The Brazilian Association of Vehicle Importing Companies (Abeiva) estimates that the number of vehicles sold by its members in Brazil will fall by 20% in 2012. It blames this on a 30% tax hike imposed on imported vehicles as of 16 December 2011.


Industrialised product tax (IPI) is levied on industrial products imported into the country, but the rate of 30% is close to the ceiling of 35% recommended by the World Trade Organisation (WTO) for countries wishing to afford some protection to their own manufacturing base.


José Luiz Gandini, president of both Abeiva and Kia in Brazil (pictured), said that Abeiva members will struggle to sell more than 160,000 units this year.


"2012 will be a very difficult year for the members of Abeiva,” he stressed, despite very good sales last year. Indeed, vehicles imported into Brazil that were produced by manufacturers linked to Abeiva increased by 87.4% in 2011, amounting to nearly 200,000 units, aided by the strength of the Brazilian real.  


This number represented a market share in Brazil of just 5.8%. However, when all imported car sales are added together, which include significant production inbound from both Mexico and Argentina, overseas producers boosted their combined share of the market to 23.35%.


Imports from the Mercosur trade bloc, as well as Mexico, will not be impacted by the higher import tax.


Gandini's negative predictions for the current year are based on the initial impact of the tax on sales in December, which grew by just 26.8%, compared to a rise of 42% for the previous 11 months. However, with the government having previously signalled its intention to raise the tax, consumers wishing to buy imported cars did so early, thereby inflating the overall sales figures.


In October last year, Japan and South Korea complained to the WTO about the 30% increase on vehicle imports.


The two countries alleged that Brazil’s treatment of foreign vehicle brands contravenes WTO rules on trade-related investment measures and Article 3 of the GATT agreement, which says that WTO members must treat foreign and domestic producers equally (read more here).