This article will give you an introduction to the Buy Brazilian Act, comprising what it does affects, what has changed since its promulgation and how foreign companies can adapt to it.
In 1998, Antônio Ermírio de Moraes, chairman of the Votorantin Group, one of Brazil's largest companies, wrote an article about "The Buy American Act", proclaimed in 1933. This act had the purpose of stimulating the creation of jobs and it established that public organizations should exhaust the possibilities of purchasing American products and services before importing.
In this article, he already predicted the necessity of creating a similar plan in Brazil, especially when in 1997 the country had imported 10 billion dollars in products that lacked the required quality and that were technologically unsuitable.
Twelve years later, with all the necessary work for the 2014 World Cup, the Olympics, the contracts related to the pre-Salt exploration and all the investments indispensable to the expansion of the economy, the ex-president Luís Inácio Lula da Silva created Provisional Measure 495 that, overall, aimed to promote national development through the establishment a margin of preference for Brazilian products and services. On December 15th, the provisional measure was promulgated into law 12.349.
What have changed?
Because of its similarity with the American act, law 12.349 is also known as the Buy Brazilian Act. Its main purpose is to use the State's power of purchase as a way to charter the innovation process performed by national companies.
From now on, national development has become a public bidding matter. It is a measure that aims to protect the Brazilian market, generate jobs and provide technological improvement.
The law gives preference, on public bidding, to companies that offer products and services that comply Brazilian technical regulation and are produced in Brazil. The specific margin of preference will be defined in a presidential decree, but there is already a provision defining that it can not exceed the amount of 25% above the price of foreign manufactured products and services.
The margin of preference will consider studies that establish criteria based on jobs and income generation, as well as development and technological innovations that take place in Brazil.
In other words, it focuses on products and services made or provided by Brazilian companies, or made or provided by companies that invest in research and technological development in the country.
It is important to highlight that this margin of preference does not apply to goods and services whose capability in the country is inferior to the quantity to be acquired or hired abroad.
Brazilian economic scenery of the last few years has shown that the competition between domestic and imported products and services has been extremely unfavorable to the domestic industry.
This imbalance is explained through the analysis of several comparison macroeconomic parameters, from the tax issue to the labor costs of the domestic industry.
In this context, law 12.349 has the main purpose of bringing a balance between foreign and national companies, promoting competition, innovation and the strength the country needs to be able to invest in research and development.
How Can Foreign Companies Adapt?
Law 12.349 favors national development and products and services made in Brazil, but it does not rule out possible joint ventures or partnerships between foreign and Brazilian companies.
In addition, similarly to the recent US stimulus package, law 12.349 provides that any advantage to Brazilian firms will be extended to the signatories of public procurement international treaties signed by Brazil. So far, that means only the Mercosul treaty.
Controversy since its launch, Buy Brazilian act has divided opinions. Some support the government and believe that, contrary to what is claimed by foreign representatives, the measure does not aim to impose acquisition of products of inferior quality or less technologically developed.
It aims to readjust economic competition, that is now very favorable to imported products. With this equalization, the country will experience a growth that will make it possible to earmark more investments in research and national companies will be able to evolve technologically.
Some others believe that the new legislation will penalize smaller foreign companies (who cannot afford operation in Brazil) when participating in public tenders. For them, it seems more of a barrier than an incentive. As these smaller organizations tend to offer more innovative solutions it may not be in Brazil's best interest either.
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