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Brazil’s Industry and Labor Unions Pull Together to Fight Chinese Imports

Not made in ChinaFiesp, São Paulo state’s Industrial Federation and labor unions have joined forces to create a commission to draw up proposals in defense of domestic industry against an invasion of foreign goods, mainly from China.

“We face a sharp rise in imports, especially in manufactured items, that is close to irresponsible,” declared the Fiesp president, Paulo Skaf, after a meeting with labor leaders.

Next month, the group will hold a seminar on industrial competitivity for the purpose of drawing up concrete proposals that will be sent to president Dilma Rousseff.

Paulo Pereira da Silva, a federal deputy from the PDT party, who is also the president of the Força Sindical union, pointed out that the rise in imports is linked to the devaluation of the dollar and that he is skeptical of any change in the government’s exchange rate policy.

“It will be hard to get them to shift on the exchange rate. We need to find another approach,” he said. Among alternatives, he said, were selective surtaxes on imports and reduced taxes on Brazilian goods that were exported. Pereira said whatever policies were adopted should also be aimed at creating jobs.

Imports and Exports

Brazilian exports closed out 2010 at a historic high of almost US$ 200 billion (the previous record was in 2008, before the Great Recession). During the Luiz Inácio Lula da Silva administration, Brazilian exports rose no less than 330% (up from US$ 60.4 billion in 2002).

However, imports rose even more: going from US$ 47.3 billion in 2002, to US$ 175.9 billion in 2010 – for an increase of a whooping 390%.

“There is no denying that Brazil has achieved significant gains in international trade,” says the vice president of the Brazilian Foreign Trade Association (“AEB”), Fabio Martins. But he points out that more could have been done if “excessive red tape and controls” did not exist, along with what he calls an “inadequate tax structure.”

Martins also complaints about Brazil’s deficient infrastructure and the devaluation of the dollar against the real.

Speaking for the government, the secretary of Foreign Trade at the Ministry of Development, Industry and Foreign Trade, Welber Barral, admits that the exchange rate has reduced price competitivity of Brazilian goods on the international market.

But he says that if roads and ports had been upgraded and logistics improved, the effects of the devaluated dollar would be less pronounced. He said the Ministry of Finance was forced to increase the tax on financial transactions (IOF) due to pressure on the Brazilian currency.

Barral points out that exports grew faster than imports until 2006, when Brazil had a record trade surplus of almost US$ 46.5 billion (the surplus this year is forecast to reach US$ 17 billion).

In 2008, says Barral, Brazil’s trade surplus dropped sharply to slightly less than US$ 25 billion, while the current account deficit surged to US$ 28 billion. The current account deficit is expected to have reached US$ 50 billion in 2010.

Meanwhile, market analysts, in this week’s Central Bank survey of 100 financial institutions (the Focus report), estimate that the current account deficit will rise to US$ 69 billion in 2011, although Martins of AEB says it will be less: US$ 60 billion.

“Foreign trade is a determining factor in achieving sustainable economic and social development in Brazil,” says Martins, and as such, he concludes, there is a clear need for a permanent and timely foreign policy that maximizes export competitivity.

Manufacturing Deficit

The Industrial Development Study Institute (Iedi), reports that “a colossal gap” has opened up between the manufactured goods with a high aggregate value that Brazil imports, such as aircraft and automobiles, and the manufactured goods the country exports.

Iedi calls the gap “the foreign sale of manufactured goods deficit,” and reports that it was US$ 34.761 billion in 2010, an increase of 316%, compared to 2009.

Iedi goes on to say that it is not opposed to imports (“they feed and boost economic growth”), but is concerned with the “strong velocity and intensity” of imports as compared to sluggish exports.

Iedi points out that the manufactured goods deficit is unprecedented “in recent Brazilian history.” The deficit is most pronounced in “high” and “mid-high” technology sectors, with a ripple effect that reaches the “mid-low” technology sector. The latter is a sector that traditionally has a high export surplus, but had its first deficit in 2010.

Finally, Iedi emphasizes that, as is well known, the Brazilian trade balance is more and more dependent on commodities – minerals and farm produce – in order to maintain an overall surplus.

The only way to reverse the tendency, says Iedi, is through tax reform, better infrastructure (to reduce production and transportation costs in Brazil) and an exchange rate that does not punish Brazilian exports by pricing them out of competition.

ABr

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