The present and the future role of the BRIC countries

This term paper focuses on emerging markets of B and C of the BRIC countries so I have
discussed their present and future roles in global governance as well as their attitude towards the
global market.

First I would like to briefly explain in general what BRIC is. Who are they and what does this
abbreviation stand for? I would also like to look at when the term BRICs was first used?

Additionally, I will answer the following questions: What is the current position of both China
and Brazil in the international scene? What achievements have both of them achieved in their
regions and what is their current position in global governance? Which global questions are more
crucial for China and which ones for Brazil?

Moreower, I would like to offer a short description about the following question: What position
do China and Brazil hold in the BRICs? Why do they need each other, and if so do they really
need to work together? What are their interests to participate together in an informal group?

Later I would like to examine: What is the future of the BRICs? Is it likely to become an
international forum or remain on the theoretical level of O’Neill’s ideology?

Then at the end of my work, I would like to try to answer these questions: What do Brazil and
China want to achieve more internationally? Do they want to become the next rulers of the world?
Or are they happy with gaining greater influence in global governance in the future? What can we
expect from China and Brazil if both or one of them want to become global leaders? How would
it effect the current international institutional environment in global governance?

The term BRIC was first used by Jim O’Neill in 2001 specifiying Brazil, Russia, India and China.
O’Neill, one of the chief economists at Goldman Sachs, created this group assuming that together
they can overtake the six, largest western economies in terms of economic power by 2032. In his
analysis, BRICs could create an informal group of the main developing countries. In fact, each of
them has a leading role in its regions, however if they really would form a group it depends on

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what their aim is; to realize the advantage of working together in the international playground as
well as having a more powerfull alliance when exerting force based on their willingness to
achieve common goals; or to feel strong enough to play out their individual roles freely without
making their lives more difficult with talks and summits to decide about their hegemoneous
global future. Since Brazil, Russia, India and China differ regarding history, religion, politics,
regional situation and culture, some investors, investor banks and analysts were critical as to if
O’Neills prognosis really can come true. While others looked at this abbreviation as proof of their
experience in recent international trade; boosting emerging economies everywhere which spread
out in the world. Those investors were happy that someone has clearly declared, which they had
already assumed. As a result more and more businessmen, investors and economists from the
Western world became interested in trading and doing business with BRICs. The reaction of the
BRICs was positive as well, so they have started to act individually more actively together in the
international scene.

Both China and Brazil have been operating in various formal and informal groups, forums,
international organisations, non-governmental organisations worldwide as well as in their regions.
The BRIC is just one group and abbreviation involved with many others which Brazil or China or
are sometimes both members.

In order to understand the position of these two BRIC countries individually in shaping global
governance, I introduce them one by one, starting with Brazil and its current role in the global
governance.

Brazil being the largest country in South America has already gained influence in its own region,
and is a founding member of the Mercosur, together with Argentina. The funding of this
organisation seems to be wise from the Brazilian side to seccure the end of the rivalisation of the
two most influencial South American countries turning their relationship into a cooperation in the
field of trading in their region. So Brazil has prosperable agreements with its neighbouring
countries as well as with some African and South Asian nations, such as with India and South
Africa. With these two countries Brazil has formed the India, Brazil South Africa Trilateral
Forum (Ibsa). In order to successfully co-operate together in financing health, basic sanitation
projects and improving the educational standard in third countries Ibsa has established a fund
within the United Nations Development Program (UNDP). Moreover, Ibsa launched the Brasilia

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Declaration which has enabled a better understanding and cooperation between Brazil, India and
South Africa. This declaration shows an aggreement of their joint-negotiation within the WTO.
Attending the WTO negotiations was essential for Brazil as being the biggest exporter of agro-
industrial goods in the world. Brazil’s aim to enhance its influence on agricultural issues
internationally involved it to become a member of the Cairns Group, and the Free Trade Area of
the Americas (FTAA). Brazil’s commitement to promote fair trade – urging countries to join the
Agreement on Trade-Related Aspects of Intellectual Property Rights (Trips) - and to enhance
South-South trade, investment and international relations, had lead to a successfull negotiation on
agriculture changing the strategy of WTO towards developing countries. Since then Brazil has
gained more prestige in global governance. In addition, Lula Inácio da Silva’s presidency had a
good impact on Brazil’s internal affairs by implementing a stabilisation programm which has
helped the country to stabilise its macro-economy.

Brazil is a democratic country and seeks democratic solutions worldwide. For this reason, it fits
into the current global institutional environment quite well. Understands the rules of the game in
the global field. Brazil also knows that has no lack of national resources. In fact, Brazil not only
has clean water, and raw materals but the largest percentage of bioful production worldwide as
well. That makes the exotic giant just more attractive among international players since the
demand for bioful production is expected to increase in the future. Brazil has enough sources to
supply countries - which intend to fight back global warming - with renewable energy such us the
already mentioned bioful and hypoelectric power.

What Brazil does not have is military power which is one of the most important requirements to
become a successful global leader. The lack of financial power weakens the country even more.
Neither Brazil nor its people like to save money or to hoard cash which makes the domestic
currency and economy insecure against external factors in world economy such as global
financial crises.

Unlike China, that has one of the largest savings among world economies and is happy to lend
money to its US counterpart to feed the hunger of US citizens buying Chinese products. China
does hoard money and liquid financial assets; therefore has financial power even though it still
needs to modernize its financial institutions as its financial system is still highly inefficient and
inadequate.

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What is even more convincing about China’s potential global leader position is its huge army
which the big dragon likes to show off in its greatest national festivals by entertaining the
international public by the performance of its great military prowess. China’s military power is
definitely one of the biggest in the world, if not the biggest one. This fact raises a question in my
mind: Why do they need such a huge army? Is China preparing a next war? I don’t think so. Why
would they do that when we can hear everywhere from China about „peaceful co-existance” and
„not interfeering in each others internal affairs”. Is China afraid of something? Maybe it is, since
in its participation in the international scene, most of its aggreements involve combating
terrorism and maintaining regional stability. In fact, these are the basic goals of the Shanghai
Cooperation Organisation (SCO) founded, together with some Central Asian countries. Since
Chinese people like harmony, it is essential for them to have a good relationship with their
ideologically close neighbour, Russia which is also a part of the Treaty of Friendship and
Cooperation. Politically, China, is still a communist country however since it obtained a
permanent seat in the United Nations Security Council (UNSC) and became a member of the
World Trade Organisation (WTO), its economy can not be seen as following the communist
ideology any more.

As we can see, China does not have a smaller role in Asia than Brazil has in South-America.
China has tightened its relations with its neighbours only in the last two decades. It has held
yearly reunions with the Association of Southest Asian Nation (ASEAN) together with Japan and
South Korea. Later Australia, New Zealand and India have joined the yearly talks which are now
called the East Asian Summit.

So the first steps have been made by China; it has openned up its market, has attracts foreign
direct investment and encourages research and development from Western coutnries and
businesses. However China has not yet reached an internationally sound institutional background
which would help it to be a successful global player.

Similarly, Brazil is also in the need of improving its institutions and the overal quality of
education.

Even if Brazil is a democratic country, its market is not yet open enough for trade economy. For
example, foreign customer goods suffer from great tariffs where a huge percentage of value
added tax is levied. The price of a European product in Brazilian shops can be two-to-three times
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higher than the same item in local products’ price. The other problem of the Brazilian economy is
that the country does not invest a lot. As a result, all these factors slow down its GDP growth rate.
No wonder that a decade ago, not many people believed that Brazil needed to be mentioned in the
BRICs.

In fact, Brazil is probably the weekest member of the BRIC. Brazil’s weak position in the BRIC
can be explained by many important factors; e.g. Brazil does not have the atomic bomb and such
a big military power as China does, neither does it hold permanent seats in the Security Council
of the UN. Mor than that, Brazil is not likely to show such a big economic growth as its peers do.
For instance, China is expected to overtake Japan’s place this year as the world second largest
economy of the world. All these facts weaken Brazil’s bargaining power in international politics,
as opposed to that of China. Experiencing approximately a 10% yearly GDP growth, no one
doubts China’s strengthening influence in international economics. There is no contestment that
China should be the strongest peer of the BRIC. Moreover, China has its own confusion approach
towards world economics and it sees itself as a helper and patronate of the developing world.
These countries are seen as being happy to receive Chinese FDI and financial help in form of
remitting governal debt of some African countries.

China acts pro-actively and has opened up its market and provides more and more investments,
primarily, but not only to developing countries. Chinese investors are already present in Brazil,
throughout the African and Southeast Asian region, even in Eastern-Europe as well as the
Western world, and the Middle-East. China has already created a confortable international
environment for itself in which it might be able to force its position if it wants so. Therefore
China holds quite a strong position in the BRIC and the other peers have a great interest in
forming a group with this extremely rapidly emerging economy.

Brazil can be seen as being less important than China but China really needs Brazil’s natural
resources. So Brazil is fortunate to have plenty of resources that China needs. China has
agricultural products and food but the demand for them is increasing in line with the growth in
the number of Chinese middle- and upper-class who especially seek to buy goods such as meat
which Brazil can readily offer. So international trade should grow between Brazil and China in
the coming years and decades.

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At present, Chinese investors in Brazil mainly work in the area of manufacture, to form joint-
ventures with Brazilian enterpreneurs yet prefer to transfer Chinese workers from China to run
Brazilian factories. China has generously lent money to Petrobras – a Brazilian oil company –
expecting the return in natural resources in the future. China tries to use each opportunity to take
care of the growing hunger of its nation.

What China is strong at, Brazil is weak in and the opposite holds true as well. So B and C of the
BRICs perfectly match each other and can profit from cooperation.

What is the future of the BRICs? Is it likely to become an international forum or remain at the
theoretical level of O’Neill’s ideology?

It is interesting to see how a „simple idea” of an economist whose view many people shared in
questioning at the beginning has become a truely, informal international forum at present. Due to
the recommendation of a British economist, many investors in Brazil, Russia, India and China
have seriously considered cooperating together in the global field. Has O’Neill opened up their
eyes or maybe just given the final push needed? Now, these leading developing countries have
had their first summit last year in Yekaterinburg, Russia. This summit was the first big step in the
history of most important emerging markets which is not just a theory from O’Neill anymore.
The successful outcome of the summit drove the Brazilian president to invite his peers for the
next summit which will be held and hosted in 2010 in Brazil. All the president did was to accept
this very welcome invitation from Lula and intends to attend the meeting.

So now they are more than ready and eager to act together despite the difficulties they may face
when dealing with developed nations and as well as issues of trust to reach their common goals
jointly in the international scene. Although their geocrafic locations stands far apart, and at times
their interests are quite different, they all understand the needs of all the emerging countries and
are happy to take on the lead position worldwide by forming the BRIC, while Brazil, Russia,
India and China are already the most influential countries in their regions.

Now, It is a ripe time for Brazil and China to claim larger voices in the International Monetary
Found (IMF) and World Bank decision-making policies because they think that the decisions
taken – or not taken – there, have the greatest and most direct impact on developing countries.

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Let us note, however that previously, only industrialised countries had the right to cooperate in
the two Bretton Woods institutions establishing the world according to their will.

Brazil and China are not just peers of the BRIC, but have also formed the G5 together with India,
Mexico and South Africa which are pushing forward their proposals as to solving the financial
crises and climate change issues. For the first time at the G20 summit in London last year, Brazil
has thought it crucial to open up a discussion about financial crises where President Lula blamed
the industrialised nations for creating the current global financial situation thanks to a bunch of
decisions previously taken leaving out emerging economies. It is also essential that the developed
countries pay more attention to the emerging markets’ ideas since the developing countries are
the most effected by IMF and Worldbank decisions. As a result, the industrialised countries have
realised and admited the importance of involving developing countries in global decision-making
and will take their innovative thoughts into greater consideration in the future. However North
and South might have different opinions as to solving certain global problems and the North
might not be happy with all the proposals the South has. One of the not appreciated ideas for the
North is that Brazil and China want a substitution of the use of USD in bilateral trading between
emerging markets. China is already doing studies on whether or not there is a demand for a
payment system using the Brazilian Real or the Chinese Yuen (Remenbi) which allows for
substituting the use of the USD. Brazil and China have already put together a working group in
order to implement such a payment system which may help to improve the traffic of the
international trade and investment among the emerging markets.

The above mentioned proposals that come from the South are just a few of the many they would
like to achieve. As we can see, Brazil and China have clear ideas as to how to gain stronger
international leverage.

To conclude, in my opinion neither Brazil nor China are ready to take on the global responsibility
to rule the world yet. But what would be the impact on the international environment if for
instance Brazil would become the most influential player of global governance? There shouldn’t
be much difference from the international institutional system from what we have now. Since
Brazil is a democratic country with considerable soft power, it would promote the fight against
climate change and would be happy to supply the world with its bioful and biomass-based energy
sources. Brazil would further improve its diplomatic realtions with developing countries and

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would act in favour of them internationally, would convince the industrialised countries to
reconsider global re-distribution to lower the gap between the richest and poorest countries.
Brazil would support human rights, labour rights and the freedom of speech unlike China. Since
China is an authoriatarian state, there is a high probability that it would not support all democratic
values if it were the global governor. China would be in favour of controlling drugs and weapon-
trafficking and prevent diseases. However regarding trade, finance and climate change issues, the
world might have a great dispute with China. It is not sure if China’s potential governance will
continue to work in the current liberal network of international institutions. In fact, China prefers
to construct Inter-governmental organisations with itself in the dominant position. The world can
just wait and trust that China’s growing middle and upper class will became more mature with
time to accept and want political change towards a liberal democracy. The question remains:
Which prognosis would be better for the world?

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References:

Goldman Sachs papers

http://ipsnews.net/news.asp?idnews=48339

http://businesswired.wordpress.com/2010/01/06/bric-countries-brazil/

http://www.business-standard.com/india/news/bric-countries-represent-fundamental-global-economic-
shift/22/56/78589/on

http://comexleis.com.br/news/?p=3674

http://www.cbcde.org.br/home/noticias_detalhe.asp?paCodNoticia=3520

http://shangaiexpress.blogspot.com/2010/01/219-brics-relacoes-brasil-china.html

http://www.deloitte.com.br/publicacoes/2007/balanca_dos_brics.pdf

http://www.swisscam.com.br/o-brasil-a-crise-e-a-cupula-dos-brics.html

http://www.administradores.com.br/artigos/_bric_o_potencial_economico_do_futuro/25365/

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