Tag Archive: imports

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One of the automakers hardest hit by the protective measure of the Dilma administration, the increase in the IPI (Excise Tax), China’s JAC Motors accused Brazil of breaching the guidelines of the WTO (World Trade Organization) and confirmed that it has frozen its plans to open a factory in the country.

“The way in which the Brazilian government raised the tax is a serious violation of the basic principles of the WTO,” said JAC Motors, in a written response to Folha.

“The discontinuous, irrational and partial Brazilian policy strongly undermined the confidence of JAC and other automakers to invest in Brazil. Therefore JAC is forced to re-evaluate its decision to invest in Brazil,” the company said.

The Chinese automaker says that the measure did not forecast an adjustment period and cites three alleged violations of Brazil to the general guidelines of the WTO: market access, fair competition and non-discrimination.

In JAC’s judgment, Brazil adopted the measure looking to limit Chinese cars, compromising fair competition. The company says that it functions without subsidies from the Chinese government and has not been accused of dumping (charging artificially low prices).

“The Brazilian government offered special treatment to Mercosul and other countries (Mexico) to the detriment of China, breaking the principle of MFN (Most Favored Nation),” the Chinese automaker says.

MFN, taken by the WTO as one of the most important guidelines for international trade, states that in normal situations, one cannot differentiate between trading partners.

$600 MILLION FACTORY

JAC also mentions that the increase in the IPI differentiates between domestic and imported products, in violation of the principle of “national treatment” whereby imported products must have the same conditions of local competition after already entering the domestic market. The directive allows customs duties which is not the case of the IPI.

Representatives of JAC met on Tuesday with the Commerce Ministry to pressure the Chinese government to act on behalf of the company. But until yesterday there was no official statement on the issue.

At the beginning of August, JAC had announced the construction of a factory in Brazil, which would start production in 2014. The planned investment was $600 million to produce 100 thousand units per year. According to the company, this would generate 3500 jobs directly and another 10,000 indirectly.

JAC is a Chinese company that sold the most cars in Brazil this year – about 14.5 thousand.

Founded in 1964, the China Anhui Jianghuai Automobile Company is headquartered in the city of Hefei (east). Last year, it sold 460 thousand units, earning 50% more than in 2009.

 

Source: Folha.com

Sep 20

Protectionism: R$ 600.000 investment threshold for investment Visas in Brazil

Brazilian government shooting in their own foot

Brazilian government shooting in their own foot

Protectionism all over the place: Brazil is closing its doors

In another attempt protecting the labour market, Brazil has raised the minimum capital requirements for granting permanent Director’s Visas in Brazil. In the past it was possible to obtain a permanent visa for intra-company transferees to work as managers, directors, or executives with a minimum investment of US$200.000. From now on, companies have to invest at least R$ 600.000 in order to obtain a visa for its foreign directors who are coming to live in Brazil. Each additional director will require another R$600.000.

On this blog I have already given other examples of protectionism by the Brazilian government. Just a few days ago I wrote an article about the massive tax increase (+30%) on imported cars. Also the wind-energy industry is experiencing the measurements to protect the local (monopolist) steel industry.

Although the increased capital requirements and the additional option to get visa for foreign managers will provide additional revenue for Brazil government and facilitate the creation of jobs in the country, they could add further stress on the already tight labour market particularly for qualified labour and possibly discourage long term productive foreign direct investments  in Brazil vis-a-vis other similar foreign direct investment destinations with a more favourable legislation on foreign labour.

Again, this looks like another time the Brazilian government is shooting in its own foot.

So, as the Economist already mentioned in their April 2007 issue:

The Brazilian formula is to crowd out enterprise or drive it underground with excessive spending and taxation, then to harass it further with capricious, nonsensical regulation.

Source:  RESOLUÇÃO NORMATIVA Nº 95, DE 10 DE AGOSTO DE 2011

Sep 17

Wind industry is caught in a Brazilian steel-price trap

In Depth: Wind industry is caught in a Brazilian steel-price trap

High domestic steel prices are one of the main barriers to making future wind projects profitable in Brazil.

Developers are facing razor-thin margins after the two power tenders in August saw some projects awarded power-purchase contracts at less than R$100 ($58.30) per MWh.

Wind energy

High domestic steel prices are one of the main barriers to making future wind projects profitable in Brazil.

The price of steel is 50-70% higher in Brazil than on the international market. Belo Horizonte-based Usiminas — a former state-owned company privatised in the 1990s — enjoys a near monopoly on domestic steel plate supply, and the government allows it to set different prices for domestic sales and exports. At the same time, Brazil’s national development bank, BNDES, will not give developers full access to its funding unless at least 60% of a project’s equipment is produced in Brazil. That percentage is determined by weight, and towers can constitute 80% of a wind farm’s mass. Nearly all Brazilian developers depend on the bank’s cheap financing to make their projects viable, and BNDES does not consider foreign steel rolled in Brazil as local content, meaning that companies are generally unable to import from abroad.

Last year, BNDES was considering an exception to its rules for imported steel, but the proposal was shelved in August. Brazil’s steel industry is facing strong competition from imports, putting pressure on margins, so producers fiercely oppose any relaxation of local-content rules. “Clearly, if you want to play in Brazil, you have to get access to BNDES financing, and that exposes you to these steel prices,” says Brian Gaylord, an analyst with MAKE Consulting in Chicago, who specialises in the Brazilian market.

He says the high cost of steel plate makes towers disproportionately expensive in Brazil. Gaylord says some companies experimented with importing Asian steel for about a third of their requirements, but the strategy needs high volumes to create any real price advantage.

Wind turbine manufacturers, developers and industry representatives are highly critical of government policy, and are increasingly looking to concrete towers as an alternative.

“Obviously they [Brazil] want to build a steel industry and they are doing it by artificially raising prices,” Steve Sawyer, secretary-general of the Global Wind Energy Council, tells Recharge. “It’s good for the steel industry, but bad for everyone else.”

“It’s the prerogative of a sovereign state,” says Alstom’s vice-president for wind, Alfonso Faubel. “Steel is used in development, so if you want development to take place you are always going to have certain conditions of local content.”

But Edgard Corrochano, Mercosur director at Gamesa, which was one of the most aggressive bidders in the recent tenders, says he hopes the situation will change, with Usiminas becoming more competitive. “Either [Usiminas] gets with the programme and they have international prices in Brazil, or we are going to see a tendency to go to concrete towers. And as soon as that happens, it’ll be very difficult for it to come back to steel.”

Other manufacturers point out that steel towers, as well as being expensive, are difficult and costly to transport.

Suzlon Brazil chief executive Arthur Lavieri says: “Almost everybody is talking about concrete, and it’s not only because steel prices in Brazil are completely insane, but also because bringing steel tubes of 100-120 metres 3,000km from the biggest factories is simply not possible.”

However, concrete towers need to be made on site, which can be expensive.

“To take advantage of price advantages you need a big project size,” says Gaylord.

Leading local turbine manufacturer Wobben Windpower is experimenting with using mobile concrete plants to build the towers, while Vestas sales director Marcelo Hutschinski says his company can offer concrete towers for wind farms larger than 100MW.

Officials at some turbine manufacturers admit there are drawbacks to concrete, and say they have few alternatives to buying expensive steel.

Source: RECHARGE; Ben Backwell, Rio de Janeiro; Published: Thursday, September 15 2011

Sep 16

Brazil will raise taxes on imported cars to protect domestic production

The government will more than doubled the IPI (Tax on Industrialized Products) for domestic and imported vehicles that do not meet requirements such as investments in technology and a percentage of 65% domestic produced materials.

Because of a common automotive regime between Brazil and Argentina, automakers operating in the neighboring country and sold to the Brazilian market will also be affected. The announcement was made Thursday by the Ministers Guido Mantega (Finance), Fernando Pimentel (Development) and Mercadante (Science and Technology).

According to Mantega, the measure can leave cars 25% to 28% more expensive than today. The government says the measure will impact on car prices by up to two months.

Maserati

This Maserati will be around 30% more expensive after the new implementation of the higher taxes on imports

Currently, the tax rates of the cars produced in Brazil range from 7% to 25% depending on the model and power the car. The new rate will increase by 30 percentage points, from 37% to 55% depending on engine capacity. For cars up to 1,000 cc, the IPI will rise from 7% to 37%. For vehicles from 1000 to 2000 cc, the rate, currently between 11% and 13%, will rise to 41% to 43%. In addition to passenger cars, the measure will include the manufacture of tractors, buses, trucks and light commercial vehicles.

NATIONAL PRODUCTION

To maintain the current rate and avoid the increase, automakers must prove they aare manufacturing cars with a least 65% domestic produced materials and that they have centers of technological development in Brazil. In 60 days, the Ministry of Development, Industry and Foreign Trade will check the qualifications of companies that meet the requirements and will not have tax increase. In addition, companies will have 15 months to maintain or expand their investments in technology.

The measurement will be in effect until December 2012 and is part of the plan to stimulate the industry ‘Brasil Maior’, announced last month by President Rousseff.

COMPETITIVENESS

The objective of the measure is to foster competitiveness in Brazil, and make the vehicles manufactured in the country have more local content. The government hopes thereby to stimulate production in the country one of the ways to generate more employment in the country. “It’s a complementary program of  “Brazil Maior” to compete more solid with the import cars by means of stimuli for the Brazilian industry, one that produces vehicles in Brazil and Argentina,” said Mantega.

“It has happened that the market is depleted, the crisis has reduced consumption. There is excess capacity and a greater competition for markets. Brazil has maintained high sales, re-established after the 2008 crisis of production and consumption. But there is an appropriation that by international manufacturers, “he said.

The minister said the goal is to prevent the export of manufacturing jobs. “We run the risk of being exporting jobs to other countries. We were concerned with the increase of vehicles in stock. Industry is innovation, creates jobs and the market should be enjoyed by the domestic industry,” said Mantega.