Brazil plans sanctions on US-made cosmetics

By Simon Pitman

- Last updated on GMT

Related tags International trade

The Brazil government has threatened to introduce trade sanctions against US produced cosmetics in retaliation over subsidies the US government is paying to its cotton farmers.

The Brazil government published a list of 100 US goods that will be subject to the trade sanctions within the next 30 days if the governments cannot come to an amicable agreement.

The increase on tariffs, which the Brazil government says represents $238m worth of penalties, is significant for many product categories. However, one of the categories that would be hardest hit is cosmetics, for which import tariff could double from 18 percent to 36 percent.

Likely to hit big US luxury players

The move is expected to hit big global US cosmetics players, especially those positioned towards the luxury end of the market, especially brands such as Revlon, Estee Lauder and Elizabeth Arden.

Brazil is an important market because in recent years it has been one of the few in the Americas to consistently record strong growth in personal care sales, even in the face of the current economic downturn.

The move is aimed at hitting back over heavy annual US government subsidies that help the US cotton industry maintain its position as the world’s leading exporter.

Retaliation over 'unfair' US cotton subsidies

The Brazil government claims that the subsidies give the US industry an unfair advantage, a point it has been arguing over the course of the last eight years.

In a rare move, the Brazil sanctions were actually approved by the World Trade Organization, which also ruled back in 2008 that the US government cotton subsidies were discriminatory.

Most recent market figures show that the perfumery and cosmetics category far outpaced market growth worldwide, recording month-on-month sales growth of 2.4 per cent, a figure that reinforces predictions that percentage growth for the category could still be well into double figures in 2009.

In 2008 the Brazilian Association of Toiletries, Perfumes & Cosmetics (Abihpec) said that the Brazil market grew at 8.6 percent in 2008 to reach BRL 21.2bn ($8.9bn), a figure that is currently only matched by the Chinese and Indian markets.

Venezuela battles imports

In January this year Venezuela president Hugo Chavez devalued the national currency, the Bolivar, in an attempt to shore up demand for locally produced goods.

The move has affected imported cosmetics and personal care products, which have not been classified as essential products by the government.

As a result this has to led to a long list of imported cosmetics increasing significantly in price.Indeed, when the announcement was first made, store shelves were cleared of imported skin care and oral care products, as consumers raced to beat the price increases.

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