1999/234/EC: Commission Decision of 17 March 1999 under the provisions of Council Regulation (EC) No 3286/94 concerning the Brazilian non-automatic import licensing system and its operation (notified under document number C(1999) 607)
Date: 1999-03-17
Institutions: European Commission
Subjects: Brazil, World Trade Organisation, import licence, trade restriction

L 86/22

EN

Official Journal of the European Communities

30. 3. 1999

COMMISSION DECISION

of 17 March 1999

under the provisions of Council Regulation (EC) No 3286/94 concerning the
Brazilian non-automatic import licensing system and its operation

(notified under document number C(1999) 607)

(1999/234/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

(4)

Having regard to Council Regulation (EC) No 3286/94 of
22 December 1994 laying down Community procedures
in the field of the common commercial policy in order to
ensure the exercise of
the Community’s rights under
international trade rules, in particular those established
under the auspices of
the World Trade Organisation
(WTO) (1), as amended by Regulation (EC) No 356/95 (2),
and in particular Articles 13 and 14 thereof,

After consulting the Advisory Committee,

Whereas:

(5)

(6)

Regulation. Consequently,
initiated on 27 February 1998 (3).

such procedure was

Following the initiation of the examination pro-
cedure the Commission conducted an in-depth
legal and factual investigation into the Brazilian
import licensing system as applied to textile prod-
ucts. Based on the findings of this investigation the
Commission reached the conclusions which are
indicated below.

B. FINDINGS REGARDING THE EXISTENCE OF

AN OBSTACLE TO TRADE

The investigation established that
the Brazilian
system is a licensing system within the meaning of
Article 3(1) of the WTO Agreement on import
licensing procedures (ILP) and should therefore
comply with the rules laid down by this Agreement
as well as by GATT 1994.

The relevant Brazilian legislation concerning the
non-automatic
system is
composed of:

licensing

import

A. PROCEDURE

(1)

(2)

On 12 January 1998 the Commission received a
complaint pursuant to Article 4 of Council Regula-
tion (EC) No 3286/94 (herafter the ‘Regulation').
The complaint was lodged by Febeltex (F(cid:130)d(cid:130)ration
belge du textile — Belgian Textile Federation).

The complainant alleged that the Brazilian non-
automatic import licensing and in particular its
enforcement through the imposition of compulsory
payment terms and compulsory minimum prices
are inconsistent with several provisions of
the
Agreement establishing the World Trade Organ-
isation (hereafter ‘the WTO Agreement') and its
annexes. On that basis the complainant asked the
Commission to take the necessary actions
to
convince Brazil to repeal these measures.

(3)

The complaint contained sufficient prima facie
evidence to justify the initiation of a Community
examination procedure pursuant to Article 8 of the

(1) OJ L 349, 31. 12. 1994, p. 71.
(2) OJ L 41, 23. 2. 1995, p. 3.

— Decreto 660, of 25 September 1992 (which
established the Sistema Integrado de Com(cid:130)rcio
Exterior, Siscomex),

— Portaria Interministerial 291 (Ministry of the
Treasury/Ministry of Industry and Trade), of 12
December 1996 (concerning the processing of
import operations by means of the Siscomex),
— Portaria Secex 21, of 12 December 1996
import
(concerning the implementation of
operations by means of the Siscomex, including
price control) and

— Comunicados Decex listing the goods subject
to non-automatic import licensing, which have
been consolidated by Comunicado Decex 37 of
17 December 1997.

However, the Brazilian system is very flexible: new
products can be added to the list of those for which
license is required by
a non-automatic import
simple decision of the Ministry of Industry, Trade
and Tourism.

(3) Notice of initiation of an examination procedure concerning
an obstacle to trade, within the meaning of Council Regula-
tion (EC) No 3286/94, consisting of trade practices maintained
by Brazil in relation to trade in textile products (OJ C 63, 27.
2. 98, p. 2).

30. 3. 1999

EN

Official Journal of the European Communities

L 86/23

(7)

(8)

The Brazilian licensing system is operated via a
computerised instrument called Siscomex. The
granting of import licenses for imports of textile
products originating in the Community is directly
linked to a set of compulsory minimum prices and
compulsory payment terms. Should these date of
an import declaration not be in accordance with
those decided and included by the Brazilian
authorities in the Siscomex, applications for import
licences are not processed and the importer is
asked to contact the local agency of the Foreign
Trade Department of
the Ministry of Industry,
Trade and Tourism (Decex).

The Brazilian legislation introducing this system
does not include any indication of the measure
being implemented through the licensing pro-
cedure. The Commission services have found the
existence of internal administrative rules or guide-
lines concerning compulsory payment terms and
minimum import prices
that are used in the
administration of Brazil’s import licensing system.
Such rules are not published. As a consequence,
governments
become
traders
acquainted to them. Furthermore, there is no poss-
ibility of appeal against such unofficial regulations.

cannot

and

(9) When Siscomex does not process import licence
applications which do not comply with the require-
ments on payment terms and minimum prices, no
formal decision is taken on the importer’s applica-
tion. It remains indefinitely pending.

(10)

The Brazilian system does not appear to serve to
the implementation of any GATT compatible
measure, its sole function being the application and
administration of import procedures as trade policy
tool in order to restrict flows of imports of textile
products into Brazil. The examination also demon-
strated that this system allows Brazilian authorities
to decide in a discretionary and arbitrary manner
on the basis of unofficial and not published
grounds, the non-granting of import licences. By
imposing
and
minimum prices as conditions for the issuance of
the licence, Brazil has
substantially restricted
imports of certain textile products originating in
the Community and has discouraged a large
number of possible clients for Community produ-
cers.

compulsory

payment

terms

(11)

Brazil has not yet notified part of the relevant
legislation (Comunicado Decex 37, of 17 December
1997); the remaining part has been notified with a
delay of more than one year, only after the initia-
tion by the Commission of
the present exam-
ination under the Regulation and in this noti-
information was omitted
fication some essential

(for example:
licensing procedures).

the list of products

subject

to

(12) Under

founded and that

circumstances
the Commission
these
the complainant’s allegations are
considers that
well
the Brazilian practices
constitute an obstacle to trade within the meaning
of Article 2(1) of
the Regulation, as they are
contrary to the following provisions:

— Article X.1 and XI.1 of the GATT,

— Article 1(3), 3(2), 3(5)(f) and 5 of

the WTO

Agreement on import licensing procedures.

(13)

The Commission nonetheless considers that refer-
ence to the above legal bases does not rule out
recourse to any other pertinent provision of the
WTO Agreement and of the Agreements annexed
to it, which could be of use in procedures before
the WTO.

(14)

(15)

(16)

C. FINDINGS REGARDING ADVERSE TRADE

EFFECTS

The Commission investigation highlighted the
enormous potentiality of the Brazilian market for
the highly competitive products exported by
Community producers. In this regard, the main
findings on the adverse trade effects caused by the
challenged practices indicate that Brazil’s non-
automatic import
licensing system represents a
significant restriction to access the Brazilian market
for several Community textile products.

investigation covered products

contained
The
within Chapters 50 to 63 of
the Combined
Nomenclature and revealed that the effects of the
Brazilian system vary from one sector of products
to another. Generally speaking, notwithstanding
the great potential of
the Brazilian market,
Community textile exports to Brazil registered no
significant increase between 1996 and 1997, espe-
cially when compared to those reported on other
similar South American markets.

In particular, the introduction of the non-automatic
import licence system and the way it is imple-
mented through the compulsory payment terms
and the imposed minimum price has already
caused in 1997 (and, in some cases, in 1996) a
decrease of exports of certain European Union
textile products, such as mattress ticking (CN
codes: 5516 23 10; 5210 49 00), webbing (CN code:
5806 32 10), bedspreads (and related products) (CN
codes: 6302 32 90), knitted synthethic fabrics for
curtains (CN code: 6002 43 11), technical fabrics
for casual wear (e.g.
(CN code:
5516 13 00) to Brazil.

lyocell, elastan)

(17)

(18)

(19)

L 86/24

EN

Official Journal of the European Communities

30. 3. 1999

The challenged Brazilian practices have caused an
important loss of competitiveness in the Brazilian
market for Community exporters of certain textile
products. Such loss of competitiveness has been
such as
in those
particularly drastic
mattress ticking, curtain fabrics or webbing, that
are subject to minimum import prices.

sectors,

example, the minimum import price of USD 20/kg
imposed by the Brazilian authorities on imports of
jacquard mattress
under CN code
ticking
5516 23 10 is more than the double of the normal
sale price of this product (i.e. to USD 8 to 11/kg).
Such an increase of price has caused an important
loss of competitiveness in the Brazilian market for
Community exporters of this home textile product

The introduction of the contested measures has led
in many cases to a significant loss in the number
and importance of Brazilian clients as well as in the
number and importance of the orders received or
confirmed.

(22)

the Commission concluded that

Therefore,
the
abovementioned effects do constitute adverse trade
effects within the meaning of Article 2(4) of the
Regulation.

The requirement of minimum prices has also led
to a substantial reduction in the range of products
that may be exported to Brazil. In other words,
products whose export price is far too low,
in
comparison with the compulsory minimum price
required, can no longer be exported because it
would no longer be competitive at the higher price.
Significantly enough, this consequence often takes
place in relation to low price products, for which
there is higher local competition. Accordingly, the
Brazilian importer will turn to buy the Brazilian
product, which, if it were not for the imposition of
compulsory minimum prices, would be more
expensive than the equivalent Community textile
product.

(20) A further

effect

caused

adverse

on
trade
Community producers/exporters of textile products
is the need to change the technical specification or
composition of a product. This change is required
by the need to comply with the required minimum
prices. A change in the technical specification of
the product will in some cases be the only way to
obtain a product whose price meets the required
minimum one and that
is still economically
viable. In this regard, the Commission services have
been provided with examples where, in the case of
mattress ticking, the percentage of cotton, rayon,
polyester, etc. in a product had to be altered, e.g. by
using a new raw material (such as rayon) or by
using a new raw material which results
in a
different weight per square metre (such as polypro-
pylene).

it

D. COMMUNITY INTEREST

(23)

In the last couple of years, European exporters and
producers have lodged three cases against Brazilian
practices having restrictive effects on Community
exports of different products (steel plates, textiles,
and sorbitol). These measures seem to be directed
at specific sensitive sectors, in a non-transparent
way, and through a very flexible decisional process.
For this reason, it is of major importance for the
Community to tackle in a comprehensive way the
Brazilian system.

(24) Moreover,

ensuring that WTO partners

fully
the utmost
comply with their obligations is of
the Community, which has
importance
for
committed itself
is
to the same obligations. It
fundamental for the good functioning of a multilat-
eral trade system to consistently tackle all allegedly
WTO incompatible practices.

(25) As regards the Febeltex case, given the importance
of the textile industry for the Community as a
whole and the need to ensure a fair access to third
country markets for Community textile products,
the Community should immediately challenge the
Brazilian non-automatic licensing system, pursuant
to the relevant provisions of the Agreement on
import licensing procedures, GATT 1994 and the
WTO Dispute Settlement Understanding.

E. CONCLUSIONS AND MEASURES TO BE

TAKEN

(21)

The use of Brazil’s non-automatic import licensing
system as a trade policy tool to control trade flows
has resulted, in some textile sectors, in a complete
alteration of the market conditions which in some
cases has led to an almost closing of the Brazilian
to Community textile exporters. As an
market

(26) Meetings have been held and letters have been
exchanged with the relevant Brazilian authorities to
discuss this matter further aimed at
finding an
amicable solution, but the Brazilian authorities did
not forward any proposal in view of such solution.

30. 3. 1999

EN

Official Journal of the European Communities

L 86/25

(27)

In these circumstances, it appears that the interests
of
for initiation of WTO
dispute settlement proceeding,

the Community call

The Community will commence action against
2.
Brazil under the Understanding on the rules and proced-
ures for the settlement of disputes and other relevant
WTO provisions with a view to securing removal of the
obstacle to trade.

HAS DECIDED:

Article 2

Article 1

This Decision shall apply from the date of its publication
in the Official Journal of the European Communities.

The Brazilian non-automatic

1.
licensing system,
compulsory minimum prices and compulsory payment
terms appears to be inconsistent with the obligations of
that country under the Marrakech Agreement establishing
the World Trading Organisation and constitutes an
‘obstacle to trade' within the meaning of Article 2(1) of
Regulation (EC) No 3286/94.

Done at Brussels, 17 March 1999.

For the Commission

Leon BRITTAN

Vice-President