WORLD TRADE
ORGANIZATIONG/SG/N/8/BRA/2
G/SG/N/10/BRA/2
2 December 1999
(99-5217)
Committee on Safeguards Original:  English
NOTIFICATION UNDER ARTICLE 12.1(B) OF THE AGREEMENT ON
SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT
THEREOF CAUSED BY INCREASED IMPORTS
NOTIFICATION PURSUANT TO ARTICLE 12.1(C)
OF THE AGREEMENT ON SAFEGUARDS
BRAZIL
The following notification, dated 29 November 1999, has been received from the Permanent
Mission of Uruguay.
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I have the honour to write in my capacity as  representative of the MERCOSUR pro-tempore
Presidency and, on behalf of the Federative Republic of Brazil, to notify the Committee on Safeguards
of the intention to extend the safeguard measure concerning toys applied by Brazil under
Articles 12.1(b) and 12.1(c) of the Agreement on Safeguards;  the appropriate documentation is
attached.
Pursuant to Article 12 of the WTO Agreement on Safeguards, the Federative Republic of
Brazil also states that it is ready to hold prior consultations with Members having a substantial interest
as exporters of the product concerned, and to that end offers the dates of 6 to 10 December 1999.
This notification is made in accordance with the terms of the WTO Agreement on Safeguards
and the "Regulations on the Application of Safeguard Measures to Imports from Non-MemberCountries of MERCOSUR", adopted under Common Ma rket Council Decision No. 17/96, which was
notified to the WTO on 21 February 1997.G/SG/N/8/BRA/2
G/SG/N/10/BRA/2
Page 2
1. Evidence that the safeguard measure continues to be necessary to prevent or remedy
serious injury or threat thereof caused by increased imports
In 1997, internal sales of the domestic industry dropped 5.6 per cent in value.  In the same
year there was a decrease in the internal market of 5.8 per cent and in the value of imports of 18.4 per
cent, in relation to the previous year, resulting in a decreasing share of imports in apparent
consumption from 24.7 per cent in 1996 to 21.4 per cent in 1997; during the same period, the share of
domestic industry in apparent consumption was maintained, while sales of other national producers
increased from 31.5 per cent to 34.8 per cent.
The decrease in imports resulted in the followi ng changes in the main economic indicators of
the domestic industry  (21 enterprises, that represented 52.6 per cent of the national production in
1998):
• Production: increase of 17.8 per cent in quantity and of 0.5 per cent in value, from
1996 to 1997;
• Sales of the domestic industry: increase in the sales of domestically produced toys of
10.6 per cent, in quantity, and decrease of 5.6 per cent, in value, from 1996 to 1997;
• Employment: increase of 0.6 per cent in the annual average number of jobs directly
offered by the industry, from 1996 to 1997.  The number of jobs indirectly offered by
the industry increased 16.3 per cent, in the same period;
• Profits: from 1996 to 1997, the gross margin increased 0.35 percentage points, the
operational margin 8.55 percentage points and the net margin 3.26 percentage points.
In 1998 internal sales of the domestic industry dropped 12.3 per cent in value, while the
internal market for toys dropped 4.4 per cent in relation to the previous year.  The value of imports
grew 10.5 per cent and absorbed a share of the market previously controlled by the domestic industry
(from 21.4 per cent in 1997 to 24.7 per cent in 1998);during the same period, the share of the
domestic industry in apparent consumption decrea sed from 43.5 per cent in 1997 to 39.8 per cent in
1998.
The decrease in sales of the domestic industry, caused by increased imports, resulted in the
following changes in the main economic indicators of the domestic industry:
• Decrease in production: 8.5 per cent in quantity and 15.3 per cent in value, from 1997
to 1998;
• Decrease in sales and loss of participation of the domestic industry in apparent
consumption: sales of domestically produced toys fell  5.4 per cent in quantity and12.3 per cent in value, from 1997 to 1998.  Participation of the domestic industry in
the apparent consumption, in terms of value, fell from 43.5 per cent in 1997 to 40 per
cent in 1998;
• Decrease in employment: the annual average number of jobs, directly offered by the
industry, fell 9.0 per cent from 1997 to 1998.  The number of jobs indirectly offered
by the industry dropped 9.5 per cent, in the same period;G/SG/N/8/BRA/2
G/SG/N/10/BRA/2
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• Decrease in profits: from 1997 to 1998 the gross margin decreased 4.19 percentage
points, the operational margin 4.40 percentage points, the operational margin
exclusive financial results 1 percentage point and the net margin 0.67 percentage
points;
• Indebtedness: the total indebtedness of the domestic industry increased  8.4 per cent
from 1997 to 1998.
Another factor, different from increased imports, that could have contributed to hinder the
capacity of the domestic industry to reach a better performance, could have been  the situation of
other national producers.  Nevertheless, data collected by the investigating authorities on imports and
internal market sales, as well as data obtained during the on-the-spot investigation carried out in
domestic industry enterprises, showed that, from 1997 to 1998, when the situation of the domestic
industry got worse, the share of other national producers in apparent consumption remained constant.
 Therefore, it was concluded that, from 1996 to 1997, when imports dropped in relation to the
internal market, the domestic industry situation improved.  But from 1997 to 1998, despite the
safeguard measure, when imports increased the situation of the domestic industry deteriorated.
2. Information on whether there is absolute inc rease in imports or an increase in imports
relative to domestic production
From 1995 to 1996 total imports, exclusive Mercosul, in quantity, fell 25.2 per cent; from
1996 to 1997 imports grew 19.2 per cent, and from 1997 to 1998, 47.1 per cent, resulting in an
increase of 31 per cent from 1995 to 1998.  From 1995 to 1997 imports in value dropped 10.9 per cent,but from 1997 to 1998 imports grew 17.4 per cent.
Brazilian Imports of Finished Toys
YEAR In 1,000 units Index In US$ 1,000
FOBIndex
1995 124.918 100.0 133.096 100.0
1996 89.731 71.8 95.200 71.5
1997 104.831 83.9 73.431 55.2
1998 153.115 122.6 86.244 64.8
The increase in  imports in relation to the domestic production, in terms of value, was of
24.6 percentage points from 1995 to 1996; from 1996 to 1997 imports relative to domestic production
decreased 27.5 percentage points, and from 1997 to 1998 they grew 7.3 percentage points.
It was noted that imports from countries that are Mercosul Members represented nearly 1 per
cent of total imports during all the period analyzed.
Like imports of toys from all origins, imports from countries that are Members of the WTO
increased, in quantity, from 1995 to 1998, and, in value, they increased from 1997 to 1998.
3. Description of the product involved
The products subject to the safeguard measure are finished “toys”, classified under headings
9501, 9502, 9503 and subheadings 9504.10 of the Mercosur Nomenclature based on the Harmonized
System (NCM/SH).G/SG/N/8/BRA/2
G/SG/N/10/BRA/2
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It was noted that there are different types of toys (balls, dolls, puzzles, videogames, etc.), at
different prices; nevertheless they do not constitute different markets, as already presented by Brazil
in previous opportunities (G/SG/N/8/10/11/BRA).
It was determined that an imported toy compet es with all internally produced toys and not
only with the identical product; for example, even when the imported toy is a new product (i.e. the
same product is not available in the market), there is a good possibility of having sales of any other
toy, produced internally or imported, displaced by the new one.
Therefore, it was considered that, although the physical characteristics or the tariff
classification of the products under the Common Nome nclature of Mercosul - NCM may differ, the
emphasis in the definition of “directly competitive products” is given, in the toy market, by the degree
of substitution among those products which are destined for the same market.
In light of the preceding arguments, for the purposes of the revision to extend the safeguard
measure, in the same way as in the initial investigation, all toys manufactured in Brazil, classified
under the headings and subheading mentioned above, are considered to be directly competitive
products in relation to those that are imported.
4. Evidence that the safeguard measure contin ues to be necessary to prevent or remedy
serious injury and that the i ndustry concerned is adjusting
Pursuant to Article 7, paragraphs 2 and 3 of the Agreement on Safeguards, a safeguard
measure should not be applied for a period exceeding four years, unless it is extended.   The period
may be extended provided that the competent au thorities of the importing Member have determined
that the safeguard measure continues to be necessary to prevent or remedy serious injury and thatthere is evidence that the industry is adjusting.
The investigation has determined that with the application of the safeguard measure imports
dropped until 1997.  Such decrease resulted in a recuperation of the domestic industry, which, from
1996 to 1997, maintained its share in apparent consumption, increased  production, in quantity and in
value, as well as  the number of employees.
In 1998, with the increase in imports, which resulted  in an increasing share of imports in
apparent consumption, the share of domestic industry in apparent consumption decreased.  The
decrease in the sales of the domestic industry, caused by increased imports, resulted in changes in the
main economic indicators of the domestic industry: decrease in production, in quantity and in value,
in employment, and in the gross, operational, operational exclusive financial results and net margins.Despite these factors, it was noted that the index of current  liquidity  has grown because the domestic
industry had obtained a longer term indebtedness.
The evaluation of the adjustment made by the sector indicated that the industry is adjusting ,
pursuant to the adjustment plan.  There were investments in capacity installed, in the development ofnew products, in training and marketing, which are decisive factors for the industry to reach
competitiveness.
It was concluded that the requirements for the extension of the safeguard measure were met.G/SG/N/8/BRA/2
G/SG/N/10/BRA/2
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5. Description of the extended measure
Therefore, the safeguard measure will be extended, for 4 more years, by an  increase in the
import duties, under the form of an addition to the Common External Tariff (TEC), applied to importsof toys classified under NBM/SH headings 9501, 9502, 9503 and subheading 9504.10, as follows:
Period Import duty Addition Total duty
01.01.2000 to 31.12.2000 23 14 37
01.01.2001 to 31.12.2001 20 13 33
01.01.2002 to 31.12.2002 20 12 32
01.01.2003 to 31.12.2003 20 11 31
Pursuant to Article 9 of the Agreement on Safeguard, the measures will not be applied against
products originating in a developing country Member, as long as its share of the total imports of the
product concerned in the importing Member does not exceed 3 per cent, provided that developing
country  Members with less than 3 per cent account for not more than 9 per cent of total imports of theproduct concerned.
This analysis  was made in reference to documents G/SG/N/10/BRA/1-G/SG/N/12/BRA/1,
which refers to the notification to the Committee on Safeguards of non–application of safeguard
measures to developing country Members, under Article 9.1 of the Agreement on Safeguards.  For theperiod 1996/1998 it was observed that Pakistan and Senegal,  developing countries Members of
WTO, were not listed as exporters of toys to Brazil until 1998 and, consequently, were not evaluated
during the investigation that resulted in the safeguard measure, or in the revision made for the period
January-March 1997.  Panama is a developing country Member of WTO only after September 1997.
Indonesia, a country then exempt from the measure, had a share of 3.81 per cent of total imports, in1998.
As a result of the analysis of the imports of toys, classified under Mercosul Common
Nomenclature – NCM – 9501 to 9504.10, both for the period of the investigation, and for the period
1996 to July 1999, the extension of the safeguard measure will not apply to the countries listed below,
whose individual shares of total imports are lower than 3 per cent.G/SG/N/8/BRA/2
G/SG/N/10/BRA/2
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COUNTRY US$ 1,000 FOB
Jan-June 1999SHARE
Antigua Barbuda - -
Bangladesh - -
Bolivia - -
Chile - -
Colombia - -
Ecuador - -
Guatemala - -
India - -
Korea, Rep. of 207 0.92
Macau - -
Malaysia 151 0,68
Mexico 139 0,62
Panama 202 0,90
Pakistan - -
Paraguay - -
Philippines - -
Senegal - -
Singapore - -
Sri Lanka 92 0,41
Uruguay - -
Venezuela - -
6. Expected duration of the measure extended
The initial safeguard measure was applied from 4 July 1996 to 31 December 1999. Brazil is
now proposing to extend the safeguard measure for 4 more years.  The measure extended is expected
to be in force from 1 January  2000 to 31 December 2003.
The WTO documents that notified the initial application of the measure were
G/SG/N/10/BRA/1 and G/SG/N/11/BRA/1.
7. Proposed date for the review
The mid-term review will begin in March 2001
8. Progressive liberalization of the measure
The measure will be progressively liberalized, at regular intervals, at the beginning of each
calendar year. The applicable rate of duty will be reduced 1 percentage point, following the timetable
presented in item 5, above.
Brazil is ready to consult with Members with interest in the products concerned with a view
to providing additional information. To this end, and taking into account that a final decision on theissue will be taken by the competent authorities during the week starting 20 December 1999, the
consultations will be held in Geneva during the week starting 6 December 1999 if necessary.
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