(2)Trade Policy and Investment Frameworkxi

BrazilWT/TPR/S/212
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WorldTrade
Organization / RESTRICTED
WT/TPR/S/212
2February 2009
(09-0400)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
BRAZIL
This report, prepared for the fifth Trade Policy Review of Brazil, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Brazil on its trade policies and practices.
Any technical questions arising from this report may be addressed to Mr.AngeloSilvy (tel: 022 739 5249), Mr. Alberto Bueno (tel: 022 739 6392), and Mr. Raymundo Valdés (tel: 022 739 5346).
Document WT/TPR/G/212 contains the policy statement submitted by Brazil.

Note:This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Brazil.

BrazilWT/TPR/S/212
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CONTENTS

Page

SUMMARY OBSERVATIONSxi

(1)Economic Environmentxi

(2)Trade Policy and Investment Frameworkxi

(3)Market Access for Goodsxii

(4)Measures Affecting Exportsxiii

(5)Other Measures Affecting Tradexiii

(6)Sectoral Policiesxiv

I.Economic environment1

(1)Overview1

(2)Output and Employment1

(3)Fiscal Policy4

(4)Monetary and Exchange Rate Policy6

(5)Balance of Payments8

(6)Developments in Trade and Investment10

(i)Developments in merchandise trade10

(ii)Trade in services11

(iii)Foreign direct investment11

(7)Outlook12

II.trade and investment policy regime13

(1)Overview13

(2)General Legal and Institutional Framework13

(3)Trade Policy Formulation and Implementation and Objectives15

(4)Foreign Investment Regime16

(5)International Relations19

(i)World Trade Organization19

(ii)Preferential agreements20

(6)Aid for Trade23

III.trade policies and practices by measure26

(1)Overview26

(2)Measures Directly Affecting Imports26

(i)Customs procedures and documentation26

(ii)Customs valuation29

(iii)Rules of origin30

(iv)Tariffs32

(v)Other charges affecting imports37

(vi)Contingency measures39

(vii)Prohibitions, restrictions, and licensing44

(viii)Technical regulations and standards48

(ix)Sanitary and phytosanitary measures53

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(3)Measures Directly Affecting Exports56

(i)Procedures and documentation56

(ii)Export taxes58

(iii)Export prohibitions, restrictions, and licensing59

(iv)Export support and related tax measures60

(v)Export finance, insurance, and guarantees63

(vi)Export promotion and marketing assistance68

(4)Measures Affecting Production and Trade69

(i)Legal framework for production and investment69

(ii)Pricing and competition policy71

(iii)State-owned enterprises, privatization, and state trading75

(iv)Incentives and other government assistance76

(v)Government procurement85

(vi)Intellectual property rights89

IV.trade policies by sector96

(1)Overview96

(2)Agricultureand Forestry96

(i)General features, policy objectives, and administration97

(ii)Border measures98

(iii)Domestic support measures98

(iv)Forestry108

(3)Mining108

(i)Main features108

(ii)Regulatory framework109

(4)Energy110

(i)Main features110

(ii)Hydrocarbons111

(iii)Ethanol113

(iv)Electricity114

(5)Manufacturing117

(6)Services119

(i)Introduction119

(ii)Financial services120

(iii)Telecommunications128

(iv)Air transport133

(v)Maritime transport and ports138

(vi)Professional services141

references145

APPENDIX TABLES151

TABLES

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I.ECONOMIC ENVIRONMENT

I.1Basic economic indicators, 2003-082

I.2Sectoral data on GDP and employment3

I.3Financial accounts of the Central Government, FY2003-085

I.4Main monetary indicators, 2003-087

I.5Balance of payments, 2003-089

II.trade and investment policy regime

II.1WTO dispute settlement cases involving Brazil, January 2004-November 200820

III.TRADE POLICIES AND PRACTICES BY MEASURE

III.1Summary analysis of the MFN tariff, 200832

III.2Structure of the tariff schedule, 200834

III.3Anti-dumping measures, 1 January 2004 to 30 October 200842

III.4Import prohibitions and licensing requirements, 200845

III.5Export taxes, 2004-0859

III.6BNDES-EXIM programmes66

III.7Principal taxes applicable to companies70

III.8Tax exemption/reduction under the SUDAM/ADA and SUDENE/ADENE programmes, 2002-0777

III.9FINOR/FINAM/FUNRES benefits, 2002-0779

III.10Constitutional fund loans, 2002-0780

III.11Manaus Free Trade Zone production, 2002-0782

III.12Scientific and technological development support funds, 200883

III.13Overview of IPR protection, 200891

IV.TRADE POLICIES BY SECTOR

IV.1Main agricultural support measures and programmes99

IV.2Rural credit, 2001-07101

IV.3Agricultural credit programmes administered by the BNDES, early 2004103

IV.4Price support programmes, 2008105

IV.5Traffic information and characteristics of Brazil's main air services agreements, end 2008136

APPENDIX TABLES

I.ECONOMIC ENVIRONMENT

AI.1Merchandise exports by group of products, 2003-07153

AI.2Merchandise imports by group of products, 2003-07154

AI.3Merchandise exports by trading partner, 2003-07155

AI.4Merchandise imports by trading partner, 2003-07156

AI.5Trade in services 2003-08157

AI.6Foreign direct investment by country of origin, 2003-07158

AI.7Foreign direct investment by sector, 2003-07159

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II.trade and investment policy regime

AII.1Status of notification requirements to the WTO, May 2004-October 2008160

AII.2Overview of Brazil's preferential trade agreements, November 2008162

IV.TRADE POLICIES BY SECTOR

AIV.1Summary of Brazil's specific commitments in individual service sectors, 2008166

BrazilWT/TPR/S/212
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GLOSSARY

Accredited sectoral standardization bodies / Organismos de Normalização Sectorial, ONSs
Additional Airport Tax / Adicional de Tarifa Aeroportuária, ATAERO
Additional Tax for the Renovation of the Merchant Marine / Adicional ao Frete para Renovação da Marinha Mercante, AFRMM
Administrative Council for Economic Defence / Conselho Administrativo de Defesa Econômica, CADE
Agri-business Development Programme / Programa de Desenvolvimento do Agronegócio, PRODEAGRO
Agriculture/Cattle Breeding Technology Development Programme / Programas de Desenvolvimento Tecnológico Agropecuário, PDTA
Airspace Control Department / Departamento de Controle do Espaço Aéreo, DECEA
Amazon Investment Fund / Fundo de Investimento da Amazônia, FINAM
Amazon Region Development Agency / Agência de Desenvolvimento da Amazônia, ADA
Amazon Region Development Authority / Superintendência do Desenvolvimento da Amazônia, SUDAM
Annual Report / Relátorio Anual
Alternative Sources of Electric Energy Programme / Programa de Incentivo às Fontes Alternativas de Energia Elétrica, PROINFA
Brazilian Aeronautic Registry / Registro Aeronáutico Brasileiro, RAB
Brazilian Association of Standards / Associação Brasileira de Normas Técnicas, ABNT
Brazilian Coffee Fund / Fundo de Defesa da Economia Cafeeira, FUNCAFE
Brazilian Electricity Regulatory Agency / Agência Nacional de Energia Eléctrica, ANEEL
Brazilian Enterprise for Airport Infrastucture / Empresa Brasileira de Infra-strutura Aeroportuária, INFRAERO
Brazilian Export Credit Insurance Company / Seguradora Brasileira de Crédito à Exportação, SBCE
Brazilian Export Promotion Agency / Agência Brasileira de Promoção de Exportações, APEX
Brazilian Foreign Trade Association / Associação de Comércio Exterior do Brasil, AEB
Brazilian Health Surveillance Agency / Agência Nacional de Vigilância Sanitária, ANVISA
Brazilian Institute of the Environment and Renewable Natural Resources / Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis, IBAMA
Brazilian Nuclear Industries / Industrias Nucleares do Brasil S.A.
Brazilian Privatization Programme / Programa Nacional de Desestatização, PND
Brazilian Reinsurance Institute, / Instituto de Resseguros do Brasil, IRB BRASIL Re
Brazilian Shipping Company / Empresa Brasileira de Navegação, EBN
Brazilian Special Export Programme / Benefícios Fiscais a Programas Especiais de Exportação, BEFIEX
Brazilian System for Protection of Competition / Sistema Brasileiro de Defesa da Concorrência, SBDC
Central Bank of Brazil / Banco Central do Brasil
Central Bank's Electronic Declaratory Registry-Foreign Direct Investment / Registro Declaratório Eletrônico - Investimento Externo Direto,RDE-IED
Central Bank Information System / Sistema de Informação do Banco Central, SISBACEN
Chamber of Foreign Trade / Cámara de Comércio Exterior, CAMEX
Civil Aviation Council / Conselho de Aviação Civil, CONAC
Commodity and Futures Exchange / Bolsa de Mercadorias & Futuros, BM&F
Competition among any interested parties / Concorrência
Competition among parties for projects / Concurso
Competitiveness Promotion Guarantee Fund / Fundo de Garantia para a Promoção da Competitividade, FGPC
Constitutional funds for financing the north-east, the north and the mid-west regions / Fundo Constitucional de Financiamento do Nordeste(FNE), Noroeste (FNO) e Centro-Oeste (FCO).
Contributionfor intervention in the economic domain / Contribução de Incidência sobre o Dominio Econômico, CIDE
Department of Commercial Defence / Departamento de Defesa Comercial,DECOM
Department of Foreign Trade / Departamento de Comercio Exterior, DECEX
Department of Sectoral Policies Management / Departamento de Gestão de Políticas Setoriais, DEGPS
Electric Energy Commercialization Chamber / Câmara de Comercialização de Energia Elétrica, CCEE
Electric System National Operator / Operador Nacional do Sistema Elétrico, ONS
Electronic Statement of Registration / Registro Declaratório Eletrônico, RDE
Energy Development Account / Conta de Desenvolvimento Energético, CDE
Environmental Tax / Taxa de Controle e Fiscalização Ambiental, TCFA
Export Financing Programme / Programa de Financiamento às Exportações, PROEX
Federal Accounting Council (CFC) / Conselho Federal de Contabilidade, CFC
Federal Government Acquisition Programme / Aquisição do Governo Federal, AGF
Federal Government Loans Programme / Empréstimo do Governo Federa, EGF
Financial Compensation for the Exploitation of Mineral Resources / Compensação Financeira pela Exploração de Recursos Minerais, CFEM
Financial System Organization Department / Departamento de Organização do Sistema Financeiro, DEORF
Financial transactions tax (IOF) / Imposto sobre Operações Financeiras, IOF
Financing of Studies and Projects / Financiadora de Estudos e Projetos, FINEP
Fruit Industry Development Programme / Programa de Desenvolvimento da Fruticultura, PRODEFRUTA
General Services System / Sistema Integrado de Administração de Serviços de Administração de Serviços Gerais, SIASG
Industrial Products Tax / Imposto Sobre Produtos Industrializados, IPI
Industrial Technology Development Programme / Programa de Desenvolvimento Tecnológico e Industrial, PDTI
Integrated Foreign Trade System / Sistema Integrado de Comércio Exterior, SISCOMEX
Inter-Ministerial Council for Sugar and Alcohol / Conselho Interministerial do Açúcar e do Álcool, CIMA
Invitation by the Administration / Convite
Inverse Auction / Pregão
Lighthouse fee / Tarifa de Utilização de FaroiS, TUF
List of Convergence for Capital Goods / Lista de Convergência de Bems de Capital, BK
List of Convergence for the Informatics and Telecommunications Sector / Lista de Convergência do Setor de Informática e Telecomunicações, BIT
Mines and Metallurgy Secretariat / Secretaria de Minas e Metalurgia, SMM
Ministerial Act / Portaria
Ministry of Agriculture, Livestock and Food Supply / Ministério da Agricultura, Pecuária e Abastecimiento, MAPA
Ministry of Development, Industry and Foreign Trade / Ministério do Desenvolvimento, Indústria e Comércio Exterior, MDIC
Monetary Policy Committee / Conselho de Política Monetária, COPOM
National Agency for Land Transport / Agência Nacional de Transportes Terrestre, ANTT
National Council of Fiscal Policy / Conselho Nacional de Política Fazendária, CONFAZ
National Council of Metrology, Normalization and Industrial Quality / Conselho Nacional de Metrologia, Normalização e Qualidade Industrial, CONMETRO
National Council of Private Insurance / Conselho Nacional de Seguros Privados, CNSP
National Department of Mining Production / Departamento Nacional de Produção Mineira, DNPM
National Development Bank / Banco Nacional de Desenvolvimento Econômico e Social, BNDES
National Environmental Council / Conselho Nacional do Meio Ambiente, CONAMA
National Federation of Insurance Services Providers / Federação Nacional das Empresas de Seguros Privados e de Capitalização,FENASEG
National Food Supply Company / Companhia Nacional de Abastecimento, CONAB
National Fund for Scientific and Technological Development / Fundo Nacional de Desenvolvimento Científico e Tecnológico, FNDCT
National Health Agency / Agência Nacional de Saúde Suplementar, ANS
National Institute of Metrology, Normalization and Industrial Quality / Instituto Nacional de Metrologia, Normalização e Qualidade Industrial, INMETRO
National Industrial Property Institute / Instituto Nacional de Propriedade Industrial, INPI
National Monetary Council / Conselho Monetario Nacional, CMN
National Petroleum Agency / Agência Nacional do Petróleo, ANP
National System of Metrology, Normalization and Industrial Quality / Sistema Nacional de Metrologia, Normalização e Qualidade Industrial, SINMETRO
National System of Rural Credit / Sistema Nacional de Crédito Rural, SNCR
National Telecommunications Agency / Agência Nacional de Telecomunicações, ANATEL
Northeast Investment Fund / Fundo de Investimentos do Nordeste, FINOR
North-East Region Development Agency / Agência de Desenvolvimento do Nordeste, ADENE
Northeast Region Development Authority / Superintendência do Desenvolvimento do Nordeste, SUDENE
Overnight Inter-bank Loans Interest Rate / SELIC (Sistema Especial de Liquidação e Custodia) Interest Rate
Policy of Guaranteed Minimum Prices / Política de Garantia de Preços Mínimos, PGPM
Premium for Product Outflow / Premio para Escoamento de Produto, PEP
Private Insurance Superintendence / Superintendência de Seguros Privados, SUSEP
Programme of Commercial and RecoveryForest Planting / Programa de Plantio Comercial e Recuperação de Florestas, PROPFLORA
Programme to Strengthen Household Agriculture / Programa Nacional de Fortalecimento da Agricultura Familiar, PRONAF
Regional Accounting Councils / Conselhos Regionás de Contabilidade, CRCs
Register of Exporters and Importers / Registro de Exportadores e Importadore, REI
Register of Sale / Registro de Venda
Rural Employment and Revenue Generation Programme / Programa de Geração de Emprego e Renda da Área Rural, PROGER Rural
Rural Insurance Programme / Progama Nacional de Garantia da Atividade Agropecuária, PROAGRO
Rural Product Certificate / Cédula de Produto Rural, CPR
Rural Promissory Note / Nota Promissória Rural, NPR
São Paulo Stock Exchange / Bolsa de Valores de São Paulo, BOVESPA
Secretariat for Economic Monitoring / Secretaria de Acompanhamento Econômico, SEAE
Secretariat of Agricultural Policy / Secretaria de Política Agrícola, SPA
Secretariat of Federal Revenue of Brazil / Receita Federal do Brasil, RFB
Secretariat of Foreign Trade / Secretaria de Comércio Exterior, SECEX
Securities Exchange Commission / Comissão de Valores Mobiliários, CVM
Services and Merchandise Circulation Tax / Imposto sobre Circulação de Mercadorias e Prestação de Serviços, ICMS
Special Brazilian Registry / Registro Especial Brasileiro, REB
Special Regime for the Exportation and Importation of Goods Destined to the Exploration of Petroleum and Natural Gas / Regime Aduaneiro Especial de Exportação e de Importação de Bens Destinados às Atividades de Pesquisa e de Lavra das Jazidas dePetróleo e de Gás Natural, REPETRO
State Secretariat for Pension Funds / Secretaria de Previdência Complementar, SPC
System for Pre-registration of Suppliers / Sistema de Cadastramento Unificado de Fornecedores, SICAF
System of Industrial Depots subject to Standardized Control / Regime Aduaneiro de Entreposto Industrial sob Controle Informatizado, RECOF
Telecommunications Technology Development Fund / Fundopara o Desenvolvimento Tecnológico das Telecomunicações, FUNTTEL
Tractor Fleet Modernization Incentives Programme / Programa de Modernização da Frota de Tratores Agrícolas e Implementos Associados e Colheitadeiras, MODERFROTA
Universal Telecommunication Services Fund / Fundo de Universalização dos Serviços de Telecomunicações, FUST
Waterways Transport National Agency / Agência Nacional de Transports Aquaviários, ANTAQ
BrazilWT/TPR/S/212
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SUMMARY OBSERVATIONS

1. Since its last Trade Policy Review in 2004, Brazil has continued with the gradual modernization and streamlining of its trade regime, while also increasing average tariff protection. Building on sound macroeconomic policies and previous and recent reforms, Brazil was able to take advantage of a favourable global economic environment to achieve solid economic growth but the current world economic slowdown presents new challenges. In order to meet these, Brazil needs to press on with its efforts to give additional impetus to trade and investment, including lowering effective tariff protection, reducing the use of import prohibitions, and providing greater predictability to the foreign investment regime. Solving the long-standing problem of high domestic interest rate spreads would also encourage trade and investment, and thus productivity. These and other steps to promote market competition and an efficient allocation of resources would help Brazil sustain economic growth and continue improving the living standards of its population.

(1)Economic Environment

1. After expanding by just 1.1% in 2003, the Brazilian economy grew at an annual average rate of 4.5% during 2004-07, which reflected strong domestic demand and a favorable external environment. Growth attained an annualized rate of 6% in the first half of 2008; however, it is expected to have slowed since, as a result of weaker global activity. Brazil's macroeconomic policies have continued to focus on achieving primary fiscal surpluses and inflation targets. Despite posting a primary surplus and reduced interest payments, the overall consolidated public sector has remained in deficit (2.1% of GDP in the first half of 2008). The inflation rate decreased until 2007 but picked up in 2008, to 6.4% in the twelve months to October. Brazil maintains a floating exchange rate regime, with the exchange rate fluctuating significantly in both directions during 2003-08. Foreign exchange regulations were liberalized although without resulting in a full convertibility of the Brazilian real.
2. During the review period, Brazil posted deficits in its services and income balances, which were more than offset by trade balance surpluses. Brazilian merchandise imports take mostly the form of manufactures. Brazil is an important exporter of both manufactured and primary products and has benefitted considerably from strong global demand and high commodities prices. Reflecting this, Brazilian exportsperformed strongly during the review period, increasingat a nominal average annual rate of almost 22% in U.S. dollars termsbetween 2003 and 2007; imports grew even faster, attaining a rate of 26% during the same period. Nevertheless, Brazil's trade in goods and services as a proportion of GDP fell slightly during the period under review, to about 26% in 2008.
3. Brazil is a genuine global trader, with considerable diversification in the geographic distribution of its exports and imports. During the period under review, the shares of Brazil's two-way trade with the European Communities and the UnitedStates decreased, while increases were recorded in exports to Argentina and China and imports fromChina and certain African countries.

(2)Trade Policy and Investment Framework

1. Brazil considers the multilateral trading system to be at the core of its trade regime. It is an original Member of the WTO, and an active participant. As such, Brazil has submitted numerous proposals to various WTO bodies and took part in the GATS negotiations on telecommunications and on financial services. In contrast, however, Brazil did not ratify the Fourth Protocol, on telecommunications, and, as at November 2008, was still in the process of ratifying the Fifth Protocol, on financial services. Brazil has made a large number of notifications to the WTO but as at end 2008 certain notifications were yet to be submitted, for instance under the Agreement on Agriculture. Since its last Review, Brazil had recourse to the WTO dispute settlement mechanism on one occasion as a complainant and on two occasions as a defendant. Brazil has been participating actively in the development of the Aid-for-Trade process, playing a twofold role, both as recipient and as donor.
2. Brazilconsiderspreferential trade agreements as a valuable complement to the multilateral trade system. It is a full member of the Southern Common Market (MERCOSUR). Although this is by far Brazil's most important preferential agreement in terms of value of trade, only some 10% of its merchandise tradetakes place with MERCOSUR members.
3. As part of MERCOSUR, Brazil has preferential trade agreements with Bolivia, Chile, Colombia, Cuba, Ecuador, Mexico, Peru, and Venezuela. Brazil also has bilateral preferential agreements with a few LAIA members. Also as part of MERCOSUR, Brazil is at different stages of negotiating or ratifying preferential trade agreements of diverse scope with Egypt, the European Union, the Gulf Cooperation Council, India, Israel, Jordan, Morocco, the Southern African Customs Unionand Turkey.
4. No major changes have been introduced to Brazil's foreign investment regime during the period under review. Foreign and Brazilian investors receive in principle the same treatment but specific laws may impose restrictions on foreign investment; thus, foreign participation is restricted in areas such as rural property, health, the mass media, as well as maritime and air transport.
5. Brazil has signed bilateral investment agreements with several countries, including within MERCOSUR; however, none of these agreements is in force due to concerns expressed in Congress about their constitutionality. In view of the scope in the national legislation to restrict foreign investment, and Brazil's limited international obligations in this area, accepting new GATS commitments would allow Brazil to enhancethe predictability of itsinvestment regime.

(3)Market Access for Goods

1. Brazil has continued to take gradual steps to simplify and modernize its customs procedures. For example, it introduced an express import declaration regime for frequent importers, and streamlined inspection procedures.
2. Brazil increased overall tariff protection; the simple average applied MFN tariff rose from10.4% in January 2004 to 11.5% in January 2008. This was mainly due to an increaseof 1.1 percentage points in the average tariff of non-agricultural products to 11.6%; the average for agricultural products (WTO definition) remained practically constant, at 10.1%.