. /.   WORLD TRADE  
ORGANIZATION  G/SCM/Q2/BRA/15 
2 May 2006 
 (06-2101) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES  
 
Questions from the UNITED STATES  
Regarding the New and Full Notification of BRAZIL1 
 
  The following communication, dated 28 April 2006,  is being circulated at the request of the 
Delegation of the United States.  
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  "Fundos Constitucionais de Financiamento do Nordeste, do Norte e do Centro-Oeste" 
(FNE/FNO/FCO)  
  
Q1. Please list the industries that benefit from aid through the FNE/FNO/FCO programme as well 
as the eligibility requirements, apart from those stated  in this document, for companies to receive aid 
through these programmes.   
Q2. Based on information from pubic sources, it app ears that financing through the FCO could be 
limited to products made in Brazil.  Please explain how  this program is consistent with Article 3(b) of 
the Subsidies Agreement.  General Questions
 
 
 In the last set of questions from the United States regarding Brazil’s 2003 subsidy notification 
(document G/SCM/Q2/BRA/11) we noted that Br azil’s FINAME program provides capital financing 
to companies located in Brazil for the acquisiti on or leasing of new machinery and equipment. 
 Q3. Please specify the requirements for compani es to receive assistance through the "old" (i.e., 
pre-1997) and "new (i.e., 1997 onward) FINAME progr ams.  In particular, please highlight any 
differences in the eligibility criteria between the two programs.   We note Brazil’s statement that "both exporting and non-exporting companies have access to the FINAME program" (See document G/SCM/Q2/BRA/12).  However, our questions pertain to 
whether this is an import-substitu tion subsidy under Article 3.1(b) of the Subsidies Agreement, not 
whether this is an export subsidy.    Q4. Please discuss why you do not believe this pr ogram to be an import-substitution subsidy. 
         
                                                     
 
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   It is our understanding that in April 2001, Brazil’s State of Rio de Janeiro granted local 
producers of soda ash a preferential rate for th e Merchandise and Service Circulation Tax (ICMS), 
which is applied to both imports and domestic pr oducts (See Decree No. 28.104, April 10, 2001).  
Specifically, an alternative ICMS rate of 2% was created for local salt refiners and soda ash producers, while the ICMX tax rate for all other soda  ash producers is 19%.   It appears that this tax 
break may provide a financial contribution in the fo rm of revenue forgone to the extent that the 
alternative tax rate of 2% reduces the amount of ta xes that local soda ash producers would otherwise 
pay.  This appears to be de jure specific.         Q5. Please explain how this tax exemption wo rks in practice and why the program does not 
qualify as notifiable under Article 25 of the Subsidies Agreement. 
  In June 2005, the Brazilian government presente d a Provisional Measure (the so-called "MP 
do Bem") for congressional approval.  This legislati on is aimed primarily at stimulating investment 
and reducing the tax burden on the productive sector.  The Provisional Measure (PM) includes, among 
other things, tax exemptions for capital goods inv estment by exporters (including exporters of 
software and information technology), incentives for the construction industry and the real estate market, tax benefits for companies that invest  in technological innovation, and incentives for new 
development projects in the North and Northeast of Brazil.    One of the provisions included in the PM creates a special tax regime called the "Recap", 
which will suspend the PIS/Pasep (Social Integrati on Program) and Cofins (Contribution to Social 
Security Financing) taxes on the sales and importa tion of new machinery and equipment for all firms 
of which 80% or more of revenues are export-related.  Another speci al tax regime called the "Repes" 
will be created to exempt software and IT exporte rs from paying the PIS/Pasep and Cofins taxes on 
purchases of goods and services.  The PM will also extend indefinitely the ability of firms to request 
the compensation of PIS/Cofins taxes on capital goods acquisitions over a 24- month period, and will 
also extend from end-2005 to end-2006 the use of CSLL (Social Contribution on Net Profits) 
compensation.   Q6. To the extent that the benefits provided unde r Brazil’ PM are contingent upon exports, this 
program could constitute a prohib ited subsidy.  Please explain how  this program conforms with 
Article 3 of the Subsidies Agreement. 
  
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