Brazil May Ask WTO About Possible Action on Weak Currencies, Official Says

Brazil, which saw imports from China surge 61 percent last year, may ask the World Trade Organization to look into what action can be taken against countries that weaken their currencies, a Finance Ministry official said.

Carlos Marcio Cozendey, the ministry’s international affairs secretary, said the government hasn’t decided whether to consult the Geneva-based WTO and that it’s too early to say if global trade rules apply to currency policies. He said he wasn’t referring to any specific country or currency.
“If the currency is out of place or there are factors inadequately influencing the currency, it can work as a kind of subsidy to exports,” Cozendey said in an interview yesterday in Brasilia. “It’s a real problem. It affects trade.”

President Dilma Rousseff’s administration is voicing more concern about the yuan’s peg to the U.S. dollar than her predecessor’s government at the same time policy makers are stepping up measures to curb a 38 percent rally of the real against the dollar since 2008. The gains outpace all 25 emerging market currencies tracked by Bloomberg and compares with a 3.7 percent gain by the yuan in the same period.

Cozendey, who headed the economics department at Brazil’s Foreign Ministry from 2007 to 2010, said raising the currency issues at the WTO can spur better coordination among the Group of 20 nations. Finance officials from the G-20 meet next month in France ahead of a summit in the Mediterranean resort of Cannes Nov. 3-4.

“The discussion can go many ways or generate a discussion that corrects the source of the problem,” Cozendey, 47, said. “It can generate greater coordination.”

WTO Comments

WTO chief Pascal Lamy said in October that disagreements about exchange-rate policies may threaten economic stability and commerce while putting the global economic recovery in “serious jeopardy.” He said the International Monetary Fund, and not the WTO, may be the best institution to deal with these issues.

U.S. lawmakers and European officials have pressed China to raise the value of its currency, and the House of Representatives last year passed a measure that would allow U.S. companies to seek import duties to counter the effect of a weak yuan.
Brazil Trade Minister Fernando Pimentel this month said China’s currency policy would be a “priority” in bilateral talks when Rousseff travels to China in April. Marco Aurelio Garcia, one of her top foreign policy aides, said in a Jan. 10 interview that Brazil has as many “problems” with China’s currency policy as it does with a weak U.S. dollar.

Currency Actions

Rousseff’s government since taking office Jan. 1 has taken three steps to strengthen its artillery in what Finance Minister Guido Mantega has called a global “currency war.”

On Jan. 14 the central bank auctioned $1 billion worth of reverse currency swaps, the equivalent to buying dollars in the futures market, for the first time in 21 months. Policy makers also set reserve requirements on short dollar bets while Mantega authorized the country’s sovereign wealth fund to buy dollars in the futures market.

Brazil’s interest rates, at 10.75 percent is the highest in the G-20 after Argentina, have been making the country a magnet for capital inflows that the World Bank on Jan. 13 warned may be “destabilizing” its exchange rate.
Trade Measures

At the same time Brazil is fighting currency gains, the government has increased tariffs on Chinese-made goods.
Last month, the government increased to 35 percent from 20 percent a duty on imported toys after local manufacturers complained they were being harmed by a flood of cheap, Chinese- made goods. China is the target of 28 of 70 antidumping measures adopted by Brazil under WTO rules, Trade Ministry figures show.

Brazil’s state-development bank said in a study last month that a surge in Chinese imports, boosted by the yuan’s competitive exchange rate, threaten to displace domestic sales by local manufacturers and has “important implications” for the country’s industrial development.
Brazil had a $23.5 billion trade deficit with China in manufactured goods last year, a 60 percent increase over 2009, the Sao Paulo Industrial Federation, known as Fiesp, said in an e-mailed statement yesterday. Imports from China increased 61 percent last year, to $25.5 billion. Brazil had an overall $5.2 billion trade surplus with China last year.

“Brazil’s relationship with China is important, but from an industrial perspective it’s awful,” Roberto Giannetti, head of Fiesp’s international department, said in the statement.

Brazil’s trade surplus may narrow to $9 billion this year from $20 billion last year, according to the median estimate in a central bank survey of about 100 economists published this week.

By Arnaldo Galvao and Iuri Dantas
Source: Bloomberg.com