1. Product Market Regulation in Brazil: An international comparison

Abstract

This chapter presents an in-depth analysis of Brazil’s results on the OECD Product Market Regulation indicators, which measure regulatory barriers to competition. The economy-wide indicators capture these barriers across the economy, while a set of sector indicators reflect the country’s regulatory stance at the sector level, focusing on network industries, professional services, and retail distribution. Complemented by other OECD work in the areas covered by the indicators and information about recent reforms, the analysis gives rise to a range of policy insights for the improvement of Brazil’s regulatory framework.

Policy insights for ensuring that Brazil’s product market regulation fosters competition and productivity

The OECD Product Market Regulation (PMR) indicators are a unique and globally-recognised set of policy indicators that measure regulatory barriers to firm entry and competition in a broad range of key economic sectors and policy areas. The wealth of information underpinning these indicators helps policymakers to identify specific aspects of product market regulation that could hinder competition and create unnecessary barriers to the entry and the growth of firms, thus being an impediment to growth, and suggest meaningful reforms, as a way of improving economic performance.

Brazil’s scores in the 2018 PMR indicators suggest that the regulatory framework currently in place would have to be reformed in many domains and sectors in order to bring it closer to international best practices. Since the indicators were produced in 2018, Brazil has already made some progress, but more is still necessary if the country wishes to align its regulatory framework to those of OECD economies in the areas covered by the PMR indicators.

Key policy insights to improve product market regulation in different regulatory areas

Scope of SOEs: Brazil’s level of state ownership across the economy has declined in recent years and further privatisations are ongoing. Nevertheless, Brazilian authorities should consider clearly setting out the rationale for state ownership of the firms over which they have control and consider privatising those firms where such rationale is weak to better align themselves with international best practices in this area.
Governance of SOEs: State ownership of firms is not necessarily a concern per se, provided the rules ensuring the governance of SOEs engaged in commercial activities limit undue political interference in the management of these firms and promote a level playing field between state-owned and private companies. The Brazilian authorities have taken some steps to improve the corporate governance of their SOEs, but the country is still far from having aligned with international best practices. To address these regulatory weaknesses the country could better conform to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (OECD, 2015[1]) and, to this end, could consider implementing the recommendations put forward in the 2020 OECD Review of the Corporate Governance of State-Owned Enterprises in Brazil (OECD, 2020[2]). For example, Brazil could:
- Reduce the dispersion of decision-making power among many different ownership public entities, and develop a single formal public ownership policy for SOEs.
- Guarantee clear separation between public officials responsible for ownership functions and others responsible for sectorial public policies.
- Ensure that the President of the Republic and his ministers refrain from intervening in the management of SOEs and that they define the SOEs’ objectives in a transparent manner.
- Strengthen boards of directors in SOEs by improving appointment procedures, and empowering boards to appoint their CEO.
- Apply the same set of laws and regulations to private companies and to SOEs engaged in commercial activities, including those regulating the procedures to be followed in case of insolvency.
Direct Control over Enterprises: Constraints on privatisations of SOEs still exist in some sectors, such as rail freight transport, airport and port operations, urban/suburban passenger transport, energy, finance, motion picture production and distribution, building and repairing of ships and boats, manufacturing of chemicals and computer products. Brazil could consider removing constraints to the sale of shares in SOEs in non-strategic sectors.
Retail Price Controls and Regulation: Retail price controls are still more widespread in Brazil than in the average OECD country. Brazil could consider reducing price regulation, in particular, by liberalising the fees charged by certain regulated professionals and by abolishing minimum fees in road freight transport services.
Public Procurement of goods, services and public works: Significant developments have been taking place in how the government procures goods, services and public works since 2018. However, further efforts to make procurement processes more open and competitive are of the essence. To this end the country could implement the recommendations put forward in the 2021 OECD report Fighting bid rigging in Brazil: A review of federal public procurement (OECD, 2021[3]). In particular, it could:
- Mandate procurement agencies to perform a market survey as part of the preliminary technical study undertaken before designing procurement exercises (possibly with the exception of low-value repetitive tenders for which market research has recently been conducted).
- Maximise participation of genuine competing bidders by tightening the conditions under which direct awards can be used, developing standard mandatory templates for all types of procurement and all stages of the procurement process, making participation requirements clearer and more predictable for bidders and ensuring that entry requirements and deadlines for submitting bids are proportional to the value or complexity of the tender.
- Increase participation by foreign bidders by relaxing the rules that limit the ability of international companies to participate in tenders, in particular by removing the requirement to obtain an authorisation order from the Ministry of the Economy when foreign companies want to bid in a tender without being part of a consortium with local firms.
- Require procurement bodies to systematically publish all tender documents and receive bids online at all levels of government, and limit the exceptions to those cases where submission of physical samples are necessary.
- Abandon the current practice of providing a reference price in tender documentation.
- Recognise the essential role of public procurement officials in the fight against bid rigging and provide adequate training and capacity building.
- Streamline and strengthen the rules addressing conflicts of interests, incompatibilities and impartiality in public procurement.
Command and Control Regulation: Most of the regulatory barriers to competition in this area relate to professional services. The relevant policy insights that arise from the analysis of the PMR indicators are provided below where professional services are discussed.
Complexity of Regulatory Procedures: Numerous positive changes are ongoing and may improve the country’s performance in this area. To further ensure regulatory transparency, Brazil could complete the rolling out of an online database of all subordinate legal instruments. In addition, to reduce the regulatory burden on citizens and firms, Brazil could continue recent efforts to review existing pieces of legislation. More detailed policy suggestions related to the ex post review of regulations to reduce administrative burdens are presented in Chapter 5.
Assessment of Impact on Competition: Brazil has made improvements in the use of regulatory impact assessment (RIA) for assessing new policy proposals since 2018. However, more could be done to align its processes with international best practices. Chapter 4 provides detailed policy suggestions in this area.
Interaction with Interest Groups: Brazil has been enhancing its arrangements to engage stakeholders in the policy making process, but more could be done to ensure their effective involvement. Chapter 4 provides more detailed policy recommendations in this area. As for the interactions between interest groups and public officials, Brazil still lacks a comprehensive legal framework regulating them. A draft law on lobbying activities may fill this gap and ensure a more balanced regulatory process.
Administrative Requirements for Start-ups: Even after recent reforms, the process for opening up a new business in Brazil remains burdensome. To further simplify this process, Brazilian authorities could ensure that the recently-introduced one-stop shop providing information on how to start a business includes all the necessary administrative steps and foster its roll-out across the whole country. Additional reforms that ease the process for obtaining licenses have also been adopted. More efforts could be made to ensure that these reforms are effectively implemented across the country, and at all relevant levels of government. An additional step to increase speed and certainty in the licensing process could be to continue efforts to increase the effective application of the “silence is consent” principle for licences and permits.
Barriers in Network Sectors and Barriers in Service Sectors: Most of the restrictions in this area relate to the regulation of professional services, transport and energy, while the country has a relatively competition-friendly regulatory set-up in retail trade. Detailed policy insights in these sectors are provided in the next sub-section.
Tariff Barriers: Applied tariffs in Brazil are very high, with a negative impact on the prices for final, intermediate and capital goods as well as on productivity, given the reduced exposure of local firms to external competition. Brazil is taking some steps to reduce tariffs, though some of these measures are temporary and, hence, will soon end, and many key sectors have not seen any long-term measures at all. As already suggested in the OECD Economic Survey of Brazil (OECD, 2020[4]) Brazil could take steps to permanently reduce tariff barriers, starting with capital goods and intermediate inputs.
Barriers to Trade Facilitation: Import licensing requirements have been eased in recent years and the introduction of a National Single Window Project (Portal Único Siscomex) has started reduced processing delays for both imports and exports. Additional steps in this direction would facilitate Brazil’s external trade, thereby helping Brazil better integrate in the world’s economy. In particular, Brazil can implement measures to alleviate non-tariff barriers by further automating, harmonising and streamlining administrative processes at the border. This may include:
- accelerating the full implementation of Siscomex;
- improving the availability of information on trade-related regulations;
- improving the capacity of border agencies to exchange related data electronically;
- simplifying trade documents;
- streamlining border procedures, and
- enhancing co-operation between agencies.
Regulatory barriers to Foreign Direct Investment (FDI): Brazil has recently adopted a number of measures that have led to an improvement in the treatment of FDI, and a horizontal restriction related to the access by foreign-owned companies to the national financial system is slated for removal in December 2022. However, a number of restrictions still remain in place, which limit the ability of foreign firms to invest in the country. Brazil could consider whether less discriminatory alternatives to these restrictions are available, in particular with respect to local incorporation requirements in various sectors, foreign ownership restriction in media and ownership of rural land.
Differential Treatment of Foreign Suppliers: Brazil imposes rules that limit access by foreign firms to public tenders, as well restrictions on cabotage in some transport sectors. In addition, accountants and lawyers with foreign qualifications are required to pass an exam to practice in the country. Brazil could consider relaxing these rules to foster entry by foreign providers and promote competition in these sectors. More detailed suggestions were included above under the heading Public Procurement and in the key policy insights applying to sectors below.

Key policy insights to improve product market regulation in specific sectors

Professional services: Accountants, architects, engineers, lawyers, notaries, and estate agents are heavily regulated in Brazil. Precise policy options for reducing unnecessary barriers to competition in this area would require a detailed assessment of the specific features of the regulatory environment, not only of these professions but also of the sectors in which they are active. Hence, the first suggestion for the Brazilian authorities is to consider performing a competition assessment to determine which of the existing regulatory constraints are effectively necessary and whether they strike the right balance between fostering competition and innovation, and protecting consumers. However, some general policy insights can already be derived from the PMR sector indicators for professional services, which suggest that Brazil could:
- Reassess the activities over which exclusive rights should be granted to these six professions, considering whether exclusivities are effectively necessary, and if these rights could be entirely removed, or shared with other professionals.
- Consider introducing alternative pathways to access these six professions to foster entry, as well as to offer additional career development options for mature workers with relevant experience.
- Re-assess the rationale for imposing on accountants and lawyers with foreign qualifications the requirement to pass an exam in order to practice in the country and for notaries the obligation to have Brazilian nationality.
- If passing a professional examination remains an important element for some or all pathways to become an accountant, lawyer, or notary, consider replacing exams run by professional associations with exams run by public authorities.
- Consider relaxing the territorial constraints imposed on the ability of lawyers, notaries and real estate agents to provide services across the country.
- Reconsider the need for quantitative constraints on the number of notaries.
- Re-evaluate whether being member of a professional association should be mandatory for a qualified accountant, architect, engineer, lawyer, notary, or real estate agent to be allowed to practice.
- Introduce competition in the tariffs for the services provided by lawyers, notaries, architects and engineers by removing any form of regulation, approval and even recommendation by professional association.
- Lift the restriction, imposed on accountants and lawyers, to set up a business with other professionals, to allow innovative business models to arise.
- Remove unnecessary constraints on the ability of lawyers, notaries, accountants to advertise and market their services.
Electricity: Public authorities hold stakes in electricity companies at all levels of the supply, and control in those companies under state ownership can only be divested following legislative authorisation. Brazil should clearly assess the rationale for state ownership across the whole industry and consider selling their stakes where such rationale is weak. To foster entry and competition, the country should also consider imposing ownership or legal separation between companies involved in electricity distribution and transmission, and those operating at other levels of the supply chain.
Gas: Brazil has made headways in opening this industry to competition in the last few years. Chapter 7 provides detailed policy insights to bring this process to successful completion.
Road Transport: Road transport is important for Brazil’s economy, given its geography. In the road transport sector, Brazilian authorities may consider easing requirements to operate road freight and long-distance coach services by replacing the current cumbersome licensing requirements with a leaner notification system and allowing providers of passenger transport services by coach to decide the routes they wish to serve. In addition, competition could be fostered by removing all forms of retail price regulation in the sector where competition is possible and by relaxing constraints on cabotage services by foreign companies.
Water Transport: Regulatory constraints to competition in this sector will be assessed in considerable details and which a much wider scope than the one of the PMR indicators in the forthcoming OECD Competition Assessment Reviews: Brazil. Brazilian authorities should refer to the policy recommendations that will be put forward in this review.

Brazil’s results for the PMR Indicators

Brazil asked the OECD to analyse its results in the OECD PMR indicators in order to identify areas where its regulatory framework may pose unnecessary constraints on competition and suggest meaningful reforms, as a way of improving economic performance.

In this analysis, the OECD benchmarks Brazil against the latest vintage of the PMR indicators, which reflect the laws and regulation in force in the countries assessed on 1 January 2018. As agreed with Brazilian authorities, the values of the PMR indicators have not been calculated again to reflect changes and reforms that took place since 2018. This choice was made to ensure consistency with the PMR dataset used in the analysis and because of the resource-intensive nature of such an exercise. The only exception is Chapter 7 which provides a detail case study of the gas industry, where an ad hoc update of the relevant PMR sector indicator has been undertaken. However, in the analysis herein presented all policy developments that have taken place over the past four years are taken into account.

Brazil’s PMR scores are assessed with reference to the average of OECD members to provide a reference point. Since OECD countries have generally been undertaking pro-competition reforms for longer, these countries tend to be closer to international best practice. Brazil’s PMR scores are also presented alongside the Latin American countries included in the PMR database (i.e. Argentina, Chile, Colombia, Costa Rica and Mexico), the average of the OECD Latin America economies (i.e. Chile, Colombia, Costa Rica and Mexico), and the average of the G20 emerging economies included in the PMR database (i.e. Argentina, China, Indonesia, Mexico, Russia, South Africa ,Turkey and Brazil itself).

The OECD Product Market Regulation Indicators

In order to understand this exercise and how Brazil can use it to identify areas and priorities for reform, one must first understand how the OECD PMR indicators work, and how they are structured.

The OECD PMR indicators measure a country’s regulatory barriers to competition. The economy-wide PMR indicator provides an overall measure of the extent to which product market regulation across a variety of sectors and regulatory domains fosters competition, while the PMR sector indicators quantify regulatory barriers to firm entry and competition at the level of specific network and service sectors.

While governments use regulations to address market imperfections and mitigate dangers to health, safety or the environment, ill-designed regulations can create unnecessary barriers to the entry and growth of firms and impede the effective development of competition, thereby limiting the economy’s growth potential. Evidence from a wide range of firm, industry and macro-level studies shows that a regulatory framework that creates unnecessary obstacles to competition induces significant negative effects on productivity and growth by reducing investment and weakening multi-factor productivity performance (Égert and Wanner, 2016[5]) (Égert, 2017[6]) (Égert, 2018[7]).

Reforming product market regulation to yield a regulatory framework that fosters competition can spur productivity growth by encouraging the efficient allocation of resources across the economy, encouraging experimentation, innovation and the diffusion of existing innovations (Andrews and Cingano, 2014[8]) (OECD, 2015[9]) (Andrews, Criscuolo and Gal, 2016[10]). Lower barriers to entry supported by measures allowing new firms to compete effectively can reduce consumer prices and facilitate greater job creation, especially in services where there is pent-up demand, and can deliver long-term gains in living standards (Bouis et al., 2012[11]); (Égert and Gal, 2016[12]).

The PMR indicators were first calculated in 1998, and they have been updated every five years since then. Over time, the PMR indicators have become an essential element of the OECD’s policy analysis toolkit. These indicators and their underlying database are also widely employed by national governments and other international organisations to determine areas for regulatory change. Academics and research institutions also use the PMR indicators in their research. The uses of the PMR indicators are detailed in Box 1.1.

Box 1.1. How the OECD’s Product Market Regulation indicators are used

The PMR indicators are one of the most extensively used measures of barriers to competition in the analysis of market regulations. Examples of their use include:

Country surveillance and assessments performed by the OECD: The PMR indicators are the basis for recommendations in the OECD’s Economic Surveys and Going for Growth, identifying areas where regulatory reforms could be undertaken so that these markets could work more effectively. Moreover, the PMR indicators have constituted key inputs into OECD deliverables to the G20, such as the G20 Enhanced Structural Reform Agenda and the International Monetary Fund-led Strong Sustainable and Balanced Growth reports.
Reviews of barriers to competition performed by the OECD: the OECD performs detailed reviews of regulations to help governments identify and remove unnecessary barriers to competition, using its Competition Assessment Toolkit. The PMR indicators are usually employed to perform a first screening of the country’s sectors and identify those where such barriers are more extensive. This helps to target the assessment to those economic areas where the most benefits could be obtained.
National reform initiatives: Individual countries have used the PMR indicators when determining their agenda for reforms. The exercise can also serve as an instrument to take stock of existing regulations in a country and evaluate their performance with respect to the stated goals or international experiences. The French administration referred to the OECD PMR indicators to perform a selection of areas to focus on when starting their agenda of reforms. Similarly, the 2015 Italian draft law to increase competition in product markets, referred extensively to the PMR. The areas for regulatory reform where identified using the PMR indicators. In 2017, the government of Kazakhstan started with the OECD a comprehensive evaluation of its product market regulations using the PMR indicators to help their ministries identify areas for improving their market regulations.
Quantification of reforms: The PMR indicators are used regularly in OECD Economic Surveys to quantify the potential effects of product market reforms on the labour market and economy across countries. The PMR indicators are also widely used by academics and other national and international institutions to measure the impact of reforms on macro variables.
Key tools in the work of other international organisations: The European Commission has been a key user of OECD PMR indicators in identifying priorities for reforms in EU countries and has collaborated in extending these indicators to non-OECD EU members. Since 2013, the World Bank has also been cooperating with the OECD in broadening the coverage of the PMR indicators outside the OECD area. The PMR indicators are also one of the indicators chosen by the Asia-Pacific Economic Cooperation (APEC) secretariat to evaluate progress on structural reforms in their member countries.

Structure of the OECD Product Market Regulation Indicators

The PMR indicators are based on an extensive database that relies on the answers provided by national authorities to a detailed questionnaire.1 The information included in the database is used to build two sets of indicators: an economy-wide indicator, which provides a general quantitative measure of a country’s regulatory stance, and a group of sector indicators that focus on regulation at the level of specific network and service sectors.

The PMR places a strong emphasis on network sectors because energy, transport, and e-communications constitute important inputs in most other sectors of the economy (OECD, 2014[13]). Empirical research has shown that upstream regulations in network and services sectors curb productivity growth in the manufacturing sector and the economy more broadly (Barone and Cingano, 2011[14]) (Bourlès et al., 2013[15]) (Arnold et al., 2016[16]) (Égert and Wanner, 2016[5]).

A key feature of the PMR database is that it captures the “de jure” policy settings. This means that the answers are not based on “subjective” assessments by market participants, but on the laws in force in the country. It also implies that the answers do not reflect the level of enforcement of these laws. These two aspects of the data improve the comparability across countries by insulating them from context-specific assessments and by allowing the OECD to verify the accuracy of information provided.

The Economy-wide indicator

The economy-wide PMR indicator is constructed from two high-level indicators capturing two potential sources of barriers to competition in the economy:

i) those that may arise from state involvement in the economy, and

ii) those that may arise from regulations on the entry and expansion of domestic and foreign firms.

Each of these two high-level indicators is composed of three sub-indicators, which are in turn composed of a number of low-level indicators that refer to specific regulatory domains (Figure 1.1).

Figure 1.1. The structure and content of the 2018 economy-wide PMR indicator

a. Indicators of distortions induced by state involvement in the economy

This high-level indicator captures distortions that can be caused by the state’s involvement in the economy through the activity of state-owned enterprises (SOEs) and other forms of controls and obligations imposed by the state on private firms. It covers three key regulatory domains, represented by the three medium level indicators (the light blue left hand side in Figure 1.1). Ten low-level indicators (i.e. the dark blue boxes in the left hand side of Figure 1.1) focus on specific and detailed regulatory areas. These indicators are:

1. Presence of state-owned enterprises in the economy and their governance (Public Ownership)
1. a) Scope of SOEs: measures whether the government controls at least one firm in a number of business sectors, with a higher weight given to the key network sectors on which the PMR exercise focuses.
2. b) Direct Control over Enterprises: measures the existence of special voting rights by the government in privately owned firms, and constraints to the sale of government stakes in publicly controlled firms (based on same sectors and weights as the indicator above).
3. c) Government Involvement in Network Sectors: measures the size of the government’s stake in the largest firm in key network sectors.
4. d) Governance of State-owned Enterprises: measures the degree of insulation of state-owned enterprises from market discipline and the degree of political interference in the management these firms. This sub-indicator is based on some of the principles underlying the 2015 OECD Guidelines on Corporate Governance of State Owned Enterprises (from hereon the 2015 OECD Corporate Governance Guidelines) (OECD, 2015[1]).
2. Controls and obligations imposed on private firms, including the rules regulating public procurement (Involvement in Business Operations):
1. a) Retail Price Controls: measures the extent and type of retail price controls in key network and service sectors.
2. b) Command and Control Regulation: measures the extent to which the government uses this type of regulations, as opposed to incentive-based ones, across key network and service sectors.
3. c) Public Procurement: measures the degree to which procurement rules ensure a level playing field in access to public contracts for the provision of goods, services and public works.
3. Rules in place to evaluate new and existing regulations and efforts to simplify the administrative burden businesses face when interacting with the government (Simplification and Evaluation of Regulations).
1. a) Assessment of Impact on Competition: measures the level of assessment of the impact of new and existing regulations on competition to minimise distortions to competition.2
2. b) Interaction with Interest Groups: measures the existence of rules for engaging stakeholders in the design of new regulation with the goal of reducing unnecessary restrictions to competition and for ensuring transparency of lobbying activities.3
3. c) Complexity of regulatory procedures: measures the government’s efforts in reducing and simplifying the administrative burden of interacting with the government.

b. Indicators of barriers to domestic and foreign entry

This high-level indicator captures barriers to firms’ entry and expansion across various sectors of the economy. It covers three key regulatory domains represented by the three medium level indicators (the light blue boxes in the right hand side of Figure 1.1). Eight low-level indicators (i.e. the dark blue boxes on the right hand side of Figure 1.1) focus on specific regulatory areas:

1. The administrative burden that new firms have to face when starting their business (Administrative Burden on Start-ups)
1. a) Administrative Requirements for Limited Liability Companies and Personally-Owned Enterprises: measures the extent of the administrative requirements necessary to set up new enterprises, with a focus on two specific legal forms: limited liability companies and personally owned enterprises.
2. b) Licences and Permits: measures the existence of initiatives to simplify licensing procedures, such as ‘one-stop-shops’ for licences and notifications, “silence is consent” rule, and programs to review and reduce number of licences.
2. The qualitative and quantitative barriers firms face to enter and operate in specific key economic sectors (Barriers in Service and Network Sectors),
1. a) Barriers in Services Sectors: measures the extent of the qualitative and quantitative barriers to competition arising from existing incentive-based regulation in key service sectors.4
2. b) Barriers in Network Sectors: measures the extent of the qualitative and quantitative barriers to competition arising from existing incentive-based regulation in network sectors.5
3. The barriers that could limit access to domestic markets by foreign firms and foreign investors (Barriers to Trade and Investment)
1. a) Differential Treatment of Foreign Suppliers: measures the level of discrimination that foreign firms may experience when participating in public procurement processes, and the barriers to entry that foreign firms may experience relative to domestic firms in key network and service sectors.
2. b) Barriers to Foreign Direct Investment (FDI): measures the restrictiveness of a country’s FDI rules, which shape cross-border investment in which a foreign investor establishes a lasting interest with significant influence in an enterprise of a different economy (OECD, n.d.[18]), in 22 sectors. It gauges the restrictiveness of rules in terms of foreign equity limitations, screening or approval mechanisms, restrictions on the employment of foreigners as key personnel, and operational restrictions. This indicator reflects the value of the FDI Regulatory Restrictiveness Index developed by the OECD Directorate for Financial and Enterprise Affairs.6
3. c) Tariff Barriers: reflects the value of a cross-product average of effectively applied tariffs. The source of the relevant information is the UNCTAD Trade Analysis Information System database.7
4. d) Barriers to Trade Facilitation: measures the level of complexity of the technical and legal procedures for international trade, ranging from border procedures to the simplification and harmonisation of trade documents. This indicator reflects the value of the average of a subset of the Trade Facilitation Indicators developed by the OECD Trade and Agricultural Department.8

Sector PMR indicators

The sector PMR indicators summarise information by sector, and not by regulatory domain as in the economy-wide indicator. These indicators cover three broad sectors: network industries, professional services and retail distribution.

a. Network sectors

The indicators for network sectors assess eight sectors: electricity, natural gas, air transport, rail transport, road transport, water transport, as well as fixed and mobile e-communications.9 Each of these indicators include information on how entry and conduct in the relevant sector is regulated, and on the level of public ownership.

These eight indicators are then aggregated into three indicators, one for each industry (energy, transport and e-communications), and into one single overall indicator covering all network sectors (Figure 1.2).

Figure 1.2. Structure of the 2018 PMR indicators for network sectors

b. Professional services and retail

The service sector indicators cover six professions (accountants, architects, civil engineers, real estate agents, lawyers, and notaries), as well as general retail distribution and retail sales of medicines. The indicators for professional services include information on entry requirements and conduct constraints (Figure 1.3), whereas the retail trade indicators cover a broad set of regulatory issues, ranging from shop opening hours to licensing and retail price regulation (Figure 1.4).

There is no aggregate indicator covering these eight sectors because of their very different nature. In addition, there is no single indicator on the regulation of all professional services because some professions do not exist in all countries; hence, a single average would distort comparisons.

Figure 1.3. Structure of the 2018 PMR indicators for professional services

Figure 1.4. Structure of the 2018 PMR indicators for retail trade

Collection and calculation of the data for Brazil

In 2019, the OECD published the results of the latest vintage of the OECD PMR indicators based on a new methodology. Brazil was among the countries included in this analysis.10 The results of this vintage were based on information relative to laws and regulations in force in the country on 1 January 2018.

The information used to construct the OECD PMR indicators was collected through the 2018 PMR questionnaire sent to national authorities. The questionnaire included over 1 000 questions on economy-wide or industry-specific regulatory provisions. After the OECD received the countries’ responses, an internal team of experts reviewed them. This verification process helped to ensure that the questions were correctly interpreted. The team used the legal references and other supporting information provided by the Brazilian authorities to verify the responses. When doubts about specific answers arose, the team requested clarifications from the respondents.

Subsequently, the PMR team coded the questionnaire responses so that all quantitative and qualitative responses were transformed into a value ranging from 0 to 6, with zero representing international best practice. Because the qualitative questions are closed questions where respondents have to select an answer from a pre-defined menu, responses can be coded easily. The PMR team then aggregated the coded responses to calculate the indicators. The scoring methodologies, the specific weights used to calculate all the indicators, together with the underlying dataset of information, are available on the OECD PMR website.11

To prepare this chapter, the OECD has complemented the information used to build the 2018 PMR indicators with details on the reforms undertaken in the following 3 years. Even though this latter information could not be used to directly update the values of the PMR indicators, this exercise has allowed the OECD to identify areas where the PMR indicators may no longer accurately reflect the actual regulatory framework and to adapt any policy suggestions that may arise from an examination of just the 2018 PMR results.

Results for the economy-wide PMR indicator

Brazil’s regulatory framework is changing rapidly, and recent developments in the areas covered by the economy-wide PMR indicator reflect some of these changes. Privatisations have reduced public ownership in key sectors. At the same time, Brazil has seen the introduction of new measures to assess the impact of proposed new regulations, lessen the administrative burdens on start-ups, reduce barriers in service and network sectors, and relax barriers to trade and investments. These changes have occurred since the 2018 PMR indicators were calculated, hence these values provide a partial picture of the regulatory environment. To provide a more complete snapshot of the country’s regulatory framework, the next pages provide an analysis of the 2018 results integrated with information on more recent reforms.

The values of the 2018 economy-wide PMR indicator suggest that the regulatory framework currently in place in Brazil is considerably less competition friendly than those reflecting international best practice in many domains and sectors. Indeed, Brazil’s PMR indicator values often compare unfavourably with the OECD average, and at times markedly so. They also compare unfavourably with the average PMR values for Latin American OECD economies – some of which have values for their PMR indicators close to or, in some cases, even better than the OECD average (Vitale et al., 2020[17]). By contrast, Brazil’s economy-wide PMR indicators are broadly in line with those of G20 emerging economies (Figure 1.5). Recent reforms are likely to improve Brazil’s results, but not in a substantial manner. However, these reforms may be paving the way for more substantial changes that could bring Brazil in line with OECD economies.

Figure 1.5. Results for the economy-wide PMR indicator, 2018

The result for the economy-wide PMR indicator is the average of the values of the high-level indicator of Distortions Induced by State Involvement, and the high-level indicator on Barriers to Domestic and Foreign Entry (Figure 1.6). Sections Results for the economy-wide PMR indicator and Results for barriers to domestic and foreign entry below discuss the results of these two high level indicators separately.

Figure 1.6. High-level indicators within the economy-wide PMR

Results for distortions induced by state involvement

This high-level indicator capturing potential sources of barriers to competition that may arise from state involvement in the economy.

In 2018 Brazil’s result for this high-level indicator was relatively high when compared with the OECD average. It also compared unfavourably with the average of OECD Latin American economies, even if it was broadly in line with those of the average of G20 emerging economies. Recent reforms are likely to improve Brazil’s performance in this indicator to a limited extent.

These include:

Recent and ongoing privatisation in some sectors, including notably the electricity and gas sectors.
A recent law reducing the scope for political appointments to SOEs.
A public procurement law, which is currently being rolled out, that should improve the design of public tenders and facilitate participation by domestic and foreign bidders.
Ongoing efforts to reduce the complexity of regulatory procedures.
Steps towards a systematic requirement for ex ante regulatory impact assessment when new laws and regulations have to be introduced.

Reforms, however, address only partially the weaknesses the country shows in the areas of public ownership and involvement in business operations. Despite privatisation efforts, Brazil still reflects significant state ownership, and the corporate governance of SOEs lags behind international best practice. The country has made some inroads towards alleviating retail price controls and regulation, but high level of retail price controls relative to the OECD persists in the economy. Public procurement remains an area of attention despite a new public procurement law, with room for further improvements to, for example, increase the use of e-procurement. In addition, Brazil can go further to reduce compliance costs and administrative burdens on enterprises and to ensure clear communication of laws and regulation.

Similarly, efforts to simplify and better evaluate regulations have thus far remained limited. Discussed in greater detail in Chapter 4, requirements to assess of the impact of new laws and regulations remain limited to subordinate regulations issued by a subset of regulators. In addition, Brazil has limited requirements for authorities to engage stakeholders in the development of new laws and regulations. Finally, the country lacks a comprehensive framework on the interaction between public officials and interest groups in the regulatory and legislative process, and very little guidance on how to deal with conflict of interests concerning public officials.

The next sub-sections discuss Brazil’s result in each of the 10 low-level indicators included in Distortions Induced by State Involvement (Figure 1.7), highlighting the improvements made since 2018, but also the remaining weaknesses.

Figure 1.7. Low-level indicators under the high-level distortions induced by state involvement indicator

Scope of SOEs

According to data collected through the 2018 PMR questionnaire, the value of the sub-indicator Scope of SOEs reflects extensive state presence across many sectors of the economy. However, it is not much higher than the OECD average and compares favourably with its G20 peers (Figure 1.8).

Recent ongoing privatisation in some sectors may slightly improve Brazil’s performance in this area, but Brazil still has 155 directly and indirectly owned SOEs across a wide range of economic activities (Federal Government of Brazil, 2022[19]). While it might be justified for a country to retain a certain level of participation in specific, more strategic, sectors, this indicator shows that there may be room for further reducing the presence of SOEs in others.

As discussed below, reforms that took place since 2018 mean that Brazil’s state ownership has declined to some extent compared to what is measured in the 2018 PMR indicators portrayed above. Following the announcement of a privatisation package, some subsidiaries of SOEs were sold to private investors during 2019 and BNDESPar, the private equity arm of the national development bank BNDES, reduced its participation in several companies. Privatisation of Eletrobras will likely continue to reduce state presence in the electricity segments, as will Petrobras divestments in the transmission and distribution segments of the gas sector. Further privatisations of smaller SOEs are planned, but the political consensus for privatising key public enterprises, such as large public banks, which would require congressional approval, appears limited (OECD, 2020, p. 71[4]).

Governance of SOEs

State ownership of firms is not necessarily a concern per se. However, Brazil’s public enterprises are bound by stringent budget rules and lack the flexibility to adapt to changing market conditions that private companies could have. Moreover, while the 2016 SOE law 12 reduced the scope for political appointments, the context has not otherwise changed. At the subnational level, political parties have maintained strong influence over local SOEs (OECD, 2020, p. 71[4]).Further, competition could be distorted and allocative efficiency weakened because SOEs are exempt from some of the rules that apply to private companies, e.g. SOEs are exempt from insolvency procedures. Hence, it is crucial that the framework governing SOEs guarantees that these firms compete on a level playing field with privately owned firms, i.e. that it ensures competitive neutrality among SOEs and privately owned firms.

Indeed, in the low-level indicator that measures the quality of the Governance of SOEs, Brazil scores compare very unfavourably with the OECD average; as well with the OECD Latin American average. However, Brazil fares better than the average of G20 emerging economies (Figure 1.9).

Figure 1.9. PMR low-level indicator: Governance of SOEs, 2018

This comparison shows there is room to improve the SOEs’ governance rules and to align them and their implementation to OECD best practices, as presented in the 2015 OECD Corporate Governance Guidelines (OECD, 2015[1]).

In Brazil, the ownership rights of the federal government over SOEs are exercised concurrently by the Ministry of the Economy and the line ministries responsible for individual SOEs.13 Both are represented on SOE boards of directors. In cases where the Ministry of the Economy exercises sole ownership rights (the case in financial SOEs), it typically has the authority to nominate individuals to all board and fiscal council seats that the Federal Government has the right to fill. Where ownership is shared with a line ministry, the Ministry of Economy typically appoints one member of the board of directors and one member of the fiscal council, and the line ministry nominates all the other members of the board of directors that the federal government has the right to elect (OECD, 2020, p. 39[2]). This means that even in the cases where boards of SOEs select their CEOs, public authorities are heavily involved given their heavy presence in the boards.14

In addition, ownership rights over SOEs are often exercised by the same body that regulates the sector in which the SOE operates – since the line ministries overseeing SOEs play a role in both policy formulation and ownership. While some ministries have departments or teams dedicated to exercising ownership on behalf of the state, there is no clear separation between public officials responsible for ownership functions and others responsible for sectorial public policies (OECD, 2020, p. 104[2]). Further, in Brazil, the government does not set clear financial and public policy targets for SOEs. There is only a statutory requirement for SOEs to report ex post the costs implementing public policies.

Other weaknesses in the governance of SOEs, in Brazil, include the fact SOEs are subject to different sets of rules when compared to private enterprises. First, as already mentioned above, Ministers responsible for the supervision of a SOE can directly appoint senior executives, including the CEO. Likewise, in the specific case of Banco do Brasil, Law No. 4.595/1964 (article 21) states that the CEO of the bank should be appointed by the President of the Republic. Second, SOEs are excluded from procedures of insolvency or bankruptcy of private companies (Law No. 11.101/2005). Instead, SOEs that are not financially sustainable can face three scenarios: becoming dependent on the public purse, being privatised or being liquidated.

Brazil could seek to adopt policies that promote a level playing field between state-owned and private companies, and limit political interference in the management of SOEs. In so doing, Brazil could draw inspiration from recent OECD work on the corporate governance of SOEs in Brazil (Box 1.2).

Box 1.2. OECD Review of the Corporate Governance of State-Owned Enterprises in Brazil and its recommendations

The Brazilian authorities have taken some steps to improve the corporate governance in the SOE sector, including the establishment of the Inter-ministerial Commission on Corporate Governance and Management of Equity Interests of the Union (CGPAR), the introduction of the Corporate Governance Code in 2015 and, notably, the issuance of the ‘SOE Statute’ (Law No. 13.303/2016) and its implementing regulation.1 Despite these improvements, concerns remain about the potential use of SOEs for political purposes. This is especially relevant considering the role of political influence over such companies. Board members and CEOs are appointed to SOEs by the Executive Branch without a structured process to select nominees, leading to suspicions of political patronage even after the SOE Statute introduced appointment criteria to reduce such risks.

The 2020 OECD Review of the Corporate Governance of State-Owned Enterprises in Brazil provides a number of recommendations, including:

Reduce the dispersion of decision-making power among many different ownership public entities, and develop a single formal public ownership policy for SOEs.
The President of the Republic and his ministers should refrain from intervening in the management of SOEs and define their objectives in a transparent manner.
Strengthen boards of directors in SOEs by preventing conflicts of interest in all committees to the board and to the fiscal council, improving appointment procedures for board directors, and empowering boards to appoint their CEO.
All relevant Brazilian public authorities and SOEs’ senior leadership should ensure the implementation of the SOE Statute by correcting rules and practices that are not compliant with it and its regulatory decree.
Enhance the professionalisation and independence of corporate officers.

These recommendations, if implemented, would improve the corporate governance of these firms and ensure fairer competition between state-owned and privately owned firms.

← 1. It should be noted that these reforms, while very positive, would not affect Brazil’s performance in the PMR low-level indicator on the Governance of SOEs.

Source: (OECD, 2020[2]).

Government involvement in network sectors

Brazil fares better than both the OECD and OECD Latin American average in the indicator on Government Involvement in Network Sectors (Figure 1.10), which measures the size of the government’s stake in the largest firm in key network sectors. This score is the result of the largest players in some network sectors being privately owned, and of the government having smaller equity stakes in incumbents than in many of those countries. Recent divestments of Petrobras’ assets in the gas sector further enhance Brazil’s performance in this indicator, and additional progress is expected as a result of the ongoing privatisation of Eletrobras in the electricity sector.

Direct control over enterprises

The indicator of Direct Control over Enterprises measures the existence of special voting rights held by the government and of constraints to privatisation of its shares. In this indicator (Figure 1.11), Brazil’s PMR indicator compares unfavourably with the OECD average and the OECD Latin American average, reflecting a higher level of government clout over SOEs. However, Brazil scores better than the average of G20 emerging economies.

This score is mainly driven by the presence of constraints on privatisations in networks sectors, such as energy and transport (e.g. rail freight transport, airport and port operations, urban/suburban passenger transport, etc.), and in other sectors such as finance, motion picture production and distribution, building and repairing of ships and boats, the manufacture of chemicals and computer products. According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises, constraints on the sale of SOEs should be kept only in strategic sectors, while for all other SOEs the decision should be left to the board (OECD, 2015[1]). Recent decisions to privatise many SOEs have made this issue less pressing.

Retail price controls and regulation

The indicator of Retail Price Controls and Regulation captures the extent and type of controls and regulations imposed on retail prices in key network and services sectors. While retail price controls are more widespread in Brazil than in the average OECD country, they are less common than in other Latin American countries and G20 peers (Figure 1.12). Despite this, prices are still regulated in several sectors, including for the services provided by notaries, architects, and engineers, for some non-prescription medicines and in a number of network sectors. This is a matter addressed in more details in section Barriers to entry and competition in the service sectors and in the network sectors below. Addressing these practices would avoid market distortions and ensure that consumers enjoy the benefits of price competition.

It should be noted that Brazil has made some advances in this area since 2018. Notably, retail fares for long-distance domestic passenger transport services by coach are no longer regulated or approved by the government. In addition, regulation of prices for lawyers’ services has been replaced with non-binding prices recommended by the professional association (discussed in greater detail in a. Insights from PMR sector indicators: services sectors).

Command and control regulation

Brazil’s score in the indicator on Command and Control Regulation, which measures the use of coercive rather than incentive-based regulation in both network sectors and service sectors, is close to the OECD average, and a little better than the OECD Latin American average and the average of G20s emerging economies (Figure 1.13). Brazil could score better if the regulation of some professions was more competition–friendly, a matter addressed in more detail in a. Insights from PMR sector indicators: services sectors.

Public procurement

The 2018 result for the indicator on the public procurement of goods, services and public works suggests that the rules in this area are not designed in a way that tries to guarantee that all firms compete on a level playing field. Brazil has a noticeably less competition-friendly public procurement framework than the average OECD economy.15 Brazil’s score also compares unfavourably with the OECD Latin American average and the average of the G20 emerging economies (Figure 1.14). Improvements could include, for example, measures to ensure that Brazil’s regulatory framework for public procurement – both for the procurement of goods and services and for public works – further facilitate participation by bidders and foster competition. It currently it does not stipulate that entry requirements should be proportional to the size or value of the tender, and it does not require that deadlines for submitting bids are proportionate to the size or complexity of the tender. Furthermore, there is no requirement for tender documents to be published online, nor to set up systems so that bids can be submitted online.

However, significant developments have been taking place since 2018. Most notably, a new federal procurement law was adopted in April 2021, which consolidates the fragmented legal framework in Brazil, but will not be fully applicable until 1 April 2023.16 Since July 2020, all federal authorities must prepare a preliminary technical study (estudo técnico preliminar, ETP) when planning procurement of goods, services and works. An electronic repository of public procurement purchases was created in 2018 that can serve for price comparisons at present,17 but it could be converted into a more comprehensive, centralised e-procurement for public purchases in the future (OECD, 2021, p. 69[3]). This will not only allow for bidders in many public tenders to register online, but it will also assist in the standardisation of public procurement procedures. In addition, the requirement for foreign bidders to have a legal representative in Brazil, and the need for certified translations of foreign language documents, have both been abolished.18 Brazil is also in the process of joining the World Trade Organization Government Procurement Agreement (OECD, 2020, p. 70[4]).

These efforts were recognised in the OECD’s 2020 Economic Survey of Brazil, which acknowledged that public procurement procedures for the acquisition of goods and contracting of common services – and particularly electronic auctions, which have increased from 22% to 45% of all federal level procurement from 2017 to 2019 – improved in the last couple of years (OECD, 2020, p. 49[4]). However, further efforts to make federal procurement more competitive are of the essence (OECD, 2021[3]). Recent OECD work has highlighted a number of ways through which this could be achieved (Box 1.3).

Box 1.3. OECD recommendations to strengthen public procurement in Brazil

The 2021 OECD report Fighting bid rigging in Brazil: A review of federal public procurement made a number of recommendations to Brazil on how to better prevent and detect bid rigging in public procurement in line with the OECD Recommendation of the Council on Fighting Bid Rigging in Public Procurement. The recommendations, which take into account the changes introduced by the new law, include:

Designing procurement procedures based upon appropriate information. While ETPs (preliminary technical studies) are now mandatory for all federal entities, “market surveys” are merely one possible element of an ETP and are not mandatory. It is particularly important to develop such market investigation practices prior to designing procurement exercises. This could be achieved by mandating a market survey in preliminary technical studies for all procurement processes (possibly with the exception of low-value repetitive tenders for which market research has recently been conducted).1
Maximising participation of genuine competing bidders. Currently direct awards are used far too often – even if their use has decreased from 75% of all bids in 2017 to 54% in 2019. The circumstances where such procedures can be relied upon should be tightened, since they can represent a way to favour specific firms and thwart competition. In addition, Brazil should take practical steps to facilitate the participation of more players in public bids. This would involve, for example, developing standard mandatory templates for all types of procurement and all stages of the process (planning, tender phase and execution of the contract) to make participation requirements clearer and more predictable for bidders. All entities involved in overviewing procurement should co-operate in this. The provisions of the new law partially address this, as they require the establishment of certain template documents, like terms of reference and standardised contracts
Increasing participation by foreign bidders. Brazil could study options to relax rules on tendering by international companies and allow independent participation of foreign companies – rather than as part of a consortium.
Increasing the use of e-procurement. Brazil should require procurement bodies to systematically publish all tender documents and receiving bids online at all levels of government, and limit the exceptions to the use of e-procurement to those cases where submission of physical samples are necessary. The new law establishes that e-procurement should be privileged over in-person proceedings and creates a Public Contracting National Portal (Portal Nacional de Contratações Públicas, PNCP), though it stops short of imposing an obligation to always rely on e-procurement.
Avoiding practices that reduce competition on prices. Brazil should abandon the current practice of providing a reference price in the tender documentation for goods and services or for public works. Improvements in this area are not only relevant for strengthening competition, but also for reducing the scope for corruption and collusion in public procurement.
Recognising and enhancing the essential role of public-procurement officials in the fight against bid rigging. Hence, the public procurement workforce’s employment conditions and level of professionalisation should be improved, including through training and capacity building. The new law introduces new measures to lessen excessive exposure to penalties for public procurement officials mis-applying public procurement rules, including for “non-intentional acts that do not involve private gain”.
Paying attention to transparency, disclosure and integrity. Rules pertaining to conflicts of interests, incompatibilities and impartiality in public procurement could be streamlined and strengthened. Building on recent progress with unified electronic procurement platforms can enhance transparency and reduce the scope for economic crimes.
Detecting and punishing collusive agreements. Brazil should be vigilant about the competitive or anti-competitive nature of joint bidding and some sub-contracting practices that might hide collusive agreements. Brazil should also encourage public-procurement officials to report any suspicion of bid rigging to the relevant authorities before annulling the procurement process or starting an inquiry on the tender.

These recommendations, if implemented, would improve how public procurement exercises are run and support authorities in obtaining better value from money.

← 1. Such as Regulatory Instruction No. 5/2014 on price research and Regulatory Instruction No. 40/2020 on market surveys.

Source: (OECD, 2021[3]).

Complexity of regulatory procedures

Brazil has a fairly high score in the indicator that measures the complexity of regulatory procedures (Figure 1.15), as a result Brazil’s score compares very unfavourably with the OECD average, that of its G20 peers, as well as with some OECD Latin American economies. However, numerous positive changes are ongoing and may improve the country’s performance in this area.

While there is a database of primary regulations in place, Brazil is still rolling out a database of subordinate instruments, as of the time of writing, under the auspices of the “Codex Project,” introduced by Ordinance of the General Secretariat of the Presidency of the Republic No. 48/2020. Also, when the data were collected in 2018 Brazil’s government did not publish online lists of primary laws or subordinate regulation that are to be prepared, modified, reformed or repealed in the next six months or more. However, a reform introduced in 2019 19 partially addresses this gap and requires regulatory agencies to make public their regulatory agenda. Further, while Brazil has a program to reduce the compliance costs and administrative burdens imposed by the national government on enterprises, this program is limited by the fact that it does not involve costs assessments of existing regulations, or the systematic ex post review of such instruments.

Since 2018, Brazil has continued rolling out new technologies for regulatory administration (e-government). Over 1 000 government services across all areas can now be delivered online (OECD, 2020, p. 67[4]). This builds on measures to reduce notarization and certified copy requirements in the relations between citizens and the public administration.20 Recently, measures to digitise signatures and company documents when opening a company have been adopted (OECD, 2020, p. 68[4]).

Despite there being no systematic ex post requirement to review existing regulation,21 recent efforts to take stock of the complexity of current regulations have led to a review of over 3 700 pieces of legislation, of which 3,300 were revoked in February 2020. Brazil should continue to build on these efforts with a view towards identifying further scope for easing and simplification of the administrative burden on firms. (OECD, 2020, p. 68[4]). One such option is conducting competition assessments of specific sectors to identify and remove unnecessary regulations in order to foster a more competitive environment (see the discussion in b. Insights from PMR sector indicators: network sectors below).

Assessment of impact on competition

In 2018, there was considerable scope for improving the regulatory regime for assessing the impact of new and existing regulations on competition. However, Brazil has made improvements in this area.

A main reason for the poor performance in 2018 was the absence of requirements for public authorities to pursue regulatory impact assessments (RIAs) systematically, but this is beginning to change. In 2019, RIAs became mandatory for eleven regulatory agencies 22 under the Law of Regulatory Agencies (Law 13 484/2019) and for the rest of the federal administration with the approval of the Law of Economic Freedom (Law 13 874/2019). It is worth highlighting that these requirements concern subordinate regulations and do not apply to primary laws. In addition, the publication of new written guidance to support the preparation of RIAs has also helped Brazil to support the use of this regulatory tool in line with international best practices. A detailed assessment of Brazil’s performance in this area is presented in Chapter 4.

A bright area, which was reflected already in the 2018 results, concerns competition advocacy. The competition authority (CADE) is an independent body with powers to advocate for competition, and it can perform market studies, which can be a powerful tool to foster competition.23 However, the government is not required to publicly respond to the recommendations emerging from these studies, neither by stating if and how it will implement them nor, if it decides not accept them, by justifying such a decision. This can reduce the impact that these recommendations can have in terms of removing barriers to competition that fall outside the traditional scope of antitrust law and weaken the competition advocacy role of CADE.

Interaction with interest groups

This indicator also shows margin for improvement, as in 2018 Brazil’s indicator value pointed to a large gap with OECD countries’ practices and to a smaller gap with G20 emerging economies.

This indicator looks at two related, yet distinct topics. The first concerns the involvement of stakeholders in the design of new policy interventions. In this area, Brazil lacks good-practice arrangements to involve stakeholders in policy processes. Notably, Brazil lacks requirements for stakeholder engagement in developing primary laws and subordinate regulations, it does not provide written guidance on how to conduct stakeholder engagement, and it does not require that regulators formally consider comments received during stakeholder consultation. Finally, there are no mechanisms in place in the country for the public to provide input or dispute existing laws and regulations on an ongoing basis. Progress since 2018 has affected eleven regulatory agencies;24 in 2019 Brazil adopted a law that provides for the participation of stakeholders in the design of new regulations by these agencies.25 Stakeholder engagement is discussed in greater detail in Chapter 4.

The second area concerns the regulation of the interaction between interest groups and public officials involved in the elaboration, modification, or repeal of laws, regulations, and other policies, plans and programmes, to ensure that the process is transparent. In this latter area Brazil has made some small improvements, as a 2021 decree requires the proactive publication of the agenda of certain officials in the executive branch.26 However, Brazil still lacks a comprehensive legal framework regulating the legitimate interaction between public officials and interest groups. This regulatory gap raises the risk of private interests being advanced in an opaque and non-transparent fashion (for more information about transparency and integrity in interactions with lobbyists, see Box 1.4). A draft law 27 may fill this gap.

Brazil should also consider extending the rules concerning conflict of interests and cooling-off periods after leaving office to all public official, including members of legislative bodies. The movement of individuals between the public and private sectors – known as the revolving door – may lead to conflict of interest situations, increasing the risks of corruption. Given their decision-making power, access to key information and influence, former ministers and members of the government can be an important asset for private companies. It is considered good practice to have measures in place to avoid former public officials misusing the information and power they hold to the benefit of private interests.

Box 1.4. Transparency and integrity in lobbying in Brazil

The OECD Recommendation on Principles for Transparency and Integrity in Lobbying were the first international guidelines for governments to address transparency and integrity risks related to lobbying practices. The principles for transparency and integrity in lobbying set out in the OECD Recommendations are organised around four pillars: i) building an effective and fair framework for openness and access; ii) enhancing transparency; iii) fostering a culture of integrity; and iv) adopting mechanisms for effective implementation, compliance and review.1

In 2021, the OECD Council released a report on the implementation of this Recommendation across a number of countries including Brazil, despite the country not having adhered to the Recommendation. This report noted that:

Brazil does not have any transparency requirements – i.e. no type of decision-maker (ministers and/or members of their cabinet, members of legislative bodies, appointed public officials (e.g. political advisors), or any type of civil servant) is under a duty to disclose any contacts it may have concerning any type of public decision (primary legislation, government regulation, policy, programme or decision, and contract, grant, funding or any other type of award). Following the introduction of Decree 10.889/2021, some categories of officials are now required to publish their agenda.
Brazil has no regulation covering any type of lobbying, not even non-binding rules such as codes of conduct. Brazil also has no disclosure requirements for lobbying activities.
Infractions related to the financing of political parties and election campaigns are sanctioned with fines, loss of funding, and loss of official and party offices, but not with prison.
Regulation in other LAC countries is referred to in order to provide examples Brazil could consider when assessing possible reforms:
Chile has an act regulating lobbying and representations of private interests to authorities and civil servants. Lobbyists are subject to a Code of Good Practice for Lobbyists, which requires them to abide by the principles of honesty and integrity, transparency, professionalism, and compatibility of private and public interests. The country subjects all senior decision-makers to transparency requirements regarding all types of public decisions mentioned above. In particular, members of the Executive, the Legislature, regional and local authorities, judicature, senior members of the policy and army and various senior civil servants such as Central Bank Members and the Comptroller General, are subject to disclosure in their contacts with stakeholders that may have an interest regarding the elaboration, enactment, modification, repeal or rejection of laws, administrative acts, public contracts and other policies, plans and programmes. Lobbied public officials and administrations have a duty to register, in a public registry, hearings and meetings with lobbyists, as well as donations and trips. Public administrations also have a duty to maintain a public register of lobbyists and interest representatives. Political finance infractions are sanctioned with prison and fine, and deregistration from political parties.
Colombia has rules concerning conflicts of interest and imposes cooling-off periods for public officials. It sanctions political financing infractions with prison, fines, loss of public funding, forfeiture, party deregistration and loss of office.
Costa Rica sanctions political financing infractions solely with prison and fines, and has rules concerning conflicts of interest. However, it does not have any rules governing the interaction with public officials in the regulatory process of interest groups, nor does it have cooling-off periods. Further, while it has requirements to conduct stakeholder engagement, Costa Rica does not regulate how this is to take place.
Mexico subjects the members of its legislative bodies (in particular management bodies and committees of the Senate or the Chamber of Deputies, or senators or deputies contacted individually or jointly) to transparency requirements, and regulates lobbying of the legislature. In particular, all lobbyist must be registered together with their interests. Mexico also has conflict of interest rules in place for all types of senior public decision-makers, including cooling-off periods. Finance party infractions are sanctioned with fines, deregistration from political parties and loss of ability to run for office.
Peru subjects all “Officials with public decision-making capacity” (i.e. members of the Executive, legislature, judicature, local authorities, members of SOE boards and certain civil servants with decision-making powers) to act transparently regarding any contact that may influence public decision that has an economic, social or political significance of an individual or collective nature, or that affects interests in the various sectors of society. Peru also has an act regulating lobbying. Public officials must only meet lobbyists in their institutional headquarters and must register all their visits. Political financing infractions can lead to prison, fines, loss of public funding and loss of possibility to run for office.

← 1. OECD Principles for Transparency and Integrity in Lobbying OECD/LEGAL/0379.

Source: (OECD, 2010[20]); (OECD, 2021[21]).

Results for barriers to domestic and foreign entry

This high-level indicator captures potential regulatory barriers to the entry and expansion of domestic and foreign firms.

In 2018, Brazil’s PMR score in this high-level indicator showed that its regulatory framework in this area was less competition friendly than the OECD average and the OECD Latin American average, though Brazil’s score was broadly in line with that of G20 emerging economies. However, recent reforms are likely to improve Brazil’s performance in this indicator.

These include:

Some reductions in administrative burdens on start-ups, such as the removal of a requirement to certificate documents necessary to start limited liability companies and personally-owned enterprises, wider application of the “silence is consent” rule, and the establishment of an online one-stop shop for starting new businesses;
The easing of barriers to entry in some network sectors. This includes, first, the creation of a secondary market for spectrum. Second, recent reforms have introduced the requirement to vertically separate monopolistic and competitive activities in the gas sector (specifically introducing full ownership separation between the gas transmission operator and all other companies active in other segments of the gas market, a process already well underway, and operational separation between gas generation and import companies from gas distribution companies – see Chapter 7);
The reduction of barriers to foreign direct investments in air transport, in the insurance sector and in financial institutions;
The lowering of tariffs on the import of some goods, including a temporary horizontal reduction on a wide swath of products ending in December 2023 and a reduction on many compounds in the chemicals sector through MERCOSUR;
Some steps to level the playing ground between foreign and domestic firms, namely relaxing the rules limiting the provision of water transport cabotage services and changing the requirement for foreign firms to have legal representatives in-country to bid in public tenders.
Nevertheless, these efforts are not yet sufficient to bring Brazil’s regulatory framework in line with that of the average OECD country. In particular, barriers to trade concerning tariffs and trade facilitation remain high. In addition to some of the highest effectively applied import tariffs 28 in terms of value and coverage in the region, various forms of non-tariff barriers, including local content requirements, limit competition by foreign companies (OECD, 2020[4]). Furthermore, some discriminatory restrictions to FDI remain in place. While for barriers to foreign entry in services sectors and in network sectors in some areas, particularly in regulated professions, there is still substantial scope for pro-competition reforms.

Figure 1.16. Low-level indicators under the high-level barriers to domestic and foreign entry indicator

The next sub-sections discuss Brazil’s result in each of the 10 low-level indicators included in Barriers to domestic and foreign entry (Figure 1.16), highlighting the improvements made since 2018 but also the remaining weaknesses.

Administrative burden on start-ups

In 2018 Brazil did not score well in the two low-level indicators that measure the administrative burden that new firms must face to start their business (Figure 1.17).

The low-level indicator on Administrative requirements for limited liability and personally-owned enterprises (Figure 1.17, Panel A) captures the steps a business must take to set up a new enterprise, including the number of bodies to be contacted and the associated compliance costs. On this indicator, Brazil’s score indicates that the regulatory settings have to change substantially to align with the OECD average. Brazil’s result is also higher than that of the average of OECD Latin American economies and of its G20 peers. Recent reforms aimed at cutting red tape would not improve this result, as they do not reduce substantially neither the number of procedures necessary to set up a new firm, nor the number of bodies that need to be contacted.

Figure 1.17. PMR low-level indicators on measuring the administrative burden on start-ups, 2018

When it comes to the low-level indicator licences and permits, which measures initiatives aimed at simplifying licensing procedures, recent policy interventions are likely to considerably improve Brazil’s performance, which was quite negative in 2018 (as shown in Figure 1.17, Panel B).

Brazil has relaxed some of the administrative requirements to set up a business. In particular it has removed the obligation to notarise or certify documents necessary to start an LLC or a personally-owned enterprise. The naming of a new business has also been made simpler since number of the National Register of Legal Entities (CNPJ) can be used as business name, thereby eliminating the need for the companies and registry authorities to assess whether a firm’s proposed name conflicts with those of pre-existing entities. In addition, Brazil has continued to develop e-government tools, discussed further in Complexity of Regulatory Procedures under Section Results for distortions induced by state involvement, some of which make starting a business easier. Despite these small reforms Brazil still lags behind the OECD average, as well as the average of Latin American OECD economies and the one for G20 emerging economies (see Figure 1.17, Panel A)

Advances in the area of licensing and permitting, instead, have narrowed the gap between Brazil and OECD countries significantly, which was quite high in 2018 (see Figure 1.17, Panel B). The first advance comes in the form of a one-stop shop for information and submission procedures relating to starting a business. Brazil has set up a single portal for collecting the information needed to start a business, under the management of Receita Federal do Brasil, the Brazilian federal revenue service agency and a secretariat of the Ministry of Economy of Brazil. Local authorities must adjust their own rules to comply with these simplifications and implementing regulations to ensure that this happens.29 The second advance enhanced the scope of application of the silence-is-consent rules.30 Efforts are underway to apply silence-is-consent rules wherever possible and to add the remaining requirements for starting a business to the one-stop shop.

However, there are still opportunities for improvement. For example, Brazil’s federal government does not keep a complete count of the number of permits and licences required. This makes it hard to control excessive burdens imposed by lower-level governments, and the lack of a proper assessment of the status quo makes it difficult to implement reforms to reduce such burdens.

Barriers to entry and competition in the service sectors and in the network sectors

In 2018 Brazil’s score in the indicator on Barriers in services sectors was slightly worse than the OECD average, but similar to peer countries (Figure 1.18, Panel A). However, when Brazil is compared with the five best performing OECD countries, it is clear that are still considerable margins for improvement. No reforms have been introduced that could affect these results. Regulatory Barriers in networks sectors in 2018 were lower compared to those in the services sectors, but higher than in the average OECD country, and higher than in peer G20 economies (Figure 1.18, Panel B). Recent reforms, however, are going in the right direction.

Figure 1.18. PMR low-level indicators: Barriers in service sectors and barriers in network sectors, 2018

The following sub-sections use the PMR sector indicators to better understand the nature of these barriers to competition.

a. Insights from PMR sector indicators: services sectors

The service sector indicators cover general retail distribution and retail sales of medicines, as well as six professions (accountants, architects, civil engineers, real estate agents, lawyers, and notaries).

Regulatory constraints to retail distribution and the retail sale of medicines in Brazil are lighter than in many OECD countries. As regards the former, owners of retail outlets can decide on shop-opening hours, only registration in a specific register is required, and, in general, there are few constraints to competition, even with respect to online sales. Concerning the retail sale of medicines, there are no restrictions on the number, location and ownership of pharmacies, which are more common in OECD countries. Reforms since 2018 have further liberalised these sectors, e.g. most non-prescription medicines are now exempt from government-mandate price adjustments and prices are freely set in the market.31

However, the PMR sector indicators measuring regulatory barriers to competition in the six regulated professions included in the PMR database show rather high scores (Figure 1.19). It should be highlighted that this is an area where also OECD countries could perform better, but the regulatory framework in Brazil appears to be even less competition-friendly than in the average OECD economy, as well as than in the average OECD Latin American economy and, to a lesser extent, than the average of G20 emerging ones.

Figure 1.19. PMR sector indicators: Professional Services and Retail trade, 2018

These results are due to the presence of constraints on the legal form that professional firms can take and of territorial restrictions to the movement of professionals within the country. In addition, professional associations can restrict the scope for new entry and limit competition by setting minimum or fixed fees for legal, notarial, architectural and engineering services (binding or recommended). Brazil still reserves exclusive rights for certain ancillary tasks to legal, accounting or architectural professionals, although these tasks could also be performed by other professionals (OECD, 2020, p. 68[4]). All six professions can be accessed through a single pathway, which for some includes passing an examination run by the professional association. Finally, engineers, lawyers, accountants, architects and real estate agents have to be member of the respective professional associations to be allowed to practice.

Below we discuss more in depth the results for each of the six professions.

Lawyers

A comparison of PMR indicators across individual countries makes it apparent that regulations in Brazil pose higher barriers to entry and conduct into this profession than is observed in OECD countries (Figure 1.20).

The existence of a single pathway that requires the cumulative requirements to have a university degree, pass an entrance exam and to become a member of the professional association, limits access to the profession.

In addition, Brazil reserves a larger number of services exclusively to lawyers than other countries – including representation before courts, drawing up of legal instruments, and providing advice on international and foreign law (which prevents foreign lawyers from providing services in Brazil). Lawyers also have reserved, though shared, rights to provide advice on a number of matters. These rules are more restrictive than in many other countries.

Brazil also imposes stricter rules on lawyers’ conduct including, inter alia, restrictions on advertising and marketing and restrictions on business co-operation between lawyers and other professionals. However, the recent liberalisation of lawyers’ fees is a positive development.

Until 2018 the fees for lawyers’ services were strictly regulated, but soon after the Superior Court of Justice stipulated that the fees for lawyers’ services could not be fixed by the professional association, the latter could only issue recommendations on their level. This decision has introduced some competition on prices. However, recommended fees still provide a reference point and could foster tacit collusion. In addition, there is no evidence that consumers are sufficiently well informed about the possibility to negotiate what they are asked to pay. Hence, this intervention is still not sufficient to introduce real competitive pressures on these fees.

Notaries

The provision of notarial services is very strictly regulated in many countries around the world, where notaries exercise administrative and judicial tasks by virtue of power delegated by the state. The special role notaries play in the legal services market justifies some of these regulatory constraints. However, Brazil has rules that are even less competition friendly than the average OECD and OECD Latin American country – though Brazil fares better than the average G20 peer.

The number of notaries is limited, and notaries are only able to practice in the state where they undertook the professional examination, and cannot move to other states. In addition entry into the profession is also subject to candidates being Brazilian nationals. Fees are strictly regulated and notaries cannot advertise their services.

A few countries have started deregulating the profession, showing that there are margins for introducing greater competition without harming consumers or endangering the proper functioning of the legal system (Vitale et al., 2020[17]). For example, fees have been liberalised in the Netherlands and Italy, geographic restrictions on where to practice have been removed in France, and quantitative restrictions on the number of notaries have been eased or eliminated in France (partially) and in the Netherlands.

Accountants

The value of the PMR sector indicator for this profession compares very poorly with both the OECD average and OECD Latin American average.

Most uncommonly, accountants in Brazil have exclusive rights to provide an extensive number of accounting services. Many OECD countries do not restrict the provision of these services to regulated professions.

Access to the profession is possible only through one single pathway, which involves obtaining a higher education degree followed by a professional certification and passing an examination that is administered by the professional body. Across the OECD, it is unusual for accountants to have access to the profession through a single pathway. Further, it is necessary to be member of a professional organisation to be able to provide accounting services while many OECD countries do not impose such a requirement. In addition, accountants can set up limited liability partnership, but no incorporation is possible and they face limits on their freedom to advertise their services.

Architects and civil engineers

The regulations imposed on both architects and civil engineers are more competition-friendly than those imposed on the other regulated professions in Brazil, but they are significantly more stringent than in the average OECD country.

Access to these professions is possible only through a single pathway, which requires an earlier higher education degree followed by a professional certification. A large number of countries offer alternative paths for entering into each of these professions, thus facilitating entry. In addition, architectural and engineering services can only be provided by members of the relevant professional organisation. Many countries do not require architects and civil engineers to belong to a professional organisations, including Argentina, Chile, Colombia and Mexico in the Americas, the Scandinavian and Baltic countries in Europe, and Japan in Asia.

Architects and civil engineers share with other professionals the exclusive rights to provide a number of services, e.g. preparing and submitting studies to the authorities, design and planning, representation for obtaining permits and submit tenders, construction management, and even interior design. Brazil is unusually restrictive in requiring that so many activities can only be provided by regulated professionals, while a number of countries, including many European countries 32 and New Zealand, do not restrict access to the provision of these activities.

In addition the fees these professionals can charge for their services are regulated, and only civil engineers/architects can have the majority of ownership and voting rights in engineering/architectural firms.

Real estate agents

Real estate agents face regulation that raises barriers to entry and creates limits on the conduct of professionals that are higher than the OECD average, the average of OECD Latin American countries and, to a lesser extent, the average of G20 emerging economies.

Real estate agents have the exclusive right to perform activities that are not restricted to regulated professionals in many countries, including Chile, Colombia and Costa Rica, such as facilitating contacts between buyers and sellers, showing properties to interested parties and setting up arrangements between them and even drawing up lease agreements. In addition, only one pathway gives access to the profession, which requires attending an eight-month course, undertaking a period of compulsory practice, and becoming member of the professional organisation.

b. Insights from PMR sector indicators: network sectors

These indicators provide an assessment of how competition-friendly the regulatory framework is in three industries: energy, transport and e-communications.

Brazil’s 2018 score in the PMR sector indicator for all network industries suggests that the country’s regulatory settings are more restrictive than in the average OECD country, but close to the average of OECD Latin American countries and of G20 emerging economies (Figure 1.21). However, in the last few years Brazil has undertaken reforms, most notably in the energy sector, which have addressed some of the regulatory weaknesses highlighted in the 2018 PMR results.

Figure 1.21. PMR sector indicators: Average of all network sectors, 2018

The importance of network sectors for economic activity, investment, and welfare suggests there could be sizeable benefits from exploring all margins for introducing more competition in these sectors. OECD research drawing on the PMR sector indicators has shown that the effects of competition-friendly regulation in upstream sectors cascade through the economy improving productivity (Bourlès et al., 2013[15]), (Égert and Wanner, 2016[5]), and may have a larger effect when countries are further from the technology frontier (Nicoletti et al., 2003[22]).

E-communications

Looking at individual network sectors, Brazil has very good results in the e-communications PMR sector indicators. The indicators suggest that regulatory settings in both fixed and mobile e- communications are conducive to competition, with values in line with the OECD average (Figure 1.22).

It should be noted that in 2018 these indicators reflected the fact that secondary trading of spectrum was not permitted. However, this was amended by Law Nº 13.879, of 3 October 2019, which created a secondary radio frequency market, and Decree Nº 10.402 of 17 June 2020, which authorises telecommunication services and the extension and transfer of radio frequency permits, thereby enabling private investments in the sector. Additional reforms introduced since 2018 are expected to lead to improved investment in this sector, but are unlikely to improve the country’s performance in the PMR sector indicators.33

Energy

As regards the energy sector, the 2018 indicators show that both electricity and natural gas have more barriers to competition than the average OECD country (Figure 1.23).

However, some recent reforms in the gas sector have improved Brazil’s performance in this sector. Chapter 7 provides a more detailed assessment of these changes and their impact on Brazil’s performance in the relevant PMR indicator.

As for the electricity sector, the value of the 2018 PMR sector indicator compares unfavourably with the OECD average – though not with respect to the average of OECD Latin American economies or of the average of its G20 peers. This is due to the fact that public authorities hold stakes in electricity companies at all levels of the supply, and control in those companies under state ownership can only be divested following legislative authorisation. In addition, Brazil’s electricity sector is a highly vertically integrated. Companies involved in both electricity generation and transmission, and in electricity distribution and transmission, are only required to ensure accounting separation, and no separation is required between companies active in both electricity distribution and retail supply.

In the last couple of years this has started to change, however. Consider, for example, Elétricas Brasileiras S.A. – Eletrobras. Eletrobras is Latin America’s largest electricity company – operating in energy generation, transmission and commercialisation. It controls eight subsidiaries, a holding company (Eletropar), a research centre that is a private association (Cepel) and 50% of Itaipu Binacional. It holds approximately 30.2% of Brazil’s installed generation capacity, has a market value of 8,728 million USD and employs 14,641 people. The state owns 63.08% of Eletrobras and exercises this ownership jointly through the Ministry of Economy and the Ministry of Mines and Energy (OECD, 2020, p. 60[2]). However, Eletrobras is slated for privatisation 34 and the passage of law 14.182/2021 that provides for the privatisation of Eletrobras marks significant step towards achieving this objective (Presidency of the Republic, 2021[23]). The government intends to privatise Eletrobras in 2022, and has initiated preparatory actions (BNAmericas, 2022[24]).

In addition, Eletrobras has divested some of its assets in recent years. The company held direct and indirect interests in 137 special purpose entities in 2020, down from 160 in 2016. At present, Eletrobras has no more distribution companies and is completely focused on the generation and transmission of electricity. In addition, Brazil has created new possibilities for contracting with concessionaires, in the context of wider efforts to introduce competition into the electricity generation sector. In 2018, a legal instrument was adopted regulating the granting of a concession contract in the electricity sector associated with the privatization of the holder of a public service concession for electricity generation, thereby establishing new contract conditions (possibilities) and facilitating the privatization process 35

In short, Brazil is making progress in fostering competition the electricity network, even though avenues for improvement remain, most obviously as regards further divestments of public stakes in some market players, and the unbundling of vertically integrated electricity companies.

Transport

Concerning the transport sector, regulatory barriers to competition are highest in rail transport, though this is also the case for most OECD and non-OECD countries. The 2018 PMR result was driven by the fact that rail infrastructure was owned by public companies that are vertically integrated with rail freight service providers, and which limits access to the rail infrastructure to non-integrated operators. However, the situation may have improved since 2018 as a result of recent changes in the rules applicable to freight rail service provided by independent rail operators, which facilitate the use by third parties of rail infrastructure, and may lead to improved intra-sector competition on different rail lines.36

In 2018 there was also no competition in rail passenger transport services and this has not changed since.

Regulations in air transport, on the other hand, are very competition-friendly, and recent reforms have fully opened the market to foreign investors.37

The relative strengths and weaknesses of these PMR indicators are understandable given Brazil’s geography and transport structure, and the respective roles that trains and air travel play in it – with the first being quite marginal, while the second one plays an important role.38

Road and water transport are also important for Brazil’s economy, given its geography, and their regulatory framework is less competition-friendly than the air transport one. However, a recent change in federal legislation for water transport, which broadens permissions for the use of foreign vessels and labour force, represents a positive development.

Historically, the domestic supply of shipping services has been highly concentrated among those (national) companies that obtained the requisite licence. The low quality of port infrastructure and high bureaucratic requirements to provide shipping services add to these challenges (OECD, 2020, p. 75[4]). Further, regulatory barriers have been put in place for providers of container storage and movement services in Brazilian Ports since 2018,39 despite other improvements to Brazil’s regulatory framework in this area.

In the road transport sector,40 non-transferable licences are required to operate both freight transport and passenger coach transport services. In addition, each new route for passenger transport has to be approved before service provision can start. A 2022 law 41 may further restrict competition, as it introduces the possibility for the economic regulator of terrestrial transport (Agência Nacional de Transportes Terrestres) to limit the number of competitors based on economic feasibility of new entry. The implications of this new law rest upon the criteria of feasibility to be defined by the executive as well as its implementing regulations.

Furthermore, until 2019, prices for passenger coach transport services were regulated, but recent provisions have liberalised them.42 However, in 2018 price floors were established for road freight services following a transport strike (OECD, 2020, p. 69[4]).

Specific aspects of competition in transport sectors – specifically civil aviation and ports – will be the subject of an OECD competition assessment review, expected publication 2022. The review (provisional title OECD Competition Assessment Reviews: Brazil) will apply the OECD Competition Assessment Toolkit to the regulation of the civil aviation and ports sectors, in co-operation with CADE (OECD, 2021[25]).

Barriers to trade and investment

Strengthening competitive pressures from foreign firms provides a powerful way to raise competition. With exports and imports below 30% of GDP, Brazil’s economy is significantly less integrated into international trade than other emerging market economies of similar size. Brazilian companies have also shown only scant participation in global value chains, in a context where other Latin American countries exemplify how trade and the integration in global value chains can contribute to economic growth (OECD, 2020, p. 72[4]). Figure 1.24 shows Brazil’s imports and exports as a percentage of its GDP.

Figure 1.24. Brazil’s exposure to international trade, 2010-2019

Scores of the low-level PMR indicators in the area of barriers to trade and investment are low relative to its scores in other PMR indicators, but high relative to those of other countries.

Tariff barriers to trade

Brazil has taken some steps in recent years to reduce tariff barriers to trade. A 2019 MERCOSUR resolution reduced tariffs affecting many compounds in the chemicals sector (MERCOSUR, 2018[26]). More recently, a resolution reduced import taxes on a wide range of products, although the measure is temporary and will stop at the end of 2023 (Comitê-Executivo de Gestão, 2021[27]; LegisWeb, 2022[28]).The scope of tariff exemptions for capital goods has been extended by applying a narrower definition of the availability of domestic equivalents, which rules out these tariff exemptions. In addition, import licensing requirements have been eased in recent years. The imposition of import licensing requirements will be subject to review based on Law nº 14.195/2021 (Article 10, § 3º). The requirement to conduct such a review would not affect the PMR indicator in this area, but represents a positive signal. A National Single Window Project – Portal Único Siscomex for both export and import processes has reduced processing delays, and its implementation has continued to progress in recent years (OECD, 2020, p. 75[4]). Additional steps in this direction would facilitate Brazil’s external trade, thereby helping Brazil better integrate in the world’s economy.

Even after recent reductions, tariff barriers, as measured by effectively applied tariffs on imports, remain high both in absolute terms, and in comparison to other countries. As discussed in the most recent OECD Economic Survey of Brazil (OECD, 2020, p. 71[4]) average tariff levels weighted by imports are significantly higher than its Latin American peers, and Brazil’s most frequently applied tariff rate is around 13/14%, while around 450 tariff lines are at 35%, including textiles, apparel and leather and motor vehicles. In addition to tariffs, various forms of non-tariff barriers, including local content requirements, add to the protection of domestic producers. The Economic Survey suggests that they are at the root of significant reductions in imports and exports (OECD, 2020, p. 71[4]).

Figure 1.25 shows the average value of the effectively applied import tariffs at the time when the 2018 PMR valued where published. These data refer to 2016.43 In the case of Brazil more recent values do not show any major improvements.44

Figure 1.25. Effectively applied import tariffs, 2016

Continuing to lower trade barriers may offer a range of benefits for Brazil’s economy. The most evident and immediate effects of lowering trade barriers would be a fall in import prices for consumers and firms in downstream sectors, which is particularly important for micro-, small- and medium-sized enterprises, and further participation in global value chains. Partial equilibrium estimates suggest that Brazilian consumers could see their purchasing power increase by 8% if tariff barriers were eliminated (OECD, 2020, p. 73[4]).Moreover, these benefits are highly progressive, as lower income households spend larger shares of their incomes on tradable goods, such as food, home appliances, furniture and clothing. Lowering tariffs would not result in significant tax losses, and the productivity effects of better integration are likely to lead to an expansion of economic activity and to additional tax revenues. Firms would simultaneously gain improved access to intermediate and capital inputs, and they would be more exposed to external competition. This would induce them to upgrade products and processes, reduce slack and cut economic rents. Just like in the case of stronger domestic competition, it would also allow high-performing firms to grow at the expense of less productive ones (OECD, 2020, p. 73[4]).

Differential treatment of foreign suppliers

Regulations also create relatively high barriers for foreign firms that wish to participate in public procurement processes, or that try to operate in key network and service sectors, as shown by the value of the low-level indicator on differential treatment of foreign suppliers, which compares unfavourably with the OECD average (Figure 1.26). However, in this low-level indicator Brazil fares better than the average of its G20 peers and the average of the OECD Latin American countries.

The high value in 2018 is partially explained by the rules that limit access by foreign firms to public tenders. However, the country has started addressing these constraints by recently abolishing the requirement for foreign bidders to have a legal representative in Brazil and the obligation to provide certified translations of foreign documents. Nevertheless, more is necessary to ensure that foreign bidders are not at a disadvantage compared to domestic ones. For example, foreign bidders can participate in all procurement processes, provided they meet all the legal and technical requirements. In practice, however, a foreign company wishing to participate in a tender needs to obtain an authorisation order from the Ministry of the Economy to operate in the country. This authorisation is not required only if the foreign firm is participating as part of a consortium including domestic firms, so the majority of foreign companies prefer to bid jointly with a local company, which reduces the number of participants in tenders (OECD, 2021, p. 59[3]).

The 2018 results are also due to are restrictive cabotage regimes in transport. A 2022 law making chartering of foreign vessels more flexible for Brazilian maritime cabotage is a positive development in this area (see also the subsection on transport under Sector PMR indicators). However, foreign planes and road vehicles are still prevented from operating on internal routes.

In addition, despite mutual recognition agreements with some countries, accountants and lawyers are protected from competition from foreign professionals, since the latter are required to take a local exam in order to be able to practice.

Barriers to trade facilitation

The indicator of Barriers to trade facilitation reflects the degree of complexity of the technical and legal procedures relating to international trade transactions.45 The indicator for Brazil is close to the value of other large economies, such as Mexico and Indonesia. However, it is above the OECD, the G20 emerging economies and the OECD Latin American countries averages (Figure 1.27).

Brazil has made strides towards improving trade facilitation as it continues implementation of the Single Foreign Trade Portal Programme (Siscomex), a single window for the trade community, launched in 2014 and further elaborated in law in 2021 (Presidency of the Republic, 2021[30]). The programme has resulted in a new process for exports, and the module for imports is now being made operational as well. Implementation of this programme continues in 2022 (Siscomex, 2021[31]).

Brazil can build upon these efforts by targeting areas of greatest impact for trade facilitation: streamlining trade formalities, governance and impartiality, information availability, involvement of trade community, advance rulings and fees and charges, simplification and harmonisation of documents, automation of border processes, and cross-border agency co-operation, as noted in the OECD Trade Facilitation Indicators cross-country comparison tool.

The following are suggested as areas for further improvement (OECD, 2019[32]):

Reduce the average issuance time for advance rulings, which are prior statements from authorities regarding the treatment the country will provide to an imported good.
Limit the number and diversity of fees and charges collected during appeals of administrative decisions by border agencies.
Enhance the capacity of border agencies’ IT systems to exchange data electronically, complete the development of electronic pre-arrival processing, and improve the quality of telecommunications and IT supporting the automation of border processes.
Expand the use of pre-arrival processing of import documentation, expand the use of Authorised Operator programmes for operators meeting certain criteria related to compliance, and further simplify procedures in terms of associated time and cost.
Increase co-operation on the ground between various administrations present at the border by, inter alia, holding regular meetings at the national level in order to improve co-operation.

Barriers to FDI

In 2018, these barriers, as measured in the OECD FDI Regulatory Restrictiveness Index that feeds directly into this PMR low-level indicator,46 are relatively low in absolute terms and by comparison to the average of G20 emerging economies. However, they are still higher than the OECD average and the average of OECD Latin American countries (Figure 1.28).

Since 2018, Brazil adopted a number of measures that have led to lower regulatory barriers to FDI. The country repealed the previous 20% limit on foreign investment in air transport and the requirement that directors be exclusively Brazilian nationals.47 Brazil also repealed reciprocity requirements for foreign insurance companies that wish to invest in the country.48 Finally, the Central Bank no longer has to authorise foreign investment in financial institutions, and applies to them the principle of national treatment.49

These measures have slightly narrowed the gap with the OECD average. Table 1.1 below shows the changes in the values, calculated using the most recent values for the OECD FDI Restrictiveness Index. In addition, a horizontal restriction related to the access to the national financial system by foreign companies, which currently may be restricted by the Central Bank in case of balance of payment crises, is slated to be removed in December 2022 with the entry into force of Law No. 14.286. Despite these improvements, a number of discriminatory restrictions remain, such as local incorporation requirements in various sectors, and foreign ownership restriction in media and for purchases of rural property. Brazil could consider whether less discriminatory alternatives could be implemented.

Table 1.1. Low-level indicator on Barriers to FDI, 2018 and 2020
Year	Brazil	OECD average
2018	0.55	0.38
2020*	0.49	0.38
* The values for 2020 are estimated on the basis of the values of the FDI Restrictiveness Index.
Source: OECD FDI Restrictiveness dataset.

References

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Notes

← 1. This questionnaire is available on the PMR webpage at http://oe.cd/pmr.

← 2. For OECD countries, half of the information used in calculating this indicator comes from the OECD Indicators of Regulatory Policy and Governance (iREG) database, which presents in-depth evidence on countries’ regulatory policy and governance practices: www.oecd.org/gov/regulatory-policy/indicators-regulatory-policy-and-governance.htm. Since Brazil is not included in this database, even though the iREG for Latin America 2016 covered Brazil, the information was collected directly from the Brazilian authorities.

← 3. As above.

← 4. This indicator captures the barriers to competition that can exist in service sectors that are related to incentive-based regulation. The sub-indicator Command and Control Regulation measures the barriers created by the government’s use of coercive regulations in the same sectors.

← 5. As above, but with reference to network sectors.

← 6. More information on the FDI restrictiveness index can be found at https://www.oecd.org/investment/fdiindex.htm.

← 7. The UNCTAD Trade Analysis Information System database can be accessed at https://wits.worldbank.org/.

← 8. More information on the OECD Trade Facilitation Indicators can be found at http://www.oecd.org/trade/topics/trade-facilitation/.

← 9. E-communications are traditionally referred to as telecommunications, but to highlight the relevance of data transmission in the PMR questionnaire this indicator is referred to as e-communications.

← 10. Brazil was first included in the PMR exercise in 2008.

← 11. See www.oecd.org/economy/reform/indicators-of-product-market-regulation.

← 12. Law 13.303 of 30 June 2016.

← 13. Since 1 January 2019, several line ministries merged into the Ministry of Economy, which continues to play a central co-ordination role.

← 14. The Brazilian Corporations Act (art. 142) establishes that shareholders elect the board members who, in turn, appoint senior executives. In the case of national SOEs, this general rule does not apply, according to the Ministry of the Economy’s interpretation, because art. 26 of Decree-Law 200/1967 would allow line ministers to appoint the CEO and other senior executives of the SOE. The board of directors still has formally to appoint the senior executives nominated by the ministers or the President, but there is no known case where the board has denied appointing an executive nominated by a minister or the President. See (OECD, 2020, p. 40[2]).

← 15. It should be noted that public procurement is an area where de jure and de facto realities are often quite different, making comparisons across countries difficult (Vitale et al., 2020[17]).

← 16. Law 14.133 of 1 April 2021.

← 17. The information shared in this platform – Comprasnet– only covers part of the public procurement carried out at national level. Many municipalities and states use other e-procurement platforms only covers part of the public procurement carried out at national level; many municipalities and states use other e-procurement platforms. See (OECD, 2021, p. 68[3]).

← 18. Certified translations are still required if the foreign bidder wins the tender.

← 19. http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/lei/l13848.htm.

← 20. Law 13.726 of 8 October 2018.

← 21. Ongoing efforts to introduce systematic ex post evaluations of existing laws and regulations are discussed in more detail in Chapter 5.

← 22. These include the National Electricity Agency (Agência Nacional de Energia Elétrica, ANEEL), the National Oil, Natural Gas and Biofuels Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, ANP); the National Telecommunications Agency (Agência Nacional de Telecomunicações, ANATEL); the National Health Surveillance Agency (Agência Nacional de Vigilância Sanitária, ANVISA); the National Complementary Health Care Agency (Agência Nacional de Saúde Suplementar, ANS); the National Water and Public Sanitation Agency (Agência Nacional de Águas, ANA); the National Water Transportation Agency (Agência Nacional de Transportes Aquaviários, ANTAQ); the National Terrestrial Transportation Agency (Agência Nacional de Transportes Terrestres, ANTT); the National Cinema Agency (Agência Nacional do Cinema, ANCINE); the National Civil Aviation Agency (Agência Nacional de Aviação Civil, ANAC); and the National Mining Agency (Agência Nacional de Mineração, ANM).

← 23. The Secretariat of Competition Advocacy and Competitiveness (Secretaria de Advocacia da Concorrência e Competitividade, SEAE) also performs advocacy activities and market studies (OECD Competition Committee, 2019[33]), but since SEAE is part of the Ministry of Economics, it is not considered in the PMR indicators. These only focuses on market studies run by independent bodies.

← 24. These include the National Electricity Agency (Agência Nacional de Energia Elétrica, ANEEL), the National Oil, Natural Gas and Biofuels Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, ANP); the National Telecommunications Agency (Agência Nacional de Telecomunicações, ANATEL); the National Health Surveillance Agency (Agência Nacional de Vigilância Sanitária, ANVISA); the National Complementary Health Care Agency (Agência Nacional de Saúde Suplementar, ANS); the National Water and Public Sanitation Agency (Agência Nacional de Águas, ANA); the National Water Transportation Agency (Agência Nacional de Transportes Aquaviários, ANTAQ); the National Terrestrial Transportation Agency (Agência Nacional de Transportes Terrestres, ANTT); the National Cinema Agency (Agência Nacional do Cinema, ANCINE); the National Civil Aviation Agency (Agência Nacional de Aviação Civil, ANAC); and the National Mining Agency (Agência Nacional de Mineração, ANM).

← 25. Law 13.848 of 26 June 2019.

← 26. Decree 10.889, of 9 December 2021.

← 27. Law Proposal 4391/2021. This draft law includes, inter alia, provisions for lobbyists to register on a dedicated registry, to refrain from undertaking certain activities, and to report annually on expenses and payments to public officials above a certain amount.

← 28. The PMR gauges tariff trade barriers using the effectively applied tariff data from the UNCTAD Trade Analysis Information System database, which can be accessed at https://wits.worldbank.org/. This data refers to the lowest available tariff, which may be a preferential tariff or the Most-Favoured Nation Tariff (World Bank, n.d.[29]).

← 29. Resolution CGSIM nº 61/2020 of 12 August 2020. São Paulo has already implemented an online one-stop shop, but other municipalities are still in the implementation phase.

← 30. Law No. 13.874 of 20 September 2019.

← 31. Communication CMED No. 2 of 5 March 2020.

← 32. E.g. the Scandinavian and Baltic countries, France, the Netherlands, Switzerland and the United Kingdom.

← 33. Law 14.109, of 16 December 2020, restructures the Telecommunications Universalization Fund and allows its use to invest in telecommunication networks. Finally, Law 14.173, of 15 June 2021 rationalises existing sectorial taxes on the provision of internet services via satellite, with a view to incentivising the provision of such services.

← 34. Provisional Measure No. 1.031 of 23 February 2021.

← 35. Decree 9.271 of 25 January 2018.

← 36. Resolution ANTT 5.920 of 15 December 2020.

← 37. Law 13.842 of 17 June 2019 permanently eliminated the previous requirement for management and at least 80% of the voting shares of air transport companies to be in the hands of Brazilian nationals. The new regime requires local incorporation only.

← 38. However, the PMR indicators do not consider the relative importance of different sectors.

← 39. Resolution Antaq 34, of 19 August 2019.

← 40. Taxis are not discussed since their regulation is limited to the State level.

← 41. Law 14.298 of 5 January 2022.

← 42. Decree 10.157 of 4 December 2019.

← 43. The PMR low-level indicator on Tariff Barriers to Trade is based on the UNCTAD Trade Analysis Information System (TRAINS) is a computerised database that collects data on trade control measures in 150 countries. The OECD takes from this database the average value of the tariff rates effectively applied in a country for all trade available when the PMR indicators are calculated, which means that the data refers to an older date (in 2018 the data referred to 2016). This average value is broken down in classes to which the 0 to 6 PMR scale is applied.

← 44. In 2016 the average value of the effectively applied import tariffs for Brazil was 13.56, the most recent available value, which refers to 2019, is 13.43.

← 45. This low-level indicator is based on the OECD Trade Facilitation indicators, which assess the implementation of key provisions of the World Trade Organisation’s Trade Facilitation Agreement. The data refers to the 2017 update for these indicators. For more information, see https://www.oecd.org/trade/topics/trade-facilitation/.

← 46. The FDI Index is used to calculate the low-level indicator Barriers to FDI. The value of this low-level indicator is set equal to the value of the FDI index, adjusted to a 0 to 6 scale. For more detail refer to www.oecd.org/economy/reform/a%20detailed%20explanation%20of%20the%20methodology%20used%20to%20build%20the%20oecd%20pmr%20indicators_final.pdf.

← 47. Law 13.842 of 17 June 2019.

← 48. Law 13.874 of 20 September 2019.

← 49. Circular No. 3.977/2020 of the Brazilian Central Bank (Banco Central do Brazil).

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