Monster Media 1993 #2/Image.iso/database/brazilt.zip/TRADEPOL.TXT

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BRAZIL TRADE DIRECTORY ON DISK





TITLE       : BRAZIL - ECONOMIC AND TRADE POLICY -





                                Key Economic Indicators


                                                1989     1990    1991

          Income, Production, Employment

          GDP (Bil.dol)                        370.0    355.0   358.0 13/
          Real GDP Growth (percent)              3.6     -4.0     0.8 1/
          Real GDP Sectoral Growth
            (percent)
            Agriculture                          2.2      1.0     3.0 1/
            Industry                             3.9     -8.0    -0.8 1/
            Service                              3.7      1.5     1.6 1/
          GDP Per Capita (dollars)           2,593.0  2,489.0     N/A
          Unemployment rate
            (Yr.end pct.)                        2.4      4.8    4.04 2/

          Money and Prices

          M-1 (Bil.cruz. yr.end)               103.1  1,651.0   6,139 3/
          Comm. Interest Rate                   62.2     28.5    24.0 4/
            (Ave. Monthly Rate)
          Gross Savings Rate                    22.5     21.0     N/A
            (Pct. GDP)
          Gross Domestic Investment             22.4     20.5     N/A
            (Pct. GDP)
          Consumer Price Increase            1,764.9    1,650     382 5/
            (Pct.)
          Wholesale Price Increase           1,748.8    1,509     359 6/
            (Pct.)
          Official Exch. Rate (Cruzeiro/US$)
            (annual pct. incr.)              1,401.3    1,091     505 7/
          Parallel exch rate                 2,039.9      470     617 8/
            (annual pct. incr.)

          Balance of Payments and Trade

          Total Exports (Bil.dol)               34.4     31.3    21.9 9/
          Total Imports (Bil.dol)               18.3     20.1    13.4 9/
          Total Exports to U.S.                  8.0      7.2     N/A
          Total Imports from U.S.
            (Bil. dol.)                          4.8      5.1     N/A
          U.S. Aid (Mil. dol)                    8.9      9.4     N/A
          Total Aid                              N/A      N/A     N/A
          Total U.S. Investment
           (Bil. dol.)                          11.4     11.6     N/A
          Total Foreign Debt                   ll5.1    124.0   118.4 10/
           (Yr.-end bil. dol.)
          Ann. Debt Serv.(bil dol)              15.5      9.2     N/A
          For. Exchange Less Gold                7.3      8.7     8.1 11/
            (Bil. dol.)
          Gold (Bil dol)                         N/A      N/A     N/A
          Current Account (Bil. dol.)            1.6      2.2     1.8 12/

1/ Forecast by the IPEA/Ministry of Economy.
2/ As of September 1991.
3/ As of September 1991.
4/ Cost of money for working capital for 30 days average for October 1991.
5/ National consumer price index (INPC-FIBGE) last twelve months ending in
September 1991.
6/ Wholesale price index (IPA-FGV) last twelve months ending in Sept 1991.
7/ Commercial dollar rate, last twelve months ending in October 1991.
8/ Parallel dollar (Sao Paulo market), last twelve months ending in October
1991.
9/ January-August 1991.
10/ As of March 1991.
11/ As of August 1991.
12/ January-June 1991.
13/ Estimate.



1.  General Policy Framework

   Brazil has a population of 155 million on a landmass which constitutes 48
percent of South America.

   Upon assuming office in March 1990, President Collor immediately
announced his intention to implement sweeping economic reforms designed to
stop inflation and integrate Brazil into the developed world economy.
Although Collor's first two economic programs have significantly reduced
trade barriers, the failure to reduce substantially Brazil's large fiscal
deficit has resulted in the continual resurgence of inflation and a lack of
confidence in the government's economic policy.

   With inflation running at a monthly rate near 25 percent in October 1991
and accelerating, the government is hoping to implement a tax reform program
prior to the end of 1991 which would substantially reduce the fiscal
deficit, enable Brazil to obtain an IMF program, reschedule its external
debts owed to commercial banks and Paris Club creditors, and regain
private-sector confidence in the ability of the government to maintain a
stable economic environment.

   Given Brazil's history and the current lack of support for President
Collor in the Congress, the domestic and external financial markets are
highly skeptical that the government will be able to achieve all of these
objectives and that structural inflation can be reduced from the monthly
double-digit range.

   Monetary Policy:  Brazil has made many attempts during the 1980s to
tighten monetary policy in an effort to reduce inflation.  However, these
attempts were compromised by the failure of the government to correct a
large fiscal deficit, forcing the Central Bank to soften its policies.  In
March 1990, the Collor government introduced a stabilization program (Collor
I) which included price controls and the blocking of about two thirds of the
financial assets in the economy for a period of 18 months.  These measures
initially stopped inflation (then approximately 90 percent per month) and
substantially slowed economic activity.  Concerns about negative growth led
the government to prematurely release a large portion of the blocked
assets.

   By mid-1990 the monthly inflation rate was around 10 percent and by the
end of the year it was in the 20 percent range.

   On January 31, 1991 the Collor government introduced another package of
measures designed to reduce inflation (Collor II).  The package included
wage and price controls.  It also eliminated the generalized "overnight"
market, which was complicating monetary policy, through the imposition of a
graduated tax on early withdrawals.  The program initially brought monthly
inflation below 10 percent.  However, the failure to reduce the structural
fiscal deficit, intermittent tightening and loosening of monetary policy,
the unfreezing of prices and wages by the third quarter, and the unfreezing
of remaining blocked accounts resulted in monthly inflation rising above 20
percent by the fourth quarter.

   Large fiscal deficits and uneven monetary policy are the underlying
factors causing inflation in Brazil.  During the first Collor plan, the
government managed to reduce the operational fiscal deficit from nearly 7
percent of GDP in 1989 to a surplus of 1.3 percent of GDP.  However, the
bulk of the improvement was made through a series of one-time measures that
did not address the structural deficit.  Among such measures were the
payment of negative real interest rates on the blocked financial assets and
government securities, the payment of low real wages to public-sector
employees, and a one-time financial assets tax.  The operational deficit in
1991 is expected to be on the order of 3 percent of GDP and is on a rising
trend.  The government has presented a series of tax reform proposals
designed to simplify and increase revenues in an effort to improve its
fiscal position.  This program passed the Congress at the end of 1991.


2.  Exchange Rate Policies

   Brazil has three exchange rates: a commercial rate, the tourist rate and
the underground, but officially tolerated, parallel rate.  Import-export
transactions utilize the commercial rate, while the tourist and parallel
rates are generally for individual transactions.  During 1991 the Central
Bank intervened in the commercial market on a daily basis to allow the
cruzeiro to depreciate against the dollar in small, uneven increments.  The
Central Bank also strived to maintain the spread between the parallel and
commercial rates at about 12 percent.  Private arbitrage generally keeps the
tourist rate slightly below the parallel rate.  Increases in the spread
between the parallel and commercial rates had generally been seen as an
indicator of future expectations of inflation and depreciation of the
commercial rate, but the parallel rate is heavily influenced by short-term
speculative movements.

   During most of 1991, depreciation of the various rates was not enough to
offset increasing inflation; throughout most of the year the Brazilian
currency was viewed by many economists to be at least 20 percent overvalued
in relation to the the U.S. dollar.  However, in the last quarter of 1991,
the commercial rate was devalued by 15 percent in real terms, so that, as of
November, the exchange rate became more closely aligned with international
purchasing power parities.  However, the spread between the parallel and
commercial rates has widened, reaching a peak of 42 percent in late October,
indicating future volatility in the exchange markets.


3.  Structural Policies

   In August 1991 the government began to return the remaining blocked
financial assets, and, in the third quarter, reduced price controls decreed
under the two Collor plans.  Although the government has spoken of the
possibility of selectively reimposing some price controls, prices are now
largely determined by market demand.

   Tax policies were undergoing a major review at the time of writing.  The
Collor Administration has proposed a four-tier personal income tax that
would raise the marginal rate to 35 percent and eliminate many exemptions.
At the same time, other bills in Congress could establish a unitary personal
income tax and a comprehensive value-added tax.

   While Brazilian tariffs remain relatively high, rates were substantially
reduced in March 1991, especially for machinery and raw materials.  The
current trade-weighted average tariff rate is approximately 32 percent, with
a maximum rate of 85 percent, down from 105 percent in 1990.  At present,
only 600 items of traded goods enjoy bound Most-Favored-Nation status in
Brazil, about 5 percent of the total, compared to an average of 90 percent
among GATT members.


4.  Debt Management Policies

   Brazil's external debt totalled about $120 billion at the end of 1990.
About half of this amount represents commercial bank medium and long-term
loans.  In July 1989, Brazil stopped servicing payments on medium and
long-term debts owed to commercial banks.  By the end of 1990, interest
arrears owed to banks totalled nearly USD 9 billion.  In January 1991,
Brazil resumed paying 30 percent of interest payments falling due to banks.
In April 1991 Brazil and its commercial bank creditors agreed on a program
that involved payment in cash of 25 percent of the arrears outstanding as of
December 1990 and the issuance of 10-year bonds for the remainder.

   Brazil is currently negotiating with its creditor banks on a Brady Plan
package that would reschedule medium and long-term debts and eliminate
remaining arrears.  Brazil also wants to renegotiate its bilateral official
debt under a Paris Club accord.  Both, however, are contingent on an
agreement with the IMF on a stabilization program which was approved in
January 1992.  A major condition for IMF approval was the passage by the
Brazilian Congress of a tax package to help close the fiscal deficit.

   As of November, Brazil's debt service ratio (total external debt service
payments to exports) was approximately 45 percent, while the ratio of
interest payments to exports of goods and services was about 24 percent;
Brazil's debt ratio (total external debt to GNP) was about 30 percent.


5.  Significant Barriers to U.S. Exports

   Import Licenses:  Although Brazil requires licenses for virtually all
imports, the Collor Administration has generally abandoned the country's
long-standing practice of using them as a non-tariff barrier to protect
domestic industry except in the case of computer and digital electronics
equipment which will be subject to restrictive licensing until October 29,
1992.  At that time, licensing is expected to become automatic.  Licenses
are now used for statistical and exchange-control purposes and are issued
automatically within five days by the Banco do Brasil.  Plans call for all
private banks to be authorized to issue import licenses by March 1992; a
pilot program already allows five private bank branches to do so.

   Services Barriers:  Restrictive investment laws, lack of administrative
transparency, legal and administrative restrictions on remittances and the
occasionally arbitrary application of regulations and laws limit U.S.
service exports to Brazil.  Service trade possibilities are also affected by
limitations on foreign capital participation in many service sectors.
Foreign companies are prevented from providing technical services unless
Brazilian firms are unable to perform them.  Brazilian cargo reserve laws
restrict maritime competition.

   Financial services, in particular, are severely restricted under the 1988
Constitution, though the full extent of those restrictions will remain
unclear until implementing legislation is passed, probably during 1992.  As
of November 1991, no new foreign banking investments are allowed, and
existing foreign banks are prevented from doing business with parastatal
companies or from acting as depositories for federal tax receipts.

   Foreign participation in the insurance industry is impeded by limitations
on foreign investment, market reserves for Brazilian firms in areas such as
import insurance, and the requirement that parastatals purchase insurance
only from Brazilian-owned firms.  Further, the lucrative reinsurance market
is reserved for the state monopoly, the Reinsurance Institute of Brazil
(IRB).

   Investment Barriers:  In addition to the restrictions on insurance and
financial services investments mentioned above, foreign investment is
prohibited in other sectors, including petroleum production and refining,
public utilities, media, real estate, shipping and various "strategic
industries."  In still other sectors, Brazil limits foreign equity
participation (such as in computer and digital electronics equipment),
imposes local content requirements and links incentives to export
performance.

   In September 1991, the Collor Administration proposed several amendments
to the national constitution, two of which, if passed by Congress, would
rescind state monopolies in the petroleum sector and remove the limit on
foreign equity participation in mining.  In November it was still uncertain
whether the amendments would eventually be passed by Congress.

   Brazil restricts dividend and profit remittances in an effort to spur
domestic reinvestment.  Annual remittances by foreign firms exceeding 12
percent of registered capital are taxed at steeply graduated rates to a
maximum of 60 percent.  As of November 1991, the Brazilian Congress was
considering a major revision of the law governing foreign remittances which
would considerably reduce the overall tax rate.  As with the proposed
amendments on state monopolies, the situation was inconclusive, but with
indications that the revision would eventually be approved.

   As part of the Collor I economic stabilization plan, almost all Brazilian
financial accounts were frozen in March 1990.  The government also blocked
an estimated $1.5 billion in deposits awaiting foreign remittance for a
period of six weeks, then allowed their release over the following six
months.  The government has stated its intention not to impose another
remittance block despite increasing inflationary pressures.

   Brazilian governments in the past have not hesitated to apply price
controls on a wide range of industrial products in attempts to fight
inflation.  Established foreign investors in Brazil, notably in the auto and
pharmaceutical industries, have complained that formerly inflexible price
controls forced them into unprofitable production and resulted in lower
investment levels.  Although the Collor Administration has abolished
controls on most items, it has threatened to impose selective price controls
on those products having increases out of proportion to production costs.

   Informatics:  In 1984 Brazil approved a law codifying and extending
policies followed since the 1970's to promote a national computer industry.
The informatics sector is broadly defined to include not only computers and
parts, but all other devices incorporating digital technology.  The law
granted Brazil's executive branch the authority to restrict imports and
foreign investment in this sector through October 1992.  U.S. export and
investment losses resulting from Brazil's restrictive informatics policies
have been substantial, although no reliable quantitative estimates are
available.

   The restrictive Brazilian informatics law was the subject of a U.S.
initiated Section 301 investigation between 1985 and 1989.  Upon assuming
office, the Collor Administration undertook to revise the informatics policy
with the aim of lowering domestic acquisition costs and improving user
access to imported or locally-manufactured foreign technology.  The
administration proposed a new law which was passed by Congress in September
1991 and signed by President Collor in October.  The law upholds the October
1992 date for ending the restriction on imported informatics products and
allows foreign firms to enter the market (although full foreign ownership is
still limited by the new law) without being compelled to set up Brazilian
majority-owned joint ventures, as required under the previous informatics
law.

   Data Processing and Telecommunications:  In July 1991 Brazil partially
opened up the market for telecommunications, allowing private sector use of
public telephone lines for domestic and international data communications,
and the installation of private satellite receivers.  Other changes during
1991 include the expiration of the market reserve for telephone switching
equipment, and the new informatics law, which will make it easier to import
telecommunications- related computing equipment both immediately and after
1992.

   Common Market of the South (MERCOSUL):  In August 1990, Brazil,
Argentina, Paraguay and Uruguay jointly signed a treaty establishing a
timetable for creation of the Mercosul common market.  The target date for
complete economic integration is 1995, by which time the four countries aim
to harmonize tariffs, industrial and transportation standards, intellectual
property and consumer protection codes, and institute similar tax regimes.
The Brazilian Congress ratified the treaty in October 1991.

   The United States has encouraged the creation of Mercosul and, in June
1991, embraced it as part of the Enterprise of the Americas Initiative under
the "Four plus One" agreement, whereby the U.S. and the four countries in
Mercosul will consult closely on trade and investment relations.  However,
the effects that Mercosul might have on U.S. exporters and investors are
still unclear.  Manufacturers with local operations may find advantages in
rationalizing production facilities among the four countries and welcome
harmonization of tariffs, consumer codes and other laws to the extent that
it simplifies access to the larger market.  Others, particularly exporters
to the Mercosul countries, fear that possible "upward" harmonization of
non-tariff barriers could restrict their access to existing markets.

   Government Procurement:  Federal, state and municipal governments in
Brazil, as well as related agencies and companies, follow a "buy national"
policy.  Brazil rescinded a law prohibiting foreign-owned firms from bidding
on public sector contracts financed by international financial
institutions.  However, some state-controlled firms still specify contracts
as open only to "national" firms.

   Although Brazil now applies "buy national" policies informally, the
Brazilian constitution mandates government discrimination in favor of
"Brazilian companies with national capital."  However, these Constitutional
provisions have not been implemented.  The Collor Administration has
proposed a constitutional amendment which would substantially alter the
definition of "national capital," which might reduce or eliminate the the
threat of discrimination against subsidiaries of foreign companies in
government procurement contracts.

   While federal agencies and parastatals have been given additional leeway
under the Collor Administration to import foreign manufactured goods, there
is still evidence of the tendency to exclude non-Brazilian suppliers
whenever possible.  One example is the new informatics law, which calls for
government procurement from non-Brazilian companies only if nationally made
equipment/services are not competitive.

   Brazil is not a signatory to the GATT Code on Government Procurement.


6.  Export Subsidies Policies

   While Brazil had a broad range of export subsidy programs for
manufactured goods and processed agricultural products, all were abolished
in mid-1990 with the advent of the Collor Administration.

   In 1991 the government established PROEX, an export-import financing
fund.  In October 1991, interest rates for export credits were 8 and 8.5
percent for, respectively, developing and developed countries.  These rates,
and other rules affecting export incentives, are considered to broadly
conform to the Organization for Economic Cooperation and Developement
guidelines.


7.  Protection of U.S. Intellectual Property

   The Collor Administration has made a commitment to modernize Brazil's
intellectual property code to bring it more into line with developed country
standards.  In March 1991 the government submitted a draft bill to Brazil's
Congress for a law that would address some, although not all, of the
concerns expressed by foreign governments and companies, as well as by an
increasing number of Brazilians who recognize the need for effective
protection of intellectual property rights.  As of November 1991, Congress
was considering the bill; a date for possible approval of the law remained
uncertain.

   Patents:  Brazil currently does not provide either product or process
patent protection for metal alloys, chemical compounds, food and
chemical/pharmaceutical substances, or biotechnological inventions.  The
government bill would recognize all but the latter category, for which
another bill is being drafted.  However, the bill includes onerous
compulsory licensing provisions, does not contain transition protection for
previously non-patentable subject matter which has not yet been placed on
the Brazilian market, allows for parallel importation of patented products
and includes a "working requirement."

   Trademarks:  All licensing and technical assistance agreements (including
franchising), as well as trademark licenses, must be registered with the
National Institute for Industrial Property (INPI).  Without such
registration, a trademark or patent may be cancelled for non-use.  As a
signatory of the Paris Convention, Brazil theoretically respects well-known,
internationally recognized trademarks.  In practice, bogus trademark
registrations have regularly occurred, often resulting in protracted legal
actions by the legitimate trademark owners.  A recent reorganization of
INPI's trademark office may help to reduce this problem.  The government
bill also attempts to rectify this by providing a more ample definition of
"well-known trademarks."

   Copyrights:  While Brazil's copyright law, including specific legislation
on computer software, generally conforms to world standards, it is often
vitiated by weak enforcement.  An estimated 50 percent of the Brazilian home
video market, for example, is lost to pirated tapes -- sold or rented
publicly by retail shops and street vendors.  As of November, a government
bill amending the penal code and establishing stronger penalties for
copyright violations is pending congressional approval.  American film
industry representatives believe that the law, if passed, will facilitate
the seizure and destruction of pirated material.

   Impact on U.S. Trade:  A Section 301 investigation was initiated
following the submission of a petition by the Pharmaceutical Manufacturers
Association (PMA).  The investigation focused on the lack of patent
protection for pharmaceuticals.  In 1988, 100 percent ad valorem tariffs
were imposed on $39 million worth of U.S. imports from Brazil.  Those
sanctions were ended in June 1990 after the current Brazilian administration
announced its commitment to revise the industrial property code to extend
patent protection to pharmaceuticals.  The PMA has claimed that its member
companies' losses exceeding $100 million in Brazil due to inadequate
protection of intellectual property rights.  The U.S. motion picture
industry estimates its annual losses from piracy in Brazil to be on the
order of $50 to $80 million per year.  Software distributors for both
imported and domestic products estimate that their losses due to piracy
amount to 250 percent of the $80 million sales in 1990.


8.  Worker Rights

   a.  The Right of Association

   Brazil's Constitution and Labor Code provide for union representation for
all Brazilian workers.   The right to strike is protected by the
constitution and is vigorously exercised.  However, essential services must
remain in operation during a strike.  Workers must notify employers at least
48 hours before a walkout.  Abuse of the right to strike is punishable under
the law.  Although a court declared one strike abusive in 1991, the courts
have been applying this law with more discretion.  Brazil has three central
labor orgainizations with international affiliations.

   b.  The Right to Organize and Bargain Collectively

   The right to organize is guaranteed by the constitution and trade unions
are legally mandated to represent workers.  The government encourages labor
and management to resolve differences through collective bargaining.
Nevertheless, a system of special labor courts continues to exercise
normative powers over the settlement of labor disputes, thereby discouraging
direct negotiation.

   c.  Prohibition of Forced or Compulsory Labor

   Although the constitution prohibits forced labor, enforcement of labor
laws is often lax.  There have been cases of forced labor involving migrant
workers in jungle areas.

   d.  Minimum Age for Employment of Children

   The minimum working age under the constitution is 14, except for
apprentices.  For youths under 18, laws regulate night work, prohibit
employment in unhealthy, dangerous, or morally harmful occupations, and
require primary school attendance.  However, enforcement is lax.  It is
estimated that 34 percent of all children between the ages of 10 and 14 are
economically active, many in violation of the law.

   e.  Acceptable Conditions of Work

   The Constitution and labor laws establish minimum salaries and maximum
workweeks and regulate worksite conditions.  However, enforcement leaves
much to be desired.  Some 40 percent of the economically active population,
including minors, earns no more than the minimum monthly salary.  Worker
health and safety laws are poorly enforced and, according to the latest
available statistics, Brazil ranks first worldwide in the rate of workplace
accidents.

   f. Rights in Sectors with U. S. Investment

   Conditions in sectors with U.S. investment do not differ from those in
the rest of the economy.




            Extent of U.S. Investment in Goods Producing Sectors

                   U.S. Direct Investment Position Abroad
                      on a Historical-Cost Basis - 1990
                         (Millions of U.S. dollars)

Category                                         Amount

Petroleum                                           650
Total Manufacturing                              11,286
      Food & Kindred Products                       870
      Chemicals & Allied Products                 2,172
      Metals, Primary & Fabricated                1,232
      Machinery, except Electrical                2,169
      Electric & Electronic Equipment               742
      Transportation Equipment                    1,520
      Other Manufacturing                         2,581
Wholesale Trade                                     302

TOTAL PETROLEUM/MANUFACTURING/WHOLESALE TRADE    12,238

Source:  U.S. Department of Commerce, Survey of Current Business
      August 1991, Vol. 71, No. 8, Table 11.3