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Brazilian Government Homologates Private Toy Agreement

On December 22, 2006, citing authority under the GATT 1994 and the Protocol on the Accession of the People’s Republic of China to the WTO, the Brazilian Foreign Trade Secretariat (Secex) of the Ministry of Development, Industry and Trade (MDIC) publicly homologated a private Agreement signed on August 17, 2006 among the Brazilian Toy Association (Abrinq), the Chinese Chamber of Commerce for Importation & Exportation of Light Industrial Products & Arts-Crafts, and the Chinese Toy Association. The purpose of this agreement was to establish parameters for negotiations of a restraint on Chinese toy imports into Brazil. Safeguards are measures otherwise inconsistent with Article II or XI of the GATT 1994, which are justified under the economic emergency exception provided in Article XIX of the GATT 1994 and the Agreement on Safeguards. The Brazilian toy industry and the Brazilian government are quite familiar with the safeguards framework. For ten years, i.e. the maximum period afforded to a developing country under the WTO Safeguards Agreement, Brazil applied restrictive measures against foreign toy manufacturers, including China. Now that this period has lapsed, Brazil’s only recourse would be Article 16 of China’s WTO Accession Protocol, as regulated by Brazilian Decree 5.556/05. It is uncertain at this stage what the actual intent was of this homologation, but China’s WTO Accession Protocol and Decree 5.556/05 are very clear that any mutually binding satisfactory solution to an increase in Chinese exports causing or threatening to cause market disruption in Brazil can only be reached through direct bilateral negotiations exclusively by the governments of Brazil and China. Although there is no doubt that these negotiations would utilize and profit from the participation of interested private parties, the negotiations must be bilateral and led by the Brazilian and Chinese governments. Had the Agreement been negotiated between the Brazilian and Chinese governments, it would have amounted to a Quantitative Restriction in the form of a Voluntary Export Restraint, which although generally prohibited under Article XI:1 of the GATT 1994 and the Safeguards Agreement, may be held to be legitimate based on Art. 16 of China’s Accession Protocol calling for prior consultations to reach a mutually satisfactory solution with China before application of safeguard measures, despite the fact that the GATT 1994 is express in favoring duties, taxes or other charges, in lieu of grey area, quantitative restrictions. It is still unknown what the practical consequence of this homologation is to Chinese, Brazilian and multinational traders, but there is no doubt that the Brazilian government is fully aware of its international commitments and will ensure that any restraint on toy imports from China is negotiated in accordance with the GATT 1994 and China’s WTO Protocol, as a lack of transparency or any semblance of arbitrariness or impropriety would, particularly as regards the treatment accorded to traders, be a violation of Article X:3(a) of the GATT 1994.

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