WORLD TRADE G/SCM/N/16/BRA/Suppl.1
23January 1997
ORGANIZATION(97-0244)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Updating Notifications Pursuant toArticle XVI:1 oftheGATT 1994
andArticle 25oftheAgreement onSubsidies andCountervailing Measures
BRAZIL
Supplement
Thefollowing communication, dated 17January 1997, hasbeenreceived fromthePermanent
Mission ofBrazil.
_______________
WithreferencetoArticle25oftheAgreementonSubsidiesandCountervailingMeasures
andtodocument G/SCM/6, dated 9August 1995, Ihavethehonour topresent totheCommittee on
Subsidies andCountervailing Measures theattached notification ofsubsidies introduced inBrazil by
Provisional Measure 1532 of18December 1996.
1. Titleofthesubsidy programme
Fiscal incentives forregional development.
2. Period covered bynotification
JulytoDecember 1996.
3. Policy objective ofthesubsidy
Thebenefits aregranted toanyenterprise intheautomotive sector located intheNorth, North-
eastandCentral-West regions ofBrazil inthecontext ofthegovernment 'spolicy ofsocial andeconomic
development ofthese regions.
4. Background andauthority forthesubsidy, including identification ofthelegislation under which
itisgranted
Legislation identification: Provisional Measure 1532 of18December 1996.
Granting Authority: Ministry ofIndustry, Commerce andTourism.G/SCM/N/16/BRA/Suppl.1
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5. Form ofthesubsidy
Taxconcession andfiscal incentives.
6. Towhom andhowthesubsidy isprovided; through what mechanism; whether afixed or
fluctuating amount perunit; ifthelatter, howdetermined
Thebenefits aregranted toproducers oftheautomotive sector intheform ofreductions of
import taxes, reductions andexemptions ofindustrial taxes, andexemptions ofincome taxes.
7. Subsidy perunitorthetotalamount ortheannual amount budgeted forthesubsidy
Dataarenotyetavailable.
8. Duration ofthesubsidy and/or anyother time limit attached toit,including dateof
inception/commencement
Thedateofprogramme qualification is31March 1997.
Thedateofprogramme expiration is31December 1999.
9. Statistical datapermitting anassessment ofthetrade effect ofthesubsidy
Dataarenotavailable.G/SCM/N/16/BRA/Suppl.1
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Unofficial translation
PROVISIONAL MEASURE NO.1,532 OF18DECEMBER 1996
Defines fiscal incentives forregional
development andprovides forother measures.
THE PRESIDENT OFTHE REPUBLIC ,intheexercise ofthepowers conferred uponhim
byArticle 62oftheConstitution, adopts thefollowing Provisional Measure which shallhavetheforce
oflaw:
Article 1
There may begranted, under theconditions toberegulated, with validity through
31December 1999:
(i) a100percentreduction oftheimport dutyonnewmachines, equipment, including
testing equipment, toolsets,moulds andmodels formoulds, industrial andquality
control instruments andapparatus, aswellastheirrespective accessories, spare and
replacement parts;
(ii) areduction of90percentoftheimport duty onrawmaterials, parts, pieces,
components, setsandsubsets, finished andsemi-finished, andpneumatic tyres;
(iii) areduction ofasmuch as50percentoftheimport duties onproducts listed inlines
"a"to"c"ofparagraph 1ofthisArticle.
(iv) exemption ofthetaxonindustrialized products intheacquisition ofnew, imported
orlocally made, machines, equipment, including testing equipment, toolsets,moulds
andmodels formoulds, industrial andquality control instruments andapparatus, as
wellastheirrespective accessories, spare andreplacement parts;
(v) areduction of45percentofthetaxonindustrialized products intheacquisition of
rawmaterials, parts, pieces, components, setsandsubsets, finished andsemi-finished,
andpneumatic tyres;
(vi) exemption oftheaddition tothefreight fortherenewal oftheMerchant Marine;
(vii) exemption ofthetaxonfinancial operations (IOF) onexchange operations made for
payment oftheimported goods;
(viii) exemption oftheincome taxandadditionals, calculated based ontheprofits ofthe
operation oftheenterprise:
(ix) credit resulting fromthetaxonindustrialized products, asareturn ofthecontributions
which aretheobject ofComplementary Laws 7,8and70,dated 7September 1970,
3December 1970, and30December 1991, respectively. Thereturns willcorrespondG/SCM/N/16/BRA/Suppl.1
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totwice thevalue ofthecontributions made which hadabearing ontheprofits ofthe
enterprises referred toinparagraph 1ofthisArticle.
Paragraph 1
Theprovisions ofthe"chapeau" areapplicable exclusively toenterprises established orthat
come tobeestablished intheNorth, Northeast, andCentral-West regions andthatareassembling
companies andmanufacturers of:
(a) passengers andmixed-use vehicles, withfourwheels ormore, andjeeps;
(b) station wagons, vans, pickup trucks andvehicles, withfourwheels ormore, forthe
transportation ofmerchandise, having amaximum loading capacity of4tons;
(c) vehicles forthetransportation ofmerchandise having aloading capacity equal toor
superior to4tons, vehicles forthetransportation of10persons ormore andtruck-
tractors;
(d) agricultural tractors andharvesting machines;
(e) tractors, road-building andexcavation machines forforklifts;
(f) bodies forautomotive vehicles ingeneral;
(g) trailers andsemitrailers usedforthetransportation ofmerchandise; and
(h) partsandcomponents, setsandsubsets -finished andsemi-finished -,andpneumatic
tyres, tobeusedfortheproducts listed inthislineandinthepreceding lines.
Paragraph 2
Theprovisions ofArticles 17and18toDecree-Law No.37of18November 1966 arenot
applicable toproducts imported under theterms ofthisArticle.
Paragraph 3
TheprovisionsofItem(iii)applyexclusivelytoimportsmadedirectlybythenationalassembling
andmanufacturing companies oftheproducts referred tointheitemor,indirectly, through atrading
company inthename ofwhich willbegranted thereduction oftheduty, under conditions setforth
intheregulation.
Paragraph 4
Theapplication ofthereduction referred toinItem(ii)cannot result inanimport dutypayment
lower than2percent.
Paragraph 5
Theapplication ofthereduction referred toinItem(iii)ofthisArticle cannot result inpayment
ofimport duties lower thantheCommon External Tariff.G/SCM/N/16/BRA/Suppl.1
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Paragraph 6
Theproducts dealtwithinItems (i)and(ii)mustbeusedinthecompany 'sproductive process
and,additionally, inwhatconcerns Item(i),bepartofthefixed assets, resale notpermitted, except
incases andunder conditions setforth intheregulation.
Paragraph 7
Theprovisions ofArticle 11ofDecree-Law No.37of1966arenotapplicable totheproducts
importedunderthetermsofItem(iii),exceptforimportsmadebytradingcompaniesundertheconditions
ofparagraph 3ofthisArticle, when thetransfer ofownership isnotmade totherespective national
assembling ormanufacturing company.
Paragraph 8
Theprovisions ofDecree-Law No.666,of2July1969, arenotapplicable totheproducts
imported under theterms ofthisArticle.
Paragraph 9
Intheexemption referred toinItem(iv),thekeeping andutilization ofthecredits related to
rawmaterials, intermediary products andpacking materials actually usedintheindustrialization of
thegoods referred toareensured.
Paragraph 10
Thevalue ofthetaxthatisnotpaidasaresult oftheexemption referred toinItem(viii)cannot
bedistributed tothestockholders. Itwillconstitute capital reserve ofthejuridical person thatcan
onlybeusedfortheabsorbtion oflosses orincrease ofsocial capital.
Paragraph 11
Forthepurposesoftheprecedingparagraph,thefollowingwillalsobeconsideredasdistribution
ofthevalue ofthetax:
(a) therestitution ofcapital tothestockholders, incases ofreduction ofthesocial capital,
uptothevalue oftheincrease withtheincorporation ofthereserve;
(b) thesharing oftheliquid assets ofthedissolved society, uptothevalue ofthebalance
ofthecapital reserve.
Paragraph 12
Thenon-compliancewiththeprovisionsofparagraphs10and11implicatesthelossofexemption
andtheobligation tocollect thetaxthatthejuridical person didnotpay,plusfinesandmoratory interest,
inrelation tothesumthatwasdistributed.
Paragraph 13
Thevalue oftheexemption referred toinitem(viii), entered asacompensation tothecapital
reserve account under theterms ofthisArticle, willnotbedeductible inthedetermination ofthereal
profit.G/SCM/N/16/BRA/Suppl.1
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Article 2
Forthepurposes ofArticle 1,theExecutive Branch mayestablish theratiobetween:
(i) thetotalf.o.b. value oftheimports ofrawmaterials andproducts listed inlines"a"
to"h"ofparagraph 1ofthepreceding Article, arriving from andoriginating from
acountry member oftheMERCOSUL, inaddition tothose imports made under the
conditions setforthinitems (ii)and(iii)ofthepreceding Article, andthetotalvalue
ofthenetexports made, inaperiod tobedetermined, percompany;
(ii) thevalueofpurchaseofproductslistedinitem(i)oftheprecedingArticle,manufactured
inBrazil, andthetotalf.o.b. value oftheimports ofthesame products made inthe
conditions setforth initem(i),inaperiod tobedetermined, percompany;
(iii) thetotalvalue ofpurchases ofeachrawmaterial, produced inBrazil, andthetotal
f.o.b. value oftheimports ofthesame rawmaterials made under theconditions set
forthinitem(ii)ofthepreceding Article, inaperiod tobedetermined, percompany;
and
(iv) thetotalf.o.b. value oftheimports oftheproducts listed initem(ii)ofthepreceding
Article, made under theconditions setforthinthesameitemandthevalue ofnetexports
effected, inaperiod tobedetermined, percompany.
Paragraph 1
Toavoid theconcentration ofimports thatareprejudicial todomestic production, theMinistry
ofIndustry, Commerce andTourism mayestablish additional limits totheimports ofproducts listed
initems (i)and(ii)ofthepreceding Article, under theconditions setforth inthesame items.
Paragraph 2
Itisunderstood asnetexport thef.o.b. value ofexports ofproducts listed inparagraph 2of
thepreceding Article, made inconvertible currency, afterthededuction of:
(a) thef.o.b. value oftheimports made under the"drawback" regime; and
(b) thevalue ofthebrokerage feepaidorcredited toanagent orrepresentative abroad.
Paragraph 3
Exports made indomestic currency arenottobeconsidered inthecalculation ofnetexports
referred tointhisArticle.
Paragraph 4
Forcompanies thatcome toestablish themselves intheregions indicated inparagraph 1of
thepreceding Article, fornewandcomplete production linesthatresult inanincrease totheinstalled
capacity andforthenewplants ofcompanies already established inBrazil, asdefined intheregulations,
theperiod fortheattainment oftheratios referred tointhisArticle isofuptofiveyears, torunfrom
thedateofthefirstcustoms clearance ofproducts listed initems (ii)and(iii)ofthepreceding Article.G/SCM/N/16/BRA/Suppl.1
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Article 3
Forthepurposes ofArticles 2and4,there shallbecomputed intheexports, afterdeduction
oftheamount ofcommission paidorcredited toagents orrepresentatives abroad:
(i) sales totrading companies, including those established under theterms ofDecree
Law1,248 of29November 1972, atthevalue invoiced bythemanufacturer tothe
trading company; and
(ii) exports made through wholly-owned subsidiaries.
Article 4
There shallbecomputed asnetexports, additionally, theamounts corresponding to:
(i) 40percentoftheexport f.o.b. value products oftheexporter 'sownmanufacture,
listed inlines"a"to"h"ofparagraph 1ofArticle 1;
(ii) 200percentofthevalue ofnewmachines, equipment, including testing equipment,
tools, moulds andmodels formoulding, instruments andindustrial andquality control
apparatus, aswellasaccessories, spare andreplacement parts, manufactured inBrazil
andincorporated tothefixed assets ofthecompanies;
(iii) 150percentofthetotalimport f.o.b. value ofnewtools forthecoldpressing of
metallic plates, aswellasaccessories, spare andreplacement parts, incorporated to
thefixed assets ofcompanies;
(iv) 100percentofexpenses withspecialization andtraining ofpersonnel linked tothe
production ofgoods listed inlines"a"to"h"ofparagraph 1ofArticle 1;and
(v) 100percentofexpenses made withcivilconstruction, sitesandbuildings destined
fortheproduction ofthegoods listed inlines"a"to"h"ofparagraph 1ofArticle 1.
(vi) investments actually made intechnological development inBrazil, within thelimits
setintheregulation.
Article 5
Forthepurposes oftheprovisions contained inthisProvisional Measure, values willbe
considered inUSdollars, converted inaccordance withrules setforth intheregulation.
Article 6
Thecompanies thatmanufacture theproducts listed inline"h"ofparagraph 1ofArticle 1,
thatexport theproducts listed therein tothecontrolling orassociated assembling ormanufacturing
companies established inBrazil ofproducts listed inlines"a"to"g"ofparagraph 1ofthesameArticle
maytransfer tothemthevalue ofnetexports relative tothose products, provided thattheexports were
brokered bytheassembling company.G/SCM/N/16/BRA/Suppl.1
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Article 7
TheExecutive Branch mayestablish annual average nationalization indices resulting from
international commitments made byBrazil tothecompanies listed inparagraph 1ofArticle 1,inwhose
production imported inputs, listed initem(ii)ofthesame Article, areused.
Paragraph 1
Theannual average nationalization index willbeaproportion between thevalue oftheparts,
pieces, components, setsandsubsets andrawmaterials produced inBrazil andthesumofthevalue
ofthese products made inBrazil withthef.o.b. value ofimports ofthese products, withthededuction
ofthetaxes andthevalue ofimports made under the"drawback" regime usedintheglobal production
ofthecompanies, ineachcalendar year.
Paragraph 2
Thecompanies thatcome toestablish themselves inBrazil, thenewandcomplete production
linesthatresult inanincrease ininstalled capacity andthenewfactories ofcompanies already established
inBrazil, asdefined intheregulations, mustmeettheindex referred tointhisArticle inaperiod of
uptofouryears, asprovided intheregulations. Thefirstyearwillbeconsidered starting from the
dateofthebeginning ofproduction ofthereferred products until31December ofthefollowing year.
Attheendofthatyear, thecriteria ofthecalendar yearwillapply.
Article 8
Theintra-MERCOSUL tradeofproducts listed inArticle 1shallfollow thespecific applicable
rules.
Article 9
Theprovisions ofthepreceding Articles apply onlytocompanies thathavesigned special export
commitments under theterms ofDecree-Laws No.1,219 of15May1972and2,433 of19May1988,
aftertheMinistry ofIndustry, Commerce andTourism, inaccordance withtherelevant legislation,
hasdeclared theendoftherespective commitments.
Article 10
Import authorization forandcustoms clearance oftheproducts listed inlines"a"to"c"and
"g"ofparagraph 1ofArticle 1areconditional uponthepresentation ofthefollowing documents, without
prejudice toother legalandregulatory requirements:
(i) certificate ofcompliance withthenational traffic legislation;
(ii) certificate ofcompliance withtheenvironmental rules contained inLawNo.8,723
of29October 1993.
Paragraph 1
Thecertificates ofcompliance dealtwithinitems (i)and(ii)shallbeissued inaccordance to
norms issued handed down bytheNational Traffic Council (CONTRAN) andtheNational Environment
Council (CONAMA).G/SCM/N/16/BRA/Suppl.1
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Paragraph 2
Adaptations necessary toobtain certificates shallbemade atthepoint oforigin.
Paragraph 3
Without prejudice tothepresentation ofthecertificate dealtwithinitem(i),evidence ofeach
vehicle 'scompliance withthenational traffic legislation shallbepresented bythetimeofregistry,
supply ofplateandlicensing.
Article 11
TheExecutive Branch maygrant tothecompanies referred toinparagraph 1ofArticle 1,
under theconditions setforthintheregulation, withvalidity from1January 2000to31December 2010,
thefollowing benefits:
(i) areduction ofasmuch as50percentoftheimport dutyonnewmachines, equipment,
including testing equipment, toolsets,moulds andmodels formoulds, industrial and
quality control instruments andapparatus, aswellastheirrespective accessories, spare
andreplacement parts;
(ii) areduction ofasmuch as25percentofthetaxonindustrialized products thatis
chargedinrelationtoacquisitionsofrawmaterials,intermediaryproductsandpackaging
materials;
(iii) theextension ofthebenefits referred toinitems (iv),(vi),(vii), (viii) and(ix)of
Article 1.
Article 12
Only thecompanies which havebeenqualified bytheExecutive Branch by31March 1997,
willbeeligible forthebenefits ofthisProvisional Measure.
Soleparagraph
Forcompanies whose objective istheproduction ofproducts listed inline"h"ofArticle 1,
thedeadline forqualification willbe31March 1998.
Article 13
TheExecutive Branch shallestablish thequalification requirements forthetreatment referred
toinpreceding Articles, aswellasforthecontrol mechanisms necessary fortheverification ofthe
faithful execution oftheprovisions ofthisProvisional Measure.
Soleparagraph
Therecognition ofthebenefits provided forinthisProvisional Measure shallbeconditional
upon thepresentation ofthequalification referred tointhechapeau ofthisArticle.G/SCM/N/16/BRA/Suppl.1
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Article 14
Thenon-compliance withtheprovisions about ratios, limits andindices setforthinaccordance
withArticles 2and7shallsubject thecompany tofinesof:
(i) 70percentofthef.o.b. value oftheimports made under theconditions setforth in
item(i)ofArticle 1thatcontribute tothenon-compliance withtheratioreferred to
initem(ii)ofArticle 2;
(ii) 70percentapplied tothef.o.b. value oftheimports made under theconditions set
forthinitem(i)ofArticle 1thatexceed theadditional limits referred toinparagraph 1
ofArticle 2;
(iii) 60percentapplied tothef.o.b. value oftheimports ofrawmaterials made under the
conditions setforthinitem(ii)ofArticle 1thatexceed theratioreferred toinitem(iii)
ofArticle 2;
(iv) 60percentapplied tothef.o.b. value ofimports ofrawmaterials made under the
conditions setforthinitem(ii)ofArticle 1thatexceed theadditional limits referred
toinparagraph 1ofArticle 2;
(v) 70percentapplied tothef.o.b. value oftheimports made under theconditions set
forth initem(ii)ofArticle 1thatcontribute tothenon-compliance withtheindex
referred tointhechapeau ofArticle 7;
(vi) 120percentapplied tothef.o.b. value oftheimports made under theconditions set
forth initems (ii)and(iii)ofArticle 1thatexceed theratioreferred toinitem(i)of
Article 2;and
(vii) 70percentofthef.o.b. value oftheimports ofproducts listed initem(ii)ofArticle 1
made under theconditions setforthinthesame itemthatexceed theratioreferred to
initem(iv)ofArticle 2.
Soleparagraph
Thefinesreferred tointheprovisions ofthisArticle willbecollected totheNational Treasury.
Article 15
Thetaxtreatment provided forinthisProvisional Measure:
(i) shallbeconditional uponproof bythetaxpayer ofregularity ofpayment ofallfederal
taxes andcontributions;
(ii) cannot beusedcumulatively withothers ofthesame nature andwiththose provided
forinthelegislation oftheManaus FreeTrade Zone, oftheFreeTrade Areas, ofthe
Western Amazon, ofNortheast Investment Fund (FINOR) andtheAmazon Investment
Fund (FINAM).G/SCM/N/16/BRA/Suppl.1
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Article 16
ThisProvisional Measure shallenter intoforce onthedateofitspublication.
Brasilia, 18December 1996, 175thoftheIndependence and108oftheRepublic.
FERNANDO HENRIQUE CARDOSO
LuizFelipe Lampreia
Pedro Malan
Francisco Dornelles
Antonio Kandir