The trade in Information and Communication Technologies (ICTs) products is fundamental to the widespread adoption of technology in Brazilian society. This is reflected in the use by companies of all sizes and consumers of digital tools and products that lead to more jobs, growth, and productivity.
ICT products drive innovation across all sectors of the economy and help businesses and government become more efficient by bridging supply and demand gaps in infrastructure and workforce skills nationwide.
The SARS-CoV-2 (COVID-19) pandemic accelerated the process of digital transformation worldwide. During the pandemic, isolation, convenience, and practicality became indispensable, forcing businesses, governments, and consumers to adapt and invest in ICT products.
Although the promise of digital transformation helps to level the playing field for businesses and consumers across Brazil, unfortunately, protectionist policies for the national ICT industry limit how these technologies are leveraged and deployed.
Among the current challenges for ICT policy are counterproductive local and unique regulatory processes, new production costs related to the COVID-19 pandemic, and high tariffs levied on imported ICT products.
Market barriers in the form of tariffs on ICT products are a significant obstacle to the deployment of digital technologies. Policies that foster a more favorable environment to promote innovation and greater digital access for consumers are crucial for socioeconomic development.
Unfortunately, high import tariffs on ICT products severely restrict the development of the digital sector in Brazil, placing it behind other countries, while simultaneously discouraging investment in cutting-edge Research and Development (R&D) by national industry.
The objective of this article is to analyze the Brazilian regulatory landscape regarding ICT pricing. The work seeks to understand the impacts caused by the inefficiency of tariff policies aimed at broad access to technology.
For this purpose, the inductive scientific method was adopted, starting from the analysis of legal and sub-legal texts, jurisprudence, and statistical data, which will aid in understanding the subject of this article. The research is of a bibliographical type, and the conclusion reached is based on the collected investigative material.
Regulatory Landscape
As a member of Mercosur, Brazil is obliged to follow the Mercosur Common External Tariff (CET). In 2010, Mercosur issued CMC Decision No. 57, which allowed member countries to unilaterally reduce tariffs on ICT products. Mercosur continues to apply the understanding of Decision No. 57/2010 regarding new measures since then.
In 2019, Brazil published Ordinance No. 309/2019 of the Ministry of Economy, which allows the Foreign Trade Chamber (CAMEX) of the Ministry of Economy to reduce import tariffs on ICT products through the "Ex-Tariff" instrument.
Furthermore, Resolution No. 15/2020 and Resolution No. 70/2020 list the exceptions for specific ICT products that have their tariffs reduced to 0% through the "Ex-Tariff" scheme. Most ICT products in the Common External Tariff (TEC) are not on the exception lists and currently pay between 16% and 20% in import duties in Brazil.
Furthermore, according to the OECD report “Measuring Digital Transformation: A Roadmap for the Future”, in 2017, the tariffs effectively applied (direct barriers to market access) on ICT goods for Brazil were 12,1%, while the OECD average was 0,7% (OECD, 2019, p. 641).
On March 19, 2021, the Executive Management Commission of CAMEX (GECEX) published Resolution No. 173/2021, reducing import duties on capital goods and information technology and telecommunications goods by 10%. The tariffs were reduced as follows:
| Common External Tariff – CET (%) | Rate (%) applicable after Resolution 173/2021 |
| 0 or 2 | 0 |
| 4 | 3,6 |
| 6 | 5,4 |
| 8 | 7,2 |
| 10 | 9 |
| 12 | 10,8 |
| 14 | 12,6 |
| 16 | 14,4 |
Although the reduction was around 1 percentage point, it shows a positive move by the Brazilian government to boost innovation and the country's competitiveness. The reduction affects 1.495 products and is already in effect. For now, Resolution No. 173/2021 lists 924 tariff codes that are affected by the tariff reduction.
Currently, the "Ex-Tariff" – a customs regime created by the Brazilian government to temporarily reduce or remove import taxes on certain products – has been the mechanism of choice to facilitate the acquisition of capital goods and ICT products in the absence of national products, similar or equivalent production.
However, the lack of consistency in reducing or eliminating taxes on ICTs directly affects Brazil's digitalization process. This is because imports of ICT products and services occur in peak and declining volumes depending on the favorable conditions created by the "Ex-Tariff" regime.
Digitization of Brazil
According to Deloitte, in Brazil, only 5% of cities, or 300 out of 5.570, have complete broadband infrastructure coverage (DELOITTE, 2019, p. 47). Furthermore, Brazil has almost a third of the total number of mobile internet users in Latin America, corresponding to 85 million out of a total of 231 million (DELOITTE, 2019, p. 59).
On the other hand, it is estimated that mobile data traffic will grow twice as fast as IP traffic between 2016 and 2021, and 77% of local mobile access will be via smartphones by 2021 (DELOITTE, 2019, p. 59). This reflects the country's policy shortcomings in the area of ICTs.
For example, Brazil moved from 9th to 10th position among the countries that invest the most in technology between 2018 and 2019. In the latter year, the software, services, and hardware sector grew by 10,5%, according to the Brazilian Association of Software Companies (ABES) (NOOMIS, 2020).
The International Data Corporation (IDC) estimated the value of the Brazilian ICT industry at US$86 billion in 2019. Furthermore, IDC ranked the Brazilian industry as the eighth largest in the world, accounting for 2,3% of the total US$1,2 trillion, representing 36% of Latin America's total, which reached US$242 billion.
Social and Economic Impact
The importance of ICT tariffs is so great that they even impact international competition. For example, a cell phone made in Brazil is sold domestically with a zero import tax, but cell phones imported from other countries arrive in Brazil paying an import tax (TEC) of 14,4%.
This restricts consumer access to technological innovations that mitigate problems in their daily lives, in addition to directly and indirectly impacting the productive and economic efficiency of sectors that purchase ICT products, as they depend on constant updating and innovation to compete with national and international players.
Furthermore, the structure of globalized ICT supply chains suggests that the more a given industry relies on sourcing components from outside Brazil (e.g., dependence on Asia), the more it will be impacted by tariffs (US CHAMBER OF COMMERCE, 2019, p. 31).
In terms of the economy, the ICT sector can contribute to GDP growth, create new jobs, boost the innovation process and adoption of new technologies, as well as lead to increased productivity.
This is achieved through access to ICT products, as well as their tariff reduction, which increases the digitalization of all economic sectors by enabling the availability of cutting-edge technology for production chains and society.
Thus, individual use of technologies is permitted through cheaper access to high-quality ICT products (EUROPEAN COMMISSION, 2016, p. 11), since the more expensive the technology, the greater the degree of cost sharing and the lower the access to ICT products (INTERNATIONAL TELECOMMUNICATION UNION, 2004, p. 4-6).
Direct economic impacts can be estimated by measuring the contribution of the added value of companies operating in the ICT sector to the economy, while indirect economic impacts are related to the purchase of inputs from different suppliers in the production chain.
Regarding the benefits for society, increased levels of digitalization in the economy can lead to greater social inclusion, equality, and a better quality of life. Furthermore, the ICT sector can boost the country's political development and increase the efficiency of public administration.
The World Bank stated that reductions in tariff and non-tariff barriers to imports would increase the real income of households, including among the poorest 40% of the population, through lower consumer prices and more jobs with higher wages (WORLD BANK, 2018, p. 6).
From a broader perspective, reducing trade costs would increase the competitiveness of domestic producers, providing them with access to larger foreign markets and allowing them to exploit economies of scale and facilitate access to new technologies.
Conclusion
As demonstrated throughout this work, it is clear that high import tariffs on ICT products create barriers to entry for international products that could provide a more accelerated development of the digital sector in Brazil. This historical mismatch in Brazilian tariff policy runs counter to the globalization of ICTs.
However, with the recent enactment of GECEX Resolution No. 173/2021, which reduces import tariffs on ICTs as detailed above, Brazil is moving in the right direction to become a relevant player in the digital world. This is likely to increase the competitiveness of the Brazilian private sector through innovation, job creation, and attracting foreign investment.
Furthermore, reducing the cost of acquiring ICT goods will broaden access to technology and consequently improve the supply of a more qualified workforce.
Therefore, Brazil should continue its policy of phased reductions in ICT import tariffs with a predictable timetable for each reduction, in order to raise the country to the level of competitiveness of OECD countries.
Bibliographic references
ACEMOGLU, Daron; AGHION, Philippe; ZILIBOTTI, Fabrizio. Distance to frontier, selection, and economic growth. Journal of the European Economic Association , v. 4, no. 1, 2006.
WORLD BANK. Jobs and Growth: Brazil's Productivity Agenda. International Development in Focus. Washington, DC: World Bank.
BRAZIL. Ministry of Economy. Ordinance No. 309, of June 24, 2019. Official Gazette of the Union, June 26, 2019, Edition 121, Section 1, p. 24.
BRAZIL. Foreign Trade Chamber. Resolution No. 15, of February 19, 2020. Official Gazette of the Union, February 20, 2020, Edition 36, Section 1, p. 28.
BRAZIL. Foreign Trade Chamber. Resolution No. 70, of July 16, 2020. Official Gazette of the Union, July 20, 2020, Edition 137, Section 1, p. 37.
BRAZIL. Foreign Trade Chamber. GECEX Resolution No. 173, of March 18, 2021. Official Gazette of the Union, March 19, 2021, Edition 53, Section 1, p. 32.
DELOITTE. Insights about Digital Transformation and ICT Opportunities for Brazil Report and Recommendations. Deloitte Publishing , vol. 2, 2019.
EUROPEAN COMMISSION. Enhancing Access to, and the Use and Quality of the ICT. Directorate-General for Regional and Urban Policy Communication Unit , 2016.
INTERNATIONAL TELECOMMUNICATION UNION. ICTs as Enablers of Development: a Microsoft White Paper. ITU WSIS Docs , 2004.
MEDEIROS, Henrique. IDC predicts growth close to 5% in ICT in Brazil in 2020. Teletime.
MERCOSUR. Decision No. 57 of 2010 of the Common Market Council (CMC) . Approved on December 16, 2010.
NOOMIS. Technology sector grows in 2019, but Brazil falls in investment ranking . Noomis Blog, 2020.
OECD. Measuring the Digital Transformation: A Roadmap for the Future. Paris: OECD Publishing , 2019.
OUCHI, Bruna. Pandemic accelerates digital transformation and reshapes IT performance . Veja, 2020.
US CHAMBER OF COMMERCE. Assessing the Cost of Tariffs on the US ICT Competitiveness: Modeling US China Tariffs. US Chamber of Commerce International Affairs , 2019.
————————————————————————————————————————————–
Author: Gabriel Araújo Souto
International Coordinator of the Law Student Program at the American Bar Association Section of Antitrust Law. Visiting student in the LLM program in Global Antitrust Law & Economics at the Antonin Scalia Law School of George Mason University. Law student at the Brazilian Institute of Public Law (IDP).
This article was published through the IDP Student Editorial Project.