Brazil taking new steps to slow import wave

SAO PAULO, (Reuters) – 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 yesterday.

Fernando Pimentel

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 can’t sit here watching our industry being devastated  by the exchange rate, which isn’t 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 clamoured 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 isn’t protectionism. These are the instruments we  have available to us,” Pimentel said, adding that the measures  are permitted by the World Trade Organization.

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.

Debora Giorgi

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 yesterday, Argentine Industry Minister Debora  Giorgi sent a letter to Pimentel asking that he reconsider the  decision to delay granting import licences 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.

‘WILLING TO TALK’

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 Jan. 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.

“The message is: This is a new government and there is no  more strategic patience like there was during the Lula  administration,” said Mario Marconini, a Sao Paulo-based trade  consultant.