Brazil imports hit by customs strike and tax policy

As reported at the end of June, industrial action taken by customs officials looking for wage increases and better working conditions is affecting throughput at a number of ports in the country including Santos, Paranagua, Salvador and Manaus. The officials were striking for two days a week, frustrating import and export clearance and leading to significant backlogs in a range of goods including automotive parts and finished vehicles. Only medicine, food and livestock remain unaffected by the action.

Maritime services provider, Inchcape Shipping Services, has issued a new report this week stating that workers are now doubling their strike periods from two days a week to four days meaning that the ports, as well as airports and bonded warehouses, are seeing an increase in disruption.

Inchcape reports that with the additional strike days putting more pressure on port operations, some ports are facing the fact they may have to refuse cargo if the action continues.
“Congestion at some ports is already impacting anchorage areas, forcing ships to deviate to other less congested ports,” reported Inchcape.

“With cargo clearances and processes already more expensive, the strike is further affecting commerce and customs’ leaders are expecting this latest action to reinforce their negotiating position to the government on salaries and working condition,” it continued.

Import tax already hitting sales
The port strikes could have a negative effect on sales, adding further heads to OEMs and importers moving vehicles into Brazil, where they already face tight port capacity as well as increased customs duty. It is still unclear whether the Brazilian government will ease the 30% industrialised product tax as had been suggested in February this year.

Since last December the tax has been imposed on foreign vehicles imported from outside the Mercosur trading region and has so far resulted in a 40% drop in sales of those vehicles, according to recent figures released by Flavio Padovan, the president of the Brazilian Association Motor Vehicles Importers (Abeiva).

According to a survey undertaken by Abeiva over the first two quarters of this year, the number of registrations for imported cars fell by 21.6% over the same period in 2011.

Average sales fell from 18,342 units in the second half of 2011 to 11,829 in the first half of this year.

Abeiva says that this has resulted in a 29% decrease in employment in the sector, where the number of jobs has fallen from 35,000 to 25,000.

"The growth of jobs in the domestic industry was offset by the loss [of jobs] in the import sector," Padovan said, referring to the improved sales performance of domestic vehicles benefiting from the reduction in IPI.

Taxes collected from the sale of imported vehicles is also expected to fall by around 40%, from $3 billion  to  $1.8 billion.

Although Padovan said that the current situation was giving cause for concerned, he nevertheless expected the government to find a solution to the problem by the end of the month.

The Ministry of Finance is looking at a range of measures, he noted, from introducing a fixed quotas for imported vehicles that would be exempt from the hike in IPI to a simple exemption for vehicles from payment of the tax.

In reality, imported cars have always has a small share of the overall automotive market in Brazil; in June 2011, for example, they accounted for just 3.3% of all new registrations. However, Padovan maintains that the presence of imported vehicles results in healthy competition.

"We set standards in technology and innovation, which encourages the domestic industry to invest," he said.