12 October 2005

Cheap imports burn Brazil

A massive tide of cheap Chinese imports is flooding Brazil.

The Wall Street Journal reported the government is facing criticism for having moved too quickly to embrace China in his effort to find a counterweight to U.S. influence.

China's booming market helped Brazil climb out of an economic hole earlier in the decade, with Brazilian exports of raw materials such as soybeans and iron ore key to the recovery.

Now, the dispute with China shows the Asian powerhouse may represent as much a headache as a help for Brazil.

The two countries are trying to pick up the pieces after trade negotiators' recent failure in Beijing to reach a deal that would lead to a voluntary restriction of some Chinese exports to Brazil.

Like the U.S. and the European Union, Chinese textiles inundated Brazil with inexpensive Chinese textiles when a decades-old clothing-quota system expired at the beginning of this year.

The U.S. and EU quickly imposed trade sanctions on certain Chinese clothing imports; since then, the EU has reached an accord with China that allows for a gradual increase in Chinese imports. The U.S. and China are still at odds over how to control textile imports, with talks expected to resume this week in Beijing.

After the talks in Beijing failed, Brazil issued a decree that will allow companies to ask the government for safeguards—quotas or higher tariffs—against Chinese imports. The move followed months of heavy lobbying by Brazilian shoe, toy, and textile makers.

Brazil's complaint is that while it exports a lot to China—$4.1 billion through the first eight months of the year—the majority of its exports are commodities and low-value-added goods. Meanwhile, Brazil is experiencing a surge in imports of Chinese manufactured goods that has reduced its bilateral trade surplus 51% from the same period last year. Moreover, billions of dollars of promised Chinese investment in Brazil's infrastructure have been slow to materialize.

Source: The Wall Street Journal