As of the date of the case and as explained in the case: is Brazil leading the BRICs? Please explain and defend your position. (We will discuss more recent data in class if time.)
From the case I can see that for the past decade, Brazil has experienced greater integration into the global economy which has been characterized by significant growth in economy and reinforcement of the country’s weight in international trade negotiations. Brazil played an increasingly important leading role in the BRICs. However, Brazil was the underperformer of the BRICs in many areas. It faced significant obstacles to growth, including rising inflation, high interest rates, an appreciating exchange rate, poor infrastructure, excessive bureaucracy, and persistent crime. Overall, I think that Brazil plays a more and more important role on the international stage but is not leading the BRICs.
BRAZIL PLAYS A MORE AND MORE IMPORTANT ROLE ON THE INTERNATIONAL STAGE
STRONG ECONOMIC GROWTH
Brazil had sustained an average annual GDP growth of 4% since 2000. Between 2002 and 2009, inequality and poverty had declined significantly and more than 30 million Brazilians had advanced from lower income strata to the middle class.
Goldman Sachs expected the BRICs to be among the five largest economies in the world by 2030, forecasting a growth rate of more than 5% per year for Brazil.
INTENSIVE INTERNATIONAL TRADE AND FOREIGN INVESTMENT
In 1964, Brazil was opened to foreign direct investment an expansion in manufacturing and services generated GDP growth averaging more than 10% annually.
By 2008, Brazil was in the top 20 countries ranked by international trade.
After Brazil joined the WTO, over time, the number of Brazilian firms on a list of the world’s 2,000 largest public companies grew from 13 in 2003 to 33 in 2010.
Foreign investors had transferred more than $30 billion in portfolio investment to Brazil in 2010 alone.
A MAJOR PLAYER IN MULTILATERAL TRADE NEGOTIATIONS
During numerous meetings of trade ministers from more than 140 countries, Brazil stood out as a leading voice of emerging markets.
President Lula led the creation of the WTO G-21, a block of developing countries that negotiated collectively at WTO meetings.
Brazil took a leading role in WTO negotiations and it also held important leadership positions in the Group of Twenty (G-20).
AN AGRICULTURAL POWERHOUSE
Brazil had become an agricultural powerhouse, ranked as the world leader in the production of six crops, ranging from sugarcane to dry beans, and among the top five producers of 32 other agricultural goods.
BRAZIL IS NOT LEADING THE BRICS.
UNFAVORABLE HISTORICAL FACTORS
Brazil became independent in 1822, which was the latest independent country among the BRICs.
Brazil had been in a climate of political unrest for a long time inundated with rebellions, individual dictatorship, and tensions between the landowners and slaveries.
THE GOVERNMENT’S DEVELOPMENT STRATEGY IMPOSED OBSTACLES ON ENTREPRENEURS
Under the Import substituting industrialization (ISI) development strategy, State-owned enterprises expanded but new businesses were pushed out of the formal economy.
Labor laws made it costly for companies to hire or fire workers
High interest rates and barriers to borrowing blocked market entry for entrepreneurial Brazilians.
Brazil had a long time relying on aggressive growth which fueled import consumption and to a large extent worsened Brazil’s balance-of-payments, while government debt ballooned.
RED TAPE AND POOR INFRASTRUCTURE
Brazil’s infrastructure is in terrible shape and the country isn’t saving and investing enough. Red tape and poor infrastructure made it difficult for Brazilians to start companies.
LOW-QUALITY TRANSPORTATION SYSTEM
In 2011, Brazil still transported many agricultural exports distances of 1,500 kilometers or more on low-quality roads in order to arrive at ports with backlogs and ineffective logistics. The World Economic Forum’s “quality of roads index” ranked Brazil 105th out of 139 countries.
THE QUALITY OF EDUCATION REMAINED LOW
Brazil’s students ranked near the bottom in the Organization for Economic Coordination and Development’s Program for International Student Assessment.
COMPLEX DIPLOMATIC RELATIONSHIPS
Brazil’s success in World Trade Organization dispute, use of compulsory licensing provisions to break patents, and diplomatic negotiations with Iran had generated tensions with the United States and the European Union.
In Africa, Brazil found itself competing with China for development projects and political influence.
(2) Was Brazil or the U.S. correct in the Merck dispute? Please explain and defend your position.
THE MANUFACTURING COST OF THE EFAVIRENZ WAS VERY HIGH.
The combination of prescription drugs that made up the HAART approach historically cost more than $15,000 per patient annually in the United States. The high price in the home country already showed that the relevant R&D, manufacturing cost was very high, let alone the other extra cost for selling in a foreign destination.
BRAZIL THREATENED A COMPULSORY LICENSE TO FORCE PHARMACEUTICAL FIRMS COMPROMISE ON THE PRICE.
In 2005, Abbott Pharmaceuticals made a compromise deal because Brazil’s health minister threatened a compulsory license. Brazil governments saw it an effective way of pushing the pharmaceutical firms to compromise, so they started to make the same step towards other pharmaceutical firms. What they considered was their own benefit but did not carefully rethink whether it was inappropriate.
MERCK OFFERED MODEST DISCOUNTS AND SOON AFTER LOWERED THEIR PRICE AGAIN BUT BRAZILIAN OFFICIALS DID NOT STOP AND INSTEAD DEMAND MORE.
Brazilian officials intensified negotiations with Merck after they received discounts from the company in 2005. Over the course of 16 official meetings, Merck lowered its price again to $570 per patient per year. Brazilian health and trade officials demanded better, citing generic suppliers ready to provide the drug at $240 per patient per year.
BRAZIL IGNORED MERK’S MULTIYEAR STAGED TECHNOLOGY TRANSFER TO FARMANGUINHOS.
To protect its IP, Merck proposed a multiyear staged technology transfer for efavirenz to Farmanguinhos, Brazil’s national drug manufacturer. In the process, Farmanguinhos can learn and develop progressively with the help of Merck, but Brazil government was too anxious to obtain the short term benefit and did not realize that the multiyear staged technology transfer would benefit more in the long run.
MERCK ADOPTED PRICING RELATED TO THE COUNTRIES’ ECONOMIC DEVELOPMENT LEVELS WITHOUT DISRESPECT OR DISCRIMINATION.
As the world’s 12th largest economy, Brazil was able to pay a little higher price, which on the other hand can help the countries that are more underdeveloped to lessen budget for the medicines. However, Brazil only compared the price with some of the more inferior countries and condemned that Merck did not respect them and charged them unfairly.
MERCK WAS NOT PROFIT-ORIENTED AND IGNORED THE PUBLIC INTERESTS AS BRAZILIAN OFFICIALS SAID.
Merck operated several donation programs for medicines valued at more than $750 million annually, which showed their sense of social responsibility and care for the public interests.
THE COMPULSORY LICENSE WOULD CAUSE INVESTMENTS TO GO ELSEWHERE.
Breaking off discussions with Merck and seizing its intellectual property sent a dangerous signal to the investment community. In Brazil, more than 550 domestic and international firms were involved in pharmaceutical. All these firms were taken aback by the compulsory license and getting worried that their intellectual property could be expropriated.
THE EFAVIRENZ COMPULSORY LICENSE ALSO POSED A CHALLENGE TO FARMANGUINHOS. Farmanguinhos initially was unable to manufacture efavirenz with little more to go on than Merck’s patent. It had to work very hard to obtain the know-how to manufacture efavirenz.
INTERNATIONAL OR PRIVATE COMPANIES FELT THEY INCREASINGLY LOST COMPETITIVE POWER.
Since companies like Farmanguinhos that are owned by the government paid no tax and did not need to go through the public bid pathway to sell their products, they had original considerable advantages over the other international or private companies. Moreover, intensive help and attention were given to them that made them overwhelmingly dominant.
THE GOVERNMENT REACTION CONTRADICTED ITS PROMISE.
To reassure investors and firms, the Brazilian government sought that patent laws remained in force. The Ministry of Science and Technology declared that they would respect the international intellectual property legal framework. However, soon after Brazil’s health minister announced that the AIDS drug tenofovir, manufactured by U.S.-based Gilead Sciences, was “of public interest,” and the company’s patent application for the drug was rejected.