DOES LABOUR LAW MATTERS FOR COMPANIES DOING BUSINESS IN BRAZIL?

Does Labour Law Matters for Companies Doing Business in Brazil?

With ever-expanding global markets, labour framework has assumed an important role in assessing the performance of individual economies and in influencing both national and international policy decisions. As labor laws pervade virtually every aspect of business practice anywhere in the world, managers regularly confront employment law questions when doing business abroad. Brazil is no exception for this general rule. From an economic, political and historical perspective, Brazilian labour legislation impacts wages, employment, domestic consumption and economic growth, among others. Labour legislation also affects labor market outcomes and business operations as part of the “Custo Brasil” – Brazilian Cost (the high cost of doing business in Brazil).

There is no disagreement that an ineffective labour system has a negative impact on sustainable economic growth especially in emerging markets such as Brazil. Over the last decades, Brazil has increasingly established itself as one of the world’s most important emerging markets and the largest economy in Latin America. Brazil is a very promising and exciting emerging market. Success in doing business in Brazil, however, requires commitment and patience and may be time consuming as well. It is true that doing business in Brazil presents practical challenges in areas such as infrastructure, communication and logistic. Besides that, Brazil presents challenges for foreign investors in legal areas such as labour and tax laws.

The labour law framework in Brazil is quite complex and complicate. Labour legislation raises operational costs and some legal uncertainty and ambiguity. The current Brazilian Constitution promulgated in 1988 contains an entire chapter dealing with “social rights” (e.g., employees’ rights), which elevates to the constitutional level employees’ rights such as, maternity and paternity leaves, annual paid vacations, minimum wage, unemployment insurance, severance-pay fund and several other rights. Besides the Constitution, Brazil has a broad set of rules and norms with over 900 articles that regulate labour activities in the country: the Consolidation of Labour Laws (Consolidação das Leis do Trabalho – CLT). Other legal instruments may also be taken into consideration as part of the Brazilian labour legal framework, such as collective bargaining and labor agreements; standards issued by the Ministry of Labour; International Conventions, the United Nations Declaration of Human Rights (UDHR); the Fundamental Conventions of the International Labour Organization (ILO); and the case law decision of the High Labour Court (Tribunal Superior do Trabalho – TST). From this perspective, one can argue that the Brazilian labour law represents a tool for the protection of employees’ rights.

Indeed, the set of rules and standards that represent the Brazilian labour legal framework reflect a very high protection of the rights of workers, but they bring out costs associated to the rigidity of the system to employers. The labour law framework in Brazil is very complex and raises operational costs to local or foreign companies operating in Brazil due to a series of aspects. For instance, one can recall the social benefits collected by employers to the social security institute (INSS), the Severance Fund FGTS and other social contributions that represent a final cost for companies when compared to other countries.

The Brazilian law does not provide space for negotiations between employers and workers. It means that there is no flexibility on employment agreement negotiations’, which in turn may represent a challenge before changes in the economic environment. Besides, as the legal framework brings certain ambiguity, companies become vulnerable to exhaustive lawsuits with inclined enforcement towards employees by Brazilian courts. These are some of the reasons why Brazilian labour law is considered as one of the contributors of the “Custo Brasil” – Brazilian Cost.

Regulatory changes have to be made in the near future or the cost of production in Brazil will become unbearable for companies, in particular when compared to the other BRIC countries. If no changes are made, labour laws in Brazil may affect the economic growth and development of the country.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP and associated professor at Sciences Po. Paris.

SIAMESE TWINS: TRADE & SUSTAINABLE DEVELOPMENT

Siamese Twins: Trade & Sustainable Development

The launch of the WTO denoted a new era in international trade relations. A number of taboo issues have been incorporated into the international trading system, such as the agricultural products. Some progress has been achieved on services and intellectual property rights. But the accolades for the WTO may be precipitate if WTO members do not enforce the goals of trade liberalization and sustainable development as equally supportive. WTO members have to persuade a skeptical public that trade liberalization can contribute to sustainable development improvement. Will WTO members be able to respond to this challenge?

Trade considerations are increasingly important in shapping economic policies in all countries, developed as well as developing. The primary assumption is that trade liberalization leads to greater prosperity, which in return creates better condition for sustainable development governance at the global level. For instance, in the Marrakesh Agreement, members do recognize that trade policies should support raising standards of living, ensure full employment and economic growth, and seek the optimal use of the world’s resources in accordance with the objective of sustainable development. Despite the fact that sustainable development issues are part of the WTO’s mandate, most of the world’s sustainable development indicators have been steadily deteriorating in the recent past and at the global level.

There is a major disagreement among developed and developing countries regarding the nature of the WTO’s mandate and its impact on international trade rules. Some argue that trade liberalization plays an important role for countries, both developed and developing, towards sustainable governance policies. Others oppose that WTO’s rules play an important role towards a general decline in sustainable issues. The most contentious source of disagreement among WTO members is how sustainable development issues should be enforced for trade purposes. Continuing support for trade liberalization depends on the ability of WTO members to ensure that trade liberalization benefits are widely and sustainable distributed, and then the legitimacy of the trade regime will be widely accepted. However, the almost last two decades of WTO have not been encouraging. The Committee on Trade and Development has not achieved anything remarkable. It has continued a record of uselessness that dates back to the old GATT level. Most of the cases at WTO Dispute Settlement Body (DSB) concerning import bans related to sustainability issues have been struck down by the WTO because they were, in fact, mere pretexts for protectionism.

Trade and sustainable development’s amalgamation is inexorable, like Siamese twins. Progress in one area depends upon progress in the other. That’s the reason why an appropriate framework within the WTO system is essential to reach a balance between them. Otherwise, WTO will fail to recognize the fundamental message of sustainable development. And, trade liberalization without adequate sustainable development will lead to heavy deterioration, on a global massive scale.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP and associated professor at Sciences Po. Paris.

SUSTAINABLE DEVELOPMENT & WTO: BREAKING DOWN BARRIERS

Sustainable Development & WTO: Breaking Down Barriers

The concept of sustainable development includes social justice, equal income distribution, full employment, safe and healthy working environments, environmental protection and socio-economic welfare. The international legal framework system on sustainable development is composed by mandatory instruments and soft law. One can argue that the most relevant principles related to sustainable development are embedded in the WTO preamble. Some fear that the WTO preamble demands the advancement of sustainable development norms. Others argue that WTO preamble only obstructs interpretation of WTO rights and obligations from impairing achievement of the highest goals that major international legal instruments claim to promote, namely sustainable development. One question stays open: is WTO the most appropriate forum to enforce sustainable development issues? 

An analysis of sustainable development issues inside the WTO dispute system shows that from over more than four hundred disputes submitted to the Dispute Settlement Body (DSB) only 10% of the cases were actually related to sustainable development issues. It is true that the extent and nature of the incorporation of sustainable development issues into WTO dispute settlement is highly contentious amont WTO members. Nevertheless, no one can deny that many of the future challenges facing the WTO system are related to sustainable development issues.

Such issues are likely to include the relationship between environmental challenges such as global warming and trade, and trade and energy, among others. 

The WTO’s ability to reconcile multilateral trade liberalization with sustainable development is a central concern to the institution’s legitimacy and is, therefore, vital to further advancing free trade. 

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP and associated professor at Sciences Po. Paris.

THE NEXT HEAD OF WTO: VICTORY FOR BRICS & EMERGING MARKETS?

The rise of Brazil, Russia, India, China and more recently South Africa (BRICS) has created a different world order, much more complex and dynamic. It seems that the wealthy of the world’s economy over the next decades depends on what will happen in these countries in the near future, which in turn will foster global political and socio-economic changes in the international arena. Is the next head of WTO the beginning of this change?

Jim O’Neil, coined the acronym “the BRICs” or “the BRIC countries” to describe four large developing countries – Brazil, Russia, India and China – in the report Building Better Global Economic BRICs. The acronym has been more recently changed to add South Africa as well. The fact that the BRICS concept was created by an investment bank and not by a demographer (such as the concept of Third World by Alfred Sauvy) seems to reveals how much economic globalization may shape new geopolitical representations. The recent choice of the new Director General of WTO may be the first effective sign.

The economic realm of BRICS is a reality, despite the difficult times of the world’s economy. Besides that, it is clear that BRICS are also engaged in developing a coalition of diplomatic forces among them at the international scenario. The first time that BRICS have joined forces together, they have scuttled the Western countries’ proposal at the WTO Cancun Round – at the time Russia was not a WTO member. No one can deny that the four BRICS – Brasil, India, South Africa and China – joined forces during the WTO negotiations of the Doha Round – again Russia was not yet a WTO member. There is no disagreement among mainstream scholars of the main task of BRICS countries inside the G-20. We can not close our eyes neither to the efforts of Brazil and India to seek a permanent seat on UN Security Council, alongside with Russia and China’s permanent seat. Last but not least, Russia’s new status as WTO member has clearly improved BRICS’ alliance at the global trade level.

The balance of trade growth is shifting, irreversibly to the emerging world. It is no longer dominated by developed countries leading the trade discussions. It is not longer as it used to be, East-West, trans-Atlantic, or even trans-Pacific. It is much more north-south and south-south, a clear split between developed countries and the emerging ones, including the BRICS. The recently opened negotiations between the United States and the European Union in order to have a more unified front show that the developed world has already felt that it has been challenged by the BRICS. Whether one likes or not, BRICS countries are part of the global geopolitical scenario. The BRICS must be taken seriously because their political position in the global system is only going to continue to grow in the coming years and next decades. The election of the candidate supported by BRICS countries as the new head of the WTO is a clear reflect of what is happening at the world’s trade today.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.