Technical Trade Barriers Brazil: The case of organic imports

National regulation for organic production in Brazil was implemented on January 1st of 2011, demanding all imported organics to be certified according to the specifics of Brazilian norms. This new regulatory framework brought a particular condition of technical barriers to trade in the country, as it makes it unfeasible for foreign brands to locally certify their organic manufacturing processes due to the complex demand of tracking all raw material used in production, extending it to the need of multiple certification packages far down the supply chain.

For US brands, for example, the inability to conform to such measures becomes particularly proven by the fact that the largest and most recognized certifying agency in Brazil (IBD) has only two certified US producers in their database – both in the very primary base of agricultural production.

This article is an attempt to initiate a debate on possible alternatives to stimulate market transformation and perhaps openness to organic imports. In this sense, we propose the following four potential strategies for local market development:

Strategy 1: Conform to certification norms

Though in itself the national regulation structure is one of extremely difficult comformity, the program is setting the bar at a high quality assurance standard for organic farming and industrialization practices – not at all prejudicial to a conscious consumer demand. Files containing the regulatory framework for organic certification in Brazil are available for download in this link.

Strategy 2: Adopt a market driven approach

Adaptation is a premise of international markets, so if no other option seems to be feasible, then foreign companies must adapt the product to local market features.

Brazil is a potential market with roughly 200 million consumers, which makes it unquestionable that the cost-benefit relation of investing in marketing and package redesign is no higher then either certifying or interfering in regulation. Plus, in order to be commercialized in accordance to current regulations, organic products must show the BR certification logo on the package, so some level of adaptation would occur either way. In fact, one strong argument behind the defense of current regulatory practices is on policy reciprocity, being that brazilian brands very frequently must conform to foreign market conditions.

Based on Decrete 6323, Chapter II, Section III – Of the Technical Regulation of Production. Art. 9o. Paragraph 2o. The norms for products from sustainable organic extrativism will be applied only to those which have as its objective the identification as an organic product.

The suggestion here is finding a substitution for the branding term organic, yet making sure it doesn’t fall into the specifics of organic regulation. This will most likely drive the consumer to rethink the concept. Some adapted branding examples are: Sustainable Production, Sustainable Culture, etc. In short, developing a local marketing strategy that compensates for the lack of organic certification.

We do however, have to observe the following Decrete 6323, Chapter IV, Section III. Of Publicity and Advertising. Art. 23. It is forbidden, in the publicity and advertising of products that are not produced within organic systems of production, the use of expressions, titles, marks, images or any other mode of information capable of inducing the consumer to error in regards to the organic quality of products.

But we should also notice that there is room for interpretation in the text, and specially when crossing this passage with the one previously mentioned – of not objectively identifying (i.e. cathegorizing) the product as organic or even as a product sourced from an organic system of production (i.e. if you don’t meet the specifications in the law, then you’re not producing from such a system). This strategy implies the creation of a new market concept for toxin free production.

For some particular cases, what is present today in Brazil is a market opportunity to focus on the consumer who is lactose intolerant, and/or in the phases of substituting animal products for a plant based diet. And lastly, a peculiarity of the brazilian market is that imported brands are often placed as premium products, and brands from developed markets are often a reference to high quality standards, and therefore pricing is not a limitation when companies still have room for similar profit margins expected from organics per se.

Strategy 3: Diplomatic articulation for regulation revision

Though a time intensive, unsure and expensive process, participation in regulation revision if foreseen in the following passages:

Law 10831, Art. 11, Paragraph 1. The regulation will contemplate the participation of representatives of the agricultural sector and civil society with recognized participation in any stage of the organic production chain; and

Law 10831, Art. 11, Paragraph 2. The regulation of this Law will be revised and updated when necessary and, in the maximum, every four years.

These revisions are executed through a specific mechanism, as per Decrete 6323, Chapter III, Section II – Of the Commissions. Art. 34. Responsibilities of CNPOrg (National Comission). II. Propose regulations that have as objectives the improvement of the organic production chain at the national and international levels, considering proposals sent by CPOrg-UFs (Comissions from each state).

These are the comissions to which proposed formulations must be addressed. An interesting suggestion is to provide an international mechanism  under the structure of an Economic Complementation Agreement for thorough transfer of technology and technical capacitation of local producers, allowing significant improvements in national quality and productivity, specially targeting the country’s national family farming programs.

Needless to mention, Brazil is a developing economy that is greatly damaged by a lack of good public governance practices, and local producers, broadly capillarized into a network of small traditional farming communities, would significantly suffer the social impacts of fierce corporate competition.

Strategy 4: Mobilize a dispute or agreement under the WTO TBT

Claiming that the brazilian government is violating the World Trade Organization’s Technical Barriers to Trade Agreement is an option. In this link you will find a copy of the agreement with key highlights in consideration to this particular case. However, the text can be interpreted in such a broad and subjective manner, that under the agreement you will find arguments for both in favor and against current regulatory practices in Brazil, as likely as in many cases of TBT disputes in the WTO system. So, ultimately, this option is more reliable if an inclusive counterproposal for standardized practices is put in place.

Author: Juliana Michelon Alvarenga. BSc. International Relations, MBA Business Intelligence. [julianama@aldeotaglobal.com]

Brazilian import tax reduction for ITC and industrial equipment and machinery

Through its International Trade Chamber (CAMEX), the Brazilian government has released new resolutions reducing the import tax rates of 217 different types of industrial equipments and machinery not produced nationally.

As an attempt to promote domestic industrial and production growth, capital goods such as engines, pumps and machines, and several products for the ITC sector have had their import tax rates reduced from 16% down to 2% through the special customs regime Ex-Tarifário.

The special regime allows temporary import rates reduction of manufactured items which are not produced by the national industry. Private initiative can also file requests for specific products.

The complete list of the applicable NCMs and further legislation are available in the Portuguese language through the following links:

Special customs regime for the Oil & Gas industry in Brazil

The special Brazilian customs regime REPETRO allows companies to import specific equipments to be used in research and exploitation of oil and natural gas fields, with the exemption of federal taxes such as the following:

  • II – Import tax;
  • IPI – Excise tax;
  • PIS – Contribution to the social inclusion program;
  • COFINS – Contribution to the social security financing;
  • AFRMM – Additional freight for the renewal of the merchant navy.

The goods which REPETRO may be applied to are listed under the sole appendix of the Normative Resolution RFB 844. The resolution determines the general ruling of the special fiscal regime, including licensing requirements and conditions.

In general, the regime may be applied to a) Fictitious exporting of equipment, when it is bought from a national supplier by a foreign company in order to be used in national territory. In this case, the product is re-imported under “temporary admission” conditions; b) Temporary admission to products bought from national suppliers by the national licensee; and c) The Drawback regime, applied to the importing of industrial supplies for the production of goods destined to fictitious exporting.

Further legislation details may be found at the following Federal Reserve site: