Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Doing business in Brazil requires intimate knowledge of the local environment, including the high direct and indirect costs of doing business, commonly referred to in Portuguese as the “Custo Brasil” or “Brazilian Cost.” The World Bank’s Doing Business 2020 report ranks Brazil 124 out of 190 countries in terms of ease of doing business, falling from number 109 in 2019 despite numerous positive economic reforms. Companies seeking to enter the Brazilian market should identify local partners to help navigate Brazil’s complex legal and regulatory system.
Some of the challenges that U.S. companies in Brazil may face include:
Unpredictable Economic Recovery: Economic growth has largely stagnated or trended downward annually since 2012. Amplified by the pandemic’s economic toll, this trend has driven down domestic demand and caused Brazil’s currency, the real, to weaken significantly, lowering Brazilian buying power for U.S.-made products (2021 Average Exchange Rate US $ 1 = BRL 5.3, as of September 2021). After entering office in 2019, President Bolsonaro pledged to break away from Brazil’s protectionist past and make significant economic reforms. While his government has made some progress, including a much-needed reform of Brazil’s pension and social security system, much of its economic reform agenda remains incomplete. With the lingering consequences of the pandemic and an upcoming presidential election in 2022, it is unclear how much of the remainder of the president’s economic reform agenda can be achieved in this term.
Complicated Tax System: Without a free trade agreement, Brazil imposes high taxes and tariffs on imported goods and services coming from the U.S. and other markets. Brazil applies federal and state taxes and charges to imports that can effectively double the cost of imported products in Brazil. In addition to high taxes, the system is incredibly complex, and in 2020, it ranked 184 out of 190 countries in terms of ease of paying taxes according to the World Bank’s Doing Business report. The complexities of Brazil’s domestic tax system, including multiple cascading taxes and tax disputes among the various states, pose numerous challenges for all companies operating in and exporting to Brazil, even the most experienced ones. New U.S. exporters should seek special guidance to understand how the tax system affects specific industries and products. The U.S. Commercial Service has numerous industry specialists and a host of other contacts that are equipped with tools to help U.S. exporters succeed when met with the bewildering bureaucracy surrounding taxes and tariffs.
Other Non-tariff Barriers: In addition to a complicated tax and tariff system, exporters can expect to encounter a complicated regulatory system, lack of adequate or effective intellectual property protection and enforcement, and Brazil-unique standards with often little to no recognition of the international standards commonly used in the United States. Brazil currently ranks last (141/141) in the World Economic Forum’s 2019 Global Competitiveness Report for “Burden of Government Regulation.” Companies need to navigate a complex web of federal, state, and local regulations affecting their products. Companies must also be prepared to meet different standards and technical requirements from those used in the United States to sell their products in Brazil. This means that even if a company has already tested its products and successfully met technical requirements in the United States, it may still be necessary to re-test and re-certify those products to meet the technical requirements used in Brazil.
Logistical Costs and Delays: The World Bank’s 2020 Doing Business Report ranks Brazil 108 of 190 countries for ease of trading across borders. Poorly developed infrastructure and inefficient customs processes mean that getting products to a destination can often be a lengthier process than many exporters are accustomed to experiencing. Companies should be prepared to face high costs and delays in getting goods into the market due to a complicated tax system, bureaucratic customs procedures, and inadequate infrastructure. However, Brazil has been committed to improving its infrastructure and bureaucratic inefficiencies over the past several years; as a result, clearance overhead time and costs are falling.
Non-transparent Public Procurement Processes: Government tenders often favor domestic players due to local content requirements and high levels of corruption. While the Government of Brazil is the largest buyer of goods and services in Brazil, navigating the government procurement process can prove challenging if firms are not equipped with the proper contacts and information. Brazil is not yet a member of the World Trade Organization’s (WTO) Government Procurement Agreement (GPA), but submitted its application to join the GPA in May 2020 and has been an observer since 2017. To make their procurement market more open to international bidders, Brazil passed a new government procurement law in April 2021. Federal, state, and municipal projects will have two years to switch to the new system, which more closely follows global procurement practices for government contracts, including eliminating some of the regulations that favored local companies. However, U.S. exporters may still find themselves at a competitive disadvantage if they do not have an in-country presence, either through established partnerships with Brazilian entities or a Brazilian representative, along with the endurance and financial resources to respond to legal challenges and bureaucratic issues. The U.S. Commercial Service Brazil can help U.S. companies find trusted local partners through our matchmaking and due diligence services.
There are a number of things that companies can do to familiarize themselves with the local market and then overcome these challenges. First and foremost, work with the U.S. Foreign and Commercial Service when considering doing business in the market, and with our Advocacy Center when bidding on public procurements. Companies should be prepared to make a long-term commitment to the market, as it will take time to establish and build relationships locally. Given that imported U.S. products will likely be more expensive than local products, your company will need to be prepared to make the case for your product’s overall quality and value.
You may also wish to work with our team to identify potential tools that can help to mitigate Brazil’s high tariffs and taxes. These include programs such as ex-tarifario, which grants a temporary waiver of import duties on products not produced in Brazil. Finally, if you do encounter a trade barrier, make sure to report it either through the Commercial Service or the Department of Commerce’s Office of Trade Agreements, Negotiations and Compliance: