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

On the night of Dec. 2, almost 500 gadget-crazy Brazilians in São Paulo lined up outside electronics retailer FNAC's big store in Morumbi Shopping complex south of the city. They waited until midnight to buy the Apple (AAPL) iPad, which finally went on sale in Brazil months after its international launch. First in line was Joao Teofilo Ribeiro, who was so excited he brought his entire family to wait with him.

They weren't looking for a bargain. The iPad lists at FNAC and other Brazilian stores for $985, almost twice as much as in the U.S. and one of the highest official prices for an iPad anywhere, according to Macworld Brazil, a Brazilian newsletter run by U.S.-based International Data Group.

The iPad is one example of the many price distortions caused by Brazil's elaborate industrial policy. Companies that don't manufacture goods in Brazil have to pay stiff tariffs if they want to sell to the nation's consumers. Brazil levies a 60 percent tax on the iPad and as much as 90 percent on imported cars. A blouse that retails for $49.50 at The Gap in the U.S. goes for $82 in Brazil at non-Gap outlets. "Brazilians sometimes pay luxury-good prices for second-rate items," says tax specialist André Mendes Moreira, who writes a widely read financial column and tracks the impact of import taxes on everything from cars to champagne. "The consumer is at a clear disadvantage."

Brazil imposes these stiff taxes on imports to promote local industry and encourage foreign manufacturers to set up factories inside the country. Samsung Electronics, for example, has been manufacturing locally since 1986. It now makes the Galaxy Tab, its answer to the iPad, at one of its Brazilian plants. In contrast to Samsung, Apple is a holdout. In March, Brazilian media reported that Chief Executive Officer Steve Jobs was asked by the city of Rio de Janeiro to set up the country's first Apple Store in time for the 2020 Olympics. Jobs refused, citing the superhigh taxation of important electronics.

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

Today, in part because of protectionist policies, Brazil produces complex manufactured goods such as jets and oil platforms. Yet Sacconato says the economy would fare better if, instead of fencing out rivals, the government provided decent infrastructure and levied lower and fewer taxes. State-controlled companies support the buy Brazil policy. Petroleo Brasileiro (PBR), or Petrobras, buys about 70 percent of its oil production equipment locally, a practice often cited approvingly by outgoing President Lula. Petrobras Chief Executive Officer Jose Sergio Gabrielli says he supports the program, since it will provide jobs to Brazilians as Petrobras commercializes its latest oil discoveries.

Protectionism is not the whole story behind the $985 iPad. Most importers also charge a premium to cover the risk of fluctuations in the exchange rate and tax costs, according to Moreira. He says the importer premium adds to the cost of the Smart minicar. Made in Europe by Daimler's Mercedez-Benz, it sells in Brazil for $38,500, more than three times the base U.S. price.

The pain would be even deeper if it were not for the Brazilian real's 39 percent gain against the greenback since 2009, which cheapens the cost of imports. The devaluation of the dollar has encouraged "mules" to fly to Miami and New York to buy goods, then resell them in Brazil. That's the other way Brazilians can get an iPad.

The bottom line: The $985 cost of an iPad in Brazil provides a vivid example of how the country's protectionist policies impact Brazilian consumers.

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