Brazil - Economic Outlook

An Expert's View about Business Environment in Brazil

Posted on: 29 Jan 2012

Recent Developments
•Relatively low export reliance, large foreign reserves and sizable domestic market helped the Brazilian economy rebound fast from the global recession, while the upcoming hosting of football’s World Cup in 2014 and the Rio de Janeiro Summer Olympics has further boosted the economy. However, the slowing global economy plus the lingering European debt crisis are expected to cool off foreign investment and consumer demand, leading to moderation of the country’s economic boom. In all, the Brazilian economy is forecast to see slower but still decent growth of 3.6% in 2012.
•Hong Kong’s total exports to Brazil rose by 25% to US$1.9 billion in the first eleven months of 2011, while its imports from Brazil grew by 16% to US$1.9 billion.

Current Economic Situation

The cushion stemming from the country’s low export reliance, large foreign reserves and sizable domestic market of over 190 million consumers helped the Brazilian economy emerge quickly from the global recession. After recording encoruaging growth in 2010 and early 2011, the Brazilian economy moderated in the second half of last year in line with the prolonged European debt crisis and the lingering US economic uncertainty. The slackening commodity demand and industrial production, plus the slower inflow of foreign capital, cooled off the country’s economic boom, leading to much more humble growth of 3.8% in the whole of 2011.

Looking ahead, Brazil, on the back of the aforesaid sound fundamentals and the upcoming hosting of the football’s World Cup in 2014 and the Rio de Janeiro 2016 Summer Olympics, is poised to continue decent economic performance in 2012. On the export front, the weakening of Brazilian real will help enhance the country’s export and cost competitiveness, incentivising foreign investors and manufacturers to invest and start up production in Brazil. Taken together, the Brazilian economy is forecast to grow, albeit at a slower pace, of 3.6% in 2012.

Trade Policy

Import transactions in Brazil are subject to regulation, authorisation and inspection by the Ministry of Finance’s Federal Revenue Secretariat (Secretaria da Receita Federal - SRF) and the Ministry of Development, Industry and Foreign Trade (MDIC)’s Foreign Trade Secretariat (Secretaria do Comércio Exterior - SECEX). To obtain such an authorisation, the importer must follow import procedures, which are currently conducted electronically by means of the Integrated System for International Trade (Sistema Integrado de Comércio Exterior), known as the SISCOMEX – a computerised system through which customs clearance and import licensing operations are processed. Enrolment is automatic upon the execution of the company’s first import transaction. Such a registration will enable the company to directly operate within the SISCOMEX system.

Once registered with SECEX, an importer must obtain an import licence for certain goods prior to the shipment of the goods. Such a licence may be obtained through SISCOMEX. There are three types of import licences - exempt, automatic and non-automatic. Most goods are exempt from import licensing requirements. However, importation of some products, such as spectacles and toys, currently requires import licences. The process and procedure of import licence application, however, are very time-consuming, involving lots of paperwork. Delays in granting of import licences have been widely experienced.

Apart from registration and licensing, Brazil applies import duties as well as a wide range of indirect taxes on imports. Import duties are Brazil’s primary instrument to regulate imports. As a Mercosur member, Brazil utilises the Mercosur Common Nomenclature (NCM) classification, which is consistent with the Harmonised System (HS) classification. In general, the customs value of goods is determined on a CIF (cost, insurance and freight) basis. Most imports from non-Mercosur members are subject to Mercosur’s Common External Tariff (CET) which ranges from zero to 35%.

Import duties aside, products imported and/or circulated in Brazil are essentially subject to Industrial Product Tax (IPI), Merchandise Circulation Tax (ICMS), Social Integration Tax (PIS) and Social Contribution Tax (COFINS). The Industrial Product Tax (IPI) is a federal tax levied on most domestic and imported manufactured products. The IPI rates range from 5 to 35%, and the same rates apply for domestically produced and imported goods. On the other hand, ICMS is a state government value-added tax applicable to both imports and domestic products. Currently, ICMS rates range from zero to 25%, but are generally levied at a rate of 18%. In addition, social contributions are levied at the federal level. They include the contribution for the social integration programme (PIS) and the social security contribution (COFINS). These contributions are levied at a combined rate of 9.25%. All these duties and taxes are levied ad valorem on the CIF value of the imports on an accumulative basis.

In November 2004, Brazil granted market economy status to the Chinese mainland for purposes of anti-dumping (AD) and countervailing (CV) duty investigations. This means that cost and pricing structures in the Chinese market are regarded as reliable and used for calculating dumping margins. As it now stands, Brazil applies several AD measures on imports from the mainland, including garlic, pencils, padlocks, spectacle frames, table electric fans, electric smoothing irons and hairbrushes and loudspeakers, while it does not apply any AD measures on imports from Hong Kong or CV measures on imports from the mainland or Hong Kong.

In March 2006, Brazil and China signed a Memorandum of Understanding (MOU) concerning trade in certain textile and apparel products. The MOU established quota restrictions on a number of Chinese textile and apparel products, namely silk fabrics, textured polyester filament yarn, synthetic fabrics, cut corduroy and other cut weft pile fabrics, embroidery in the piece, knitted shirts, blouses and t-shirts, man-made fibre coats and jackets, and knitted sweaters and pullovers. The quotas entered into force on 3 April 2006, and will remain in place through the end of 2008. Imports subject to quotas, need a non-automatic import licence granted by SECEX before the shipment can be allowed entry into Brazil. When imports exceed the limit of a specified quota, SECEX will suspend the applicable import licence. Other than textile and apparel products, an agreement was reached between Brazil’s and China’s toy manufacturers on 18 August 2006, freezing China’s 2005 share of the Brazilian toy market, estimated at approximately 40% (US$90 million), through 2010. In other words, China is able to increase its toy exports to Brazil only if the Brazilian market expands.

Certain specific products must comply with applicable standards and certification requirements as required by the corresponding national regulatory agency, including ANVISA, ANP, IBAMA, INMETRO and MAPA. The certifications will depend on the type of product imported. There is a certification of quality from IMETRO, a sanitary certification from MAPA, and a plague-control certification from ANVISA, among others. In general, most of the above mentioned standards and certificates are in line with US and Australian standards so that Hong Kong companies can have their products tested and certified in Hong Kong or the Chinese mainland. An example in point is lighting products. When selling lighting products to Brazil, Hong Kong companies can use CB test certificates/reports which can be obtained from Hong Kong testing laboratories or agencies.

From 24 August 2007 onwards, Brazil requires all imported toys to be certified in accordance with the more cumbersome “System 7” of the Mercosur Technical Regulations on Toy Safety (MERCOSUR/GMC/RES N°3/2004), which requires samples of every imported lot to be tested to ensure compliance with the applicable safety regulations. As required, any testing conducted for certification purposes must be performed by a laboratory accredited by IMETRO and cannot be carried out by laboratories in overseas locations. Effective from 8 October 2007, toy importers are required to submit an import licence request through SISCOMEX between the dates of exportation and customs clearance of the merchandise detailing the number of certification contract signed between the importer and the INMETRO-accredited certification body.

Aside from certification requirements, the Brazilian government issued on 28 December 2010 a resolution increasing from 20 to 35 percent the MFN duties on finished toys classified under NCM 9503.00.10, 9503.00.21, 9503.00.22, 9503.00.31, 9503.00.39, 9503.00.40, 9503.00.50, 9503.00.60, 9503.00.70, 9503.00.80, 9503.00.91, 9503.00.97, 9503.00.98 and 9503.00.99, effective from 28 December 2010 through 31 December 2011, while maintaining a reduced duty rate of two percent for toy parts and accessories suitable for use solely or primarily with toys of subheading 9503.00.99. Authorisation has recently been granted by Mercosur to allow Brazil to maintain the duty increase through the end of 2012. Moreover, in December 2011, Mercosur further authorised member countries to increase their MFN duties on 100 tariff lines to shield their industries from a flood of cheaper imported goods (expected to take effect in January 2012 and will remain in effect through 2014).

Brazilian legislation requires that the name of the country of origin on each imported article be included on the product’s label, packaging and brand. Products for domestic consumption must also comply with specific requirements established by the Consumer Defence Code, which requires any product that could cause harm to consumer health or safety to include a clear and exhaustive description of any potential hazards. Brazil also has specific labelling requirements for a range of products, regulated by various agencies. For instance, Mercosur has recently issued final technical regulations establishing labelling requirements for textile and apparel products produced in or imported for consumption into a Mercosur member country. These regulations have to be incorporated by member countries into their national legislation by 1 July 2008. Under the new labelling regulations, subject merchandise will have to include the following information in a label, stamp, decal, print or similar means that is permanent, indelible, legible and clearly visible: (i) name or registered brand and tax identification of the domestic producer or importer; (ii) country of origin; (iii) fibre content (fibres accounting for less than 10% of the total may be listed as “other fibre(s)”); (iv) care labelling instructions; and (v) size or dimensions, as applicable. This information will have to be presented in the language of the country of consumption but could also be presented in another language(s).

Regarding exchange control, the Brazilian Central Bank does not impose any limit on the amount of currency bought by Brazilian importers. In fact, the regulation establishes that any individual or company can buy or sell foreign currency, or transfer national currency to any country, with no amount limit, for any licit business transaction, in accordance with the Brazilian tax legislation.

Brazil’s free trade zone, namely the Manaus Free Trade Zone, is among the largest and most extensively developed free trade zones in Latin America. The free trade zone status implies that goods of foreign origins may enter into Manaus without payment of customs or other federal, state or local import taxes. The procedures for importing goods into the Manaus Free Trade Zone are similar to shipping to other points in Brazil, except that additional licences are required. The issuance of the additional licences is administrated by SUFRAMA. In addition, commercial invoices and Bills of Lading must have “Free Zone of Manaus” and one of the following statements – “Zona Franca de Manaus para Consumo (Manaus Free Trade Zone for Consumption)” or “Zona Franca de Manaus para Reexportao (Manaus Free Trade Zone for Re-export)” printed on them.

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Posted: 29 January 2012

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