WORLD TRADE G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
ORGANIZATION 13January 1997
(97-0083)
Original: English Committee onSafeguards
NOTIFICATIONS PURSUANT TOARTICLE 12.1(C) AND ARTICLE 9,
FOOTNOTE 2,OFTHE AGREEMENT ONSAFEGUARDS
BRAZIL
Thefollowing communication, dated 6January 1997, hasbeenreceived fromthePermanent
Mission ofBrazil.
_______________
With reference toArticle 12.1(c) oftheAgreement onSafeguards andtodocument
G/SG/N/8/BRA/1, bywhich Brazil notified afinding ofserious injury toitsdomestic industry caused
byincreased imports oftoys, Ihavethehonour tonotify theCommittee onSafeguards thedecision
ofBrazilian authorities toapply asafeguard measure onimports ofsuch products, asfrom
1January 1997. AcopyofInter-Ministerial Order No.21,dated 19December 1996, isattached hereto.
Also attached hereto isanotification under Article 9,footnote 2ofnon-application ofthe
safeguard measure todeveloping countries under Article 9.1oftheAgreement onSafeguards.G/SG/N/10/BRA/1
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Interministerial Order MICT/MF No.21,19December 1996
(UNOFFICIAL TRANSLATION)
MINISTRY OFINDUSTRY, TRADE, AND TOURISM
MINISTRY OFFINANCE
INTERMINISTERIAL ORDER NO.21,DATED 19DECEMBER 1996.
THEMINISTERS OFSTATE OFTHEMINISTRY OFINDUSTRY, OFTRADE
AND TOURISM AND OFTHE MINISTRY OFFINANCE, using theprerogatives conferred upon
thembyArticle 87,soleparagraph, clause IIoftheConstitution, andinaccordance withtheprovision
ofArticle 2ofDecree No.1.488, dated 11May1995, altered byDecree No.1.936, dated 20June1996,
keepinginmindtheprovisionsoftheAgreementonSafeguards,approvedbyLegislativeDecreeNo.30,
dated 15December 1994 andpromulgated byDecree No.1.355, dated 30December 1994, which
figures intheProcess MICT/SAA/CGSG 52100-000001/96-36 andintheLegal Opinion ofSECEX
No.17,dated 7November 1996, andthedetermination oftheexistence ofserious injury tothedomestic
industry caused bytheincrease ofBrazilian imports oftheproduct which istheobject ofthis
Interministerial Order, asmuch inabsolute terms asinproportion tonational production, and
CONSIDERING
A. THE LEGAL PROCESS
On26April 1996, theBrazilian Association ofToyManufacturers -ABRINQ filedwiththe
Secretariat ofExterior Trade -SECEX, oftheMinistry ofIndustry, Trade, andTourism -MICT, a
petition asking fortheapplication ofsafeguard measures forthefollowing toysclassified under the
codes ofcommon designation oftheMercosul -NCM:
9501.00.00; 9502.10.10; 9502.10.90; 9502.91.00; 9502.99.00; 9503.10.00; 9503.20.00;
9503.30.00; 9503.41.00; 9503.49.00; 9503.50.00; 9503.60.00; 9503.70.00; 9503.80.10;
9503.80.90; 9503.90.10; 9503.90.90; 9504.10.10; 9504.10.91; 9504.10.99
SECEX published Circular No.33,dated 17June1996, intheOfficial Gazette oftheUnion
dated19June1996,makingknowntheopeningoftheinvestigationtodeterminethenecessityofapplying
safeguard measures toBrazilian imports oftoys.
TheMinistry ofExternal Relations notified theCommittee ofSafeguards oftheWorld Trade
Organization -WTO about thedecision made andoftheintention oftheBrazilian Government toapply
provisional safeguard measures, asestablished inArticle 3º,§2ºofDecree No.1.488/95, andin
Article 12oftheSafeguards Agreement (Decree No.1.355/94). Thisnotification gaverisetothe
document G/SG/N/6/BRA/1, dated 25June1996, oftheWTO.
On4July1996, theInterministerial Order MICT/MF No.09,dated 21June1996waspublished
intheOfficial Gazette oftheUnion, establishing theapplication ofprovisional safeguard measures
ontheimportation oftoysclassified under theNCM codes citedabove.
TheMinistry ofExterior Relations notified theCommittee onSafeguards oftheWTO ofthe
decisionmadeandofthedispositionoftheBrazilianGovernmenttocarryoutconsultationsasestablished
inArticle 3Paragraph 2oftheDecree No.1.488/95, andinArticle 12oftheAgreement onSafeguards
(DecreeNo.1.355/94).ThisnotificationgaveorigintodocumentG/SG/N/7/BRA/1,dated12July1996
oftheWTO.G/SG/N/10/BRA/1
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After thenotification oftheapplication ofprovisional safeguards measures, theEuropean Union
requestedaconsultationwiththeBrazilianGovernment.Suchconsultationwasheldon12August1996,
inGeneva, andwasconsidered satisfactory, atthatmoment, without prejudice totheEuropean Union ’s
righttorequest further clarifications.
On14November 1996 authorities oftheBrazilian Government decided toapply safeguards
measuresbeginningon1January1997,toimportsoftoysintheabovementionedcodesoftheNCM/SH.
TheMinistry ofExterior Relations notified theCommittee onSafeguards oftheBrazilian
Government ’sintention toapply Safeguards Measures andoftheirdisposition toholdconsultations,
asestablished byArticle 3,paragraph 4oftheDecree No.1.488/95, andinArticle 12oftheAgreement
onSafeguards(DecreeNo.1.355/94).SuchnotificationgaverisetoWTOdocumentG/SG/N/8/BRA/1,
dated 20November 1996.
After being notified ofthedecision made, theEuropean Union andtheUnited States requested
thatconsultations beheldwiththeBrazilian Government, which were heldon4and5December
respectively, inGeneva.
B. THE INVESTIGATION
When theinvestigation began, aquestionnaire inthisregard waselaborated andsentto42
toymanufacturing firms, having headquarters inthecountry, inorder toanalyze thebehaviour of
domestic industry, ofserious injury orthreat thereof caused bytheincrease ofimports. Ofthe31
firms thatresponded tothequestionnaire, 21presented comparable information, andthese were
considered intheinvestigation.
Besides this,Mattel Inc.,producer oftoysintheUnited States; theBrazilian Association of
ToyRetailers -ABREB, anassociation thatgroups retailers ofnational andimported toys; andToy
Manufacturing ofAmerica, Inc.-TMA, anassociation ofmanufacturers andretailers oftoyspresented
credentials intheProcess.
Theabove-mentioned interested parties requested theholding ofhearings, which wererealized
intheDepartment ofCommercial Defence -DECOM oftheSECEX/MICT, on10and18Julyand
on23August 1996, respectively. Theparties made theirobservations about theprocess, inwriting,
andtheseweredelivered on19July,byABREB, on23August, byTMA, andon11October, byMattel.
Itshould bepointed outthatTMA, inthehearing already mentioned, made itself available tofurnish
dataontheinternational toymarket which hadnotbeenreceived bythedatetheSECEX Opinion No.17
waselaborated.
Itshould beamatter ofrecord thatallparties weregiven equal opportunity tobeheard, see
theprocess andpresent eventual observations.
C. THE INVESTIGATED PRODUCT
Theproduct which istheobject ofthepresent investigation istoyswhich fallinthepositions
9501, 9502, 9503 andinthesubposition 9504.10 oftheNCM/SH.
Theexistence ofdifferent forms oftoyswasobserved (balls, dolls, crossword puzzles, video
games, etc.), which however donotimply different markets because theconsumer, ondeciding to
acquire atoy,hasawiderange ofchoice determined bytherange ofdifferent types available onthe
market, allthese meeting thesame finality -toplay. Theobservation ofdifferent price levels amongG/SG/N/10/BRA/1
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thevarious types oftoysalsodoesnothinder usfrom considering them assubstitutes, since inthis
market, theoption topurchase anexpensive toyorsome other types ofcheaper onesisaverified fact.
What determines thechoice oftheconsumer aredatasuchasthecharacteristics ofthefinaluser(age,
sex,affinal relations) andtheavailability ofresources oftheconsumer (income versus theprice of
thetoy).
C.1. Import Tariff Treatment
Theevolution ofimport taxforthetariff items hereconsidered, beginning withtheOrders
MEFP No.58/91, 131/92 and261/92 andtheOrders MFNo.288/94 and492/94, wasthefollowing:
IMPORT TAX ALIQUOT
1to9/92 10/92 to6/93 7/93to2/94 3to5/94 6to9/94 10to12/94 1995
9501.00.00 65% 55% 40% 20% 30% 20% 20%
9502 65% 55% 40% 20% 30/20% 20% 20%
9503.10.00 50% 55% 40% 20% 20% 20% 20%
9503.20.00 65% 55% 40% 20% 30% 20% 20%
9503.30.00 65% 55% 40% 20% 30% 20% 20%
9503.4 65% 55% 40% 20% 30% 20% 20%
9503.50.00 65% 55% 40% 20% 30% 20% 20%
9503.60.00 65% 55% 40% 20% 30% 20% 20%
9503.70.00 50/65% 55% 40% 20% 30% 20% 20%
9503.8 65% 55% 40% 20% 30% 20% 20%
9503.9 50/65% 55% 40% 20% 30/20% 20% 20%
9504.10.10 50% 40% 30% 30% 30% 20% 20%
9504.10.91 45% 40% 30% 30% 30% 20% 20%
9504.10.99 50% 40% 30% 30% 30% 20% 20%
D. THE "DIRECTLY COMPETING PRODUCT" AND DOMESTIC INDUSTRY
Article 4,paragraph 1,clause "c",oftheAgreement onSafeguards (Decree No.1.355/94),
defines domestic industry asasetofproducers ofsimilar goods orthose directly competing.
Inthepresent investigation, itisunderstood that"directly competing products" refers tothose
thatdispute oneandthesame market, which serve thesame purpose, thatis,products thatarenear
substitutes among themselves.
Starting withthisdefinition of"directly competing products" domestic industry thatwasto
beanalyzed wasmarked off,forthepurpose ofverifying theexistence ofserious injury todomestic
industry orthreat thereof bytheincrease inimports oftheproduct inquestion.
Domestic Industry corresponded toasample of21toymanufacturers, thatrepresented 71per
centofnational production, in1995, andthatpresented therequested dataincomparable units.G/SG/N/10/BRA/1
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Thefirms thatcompose domestic industry alsoimported finished toys, butthevalue was
insignificant, 10percentin1994and20percentin1995inrelation totheirinvoices, thusnotcausing
them tobedischaracterized asmanufacturers.
E. SERIOUS INJURY
Foralleffects, theanalysis ofserious injury orthreat thereof, wasconsidered tobetheperiod
from January 1992 toDecember 1995.
E.1. Imports
E.1.1. Evolution ofToyImports
Itwasverified that,from1992to1993andfrom1993to1994, imports oftoysincreased
inquantity practically inthesame proportion, 149.5 percentand152.2 percent,
respectively. While in1995inrelation to1994, imports increased more significantly,
orrather, 355.5 percent.
Imports interms ofvalue accompanied thetendency togrow inquantity. Anincrease
of53.7percentin1993, inrelation to1992andof139.7 percentin1994, inrelation
to1993. Justasthatwhich occurred withimports inquantity, theimports invalue
presented asignificant increase of330.1 percent, from 1994 to1995.
Eventhough theypresented thesamebehavioural tendency, itwasobserved thatimports
increased more inquantity thaninvalue, 2,766.9 percentand1,485 percent,
respectively, showing afallinaverage price of45percentofimported toysduring
theentire period analyzed.
E.1.2. Development ofImports Originating inCountries Members oftheWTO
Justastheimports oftoysfromallsources, imports originating exclusively incountries
members oftheWTO presented several successive periods ofgrowth. Anincrease
inquantity occurred of64.5percentfrom 1992 to1993, 154.8 percentfrom 1993
to1994and421.4 percentfrom1994to1995. Invalue, imports fromthese countries
grew50.5percentfrom1992to1993, 90.8percentfrom1993to1994and256.6 per
centfrom 1994 to1995.
Even though theimports invalue andinquantity presented thesame tendency in
behaviour thequantity increased much more thanthevalue, reflecting adropinmedian
prices of53.1percent, during theperiod analyzed.
E.1.3. Participation ofImports inApparent Sales
Itisclearly seenthatimports haveoccupied anincreasing share oftheinternal toy
market: while theformer grew 25.9percentfrom1992 to1993, 34.4percentfrom
1993 to1994, and5.3percentfrom1994 to1995, imports showed agrowth of40.4
percent,106.6 percentand321percent,respectively. Itbeing thus,theimports which
hadaparticipation inapparent salesof4.42percentin1992, 4.92percentin1993
and7.57percentin1994, latershowed 30.27 percentin1995, dislocating notonly
domestic industry from themarket, butalsotheother internal producers.G/SG/N/10/BRA/1
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E.2. Analysis ofDomestic Industry
E.2.1. Production Evolution
Onverification, thequantity produced in1993, hadgrown 17.8percent, inrelation
to1992. After thisgrowth, successive falloccurred showing aretraction of8.7per
centfrom 1993 to1994 andof19.1percentfrom 1994 to1995.
Ifontheonehand, quantity ofproduction grew onlyupto1993, there occurred, in
terms ofvalue, anupward trend until1994, showing anincrease of38.5percentfrom
1992to1993and38.9percentfrom1993to1994. Thesituation wasinverted in1995,
withareduction ofnearly $69million, denoting afallof15percent, inrelation to
theprevious year.
Thisapparently contradictory behaviour oftheinternal production development in1994,
maybeexplained bythechange in"mix" ofproduction, thatstarted considering toy
types ofgreater value, aswellasbytheincrease invalue ofnational currency inthe
faceoftheNorth American dollar inthesecond semester, aftertheimplantation of
theRealPlan.
E.2.2. Development ofsalesontheinternal market ofself-manufactured products
Note thatafteragrowth of10.6percentfrom 1992 to1993, theinternal sales in
quantity, fell5.3percentin1994, inrelation to1993 and28percentin1995, in
relation totheprevious year.
Internal sales, interms ofvalue, hadadifferent behaviour, presenting agrowth of
21.4percentfrom1992 to1993, except thatfrom 1993 to1994, there wasagrowth
of40.3percent. In1995, areduction ofnearly $93million, inrelation totheprevious
year, showing afallof21.6percent.
Inthisway,theexample ofbehaviour observed inproduction, intheyear1994showed
anapparently contradictory development ininternal sales, explained equally, bythe
saleoftypes ofproducts ofgreater value, aswellasinthefaceoftheincrease invalue
oftheNorth American dollar inthesecond semester, considering alsothefactthata
great concentration ofthesalesoccur inthisperiod.
Itmaybepointed outthattheapparent sales were maintained relatively stable until
1994, falling 17.84 percentage points in1995, relative totheprevious year.
E.2.3. Development ofBrazilian Exports ontheDomestic Market
Toyexports represent arelatively reduced proportion ofdomestic production, asmuch
inquantity asinvalue intheperiod being analyzed.
Interms ofquantity, thedatafrom1992werenotavailable. In1994, relative to1993,
afallof27.2percentwasobserved. From 1994 to1995 anexpressive reduction in
exports wasobserved (52.6 percent).G/SG/N/10/BRA/1
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Even interms ofvalue, inspiteofaslight increase from1992to1993, afallwasseen
from 1992 to1995. Between 1992 and1993, growth reached 3.8percent. When
comparing thefigures for1994withthose of1993, a16.2percentfallwasobserved.
In1995, thefallwasmore significant: 34.8percentinrelation totheprevious year.
Itmaybeseenthatthereduction ofexports during theperiod analyzed, taking into
account thegoodprogress ofdomestic industry ontheinternal market isindicative of
lossofinternational competitiveness ofdomestic market during theanalyzed period.
E.2.4. Stock Development
Physical stocks decreased 6.5percentfrom1992to1993and28.5percentfrom1993
to1994. In1995, aninversion occurred ofthistendency, withstocks increasing
116.6 percentinrelation totheprevious year, asafunction ofthefactthatthefall
insaleshadbeengreater thanthefallinproduction.
Itisworth pointing outthatitwasnotpossible toproceed withanevaluation, invalue,
ofthestocks, since thedifferent accounting criteria utilized bythebusinesses would
notpermit auniformization oftheinformation.
E.2.5. JobDevelopment
Thedatademonstrate that,intheperiod from 1992 to1995, there were fewer jobs.
Afalloffrom9,589 to8,245, amounting toareduction of14percent. Thisfallarose
basically outofthereduction of12percent(from 9,394 to8,245) verified between
1994 and1995. Theproduction areawasconcentrated, ontheaverage, inclose to
70percentofthework force, showing asignificant reduction in1995 inrelation to
1994 (from 6,869 to5,656), evidencing afallof18percent.
Thetotalnumber ofjobsbysector, considering thetemporary employees andthird
party work, grew16.8percentfrom1992to1993, anddeclined successively 17.8per
cent, from 1993 to1994 andfrom 1994 to1995, respectively. Itisworth observing
that,according toinformation received fromthecompanies, which wasintheresponses
tothequestionnaires oftheinvestigation, thecontracting oftemporary employees was
done principally intheareaofproduction (close to80percent), andthird party
contracting wasdoneentirely inthisarea.
E.2.6. Development inProductivity
Ananalysis ofinternal production inquantity, asoveragainst, number ofemployees,
indicated asmall increase intheproductivity ofdomestic industry intheperiod from
1992 to1993, ofnearly 0.9percent. Nevertheless, during thefollowing years afall
of6.9percent, upon comparison of1994 withtheprevious year, followed byanew
reduction of1.7percent, between 1994 and1995.
Inregard totheproduction value generated peremployee, growth wasseenduring the
entire period ofanalysis, namely: 18.6percentfrom1992to1993; 41.8percentfrom
1993to1994; and3.4percentin1995, inrelation totheprevious year, which reflects
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E.2.7. Development ofTotal Sales ofSelf-Manufactured Products
Intheperiod from1992to1995, anincrease intheinvoicing ofthedomestic toyindustry
ofapproximately 30.2percent. Nevertheless, thequantities solddecreased 21.9per
centinthesame period. Between 1992 and1993, invoicing increased 20.6percent,
while thegrowth inquantity soldwasonly18.3percent. In1994, invoicing grew
38.2percentandquantity wasreduced by6.8percent,inrelation totheprevious year.
Between 1994 and1995, invoicing wasreduced by21.9percentandquantities by
29.3percent. These dataenable ustoconclude thatthere wasasubstitution inthe
salesoftypes ofproducts oflesser value bytypes ofgreater value.
E.2.8. Utilization ofInstalled Capacity
Even though thisitemhadbeenaconsideration inthequestionnaire senttodomestic
industry, themeasurement ofinstalled capacity proved tobeofverydifficult verification
because ofthegreat flexibility ofmixinproduction. Itisworth saying thatinone
andthesame lineofproduction differentiated types ofproducts maybeproduced
alternatelythatmayabsorbgreaterorlesserquantitiesofrawmaterialandhoursworked,
which would generate different levels ofinstalled capacity forthesameproduction line.
Forthisveryreasontheanalysisofthedevelopmentoftheutilizationofinstalledcapacity
could notbecarried outforeffects oftheevaluation ofserious injury orthreat thereof.
E.2.9. Price evolution
Themethodology usedfortheanalysis ofthisaspect wasbased onthedevelopment
oftheprice index oftheFoundation Institute ofEconomic Research -FIPE, forthe
sector, which pictured inaveryclearmanner thetendency foradropinprices. The
FIPE index, however, isanindex thatcovers awiderange ofimported andnational
toys, somuch sothatthefirms thatmake updomestic industry aswellastheother
firms, didnothaveinformation about thecomposition ofthesample, orrather, what
istheparticipation ofeachoneofthese groups intheanalysis sample ofFIPE. Even
though ithadbeenverified thatdomestic industry represented 50percentofthemarket
in1995, there isnoindication oftheweight ofeachintheanalysis ofFIPE. Thus,
thefactthatanincrease inmedian value hadbeenobserved inthose products soldby
domestic industry, asaresult ofthemodification ofthemixinproduction, thisfact
isnotincompatible withthedeclining tendency ofprices indicated bytheFIPE index.
E.2.10. Economic andFinancial Analysis
Economic andfinancial analysis wasmade ofthedataextracted from thepatrimony
accounts andthedemonstrative profit accounts doneonthefirms results, inwhich the
participation ofalineoftoyshadcorresponded toatleast70percentoftheincome
from selfmanufactured products during theentire period under analysis. Thus, of
21firms thatcompose domestic industry, 3were removed which didnotmeet the
requirements, making atotalthenof18companies.
E.2.10.1. Liquid Income from Sales, Gross Profit, andGross Margin
Anarrowing ofthegross margin hasbeenobserved during thelastfewyears, with
theexception of1994 which presented agrowth of0.31percentage points compared
totheprevious year. Between 1992and1995, thisfallaccumulated 13.15 percentageG/SG/N/10/BRA/1
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points, except thatfrom 1992 to1993, there wasadropof5.13percentage points,
andfrom 1994 to1995 of8.33points.
Sales income, between 1994 and1995, presented afallof5.4percent. Theeffect
ongross profits, however, wasmuch greater (afallof20.5percent), denoting astrong
increase intheCostoftheProduct Sold(CPV).
Thisgrowth oftheCPVmaybeexplained, inpart,bythechange inmixofproduction
ofthedomestic industry, starting from theattempt toconsolidate itsposition inthe
market, withtypes ofproducts ofgreater value, andtherefore withgreater production
costs.
E.2.10.2. Operational Profit andMargin
With thepurpose ofobtaining aresult thatwould reflect onlytheprincipal activity
(manufacture andsaleoftoys) theoperational profit andmargin were calculated the
profit andoperational margin exclusive financial results, fromtheoperational andprofit
margins properly speaking.
Theoperational margin exclusive financial results presented fluctuations during the
period from1992to1995. In1993, relative totheprevious year, therewasareduction
of7.21percentage points, agrowth of6.34percentage points having beenverified,
from 1993 to1994. Upon comparison of1994 and1995, adrastic fallof28.94
percentage points wasverified, assuming thesame negative result of(-6.62 percent).
Thisnegative operational margin in1995 indicates thattheprices brought were not
sufficient tocover thedirect andindirect costsofmanufacture, showing thattheprices
hadbeendepressed inthatyear.
E.2.10.3. Current Liquidity andDegree ofIndebtedness
Theindex ofcurrent liquidity presented fluctuations intheperiod under analysis. In
1993, relative to1992, growth wasverified of0.06percentage points and,in1994,
compared to1993, agrowth of0.06percentage points, however in,1995 inrelation
to1994, there wasadecrease of0.09percentage points.
Ifontheonehand, liquidity showed itself tobesatisfactory, theindex ofgeneral
indebtedness andofshorttermindebtedness demonstrated capital growth ofthirdparties
asoveragainst national capital, principally intheyearof1995, inrelation to1994,
when general indebtedness grew 17.3percent.
Itisworth pointing outthough thatlongtermindebtedness grewinamore accentuated
formthanthatofshorttermindebtedness, which apparently could indicate thatdomestic
industry might beobtaining resources from thirdparties tofinance newinvestments.
Ananalysis ofthebalance sheets, however, gives evidence thatsuchagrowth was
basically duetothelongtermprovisions.G/SG/N/10/BRA/1
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E.3 Determination ofserious injury
Ananalysis ofthedevelopment ofimports andthesituation ofdomestic industry, indicated
thatfrom1992to1994, thegrowth ofimports didnotimpede thegrowth invalue, ofproduction, and
ofsalesfortheinternal market, sincethemaintenance ofparticipation ofdomestic industry inapparent
saleshadbeenobserved. Interms ofquantity, ithadbeenobserved thatbothproduction andinternal
saleshadpresented afallin1994 inrelation totheprevious year.
Interms ofvalue, ontheother hand, the1994 yearshould beobserved withcaution, since,
withtheimplementation oftheRealPlaninthesecond semester, provoked asubstantial heatupin
thedemand, impelled bytheeffective increase inincome stemming outofthefallofinflation, coinciding
withtheperiod ofconcentrated salesofthesector (Children ’sdayandChristmas).
In1995, however, thedeterioration ofeconomic indicators wasverified. Those economic
indicators relative todomestic industry which included asample of21companies, thatrepresented
71percentofthenational production, asfollows:
(a) thefallinproduction -of19percentinquantity, and15percentinvalue in1995
relative to1994;
(b) dropinsales andlossofparticipation ofdomestic industry inapparent sales -sales
ofinternally manufactured toysfell28percent,inquantity, and22percent,invalue
in1995relative to1994. Theparticipation ofindustry inapparent sales, invalue, fell
by70percent, in1994, to52percent, in1995;
(c) increase instock inventories -physical stocks grew 117percent,from1994to1995;
(d) dropinemployment level-thenumber ofemployees, directly orindirectly related to
industry, fell18percent, from 1994 to1995;
(e) fallinprofitability -in1995, relative to1994, therewasseena16percentfallingross
margin, of27percentage points oftheoperational margin, of29percentage points of
theoperational margin exclusive financial results, andoffinancial, 27percentage points
oftheliquid margin.
(f) increase ofindebtedness -in1995, relative to1994, anincrease intotalindebtedness
of16percentwasseen.
Besides this,theprices ofdomestic industry were observed tobequite down inrelation to
production costs, which wasreflected inthenegative operational margin.
Consequently, theentire setofthese indicators allowed aconclusion thatserious injury to
domestic industry existed intheyear1995.
F. CAUSALITY
Inthe1994 year, asafunction oftheimplementation oftheRealPlan, growth intheentire
Brazilian economy wasobserved.G/SG/N/10/BRA/1
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Inthetoysector itwasnodifferent, themarket hadgrown 34percent, from 1993 to1994.
Inspiteoftheincrease ofmore than100percentinimports, domestic industry wasabletoexpand,
basically bythedislocation ofother national producers whose participation fellfrom 28.25 percent
in1993 to22.69 percentin1995. Such situation wasmodified in1995, when imports continued to
grow taking themarket away from allthenational manufacturers.
In1995, theinternal market oftoysgrew 5.3percentinrelation totheprevious year. Yet
theimports,notonlybenefitedfromthisgrowth,butabsorbedaportionofthemarketpreviouslysupplied
bynational industry. Thus, while thevalue ofimports grew by330.1 percent,whatimplied growth
ofparticipation inimports inapparent salesof7.57percentin1994, to30.27 percentin1995, the
value oftheinternal sales ofdomestic industry fell21.6percent, withitsparticipation inapparent
salesdeclining from 69.74 percentin1994 to51.90 percentin1995, andthatoftheother national
producers moving from 22.69 percentin1994 to17.83 percentin1995.
Inthisway,theincrease ofimports occurred notonlyoutofthegreater exposition ofindustry
tointernational competition, infunction ofthedropinthealiquot "advalorem" oftheimport tax,but
alsobecause ofthelossofinternational competitiveness ofthedomestic industry.
Thedropinsalesofdomestic industry provoked bytheincrease inimports, meant areduction
of15percentoftheproduction value, theriseinstocks of116.6 percentandadecline inthelevel
ofemployment of17.8percent. Thisperformance occasioned adeterioration oftheeconomic-financial
situation ofdomestic industry (afallof28.94 percentage points intheoperational margin exclusive
financial results andof27.17 percentage points intheliquid margin), onwhich weighs theincrease
inthemedian unitvalue ofitsinternal sales.
Other factors, yet,which were analyzed distinct from theanalysis ofimports, could explain
theserious injury suffered bydomestic industry, suchas:
(a) growth ofsales ofother national manufacturers asperthatreported, theimports
dislocated notonlydomestic industry butalsotheother internal manufacturers who
reduced theirsalesand,consequently, lostparticipation inapparent sales.
(b) contraband andunder invoicing: theanalysis ofserious injury considered onlythe
importswhichwerecarriedoutofficially,thisdoesnotincludecontraband,andobviously
doesnotpermit theevaluation ornotofunder invoicing ofthecontraband imports.
What wasdemonstrated wasthatdomestic industry wasdislocated bytheimports that
were legally carried out.
Therefore, theserious injury thatwasconfirmed, could notbeattributed tosuchfactors.
G. THE COMMITMENT OFADJUSTMENT
During theinvestigation, aworking group wasformed toevaluate thecommitment ofadjustment
presented bythesector, itwasmade upofrepresentatives ofSECEX/MICT, oftheSecretariat of
Industrial Policy -SPI/MICT, oftheSecretariat ofEconomic Accompaniment -SEAE/MF andthe
National Economic andSocial Development Bank -BNDES/MPO. Thisgroup, afterexamining the
dynamics ofinternational competition ofthesector, concluded fortheadequateness ofacompetitive
adjustment.G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page12
Anadjustment compromise wassigned, individually, by28firms ofthetoysector, representing
nearly 73percentofnational production which contains actions destined toincrease productive capacity,
toproduct innovation, totraining ofhuman resources andtosalestraining, aswellasthemaking of
investments, withbiennial goals, during theperiod from 1997 to1999.
Government authorities willcarry outthemonitoring ofthecommitment ofadjustment, during
theentire timethesafeguard measures areinforce.
H. THE APPLICATION OFSAFEGUARD MEASURES
Decree No.1.488/95, inArticle 1,foresees thepossibility oftheapplication ofsafeguard
measures toaproduct if,fromtheinvestigation, itisconfirmed thattheimports ofthisproduct have
increased tosuchadegree insuchquantities, whether inabsolute terms orinproportion tonational
production, andinsuchconditions thatcause orthreaten tocause serious injury todomestic industry
ofsimilar goods orthose directly competing. Furthermore, inArticle 8,itisestablished thatthe
measures should beapplied tothedegree necessary toprevent orremedy serious injury andfacilitate
adjustment.
Inconformity tothatestablished inArticle 9,paragraphs 1and4ofDecree No.1.488/95,
suchmeasures should notbeapplied foraperiod greater thanfouryears except incases ofextension,
and,iftheperiod isgreater thanoneyear, theyshould beprogressively liberalized atregular intervals,
during theperiod ofitsapplication. Yetfurther, theperiod inwhich themeasures wereapplied should
becalculated foreffects ofthelimits ofthetotaltimeinforce ofthesame, inaccordance withArticle 4
paragraph 2ofthissame Decree.
TheanalysisconductedbySECEXconfirmedtheexistenceofseriousinjurytodomesticindustry
arising outoftheincrease inimports in1995.
Theevaluation ofthecommitment ofadjustment indicated that, given theconditions of
competitiveness ofthetoysector onaninternational levelandthecharacteristics ofdomestic industry,
theimplementation oftheplanofadjustment presented bythesector, tobeaccompanied systematically
bygovernmental authorities, willfacilitate theincrease incompetitivity ofdomestic industry.
Conditions sufficient fortheapplication ofSafeguard measures were gathered.
BEITRESOLVED:
Article 1-Apply safeguard measures, intheformofanincrease inthealiquot ofimport tariffs,
bymeans ofanadditional charge through theExternal Common Tariff -TEC, ontheimports offinished
toyshereafter related, classified according totheirrespective tariffcodes andaccording tothefollowing
chronology:G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page13
Addition toTEC (%)
NCM/SH Description oftheproduct TEC
(%)01.01.97
to
31.12.9701.01.98
to
31.12.9801.01.99
to
31.12.99
9501.00.00 Wheel toysconceived tobe
mounted bychildren, buggies for
dolls, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9502.10.10 Dolls evenwhen dressed, with
windup orelectric mechanisms,
except forparts andcomponents
forthemanufacture oftoysinthis
position.20 43 29 15
9502.10.90 Other dolls, evenwhen dressed,
except forparts andcomponents
forthemanufacture oftoysinthis
position.20 43 29 15
9502.91.00 Dresses andtheiraccessories,
shoes andhats,except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9502.99.00 Other parts andaccessories, except
forparts andcomponents forthe
manufacture oftoysinthis
position.20 43 29 15
9503.10.00 Electric Trains, including thetracks
signals andother accessories,
except forparts andcomponents
forthemanufacture oftoysinthis
position.20 43 29 15
9503.20.00 Miniature models, evenanimated,
except forthesubposition 9503.1020 43 29 15
9503.30.00 Other setsandtoysforconstruction 20 43 29 15
9503.41.00 Toys representing animals ornon
human creatures, withfilling.20 43 29 15
9503.49.00 Other toysrepresenting animals or
nonhuman creatures20 43 29 15
9503.50.00 Instruments andmusical apparatus
forplaying, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9503.60.00 Puzzles 20 43 29 15
9503.70.00 Other toys, presented indrawings
orplanopies20 43 29 15G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page14
Addition toTEC (%)
NCM/SH Description oftheproduct TEC
(%)01.01.97
to
31.12.9701.01.98
to
31.12.9801.01.99
to
31.12.99
9503.80.00 Other toysandelectric, motorized
models, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9503.80.90 Other toysandmotorized models 20 43 29 15
9503.90.10 Other friction toys, windup or
spring, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9503.90.90 Other toys, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9504.10.10 Video games, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9504.10.91 Cartridges, except forparts and
components forthemanufacture of
toysinthisposition.20 43 29 15
9504.10.99 Other parts andaccessories, except
forparts andcomponents forthe
manufacture oftoysinthis
position.20 43 29 15
Article 2-Thedispositions oftheforegoing article donotapply toimports originating in
developing countries Members oftheWTO inthefollowing list,considering thatwhich iscontained
inArticle 9oftheSafeguard Agreement: (Decree No.1.355/94): Antigua &Barbuda; Bangladesh;
Bolivia; Chile; Singapore; South Korea; Ecuador; thePhilippines; Guatemala; India; Indonesia;
Macau; Malaysia; Mexico; Paraguay; SriLanka; Thailand; Uruguay; andVenezuela.
Article 3-ThisOrder willenter intoforce onthefirstofJanuary 1997.
FRANCISCO DORNELLES
Ministro deEstado daIndústria,
doComércio edoTurismoPEDRO SAMPAIO MALAN
Ministro deEstado daFazendaG/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page15
NOTIFICATION UNDER ARTICLE 9,FOOTNOTE 2
OFNON-APPLICATION OFSAFEGUARD MEASURES
TODEVELOPING COUNTRIES UNDER ARTICLE 9.1
OFTHE AGREEMENT ONSAFEGUARDS
Description oftheMeasure
Article 1ofDecree No.1488/95 provides fortheapplication ofsafeguards measure toaproduct
ifaninvestigation demonstrates thatimports ofthatproduct haveincreased insuchquantities, absolute
orrelative todomestic production, andunder suchconditions astocause orthreaten tocause serious
injury tothedomestic industry thatproduces likeordirectly competitive products. Article 8of
Decree No.1488/95 establishes thatthemeasures shallbeapplied totheextent necessary toprevent
orrepair serious injury andtofacilitate adjustment.
Pursuant toArticle 9,paragraphs 1and4ofDecree No.1488/95, suchmeasures should not
beapplied foraperiod exceeding fouryears, unless itisextended, andiftheperiod ofapplication
exceeds oneyear,themeasure should beprogressively liberalized, atregular intervals, during theperiod
ofapplication. Theperiod ofapplication ofaprovisional safeguard measure iscounted asapartof
thetotalperiod ofvalidity ofthesafeguard measure, inaccordance withArticle 4,paragraph 2ofthe
Decree.
Theinvestigation hasdetermined theexistence ofserious injury tothedomestic industry caused
byincreased imports in1995.
Theevaluation ofthecommitment onadjustment proposed bythedomestic industry indicated
that,considering theconditions ofcompetitiveness intheinternational markets andthecharacteristics
ofthedomestic industry, theimplementation oftheadjustment plan, thatwillbecontinually checked
bythecompetent authorities, willhelpthedomestic industry toincrease competitiveness.
Itwasconcluded thattherequirements fortheapplication ofthesafeguard measure weremet.
Therefore, thesafeguard measure willbeapplied byincreasing theimport duty, under theform
ofanadditiontotheCommonExternalTariff(TEC),appliedtoimportsoftoysclassifiedunderNBM/SH
headings 9501, 9502, 9503 andsubheading 9504.10, asfollows:
Period Import Duty Additional Total Duty
01.01.97 to31.12.97 20% 43% 63%
01.01.98 to31.12.98 20% 29% 49%
01.01.99 to31.12.99 20% 15% 35%
Bytheproposed schedule, Brazil willcomply withitscommitments withregard torates
bound inListIIIforalmost allitems, andonlyforitems 9501.00.0199, 9501.00.9900 and9504.10.9001
theratesapplied in1997 and1998 willbehigher thanthebound levelagreed forthose years.
Description oftheproduct involved:
Theproducts subject tothesafeguard measure are"toys", classified under headings 9501, 9502,
9503 andsubheading 9504.10 oftheBrazilian Nomenclature based ontheHarmonized System
(NBM/SH).G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page16
Itwasnoted thattherearedifferent types oftoys(balls, dolls, puzzles, videogames, etc.), that
nevertheless donotrepresent different markets, astheconsumer thatdecides tobuyatoywillhave
theopportunity ofchoosing among alltypes oftoysavailable inthemarket, allofthem having the
same use:toplaywith. Even theanalysis ofdifferent price levels among different types oftoysdid
notdenythefactthattheyarenearsubstitutes among themselves, as,inthetoymarket, itisveryfrequent
tomake achoice between buying oneexpensive toyorsome toysatlowprices. Thepreference of
theconsumer willbedetermined bythecharacteristics ofthefinaluser(age,sex,affinity) andtheamount
theconsumer isready tospend withagift(revenue versus price ofatoy).
Itwasverified thatanimported toycompetes withallinternally produced toysandnotonly
withtheidentical product; forexample, evenwhen theimported toyisanewone(i.e.thesameproduct
isnotavailable inthemarket), there isagood possibility ofhaving salesofanyother toy,produced
internally orimported, displaced bythenewone.
Theattempt tocategorize types oftoyswould prevent anadequate market analysis. Distinct
categories oftoyscorrespond todistinct markets, thuseliminating theanalysis ofcompetition between
"products which directly compete" anddoesnotpermit acorrect understanding ofthepattern of
competition andthedynamics ofgrowth inthetoyindustry. Adivision, forinstance, bytariff items
classified asrepresentative ofhuman figures (HS9502.10) andtoysclassified asanimals ornon-human
creatures (HS9503.4) being placed indistinct markets would beinconvenient. Thesame problem
would occur inthecaseofadivision byproductive process which would place cloth dollsandplastic
dolls indifferent markets. Orevenmore soadivision byapplication bytheclassification made by
theCentre National d'Information duJouet (affective development, infants, technical world, physical
activities, intellectual activities, creativity, andsocial relationships), thatwould placeindifferent markets
board games (social relationships) andpuzzles (intellectual activities); orcradle games (infants) versus
furry animals (affective development).
Therefore, itwasconsidered that,although thephysical characteristics orthetariffclassification
oftheproducts under theCommon Nomenclature ofMercosur -NCM maydiffer, theemphasis in
thedefinition of"directly competitive products" isgiven, inthetoymarket, bythedegree ofsubstitution
among those products which aredestined forthesame market.
Bytheabove, forpurposes oftheinvestigation, alltoysmanufactured inBrazil areconsidered
tobedirectly competitive products inrelation tothose thatareimported.
Developing countries towhich themeasure isnotapplied under Article 9.1oftheAgreement on
Safeguards, andtheimport shares ofthese countries individually andcollectively
Pursuant toArticle 9oftheAgreement onSafeguards, measures willnotbeapplied toproducts
originating inadeveloping country member, aslongasitsshare ofimports oftheproduct concerned
intheimporting member doesnotexceed 3percent,provided thatdeveloping country members with
lessthan3percentaccount fornotmore than9percentoftotalimports oftheproduct concerned.
Asimports fromdeveloping country members oftheWTO, withshares inferior to3percent
ofthetotalofBrazilian imports, collectively accounted in1995 foronly6.12percent, invalue, and
2.3percent, inquantity, imports from thefollowing countries willnotbesubject totheapplication
oftheproposed safeguard measure:G/SG/N/10/BRA/1
G/SG/N/11/BRA/1
Page17
Country US$1,000 f.o.b. %
Antigua andBarbuda 0.20 0.00
Bangladesh 16.30 0.01
Bolivia 0.20 0.00
Chile 162.80 0.12
Ecuador 3.70 0.00
Guatemala 0.10 0.00
India 5.70 0.00
Indonesia 821.40 0.62
Korea 1,870.14 1.41
Macau 8.50 0.01
Malaysia 1,018.42 0.77
Mexico 734.20 0.55
Paraguay 1.40 0.00
Philippines 92.27 0.07
Singapore 220.66 0.17
SriLanka 44.10 0.03
Thailand 2,995.30 2.25
Uruguay 130.50 0.10
Venezuela 14.90 0.01