President Bolsonaro (L) and VP Hamilton Mourão. Photo: PR

On September 20, President Jair Bolsonaro signed into law a new set of regulations for business which—despite potentially being his administration’s most consequential move so far—went fairly under the radar in the Brazilian press. The new rules aim at reducing bureaucracy and fostering business activities. We took the time to analyze the bill, and break it down for you:

Background: cutting bureaucracy

Back in May, President Bolsonaro signed the so-called “Economic Freedom Decree,” a provisional decree promising to make things easier for new businesses and reduce red tape. The core provision of the measure was the removal of operating license requirements for “low-risk” economic endeavors. These businesses will now be able to be set up in record time and will have no limits on their operating hours.

</p> <p>Another key point of the decree is the introduction of so-called “tacit authorization” for other companies. This means that when a request to open a business is submitted, the corresponding authority is given a deadline to grant or deny the application, if it does not respond within the allotted time, the license is automatically approved. This new feature is available for all companies, barring those of “justifiable risk,” another concept left undefined by the decree.</p> <p>The piece of legislation was since analyzed—and modified—by Congress. Here are the new core points of the Economic Freedom Law:</p> <h2>Private firms v. the state</h2> <p>The law includes a new principle to guide the notion of &#8220;economic freedom,&#8221; that is, the &#8220;recognition of the vulnerability of private actors before the state.&#8221;&nbsp;</p> <p>Previously, the text listed three pillars of economic freedom: the guarantee of liberty in the exercise of economic activities, the good-faith of private entities when dealing with the state, and the limit to the state&#8217;s intervention in economic activities.</p> <p>Exactly which private actors are &#8220;vulnerable&#8221; remains unclear, and this will be regulated by future legislation. So far, the exceptions are &#8220;bad-faith, hyper-sufficiency, or recidivism.&#8221;</p> <h2>Low-risk activities</h2> <p>Slashing bureaucracy from so-called &#8220;low-risk&#8221; activities will be a general right, instead of working only in cases when they are performed for &#8220;one&#8217;s own support or that of the family,&#8221; enforcing the idea that the state shouldn&#8217;t be present in every kind of economic activity.</p> <h2>Contracts</h2> <p>The terms of deals made between private actors will take precedence in any disputes, with corporate legislation acting in a &#8220;subsidiary&#8221; manner. However, that is not to say that the Brazilian corporate world will be survival of the fittest. These new rules will apply for businesses with &#8220;parity,&#8221; avoiding any draconian contracts. Moreover, the norms of public order cannot be supplanted by contractual clauses.</p> <p>Also, both parties may freely agree on rules of interpretation, filling gaps and integrating legal business beyond what is foreseen in law.</p> <h2>Corporations are not people</h2> <p>The new law clarifies that &#8220;companies shall not be confounded with their owners, associates, or administrators.&#8221; Basically, it exempts company controllers from being prosecuted in cases when the company engages in wrongdoing.&nbsp;</p> <p>Companies, on the other hand, shall have proprietary autonomy—which protects them from cases in which their owners or administrators are targeted by law enforcement. This works the other way around, too. In cases against companies, only its assets will be affected, not those of owners of administrators.</p> <p>Many critics of Operation Car Wash claim the investigation crushed the Brazilian construction sector, causing Brazil to plunge into its worst economic crisis in history, followed by the slowest recovery on record. Construction businesses are labor-intensive and absorb many unqualified workers—which represent the bulk of Brazil&#8217;s labor force.</p> <h2>Investment funds</h2> <p>The law scraps limitations on investment funds, which previously could only operate financial assets. Now, they are allowed to work with “assets and rights of any nature.”</p> <h2>Bolsonaro&#8217;s vetoes</h2> <p>The original decree to slash bureaucracy included a provision which was particularly important for startups and companies focused on innovation, as it allowed product and service testing on &#8220;restricted groups of capable people,&#8221; without the need for previous authorization. The text, however, restricted that provision in cases of &#8220;national security, public safety, or sanitary implications.&#8221;</p> <p>Congress had slashed these restrictions, allowing any testing not expressly forbidden by federal law. But President Bolsonaro vetoed the change, considering that it could expose people to risk.</p> <p>Another topic vetoed by the president restricted the issuance of fines by public authorities, which Mr. Bolsonaro found &#8220;too unclear.&#8221;</p> <p>The last veto concerns the enforcement of the new rules. Congress wanted a 90-day waiting period, but Mr. Bolsonaro made the new law effective immediately.

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PowerSep 23, 2019

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BY The Brazilian Report

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