Author: Andrea Assef

Source: ETCO Magazine - No. 9, April 2008

Five years ago, a group of entrepreneurs from the beer, soda,
smoke and fuel found that it had a common competitor: the alarming
informality and high tax evasion in the Brazilian economy. Upon realizing that
fought in isolation against misconduct that affected everyone, such as
tax evasion, smuggling and counterfeiting of brands, businessmen decided to
join forces. On April 8, 2003, the Brazilian Institute of Ethics was created
Competition - ETCO - with the mission to improve the business environment and fight
against illegality in market practices. Two years later, the
medicines entered the Institute and, in 2007, another chamber was created
sector, technology.

“These entrepreneurs had a broad view of the problem of informality in the
Brazil. They had a bigger, more generous ambition in creating ETCO for
defend competitive ethics, ”said Professor André Montoro, president
executive of ETCO. With the floor, one of the founders and current president of
ETCO Board of Directors, Victório De Marchi, who is also
AmBev co-president: “Our initial objective was to show the authorities
and for society, through data and studies, the losses of competition
unfair. At meetings, I took all the data I had from the beer sector.
Souza Cruz staff carried out studies on cigarettes. The representative of the
Brazilian Soft Drink Industry Association (Abir) also
concerns. I invited other people from companies like Kaiser, Coca-Cola.
Thus, we informally formed a group that would become the Institute. THE
Strictly speaking, ETCO arose from the union between Pepsi Cola, Coca-Cola, AmBev, Kaiser and
Sindicom and Souza Cruz ”.  

One of ETCO's first actions was to develop works that revealed the
asphyxiation of business activity with acts of illegal competition. The Institute
hired respected institutions to map informality, such as the Fundação
Getúlio Vargas and McKinsey. ETCO has managed to raise awareness among authorities and
society about the problem and gained credibility to the point of being recognized
by the Federal Revenue and the other tax authorities of all States,
as well as organizations like the World Bank itself. As a result, ETCO has become
the main reference on the subject in the country.

“From the beginning, our concern was to show the damage to the
society of illegal market practices ”, said Milton de Carvalho Cabral,
who was the first chairman of the ETCO Board of Directors. "If one
part of society takes advantage in the short term when buying products
smuggled or counterfeited, in the medium term the majority of citizens are
impaired by the drop in tax revenues and the increase in illegality and
insecurity ”, concluded Cabral. He recalls that the ideal of the founders was to have a
country where there was no illegality in market competition.

The official launch of ETCO took place at a prestigious ceremony in
Tennis Academy, in Brasilia, attended by around 500 representatives
business and government officials. At the time, Emerson Kapaz, who was the
first executive president of the entity - a position he held until September
2006, which was exercised by economist and professor André Franco Montoro
Filho, as of January 2007 -, requested the federal government to create
a program to combat illegality in the business world. It was the first of a
series of actions that ETCO has established with public and private initiative to
combat unfair competition and take this discussion to the heart of society
Brazilian

In June 2004, ETCO brought together businessmen, economists and politicians and
presented an unprecedented study by McKinsey, which revealed the
of unfair competition in Brazil. The main finding: the
informality was much greater than imagined and represented 40% of income
national. From that event, which was attended by the then governor
São Paulo, Geraldo Alckmin, economist Eduardo Gianetti da Fonseca and
businessman Abilio Diniz, of Grupo Pão de Açúcar, ETCO has become a
catalyst for debates on the themes that revolved around the economy
informal. In the following year, for example, the seminar Sonegação X Carga
Tax: Is there an Equilibrium Point ?, which was based on an unprecedented study
from GVconsult. The work showed the impacts of the reform under discussion in the
National Congress and was attended by the former minister and federal deputy
Delfim Netto (PP-SP) and the then executive secretary of the Ministry of Finance,
Murilo Portugal.

To end the battery of studies and debates carried out in 2007, ETCO
organized the seminar How to Improve the Business Environment, in December of the year
past. The governor of São Paulo, José Serra, who participated in the
opening of the debate, alongside ambassador Marcílio Marques Moreira, president
ETCO Advisory Council, and Professor André Montoro, stated that the
businessmen and public authorities cannot tolerate practices of cleverness. O
Governor of Bahia, Jaques Wagner, defended greater rigor in the inspection of
public administration spending. By providing discussion forums between
governments, academics and entrepreneurs, ETCO collaborates to enrich the
reflection on the subject. “One of the great plagues in Brazil is the non-direction of
public policies necessarily for the common good, but for the interests
of A or B ”, said Marques Moreira.

“But ETCO's most solid contribution to Brazilian society was the
awareness of the harmful effects of illegal activities that generate
unfair competition, ”said Leonardo Gadotti Filho, vice president of
Esso do Brasil operations and president of the National Business Union
Fuel and Lubricant Distributors (Sindicom). Gadotti chaired the
ETCO's Board of Directors between 2005 and 2006 and currently integrates the
Institute's Board of Directors.

According to Gadotti, the fuel sector celebrates the state law of São
Paulo that allows the cancellation of the state registration of distributors,
carriers or stations caught selling fuel outside specifications
the National Petroleum Agency. In his opinion, ethics will only be incorporated
to the business environment when it is part of people's daily lives. "Up to
civil society, public authorities, entities and companies to rescue these
values, essential for the construction of a modern nation ”, affirmed
Gadotti.

Over the years, ETCO has effectively participated in some of the
most important decisions that involved combating illegality in the economy
Brazilian. According to the tax advisor and former Secretary of Revenue
Federal Everardo Maciel, who is part of the ETCO Advisory Council,
entity is the union of companies committed to the defense of instruments
capable of preventing tax evasion, such as flow meters in the
drinks industry. Since 2005, the entire beer industry and part of the
refrigerant industry rely on the flow meter, a device installed in the
beverage fillers that informs the liquid volumes filled in each line of
production. Data is collected automatically and transferred to the Revenue
Federal. The device made greater collection efficiency possible. In
according to the National Union of the Beer Industry (Sindicerv), 2005
for 2006 the volume of beer production grew 6,2% and the collection of IPI
increased 17,5%, which means an increase of R $ 250 million to the coffers
without increasing the tax burden.

According to Hoche Pulcherio, president of the Brazilian Industry Association
of Soft Drinks and member of the ETCO Board of Directors, there was a
20% reduction in tax evasion with the imminent implementation of
flow in the soft drink industry. “Unfair competition was reduced, there was
increase in investment plans and employment, not yet measured
totally, ”says Pulcherio. “Anyway, awareness of opinion
public opinion about the ills of informality is the greatest victory. Ethics through
ETCO is at the center of all discussions, ”said Pulcherio.

Another measure that was supported by ETCO was the fact that
cigarette manufacturers, with the edition of the Normative Instructions of the
Federal of Brazil (IN 769 and 770), have been obliged to install
production, which will transmit the data online to the Revenue, which will allow the
tracking products across the country. Of the total market of 129 billion
of cigarettes in 2007, the sector estimates that 29% (37 billion cigarettes) are
result of smuggling, counterfeiting and tax evasion. In 2007, according to the
Federal Revenue of Brazil, the cigarette sector raised R $ 2,8 billion in IPI.
However, few pay taxes. According to the IRS, Brazil has 15 manufacturers of
cigarettes, with only two paying their taxes and accounting for almost 100%
sector revenue.

Over time, ETCO's actions started to attract other sectors that
they suffer from the same evil. In 2005, after commissioning a study from ETCO on the
informal economy in the pharmaceutical industry, the sector was surprised by the impact of
informality in the market, mainly in public health. The study
“Informality in the Pharmaceutical Sector: Barriers to Economic Growth
Law and Public Health Risk ”, prepared by McKinsey consultancy and by the
Pinheiro Neto Advogados, showed that tax evasion in the private sector
pharmacist reaches 23% of the total taxes paid. The Sectorial Chamber of
Medicines, which brings together 34 companies in the industry and started a series of discussions
on informality.

Dirceu Raposo de Mello, CEO of the National Agency for
Health Surveillance (Anvisa), who was present at one of these events, the
seminar Encouraging the Growth of the Formal Economy in Brazil: A Study of the
Pharmaceutical Sector, promoted by ETCO, in December 2005, had warned that the
agency was going to promote preventive inspection in the country. And fulfilled what
said. Anvisa's decision to regulate and make
medication tracking system is mandatory. The system controls
and monitoring the route of the products from the exit of the production line
until sale in pharmacies.     

The last sector to join ETCO was technology. In September 2007,
Microsoft, a leading software provider, has come to represent the
Sectorial Chamber of Technology. “It took us ten years of hard work to see the
piracy rate in the Brazilian business market decreases from 65% to 60% ”,
said Rinaldo César Zangirolami, director general of legal affairs and
Microsoft corporate clients. With the creation of the sectorial chamber, the expectation is that
the percentage suffers a more relevant reduction.

In these five years, ETCO has worked on several fronts to combat
illegal market practices. To fight the flood of products
counterfeit in the national territory, in 2004 the Ministry of Justice created the
National Council for Combating Piracy and Property Offenses
Intellectual.

Since its conception, the Council has had the full support of ETCO. Luiz
Paulo Barreto, President of the Council and Executive Secretary of the Ministry of
Justice, said that one of the tasks was to develop a plan to combat piracy,
with 99 actions in three areas: repressive, educational and economic.

Since then, the operations of the federal police and federal highway
and the Brazilian Federal Revenue Service doubled. In 2005, Brazil withdrew from the market
approximately US $ 84 million in pirated products, an increase of 130% in relation to
2004. The greatest victory, according to Barreto, was the creation of a culture to combat
this kind of practice. “The government and society know that the problem of piracy
it is not social, it is linked to organized crime, ”said Barreto.

 When ETCO's achievements in the struggle for good
business environment, it is impossible to leave out the implementation of the invoice
electronics (NF-e), one of the most important steps for the modernization of the
Brazilian tax system. The NF-e is a register for the movement of goods and
the provision of fully virtual services. ETCO and associated companies
enthusiastically joined the system implementation process, collaborating with
federal and state tax authorities. ETCO recently made a
seminar to promote the exchange of experiences between companies and tax authorities
state and federal authorities on the use of NF-e, as well as to debate what facilitates
and what makes it difficult to implement. By the end of the year, several sectors,
including almost everyone who is part of ETCO (drinks, medicines, cigarettes and
fuel), must use the NF-e.

In the balance of these five years, ETCO collected victories and won
battles, but the war against illegal market practices continues. How
said Milton Cabral, the great challenge that ETCO faces is to maintain the
banner that gave rise to it: the search for a more just society, in which all
pay taxes and, at the other end, benefit from better services
public.