Brazilian federal, state and municipal governments follow a "buy national" policy. Given the significant influence of the state-controlled sector due to its large size, discriminatory government procurement policies are a substantial barrier to exports. For example, discriminatory government procurement practices govern the telecommunications, computer and computer software sectors. The rules permit the government to provide foreign companies with production facilities in Brazil preferential treatment in government procurement decisions (Brazil Trade Policy, 2000). So Brazilian government needs to adopt non-discriminatory policies and open the state telecommunications, computer distribution monopolies for foreign participation to ease some of the barriers currently faced by foreign companies.
Arbitrary standards such as labelling and testing standards may become a barrier for export to entry Brazil because such standards allow the sale of domestic products but obstruct that of foreign-made ones. Take testing standards for example. Testing Pharmaceutical and cosmetics products are regulated by the Ministry of Health, which requires registration of laboratories and laboratory products before relevant products can be sold in Brazil. Brazil generally accepts U.S. product standards, and accepts U.S. testing laboratory certifications, such as those of Underwriters Laboratory (Brazil Trade Policy, 2000). So Pharmaceutical products made in the US are fully acceptable and may be preferred, but EU standard might keep some products out of market completely. Such standard may poses a barrier for Pharmaceutical products access to EU market.
Another non-tariff barrier in Brazil is the intransparency licensing system for import licences. In 1997 Foreign Trade Secretariat implemented a new trade documentation system to handle import licensing. In new system licenses for most products are issued automatically and it regulates a list of imported products that are subject to prior approval before importing into Brazil. These products included food, chemicals, petroleum, energy products and some textiles. Each import will be reviewed by the Ministry under which the product is regulated, for example agricultural products will be approved by the Ministry of Agriculture. And the Import License must be approved before the shipment leaves the country of origin. Normally it takes average five days for each license to be granted (National Import and Export Profile, 1999).
The new system allows the Government of Brazil greater control over imports before they reach Brazil's shores and greater flexibility in denying the licenses of certain products. But in terms of the process time for licensing, the level of licensing fees and reduction of the validity of licences in new measure, import licensing has posed a barrier to exporting to Brazil. Brazil's licensing system required greater transparency and efficiency in implementation.
Service like transportation, insurance, consulting, and banking account for about 20 percent of the value of the international trade which are growing faster than the trade of goods. The Brazilian imports of services has grown and developed in recent years. But Brazilian restrictive investment laws, legal restrictions on remittances and arbitrary application of regulations limit service exports to Brazil. Service trade, particularly in the telecommunications, oil field, mining and financial industries, have been affected by limitations on foreign capital participation in many sectors(Trade Policy Review Body, 2000).
Other service restriction on foreign legal, accounting, tax preparation, management consulting, architectural, construction and engineering industries are hindered by various barriers. These include forced local partnerships, limits on foreign directorships and non-transparent registration procedures (Trade Policy Review Body, 2000). Brazil is South America's largest economy and has potential market for service industries. Brazilian strict requirements for service importing prevent foreign market access for trade in some service industries.
All in all, during the past ten years Brazil has liberalised its trading regime in a substantial manner, but still maintains various barriers to trade of both a tariff and a non-tariff barrier nature. The Tariff and NTBs that hamper its products' access to the world's principal markets, such as the European Union, the United States and Japan, must be lifted to increase trade.
The Government of Brazil offers a variety of tax and tariff incentives to encourage production for export and the use of Brazilian inputs in exported products.As one of the world's major producers and exporters of agricultural products, Brazil direct price supports or input subsidies provided to farmers for domestic production in an effort to protect them from foreign unfair competition such as dumping goods at extremely low prices.After joining the WTO in 1995, Brazil agreed to extend market integration from a regional to a global level. The Uruguay Round had a specific Agreement on Agriculture that required unprecedented liberalization of agricultural markets.
So the Brazilian government export subsidies had been reduced by 24% and domestic price supports were reduced by 13.3%, both over a period of ten years (Richard&Ramirez, 1996). Particularly evidence is the difference in percentage reduction for key export crops such as coffee, wheat and rise in which Brazil has more powerful agricultural interests were drastically reduced compared to other crops. Therefore Brazilian government subsidies in agriculture sector have sharply decreased. Table 3 in Appendix shows the downward trends of subsidies.
Now most of agricultural support programmes, mostly minimum-price supports and rural credit at preferential rates, are targeted at assisting low-income farmers in disadvantaged areas (Richard&Ramirez, 1996). Despite of the reduced government assistance, agricultural production and productivity had increased significantly for the private involvement. But it also increased the risk for Brazilian farmers' exposure to the fluctuations of international prices and may lead to the instability of agricultural export.
All the standard methods of export financing are available and used in Brazil, both for exports and imports. Brazil encouraged exports through a number of schemes, including the Export Finance Programme (PROEX), government direct financing and internal tax concessions. The Brazilian government plays an important role in encouraging export production and the use of Brazilian inputs in exported products with a variety of tax and financial incentives.
For example, Brazilian government has launched a program for the Northeast of Brazil which includes long-term financing of US$1.5 billion to the Northeast to cultivate tropical fruits such as grapes, melons and mangoes to triple the export value than previous years. In addition, the government was finally extended exempts the state VAT on exports to primary products, such as soybeans and other agricultural products on January 1, 1997. The semi-processed and processed food products already benefited from the exemption of state VAT tax (National Import and Export Profile, 1999). It largely stimulates domestic agricultural firms to increase the export production.
Besides the government direct financing, there is an export credit program, known as PROEX, which was established in 1991 gained new financial strength since 1996. Under the program, the Brazilian government provides interest rate guarantees to commercial banks which finance export sales, thus ensuring Brazilian exporters access to financing at rates equivalent to those available internationally(National Import and Export Profile, 1999). The policy of interest rate equalization in PROEX program makes great contributions to the export production and sales. In order to improve the competitiveness of Brazilian products on the international market, the major step was to broaden the scope of the Export Financing Program and make its operations accessible to a larger number of companies.
Brazilian commercial banks, and subsidiaries of international banks are active in trade finance are active in trade finance. They can provide direct loans to exporter so that export can get bank financing of receivable. Now Brazilian commercial banks are becoming more aggressive in providing export financing for Brazilian firms, especially for small, medium or large Brazilian companies investing in capital goods, raw materials, infra-structure, energy or technology which substantially accelerate the export trade (National Import and Export Profile, 1999).