8:04 AM Jan 30, 1996

BRAZIL TO SEEK WAIVER FOR AUTO-SECTOR POLICIES

Geneva 29 Jan (Chakravarthi Raghavan) -- Brazil advised the World Trade Organization's Goods Council that it is intending to seek a waiver from the WTO in respect of the legislation it is enacting relating to the auto-parts and vehicle manufacturing sector in the country.

While the statement, by Amb. Celso Lafer, at the Council on Trade in Goods (under 'other business') gave few details of the new regulations and rules and the nature of the waiver that might be sought, it would appear from media reports from Brazil about the measures that the new policy might need waiver from obligations under the TRIMs agreement as well as Articles III and XI of the GATT 1994.

Last year, Brazil had put in place some regulations on imports of vehicles and autoparts, following the surge in such imports from Argentina in Mercosur as well as from outside, with the vehicle manufacturers from US, Japan, Europe etc trying to take advantage of the differing tariffs on imports in Argentina and Brazil, and the differing economic situations in the two countries (in the aftermath of the Mexican peso crisis and the differing responses of the two countries).

It had sought to justify it in terms of its balance of payments problems, and reinvoked its BOP rights under GATT (which it had dis-invoked during the early 1990s).

But after BOP consultations, where some of its trading partners, particularly US, Europe and Japan, pointed to what they viewed as Brazil's "comfortable BOP situation because of the surge of short-term capital flows" and pressed on Brazil to withdraw its restrictions.

Brazil did so, while reassessing the trade-industrial policy it should follow in this situation.

It has now formulated regulations relating to the automotive sector which provides for tariff reductions on imports of capital goods and inputs to be used in production, if the manufacturers comply with some export requirements and use local content in production.

The regulations themselves have not yet been notified to the WTO.

But Amb. Lafer told the Goods Council that it would be done as soon as the text in Portuguese is translated into one of the WTO's official languages. The provisional measures, he said, had been sent to Congress on 14 December 1995, after negotiations with its partners in Mercosur, and has since been re-issued as a Provisional Legislative Measure on 12 January. A ministerial order to the same effect had also been issued on 5 January.

According to the new legislation, he said, assembling companies and manufacturers of vehicles and autoparts could benefit from a reduction of tariff on capital goods and inputs to be used in their production, if they complied with certain requirements related to net exports and to certain ratios regarding purchases of goods manufactured in Brazil.

Brazil, Lafer said, was aware of implications of this legislation in relation to its WTO obligations and would be ready to maintain informal consultations with interested trading parties with the best way to comply with them. It was the Brazilian intention, he added, to seek, in terms of Art IX:3 of the WTO agreement, waiver from obligations for the policy measures.

Though Lafer did not disclose in the statement the details, some of the other interested delegations said that the new measure imposed a 70% duty on imported components, but that a 50% reduction in this duty was available for those who undertook export commitments and agreed to incorporate some local content.

This last would be contrary to Art 2 of the TRIMs agreement which obliges WTO members not to apply any investment measures (import content requirements in domestic manufacture) that would be contrary to requirements about national treatment in Art III of GATT 1994 and quantitative restrictions in Art XI.

Developing countries, under the TRIMs, were allowed to depart from this obligation for balance-of-payments reasons. Otherwise they would have five years from 1 January 1995 to eliminate any TRIMs in existence that had been notified to the WTO within two months of WTO entry into force.

But Brazil made no such notification - since it had none at that time in place, and found itself forced to put such measure in place only thereafter, and in the light of problems created by the Mexican crisis.

After Lafer's statement, Korea, the US, Mexico. Japan expressed concerns about the Brazilian regulations, but took note of Brazil's intention to seek a waiver which in Japan's view implied that Brazil agreed that its measure was inconsistent with the WTO/GATT provisions.

Argentina speaking for itself and the other Mercosur partners (Uruguay, Paraguay) expressed 'understanding' over the Brazilian actions.