Brazil WT/TPR/S/212

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II. TRADE AND INVESTMENT POLICY REGIME

(1) OVERVIEW

1. Brazil considers the multilateral trading system to be at the core of its trade regime, and
preferential agreements as complements to the system. Brazil is an original Member of the WTO, and
one of its most active participants. As such, Brazil has submitted numerous proposals to various
WTO bodies and took part in the GATS negotiations on telecommunications and on financial
services. However, Brazil did not ratify the Fourth Protocol, on telecommunications, and, is still in
the process of ratifying the Fifth Protocol, on financial services (as at November 2008). Brazil has
made a large number of notifications to the WTO but certain notification requirements are yet to be
fulfilled, for instance under the Agreement on Agriculture. Since its last review in 2004, and as at
September 2008, Brazil has had recourse to the WTO dispute settlement mechanism on one occasion
as a complainant and on two occasions as a defendant.

2. Brazil is a full Member of the Southern Common Market (MERCOSUR), and as part of
MERCOSUR it has preferential trade agreements with Bolivia, Chile, Colombia, Cuba, Ecuador,
Mexico, Peru, and Venezuela. Brazil also has a number of bilateral preferential agreements with
other LAIA members. A Free Trade Agreement between MERCOSUR and Israel is pending
ratification (November 2008). As part of MERCOSUR, Brazil has signed a partial scope agreement
with India, concluded negotiations of a partial scope agreement with the South African Customs
Union (SACU), and is negotiating preferential trade agreements with Egypt, the Gulf Cooperation
Council (GCC), Jordan, Morocco, and Turkey. The negotiation of an Association Agreement
between MERCOSUR and the European Union, including a Bi-regional Free Trade Agreement,
remains on MERCOSUR's agenda.

3. No major changes were introduced to Brazil's foreign investment regime during the period
under review, with the exception of the unification and review of foreign exchange regulations.
Foreign and Brazilian investors receive the same treatment unless restrictions are imposed on foreign
investment by a specific law. Thus, foreign participation is restricted in activities such as rural
property, health, telecommunications, the mass media, as well as maritime and air transport. 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 with respect to
their constitutionality.

4. Brazil, a member of the WTO Task Force, has been participating actively in the development
of the Aid-for-Trade (AFT) process. Brazil is both a recipient and a donor in the AFT initiative.

(2) GENERAL LEGAL AND INSTITUTIONAL FRAMEWORK

5. The Federative Republic of Brazil is formed by the union of the 26 states, the municipalities,
and the Federal District (which together form "the Union"). 1 Executive power is exercised by the
President, aided by the Cabinet of Ministers. The President holds office for four years and may be re-
elected for an additional four-year term. The last election took place in October 2006. The Cabinet of
Ministers is appointed by the President.

6. Legislation is drafted and issued at the federal, state, and municipal levels by the respective
legislative bodies. Under the Constitution, legislation in a number of areas must be drafted and
passed at the federal level; these areas include foreign trade, telecommunications, insurance,
1
Article 1 of the 1988 Federal Constitution of the Federative Republic of Brazil.
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maritime and air transport, credit policy, monetary issues, and utilities (Article 22). On the other
hand, federal and state laws may be issued concurrently on education, health, and social security
(Article 24). In accordance with Article 30 of the Constitution, municipalities may only issue
legislation on matters of local interest and to supplement federal and state legislation where pertinent.
Each federative body drafts its tax legislation in accordance with its constitutional competence.

7. Legislative power at the federal level is vested in and exercised by the National Congress,
composed of the Chamber of Deputies and the Federal Senate. Deputies are elected in states,
territories, and the Federal District for a period of four years; their number is proportional to their
jurisdiction's population. Each state and the Federal District elect three Senators for a term of office
of eight years. One third of the representation of each state and two thirds of the Federal District
representatives are renewed every four years, alternately. Congress has responsibility for legislating
on all matters within the competence of the Union. Congress is also responsible for approving
international treaties.2

8. The judiciary comprises the Supreme Federal Court, the Superior Court of Justice, the Federal
Regional Courts and Federal Judges, and other special courts and judges.

9. The legislative process includes preparation of: amendments to the Constitution;

supplementary laws; ordinary laws; delegated laws; provisional measures; legislative decrees; and
resolutions. The main law of the State is the 1988 Constitution, which has been amended 56 times
since its promulgation in October 1988 (as at September 2008); 14 of these amendments have been
made since the beginning of 2004.3

10. Supplementary laws complement and regulate specific provisions of the Constitution and may
be voted only when the Constitution calls for them; they have a higher legal standing than ordinary
laws. Supplementary laws must be approved by absolute majority of the members of each House.
Ordinary laws must be approved by majority vote, when an absolute majority of members is present.
Delegated laws are prepared by the President on delegation from the Congress; since the 1988
Constitution was promulgated, only two delegated laws have been drafted.

11. Article 62 of the Constitution allows the use of provisional measures on issues considered to
be of importance and urgency. Provisional measures are issued by the President and become effective
upon publication; they are analysed by Congress only upon enactment and should be voted on within
60 days, renewable once for the same period, failing which, they lapse. Provisional measures have
the same legal status as ordinary laws, and are used very widely, since many laws in Brazil originate
as provisional measures. Provisional measures creating or increasing taxes may only affect the
following year's budget if converted into law before the end of the fiscal year in which they were
issued.4 However, there are some exemptions: the rule does not apply to customs duties on imports,
export taxes, the tax on industrial products (IPI), the financial operations tax (IOF), or to
extraordinary taxes created in case of war. Legislative decrees, which are administrative in nature,
enact Congress deliberations on matters of its competence. Legislative decrees are approved by a
simple majority in Congress and do not need the sanction of the President; they have the same legal
status as ordinary laws.

2
Federal Constitution, Title IV (Chapter I, Section II).
3
Brazilian Government online information. Viewed at: https://www.planalto.gov.br/ccivil_03/
Constituicao/Emendas/Emc/quadro_emc.htm. There is a link to each one of these amendments (in Portuguese).
4
Constitutional Amendment No. 32 of 11 September 2001. Viewed at: http://www.planalto.gov.br/
ccivil_03/Constituicao/Emendas/Emc/emc32.htm.
Brazil WT/TPR/S/212
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12. International treaties and conventions must be approved by Congress to enter into force
domestically. After enactment, through a legislative decree, international treaties have the same legal
status as ordinary laws; their revocation takes place only when deemed incompatible with the Federal
Constitution through an express decision of the Supreme Federal Court.

(3) TRADE POLICY FORMULATION AND IMPLEMENTATION AND OBJECTIVES

13. The formulation, adoption, coordination, and implementation of trade policy in goods and
services is the responsibility of the Chamber of Foreign Trade (CAMEX), created in 1995; its
functions are specified by Decree No. 4,732 of 10 June 2003, which gave it responsibility for policy
formulation. The CAMEX is part of the Government Council of the Presidency of the Republic; its
main decision-making body is the Council of Ministers, comprising of the Minister of Development,
Industry and Foreign Trade, who chairs it; and the Ministers of the Civil House; Foreign Affairs;
Finance; Planning, Budget and Administration; Agriculture and Supply; and Agrarian
Development.5

14. The CAMEX coordinates the implementation of its decisions, but each ministry remains
responsible for implementing matters within its competence. Other public bodies must consult the
CAMEX on decisions related to trade policy issues, with the exception of financial market issues
within the competence of the National Monetary Council and the Central Bank.

15. The Ministry of Development, Industry and Foreign Trade (MDIC) is in charge of
implementing trade policy, according to the guidelines devised by the CAMEX, through the
Secretariat of Foreign Trade (SECEX), which is divided into four departments: Foreign Trade
Operations (DECEX); Trade Remedies (DECOM); International Trade Negotiations (DEINT); and
Planning and Development of Foreign Trade Policies (DEPLA). The Ministry of External Relations
assists the CAMEX in formulating foreign policy on, inter alia, regional integration and trade, and is
the representative to the WTO in Geneva. The Ministry of Finance formulates and implements
economic policy; it is in charge of customs and tax policy and administration, inspection, and
revenue collection. Private-sector participation in trade policy formulation is institutionalized by
means of periodic meetings of the CONEX (the CAMEX Private Sector Advisory Council), and
through several sectoral competitiveness fora.

16. Regional integration, adoption of fairer economic and trade rules, and democratization of
decision-making bodies are essential elements of Brazil's foreign policy. 6 Brazil's view is that
international trade is fundamental for economic development and that the multilateral trading system
should contribute to fair and equal development. 7 Brazil's broad trade policy objective is, hence, to
use trade to foster sustainable economic growth. Regional economic integration and export
promotion and diversification are important policy targets. Brazil considers unhindered access for its
agricultural products to the world's largest markets indispensable for the creation of wealth and social
progress. Brazil supports enhancing south-south trade, while recognizing the need for more flexible
rules for developing countries at the multilateral level. 8 At the regional level, Brazil's major trade
objective continues to be to reinforce the MERCOSUR customs union.

5
Ministry of Development, Industry and Foreign Trade online information. Viewed at:
http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=1&menu=1497&refr=433.
6
Folha de São Paulo, An Assessment of Five Years of Brazilian Foreign Policy, by Ambassador Celso
Luiz Nunes Amorim, Minister of External Relations, 30 December 2007. Viewed at: http://www.mre.gov.br/
ingles/politica_externa/discursos/discurso_detalhe3.asp?ID_DISCURSO=3231.
7
UNCTAD (2008).
8
UNCTAD (2008).
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(4) FOREIGN INVESTMENT REGIME

17. Foreign investment is regulated by Law No. 4,131 of 3 September 1962 (Foreign Capital
Law)9, as modified by Law No. 4,390, of 29 August 1964 and other amendments. Constitutional
amendments passed in 1995 eliminated the distinction between foreign and national capital, and the
Constitution now mandates the same legal treatment for national and foreign capital invested in
Brazil, under the same circumstances, and prohibits all forms of discrimination not explicitly foreseen
in the law.

18. The Federal Government has established programmes and mechanisms to facilitate foreign
investment, especially in sectors that are seen as helping to improve Brazil's international
competitiveness, spur long-term growth, and achieve objectives of the Government’s accelerated
growth programme (PAC) under the latest Multiyear Plan. Under the new Multiyear Plan 2008-2011,
policy efforts continue to be geared towards improving the business and regulatory environment for
investment.10 The Federal Government's actions are aimed at fostering investment in infrastructure
and technology-intensive sectors. However, no specific incentives are offered to foreign investors by
the Federal Government.

19. Foreign investments are not subject to preliminary review or verification by the Central
Bank.11 Registration of foreign direct investment (FDI) with the Central Bank continues to be
mandatory through the Electronic Statement of Registration – Foreign Direct Investment Module
(RDE-IED) of the Central Bank’s Information System (SISBACEN). Registration is required for
remittances abroad, to repatriate invested capital, and to reinvest profits. 12 Foreign capital in national
currency must also be registered with the Central Bank of Brazil. 13 No preliminary authorization is
needed to invest in national currency, if registered in the RDE-IED.

20. Foreign investors in financial institutions must obtain authorization, through a Presidential
Decree, prior to registration in the RDE-IED. 14 Foreign currency investments must be registered in
the currency in which they were made. Foreign exchange regulations for financial institutions were
unified in 2005.15

21. Once registered, there are no restrictions on the remittance of profits, and the repatriation of
capital requires no further authorization. Profit remittances and repatriation of initial capital are
exempted from income tax withholding. Capital gains repatriation is subject to 15% income tax
withholding.16 When capital is repatriated, the Central Bank examines whether the sum involved
complies proportionally with foreign investor participation in the net worth stated by the company. 17

9
As further regulated and put into effect by Decree No. 55,762 of 17 February 1965, as amended.
10
The Multiyear Plan 2008-2011 was enacted by the Brazilian Congress through Law No. 11,653 of
7 April 2008.
11
Central Bank of Brazil Circular No. 2,997 of 15 August 2000. Viewed at:
https://www3.bcb.gov.br/normativo/prepararPesquisa.do?method=prepararPesquisa.
12
Brazil Trade Net (2007).
13
Law No. 11,371 of 26 November 2006.
14
Regulations to Circular No. 2,997 of 15 August 2000. Viewed at: http://www4.bcb.gov.
br/NXT/gateway.dll?f=templates&fn=default.htm&vid=nmsDececLegis:idvDececLegis.
15
Central Bank Resolution No. 3,265 of 4 March 2005, revoked and replaced by CMN
Resolution No. 3,568 of 29 May 2008, unified the free rate and floating rate exchange markets and regulations.
Viewed at: https://www3.bcb.gov.br/.
16
Brazil Trade Net (2007).
17
Brazil Trade Net (2007).
Brazil WT/TPR/S/212
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22. National Monetary Council (CMN) Resolution No. 2,689 of 26 January 2000 regulates non-
resident investment in Brazilian financial and capital markets, including acquisition of shares of
Brazilian companies. To access these markets, the foreign investor must appoint a representative and
register with the Central Bank of Brazil and the Brazilian Securities Commission (CVM). Funds
properly registered in the RDE-Portfolio Module of the SISBACEN can be transferred across
different types of financial instruments without restriction. Securities belonging to foreign investors
must be kept in custody in Brazil.

23. In accordance with Law No. 10,833 of 29 December 2003, since 1 February 2004, the
acquirer (whether resident or non-resident) of assets located in Brazil belonging to a non-resident, is
responsible for the withholding and payment of the income tax applicable to capital gains. Any
capital gain obtained in Brazil by a non-resident is subject to the same income tax rules applicable to
residents. The foreign purchaser of an investment already registered with the Central Bank of Brazil is
entitled to register the capital under his name in the same amount (number of shares) previously held
by the selling part.18

24. FDI through importation of tangible assets, without initial disbursement of foreign currency,
requires RDE-IDE registration within 90 days once goods have cleared customs, and does not require
prior approval by the Central Bank of Brazil. Foreign investment through importation of intangible
assets without initial disbursement of foreign currency, requires prior approval from the
Central Bank.19

25. Brazil's regulations do not allow foreign participation in nuclear energy, health services
(except insurance), hydraulic power generation, or postal and telegraph services.

26. Purchase of property by foreigners in border areas requires authorization from the
General Secretariat of the National Security Council. Only 50 units of undefined exploration units of
rural property (módulo de exploração indefinida) can be acquired by foreigners. 20 Exemptions may be
granted through a presidential decree. Any fishing activities within the Brazilian territorial waters
must be authorized by the Special Secretariat for Aquaculture and Fisheries. Authorizations are
granted to Brazilian nationals, foreigners who are resident in Brazil, and to companies established and
registered in Brazil, regardless of the origin of their capital. Private participation in the prospecting
and extraction of mineral resources and a number of activities in the hydrocarbons sector are subject
to specific requirements (see Chapter IV(4)).

27. Management, as well as 70% of the capital, of newspapers, magazines, and other
publications, and of television and radio networks is reserved for Brazilians, including those
naturalized for more than ten years. Postal services such as pick-up, transport, and delivery of letters,
postcards, and grouped correspondence, issuance of stamps and other postage payments forms, as
well as telegraph services, are under Federal Government monopoly. Courier services may be
provided by enterprises operating in Brazil under Brazilian legislation. Restrictions apply to foreign
participation in cable TV services and various satellite-related activities (Chapter IV(6)(iii)).

28. Prior to the entry into effect of Law No. 11,442/2007, foreign investor participation in
companies providing highway freight transport was limited to no more than one fifth of the capital
stock with voting rights. International road transport is reserved to companies with more than half of
their capital with voting rights held by citizens of the seven member countries of the International

18
Brazil Trade Net (2007).
19
Brazil Trade Net (2007).
20
Decree No. 74,965 of 26 November 1971.
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Land Transport Agreement of the Southern Cone countries. 21 Only companies established in Brazil
can participate directly in domestic public air transportation services; foreign participation in
domestic airline companies is limited to 20% of the voting shares (Chapter IV(6)(iv). 22 Only
corporations or Brazilian individuals established in the country with principal domicile in Brazil may
own Brazilian flag vessels (Chapter IV(6)(v)). 23

29. Foreign investors can operate in the Brazilian financial sector only if recognized as being in
the interest of the country and a presidential decree is granted (Chapter IV(6)(ii)). 24

30. Brazil has signed 14 bilateral investment agreements (BITs) 25, and has negotiated two
MERCOSUR protocols on investment: the Buenos Aires Protocol (extrabloc) 26, and the Colonia
Protocol (intrabloc).27 However, none of these agreements is in force, either because the Executive
did not submit the agreement to Congress (e.g. Colonia Protocol) or because it withdrew the
agreement before Congress had voted (e.g. Buenos Aires protocol and the BIT with France). This
reflects the important concerns held in Congress about the constitutionality of the agreements with
respect to issues such as upholding the principle of full equality for investors under the law.

31. The authorities note that concerns raised by Congress concerning the BITs signed by Brazil
included: (i) the preferential treatment accorded to foreign investors as a result of the BITs dispute
settlement mechanisms; (ii) the broad definition of investment contained in the BITs; (iii) the
requirement in the BITs of prompt payment of expropriations in freely convertible currencies, which
was considered incompatible with the Federal Constitution, which specifies that expropriations for
reasons of agrarian reform are to be compensated by Agrarian Reform Bonds, for example; and
(iv) the ambiguity caused by the concept of indirect expropriation.

32. Brazil has signed and maintains double taxation agreements with 28 countries. 28 Germany
terminated its tax treaty with Brazil as of 1 January 2006. 29

33. Brazil is a signatory of the Multilateral Investment Guarantee Agency (MIGA) convention
(since 1992) and joined the OECD Investment Committee in 1998 as an observer. As at September
2008, it had not signed the International Centre for Settlement of Investment Disputes (ICSID)

21
The ATIT (ALADI/AAP/A14TM/3) is a partial scope agreement subscribed under the framework of
the Treaty of Montevideo of 1980 of the Latin America Integration Association (LAIA).
22
Law No. 7,565 of 19 December 1986.
23
Law No. 9,432 of 8 January 1997.
24
The information requirements that must be submitted when filing for application to operate are listed
in Central Bank Circular No. 3,317 of 29 March 2006.
25
Brazil has signed BITs with: Belgium-Luxembourg, Chile, Cuba, Denmark, Finland, France,
Germany, Italy, the Republic of Korea, the Netherlands, Portugal, Switzerland, the United Kingdom, and
Venezuela (ICSID Database of Bilateral Investment Treaties. Viewed at: http://icsid. worldbank.org/ICSID/
FrontServlet?requestType=ICSIDPublicationsRH&actionVal=ViewBilateral&reqFrom=Main).
26
MERCOSUR Decision No. 11/94, Protocol on Promotion and Protection of Investment Proceeding
from Non-Member Countries of the MERCOSUR. Viewed at: http://www.cvm.gov.br/port/relinter/ingles/
mercosul/ buenos-e.asp.
27
MERCOSUR Decision No. 11/93, Protocol of Colonia for the Promotion and Reciprocal Protection
Of Investments in MERCOSUR (investment within member countries). Viewed at: http://www.cvm.gov.
br/ingl/ inter/mercosul/coloni-e.asp.
28
Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland,
France, Hungary, India, Israel Italy, Japan, the Republic of Korea, Luxembourg, Netherlands, Norway, Mexico,
Philippines, Portugal, South Africa , Slovak Republic, Sweden, Spain, and Ukraine.
29
Executive Decree DEC No. 5,654/2005 of 29 December 2005.
Brazil WT/TPR/S/212
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convention. Prior to becoming an OECD observer, Brazil subscribed to its 1976 Declaration and
Decisions on International Investment and Multinational Enterprises.

(5) INTERNATIONAL RELATIONS

(i) World Trade Organization

34. Brazil is an original member of the WTO and grants at least MFN treatment to all its trading
partners. Brazil participated and made specific commitments in the WTO negotiations on financial
services and on basic telecommunications (Chapter IV). However, it withdrew its offer on
telecommunications as some Members objected to its revised schedule, after it was unable to ratify
the Fourth Protocol (see also Chapter IV(7)(iii)). Brazil has not yet ratified the Fifth Protocol.
However, it announced in the Committee on Trade in Financial Services in November 2007, that the
Fifth Protocol had passed the first reading in both houses of the Brazilian Congress, and that the
constitutional procedures for its full adoption were near completion. 30

35. The WTO remains at the center of Brazil's trade policy and a reinforced multilateral trading
system remains a Brazilian priority. 31 Brazil conducts over three quarters of its trade with MFN
trading partners. It participates actively in the WTO and is a leading voice among developing
countries, in particular in the context of Doha Development Agenda (DDA). Brazil has presented,
alone, as part of MERCOSUR, and together with other countries, a relatively large number of
proposals in the areas covered by the DDA including proposals to liberalize trade in services 32,
agriculture33, the NAMA negotiations34, the Negotiating Group on Rules35, and intellectual property
rights.36 Brazil has presented an offer and a revised offer on services, both of which are still restricted
(as at September 2008).

36. Brazil has made a large number of notifications to the WTO but certain notifications have not
yet been made (September 2008), for instance under the Agreement on Agriculture (Table AII.1).

37. Brazil has been involved in several cases under the WTO dispute settlement mechanism
during the period under review (Table II.1). It has been a complainant in 23 matters since the WTO
was established, but only one of these cases started during the review period. Brazil was a respondent
in two cases over the period 2004-08; these related to anti-dumping measures and the banning of the
importation of retreaded tyres. Since the establishment of the WTO, Brazil has been a defendant in
14 cases and a third party in 49.

30
WTO document S/FIN/M/55, 16 November 2007.
31
WTO document WT/TPR/M/140, 24 January 2005.
32
WTO document S/CSS/W/139, 20 March 2002.
33
WTO documents WT/MIN(03)/W/6, 4 September 2003 and WT/MIN(05)/ST/8, 14 December 2005.
34
The NAMA-11 comprises: Argentina, Bolivarian Republic of Venezuela, Brazil, Egypt, India,
Indonesia, Namibia, Philippines, South Africa, and Tunisia (WTO document TN/MA/W/87, 19 June 2007).
35
These proposals are contained in the TN/RL document series.
36
WT/GC/W/564/Rev.1, TN/C/W/41/Rev.1, 6 June 2006. Communication from Brazil, China, Cuba,
India, Pakistan, Peru, Thailand, and Tanzania.
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Table II.1
WTO dispute settlement cases involving Brazil, January 2004-November 2008a
Respondent/
Subject of dispute Status WTO document
complainant
Brazil as respondent
Measures on retreaded tyres Brazil/European Panel Report circulated: 12 June 2007. Appellate WTO document series
from the EC Communities Body report circulated: 3 December 2007. WT/DS332
Article 21.3(c) Arbitration Report circulated: 29
August 2008

Anti-dumping measures on Brazil/Argentina The DSB established a panel in July 2007. On WTO document series
certain polyethylene 4 February 2008, the Chairman of the Panel informed WT/DS355
terephthalate resins the DSB that Argentina had indicated that the Foreign
Trade Chamber of Brazil had adopted a decision on
29 January 2008,to suspend the application of anti-
dumping duties on imports of PET resin from
Argentina. Therefore, Argentina asked the Panel to
suspend its work. The Panel agreed, and suspended its
work until further notice
Brazil as complainant
U.S.-Agriculture Subsidies United States/Brazil The DSB established a single panel for Brazil's WTO document series
complaint and a similar complaint by Canada at its WT/DS365
meeting on 17 December 2007

European Communities- European Panel Report circulated: 30 May 2005 Appellate WTO document series
Customs Classification of Communities/Brazil Body Report circulated: 12 September 2005. WT/DS269
Frozen Boneless Chicken Cuts Article 21.3(c) Arbitration Report circulated:
20 February 2006

United States – Subsidies on United States/Brazil Panel Report circulated: 8 September 2004. Appellate WTO document series
Upland Cotton Body Report circulated: 3 March 2005. Article 21.5 WT/DS267
Panel Report circulated: 18 December 2007. Article
21.5 Appellate Body Report circulated: 2 June 2008.

EC – Export Subsidies on Sugar European Panel Report circulated: 15 October 2004. Appellate WTO document series
Communities/Brazil Body Report circulated: 28 April 2005. WT/DS266
Article 21.3(c) Arbitration Report circulated:
28 October 2005

Equalizing Excise Tax Imposed United States/Brazil Mutually Agreed Solution notified: 2 June 2004 WTO document series
by Florida on Processed Orange WT/DS250
and Grapefruit Products

a Disputes on which any action was taken under DSU provisions between January 2004 and June 2008.

Source: WTO Secretariat.

(ii) Preferential agreements

(a) General features

38. Brazil attaches great importance to regional trade agreements as a valuable complement to,
though not a substitute for, a fair, balanced, transparent, rule-based, and non-discriminatory
multilateral trade system.37 Brazil is a founding member of the Southern Common Market
(MERCOSUR). In addition, through its participation in MERCOSUR, Brazil has preferential trade
agreements in force with: Bolivia; Chile; Colombia, Ecuador, and Venezuela; Cuba; Mexico; and
Peru; and in the framework of the Latin American Integration Association (LAIA), Brazil has
Economic Complementarity Agreements (ECAs) in force with Guyana and Suriname (Table AII.2).

37
WTO document WT/TPR/M/140/Add.1, 15 February 2005, p. 26.
Brazil WT/TPR/S/212
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(b) MERCOSUR

39. MERCOSUR is by far Brazil's most important preferential agreement in terms of value of
trade, although only some 10% of Brazil's merchandise trade takes place with the three other
MERCOSUR members (Argentina, Paraguay and Uruguay). The Common Market was established in
November 1991 by the Treaty of Asunción 38; the Protocol of Ouro Preto, signed in December 1994,
provides the institutional structure. The main decision-making body, the Council for the Common
Market, comprises Ministers of Foreign Affairs and of Finance of the member countries. 39 The
Common Market Group, MERCOSUR's executive body, is in charge of supervising the application of
the Treaty of Asunción, its protocols and the agreements signed within its framework. It is also
responsible for negotiating with third countries, groups of countries, and international organizations.
The Common Market Group issues Resolutions, which are mandatory for the member countries.
Within the Common Market Group there are a number of working groups, committees, and ad-hoc
groups. The Trade Commission is responsible for the application of common trade policy
instruments, as well as for the follow-up and revision of related issues.

40. MERCOSUR's Common External Tariff (CET) entered into force on 1 January 1995, with a
number of sector- and country-specific exceptions. Under Decisions CMC 21/02, 31/03, 38/05 and
59/07, Brazil maintains, exception lists comprising 100 tariff lines until 31 December 2009, to be
trimmed to 50 tariff headings in the second half of 2010, and eliminated by 31 December 2010. 40
These exceptions together represent 0.7% of Brazilian tariff lines (Chapter III(2)(iv)(a)).

41. Negotiations for the establishment of a MERCOSUR automotive policy, dealing with both
intra-MERCOSUR and external trade, were concluded in June 2000 between Brazil, Argentina
and Uruguay; Paraguay accepted the regime in 2001. 41 However, this agreement has not fully entered
into force (mid-2008) and intra-MERCOSUR trade in the automotive sector is ruled by
bilateral agreements.42

42. The Protocol of Olivos, signed in February 2002 and in force since January 2004 replaced the
Protocol of Brasilia as MERCOSUR's dispute settlement mechanism. The Protocol of Olivos
provides for the choice of forum (MERCOSUR or WTO) for a dispute, recourse to mediation by the
Group Common Market upon agreement by the parties, and a review procedure. The main change
with respect to the Protocol of Brasilia is the establishment of a Permanent Review Court (PRC) of
five arbitrators. The Protocol of Olivos provides for compensatory measures pursuant to total or
partial non-compliance with an award of the arbitration court. During the period under review, Brazil
participated as a respondent in one dispute brought by Uruguay, in 2002, under the Protocol of
Brasilia; the dispute, which concerned trade measures on tobacco products, was concluded in 2005. 43

38
MERCOSUR is incorporated in the LAIA legal regime as Economic Complementarity Agreement
No. 18. LAIA economic complementarity agreements must be open for accession by any LAIA country.
39
MERCOSUR online information. Viewed at: http://www.mercosur.org.uy/pagina1esp.htm.
40
Paraguay and Uruguay were authorized to maintain lists of exceptions of 150 and 125 tariff headings,
respectively, until 31 December 2010 (MDIC online information. Viewed at: http://www.
desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=1386&refr=374).
41
Council of the Common Market Decisions Nos. .70/00 and 04/01. Viewed at: http://www.
mercosul.gov.br/normativas/default.asp?key=1227; and http://www.mercosul.gov.br/normativas/default.asp?
key=1583.
42
Brazil/Argentina: 31st Amendment to the ACE-14; Brazil/Uruguay: 60th Amendment to the ACE-
02; and Argentina/Uruguay: Partial Agreement No. 57.
43
For the MERCOSUR Tribunal's ruling, see: http://www.mercosur.int/msweb/portal%20
intermediario/es/controversias/arquivos/X%20LAUDO.pdf.
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43. In June 2002, the Council of the Common Market adopted the WTO Agreements on Anti-
Dumping and on Subsidies and Countervailing Measures for the application of these contingency
measures to intra-MERCOSUR trade (CMC/DEC/13/02 and CMC/DEC/14/02, respectively).
Decision CMC No. 17/96 regulates the application of safeguards on imports from third parties. The
49th Additional Protocol to the MERCOSUR, of 24 June 2005, incorporates Decision CMC
No. 17/04, on the Regime of Application of Safeguard Measures to non-MERCOSUR members. It
was incorporated into Brazilian law through Decree No. 5,573, of 8 November 2005. Decision CMC
No. 17/04 is awaiting incorporation in the internal legislation of other MERCOSUR members and has
not entered into force. In December 2003, the Council of the Common Market adopted
MERCOSUR's Protocol on Government Procurement; a revision of the Protocol adopted in 2006, has
not yet entered into force.

44. The Protocol of Montevideo on Trade in Services in the MERCOSUR entered into force on
7 December 2005, following ratification by Argentina, Brazil, and Uruguay; Paraguay has yet to
ratify the Protocol. Pursuant to GATS Article V:7, the Protocol of Montevideo on Trade in Services
in the MERCOSUR was notified to the Council for Trade in Services (CTS) on 5 December 2006
(S/C/N/388, and Corr.1). The Protocol is of indefinite duration and aims to apply the relevant
services provisions of the Treaty of Asunción; it establishes a programme for the liberalization of
intra-trade in services within an overall implementation period of ten years from entry into force, i.e.
by December 2015. The Protocol was reviewed in the WTO Committee on Regional Trade
Agreements in September 2008.44

(c) Other trade arrangements and agreements

45. Brazil participates in the Global System of Trade Preferences among Developing Countries
(GSTP). Like other MERCOSUR members, Brazil grants preferences to participating countries on
some 98 HS96 tariff headings. The preferences range from to 10% to 50% and include agricultural
products, fuels, chemical products, hides and skins, ferrous and steel products, among others. 45

46. The free-trade agreement between MERCOSUR and Israel was signed on 18 December 2007.
The agreement establishes the gradual elimination of tariffs, based on a schedule with four categories,
within a ten-year timeframe. The agreement has provisions on rules of origin; dispute settlement;
safeguards; technical regulations, standards, and conformity assessment procedures; sanitary and
phytosanitary measures; and technical and technological cooperation, as well as an annex on the
promotion of mutual assistance in customs matters. 46 The agreement provides for its entry into force,
bilaterally, after ratification by Israel and one of the MERCOSUR states. The agreement is not yet in
force in Brazil.

47. Trade negotiations between MERCOSUR and the European Union are based on the EU-
MERCOSUR Interregional Framework Co-operation Agreement, signed in December 1995. The
negotiations were formally launched in 1999 and tariff and services negotiations began in July 2001.
Market offers exchanged in September 2004 included goods, services, government procurement, and
investment, but were not deemed enough for an agreement. 47 Since then, there have been a number of
ministerial and senior official contacts but no formal resumption of negotiations.

44
WTO document WT/REG/M/50, 24 October 2008.
45
For the complete list, see: http://www.unctadxi.org/Secured/GSTP/Concessions/mercosur_en.pdf.
46
For the text of the agreement, see:
http://www.desenvolvimento.gov.br/arquivos/dwnl_1198263089 .doc.
47
For the details of the offer, see: http://www.mre.gov.br/index.php?option =com_content&task=view
&id=337&Itemid=301.
Brazil WT/TPR/S/212
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48. In May 2007, the EU recommended the launch of a strategic partnership to further deepen its
ties with Brazil. The first EU-Brazil Summit was held in Lisbon in July 2007. 48 Topics to be
addressed under the new partnership include effective multilateralism, climate change, sustainable
energy, strengthened trade and economic relations, and the fight against poverty. 49

49. MERCOSUR and India signed a framework trade agreement on 17 June 2003, which
provided for the negotiation of a partial scope agreement, signed on 25 January 2004 (annexes were
signed on 19 March 2005). The agreement contains disciplines on safeguards, anti-dumping and
countervailing measures, technical barriers to trade, and sanitary and phytosanitary measures, as well
as dispute settlement procedures. The trade agreement covers 450 tariff lines for India and 453 lines
for MERCOSUR, with reductions of between 10% and 20% on the MFN tariff. As at September
2008, the agreement was not yet in force, pending ratification by Uruguay.

50. MERCOSUR and South Africa signed a framework agreement in December 2000; its main
objective is the conclusion of a free-trade agreement. The other four member countries of the
Southern African Customs Union (SACU) joined the negotiations in 2003, and a preferential trade
agreement between MERCOSUR and SACU was concluded in April 2008. The authorities note that,
as at November 2008, the parties are working on a date for the signature within 2008.

51. Brazil is negotiating preferential trade agreements with Egypt, the Gulf Cooperation Council
(GCC), Jordan, Morocco, and Turkey. Discussions on the possible conclusion of a MERCOSUR-
CARICOM trade agreement have also started.

(6) AID FOR TRADE

52. As a member of the WTO Task Force, Brazil has been participating actively in the
development of the Aid-for-Trade (AFT) process. Its framework for trade-related assistance, as
proposed within the context of AFT, results from the Government's efforts to give development
central priority. Brazil's role in the AFT initiative is twofold, as recipient and as a participant in
south-south cooperation (donor).50

53. Brazil proposed guidelines on AFT, stated in its non-paper 51, aim to separate the development
aspect of cooperation from the potential underlying motivations for providing it. Hence, Brazil
proposes that Aid for Trade: (a) should not be conceived as a substitute for the development gains to
be derived from negotiations on market access and the elaboration of balanced trade rules; (b) must
play an important role in facilitating adjustment; (c) should be funded with additional resources to
those already in place, and for the most part should be on concessional terms or in grant form;
(d) should be provided without imposing conditionality, bearing in mind the particularities of the
recipient countries; (e) should not be used as a bargaining tool; and (f) "ownership" must remain
with members receiving AFT.52

48
1st EU-Brazil Business Summit. Lisbon 4 July 2007, Joint Declaration of Brazilian and European
Business. Viewed at: http://ec.europa.eu/external_relations/brazil/docs/2007_joint_decl_040707_en.pdf.
49
European Commission External Relations online information. Viewed at: http://ec.europa.eu/
external_relations/brazil/index_en.htm.
50
Brazil stressed this point in its submission to the Aid for Trade OECD/WTO Report. Viewed at:
http://www.oecd.org/dataoecd/54/30/39835215.pdf.
51
WTO documents WT/AFT/W/10, 22 May 2006, and WT/AFT/W/10/Rev.1, 7 June 2006.
52
WTO document WT/AFT/W/10/Rev.1, 7 June 2006.
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54. Brazil played an important role in developing the thematic areas and activities of technical
support and capacity-building that should be eligible for cooperation under the Aid for Trade
programme. Themes proposed by Brazil include supply-side constraints (such as trade-related
infrastructure), adjustment costs and the establishment of trade and poverty reduction frameworks,
social infrastructure programmes, and erosion of preference assistance. 53

55. With a view to making AFT truly effective and operational, Brazil suggested a mechanism
that allows Members to request AFT assistance according to their own priorities and needs; and for
the relevant organizations to respond in a coordinated way. There is also a need for continuous
evaluation of AFT projects in order to ensure effectiveness and such a mechanism should make an
overall assessment on the additionality of resources.

56. In its capacity as development partner, Brazil supports the development and provision of
south-south cooperation programmes because "developing countries have consolidated a knowledge-
based expertise of problems affecting each other". 54

57. According to Brazil, in addition to the work done by various international organizations,
financial institutions, and development agencies, attention must be geared towards increased dialogue
between the public and private sectors, in order to guarantee an in depth assessment of AFT needs and
the effectiveness of AFT projects.

58. The Brazilian Agency for Cooperation (ABC), part of the Ministry of External Relations 55,
leads national efforts in technical-cooperation-related AFT, coordinating more than 120 participating
entities.56 ABC maintains an online database of projects, and has assessed the "real value" of its
overall outward technical cooperation for 1998-2003 at US$225 million. 57

59. Through, inter alia, direct training or knowledge-transfer activities countries of Latin
America, Africa, and the Caribbean have benefited from Brazilian trade cooperation, in areas such as:
promotion of imports; simplified export procedures through postal and courier services;
enhancement of productive capacity; agriculture and bio-fuels; and cooperation to enhance the social
impact of trade development. Moreover, Brazilian expertise has been sought in order to strengthen
developing countries' negotiating knowledge and skills, through the organization of courses on trade
policy and trade negotiations. Officials from Angola, Cape Verde, Guinea Bissau, Mozambique,
East Timor, and Sao Tome and Principe have participated in these types of activities, which have been
conducted through the Community of Portuguese Speaking Countries (CPLP). The Brazilian
Government also organized a course on the WTO dispute settlement system for officials of South
American countries.

53
WTO document WT/AFT/W/10/Rev.1, 7 June 2006.
54
WTO document WT/AFT/W/10, 22 May 2006.
55
OECD 2007, Aid for Trade at a Glance 2007: Country & Agency Chapters, Brazil.
56
ABC online information. Viewed at: http://www.abc.gov.br/abc/abc_ctpd_parcerias.asp.
57
The assessment was carried out on the basis of a study of the Brazilian south-south technical
cooperation undertaken by the UNDP in 2005. The study indicated that each dollar spent by ABC in a technical
cooperation project corresponded to $15 worth of technical and consultancy services provided to the recipient
country (O que é a Agência Brasileira de Cooperação. Viewed at: http://www.abc.gov.br/intranet/
Sistemas_ABC/siteabc/documentos/via-ABC.pdf).
Brazil WT/TPR/S/212
Page 25

60. Brazil's position as a recipient of AFT is reported in standard information systems.

According to the WTO OECD Doha Development Agenda Trade Capacity Building Database,
international trade-related assistance committed to Brazil averaged US$92.7 million a year during
2004-07, which includes all concessional and non-concessional grants and loans; if only grants and
concessional loans are considered average annual assistance is lower, at US$14.4 million. 58

58
WTO OECD Doha Development Agenda Trade Capacity Building Database. Viewed at:
http://tcbdb.wto.org/ben_country.aspx?tab=331&entityID=153.