Brazil will raise import tariffs on 100 foreign products to help struggling local industries, Finance Minister Guido Mantega said on Tuesday, in a move that could amplify concerns over growing protectionism in the world's No. 6 economy.
This is the latest in a string of steps taken by President Dilma Rousseff to fend off competition from foreign producers, which has hit local industries and dragged down an economy that until recently was the star among emerging market nations.
The temporary increase - initially for a year - in levies will apply to products ranging from iron pipes to glass and bus tires. The rate will reach 25 percent for most of those products, an increase from the low teens.
"We live in a time when the world market is shrinking and exporters flood Brazil, which is one of the few growing markets, and our industry is being harmed by this," Mantega told reporters in Brasilia.
Brazil has unapologetically raised barriers on foreign goods it considers a threat to its local industry, angering trade partners already struggling to sell their products amid the global slowdown.
Trade Minister Fernando Pimentel on Tuesday quickly denied the move was protectionist, saying the tax hike was allowed under World Trade Organization rules. The tariff ceiling for most industrial products is 35 percent.
Over the last year Brazil hiked taxes on foreign vehicles, reworked a long-standing car trade deal with Mexico and tightened rules for the import of perishable goods from Argentina to protect local businesses.
Yet industries have reacted slowly to the measures, which also include a flurry of tax breaks and actions to weaken the local currency, the real.
Industrial output had only a modest rise in July, government data showed earlier on Tuesday, which raised doubts over the effectiveness of government actions.
"While some sectors should benefit from the tariff hike and could even avoid layoffs temporarily, the measure has the cost of increasing prices, allocation distortions and even risking a pickup in inflation driven by lower competition," Marcelo Salomon, an economist with Barclays Capital, said in a note.
TACKLING BUSINESS COSTS
The move to help industry comes at a time when the Rousseff administration is scrambling to lower some of the world's highest production costs.
For years businesses operating in Brazil have struggled with high taxes, lack of skilled labor and infrastructure bottlenecks in what is known here as the "Brazil Cost."
Rousseff plans to announce in coming days a reduction in electricity costs for industry and consumers, which is not expected to have an immediate effect on an economy that is expected to grow only 1.6 percent his year.
That is a far cry from the 7.5 percent expansion seen only a few years ago, which confirmed Brazil's standing as one of the world's most coveted investment destinations.
Aiming to spur long-term growth Rousseff unveiled measures in August to lure $65 billion in private investment capital to refurbish thousands of miles of decaying roads and railways.
The trained economist has received much praise from Wall Street for her efforts to make life easier for businesses, but cumbersome red tape and heavy state intervention could still spoil her plans, analysts say.
The latest tax hike still needs to be reviewed by the South American trade group Mercosur, which includes Brazil, Argentina, Uruguay, Paraguay and new member Venezuela.
