Protectionism in Brazil
Plano Brasil Maior is the strategy president Dilma Roussef has found to keep the country's growth and to consolidate the national industry, decreasing the need for imports of both goods and workforce.
As the purchasing power of the Brazilian population has grown, the demand for imported products, specially from the US, has been growing as well. Also, as the country is growing, industries need inputs and end up importing too.
Added to that, there is also the matter of deindustrialization of Brazil due to the high tax burden and to the professional shortage, that increases the hiring costs.
The solution the current government has found was to create a protectionist plan that would enhance the competitiveness of the national industry under the slogan “innovate to compete”. As approached on the article Professional Shortage in Brazil in Brazil, one of the measures adopted is to invest in engineering and technological careers, as this constitutes one of the basic barriers for the development of the country.
How it Operates?
Here is a list of the most important measures the government has adopted as a way of promoting the development of the national industry.
Reintegra: Tax Exemption for Exports
Reintegra is a regime that will refund a percentage of the taxes applied to exports in Brazil. Initially, the percentage is of 0,5%, but the president can rise this amount to 4%. The purpose of this regime is to exempt taxes that are charged throughout the production process of industrialized goods, such as ISS, IOF and CIDE.
Governmental Purchases: The Summit of Protectionism
This measure will establish a margin of preference of 25% for national goods and services in public bidding. These margins will be established based on job and income generation, as well as the technological development and innovation taking place in the country.
Commercial Defense: Fighting Antidumping Practices
The investigation of antidumping practices will be more intensive and the number of investigators working for the Ministério do Desenvolvimento, Indústria e Comércio Exterior will jump from 30 to 120. This initiative aims to restrain practices that try to bypass the commercial defense mechanism through a false origin declaration or underpricing of goods.
Modernization of Inmetro: About Time
In order to meet the demand for certified products, the National Institute of Metrology Standardization and Industrial Quality will be modernized and have its structure expanded. It will now be called National Institute of Metrology, Quality and Technlogy and will work on airports and ports to certify the quality of imported goods that will have to meet the same norms applied to the national ones.
Inmetro will now have access to customs clearance and will participate on the formulation of free trade agreements when they are related to technical barriers and standardization of regulations. Also, the institution will expand its scientific and technological activities in order to support industrial innovation through the implementation of a laboratory network throughout the country.
Payroll Tax Exemptions: A Burden to the National Treasure
In order to preserve the stable level of job generation, the federal government will exempt economic sectors sensible to exchange and to international competition - which are those of clothing, shoes, furniture and software - from the INSS tax rate of 20% .
The plan guarantees that the National Treasure will be responsible for making up for the revenue loss suffered by Previdência Social.
PIS-Cofins and Tax Exemptions: Encouraging Digital Bookkeeping
The plan also foresees the automatic processing of compensation claims and the payment in 60 days for companies with digital bookkeeping. It also comprises IPI reduction for capital goods, building materials, trucks and light commercial vehicles.
The program was strongly criticized by the labor union. According to them, the exemption of the 20% regarding labor benefits will bankrupt Previdência Social, as the National Treasure would not be able of handling the situation for much longer. According to those opposed to the plan, there is no guarantee that the National Treasure will be able of handling the loss Previdência Social would face and this has a great impact over those who rely on the services provided by this institution.
Specialists also claim that the program is nothing but the continuity of measures that had been adopted before and that are limited to microeconomics, putting aside macroeconomic changes, which are those related to interest rates, exchange rates and salaries.
The main concern is the increasing of public debts, as the main opinion about the National Treasure taking over the losses of Previdência Social is very skeptical. Also, it is important to have in mind that protectionist measures trigger a chain reaction that might as well configure a problem for the Brazilian exports.