WORLD TRADE
ORGANIZATIONG/SG/N/8/BRA/2/Suppl.1
G/SG/N/10/BRA/2/Suppl.1
9 March 2000
(00-0906)
Committee on Safeguards
NOTIFICATION UNDER ARTICLE 12.1(b) OF THE AGREEMENT ON
SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT
THEREOF CAUSED BY INCREASED IMPORTS
NOTIFICATION PURSUANT TO ARTICLE 12.1(c)
OF THE AGREEMENT ON SAFEGUARDS
BRAZIL
Supplement
The following notification, dated 23 February 2000, has been received from the Permanent
Mission of Argentina.
_______________
I have the honour to write in my capaci ty as representative of the MERCOSUR
pro-temporary Presidency in order to notify to the Committee on Safeguards, and on behalf of the
Federative Republic of Brazil, the intention of the Brazilian authorities to extend the safeguard
measure applied to imports of toys.  A copy and unofficial translation into English of Interministerial
Order No. 19 of 22 December 1999 and its Annex are attached.
The notification of the initial application of this safeguard measure can be found in
document G/SG/N/10/BRA1 – G/ SG/N/11/BRA1 of 13 January 1997.
This notification is being made pursuant to Article 12.1(c) of the Agreement on Safeguards.G/SG/N/8/BRA/2/Suppl.1
G/SG/N/10/BRA/2/Suppl.1
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UNOFFICIAL TRANSLATION
MINISTRY OF DEVELOPMENT, INDUSTRY AND FOREIGN TRADE
Interministerial Order No. 19, dated 22 December 1999
THE MINISTER OF STATE OF THE MINISTRY OF DEVELOPMENT, INDUSTRY AND
FOREIGN TRADE AND THE SUBSTITUTE MINISTER OF STATE OF THE MINISTRY OF
FINANCE, using the prerogatives conferred upon them by Article 87, sole paragraph, Clause II of theConstitution, and in accordance with the provisions of Articles 1, 2, 8, Clause I, and Article 9,
paragraphs 2 and 6 of Decree No. 1488, dated 11 May 1995, altered by Decree No. 1936, dated
20 June 1996, keeping in mind the provisions of the Agreement on Safeguards, approved by
Legislative Decree No. 30, dated 15 December 1994, promulgated by Decree No. 1355, dated
30 December 1944, and
Considering that which is contained in th e Process MDIC/SAA/CGSG 52100-000062/99-73 and the
Opinion No. 12, dated 16 December 1999, elaborated by Department of Commercial Defence –
DECOM of the Foreign Trade Secretariat – SECEX of the Ministry of Development, Industry and
Foreign Trade – MDIC, as well as the fact that it was verified that there is evidence that the safeguard
measures applied to the import of toys, classified under the tariff codes 9501, 9502, 9503 and the sub-
code 950410 of Mercosul's common designation (NCM), is still necessary to prevent serious injury
and that the toy industry is undergoing a process of adjustment, in accordance with the Annex to this
Order, be it resolved:
Article 1
To conclude the revision with the extension of the period of application of the safeguard
measure to imports of finished toys, in the form of an increase in the aliquot of import tariffs, by
means of an additional charge through the Common External Tariff – TEC.
Article 2
The safeguard measure of the present Order will apply only to the finished toys hereafter
related, classified according to their respectiv e tariff codes and to the following chronology:
Addition to TEC (%) NCM/SH Description of the product
01.01.2000
to
31.12.200001.01.2001
to
31.12.200101.01.2002
to
31.12.200201.01.2003
to
31.12.2003
9501.00.00 Wheel toys conceived to be
mounted by children, buggiesfor dolls, except for parts and
components for the manufacture
of toys in this position14 13 12 11
9502.10.10 Dolls even when dressed, with
windup or electric mechanisms,except for parts and componentsfor the manufacture of toys inthis position14 13 12 11
9502.10.90 Other dolls, even when dressed,
except for parts and components14 13 12 11G/SG/N/8/BRA/2/Suppl.1
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Addition to TEC (%) NCM/SH Description of the product
01.01.2000
to
31.12.200001.01.2001
to
31.12.200101.01.2002
to
31.12.200201.01.2003
to
31.12.2003
for the manufacture of toys inthis position
9502.91.00 Dresses and their accessories,
shoes and hats, except for parts
and components for the
manufacture of toys in thisposition14 13 12 11
9502.99.00 Other parts and accessories,
except for parts and componentsfor the manufacture of toys in
this position14 13 12 11
9503.10.00 Electric trains, including the
tracks signals and otheraccessories, except for parts andcomponents for the manufactureof toys in this position14 13 12 11
9503.20.00 Miniature models, even
animated, except for the
subpositio n 9503.1014 13 12 11
9503.30.00 Other sets and toys for
construction14 13 12 11
9503.41.00 Toys representing animals or
non-human creatures, withfilling14 13 12 11
9503.49.00 Other toys representing animals
or non-human creatures14 13 12 11
9503.50.00 Instruments and musical
apparatus for playing, except for
parts and components for the
manufacture of toys in thisposition14 13 12 11
9503.60.00 Puzzles 14 13 12 11
9503.70.00 Other toys, presented in
drawings or panoplies14 13 12 11
9503.80.00 Other toys and electric,
motorized models, except for
parts and components for the
manufacture of toys in thisposition14 13 12 11
9503.80.90 Other toys and motorized
models14 13 12 11
9503.90.10 Other friction toys, windup or
spring, except for parts andcomponents for the manufacture
of toys in this position14 13 12 11
9503.90.90 Other toys, except for parts and
components for the manufactureof toys in this position14 13 12 11
9504.10.10 Video games, except for parts
and components for themanufacture of toys in this
position14 13 12 11G/SG/N/8/BRA/2/Suppl.1
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Addition to TEC (%) NCM/SH Description of the product
01.01.2000
to
31.12.200001.01.2001
to
31.12.200101.01.2002
to
31.12.200201.01.2003
to
31.12.2003
9504.10.91 Cartridges, except for parts and
components for the manufactureof toys in this position14 13 12 11
9504.10.99 Other parts and accessories,
except for parts and components
for the manufacture of toys inthis position14 13 12 11
Article 3
Considering that which is contained in Article 9 of the Safeguard Agreement, promulgated by
Decree No. 1355/94, the dispositions of the forego ing Article do not apply to imports originating in
the following developing countries Members of the World Trade Organization – WTO:  Antigua &
Barbuda;  Bangladesh;  Bolivia;  Chile;  Colombia;  Singapore;  Korea, Rep. of;  Ecuador;  the
Philippines;  Guatemala;  India;  Macau, China;  Malaysia;  Mexico;  Panama;  Pakistan;  Paraguay;
Senegal;  Sri Lanka;  Uruguay;  and Venezuela.
Article 4
This Order will enter into force on the date of its publication.G/SG/N/8/BRA/2/Suppl.1
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ANNEX
On 20 August 1999, the Brazilian Association of Toy Manufacturers – ABRINQ – hereafter
called "petitioner", registered at DECOM a petition asking for the extension of the safeguard
measures applied for the sector of toys by the Interministerial Circular MDIC/MF 21, dated
19 December 1996, published in the Official Federal Bulletin, dated 30 December 1996.
The petitioner – as the other State Parties of Mercosul – was informed, by means of Official
Document DECOM/GEMAC-99/1377, date d 30 August 1999, of the admissibility of the petition as
well.
An analysis of available information confirmed the persistence of serious injury to the
domestic industry of toys, as well as that the i ndustry of toys was in a process of adjustment,
according to which is contained in the Opinion DECOM No. 10/99.  Therefore, the Secretariat of
Foreign Trade SECEX published in the Official Federal Bulletin, dated 29 September 1999, theCircular SECEX No. 21, dated 24 September 1999, making it known the opening of the revision of
the safeguard measures applied to the imports of toys.
DECOM notified the petitioner about the decision taken, by means of Official Document
DECOM/GEMAC-99/1639, dated 1 October 1999, and se nt simultaneously a questionnaire to be
fulfilled within 15 days by the companies mentioned in that notification and a copy of Circular
SECEX No. 21/99.
On 2 November 1999, the Committee on Safeguards of the WTO was notified of the opening
of the revision of the safeguard measure applied to the imports of toys by the Pro Tempore Presidencyof Mercosul on behalf of Brazil.
On 2 December 1999, the Pro Tempore Presidency of Mercosul notified the Committee on
Safeguards of the WTO of the intention of the Brazilian Government to extend the safeguard
measures and on its disposition to carry out consultations.
A. THE REVISION
After the opening of the revision, within the period of 20 days established in item 3 of
Circular SECEX 21/99, the following interested parties were qualified and indicated their legal
representatives:  Mattel do Brasil Ltda., importer of toys;  Mattel Inc., North-American producer and
exporter of toys;  Toy Industries of Europe – TIE, representative of European Toys Manufacturers;
the European Commission, through the Delegation of the European Commission in Brazil;  the
companies Lego do Brasil Ltda. and Chicco do Brasil Ltda., importers of toys;  Toys Manufacturers
of America Inc. – TMA, the Association of North-American Producers and Sellers of Toys;  the
Embassy of the United States of America in Brazil;  the Embassy of the Peoples Republic of China in
Brazil.
Once opened the investigation, there was a verification in loco  of the information that had
been given about the period from 1996 to the first semester of 1999, in eight companies that in 1998
represented 66.7 per cent of the net revenue of domestic industry, specified by their importance and
sector of activity.
In the follow-up of the safeguard measure and in  the values presented in order to request the
extension of the measures, DECOM identified some differences between the data presented and the
accounting records.  Consequently, DECOM asked fo r additional information from all companies thatG/SG/N/8/BRA/2/Suppl.1
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make up domestic industry regarding amounts and values from 1996 to the first semester of 1999,
accompanied by documents.  All the companies that take part in domestic industry sent the
information requested in the foreseen period.
B. THE PRODUCT
The product which is the object of the revision is toys, classified under the codes 9501, 9502,
9503 and in the sub-code 9504.10, presenting different forms (balls, dolls, crossword puzzles, video
games, etc.), with different price levels among the various types of toys.
The evolution of import tax for the tariff items here considered, taking into account the
common external tariff and its alteration by Decree No. 2376, dated 12 November 1997, published on13 November 1997, as well as the additional aliquots established by Interministerial Orders MICT
No. 9/96 and No. 21/96, was the following:  20 per cent from 1 January 1995 to 3 July 1996;  70 per
cent from 4 July 1996 to 31 December 1996;  63 per cent from 1 January 1997 to 12 November 1997;
66 per cent from 13 November 1997 to 31 December 1997;  58 per cent in 1998;  and 38 per cent in
1999.
B.1 THE "DIRECTLY COMPETING PRODUCT" AND DOMESTIC INDUSTRYArticle 4, paragraph 1, clause "c" of the Ag reement on Safeguards, promulgated by Decree
1355/94 defines domestic industry as a set of producers of similar goods or those directly competingwith the products under analysis.
Therefore, as it has been understood since the beginning of the investigation that led to the
application of the safeguard measures, the expression "directly competing products" refers to those
that dispute the same market, which serve the same purpose, that is, products that are near substitutesamong themselves.
Thus, domestic industry was defined as the same sample of 21 producers of toys taken into
account in the investigation that led to the application of the safeguard measures, which represented in
1998 52.6 per cent of the amount of national production.
C. SERIOUS INJURY OR THREAT THEREOF
C.1 IMPORTS
It was verified that from 1995 to 1996, from 1996 to 1997 and from 1997 to 1998, imports in
quantity decreased 25.2 per cent and increased 19.2 per cent and 47.1 per cent respectively, resulting
in a decrease of 31 per cent from 1995 to 1998.
Imports in terms of value dropped from 26.1 per cent to 23.1 per cent from 1996 to 1997 in
relation to the previous year and grew 17.4 per cent in 1998 in relation to 1997.  Therefore, from 1995
to 1998 there was a fall of 33.2 per cent in the imports in value.
The evolution of these data after the application of the safeguard measures from 1996 to 1998
showed that imports in value decreased 9.7 per cent, while in quantity they increased 75.2 per cent,
reflecting the drop of 48.4 per cent in the average unity value of the finished imported toys.
In the analysis of the first semester of 1999 compared to the first semester of 1998, it was
verified that imports in quantity and in value decreased 68.2 per cent and 12.5 per cent respectively,
and there was a reversal in the fall of the average unity value, which increased 175.4 per cent.G/SG/N/8/BRA/2/Suppl.1
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Imports originating exclusively in WTO countrie s showed the same variation verified in the
import of toys from other sources.  There was a decrease in quantity of 44.4 per cent from 1995 to
1996, a growth of 22.5 per cent from 1996 to 1997 and an increase of 78.9 per cent from 1997 to1998.  Imports in value from these countries dropped 37.6 per cent from 1995 to 1996, 4.5 per cent
from 1996 to 1997, and grew 2 per cent from 1997 to 1998.
During the period in which the safeguard measure was in force, the evolution of imports from
Members of the WTO from 1996 to 1998 showed an accentuated drop in average import prices of
55.5 per cent compared to the decrease of 45.2 per cent in average prices of the imports as a whole.
An analysis of imports originating in the WTO Members in the first semester of 1999
compared to the first semester of the previous year  showed that their share in the imports grew 5.5 per
cent in quantity and dropped 14.3 per cent in value.
C.1.1 PARTICIPATION OF IMPORTS IN APPARENT SALES
It was verified that apparent sales of toys fell during the whole period:  4.3 per cent from 1995
to 1996;  5.8 per cent from 1996 to 1997 and 4.4 per cent from 1997 to 1998.  Imports excluding
Mercosul dropped 6.9 per cent, 18.4 per cent and grew 10.5 per cent respectively.  Therefore, the
evolution of imports in apparent sales excluding Mercosul was the following:  25.4 per cent in 1995,24.7 per cent in 1996, 21.4 per cent in 1997, and in 1998 it returned to the level of 24.7 per cent.
In the first semester of 1999 compared to the previous year, imports excluding Mercosul fell
12.5 per cent, while the market decreased 41.1 per cent, which led to a growth of 11.6 per cent in the
share of imports in the apparent sales excluding Mercosul.
It should be emphasized that imports originating in Mercosul countries had a share close to
1 per cent in apparent sales during the whole period which was examined.
C.1.2 IMPORTS VERSUS DOMESTIC PRODUCTION
The relation imports versus domestic production grew 24.6 per cent from 1995 to 1996,
dropped 27.5 per cent and increased 7.3 per cent in 1997 and in 1998 compared to the previous year.
In the first semester of 1999 in relation to the same period of the previous year, the ratio
imports versus domestic production grew 18.9 per cent because of the strong decrease in the volume
of domestic production.
C.2 DOMESTIC INDUSTRY
C.2.1 SHARE OF DOMESTIC INDUSTRY IN APPARENT SALES
It was verified that domestic industry kept its share in apparent sales from 1996 to 1997 and
lost 3.7 per cent from 1997 to 1998.  It should be emphasized that the decrease in the share of
domestic industry in the internal market of toys from 1997 to 1998 cannot be attributed to other
domestic producers, whose share remained stable during the same period.
Besides that, when it was observed what occurred in the first semester of 1999 in relation to
the previous year, it was verified that the share in apparent sales of the domestic industry decreased
4.7 per cent, while that of the other producers fell 6.7 per cent.G/SG/N/8/BRA/2/Suppl.1
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C.2.2 INSTALLED CAPACITY
In this item it is worth recalling that, as it was registered in Opinions DECOM No. 17/96 and
10/99, the analysis of the evolution in the utilization of the installed capacity could not be carried outin order to evaluate the serious injury or the threat thereof at the moment of the application of the
safeguard measure.  Although it had been taken into account in the questionnaires sent to domestic
industry, the measurement of the installed capacity was not viable as regards the firms because of the
great flexibility of  the mix in production.  In the same line of production differentiated types of
product it can be manufactured differentiated types of products that may absorb greater or lesser
quantities of raw material and hours worked, which led producers to different evaluations of the
measurement of this capacity.
Given this particularity of the industry of toys  the analysis of the evolution in the installed
capacity was not carried out.
C.2.3 PRODUCTION EVOLUTION
It was verified that the quantity produced grew 17.8 per cent from 1996 to 1997 and dropped
8.5 per cent from 1997 to 1998.  Therefore, the volume of production of domestic industry increased
7.8 per cent.  The production value in its turn showed a growth of 0.5 per cent from 1996 to 1997 and
a decrease of 15.3 per cent  from 1997 to 1998.  From 1996 to 1998, the value produced fell 14.9 percent.
In the first semester of 1999 compared to the same period of the previous year there was a
decrease of 13.6 per cent in the quantity produced and of 51.2 per cent in the production value.
C.2.4 EVOLUTION OF SALES IN THE DOMESTIC MARKET
It was observed that domestic sales in quantity grew 10.6 per cent in 1997 compared to the
previous year and fell 5.4 per cent from 1997 to 1998.  The revenue from domestic sales had a
different behaviour, having dropped 5.6 per cent from 1996 to 1997 and 12.3 per cent from 1997 to
1998, which led to a reduction in the domestic industry revenue of approximately US$53.1 million
(fifty-three million one hundred thousand North American dollars) from 1996 to 1998.
In the first semester of 1999 in relation to the first semester of 1998, the quantity sold in the
domestic market by domestic industry fell 7.1 per cent, while the revenue dropped 48.3 per cent.
The evolution in domestic sales by domestic industry pointed out that there was a decrease of
14.7 per cent in average prices of products sold from 1996 to 1997 and a new decrease of 7.4 per cent
from 1997 to 1998.  As it was observed in the revision, this is due to the fact that domestic industry
started producing a mix of production of lesser unitary value in the period from 1996 to 1998.  It is
worth noting the fall of 21 per cent in average prices of domestic industry in the same period.
C.2.5 DEVELOPMENT OF EXPORTS
The exports of toys represented a reduced proportion of domestic production in the period
under analysis.  A growth in quantity of 1.2 per cent was observed in the exports in 1997 compared to
1996.  From 1997 to 1998 there was a growth of 57.9 per cent, which resulted in an increase in theexports of 58.9 per cent from 1996 to 1998.  In the first semester of 1999 there was an expressive drop
in exports.G/SG/N/8/BRA/2/Suppl.1
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C.2.6 STOCK DEVELOPMENT
Stocks of finished toys decreased 27.5 per cent from 1995 to 1996, increased 2.4 per cent
from 1996 to 1997 and fell 24.2 per cent from 1997 to 1998.  In the first semester of 1999, there was agrowth in stocks of 11.3 per cent in relation to December 1998 but if it is compared to the first
semester of 1998 there was a reduction of 31.6 per cent.
C.2.7 DEVELOPMENT OF EMPLOYMENT AND PRODUCTIVITY
The toy sector has an intensive absorption of labour force and presents an accentuated
periodicity with sales concentrated on the last three months of the year, because of Children's Day andChristmas, which leads to a growth in production in the second semester.  Therefore, it was verified
that on average the number of employees in the factories in the second semester was higher than that
of the first semester – approximately 23 per cent regarding those directly linked to production and
16 per cent on the whole.
Considering the first semester of 1999, the number of employees linked to production grew
1 per cent in relation to the first semester of 1998 and 9.6 per cent in comparison to the same period of
1996, when the safeguard measures were not in force.
As regards the total of employees, there was a decrease of 2.2 per cent from the first semester
of 1998 to the first semester of 1999 and a decrease of 7.4 per cent in comparison to the same period
of 1996, which is directly related to the adjustment carried out by the firms in order to rationalize
expenses, dismissing employees linked to the sector of sales and contracting independent sales
representatives and outside firms.
An analysis of the index resulting from the ratio between the production of toys and the
number of employees directly linked to production showed an average productivity index of 7.5 in the
years from 1996 to 1998.  Nevertheless, considering only the first semester of the years 1998 and
1999, in which production was smaller, the average of the productivity index showed a retraction.
The reduction in the number of employees has taken place in quantities inferior to the fall of
production:  from 1997 to1998, there was a decrease of 8.6 per cent in the production and of 7.2 per
cent in the number of employees;  from the first semester of 1998 to 1999 production decreased13.6 per cent and the number of employees fell only 2.7 per cent.
C.2.8 EVOLUTION OF TOTAL SALES
From 1996 to 1998, there was a decrease in the revenue of the domestic industry of toys of
around 17.4 per cent and a growth of 5.3 per cent in the quantity sold.  Between 1996 and 1997, the
revenue fell 6.1 per cent, while the quantities sold grew 10.6 per cent.  Between 1997 and 1998, the
revenue of domestic industry decreased 12.1 per cent and the quantities sold fell around 5.4 per cent.
Comparing the first semester of 1999 to the first semester of 1998, it is verified a fall of
48.5 per cent in the revenue of domestic industry, while quantities sold fell only 7.1 per cent.
The fact that the fall in the revenue of the sector was more significant than the fall of
quantities sold could be explained by the alteration in the mix of production of toys, as observed
during the revision.  Taking into account the great flexibility of the installed capacity of the firmsdomestic industry started producing a higher quantity of lesser valued toys.G/SG/N/8/BRA/2/Suppl.1
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C.2.9 PRICE EVOLUTION
Considering the characteristics of the competition in the sector, which encompasses a wide
range of types of goods and the frequent launching of new ones each year, and consequently by theshort life of their models, the elaboration of series of prices by type of product was not feasible.
The alternative found was to carry out a comparative analysis of the evolution in the General
Index of Prices – IGP and the Index of Toys Prices  – IPB, both of them from the Foundation Institute
for Economic Research – FIPE, of the University of  São Paulo, and the index of the average monthly
prices of domestic industry, obtained by the ratio between the revenue and the quantity sold by
domestic industry.
A tendency towards the fall in the prices of the sector has been clearly seen.  It is worth
noting that a fall in the average value of the products sold in the domestic market by domestic
industry from 1996 to the first semester of 1999 is compatible with the declining tendency of prices
pointed out by IBP/FIPE.
C.2.10 ECONOMIC AND FINANCIAL ANALYSIS
The economic and financial analysis was based on the data extracted from the patrimony
accounts and the demonstrative accounts of the firms results, in which the share of toys manufacturedinternally corresponded to at least 50 per cent of  the net income from the self-manufactured products
in 1998.  The reason for this selection was that the share of other production lines, as well as that of
the sale of imported goods compared to the line of toys, in high percentages, would disqualify the
analysis of the firms' results for the purpose of evaluating of the development of the domestic industry
of toys.  Thus, of the 21 companies that make up the domestic toy industry, four were removedbecause they did not meet this requirement and one did not elaborate the patrimony accounts.
Therefore, the total amounted to 16 firms.
The share of the cost of product sold in the operational net income grows 3.8 per cent from
1996 to 1998.  In 1997, in relation to the previous year, the cost of the product sold in the operational
net income falls 0.4 per cent and from 1997 to 1998 the share grows 4.2 per cent, resulting in a
reduction of the gross margin of 1996 in relation to 1998.
It was verified that gross and operation margins excluding financial results presented the same
behaviour when the years 1996 and 1998 are compared, that is, a fall of 3.8 per cent and 1.2 per cent
respectively.  Yet operational and net margins grew 4.2 per cent and 2.6 per cent.  It was also verified
by the comparison of operational margins that the financing results continued to have a negativeimpact on the results of this sector.
In 1997 in relation to the previous year there was an increase in the gross margin of 0.4 per
cent, in the operational margin of 8.6 per cent and in the net margin of 3.3 per cent.  The only fall –
0.2 per cent – took place in the operational margin excluding financial results, which reflected thegood results obtained by the sector of toys.
In 1998 in comparison to 1997, gross margin fell 4.2 per cent, operational margin decreased
4.4 per cent, operational margin excluding financial results dropped 1 per cent, and net margin fell
0.7 per cent.
It is worth noting that net and operational margins remained negative during the whole period
analysed.G/SG/N/8/BRA/2/Suppl.1
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The index of current liquidity grew during the whole period under analysis.  It increased
15.3 per cent from 1996 to 1998, which means an improvement in the capacity of the sector to pay its
debts in the short term.
The index of general indebtedness of the sector of toys grew during the whole period under
analysis.  It is worth noting that the indebtedness profile of the sector from 1996 to 1998 was altered.
In 1996 the short term indebtedness corresponded to 41 per cent of the total indebtedness and the long
term amounted to 30 per cent in 1998, the short term indebtedness became 34 per cent of the total
indebtedness, whereas the long term amounted to 43 per cent.
C.3 DETERMINATION OF SERIOUS INJURY OR OF THREAT THEREOFAn analysis of the evolution of imports and of the situation of domestic industry pointed out
that:
(a) From 1995 to 1998 apparent sales in value decreased steadily, showing an
accumulated fall of 14 per cent.  In the same period imports in value excluding
Mercosul decreased until 1997.  In 1998 in relation to 1997 these imports grew
10.5 per cent;
(b) sales in domestic industry in its turn dropped 17 per cent from 1996 to 1998.  The
decrease in these sales in the first two years was close to the reduction verified in
apparent sales, while in the subsequent period its reduction was quite higher than the
retraction of the market.  Thus, the domestic industry that represented around 43 per
cent of apparent sales in 1996 and 1997 reduced its share to approximately 40 per
cent in 1998;
(c) taking into account the simultaneous increase of 10.5 per cent in imports excluding
Mercosul in 1998 in comparison to 1997, the growth of these imports can be
attributed to the decrease in the share of domestic industry in the last year under
analysis;
(d) the movements of sales of domestic industry reflected in the performance of the
quantity produced, in the employment directly linked to production, in labour
contracted with outside firms, as well as in gross, operational and net margins, which
grew from 1996 to 1997 and fell from 1997 to 1998;
(e) stocks grew 2.5 per cent from 1996 to 1997 and fell 24 per cent in 1998, in relation to
the previous year, indicating a change in the policy of maintenance of stocks,
contributing to the financial adjustment of domestic industry;
(f) in this sense, it was also noted the extension of the general indebtedness profile of
domestic industry, generating a better index of current liquidity, although with anincrease in the index of indebtedness;
(g) additionally, it was verified a significant increase in the quantity exported by
domestic industry, 59.9 per cent (1998/1996), although their share in production was
quite reduced.
An analysis of the data regarding the first semester of 1999 in relation to the same period of
the previous year indicated that there was a decrease of 41 per cent in apparent sales, which may be
explained by the recession in the Brazilian econom y.  With regard to to ys, the slowdown in theG/SG/N/8/BRA/2/Suppl.1
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economy along with unemployment provokes a strong impact on the demand of the product, because
it is not an essential product.  Imports excluding Mercosul decreased 12 per cent and sales of domestic
industry fell 48 per cent.  Consequently, there was a signficant increase of 11.6 per cent in the share of
these imports in apparent sales, while the participation of domestic industry fell 4.7 per cent.  Thequantity produced dropped 67 per cent.  Nevertheless, this decrease did not have any effect on
employment directly linked to production.  Stocks fell 31 per cent reflecting the above-mentioned
policy of adjustment.
D. THE COMMITMENT OF ADJUSTMENT
An analysis of the commitment taken from 1997 to  the first semester of 1999 showed that the
investments made corresponded to 80 per cent of the investments foreseen, amounting toR$120.2 million (one hundred and twenty million reals).  In this item, it was taken into account all the
expenses of the last period under analysis with respect to the following points:  productive capacity,
including improvements in quality/productivity, improvements in processes and goods, purchase of
machinery and equipment and rental of models, innovative effort in the product, including its
development, design and creation, licences and certificates of products, human resourcesqualification, training, qualification in the sales sector, share in international and national fairs and
marketing.
During the revision, 30 firms, among which are included all the domestic industry, presented
a new commitment of adjustment.  This commitment not only implies the conclusion of thecommitment taken earlier but also foresees an additional effort.  Beyond that, a sectorial commitment
was taken by the petitioner on behalf of the producers of toys, including actions that will allow the
industry to continue its adjustment to the conditions of international competition.
E. CONCLUSION
The analysis of the revision showed that, from the application of the safeguard measures on
imports excluding Mercosul dropped in value until 1997, changing the tendency towards significant
growth verified earlier.  This reversal in imports ensured the beginning of the recovery of domestic
industry, which in the years 1996 and 1997 maintained its share in apparent sales, increased the
quantity produced and the level of employment (employment directly linked to production and labour
contracted with outside firms) and increased operational, net and gross margins.
This recovery was interrupted in 1998, because of the growth in imports, which increased
their participation in apparent sales, dislocating sales of domestic industry, which reflected in the
quantity produced, employment (directly linked to  production and labour contracted with outside
firms) in the margins (gross, operational and net excluding financial results and net margins).  In spite
of the interruption of the recovery of domestic industry, it was verified an improvement in its index ofcurrent liquidity, because of the extension of the indebtedness profile.
Additionally, domestic industry has promoted adjustments, investing in productive capacity,
launching of new goods, training and marketing, which are decisive for the competitiveness of the
sector.
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