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Cablegate: Brazil Promulgates Safeguard Provisions for Imports

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

UNCLAS SECTION 01 OF 03 BRASILIA 002804

SIPDIS

DEPT FOR WHA/BSC AND EB/TPP
STATE PASS TO USTR FOR MSULLIVAN AND JHENDERSON
USDOC FOR 4332/OTA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON
NSC FOR SCRONIN

E.O. 12958: N/A
TAGS: ETRD ECON
SUBJECT: BRAZIL PROMULGATES SAFEGUARD PROVISIONS FOR IMPORTS
FROM CHINA

REF: A) 04 Brasilia 2885, B) Brasilia 2367

1. Summary. After a failed attempt to secure voluntary
export restraints from China, on October 6 the GoB published
decrees establishing regulations for imposing safeguards on
imports of Chinese products. Textile producers were the
first to file petitions seeking relief; as many as 20 more
sectors may file safeguard requests. Foreign Minister
Amorim has stated an interest in continuing a dialog on
voluntary export limits with China. End Summary.

2. On October 6, the GoB published in the Diario Oficial two
decrees establishing regulations for implementation of
safeguards on imports of Chinese products -- Decree 5,558 is
specific to textiles and Decree 5,556 covers temporary
safeguards for all other products (see details in paras 7
through 14).

3. Brazilian industries had been clamoring for safeguards as
imports from China have surged this year. In 2003 and 2004,
Brazilian exports to China far outstripped trade in the
opposite direction. However, in the first nine months of
this year, imports from China grew by 47.8 percent compared
with the same period in 2004, while exports to China
expanded at a rate of only 8.6 percent, squeezing Brazil's
trade surplus to below $1 billion.

4. Some 20 sectors have indicated an interest in seeking
safeguards, including textiles, apparel, machinery and
equipment, toys, shoes, eye glasses, tires, and transport
equipment. Textile manufacturers were the first to file
safeguard petitions under the new regulations. So far they
have requested safeguards for seven products: corduroy,
textured polyester thread, and five types of silk.
According to the Brazilian Association for the Textile
Industry (ABIT), imports of the silk products had increased
243 percent in volume from January through August 2005 in
comparison with the same period in 2004. ABIT expects
petitions to be submitted for 75 textile and apparel
products in all, mostly for apparel. On October 13, eye
glass producers followed suit with a petition.

5. Although the toy industry already benefits from a general
safeguard, they argue that an additional safeguard targeting
imports from China is necessary. In the first seven months
of this year, toy imports from China increased by 94 percent
compared with the same period in 2004. In 2002, imported
toys from China accounted for 22 percent of the Brazilian
market; today that figure is 48 percent. According to the
shoe industry, Brazil imported 9.4 million pairs of shoes
from China between January and August 2005, compared with
only 4.3 million pairs in the first eight months last year.

6. Although the decrees were drafted in June, the GoB had
held off implementation in the hopes of negotiating
voluntary export restraints with China. When Minister of
Development, Industry and Trade Furlan's mission to Beijing
in mid-September failed to secure a Chinese commitment to
limit its exports in certain sectors, the government moved
forward with the new regulations. That being said, Minister
Amorim has continued to state in public Brazil's openness to
negotiating solutions for sectors submitting safeguard
petitions. The regulations themselves, detailed below,
provide for consultations as part of the safeguard
deliberation process.

Safeguard Petition Process
--------------------------

7. The decree for textiles (Decree 5,558) provides industry
with the ability to request safeguard action should an
increase in Chinese imports of a specific product cause or
threaten to cause an "imbalance" in the market for that
product; the decree does not state what form the safeguard
might take, but stipulates that it may not extend beyond
December 31, 2008. The decree for other products (Decree
5,556) provides for safeguards in the form of additional
tariffs and/or quotas, should a rapid increase in imports of
a product from China cause injury or threaten injury to
domestic producers of that product or a similar product.
This decree also deals with the specific case in which
increased imports from China are the result of trade
diversion caused by measures taken in other WTO member
countries. Safeguards for products other than textiles may
not extend beyond December 11, 2013.
8. Producers seeking relief must submit their safeguard
petitions to the Foreign Trade Secretariat (SECEX) in the
Ministry of Development, Industry and Trade. Brazil's
Foreign Trade Chamber (CAMEX) will make the final decision
on application of safeguards based on an analysis and
recommendation from SECEX. SECEX has four months to close
the investigation in the case of textiles, and eight in the
case of other products. Importers, exporters and other
interested parties may provide written submissions for a
period of 30 days following initiation of the investigation.
Upon opening the investigation, a request will be made for
preliminary consultations with China. The Chinese
government will be given 10 days from the initiation of
investigation to respond to the request; the consultations
must be held with 30 days.

9. For textiles, the decree stipulates that an "imbalance"
exists when imports from China are increasing rapidly,
either in absolute terms or relatively, such that they
impede the orderly development of trade in the specific
product. In making a determination, SECEX will take into
consideration the impact of the imports on the domestic
industry, reflected in changes in economic variables such as
capacity utilization, sales, market share, and prices.

10. Once SECEX completes a preliminary positive
determination for a textile product, consultations with
China will again be requested if a pre-condition is met.
The pre-condition is that China immediately limit exports of
the product in question so that they do not exceed 7.5
percent of the quantity imported by Brazil during the first
12 months of the most recent 14 month period. The
consultations must begin within 30 days from receipt of the
request and can last for 90 days, with a possible extension
if both parties agree. Should the consultation precondition
not be met or the consultations not result in a mutually
satisfactory result, a safeguard may be applied until
December 31 of the year in which the first request for
consultations was made. If the consultation request was
made within the last three months of the year, the safeguard
will be in force for a period of 12 months. CAMEX retains
the authority to suspend the safeguard for reasons of public
interest.

11. In making determinations for injury or market imbalance
for other products, SECEX will consider the volume and rate
of growth of imports in absolute and relative terms, the
market penetration of the imports, and the impact on the
domestic industries of both the product and of similar
products as evidenced by changes in economic variables such
as production, capacity utilization, stocks, sales, market
share, prices, profits and losses.

12. Should SECEX/CAMEX conclude that a delay in applying a
safeguard measure for a product (other than textile) would
cause damage that would be difficult to repair, a
provisional measure, in the form of an additional ad valorem
and/or specific tariff, may be applied for up to 200 days.
Notwithstanding, once SECEX makes a preliminary positive
determination for a product, the GoB will again request
consultations with China. The consultations must take place
within 30 days and may last for a period of 60 days from the
date of the request. Should the consultations not result in
a mutually satisfactory result, a definitive safeguard, in
the form of an additional ad valorem and/or specific tariff
and/or a quantitative restriction will be applied for a
period necessary to prevent or repair the market imbalance.
Should the safeguard be applied for more than 2 years when
the increase in imports was relative, or applied for more
than 3 years in the case where the increase in imports was
absolute, CAMEX must consider the possibility that China
could suspend substantively equivalent concessions or
obligations.

13. Decree 5,556 also outlines a separate process should the
increase in imports be due to trade diversion. The decree
states that trade diversion exists when a measure applied in
a third WTO member country to a product imported from China
in order to prevent or repair a market imbalance in that
country, causes or threatens to cause an increase in exports
of that product from China to Brazil. In making its
determination on trade diversion, SECEX will take into
consideration the actual or imminent increase in the share
of product imports from China in the Brazilian market; the
nature or extent of action adopted or proposed by China or
the third WTO member country; the actual or imminent
increase in the volume of imports from China owing to the
measure taken or proposed by China or the third WTO member
country; the market conditions (supply and demand) within
the Brazilian market for the product; and the volume of
Chinese exports destined to WTO members which apply a
provisional or definitive safeguard measure.

14. The provisions for trade diversion also provide for
preliminary consultations with China. After SECEX makes a
preliminary positive determination on trade diversion, the
GoB will again request consultations with China and/or the
third country applying the measure; the consultations would
take place within 30 days and last up to 60 days. Should
the consultations not reach a mutually satisfactory result,
Brazil could withdraw concessions, or limit in another way,
imports from China, "in proportion to what is necessary to
prevent or repair the trade diversion." Application of a
safeguard measure to remedy trade diversion would lapse 30
days after termination of the measure causing the trade
diversion. If the measure causing trade diversion is
modified, SECEX would re-examine the issue to determine if
the safeguard should be revised, withdrawn, or maintained.

DANILOVICH

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