Brazilian President Dilma Roussef recently announced the Brasil Maior (Bigger Brazil) industrial competitiveness plan that provides new incentives for Brazilian manufacturing. Brasil Maior's slogan, "Innovate to Compete, Compete to Grow," set the tone for the multifaceted plan announced August 2.
In recent years, the Brazilian Real's appreciation has made Brazilian products more expensive on the global market. Brazilian manufacturers also face competition in Brazil from lower cost imports manufactured in countries with weaker currencies. As a result, Brazilian manufacturing has declined, thus prompting this comprehensive response from the Brazilian Government.
Under the plan, the Brazilian government will provide tax cuts to certain industries, increase surveillance of unfair imports, institute a "Buy Brazil" plan for government purchases, and increase manufacturing support available through the Brazilian Development Bank.
From October 2011 through the end of 2012, $US 16 billion in tax cuts will be provided to manufacturers in Brazil. Initially, the tax cuts will be limited to labor-intensive industrial sectors that are suffering from import competition. Exemptions from Brazil's IPI industrial products tax and PIS-Cofins welfare tax will be provided to apparel, shoe, furniture, and software industries. The cuts may be extended to other industries if they successfully increase manufacturing.
In an effort to reduce unfair import competition, Brasil Maior provides for increased actions against imports being sold at "dumped" prices and heavier surveillance of imports, which may be evading existing antidumping orders. An August 6 Economist article regarding Brazil's new policies reported that "Chinese manufacturers are rumored to be evading antidumping tariffs by shipping via third countries."
Brasil Maior allows the government to pay a 25 percent premium (over the lowest price) for Brazilian origin products and services that meet certain employment, income generation, and technological innovation standards. The Brazilian Development Bank will offer credit lines for companies investing in innovative technology, loans for industrial sectors most affected by exchange rate appreciation, funding for micro, small, and medium-sized enterprises, and loans for investments that increase professional and technical employment.
Under certain conditions, tax exemptions and other government incentives, such as those instituted under Brasil Maior, may be found inconsistent with World Trade Organization agreements.