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TITLE:  BRAZIL ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE


                              BRAZIL

                     Key Economic Indicators


                                  1991      1992      1993 /1
Income, Production,
 and Employment

GDP at current prices
 (billions of U.S. dollars)          410       417       437
Real GDP Growth (pct.)              0.9      -1.0       4.7
Per Capita GDP (current $)         2,780     2,793     2,872
Labor Force (000's)               63,200    64,400    65,600
Unemployment Rate (pct.)            4.15      4.50      5.33


Money and Prices

Money Supply (M2)
 (annual pct. growth)             616       1,725     2,288
Interest Rate for Financing
 Working Capital
 (monthly nominal rate, pct.)      35.0      30.7      41.2
Personal Savings Rate
 (monthly nominal rate, pct.)      29.1      24.6      38.2
CPI (annual pct. change)          475.1     1,149.1   2,656
WPI (annual pct. change)          471.7     1,154.2   2,849
Exchange Rate (CR per $)
  Official/Commercial             1.0688    12.3875   342.00
  Parallel                        1.140     14.60     342.00


Balance of Payments and Trade
(Millions of U.S. dollars unless otherwise noted)

Total Exports (FOB)                31,620    36,207    37,747
  Exports to US (FOB)               6,362     7,120     7.583
Total Imports (FOB)                21,041    20,501    24,100
  Imports from US (FOB)             4,978     4,949     5,402
External Debt                     123,910   132,260   130,000
Debt Service (paid)                 8,621     7,323    11,964
Gold and FOREX Reserves             9,406    23,754    27,200
Total Trade Balance                10,579    15,706    13,647
  Trade Balance with US             1,384     2,171     2,181



Note:

1/  Forecast for 1993 according to the Government of Brazil. 
    Values in local currency are expressed in the currency
    adopted on August 1, 1993, the Cruzeiro Real (CR).



1.  General Policy Framework

    Itamar Franco assumed office as acting President in October
1992 following the impeachment of Fernando Collor, and became
President in his own right when Collor finally resigned in late
December 1992.  Although Franco espoused the general direction
of Collor's economic policies (reducing trade barriers,
privatization of parastatals, price stabilization, fiscal
austerity), considerable uncertainty prevailed over the
specific policies and the pace of economic actions of the new
administration.  Economic policy objectives have not been
clearly defined or executed and, consequently, progress made by
the Collor administration to open and privatize the economy
suffered a loss of momentum.

    In May 1993, President Franco appointed his fourth Minister
of Finance, Fernando Henrique Cardoso.  The following month,
Cardoso unveiled his "Program of Immediate Action," an economic
adjustment/anti-inflation plan which proposed significant cuts
in federal government expenditures, new taxes, strict
enforcement of debts owed to the federal government by states
and municipalities, greater control of federal and state bank
lending, and further acceleration of privatization.  The Franco
government has made little progress in implementing its plan,
largely because of opposition in Congress and from state
governors.  As a result, despite currently high foreign
exchange reserves, large structural deficits continue to result
in double-digit monthly inflation.  Inflation in September
reached the 35 percent range, with an annualized rate in excess
of 3,500 percent.  Prospects that inflation will fall
significantly in the coming months seem remote.  Moreover,
because of the Government of Brazil's unwillingness to
undertake substantial fiscal reform, Brazil is unable to meet
certain targets for a standby agreement with the IMF.

    Monetary policy:  The government's freedom to exercise
monetary policy is highly limited given the current fiscal
situation.  In keeping with its intention to pursue tighter
monetary policy, the Central Bank substantially increased
interest rates in September 1993.  Current monetary policy is
designed to maintain positive real interest rates of about 20
percent per year on short-term government securities.

    Effective August 1, 1993, Brazil introduced a new national
currency, the "Cruzeiro Real," replacing the "cruzeiro," at the
rate of 1,000 Cruzeiros per Cruzeiro Real.


2.  Exchange Rate Policies

    Currently Brazil has three exchange rates:  A commercial
rate, the tourist rate and the semi-official parallel rate. 
The commercial rate deals with import-export transactions
registered at the Central Bank and financial transactions
linked to external debt.  The floating rate, also known as the
tourist or interbank rate, deals with individual transactions
such as unilateral transfers, travel, tourism, and transactions
involving education, training, etc.  The parallel rate also
deals with individual transactions, but they are not recorded.

    The commercial rate is adjusted daily by the Central Bank
according to the Bank's estimate of the inflation rate.  The
tourist and parallel rates are fluctuating rates although the
Central Bank will often intervene in the tourist exchange
market.  Increases in the spread between the parallel and
commercial rates are generally seen as an indicator of market
concerns regarding the economic policies of the Government of
Brazil, but the parallel rate is heavily influenced by
short-term speculative movements.

    In September 1993, the Finance Minister announced that the
government intended to unify the three exchange rates.  (The
tourist and parallel rates had been fluctuating at about nine
percent above the commercial rate).  Since the announcement the
spread between these rates has almost closed.  The announcement
also stimulated expectations that the commercial rate would be
moved up to the level of the tourist rate which, in turn,
provoked capital flight.  The situation was brought back under
control as the Central Bank sharply increased real domestic
interest rates.


3.  Structural Policies

    Constitutional reform called for by the transitory
provisions of the 1988 Constitution did not begin as scheduled
in October 1993, due to the attention focused on an internal
investigation of congressional corruption.  It is unclear when
the process will begin.  Theoretically, the constitutional
review process intends to rectify the fundamental economic
distortions of the present Constitution.  Among others, the
following issues are on the table:  fiscal reform, including
redefinition of federal/state/municipality financial
relationships; simplification of the tax structure;
rationalization of the social security system; elimination of
the constitutional discrimination against foreign owned firms;
dissolution of state monopolies; reopening the minerals sector
to foreign capital; and, rationalization of the electoral
system.

    The state monopolies granted to petroleum and
telecommunications by the 1988 Constitution may be reconsidered
during constitutional review.  In October 1993, however, the
Franco administration announced that it would not propose,
during the review process, an end to these state monopolies. 
It is also not certain that constitutional review will produce
enough fiscal reform to make viable the stabilization of the
economy.

    On July 1, 1993, the government implemented the final
reduction of import tariffs (to an average level of 14 percent)
as provided for in the program initiated in 1990 to increase
competitiveness of Brazilian industry and to open the Brazilian
economy to imported products.  What was once a highly
restricted and regulated trade regime was changed in a
relatively very short time to one largely free of quantitative
and other restrictions.  Brazil's trade regime has become
considerably more transparent and less discretionary as a
result.  According to current policy, after January 1, 1995,
Brazilian import tariffs on most products will range from zero
to 20 percent, with some products in selected sectors  
(informatics, electronics, automobiles, fine chemicals)
remaining subject to tariff rates of 20 to 35 percent until
2001, when all should drop to 20 percent.

    Because of across-the-board tariff reductions, increasing
competition from imports and anger over countervailing duties
and antidumping levies being imposed by foreign countries in
certain sectors, Brazilian industrialists are urging the
Brazilian government to tighten up its own legislation against
dumping and subsidized imports.  They are looking to strengthen
the procedures of the Technical Tariff Department (DTT),
Brazil's antidumping office, to protect national industries and
jobs.  Pressure to do so has been most pronounced in such
sectors as chemicals, textiles and toys.

    The privatization program, initiated under the Collor
administration as part of an effort to reduce the size of
government, has gone forward slowly under the Franco
government.  While scheduled steel company privatizations have
been completed, little improvement in the program has been
made.  In October 1993, the economic team implemented measures
for the second stage of the privatization program.  The basic
guidelines include provisions for the privatization of
electricity and transportation companies, the acceptance of new
financial instruments that will become eligible as monies in
the auctions, and the search for other ways to implement
privatizations.  Details of the program have not been announced
and its future is unclear.

    The tax system in Brazil is extremely complex, consisting
of three levels (federal, state, local), 18 major taxes and 40
other taxes and fees.  The complexity of the system and an
inefficient collection process invite widespread tax evasion. 
Simplification of the tax system rates high on the
constitutional review agenda.  Doubts remain, however, about
the ability to press for tax reform measures that most
economists see as the next essential step in the fight against
inflation.


4.  Debt Management Policies

    Brazil's external debt totals approximately $120 billion,
of which about $42 billion is medium-term commercial bank debt
owed by the government.  Foreign private bank debt is $69.5
billion, of which the U.S. share is $18.5 billion.  In July,
1989, Brazil stopped debt service payments, and by end-1990
interest arrears were nearly nine billion dollars.  In January
1991, Brazil resumed payment of 30 percent of interest accrued
to banks.  In April 1992, Brazil and its commercial bank
creditors reached a settlement in which the government paid 25
percent of outstanding interest arrears in cash, covering the
balance with ten-year bonds.

    In July 1992, Brazil completed negotiations on a
comprehensive accord with its bank advisory committee to
reschedule arrears and future payments on its debt.  The term
sheet outlining the various debt instruments to be used in such
a deal was finalized in September 1992.  This agreement,
however, stipulates that Brazil must have an IMF agreement in
place in order to close the debt accord.  However, an IMF 
Standby Agreement would, in all likelihood, require deep fiscal
reforms, as additional fiscal measures are required in order
for Brazil to meet its inflation assumptions.  Fiscal reform of
this magnitude does not seem possible at this time.  For this
reason, it appears unlikely that the debt agreement can be
completed before its new deadline of February 1994.

    In August 1993, the Government of Brazil announced plans to
seek another Paris Club debt rescheduling for debt maturing
after August 31, 1993, once it obtains an IMF program.  In
October, Paris Club members reviewed Brazil's status.  No major
decisions were made.  The Club did not discuss whether the
second stage (February 1 to August 31, 1993) of Brazil's last
rescheduling should be considered due and in arrears.


5   Significant Barriers to U.S. Exports

    Import licenses:  Although Brazil requires import licenses
for virtually all products, import licensing generally does not
pose a barrier to U.S. exports.  Prior to implementation of
reforms to Brazil's import licensing regime in 1990,
restrictions on the availability of import licenses were used
as a means to control and limit imports, and served as a major
barrier to U.S. exports.  Now import licenses are used
primarily for statistical purposes and are issued automatically
within 48 hours to five days from the time of application.  In
January 1992, a standard import license fee of approximately 90
dollars was instituted, replacing a 1.8 percent ad valorem fee.

    The Ministry of Industry and Commerce's Department of
Foreign Trade (DECEX) is in the process of implementing a
computerized trade documentation system (SISCOMEX), which, when
fully operational, will further streamline filing and
processing of import documentation.

    Services Barriers:  Lack of administrative transparency,
legal and administrative restrictions on remittances, and
occasionally-arbitrary application of regulations and laws in
general limit U.S. services exports to Brazil.  In some areas,
foreign companies are prevented from providing technical
services unless Brazilian firms are unable to perform them.

    Many service trade possibilities are precluded by
limitations on foreign capital under the 1988 Constitution.  In
particular, services in the telecommunications, petroleum, and
mining industries are severely restricted.  Financial services
are also affected, though the full extent of those limitations
will remain unclear until implementing legislation for the
Constitution is enacted.  In the meantime, 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).  At the technical level, some review
of insurance rules is in progress, but a change in reinsurance
seems unlikely.

    Other legal and administrative obstacles to foreign
services suppliers are being eased.  In January 1992, the
government announced new rules which allow foreign remittances
of trademark license fees and technology transfer payments
covered by franchising agreements.  The change effectively ends
a 20-year ban on international franchising in Brazil.

    Investment Barriers:  In addition to the restrictions on
the services-related investments mentioned above, foreign
investment is prohibited in petroleum production, refining, and
transportation, public utilities, media, real estate, shipping,
and various other "strategic industries."  In still other
sectors, Brazil limits foreign equity participation, imposes
local-content requirements and links incentives to export
performance.

    In December 1991, Brazil removed the 60 percent surcharge
applicable to foreign remittance of profits and dividends,
leaving a flat rate surcharge of 15 percent on such transfers. 
In addition, Central Bank regulations were altered in January
1992 to allow foreign enterprises to register reinvested
profits as foreign capital at the cruzeiro exchange rate in
effect at the time earnings were declared.  This addressed a
frequent complaint of foreign investors that the typical
three-month lapse between the declaration of earnings and the
registration of reinvested capital resulted in substantial
depreciation of the real value of the investments.

    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 automobile and pharmaceutical
industries, objected to the inflexibility of such controls,
which forced them into unprofitable production and discouraged
investment.  There continue to be calls for selective price
controls on those products having increases out of proportion
to increases in production costs.

    Informatics:  In October 1992, import restrictions that had
been in place since the mid-1970's, in one form or another, for
computers and related products (informatics products) were
removed.  As a result, there are currently no quantitative
barriers to the import of informatics hardware products.  There
are, however, barriers remaining to the import of computer
software, and draft regulations which would pose new barriers
to hardware imports by giving preferences to local firms in
government procurement.  Furthermore, trade related investment
measures exist in the form of tax treatment designed to spur
exports and local investment.

    In 1984, Brazil codified its policies to promote a local
computer industry through restriction on imports, local
manufacture, and foreign investment into a comprehensive and
highly restrictive informatics law.  That 1984 law and its
implementation were the subject of a U.S.-initiated Section 301
investigation between 1985 and 1989.  In 1991 Brazil revised
its informatics legislation to phase out some of the import and
investment restrictions, resulting in the final removal of
quantitative import restrictions in October 1992.

    Import duties for many informatics products, such as
personal computers, remain high, up to 35 percent, as compared
with Brazil's average import duty of 14.2 percent, and
represent exemptions to Brazil's maximum import duty of 20
percent.  Provisions of the 1991 informatics law allow for
various incentives for local firms, such as tax reductions. 
For a foreign-owned firm to gain access to most of those
incentives, it must commit to invest in local research and
development (R&D) and meet export and local training
requirements.  The 1991 informatics law also provides for
preferences for local firms and locally manufactured products
in government procurement.  Those provisions have not yet been
implemented, but are the subject of draft procurement
regulations which, if implemented, would give preferences to
Brazilian firms and their products in government procurement.

    Brazil's software industry is regulated by a 1987 software
law which requires that all software must be "catalogued" with
the Ministry of Science and Technology's Informatics and
Industrial Automation Secretariat (SEPIN) prior to distribution
in Brazil.  Under the 1987 law, cataloguing for foreign
software can be denied if SEPIN finds that there exists a
"functionally equivalent" Brazilian product.  While once a
significant barrier to software imports, the requirement for an
equivalency examination proved to be unworkable, and is no
longer applied.

    The 1987 software law also requires, in most cases, that
software be distributed through a Brazilian firm and does not
allow for payment of software license fees between related
firms, such as between a Brazilian subsidiary and its U.S.
parent.  A draft software law which would remove the
requirement for cataloguing, equivalency examination, and local
distribution was submitted to Brazil's Congress in 1990, but
still awaits passage.

    Common Market of the Southern Cone (MERCOSUL):  In August
1990, Brazil, Argentina, Paraguay, and Uruguay jointly signed a
treaty establishing a timetable for creation of the MERCOSUL. 
The target date for the complete elimination of internal market
barriers is 1995, by which time the four countries must
harmonize tariffs, industrial and transportation standards,
intellectual property and consumer protection codes, and tax
regimes.  The Brazilian Congress ratified the treaty in October
1991.

    The United States has encouraged an open and
GATT-consistent MERCOSUL, and concluded a trade and investment
framework agreement in 1991, whereby the United States and the
four member countries agreed to consult closely on trade and
investment relations.  However, the effects that MERCOSUL might
have on U.S. exporters and investors are still unclear.  A
number of U.S. manufacturers with local operations are
rationalizing their production facilities among the four
countries and seeking opportunities arising from harmonization
of tariffs, consumer codes, and other laws.  Others,
particularly exporters who do not manufacture in any of the
four countries, fear that possible "upward" harmonization of 
non-tariff barriers could restrict their access to the larger
MERCOSUL market.

    Lingering problems concerning the coordination of
macroeconomic policies, the creation of a common external
tariff and the harmonization of widely different laws in a
number of socioeconomic fields threaten to delay complete
implementation of the MERCOSUL Agreement by its 1995 deadline. 
Brazil remains determined to complete the integration process.

    Government Procurement:  Article 171 of Brazil's 1988
Constitution provides for preferential treatment for Brazilian
owned firms -- "Brazilian national capital companies" -- in
government procurement.  However, in practice, these
preferences have not been uniformly or consistently applied. 
Until passage of a comprehensive government procurement law in
1993 (Law 8666), much discretion had been left for individual
federal, state and municipal entities in procurement
practices.  As a result, state and municipal governments, as
well as related agencies and companies followed informal "buy
Brazil" policies.

    Law 8666 requires all federal entities to use strict
procurement practices based on public competition and an open,
transparent bidding system.  Under Law 8666, government
entities are prohibited from discriminating between foreign and
Brazilian origin products, except where competing bids are
"equivalent" in terms of price, quality and delivery.  In such
cases, preference can be given to Brazilian firms and Brazilian
products.

    New procurement regulations governing purchases by Brazil's
telecommunications monopoly, TELEBRAS, have been proposed which
would severely limit the ability of firms not already
manufacturing a particular telecommunications product from
participating in TELEBRAS procurement.  A similar draft decree
is under consideration which would require all government
entities to give preferences to Brazilian products and firms
when procuring a wide range of "informatics" goods, including
computers, data communications equipment and related products. 
Action on these two proposed regulations is expected by
year-end 1993.

    Brazil is not a signatory to the GATT code on government
procurement.


6.  Export Subsidies Policies

    Unlike the direct subsidies offered to Brazilian exporters
in the 1980's, the current export finance program, PROEX is
intended to eliminate the distortions in foreign
currency-linked lending caused by Brazil's high rates of
inflation and currency depreciation.  Under PROEX, the federal
government guarantees real rates of interest of eight to 8.5
percent to commercial banks that finance export sales.  This
keeps lines of credit open to Brazilian exporters at rates
approximately equal to those offered by other countries to
their exporters.  According to government officials, this
policy is consistent with Organization for Economic Cooperation
and Development guidelines for export incentives.
    
    Whereas export financing was previously available only for
capital goods, the government expanded the list of eligible
products in February 1992 to include automobiles, auto parts,
and a number of consumer goods.  At the same time, the
government announced that freight costs could be included in
the amount to be financed.


7.  Protection of Intellectual Property Rights (IPR)

    On April 30, 1993, the US Trade Representative designated
Brazil a "Priority Foreign Country" because of inadequate
protection of IPR and initiated a formal investigation on May
28.  On November 28, after receiving information from the
Brazilian Government regarding improvements in its copyright
and trademark legislation, the investigation was extended until
Feb. 28, 1994.  No further extension is possible under U.S.
law.  A decision will have to be taken by that date on possible
trade sanctions.  Difficult issues remain unresolved in both
the patent and copyright areas.

    In June 1990, the Brazilian government had announced its
intention to bring Brazil's patent and trademark law more into
line with international standards.  In response, the US dropped
an ongoing section 301 investigation and eliminated the 100%
tariffs that had been imposed on certain Brazilian products as
a pursuant to that investigation.  After extensive debate and
numerous proposals, on June 2, 1993, draft industrial property
legislation was passed by the Brazilian Chamber of Deputies and
sent to the Senate for approval.  The Senate finally began
hearings in November 1993.  Congressional attention has been
focused on an internal corruption scandal and the
constitutional review.

    Review of the draft bill revealed that significant
improvements are needed to align Brazil's draft Patent and
trademark law with international standards.

    Patents:  Brazil currently does not provide either product
or process patent protection for pharmaceutical substances,
processed foods, metallurgical alloys, chemicals, or
biotechnological inventions.  The bill now before the Congress
would recognize the first four categories; patentability of
certain types of inventions in the biotechnology area, however,
is excluded.  A number of other flaws remain, such as
compulsory licensing, domestic working requirements,
authorization for parallel importation and a restrictive
pipeline provision.

    Trade Secrets:  Brazil lacks explicit legal protection for
trade secrets, although a criminal statute against unfair trade
practices can, in theory, be applied to prosecute the
disclosure of privileged trade information.  The draft Patent
and Trademark Bill includes civil penalties and injunctive
relief for trade secret infringement.  However, it does not
expressly contain a prohibition for the acquisition of trade
secrets by third parties who knowingly obtain the information
by illicit means.  Also, it does not contain a prohibition on
inducing employees to breach employee secrecy clauses.
    
    Trademarks:  All licensing and technical assistance
agreements (including franchising), as well as trademarks, must
be registered with the National Institute for Industrial
Property (INPI).  Without such registration, a trademark or
patent is subject to cancellation for non-use.

    In August 1992, Brazil announced that it would abide by the
Stockholm revision of the Paris Convention in its entirety. 
Previously, Brazil had adhered only to the so-called
non-substantive articles of the convention (Articles 13 to 30),
and refused to allow international judicial review of trademark
disputes.  Even before compliance was formalized, INPI began
enforcing Article 6(BIS) of the Paris Convention by eliminating
many of the 6,000 bogus registrations of well-known
international trademarks and commercial names.  However, legal
actions by a number of trademark pirates slowed down the
process; thus formal adoption of the full Stockholm revision
was deemed necessary.

    Until recently, bogus trademark registrations were
relatively common, often resulting in protracted legal actions
by the legitimate trademark owners.  INPI, however, has made a
concerted effort to provide more effective protection of
trademarks.  Provisions of the draft Patent and Trademark Bill
would remove some of the burdensome requirements involved in
trademark registration.  Further, INPI is currently working on
reducing the amount of time it takes to obtain a registered
trademark.  It also plans to adopt the international
classification system.  Protection of "well-known" marks,
however, is weak.

    Copyrights:  There are several proposed copyright revision
bills currently pending in the Brazilian Congress.  While
Brazil's current copyright law generally conforms to
international standards, it is vitiated by weak enforcement. 
Fines and border enforcement continue to be problematic
issues.  In the first instance, as a result of inflation,
current fines do not constitute an adequate deterrent to
infringement.  In the second instance, weak border enforcement
has caused, for example, sound recording pirates to move into
Brazil from Paraguay.

    Brazil is taking steps to rectify these problems.  For
example, it is improving the statutory framework for protection
of these rights.  Recent amendments to the General Penal Code
include the addition of copyright offenses.  This provision
clarifies the authority of the courts to order seizure and
destruction of infringing goods.  Previously, there had been
limits on the amount of goods that could be seized and the
Constitution barred destruction of goods seized under authority
of the copyright law.

    With respect to the level of protection afforded computer
programs, a new Computer Programs Bill has been pending before
the Brazilian Congress since 1991.  This draft legislation
eliminates the mandatory registration requirement for programs,
eliminates the requirement that distribution be done through
local Brazilian companies, and repeals application of the law
of similars to computer programs.  The bill, however, does not
protect computer programs as "literary works" nor does it
provide an exclusive rental right.  While there is no active 
opposition to this bill, as of October 1993, Congressional
leadership has not made it a priority item.

    Impact on U.S. Trade:  In 1988, the Pharmaceutical
Manufacturers Association of America initiated a Section 301
action which resulted in the imposition of 100-percent ad
valorem tariffs on $39 million of Brazilian exports per annum. 
Those sanctions were ended in June 1990 after the Brazilian
government announced its commitment to revise the Industrial
Property Code to extend patent protection to pharmaceuticals. 
The U.S. pharmaceuticals industry estimates its losses at
around $200 million per year.  The U.S. Motion Picture Industry
estimates its annual losses from piracy in Brazil 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 their sales of $80 million
in 1990.


8.  Worker Rights

    a.   Right of Association

    Brazil's Labor Code has long provided for union
representation of all Brazilian workers (excepting military,
military police and firemen), but imposed a hierarchical,
unitary system, funded by a mandatory "union tax" on workers
and employers.  Under a restriction known as "unicidade"
(one-a-city), the code prohibits multiple unions of the same
professional category in a given geographical area.  It also
stipulates that no union's geographic base can be smaller than
a municipality.  Workers in a union whose numbers increased (as
when an industry grew) could petition the state to split a
preexisting union into two or more unions.  The 1988
Constitution frees workers to organize new unions out of old
ones without prior authorization from the government, but
retains other provisions of the old code.  The retention of
"unicidade" and of the union tax continues to draw criticism
both from elements of Brazil's labor movement and from the
International Confederation of Free Trade Unions (ICFTU).

    In practice, however, "unicidade" has proven less
restrictive in recent years, as more liberal interpretations of
its restrictions permitted new unions to form and compete, in
many cases, with unions and federations that had already
enjoyed official recognition.  The sole bureaucratic
requirement for new unions is to register with the Ministry of
Labor which, by judicial decision, is bound to receive and
record their registration.  The primary source of continuing
restriction is the system of labor courts, which retains the
right to review the registration of new unions, and adjudicate
conflicts over their formation.  Otherwise, unions are
independent of the government, and of political parties. 
Approximately 20 to 30 percent of the Brazilian work force is
organized, with just over half of this number affiliated with
an independent labor central.  (Mandatory labor organization
under the 1943 Labor Code encompasses a larger percentage of
the work force.  However, many workers are believed to have
minimal if any contact with these unions.)  Attacks on rural
labor organizers continue.

    The Constitution provides for the right to strike
(excepting, again, military, police and firemen, but including
other civil servants).  Enabling legislation passed in 1989
stipulates that essential services remain in operation during a
strike and that workers notify employers at least 48 hours
before beginning a walkout.  The Constitution prohibits
government interference in labor unions but provides that
"abuse" of the right to strike (such as not maintaining
essential services, or failure to end a strike after a labor
court decision) will be punishable by law.

    b.   Right to Organize and Bargain Collectively

    The right to organize is provided for by the Constitution,
and unions are legally mandated to represent workers.  With
some government assistance, businesses and unions are working
to expand and improve mechanisms of collective bargaining. 
Nevertheless, under current Brazilian law, the scope of issues
available for collective bargaining is narrow.  Further, the
labor court system exercises normative powers with regard to
the settlement of labor disputes, thereby discouraging direct
negotiation.  Existing law charges these same courts, as well
as the Labor Ministry, with mediation responsibility in the
preliminary stages of dispute settlement.  Wages are set by
free negotiation in many cases, and in others by labor court
decision.  Beginning in 1990, the federal government attempted
to control salary increases in order to limit inflation, but
the attempts appeared to have little effect on wage settlements
in the private sector.  There is a movement for extensive
revisions in the Labor Code which would broaden the scope of
collective bargaining and restrict the role of the labor
courts, but such changes currently appear unlikely in the near
future.

    The Constitution incorporates a provision from the Labor
Code which prohibits the dismissal of employees who are
candidates for or holders of union leadership positions. 
Nonetheless, dismissals take place, with those dismissed
required to resort to a usually lengthy court process for
relief.  In general, enforcement of laws protecting union
members from discrimination lacks effectiveness.

    Labor law applies uniformly throughout Brazil, including
the free trade zones.  However, the unions in the Manaus free
trade zone, like rural unions and many unions in smaller
cities, are relatively weaker vis-a-vis industry as compared to
unions in the major industrial cities in the southeast.

    c.   Prohibition of Forced or Compulsory Labor

    While the Constitution prohibits forced labor, there have
been credible citations of cases of forced labor in Brazil. 
The federal government asserts that it is taking steps to halt
the practice and prosecute perpetrators, but admits that
existing enforcement resources are inadequate.  The largest
number of reports of forced labor emanate from rural areas.  A
provision in the agricultural reform law passed in 1993
provides for the confiscation of property in cases of forced
labor.  The law by itself is unlikely to have significant
impact without other extensive improvements in police and
judicial activity.

    d.   Minimum Age for Employment of Children

    The minimum working age under the Constitution is 14,
except for apprentices, and legal restrictions are also set in
the Constitution to protect working minors under age 18.  There
are credible reports indicating problems with enforcement. 
Further, judges can authorize employment for children under 14
when they believe it appropriate.  (The ILO noted in 1992 that
the constitutional provision for apprenticeships under age 14
is not in accordance with ILO Convention No. 5 on minimum age
in industry.)  By law, the permission of the parents or
guardians is required for minors to work, and provision must be
made for them to attend school through the primary grades.  All
minors are barred from night work and from work that
constitutes a physical strain.  Minors are also prohibited from
employment in unhealthful, dangerous, or morally harmful
conditions.

    Despite these legal restrictions, however, official figures
state that nearly three million children ten to 14 years of age
(or 4.6 percent of the work force) are working.  Of these, 46.4
percent are working eight hours or more per day, while 96.3
percent of this group receive not more than one minimum salary
(i.e., up to 60-100 dollars per month).

    e.   Acceptable Conditions of Work

    Many Brazilian workers suffer from unsafe working
conditions.  Occupational health and safety standards are set
by the FUNDACENTRO, which is under the Ministry of Labor. 
Enforcement of these standards is inconsistent because the
Ministry deploys insufficient resources for adequate inspection
and enforcement.  There are also credible allegations of
corruption within the enforcement system.  If a worker has a
problem in the work place and has trouble getting relief
directly from his employer, he or his union can file a claim
with the regional labor court, although in practice this is
frequently a cumbersome, protracted process.

    Brazilian law requires the establishment in work places of
Internal Commissions for Accident Prevention (CIPA).  Employee
members of these commissions are protected under law from being
fired for commission activities.  Such firings, however, do
occur, and the pursuit of legal recourse can require years
before resolution.

    f.   Sectors with U.S. Investment

    U.S. investment is concentrated heavily in the
transportation equipment, food, chemicals, and
electric/electronic equipment industries.  Labor conditions in
industries owned by foreign investors generally meet or exceed
the minimum legal standards established under Brazil's Labor
Code.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                668
Total Manufacturing                                   12,014
    Food & Kindred Products                  1,303
    Chemicals and Allied Products            2,021
    Metals, Primary & Fabricated               810
    Machinery, except Electrical             2,011
    Electric & Electronic Equipment            721
    Transportation Equipment                 1,922
    Other Manufacturing                      3,227
Wholesale Trade                                          197
Banking                                                1,022
Finance and Insurance                                  1,839
Services                                                  94
Other Industries                                         281


TOTAL ALL INDUSTRIES                                  16,114

(D )-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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