Don't Go to Brazil for a Deal on an iPad

They weren't looking for a bargain. The iPad lists at electronics retailer FNAC and other Brazilian stores for $985 (R6,620), almost twice as much as in the United States and one of the highest official prices for an iPad anywhere, according to Macworld Brazil, a Brazilian newsletter run by U.S.-based International Data Group, say Lucia Kassai and Cecilia Tornaghi.

The iPad is one example of the many price distortions caused by Brazil's elaborate industrial policy.

Companies that don't manufacture goods in Brazil have to pay stiff tariffs if they want to sell to the nation's consumers.

Brazil levies a 60 per cent tax on the iPad and as much as 90 per cent on imported cars.

A blouse that retails for $49.50 (R333) at The Gap in the United States goes for $82 (R551) in Brazil at non-Gap outlets.

Brazil imposes these stiff taxes on imports to promote local industry and encourage foreign manufacturers to set up factories inside the country.

Samsung Electronics, for example, has been manufacturing locally since 1986.

In contrast to Samsung, Apple is a holdout.

Protectionism shows no sign of easing under newly elected President Dilma Rousseff, says André Sacconato, an economist with one of Brazil's biggest consultants, Tendências Consultoria Integrada in São Paulo. Rousseff, a key minister under outgoing President Luiz Inácio Lula da Silva, backs an aggressive industrial policy. "She supports Lula's 'buy Brazil' approach," says Sacconato.

Today, in part because of protectionist policies, Brazil produces complex manufactured goods such as jets and oil platforms. Yet Sacconato says the economy would fare better if, instead of fencing out rivals, the government provided decent infrastructure and levied lower and fewer taxes. State-controlled companies support the buy Brazil policy

Source: Lucia Kassai and Cecilia Tornaghi, Don't Go to Brazil for a Deal on an iPad, BusinessWeek, December 9, 2010.

For text: http://www.businessweek.com/magazine/content/10_51/b4208013564850.htm?chan=magazine+channel_news+-+global+economics

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First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 04 January 2011