LATIN AMERICA. South America duty free association ASUTIL has said it is in urgent contact with Mercosur governments over the exclusion of several key product groups from draft new regulations that permit land border duty free shops across the region.

The association’s focus is on Uruguay and Brazil in particular, as retailers in these states stand to be the first affected by any new regulations. Duty free border sales have been permitted on the Uruguayan frontier for many years, and the first border stores on the Brazilian side are likely to open next month.

As reported, the Mercosur-wide harmonisation of land border duty free regulations published on 16 December 2018 paves the way for such stores to operate in all Mercosur member and associate member countries. The key principles must be incorporated into the various states’ legal systems by the end of April.

However, the harmonisation details were decided without consultation with ASUTIL or its members. Critically, the association said that the exclusion of key categories such as tobacco, certain fashion items, electronics and “basic consumer basket” items was alarming.

Speaking today during a webinar hosted by ASUTIL, Secretary-General José Luis Donagaray (left) said the new Mercosur resolution has “positives and negatives” for the industry. “The positive is that Mercosur recognised the importance of border shopping, the impact it has on employment and the regional economies. But on the other hand, it restricts the sale of some categories. That sets a bad precedent for the future.

“Our board has had some meetings on this matter and we are working hard to resolve this. The next four weeks will be key and we will move quickly. We’ll be meeting with the Uruguayan and Brazilian governments, and their tax and customs offices, on this issue.

“We want especially to ensure that all those people opening border stores in Brazil this year have no changes from day to day.”

Duty Free Americas’ Panda Free Shop, part of the extensive Rio Branco Shopping zone, is one of many stores on the Uruguay-Brazil border.

MERCHANDISE EXCLUDED FROM THE LAND BORDER DUTY FREE STORE REGIME

1. Means of transport and their parts and spare parts; oils and fuels.
2. Products of the ‘basic consumer basket’ of the border populations (including animal products and vegetables.
3. Live animals and plants.
4. Weapons and ammunitio.
5. Tobacco products including cigarettes.
6. Agricultural, industrial, commercial and service machinery.
7. Large electronic appliances.
8. Civil construction materials, including electrical materials and their parts, hydraulic and sanitary.
9. Tyres.
10. Tissues and yarns and footwear (except running shoes and flip flops).

On the proposed category exclusions, Donagaray said: “Our main aim is to continue selling what we have always sold in the free zones. Rather than including certain categories, we would prefer to have a list of items that cannot be sold.

“We’ll agree not to sell anything that doesn’t come under the normal duty free rules, We don’t want our shops to become IKEA. But we do want to offer textiles, shoes, electronics, small fashion items, tobacco and so on.”

He acknowledged that tobacco may prove a difficult issue, but added: “We can give examples of solutions such as exists in Uruguay. Here there is already a special taxation on tobacco, even in duty free.

“There are ways to move things forward. We believe we can counter these restrictions. The rules are expected to be formalised in April but we expect some movement. It’s an important issue for retailers and suppliers.”

In expanding the land border business (which needs legislation to be passed in each country that plans to open the channel) Donagaray noted that the duty free industry can point to some persuasive arguments about the benefits that duty free brings.

“The industry has a big impact on employment and local taxation. We did some research in Uruguay in 2017. We know that in some border towns, 30% of people who are employed there work in duty free. It is quality employment and there is an impact on hotels and restaurants, where more jobs are created. That also means people don’t have to travel to the major cities to work in low-income jobs.”

Other countries may choose to adopt the Mercosur land border legislation later, he noted. “We need to affect the legislation in Uruguay and Brazil as it will have a direct impact now. Other states such as Argentina or Paraguay might adopt the legislation later, but we have more time, perhaps one or two years.

“Argentina does not have true duty free border stores currently. London Supply in Puerto Iguazú works under a different regime, and in Ciudad del Este, Paraguay, the only true duty free shop is at the airport.”

In Brazil itself, Donagaray said it was likely that the first stores would open in March, probably in Uruguayiana (a municipality in the Brazilian state of Rio Grande do Sul) with Rio Branco to follow. “The big players in the key cities will come later in the year,” he said.

Border duty free stores will soon be permitted to open in any of Brazil’s 32 twin cities (the first from next month). Other Mercosur member and associate member countries may also follow if they pass the required legislation.

Speaking about the wider business climate, Donagaray said: “I think we’ll have a stable year. The business in our region fell by around 25% on average in 2018 compared to 2017. The first four months were positive, followed by the currency devaluations from May, and then some recovery in November.

“We understand that the US Federal Reserve won’t change interest rates soon so that has brought some stability in recent months. We know we’ll hear some ‘noise’ in Argentina in October with elections planned, as they are in Uruguay, but we hope for recovery in Brazil and a calm environment. We need to recover and with stability comes recovery.”

Donagaray also addressed the forthcoming Summit of the Americas, co-organised by ASUTIL and IAADFS in Orlando (24-27 March).

He said that pre-registration among buyers was down a little on this time last year, but that he expected a pick-up as the show approaches.

“Latin America was a tough market last year, and that has had some impact on delegate numbers. We still expect to match or even have a small increase on last year. The networking sessions involving operators and brands already have good registration levels.”

He said he expected some new visitors, especially with the impending opening of Brazil’s first land border stores.

“We are working with new and potential border store operators in Brazil and invited them to take part in Orlando to see the industry first hand. Some of them are coming. So too are representatives from the UNALE (National Union of State Deputies) in Brazil, so they can understand the business as legislators.”

The Hyatt Regency Orlando will host this year’s Summit of the Americas, with ASUTIL and IAADFS pledging strong added value at the conference sessions.

Donagaray also said that the Executive Conference sessions would add value for delegates at the show.

On Monday, opening speakers include ASUTIL President Gustavo Fagundes and IAADFS Chairman Erasmo Orillac, alongside a panel of suppliers representing Brown-Forman, JTI and L’Oréal Travel Retail, with Dufry also taking part. The Moodie Davitt Report Founder and Chairman Martin Moodie will moderate the sessions.

On Tuesday, there will be contributions from customer experience, tourism and retail expert Barbara Wold, and specially commissioned research into shopper behaviour across generations from m1nd-set, presented by Owner Dr. Peter Mohn.

On Wednesday, Copa Airlines CEO Pedro Heilbron will speak about the fast-growing Panama-based carrier’s rise, and about the wider regional aviation market. Leading economist Carlos Melconian will address the economic developments and latest trends in the USA, Argentina and Brazil.

For more on the conference sessions, click here.

*We’ll bring you much more on the Americas market in our special March Print & Online Magazines, with bonus distribution of the hard copy at the Summit of the Americas. To advertise, contact Irene Revilla at irene@moodiedavittreport.com