PRESS RELEASE
PRESS/TPRB/45
24 October 1996 Brazil's
reforms promote economic gains but implementation of trade policy remains complex Back to top
Brazil's trade reforms have been a key
element behind its economic gains since 1992. Emphasis on autonomous trade liberalization,
even before the conclusion of the Uruguay Round, allowed Brazil to make deep cuts in
tariff rates, to eliminate most of its non-tariff measures and to make specific
commitments in the area of financial services. However, since 1994, Brazil's trade policy
choices have become more complex and trade practices appear less transparent.
According to a new WTO report on Brazil's trade
policies and practices, a major achievement has been the reduction of inflation from an
annual rate of nearly 2,500 per cent in 1993 to some 20 per cent in early 1996. This was
achieved in large part through the implementation of Brazil's new stabilization programme,
the Plano Real, introduced in mid-1994. The WTO report and one prepared by the
government of Brazil, will be the subject of two days of discussion at the Trade Policy
Review Body of the WTO on 30 and 31 October 1996.
Although economic activity has recovered, growth
remains constrained by high, albeit falling, real interest rates linked to tight monetary
policies. Improved economic performance, greater price stability and high interest rates
have resulted in a strong inflow of foreign capital and a considerable accumulation of
international reserves. However, concurrent current account and merchandise trade deficits
raise the possibility of an overvalued exchange rate. The report notes that this would be
consistent with the sharp increase in imports since 1994 and a loss of export dynamism,
which form the backdrop for recent moves to restrict selected imports and support exports.
The report states that these measures suggest a lapse in implementation rather than a
policy reversal.
Under its tariff reform programme, Brazil's average
applied tariff dropped from 21.2 per cent in January 1992 to 14 per cent in July 1993 and
now stands at 12.5 per cent. Although the adoption of MERCOSUL'sSee footnote 1 Common External Tariff (CET) on 1 January
1995 was a decisive step in the process of regional integration, the CET did not bring
about improvements in Brazil's national tariff structure.
According to the report, the structure is relatively
complex, with several variable exemptions from the CET, subject to a process of
convergence through to the year 2006. Furthermore, frequent tariff adjustments give an
appearance of uncertainty to Brazil's trade and investment regime.
Economic reforms have been accompanied by
liberalizing changes in Brazilian laws, including the elimination of the concept of
"Brazilian company of national capital" and the opening of a number of strategic
areas to private and foreign participation. Under Brazil's privatization programme, the
number of state enterprises has been reduced to 147. The government has withdrawn from the
steel, fertilizer, petrochemicals and aircraft industries, and in 1995 it extended the
privatization programme to the electrical, supply, financial, railways and mining sectors.
Nevertheless, the Government is still an important supplier of services, including
banking, insurance, transport, telecommunications and electricity. Although foreign
participation in key service sectors has historically been restricted, efforts are
underway to liberalize foreign investment in several such activities.
According to the report, Brazil's use of trade
remedy measures increased during the 1992 to 1995 period, when 66 anti-dumping cases
(mainly on chemical and mineral products) and 13 countervailing investigations (on
agricultural goods) were initiated. In mid-1996, 25 anti-dumping and seven countervailing
actions were in force, and in June 1996 Brazil used its new safeguards legislation to
provide protection to its toy industry. Since 1992, Brazil has been involved in a number
of consultations and panel reviews within the GATT/WTO framework regarding the application
of its anti-dumping and countervailing regulations. However, new legislation in these
areas should help Brazil adapt to the more stringent conditions for anti-dumping and
countervailing measures contained in the WTO Agreements.
Exports of sugar and ethyl alcohol are limited by
taxes to ensure the internal market supply. Export taxes also apply to raw hides and
skins. Tax exemptions are used to offset costs imposed on exporters by the complex system
of Federal and State taxes. The report states that tax and duty exemptions and reductions
for inputs to export industries (to be phased-out by 1999) have provided major benefits to
exporters, particularly in the automotive sector. Other efforts to promote exports have
involved export finance programmes aimed at offsetting inefficiencies in the Brazilian
financial system, and the use of export performance requirements.
The automotive industry is the most highly assisted
manufacturing activity in Brazil, with effective protection estimated at over 250 per
cent. According to the report, Brazil is a large net exporter of vehicles, its motor
industry achieving record production levels in 1995. Investment plans for the automotive
industry in 1995 amounted to some $10 billion. Tariffs on motor vehicles were increased
from 20 per cent in 1994 to 70 per cent in March 1995. Under the automotive régime
introduced in mid-1995, the industry benefits from tariff exemptions, combined with
local-content and export balancing requirements. Following the introduction of such a
régime, imports from countries other than MERCOSUL partners fell sharply. In 1996, a
certificate of compliance with Brazilian standards became mandatory to obtain an import
licence for motor vehicles. Required modifications must be made in the country of
manufacture.
Although the textiles and clothing industry has
internationally competitive enterprises, import competition has led to the closing of
numerous small and medium-size producers. As import barriers have come down, imports of
textiles and clothing have increased, growing fourfold between 1991 and 1995. As a result,
credit terms became a consideration in the granting of licences for textile imports. In
May 1996, under the provisions of the WTO Agreement on Textiles and Clothing, transitional
safeguard quotas were introduced on certain textiles.
The report states that in the past, Brazil's
regulations on intellectual property were a source of friction with certain trading
partners but that under the TRIPS Agreement Brazil's intellectual property regulations are
being reformulated. A new Industrial Property Law was approved in May 1996 covering, among
other areas, pipeline protection, the granting of patents of invention and of utility
models, registration of industrial designs and trademarks and repression of false
geographical indications.
In its conclusions the report states that greater
co-ordination, transparency and a more measured response to requests for assistance from
specific sectors would help Brazil translate its stated commitment to free trade into
actions more clearly consistent with its development needs and with a stronger
multilateral trade system. The report identifies Brazil's current challenges as ensuring
the continuity of the more open, lower-inflation environment while preserving external
balances, achieving the rapid economic growth required to absorb an expanding labour
force, and resisting pressure to reverse the reform process.
Notes to Editors:
The WTO Secretariat's report, together with a
report prepared by Brazil, will be discussed by the WTO Trade Policy Review Body (TPRB) on
30 and 31 October 1996.
The WTO's TPRB conducts a collective evaluation of
the full range of trade policies practices of each WTO member at regular periodic
intervals and monitors significant trends and developments which may have an impact on the
global trading system.
The two reports, together with a report of the
TPRB's discussion and of the Chairperson's summing up, will be published in due course as
the complete Trade Policy Review of Brazil and will be available from the WTO Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of
Brazil's trade policies, including domestic laws and regulations, the institutional
framework, trade policies by measure and by sector. Since the WTO came into force, the
"new areas" of services trade and trade-related aspects of intellectual property
rights are also covered. Attached are the summary observations from the Secretariat and
government reports. Full reports will be available for journalists from the WTO
Secretariat on request.
Since December 1989, the following reports have been
completed: Argentina (1992), Australia (1989
& 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon
(1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990 & 1996), Costa
Rica (1995), Côte d'Ivoire (1995), Czech Republic (1996), Dominican Republic (1996),
Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana
(1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993),
Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993),
Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico
(1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway
(1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993),
Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South
Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996),
Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992
& 1994), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe
(1994).
The
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: BRAZIL
Report by the Secretariat Summary Observations
Introduction
Brazil has made considerable progress in dealing
with some of the economic constraints it faced in the early 1990s: principally, in
restoring growth and confidence in the economy and lowering inflation. Since economic
growth resumed in 1993, the economy has proved resilient to external shocks and foreign
capital has flowed copiously into the country. Trade liberalization, privatization, the
gradual opening of key activities to foreign investment, and general deregulation are
creating an increasingly competitive economy. The process should be further aided by
continuing microeconomic and fiscal reforms. Today's challenge is to ensure the continuity
of the more open, lower-inflation environment and preserve external balances, while
achieving the rapid economic growth required to absorb an expanding labour force, and to
resist pressure to reverse the reform process.
Economic environment
Brazil's major macroeconomic achievement in recent
years has been the reduction of inflation from an annual rate of nearly 2,500 per cent in
1993 to some 20 per cent in early 1996. This was achieved in large part through the
implementation of a new stabilization programme, the Plano Real, introduced in
mid-1994. Real GDP growth recovered to 5.8 per cent in 1994, although there has since been
a slowdown. Economic growth remains constrained by high, albeit falling, real interest
rates linked to tight monetary policies. Fiscal deficits require attention both on the
revenue and the expenditure side.
High interest rates, combined with improved economic
performance, intensified privatization efforts, and greater price stability have resulted
in a strong inflow of foreign capital and a considerable accumulation of international
reserves, whose composition has also varied. Concurrent current account and merchandise
trade deficits have led some observers to suggest that the real effective exchange rate
(REER) is overvalued. Certainly, there was a sharp appreciation of the REER in 1994, when
the new currency, the real, was introduced, but there has been a progressive
depreciation since then. The possibility that the REER has been overvalued would be
consistent with the sharp increase in imports since 1994 and a loss of export dynamism,
which form the backdrop for recent moves to restrict selected imports and support exports.
Trade and Investment Policy Framework
Since the last review, the structure of trade policy
formulation in Brazil has undergone major changes. In late 1992, the Ministry of Economy,
Finance and Planning was divided into three Ministries: (i) Planning and Budget, (ii)
Finance, and (iii) Industry, Trade and Tourism. In 1995, the Chamber of Foreign Trade,
consisting of the main economic ministries and agencies, was created to formulate and
evaluate policies, co-ordinate activities related to foreign trade and serve as a
discussion forum for the public and private sectors.
The gradual process of reforming Brazil's legal
framework has continued. In 1995, constitutional amendments approved by Congress
eliminated the concept of "Brazilian company of national capital" and opened a
number of strategic areas to private and foreign participation. Adoption of implementing
regulations is now in progress.
Brazil's emphasis on autonomous trade liberalization
before the conclusion of the Uruguay Round allowed it to offer deep cuts in its bound
tariff rates, as well as elimination of most non-tariff barriers to trade. Brazil also
made specific commitments in the area of financial services and is actively participating
in the basic telecommunications negotiations. New regulations have been introduced to
facilitate the implementation of WTO commitments, including in the areas of safeguards and
industrial property. The authorities consider that Brazil's concessions in this Round were
not fully matched by certain major trading partners.
While the WTO provides the main framework for
Brazil's general trade relations, efforts have also been focused on the completion of
MERCOSUL, which is becoming the cornerstone of Brazil's trade agreements with other
countries and groups within Latin America and beyond. Brazil is also actively
participating in negotiations to establish a Free Trade Area for the Americas.
Trade Measures Directly Affecting Imports
Under the tariff reform programme, Brazil's average
applied tariff dropped from 21.2 per cent in January 1992 to 14 per cent in July 1993 and
now stands at 12.5 per cent. Tariff dispersion and escalation were also reduced. The shift
to the Common External Tariff (CET) of MERCOSUL did not lead to any major changes:
Brazil's national tariff structure remains relatively complex, with several, variable
exemptions from the CET, subject to a process of convergence through to the year 2006;
such exemptions have allowed frequent ad hoc tariff changes to protect particular
products or to control domestic prices.
While the binding of Brazil's entire tariff schedule
in the Uruguay Round negotiations will, over time, provide greater security of access, the
stability of commitments has been reduced by the fact that the vast majority of bindings
are higher than applied rates; bindings are generally at a ceiling rate of 35 per cent for
manufactures and 55 per cent for agriculture. The authorities are committed not to apply
the CET in those cases where the common rate might exceed Brazil's binding commitments. On
the other hand, tariff exemptions are still actively used to allow duty-free import of
inputs and capital goods; particularly important are the exemptions granted to the
automotive industry.
Many technical changes have occurred in trade
regulations;
- steps have been taken to
simplify trade procedures and further improvements are expected with the imminent
implementation of a new computerized import system.
- minimum import prices for
customs valuation purposes.
- Criteria established in
1994 for motor vehicles require the use of factory list or published second-hand prices,
although Brazil does not apply minimum import prices for customs valuation purposes.
- Changes affecting the
licensing régime since 1992, including reducing licence validity periods from 90 to 60
days and eliminating licence extensions, suggest departures from the general rule that
imports are subject to automatic licences, mainly for statistical purposes. Limits on
credit terms have also become a consideration in the granting of licences for textile
imports.
- Many changes have also been
made to the development and administration of standards, testing and certification since
1992. Although regulations require ISO methodology for certification to be adopted, they
also prescribe the priority use of Brazilian norms; compulsory certification is restricted
to products or services that may affect health, safety or the environment.
- Modifications to
health-related legislation over the last four years aimed to establish an up-to-date
product safety system and pre-empt possible difficulties for Brazilian animal products in
foreign markets. New phytosanitary rules, covering some 100 agricultural products, were
expected to come into force in early 1996. Work was also in progress to broaden the number
of technical rules to prevent contaminating substances in imported food products, in
particular wheat. Brazil has signed or is negotiating bilateral phytosanitary agreements
with a number of countries.
Brazil's use of contingency measures has increased,
with 66 anti-dumping cases (mainly on chemical and mineral products) and 13 countervailing
investigations (on agricultural goods) initiated between 1992 and 1995. In mid-1996, 25
anti-dumping and seven countervailing actions were in force. Since 1992, Brazil has been
involved in several consultations and panel reviews within the GATT/WTO framework
regarding the application of its anti-dumping and countervailing regulations. However, the
introduction of new anti-dumping, countervailing and safeguard legislation together with
the restructuring of related administrative arrangements, should help Brazil adapt to the
more stringent conditions for anti-dumping and countervailing measures contained in the
WTO Agreements.
Up to June 1996, Brazil had never used Article XIX
of the GATT relating to emergency action on imports of particular goods. In that month,
provisional safeguard measures, in the form of a supplement to the CET increasing import
taxes from 20 to 70 per cent, were adopted to protect the toy industry. In May 1996, under
the provisions of the WTO Agreement on Textiles and Clothing, transitional safeguard
quotas were introduced on certain textiles.
Trade Measures Directly Affecting Exports
Export procedures and the processing of export
documentation has been improved since the last review, with the introduction of the
computerized information system, SISCOMEX, in 1993.
Tax exemptions are used to offset costs imposed on
exporters by the complex system of Federal and State taxes. The need for a comprehensive
overhaul of the internal taxation system is recognized but has faced political and
constitutional obstacles. Under the BEFIEX programmes, tax and duty exemptions and
reductions for inputs to export industries have provided major benefits to exporters,
particularly in the automotive sector. New benefits under these programmes were suspended
in 1990 and the phase-out of existing concessions should be completed by 1999. There have
been no major changes to the duty drawback system.
Other efforts to facilitate exports have involved
export finance programmes aimed at offsetting inefficiencies in the Brazilian financial
system. Support for exports of merchandise and services is available through the Export
Financing Programme (PROEX). Although interest rates are pegged to LIBOR, the rate
equalization mechanism provides a subsidy to Brazilian exports as the Government pays the
difference between the interest charged and the cost of raising funds. The National
Development Bank (BNDES) operates the Finance Programme for Exports of Machinery and
Equipment (FINAMEX), offering financing facilities for exports of capital goods and
equipment.
Export performance requirements are used in the
BEFIEX programmes, while company mergers have sometimes been made conditional on
commitments to direct production to export markets. Export performance requirements are
also used in connection with the tariff reductions granted to the automotive industry.
Fiscal incentives for non-Brazilian firms in the informatics industry are linked to both
export and trade-balancing programmes.
Exports of sugar and ethyl alcohol are limited by
taxes to ensure the internal market supply. Export taxes also apply to raw hides and
skins. Export quotas apply to sawn wood from species under environmental control. Brazil
maintains export restraint arrangements under the WTO Agreement on Textiles and Clothing
(ATC) with Canada, the European Union and the United States. Export controls also apply in
support of United Nations resolutions and the CITES.
Measures Affecting Production and Trade
The opening of the economy and greater reliance on
market mechanisms is making competition laws increasingly important and placing greater
demands on the agencies responsible for the administration of such laws. Recent steps
apparently strengthening such agencies and streamlining merger procedures should help
increase competition in the domestic market.
State enterprises came to play a central rôle in
Brazil's economic life under the former import substitution strategy; reducing such
involvement faced a number of political, legal and constitutional obstacles, but
considerable progress has been made. Under the Brazilian Privatization Programme (PND) the
number of State enterprises has been reduced to 147 and the State has withdrawn from the
steel, fertilizer, petrochemicals and aircraft industries. In 1995, the PND was extended
to include the electrical supply, financial, railways and mining sectors.
Price controls still affect certain public tariffs
and fares (e.g. for electricity, water and telephone services), as well as various fuels.
Price controls related to the sugar-alcohol programme involve an estimated R$1.9 billion
in annual transfers.
The main pillars of the minimum price policies for
agricultural products remain the Federal Government Acquisition Programme (AGF), which
gives farmers the option of selling their products to the Government at a fixed minimum
price, and the Federal Government Loans Programme (EGF), under which farmers receive
financing to stockpile their products. Such policies have undergone no major modifications
during the past four years, although operational changes have resulted from falling public
funding. These changes include raising real interest rates for the programme to positive
levels, making use of financial markets for funding, as well as the implementation of an
options system to supplement minimum prices.
Pending the introduction of new local-content
regulations, the Basic Productive Process (PPB) concept is one of the criteria used to
determine whether a product may be considered Brazilian. The PPB requires firms to
undertake locally, agreed manufacturing steps for specific products; it is mostly used in
relation to production of electronic products in the Manaus Free-Trade Zone. In other
cases, a 60 per cent benchmark is used, alone or in combination with the PPB, when
local-content requirements are involved (e.g., for export finance and special credit
programmes). Rubber consumers must use 44 per cent of domestic rubber, while certain
fiscal incentives in the informatics industry are linked to minimum local-value-added
requirements; local-content requirements also apply in the automotive sector.
Brazil was not a signatory to the GATT Government
Procurement Code and has not signed the Plurilateral Agreement on Government Procurement.
Public works, purchases and services must be generally contracted through a public
tendering process in which the main criterion for awarding contracts is lowest price;
local preferences previously applied appear to have lost most of their practical
significance. Government policy is to promote the purchase of domestically produced
informatics and telecommunications goods.
Fiscal incentives are widespread. At the Federal
level, incentives include exemptions and reductions in income, production, sales and
import taxes in the northern and Amazon areas. Machinery and equipment benefit from tax
exemptions and accelerated depreciation schemes. Fiscal incentives at the state and
municipal levels include sales, property and other taxes and fees.
The National Development Bank (BNDES) continues to
be one of the few domestic sources of long-term funds; it places emphasis on commercial
criteria for lending. BNDES operates the Special Agency for Industrial Financing (FINAME)
to finance the purchase of Brazilian-made capital goods, including by foreign buyers; it
also offers sector-specific credit programmes, including to the steel, footwear and
textile industries. Interest rates, defined for each programme, appear to be set at levels
comparable to market rates. Credit programmes are also offered by regional and State
development banks; development financing is also granted by commercial State banks. The
rural sector benefits from numerous credit schemes, including a compulsory system whereby
commercial banks must make available to rural borrowers a certain proportion of their
daily balances. Many such programmes appear to involve subsidized interest rates.
Regional development is promoted through federal and
BNDES programmes as well as by the use of free-trade zones. By far the most important of
these zones is the Manaus Free-trade Zone, from which practically all the production is
destined for the Brazilian domestic market.
In the past, Brazil's regulations on intellectual
property were a source of friction with certain trading partners. Under the TRIPS
Agreement, Brazil's intellectual property regulations are being reformulated. A new
Industrial Property Law was approved in May 1996 covering, among other areas, the granting
of patents of invention and of utility models, registration of industrial designs and
trademarks and repression of false geographical indications. Provisions concerning
pipeline protection entered into force from May 1996, while other sections will come into
force in May 1997.
Trade Policies and Practices in Non-Service
Industries
The adaptation of agriculture to Brazil's trade
liberalization and macroeconomic adjustment programmes was made particularly difficult by
the sector's historically high indebtedness, compounded by the impact of recent high
interest rates. The Government considers one of its major tasks to bridge the gap between
arrangements adopted under previous development models and current economic realities.
No major changes appear to be required for Brazil to
meet its engagements under the WTO Agreement on Agriculture. Applied import duties on most
agricultural goods are below average; such duties are also substantially below bound
levels, but peak tariffs are imposed on a few products, including garlic and canned
peaches. There is concern in Brazil about imports of agricultural products whose prices
are depressed by subsidies in exporting countries; Brazil has stated that it will not
import subsidized wheat for example. Steps are being taken to lower the high tax incidence
on rural exports. Negotiations are in progress to harmonize and co-ordinate agricultural
policies and trade defence instruments within MERCOSUL.
Besides border measures, the principal instruments
affecting the agricultural sector are minimum-price supports and subsidized rural credit.
Official credit programmes have played a major rôle in agriculture since the mid-1960s,
particularly through the compulsory application system. Loans financed directly by the
Government account for the largest share of rural credit operations but have fallen in
recent years. Rural credit supports relatively few products, mainly soybeans, sugar cane,
corn, rice and cotton. The authorities agree that greater efficiency in the provision of
rural credit requires general liberalization of the financial sector and reducing the
segmentation of credit markets.
Close to 70 per cent of Brazil's sugar-cane
production is now used for the production of alcohol under the National Alcohol Programme
(PROALCOOL). However, market conditions have changed dramatically since PROALCOOL was
initiated in the mid-1970s and the programme is currently highly subsidized. The industry
was in transition in early 1996, awaiting the liberalization of sugar and alcohol prices
in January 1997 and the impending Government decision on future policies towards
PROALCOOL; indications were that the programme would be maintained, perhaps in modified
form, for environmental reasons.
Brazil is the world's second largest wheat importer,
the Government having abandoned the previous goal of self-sufficiency. Buying and selling
of wheat was privatized in 1990 and Banco do Brazil no longer participates in this
activity. Until 1994, Brazil maintained a special arrangement with Argentina for the
importation of wheat, covering two million tonnes a year. Brazil has eliminated a tariff
quota under which the tariff for wheat was reduced to zero on an annual quota of 750,000
tonnes.
Brazil is a large producer of gemstones and several
major industrial minerals. Nevertheless, mineral resources remain under-exploited. This is
in part the result of past policies, in particular provisions in the 1988 Constitution
restricting foreign participation in mining operations. The removal in 1995 of such
restrictions is expected to promote renewed interest in the sector. Constitutional changes
have also made it possible for the Federal Government to engage private companies in the
exploration and extraction of petroleum and natural gas, petroleum refining, import and
export of refined petroleum products, and the maritime transport of hydrocarbons. The
required regulations were sent to Congress in July 1996.
Manufacturing was the main beneficiary of government
support under the earlier import-substitution strategy; the overall average applied tariff
is 12.9 per cent but there is still considerable disparity, with downstream industries
continuing to benefit from substantial tariff escalation. The sector has come under
particular pressure in recent years, linked to the trade liberalization in 1992-94 and the
real appreciation of the currency in 1994; export performance has been uneven, while
strong domestic demand has resulted in rising imports for many manufactures particularly
motor vehicles, textiles and clothing.
The automotive industry is the most highly assisted
manufacturing activity in Brazil, with effective protection estimated at over 250 per
cent. At the same time, Brazil is a large net exporter of vehicles. Brazil's motor
industry achieved record production levels in 1995, even while imports were growing
strongly, and in the first months of 1996. Following the introduction of trade measures in
mid-1995, imports from countries other than MERCOSUL partners fell sharply. Investment the
automotive industry has been high during the 1990s; investment plans announced in 1995
amounted to some US$10 billion.
Tariffs on motor vehicles were increased from 20 per
cent in 1994 to 70 per cent in March 1995. Under the automotive régime introduced in
1995, the industry also benefits from tariff exemptions, combined with local-content and
export balancing requirements. In 1996, a certificate of compliance with Brazilian
standards became mandatory to obtain an import licence for motor vehicles; any required
modifications must be made in the country of manufacture.
Quantitative limitations on imports of passenger
cars were in force between June and October 1995. Brazil initially sought to justify these
import restrictions under the balance-of-payments provisions of the GATT. Consultations
with Brazil in October 1995 led the WTO Committee on Balance-of-Payments Restrictions to
conclude that such measures were not justified; the measures were withdrawn with effect
from 27 October 1995. In March 1996, Brazil requested a waiver from the provisions of the
TRIMs Agreement in respect of its automotive régime. The request was withdrawn in May
1996. Japan and the United States have requested consultations under WTO dispute
settlement procedures, supported by Canada, the European Union and Korea.
The auto-parts industry is likely to be a major
beneficiary of the automotive régime introduced in 1995. The non-electrical machinery
industry was also likely to be supported by the régime, as automotive parts manufacturers
comprise its largest single customer group.
The privatization programme for iron and steel,
initiated in early 1990, is now largely completed. Profits and investment have increased
substantially. Between 1992 and 1994, Brazilian and Argentinian steel makers maintained a
production-sharing arrangement.
The textiles and clothing industry has a number of
large, technologically up-to-date, internationally competitive enterprises producing
mainly cotton textiles and garments. However, as import barriers have come down, imports
of textiles and clothing have increased, growing fourfold between 1991 and 1995. Import
competition has led to the closing of numerous small and medium-size producers of man-made
fibre fabrics, where technological obsolescence appears to be a major problem. In May
1996, safeguard quotas were introduced covering synthetic textiles and shirts imported
from China, Hong Kong, Korea, Chinese Taipei and Panama.
Competition from Asian countries, particularly
China, in the footwear industry is of major concern to Brazilian producers, although
Brazil remains a net exporter of footwear and travel goods. Raw hides and skins are
subject to an export tax of 9 per cent.
Services
Inefficiencies in the services sector, particularly
financial services, port handling and telecommunications have imposed severe constraints
on other areas of the economy. Restructuring during the 1990s has produced considerable
gains in some areas, and further progress is expected with the completion of the legal
reforms begun earlier in the decade.
The State is still an important supplier of
services, including banking, insurance, transport, telecommunications and electricity,
although the current privatization programme is reducing such involvement. Foreign
participation in key service activities has historically been restricted, but efforts are
under way to liberalize foreign investment in activities such as banking, insurance and
telecommunications.
Under the Constitution, all public
telecommunications services fall under the control of State enterprises. Partial
liberalization of such services is seen as a way to provide for the sector's large
investment requirements and to enhance competition. A constitutional amendment has opened
the possibility of greater private participation in the sector; new regulatory and pricing
structures are under study to prepare for the possible privatization of the
State-controlled telecommunications system; the National Congress is considering a bill to
relax restrictions on foreign participation in cellular telephone, and satellite and
value-added services. Brazil is a full participant in the negotiations on basic
telecommunications; by and large, Brazil's offers in these negotiations reflect changes
already made or proposed to the regulatory framework.
Brazil has a large and diversified banking system
but foreign participation is modest, and limited under the Constitution. Except in
connection with the privatization programme, there is no market access guarantee for the
establishment of new branches and subsidiaries of foreign banks, or for increases in
foreign participation in established firms. Foreign branches in Brazil are limited to the
number existing on 5 October 1988. Foreign banks are only allowed to acquire branches of
other foreign banks and to open a new branch, must close an existing one.
Brazilian banks benefited for many years from high
inflation: they were able to earn high yields on non-interest-bearing deposits such as
demand deposits and resources in transit, which tended to compensate for administrative
inefficiencies. Adjustment to the new environment of lower inflation and positive real
interest rates has put banks under pressure to cut costs and diversify into new
activities. Despite serious problems, most analysts agree that Brazil's private bank
sector remains solid and that the stability of the largest institutions forms a buffer
against a systemic crisis.
The insurance market has expanded rapidly since 1994
and the achievement of a more stable economic environment. The Brazilian insurance market
is served by some 122 companies and a government-controlled monopoly re-insurer. Several
foreign insurers have ownership interest in Brazilian insurance companies but
foreign-controlled firms account for only some 10 per cent of total premiums.
Under the Constitution, foreign access to Brazil's
insurance market is relatively restricted. The incorporation of new branches and
subsidiaries of foreign insurance companies, as well as increases in the percentage of the
participation of foreign persons and firms in the capital stock of Brazilian insurance
institutions with headquarters in Brazil is not permitted. Imports may only be insured
with companies established in Brazil; exports must be insured in Brazil when the sale
includes the insurance cost.
New foreign capital was authorized in health
insurance in 1996. Insurance regulations under consideration by the National Congress
would extend foreign participation in the sector, change authorization and operational
rules as well as capitalization and private pension schemes, and could establish an
indemnification fund to protect insured parties against the liquidations of insurers.
Foreign enterprises may not administer or operate
airports or provide navigation and air traffic services; however, they may operate other
auxiliary services for their own benefit. Authorization to operate air services is granted
only to legal persons with headquarters in Brazil, fourth-fifths of voting rights in
Brazilian hands and under Brazilian management. Cabotage services are reserved to national
companies. The principle of reciprocity is the basis of Brazil's international bilateral
agreements in the air transport sector.
The 1988 Constitution gave Brazilian shipowners
priority for maritime transport services and imposed constraints on foreign nationals
employed in the sector. A 1995 constitutional amendment eliminated restrictions and
reduced previous requirements in the transport sector, in particular maritime navigation;
the required implementing regulations is under consideration by Congress. Brazil is not a
party to the United Nations Convention on a Code of Conduct for Liner Conferences, but it
maintains cargo-sharing agreements with seven countries. The maritime transport of cargoes
of public entities and goods benefiting from fiscal or credit official programmes must
also be transported in Brazilian flag vessels, although waivers may be granted under
certain circumstances. Petroleum and petroleum products must be transported by national
flag vessels.
Brazil and international trading partners
The completion before schedule of Brazil's trade
reform programme has been a key element in its economic gains since 1992. However, the
reform process has faced more complex challenges since 1994 and policy directions have
become less clear. Thus, although the adoption of MERCOSUL's Common External Tariff in
January 1995 was a decisive step in the process of regional integration, the CET has not
brought about improvements in Brazil's national tariff structure; frequent tariff
adjustments give an appearance of uncertainty to the trade and investment régime. A
series of potentially trade distorting measures taken since 1995 stand in sharp contrast
to Brazil's general record of reform, but the context suggests lapses in implementation
rather than a policy reversal.
Greater co-ordination, transparency and a more
measured response to requests for assistance from specific sectors would help Brazil
translate its stated commitment to free trade into actions more clearly consistent with
its development needs and with a stronger multilateral trade system. Brazil's economy
stands to benefit from the strengthened trade rules and import liberalization measures
established under the WTO provisions.
Government
report Back to top
TRADE POLICY REVIEW BODY: BRAZIL
Report by the Government
The Economic and Trade Environment
Since the first TPR (1992) the Brazilian economy has
changed significantly. This change has been driven in large measure by a broad economic
stabilization program put into force in July 1994 -the Real Plan.
The Real Plan is built on a series of previously
achieved reforms, including the opening of the economy, the deregulation and
liberalization of the exchange market and the normalization of relations with the
international financial community.
As a result, the Real Plan has brought inflation
rates to the lowest levels in the last 35 years. In the 12 months prior to the Real Plan,
the General Price Index (GPI) increased by 5,000 per cent (five thousand per cent); in
1995, annual rates came down to 14.8 per cent, and this year the GPI is expected to
increase by 10 per cent. It is important to stress that this sharp and continuous drop in
inflation has been achieved in the absence of price or wage freezes, breaches of contracts
or recession.
The Real Plan has been undertaken through three
basic elements, a monetary reform including the creation of a new currency (the
"Real"), the elimination of indexation in contracts - including wages and
exchange rate - and a greater reliance on market mechanisms. The increase in interest
rates and the contraction of credit experienced initially have more recently been reversed
as the Plan evolves and matures.
The Brazilian Government is focusing its attention
on the need to improve its fiscal situation and, in the medium run, on the reform of the
role of the State in the economy.
Concerning the restructuring of the role of the
State in the economy, in 1995, the Brazilian Congress approved a series of Constitutional
Amendments. First of all, the more flexible rules for the State monopoly of the petroleum
sector will allow the Government to contract private enterprises for the exploration and
exploitation of petroleum and natural gas deposits and will lift restrictions on the
importation of oil and its derivatives as well as refining and transportation. Secondly,
with the liberalization of the telecommunications sector, the Government will be able,
through public concessions, to contract private companies to operate telephone, telegraph
and other communication services. Finally, another two major changes have been approved.
The first one eliminated the "erga omnes" discrimination against foreign
capital, by lifting the previous distinction between Brazilian firms of national capital
and other Brazilian firms; and, the second eliminated market reserve for national-flag
ships in the coastal and inland cabotage.
Alongside Constitutional reforms, the Government is
accelerating the privatization programme. The steel and petrochemical sectors have already
been privatized. The programme has now entered a new phase with the creation of
appropriate conditions for private investment and expansion in public services, such as
electrical energy, water, gas and transportation.
Regarding the trade environment, the Government has
complied with its commitment towards an increasing degree of exposure of local producers
to foreign competition. Recent growth in imports has no precedent in the Brazilian
economic history. In the last three years, imports grew, as stated before, by 150 per
cent, from US$20 billion to US$50 billion.
The strong demand for imports resulting from the
implementation of the Real Plan generated monthly trade deficits beginning in November
1994 and reaching a total of US$3.2 billion by 1995.
In summary, the trade flow of goods increased from
US$56 billion in 1992 to US$96 billion in 1995, at an annual rate of 20 per cent, a higher
rate than the increase in world trade at the same period. If the flow of services is added
to the flow of goods, the relevant figure for 1995 was US$134 billion. The openness of the
economy, measured as the relation between trade flows and GDP, grew from 12.5 per cent, in
1992, to 17 per cent this year.
The increased demand for capital goods and raw
materials can be translated as the resumption of investment and the improvement in
Brazil's productive capacity. The amount of foreign direct investment (FDI) received; by
the Brazilian economy this year will be a historical record, reaching around US$8 billion.
Trade Policy Developments 1992-1996
Since the first TPR (1992) significant progress has
been made in Brazil's trade regime. Thus, the autonomous trade liberalization programme
which started in 1990 was completed on schedule, in July 1993. The trade liberalization
programme (1990-mid-1993) led to the lifting of import prohibitions and to the elimination
of non-tariff barriers. Likewise, import tariffs were substantially reduced with the
average import duty falling from 32.2 in 1990 to 14.2 per cent in 1993. Following the
establishment of the Mercosul Customs Union, the average import tariff was further reduced
to 12.6 per cent. The maximum tariff came down from 105 per cent, in 1990, to 32 per cent
beginning on 1 January 1996 (excluding a few items like automotive vehicles and home
appliances).
(i) The Uruguay Round
The Brazilian Government has consistently
implemented the results of the Uruguay Round and believes strongly in the new and improved
structure of the multilateral trading regime, as embodied in the provisions that created
the World Trade Organization. Particular attention has been paid in Brazil to
improvements, agreed during the Uruguay Round, in areas as diverse as dispute settlement,
anti-dumping and countervailing duties and safeguards.
(ii) Regional integration
Alongside its commitment to overall economic
liberalization, Brazil has pursued the deepening of economic integration at the regional
and sub-regional levels. From a geographic perspective and taking advantage of existing
economic complementarities with neighbouring countries, Brazil's goal has been to foster
convergence and development through further trade liberalization within the continent.
This strategy, however, should not be interpreted as
a setback in Brazil's traditional approach to trade multilateralism. As a truly global
trader, Brazil has consistently pursued open regionalism and has strongly defended full
compatibility with the WTO agreements of disciplines negotiated under any regional
framework.
(iii) Mercosul
The Brazilian trade with other Mercosul countries
grew from US$3.64 billion in 1990, the year prior to the signing of the Asunción Treaty,
to US$12.97 billion in 1995, the first year of the Customs Union operations. This growth
of intra-zone trade of over 250 per cent between 1990 and 1995 occurred, in the case of
Brazil, in tandem with a substantial growth in total foreign trade, which grew by 85 per
cent during the same period, from US$52 billion in 1990 to US$96 billion in 1995.
Mercosul has been complying with its obligations
under the WTO Agreements, with all relevant information having being properly notified.
(iv) Intellectual property
In line with its commitments under the TRIPS
Agreement, Brazil approved new Industrial Property Legislation, on 14 May 1996, covering
the granting of patents for invention, for utility models, registration of industrial
designs and of trade marks, repression of false geographical indications and unfair
competition.
(v) Foreign trade barriers
Although Brazil has committed itself to a
comprehensive programme of trade liberalization the growth rate of its exports is far
lower than that of its imports. To a large extent, the situation may be explained by the
existence of barriers of several sorts to country's exports.
The impact of this situation can be clearly shown
through the following figures which compare Brazilian trade flows of 1995 to the numbers
of the previous year, for three major trading partners (the EU, Japan and the United
States): comparing 1995 to 1994, the increase in Brazilian imports from these partners was
as high as 50 per cent, 42 per cent and 55 per cent, respectively. However, the increase
in Brazilian exports to these partners amounted to only 6 per cent in the case of the
European Union, 20 per cent in the case of Japan and as far as the United States are
concerned, there was even a decrease of 2 per cent. The overall figure shows an increase
of around 50 per cent in imports, against merely 7 per cent in exports, in the same
period.
(vi) Commitment to trade liberalization
With trade liberalization, Brazil is reducing the
previous anti-export bias that characterized the inward-looking model of import
substitution.
The Federal Government is addressing a series of
public policy issues in the area of foreign trade with the objective of further reducing
the anti-export bias and of fostering the generation of income and employment.
The Federal Government is also in the process of
implementing a series of measures in the fields of infrastructure, taxes, deregulation,
the financial sector and labour relations.
The liberalization process undertaken since 1990 is
irreversible. The difficulties found in some sectors to adjust themselves not only to the
most significant market opening in Brazilian history but also to the most encompassing and
profound stabilization plan ever implemented in the country, in no way affect Brazil's
commitment to trade liberalization and greater interdependence, what has been evidenced by
the country's active participation in the WTO, during these nearly two years of existence
of the organization. Back to top
Footnote:
1 MERCOSUL'S Members include: Argentina, Brazil, Paraguay and Uruguay |