Identifier
Created
Classification
Origin
09BRASILIA132
2009-02-03 16:48:00
UNCLASSIFIED
Embassy Brasilia
Cable title:  

BRAZIL: INVESTMENT CLIMATE STATEMENT 2009

Tags:  EINV EFIN ETRD ELAB KTDB OPIC USTR BR 
pdf how-to read a cable
R 031648Z FEB 09
FM AMEMBASSY BRASILIA
TO SECSTATE WASHDC 3450
INFO AMCONSUL RIO DE JANEIRO 
AMCONSUL SAO PAULO 
AMCONSUL RECIFE 
DEPT OF COMMERCE WASHDC
UNCLAS BRASILIA 000132 


STATE PASS USTR FOR DUCKWORTH AND KALLMER
TREASURY FOR OASIA - HOEK AND MACLAUGHLIN
USDOC FOR 4332/ITA/MAC/WH/OLAC/ADRISCOLL AND JKOZLOWICKI
STATE FOR EB/IFD/OIA - HATCHER/HICKS
STATE PASS OPIC FOR RO'SULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB OPIC USTR BR
SUBJECT: BRAZIL: INVESTMENT CLIMATE STATEMENT 2009

REF: STATE 123907

UNCLAS BRASILIA 000132


STATE PASS USTR FOR DUCKWORTH AND KALLMER
TREASURY FOR OASIA - HOEK AND MACLAUGHLIN
USDOC FOR 4332/ITA/MAC/WH/OLAC/ADRISCOLL AND JKOZLOWICKI
STATE FOR EB/IFD/OIA - HATCHER/HICKS
STATE PASS OPIC FOR RO'SULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB OPIC USTR BR
SUBJECT: BRAZIL: INVESTMENT CLIMATE STATEMENT 2009

REF: STATE 123907


1. This cable transmits the text of the Brazil Investment
Climate Statement for 2007.

BEGIN TEXT:

A.1. Openness to Foreign Investment

Brazil is open to and encourages foreign investment. According to a
recent United Nations report, Brazil is the largest foreign direct
investment (FDI) recipient in Latin America, attracting an estimated
USD 42 billion in 2008 (The Brazilian Central Bank reports a
slightly higher figure of USD 45 billion). The United States is the
number one foreign investor in Brazil. FDI is prevalent across
Brazil's economy, although certain sectors, notably media and
communications, aviation, transportation and mining, are subject to
foreign ownership limitations. While Brazil is generally considered
a friendly environment for foreign investment, burdensome tax and
regulatory requirements exist. In most cases these impediments
apply without discrimination to both foreign and domestic firms.
The Government of Brazil makes no distinction between foreign and
national capital.

With respect to the current global financial crisis, a diversified
economy, reliance on local rather than external debt, and investment
grade status will help Brazil weather the storm. However, Brazil is
not immune to the crisis and the Central Bank's January 2009 market
survey revealed a forecasted GDP growth of 2.0 percent, a decline
from the July 2008 forecast of 4.0 percent growth. The Brazilian
government is pursuing monetary policy and industry support measures
to address the impact of the crisis.

Banking: An indication of the country's financial openness, Brazil's
banking sector includes significant foreign investment and
representation. While the Constitution of 1988 technically forbids
new or expanded foreign investment in the banking sector, the vast
majority of requests for entry or expansion have been approved on a
case-by-case basis. Recent Brazilian Central Bank figures report

that in 2008 foreign banks comprise 18 of the top 50 Brazilian banks
in terms of total assets, representing 21.6 percent of total
financial assets less brokerage.

Insurance: Since 1996 the insurance sector has been open to foreign
investors with most major U.S. firms represented via joint venture
arrangements. On January 15, 2007, Complementary Law 126 was
published in Brazil eliminating the previous state monopoly on
reinsurance through the government-owned Brazil Reinsurance
Institute (IRB),which had been in place since 1939.

Privatization: Foreign investment has played a significant role in
Brazil's privatization programs. From the early 1990s through 2007,
Brazil's privatizations realized USD 87.9 billion in sales revenue
and another USD 18.1 billion in debt transfer. Foreign investment
accounted for about USD 42.0 billion, or 48 percent of the total.
Of this foreign investment participation, U.S. investors accounted
for one third or USD 14.0 billion. After a slowdown in
privatization activity in the early 2000s, the Lula administration,
which came to power in 2003, revived the program with three
transactions: the 2004 privatization of the State Bank of Maranhao
for USD 26.6 million, the 2005 privatization of the State Bank of
Ceara for USD 302 million, and the 2006 privatization of Paulista
Electric Energy Transmission Company for USD 230 million. In 2007
and 2008, large scale infrastructure projects were auctioned,
including federal highways, high speed rail and airports.
Additional infrastructure privatization activity is planned for

2009.

Ownership Restrictions: A 1995 constitutional amendment terminated
the distinction between foreign and local capital in general, yet
there are laws that restrict foreign ownership within some sectors,
notably media and communications, and aviation.

Foreign investment restrictions remain in a limited number of other
sectors, including highway freight (20 percent) and mining of
radioactive ore. Foreign ownership of land within 150 km of
national borders remains prohibited unless approved by Brazil's
National Security Council.

Media: Open broadcast (non-cable) television companies are subject
to a regulation requiring that 80 percent of their programming
content be domestic in origin. Additionally, Law 10610 (2002)
limits foreign ownership in other media, including open broadcast
and print media outlets, to 30 percent. In 2009, Brazil's
legislature is considering extension of this restriction to cover
Internet Service Providers, pay TV channels and operators, and
content producers and distributors. Foreign ownership of cable
companies is limited to 49 percent, and the foreign owner must have
a headquarters in Brazil and have had a presence in the country for
the previous ten years. National cable and satellite operators are
subject to a fixed title levy on foreign content and foreign
advertising on their channels.

Aviation: The Government of Brazil currently restricts foreign
investment in domestic airline companies to a maximum of 20 percent.
The Government of Brazil is considering potential privatization of
commercial airport operations. The United States and Brazil
liberalized cargo and passenger services in June 2008 and committed
to further liberalization discussions by 2010.

In May of 2008 Brazil published the Productive Development Policy
which encourages technological innovations and new investment
opportunities in the country. It sets targets for investment
spending to reach 21 percent of GDP and private investment in R&D to
reach 0.64 percent of GDP by 2010. It also sets goals to increase
Brazil's share of exports to 1.25 percent of the global total and
increase the number of small export businesses.

A.2. Conversion and Transfer Policies

There are few restrictions on converting or transferring funds
associated with a foreign investment in Brazil. Foreign investors
may freely convert Brazilian currency in the unified foreign
exchange market wherein buy-sell rates are determined by market
forces. All foreign exchange transactions, including identifying
data, must be reported to the Central Bank. Foreign exchange
transactions on the current account have been fully liberalized.

Foreigners investing in Brazil must register their investment with
the Central Bank within 30 days of the inflow of resources to
Brazil. Registration is done electronically. Investments involving
royalties and technology transfer must be registered with the patent
office (INPI) as well. Investors must also have a representative in
Brazil. Portfolio investors must have a Brazilian financial
administrator and register with the Brazilian securities commission
(CVM).

All incoming foreign loans must be approved by the Central Bank. In
most instances, the loans are automatically approved. Automatic
approval is not issued when the costs of the loan are "not
compatible with normal market conditions and practices." In such
instances, the Central Bank may request additional information
regarding the transaction. Foreign loans obtained abroad do not
require advance approval by the Central Bank, provided the recipient
is not a government entity. Loans to government entities require
prior approval from the Senate as well as from the Finance Ministry
Treasury Secretariat and are subject to registration with the
Central Bank.

Interest and amortization payments specified in a loan contract can
be made without additional approval from the Central Bank. Early
payments can also be made without additional approvals, if the
contract includes a provision for them. Otherwise, early payment
requires notification to the Central Bank to ensure accurate records
of Brazil's stock of debt.

Central Bank regulations introduced in 2005 unified the foreign
exchange market. Foreign investors, upon registering their
investment with the Central Bank, are able to remit dividends,
capital (including capital gains),and, if applicable, royalties.
Remittances must also be registered with the Central Bank.
Dividends cannot exceed corporate profits. The remittance
transaction may be carried out at any bank by documenting the source
of the transaction (evidence of profit or sale of assets) and
showing that applicable taxes have been paid.

Capital gain remittances are subject to a 15 percent income
withholding tax, with the exception of the capital gains and
interest payments on tax exempt domestically issued Brazilian bonds.
Repatriation of an initial investment is also exempt from income
tax. Lease payments are assessed a 15 percent withholding tax.
Remittances related to technology transfers are not subject to the
tax on credit, foreign exchange, and insurance (IOF),although they
are subject to a 15 percent withholding tax and an extra 10 percent
Contribution of Intervention in the Economic Domain (CIDE). Loans
with terms of 90 days or less must pay the IOF (5.38 percent),while
those of longer maturity, profits and FDI remittances must pay 0.38
percent.

Foreign cable and satellite television programmers are subject to an
11 percent remittance tax; however, the tax can be avoided if the
programmer invests 3 percent of its remittances in co-production of
Brazilian audio-visual services.

Exchange Rates

With the onset of the 2008 global financial crisis the Brazilian
Real currency ended its prior year appreciation trend against the
U.S. Dollar as investors boosted their Dollar and Euro holdings.
The Real ended 2008 near 2.34 Reais/USD representing close to a 35
percent year over year depreciation versus the Dollar. Current
financial markets expect the Dollar-Real exchange rate to remain
within the 2.10 to 2.40 Reais/USD range in 2009.

A.3. Expropriation and Compensation

There have been no expropriation actions in Brazil against foreign
interests in the recent past nor have there been any signs that the
current government is contemplating such actions. In the past, some
claims regarding land expropriations by state agencies have been
judged by courts in U.S. citizens' favor. However, compensation has
not always been paid as states have filed appeals to these
decisions.

A.4. Dispute Settlement

The Brazilian court system, in general, is overburdened and contract
disputes can often take years to move through the system. The 2009
World Bank "Doing Business" survey found that on average it takes 45
procedures and 616 days to litigate a contract breach at an average
cost of 16.5 percent of the claim. Judicial reform measures enacted
in December 2004, however, have streamlined some administrative
procedures, and the introduction of the concept of binding precedent
should over time make judicial decisions more predictable.
Article 34 of Brazilian Law 9.307, the 1996 Brazilian Arbitration
Act, defines a foreign arbitration judgment as any judgment rendered
outside the national territory. The Law established that the
Brazilian Federal Supreme Court must ratify foreign arbitration
awards. Law 9.307 also stipulates that the foreign arbitration
award is to be recognized or executed in Brazil in conformity with
the international agreements ratified by the country and, in their
absence, with domestic law. (Note: A 2001 Federal Supreme Court
ruling established that this 1996 Brazilian Arbitration Act,
permitting international arbitration subject to Federal Supreme
Court ratification of arbitration decisions, does not violate the
Federal Constitution's provision that "the law shall not exclude any
injury or threat to a right from the consideration of the Judicial
Power.")

Brazil has ratified the 1975 Inter-American Convention on
International Commercial Arbitration (Panama Convention),the 1979
Inter-American Convention on Extraterritorial Validity of Foreign
Judgments and Arbitration Awards (Montevideo Convention) and the
1958 UN Convention on the Recognition and Enforcement of Foreign
Arbitration Awards (New York Convention). Brazil, however, is not a
member of the International Center for the Settlement of Investment
Disputes (ICSID),also known as the Washington Convention.

Brazil has a functional commercial code that governs most aspects of
commercial association, except for corporations formed for the
provision of professional services, which are governed by the civil
code. In February 2005, bankruptcy legislation (Law 11101) went
into effect creating a system, modeled on Chapter 11 of the U.S.
bankruptcy code, which allows a company in financial trouble to
negotiate a restructuring with its creditors outside of the courts.
In the event a company does fail despite restructuring efforts, the
reforms give creditors improved ability to recover their debts.
Brazil has both a federal and a state court system and jurisprudence
is based on civil law. Federal judges hear most disputes in which
one of the parties is the State and rule on lawsuits between a
foreign State or international organization and a municipality or a
person residing in Brazil. Five Regional Federal Courts hear the
appeals of the federal judge decisions.
A.5. Performance Requirements and Incentives

The Brazilian government actively encourages both national and
foreign investment in traditionally underserved regions of the
country and other marginally profitable ventures. A 2004
Public-Private Partnership (PPP) investment law promotes joint
ventures in otherwise marginally profitable infrastructure
investments. The federal government has not yet put out any PPP
projects for public bids. In 2007 the Brazilian government launched
the Program to Accelerate Growth (PAC) with the goal of using
government resources to attract private sector investment to improve
Brazil's infrastructure. To date, however, implementation of the
PAC has been slow.

The Government of Brazil extends tax benefits for investment in less
developed parts of the country, for example the Northeast and the
Amazon regions, with equal application to foreign and domestic
investors. These incentives have been successful in attracting
major foreign plants to areas like the Manaus Free Trade Zone, but
most foreign investment remains concentrated in the more
industrialized southern part of Brazil. Individual states have
sought to attract investment by offering ad hoc tax benefits and
infrastructure support to specific companies, negotiated on a case
by case basis. These have proven controversial, with other states
challenging them as harmful fiscal competition. A tax reform
proposal scheduled to be considered by the Brazilian Legislature in
2009 attempts to limit states' ability to offer tax incentives for
investment.

Brazil restored tax breaks to exporters with the October 2007
enactment of Law 11529 in an attempt to help industries hurt by the
strengthening real. This law allows certain Brazilian industrial
sectors (textiles, furniture, ornamental stones, woodworking,
leatherworking, shoes, leather goods, heavy and agricultural
machinery manufacturers, apparel and automotive - including parts)
to apply PIS-COFINS (social integration program) tax credits for the
purchase of capital goods, both domestic and imported, that are used
for manufacturing finished products. The law also expands the
government's program for exporting companies purchasing capital
goods. To be exempt from paying the 9.25 percent PIS-COFINS tax on
these purchases, companies must prove they derive at least 70
percent of their revenues from exports. This benchmark was lowered
to 60 percent for companies in the sectors covered by the
legislation.

To promote Brazilian industry, the Special Agency for Industrial
Financing (FINAME) of the National Bank for Economic and Social
Development (BNDES) provides financing for Brazilian firms to
purchase Brazilian-made machinery and equipment and capital goods
with a high level of domestic content.

Government Procurement

Brazil is not a signatory to the WTO Agreement on Government
Procurement, and transparency in Brazil's procurement processes is
at times lacking. The U.S. Government has received complaints
concerning lack of transparency and preferences for Brazilian
products in government tenders. Limitations on foreign capital
participation in procurement bids reportedly impair access for
potential service providers in the energy, construction, security,
and defense sectors. Brazilian federal, state, and municipal
governments, as well as related agencies and companies, in general
follow a "buy domestic" policy.

Law 8666 (1993) which covers most government procurement other than
information technology/telecommunications requires
non-discriminatory treatment for all bidders regardless of
nationality or origin of the product or service. However, the law's
implementing regulations allow for the consideration of non-price
factors, giving preferences to certain goods produced in Brazil and
stipulating local content requirements for fiscal benefits
eligibility. Additionally, nearly all bids require that a local
representative be established for any foreign company bidding.

Decree 1070 (1994),which regulates the procurement of information
technology goods and services, requires federal agencies and
parastatal entities to give preferential treatment to locally
produced computer products based on a complicated and nontransparent
price/technology matrix. However, Brazil permits foreign companies
with legal entities in the country to compete for
procurement-related multilateral development bank loans and opens
selected procurements to international tenders.

A.6. Right to Private Ownership and Establishment

Foreign and domestic private entities may establish, own, and
dispose of business enterprises.

A.7. Protection of Property Rights

Mortgages

Brazil has a system in place for mortgage registration, but
implementation is uneven and there is no standardized contract.
Foreign individuals or foreign-owned companies can purchase real
property in Brazil. Buyers frequently arrange alternative financing
in their own countries, where rates may be more attractive. Law
9514 (1997) helped spur the mortgage industry by establishing a
legal framework for a secondary market in mortgages and streamlining
the foreclosure process, but the mortgage market in Brazil is still
underdeveloped and foreigners may not be able to obtain mortgage
financing. Large U.S. real estate firms, however, are expanding
their portfolios in Brazil.

Intellectual and other Property Rights

Brazil is a signatory to the GATT Uruguay Round Accords, including
the Trade Related Aspects of Intellectual Property (TRIPS)
Agreement, signed in April 1994. Brazil is a member of the World
Intellectual Property Organization (WIPO) and a signatory of the
Bern Convention on Artistic Property, the Patent Cooperation Treaty,
and the Paris Convention on Protection of Intellectual Property.

Brazil has not ratified the WIPO Copyright Treaty (WCT) or the WIPO
Performances and Phonograms Treaty (WPPT). In 2006, the country
announced plans to join the Madrid Agreement Concerning the
International Registration of Marks ("Madrid Protocol"). In 2007,
Congress forwarded the issue to the Executive branch for
consideration, where it is still pending.

In most respects, Brazil's 1996 Industrial Property Law (Law 9.279)
brings its patent and trademark regime up to the international
standards specified in the TRIPS Agreement, although the law does
permit the grant of a compulsory license if a patent owner has
failed to locally manufacture the patented invention in Brazil
within three years of patent issuance. On May 4, 2007, invoking
TRIPS provisions and public interest, Brazil issued a compulsory
license for an anti-retroviral drug used in treating HIV/AIDS. Data
protection for pharmaceutical products for human use remains an
ongoing concern.

The United States has raised concerns regarding Brazil's Law 10196
of 2001, which includes a requirement that National Health
Surveillance Agency (ANVISA) approval be obtained prior to the
issuance of a pharmaceutical patent. On June 23, 2008, ANVISA
issued Resolution RDC 45 standardizing, to some extent, the
procedures for review of such patent applications. Nonetheless,
ANVISA's role in reviewing pharmaceutical patent applications
remains non-transparent and has contributed to an increasing backlog
in the issuance of patents. The United States is also concerned
that this requirement singles out one particular product category
for a set of procedural requirements.

A government-drafted bill to provide protection for the layout
design of integrated circuits (computer mask works) was enacted into
law on May 31, 2007 (Law 11.484).

In August 2007, a bill (PL 1807/07) was introduced that, if
approved, would amend Article 189 of Brazil's Industrial Property
Law (9279/1996) by increasing the criminal penalties for trademark
violations to two to six years, up from the current three to twelve
months.

Patent and trademark licensing agreements must be recorded with and
approved by the National Institute of Industrial Property (INPI) and
registered with the Central Bank of Brazil (Normative Act No. 135,
of April 15, 1997). Licensing contracts must contain detailed
information about the terms of the agreement and royalties to be
paid. In such arrangements, Brazilian law limits the amount of the
royalty payment that can be taken as a tax deduction, which
consequently acts as a de facto cap on licensing fees.

Brazil's 1998 copyright laws generally conform to international
standards, yet piracy of copyright material remains a problem. The
Brazilian Congress passed a law in July 2003 increasing minimum
prison sentences for copyright violations and establishing
procedures for making arrests and the destruction of confiscated
products. However, the heftier sentences have not acted as
effective deterrents due to the continued ability of judges to
commute many of the prison terms to fines.

In recognition of its improved anti-piracy enforcement efforts,
Brazil was upgraded from "Priority Watch List" to "Watch List" in
the 2007 U.S. Trade Representative's Special 301 report. In 2008,
the country maintained its "Watch List" status on the report.

A.8. Transparency of the Regulatory System

In the 2009 World Bank "Doing Business" survey, Brazil ranked 125th
out of 181 countries in terms of regulatory environment conducive to
business. Brazilian sources respond that the survey attempts to
account for requirements across all states and therefore offers an
inflated view of what is actually required in any one state.
According to the study, it takes an average of 18 procedures and 152
days to start a new business. The study noted that the
administrative burden to a medium-size business of tax payments in
Brazil is an average of 2,600 hours versus 187 hours in the United
States. According to this same study, it takes four years to close
a business in Brazil and the recovery rate is 17.1 cents to the
dollar.

Tax regulations, while burdensome and numerous, do not differentiate
between foreign and domestic firms. However, there have been
instances of complaints that the value-added tax collected by
individual states (ICMS) favors local companies. Although the tax
is designed to be refunded upon export of goods outside of the
country, exporters in many states have had difficulty receiving
their ICMS rebates. Taxes on commercial and financial transactions
are particularly burdensome, and businesses complain that these
taxes hinder international competitiveness of Brazilian products. A
government proposal to streamline the tax collection system is
currently under consideration by the Brazilian Congress, but tax
reform has been difficult because states fear losing revenue and
control over fiscal policy.

ANVISA, the Brazilian FDA equivalent, has regulatory authority over
the production and marketing of food, drugs and medical devices.
ANATEL, the country's telecommunication agency, handles licensing
and assigns bandwidth. ANP, the National Petroleum Agency, has been
commended by the industry for its fair handling of auctions of oil
exploration blocks and for its willingness to support the
simplification of regulatory procedures such as environmental
licensing. However, following the discoveries of new oil reserves
in late 2007, auctions have been discontinued for off-shore blocks
as the government deliberates over a new regulatory structure for
the oil and gas sector.

The civil air transport industry regulator (ANAC) began functioning
in 2006 with a mandate to increase competition within Brazil's civil
aviation industry. Taking over responsibilities that had previously
resided with the Brazilian Air Force, ANAC has begun to take steps
to liberalize the Brazilian market, although court challenges have
slowed some proposed initiatives, such as price liberalization that
is intended to be phased in over 2009.

Foreign investors have encountered obstacles when interfacing with
regulatory agencies. Notable examples include companies in the
electric power sector that have complained about the high level of
regulatory risk, for example the tariff review process and the
implementation of Brazil's new energy model. Additionally, some
industries have reported challenges in obtaining licenses from
IBAMA, the environmental regulator, citing unpredictability in
IBAMA's licensing requirements, though the process has reportedly
become more streamlined over the course of 2008. Brazilian private
sector organizations which often include foreign companies are vocal
and involved in industry standards setting.

A bill (PL 3937/04) to modernize Brazil's antitrust review and to
combine the antitrust functions of the Ministry of Justice and the
Ministry of Finance (MoF) into those of the Administrative Council
for Economic Defense (CADE) passed through the Chamber of Deputies
in December of 2008. The bill, which would also revise the
country's licensing and anti-cartel system, is currently awaiting
consideration by the Senate.


Recent Concerns over Legislation Regulating Business Operations

Foreign express delivery companies have recently become concerned
about high taxes and a potential new Postal Law that if passed would
monopolize the delivery of all letters and post cards under the
Brazilian National Postal Service. While the new law would exclude
packages, it does include letters which constitute a large product
segment within the express delivery industry. The express delivery
industry is encouraging the Brazilian government not to pass a law
imposing regulations on the delivery of letters. The law's draft
remains with the Labor Commission in the House of Representatives
and there is an executive branch petition to withdraw it, but as of
January 2009 the Labor Commission has not yet voted on the issue.

Brazil recently enacted a new Customer Care Support Law (Decree
6523),effective as of December 2008, which implements numerous
requirements for customer support and call centers operating in
Brazil. The provisions of the law are perceived as onerous and
operationally intrusive to private business. Among the laws many
provisions are the requirements that a company operate its call
center 24 hours a day and seven days a week, record and store call
data, not leave a customer on hold for more than 60 seconds and to
ensure that when customers are transferred to another attendant
prior conversations are not repeated. The enforcement of the decree
and sanctions for noncompliance are covered under article 56 of Law
8078, adopted in 1990.

All proposed federal legislation is available to the general public
via the internet.

House of Deputies:
http://www2.camara.gov.br/proposicoes

Federal Senate:
http://www.senado.gov.br/sf/atividade/default .asp

A.9. Efficient Capital Markets and Portfolio Investment

The Brazilian financial sector is large and sophisticated. Banks
lend at the Brazilian market rate which remains extremely high due
to taxation, repayment risk, a lack of judicial enforcement of
contracts, high mandatory reserve requirements, and administrative
overhead.

The financial sector is concentrated, with 2008 Central Bank data
indicating that the 10 largest commercial banking institutions
account for approximately 73.1 percent of financial sector assets
less brokerage (approx. USD 1.2 trillion). Two of the five largest
banks (in assets) in the country are federally owned. Lending by
the large banking institutions is focused on the largest companies,
while small and medium banks primarily serve small and medium-sized
companies, but with a much smaller capital base.

The Central Bank has strengthened bank audits, implemented more
stringent internal control requirements, and tightened capital
adequacy rules to better reflect risk. It also established loan
classification and provisioning requirements. These measures are
applied to private and publicly owned banks alike. The Brazilian
Securities Exchange Commission (CVM) independently regulates the
stock exchanges, brokers, distributors, pension funds, mutual funds,
and leasing companies with penalties against insider trading.

Credit Market

BNDES, the government national development bank, is the primary
Brazilian source of longer-term credit, and also provides export
credits. FINAME (the Special Agency for Industrial Financing)
provides foreign and domestic companies operating in Brazil
financing for the manufacturing and marketing of capital goods.
FINAMEX (Export Financing),which finances capital good exports for
both foreign and domestic companies, is a part of FINAME. One of
the goals of these financing options is to support the purchase of
domestic over imported equipment and machinery.

PROEX, an export credit program financed by the National Treasury
offers assistance in the areas of interest rate equalization,
capital and other goods exports, and service exports (See OPIC and
Other Investment Insurance Programs section for more information on
credit availability).

Equity Market

As of 2000 all stock trading is performed on the Sao Paulo Stock
Exchange (BOVESPA),while trading of public securities is conducted
on the Rio de Janeiro market. In 2008, the Brazilian Mercantile &
Futures Exchange (BM&F) merged with the BOVESPA to form the form the
second largest exchange in the Western Hemisphere. BOVESPA has
launched a "New Market," in which the listed companies comply with
stricter corporate governance requirements. In June 2004, BOVESPA's
new market had 18 listed companies; and by 2008 there were 100.
(Note: A majority of the Initial Public Offerings are listed on the
New Market). In 2008, there were four new IPOs representing R$ 7.5
billion in raised capital; 66 percent of this amount was foreign
capital.

The total number of companies listed on the BOVESPA has modestly
grown over recent years; from 394 in 2006 to 424 by the end of
December 2008. Total daily trading volume rose from R$ 2.4 billion
in 2006 to R$ 5.5 billion in 2008. Trading is highly concentrated
with the top ten stocks accounting for 53 percent of 2008's trading
volume. A total of 76 Brazilian firms are also listed on the NYSE
via American Depository Receipts (ADR's). Conversely, the Brazilian
subsidiaries of some U.S. companies have issued shares on BOVESPA.

Foreign investors, both institutions and individuals, can directly
invest in equities, securities and derivatives. Foreign investors
are required to trade derivatives and stocks of publicly held
companies on established markets. At year-end 2008, foreign
investors accounted for 36.2 percent of the total turnover on the
BOVESPA. Individual investors were the second most active category
of market participants, accounting for 29.5 percent of BOVESPA
transactions, while domestic institutional investors accounted for
23.8 percent. Financial and other institutions accounted for 10.5
percent. In 2001, law 10303 went into effect limiting preferred
shares for new issuances to 50 percent and strengthened rights for
minority shareholders.

Brazilian law recognizes mergers, in which one company loses its
separate identity by being merged into another, and consolidations,
in which the pre-existing companies are extinguished and a new
entity emerges. Although the stock market is growing in popularity,
sales of Brazilian companies usually result from private
negotiations, rather than stock exchange activities. Acquisitions
resulting in market concentration in excess of 20 percent are
subject to review by the Administrative Council for Economic Defense
(CADE) under Brazil's 1994 Anti-trust Law.

Wholly owned subsidiaries of multinational accounting firms,
including the major U.S. firms, are present in Brazil. As of 1996,
auditors are personally liable for the accuracy of accounting
statements prepared for banks.

A.10. Political Violence

Political and labor strikes and demonstrations occur sporadically in
urban areas and may cause temporary disruption to public
transportation. Since mid-2003 the Landless Workers' Movement (MST)
has continued its aggressive invasions of a variety of agricultural
interests, both domestic and foreign, and has occupied government
buildings in its campaign to force redistribution of land. MST
protests have generally been more intense during the historically
significant month of April.

In 2006, criminal organizations staged several violent campaigns
against public institutions in Sao Paulo State leading to a large
number of deaths. While it is unlikely that U.S. citizens would be
targeted during such events, U.S. citizens traveling or residing in
Brazil are advised to take common-sense precautions and avoid any
large gatherings or any other event where crowds have congregated to
demonstrate or protest. Transnational crime is known to occur in
Brazil involving individuals with ties to criminal entities that
operate in major city areas and along the tri-border area of
Argentina, Brazil, and Paraguay. These organizations are involved
in the trafficking of illicit goods. In 2006, the U.S. Department
of the Treasury designated nine individuals and two entities in the
tri-border area as having provided financial and logistical support
to a terrorist group.

Colombian terrorist groups have been known to operate in the border
areas of neighboring countries. Although there have been reports of
isolated small-scale armed incursions from Colombia into Brazil in
the past, we know of no specific threat directed against U.S.
citizens across the border in Brazil at this time. Colombian groups
have perpetrated kidnappings of residents and tourists in border
areas of Colombia's neighbors. Therefore, U.S. citizens traveling
or residing in areas of Brazil near the Colombian border are urged
to exercise caution. U.S. citizens are urged to take care when
visiting remote parts of the Amazon basin and respect local laws and
customs.

A.11. Corruption

Corruption can be an obstacle to investment in Brazil. In 2008,
Brazil ranked 80th (among 180 countries) in Transparency
International's Corruption Perception Index. Brazil ranked below
many other Latin American countries, including Chile, Uruguay, Costa
Rica, El Salvador, Colombia, Mexico, and Peru. In general terms,
businesses find corruption an obstacle in government procurement and
at some levels of the judiciary.

Corruption scandals are a regular feature of Brazilian political
life. The GOB continued to investigate a series of corruption
scandals, of unusual scope, that emerged in 2005. Parallel
Brazilian congressional and law enforcement authorities'
investigations revealed illicit financing by some political parties
of their 2002 presidential campaigns, as well as a related scheme
involving vote-buying in Congress by some elements within the ruling
party and the executive branch, possibly financed by illegal rebates
on contracts. In December 2007, the Brazilian Senate President
resigned the presidency due to a separate ethics scandal. Brazil's
anti-money laundering mechanisms and relatively independent
prosecutorial and oversight institutions have played useful roles in
the investigation of such cases.

Brazil is a signatory to the Organization for Economic Cooperation
and Development (OECD) Anti-Bribery Convention. Brazil has laws,
regulations and penalties to combat corruption, but their
effectiveness is inconsistent. While federal government authorities
generally investigate allegations of corruption, there are
inconsistencies in the level of enforcement among individual states.
Corruption remains problematic in business dealings with some parts
of the Brazilian government, particularly on the local level.

Bribery is illegal and a bribe by a local company to a foreign
official is a criminal act. A company cannot deduct a bribe to a
foreign official from its taxes.

A.12. Bilateral Investment Agreements

Brazil does not have a Bilateral Investment Treaty with the United
States. While Brazil had signed BITs with Belgium and Luxembourg,
Chile, Cuba, Denmark, Finland, France, Germany, Italy, Republic of
Korea, Netherlands, Portugal, Switzerland, United Kingdom and
Venezuela, none of these were ratified by the Brazilian Congress.
Brazil also has not ratified the Mercosul investment protocol.

Brazil has no double taxation treaty with the United States, but
does have such treaties with 24 other countries, including, among
others, Japan, France, Italy, the Netherlands, Canada and Argentina.
Brazil signed a Tax Information Exchange Agreement with the United
States in March 2007 that currently awaits ratification in the
Brazilian Congress, where it has been challenged on its
constitutionality.

A.13. OPIC and Other Investment Insurance Programs

Programs of the Overseas Private Investment Corporation (OPIC) are
fully available, and activity has increased in recent years. The
size of OPIC's exposure in Brazil may occasionally limit its
capacity for new coverage. Brazil became a member of the
Multilateral Investment Guarantee Agency (MIGA) in 1992.

A.14. Labor

The 86 million strong Brazilian labor force comprises a wide range
of skills covering a broad array of occupations and industries. Two
thirds of the labor force is employed in the service sector, 19
percent in the agriculture sector, and the retail and manufacturing
sectors combined employ the remaining 15 percent.

Brazil has signed on to a large number of International Labor
Organization (ILO) conventions. Brazil is party to the U.N.
Convention on the Rights of the Child and major ILO conventions
concerning the prohibition of child labor, forced labor and
discrimination.

The labor code is highly detailed and relatively generous to
workers. Formal sector workers are guaranteed 30 days of annual
leave, an annual bonus equal to one month's salary, and severance
pay in the case of dismissal without cause. Brazil also has a
system of labor courts that are charged with resolving routine cases
involving unfair dismissal, working conditions, salary disputes, and
other grievances. Labor courts have the power to impose an
agreement on employers and unions if negotiations break down and
either side appeals to the court system. As a result, labor courts
routinely are called upon to determine wages and working conditions
in industries across the country. The system is tantamount to
compulsory arbitration and does not encourage collective bargaining.
In recent years, however, both labor and management have become
more flexible and collective bargaining has assumed greater
relevance.

In firms employing three or more persons, Brazilian nationals must
constitute at least two-thirds of all employees and receive at least
two-thirds of total payroll. Foreign specialists in fields where
Brazilians are unavailable are not counted in calculating the
one-third permitted for non-Brazilians.

The Brazilian Institute of Geography and Statistic's (IBGE)
estimated unemployment as of December 2008 at 6.8 percent (versus
7.4 percent in December 2007). Unemployment statistics range
significantly across regions and the December IBGE numbers may not
reflect the latest negative employment impacts of the current global
financial crisis.

IBGE reports that real wages have trended higher in recent years.
The average monthly wage in Brazil's six largest cities was around
1,284 Reais in December 2008 (approximately USD 536 based on average
exchange rates for that month),and the minimum monthly wage was
raised from 380 Reais in 2007 to 415 Reais in March 2008. Earnings
also vary significantly by region and industry and there is
significant wage inequality between Brazil's poor and wealthy.

The Ministry of Labor estimates that there are over 16,000 labor
unions in Brazil, but Ministry officials note that these figures are
inexact. Labor unions, especially in sectors such as metalworking
and banking, tend to be well-organized and aggressive in defending
wages and working conditions and account for approximately 19.04
percent of the official workforce according to the last IBGE release
(2005). Strikes are frequent, particularly among public sector
unions. While some labor organizations and their leadership operate
independently of the government and of political parties, others are
viewed as closely associated with political parties.

Employer federations, supported by mandatory fees based on payroll,
play a significant role in both public policy and labor relations.
Each state has its own federation, which reports to CNI (National
Confederation of Industries),headquartered in Brasilia.

A.15. Foreign Trade Zones

The federal government has granted tax benefits for certain free
trade zones. The most prominent of these is the Manaus Free Trade
Zone, in Amazonas State, which has attracted significant foreign
investment, including from U.S. companies. Most of these free trade
zones aim to attract investment to the North and Northeast of
Brazil.

A.16. Foreign Direct Investment

According to the Central Bank's most recent foreign-capital census
(2000),the stock of foreign direct investment in Brazil stood at
USD 103 billion as of December 2000. Of this total amount, the
United States had the largest share at about USD 24.5 billion (24
percent). Spain had 11.9 percent (USD 12.2 billion) and The
Netherlands 10.7 percent (USD 11.0 billion). Investment inflows
from 2000 to 2006 have amounted to about USD 117 billion, exclusive
of depreciation and capital repatriation. The Central Bank has not
yet published updated investment stock figures which were originally
expected in early 2007.

Central Bank data estimate total FDI inflows were USD 34.6 billion
in 2007, and USD 45.0 billion in 2008. According to the U.S. Bureau
of Economic Analysis, FDI inflows from the United States to Brazil
were USD 4.1 billion in 2007 and United State's FDI stock was USD
41.6 billion as of 2007.

Brazil's Top 20 multinationals have USD 56 billion assets abroad,
equivalent to over half of the country's outward FDI stock. A
survey released December 3, 2007 by the Columbia Program on
International Investment (CPII) and the Brazil-based Fundacao Dom
Cabral (FDC) in New York indicated that Brazil's top multinational
enterprises (MNEs) made the country the second largest outward
investor among developing countries in terms of foreign direct
investment (FDI) outflows in 2006.
FDI as a Percentage of GDP: 2003 - 2008

Year FDI (USD Billions) Percentage of GDP
2008 45.060 2.84
2007 34.585 2.63
2006 18.782 1.76
2005 15.066 1.71
2004 18.146 2.73
2003 10.144 1.83
Source: Central Bank of Brazil
For more information on investing in Brazil, contact the National
Investment Information Network, Brazilian Ministry of Development,
Industry and Foreign Trade (MDIC):
http://investimentos.desenvolvimento.gov.br/
renai_en/index.asp

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SOBEL