Brazil - Limitations on Selling US Products and ServicesBrazil - Sales Limitations
Oil and Gas Sector: The Brazilian oil and gas sector does not pose any direct limitations on foreign sales of products and services to the upstream, midstream, or downstream sub-sectors. However, local content requirements (percentage of Brazilian manufactured goods and services in a given project) may limit the amount of foreign goods and services that are contracted and purchased. Local content requirements only apply to the upstream subsector, and vary from project to project. For example, with engineering services, a foreign company must have legal representation/local certification in order to conduct business and provide services in Brazil.
On March 28, 2017, the Industry and Competitiveness Development Secretariat of the Brazilian Ministry of Industry and Foreign Trade (MDIC) published Resolution #1 ratifying proposals made last February by the Brazilian interagency group leading local content requirement changes. The reforms, which apply to the 14th bid round (concession regime) and for the 3rd pre-salt (PSA regime) round, have lowered the percentage of Brazilian-made goods and services required for oil and gas exploration and production. New global local content requirements for deepwater oil and gas exploration fell by half (on average), to a minimum of 18 percent – down from 37 percent for previous auctions – and local content requirements for deepwater production development will now follow macro-segments: 25 percent for oil/gas well construction; 40 percent for subsea production activities; and 25 percent for oil offshore production units. Previous local content requirements for the production/
development phase was 55 percent. Onshore exploration and development, previously at 70 percent and 77 percent, respectively, were reduced to 50 percent as well.
All the existing oil exploration and production concession and production sharing contracts will continue to follow their local content requirement percentages, as the new rule will only apply for the upcoming 2017 bid rounds. Currently, exploration phase activities require between 37 and 85 percent local goods and services, and development phase activities must use between 55 and 80 percent Brazilian content.
As for asset ownership, a recent reform took place on October 5, 2016, when Brazil’s lower house passed a long-awaited bill (PL-04567/2016) that removed restrictions on offshore oil and gas production, and reshaped thr state-owned oil company Petrobras’s role in Brazil’s deep water “pre-salt” oil and gas fields. The bill amended a 2010 law to allow greater international oil company (IOC) participation in offshore exploration and production in future pre-salt auctions. The 2010 law, known as the pre-salt law in Brazil, saw newfound offshore oil and gas as Brazil’s exclusive patrimony, and required Petrobras to serve as sole operator and minimum 30 percent equity holder in all offshore pre-salt oil and associated gas fields. While Petrobras still maintains right of first refusal under the new law, its previously burdensome production and equity requirements have been lifted.
While that bill kept the production sharing agreement regime for pre-salt fields, the original concession regime (which never limited asset ownership by foreign companies) is also in force in Brazil’s oil and gas sector, and will continue to apply for future bid rounds of the non-pre-salt fields.
Nuclear sector: Brazilian legislation does not allow foreign ownership of nuclear power plants. The same limitation applies to uranium mining and nuclear fuel production, although joint-venture for uranium mining is beginning. Eletronuclear (ETN), a subsidiary of government-owned company Eletrobras, holds the monopoly to operate nuclear power plants in Brazil. Indústrias Nuclears do Brasil (INB), a subsidiary entity under the Ministry of Science and Technology is responsible for uranium mining and its transformation into nuclear fuel.
Health Care: The process of refurbishment of medical equipment can be done only by companies located in Brazil. Brazil can import only new or unused medical equipment. If necessary to refurbish the equipment for a new user, the whole process must be done in country; however, it is still possible to send equipment to other countries for technical assistance, but it must return to the same owner.
Mining: There is a limitation on ownership of mining projects located less than 150 km from the Brazilian border. They must be owned at a minimum 51 percent by Brazilian citizens, a minimum of 2/3 of its employees must be Brazilian citizens. Its administration must be controlled by Brazilian citizens, at least 51 percent of all employees in management positions must be Brazilian citizens, and their headquarters must be located in Brazil. There is a discussion in congress considering a project for modification of this law, with support of the Ministry of Mines and Energy, to allow for more participation of foreign-owned capital, so that this situation may change within a few years. There are no limitations in supplying to mining companies in Brazil, except for the import taxes and fees. The only state-owned mining company in Brazil is CRM, a small coal mining company with an output of 2.5 Millions of metric tons.(Mt)
Used Goods: The Brazilian government imposes a series of restrictions on the importation of used equipment, parts, pieces, and accessories. Import duties on refurbished machines are the same as on new products. Imports of used vehicles and used consumer goods into Brazil are not allowed.
When selling to the Brazilian government in public procurements, Brazil offers “margins of preferences” whereby companies offering domestically produced goods are awarded contracts even if the cost of their goods are higher than those offered by producers of goods made outside Brazil. “Margins of preference” vary by product and cannot exceed 25 percent.
Foreign companies that do not operate in Brazil must fulfill, as much as possible, the requirements by submitting equivalent documents, certified at the respective consulates and translated by certified public translators. Additionally, foreign companies must have a legal representative in Brazil with power of attorney to respond administratively and judicially.
Brazil Trade Development and Promotion