WORLD TRADE G/SG/N/8/BRA/1
20November 1996
ORGANIZATION(96-4943)
Original: English Committee onSafeguards
NOTIFICATION UNDER ARTICLE 12.1(b) OFTHE
AGREEMENT ONSAFEGUARDS ONFINDING ASERIOUS INJURY
ORTHREAT THEREOF CAUSED BYINCREASED IMPORTS
BRAZIL
Thefollowing communication, dated 19November 1996, hasbeenreceived from Brazil.
_______________
Pursuant toArticle 12.1(b) oftheWTO Agreement onSafeguards, andinlightoftheformat
fornotifications adopted bytheCommittee onSafeguards on24February 1995 (document G/SG/1,
of1July1996), Brazil notifies thatitscompetent authorities havemade afinding ofserious injury
caused byincreased imports oftoys, asfollows:
1. Evidence ofserious injury orthreat thereof caused byincreased imports
In1995, internal salesofthedomestic industry dropped 21.6percentinvalue, despite the
factthattheinternal market fortoyshasgrown 5.3percentinrelation totheprevious year. Imports
notonlybenefited from thatincrease butalsoabsorbed ashare ofthemarket previously controlled
bythedomestic industry. Thevalue ofimports grew 330.1 percentfrom 1994 to1995, resulting
inanincreasing share ofimports inapparent consumption (from 7.57percentin1994 to30.27 per
centin1995); during thesameperiod, theshare ofdomestic industry inapparent consumption decreased
from 69.74 percentin1994 to51.90 percentin1995.
Thedecrease inthesalesofthedomestic industry (21enterprises, thatrepresented 71percent
ofthenational production in1995), caused byincreased imports, resulted inthefollowing changes
inthemain economic indicators related tothedomestic industry:
- decrease inproduction: 19percentinquantity and15percentinvalue, from 1994
to1995;
- decrease insales andlossofparticipation ofthedomestic industry inapparent
consumption: salesofdomestically produced toysfell28percentinquantity and22
percentinvalue, from 1994 to1995. Participation ofthedomestic industry inthe
apparent consumption, interms ofvalue, fellfrom70percentin1994to52percent
in1995;
- increase instocks: stocks increased 117percentfrom 1994 to1995;
- decrease inemployment: thenumber ofjobs, directly orindirectly offered bythe
industry, fell18percentfrom 1994 to1995;G/SG/N/8/BRA/1
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- decrease inprofits: from1994 to1995, thegross margin decreased 8.33percentage
points, theoperational margin 27percentage points, theoperational margin exclusive
financial results 29percentage points, andthenetmargin 27percentage points;
- indebtedness: thetotalindebtedness ofthedomestic industry increased 17percent
from 1994 to1995.
Itwasnoted, therefore, that,in1995, theprices ofthedomestic industry were depressed in
relation totheproduction costs andthatsuchasituation helped theoperational margin ofprofits to
become negative.
Other factors, different from increased imports, thatcould havecaused serious injury tothe
domestic industry were examined, asfollows:
(a) increased salesofother national producers: itwasnoted thatimports displaced not
onlythedomestic industry butalsoothernational producers, thathadtheirsalesreduced
and,consequently, hadtheirshare ofthemarket reduced aswell;
(b) smuggling andunder-invoicing: inexamining theexistence ofserious injury, only
imports legally made wereconsidered, which donotinclude smuggled goods; itwas
notpossible toverify theoccurrence ofunder-invoicing inlegalimports, butitwas
proved thatthedomestic industry wasdisplaced bylegally made imports.
Therefore, itwasconcluded thattheserious injury tothedomestic industry wasnotcaused
bythefactors mentioned above.
2. Information onwhether thereisabsolute increase inimports oranincrease inimports relative
todomestic production
From 1992 to1993, imports grew 149.5 percentandfrom 1993 to1994, 152.2 percent.
In1995, however, imports grew 355.5 percentinquantity and330.1 percentinvalue, inrelation
to1994, thatrepresented more thanthedouble ofthegrowth ratesregistered intheprevious years.
BRAZILIAN IMPORTS OFFINISHED TOYS
Year Quantity Value
In1,000
units
% Index In
US$1,000
f.o.b.
% Index
1992 4,357.32 - 100.0 8,397.02 - 100.0
1993 10,871.60 149.5 149.5 12,909.62 53.7 153.7
1994 27,422.06 152.2 529.3 30,946.76 139.7 268.5
1995 124,918.92 355.5 2,766.9 133,096.46 330.1 1,485.0
Thepercentageofimportsinrelationtothedomesticproduction,intermsofquantities,increased
from9.2percentin1992, to19.5percentin1993, 53.9percentin1994and303.8 percentin1995.G/SG/N/8/BRA/1
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BRAZILIAN IMPORTS OFFINISHED TOYS FROM WTO MEMBERS
Year Quantity Value
In1,000
units
% Index In
US$1,000
f.o.b.
% Index
1992 2,930.24 - 100.0 5,010.11 - 100.0
1993 4,819.33 64.5 164.5 7,538.35 50.5 150.5
1994 12,279.13 154.8 419.0 14,386.82 90.8 287.2
1995 64,022.49 421.4 2,184.9 51,295.66 256.6 1,023.8
Likeimports oftoysfromallorigins, imports fromcountries thatareMembers oftheWTO
increased continually, inquantity andvalue, asshown above.
3. Description oftheproduct involved
Theproducts subject tothesafeguard measure are"toys", classified under headings 9501, 9502,
9503 andsubheading 9504.10 oftheBrazilian Nomenclature based ontheHarmonized System
(NBM/SH).
Itwasnoted thattherearedifferent types oftoys(balls, dolls, puzzles, videogames, etc.), that
nevertheless donotrepresent different markets, astheconsumer thatdecides tobuyatoywillhave
theopportunity ofchoosing among alltypes oftoysavailable inthemarket, allofthem having the
same use:toplaywith. Even theanalysis ofdifferent price levels among different types oftoysdid
notdenythefactthattheyarenearsubstitutes among themselves, as,inthetoymarket, itisveryfrequent
tomake achoice between buying oneexpensive toyorsome toysatlowprices. Thepreference of
theconsumer willbedetermined bythecharacteristics ofthefinaluser(age, sex,affinity) andthe
amount theconsumer isready tospend withagift(revenue versus price ofatoy).
Itwasverified thatanimported toycompetes withallinternally produced toysandnotonly
withtheidentical product; forexample, evenwhen theimported toyisanewone(i.e.thesameproduct
isnotavailable inthemarket), there isagood possibility ofhaving salesofanyother toy,produced
internally orimported, displaced bythenewone.
Theattempt tocategorize types oftoyswould prevent anadequate market analysis. Distinct
categories oftoyscorrespond todistinct markets, thuseliminating theanalysis ofcompetition between
"products which directly compete" anddoesnotpermit acorrect understanding ofthepattern of
competition andthedynamics ofgrowth inthetoyindustry. Adivision, forinstance, bytariff items
classified asrepresentative ofhuman figures (HS9502.10) andtoysclassified asanimals ornon-human
creatures (HS9503.4) being placed indistinct markets would beinconvenient. Thesame problem
would occur inthecaseofadivision byproductive process which would place cloth dollsandplastic
dolls indifferent markets. Orevenmore soadivision byapplication bytheclassification made by
theCentre National d'Information duJouet (affective development, infants, technical world, physical
activities,intellectualactivities,creativity,andsocialrelationships),thatwouldplaceindifferentmarkets
board games (social relationships) andpuzzles (intellectual activities); orcradle games (infants) versus
furry animals (affective development).G/SG/N/8/BRA/1
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Therefore, itwasconsidered that,although thephysical characteristics orthetariffclassification
oftheproducts under theCommon Nomenclature ofMercosur -NCM maydiffer, theemphasis in
thedefinition of"directly competitive products" isgiven, inthetoymarket, bythedegree ofsubstitution
among those products which aredestined forthesame market.
Bytheabove, forpurposes oftheinvestigation, alltoysmanufactured inBrazil areconsidered
tobedirectly competitive products inrelation tothose thatareimported.
4. Description oftheproposed measure
Article 1ofDecree No.1488/95 provides fortheapplication ofasafeguards measure toa
product ifaninvestigation demonstrates thatimports ofthatproduct haveincreased insuchquantities,
absolute orrelative todomestic production, andunder suchconditions astocause orthreaten tocause
serious injury tothedomestic industry thatproduces likeordirectly competitive products. Article
8ofDecree No.1488/95 establishes thatthemeasures shallbeapplied totheextent necessary toprevent
orrepair serious injury andtofacilitate adjustment.
Pursuant toArticle 9,paragraphs 1and4ofDecree No.1488/95, suchmeasures should not
beapplied foraperiod exceeding fouryears, unless itisextended, andiftheperiod ofapplication
exceeds oneyear,themeasure should beprogressively liberalized, atregular intervals, during theperiod
ofapplication. Theperiod ofapplication ofaprovisional safeguard measure iscounted asapartof
thetotalperiod ofvalidity ofthesafeguard measure, inaccordance withArticle 4,paragraph 2ofthe
Decree.
Theinvestigation hasdetermined theexistence ofserious injury tothedomestic industry caused
byincreased imports in1995.
Theevaluation ofthecommitment onadjustment proposed bythedomestic industry indicated
that,considering theconditions ofcompetitiveness intheinternational markets andthecharacteristics
ofthedomestic industry, theimplementation oftheadjustment plan, thatwillbecontinually checked
bythecompetent authorities, willhelpthedomestic industry toincrease competitiveness.
Itwasconcluded thattherequirements fortheapplication ofthesafeguard measure weremet.
Therefore, thesafeguard measure willbeapplied byincreasing theimport duty, under theform
ofanadditiontotheCommonExternalTariff(TEC),appliedtoimportsoftoysclassifiedunderNBM/SH
headings 9501, 9502, 9503 andsubheading 9504.10, asfollows:
Period Import duty Addition Total duty
01.01.97 to31.12.97 20% 43% 63%
01.01.98 to31.12.98 20% 29% 49%
01.01.99 to31.12.99 20% 15% 35%
Bytheproposed schedule, Brazil willcomply withitscommitments withregard toratesbound
inListIIIforalmost allitems, andonlyforitems 9501.00.0199, 9501.00.9900 and9504.10.9001
theratesapplied in1997 and1998 willbehigher thanthebound levelagreed forthose years.
Pursuant toArticle 9oftheAgreement onSafeguards, measures willnotbeapplied toproducts
originating inadeveloping country Member, aslongasitsshare ofimports oftheproduct concernedG/SG/N/8/BRA/1
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intheimporting Member doesnotexceed 3percent,provided thatdeveloping country Members with
lessthan3percentaccount fornotmore than9percentoftotalimports oftheproduct concerned.
Asimports fromdeveloping country Members oftheWTO, withshares inferior to3percent
ofthetotalofBrazilian imports, collectively accounted in1995 foronly6.12percent,invalue, and
2.3percent, inquantity, imports from thefollowing countries willnotbesubject totheapplication
oftheproposed safeguard measure:
Country US$1,000 f.o.b. %
Antigua &Barbuda 0.20 0.00
Bangladesh 16.30 0.01
Bolivia 0.20 0.00
Chile 162.80 0.12
Ecuador 3.70 0.00
Guatemala 0.10 0.00
India 5.70 0.00
Indonesia 821.40 0.62
Korea 1,870.14 1.41
Macau 8.50 0.01
Malaysia 1,018.42 0.77
Mexico 734.20 0.55
Paraguay 1.40 0.00
Philippines 92.27 0.07
Singapore 220.66 0.17
SriLanka 44.10 0.03
Thailand 2,995.30 2.25
Uruguay 130.50 0.10
Venezuela 14.90 0.01
5. Proposed dateoftheintroduction ofthemeasure
Themeasure isexpected tobeinforce from 1January 1997.
6. Expected duration ofthemeasure
Three andahalfyears, including theperiod during which theprovisional safeguard measure
hasbeenapplied. Themeasure isexpected tobeinforce from 4July1996 to31December 1999.G/SG/N/8/BRA/1
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7. Proposed dateforthereview
Themid-term review willbeheldinMarch 1998.
8. Expected timetable forprogressive liberalization ofthemeasure
Themeasure willbeprogressively liberalized, atregular intervals, i.e.atthebeginning ofeach
calendar year,theapplicable rateofdutywillbereduced in14percentage points, following thetimetable
presented initem4,above.
Brazil isready toconsult withMembers withinterest intheproducts concerned withaview
toproviding additional information. Tothisend,andtaking intoaccount thatafinaldecision onthe
issuewillbetaken bythecompetent authorities during theweekstarting 16December 1996, adelegation
from Brasilia willbeinGeneva during theweek starting 2December 1996 ifnecessary.