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Ex-Tariff on the brink of extinction

The tariff exception (“Ex-Tarifário” or “Ex-Tariff”) is an import duty benefit under which a
differentiated rate is applied to specific goods which are proven to not have a national
equivalent in Brazil. To this effect, the Federal Government temporarily reduces the import
duty rates to up to 0% so as to boost the domestic market’s supply of cutting-edge capital
goods, and computer and telecommunication goods, which are usually subject to rates
between 14% and 16%.

It should be noted that the Ex-Tariff is not a benefit granted for certain individuals; on the
contrary, it is a benefit for the market, and thus any importer may request the granting of
the tariff reduction for certain equipment, upon proving that such goods (considering their
unique and individual characteristics) do not have a national equivalent, i.e. national
equipment capable of performing the same functions with the same quality as the one that
is to be imported. Once the Ex-Tariff is granted, any importer in the country may use the
reduced import duty rate for the same exact goods.

The Ex-Tariff is a very important benefit for the development of the Brazilian market, as it
makes it possible to increase the investment in cutting-edge capital goods and computer
and telecommunication goods, incorporating new technologies not produced in Brazil. As a
result, the Brazilian industry may further develop itself, making it more competitive in the
international market, while it increases local production and thereby generates more
employment and income for the country.

Nevertheless, Brazil is a member of the Mercosur, an intergovernmental organisation
involving South American countries, which is currently a customs union in which there is
intrazonal free trade and a common commercial policy between member countries.
Among the measures agreed by Mercosur is the provision of a common external tariff for
products that originate from outside the block. Accordingly, goods with their origins in
Mercosur are subject to a 0% import duty (or similar tax in other countries), but goods from
outside the block are subject to a certain rate by all members.

As a result, the Ex-Tariff ends up being an exception for the common external tariff, as it
provides a different import duty rate from the one agreed by the Mercosur members.
To this effect, Mercosur has accepted the granting of the Ex-Tariff, being the latest concession
made by the Mercosur/CMC ruling 25/2015, which allows for Brazil to apply different rates,
including 0%, for capital goods, and computer and telecommunication goods up to 31
December 2021.

If the benefit is not extended, the current 16,000 plus Ex-Tariff will be revoked as of 1
January 2022, deeply impacting on the development of the Brazilian industry and increasing investment costs in such a delicate economic recovery moment.

Although, up to October 2021, the Brazilian Government has been in negotiations with
Mercosur, an official decision has yet to be made, and the very important Ex-Tariff remains
on the brink of extinction.