Vietnamese exporters would do well to consider and fully prepare for Brazil's increasing reliance upon trade remedies.
In recent years Brazil has proven to be a source of considerable growth for Vietnamese exports. As late as 2009, Vietnamese exports to Brazil amounted to only $200 million. However, by 2012 this had increased four-fold, to approximately $800 million. This trend has continued throughout 2014. Exports to Brazil in 2013 reached a record high of over $950 million. This record was subsequently shattered in October last year when exports exceeded $1.25 billion - a 33 per cent increase over 2013 as a whole. Vietnam has recently become the biggest exporter of fish fillets to the Brazilian market.
Based on these statistics, it is commonly understood that the Vietnamese business community is keenly aware of the opportunities offered by Brazil and are actively targeting the market. However, at the same time, these same businesses need to understand that Brazil has become the global leader in trade remedy proceedings over the past five years - from 18 cases in 2009 to 63 in 2013. The increased reliance on trade remedies mirrors the shift in Brazil's trade policy, which has become increasingly protectionist. Accordingly, this poses a real threat to Vietnamese companies looking to access and develop their presence in the Brazilian market.
To date, there have been four anti-dumping investigations initiated by Brazil against a variety of products imported from Vietnam, such as tires, yarn and steel products. In 2013 Brazil issued an anti-dumping order imposing an anti-dumping duty rate of 35.6 per cent on certain cold-rolled stainless steel imported from Vietnam. Bearing all this in mind, one might conclude that Vietnam has already been on Brazil's radar in terms of trade remedy actions. Indeed, to the extent that the growth of Vietnamese exports begins to erode the market share of domestic producers in Brazil, Vietnam will find itself vulnerable to anti-dumping allegations. An example of this is the current rumor that footwear imports from Vietnam - by far one of Vietnam's largest exports to Brazil - will soon be the target of an anti-dumping investigation.
Therefore, it is important for the Vietnamese business community to recognize the threat of anti-dumping allegations when exporting to Brazil and to implement proper strategies for defending themselves in the event they are subject to an investigation in Brazil.
On October 1, 2013, Brazil implemented new trade remedy regulations. The new regulations strengthened its trade remedy measures, in which preliminary duties are imposed and proceedings are conducted under expedited deadlines, thereby making it more difficult for targeted exporters to prepare an adequate defense. At the same time, the Brazilian trade authority Decom, which handles trade remedy proceedings, more than tripled its staff numbers in 2013. Given these developments, it can be expected that Brazil will continue to be a significant user of trade remedies. This was confirmed by the outgoing director of Decom, who, in reference to Brazil becoming the global leader in the use of anti-dumping measures, commented that it must maintain this position.
Similar to the US model, anti-dumping duties are imposed when imports (1) are priced at less than fair value, and (2) cause injury to Brazilian domestic producers. Vietnam is considered to be a non-market economy under Brazilian practice and, therefore, a surrogate value is used to compare to the price of Brazilian products. This is where the similarities with the US model end for the most part. In particular, Decom does not use or request factors of production when determining the comparison price. Instead, it simply relies on a price for a comparable product from publically available sources (trade statistics, industry publications) or competitor price quotes.
Although the new regulations specify criteria for selecting the surrogate price to be compared to the Brazilian export price, Decom in practice has wide discretion in selecting the surrogate comparison price. This often results in Decom accepting petitioning Brazilian producers' recommendations for the surrogate price without consideration as to whether the selected information reasonably reflects the value of the product sold or the economic comparability of the surrogate country to Vietnam. An example of this is the 2009 anti-dumping investigation Brazil initiated against Chinese footwear imports. Decom used as the surrogate comparison price footwear exports from Italy to the US. This resulted in significant anti-dumping duties that have effectively shut Chinese footwear producers out of the growing Brazilian market. This market share has largely been filled by Vietnamese producers, which has many industry insiders expecting that a new anti-dumping investigation on footwear will be brought against Vietnam.
Another important deviation from US practice is that Brazil does not conduct annual reviews and, therefore, the anti-dumping duties determined in the investigation are not eligible to be revised for five years. Thus, it is critical that companies participate in the investigation in order to maintain access to the Brazilian market during this five-year period.
Strategies for Defense
Based on the facts - increasing exports to Brazil, similar industrial profile - and figures - the significant growth in Vietnamese exports to Brazil - it is clear that Brazilian anti-dumping investigations are an imminent threat to Vietnamese exporters. Thus, the first step is for companies to acknowledge this risk and prepare themselves for dealing with a prospective investigation. In doing so, the following general strategies are highly recommended.
Companies faced with anti-dumping allegations will ultimately decide to participate in the investigation based on a variety of commercial and legal issues. If a company decides to participate it should do so fully and cooperate with all information requests in a timely manner. Companies that dedicate the time and resources to respond to and participate in these investigations will have a greater likelihood of success, which is critical given that Brazilian proceedings can dictate access to the market for the next five years.
Brazil's procedural formalities, which are much more burdensome than those of other trade authorities, shouldn't be underestimated. For example, documenting legal representation with Decom has specific procedures that can take up to 50 days and must be followed in strict accordance with the regulations in order for the company to be able to participate. Therefore, it is critical that the company not overlook this element of the proceedings, as failure to abide by these deadlines and procedural aspects can result in the company forfeiting its opportunity to defend itself.
Surrogate Comparison Price
As mentioned earlier, Decom does not conduct a sophisticated analysis when determining the surrogate price to compare to the Brazilian import price for purposes of measuring the amount of dumping. Under Brazilian practice, participating companies may submit alternative options for the surrogate comparison price. However, they must do so under extremely tight deadlines of within the first 70 days of the investigation. Accordingly, companies need to be prepared at the outset of the investigation to present arguments advocating a surrogate comparison price they feel is reasonable and that complies with Brazilian regulations.
Vietnamese Government Involvement
Active involvement by the Ministry of Industry and Trade (MoIT) and the Vietnam Competition Authority (VCA) in any anti-dumping investigation conducted by Brazil are strongly encouraged. Introducing a political element into the proceedings can better position the participating companies, as Decom has shown itself to be sensitive to political pressure in past proceedings. Furthermore, Decom is generally open to having a dialogue with representatives of foreign governments involved in these proceedings. There is no downside to involving MoIT and VCA.
|Mr. James Breeden is a founding member and managing partner of UNO, a leading trade strategy advising firm, and is head of its Washington, DC office.
Mr. Hai Nguyen is an associate of Mayer Brown JSM Vietnam and has worked on almost all trade remedies involving Vietnam.