Lucas Ferraz: “For the second cut, we will carry out new internal negotiations and we intend for it to be permanent” — Photo: Edu Andrade/Ascom/ME
A new cut of 10% in Mercosur's Common External Tariff (TEC) this year depends mainly on two measures being prepared by the federal government and linked to maritime transport. In the assessment of the Ministry of Economy, the approval of these measures would help to reduce the cost of production in Brazil and would open space for another tariff cut, which could be carried out in 2022.
“With the reforms that have already been carried out and others that will come this year, we understand that there will be room for another round of TEC 10% reduction,” the Secretary of Foreign Trade at the Ministry of Economy, Lucas Ferraz, told Valor.
The TEC is a type of unified tax among Mercosur countries and charged on the import of products from outside the bloc, although there is no impact on several goods.
According to the secretary, after the reduction in the Tax on Industrialized Products (IPI) carried out at the end of February, the federal government will announce the cut in the rate of the Additional Freight for Renewal of the Merchant Marine (AFRMM) – a fee charged on maritime freight. For long distance transport, the rate is 25%. Furthermore, the Ministry of Economy wants to exclude the incidence of taxes on the foreman's fee. The charge is the amount charged by ports to move cargo, an amount on which taxes are levied. According to calculations by the Secretariat of Foreign Trade (Secex), importing companies can save annually from R$ 600 million to R$ 1 billion with the change in management.
In addition to these measures, reforms carried out in recent years have helped to lower, even indirectly, production costs in Brazil and improve the business environment, according to Ferraz. He cites as examples the new regulatory frameworks, the independence of the Central Bank (BC) and the pension reform. The Ministry of Economy even hired Fundação Getulio Vargas (FGV) to develop an indicator that measures variations in production costs in Brazil. The first measurement is currently being carried out.
In November 2021, the federal government had already reduced the tariff by 10%. The cut was temporary, expected to last until the end of this year. This is because Mercosur rules establish that a permanent cut must be consensual. Uruguay, in turn, linked this cut to the possibility of negotiating free trade agreements with other countries that are not part of the bloc, regardless of whether the other members agree (the so-called “negotiating flexibility”). From then on, Brazil used a clause that allows the cut on a temporary basis.
“As soon as Uruguay makes the TEC movement official – and it is not against it, but insists on flexibility –, the cut made by Brazil will be followed by the other partners and will become permanent”, says Ferraz. “For the second cut, we will carry out new internal negotiations and we intend for it to be permanent.”
Even though Argentina is “the biggest challenge”, the secretary considers that it is possible to reach an agreement on the new round with the other countries in the bloc, since since 2019 Paraguay and Uruguay “have shown themselves in favor of even more ambitious cuts to the TEC ”. But, even without Argentine support, “there is always the possibility” that countries “will make tariff reductions at times that do not necessarily coincide”.
According to him, Brazil can use “some exception clause that provides legal basis” for a second temporary cut, even if the first has not become permanent. “But we will always seek the negotiated route.”
The Minister of Economy, Paulo Guedes, has stated more than once that the federal government may reduce the TEC again by the end of the year, but without giving further details. “We are starting to open the economy,” he said in February at an event promoted by BTG Pactual. “We lowered the TEC and we can lower it again before the end of the government.”
By Rafael Bitencourt and Rafael Walendorff — From Brasília
25/03/2022
Source: Valor Econômico
