RESTRICTED
WORLD TRADE G/SG/Q2/BRA/2
22April 1997
ORGANIZATION(97-1745)
Original: English Committee onSafeguards
BRAZIL -PROVISIONAL SAFEGUARD MEASURE
CONCERNING IMPORTS OFTOYS1
Replies from BRAZIL
toQuestions posed byJAPAN2
Thefollowing communication, dated 16April 1997, hasbeenreceived from thePermanent
Mission ofBrazil.
_______________
Q1. Istheprovisional safeguard measure applied totheproducts imported frommember countries
oftheMercosur? Ifnot,please explain onwhatlegal basis suchexemption fromtheapplication of
themeasure isjustified, despite thefactthatArticle 5ofDecree No.1488/95, 11May 1995
(G/SG/N/1/BRA/3) clearly provides thatsuchmeasures willbeapplied totheimported products
independently ofitssources? Howisitjustified under theGATT 1994andtheAgreement onSafeguards?
Answer
Decree No.1488/95, altered byDecree No.1936/96, established thatsafeguard measures would
beapplied regardless oftheirorigin, respecting possible regional bilateral agreements, aswellasspecial
regimes ofimportation, suchasdrawback, forexample.
Thesafeguard investigation hasalready beenconcluded andtheprovisional safeguard measure
hasbeenreplaced bythefinalsafeguard measure. Taking intoaccount Article 9oftheAgreement
onSafeguards, thesafeguard measure doesnotapply toproducts originating inadeveloping country
Member oftheWTO, aslongasitsshare ofimports oftheproduct concerned intheimporting Member
doesnotexceed 3%,provided thatdeveloping country Members withlessthan3%import share
collectively account fornotmore than9%oftotalimports oftheproduct concerned.
Since imports originating indeveloping country Members oftheWTO which exported toBrazil
in1995andhadashare oflessthan3%ofthetotalBrazilian imports represented jointly 6.2% invalue,
and2.3%inquantity,thesecountries(whichincludedParaguayandUruguay,membersofMERCOSUR)
were exempt from theapplication ofthesafeguard measure.
1G/SG/N/7/BRA/1.
2G/SG/Q2/BRA/1.G/SG/Q2/BRA/2
Page2
Q2. Please provide uswiththeamount ofdomestic production forthepastthree years, interms
ofbothvalue andvolume, ofeachproduct towhich theprovisional safeguard measure isbeing applied.
Answer
Forthepurposes ofanalysis, alltypes oftoyswereconsidered tobeclose substitutes among
themselves andtherefore alltoysmanufactured inBrazil areclassified asproducts directly competing
withimported ones. Intheanalysis ofinjury, theselected variables referred toalltoystaken asasame
classandnottodifferent types oftoys.
Inthisway, aspresented intheOpinion No.8,dated 7June1996 (which wasthebasis for
theapplication oftheprovisional safeguard measure), theevolution ofthedomestic production oftoys
inthelastthree years tookintoaccount figures concerning 97%ofthedomestic production andwas
asfollows:
US$million
1993 590.4
1994 565.0
1995 558.7
Itisimportant tomention thatatthetimeofpreliminary determination ofserious injury caused
byincreased imports, adequate information concerning quantities were notavailable.
IntheOpinion No.17,dated 7November 1996, thatrefers tothefinalapplication ofthe
safeguard measure, theevolution ofthedomestic production oftoysrefers onlytotheproduction of
21companies which represented nearly 70%ofdomestic production.
Year Quantity US$
1993 55,734,578 332,712,889
1994 50,860,552 462,183,651
1995 41,122,329 393,066,651
Q3. Please provide uswith Brazil 'sconcrete criteria which divide products intodirectly
competitive products andindirectly competitive products.
Answer
TheAgreement onSafeguards refers to"directly competitive products", aconcept thatis,
however, notdefined. Therefore intheinvestigation, forpurposes ofdefining thisconcept, itwas
understood itrefers toproducts thatdispute thesame market, meetthesame objectives andarenear
substitutes among themselves.
Inorder toanalyze thedegree ofsubstitution existing between products, itisnecessary tohave
acorrect understanding oftherelevant forms ofcompetition inaspecific market, which corresponds
tothesetofdetermining factors ofsuccess ofthecompanies thatcompete inthismarket (itmaybe
price, ability tosupply, capacity todifferentiate, etc.). Thepredominance ofonefactor orsetofthese
factors asdeterminants ofsuccess willdepend onthecharacteristics ofeachmarket.G/SG/Q2/BRA/2
Page3
Thestudy ofthetoysector confirmed thattheindustry hasacompetitive pattern characteristic
ofadifferentiated competitive industry, thatis,where thecompetition among companies isdonethrough
product differentiation (inauguration ofnewtypes oftoys)andthetimeofplacing themonthemarket
(thecapacity toquickly adjust tofinaluserdemands) arefactors more andmore important inthedispute
foralarger share ofthemarket. Anytypeofnewproduct may, atanymoment, belaunched onthe
market andconstitute agreat attraction forconsumers, obtaining, veryquickly, larger shares ofthe
market, thusdislodging other existing types.
Withregard toimported toys,thecompetition withthose internally manufactured reflects the
patterns ofindustry competition. Thus, animported toycompetes withallother types ofdomestic
toysandnotjustwiththeidentical toy,andthereason isthat,ifthetoyisnew, anidentical product
didnotexist, butthiswould notprevent itfrom dislocating thesales ofanyother toyinternally
manufactured.
Theattempt tocategorize types oftoysinvalidates anadequate analysis ofthemarket. Distinct
categories oftoyswould correspond todistinct markets, eliminating, thus,theanalysis ofcompetition
among "directly competitive products" andwould notreach acorrect understanding ofthepattern of
competition andthedynamics ofthetoyindustries 'growth. Atariff distinction between dolls, for
example, would inconveniently classify intwodifferent markets those representing thehuman figure
(HS9502.10) andthose representing animals andnon-human figures (HS9503.4). Thesameproblem
would occur ifadivision intheprocess ofmanufacturing were tobeinvoked, suchthatplastic and
cloth dolls were topertain todistinct markets. Or,yet,adivision byapplication, according tothe
classes oftheInternational Council ofChildren 'sPlayandtheCentre National d'Information duJouet
(affective development, infancy, thetechnical world, physical activities, intellectual activities, creativity
andsocialization), forexample, were toplace indistinct categories board games (socialization) and
puzzles (intellectual activities); orcradle toys(infancy) andfurry animals (affective development).
Itwasunderstood that,despite different physical characteristics ortariff classification, the
emphasis inthedefinition of"directly competitive products" wasonthedegree ofsubstitution among
them, since theywere destined forthesame market.
Inrelation totheexpression "indirectly competitive products", thisconcept hasnever been
usedduring theinvestigation.