U.S. Halted Trade Talks, Forced Duties, Quotas, Brazil Says

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By Michael Kepp

The U.S. broke off trade talks with Brazil and forced its steel and aluminum sectors to choose between import tariffs or quotas, two Brazilian ministries said.

The aluminum sector has opted for tariffs and the steel sector for quotas, Brazil’s Foreign Ministry and its Ministry of Development, Industry and Foreign Trade said in a May 2 joint statement.

“On April 26 the U.S. informed Brazil that it was interrupting negotiations” regarding agreements-in-principle covering national-security-based restrictions on Brazilian steel and aluminum, according to the statement. The U.S. decided to “immediately apply import tariffs” of 25 percent on steel and 10 percent on aluminum or, a non-negotiable alternative “additional, unilateral, and restrictive import quotas” on those products.

The U.S. has not finalized any agreement that resulted from this ultimatum, or details about it, the ministries said.

The joint statement contradicts a recent U.S. announcement that it reached agreements-in-principle with Brazil to remove steel and aluminum import levies that were imposed on national security grounds.

Steel sector representatives said the imposition of quotas on Brazilian steel exports to the U.S. would be “less restrictive than a 25 percent import tariff,” the statement said. Aluminum sector representatives said “the least harmful alternative to its interests would be to withstand 10 percent tariffs” on aluminum exports to the U.S.

The joint statement also said the Brazilian government hopes the U.S. ultimately doesn’t impose the steel and aluminum import restrictions and instead “maintains the current flow of bilateral trade.” However, the Brazilian government is “ready to take all the actions necessary with bilateral and multilateral organizations to protect our interests,” the ministries said.

This indicates that Brazil plans to appeal the U.S.-imposed tariffs or quotas on its steel and aluminum with the World trade Organization.

The Ministry of Development issued a “clarification” to its May 2 statement saying the U.S. import tariffs on Brazilian aluminum and steel will take effect “at the time the U.S. government makes its decision official.” Meanwhile, the decision not to apply import tariffs “will continue indefinitely,” the statement said.

Industry Responds

The Brazilian Steel Institute, which represents steel producers nationwide, said in a May 2 statement that the imposed import quota for semi-finished and finished steel would be based on the average volume of exports from 2015 through 2017 and that finished steel exports would have that quota reduced by 30 percent.

The U.S. set an import quota for semi-finished Brazilian steel, which accounts for 80 percent of total annual steel exports, at 3.5 million tons a year, an amount equivalent to the average of those exports from 2015 through 2017. This represents a 7.4 percent drop in semi-finished exports in relation to 2017 export volumes, Marco Polo Lopes, the head of the Brazilian Steel Institute, said in a May 2 conference call with journalists.

The U.S. capped quotas for Brazilian finished steel exports, which compete directly with U.S. producers, at 496,000 tons per year, causing an annual export volume reduction of 20 percent and 60 percent depending on the product, Polo Lopes said.

“Brazil received a surprise Sept. 26 phone call from the USTR saying that conditions no longer existed to keep negotiating the agreement and that the U.S. proposition now being offered was a take it or leave it one,” Polo Lopes said in the conference call.

Given that steel exports to the U.S. account for one-third of Brazilian steel exports, “we have no alternative other than to accept the American proposition” of tariffs or import quotas, the Brazilian Steel Institute said in a statement.

The Brazilian Aluminum Association, which represents aluminum producers nationwide, said in a May 2 statement that it had chosen U.S-imposed 10 percent tariffs on aluminum over quotas because “it is the least bad of two alternatives” and impact on the industry will be lower than quotas.

If the U.S. imposes aluminum import quotas on the basis of the average of total imports from Brazil from 2013 through 2017, “a time-period it picked, then that would set such Brazilian aluminum quotas at 41,000 tons per year, or 32 percent less than the 60,000 tons of aluminum that Brazil is expected to export to the USA in 2018,” Milton Rego, the association’s executive secretary, told Bloomberg Law May 3. That would cause Brazil to lose U.S. clients and contracts, he added

To contact the reporter on this story: Michael Kepp in Rio de Janeiro at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bloomberglaw.com

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