Section 2 of this paper characterizes Brazil’s current insertion in GVCs using measures of trade in value added. It identifies Brazil’s position in GVCs across four GVC‐intensive sectors where Brazil is internationally competitive: agribusiness, basic metals, automotive and chemicals. It also provides a snapshot of Brazil’s competitiveness vis‐à‐vis other comparator countries, which include: Colombia, Indonesia, Mexico, Turkey, Argentina, South Africa, Thailand and Canada.<sup>2</sup> It then assess scope to increase participation through trade in intermediate products (relative to final goods) using a gravity model.

Section 3 discusses the benefits that deep integration has in terms of GVCs participation. It also provides an analysis of the patterns and characteristics of integration through deep Preferential Trade Agreements (PTAs) and highlights where Brazil stands with regards to different aspects of deep integration. The section also presents some recent results on the positive impact of deep integration on GVC‐related trade and tries to assess the reasons why Brazil has not fully benefitted, in terms of GVC participation, from its Preferential Trade Agreements.

2. Characterizing Brazil’s current insertion in global value chains Value added trade<sup>3</sup> Brazil experienced high growth in the domestic value added embodied in exports through 2011. In a world of GVCs, the focal issue of analysis and what ultimately matters for economic development is the growth of a country’s domestic value added embodied in exports. This is because gross exports most likely have a large component that consists of value added brought in from abroad through intermediate input imports. This indicator captures economic upgrading in GVCs. The total domestic value added embodied in Brazil’s exports has been growing steadily since 1995, achieving an average annual growth rate of 10.7%. Brazil’s performance was above most of the selected comparators, and only Colombia showed slightly higher growth rates of value‐added embodied in gross exports (11%).

Brazil’s performance differs substantially across sectors, including those that are important for Brazil’s participation in GVCs. The selection of sectors that we will investigate Brazil’s GVC performance are those GVC‐intensive sectors in which Brazil is relatively competitive.<sup>4</sup> The data support that Brazil is most competitive in agribusiness (excluding primary agriculture), wood and paper, basic metals and the automotive industry. Brazil also performs relatively well in the chemicals sector, and since this sector in Brazil is one of the largest in the world, we selected it

> 2 These comparators were selected based on similarities in size (GDP and population) and economic development (GDP per capita). They include South Africa, another emerging economy within the BRICS that is commodity dependent, as well as other large regional economies including Mexico, Colombia and Argentina. Thailand and Canada were selected as aspirational countries, and Indonesia as a comparator outside the region that is also integrating into GVCs.

> 3 This analysis is based on van der Marel, E. (2016), “Making GVCs Work for Development: The case of Brazil,” mimeo. 4 We use the indicator of revealed comparative advantage (RCA) based on domestic value added (as opposed to gross terms) to assess Brazil’s relative strength of the sectors in which its relative competitiveness is high. The RCA measures are presented in Table A1 in the appendix.

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