MNI EXCLUSIVE: Brazil Ponders "Braxit", Looks To Cut Tariffs

     BRASILIA(MNI) - Brazil's foreign ministry is in the early stages of a study

on the economic impact of pulling out of Mercosur, but the country's next move

within the trade bloc will probably be further tariff reductions, officials at

the ministry and the office of President Jair Bolsonaro told MNI.

     While Bolsonaro has long threatened to evaluate Brazil's Mercosur

membership, the chances of what some Brazilians have dubbed "Braxit" have risen

since the victory of leftist Alberto Fernandez in Argentina's presidential

elections Oct. 27.

     But, while Bolsonaro has ordered the foreign ministry to assess the impact

of withdrawal from Mercosur, diplomats are also working on concluding a deal to

cut tariffs by a further USD500 million within the bloc, officials told MNI.

This agreement is expected to be announced by early 2020.

     South America's largest trade bloc groups Brazil and Argentina with Uruguay

and Paraguay. Venezuela is also a member but has been suspended since 2016.

     --INDUSTRY AGAINST BRAXIT

     Mercosur accounts for 11% of Brazil's foreign trade. In 2018, the country

exported USD20.9 billion to its Mercosur partners, and imported USD13.4 billion.

Mercosur takes 20.4% of Brazil's manufactured exports and 25.6% of its high- and

medium-high technological products, according to data from the Economy and

Foreign Affairs ministries.

     Brazil's National Confederation of Industry has spoken out against the

possibility that Brazil might leave the bloc. "For industry, it is important for

Mercosur partners to continue on an ambitious agenda of trade liberalisation

through free trade agreements," said Carlos Eduardo Abijaodi, its director of

industrial development.

     Paulo Cesar Nascimento, a professor of political science at the University

of Brasilia, said Bolsanaro's bark was often worse than his bite. "The Bolsonaro

Government often makes controversial statements, but in practice, what prevails

is the market," he told MNI. Fernanda Magnotta, cordinator of institutional

relations at the Armando Alvares Penteado Foundation, agreed: "Pragmatism always

overcomes ideology. You can't isolate yourself from the world, nor ignore the

benefits of Mercosur for Brazil."

     When Bolsonaro won election in 2018, he quickly dropped earlier hints he

might walk away from Mercosur, saying instead that he would work to modernise

relations within the bloc. He found shared ideological affinities with

Argentina's outgoing President Mauricio Macri and Paraguay's Mario Abdo Benitez,

and at one point he even suggested that the Brazil might share a common currency

with Argentina, the "peso real".

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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