An exploration of foreign direct investments and contract law in Brazil

November 13, 2012
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Foreign Direct Investments and Contract Law

In 2011, Cuba’s government called for reforms that would encourage more foreign investment in domestic industries. One of the largest businesses in Brazil has responded to that call by signing a 13-year contract to manage a Cuban sugar mill, ending a more than the 50-year absence of any foreign participation in the industry.

Odebrecht, headquartered in Brazil, is one of the world’s most far-reaching engineering, petrochemical and construction conglomerates. In this instance, it is ambitiously planning to triple per-harvest output from 30,000 to 90,000 tons.

Brazil’s involvement with foreign direct investments

At the other end of the spectrum from the insular Cuba is the country that is home to Odebrecht – Brazil, where foreign direct investment (FDI) is the third-highest in the world, with $48.5 billion in 2010. Given the current appeal of launching operations in Brazil, businesses headquartered outside of the country should gain a level of understanding of Brazilian contract law before engaging in operations within the country.

In fact, according to Corporate Compliance Insights, it is critical for businesses to partner with a Brazilian law firm with knowledge of local legal provisions in order to ensure that proper procedures are followed as contracts are formed. Brazilian contract law is somewhat more strict than its counterparts in other countries, including the United States.

“The United States allows parties leeway to contract for whatever the respective parties deem important,” according to the website. “In Brazil, however, the right to contract is much more narrow in scope because Brazilian laws pre-determine much of the parties’ rights and contractual obligations prior to contract formation.”

A Brazilian law firm will understand the nuances of these legal requirements, especially the fact that the country is governed by a civil law code and not a common law code. As such, legislation mandates more aspects of Brazilian life than Americans, for example, are accustomed to. When contracts are involved, there may be a more specific law that must be followed before an agreement is reached.

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