A new round of corruption accusations against Brazilian President Michel Temer has put the stability of the country in question once again. By June 30, Brazil's general prosecutor Rodrigo Janot is expected to formally charge Temer with obstruction of justice, passive corruption and organized crime. The new accusations could delay the approval of economic reforms and threaten the alliances in Temer's ruling coalition. But the events will ultimately have little impact on Brazil's foreign affairs, including its involvement in the free trade negotiations between the Common Market of the South (Mercosur) and the European Union.

Trouble With Temer

Brazil's latest political crisis comes at a crucial time for Mercosur in its talks with the European Union. Presidency of Mercosur shifts every six months among the bloc's full member countries, and Brazil is expected to take over the role in July. Temer's scandal has left countries that depend on Brazil for trade worried about how the events will impact Mercosur as a whole. Argentina in particular feels it's a bad time for Brazil to be distracted by the threat of an impeachment against Temer, which could paralyze the bloc's trade negotiations with the European Union. Delays in the negotiations may indeed happen, but despite concerns, there is little chance that Brazil's political crisis will have any major impact on the trade negotiation process.

It's possible that Brazil’s Supreme Court could issue a ruling ordering the country's legislative lower house to begin an impeachment process against Temer, and there are indications that some political allies may abandon his ruling coalition. But Temer's political situation is not as dire as it could be, and his removal from office is not necessarily a guarantee. On June 9, the Superior Electoral Court absolved Temer of allegations of receiving illegal donations during his 2014 vice presidential campaign. And three days later, Temer's main ally in Congress, the Brazilian Social Democracy Party (PSDB), decided to continue supporting his government, at least for now. With PSDB support, Temer is guaranteed to have enough votes in Congress to block an impeachment process against him.

But even if Temer were ultimately forced to step down, someone with similar policies would probably take his place. There's a small chance that Congress could move up Brazil's 2018 presidential election, meaning his allies would not have direct control over who replaces him. But it's unlikely that the necessary three-fifths of the legislature would approve that decision. The next president would most likely be chosen in an indirect election in the Congress, which is controlled by the same ruling coalition that currently backs Temer. Some of the rumored candidates for indirect election include president of the lower house Rodrigo Maia; Senator Tasso Jereissati; former Defense Minister Nelson Jobim; and Supreme Court Judge Gilmar Mendes. None of them represents a major policy change from Temer, especially not one that would alter Mercosur-EU trade negotiations.

Opening Up to Free Trade

In recent years, Brazil has also shed much of its resistance to trade liberalization, giving Brasilia further support as it pushes for a new trade deal with the European Union. For decades, many of Brazil's industries were comfortable enough with their protected internal market of over 200 million people to strongly oppose trade liberalization. Other than a handful of exceptions, such as aircraft manufacturing company Embraer, the country's manufacturing sector was reluctant to liberalize trade with other countries and blocs, as it's extremely vulnerable to outside competition. The sector has previously argued that the overvaluing of Brazil's currency, the real, along with rigid labor laws, poor infrastructure and high taxation, has hampered its ability to compete with imports. But several forces have shifted perspectives on open trade, and this year Brazil's national confederation of industries listed the finalizing of the Mercosur-EU trade deal as a priority. An overvalued currency is no longer a major constraint, as the real has depreciated over 40 percent since mid-2014. The government also expects to approve a labor law reform this year aimed at making the laws more flexible. Reducing taxes is not something that could happen, at least in the short term, but there are plans to move forward with major infrastructure changes.

In addition, the economic recession in 2015 and 2016, which resulted in a decline in domestic consumption, caused many Brazilian manufacturers to either shut down or seek new markets. Brazil's shipbuilding industry, for instance, was forced to halt production at 12 out of its 40 shipyards. The country's automotive industry, however, used the economic crisis as an opportunity to reach trade agreements with other countries. Brazil's automotive industry is among the world's 10 largest, but most of its product has typically gone to the domestic market. According to Brazil's National Association of Automotive Producers, automotive production will reach 2.41 million units in 2017, with exports representing only 23 percent of that total. Still, this year the industry reached agreements with countries such as Colombia and Peru as a way to increase its exports and reduce its dependence on the domestic market. Granted, Argentina continues to absorb over 67 percent of Brazil's automotive exports, and exports won't be able to make up for two consecutive annual drops of over 20 percent in domestic sales. But the economic recession and currency depreciation have made the Brazilian automotive sector far more open to seeking new markets, a trend that has pervaded the country's private sector.

A Trade Block

The biggest barrier to the Mercosur-EU free trade talks will come not from Brazil, but from the European countries that are reluctant to include various agricultural products and ethanol in the negotiations. Agriculture is Mercosur's main competitive sector, and the bloc won't be willing to accept its exclusion in any trade deal. But some European countries, such as Ireland and Poland, have adamantly opposed including agricultural products in the agreement, citing a corruption scandal from earlier this year in which Brazilian authorities allowed tainted meat to be exported to the European Union. The Brazilian government even admitted that EU resistance on this matter stalled a round of negotiations between the blocs in May.

A new round of Mercosur-EU trade discussions will take place July 7 in Brussels. Regardless of whether Temer manages to stay in power this year, Brazil's foreign policy, especially as it relates to the talks, will not change. Though Temer's troubles may delay negotiations, the country's private sector and government are too committed to trade liberalization to allow the deal's progress to be stalled by political instability. The real threat to finalizing the Mercosur-EU trade agreements will come from Europe, as it resists including Mercosur's most valuable asset, agricultural products, in the agreement.