By Karin Costa Vazquez and Gustavo Rojas
Economic cooperation will be the tonic of Brazilian President Jair Bolsonaro's meeting with Prime Minister Narendra Modi on January 25th in New Delhi. The two largest democracies of the world have been battling ferocious critics at home and abroad on issues like human rights, environmental protection and economic slowdown. An agenda focused on trade and investments appears as a safe haven for both sides, yet challenging to implement nonetheless.
Dismal until the early 2000s, Brazil-India relations gained new impetus in 2006 with the signature of the Brazil-India strategic partnership. In addition to promoting trade, agriculture, science and technology, the strategic partnership pointed the need for enhanced dialogue on issues like energy security and terrorism. Closer coordination in international fora like the World Trade Organization and the United Nations Security Council was also priority.
A decade later, PM Modi and President Michel Temer agreed to scale-up Brazil-India strategic partnership. The Indian Ministry of External Affairs had set out on its agenda to improve Delhi's ties with countries across the globe. Latin America offered an alternative source for India's demand for raw material and new markets for value-added exports of Indian goods and services. It was also in India's interest to reduce dependency on West Asia for its energy security. On the Brazilian side, greater trade and investments could help the economy come out of recession.
At a time when the world is witnessing the rise of China, its steadily growing presence and influence across Latin America and the Caribbean should be enough of an incentive to drive India to bolster ties with countries like Brazil. For Brazil, Asia offers an alternative to Western allies as pressure on human rights and environmental protection increases under Bolsonaro's far-right government.
As Brazil implements its economic reform and privatization agenda, Asian countries like India are a good bet. India has been one of the main investors in the Brazilian Investment Partnership Program. Since the beginning of the new wave of privatizations and public concessions in 2016, the country has invested approximately US$ 7.4 billion mainly in the electricity transmission sector. Yet, Brazil has not a clear strategy towards India. Nor India has a strategy towards Brazil.
This explains why India-Brazil trade remains as low as US$ 8 billion, far below the Brazilian government desired US$ 25 billion. The signature of the investment facilitation agreement, the additional protocol on double taxation and the bioenergy cooperation agreement, to be signed during Bolsonaro's visit to India, are expected to slow down, if not revert, this trend. The investment facilitation agreement would be the only for a BRICS country, as India ended its agreements with China and Russia in the old bilateral investment treaty format.
The agreement on social security, also to be signed during the visit, however, sparks controversy. The agreement is expected to benefit India far more than Brazil as India currently has 4,700 workers in Brazil while Brazil has only 1,000 workers in India. This is further aggravated by its limited reach: the agreement only extends to detached workers and self-employed nationals thus leaving a wealth of workers in both countries unattended. The postponement of Bolsonaro's recent promise to extend visa waiver to Indian nationals and the absence of direct flights between the two countries further halt business between the two countries.
At the multilateral level, Brazil's abdication of its developing country status and differential treatment at the World Trade Organization (WTO) in exchange of US support to the country to join the OECD has affected its relationship with other BRICS. These countries are now pressured to follow Brazil's precedence and also give up their differential treatment status at the WTO. In retaliation, India has vetoed the appointment of a Brazilian ambassador to negotiate fisheries issues at the WTO. The dispute between the two countries on sugarcane is also out of the agenda on January 25th.
However, the same sugarcane that produces trade disputes between the two largest world producers also offers opportunities for cooperation. A bilateral cooperation agreement in bioenergy should be signed during the visit. It is expected to facilitate the transfer of Brazil's technology in the production of ethanol to India and help expand the Indian market for renewable fuel. This is an essential measure to reduce the dependence of Indian sugarcane producers on government subsidies and to expand actions against climate change.
The possibilities for complementarity in energy are not limited to ethanol. India is the third-largest importer of oil in the world. After the US sanctions on Venezuela and Iran, Indian companies have been exploring different markets, including options to increase imports from Brazil. Between 2017 and 2018, Venezuela became the main exporter to India in all Latin America. These exports were mainly pushed by oil, placing Venezuela as the fourth-largest oil supplier to India after Saudi Arabia, Iraq and Iran. Beyond the controversy on Venezuela's political situation, private sector pragmatism could lead to a possible trade diversion, opening new horizons for Brazil and India.
Widely known for their high import tariffs, Brazil and India are at a turning point in their trade policy strategies. With the conclusion of the Association Agreement between Mercosur and the European Union, Mercosur has geared towards Asia. Negotiations of free trade agreements with South Korea and Singapore has advanced while new fronts are expected to be launched this year with Vietnam, Indonesia and Japan. India, for its turn, is increasingly pressured to redesign its trade policy after having abandoned the negotiations of the Regional Comprehensive Economic Partnership in its final stretch.
In the meantime, Mercosur still awaits a positive response from India to advance the negotiation of a free trade agreement. Such agreement could not only expand the currently limited preferences of bilateral trade to unprecedented levels. It could also be an important joint message towards China-and a major political victory for Modi.
Bolsonaro-Modi meeting in Delhi not only underplays the potential of dialogue and cooperation in areas that the two countries have traditionally exerted influence and leadership. It also reduces Indo-Brazilian relations to an economic agenda whose full realization will remain a challenge unless the two countries initiate broad-based dialogue and develop clear strategies towards each other.
(Karin Costa Vazquez-Fudan Scholar, Center for BRICS Studies at Fudan University (China) and Assistant Dean for Global Engagements, Associate Professor and Executive Director of the Center for African, Latin American and Caribbean Studies at O.P. Jindal Global University (India). Gustavo Rojas – researchers at the Center of Analysis and Dissemination of the Paraguayan Economy-CADEP. Views expressed are personal.)