Brazil’s OECD candidacy is best chance for reform

Brazil is seeking membership in the Organisation for Economic Co-operation and Development (OECD), the most important institution for free market-oriented democracies in the world. The OECD is a crucial forum for non-Chinese market economies to collaborate on important transnational challenges, including artificial intelligence, trade, and anti-corruption. It is in the U.S. interest that Brazil joins the OECD, given our significant economic and security relationship.

The OECD accession should also be seen as a strong incentive to institute much needed reforms in Brazil and align the country more closely to global standards.

The OECD is an important organization, yet most people have never heard of it: It is partly a club, partly a think tank, partly a standard-setting organization, and partly a statistical agency. Its many hats make it the most attractive grouping of countries to join outside of the G7.

Certainly, it is the most influential and important one where China is not a member. 

Founded in 1961, the OECD emerged from the Marshall Plan’s Organization for European Economic Cooperation (OEEC), whose goal was to integrate European markets as a way of shifting incentives to guarantee long-term peace. The organization is now comprised of 38 member states from around the world: approximately 32 percent are non-European nations, including four Latin American members (i.e. Colombia, Chile, Costa Rica and Mexico). Today, the OECD faces a decision point: Will it maintain its current size with a primarily European membership, or will it expand, becoming a truly global institution?

Brazilian accession to the OECD strikes at the heart of this tension. The on-going OECD leadership race is grappling with this tension.

There are few organizations in the world today whose membership is so valuable that countries are willing to make hard policy decisions to join them. The European Union had that role in the past, but is suffering from significant expansion fatigue. The North Atlantic Treaty Organization (NATO) also had that power in the past, but it, too, has experienced fatigue. The OECD consistently — but slowly — has grown in the last decade from 30 to 38 permanent members. It is possible that we are now approaching expansion fatigue in the OECD, but we have not yet arrived there.

Becoming a permanent OECD member involves a rigorous, multi-year process. But the promise of OECD accession often catalyzes the necessary domestic support: being a member of the OECD “club” is so prestigious that countries are willing to take on really costly and difficult reforms. In Brazil, these reforms will have to be extensive, and include adopting market-friendly policies, adjusting taxes, adopting arms-length standards for transfer pricing policies, and strengthening governance and labor rights.

The benefits of membership will almost certainly be worth the cost. Brazilian adoption of all necessary OECD instruments would mitigate risks associated with money transfers into the country. As such, these reforms would likely encourage foreign investment. Convergence to OECD governance standards will provide long-run economic benefits to Brazil overall, signaling to the international community — and especially foreign investors — that they are ready to fully embrace their commitment to best practices. The subsequent economic growth would provide substantial benefits to Brazil’s developing economy, particularly in the wake of the COVID-19 pandemic, which has launched the country into yet another recession.

Similar to the country’s entrance into the G20, OECD membership would also serve as a symbol of Brazil’s increasing soft power by reaffirming its position as a global economic force. 

It is in the long-term U.S. interest for Brazil to become a member of the OECD. Brazil is the ninth largest economy in the world, the second largest democracy in the Western Hemisphere, and the United States’ most important trade partner in Latin America after Mexico. Its prosperity, stability, and security are intricately linked to that of the United States.

China has become the top trading partner and infrastructure investor for Brazil, centered on food security and natural resources. China is an important buyer of soy and the largest buyer of beef in Brazil. Moreover, the Chinese government is playing an active role by supporting Brazilian industries, facilitating infrastructure projects, and investing in key sectors such as agriculture, logistics, and energy. OECD membership would strengthen the Brazilian-U.S. bilateral relationship, countering China’s increasing presence in the Western Hemisphere.

What’s more, the U.S. has been pushing the OECD to become less of a European institution and more of a global organization; Brazil’s accession would contribute to that goal.

Understanding the lessons learned from Chinese accession to the World Health Organization (WHO) and the World Trade Organization (WTO), the OECD should not proceed with China’s membership any time soon.

Criticisms of Brazil’s management of the Amazon rainforest from Germany, France, and Norway, may preclude near term unanimous OECD member consent required for candidacy approval. Similarly in the U.S., an open letter from House Democrats to Secretary of State Mike Pompeo, criticized a variety of President Jair Bolsonaro’s policies. In September, presidential candidate Joe Biden declared that Brazil would face “economic consequences” if the country fails to control deforestation, sparking a backlash from Bolsonaro.

Still, a future U.S. administration — either Biden or Trump — should see its way to support Brazilian membership. Policymakers across the political spectrum in Washington should consider Brazil’s OECD membership as an important incentive for further reforms in infrastructure, governance, environment, education, health and workforce development, setting clear goals and directions for progress. Policymakers should use Brazil’s accession as leverage and a platform for serious engagement over a number of difficult but important issues. This was the case in Colombia, where the OECD accession process catalyzed support for positive changes to employment laws, labor standards, and social affairs legislation.

Brazil has been cooperating with the OECD going back to the early 90’s and is known as the OECD’s most active “Key Partner.”

Brazilian membership may need to be a part of a package deal. Croatia has expressed interested in accession, but Slovenia, a member state, has blocked their candidacy due to larger regional disputes. France has also endorsed Romania’s candidacy. Or perhaps a country in Asia might become a member. A deal to broker Brazilian membership and to expand OECD membership in general will require active and sustained American diplomacy over several years. It may also require the support of regional partners including Chile, Colombia, Mexico, Costa Rica, as well as support from Japan and potentially Canada.

The OECD may well become the default fora for trade agreements if the WTO does not take up this role. The OECD will likely be the place where standards for artificial intelligence, data governance, taxes, and other critical challenges are developed. Given its importance in the hemisphere, having Brazil at the OECD table is in the U.S. geostrategic and economic interest.

Regardless of who wins the U.S. presidential election in November, it is in the U.S. interest to have an involved and active OECD — and it is far better for the U.S. to have Brazil in the OECD than not.

Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at the Center for Strategic and International Studies. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America, and the Middle East.