Despite the worst economic recession in its history and unprecedented political and private corruption, Brazil continues to grow. Currently Brazil is the eighth-largest economy in the world. So what does the recovery of this nation mean for its economy, and for exporters who may want to enter it?
In this article, I’ll look at the history of U.S. trade with Brazil; the process of exporting to Brazil, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Brazilian market.
Trade and Exporting to Brazil
The early part of the 21st century in Brazil was characterized by recession and corruption, resulting in sanctions against some of the largest economic players in the country. According to the CIA, these sanctions limited business opportunities, “producing a ripple effect on associated businesses and contractors but creating opportunities for foreign companies to step into what had been a closed market.” Add a global pandemic, and it’s no surprise that Brazil’s GDP slowed.
In 2019, Brazilian GDP growth slowed to 1.13%, to $3.12 trillion as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences.
However, data from the U.S. Commercial Service’s 2021 Brazil Country Commercial Guide shows that the country’s aggressive response to pump money into the economy and the offer of generous unemployment benefits has economists forecasting a return to positive GDP growth.
Brazil was the United States' ninth-largest goods export market in 2019. According to the Office of the U.S. Trade Representative, the top U.S. export categories to Brazil in 2019 by two-digit HS numbers were:
- Mineral fuels ($12 billion)
- Aircraft ($7 billion)
- Machinery ($4.9 billion)
- Electrical Machinery ($3.4 billion)
- Organic chemicals ($2 billion)
Exporting to Brazil: The Challenges
U.S. exporters must be aware of certain barriers when exporting to Brazil. But with careful planning and assistance from agencies such as the U.S. Commercial Service, exporters of all sizes can absolutely be successful in the Brazilian market. According to the Brazil Country Commercial Guide, challenges include:
The Economic Crisis
The current economic crisis has driven down business and consumer demand and caused Brazil’s currency, the real, to weaken significantly, which lowers Brazilian buying power for U.S.-made products.
High Tariffs and Taxes
Exporters and investors face high taxes, high import tariffs and a complicated tax system. Doing business in Brazil requires intimate knowledge of the local environment, including the high direct and indirect costs of doing business in Brazil, commonly referred to as the “Custo Brasil.” 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.
Brazil has implemented a variety of non-tariff barriers, including:
- A complicated regulatory system
- Lack of adequate or effective intellectual property protection and enforcement
- The use of unique-to-Brazil standards and a lack of recognition of international standards commonly used in the United States
Poorly developed infrastructure and inefficient customs processes result in high logistics costs.
Brazil’s non-transparent public procurement processes favor local players due to local content requirements and high levels of corruption.
Exporting to Brazil: The Opportunities
In some situations, the potential rewards outweigh any challenges exporters may face when exporting to Brazil. Exporters should identify and cultivate business opportunities while building a strategy to minimize the risks. Commercial Service Brazil (CS Brazil) has prioritized six sectors with high export potential:
- Defense and aviation
In December 2019, the Brazilian Congress ratified the Technology Safeguards Agreement (TSA), which unlocked the use of U.S. technology in suborbital and orbital space launch operations from the Alcântara Space Launch Center. Aviation has been hit hard globally, but Brazil remains one of only six countries in the world that manufactures commercial jets, and has been one of the top 10 export destinations of U.S. aerospace products for many years.
U.S.-Brazil trade facilitation cooperation and a substantial slate of transportation and logistics infrastructure projects promise to help further reduce the cost of doing business in Brazil.
The best thing about exploring Brazilian export opportunities is knowing that you don’t need to go it alone. If you’re an exporter interested in exporting to Brazil for the first time, or you currently export to Brazil but are facing challenges, you can get help from in-country allies, including the U.S. Commercial Service offices, trade missions and chambers of commerce.
The first place to go for help is your local and in-country U.S. Commercial Service offices. The Commercial Service’s seven in-country offices offer U.S. exporters business partners in Brazil—boots on the ground in the country—and include representation by an agent, distributor or partner who can provide essential local knowledge and contacts critical for your success. You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service's In-Country Offices.
DECs across the U.S. help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth and create jobs. DEC members also serve as mentors to new exporters and provide advice to small companies interested in exporting to Brazil.
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to meet new business contacts and network.
The ITA is an excellent resource to help you combat trade problems. ITA staff members are experts in advocating for U.S. businesses of all sizes. They customize their services to help solve trade dilemmas as efficiently as possible. The ITA makes it easy to report a trade barrier, allowing you to submit your report online.
U.S.-Brazil Chambers of Commerce
Chambers of commerce may be a resource when exporting to Brazil. You can learn more about various chambers and how they can help smooth the way for your export activities in our article, The Chamber of Commerce Role in Exporting.
Export Document Requirements for Brazil
Export documentation and procedures for Brazil are as critical as they are for any other country. Documents needed will vary depending on your products, but may include:
- Bill of lading
- Commercial invoice
- Packing list
- Sales contract
- Proforma invoice
- AES filing
- Customs declaration
- Insurance policy
Brazil Export Compliance Issues
It’s important to understand the regulations covering exports to Brazil, especially export controls.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: is it the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department's Directorate of Defense Trade Controls (DDTC)?
If your goods fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS, part of the Commerce Department). To do so you need to answer the following questions:
- What is the Export Control Classification Number (ECCN) of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
To determine jurisdiction, you must know how to determine the correct classification of your item, also known as the Export Control Classification Number (ECCN). There are three ways to classify your products for export controls: You can self-classify your products, submit a SNAP-R request for a ruling or rely on the product vendor to provide the information. You can learn about that process in our article, Export Codes: ECCN vs. HS, HTS and Schedule B.
By classifying your product correctly, you’ll be protecting yourself from severe fines, penalties and even jail time.
Export License Determination
Next, companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. Countries fitting that bill are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that uses the ECCN code for your product(s) and the destination country to tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process - Redesign (SNAP-R) before you can export your products.
There are export license exceptions, such as low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce, not items controlled by the State Department or some other agency.
Surprise! You May Be an Exporter without Even Knowing It! Deemed exports, or the disclosure of information or services rather than an actual product, is an important issue to pay attention to when exporting to Brazil. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, conducting tours of facilities and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.
There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization; they may have a history of corrupt business practices; or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more restricted party lists to ensure they are not doing business with a restricted party.
The primary restricted party lists in the United States are published by the Department of Commerce, Department of State and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to Brazil, it’s imperative you check every restricted party list every time you export. If not, you could face the following penalties:
- Fines for export violations can reach up to $1 million per violation in criminal cases.
- Administrative cases can result in a penalty amounting to $250,000 or twice the value of the transaction, whichever is greater.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re an exporter who is considering exporting to Brazil, consider this: Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Click here to register for a free online demo of the software.
Other Export Markets to Consider
This is the seventh article in our series investigating exporting to various countries across the globe. Check out our articles on these other markets: China, Canada, Japan, Mexico, India and the U.K.
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