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Brazil finalizes new efficiency, content rules for auto industry
October 4, 2012 / 4:47 PM / in 5 years

Brazil finalizes new efficiency, content rules for auto industry

* Gov't aims to boost jobs, investment with new tax rules
    * Tax increase to hit foreign cars, fuel-inefficient
    * 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
    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
    "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.

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