THE GOVERNMENT OF BRAZIL HAS MODIFIED ITS FOREIGN EXCHANGE POLICY TO REDUCE THE TAX BURDEN ON ITS EXPORT SECTOR AND MAKING THE FOREIGN TRADE PROCESS MORE DYNAMIC, THE GOVERNMENT SAID WEDNESDAY, ACCORDING TO DPA. IT WAS NOT CLEAR IF THE CHANGES WOULD VIOLATE WORLD TRADE ORGANIZATION RULES, WHICH HAVE FORCED THE UNITED STATES CONGRESS TO REPEAL CORPORATE TAX BREAKS FOR US COMPANIES THAT DO BUSINESS ABROAD. THE EUROPEAN UNION CHALLENGED THE US PRACTICE AS AN UNFAIR SUBSIDY TO US BUSINESSES, AND WAS ON THE VERGE OF ENFORCING TRADE SANCTIONS WHEN THE US STARTED CHANGING ITS LAWS IN 2004 TO COMPLY. THE LAST CHANGE WAS ENACTED IN MAY. BRAZIL'S FINANCE MINISTER GUIDO MANTEGA AND CENTRAL BANK PRESIDENT HENRIQUE MEIRELLES MADE PUBLIC IN BRASILIA A PACKAGE WHOSE MAIN CHANGE WILL ALLOW EXPORTERS TO KEEP 30 PER CENT OF THEIR SALES INCOMES OUTSIDE OF BRAZIL, SPARING THEM A LARGER TAX BILL. UNTIL NOW, EXPORTERS HAD TO BRING BACK TO BRAZIL ALL PROCEEDS FROM COMMERCIAL ACTIVITIES IN FOREIGN CURRENCIES, AND HAD TO PAY TAX ON THE MOVEMENT OF THE ENTIRE AMOUNT. MINISTER MANTEGA INDICATED THAT, AS FROM NEXT WEEK, 30 PER CENT OF SUCH PROCEEDS CAN REMAIN ABROAD AND THUS AVOID PAYING TAX. "THE OBJECTIVE OF THE NEW MEASURES IS TO SIMPLIFY FOREIGN TRADE OPERATIONS AND MAKE THEM LESS EXPENSIVE," MANTEGA EXPLAINED. HE ESTIMATED THE MOVE WOULD COST THE BRAZILIAN BUDGET LESS THAN 100 MILLION DOLLARS A YEAR. CENTRAL BANK PRESIDENT MEIRELLES PROMISED THAT THE NEW MEASURES "WILL GENERATE VERY IMPORTANT EARNINGS NOT ONLY FOR EXPORTERS, BUT ALSO FOR CURRENCY EXCHANGE AGENTS." MANTEGA ADMITTED THAT THE CHANGES ALSO AIM AT CURBING WHAT IS PERCEIVED AS AN EXCESSIVE APPRECIATION OF THE BRAZILIAN REAL AGAINST THE DOLLAR, BUT PREDICTED THAT "THE REAL WILL REMAIN STRONG, GIVEN THE UNDERPINNINGS OF THE BRAZILIAN ECONOMY." THE MINISTER FURTHER INDICATED THAT THESE MEASURES CAN BE CANCELLED IN CASE OF EMERGENCY. "TODAY WE EXPERIENCE A COMFORTABLE SITUATION, BUT WE CANNOT RULE OUT THAT A CRITICAL EMERGENCY SITUATION COMES UP IN THE FUTURE. IN THAT CASE, THE NATIONAL MONETARY COUNCIL (CMN) CAN MEET AND CANCEL THE AUTHORIZATION THAT EXPORTERS ARE RECEIVING TODAY," MANTEGA SAID. IN THE EU DISPUTE WITH THE US OVER WORLD TRADE ORGANIZATION RULES, THE EU STOOD TO CASH IN 2.4 BILLION DOLLARS IN SANCTIONS. BRAZIL HAS BECOME A MAJOR ACTOR IN THE WTO, LEADING PROTESTS BY THE GROUP OF 20 AGAINST SUBSIDIES PAID TO FARMERS IN WEALTHIER NATIONS, AND ALIGNING WITH THE EU IN THE RECENT DISPUTE WITH THE US OVER THE DOHA ROUND OF NEGOTIATIONS. THE TALKS COLLAPSED EARLIER THIS WEEK WHEN THE US REFUSED TO FURTHER CUT SUBSIDIES WITHOUT GAINING GREATER ACCESS TO MARKETS IN DEVELOPING COUNTRIES AND THE EU.
