Brazil raises import duty on polymers to protect domestic players from the injury caused by cheap imports

The Brazilian government has raised import duties on 29 polymer and chemical products to protect the interests of domestic players and shield them from the impact of cheap imports. This move aims to encourage domestic players to invest in capacity expansion and make Brazil self-reliant in these polymer and chemical products.

Out of 62 polymer and chemical products for which the industry sought an increase in import duty, Brazil’s Chamber of Foreign Trade, the regulatory authority, approved the proposal for only 29 items. As a result, importers in the Brazilian territory will now pay an import duty of 12.6-20 percent, compared to the previous rate of 7.2-12.6 percent. “The 29 products had rates ranging from 7.2-12.6 percent, which will be increased in the range of 12.6-20 percent for a period of 12 months,” the Chamber said.

However, the industry’s proposal to increase import duties on the remaining 33 items was temporarily rejected. Therefore, these items will continue to be subject to import duty between 7.2-12.6 percent, regardless of volume or timing of inward shipments. According to the outlined procedure, the proposal for hiking import duty has been forwarded to Mercosur Partners, which will respond in 15 days. In the case of no opposition, the resolution will be published in the Official Gazette and become effective. The government of Brazil may reconsider its decision and raise import duties on some or all remaining products as well.

Polymers to attract 20% duty
The revised guidelines mandate Brazilian importers to pay 20 percent duty on the import of polypropylene (PP), polyethylene (PE), and polyvinyl chloride (PVC) now, an increase from 12.6 percent applicable earlier. The import tax on expandable polystyrene was raised from 12.6 percent to 18 percent, while the duties for other chemicals from the upstream industry, such as styrene, adipic acid and monoethanolamine, were also hiked.

The present upward revision will attract import duties of 20 percent on polyethylene terephthalate (PET). PET recyclers have been closely monitoring this request, as prices of post-consumer PET bales have reached record highs. Interestingly, virgin resin imports from Southeast Asia remain competitively priced. According to trade sources, the higher import tax could raise domestic prices for virgin PET resin, enabling recyclers to also increase flake prices.

Face-off between producer and user industries
Producers’ body representing Brazil’s chemical and polymer producers, Abiquim, welcomed the move as the tax increase was proposed based on the recommendations of this association. Abiquim argued that the import duty increase was necessary due to the competition getting stiffer with every passing day due to cheap imports. Domestic chemicals producers demanded an immediate level playing field for the survival of the industry. According to Abiquim, overseas players got advantage of low production cost and therefore, these players dump their goods to Brazil to provide injury to the domestic producers.

“The important aspect of the tax increase is not the number of products covered, but their volume or value. The products under import duty increase cumulatively represent 65 percent of the total volume and 75 percent of total value of chemicals and polymers imports. Therefore, the government’s decision to raise import duty is a welcome move which will bring relief to the domestic chemicals producers,” said Andre Passos Cordeiro, Executive President of Abiquim.

The association further believes that the import duty increase will attract fresh capital inflow into the Brazilian chemical industry, create jobs, and strengthen the local economy. The additional funds collected through higher taxes will be re-invested on infrastructure development, and public services improvement, which will eventually support the growth of the Brazilian economy. Echoing a similar response, Brazilian petrochemical major Braskem termed the increase in import duties as a positive step towards ensuring fair competition and fostering growth within the industry. It is worth mentioning here that Braskem produces basic chemicals, PE, PP, and PVC.

Soaring imports
Abiquim highlighted that the share of chemical imports in the Brazilian market has jumped significantly in the past 20 years, with expanded demand reaching 47 percent in 2023 from 21 percent registered in 2000. In the period between January and June 2024, the sector’s trade deficit mounted to US$23 billion. Unfortunately, the chemical and polymer sector saw the worst-ever idle capacity in Brazil’s history.

“The Brazilian chemical industry accounts for approximately 11 percent of the country’s economy. The domestic industry was suffering due to increased imports. Local job opportunity was reducing, with new employment generation evaporating and existing ones struggling for survival due to the closure of factories. Therefore, the government’s decision was essential for the survival of the industry, as a strong industry pre-supposes a strong country, said Cordeiro.

Users criticise
User industries led by Brazil’s plastics producers criticised the decision. Brazil’s plastic industry association Abiplast evinced disappointment on the increase in the import duty on chemicals and polymers. According to Abiplast, the increase in import tax would yield the proportionate escalation in the landed cost of the imported goods. “This increase will raise the cost of plastic production and reduce competitiveness in the world market. For domestic end consumers also, the products’ prices will go up,” affirmed the association to its members.

Apprising the development to its members, Abiplast said that the tax increase could hurt small- and medium-sized enterprises that somewhat lags behind in terms of installed capacity of large players. Giant corporations will have capacity to absorb the duty hike at least for initial months. Medium and small size enterprises will certainly pass on the duty hike to consumers, thus widening the price gap between production capacity of the industry players, and therefore a survival issue.

Brazilian plastic producers will certainly raise their product prices ahead of Christmas and New Year celebrations. Now, importers will change their procurement strategy to benefit from lower prices in Asia. For example, Brazil’s PE imports jumped by 45 percent in the January-August 2024 period to 1.4 million tonnes compared to the corresponding period of 2023. North America enjoyed a 79 percent share, while South America had another 10 percent stake. Brazil also buys polymers from Asia and the Middle East.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com