POLICY MONITOR July 8 – 12, 2013

The Week in Review ON THE ECONOMIC FRONT Interest Rate: The Central Bank’s Monetary Policy Council (COPOM) raised the Selic interest rate from 8% to 8.5%. The overvalued dollar and high inflation were the main reasons for the third consecutive hike. Retail Sales: The National Confederation of Store Managers (CNDL) reduced its expectations of retail sales’ growth for the 2nd semester, from 6.15% to 5% compared to 2012. Default Rate: The default rate, calculated by the Credit Protection Service (SPC), reached its lowest rate in 18 months, despite having increased 1.52% compared to the same month in 2012. According to the SPC’s economists, the rise was due to higher inflation, which increases the cost of living, and poor consumer financial planning. IMF: In the World Economic Overview (WEO) report, the International Monetary Fund (IMF) reduced ’s growth expectations for 2013 from 3% to 2.5% and, for 2014, from 4% to 3.2%. Olivier Blanchard, economist-chief of the IMF, mentioned infrastructure bottlenecks, low investment rate and growing inflation as the main reasons. Pre-Salt: The draft of the public bid announcement and the profit-sharing contract were published this week. See more below Expenditures cuts: The Administration reduced the expenditures of 39 Ministries by BRL$ 11-13 billion in response to growing t inflation and to achieve its fiscal targets.

ON THE POLITICAL FRONT NSA: Following revelations by Edward Snowden of U.S. National Security Agency (NSA) spying activities in Brazil through the monitoring of emails and phone calls, the government issued a statement expressing deep concern and affirming that engagement of companies in the monitoring is unconstitutional and illegal. Congress has summoned Minister Antonio Patriota, Ambassador Shannon, and the Minister of Defense, . The Senate has created a Parliamentary Inquiry Commission (CPI) to investigate the accusations of in-country espionage activities by the U.S. Vetoes: Congress will start analyzing the remaining 1,700 vetoes, including the oil royalties and forest code next week. New rules for vetoes announced after June 2013 provide that they have to be analyzed within 30 days or else no other matter can be voted on the floor of the House and Senate. Political Reform: Congress has announced that it will not hold a plebiscite to discuss a political reform applicable to 2014 election. Members of the government’s party, PT, announced that they will begin collecting signatures in order to hold the plebiscite. 171 signatures are required for the proposal to be valid. Deputy Senator: After having rejected a Constitutional Amendment Bill (PEC) which proposed the elimination of second deputy senators and forbade family ties among Senators and its deputies, the Senate backed down under popular pressure and approved a Bill with similar content (PEC 11/2003). The issue was one of various proposed by Rousseff for the political reform. Mayors Meeting: On Wednesday, President Rousseff announced a total of BRL$15.3 billion in investments, BRL$3 billion going to health and education, as well as an extension of the housing program Minha Casa, Minha Vida during a meeting with mayors. Despite these measures, President Rousseff was booed by the mayors. Their main demand is a 2% increase in transfers from the Municipal Participation Fund (FPM) to the cities. Trade Unions Strike: On Thursday, a movement organized by trade unions blocked the country’s main roads and ports. Among the demands were the reduction of the 44-hour working week to 40; 10% of GDP directed to education; 10% of the Union Budget to health; improved public transportation; restriction on third party contracting; among others. Main cities such as Sao Paulo were not deeply impacted by the protests. Mercosur: Foreign Relations’ Ministers and Presidents of Mercosur member countries met this Thursday and Friday, in Montevideo, Uruguay, to discuss Paraguay’s readmission, Venezuela’s Presidency of the bloc, Bolivian President Evo Morales’ flight incident and U.S. spying practices in the region.

Brazil-U.S. Business Council PATRI WASHINGTON, DC

1615 H Street, NW 1101 17th St.

20062, Washington, DC NW Suite 1010 Phone: (202) 463-5729 Phone: (202) 822-6420 www.brazilcouncil.org Fax: (202) 822-6423 [email protected] Energy & Environment Pre-Salt Bidding Round

The National Agency for Oil, Natural Gas and Biofuels (ANP) published on Tuesday a notice of public hearing that will take place at the Agency’s headquarters in (RJ) on July 23, at 9 a.m. The hearing will be preceded by a public consultation on the drafts of the Pre-Salt Bidding Round Schedule public bid announcement and the July profit-sharing contract of the first 09 Publishes the announcement of public hearing preceded by a bidding round of Pre-Salt. In the public consultation on the edict and contract drafts profit-sharing regime (Law 10-19 Period for receiving contributions to the drafts 12.351/2010), the federal 23 Public hearing session opened at ANP headquarters in Rio de government owns the rights to the Janeiro (RJ) oil and companies get refunds of August exploration costs, as well as a 23 Publishes the final version of the edict and the contract additional profits on the excess oil. October 21 Pre-Salt Bidding Round Criticisms made by companies regarding the rules included the short period for public comments, the long waiting time for returning investments and non-renewability of contracts.

Mining Code

Bill 5807/13 which creates the new mining regulatory framework received 372 amendments by Congressmen on numerous issues such as penalties, concession schedule and environmental issues. A Special Committee will be created to debate the Bill which must be voted on by the House by August 18. Failing to vote by the deadline will block voting of any other matter on the Floor.

Solid Waste

Public consultations with the Brazilian Association of Technical Norms on the validation of rules regarding solid waste and pollution load management closes next week. Consultations are available here.

Tax & Investments CAMEX Executive-Secretary

André Alvim was officially appointed to the post of Executive-Secretary of Foreign Trade Chamber (CAMEX). He had been in charge since April 30 when Emilio Garófalo retired. Alvim was an attorney for the National Treasury and worked at CAMEX as a special advisor since January 2009.

Staple Goods

President Rousseff vetoed portions of Provisional Measure (MP) 609/13 which eliminated PIS/PASEP and COFINS taxes for goods in staple food items. During debates in Congress, numerous items were added to the tax relief lists. These were now vetoed by the President under the claim that new added items would violate the Fiscal Responsibility law. Vetoed items include cookies, toothbrushes, tomato sauce and chicken meat. Items as butter and toilet paper were maintained.

Tax Exemptions

The Senate approved MP 610/13 which exempts numerous sectors from the PIS/PASEP and COFINS taxes and extends the Special Taxation Program for Exporters (REINTEGRA). These issues were originally in MP 601/13 that lost its validity because it was not voted on by the Senate in time. Sectors that received the tax exemptions include: internet, phone and catalog retailers, infrastructure construction, passenger transportation and IT support companies. The REINTEGRA program was extended until December 31, 2014. The Bill must now be approved by the President.

Brazil-U.S. Business Council PATRI WASHINGTON, DC

1615 H Street, NW 1101 17th St.

20062, Washington, DC NW Suite 1010 Phone: (202) 463-5729 Phone: (202) 822-6420 www.brazilcouncil.org Fax: (202) 822-6423 [email protected] Consumers Defense

Next Tuesday, the National Secretariat of Consumers will launch a “National Registry of Valid Complaints”. The Registry will include complaints made by consumers in local consumers’ defense agencies (Procons) which were not resolved and then turned into administrative processes.

The products and services at the top of the complaints list are: telephone and financial services, credit cards, home appliances, paid TV and the retail sector.

Government Internet Legal Framework

On Monday, after the revelation of U.S. spying activities in Brazil, the Minister of Institutional Relations Ideli Salvatti pledged a speedy voting process for the internet legal framework – Marco Civil da Internet (Bill 2126/2011) by Congress. In her opinion, strengthening rules concerning users’ privacy would avoid the recurrence of similar incidents.

The Administration added an article to the text demanding that records be kept in country by companies that collect content, such as Google, Facebook and Twitter. Nonetheless, expectations on the voting and approval of the bill, which has been in the House for almost two years, are slimmer due to a lack of consensus between politicians and the business community.

Copyrights

On Wednesday, the Senate approved Bill 129/12 that grants the Administration oversight powers over the music copyright Central Office of Collection and Distribution (Ecad). The Bill was an initiative of last year’s Commission on Parliamentary Inquiry (CPI) created due to allegations of Ecad’s poor management. The Bill provides more transparency to the process establishing a unified record of works, increases management and oversight of associations, and establishes an obligation for film and broadcasting companies to provide a full list of works used each month, as well as a more proportional distribution of resources to authors. The text must be approved by the President.

Health

Appointments to ANVISA and ANS

This week, President Rousseff appointed the names of Elano de Figueiredo, as member of the board of directors of the National Supplementary Health Agency (ANS), replacing Maurício Ceschin and Renato Porto, as member of the board of directors of the National Health Surveillance Agency (ANVISA), replacing Maria Cecília Brito. Renato Porto is a lawyer, specialized in health surveillance and civil process, and a civil servant of ANVISA since 2005. He worked as Coordinator at the General Management of Medicines. Both nominations, in addition to Ivo Bucaresky, whose name has been waiting for a vote since June, were approved by the Senate on Thursday.

Good Regulatory Practices

During a public hearing, ANVISA presented the results of public consultation 13/13 which details the Regulation Improvement Program. The full presentation can be seen here.

“More Physicians” Program

On Monday, the government launched the Program “More Physicians” with the goal of increasing the quality of health services provided in some of the country’s most vulnerable areas. Although having been announced before, the initiative gained momentum following social protests. The most controversial aspect of the plan is the pledge to bring 6,000 foreign doctors to work in the North and Northeast regions. A larger program, Health Pact, forecast resources for investments of BRL$15.8 billion until 2014 and includes the construction and reform of hospitals, intensive care units and university hospitals.

Brazil-U.S. Business Council PATRI WASHINGTON, DC

1615 H Street, NW 1101 17th St.

20062, Washington, DC NW Suite 1010 Phone: (202) 463-5729 Phone: (202) 822-6420 www.brazilcouncil.org Fax: (202) 822-6423 [email protected]

The Pulse Brazil x U.S. x U.K. - Anti-Corruption Norms Comparison

PLC 39/2013 FCPA UK Bribery Act Awaiting Presidential Sanction Who does it  National and foreign legal  National and foreign  National and foreign reach? entities with in-country legal entities with in- legal entities with in- operations country operations or country operation while in U.S. territory  National and foreign legal entities registered at the U.S. Security and Exchange Commission Is the company Yes, directly. Except in sanctions In general, yes Yes responsible for applied by the Judicial Branch the acts of its which requires proof of the employees? company’s participation

What are Acts that violate the national or To offer, pay, promise to I - Bribing considered foreign public domain, the public pay, or authorization of II - Being bribed administration’s principles or payment in order to assist in harmful acts? III - Bribing a foreign public international agreements signed obtaining, retaining or official by Brazil. Such as: directing business, including: I – promise, offer or give, directly I - influencing any act or IV - Corporate offence or indirectly undue advantage decision of such foreign V - Facilitation payments II – finance or sponsor the official practice of illicit acts II – inducing a foreign official III – to make use of the legal to do or omit to do any entity to disguise actual act in violation of the interests or the identity of the lawful duty of such beneficiaries official IV – fraud or harmful acts against

public bids and contracts Exceptions None  Routine government  Proper exercise of any action intelligence and armed  Lawful in foreign country forces’ functions  Reasonable and bona fide expenditures Sanctions  Fines (up to 20% of the  Fines for the company  Imprisonment company’s gross revenue – and its representatives  Unlimited Fines The Brazilian Bill is between BRL$6.000 and  Imprisonment the only one that BRL$60 millions); does not apply penal  Publication of the sanctions administrative decision (“black lists”)  Forfeiture of goods and assets;  Suspension of activities;  Compulsory dissolution;  Prohibition on receiving incentives, subsidies, donations or public loans Is a recipient of bribery targeted No No Yes by the legislation?

Brazil-U.S. Business Council PATRI WASHINGTON, DC

1615 H Street, NW 1101 17th St.

20062, Washington, DC NW Suite 1010 Phone: (202) 463-5729 Phone: (202) 822-6420 www.brazilcouncil.org Fax: (202) 822-6423 [email protected]