Historically, the Brazilian government has adopted a policy of granting incentives to foreign investors. In this regard, rules were enacted, creating various tax incentives such as a special system whereby imported goods with no national counterpart had their Import Tax reduced to 0%. These goods were duly listed in the TEC (Common Foreign Tariff) as "ex" (exception).

However, based on BNDES (National Bank for Economic and Social Development) studies, the government concluded that the imports under this system have increased 166% in the period from 1991 to 1996, involving approximately 51% of the largest capital good items on which the import tax is zero.

Such figures became a matter of great concern for the government, since imports in the form of "ex" stopped being exceptions and became predominant, and this, in a preliminary analysis, could lead to the conclusion that the Brazilian industrial park was not capable of satisfying demand from a technological point of view.

In view of this, in order to protect and maintain domestic industries' growth and avoid fraudulent imports of goods which have national counterparts, but were included in the "ex" list, the Brazilian Treasure Department published on July 25th, 1997, in the Official Gazette, the Ordinance 174 abolishing the reduced rate of goods with no national counterpart that were imported at the 0% (zero percent) tax.

We understand that this measure will decrease the imports, with a consequent significant positive effect on the trade balance in the next few months.

The government, to minimize the effects that this measure will have on industrial investments and the economy, intends to antecipate the TEC tariff reduction schedule which originally provides for reduction of import tax rates of various goods until 2001, established as follows: 1997 - 17%; 1998 -17%; 1999 - 16%; 2000 - 15%; 2001 - 14%. However, this anticipation of the schedule still depends on an agreement to be signed between MERCOSUR member countries.

Notwithstanding the above, Ordinance 137/97 excludes itemizes goods from the telecommunications sector, as well as Information technology goods for that sector, since the government wishes to encourage new investments in the telecommunications sector, which is being privatized.

Regarding the effects of this Ordinance, import licenses requested until July 24, 1997 and not yet granted will still have the reduced rate, and will be granted in the maximum period of 7 days counted from the 25th of July, 1997, provided the provisions in force are complied with.

As governed by SECEX (Foreign Trade Secretaire) Circular 60/96, rate reduction requests to the DEINT (International Negotiations Department), made through trade associations (ABIMAQ / SINDIMAQ, etc...) and submitted until the date the Ordinance in question came into effect, will be conceded, and will be valid for only 15 days.

The import licenses must be requested within those 15 days and customs clearance of the goods imported under this system will only be accepted until December 31, 1997.

The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

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