TRADE: Brazil Attacks EU and US Trade Barriers

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 14 1997 (IPS) - Brazil, smarting under a ballooning deficit, has gone on the offensive against protectionist practices in Europe and the United States in an effort to balance its accounts.

Brazil’s 1995 foreign trade deficit was 3.15 billion dollars and last year the deficit ran to 5.54 billion dollars. Government estimates put the 1997 deficit at eight billion dollars – a figure business circles believe could be on the low side.

Trade barriers against Brazil’s most competitive products is causing a loss of six billion dollars annually in exports, according to trade officials.

Brazil plans to take the European Union (EU) to task at the World Trade Organisation (WTO) for alleged delaying tactics in blocking imports to Europe of Brazilian chickens, which should enjoys tariff-exempt status according to quotas set in 1992.

Brazil is also demanding that the EU comply with accords on the reduction of agricultural subsidies, which hurt Brazilian exports and – authorities here argue – distort world trade. The government also is criticising the United States for barriers keeping some Brazilian exports out of the U.S. market.

In 1990, Brazil enjoyed a 3.2 billion dollar surplus in its trade with the United States, exporting 7.6 billion dollars in goods. But that situation has turned right around and soaring U.S. imports accounted for more than half of Brazil’s total trade deficit in 1996, according to Foreign Minister Luiz Felipe Lampreia.

Brasilia wants the United States to implement a similar opening- up of its markets as Brazil has done, the average tariff plunging from 41 percent in 1988 to 12 percent today, said Deputy Foreign Minister Sebastiao do Rego Barros.

Contrary to this fall, the cost of Brazilian orange juice in the United States has doubled due to tariffs protecting local produce. Quotas have been set on U.S. imports of sugar, chicken and textiles while steel, iron and minerals have been taxed due to alleged Brazilian “dumping” practices

The trade dispute has spread to discussions on the future Free Trade Area of the Americas. Brazil, with its emphasis on first strengthening the MERCOSUR (Southern Cone Common Market) and South American integration, appears to be the main obstacle to United States efforts to speed up continent-wide negotiations.

President Fernando Henrique Cardoso admitted this week for the first time that the opening of the Brazilian market, which began in 1990, was done in a “hasty” manner and generated “intranquillity.”

The slashing of tariffs and the elimination of other barriers that under the government of former president Fernando Collor (1990-92) was carried out without an adequate analysis of the consequences, the president maintained.

The trade deficit, however, began to grow under Cardoso in 1995, because of a boom in consumption unleashed by the success in stablising Brazil’s currency, a result of an economic plan masterminded in 1994 by Cardoso when he was Minister of Finance.

Anti-inflationary measures included incentives on imports to force domestic prices down, an overvalued exchange rate and reduction of tariffs. Soaring imports, especially motor vehicles, forced the government to do an about-turn and reestablish barriers.

That gave rise to the automobile sector strategy which, because it attempted to attract assembly plants with tax exemptions and lower tariffs on their imports, sparked reactions in Japan, Europe, the United States and South Korea.

The United States insisted on consultations in the WTO, calling the Brazilian policy into question and aggravating tension between the two countries. Brazil’s unilateral measures, designed to curb imports and attract foreign investment to balance its accounts, have also generated tension with its MERCOSUR partners, particularly Argentina.

Brazil sees only one option: to increase exports, according to financial observers.. That is one of the main aims of Cardoso’s visit this week to Italy, because Brazil suffers a nearly one billion dollar a year deficit in its trade with that country.

Deputy Delfim Netto, minister of finances and planning in the 1970s and 1980s, urges a more aggressive stance in the commercial disputes, starting with a correction of the overvalued local currency.

Netto pointed out that Brazilian instant coffee pays a 10.1 percent tariff in EU countries, compared to the 5.2 percent duty paid by Mexico and the Andean region’s tariff-free status on the product, and that in Chile Brazilian coffee pays a 7.7 percent tariff, while Colombia pays none.