The forescats for 2009 are not optimistic

Tax credits are a stone in the shoes of the tax system.

 

COUROBUSINESS heard the Federal Representative Renato Molling , who fulfils the first mandate elected by the people from Rio Grande do Sul . Affiliated with the Progressive Party, Representative Renato Molling has close links with Vale dos Sinos , and such link could make him the President of the Parliamentary Front in Defense of the Footwear-Leather and Furniture Segment, in spite of the tannery industry from Rio Grande do Sul has interests which are not always coincident with those of tannery industry from the rest of the country. In the end of 2008, shaken by the international financial crisis which is reflected in the real economy of all the countries, the Deputy's opinions indicate a mixture of realistic vision and optimist desire. But the representative brings good information, such as the efforts that are designed to expedite the release of accrued tax credits. And there is also some information which could generate contrary reactions, such as the delicate issue of Wet Blue leather taxation. The representative believes the taxation is essential to maintain a level of sufficient supply in the domestic market. He would also like that the revenue resulting from that taxation was applied for a Development Fund for the Leather Segment, which he would propose to the Ministry of Development of the Industry and Foreign Trade.

 

CB - The international financial crisis, with repercussions on the real economy of the countries, will reflect in foreign markets where our arrangements are beginning to be made. Brazil comes in that context with a more favorable exchange rate for exports, which it is a positive element. But it would be sufficient to the country to maintain the same amount and value of exports of recent years in the leather and footwear segment. What are your expectations, Coordinator of the Parliamentary Front of the Footwear Industry, regarding the Brazilian foreign trade in 2009?

 

Renato Molling - The trends for the global economy in 2009 are not optimistic. The impacts of the crisis, which began in the financial system and have already been spreading to the real economy, will be rigorous. It is certain that the main buyers of Brazilian exports, the Europeans and North Americans, will be in recession. The last quarter of the year has already introduced a framework of slump in consumption and in the economic activity, not only in these blocks, but overall.

The leather segment faces a more optimistic set. The main destination of foreign sales in the segment is the Southeast Asia , which accounts for 1/3 of the whole. The impacts of the crisis tend to not to be so acute in there. And in such region there are also potential markets such as Vietnam , which has imported US$ 80 million in Brazilian leather this year, a figure 96% higher than last year.

Currently, an exchange rate which could offer more competitiveness for our exports, particularly for leather and footwear, will certainly be positive in the medium term. However, we must be careful about that. The Real is not the only currency that is devaluating with respect to the dollar. And the effect of the demand slump in the international market may be higher than the exchange rate motivation.

 

CB - Exporters are not satisfied about accrued tax credits, resulting from exports, in both the Federal Union and in States. In this era of scarce and expensive credit, one of the attitudes hat is suggested is the total utilization of such credits, with greater agility in order to increase the working capital of enterprises. How does the Parliamentary Front sees that issue? Is there any lawsuit made to the Federal Government?

 

Renato Molling - The credits issue is an obstacle for Brazilian tax system. There are resources that producers have right but the state and federal governments successively absorb, in order to have cash for primary surplus or to cover cash flow. The reimbursement of credits as soon as possible is one of the main defenses of the Parliamentary Front. Dozens of hearings have been held with the Federal Revenue Secretary and Ministry of Finance. Today we can see a solution to this problem with a higher optimism. A few days ago, during a hearing, the Federal Revenue Secretary, Lina Vieira, announced that the agency is conducting a survey of all the credit and they will send the amount to the National Treasury, so that they can evaluate when it can be immediately liberated. We have also been reported about the creation of a coordination, in the Revenue framework, in order to monitor closely the reimbursement of credits. Therefore, our expectation is that, from the coming months, the exporting segments begin to receive the credits with greater agility.

 

CB - Regarding the export of leather: in 2007, US$ 2.2 billion in leather was exported, with about 32.8 million of bovine hides. Still, a large number of hide could not be exported because the slaughter resulted in the provision of 44 million hides. The expectation of export in 2008 is about 25% lower, in quantity. There is too much leather left in the country and the expectation for 2009 is not the best. What is the meaning of leather being one of the two Brazilian products taxed with Export Tax? Who wins with this tax?

 

Renato Molling - We need, from this moment, to look for ways to encourage the addition of value to our products in order to increase the competitive potential, as well as to promote the creation of jobs. Thus, we have to look for alternatives to avoid the supply of raw materials for foreign countries and the entry of finished products of higher added value which will invariably compete with domestic production.

The leather segment has been going through a series of adversities and still, fighting against all of them, it could to present a growth of 16.8% in 2007. According to data published by the CICB, the expectation of the leather segment for exports in 2008 is US$ 2.5 billion, exceeding the mark of US$ 2.2 billion achieved in 2007. (The CICB would have revised the target to US$ 2 billion).

This performance, despite all the difficulties, is due to the considerable increase of added value in exports of leather, that is, the country is exporting more crust and achieved leather and less salt and wet blue leather. This performance would not be possible if there were not high investments in technology and quality from leather companies, making the national product adequate to international parameters.

With the taxation of the wet blue leather, they realize the added value of the basic and primary products in Brazil . The turnover in crust and achieved leather was expressive during the rate institution. The value was added to domestic production, generating jobs and income in Brazil . The high competitiveness in the footwear global market is a challenge for the domestic industry. The actions which designed to help the greater efficiency of the segment are needed.

We can highlight that the leather segment has exported in 2007 US$ 2,190 billion. From such amount, the type of wet blue has a performance of US$ 702,263 million dollars. From such amount of wet blue, according to the law, the incidence of a tax of 9%, results an approximate value of 63 million. We are proposing to the Executive the creation of a Development Fund for Leather Segment in order to serve the purpose of improving the segment, strengthening its economic integration. The Fund shall, in accordance with our proposal, be established, directing percentage, according to the need for investment in quality, in research, in the environment and in the management of the product from the initial stages.

 

CB - The export of leather footwear fell in a decade from 80% to about 40% of the total exported. The leather is being replaced by plastic, injected, fabrics and other materials. The tax on exports of leather begun with the pressure of the footwear industry, worried in that moment about the potential risk in the supply of leather because of the increasing of leather exports. Today, the pressure of demand for leather by the footwear industry has been reduced each year, and the argument loses consistency. How do you evaluate such performance?

 

Renato Molling - If in volume of pairs the leather footwear lose importance, on export earnings they represent ¾ of exports. But the issues raised here are interesting and deserve discussion. If exports of leather footwear slumped, it is also true that the price of leather, and consequently, the one of the leather footwear, increased. The higher price may have been a factor discourage for the demand for such models.

However, even with the decreasing in the volume of exported leather footwear, leather producers have been successful in opening new markets and in the modernization of their production, showing that they are connected to the global market. In less than a decade, exports of leather were multiplied by three.

We have also, in this context, the challenge of adding value to our exports, focusing on the finishing in domestic market level and developing an industrial policy that could give conditions of competitiveness to our products.

 

CB - Representative Nelson Marquezelli , in the latest edition of COUROBUSINESS, defended the thesis that the Export Tax on Wet Blue leather is a mistake, saying that who pays the bill of such taxation is the rural producer. You have a strong and ostensible position in defense of the taxation, so how do you see the position of this illustrious parliamentarian?

 

Renato Molling - In spite, and with respect for contrary opinions, such attitude contributes to keep the domestic supply of the product. As Representative Nelson Marquezelli remembered, exports of leather have had remarkable growth in recent years. In 2000 exports of leather reached US$ 700 million. In less than a decade, these values are higher than US$ 2 billion. This setting shows that even with the tax rate levied on the export, the leather products of leather are increasingly reaching the foreign market.

In the same direction in recent years, the price of leather accompanied the high price of commodities on the international market. The increase in leather prices was much more than the tax of 9% on exports. That is, even with the tribute, the producer could have real gains. Therefore, with the international demand and the value of the leather increasing, we reiterate that the Export Tax is essential to maintain a level of sufficient supply in the domestic market.

 

Revista Courobusiness, Edição 61 – nov /dez 2008.