Brazil will take new steps to protect local industries from a strong exchange rate, including an investigation of Chinese imports that come in improperly through other countries, its trade minister told Reuters. Fernando Pimentel said the probe into the so-called “triangulation” of goods would be the first of its kind in Brazil. The first case will involve blankets from China that were routed to Brazil through Paraguay and Uruguay, with further investigations expected in coming months, he said.
The measures come as Brazilian President Dilma Rousseff faces enormous pressure from manufacturers, a key constituency, to slow an avalanche of imports from abroad, especially China.
Brazil’s currency is trading near decade-long highs, thanks to its booming economy and a flood of capital from the developed world. “We cannot sit here watching our industry being devastated by the exchange rate, which is not going to change (substantially) in the short term,” Pimentel said in an interview. Pimentel will lead a group of officials from Brazil’s revenue service and trade ministry to monitor imports, a step he said will substantially improve Brazil’s ability to identify dumping and other unfair trade practices. Some Brazilian business leaders have clamored for such a move for months.
The measures, plus other recent steps including new barriers to slow down auto imports, have raised concerns of a new wave of protectionism in South America, although Pimentel firmly ruled that out.
“This is not protectionism. These are the instruments we have available to us,” Pimentel said, adding that the measures are permitted by the World Trade Organisation. Pimentel said the auto measures in particular were not targeted at any specific country – including Argentina, which has strongly protested the move.
“People think this is about Argentina. That’s not the case. It’s part of a big strategy to protect our industry, not a trade war with anybody,” he said. He called the auto industry “strategic” for Brazil and said a recent spike in auto imports to Brazil was emblematic of local industry’s struggles. Brazil’s currency has appreciated about 50 percent since 2009 and has been called the world’s most overvalued major currency by Goldman Sachs. Its economy is also struggling with other signs of possible overheating, including inflation just beyond its target range at 6.51 percent on an annual basis.
Earlier on Friday, Argentine Industry Minister Debora Giorgi sent a letter to Pimentel asking that he reconsider the decision to delay granting import licenses for imported vehicles – a move that will, in effect, slow down trade. The move fanned tensions between the two biggest economies in South America, which have a long rivalry that stretches from the soccer field to international trade. Pimentel said only about half of Brazil’s auto imports come from Argentina, and that the move will also hit imports from other countries, including the United States and Japan.
Pimentel invited Giorgi, his Argentine counterpart, to talks in Brasilia on auto imports and other trade issues. “We’re willing to talk,” he said, without offering specifics. The trade dispute poses an unwelcome headache for Argentine President Cristina Fernandez, who may seek re-election in October. A prolonged fight involving Argentina’s critical auto industry – which exported about $7 billion in autos and autoparts to Brazil last year – could be enough to damage the economy, which is already plagued by double-digit inflation.
Overall, Argentina and Brazil had about $32 billion in trade in 2010, with a $4 billion surplus in favor of Brazil. About 2,000 vehicles produced in Argentina by Toyota, General Motors and Mercedes Benz are stuck at the Brazilian border waiting to get in, local media reported. The Argentine units of Fiat, Renault and Ford also send shipments to Brazil. “The current problem is going to get complicated for us starting next week if there’s not a rapid solution,” an Argentine auto industry source told Reuters on Friday.
The more confrontational stance in trade represents a change for Brazil under Rousseff, who took office on January 1. Her predecessor, Luiz Inacio Lula da Silva, generally preferred to play down such disputes with China, Argentina and other countries in the name of unity among developing nations.
