Brazil Unveils Plan to Fight ‘Global Predatory Competition’

Brazilian steel industryBrazil has just launched the Greater Brazil Plan. Under the slogan “Innovation for Competition. Competition for Growth “, it is the new industrial, technological, service and foreign trade policy for the Public Service.

Among the targets is the expansion of fixed investment from 18.4% to 22.4% of Gross Domestic Product (GDP) and increased expenses with research and development, also in comparison with GDP, from 0.59% to 0.90%.

Brazilian Finance minister Guido Mantega said that the plan is a set of measures to strengthen Brazilian industry and grant conditions for competition “in the adverse environment we are living today”. He defends, among other points, measures to fight disloyal competition with imported products, made at lower quality but sold at significantly lower prices.

“We currently see the global manufacturing industry facing great spare capacity and seeking market at any cost. I would say that we are facing a scenery of predatory competition globally,” said Mantega.

According to the Ministry of Development, Industry and Foreign Trade, the plan was developed for the 2011-2014 period and its main objective is to increase competitiveness of national products due to incentives to innovation and to the adding of value.

According to the ministry site, the strategy forecasts several actions for reduction of tax burden as well as incentives in the tax area, among them the reduction of the Industrialized Product Tax (IPI) on investment goods. Reduction of the tax on capital goods levied on capital goods, building material, trucks and light vehicles will be extended for another 12 months.

The government should reduce from 20% to zero the National Social Service Institute tax levied on sectors that are sensitive to exchange rates and to global competition if they employ much labor. With the measure, the government plans to benefit the sectors of garments, shoes, furniture and computer software.

However, in counterpart, a contribution over revenues should start being charged, with a rate of at least 1.5%, varying according to the sector. This way, the government plans to guarantee that the National Treasury is able to cover any possible loss in Social Service revenues.

The tax breaks will be developed in a pilot project up to 2012, to be evaluated by a committee established by the government, unions and private sector. For the automotive sector there will be a new regime with tax incentives.

National producers in the areas of health, defense, textiles and garments, shoes and information and communications technology, will be benefited with governmental purchases. A measure will be regulated allowing the government to accept prices up to 25% higher prices in tender processes for domestic products and services that comply with Brazilian technical norms.

In the area of foreign trade, the measures include reduction on export fees, trade protection, financing and guarantees to exports and commercial promotion.

In the area of financing the plan forecasts the establishment of a Fund for Micro, Small and Medium Company Export Finance. For this, there should be a private fund established by the Bank of Brazil for companies with revenues of up to 60 million Brazilian reais (US$ 38 million).

The plan also forecasts the extension of the Program for Maintenance of Investment up to December 2012, with a budget of 75 billion reais (US$ 48 billion). The focus was maintained on capital goods, innovation, export and on the Pró-Caminhoneiro (for truck acquisition) programs.

New sectors have been included, like specialized technical services and components, equipment, information and communications technology, hybrid buses, Pró-Engenharia (a program to boost the training of new engineers) and Linha Inovação Produção (for innovation of production lines).

To the government, these are areas affected by competition with foreign products. Several activities involve the Brazilian Development Bank (BNDES).

Another program, according to the Ministry of Development, is the Fundo do Clima, whose funds will be turned to innovation and to the financing of projects aimed at reducing greenhouse gas emissions.

Reductions in payroll taxes on companies manufacturing footwear, furniture, textiles and software will mean a loss of R$ 1.6 billion in revenue for the government over the next two years (R$ 200 million this year and R$ 1.4 billion next year). Instead of a tax levied on the payroll, these sectors will be taxed based on their sales income.

According to the executive secretary at the Ministry of Finance, Nelson Barbosa, depending on results, the measures may be extended to other sectors of the industrial segment. Initially the government intends to keep the tax reductions in place until the end of 2012.

Barbosa explained that some measures will require appropriate legislation, such as changes in tax rules for the automobile industry. And a new tax regime will favor companies that invest in technology and purchase parts and components made in Brazil.

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