Import Fever

The strength of the real, and lower tariffs among other things, are making Brazil a world-class importer. And Brazilians are enjoying their new role. With more American ports offering service to Brazil, rates should continue to fall, offering greater opportunities for U.S. exporters. On the other side, distribution continues to be a big problem.

Juliet Kong

It has never been easier to import in Brazil. Better shipping schedules and rates, availability of financing, automated Customs releases through a new computerized system called Siscomex, infrastructure developments have all helped to improve the way imports flow into the country, and the tendency is for things to get even better.

Brazil is importing like never before as a result of generally lower tariffs and reduced non-tariff barriers, as well as the strength of the Brazilian currency relative to the dollar. In 1996, the country imported over $53 billion in products, a huge increase over the $15.9 billion imported in 1990, when then President Fernando Collor de Mello first started the process of trade liberalization.

With business booming, the Brazilian waters are crowded with steamship lines chasing a slice of the trade pie. Major ocean carriers like Cho Yang, Hanjin Lines and Maersk Lines have entered the market lately. Others, like Companhia Marítima Nacional and Columbus Line have greatly enhanced their services between the U.S. and South America. As sailing schedules become even more frequent, and more American ports begin offering services to Brazil, rates should continue to fall, offering greater opportunities for U.S. exporters sending cargo to Brazil.

For air cargo, the scenario is the same. While Varig and VASP continue to serve a wide range of points between the U.S. and Brazil, other cargo carriers like Polar Air, Tower Air and American International are proposing a massive increase in capacity on the already well served São Paulo market, as well as Manaus, the capital of Amazonas state.

Obtaining financing for imports has become easier for Brazilian traders. Bradesco, the biggest private bank in the country, financed 248% more in 1996 than in the previous year. According to Antônio Bórnia, executive vice-president of Bradesco, "This reflects the growth of imports. Just look at the trade deficit ($5.539 billion in 1996) and you will understand." Financing international trade was a major investment for the Brazilian banks in 1996 and will continue to be so in 1997.

To implement the import operations, starting on January 1, 1997, the Secretariat of Foreign Trade's computerized trade documentation system — Siscomex (Sistema Integrado de Comércio Exterior — International Trade Integrated System) — was set up in Brazil.

This computerized system was first started in 1993 to control the exportation flow, and has greatly reduced the paperwork that slowed the process of releasing cargo leaving the country. Siscomex now attempts to bring uniformity to the import procedures, to improve Customs, administrative and exchange controls, to reduce the costs related to the import operations as well as to speed the release of cargo by automatically filing, registering and processing all import licenses, besides linking all this to the Central Bank databank for exchange and collection purposes.

"Nowadays, the import process is much faster, mainly after the initial problems were overcome, " says Samuel Nebenzahl, executive secretary for the ABTI (Brazilian Association of International Carriers). He admits that in the first weeks after Siscomex was established, the biggest problems were caused by the lack of preparation of importers, exporters and customs brokers who did not believe that this sophisticated computerized system was really going to start operating overnight. In time, he expects that the reduction in wait for the release of imported goods will be 50%.

Of course the import process in Brazil is not without its share of difficulties. Due to box-handling capabilities at many ports, distribution in Brazil is still a problem. At the Port of Santos, for example, in addition to limited berthing space, there is a lack of equipment to make efficient transfers from ship to rail or truck. Adding to the problem, the government strictly requires that Customs physically inspect all loads, congesting the ports even more. Also, the costs to move containers at most Brazilian ports is very high. For example, at the port of Rio de Janeiro, it costs $550 to move a container, whereas in Jacksonville, USA, the average is $200.

However, the Law of Port Modernization, which passed in February 1993, mandating that the ports decentralize its administration, incorporate users in port councils and permit the formation of labor pools to diminish restrictive work practices, is already making progress in improving port conditions. "We can say, for sure, that the privately owned terminals have a cost reduction of 50%," says Sérgio Barroso, vice-president of Cargill, a private-owned terminal in Santos. The savings are so significant that Barroso has already announced the construction of a terminal for sugar that will involve investments in the order of $35 million. This terminal will be ready by the end of 1997 and will move one million tons of sugar.

The costs to move goods by land are equally high, and the conditions of the roads are precarious at many places. The distance between São Paulo and Santos is 45 miles through the mountain range of Serra do Mar. For one container to get from one city to the other, the cost is between $500 and $750. It's the same price charged for the 450-mile trip between Hamburg and Frankfurt in Germany. To change that, the Brazilian government passed the Federal Concession Law in February 1995. It requires all services provided by the public sector to be open to concession. If the law is followed, foreign firms will eventually be able to bid on all projects of transportation.

Already, a number of transport projects are underway to improve distribution in Brazil. The Tietê-Paraná Waterway project, for example, involves 465 miles of primary waterways and 340 miles of secondary stretches that will allow the multimodal transport of goods in large scale between the agricultural land in the southeast and center-west with transportation links in São Paulo and Santos.

The "Mercosul Waterway " will improve the flow of cargo through the Brazilian borders by providing good navigation conditions for 1250 miles between Itaipu and Buenos Aires. Many railroad projects are also under development, like the Center-East Railroad at Unaí-Pirapora, and the Bauru-Corumbá Railroad between the Bolivian border and the Brazilian Center West.

In the short term, importing in Brazil will continue to increase. The growing need for raw materials, infrastructure and consumer goods that the country cannot produce internally guarantees a steady increase in imports over at least the next five years. In addition, the high cost of manufacturing in Brazil continues to make importing a less expensive alternative. For all these reasons, imports should continue to outstrip exports in Brazil's near future, making this a boom time for American and other foreign firms exporting to Brazil.

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Bring the Brains Back

César Vasconcelos

People have been asking: "How is the Mercosul doing?" The reply is, "Splendid, thanks." Free trade and democracy are no longer just buzzwords. Nowadays it has become a common place rather than the exception in Latin America. We are living in a historical moment indeed. With the exception of communist Cuba, we never had it so good. Throughout Latin America, economic stability and prosperity are no longer a farfetched dream. The result of these historical times can be accurately measured and quantified. Regional differences have been put aside, and mutual cooperation has now become a tangible reality.

The main objective of Mercosul is the free movement of people, goods, and services. In addition to these trade liberalization measures, the Mercosul treaty entails the lifting of tariffs and duties between the Mercosul members. In order to qualify for the 0% tariff rule, the products traded by the Mercosul members must have a nationalization content of 60%. Another important rule of the Mercosul treaty is the educational integration, with school diplomas being valid in all member states. A dentist who has graduated from the University of Argentina, for example, can now practice his trade in Brazil under the Mercosul integration approach.

Visas and passports are a thing of the past. They are no longer necessary and people are free to find work in whatever place he/she sees fit. Additionally, Portuguese has become a mandatory foreign language in Argentina, Paraguay and Uruguay. Conversely, Brazilian students are now supposed to learn Spanish in the classroom. All of this has set the stage for a true integration in the region similar to the European Common Market.

Comprising Argentina, Paraguay, Uruguay and Brazil, the Southern Common Market, known as Mercosul in Brazil and Mercosur in the other countries, represents a population of 190 million people and covers an area of 12 million square kilometers. The total combined Gross Domestic Product (GDP) of these nations is approximately $715 billion. Brazil is the dominant economic force of the region. With an estimated GDP for 1994 of $500 billion and a population of 155 million inhabitants, Brazil's economy is by far the largest.

Argentina comes in second with a GDP of $255 billion and a population of 33 million people. Argentina's economy has been posting an impressive 8% annual growth rate. Paraguay has 4.6 million inhabitants and a GDP of $6.8 billion. Uruguay has only 3.1 million inhabitants, and a GDP of $11.4 billion. What Uruguay lacks in geographical size, it more than makes up for in other significant areas. The country has a bustling economy making it an important international financial center . With a highly dynamic economy, and its strategic location, Uruguay is a perfect gateway for products flowing between Brazil and Argentina and or Paraguay.

The Free Trade Zones created before 1994 can fortunately operate normally under the Mercosul. Nevertheless, new Free Trade Zones are no longer allowed amongst the member nations. The total economic integration of Latin American in a free trade block will have far reaching implications for years to come. This wave of trade liberalization will no doubt require specialized labor. Jobs, a worldwide rarity, are expected to be created in vast numbers. Fortunately for the region, they have realized that the only way they can catch up and prosper in these competitive global economic times is by joining forces.

There are many well-qualified people who have left Latin America during the troubled 80s — they call it the Lost Decade in Brazil. This brain exodus was a terrible loss to Latin America. The good news is that these exiles are anxiously waiting for the right opportunity to return. The time has arrived for Latin America to bring all this talent back home. These now seasoned Latin Americans will bring with them knowledge and precious professional experience acquired abroad. They can help their countries become a formidable competitor in the global economy. For the sake of the region, let's hope that Latin America will seize the moment.