BOOMING TRADE IN MOTOR VEHICLES HAS BROKEN OUT AGAIN BETWEEN BRAZIL IMPORT QUOTAS IMPOSED BY BRAZIL FOUR MONTHS AGO.

8:23 AM Oct 18, 1995

BOOMING TRADE IN MOTOR VEHICLES HAS BROKEN OUT AGAIN BETWEEN BRAZIL IMPORT QUOTAS IMPOSED BY BRAZIL FOUR MONTHS AGO.
The WTO's Committee on Balance-of-Payments reviewed last week Brazil's invoking of these rights (Art. XVIII:B of GATT 1994) to justify the quota restrictions the government had imposed and in its report recommended its being revoked.

Brazilian trade circles and the country's auto industry have no doubt that, without quotas and in the face of a planned rapid tariff reduction within Mercosur, Brazil will face a new import invasion next year, renewing the trade imbalance that forced the Brazilian government to adopt the strong quota measure last June.

The tariff on automobiles will fall from 70 percent o 62 percent in January and to 30 percent next April. Then, according to agreements in the Southern Common Market (Mercosur), it will drop two points each year until it reaches a common foreign tariff of 20 percent in the year 2001.

However imports of vehicles from Argentina, exempt from both quotas and tariffs, could dramatically increase, especially because the recession in that country is forcing manufacturers to search actively for markets abroad.

Limits must be established on imports from countries like Japan and Korea, that accused Brazil of violating world trade rules in imposing quotas, says Ivan Fonseca da Silva, president of Ford Brazil, who acknowledged the current lower productivity in the Brazilian auto industry.

Such arguments, echoed by others in the industry, suggested that the auto manufacturing sector will press for favourable conditions to make Brazilian assembly plants more competitive.

Another fear is that, aside from quotas, WTO will reject investment stimulants in the Brazilian auto industry which would permit the importation of equipment and components with a tariff of only two percent. The problem arises from the fact that Brazil had failed to notify the WTO, within the stipulated time, these investment measures under the TRIMs accord.

Since the adoption of the quotas and incentives in June, Volkswagen, Renault, Mercedes-Benz and Peugeot have announced plans to build new assembly plants in Brazil for autos, trucks and buses with investments totalling more than two billion dollars.

Any change in rules could make Argentina more attractive for TNCs that see a wider market for free trade in MERCOSUR and a more advantageous production base for exports to other regions.

Brazilian Foreign Minister Luiz Felipe Lampreia says that Brazilian government economists are already holding discussions with the industry to look for alternatives which could still "attract foreign investments."

The Brazilian Association of Automotive Vehicle Import Firms (Abeiva) is ready to practice self-restraint in its purchases, to avoid new disruptions and losses in the sector.

Business interests are still suffering the damage from more than 50,000 vehicles imported two months ago and left at ports of entry, because the 70 percent tariff made their sale in the internal market unprofitable. Tax authorities say they must reexport them or lose them.

The quotas permitted the import of more than 150,000 vehicles, half the total imported this year up to June 12, but the Industry and Trade Minister, Dorothea Werneck, acknowledges that it will not reach this limit.

The higher tariff and a contraction in consumer spending provoked by harsh credit limits forced a sharp reduction both in imports and in internal production, in the face of heavy inventory buildup in the ports and a levelling off in assembly plants.

The quotas were innocuous, admitted the secretary for foreign trade, Frederico Alves.

But the decision by the WTO, adopted last week in the consultations on Brazil's invoking the BOP provisions of WTO/GATT 1994 to justify the quotas, could wreck moves to rebalance Brazilian trade and attract investments. That effort provoked a crisis with Argentina and forced the intervention of Brazilian President Fernando Henrique Cardoso.

Argentina thus finds itself strengthened by the inevitable renegotiation of an agreement for the automotive sector and the economic necessities of the two countries could bring about a new confrontation.

Assembly plants located in Argentina confront a fall of 30% in their sales. Brazil, which managed a small surplus since July after a trade deficit from November to June, due principally to the import of vehicles, fears returning to the prior situation.

Additionally, Brazil is aiming to become one of the five largest producers of motor vehicles in the world, with a goal of 2.5 million units in the year 2000.

Without reaching that production it is impossible to make oneself competitive, declared the president of the National Association of Automotive Vehicle Manufactures (Anfavea), Silvano Valentino, and this demanded considerable investment.