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China hints free trade deal with Mercosur

If unsuccessful with bloc, negotiation can be individual

01/09/2023

China says it is ready to negotiate a free trade agreement with Mercosur or separately with any partner of the bloc. It is an issue of impact that is unlikely to be left out of the visit that President Luiz Inácio Lula da Silva (Workers’ Party, PT) plans to make to China in the near future.

During the 20th Congress of the Chinese Communist Party in October, a report presented by President Xi Jinping highlighted China’s strategy to seek “greater integration in the global industrial chain and supply chain and (continue) to promote the liberalization and facilitation of trade and investment.”

To this end, the country will continue to negotiate “high-standard free trade agreements” with its trading partners. “In short, China’s opening door to the world will be opening wider and wider. This will certainly create more opportunities for its own development and for the rest of the world.”

Li Chenggang — Foto: Denis Balibouse/Reuters

Li Chenggang — Foto: Denis Balibouse/Reuters

In late November, during the examination of Brazil’s trade policy at the World Trade Organization (WTO), Chinese Ambassador Li Chenggang noted that Brazil has concluded several free trade agreements and renewed or started new negotiations, and gave Beijing’s message: “China believes it is crucial to improve Brazil’s regional integration and export diversification. In this regard, China encourages Brazil to play an active role in expanding Mercosur’s network of regional trade agreements with key trading partners.” He also recalled that China is Brazil’s largest trading partner since 2009, the largest market for Brazilian exports, a major source of imports for Brazil and contributes heavily in Brazil’s trade surplus.

Asked by Valor to elaborate on the ambassador’s speech, the Chinese Ministry of Commerce (Mofcom) replied clearly: “This means that China is willing to negotiate a free trade agreement (FTA) with Mercosur as a whole or an FTA with any Mercosur member.”

Beijing has already concluded 22 free trade agreements, for example with Chile and Peru in South America, besides ten under negotiation and eight “under consideration”, such as with Colombia. It has also made a feasibility study of an agreement with Uruguay, which in practice would cause the dismantling of Mercosur as a customs union. Diplomatically, for Beijing it would be better to negotiate with Mercosur as a whole. But it confirms plan B to negotiate separately.

The Bolsonaro administration has never hidden its skepticism and little sympathy for Mercosur. The Lula administration, on the other hand, has signaled the importance of the bloc not only economically, but politically and strategically. The reaction to Beijing’s plan will certainly be different.

The discussion becomes less defensive regarding China. The diplomat and economist Tatiana Rosito prepared a document along these lines on “Bases for a long-term strategy for Brazil towards China,” at the request of the Brazil China Business Council (CEBC), in 2020. Ms. Rosito is now the new secretary for International Economic Affairs at the Ministry of Finance.

In the document she notes that, due to the expected impacts, there is a way to go for Brazil (and the Mercosur partners) in the negotiations of international agreements before dealing with free trade with China, “but this theme should not be taboo and should be increasingly considered through an approach that can lead Brazil and the different sectors of the Brazilian economy to dwell on the gains and losses of increased trade with China.”

Ms. Rosito cites a 2019 study by the Applied Economics Research Institute (IPEA), “Impact assessment of a Brazil-China Free Trade Agreement on the Brazilian Economy,” which points to “unequivocally positive results for the Brazilian economy, with gains in GDP, investment, exports, and imports. The trade balance would be slightly worse, but there would be a significant reduction in the aggregate price level and an increase in the degree of openness of the economy.”

“The fact that opening up to China would promote large export gains even in ‘unexpected’ sectors is a highly relevant result,” the study says, noting that production and employment losses in some sectors require debate on the issue.

The study uses a general equilibrium model that causes skepticism. It is not because of tariffs that Brazil does not export other products, outside the list of commodities, to China, but because it does not have the competitiveness, scale or efficiency to serve the gigantic Chinese market.

“I don’t know of any segment [in Brazil] that, first, has enough production, and second, that has the appetite to take the risk of increasing business in a market that size. China is not a market for selling surpluses, distributors have no interest in small volumes,” says Marcos Caramuru, former Brazilian ambassador to China (2016-2018), partner at consultancy Kemu and a leading China expert.

When Mr. Lula raises in Beijing the recurrent complaint of lack of diversification of Brazilian sales to the Chinese market, the answer will certainly be to discuss agreements.

For Renato da Fonseca, Industrial Development superintendent at the National Confederation of Industry (CNI), it is not necessary to start with a free trade agreement. He suggests a trade facilitation agreement as a kick-off.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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China-controlled TCP plans to invest R$370m by 2023

Investments will be directed to expansion of areas for refrigerated cargo, purchase of cranes

06/21/2022

Terminal de Contêineres de Paranaguá (TCP), controlled by China Merchants Port, will start an investment plan of nearly R$370 million, which will be injected by the end of 2023. The goal is to increase capacity, both for storage and cargo handling.

Part of the funds will be used to purchase 11 RTG cranes, which are used to move containers. The investment was already part of the obligations of the concession, but the decision to acquire them at this time was due to the tax exemption window opened with the extension of Reporto, a tax regime that suspends the collection of federal taxes on imports of equipment in the industry, until the end of 2023.

The company’s goal is to expand its cargo-handling capacity by 15%.

The investment plan also includes a 43% expansion of the area destined for reefer containers, which will reach 5,178 sockets. One of TCP’s main cargoes is frozen meats – in 2021 the terminal accounted for 35.4% of Brazil’s chicken exports.

The container yard will also be expanded, by 20,000 square meters. This will be possible through the optimization of the terminal’s structures, which currently occupy 480,000 square meters.

The need for expansion emerged, in part, from the logistical chaos generated by the pandemic. In late 2019, just before the health crisis, TCP completed investments that expanded its area by 150,000 square meters. At the time, the expansion was seen as being enough to meet the demand of the next decades, said Thomas Lima, the company’s chief commercial and institutional officer. “With the pandemic, we had our capacity taken right away. All the parameters changed,” he said.

During the Covid-19 crisis, global logistics chains went through complete disorganization amid port closures, interruptions in production lines and delays in clearance. The effects seen since 2020 include clogged ports, container shortages and crammed warehouses.

In addition to the pressure generated by the pandemic, cargo handling is up. The volume of full containers handled by TCP grew 5.9% in 2021 compared with the previous year. In the first quarter of this year, it rose again – by 2.3%.

In the executive’s view, the perspectives are positive. “The Port of Paranaguá is very focused on agribusiness, which is a growing industry, despite the country’s GDP. The world is consuming more meat, and this tends to boost cargo-handling operations.”

Mr. Lima acknowledges that the pandemic still impacts operations. Recent lockdown measures in China have reduced the number of empty reefer containers coming into the country. This could create a bottleneck for meat exports, which need the equipment. “Exporters have their warehouses full because slaughtering has not stopped,” he said.

The executive considers that it is complex to foresee when the situation will be normalized. However, for him, the trade flow between Asia and Brazil is expected to normalize at the end of this year if China refrains from imposing new Covid lockdown measures.

¨*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil will “dance” with U.S., China, Guedes says in Davos

Guedes met UBS CEO Colm Kelleher — Foto: Reprodução/Twitter/ME

Guedes met UBS CEO Colm Kelleher — Foto: Reprodução/Twitter/ME

Economy Minister Paulo Guedes said that “everyone is going after Brazil” at the World Economic Forum and that, with the turnaround in world geopolitics, the country will “dance” with the U.S. and China at the same time.

In a conversation with journalists, Mr. Guedes said that Brazil suffered pressure from both the United States and Europe in the wake of the war in Ukraine to stand on one side. But that now “nobody is cursing us” and Brazil is seen as a solution to energy and food crises.

As an example, he said that the new interest in Brazil with a series of bilateral meetings on Tuesday in Davos — with the CEOs of UBS, Mittal, Alibaba, Sem Merck, Claure Capital, YouTube, Canada Pension Plan Investment (CPP), as well as lunch with investors promoted by Itaú Unibanco.

“There is demand from 30 of the largest companies in the world, but we can’t supply everyone,” said the minister.

In the World Economic Forum, Brazil is almost absent from the agenda, without any specific debate. The public manifestations of most of the authorities present are about the size of a possible recession in the European Union, in the United Kingdom, and perhaps in the U.S. after next year. In other words, little is said about Brazil, except in restricted circles that know more about the country.

According to the minister, “people do not understand: the world has changed and Brazil’s position has improved.” He says that “Brazil has lost 30 years, it has not connected (with global value chains). China got out of poverty, Thailand, everyone went up, and Brazil was left hopping.”

The minister adds that with the crises caused by the pandemic and the war in Ukraine, other countries got into difficulties, but not Brazil. And so, in his vision, the country can redesign its production chains with new axes, such as renewable energy and semiconductors.

In this scenario, said Mr. Guedes, the pressures came on Brazil. He said that the Europeans asked Brazil if the country was on their side or on Russia’s, if it was with the Brics or with the OECD.

On the one hand, the U.S. Treasury Secretary Janet Yellen made it clear that Washington would redesign investment criteria and that the world will never be the same. In other words, the U.S. needs closer supply chains and reliable partners.

The way Brazil is going to stand, according to the minister, is to be “the guy that is going to give food and energy security to Europe. And the U.S., which Brazil is close to and a friend of, will not need to go to China.”

As for China, “the Chinese and the Americans had a synergy that lasted 30 years, then China grew and they started fighting. We are going to dance with both of them.

Furthermore, Brazil wants to accelerate its integration into the OECD. He said he has established a good relationship with Mathias Cormann, Secretary-General of the OECD, who will visit Brazil in the near future.

Source: Valor International

https://valorinternational.globo.com

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Crisis in China affects logistics in Brazil

Exporters already face higher freight rates and difficulty in shipping goods on the Brazil-Asia route — Foto: Ana Paula Paiva/Valor
Exporters already face higher freight rates and difficulty in shipping goods on the Brazil-Asia route — Foto: Ana Paula Paiva/Valor

Lockdown measures in China are beginning to affect ocean shipping in Brazil. Exporters already face higher freight rates and difficulty in shipping goods on the Brazil-Asia route – especially those reliant on refrigerated containers, such as the meat industry. As for imports, delays and trip suggest that there will be bottlenecks in the coming months.

Right now, the situation is more serious for exports due to congestion in Chinese ports, especially Shanghai, which concentrates the world’s largest container terminals. With no storage space or sockets available for containers, some shipping companies have halted orders for reefer cargo, or have diverted ships to other Chinese ports – which are also beginning to fill up, creating a cascade effect.

As a result, freight rates on the export route from Brazil to Asia, which were already high, have risen further since March. This month, the value reached $6,800 per 40-foot reefer container in the short-term market, compared with $3,000 to $4,000 before the pandemic. The price was up 58% year over year, a survey by the National Confederation of Industry (CNI) with data from consultancy Solve Shipping shows.

Freight rates of imports have not been affected yet, but prices, which had been falling, are expected to rise again in the coming months. In April, the value was $5,300 per 20-foot container, according to CNI. This is still a high level for the historical series, but well below the peaks recorded in recent months.

In the Brazilian market, the route coming from Asia was the most impacted by the logistical crisis caused by the pandemic. Prices, which were around $1,500 per container before the crisis, skyrocketed from the second half of 2020 onwards and reached record highs, above $10,000.

This rise was caused by the mismatch between supply and demand worldwide. On the one hand, consumption of goods soared from the end of 2020. On the other hand, the health crisis reduced the production capacity of industrial companies and generated logistical obstacles – with delays in the release of goods, reduction of teams due to contagion, lack of containers in the market and port congestion.

In recent months, the Brazilian market had seen a balance between supply and demand, which explains the recent reduction in the freight rates of imports on the Asia-Brazil route, said Matheus de Castro, an analyst at CNI. Now, however, the situation is expected to worsen again. “Lockdown measures in China will start to bring problems. The higher export freights are already a reflection of the difficulties, of stopover cancellations.”

Leandro Barreto, a partner at Solve Shipping, believes that the lower import freight rates seen at the beginning of the year are a one-off event, because it is a time of the year when demand is already low. Prices are expected to rise again from May on due to delays and cancelations.

In his view, the impacts of the crisis will be felt especially when the restrictions in China are lifted. “Bottlenecks are expected to emerge, and freight rates tend to rise once lockdown measures end, because there will be pent-up demand to meet. In addition, the peak season starts in June or July, when demand seasonally increases,” he said.

For Rafael Dantas, head of importer Asia Shipping, the biggest impact of the current crisis will not be so much on freight rates, but on the lack of imported goods due to logistics bottlenecks. “I do not believe that we will return to the level [of freight rates] of 2021. The scenario is different. Consumer spending has dropped in Brazil, the country is no longer under lockdown measures, demand has returned to normality. But we will certainly feel the lack of products.”

The analysts point out that, besides the restrictions in China, a number of factors have influenced prices. One is the war in Ukraine, Mr. Castro said. “This has not generated logistical bottlenecks, but has put pressure on fuel prices.” In addition, problems in Chinese ports are compounded by the congestion in U.S. ports – a situation that has been dragging on since last year, as a reflection of the logistical chaos generated by the pandemic, he said.

“Worldwide, the market is at the operational limit and any event delays normalization. The situation was expected to improve throughout 2023, but it may take longer,” he said.

According to the major shipping groups, it is still early to predict when normalization of the logistics chain in China will occur. “There are several factors to be considered, especially the duration of this outbreak of the omicron variant and the measures governments will take,” trade association Centronave said.

Source: Valor International

https://valorinternational.globo.com

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As Brazilian exports grow, China grabs larger share

Lia Valls — Foto: Leo Pinheiro/Valor
Lia Valls — Foto: Leo Pinheiro/Valor

Brazilian exports grew 34% year over year in value in 2021, more than offsetting the 5% loss reported in the previous year. The growth led to a record shipment of $280.6 billion last year, but had uneven distribution by destinations. The increase in shipments was almost all directed to China, which grabbed a larger share of Brazilian exports compared with before the pandemic. The Chinese share of the values shipped by Brazil rose to 31.3% last year from 28.7% in 2019. Asia as a whole advanced four percentage points in the same period, reaching 46% in 2021.

Exports to the United States, European Union and South America also grew last year compared with 2019, but at a lower rate than China’s 38,5% rise over the same period or than the average of Brazilian shipments, according to federal government data. With this, the American share in the value of Brazilian exports fell to 11.1% from 13.4%. The European Union had a small reduction, to 13% from 13.6%, but now holds the lowest share since official records began, in 1997. South America’s share shrunk to 12.1% from 12.6%. This is not the lowest share ever because last year, as the region’s economy suffered more due to the pandemic, its share was 10.8%.

The Foreign Trade Indicator (Icomex), which is surveyed by Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre) and considers the volume alone, excluding the price effect, shows growth in shipments to China. Even as there were slowdowns or even falls in some periods, the survey suggests that shipments to China are on the rise considering data since 2008, said Lia Valls, a research associate at Ibre. The volume exported by Brazil to the Asian country grew more than 360% in 2021 versus 2008, the Icomex shows. On the other hand, the volume shipped to the United States fell 18.6%, while exports to Argentina and the European Union dropped 30% and 28%, respectively, in the same comparison.

It is important to highlight the effect of volumes, Ms. Valls said, because the value shipped by Brazil last year grew predominantly by the price factor, driven by key items like agricultural and metal commodities. Iron ore had a prominent role. Still according to Icomex, the average price of exports rose 29.3% year over year in 2021. In volume, shipments increased at a much slower pace, 3.2%.

Structural and cyclical issues explain Asia’s largest share in Brazilian exports, said Livio Ribeiro, a researcher at Ibre and a partner at BRCG Economic Consultants. “The most structural issue is that we are developing an export agenda that is very complementary to the Asian value chain. This is true for China, which leads many of the region’s productive processes, but it includes other countries on the continent, such as Korea, Malaysia, Singapore and even Indonesia,” he said. That’s why the increase in export value in 2021 was not evenly distributed among the blocs, according to him. “About 90% of that margin went almost entirely to China.”

Brazil’s tariff structure for exports to the European Union, Mr. Ribeiro compares, is not very different from China, considering the prominent role of agricultural and metal commodities. “But Asia has been buying the incremental [volume], and this makes sense when you consider that China and Asia have been growing above the global average and the eurozone countries have been growing less than the United States.”

The long-term path in volumes follows similar logic, Ms. Valls said. The European Union has had much lower growth than Asia and the United States since the 2008 financial crisis, she recalled. The picture is similar to the recovery seen over the past year, after the first cycle of the pandemic, Mr. Ribeiro said, which is already the broader factor of the scenario, as Asia overcame the health crisis more quickly with the first variants of Covid-19 and resumed economic growth with more vigor.

In relation to South America, the Argentina factor weighs the most. For economists, there is no prospect of a faster recovery in the values exported to the region if there is no more sustained recovery of the Argentine economy over time. At the same time, Mr. Ribeiro said, there is also a reorganization of the automotive sector, with many factories settled in Argentina, which does not favor Brazil.

Source: Valor international

https://valorinternational.globo.com/

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