USTR - 1996 National Trade Estimate-Brazil
Office of the United States Trade Representative

 

1996 National Trade Estimate-Brazil

In 1995, the U.S. trade surplus with Brazil was $2.6 billion, a shift from a $540 million deficit in 1994. U.S. merchandise exports to Brazil were $11.4 billion, up $3.3 billion or 41 percent from 1994. Brazil was the United States' fourteenth largest export market in 1995. U.S. imports from Brazil totaled $8.8 billion in 1995, up only 1.2 percent from 1994.

The stock of U.S. foreign direct investment in Brazil was $19 billion in 1994, an increase of 12.8 percent over that in 1993. Principal sectors of U.S. investment in Brazil are manufacturing, finance and banking.

IMPORT POLICIES

The process of trade liberalization initiated in 1990 has produced significant changes in Brazil's trade regime, resulting in a more open and competitive economy. Imports have increased as a result of generally lower tariffs and reduced non-tariff barriers, as well as the strength of the Brazilian currency relative to the dollar. Imports are composed of a wide range of industrial, agricultural and consumer goods. Despite restrictive measures adopted during 1995 to slow mounting trade deficits -- measures which the Brazilian government maintains are temporary -- access to Brazilian markets in a significant number of sectors is generally good, and most markets are characterized by competition and participation by foreign firms through imports, local production and joint ventures.

Some sectors of the economy, such as the telecommunications, petroleum, and electrical energy sectors, are still dominated by the government, which limits trade, investment and procurement opportunities. However, these sectors are beginning to be opened to competition. The federal government privatized one electric company in 1995 and plans to privatize another in 1996. A number of the states are now preparing to privatize their electric companies as well. The Brazilian Congress approved constitutional amendments eliminating the government monopoly in the petroleum and telecommunications sectors in 1995. The degree of openness depends on implementing legislation and regulations, which have not yet been introduced.

Although import licenses are required for virtually all products, import licensing generally does not pose a barrier to U.S. exports. In most cases, import licenses are used primarily for statistical purposes and are issued automatically within five days. However, obtaining an import license in some instances can pose a barrier. For example, the Brazilian Government has refused to grant an import license for lithium for over two years. In January 1992, a standard import license fee of approximately $100 replaced a 1.8 percent ad valorem fee.

The Secretariat of Foreign Trade's computerized trade documentation system (SISCOMEX), when fully operational, should further streamline the filing and processing of import documentation.

Tariffs

Tariffs, in general, are the primary instrument in Brazil for regulating imports. As of November 1994, the average tariff was 11.3 percent. The maximum tariff level in Brazil is 70 percent, down from 105 percent in 1990.

In response to an import surge and resulting large monthly trade deficits in late 1994 and early 1995, in March 1995 the Government significantly raised import tariffs on a range of consumer durable goods, including automobiles, motorcycles and shoes. The new tariff levels, as high as 70 percent on some products, were supposed to be temporary and only in effect until April 1996. However, there have been indications that the higher tariff levels will be maintained. As Brazil is currently phasing down its tariff binding levels as required by the WTO, these rates will have to be lowered periodically to remain within WTO bindings. The tariff increases did not affect capital goods which constitute approximately 40 percent of U.S. exports to Brazil. In June 1995 the Government imposed quotas on the importation of automobiles, and announced investment incentives for domestic auto production. The quota regime was eliminated in October after the WTO balance of payments committee rejected Brazil's justification of the quotas on balance of payments grounds. The Government issued revised regulations establishing investment incentives for the automobile sector in December 1995 and has indicated it intends to seek a waiver in the WTO for this new regime. The new auto investment regime does not appear to conform to Brazil's WTO obligations.

Brazil and its Southern Common Market (MERCOSUR) partners, Argentina, Paraguay and Uruguay, implemented the MERCOSUR common external tariff (CET) on January 1,1995. The CET currently covers approximately 85 percent of 9,000 tariff items; most of the remaining 15 percent will be covered by 2001, and all will be covered by 2006. The CET levels range between zero and 20 percent, with the exception of tariffs on telecommunications equipment, computers, some capital goods, and products included on Brazil's national list of exceptions to the CET, such as shoes, automobiles and consumer electronics. For products covered by the CET, the maximum Brazilian tariff is now 20 percent; the most commonly applied tariff is 14 percent.

The United States signed a trade and investment framework agreement with this emerging common market in 1991. At the request of the United States and other WTO member countries, the members of MERCOSUR also agreed to the formation of a WTO working party to examine the emerging MERCOSUR. The first meeting of the working party took place in October 1995 and a second meeting is scheduled for May 1996. The United States will continue to encourage the reduction of barriers to trade and investment, including tariffs and the creation of a customs union that is open and consistent with the WTO, specifically GATT Article XXIV.

Phytosanitary barriers

Barriers to U.S. agricultural products mainly take the form of sanitary and phytosanitary measures. Brazil prohibits the entry of poultry and poultry products from the United States, alleging lack of reciprocity. Brazil prohibits the importation of beef from cattle treated with anabolic steroids; however, beef imports, including from the United States, have been allowed on a waiver basis since 1991.

Brazil adopted the harmonized phytosanitary standards of the Southern Cone Phytosanitary Committee (COSAVE), composed of Argentina, Chile, Brazil, Paraguay and Uruguay, on January 1, 1996. U.S. exporters encountered difficulties during 1995 and early 1996 as Brazil implemented a number of the new regulations with insufficient advance notification. The United States is negotiating with Brazil to enable the U.S. to meet new import requirements established by the new regulations for agricultural products.

GOVERNMENT PROCUREMENT

The federal, state and municipal governments, as well as related agencies and companies, follow a "Buy National" policy. Brazil permits foreign companies to compete in any procurement-

related multilateral development bank loans and opens selected procurement to international tenders. Given the significant influence of the state-controlled sector due to its large size, discriminatory government procurement policies are, in relative terms, a substantial barrier to U.S. exports. For example, discriminatory government procurement practices exist in the telecommunications, computer, and computer software sectors and foreign companies with production facilities in Brazil still receive preferential treatment in government procurement decisions.

To the extent that the privatization program in Brazil continues, and non-discriminatory policies are adopted, U.S. firms will have greater opportunities in Brazil. Implementation of the constitutional amendments passed in 1995 opening the state telecommunications, petroleum, and natural gas distribution monopolies to private, including foreign, participation may also ease some of the barriers currently faced by foreign suppliers. However, foreign companies with production facilities in Brazil would still receive preferential treatment in government procurement decisions.

Law Number 8666 of 1993, covering most government procurement except for informatics and telecommunications, requires non-discriminatory treatment for all bidders, regardless of nationality or origin of product/service. However, regulations introduced in late 1993 allow consideration of non-price factors and give preferences to telecommunications, computer, and digital electronics goods produced in Brazil, and stipulate local content requirements for eligibility for fiscal benefits. Decree 1070 of March 1994, which regulates the procurement of informatics and telecommunications goods and services, requires federal agencies and parastatal entities to give preference to locally-produced computer products based on a complicated and non-transparent price/technology matrix. Bidders that meet one or more of the criteria for preferential treatment -- Brazilian-owned company, Brazilian technology or products, minimum local value-added content -- are allowed up to a 12 percent price differential over other bidders.

It is not possible to estimate the economic impact of these restrictions upon U.S. exports. However, free competition could provide significant market opportunities for U.S. firms. In particular, greater private sector participation in the telecommunications sector would greatly expand U.S. service and equipment suppliers' access to this large market.

The United States seeks adoption of competitive procurement procedures, elimination of any measures favoring domestic producers, and provision of predictable, nondiscriminatory treatment for U.S. suppliers in Brazil's government procurement.

EXPORT SUBSIDIES

The Brazilian Government offers a variety of tax and tariff incentives to encourage export production and the use of Brazilian inputs in exported products. Several of these programs have been found to be countervailable under U.S. countervailing duty law in the context of specific countervailing duty cases. Incentives include tax and tariff exemptions for equipment and materials imported for the production of goods for export, excise and sales tax exemptions on exported products, and excise tax rebates on materials used in the manufacture of exported products. Exporters enjoy exemption from withholding tax for remittances overseas for loan payments and marketing as well as from the financial operations tax for deposit receipts on export products. Exporters are also eligible for a rebate on social contribution taxes paid on locally-acquired production inputs.

An export credit program, known as PROEX, was established in 1991. PROEX is intended to equalize domestic and international interest rates for export financing. Revisions to PROEX were announced in late 1995. The revisions expanded the size of the program and authorized coverage of additional export sectors. The initial budget for PROEX in 1996 was set at USD 344 million. Since most large Brazilian exporters borrow abroad against future receipts at international rates much lower than prevailing Brazilian rates, the expansion of the program is not expected to be of great significance.

INTELLECTUAL PROPERTY RIGHTS BARRIERS

Brazil's current regime for the protection of intellectual property rights is inadequate. Serious gaps exist in current statutes with regard to patent protection for pharmaceuticals, chemicals, and biotechnological inventions; trademarks and trade secrets; and copyrights. The Brazilian Government has made a commitment to bring its intellectual property regime up to the international standards specified in the Uruguay Round Trade Related Aspects of Intellectual Property (TRIPS) Agreement. The industrial property bill recently passed by the Brazilian Senate and currently pending before the Chamber of Deputies would address many of the deficiencies in the current law on patents, trademarks and trade secrets. A bill to improve copyright protection for computer software programs was approved by the Chamber of Deputies in January 1996 and is currently pending approval by the Senate. Legislation designed to improve protection of copyrights, lay-out designs of integrated circuits, and plant varieties is also being drafted by the executive branch for submission to Congress.

Patents

Brazil does not provide either product or process patent protection for chemical compounds, foodstuffs, or chemical/pharmaceutical substances. Product protection is not available for metal alloys or for new uses of products including species of microorganisms. Brazil's National Institute of Industrial Property (INPI) has not issued a patent for a biotechnological invention.

The industrial property bill pending before the Chamber of Deputies would recognize the first four of these categories and extend the term for product patents from 15 to 20 years. The Brazilian Government has supported amendments to the bill which would bring its provisions largely into conformity with the provisions of the TRIPs Agreement.

Brazil requires a patent owner to work, i.e., locally manufacture, the patented invention in Brazil. A third party may request a compulsory license if a patent owner has failed to work the patent within three years of issuance or if exploitation has been discontinued for more than one year unless working is prevented by force majeure. Patents may also be forfeited for lack of working.

The Brazilian Congress ratified the Uruguay Round Agreements, including the TRIPs Agreement, in December 1994. The United States is encouraging Brazil to follow up with improvements in its intellectual property rights regime and, pending developments, this issue will be examined again during the April 1996 Special 301 review.

Trademarks and Technology Transfer

All licensing and technical assistance agreements, including trademark licenses, must be registered with INPI. Failure to register with INPI invalidates the license, which can result in trademark registration cancellation for nonuse.

In the last four years, Brazil has moved to provide greater protection to internationally "famous" marks. The fraudulent use of such marks, which had been tolerated by the government of Brazil, has been a significant problem. However, progress has been made in this area.

Significant trademark revisions are included in the industrial property legislation pending in the Brazilian Congress. In addition, Brazil has issued new trademark guidelines designed to simplify and improve the functioning of the trademark regime.

Copyrights

Brazil's copyright law generally conforms to international standards. The 25-year term of protection for computer software falls considerably short of the Berne Convention standard of the life of the author plus 50 years. A bill designed to improve protection for computer software programs was approved by the Chamber of Deputies in early 1996 and awaits action in the Senate. The bill would extend the term of protection to 50 years, protect software programs as "literary works," and recognize exclusive rental rights. However, several provisions of the computer software bill raise concerns, especially onerous warranty requirements and restrictions on the ability of software manufacturers to limit contractual liability. The U.S. government will continue to work with Brazil to address these problems.

Enforcement of copyright laws has been lax. Current fines do not constitute an adequate deterrent to infringement. The U.S. private sector estimates that piracy of video cassettes, sound recordings, musical compositions, books, and computer software continues at substantial levels. In the last two years, enforcement of laws against video and software piracy has improved and foreign firms have had some success in using the Brazilian legal system to protect their copyrights. The Government has also initiated action to reduce the importation of pirated sound recordings and videocassettes.

Market access for U.S. computer software remains a source of concern, although it has improved. The Government of Brazil, in an effort to open the software sector, has de facto eliminated the so-called "Law of Similars" which had been used to preclude non-Brazilian software from the market if a "similar" Brazilian domestic software existed. The software copyright bill pending before the Senate would repeal the requirement that all software be registered with the Brazilian Government and the requirement that imported software be distributed by a Brazilian distributor. A significant tax on the remittances of software copyright royalties or fees, in addition to a previously-established withholding tax, which had been reimposed in 1993, was eliminated in 1994. The United States continues to push for the elimination of the remaining market access barriers for computer software. Brazil has indicated a willingness to eliminate some of these barriers.

Market access barriers also exist in the motion picture sector. These include: screen quotas for theatrical exhibition, quotas for home video distribution, required registration of production contracts with the Government of Brazil, and requirements that foreign productions undertaken in Brazil must be made under contract with a Brazilian production company. The new cable T.V. law passed January 6, 1995, contains a provision establishing a quota for domestically-produced films. Some of these restrictions may be modified by future regulations.

SERVICES BARRIERS

Restrictive investment laws, lack of transparency in administrative procedures, legal and administrative restrictions on remittances, and arbitrary application of regulations and laws limit U.S. service exports to Brazil. Service trade possibilities, particularly in the telecommunications, oil field and mining and financial industries, have been affected by limitations on foreign capital participation in many sectors. The passage of constitutional amendments eliminating the distinction between national and foreign capital; opening the state telecommunications, petroleum and natural gas distribution monopolies to private participation; and permitting foreign participation in coastal and inland shipping should ease many of the current restrictions on foreign services providers. However, the degree to which these sectors are actually opened will depend on implementing legislation, which has not yet been introduced.

Foreign companies, particularly construction engineering firms, are prevented from providing technical services in government procurement contracts unless Brazilian firms are unable to perform them. INPI, which must approve all technical service contracts, has subjected foreign companies to substantial delays.

Restrictions exist on the use of foreign-produced advertising materials. These include limits on the use of foreign film footage (two-thirds must be produced in Brazil) and sound tracks (all must be produced in Brazil), limits on foreign capital participation, residence requirements and requirements that the majority of the directors of a company must be Brazilian. Furthermore, discriminatory government procurement practices exist.

Foreign legal, accounting, tax preparation, management consulting, architectural, engineering, and construction industries are hindered by various barriers. These include forced local partnerships, limits on foreign directorships and non-transparent registration procedures. The Government of Brazil reserves the right to refuse entry of managers or executives associated with the provision of a service if they do not provide new technology, increase productivity in Brazil, or attract new investment.

The Government of Brazil discriminates against foreign firms in the insurance sector through: (1) limitation on foreign capital to 50 percent equity participation, limitation on the voting stock that foreign firms can control in an existing insurance company, insurance brokerage, or private premium fund to no more than 30 percent; (2) limitations on the entry of new firms in the sector ostensibly due to market "saturation;" and (3) forced incorporation in Brazil. The amendment eliminating the distinction between national and foreign capital should correct this discriminatory treatment. However, implementating legislation may be required before non-discriminatory rules can take effect. In addition, the Government of Brazil restricts import insurance to Brazilian firms through Resolution Number 3/71. This denies U.S. marine cargo insurers an opportunity to compete for business. Resolution Number 3/71 also requires state companies doing business with insurance brokerage firms to use 100 percent Brazilian-owned brokerages.

Brazil also maintains a monopoly in the area of reinsurance, but has indicated its intention to eliminate the reinsurance monopoly in 1996. Furthermore, the Government has granted no new authorizations to transact insurance since 1966. Requirements for withholding insurance premiums and outstanding loss reserves also expose U.S. reinsurers to serious exchange losses. Brazilian regulatory policy precludes the issuance of new licenses.

Brazil is South America's largest potential insurance market. The United States continues to seek improved market access for trade in insurance and other service industries.

INVESTMENT BARRIERS

In addition to the restrictions on services-related investments mentioned above, foreign investment faces various restrictions in petroleum production and refining, internal transportation, public utilities, media and other "strategic industries." Many of these restrictions should be reduced once the constitutional amendments passed in 1995 are implemented. Foreign ownership of land in rural areas and adjacent to international borders is prohibited. In other sectors Brazil limits foreign equity participation, imposes local content requirements, and links incentives to export performance requirements. For example, there are equity limitations, local content requirements and incentive-based performance requirements in the computer and digital electronics sector. In the auto sector, local content and incentive-based export performance requirements exist.

Foreign majority participation in direct mining operations and foreign investment in health care have been barred by Brazil's Constitution. The constitutional amendment to eliminate the distinction between national and foreign capital should eliminate these restrictions once fully implemented.

Investment restrictions have constituted an important limitation for U.S. firms seeking to conduct business in Brazil. Despite these restrictions, U.S. and other foreign first have major investments in Brazil. The United States will seek to ensure that implementing legislation for the constitutional amendments passed in 1995 will, in fact, open opportunities for U.S. business.

 
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