Monster Media 1993 #2/Image.iso/text/brazil.zip/ECOPOL.TXT

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BRAZIL TRADE DIRECTORY ON DISK







TITLE       : Brazil Economic Policy and Trade Practices


Brazil

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/pharma-
ceutical 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