Brazil says tariff hikes not protectionist

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SAO PAULO, Sept. 6 (UPI) -- Brazil is raising import tariffs on 200 commodities but insists it's not pursuing protectionism in the style of neighbor Argentina, which faces punitive action from Europe and the United States.

Tariff hikes of up to 25 percent will affect 100 import categories and will be followed in October with further tax rises on another 100 categories. Most of the affected items are capital goods from various industries, including petrochemicals and steel.

The first list of 100 goods affects imports from outside the Mercosur trade bloc.

The tariff hikes, which were expected, are part of a government attempt to stimulate domestic production, officials say. Despite that explanation, the tariffs are seen by the industry as double-edged and likely to invite retaliatory steps.

Huge cash surpluses from Brazil's commodity export boom have boosted earnings and in turn consumer demand but also slowed manufacturing growth and development of new industries in Brazil.

Brazilian manufacturers say they are up against cheap imports from China and other trade rivals and cannot compete. Backers of the government program to stimulate industrial growth in the country say Brazilian manufacturers can win over customers lost to cheaper imports if they become competitive in both price and quality.

Officials say the higher tariffs are aimed mainly at inducing local producers to do more and compete effectively and the tax hikes are temporary. The import tariffs will "automatically" respond to positive developments in local production and prices and will come down through a mechanism developed by the government.

For example, officials say, if the higher tariffs lead to price rises in domestic markets, the tariffs will come down automatically. But importers say they aren't so sure about that and are unhappy over the potential loss of business.

A monitoring scheme promised by the government will keep a close watch on local prices of imported goods affected by the additional duties. If prices rise as a result of the import duties, officials say, the government will immediately reduce the duties to keep domestic prices in check.

Various interpretations of the "mechanism" have confused traders.

Despite the elaborate assurances and ambitious checks-and-balances programs, the protectionist flavor of the new measures isn't lost on the industry and importers, who say they fear Brazil may face retaliatory steps in the same way Argentina faced international opprobrium. Officials said the tariff hikes stayed on the right side of the World Trade Organization laws.

Trade and Development Minister Fernando Pimentel said, "What we are doing is in the framework of the WTO rules and is not protectionism."

About 300 items were considered for tariff reviews, of which 100 were selected and another 100 are on a short list still under study.

Officials will continue to monitor potential impact on imports and the economy as a whole, Pimentel said.

Meanwhile, Argentina has received warnings from U.S. and EU officials that the company faces measures that are likely to curtail its exports to the two destinations.