WORLD TRADE  
ORGANIZATION  G/SCM/Q2/BRA/25 
10 February 2011 
 (11-0668) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Questions posed by the UNITED STATES regarding the New and Full  
Notification of BRAZIL1 
 
  The following communication, dated 7 February 20 11, is being circulated at the request of the 
delegation of the United States.  
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Support Program for the Development of the Pharmaceutical Productive Chain 
(PROFARMA – Innovation) 
 
Question 1 
 
 Can Brazil provide further deta ils on the terms under which the government undertakes equity 
participation in a company or participation in a project's revenues?  How does the government assess 
the risks of funding the company or project wh en deciding whether to provide support under this 
programme? 
 
Question 2 
 
 Brazil's notification indicates that the progra mme "will be due in August 2012."  Does this 
mean the programme will be terminated at that time?   If the programme will be terminated, what will 
happen to loans and government equity in place at that time? 
 
Capacity Building and Competitiveness E nhancement in Information Technology 
 
Question 1 
 
 Can Brazil provide further deta ils on the industries that qualify for an exemption or reduction 
in the indirect Tax on Industrialized Products (IPI)?   Is there a definition for qualifying "information 
technology goods"?  Is there a more precise definiti on of the qualifying "raw materials, intermediate 
goods and material from used packages"? 
 
                                                     
 
1 G/SCM/N/BRA/186 G/SCM/Q2/BRA/25 
Page 2  
 
  Productive Development Policy (PDP) 
 
Question 1 
 
 Can Brazil provide further details on the nature  and terms of the "reduction in the indirect 
taxes PIS and COFINS" mentioned in paragraph 5(a) of the description of this programme?  
For example, how much are these taxes redu ced?  How is that reduction accomplished? 
 
Question 2 
  Can Brazil provide further details on the natu re and terms of the "i ncome tax postponement, 
as a result of accelerated depreciation" mentioned in pa ragraphs 5(b) and (c) of the description of this 
programme?  
Question 3 
 
 Can Brazil provide further details on the qua lifications for receipt of the income tax 
postponement mentioned in paragraphs  5(b) and (c) of the description of this programme?  Is there a 
particular definition of qualifying "capital goods industries"?  
Investment Funds for the Amazon, the Northeast Regions and the State of Espírito Santo 
(Finam/Finor/Funres)  
Question 1 
 
 Can Brazil provide further details on the te rms under which the government undertakes risk 
capital investments under this programme?  How do es the government assess the risks of funding the 
company or project when deciding whether to provide support under this programme?  
Question 2 
 
 Can Brazil provide further details regarding wh at types of projects are "considered to be 
relevant to the region" under this programme.  Ar e there any criteria that govern an assessment of 
whether a project involves "activities that foster regional or local development"?  
Constitutional Funds for Financing the Nort heast, the North and the Midwest Regions 
(FNE/FNO/FCO) 
 
Question 1 
 
 Can Brazil provide further deta ils on the terms of the loans under this programme (i.e. how 
are the repayment periods and interest rates determined)?  Programmes Not Notified 
 
 The United States notes that a number of progr ammes discussed in the course of previous 
Brazilian notifications and Trade Policy Reviews re main unnotified in Brazil's latest New and Full 
Notification.  For example, various sections of th e Secretariat Report of Brazil's latest Trade Policy 
Review (Report), WT/TPR/S/212, indicate what appear  to be notifiable subsidy programmes.  As the 
Report notes, "The legal framework for production a nd investment is somewhat complex due to the 
large number of tax and incentive schemes."  Br azil, however, has not provided the requisite 
information pursuant to Article 25 of the SCM Ag reement or has notified programmes only in part. 
  G/SCM/Q2/BRA/25 
 Page 3 
 
 
  These include, but may not be limited to: 
 
• Special System of Industrial Depots Subject to Standardized Control (RECOF) 
• Export-Processing Zones (EPZ); 
• Ministerial Act SECEX No. 12 export-related tax concessions; 
• Low-cost credit through BNDES and other official sources; 
• Law No. 9,826 of 23 August 1999, reducing IPI taxes for the automotive industry; 
• State and federal incentives in the Manaus Free Trade Zone (ZFM); 
• Ministry of Science and Technology (MCT) R&D incentive programmes; 
 Moreover, many of these programmes appear to  have export performance and/or local content 
requirements.  In this regard, we note that in its recent Trade Policy Review, Brazil has asserted that 
many of these programmes are consistent with the SCM Agreement because "their financial costs are 
fully covered, at interest rates compatible with t hose of the international market."  However, as the 
Secretariat Report notes with regard to BNDES credit programmes, "credit is ma de available at rates 
significantly below market rates, and in some cases are linked to local-content requirements." 
 
 Please explain why the programmes listed above have not been notified to the WTO, pursuant 
to Article 25 of the SCM Agreement.  
Question 1 
 
 Please also explain how each of the programmes below is consistent with Brazil's obligations 
under Article 3 of the SCM Agreement: 
 
(a) Ministerial Act SECEX No. 12 tax concessions  for certain export-related activities; 
(b) Low-cost credit for the purchase of domest ic-origin goods through BNDES and other 
official sources; 
(c) State and federal incentives and tax exempti ons for export-oriented activities in the 
Manaus Free Trade Zone (ZFM). 
Decree No. 28.104/2001 
 
 Responding to questions from the United Stat es for earlier notification periods, Brazil has 
previously provided information on the State of Rio de Janeiro's Decree No. 28.104/2001.  
We appreciate the information provided by Brazil on Decree No. 28.104/2001.  We would, however, 
appreciate further clarification on the fo llowing questions regarding this decree. 
 
Question 1 
  Please explain whether this law remained in effect during the current reporting period of 
fiscal years 2007 through 2008.  Is there an expiration da te or other expected end to the application of 
this law?  G/SCM/Q2/BRA/25 
Page 4  
 
  Question 2 
 
 In earlier notification periods, in response to  questions about whether soda ash producers 
could be receiving a specific subsidy under this programme, Brazil has stated that there was "presently" no soda ash production in the State of Ri o de Janeiro.  Can Brazil provide information as 
to whether there was any soda ash production in the current reporting period? 
 
"Automatic BNDES" and FINAME 
 
 The United States understands that the "A utomatic BNDES" and FINAME financing 
programmes of the BNDES (National Bank for Econom ic and Social Developm ent) provide loans and 
asset-based financing for the acquisition of new machinery and equipment manufactured in Brazil 
(or other Mercosur countries).  Brazil has previ ously asserted in the 2004 TPR that these programmes 
are consistent with the Subsidies Agreement because "financial costs are fully covered, at interest 
rates compatible with those of the international ma rket" and noted that the interest rate charged to 
recipients is sufficient to cover the costs of bot h the government and financ ial institutions providing 
the financing.  Based on the Secretariat's report in Brazil's latest Trade Policy Review, these programmes appear to be contingent upon  the use of domestic over imported goods. 
 
Question 1 
 
Could Brazil further describe the terms of financing provided under these programmes?  
Are the interest rates charged under these programmes above the interest rat es the loan recipients 
would have paid on a comparable commercial loan?  
Question 2 
 
 Please describe the requirements under these programmes to purchase domestic goods.   
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