The OECD under Lula: what to expect?

January 2023.

President Lula’s third term began on January 1, 2023. One policy still undefined by the new government is whether Brazil will continue its process of accession to the OECD. Statements by the Minister of Foreign Affairs, Mauro Vieira, and the Minister of Finance, Fernando Haddad, indicate that the President has not yet made this decision.

The Organisation for Economic Co-operation and Development, often called the “rich countries’ club,” currently has 38 members. It establishes and validates best practices and policies through a consultative process among its members and defends democratic and liberal values.

Brazil began informal accession talks in 2017, under President Temer. The accession roadmap was published only in June 2022. The roadmap lists the committees that will review Brazilian regulations, with the aim of inducing regulatory changes that place Brazil on an equal footing with current members. It explicitly mentions respect for Indigenous peoples and environmental defenders and the need for Brazil to reduce deforestation.

Under Lula III, the accession process may be shelved. As a key partner of the OECD for decades, Brazil has implemented some of the organization’s legal instruments, but previous Workers’ Party governments did not seek membership. According to former Minister of the Economy Paulo Guedes, Brazil already complies with more than half of the OECD’s legal instruments, which would leave fewer than 140 instruments to be addressed during accession.

Arguments against accession

1. The OECD is a club of rich countries and not the place for a middle-income country such as Brazil.
2. Brazil already meets half of the OECD’s regulatory requirements, and the gains from meeting the other half would not justify accession.
3. Brazil can adopt as many OECD standards as it sees fit without committing to them under international law.

Arguments for accession

1. Better regulatory standards and governance, with peer engagement and pressure toward best practices.
2. Access to investment funds that may allocate resources only to OECD members.
3. Access to private investors who would regard Brazil as having stronger institutions.

Assessment

The comparison is not straightforward and has a political component. Peer pressure usually induces good outcomes among members but can also constrain a member’s policies: if every member except Brazil adopts a recommendation, the resulting diplomatic pressure may lead Brazil to adopt it. For that reason, membership may seem undesirable to a developing country. The same peer pressure, however, is what allows the OECD to function as an institution of best practices.

The State-Owned Enterprises Law illustrates the point. A revision under discussion in Congress would relax the political quarantine required of state-owned enterprise executives, a change that would likely draw criticism within the OECD. Accession and compliance with OECD standards would improve Brazil’s international standing, introduce desirable regulatory changes, and position the country among actors committed to best practices.