WORLD TRADE WT/TPR/M/21
29January 1997
ORGANIZATION(97-0325)
Trade Policy Review Body
30-31 October 1996
TRADE POLICY REVIEW
BRAZIL
MINUTES OFMEETING
Chairperson: H.E. MsAnne Anderson (Ireland)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFBRAZIL 3
III. STATEMENT BYTHE FIRST DISCUSSANT 6
IV. STATEMENT BYTHE SECOND DISCUSSANT 8
V. STATEMENTS BYMEMBERS 10
VI. REPLIES BYTHE REPRESENTATIVE OFBRAZIL
AND ADDITIONAL COMMENTS 15
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON 24WT/TPR/M/21
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I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON
1. Thesecond Trade Policy Review ofBrazil washeldon30and31October 1996. The
Chairperson welcomed thedelegation ofBrazil, which washeaded byAmbassador Celso Lafer and
included Minister JoséAlfredo GraçaLima, Head oftheEconomics Department, Ministry ofExternal
Relations, andthediscussants, H.E. Dr.Wilhelm Höynck ofGermany andMr.Javier Paulinich of
Peru. Asusual, bothdiscussants spoke intheirpersonal capacities andnotasrepresentatives oftheir
countries.Inaccordancewiththeestablishedprocedures,thediscussantshadmadeavailable,inadvance,
outlines ofthemain issues theyintended toraise.
2. TheChairperson recalled thepurpose oftheTrade Policy Reviews andthemain elements of
theprocedures forthismeeting. Thereport bytheGovernment ofBrazil wascontained in
document WT/TPR/G/21 andthatoftheWTO Secretariat indocument WT/TPR/S/21; themainissues
toberaised bythediscussants werecontained indocument WT/TPR/D/5. Copies ofwritten questions
submitted byseven delegations (Australia, Canada, Ecuador, Hong Kong, Japan, theUnited States
andVenezuela) hadbeentransmitted tothedelegation ofBrazil. Additional written questions were
submitted atthetimeofthemeeting bythedelegation oftheRepublic ofKorea. Iffullreplies could
notbeprovided during themeeting, supplementary written replies could beprovided later.
3. Recalling thatintergovernmental organizations could attend meetings oftheGeneral Council
through decisions taken onthebasisofadhocarrangements, theChairperson proposed thattheTrade
Policy Review Body invite theEBRD, EFTA, FAO, IMF, OECD, UNCTAD andtheWorld Bank,
which hadrequested observer status, toitsnextmeeting. Itwassoagreed.WT/TPR/M/21
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II. OPENING STATEMENT BYTHE REPRESENTATIVE OFBRAZIL
4. Therepresentative ofBrazil, reflecting onthemeaning oftradepolicy reviews within theWTO,
saidthatfreetrade implied afreeflowofinformation regarding public economic policies, because
what waspublic wascommon toallandshould becommon knowledge -thefruitful interaction of
national economies inaninterdependent rules-oriented world market, asconceived during theUruguay
Round. Hethuswelcomed theopportunity toofferanddiscuss Brazil 'spolicies, theirresults, challenges
anddirection.
(i) Macroeconomic andinstitutional developments
5. AfterrecallingthecircumstancesofBrazil'sfirstTradePolicyReviewin1992,therepresentative
noted thatboththedocument presented byhisGovernment andtheSecretariat report stressed thatthe
Brazilian economy hadchanged significantly since thatfirstReview. Thischange hadbeenachieved
inlarge measure asaconsequence ofabroad economic stabilization programme putintoforce in
July1994 -theRealPlan. ThePlanwasbuiltonaseries ofpreviously achieved reforms, including
theopening oftheeconomy, thederegulation andliberalization oftheexchange market andthe
normalization ofrelations withtheinternational financial community. Asaresult, theRealPlanhad
brought inflation ratestothelowest levels in35years. Inthe12months prior totheadoption ofthe
RealPlan, theGeneral Price Index (GPI) hadincreased by5,000 percent; in1995, annual inflation
ratehadcome down to14.6percent, andwasexpected tofallto10percentin1996. Thisdropin
inflation hadbeenachieved intheabsence ofpriceorwage freezes, breaches ofcontracts orrecession,
andinthecontext ofafully democratic process andtheruleoflaw. TheReal Planhadbeen
implemented onthebasis ofthree basic elements: monetary reform, including thecreation ofanew
currency (the"Real"), theelimination ofindexation incontracts, including wages andexchange rate,
andagreater reliance onmarket mechanisms.
6. TheBrazilian Government wasfocusing itsattention ontheneedtoimprove itsfiscal situation
and,inthemedium run,onthereform oftherôleoftheStateintheeconomy. In1995 theBrazilian
Congress hadapproved aseries ofconstitutional amendments thatwould consolidate theRealPlan.
More flexible rulesforthestatepetroleum monopoly would allow theGovernment tocontract private
enterprises fortheexploration andexploitation ofpetroleum andnatural gasdeposits andwould lift
restrictions ontheimportation ofoilanditsderivatives andonrefining andtransportation. The
liberalizationofthetelecommunicationssectorwouldallowtheGovernment,throughpublicconcessions,
tocontract private companies tooperate telephone, telegraph andother communication services.
Discrimination against foreign capital hadbeenremoved from theConstitution withtheelimination
ofthedistinction between Brazilian firms ofnational capital andother Brazilian firms. Market reserve
requirements fornational flagships inthecoastal andinland navigation hadbeenabolished. The
Government wasalsoaccelerating theprivatization programme. Thesteelandpetrochemical sectors
hadalready beenprivatized. Theprogramme wasentering anewphase withthecreation ofimproved
conditions forprivate investment andexpansion inpublic services, suchaselectric energy, water, gas
andtransportation.
(ii) Trade trends andpolicy
7. With regard totrade policy, theGovernment hadpursued asteady pathtowards increasing
theexposure oflocalproducers toforeign competition. Therecent growth inimports hadnoprecedent
inBrazilian economic history, with imports growing by150percent, from US$20 billion to
US$50billion,inthelastthreeyears.Thisstrongdemandforimports,resultingfromtheimplementation
oftheRealPlan, hadgenerated monthly trade deficit from November 1994, reaching atotalof
US$3.2 billion in1995. Trade ingoods hadincreased fromUS$56 billion in1992 toUS$96 billion
in1995, equivalent toanannual rateofgrowth of20percent, higher thantheaverage increase inWT/TPR/M/21
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world trade inthesame period. Therelevant 1995 figure fortrade ingoods andservices was
US$134 billion. Theopenness oftheeconomy, asmeasured bythetrade toGDP ratio, hadgrown
from12.5percentin1992 to17percentin1995. Theincreased demand forcapital goods andraw
materials were aclear indication oftheresumption ofinvestment andtheimprovement inBrazil 's
productive capacity. Theamount offoreign direct investment inBrazil in1996 would beahistorical
record, reaching around US$8 billion.
8. Significant improvements hadbeenmade inBrazil 'strade régime since thefirstTrade Policy
Review.Theautonomoustradeliberalizationprogrammestartedin1990hadbeencompletedonschedule
inJuly1993withthelifting ofimport prohibitions andtheelimination ofnon-tariff barriers. Import
tariffs hadbeensubstantially reduced, theaverage import dutyfalling from32.2percentin1990 to
14.2percentin1993. Following theestablishment ofMERCOSUL, theaverage import tariff had
beenfurther reduced to12.6percent. Themaximum tariff hadfallen from 105percentin1990 to
31percenton1January 1996, withafewexceptions, suchasautomotive vehicles andhome appliances.
(iii) Trade relations
9. Therepresentative ofBrazil stated thathisgovernment hadfullyimplemented theUruguay
Round Agreements andstrongly supported thenewandimproved structure forthemultilateral trading
system. Brazil attached particular importance toimprovements agreed during theUruguay Round in
areas suchasdispute settlement, anti-dumping, countervailing duties andsafeguards. Healsosaid
thatinaccordancewithitscommitmentsundertheTRIPSAgreement,Brazilhadapprovednewindustrial
property legislation on14May1996. Thelegislation covered thegranting ofpatents forinvention,
forutility models, registration ofindustrial designs andoftrademarks, repression offalsegeographical
indications andunfair competition.
10. Healsonoted Brazil 'sefforts todeepen economic integration attheregional andsub-regional
levels. From ageographic perspective, andtaking advantage ofexisting economic complementarities
withneighbouring countries, Brazil 'sgoalhadbeentofoster convergence anddevelopment through
further trade liberalization within thecontinent. Thisstrategy, however, didnotsignal adeviation
fromBrazil 'straditional approach tomultilateralism. Asaglobal trader, Brazil hadconsistently pursued
open regionalism andendeavoured toensure thatdisciplines negotiated under regional frameworks
would befullyconsistent withWTO rules.
11. Therepresentative noted thatBrazilian trade withother MERCOSUL countries hadgrown
fromUS$3.64 billion in1990, theyears priortothesigning oftheAsuncion Treaty, toUS$12.97 billion
in1995, thefirstyearofthecustoms union. Henoted thatgrowth ofintra-regional trade between
1990 and1995 hadoccurred, inthecaseofBrazil, inparallel withsubstantial growth intotalforeign
trade, which hadincreased by85percentduring thesame period, from US$52 billion in1990 to
US$96 billion in1995. Healsostressed thatMERCOSUL hadcomplied withitsWTO obligations,
withallrelevant information having beennotified.
(iv) Liberalization measures
12. Therepresentative saidthatdespite Brazil 'scommitment toacomprehensive programme of
trade liberalization, thegrowth rateofitsexports wasfarlower thanthatofitsimports, asituation
largely explained bythepersistence ofseveral trade barriers toBrazilian exports. Hethenprovided
statistics ontrade flows between Brazil andtheEuropean Union, Japan andtheUnited States thatin
hisopinion clearly demonstrated thatsituation. Thestatistics alsoshowed thataccess totheBrazilian
market wasnotdifficult, assometimes suggested.WT/TPR/M/21
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13. Inthepursuit oftradeliberalization, Brazil hadrecently adopted anumber ofWTO-consistent
measuresdesignedtoreducetheso-calledBrazilCostandtoenhanceBrazil'sparticipationininternational
trade andfinancial flows. Intheprevious twomonths suchmeasures included therebate ofthevalue
added taxcollected byStates onexports ofprimary andsemi-manufactured goods, thedevelopment
ofamarket-based export credit insurance scheme, theenlargement ofthescope oftheprivatization
programme toinclude federal harbours, andtheelimination ofthePortTariff Surcharge.
14. Therepresentative ofBrazil stressed thattheliberalization process undertaken byhiscountry
since 1990wasirreversible. Theadjustment difficulties encountered bysome sectors toadapt toboth
themost significant market opening inBrazil 'shistory anditsmost encompassing andprofound
stabilization plan innowayaffected Brazil 'scommitment totrade liberalization andgreater
interdependence. Thishadbeenevidenced bythecountry 'sactive participation intheWTO. Brazil
wasaware thatconsolidation oftheRealPlanwasessential, andthatsuchconsolidation would have
togohand-in-hand withtrade liberalization.
15. Noting thatthefinalstage ofpreparation forthefirstMinisterial Conference oftheWTO was
approaching, heunderlined thatBrazil attached great importance toaserious, in-depth review of
implementation oftheUruguay Round Agreements. InBrazil 'sview, thestrain faced bygovernments
withthehuge andcomplex taskofadapting national legislations andfulfilling thewide range of
obligations foreseen intheWTO agreements called foraverycautious approach toattempts toincrease
thealready overloaded WTO agenda. Brazil would workconstructively forthesuccess oftheSingapore
Ministerial Conference withaviewtoachieving itsultimate goalofstrengthening themultilateral trading
system.WT/TPR/M/21
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III. STATEMENT BYTHE FIRST DISCUSSANT
16. Thefirstdiscussant (Mr.Javier Paulinich) noted Brazil 'simportance inregional andworld
trade. Previously, highinflation andslowgrowth hadbeenlinked tobalance ofpayments, price and
employment disequilibria associated withadevelopment strategy based onimport substitution andthe
State'sactive rôleinproduction. Market-opening measures andchanges intheinternational economic
system, involving open regionalism andglobalization, hadmade possible economic changes which
hadresulted inasharp fallininflation andtherecovery ofGDP growth. Economic policy wasnow
aimed atstabilizing theeconomy through structural reforms andthenewrôleoftheState mostly as
aregulator ofeconomic activities. TheRealPlanwasbased onmonetary reform, theelimination of
indexation andgreater reliance onmarket mechanisms.
17. Thediscussant saidthat,notwithstanding Brazil 'smacroeconomic achievements, itwasalso
necessary totakeintoconsideration social issues. Inthisregard, GDP increases hadnotbeen
accompanied byequivalent employment growth, withsome indicators pointing toajobcreation
deterioration in1995. Pointing outthatsuch problems were common todeveloping countries
implementing economic stabilization programmes, hesought Brazil 'scomments onthisissue.
18. Economic reforms hadcreated greater confidence inmarket solutions, which underpinned the
significantpolicychangestowardstradeandinvestment.ThecompletionofBrazil's1990-93autonomous
trade liberalization programme hadreduced average tariffs aswellaseliminated import prohibitions
andnon-tariff barriers. Theprogramme hadbeenaccompanied byinstitutional andlegislative changes
andconfirmed Brazil 'scommitment tofreetradeanditsgreater market openness. Thiswould expose
Brazilian industry tomore foreign competition andprovide incentives toincrease productivity and
competitiveness. Trade-related institutional changes hadincluded theestablishment oftheChamber
ofForeign Trade; thediscussant requested additional details ontheChamber 'soperation andits
achievements.
19. Thediscussant noted thework initiated inJune1995 toharmonize Brazil 'slegislation with
itsWTO engagements andtheimplementation ofnewlawsontradedefence andintellectual property.
Recalling thatBrazil 'sforeign tradewassubject tonumerous laws, herequested information onprogress
intheGovernment 'sefforts toelaborate asingle trade law.
20. Reviewing theresults ofthetrade liberalization programme, henoted thatbetween 1992 and
1995 imports hadgrown 150percentandexports 30percent. These trends raised concerns asto
whether theobjectives ofhigher productivity, expansion andmodernization oftheBrazilian industry
hadbeenattained. Faster growth inimports thaninexports hadalsoputpressure oninternational
reserves andthetrade deficit, making itnecessary tointroduce measures tocontrol import growth.
Inthisrespect, henoted thatboththeimport substitution andtradeliberalization strategies could create
similar pressures ontrade deficits andpublic finances. Themain difference appeared torelate tothe
mechanism usedtofinance thedeficits: public foreign debtunder import substitution andforeign direct
investment orprivate debtunder Brazil 'scurrent strategy. Herequested comments onthisobservation.
21. ThediscussantnotedtheconstitutionalandotherlegalchangesmadebytheBrazilianGovernment
toattract foreign investment. Thedistinction between a"national company" anda"national company
ofBrazilian capital" hadbeeneliminated, resulting intheremoval ofcertain public monopolies. The
progressive liberalization ofinvestment, aided bytheprivatization programme, hadresulted onFDI
increasing from US$2.2 billion in1990 toUS$42 billion in1995. Believing thatthetrade deficit
produced byhigher imports necessitated more foreign investment tobalance thepublic accounts, he
pondered whether thepaceofliberalization oftrade determined thatofinvestment orviceversa, and
asked Brazil howtheequilibrium inthebalance ofpayments wastobemaintained.WT/TPR/M/21
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22. Hestated thatlawsoncompetition andintellectual property clearly hadapositive effect on
production andtrade. Thiswasnotnecessarily trueforstatemonopolies, price controls andfiscal
incentives, although under alessorthodox viewitcould beargued thattheywerenecessary instruments
toachieve desired development goals during atransitional period ofreform. Thediscussant asked
forBrazil 'sopinion ontherôleofsuchmeasures andwhether Brazil hadachronogram toextend or
reduce them. Thepolicies adopted recently byBrazil hadproduced positive results buthadalsocreated
difficulties leading totheadoption ofcertain trade measures. What wasthenthefuture ofthe
liberalization programme?
23. Onservices, thediscussant highlighted thefactthatliberalization hadnotreached thebanking
system. Henoted thedominant rôleofgovernment-controlled banks andthemodest participation of
foreign capital inbanking andasked ifthere wereanyplans toliberalize further thebanking system.WT/TPR/M/21
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IV. STATEMENT BYTHE SECOND DISCUSSANT
24. Thesecond discussant (H.E. Dr.Wilhelm Höynck) noted thefollowing keyfactors: reduction
ofinflation, robust realgrowth, andaconsiderable increase oftrade ingoods andservices. Hewas
impressed bytheefforts made andtheresults achieved onBrazil 'swaytoacompetitive anddynamic
economy.
25. Anumber ofessential andmajor steps hadbeentaken inthedirection ofanopen market.
Tariffs hadbecome thesingle mostimportant instrument oftrade policy, andaverage applied tariffs
haddropped from21.2percentin1993to12.5percentin1996. However, thesituation withregard
toMERCOSUL 'SCommon External Tariff (CET) seemed toberather complex. TheCETallowed
exemptions under anational list,inparticular forcapital goods. TheBrazilian authorities affirmed
thattheCET would notbeapplied where itexceeded Brazil 'sbound rates. Moreover, bound rates
wereconsiderably higher thanapplied rates, leaving room forBrazil tomake quick changes inapplied
tariffs whenever itseemed useful ornecessary, without taking intoaccount thestricter disciplines of
theGATT. Thisdidnotincrease predictability forBrazil 'strading partners.
26. Withtariffs asthemaininstrument oftrade policy, anti-dumping andsafeguard measures had
become more important andbeenusedtoinfluence theimport ofcertain goods. Between 1992 and
1996, 66anti-dumping cases and13countervailing investigations hadbeeninitiated; itwasstriking
thatthevastmajority ofsuchmeasures hadbeendirected against imports from developing countries
orcountries intransition. ThenewBrazilian safeguards legislation might helptodealwiththisproblem.
Such legislation hadbeenfirstusedinaprovisional measure inJune, affecting imports oftoys. In
May1996, transitional safeguards quota under theAgreement forTextiles andClothing hadbeen
introduced oncertain textiles.
27. Onnon-tariffs,theseconddiscussantobservedthatmostimportsweresubjecttoimportlicences,
inprinciple forstatistical purposes. Therelevant procedures hadbeenconsiderably streamlined, but
therewerestillsome complaints about theleveloflicensing feesandthetimenecessary toobtain them.
Aspecific Brazilian feature wastheconditioning ofimport licences forcertain items liketextiles and
cold-rolled stainless steelonthepayment period oftherespective contract. Thispractice hadbeen
justified onthegrounds thatlonger credit periods offered byforeign trading partners wereanunfair
advantage forimports, inviewofthehighBrazilian interest rates. Apart fromwhether thesemeasures
wereWTO-compatible, ifapplied systematically tospecial sectors, theycould operate inaprotective
manner. Theuseofsuchmeasures raised thepossibility thatthescope forregulation andfine-tuning
ofimports werestilltooactively pursued bytheGovernment. Brazil wasencouraged tostrengthen
itsimport liberalization policy despite difficulties incertain sectors, thusincreasing theconfidence
ofBrazil 'strading partners. More balanced export andimport flows could beachieved through
macroeconomic adjustments.
28. Thediscussant noted thatBrazil encouraged exports through anumber ofschemes; including
internal taxprovisions, theExport Finance Programme (PROEX) andthefiscal benefits forSpecial
Export Programmes (BEFIEX). While Brazil seemed tobefulfilling itsstricter obligations under the
WTOAgreementonSubsidiesandCountervailingMeasures,thestreamliningofthedifferentsubvention
schemes ofthepast,especially reform ofinternal taxes, wasdesirable. Noting thatfundamental tax
reform wasagigantic task,heenquired about theprospects forsuchreforms.
29. Ontradepolicies innon-service industries, thediscussant saidthatagriculture wasaparticularly
complex sector loaded withspecific political, social andenvironmental problems. Henoted thesector 's
importance inthedomestic economy andintheworld market. Moreover, onthewhole, Brazilian
agriculture seemed tobecompetitive. However, although tariffs onagriculture products hadbeen
reduced inthepastyears (with some exceptions), Brazilian agriculture seemed toneedconsiderableWT/TPR/M/21
Page9
financial support through minimum price supports andrural credits. Thehighindebtedness ofthe
rural sector andtheheavy burden ofhighinterest rateshadbeenusedtojustify suchsubsidies. It
wasalsoparticularly difficult toseetheeconomic justification forthehighsubsidization oftheNational
Alcohol Programme (PROALCOOL) given thattheconditions ofthepetroleum market haddrastically
changed. Itseemed thatthespecial market structures created through PROALCOOL could notbe
abolished orchanged easily, buthewould liketoknow howBrazil intended todealwiththequestion.
30. Finally, thesecond discussant noted theimportance oftheautomotive sector, including the
introduction inJune1995ofquantitative restrictions oncarimports forBOPreasons, laterwithdrawn.
Brazil hadintroduced aninvestment incentive programme fortheindustry andinMarch 1996 had
requested awaiver from itsobligations under theTRIMS Agreement, alsosubsequently withdrawn.
Thishadbeenfollowed byformal consultations. Brazil hadthenintroduced asystem oftariff rate
quotas forimported cars,creating aseries ofnewproblems. These measures hadresulted inarather
elaborate andsolid protection ofonespecific sector, whose effective protection hadbeenestimated
atover250percent. Thisgaverisetosome fundamental concerns. Wasthisreally favourable for
thedevelopment ofacompetitive export industry andforlasting foreign direct investment? What
conclusions might bedrawn byother newly industrializing countries ifacountry withtheoverall
economic strength ofBrazil resorted tosuchacomprehensive system ofprotection?
31. Since 1992, Brazil hadshown courage andperseverance inintroducing itsRealPlanwithoverall
positive results. There wasgoodreason tofurther reduce therôleoftheStateasacase-by-case regulator
andconcentrate onthemost important taskofcreating astable, equitable andpredictable legal
framework. Courage andaclearsense ofdirection wererequired tomaintain support forchange when
areform process exposed aformerly protected economy totherough climate ofglobal trade. The
discussantencouragedtheresolutecontinuationofBrazil'sreformsandsoughttogeneratefurthersupport
forthereform programme from allthose involved indecision-making within Brazil 'scivilsociety.
Taking intoaccount Brazil 'seconomic potential andgeographic position, therecould benodoubt that
successful economic reform inBrazil, respecting theexisting parameters oftheinternational trading
system, would notonlybeimportant toBrazil butalsoencourage other countries toembark onthe
development andimplementation ofambitious economic reform programmes.WT/TPR/M/21
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V. STATEMENTS BYMEMBERS
32. Members oftheTPRB thanked theBrazilian representative andthediscussants fortheiropening
statements, andextended theirappreciation totheBrazilian Government andtheSecretariat fortheir
respective reports. Participants commended Brazil onitsimpressive record ofprogress since itsfirst
Trade Policy Review in1992. TheRealPlanattracted particular praise forsharply reducing inflation.
Economic growth hadalsostrengthened andbarriers totrade hadbeenlowered. Privatization had
proceeded andlegislation hadbeenintroduced tomeetinternational commitments andfurther opened
upinvestment toprivate andforeign investors. Brazil 'schallenge wastoconsolidate suchgains.
33. Therepresentative oftheUnited States congratulated Brazil onitsachievements. Brazil had
setapositive example forother developing countries grappling withimplementing WTO obligations,
opening theireconomies, andsending positive signals toinvestors. Hehighlighted Brazil 'sdecision
toimplement many ofitsWTO TRIPs obligations immediately. However, thereweresome Brazilian
policieswhichdidnotappearWTO-consistentandcouldraisequestionsastoBrazil'slong-termapproach
totrade liberalization. Therepresentative 'sgreatest concern wasBrazil 'sautorégime, which inhis
viewwasaclear violation ofanumber ofimportant WTO principles. Hisauthorities continued to
seekamodification ofthatrégime.
34. Henoted thatatthelastmeeting oftheWTO Committee onRegional Trade Agreements, Brazil
acknowledged having broken anumber oftariff bindings asaresult ofitsjoining MERCOSUL. He
found itdisturbing thatBrazil hadtaken solongtorespond toUSconcerns, buthewaspleased that
Brazil hadthenoffered toenterintonegotiations tocompensate affected parties. However, toprepare
forthose negotiations, Brazil needed toprovide import dataforalltrading partners fortheaffected
items, andtherepresentative asked when suchdatawould besupplied. Healsoasked thatinthefuture
Brazil identify WTO inconsistencies andnegotiate compensation prior totheimplementation ofany
preferential agreement.
35. HighlightingBrazil'srecoursetothesafeguardinvestigationaffectingtoys,heexpressedconcern
about thescope ofprovisional duties, which affected allimports oftoys. Heurged Brazil toreview
itspolicies withaviewtobringing allaspects intoconformity withitsWTO obligations.
36. Therepresentative ofHong Kong expressed appreciation forBrazil 'scontinued efforts to
liberalize itsexternal trade. Henoted thatbilateral tradebetween Brazil andHong Kong hadincreased
substantially asaresult ofBrazil 'sliberalization efforts. However, noting thatMERCOSUL was
becoming thecornerstone ofBrazil 'stradeagreements, hestressed theimportance thatthemultilateral
trading system notbeundermined inanyway. Although heappreciated thattheBrazilian textile industry
faced difficulties coping withcompetition from imports, heencouraged theBrazilian government to
findpositive ways (e.g., structural reforms, technology upgrading, etc.)tohelpindustry adjust. He
expressed hishopethatcontingency measures affecting textiles would notunduly restrict imports, and
would beapplied sparingly andinfullcompliance withWTO provisions.
37. Therepresentative ofAustralia acknowledged thepositive direction ofBrazil 'seconomic and
trade policies, andtheclose cooperation between hercountry andBrazil atbilateral, regional and
multilateral levels. Theelimination oftheconcept of"national company ofBrazilian capital" and
progress made intheprivatization programme werewelcomed. Sheencouraged Brazil tocontinue its
economicliberalizationandconstitutionalreformprogrammeaswellastoaddresstheanomaliesaffecting
itstrade régime. Highlighting oneofAustralia 'swritten questions, shesaidthattheshipping freight
taxdiscriminated against long-distance suppliers, particularly forcommodities suchascoalandwheat,
andlooked forward tocontinuing discussions onthisissue.WT/TPR/M/21
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38. Onregional matters, therepresentative welcomed theCER-MERCOSUL dialogue topromote
regional integration across thePacific andlooked forward toitsfurther development. TheAustralia-
Brazilbilateraldialoguehaddiversifiedandimprovedtradeandinvestmentrelations.Shealsowelcomed
Brazil 'sassurances thatMERCOSUL would beanopenarrangement, although, asindicated during
theWTO consultations onMERCOSUL, concerns about tradediversion endured. Noting thatchanges
toMERCOSUL 'scommon external tariff hadreduced market access tothirdcountries, thedelegate
asked forBrazil 'sviews onlikely future changes tothecommon external tariff andforfurther
information onBrazil 'sspecial tariffexemptions list.Inparticular, clarification wassought onwhether
suchexemptions allowed theapplication oftariff levels below, aswellasabove, thecommon rate.
Thedelegate alsosought Brazil 'scomments onhowtoensure thatBrazil 'semphasis onpreferential
regional arrangements remained compatible withthemultilateral principles ofopenness andnon-
discrimination. DidBrazil expect toprovide allthird countries better market access subsequent to
theformation ofsucharrangements?
39. Therepresentative ofCanada highlighted Brazil 'sprogress ontrade liberalization which,
combined withtheRealPlan, showed Brazil wellonthewaytobecoming anoutward oriented economy.
Hewelcomed Brazil 'splans tosimplify thetaxation system, thechanges tothelegalframework such
astheamendmentseliminatingtheconceptof"nationalcompanyofBraziliancapital",andtheelimination
ofrestrictions onmaritime transport. However, heexpressed concern thatconstitutional restrictions
onforeign participation remained inbanking andinsurance. Hehadnoted thecomprehensive
privatization inseveral sectors including steel, although inother sectors suchastelecommunications,
mining, transport andenergy theprocess wasstillunderway. Although thegenerally positive direction
ofBrazil 'strade policy wasrecognized, heexpressed concern overthedepth ofBrazil 'scommitment
totrade liberalization. Inthisregard, thedelegate made reference tothehighlevelofprotection in
theautomotive industry andthesubsidies provided totheaircraft industry.
40. TherepresentativeofEcuadorwelcomedBrazil'smarketopeningchangesbutexpressedconcern
ontheWTO consistency ofaspecial sanitary andphytosanitary directive affecting banana exports to
Brazil, seeking further information ontherationale forsuchdirective.
41. Therepresentative ofJapan welcomed Brazil 'snewstabilization programme anditsefforts
toimprove market access. However, noting thattheaverage tariff ratewasstillhighincomparison
withother countries, heencouraged Brazil tomake further efforts toward liberalization. Observing
thatBrazil wasthecentre ofMERCOSUL, heexpressed hopethatMERCOSUL would complement
andstrengthen themultilateral trading system andnotbeusedasapretext forprotectionism.
42. Therepresentativeraisedthreeissuesofparticularimportance.First,Brazilhadraisedarbitrarily
andsuddenly itstariff ratesonimported cars,seriously affecting Japanese carexports toBrazil. As
thenewrateof70percentwent against Brazil 'strade liberalization efforts, heexpressed hishope
thattheBrazilian authorities would takethenecessary stepstoreduce itasquickly aspossible. Second,
theautomotive régime introduced in1995 wasnotinconformity withWTO rules. Japan was
participating inthedispute settlement process concerning thatrégime andrequested Brazil totakethe
necessary steps tomake itWTO-consistent. Third, noting thatchanges tothetrade régime forthe
free-trade zoneofManaus hadseriously affected business activities, herequested Brazil nottomake
sudden policy changes.
43. Therepresentative ofVenezuela observed thatBrazil wasanimportant partner ofhiscountry
andthatitsliberalization process hadresulted inincreased trade andinvestment flows, although the
latter werestillsmall. Thetwocountries hadbegun bilateral negotiations, withtheultimate goalof
setting upafreetradeareabetween Andean andMERCOSUL members. Hisdelegation hadsubmitted
questions inwriting toBrazil, ofwhich hementioned those regarding thesimilarity test,theManaus
freetrade zone, certain polices intheagro-industrial fieldandexport financing.WT/TPR/M/21
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44. Therepresentative ofArgentina described several ofthemajor macroeconomic andtrade-related
changes inBrazil sincetheprevious review in1992. Trade statistics showed aparticularly sharp growth
inimports, withBrazil 'soverall merchandise trade growing faster thantheworld average. Most of
Brazil'stradingpartnershadbenefitedfromsuchgrowth.MERCOSULhadgivenimpetustotheprocess
ofregional integration based onthepremises ofdemocracy andeconomic openness. Thishadnot
onlypromoted theconcept ofopenregionalism compatible withthemultilateral trading system but
alsocreated adynamic regional market, which hadgrown fromUS$4 billion toUS$14.5 billion between
1990 and1995. During thesame period, Brazil 'sMERCOSUL trade hadincreased fromUS$3.6 to
US$12.8 billion, thussupporting Brazil 'sintegration ininternational trade. Brazil 'sshareinArgentina 's
trade hadrisen to25percent. Therepresentative encouraged Brazil 'sefforts toconsolidate trade
liberalization.Althoughsucheffortswouldhelpdomesticindustriesadapttothestabilizationprogramme,
theyalsoimplied continuously having toovercome difficulties. Argentina trusted thatBrazil would
carry forward suchprocess anditsengagements withthemultilateral trading system.
45. Therepresentative ofColombia discussed thehistorical importance ofthecoffee industry for
hiscountry andBrazil. Theindustry continued tobeofgreat social andtrade importance, andBrazil
stillplayed aleading rôleinthecoffee international market. Intheearly 1990s, theBrazilian
Government hadceased itsparticipation inthedomestic coffee industry, leaving itinthehands ofthe
private sector. However, toguide policies intheindustry, theauthorities hadrecently established
aDeliberative Coffee Council withtheparticipation oftheprivate andpublic sectors. Thedelegate
requested further information ontheneworganization. Hesaidthattheliberalization programme taking
place within theMERCOSUL framework wasopening upnewpossibilities forother Latin American
countries. Inthisregard, Colombia would work within theAndean Group framework toestablish
closer links withMERCOSUL.
46. Therepresentative ofIndia highlighted Brazil 'sprocess ofautonomous trade liberalization,
fiscal reforms, privatization andefforts toreform thelegalframework. During theUruguay Round,
Brazil hadoffered deepcutsinitsbound tariff rates, eliminated mostnon-tariff barriers totrade and
hadmade substantial commitments initsservices schedules. Healsohighlighted theresults ofthe
newstabilization programme andthemacroeconomic challenges Brazil stillfaced. There wasaneed
toincrease thedomestic savings ratethrough permanent fiscal adjustment andtoplace greater emphasis
onagricultural production andexports. Indiawasfacing similar problems. Although Brazil 'sexports
wereincreasing, there wasconcern attheincreasing deficit inservices trade, withtrade performance
affected byexternal factors. Although structural policies, export incentives andgeographical orientation
hadhelped toimprove export performance, heencouraged Brazil todiversify itstrade destinations.
Overall hefeltthatBrazil 'strade policies were moving intherightdirection andthatBrazil should
ensure theircontinuity, preserve alow-inflation environment andexternal balances, while achieving
rapid economic growth andhigher domestic savings.
47. Therepresentative oftheCzech Republic saidthatBrazil wasoneofthemost active WTO
members andsince theprevious review ithadrepeatedly demonstrated itscommitment toopenand
stable global trade. Heemphasized thatfortheCzech Republic Brazil remained thekeytrading partner
inLatin America. While recognizing thelargely positive rôleofBrazil inthemultilateral trading system
anditsadherence totheinternational rulesandprinciples, thereweresome areasofconcern. Relatively
frequent adhocchanges toprotect particular products andinterests could havedetrimental effects on
theoverall transparency ofthetrade policy régime. Czech companies considered thatfluctuations in
tariff protection insome sectors, suchasautomobiles orprinting machinery, hadledtoconsiderable
deterioration ofmarket access. Recent changes intariffs onprinting machines were particularly
worrisome andhisauthorities would probably seekfurther clarification onthisissuefromBrazil. He
requested additional information onBrazil 'splantocreate anagency toattract foreign investment and
technology.WT/TPR/M/21
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48. Therepresentative oftheRepublic ofKorea acknowledged Brazil 'sgreat economic potential
butexpressed concern about anumber ofissues, particularly theincentives régime fortheautomotive
industry.HesaidthatBrazil'stransitionalsafeguardmeasuresontextileswereincompatiblewithvarious
WTO articles andthattheincrease intextile imports hadresulted fromconsumer preferences shifting
fromcotton tosynthetic textiles. Moreover, ifmaintained untiltheendof1999, themeasures would
beineffect formore thanthree years. Onimport licensing, hestated thatBrazil 'sscheme hadthe
potential tobecome anon-tariff barrier andasked when itwould benotified totheCommittee onImport
Licensing. Thedelegate noted thatBrazil reserved itsrighttocontrol theannual remittance ofprofits
andlevied ahighvalue-added taxonprofit remittances exceeding acertain threshold. Heenquired
ifthere were plans toeasesuchrestrictions. DidBrazil intend tomodify theexisting schemes that
gavepriority todomestic private companies seeking commercial loans?
49. Therepresentative oftheEuropean Communities noted andwelcomed thecontinued economic
reforms, which werecreating anincreasingly competitive economy. Heemphasised thathisassessment
ofpolicy directions wasgenerally positive, butnoted thatanumber ofproblems hadbeenencountered.
Thedelegate welcomed Brazil 'sstatement thatthebasic policy stance wasirreversible, butnoted that
theBrazilian Government seemed tohavetaken steps toprotect sectoral interests. Some sectors had
come under pressure from imports, leading them tocallforgovernment help. Rather thantogive
intosuchpressures,itwasimportantthattheBrazilianauthoritiesmaintainedtheirliberalizationpolicies,
pursuedthereformprogrammeandtookthenecessarymacroeconomicmeasurestoremedythesituation.
Thefactthatexports hadnotincreased asmuch asimports wasevidence thatthefundamental reasons
forthepresent trade balance situation were notmeasures taken byforeign countries butrather
macroeconomic factors.
50. Certain sectors were stillrelatively closed andeffective ratesofprotection were high. The
TRIMs measures intheautomotive sector deserved particular attention astheyseemed toinfringe
fundamental WTO principles andwerealready subject toconsultations. Concern wasalsoexpressed
regarding thesafeguard measures ontoys, alsosubject toconsultations, astheydidnotseem tobe
inconformity withBrazil 'sWTO obligations. Howwould Brazil bring itspractices intolinewithWTO
principles?
51. Many developments wereunder wayintheservices sector, particularly intheMERCOSUL
context. Brazil waspursuing efforts tointroduce orchange legislation indifferent sectors andthe
delegate wasinterested inreceiving information onlatest developments andfuture prospects. Hesaid
thatthere wasaneedforasimplification ofBrazil 'strading system andforgreater predictability and
transparency intrade policy. Hewelcomed thecreation ofMERCOSUL, buturged thatefforts be
made tooptimize thetransparency ofitscommon trade régime. Noting thatattheprevious review
Brazil hadsaiditintended toconsolidate itslarge number oftrade-related lawsandregulation into
asingle law,heenquired onhowtheprocess wasproceeding. Herequested information onplans to
reform thecomplex system ofnon-tariff levies, charges anddomestic taxes.
52. Therepresentative ofNorway emphasised Brazil 'sconsiderable size,itsvastpotential andthe
importance ofthereform programme. Noting theconcurrent deficits inthecurrent account and
merchandise trade, hesought comments fromBrazil onthepossibility thattherealeffective exchange
ratewasovervalued. Healsomentioned thedecrease inthenumber ofState-owned enterprises, and
requested information onfuture directions fortheprivatization programme. Heasked whyBrazil had
notjoined theGATT Agreement onGovernment Procurement. Onmaritime transport services, he
requested information onthestatus oftheenabling legislation fortheconstitutional amendment
eliminating restrictions onmaritime navigation. Observing thatitwould beofmutual interest toincrease
theefficiency ofBrazilian harbours, heasked about theprogress inimplementing the1993government
decision toprivatize harbours. DidtheBrazilian delegation haverecent information ontheelimination
ofdiscriminatory practices concerning lighthouse duties?WT/TPR/M/21
Page14
53. Therepresentative oftheSwitzerland welcomed Brazil 'strade policy reforms, especially
improvementsmadewithrespecttoappliedtariffs,non-tariffmeasures,governmentprocurement,TRIPs
andservices. However, hestressed thatBrazilian "bindings" farexceeded applied rates, thusreducing
thestability andpredictability ofmarket access conditions. Heexpressed hishopethatBrazil would
usefuture opportunities tocarry forward thetrade policy reform. Thedelegate alsoexpressed the
wishthatBrazil anditsMERCOSUL partners would commit themselves nottodistort international
trade flows ordiscriminate against other countries. Hewasconfident thattheongoing Article XXIV
Consultations would confirm thatMERCOSUL wasinconformity withWTO rules andprinciples.
Although hisdelegation waspleased thatBrazil hadwithdrawn thequantitative limitations onimports
ofpassenger carsanditsrequest forawaiver foritsautomotive régime, heexpressed thehopethat
anymeasures tofoster theautomotive sector would conform withthespirit andtherules ofWTO
agreements.
54. With regard tostandards, testing andcertification, therepresentative noted thatBrazilian
regulations prescribe thepriority useofdomestic norms andsaidthatsuchrequirement should not
create obstacles tointernational trade. Heasked forfurther information ontheiruse.Healsonoted
thatBrazil maintained several export support programmes; ontheExport Financing Programme
(PROEX) heasked howBrazil justified itsconsistency withthenational development needs andhow
itwould bephased-out. Ongovernment procurement, heasked whether Brazil would consider signing
therespective WTO plurilateral agreement toestablish amultilateral agreement, orifBrazil would
participate inaninitiative toestablish amultilateral agreement. Hewelcomed therestructuring of
telecommunications services, butnoted thatforeign participation inBrazil 'sbanking system waslimited.
Heurged Brazil toaccept thesecond protocol totheGATS andexpressed hishopethatsteps would
betaken toopenandliberalize thesector.WT/TPR/M/21
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VI. REPLIES BYTHE REPRESENTATIVE OFBRAZIL AND ADDITIONAL COMMENTS
55. Thereplies bytherepresentative ofBrazil (Minister JoséAlfredo GraçaLima) weredivided
intofourmain themes: (i)macroeconomic environment andtrade relations; (ii)general measures
affecting trade; (iii)sectoral aspects and(iv)miscellaneous. Following thereplies, theChairperson
opened thefloor toTPRB members forfurther comments andquestions.
(i) Macroeconomic environment andtrade relations
56. Therepresentative ofBrazil observed thattheRealPlanwould havebeeninforcefor29months
on1November 1996, while previous plans never lasted forlonger thanoneyear. Heprovided statistics
showing thedownward trend ininflation, which wasexpected todecrease toaround 10percentby
theendof1996, thelowest in39years. TheBrazilian economy wasexpected togrow byabout
3percentin1996, moving toaround 4.5percentin1997and1998, thusreversing theprevious period
ofstagnation andimpoverishment. Since theintroduction oftheRealPlan, thenumber ofemployed
persons hadincreased by934,000, equivalent toarateof6.1percent. Therateofunemployment
haddeclined consistently overrecent years, attaining 5.5percentduring thesecond semester of1996,
while theaverage realincomes ofemployed persons hadincreased.
57. Achieving higher growth ratesthanthe4.7percentattained intheprevious threeyears would
require higher domestic savings rates, which would result from thegovernment 'songoing efforts to
lower thepublic deficit. These efforts hadbeenundertaken atalllevels ofspending. TheBrazilian
government hadlaunched inOctober 1996afiscal programme intended toreduce theoperational fiscal
deficit byUS$6 billion in1977andpublic sector borrowing requirements byaround 1percentofGDP.
Theprogramme involved cutting-down payroll expenses andfringe benefits andimposing limits on
cumulative pension rights. TheExecutive wasalsoemphasizing broad-ranging fiscal, administrative
andsocial security constitutional reforms. Proposals onthesematters wereunder review byCongress.
Public-sectoraccountshadimprovedsignificantlyin1996;theprimarysurplusincreasingto0.6percent
ofGDP inMay1996, theoperational deficit to3.1percentandthenominal deficit to5.7percent.
58. Brazil hadbeen, traditionally, animporter ofcapital and,asaconsequence, hadrunadeficit
intheinvisibles account. Suchadeficit, mainly derived fromthepayment ofinterest onforeign debt,
hadbeenfinanced inthe1980s bytrade surpluses. Thisreflected thescarcity ofcapital inflows, but
access totheinternational financial market hadbeenre-established in1992-93 aftertherestructuring
ofBrazil 'sforeign debt. Theopening oftheBrazilian economy hadledtoanunprecedented growth
inoverall flows, particularly imports. AtthetimetheRealPlanwasintroduced thelevelofinternational
reserves washighenough toallow policymakers tocurbdomestic demand through higher import levels.
Greater confidence inBrazil 'seconomic andpolitical stability andinterest ratedifferentials caused
asurge offoreign capital andafurther increase ininternational reserves. Thismade itnecessary to
monitor closely theinflow ofcapital anditscomposition. Thepredominance ofshort-term capital
inflows in1995 gavewaytoflows ofamuch more stable nature in1996: foreign direct investment
represented 40percentoftotalinflows andthematurity ofother long-term capital hadincreased from
fivetoeight years.
59. Exchange ratelevels immediately before andaftertheimplementation oftheRealPlanrevealed
anappreciation ofthedomestic currency, mainly asaresult oftheimproved confidence ontheReal.
Afterwards, therateofdepreciation ofthecurrency hadconsistently exceeded therateofinflation for
tradeable goods. Itwasalsonoted thatananalysis oftheexchange ratehadtotakeintoaccount the
gains inproductivity achieved intheindustrial sector during thesame period.
60. Ontaxreform, therepresentative saidthattheGovernment aimed topromote structural changes
tomaintain fiscal balance onasustained basisandincrease competitiveness. Inthisregard, theExecutiveWT/TPR/M/21
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hadproposed taxreforms tosimplify andrationalize therevenue system, facilitate action against tax
evasion, andallow afairer social distribution ofthetaxburden. AGovernment 'sproposal inthisrespect
hadbeenapproved bytheChamber ofDeputies on30August 1995. TheExecutive wasconsidering
proposing certain aspects ofitsconstitutional reform package asordinary legislation, thussubjecting
itsapproval toasimply majority ofbothHouses ofCongress. Moreover, Complementary Law87/96
hadbeenapproved on13September 1996exempting fromtheStatevalue-added tax(ICMS) theexports
ofprimary andsemi-manufactured goods.
61. Inthecontext ofitsstabilization policy, theBrazilian government hadundertaken reforms that
included several constitutional modifications. Theelimination ofthedifference between "Brazilian
company" and"Brazilian company ofnational capital" hadremoved therestrictions onforeign
participation intheelectricity andmining sectors. Elimination oftheState monopoly inthe
telecommunications sector hadtaken place through theapproval oflegislation making possible private
participation incellular services andsatellite communications. Suchlegislation alsoprovided forthe
restructuring ofthebasic telecommunications sector withaviewtoitsprivatization. Theelimination
oftheStateoilmonopoly allowed contracting private companies toundertake exploration andextraction
ofhydrocarbons aswellastherefining, import, export andmaritime transport ofoilandoilproducts.
TheStatemonopoly inthedistribution ofpipeline gashadalsobeeneliminated. Alsoeliminated were
therestrictions forforeign participation incabotage transport andtheStatemonopoly onreinsurance.
62. Newlegislationallowedprivateparticipationintheprovisionofpublicservices,suchasrailways
andhighways. TheExecutive Branch hadsubmitted abilltoCongress torestructure thefinancial sector.
Inthemeantime, themajority participation offoreign capital wassubject topresidential approval on
thebasis of"public interest" criteria. TheSupplementary Income TaxonRemittances hadbeen
eliminated in1993.
63. Therepresentative noted thedistributional effects oftheRealPlan, providing anumber of
statisticalmeasurespointingtoaconsiderableimprovementinthesocialwelfareoflowerincomegroups.
Suchfigures suggested thatlower ratesofinflation hadsignificantly curbed theerosion ofpurchasing
power, while renewed economic growth hadledtowage increases.
64. TheNational Privatization Programme sought toredefine therôleoftheBrazilian Statethrough
thetransfer totheprivate sector ofallactivities unnecessarily managed bythepublic sector, reduce
public sector debts, promote themodernization andcompetitiveness ofdomestic industry, andstrengthen
domesticcapitalmarketsthroughwidershare-ownership.PrivatizationinBrazilinvolvedpublicauctions
opentoforeign investors, withthefinalprice determined bythemarket itself. TheGovernment set
onlyminimum auction prices, based onappraisals byindependent consultants. Theprivatization process
involved nodirect forgiveness ofdebts ortaxholidays. When enterprises weretransferred totheprivate
sector, theStatealsotransferred thecompanies 'outstanding debts. Transfers toJune1996hadamounted
tomorethanUS$4.5billion.Bymid-1996theStatehadalmostcompletelyprivatizedthesteel,fertilizer,
petrochemical andaircraft industries, generating close toUS$12 billion. In1996theProgramme had
entered anewphase involving theprivatization ofinfrastructure suchastransport, electricity and
telecommunications. Thisnewstage would contribute notonlytofiscal adjustment butalsotothe
reduction ofso-called Brazil Cost.
65. In1995theChamberofForeignTrade,consistingofthemaineconomicministriesandagencies,
hadbeencreated toformulate andevaluate policies, co-ordinate activities related toforeign trade and
serve asadiscussion forum forthepublic andprivate sectors. Regarding thesingle trade law,the
representative saidthatunder thecoordination oftheChamber ofForeign Trade, theBrazilian
Government wasdiscussing itselaboration toconsolidate andsimplify allexisting legislation onforeign
trade. Theultimate objective would betoensure transparency andfacilitate foreign trade operations
inBrazil.WT/TPR/M/21
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66. Therepresentative underlined thatalongside itscommitment tooverall economic liberalization,
Brazil hadpursued thedeepening ofeconomic integration attheregional andsub-regional levels. This,
however, wasnotadeparture from Brazil 'straditional approach totrade multilateralism, confirmed
byitsactive participation inandsupport formultilateral forasuchasWTO. Heprovided statistics
tosupport andclarify thisstance. Heemphasized thatregionalism hadreinforced themultilateral goals
since itplayed animportant rôleinBrazil 'sinsertion inglobal markets byfostering productivity gains
andgreater coordination ofpublic policies.
67. MERCOSUL 'sexternal relations confirmed theconcept ofopenregionalism. MERCOSUL
hadestablished freetrade areas withChile andBolivia andwasintheprocess ofestablishing similar
areas withother neighbours aswellasMexico. Brazil wasalsoengaged inthehemispheric integration
initiative toconstruct aFreeTrade AreaoftheAmericas bytheyear2005. Moreover, MERCOSUL
hadsigned aninterregional cooperation agreement withtheEuropean Union andhadinitiated aseries
oftradedialogues withJapan, CERandIndia. Inrespect ofArticle XXIV:6 negotiations, MERCOSUL
hadalready provided alistoftariff linesforwhich CETlevels wereabove GATT/WTO bindings and
hadalsoexpressed itsreadiness toopenconsultations withinterested Members.
68. MERCOSUL 'sCETallowed forexemption intwocases. Thefirstrelated toabasic listof
exceptions with1,100 items common tothefourmembers. These tariffs would converge totheCET
in1999forcapitalgoods,and2006forinformaticsandtelecommunications.EachMERCOSULmember
wasalsoallowed alimited number ofexceptions totheCET; inthecaseofBrazil 300items thatwould
converge totheCETnolaterthan1January 2001. TheBrazilian listincluded foodstuffs (powdered
milk, rice), rawmaterials (chemicals, petrochemicals, fuel,petroleum), intermediary goods andfinished
goods (home appliances, automobiles, bicycles, etc.). Brazil hadeliminated some products from its
exception listandaccelerated theconvergence ofothers.
69. ThefirstdiscussantsaidthatthecomprehensiveanswersprovidedbytheBrazilianrepresentative
hadassuaged most ofhisconcerns andheonlyrequired clarification onwhether theprivatization
programme would include stateowned banks.
70. Thesecond discussant found thatBrazil 'sanswers underlined thedepth ofchange taking place
withintheBrazilianeconomy.Heexpressedappreciationforthetaxreform,whichwouldbeparticularly
important andcomplicated. Healsocommented thatitwastobeexpected thatastaxreform progressed,
trade measures related totheprevious taxsystem would beabolished sothatcertain elements ofthe
trading régime would notaccumulate.
71. Therepresentative ofVenezuela, having taken noteoftheenterprises andsectors subjected
toprivatization, asked which specific sectors werestillreserved totheState andwhether there were
plans toprivatize them.
72. TherepresentativeoftheRepublicofKoreafoundBrazil'sanswershighlyvaluableandrequested
theBrazilian delegation tomake them available inwritten form.
73. Therepresentative oftheEuropean Communities asked forconfirmation thatMERCOSUL
hadprovided alistofitems forwhich applied tariff rateswereabove GATT/WTO bindings, andalso
asked whatsteps hadbeentaken toenter intoconsultations onthisissue.
74. Therepresentative oftheUnited States expressed appreciation forBrazil 'swillingness toconsult
onthebreaking oftariff bindings andasked Brazil 'swhen itcould provide theimport datarequired
forconsultations.WT/TPR/M/21
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75. Therepresentative ofBrazil saidthathisdelegation would endeavour tomake theanswers
available inaconsolidated, written form assoonaspossible. Onprivatization, heindicated thatof
theexisting 27statebanks, halfwere getting ready toenter theprivatization process. Thiswasan
ongoing process involving discussions withtheFederal Treasury ontherenegotiation ofinternal debts.
Although organizations involved intypical stateactivities, suchastheprovision oflongtermcredit,
would remain instatehands, allfirms involved inproduction activities would beprivatized indue
course. Henoted thatatthelastmeeting oftheWTO Committee onRegional Trade Agreements,
Brazil hadprovided theSecretariat dataonimports andother relevant information onMERCOSUL.
(ii) General measures affecting trade
76. Therepresentative ofBrazil saidthatasaresult oftheUruguay Round Brazil hadbound its
entire tariff, thusensuring predictability. Brazil hadapplied tariffs below those bindings toensure
thesupply ofgoods. ForBrazil 'strading partners, ceiling bindings provided security ofmarket access.
Occasional increases ofapplied tariffs within ceiling bindings hadbeenusedasaneconomic policy
instrument incaseofsectoral difficulties andforthemanagement ofmacroeconomic policies.
77. Oncredit term restrictions forimports, heobserved thatcertain imports financed abroad
benefitted fromconsiderably better conditions thanthoseoffered onthedomestic market. Asthiscaused
serious distortions, theauthorities hadestablished a30-day credit limitforimports ofaverylimited
number ofproducts, thesame termrequired onthedomestic market. Healsonoted thatmodifications
introduced inlicensing procedures made licence issuance veryexpeditious. Licences were required
tobeissued before shipment andafeecharged tocover thecostoftheservice. Theperiod ofvalidity
wasgenerally 60daysand,given thatlicences wereusedmostly togather statistics, extensions were
notallowed forreasons ofstatistical consistency. Anewlicensing system wasduetocome intoforce
on1January 1997, afterwhich licences would beissued before themerchandise wentthrough customs
butaftershipment fromabroad. There would benolimitontheperiod ofvalidity forsuchlicences.
78. Therepresentative saidthatthesafeguard measure notified byBrazil totheTextiles Monitoring
Body inJune1996 hadresulted from aninvestigation which determined thatimport increases ofthe
affected products hadcaused serious damage tothedomestic industry. Inintroducing themeasures,
Brazil washaving recourse toarightitretained under theAgreement onTextiles andClothing. Brazil
hadstrictly followed theestablished procedures fortheintroduction ofsuchmeasures. Consultations
withoneoftheaffected Members (Hong Kong) hadnotproduced agreement andtheissue wasbeing
examined bytheTMB. Consultations werestilltaking place withanother member. Thedelegate gave
assurances thattheBrazilian Government hadnointention ofapplying themeasures beyond theperiod
ofthree years, thatisafter31May1999.
79. Regarding thesafeguard measure ontoys,therepresentative indicated thataprovisional measure
hadtaken theformofatariffincrease within thebound ratesexcept fortwoHSlines. Theinvestigation
ontheinjury tothedomestic industry caused bytheimport increase wastobeconcluded bytheend
of1996. Between 1993 and1995 toyimports hadincreased 275percentinvalue and820percent
involume. Theprovisional measure hadbeenintroduced following alltheappropriate procedures.
Consultations withtheEConthisissue, heldinAugust 1996, hadproven tobeconstructive, theresult
having beennotified totheCommittee onSafeguards.
80. Two types offinancing were offered under PROEX: direct financing bytheBrazilian
Government forpayment onsighttotheexporter andan"interest equalization" scheme tolower interest
ratesonexport finance tothelevels prevailing ininternational markets. Interest ratesonPROEX loans
werepegged totheLIBOR plusamargin. Theprogramme provided nosubsidy asitmerely equalized
export financing totheconditions prevailing intheinternational market forsimilar transactions.WT/TPR/M/21
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81. Ongovernmentprocurement,therepresentativesaidthat,followingtheeliminationoftheconcept
ofa"Brazilian company ofnational capital", bidswereopenonequal terms tonational andforeign
suppliers. Federal agencies made theiracquisitions andwereaccountable totheirrespective internal
control agencies andtothecentral control agency oftheExecutive Branch. Atthestateandmunicipal
levels, government procurement wasaudited bytherespective legislative chambers. Atalllevels,
government procurement hadbeencharacterized byprobity, transparency, andexpeditious procedures.
TheBrazilian government wasclosely following proposals ongovernment procurement bothatthe
regional andmultilateral levels.
82. Onstandards, theMinister pointed outthattherelevant Brazilian body hadadopted theCode
ofGood Practice forthePreparation, Adoption andApplication ofStandards. TheGovernment was
committed totransparency intheelaboration oftechnical standards andfollowed therelevant provisions
oftheTBTandother relevant agreements. Thisguaranteed thatBrazilian norms would notbeused
astrade barriers.
83. Thesecond discussant welcomed theprospects ofaconsiderable improvement intheimport
licensing system. Onthesignificant difference between applied andbound tariff rates, hesaidthat
trading partners appreciated applied rates below bound levels butoverall thisdidnotincrease
predictability forpartners andreduced tradebelow itstruepotential. Atapolitical level, suchstructure
made attractive forfirms under pressure fromimports toasktheGovernment toincrease tariffs within
WTO rules. However, inthisregard, thediscussant noted thatBrazil hadapparently committed itself
nottoincrease tariffs.
84. Therepresentative oftheRepublic ofKorea waspleased thatBrazil hadnointention toextend
thesafeguard measures ontextiles beyond three years andexpressed hishope thatabilateral
understanding would bereached onthisissue. However, hewasnotconvinced thatthere wasa
justification forreducing thevalidity period ofimport licences. Heasked again when Brazil would
notify itsimport licensing régime totherelevant WTO committee.
85. Therepresentative ofJapan requested confirmation thatBrazil didnotintend toparticipate
inthePlurilateral Agreement onGovernment Procurement, andthereasons fornotjoining.
86. Therepresentative oftheEuropean Communities welcomed theprospects forimprovements
inthelicensing system. Heexpressed understanding forthedesire tousethesystem toequalize
competitive conditions butpointed outthatthiswasnotaWTO principle, asifallcompetitive differences
weretobeequalized trade flows would cease. Hehadfound useful theconsultations withBrazil on
toysbutunderlined theneedforastrict implementation oftheUruguay Round disciplines, especially
asthiswould form aprecedent.
87. Therepresentative ofVenezuela asked fordetails onthe"Law ofSimilars".
88. TherepresentativeoftheUnitedStatesexpressedconcernwithrespecttothedifferentialbetween
applied andbound ratesandtheunpredictability associated withit.Hewasalsoconcerned about the
number ofcharges andtaxes assessed exclusively onimports. Many wereonanadvalorem basis an
appeared tobearnoassociation tothecostofservices provided. Theyincluded theadditional document
surcharge, thefreight surcharge fortherenovation ofthemerchant marine fleet, thewarehousing
contribution andtheporttariffsurcharge, which however appeared tohavebeeneliminated. Hesought
Brazil 'sviews withrespect tosuchlevies.
89. Therepresentative ofBrazil replied thatceiling bindings were aninstrument widely usedin
tariff negotiations toentice members tobindtheirtariffs, something Brazil hadfullydoneasaresult
oftheUruguay Round negotiations. Ceiling bindings increased predictability byensuring thatMembersWT/TPR/M/21
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would notraisetariffs above bound rates, while providing flexibility inemergencies cases without
violating WTO commitments. Governments hadresponsibility forresisting callsforprotection from
industries wanting tousethegapbetween applied andbound rates. Thisiswhat theBrazilian
Government hadbeentrying todo,except inaverylimited number ofcases.
90. Therepresentative alsotooknoteoftheobservations onimport licensing bythedelegate of
theRepublic ofKorea. Hewasconfident thatchanges would occur intheverynearfuture, anew
licensing system duetocome intoforce on1January 1997. Licences would beissued aftershipment
butbeforemerchandisewentthroughcustomsandnovalidityperiodwouldbestipulated.Ongovernment
procurement, henoted thatonly20Members wereparty tothePlurilateral Agreement. Some countries
found itsomewhat cumbersome andcomplicated andthushadnoincentive tojoinit.Brazil 'sown
lawsensured transparency andwereinthespirit oftheproposed agreements, which wereunder active
consideration byBrazil. OntheLawofSimilars, hesaidthatstrictcriteria wereusedandthatitapplied
onlytoimportsbenefitingfromspecialincentives.Since1990,suchimportshadbeenverymuchreduced
andtheLawhadlargely fallen indisuse. Heundertook toaddress theissue oftaxes andcharges at
alaterstage.
(iii) Sectoral aspects
91. Noting thattariff escalation wassaidtobeawaytoselectively protect industries, the
representative ofBrazil provided information toshow thatBrazil 'stariffstructure revealed alowlevel
ofdispersion. Theimplementation ofasingle import tariffwould leadtosubstantial increases innominal
tariffs inthelower endofthetariff schedule. Countries thathadresorted tosuchtariffstructure often
provided selective protection through themanagement ofdomestic value-added taxes. Observing that
theratioofimport taxrevenue tovalue ofimports wasalsoimportant, heindicated thatsuchratio
was4.8,7.7and11percentforraw/intermediate goods, capital goods andconsumer goods. The
overall ratiowas7.1percent.
92. TheBrazilian Government understood thattheprocess oftrade liberalization involved taking
intoaccount theneedtoremedy unfair trade practices andtorespond tostructural failures. The
application ofsectoral measures (safeguards, anti-dumping andcountervailing) reflected Brazil 'sstrong
commitment totherules andprinciples ofthemultilateral trading system. A"Deliberative Council
forCoffee Policy" hadbeencreated, withresponsibilities fortheproduction andexporting programmes
ofthecropplans, toauthorize projects onagriculture andmarket research, andestablish technical and
financial cooperation withnational andinternational agencies. TheCouncil integrated government
andprivate sector representatives anditsPresident wastheMinister ofIndustry, Trade andTourism.
PROALCOOLhadbeencreatedafterthe1973oilshockandhadtwocomponents:aresidualprogramme
fortheproduction ofhydrated alcohol aimed tosupply theexisting fleetofvehicles using thisfuel;
andanotherprogrammeproducinganhydrousalcoholasanadditiveforgasolinerespondingtoecological
requirements. TheProgramme wasfinanced, withdecreasing cost,from other energy sources.
93. Thedelegate saidthattheimportance ofminimum prices andofficial credit inagriculture had
declined sharply during the1990s, withtheadoption oftradeliberalization andanacute lackofpublic
funds. Ingeneral, theStatepresence inagriculture hadexperienced asteepandsteady decrease during
thedecade. Simultaneously, theGovernment hadendeavoured toincrease private sector participation
inthesector, forexample through new, market-based methods tofinance andmarket commodities,
suchastheCédula deProducto Rural andtheContrato deOpções.Henoted thatinspiteofthegradual
lackofgovernment assistance, agricultural production andproductivity hadsignificantly increased.
94. Onthephytosanitary measures affecting banana imports, thedelegate saidthatBrazil wasready
toimport bananas fromEcuador assoonasitwasscientifically established thatthose imports didnot
poseanyriskofintroducing intoBrazil thepestSigatoka Negry, according totherules contained inWT/TPR/M/21
Page21
theWTO SPSAgreement. Brazil andEcuador hadalready discussed thismatter andBrazilian experts
hadvisited Ecuadorian production zones. However, further research wasnecessary toassess therisk
intransportation. InJuly1996, Brazil hadcommunicated toEcuador present andpossible future
measures toovercome thedifficulties. Brazil wasawaiting Ecuador 'sresponse toitsproposals.
95. Therepresentative recalled thesignificant rôleplayed bythemotor vehicle industry inBrazil 's
economy. Hedescribed changes totheimport régime during the1990s andthecircumstances that
hadledtotheadoption ofparticular trademeasures since 1995. Heemphasized that,although import
quotas hadbeeninplace in1995, thequota limithadnotbeenreached and,thus, thequotas hadbeen
ineffective. Noting thattheincentives measures inProvisional Measure 1024 were described inthe
Secretariat report, heclarified thatBrazil hadrequested aWTO waiver notforsuchmeasures -which
hedeemed justified under theTRIMS Agreement -butfortheobligation tonotify themeasures within
thetimelimitspecified intheAgreement. Brazil hadbeencompelled toadopt suchmeasures toavoid
tradeandinvestmentdistortionwithinMERCOSULduringthetransitionperiodaccordedtotwoMembers
under theTRIMS Agreement. Ithadthuscomplied withMERCOSUL 'sdecision tohaveacommon
automotive régime. Brazil hadoffered toconsult withitsaffected trading partners. Inlightofthe
talkswiththeRepublicofKorea,JapanandtheEuropeanCommunities,Brazilhadunilaterallyintroduced
atariffquota system forimports ofvehicles notbenefitting fromtheincentives régime. Suchasystem
greatly enhances market access forautomobiles, asitpermits theimportation from August 1996 to
July1997of50,000 cars(based onpastperformance) attariffratessimilar tothose applied toimports
byassemblers andmanufacturers.
96. Theautomotive régime wasbringing about reductions inthecostsofproduction andinvestment,
aswellasahigher import content pervehicle andtheadoption ofmodern methods ofproduction and
management.Strongercompetitioninthedomesticmarketwascontributingtoincreasedcompetitiveness.
Therégime envisaged tariff reductions onfinished vehicles andincreases forinputs, thusreducing
theeffective protection forvehicles.
97. Therepresentative saidthatauthorizations fortheestablishment ofnewforeign financial
institutions,inducinginsurancefirms,wastoberegulatedbyCongress,butregulationsandtherespective
enabling lawswereyettobeadopted. Asthematter wasrather complex, itwasnotpossible toforesee
adateforitsapproval. Inthemeantime access fornewforeign financial firms tookplace onacase-by-
casebasis, subject toPresidential approval, asaresult ofinternational agreements orwhere there was
anexpress Presidential finding ofpublic interest. Public interest wasalsorelated tothesaleofpublic
financial institutions orthose under liquidation toforeign investors. Foreign banks already authorized
tooperate inBrazil were granted national treatment.
98. Under Constitutional Amendment No.6ofAugust 1995, anyenterprise established inBrazil
wasconsidered aBrazilian company. Thiswasthecaseforsubsidiaries offoreign companies established
inBrazil. Arecent constitutional amendment hadended theStatereinsurance monopoly bypermitting
theparticipation ofprivate reinsurers. Suchprovision would havetobeconsidered ontheregulation
ofArticle 192. TheGovernment alsowanted topromote theparticipation offoreign capital inhealth
insurance toencourage competition andultimately expand insurance coverage atreduced cost.
99. Ontelecommunications, Constitutional Amendment No.8ofAugust 1995 provided forthe
granting ofconcessions toprivate sector companies providing telephone, telecommunication anddata
transmissionservices.OnNovember1995,theGovernmenthadissuedthreedecreesfurtherrestructuring
thesector. OnJuly1996, LawNo.9295 hadbeenapproved making possible theforeign ownership
ofupto49percentofcellular, satellite andcable concessions until19July1996, andasmuch as
100percentthereafter. Brazil wastobedivided intotenconcession areasforprivate cellular telephony,
withconcessions expected tobeawarded inearly 1997.WT/TPR/M/21
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100. Onmaritime transport, theConstitution hadreserved coastal andinland shipping toBrazilian
vessels andrequired thattheowners, thecaptains andtwo-thirds ofthecrewbeBrazilian. Constitutional
Amendment No.7ofAugust 1995hadremoved these provisions andtransformed therulesforcoastal
andinland shipping intoordinary law,opening suchactivities toforeign vessels. Inarecent decision
bytheNational Council onPrivatization, portservices inallfederally supervised harbours wereeligible
forprivatization. Investment ininfrastructure remained under public responsibility andfollowed
guidelines toreduce theso-called Brazil Cost. Some specialized terminals, forexample forminerals,
fertilizers andbulkcommodities, werealready operated byprivate companies, andsome State-owned
harbours hadbeenoffered forprivatization.
101. Thefirstdiscussant made thegeneral comment thatBrazil 'sreplies clearly showed theefforts
made bytheGovernment tocreate amore market-based economy.
102. TheseconddiscussantthankedBrazilfortheexplanationonPROALCOOL,whichheunderstood
toindicate thattherawmaterials needed fortheprogramme would beusedinternally andnotmarketed
abroad. Ontheautomotive industry, hecommented thatBrazil 'sreply underlined theindustry 's
importance butdoubts lingered onwhether thesophisticated protection andincentive system would
inthemedium termleadtothedevelopment ofahealthy andcompetitive industry. Headded that
theinformation given would increase confidence inBrazil 'smove towards anopenmarket economy.
103. TherepresentativeofNorwaytooknoteofBrazil'sremarksonarecentconstitutionalamendment
opening coastal andinland maritime transport services. However, other information indicated thata
series ofregrettable delays hadprevented theadoption bytheBrazilian Congress ofthenecessary
implementing law. Heexpressed hishope thatinternal political problems would beovercome and
theimplementing lawadopted.
104. Therepresentative ofJapan restated hisquestion concerning theManaus freetrade zoneand
thedrastic policy changes toitstrade régime.
105. Therepresentative oftheEuropean Communities saidthatBrazil 'sautomotive régime wasnot
inconformity with WTO rules. They hadnegative economic consequences fortheEuropean
Communities, were adangerous precedent and,thus, should bebrought intoconformity withthe
multilateral rules.
106. Therepresentative oftheUnited States apologize fortheorganization ofhiscountry 'swritten
questions. Such questions included clarifications ontherequirement ofacertificate ofcompliance
withBrazilian automotive standards toobtain import licences formotor vehicles. How hadthis
requirement changed since theimplementation oftheautomotive régime inDecember 1995 andwhat
hadbeentheeffect onautomotive imports?
107. Therepresentative ofBrazil confirmed thattherawmaterials needed inthePROALCOOL
programme would beusedinternally. Hesaidthathisstatement onBrazil 'sautomotive régime being
inconformity withWTO provisions hadbeenmade asaclarification ofhiscountry 'sposition, and
pointed outthattheissue wasalready thesubject offormal consultations. Onthecertificate of
compliance withdomestic standards required toimport motor vehicles, heexplained thatsuchcertificate
wasrequired fromimporters, bothnatural andlegalpersons, todemonstrate thattheproducts complied
withenvironmental andtraffic requirements. When suchrequirements weremet,licences wereissued
automatically. Moreover, thesameenvironmental andtraffic norms applied toimported vehicles from
anysource andtolocally manufactured products. Suchrequirements hadnotbeenmodified since the
implementation oftheautomotive régime inDecember 1995.WT/TPR/M/21
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108. Regarding maritime transport, itwasnoted thatthesector hadundergone major restructuring,
withnational providers having previously handled 80-90 percentofBrazil 'sforeign trade butnow
responsible forlessthan10percent. Surviving firms hadcomplained thattheGATS Agreement did
nothaveaprovision onanti-dumping, astheybelieved thatsome ofthemain foreign providers of
maritime services engaged inunfair trade. Themainmaritime nations, suchasNorway, already had
animportant presence inBrazil, including incoastal andinland transportation. Delays inadopting
enabling legislation inthetransportation sector waslinked tothecomplexity ofthereform envisaged,
which extended farbeyond cabotage andaimed toanoverall reduction ofthesocalled Brazil Cost.
(iv) Miscellaneous
109. Therepresentative ofBrazil saidthattheshipping freight tax(AFRMM) waslevied onany
shipped merchandise, including commodities, atarateof25percentoffreight value. Henoted that
thecostofimports depended onthetariff andother charges. Thetariff applicable tocommodities
hadbeen reduced since theearly 1990s andrecently theAdditional PortTariff (ATP) hadbeen
eliminated. TheLighthouse Contribution wascharged onforeign vessels forthemaintenance and
investment innavigation safety devices. Thecharge applied tothevessels ofcountries thatdidnot
havebilateral agreements withBrazil onmaritime transportation, butwasunder review bytheBrazilian
authorities. Theimport régime intheManaus freezonewaspartofanincentives package forregional
development. Between May1995andApril 1996, imports benefitting fromincentives hadbeensubject
toquantitative limits, butquota limits hadnotbeenreached. In1996 onlyimports offinished goods
hadbeensubject toquantitative limits, butthese limits hadnotbeenreached either. Inthecontext
ofMERCOSUL, andthefreetrade agreements under negotiation byMERCOSUL, "imports" into
Brazil from Brazilian FreeTrade Zones were subject tothecommon external tariff.
110. Therepresentative oftheRepublic ofKorea requested further information about theuseof
minimum import prices. Henoted thattheBrazilian Government hadnotmade public theminimum
price system ithadrecently introduced for100items, asystem thatappeared tobeinconsistent with
therelevant WTO rules. Wasthesystem related tolevying taxes andcontrolling taxevasion?
111. Therepresentative ofBrazil replied thatthere wasnosystem ofminimum import prices nor
were comparisons withaminimum price listmade forcustoms clearance purposes. Nevertheless,
minimum price listswere useful tocounter under invoiced imports.WT/TPR/M/21
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VII. CONCLUDING REMARKS BYTHE CHAIRPERSON
112. TheTrade Policy Review Body hasnowcompleted thesecond review ofBrazil 'stradepolicies
andpractices -thefirstunder WTO provisions. These remarks, made onmyownresponsibility,
summarize themain points ofthediscussion. They arenotintended tosubstitute forthecollective
evaluation andappreciation ofBrazil 'strade policies andpractices. Details ofthediscussion willbe
reflected intheminutes ofthemeeting.
113. Thediscussion developed under threemainthemes: (i)macroeconomic environment andtrade
relations; (ii)general measures affecting trade; and(iii)sectoral aspects.
(i) Macroeconomic environment andtrade relations
(a) Achievements ofthePlano Realandfuture developments
114. Members recognised thatthesignificant economic reforms carried outsince1992, inparticular
through thePlano Real, hadresulted ineconomic stabilization andresumption ofGDP growth. They
commended thecontinuing reforms, which included trade liberalization, privatization, deregulation
ofstatemonopolies, andopening offoreign investment. Asaresult, Brazil 'sparticipation intheglobal
trading system hadexpanded; thiswasreflected inahigher ratiooftotaltrade toGDP. Members
noted thatimports ofgoods andservices hadgrown more rapidly thanexports andasked, firstly, how
Brazil planned tomaintain equilibrium inthebalance ofpayments andsecondly, tocomment onthe
possibility thatitsexchange ratemayhavebeenovervalued. Theyalsonoted thateconomic stabilization
hadyettobereflected incomparable growth inemployment.
115. Members welcomed theadaptation ofdomestic lawstoWTO rules, including insuchareas
asanti-dumping, countervailing, safeguards, andintellectual property. Inrespect ofinvestment
provisions, theywelcomed theelimination oftheconcept of"Brazilian company ofnational capital".
They alsosought information onprogress intheelaboration ofasingle foreign trade law,andonthe
prospects fortaxreform, given thecomplexities ofthedomestic taxsystem. Details werealsorequested
onfuture privatization schemes, aswellasonplans toreduce certain restrictions onremittances of
investment profits andthehighvalue added taxonsome remittances.
116. Inresponse, therepresentative ofBrazil saidthatthelatest indicators would show afurther
decline intherateofinflation toaround zeroinSeptember, while recovery wasexpected tostrengthen
inthenexttwoyears. Productivity, employment andrealincome hadbothincreased since the
introduction ofthePlano Real; estimates alsoindicated growth inconsumption bylower income groups.
Hegavedetails ofplans toincrease thedomestic savings rate,aswellasforbroad-ranging fiscal,
administrative andsocial security reforms. Henoted thatBrazil hadtraditionally financed acapital
account deficit withmerchandise trade surpluses; when thePlano Realwasintroduced reserves were
reasonably high, andhadincreased asaresult ofhighinterest ratesandgrowing confidence inthe
economy. Since theinitial realexchange rateappreciation, depreciation hadconsistently exceeded
therateofinflation fortradeable goods.
117. Therepresentativegavedetailsofthetaxreformanditsobjectives,includingrelatedconstitutional
measures tofacilitate further taxchanges. Therecent elimination ofthestatevalue added tax(ICMS)
forprimary andsemi-manufactured goods should increase thecompetitiveness ofBrazilian exports.
Details werealsoprovided onrecent investment measures benefiting foreign capital andtheelimination
ofstatemonopolies intelecommunications, oilandre-insurance. Heprovided information onthe
objectives andprogress oftheprivatization programme; in1996thishadextended intoinfrastructure,
transport, electricity andtelecommunications. Theelaboration ofasingle trade lawwasstillbeing
discussed bytheGovernment.WT/TPR/M/21
Page25
(b) Multilateralism andregionalism
118. Members tooknoteoftherapid growth ofintra-MERCOSUL trade, andexpressed concern
about possible trade diversion. They expressed theirhopethatregional integration would takeplace
inthespirit ofopenregionalism, complement multilateral trade liberalization andbeconsistent with
WTO principles. Theongoing efforts toestablish afreetrade zonebetween MERCOSUL andthe
Andean Pactcountries were noted.
119. Although Brazil 'sadoption ofMERCOSUL 'scommon external tariff hadledtoanumber of
WTO bindings being broken, members expressed satisfaction thatBrazil hadoffered toenter into
negotiations withaffected parties. Inthisregard, Brazil wasasked whether theimport datarequired
toconduct such negotiations were available. Noting Brazil 'snumerous national exceptions to
MERCOSUL'scommonexternaltariff,Brazilwasaskedwhethersuchexemptionsallowedtheapplication
oftariff levels below, aswellasabove, thecommon rate.
120. Inresponse, therepresentative ofBrazil saidthatBrazil hadpursued thedeepening ofeconomic
integration attheregional andsub-regional levels, butthiswasnotadeparture fromBrazil 'straditional
multilateral approach totrade. HesaidthatMERCOSUL 'sexternal relations confirmed theconcept
ofopenregionalism, andillustrated thiswithrecently concluded FTAs, ongoing negotiations forthe
FTAA andother agreements anddialogues outside theregion. Heprovided detailed statistics showing
thegrowth oftrade withpartners outside theregion aswellaswithin. Henoted thattheactual tariff
rateunder theMERCOSUL CETwaslower thanthepre-existing tariff averages. Tariff items where
WTO bindings beenexceeded hadbeennotified andtheMERCOSUL members stood ready toengage
inconsultations withinterested Members. Healsoprovided details ofBrazilian exemptions totheCET,
andnoted thatconvergence wastotakeplace nolaterthan1January 2001; Brazil wasaccelerating
thepaceofitsconvergence.
(ii) General measures affecting trade
121. Members welcomed Brazil 'ssuccessful completion ofitsautonomous liberalization programme,
includingtheeliminationofimportprohibitions,reductionsintheaveragetariffandremovalofnon-tariff
barriers. Thisconfirmed Brazil 'scommitment tofreetrade. However, some applied tariffrateswere
stillseenasrelatively high. Moreover, bound rateswereconsiderably higher thanapplied tariffs, and
frequent adhocchanges hadbeenundertaken since 1992 toprotect particular products. Those two
factors reduced predictability forBrazil 'strading partners andreduced thetransparency ofitstrade
policy régime.
122. While import licensing procedures hadbeenstreamlined, concerns wereraised about thelevel
oflicensing feesandreduction ofthevalidity oflicences. Concerns were alsoexpressed about the
practice ofconsidering payments terms asafactor ingranting licences. Members believed thatBrazil 's
licensing system could benefit from greater transparency andefficiency inimplementation.
123. Members called attention tothesignificant increase inanti-dumping andcountervailing activity
during 1992-96, although withadecline towards theendoftheperiod. Although understanding was
expressed forthedifficulties faced bytheBrazilian textile industry, some members believed thatthe
safeguard measures ontextile products were notcompatible withWTO provisions; Brazil was
encouraged tofindother waystoassist theindustry. Members werealsoconcerned about theincreased
tariffs ontoystaken asasafeguard measure andtheprecedent thatsuchincreases might cause.
124. Members noted thatBrazil encouraged exports through anumber ofschemes, including internal
taxconcessions, assistance totheaircraft industry, theExport Finance Programme (PROEX) andtheWT/TPR/M/21
Page26
fiscal benefits oftheSpecial Export Programmes (BEFIEX). Brazil wasasked whether itintended
tophase outthose subsidies.
125. BrazilwasalsoaskedwhyitdidnotconsiderjoiningtheAgreementonGovernmentProcurement
andwhether itwould participate inaninitiative aimed atestablishing amultilateral transparency
agreement inthatarea.
126. Expressing concerns about standards creating unnecessary tradebarriers, members questioned
Brazil ontheprinciples governing itsuseoftechnical regulations andhowtheprinciple of"priority
useofBrazilian norms" wasimplemented.
127. Inresponse, therepresentative ofBrazil noted that,asaresult oftheUruguay Round, Brazil
hadbound itsentire tariff, ensuring greater predictability asthemaximum ratewasknown toall
members. Ceiling bindings were awidely used technique intariff negotiations, providing both
predictability andsome needed flexibility within WTO commitments. Brazil hadbeenapplying tariffs
below bindings toensure thesupply ofgoods, enhance itsowncompetitiveness andafford improved
market access toitspartners. Theoccasional increase inapplied rateswithin bound levels wastocope
withsectoral difficulties andprovided flexibility formacroeconomic management. Henoted thatimport
licensing applied basically forstatistical purposes withprior import licensing affecting arms, nuclear
substances,orforenvironmentalreasons,consistentwiththeWTO.FromJanuary1997,importlicences
would beissued before goods passed through Customs, accelerating theprocedures. Limits onforeign
financing periods forcertain imports wereintended toprovide equal conditions tothose available in
Brazilian financial markets.
128. Therepresentative noted thatsafeguard measures onimports ofcertain textiles hadbeentaken
onlyafteraninvestigation hadrevealed serious damage todomestic industry. Themeasures were
transitionalsafeguardmeasuresundertheAgreementonTextilesandClothing.Heprovidedinformation
about consultations andnoted that,inanycase, themeasures would notbeapplied beyond 31May
1999. Aprovisional safeguard measure ontoysinvolved atariff increase within bound ratesandwas
introduced inaccordance withArticle 12oftheWTO Agreement onSafeguards. Theinvestigation
wasnotyetcompleted.
129. Therepresentative alsoprovided information ontheexport finance programme (PROEX),
concerning direct financing andinterest rateequalization. However, henoted thattherewasnosubsidy
intheprogramme. Healsoexplained Brazilian government procurement procedures atthefederal,
stateandmunicipal levels; the"Law ofSimilars" wasapplied under verystrict conditions. Brazil
wasclosely following discussions ongovernment procurement attheregional andmultilateral levels.
Concerning standards, Brazil hadalready adopted theWTO Code ofGood Practice. Brazil was
committed totransparency inelaborating itsstandards, thusguaranteeing thatBrazilian norms could
notbeusedastrade barriers.
(iii) Sectoral aspects
130. Members acknowledged Brazil 'simportant steps towards greater economic openness andthe
legalchanges undertaken toattract foreign investment insectors suchasenergy, telecommunications
andmining.Liberalizationhadexposedanumberofsectorstostrongimportcompetition;thus,requests
forassistance hadincreased. Members wereoftheopinion thatmacroeconomic adjustments torestore
competitiveness were more effective thansuchsectoral assistance.
131. Members recognized thatBrazil wasacompetitive, major producer andexporter ofagricultural
products. Nevertheless, agriculture received considerable financial support through minimum price
supports andrural credits, while large subsidies were given totheNational Alcohol ProgrammeWT/TPR/M/21
Page27
(PROALCOOL). Brazil wasasked toclarify theeconomic rationale ofthesesubsidies andfuture plans
fortheprogramme.
132. Noting thattheBrazilian Coffee Institute hadbeen abolished, members asked Brazil for
information ontherecent creation ofaDeliberative Coffee Council. Information wasalsorequested
onthejustification under WTO rulesforthephytosanitary measures affecting certain banana imports.
133. Brazil 'sautomotive régime, containing hightariff aswellasTRIMs measures suchaslocal
content andexport performance requirements, wasofgreat concern tomembers. They pointed out
thattherégime afforded higheffective protection totheindustry andappeared inconsistent withWTO
rules. Members sought information onthetariffquota system forvehicles recently introduced byBrazil.
134. Memberswelcomedtheprivatizationandliberalizationprogrammesinvariousserviceindustries
which, however, hadyettoreach some sectors. Theconstitutional changes toopenpartially activities
suchastelecommunications andmaritime transport were alsoappreciated butconcerns were raised
onremaining constraints toforeign investment, particularly inbanking andinsurance. Members
requested information onplans forgreater liberalization inthose areas.
135. Therepresentative ofBrazil, explaining thesectoral distribution oftariffs, stressed thatthe
application ofcontingency measures wasintended toremedy unfair trade practices andrespond to
structural problems inthecontext ofamore openenvironment. Brazil 'suseofsuchmeasures thus
reflected itsstrong commitment toWTO rules andprinciples.
136. Therepresentative noted thatstateinvolvement intheagricultural sector through minimum
pricesandruralcredithaddecreasedsharplyduringthe1990s.Simultaneously,bothprivateinvolvement
andtheuseofmarket-based programmes hadgrown. Heemphasised that,despite reduced government
assistance, agricultural production andproductivity hadincreased significantly.
137. OntheDeliberative Coffee Council, therepresentative saidthatthecouncil, withgovernment
andprivate sector representation, hadbeenrecently created todefine technical, research andfinancial
policies andprogrammes forthecoffee industry. Onphytosanitary measures affecting banana imports,
hestated thatBrazil wasprepared toallow banana imports assoonasthere wasscientific proof that
theydidnotrepresent arisk. TheBrazilian authorities werealready engaged indiscussions withthe
WTO member concerned.
138. Therepresentative pointed outthatPROALCOOL hadtwocomponents: aresidual programme
aimed tosupplying existing alcohol-powered vehicles, andonefortheproduction ofgasoline additives
forenvironmental reasons. Healsoindicated thattheprogramme wasfinanced, withdecreasing costs,
from other energy sources.
139. Therepresentative ofBrazil recalled theimportance ofthevehicle sector andthereasons that
hadledtotheadoption ofBrazil 'sautomotive régime. InBrazil 'sview, sucharégime wasrequired
toharmonise investment conditions andavoid distortions within MERCOSUL during thetransition
period allowed bytheTRIMs Agreement. Therégime, including changes introduced inDecember
1995, wasleading totheindustry 'smodernization, increased competition, lower production and
investment costsandahigher import content ofvehicles. Asaresult, effective protection forvehicles
wasbeing reduced. Therepresentative added thatfollowing talkswithconcerned trading partners,
Brazil hadunilaterally introduced atariff quota system which, inhisopinion, should greatly enhance
access totheBrazilian market.WT/TPR/M/21
Page28
140. TherepresentativeofBrazildiscussedBrazil'sactiveparticipationintheUruguayRoundservices
negotiations andtheongoing discussions under GATS. Heoutlined thelegalframework forthebanking
andinsurance industries. Newconstitutional amendments andenabling lawswerestillunder discussion.
Given thecomplexity oftheissues involved, itwasnotpossible toprovide adateforchanges tothe
framework. Inthemeantime, access tothelocalmarket byforeign firms inbothsectors wasconsidered
onacasebycasebasis. Therepresentative noted therecent promulgation ofaconstitutional amendment
ending themonopoly onreinsurance andopening ittoprivate participation, aswellashisGovernment 's
interest inpromoting foreign participation inhealth insurance. Ontelecommunications, henoted that
anewlawhadbeenapproved allowing foreign participation, rising to100percentfrom July1999,
incellular, satellite andcable services; newcontracts wereexpected tobeawarded fromearly 1997.
(iv) Miscellaneous
141. Miscellaneous questions wereraised ontheimplementation ofthe1993 decision toprivatize
theharbours andtheexpected dateforintroduction ofregulations toeliminate restrictions inmaritime
navigation. Theshipping freight taxandlighthouse duties werealsoseenasdiscriminatory. Itwas
alsonoted thatunexpected changes totheimport régime forthefreetradezoneofManaus hadaffected
traders; inthiscontext, details were requested onthecurrent régime.
142. Therepresentative ofBrazil noted thata1995 constitutional amendment hadopened coastal
andinland shipping toforeign participation. Inaneffort toreduced thesocalled "Brazil cost", arecent
government decision hadallowed theprivatization offederally-supervised harbour services, although
certain infrastructure would remain under government control. Private ownership ofcertain specialized
terminals andsome other harbours wasalready possible.
143. Therepresentative ofBrazil commented thattheshipping freight taxserved toimprove the
merchant fleet, andwasthushelping thesector 'sadaptation toamore openenvironment. Thefreight
taxhadbeenreduced since 1990, while theAdditional PortTariff hadbeeneliminated. Lighthouse
duties werenavigation security-related charges levied onvessels fromcountries withwhich Brazil had
nobilateral agreements onmaritime transport. These duties werecurrently under assessment byhis
authorities.
144. Therepresentative indicated thattheincentives inthefreetrade zoneofManaus were part
ofaregional development programme. Import quotas -onlyapplied tofinished goods -hadnotbeen
filled andthushadnotrade effects. Imports from thefreetrade zoneintoBrazil weresubject tothe
common external tariff.
*******
145. Membersnotedtheimpressiveprogressachievedoverthepastfewyearstowardsmacro-economic
stabilization, tradeliberalization andamoreopeninvestment régime. Theywelcomed Brazil 'semphasis
ontheirreversibility oftheliberalization process, aswellasitsstrong statement ofcommitment to
themultilateral process and"open regionalism".
146. Despite thisgenerally positive assessment, members voiced anumber ofconcerns including
thegapsbetween tariffbindings andapplied rates, therelatively frequent resort toanti-dumping actions,
recent safeguards measures, andcontinuing restrictions intheservices sector. Thehighlevel of
protection intheautomotive sector wasparticularly commented on.
147. Members were conscious oftheadjustment difficulties associated withradical economic
restructuring andacknowledged therecent concerns inBrazil arising fromtradeimbalances. However,WT/TPR/M/21
Page29
theystrongly encouraged perseverance withthemacroeconomic reform programme, resistance to
protectionist pressures andstrict adherence toWTO rules andprocedures. Given Brazil 'sevident
importance totheregion andtotheworld economy, success intheseareas-leading tolong-term stability
andopenness oftheBrazilian economy -willhave repercussions going farbeyond thedomestic
environment.