The federal government is evaluating with the production sector the creation of a mechanism for internal administration of the quota of beef that can be exported to China without the application of a 55% surcharge. Brazil will be able to ship 1.106 million tons of beef to the Asian country this year with an import tax of 12%.
The mechanism and form of management regarding the internal division of the quota is still under debate in the Executive, reported people familiar with the discussions at the BroadcastGrupo Estado’s real-time news system. The government seeks understanding with exporters. The negotiations are led by the Ministry of Agriculture and the Ministry of Development, Industry, Commerce and Services (MDIC).
The topic has been circulating on the Esplanada dos Ministérios since January, when the Asian country imposed safeguards on the entry of the product to protect domestic production, with import restrictions and a 55% tariff for volumes that exceed the quota allocated to each country.
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The distribution of the quota among slaughterhouses and management of volumes by the government is a request from meat exporters, among a set of measures requested by the Brazilian Association of Meat Exporting Industries (Abiec). Among them was government mediation to regulate the quota to avoid an unbridled rush by exporters to comply with the volume, which could culminate in price shocks and impacts on trade flow.
Behind the scenes of the Executive, there is still no consensus regarding the measure to be adopted and whether any local management mechanism will be implemented.
“We are evaluating the various opportunities that exist so that there can be, in one way or another, coordination in order to avoid problems in exports and maintain a regular flow of sales to the Chinese market. There are several alternatives on the table, some already discarded, others still being evaluated, and this naturally depends on institutional coordination, and this is not a definition that the Ministry of Agriculture will make alone”, said the Secretary of Commerce and International Relations of the Ministry of Agriculture, Luis Rua.
One of the proposals under discussion is the distribution of volumes to be exported within the quota without the 55% surcharge for each slaughterhouse qualified to the Asian country based on last year’s market share. The division would also consider a quarterly limit on shipments. Each CNPJ authorized to export to the Asian country would be allocated the maximum volume to be exported without an extra tariff of 55% given the participation of each slaughterhouse in shipments to China in the last year.
Control of the division, according to the proposal, would be carried out by the Department of Foreign Trade Operations (Decex) of the Secretariat of Foreign Trade (Secex), of the Mdic, based on export licenses and through the Integrated Foreign Trade System (Siscomex). The suggestion also provides for automatic blocking of sales that exceed the volume distributed to each slaughterhouse.
The measure would be subject to a resolution by the Executive Management Committee (Gecex) of the Chamber of Foreign Commerce (Camex). The ministry claims that “the absence of any national export management mechanism” can encourage “disorderly competition” between Brazilian companies to fill quotas, amplifies the negative demand shock, generates the risk of price shocks, with potential effects on the entire livestock chain and, ultimately, on the generation of jobs in the industry.
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The Ministry of Agriculture’s request was for the topic to be considered among the ministries, at the monthly Gecex meeting scheduled for this Thursday, but the matter was not included on the agenda of the collegiate, which meets at 9:30 am.
There is still no understanding in the Executive regarding the internal administration of the quota. Other proposals have already been discarded, such as possible control linked to the qualification and certification of slaughterhouses and the adoption of a model similar to the Hilton Cota. Also on the table is the possibility that distribution and regulation will be carried out by the private sector without adopting government instruments, as is the case in the chicken sector when complying with the European Union quota.
There are also legal and legal issues to be resolved in the construction of a possible export control mechanism related to the quota. There are doubts as to whether a mechanism could represent interference with free competition and export control, which could set a precedent for future legal challenges, and as to which body has the competence to administer the mechanism.
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The government also sees that the measure, in addition to mitigating the impacts of the safeguard on the private sector, makes sense from a public policy point of view as it curbs disruptions in the trade balance and ensures continued good export performance, given that China represents 50% of Brazilian beef shipments.
In the current model imposed by China, “whoever arrives first on the Chinese market benefits from the quota”, which tends to generate an unbridled race among private players and put pressure on import prices.
The issue has already been raised by the Brazilian government with the Chinese authorities. The issue was mentioned by the vice-president and minister of Development, Commerce and Services, Geraldo Alckmin, in a recent telephone conversation with the vice-president of China, Han Zheng, at the end of January. The message sent by the Chinese government is that the administration of compliance with the quota will be carried out exclusively by the importer, denying Brazil’s initial request for shared management. However, there are still doubts as to whether or not China will oppose a possible domestic regulation to control the quota, sources report.
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In the appeal made to the Executive, the export sector claims that the absence of a quota regulation mechanism could generate disruptions throughout the livestock chain, in addition to impacts on the price of beef in the domestic market with sudden jolts.
The analysis is that a possible rush to meet the quota could lead to a spike in prices in the domestic market, a lack of immediate availability of animals for slaughter, an increase in industry costs, the need to rearrange operations and even downsizing operations at a later stage if the quota is reached abruptly.
“The sector needs predictability for operations and not deregulate the entire chain”, argues an executive from a large industry. JBS, Marfrig and Minerva are the main Brazilian exporters of beef to China.
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On the industry side, Abiec said in response to the report that “the sector’s concerns have already been raised with the government, which is evaluating the best way to handle the issue”.
