by Isabel Versiani
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BRASÍLIA (Reuters) – The government announced this Friday the temporary reduction of 10% in the Import Tax rates levied on a large part of the country’s foreign purchases, unilaterally anticipating an initiative in negotiations with Mercosur partners under the argument of that Brazil has an urgent need to deal with the acceleration of inflation.
The measure will initially be valid until December 31, 2022 and will cover approximately 87% of the country’s tariff universe. The goal, however, is for the cut to become permanent based on an understanding to be agreed upon in Mercosur in the coming months, said officials from the economic team.
“The reason we have taken this measure now, before we have a consensus among the four Mercosur members, is the need and urgency to act on inflation,” Roberto Fendt, special secretary for Foreign Trade and International Affairs, told reporters. emphasizing that there is no “illegality” in Brazil’s initiative.
The secretary stated that the tariff cut was defined in line with negotiations already carried out with Argentina and Paraguay. The idea now is to reach an understanding with Uruguay so that, based on a consensus in the bloc, the initiative is permanently incorporated into Mercosur’s Common External Tariff (TEC).
The Secretary of Foreign Trade, Lucas Ferraz, said that Brazil defended the tariff reduction to include 100% of the import tariff, but that, at the request of Argentina, products with special regimes were excluded – clothing, footwear, dairy products and peaches – in addition of vehicles and parts with a tariff above 14%.
According to Ferraz, the estimate is that the reduction in tariffs announced this Friday will have an impact of -0.3% on the long-term price level (10 to 15 years) of the Brazilian economy.
Also according to government projections, the measure will generate an accumulated increase of 246 billion reais for the country’s GDP until 2040 and an increase of 139 billion reais in investments. Imports, on the other hand, will increase 290 billion reais and exports, 280 billion reais in the same period.
“Since the TEC was created in 1994, this is the first concrete, ambitious move to reduce our common external tariff,” said Ferraz.
“This is not a hostile movement to Mercosur, Brazil values Mercosur, Brazil actually wants a strong, modern Mercosur, which in fact responds to the aspirations of Brazilian society.”
FLEXIBILIZATION
According to a statement from the Ministry of Economy, the decision to unilaterally reduce tariffs at this time was taken under the terms of an article in the Mercosul Treaty of Montevideo, which provides for the possibility of adopting measures aimed at protecting people’s lives and health.
“The use of this device of the TM-80 is justified by the urgent situation brought by the Covid-19 pandemic and by the need to be able to count, immediately, with an instrument that can contribute to alleviate its negative effects on life and health of the Brazilian population”, says the note.
Fendt stressed that the government’s main instrument to deal with inflation is the interest rate, but that the reduction in tariffs can also contribute, particularly at a time of sharp rise in the dollar and the rise in international freight costs.
According to Ferraz, Uruguay has already shown itself in favor of reducing the CET, but defends that the issue be defined in conjunction with a decision on a relaxation of the freedom that the bloc’s countries should have to move forward with bilateral negotiations outside Mercosur.
Brazil has not yet closed a position on the degree of flexibility it intends to defend, said the secretary, and the government’s expectation is that an understanding around the two themes can be reached by the end of this year.
(By Isabel Versiani)
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