BRAZIL. The Brazilian congress has passed a bill to permit duty free stores to operate inside its borders in a move that has major implications for the successful and fast-growing border store operations in Brazil’s neighbours, particularly Uruguay.

The law Projeto de Lei da Câmara (PLC) 11/12, which has worked its way through the Brazilian congress over recent months, authorises duty free operations in 28 municipalities dotted along the country’s 16,000 km frontier, under strict controls.

Backers of the legislation support retaining retail activity inside the Brazilian towns, where traders as well as individual customers travel regularly across borders to purchase duty and tax free.

Spokespeople for the project urged lawmakers to allow Brazilian cities to compete with their cross-border twins.

Media reports in Brazil suggest that the country’s southernmost state, Rio Grande do Sul, stands to benefit the most, since it shares borders with Uruguay and Argentina.

The law’s impact will be closely watched in Uruguay, where border stores generated revenues of over US$360 million in 2011, an increase of +19.3% from 2010.

The country has seen a rapid rise in border store investment, with significant players like JH Partners (owners of Neutral), Duty Free Americas and Grupo Wisa entering the market.

The increase in competition from Brazilian retailers shifts the commercial equation in the border regions.

But industry sources have told The Moodie Report they are confident in the durability of the business in Uruguay, as Brazilian customers will not be eligible to shop at border stores in their own country.