China is in talks with Brazil on lifting trade barriers that would allow the Latin American country to sell it more processed agricultural goods; Brazilian government officials have told the Financial Times.
During the negotiations in Brasília last week with Chen Deming, China’s commerce minister, Brazil’s government gave Beijing a list of 10 processed goods it wants to start exporting in quantity, such as frozen chicken wings and soyabean oil.
“The relationship with China is so unbalanced, not in terms of value but in terms of what we trade,”one official close to the trade negotiations said. “The Chinese acknowledged this and said they will make an effort to change this.”
Iron ore, soyabeans and petroleum account for about 80 per cent of Brazil’s exports to China, partly because more heavily processed goods are restricted by higher tariffs. Brazil claims tariffs on soyabean oil are nine times higher than the charge on raw soyabeans. Meanwhile, China mainly sends back cheap manufactured components such as television and air conditioning parts.
Economists have warned that if Brazil cannot soon start exporting more processed goods, it is in danger of falling victim to “Dutch disease”, whereby commodity-driven currency appreciation crushes local manufacturing.
Speaking to reporters last Monday, Mr Chen said that China welcomed more diversified exports from Brazil. “We hope that good Brazilian products can be introduced into the Chinese market,” he said, adding that it was ultimately up to the Chinese consumer to decide.
Brazil also called on China to promote the sale of Brazilian luxury shoes and jewellery in its domestic market. “We cannot compete with China on prices; that are not the point,” the Brazilian official said, adding that the government believed it could challenge countries such as Italy in China’s luxury shoe shops. Brazil’s new president Dilma Rousseff, Brazil’s new president, last month made one of her first overseas trips to China in a bid to diversify trade.
As the Brazilian currency has soared almost 50 per cent against the dollar since the end of 2008, putting pressure on local manufacturers. Brazil’s government has also taken more measures to slow various imports.
Brazil is looking at introducing similar measures on other products, the government official said, as the country tries to buy it time while it evaluates the problems facing individual sectors.
Brasília has launched anti-dumping investigations and imposed limits on imports of some Chinese goods to protect domestic industry but officials will be wary of imposing too many trade restrictions out of fear of retaliation from China.
In neighbouring Argentina, new tariffs introduced last year on cheap Chinese imports in order to protect local industry were met by retaliatory action from Beijing, which effectively banned imports of soybean products from Argentina in response.
Probably no country has gained as much from the rise of China as Brazil. Each country has what the other lacks. China needs commodities to house and feed its population; Brazil has them in abundance. Brazil needs foreign savings to fund domestic investment; China has a surplus. Extra bonus: their shared history has no colonial baggage. As a result, a long distance relationship has flowered. Over the past decade, bilateral trade has increased 18-fold to more than US$50billion annually.
Every day, Brasília faces increasing protests from manufacturers complaining that cheap Chinese-made goods are “de-industrializing” the country. This pushes Brazilian buttons, given the region’s long history of commodity dependence. But trade numbers bear out the concerns: over the past 10 years, the share of commodities in total Brazilian exports has more than doubled to 46 per cent, while manufactured goods have slumped. Massive Chinese foreign exchange intervention, which has deflected international capital flows to other markets in the so-called “currency wars”, has not helped. The real value of Brazil’s trade-weighted currency has surged 24 per cent since 2007, punishing local industry even more. Indeed, most of the country’s carnival costumes are now made in China; so too much of its processed steel. As a result, Brazil has begun to re-evaluate its Chinese ties.
Trade retaliation is a tactical possibility. Indeed, of the 144 anti-dumping investigations that Brazil launched at the end of last year, 50 were against China. But this is also a dangerous path. An alternative is to foster complementary industries, as other successful commodity producers have done. Norway, rich in oil, has an exportable excellence in deep water engineering. Israel, once famous for oranges, is now better known for the irrigation technology it developed to grow them. Brazil’s comparative advantage lies in agricultural sciences. (Financial Times)