WORLD TRADE  
ORGANIZATION  G/SCM/Q2/BRA/11 
23 February 2004 
 (04-0746) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Questions from the UNITED STATES Regarding  
the New and Full Notifications of BRAZIL1 
 
 
 The following communication, dated 19 February 2004, is being circulated at the request of 
the Delegation of the United States.  
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I. General Questions 
 
1. Could Brazil please clarify whether the following programmes continue to exist: 
 
• Programme for Pasture Improvement (PROPASTO) 
• SOLO/WAREHOUSE 
• MODERFROTA 
• The Brazilian Beef Processors and Exporters Association (ABIEC) 
 If so, please explain why they do not qualify as no tifiable under Article 25 of the Agreement on 
Subsidies and Countervailing Duties (SCM Agreement).  If they do qualify as notifiable, please 
provide the information required under Article 25.   
 2. It is our understanding that Brazil’s Nati onal Bank for Economic and Social Development 
(BNDES) provides export financing to support th e production and commercialization of exports 
through the BNDES ExIm program me. We understand that there are three types of BNDES ExIm 
Financing: pre-shipment financing, special pre-ship ment financing and post-shipment financing.  The 
BNDES ExIm financing programme appears specific  in that the eligibility for the financing is 
contingent upon export performance.  There also appears to be a benefit to the extent that the interest 
rates on these loans are lower than the interest rates on comparable commercial loans. 
 
• Could you please comment on whether the above description of the BNDES ExIm 
programme is accurate?   
• Please explain why this programme does not qualify as notifiable under Article 25 of the 
SCM Agreement.  If it does qualify as notifiabl e, please provide the information required 
under Article 25.  
 3. The following is the United States’ unde rstanding of the FINAME programme.  It is 
administered through BNDES and agent banks thr oughout Brazil, was established in 1966 by Decree 
No. 59.170 of 2 September 1966 and Decree/Law No. 45 of 18 November 1966.  FINAME loans 
                                                     
 
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 provide capital financing to companies located in Brazil for the acquisition or leasing of new 
machinery and equipment.  Although financing is available for both machinery manufactured in 
Brazil and non- domestic machinery, almost all FINAME financing is provided for new machinery 
and equipment manufactured in Brazil and is av ailable for non-Brazilian machinery only when 
domestically manufactured machinery is unavailable. 
 
 Regarding the FINAME programme, please explain why this programme has not been notified under Article 25 of the SCM Agreement.  Also please address the following:  
• Please comment on whether the above description of the FINAME programme is accurate.   
• Please specify the requirements for companies to  receive assistance through both the "old" 
(i.e., pre-1997) and "new" (i.e., 1997 onward) FINAME programmes.  In particular, please 
highlight any differences in the eligibilit y criteria between the two programmes. 
• Has the GOB granted any new financing to any enterprises under the old FINAME 
programme since 1 January 2000?  
• It appears that financing under the ol d FINAME programme may constitute an 
import-substitution subsidy that  is prohibited under the Agreement on Subsidies and 
Countervailing Measures.  If this programme h as been discontinued, please provide citations 
to the relevant legislation or regulations. 
 
4. The following is the United States’ unders tanding of the BNDESPAR programme.  In 1992, 
BNDES established BNDESPAR to de velop and promote the Brazilian capital markets, and to 
encourage the sale of BNDES’s fi nancial assets of convertible debentures and shares (including 
privatization currencies) in pub lic companies to outside investors as part of Brazil’s National 
Privatization Programme (NPP).  U nder the NPP, BNDES authorized financial agents to acquire and 
resell these privatization currencies to themselves and/ or their clients via instalment payments through 
individual or collective financing facilities provided by  BNDES.  The top five recipients of these loan 
approvals (which includes the steel industry) represent over 80 per cent of the BNDESPAR loans 
approved in 1995.   This programme appears specific in that it is limited to a group of enterprises or 
industries and provides a benefit to the extent that the interest rates on the loans are lower than the 
interest rates on comparable commercial loans. 
 
• Please comment on whether the above description of  the BNDESPAR programme is accurate.   
• Please explain why this programme has not been notified under Article 25 of the SCM 
Agreement?  If the programme is notifiable, please provide all relevant information as 
stipulated under Article 25.  
 
5. The following is the United States’ understa nding of Pro-Industria.  The programme provides 
a tax- deferral administered by the Development Bank of Minas Gerais (BDMG), set up by the state government of Minas Gerais with two purposes: (1) to increase the Tax for Operations Relating to the 
Circulation of Merchandise and Services of Inters tate and Intercity Transport and Communication 
(ICMS), a value-added tax revenue, a nd (2) to encourage all industries in the state of Minas Gerais to 
expand their current production fac ilities.  Information shows that the automobile and steel industries 
have received a disproportionate share of the tax deferrals under this programme (the tax deferrals 
granted to these two combined industries, from 1997 through 2000, amount to more than sixty per 
cent of total tax deferrals provided).  This progra mme appears to be limited to a group of industries 
and provides a financial contribution because the gove rnment is not collecting tax revenue that is 
otherwise due. Because the
 Pro-Industria programme provides a one-y ear tax deferral, a benefit exists 
to the extent that appropriate in terest charges are not collected. 
 
• Please comment on whether the above description of the Pro-Industria programme is accurate.    G/SCM/Q2/BRA/11 
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 • Please explain why this programme has not been notified under Article 25 of the SCM 
Agreement?  If the programme is notifiable, please provide all relevant information as 
stipulated under Article 25.  
 6. The following is the United States’ understa nding of the Programa de Financiamento as 
Exportacoes.  The PROEX programme, preceded by FI NEX, is administered by the Banco do Brasil. 
PROEX funding is available to Brazilian companie s involved in exporting only. PROEX funds are 
available in two forms: (1) PROEX Financing, wh ich involves the direct financing of a company’s 
exports and (2) PROEX Equalization, which reimbur ses certain interest costs to Brazilian exporters. 
Under the PROEX Equalization programme, exporte rs discount their receivables with a private 
lender.  After payment is collected by the private bank from the customer, the GOB remits to the bank 
the difference between the financing costs collected  from the exporter and the financing costs that 
would have been collected based on international in terest rates at the time.  The private bank then 
forwards this differential to the Brazilian company.   Thus, the Banco do Brasil, in effect, reimburses 
the exporter for a part of the financing costs actuall y incurred so that the net financial costs to the 
Brazilian company are consistent with financial expenses incurred in the international market. 
 
• Please comment on whether the above description of the PROEX programme is accurate. 
• In course of WTO dispute settlement, PROEX was determined to be an export subsidy, as 
described under Article 3 of the SCM.  Please detail precisely which provisions have been 
revised and how they have been changed to implement the WTO’s finding in the Brazil Export Financing case.  
 
7. The following is the United States’ unde rstanding of the Presumed Tax Credit for the 
Programme of Social Integration and the Social C ontributions of Billings on Inputs Used in Exports 
(PIS/COFINS).  In 1996, through Law 9363, the GOB  established the PIS and COFINS tax credit 
programme to provide a rebate of PIS and COFI NS contributions assessed on the purchase of raw 
materials, intermediate products, and packing materials used in the production of exports.  The PIS 
and COFINS  "presumed" tax credit was established to prevent the cascading effect of these taxes, 
which accrue at each point in the chain of production.  A company calculates its own PIS and 
COFINS credit, on a monthly basis, using a standard  formula established by Law 9363, and claims the 
credit by making deductions from the Industrial Prod ucts Tax (IPI) due.  The only limitation imposed 
on companies making rebate claims is that the clai ms are limited to those inputs defined under the PIS 
and COFINS rebate law.  Companies report their purchases of inputs based on the assumption that all 
goods purchased are consumed equally in exporte d and domestically sold goods.  Because PIS and 
COFINS rebates are calculated based on a compan y’s export revenue, i.e., are available only to 
exporters, this programme also appears to be speci fic. Furthermore, credit through this programme 
could be considered excessive as it appears not to  be tied to the actual tax incidence of PIS and 
COFINS taxes paid on inputs consumed in the production of the exported merchandise.  
 
• Please comment on whether the above description of the PIS and COFINS tax credit 
programme is accurate.   
• Please explain why this programme has not been notified under Article 25 of the SCM 
Agreement.  If the programme is notifiable, please provide all relevant information as stipulated under Article 25.  
• Because rebates under this programme are ba sed on export revenue and appear to be 
excessive, this programme could be considered a prohibited export subsidy under Article 3 of 
the SCM Agreement.  Please provide an explanation as to why this programme would not be 
considered an export subsidy under Article 3 of the SCM Agreement. 
 G/SCM/Q2/BRA/11 
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 II. Industrial Technology Development Pr ogramme (PDTI) and Agriculture/Cattle 
Breeding Technology Development Programme (PDTA) 
 
1. Please describe the industries that benefit from aid through the PDTI/PDTA programme as 
well as any other requirements, apart from those stated  in this document, for companies to receive aid 
through this programme.  
III. "Superintendência para o Desenvolvimento da Amazônia" (SUDAM), and 
"Superintendência para o Desenvolvimento do Nordeste" (SUDENE) 
 
1. Please describe the industries that bene fit from aid through the SUDAN/SUDENE 
programme as well as any other requirements, apart fro m those stated in this document, for companies 
to receive aid through this programme. 
 
IV. "Fundo de Investimento da Amazônia" (FINAM) and "Fundo de Investimento do 
Nordeste" (FINOR) 
 
1. Please describe the industries that bene fit from aid through the FINAM and FINOR 
programmes as well as any other requirements, ap art from those stated in this document, for 
companies to receive aid through these programmes.  2. Please also explain what criteria are used to determine whether a project is "relevant to the 
region".   V. "Fundos Constitucionais de Financiamento do Nordeste, do Nort e e do Centro-Oeste" 
(FNE/FNO/FCO) 
 
1. Please describe the industries that benefit from aid through the FNE/FNO/FCO programme as 
well as any other requirements, apart from those stated  in this document, for companies to receive aid 
through these programmes.  
VI. Discontinued Programmes 
 
1. Regarding the BEFIEX ("Programas Especiais de Exportação) and IPI tax break programmes, 
please provide all details regarding the discontinuati on of these programmes, including citations to the 
relevant legislation or regulations.  
 
2. Regarding the IPI tax break programme, please confirm that no steel companies have received 
tax breaks through this programme since its elimination in 1996.  Please also confirm that the tax 
exemptions under both Law 2894 and Law 7554/86 have been discontinued as well.   
VII. Incentives to Strategic Industries  
 
 It has been brought to our attention that the Government of Brazil had plans to introduce 
export incentives and subsidies.  The new incentiv es would reportedly target industries in which 
global demand is growing by 10 per cent a year as well as slower growth sectors that are strategic to Brazil, such as steel and soybeans.   Please provide  a description, including information regarding the 
current status of this proposal/pr ogramme, and an explanation as to wh y it would not be considered an 
export subsidy under Article 3 of the SCM Agreement. 
 
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