BUDGET      (in US$)

Appendix A: The Brazilian Political System 

Brazil is a presidential and federative republic with considerable decentralized federalism. It has 26 states and the Federal District (Brasília), and 5,581 municipalities. Even though the 1998 Constitution reestablished many of the prerogatives of the bicameral Congress, the president retains significant powers.[1] Other than an occasional delay by one of the three branches, the Brazilian government has a system of checks and balances (similar to the American system) that ensures its harmonious operation.[2] 

            Presently, there are 21 Ministries in the Executive Branch. Those of interest in this project are described below. The President, Fernando Henrique Cardoso, has been in power since 1994, having been re-elected in 1998, and his term will come to an end in October of 2002. When he first became president, he assigned his own choices to most of the positions in the Ministries, and restructured the Ministries to give superior status to three of them: Planning, Civil Household, and Finance. In addition, he built a Political council to coordinate major political strategy and policy decisions. Also in the Executive branch are autonomous agencies, the Bank of Brazil (Banco do Brasil) and the Federal Savings Bank. A change in Law in 1997 allowed the President and state governors to be re-elected once in their positions. The next state elections for governors will take place in October 2002.  

            The legislative branch is composed of a 513-member Chamber of Deputies and an 81-member Senate. While Congress has a basic four-year term, Senators serve for 8 years. The States have unicameral legislatures elected at the same time as Congress. The municipalities have city councils with 4-year terms; elections at this level take place two years after state and national elections. Congress has administrative and fiscal autonomy, as well as full power over the budget. In certain circumstances, subject to an absolute majority secret vote, Congress can issue decrees not subject to presidential veto. Congress holds a very important role in setting national economic policy.[3]  

            Because the d’Hondt method of proportional representation is used, conflict arises within parties, and there is little loyalty. Moreover, deputies rely on their own resources (up to US$ 5 million for a federal deputy) for campaigning.[4] The Senate and Chamber of Deputies have legislative initiative; each has six and sixteen standing committees respectively, as well as a joint budget committee. The committees have the ability to approve or kill legislation. Presidencies of these committees are allocated among the parties on an annual rotational basis.  

            For a bill to pass in the Senate and Chamber of Deputies, as well as in the Committees and Sub-committees, a 50% +1 vote is needed for a bill to be approved. So, in the case of the Senate, 41 votes (out of 81 Senators) are needed; in the Chamber, 257 votes (out of 513 Deputies) are needed for a bill to be passed. When a bill proposal is introduced into Congress, it is sent to the relevant Committee in the Chamber, and subsequently to three Sub-Committees. After deciding the appropriate Sub-Committee for the bill, the bill is debated by the members in that Sub-Committee. If it is approved, it is sent to a Plenary of the Committee and also discussed. The time for a bill to get through Sub-Committee tends to be around 2 to 3 months, and between 3 to 4 months at the Committee level. If it is approved by vote, it gets sent to the Chamber of Deputies, where it may take from 2 to 6 months (sometimes even longer). If the Deputies pass the bill, the Senate analyzes it for a period similar to that taken in the Chamber. Finally, upon approval of the Senators, the bill gets sent to the President who will ratify or veto it after the appropriate consideration period (ranging from 2 months to 6 months). If any amendments are made to the bill in the Chamber or Senate, it is returned to the other House where it had already been approved, for further analysis of the changes.  

Presently, the Government’s coalition is composed of the President’s party, PSDB, and the following parties: PTB, PMDB (split support), PFL (slip support), PST and PDT. The opposition parties are: PT, PMDB (portion), PFL (portion), PPB, PSB and PCdoB. The neutral parties are: PPS, PL, and PSL. It should be noted that party names have little meaning when it comes to designing their mandates and policies. Historically, Brazil’s political parties have undergone countless changes in names, compositions, and party mandates. It is commonly known that the names of the parties should not be used as an indicator of how they may campaign on specific issues.

Appendix B:  Proposal for a Tax Bill Promoting R&D

To: Mr. Ronaldo Sadenberg, Minister, Ministry of Science and Technology
From: Mr. Saulo Nogueira, Strategic Planner, Embraer 
Re: A Proposal for a Tax bill Promoting R&D
Date: April 26^th, 2002 

Dear Mr. Sadenberg, 

            I am interested in sharing with you a tax bill proposal for research and development that will act as a catalyst for businesses to innovate and improve their competitiveness.  So far, the Brazilian government has failed to implement fiscal policies encouraging R&D investment in the private sector. As you well know, R&D is imperative for the development of new technologies and products that are more attractive in the marketplace, whether domestically or internationally. Brazil is being left behind because of the government’s dormant stance on promoting R&D. Therefore, I have a proposal for a tax bill that will promote R&D in all sectors of Brazil, especially the transportation industry that will receive higher incentives. 

            The R&D tax bill should afford companies investing in R&D the following:

·       Income tax credit for the following levels:

o      Transportation sector: 50 %

o      All other sectors: 15% 

The applicants must first meet the following criteria to receive the tax credit:

·       Industrialization of its outputs to at least a minimum procedure standard called “Processo Produtivo Básico” (PPB);

·       Invested at least 5% of its revenues in R&D, with 2% going towards joint programs with universities or research institutes;

·       Obtained ISO 9000 certification for its products. 

The reason for a higher tax credit level for the transportation industry is that this is an industry that has long been struggling to reduce its operation costs. Indeed, the government has recognized that the continued use of almost obsolete technologies in this industry is the reason for the high transportation costs in Brazil. The industry is in serious need of an overhaul in terms of production and operation efficiency, as well as technology usage. The whole economy would benefit from lower transportation costs in its commercial transactions.                        

            I hope you give this due consideration, and I will contact you soon to provide any further information you may require.

Sincerely,                                               

Saulo Nogueira

Strategic Planner - Embraer

Appendix C:  Survey on Companies’ R&D Investment Expectations

Please fill out as many answers as possible from this questionnaire. After completing the form, please put into the enclosed self-stamped envelope and put in the mail. 

1.     Industry your company belongs to:                                       . 

2.     What is your company’s annual revenues:                             .

3.     How many employees are there at your company:                           .

4.     What kind of research and development (R&D) activities is your company currently engaged in:                                                                                     .

5.     What portion of your revenues is spent on R&D activities:                            .

6.     Would your company support a R&D tax bill that gives tax credits for investments in R&D, if the investments meet the following criteria:

-        at least 5% of the company’s revenues must go to R&D

-        At least 2% of the R&D investments must be applied with joint-public research institutions

Yes [   ]   No [   ]   Maybe [   ] (please check appropriate box)

7.     If you answered Yes to Q.6, how much more would your company invest in R&D per year, if the bill were in place:                                                           .

8.     How would you rank the role of R&D in creating a competitive advantage for your company: _____  (1 to 10, where 10 is the highest ranking)

- Thank You –

Annex D: Media Advisory

MEDIA ADVISORY                                                            Contact: Mr. Saulo Nogueira

1^st December, 2001                                                          Tel. (11) 682-5518

Introduction of Technological Innovation Bill in Congress

WHAT:   Reception and a Press Conference to announce the date of introduction of bill in Congress, and to reveal surprising economic estimates of benefits expected its implementation.

WHERE: Trade Show Center, Room 101, Av. Tancredo 450, São Paulo. 

WHEN:    8th of December, 2001. Reception at 12pm, Press conference at 12:30pm. 

SPEAKERS:  Mr. Carlos Moreira Ferreira, President of the CNI
   Dr. Roberto Rimarães, Senior Advisor- Ministry of Science and Technology
    Mr. Saulo Nogueira, Strategic Planner- Embraer
    Mrs. Carla Mineira, Actress
    Mr. Oscar Lorenzo Fernandez, Secretary of Industrial Technology- Ministry of Development, Industry and Commerce

 WHY:    Experts in the field of technology development and innovation will explain the need for an R&D tax bill to encourage businesses to invest in this field. Economic studies revealing the economic benefits from similar tax bill in other countries will be presented, as well as the latest research of long-term economic revenue growth resulting from increased R&D spending. 

Also, “The Clone” soap-opera actress Mrs. Carla Mineira will reveal how the bill relates to upcoming episodes of the tele-novela. Mrs. Mineira will tell about how the bill will affect the future of her husband’s company.

Appendix E: Acronyms 

Bibliography

Allaire, Yvan, ‘A Structure Trade System: Do we want one or not?’, 5/26/2000 

AmericasTrade, ‘WTO Appellate Body rejects Canada, Brazil aircraft-subsidy claims’, 8/12/1999. 

Babikian, Raffi,“The Historical Fuel Efficiency Characteristics of Regional Aircraft”, MIT, June 2001, http://web.mit.edu/aeroastro/www/people/iaw/Babikian.Thesis.pdf 

Bejerman, Ingrid, 10/26/2001, “Back with a Vengeance”, Economic Review. 

Brazcen, “Brazilian Industry in the Face of Global Competition”,  2/28/2002 

‘Canada to Ask for WTO Panel on Brazilian Export Program’, DFAIT-MAECI, Canada. 

“Embraer is not just a manufacturer”, 2/14/2000, Comércio Exterior. 

Freeman, Aaron, “Financing Disaster: Canada’s Export Development Corporation and the Financing Agency Race to the Bottom” Multinational Monitor, March 2000. 

Gomes, Alaor José, “Indas e Vindas”, Comércio Exterior, 2/9/2000 

Gordinho, Fernando, 09/24/1999, “PFL changes the IT project”, Sucursal de Brasília. 

Gordinho, Fernando, 09/25/1999, “Ministry fears evacuation of companies”, Sucursal de Brasília. 

Goyos, Dural, “Proex and the Brazilian ‘Victories’ in the WTO”, April 2001. 

“Informatics: Law sanctioned, with veto”, 01/12/2001. 

Lana, Fabiana, “Governo so libera 3.3% de verba prevista para ciencia”, 7/11/2001 

Lenjosek, G. and Mansour, M. “Why and How Governments Support R&D”, Canadian Tax Law, http://www.fin.gc.ca/resdev/why_e.html 

Marray, Michael, ‘Locked Horns’, Airfinance Journal, May 2001 

“New Departures for Technology Policy in Brazil”, Meyer-Stamer, 1995, www.meyer-stamer.de/1995/bratech.htm 

Pezzola, Anthony, “Regional Integration, Fiscal Incentives, and Local Politics in Brazil” Univ. of Washington, http://pro.harvard.edu/papers/011/011031PezzolaAnt.pdf 

“Playing on Confusion”, Nacional Tamanho, 09/26/1999. 

Polek, Gregory, “’Final’ WTO ruling fails to end row over aircraft subsidies”, Feb. 2000, AIN online. www.ainonline.com/issues/02_00/jan_wto_62.html 

“Regional Aircraft Market”, www.rolls-royce.com/civil/outlook

Robinson, Walter, “Taxpayers respond to Tobin’s funding announcement favouring Bombardier” 

Scoffield, Heather, “World Trade body slaps down Canada, Brazil Subsidies”, 08/04/1999, MAI-NOT Forum, http://mai.flora.org/forum/12922 

Staub, Eugenio, “Desafios Estrategicos em Ciencia, Tecnologia e Inovacao”, 9/18/2001, Instituto de Estudos para o Desenvolvimento Industrial. 

Wheatley, Jonathan, “The Sky’s the Limit”, Businessweek Int’l edition, www.businessweek.com:/2001/01_03/b3715141.htm?scriptFramed 

Wyatt, Nelson, 07/10/2001,“Ottawa scores hit in trade war against Brazil with loan to help Bombardier”, Recorder, Canadian Press.
   

Organizations 

Brazilian Chamber of Deputies: www.camara.government.br 

Brazil Facts, Library of Congress, ‘The Brazilian Government’. 

Brazil Reference Information, Latinfocus, www.latin-focus.com/factsheets/brafact.htm 

Brazilian Senate: www.senado.government.br 

“Brazilian Transportation Infrastructure”, www.web3.comm.virginia.edu/aeu3u/braziltransportation.htm 

Central Bank of Brazil, “Economic-Financial relations with the International Community”, http://www.bcb.gov.br/ftp/banual97/rel97-4i.pdf 

Department of Finance Canada, “Subsidies and Countervailing Measures
Information Paper”, www.fin.gc.ca 

Embraer website, Annual Report 2000, www.embraer.com

Bombardier website: www.bombardier.com 

Export Development Corporation website: www.edc.ca 

Federation of Industries of São Paulo website: www.fiesp.org.br 

Forecast International, Press Release, “DMS to release new regional aircraft market study – values to reach nearly $100 billion, 200-2009”, 09/18/2000

InfoBrazil, ‘Interview: Jean Pierre (Canada’s Ambassador to Brazil)’, Jan 2001. 

Infrastructure Brazil, www.infrastruturabrasil.government.br/english/perfis/transp.asp 

InsideTrade, ‘WTO Okays Canadian sanctions in Brazil, aircraft dispute’, 12/15/2000. 

Ministry of Development, Industry and Commerce (MDIC),  Website: www.mdic.gov.br. 

Ministry of Finance website: www.fazenda.gov.br/ 

Ministry Foreign Relations, “Reducing the Brazil Cost”, www.mre.br/ndsg/textos/custbr-p.htm 

Ministry of Science and Technology, Online articles, www.mct.gov.br

-        Study on IT Law: ‘Lei 8.248/91. 1991-98: http://www.mct.gov.br/Temas/info/ResultLei/ResultLei.htm 

National Confederation of Industries, “Agenda Legislativa da Industria”, CNI, www.cni.org.br 

- “Study of the Private Sector Demand for Technology Investments”, CNI, 1997-2001, www.cni.org.br/produtos/src/est_demanda.pdf 

“New Industrial Policy”, Planalto, www.planalto.gov.br/publi_04/COLECAO/NOVPOL4.htm 

Probe International, ‘EDC Exposed’, www.probeinternational.org/pi/edc/. 

Unicamp, “EDISTEC - Fiscal Incentives”, www.unicamp.br/prp/edistec/incentiv.htm  

World Bank, “Brazil-Science and Technology Reform Operation”, 3/21/1997, www.worldbank.org/pics/pid/br38947.txt 

WTO Website, ‘Dispute Resolution files’, Aircraft Subsidies Dispute; and the Agreement of Subsidies and Countervailing Duties (ASCM), www.wto.org 

Author’s Note

 Since the original writing of this project, the two companies have progressed only slightly. Although the WTO Dispute Settlement Body ruled in August 2001 that Proex III was in line international financing conditions, the Canadians made a final appeal to the panel. The panel did not change its ruling. Although the Brazilian government was granted permission to apply retaliatory tariffs on Canadian products, it chose not to. In December 2002, the DSB gave the final ruling marking the end of all proceedings of the dispute in the WTO. However, the actual status of the dispute remained unresolved because both sides continued to view each other’s operations as being unfair and illegal. The Canadian prime-minister visited Brazil in December 2004 and agreed with Brazilian president Lula da Silva to put an end to the dispute and work towards strengthening the commercial ties between the two countries. It remains to be seen whether or not this diplomatic rhetoric will turn into a reality. Recent declarations from the Ministry of Foreign Affairs of both countries points to a possible free trade agreement between Mercosur (of which Brazil is a member) and Canada, which may possibly require a formal agreement to finally put the dispute to rest.