Reuters: Regulatory News: Brazil finalizes new efficiency, content rules for auto industry

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Brazil finalizes new efficiency, content rules for auto industry Oct 4th 2012, 16:43 Tweet Share this Email Print Thu Oct 4, 2012 12:43pm EDT * Gov't aims to boost jobs, investment with new tax rules * Tax increase to hit foreign cars, fuel-inefficient carmakers * Brazil aiming to be world's fourth-biggest automaker * Trade minister sees no increase for Mexican import quota By Jeferson Ribeiro and Luciana Otoni BRASILIA, Oct 4 (Reuters) - Brazil finalized new rules on Thursday for local carmakers to avoid a steep tax increase by making vehicles more fuel efficient, using more domestically built parts and investing more in Brazilian research and engineering. The government measures are raising pressure on carmakers to boost employment and investment in Brazil if they want to tap its vaunted demand -- part of a concerted defense of an industry representing more than a fifth of the country's manufacturing base. "The goal is to create more jobs in the automotive industry," Finance Minister Guido Mantega told reporters in a press conference announcing the new rules meant to bolster investments in the local industry of some $20 billion over the next three years. "We are the world's fourth largest auto market and the seventh biggest manufacturer ... There is no reason Brazil can't be the fourth largest automaker in the world," said Trade Minister Fernando Pimentel. Analysts have expressed concern, however, that the tax increase of 30 percentage points on foreign vehicles, along with a restricted auto accord with Mexico and tax incentives barring layoffs at local assembly lines, may in fact stifle the growth of Brazil's sputtering auto industry. Mantega rejected criticism that the new tax regime is protectionist, saying it was crafted as a defensive against the effects of "aggressive measures" taken by other countries. The new rules require local factories to improve fuel efficiency by an average 12 percent over the next five years to avoid the steep tax hike on foreign vehicles. Carmakers also must carry out most phases of assembly at local factories, using auto parts from Brazil and neighboring countries to avoid the greater tax burden. Investment in local research and development, engineering, supplier training and higher fuel efficiency targets will entitle companies to further tax reductions under the new law taking effect next year. The car industry makes up more than 20 percent of Brazil's manufacturing base, which has struggled with high costs and a weak global economy. Analysts have voiced concern that short-term tax incentives and protection for the industry have delayed adjustments needed to make factories more competitive. Pimental put to rest talk that Brazil was considering raising a new quota on Mexican auto imports, saying such an increase was off the table. Last month, official sources told Reuters Brazil was considering a potential $350 million annual increase in a new cap on auto trade from Mexico, after importers in Brazil used up their quota in the first six months of the year. Brazil is a key market for the world's biggest automakers, including Italy's Fiat SpA, Germany's Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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