Inflation, here I come…

President Dilma Rousseff has adopted a flood of initiatives to protect domestic industry from the invasion of imports. A survey identified 40 measures implemented or under consideration. Protectionism is causing apprehension in Brazil’s business partners, though industry executives still complain that the measures are short-term remedies and don’t solve their structural problem.

The government protectionist efforts range from intervention in the foreign exchange, increased enforcement at the ports and preferential treatment to domestic products in bids, to surcharges for specific products, raise in import taxes and renegotiation of automotive agreements with Mexico.

Since the crisis began in 2008, the Ministry of Finance has already changed 13 times the rate and/or terms of the Financial Operations Tax (IOF) to curb the inflow of dollars, says Estadao.

The Central Bank also routinely intervenes in the foreign exchange market to prevent the rise of the real. The staff of the Minister Guido Mantega adopted heterodox measures in foreign trade such as the increase in 30% of the IPI tax on imported cars and the addition of new taxes for clothing imports.

The Brazilian IRS (Receita Federal) became a protagonist in the efforts to defend the industry. Last week, it launched an operation called “Mare Vermelha”, an effort to create a more stringent enforcement activity of consumer good imports. “With 200 public servers involved, the mobilization of the government for such an operation is historic,” said a deputy secretary of customs and international relations.

The agency also discusses an agreement with Inmetro to create a law to inspect if imported products meet certain quality and safety standards. Importers fear that this type of rigorous enforcement will turn into a complete technical barrier.

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