Cablegate: Brazil: Updates to 2003 Nte

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A


1. Per Ref A, this cable transmits post's draft of the
2003 NTE. A separate copy is being emailed directly to
USTR (Cronin and Blue).


Brazil's arithmetic average applied tariff was an
estimated 11.5 percent in 2003. Brazil currently
maintains no applied tariff rates in excess of 35 percent,
but does have safeguard measures in place for some
imports, such as toys. For example, Brazil imposes
tariffs between 4.5-16.5% on wood products and 22% on
motorcycles. In April 2002, the Brazilian government
approved a new tax law that dramatically increased the
duty on imported advertising materials and discriminates
between domestic and foreign producers. A number of
imports are prohibited, including various used goods such
as machinery, foreign blood products, refurbished medical
equipment, automobiles, clothing, and other consumer

Brazil and its MERCOSUR partners, Argentina, Paraguay and
Uruguay, implemented the MERCOSUR Common External Tariff
(CET) on January 1, 1995. The CET currently covers 9,626
items, with tariffs mostly ranging between zero and 21.5
percent. Within the CET, certain sectors are treated
separately and are organized on special lists. The list
for informatics and telecommunication goods contains 427
items with tariffs in 2002 ranging between zero and 26
percent; a tariff phase-down schedule should bring the top
tariff down to 16 by 2006. The automotive list covers 55
items (vehicles and parts) with a tariff rate of 35
percent; Brazil has negotiated automotive agreements with
third countries, which provide duty-free treatment within
quotas. A MERCOSUR suspension of duties ranging from 2 to
15.5 percent on some 550 pharmaceutical products has been
extended until December 31, 2003. Although the CET was
meant to be a comprehensive, common tariff schedule,
MERCOSUR countries have agreed to allow exceptions.
Brazil has 100 exceptions to the CET, with tariffs
reaching as high as 55 percent on coconuts and peaches.
In addition, after consulting with its MERCOSUR neighbors,
in November 1997 Brazil implemented a temporary three-
percentage point increase on most CET tariff items. For
almost all products, this additional tariff was reduced to
1.5 percent by the end of 2002, with its total elimination
expected at the end of 2003. Currently, 3450 CET items
are excluded, including 1152 capital goods. The CET
remains a significant barrier to increased U.S. exports of
agricultural products, distilled spirits, and computer and
telecommunications equipment. Brazil prohibits the
importation of second hand consumer goods. In addition,
significant barriers exist to U.S. textile exports. In
particular, Brazil applies additional import taxes and
charges that can effectively double the actual cost of
importing textile products into Brazil.

Virtually all imports from its MERCOSUR partners enter
Brazil duty-free. Notable exceptions are automobiles and
automobile parts, which are subject to out-of-quota
tariffs, and refined sugar, which is assessed a 17.5
percent tariff. Two-way trade between Brazil and its
MERCOSUR partners increased by 25 percent during January
to October 2003 compared with the same period a year
earlier, evidence of continuing economic improvement that
began in 2002. In a December 16, 2003 summit, MERCOSUR
leaders reaffirmed their commitment to strengthen the
customs union and work to fully integrate the MERCOSUR
common market by 2006. MERCOSUR plans to finalize free-
trade agreements with three Andean countries, Colombia,
Venezuela, and Ecuador. Peru and Bolivia are currently
associate members.

Import Licensing/Customs Valuation

The Secretariat of Foreign Trade (SECEX) implemented a
computerized trade documentation system (SISCOMEX) in
early 1997 to handle import licensing. All importers must
register with SECEX to access SISCOMEX; registration
requirements are onerous, including a minimum capital
requirement. In addition, fees are assessed for each
import statement submitted through SISCOMEX. As a general
rule, imports into Brazil fall within an "automatic import
license" process. Originally, Brazil's non-automatic
import licensing system was used only in cases of specific
imports that require special authorization from specific
ministries/agencies: beverages (Ministry of Agriculture);
pharmaceuticals (Ministry of Health); arms and munitions
(National Defense Ministry); etc. In 1998, the Brazilian
government stopped publishing a list of products subject
to non-automatic licenses; the only method available now
for determining if a product requires an import license is
to check the SISCOMEX system, which is available only to
registered importers. Under Brazil's non-automatic import
licensing system, U.S. suppliers have no means of finding
out in advance which products require import licenses and
whether they are subject to minimum price and payment
terms as a condition of receiving a license.

Under Brazilian customs regulations, a "gray line" process
exists for enhanced scrutiny of suspected fraudulent
imports. This process is opaque and burdens some
categories of U.S. exports. A related concern has been
the possible use of the gray line process to impose
minimum reference prices. In November 1999, the United
States actively participated as an interested third party
in EU WTO consultations on the issue, and in July 2000,
the United States held its own WTO consultations with
Brazil. The Brazilian Government denies the use of minimum
reference prices and reportedly has modified its customs
regime in response to these consultations.

Product registrations from the Ministry of Health are
required for imported processed food products and food
supplement products, and as of March 1, 2000, the term of
validity for registration was shortened. Registration
fees for these imports, as well as for medical and
pharmaceutical products, have increased significantly.
The U.S. Government also has received complaints relating
to Brazilian practices that lead to non-transparent
preferences for Brazilian products in procurement bids for
government and nonprofit hospitals, and cause bias against
the import of refurbished medical equipment when
domestically produced "similars" exist. Implementation of
such import measures continues to have a negative impact
on U.S. exports, especially given the high tariffs on
medical equipment. Although some progress in increasing
the transparency of the process was made at the end of
2001, problems for U.S. exporters still exist. U.S.
companies continue to complain of a variety of customs-
related non-tariff barriers.

The U.S. Government has received complaints that the ICMS
value-added tax collected by individual states is
sometimes set to favor local companies, constituting a
non-tariff trade barrier. Similarly, some U.S. companies
have raised concerns about the arbitrary application of
various non-automatic import licensing procedures, such as
authorizations from the Federal Police and the Nuclear
Regulatory Agency.


Sanitary and Phytosanitary Measures

Progress has been made in the area of sanitary and
phytosanitary (SPS) measures. On March 15, 2001, the
Ministry of Agriculture lifted the ban on U.S. Soft Red
Winter, Hard Red Spring, and Hard Red Winter wheat shipped
from non-west coast ports. The ban remains on Durum and
White wheats and wheat from the states of Washington,
Oregon, Idaho, California, Nevada, and Arizona due to
phytosanitary concerns. The U.S. Government continues to
work with the Brazilian government to resolve the
remaining import restrictions.

Despite progress, SPS measures remain significant barriers
in several cases. Brazil continues to prohibit the entry
of poultry and poultry products from the United States
based on an alleged lack of reciprocity, contrary to WTO
rules which dictate that sanitary and phytosanitary
determinations be based upon sufficient scientific
evidence. Attempts to import seed potatoes into Brazil
have been blocked by unresolved permit issues based upon a
delayed and non-transparent pest risk assessment (PRA)
before commercial market access is granted. Brazilian
legislation also bans the importation of beef produced
with growth hormones; however, beef imports from the
United States have been allowed on a waiver basis since


The biotechnology debate has captured public attention in
Brazil with frequent and polemical reports in the press
presenting various aspects of the issue. Regulation of
the biotech sector remains essentially frozen because of a
1998 court case that is still pending in a federal court
in Brasilia, filed by environmental NGOs against the use
of Monsanto's Roundup Ready soybean variety. The case
addresses not only the requirement to conduct
environmental impact studies on GMO products, but also the
constitutional authority of the Government's CTNBio
commission to approve biotech products.

In the absence of a definitive court ruling on this case,
President Lula made considerable progress in 2003 towards
a new legal framework for production and marketing of
biotech soybean crops. Law 10,814 was enacted on December
15, 2003 after being approved by Congress, and legalizes
the planting and marketing biotech soybean crops for the
2003/2004 harvest. On October 31, 2003, President Lula
sent to Congress the long-awaited draft of a Biosecurity
Law that will provide a long-term regulatory regime for
the biotech sector. The current text of the bill
envisions a complicated mechanism for approval of biotech
products by a national commission attached to the
President's office that would consider political and
economic, as well as scientific factors. It is likely
that the bill will undergo substantial revision before
passage, which is expected in April 2004.

On April 24, 2003 the Brazilian Government published
Decree Number 4680, which formally implemented the
provisions of a 1990 law (law 8,078 of September 1990)
that requires labeling of GMOs. The decree requires
labeling of GMOs and products containing GMOs, including
meats from animals fed with GMO feed. The label must
include a special logo created by the Ministry of Justice
in October 2003. The requirement does not apply to
packaged food products containing less than one percent of
genetically modified organisms.


Brazil is not a signatory to the WTO Plurilateral
Agreement on Government Procurement, and transparency in
the procurement process could be improved. Remaining
limitations on foreign capital participation in
procurement bids can reportedly impair access for
potential service providers in the energy and construction
sectors. Brazilian federal, state and municipal
governments, as well as related agencies and companies, in
general follow a "buy national" policy. Although Law 8666
of 1993, which covers most government procurement other
than informatics and telecommunications, requires
nondiscriminatory treatment for all bidders regardless of
the nationality or origin of product or service, the law's
implementing regulations allow consideration of non-price
factors giving preferences to certain goods produced in
Brazil and stipulating local content requirements for
eligibility for fiscal benefits. Decree 1070 of March
1994, which regulates the procurement of information
technology goods and services, requires federal agencies
and parastatal entities to give preference to locally
produced computer products based on a complicated and
nontransparent price/technology matrix. However, Brazil
permits foreign companies to compete in any procurement-
related multilateral development bank loans and opens
selected procurements to international tenders.


The Government of Brazil offers a variety of tax, tariff,
and financing incentives to encourage production for
export and the use of Brazilian inputs in exported
products. An export credit program known as PROEX was
established in 1991. PROEX is intended to equalize
domestic and international interest rates for export
financing and to directly finance production of tradable
goods. 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. Several PROEX programs have
been found to be countervailable under U.S. law in the
context of specific countervailing duty cases. In 1999, a
WTO panel found PROEX interest equalization payments used
to finance the sale of regional aircraft manufactured in
Brazil to be a prohibited export subsidy. The WTO
Appellate Body upheld this finding. The Government of
Brazil states that it has modified PROEX so as to bring it
into conformity with WTO subsidy rules. Canada challenged
this position in the WTO, but subsequently reached a
negotiated settlement with Brazil, obviating the need for
a WTO ruling on the merits of the case. Changes to PROEX
were announced most recently in 1999, expanding the
program. In 2003, roughly $808 million was budgeted for
PROEX, with $400 million slated for equalization and $408
million for direct financing. Actual spending on PROEX
during 2003 is expected to have been about half of the
amount budgeted.


Patents and Trademarks

Brazil's industrial property law, covering patents and
trademarks, took effect in May 1997. The law improved
most aspects of Brazil's industrial property regime,
providing patent protection for pharmaceutical products
and processes, agrochemical products and other inventions.
However, concerns continue about a provision that
prohibits importation as a means of satisfying the
requirement that the patent be "worked" in that country.
This issue was the subject of a Dispute Settlement
proceeding at the WTO, which was terminated without
prejudice in June 2001. The dispute was terminated based
on Brazil's commitment to hold talks with the U.S. should
it deem necessary in the future to grant a compulsory
license for failure to work a patent.

On December 14, 1999, the Brazilian Government issued a
Provisional Measure that became Law 10,196 in 2001, which
includes some problematic provisions, including a
requirement that Health Ministry approval be obtained
prior to the issuance of a pharmaceutical patent. This
would appear to conflict with Article 27 of the TRIPS
Agreement, and U.S. officials have raised this concern
with their Brazilian counterparts. "Pipeline" protection
is provided for inventions not previously patentable in
Brazil because of limitations on patentable subject
matter, if these inventions were patented in another
country and not marketed in Brazil. While Brazil's patent
office, the National Institute for Industrial Property
(INPI), is addressing its backlog of both pipeline and
regular patent applications, the resources and support
necessary to effectively and consistently manage the
processing of patent applications still appear to be
insufficient. As of December 2003, industry sources
reported that INPI had granted fifteen pipeline patents
and fifty-seven regularly filed pharmaceutical patents. At
the same time, unauthorized copies of pharmaceutical
products have received sanitary registrations relying on
undisclosed tests and other confidential data, in apparent
violation of TRIPS Article 39.3.

Following the WTO agreement on access to medicines in
September 2003, President Lula issued a decree revising
the implementation of Article 71 of Brazil's 1996 patent
law, which governs the granting of compulsory licenses in
cases of national emergency or public interest. The
decree essentially allows for the importation of copies of
medicines from producer countries where patent protection
does not exist in cases where local production of the
medicine in not feasible. The Brazilian government has
yet to make use of the decree, but has publicly stated its
intention to do so as a last resort in price negotiations
with pharmaceutical companies supplying antiretrovirals to
the country's National AIDS Program.

On December 17, 2002, the Brazilian Congress passed Law
10,603 on data confidentiality. The law covers
pharmaceuticals for veterinary use, fertilizers,
agrotoxins, their components and related products; the law
does not cover pharmaceuticals for human use. The law
provides data protection for only 10 years from the date
of registration with the competent regulatory authority
for products utilizing new chemical molecules or new
biological organisms or until the first release of the
information by the registration owner, with a minimum
guaranteed period of protection for one year. For
products not utilizing new molecule or organisms, the
period of protection is five years or until the first
release of information with a one-year minimum period of
protection. Data demanded by the regulatory authority
after registration will be protected for the duration of
the protection period granted to the data used to gain the
registration, or for one year after being presented,
whichever is longer. If the product is not commercialized
within two years of the date of registration, third
parties may request use of the data for registration
purposes. The regulatory authority may make compulsory
use of the data in cases of national emergency or in
certain circumstances relating to unfair competition.

The 1997 industrial property law also added provisions for
the protection of "well-known" trademarks, but contains a
long list of categories of marks that cannot be
registered. U.S. industry has expressed concern with the
continued high level of counterfeiting in Brazil. A bill
(PL_1787) on the protection of layout designs of
integrated circuits (required by TRIPS) was introduced in
April 1996 and is still progressing through committees
within the Brazilian Congress.


A copyright bill that included amendments to bring Brazil
into compliance with the Berne Convention and TRIPS was
signed by President Cardoso in February 1998. A software
law was signed by President Cardoso that same month,
protecting computer programs as "literary works,"
increasing the term of protection to 50 years, and making
software infringement a fiscal and an intellectual
property crime. Copyright enforcement in Brazil continues
to be uneven, and losses from piracy remain significant.
As a result of this concern, on January 10, 2001, the U.S.
Government accepted a petition, submitted by the
International Intellectual Property Alliance, to review
the GSP status of Brazil. This petition was reviewed as
part of the 2003 Annual Generalized System of Preferences
Product and Country Eligibility Review. A Country
Practices Review of Brazil was held in October 2003. The
U.S. industry reports that in 2002 its trade losses from
copyright piracy in Brazil were over $771 million, the
largest amount of losses due to copyright piracy in the

Problems have been particularly acute with respect to
sound recordings and videocassettes, and virtually all
audiocassettes sold are pirated copies. Brazil accounts
for over half of the market for sound recordings in Latin
America and is one of the world's largest markets for
videos. Vigorous industry and Brazilian Government anti-
piracy campaigns have had a positive impact and general
awareness among the populace has increased significantly.

In June 2003, the Brazilian Congress launched a
Parliamentary Investigative Commission (CPI) on Piracy,
which has gained wide support from industry for its
action-oriented nature, as well as its willingness to
address the official corruption inherent in piracy.
Several Deputies on the CPI have pressed law enforcement
officials to achieve notable apprehensions of perpetrators
and counterfeited goods ranging from cigarettes to CDs.
The CPI's 6-month mandate has recently been extended. An
outgrowth of the CPI, a Congressional caucus on piracy and
tax evasion was formed in September 2003. Efforts in
2003 resulted in many prosecutions, but the number of
convictions for intellectual property rights violations
remains too low to act as a deterrent. While anti-piracy
actions in 2003 resulted in several large seizures of
pirated CDs, the sound recording industry estimates that
the piracy rate for CDs in 2002 was 55 percent. Even with
piracy raids and more prosecutions, the number of cases
prosecuted and sentenced in Brazilian courts remains low,
frustrating efforts at deterrence. In July 2003,
President Lula signed a law that doubled the minimum
penalty for copyright violations. The law also codifies
procedures to seize and destroy contraband and gives
judges authority to dispose of seized goods to ensure they
will not be used for commercial purposes. Brazil has
increased inspections at border crossings increased, but
significant amounts of pirated material continue to enter
Brazil from Paraguay.

The Federal Government of Brazil to date has not given
police adequate tools or training to effectively enforce
the law. Further, fines provided for in the penal code are
too insignificant to create a true deterrent; and the
court and judicial process is often unresponsive and slow.
The generally inefficient nature of Brazil's courts and
judicial system has complicated the enforcement of
intellectual property rights. The Brazilian Government is
working to streamline the judicial process. In early
2001, the Government created an interagency IPR committee,
coordinated by the Ministry of Justice, to improve anti-
piracy enforcement. After two years of very limited
activity due to lack of resources and the 2002 national
elections, the committee made progress in 2003 with a
national public awareness campaign and the start of IPR
training at the National Federal Police Training Academy.
Brazil has not yet ratified the WIPO Treaties on Copyright
and Performances and Phonograms.

Privatization within the telecommunications sector, which
is based on the General Telecommunications Law of 1997,
has presented regulatory challenges. In the fixed-line
sector, interconnection charges and other incumbency
advantages have provided strong barriers for entry, and
the companies created during a transitional duopoly stage
have not fared well. There was also heavy involvement on
the judicial side during 2002 and 2003, as some incumbent
companies used court injunctions to forestall competition.

Brazil has not yet implemented its original WTO basic
telecommunications commitments. In 2001, Brazil withdrew
its schedule of commitments in view of concerns raised by
certain WTO members that it maintained the right of the
Brazilian President to revoke concessions in the case of
national emergency, in contravention of the WTO Basic
Telecommunications Agreement. This presidential right is
contained in Brazil's 1997 General Law on
Telecommunications and is inscribed in Brazil's
constitution. Brazil has not sought the constitutional
change required to allow a revision of its schedule.
Nonetheless, the current regulatory environment generally
reflects commitments made by Brazil under the WTO Basic
Telecommunications Agreement.


The Government of Brazil considers the bilateral Maritime
Agreement signed in October 1999 to be expired. Bilateral
consultations should result in a new agreement in 2004,
and in the interim the regulatory agencies of Brazil and
the United States have agreed to continue implementing the
provisions of the 1999 agreement on a reciprocal basis.
Key provisions of this agreement commit the parties to
afford fair and nondiscriminatory access for national-flag
carriers and third-flag carriers to competition on
commercial cargo and provides equal and nondiscriminatory
access to government cargos. A 25 percent merchant marine
tax on freight puts U.S. agricultural products at a
competitive disadvantage to MERCOSUR products.

Audio Visual Services

Foreign ownership of cable companies is limited to 49
percent. The foreign owner must have a headquarters in
Brazil and have had a presence in the country for the
prior 10 years. Foreign cable and satellite television
operators are subject to an 11 percent remittance tax;
however the tax can be avoided if the programmer invests 3
percent of its remittances in co-production of Brazilian
audio-visual services. National cable and satellite
operators are subject to a fixed title levy on foreign
content and foreign advertising released on their

Provisional Measure 2,228 1/01 and later Law 10,454 aim to
promote the national film industry through creation of the
National Film Agency (ANCINE) and through various
regulatory measures. Under Law 10,454, published on May
14, 2002, a fixed title levy is imposed on the release of
foreign films in theaters, foreign home entertainment
products, and foreign programming for broadcast
television. Remittances to foreign producers of
audiovisual works are subject to a 25 percent tax.
Brazilian distributors of foreign films are subject to a
levy equal to an 11 percent tax of their withholding
taxes. This tax, called the CONDECINE (Contribution to
the Development of a National Film Industry), is waived
for the Brazilian distributor if the producer of the
foreign audiovisual work agrees to invest an amount equal
to 70 percent of the tax on their remittances in co-
productions with Brazilian film companies. The CONDECINE
tax also levied on any foreign cinematographic or
videophonographic advertisement. The fee may vary
according to the advertising content and the transmission

Brazil also requires that 100 percent of all films and
television shows be printed locally. Importation of color
prints for the theatrical and television markets is
prohibited. A theatrical screen quota for local films is
maintained at 28 days per calendar year. Quotas on
domestic titles for home video distributors, while not
currently enforced, present another potential hindrance to

Foreign firms had been prohibited from owning capital in
the "open broadcast" (non-cable) television sector.
However, in October 2002, President Cardoso issued
Provisional Measure 70, which was subsequently approved by
the Congress, which permits up to 30 percent foreign
ownership in Brazilian media. This law covers print as
well as the open television sector. Open television
companies also have a regulation requiring that 80 percent
of their programming content be domestic in origin. All
broadcast media material that enters the country must pass
through the Ministry of Justice, which retains rights to
censure and edit content.

Express Delivery Services

A bill (PL 1491/99) that would reorganize the National
Postal System remains under discussion in the Brazilian
Congress. The current proposal creates a regulatory
agency for postal services as well as a new Postal Company
of Brazil, owned and operated by the federal government.
Although the bill would end the government monopoly over
postal services after a ten-year period, it would also
create a monopoly on the delivery of certain types of
correspondence and parcels that are not now subject to
regulation, such as express delivery packages, thereby
significantly inhibiting market access by U.S. firms.


Brazil is potentially South America's largest insurance
market, and earnings from premiums have grown rapidly in
recent years. In 1996, Brazil eliminated the distinction
between foreign and domestic capital, and many major U.S.
firms have since entered the market, mainly via joint
ventures with established companies. The Brazil
Reinsurance Institute (IRB) is a state monopoly. While a
1996 constitutional reform ostensibly abolished the
monopoly, private reinsurers have been precluded from
operating in Brazil pending the IRB's privatization, which
has been delayed indefinitely by a court decision. A
2003 Constitutional amendment allows for the regulation of
the reinsurance sector, including market entry. If
Brazilian shipping companies wish to obtain foreign hull
insurance, they must submit information to IRB
demonstrating that the foreign insurance policy is less
expensive than that offered by Brazilian insurers.
Brazilian importers must obtain cargo insurance from
insurance firms resident in Brazil, although the firms may
be foreign-owned.

Banking and Other Financial Services

Brazil has not ratified the WTO Financial Services
Agreement, formally known as the Fifth Protocol to the
GATS, which is necessary to bring Brazil's commitments
under the Agreement into force. The Financial Services
Agreement is still pending approval in the Brazilian
Congress. U.S. service exports to Brazil are impeded by
restrictive investment laws, lack of transparency in
administrative procedures, legal and administrative
restrictions on remittances and sometimes arbitrary
application of regulations. Service trade opportunities in
some sectors have been affected by limitations on foreign
capital participation.

In negotiating the 1997 WTO Financial Services Agreement,
Brazil made commitments in almost all service sub-sectors
for non-insurance financial services, including banking
and securities services. Brazil's constitution
precludes the expansion of foreign-owned banks until new
financial sector legislation is issued. For practical
reasons, new legislation has not been issued, but the
President of Brazil has the authority to authorize new
foreign participants on a case-by-case basis. In practice,
Brazil has approved most plans by foreign service
suppliers to enter the market or expand existing
operations. As of December 2002, foreign-owned or
controlled assets accounted for one third of Brazil's
total financial sector equity, and over 18 U.S. financial
service suppliers had established significant operations
in Brazil.

During 2002, a U.S. company involved in credit bureau
activities raised national treatment concerns regarding
the refusal by Receita Federal, Brazil's internal revenue
service, to provide it with information that was being
obtained by its local competitors.

In addition to restrictions discussed above, various
prohibitions limit foreign investment in internal
transportation, public utilities, media and other
"strategic industries." Foreign ownership of land
adjacent to national borders remains prohibited under
Brazilian law, unless approved by the National Security
Council. Despite investment restrictions, U.S. and other
foreign firms have major investments in Brazil, with the
U.S. accounting for more than one third of total foreign
investment. There is no Bilateral Investment Treaty
between the United States and Brazil.


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