‘No’ To Retail Store in Brazil—High Tariffs

March 15, 2010

Steve Jobs has allegedly told a Rio de Janeiro (Brazil) government official exactly why no retail store is planned for the country—”super crazy” import taxes, he wrote in an e-mail. Jobs’ remark highlights an on-going trade dispute between the U.S. and Brazil over cotton trade, and how international affairs can affect the selection of store sites. As reported by MacMagazine Brazil, a story in Gente Boa newsletter recounts that the city’s Secretary of Heritage contacted Jobs to explore building an official store in the city. Washington Fajardo suggested Apple might open a store in the city’s port region or perhaps in the historic city center. But according to the account, Jobs sent an e-mail back to Fajardo explaining that the country’s policy of super-high taxation, “makes is very unattractive to invest in the country.” Jobs went on to tell Fajardo that, “Many (other) high-tech companies feel that way.” So far, Apple has no stores in Mexico, Central or South America, although there have been rumors about future stores in Mexico and Brazil. The United States and Brazil are even now in the midst of a trade dispute over U.S. cotton subsidies, with Brazil threatening to retaliate by increasing tariffs on 100 categories of U.S. imports.

Besides reflecting his own opinion and the company’s position, Jobs’ remarks are undoubtedly tied to an eight-year dispute between the U.S. and Brazil over cotton imports/exports. It’s likely that Apple has consulted with U.S. government trade agencies before forming its position on sales in Brazil.

The United States is Brazil’s most important trade partner, with the U.S. contributing about 24 percent of imports. Like many countries in South America, there is a growing middle-class in Brazil who are first-time and upgrade personal computer buyers made by HP and Dell, and domestic firm Positivo Informática S.A. However, even those name brands account for only about 25 percent of personal computer sales, with the rest going to “white label” brands.

Nearly every country in the world collect various fees on merchandise imported from other countries, and destined to be sold in their country. These import tariffs help generate revenue in general, but are also intended to protect local industries that make the same or similar products. This protectionism has often exceeded its original financial and economic motives, and has been used by many countries as part of its international politics. Besides tariffs, imported goods may also be subject to various taxes and fees, further increasing the final retail price to the consumer, and discouraging the purchase of imported goods.

As a result of the tariffs, manufacturers may lower the stated value or retail price of products to counteract the import fees. In reaction, countries may very selectively raise tariffs and taxes on imported goods to counteract the good’s lower  prices. This type of trade war occurs constantly as the world and local economic situations change.

In 1995 Brazil and three partner countries (Argentina, Paraguay and Uruguay) formed a trade alliance to set a Common Export Tariff (CET) on imported goods. However, each country now has their own exceptions to the tariff agreement—Brazil’s 100+ exceptions include consumer electronics. The CET tariffs range up to 22.5 percent of the product valuation, but Brazil’s exceptions range up to 27 percent. Brazil also collects import and value added taxes (VAT) upon entry into the country, but these are generally credited back to the importer as their products are sold.

Brazil is now expressing its displeasure with $3 billion in payments or subsidies the U.S. give to domestic cotton producers. The payments are intended to help lower the price of cotton so U.S. producers have a better chance of selling it in international markets. Subsidies are a common government tactic worldwide to help promote their domestic industries worldwide.

In this case, in 2002 Brazil complained to the WTO about the subsidies and talks between the two countries have been on-going. The U.S. claims its subsidy policies have changed since 2002 and are not discriminatory.

The WTO approved sanctions last November, and then last month Brazil issued a list of 200 tariff increases it intends to implement by April 7th unless the U.S. backs down. In general, the import tariffs would increase by 20 percent to 50 percent, depending upon the product. But the tariff on cotton would go from eight percent to 100 percent. Personal computers are not on the list of goods affected by the proposed tariff increases.

Ironically, last month Brazil reduced import tariffs on 139 categories of computer products. Also, last December the country also extended legislation that covers certain free trade zones in the country and the import of personal computers, encouraging the local manufacture of computers.

A Petition On-Line speaks to the import of Apple products, signed by Apple enthusiasts in the country who say, “We love Macs. We love using Macs.”

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