PRESS/TPRB/47
1November 1996
TRADE POLICY REVIEW BODY
Review ofBrazil
TPRB 'sEvaluation
TheTrade Policy Review Body oftheWorld Trade Organization (WTO) conducted itssecond
review ofBrazil 'strade policies on30and31October 1996. ThetextoftheChairman 'sconcluding
remarks isattached asasummary ofthesalient points which emerged during thetwo-day discussion.
Thereview enables theTPRB toconduct acollective examination ofthefullrange oftrade
policies andpractices ofeachWTO member country atregular periodic intervals tomonitor significant
trends anddevelopments which mayhaveanimpact ontheglobal trading system.
Thereview isbased ontworeports which areprepared respectively bytheWTO Secretariat
andthegovernment under review andwhich cover allaspects ofthecountry 'stradepolicies, including:
itsdomestic lawsandregulations; theinstitutional framework; bilateral, regional andother preferential
agreements; thewider economic needs andtheexternal environment.
Arecord ofthediscussions andtheChairperson 'ssumming-up, together withthesetworeports,
willbepublished induecourse asthecomplete trade policy review ofBrazil andwillbeavailable
from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211 Geneva 21.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 &1996), Cameroon
(1995), Canada (1990, 1992 &1994), theCzech Republic (1996), Chile (1991), Colombia (1990 &
1996), Costa Rica(1995), Côted'Ivoire (1995), theDominican Republic (1996), Egypt (1992), the
European Communities (1991, 1993 &1995), Finland (1992), Ghana (1992), Hong Kong (1990 &
1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan
(1990, 1992&1995), Kenya (1993), Korea, Rep.of(1992 &1996), Macau (1994), Malaysia (1993),
Mauritius (1995), Mexico (1993), Morocco (1989 &1996), NewZealand (1990 &1996), Nigeria
(1991), Norway (1991 &1996), Pakistan (1995), Peru(1994), thePhilippines (1993), Poland (1993),
Romania (1992), Senegal (1994), Singapore (1992 &1996), Slovak Republic (1995), South Africa
(1993), SriLanka (1995), Sweden (1990 &1994), Switzerland (1991 &1996), Thailand (1991 &1995),
Tunisia(1994),Turkey(1994),theUnitedStates(1989,1992&1994),Uganda(1995),Uruguay(1992),
Venezuela (1996), Zambia (1996) andZimbabwe (1994).
MORE 96-4639PRESS/TPRB/47
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TRADE POLICY REVIEW BODY
Review ofBrazil
CONCLUDING REMARKS BYTHE CHAIRPERSON
TheTrade Policy Review Body hasnowcompleted thesecond review ofBrazil 'stradepolicies
andpractices -thefirstunder WTO provisions. These remarks, made onmyownresponsibility,
summarize themain points ofthediscussion. They arenotintended tosubstitute forthecollective
evaluation andappreciation ofBrazil 'strade policies andpractices. Details ofthediscussion willbe
reflected intheminutes ofthemeeting.
Thediscussion developed under threemainthemes: (i)macroeconomic environment andtrade
relations; (ii)general measures affecting trade; and(iii)sectoral aspects.
Macroeconomic environment andtrade relations
Achievements ofthePlano Realandfuture developments
Members recognised thatthesignificant economic reforms carried outsince1992, inparticular
through thePlano Real, hadresulted ineconomic stabilization andresumption ofGDP growth. They
commended thecontinuing reforms, which included trade liberalization, privatization, deregulation
ofstatemonopolies, andopening offoreign investment. Asaresult, Brazil 'sparticipation intheglobal
trading system hadexpanded; thiswasreflected inahigher ratiooftotaltrade toGDP. Members
noted thatimports ofgoods andservices hadgrown more rapidly thanexports andasked, firstly, how
Brazil planned tomaintain equilibrium inthebalance ofpayments andsecondly, tocomment onthe
possibility thatitsexchange ratemayhavebeenovervalued. Theyalsonoted thateconomic stabilization
hadyettobereflected incomparable growth inemployment.
Members welcomed theadaptation ofdomestic lawstoWTO rules, including insuchareas
asanti-dumping, countervailing, safeguards, andintellectual property. Inrespect ofinvestment
provisions, theywelcomed theelimination oftheconcept of"Brazilian company ofnational capital".
They alsosought information onprogress intheelaboration ofasingle foreign trade law,andonthe
prospects fortaxreform, given thecomplexities ofthedomestic taxsystem. Details werealsorequested
onfuture privatization schemes, aswellasonplans toreduce certain restrictions onremittances of
investment profits andthehighvalue added taxonsome remittances.
Inresponse, therepresentative ofBrazil saidthatthelatest indicators would show afurther
decline intherateofinflation toaround zeroinSeptember, while recovery wasexpected tostrengthen
inthenexttwoyears. Productivity, employment andrealincome hadbothincreased since the
introduction ofthePlano Real; estimates alsoindicated growth inconsumption bylower income groups.
Hegavedetails ofplans toincrease thedomestic savings rate,aswellasforbroad-ranging fiscal,
administrative andsocial security reforms. Henoted thatBrazil hadtraditionally financed acapital
account deficit withmerchandise trade surpluses; when thePlano Realwasintroduced reserves were
reasonably high, andhadincreased asaresult ofhighinterest rates andgrowing confidence inthe
economy. Since theinitial realexchange rateappreciation, depreciation hadconsistently exceeded
therateofinflation fortradeable goods.
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Therepresentativegavedetailsofthetaxreformanditsobjectives,includingrelatedconstitutional
measures tofacilitate further taxchanges. Therecent elimination ofthestatevalue added tax(ICMS)
forprimary andsemi-manufactured goods should increase thecompetitiveness ofBrazilian exports.
Details werealsoprovided onrecent investment measures benefiting foreign capital andtheelimination
ofstatemonopolies intelecommunications, oilandre-insurance. Heprovided information onthe
objectives andprogress oftheprivatization programme; in1996thishadextended intoinfrastructure,
transport, electricity andtelecommunications. Theelaboration ofasingle trade lawwasstillbeing
discussed bytheGovernment.
Multilateralism andregionalism
Members tooknoteoftherapid growth ofintra-MERCOSUL trade, andexpressed concern
about possible trade diversion. They expressed theirhopethatregional integration would takeplace
inthespirit ofopenregionalism, complement multilateral trade liberalization andbeconsistent with
WTO principles. Theongoing efforts toestablish afreetrade zonebetween MERCOSUL andthe
Andean Pactcountries were noted.
Although Brazil 'sadoption ofMERCOSUL 'scommon external tariff hadledtoanumber of
WTO bindings being broken, members expressed satisfaction thatBrazil hadoffered toenter into
negotiations withaffected parties. Inthisregard, Brazil wasasked whether theimport datarequired
toconduct such negotiations were available. Noting Brazil 'snumerous national exceptions to
MERCOSUL'scommonexternaltariff,Brazilwasaskedwhethersuchexemptionsallowedtheapplication
oftariff levels below, aswellasabove, thecommon rate.
Inresponse, therepresentative ofBrazil saidthatBrazil hadpursued thedeepening ofeconomic
integration attheregional andsub-regional levels, butthiswasnotadeparture fromBrazil 'straditional
multilateral approach totrade. HesaidthatMERCOSUL 'sexternal relations confirmed theconcept
ofopenregionalism, andillustrated thiswithrecently concluded FTAs, ongoing negotiations forthe
FTAA andother agreements anddialogues outside theregion. Heprovided detailed statistics showing
thegrowth oftrade withpartners outside theregion aswellaswithin. Henoted thattheactual tariff
rateunder theMERCOSUL CETwaslower thanthepre-existing tariff averages. Tariff items where
WTO bindings beenexceeded hadbeennotified andtheMERCOSUL members stood ready toengage
inconsultations withinterested Members. Healsoprovided details ofBrazilian exemptions totheCET,
andnoted thatconvergence wastotakeplace nolaterthan1January 2001; Brazil wasaccelerating
thepaceofitsconvergence.
General measures affecting trade
Members welcomed Brazil 'ssuccessful completion ofitsautonomous liberalization programme,
includingtheeliminationofimportprohibitions,reductionsintheaveragetariffandremovalofnon-tariff
barriers. Thisconfirmed Brazil 'scommitment tofreetrade. However, some applied tariffrateswere
stillseenasrelatively high. Moreover, bound rateswereconsiderably higher thanapplied tariffs, and
frequent adhocchanges hadbeenundertaken since 1992 toprotect particular products. Those two
factors reduced predictability forBrazil 'strading partners andreduced thetransparency ofitstrade
policy régime.
While import licensing procedures hadbeenstreamlined, concerns wereraised about thelevel
oflicensing feesandreduction ofthevalidity oflicences. Concerns were alsoexpressed about the
practice ofconsidering payments terms asafactor ingranting licences. Members believed thatBrazil 's
licensing system could benefit from greater transparency andefficiency inimplementation.
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Members called attention tothesignificant increase inanti-dumping andcountervailing activity
during 1992-96, although withadecline towards theendoftheperiod. Although understanding was
expressed forthedifficulties faced bytheBrazilian textile industry, some members believed thatthe
safeguard measures ontextile products were notcompatible withWTO provisions; Brazil was
encouraged tofindother waystoassist theindustry. Members werealsoconcerned about theincreased
tariffs ontoystaken asasafeguard measure andtheprecedent thatsuchincreases might cause.
Members noted thatBrazil encouraged exports through anumber ofschemes, including internal
taxconcessions, assistance totheaircraft industry, theExport Finance Programme (PROEX) andthe
fiscal benefits oftheSpecial Export Programmes (BEFIEX). Brazil wasasked whether itintended
tophase outthose subsidies.
BrazilwasalsoaskedwhyitdidnotconsiderjoiningtheAgreementonGovernmentProcurement
andwhether itwould participate inaninitiative aimed atestablishing amultilateral transparency
agreement inthatarea.
Expressing concerns about standards creating unnecessary tradebarriers, members questioned
Brazil ontheprinciples governing itsuseoftechnical regulations andhowtheprinciple of"priority
useofBrazilian norms" wasimplemented.
Inresponse, therepresentative ofBrazil noted that,asaresult oftheUruguay Round, Brazil
hadbound itsentire tariff, ensuring greater predictability asthemaximum ratewasknown toall
members. Ceiling bindings were awidely usedtechnique intariff negotiations, providing both
predictability andsome needed flexibility within WTO commitments. Brazil hadbeenapplying tariffs
below bindings toensure thesupply ofgoods, enhance itsowncompetitiveness andafford improved
market access toitspartners. Theoccasional increase inapplied rateswithin bound levels wastocope
withsectoral difficulties andprovided flexibility formacroeconomic management. Henoted thatimport
licensing applied basically forstatistical purposes withprior import licensing affecting arms, nuclear
substances,orforenvironmentalreasons,consistentwiththeWTO.FromJanuary1997,importlicences
would beissued before goods passed through Customs, accelerating theprocedures. Limits onforeign
financing periods forcertain imports wereintended toprovide equal conditions tothose available in
Brazilian financial markets.
Therepresentative noted thatsafeguard measures onimports ofcertain textiles hadbeentaken
onlyafteraninvestigation hadrevealed serious damage todomestic industry. Themeasures were
transitionalsafeguardmeasuresundertheAgreementonTextilesandClothing.Heprovidedinformation
about consultations andnoted that,inanycase,themeasures would notbeapplied beyond 31May1999.
Aprovisional safeguard measure ontoysinvolved atariffincrease within bound ratesandwasintroduced
inaccordance withArticle 12oftheWTO Agreement onSafeguards. Theinvestigation wasnotyet
completed.
Therepresentative alsoprovided information ontheexport finance programme (PROEX),
concerning direct financing andinterest rateequalization. However, henoted thattherewasnosubsidy
intheprogramme. Healsoexplained Brazilian government procurement procedures atthefederal,
stateandmunicipal levels; the"Law ofSimilars" wasapplied under verystrict conditions. Brazil
wasclosely following discussions ongovernment procurement attheregional andmultilateral levels.
Concerning standards, Brazil hadalready adopted theWTO Code ofGood Practice. Brazil was
committed totransparency inelaborating itsstandards, thusguaranteeing thatBrazilian norms could
notbeusedastrade barriers.
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Sectoral aspects
Members acknowledged Brazil 'simportant steps towards greater economic openness andthe
legalchanges undertaken toattract foreign investment insectors suchasenergy, telecommunications
andmining.Liberalizationhadexposedanumberofsectorstostrongimportcompetition;thus,requests
forassistance hadincreased. Members wereoftheopinion thatmacroeconomic adjustments torestore
competitiveness were more effective thansuchsectoral assistance.
Members recognized thatBrazil wasacompetitive, major producer andexporter ofagricultural
products. Nevertheless, agriculture received considerable financial support through minimum price
supports andrural credits, while large subsidies were given totheNational Alcohol Programme
(PROALCOOL). Brazil wasasked toclarify theeconomic rationale ofthesesubsidies andfuture plans
fortheprogramme.
Noting thattheBrazilian Coffee Institute hadbeen abolished, members asked Brazil for
information ontherecent creation ofaDeliberative Coffee Council. Information wasalsorequested
onthejustification under WTO rulesforthephytosanitary measures affecting certain banana imports.
Brazil 'sautomotive régime, containing hightariff aswellasTRIMs measures suchaslocal
content andexport performance requirements, wasofgreat concern tomembers. They pointed out
thattherégime afforded higheffective protection totheindustry andappeared inconsistent withWTO
rules. Members sought information onthetariffquota system forvehicles recently introduced byBrazil.
Memberswelcomedtheprivatizationandliberalizationprogrammesinvariousserviceindustries
which, however, hadyettoreach some sectors. Theconstitutional changes toopenpartially activities
suchastelecommunications andmaritime transport were alsoappreciated butconcerns were raised
onremaining constraints toforeign investment, particularly inbanking andinsurance. Members
requested information onplans forgreater liberalization inthose areas.
Therepresentative ofBrazil, explaining thesectoral distribution oftariffs, stressed thatthe
application ofcontingency measures wasintended toremedy unfair trade practices andrespond to
structural problems inthecontext ofamore openenvironment. Brazil 'suseofsuchmeasures thus
reflected itsstrong commitment toWTO rules andprinciples.
Therepresentative noted thatstateinvolvement intheagricultural sector through minimum
pricesandruralcredithaddecreasedsharplyduringthe1990s.Simultaneously,bothprivateinvolvement
andtheuseofmarket-based programmes hadgrown. Heemphasised that,despite reduced government
assistance, agricultural production andproductivity hadincreased significantly.
OntheDeliberative Coffee Council, therepresentative saidthatthecouncil, withgovernment
andprivate sector representation, hadbeenrecently created todefine technical, research andfinancial
policies andprogrammes forthecoffee industry. Onphytosanitary measures affecting banana imports,
hestated thatBrazil wasprepared toallow banana imports assoonasthere wasscientific proof that
theydidnotrepresent arisk. TheBrazilian authorities werealready engaged indiscussions withthe
WTO member concerned.
Therepresentative pointed outthatPROALCOOL hadtwocomponents: aresidual programme
aimed tosupplying existing alcohol-powered vehicles, andonefortheproduction ofgasoline additives
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forenvironmental reasons. Healsoindicated thattheprogramme wasfinanced, withdecreasing costs,
from other energy sources.
Therepresentative ofBrazil recalled theimportance ofthevehicle sector andthereasons that
hadledtotheadoption ofBrazil 'sautomotive regime. InBrazil 'sview, sucharegime wasrequired
toharmonise investment conditions andavoid distortions within MERCOSUL during thetransition
period allowed bytheTRIMs Agreement. Theregime, including changes introduced inDecember
1995, wasleading totheindustry 'smodernization, increased competition, lower production and
investment costsandahigher import content ofvehicles. Asaresult, effective protection forvehicles
wasbeing reduced. Therepresentative added thatfollowing talkswithconcerned trading partners,
Brazil hadunilaterally introduced atariff quota system which, inhisopinion, should greatly enhance
access totheBrazilian market.
TherepresentativeofBrazildiscussedBrazil'sactiveparticipationintheUruguayRoundservices
negotiations andtheongoing discussions under GATS. Heoutlined thelegalframework forthebanking
andinsurance industries. Newconstitutional amendments andenabling lawswerestillunder discussion.
Given thecomplexity oftheissues involved, itwasnotpossible toprovide adateforchanges tothe
framework. Inthemeantime, access tothelocalmarket byforeign firms inbothsectors wasconsidered
onacasebycasebasis. Therepresentative noted therecent promulgation ofaconstitutional amendment
ending themonopoly onreinsurance andopening ittoprivate participation, aswellashisGovernment 's
interest inpromoting foreign participation inhealth insurance. Ontelecommunications, henoted that
anewlawhadbeenapproved allowing foreign participation, rising to100percentfrom July1999,
incellular, satellite andcable services; newcontracts wereexpected tobeawarded fromearly 1997.
Miscellaneous
Miscellaneous questions wereraised ontheimplementation ofthe1993 decision toprivatize
theharbours andtheexpected dateforintroduction ofregulations toeliminate restrictions inmaritime
navigation. Theshipping freight taxandlighthouse duties werealsoseenasdiscriminatory. Itwas
alsonoted thatunexpected changes totheimport regime forthefreetradezoneofManaus hadaffected
traders; inthiscontext, details were requested onthecurrent regime.
Therepresentative ofBrazil noted thata1995 constitutional amendment hadopened coastal
andinland shipping toforeign participation. Inaneffort toreduced thesocalled "Brazil cost", arecent
government decision hadallowed theprivatization offederally-supervised harbour services, although
certain infrastructure would remain under government control. Private ownership ofcertain specialized
terminals andsome other harbours wasalready possible.
Therepresentative ofBrazil commented thattheshipping freight taxserved toimprove the
merchant fleet, andwasthushelping thesector 'sadaptation toamore openenvironment. Thefreight
taxhadbeenreduced since 1990, while theAdditional PortTariff hadbeeneliminated. Lighthouse
duties werenavigation security-related charges levied onvessels fromcountries withwhich Brazil had
nobilateral agreements onmaritime transport. These duties werecurrently under assessment byhis
authorities.
Therepresentative indicated thattheincentives inthefreetrade zoneofManaus were part
ofaregional development programme. Import quotas -onlyapplied tofinished goods -hadnotbeen
filled andthushadnotrade effects. Imports fromthefreetrade zoneintoBrazil weresubject tothe
common external tariff.
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Membersnotedtheimpressiveprogressachievedoverthepastfewyearstowardsmacro-economic
stabilization, tradeliberalization andamoreopeninvestment regime. Theywelcomed Brazil 'semphasis
ontheirreversibility oftheliberalization process, aswellasitsstrong statement ofcommitment to
themultilateral process and"open regionalism".
Despite thisgenerally positive assessment, members voiced anumber ofconcerns including
thegapsbetween tariffbindings andapplied rates, therelatively frequent resort toanti-dumping actions,
recent safeguards measures, andcontinuing restrictions intheservices sector. Thehighlevel of
protection intheautomotive sector wasparticularly commented on.
Members were conscious oftheadjustment difficulties associated withradical economic
restructuring andacknowledged therecent concerns inBrazil arising fromtradeimbalances. However,
theystrongly encouraged perseverance withthemacroeconomic reform programme, resistance to
protectionist pressures andstrict adherence toWTO rules andprocedures. Given Brazil 'sevident
importance totheregion andtotheworld economy, success intheseareas-leading tolong-term stability
andopenness oftheBrazilian economy -willhave repercussions going farbeyond thedomestic
environment.
END