EXCESSIVE BUREAUCRACY AND REGULATION

  E1.  There are further obstacles to overcome in terms of the regulatory framework and the complex bureaucracy, that impact on companies at municipal, state and federal levels adding up to a bewildering array of rules, regulations and paperwork that can quickly swamp the unwary or ill-prepared exporter or investor. That these same bureaucratic hurdles apparently afflict Brazilian companies does create a level playing field since there are well established methods (indeed whole industries dedicated to identifying and facilitating these methods) of navigating the bureaucracy without drowning in it. These work-arounds do not generally rely on corrupt or illegal practices, instead they are established ways through the tangle of bureaucracy that the better local companies have mapped out. Knowledge of how to operate these "little ways" is one of the reasons that exporters must have the right local representation if they are to operate effectively in Brazil.

  E2.  In many cases the regulatory agencies are essentially competent but unable to keep pace with demand. This creates vast backlogs that can delay the introduction of novel goods and services for months or even years. These problems are exacerbated when over stretched staff in these agencies take industrial action thereby shutting down operations for weeks or months at a time and extending the backlog further.

COMPLEX TAX ISSUES

  E3.  Brazil has one of the most complex taxation systems in the world, a conservative estimate puts the number of taxes that most companies need to understand and comply with at 75. To attempt to comply correctly with such a system requires enormous inputs of managerial time and considerable investment in specialist tax consultancy. It also opens the way for rent seeking and other corrupt practices that damage the competitiveness of businesses. Foreign companies established in Brazil are required to pay taxation on their world-wide income (as are Brazilian firms) without a double taxation agreement this seriously damages the viability of investments.

IPR ISSUES, PATENT PROCESSING

  E4.  In principle Brazil has a sound IPR and patent system that does not discriminate unduly against foreign companies. However, the effectiveness and impartiality of enforcement is variable and any legal processes will be both protracted and costly.

EMPLOYMENT LAW

  E5.  The labour law provides for very strong protections for employees both for terms and conditions of service and for social provision. This means that on average an employer must pay 100% of an employee's salary in social costs and taxes. The result is reluctance, on the part of Brazilian industry, to formally employ people (allowing them to drastically reduce their overheads but removing any protection for their workforce). Foreign companies cannot operate in the grey economy in this way (as it would in some cases be illegal and in most cases would contravene corporate social responsibility standards) but this can damage foreign firms' competitiveness.

TARIFFS, AND CUSTOMS

  E6.  The tariff system still bears some of the hallmarks of the pre-reform protectionism for example:

—    Import duties are relatively high under the common tariff system of the Mercosul trading block.

—    Two different VAT taxes, called IPI and ICMS are incurred on all goods, including imports.

—    To complicate things, IPI can vary from State to State.

—    ICMS is up to 18%.

—    In 2004, the government added two further taxes to imported goods, namely PIS and COFINS, which increased the burden by a further 9.25%.

  E7.  Products arriving in Brazil face high port costs, inefficient ports, strikes by port workers/customs and federal police, corruption and bureaucratic barriers. Paperwork must be 100% correct or serious problems will arise.

SERVICES LIBERALISATION

  E8.  UK service suppliers face a number of market access barriers to the Brazilian market. In summary, Brazil maintains a number of restrictions on cross-border supply of services, on the ability of UK service providers to establish a commercial presence in Brazil, and for UK service professionals seeking temporary access into the Brazilian market.

  E9.  Services liberalisation is a difficult issue for Brazil. Previous attempts by the Government to push through the ratification of WTO agreements on financial services and telecommunications have been rejected by Congress. The Government's weak hold on Congress has meant that attempts to liberalise—through amending existing laws or regulations—have been resisted. Therefore, Brazil can be expected to move only very cautiously.