MercoPress. South Atlantic News Agency

Brazil cuts down import tariffs to fight growing inflation

Guedes explained that “at this moment there is a strong inflationary pressure and facilitating the entry of imports will allow prices to adjust.”

In a move aimed at curbing inflation, Brazil Friday announced a 10% reduction of import tariffs on 87% of goods and services until December 31, 2022. Economy Minister Paulo Guedes now expects the other Mercosur countries to do the same.

In a joint note from the Ministries of Economy and Foreign Affairs, the Government explained that “rates will be reduced temporarily and exceptionally until December 31, 2022”, under the Montevideo Treaty, which allows countries to take measures aimed at “protecting the life and health of their people.”

The measure will work for Brazil and will not have an impact on items such as automobiles, auto parts, dairy products, textiles, and toys. Products that are in Mercosur exception regimes, such as capital goods, were also left out. “Brazil continues to participate fully in the ongoing negotiations in Mercosur. The Ministries of Economy and Foreign Relations reiterate the exceptional and temporary nature of this Resolution while reaffirming their commitment to Mercosur.”

Argentine Foreign Ministry sources admitted Brasilia had previously informed Buenos Aires it was going to take this decision temporarily. Argentine sources said the measure was suggested by the Government of President Alberto Fernández to appease both Brazil and Uruguay, who had asked for greater reductions.

The revision of Mercosur's Common External Tariff (CET) is an ongoing negotiation which began two years ago and was resumed in the Oct. 8 meeting between Argentina's Foreign Minister Santiago Cafiero and his Brazilian counterpart Carlos França, during which a consensus was reached to reduce the CET by 10%.

The definition adopted by the Ministry of Economy of Brazil (Resolution 269/2021 of the Executive Committee of CAMEX Management - Foreign Chamber of Commerce-) is of a transitory and exceptional nature and respects the parameters agreed between both countries and on which work continues within Mercosur. “There is a consensus between both countries regarding maintaining the unity of the bloc and negotiating jointly with third countries, in the sense of what was expressed in the Joint Communiqué of 8 October last.”

Following Brazil's decision Friday, Economy Minister Paulo Guedes said he expected the other three members of Mercosur would follow suit shortly.

According to reports from Buenos Aires, there will soon be a meeting of coordinators of the Common Market Group to update Mercosur's tariff structure in accordance with the current conditions of regional and world trade.

Minister Guedes explained that “at this moment there is a strong inflationary pressure and facilitating the entry of imports will allow prices to adjust.”

Meanwhile, Montevideo insisted on the “need to modernize” Mercosur. The Foreign Ministry and the Ministry of Economy and Finance of Uruguay issued a joint statement describing “Brazil's decision is understood within the current framework of Mercosur as an imperfect Free Trade Zone.”

“What was communicated by the Brazilian government reflects the need to modernize and open up Mercosur, as a way to achieve a better opening and international insertion,” the communiqué added.

Friday's decision came as a surprise, nevertheless, because most analysts foresaw the announcement would be made at the next bloc Summit to be held in December in Brazil.