Government officials are against raising steel import tax

The task force’s report, which included technicians of the Civil House and Ministries of Finance and of Development, Industry and Foreign Trade, was against the increase in steel import tax rate. The task force was created in early December to study the impacts of possible increase of taxation.

The Brazil Steel Institute, which represents the industry sector, defended the increase, claiming an excess of world production could flood Brazil and adversely affect the market of domestic steel mills.

The document was finalized in late 2015 and handed over to President Dilma Rousseff and ministers involved. The final decision has not been taken yet. The industry sector, as per source heard by Valor, favors a 35% rate. The current rate is between 8% and 14%. “We hope that a decision may soon be announced”, said the Secretary of Foreign Trade of the Ministry of Development, Daniel Godinho, presenting the data of the 2015 Brazilian trade balance.

According to the report, the crisis now faced by the industry sector, which is reducing the profit margins of companies, is not related to increased imports. For technicians, the overhead capacity in the industry is large due to the investments made in the past to meet the strong demand.

With the end of the commodity boom and China becoming net steel exporter rather than an importer, the level of capacity used by the sector in the country reached 69%.

According to a source heard by Valor, for the segment’s companies to become profitable again, this level should range between 82% and 83%, because the fixed costs and those of the production unit rose sharply and, since 2008, prices are not being readdressed, due to oversupply in the world market.

The task force’s evaluation is that the government is already using anti-dumping measures to protect the sector. Dumping is a form of unfair competition, where a country exports goods at lower prices than the local market and thereby hinders the production of the importing country. When dumping is proven, the government may levy an additional fee or set an import quota.

A government technician explained that the claim of the Brazilian steel industry that other countries are raising import tax duties to protect their industries needs to be analyzed with caution. Mexico increased its duty from 0% to 15%; however, the largest portion of the imports originated in the US, which is not subject to that duty. In the evaluation of the technicians, increased taxation may contribute to high domestic prices.

Despite the report’s conclusions, the decision depends on the President Dilma Rousseff and the ministers involved. One of them, the Finance, was changed recently. The predecessor to Nelson Barbosa, former Minister Levy went on to say that an increase in the fee “would not necessarily [be] the best [solution] or the most permanent”. This is because steel is a basic input of several chains. Thus, the increase in the product’s import fee would lead to a rise in the product’s price, which would impact all these chains.