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Brazil Bike Market Tangles over Taxes

Published October 5, 2011

SAO PAULO, Brazil (BRAIN)—Rising import duties in Brazil and ongoing pressure from domestic manufacturers for further protection are challenging global brands looking for new business in South America’s largest bike market.

The Brazilian government last month increased import duties on complete bikes from 20 to 35 percent—the maximum allowed by the World Trade Organization—to protect local manufacturers from competition with Asia sourced product. Duties on imported bicycle tires rose from 16 percent to 35 percent.

Fepase Sportcycle, the Brazilian distributor for KHS, as well as a host of other North American and European P & A brands, expects that tax increase to translate into a 10 percent rise in MSRP, said the company’s Paulo Serena. Fepase sells to about 300 specialty retailers in the country.

“We are working hard trying to find better logistic rates, process and support from our suppliers, but for sure we won't be able to absorb alone this tax increase,” Serena said in an e-mail. “What we cannot understand is why our government increases prices for a bicycle profile that Brazilian manufactures are not able to manufacture. ...We understand that, as most of other countries, is very difficult to compete with China, so it is understandable that our government should act in this case, but we are talking about protection for low end bicycles.”

Specialty brands like KHS, Specialized, Trek, Cannondale, Kona and Scott, account for just 3 percent of the total volume of bikes sold in Brazil—approximately 5.5 million units last year. The majority of the market is low-end bikes from domestic manufacturers like Caloi, Prince Bike, Monark and CBB located in the country’s Manaus Free Trade Zone, a duty-free industrial area in the remote Amazon jungle.

Flavia Grosso, the superintendent of Suframa, the government agency that oversees the Manuas Free Trade Zone applauded the recent duty increase as a victory of great impact for the regional supply chain, and said she intends to push for additional protection by lobbying for an increase in the Duty for Industrialized Product.

That duty currently sits at 10 percent, but the government could raise it as high as 35 to 40 percent, which would be a devastating hit to Fepase Sportcycle. Manufacturers in the Manuas Free Trade Zone are already exempt from the Duty for Industrialized Product.

“We are also pushing government to stop with unfair competition, especially on mid and high-end bicycles, but we are the weakest link in this chain,” Serena said.

—Nicole Formosa

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