WORLD TRADE  
ORGANIZATION  G/SCM/Q2/BRA/12 
3 August 2004 
 (04-3310) 
Committee on Subsidies  
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to Questions Posed by the UNITED STATES1 
Regarding the New and Full Notifications of BRAZIL2 
  
 The following notification, dated 23 July 2004, is being circulated at the request of the 
Permanent Mission of Brazil.  
_______________ 
 
  With regard to the written questions circul ated by the Government of the United States 
concerning the notification made by Brazil on the Committee on Subsidies and Countervailing 
Measures, the Brazilian Government makes the following comments.   
 
I. GENERAL QUESTIONS 
 1. Could Brazil please clarify whether th e following programmes continue to exist: 
 
• Programme for Pasture Im provement (PROPASTO) 
 
• SOLO/WAREHOUSE 
 
• MODERFROTA 
 
• The Brazilian Beef Processors a nd Exporters Association (ABIEC) 
 If so, please explain why they do not qualify as notifiable 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. 
 
Reply
 
 
 The PROPASTO programme (Programa Nacional de Recuperação de Pastagens Degradadas) 
was absorbed in August 2003 by MODERAGRO (P rograma de Modernização da Agricultura e 
Conservação de Recursos Naturais).   There is no such a programme called “Ware house”.  The existing warehouse programme is 
called MODERINFRA (Programa de Incentivo à Irrigação e à Armazenagem). 
 
                                                     
 
1 G/SCM/Q2/BRA/11 
2 G/SCM/N/71/BRA-G/SCM/N/95/BRA G/SCM/Q2/BRA/12 
Page 2  
 
  The current programmes MODERFROTA (Programa de Modernização da Frota de Tratores 
Agrícolas e Implementos Associados e Colheitade iras) and PROSOLO (Programa de Incentivo ao 
Uso de Corretivos de Solos) were put in force in 2000.   All of them are non-specific programmes, and thus do not require notification under 
Article 25 of the ACM.  
  The Brazilian Beef Processors and Exporters Association (ABIEC) is a private association 
that does not receive any support of the GOB.  
 2. It is our understanding that Brazil´s National Bank for Economic and Social Development (BNDES) provides export fina ncing to support the production and 
commercialization of exports through the BNDES Exim programme.  We understand that there 
are three types of BNDES Exim Financing: pre-shipment financing, special pre-shipment 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 qua lify as notifiable under Article 25 of the 
SCM Agreement. If it does not qualify as notifiable, please provide the information required under Article 25.  
Reply
 
 
 The general description of the programmes is correct.  The BNDES-Exim provides financing 
to the production and commercialization of pro ducts bound to be exported by means of three 
mechanisms: pre-shipment; special pre-shipment; and post-shipment financing.  
 The BNDES-Exim is a non-specific programme, according to the Article 2 of the SCM 
Agreement, in so far as it is available to all expor ting companies, regardless of having any previous 
experience on the export market or not.  The list of  eligible goods covers over 80% of the goods 
exported by Brazil.   
 Furthermore, the BNDES-Exim provides no be nefit, according to Article 1 of the SCM 
Agreement, in so far as the interest rates ch arged are not lower than those available on the 
international market.  
3. The following is the United States´s understanding of the FINAME programme.  It is 
administered through BNDES and agent banks th roughout Brazil, was established in 1966 by 
Decree 59.170, of 2 September 1966, and Decree Law No. 45 of 18 November 1966.  FINAME 
loans provide capital financing to companies located in Brazil for the acquisition or leasing of new machinery and equipment.  Although financing is avaiable for both machinery manufactured in Brazil and non-domectic machin ery, almost all FINAME financing is provided 
for new machinery and equipment manufactured in Brazil and is avaiable for non-Brazilian 
machinery only when domestic  machinery is unavailable. 
  Regarding the FINAME programme, please ex plain why this programme has not been 
notified under Article 25 of the SCM Agree ment.  Also please address the following: 
  G/SCM/Q2/BRA/12 
 Page 3 
 
 
 • Please comment on whether the above description of the FINAME programme is 
accurate; 
 
• Please specify the requirements for compani es to receive assistance through the “old” 
(i.e., pre-1997) and “new (i.e., 1997 onward) FINAME programmes.  In particular, please highlight any differences in the eligibility criteria between the two programmes; 
 
• Has the GOB granted any new financing to any enterprises under the old FINAME 
programme since January 1, 2000? 
 
• It appears that financing under the old FI NAME programme may constitute an import-
substitution subsidy that is prohibited under the Agreement on Subsidies and Countervailing Measures.  If this programme  has been discontinued, please provide 
citations to the relevant legislation or regulations. 
 
Reply
 
  The FINAME programme was set up by Decree 59.170, of 2 September 1966, and by Decree 
Law 45, of 18 November 1966.  Its purpose is to pr ovide financing for the acquisition of machines 
and equipment, be they made in Brazil or imported. 
  Both exporting and non-exporting companies have access to the FINAME programme.  The 
interest rates charged under the FINAME programme ar e compatible with those of the international 
commercial market.  The FINAME has not been noti fied to the SCM, because it does not provide any 
kind of specific subsidy. 
 
4. The following is the United States´ understanding of the BNDESPAR programme.  In 1992, BNDES established BNDESPAR to develop a nd promote the Brazilian capital markets, 
and to encourage the sale of BNDES´financia l assets of convertible debentures and shares 
(including privatization currencies) in public compan ies to outside investors, as part of Brazil´s 
National Privatization Programme (NPP).  Unde r the NPP, BNDES authorized financial agents 
to acquire and resell these privatization currencies to themselves and/or their clients via installment payments through individual or collect ive financiang facilities provided by BNDES.  
The top five recipients of these loans approvals (which includes the steel industry) represent 
over 80% of the BNDESPAR loans approved in 1995.  This programme appears specific, in that 
it is limited to a group of enterprises or industr ies and provides a benefit to the extent that the 
interest rates on the loans are lower than the in terest 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 by Article 25. 
 
Reply
 
 
 The BNDESPAR, created in 1982, is an equity- portfolio, comprised of stocks of companies 
in which the BNDES is a shareholder.  Those st ocks are freely negotiated on the market, with no 
subsidy.  G/SCM/Q2/BRA/12 
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  As from 1991, after the Privatization Law, th e bonds issued by the National Treasury could 
also be used for payment of stocks of the companies included on the “Programa Nacional de 
Desestatização” (PND).       The securities held by the BNDES were sold to financial agents, who could resell them to the 
potential investors, exclusively for the acquisition of the stocks being negotiated under the PND.  
  In 1995, the securities held by the BNDES were  used for the payment of stocks in seven 
privatization operations.  In that year, no steel company was privatized.  The BNDESPAR was not notified under the SCM Agreement because it is not specific and provides no benefit.  
 5. The following is the United States` und erstanding 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, wi th two purposes:  (1) to increase the Tax for 
Operations Relating to the Circulation of Mech andise and Services of Interstate and Intercity 
Transport and Communications (ICMS), a value -added tax revenue, and (2) to encourage all 
industries in the State of Minas Gerais to expand their current producion facilities.  Information 
shows that the automobile and steel industries ha ve 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 sixt y per cent of total tax deferrals provided).  
This programme appears to be limited to a group of industries and provides a financial 
contribution because the government is not coll ecting tax revenue that is otherwise due.  
Because the Pro-Industria programme provides a on e-year tax deferral, a benefit exists to the 
extent that appropriate interest-charges are not collected.  
• Please comment on whether the above description of the Pro-Industria 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. 
 
Reply
 
 
 Pro-Indústria has been operative since 1994.  It  provides a tax-deferral scheme for applicants 
that conform to a list of pre-requisites.  It is “d e jure “ a non-specific programme with clearly spelled 
out criteria for eligibility.  Moreover, it has been also operated “de facto” as a generic programme, a 
fact that can be demonstrated by a well-bala nced assessment of the statistics and the economic 
environment to which Pro-Industria applies. 
 
 The respective shares of the automobile and   metallurgic sectors, as well as of other sectors, 
in total Pro-Industria operations did vary significantly along the years.     For instance, the share of the metallurgic se ctor (which encompasses not only siderurgy but 
also production of non- ferrous metals), ranged fro m 5,62 % in 1997 to 19,32 % in 2000.  In the case 
of automobile industry, its share dropped from 60, 58 % in 1997 (which coincided with expansion 
plans of the industry) to 34,62 % in 2003.    The same picture applies to other sectors.  Re garding the textiles industry, for instance, its 
share varied from 2,92 % in 1997 to 18,15% in 2003.  
  G/SCM/Q2/BRA/12 
 Page 5 
 
 
  It should be recalled, in this regard, that , according to Article 2.1 (c) of the ASCM, the 
pertinent provision on “de facto” specificity of the Subsidies Agreement establishes that  “...In 
applying this subparagraph, account  shall be taken of the extent of diversification of economic 
activities within the jurisdiction of the granting au thority, as well as the length of time during which 
the subsidy programme has been in operation”. 
 
 In light of the above, i.e. given the fact that  the Pro-Indústria programme is a “de jure” and 
has been “de facto” a generic subsidy, Brazil is under no obligation to notify it to the Committee on 
Subsidies and Countervailing Measures.  6. The following is the United States´ understanding of the Programa de Financiamento às Exportações (PROEX).  The PROEX programme, p receded by FINEX, is administered by the 
Banco do Brasil. PROEX funding is available to Brazilian companies involved in exporting 
only. PROEX funds are available in two forms: (1) PROEX Financing, which involves the direct financing of a company´s exports, and (2) PROEX Equalization, which reimburses certain 
interest costs to Brazilian exporters.  Under the PROEX Equalization programme, exporters 
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 co sts that would have been collected based on 
international interest rates at the time.  The private bank then forwards this difference to the Brazilian company.  Thus, the Banco do Brasil, in  effect, reimburses the exporter for a part of 
the financing costs actually incurred so that th e net financial costs to the Brazilian company are 
consistent with financial expenses in curred in the international market. 
 
• Please comment on whether the above description os the PROEX programme is 
accurate? 
 
• In course of WTO dispute settlement, PROEX wa s determined to be an export subsidy, 
as described under Article 3 of the SCM.  Please detail precisely which provisions have been revised and show how they have been changed to implement the WTO´s finding in 
the Brazilian Export Financing case. 
 
Reply
 
 
 The “Programa de Financiamento às Export ações” (PROEX) was set up in 1991.  It is 
administered by the Banco do Brasil and has two modalities: direct financing (PROEX financing) and interest rate equalization payments (PROEX Equalization).  In 2000 and 2001, the PROEX was 
adjusted, in order to conform itself to a WTO Dispute Settlement Ruling.   
 Article 1 of Resolution CMN 2799, of 6 Decemb er 2000, specified that financial equalization 
programmes involving exports of aircraft for regiona l aviation must not result in net interest rates 
lower than the CIRR applicable to the period and currency of the credit, as published monthly by the 
OECD.    
 In January 2001, Canada asked for permissi on to apply the countermeasures approved by the 
DSB and requested a new DSB proceeding.  The Pa nel concluded that the PROEX, as such, was not 
inconsistent with the SCM Agreement, since it was legally possible for Brazil to operate the 
programme in such a way that it would:  (a) not result in a benefit being conferred on producers of 
regional aircraft and hence not co nstitute a subsidy; or (b) not r esult in a benefit conferred, but 
conform to the interest rates provisions of the Arrangement on Guidelines for Officially Supported 
Export Credits, which would not constitute a prohibited export subsidy.  
 G/SCM/Q2/BRA/12 
Page 6  
 
 7.  The following is the United States´ und erstanding of the Presumed Tax Credit for the 
Programme of Social Integration and the Social  Contributions of Billing on Inputs Used in 
Exports (PIS/COFINS).  In 1966, through Law 9363, the GOB establishe d the PIS and COFINS 
tax credit programme to provide a rebate of PIS and COFINS 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 the taxes, which accrue at ea ch 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 clai ms the credit by making de ductions from the Industrial 
Products Tax (IPI).  The only limitation imposed on companies making rebate claims is that the 
claims 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 exported a nd domestically sold goods.  Because PIS and COFINS rebates 
are calculated based on a company´s export reve nue, i.e., are available only to exporters, this 
programme also appears to be specific.  Further more, 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 pr oduction 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 base d on export revenue and appear to be 
excessive, this programme could be consid ered a prohibited export subsidy under 
Article 3 of the SCM Ag.  Please provide an explanation as to why this programme would not be considered an export subsid y under Article 3 of the SCM Agreement. 
 Reply
 
  Law 9.363/96 provides a mechanism for the gradual rebate of the PIS and COFINS, with a view to partially  reducing their cascading effects on exports.  The rebate occurs only during two steps 
of the productive chain, regardless of the extent of the productive process.    
  It follows that, in contrast to the interna tional practice, Law 9.363/96 does not propitiate the 
whole elimination of PIS and COFINS on the productive chain on the whole.     The basis for the calculation of the rebate of PIS and COFINS,  such as established by 
Law 9.363/96, is not on the company’s revenue, but on indirect duties charged on the costs of 
production (inputs; intermediate pr oducts; and packing materials) th roughout the productive chain. 
  Because of this, the rebate mech anism does not qualify as a subsidy. 
 
 Law 10.637, of 2002, determined that the presumed charge of PIS does not apply to 
companies that calculate their income tax based on the real profit. More recently, Law 10.833, of 
29 December 2003, extended the same treatment to COFINS.   
II. INDUSTRIAL TECHNOLOGY DEVELOPMENT PROGRAMME (PDTI) AND 
AGRICULTURAL/CATTLE BREEDING TECHNOLOGY DEVELOPMENT 
PROGRAMME (PDTA).  G/SCM/Q2/BRA/12 
 Page 7 
 
 
  
1. Please describe the industries that benefit from aid through the PDTI/PDTA 
programme as well as any other requirements, apar t from those stated in this document, for 
companies to receive aid through this programme. 
 Reply
 
  The PDTI programme has been applied to a wide range of industries, including:  automobile/auto parts, civil aircraft, oil, petroche mical, pharmaceutical chemical, steel, metallurgical, 
food processing, home appliances, cosmetic, fertilizer, electronic and agricultural/cattle breeding, 
paper. 
  The PDTA programme applies to a wide range of vegetable varieties and animal species. Thus it is not a specific programme.  
 The Brazilian notification supplied the eligibilit y criteria for potential recipients, which are 
fully detailed in Law 8661, of 1993/6/2, and Decree nr 949, of 1993/10/5.  
III. “SUPERINTENDENCIA PARA O DESENVOLVIMENTO DA AMAZONIA” 
(SUDAM), AND “SUPERINTENDENCIA PARA O DESENVOLVIMENTO DO NORDESTE” (SUDENE) 
 
1. Please describe the industries that benefit from aid through the SUDAM/SUDENE programme as well as any other requirements, apar t from those stated in this document, for 
companies to receive aid through this programme.  
 Reply
 
  “Superintendencia para o Desenvolviment o da Amazonia” (SUDAM) was established by 
Law 5147, dated 27 October 1966, while the “Superi ntendencia para o De senvolvimento do Nordeste 
(SUDENE) was set up by Law 3692, dated 15 December 1959.  
 Their goal was to provide assistance to the economically disadvantaged Amazon and 
Northeast regions, by means of tax breaks.   Provisional Measures 2156-5 and 2157-5, of  August 2001, extinguished SUDAM and 
SUDENE and the programmes they administered.  Ho wever, contractual obligations incurred prior to 
those measures will be upheld and di sbursements be made until 2013.  
  The beneficiaries were industrial and agri cultural enterprises with undertakings in the 
Amazon or Northeast region.  None of the progr ammes that were managed by SUDAM and SUDENE 
contemplated export subsidies.  IV. “FUNDO DE INVESTIMENTO DA AMAZONIA” (FINAM) AND “FUNDO DE 
INVESTIMENTO DO NORDESTE” (FINOR) 
 1  Please describe the industries that benefit 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.  G/SCM/Q2/BRA/12 
Page 8  
 
 Reply
 
  The beneficiaries of the FINAM and FINOR programmes are producers and companies, whether individual persons or legal entities, as well as production cooperatives, that carry out productive activities in the crop/livestock, mineral, industrial and agro-industrial sectors of the 
Amazon and Northeast regions.  
  A project to be considered “relevant” shall fo ster economic growth in the regions where they 
are applied.   VI. DISCONTINUED PROGRAMMES 
 
1. Regarding the BEFIEX and IPI tax brea k programmes, please provide all details 
regarding the discontinuation of the programmes, including citations to the relevant legislation 
or regulations.     
 Reply
 
 
 The discontinued BEFIEX programme included a range of incentives that were abolished by 
the following legal acts:  
 Decree-Law 2433 of 1988/05/19, in article 32, repealed the Decree- Law nr 1219, of 
1972/05/15 that originally instituted the BEFIEX programme.  DL 2433, however, maintained in 
force some BEFIEX fiscal incentives applied to  Import Tax and Industrial Products Tax.  Those 
incentives were later abolished by Provisional M easure nr 280, of 1990/12/14 and Law nr 8661 of 
1993/06/02.  As previously informed, all existing BE FIEX contracts were terminated on 2002/12/31. 
 
2.  Regarding the IPI break programme, plea se 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.   
Reply
 
 
 The IPI tax break programs for the Braz ilian steel industry was in force until 
31 December 1996, when it was discontinued and all contracts terminated.  
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 incentives would reportedly target 
industries in which global demand is growing by  10% 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/programme, and its explanation as to 
why it would not be considered na export s ubsidy under Article 3 of the SCM Agreement.   
 
Reply
 
  The points raised probably relate to the new i ndustrial policy under consideration.  Subject to 
additional information that will be provided in due  course, we would like to indicate that these new 
policies do not contemplate export incentives and subsidies.  
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