São Paulo – It is going to get harder to export manufactured products to the European Union. The European Commissioner for Trade, Karel de Gucht, said on Monday (18) that Brazil should be excluded from the Generalized System of Preferences (GSP) as it is no longer a “poor country”. The GSP guarantees reduction or elimination of fees on products made in developing countries and exported to developed nations. As, to the EU, Brazil no longer needs this type of incentive, the bloc may remove the benefit. That may be done at any moment, but he pointed out that it should take place in 2014.
Gucht stated that Brazil is qualified as a middle-income country and no longer needs the GSP, which benefits some 10% of Brazilian exports to the EU. In the first half, the EU was the third main buyer of Brazilian products, only behind Asia and Latin America. Of the US$ 118.3 billion exported in the period, the bloc was responsible for 21.6%, or US$ 25.5 billion.
The president at the Federation of Industries of the State of São Paulo (Fiesp), Paulo Skaf, said that the main loss to Brazil, if it leaves the GSP, would be loss of competitiveness. “When faced with internal difficulties like exchange rates, interest and tax burden, the loss of the benefit may be a determinant factor for a reduction in Brazilian exports,” he said. These are the three main complaints of Brazilian businessmen as a whole: appreciation of the Brazilian real against the dollar, high interest rates in the country and tax burden.
To the president at the Brazilian Foreign Trade Association (AEB), José Augusto de Castro, the end of the benefit should affect exporters of manufactured products. Among them, those suffering the main impact would be the automotive and auto parts industries, shoes and textiles, chemical product and furniture sectors. He does not believe that Brazil may “replace” this loss finding other trade partners. “Compensating is hard as current exchange rates do not allow companies to find good options.”
According to the CEO at the Arab Brazilian Chamber of Commerce, Michel Alaby, Europe is living an “unprecedented” crisis and has no easy solutions to solve the problem. “Abandoning the euro (the European currency) is very hard. What they can do is increase exports and strengthen industry. And that is what they are doing,” he said.
A professor at the College of Business Administration, Economics and Accountancy (FEA) at the University of São Paulo (USP), and also partner and president of Fractal Research Institute, Celso Grisi states that Brazil may compensate this loss in revenues with manufactured products by expanding agricultural commodity prices. “The world is lacking commodities, like sugar. Brazil may incorporate this new cost into these products. It is not retaliation, it is cost incorporation,” he said.
This, however, is not the best solution to the problem, according to Grisi. He recalls that this threat by the EU is not new and is related to some Brazilian complaints at the World Trade Organisation (WTO). Among them, the country is questioning the fee that the EU is going to charge on aircraft from abroad crossing European skies starting in 2012. Brazil also questioned the EUs great sanitary and phytosanitary regulations. While the country questions these practices, Europe places threats like GSP exclusion.
“Europe is living a moment of economic crisis, a difficult moment. Maybe it is not the best moment to start a conflict with them. We have shown our teeth [with these inquiries at the WTO]. Now, we are going to have to negotiate to obtain reciprocal benefits with symmetry,” said Grisi.
Another solution that may be good for both Europeans and Brazilians is the conclusion of a free trade agreement between the Mercosur and the EU. But, however, Grise recalls that the question has been under discussion for many years and does not depend solely on Brazil. Skaf stated that maintaining the GSP is important, but said that the priority is to conclude the free trade agreement by 2014. “Last year we returned to talks and expect the agreement to be reached next year,” said Skaf.
*Translated by Mark Ament
