Trade Regulations

Brazil pushes to alter Mercosur’s local production content rule

Sep, 21, 2022 Posted by Gabriel Malheiros

Week 202238

The Brazilian government is pushing to change the local production content rules that govern trade between Mercosur countries this year.

Brazil has long proposed such changes, yet it only saw a window to seal the reform with the other members of the bloc this year.

“Mercosur is currently discussing the topic. We may be able to wrap up this deal before the end of the year,” said Lucas Ferraz, secretary of foreign trade at the Ministry of Economy, to Valor.

Currently, intra-bloc exports  (from Brazil to Argentina, for example) must have at least 60% locally produced content in order to be free from import taxes. According to Ferraz, the goal is to lower this ratio to 50% in order to “aggregate more foreign inputs and increase competitiveness.” Argentina, Uruguay, and Paraguay must also consent for this to happen.

On a different note, the implementation of the automatic renewal of the “drawback” mechanisms – the so-called “continuous drawback” – will not be approved this year, according to the secretary.

The “drawback” is an instrument that establishes the suspension of the collection of federal taxes on inputs used in the production of goods (whether manufactured or not) that will later be sold abroad. Currently, this mechanism needs to be renewed periodically by companies, which increases costs and creates bureaucracy.

The implementation of the continuous “drawback” is an old request of the private sector, whose merits are recognized by the Ministry of Economy. But the governmental body rules out the possibility that these changes will come to force in 2022.

Nevertheless, Brazil’s foreign trade authorities view the most significant developments in trade policy since the start of the Jair Bolsonaro administration in 2019 as being the rounds of “drawback” expansion that have lately been carried out.

In the last few weeks alone, the federal government expanded the mechanism to 16 types of export-oriented services (such as transport, insurance, and after-sales assembly of machines), micro, and small companies for more than two years.

The Secretary of Foreign Trade believes that measures like lowering the local production rule and increasing the “drawback” are growing relevant “at a time of reconfiguring global chains,” in which ideas like “friendshoring” (countries with similar ideologies) and “nearshoring” (countries with similar logistical facilities) “gain importance in the decision-making of international investors.”

Source: Valor Econômico

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