Brazil’s Trade Policies Criticized at WTO

High tariff rates cited as barriers to entry.

GENEVA — With its burgeoning economy, many brands are looking to make inroads into the Brazilian market, but it isn’t easy.

This story first appeared in the July 9, 2013 issue of WWD.  Subscribe Today.

The South American country’s difficult barriers for exporters were highlighted at a recent review of its trade regime at the World Trade Organization. Trading partners including the U.S., the European Union and China have called on Brazil to put an end to protectionist measures such as tariff hikes and restrictive regulations that hinder international competition and spike business costs.

“U.S. exporters face significant uncertainty in the Brazilian market,” David Shark, deputy U.S. permanent representative to the WTO, said late last month. “This uncertainty is amplified by the frequent changes in tariffs made by the Brazilian government to protect domestic industries from import competition.”

Shark said Brazil should act to liberalize trade “by lowering tariffs” and noted that last October, “Brazil increased tariffs to a maximum of 35 percent on 100 industrial products. These tariff hikes could adversely affect Brazil’s competitiveness.” He said they also “create an unpredictable business environment for importers and exporters, and have a chilling effect on investment.”

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Despite recent political unrest that began last month over bus and subway fare hikes in São Paulo and grew into massive nationwide demonstrations against government corruption, high taxes and poor public services, but have since subsided, Brazil, along with Russia, India and China, is among what have been dubbed the BRIC countries, representing the fastest-growing emerging economies.

A report compiled by the WTO for the review shows Brazil’s average applied most favored nation tariff in 2012 was 11.7 percent, up from 11.5 percent in 2008, and points out the manufacturing sector benefits “from the highest tariff protection,” with an average applied tariff of 12 percent, up from 11.8 percent in 2008.

The WTO also reveals that Brazil imposes much higher tariffs on imports of textiles and apparel. In 2012, for 790 textile lines, tariffs averaged 22.7 percent, and for 251 apparel lines, tariffs averaged 35 percent, substantially higher than the 12 percent average for all manufactured goods.

The EU’s WTO ambassador, Angelos Pangratis, also criticized Brazil’s determination “to pursue an increasingly protectionist industrial policy.”

“EU entrepreneurs in Brazil are faced with heavy bureaucracy, complex and not always transparent regulation and legislation, late noticing of changes in import-rate rules and labeling requirements, high transactions costs and unpredictability when dealing with Customs authorities,” Pangratis said.

Countries such as Canada, China and Pakistan were critical of amendments made by Brazil in 2010 that mandate preferential margins of 8 to 25 percent for some goods and services in government procurement for goods produced by Brazilian firms or companies that have invested in Brazil. Under the scheme, textiles and apparel are given a preferential margin of 20 percent over foreign competitors.

Yi Xiaozhun, China’s WTO ambassador, indicated his country’s concerns about Brazil’s heavy use of trade remedies, such as antidumping investigations.

Paulo Estivallet de Mesquita, director-general at Brazil’s ministry of external relations, countered that his country has remained open to trade and noted imports of industrial goods increased at an annual rate of 16.2 percent from 2007 and 2012. In 2012, Brazil’s merchandise exports were $242.5 billion, up from $160.6 billion in 2007, and its imports reached $223.1 billion, up from $120.6 billion.

Last year, exports of textiles were worth $970 million, down from $1.4 billion in 2007, while imports reached $4.2 billion, up from $2.1 billion in 2007. For apparel, exports totaled $242.5 million, down from $321.7 million in 2007, but imports surged to $2.4 billion from $603 million in 2007.