President Barack Obama, in his State of The Union address last week, urged American companies to make the United States the world leader in exports, furthering his two-year-old National Export Initiative to double U.S. exports in five years.
The day before Obama’s address, more than 70 companies gathered in Hartford to meet with export officials and experts to further their trade with Brazil, a nation with a booming economy but no formal trade agreement with the U.S. As the event showed, exporting to any country comes with a number of risks — success can mean soaring revenues and failure can mean jail time.
“It is complicated to understand what is the right thing,” said Rich Lombardi, regional sales manager for Gems Sensors & Controls in Plainville. “All of us are searching for the answers.”
Gems Sensors & Controls sees the long-term benefits of moving into Brazil, Lombardi said. The company makes industrial sensors and controls for applications such as medical devices, oil and natural gas exploration and measuring gases. Many of its sister companies under the Danaher Corp. have had success in Brazil, so the company knows the market it is there.
But for the company to further contribute to Obama’s National Export Initiative, it will need a lot of understanding and the government to make accessing Brazil easier, Lombardi said.
“We don’t understand why there isn’t an established trade agreement with Latin America,” Lombardi said. “It seems we all want to do business there.”
Brazil is the extreme example of high risks and high rewards in exports. An emerging world power with the eighth largest economy in the world, Brazil became Connecticut’s No. 12 trading partner last year, taking in $282 million in exports. But in the absence of a formal trade deal with the U.S., trade with Brazil involves high duties and tariffs; a complex tax system; a complex civil law system; and a culture of hospitality and state ownership that can run companies afoul of the U.S. Foreign Corrupt Practices Act.
The risks certainly are noteworthy, but the rewards are far greater once the system is successfully navigated, said Larry Vigil, export compliance manager at New Britain-based Stanley Black & Decker.
Stanley Black & Decker found great success in a variety of emerging industries in Brazil. The company particularly is having success selling tool parts for onshore and offshore drilling, Vigil said. Brazil has one of the world’s largest supplies for oil and natural gas, and helping the country tap into that is certainly a growth industry.
As Brazil prepares to host soccer’s World Cup in 2014 and the Olympics in 2016, the country is overhauling much of its infrastructure, spending $3 billion on airport and aerospace upgrades; $3.5 billion on new athletic stadiums; $440 million on ports; $4 billion on new ground transportation, including high-speed rail and rapid bus transit; and $4 billion on safety and security measures.
Transportation equipment, particularly for aerospace, already makes up 44.1 percent of Connecticut’s trade with Brazil — nearly the same percentage as Connecticut’s aerospace trade with the rest of the world — but it is a huge growth industry for Connecticut specialty manufacturers to tap into, said U.S. Rep. Joe Courtney, D-Vernon, who gave the introduction at the Hartford Brazil event.
“They are the companies that really have the success overseas,” Courtney said. “They are the best in the world at producing these parts, and these countries want them.”
Brazil is an untapped resource, said Scott Murphy, managing partner of Hartford-based Shipman & Goodwin, which hosted the event. Five years ago, Brazil was the No. 21 trading partner with Connecticut and state exports to the country have grown 235 percent since then.
But companies need to be aware of the dangers coming with foreign trade, which is why Shipman & Goodwin had lawyers at the event offer advice on the many challenges, such as obtaining trademark status in the country where products will be sold.
In trading with any country, American companies first must deal with the U.S. Departments of Commerce, State and — depending on the product — Defense. Courtney said Congress is considering simplifying the process into one agency, but that initiative is a long way off.
In addition to dealing with U.S. export regulations, there are also the many facets of the Foreign Corrupt Practices Act, such as forbidding giving anything to foreign officials that could be constituted as a bribe. There were more prosecutions under the act in 2009 and 2010 than the past 20 years combined, said Tom Flynn, chair of the business and institutional client group at Shipman & Goodwin.
In Brazil, many private companies are owned partially by the government. This can lead to trouble with the Foreign Corrupt Practices Act as American companies court business in the South American country, Flynn said. Brazil has a culture of hospitality where people there expect to be wined and dined as part of relationship building, which further complicates matters.
Brazil also has a civil law system instead of the common law system used by the United States and most other nations. “It does thing like impose conditions on companies to do maintenance on products they sell,” Flynn said.
Taxes and duties can be high in Brazi. To export a container of goods in Brazil costs $1,500 in various fees and takes 16 days to obtain the appropriate clearances.
To avoid duties and tariffs, many U.S. companies are moving part of their production operation to Brazil. Although labor costs aren’t as low as Asian countries, companies can save by avoiding shipping and the various duties.
Manufacturing in foreign countries creates its own set of problems. In Brazil, companies must pay into the state welfare system, and the country has requirements for vacation, sick days and holidays.
Many of Shipman & Goodwin’s clients are following Original Equipment Manufacturers into Brazil, Flynn said. As OEMs manufacture in foreign lands, their supply chains follow.
“If you are supplying dental wire to a certain company, and they move to Brazil; then you have to follow them to Brazil if you want to keep supplying them,” Flynn said.
Maria Cameron, U.S. Department of Commerce market access and compliance officer in Brazil, said with all these issues, companies need to be patient and well-armed with information before venturing into foreign markets.
“Brazil is a great market, but you need to be knowledgeable,” Cameron said. “Give yourself plenty of time. It takes a long time.”
