Brazil’s Central Bank makes record dollar intervention in December

Last month, monetary authority sold $21.57bn in the spot market to counter a record $26.41bn outflow

01/09/2025

The Central Bank of Brazil carried out its largest monthly intervention in the spot dollar market in December 2024, marking the most significant activity since the country adopted the floating exchange rate in 1999. The monetary authority sold $21.57 billion in the spot market last month, a record intervention driven by a historic dollar outflow of $26.41 billion, according to monthly currency flow data dating back to 1982.

“December is always a challenging month. However, the outflow in 2024 was significantly stronger, heavily concentrated in the financial account,” explained Sérgio Goldenstein, chief strategist at Warren Investimentos and former head of the Central Bank’s Open Market Department (DEMAB). “It made sense for the Central Bank to intervene in the spot market rather than through swaps because the pressure was concentrated precisely in the spot market, given the volume of physical dollar outflows.”

Until November, Brazil’s currency flow remained in positive territory, buoyed by strong commercial account results that more than compensated for financial outflows. However, this trend reversed sharply in December, a month typically marked by substantial dollar outflows for profit and dividend remittances. In October, Valor had already highlighted that financial account outflows were heading for a record high in 2024.

Over the year as a whole, Brazil posted a total net outflow of $18.01 billion. The commercial account contributed positively with an inflow of $69.2 billion, but this was outweighed by the financial account’s outflow of $87.21 billion.

Faced with December’s unusually high outflows, the Central Bank engaged in unprecedented foreign exchange market activity. In November, it conducted line auctions (dollar sales with a repurchase commitment), a tool traditionally used at year-end to address specific demands. However, the monetary authority also opted to sell reserves in the spot market to alleviate the impact of accelerating financial outflows.

The decision to auction dollar sales in the spot market was driven by the rapid deterioration of exchange rate levels. This was partially attributed to heightened fiscal risk perceptions following disappointment with the federal government’s spending review package, as well as increased global risks. The Central Bank’s focus on reserve sales was also influenced by unhedged dollar outflows—dollar movements without the purchase of future contracts.

“Throughout the month, we observed that some outflows were unhedged, which was crucial in the real’s depreciation movement. As the Brazilian currency experienced a rapid devaluation, driven by increased risk premiums, I believe this devaluation was decisive for the Central Bank to intervene more effectively in the exchange market through spot auctions,” Mr. Goldenstein noted.

Throughout 2024, the Central Bank maintained a strategy of targeted foreign exchange interventions. For instance, in April, it used currency swap contracts to manage the maturity of NTN-A bonds, while in August and early September, it conducted both swaps and spot auctions to address the rebalancing of the EWZ index fund, the top ETF for Brazilian stocks in New York. By contrast, in 2023, the monetary authority made no extraordinary interventions.

Central Bank’s approach

Pramol Dhawan, head of emerging market portfolio management at Pimco, which oversees approximately $2 trillion, believes Brazil’s current currency intervention program is largely reactive and needs a structured approach, as it may not effectively address current economic challenges. “In contrast, central banks like those of Peru and Turkey, with floating exchange rate systems, have clearer guidance for intervention, leading to better outcomes through greater transparency,” he said.

Historical data compiled by Valor shows that the Central Bank’s actions have closely tracked the currency flow since 1999. During periods of strong dollar inflows, the bank typically intervened through purchases, while outflows led to dollar sales. However, this trend was partially broken in 2023, when the Central Bank refrained from purchasing dollars despite a positive currency flow.

Although critical of the Central Bank’s current intervention approach, Mr. Dhawan recognizes the complexities of the current environment. “Political factors, including skepticism about fiscal policy and the early onset of the 2026 political cycle, cast doubt on the appropriateness of the Central Bank’s actions. With ample market liquidity and no clear signs of dysfunction, the necessity of such interventions is debatable,” he added.

In December, during a press conference on the Inflation Report, then Central Bank Chair Roberto Campos Neto said the monetary authority should intervene whenever it detects signs of dysfunction in the exchange rate. While December typically sees significant capital outflows, the record level in 2024 was particularly striking, exceeding the second-largest December outflow on record—from 2019—by 50%.

The Central Bank identified several factors contributing to the negative flow, including larger dividend payments by companies with strong earnings and increased investments by Brazilians abroad. “We began to see a greater outflow [of capital coming] from individual investors more recently, through [digital] platforms with smaller transactions,” Mr. Campos Neto said.

Roberto Lee, CEO and co-founder of Avenue, a brokerage allowing Brazilians to invest abroad, noted a marked rise in outflows during the last quarter of 2024. “The profile shifted towards more conservative investors seeking fixed income and liquidity. This was a sentiment we didn’t observe earlier in the year when expectations for Brazil were higher,” he observed.

Mr. Lee emphasized that while this shift was not comparable in scale to corporate outflows, it was a trend mirrored across emerging markets. “This is not a new sentiment. In the past, there have been instances when Brazilians adopted a more conservative stance. The difference now lies in the relatively recent infrastructure [of digital platforms], which has been around for roughly five years. Previously, these investors would turn to the CDI [Interbank Deposit Certificate]. Now, they have the option to choose safer assets. For a ‘flight to quality’, you first need an airplane ticket.”

Mr. Goldenstein added that the outflows may also have included a reversal of foreign investor inflows seen earlier in the year. “From July to November, foreign investors increased their portfolio allocation in domestic debt. We will need to wait for December’s data to confirm, but it is likely that a ‘stop-loss’ movement and reduced allocations occurred throughout much of the second half,” he suggested.

December also witnessed heightened stress in the domestic interest rate and public bond markets. Long-term rates spiked, triggering stop-loss movements among foreign investors, particularly in long-term fixed-rate bonds. This prompted the National Treasury to step in with public bond buybacks to stabilize the market.

*By Arthur Cagliari  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government considers stricter rules for public spending

Plan includes temporary cap on ministry budgets while awaiting congressional budget approval

01/08/2025

The Brazilian government is considering issuing a decree to impose stricter rules on public spending at the beginning of the year, as it awaits Congress’s approval of the Annual Budget Act (PLOA).

The proposed decree would limit ministries to spending no more than one-eighteenth (1/18) of their annual budgets during this period. Essential expenditures, such as pensions, retirement benefits, and public sector payrolls, would be exempt and allowed to proceed as normal.

People familiar with the matter said the measure was discussed on Monday evening by Finance Minister Fernando Haddad and Chief of Staff Rui Costa. Talks continued on Tuesday in a meeting at the Planalto Palace with President Lula and Planning and Budget Minister Simone Tebet.

The government sees the decree as a way to signal fiscal austerity, a member of the economic team told Valor. The Budget Guidelines Act (LDO) allows the government to spend one-twelfth of the 2025 PLOA per month while awaiting its approval. However, the source noted that : it would not be prudent” to follow this rule given uncertainties surrounding the budget.

Other measures are also under consideration to reassure financial markets of the government’s commitment to fiscal discipline. These additional steps, which do not require Congressional approval, aim to complement the fiscal package submitted to lawmakers at the end of last year, the person explained.

Among the complementary measures, the government is preparing decrees and orders to regulate the fiscal package approved by Congress. Officials estimate these regulations could secure savings of at least R$69 billion over two years, though they believe the potential savings could be higher, as the estimate is conservative. Economists within the government dismissed claims that Congress weakened the fiscal package.

A key regulation will focus on the Continuous Cash Benefit (BPC), a welfare program for low-income seniors over 65 and individuals with disabilities of any age. This expense has been growing at a rate exceeding 10% above inflation. Officials argue that the approved changes will be crucial in bringing this expenditure “back to normal levels.”

*By Jéssica Sant’Ana – Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Ambev sells Do Bem juice brand to Brazilian Tial

Amount has not been disclosed; deal pending approval by antitrust regulator

01/07/2025

Ambev has decided to sell its juice brand Do Bem, acquired in 2016, to the Brazilian company Tial. According to Ambev, the agreement has been signed and is pending approval from the antitrust watchdog CADE. The amount involved in the deal has not been disclosed. It includes selling intellectual property rights and formula copies of Do Bem, which will continue to be marketed by Tial. Columnist Lauro Jardim from newspaper O Globo initially reported the news.

When acquired in 2016, the acquisition of Do Bem was part of Ambev’s strategy to expand its non-alcoholic beverage division. The company now says the sale will allow it to prioritize investments in other brands and business segments. “Over the past eight years, Do Bem has experienced significant innovations, reached more regions in Brazil, and expanded its presence to new points of sales,” Ambev noted in a statement. In the third quarter of 2024, the non-alcoholic beverage division represented 8.8% of Ambev’s total revenue.

One of Do Bem’s main competitors is Coca-Cola’s Del Valle. However, the sector is characterized by a variety of strong regional brands.

Tial, founded in 1986 in Visconde do Rio Branco (Minas Gerais), describes itself as a producer of ready-to-drink fruit-based beverages made with natural ingredients and no chemical additives. The company has an annual production capacity of 96 million liters. Currently, it offers 51 products, including nectars, 100% juices, other fruit-based beverages, and coconut water. In addition to domestic sales, the group exports to countries such as the United States, Japan, and Portugal.

Tial is owned by the food manufacturing group Pif Paf (through the holding company CRL Empreendimentos) and the investment fund Victoria Falls, which invests in various sectors such as mining, healthy foods, and administrative support services. The companies declined to comment on the deal.

Pif Paf considered going public in 2021 but now faces a complex financial situation, advancing with asset sales to reduce its leverage. The company has hired G5 Partners to develop a plan focused on debt reduction.

The request submitted by the companies to CADE requires that the deal be reviewed under a fast-track process, which applies to deals with minimal competitive harm and market concentration below 20%. In the filing submitted to the antitrust regulator, the companies indicated that the combined market share of the buyer and the target business “in all presented market scenarios was significantly below the 20% threshold,” based on data from Scanntech.

In markets such as coconut water, non-carbonated non-alcoholic beverages (like sodas), and ready-to-drink juices, the consolidated business holds a market share of less than 10%. According to the company, the low market share demonstrates that the concentration resulting from the deal would be “minimal and unlikely to raise competitive concerns.”

Zeca Berardo, a competition law expert and partner at Berardo Advogados, said the process is expected to proceed smoothly at the antitrust regulator. “It’s a major player in the beverage sector divesting a business line to a relatively small player. That should not raise any competition concerns,” he said, noting that other significant competitors in the sector, like Coca-Cola, continue to invest.

According to Mr. Berardo, CADE has taken less than 20 days to study cases like that. A third party can oppose the deal within 15 days, or for a council member to request a detailed review of the case—both scenarios are deemed unlikely by the expert.

By Cristian Favaro  e Ana Luiza de Carvalho  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil’s trade surplus declines, uncertainty looms over 2025 outlook

Despite a 24.6% drop, 2024 posts second-best performance; exchange rate and U.S.-China tensions add to doubts

01/07/2025

Brazil’s trade surplus for 2024 reached $74.55 billion, a 24.6% drop from the record-breaking $98.9 billion in 2023. Despite the decline, 2024 still secured the second-highest trade surplus since official records began, in 1997, according to the Ministry of Development, Industry, Trade, and Services (MDIC). Looking ahead to 2025, experts foresee a surplus comparable to or slightly better than 2024, though still significantly below the peak achieved in 2023.

According to the Ministry’s Foreign Trade Secretariat (SECEX), 2024 saw $337 billion in exports and $262.48 billion in imports. Declining commodity prices and a rise in imports contributed to the smaller surplus.

For 2025, a slower domestic economy is expected to curb imports, while an anticipated strong agricultural harvest could boost exports. However, uncertainty persists regarding export prices, exchange rate, and the impact of renewed U.S.-China trade tensions, especially as President Donald Trump assumes office on January 20.

“Given the expected good harvest, the surplus should remain at 2024 levels or potentially reach $80 billion if the domestic slowdown materializes,” said Lucas Barbosa, an economist at AZ Quest. He projects imports will stabilize near the 2024 level of $262 billion, while exports could rise to $350 billion.

Similarly, Gabriela Faria, an economist at Tendências Consultoria, forecasts a $77.6 billion surplus for 2025. She expects a 1.6% drop in export values due to declining prices but notes potential gains in volume, particularly from minerals, oil, and grains. Domestic grain production is projected to grow 8.2% over the 2023/24 cycle, with soybeans poised to reach record levels, according to estimates from Brazil’s National Supply Company (CONAB).

On the import side, Tendências projects a 3.1% decline in 2025 due to weaker domestic activity. Tightened financial conditions, increased internal uncertainties, slower global growth, and reduced fiscal stimulus form the basis for Tendências’s GDP growth estimate of 1.9% for this year, down from 3.4% in 2024, according to Ms. Faria.

Mr. Barbosa of AZ Quest cautioned that the exchange rate remains a significant challenge. “A dollar trading above R$6 favors exports, especially of goods that might otherwise be consumed domestically. For example, animal protein becomes increasingly attractive for export,” he said.

Herlon Brandão, director of foreign trade statistics at the MDIC, anticipates imports in 2025 will remain at or exceed 2024 levels, supported by Brazil’s projected economic growth. He also noted that there are no significant indications of large commodity price fluctuations.

On the export side, Mr. Brandão expects global economic growth to increase demand for Brazilian goods, particularly food products like soybeans and meat. “As the agricultural harvest recovers”, he said, soybeans should reclaim their position as the top export product, replacing oil. SECEX forecasts a trade surplus for 2025 ranging from $60 billion to $80 billion.

Industry concerns

The wide range in SECEX’s projections reflects the unpredictable nature of 2025, said José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB). His preliminary estimate points to a $93 billion surplus, assuming moderate price increases and volume growth. Commodity prices, he said, are sensitive and can react to any external events. “AEB’s projections come with many caveats,” he noted. Mr. Castro also highlighted uncertainties surrounding U.S.-China trade relations and their potential impact on global markets, alongside concerns about the exchange rate.

Tatiana Prazeres, foreign trade secretary at the MDIC, described 2024’s trade performance as positive, highlighting the “sustained high level of exports.” The decline in export value, she said, resulted from lower product prices, despite a 3% increase in export volumes. SECEX data showed a 0.8% drop in export value for 2024, driven by a 3.6% fall in prices.

Mr. Barbosa of AZ Quest highlighted notable export products in 2024, including beef, pork, sugar, molasses, and coffee. While many of these goods suffered price declines, increased export volumes more than offset the impact.

Welber Barral, a partner at BMJ consulting, noted that the price drop in 2024 was primarily driven by commodities. “Imports, particularly capital goods, increased—a positive sign. Although the surplus fell by nearly 25%, it’s still impressive given Brazil’s historical performance. “A similar pattern could emerge in 2025, with imports expected to continue rising despite the strong dollar,” he said, citing anticipated GDP growth of around 2% even amid an economic slowdown.

Mr. Barbosa of AZ Quest added that 2024’s trade surplus aligned with initial expectations, but the resilience of imports was surprising. SECEX data showed import volumes grew 17.2% in 2024, while prices declined by 7.4%. “The volume data reflects robust domestic demand, which continues to flow outward via imports, particularly of capital goods and consumer goods,” he explained.

Capital goods imports were particularly strong, aided by lower prices, Mr. Castro of AEB noted. Government data showed that capital goods imports rose 20.6% in value in 2024, driven by a 25.6% increase in volume and a 4.7% price decline.

*By Estevão Taiar  e Marta Watanabe  — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazilian reserves lost $33.3bn in December with Central Bank auctions

Monetary authority sold $21.574bn in the spot market and $11bn in line auctions

01/06/2025

Currency interventions conducted by Brazil’s Central Bank in December decreased international reserves by $33.3 billion in one month, bringing the total to $329.7 billion by the end of 2024. At the end of November, the reserves level was $363 billion. Despite this decline, experts say the volume is still comfortable.

The level reached at the end of last year is lower than the $355 billion recorded at the end of 2023 but higher than the $324.7 billion in 2022. These are nominal values. Silvio Campos Neto, senior economist and partner at Tendências Consultoria, described December’s drop as “significant,” noting that reserves remain healthy. However, he cautioned that the rapid decline is a warning for the coming months.

“There was a strong intervention in the foreign exchange market in December, and it was not enough to reverse the pressure, indicating that the source of this movement is not entirely related to market dysfunction or a temporary dollar scarcity; it is more structurally linked to increased risk perception about Brazil,” he explained.

In December, the monetary authority held nine spot dollar auctions and five “line” auctions (with a repurchase agreement), totaling $32.574 billion. That included $21.574 billion in spot sales and $11 billion in line auctions. Looking at the volume of reserves, Danilo Igliori, chief economist at Nomad, also emphasized the level is comfortable. He noted that concerns could arise if the crisis seen in December escalates in 2025. “I don’t think that’s the scenario. It was an evident moment of stress, and the Central Bank responded well.”

Silvio Campos Neto from Tendências explained that the interventions were the main reason for the reserve reduction but also highlighted the impact of rising market interest rates in the United States. “That also affects the value as it reduces prices, especially U.S. bonds, which make up most of the reserves.”

The Central Bank stated that there is no consensus on the best metric to define the “optimal level” of reserves but indicated that periodic internal evaluations show Brazil is aligned with practices of similar countries.

In a press conference on December 19, the then-Central Bank president, Roberto Campos Neto, said the monetary authority was operating in the foreign exchange market as usual. He pointed out that the monetary authority intervenes whenever it perceives market dysfunction. Mr. Campos Neto also noted an unusually large flow at the end of 2024, with an above-average outflow of dividends as one of the reasons.

Fiscal concerns also influenced the exchange rate’s movement. At the end of November, the government announced measures that were poorly received by the market. The package was unveiled alongside a proposal to exempt those earning up to R$5,000 from income tax, which raised concerns and impacted interest rates and the exchange rate.

The National Congress approved the fiscal project in December, while the income tax proposal has yet to be submitted by the government to Parliament. The real continued to decline, closing 2024 with a 27.3% depreciation, at R$6.18 to the dollar.

Mr. Igliori from Nomad pointed out that December typically sees a higher dollar outflow, but the scale of the reserve drop is linked to stress regarding fiscal policy. “The auctions were significant, and yet the exchange rate moved considerably. It became clear that during December, we experienced a mini credibility crisis, and the impact on reserves was a consequence of the Central Bank’s management during this period through auctions,” he said.

Another factor in the end-of-year scenario was the tone of criticism from Workers’ Party’s (PT) members regarding the monetary authority’s actions. On the same day as Mr. Campos Neto’s press conference, PT President Gleisi Hoffmann posted on social media that the real’s depreciation in those weeks was a “speculative attack.”

In the press conference, the then director of monetary policy and current Central Bank president, Gabriel Galípolo, was asked about that possibility. He argued that the idea of a “coordinated speculative attack” did not represent market movements. Mr. Galípolo stated that “it’s not correct” to treat the market as a “monolithic block.”

The chief economist at Nomad said there is always pressure on the monetary authority and no reason to believe the new leadership will act unprofessionally. “I don’t see an inclination to introduce significant institutional uncertainty around the Central Bank’s autonomy, which has been hard-won.”

*By Gabriel Sinohara

Source: Valor International

https://valorinternational.globo.com/
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Foreign investors record largest stock market outflow since 2020

Institutional investors follow suit, ending the year with net withdrawals on the secondary market

01/06/2025

The turbulence triggered by the government’s unveiling of weaker-than-expected fiscal measures, anticipation of aggressive protectionist policies from Donald Trump, and rising Selic rates kept foreign investors at bay from Brazil’s stock market throughout 2024.

Data from B3, the Brazilian stock exchange, reveals that foreign investors pulled R$32.1 billion from the secondary market (trading of already-listed shares) last year. This marked the largest annual outflow since 2020, the first year of the pandemic, when the segment saw a R$40.1 billion deficit, according to a Valor Data analysis. The figures exclude IPOs and public offerings.

Institutional investors also ended 2024 with net withdrawals, recording a R$37.5 billion deficit in the secondary market. By contrast, only individual investors finished the year with a positive balance, contributing R$30.8 billion.

Michel Frankfurt, head of Scotiabank’s brokerage in Brazil, casts doubt on the prospect of significant foreign inflows in the near term. “We won’t see substantial flows. There might be some activity to capitalize on stock market bargains, but we lack a strong ‘narrative’ to create momentum. It’ll just be a ripple,” he explained.

Mr. Frankfurt added that Brazil appears to have been “abandoned” by global investors, hindered by its failure to differentiate itself on the global stage and internal woes like worsening government accounts and disappointment over the spending cut package.

HSBC analysts echoed this sentiment, expressing concern over the vicious cycle stemming from fiscal policy frustrations. Last week, they downgraded their recommendation for Brazilian equities from neutral to “underweight,” citing growing pessimism about the country’s outlook.

“Brazil fits the profile of a ‘classic value trap,’” wrote analysts Alastair Pinder, Nicole Inui, and Herald van der Linde in their report.

While acknowledging that Brazilian equities are currently undervalued—trading at a projected 12-month price-to-earnings ratio of 6.6 times—they argue that asset revaluation is “unlikely” until the Selic benchmark interest rate falls or fixed-income returns decrease, a shift they do not anticipate before the second half of 2025.

*By Bruno Furlani

Source: Valor International

https://valorinternational.globo.com/
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Share buybacks surge during interest rate hike cycle

By November’s close, 98 companies had approved programs, marking a 20% increase over 2023

12/30/2024

Amid one of the leanest periods for stock offerings on the Brazilian exchange, banks are witnessing a notable surge in share buybacks within their brokerage divisions. With market valuations depressed and no clear signs of recovery, companies are ramping up efforts to repurchase their own shares, seeing it as the most strategic allocation of cash under current conditions.

A survey by Valor Data, based on data from B3, reveals that 98 companies approved buyback programs in the year ending November, a 20% increase compared to all of 2023. The figure surpasses 100 when including companies listed abroad, such as XP and Stone, which recently announced multi-billion-dollar buyback initiatives.

According to B3, the total number of active buyback requests—some approved in prior years—now exceeds 110 companies, approaching a financial volume of R$80 billion.

For instance, when calculated at their maximum allowed repurchase volumes, the combined buyback programs of B3 Exchange, Eletrobras, and JBS surpass the total raised through subsequent stock offerings this year. Excluding Sabesp, which alone accounted for over half of the R$25 billion offering volume in 2024, this underscores the broader impact of diminished market values across most companies.

An investment banker notes that many firms view buying back their own shares as the best investment option in an environment dominated by risk aversion. This sentiment has gained traction amid the ongoing cycle of interest rate hikes, further deterring investors from the equities market. “In some cases, we are advising clients that the most prudent investment is in their own securities,” the source shared, adding that controlling shareholders are also exploring financing options to purchase shares in their own companies.

Celso Nishihara, a partner in Fator Bank’s mergers and acquisitions division, highlights that share buybacks can serve as a strategic tool for boards to create shareholder value. Companies can improve financial ratios and reduce shareholder dilution by repurchasing shares, particularly if the repurchased shares are subsequently cancelled. This approach immediately boosts earnings per share. “A company understands its own stock better than any other asset; there’s no information asymmetry in this case,” he explains.

The Fator Bank executive emphasizes that while share buybacks can be a useful tool, they are not a substitute for a growth strategy. “It cannot replace mergers and acquisitions (M&A) or investments in a company’s core business,” he notes. Additionally, he cautions that companies must avoid over-leveraging to finance buybacks. Under current regulations, directors may approve share acquisitions only if the company’s financial situation allows for their settlement without jeopardizing obligations to creditors or the payment of mandatory dividends. Moreover, sufficient resources must be available for such transactions.

Vitor Rosa, from Scotiabank’s capital markets division, links the surge in buybacks directly to the undervaluation of shares. Currently, the price-to-earnings ratio is 7.6 times, significantly below the 10-year average of 10.6 times. Mr. Rosa advises companies to evaluate business growth opportunities alongside buyback programs.

Leonardo Cabral, head of investment banking at Santander Brasil, observes that well-capitalized companies see buybacks as an efficient way to utilize cash reserves. “The capital markets are not reflecting the fair value of companies,” he asserts.

Analyst João Daronco from Suno Research adds that companies with strong operational performance and robust cash generation are increasingly opting for buybacks. “It’s one of the options for allocating cash,” he explains, citing companies like Vale and B3 as examples. He also notes that buybacks could gain further traction if dividend taxation is implemented, as businesses might turn to this instrument as an alternative.

The companies referenced in this analysis were not available for comment.

*By Fernanda Guimarães  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Growing trade friction over environmental issues at the WTO

Brazil emerges as second leading nation raising concerns over other countries’ or blocs’ practices

12/30/2024

Trade frictions centered around environmental and national security issues are on the rise at the World Trade Organization (WTO), highlighting Brazil’s increasing challenges in the global trade arena. A WTO study reveals that Brazil ranked second in raising trade concerns in the environmental sector, challenging measures from other countries that could potentially obstruct Brazilian imports.

According to the report, 630 concerns were raised from 2016 to 2023, including 171 related to these specific topics.

The article “Canary in a Coal Mine: How Trade Concerns at the Goods Council Reflect the Changing Landscape of Trade Frictions at the WTO,” authored by Roy Santana and Adeed Dobhal from the WTO’s Market Access Division, indicates that the total interventions by member countries on these issues discussed at the Council for Trade in Goods (CTG) surged, peaking at 235 during the November 2023 meeting—the last month analyzed.

During that meeting, the number of interventions reached 83, accounting for 35% of the total 235. Combined, concerns involving environmental and national security issues were responsible for 56% of the interventions made by members at the gathering.

These interventions pertain to trade concerns, which may encompass measures such as non-tariff barriers, environmental policies, import or export restrictions, national security, subsidy programs, export controls, and sanitary and phytosanitary measures. The authors account for concerns arising from measures introduced by a WTO member for environmental objectives and political or national security tensions, topics seen as emerging trends according to CTG meetings.

Concerns involving national security increased from one in 2016 to 11 in 2018, and 14 in 2019, escalating to 30 by 2022 and reaching 25 in 2023. Those related to the environment rose from two in 2018 to three in 2019, and 16 in 2022, reaching 22 in 2023.

Analyzing member countries that raised trade concerns in at least one CTG meeting between 1995 and 2023, Brazil ranks second in raising trade concerns related to environmental issues, following Indonesia.

Brazil raised five trade concerns, questioning the Carbon Border Adjustment Mechanism (CBAM) tax imposed by the European Union on imports and the European Deforestation Regulation banning the entry of commodities linked to deforestation. Indonesia registered six complaints. China was a complainant in four cases, and Russia in three. The United States and the EU each raised one concern.

Regarding national security concerns, China was responsible for 15, and the U.S. for two. The EU also raised two concerns, and Brazil raised one.

The majority of concerns involving political and national security issues pertain to measures taken by the U.S., which were the subject of 13 complaints, mostly raised by China.

The increase is due to more members joining the WTO over the years, but mainly to the trend of greater protectionism by countries, according to Juan Antonio Dorantes, former economic advisor to Mexico’s Permanent Mission to the WTO and managing partner of Dorantes Advisors, a firm specializing in international trade.

“WTO member countries are increasingly proficient in utilizing the tools provided by trade agreements to defend their market interests,” he notes, observing that as trade expands, so does the number of concerns. “However, we have also seen a growing trend toward protectionism in certain sectors, posing a problem for all exporting countries.”

Mr. Dorantes believes trade concerns impact large commodity exporters equally, as well as industrial goods exporters in general. He argues that in all areas, there may be less technical and more political reasons behind these concerns.

Marina Carvalho, an international trade specialist who was a consultant for the World Bank and chairs the Women Inside Trade program, notes that trade concerns have always existed and have been brought to the WTO. However, the increased use of tools like the CGT relates to the difficulty in other bodies functioning, such as the Dispute Settlement Body.

“The popularity of tools like raising trade concerns at the CGT and other committees grows as members seek alternatives to address these issues, which ultimately yield results,” she said.

For her, the ability to raise such trade concerns at the WTO is advantageous for exporting countries such as Brazil. “This can be a tool Brazil can leverage further if it identifies a measure aimed at environmental protection introducing unfair trade bias, sometimes protectionist and unjustified,” she argued.

Being a commodity exporter, she says, could make more WTO members concerned about Brazil’s environmental protection measures. “That has already been happening, and it’s up to Brazil to demonstrate the extent of its environmental protection policies while ensuring fair trade for its commodities,” she added.

Larissa Wachholz, a partner at Vallya Participações and senior associate at the Brazilian Center for International Relations (CEBRI), observes that the post-pandemic international scenario remains complex, fostering the emergence of trade barriers and complaints involving environmental and national security issues.

“We are experiencing a very difficult global economic moment, combined with China’s economic slowdown, with many countries facing inflationary challenges and complicated geopolitical issues,” she said. “These times encourage the emergence of supposedly technical criteria, although with protectionism elements.”

Looking ahead, Mr. Dorantes anticipates an increase in trade concerns, but also a weakening of WTO. “Donald Trump’s actions could undermine international institutions and dispute resolution mechanisms. If he unilaterally imposes a 5% tariff on imports, for example, it would be a total violation of WTO rules,” he said. The possibility of Mr. Trump launching unilateral actions and that other countries decide to follow suit outside WTO rules, could weaken the entire WTO structure. The paralysis of bodies such as the Appellate Body, with the U.S. blocking the appointment of new judges since 2019, he argues, contributes to raising doubts about not only the functioning but also the very existence of the WTO.

*By Marsílea Gombata  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Rio forecasts R$3.2bn impact from New Year’s Eve celebrations

City Hall anticipates 5 million attendees at events citywide

12/30/2024

Rio de Janeiro City Hall anticipates that New Year’s Eve 2025 will inject R$3.2 billion into the city’s economy, with an estimated 5 million people attending events across the capital. Copacabana alone is expected to host 2.5 million locals and tourists ringing in the new year.

These projections are part of the second edition of Réveillon em Dados (New Year’s Eve in Data), a study conducted by the Municipal Secretariat for Urban and Economic Development (SMDUE), the João Goulart Foundation Institute (FJG), and the Tourism Company of the Municipality of Rio de Janeiro (Riotur).

According to Thiago Dias, acting municipal secretary for Urban and Economic Development, New Year’s Eve is critical for boosting the city’s economy, which will enter 2025 with thriving bars, restaurants, and hotels filled with domestic and international visitors. “We had an exceptional 2024, with remarkable shows and events, and we’re set to begin the new year just as vibrantly,” said Mr. Dias.

The report, released on Sunday, estimates that 50,000 jobs will be directly or indirectly linked to New Year’s Eve celebrations. On Copacabana’s main stage, a star-studded lineup includes performances by Caetano Veloso & Maria Bethânia, Ivete Sangalo, and Anitta.

Patrick Correa, president of Riotur, expressed optimism about surpassing last year’s milestones. In 2024, New Year’s Eve drew an estimated 5 million attendees citywide and generated R$42 million in services tax revenue—a 66.3% increase compared to the R$25.2 million collected the previous year.

*By Rafael Rosas  — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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