WTO SERVICES NEGOTIATIONS: REQUEST FOR COMMENTS

UNCLAS SECTION 01 OF 03 BRASILIA 000128 SIPDIS STATE PLEASE PASS TO USTR/CHOOKER GENEVA PASS USTR/AGREENIDGE USDOC FOR 3134/USFCS/OIO/WH/EOLSON USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD E.O. 12958: N/A TAGS: ETRD BR WTO SUBJECT: WTO SERVICES NEGOTIATIONS: REQUEST FOR COMMENTS ON U.S. MARKET ACCESS PRIORITIES REF: 04 STATE 270998 ¶1. This cable is based upon input provided by FCS Sao Paulo. ¶2. Per reftel request, below is a ranking of the various service sectors in terms of priority for the USG and level of openness. Where appropriate, we have included comments regarding doing business issues for a specific sector. ¶3. Begin text. SECTOR PRIORITY LEVEL OF LEVEL OPENNESS -------------- -------------- -------------- LEGAL SERVICES 3 MEDIUM COMMENT: FOREIGN COMPANIES CAN OPERATE THROUGH PARTNERSHIP WITH LOCAL FIRMS OR BY ESTABLISHING AN OFFICE IN THE COUNTRY AND HIRING LOCAL ATTORNEYS. FOREIGN PROFESSIONALS CANNOT PRACTICE IN BRAZIL DIRECTLY. ACCOUNTING, AUDITING AND 5 LOW BOOKKEEPING SERVICES COMMENT: ONLY LOCAL ACCOUNTANTS REGISTERED AT THE ACCOUNTANTS' COUNCIL CAN PROVIDE SERVICES. THE BRAZILIAN BOOKKEEPING SYSTEM IS SLIGHTLY DIFFERENT FROM THAT OF THE U.S. ARCHITECTURAL SERVICES 5 LOW COMMENT: FOREIGN ARCHITECTS MUST HAVE THEIR DEGREES VALIDATED IN BRAZIL. THE PROCESS IS VERY COMPLICATED AND TAKES A LONG TIME. ENGINEERING AND INTEGRATED 3 MEDIUM ENGINEERING SERVICES COMMENT: FOREIGN FIRMS ARE REQUIRED TO HAVE A LOCAL REPRESENTATIVE WHO HOLDS A LICENSE TO PRACTICE ENGINEERING IN THE COUNTRY, AND THE COMPANY HAS TO BE REGISTERED AS AN ENGINEERING FIRM IN BRAZIL. URBAN PLANNING AND LANDSCAPE 5 LOW ARCHITECTURAL SERVICES COMMENT: FOREIGN ARCHITECTS MUST HAVE THEIR DEGREES VALIDATED IN BRAZIL. THE PROCESS IS VERY COMPLICATED AND TAKES A LONG TIME. COMPUTER AND RELATED SERVICES 3 MEDIUM Comment: Computer and peripherals are manufactured in Brazil. (One example is Dell Computers.) Almost all electronic components used in the industry are imported. However, used computers and peripherals cannot be exported to Brazil. Open Source Software is being adopted by the Brazilian government. Brazil is set to adopt a digital TV standard in the near future. RESEARCH AND DEVELOPMENT 1 HIGH SERVICES REAL ESTATE SERVICES 3 MEDIUM COMMENT: FOREIGN COMPANIES CAN OPERATE THROUGH PARTNERSHIP WITH LOCAL FIRMS OR BY ESTABLISHING AN OFFICE IN THE COUNTRY. RENTAL/LEASING SERVICES 3 HIGH ADVERTISING SERVICES 5 HIGH MARKET RESEARCH AND PUBLIC N/A OPINION, POLLING SERVICES MANAGEMENT CONSULTING SERVICES 1 HIGH COMMENT: IN CASES INVOLVING THE TRANSFER OF TECHNOLOGY, THERE IS A LENGTHY REGISTRATION PROCESS AT INPI - THE BRAZILIAN INSTITUTE OF INTELLECTUAL PROPERTY. IN ADDITION, ALL IMPORTS OF SERVICES ARE SUBJECT TO THE FOLLOWING TAXES/FEES: IRRF - INCOME TAX: 15%, CIDE - CONTRIBUTION TO THE ECONOMIC INTERVENTION DOMAIN: 10%, ISS - MUNICIPAL SERVICES TAX: 5%, AND PIS/COFINS - SOCIAL INTEGRATION AND SOCIAL SECURITY FINANCING CONTRIBUTIONS: 9.25%. TECHNICAL TESTING AND 3 MEDIUM ANALYSIS SERVICES SERVICES INCIDENTAL TO 1 MEDIUM AGRICULTURE, HUNTING AND FORESTRY, AND FISHING SERVICES INCIDENTAL TO MINING 3 MEDIUM COMMENT: POTENTIAL ONLY FOR FRONT-END ENGINEERING STUDIES, SUCH AS MINERAL PROCESS ADVANCED CONTROL SYSTEMS. IN GENERAL, FOREIGN SUPPLIERS MUST WORK IN CONSORTIUM WITH LOCAL COMPANIES, BOTH TO LOWER COSTS AND TAP LOCAL EXPERTISE. ENERGY SERVICES 1 HIGH COMMENT: ELECTRICAL POWER DISTRIBUTION AND OIL AND GAS SERVICES TAKE PLACE IN BRAZIL PURSUANT TO A CONCESSION REGIME ADMINISTERED BY THE BRAZILIAN GOVERNMENT. THESE SERVICES ARE EQUALLY OPEN TO DOMESTIC AND FOREIGN COMPANIES. THE PRINCIPAL DIFFICULTY FACED BY U.S. FIRMS IN THESE MARKET SEGMENTS IS NOT MARKET ACCESS, BUT INADEQUATE CONTRACT STABILITY, DELAYS IN OBTAINING ENVIRONMENTAL PERMITS, AN UNSTABLE REGULATORY SYSTEM (ESPECIALLY IN THE POWER SECTOR),AND THE NEED TO MEET LOCAL EQUIPMENT REQUIREMENTS. HOWEVER, ALL OF THESE ISSUES EQUALLY AFFECT DOMESTIC AND FOREIGN COMPANIES OPERATING IN BRAZIL. PLACEMENT AND SUPPLY SERVICES 4 HIGH OF PERSONNEL INVESTIGATION AND SECURITY 3 MEDIUM RELATED SCIENTIFIC AND 1 HIGH TECH CONSULTING SERVICES COMMENT: IN CASES INVOLVING TRANSFER OF TECHNOLOGY, THERE IS A LENGTHY REGISTRATION PROCESS AT INPI - THE BRAZILIAN INSTITUTE OF INTELLECTUAL PROPERTY. MAINTENANCE AND REPAIR OF 5 HIGH EQUIPMENT BUILDING/CLEANING SERVICES 5 HIGH PHOTOGRAPHIC SERVICES 5 HIGH PACKAGING SERVICES 2 MEDIUM PRINTING, PUBLISHING 2 MEDIUM CONVENTION SERVICES 2 HIGH COURIER SERVICES 1 MEDIUM (EXPRESS DELIVERY) TELECOMMUNICATION SERVICES 1 MEDIUM AUDIOVISUAL SERVICES N/A CONSTRUCTION AND RELATED 3 MEDIUM ENGINEERING COMMENT: FOREIGN FIRMS ARE REQUIRED TO HAVE A LOCAL REPRESENTATIVE WHO HOLDS A LICENSE TO PRACTICE ENGINEERING IN THE COUNTRY, AND THE COMPANY HAS TO BE REGISTERED AS AN ENGINEERING FIRM IN BRAZIL. DISTRIBUTION SERVICES 1 HIGH ENVIRONMENTAL SERVICES 3 MEDIUM COMMENT: THE MARKET IS RELATIVELY SMALL BUT EXPANDING, PARTICULARLY IN THE REMEDIATION AND CLEAN UP OF CONTAMINATED SITES BUSINESS. U.S. COMPANIES USUALLY ASSOCIATE WITH LOCAL ENVIRONMENTAL COMPANIES FOR THE DEVELOPMENT OF SPECIFIC PROJECTS. BANKING AND OTHER FINANCIAL 4 HIGH SERVICES INCLUDING SECURITIES Comment: Brazil's Central Bank regulates banking and financial services, and maintains strict accounting and operational supervision. Private pension funds are among the fastest growing sectors of the Brazilian economy, and consists of open funds (including those similar to U.S. 401(k) plans) and closed funds. INSURANCE SERVICES 4 HIGH Comment: U.S companies wishing to enter into the Brazilian insurance market are advised to do so through a joint venture, acquisition or partnership with a local company, or to open a subsidiary. Under current legislation, insurance companies must be organized as corporations (Sociedade Anonima, or S/A),and submit to local regulatory authorities an application to operate as an insurance company. The insurance company may not engage in activities other than insurance. These same rules apply to reinsurance companies, though their scope for action is limited by the existence of a government monopoly reinsurer, the Brazilian Reinsurance Institute (IRB). Foreign firms currently are barred from offering reinsurance on their own account, but may conduct business with the IRB. Foreign insurance companies may establish a representative office in Brazil, but are not allowed to engage in certain insurance activities, such as issuing policies. Current legislation allows foreign insurance companies to hold the entire equity participation or voting stock of a Brazilian insurance company. End Text. CHICOLA