‘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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{ 27 comments… read them below or add one }

John Muir March 15, 2010 at 0801

Brazil is one of a kind when it comes to computers. Protectionism gone completely crazy. It’s not just the cotton thing—latest chapter in an ancient story—they banned all high tech imports and manufactured local clones for decades. Here’s what passed as their “Mac”:
http://www.lowendmac.com/clones/unitron.html
While the PlayStation 3 has been out in the rest of the world for several years now, guess when the PlayStation 2—I repeat: “two”—went on sale in Brazil? November. 2009. Nine years later than the US, Japan and Europe. 
http://www.computerandvideogames.com/article.php?id=227806
When it comes to high tech, Brazil makes China look like Switzerland. It’s their sovereign right of course, but a monumental pain for Brazilian Mac users. Guess it must take a holiday to the US each time you need new kit.  

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Mario Adriano March 15, 2010 at 1454

I think there is something wrong with your claims… For all brazilians PS2 is an old game console. You can buy goods everywhere you would want. For sure we pay almost 100% in total taxes here over an imported product… But we still buy them!
Apple should make a brazilian plant to make everything here… Closer to one of ours free commerce zone!

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Christian Troy March 17, 2010 at 1531

I believe you’re both saying the same thing. John is right, as PS2 is just now fully available and being manufactured in Brazil. Sony did not officially bring PS2 to Brazil until 2009. Mario is also right as you can buy it from several independent importers, pretty much anywhere in the country. That also resulted in very expensive games, over US$200 and pirate games everywhere. PS3 and PS Store are not even close to come to Brazil. There’s something else here that makes it difficult for gaming companies to thing about Brazil as a real market. We have an official government agency that must approve every video game (yes, all of them) that wants to be officially released here. Another result of that is the brazilian App Store having almost no games. And people think it is Apple’s fault…

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John Muir March 17, 2010 at 1542

Thanks for the detail.

Where ever there’s unfulfilled demand, there’s a black market. But since we’re talking about an actual bricks and mortar Apple Store: that’s the one place which can be guaranteed not to have it.

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Cristian G March 15, 2010 at 0841

In latinoamerica the mac fans and users are very, very loyal, if you have to compare the price of a mac in the US, with any contry in central or south america not just Brasil, you paid a lot more for apple product (when I bought my now oldie power mac G5, that was 1.999 US dollar in the US, I did paid 2.499 US dollar for it in Panama) so, we really, really like to be able to get any mac products at the prices you get in the US. So when we talk about loyalty, remember the mac users outside US.
We all (mac users here…and there) really like to get mac products, at better prices!!!!
Thank you.

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John Muir March 15, 2010 at 1014

Compared to the US: all individual markets are small right now. Europe’s still fragmented, China, India and Brazil are still developing as consumer nations, and places like Panama carry higher overhead. Low prices in the US are driven by (comparatively) low taxes and vast economies of scale.

Apple is taking a fatter profit on overseas sales (Cupertino is conservative when it comes to locking in cautious currency conversion rates and so on) but the bulk of the difference is the higher cost of doing business internationally.

I’m in Europe and people over here like to complain we’re closer to China (not when shipping is so cheap) and other pie in the sky. But for us, or anywhere outside the US, to get those lowest prices: we need our governments to work together in our interest, catch up and tax less. Dream on, sadly

Every nation likes to keep its trade balance in good shape. We consumers are left to foot the bill.   

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mudman March 15, 2010 at 1054

As a visitor to Brazil, I was shocked to see the pricing on electronics – $1000 for a Wii console which sells in the US for $250! And I thought the pricing in India was bad.

It seemed like the only things that were cheap were beer and meat :-)

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Mario Adriano March 15, 2010 at 1459

We can make a direct import here in Brazil… It will be less expensive!

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Christian Troy March 17, 2010 at 1533

No, it won’t.

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Gino Gerard June 29, 2010 at 1841

I live in Brazil, i is wrong the Brazilian governement is overprotective for his markets.More feeded by the powerfull lobying from existing Brazilian industry.After allc, there is no logic to see the month wage at 510 or 560 Reales, and with all the protective actions, still see the prices for most consumer goods are on the same level as in Europe or USA.
A fridge get sold here for 1600R$, more then 3 monthwages.Offcourse the banks and shops are quick to sell with credit. to let the people pay almost the double at the end for their product.A 2 liter bottle of coca cola , cost here the same or even more then in Europe!The only thing in Europe the wages are 3 times the value from here.The protectionisme is just a camouflage for generating more wealth for the already wealthy ones.They have low wages to produce, which is good for export, but are forgetting the needs from their own people.Where else you see people from 85 years standing in line to visit the medic during 3 days, to hear someone say at the end of every day that there is no doctor available and they have to come back again the next day.I saw people cry and getting desperate.There is no logic for that kind of market protection, because Brazil has it all.Rich mines, nature, industry and..low wages!
Understand who wants to understand!

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dompoa March 15, 2010 at 1516

China is Brazil’s main partner, USA is now 2nd…
Taxes are high, but don’t forget about USD vs Real exchanging rates…
About “vast economies of scale”: Apple in not making such a huge number of Mac Pro, maybe not even iPods, Apple is a niche company…
The main problem here, in Brasil is we bon’t have a tax on consuming, but many taxes on production (of any kind, industrial, agriculture, you name it…)…
best way to escape of this situation is the airfield…
No, we don’t have airports….

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Sam March 15, 2010 at 1538

I think the best step after Spain (which is confirmed) should be for them to go to Mexico over any other Latin-American country, there are many similarities to Brazil but the incredibly high quotas which Brazil puts for anything that comes their way.

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John Muir March 16, 2010 at 0225

Comment
The US is nearly 50% of Apple’s worldwide sales. Just one country. (And unlike Europe, the States really are just one country, not a complex fiction.) It’s plain economics why Apple can sell so much more agressively in its home market than anywhere else. No one’s exactly putting up subsidies to help out enormously succesful foreign manufacturers in their domestic markets.
Brazil’s an interesting place—I have some friends there—but the number of consumers who can afford $1000+ products there (even at US prices) is still smaller than here in Britain, or France, or Canada. Think about Canada for a second. Does its proximity to the US help keep retail prices low? Nope.
Apple isn’t in the business of turning down new customers. Check out the aggressive worldwide rollout for iPhone, and very likely iPad too. But we live in a world with great differences between regions and nations—taxes, politics, power and progress—that have to be reflected in prices as long as they remain as large. 
They won’t. We’re headed the right direction. But it’s not companies in the driving seat.

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Khaled March 16, 2010 at 0502

Dear Steve, here in Saudi Arabia we don’t have taxes.

http://www.wewantapplesaudi.com

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Frank March 16, 2010 at 0846

Khaled,

perhaps you should first introduce human rights to saudi arabia and then Apple…
There is more to life than money…

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Khaled A. March 16, 2010 at 1008

still easier to open an Apple Store ;)

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Harry May 3, 2010 at 0424

For the folks using Playstation 2-3 as an example here..

Do a better research, Sony always had problems in introducing the Playstation 1-3 in Brazil, that’s because of Trademark issues.. The name Playstation in Brazil is trademarked and belongs to another company in Brazil which has never agreed to sell it to Sony. So, basically it makes it really difficult for Sony to sell the Playstation in Brazil..

Sony products are well available in Brazil and many of them are manufactured in Brazil itself. When it comes to Playstation with this other company holding rights to use the word “Playstation” then, that’s a different story..

You folks should do a better research before jumping into conclusions..

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Jim May 27, 2010 at 1528

”super crazy” import taxes, he wrote in his e-mail.

I’m an American living in Rio for more than 4 years now so I am well aware of how expensive things are. When I read what Mr. Job’s wrote I got his point/the gist of what he was saying immediately.

When I buy products here, naturally due to economies of scale, etc. I can’t expect the same prices as back home. However, Brazil is all about extremes, I see the prices of everything from a cup of coffee to the price of a car as not just expensive but totally absurd, i.e. “super crazy.” It’s way beyond tariffs and such, I think it’s cultural. A price which for me is not just expensive but more like “dude, are you smoking something…” is the thing that’s “in” here in Brazil and the worst is that everyone is acting like it’s normal. Brazil has a serious inflation problem. Look at all the economic stats you want but I live here, I see the prices going up like I’ve never seen before, “super crazy” is exactly correct.

The much hyped advances in alternative fuel/ethanol, already the pump price has risen such that it’s not worth it to the average consumer. And why? Again, I think it’s cultural. Business owners can’t get the idea that if the consumer feels he’s getting a fair price he’ll buy more and more. The business owners would rather gouge the customer and get as much $$ as quickly as possible.

It’s frustrating and sad. I love this country but I’m just about priced out. Those Brazilians are just too rich for an average middle class guy like me.

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name June 17, 2010 at 1648

i think brazil sholud explode… LITERALLY

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name June 17, 2010 at 1651

agree with Jim, when the PS3 launched some stores in brazil sold it for about R$ 7.5k ,around U$ 4.5k THAT’S RIDICULOUS. another example one of the cell phone companies sell the old iPhone for R$ 2.5k, around U$ 1.3k

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Vinay August 1, 2010 at 0728

As a designer in India, one of the positive examples of lateral support cited often here is the high import tariffs in Brazil, which while detrimental in many senses, has helped the local design profession immensely (I do not completely subscribe to this). Manufacturers who chose to not make knock-offs (or even if they do) go to a designer who has the choice to use a local theme and style on products and work with a local manufacturer to the design through to production. These would compete alongside other products that were more ‘global’ because they would have been imported from China (where else?), and designed either in North America, Western Europe, or Taiwan – especially in the case of the category under discussion here – high tech computers.

I’m not sure how much, if at all, of this tariff structure has supported local brands to emerge. But it is fair to say that if it were not for such a structure, the markets would have been flooded with relatively inappropriate Chinese products, rebadged by local brands, and a bulk of the revenues would be enjoyed in another country in the chain. In the process thousands of core development and manufacturing jobs would have been lost, as well as the ability to create and innovate would have been lost on an entire generation of qualified people.

What governments could do instead is set low import duties on product categories that are ‘new’ or necessary for the general improvement in productivity, opportunities and trade, for a set period of time – say 2 years. That gives both global brands and local manufacturers who are serious about the country as a market enough time to create a local ecosystem.

If CNC milled industrial electronic craft (like Apple) is given a chance in the market, then several local manufacturers would take up similar methods and processes, reducing the price for Apple as well to consider setting up manufacturing base there.

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Vinicius August 17, 2010 at 0857

You all are a little right AND little bit wrong…
about PS2 , we got it a long , long time ago, but have ps3 too btw, consoles are not that expesive as “name” said when ps2 went here, it cost like U$$800, you have to think that DOLLAR has more value then REAL ,so of course ll be more expensive, now the games, yes they are very expensive, thats y we have so many fakes games here.
now about apple products they are all expensives, yes, but we dont have an apple store, so who sells it can do what they want with the price, and again dollar has more value then dollar so the price changes when u change the coin. and the prices that “name” said about iphone , its a like , i have on iphone brought here ( in Brasil ) and i paid like U$$ 650,00..we have high taxes, and most part of tec things are really expensive, but we buy it, Jim said that we act like its normal, OFC we act, we like like that since we born. and ok, we have our high taxes in tec stuff, now , when i went to US, i never paid so much in a bottle of water, and orange juice, in Europe the same, food and drinks prices are so high too.
You need to use your brain sometimes, US , Japan , they are countries that invest on High Tec, and they are a “First world country” and we are start growing, btw, when US imobiliary explode, we were one of the best holding it, yes we loose money, but not as much as other countries did.

Sorry about bad english i did my best, and if u want to complain , i ask you if u know how to speak portuguese.
OH and btw , most part of our High Tec students, travel to work in US, Japan, China…
so…

Search a little bit more about our taxes and CULTURE, b4 say something that u re not sure about.. and learn more about economy..

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John Muir August 17, 2010 at 0921

So, to all the peeved Brazilians in this thread: has your government gotten rid of the egregious anti-competitive level of taxes Steve Jobs talked about yet?

Because that was the topic.

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Yetanotherguy December 31, 2010 at 1542

As someone who has been to Brasil frequently, and works for a high tech company (in US) that has a manufacturing facility in Brasil, I will tell you about the pain and why it’s there.

First the high terriffs do slow the rate of adoption and are a negative thing in the short run. Criticize Lula as much as you want but many companies want IN to the Brasilian market and to bring in products with very high import taxes make it hard. Steve Jobs WILL relinquish as did my employer if they want in, when Apple starts stalling they will see the light. Brasil will get it’s high tech businesses and manufacturing, and in the long haul that is a much much better deal for them. In the mean time the corporations (who are all about money and don’t give a damn about people) will whimper and moan. We in the US are all about wag the dog, where as inefficient as it is the government in Brasil is about bring it on their terms or they will do without. So the money grubbing corporations will have to invest in Brasil and take reasonable profits, where here we allow corporations to ship our jobs out of the country and then take total advantage of arbitrage at the cost to the people in this country. Both choices have costs and consequences, in the long term Brasil will get it’s own high tech, in the long term our workers will have to compete with the Vietnamese workers for a labor wage.. in a few generations we will be there.

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Aces February 21, 2011 at 1408

@John Muir

by the contrary. The tariffs make it competitive, because products MADE IN BRAZIL pay TONS OF TAXES inside the country.

it wouldnt be competitive if brazilian companies paid low taxes and Brazil had high import tariffs. But thats not the case.

the import tariffs just make the foreign goods pay as much taxes as if they were manufactured in Brazil itself.

products DONT GET cheaper when they are made in Brazil itself.

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John July 27, 2011 at 2217

Well Brazil will rise in the world economy and the US, EU will have to go there to get the business.
Yes they have problems but so do the rest of the world, I believe that if we look 20 years ahead Brazil will be one of the countries who will be a dominating power on the world marked.

US and EU is economically on there knees, Brazil is booming in all sectors. This is a fact, so Apple will be there at some point, because they want a piece of the cake. Brazil is building a new nation and they are taking the best parts from Europe and America, we (US/EU) will have to over come the situation of lack of finances to boost our industry in the coming years.

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claudioagmfilho December 7, 2011 at 0129

i think that now that Brazil is the 6th biggest economy in the world
its time for Brazilians to have several apple stores spread out across the nation
because once you have been bitten by the apple you will never go back to being a pc again…
so of course you got to break some eggs to make an omelet
but after that i think that the market for apple here is going to be the biggest in the world…
we need a tributary reform
like an Audi A6 in Brazil costs 250 us grand whereas in the us it only costs 37 us grand so …yeah

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