SAO PAULO, Sept 27 (Reuters) - Opening up Brazil to more foreign trade would be a “disaster for Brazilian industry,” Trade Minister Mauro Borges said in newspaper interview on Saturday, rebuffing a common plea among business leaders in Latin America’s largest economy.
Fewer trade barriers would lead to the “Mexicanization” of Brazilian industry, Borges told Folha de S.Paulo, turning the country’s factories into little more than an assembly line for foreign firms and weakening Brazil’s manufacturing supply chain. His comments may offer a preview of Brazilian trade policy for the next four years should President Dilma Rousseff win re-election next month.
Mexico’s light assembly factories, or “maquiladoras,” are often used by U.S. firms to take advantage of cheap labor, with goods usually exported back to the U.S. market. They account for nearly two-thirds of the country’s non-oil exports at about $196 billion a year, according to 2013 data.
In contrast, Brazilian industry is mostly focused on the domestic market, with local manufacturers protected by high import tariffs, local content rules for government procurement contracts, subsidized credit and a wave of stimulus measures to boost output and protect jobs.
Yet Brazilian firms have struggled for years because of poor infrastructure and high costs. The manufacturing sector is expected to contract 1.94 percent in 2014, according to a central bank survey released this week.
Many business leaders believe lower trade barriers would help cut the cost of inputs and make local industry more competitive in the global marketplace.
Brazil’s 2014 trade numbers moved into a slight surplus in August after hovering in negative territory through most of the year. The country’s trade surplus fell to its lowest level in over a decade in 2013, causing the country’s current account deficit to widen sharply.
Borges attributed those numbers to Brazil’s “relatively open economy,” in which some imports replaced locally manufactured products.
According to International Monetary Fund data, Brazil is the most closed major economy in the Americas, with trade accounting for only about a quarter of gross domestic product. An International Chamber of Commerce study released last year ranks Brazil near the bottom of G20 economies for openness to trade.
Borges also told Folha that he is against a trade deal with the United States as both economies “would not be prepared” for such an agreement, citing the unlikelihood of U.S. congressional approval and low import tariffs between the two countries. (Reporting by Asher Levine; Editing by Douglas Royalty)