Brazil Defends Tariffs on Asian Car Competition

Brazil started slapping a whopping 30% tariff on all vehicles that are not at least 65% Brazilian made, or Made in Mercosur, the local South American trade block.

Brazil's booming economy has the local auto industry in high gear, which the government wants to protect from popular Asian imports by slapping hefty tariffs on rising rivals.

Though many economic analysts fear the move will hurt Brazil's reputation, the tariff shift approved this month was a major victory at least for the powerful local auto sector.

With greater economic stability and greater access to credit, Brazil's domestic auto industry has been rising steadily in recent years. It expects to close out 2011 with a 5% increase in domestic sales (3.69 million units), according to the Anfavea carmakers association.

Faced with a stampede of new brands mainly from Asia, the government two weeks ago started slapping a whopping 30% tariff on all vehicles that are not at least 65% Brazilian made, or Made in Mercosur, the local South American trade bloc. Mexico is not affected due to its bilateral deals with Brazil.

Brazil cannot "allow our auto industry to be taken over by upstarts who are coming in from outside," Finance Minister Guido Mantega said, explaining the move.

The industry only months earlier had benefited from a major bailout and incentives package -- seen as necessary due to the real's high value -- that was supposed to help improve competitiveness.

Catholic University economist Antonio Carlos Alves said the "unfortunate" measure the government adopted was evidence of bad economics and good lobbying by the local auto industry's "four sisters" GM, Volkswagen, Fiat and Ford.

The single biggest splash in the local market by a foreign carmaker has been by China's JAC.

A delegation from Uruguay was meeting on Sept. 27 with authorities in Brasilia to consider if they should mirror the Brazilian tariff.

"I do not think the tariff was a necessary measure, not even to protect the market from Chinese competition." Alves said. "It is just a measure that fosters discontent in Brazil because it appears to be protectionist."

Copyright Agence France-Presse, 2011

TAGS: The Economy
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