CELEX: 51979PC0506
Language: en
Date: 1979-09-27 00:00:00
Title: Recommendation for a COUNCIL DECISION authorizing the opening of negotiations with Brazil (presented by the Commission to the Council)

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 ---pagebreak---                                                                 COM(79)506 final
      COMMISSION                                                Brussels , 27 September 1
         OF THE
:U ROPE AN COMMUNITIES                                           FOR OFFICIAL USE ONLY
     General Secretariat
                                           Recommendation for a
                                             COUNCIL DECISION
                         authorizing the opening of negotiations with Brazil
                            ( presented by the Commission to the Council )
            C0M(79 ) 506 final
 ---pagebreak---                              EXPLANATORY MEMORANDUM
                                                                                (1)
           In October 1977 the Brazilian Government presented an aide-memoire
 to the Commission proposing that consideration be given to the idea of an
 agreement which would be wider in scope than the trade agreement in force
 since 1974 ( 2 ) and reflect the current state of economic relations between
 the two parties .
           Exploratory talks were held in the spring of 1978 between Brazil 's
Mission to the Communities and Commission staff . These were resumed in
May of this year , after the new Brazilian Government had reaffirmed its
 interest in the matter , and concluded on 10 July . On the basis of those
talks the Commission is in a position to present the following recommenda­
tion to the Council .
 I. The reasons behind Brazil's request
      1 . External économie Eç.liçy
          The Brazilian aide-memoire started off by mentioning the country 's
success in recent years in diversifying its external economic relations
in the fields of trade , investment and sources of finance , and its poli­
tical aim of consolidating these achia/ ements .
          Under the Geisel government , Brazil 's foreign policy underwent
a radical change of direction in the interests of an economic policy
designed to give the country great power status .
          The new approach consisted of basing the country 's external ties
thenceforward on objective criteria rather than on the political colouring
of its partners . This led Brazil to significantly develop jts ties with
numerous Latin American , African and Middle Eastern countries . Relations
with China were restored in 1974 , a trade agreement has been signed with
the USSR , and trade with Eastern bloc countries is growing .
          This decade has seen a considerable expansion of economic coope­
ration with Japan . By broadening its external horizons in this way ,
Brazil has managed to reduce its dependence on the United States .
                                                                   ./.
( 1 ) COM SEC ( 77 ) 3971  : Council doe . S / 1798 / 77 ( COMER 335 ) 16.11.77
( 2 ) OJ No L 102 , 11.4.1974 - An agreement between the EAEC and Brazil was
                                   concluded in 1965 .
( 3 ) In . an interview given to AFP on 13 June , Brazil 's Minister for Foreign
       A.ffairs said that the Brazilian Government felt its relations with
       the EEC had attained a degree of maturity and shared interest which
       called for the construction of an institutional framework broader
       and more ambitious than t.he 1974 trade agreement currently in force .
 ---pagebreak---                                          - 2 -
        2 . Internai economiç_goliçy
             Brazil points in paragraph 4 of its aide-memoire to a structural
change taking place in the country as a result of the government 's medium-
term strategy .
             The country 's growth model was founded on rapid industrialization ,
and the first National Development Plan ( 1972-74 ) saw the inauguration of
vast development and infrastructure programmes . After the " miracle " years ,
the curb placed on Brazil 's development by the world economic crisis gave
the government a chance to take stock of its policies . While the overall
 long-term objective is naturally to stimulate the development of the domes­
tic market > the medium-term strategy contained in the Second Plan ( 1975-79 )
has three essential features : 1 . maximum exploitation of energy resour­
ces , 2 . a new boost for basic industries , with a return to a policy of im­
port substitution , 3 . increased support for agriculture . Brazil has noted
that its heaviest import expenditure , which in the last analysis could
jeopardize expansion in the- future , is going on oil , heavy plant , fertili­
zer , iron and steel , raw materials for the chemical industry , non-ferrous
metals , paper and wheat .
             Transferring resources from consumer industries ( e.g. cars ) to
basic industry, in accordance with the Second Plan , involves a certain
slowdown in growth , since the investment in mining and oil does not
immediately show a return', but it also means that growth should be more
balanced than in the1 last few years .
             That is the general background to present relations between
Brazil and the Community .
        3 . grazi l_-_EEC_relations
             While welcoming ( in paragraph 2 of the aide-(nemoire)the growth
of its economic relations with the Community in the form of trade and
 investment , Brazil notes(in . paragraph 6)that its exports are still too
 heavily concentrated' on commodities , whereas it has succeeded in diversi­
 fying exports to the United States to a much greater extent .
           - Thus one of Brazil 's prime concerns is greater diversification
 of its trade with the Community .
                                                             ./.
 ---pagebreak---                                   - 3 -
         As regards its economic relations with the Community, which it
is seeking to develop , Brazil is proposing that future ties between the
partners be organized on a broad basis of cooperation . Paragraph 3 of
the Brazilian aide-memoire stresses the country 's natural resource
potential , opportunities for investment linked to an increase in exports,
import substitution and the general expansion of the domestic market .
 ---pagebreak---                                       - 4 -
II . The exploratory talks
      1 . Type_of_ ag r eement
          The exploratory talks confirmed the approach set out in the Brazi­
lian aide-memoire .
          Brazil 's aim in asking for a new agreement with the Community is
to encourage collaboration in the country 's development , particularly through
 cooperation in the production of certain primary or intermediate products
necessary to the development process . Such cooperation would increase the
flow of trade, both through imports of European capital goods and through
the growth of Brazilian exports consequent on their diversification , as
the new products stemming from cooperation could also be necessary for
the activities of European or other firms .
          This would therefore be a trade and economic cooperation agreement .
          Brazil was insistent that the new agreement should be aflexible
 one , because of the particularly rapid development of international econo­
 mic relations . Brazil 's economy and its trade are in the process of trans­
 formation, and the same is true of the Community, which is in themidst
 of structural adjustment . It takes time to build trade and economic coope­
 ration ; overspecific contractual provisions would be more- of a hindrance
 than a help to the process .
           What is envisaged , therefore , is a framework type of agreement
 setting out general aims and means of action, leaving the actual fulfil-
 ment of the aims to economic agents , encouraged by the cqntacts and in­
 formation which the agreement is designed to facilitate .
           Brazil has also asked that the agreement should contain an
  acknowledgement of its status as .a developing country , as is the practice
  in international bodies . It thereby intends to secure a legitimate basis
  for possible recourse to the stage-of-development line of argument . This
  would apply both in the field of trade ( subsidies and limits on the Com­
  munity 's right to take defensive measures ) and also with regard to
  industry (incentives and protection ).
                                                                  ./.
 ---pagebreak---                                        - 5 -
       The Commission pointed out that the concept of degree of development
did not automatically find its place in a framework agreement . This does
not mean, however , that no account will be taken , in the cooperation _
between the two parties , of their respective economic situations .
       Brazil did not appear willing to abandon the principle behind this
demand .
       2 . Trade_çooger ation
       Trade cooperation would take the form of consultations between
the partners on sectoral problems , with the aim of enabling Brazil to
plan its trade strategy           so that the Community would not have sudden
recourse to safeguard clauses in response to crises which could be avoided
by concerted action .
       The Brazilian Government is unable to guarantee the Community sup­
plies of raw materials or semi-finished products . However , it is willing
to discuss the matter with a completely open mind on the joint committee .
        Commission staff have recently received information regarding a
problem of international freight insurance : the fact that import and ex­
port freight insurance operations are reserved for national firms alone .
 It was not possible to raise this probl-em with Brazil before the explora­
tory talks finished, but the Commission feels it should be brought up in
the course of the negotiations for the new agreement .
        3 . E conom i ^ coopération
        Brazil has two. aims here ,.: to hasten the transfer of activity
 towards itself , and to broaden'
 the production range of its basic industries . To this end it seeks -v
 cooperation with industrialized countries in the form of inputs of
 capital and technology .
         Industrial development in Brazil is to a large extent under the
 control of public bodies , whose approval and supervision are required
 for any investment or transfer of profits . The object of this control
 is , among other things , to direct investment towards certain sectors and
 ensure that Brazilian firms are adequately represented and protected <
 where they are active in the same sector . This system also offers foreign
  investors certain tax incentives and guarantees as to the repatriation of
 profits .
                                                                  ./.
 ---pagebreak---            Foreign investments are treated in the same way as domestic ones ,
 and Brazil is against negotiating protection agreements with its partners
 which would be bound to cause practical and political problems for the .
 country . Numerous investments have come in underthe current rules from
 various sources , among them the Community , and Brazil is pleased with the
growth of foreign investment and the rising rate of reinvestment of pro­
fits ( 1 ). This shows , Brazil feels , that the country does not have a
protection problem .
          Technology contracts are also bound by regulations . Brazil regards
technology - simply as a product . It therefore feels that the price should
be fixed , and that in future the redemption period for transfers , and
hence the payment term , should be much shorter .
                                                                 ./.
( 1 ) The Brazilian Central Bank 's figures show investments from Community,
      countries standing at % 727 million in 1973 ; in 1978, the total was
      t 2 800 million , plus $ 1 600 mi L lion of reinvestments , making a figure
      of $ 4 400 million in all .
 ---pagebreak---                                         - 7 -
' III . Commission recommendation
             The Commission feels that it is in the Community 's general interest
   to agree to Brazil's request for contractual relations between the partners .
             At world level , Brazil already plays an important part in interna­
  tional relations , and will do so increasingly . It is naturally keen to be
   involved in the management of the world economy .
             At bilateral level , Brazil is a relatively important partner of
  the Community 's . In 1978, in terms of exports , it ranked as the Community 's
  sixteenth biggest suppliers ( 1 ) and in terms of imports was the Community 's
  twentieth, largest customer ( 2 ). In that year , 1.7 % of the Community 's
  supplies came from Brazil ( 3 ), which in turn took 1.2 % of Community ex­
  ports ( 4 ). The Community 's trade balance with Brazil generally shows a
  deficit ( 5 ). The Community forms Brazil 's largest export market ( 30 % of
  Brazilian exports in 1976 and 32 % in 1977), well ahead of the United
  States ( 18 % in both 1976 and 1977 ), but Brazil imports a little more from
  the United States than it does from the Community ( 1976 : 23 % and 20 %
  respectively ; 1977 : 20 % and -19 % ).
            Brazil is a major world producer of various products : it ranks
  first for coffee and "cane sugar , third for cocoa and soya beans , fifth
  for cotton and tobacco , and second for logs , bauxite , manganese and alu­
  minium .                   ■>
            The Commission also takes the view that the turn down Brazil 's
  request would be politically inadvisable , given the part the country can
 play in the Third World , its economic performance in various sectors and
 the scope it offers the spirit of enterprise , particularly because of its
 natural resources and the potential size of its domestic market and even
  its external markets .
            Trade relations between Brazil and the Community are developing
 well , and Brazil 's general economic progress reveals scope for cooperation
 projects .
                                1974    1975     1976     1977
 (1)                            17th    18th     17th     1 6t h
 ( 2)                           1 11h   1 5t h  20th      20th
 ( 3)                           1.7 %   1.8 %    1.7 %    2.0 %
                                2.3 %   1.9 %   1.6 %     1.3 %
 (5)                            1975    1976       1977          1978
        ( million EUA )
      EEC exports           2 309     2 211       2 193       2 116
      EEC imports           2 214     2 753       3 433       3 014
          Balance           +      95 - 542    - 1 240        - 898
 ---pagebreak---          The establishment of contractual links with the Community , in addi­
tion to the bilateral ties with individual Member States , cannot but be
beneficial both to Brazil 's economic development and to the activities
of European firms in that country , where competition from foreign firms ,
particularly American and Japanese , is already very strong .
         The framework agreement takes into account the development of the
Community 's operational capacity for cooperation in the economic , indus­
trial and technological fields . Basically, the contracting partfes under­
take to facilitate and encourage their firms' activities in the partner 's
territory or in joint enterprises or ventures .
         The Commission also feels that the Member States' right to maintain
existing economic cooperation agreements or conclude new ones should not
be mentioned in the text of any agreement with Brazil . This is an internal
matter , as it involves the division of powers between the Community and
the Member States , and the Commission feels that the best approach would
be to insert the following declaration in the Council minutes :
                    " In the field of economic cooperation , the Member
                    " States retain the power to engage in bilateral
                    " activities and to conclude new cooperation agreements
                    " with Brazil , without prejudice , however , to the
                    " relevant provisions of the Treaties establishing
                    " the Communities or provisions adopted pursuant to
                    " those Treaties , and provided , furthermore , that no
                    " bilateral action undertaken by a Member State af-
                    " fects the proper functioning or development of
                    " relations established under this Agreement ."
         In conclusion , holding the view that a framework agreement as
outlined above would be likely to further the legitimate interests of
 both parties , and that the Community should open negotiations with Brazil
 for such an agreement , the Commission, pursuant to the^Treaty, makes the
 following recommendation , accompanied by negotiating directives .
         Moreover , as the Brazilian Government has expressed the wish that
 ECSC products be included in the planned cooperation, the Commission
 also recommends that a protocol be concluded between the Member States
 of the European Coal and Steel Community and that Community on the one
 hand , and Brazil on the other , and that the Commission be authorized by
 the Representatives of the Governments of the Member States meeting
 within the Council to negotiate such a protocol as worded in the draft
 annexed to this Communication .
                                                                  )
 ---pagebreak--- Recommendation for a Council DECISION authorizing the
        opening of negotiations with Brazil
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European
Economic Community ,
Having regard to the Recommendation from the Commission ,
Whereas in October 1977 the Brazilian Government asked
to negotiate an agreement with the European Economic
Community ; whereas , in view of the results of exploratory
talks with that government , it appears desirable to au­
thorize the opening of negotiations with the Federative
Republic of Brazil for the conclusion of a trade and
economic cooperation agreement ,
                  *
HAS DECIDED AS FOLLOWS :
                    Sole Article
        This Commission is hereby authorized to open
negotiations for the conclusion of a trade and economic
cooperation agreement between the European Economic
Community and the Federative Republic of Braz.il .
         It shall conduct the negotiations within the frame'
work of the directives contained in the Annex .
 Done at Brussels ,
                                 For the Council
                                 The President
 ---pagebreak---                                                          Annex to the Recommendation
                                                         for a Council Decision
                             Negotiating Directives
A. Type of agreement
    1 . Scoge
             The negotiations would aim at the conclusion of a framework
trade and economic cooperation agreement between the EEC and Brazil .
             the agreement would be of an essentially evolutive nature .
No field within Community j uris di ctionwhi ch could be the subject of
economic cooperation would be excluded a priori , and the intention
of the parties would be to explore jointly , within the joint committee ,
any concrete opportunities for cooperation which might be considered .
    3 . Duration
             The agreement would have a life of five years and would be
tacitly renewable each year unless denounced by one of the parties .
B. Content of the agreement
        a ) J>bjLe_ct2ye : tlle de v e '- 0P'nent and diversification of trade
                           at the highest possible level .
        b ) Me_ans :
            - a study would be made of ways of overcoming barriers to
               trade , taking into account the work of international
               organizations }
            - in accordance with their respective laws and policies ,
               the parties would strive to :
                . provide the fullest facilities for commercial transac
                  tions of interest to either party ,
                . seek the other party 's opinion on measures - liable to
                  have a deleterious effect on trade ,
 ---pagebreak---       . cooperate at both bilateral and international level to
         resolve trade problems of mutual concern , including .
         those relating to raw materials ,
      . take into account the other party 's interests and needs
         with regard to access to resources and their subsequent
        processing ,
      . bring together economic agents from the two regions wit
         the aim of establishing new trade flows ,
      . study and recommend trade promotion measures designed
        to encourage the growth of imports and exports .
Economic cooperation
a ) Obj_e_ctives_:
         In view of the potential complementarity of the contrac
    ting parties and the long-term goals of their respective
    economies , the planned economic cooperation would help
    achieve the fol lowing aims of the agreement :
    - promoting the development of European and Brazilian
       industry ;
    - contributing to scientific and technological progress ,
       taking into account similar work being undertaken by
       other international organizations ;
    - opening up new sources of supply and new markets ;
    - contributing generally to the development of the parties
       economies , and the raising of their living standards .
b ) Means :
        The contracting parties could encourage and facilitate ,
    inter alia :
    - broader , organic cooperation between their respective .
       industries , particularly in the form of joint ventures ;
 ---pagebreak---                                        - 3 -
                - greater participation in the parties' industrial develop­
                  ment , on a basis of mutual advantage , by economic agent's
                  on the two sides ;
                - the maintainance and improvement of a favourable investment
                  climate , in particular through investment promotion and
                  protection agreements covering individual projects ;
                - technological and scientific cooperation , including the
                  development of new sources of energy , taking into account
                  similar work being done by other international organiza­
                  tions ;
                - cooperation with and in other countries ;
                - the exchange of information in all fields of economic
                  cooperation .
           3 . Joint_çooger a tjon_ commet tee
                           «
               A committee would be set up to direct and promote the various
trade and economic cooperation activities envisaged, and to ensure the
proper functioning of any sectoral agreement concluded between the contrac­
ting parties . The agreement should also make provision for possible
consultations at the appropriate level , within the framework of the
joint cooperation committee , to examine in a constructive spirit any
comments raised by either party regarding trade and / or economic issues .
The joint cooperation committee should be empowered to set up sub­
committees to assist it in fulfilling its duties .
 ---pagebreak---                                                   Annex
Protocol to be agreed between the Member States of the
European Coal and Steel Community and the European Coal
and Steel Community on the one hand , and Brazil on the
other hand
" The provisions of the trade and economic cooperation
"agreement between the European Economic Community
" and Brazil shall also apply in the field covered by
" the Treaty establishing the European Coal and Steel
" Community ."