Imports growth stirs protectionist practices in Brazil

Requests for protective measures against unfair practices in imports surged in the first half of the year. Data obtained by media outlet Valor show that by July 1, 2024, 45 pleas for trade defense measures were filed with the Foreign Trade Secretariat (Secex/Mdic). This number surpasses the 44 petitions submitted throughout 2023. If the current pace continues, the government estimates that it will receive the largest number of such requests in 2024.

The data includes requests for anti-dumping measures, safeguards, and compensatory measures. According to the government and experts, this increase reflects changes in standards and a rise in global protectionism, creating a higher risk of trade diversion to Brazil.

Of the 45 requests received by July 1, 44 pertain to anti-dumping duties, with 22 targeting Chinese imports. The remaining petitions are more dispersed, with India in the center of three requests, followed by Germany and Malaysia with two each.

Anti-dumping duties address the sale of goods at prices below those in the exporter’s domestic market, a practice aimed at eliminating competition or gaining market share. If an initial analysis finds dumping and its harmful impact on domestic production is confirmed, an investigation may be opened. If confirmed, an anti-dumping measure, a surcharge on imports from the investigated country, is applied.

From 2014 to 2023, Secex data shows an average of 40 annual petitions for trade defense measures, peaking at 55 requests in 2018. The highest level recorded had been 117 petitions in 2011, a year marked by a strong currency exchange rate and robust domestic demand in Brazil.

These petitions include requests for original investigations and end-of-period reviews. Original petitions seek the application of measures after establishing the presence of dumping, damage, and a causal link. Reviews determine if removing existing anti-dumping duties would lead to a resurgence of dumping and its damages.

The rising demand for protective measures against unfair trade practices coincides with shifts in the Brazilian trade balance, marked by increased import volumes. Driven by capital goods and durable consumer goods, imports surged 10.6% in the year up to May, outpacing the 7.5% growth in exports.

The chart below compares Brazilian container imports for the first five months of the year over the last three years. The data is from DataLiner:

Brazilian Imports via Containers | Jan-May 2021 – Jan-May 2024 | TEUs

Source: DataLiner (click here to request a demo)

This trend contrasts sharply with the same period last year, when exports grew by 9%, and imports fell by 7%, according to data from the Foreign Trade Index (Icomex) developed by the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre).

Tatiana Prazeres, head of Secex, commented on the significant rise in trade defense petitions this year. “This indicates a greater demand for investigations into anti-competitive or unfair trade practices.” She highlights that while imports, in general, are growing, the increase in imports of goods involved in trade defense cases is much more pronounced.

Prazeres attributes the rise in trade defense requests to the internal environment. “Countries are increasingly restricting imports with trade defense measures or other restrictions, which represents a trade diversion threat to Brazil,” she explains. “There are instances where industry representatives alert us to various jurisdictions that have restricted imports from certain origins using anti-dumping measures. As a result, these products, which can no longer easily enter other markets, are redirected to Brazil. Consequently, we observe a significant import increase in the cases brought to our attention.”

Prazeres says this context is linked to global investment trends in productive capacity and rising trade barriers. “These changes in trade patterns drive greater demand for trade defense.”

For Welber Barral, partner at BMJ consultancy and former Secretary of Foreign Trade, the demand for protective measures will remain strong for the foreseeable future, at least through 2024 and 2025, mainly due to external factors.

During Donald Trump’s administration in the United States, there were many unilateral trade measures, such as quotas, primarily targeting imports from China. “The [Joe] Biden administration has been more ‘by the book,’ but trade defense measures have grown significantly, extending even to less prominent sectors. Some measures have also affected Brazil,” says Barral, citing examples like honey and lemon juice. “In the European Union, defense measures have also intensified. That’s the global trend.”

At the same time, Barral notes that international trade is not significantly growing. “There is an oversupply of some goods, which creates an environment conducive to dumping or other anti-competitive practices, affecting Brazilian imports as well,” he says. “Since the domestic industry is not growing much either, the sector is becoming more active in defense orders.”

According to data from the World Trade Organization (WTO), trade in goods increased by 1% in the first quarter of 2024 compared to the same period in 2023. In an April report, the organization predicted a 2.6% increase in global trade volume this year and 3.3% by 2025. If the first quarter’s pace persists, the WTO predicts that trade volume will increase by 2.7% in 2024. In 2023, there was a 1.3% drop.

Rafaela Noman, director of the Commercial Defense Department at Secex, highlighted the greater share of original pleas among the trade defense investigations initiated in 2024. In previous years, many of the investigations opened were end-of-period reviews.

In 2023, 22 investigations were initiated, with eight being original investigations and the majority, 14 being end-of-period reviews. The previous year, 2022, saw 15 new investigations, all of which were reviews and contained no originals. From 2024 to July 1st, 19 investigations were launched, with 15 being original and only four being reviews.

According to Barral, this indicates that new sectors are now questioning supposed unfair import practices. According to Secex, five original investigations opened in 2024 were in the metals sector, five in textiles, two in plastics and rubbers, and two in chemicals.

The survey also shows China has increased its share among petitions for trade defense measures. In 2023, China’s share was 35%, but it has risen to almost half (49%) of the petitions in 2024. This representation of China, Prazeres says, is not exclusive to Brazil. “The data compiled periodically by the WTO shows that the largest number of anti-dumping duties stem from trade with China, whose exports are very competitive. It is an international reality. Furthermore, China is the main origin of Brazilian imports.”

Prazeres also highlights that the increased demand for commercial protection stems from the private sector’s perception that the government is willing to activate defense measures against unfair trade practices when all process requirements are met. The new rules on public interest also increase legal certainty.

Source: Valor Econômico

Click here to access this story’s original rendition in Portuguese: https://valor.globo.com/brasil/noticia/2024/07/05/crescimento-da-importacao-impulsiona-defesa-comercial.ghtml

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