Brazil reinterprets free trade. Big time. With ipads as bonus.

FT

After last year’s increase of a tax on imported vehicles, Brazil unveiled last week proposals for another set of protective measures. The trade ministry has assembled a team to choose up to 100 products on which the government might levy higher import taxes.

The list will be valid until December 2014 and must be approved by the other countries belonging to Latin America’s Mercosul trading bloc.

Emílio Garófalo Filho, head of the Brazilian government’s “chamber of international commerce”, known as Camex, said the move came at a time of commercial imbalances caused by the state of the global economy. He predicts that Europe, stricken by the eurozone crisis, will import less, creating a glut of goods in the international market that will then be dumped on Brazil. The measure, he says, is an attempt to prevent this expected flood of cheap imports from destroying Brazil’s domestic industries.

The team will consult with the private sector to decide which products should be taxed and is expected to have a final list ready by April. “We want to be very transparent,” Garófalo said, claiming that everything was being done in accordance with the World Trade Organization’s rules.

One company not likely to be affected is Taiwan’s Foxconn, maker of Apple’s iPad and LCD screens. At the same Camex meeting, the ministry approved a tax reduction of 95 per cent on production of iPads in Brazil until December 2014.

“In addition to the creation of jobs and investment, the production of tablets in Brazil will cheapen the price of the product” said Fernando Pimentel, trade and development minister. To qualify for the tax break, Foxconn Brazil must invest 4 per cent of its net revenue in research and development.

The incentives underline Brazil’s emerging new industrial policy: foreigners and their goods are welcome – but they must be made in Brazil.

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