Brazil WT/TPR/S/21
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II. THE TRADE AND INVESTMENT POLICY FRAMEWORK
(1) Trade Policy
(i) General trade policy objectives
1. Brazil 'strade policy seeks tocreate andmaintain afavourable environment forenterprises,
boost productivity through improvements ininfrastructure, andexpand andmodernize domestic industry
bypromoting itsparticiption intheworld economy. Trade policy alsoaimstoexpand anddiversify
exports, provide credit onconditions comparable withthose prevailing ininternational markets,
modernize theforeign trade administration, reactivate export credit insurance, reduce taxation and
enhance thepromotion ofdomestic products abroad. Intheareaofsafeguards, policies areaimed
atimpROving thelegal andadministrative framework todealmore effectively with unfair and
protectionist trade measures.
2. While theWTO provides themainframework forBrazil 'sgeneral traderelations, efforts have
alsobeenfocused onthecompletion oftheSouthern Common Market (MERCOSUL).1MERCOSUL
isalsoestablishing relations withother countries andblocs within Latin America andbeyond. Itis
actively participating innegotiations toestablish aFreeTrade Area fortheAmericas (FTAA).
(ii) Structure oftrade policy formulation
3. Farreaching changes affected Brazil 'sstructure oftrade policy formulation overthelastfour
years. Previously, theMinistry ofEconomy, Finance andPlanning carried outtrade-related functions;
inthecaseofinternational negotiations, including those oftheUruguay Round, suchfunctions were
shared withtheMinistry ofExternal Relations. Inlate1992, theMinistry ofEconomy, Finance and
Planning wasdivided intothree Ministries: (i)Planning andBudget, (ii)Finance, and(iii)Industry,
Trade andTourism.
4. Responsibility forforeign trade isshared between theMinistries ofFinance, andofIndustry,
Trade andTourism. TheMinistry ofFinance ischarged withfiscal andcustoms issues, andrelated
administration, inspection andcollection activities. Within theMinistry ofIndustry, Trade andTourism,
theForeign Trade Secretariat (SECEX) isresponsible fortradepolicy implementation andthereview
oftradelaws.2Those responsibilities include theregistration ofimporters andexporters, investigations
concerning emergency trade measures andexport promotion (Chapters IIIandIV); activities are
conducted through theSecretariat 'sfourdepartments (Chart II.1).
5. TheMinistry ofExternal Relations isresponsible forbilateral, regional andmultilateral trade
negotiations aswellasforrepresenting Brazil, andco-ordinating thecountry 'sparticipation, in
international trade-related fora. TheMinistry istheonlyentity withauthority tosigninternational
agreements onbehalf oftheBrazilian Government. Alllegalissues related toWTO agreements and
dispute settlement arethusprimarily theresponsibility ofthisMinistry, which actsinco-ordination
withother government agencies.
1Theacronym MERCOSUL isusedinthisreport reflecting Portugese -language terminology: inSpanish
theacronym isMERCOSUR.
2SECEX hasresponsibilities similar tothose oftheformer Department ofForeign Trade (DECEX), abody
oftheNational Secretariat ofEconomy under theMinistry ofEconomy, Finance andPlaning. Unlike SECEX,
DECEX wasalsocharged withtrade policy formulation andco-ordination.WT/TPR/S/21
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Brazil WT/TPR/S/21
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6. TheChamber ofForeign Trade wascreated in1995 toformulate andevaluate policies and
co-ordinate activities related toforeign trade (Chart II.1). Italsoserves asaforum fordiscussion
between theauthorities andsectors directly interested intheconduct offoreign trade policy. The
Chamber consists of:theHead ofthePresidential Office (Casa Civil)whochairs itsmeetings, and
theMinisters ofAgriculture, Finance, External Relations, Planning andBudget, andIndustry, Trade
andTourism; thePresident oftheCentral Bank alsoattends themeetings. TheChamber co-ordinates
theimplementation ofitsdecisions through itsExecutive Secretariat, buteachMinistry remains
responsible formatters within itscompetence.
7. TheNationalMonetaryCouncil(CMN )isthedecision-makingorganismofthenationalfinancial
System. TheCouncil establishes general guidelines onmonetary, exchange andcredit policies; it
alsoregulates theconditions fortheestablishment, functioning andregulation offinancial institutions.
TheCentral Bank ofBrazil isresponsible fortheimplementation ofthemonetary, exchange andcredit
policies decided bytheCMN aswellasformanaging Brazil 'sinternational reserves.
(iii) Laws andregulations
8. Alargenumber oflaws, decrees, resolutions, anddirectives (portarias ),govern Brazil 'sforeign
trade. Inmide-1996 theGovernment wasintheprocess ofelaborating asingle tradelawtoconsolidate
suchtrade regulations.
9. LawNo.3244of14August 1957istheprevailing Tariff LawofBrazil; thelawhasnotbeen
altered intheperiod since1992. Under theConstitution, thePresident, through theMinistry ofFinance,
hasthepower tomodify tariff rates; these changes neednotbeapproved byCongress.
10. Decree No.91030 ofMarch 1985 defines customs regulations, including trade taxes, fiscal
exemptions andreductions, thedrawback régime, customs controls andspecial customs régimes. The
Decree wasmodified through Decree No.636of24August 1992 inareas suchasthesuspension of
fiscal obligations under special customs régimes, treatment under thedrawback régime, andcoverage
oftheSpecial Customs Deposit (DEA). More recently, Decree No.11623 of8September 1995clarified
thecriteria forexempting from duties merchandise returned abroad byBrazilian importers.
11. Directive DECEX No.08of13May1991setsadministrative rulesforimports. Since 1992,
theDirective hasundergone several modifications, asdescribed inChapter III.Directive DECEX
No.09of13May1991 establishing administrative rulesforexports wasreplaced byDirective SCE
No.2of22December 1992, which consolidated theadministrative procedures forexports andadapted
thelegislation toBrazil 'scomputerized system fortheprocessing ofexport-related information
(SISCOMEX -Chapter IV(1)).
(iv) Trade relations
(a) World Trade Organization
12. Theauthorities noted thatbecause Brazil hadplaced great emphasis onunilateral trade
liberalization before theconclusion oftheUruguay Round, ithadbeenintheposition tooffer deep
tariff cutsaswellasacomprehensive elimination ofnon-tariff barriers totrade. They weresatisfied
thatBrazil would benefit fromtheoverall process ofliberalization resulting fromtheUruguay Round
aswellasfrom animproved rules-based multilateral trading system.WT/TPR/S/21
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13. Ontheother hand, theauthorities considered thatBrazil 'sconcessions hadnotbeenmatched
bycertain ofitstrading partners, theresults ofthetariff andmarket access negotiations falling short
oftheexpectations ofBrazilian exporters. Many oftheproducts included inBrazil 'spriority request
listswereconsidered “sensitive ”and,thus,hadnotbenefited fromthedesired concessions (e.g., orange
juice, tobacco products, sugar, oilseeds, andfootwear). Intheauthorities 'view, Brazilian exports
continue tofacetariff peaks intheirmajor markets; problems hadalsoarisen concerning thedegree
ofimplementation byother WTO Members ofsome Uruguay Round offers.
14. Brazil hasmade specific commitments inthenegotiations ontrade infinancial services; it
participates inthose onbasic telecommunications andmaritime transport services (Chapter VII).
15. TheMarrakesh Agreement Establishing theWTO anditsAnnexed Agreements were fully
incorporated intotheBrazilian legalsystem byDecree No.1355of30December 1994, approved by
theNational Congress through theDecree No.30of15December 1994. TheWTO Agreements are
thusanintegral partoftheBrazilian legislation andhavethesame hierarchical levelasdomestic laws;
theyaresubordinate onlytotheFederal Constitution. Thejudiciary would decide onmatters of
legislative precedence intheevent ofaconflict between theWTO agreements andother laws.
16. UndertheWTOAgreement,Brazilassumed,aspartoftheSingleUndertaking,allcommitments
under theMultilateral Trade Agreements. Brazil isalsoaparty totheInternational Bovine Meat
Agreement andhassigned, butnotyetratified, theInternational Diary Agreement (Chapter VI(2)).3
Under theAgreement onTextiles andClothing, Brazil maintains bilateral restraint arrangements with
Canada, theEuropean Union andtheUnited States (Chapter IV(3)). Tokyo Round legislation isto
remain inforcefortheremainder ofthetransitional period, applying onlytooutstanding Tokyo Round
actions.4
17. TheBrazilian authorities havebeenworking since January 1995 oncomplementary internal
regulations tofacilitate theimplementation oftheWTO Agreements. Efforts arefocused onareas
previously covered bytheTokyo Round Agreements andforwhich Brazil hadinternal complementary
regulations. Legislation onanti-dumping, countervailing, andsafeguard measures (alsocovering the
textiles transitional safeguards) havealready come intoforce (Chapter III(6)). Newlegislation on
protection ofindustrial property wasapproved in1996(Chapter V(3)). Theauthorities noted thatlack
ofcomplementary internal regulation would notpreclude theapplication ofallWTO Agreements.
18. Based onitsobligations under various WTO Agreements, Brazil hasmade several notifications
totheWTO; Table II.1contains alistofsuchnotifications made uptoMay1996. Atthattime, certain
aspects ofBrazil notification obligations were yettobecompleted, including some related tothe
Agreements onAgriculture, Customs Valuation, Import Licensing, Rules ofOrigin, Technical Barriers
toTrade, Preshipment Inspection andtheDecision onProcedures forQuantitative Restrictions.5
3These socalled plurilateral trade agreements arebinding onlyonthose WTO Members thathave accepted
them.
4Brazil participated inthefollowing Tokyo Round Agreements: Technical Barriers toTrade, Subsidies and
Countervailing Duties, theInternational Bovine Meat Arrangement, theAnti-Dumping Code andtheCustoms
Valuation Code (with reservations). Ithadobserver status intheCommittees onGovernment Procurement, the
International Dairy Arrangement, Import Licensing Procedures andCivil Aircraft.
5Notifications tobecompleted arebased onWTO document G/NOP/W/14, 20May1996; some notifications
made close tothisdocument 'sdateofcompilation might notbeshown duetoprocessing lags.Brazil WT/TPR/S/21
Page 23
Table II.1
Notifications made byBrazil under theWTO Agreement, May 1996
WTO agreement Description of
requirementDocument number anddate Comments
Anti-dumping
(Art. 16.4)Anti-dumping actions
takenG/ADP/N/2/BRA
(8June1995)
G/ADP/N/9/BRA
(21February 1996)Semi-annual reports.
Anti-dumping
(Art. 18.5)Laws andregulations G/ADP/N/1/BRA/1
(5April 1995)
G/ADP/N/1/BRA/1/SUPPL.1
(19February 1996)Incorporation ofAgreement innational
legislation; establishment of
administrative procedures forduty
imposition.
Safeguards (Art. 12.6) Laws andregulations G/SG/N/1/BRA/1
(11April 1995)
G/SG/N/1/BRA/2
(28June1995)
G/SG/N/1/BRA/3
(26March 1996)National legislation andestablishment
ofadministrative procedures; textof
procedures.
Sanitary &Phytosanitary
measures
(Art. 7)Transparency G/SPS/N/BRA/1
(13December 1995)
G/SPS/N/BRA/2 to11
(2May1996)Adoption ofvarious standards on
products, inspection andquarantine
procedures, etc.
Subsidies and
countervailing
(Art. 25and25.11)Subsidies and
countervailing actionsG/SCM/N/3/BRA
(18March 1996)
G/SCM/N/4/BRA
(9June1995)Subsidy programmes inplace; semi-
annual reports ofactions taken.
Subsidies and
countervailing
(Art. 27.13)Subsidies related to
privatizationG/SCM/N/13/BRA
(12March 1996)
G/SCM/N/13/BRA/Corr 1
(26March 1996)Brazilian privatization programme.
Subsidies and
countervailing
(Art. 32.6)Laws andregulations G/SCM/N/1/BRA/1
(5April 1995)
G/SCM/N/1/BRA/1/SUPPL.1
(9February 1996)Incorporation ofAgreement innational
legislation; establishment of
administrative procedures.
Technical Barriers to
Trade (Art2.10)Measures related to
urgent problemsG/TBT/NOTIF.96.39
(29February 1996)
G/TBT/NOTIF.96.120
(6May1996)
G/TBT/NOTIF.96.121
(6May1996)Technical regulations forvarious
products.
Technical Barriers to
Trade (Annex 3c)Voluntary standards G/TBT/CS/N/12
(1September 1995)Acceptance ofCode ofGood Practice.
Textiles &clothing
(Art. 2.7)Firststage ofthe
integration processG/TMB/N/49
(28April 1995)Lists ofproducts tobeintegrated.
Textiles &clothing
(Art. 6.1)Useofthesafeguard
mechanismG/TMB/N/16
(6March 1995)Retention ofrighttousemechanism.
TRIPs (Art. 63.2) Laws andregulations IP/N/1/BRA/1
(8March 1995)Patent procedures forpharmaceuticals
andagrochemicals.
Understanding onBOP Measures taken for
BOPpurposesWT/BOP/N/4
(17July1995)Adoption ofimport restrictive
measures.
Understanding on
Interpretation ofArt.
XVIIState trading
enterprisesG/STR/N/1/BRA
(21March 1996)Dataonindividual enterprises.
Source: WTO Central Registry ofNotifications (comprising communications circulated toWTO members before 1June1996).
19. Brazil hasnever used itsdomestic legislation providing forretaliatory trade measures
(Law No.3,244 of1957); instead, asamatter ofpolicy, itusesGATT/WTO provisions tosolve tradeWT/TPR/S/21
Page 24Trade Policy Review
disputes withitstrading partners. During theperiod 1992toearly 1996, Brazil wasinvolved infour
casesunderGATTArticlesXXIIandXXIIIleadingtopanels,inthreeofwhichBrazilwasacomplainant
(Annex II.1). During thelastfouryears, Brazil hasalsobeeninvolved intwopanel cases under the
Tokyo Round Subsidies Code andoneunder theAnti-dumping Code; intwoofthose cases Brazil
wasacomplainant. Products involved inpanel cases have included footwear, gasoline, tobacco,
desiccated coconut, milkproducts andcotton yarn. Brazil hasalsobeeninvolved inseveral consultations
regarding aircraft, automobiles, electrical transformers, fabrics andclothing, laboratory equipment,
peaches andwheat.
20. Brazilaccordsmost-favoured-nationtreatmenttoallcountries,whetherornotcontractingparties
toGATT. Departures fromm.f.n. treatment include preferential agreements, including MERCOSUL,
signed within theframework oftheLatin American Integration Association (LAIA) andtheGlobal
System ofTrade Preferences among developing countries (GSTP).
(b) Latin American Integration Association
21. TheLatin American Integration Association (LAIA) isthemainlegalframework onregional
integration towhich Brazil isparty. Two types ofagreement, regional-scope andpartial-scope
agreements, existunder LAIA. Regional-scope agreements include participation byallLAIA members,
regional tariffpreferences, andtheopening ofmarkets infavour ofrelatively less-developed members.
Partial-scope agreements bindonlytheirsignatories andcover trade, economic complementarity, and
renegotiationagreements.Brazilparticipatesinallregional-scopeagreementsandhassignedpartial-scope
agreements withallLAIA countries (GATT, 1992).
22. Brazil signed Economic Complementarity Agreements withBolivia andPeruin1993, and
withVenezuela in1994. Theagreement withBolivia hasbeensuperseded byaMERCOSUL -Bolivia
agreement. Earlier, Economic Complementarity Agreements withArgentina andUruguay havebeen
largelyovertakenbytheMERCOSULAgreement,exceptforcertainaspectsrelatedtotheBrazil-Uruguay
Trade Expansion Protocol, which willbephased outby2001, andtherules oforigin.
23. Because MERCOSUL fallswithin theLAIA framework, Brazil andtheother members
(Argentina, Paraguay andUruguay) arenowintheprocess ofadjusting thebilateral agreements they
undertook before 1995 sothattheyconform toasimple setofagreements forthecustoms union. As
aresult, therehavebeennosignificant alterations since 1992toBrazil 'spreferential tariffrateswithin
theLAIA framework. Existing preferences havebyandlarge beenextended to31December 1996
onabilateral basis, withreplacement agreements, negotiated within the"four plusone"format, (i.e.
thefourMERCOSUL members negotiating asagroup withindividual countries) scheduled toenter
intoforce on1January 1997.
24. Currentandfuturerenegotiationsofbilateralagreementswillhaveasamainaimtomultilateralize
preferences already granted, enhance anddiversify trade andinvestment flows, andcreate alegal
framework fordispute settlement andforfurther discussion ofissues suchasservices andinvestment.
Brazil isalsoseeking tostrengthen LAIA 'srôleinthepromotion ofintegration inbothLatin America
andtheWestern Hemisphere. Inthisregard, theLAIA Ministerial Council resolved inDecember 1995
toenhance LAIA 'sinvolvement inthecreation oftheFreeTrade AreaoftheAmericas (seebelow).
25. LAIA hasdispute settlement procedures under which members canbring cases concerning
alleged non-observance ofsome rules orprinciples oftheMontevideo Treaty. Such provisions do
notprecluderecoursetoWTOprocedures.LAIAdisputesettlementmechanismsnegotiatedonabilateral
basis withBolivia, PeruandVenezuela willbereplaced bythose negotiated between MERCOSULBrazil WT/TPR/S/21
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andthose countries under the"four plusone"format. Thefree-trade agreement negotiated withChile
already includes suchadispute settlement mechanism.
26. WithintheframeworkofLAIA,aReciprocalPaymentsandCreditAgreementestablishesbilateral
credit lines, inU.S. dollars, between thecentral banks tominimize theuseofforeign exchange in
intra-regional transactions. Multilateral clearing ofbalances inallthebilateral accounts occurs every
fourmonths.
(c) MERCOSUL
27. TheSouthern Common Market (MERCOSUL) wasestablished in1991 under theTreaty of
Asunción, which provided forthecreation ofacommon market among Argentina, Brazil, Paraguay
andUruguay andenvisaged thefreecirculation ofgoods, services, capital andlabour from
1January 1995.6Theprovisions oftheTreaty ofAsunción wereincorporated inthelegalframework
oftheLAIA through Economic Complementarity Agreement No.18,thelatest ofsuchagreements
signed among Argentina, Brazil, Paraguay andUruguay. After fiveyears ofoperation, i.e.asfrom
January 1997, admission toMERCOSUL istobeopentoother LAIA members.
28. TheTreaty ofAsunción wascommunicated totheGATT inJuly1992. AWorking Party was
established bytheCommittee onTrade andDevelopment inMay1993. FortheWorking party to
operate under GATT 1994, modifications toitsterms ofreference werenecessary; these wereagreed
bytheCommittee onTrade andDevelopment inoctober 1995. TheCommittee onRegional Trade
Agreements, established inFebruary 1996 istoexamine MERCOSUL inthelightoftherelevant
provisions ofGATT 1994, including Article XXIV (oncustoms unions andfreetrade areas), ansis
toprepare areport andrecommendations.
29. Theintra-MERCOSUL trade liberalization programme aimed toachieve theelimination of
non-tariff restrictions andduty-free trade through progressive, linear andautomatic tariff reductions.
Lists ofexceptions allowed foreachcountry were tobereduced from 31December 1990, withno
exceptions remaining bytheendof1994. According totheBrazilian authorities, duty-free tradecovered
close to95percentofintra-regional trade in1994.
30. A"Régime ofFinal Adjustment totheCustoms Union" wasintroduced on1January 1995,
comprising alistofproducts approved bytheCommon Market Group thatcould stillenjoy national
tariff protection within MERCOSUL. TheRégime ofFinal Adjustment envisages reducing tariffs on
intra-group trade inalinear andautomatic manner untilazerolevel isreached. ForBrazil and
Argentina, reduction began on1January 1995 andistoendon31December 1998; forParaguay
andUruguay, reductions started on1January 1996, toendon31December 1999. InBrazil, theRégime
ofFinal Adjustment, established byDecree No.1724 of4December 1995, covered 29tariff items
(including peaches, wine, rubber products andwoven fabrics).
31. Departures from thecommon external tariff withrespect tothirdcountries arepermitted for
products included inlistsofconvergence ornational exemptions; tariffs forsuchproducts maybe
above orbelow thecommon external tariff(CET), progressively approaching theagreed common rate
(Chapter III(2)).
6Annex II.1ofGATT (1992) details theMERCOSUL trade liberalization programme.WT/TPR/S/21
Page 26Trade Policy Review
32. TheratesoftheCET mayonlybemodified withtheconsent ofallMERCOSUL partners,
except forproducts inthelistsofnational exemptions forwhich ratereductions maybeaccelerated.
Approval ofmodifications istheresponsibility oftheCommon Market Group afterrecommendations
from MERCOSUL 'sTrade Commission. TheGroup delegates totheTechnical Committee No.1
onTariffs, Nomenclatures andMerchandise Classification thetechnical analyses ofproposed changes
totheCET. InBrazil, thework oftheTechnical Committee isco-ordinated bytheDepartment of
International Negotiations oftheMinistry ofIndustry, Trade andTourism withrepresentations from
theMinistries ofAgriculture, External Relations, andFinance.
33. TheMERCOSUL framework provides fortheestablishment ofsectoral "production-sharing"
arrangements, whose objectives include fostering therationalization ofinvestments andincrease the
competitiveness ofcompanies intheregion (GATT (1992). Theagreements arenegotiated byprivate
parties andapproved byMERCOSUL 'sCommon Market Group. Aproduction-sharing arrangement
forthesteelindustry wasinplace between 1992 and1994.
34. Negotiations areinprocess within MERCOSUL 'sTechnical Sub-group No.8-Agricultural
Policy toharmonize andco-ordinate agricultural policies. Although anagriculture agreement within
MERCOSUL hasnotyetbeenformalized, thenegotiations should eventually leadtoascheme based
ontheWTO Agreement onAgriculture. Decisions would continue tobetaken bynational governments,
which would havetotalautonomy withrespect topolicies inthe"green box", andlimited autonomy
inrelation tosupport falling within theGlobal Measure ofSupport.
35. Provisions foradispute settlement mechanism within MERCOSUL areprovided intheBrasilia
Protocol of1991. Amechanism consisting ofthreesuccessive stages isenvisaged: (i)direct negotiation,
(ii)intermediation bytheCommon Market Group, and(iii)constitution ofanadhoctribunal whose
decisions arenotsubject toappeal. Uptomid-1996, allconflicts hadbeensolved atthefirststage.
36. Since initiating activities in1995, theMERCOSUL Trade Commission hasbeenusedasaforum
formonthly consultations onspecific tradeproblems, mostly involving market access. TheOuro Preto
Protocol, which defines theMERCOSUL institutional structure forthe"consolidation period" (1995-
2001), establishes specific procedures within theframework oftheTrade Commission fortheprocessing
oftrade complaints, including those from theprivate sector. These procedures nowconstitute the
preliminary phase ofthedispute settlement mechanism oftheBrasilia Protocol.
37. Ministers oftheMERCOSUL countries meetperiodically toco-ordinate theirapproach toissues
suchasinflation, foreign investment andtrade, andtheadoption ofcommon positions ininternational
fora. Asnoted bytheBrazilian authorities, theco-ordination oftrade andeconomic positions in
international foraamong MERCOSUL members isanatural result oftheconsolidation ofthecustoms
union and,thus,ofacommon trade policy. Theauthorities indicated thatMERCOSUL would inthe
future make useofsingle concessions listswhen appropriate, while negotiations oncompensations
would require theco-ordination ofthefourmember States. Co-ordination wasalsolikely tostrengthen
innon-economicfora,asMERCOSULencompassedadiversifiedagenda,includingenvironment,justice,
education andlabour issues.
38. MERCOSUL acquired anindependent legalpersonality under international lawwiththeentry
inforce oftheOuro Preto Protocol, andmaythus, conclude agreements withcountries, groups and
international organizations under itsownname. MERCOSUL hassince become thecornerstone of
Brazil 's"building block" approach toeconomic integration under which theregional group isopen
tonegotiations withindividual countries andother trade groupings.Brazil WT/TPR/S/21
Page 27
39. MERCOSUL members haveadopted common positions inrenegotiations within theLAIA
framework andwereseeking toapproach hemispheric integration inaco-ordinated manner. Within
LAIA, thesocalled "four plusone"istheformat followed forrenegotiations. Such renegotiations
resulted inthesigning inDecember 1995 byMERCOSUL oftheAgreement ofEconomic
Complementarity withBolivia, intended toleadtoaMERCOSUL-Bolivia freetrade area.7An
Agreement wasalsosigned withChile inJune1996 which envisages thecomprehensive removal of
duties onMERCOSUL-Chile trade overaten-year period, except forasmall group ofproducts on
which tariffs willbephased outover15or18years. TheAgreement alsocovers areas suchasrules
oforigin, transport, investment, services, intellectual property anddispute settlement. Inaddition,
itcontains aprotocol onimproving theregion 'stransport andcommunications infrastructure. The
Agreement wasscheduled tocome intoforce on1October 1996.
40. Negotiations have commenced between MERCOSUL andVenezuela onthecreation ofa
free-trade zone; similar negotiations were tobegin inthenearfuture between MERCOSUL and
Colombia. The"four plusone"format would alsobethebasis forfree-trade agreements withother
South American countries. Such agreements areseenasthe"building blocks" ofaneventual South
American Free-Trade Area, tobeestablished within tenyears, which would alsoencompass sectors
suchasservices, intellectual property andinvestment.
41. MERCOSUL hasalsoparticipated actively intheformation ofaFreeTrade Area forthe
Americas (FTAA). Aprogramme forcompleting negotiations fortheFTAA bytheyear2005 was
agreed attheSummit oftheAmericas inDecember 1994; trade ministers developed theprogramme
further inJune1995atDenver. Subsequently, working groups havebeenconsidering issues concerning
market access, customs procedures, rules oforigin, technical barriers totrade, investment, sanitary
andphytosanitary measures, anti-dumping andcountervailing measures, andsmall economies. The
working groups presented reports andrecommendations attheCartagena Ministerial Meeting inMarch
1996, when additional working groups were created toexamine government procurement, services,
intellectual property andcompetition policy. MERCOSUL hasalsodefined acommon viewonthe
formation process fortheFTAA.
42. MERCOSUL member countries andtheUnited States completed anagreement inJune1991
(the"RoseGardenAgreement")forthepromotionoftradeandinvestment(GATT(1992)).MERCOSUL
hasalsoheldinformal contacts withtheSouthern African Development Community (SADC) andthe
Australia-New Zealand Closer Economic Relations Trade Agreement (CER). InDecember 1995,
MERCOSUL signed withtheEuropean Union aFramework Agreement forCommercial andEconomic
Cooperation, which marks thebeginning ofaprocess intended toleadtoaninter-regional association.
(d) Other arrangements
43. Brazil maintains non-preferential bilateral economic andtrade-related agreements, withseveral
countries.Brazil'spreviousco-operationagreementwiththeEuropeanCommunitieshasbeensuperseded
bytheMERCOSUL-EU agreement.
7Thisreplaced, forBrazil, theearlier agreement signed in1993.WT/TPR/S/21
Page 28Trade Policy Review
44. Brazil participates ininternational agreements oncocoa, coffee andsugar (Chapter IV(3) and
VI(2)); itisalsoamember oftheInternational Tropical Timber Agreements.
45. Brazil isabeneficiary under various Generalized System ofPreferences (GSP) schemes. The
authorities noted thatBrazil 'sexports haveprogressively beenexcluded fromanumber ofGSPschemes
assuchexports havereached thecompetitiveness criteria defined byGSP-granting countries, notably
theUnited States andtheEuropean Union. According totheauthorities, thenegative effect onthe
market position ofBrazilian products hadbeenmagnified bythemaintenance ofbenefits tocompeting
countries (Chapter IV(4)).
46. BrazilisamemberofnumerousinternationalorganizationsandparticipatesintheGlobalSystem
ofTradePreferencesamongdevelopingcountries(GSTP)andtheProtocolRelatingtoTradeNegotiations
Among Developing Countries oftheGATT (theCommittee ofParticipating Countries orCPC). The
authorities indicated thatnomodification hadbeenmade since 1992toBrazil 'sGSTP, although there
hadbeenanerosion ofpreferences duetoBrazilian liberalization efforts which hadresulted insome
40GSTP products nowbeing subject tozerom.f.n. tariff rates(seealsoChapter III(2)), norhadany
changesbeenmadetoCPCconcessions.TheaccessionofMERCOSULtotheGSTPandthesubstitution
ofMERCOSUL concessions forbilateral preferences werepartoftheagenda ofthesecond round of
GSTP negotiations inprogress in1996. Work onthecreation ofasingle MERCOSUL CPClistwas
expected tobegin inthenearfuture.
47. Brazilholdsregularbilateralconsultationsontradeissueswithitsmainnon-MERCOSULtrading
partners. Suchconsultations normally takeplace inthecontext ofofficial visits byheads ofStateor
ministers ofState. Insome cases, suchaswithCanada, theEuropean Union, andtheUnited States,
there areformal mechanisms forconsultation. With respect toconsultations withtheUnited States,
theBrazil-United States Trade Sub-group, setupin1976, hasnotmetsince 1993. However, areview
ofbilateral trade relations tookplace in1995 toidentify trade andinvestment opportunities and
possibilities forreducing oreliminating tariff andnon-tariff trade barriers. Since the1970s, Brazil
andtheEuropean Union have discussed trade issues within theBrazil-European Union Bilateral
Commission, which normally holds meetings onceayeartodealwiththewhole spectrum ofbilateral
relations. InJanuary 1995, Brazil andCanada signed amemorandum ofunderstanding concerning
theestablishment ofaJointEconomic andTrade Council toreplace theBrazil-Canada JointCommittee
created in1976. ThenewCouncil aimstosimplify theprocess ofbilateral consultations ontradeissues
andpromote trade andinvestment flows; ithelditsfirstmeeting inApril 1996.
(2) Investment Policy
(i) Investment policy objectives
48. Theauthorities have focused industrial policy onboosting investment, believing that
macroeconomic stability onitsownisnotsufficient toproduce appropriate levels oflong-term
investment. Themaintenets ofinvestment policy include restoring theState'sfinancial capacity, the
broad restructuring ofcapital markets, strengthening theofficial credit institutions, raising foreign direct
investment andadopting strategies toincrease thesavings rate(forexample through thereform ofthe
social security system). Specific objectives tobepursued include to:
- reduce the"Brazil Cost" (i.e.costs related tomicro-economic inefficiencies);
- complete theregulations required toimplement therecent constitutional reforms;
- continue theprivatization programme;
- reduce fiscal andfinancial costs oncapital goods;Brazil WT/TPR/S/21
Page 29
- foster theinternationalization ofdomestic firms; and
- create anagency toattract foreign investment andtechnology.
49. Brazil hasestablished animportant programme ofspecial concession toencourage investment
initsautomotive industry (Chapters III(6) andVI(4)).
(ii) Constitutional andlegalframework
50. Theprevious Trade Policy Review ofBrazil noted several State monopolies created bythe
Constitution aswellasanumber ofactivities consitutionally reserved fordomestic capital. These aspects
oftheConstitution have come under review inrecent years; forexample, in1995 anumber of
consitutional amendments wereapproved, eliminating thedistinction between "national companies"
and"national companies ofBrazilian capital" (BoxII.1). Asaresult, thespecial temporary protection
andbenefits allowed tonational companies ofBrazilian capital havealsodisappeared.
51. These constitutional amendments haveintroduced asignificant degree offlexibility forprivate
participation inareas suchashydroelectric power, petroleum, telecommunications, cabotage, mineral
exploration,internalnavigation,andconcessionsofairroutes.Inmanycases,suchflexibilityisachieved
byallowing private participation under theconcession régime established in1995(Box II.2). In1996,
theFederal Government wasfocusing onfinalizing theapproval process forlegislation necessary to
implement these constitutional reforms, together withapproval forfurther reforms relating tosocial
security, public administration, andthetaxsystem.WT/TPR/S/21
Page 30Trade Policy Review
BoxII.1: Recent constitutional amendments
The1988 Constitution provided foranumber ofState monopolies encompassing abroad range of
activities. TheConstitution granted theFederal Union amonopoly ontheexploration, extraction and
refining ofpetroleum, exercised through thenational oilcompany, PETROBRAS. Other activities were
constitutionally reserved fordomestic capital. Article 222oftheConstitution limited theownership of
publishing andbroadcasting firms tonative-born Brazilians orpersons whohave been naturalized citizens
foratleast tenyears. Foreign investors were also excluded from domestic shipping andairline
concessions. Article 178oftheConstitution excluded non-Brazilian vessels from coastal shipping and
internal navigation unless permitted bylawbecause ofpublic necessity.
Domestic airline concessions were restricted toBrazilian corporations whose head office orplace of
control waslocated inBrazil andwithatleast four-fifths ofthevoting shares inthehands ofBrazilians.
Article 199barred foreign capital from participating directly orindirectly intheprovision ofhealth care
services. Foreign capital wasalsorestricted inmining andmineral exploration; transitional Article 44
gave foreign-controlled companies already engaged inmining, mineral exploration, orproduction of
hydroelectric power inBrazil untilOctober 1992 togiveupeffective control overthose activities. Other
government monopolies included thedistribution ofelectricity, telecommunications, lotteries, railways
andports.
Five constitutional amendments, approved in1995, introduce adegree offlexibility intoseveral State
monopolies, opening them invarying degrees toprivate andforeign participation.
Amendment No.5opened thedistribution ofnatural gasthrough pipelines toprivate firms through public
concessions, ending themonopoly onlocal distribution enjoyed byindividual States.
Amendment No.6modified Articles 171and176, byeliminating thedistinction between "national
companies" and"national companies ofBrazilian capital" andallowing foreign companies toexploit
minerals andhydroelectric power under concessions orpermits (Box II.2). Theamendment defines
Brazilian companies asthose established under Brazilian law, with headquarters andadministration in
Brazil; itseeks toprovide allBrazilian firms withthesame treatment independently ofcapital origin.
Amendment No. 7opened cargo transport between Brazilian ports, eliminating theconstitutional
provision thatrestricted ittoBrazilian ships; theamendment alsoopens thepossibility ofprivate
companies operating air,land andother water transport services. Adraft billcontaining the
implementing regulations were under discussion inCongress inearly 1996 (Chapter VII(4)).
Amendment No. 8allowed forprivate sector participation intelecommunications. Implementing
regulations were under consideration byCongress inearly 1996 (Chapter VII(2)).
Amendment No.9eliminated thepetroleum monopoly, allowing private participation inresearch,
exploration, extraction, refining, import, export, andtransport viapipelines andships. Inmid-1996, the
authorities senttoCongress abillwhich would allow private companies tocompete withPETROBRAS
inpetroleum activities (Chapter VI(3).Brazil WT/TPR/S/21
Page 31
BoxII.2: TheConcessions Law
Therecent constitutional amendments oneconomic reform (Box II.1) foresee theparticipation ofprivate
interests inareas previously reserved totheState through aconcession orpermit régime. Thebasis for
suchrégimes isestablished inArticle 175oftheConstitution. Implementing regulations arecontained in
LawNo.8987 of13February 1995 (theConcessions Law), which. defines sector-specific criteria under
which theGovernment may authorize third parties toprovide public services. Concessions may be
granted only bypublic legal entities (Federal Government, States, theFederal District and
municipalities). Anypartnership orlegal entity, including public companies, canbeaconcessionaire.
Under theConcession Law:
- allconcessions aregranted foraspecific period andmust beoffered through public bidding;
- nosubsidies aretobeprovided, concessionaires bearing allrisks;
- users areallowed toparticipate inmonitoring theservices provided; and
- concessionaires arenolonger guaranteed afixed capital return.
Private companies mayalsoprovide public services through permits. Theconditions aresimilar tothose
ofaconcession, withsome exceptions:
- apermit isgranted foranundefined period, butmayberevoked bythegranting authority atany
time;
- thegranting ofapermit does notrequire apublic bidding process; and
- private individuals maybegranted apermit, butnotaconcession.
TheConcessions Law establishes therights andobligations ofgranting authorities, concessionaires or
permit holders, andusers, aswellasfines andpenalties. According tothenewcriteria, prices fixed
through thetendering process areanelement inthefactors usedinchoosing thewinning bid; prices may
beadjusted only inaccordance with rules established inthecallforbids andinthecontract. The
Concessions Lawthuschanges thehistorical practice ofassuring afixed return ontotal investment. In
general, alternative criteria forchoosing aconcessionaire include thelowest userfee,thehighest bidto
thegranting authority, oracombination ofboth.
52. There isnosingle lawcovering foreign direct investment inBrazil. Themain legislation in
thisfieldisLawNo.4131 of3September 1962, asmodified byLawNo.4390 of29August 1964
andsupplemented byDecree No.55762 of17February 1965. Under thislegislation, foreign investment
mustberegistered inorder torepatriate thecapital ortoremit profits ordividends. Registration, which
isautomatic andinvolves noscreening process, isrequired within 30daysofbringing funds intothe
country. Operational aspects offoreign investment arecontrolled bytheCentral Bank, which also
issues Certificates ofregistration. Central Bank Resolution No.2275 of30April 1996 established
pecuniary penalties fornewinvestments notregistered within 30daysofentry intoBrazil; investments
prior totheResolution arenotsubject tothiscondition.
53. Direct investments canbemade intheformofcurrency ortangible goods, suchasmachinery
andequipment; investments intheform ofgoods require theprior approval oftheCentral Bank.
Direct investments mayalsotaketheformofintangible goods, suchastrademarks, patents orcredits
forthepayment oftechnology, provided these arerecognized bytheNational Institute ofIndustrial
Property (INPI).
54. Portfolio investment isregulated mainly byResolution No.1289 of20March 1987. Such
investment maytakevarious forms, including participation intheprivatization process, investmentWT/TPR/S/21
Page 32Trade Policy Review
companies, investment funds, diversified stockportfolios, acquisition ofdebentures onthestockmarket,
anddepository receipts.8Theinitial investment must berequested within fivedays; subsequent
investments arerecorded through theCentral Bank Information System (SISBACEN).
55. Brazil hasrecently introduced anumber ofmeasures intended tomake foreign investment more
attractive, including theconsitutional amendments approved byCongress in1995andtheConcessions
Law(Boxes II.1andII.2). Theauthorities arealsogiving priority totheliberalization ofcapital flows
byreducing thescope fordiscretionary administrative decisions andmaking decisions more rapid and
transparent. Measures adopted inthatregard include moreconsistent criteria forregistering investments
andgoods, registering foreign investments intheformofpatents ortrademarks andthere-investment
ofprofits from financial revenues.
56. TheCentral Bank ofBrazil isalsomaking changes toensure thatnodiscrimination occurs
inthetreatment offoreign capital. Changes haveaffected thetreatment offinancial revenue, theuse
ofnominal bookvalues andtheregistration ofrealestate investments. TheBank hasalsosought new
mechanisms toobtain external resources, suchasopening investment inBrazil 'sstockexchange markets
toMERCOSUL residents andthecreation of"foreign capital -fixed income funds".9
57. Companies withcapital from foreign direct investment receive thesame taxtreatment as
companies withonlyBrazilian capital. Profits anddividends from direct investment have, since
January 1996, beenexempt fromwithholding tax,previously charged at15percent(Law No.9249
of26December 1995). Forportfolio investment, capital repatriation isexempt fromincome taxand
canbeprocessed automatically, while capital gains areexempt fromalltaxes. Profits anddividends
onportfolio investment aresubject totaxat10percentonvariable income and15percentonfixed
income. TheFinancial Operations Tax(IOF) applies at7percenttoforeign currency invested infixed-
income funds and5percentotprivatization funds.
8Details onBrazil 'sprivatization programme aregiven inChapter V.Depository receipts areoverseas
certificates issued when aforeign investor acquires stocks inaBrazilian company andreleases thatstock for
custody inaBrazilian bank, which theninstructs thedepository bankabroad toissue thecorresponding depository
receipt inforeign currency.
9Foreigncapital-fixedincomefundsarejointownership,fixed-incomeinstrumentsinwhichonlylegalpersons
established abroad mayparticipate.Brazil WT/TPR/S/21
Page 33
Annex II.1 Dispute Settlement cases, January 1992 -August 1996
Description ofcase Raised
by/againstActions taken Outcome
General Agreement (Articles XXII andXXIII oftheGATT)
Cases leading topanels
Non-rubber footwear from Brazil Brazil/
United StatesPanel report (January 1992),
report adopted (June 1992),
implementation issues raised by
Brazil andothers
(September 1992-October 1994).Report found thattheUnited States
haddenied m.f.n. treatment with
respect toacountervailing duty
order onfootwear from Brazil.
U.S. measures affecting the
importation, internal saleanduse
oftobaccoBrazil and
others/
United StatesRequest forconsultations by
Brazil andothers
(September 1993),
consultations held
(October 1993),
request forapanel byBrazil and
others (December 1993),
panel established
(January 1994),
Panel report (August 1994).ThePanel concluded thatprovisions
intheU.S. 1993 Budget Acton
internal charges andquantitative
regulations were inconsistent with
Article III(equal treatment of
imported anddomestic products).
Consultations
U.S. restrictions onimports of
wool suitsfrom Brazil.Brazil/
United StatesRequest forconsultations
(April 1992),
introduction ofrestraints
(May 1992),
consideration oftheissue bythe
Textiles Surveillance Body
(June 1992),
useofgood offices byDirector
General (February 1993).Matter resolved (May 1993).
Subsidies Code (Articles VI,XVIandXXIII oftheGATT)
Cases leading topanels
Duties onnon-rubber footwear
from BrazilBrazil/
United StatesReport adopted (June 1995). Brazil ceased tooppose theadoption
ofthereport aftertheunderlying
issue disappeared.
Provisional anddefinitive duties
onmilkpowder andcertain types
ofmilkEU/Brazil Request forapanel
(December 1992),
report ofthePanel
(January 1994),
report adopted (April 1994).Panel concluded thatBrazil 's
imposition ofduties wasinconsistent
withtheCode andrecommended
thatthemeasures bebrought into
conformity.
Consultations
Investigation onwheat from
CanadaCanada/
BrazilConsultations (October 1993).
Investigation onwheat from the
United StatesUnited States/
BrazilConsultations (November 1992).
Annex II.1cont'dWT/TPR/S/21
Page 34Trade Policy Review
Description ofcase Raised
by/againstActions taken Outcome
Anti-Dumping Code (Article VIoftheGATT)
Cases leading topanels
Cotton yarnfrom Brazil Brazil/EU Request forconsultations
(October 1993),
conciliation meeting
(December 1993),
establishment ofapanel
(April 1994),
report ofthePanel (July 1995).ThePanel concluded thatBrazil had
notestablished thattheEUmeasures
were inconsistent withthe
Agreement.
Consultations
Cotton fabric toMexico Brazil/
MexicoRequest forconsultations
(October 1992).
Electric transformers toMexico Brazil/
MexicoRequest forconciliation
(March 1993).
Anti-dumping andcountervailing
actions onsteelproductsBrazil/
United StatesConsultations (February 1993),
request forfurther consultations
(July 1993).
Peaches originating inGreece EU/Brazil Request forconsultations
(February 1994).
Vacuum blood collection tubes
from theUnited StatesUnited States/
BrazilRequest forconsultations
(October 1995).
Dispute Settlement under theWTO
Standards forreformulated
gasolineBrazil,
Venezuela/
United StatesPanel request byVenezuela
(April 1995),
consultations between Brazil and
theUnited States (May 1995),
request forapanel from Brazil
(May 1995),
Brazil 'scomplaint examined by
Panel requested byVenezuela
(May 1995),
Panel report (January 1996),
appeal bytheUnited States to
theAppellate Body
(February 1996), Appellate Body
report (April 1996).Report found U.S. regulations tobe
inconsistent withGATT Article III:4
(equal treatment ofimported and
domestic products); theAppellate
Body recommended thatthe
United States berequested tobring
itsrules intoconformity withthe
General Agreement.
Countervailing dutyondesiccated
coconutPhilippines,
SriLanka
/BrazilConsultations withSriLanka
(October 1995),
request forconsultations by
Philippines (November 1995),
Philippines 'request forapanel
(February 1996),
Panel established (March 1996).
Export financing foraircraft Canada/Brazil Request forconsultations (June
1996)
Automotive trade andinvestment
measuresCanada,
European
Union, Japan,
Korea, United
States/BrazilRequest forconsultations -Japan
andtheUnited States -orjoint
consultations (July andAugust
1996).