. /.RESTRICTEDWORLD TRADE
ORGANIZATIONG/SG/Q2/BRA/8
26 October 2000
(00-4457)
Committee on Safeguards Original:  English
NOTIFICATION UNDER ARTICLE 12.1(b) OF THE AGREEMENT ON
SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT
THEREOF CAUSED BY INCREASED IMPORT
NOTIFICATION PURSUANT TO ARTICLE 12.1 (c)
OF THE AGREEMENT ON SAFEGUARDS
Replies to Questions posed by the UNITED STATES1
Regarding the Notification of BRAZIL2
The following communication, dated 24 October 2000, has been received from the Permanent
Mission of Brazil.
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Q1. We are interested in hearing from the Brazilian delegation how the devaluation of the
Real, amounting to roughly 35 per cent, was taken into account in making its determination to
extend the safeguard measure and in making its decision regarding the safeguard rates to be
applied.  Was this item discussed in the report of the authorities investigating the extension of
the safeguard?
Reply
The investigation was conducted along the second semester of 1999 and the serious injury
analysis covered the period extending from 1996 until the first semester of 1999.  The devaluation of
the Real took place in January 1999.  Since the data of the first half of 1999 were fully taken intoaccount, the effects of the devaluation were duly reflected in the results of the investigation.  One
should underline, however, that once ensuing inflationary pressure and further exchange rate
fluctuation are computed, the devaluation of the Re al along 1999 settles at a level well below the one
suggested by the US in its question.
Q2. Please explain why the analysis is based on data for only two time periods, within the
initial safeguard relief period.  Specifically, wh y was the analysis based on data for only two
time periods within the initial safeguard re lief period:  1997 rather than 1996, and 1998 rather
than 1999?  We note that the safeguard level was at its highest, and imports declined the most in
1996.  Given the importance of the Real devaluation, why did the authorities not consider 1999data for imports and assessment industry conditions?
                                                     
1 G/SG/Q2/BRA/7
2 G/SG/N/8/BRA/2-G/SG/N/10/BRA/2 & Suppl.1G/SG/Q2/BRA/8
Page 2
Reply
The domestic industry serious injury analysis was not limited to only two time periods.  It
covered the period from 1996 to the first semester of 1999, that is, the full period of the initial
safeguard relief:  1996/1997, 1997/1998, and the first half of 1998/first half of 1999.
As to the point the US raises concerning the fact that the safeguard level was at its highest,
and imports declined the most in 1996, Brazil considers that this trend is to be expected.  After all, the
safeguard measure is precisely a temporary relief mechanism aimed at reducing the levels of the
injurious imports to a degree that would allow the domestic industry to invest and recover from the
situation that gave rise to the safeguard measure.
Finally, Brazil notes that first semester 1999 import data were fully taken into account, as
indicated in documents G/SG/N/8/BRA/2/Suppl.1 a nd G/SG/N/10/BRA/2/Suppl .1.  Brazil also recalls
that the investigation took place in the second half of 1999 and that data for that semester was not then
available.
Q3. Looking at the value data on imports provided  in table 2 of the notification, there is a
decline in imports during the safeguard period, not an increase.  The small increase for 1998 has
already been overtaken by the sharp decrease in imports following the real devaluation.  And
even after their slight rise in 1998, imports re mained 35 per cent below their pre-safeguard level
in 1995.  Please explain the justification for the decision to extend a safeguard measure whenimports are declining.
Reply
The only conclusion that can be drawn from the data in table 2 is that the safeguard measure
was effective.  As intended, it interrupted the continuous rise in toys imports, which started in 1995.
Such trend reversion allowed the beginning of the revitalization of the toys domestic industry.
However, as pointed out in the above-mentioned notification to the WTO, although the domestic
industry has shown signs of some recovery as a consequence of the safeguard relief and of the
adjustments made so far, it was found, as provided for in the Safeguards Agreement, that the measure
continues to be necessary to prevent and remedy serious injury and to permit the sustainability of the
ongoing adjustment and recovery process.
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