Problems relating to Trade and Investment on Brazil

 
1. Restrictions on entry of foreign capitals
Issue
Issue details
Requests
Reference
(1) Discriminatory Treatment between Domestic and Foreign under Preferential Tax Scheme favouring Local Production - Under the tax incentive measures for home production, GOB grants exemption or reduction of import duty and industrial tax on domestic industries (import duty varies by geographical regions). For goods on which import contents exceed 40% of the sales price due to the change in ICMS tax that favours production in the place of consumption, GOB requires description of import contents values on invoices..
- Thanks to Preferential Measures on Home Production, domestic enterprises enjoy reduced import duty and industrial tax (while import duty varies by district). Companies which do not have the local production bases in Brazil have lost the competitive edge as a result to the extent of such Preferential Measures.
- GOB levies Federal Excise Tax of 30% on cars unless the local parts are used 65% or more, for the production with additional conditions. Not only export of completed automobile to Brazil but also the local KD productions are both difficult.		 - The locally procured materials and parts require improvement in cost and quality.
- It is requested that GOB repeals the Preferential Tax Measures.
- It is requested that GOB repeals restrictions.		 - Resolution 13
  (Action)
- On 16 September 2011, GOB temporarily raised the IPI tax (Industrial Product Tax=Imposto sobre Productos Industrializados) on cars that fail to satisfy certain rates of the local contents.
- GOB instituted measures to increase Industrial Products Tax (Imposto Sobre Produtos Industrializados =IPI) of 30% maximum during the period of December 2011 through the end of December 2012 against car manufacturers that fail to satisfy the requirements such as 65% local contents. Car manufacturers must be certified enterprises that satisfy the following 3-conditions to get the IPI tax exemption:
(1) Local contents of 65% or more in the enterprise's procurement within Mercosur in average,
(2) 6- processes are performed domestically in Brazil, out of the total 11-production processes, and
(3) Minimum 0.5% or more against total sales is invested into R&D in Brazil.
- In October 2011, Japan, the U.S., EU, ROK, etc. expressed their concern over the GOB's tax increase measures on industrial products at the WTO Committee on Market Access.
- In October 2012, GOB released new Automotive Program (INOVAR-AUTO) that continues the raise in IPI by 30%, while enabling of IPI reduction for 30% or more subject to achievement of the pre-determined fuel economy, and commensurate with the utilisation volume of the local contents. From Japan, in May and November 2012, the then Economy, Trade and Industry Minister, Edano pointed out its possible inconsistency with the WTO Agreement to Brazilian Minister of Development, Industry and Trade.
In November 2012, at the Joint Committee for Promotion of Japan-Brazil Trade and Investment, Councilor of Ministry of Economy, Trade and Industry expressed GOJ's concern over INOVAR-AUTO program and requested Brazilian cooperation through provision of information, etc. Furthermore, at the WTO Council for Trade In Goods, along with the U.S., EU and Australia, Japan expressed its concern. (2013 Report on Compliance by Major Trading Partners with Trade Agreements)
- GOB's measures to raise IPI (Imposto sobre Produtos Industrializados=Tax on Industrialized Products) levied on cars in Brazil are likely to conflict with "GATT Article I: (General Most-Favoured-Nation Treatment), Article III (National Treatment on Internal Taxation and Regulation)", and "Agreement On Trade-Related Investment Measures (TRIMs) Article 2, Agreement On Subsidies and Countervailing Measures Article 3.1 (b)". GOJ expressed its concern over these issues:
(1) at the Economic Ministers Meetings held in May and November 2012, and
(2) at the "Japan Brazil Trade and Investment Promotion Joint Committee Meetings" in November 2012, October 2013, and September 2014.
- In January 2014, EU requested WTO consultation against Brazil (where Japan requested to participate as a third party, but Brazil denied the request). Following the failure to get the issues resolved by WTO consultation, in October 2014, EU requested set up of WTO Panel, which was set up in December 2014, to which Japan has been a third country participant. ("2015 Report on Compliance by Major Trading Partners with Trade Agreements") (Ministry of Economy, Trade and Industry).
(2) Difficulty in Establishment of Local Representative Office, Construction Work Office, and Branch Office - In Brazil, judicial personality is not authorised in a representative's office. In addition, it is difficult for foreign funded enterprises (FFEs) to obtain the licence for establishment of branch office. - It is requested that GOB makes it possible for foreign funded enterprises entering Brazil to register the business, taking various operational forms.
  (Action)
- Most enterprises entering Brazil are established in the form of limited liability companies and registered at Taxation Bureau of Ministry of Finance or the Municipal Office depending upon sectors. Registrations are also required at Social Security Hospitals, and Department of Labor for processing labor related issues.
(3) Requirement of CEO as Resident in Brazil - Consequently, FFEs representative office normally takes the form of subsidiary, in which the Brazilian law requires the Chief Executive Officer (CEO) to be a Brazilian (or a Brazilian resident, in case of a foreign national with permanent visa).
[The requisite conditions for Non-Resident's acquisition of Permanent visa or his/her replacement]:
-- Investment exceeding R$600,000, or investment exceeding R$150,000 plus additional employment of minimum 10 employees (modified by Decree 95/2011 in 2011)		 - It is requested that GOB:
-- facilitates expatriates' visa acquisition as they do in other countries, and
-- repeals the system.		 - Regulation of Brazilian Immigration Bureau
- Decision No.27 of July 29, 1994
- Resolucao Normativa 10 CNI (of 11 November 1997)
- Prescriptive Resolution No. 95 (Issued on 19.08.2011 by CNI)
- Prescriptive Resolution No. 99 (Issued on 19.12.2012 by CNI)
  (Improvement)
- The Temporary Visa previously switched to Permanent Visa after 2-plus-2 years stay, has now become switchable to Permanent Visa after 2-years stay by Decree 99 (19 December 2012).
(4) Stringent Requirements on Licence for Bonded Warehouse Operation - Due to the high amount of bid price, member firm is neither able to participate in bidding nor provide ULD build-up service at low cost to customers. Furthermore, member firm is unable to provide service ULD build-up, break-up service, etc., geared toward damage reduction. - It is requested that GOB turns bonded warehouse into a notification system.
(5) Preferential Treatment on Use of Brazilian Flag Vessels - In order to protect the domestic industry, GOB compels the use of Brazilian Flag Vessels as regards imports of tariff exempted goods and exempts payment of Mercantile Marine Fund for unloading at Salvador ports northward. - It is requested that GOB repeals the system intended to protect the domestic industry.
  (Action)
- The problems concerning this measure are pointed out in "The 2003 Report on the WTO Inconsistency of Trade Policies by Major Trading Partners".
(6) Principle of Domestic Insurance Coverage - GOB compels insurance coverage by the domestic insurance companies (ICDIC) to foreign companies at higher insurance premium rates in comparison with the international level. - It is requested that GOB repeals the compulsion of ICDIC.

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