap their ability to compete in international
employ more and more people its contribution to exports will undoubtedly grow.
markets. Portuguese is the official language and this is a minority global
These changes reflect Brazils growth from LEDC to NIC.
language when compared to Spanish and English.
• The high cost and general difficulty of obtaining credit. This is a
4. The balance of trade
particular problem for small and medium-sized enterprises. To quote a
After several years of large trade deficits, Brazil found itself near equilibrium
recent report in the Economist, “Venture capital in Brazil is almost
in 1999 and 2000 (Fig 5). Sales of imported goods declined as the value of
unobtainable, and working capital unaffordable, with bank loans for
the national currency [the real] tumbled against the dollar. It is currently
small businesses costing 50-90% a year in real terms”.
estimated that Brazil will enjoy a trade surplus over the next four years.
Protectionism by MEDCs
Fig 5. Brazil: The balance of trade 1987 - 2000 The role of Mercosur
25.0 Brazil is a key member of Mercosur. This is a customs-union established
on January 1st 1995, which joined Brazil, Argentina, Paraguay and Uruguay
20.0 in a single market of over 200 million people. Mercosur accounts for 50%
surplus of Latin American GDP, 43% of its population, 59% of its total area, and
Balance of Trade (%)

15.0 50% of its industrial production. In theory it is a full customs union, with
a common external tariff and free trade inside it. In fact there are hundreds
10.0 of national exceptions to this, but the aim was for such national tariffs to be
brought into line in 2001.
5.0
in balance Common external tariff
0.0
Mercosur did not appear overnight but was the culmination of trading
-5.0 agreements which had grown steadily stronger in the preceding years. It
deficit began with a mid-1980s deal between Argentina and Brazil and took its
-10.0 present shape in 1991. Since then it has been cutting internal tariffs on an
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000

agreed schedule with the objective of creating a full customs union and, in
time, free movement of labour and capital.

Although Brazil’s export portfolio is more diverse than twenty years ago, Mercosur is the first stage in a much wider proposed economic relationship.
its export base is small for the size of its economy. Brazil’s share in world Mercosur is negotiating with the Andean Pact countries [Bolivia, Peru,
exports has fallen from 1.5% in the late 1980s to 0.8% in the late 1990s. Ecuador, Colombia and Venezuela] and Chile for the creation of a Latin
Brazil’s low export base makes it particularly vulnerable to economic American Free Trade Area [LAFTA]. This is seen as an important building
fluctuations. The two main external risks are possible negative events in block towards the establishment of the American Free Trade Area [AFTA]
the US and Argentina, Brazil’s major trading partners. by the year 2005. Brazil’s President Cardoso has demanded that the USA
Brazil’s past export success was due in part to subsidies, which masked and Canada “have to pay” for a hemispheric deal by opening up to their
underlying problems. One reason for its present modest trade situation is countries' Brazilian exports. United States tariffs on 15 of Brazil’s main
that primary products, such as iron ore, coffee and soya, still account for exports are at a rate of 45.5%.
a significant share of Brazil’s exports. Such primary products have become
less important in world trade and their prices are currently depressed.
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Brazil - the changing pattern of trade Geo Factsheet

The 1998-2000 Mercosur ‘Trade War’ As Brazil developed into a NIC its trade has increased but not to the extent
After a considerable increase in trade between Mercosur countries, relations of other very large countries or NICs. In terms of exports, it has become
between Mercosur’s largest members, Brazil and Argentina, turned sour in more diverse and less dependent on primary products but is still very
1998. Mercosur was at its best when trade between these two key nations vulnerable to both internal and world events.
was balanced. However, the flow of trade moved heavily in Argentina’s
favour from 1995. Practice Exam Questions
For an LEDC you have studied:
The dispute involved several crucial sectors of both economies, including (a) Explain why foreign trade is important to this country. [5 marks]
agriculture, automobile and clothing manufacturing. When the Brazilian (b) To what extent and why has the pattern of its trade changed over time?
economy took a nosedive in 1998 the government took various measures in [20 marks]
an attempt to rectify the situation. One response was to erect unilateral
trade barriers that proved harmful to other Mercosur members. Relative to Guidelines for answers
1998, trade between Mercosur nations declined 26% in 1999 (Fig 6). (a) Some of the goods and services that individuals, companies and various
levels of government require in Brazil can only be obtained from abroad.
Fig 6. Brazil's exports to Argentina For other goods and services, buyers want to compare the quality and
price of Brazilian products with those of other countries. Where foreign
Auto Electrical Agricutural Chemical goods and services are perceived to be better value, Brazilians will buy
parts appliances products products Textiles from abroad unless their government places obstacles [e.g. tariffs, quotas
0
and regulations] in the way of such trade.
10 7 6
Decline (%)

20 18 17 Brazil needs to export for two main reasons. First, it needs to pay for
30 the goods and services it imports. It earns the foreign currency required
40 by selling those of its products which are in demand in other countries.
50 Second, Brazil holds a considerable foreign debt which it is gradually
60 54 paying off from its export earnings.

(b) Fig 3, a model of LEDC export change, provides a useful framework

for this part of the question. The model could be discussed using Brazil
However, Brazil achieved a trade surplus with its Mercosur partners in as an example. For instance, only 40 years ago 80% of Brazil’s exports
1999, the first since 1995. Until mid-2000, the disruption of commerce came from primary products. Today, such products account for less
between Brazil and Argentina cast doubt on the viability of Mercosur as a than 25% of total exports. At one time coffee dominated both primary
trade bloc. Brazil represents a very important source of foreign sales for exports and total exports. Much of Brazil’s early industrial investment
other Mercosur nations. The level of Brazilian imports started to drop in came from the profits made from the export of coffee. Once a number
the latter half of 1998 and the decline persisted into early 2000. The result of key industries reached a certain size, protected by import-substitution
was regional economic decline accompanied by rising unemployment. policies, export markets were sought so that production could be
Declining economic activity in one of the bloc’s largest economies can expanded even further. The government was anxious for this to happen
result in even greater decline in the smaller economies. The Mercosur for the reasons stated in part (a). Fig 2 shows the increasing share of
summit held in June 2000 in Buenos Aires sought to solve these problems total exports accounted for by manufactured goods in recent decades.
and to bring Mercosur back on line. Multinational companies have played an important role in this
transformation. Higher technology goods, cars and aircraft in particular,
In conclusion are accounting for an increasing share of Brazil’s exports. The attraction
Trade is highly volatile and very competitive, and a whole range of issues of Brazil to multinational companies should be explained. However,
can ‘blow up’ as shown below. as yet Brazil has not had a significant impact on the information
technology market, although the Government sees this as a priority
• In a longstanding dispute, Brazil and Canada have accused each other area for the future.
of providing illegal export subsidies to their regional aircraft makers,
which are fighting bitterly for their share of the rapidly growing mar- The service sector is now beginning to play a more important role in
ket. Recently the Brazilian aircraft manufacturer Embraer lost out to exports. Tourism is important in this sector but the potential remains
the Canadian firm Bombardier when the latter announced a $1.7 billion for the industry to expand rapidly in the future. However, Brazil’s
contract to sell 75 regional jets to the US airline Air Wisconsin. In a service sector is not dominated by tourism as industries such as
highly controversial move, the Canadian government provided Air television programmes and engineering are significant exporters.
Wisconsin with up to $1.1 billion in low-interest loans to help seal the deal.
Further Research
• In 2000 the World Trade Organisation [WTO] gave Canada permission Institute of Latin American Studies University of London
to impose $1.4 billion worth of trade sanctions on Brazilian products www.sas.ac.uk/ilas
after the trade group determined Brazil had not brought its subsidies World Bank www.worldbank.org
into line with WTO rules. World Trade Organisation. www.wto.org
World Trade Organisation Watch -USA www.wtowtch.org
• Brazil has claimed the right to produce cheaper medicines if foreign -excellent source of critical information on World Trade Organisation
pharmaceutical companies who hold the patents do not do it. President
Cardoso has argued, “We cannot accept being penalised for the fact we UNCTAD United Nations Committe on Trade and Development
are competitive. The position of Brazil is not belligerent but calm and www.unctad.org
firm.”

• In February 2001, the US and Canada lifted a 21-day ban on Brazilian Acknowledgements;
This Geo Factsheet was researched and written by Paul Guinnes who works at Kings College School, Wimbledon
beef imports after concluding that Brazilian cattle are grass fed, do not Geo Press, Unit 305B,The Big Peg, 120 Vyse Street, Birmingham, B18 6NF
eat animal protein and do not pose a risk of spreading mad cow disease. Geopress Factsheets may be copied free of charge by teaching staff or students, provided that their school is a
registered subscriber. No part of these Factsheets may be reproduced, stored in a retrieval system, or transmitted,
One of the conditions imposed by the US and Canada is that Brazil in any other form or by any other means, without the prior permission of the publisher. ISSN 1351-5136
must certify that the animals are grass-fed.
4