Brazilians feel squeeze amid China 'success'
By Mario Osava
RIO DE JANEIRO - China took over from the United States as Brazil's top market
in 2009, indicating a qualitative change for exports from the South American
giant, which is increasingly dependent on sales of commodities and food.
As a result of the international financial crisis, Brazil exported 42% less to
the United States last year than in 2008. In contrast, it sold 23% more to
China, but these exports were almost exclusively commodities, led by iron ore
and soybeans.
The drop in the US market is a double blow because the shortfall is mainly in
manufactured goods, which generate more added
value and more jobs. Three-quarters of Brazil's exports to the United States
are industrial products, which account for only 24% of its sales to China.
The growth in trade with China is "a step backwards" for this country, said
Jose Augusto de Castro, vice president of the Brazilian Foreign Trade
Association (AEB). When dealing in commodities, "the importer decides and
controls the quantity and prices, making an unstable market", in contrast to
the situation with manufactured goods, he said.
Commodities also generate low-grade jobs, whereas manufacturing employs skilled
personnel for higher wages, creates a multiplier effect on employment as the
production chain is longer, and expands the domestic market, he told IPS.
Chinese industry has also penetrated the Brazilian market with its own exports,
taking advantage of the mismatch in the exchange-rate policies of the two
countries. This particularly hits sectors relying solely on Brazilian capital.
These sectors, such as the footwear industry, textiles and furniture, lack
support from headquarters abroad, or international marketing teams, to expand
their exports, said Castro.
Bibi, a shoe-making company specializing in children's wear in Parobe, south
Brazil, has seen its exports, which made up one-quarter of its revenues in
2006-2007, shrink to 15%, after two "terrible" years, said company president
Marlin Kohlrausch.
Diversification of its sales to more than 65 countries did not shield Bibi from
the effects of the overvaluation of the Brazilian currency, the real, which in
dollar terms is worth nearly twice today its value eight years ago. In the
meantime, China has kept the exchange rate of the yuan constant with respect to
the dollar.
The exchange rate is "ideal when everyone is complaining", including importers
and Brazilians who travel abroad, said Kohlrausch. But "at present, only
exporters are complaining", he said. Exporters are also affected by high
taxation and Brazil's precarious infrastructure.
The exchange rate issue has dire effects, but is not the root cause of the
hardships disproportionately affecting Brazil's exporters. To solve these,
long-term measures are needed, such as a tax reform to put a stop to the
country "exporting taxes," reduction of red tape and improvements in
infrastructure, said Castro.
However, the artificially undervalued yuan is annoying the rest of the world,
including the United States. One consequence is that Brazil merely looks on as
China wins over markets that traditionally purchased Brazilian manufactures,
including South American markets.
China joined the World Trade Organization (WTO) in 2001, and last year its
share of the US market increased to 18.8% from 8.6%, while Brazil's share only
grew to 1.38% from 1.2%. Even that growth was due to Brazil's crude oil
exports, which compensated for the decline in its sales of manufactured goods
to the United States, according to a study by the Brazilian National
Confederation of Industry (CNI).
In 2002, manufactured goods represented 67% of Brazilian exports to the United
States, whereas in 2009 that share fell to 47%, according to the Brazilian
Foreign Trade Association (AEB).
Ideally, pressures on China would bring about a change in its controlled
exchange rate policy, which is in conflict with Brazil's and many other
countries' floating exchange rates, but protectionist measures in retaliation
are not an option because they would violate WTO rules, said Sandra Ríos, head
of the Centre for Integration and Development Studies (CINDES) in Rio de
Janeiro.
In her view, however, trade with China does not represent "a step backwards".
The rise in commodity exports was not a deliberate plan, but rather an
opportunity created by the rapid growth of the Asian power, and it "saved the
Brazilian trade balance" during the world recession, she told IPS.
Until China's exchange-rate policy is corrected, Brazil needs to be more active
and competitive, by reducing the tax burden on exports and promoting trade with
the markets that buy its manufactured goods, such as the United States and
Latin American countries, she said.
China "uses aggressive strategies to break into markets", and this provokes
protectionist reactions which are "a poor defense", said Ríos.
The Group of 20 major economies, including the richest countries and emerging
powers, is in her view the best forum to negotiate solutions to these disputes,
which have been exacerbated by the global financial crisis that hindered
attempts to bring about a new balance in international markets.
China's economic growth should not take place "at the cost of jobs in other
countries", she said.
But according to Ríos, changes in China's economic policy will take a long
time, in spite of international pressure, because internally the export sector
has amassed great political clout, and it "will not give up its privileges".
Brazil is losing jobs not only due to the decline in its industrial exports,
but also because of the transfer of factories abroad, many of them to China -
another consequence of the overvaluation of the Brazilian real.
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