Currency Wars: Brazil To Propose New Exchange AntiDumping Measures

Brazilian newspaper O Estado de Sao Paulo reports today that, concerned about the effects of the exchange wars on its economy, Brazil will propose  the adoption of a barrier to offset currency devaluations. The mechanism is provisionally named "exchange antidumping" and will be presented at the World Trade Organization (WTO).

Led by the Ministry of Development and the Foreign Ministry, the measure proposes an acceptable band of fluctuation of currencies - which would be determined by such organizations as the International Monetary Fund (IMF). If the band is exceeded, the countries would be allowed to charge an extra import duty to offset the damage caused by the exchange.
"This discussion is ripe for this moment. All countries face the same problem, which is the devaluation of the dollar," said the State Development Minister, Fernando Pimentel. He cited as an example the recent decision of the Central Bank of Switzerland to ensure a high limit for its currency.

The government believes that import taxes in Brazil, which can reach a maximum of 35%, are no longer sufficient to offset the foreign exchange crisis in the post-2008 crisis. The understanding is that countries committed themselves to the current levels of tariffs in 1994, a time of relatively fixed exchange rates.

The ministry has stepped up measures to protect trade, but has noticed that the current rules for antidumping and safeguards only solve specific problems in some sectors. If all antidumpings measures demanded by the private sector were adopted today, only 4% of the import tariff would be achieved.

The initiative to propose an "exchange dumping" occurs at a time when the real currency reached its highest against the dollar depreciation in the year. For Brazil, this is not a discussion of short-term, but rather strategic. It is another example of the shift in trade policy Dilma, considered to be more protectionist than in previous administrations.

To try to slow the strengthening of the real, the government adopted an aggressive policy of buying stocks and raised the tax on Financial Operations (IOF). Last week, it raised the Industrialized Product Tax (IPI) by 30 percentage points for imported cars or those with less than 65% of Brazilian pieces.

Support. Brazilian diplomats have informally sounded the U.S. and China over its support for the mechanism of "exchange dumping" and, at least at this stage, they have not found strong resistance. In practice, the Chinese would be the hardest hit, but they argue that its currency merely followed the devaluation of the dollar.