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DOCUMENTS "COM"
COM(79)506
Vol.1979/0172

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COMMISSION
OFTHE
:UROPEANCOMMUNITIES
GeneralSecretariatCOM(79)506 final
Brussels,27September 1
FOROFFICIAL USEONLY
Recommendation fora
COUNCILDECISION
authorizing theopeningofnegotiations withBrazil
(presentedbytheCommissiontotheCouncil)
C0M(79)506final

EXPLANATORY MEMORANDUM
(1)InOctober1977theBrazilian Government presented anaide-memoire
totheCommission proposingthatconsideration begiventotheideaofan
agreementwhichwouldbewiderinscopethanthetradeagreementinforce
since1974(2)andreflectthecurrentstateofeconomicrelations between
thetwoparties.
Exploratory talkswereheldinthespringof1978betweenBrazil's
MissiontotheCommunities andCommissionstaff.Thesewereresumedin
Mayofthisyear,afterthenewBrazilianGovernment hadreaffirmedits
interestinthematter,andconcludedon10July.Onthebasisofthose
talkstheCommissionisinapositiontopresentthefollowing recommenda­
tiontotheCouncil.
I.ThereasonsbehindBrazil'srequest
1.ExternaléconomieEç.liçy
TheBrazilianaide-memoire startedoffbymentioning thecountry's
successinrecentyearsindiversifying itsexternaleconomicrelations
inthefieldsoftrade,investment andsourcesoffinance,anditspoli­
ticalaimofconsolidating theseachia/ements.
UndertheGeiselgovernment,Brazil'sforeignpolicyunderwent
aradicalchangeofdirectionintheinterestsofaneconomicpolicy
designedtogivethecountrygreatpowerstatus.
Thenewapproachconsistedofbasingthecountry'sexternalties
thenceforward onobjectivecriteriaratherthanonthepoliticalcolouring
ofitspartners.ThisledBraziltosignificantly developjtstieswith
numerousLatinAmerican,AfricanandMiddleEasterncountries.Relations
withChinawererestoredin1974,atradeagreement hasbeensignedwith
theUSSR,andtradewithEasternbloccountriesisgrowing.
Thisdecadehasseenaconsiderable expansionofeconomiccoope­
rationwithJapan.Bybroadeningitsexternalhorizonsinthisway,
Brazilhasmanagedtoreduceitsdependence ontheUnitedStates.
./.
(1)COMSEC(77)3971:Councildoe.S/1798/77(COMER335)16.11.77
(2)OJNoL102,11.4.1974-AnagreementbetweentheEAECandBrazilwasconcludedin1965.
(3)In.aninterviewgiventoAFPon13June,Brazil'sMinisterforForeign
A.ffairssaidthattheBrazilian Governmentfeltitsrelationswith
theEEChadattainedadegreeofmaturityandsharedinterestwhich
calledfortheconstruction ofaninstitutional framework broader
andmoreambitiousthant.he1974tradeagreementcurrentlyinforce.

-2-
2.Internaieconomiç_goliçy
Brazilpointsinparagraph4ofitsaide-memoiretoastructural
changetakingplaceinthecountryasaresultofthegovernment'smedium-
termstrategy.
Thecountry'sgrowthmodelwasfoundedonrapidindustrialization ,
andthefirstNationalDevelopmentPlan(1972-74)sawtheinauguration of
vastdevelopment andinfrastructure programmes.Afterthe"miracle"years,
thecurbplacedonBrazil'sdevelopment bytheworldeconomiccrisisgave
thegovernment achancetotakestockofitspolicies.Whiletheoverall
long-termobjectiveisnaturallytostimulatethedevelopmentofthedomes­ticmarket>themedium-termstrategycontainedintheSecondPlan(1975-79)
hasthreeessentialfeatures :1.maximumexploitation ofenergyresour­
ces,2.anewboostforbasicindustries,withareturntoapolicyofim­
portsubstitution,3.increasedsupportforagriculture.Brazilhasnoted
thatitsheaviestimportexpenditure,whichinthelastanalysiscould
jeopardizeexpansioninthe-future,isgoingonoil,heavyplant,fertili­
zer,ironandsteel,rawmaterialsforthechemicalindustry,non-ferrous
metals,paperandwheat.
Transferringresourcesfromconsumerindustries (e.g.cars)to
basicindustry,inaccordancewiththeSecondPlan,involvesacertain
slowdowningrowth,sincetheinvestmentinminingandoildoesnot
immediately showareturn',butitalsomeansthatgrowthshouldbemore
balancedthaninthe1lastfewyears.
Thatisthegeneralbackgroundtopresentrelationsbetween
BrazilandtheCommunity.
3.grazil_-_EEC_relations
Whilewelcoming(inparagraph2oftheaide-(nemoire)the growth
ofitseconomicrelationswiththeCommunityintheformoftradeand
investment,Brazilnotes(in .paragraph6)thatitsexportsarestilltoo
heavilyconcentrated' oncommodities,whereasithassucceededindiversi­
fyingexportstotheUnitedStatestoamuchgreaterextent.
-ThusoneofBrazil'sprimeconcernsisgreaterdiversification
ofitstradewiththeCommunity.
./.

-3-
AsregardsitseconomicrelationswiththeCommunity,whichitisseekingtodevelop,Brazilisproposingthatfuturetiesbetweenthepartnersbeorganizedonabroadbasisofcooperation.Paragraph3oftheBrazilianaide-memoirestressesthecountry'snaturalresourcepotential,opportunitiesforinvestmentlinkedtoanincreaseinexports,
importsubstitutionandthegeneralexpansionofthedomesticmarket.

-4-
II.Theexploratorytalks
1.Type_of_agreement
TheexploratorytalksconfirmedtheapproachsetoutintheBrazi­
lianaide-memoire .
Brazil'saiminaskingforanewagreementwiththeCommunityis
toencouragecollaborationinthecountry'sdevelopment,particularlythroughcooperationintheproductionofcertainprimaryorintermediateproductsnecessarytothedevelopmentprocess.Suchcooperationwouldincreasethe
flowoftrade,boththroughimportsofEuropeancapitalgoodsandthrough
thegrowthofBrazilianexportsconsequentontheirdiversification,asthenewproductsstemmingfromcooperationcouldalsobenecessaryfor
theactivitiesofEuropeanorotherfirms.
Thiswouldthereforebeatradeandeconomiccooperationagreement.
Brazilwasinsistentthatthenewagreementshouldbeaflexible
one,becauseoftheparticularlyrapiddevelopmentofinternationalecono­
micrelations.Brazil'seconomyanditstradeareintheprocessoftrans­
formation,andthesameistrueoftheCommunity,whichisinthemidst
ofstructuraladjustment.Ittakestimetobuildtradeandeconomiccoope­ration;overspecificcontractualprovisionswouldbemore-ofahindrance
thanahelptotheprocess.
Whatisenvisaged,therefore,isaframeworktypeofagreement
settingoutgeneralaimsandmeansofaction,leavingtheactualfulfil-
mentoftheaimstoeconomicagents,encouragedbythecqntactsandin­
formationwhichtheagreementisdesignedtofacilitate.
Brazilhasalsoaskedthattheagreementshouldcontainan
acknowledgement ofitsstatusas.adevelopingcountry,asisthepracticeininternationalbodies.Ittherebyintendstosecurealegitimatebasis
forpossiblerecoursetothestage-of-developmentlineofargument.This
wouldapplybothinthefieldoftrade(subsidiesandlimitsontheCom­
munity'srighttotakedefensivemeasures)andalsowithregardto
industry(incentivesandprotection).
./.

-5-
TheCommissionpointedoutthattheconceptofdegreeofdevelopment
didnotautomatically finditsplaceinaframeworkagreement.Thisdoes
notmean,however,thatnoaccountwillbetaken,inthecooperation _
betweenthetwoparties,oftheirrespectiveeconomicsituations.
Brazildidnotappearwillingtoabandontheprinciplebehindthis
demand.
2.Trade_çoogeration
Tradecooperationwouldtaketheformofconsultations between
thepartnersonsectoralproblems,withtheaimofenablingBrazilto
planitstradestrategysothattheCommunitywouldnothavesuddenrecoursetosafeguardclausesinresponsetocriseswhichcouldbeavoided
byconcertedaction.
TheBrazilianGovernmentisunabletoguaranteetheCommunitysup­
pliesofrawmaterialsorsemi-finishedproducts.However,itiswillingtodiscussthematterwithacompletelyopenmindonthejointcommittee.
Commissionstaffhaverecentlyreceivedinformationregardinga
problemofinternationalfreightinsurance:thefactthatimportandex­portfreightinsuranceoperationsarereservedfornationalfirmsalone.Itwasnotpossibletoraisethisprobl-emwithBrazilbeforetheexplora­
torytalksfinished,buttheCommissionfeelsitshouldbebroughtupin
thecourseofthenegotiations forthenewagreement.
3.Economi^coopération
Brazilhastwo.aimshere,.:tohastenthetransferofactivity
towardsitself,andtobroaden'
theproductionrangeofitsbasicindustries.Tothisenditseeks-vcooperationwithindustrializedcountriesintheformofinputsof
capitalandtechnology.
IndustrialdevelopmentinBrazilistoalargeextentunderthe
controlofpublicbodies,whoseapprovalandsupervisionarerequired
foranyinvestmentortransferofprofits.Theobjectofthiscontrolis,amongotherthings,todirectinvestmenttowardscertainsectorsandensurethatBrazilianfirmsareadequatelyrepresentedandprotected <
wheretheyareactiveinthesamesector.Thissystemalsooffersforeigninvestorscertaintaxincentivesandguaranteesastotherepatriationof
profits.
./.

Foreigninvestmentsaretreatedinthesamewayasdomesticones,
andBrazilisagainstnegotiatingprotectionagreementswithitspartners
whichwouldbeboundtocausepracticalandpoliticalproblemsforthe.
country.Numerousinvestments havecomeinunderthecurrentrulesfrom
varioussources,amongthemtheCommunity,andBrazilispleasedwiththe
growthofforeigninvestmentandtherisingrateofreinvestment ofpro­
fits(1).Thisshows,Brazilfeels,thatthecountrydoesnothavea
protectionproblem.
Technologycontractsarealsoboundbyregulations.Brazilregards
technology -simplyasaproduct.Itthereforefeelsthatthepriceshould
befixed,andthatinfuturetheredemptionperiodfortransfers,and
hencethepaymentterm,shouldbemuchshorter.
./.
(1)TheBrazilianCentralBank'sfiguresshowinvestments fromCommunity ,
countriesstandingat%727millionin1973;in1978,thetotalwas
t2800million,plus$1600miLlionofreinvestments,makingafigure
of$4400millioninall.

-7-
'III.Commission recommendation
TheCommissionfeelsthatitisintheCommunity'sgeneralinterest
toagreetoBrazil'srequestforcontractualrelationsbetweenthepartners.
Atworldlevel,Brazilalreadyplaysanimportantpartininterna­
tionalrelations,andwilldosoincreasingly.Itisnaturallykeentobe
involvedinthemanagementoftheworldeconomy.
Atbilaterallevel,Brazilisarelativelyimportantpartnerof
theCommunity's.In1978,intermsofexports,itrankedastheCommunity's
sixteenthbiggestsuppliers(1)andintermsofimportswastheCommunity's
twentieth,largestcustomer(2).Inthatyear,1.7%oftheCommunity's
suppliescamefromBrazil(3),whichinturntook1.2%ofCommunityex­
ports(4).TheCommunity'stradebalancewithBrazilgenerallyshowsa
deficit(5).TheCommunityformsBrazil'slargestexportmarket(30%of
Brazilianexportsin1976and32%in1977),wellaheadoftheUnited
States(18%inboth1976and1977),butBrazilimportsalittlemorefrom
theUnitedStatesthanitdoesfromtheCommunity(1976:23%and20%
respectively ;1977:20%and-19%).
Brazilisamajorworldproducerofvariousproducts:itranks
firstforcoffeeand"canesugar,thirdforcocoaandsoyabeans,fifth
forcottonandtobacco,andsecondforlogs,bauxite,manganeseandalu­
minium. ■>
TheCommissionalsotakestheviewthattheturndownBrazil's
requestwouldbepoliticallyinadvisable,giventhepartthecountrycan
playintheThirdWorld,itseconomicperformance invarioussectorsand
thescopeitoffersthespiritofenterprise,particularly becauseofits
naturalresourcesandthepotentialsizeofitsdomesticmarketandeven
itsexternalmarkets.
TraderelationsbetweenBrazilandtheCommunityaredeveloping
well,andBrazil'sgeneraleconomicprogressrevealsscopeforcooperation
projects.
1974 197519761977
(1) 17th18th17th 16th
(2) 111h15th20th20th
(3) 1.7%1.8%1.7%2.0%
2.3%1.9%1.6%1.3%
(5)
(millionEUA)1975 1976 1977 1978
EECexports 23092211 21932116
EECimports 2214275334333014
Balance +95-542-1240-898

Theestablishment ofcontractuallinkswiththeCommunity,inaddi­
tiontothebilateraltieswithindividualMemberStates,cannotbutbe
beneficialbothtoBrazil'seconomicdevelopmentandtotheactivities
ofEuropeanfirmsinthatcountry,wherecompetitionfromforeignfirms,
particularly AmericanandJapanese,isalreadyverystrong.
Theframeworkagreementtakesintoaccountthedevelopmentofthe
Community'soperationalcapacityforcooperationintheeconomic,indus­trialandtechnologicalfields.Basically,thecontractingpartfesunder­
taketofacilitateandencouragetheirfirms'activitiesinthepartner's
territoryorinjointenterprisesorventures.
TheCommissionalsofeelsthattheMemberStates'righttomaintain
existingeconomiccooperationagreementsorconcludenewonesshouldnot
bementionedinthetextofanyagreementwithBrazil.Thisisaninternal
matter,asitinvolvesthedivisionofpowersbetweentheCommunityand
theMemberStates,andtheCommissionfeelsthatthebestapproachwould
betoinsertthefollowingdeclarationintheCouncilminutes:
"Inthefieldofeconomiccooperation,theMember
"Statesretainthepowertoengageinbilateral
"activitiesandtoconcludenewcooperation agreements
"withBrazil,withoutprejudice,however,tothe
"relevantprovisionsoftheTreatiesestablishing
"theCommunitiesorprovisionsadoptedpursuantto
"thoseTreaties,andprovided,furthermore,thatno
"bilateralactionundertakenbyaMemberStateaf-
"fectstheproperfunctioningordevelopmentof
"relationsestablishedunderthisAgreement."
Inconclusion,holdingtheviewthataframeworkagreementas
outlinedabovewouldbelikelytofurtherthelegitimateinterestsof
bothparties,andthattheCommunityshouldopennegotiationswithBrazil
forsuchanagreement,theCommission,pursuanttothe^Treaty,makesthe
followingrecommendation,accompaniedbynegotiatingdirectives.
Moreover,astheBrazilianGovernmenthasexpressedthewishthat
ECSCproductsbeincludedintheplannedcooperation,theCommission
alsorecommendsthataprotocolbeconcludedbetweentheMemberStates
oftheEuropeanCoalandSteelCommunityandthatCommunityontheone
hand,andBrazilontheother,andthattheCommissionbeauthorizedby
theRepresentatives oftheGovernmentsoftheMemberStatesmeeting
withintheCounciltonegotiatesuchaprotocolaswordedinthedraft
annexedtothisCommunication .
)

Recommendation foraCouncilDECISIONauthorizingthe
openingofnegotiations withBrazil
THECOUNCILOFTHEEUROPEANCOMMUNITIES,
HavingregardtotheTreatyestablishingtheEuropean
EconomicCommunity,
HavingregardtotheRecommendation fromtheCommission,
WhereasinOctober1977theBrazilianGovernmentasked
tonegotiateanagreementwiththeEuropeanEconomic
Community;whereas,inviewoftheresultsofexploratory
talkswiththatgovernment,itappearsdesirabletoau­
thorizetheopeningofnegotiations withtheFederative
RepublicofBrazilfortheconclusionofatradeand
economiccooperation agreement,
*
HASDECIDEDASFOLLOWS:
SoleArticle
ThisCommissionisherebyauthorizedtoopen
negotiationsfortheconclusionofatradeandeconomic
cooperationagreementbetweentheEuropeanEconomic
CommunityandtheFederativeRepublicofBraz.il.
Itshallconductthenegotiations withintheframe'
workofthedirectivescontainedintheAnnex.
DoneatBrussels,
FortheCouncil
ThePresident

AnnextotheRecommendation
foraCouncilDecision
Negotiating Directives
A.Typeofagreement
1.Scoge
Thenegotiations wouldaimattheconclusionofaframework
tradeandeconomiccooperation agreementbetweentheEECandBrazil.
theagreementwouldbeofanessentially evolutivenature.
NofieldwithinCommunityjurisdictionwhichcouldbethesubjectof
economiccooperation wouldbeexcludedapriori,andtheintention
ofthepartieswouldbetoexplorejointly,withinthejointcommittee,
anyconcreteopportunities forcooperation whichmightbeconsidered.
3.Duration
Theagreementwouldhavealifeoffiveyearsandwouldbe
tacitlyrenewableeachyearunlessdenouncedbyoneoftheparties.
B.Contentoftheagreement
a)J>bjLe_ct2ye :tlledeve'-0P'nentanddiversification oftrade
atthehighestpossiblelevel.
b)Me_ans:
-astudywouldbemadeofwaysofovercomingbarriersto
trade,takingintoaccounttheworkofinternational
organizations }
-inaccordancewiththeirrespective lawsandpolicies,
thepartieswouldstriveto:
.providethefullestfacilitiesforcommercialtransac
tionsofinteresttoeitherparty,
.seektheotherparty'sopiniononmeasures -liableto
haveadeleterious effectontrade,

.cooperateatbothbilateralandinternational levelto
resolvetradeproblemsofmutualconcern,including .
thoserelatingtorawmaterials,
.takeintoaccounttheotherparty'sinterestsandneeds
withregardtoaccesstoresourcesandtheirsubsequent
processing,
.bringtogethereconomicagentsfromthetworegionswit
theaimofestablishing newtradeflows,
.studyandrecommendtradepromotionmeasuresdesigned
toencouragethegrowthofimportsandexports.
Economiccooperation
a)Obj_e_ctives_:
Inviewofthepotentialcomplementarity ofthecontrac
tingpartiesandthelong-termgoalsoftheirrespective
economies,theplannedeconomiccooperation wouldhelp
achievethefollowingaimsoftheagreement :
-promotingthedevelopment ofEuropeanandBrazilian
industry;
-contributing toscientificandtechnological progress,
takingintoaccountsimilarworkbeingundertaken by
otherinternational organizations ;
-openingupnewsourcesofsupplyandnewmarkets;
-contributing generallytothedevelopment oftheparties
economies,andtheraisingoftheirlivingstandards.
b)Means:
Thecontractingpartiescouldencourageandfacilitate,
interalia:
-broader,organiccooperation betweentheirrespective .
industries,particularly intheformofjointventures;

-3-
-greaterparticipation intheparties'industrialdevelop­
ment,onabasisofmutualadvantage,byeconomicagent's
onthetwosides;
-themaintainance andimprovement ofafavourableinvestment
climate,inparticularthroughinvestmentpromotionand
protectionagreementscoveringindividualprojects;
-technological andscientificcooperation,includingthe
development ofnewsourcesofenergy,takingintoaccount
similarworkbeingdonebyotherinternational organiza­
tions;
-cooperation withandinothercountries;
-theexchangeofinformation inallfieldsofeconomic
cooperation .
3.Joint_çooger atjon_commettee
«
Acommitteewouldbesetuptodirectandpromotethevarious
tradeandeconomiccooperationactivitiesenvisaged,andtoensurethe
properfunctioningofanysectoralagreementconcludedbetweenthecontrac­
tingparties.Theagreementshouldalsomakeprovisionforpossible
consultations attheappropriatelevel,withintheframeworkofthe
jointcooperation committee,toexamineinaconstructivespiritany
commentsraisedbyeitherpartyregardingtradeand/oreconomicissues.
Thejointcooperation committeeshouldbeempoweredtosetupsub­
committeestoassistitinfulfillingitsduties.

Annex
ProtocoltobeagreedbetweentheMemberStatesofthe
EuropeanCoalandSteelCommunityandtheEuropeanCoal
andSteelCommunityontheonehand,andBrazilonthe
otherhand
"Theprovisionsofthetradeandeconomiccooperation
"agreementbetweentheEuropeanEconomicCommunity
"andBrazilshallalsoapplyinthefieldcoveredby
"theTreatyestablishingtheEuropeanCoalandSteel
"Community."