BRAZIL: PIRACY CPI'S FIFTH IPR BILL

UNCLAS SECTION 01 OF 03 BRASILIA 002162

SIPDIS

STATE FOR WHA/BSC, EB/TPP/MTA/IPC SWILSON, AND CA/VO
STATE PASS TO USTR FOR SCRONIN, LYANG AND BPECK
USDOC FOR
4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL/DRISCOLL
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO
TREASURY FOR OASIA/SEGAL
NCS FOR DEMPSEY

E.O. 12958: N/A
TAGS: KIPR ETRD KCRM PGOV ECON BR IPR
SUBJECT: BRAZIL: PIRACY CPI'S FIFTH IPR BILL

REFS: A) BRASILIA 2150 B) BRASILIA 2017 C) BRASILIA 1668


1. This is the final cable in a series of five on
legislation put forward on July 16, 2004 by Deputies
belonging to the Congressional Investigative Commission on
Piracy (reftels). Below is Embassy's unofficial
translation of the text of the fifth bill.


2. Bill 3968/2004
(of the Piracy CPI)

Regulates the installation of a System of Flow Measurement
(SMV) in industrial beverage establishments and provides
other provisions.

The National Congress decrees:

Art. 1 - This law determines the installation of equipment
to measure flow and conductivity and equipment to control,
register and mark the quantities measured in the industrial
establishments of beverages, alcoholic beverages and
vinegars classified in position 2202 and 2203 of the Table
of Incidence of Tax on Industrialized Products (TIPI),
according to regulation.

Art. 2 - The System of Flow Measurement (SMV) should be
installed by industrial establishments covered under this
law on each filler, understood as the equipment utilized to
fill the barrels in which the beverage is conditioned for
final sale to the consumer.

Sole paragraph. The system described in the caput should
continuously measure the flow, electric conductivity and
temperature of the liquids that feed each filler and flow
through the tubing to which it is associated, without
interfering with the regular process of beverage
manufacture.

Art. 3 - This law applies to all industrial beverage
establishments subject to the IPI tax regulations according
to current legislation, except those whose installed annual
production capacity is less than five million liters,
computing capacities of respective branches, associated
companies, partners, controlled and controllers.

Art. 4 - These industrial establishments have twelve months
from the publication of this law to install said equipment
and equipment for flow control.

Art. 5 - The States, Federal District and Municipalities
can make an agreement with the Union to operate together
with the Union in the establishment of criteria and
installation procedures, inspection and control of the Flow
System.

Art. 6 - This law goes into effect on the date of its
publication.

JUSTIFICATION

During public meetings, one of the measures adopted by the
Federal Government in 2001 to inhibit counterfeiting and
tax evasion was mentioned, a project for installing flow
measurement by manufacturers of beer and soft drinks,
established by Federal Revenue, based on Provisional
Measure no. 2.158-35 of August 24, 2001.

On May 3, 2004, through Of. No. 689/2004, the Presidency of
CPI requested information about the status of the project
in question.

In response to our request, SRF sent us a note with the
following clarifications:

(...)


2. The requirement for the installation of Flow Measurers
by manufacturers of beer and soft drinks was established by
art. 36da Provisional Measure no. 2.158-35 of August 24,
2001, regulated by SRF through Normative Instruction SRF
no. 265, of December 20, 2002 that attributed to the
General Coordination of Inspection (Cofis) the
responsibility for establishing:
a) conditions of operation, as well as technical
characteristics and equipment safety;
b) procedures for ratification and licensing of equipment
and respective manufacturers of same;
c) minimum limits of production or invoicing, starting at
which the installation of equipment becomes mandatory;

3. SRF, with the purpose of initiating the process of
implantation in the sector of beer manufacture, signed
several technical cooperation agreements with the National
Union of the Beer Industry (SINDICERV),as well as States
of the Federation, such as Bahia, Pernambuco, Ceara, Para,
Sao Paulo, Rio de Janeiro, Minas Gerais and Parana, for the
specification and installation of flow meters; in addition
to the objective previously mentioned, also promotes the
interchange of information and interchange of mutual
assistance in the supervision of tax compliance, which will
permit significantly greater control of this segment of
fiscal interest.


4. The General Coordination of Inspection, with reference
to above-mentioned items "a" and "c", then edited the
Executive Declarative Act Cofis no. 20, of October 1, 2003,
undertaking the specification of requirements for the
System of Flow Measure to be installed in the beer
industry.


5. The System of Flow Measurement will be composed of flow
measuring equipment, conduction meters as well as equipment
for the control, recording, marking and remote transmission
of the quantities measured to SRF. The System of Flow
Measurement should continuously monitor production of
fluids in the industrial establishments where it is
installed, with the following functions:

- measurement of flow (that is volume by unit and time);
- measurement of electric conductivity and temperature of
the liquids that feed each filler;
- record measurements obtained from the flow, conductivity
and temperature and make this information available for use
by the Secretary of Federal Revenue;
- remote communication with systems at the Secretary of
Federal Revenue, for the transfer of recorded information.


6. The measurement of electrical conductivity and
temperature will allow, under certain conditions, the
differentiation between types of liquids that feed a
filler. The flow measurements supplied by SMV will allow
an estimate to be made of the volume of fluids produced, in
a specific period of time, at an industrial establishment.


7. The System of Flow Measurement for the beer industry, is
in a phase of validation of norms and procedures related to
the installation, verification of conformity and
registration of the system to be established by an
Executive Declarative Act by Cofis. After publication of
said act, the first equipment should be installed in a
maximum of three months, and expectations are to install it
on all beer production lines nationwide within six months,
counted from the first equipment registered by SRF.


8. With reference to the soft drink industry, an agreement
was signed on April 27, 2004 between SRF and the Brazilian
Association of Soft Drink Industry (ABIR) for the
implementation of a System of Flow Measurement for the
sector. The expectation is that there will be a reduced
time frame for this segment due to the similarity in
equipment and their requirements (...)
According to the information received from SRF, it is felt
that the project of installation of flow meters, short and
medium term, is the solution for the control of
counterfeiting of drinks and consequent tax evasion.

It is also felt, however, that specific legislation
currently in force, needs refinement with regard to
definition of capacity and responsibilities for the
improvement of control of the Flow Measurement System.

Therefore, CPI debated presenting the bill mandating
installation of flow measurement equipment in industrial
establishments of beverages classified under TIPI, except
those whose annual installed production capacity is less
than five million liters, when computing the capacity of
respective branches, associated companies, partners,
controlled and controllers.

The project also determined that Federal Revenue, INMETRO
and ANVISA, within the scope of their power, define the
flow parameters, electric conductivity, liquid temperature
and interference caused by the flow system in the process
of drink manufacture.

Since this is precision equipment that requires investment
by the industries, it will be convenient to allow a period
of 12 months from publication of the law so that industry
and public entities have time to make adjustments necessary
to install the Flow System.

In the end, the efficiency of the Flow System should be
achieved with the joint efforts of the Union, States, DF
and municipalities in the elaboration of procedures for
installation, inspection and control of the Flow System,
which is why the proposal anticipates an agreement between
the Union and the rest of the entities.

We are convinced that this proposal will make possible not
just the fight against counterfeiting and evasion, but will
permit better conditions for Brazil's participation in the
highly competitive and global market that is today's
beverage market.

Sessions Room July 16, 2004

Deputy Medeiros, President
Deputy Josias Quintal, Reporter

End unofficial Embassy translation.

Danilovich