Lula government prepares protectionist decree to disfigure law

About to be regulated, law 14.301/2022, which creates the “BR do Mar”, is unlikely to overcome the challenge of leveraging the maritime transport of cargo between Brazilian ports, according to specialists consulted by the People’s Gazette.

After a soap opera of more than a year, the draft of the regulation decree was finalized this month, after an “adaptation” made by the government of Luiz Inácio Lula da Silva (PT).

Responding to demands from Brazilian shipyards and under the pretext of protecting national sovereignty, the changes made by the PT administration go against the liberalizing spirit of the law envisioned by the government of Jair Bolsonaro (PL). As a result, the tendency is for the obstacles that have prevented a stronger expansion of this type of navigation to persist for decades.

The publication of a protectionist regulation is in line with Lula’s intention to recover the Brazilian shipbuilding industry. To this end, the government is also studying raising the local content rates required of oil companies, so that they place more orders with Brazilian shipyards.

The maneuver in BR do Mar recalls other attempts by the PT government to reverse changes approved in the past administration. One example is the Sanitation Framework. The regulatory decree signed by Lula in April went against the law’s objective, which sought to stimulate competition in the sector by preventing contracts without bidding between municipalities and state sanitation companies. After clashes with the Chamber, which stopped the project, the Senate temporized and the government presented a new proposal, considered intermediate.

Proposed by the Ministry of Infrastructure of the Bolsonaro government, the BR do Mar, also known as the “Coastage Law”, had ambitious objectives. The idea was to reduce the historical dependence on road transport, which increases the “Brazil cost” due to the need for more frequent maintenance and the high risk of accidents.

Acting on several fronts, the project intended to triple, in three years, the share of goods transported between national ports – which, despite more than 8 thousand kilometers of coastline, represents only 11% of the Brazilian logistics matrix. Railroads represent another 20% and highways are the means for more than 60% of the cargo circulating in the country.

To this end, among other actions, BR do Mar provided for the relaxation of rules for chartering vessels from other countries by carriers operating in Brazil, stimulating competition and reducing costs for users.

The capacity of the maritime fleet dedicated to cabotage, according to the Bolsonaro government’s calculations, would increase by 40%, while the transported volume would jump from 1.2 million TEUs (20-foot equivalent unit) of containers transported per year in 2019 to 2 million TEUs as early as 2022.

None of this happened and will not happen anytime soon, believes Ademar Dutra, professor at the University of Southern Santa Catarina (Unisul) and coordinator of Cidesport, the International Congress on Port Performance, which takes place every year in Brazil, bringing together researchers and managers in the area. . The initial proposal, he explains, aimed to stimulate new players and competition. Now, the bias is to protect the national industry. “We had a 180 degree turn in guidance,” he says.

Law “offends national sovereignty”, claims the Parliamentary Front of the Naval Industry

The regulation of BR do Mar should have taken place soon after the Law was enacted, but it was lost in the bureaucracy and conflict between the agents involved.

The Bolsonaro government did not give priority to this process, frustrating the expectations of the sector. With the change of government, the Minister of Ports and Airports, Márcio França, announced in March, at an industry event in Rio de Janeiro, that he would review the decree to “improve the approved law”.

There was a new discussion with sectors of the industry and the decree to be published, according to Dutra, should already contemplate the “alterations to the liberalizing spirit of the initial project”.

The ministry’s expectation is that the decree will be published by the end of August, but there are crucial points under discussion. The Parliamentary Front in Defense of the Brazilian Naval Industry, chaired by deputy Alexandre Lindenmeyer (PT-RS), wants the guarantee that the interests of the sector are met.

In an interview with the specialized magazine “Portos e Navios”, the parliamentarian said that it is necessary to review points of BR do Mar that “affect the competitiveness of the industry and affront national sovereignty”.

The main point of impasse concerns the chartering of ships of other flags for the transport of cargo. With “BR do Mar”, the companies gained permission to charter foreign ships freely, after a transition period of four years – during this interval, there is a limit on the number of ships that can be rented, which increases progressively.

The current legislation links this possibility to a basic condition: for each foreign vessel rented, there must be one under construction in a national shipyard. For experts, this greatly increases the volume of investment needed by companies that explore the sector, making it difficult for new and small players to enter.

Behind the rule is the protection of the shipbuilding industry. Minister Márcio França has already declared his agreement and emphasized the potential of Brazilian shipyards, which in his view will be able to receive new orders for the production of ships to dispose of production. “It is a strategic industry for Brazil. President Lula asked us for special attention with the sector”, highlighted the minister to “Portos e Navios”.

Labor legislation and legal uncertainty are obstacles

For Luis Fernando Resano, executive director of ABAC, the Brazilian Association of Cabotage Shipowners, national companies have reasons for concern because investments are very high and there are competitiveness problems, such as labor legislation that makes labor more expensive and taxes on the fuels.

The rental of foreign vessels, in some cases, allows foreign crew, which is not governed by Brazilian legislation. “Without attacking the central points of costs, no law will be able to leverage cabotage in the country”, he summarizes.

Paulo Villa, executive director of the Association of Terminal Users of Bahia (Usuport), recalls that cargo owners are the most affected by high cabotage costs. In addition to legislation and inputs, cost reduction depends on scale-up. “Our transported volume is still tiny compared to capacity”, he says.

It would require robust investments in terminals with direct lines, logistics and transshipment infrastructure, effective routes and “many things that Brazilian ports do not have”, he says.

For Ademar Dutra, from Unisul, the lack of regulation in the foreseen time increased legal uncertainty and prevented the planned investments in the elaboration of the “BR do Mar” project. “Our logistical cost remains very high due to obstacles to public actions that the State does not and does not allow to be done”, he summarizes.

He sees the late decree with the new protectionist bias with pessimism. “In terms of the country’s competitiveness, it will be a setback. As in other aspects, we reaffirm our tendency to move sideways or backwards”, he laments.