Brazil WT/TPR/S/21
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V. MEASURES AFFECTING PRODUCTION AND TRADE
(1) Arrangements Affecting Market Structure andCompetition
(i) Competition policy
1. Competition policy istheresponsibility oftheAdministrative Council forEconomic Defence
(CADE) inco-ordination withtheEconomic LawSecretariat (SDE) oftheMinistry ofJustice. The
CADEisacollegialorganizationchargedwithfosteringcompetitionandsuppressingtheabuseofmarket
power. Italsodefines theprocedures toreach suchobjectives, including penalties, andhastheauthority
toinvestigate andorder thecessation ofmonopolistic andoligopolistic practices which mayundermine
competition.
2. TheSDEisresponsible fortheenforcement ofcompetition laws. TheSDE initiates legal
proceedings exofficio orfollowing substantiated written requests fromanyinterested party; itbases
itsconclusions onfact-finding investigations andhearings withtheparty orparties involved. SDE's
recommendations forcorrective measures arelinked bylawtosubsequent decisions bytheCADE.
Ifsuchrecommendations arenotcarried outwithin acertain period, CADE mayimpose administrative
penalties.
3. LawNo.8884of11June1994regarding abusive economic practices constitutes Brazil 'sbasic
competition law,while LawNo.8078of11September 1990concerns consumer protection. Besides
theintroduction ofLawNo.8884, significant changes tocompetition regulations during theperiod
since theprevious Trade Policy Review ofBrazil include:
- Decree No.1306 of9November 1994, introducing regulations forDiffuse Rights
(Direitos Difusos -mainly consumer rights) andarelated administrative council;
- LawNo.9008of21March 1995, creating within theMinistry ofJustice theFederal
Administrative Council fortheDefence ofDiffuse Rights (Defesa deDireitos Difusos )
(CFDD);
- LawNo.9021 of30March 1995, regulating theoperation oftheCADE;
- Decree No.861of9July1995, introducing rulesfortheorganization oftheNational
System forConsumer Defence (SNDC) andestablishing general norms forthe
application ofadministrative sanctions; and
- Decree of28September 1995(unnumbered), creating thePermanent Commission for
Consumer Defence.
4. Theprovision foranindependent structure forCADE, through LawNo.8884 wasintended
tomake CADE 'sjudicial andjurisprudential rôles more effective, while maintaining theSDEasan
organism forinquiry intocompetition issues. Important elements ofthatlawinclude thebreaking of
therelationship between theadmission offaultandengagements toterminate anti-competitive practices;
provisional measures aremaintained astoolstoavoid irreparable damage tomarkets while improving
thecontrol ofactions leading tomarket concentration.
5. Recently, CADE hasalsoused"performance commitments" (compromisso dedesempenho )
thatdefine under which conditions mergers increasing market concentration maybeapproved. For
example, intheoffice equipment industry thepurchase ofoneproducer (Carbex) byanother (Helios)
wasmade conditional on(i)aninvestment ofUS$1.6 million intheacquired firmtoensure thatit
would notbeshutdown, and(ii)directing production toexport markets toinduce themodernizationWT/TPR/S/21
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ofthefirm. Similar investment andexport requirements wereestablished forthepurchase ofafilters
producer (Jovita) byanother firm(Melitta).1
6. Inthepast,CADE 'sfunctions werecomplicated bytheexistence ofwidespread government
interventionintheeconomy,includingofficialpricecontrolsandtheuseofanti-competitioninvestigations
todissuade firms fromraising prices aspartofgovernment efforts toreduce inflation. Ithasalsobeen
argued thattheGovernment 'sindustrial policy andtheaction ofState enterprises wasamajor factor
undermining competition inthedomestic market.2Moreover, thestructure ofthedomestic market
wasaffected byConstitutional requirements thatconstrained private participation, especially foreign,
inseveral important activities. Significant steps haverecently beentaken toeliminate ormake such
requirements more flexible (Chapter II,BoxII.1).
7. TheBrazilian authorities believe thattheperformance oftheCADE during thelastfouryears
hasbeenquite effective inview ofthecomplexity oftheissues involved. Nevertheless, resources
allocated toCADE andSDEareincreasingly inadequate tocopewiththebroad range ofissues now
under itsresponsibility. TheCouncil 'sheavier workload isindicated bytheclose to600cases that
ithadunder consideration inmid-1996, compared with116cases processed between 1962and1990.
Furthermore, agrowing number ofsuchcases involve mergers andacquisitions, forwhich strict time
limits apply before actions mustbeautomatically approved. Inthisregard, theauthorities announced
inlate1995thatchanges would bemade inCADE toexpedite mergers leading toincreased productivity
andcompetitiveness, provided theydonotundermine competition.
(ii) Public enterprises andtheprivatization programme
(a) Public enterprises
8. Government policy towards Stateenterprises, including funding andexpenditures, isestablished
withintheframeworkoftheCoordinationandControlCouncilforStateEnterprises(CCE).TheCouncil
ischaired bytheMinister ofPlanning andBudget whoisresponsible forallmajor decisions affecting
themanagement ofpublic enterprises. Under Article 173oftheConstitution public enterprises are
subject tothesame fiscal andlabour regulations applying toprivate firms.
9. Attheendof1994, State enterprises asawhole hadfixed assets ofclose toUS$487 billion,
plussome US$164 billion inliquid capital; excluding federal financial institutions, Stateenterprises
heldassets andliquid capital ofUS$243 billion andUS$119 billion. Themostimportant organizations
under Statecontrol aretheCompanhia ValedoRioDoce (CVRD), ELECTROBRAS, PETROBRAS,
TELEBRAS andItaipu Binacional (Table V.1). These enterprises areallconsidered tobeofgreat
importance fortheBrazilian economy, CVRD being oneoftheworld 'slargest mining firms and
PETROBRAS thelargest Brazilian company.
10. Efforts tocutthepublic deficit havereduced theoverall levelofinvestment inpublic enterprises,
which fellfrom US$12 billion in1992 toUS$6.9 billion in1994. Thisdecline reflects theeffects
ofprice controls onpublic services imposed aspartofthefightagainst inflation. Thecurrent focus
ofpolicy towards public enterprises isonprivatization andonthegranting ofconcessions forthe
provision ofservices where these require large, newinvestments.
1PerformanceengagementsarepartofvariousotherCADEdecisions,includingthoserelatedtoCarborundum
S.A. andNorton S.A., Albarmo S.A. andRockwell doBrasil S.A., aswellasSiderúrgica Belgo Mineira and
Siderúrgica Dedini S.A.
2Fritsch andFranco (1992), p.146Brazil WT/TPR/S/21
Page 95
Table V.1
Main features ofselected public enterprises
Legislation andobjectives Operations Trade since 1992
Casa daMoeda doBrasil (CMB)
Entity created byLawNo.5895
of19June1973.TheCMB isthesoleproducer of
currency, stamps andfederal debt
documents; theprivate sector is
excluded from suchactivities. The
firmexports products suchascurrency,
passports, stamps, andbond
documents; imports arerelated toits
production activities.Exports Imports
(US$ million)
1992 1.1 0.9
1993 3.8 3.0
1994 1.1 3.9
Companhia Nacional deAbastecimento (CONAB)
Organization created byLawNo.8029
of2April 1990 andDecree No.99944
of16December 1990 toestablish and
implement public policies onagriculture
andfoodsupply. Itoperates under the
Ministry ofAgriculture.Itdoesnotparticipate inforeign trade,
other thanexceptional imports directed
bytheMinistry ofAgriculture.None.
Companhia ValedoRioDoce (CVRD)
Firm established byDecree-Law
No.4352 of1June1942 toexplore,
produce andexport ironore,aswellas
tooperate theassociated railroad.Thefirmexports about twothirds ofits
production under 5-15-year contracts.Exports:
Fines Other
products
Year Val. Vol. Val. Vol.
1992 902 46.8 313 11.5
1993 821 47.6 339 14.2
1994 796 50.9 429 18.2
Value -US$million
Volume -million tonnes
Computadores eSistemas Brasileiros S.A.(COBRA)
Ceated in1974, COBRA came under
thecontrol oftheFederal Government
in1977 aspartofthenational
informatics programme; ithasbeen
controled since 1990 byBanco doBrasil
S.A. COBRA isintheprocess of
privatization.Currently provides technical assistance
toBanco doBrasil S.A.andother
firms. Itimports computer equipment
andparts, incompetition withthe
private sector.Imports (US$ thousand):
1992 1993 1994
Parts 562 2893,189
Equipment 93 795 909
Software 5 48 180
Total 661 1,133 4,279
Florestas RioDoce S.A.
Created on26October 1967, based on
fiscal incentives from theFederal
Government. Itwassubsequently
transformed intoaCVRD-controlled
firmwiththeobjective ofdeveloping
forestry projects.Thefirmcompetes withtheprivate
sector. Itimports capital goods
through public bidding toinstall
production capacity fortheexport of
wood andwood products.Exports were tocommence in1995.
Indústrias Nucleares doBrasil S.A.
Created byLawNo.5740 of
1December 1971, andmost recently
modified byDecree-Law No.2464 of
31August 1988. Itseeks todevelop
nuclear technology forelectricity
generation.Thefirmoperates exclusively asan
importer, supplying thenuclear plants
operated byFURNAS Centrais
Eléctricas. Theprivate sector is
excluded from thisactivity, which isa
monopoly oftheFederal Government.
Thefirmcurrently haslong-term
contracts withSiemens andthe
URENCO Consortium (both EU
companies).Imports ofparts andenriched uranium
amounted toUS$4.5 million in1992; no
imports tookplace in1993 or1994.WT/TPR/S/21
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Legislation andobjectives Operations Trade since 1992
ITAIPU Binacional
Firm created in1973 through an
agreement between theGovernments of
Brazil andParaguay. Itisestablished as
a"legally international firm" withthe
objective ofexploiting hydro-electric
power ontheParana river.Thetwoparticipating countries share
equally inthepower generated, both
having therighttopurchase anynon-
utilized partoftheother'sshare; in
practice thismakes Brazil animporter
ofParaguay 'ssurplus. Imports are
undertaken byELECTROBRAS.Imports ofelectric power:
Value Volume
(US$ million) (million MWh)
1992 52.2 24.5
1993 58.8 28.0
1994 60.6 32.3
Petrobrás Distribuidora S.A.
Created inJuly1971 byadecision of
thePetroleum National Council to
produce andmarket lubricants andfuels;
itslegal basis isLawNo.2004/53.Thefirmsupplies lubricants andfuels
toforeign aircrafts andships. It
imports additives forlubricant
production andequipment. Itisthe
onlydistributor operating throughout
Brazil, butitcompetes withregional
private companies operating under
regulations oftheNational Fuels
Department. Long-term contracts are
signed withclients andsuppliers.Exports Imports
(US$ million)
1992 44.6 7.2
1993 35.0 3.7
1994 29.3 2.0
Petrobrás Química S.A.(PETROQUISA)
Firm created byDecree No.61981, of
21December 1967, asamixed-capital
company tosupport private participation
inindustrial activities. Itisa
subsidiary ofPETROBRAS.Thefirmparticipates onlyas
shareholder incompanies engaged in
themanufacturing andtrade of
chemical andpetrochemical products.None.
Petróleo Brasileiro S.A.(PETROBRAS)
Created through LawNo.2004/53,
which established thenational policy on
petroleum.PETROBRAS, amonopoly ofthe
Federal Government, undertakes
activities inthepetroleum industry. It
isamajor importer. Itsexport
activities arelimited totheexport of
surplus petroleum products. Some
70percentofallpetroleum imports
involve one-year contracts, shorter
termarrangements covering therest.Crude Refined
petroleum products
Year Val. Vol. Val. Vol.
Imports
1992 3,407 495 1,220 165
1993 2,388 400 2,455 388
1994 2,685 474 2,046 319
Exports
1992 0 0 620 87
1993 0 0 863 132
1994 0 0 799 124
Value -US$million
Volume -barrels perday,thousand
Source: Brazilian authorities.
(b) Privatization
11. Theauthorities nowconsider therôleofGovernment asregulatory andthealleviation ofsocial
needs, rather thandirect participation inproduction. Privatization oftheState'sextensive network
ofproductive activities helps toreduce public deficits anddebt, improve thecompetitiveness ofthe
domestic industry andbroaden thebaseofthecapital market. Based onthese considerations, the
Brazilian Privatization Programme (PND) wascreated in1990toextend previous privatization efforts
byselling companies thathadbeenconsidered strategic under theearlier import substitution strategy.
12. ThePND initially made rapid progress, saleproceeds during thefirsttwoyears reaching some
US$4 billion, although thereceipts obtained wererelatively unimportant compared withtheliabilities
transferred tothenewowners (Table V.2). Theprivatization ofthesteelindustry appears tohaveBrazil WT/TPR/S/21
Page 97
beenanoteworthy success (Chapter VI(4)). Inorder toexpand thePND, legislative changes were
undertaken in1993 and1994 topermit thesaleoftheState'sminority shares; asaresult, thecash
receipts from privatization became more important.
Table V.2
Stages ofthePrivatization Programme, 1990-95
Presidential administration Number ofcompanies
privatizedSaleproceeds
(US$ million)Payments incash
(US$ million)
Collor (1900-92) 15 3,494 16
Itamar (1992-94) 18 5,113 1,581
Cardoso (1994- ) 2 642 284
Total 35 9,249 1,881
Source: Privatization Enters aNewPhase, Presidência daRepública ,August 1995.
13. After abriefhiatus, thePNDrestarted withtheprivatization inJuly1995ofEscelsa, thefederal
electricity distribution company intheStateofEspírito Santo; thiswasfollowed bytheprivatization
inMay1996 ofLight, theRiodeJaneiro federal electricity distribution company. Twoofthesix
partscomprising thefederal railway system werealsoprivatized, withsubstantial foreign participation.
Some enterprises have been dropped from theprivatization list,including PETROFERTIL,
NITROFERTIL, Computadores eSistemas Brasileiros S.A., andNUCLEP; allsuchfirms were
considered economically unviable.
14. Aspecial body, theNational Privatization Council, wascreated in1995togivemore flexibility
tothePND andstreamline decision making andimplementation. TheCouncil comprises cabinet
Ministers andischaired bytheMinister ofPlanning andBudget; itreports directly tothePresident
oftheRepublic. Besides deciding onthesaleofEcselsa andLight, theCouncil hasresolved toproceed
withthefullprivatization ofthepetrochemical sector; takesteps fortheprivatization offinancial
institutions, including foreign capital participation; privatize railways through theauctioning of
concessions forprivate-sector operations; andextend theprivatization process totheELECTORBRAS
system (FURNAS, CHESF, ELECTROSUL andELECTRONORTE) andCompanhia ValedoRio
Doce (Chapter VI,BoxVI.2).
15. Bymid-1996,divestituresunderthePNDhadresultedintheStatewithdrawingalmostcompletely
fromthesteel, fertilizer, petrochemical, andaircraft construction industries. Overall, thenumber of
public enterprises wasreduced from some 250in1987/88 to147inearly 1996 through liquidation,
incorporation orprivatization. AsatJune1996, thePND hadgenerated close toUS$12 billion from
sales, plusalmost US$400 million fromthedisposal ofminority shareholdings (Table V.3). Inaddition,
public debthadbeenreduced byUS$4.5 billion through thetransfer ofliabilities totheprivate sector.
Allprivatizations havetaken place through openauctions instock exchanges.WT/TPR/S/21
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Table V.3
Results ofthePrivatization Programme, 1991-1996
(Consolidated proceeds bycompany, US$million)
Sector Company Percentoftotal
equity offeredSales
ProceedsDebt
transferredAggregate
results
STEEL USIMINAS 86.1 1,941.2 369.1 2,310.3
CSN 90.8 1,495.3 532.9 2,028.2
AÇOMINAS 99.9 598.5 121.9 720.4
ACESITA 74.0 465.4 232.2 697.6
COSIPA(*) 84.0 585.7 884.2 1,469.9
CST 89.5 353.6 483.6 837.2
PIRATINI 72.5 106.6 2.4 109.0
COSINOR 99.8 15.0 0.0 15.0
TOTAL 5,561.4 2626.3 8,187.7
PETROCHEMICALS COPESUL 82.1 861.5 9.2 870.7
PQU 58.9 287.5 40.9 328.4
COPENE (*) 11.8 270.4 475.4 745.8
PETROFLEX. 100.0 234.1 20.7 254.8
SALGEMA 29.3 139.2 43.9 183.2
CPC 20.8 99.6 27.4 127.0
POLIOLEFINAS 31.5 87.1 0.0 87.1
ÁLCALIS (*) 100.0 81.4 5.7 87.1
PPH 19.0 59.4 35.0 94.4
POLISUL 31.0 56.8 131.0 187.8
OXITENO 15.2 53.9 2.0 55.9
POLITENO 24.9 44.9 28.4 73.3
NITRIFLEX 40.0 26.2 9.2 35.4
COPERBO 23.0 25.9 5.8 31.7
CIQUINE 31.4 23.7 6.3 30.0
POLIALDEN 13.6 16.7 1.5 18.2
ACRINOR 17.7 12.1 0.7 12.8
CBE 23.0 10.9 0.0 10.9
CQR 36.9 1.7 0.0 1.7
POLIPROPILENO 34.2 81.2 4.6 85.8
PRONOR 20.1 63.5 34.7 98.2
NITROCARBONO 19.0 29.6 7.5 37.1
KOPPOL 49.6 3.1 66.9 70.0
TOTAL 2,570.6 990.3 3,560.9
FERTILIZERS ULTRAFÉRTIL 100.0 205.6 20.2 225.8
FOSFÉRTIL 88.3 182.0 44.0 226.0
GOIASFÉRTIL 100.0 13.1 9.3 22.4
ARAFÉRTIL 33.3 10.8 1.8 12.6
INDAG 35.0 6.8 0.0 6.8
TOTAL 418.2 75.3 493.5
ELECTRICITY ESCELSA (*) 50.0 399.9 2.0 401.9
LIGHT-SESA 60.0 2,270.9 585.9 2,856.8
TOTAL 2,670.8 587.9 3,258.7
RAILWAY RFFSA/Wester
Network63.4 0.0 63.4
RFFSA/Center Eastern 316.1 0.0 316.5
TOTAL 379.5 0.0 379.9
OTHER EMBRAER (*) 50.5 192.2 263.4 455.6
CELMA 89.1 91.1 4.5 95.6
MAFERSA 100.0 48.8 0.5 49.3
SNBP (*) 100.0 12.0 0.0 12.0
CARA ÍBA 100.0 5.8 0.0 5.8
TOTAL 349.9 268.4 618.2
Total company sales 11,950.2 4,548.2 16,498.4
Sales ofminority shareholdings 395.5 0 395.5
Overall sales 12,345.7 4,548.2 16,893.9
(aspercentoftotal) (73.1) (26.9) (100.0)
(*) Process notyetconcluded inmid-1996.
Source: Brazilian authorities.Brazil WT/TPR/S/21
Page 99
(iii) Marketing andpricing arrangements
(a) Price support toagricultural products
16. Themechanism ofpricesupport toagricultural products isbased onthePolicy ofGuaranteed
Minimum Prices (PGPM) using thetwomechanisms detailed intheprevious TPRreport (GATT, 1992):
theFederal Government Acquisition Programme (AGF), which gives farmers theoption ofselling
theirproductstotheGovernmentatafixedminimumpriceannouncedbeforetheharvest,andtheFederal
Government Loans Programme (EGF), under which farmers receive financing tostock theirproducts
afterharvest (with orwithout asaleoption). Theamount oftheEGFisthefinancial value orminimum
price times thequantity deposited ascollateral inwarehouses.
17. Theformulation ofpolicies andtheoperation ofthePGPM aretheresponsibility oftheMinistry
ofAgriculture through theNational Supply Company (CONAB), supported byvarious financial
institutions, particularly theBanco doBrasil S.A. CONAB prepares minimum price proposals which
arethensubmitted bytheMinistry ofAgriculture forapproval bytheNational Monetary Council.
CONAB alsomanages theGovernment 'sstocks; salesfromsuchstock takeplace when thewholesale
market price ofagiven product isabove athreshold price, theStock Liberation Price (PLE). The
PLEiscomputed eachmonth asamoving average ofpastprices (over 40or60months) atwholesale
plusamark-up margin ofupto15percent.
18. Theauthorities haveindicated thatgeneral policies concerning theAGF andtheEGF have
undergone nosignificant alterations since1992. Some changes occurred between 1992/93 and1995/96
inproduct coverage; products affected areshown inTable V.4. Production volumes formajor crops
covered bythetwoprogrammes between 1990/91 and1994/95 areshown inTable V.5. Production
under theAGFwasvariable during thatperiod, although distinct upward trends maybediscerned for
wheat, cornandrice; thelasttwocrops werebyfarthemostimportant involume terms. Production
under theEGFalsovaried; in1994/95 themain crops covered were rice,cornandsoybeans.
19. Theoperational changes totheAGF andtheEGFweremade necessary byareduction inthe
availability ofpublic funds. Thechanges havemade financial markets themain source offunding,
mainly fromruralsavings. Funds arenowlentatpositive realinterest rates, although normally below
prevailing market rates.
20. Theauthorities pointed outthattrade liberalization, byincreasing import competition and
domestic production, hasledtolower internal prices; together withhighinterest rates, thishasmade
therepayment ofEGFloans more difficult. Thesituation hasbeencompounded bythescarcity of
public funds toconvert overdue EGFloans intoacquisitions under theAGF. Asaresult, since the
1991/92 season, theFederal Government hasautomatically extended overdue EGFloans, creating the
so-called Special-EGF. Thisscheme hasmostly benefited corn, rice,andwheat.
21. In1992, theGovernment created theLiquidation Premium (PL)scheme tohelpdecrease State
involvementinthemarketingofagriculturalproducts.UnderthePLscheme,whichhasbeenoperational
since December 1995, theFederal Government made optional itsacquisition ofSpecial-EGF stocks;
instead, stocks maybeauctioned whenever themarket price reaches thePLEthreshold price, the
Government absorbing thedifference between theEGF-related costandthemarket-related revenue.
Thisscheme benefited mainly corn, riceandwheat. Asimilar system, theEqualization Premium (PE),
wascreated forthemarketing ofthe1994/95 harvest. ThePEseeks tofacilitate themarketing ofEGF
products stillwithin thecontracted loanperiod. Thescheme benefited mainly soybeans andrice.WT/TPR/S/21
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Table V.4
Crops forwhich AGF andEGF coverage changed between 1992/93 and1995/96
Product Season
1992/93 1993/94 1994/95 1995/96
AGF EGF AGF EGF AGF EGF AGF EGF
Soybeans X X X X X X
Canola X X
Sunflower X
Castor beans X X X X
Triticale X X X X
X covered byscheme.
Source: Brazilian authorities.
Table V.5
Production volumes ofmajor crops under theAGF andEGF, 1990/91 to1994/95
(thousand tonnes)
1990/91 1991/92 1992/93 1993/94 1994/95
AGF
Beans 11.6 184.9 120.0 100.0 100.0
Corn 0.1 365.3 1,800.0 779.4 1,500.0
Cotton 0.0 11.1 26.7 0.7 64.2
Rice 0.8 82.0 380.0 443.0 1,530.0
Soybeans n.c. n.c. n.c. n.c. ...
Wheat 0.2 0.0 500.0 27.1 500.0
EGF
Beans 70.9 432.1 150.0 200.0 330.0
Corn 890.7 5,188.0 3,000.0 4,000.0 4,000.0
Cotton 16.1 114.7 240.0 114.7 130.0
Rice 398.1 3,669.0 4,217.0 3,000.0 4,851.0
Soybeans 562.2 782.3 6,750.0 2,000.0 1,898.8
Wheat 1,768.1 1,119.7 1,428.6 1,428.6 900.0
... notavailable
n.c. notcovered byscheme
Source: Brazilian authorities.Brazil WT/TPR/S/21
Page 101
22. Given thelimited resources available fortheEGFandAGF, thedevelopment ofanoptions
system tosupplement thepolicy ofminimum prices isbeing given priority bytheauthorities. Under
thissystem, theGovernment offers options thatthrough thepayment ofapremium allow farmers to
dispose oftheirproduction atacertain price, linked tofuture minium prices andstorage costs. Farmers
selltheirproduction totheGovernment iftheoption price isabove themarket price, otherwise they
sellitinthemarket. In1996, theGovernment offered saleoptions forcorn, cotton andrice.
(b) Other price controls
23. Price controls usedtobeextensively employed inBrazil, withcontrols being continuously
applied forsome products andintermittently forothers (GATT, 1992). Price controls wereapplied
togoods andservices supplied bygovernment enterprises, busandairfares, some medicines, certain
agricultural products andbasic consumer goods. TheGovernment alsoapplied pressure onmajor
companies torestrict priceincreases. Priceincreases considered tobeabusive weredisciplined through
import dutyreductions (intermediate chemical products, capital goods andtextiles).3
24. Pricecontrolshavegraduallybeenphasedoutsince1990.Theauthoritiesindicatedthatcurrently
there were noprice controls ongoods orservices, except forcertain public tariffs andfares setand
periodically adjusted bytheGovernment (e.g., forelectricity, water andtelephone services). Itwas
expected thatdiscussions nowinprogress attheNational Congress onfurther steps toderegulate the
economy would leadtoareduction inthescope ofprice controls inthepublic sector.
25. Price controls affecting energy products have been reduced overthelastfouryears. The
privatization ofpetrochemical plants resulted intheadoption ofaformula linking thedomestic price
ofnaphtha usedforpetrochemical production toworld prices (underpriced naphtha wasacrucial catalyst
forthedevelopment ofBrazil 'spetrochemical industry). Thephasing outofadministratively setcharges
(andrelated subsidies) forthetransport offuelscontinued; theregional equalization scheme forcooking
gaswasinitiated in1994. Asimilar scheme foraviation fuelwaslargely eliminated inearly 1996,
withthelinking ofdomestic refinery prices toworld prices expected tobecompleted in1996, except
incertain airports located farfrom supply centres; thismeasure alone wasexpected tosavethe
Government about R$8million inannual subsidies.
26. GasolinepriceswereliberalizedinApril1996,exceptinareaswherecompetitionwasconsidered
limited. Theregional equalization scheme fordiesel prices wasreduced ingeographical coverage but
noteliminated, asdiesel isanimportant component ofthetransport costofagricultural commodities
(including sugar canefortheproduction ofalcohol) andurban transport. Other petroleum products
remained subject togovernment control, withnewprice regulations expected tobeintroduced atthe
endof1996. Thetiming fortheliberalization ofoilandoilproducts prices wasunder consideration
bytheCongress in1996.
27. Controls onalcohol prices areestimated tocosttheGovernment some R$1.8 billion annually
insubsidies. Suchsubsidies arepaidfromaspecial fundfinanced byasurcharge onpetroleum-based
fuels. Ministry ofFinance Rule64of29May1996determined thatthefund(Alcohol PriceUnification
Fund, FUPA) wastobeeliminated on1January 1997, withalcohol subsidies thenlikely tobefinanced
byanenvironmental tax(Chapter VI(2)(iv)). Rule64alsoeliminated controls onproducer prices of
alcohol. Electricity prices werecontrolled toprovide subsidies tolow-income users, remote regions,
3Fritsch andFranco (1992), p.145.WT/TPR/S/21
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subways, railroads aswellascertain exports andthealuminium industry4,butthese subsidies have
gradually beenphased out.Theprice ofanumber ofservices, including telecommunications, isalso
setadministratively. Water forirrigation remains significantly underpriced.
(iv) Local-content schemes
28. Inrecentyears,Brazilhasusedlocal-contentrequirementsinrelationtogovernmentprocurement,
official credit, export andfiscal incentives andtariffconcessions (including those offered infree-trade
zones). LawNo.8661 of2June1993 (revoking Decree-Law No.2433 ofMay1988) established
thecurrent legal framework forlocal-content requirements; however, inearly 1996 implementing
regulations were yettobedefined bytheMinister ofIndustry, Trade andTourism.
29. Pending theintroduction ofnewlocal-content regulations, theBasic Productive Process (PPB)
concept isoneofthecriteria usedtodetermine whether aproduct maybeconsidered Brazilian. The
PPBrequires firms toundertake locally agreed manufacturing stepsforspecific products; itismostly
usedinrelation totheproduction ofelectronic products intheManaus Free-Trade Zone (MFTZ) and
ofsoftware inBrazil. (Forexample, fiscal incentives intheMFTZ forthemanufacturing ofaudio
andvideo equipment arecontingent onmost circuit boards being assembled inthezone, withno
conditions imposed ontheorigin ofthecomponents.) Inother cases, a60percentbenchmark isused,
alone orincombination withthePPB, when local-content requirements areinvolved. Forexample,
thebenchmark isusedinrelation toexport finance (FINAMEX andPROEX -Chapter IV(4)) andspecial
credit programmes (FINAME -section (2)below; rubber consumers mustuse44percentofdomestic
rubber (Chapter VI(2)(iv)) while certain fiscal incentives intheinformatics industry areconditional
onmeeting minimum localvalue-added requirements (section (2)below).
30. Local-content requirements arealsoamong themeasures taken insupport oftheautomotive
sector. Since these requirements arepartofaprogramme ofinvestment incentives, theyhaveraised
concern about theircompatibility withtheAgreement onTrade-Related Investment Measures -TRIMs
(Chapter III(6) (iv)).
(v) Government procurement
31. Brazil wasnotasignatory totheGATT Government Procurement Code anddoesnotplan
tosignthePlurilateral Agreement onGovernment Procurement.
32. Article 37oftheConstitution provides that,ingeneral, public works, purchases andservices
should becontracted through apublic tendering process. Therelevant regulations areestablished in
LawNo.8666 of21June1993, asamended byLawNo.8883 of8June1994; Presidential vetoes
affecting thelatterwerestillpending inCongress inearly1996. TheFederal Government waspreparing
inmid-1996 adraftbillmodifying theprovisions inLawNo.8666; nodecision hadbeentaken on
whether thebillwould amend orreplace suchlaw.
33. Theauthorities pointed outanumber ofimportant changes inLaw No.8666 vis-à-vis
Decree-Law No.2300 of21December 1986, thatpreviously regulated government procurement.
Thecriteria fortheawarding ofbidshavebeenmodified toavoid irregular tender offers, withthelowest
price being thecorecriterion (BoxV.1). Contracts withgovernment-owned firms areopentoboth
national andforeign suppliers. Thesimilarity testforimports nolonger applies. LawNo.8666
4Randall (1993), p.126.Brazil WT/TPR/S/21
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maintains preferences forgoods andservices produced inBrazil when bidsareequivalent interms
ofprice, quality anddelivery time; however, theauthorities noted thatsuchpreferences lostmuch
oftheirpractical significance aftertheelimination oftheconcept of"national companies ofBrazilian
capital" (Chapter II,BoxII.1). Incasesinvolving international bidding, successful bidders arerequired
tohavelocalrepresentatives.
BoxV.1: Government procurement regulations
Law8666 of21June1993 applies togovernment procurement atthefederal, State andmunicipal levels
aswellasinpublic agencies. Thelawforbids, ingeneral, thegranting ofpreferences based onthe
domicile ofbidders ordifferential treatment between Brazilian andforeign firms. However, when all
other factors areequal, suppliers may beselected according towhether aservice orgood is,in
descending order ofpriority, produced orsupplied byaBrazilian firmofnational capital, domestically
produced, andproduced orsupplied byBrazilian firms.
Public tendering maytakefiveforms: competition among anyinterested parties; acceptance ofprices
from officially registered firms; invitation bytheadministrative authorities;, competition among parties
fortechnical scientific orartistic projects; andpublic auctions ofgoods. Minimum ormaximum values
areestablished foreach form oftendering depending onwhether engineering products orservices are
involved. Specific tendering procedures apply toairline concessions. Tendering isnotrequired when the
Federal Government must intervene intheeconomy toregulate prices orrestore normal supply.
Interested parties must provide evidence oftheir technical andfinancial positions, fiscal standing aswell
aslegal status; forforeign firms, thelatter involve official registration orauthorization tooperate in
Brazil. Foreign firms without operations inBrazil andinvolved inaninternational tender must have legal
representation there; requirement (and others) donotapply when funds from multilateral financing
organizations areinvolved. International tenders must comply withguidelines onmonetary andforeign
trade policy.
Contracts may beawarded using various criteria: best offer, lowest price, best technology, or
combination ofprice andtechnology. Thecombination ofprice technology must beusedforinformatics
products, towhich other special requirements alsoapply. Besttechnology oracombination ofprice and
technology areused for"intellectual" services, such asproject design oradministration. Inallcases,
domestic charges andtaxes paidbydomestic firms areadded tobidsbyforeign companies inorder to
decide onawards.
Contracts forspecialized technical projects may beawarded only iftheauthor transfers therelated
property rights andtheycanbeemployed asprovided inthetendering conditions. Forintellectual works
notsusceptible toregistration, thetransfer ofrights must include thesupply ofinformation concerning
their conception anddevelopment.
Tendering processes maybecontested byanyBrazilian citizen.
34. Government procurement oftelecommunications andinformatics goods andservices isexempt
from thegeneral procurement rules; instead, suchprocurement isgoverned byDecree No.1070 of
2March 1994, regulating LawNo.8248 of23October 1991. TheDecree reflects aprocurement
policy thatseeks tousetheGovernment 'spurchasing power topromote domestic products andservices.
Thepolicy applies toprocurement bytheFederal Government andrelated agencies, suchasState
enterprises (e.g., PETROBRAS, ELECTROBRAS, theTELEBRAS System) andfederal universities;
productscoveredincludecomputers,peripheralunits,telecommunicationsequipment,micro-electronics,
software andrelated services. Procurement procedures forsuchitems involve athree-stage screening
process toselect proposals according tothefollowing sequence: (i)thebestcombinations ofpriceWT/TPR/S/21
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andtechnology; (ii)thelowest prices; and(iii)criteria defined inDecree 1070. Such criteria give
priority toproducts andservices developed inBrazil, containing significant localvalue added.
35. Purchases bythenational oilcompany (PETROBRAS) involve asystem ofpre-qualification
which could restrict participation inpublic biddings; criteria fortheaward ofcontracts include the
local/import component ofbiddings, andamargin ofpreference isafforded tolocalsuppliers.5
36. Theauthorities indicated thatthere isnoofficial "buynational" policy, arecent constitutional
amendment having suppressed thedifference between nationally-owned andforeign-owned companies
incorporated inBrazil. However, asdescribed intheprevious paragraphs, anumber ofregulations
stillinplace giveamargin ofpreference toBrazilian products andservices.
37. Decree-Law No.666ofJuly1969requires transporting inBrazilian flagged vessels allgoods
imported bygovernment agencies, imports benefiting from fiscal incentives (e.g., dutyexemptions)
andimports involving official credit. However, suchrequirement doesnotapply toimports covered
byGATT tariff concessions (bindings), which would appear, inpractice, toexempt allgoods, given
the100percentbinding coverage intheUruguay Round. Adraftbillrevoking Decree-Law No.666
wasunder consideration bytheCongress inmid-1996.
38. There isnocentral procurement agency inBrazil. Procurement istheresponsibility ofeach
individual government body, including Stateenterprises, although some control isexercised through
theirbudgets. Dataonthevalue ofgoods purchased bypublic sector agencies were notavailable,
norwere dataonthesplitofpurchases andcontracts between foreign anddomestic suppliers.
(vi) Free-trade zones
39. InBrazil, theaimoffree-trade zones (FTZs) istopromote development byoffsetting the
locational disadvantages ofareas thatarefar-removed from major consumer andindustrial centres.
There areeight FTZs, withfouractually inoperation in1996; fourFTZs areinborder areas, one
isinaportandanother, theManaus Free-Trade Zone (MFTZ) ontheAmazon. Thelatter isBrazil 's
mostimportant FTZandthelargest inSouth America; theMFTZ 'sfree-trade zonestatus isguaranteed
untiltheyear2013.
40. Only trading activities areundertaken intheFTZs, except intheMFTZ where industrial
operations alsotakeplace. Inthecaseofproduction shipped toother points inBrazil fromtheMFTZ,
customs duties oninputs arereduced by88percentandfullIPIexemption applies. Notaxesarelevied
ongoods produced intheMFTZs, except fortheServices andMerchandise Circulation Tax(ICMS)
applied toshipments toother locations inBrazil. Ingeneral, taxexemptions donotapply toarms
andammunition, passenger cars, computers, alcoholic beverages, perfumes andtobacco products.
41. Inrecent years, SUFRAMA, theagency responsible fortheMFTZ, hastriedtoencourage
specialization inthezone'sindustrial parktoprevent thedilution ofitsfiscal incentives intheface
ofcompetition fromother Brazilian States which alsogrant fiscal incentives. Local value added has
beenencouraged bymaking theBasic Productive Process concept (PPB -section (iv)above) partof
therequirements forfirms tobenefit from incentives granted bySUGRAMA.
5Randall (1993), pp.226-227.Brazil WT/TPR/S/21
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42. Industrial production intheManaus industrial parkbenefits fromaten-year income-tax holiday,
astheparkiscovered bytheSUDAM programme (section (2)(iii)). TheGovernment oftheState
oftheAmazones alsogrants arefund ofbetween 45percentand100percentontheICMS paidon
products manufactured inthatindustrial park; fullexemptions areonlyavailable fortheproduction
ofintermediate goods (components). Proposals areunder consideration bytheStateGovernment for
anewpackageoffiscalincentives,includinghigherICMS refundsand,inpartnershipwithmunicipalities,
subsidies toinputs suchaselectricity.
43. Until May1995, approval wasrequired forannual programmes indicating theimport needs
ofindustrial andtrading firms intheMFTZ. Between May1995andApril 1996, concessional imports
intothezoneweresubject toquotas. Thetotalvalue ofthequota wassome US$3.2 million forboth
trading andindustrial activities; mostofthequota wasallocated toproducers ofconsumer electronics.
InMay1996, thequota system forindustrial activities wassuspended; import quotas weremaintained
fortrading activities intheMFTZ andother FTZs.
44. Some 98.5percentofthevalue ofproduction intheMFTZ wassolddomestically during
1990-1994. Major activities include theassembly ofmotorcycles andelectronic products fromimported
components. Overall, shipments fromthezonerosefromUS$66 million toUS$134 million between
1990and1994. Although exports fromtheMFTZ tothirdcountries aremodest, bilateral negotiations
were under wayinearly 1996 between Brazil andArgentina todefine thestatus ofgoods produced
intheirfree-trade zones. Inthose negotiations, Brazil wasseeking tohaveFTZs treated asareasoutside
MERCOSUL, withtheimplication thatproducts from thezones would besubject totheCommon
External Tariff ifimported intoanyMERCOSUL country; thisistoensure faircompetition forgoods
produced within MERCOSUL butnotinFTZ'swhere special benefits apply.
45. IndustrialactivityintheMFTZhassufferedfromstagnantdomesticdemandaswellasincreased
foreigncompetitionlinkedtotradeliberalization,growingsupportinneighbouringcountriesforindustrial
production andillegal trade. Inaneffort toregain competitiveness, industries intheMFTZ have
restructured, particularly byincreasing theuseofimported inputs. Theresults for1995 were
encouraging, when significant turnover increases andcostreductions tookplace.6
46. Export-processing zones arecovered inChapter IV(4)).
(vii) Countertrade
47. There isnospecific legislation governing countertrade transactions inBrazil andnoofficial
statistics oncountertrade exist.
48. Inthepast, Brazil wasregarded asanimportant userofcountertrade. Countertrade deals
involved mainly imports bytheStatepetroleum firm(PETROBRAS) inexchange forvarious Brazilian
exports. Countertrade andoffsets havealsobeenusedinconnection withgovernment purchases of
foreign aerospace equipment.
49. Brazil maintains two(clearing) payments agreements, onewithHungary andanother with
members oftheLatin American Integration Association andtheDominican Republic; suchagreements
mayoffer opportunities forcountertrade. Similar agreements withBulgaria andRomania ended in
1994.
6Gazeta Mercantil ,20March 1996.WT/TPR/S/21
Page 106Trade Policy Review
(2) Sectoral andOther Activity-Specific Assistance
(i) Production subsidies, taxconcessions
50. Intheagricultural sector, Brazil istocutfinancial support toagricultural producers aspart
ofitsUruguay Round commitments; reductions of13.3percentaretotakeplace between 1995and
2004, toanAggregate Measurement ofSupport equal toUS$912 million.7
51. Asindicated intheprevious Secretariat report, communications fromtheBrazilian authorities
pursuant toArticle XVI:1 oftheGATT (concerning subsidies) indicated thatBrazil maintained no
notifiable production subsidies.8Avariety ofother federal andregional taxincentives weregranted
inthepastforindustrial andagricultural activities, including taxdeductions, benefits foragricultural
production intheAmazon basin, andspecial reduced income taxratesforexporters andagricultural
companies. Lagged adjustments inpublic service rates, usedbytheGovernment asinflation control
instruments, havethepotential togrant benefits toconsumer industries.
52. Remaining fiscal benefits include awiderange ofStateandmunicipal benefits involving sales,
property andother taxes andfees. Efforts arenowbeing made bytheFederal andStategovernments
toco-ordinate theiractions, forexample, through theNational Treasury Council (CONFAX), soas
toavoid competition between them ingranting incentives. Nodatawereavailable ontheimportance
ofsuchincentives attheState andlocallevel.
53. Other benefits include federal income taxexemptions onprofits from approved investments
innorthern Brazil andthelargeregion oftheunder-developed northeastern coastal States andexemptions
andreductions inincome, production, salesandimport taxes intheManaus free-trade zone. Criteria
forgranting taxincentives arebased onsuchfactors astypeofindustry andlocation oftheinvestment,
export orimport substitution possibilities, number ofjobscreated, andcompliance withtheBasic
Productive Process (PPB) concept.
54. Fiscal incentives wereintroduced in1991 formachinery andequipment, bothimported and
domestic. These incentives include exemptions fromtheIndustrial Products Tax(IPI)andanaccelerated
depreciation allowance. LawNo.9000of16March 1996exempted domestic orimported capital goods
fromtheIPI,while maintaining credits granted byprevious legislation. LawNo.9000wassucceeded
byProvisional Measure No.1251of5January 1996, exempting thepurchase ofequipment, machinery
andinstruments fromtheIPI.9Provisional Measure No.1272 of12January 1996, provided forthe
accelerateddepreciationofmachinery,equipmentandinstrumentsaswellastariffreductionsonimported
capital goods fortheautomotive industry (Chapter III,BoxIII.1).
55. Fiscal incentives fortheinformatics industry were established byDecree No.792of2
April 1993, regulating LawNo.8248 of23October 1991. Theincentives include exemption from
payment oftheIPIuntil October 1999 forproducts meeting product-specific local value-added
requirements. Expenditure onresearch anddevelopment undertaken inBrazil istax-deductible; such
deductions, limited to50percentofincome taxliabilities, areavailable untilDecember 1997. Firms
7Brazil 'sWTO Schedule III,PartIV,Section I
8GATT document L/6973/Add.9, 21July1993.
9Theprovisions ofProvisional Measure No.1251 were subsequently re-issued asProvisional Measures
Nos. 1289, 1328, 1413, 1461 and,atthetime ofcompleting thisreport, 1508 of20June 1996.Brazil WT/TPR/S/21
Page 107
arerequire toinvest inresearch anddevelopment aminimum of5percentofannual gross sales, of
which atleast2percentmustinvolve Brazilian research institutions. Non-Brazilian firms mustcomply
withexport programmes andmaintain apositive tradebalance. Fiscal incentives aresubject toapproval
bytheMinistries ofFinance andofScience andTechnology.
56. Thedomestic shipbuilding industry isassisted through theMerchant Fleet Fund (FMM),
administered bytheNational Development Bank (Decree-Law No88420 of21June1983); theFund
isfinanced inpartfromtheFreight Surcharge forRenovation oftheMerchant Marine Fleet(AFRMM).
57. Domestic automotive manufacturers havebenefited fromtaxreductions onthesaleofcertain
locally assembled vehicles (socalled "popular cars") meeting local-content requirements; inexchange,
assemblers haveagreed topassonthetaxreductions toconsumers andtoexpand production and
employment.
(ii) Credit programmes
58. Thenumber ofofficial credit programmes appears tobelarge, reflecting thesegmentation
ofBrazil 'sfinancial markets (Chapter VII(3). Within theofficial financial system, theNational
Development Bank (BNDES) plays acentral rôle,administering several funds andsubsidiary agencies
forspecial purposes (BoxV.2). Interest ratesonBNDES loansarespecific toeachfinancing programme
andtaketheform ofanofficial, long-term interest rate(TLJP) towhich aspread isadded.
59. TheSpecialAgencyforIndustrialFinancing(FINAME)financespurchasesorsalesofBrazilian-
made capital goods. Currently, FINAME operates programmes tosupport projects inagriculture,
manufacturing andservices; italsoincludes anexport financing programme (Chapter IV(4)). The
agricultural programme oftheAgency covers theacquisition ofnewagricultural machinery, whether
Brazilian-made orimported; similarly, theautomatic programme ofFINAME supports theacquisition
ofnewBrazilian-made andimported capital goods. Under bothprogrammes, themaximum repayment
period isfiveyears withamaximum BNDES participation of90percentandaspread of3to6.5
percentage points above theTJLP.
60. Thebudget forFINAME in1995 amounted tojustoverR$4billion; some R$450 million
corresponded totheagricultural programme andabout R$300 million totheexport programme, with
thelatter expected tobeexpanded toabout R$500 million in1996.
61. FINAME wasalsotomake available R$300 million fortheleasing ofcapital goods in1996.
Under theprogramme, theAgency wastoprovide registered leasing companies withupto80percent
ofthevalue ofleased capital goods inthecaseofmicro- andsmall companies, andupto70percent
formedium andlargefirms. Inbothcases, thevalue covered could increase byasmuch as10percentage
points forcompanies holding anISO9000certificate. While mostFINAME credit linesincur annual
interest ratesof6.5to7percent,theleasing programme envisages annual ratesof9.5percentover
theTJLP. International fundsources, suchastheWorld Bank, weretobeusedinthecaseofforeign
leasing firms, while domestic firms were tobesupported from ordinary BNDES funds.WT/TPR/S/21
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BoxV.2 National Bank forEconomic andSocial Development (BNDES)
TheBNDES system iscomposed oftheBNDES Bank anditssubsidiary agencies: theSpecial Agency for
Industrial Financing (FINAME) andtheBNDESPAR (BNDES Participation scheme). Thesystem hasa
variety ofmechanisms destined tofacilitate long-term investments byprivate enterprises andpublic
entities withaview toincreasing competitiveness. BNDES wascharged in1990 withtheadministration
oftheprivatization programme oftheBrazilian Government.
BNDESPAR 'sbasic function istoprovide financial resources, through equity participation, topriority
projects agreed withenterprises. Itsequity participation isdeemed tobetemporary andinallcases to
cover only aminority share. InMay 1996, BNDESPAR 'sportfolio wasestimated atUS$7 billion,
covering more than162enterprises mainly inelectricity, petrochemicals, pulp andpaper, commercial
banks andmining.
Financing through theBNDES system maycover fixed investment andincreases inworking capital, as
wellastherestructuring ofenterprises. BNDES participation varies according totheprogramme. There
areindividual programmes formanufacturing, agriculture, infrastructure, development ofcapital markets,
commerce, services andtheenvironment. Programmes forthecommercialization ofmachinery and
equipment include theSpecial Agency forIndustrial Financing (FINAME) andtheFinance Programme
forExports ofMachinery andEquipment (FINAMEX). There arealsoprogrammes targeting specifically
micro- andsmall enterprises (Box V.3).
Theauthorities indicated thatthemost significant change affecting BNDES during thelastfouryears
concerned theadoption ofanewmechanism forsetting thebank'sofficial long-term interest rate(TJLP).
This itisdetermined quarterly, onanannual percentage basis, onthefirst dayofMarch, June,
September andDecember. TheTJLP isbased ontheweighted arithmetic mean oftheaverage nominal
yields, inreals, ofexternal andinternal (voluntary acquisition) public debtlong-term notes. TheTJLP,
inpercent perannum, stood at26.0 inDecember 1995, 17.7 inDecember 1996 and15.4 in
August 1996.
TheBNDES system hadoutlays equivalent tosome US$5.5 billion in1994 andUS$7.7 billion in1995;
BNDES 'budget for1996 wasexpected toincrease tosome US$10 billion. In1994, some 85percentof
BNDES disbursements were channelled toprivate firms; theequivalent share in1995 was91percent.
In1995, thedistribution ofoutlays bytheBNDES system formain activities was asfollows
(US$ million):
BNDES FINAME BNDESPAR BNDES
Direct Indirect Total
(A) (B) (C)System
(A+B+C)
Agriculture 38 203 241 558 0 799
Mining 34 8 42 36 0 78
Manufacturing 1,080 852 1,932 1,983 412 4,327
-Food andbeverages 191 216 407 620 22 1,049
-Machinery and
equipment5 30 35 276 79 390
-Paper andcellulose 195 28 223 70 76 369
-Basic metallurgy 173 53 226 93 19 338
Services 857 307 1,164 1,105 205 2,474
-Land transport 31 8 39 752 0 791
-Electricity andgas 576 2 578 51 50 679Brazil WT/TPR/S/21
Page 109
62. BNDES alsooffers sector-specific credit programmes. Thesteel industry benefits from
creditsgrantedtofirmssupplyingsteelmakersinordertohelpthosefirmsparticipateinthemodernization
oftheindustry. Loans aresubject tothesigning oftechnical andoperational co-operation agreements
between thesteelproducer andBNDES. Thefirstsuchagreement, withavalue ofR$50 million,
wassigned inMarch 1996bytheCompanhia Siderúrgica Nacional (CSN). Under theagreement, CSN
wastogivetechnical assistance tosuppliers requesting BNDES loans, which would beextended for
5-10years atannual interest ratesof3.5to6.5percentabove theTJLP. Aspecial programme for
theauto-parts industry wasunder consideration inmid-1996, withnodecision having yetbeentaken
onwhether itwould bemodeled onthescheme forthesteelindustry.
63. Theleather andfootwear industries benefited fromaspecial programme created inmid-1995
tohelpitrestructure. Theprogramme made loans available forextended periods atinterest rates
described bytheauthorities asequal toorabove market levels. Funds withavalue ofabout US$125
million, involving 177operations, hadbeenrequested byApril 1996, when theprogramme expired.
Anewsupport programme aimstorestore competitiveness inthetextiles, leather andfootwear industries
through administrative andoperational modernization; itisintended tohelpthese industries face
increased foreign competition (Chapter VI(4)). Theprogramme istobeundertaken intwostages,
thefirstlasting untiltheendof1996andseeking toprovide short-term financial support forinvestment,
working capital, theimport ofequipment andtheexport ofmanufactured goods. Asecond stagewould
implement medium- andlong-term measures tobetaken afterspecific analyses define thestructural
problems faced bythetextiles andfootwear leather industries.
Table V.6
Rural credit programmes, 1995
Description /legal basis Conditions Targeted groups/activities
Compulsory credit
Financial institutions must maintain a
minimum of17percentoftheiraverage
daily balances inrural credits.
Exempted from thisrequirement are
investment anddevelopment banks.
Resolutions 2164/95, 2182/95, 2185/95,
2187/95, 2191/95; Circular 2469/94.Ingeneral, annual interest ratesarefixed
at16percent.
Specific proportions ofthetotalfunds
must beapplied todifferent types of
loans.
Individual loanlimits apply according to
theintended useofthefunds.Rural producers andcooperatives;
commercial fishermen.
Federal Government Loans Programme
(EGF).
National Programme toStrengthen
Family Farming (PRONAF).
Financial restructuring ofcooperatives.
Promotion programme
Funded from theFederal budget.
Law8402/92; Directive DTN No.462
of4August 1992; Resolutions 2164/95
and2187/95.Annual interest ratesarefixed at16per
cent.
Individual loanlimits apply according to
theintended useofthefunds.Rural producers andcooperatives;
commercial fishermen.
EGF.
Rural savings programmes
Comprises theRural Savings Account
(MCR 6-4), theWorkers Protection
Fund (FAT) andthe"Extra-market"
Investment Fund.
Resolutions 2164/95 and2187/95.Costofcertain transactions issubsidized
bytheFederal Government toequalize
financial charges.
Annual interest ratesonsubsidized loans
arefixed at16percent.Allrural borrowers.
Table V.6cont'dWT/TPR/S/21
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Description /legal basis Conditions Targeted groups/activities
Tieddeposits
Deposits linked tothefinancing ofrural
activities.
Resolutions 2164/95 and2187/95.Depositors maydeduct from theamount
subject toincome taxupto100percent
oftheirdeposits.
Same limits asthose applied inrelation
totheRural Savings Account
programme; atleast60percentofthe
funds must beapplied under the
conditions related tosuchprogramme.Allrural borrowers.
Special PaidDeposits (DER)
Setuptochange existing newcruzados
intorealcruzeiros.
Law8024/90; Circulars 2214/92 and
2369/93.Limited tothevalue oftheloan.
Market-determined financial charges.Rural producers andco-operatives.
Storage ofalcohol fuel.
Constitutional Funds
(seeChapter V(2)(iii))
Funded from ashare of3percentonall
federal income andindustrialized
products taxes.
Law7827/89; Provisional Decree
No.1105 of25August 1995.Annual interest ratesareequal tothe
TLJP plus8percent.Allagricultural andindustrial activities.
Financial Operation Funds
Market raised funds.
Law8058/90; Circulars 2209/92 and
2485/94.Market-determined financial charges. Rural producers andco-operatives;
groups covered bytheIndustrial
Competitiveness Support Programme.
Commodity Investment Funds
Market raised funds.
Circulars 23325/94 and2485/94.Support offinancial portfolios linked to
agricultural andagro-industrial activities.
Operation ofcommodity futures markets.
Market-determined financial charges.Rural producers andco-operatives.
External resources
Funds raised inforeign markets.
Resolutions 2148/95, 2151/95 and
2167/95.Support ofinvestment, marketing and
acquisition ofproducts.
Market-determined financial charges.Rural andagro-industrial producers, co-
operatives andexporters.
Source: Brazilian authorities.
64. Some credit programmes arespecifically targeted atmicro- andsmall enterprises (Box V.3).
Inaddition toBNDES, public agencies involved insuchprogrammes include theStudies andProjects
Finance Company (FINEP), theFederal Savings BankandBanco doBrasil S.A.. Most credit schemes
would appear tosetinterest ratesatlevels comparable tomarket rates, butacomparison isdifficult
since interest ratedifferentials reflect variations inlending costs andrisksacross borrowers.Brazil WT/TPR/S/21
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BoxV.3 Credit programmes benefiting micro- andsmall enterprises
Micro- andsmall enterprises benefit from anumber ofprogrammes under theStudies andProjects
Finance Company (FINEP). Such programmes offer credit lines with terms ofuptoseven years and
interest rates varying between zeroand10percentinmost cases.
Thefollowing FINEP programmes were communicated totheWTO Secretariat aspartofthisreview:
Technological Development Support (ADTEN); Quality Control Support (AGQ); National Fund for
Scientific and Technological Development (FNDCT); Support Programme forScientific and
Technological Development (PADCT); Pre-investment Support (AUSC); Micro- andSmall Enterprise
Support (AMPEG); Educational Support forCompetitiveness (PRO-EDUC); Support forParticipation
inTechnological Fairs and Events (FETEC); Support Programme forUniversity-Enterprise
Technological Partnerships (FINEP-TEC); andSupport toEngineering andBasic Technology Enterprises
(ENGETEC).
Annual interest rates formost programmes areequal totheTJLP (Box V.2) plusaspread thatmayvary
from niltosome 6percent. AMPEG, theonly FINEP programme exclusively targeting micro- and
small enterprises, hasanannual budget allocation ofabout R$15 million; theallocation forallFINEP
credit lines wasabout R$330 million in1996.
Credit lines arealsooffered bytheFederal Savings Bank (CEF) involve fixed andvariable interest rates
loans. Credit schemes offered include theEnterprise Special Credit; theCEF-GIRO/SEBRAE, oneof
theleastexpensive sources offunds available tofirms; theFinancial Titles Discount scheme, toprovide
advances oncash flows; theEnterprise Management Blue Cheque, designed tocover urgent needs;
"Hot Money", toprovide short-term working capital, andtheFinancing ofTelephone Lines and
Computing Equipment credit programme. CEF-GIRO/SEBRAE istheonlyCEF programme exclusively
aimed atmicro- andsmall enterprises; annual credits amount tosome R$180 million.
Credit lines offered bytheNational Development Bank (BNDES) include Automatic BNDES-Industry
andInfrastructure, aprogramme available fortheestablishment, expansion ormodernization ofindustrial
plants; Automatic BNDES-Agriculture, which covers construction projects inagriculture andforestry;
andAutomatic BNDES-Commerce andServices, covering construction work, labour training andimports
theservice activities. Thethree programmes offer amortization periods ofuptofiveyears, with a
BNDES participation ofupto75percentoftotalinvestment (85percentforenvironmental protection
programmes). TheBank offers three other programmes tomicro- andsmall enterprises: Automatic
FINAME, Agricultural FINAME andtheAutomatic Programme toSupport Micro- andSmall Enterprises
(PMPE). Interest rates areequal totheTJLP plusaspread thatmayvaryfrom 0.5percentinthecase
ofthePMPE toupto6.5percentforAutomatic FINAME andAgricultural FINAME. BNDES has
available some R$1.5 billion tosupport exclusively micro-, small andmedium-size enterprises; ofwhich
thePMPE accounts foronethird.
Banco doBrasil S.A.alsomakes available credit lines tomicro- andsmall enterprises. These include
MIPEM-Investment tosupport investment projects andworking capital withloans forupto36months;
MIPEN-Financing tocomplement working capital with loans ofupto180days; PRODEM-FAT and
PRODEM-Support toMunicipal Development toprovide municipalities withloans foruptofiveyears;
andFUNGETUR tosupport tourism projects. Such programmes typically involve annual interest rates of
13percentorlower. MIPEN-Financing isthemain programme targeting micro- andsmall enterprises;
allocations reached R$53 million in1996. Resources allocated forMIPEM-Investment amounted to
R$332 million, forMIPEM-FAT toR$64 million andforPRODEM-FAT toR$28 million.
Source: Brazilian authorities.WT/TPR/S/21
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65. Besides BNDES, credit programmes arealsooffered byregional andStatedevelopment banks.
Development financing isgranted byspecialized departments ofcommercial Statebanks. Moreover,
investment banks playarôleinproviding medium- andlong-term financing withsupport from the
Federal Government. Evidence wasnotavailable oftheimportance ofanysuchcredit schemes in
providing assistance toindustries.
66. Theruralsector benefits fromnumerous schemes. Inparticular, commercial banks arerequired
tomake available toruralborrowers acertain proportion oftheirdaily balances (Table V.6). Many
credit programmes involve fixed interest ratesthatarelikely toinvolve subsidies tousers; however,
there werenoestimates available oftheamounts involved. Anewscheme under which commercial
banks mayprovide rural credit from foreign resources wasintroduced byResolution No.2148 of
16March 1995.
(iii) Regional assistance
(a) SUDENE andSUDAM
67. Regional development ispromoted through federal programmes designed tofoster newactivities
inthepoorer northeast andAmazon regions. Theagencies involved aretheAdministration forthe
Development ofthenortheast (SUDENE) andtheAdministration fortheDevelopment oftheAmazon
(SUDAM). Thetwoarecharged withtheevaluation, approval andadministration oftheincentives
forneworexpanded industrial projects aswellasfinancial co-operation ventures. Bothareautonomous
federal entities linked totheMinistry ofPlanning andBudget.
68. Fiscal incentives areavailable toallfirms considered tobeimportant forregional development.
Suchincentives include tenyearincome taxexemptions forindustrial oragricultural firms classified
asofspecial importance andwhich establish, increase, modernize ordiversify theirregional activities.
Enterprises considered oflesser importance aregranted income taxreductions. SUDENE 'sfocus is
onthepromotion ofagriculture under irrigation aswellasmanufacturing andtourism projects.
According toBrazil 'sWTO notifications onsubsidies, fiscal incentives granted under theSUDENE
scheme amounted toUS$60 million in1995, while those under SUDAM reached US$69 million.
(b) FINAM andFINOR
69. Resources from theAmazon Investment Fund (FINAM) andtheNortheast Investment Fund
(FINOR) havebeenavailable since1975tofirms thatelaborate, establish oroperate investment projects
considered ofimportance forthedevelopment oftheNortheast andAmazon regions. Benefits take
theform ofloans granted bytheBanco daAmazônia (BASA) andtheBanco doNordeste doBrasil
(BNB) through theunderwriting ofdebentures, convertible ornotintoshares, issued bythebeneficiary
enterprises.Conversiononlyoccursafteroperationscommence,inconformitywithrulesandprocedures
setbytherelevant regional development administration or,inthecaseofconversions intopreferential
shares without voting rights, inaccordance withtheBrazilian Corporate Law.
70. Funds fortheFINAM andFINOR programmes arelinked toa24percentincome taxdeduction
granted toinvestments intheregion; under thescheme, thedeductible amount mustbeinvested through
FINAM orFINOR inprojects approved bySUDAM orSUDENE, ortotheirownpreviously approved
projects. FINAM orFINOR resources mustrepresent between 40and50percentofaproject 'stotal
fixed investment, afterdeduction ofother financing. Theschemes areadministered bySUDAM and
SUDENE, which mustauthorize therelease ofthefunds heldbyBASA andBNB. TheFederal Revenue
Secretariat oftheMinistry ofFinance isresponsible formanaging therelated taxcollection.Brazil WT/TPR/S/21
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71. Priority activities include agriculture andcattle breeding, agro-industry, tourism, fishing,
afforestation orre-afforestation, energy, transportation andcommunications. Finance isavailable for
infrastructure, machinery andequipment, technology, soilpreparation, seeds andseedlings, planting
andanimals. According toBrazil 'sWTO notifications onsubsidies, benefits granted in1995 under
theFINOR andFINAM programmes amounted toUS$326 million andUS$225 million, respectively.
(c) Other regional assistance
72. Programmes toassist thesocial andeconomic development ofthenorth, northeast andmidwest
regions havebeeninplace since 1989 through theso-called Constitutional Funds (Law No.7827 of
27September 1989, regulating Article 159oftheConstitution). Thethree Constitutional Financing
Funds -fortheNortheast (FNE), fortheNorth (FNO) andfortheMidwest (FCO) -offerlong-term
financing ofactivities thatconform toregional development plans. Brazil 'sWTO notifications on
subsidies show thatthetotal1995budget forthethreefunds reached US$811 million, US$487 million
corresponding toFNE andtherestsplitbetween theother twofunds.
73. Responsibility fortheConstitutional Funds lieswith theDeliberative Council ofthe
Administration forDevelopment oftheNorth, Northeast andMidwest Regions andthreebanks (BASA
forthenorth region, BNB forthenortheast; andBanco doBrasil forthemidwest). TheCouncil
ischarged withapproving thefinance programmes, ensuring theircoherence withthoseofotherregional
development institutions, andevaluating programme results. Thebanks manage thefunds, define norms
andoperational procedures, andareaccountable fortheuseofresources.
74. TheNational Development Bank supports regional development through threemainschemes.
TheCompetitive Northeast Programme seeks toexpand BNDES 'sactivities intheareaofthenortheast
region andthestateofMinas Gerais covered bySUDENE. Theprogramme wascreated in1993and
extended forthree more years withanenlarged budget ofR$2.5 billion; itprovides support forfixed
investment, working capital andother pre-operational activities inallsectors. TheIntegrated Amazon
Programme seeks toencourage theregion 'scloser integration withthedomestic andglobal economies;
theprogramme covers selected activities, butplans areinprogress toexpand ittoallareas supported
byBNDES. TheProgramme forthePromotion andReconversion oftheSouthern HalfofRioGrande
doSulaimstoaccelerate anddiversify theeconomic baseinthemunicipalities located inthetargeted
area; abudget ofR$250 million overthree years hasbeenallocated. Additional resources maybe
made available forinfrastructure projects undertaken incollaboration withtheprivate sector.
(iv) Adjustment assistance
75. Theprevious Secretariat report indicated thatthere werenospecific programmes topromote
structural adjustment. However, conscious ofshort-term problems caused byeconomic liberalization
incertain sectors, theGovernment hassought tohelpfirms adapt tothenew, more competitive
environment. Tothatend,fiscal incentives havebeengranted toreduce investment costs through
Provisional Measures Nos. 1251 and1272 (section (i)above).
76. Efforts havealsobeenmade toincrease thecompetitiveness offirms byimproving theefficiency
ofservices, particularly transport services where theprivatization ofports, road, andrailroads isin
progress. Moreover, programmes havebeenestablished toincrease labour flexibility, notably through
better basicandprofessional education, andtoraiseproductivity andproduct quality toenable Brazilian
products tocompete more effectively ondomestic andworld markets. Suchprogrammes include the
Brazilian Design Programme andtheBrazilian Quality andProductivity Programme (PBQP), thelatter
comprising bothsectoral andregional sub-programmes. TheMinistry ofLabour alsohasinplaceWT/TPR/S/21
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anumber ofprogrammes topromote labour mobility through training andretraining ofthelabour force,
while theMinistry ofScience andTechnology runstheEducation forCompetitiveness Programme
(PROEDUC) tohelpfinance training bycompanies.
(v) Assistance forresearch anddevelopment
77. Research anddevelopment have hadamajor, direct impact onthepattern ofagricultural
production through thedevelopment ofkeycrops (notably soybeans) aswellasthrough yieldandsoil
improvement. Themain impetus forsuchwork hascome from theBrazilian Agricultural Research
Corporation (EMBRAPA -BoxV.4)
BoxV.4: Research anddevelopment inagriculture
The Brazilian Agricultural Research Corporation (EMBRAPA) isapublic organization under the
Ministry ofAgriculture. EMBRAPA maintains some 40research units throughout theBrazil and
employs about 9,900 workers, ofwhich 2,200 areresearch scientists; associated State research
institutions employ some 2,300 additional researchers.
EMBRAPA co-ordinates theCooperative Agricultural Research System (SCPA). Specialized agencies
include theNational Council forScientific andTechnological Development (CNPQ), acommission for
research anddevelopment inthecocoa industry (CEPLAC), andafinance agency targeting mainly
university research (FINEP). Thelatter includes theNational Fund forTechnological andScientific
Development (FNDCT) andtheTraining Program inScientific andTechnological Research Management
(PROTAP) thattogether account forsome 4percentoftotal agricultural research expenditure..
EMBRAPA 'sannual budget hasremained generally steady inthe1990s, atjustover US$400 million,
having peaked atabout US$575 million in1982. However, overall research expenditure inthe
agricultural sector hastended tofallsince 1990, asshown below:
Year Expenditure (US$ million, constant 1994 prices)
Total EMBRAPA
1990 710 415
1991 716 486
1992 595 362
1993 665 423
1994 597 402
1995 582 424
78. Inrecent years, expenditures onagricultural research andextension services havetended to
fall,reflecting budget constraints andlower contributions tothose services bybothStateandFederal
Governments. Tooffset suchconstraints, EMBRAPA ismaking efforts toincrease private sector
participation through complementary development projects, particularly those aimed atsustainable
increases inoutput. Theauthorities consider thatbasic research andprojects related tosubsistence
andsmall-scale farming arelikely toremain theexclusive domain ofthepublic sector.
79. Ininformation processing, theInformatics Lawmade fiscal incentives conditional onfirms
using atleast5percentofrevenues fromdomestic salesinresearch anddevelopment activities inthe
sector ofwhich atleast2percentmust involve brazilian research institutions (section (i)above).
Research anddevelopment arealsopromoted through programmes insupport oftechnological trainingBrazil WT/TPR/S/21
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inindustry (partofPACTI) andthrough thetechnological capacitation programme oftheNational
Development Bank.
80. Thepackage ofincentives andfederal financing forresearch anddevelopment under discussion
inCongress atthetimeoftheprevious TPRofBrazil resulted intheadoption ofLawNo.8661 on
2June1993. Thislaw,regulated byDecree No.949of5October 1993, grants fiscal incentives to
encourage research anddevelopment inindustrial andagricultural industries covered bydevelopment
programmes; suchincentives have beenavailable since January 1994. They include income tax
deductions forexpenditures inresearch anddevelopment, exemption fromtheIndustrial Products Tax
(IPI)forcapital goods usedinresearch, theaccelerated depreciation ofequipment andinstruments
usedinresearch, accelerated amortization ofnon-tangible goods usedinresearch, reduction inthe
taxonfinancialoperationsrelatedtooverseasroyaltypayments,guaranteedforeignexchangeavailability
forroyalty payments, andthepossibility ofdeducting technical assistance byresearch institutes asan
operational expenditure. Some doubts havebeenraised about theeconomic justification oftheincentives
granted, especially inrelation tothedevelopment stage ofresearch anddevelopment.10
(3) Trade-Related Aspects ofIntellectual Property Rights (TRIPS)
81. Brazil isafounding member oftheParis andBerne Conventions andhasadhered totheir
Stockholm (1992) andParis (1975) revisions; ithasalsoadhered to,interalia,theRome Convention
andthePatent Cooperation Treaty. Brazil applies noderogations inrelation toanyofthose agreements.
TheWTO Agreement onTrade-Related Aspects ofIntellectual Property Rights hasbeenincorporated
intoBrazil'sdomesticlegislationthroughLegislativeDecreeNo.1355of30December1994;intellectual
property regulations arebeing reformulated inviewofthatAgreement.
82. Brazil approved anewIndustrial Property Lawon14May1996, LawNo.9279/96, covering
thegranting ofpatents ofinvention andofutility models, registration ofindustrial designs, registration
oftrademarks andrepression offalsegeographical indications andunfair competition. LawNo.9279
entered intoforcefromMay1996withregard topipeline protection foranumber ofproducts including
pharmaceuticals andfoodsubstances, aswellastheirrespective processes (Articles 228and229);
other sections ofthelawwillcome intoforce oneyearafterpublication (i.e., May1997).
(i) Administrative procedures
83. TheNational Institute ofIndustrial Property (INPI) wasestablished in1970toimplement norms
onindustrial property, having regard fortheirsocial, economic, legalandtechnical functions. The
Institute ischarged withtheadministration ofregulations onindustrial property andtechnology transfer;
ithastechnical divisions dealing withpatents, trademarks, technology transfer, andtechnological
informationanddocumentation.UntilDecember1993,technologytransfercontractshadtoberegistered
withINPI, including those between foreign andBrazilian companies; technical orscientific assistance
contracts between Brazilian firms didnotrequire registration.
84. INPIisincharge ofreceiving patent applications forinventions inthefieldofpharmaceutical
andagrochemical products, inaccordance withArticle 70:8oftheWTO TRIPS Agreement (concerning
thefiling ofpatent application forsuchproducts where patent protection forthem isnotavailable on
thedateofentry intoforce oftheAgreement). LawNo.9279extends patentability toalltechnological
10Meyer-Stamer (1995), p.23.WT/TPR/S/21
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areasfromMay1997, which willcover applications under Article 70:8; thenewlawalsogrants pipeline
protection from May1996 andapplicants under Article 70:8mayoptforsuchprotection.
85. Patents must befiledinaccordance withinternational documentation standards (which may
include anabstract, description oftheinvention, claims, anddrawings). Under thenewindustrial
property law,theprocedures forthegranting ofpatents havebeensimplified andtheadministrative
costsfortheconcession ofpatents reduced. Patents aremade public afteran18-month secrecy period,
applicants orthirdparties having therighttorequest anexamination during thefollowing 24months,
extended to36months under thenewlaw.Allowance ismade forpre-grant objections which arethen
followed byanexamination. Pre-grant appeals maybemade byapplicants orthirdparties. After-grant
administrative procedures areavailable tovoidpatents; suchprocedures maybeusedduring oneyear
afterapatent isgranted, orsixmonths under thenewlaw. Judicial procedures tovoidapatent may
bebrought before thecourts during thepatent 'svalidity period.
86. Theauthoritieshaveindicatedthatpatentapplicationsnowinvolveprocessingperiodscomparable
withthose inmostcountries inwhich detailed investigations areundertaken; anydelays inthegranting
ofpatents were duetoadministrative factors (e.g., staffshortages andcomputerization) rather than
tothelegal system. They alsonoted thatpatent validity andassociated rights begin atthetimean
application islodged.
87. Registration oftrademarks follows procedures similar tothose forpatents, except asregards
thesecrecy andsubsequent examination periods. Fortrademarks, filing isfollowed bypublishing to
determine anypre-grant objections; anexamination isalways conducted, leaving openthepossibility
ofapre-grant appeal. After-grant procedures todeclare atrademark nullmaybeutilized during the
sixmonths following agrant. Judicial procedures tovoidatrademark maybeusedwithin fiveyears
afterregistration. Noregistration isrequired forcopyright andrelated rights.
88. Asinthecaseofpatents, thenewIndustrial Property Lawestablishes simplified procedures
fortheregistration oftrademarks. Upon publication oftheapplication, thelawstipulates a60-day
period during which pre-grant opposition ispossible. INPI isthentoconduct anexamination; if
approved, aCertificate ofRegistry istobeissued, establishing theownership ofthetrademark.
Administrative post-grant procedures todeclare aregistration nullmaybepresented within 180days
oftheregistration. Judicial reviews ofthegrant maybebrought within fiveyears afterregistration.
(ii) Protection ofintellectual property rights
89. Inthepast,regulationsonintellectualpropertywereusedtosupportthedevelopmentofdomestic
industries under theimport-substitution strategy adopted byBrazil. Protection ofintellectual property
rights werebalanced against thedesire tosupport thisstrategy. Thisissuggested bytheearlier reluctance
toextend patent protection tochemicals andpharmaceuticals, a15-year period ofpatent validity, limited
protection toforeign trademarks (especially "well-known" marks) andINPIdirect involvement inthe
negotiation ofcontracts fortechnology transfer.11Thelackofpatent protection forchemicals and
pharmaceuticals laybehind anumber oftrade problems withtheUnited States.12Thede-emphasis
onimport substitution hasbrought changes toalign theprotection ofintellectual property rights with
thesystems adopted byBrazil 'smajor trading partners. Theapproval ofthenewIndustrial Property
11VazeDias (1993), pp.244-257.
12GATT (1992). Brazil 'sapproval ofanewindustrial property lawhasledtoitbeing moved from theU.S.
Special 301"priority watch list"tothe"watch list".Brazil WT/TPR/S/21
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Lawandcomplementary initiatives inotherfields ofintellectual property (e.g., software, plantvarieties,
integrated circuits) should complete thisprocess.
(a) Patents
Provisions under thecurrent legislation
90. LawNo.5772/71 protects patents andindustrial designs. Patents aregranted protection for
aperiod of15years inthecaseofinventions and10years forutility models, which aredefined as
"new forms thatbring abetter usetoanobject". Besides general non-patentable creations (e.g., those
against public morals orwhich mayaffect atomic structures) other non-patentable products include
chemicals, pharmaceuticals andfoodstuffs.
91. Holders offoreign patents mayfileapplications foracorresponding patent inBrazil under
theterms oftheParis Convention; priority periods oftwelve months aresetforpatents ofinventions
andutility models, andsixmonths forindustrial designs andmodels. Patents mustbeeffectively worked
inBrazil toremain valid. Patents elapse if,having beentheobject ofcompulsory licensing, commercial
useisnotinitiated within fouryears afterapatent certificate isissued oruseisinterrupted fortwo
years; thesameoccurs iftherequired annuities arenotpaidtoINPI, orifthepatent isadministratively
cancelled orjudicially annulled.
92. Patents maybesubject tocompulsory licensing, buttheauthorities pointed outthatonlysix
cases hadbeenbrought before theAdministration inthelastfiftyyears, withnonegranted. They also
noted thatArticles 70:8and70:9oftheTRIPS Agreement wereinforce inBrazil, allowing forthe
filing ofpatents bothforpharmaceutical products andprocesses, aswellasfortherequest ofexclusive
rights forproducts thatfulfiltheconditions setforthinthose articles; related administrative procedures
didnotyetappear tohavebeenestablished inmid-1996.
Provisions under LawNo.9279
93. LawNo.9279/96 grants patent protection toinventions for20years from thedateoffiling
andfor15years toutility models. Restrictions found intheindustrial property lawof1971regarding
thepatentability offoodstuffs andpharmaceutical products andprocesses, andofproducts obtained
through chemical processes have been eliminated inthenewlegislation. Besides thegeneral
non-patentablecreationsreferredtoabove,livingbeingsinwholeorpartarenotpatentableasinventions,
except forcertain transgenic micro-organisms.
94. Patents confer ontitleholders therighttoprevent thirdparties fromproducing, using, offering
forsale,selling, orimporting without consent theproducts covered bythepatent, oraprocess orproduct
obtained directly byapatented process. Title holders have theright toindemnity forimproper
exploitation ofthepatented object, including forexploitation occurring between thedateofpublication
oftheapplication andthedateofgranting thepatent.
95. Apatent application filedinacountry having anagreement withBrazil, orinaninternational
organization which hastheeffect ofnational filing istohavethepriority rightwithin thetimelimits
established intheagreement. Apatent shalllapse ontheexpiry ofitsprotection period, renunciation
byitsholder (subject totherights ofthirdparties) orasaresult ofnon-payment oftheannual fee.
96. Within ayearoftheentry intoforce ofthenewIndustrial Property Law, applications may
befiledforpatents ontheitems mentioned intheintroduction tosection (3)above byanyagent withWT/TPR/S/21
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protection guaranteed inatreaty orconvention inforce inBrazil; thedateofthefirstapplication filed
inaforeign country isguaranteed. Protection willbeprovided iftheitemhasnotbeenplaced onany
market byadirect initiative ofthetitleholder orbyathirdparty withtheholder 'sconsent, andno
effective preparations fortheexploitation oftheitemorthepatent havebeenmade bythirdparties
within Brazil. Apatent granted onthebasisofsuchprovisions shall, fromthedateoffiling inBrazil,
beentitled totheprotection period remaining inthecountry inwhich thefirstapplication wasfiled.
97. Under thenewLaw, patents aresubject tocompulsory licensing if,forexample, holders abuse
theirrights ortheireconomic power, asdetermined byadministrative orjudicial decision. Compulsory
licences mayalsobegranted iftheobject ofthepatent isnotmanufactured inBrazil, or,inthecase
ofprocess patents, hasnotbeenusedinthecountry, except ifthisisuneconomic. Compulsory licences
willnotbegranted iftitleholders havelegitimate reasons nottoexploit thepatent, prove thateffective
preparations havebeenmade forexploitation, ordemonstrate thatthefailure tomanufacture orsell
wasduetoanobstacle ofalegalnature.
(b) Copyrights
98. Copyrights receive protection under theconcept ofauthor 'srights andareprotected byLaw
No.5988/73. Protection derives fromtheactofcreating thework ofart,registration being optional,
and,withcertain exceptions allowed under theBerne Convention, lastsforthelifeoftheauthor plus
thelifetime ofdescendants oraperiod of60years afterthedeath oftheauthor, whichever islonger.
99. Computer software receives protection under LawNo.7646 of18December 1987. The
authorities indicated thatthemain differences between thislawandgeneral regulations under Law
No.5988/73 are:(i)a25-year protection period counted fromthedateofpublication orfirstuseand
(ii)registration allows maintaining software components secret attherequest oftheapplicant. Foreign
software isprotected inBrazil onlyifitscountry oforigin grants Brazilian nationals orresidents the
same rights. The1992 Secretariat report described other aspects ofLawNo.7646, andpointed out
thatthelawhadresulted inconsiderable dissatisfaction.
100. Independently ofcopyright protection, themarketing ofsoftware inBrazil issubject toprior
registration withtheInformatics Policy andAutomation Secretariat (SEPIN). Registration ofsoftware
developed byforeign firms isgranted onlywhen nosimilar software hasbeendeveloped inBrazil.
However, theauthorities noted thattheapplication ofthesimilarity testwasfalling intodisuse and
thatdraftlegislation under consideration inmid-1996 would formally eliminate it.
(c) Trademarks
Provisions under thecurrent legislation
101. InBrazil, theprotection oftrademarks stems fromtheirregistration inthecountry, although
protection ofnon-registered trademarks isavailable incertain cases. Foreign trademarks areregistered
under theterms oftheParisConvention, theauthorities having indicated that,inpractice, Brazil grants
protection toallforeign applicants regardless oftheexistence ofreciprocity. Anexclusive priority
period ofsixmonths isestablished fromthedateofapplication inthecountry oforigin. Besides securing
theprotection ofintellectual property rights, registration inBrazil makes itpossible tocollect royalties
forthelicensing ortransfer ofthetrademark. However, royalties maynotbecollected forlicensing
agreementsbetweenaforeigncompanyanditsBrazilianbranches.Bylaw,thegoodsorservicescovered
byatrademark must berelated tothebusiness ofthetrademark 'sowner.Brazil WT/TPR/S/21
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102. Trademark protection isgranted forextendable periods oftenyears. Atrademark lapses if
itisnotusedforthree years. There isnospecific protection forBrazilian geographical indications;
noindications,includingappellationsoforiginandindicationsoforigin,mayberegisteredastrademarks.
103. INPI'sNormative ActNo.115of1993regulates franchising andtheregistration offranchising
contracts. Agreements withforeign franchisers mustbeapproved bytheINPIbefore registration at
theCentral Bank (Resolution No.35/92); thelatter isneeded toobtain approval fortheremittance
offeesandroyalties.
Provisions under LawNo.9279
104. Under thenewLawNo.9279, distinctive visually perceptive signs areeligible forregistration
asproduct, service, collective orcertification trademarks. Well-known trademarks aretoreceive special
protection regardless offiling orregistration inBrazil. Trademark applications filedincountries with
agreements withBrazil orfiledwithinternational organizations withtheeffect oflocalfiling areentitled
topriority.
105. Titleholders aregranted theexclusive useoftheirtrademarks throughout theentire Brazilian
territory andhavetherighttoassign theirregistration, license theiruseandwatch overtheirmaterial
integrity orreputation during thetermofvalidity. Titleholders orregistration applicants license the
useofatrademark without prejudice totheirrights toexercise actual control overspecifications, nature
andquality oftheproduct orservice. Theregistration ofamark willbevalid fortenyears fromthe
dateofgrant, andmaybeextended forequal successive periods ifrequested.
106. Trademarkregistrationmaythroughexpirationofthetermofvalidity,renunciationorforfeiture.
Forfeiture maybedeclared through requests made fiveyears afteragrant byparties withalegitimate
interest iftheuseofthetrademark hasnotbegun inBrazil oritsusehasbeeninterrupted formore
thanfiveconsecutive years; noforfeiture shalloccur iftheholder proves thatreasonable grounds existed
forfailure tousethemark.
107. Protection under thenewlawextends togeographical indications andtheirgraphic orfigurative
representation. Such representation isdefined asthegeographic name ofacountry, city,region or
locality thathasbecome wellknown asacentre fortheextraction, production ormanufacturing of
aproduct orforproviding aservice (indication oforigin), aswellasaproduct oraservice whose
qualitiesorcharacteristicsaredueexclusivelyoressentiallytothegeographicenvironment(denomination
oforigin). Ageographical name isnottobeconsidered ageographical indication ifithasfallen into
common usetodesignate aproduct orservice.
(iii) Initiatives onintellectual property
108. Inmid-1996, abillonauthors 'rights, redrafting Articles 94and98ofLaw5988/73, wasunder
examination inCongress withaview toconforming Brazilian copyright legislation totheTRIPS
Agreement. Ageneral reform ofBrazil 'sauthors 'rights legislation isbeing proposed pending
developments under theDiplomatic Conference ofWIPO (tobeheldinDecember 1996). Abill
establishing suigeneris protection fornewplant varieties, inaccordance withthe1978 Convention
ontheUnion fortheProtection ofNewVarieties ofPlants (UPOV 78),hasalsobeenpresented to
Congress, aswellasabillrelating totheprotection ofintegrated circuits.
109. ASpecial Commission wascreated in1990 topropose reforms totheSoftware Law. Atthe
timeoftheprevious TPRofBrazil, Congress wasdiscussing proposals toeliminate themostrestrictiveWT/TPR/S/21
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aspects oftheregulations. Adraftlawpresented toCongress inMarch 1995wasunder consideration
bytheSenate inearly 1996. Theauthorities indicated thatthedraftlawincorporates theresults of
theUruguay Round negotiations, revoking therestrictive trade measures ofthepresent law; thenew
lawwould protect software asaliterary work andterminate registration requirements, thesimilarity
test,andmandatory licensing.
(iv) Suppression ofintellectual property rights violations
110. Legal measures against infringements areanintegral partofBrazil 'sintellectual property laws
andthecorresponding regulations. Procedures areestablished intheCivil Procedure Code andthe
Penal Procedure Code. According totheauthorities, allmeasures provided forintheenforcement
section oftheTRIPS Agreement areavailable inBrazil, except formeasures suchasinjunctions that
donothaveadirect counterpart intheBrazilian legalsystem.
111. Asinother countries, software piracy isaproblem inBrazil. Quantifying theextent ofpiracy
isdifficult andindustry estimates tendtooverstate theproblem;13according todatafromtheBusiness
Software Alliance, which groups theworld 'smajor software producers, in1995 thesaleofillegal
software products inBrazil reached US$800 million outofapotential market ofUS$1,025 million.
Other reports claim thatpiracy ofvideo cassettes, sound recordings andmusical compositions andbooks
isalsosignificant.14
112. Thenewlegislation fortheprotection ofindustrial property rights contains measures toreinforce
thelegal protection ofsuchrights. Measures include amore precise description ofillicit actions,
increased finesandimprisonment periods forcriminal acts,andmore specific rulesforthecalculation
oflosses anddamages incivilcases. Sanctions range fromtento365penalty-days inaccordance with
methods defined inthePenal Code. Regardless ofanycriminal action, injured parties mayfilecivil
actions according totheCode ofCivil Procedure.
13Thismayoccur, forexample, buyconsidering allestimated pirated copies aslostsales ofthefull-priced
original product, whereas thesame number ofcopies maynotbedemanded atthefullprice.
14U.S. Trade Representative (1996).