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Special BRAZIL Issue

THE INTERNATIONAL LAW


Quarterly
a publication of the florida bar international law section
www.floridabar.org  •  www.internationallawsection.org

Vol. XXIX, No. 4


Fall 2011
Dispute Resolution in Brazil:
In This Issue:
Important Trends
Dispute Resolution in Brazil:
Important Trends............................1 By Mauricio Gomm Santos and Quinn Smith, Miami
Beyond the World Cup and the
Olympic Games..............................1
From the outside looking in, dispute reso- profitability, Brazilian law firms have likewise
lution in Brazil has evolved rapidly over the prospered. This has created a world of dispute
Message from the Chair....................3
last decade. As the economy has grown and resolution that is quickly changing—requiring
From the Editor .................................4 Brazilian companies have become major inter- the constant attention of international practi-
Antitrust Reform in Brazil: The Future national players, the legal market has changed tioners, scholars and businesses. As discussed
Role of CADE.................................8
and a new framework for dispute resolution has below, the new paradigm undoubtedly presents
The Role of CVM (Comissão de developed. In the same way that Brazilian busi- a number of future challenges relating to litiga-
Valores Mobiliários):
What Foreigners Should Know.....11 ness has emerged from the protective cocoon tion, arbitration, investment arbitration, and oth-
of the 1980’s to a new era of sophistication and See “Dispute Resolution,” page 2
Foreign Trade: What to Expect From
Brazil.............................................14

Beyond the World Cup and


The New Silk Road:
China and Brazil...........................20
Concessions and Other New
Instruments as Key to Development
in Brazil.........................................24 the Olympic Games:
The Painful (and Taxing) Realities of
Doing Business in Brazil ..............31 Business and Investment in Brazil as
Rules and Guidelines for Foreign
Law Firms Practicing in Brazil......43 a Consolidated Economic Power
The New Phase of International
Arbitration in Brazil.......................47 By Cristiano Rabelo, Miami and Rio de Janeiro
International Judicial Cooperation
in Brazil: Recognition and Within the international business community, little doubt remains
Enforcement of Foreign Decisions about Brazil’s present economic success and attractiveness.
at the Superior Court of Justice....52 Boasting a 200 million-strong consumer market and a GDP
Brazilian Immigration Policies: growth of 7.5% in 2010,1 the South American giant seems
An Effective System for Foreign to have long left behind the economic moroseness and
Workers and Investors..................58
uncertainty that plagued its development in the ’80s and
A Proposed Brazilian Constitutional
Amendment to Make Judgments
’90s. Relying on its expanding middle-class market, Brazil
Res Judicata Before All Appeals emerged relatively unscathed from the 2008/2009 global
Have Been Exhausted..................62 economic crisis, while developed economies in Europe and
Ethanol: Sweetening the Deal North America suffered through a costly recession.2 Brazil’s
Between the U.S. and commendable performance during this period seems to have
Brazil.............................................67
finally and definitely brought the country to the center stage
Limitations on Foreign Investments in of world economy. Money-wise, Brazil is now the place to be.
Brazil.............................................70
See “Beyond the World Cup,” page 75

Vol. XXIX, No. 4 The International Law Quarterly Fall 2011


dispute resolution, from previous page

er forms of dispute resolution. Practitioners games in the growing Brazilian market; any
should expect to see a uniquely Brazilian judgment against Vostu faced a long and
form of dispute resolution involving prac- arduous battle for recognition in Brazil. In
tice in multiple courts; different methods response, Zynga filed a copyright infringe-
of taking and presenting evidence; attempts ment lawsuit in California and later sought
to use various kinds of dispute resolu- a preliminary injunction in Brazil, asking
tion; and new forms of investment arbitra- the Brazilian court to force Vostu to remove
tion through offshore entities, multilateral its games or pay a hefty fine. The Brazilian
The International Law Quarterly agreements and foreign investment laws. court of first instance granted the request,
is prepared and published by the forcing Vostu to file for an anti-suit injunc-
International Law Section of The Florida
Bar. Litigation: Turn a Blind Eye tion against Zynga in California, asking the
to Brazilian Courts at Your court to stop Zynga’s Brazilian lawsuit.
Nicolas Swerdloff, Miami Own Peril After reviewing extensive legal briefing,
Chair the Northern District of California denied
An honest Brazilian lawyer will tell you
Richard C. Lorenzo, Miami Vostu’s request for an anti-suit injunction
that a “typical” domestic litigation can take
Chair-elect prohibiting Zynga from pursuing interim
anywhere from seven to ten years to resolve
C. Ryan Reetz, Miami relief in Brazil.2 The court found the ac-
due to a backlog of cases and numerous
Secretary tions sufficiently distinct and ruled that
opportunities to appeal. At the sound of
Peter A. Quinter, Miami Zynga had the right to pursue different
this, many U.S. practitioners shake their
Treasurer remedies in different countries. From the
heads in disbelief and write off the Brazil-
Edward M. Mullins, Miami docket report, it appears the Brazilian ac-
ian court system. Despite the delays, the
Immediate Past Chair tion is pending appeal, but the strategy
Brazilian court system remains a robust,
Mark R. Weiner, Tampa remains noteworthy. Zynga has placed an
active judiciary that can play an important
CLE Chair enormous amount of pressure on Vostu in a
role in international investment and dispute
Alvin F. Lindsay, Miami relatively short period of time, obtaining an
resolution. When managing international
Editor-In-Chief injunction against Vostu that strikes at the
cases, it is therefore important for foreign
Angela Froelich, Tallahassee heart of Vostu’s business. Although Vostu
lawyers to understand and work with the
Program Administrator has the ability to challenge that injunction
Brazilian courts.
Lynn M. Brady, Tallahassee on appeal, Zynga has quickly and substan-
Many attorneys assume that the reputa-
Layout tially increased its bargaining power in any
tion for delay applies to all areas of the
Elizabeth Ortega negotiations by using the Brazilian courts
Brazilian court system. But the ability to
Media Contact, ECO Strategic effectively, despite the initial prospect of
Communications, eco@ecostrats.com get injunctive relief still exists, and with the
long delays.
right strategy, a party can use the court to
Brazilian courts can also show perhaps
secure injunctive relief (normally ex parte)
surprising sophistication when dealing
quickly in aid of other litigation or arbitra-
Articles between 7 and 20 pages, double- with high-profile cases that have attracted
tion proceedings. In other words, parties
spaced, involving the various disciplines media scrutiny. Brazilian courts follow an
affecting international law may be submitted can take advantage of the relative speed
inquisitorial model where the judge plays a
via email in MS Word format (with the use of of Brazilian courts in some matters while
endnotes, rather than footnotes). Please strong role in pushing the case toward deci-
minimizing the risk of delayed litigation in
contact Alvin.Lindsay@hoganlovells.com sion. When faced with tens of thousands of
others. A contemporary example illustrates
for submissions and for any questions you cases, this inquisitorial function can slow
this point.
may have concerning the Quarterly. the process; given the right kind of case,
The U.S. online game maker Zynga re-
however, the judge can aggressively move
cently sued a Brazilian competitor, Vostu,
DEADLINE FOR next ISSUE it to a conclusion. This can take parties
IS 5 december 2011 for copyright infringement related to games
and their attorneys by surprise, a point
Vostu was making and promoting in Bra-
illustrated by the following example from
zil.1 While the jurisdictional facts and his-
the wake of the 2008 financial crisis.
tory provide a broader understanding of
Some Brazilian companies rely heav-
the case, in sum, Zynga faced a difficult
ily on exports, selling large amounts of
position from the standpoint of enforc-
products to foreign countries, receiving
ing any future judgment. While Vostu’s
revenue in dollars but paying expenses in
games reached the U.S. through the Inter- local currency—the Brazilian real. Some of
net, Vostu’s games resided on servers out- these companies bought hedging contracts
side the U.S. and competed with Zynga’s
See “Dispute Resolution,” page 5

Page 2 The International Law Quarterly Fall 2011


Message from the Chair
This issue of the International Law Quarterly focuses on Brazil, which is fast becoming
a major player on the world legal stage and where, this month, we are taking one of the
pillars of our annual programming—the International Business Transactions Conference.

Brazil’s emergence as a legal player is no accident. Brazil’s economy is booming, growing


0.8% in the second quarter of 2011 alone, up 3.1% from the same period the year before.
This growth is fueled, in part, by the 2007 discovery of an estimated fifty to eighty billion
N. Swerdloff barrels of oil off the country’s coast—a discovery that some predict could result in Brazil
becoming one of the world’s largest oil producers within the next five years. In addition,
the country’s agricultural and mining industries are growing rapidly, due to high global commodity prices and
China’s investments in Brazil (described in this issue in an article written by Mikki Canton). Further, U.S.
private equity investment in the country totaled US$40 billion in 2011, eight times more than in 2004, and it
is expected to hit US$100 billion within five years.

Along with investments, law firms have also flowed into Brazil. As of the date of this issue, sixteen AmLaw
Top 100 law firms and three major UK law firms maintain offices in São Paulo, the financial center of Brazil.
Brazilian law firms have likewise grown, both domestically and internationally, and are well represented in this
issue with articles by attorneys from Machado Meyer Sendacz e Opice Advogados and Veirano Advogados.

With all this activity, it is only natural that our Section, with its rich tradition of outreach to other countries—
stemming in part from our location as the “Gateway to Latin America”—take our show on the road to Brazil,
where we will, in partnership with the International Centre for Dispute Resolution, hold a joint conference on
“International Business Transactions and Conflict Management: The U.S. and Brazilian Perspectives” in São
Paulo on November 29. We anticipate that this year’s IBT conference will be our best to date!

We, of course, have a full roster of additional events planned for this year and next, including a series of
webinars on such hot topics as: “Managing U.S. Discovery ‘Assistance’ in International Liability Exposure” (8
December 2011); “5 Ways Corporations Can Limit their International Liability Exposure” (15 February 2012);
“Managing Criminal Exposure Under the FCPA and Other Laws Impacting International Trade” (15 March
2012); and “Ethics Considerations in International Dispute Resolution” (26 April 2012). In addition, the other
pillar of our Section year—the 10th Annual International Litigation and Arbitration Conference (ILAC)—will
be held at the J.W. Marriott Marquis in downtown Miami on 23-24 February 2012. This year, ILAC will be
coupled with the Pre-Vis Moot Arbitration Competition, held on 25 February, where experienced practitioners
help prepare law school teams for the annual Vis competition in Austria.

So, please enjoy this issue of the ILQ, and join us at the IBT in São Paulo and our other events.

Nicolas Swerdloff
Hughes Hubbard & Reed, LLP

Fall 2011 The International Law Quarterly Page 3


From the Editor . . .
You are looking Brazil’s securities market. Magalhães Marques, then explain the
at an extraordinarily system for recognition in Brazil of foreign
Welber Barral, Brazil’s former Sec-
special issue of the In- legal decisions and new legislation that will
retary of Foreign Trade, and his partner
ternational Law Quar- further enhance that process.
Luiza Kharmandayan provide a valuable
terly; it is one you will
look at foreign trade in this massive world Top Brazilian immigration lawyer Maria
want to study carefully
market. Luisa Souza Costa Soter da Silveira and
if you are even just
thinking about law or Our International Law Section’s Asia/ her colleague Christel Estuardo Cun-
business in one of the China committee co-chair, Mikki Canton, ningham describe Brazil’s immigration
A. Lindsay
world’s hottest econo- continues her “new silk road” series with an laws and how the system works for foreign
mies, Brazil. insightful piece on the economic romance investors and workers.
between China and Brazil.
The articles in this issue not only give a University of Miami law professor and
brilliant overview of the Brazilian econo- Author and Curitiba-based lawyer, Mar- renowned expert on comparative law, espe-
my, but also provide the nuts and bolts of çal Justen Filho, discusses the Brazilian cially the law of Brazil, Professor Keith S.
handling commercial transactions as well government’s role in the nation’s continued Rosenn, addresses one of the difficulties of
as litigation and arbitration in this impor- development, including the use of conces- litigation in Brazil: the time it can take to
tant country. And the articles we present sions to private special-purpose companies
secure a final appellate judgment. Profes-
were written by people who really know in order to foster investments necessary for
sor Rosenn advocates a recently submit-
their subjects. In addition to authoring their the country’s continued progress.
ted constitutional amendment that would
excellent lead article on trends in Brazil- Brazilian and Florida Bar member Julio significantly shorten resolution.
ian dispute resolution, Quinn Smith and C. Barbosa then provides an overview on
Mauricio Gomm Santos put together this how foreigners can set up and operate busi- Brazil native and U.S. law student, Ra-
issue’s exceptional lineup of authors. ness in Brazil, including a straightforward faela Vianna, shares an intelligent piece
look at the custo Brazil, or the real cost of about Brazil’s trade with the United States,
Cristiano Rebelo, the head of the Brazil-
doing business in Brazil. using ethanol as a model for how the coun-
ian Consulate General’s Trade Bureau and
the Deputy Counsel of Brazil in Miami, tries can improve their relationship.
São Paulo attorney George Augustus
shares the cover page with an important Niaradi addresses a topic of great inter- Finally, the Miami-São Paulo team of
overview of the current and future state of est to many non-Brazilian lawyers: how José Samurai Saiani and Olavo Franco
Brazil’s economy. foreign law firms can operate and practice Bernardes complete the issue with a valu-
Then Fernando de Magalhães Furlan, in Brazil. It may be difficult, but it can be able sector-by-sector discussion on the
chairman of Brazil’s antitrust regulator, done. limitations of foreign investments in Brazil.
the Administrative Council of Economic Moving from business to dispute resolu- We thank all of our authors for their
Defense (“CADE”), and Paulo Burnier de tion, Arnoldo Wald, founding partner of tremendous contributions. We believe this
Silveira, who advises CADE, write on an- Wald e Associados Advogados and member
issue will be the ultimate reference guide
titrust reform in Brazil and the anticipated of the ICC International Court of Arbitra-
on Brazil for years to come. Enjoy it, and
new competition law. tion, explains the country’s legal evolution
to its current modern system for the recog- please feel free to share it with others.
Rio de Janeiro-based lawyer, Mônica de
nition and enforcement of arbitral awards. Safe travels,
Salles Lima, explains the CVM, Brazil’s
equivalent of the U.S. Securities and Ex- Professor and Rio de Janeiro district at- Alvin F. Lindsay
change Commission, and the mechanisms torney Nadia de Araujo with her Toronto, Editor-In-Chief
for controlling, supervising and regulating Canada, colleague, Frederico do Valle Hogan Lovells US LLP

Visit the Section Website: internationallawsection.org

Page 4 The International Law Quarterly Fall 2011


dispute resolution,  from page 2

to minimize this risk and when the value in Brazil must consider the impact of labor sports law, and regulation of certain indus-
of the dollar versus the real moved dra- law and the Consumer Code. Labor- law tries—are also changing. In these different
matically, the hedging contracts resulted in issues usually go to labor courts, where areas of litigation, Brazilian courts are
large losses. One Brazilian company with a judges have the freedom to reach different reaching decisions readers may not expect
sizeable presence in poultry processing and conclusions on similar facts. The text of the but should be prepared to face.
food products chose to blame its CFO for labor law, which dates back to the 1930’s,
the resulting losses and sued the individual gives the employee broad rights to sue an Arbitration is Not Just
in Brazilian courts. Simultaneously, U.S. employer; the result is potentially large International
plaintiffs brought a class action against the liability for companies with Brazilian em-
For years, Brazil has held a lofty position
company in New York, naming the CFO ployees. Further, a failure to manage labor
in the statistics of the Court of Arbitration
as an individual defendant. The Brazilian lawsuits adequately can lead to significant
of the International Chamber of Com-
media followed the Brazilian proceedings losses in labor courts, where judges have
merce, with a large number of arbitrations.
closely, and business journals ran lengthy the freedom to rule against companies and
But Brazilian companies have also started
articles on the CFO alleged to be at the potentially disregard any sort of choice of
using other arbitral institutions increasingly
center of the misdeeds. law or arbitration clause.4 Labor courts
for domestic cases. Now, many complex
Based on the typical court delays men- continue to adapt and change, and the
tioned above, one might expect the Brazil- application of the law to the employer- transactions will include arbitration clauses
ian proceedings to move much more slowly employee relationship can have significant mentioning the Arbitration and Media-
than the U.S. proceedings. Quite the op- monetary impacts on workers from the top tion Center of the Chamber of Commerce
posite resulted. The Brazilian proceedings to the bottom of the wage scale. Brazil-Canada, the Arbitration and Media-
moved much more quickly, resulting in a The same is true of cases arising under tion Chamber of the Center of Industry for
finding of no liability against the CFO of the Consumer Code, which can affect a the State of São Paulo,5 and the Arbitration
the company.3 The company appealed, and company’s strategy from both an invest- and Mediation Chamber of the Commer-
the appellate court affirmed, bringing the ment and a dispute resolution perspective. cial Association of Paraná, among others.
proceeding to a fairly swift conclusion. The The Consumer Code provides a remedy These changes in arbitration practice will
class action in the U.S. has not moved with plus fee-shifting for individuals complain- impact the terms of foreign investment and
the same speed. Although the two cases ing of defective goods and services. For the method of resolving disputes through
involved somewhat different elements, the example, companies such as airlines can arbitration.
Brazilian court resolved complex factual face monetary liability for things like los- In addition to anecdotal evidence of an
issues regarding the liability of the CFO ing bags and failing to book passengers cor- increase in domestic arbitration, studies
much more rapidly than the U.S. court. rectly on available flights. Other companies of arbitration by third parties have noted
Practitioners should follow this type of selling consumer goods, like telephones, a general rise in domestic arbitration; that
high-profile case because it shows the pos- can expect thousands of lawsuits per year is, the resolution of disputes in arbitration
sibility for Brazilian court proceedings to arising under the Consumer Code for de- of issues arising under Brazilian law with
speed ahead of U.S. proceedings and per- fective goods. Similar to cases involving Brazilian parties. Parties have turned to
haps impact cases moving in U.S. courts. labor law, courts have the power to knock arbitration because it is generally faster
Brazilian courts are learning how to move out choice of law, forum selection, and for the typical commercial dispute, and the
complex cases quickly, especially when arbitration clauses in cases implicating the private nature of arbitration helps sophisti-
there is strong media attention in Brazil. Consumer Code. Clever plaintiffs can turn cated players keep their disputes out of the
Despite the criticism that sometimes comes these cases into big fines and damages, public eye. In addition, Brazilian compa-
from other corners, this facet of Brazilian when the cases are not handled correctly. nies feel comfortable inserting an arbitra-
court proceedings can play an important These consumer lawsuits need careful man- tion clause that uses a local institution with
role in other litigation. agement to limit liability and prevent un- local language and rules in joint venture,
Another area of innovation in Brazilian pleasant surprises in relatively small cases, distribution, and consortium agreements.
litigation is the growth and change of cases especially because liability can reach both In the past, foreign investors could prevent
involving individuals and consumers. For domestic and foreign manufacturers. this selection, but the strength of Brazilian
the international practitioner, this may These four areas of Brazilian litiga- companies—combined with the growing
seem relatively unimportant, but the deci- tion touch on a core theme: the litigation expertise of local institutions—has enabled
sions of Brazilian courts in these matters landscape is changing and provides both a shift in the arbitration culture.
can have significant impact on investment opportunities and challenges for practitio- Many of the attorneys who are handling
decisions in Brazil, as well as international ners. This article looks only at a slice of these domestic arbitrations were trained in
cases involving individuals. Brazilian litigation; many other areas of the field of international arbitration, learn-
Almost any company opening operations the law—such as tax law, construction law, ing about cross-examination, document

Fall 2011 The International Law Quarterly Page 5


dispute resolution,  from previous page

production, and other ways of proving a mediation law, and the courts are attempt- complex commercial matters could have
case that draw on U.S. and common law ing to alleviate their workload through pointed to few, if any, experiences with
influences. Now, a domestic arbitration can mediation, especially in family law. Courts alternative dispute resolution. This has
have a panel of Brazilian lawyers receiving in the State of Amazonas have developed a changed with the growth of arbitration; and
evidence in Portuguese but with a form family law mediation program that claims the expansion of alternative dispute reso-
of cross-examination involving different a success rate of 90%. Other courts have lution to include mediation, conciliation,
types of questioning. The procedure has developed programs called mutirão where dispute resolution boards, and other forms
not reached the dimensions found in U.S. a judge oversees a conciliation process that of dispute resolution is on the horizon.
courts, and domestic Brazilian arbitrations attempts to resolve small claims against
frequently have a Brazilian style. banks and disputes over the amount of Investment Arbitration in
It is difficult, if not impossible, to mar- government benefits. These clearly do not Brazil? Not a Paradox
shal hard evidence to support this shift in reach the level of complex commercial
In many ways, investment arbitration
the customs and mores of domestic arbitra- disputes, but they refute arguments that
remains in the most nascent state of all
tion in Brazil, but practice speaks to the de- Brazilians are incapable of mediation and
forms of dispute resolution in Brazil. For a
velopment of a distinctly Brazilian method conciliation. These programs also lay the
variety of reasons, Brazil has not signed or
for arbitrating these disputes. Discussions foundation for further advances in the fields
of alternative dispute resolution, incor- ratified the Convention on the Settlement
with Brazilian lawyers and arbitrators in- of Investment Disputes between States and
dicate a shift in the arbitral process, which porating and training the judiciary in the
process. Nationals of Other States (the “Washington
has grown more sophisticated and complex Convention”), which establishes one of the
as the size and composition of domestic Brazilian practitioners have taken other
steps to build a culture of alternative dis- primary methods of investment arbitra-
arbitrations has changed. tion. Brazil has signed but has not ratified
These changes will likely continue as pute resolution. Numerous courses are
launching to equip and train mediators for a number of bilateral investment treaties
domestic arbitration in Brazil keeps grow- (“BITs”), so there are no arbitration clauses
ing. Practitioners should expect to see dif- commercial disputes, and arbitral institu-
tions are adopting mediation rules for use binding the Brazilian government. And in
ferent kinds of arbitration proceedings in the multilateral agreements to which Bra-
Brazil as the number of arbitrations rise. by parties. With the prospect of massive
public works projects in the upcoming zil is a party, there is no mechanism for a
While the ICC has a strong foothold, the private individual or company to sue the
numbers speak to a consistent increase in years due to the 2014 World Cup and the
2016 Olympics, Brazil’s legal and profes- Brazilian Republic directly. In the eyes of
the administration of domestic arbitrations many, this has excluded Brazil from the
by local arbitral institutions, a process that sional community has taken a strong inter-
est in dispute resolution boards. Recently, realm of investment arbitration, but recent
will further shape the practice of arbitration events and legislative changes have turned
in Brazil. São Paulo was the site of a multi-day con-
ference aimed at training companies and the prospect of investment arbitration from
individuals to participate on dispute resolu- myth into reality.
Alternative Dispute Starting in 1995, the Brazilian Congress
tion boards. While there are few reports of
Resolution on the Rise active dispute resolution boards, there is adopted a number of laws creating the
For years, Brazil had little or no alterna- a strong interest in the legal and business possibility of arbitrating claims against
tive dispute resolution in either theory or community, and their use is only a matter state entities. This trend started with the
practice. This changed dramatically with of time. Concessions Law6 and continued in 1997
the passage of the Brazilian Arbitration Act In addition, the courts of appeal and the with the Telecommunications Law7 and
in 1996; the decision by the Supreme Court Superior Court of Justice have taken a more National Energy Policies Law.8 Other ma-
of Brazil to uphold the constitutionality of active role in encouraging conciliation. In jor pieces of legislation followed this path
the Act in 2001; and the explosion of the the last few years, these courts have begun in 2001 and 2002 with the Water and Land
practice of arbitration in the decade that calling upon parties to a dispute to schedule Transportation Law9 and the Electricity
followed. Still, mediation, conciliation, dis- a conciliation hearing. This initiative is Law.10 The trend also encompassed one of
pute resolution boards, and other forms of discretionary, and there is no law requir- the most important laws for foreign inves-
alternative dispute resolution have not nec- ing the courts to take this proactive stance. tors, the Public Private Partnerships Law11
essarily seen the same growth, a trend that But reports from Brazilian lawyers indicate (“PPP Law”) in 2004, which allows arbi-
will likely change in the coming decade. this discretionary step has produced good tration in contracts governed by the PPP
Brazilian practitioners, scholars, and results. Parties have shown a willingness Law.12 Each of these laws allows arbitration
businesses have a renewed interest in other to agree, which has considerably shortened claims by foreign and domestic investors,
forms of dispute resolution. The Brazilian the length of some proceedings. but the proceedings must be in Portuguese
Congress has moved slowly to pass a new A decade ago, most attorneys handling and located in Brazil. While claims brought

Page 6 The International Law Quarterly Fall 2011


dispute resolution,  from previous page

by domestic investors do not fall within of the Brazilian Arbitration Committee Mauricio Gomm San-
the realm of public international law, the (the most important professional group tos is a Brazilian at-
proper procedural and substantive facts focusing on arbitration in Brazil) attracted torney and a Foreign
could create a truly public international over 400 people to Brasilia to spend two Legal Consultant with
law dispute under these local laws. In fact, days discussing the role of the State in Smith International
there is currently one dispute underway to arbitration—a strong signal of interest Legal Consultants,
decide issues arising from the expansion among professionals. P.A., in Miami.
of the São Paulo Metro. With the building With the legislation in place and the new
M. Santos
of other infrastructure projects in Brazil, investment structures pursued by Brazilian Quinn Smith is a Flor-
these disputes can only continue to arise as companies, the future undoubtedly will
ida attorney at Smith
a result of the investing process. hold more investment arbitration in Brazil.
International Legal
Brazilian companies have also increas- The exact details will take time to emerge,
Consultants, P.A., in Mi-
ingly found themselves in the role of capital but the outlines of an investment arbitration
ami and guest lecturer
exporters, investing in other countries in practice are forming.
at Faculdades Curitiba.
Latin America, Asia and Africa. These
companies want the protection of a BIT Preparing for the Next Decade Endnotes:
or multilateral agreement, and Brazilian These observations on dispute resolution 1  See Zynga Inc. v. Vostu,
Q. Smith
companies are now launching their inter- in Brazil reveal a changing environment 11-CV-02959-EJD (N.D.
national expansion through subsidiaries that is becoming more sophisticated and Cal. Sept. 16, 2011) (order dissolving TRO and de-
located in Holland, Spain, the United King- nying preliminary injunction).
complex, much like the country’s business
dom and other countries that have a wide 2 See id.
environment. Practitioners, scholars, and
network of investment treaties. While there 3 See Sadia Tem Mais uma Derrota na Justiça, avai-
businesses should understand and follow lable at <http://www.suino.com.br/ MercadoNoticia.
are many factors to consider when creating these changes, especially as Brazil adopts aspx?codigoNot=77498&SADIA+TEM+MAIS+UM
offshore subsidiaries, Brazilian companies other forms and methods of dispute resolu- A+DERROTA+NA+JUSTICA>, last viewed 12 Oct.
are using these subsidiaries to acquire ju- tion that are distinctly Brazilian. This pro- 2011.
risdiction under the applicable international cess will require foreign law firms to recruit 4 This issue is the subject of much debate. There are
conflicting decisions, and readers should be aware that
conventions. In addition, state-owned enti- and invest in Portuguese-speaking attor- advice from Brazilian counsel is necessary to under-
ties in Brazil are negotiating for arbitration neys with a strong knowledge of Brazilian stand fully the application of an arbitration clause to
of disputes arising from investments in law. The legal teams necessary to handle an employment contract.
other countries. For example, the Brazilian these disputes will include practitioners 5 See Camaras de Arbitragem do eixo Rio-São
Economic and Social Development Bank Paulo movimentaram R$2.5 bilhões em tres anos,
with a deep appreciation for international
available at <http://www.fiesp.com.br/agencianoti-
(“BNDES”) recently arbitrated a claim practice and procedure as well as substan- cias/2009/08/20/camaras_ arbitragem_br_espaco_re-
against the Republic of Ecuador under tive knowledge in areas important to the solucao_conflitos.ntc>, last viewed on 12 Oct. 2011.
an ICC arbitration clause.13 While the de- current Brazilian scene, like concession 6 Law No. 8,987/95, art. 23, item XV.
tails are unknown, the case illustrates the agreements and valuations, international 7 Law No. 9,472/97, art. 93, item XV.
potential for further types of investment capital flows, and laws and regulations 8 Law No. 9,478/97, art. 43, item X.
arbitration. governing foreign investment. 9 Law No. 10,233/01, art. 35, item XVI.
The issue has risen to the forefront of From a U.S. standpoint, the complexity 10 Law No. 10,233/02, art. 2º, para. 3º through 5º and
policy and technical discussions. Brazil of Brazilian law further demands greater Law No. 10,848/034.
is currently negotiating BITs with Chile, cooperation between U.S. and Brazilian 11 Law No. 11.709/04, art. 11, item II.
and there are reports of a multilateral free 12 See Mauricio Gomm Santos, Brazil—A Brief
law firms. The days of trying to handle
Overview of Arbitration in Contracts Entered as Part
trade agreement involving Brazil, India and a Brazil-U.S. matter without meaningful of Public and Private Sector Partnerships [PPPs], 21
South Africa. In these agreements, some input from counsel on both the Brazilian Mealey’s Int’l Arb. Rep. 6 (June 2006).
businesses are pushing for an arbitration and U.S. sides of an issue are no more. 13 See BNDES ganha disputa contra estatal equa-
mechanism allowing Brazilian companies Cross-border practice will become more toriana em corte internacional, available at <http://
oglobo.globo.com/economia/mat/2011/01/19/bndes-
access to an arbitral forum. The profession- complex as the Brazilian economy grows, ganha-disputa-contra-estatal-equatoriana-em-corte-
al community has also started the process and dispute resolution will require com- internacional-923567361.asp>, last viewed 12 Oct.
of educating itself. The recent conference mensurate levels of knowledge. 2011.

Fall 2011 The International Law Quarterly Page 7


Antitrust Reform in Brazil:
The Future Role of CADE
By Fernando de Magalhães Furlan and Paulo Burnier da Silveira, Brasilia

Introduction tribunal and an investigative body named the current system, has its importance and
“superintendencia” will be created. This staff/structure increased.
A new competition law was approved
by the Brazilian Congress in October means that adjudicative and investigative
2011 and will take effect six months after powers will be unified in a single antitrust New Brazilian Merger Control
the pending presidential final approval, authority (CADE) but separated internally Pursuant to current Brazilian legisla-
expected in November 2011. The new into two different bodies (an administrative tion, CADE has adjudicative authority for
legislation will bring substantial changes tribunal and a superintendence). In a way, merger reviews, while SDE (Ministry of
to the Brazilian competition system. This the future Brazilian competition structure Justice) and SEAE (Ministry of Economy)
article analyses these changes, which pri- is similar to the current French competi- are primarily responsible for providing
marily concern the structure of the Brazil- tion system, which is unified in a single, legal and economic recommendations.
ian Competition Policy System (“BCPS”) strong competition agency (autorité de la With regard to the notification criteria,
and the adoption of an ex ante merger concurrence) with two main autonomous any merger that may limit or otherwise
control system. The BCPS is still one of bodies—one with adjudicative powers restrain competition must be disclosed to
the few competition systems based on ex (collège) and the other with investigative the BCPS and submitted to CADE for re-
post merger review. Some remarks are powers (instruction). view. The notification is mandatory if any
made about the future role of the Brazil- The diagram below summarizes the of the merging parties had at least R$400
ian Administrative Council for Economic structural changes occasioned by the new million (approximately US$250 million)
Defense (“CADE”), in view of this im- legislation. in Brazilian revenues in the previous fiscal
minent new antitrust framework and its The administrative tribunal will be com- year, or if the market share of the resultant
consequent and natural challenges, before posed of a chairman and six commission- company, in the relevant market as defined
a brief conclusion. ers, which mirrors the current make-up of by the parties themselves, is equal to or
CADE. A difference, however, concerns in excess of 20%. There is no exception
New Brazilian Competition their terms. While the current system de- to the notification requirement where the
Structure fines a two-year term, renewable once, the thresholds are met. This would also include
Currently, the BCPS is composed of new legislation establishes a four-year term foreign-to-foreign transactions. The exist-
three agencies: CADE; the Secretariat of that is non-renewable. The new general- ing Brazilian merger control system may be
Economic Law (“SDE”) of the Ministry superintendent, whose functions replace considered as a posteriori because mergers
of Justice; and the Secretariat of Economic those of the current secretary of economic may operate before CADE final approval
Monitoring (“SEAE”) of the Ministry of law—with reinforced powers—enjoys a and even before the notification to the
Economy. While CADE holds the admin- two-year term, renewable once. The office competition agencies. Nevertheless, con-
istrative jurisdiction over anticompetitive of the chief economist, already existent in
practices and merger control, SDE is the
chief investigative body in matters related
to anticompetitive practices and issues non- Current Legislation Future Legislation
binding opinions in merger cases. SEAE
primarily issues non-binding economic Presidency of Brazil Presidency of Brazil
Federal Federal
opinions in both anticompetitive practices Executive Branch Executive Branch
and merger reviews.
The new legislation brings important
changes to the current structure of BCPS. Ministry of Ministry of Ministry of Ministry of
All competition powers from SDE will be Finance Justice Finance Justice
transferred to CADE. The same will hap-
pen to most of the competition powers from
SEAE, since the latter will retain only those SEAE CADE SDE
SEAE
powers related to competition advocacy. As CADE
•  Competition Tribunal
a result, CADE will unify powers on almost •  Superintendence
all matters related to competition in Brazil.
Within the new CADE, an administrative

Page 8 The International Law Quarterly Fall 2011


the future role of cade,  from previous page

sidering the nature of this merger control by the administrative tribunal or a demand the Brazilian revenues in the previous fiscal
system, the risk of denying approval and by a third party), the merger is considered year. The second threshold is still the sub-
consequently reverting mergers that were approved. This corresponds to a fast-track ject of discussions in the Brazilian congress
already implemented does exist, as was the merger filing, expected to be the vast ma- (either R$1 billion or R$400 million)
case with the merger between Nestlé and jority of merger cases submitted to CADE.
Garoto in 2002. Other deadlines and procedural rules ap- Main Challenges for CADE
The new legislation will radically change ply to cases that require a more in-depth The reform will require a great effort
the merger control system in Brazil since analysis by CADE. In any case, however, a from CADE, particularly in implement-
it adopts the a priori (or ex ante) merger maximum deadline is set for CADE’s final ing the new system. The challenges in-
control system. Mergers and acquisitions decision (240 days, with a possible short- clude the unification of SDE and CADE
that meet the new notification criteria will term extension). If no decision is reached, and meeting important new deadlines
be suspended until a final ruling is rendered the merger will be automatically approved. for merger control. In addition, the new
by CADE. Of course, rigorous deadlines In addition, the notification criteria will legislation provides for a considerable
for CADE are set by the new legislation in suffer important changes. The market- and gradual increase of CADE’s staff, in
order to ensure the system works timely. share criteria will be eliminated. The turn- order to meet these challenges. With this
Thus, the general-superintendency has over/revenue criteria will adopt a double- in mind, CADE has anticipated final con-
twenty working days, counted from the threshold system, which considers both the gressional approval of the new law and has
reception of the notification of the merger, acquiring and the acquired companies—not created five transition committees to facil-
to render a recommendation or to demand just one of them. This change is important itate the transition to and implementation
additional information or documents. In in the sense that the current system de- of the new system. Hence, the committees
the case of approval, the administrative termines that any merger involving a big are working to analyze and adapt the in-
tribunal has fifteen working days to review company shall be disclosed to CADE, even ternal rules, review the internal structure,
the first recommendation. Third parties if the acquired company is economically ir- adapt internal IT systems, review internal
may also contest the first recommendation relevant to the market. The smaller thresh- procedures related to merger control, and
and demand a review by the administra- old will be R$30 million (approximately find and rent bigger headquarters for the
tive tribunal. If neither occurs (a review US$18 million), taking into consideration new CADE.

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Fall 2011 The International Law Quarterly Page 9


the future role of cade,  from previous page

Conclusion mendations with regard to merger control. cil of Economic Defense, former commis-
Among other changes occasioned by the sioner of CADE (2008-2011), and former
The Brazilian Law No. 8.884 of 11 June
new legislation two—in particular—usher in attorney general of CADE (2001-2003). He
1994, considered to be the cornerstone of the
a new era for competition law and policy in holds a Ph.D. and a master’s in law degree
Brazilian competition system, is expected to
Brazil. The CADE will face new challenges from the University of Paris I (Panthéon-
be replaced shortly by new legislation that in order to assure adequate implementation
will result in substantial changes. One im- -Sorbonne).
of the reform and will thus certainly play a
portant change concerns the current structure very important role in
of the system, since the reform concentrates Paulo Burnier da Sil-
the future of competi-
almost all competition powers into a single veira is international
tion law and policy in
agency—the new CADE—eliminating SDE Brazil. advisor of CADE. He
and minimizing SEAE’s role. Another rel- is a Ph.D. candidate
evant reform is the adoption of an ex ante Fernando de Magal- and holds a master’s
merger control system, which does not exist hães Furlan is chair- in law degree from the
in the current legislation. This means that man of the Brazilian University of Paris II
Brazil will join ICN’s and OECD’s recom- Administrative Coun- F. Furlan (Panthéon-Assas). P. da Silveira

Brazil’s National Congress.

Page 10 The International Law Quarterly Fall 2011


The Role of CVM
(Comissão de Valores Mobiliários):
What Foreigners Should Know
By Mônica de Salles Lima, Rio de Janeiro

This article provides an overview of nization and guidelines for the securities in Rio de Janeiro, is run by a board com-
the Comissão de Valores Mobiliários market and the CVM.. posed of a chairman and four directors,
(“CVM”), which is the Brazilian equivalent The CMN, together with the CVM, each all directly appointed by the President of
of the U.S. Securities and Exchange Com- within their respective powers, exist to the Republic, subject to approval by the
mission (“SEC”), and is particularly aimed stimulate the process of building up savings senate, with a specified term of office. Its
at potential foreign investors interested in and investment in securities, promote the members are chosen from among persons
the Brazilian capital markets, which have growth and efficiency of the stock market, of good reputation and proven experience
grown significantly in importance over the and encourage permanent investments in in the capital market. The term is five years,
last twenty years. stock of publicly held companies under the with no possibility of reappointment. The
Recent Brazilian economic growth, control of national private capital. In short, members of the board may be dismissed
resulting from the economic stabil- the joint action of these bodies ensures the only in case of a final legal judgment or
ity achieved with the success of the Real regular and efficient operation of the stock administrative disciplinary proceeding,
Plan (the governmental economic plan market and the over-the-counter market. instituted by the Ministry of Finance, in
responsible for monetary stabilization), The role of the CMN is policy driven in which due process rights of defense are
has highlighted the attractiveness of the nature, setting broad guidelines for the na- ensured. This model, in line with those of
local market, drawn much attention from tional financial system, while the CVM is a other regulatory agencies, provides greater
foreigners and accelerated investments in technical and politically independent body, independence and stability to the entities,
the country. Therefore, it is important that endowed with monitoring, controlling and protecting them from possible influences
foreign legal consultants are made aware of sanctioning mechanisms, specifically fo- of the regulated economic sector or of
the mechanisms for controlling, supervis- cusing on the securities market. political parties.
ing and regulating the securities market, Indeed, there is a growing concern with CVM’s role is to monitor and govern
which is done generally by the CVM. guarding and building up individual sav- the following activities in the securities
The basic framework of the Brazilian ings, so that the emphasis of these agen- market: issuance; distribution; trades; bro-
financial system is established in four cies has increasingly turned to protecting kerage; portfolio management; custody;
different statutes: (1) Law No. 4595/64, the ordinary citizen more effectively. New audits of publicly held companies; and con-
which created the Central Bank of Brazil mechanisms, including legal ones, have sultancy and securities analysis services.
(“BACEN”), responsible for the supervi- been developed to confer more power on Likewise, the agency is also responsible for
sion and the regulation of the banking, the agencies to prevent harmful behaviors organizing the Brazilian stock, commodi-
monetary and credit financial systems; (2) in the market and punish wrongdoers. ties, and futures exchanges. Categories of
Law No. 4728/65, which organizes and Following this trend, Law No. 10411/02 entities subject to its supervision include:
governs the capital market; (3) Law No. has withdrawn the CVM from under the publicly held companies; auditors; brokers
6404/76, the Brazilian Corporations Law; organization of the Ministry of Finance, and distributors; independent agents; secu-
and, (4) Law No. 6385/76, which created adopting a special regime, equivalent to rities analysts; investment funds; portfolios
the CVM, responsible for the regulation of that of a regulatory agency; that is, an in- of non-resident investors; and portfolio
the securities market. The full and updated dependent body that exercises regulatory managers.
text of all statutes referred to here can be functions and is managed by a board. As part of its supervisory role, the CVM
found at the website of the Presidency of Actually, this change in CVM’s status exercises its so-called “police power” (no-
the Republic (www.planalto.gov.br), in the befits an increasing awareness that in areas tably, a concept originally articulated by the
original Portuguese. where the public interest is clearly pres- U.S. Supreme Court in Brown v. Maryland
As the top deliberative body of the Na- ent, even though private relations are con- in 1827 and later adapted into Brazillian
tional Financial System, the National Mon- cerned, the state should act as a regulator, law). Under Brazilian law, the concept
etary Council (“CMN”) is also noteworthy. abandoning the outdated role of directly of “police power” is formally established
Composed of the Minister of Finance, the intervening in the economic order. Thus, it in the national tax code and may be sum-
Minister of Planning, and the President of encourages useful results to society without marized as the possibility of restricting
the Central Bank of Brazil, the CMN is immobilizing the market. individual freedom in favor of a collective
responsible for setting policy for the orga- Currently, the CVM, with headquarters or public interest that overrides it. Nonethe-

Fall 2011 The International Law Quarterly Page 11


the role of cvm,  from previous page

less, the exercise of police power, by the ceedings in federal public administration. If in the public interest, it is possible to
agencies endowed with it, is limited by the Any decision rendered in an administrative suspend the sanctioning administrative
provisions of the law. proceeding must be fully reasoned, with proceedings at the sole discretion of the
The governing and sanctioning role of facts sufficient to support any findings of CVM, provided the accused party or the
CVM is established by the Brazilian legal violations in the securities market. The party under investigation signs an under-
system, particularly the federal constitu- absence of a statement of reasons points taking (“termo de compromisso”) to cease
tion, especially with regard to the appli- to abuse of power, leading to a nullifica- the practice of the activities or acts that
cation of penalties, even though admin- tion of the proceedings that, in turn, can be were considered unlawful by the CVM,
istrative in nature. Thus, the recognized judicially recognized. or correct the irregularities indicated by it,
principle of due process of law, which This legislation also provides the forms including the compensation for losses. A
ensures the parties are given an opportu- of punishment that can be applied by the consent to cease practice does not imply a
nity to be heard and to rebut each other’s CVM. The CVM has the authority to sanc- confession to the facts nor an acknowledge-
arguments, also applies to administrative tion violators with warnings and fines, ment that the activity under investigation
proceedings—the so-called Sanctioning suspension, disqualification, or prohibition was or is wrongful. Upon full compliance
Administrative Proceedings (“PAS”)—in- to operate in the market. CVM decisions with the obligations assumed, the sanction-
stituted before the CVM. Administrative that impose penalties may be reviewed in ing administrative proceeding is terminat-
proceedings at the CVM, apart from being the second and last instance by the Appeals ed. For example, in the notorious SADIA
regulated by rules of the agency itself, Council of the National Financial System, case, in which significant losses arose out
must observe the provisions of Law No. a collective body under the Ministry of Fi- of operations trading derivatives in the
9784/99, applicable to administrative pro- nance, based in the Brasília Federal District. wake of the 2008 crisis, both the board
members and the audit-firm partners signed
an undertaking (“termo de compromisso”)
with the CVM, and the case was closed.
Similar administrative proceedings against
the Brazilian pulp and paper company
Aracruz Celulose, now known as Fibria,
are pending before the CVM.
As part of its regulatory authority, the
CVM also may issue rules and regulations
to implement its legal objectives. In issuing
such rules and regulations, however, the
CVM is constrained by the limits of the law;
that is, any regulatory or normative instru-
ment issued by the CVM cannot transcend
the limits contained in the legislation in
force and, ultimately, the federal constitu-
tion itself. If there is any inconsistency be-
tween a normative instrument and a legal or
constitutional provision, its validity may be
questioned by the aggrieved party in court.
In addition to its supervisory, disciplin-
ary and regulatory roles, the agency also
plays an important preventive role by re-
pressing behavior potentially harmful to
the securities market and by providing
guidance to market participants including
investors. The CVM, motivated by an in-
quiry or complaint, may issue a “Statement
of Understanding” containing a statement
of opinion on violations in a concrete case,
as well as upon the occurrence of a breach
of a regulatory provision. Such statements
are merely interpretative and seek to dis-

Page 12 The International Law Quarterly Fall 2011


the role of cvm,  from previous page

close the views of the CVM on the subjects defendant), and also can act as amicus cur- and an institution should be hired to act as
under its jurisdiction. iae in cases in which issues of corporate law a legal representative, responsible for sub-
While there is some similarity, a “State- and the capital markets are discussed. The mitting all registration information to the
ment of Understanding” issued by the role of the amicus curiae originated in U.S. Brazilian authorities; a fiscal representa-
CVM is not of the same nature as a “No- constitutional law and involves the inter- tive, responsible for taxes and fiscal issues
Action Letter” produced by the SEC in vention of a third party authorized by law to on behalf of the investor before the Brazil-
the U.S. In fact, CVM statements bind the act in a private lawsuit in the interest of so- ian authorities; and a custodian, responsible
government in the specific case but cannot ciety as a whole. Given the expertise of the for keeping documents updated and for
be extended automatically to other cases, agency’s technical staff, the cooperation of controlling the foreign investor’s assets
serving only as a source of information. the CVM with the judicial branch repre- before the authorities. The financial assets
The U.S. “No-Action Letter,” also moti- sents a significant advancement, so that the and securities traded, as well as other forms
vated by an attorney’s inquiry in a concrete decisions rendered are well grounded in all
of financial investments must be registered,
case, enables the market to know how the technical respects. Article 109 of the Bra-
held in custody or maintained in deposit
agency will respond in situations similar to zilian federal constitution establishes that
accounts at an institution authorized by the
the one considered, since the answers are cases in which CVM is a party are litigated
CVM and the central bank.
made available to the general public. before the federal courts of Brazil. CVM’s
In general, CVM decisions are made mere intervention as amicus curiae does not
by a board of directors, and the chair- necessarily confer federal jurisdiction, and Mônica de Salles Lima graduated law
man and directors act with equal authority these cases may be litigated before state school at the Universidade do Estado do
regarding the matters submitted to them. courts if there are no other federal entities Rio de Janeiro (UERJ) in 1988. She has a
Nonetheless, the chairman is responsible involved. Foreigners can invest in Brazil post-graduate degree in civil law from the
for coordinating the activities and provid- in the same products available to resident Universidade Estácio de Sá (UNESA) and
ing the legal representation of the agency, investors, relying on the above-mentioned also in civil and constitutional law from the
largely through a technical staff divided structure of control and supervision. The Centro de Estudos e Pesquisas no Ensino
into specialized sectors. regulation of such investments will follow, do Dircito of the UERJ. She is member
The CVM can act in court in defense of in principle, the provisions of Resolution of the Brazilian Bar Association, Rio de
its interests as a party (whether plaintiff or 2689 of the National Monetary Council, Janeiro Section.

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Fall 2011 The International Law Quarterly Page 13


Foreign Trade:
What to Expect From Brazil
By Welber Barral and Luiza Kharmandayan, Brasilia and São Paulo

A reasonable analysis of Brazil’s trade factured goods. This is primarily due to the torically occupied by the U.S. While China
requires an evaluation of many economic weaker performance of countries, such as has become a major supplier of industrial
and social indicators. Therefore, besides the United States, who are Brazil´s main products, its demand is concentrated in the
exploring how Brazilian trade has recently importers of manufactured goods. Fierce mining, energy and agribusiness sectors.
developed, this article discusses where competition in the world market also af- Indeed, Brazil and other Latin American
Brazil stands in the current international fected its performance. Large invento- countries have been profiting from the
context; the foundations of the country’s ries of industrial products pushed their Chinese hunger for commodities. This
economy; the opportunities presented by prices down, making them more suitable becomes clear if we consider the evolution,
its prosperity; and the some of the obstacles to take over new markets. Between 2003 in recent years, of the share of commodities
Brazil still must overcome before realizing and 2007, manufactured goods accounted in Brazilian exports. In 2006, commodi-
its potential. for 52% to 55% of Brazil’s exports. While ties accounted for 43.50% of total exports
in 2008 these products represented 46.82% by Brazil. In 2008, this rose to 50.57%.
Recent Evolution of Brazilian of exports, in the partial estimate of this Finally, in the partial evaluation of 2011
Trade year (January-August) their share fell to (January-August), commodities represent-
A starting point to understanding the 36.06%. The competition faced by Bra- ed 61.76% of total exports by the country.
Brazilian macroeconomic situation is its zilian manufactured goods is not limited Another fact that must be stressed is that
response to the 2008 financial crisis. Mea- to the international market. The threat of sales of only five commodities—iron ore,
sures adopted by the Brazilian government, recession in rich countries and the strength crude oil, soybeans (beans, meal and oil),
such as massive tax cuts, made it pos- that Brazil’s economy has shown during the sugar (raw and refined) and meat—account
sible for Brazil to emerge from the crisis peak of the crisis turned the Brazilian do- for 39% of this amount. The highlight is
smoothly and, compared to other countries, mestic market into a priority for companies iron ore, whose share rose from 8.36% in
without significant impact. This is borne around the world. 2008 to almost 16% this year. The impor-
out by data on Brazil’s net exports over the This scenario is reinforced by the ap- tance of China to this trade is evident. This
last four years. preciation of the Brazilian currency, which Asian country alone currently demands
In 2008, despite a decline in the trade not only affects the export capacity of 46.83% of the iron ore and 68.79% of the
surplus—a result of the appreciation of the industry, but also increases the com- soybeans exported by Brazil.
its currency (real) and an evidence of the petitiveness of foreign products in Brazil. The impact of international commodity
need for modernization of the domestic According to official data from seventy prices on Brazilian trade can be traced
industry—Brazil recorded a growth of governments, Brazil experienced the great- through data. From January to August
23.2% (US$24.9 billion) in exports over est expansion of imports in 2010 among 2011, the total value of Brazilian exports
the previous year. In 2009, despite negative members of the G20 and among all econo- (US$166.7 billion) was 32.2% higher than
expectations regarding the world economy mies that have their data compiled by the the total value of Brazilian exports in the
and international trade, Brazil’s trade bal- World Trade Organization. same period last year. Commodities ac-
ance totaled a surplus of US$24.615 bil- While, on the one hand, Brazil is fac- counted for 73.3% of this increase.
lion. In 2010 Brazil’s international trade ing difficulties in exporting its manufac- Nevertheless, the pivotal role that these
resumed its growth and approached the tured goods and in competing with these products play in Brazilian trade and, con-
pre-crisis levels. The trade flow reached products in its own territory, on the other sequently, in the Brazilian economy, also
US$383.5 billion, and the trade balance hand, commodity trade has been thriving. poses risks. Should the Asian countries—
showed a surplus of US$20.278 billion. In The current weakness of the rich econo- particularly China—encounter economic
August 2011, a surplus of US$28.5 billion mies, coupled with the boom in commod- downturns, Brazil will face difficulties to
was reported. In addition, the government ity prices in recent years (driven by the keep surpluses from sales abroad. Such
increased the export target of 2011 from demand from Asian countries), explains an event could be damaging to Brazil’s
US$245 billion to US$257 billion. the concentration of Brazilian exports on economic status. A decline in investment
Although Brazil has recovered—or even commodities. in those countries would cause a fall in
increased—the volume of business transac- China, more than any other country, international prices of commodities.
tions that had decreased during the crisis, has played a key role in this process. In Thus, on one hand, the appreciation of
the latter contributed to Brazil’s trend of fact, since 2009 China has been Brazil´s commodities appears to be a very positive
exporting more commodities than manu- main trading partner, taking a position his- element for the purpose of keeping Brazil’s

Page 14 The International Law Quarterly Fall 2011


what to expect,   from previous page

greater, but also that their growth rate is,


and is likely to continue to be, considerably
lower than Brazil’s.
Finally, it is worth mentioning that al-
though Brazil (and the world) may face an
imminent new crisis, the deterioration of
the global expectations is due, primarily,
to the worsening situation in the developed
countries. The reduction in the recovery
pace, combined with a large increase in
fiscal and financial uncertainties in these
advanced economies, pulled down the
expected growth rate worldwide.

Solid foundations of the Brazilian


trade surplus. On the other, the dependence Advanced countries will continue to play economy
on commodity prices and on the demand an important role in the global economy. Among the factors that sustain Brazil’s
for raw materials of a few emerging econo- Yet, their average growth rate until 2025 economic expansion, two should be high-
mies can become a weakness. This is why may fall close to 2.3% per year. Emerging lighted: the country’s sound financial sys-
a strategic priority for the country is to economies, on the other hand, are likely tem and the strength of its domestic market.
diversify and create a more balanced source to grow, on average, 4.7% over the same The soundness of the Brazilian financial
of growth. period. system is underpinned by three elements:
The recent revision of Brazil’s 2011 the amount of international reserves; the
Prospects and Opportunities growth rate from 4.1% to 3.8% by IMF is volume of foreign investments; and the sta-
Three topics are important in understand- not unimportant. Nevertheless, one must bility of the monetary policy. The strength
ing the primary opportunities today in Bra- make some observations that contextualize of the domestic market, on the other hand,
zil. First, we must address Brazil’s situation and qualify this reduction. The fact that this is based on the rapid rise of the Brazilian
in the global economic context. Second, revision took place on a global scale is the middle class.
we focus on the main factors underpin- first element that must be considered. The In 2010, Brazil’s international reserves
ning Brazil’s economic expansion. Finally, global growth rate estimate decreased by totaled US$288.57 billion. In the partial es-
we discuss the investment opportunities 0.3 of a percentage point and is likely to timate of 2011, this value increased signifi-
engendered by two major events that will be 4% this year. cantly: the country’s international reserves
occur in Brazil in the next five years: the Second, it is noteworthy that the ex- amount, at present, to US$353 billion. This
FIFA World Cup and the Olympic Games. pected growth rate in advanced economies volume puts Brazil seventh in the ranking
fell 0.6 of a percentage point and should of major international reserves in the world.
Brazil in the global economy amount to only 1.6% this year. This means Such reserves are crucial in the current eco-
Not only is the Brazilian economy boom- that not only the decrease in the growth-rate nomic climate, when a new international
ing, but the world itself is experiencing estimate endured by these economies is recession is looming. International reserves
an economic rearrangement and moving
toward a new balance that strongly in-
creases the presence of dynamic emerging
countries such as Brazil.
Besides its ranking based on GDP as
the seventh largest economy in the world,
Brazil is included in a group of six emerg-
ing economies that, according to the World
Bank, will redefine the global economic
structure in the near future. A report re-
leased by the World Bank estimates that
by 2025 the economies of Brazil, China,
Indonesia and South Korea will account
for more than half of the global growth.

Fall 2011 The International Law Quarterly Page 15


what to expect,   from previous page

pinning Brazil’s economic growth. Over


31 million Brazilians have ascended to
the middle class (a stratum with a monthly
income between R$1,000 and R$4,000) in
the last decade. Currently, this class num-
bers 95 million, representing 52% of the
population. This rapid rise is, as we shall
see, the result of the resumption of Brazil’s
economic growth, its consequent employ-
ment increase, social protection policies
and larger credit access in the country.
Brazil’s growing economy raised oppor-
tunities in the labor market. From 2003 to
2010, the average 4.0% GDP growth was
accompanied by the creation of 15.4 mil-
lion formal jobs in the country. The 6.0%
protect the country from a possible capital the targeting system provides not only unemployment rate achieved in July this
flight and from the lack of foreign funding transparency to the monetary policy but year is the lowest for the month since 2002.
sources. In addition to helping the country also price stability to the national economy. The expansion of the middle class results
meet its external commitments, interna- Inflation control is borne out by concrete also from the reduction of wealth inequal-
tional reserves also reduce the country’s data. Since 2004 the Consumer Price Index ity within the country. Although Brazil is
exposure to currency fluctuations. (“IPCA” in the Portuguese acronym)—an still ranked as one of the most unequal
Foreign investments also play an im- index that measures changes in the pur- countries, it is noteworthy that over the last
portant role in Brazil’s financial system. chasing power of the population—remains decade the income of the poorest 50% in
Between January and August of this year, within the upper limit set by the Central Brazil rose 67.9%, while the income of the
foreign direct investments in industrial pro- Bank. In the partial evaluation of 2011 richest 10% rose only 10.03%. This income
duction and services reached US$44.085 (January- August), inflation reached 7.3%, redistribution becomes even clearer when
billion, versus US$17.153 billion in the surpassing the limit of 6.5% set by the Bank we compare Brazil to other emerging mar-
same period last year. According to esti- for this year. Nevertheless, based on the kets. The income growth rate of the richest
mates of a report recently released by the forecasts of lower global economic growth 20% in Brazil is lower than the same rate
Central Bank of Brazil, the Brazilian pro- and on a consequent fall in commodity in all other BRICS countries. The income
ductive sector will receive a total of US$60 prices, inflation is expected to decrease. growth rate of the poorest 20% in Brazil
billion in foreign investments this year. Thus, if on one hand, a fall in commodity is, on the other hand, higher than the same
These predictions coincide with an anal- prices jeopardizes Brazil’s trade balance, on rate in all other BRICS countries.
ysis by the Institute of Applied Economic the other, it softens the inflationary impetus As previously noted, credit expansion
Research (“IPEA” in the Portuguese ac- caused by the appreciation of the dollar. is another factor accounting for Brazil’s
ronym). According to IPEA, Brazil was Besides a sound financial system, the strong internal market. Regarding this top-
the fifth destination of foreign direct in- robust domestic market is a factor under- ic, however, some observations should be
vestment in 2010, falling behind only the
United States, China, Hong Kong, and
Belgium. The forecast is for Brazil to hold
a similar position this year.
Brazil’s stable monetary policy is the
third element sustaining the soundness of
the national financial system. Such a policy
has at its center an inflation target regime
that is based on the control of short-term
interest rates. The announcements made by
the Central Bank of Brazil concerning its
monetary policy strategy and its assessment
of economic conditions allow markets to
understand how the bank tends to respond
to economic fluctuations and shocks. Thus,

Page 16 The International Law Quarterly Fall 2011


what to expect,   from previous page

Opportunities
Of all the programs and events that stim-
ulate and contribute to the strength of the
Brazilian economy, the 2014 World Cup
and the 2016 Olympics stand out. Since
these events will generate many invest-
ment opportunities in the country, we will
briefly address the most important figures
concerning them.
According to data provided by Brazil’s
federal government, the World Cup will
add R$183 billion to the GDP of the coun-
try between 2010 and 2019. This value
corresponds to an annual increase of 0.4%
of the GDP. This increase will result from
made. On the one hand, there is consider- amounting to R$1.889 trillion. Because investments in infrastructure, an increase in
able evidence that the credit supply in Bra- of it, the Central Bank estimates that the household consumption, the recirculation
zil does not pose many risks. Besides pre- credit supply shall increase 17% this year of money in the economy, tourism, and the
senting moderate growth, it is also backed (more than the 15% originally expected), use of stadiums after the World Cup.
by conservative banking regulations aimed reaching 49% of the GDP. Although such The investment in infrastructure alone is
precisely at mitigating risks. credit expansion indicates the willingness expected to amount to R$33 billion (US$18
According to the Central Bank of Brazil, of the population to consume, as well as billion). This value will be used to build
the rate of capital immobilization of the fifty the expansion of the middle class, it can or renovate stadiums, ports and airports;
largest banks within the country was only also represent a key challenge for Brazil’s to improve urban mobility; and to develop
24.7% in March 2011. This value corre- future stability. telecommunications, energy, health, safety
sponds to half of the maximum percentage Thus, despite the evidence that the Bra- and hospitality.
allowed by the National Monetary Council. zilian credit supply has a moderate and The other major event is, of course, the
The solvency index of Brazilian banks is stable growth, the world economy’s current 2016 Olympics. The state of Rio de Janeiro
about 18%, exceeding international (the situation makes more pressing the need estimates that R$11.39 billion will be in-
Basel Accord requires 8%) and domestic for macro-prudential and conventional vested in infrastructure and improvements
(Brazilian law requires 11%) requirements. measures aimed at protecting countries in Rio de Janeiro. Out of the total invest-
Moreover, credit supply has been growing against default and global shocks that can ment in infrastructure, the public sector
faster in other emerging countries than reduce their liquidity. The Central Bank will account for R$7.379 billion. Of this
in Brazil. According to the IMF, in 2010, of Brazil has therefore recently applied a amount, R$2.141 billion will be spent on
credit supply augmented 20.5% in Brazil,
series of measures to contain the level of road construction and repair, R$890 million
while it increased 27.8% in Turkey, 26.3%
indebtedness. on environmental management and R$732
in India and 21.7% in China.
Likewise, the participation of the Na-
tional Financial System in Brazilian pri-
vate sector funding is still modest (54%
of GDP). In South Africa and China,
for example, this percentage is above
120% of the GDP. This comparatively
low percentage shows that Brazil’s credit
supply is relatively less exposed to risk,
decreasing the likelihood of the forma-
tion of bubbles.
On the other hand, although credit ex-
pansion in Brazil is lower than that of
other countries, it is not negligible. From
August 2010 until August of this year, the
Brazilian credit supply augmented 19.4%,

Fall 2011 The International Law Quarterly Page 17


what to expect,   from previous page

million on security. The private sector will and construction is one of the problems that procedures that overburden economic
be responsible for R$4.018 billion. Of this Brazil has to solve when preparing for these activity have a common origin: intricate
amount R$1.624 billion will be spent on the events. These challenges, however, can be legislation that imposes an unreasonable
media village, R$1.540 billion on electric turned into opportunities for the country to number of requirements on business. To
infrastructure and R$854 million on the encourage the development of areas that, illustrate the challenges faced by the latter,
Olympic Village. despite their importance, suffer from a lack we will address some of the difficulties
The World Cup and the Olympics should of investment. mentioned above.
together create three million jobs in Brazil. Starting a business in Brazil requires
A study conducted by the British bank Bar- Challenges for Foreign filing fifteen procedures that pass through
clays estimates that if the country manages Investors fifteen distinct state bodies. Such a process
to promote itself to the world, Brazilian is time consuming and costly, increasing
exports may grow 30% after these events. While appearing as one of the world’s business expenditures significantly. The
Based on these estimates and on the leading economies, Brazil still faces sig- delays and costs resulting from these pro-
experience of other countries, it is evi- nificant obstacles that hinder economic cedures become obvious when we compare
dent that the World Cup and the Olympics activity in the country. Deficient logistics the situation in Brazil with that of other
are not only the largest sporting events and excessive bureaucracy are major prob- countries: the time required for starting a
in the world, but that they also have a lems faced by entrepreneurs developing business in Brazil is twenty times greater
major impact on the economy of the host business in Brazil. than the time required in the United States;
country. The gains are not restricted to the The bureaucratic hitches impairing trade the cost of starting a business in Brazil is
multiplier effect of investments but extend in Brazil become evident in different situ- almost ten times greater than in China.
to the legacy left by improvements in in- ations: in starting and closing a business; Closing a company in Brazil presents
frastructure around the country. Naturally, in regulating real estate; in importing and similar problems. Several documents prov-
the promotion of these events poses chal- exporting; in hiring and firing workers; and, ing the absence of tax, labor and other kinds
lenges to Brazil. The lack of specialized especially, in taxpaying. Notwithstanding of legal disputes must be filed in different
professionals and skilled labor in areas the various occasions in which bureaucratic state bodies. Gathering and updating these
such as engineering, project management hindrances can be detected, the complex documents not only generates costs, but

Page 18 The International Law Quarterly Fall 2011


what to expect,   from previous page

also extends the time required to close a affecting transportation, represent another Brazil’s domestic market and invigorates
business. While in Ireland it takes four obstacle for the Brazilian economy. Ac- the country’s economy. While the unem-
months to close a business, in Brazil it takes cording to a research conducted by the ployment rate and income inequalities are
an average of four years. Institute of Logistics and Supply Chain, decreasing, foreign investments and credit
Procedures that must be carried out for R$983 billion would have to be spent on supply are steadily growing. The country’s
the clearance of goods arriving at Brazilian Brazilian ports, railways and roads in or- economic—and also political—stability
ports are another example of paralyzing bu- der to make Brazil’s transportation system allowed it to navigate the 2008 financial
reaucracy caused by outdated legislation. internationally competitive. The bulk of crisis skillfully.
The first obstacle is the number of rules investments would be on roads. Of the 1.6 Brazil certainly has to work on many
governing the process as a whole: 3,000 million kilometers of roads in Brazil, only challenges that compromise its potential
normative acts of different kinds (laws, 200,000 are paved. The country would to grow. Deficient logistics and exces-
decrees, ordinances, etc.). Even before have to invest R$811.7 billion in order to
sive bureaucracy are enormous problems
disembarking the goods, one must file 112 equate their road network with that of the
impairing the country’s development. The
documents at 28 state bodies belonging United States.
investments in infrastructure are still too
to 14 different ministries. According to a Rail transportation is also precarious in
small to put Brazil side by side with rich
study conducted by the Special Secretariat Brazil. While 29,000 kilometers of rail-
countries or even with some emerging
for Ports, for each vessel that arrives in roads have been built in Brazil, the United
States has 227,000 km of tracks. According economies. The burden posed by Brazil’s
Brazil, 935 documents must be provided
to the abovementioned survey, R$130.8 complex regulations still has not led the
to different public entities. The competi-
billion is necessary to improve this type of country to cut red tape.
tive disadvantage that results from so many
requirements is enormous. In Brazil, most transport, most of which would be dedi- Nevertheless, there are reasons to be op-
of the importers and exporters take, on cated to the restoration of existing tracks. timistic. Government initiatives attempt to
average, five days to meet the country’s Brazilian ports, on the other hand, require make interstate taxes more rational. Online
requirements, five times more than it takes investments of R$40.5 billion. procedures unify the different procedures
in the Dutch port of Rotterdam. The facts and figures presented above businesses have to comply with when pay-
In addressing the barriers to Brazilian make clear the country’s need to reduce ing their taxes. Recently, a simplified tax
competitiveness generated by taxes, two state bureaucracy and to improve logistics. regime for mid-sized and small companies
aspects must be broached: (1) the com- Brazil’s growth potential depends on sim- was implemented.
plexity of a tax system governed by thou- pler and less costly procedures. Measures Like any other country, Brazil has sev-
sands of laws from different governmental such as the unification of accounting proce- eral variables it must manage in order to
spheres; and (2) the burden that these taxes dures and greater use of electronic systems assure its growth. Yet, unlike many other
represent to business—raising costs and are examples of how the country could im- countries, Brazil has numerous aspects
hindering investments in other important prove its tax system. Investments in logis- favoring its economic expansion. Hence, if
areas, such as R&D. tics have, on the other hand, increased as a it proves its ability to profit from opportuni-
According to research conducted by consequence of events like the World Cup, ties and to deal with obstacles, we should
Pricewaterhouse Coopers in collaboration the Olympics and other programs launched have high hopes for the emerging giant.
with the World Bank, the average time by the government. Yet, the great Brazilian
spent, around the world, on complying with deficit in this sector requires heavier and Welber Barral was the
tax laws is 282 hours per year. In Brazil, longer-term investments.
Brazilian Secretary of
however, businesses spend an average Foreign Trade dur-
of 2600 hours per year. Among the 183 Conclusion ing President Lula’s
countries that participated in the survey, The figures presented above make clear administration (2007-
Brazil ranked last. In Bolivia—the country that Brazil is one of largest economies 2011). He is currently
that ranked next to last—the time spent is in the world, and all indicators point to a senior partner at
more than two times smaller. The time, growing importance. The country’s pros- W. Barral Barral M Jorge As-
money and manpower spent on tracking perity is not only the result of a favorable sociates, a consulting
and deciphering the maze of Brazilian tax international climate that raised commod- company based in Brasilia and São Paulo.
rules are resources that businesses could ity prices considerably, but also of sound
instead invest, thereby increasing their macroeconomic and social policies. The Luiza Kharmandayan is a lawyer who
competitiveness. vast number of people moving out of pov- specializes in international trade and is a
Infrastructure problems, especially those erty and into the middle class strengthens partner at Barral M Jorge Associates.

Fall 2011 The International Law Quarterly Page 19


The New Silk Road: China and Brazil
By Mikki Canton, Coral Gables

Once upon a time, the headlines were for 200,000 barrels per day of oil. In May as adversaries, competitors or friends, will
bright and dazzling: “The Dance of Two 2010, Sinochem, a petroleum company, move on to more promising suitors.
Distant Strangers,” “A Burgeoning Rela- announced the acquisition of a 40% interest In order to answer this complex ques-
tionship Bar None,” “A Marriage Made in Brazil’s Peregrino oil field from the Nor- tion—and determine if, in fact, there is a
in Economic Heaven,” “Hot Flush,” “The wegian firm STATOIL for $3 billion. Both credible reason for an appearance of thorns
Dragon Finds His Mate.” A splendid match Bank of China and China Development between these two “pledged strangers”—
was made as The Dragon traveled along the Bank have opened representative offices we must first take a walk down memory
New Silk Road, aggressively looking for in Brazil, and more will follow. Brazil’s lane and see how it all started, what has
riches to satisfy his appetite. The headlines trade with China is up to 40% thus far in gone right and gone wrong and where re-
read like a best seller or a Hollywood movie 2011. Chinese exports to Brazil were up sponsibility lies. Clearly, China and Brazil
starring two dashing characters—daring, 61% from last year, and Brazil’s economy make—and have made and may continue
hungry, impetuous, with latent energy that grew almost 7.5% last year, the fastest to make—a formidable couple. To truly
had been dormant for years. So began the growth in more than twenty years. All this understand this relationship, however, we
story of China and Brazil. is particularly relevant as Brazil accounts must examine how balanced the roles are,
The courtship started circa 2004, when for 40% of Latin America’s economy. what each really means to the other, how
Luis Inacio Lula da Silva, then the presi- Yet today there is talk of trouble in Chi- much trust and long-term commitment
dent of Brazil, and Chinese President Hu na-Brazil paradise. The headlines have there is, what economic give and take
Jintao spoke excitedly and warmly of af- changed to “Euphoria Overdone,” “Bra- actually exists between the parties, how
finities between the two emerging powers zil Is More Like a Concubine,” “Falling each seeks to gain from the enterprise, and
and pledged to be equal partners in business Out of Love,” “China Takes and Brazil finally, what “make-it-or break it” socio-
opportunities, trade and key global issues. Gives,” “Lots of Smoke and Little Fire.” political and cultural similarities and dif-
Brazil declared China a market economy Have there been too many illusions in this ferences exist.
and, with promises of multi-billion dollar China-Brazil courtship, and is marriage First, and most importantly, Brazil has a
commitments from China, hefty bilateral even a possibility? Perhaps a new realism new president who appears to have different
trade and almost unparalleled efforts in co- has emerged that casts doubt and calls for goals for Brazil than did her predecessor who
operation, the two proud patriarchs shook sanity and reason. More voices in and out joined forces with China in order to develop
hands. This, undoubtedly, was to be the of Brazil are suggesting that Brazil gave an East-West strategic alliance characterized
most magnificent strategic alliance of our in too soon to China’s siren songs and its by economic global ambition. President
time, destined for wedded bliss. apparent sophisticated and strategic charm Dilma Rousseff, though a protégée of former
As time passed, the two seemed to be offensive and, in doing so, turned away president Lula da Silva, seeks to concentrate
drawn into an even closer embrace. While from the somewhat distracted glance of the on internal objectives such as creating jobs,
Chinese investments in Brazil lagged in less attentive United States. fortifying Brazil’s infrastructure, fostering
the early years of the budding relationship, Some observers may dare say, to the the development of a more vital and engaged
primarily because the parties did not know horror of other emerging nations who bask, middle class, and strengthening commerce
each other well, China has since become or seek to bask, in the glow of China’s with the United States.
Brazil’s number one trading partner. China financial largesse, that it now appears Bra- She seems to be heeding concerns—
continues to increase its investments in zil—the “darling” of economists, analysts voiced both by Brazilian governments and
Brazil with US$17 billion in 2010 and over and commentators worldwide—may be businesses—that the country’s economy is
$7 billion so far in 2011. The majority of raising its voice in protest, demanding that being reshaped to fit what China needs it
this investment is in oil, mining and agri- there be more equality in the relationship. to be: that of a cooperative and compliant
culture. China’s state-owned gas and oil What if the suitor becomes upset? Will this exporter of the commodities China wants.
companies have acquired and developed cause China to retreat from further pursuit More and more, the Rouseff administration
assets in Brazil in order to meet the coun- of Brazil? Will other countries be embold- is seeking to hold China accountable for
try’s projected future demands. Sinopec, ened by Brazil’s vocal demands and, in the imbalances that have resulted from lop-
China’s second largest energy company, turn, assert themselves more forcefully sided economic policies, currency manipu-
paid over $7 billion for 40% of Repsol, a than they have in their relationship with lation, dumping and anti-protectionism.
Brazilian division based in Madrid, that China to date? Can a China-Brazil stand-off Indeed, these have become matters of some
holds more oil blocks in Brazilian basins provoke a significant shift in the region’s urgency for this new president.
than any other foreign operator. economy, or can it be an unexpected source The trade relationship between China
China Development Bank gave a $10 bil- of energy for both countries? The question and Brazil is grounded in the latter’s natural
lion loan to Brazil’s Petrobras in exchange now becomes whether China and Brazil, resource abundance and China’s commodi-

Page 20 The International Law Quarterly Fall 2011


new silk road: china and brazil,  from previous page

ty-intensive growth patterns. With the trade as a true strategic partner. Raised expec- ments in Brazil to build power transmission
relationship unbalanced in China’s favor, tations that Brazil would achieve high, facilities, soybean processing and transport
bilateral trade, or lack thereof, has become long-term productivity growth as a result plants, technology research and develop-
a growing concern. China displaced the of the China-Brazil alliance have dimmed. ment centers, rail and other transportation
United States as Brazil’s major trade part- While China may be fostering growth in projects, pipelines, telecommunications
ner, but Brazil did not rise in any substantial the region by simply absorbing commodity facilities and so on. Yet, none of this invest-
way as China’s trade partner. In fact, it did imports, sustaining their prices and driv- ment guarantees that a significant portion
not even make it to the top ten. ing the expansion of its commodity-based of the work will go to Brazilian service and
While China’s market is open to Brazil- exporting industries, it plays a much more infrastructure firms.
ian commodities, it is almost closed to Bra- limited role in the diffusion of technol- Chinese service companies are position-
zil’s manufactured products. An example of ogy and knowledge. Some believe that ing themselves to win contracts directly
this trend is how China buys unprocessed sufficient red flags have been raised for from the Brazilian government and edge
soy from Brazil, but it will not buy pro- President Rousseff’s administration to out the local teams. In order to accom-
cessed soy and therefore gives Brazil no undertake vigorous policies going forward. plish this, Chinese service providers and
chance to have any financial upside in the Brazil’s Congress has passed legislation, infrastructure firms enter the market as
transaction. Brazil’s partnership position, or is contemplating tightening existing supporting partners of the Chinese firms
for the most part, is as an exporter of com- legislation, to achieve a more balanced investing in Brazil, including petroleum
modities and importer of Chinese goods. bilateral exchange with China through service companies, and engineering and
While it is true that commodity exports tax reform policy to include Chinese in- transportation companies, that build the
have catapulted Brazil’s economic growth vestments and targeted tariffs on Chinese infrastructure needed by the Chinese min-
in the past decade, they have done little to manufactured goods, tighter enforcement ing and agricultural companies making
help develop Brazil’s long-term internal of customs’ regulations and increased com- the investment. Hence, the local Brazil-
productivity and competitiveness, or to plaints about dumping. Such necessary pro- ian companies find themselves competing
establish the promised technology transfer tectionist measures, they argue, will level with Chinese infrastructure and service
from China. In fact, to date, technology the China-Brazil playing field, increase providers.
has been passing from Brazil to China in advantages to Brazil’s local industries, Yet, is all this perceived trouble a “China
areas such as aircraft manufacturing and and encourage China to purchase Brazil’s problem” alone? Certainly, in any relation-
agriculture with little intra-industry trade. value-added products while adding value ship there are two sides to every story.
Conversely, China’s undervalued cur- to Brazil’s exports. In addition, Brazil has Why would Brazil complain when it has
rency, coupled with the threat of cheap taken numerous trade-related World Trade risen to a level of economic success and
Chinese “like product” imports to Brazil, Organization actions against China. world prominence unheard of in decades,
have caused local manufacturers, primarily One major area of continued focus has and the Chinese are doing nothing different
in textiles and shoes, to suffer as they have been China’s ravenous appetite for and than established multinational companies
difficulty competing with the cheaper Chi- interest in directly acquiring land in Brazil already conducting business in Brazil? The
nese products both at home and elsewhere. for mining and soybean farming purposes. success of any type of long-term relation-
Thus, affected parties argue that industrial Though Brazil bans such large foreign ship is driven by domestic, institutional and
production has become flat and markets purchases, Chinese investors have pur- regional variables.
have begun to signal “de-industrialization.” chased land through local partners. How The China-Brazil relationship may be
The changing nature of the contemplated much land is presently owned by Chi- strong economically, but it is fragile with
China-Brazil strategic relationship has nese investors in Brazil is somewhat of a regard to more nuanced issues that are
come down to Chinese companies invest- mystery even to Brazil’s federal and state a result, in large part, of very different
ing in Brazil’s commodity sectors in order governments since the land was purchased domestic institutional structures in each
to gain access to a steady supply for Chi- by and through companies that are locally country. Many argue that China is not at
na’s consumption, and Chinese companies incorporated. Brazil argues that a very fault in not being able to live up fully to its
investing in Brazil to find export markets important part of the strategic plan with pledge to engage more openly with local
for Chinese goods and services. In large China focused on promoting Brazil’s local workers and firms. They point to the fact
part, Chinese imports compete directly efforts in infrastructure and services. There that Brazil’s governance structure impedes
with Brazil’s, and both China and Brazil are were high hopes that Chinese investment progress; that corruption is a big deterrent
strong competitors for foreign investment. in Brazil would yield jobs and financial to more interaction with local governments;
To some policymakers, it is becoming returns in these two areas of the economy. that the tax system, labor costs, overvalued
clear that China regards Brazil as a source In fact, Chinese governments and com- currency and infrastructure and governance
of natural resources and a possible entry panies flush with cheap capital from Chi- issues are impediments; and that all of
into the U.S. and other markets rather than nese banks are making substantial invest- this makes local goods more expensive

Fall 2011 The International Law Quarterly Page 21


new silk road: china and brazil,  from previous page

to manufacture in Brazil, which opens the business-development process, China is For example, in spite of the significant
the way for consumption of cheaper, like- more cautious and bases much of its strategy monetary investment, there is little evi-
quality Chinese goods. on trust and past success with an individual, dence to show that China is fostering pro-
Brazil is democratic, market-open and government official and/or company. Brazil- ductivity and growth in Brazil or the Latin
engaging while China is authoritarian and, ians and Chinese have not had a real oppor- American and Caribbean region as a whole.
true or not, perceived as an economically tunity to get to know one another. This is understandable as language, culture,
manipulative power. As a democracy, Bra- While there is a solid community of distance and other variables are major im-
zil is open to debate on human rights and Chinese-Brazilians in Brazil, the Chinese pediments. Deeper institutional, structural,
differs from China on this as well as other do not interact with Brazilians on a day- political and environmental factors must
high-profile issues such as climate change, to-day basis to the degree commensurate be in place to allow Brazil and China to
nuclear proliferation, and international se- with their level of economic investment. develop a winning and truly workable plan.
curity. That having been said, the bottom Thus, there has not been a bond created, Many of these handicaps are related to lags
line for both of these countries is safeguard- and danger lurks when one party sees the in human capital, skills, structure and in-
ing their core economic interests. other as dominant, especially when both novation capacity. Both countries need to
Yet the relationship may become more cultures value proving success and saving develop a well-designed, growth-oriented
complex as each tries to increase its profile face, nationally and globally. policy agenda that can be systematically
in other regions. China has continued to While the economic relationship has implemented—something that is currently
establish itself solidly in most Latin Ameri- grown by leaps and bounds, little or no missing.
can countries and the Caribbean and shows personal connection has been cultivated to Even if it is true that Brazil is beginning
no sign of slowing down globally. Brazil is deal with problems when they arise, nor to to recognize the global uncertainty and risk
more and more interested in Africa as well evaluate the areas where China can truly to such a deep engagement with China,
as in nurturing its past relationships with foster growth in Brazil. Connections that it is a fact that the growth of Brazil and
the United States and Europe. are not accompanied by human capital other Latin American countries appears to
Not to be discounted are the cultural dif- formation, socio-economic investments, be more and more tied with developments
ferences between the Chinese and the Brazil- technological adoption and adaptation, and in China than to other advanced countries.
ians. While the Chinese and Brazilians are mutual learning will not spur productivity Additionally, countries with connections
similar in the way they engage one another in and growth. to China perhaps will more likely be able

Page 22 The International Law Quarterly Fall 2011


new silk road: china and brazil,  from previous page

to maintain economic activity apart from Brazil can begin to insist that Chinese a mutually respectful and cooperative re-
associations with advanced nations. The investments take into account social and lationship with China will virtually ensure
question remains whether or not Brazil political impacts, both in Brazil and in that it continues its successful journey to
can leverage its relationship with China other countries where Brazilian companies greater global prominence.
and turn it into an important—yet not the compete. Standards for labor rights, the Whatever wrinkles may have appeared
sole—source of long-term growth. environment, job creation, anti-corruption in the relationship do not seem, upon close
Brazil’s robust growth over the last few and other priorities must be demanded from inspection, to be fatal or permanent. The
years may enable Brazil and the region the Chinese, not just from Western inves- trading relationship, though robust, re-
to begin a steady economic convergence tors. Further, if the Chinese truly want to mains young and immature. It is growing
toward the standard of living of advanced integrate Brazilian farmers and other local much too fast to allow introspection and
economies. While Brazil and China appear producers, companies and workers into understanding of the nuances that are giv-
to have bright futures, both countries must long-term arrangements and contracts for ing rise to concerns and misunderstandings.
first reexamine their trading relationship infrastructure, production and manufactur- Where the economic side of the China-
in light of the lessons learned during their ing of goods, a negotiated set of agreements Brazil relationship is growing, the personal
short partnership. Brazil must seek a solu- with local unions and regulatory groups and more human side seems to need atten-
tion for concerns arising from the cheap must be developed—all the while under- tion and nurturing. Like Brazil, China is
intermediate imports from China that have scoring the importance of understanding young in its financial prowess, economic
led to problems with local producers rather ongoing relationships with Brazil’s busi- achievement and global standing. Though
than spurred healthy competition. Brazil ness community, labor management, and successful in trade and commerce, and a
must not turn its back on the fundamental state and local governments. formidable benefactor and competitor at
reforms necessary to make Brazilian in- Of great significance will be how China once, China, too, has had to learn to run
dustries more competitive and attractive to reacts to Brazil’s appeal for mutual efforts before it masters how to crawl.
investors; namely, cut government spend- to address the potential difficulties involv- A serious dose of goodwill and unhurried
ing and reduce the government’s role in ing currency wars, trade deficits, competi- diplomacy between Brazil’s insightful new
administering national savings. tion between Chinese and Brazilian prod- president and her paternalistic counterpart
Not to be overlooked is the issue of cor- ucts in Brazil as well as in third markets, in China may render more success and
ruption in government and industry—an and one-sided investments. Brazil, on the goodwill than many expect. Undoubtedly,
issue very familiar to both China and Brazil other hand, must not put all of its eggs in for many years to come, China and Brazil
China’s basket and must address its rela- will continue to travel as worthy partners
and to the countries that do business with
tionship with other major economies in the on the New Silk Road.
them. Good governance leads to greater
foreign direct investment, and no economy region and strengthen its relationship with
the United States in particular. The United Mikki Canton, Co-
will survive unless corruption is curtailed.
States would do well to acknowledge that Chair of the Inter-
while it ignored Brazil, for whatever rea- national Law Sec-
son, China saw the void and moved right in. tion Asia/China
Committee, has been
Ethics Conclusion a well-known attorney

Questions? Trade between Brazil and China is ris-


at the local, state and
federal level for over
ing astronomically. In the past decade, M. Canton twenty-three years.
China has become Brazil’s major trading In 2007 she founded
partner, knocking the United States off AsiaAmericana International LLC, a stra-
the pedestal. While China’s interest in the tegic business and legal guide to interna-
region may appear to be purely economic, tional organizations and clients wishing
a closer look reveals that Brazil plays a far to capitalize on the growing relationship
larger role in China’s overall strategic plan between China and Latin America. Pres-
and global ambition than may be evident ently Ms. Canton’s legal practice focuses
at first glance. on international trade, investment and
Call The Florida Bar’s China is investing huge sums in Brazil commerce in China and Latin America
ETHICS HOTLINE: and in other partners who indirectly and with emphasis on advocacy and interna-
directly affect Brazil’s global prominence. tional business transactions. Ms. Canton
1/800/235-8619 China’s growth is almost certain not to has written and lectured extensively in the
decelerate, and Brazil’s ability to maintain United States and China. 

Fall 2011 The International Law Quarterly Page 23


Concessions and Other New Instruments
as Key to Development in Brazil
By Marçal Justen Filho, Curitiba

Introduction commitment to efficiency that occurs from in Brazil relative to the use of economic
the dissemination of instruments developed resources by private agents and the activi-
The twentieth century saw profound
by private enterprise. ties of the government in the economy. One
changes in Brazil’s approach to economic
But controversies over government inef- of the fundamental provisions of the 1988
problems. The demise of the communist
ficiency have advanced to another level. In Brazilian Constitution is in Article 3, sum-
model paralleled disenchantment with gov-
the United States, an economic crisis was marizing the commitment of the State to the
ernment intervention. Freedom of private
triggered by a combination of greed and the Brazilian nation:
enterprise and wide-reaching deregulation
absence of government intervention. In Eu- The fundamental objectives of the Fed-
of economic activities was the preferred
rope, unchecked government spending put erative Republic of Brazil are:
option.
at risk the economies of Greece, Ireland,
I. to build a free, just and solidary
Portugal, Spain and even Italy.
The Illusion of the “End of Thus, the answer to lack of government
society;
History” efficiency lies not in eliminating govern- II. to guarantee national develop-
For some time, the illusion that the dia- ment;
ment involvement but in focusing its ac-
lectic dynamics of history had come to a tivities on fostering development with the III. to eradicate poverty and substan-
close was prevalent. A definitive stage was greatest possible efficiency. For this reason, dard living conditions and to re-
believed to have been reached under which duce social and regional inequali-
the need for efficient government interven-
there would no longer be varied and diver- ties;
tion is at the center of debates over the
gent solutions to economic problems.1 With relationship between the State and private IV. to promote the well being of all,
the reduction of government intervention in agents. without prejudice as to origin,
the economic domain and the prevalence race, sex, color, age and any other
of individual freedom to both choose and forms of discrimination.
The Combination of
apply the most economically efficient solu- Concepts These points are not purely rhetorical
tions, the capitalist model would become concepts but represent duties of the Bra-
Over time each nation develops its own
the only option. But the financial crises of zilian State. Promoting these fundamental
model of government intervention in the
the late 1990’s and the first decade of the objectives requires constant intervention
economy, and each of these models is an
twenty-first century proved the error in the by the State in the economy. Economic
amalgam of ideologically diverse concepts.
push for minimal government intervention. and social development, the guarantee of
There are sectors exclusive to the private
On the one hand, the lack of government fundamental rights (“the well being of all”),
initiative, and there are those in which the
intervention led to unfortunate deviations and the elimination of poverty and social
State directly develops the economic activ-
in the development of economic activities. and regional inequalities are all goals that
ity. This is true of Brazilian law.
The need for an overreaching external can be achieved only by means of govern-
The model of government intervention
control over the use of economic resources ment action.
in the economy is currently open, and
became apparent. This involved not only But this is not to say that the State should
undergoing an evolutionary process. The
ethical values but also environmental con- absorb all economic activities. Past expe-
dynamics of exploring economic resources,
cerns and sustainable development. rience proves that extreme government
of developing wealth, and attending to col-
On the other hand, government interven- intervention in the economy is untenable.
lective needs, all impose on the State the
tion came to be seen as a relevant factor On the other hand, arguing for no govern-
need for permanent solutions.
for fostering economic development. One
Determining the role of the State in the ment action is also unreasonable.
cannot ignore the example set by China
economy involves several instruments,
with regard to local economic systems.
The Chinese model involves a greater and
many of which are already in a process Private Property and
more intense government role in economic
of revision and innovation.2 This concept Freedom of Initiative
must be explored within the constitutional The 1988 Brazilian Constitution assures
activity, while not eliminating the role of
framework of each nation. private property, including means of pro-
private agents. This is different from the
Soviet economic model, which proved to duction. Article 5, items XXII and XXIV,
be inefficient and incompatible with fun- The Brazilian Constitution state that the government may not purely
damental rights. The collapse of the Soviet and the Economic Order and simply take possession of goods be-
model was a direct result of the lack of There is a wide constitutional framework longing to individuals. Article 170 confirms

Page 24 The International Law Quarterly Fall 2011


concessions and other new instruments,  from previous page

the presence of a capitalist system, in which isfactorily provided by the mechanisms solely for profit is common—even when
profit is legitimized. Freedom of initiative inherent in private economic activity. Public the company has private partners.4 For this
is guaranteed, which means that it falls to service is rendered under a different regime reason, government-owned corporations
private agents to decide how best to use than economic activities in the strict sense. are influenced from several angles by the
their private property. All are allowed to Freedom of initiative does not apply, and the current political situation.
practice economic activities, within legal public services are provided under the prin- Second, government-owned corpora-
parameters. ciples of continuity, universality, equality, tions are subject to a hybrid legal regime.
The constitutional framework estab- and affordability of tariffs, among others. These companies are not allowed any pref-
lished a capitalist economic system with Some economic activities, developed un- erences or advantages over private corpo-
specific and distinct characteristics. In so der the private-law regime, are also exclu- rations, but their legal regime is subject to
doing, it acknowledged the social function sive to the government pursuant to Article public law. Thus, their decision-making
of private property pursuant to Article 5, 177 of the 1988 Constitution. In this case, process and company policy are subject
item XXIII, of the 1988 Constitution, and there is no public service being provided, to obstacles that private companies do not
also government intervention in the eco- and the private-law regime applies, but the have to face.
nomic domain as a proper instrument for Constitution precludes private agents from Third, government-owned companies
the promotion of the goals stated in Article exploring these sectors, thereby establish- are subject to extremely rigorous means of
3 of the Constitution. But the mechanism ing a public monopoly. control not applicable to the private sector.
for government intervention has an even The government is permitted to explore In many cases, decisions meant to avoid
more intense configuration, as will be fur- economic activities, competing on equal losses can be considered unethical—and
ther explored below. footing with private agents. Pursuant to in some cases even criminal—if they do
Article 173, this can occur in cases where not follow the formal aspects required. A
Direct Government there is a relevant collective interest or na- decision that would be economically and
Economic Activity in the tional-security concern, as defined by law. financially reasonable, and undoubtedly
Traditional Model When exploring economic activities, the ethical, for a private company may have an
government is bound by the same legal absolutely different legal standing if per-
In the twentieth-century tradition, the
regime applicable to the private enterprise. formed by a government-owned company.
government is permitted to intervene di-
Constituting a legal person under a private- Fourth, government-owned companies
rectly in the economic domain. In this case,
law regime is indispensable, though its are not subject to bankruptcy, which has
the State focuses its resources and efforts
activities will still be bound to public-law both positive and negative effects. Be-
to assume the organization of the means of
limits. As a rule, the contracts entered into cause of this, even inefficient practices
production. This direct performance by the
by these legal persons will require public and unsuitable services will not cause the
State may be developed under a public law
bids. The exception is those contracts that company to cease exploring the activity. A
or a private-law regime. Even in the latter
would place an insurmountable restric- government-owned company can operate
case, however, there is a strong public-law
tion on the end-activity of the government inefficiently, which is not possible for a
influence.
entity.3 The Court of Accounts will exert private company.
The 1988 Constitution reserves certain
external control over all activities. There These circumstances, among others, have
activities to the government, even if, in
are several other means of control that will led to greater bureaucracy in government-
some cases, it allows for them to be later
be discussed later. owned corporations. It is problematic for
delegated to private agents. For example,
under Article 175, it falls to the Brazilian a government-owned company to compete
government, either directly or through
Limits and Challenges with private companies, precisely because
concession or permission, to provide public of Traditional Direct the former’s managerial and executive
services. Intervention processes are much slower and more costly.
This means the set of activities of ex- Past experience shows that the use of the
ploring economic goods is divided into traditional mechanism of direct interven- Search for Alternatives
two groups. There are economic activities tion is indispensable, but it also faces limits The difficulties and limits of direct gov-
that are preferentially assigned to private and challenges, for several reasons. ernment intervention led to other solutions
agents, and there are the public services, First, government-owned corporations being concurrently developed. These solu-
assigned to the State. perform administrative governmental tions came from practical experience and
Although there is no clear constitutional functions. They are part of the govern- from theories developed by experts in the
definition, “public services” are those in ment’s structure and are instruments for field.
which there are relevant and essential needs, accomplishing public policies. Thus, the Regulatory intervention is not the same
the performance of which cannot be sat- understanding that they cannot operate as government control. The government

Fall 2011 The International Law Quarterly Page 25


concessions and other new instruments,  from previous page

may establish conditions, restrictions and even if the State considers their develop- legally neutral, in the sense that it does not
incentives. But it cannot impose mandatory ment to be indispensable. The development lead to any legal consequences. Sanctions
solutions on private agents. of these fields cannot be imposed by law. are bound to illicit actions. In this conserva-
In several cases, the proper solution tive government position, the State seeks to
Free Private Initiative consists of the State taking measures meant avoid changes to the status quo of ethical
The legal system continues to uphold to improve the appeal of the enterprise and conduct.
private property, legitimize corporate eco- to encourage activities considered to be In the promotional model, adopting a
nomic activities and guarantee private lib- socially relevant. This concept is related conduct prescribed by law becomes le-
erties. For this reason, Article 174 of the to the idea of a “fostering state,” which gally relevant. The “sanction”—or in this
1988 Constitution states: “As the normative utilizes its jurisdiction and resources to case, benefit—is bound to ethical conduct.
and regulating agent of the economic activ- induce private agents to develop socially Conduct that does not achieve the values
ity, the State shall, in the manner set forth relevant activities. sought by the legal system becomes legally
by law, perform the functions of control, neutral. This notion corresponds to an in-
incentive and planning, the latter being The Promotional Model novating and reforming government: the
binding for the public sector and indicative Over forty years ago, Italian jurist Nor- State incites society so as to recreate the
for the private sector.” berto Bobbio examined the new paradigms social and economic relations and achieve
By stating that public planning is “in- of government operations and distinguished its goals.
dicative” for the private sector, Article two legal models. The classical legal con- The defining characteristic of contem-
174 recognizes that certain activities and cept corresponded to a “repressive law” porary society is a legal system that is
rules on private corporate governance do regime, characterized by punitive sanctions not only repressive but also promotional.
not eliminate free private initiative and geared towards discouraging undesirable Eliminating the repressive aspects of law
that the will of the government and its conduct. The repressive law system still is not feasible, but bringing it together
regulatory output are not enough to imple- exists but is now concurrent with a “pro- with the promotional instruments of law is
ment certain measures and achieve specific motional law” system. The latter institutes indispensable.
results. There is an inalienable measure of “positive” sanctions that take the form of
personal freedom that is constitutionally advantages and benefits for those who act Concrete Manifestations of
protected and considered a fundamental in accordance with the desirable conduct.5 the Promotional Function
constitutional principle. Bobbio demonstrates that, in the tradi-
This promotional model of governance
Certain enterprises do not interest the tional model, only undesirable conduct is
can be seen most clearly in fiscal measures
private sector. Private agents will not be legally relevant. Conduct that is compatible
that benefit certain persons, activities or
predisposed to invest in these enterprises, with fundamental values is considered to be
underdeveloped regions. But there are
several non-fiscal government measures
available to encourage private activities.
For instance, it is possible to offer favor-
able financing for companies that under-
take relevant activities. Transferring public
funds in order to finance sectors that lack
investments is another possibility. The
conditional donation of public assets with
the achievement of specific goals is also
feasible.
The complexity of this new scenario al-
lows one to consider the government func-
tion of promotion or fostering, which is au-
tonomous and distinct from other activities
performed by the State. In furnishing this
activity, the government does not directly
provide for collective needs—as would be
the case with public services; nor does it
limit private autonomy—as would be the
View from Corcavado, Brazil case with police power; nor does it involve
lawmaking. The activities undertaken by

Page 26 The International Law Quarterly Fall 2011


concessions and other new instruments,  from previous page

the government in the case of fostering are benefits gained by the private agents do not Such is the case with associations between
neither sufficient nor apt to accomplish any necessarily lead to the achievement of the the government and private sectors, with
governmental interests. goals desired by the government. the latter realizing the greater share of
With fosterage, public interests are indi- The limits to government fostering activi- investments and disbursements.
rectly fulfilled by means of the actions of ties involve different circumstances. First, Associations may be broadly included
private agents. Fostering becomes a legal it is not always practical to encourage the in an encompassing conception of fostered
system meant for realizing activities seen private sector to follow the required conduct undertakings, as they deal essentially with
as desirable by the State and that encom- exclusively through fostering actions. The inducing private agents to develop socially
pass national development. This is why private party is responsible for all the risks desirable activities. But there is one major
fostering is seen as an indirect regulatory inherent in the operation to be developed. distinction: the government not only per-
action. After all, fostering predominantly So there are cases in which the fostering forms its passive function—establishing
takes the form of normative or regulatory conditions are not sufficient to make a risky norms or benefits—but also provides the
measures, though these are peculiar mea- enterprise appealing. In these situations, tra- essential advantage of contributing the
sures in that they do not amount to compul- ditional fostering measures are insufficient resources necessary for the enterprise.
sory norms with prohibitive or mandatory to achieve the intended goals. Therefore, the private party neither as-
instructions. The goals sought by the State Second, private autonomy prevents the sumes the entirety of investments nor re-
are obtained indirectly, from the actions State from interfering in the chosen cor- quires the use of conventional sources of
taken by private agents. porate decisions. There are difficulties in financing. The government becomes the
The goals of the government in provid- establishing control over the performance of private party’s partner, which also leads to
ing incentives are not focused on achieving private agents. There is no way to eliminate indirect positive effects such as the formal
direct economic gains. The government is the risk that the private party will take advan- recognition of the importance and gravity
not seeking to increase its public revenue; tage of the incentive while not adopting the of the undertaking.
on the contrary, fostering operations tend to measures—including corporate measures— Through this system, socially desirable
decrease revenue, at least initially. But the considered appropriate by the State in order activities become achievable. The business
fostering activity does not represent simple to achieve the intended results. This leads to risks of failure are shared by the private
generosity. It is not about waiving public the spread of external control mechanisms party and the government. But this solu-
interests with the purpose of benefitting over the activity of the private agent, which tion is different from the instruments used
any one private agent—though this may tends to increase bureaucratization and costs in the past.
occur at first. without fully eliminating the risks. It is clear that the association of the
As a rule, the fostering activity requires In other cases, the results of the fostered government with private agents is a time-
counter measures from the private agent activities may be extraordinarily advan- honored proposition that is widely used in
involved. The private party is the benefi- tageous to the private agent. Thus, the several nations, including Brazil. This con-
ciary of the government’s actions and is government will ensure benefits for the cept follows traditional models that present
therefore conditioned to corresponding private party, whose business exploration great benefits in several situations. These
measures. The private agent may be bound may lead to outstanding profits. In these classical models, however, are not always
to invest a minimum amount and in specific cases the traditional fostering measure is able to provide the most desired results.
locations, develop certain benefits for the effective, but unbalanced, as it leads to a
good of the community, generate wealth, disproportionate gain to the beneficiary. Concession of Public
ensure advantages to underserved popula- Such a result should not lead to the nulli- Services
tions and so on. ty of fostered activity. The classic measures
One traditional association method con-
The benefit inherent in fostering activities should still be utilized and, in many cases,
sists in the concession of public services.6
is only a means of convincing the private they remain the most satisfactory solution. There are several references to “conces-
sector to develop socially indispensable But it must be understood that the classic sion” in the Brazilian Constitution and
activities. In short, the social, economic and measures for fostering certain activities are various laws. There is even a “General
cultural gains inherent in fostering activities not always the most appropriate solutions, Law of Concessions,” Federal Law No.
offset the loss in revenue or the benefits and there are other measures that may be 8.987/1995. This law provides two formal
transferred by the government. adopted. definitions of concessions:
Art. 2. For the purposes of this Law, it is
Limits to Government The Association: Another considered: . . .
Fostering Form of Fostering Activity II. concession of public service: the
Government fostering, however, is not The above limitations to fostering activi- delegation of its rendering, made by the
always the most satisfactory solution. The ties led to the development of alternatives. granting authority, by means of a bidding,

Fall 2011 The International Law Quarterly Page 27


concessions and other new instruments,  from previous page

in the method of sealed competitive tion assumed by the concessionaire of the limitation of the responsibilities of the gov-
bidding, to the legal person or consortium service is so relevant that the government ernment. The risks allocated to the parties
of companies that demonstrates capacity requires more intense legal powers beyond are bound by the extent of their share in
for its performance, on its own account those already inherent in its position of the SPC. As a rule, the invested capital is
and at its own risk and for a determined conceding entity. primarily private. The private partners as-
period of time.
It is possible to assert that economic sume the greater part of investments, which
III. concession of public service activities may be subject to government means they are the majority shareholders
preceded of the execution of public authorizations, which are very different with power to appoint managers. While
work: the total or partial construction,
from concessions. Some activities may be government capital is involved, it is not the
maintenance, refurbishing, enlargement
explored either as a public service under greater part of the investment.
or improvement of any work of public
interest, delegated by the granting a public-law system, or as an economic Because these associations involve the
authority, by means of bidding, in the activity under a private-law system. For use of government funds, they must use
method of sealed competitive bidding, instance, fixed telephone services are pro- measures to ensure the security of pub-
to the legal person or consortium of vided as public services by means of a lic interests. For example, there must be
companies that demonstrates capacity concession. But, in the interest of foster- shareholders’ agreements that guarantee
for its performance, on its own account ing competition, other companies may be relevant rights to the public partners. This
and its own risk, in such a way that authorized to explore the same activity. It may include managing the company, ap-
the investment of the concessionaire is is not possible to provide an exhaustive list pointing a certain number of managers,
compensated and amortized by means of of all such cases. requiring the presence of a minimum
the exploitation of the service or the work number of shareholders for certain deci-
for a determined period of time. sions, and so forth. There also may be
Rise of Associations Under
Private Law Regime agreements on the coordinated and har-
More recently, Brazil enacted Federal monious right to vote. These shareholders’
Law No. 11.079/2004 on Public Private The rise in the complexity and intensity
agreements may determine the existence
Partnerships, referred to as PPPs, which are of the collective necessities led to different
of a controlling group, composed of the
defined as a modality of concession and are types of association between government
private majority stockholders and the
basically differentiated by the public cover- entities and private agents realized under
government stockholders.
age of part or the whole of the remuneration the private law framework.7
The agreement, however, does not al-
to be afforded to the private partner. This solution involves increasing the
low the public partner to transform the
Under Brazilian law there are several risks of the governmental entities. After
company into a tool for the development of
different institutes formally defined as all, public resources will be applied in
governmental activities, despite the rights
“concession of public service,” subjected typically private enterprises and may re-
and guarantees afforded to the public part-
to different provisions of law. In all cases sult in losses—a risk inherent in economic
ner and though it possesses public funds.
there is a contract by means of which a pri- activities. All precautions must be taken to
Indeed. a fundamental characteristic of the
vate party assumes the obligation to realize reduce the chance of such losses.
company is the lack of assimilation into
the necessary implantation, upkeep and im- the main governmental structure, the non-
provement of the public service. It falls to Forming a Special Purpose existence of governmental functions of any
the government to regulate and discipline Company—SPC nature being provided, and the inapplicabil-
the activities of the private party, directly Development fostered by the govern- ity of principles particular to the public-law
or indirectly assuring revenue compatible ment can be undertaken by a private com- regime. The private partner is forbidden
with the investments made. This solution pany formed from combined public and from making use of its prerogatives to
is applicable only in the case of public private resources and taking the form of compromise the corporate objective sought
services and similar instruments—such as a joint-stock corporation with a clear and by the company—a corporate objective that
administrative concessions—and involves specific purpose. The vehicle for this so- is part of a private activity, pursued under
an endless discussion on the risk allocation lution is a Special Purpose Company, or a private-law regime.
of the undertaking. SPC. SPCs are not autonomous corpo- The solution briefly discussed above
The concession of public service en- rate organizations. They are private-law does not utilize tools properly belonging
genders a public-law bond, specifically joint-stock companies, subject to the cor- to administrative law. It is a private-law
because its object is the delegation of the responding legal framework. Their defining model, in which the private agent is the
rendering of a public service. In many characteristic is in the choice of a limited mainstay. The government provides en-
cases, the concession ensures satisfac- and specific corporate objective to which couragement, prestige and assurances to
tory and desirable solutions. But there are a particular corporate function is bound. the private initiative but always under a
limits, such as when the contractual posi- The founding of an SPC requires a de- private-law system.

Page 28 The International Law Quarterly Fall 2011


concessions and other new instruments,  from previous page

Direct Advantages of This risk of defective or ethically reproachable problems, costs and advantages inherent
Model corporate decisions. The public partner in the development of private activities—a
directly takes part in the corporate envi- result of the lack of experience in working
This model provides distinct solutions
ronment, is aware of the decisions taken under the private model. By associating
when compared with more traditional fos-
and may prevent undesirable deviations with private agents, the government gains
tering activities. First, the State drives re-
or omissions. entry into a new area of corporate orga-
sources to a particular undertaking. Hence,
Finally, the profits obtained in the enter- nization, obtaining access to information
it does more than simply furnish indirect
prise are shared among partners. Hence, that would otherwise be unavailable to it.
advantages without effective consistency.
the investments made with public resources In this way, it becomes possible to perfect
The application of public resources reduces
return to the public partner. public projects and avoid the losses that
the need for capitalization by the private
result from the lack of precise knowledge
initiative and the costs resulting from fi-
nancing. This promotes the economic fea- Indirect Advantages of This of operative characteristics.
sibility of the enterprise. Model
Second, private managerial models are One indirect advantage of this model Feasibility of the Proposed
utilized. This means that private expertise is that managerial and corporate practic- Solution
is used for complex and specific tasks. The es common to the private sector become The previously described solution is
need for profit and the competition over known and may be eventually assimilated compatible with the current Brazilian legal
market share encourages efficient resource by the government. As a result, the admin- framework. During the last fifteen years,
management. Thus, the public resources istrative entity can apply such practices to Brazil has become economically stable.
are applied in a management model that is its own operations, and this may mean an Public and private investments have al-
wholly distinct from the one utilized in the increase in the efficiency of the undertak- lowed a process of unprecedented develop-
public sector. ings later developed by the public sector. ment resulting in the elimination of many
On the other hand, the effective pres- Thus, the government is able to amelio- long-standing problems. But this phenom-
ence of the government in the company rate one of the gravest problems it faces: the enon begets increased demand for service
allows for supervision over the manage- asymmetry of information. The State does of necessities. The increase in economic
ment of the resources and reduces the not fully comprehend the characteristics, activity leads to a demand for higher in-

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Page 29 The International Law Quarterly Fall 2011


concessions and other new instruments,  from previous page

vestments, especially in infrastructure. to the government as a result of fostering in “The End of History and the Last Man,” Francis
Economic growth leads to the depletion of an activity. Fukuyama, O Fim da História e o Último Homem
(1992).
capacity in several fields. More investments There are necessities that demand gov-
are necessary to ensure that the develop- 2 These remarks suffice to justify the author revisit-
ernment performance, but their success
ing some of his earlier stands. Previous conceptions
ment process continues and that the Consti- presupposes the use of institutes and in- involved the model applicable at a particular point of
tution’s promises and hopes become reality. struments particular to private law. This the social progress.
Consider the example of the air-transpor- means not only founding mixed-capital 3 The Brazilian Court of Accounts is unanimous in
tation sector. The rise in economic activities private companies, which are indirectly this regard. The following opinion is an example of
led to an extreme increase in the use of air subject to public-law restrictions, but also this:
transportation. As a result, there was an ex- applying the private expertise in govern- 7.  In this sense, the jurisdiction of the Brazil-
traordinary growth in the demand for use of ment entities. ian Court of Accounts is unanimous in that
airports. A lack of investments will lead to a Achieving the ends of the Brazilian State these companies are subject to the Law of Bid-
dings and Government Contracts until a law is
limitation on national progress in this regard. may therefore involve its association with
passed regulating the constitutional instruction
private agents to perform in a private-law (Plenary Decision 1268/2003, Plenary Court).
Further Considerations— system. There are no constitutional impedi- 8.  An exception to this rule is found in cases in
Article 3 of the 1988 ments to this solution in Brazil. which adhering to the abovementioned legisla-
Constitution More precisely, this solution is implicitly tion represent an insurmountable restriction on
authorized, as it is the most reasonable and the end-activities of the company, in which the
The Constitution imposes on the gov- Law may be considered inapplicable, in ac-
satisfactory means of ensuring that consti-
ernment a duty to adopt all adequate and cordance to the landmark decisions previously
tutional mandates are achieved. The legiti-
necessary measures to achieve the goals set established by this Court in previous cases,
macy of this solution is directly related to such as Decision 663/2002 and Plenary Deci-
forth in its Article 3. For this reason, the
acknowledging the governmental function sions 1268/2003, 1581/2003 and 403/2004, all
State is charged with demands particular
of fostering activities. judged by the Plenary Court.
to public law, but this cannot eliminate the
Plenary Decision 1854/2009, Second Chamber, Re-
possibility of the government operating
Marçal Justen Filho porting Minister Raimundo Carreiro.
under a private-law regime.
is the founder and se- 4 As an example, one may think of the occasion
A relevant part of the tasks assigned in which a political authority vetted the revision
to the government depends on the use of nior partner of Just-
in the tolls charged for the services rendered by a
instruments that are particular to private en, Pereira, Oliveira
mixed-capital company. This led to great losses to the
law. These are necessary, but not sufficient. & Talamini. He was company, with grave repercussions on the dividends
After all, there are limits for the State to admitted to practice distributed to the private partners who were not con-
achieve its intended results with public-law (Brazil) in 1978 and trolling stockholders.

instruments. focuses on infrastruc- 5 Bobbio’s full analysis can be found in Norberto


M. Filho ture, public procure- Bobbio, Dalla Struttura ala Funzione (1977).
Neither private capital nor public capital
alone is sufficient to ensure the investments ment and regulation. His many books 6 It is commonly understood in Brazil that the

necessary for the progress of Brazil. Only include Comments on the Public Bidding word “concession” refers to several very different
and Government Contracts Act (14th edi- legal institutes. Apart from the concession of public
the combination of the public and private services, Brazilian law acknowledges other forms.
sectors allows for the essential investments. tion, 2010) and Procurement Auction (5th
There is the “concession of public domain,” which is
Hence, the lack of resources in public- edition, 2009), arguably the most refer- not the same as the “concession for the exploitation
service sectors cannot prevent the use of enced books in this field in Brazil. He of natural resources” (mining). The exploitation of
funds for infrastructure investments. was head professor of the Public Depart- oil resources is governed by a specific legislation,
ment of Universidade Federal do Paraná especially because the Brazilian Constitution provides
for a governmental monopoly over it. And the word
(UFPR) for 20 years and has given more
Eventual Inadequacy of the “concession” is used for other purposes, such as the
than 500 conferences about the Brazilian
Public Model Public Bids Act (Federal Act 8.666). He
attribution of Brazilian citizenship.
7 It would not be wrong to affirm that this proposi-
In many cases, it will be possible and holds an LL.M (1984) and a Ph.D (1985) tion follows the model of private foundations orga-
adequate to realize investments in public from PUC/SP and was a visiting fellow nized and/or maintained with public funds. Founda-
and private capital under governmental at the European University Institute in tions do not have associative natures, but the notion
control. In these cases, the public-law re- Florence, Italy (1999). He is a citizen of of a private foundation constituted by the government
gime is applicable. But it is not possible to Brazil and Italy. reflects the proposal of establishing activities of
limit the propositions to this model only. importance to the government under private law. As
the matter is in large part specific, see Maria João Es-
There will be cases in which the most sat- Endnotes: torninho, A Fuga para o Direito Privado: contributo
isfactory solution will be the private-law 1 The most famous example of this concept is para o estudo da actividade de direito privado da
regime, with a minority share belonging evidently the one developed by Francis Fukuyama administração pública (1999).

Page 30 The International Law Quarterly Fall 2011


The Painful (and Taxing) Realities of
Doing Business in Brazil
By Julio C. Barbosa, Coral Gables

Introduction relevancy and urgency.”2 Every Brazilian ing that that the law is based on written
President has used (and some have argued, codes, consolidations, and “statutes.” (In
Countering the trend trumpeting Brazil’s
abused) the Medidas Provisórias (“MPs”), Brazil, “statutes” refers to regulations of a
current economic appeal, this article seeks
because almost anything can be “relevant” certain class of people (e.g., Statute of the
to demonstrate that doing business in Brazil
and “urgent” to the government, and this of Indian, Statute of the Foreigner) or of a
is still very complicated, costly and can
course avoids messy congressional debate. certain activity or profession (e.g., Statute
be surprisingly painful as well. Due to the
As of 19 September 2001, a new num- of the Lawyers, Statute of the Land, etc.).
natural limitations of the format, the article
bering system was assigned to the MPs, A “code” is a methodical set of rules of a
covers only the basic aspects of a foreigner
starting with “No. 1.”3 Since that time, the specific field of law intended to be a body
doing business in Brazil. Certain topics— President of the Republic has issued 546 of permanent law. When certain legisla-
such as, but not limited to, tax compliance, MPs, an average of 55 per year or 4.5 per tions have not been codified, however,
trade and customs, and transfer pricing— month, to create legislation. While it is true but have been assembled together (as, for
are not included; each of those topics alone that Congress must approve the MPs and instance, the several laws on labor), it is
is worth study. the current Constitution allows Congress called “consolidation of laws.” Not as sys-
While there seems to be little doubt that to amend the original text submitted by the tematic as a code, a consolidation of laws
Brazil’s economy will keep growing, mak- President,4 their existence in the Federal merely assembles legislations in the same
ing the country attractive to foreign capital, Constitution certainly makes for a weaker field of law in an organized single volume.
prospective investors should give special Congress. Thus, the Brazilian executive In Brazil only the federal Union can leg-
consideration to their tax planning: the branch has primary power, with a weaker islate on civil law, commercial law, penal
recent thirty-point increase in the country’s legislative branch, and the Federal Justice law, electoral law, agrarian law, maritime
industrial-product tax on imported cars is becomes the ultimate check and balance. As law, aerospace law, labor law, and criminal
just the latest measure that contributes to a consequence, the federal justice system and civil procedure.9 As a consequence, for
legal and economic uncertainty. has faced an onslaught of hundreds of thou- each of those areas, there is either a single
sands of lawsuits filed by private citizens national code (e.g., the Civil Code, the
Brazil’s Form of Democracy against the federal government.5 In 2004, Commercial Code, the Tax Code, etc.), or a
Brazil has always been protectionist to 2.6 million new lawsuits were brought consolidation (for instance, the Labor Laws
varying degrees, and its formal democ- before the Federal Justice in Brazil,6 and in Consolidation), or a single statute (e.g., the
racy includes tools that give the federal 2010 the number increased to 2.98 million, Statute of Child and the Minor).
government powers not found in many which makes 1,933 new federal actions In Brazil, as in most civil law systems,
other democratic countries. Economic pro- per 100,000 inhabitants.7 And this is only court decisions usually do not serve as a
tectionism has been a part of the political the Federal Justice, disregarding the entire
source of precedent, and they bind only the
landscape since Brazil gained its indepen- Federal Labor Law Courts and all of the
litigating parties. Decisions of a Brazilian
dence from Portugal in 1822. This can be state judiciaries, whose numbers are much
tribunal made by the absolute majority of
found in the economic policy of import higher. For the sake of comparison, in 2010:
its members are, however, the object of a
substitution—replacing imports with do- [P]laintiffs [in the U.S.] filed 272,000 Súmula, or a “summary” that constitutes
mestic production based on the premise new civil suits in federal District Courts, a precedent for the purpose of making the
that a country should attempt to reduce including 34,000 contract claims, 4,000 jurisprudence uniform.10 In 2004, Con-
its foreign dependency through the local real property claims, and 77,000 tort gress amended the Federal Constitution
production of industrialized products— claims (15,000 of them relating to to establish that the final decisions issued
that the country practiced for most of the asbestos). The rest of the claims were by a two-thirds majority of the members
twentieth century.1 Such policies can be statutory: 53,000 prisoner petitions, of the Federal Supreme Court (“STF”)
instituted through a far stronger executive 32,000 civil rights cases, 19,000 labor law would have binding legal effect on the
branch than exists, for example, under the cases, 13,000 social security claims, and entire judiciary.11 The so-called Súmulas
U.S. Constitution. For instance, except on 11,000 intellectual property disputes.8 Vinculantes, (binding summaries, or bind-
certain matters, in Brazil the President of ing precedent) are regulated by Law No.
the Republic has the constitutional power Brazil’s Blended Civil Law 11,417 of 19 December 2006 and enable
to legislate by what is called Provisory System the judiciary to decide in a definitive and
Measure (Medida Provisória) “in case of Brazil has a civil law system, mean- final way thousands of cases dealing with

Fall 2011 The International Law Quarterly Page 31


painful and taxing realities,  from previous page

the same issue.12 Additionally, the STF The Law of Remittance of Profits with BACEN) are not subject to BACEN’s
can declare the constitutionality (“ADC”) Foreign investments in Brazil are gov- authorization and can be easily made by
or the unconstitutionality (“ADIN”) of a erned by Law No. 4.131 of 4 September combining symbolic exchange agreements.
certain law in the abstract,13 erga omnes, 1962 and its amendments.22 The original Goods imported without payment may
although only a certain few people or law is called Law of Remittance of Profits also be converted into foreign investment,
entities have standing to file those spe- (“LRP”), and it defines foreign capital as: but if the goods are used or were imported
cific lawsuits.14 The decision of STF in an under certain tax incentives, they cannot
any goods, machinery and equipment
ADC or an ADIN has the same effect as entered into Brazil without the initial
be similar to goods produced in Brazil,
a Súmula Vinculante, but it requires only expenditure of foreign currency, intended and the conversion must be recorded with
a simple majority of the members of the for the production of goods or services, as BACEN within ninety days after their
STF (six justices).15 If the decisions of the well as any funds brought into the country customs clearance.
STF on the ADCs and ADINs were made for use in economic activities, provided Foreign investments in the Brazilian
within a reasonable period of time, the le- that [the goods and the funds] belong financial and capital markets are regulated
gal uncertainty would decrease, especially to individuals or business organizations by BACEN’s Resolution No. 2,689 of 26
when it comes to tax matters. It can take domiciled or headquartered abroad.23 January 2000. Prior to investing in those
years, however, for the STF to decide an The term “goods” also includes intellectual markets, the foreign investor must, among
ADC or ADIN. For instance, it has been property in general, such as trademarks, other things, appoint one or more repre-
almost ten years since the Brazilian Con- patents, and technology transfers registered sentatives in Brazil and obtain a register
federation of the Industry (“CNI”) filed before the National Institute of Industrial with the Brazilian Securities and Exchange
the ADIN No. 2578 on an important tax Property (“INPI”). Moreover, in order to Commission (“CVM”).24 The CVM is the
issue, but there is still no final decision.16 obtain exclusive use protection in Brazil for Brazilian counterpart of the SEC and was
Thus, Brazil does not have a pure civil law intellectual property rights, the foreign in- created by Law No. 6,385 of 7 December
system, although it is not a common law vestor must register trademarks, industrial 1976.25
system either. designs, utility models and patents already
registered abroad with the INPI. Restrictions and Rules
Foreign Investment in Brazil According to the LRP, Article 3(a), in Usually, investments in equity are not
The World Bank currently ranks Brazil order to be repatriated or to remit profits subject to governmental approvals or au-
number 127 out of 183 with regard to ease abroad, all foreign investments that enter thorizations, and there are no requirements
of doing business.17 In 2010 Brazil was Brazil must be registered with the Central regarding minimum investment or local
ranked 124, meaning that it is falling in the Bank (“BACEN”). The registering process participation in capital. Foreign investors,
rankings. With regard to protecting inves- is simple and can be done electronically however, are prohibited from engaging in
tors, the country is ranked number 74. On over the Internet. Upon registering, the for- business related to nuclear energy, hydrau-
enforcing contracts, Brazil is ranked only eign investor receives a permanent number, lic power generation, health services, and
98. All of this contributes to the reputation and this number will be necessary for any mail and telegraph services. Moreover,
of the “Custo Brazil,” broadly meaning the financial transaction concerning the regis- foreign investors may not hold more than
extra cost of doing business in Brazil due tered capital. Foreign investments in Brazil a minority participation in media, airlines,
to everything from bureaucracy to infra- are classified as direct or indirect. Direct financial institutions and insurance compa-
structure.18 In March 2010, ABIMAQ (the investments are made either by investing nies, except that they may acquire control
Brazilian Association of the Manufacturers in a new business or by acquiring an equity of a bank pursuant to a reciprocal agree-
of Machinery and Equipment), published a participation in an existing Brazilian com- ment or with prior authorization from the
detailed comparison of the costs of doing pany. On the other hand, investments in federal government.
business in Brazil, the United States, and the financial and securities market, where As to airlines and airports—which in
Germany. Among other things, the research there is no requirement to create or acquire Brazil are all under the control and man-
pointed out that the cost to manufacture participation in a Brazilian company, are agement of the federal Union—the large
comparable goods in Brazil is 36.27% considered indirect foreign investments. increase in the number of both domestic
higher than in those countries.19 Although Equity participation includes cash in- and international passengers has shown
the negative consequences of the Custo vestments, investments by conversion of that modernization of Brazil’s airport in-
Brazil has been a subject of discussion foreign credit, and investments by import- frastructure requires hundreds of billions
since the early 1990’s20—the government ing goods that have not been paid for yet. of reais that the government does not have.
even created a deregulation task force com- Investments in equity by the conversion As a consequence of hosting the 2014 FIFA
prised of all government ministers to dis- of foreign credit (such as inter-company World Cup, Brazil has entered into certain
cuss it—progress has been slow.21 loans or other credits previously registered agreements with FIFA to modernize or

Page 32 The International Law Quarterly Fall 2011


painful and taxing realities,  from previous page

build stadiums and airports, and certain waterways; (2) energy infrastructure, rep- (2) the overall indebtedness, considering all
deadlines must be met to receive and ac- resenting generation and transmission of forms and terms of financing, whether
commodate the millions of expected visi- oil, natural gas and renewable fuels; and (3) the loan agreement is registered or
tors. Thus, on 18 March 2011 the President social and urban infrastructure, covering not before BACEN, cannot exceed
of the Republic sent to Congress MP No. sanitation, housing, subways, commuter the same proportion in relation to the
trains, water resources, as well as the uni- aggregate amount of the direct equity
527 which, among several other things, sig-
investments made by all related parties
nificantly changes the business of airports versalization of the program “Light for
in the Brazilian recipient company.
and airlines in Brazil. Congress has pro- All.”
posed amending the MP to increase to 49% In April 2010 the government launched Any excess of the limits imposed by
(from 20%) the percentage that foreign the PAC 2, proposing to invest an addi- the law will be deemed an unnecessary
investors may hold in Brazilian airlines. tional R$958,900 billion until 2014 (which expense for the Brazilian company’s ac-
MP No. 527 became Law No. 12,462 of 5 includes preparation and investments re- tivity, and non-deductible for income tax
August 2011, but the proposed amendment lated to the 2014 FIFA World Cup). Foreign purposes.
has not yet been approved. companies can participate in the bidding
There are also restrictions on foreign par- process and development of PAC 2 proj- Establishing a Company in
ticipation in activities concerning national ects. There are certain opportunities to Brazil
security, as well as on foreign ownership participate in the exploitation and produc-
Business organizations in Brazil are
of rural areas and businesses in border tion of oil and to participate as suppliers of
regulated by the Civil Code30 and by the
zones.26 While the restrictions were loos- equipment and services, as well as natural
law of Sociedades Anonimas (literally,
ened on the airport business, restrictions gas transportation. Foreign firms can only
pump oil in the recently discovered pré- “anonymous societies,” but the better trans-
in other areas are becoming tighter. For lation is “corporations”).31 The Code and
instance: salt oil fields as junior partners of state-
controlled Petrobras, however, where pre- the law embrace the universal principle
Farmland is being treated as a strategic that a legal entity is different from its part-
viously they could bid for all concessions
asset on a par with oil. Last year, spooked ners, meaning that the entity’s assets do
by the idea of foreign sovereign-wealth
on equal terms.28 In other words, the rules
have been changing dramatically since the not belong to its partners, and such assets
funds and state-owned firms buying up may be used only to cover responsibilities
vast tracts, the government resurrected PAC 2 was launched last year.
attributable to the entity.32 The Civil Code
a 1971 law limiting the amount of rural
Limits on Foreign Loans uses the word “sociedade” for all of types
land foreigners can buy. It was revived
even though in the 1990s it was deemed of business organizations that have more
As of 6 November 2010, there are new
incompatible with the new democratic than one partner. The word “companhia”
regulations on the loans that foreign parent
constitution and open economy. The (“company”), however, applies exclusively
companies make to their Brazilian subsid-
details are under review: foreigners to the sociedades anonimas. In the Code’s
iaries. These regulations seek to prevent
may be allowed to buy a bit more
Brazilian companies from being undercapi- context, probably the most appropriate
without restriction, and still more if the
talized and heavily indebted to their foreign translation for “sociedade” is partnership.
government thinks it is in the national Recently, the Civil Code was amended
interest. But there is no timetable for
parents. Basically, the goal is to make the
parent companies increase their equity in to include an individual company called
passing a new law. The Brazilian Rural “Empresa Individual” (loosely translated as
Society estimates that $15 billion of the Brazilian subsidiaries.29 As a result,
interests paid or credited by a Brazilian “individual enterprise” or “individual busi-
planned foreign agriculture investments
company to a foreign-related party that is ness”).33 In any case, from the perspective
are being dropped.27
not incorporated in a country listed as a tax of a foreign investor, only the “sociedade
The same can be said regarding foreign haven by the Brazilian tax authority, will limitada” (limited partnership) and the
investment in oil. In 2007 the government be deducted for income tax purposes only “sociedade anonima” (corporation) have
started the so-called Acceleration Growth when deemed to be necessary expenses for relevance.
Program (“PAC”), which was scheduled to the Brazilian company’s activity and pro- A partnership in Brazil is deemed to exist
receive up to R$503.9 billion in projects vided that, on the date of payment or credit from the date its articles of organization
related to energy, infrastructure, social of the respective interests, the following are recorded with the Junta Commercial
and urban buildings, transportation, en- thresholds are cumulatively met: (Commercial Board). Each Brazilian state
ergy, sanitation, housing and water re- (1) each related party debt-to-equity ratio has a Commercial Board, but the statute
sources. The PAC sets forth three areas cannot exceed twice the value of the that regulates them is the same: Law No.
for investment: (1) logistics infrastructure, direct equity investment made by such 8,934 of 18 November 1994. While the
involving the construction and expansion related party in the Brazilian recipient regulations of business entities are set forth
of highways, railways, ports, airports and company; and either by the Civil Code or the Law of the

Fall 2011 The International Law Quarterly Page 33


painful and taxing realities,  from previous page

Corporations, recording the articles of or- already being used by the foreign investor, is increased, in order to avoid the dilution
ganization of a partnership is regulated by and which will be used in Brazil, must be of the partners’ quotas, the Civil Code
another law and a series of regulations of registered with the INPI in order to ensure provides for the first right of refusal of the
the Commercial Boards themselves. That exclusivity. Moreover, in order to receive existing partners, which is proportional to
explains why it takes at least thirty days royalties from the Brazilian entity, the the percentage of their quotas. The partner-
to record articles of organization before a foreign investor must enter into a license ship’s capital can be reduced when there are
Commercial Board in Brazil. agreement with it and record the agree- irreparable losses, or the existing capital is
Among other requirements, foreign part- ment with the INPI as well. Remittances excessive.
ners must appoint a legal representative of royalties are taxed, a topic covered in The Civil Code does not provide for dif-
resident in Brazil with the power to receive the next section. ferent classes of partners, and the capital
service of process and represent the com- Contrary to most states in the U.S., where contribution cannot be provided through
pany before the government authorities. a business organization can be formed services,34 although it does not necessar-
The legal representative is the person who without any specific business purpose ily need to be made through cash. The
signs, on behalf of the foreign partner, the (“any and all lawful business” being the partners can deliberate as they wish re-
articles of organization of the Brazilian general purpose), in Brazil the entity’s garding the distributions of profits and
company and all of its amendments, as well business purpose (for some reason called losses.35 Deliberations on certain matters
as any other documents pertaining to the the “social object”) must be spelled out in enumerated by the Civil Code require the
entity’s business. The appointment is made articles of organization, and the entity will approval of three-quarters of the quotas
by a notarized power of attorney (“POA”). not be allowed to do business out of its representing the partnership’s capital (for
If the POA is issued in a foreign country, stated purpose. A business organization can instance, amending the articles of associa-
it must be “legalized” at the respective apply for a license with any of the regula- tion, merger, dissolution, etc.). Other mat-
Brazilian Consulate, translated by a trans- tory Brazilian agencies only if its articles ters require approval by half of the quotas,
lator accredited by the Commercial Board, of incorporation list as its social object the while certain others can be decided by the
and recorded at the Notary Public for the one regulated by the specific agency. For majority of the partners attending a meet-
Registration of Titles and Documents. In instance, and this certainly comes under ing.36 The qualified quorums cannot be
addition, there is also a requirement that the meaning of Custo Brazil, if an entity diminished by the partners, although they
the foreign investor resident abroad prove can be increased. Resolutions can be taken
does not list among its business purposes
its/his/her capability of doing business by during meetings (reuniões) or assemblies
the act “importing goods,” even though the
providing certain personal documents (in (assembléias), as provided by the articles
entity is a distributor of the same goods, it
the case of individuals) or corporate docu- of association.
will not able to obtain a license to import,
ments (in the case of business entities). A meeting may be attended by any num-
unless it amends its articles of organization
The articles of organization of a to- ber of partners, and an assembly can be
to include “importing that certain specific
be-formed Brazilian partnership must be installed only on first call with a minimum
type of goods” as one of its business pur-
signed by the partners and two witnesses number and on a second call with any
poses. Amending an entity’s articles of
and, among other things, must set forth number of the partners. When there are
organization in Brazil is as complicated as
the partners’ qualifications and positions, more than ten partners, resolutions must
the initial filing.
the subscribed corporate capital, the cor- necessarily be taken during an assembly.
porate bodies, the elected managers, as Written notice of the meeting or assembly
The Limited Partnership
well as other matters related to the entity’s must be provided unless all the partners
business. Amendments to the articles must The name and certain similarities not- attend or state, in writing, that they are
observe the same requirements. withstanding, the Brazilian limited part- aware of the place, date, time and agenda.
The name by which the business organi- nership is different from a limited liability Limited partnerships must hold at least one
zation will be identified must be researched company in the U.S. To begin, the capital of yearly assembly, on or before 30 April, to
at the Commercial Board and must comply a limited partnership is divided in quotas, deliberate on the partnership’s accounts and
with the principle of novelty; it cannot there are no membership certificates and to resolve matters about the balance sheets
use a previously registered name, and the the articles of organization set forth the and the financial results.37
name must be sufficiently distinctive such capital contribution of each partner (not As a rule, limited partnerships do not
that it cannot generate any confusion with “member,” as in the U.S.). Each partner’s need to audit and publish their financial
existing names. The entity’s name is an liability is restricted to the value of his/her/ records, except if they are large-sized com-
asset of the entity, and its exclusivity is its quotas. There is no stipulated minimum panies; i.e., those that, in the preceding
protected by Brazilian law. As mentioned, capital, and the increase or reduction of fiscal year of the preparation of the balance
trademarks, industrial designs, utility mod- the partnership’s capital must be reflected sheets, reported total sheets above R$240
els and patents already registered abroad or in the articles of association. If the capital million or an annual gross income higher

Page 34 The International Law Quarterly Fall 2011


painful and taxing realities,  from previous page

than R$300 million. Board.39 Usually, a capital increase is done as priority in receiving dividends or in
Limited partnerships may be managed by by amendment of the bylaws, and existing receiving capital repayment. The number
one or more senior managers, partners or shareholders have right of first refusal. The of non-voting preferred shares, or those
non-partner managers. The senior manag- corporation’s capital can be reduced, as can subject to restriction to vote, cannot be
ers are appointed by the partners and may the limited partnership’s, due to certain more than 50% of the total of the shares
be designated in the articles of association losses or excess of capital. issued.40 The fruition shares are those that
or in another corporate document. There is Brazilian corporations can issue com- result from the amortization of either the
no minimum or maximum mandate period mon, preferred or fruition shares, with or preferred or common shares. According
for the position of senior manager, and the without nominal value. If the shares have to Law of the Corporations, Article 44, §
partners may, at any time, remove him/her nominal value, the issuing price of new 2º, amortization is an early distribution to
from office. shares cannot be lower than the nomi- the shareholders, without reduction in the
Vis-à-vis a corporation, the limited part- nal value of the existing shares. Common corporation’s capital, of certain amounts
nership is simpler and less formal with a shares guarantee to holders the right to that could be distributed to them in case of
more flexible structure and reduced costs, vote, while preferred shares have deter- the corporation’s liquidation.
which makes it appropriate for foreign mined preferences or advantages, such As a mandatory minimum dividend, the
partners with one common controller. If,
however, the partnership is controlled by
different groups of partners or if it has plans STEP-BY-STEP PROCESS FOR THE FOREIGN INVESTOR
to issue debentures, subscription warrants, TO SET UP A BUSINESS IN BRAZIL
commercial papers and other securities and

stock, then adopting the corporate format
Appointment of a Legal Representative domiciled in Brazil.
makes more sense. Moreover, a limited

partnership cannot engage in certain busi-
ness, such as banking and other financial POA notarized and further legalization in the respective
activities. Brazilian Consulate.
Business companies have the obligation ↓
to maintain bookkeeping records of the Foreign investor’s documents notarized and further legalization
business they take part in, presupposing the in the Brazilian Consulate.
organization of an accounting department ↓
with duly certified professionals. Book- Sworn translation of the POA and the other documents in Brazil;
keeping has several purposes: management registering the sworn translation with the Notary Public for the
assessment; support for third parties’ infor- Registration of Titles and Documents.
mation interests; and surveillance of com- ↓
pliance with mainly fiscal legal obligations. Business entity must appoint a manager domiciled in Brazil.

Corporations
Definition of entity’s purpose, as well as its name and address.
Corporations are entities whose capital ↓
is divided into shares and whose partners’ Determination of entity’s capital - each partner’s capital contribution.
liability is limited to the issuing price of

their respective shares.38 Corporations can
Drafting articles of incorporation and further filing with the
be publicly or closely held, and the public
ones are regulated by the CVM. As a gen- respective Commercial Board.
eral rule, no minimum capital is required. ↓
As a prerequisite to forming a corporation, Register of foreign capital with BACEN.
a minimum of two shareholders must sub- ↓
scribe and contribute at least 10% of the Obtaining the foreign partners’ federal tax I.D. number.
capital. The law does not use the expression ↓
“articles of organization” for a corpora- Registering I.P. and recording license agreements with INPI.
tion; only the word “bylaws” (estatutos) is ↓
used. The rules differ for public and private Filing for the Brazilian entity’s tax I.D. number (“CNPJ”), as well as its
corporations but, in any case, the bylaws licenses and permits; filing with the applicable regulatory agency.
must be filed with the state’s Commercial

Fall 2011 The International Law Quarterly Page 35


painful and taxing realities,  from previous page

law provides the percentage of the net prof- manent if there is a provision in the corpo- between domestic and foreign investors. A
its set forth in the bylaws or, if the bylaws ration’s bylaws; if not, it can be convened company is considered to be domestic if it
are silent, at least 50% of the net profits by request of the shareholders.44 Regardless has been incorporated under Brazilian law
minus certain adjustments.41 of the existence of the Audit Committee, and is domiciled in the Brazilian territory.
As a general rule, the resolutions of a the financial statements of corporations As noted, Brazilian law requires the com-
corporation are taken by the absolute ma- must be audited by independent auditors. pany’s effective management to be present
jority of votes (50% + one vote of the valid Last but not least, corporations—public physically in Brazil. Brazilian companies
votes of the shareholders who are present, and private—must publish, both in an of- are taxed on a universal basis, and the
excluding the annulled votes), with certain ficial gazette and in a newspaper of wide profits generated by a foreign subsidiary or
exceptions listed in Article 136 of Law of circulation in the place where they have branch must be included in the December
the Corporations, such as the amendment their main offices, the minutes of their 31 financial statements of the Brazilian
of the corporation’s bylaws and the reduc- meetings and any other resolutions that entity in the year in which the profits are
tion of the mandatory minimum dividend, may affect third parties. earned, regardless of an effective dividend
which require at least 50% of the corporate or profit distribution.45
shares that have the right to vote. The Taxation in Brazil: the Basics In certain other circumstances, such as
shareholders may conclude agreements Brazil has a multitude of taxes, generally the liquidation of a Brazilian company,
among themselves regarding the purchase levied one on top of the other in a cascade foreign profits may be subject to Brazilian
and sale of their shares, right of first refusal tax before December 31. Brazilian tax law
effect (efeito cascata), effectively making
to purchase from one another, the exer- provides that a subsidiary’s financial state-
the government a risk-and-investment-free
cise of their right to vote or their power ments must be prepared according to its
majority partner in most businesses. For
of control. The corporation must observe local commercial legislation and translated
instance, 54% of the final price of a car
the agreements when they are filed in the into Brazilian currency. Consolidation of
manufactured in Brazil consists of taxes of
corporation’s headquarters42 and, in case of profits and losses of foreign companies,
all sorts. On imported products in general,
breach, these agreements are enforced by in principle, is not authorized for Brazil-
taxes make up an average of two-thirds of
the Brazilian courts. ian tax purposes (except for branches of
the final prices. To illustrate, on an import-
A corporation is managed by a Board the same entity located within the same
ed product the initial tax basis is usually
of Directors and by Executive Officers, or jurisdiction if certain conditions are met).
its CIF value. Applied on top of that is the
only by the latter if there is no Board of Losses incurred by the Brazilian entities
import tax, then the IPI, then the customs
Directors. The Board of Directors is elected through a foreign company may not be
expenses, then the ICMS, then PIS, and
by the Shareholders’ General Assembly, used to offset Brazilian profits. But if the
COFINS due on the import. Upon customs
and the Executive Officers are elected by foreign profits are subject to income tax in
clearance, the cost of the good may be more
the Board of Directors. If there is no Board the country in which the foreign company
than double the original CIF value.
of Directors, the Executive Officers must is located, the Brazilian parent company is
As a consequence, many business enti-
be elected by the Shareholders’ General entitled to a tax credit in Brazil, subject to
ties must employ accountants and CPAs
Assembly. A Board of Directors with at certain limitations.
and have tax, labor law and corporate at-
least three directors is mandatory in public Brazil has two federal corporate income
torneys on retainer—obviously adding to
corporations and optional in private ones. taxes: the corporate income tax (“IRPJ”),
operating costs.
The members of the Board of Directors and the social contribution on the net in-
The Brazilian federal tax system is han-
must be shareholders of the corporation come (“CSLL”). There are no state income
dled by the Secretaria da Receita Federal
and do not need to live in Brazil.43 taxes. Part of income tax collected, how-
do Brasil (“RFB”), whose latest incarna-
The Executive Officers are responsible ever, is transferred from the federal govern-
tion was created by Law No. 11,457 of
for representing the company and manag- ment to the states and municipalities.
16 March 2007. The RFB is the Brazilian
ing its business. There must be at least The IRPJ is levied on business net
equivalent of the IRS, and on paper it
two executive officers, shareholders or income at a rate of 15%, plus a surtax
is under the authority of the Ministry of
not, who reside in Brazil. The executive of 10% on annual income that exceeds
the Economy (Ministério da Fazenda).
officers have a mandate up to a maximum R$240,000.00 per year or R$20,000.00
Similarly, states and municipalities have
of three years. per month. According to Law No. 9,430
their own agencies. The main taxes can
Corporations shall also have an Audit of 30 December 1996, taxpayers may opt
be divided into the four following groups:
Committee, with a minimum of three and to calculate the IRPJ quarterly or annually.
maximum of five members, and with equal If the IRPJ is calculated quarterly, it is also
numbers of replacements, shareholders or I. Federal Corporate Income payable quarterly. A 15% rate is applied
not. There is certain confusion regarding Taxes. over the quarter’s net income, plus 10%
the Audit Committee because it can be per- For tax purposes, there is no distinction surtax on net income exceeding R$60,000

Page 36 The International Law Quarterly Fall 2011


painful and taxing realities,  from previous page

per quarter.46 profits.51 Under the presumed tax regime, of 9.25 percent.
The CSLL’s purpose is to fund social and the taxes must be calculated and paid on III. Indirect Taxes: IPI, ICMS,
welfare programs, and it is paid in addition a quarterly basis. and ISS
to the IRPJ at a rate of 9% of income; for The presumed profit is calculated by ap-
The IPI (manufactured products tax) is a
financial institutions, private insurance and plying a predetermined percentage, which
federal tax levied on the importing and the
capitalization companies, the rate is 15%. varies according to the activity of the tax-
manufacturing of goods.55 The IPI must be
The overall income tax rate, considering payer, to the gross sales. The total amount
paid either by importers, manufacturers, or
the maximum rate for the income tax (15% of capital gains, financial revenue and other
entities legally treated as manufacturers.56
+ 10 %) plus CSLL, is currently 34%. revenue are then added to this presumed
The applicable rate varies with the product
There are basically three methods of profit base. Finally, the corresponding tax
and its classification in the IPI tax rates
calculating the IRPJ and the CSLL: (1) rates are applied to the presumed profit.52
table (“TIPI”).57 Contrary to most other
actual profit; (2) presumed profit; and (3) For instance, the rate of tax on income
taxes, whose rates cannot be increased in
arbitrated profit. Note that a business whose from revenues derived from the sale of
the same year that a decision to increase
annual gross income is under R$2.4 million products is 8%, while the rate of tax on
them is made, the IPI’s rates (as well as
may elect to be taxed under the “simple revenues derived from services is 32%. For
the IOF’s) can be increased at any time by
system.”47 CSLL, the percentages are 12% and 32%,
government decree (something that has
respectively.53
(1) Actual Profit System: The net tax- been done frequently).
able income is equal to the entity’s net (3) Arbitrated system: Under certain cir- The ICMS (tax on the circulation of
book profit, which is determined by ap- cumstances, where the taxpayer does not goods and on certain services) is a tax
plying Brazilian GAAP. Businesses are comply with certain accessory obligations, levied by the states and the Federal District
required to maintain appropriate account- either under the actual profit or the pre- on the circulation (and not necessarily the
ing records, an income tax book and the sumed profit systems, the RFB may arbi- sale) of goods and on the rendering of
supporting documentation along with the trate profits. If the gross income is known, services of interstate and inter-municipal
respective calculations. Dividends received the taxpayer may pay the arbitrated tax transport, as well as communication ser-
from other Brazilian entities and revenue under the rules of the presumed profit but vices, “even though the operations and the
from investments in other companies are usually at higher rates, and eventually the rendering of the services start abroad.”58 By
generally excluded from taxable income. RFB adds penalties. The income tax paid express provision of the Constitution, the
Losses can be carried forward indefinitely on the arbitrated profit is final and cannot ICMS is also levied on imported goods.59
(but cannot be carried back), subject to a be set off against future payments.54 While technically the ICMS is not a sales
maximum 30% off-set of the annual tax- tax, every manufacturer, distributor, and re-
able income. Non-operational losses may II. Gross Revenue Taxes: PIS tailer of almost every type of goods, as well
be carried forward, but they can be used to and COFINS as providers of those certain services, must
off-set only non-operational profits, such pay the ICMS60 and pass the cost along to
PIS (“Program for Social Integration”)
as capital gains. the consumer. Most Brazilian consumers
and COFINS (“Contribution for the Fi-
(2) Presumed Profit System: A business nancing of Social Security”) are federal have no idea how much the ICMS costs
may elect to be taxed under the presumed taxes levied on gross revenues on a month- them, because invoices and receipts usually
profit system when all of the following ly basis, and they can be cumulative or indicate only the total price of the good, not
conditions are met: (a) its total revenues non-cumulative. Since their creation, PIS the amount of the ICMS.
in the preceding year were lower than and COFINS were levied, respectively, Certain goods and services are ICMS
R$48 million; (b) the business is not at the rates of 0.65% and 3% for most exempted, such as books, newspapers,
obligated to file its taxes under the actual of the business activities, and generated magazines, goods bound for export, leased
profit system (for examples, factories a cascading effect because there was no goods, etc.61 The rates vary from 7% to
and financial institutions);48 (c) it did not credit mechanism. Law No. 10,637 of 30 25%, according to the product or whether
earn any foreign profits, income or gains, December 2002 changed the PIS, and Law the transaction is interstate or intrastate.
either directly or through foreign subsid- No. 10,833 of 29 December 2003, and es- On interstate transactions, the rate is 7%
iaries;49 and (d) it does not qualify for an tablished new rules for the COFINS. As a for certain regions and 12% for other ones.
exemption or reduction of the corporate consequence, the PIS rates were increased Transactions within the same state range
income tax.50 The business must make to 1.65% from 0.65, the COFINS to 7.6% from 17% to 19%, depending on the state,
the election at the beginning of each year, from 3%, and a credit mechanism was cre- but sales of cars, communication services
and the choice can be renewed every year. ated. Therefore, the PIS and COFINS lev- and electricity are subject to 25% ICMS.
The election is valid for both corporate ies on a business entity’s gross revenues Each state has its own ICMS Regula-
income tax and social contribution tax on are non-cumulative, with a combined rate tions, and as an incentive to attract invest-

Fall 2011 The International Law Quarterly Page 37


painful and taxing realities,  from previous page

ments, certain Brazilian states offer ICMS IOF rates may be raised by decree of the tax-sparing clauses.72
tax reduction or exemption on certain prod- federal government and become effective Notably, Brazil has not signed a tax treaty
ucts, which may vary according to the type immediately. The tax basis varies accord- with the United States, notwithstanding the
of merchandise, type of taxpayer, type of ing to the taxable event and the financial significant efforts of entrepreneurs from both
operation or type of service rendered. In nature of the transaction.67 countries since the 1960’s. In any case, there
order to avoid what is called a “fiscal war” The CIDE (“Contribution for Interven- is an administrative regulatory measure that
among the states, there are certain restric- tion in the Economic Domain”) is another allows the deduction of the income tax ac-
tions regarding benefits and incentives that protectionist tax that was created by Law cording to the principle of reciprocity.
the states may offer. In fact, incentives can No. 10.168 of 29 December 2000 ostensi-
be offered only by consensus among all of bly to stimulate the technological develop- Conclusion
the Brazilian states through an entity called ment of the Brazilian industry. The CIDE is Brazil has come a long way since the
CONFAZ. Many states (especially the less levied at a rate of 10% on payments made extreme nationalism of the 1950’s and 60’s.
industrialized), however, are known for by Brazilian entities to non-residents in Brazil has opened its market to foreign
ignoring the CONFAZ and offering ben- the form of royalties, technical assistance, products, restructured the foundations of
efits considered unconstitutional by other technical and administrative services, etc.68 its economy and solidified the civil power.
states (the more industrialized). In these Income tax withholding applies to cer- There is still work to be done, however, to
cases, lawsuits seeking the declaration of tain domestic and international transac- improve the ease and cost of doing busi-
the unconstitutionality of those benefits are tions. Generally, in domestic transactions ness there. Foreign investors have many
brought by the latter states against the for- (e.g., certain payments to service providers, opportunities in Brazil, but they should
mer and recently, in a single day, the STF payment of salary in excess of a certain be aware of the inherent difficulties and
voided twenty-three regulations created by amount, incomes from financial invest- prepare accordingly.
certain states to attract investments to the ments) the withholding tax is a prepayment
detriment of other states.62 of the income tax on the individual or Julio C. Barbosa re-
The ISS (services tax) is a tax levied by entity’s final tax return. On the other hand, ceived an LL.B from
the municipalities and the Federal District payments made to nonresidents are subject Pontifical Catholic
on the services enumerated in the list at- to income tax withholding in Brazil and University School of
tached to Complementary Law No. 116 of are usually final. The rates depend upon Law, Campinas, Bra-
31 July 2003. The tax is levied on the price the nature of the payment, the residence zil (1977), attended the
of the service, and its rate varies from 2% of the beneficiary, and the existence of tax University of São Pau-
to 5%, depending on where the service is treaties between Brazil and the country J. Barbosa lo School of Law, São
provided, where the service provider is where the beneficiary is located. Most Paulo, Brazil (1989-
located, and the type of service. As with common rates range from 15 to 25% and, 1993), and received an LL.M and J.D. from
almost all Brazilian taxes, the ISS also ap- as a general rule, income paid to residents the University of Miami School of Law (1999
plies on the import of services,63 although of low tax jurisdictions69 is subject to a and 2004), He a member of The Florida
the export of certain services is exempted.64 25% withholding tax.70 Currently, subject Bar and the Brazilian Bar Association. Mr.
to certain limitations, remittances to non- Barbosa is also the author of How to Export
IV. Other Federal Taxes: residents are exempt from withholding in to the United States (2001), a how-to manual
Import Tax, IOF, CIDE and several cases (e.g., dividends, interest and written in Portuguese that is still used by
Withholding commission on export financing and on ex- Brazilian businesses and individuals export-
There are several other taxes; some are port notes; interest on certain government ing to the United States.
addressed briefly below. bonds; rental fees for aircrafts and ships;
The import tax is a federal tax levied on sea and air charter; demurrage, container Endnotes:
imported goods. The applicable rates can and freight payments to foreign companies; 1 See, e.g., Maria da Conceicção Tavares, Da subs-
be found in the TEC (the Mercosur Com- and international hedging). tituição de importações ao capitalismo financeiro:
ensaios sobre economia brasileira (Rio de Janeiro:
mon External Tariff)65 and vary according Zahar Editores, 6th ed.) (1977).
to the product and its country of origin. V. Tax Treaties 2 Const. of 1988, art. 62.
The IOF (“Tax on Financial Operations”) Although Brazil has signed tax trea- 3 Decree No. 3.930, of 19 Sept. 2001.
is a federal tax levied on credit, exchange, ties to avoid double taxation with various 4 Const. amend. no. 32, of 11 Sept. 2001.
insurance and securities transactions made countries,71 the existing treaties offer only 5 Articles 108 and 109 of the Federal Constitution
through financial institutions.66 The tax limited opportunity to reduce or eliminate set forth the jurisdiction of the Federal Justice. The
federal courts have exclusive jurisdiction over any
also applies to transactions in gold and withholding taxes on payments abroad. lawsuit in which the federal government or any of
includes inter-company loans. Like the IPI, Most of the treaties currently in force have its agencies or quasi-governmental bodies is a party,

Page 38 The International Law Quarterly Fall 2011


painful and taxing realities,  from previous page

as well as over cases involving foreign states or 25 Since its enactment, Law No. 6,385/76 has been 23). The result, or its lack thereof, notwithstanding,
international agencies. Labor, military and electoral amended 10 times, most recently on 28 December the interested parties are entertaining the possibility
courts are within the federal system but have their own 2007. of filing an Extraordinary Appeal (RE) before the
specialized courts. In Brazil, bankruptcy, and patent 26 Law No. 6,634 of 2 May 1979 and Decree n° STF itself seeking to revisit the issue on the grounds
cases are litigated before state courts. 85.064/80 limit activities carried out within Brazil’s that four justices who voted in the case have retired,
6 See http://www.stj.gov.br/portal_stj/publicacao/ frontier zone, including foreign ownership of land in and the issue should be reviewed by the current
engine.wsp?tmp.estilo=2&tmp.area=398&tmp.tex- those areas. The prospective foreign investor should STF justices. It could be another ten years until a
to=77804. consult the government agencies if interested in the final decision is made. On the votes, see http://m.
acquisition of certain lands, and the General Office of stf.jus.br/portal/processo/verProcessoAndamento.
7 See http://www.cnj.jus.br/images/pesquisas-judi- asp?incidente=1990416.
ciarias/Publicacoes/relat_federal_jn2010.pdf. the National Security Council will decide whether or
not to authorize the acquisition. 46 Law No. 9.249 of 26 Dec. 1995, art. 3 and its
8 J. Mark Ramseyer & Eric B. Rasmusen, Are Amer- paragraphs.
icans More Litigious? Some Quantitative Evidence, 6 27 A Self-made Siege: First they went for the Cur-
(Jan. 8, 2010) (quoting from U.S. Dept. Commerce, rency, Now for the Land, The Economist, 24 Sept. 47 Comp. Law No. 123, of 14 Dec. 2006, art. 3.
Statistical Abstract of the United States, 2010 Tab. 323 2011, at 48, available at http://www.economist.com/
48 Law No. 10.637 of 30 Dec. 2002, art. 46.
(Wash., D.C.: Bureau of the Census, 2010), available node/21530144.
49 Law No. 9.718 of 27 Nov. 1998, art. 14; and Tax
at www.rasmusen.org/papers/litigation-ramseyer- 28 Id.
Income Regulations (“RIR”) 1999, art. 246.
rasmusen.doc. 29 See especially certain amendments introduced by
50 Id.
9 Const. of 1988, art. 22(I). Law No. 12,249 of 6 Nov. 2010 (sent by Congress to
the President of Republic as M.P. No. 472/09). 51 R.I.R./1999, art. 516, §§ 1o and 4o .
10 C. C. P., art. 479.
30 The current Brazilian Civil Code entered into 52 R.I.R./1999, art. 518, and art. 519, §§ 1º to 6º.
11 Constitutional Amendment No. 45 of 31 Decem-
ber 2004 that became Federal Constitution, Article force on 11 January 2003 by virtue of Law No. 10,406 53 Law No. 9.249, of 26 Dec. 1995, art. 20.
of 10 January 2002.
103-A. 54 R.I.R./1999, art. 529 to 539.
31 Law No. 6.404 of 15 Dec. 1976 and its amend-
12 Pursuant to the Federal Constitution, Article 103- 55 See Decree 7,212 of 10 June 2010.
ments.
A, Law No. 11,417 of 19 December 2006, Article 2, §
32 It should be noted that the separation of assets not- 56 Id., art. 9.
3, requires a majority of two-thirds of the STF justices
to issue, revise or cancel a “Súmula Vinculante.” The withstanding, Brazilian law provides for the disregard- 57 Available at http://www.receita.fazenda.gov.br/
STF has 11 justices—the author believes a required ing of the corporate entity in certain cases. Generally Aliquotas/DownloadArqTIPI.htm.
majority may perhaps be 7 or 8. speaking, however, the grounds are very different and 58 Comp. Law No. 87, of 13 Sept. 1996 ( Kandir
broader than the ones for lifting the corporate veil in Law, art. 1).
13 Law No. 9,868 of 10 Nov., 1999.
the U.S. Often, it suffices that the entity is not able to
14 Id. at art. 2. pay a certain debt. It is very common in labor lawsuits. 59 Const. of 1988, art. 155, para. 2, IX (a).
15 Id. at art. 28, sole paragraph. 33 The “Empresa Individual de Responsabilidade 60 Id., art. 4.
16 See infra note 46 and additional comments on the Limitada” is a novelty in Brazilian law for it creates 61 Id., art. 3.
section regarding taxes in Brazil. an individual limited liability company. Civil Code, 62 O STF e a Guerra Fiscal [The STF and the Fis-
art. 980-A, as amended by Law No. 12.441, of 7 July cal War], Estadao.com.br, 7 June 2011, available at
17 World Bank, Doing Business: Measuring Busi-
2011. http://www.estadao.com.br/noticias/impresso,o-stf-e-
ness Regulations - Ease of Doing Business in Brazil
2011, available at http://www.doingbusiness.org/data/ 34 C. C., art. 1055, § 2o. a-guerra-fiscal,728909,0.htm.
exploreeconomies/brazil/. 35 C. C., art. 997, VII, which is also applicable to 63 Comp. Law No. 116 of July 31, 2003, art. 1, § 1.
18 The original source is unknown. limited partnerships according to Civil Code art. 1054. 64 Id., art. 2, I.
19 Impacto do “Custo Brasil” na competitividade da 36 C. C., art. 1076. 65 Available at http://www.desenvolvimento.
indústria brasileira de bens de capital [The Impact 37 C. C., arts. 1071-1080. o v. b r / p o r t a l m d i c / s i t i o / i n t e r n a / i n t e r n a .
of Custo Brazil on the Competitiveness of Brazilian php?area=5&menu=1848.
38 Law No. 6.404, of 15 Dec. 1976, art. 1.
Industry of Goods of Capital], ABIMAQ (São Paulo,
39 Id., art. 80. 66 Law No. 5.143 of 20 Oct. 1966.
March 2010), available at http://www.abimaq.org.br/
Arquivos/Html/DEEE/Custo%20Brasil%20de%20 40 Id., arts. 15-20. 67 See http://www.receita.fazenda.gov.br/aliquotas/
BK%20caderno%2031mar10.pdf. ImpCreSegCamb.htm.
41 Id., art. 202.
20 World Bank, The Custo Brasil Since 1990- 68 Law No. 10.168 of 29 Dec. 2000, art. 2.
42 Id., art. 118.
92, World Bank Report No. 15663-BR (10 Dec. 69 Available at http://www.receita.fazenda.gov.br/
1996), available at http://siteresources.worldbank. 43 Id., arts. 140-145.
legislacao/ins/2010/in10372010.htm.
org/BRAZILINPOREXTN/Resources/3817166- 44 Law No. 6.404 of 15 Dec. 1976, art.161.
1185895645304/4044168-1186403960425/20pub_ 70 Law No. 9.779 of 19 Jan. 1999, art. 8.
45 M.P. No. 2158/2001, art. 74. In December 2001
br125.pdf. 71 Brazil has double taxation treaties with: Argen-
the National Confederation of Industry (“CNI”) filed
21 On efforts to bring public awareness to the prob- tina, Austria, Belgium, Canada, Chile, China, the
an ADIN before the STF seeking the declaration of
lem and try to resolve it, see especially José Augusto Czech Republic, Denmark, Ecuador, Finland, France,
unconstitutionality of Article 74, arguing that only
C. Fernandes, Brazil Cost: How To Develop and Pro- Hungary, India, Israel, Italy, Japan, Luxembourg,
profits effectively transferred to the Brazilian parent
mote a Competitiveness Agenda, undated, available at company should be taxed. On 18 August 2011, after Mexico, the Netherlands, Norway, the Philippines,
http://www.cipe.org/pdf/publications/fs/BrazilCost. the vote of 9 of 10 justices (the STF has 11 justices, Peru, Portugal, Slovakia, South Africa, South Korea,
pdf. but one removed himself from the case), no majority Spain, Sweden and Ukraine. The list is available at
was formed in the STF to decide the issue. Basically, the RFB Website at http://www.receita.fazenda.gov.
22 The original law has been amended at least 9 times br/Legislacao/AcordosInternacionais/AcordosDupla-
since it became effective, the first time by Law No. four justices declared Article 74 constitutional, four
declared it unconstitutional, and one voted without Trib.htm.
4.390 of 29 August 1964 and most recently by Law
No. 11.371 of 28 November 2006. deciding the issue, making the vote of the remainder 72 A tax sparing clause is a tax treaty provision
tenth justice irrelevant, because a majority of six jus- whereby a contracting state agrees to grant relief from
23 L.R.P., art. 1. tices is required to determine the unconstitutionality of residence taxation with respect to source taxes that
24 BACEN, Res. No. 2,689 of 26 Jan. 2000, art. 3. a law (Law No. 9,868 of 10 November 1999, Article have not actually been paid.

Fall 2011 The International Law Quarterly Page 39


Section
Midyear Meeting
28 October 2011, Miami, FL

Rafael R. Ribeiro (Hunton & Williams), Christopher


N. Johnson (Gray Robinson), Quinn Smith (Smith
International Legal Consultants)

Professor Darren Latham (Florida Coastal), Edward M.


Mullins (Astigarraga Davis), Peter A. Quinter (Becker &
Poliakoff)

Christopher
Kokoruda
(Astigarraga
Davis), Omar K.
Gary Davidson (Diaz Reus), Richard C. Lorenzo (Hogan Lovells), Ibrahem (Omar
Garardo J. Rodriguez-Albizu (Greenberg Traurig), Christopher N. K. Ibrahem,
Johnson (Gray Robinson) P.A.)

Guest with Carlos Osorio


(Aballi Milne)

RIGHT: Christopher C.
Kokoruda (Astigarraga
Davis), Arnoldo B.
Lacayo (Astigarraga
Davis), C. Ryan Reetz
(DLA Piper);and a guest

Page 40 The International Law Quarterly Fall 2011


Scene

Section Chair Nicolas Swerdloff (Hughes Hubbard) helms the International Law
Section Mid-Year Meeting at the Miami office of Hogan Lovells.

Committee meeting break-out session.

Reception guest with Melissa Groisman (Becker & Poliakoff); Peter


A. Quinter (Becker & Poliakoff), Sandy P. Jones (FIU Law School)

Rafael R. Ribeiro (Hunton & Williams), Richard C. Lorenzo


(Hogan Lovells), Santiago A. Cueto (Cueto Law Group)

Richard C. Lorenzo (Hogan


Lovells); Gaston P. Fernandez
(Hogan Lovells)

Fall 2011 The International Law Quarterly Page 41


Page 42 The International Law Quarterly Fall 2011
Rules and Guidelines for Foreign Law Firms
Practicing in Brazil
By George Augustus Niaradi, São Paulo

General Environment 91.20005 from the Federal Counsel of the including a foreigner, has the right to prac-
Brazilian Bar Association, prohibited any tice any profession under the provisions of
As of this writing, the São Paulo Bar
kind of association between foreign and the law. In this context, the OAB is entitled
(“OAB”) is in the process of determining
Brazilian lawyers. to regulate the activities of foreign lawyers
whether the restrictions imposed on foreign
Before discussing the Counsel’s reason- in Brazil, as long as these activities do not
law firms established in Brazil should be
ing, it is necessary to define certain terms: interfere with the exercise of advocacy.
maintained.
• A foreign lawyer is a professional au- Brazilian lawyers can practice in all areas
The war between national and foreign
thorized to practice the profession over- of their competence, whereas consultants
firms has dramatically increased with the
seas, regardless of his or her nationality. in foreign law can practice only under the
desire of foreign firms to escape European
• A foreign law firm is a firm composed umbrella of the OAB in a limited area.
and North American financial crises, gain
of foreign lawyers according to the law Foreign lawyers authorized to practice the
new markets and intensify their presence in
of the country in which the firm is based. profession in their country of origin can
Brazil. Among the seventeen foreign firms
• A firm of consultants in foreign law is provide counsel only on foreign law, after
established in Brazil, associated or not with
a company, with headquarters in Brazil, authorization from the OAB.
local companies, nine of them have been
composed of consultants in foreign law. A foreign consultant must swear to prac-
there for the last three years. That is not a
tice exclusively in the law of his or her
lot, considering that there are an estimated • A Brazilian lawyer is a lawyer who
country of origin, with dignity, indepen-
10,000 firms and more than 700,000 law- graduated from a Brazilian law school
and is registered with the Bar after hav- dence, ethics and respect for the duties and
yers in Brazil.
ing passed the OAB Bar examination. prerogatives of the profession and with due
Foreign lawyers are working in inde-
respect for the Federal Constitution, the law
pendent firms or are associated with lo- • A Brazilian law firm is composed of
of the Brazilian states and human rights.
cal companies and can practice in Brazil Brazilian lawyers.
only as legal consultants of their country
From these definitions, a clear distinc- A limited scope of association or
of origin. This is a common restriction collaboration and the recognition
tion appears. Certainly a lawyer is a lawyer
worldwide, since no domestic services will of a right to associate or
everywhere in the world. But the difference
be prohibited to the professional who has collaborate
between foreign and Brazilian lawyers is
obtained the equivalent of a diploma and
the right to practice in Brazil. Chapter XIII, Article 5, of the Consti-
has passed the Bar exam of the OAB. tution establishes freedom of lawful as-
Nevertheless, the law restricts the as- A practice governed by Brazilian sociation.7
sociation of foreign and Brazilian firms. law under the supervision of the In its Article 16, the Statute of Advocacy,
Other countries like the UK, Germany OAB however, prohibits the establishment of
and Chile, permit the establishment of a The Ordem dos Advogados do Brasil law firms using commercial tools that are
foreign law firm for accessory domestic (“OAB”) (Brazilian Bar Association) has incompatible with advocacy and employ-
legal services, as long as the foreign firm the exclusive power to promote represen- ing personnel who do not belong to the
has contracted with a local firm.1 tation, defense, selection and discipline of profession.8
In September 2010, a Note on this ques- the profession on the national territory. In According to Article 5, II of the Consti-
tion was published by Dr. Claudio Felippe the scope of its powers, OAB can grant to tution,9 no one shall be obliged to do or to
Zalaf of the Tribunal of Ethics and Disci- foreign lawyers in Brazil the right to act as allow anything, otherwise than provided by
pline of the Bar of São Paulo.2 This opinion consultants in foreign law. In this context, the law. Therefore, there is no legal restric-
has since been approved by the majority foreign lawyers must follow the Brazilian tion on the association or the collaboration
of the Ordem dos Advogados do Brasil - Statutes of Advocacy and are subject to the of Brazilian and foreign firms.
Seção de São Paulo (Sao Paulo section of Code of Ethics and discipline,6 as well as Only lawyers, however, are allowed to
the Brazilian Bar Association) in its Coun- to the rules imposed on Brazilian law firms establish law firms. Following this prin-
sel on 21 February 2011.3 A discussion of and Brazilian lawyers. ciple, Decree 112/2006 of CFOAB,10 Ar-
this opinion follows. ticle 8, paragraph 3, prohibits any merger
Restricted to consultancy in or acquisition of lawyers of different firms.
Legal Context foreign law The contract of association or coopera-
Law No. 8.906 of 4 July 1994 regulating Regarding the principle set by Original tion is not to establish a new legal entity;
the Statute of Advocacy,4 and Decree No. Book, Article 1, IV, XIII and 170, anyone, neither shall it induce the de facto estab-

Page 43 The International Law Quarterly Fall 2011


rules and guidelines,  from previous page

lishment of a firm, with the aim of skirting practice. Regarding the legality of such in foreign law.” One can ask if this type
legal prohibitions. contracts, and notwithstanding any ethics of structure is entitled to use publicity
In that spirit, the purpose of the contract restrictions, those firms will have to comply and is exempted from the restrictive rules
shall be to promote the collaboration of with the following rules: imposed by Decree 94/2000.17 The author
the firms involved in the process, within • Each firm must preserve its identity and considers that this decree shall apply to
the scope of their respective competences independence. consultants in foreign law.
and for the exclusive benefit of the clients. • The contract shall not contain any exclu-
sivity clause. Conclusion18
A right of association under the
control of OAB • The professional secrets of each entity The association/collaboration between
must be preserved. consultants in foreign law firms and local
Article 8, chapter IV of Decree 112/200611
• Pleading and legal advice in Brazilian firms is possible, as there is no prohibition
of the FC of OAB states that:
law, whether direct or indirect, is prohib- against it.
The contract of association/collaboration ited to any foreign lawyer not registered Each firm must preserve its identity and
shall be registered in the register of
as a Brazilian lawyer. independence, respect each other’s profes-
companies and filed for control by
the Counsel of OAB, along with any • The firms will maintain separate physi- sional intellectual property, maintain sepa-
modification of the structure of the cal offices and distinct corporate forms, rate offices and data, and refer to the coop-
association/collaboration. Unless as well as physically and electronically eration or association only in moderation.
approved by the Counsel, any association/ separated archives. According to Decree 91/2000,19 foreign
collaboration will be void. • Any reference to a cooperation or as- lawyers will be entitled to practice in Brazil
Article 8 thus authorizes law firms to sociation shall be made with moderation only as consultants in foreign law. No legal
form associations or collaborations under
and make clear the firms are separate advice, consultation or solicitation in Bra-
entities. zilian law is ever permitted by any foreign
the supervision of OAB.
Chapter IV uses the term “law firms,” • Any attempt at fiscal fraud through these lawyer not registered as a Brazilian lawyer.
without specifying Brazilian or foreign and mechanisms constitutes an infraction. Advertising and websites are must comply
without referring to the term “consultant The tribunal, however, cannot prohibit with rules set forth in Decrees 9120 and 9421
in law.” It would be wrong to conclude, any contract of cooperation/association of the Federal Counsel of the OAB. When
on the basis of a presumption of fraud possible digressions are identified, Brazil-
however, that the term refers to Brazilian
per se. It is impossible to prohibit what ian lawyers and consultants are subject to
entities only, as that would imply foreign
is legal, for fear of hypothetically illegal disciplinary procedures under the Brazilian
consultants and foreign lawyers are not
behavior. regulation of advocacy.
bound by the rules governing the operation
of Brazilian law firms—nor by the code of The disposition of Decree 92/200016 on In short, the practice of advocacy is
conduct and ethics of Brazilian advocacy. publicity reinforces this interpretation of the watchdog of democratic values. Thus,
Decree 98/02, Article 3, paragraph 2 the law. In the subsequent regulation, there consultants in foreign law must abide by
on the regulation of Brazilian law firms,12 is no mention of the terms “consultants the Statute of Advocacy, and by general
referring to Decree 92/200013 does not in foreign law” or “firm of consultants rules and regulations enacted by the OAB.
mention the registration of association/col-
laboration contracts. To that extent, it can
be argued that Decree 98/200214 would be
applicable to agreements of cooperation/as-
sociation between Brazilian law firms only. The Process of Authorization of Foreign Lawyers to Practice in
On the other hand, Decree 91/200015 Brazil22 according to Art. 54, V, of the law 8.906.94
requires the express authorization of coop- A foreign legal professional, regularly entitled to practice advocacy in
eration between consultants in foreign law his or her country can only be authorized by Brazilian Bar to practice the
and Brazilian law firms, in order to prevent following:
consultants from engaging in the practice The authorization of the Bar only grants the right to give consultation
of law, even if it would be with the support in foreign law.
of a Brazilian law firm.
The authorization is granted by the Counsel of OAB, belonging to the
With respect to this provision, there is
jurisdiction of the Consultant.
no prohibition per se against a contract of
collaboration or association. In both cases,
the profession itself is divided in areas of

Fall 2011 The International Law Quarterly Page 44


rules and guidelines,  from previous page

George Augustus Niaradi has a degree in


Article. 8º, chapter I, V, VI e VII e 10, of
social science and law from the University of
the Law requires23
São Paulo, with specialization in public law,
1. Proof of a visa of residence in Brazil; and a doctorate in international law from the
2. Proof of certification to practice law or of registration in the Bar University of São Paulo (2003). He continued
of the country of origin.
his studies as a Postdoctoral Fellow in natural
3. Proof of good conduct and reputation, testimony by the institu-
law at the Università della Santa Croce, Rome,
tion of origin and by three Brazilian lawyers, members of OAB
Counsel. Italy (2005), with extension courses at the Law
g.a. Niaradi
4. Proof of lack of disciplinary sanctions and lack of infractions, Faculty of Coimbra (2001), Central European
testimony by the Bar or any similar institution from the country University, Budapest, Hungary (2005). In the São Paulo Bar Asso-
of origin. ciation, he is Councellor, a member of the 4th Chamber of Appeals
5. Proof of lack of conviction by a criminal court or ongoing crimi- and holds the position of President of the International Relations
nal procedure. Committee. Formerly, Mr. Niaradi was President of the Commis-
6. Proof of reciprocity of treatment of Brazilian lawyers in the sion of Foreign Trade and International Relations (2007-2009).
country of origin of the foreign lawyer.
The Brazilian Bar is also entitled to ask for any documentation Endnotes:
that it would consider necessary, duly translated and certified by 1 Cláudio Bini e Gabriel Marciliano Jr., Os Escritórios Estrangeiros Entre Nós,
public notary. available at http://www.oabsp.org.br/noticias/2005/08/19/3144/?searchterm=ad
The OAB will have to maintain a close collaboration with the vogado estrangeiro.
relevant institutions of the country of origin. 2 Relator Doctor Claudio Felippe Zalaf, OAB-SP, Tribunal of Ethics and Dis-
Following this authorization, the candidate will promise to cipline, Turma de Ethica professional, Processo E-3922/2010, available at http://
www.oabsp.org.br/noticias/2010/09/16/6432/?searchterm=advogado estrangeiro.
practice exclusively in the field of consultation in the law of his [or
3 4ª Câmara Recursal of Tribunal of Deonthology OAB SP, 21 Feb. 2011,
her] country of origin, with dignity, independence and ethics, in
available at http://www.oabsp.org.br/noticias/2011/02/25/6771/?searchterm=ad
the scope of his [or her] professional prerogatives, and with due vogado estrangeiro.
respect for the Federal Constitution, the law of the Brazilian states 4 Estatuto da Advocacia e da Oab, Law No. 8.906, 4 July 1994, available at
and human rights. http://www.oab.org.br/arquivos/pdf/LegislacaoOab/estatuto.pdf.
5 Provimento No. 91/2000, available at http://www.oabsp.org.br/noticias/201
0/09/16/6432/?searchterm=advogado.
6 Código de Ética e Disciplina da OAB, available at http://www.oab.org.br/
Consultants regularly authorized are granted arquivos/pdf/LegislacaoOab/codigodeetica.pdf.
the right to establish work collaborations in the 7 Constituçao Federal do Brazil in Estrangeiro, available at http://pdba.geor-
exclusive field of consultancy in foreign law. getown.edu/Constitutions/Brazil/vigente.html.
8 Estatuto da Advocacia e da OAB, Law No. 8.906, 4 July 1994 available at
1. The firm must be established and organized according to Brazilian http://www.oab.org.br/arquivos/pdf/LegislacaoOab/estatuto.pdf.
laws with the exclusive aim of providing consultation in foreign law. 9 Constituçao Federal do Brazil in estrangeiro, available at http://pdba.geor-
2. Any act of establishment or any modification must be approved getown.edu/Constitutions/Brazil/vigente.html.
by the Counsel of OAB. 10 Decree 112/2006 of CFOAB, available at http://www.oab.org.br/msProvi-
mentoPrint.asp?idt=112/2006.
3. The firm will be entitled to use its brand internationally, upon 11 Decree 112/2006 of CFOAB, available at http://www.oab.org.br/msProvi-
authorization of its headquarters in the country of origin. mentoPrint.asp?idt=112/2006.
4. The name of the company must contain the following language: 12 Decree 98/02, available at http://www.oabsp.org.br/comissoes2010/socie-
“Consultores em Direito Estrangeiro” (Consultants on Foreign Law). dades-advogados/provimentos/5.-provimento-98-2002.
13 Decree 92/00, available at http://www.oabsp.org.br/comissoes2010/socie-
5. The firm will communicate to OAB Counsel its brand and dades-advogados/provimentos/2.-provimento-92-2000-revogado.
complete identification of its foreign consultants, as well as any 14 Id.
alteration of this information. 15 Provimento No. 91/2000, available at http://www.oabsp.org.br/noticias/201
6. Consultants and consultant companies will have to obey the 0/09/16/6432/?searchterm=advogado.
rules of conduct and ethics of Brazilian advocacy. 16 Decree 92/00, available at http://www.oabsp.org.br/comissoes2010/socie-
dades-advogados/provimentos/2.-provimento-92-2000-revogado.
7. The authorizations granted by OAB must be renewed every 17 Decree 94/00, available at http://www.oabsp.org.br/comissoes2010/socie-
three years. dades-advogados/provimentos/4.-provimento-94-2000.
8. Federal Law No. 8.906, along with the Brazilian Statute of Ad- 18 Zalaf, supra note 2.
vocacy and the code of conduct and ethics, apply to all consultant 19 Provimento No. 91/2000, available at http://www.oabsp.org.br/noticias/201
firms. In the case of a violation of these rules, the license to consult 0/09/16/6432/?searchterm=advogado.
can be suspended. 20 Provimento No. 91/2000, available at http://www.oabsp.org.br/noticias/201
0/09/16/6432/?searchterm=advogado.
9. Consultants and consultant firms are subject to the same tax 21 Decree 94/00, available at http://www.oabsp.org.br/comissoes2010/socie-
laws as national companies/ Brazilian consultants. dades-advogados/provimentos/4.-provimento-94-2000.
10. Following the authorization, the Bar will communicate the 22 Marciliano Jr., supra note 1.
information to the Federal Counsel of OAB within thirty days, for 23 Regulamento Geral do Estatuto da Advocacia e ea OAB SP sobre o Regulamento
national registration of the consultants or firms. Geral previsto na Lei no 8.906, 4 julho 1994, available at http://www.oab.org.br/
arquivos/pdf/LegislacaoOab/RegulamentoGeral.pdf.

Page 45 The International Law Quarterly Fall 2011


Fall 2011 The International Law Quarterly Page 46
The New Phase of International
Arbitration in Brazil
By Arnoldo Wald, São Paulo

I. Introduction legal and economic changes have given rise Arbitration Act (Law No. 9307/96).
to a new climate that may encourage Brazil The development of international arbi-
In recent years Brazil has experienced
to engage in investment treaty arbitration. tration in Brazil in recent years also owes
significant developments in arbitration,
much to the pro-arbitration position taken
especially due to the enactment of the Bra-
II. Enforceability of Arbitral by the STJ in the recognition and enforce-
zilian Arbitration Act (Law No. 9307/96),
Awards ment of foreign arbitral awards. STJ sta-
the Supreme Court’s confirmation in 2001
tistics show that out of thirty-one requests
of its constitutionality, the ratification of The Brazilian Arbitration Act provides
for recognition of foreign arbitral awards
the New York Convention on the Recog- that any arbitration award rendered in Bra-
already decided, only seven were refused,
nition and Enforcement of Foreign Ar- zilian territory is considered a domestic
and four were dismissed without prejudice.
bitral Awards (“New York Convention”) award.7 In this regard, the Third Chamber
Even in those cases in which the STJ re-
in 2002,1 and case law developed by the of the Brazilian Superior Court of Justice
fused to recognize a foreign arbitral award,
Superior Tribunal of Justice (“STJ”). rendered, on 24 May 2011, a decision that
it based its decision on the grounds set
According to data provided by the main may promote the use of Brazil as the seat
forth in the Arbitration Act11 and the New
arbitral institutions in Brazil,2 approximate- of domestic or international arbitrations.8
York Convention.12 The STJ has refused
ly 200 commercial arbitral proceedings The court decided unanimously to re- to examine the merits of foreign arbitral
commenced in 2009 and in 2010. Moreover, verse a decision by the Court of Appeal of awards, limiting recognition and enforce-
according to ICC caseload statistics, as far the State of Rio de Janeiro that mistakenly ment proceedings to verifying whether
as the nationality of the parties involved in considered an ICC arbitral award rendered certain formalities have been followed.13
arbitration is concerned, Brazil ranked first in Rio de Janeiro a “foreign award.” The Another issue that is causing some de-
in Latin America from 2006 through 20093 decision has significant implications for the bate in Brazil concerns the recognition and
and fourth in the world in 20094 (preceded enforcement of arbitral awards adminis- enforcement of arbitral awards annulled in
by the United States, France and Germany). tered by foreign arbitral institutions in Bra- their place of origin.14 In a case in which
From 2009 to 2010, the number of Brazilian zil. The ruling clarifies that arbitral awards we are participating as counsel before the
arbitrators in ICC cases increased by 25%.5 rendered by arbitral tribunals seated in STJ, our client is seeking to obtain recog-
A recent survey concluded that arbitra- Brazil are domestic, irrespective of whether nition and enforcement of an award an-
tion is a useful method of dispute resolu- the applicable arbitration rules belong to nulled in the country of origin. Particularly,
tion that has received wide acceptance and an institution seated abroad, and that such the relevant matters to be decided are (1)
cooperation from Brazilian courts.6 The awards need not be confirmed by the STJ. whether national courts have the discretion
survey analyzed 790 judicial decisions In a decision on the merits in Recurso to recognize an annulled award in light of
relating to arbitration from the year 1996, Especial 1.231.554/RJ,9 Justice Rapporteur the expression “may” under Article V(1)
when the Arbitration Act was enacted, until Nancy Andrighi confirmed that Brazil’s (e) of the New York Convention,15 and (2)
February 2008. The research considered legislature had established the place where whether it is possible to give effect to an
information contained in the databases of the award is rendered as the sole criterion annulment court decision that violates Bra-
the Supreme Federal Court, the STJ and for determining whether an award is do- zilian public policy. There are no specific
the courts of appeal, with a few exceptions. mestic or foreign for purposes of enforce- case decisions on this matter yet.
The statistics show that only 15% of court ment in Brazil.10 In her view, the mere fact Further, the STJ has dealt with a com-
decisions concern annulment proceedings, that the arbitration had been administered plex issue regarding the recognition and
where in most cases Brazilian courts have by the ICC did not make the award foreign, enforcement of an arbitral award and an
correctly interpreted the Arbitration Act. particularly where the arbitrator was of arbitration-related court decision. In Sen-
Brazilian courts have taken a clear po- Brazilian nationality, Brazilian law was tença Estrangeira Contestada 85316 and
sition in favour of arbitration, rendering applied and the award was in Portuguese. Sentença Estrangeira Contestada 854,17
important decisions regarding various mat- Therefore, the court held that the ICC GE Medical Systems Information Tech-
ters, such as flexibility in the enforcement award, which had been rendered in Rio de nologies sought enforcement of two foreign
of arbitral awards, the extension of arbitra- Janeiro, had the same effect as a final deci- decisions: (1) an award rendered by an
tion agreements to non-signatory parties, sion by national courts pursuant to Article arbitral tribunal on the basis of a repre-
and the arbitrability of disputes involving 475-N, IV of the Brazilian Code of Civil sentation agreement referring all disputes
state entities and insolvent parties. Further, Procedure and Article 31 of the Brazilian to arbitration—a matter being widely dis-

Fall 2011 The International Law Quarterly Page 47


new phase of international arbitration,  from previous page

cussed before Brazilian courts; and (2) an much debate in Brazil, especially with involved in the negotiation, performance
arbitration-related decision by the New respect to groups of contracts and groups or termination of the contract containing
York district court, recognizing the valid- of companies. the clause; (3) whether the company was
ity of the arbitration agreement. Tecnimed The Brazilian Arbitration Act states that expressly or impliedly represented in the
Paramedics Eletromedicina Comercial for an arbitration clause to be binding transaction or in arbitration.21
challenged, on lis pendens grounds, both it “shall be in writing contained in the Brazilian courts have already rendered
requests for recognition. Tecnimed argued contract itself or in a separate document decisions in this matter, recognising the
that due to the pending proceedings in referring thereto.”18 The act does not re- possibility of extending the effects of an
Brazil, which discuss the validity of the quire that consent—which differs from arbitration agreement to the companies
arbitration agreement, the court had to stay the actual written agreement set out in a of a group. In Trelleborg do Brasil Ltda.
the proceedings of recognition of the arbi- document—be given in a particular form; v. Anel Empreendimentos Participações
tral award and of the U.S. court judgment it is sufficient that the arbitral clause itself e Agropecuária Ltda.,22 the Court of Ap-
in order to avoid conflicting decisions. be “in writing.” Thus, an arbitration agree- peals of São Paulo held that the arbitration
The full bench (“Corte Especial”) of ment does not necessarily need to be signed clause bound the controlling company of
the STJ held that recognition proceedings to be binding upon parties.19 Trelleborg since, according to the court,
can run simultaneously with the action To be sure, the Brazilian legal system it had consented to arbitration by actively
brought before the Brazilian courts and recognizes other ways to ascertain consent participating in the negotiation and perfor-
therefore refused to stay either proceeding. and intent. In this sense, arbitral tribunals mance of the contract and the arbitration
In his vote, Justice Castro Meira declined to have, in certain circumstances, extended proceedings.
review the merits of the award or the U.S. the effects of an unsigned arbitration agree- Sentença Estrangeira Contestada 856 is
judgment, stressing that the court’s duty is ment to companies on the grounds that their also a case where consent was found in the
only to analyze whether the awards fulfil conduct implied such consent.20 absence of a writing. Although one of the
the requirements set forth by law. In order to extend the effects of an arbi- parties in the arbitration did not sign the
tration clause to non-signatories, arbitral contract providing for arbitration, the STJ
III. The Extension of tribunals have taken into account the fol- granted exequatur on grounds of estoppel;
Arbitration Agreements to lowing: (1) whether the company played an i.e., that the defendant had not objected to
Non-Signatory Parties active role in the negotiations that resulted the arbitration in its statement of defence.23
The extension of the arbitration agree- in the agreement containing the arbitra- Moreover, Brazilian courts have also
ment to non-signatories has also caused tion clause; (2) whether the company was considered whether or not a company that

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Page 48 The International Law Quarterly Fall 2011


new phase of international arbitration,  from previous page

signed a shareholders’ agreement as inter- subjective standard required by Article 1 court, which was denied by the court of
vening party was subject to an arbitration of the Arbitration Act. In the court’s view, first degree, alleging that the arbitration
agreement included therein, rather than in the liquidator has broad powers to represent proceedings should have been stayed as a
its bylaws. For instance, in an ICC award24 the insolvent company in new or pending consequence of the bankruptcy declaration.
that subsequently became public by being transactions, and the restrictions as to what Jackson Empreendimentos filed an appeal
presented in Brazilian state court proceed- he or she can or cannot do are not such as against the first-degree decision before the
ings,25 the arbitral tribunal held that the would prevent the company from going Court of Appeals of São Paulo. The court
company was not bound by the arbitration to arbitration when there is an arbitration considered that, although the bankruptcy of
agreement provided for in a shareholders’ agreement in a contract signed before the Diagrama affected the interests of all credi-
agreement and thus could not participate in declaration of bankruptcy. tors, there was no statutory rule that pre-
the ICC arbitration. The relevant issue, according to the STJ, vented the submission of disputes involving
is that the arbitration agreement was ex- the bankrupt company to arbitration, if the
IV. Arbitrability of Arbitral ecuted before the adjudication of the ex- arbitration agreement was entered into be-
Disputes Involving Insolvent trajudicial liquidation, a fact that made it a fore the bankruptcy was declared, when the
Parties valid contractual provision at the time that company had full legal capacity to enter into
it was executed by the parties. The court such agreement. The State Court of Appeals
Brazilian courts have recently decided a thus concluded that there would be no observed that the bankrupt company must
complex issue that is still controversial in reason to invalidate the arbitration agree- be represented in the arbitration proceedings
many countries; namely, the arbitrability of ment ex post facto and, as the arbitration by the liquidator; otherwise, the arbitral
disputes involving insolvent companies. In proceedings guarantee the rights of due award and the proceedings will be null and
a recent edited version a paper presented process, there was no violation of public void. Moreover, the court considered that
at the IBA Conference of Vancouver, Lau- interest concerning the extrajudicial liqui- the legal provision according to which all
rente Lévy wrote that there could be, in this dation proceedings, particularly the rights disputes involving the bankrupt company
matter, a “Bankruptcy of Arbitration.”26 of creditors. must be decided by the bankruptcy judge
Decisions rendered by the STJ and the Finally, the STJ recognized that although was not applicable to the case, given that
Court of Appeals of the State of São Paulo there are legal limitations to the sort of the dispute submitted to arbitration involved
have decided that the Brazilian Bankruptcy claims that can be filed or can proceed an unascertained sum (Article 6, paragraph
and Reorganization Act27 does not forbid once the insolvency of the company is 1, of the Brazilian Bankruptcy and Reorga-
the continuation of pending arbitration characterized and the liquidation decreed, nization Act).
proceedings when there has been a bank- the prevailing position of the courts allows Finally, the court also noted that the
ruptcy declaration by one of the parties, continuation of a case where a determi- Brazilian Bankruptcy and Reorganization
and that the arbitral award is binding on nation of liability or a quantification of Act currently in force had modified the
the bankruptcy court. damages is sought. Only enforcement and previous regime and does not require the
In Saúde ABC v. Interclínicas, the latter foreclosure are stayed, so as to guaran- participation of the district attorney in the
had its extrajudicial liquidation declared tee the equality of all creditors according proceedings involving the bankrupt com-
while arbitration proceedings were under- to their status (privileged, secured, non- pany. Thus, the court ordered the inclusion
way. Interclínicas requested a stay of the secured). The court highlighted that this is of the credit in the schedule of creditors.
arbitration, alleging lack of jurisdiction a valid principle for judicial lawsuits and
These decisions consolidate Brazilian
of the arbitral tribunal and arguing that for arbitrations alike, with no justifiable
case law towards the arbitrability of dis-
it had lost its capacity to sue and be sued distinctions between them.
putes involving insolvent parties.
and the free disposition of its rights as a Another leading decision was rendered
consequence of the insolvency adjudica- by the Court of Appeals of the State of
tion. The arbitral tribunal decided that it São Paulo in Jackson Empreendimentos
V. Investment Treaty
had jurisdiction over the matter and moved v. Diagrama,30 where the bankruptcy of Arbitration
forward with the proceedings.28 the latter was declared during the course Historically, Brazil has been resistant to
In an attempt to stay the arbitration, In- of the arbitration proceedings. The arbitral investment treaties and investment arbitra-
terclínicas sought injunctive relief from the tribunal decided to move forward with the tion. Brazil has never ratified any interna-
STJ. The court, facing the issue for the first arbitration and rendered an award validat- tional investment agreements, nor has it
time, rejected the request for relief. Accord- ing and quantifying the debt of the bankrupt signed the ICSID Convention.
ing to the court, the fact that the company party. The arbitral award being an execu- Recent facts show, however, that the
was undergoing extrajudicial liquidation tion instrument, Jackson Empreendimen- time for change has come. Brazil has gone
did not render it incapable of entering tos filed for inclusion of the credit in the from recipient to exporter of foreign direct
into enforceable agreements, which is the schedule of creditors before the bankruptcy investment, through national private and

Fall 2011 The International Law Quarterly Page 49


new phase of international arbitration,  from previous page

even state companies that are increasingly tion and protection of its investments and de Comércio Brasil-Canadá (CCBC), Câmara FGV
de Conciliação e Arbitragem, Centro Brasileiro de
investing abroad, especially in its neigh- improving the use of regional mechanisms Mediação e Arbitragem (CBMA), Câmara Americana
bors, in Africa and Asia. already at its disposal, such as the Agree- de Comércio para o Brasil (AMCHAM), Câmara de
From 1990 onward, globalization, priva- ment on Reciprocal Payments and Credits Arbitragem Empresarial – Brasil (CAMARB) and
Conselho Arbitral do Estado de São Paulo (CAESP).
tization, the opening of the economy to of the Latin American Integration Associa-
foreign investments, and several consti- tion (CCR/ALADI). 3 Int’l Chamber of Commerce [ICC], 2006 Statisti-
cal Report, ICC INT’L CT. OF ARB. BULL. (2007);
tutional amendments helped create the 2007 Statistical Report, ICC INT’L CT. OF ARB.
right climate to consolidate national and VI. Conclusions BULL. (2008); 2008 Statistical Report, ICC INT’L
international arbitration.31 The Arbitration CT. OF ARB. BULL. (2009); 2009 Statistical Report,
The evolution of Brazil’s law and econo- ICC INT’L CT. OF ARB. BULL. (2010).
Act in 1996, the case law of the courts and my, along with the positive approach of its 4 2009 Statistical Report, ICC INT’L CT. OF ARB.
the evolution of scholarly writings soon led courts to arbitration, ensures a bright and BULL. (2010).
to a real “cultural revolution” with regard prosperous future for arbitration in Brazil, 5 Information rendered by ICC on 25 Feb. 2011.
to the matter, resulting in an “explosion” as the country consolidates its leadership 6 Law School of Getulio Vargas Foundation (Di-
of arbitration proceedings.32 position in Latin America among other reito FGV) and Brazilian Committee of Arbitration
In the 1990’s, Brazil signed fourteen (CBAr), Arbitragem e o Poder Judiciário: Invali-
emerging nations. Brazilian courts are fol- dade da Sentença Arbitral, http://www.cbar.org.
bilateral investment treaties, six of which lowing international trends, envisioning br/PDF/Pesquisa_GV-CBAr_relatorio_final_1_
were submitted to congress for ratifica- arbitration as a useful and effective dispute etapa_2fase_24.06.09.pdf. This survey was also
tion.33 The executive power subsequently published in 19 REVISTA BRASILEIRA DE ARBI-
resolution method. TRAGEM [REV. BRASILEIRA DE ARB.] 7 (2008).
withdrew the ratification proposals, and Moreover, Brazil’s exponential growth— 7 Brazilian Arbitration Act of 1996, Pub. L. No.
none of the treaties went into effect. The with the increasing demand for construc- 9,307/96, Article 34: “A foreign arbitral award is an
reasons for the Brazilian government’s tion contracts, joint venture investments award made outside of the national territory.”
decision were legal, economic and political and corporate governance in the coming 8 For a discussion, see Arnoldo Wald, Nuovo Pig-
in nature. The legal reasons encompassed none v. Petromec: Amicus Curiae by the ICC Brazilian
years—shall provide many opportunities Committee, WORLD ARB. AND MEDIATION REV.
problems related to the remittance of profits for further application and development of (2011) (forthcoming).
overseas, the expropriation regime and the arbitration, which itself is actually a tool for 9 Nuovo Pignone SPA v. Petromec Inc, Resp
use of arbitration. In turn, the economic the country’s development. 231,554/TJ, Nancy Andrighi, J. (3rd S.T.J., 2011). See
reasons involved the belief that the flow the case comment by Francisco Cláudio de Almeida
Finally, we can affirm with no hesitation Santos, A nacionalidade da sentença arbitral. Critério
of foreign investments to Brazil at the time that the twenty-first century is the century Territorialista do Direito Brasileiro, 30 REVISTA DE
was sufficient to meet its needs, without the of international arbitration in Brazil, and ARBITRAGEM E MEDIAÇÃO [REV. DE ARB. E
help of guarantees of investment treaties.34 the forthcoming years shall be even more
MEDIAÇÃO] (2011).
It is time for Brazil to reconsider this exciting than the previous ones.
10 The author’s law firm submitted an amicus curiae
brief in this action. For a copy of the brief, see Arnoldo
position. Today there is an increasing need Wald & Theophilo de Azeredo Santos, Descabimento
for massive investments in infrastructure in Arnoldo Wald is found- de homologação de sentença arbitral proferida no
light of the 2014 FIFA World Cup, the 2016 ing partner of Wald e
Brasil por se considerada pela lei como sentença
nacional, 29 REV. DE ARB. E MEDIAÇÃO 423
Olympic Games, and the development of Associados Advogados (2011).
telecommunications, construction, and oil (Brazil). He is also a 11 Brazilian Arbitration Act of 1996, Pub. L. No.
and gas (pré-salt35) industries. professor of private 9,307/96, Article 38:
Besides, a new generation of interna- law at the University The homologation request for the recognition
tional investment agreements is being de- of the State of Rio de or enforcement of a foreign arbitral award can
veloped in order to adjust to the needs and be denied only if the defendant proves that:
Janeiro. He has a doc- I - the parties to the agreement lacked capacity;
priorities of emerging countries. These A. Wald tor honoris causa from
treaties reconcile the rights of investors II - the arbitration agreement was not valid un-
the University of Paris II and is a member of der the law to which the parties have subjected
with the possibility for each country to the ICC International Court of Arbitration it, or, failing any indication thereon, under the
establish its public policies in a wide range and Vice-President of the ICC Brazilian law of the country where the award was made;
of sectors, while respecting the investor’s Committee. III - it was not given proper notice of the ap-
trust in the legal regime in effect at the time pointment of the arbitrator or of the arbitral
procedure, or in the cases of violation of the
the investment was made. Endnotes: adversary proceeding principle rendering its
Brazil is thus urged to rethink its old 1 New York Convention on the Recognition and full defense impossible;
approach and take advantage of its new Enforcement of Foreign Arbitral Awards, 23 June IV - the arbitral award has exceeded the terms
position and bargaining power. Brazil has 1958, Pub. L. No. 4,311 of 23 July 2002, http://www2. of the arbitration agreement, and it is not
mre.gov.br/dai/arbitrais.htm. possible to separate the portion exceeding
the opportunity to pursue a fresh start in the terms from what has been submitted to
2 The following institutions were considered in
this field, developing a new generation this survey: Câmara de Mediação e Arbitragem de arbitration;
of international instruments for promo- São Paulo (CMA), Centro de Arbitragem da Câmara V - the commencement of the arbitral proceed-

Page 50 The International Law Quarterly Fall 2011


new phase of international arbitration,  from previous page

ings was not in accordance with the submis- Eletromedicina Comercial Ltda., AgRg SEC 853 ing court litigation to stay the arbitration initiated by
sion to arbitration or the arbitral clause; Castro Meira, J. (S.T.J. 2011). Interclínicas. This decision on jurisdiction has been
VI - the arbitral award is not yet binding on 17 Id. at 854. published in 15 REV. DE ARB. E MEDIAÇÃO 239,
the parties, or has been set aside or has been 247 (2007).
18 Brazilian Arbitration Act of 1996, Pub. L. No.
suspended by a court of the country in which 9,307/96, Article 4. [Emphasis added.] 29 Saúde ABC v. Interclínicas, MC 14,295/SP, Nancy
the arbitral award has been made. Andrigui, J. (S.T.J. 2008). The decision is also pub-
19 Arnoldo Wald, Os Aspectos Formais da Con-
12 L’ Aiglon SA v. Têxtil União SA, SEC 856/EX, venção de Arbitragem (Comentário do art. II, (1) e lished in 19 REV. DE ARB. E MEDIAÇÃO (2008),
Carlos Alberto Menezes Direito, J. (S.T.J. 2005); (2), da Convenção de Nova Iorque e sua Aplicação with comments by Arnoldo Wald. See also Inter-
Oleaginosa Moreno Hermanos SA v. Moinho Pau- no Direito Brasileiro) in ARBITRAGEM COMER- clínicas v. Saúde ABC, Resp 1,125,185/SP, Nancy
lista Ltda., SEC 866/EX, Felix Fischer, J. (S.T.J. CIAL E INTERNACIONAL – A CONVENÇÃO DE Andrigui, J. (S.T.J. 2011).
2006); First Brands do Brasil Ltda. v. STP Petroplus NOVA IORQUE E O DIREITO BRASILEIRO, supra 30 Jackson Empreendimentos v. Diagrama, AI No
Produtos Automotivos SA, SEC 611, João Otávio de note14, at 102, 103. 531,020-4/3-00, Pereira Calças (T.J.S.P. 2008). This
Noronha, J. (S.T.J. 2007); Spie Enertrans SA v. Inepar
SA, SEC 831/FR, Arnaldo Esteves Lima, J. (S.T.J. 20 ICC Case No. 4131 in COLLECTION OF ICC decision is also published in 19 REV. DE ARB. E ME-
2007); Nahuelsat SA v. Embratel SA, SEC 1.305/FR, ARBITRAL AWARDS 1974-1985 146, 153 ( Sigvard DIAÇÃO (2008), followed by comments by Arnoldo
Hamilton Carvalhido, J. (S.T.J. 2007). Jarvin & Yves Derains eds. 1990); ICC Case No. 5103 Wald. The final statements presented by the appellant
in COLLECTION OF ICC ARBITRAL AWARDS are also published in the same issue of REV. DE ARB.
13 Rodrigo Garcia da Fonseca & Letícia Barbosa 1986-1990 361, 370 (Sigvard Jarvin, Yves Derains E MEDIAÇÃO at 183.
e Silva Abdalla, Recognition and Enforcement of & Jean-Jacques Arnaldez eds. 1994). See also BER-
Foreign Arbitral Awards in Brazil, 2 Y.B. OF INT’L 31 Constitutional Amendments Nos. 6, 7, 8 and 9, all
NARD HANOTIAU, COMPLEX ARBITRATIONS:
ARB. (forthcoming). from 1995, consolidated the opening of the economy
MULTIPARTY, MULTICONTRACT, MULTI-ISSUE
14 Lauro Gama Jr., Recusas Fundadas no artigo V (1) AND CLASS ACTIONS 50 (2006); Oliver Capresse, to foreign investments.
(E), da Convenção de Nova Iorque: Peculiaridades A arbitragem e os grupos de sociedades, 6 REVISTA 32 Arnoldo Wald, A recente evolução da arbitragem
de sua Aplicação no Brasil in ARBITRAGEM COM- DE DIREITO BANCÁRIO, DO MERCADO DE no direito brasileiro (1996-2001) in Reflexões sobre
ERCIAL E INTERNACIONAL – A CONVENÇÃO CAPITAIS E DA ARBITRAGEM 353 (2003). arbitragem in memorian do Desembargador Cláudio
DE NOVA IORQUE E O DIREITO BRASILEIRO 21 See landmark case Dow Chemical v. Isover-Saint- Vianna de Lima 143, 168 (Pedro A. Batista Martins
235 (Arnoldo Wald & Selma Ferreira Lemes eds., Gobain, ICC Case No. 4131. & José Maria Rossani Garcez eds. 2002); Arnoldo
2011); José Carlos de Magalhães, A Convenção de Wald, A New Approach to International Investment
Nova Iorque e a Lei de Arbitragem, 18 REVISTA 22 Trelleborg do Brasil Ltda. v. Anel Empreendimen-
tos Participações e Agropecuária Ltda., 267,450-4/6 Agreements (IIAS) in Brazil in Liber Am,icorum Ber-
DE DIREITO BANCÁRIO, DO MERCADO DE nardo Cremades 1183 (M.Á. Fernández-Ballesteros
CAPITAIS E DE ARBITRAGEM, 317 (2002); João Constança Gonzaga, J. (7th T.J.S.P. 2006) 10 REV.
DE ARB. E MEDIAÇÃO 243 (2006). & David Arias eds., 2010).
Bosco Lee, A Homologação de Sentença Arbitral
Estrangeira: a Convenção de Nova Iorque de 1958 e o 23 L’Aiglon S.A. v. Têxtil União S.A, SEC 856 Carlos 33 Although Brazil had signed 14 BITs, none of
Direito Brasileiro de Arbitragem in ARBITRAGEM – Alberto Menezes Direito, J. (S.T.J. 2005). them was ratified by Congress. The BITs are listed
ESTUDOS EM HOMENAGEM AO PROF. GUIDO in chronological order: Portugal (9 Feb. 1994); Chile
24 Companhia Nacional de Cimento Portland v. CP
FERNANDO DA SILVA SOARES, IN MEMORI- (22 March 1994); United Kingdom (19 July 1994);
Cimento e Participações S.A. e Latcem S.A, ICC Case
AM, 175, 188 (Pedro Batista Martins, Selma Ferreira No. 14,144/CCO 14 REV. DE ARB. E MEDIAÇÃO Switzerland (11 Nov. 1994); France (21 March 1995);
Lemes & Carlos Alberto Carmona eds., 2007); Paulo 259 (2007). Finland (28 March 1995); Italy (3 April 1995); Den-
Borba Casella & Daniel Gruenbaum, Homologação mark (4 May 1995); Venezuela (4 July 1995); South
de sentença arbitral estrangeira anulada, 9 REV. 25 Companhia Nacional de Cimento Portland v. CP Korea (1 Sept. 1995); Germany (21 Sept. 1995); Cuba
DE ARB. E MEDIAÇÃO, 207 (2006); Pedro Batista Cimento e Participações S.A. e Latcem S.A., 2006, (26 June 1997); Holland (25 Nov. 1998; Belgium and
Martins, A recepção nacional às sentenças prolatadas 001,014953-3, Marcia de Andrade Pumar (Rio de
Luxemburg (6 Jan. 1999); http://www.unctad.org/
no exterior in ASPECTOS FUNDAMENTAIS DA Janeiro, 2006) 14 REV. DE ARB. E MEDIAÇÃO 228
sections/dite_pcbb/docs/bits_brazil.pdf.
LEI DE ARBITRAGEM 435, 460 (Pedro Batista (2007).
Martins, Selma Ferreira Lemes & Carlos Alberto 26 Laurent Lévy, Arbitration and Bankruptcy: Bank- 34 Diplomat Ronaldo Costa Filho, of the Foreign
Carmona eds., 1999). ruptcy of Arbitration?, 5 DISP. RESOL. INT’L 103 Relations Ministry, lecture at the São Paulo State
(2011). Federation of Industries (FIESP) seminar on bilateral
15 Jan Paulsson, May or Must under the New York investment agreements, “Revisitando os acordos bilat-
Convention: An Exercise in Syntax and Linguistics, 14 27 Article 6 of the Brazilian Bankruptcy and Re-
erais de investimentos,” Sept. 2008, www.fiesp.com.
ARB. INT’L 227, 230 (1998); Alexis Mourre, “May or organization Act (Law No. 11.101 of 9 Feb. 2005)
br; See also the study Os acordos para a promoção e
Must?” Las Causales de no Reconocimiento de Lau- provides that the bankruptcy declaration entails the
a proteção recíproca de investimentos assinados pelo
dos Prevista en el Artículo de la Convención de Nueva suspension of all pending actions against the bankrupt
York, Son Ellas Facultativas? in EL ARBITRAJE debtor. Nevertheless, this rule does not apply to ac- Brasil prepared by the Legislative Advisors of the
COMERCIAL INTERNACIONAL – ESTUDIO tions seeking the recognition of the obligation of the Chamber of Deputies at the time the referred APPIs
DE LA CONVENCIÓN DE NUEVA YORK CON bankrupt debtor to pay a sum of money that is still not were being analyzed by the National Congress in May
MOTIVO DE SU 50º ANIVERSARIO 367 (Guido yet ascertained (art. 6, para. 1). Article 76 provides 2001, http://apache.camara.gov.br/portal/arquivos/
S. Tawil & Eduardo Zuleta eds., 2008); Fernando for the principle of concentration of the bankruptcy, Camara/internet/publicacoes/estnottec/pdf/102080.
Mantilla-Serrano, Algumas Notas sobre a Execução which consists in the exclusive jurisdiction of the pdf.
de Sentenças Arbitrais Anuladas e a Convenção de bankruptcy court to rule on all actions concerning the 35 The “pré-salt” layer of the continental shelf off
Nova Iorque, 24 REV. BRASILEIRA DE ARB. 92, bankrupt debtor’s assets, interests and businesses. the coast of Brazil holds significant petrochemical
93 (2009). 28 The decision rendered by the arbitral tribunal resources, although it is very deep and challenging to
16 GE Medical Systems. v. Tecnimed Paramedics eventually became public by reason of the superven- drill.

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Fall 2011 The International Law Quarterly Page 51


International Judicial Cooperation in Brazil:
Recognition and Enforcement of Foreign
Decisions at the Superior Court of Justice
By Nadia de Araujo, Rio de Janeiro,
and Frederico do Valle Magalhães Marques, Toronto

Introduction of recognition, known as homologação has more than doubled over the last few
de sentença estrangeira (recognition of years. While the Supreme Court had ruled
In this new world era of globalization—
foreign decisions),2 before those decisions on roughly 7,000 cases between 1934 and
with its resulting transnational jurisdic-
can be given full legal effect in the coun- 2004, the Superior Court of Justice has
tional problems—international judicial
try.3 This requirement has applied ever examined the same number of cases since
cooperation is key as States are forced to
since Brazil gained its independence from 2005. This article reviews the current sys-
accept orders and decisions rendered in a
Portugal in 1822.4 The Brazilian Code of tem of recognition of foreign decisions in
foreign jurisdiction. This is true for both
Civil Procedure dates from 1939 and does Brazil under the rules of Resolution No. 9,
civil and criminal matters.
not have executive rules on the procedure as well as under the most recent Superior
Brazil has a long tradition of internation-
for the recognition of foreign decisions. Court of Justice cases.
al cooperation, dating to 1847 when Aviso
In 2005, the Superior Court of Justice
Circular n.1 stated rules for execution of
regulated the procedure for recognition Characteristics of and
letters rogatory. Indeed, this cooperation
of foreign decisions by Resolution No. Requirements for
has grown steadily since the late 1990’s and 9, which has updated many issues settled
has continued into this century. Today there Recognition of Foreign
by case law during the time the Supreme
are large numbers of Brazilian nationals Decisions
Court was judging international judicial
living abroad who avail themselves of ju- cooperation cases. One example of an The system of recognition of foreign
dicial cooperation for routine problems as, important new change is the availability judgments in Brazil works as a giudizio di
for example, with regard to the recognition of injunctive relief during the recognition delibazione, inspired by the Italian model.
and enforcement of a foreign divorce deci- process, something not previously allowed This method does not evaluate the merit of
sion. Also, in the criminal field, investiga- by the Supreme Court. Because Resolution the foreign decision to be recognized but
tors must often depend on other countries No. 9 can be modified by the STJ at any does ensure the fulfillment of certain legal
to track money electronically. time, converting this new regulation into requirements and, at least tangentially, the
From 1934 until 2004, the Supreme statutory provisions would provide a better evaluation of the merits of the question so
Court (Supremo Tribunal Federal) had framework to parties. as to prevent the flouting of public policy,
exclusive jurisdiction to recognize foreign A new Code of Civil Procedure is now national sovereignty or good customs.
judgments, arbitral awards and all foreign being discussed by the Brazilian Congress, The core principle is that the decision of
orders to be executed in Brazil. Constitu- and we expect that this change may occur. the foreign court is not scrutinized for the
tional Amendment No. 45 transferred to In 2010, a Commission of Experts led decision’s merits unless it is unsustainable
the Superior Court of Justice (Superior by Justice Luiz Fux presented the Senate under Brazilian public policy. For example,
Tribunal de Justiça) (sometimes referenced with a bill (called a “law project” in Bra- divorce was not permitted in Brazil before
herein as the “STJ”)1 the recognition and zil) for this new Code of Civil Procedure. 1977. Thus, foreign decisions on divorce
enforcement of foreign decisions. This Law Project No. 166 was discussed and proceedings involving Brazilian nationals
change was part of the judicial reform modified by the Senate and is now under were considered to be against public policy.
implemented in Brazil in 2004 and was discussion at the Câmara dos Deputados Since the implementation of a divorce
occasioned by the overload of cases before (Brazil’s House of Representatives). The regulation in 1977, the recognition of such
the Supreme Court and the need to allow bill includes a new chapter on recogni- foreign decisions has been routine.
the Court to focus its attention on consti- tion and enforcement of foreign decisions The public policy consideration requires
tutional matters only. International judicial that turns Resolution No. 9 into statutory careful study of Superior Court of Justice
cooperation was therefore transferred to the provisions. As stated above, this much decisions over the last six years, as it is
Superior Court of Justice, which is also in anticipated change would advance inter- commonly used by defendants as a ground
charge of the application and interpretation national cooperation in Brazil by giving to argue the merits of a foreign decision
of federal legislation. parties more certainty as to the applicable whose recognition process is pending. In
In Brazil, as stated in Article 493 of the legislation for foreign decisions.5 granting the recognition to foreign deci-
Brazilian Code of Civil Procedure, all for- The number of cases submitted to the sions, the Superior Federal Court always
eign decisions must undergo a procedure Superior Court of Justice for recognition mentions that the decision is not against

Page 52 The International Law Quarterly Fall 2011


international judicial cooperation,  from previous page

public policy and that all formal require- Consulate/Embassy of the country of origin Justice has been careful in cases where
ments are present. Nonetheless, the line and has been translated into Portuguese by real estate in Brazil is transmitted through
between what is a question on the merits a Brazilian sworn legal translator. The bill inheritance. In SE 755, although the real
or on public-policy grounds is very thin. for the new Code of Civil Procedure also property was in Brazil—a clear case of
This can be demonstrated by analyzing would require that the foreign decision may exclusive jurisdiction—the foreign deci-
decisions relating to recognition of foreign not be contrary to public policy. sion was recognized because the distribu-
arbitral awards. In one case, the absence of The first two requirements, jurisdic- tion of the estate was done in accordance
proof that the clause was signed and thus tion of the foreign court and service of with Brazilian rules.8 In another judgment
entered into by the defendant was consid- process, have raised issues that, despite (SEC 3532),9 where someone other than the
ered as being against public policy, and the their procedural nature, are at the heart of heir was granted the estate, a Swiss court
award was vacated.6 In other similar cases, the recognition process and have stirred decision was not recognized because that
however, the awards were granted recogni- long discussions in many cases. The third choice was not possible under Brazilian
tion. It is fair to say that the Superior Court and the fourth requirements, proof that the law and, as the property was located in
of Justice is aware of the important role it decision is final and issues of certification Brazil, only a Brazilian court could decide
plays in guaranteeing that foreign decisions and translation—albeit very common, as the issue, according to Article 89 of the
are recognized without being reviewed on parties do not always provide adequate Code of Civil Procedure.
the merits. Over the last six years, most ar- certification—do not raise doctrinal dis- The issue of concurrent jurisdiction is
bitral awards have been granted recognition cussions. Thus, in the discussion below, a different matter, and the Superior Court
without serious challenge to the merits.7 we will concentrate on the first and second of Justice has acknowledged foreign juris-
Apart from the issue of a foreign decision requirements. diction more easily if the case falls within
being manifestly against public policy, the the three categories stated in Article 88. In
only arguments defendants are permitted to Jurisdiction of the Foreign these situations, although Brazilian courts
make in responding to a recognition request have concurrent jurisdiction to hear the
Court
are those dealing with procedural legal case, the STJ will recognize a foreign de-
requirements. The requirements for the The first requirement imposes on the cision as well. In certain instances, parties
recognition of foreign judgments appear Superior Court of Justice a duty to analyze might file a lawsuit both in Brazil and
mainly in two domestic statutes: the Brazil- the issue of jurisdiction in accordance with elsewhere where: (1) the defendant, of
ian Code of Civil Procedure (“Código de both Brazilian law and foreign law. In Bra- whatever nationality, is domiciled in Bra-
Processo Civil” or “CPC”), and the classic zil, jurisdiction (international competence) zil; (2) the obligation must be performed
Introductory Law to the Civil Code, whose is regulated by the Code of Civil Procedure, in Brazil; and (3) the case is based on an
name has been recently changed to Intro- Articles 88, 89 and 90. According to the incident that took place, or arises from an
ductory Law to Brazilian Law (“Lei de In- Brazilian Constitution, provisions of Bra- action taken in Brazil. When such a lawsuit
trodução às normas do Direito Brasileiro” zilian law apply to Brazilians and foreign is brought at a foreign court, jurisdiction is
or “LIN”). In Resolution No. 9, Article 5, residents alike. conferred as to that plaintiff, who cannot
the Superior Court of Justice has kept the The jurisdiction of Brazilian courts can subsequently claim a lack of jurisdiction
same requirements as the Supreme Court be of two types: exclusive or concurrent. of the foreign court in order to frustrate the
but added new ones in Article 4. In the bill Situations where Brazilian courts have Brazilian recognition process. If the case
for a new Code of Civil Procedure, the exclusive jurisdiction are those related to falls under Article 88, and the party was
area of judicial cooperation includes new real property located in Brazil, as estab- present in the proceedings, the Supreme
articles on recognition and enforcement lished by Article 89 of the Brazilian Code Court had always recognized the foreign
of foreign decisions that are in accord of Civil Procedure. Article 89 covers two decision without delay. Since 2005, the
with Resolution No. 9, including its latest situations: property rights over real estate Superior Court of Justice has followed this
revisions. located in Brazil and procedures related to path and has continued to recognize foreign
The requirements are: (1) the foreign the inheritance of real property located in decisions in similar cases. The bill for the
court or authority had jurisdiction to make Brazil. Thus, a foreign decision concerning new Code of Civil Procedure expressly
the decision; (2) the parties were properly real estate located in Brazil will not be rec- addresses this situation when it states in
served or the default judgment was le- ognized by the Superior Court of Justice. Article 23 that a suit brought in Brazil does
gally certified; (3) there is evidence of the Nonetheless, over the years, case law has not preclude the recognition of a foreign
authenticity of the judgment or decision applied an interpretation that encompasses decision or arbitral award.
and of its final character (the foreign deci- a broader view of this matter, such as ac- Brazilian law repudiates the theory of
sion shall be enforceable in the country of cepting divorce decisions that include real international lis pendens. Thus, recogni-
origin); and (4) the foreign judgment or property as long as there was no dispute tion will be granted even if there is an
decision has been certified by the Brazilian over the matter. The Superior Court of action pending before Brazilian courts. If

Fall 2011 The International Law Quarterly Page 53


international judicial cooperation,  from previous page

two lawsuits are brought in different juris- Court and subsequently followed by the Court of Justice, a rule inherited from the
dictions and the Brazilian case is decided Superior Court of Justice, even if there was days when the Supreme Court decided the
first and becomes final, not subject to any an irregularity in the notification, the un- matter. Resolution No. 9 adds that the au-
appeals, then the foreign decision will not coerced attendance of the party is enough thenticity of the foreign judgment must be
be recognized later. The reverse is also to grant recognition to the foreign decision. made by the Brazilian Consulate/Embassy
true: if the foreign decision arrives first, On the other hand, when a defendant at the place of origin. Therefore, the foreign
it will be recognized and will preempt the is domiciled in Brazil, the proper form of decision and other documents presented
Brazilian action, as the foreign decision service is through letters rogatory. Other with the request for recognition must be
will have res judicata effect. In a recent means will not be considered valid, even authenticated by the Brazilian consular
case, the Superior Court of Justice affirmed if the local foreign law provides for dif- authority in the country of the decision’s
this rule when it decided to follow through ferent ways of notification, such as by origin before arriving in Brazil, unless
with the recognition process of a foreign mail or by way of affidavit. According to transmitted through Central Authorities
decision while the Brazilian judgment was case law dating from the Supreme Court pursuant to treaties that have such provi-
pending. 10 and followed by the Superior Court of sion; for example, the Bilateral Treaty of
Conversely, it is irrelevant to a Brazilian Justice, such notification would violate France and Brazil for civil matters. This is
judge if there is an identical case pending Brazilian public policy, and the request for justified by the fact that Brazilian consuls
abroad; this fact alone will not be enough recognition would be denied. The Superior abroad carry out notarial functions, en-
to prevent the judge from having jurisdic- Court of Justice has confirmed this many abling them to issue documents that will
tion over the case. A case initiated in Brazil times.11 The bill for the new Code of Civil be presented in Brazil.
will follow its normal course and may be Procedure would maintain this rule through The translation into Portuguese by a
interrupted only if a final foreign decision Article 881, paragraph 2. sworn translator (tradutor juramentado)
is recognized by the Superior Court of is another requirement that cannot be cir-
Justice. Only after the recognition process Evidence the Foreign Decision cumvented. The lack of proper translation
is finished will the foreign judgment be is Final; Authentication; and will result in the denial of the recognition
enforceable in Brazil. In the same way, Translation request. The Supreme Court had ruled that
if a case brought before a Brazilian judge the translation must be performed by a
Although important, the last require-
reaches a final decision first, the pending of sworn translator because his or her work
ments are much less debatable. Their ful-
the recognition process before the Superior automatically certifies its authenticity.
fillment falls to the requesting party to
Court of Justice becomes irrelevant. In such Since 2005, the Superior Court of Justice
present evidence that the decision consti-
circumstances, the foreign decision will not has continued to confirm this requirement.
tutes a final decision in the country of its
be recognized. The bill for the new Code If a sworn translator of the original lan-
origin, that it is authentic and comes from
of Civil Procedure would maintain this rule guage of the decision cannot be found, the
a valid court. The Brazilian court also must
in Article 23. parties can nominate an ad hoc translator or
be provided with a translated version that
use an interpreter registered with the com-
can be trusted.
Process Serving and the Due This evidence usually comes in two
petent organ of the Brazilian Commercial
Process Clause Register. Recognition will be denied if the
forms: (1) through a certificate, or express
Process serving and due process com- translation was performed in the country
declaration, of the foreign tribunal; or (2)
prise the second requirement under Brazil- of origin, unless it was made pursuant to
when such documents do not exist, through
ian law. The Superior Court of Justice will a specific provision of a bilateral or multi-
a legal opinion issued by two lawyers, ap-
examine whether the parties have been lateral treaty or convention. The proposed
plying the rule contained in the Bustamante
regularly notified and whether notice was revised Code of Civil Procedure also would
Code (Articles 409-411) on the proof of
duly served even if the party did not appear maintain this rule through Article 881,
foreign law. There is no specific form by
before the foreign court. Resolution No. 9 paragraph 4.
which it should be demonstrated that the
expressly mandates that this requirement be foreign judgment constitutes a final rul-
reviewed by the Superior Court of Justice, ing. Thus, it is crucial to ensure that the Novelties of the Recognition
so that due process of law is confirmed to judgment is final according to the laws of Process by Resolution No. 9
have been followed. the jurisdiction in which the decision was Article 483 of the Code of Civil Proce-
When a defendant appears before the for- originally pronounced. dure originally stated only that no foreign
eign court without being coerced and takes The fourth and final requirement is re- decision would be executed in Brazil unless
part in all procedural phases of the case, the lated to the translation and authenticity of the decision was recognized by the Su-
due process clause is fulfilled. According to the document. Documents in a foreign lan- preme Court to be in accordance with inter-
old cases once brought before the Supreme guage will not be accepted by the Superior nal law. In 2005, Resolution No. 9 replaced

Page 54 The International Law Quarterly Fall 2011


international judicial cooperation,  from previous page

that requirement with new rules regarding Court of Justice Court has already applied parties. Thus, as this partition of real estate
recognition of foreign decisions, set forth it many times. located in Brazil could be decided only in
in three new paragraphs of Article 4. Paragraph 2 allows for partial recogni- Brazil, pursuant to Article 89 of the Code of
The new rules seek to resolve issues tion of a foreign award. This is another Civil Procedure that grants Brazilian courts
raised by Supreme Court case law. For situation where the Supreme Court’s in- exclusive jurisdiction over property located
example, since the beginning of the nine- terpretation of statutory law has been crys- in Brazil, the decision was only partially
teenth century, Brazil has had a large immi- tallized in the Resolution. Commonly, in recognized: the divorce was recognized,
grant population from Japan. Over the last divorce cases, for example, the Supreme the partition of the property was not.12 In
thirty years, many of the new generation Court might recognize the foreign divorce another case where a maintenance order
have chosen to return to their homeland. but not other parts of the ruling such as was required, recognition was partially
In Japan, divorce is granted by a municipal the determination of alimony, dispositions granted as far as alimony only to the child
administrative authority (city hall), with concerning children and so on. There was of the debtor was concerned.13
powers that only a judge would have in doubt for many years as to whether the Finally, paragraph 3 allows that dur-
Brazil. Therefore, parties who have di- foreign decision could be recognized only ing the recognition procedure, provisional
vorced in Japan have only these municipal partially. Resolution No. 9 confirms that it measures (or interim relief), as long as
decisions and ostensibly could not ask a can be, and the Superior Court of Justice urgent and justified, may be granted. This
Brazilian judge to recognize such an order has already proceeded accordingly many is probably the biggest change in the pro-
not envisioned under Brazilian law. Sensi- times. cess of recognition. Here, the Superior
tive to this situation, however, the Supreme For example, in a recent request for rec- Court of Justice has innovated and fol-
Court has stated that such an administrative ognition of a U.S. divorce decision from lowed a path different from the Supreme
decision of Japan would be considered a Texas, that also ruled on the partition of Court’s previous work. In the past, the
foreign decision in the sense required by real estate, the Superior Court of Justice Supreme Court had decided that until the
Brazilian laws, and has always recognized could not accept the portion of the decision foreign decision was recognized, no ef-
them. Resolution No. 9 embodied this concerning the real estate since it was not fect of any kind could be derived from
thinking in paragraph 1, and the Superior reached through an agreement between the it. Thus, provisional measures during the

São Paulo Business District

Fall 2011 The International Law Quarterly Page 55


international judicial cooperation,  from previous page

proceedings all were denied. Nonetheless, minor. The mother needed permission from body of rules in international cooperation.
some parties have challenged this position the judge to travel with the child, while the
arguing that, because the recognition pro- father was challenging the recognition. Nadia de Araujo re-
cess was a claim and in the course of such The mother was using the birth certificate ceived a master ’s
proceeding a provisional measure could that listed the defendant as the father, and degree in compara-
be obtained, there was no basis for the both parents have to give permission for tive law from George
Supreme Court’s decision in this regard. the travel arrangements.16 Interim injunc- Washington University
The Superior Court of Justice was sensitive tive relief was needed to allow the child to and an SJD in inter-
to this line of reasoning, and Resolution travel while the matter was still unsettled. national law from the
No. 9, Article 4, paragraph 3 allowed for In the second case, the foreign award was University of São Pau-
provisional measures as long as the same N. de Araujo
in a case where a money judgment was lo. She is a professor
requirements for provisional measures in entered for the plaintiff, and there was a re- of private international law at Pontifical
other local proceedings were satisfied. This quest to freeze the defendant’s property in Catholic University of Rio de Janeiro and
means parties have to prove duress and ur- Brazil to guarantee further payment while is a district attorney for the State of Rio
gency. Since 2005, while many provisional the recognition procedure was pending. de Janeiro.
measures have been requested, very few The Superior Court of Justice granted the
have actually been granted. The Superior petition, and the sale of the property was Frederico do Valle
Court is using a strict level of scrutiny abated while the recognition procedure was Magalhães Marques
and has been very cautious in its analysis pending.17 The proposed new Code of Civil received a master’s
of the requirements when granting such a Procedure would retain this rule in Article degree in internation-
measure.14 Many of these requests are for 879, paragraph 3. al law from the State
the authorization of a new marriage before University of Rio de
the recognition of the requested divorce is Conclusion Janeiro and an SJD in
granted; for the sale of property; and for the international law from
authorization of matters relating to children The Superior Court of Justice has re- F. Marques the Federal University
before a decision on guardianship has been placed the Supreme Court in the exercise
of Rio Grande do Sul. He is an attorney in
recognized, among others. of exclusive jurisdiction over all pending
Toronto, Canada.
Cases relating to recognition of foreign and future cases relating to the recognition
arbitral awards have also involved requests of foreign decisions. In the last six years,
Endnotes:
for provisional measures. In Request MC the Superior Court of Justice has used case
1 Const. amend. no. 45/2004. The Superior Court
14795, the provisional measure to freeze law developed by the Supreme Court as a of Justice issued Resolution No. 9 in May 2005, which
assets of a company that had to pay an solid foundation but has also developed and contains the legal requirements for the recognition of
implemented its own ideas. The STJ has foreign judgments and arbitration awards in Brazil,
arbitral award was denied on the grounds as well as the granting of letters rogatory, and is in
that the measure was not allowed before the also carved new rules in Resolution No. 9, force until the final approval of its Internal Rules. It
proceedings of recognition were finished, a allowing for partial recognition of foreign is important to explain that until the Constitution of
decisions and the granting of provisional 1988, the Supreme Court had jurisdiction over all
decision that cited old cases of the Supreme matters in the so-called third instance; i.e., the right
Court that have expressly been changed measures during the recognition proce- to review any threats to the Constitution and to federal
by the new rule. The decision comes as a dure—so far one of its boldest ideas. Thus, law. Although Brazil is a federal system, all legisla-
in a very short time, the Superior Court of tion in civil and criminal matters is federal (thus the
surprise under the wording of Resolution system can be called national). The states’ legislative
No. 9, Article 4, paragraph 3, and in line Justice has left its own mark in the field power is very limited, unlike in other systems, such as
with other decisions by the President at that of international judicial cooperation. Its Canada and the United States. The 1988 Constitution
achievements have paved the way for the created a new court, the Superior Court of Justice,
time that had denied similar requests but which has taken over some of the jurisdiction for
under different arguments.15 Although the bill (legal project) proposing a new Code review in matters of federal law from the Supreme
recognition of the award is still pending in of Civil Procedure, which is now pending Court. Now, with the new amendment, additional
approval at the House of Representatives jurisdiction of the Supreme Court has been transferred
SEC 3709, the Public Ministry issued an
to the Superior Court of Justice in order to lighten the
opinion against the recognition because it (Camara dos Deputados). That legislation Supreme Court’s burden. The aim was to make the
found that there was no evidence of the de- would adopt the main features of Resolu- Supreme Court a true constitutional court, dealing
fendant’s acceptance of the arbitral clause; tion No. 9, thereby providing parties with with constitutional questions only. The full text of all
decisions cited in this paper can be accessed by their
thus, no agreement to arbitrate. more certainty in the field of recognition class and number directly at both courts’ websites:
The two cases where the measure was and enforcement of foreign decisions. Once the Supreme Court’s is http://www.stf.gov.br, and the
granted are worth reviewing. In the first, the new Code of Civil Procedure is enacted, Federal Superior Court is http://www.stj.gov.br. The
key word to research case law is “jurisprudência.”
there was a request for recognition of a these provisions will assure other nations A word in the decision or the type or number of the
decision that asserted the paternity of a that Brazil has a comprehensive statutory decision will then reveal the case. Given this ease of

Page 56 The International Law Quarterly Fall 2011


international judicial cooperation,  from previous page

accessibility, citations to other publications of these declared the independence of Brazil from Portugal in 10 AG SEC 854. S.T.J. (2011). This case was a
cases will not be included herein. 1822. Brazil was an empire from 1822 to 1889, when motion to modify a prior decision that had stayed the
2 Its Portuguese name could be translated “homolo- the Republic was declared, and a federal presidential recognition process on the grounds that there was a
gation process,” but “recognition and enforcement” is system implemented, inspired by United States’ insti- pending suit in Brazil. The Superior Court of Justice
better known. tutions. decided that there could be no stay of the recognition
3 In recent years one of the authors, Nadia de 5 Articles 878 to 883 of the bill (legal project) deal process and that it should continue up to judgment.
Araujo, has extensively studied this issue. For more with the matter and will be mentioned when applicable The case concerned the request for recognition of a
detailed references, see, in Portuguese, Nadia de Arau- throughout this work. foreign arbitral award, while the Brazilian case tried
jo, Direito Internacional Privado: Teoria e Prática 6 See SEC 967, S.T.J. (2006) (where the court to discuss the validity of the arbitral clause. As it was
Brasileira (2011), and Nadia de Araujo, coordinator, considered as being an offence to public policy the not a matter of exclusive jurisdiction, the Superior
Cooperação Jurídica Internacional: Comentários absence of proof that defendant chose arbitration as Court of Justice found it could not discuss the validity
a Resolução n. 9 do S.T.J. (2010). In English, see a method of dispute resolution because his signature of the clause in the recognition process of the arbitral
Nadia de Araujo, Dispute Resolution in MERCOSUL: was missing in the contracts where the clause was award, where only requirements of Resolution No. 9
The Protocol of Las Lenas and the Case Law of the inserted. The court asserted that the absence of un- could come into play.
Brazilian Supreme Court, 32 U. Miami Inter-Am. L. equivocal choice by one party of arbitration is against 11 As an example, see SEC 833, S.T.J. (2006) (a re-
Rev. 25, 44 (2001). the principle that arbitration can be used only if there quest to recognize a foreign arbitral award was denied
For more information on the Brazilian system of rec- is manifest choice to submit to it). Also in SEC 866, on public policy grounds because there was no proof
ognition of foreign decisions, see, in English, Jacob S.T.J., the contract was concluded verbally, and there that service of process had properly reached defendant
Dolinger, Brazilian International Procedural Law, in was no proof that arbitral clauses were negotiated; and only a letter rogatory constitutes sufficient proof
A Panorama of Brazilian Law 349, 365-66 (Jacob thus, no proof of its acceptance. Public policy was that communication was done according to Brazilian
Dolinger & Keith S. Rosenn eds., North-South Center the reason for denying the arbitral award recognition. rules).
& Editora Esplanada Ltda. 1992) (1991); Daniela Nonetheless, in SEC 856, S.T.J. (where there was also
Trejos Vargas, Proceedings Inaugural Conference no proof of the signing of the arbitral clause), the court 12 SE 1633, S.T.J. (2011).
on Legal and Policy Issues in the Americas, 13 Fla. reached the opposite conclusion and decided that al- 13 SE 4703, S.T.J. (2010).
J. Int’l L. 125, 127-28 (2000); Maria Angela Jardim though there was no signed contract, there was proof 14 In a search for examples for this article, more
de Santa Cruz Oliveira, Recognition and Enforcement of the understanding of the parties, and both appeared than 50 requests were reviewed, of which only 2 were
of United States Money Judgments in Brazil, 19 N.Y. before the arbitral tribunal. Thus, there was no reason
granted.
Int’l L. Rev. 1 (2006). For a recent account of recog- to vacate the award on public policy grounds.
nition of foreign arbitral awards, see Mauricio Gomm- 15 See MC 14.795, S.T.J. (2008) (denying the request
7 For an analysis of the work of the Superior Court
Santos, Brazil’s Conflicting International Arbitration for provisional measure in a process of recognition of
of Justice in the recognition process of foreign arbitral
Case Law: The Inepar and Renault Decisions, 64 a foreign arbitral award, still pending in SEC 3709).
awards, see Nadia de Araujo, O Superior Tribunal
Disp. Resol. J. 82 (2009). The instant article uses and But see SE 3861, S.T.J. (2008) (decided in the same
de Justiça e a homologação dos laudos arbitrais
expands on information that was previously published year by President Cesar Asfor Rocha as well, where
estrangeiros, balanço positivo de quarto anos de
by the authors in Recognition of Foreign Judgments the question of the requested provisional measure was
atuação, 3 Revista Semestral de Direito Empresaria
in Brazil: the Experience of the Supreme Court and denied but on the grounds it did not represent a clear
229 (2008), where the author shows that the STJ had
the Shift to the Superior Court of Justice, 1 World and present danger or an urgent matter under the word-
decided 24 cases, and only 3 had been denied. The
Arb. and Mediation. Rev. 211 (2007). At that time, ing of Resolution No. 9, art. 4 para. 3). For a comment
the Superior Court of Justice had just begun deciding numbers have grown since then, but the ratio between
granted and denied cases has not changed. on MC 14.795, see Valeria Galindez, Comverse Inc. v.
cases on international cooperation, while now there is American Telecommunications Ltda: Superior Court
a firm and established body of case law on the subject. 8 SE 755, S.T.J., published in 2005. The opinion
of Justice Denies Interim Relief to Secure Enforcement
4 Brazil was the metropolis of the Portuguese stated that although article 89, II, declared the Bra-
zilian judge to have exclusive jurisdiction, in this of Foreign Arbitral Award pending its Recognition (15
Empire from 1808 to 1821, when the King was IBA Arb. News No. 1) at 154 ( 2010).
transferred from Portugal in that country’s war with case the foreign decision respected Brazilian law and
France’s Napoleon. In 1821, King João VI went back distributed the property according to it. 16 See SE 6551, S.T.J. (2011).
to Portugal but left his son Pedro as regent. Pedro later 9 SEC 3532, S.T.J. (2011). 17 See SE 5717, S.T.J. (2011).

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Fall 2011 The International Law Quarterly Page 57


Brazilian Immigration Policies: An Effective
System for Foreign Workers and Investors
By Maria Luisa Souza Costa Soter da Silveira, Rio de Janeiro, and
Christel Estuardo Cunningham, São Paulo

Ever since its discovery by Portugal in Recommended Resolutions that regulate prior work permit granted by the Brazilian
the year 1500, Brazil has always been a special situations, such as humanitarian Ministry of Labor may be needed. Follow-
country open to immigration. Immigration grounds for refugees who do not meet all ing are the most common:
to Brazil started in 1808 with 300 Chinese the requirements for obtaining a visa, and
citizens coming from Macau, and since medical grounds for people who are in Bra- Business Visa
then there have been several immigration zil or need to come to Brazil for treatment. A consular business visa is available for
cycles involving peoples from many dif- people coming to Brazil to attend business
ferent countries. MERCOSUR, Allied Countries meetings, conferences, seminars, work-
Despite the current worldwide economic and Immigration Rules shops or trade shows; for crew members
collapse, since 2002 Brazil has presented a of an airplane or a ship who do not hold an
Whether or not a foreign national needs
positive combination of controlled inflation, international crew card; for media coverage
a consular business or tourism visa to enter
reduced taxes, leveled balance of payments or filming; or for an adoption. Under no
Brazil depends on his or her country of
and a constant growth of its gross domestic circumstances can a foreign national work
citizenship. In general, for citizens of most
product. The Brazilian Ministry of Labor ver- for and/or be paid by a Brazilian source
of the European and the South American
ified that in 2009 almost one million new jobs when in Brazil under a consular business
were created, representing a 3.11% growth. countries, no consular business or tourism
visa. A list of the countries for which a
According to a recent study prepared visa is required. For citizens of the United
consular business visa is required can be
by the Brazilian Ministry of Tourism,1 the States and for most of the Central Ameri-
found at www.portalconsular.mre.gov.br.
FIFA World Cup (2014) and the Olympic can, Asian, African and Oceanic countries,
Foreign nationals involved in the installa-
Games in Rio de Janeiro (2016) are ex- a consular business or tourism visa is re-
tion, service and/or repair of equipment in
pected to generate 2 million (direct and quired. By contrast, MERCOSUR nation-
Brazil do not qualify for a consular busi-
indirect) jobs; a 55% growth in foreign als and Bolivian and Chilean citizens (both
ness visa. Citizens of countries for whom
investment; and approximately 73 million countries are so-called Allied countries for
a consular business visa is not required
domestic landings (versus 59 million reg- immigration purposes), Colombian, Ecua-
who receive the “Entry Form” (“Tarjeta de
istered in 2009). doran, Peruvian and Venezuelan citizens
Entrada”) that is handed out on their flight
may enter Brazil holding only an Identity
to Brazil and who are coming in without a
Sources of Law and Card from their country of origin with no
consular business visa must mark the box
need of a passport. Additionally, MERCO-
Immigration Rules entitled “business.” When stamping the
SUR and Allied countries’ nationals may
Article 5 of the Brazilian Federal Con- Entry Form, the Federal Police officer in
reside, study and work in Brazil without
stitution (1988) guarantees to foreign na- the airport will determine the permitted
obtaining a work permit or a residence
tionals living in Brazil the same rights to period of stay (which would normally be
permit prior to arrival. Such foreign na-
which Brazilian citizens are entitled. They ninety days, but the officer only may permit
tionals may apply for an initial temporary
must be treated equally, with no discrimi- a shorter period). Citizens of countries for
two-year visa and residence permit either
nation based on citizenship, other than the whom a consular business visa is required
in their country of residence pursuant to a
restrictions set forth in the Constitution. must apply for it at the Brazilian Consul-
proper request made to the Brazilian Con-
In Brazil, the primary law regulating the ate having jurisdiction over the place of
sulate with jurisdiction over their place of
conditions for foreign nationals is Law residence. Consular business visas are
residence, or they may apply directly to the
No. 6,815/80, regulated by Decree No. normally multi-entry visas for a period of
Brazilian Federal Police upon their arrival
86,715/81. Further, the requirements for up to five years, but this depends on what
in Brazil. This temporary visa may be trans-
the granting of work permits based on tem- the reciprocating country offers to Brazil-
formed into a permanent residence permit
porary or permanent visas are determined ian citizens. The validity of the consular
after an administrative process before the
by specific Normative Resolutions issued business visa begins on the date of first
Brazilian immigration authorities.
by the National Council of Immigration, entry into Brazil. Business visa holders,
resulting in a much more expeditious pro- regardless of nationality or visa validity
cess than would otherwise be the case. The Common Work Permits and period, can stay in Brazil only for up to
Normative Resolutions are constantly up- Visas ninety days in one continuous period, or
dated, following as closely as possible the Depending on the purpose of the for- for a shorter period if otherwise noted on
needs of the modern world. There are also eigner’s trip, a specific type of visa and a the visa. An extension of the original 90

Page 58 The International Law Quarterly Fall 2011


brazilian immigration policies,  from previous page

days can be granted by the Federal Police and the Brazilian company, the Brazilian and detailed plan of the services to be
in Brazil, although the total stay (whether company is not directly responsible for the rendered by the foreign technicians; (3)
on several trips, or on a single trip with a payment of salary and/or compensation to the number of Brazilian employees who
visa extension) cannot exceed 180 days the foreign technician living and rendering will directly receive the technical training
within a period of 12 months counted from services in Brazil. Further, the expatriate from the foreign technicians; (4) manner,
the first entry in Brazil holding the business shall not be considered a Brazilian resident term, places where the technical assistance/
visa. The processing time for the granting for tax purposes. technical training will be rendered by the
of a consular business visa varies, depend- foreign technicians; (5) results expected
ing on the Consulate, from three to fifteen Technical Temporary Visa – with the training program; and (6) structure
business days. One Year of remuneration agreed to by the Brazilian
This temporary visa is also ruled by and foreign companies. This visa can be
Technical Temporary Visa – Normative Resolution No. 61/04, and thus extended to the legal dependents of the
Ninety Days the restrictions mentioned above concern- foreigner. Note that such legal dependents
As provided by Normative Resolution ing functions and payments are totally will be not authorized to render any kind of
No. 61/04, the purpose of this temporary applicable to this type of temporary visa. services to any Brazilian company or indi-
visa is to allow the rendering of techni- Features of this visa that differ from the vidual, upon remuneration or salary, during
cal assistance and/or services by foreign prior include: (1) greater duration of the the validity of the term of the working per-
technicians and companies to Brazilian validity; (2) acceptance of a sole extension mit granted on behalf of the foreigner. As
companies. Such visa is not applicable to requested by the Brazilian company on this type of temporary visa does not allow
foreign citizens who will execute or render behalf of the foreigner while still in Brazil an employment relationship between the
administrative, financial or management for the same period of one year; (3) produc- foreigner and the Brazilian company, only
activities within the Brazilian company that tion of a complete set of documents with the foreign entity should pay compensa-
requested the visa application on behalf an experience letter issued abroad on behalf tion/salary to the foreign individual. In
of the foreigner. The foreigner must be a of the foreigner (duly notarized and legal- addition, the worker should not be subor-
technician and may not substitute or even ized prior to being sent to Brazil and with dinated to the Brazilian entity (i.e., should
replace the local manpower. The foreign a Portuguese sworn translation prepared not receive orders and directions from the
technician must prove that he/she has a in Brazil); (4) execution of a Commercial Brazilian entity). Regarding tax aspects,
minimum of three years of professional Agreement (such as a Technical Coop- note that the foreigner does not need to
experience related to the technical assis- eration Agreement, Technical Assistance stay on a continuous basis in Brazil during
tance and/or service that he/she will render and/or Services Agreement, or Transfer the validity of the one-year term, as this is
in Brazil. The Brazilian company respon- of Technology Agreement) between the a multiple entry type of visa. Considering
sible for the visa application can produce foreign company and the Brazilian com- this fact, for tax purposes, the foreigner
a statement evidencing such information pany sponsoring the visa; (5) proof that shall be subject to Brazilian tax rules only
about the foreigner. Documents such as whoever signed the agreement on behalf if he/she stays in Brazil for a period longer
diplomas and experience letters issued by of the foreign company was empowered to than 183 days on a cumulative basis.
the foreign company are not necessary, but do so, such document being duly notarized
they may be used to reinforce the expertise and legalized prior to being sent to Brazil Temporary Visa Under an
of the foreign technician. Once the validity and with a Portuguese sworn translation Employment Relationship
of this temporary visa is terminated, it is not prepared in Brazil; and (6) a training pro- This type of visa application is used
possible to request an extension of the work gram for the Brazilian employees of the when a Brazilian company needs to hire
permit and visa in Brazil. Pursuant to the sponsoring company, as specified below. an expatriate with an expertise and educa-
provisions of Normative Resolution No. Such visa is applicable and may be filed tion level that a Brazilian employee cannot
74/07 (general immigration guidelines), it when a Brazilian company needs to receive offer. The parties will have an employ-
is necessary to apply for a new work permit technical assistance directly from a foreign ment relationship regulated in accordance
and visa to the Brazilian Ministry of Labor company to train its own Brazilian em- with Brazilian labor rules. The Brazilian
and to the Brazilian Consulate, respective- ployees or to render services to other local company shall act as “Employer” and the
ly, meaning that the foreign technician must companies. It is not mandatory to evidence foreigner shall act as “Employee,” the
leave Brazil and re-start all the procedures and/or provide in the Commercial Agree- employment contract being limited to a
mentioned herein, as well as wait abroad ment the name of the foreign technicians maximum two-year term. It is possible
for the approval of the new work permit and who will render services in Brazil, but it is to extend the working permit/visa for the
issuance of the visa. As this type of tem- mandatory to provide, among several other same term above pursuant to the execution
porary visa does not allow an employment items, the following data: (1) professional of a new labor agreement and filing of a
relationship between the foreign technician qualification of the foreigner; (2) specific request for an extension of the temporary

Fall 2011 The International Law Quarterly Page 59


brazilian immigration policies,  from previous page

visa with the Brazilian Ministry of Justice, roll, and it may not be higher than the total in Brazil; or (2) R$150,000.00 (Brazilian
which will first hear the Ministry of Labor. amount of two-thirds of the salaries paid to reais), plus the commitment to create ten
The foreigner should have a minimum edu- Brazilian employees in the payroll. For tax new jobs for Brazilian workers—allow-
cation level and professional experience in purposes, during the period of validity of ing the granting of the visa for an initial
accordance with Table 1 below. the temporary visa, the foreigner shall be two-year term of residence in Brazil. The
This temporary visa under an employ- considered as a tax resident and, therefore, foreigner may also be appointed as statu-
ment relationship may also be extended he or she must obey the Brazilian tax rules tory legal representative of other Brazilian
to the legal dependents of the foreigner. regarding payment of income tax and other companies of the same economic group,
Legal dependents may not render any kind taxes. Also, the employee is entitled to all pursuant to the request of a concomitant
of services upon remuneration or salary to of the Brazilian labor rights. authorization to the Brazilian Ministry of
Brazilian companies or third persons dur- Labor. This visa becomes unconditional
ing the validity of the term of the working Permanent Visa With Managerial if, at the end of the conditional period
permit granted on behalf of the foreigner. Powers (five or two years, as the case may be),
Normative Resolution No. 74/07 states This visa is governed by Normative the sponsoring company proves that the
that foreign citizens may not keep an em- Resolution No. 62/2004. The legal basis capital injected by the foreign shareholder
ployment relationship in Brazil that may of this visa application is the existence of remains invested in the Brazilian company
constitute a reduction of salary and/or com- a foreign direct investment registered with and if there is proof of creation of the new
pensation received abroad. The Brazilian the Brazilian Central Bank online system jobs (specifically for item 2 above). For the
company must declare that the remunera- (“SISBACEN”) on behalf of the Brazilian purposes of extending the validity of the
tion to be received by the foreigner is equal company made directly by its foreign legal RNE, the foreigner must remain appointed
to or higher than the remuneration paid entity shareholder. In this modality, it is and vested as statutory legal representative
by the company for the same occupation/ mandatory to have the appointment of the of the Brazilian company.
activity that will be rendered by the for- foreigner as a statutory legal representative
eigner in Brazil. It is also important to note in the Articles of Association or Bylaws of Permanent Visa for Foreign
that the so-called “two-thirds rule” must the Brazilian company, the investiture of Individual Investor
be followed. Pursuant to this rule, there the foreigner as statutory legal representa- This type of visa is ruled by Normative
are two guidelines that must be observed tive being conditioned upon the granting Resolution No. 84/09. The legal basis of
by Brazilian companies for the hiring of of the work permit and permanent visa this visa application is the existence of a
foreign employees: (1) Two-thirds of the with managerial powers by the Brazilian foreign direct investment registered with
employees hired by the Brazilian company Ministry of Labor. There are two ways to the Brazilian Central Bank online system
should be Brazilian citizens (two Brazilian obtain the visa depending on the amount on behalf of the Brazilian company made
employees are needed for each foreign of foreign direct investment remitted to directly by its foreign individual investor
employee); and (2) the total amount of the Brazilian company: (1) $R600,000.00 (who must be a shareholder of said Brazil-
salaries paid to foreign employees must —allowing the granting of the visa for a ian company). This visa is conditional for
correspond to one-third of the total pay- conditional initial 5-year term of residence an initial three-year term. The required
amount of the foreign direct investment
corresponds to $R150,000.00. Depending
TABLE 1
on the importance of the project, however,
it may be approved with a smaller amount.
Minimum Education Level Professional Experience
In this modality, it is mandatory to have the
capital injection made in the Brazilian com-
Nine years for foreigners with Two years experience in the activity
medium level. to be rendered in Brazil.
pany duly registered with the local Board
of Trade pursuant to the execution of an
One year experience in the activity amendment to the Articles of Association
Bachelor’s degree level to be rendered in Brazil, counted or Bylaws of the Brazilian company. The
concluded(university/ technical). from the date of conclusion of the Brazilian Ministry of Labor also requires
degree/course. the submission of an Investment Plan stat-
ing specific targets related to the creation
Post-graduation (minimum of 360 It is not necessary to have of jobs; income to Brazilian nationals;
hours) or master’s degree. experience. increase in productivity; assimilation of
technology; and destination of resources
Cultural/Artistic profession– Three years experience in the for specific sectors. The most important
no minimum education level. activity to be rendered in Brazil.
aspect of the Investment Plan is the social

Page 60 The International Law Quarterly Fall 2011


brazilian immigration policies,  from previous page

relevance of the Brazilian company and After that, the foreigner may go directly Labor Disputes and in
its capability to generate jobs and revenue. to the Brazilian Consulate abroad, with a the Specialized Sec-
Thus, the extension of this visa application specific set of documents, which may vary tion on Collective La-
depends on proof that the new jobs to Bra- in accordance with the internal rules of bor Disputes. Isa Soter
zilian nationals described in the investment each Brazilian Consulate, and request the frequently lectures on
were created in the first year of the validity issuance of the visa stamp in the passport. subjects related to cor-
of the visa. As soon as the visa stamp is issued, the porate immigration
foreigner may travel to Brazil and proceed and expatriates.
General Immigration with his or her enrollment with the Brazil- M. da Silveira

Procedures ian Federal Police to obtain his Foreign ID Christel Estuardo


Card (so-called “RNE”). In addition to such Cunningham is an
There are no special preference catego-
documents, it is also important to enroll the associate at Veirano
ries for the purposes of immigration to
foreigner with the Ministry of Finance to Advogados, where she
Brazil. All work authorization applications
obtain the Individual Taxpayer’s Registry works on: internation-
must be analyzed directly by the General
(so-called “CPF”), if applicable. Finally, al corporate law and
Coordination of Immigration at the Min-
in accordance with the nature of the visa contracts; diversified
istry of Labor located in Brasília, Distrito
granted by the Brazilian Ministry of Labor, corporate operations;
Federal. All documents produced abroad
the foreigner must also enroll with a Labor C. Cunningham mergers; acquisitions;
must be notarized abroad by a notary pub-
Department to obtain his/her Labor and spin-offs; joint ven-
lic, legalized by the Brazilian Consulate
Social Security Card (so-called “CTPS”). tures; due diligence processes; formation
and translated into Portuguese in Brazil by
of Brazilian and foreign companies; and
a sworn translator prior to being filed with
Maria Luisa Souza Costa Soter da Silvei- long and short term investments abroad.
the Brazilian Ministry of Labor. Currently,
ra is a partner at Veirano Advogados and She possesses vast experience in limited
the issuance of the approval of the work au-
is the National Corporate Immigration liability companies, corporations and other
thorization by the Ministry of Labor takes
Coordinator. Isa Soter acts as counsel for types of companies, preparation of share-
approximately forty-five days, counted
Brazilian and multinational companies, holder agreements, and regulatory control
from the filing date of the visa application.
advising them on labor disputes and busi- of foreign and Brazilian capital abroad
Once the work permit is approved, it is
ness immigration issues. After approval in and in Brazil with the Central Bank of
published in the Brazilian Official Gazette,
a public examination in 1992, she served as Brazil. Besides her corporate expertise,
and the Brazilian Ministry of Labor shall
a labor judge until her retirement in 2000, Christel Cunningham works with banking
send the authorization to the Ministry of
initially in the trial court as a Substitute and finance law and is the Regional Coor-
External Relations which is the Brazilian
dinator of the Department of Immigration
authority in charge of the remittance of the Judge and, after March 1994, as a Presid-
of Veirano located in the City of São Paulo.
working permit/authorization to the Brazil- ing Judge. In September 1996 she was
ian Consulate abroad indicated in the work summoned to work as a Substitute Judge
Endnote:
authorization application form. This proce- in the Appellate Labor Court, where she
1 http://www.copa2014.turismo.gov.br/export/sites/
dure by the Ministry of External Relations worked in four different judicial groups default/copa/noticias/todas_noticias/downloads_noti-
may take up to five days to be performed. in the Specialized Section on Individual cias/Turismo_no_Brasil_2011_-_2014.pdf

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Fall 2011 The International Law Quarterly Page 61


A Proposed Brazilian Constitutional Amendment
to Make Judgments Res Judicata Before All
Appeals Have Been Exhausted
By Keith S. Rosenn, Miami

I. Introduction Brazilian courts, particularly its two highest judicial system is the excessive number of
federal courts—the Federal Supreme Court appeals permitted by the Constitution and
The President of Brazil’s Federal Su-
(STF) and the Superior Tribunal of Justice the procedural codes. Reflecting a seri-
preme Court, Minister Cezar Peluso, has
(STJ)—have experienced a huge surge ous mistrust of judges, the Brazilian legal
recently submitted to Congress a proposal
in the number of cases on their dockets.2 system gives most litigants up to four bites
for a constitutional amendment designed
Despite heroic efforts by Brazilian judges at the apple by providing three different
to shorten significantly the seemingly
in resolving large numbers of cases, back- levels of appellate review. Virtually all
endless litigation delays,
cases can be appealed to an
to reduce the gargantuan appellate tribunal.8 In addi-
caseloads of the country’s tion, all interlocutory orders
two highest courts and to are appealable.
increase the likelihood that
convicted criminals with
II. Overview of
money or position will ac-
Brazil’s Appellate
tually serve their sentences.
This sensible amendment,
System
dubbed the PEC dos Re- A. Appeals From Final
Judgments
cursos (Proposed Appeals
Appeal is the most im-
Amendment), would go a
portant form of review. A
long way towards accom-
basic rule of Brazilian civil
plishing these goals by the
procedure is that a request
simple device of making
to appeal must be addressed
judgments final and non-ap- Brazil’s Supreme Court first to the judge who, or
pealable immediately after they
tribunal that, rendered the judg-
have been upheld upon first appeal, even logs have increased in many jurisdictions, ment. That judge or tribunal must forward
though such judgments may ultimately be further exacerbating the chronic delays.3 the record to the appellate tribunal after a
revised by subsequent collateral attack in One of the often reiterated complaints determination that the formal requirements
Brazil’s two highest federal courts.1 The about the Brazilian judiciary is that litiga- for review have been met. If the rendering
proposed amendment has generated seri- tion seems to go on interminably.4 There is court decides that the formal requirements
ous controversy among Brazilian lawyers, anecdotal evidence of cases that have taken have not been met, it will deny leave to ap-
academicians and jurists. nearly ninety years to resolve,5 but it is dif- peal.9 The appellate tribunal makes its own
The need for this amendment, the way ficult to find data about the actual length of de novo determinations of fact and law on
in which it will operate, and why it is so delays because official judicial statistics the basis of the written record.
controversial cannot be understood with- make no attempt to measure the length of The appeal almost always has the effect
out some knowledge of how Brazilian time needed to conclude litigation.6 Re- of suspending enforcement of the lower
courts operate and why lengthy delays have cently it has been estimated that it would court’s judgment without any need to post
chronically plagued the Brazilian judicial take somewhere between six and thirteen a supersedeas bond.10 Moreover, judgments
system. More particularly, one needs to years for the judgment in an ordinary ac- awarding more than 60 times the minimum
focus upon the multiplicity of procedural tion involving a non-complex international wage (about $17,225) against any federal,
devices used by lawyers to try to ensure dispute to become res judicata in a suit state, or municipal government or any
protracted litigation. The problem is not initiated in the courts of São Paulo, Brazil’s public law entity are subject to mandatory
a new one. It originated with the proce- most populous state.7 The great bulk of this appeal because they have no effect until
dural system that Brazil inherited from the time would be consumed by the appellate confirmed on appeal.11
Portuguese; however, it has reached crisis process rather than the trial before a single Appeals ordinarily are heard by a panel
proportions since adoption of the 1988 judge sitting without a jury. of three judges of the Tribunal of Justice,
Constitution, which created a plethora of One of the principal reasons for the the highest state court, or a Federal Re-
new rights and actions. As a consequence, seemingly endless delays in the Brazilian gional Tribunal, an intermediate federal

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constitutional amendment – res judicata,  from previous page

appellate court. If the decision of the panel panel, additional review can be sought the parameters of the specific case.18 A
is unanimous, no further appeal will lie before a Section of the Superior Tribunal vote of two-thirds of the Supreme Court
except for the special appeal to the Superior of Justice.14 is required to dismiss an appeal for lack
Tribunal of Justice or the extraordinary A third level of appellate review is of general repercussions.19 If four out of
appeal to the Supreme Court, which are provided by extraordinary appeal to the the five members of a panel decide that an
discussed below. If the decision is not Federal Supreme Court. An extraordinary appeal has no general repercussions, that
unanimous, the losing party can appeal appeal can be taken from any decision in determination will be decisive, and the is-
the decision by seeking a rehearing en sole or ultimate instance that is contrary sue may not be appealed to the full Court.20
banc, which will be decided by a group to the Constitution, declares a treaty or Unlike the writ of certiorari, which has no
of five judges selected from two different federal law unconstitutional or upholds a precedential value, the determination that
chambers within the same appellate body.12 law or act of a local government against an extraordinary appeal presents no general
A second level of appellate review is a constitutional challenge or a challenge repercussions constitutes a binding prec-
provided by special appeal to the Superior of conflict with federal law.15 The extraor- edent with respect to all other such appeals
Tribunal of Justice, the second highest fed- dinary appeal is derived from the writ of presenting the same issue.21
eral court, from cases decided by the state error in the U.S. Judiciary Act of 1789. The general repercussions requirement
Tribunals of Justice or the Federal Regional Because the Brazilian Constitution is so has substantially reduced the number of
Tribunals. The special appeal can be taken extensive and contains many provisions extraordinary appeals and bills of review
whenever the appealed decision: (1) is con- that one would expect to encounter only in on the Supreme Court’s docket. The num-
trary to a treaty or federal law, or denies the statutes or regulations,16 it is far easier to ber of extraordinary appeals distributed to
effectiveness thereof; (2) upholds an act of challenge the constitutionality of decisions members of the Supreme Court declined
a local government challenged as contrary in Brazil than the United States. Like the by 86.4% between 2007 and 2010—from
to federal law; or (3) interprets federal law Superior Tribunal of Justice, the Supreme 49,708 appeals in 2007 to 6,735 in 2010.22
differently from another tribunal.13 Unlike Court ordinarily sits in panels of five and
the United States, the great bulk of Brazil- also assigns appeals to one member of the B. Interlocutory Appeals
ian law is federal. panel designated as the rapporteur. If the All interlocutory orders may be appealed
The Superior Tribunal of Justice has panel’s decision diverges from a decision by a bill of review (agravo). There are
thirty-three members and sits in panels of of another panel or the full court, the los- two forms of interlocutory appeals. One
five. The appeal will be assigned to a single ing party can request that the appeal be (agravo retido) is made for the purpose of
minister who acts as the rapporteur in ana- reheard en banc. If there are at least four preserving the point on appeal and is re-
lyzing the appeal. The rapporteur acting dissenting votes, certain kinds of decisions tained by the trial court until final decision.
alone may summarily dismiss any special of the entire Supreme Court are subject to If that decision is appealed, the interlocu-
appeal that is plainly inadmissible, such as additional review by means of a request tory appeal, at the appellant’s request, will
one that is untimely, baseless or makes a for rehearing.17 be determined as a preliminary matter to
contention that has already been rejected Until recently, the Brazilian Supreme the appeal of the final decision. The second
by a line of decisions of the Superior Tri- Court lacked any device analogous to the type of interlocutory appeal goes directly
bunal of Justice or the Supreme Court. If U.S. Supreme Court’s writ of certiorari to to the appellate tribunal. This form of in-
a special appeal is summarily dismissed, enable it to screen out unimportant cases terlocutory appeal suspends the proceed-
the appellant may appeal the rapporteur’s or cases presenting contentions that had ings in the trial court only if the appellant
decision to a panel of the Superior Tribunal already been rejected by its prior decisions. obtains a stay from the appellate tribunal.
of Justice. If the appeal is heard, the rap- As a result, the Brazilian Supreme Court’s Ordinarily, a stay will be granted by the
porteur will summarize the case orally for caseload had been running well in excess of rapporteur to whom the appeal is assigned
the rest of the panel and announce his or her 100,000 cases per year. In 2004, Congress only if there is threat of irreparable harm
vote. Counsel are permitted to present oral passed Constitutional Amendment No. 45, or grave injury.23 In an attempt to reduce
argument. The other ministers will either which, among other reforms to the judicia- the number of direct interlocutory appeals,
concur or dissent depending upon what ry, created a new constitutional limitation the Code of Civil Procedure was amended
they have heard, but any member of the on extraordinary appeals called “general in 2005 to convert the direct interlocutory
panel can request an opportunity to study repercussions.” Since 3 May 2007, the appeal into a retained appeal unless the
the file or the applicable law. Supreme Court has been refusing to hear challenged decision is capable of causing
If the panel’s decision is not unanimous, any extraordinary appeal that does not pres- irreparable harm or serious injury, or the
the losing party may file an additional ap- ent a constitutional question with general decision denies the admissibility of an ap-
peal, requesting en banc review before a repercussions. This means that the appeal peal.24 If no stay has been granted and the
larger panel of the tribunal. If the panel’s must present economic, political, social interlocutory appeal is successful, the acts
decision is inconsistent with that of another or juridical questions that extend beyond taken by the trial judge subsequent to the

Fall 2011 The International Law Quarterly Page 63


constitutional amendment – res judicata,  from previous page

appeal ordinarily will be voided, and the years of the date the judgment became fi- seemingly indefinitely while at liberty.
trial proceedings will have to commence nal and non-appealable.31 The grounds for Not infrequently, the prosecution becomes
again from the point at which the success- bringing a rescissory action are fairly broad, barred by the statute of limitations.
fully challenged decision was entered.25 If making an end to litigation even more elu- One of the more illogical provisions in
the interlocutory appeal is unsuccessful in sive. Final judgments can be set aside by the Brazilian Constitution provides: “No
the first appellate court, further appellate collateral attack for: (1) judicial corruption; one shall be considered guilty until his
review may be sought before the Superior (2) fraud by the prevailing party or collu- criminal conviction has become final and
Tribunal of Justice or the Federal Supreme sion between the parties to produce a fraud non-appealable.”36 Even the rare orders of
Court by special appeal or extraordinary on the law; (3) offense to res judicata; (4) imprisonment of persons convicted of seri-
appeal. In 2008, however, the Supreme literal violation of a statutory provision; (5) ous crimes like rape or murder have been
Court amended its internal rules to extend false evidence; (6) subsequently discovered overturned on habeas corpus by the Su-
the requirement of a showing of general documentary evidence; (7) an invalid con- preme Court until the conviction becomes
repercussions to interlocutory appeals.26 As fession or settlement; or (8) factual error.32 final and non-appealable.37
a result, the number of bills of review de- Rescissory actions can be appealed all the Although criminal proceedings have
clined by 56.4% during the same period— way to the Supreme Court. been brought against 152 current members
from 56,909 in 2007 to 24,801 in 2010.27 The proposed constitutional amendment of the Brazilian Congress, some of whom
will convert the special appeal to the Su- have been convicted on multiple charges
C. The Request for Clarification perior Tribunal of Justice and the extraor- in the lower courts, none has gone to jail.
Brazilian law affords opportunities for dinary appeal to the Supreme Court into The Constitution confers upon them parlia-
additional delay by allowing any party to rescissory actions. The grounds for bring- mentary immunity and the right to be tried
ask any court to clarify any decision it has ing the special and extraordinary appeals exclusively before the seriously overbur-
rendered. This request can be filed whenev- will, however, remain the same. dened Supreme Court. Between September
er there is obscurity or contradiction in any 1988 and April 2010, the Supreme Court
judgment or appellate decision, or when- III. Impunity for Privileged convicted no member of Congress. Be-
ever the decision failed to decide a conten- Criminals tween May and September 2010, however,
tion that should have been decided.28 It can the Supreme Court actually convicted three
While the poor and underprivileged are
be filed with the court of first instance or members of Congress, although none was
frequently wrongfully imprisoned in Brazil
any of the appellate tribunals, including the sentenced to hard jail time.38 In October
despite the theoretical availability of ha-
Superior Federal Tribunal and the Supreme 2010, a panel of the Supreme Court con-
beas corpus,33 the wealthy and politically
Court. Because a request for clarification victed a deputy from the State of Rodônia,
well connected almost invariably avoid
can be made multiple times and because it Natan Donadon, and sentenced him to
spending any time in prison when accused
suspends the period for bringing any other serve thirteen years and four months in
of crimes or even after criminal convic-
forms of review by any party, it has been a prison. Despite this conviction, Donadon is
tions. Brazilian law grants many types of
favorite device for delaying proceedings. currently in Congress because his convic-
persons the privilege of avoiding pretrial
To try to discourage this dilatory tactic, tion is not yet final. Donadon filed a request
detention with common criminals. The
for clarification of the decision, and a mem-
the Code of Civil Procedure was amended privilege of special prison, often at one’s
ber of the Supreme Court, relying upon the
in 1994 to grant the judge or tribunal the own home, extends to all elected officials,
constitutional presumption of innocence
power to impose a fine of up to 1% of the the police, the military, employees of the
until the judgment becomes final and non-
amount in controversy for filing a request criminal justice system, judges, prosecu-
appealable, issued a preliminary injunction
for clarification that is manifestly for pur- tors, diplomats, clergy, civil servants, for-
overriding a decision of the Superior Elec-
poses of delay, and up to 10% of the amount mer members of a jury, pilots, firemen,
toral Tribunal. Thus, Donadon was allowed
in controversy for doing so repeatedly.29 directors and administrators of unions and
to retake his seat in Congress.39
business syndicates, teachers, and any-
D. Res Judicata and the one with a university degree.34 Most im-
Rescissory Action portantly, the right to special prison lasts IV. Why the PEC dos
Under current law, a judgment has the until one’s conviction becomes final and Recursos Should Be
force of res judicata only after it is no longer non-appealable.35 Wealthy and privileged Adopted
subject to revision by special or extraordi- criminal defendants generally manage to Obviously, the PEC dos Recursos is not a
nary appeal.30 But even after it has become postpone trial for many years by filing dila- panacea for all the dysfunctional aspects of
res judicata, a final judgment on the merits tory motions, such as a request to take the the Brazilian procedural system. Severely
can still be set aside by a rescissory action. testimony of someone abroad. If ultimately restricting the use of interlocutory appeals
Such an action must be brought within two convicted, they appeal their convictions and actually imposing sanctions against

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constitutional amendment – res judicata,  from previous page

attorneys for delaying tactics would also all agencies of the Brazilian federal, state country in which the quality of judicial
help enormously. But the proposed consti- and municipal governments to parcel out decisions may vary from state to state.
tutional amendment should significantly payment of final non-appealable judg- But this criticism has no real terminus.
improve the present system. The first im- ments, with the exception of small claims No matter what kind of system is in place,
portant change should be further reduction and support payments, over a ten-year pe- some judges may be better than others. It
in the number of appeals taken to the Su- riod.43 Passage of the proposed amendment may well be that certain decisions would
preme Court and the Superior Tribunal of should reduce the waiting period for most have come out differently if they had been
Justice. In 2007, when the requirement that creditors by five or six years. assigned to a different rapporteur on the
appeals present an issue with general reper- Third, the proposed amendment might Supreme Court or the Superior Tribunal
cussions was first instituted, the number actually result in some of the wealthy and of Justice. Even if Brazil were far less
of extraordinary and interlocutory appeals politically connected criminals going to populous and geographically diverse, it
constituted 94.4% of the Supreme Court’s jail by having their convictions become res would be impossible for all judicial deci-
caseload. In 2010, that percentage declined judicata many years earlier. The proposed sions to be reviewed by the highest federal
to 76.9% but still amounted to a total of amendment does not, as some of its critics courts. That some state or regional tribunals
31,536 cases.40 The situation is similar in have suggested, violate the presumption of might be better or worse than others is not
the Superior Tribunal of Justice, with spe- innocence contained in Article 5 (LVII) of an important enough reason to reject a
cial and interlocutory appeals constituting the Constitution. It cleverly works around reform that will significantly diminish the
63.6% of the total caseload, amounting to this over-exuberant provision by moving huge caseloads of the highest courts in the
a total of 201,176 cases.41 forward the date a conviction becomes country and reduce the inordinate delays in
The great bulk of these appeals are filed final and non-appealable. To claim that one the administration of justice.
by organs of the state and federal govern- should continue to be presumed innocent The only real problem with the proposed
ments.42 Moreover, the primary purpose of after one’s conviction has been affirmed amendment is how to make an egg out an
many of these appeals is simply to delay on appeal makes no sense. Nor does this omelet. If a judgment is overturned on
payment of debts owed by these govern- proposed amendment in any way interfere special or extraordinary appeal after the
mental entities. Many raise issues that have with habeas corpus, the denial of which creditor has already executed on it, how
already been decided adversely to the ap- can be appealed all the way to the Supe- does one insure that the amount realized is
pellant by the Superior Tribunal of Justice rior Tribunal of Justice and the Supreme returned to the debtor? This criticism of the
or the Supreme Court. Not surprisingly, Court. The Brazilian Constitution does proposed amendment will probably disap-
the success rate of all the extraordinary not guarantee a litigant any set number of pear if the draft of the new Code of Civil
and interlocutory appeals decided by the appeals. Article 5 (LV) provides only that Procedure, which has already been ap-
Supreme Court is quite low. In 2010, 82.5% “litigants in judicial and administrative proved by the Senate, is enacted.44 The draft
of the extraordinary appeals and 95% of proceedings and defendants in general are code also prevents appeals from suspend-
the interlocutory appeals decided by the assured an adversary system and a full ing the effect of lower court judgments.
Supreme Court were denied. defense, with the measures and recourses Even though there may be an occasional
Passing this proposed constitutional inherent therein.” The adversary system case in which restitution of an executed
amendment should drastically reduce the and a full defense do not require three or judgment is impossible after a judgment
number of these appeals filed before Bra- four appeals. debtor prevails on collateral attack, this
zil’s two highest courts by removing the Fourth, the proposed amendment has the possibility should not prevent enactment
incentive to continue to delay payments additional benefit of helping to augment of a seriously needed reform that should
that are due. This will afford the members the prestige of the lower courts. The exist- significantly improve the administration
of these tribunals more time to study care- ing procedural system reflects a profound of justice in Brazil.
fully and to decide the really important mistrust of judges, making all judicial de-
questions presented to them. cisions appealable and postponing finality Keith S. Rosenn, Pro-
Second, at least some of the appellees until all possible appeals are exhausted. fessor of Law at the
may also be able during their lifetime to The proposed amendment displays far University of Miami
collect sums owed to them rather than have greater confidence in the ability of the since 1979, received
to leave these credits to their heirs. This has lower courts to decide cases correctly and a B.A. from Amherst
been made more likely by two decisions places far greater value on the decisions of College in 1960 and
of the Supreme Court last year suspending the lower courts. an LL.B. from Yale
enforcement of Article 2 of Constitutional There is probably some merit to the Law School in 1963.
Amendment 30 of 30 September 2000, charge that this proposed amendment K. Rosenn Professor Rosenn has
which had seriously aggravated the lengthy values the decisions of the lower courts practiced law with a Brazilian law firm and
delays in collecting judgments by allowing equally despite the fact that Brazil is a vast has worked as a project specialist with the

Fall 2011 The International Law Quarterly Page 65


constitutional amendment – res judicata,  from previous page

Ford Foundation, helping to establish a within a reasonable time and the means to guarantee that permits appellate review on the same record as
that they will be handled speedily.” the extraordinary appeal. Law No. 12.322 of 9 Sept.
graduate legal education program in Rio
5 The most famous is a dispute about a 1907 soc- 2010.
de Janeiro. He is the author of six books cer championship that was not ultimately resolved 27 S.T.F. Statistics, supra note 2.
and numerous law review articles in the until 1996. Daniela Trejos Vargas, Civil Justice in the 28 C.P.C., art. 535.
fields of comparative law, Latin American Americas: Lessons from Brazil, 16 Fla. J. Int’l L.19
(2004). 29 Id., art. 538, as amended by Law No. 8.950 of 13
law, and constitutional law. He is the chair Dec. 1994.
6 See World Bank Report, supra note 2, at 111.
of the LLM programs in Comparative Law 30 Id., art. 467.
7 Gustavo Sampaio Valverde, Potential Advantages
and in Inter-American Law. and Disadvantages of Arbitration v. Litigation in 31 Id., art. 495.
Brazil: Costs and Durations of the Procedures, 12 L. 32 Id., art. 485.
Endnotes: & Bus. Rev. Am. 515 (2006).
33 Recent investigations reveal that about one-fifth
1 A constitutional amendment is necessary to 8 Even a jury verdict acquitting an accused can of all pretrial detainees are wrongfully imprisoned.
accomplish this because the jurisdiction of these be appealed by the prosecutor. There are, however, a CPI Sistema Carcerário 221 (2009), available at
courts and the types of appeals are all set forth in the few cases where the appeal is heard by the trial judge http://bd.camara.gov.br.
Brazilian Constitution of 1988. The proposed amend- or a three-judge panel of the court of first instance,
such as a decision of a small claims court. Sergio 34 Luís Fernando de Moraes Manzano, Curso de
ment will add two new articles, 105 A and B, to the
Bermudes, Administration of Civil Justice in Brazil, Processo Penal 434-437 (2010).
Constitution:
in Civil Justice in Crisis: Comparative Perspectives 35 Id. at 434.
105A-The admissibility of the extraordinary
on Civil Procedure 347, 350 (Adrian A.S. Zuckerman
appeal and the special appeal shall not prevent 36 Const. of 1988, art. 5(LVII).
ed., 1999).
the challenged decisions from becoming final 37 E.g., H.C. 91676, RJ, Rep. Lewandowski, S.T.F.
and non-appealable. 9 If the trial judge refuses to permit an appeal, the en banc, 12 Feb. 2009, 31 LEX S.T.F., no. 367, pp.
party wishing to appeal can seek appellate review 311-354 (2009).
Sole paragraph. No instrument shall grant a sus-
of that order by filing a bill of review (agravo de
pensive effect to the appeals, but the rapporteur 38 Keith S. Rosenn, Procedural Protection of Con-
instrumento) with the appellate tribunal. Except in
may request preference in the judgment. stitutional Rights in Brazil, 50 Am. J. Comp. L. 1009,
a few specified cases, filing a bill of review does not
105B- Any ordinary appeal, with a devolutive suspend the appealed judgment. 1020 (2011).
and suspect effect, may be taken within a period 39 Ação Cautelar No. 2.763, 16 Dec. 2010 (S.T.F.,
10 Only in a few exceptional cases does an appeal
of fifteen (15) days from a decision that, with or Rep. Celso de Mello).
fail to suspend the appealed judgment. C.P.C., art. 520.
without determining the merits, extinguishes a
proceeding of original jurisdiction: 11 Id., art. 475. 40 S.T.F. Statistics, supra note 2. There is some
12 Id., art. 530. double counting between the two forms of appeal
I- from the local Tribunal to the competent because a single case often produces both an extraor-
Superior Tribunal; 13 Const. of 1988, art. 105(III). dinary and interlocutory appeal that are sometimes
II- from the Superior Tribunal to the Federal 14 Regimento Interno do S.T.J., art. 266. filed simultaneously. World Bank Report, supra note
Supreme Court. 2, at 58.
15 Const. of 1988, art. 102(III).
2 A comprehensive World Bank study found that 41 S.T.J., Relatório Estatística 7 (2010).
16 See Keith S. Rosenn, Brazil’s New Constitution:
the number of cases filed in Brazilian courts increased
An Exercise in Transient Constitutionalism for a 42 In 2004, the former President of the Supreme
by a factor of six between 1990 and 2004. World
Transitional Society, 38 Am. J. Comp. L. 773, 777-801 Court stated that the federal government, the states
Bank, Brazil: Making Justice Count: Measuring &
(1990). and municipalities were responsible for 83% of the
Improving Judicial Performance in Brazil, World
Bank Report No. 32789-BR (30 Dec. 2004) [here- 17 Regimento Interno do S.T.F., art. 333. Court’s caseload. World Bank Report, supra note 2, at
inafter World Bank Report]. Between 1987, the year 59. A recent study found that the federal government,
18 C.P.C., art. 543-A § 3.
prior to adoption of the present Constitution and the the Federal Savings Bank, and the Social Security
19 Const. of 1988, art. 102 §3 (added by Amend. 45 Institute were responsible for filing more than 50 %
past decade, the number of cases decided by Brazil’s of 8 Dec. 2004, art. 1).
Supreme Court increased by a factor of 5.5. In 1987 of all the extraordinary and interlocutory appeals in
the Supreme Court decided 20,122 cases; between 20 C.P.C., art. 543-A § 4. the Supreme Court, and that 65.85% were filed by a
2000 and 2010, the Supreme Court decided an an- 21 Id., art. 543-A § 5. dozen litigants, all but one of which were governments
nual average of 110,720 cases. Calculated from data or governmental entities. Joaquim Falcão, Pablo de
22 S.T.F. Statistics, supra note 2. Camargo Cerdeira & Diego Werneck Arguelhes, I
published by the Supreme Court at: http:www.stf.jus.
br/portal/cms/ver/Texto.asp?servico=estatistica&pag 23 C.P.C., arts. 527 (III) and 558. Relatório Supremo Em Números: O Múltiplo Supre-
ina=REAIProcesso [hereafter S.T.F. Statistics]. 24 Id., art. 527(II), as amended by Law No. 11.187 mo 68-70 (2011).

3 Augusto Zimmermann, How Brazilian Judges of 19 Oct. 2005. The reform has not had the desired 43 ADIs Nos. 2356 and 2362 (Rep. Celso de Mello,
Undermine the Rule of Law: A Critical Appraisal, 11 effect. Since there are no penalties for bringing a direct S.T.F. en banc), Decisions of 25 Nov. 2010, DJE of 19
Int’l Trade & Bus. Rev. 179 (2008). It is difficult to interlocutory appeal that should have been retained, May 2011. The Supreme Court has yet to decide the
estimate the length of the delays in judicial proceed- attorneys continue to take their chances with the ap- merits of these direct actions of unconstitutionality,
ings because the official judicial statistics make no pellate courts, which often hear them anyway. which have been pending since 2000.
attempt to measure the time it takes to resolve cases. 25 Sergio Bermudes, supra note 8, at 350. 44 Senate Bill 166 of 2010, discussed in Relevant
4 This problem was acknowledged openly in Con- 26 Emenda Regimental No. 24 of 8 May 2008; Aspects of the Bill of Law for the New Brazilian
stitutional Amendment No. 45 of 8 Dec. 2004, which Emenda Regimental of 28 Nov. 2008. A statute en- Civil Procedure Code, Int’l Bar Assoc. Legal Prac.
added a new subsection LXXVIII to Art. 5 with the acted in 2010 transformed the interlocutory appeal Div. (Apr. 2011), available at http://www.mondaq.
following precatory provision: “Everyone is assured taken from a decision refusing to permit an extraor- com/x/139532/International+Law/Relevant+aspect+
that judicial and administrative proceedings will end dinary appeal from a separate appeal into a procedure of+the+Bill+of+....

Page 66 The International Law Quarterly Fall 2011


Ethanol: Sweetening the Deal
Between the U.S. and Brazil
By Rafaela Vianna, Ft. Lauderdale

Introduction sugarcane historically has been one of Bra-


zil’s main agricultural products. Brazil’s
During President Barack Obama’s visit
climate and conditions are perfect for cul-
to Brazil on 20 March 2011, he said to
tivation of the plant on a large scale, with
the Brazilian people, “For so long, you
accompanying environmental benefits. The
were called a country of the future, told to
substantially low cost of using sugarcane
wait for a better day that was always just
to produce ethanol explains the success
around the corner. Meus amigos, that day
of Brazilian ethanol. Brazil, however, is
has finally come. And this is a country of
not the largest producer of ethanol. While
the future no more. The people of Brazil
Brazilian production is 28 billion liters
should know that the future has arrived.
annually, American production reaches
It is here now. And it’s time to seize it.”1
49 billion liters annually.11 The low cost
During this address, President Obama also
of sugarcane-based ethanol production al-
praised Brazil as an example of democracy
and development and said that the decline lows Brazil to compete in the global market
in Brazilian poverty should inspire other without the large investment in subsidies
countries.2 He praised the relationship be- that U.S. corn-based ethanol requires be-
tween the U.S. and Brazil and stressed the cause corn-based ethanol in the U.S. is
importance of strengthening ties between significantly more expensive to produce.
the two nations.3
Indeed, increased U.S. trade with Brazil The U.S. Problem
may be one of the keys to the recovery The U.S. has spent vast sums trying to
of the U.S. economy. Exports to Brazil end its economic crisis, with very little
generate 250,000 jobs in the U.S. and half Brazil. Brazilian-made ethanol is a proven success. The dilemma is how to stimulate
of Brazil’s population is now considered success, but U.S. protectionism prevents the faltering U.S. economy while making
middle class, creating a vast untapped mar- Brazil from exporting it on a large scale to budgetary reductions. Yet the U.S. contin-
ket of individuals with spending power.4 the U.S. Eliminating subsidies and tariffs ues to implement expensive subsidy poli-
The U.S. goal of further increasing sales can enhance the relationship between the cies to protect its domestic production from
of its products to Brazil may, however, countries by reducing the Brazilian trade competition. The Brazilian cotton case
generate friction with the Brazilian govern- deficit and promoting an image of U.S. exposed U.S. trade programs as expensive
ment.5 Brazil’s President, Dilma Rousseff, fair trade. More importantly for the U.S., obstacles to free and fair trade that unnec-
is not satisfied with the high tariffs imposed ending ethanol subsidies will reduce its essarily complicate U.S. relations with the
on Brazilian products and the protection- federal outlays. rest of the world.12 Also, some food-crisis
ist subsidies of U.S. goods that hamper problems are related to ethanol production
Brazil’s ability to export to the U.S.6 As a For Once, Sweets May Be in the United States. The International
result of these U.S. policies, the 2010 trade Better for us Than Vegetables Monetary Fund (IMF) estimates that U.S.
deficit with the U.S. was Brazil’s largest ethanol production is responsible for half
Although the U.S. and Brazil began the of the increase in global demand for corn
with any nation.7
In 2009, Brazil won a major dispute energy-independence movement with simi- in the last three years, with further implica-
with the U.S. over cotton subsidies, dem- lar goals, the two countries have achieved tions for finances related to food and feed.13
onstrating that the South American nation widely different results. The 1973 oil crisis Agricultural interventionism in the Unit-
will not simply stand by and allow a trade forced countries to explore new energy ed States dates back to the 1930’s, in the
imbalance brought about by unfair trade alternatives, including ethanol replacement context of the New Deal, where subsidies
practices.8 U.S. policy related to ethanol for gasoline.10 There is a fundamental dif- were created for the production of spe-
importation might be the next source of ference between ethanol produced in Brazil cific commodities and were intended to
tension between the two nations.9 In the and ethanol produced in the United States— insulate domestic producers from market
case of ethanol, however, if the U.S. plays Brazilian ethanol is made from sugarcane conditions.14 Withdrawing these subsidies
it right, the commodity could actually while U.S. ethanol is made from corn. can come at high political costs; hence the
improve the country’s relationship with Cultivated since the days of colonization, difficulty in changing the status quo.15 An

Fall 2011 The International Law Quarterly Page 67


Ethanol: sweetening the deal,  from previous page

analysis by the United States Department tion, U.S. protectionism prevents Brazilian good will to Brazil’s government and to
of Agriculture (USDA) suggested that the ethanol from entering the U.S. market and, consumers. If the United States does not
U.S. would be unable to match Brazil’s consequently, requires the U.S. government eliminate subsidies for corn-based ethanol
low-cost production of sugarcane ethanol,16 to subsidize corn ethanol production to and continues the era of inequality between
creating an environment of subsidies in meet the demand for ethanol.27 the nations, Brazil may form stronger ties
the United States for ethanol. To meet the with nations like China. 33
U.S. need for ethanol as energy, the U.S. Trends in U.S.-Brazil Relations Though President Obama’s visit to Brazil
government is required to subsidize corn Reduction of trade barriers, such as cus- was considered to be economically positive
ethanol production at a cost of $6 billion toms duties or tariffs and measures such as for both nations, the President does not
to taxpayers.17 By contrast, the low cost of import bans or quotas that restrict quanti- have the power to make these changes
sugar-based ethanol production in Brazil ties selectively, is an obvious means of alone. The U.S. Congress has the power
allows the country to compete in the global encouraging trade.28 Brazil’s complaint to regulate commerce, and in order to take
market without the need for hefty protec- regarding the unfair treatment of ethanol advantage of Brazilian ethanol and ensure
tive subsidies to ethanol producers.18 because of tariffs and protectionist subsi- good relations between the nations, Con-
dies should not go unheeded, or it may lead gress needs to act.34
The Brazilian Solution to another WTO case and additional strain
upon the invaluable relationship between Rafaela Vianna is a
The Brazilian economy’s solid perfor-
the United States and Brazil. J.D. candidate, 2011,
mance during the financial crisis, including
Subsidies for agricultural production in at Nova Southeast-
its 7.5% growth in 2010, has contributed
the U.S. represent at least two major barri- ern University in Ft.
to the country’s transition from regional Lauderdale, Florida,
to global power.19 This growth is expected ers to the growth of Brazilian agribusiness.
First, U.S. subsidies for domestic produc- where she currently
to continue in the 4% to 5% range, which serves as the bilingual
will bolster the Brazilian economy from the tion contribute to reduction in imports of
agro-industrial products, which are largely editor for the ILSA
world’s eighth-largest to the fifth-largest in R. Vianna Journal of Interna-
the coming years.20 Brazil is the fifth-largest bought in Brazil.29 Second, the U.S. is a
large economy and when its production tional and Compara-
country in the world by population (190 tive Law, featuring articles in English and
million) and by land mass.21 Larger than generates exportable surpluses, there is
increased supply of agricultural products Spanish. She is a native of Brazil and has
the continental United States, it occupies focused her legal studies and work experi-
over half of the South American continent.22 in international markets.30 As a traditional
agricultural exporter, Brazil depends upon ences both in Brazil and the United States.
As the second leading ethanol-producing
country after the United States, Brazil ac- its exports to continue the generation and
maintenance of economic growth that the Endnotes:
tively promotes ethanol as a renewable fuel 1 Presidente dos EUA faz visita ao Brasil neste
worldwide.23 The Brazilian National Alco- U.S. is depending on to climb out of the fim de semana [U.S. President to visit Brazil this
hol Program, PróAlcool, was established to economic pothole.31 weekend], J ornal O globo O nline (Brazil), 20
Mar. 2011, http://g1.globo.com/obama-no-brasil/
stimulate the production of alcohol to meet noticia/2011/03/leia-integra-do-discurso-de-barack-
the needs of domestic and foreign policy Conclusion obama-no-theatro-municipal.html; See also President
and automotive fuels.24 According to the Ethanol can sweeten the deal between Obama Speaks to the People of Brazil, Dipnote, U.S.
Dep’t of State Official Blog, 21 Mar. 2011, http://
decree creating PróAlcool, the production the United States and Brazil if the U.S. blogs.state.gov/index.php/entires/obama_remarks_
of alcohol from sugarcane should be stimu- will eliminate corn ethanol subsidies and rio_de_janeiro/.
lated by expanding the supply of raw ma- high ethanol tariffs, which would allow 2 Id.
terials, with special emphasis on increased for the entry of a constant supply of Bra- 3 Id.
agricultural production; modernization zilian sugar-based ethanol. The current 4 Patricia Mello, Exportações ao Brasil movem
Obama [Export to Brazil leads Obama to the country],
and expansion of existing distilleries; and U.S. import tariff on Brazilian ethanol is Folha Online (Brazil), 16 Mar. 2011, http://www1.
installation of new production units, free- fifty-four cents per gallon.32 The lowering folha.uol.com.br/mundo/889330-exportacoes-ao-
standing or attached to plants, and storage of trade barriers is an obvious method of brasil-movem-obama.shtml; See generally Import
Trade Trends, U.S. Customs and Border Protection,
units.25 The price of sugar in the interna- encouraging trade between Brazil and the Dec. 2010.
tional market was rapidly declining at the United States, a move that seems necessary 5 Id.
time PróAlcool was created, making sugar to help the latter’s economy. The United 6 Id.
an obvious, cost effective way to produce States can surely take a step toward help- 7 Id.
ethanol without the need for subsidies.26 ing itself by removing protectionist tariffs 8 See generally United States – Subsidies on Upland
Though Brazilian sugar ethanol is a prov- on Brazilian goods and eliminating corn Cotton, WT/DS267/ARB/2 (31 Aug. 2009).
en, inexpensive answer to ethanol produc- ethanol subsidies, thereby demonstrating 9 Int’l Ctr. for Trade and Sustainable Dev., Bra-

Page 68 The International Law Quarterly Fall 2011


Ethanol: sweetening the deal,  from previous page

zil likely to challenge the US on ethanol imports, of Ethanol Production from Sugar in the United 26 Id.
available at http://ictsd.org/i/trade-and-sustainable- States (July 2006), available at http://www.usda.gov/
27 Id.
development-agenda/27614/. oce/reports/energy/EthanolSugarFeasibilityReport3.
pdf . 28 See generally Trading into the F uture , T he
10 Marco Martins, Impasse - O Brasil na crise do
petróleo – II [Impasse –Brazil in the oil crisis], A Eco- 17 Raquel Landim, Os subsídios ao etanol estão com World Trade Organization (2d ed. Mar. 2001).
nomia do Brasil, 9 Oct. 2011, available at http://www. os dias contados nos EUA? [Are U.S. ethanol subsi- 29 Adelson Figueiredo, Impactos dos Subsídios
aeconomiadobrasil.com.br/artigo.php?artigo=44. dies within days of expiring?], http://blogs.estadao. Agrícolas dos Estados Unidos na Expansão do
com.br/sala-ao-lado/2011/07/08/os-subsidios-ao-
11 Paulo Panossian, Sucesso do etanol nao alivia Agronegócio Brasileiro [Impacts of the United States
etanol-estao-com-os-dias-contados-nos-eua/ (8 July
preco nas bombas [Ethanol success does not allevi- agricultural subsidies in the Brazilian agribusiness
2011).
ate prices in the pump], Jornal do Brasil, updated expansion], available at http://www.scielo.br/pdf/ee/
22 Mar. 2011, available at http://www.jb.com.br/ 18 Id.
v40n2/v40n2a07.pdf (last visited Oct. 1, 2011).
sociedade-aberta/noticias/2011/03/22/sucesso-do- 19 U.S. Dep’t of State, Background Note: Brazil,
etanol-nao-alivia-preco-nas-bombas/. http://www.state.gov/r/pa/ei/bgn/35640.htm (last 30 Id.
12 Brazil’s victory in cotton trade case exposes Amer- visited Oct. 1, 2011). 31 Id.
ica’s wasteful subsidies, Wash. Post, 3 June 2011, 20 Id. 32 Alessandra Corrêa, Entenda os principais temas
available at http://www.washingtonpost.com/wp-dyn/ 21 U.S. Dep’t of Agric. Foreign Agric. Serv., Agri- da relação entre Brasil e EUA [Understand the major
content/article/2010/06/02/AR2010060204228.html). cultural Economy and Policy Report – Brazil, Feb. issues of the relation between Brazil and U.S.], BBC
13 Crise dos Alimentos [Food crisis], Revista Veja 2009, available at http://www.fas.usda.gov/coun- Brasil, 18 Mar. 18, 2011, available at http://www.bbc.
Online, available at http://veja.abril.com.br/idade/ try/Brazil/Brazil%20Agricultural%20Economy%20
co.uk/portuguese/noticias/2011/03/110316_agendabr-
exclusivo/crise-dos-alimentos/contexto1.html. and%20Policy.pdf.
eua_ac.shtml.
14 Adriana Dantas, Caso do algodão: reflexões 22 Id.
sobre a eficácia da OMC no controle dos subsídios 33 Resultados concretos da visita de Barack Obama
23 U.S. Dep’t of Agric. Foreign Agric Serv., Brazil,
agrícolas [Cotton case: thoughts about the effective- ao Brasil ainda podem demorar [Actual results from
available at http://www.fas.usda.gov/country/Brazil/
ness of WTO in supervising agricultural subsidies], Brazil.asp. the Barack Obama visit to Brazil can still take a
Intl Ctr. for Trade and Sustainable Dev., Oct. 2009 while], 21 Mar. 2011, available at http://extra.globo.
24 PróAlcool - Programa Brasileiro de Álcool [Pro
(Vol. 5, No. 4), available at http://ictsd.org/i/news/ Ethanol – Brazilian Program for Ethanol], available at com/noticias/brasil/resultados-concretos-da-visita-
pontes/57096/. http://www.biodieselbr.com/proalcool/pro-alcool.htm. de-barack-obama-ao-brasil-ainda-podem-demor-
15 Id. ar-1365947.html.
25 Id.; See Decreto No. 19.717 de 20 de Fev. de 1931,
16 U.S. Dep’t of Agric., The Economic Feasibility D.O. (Brazil). 34 U.S. Const. art. I, § 8.

Caracol Falls

Fall 2011 The International Law Quarterly Page 69


Limitations on Foreign Investments in Brazil
By José Samurai Saiani, São Paulo, and Olavo Franco Bernardes, Miami

Historical Background ment (Emenda Constitucional - EC) No. 07 the federal government. Private companies
of 15 August 1995.4 Many restrictions on may also explore such activities, provided
Among the many reasons to count Brazil
foreign investments that historically were that they have been previously granted
as an emerging economic power is the high
part of the Brazilian political scene are still authorization, concession or permission
level of foreign investment taking place
valid, however, as we shall see below. to do so, subject to regulations set forth
there. From the U.S. alone, Brazil has
by specific law. In this regard, Article 222
received US$32 billion for the first half of
Restrictions on Certain of the Constitution limits the ownership
2011. According to a recent World Invest-
Investments of newspaper companies, sound broad-
ment Report issued by the United Nations
casting companies, and sound and image
Conference on Trade and Development Both the Constitution and some laws set
broadcasting companies to natural born
(“UNCTAD”), Brazil ranks fifth in invest- forth restrictions or impediments regarding
or naturalized Brazilian citizens who have
ments after the U.S., China, Hong Kong certain kinds of investments by foreign
been residing in the country for at least
and Belgium.1 Additionally, remittances of born, non-naturalized individuals or com-
ten years. As to corporate shareholders
profit have never been so high, amounting panies in which the majority of the corpo-
or quotaholders, paragraph 1 of the same
to a record value of over US$5.1 billion just rate capital is owned by foreign investors.
for the month of August.2 Article establishes that foreign companies
Under the current economic system, may have no more than 30% of the voting
Mining and Gas
there is no limitation on remittances from and total capital of the above mentioned
The first and historically most signifi- companies.8
abroad, a matter that historically has been cant restriction to foreign investments is
a source of disagreement among parties in the mining and gas sectors. Until the Transportation
across the political spectrum and foreign enactment of Law No. 9,478 of 6 August
investors. In this regard, it is interesting to There are also restrictions on foreign
1997, Petróleo Brasileiro S.A. (Petrobras), capital in the transportation sector. Ac-
observe that one of the factors behind the
a mixed capital company5 widely known cording to Law No. 7,565 of 19 Decem-
1964 military coup that overthrew the gov-
as the Brazilian oil tycoon company, had ber 1986 (Brazilian Airspace Code), the
ernment of former President João Goulart
exclusive rights to operate on the Brazilian participation of foreign capital in aviation
was Law No. 4,131 of 3 September 1962,3
continental sea.6 Under the law, private companies with domestic airspace routes is
which limited remittances abroad by for-
companies are allowed to explore for oil limited to a minority stake of up to 20% of
eign companies to only 10%.
provided they are granted a concession per- the total capital of the company.9 Similarly,
The Federal Constitution of 1988, a
mit by the National Oil Agency.7 As a result, Article 1 of Law No. 6,813 of 10 July 1980
product of compromise by the various
both national and foreign private companies established the same restriction for the
political parties, was an attempt to seek
are now involved in the oil industry. Indeed, participation of foreign companies in the
national conciliation after twenty years
rules have been loosened to allow foreign transport of highway freight. Such provi-
of a non-democratic regime. Many of the
mining and oil companies to operate under sion was abolished, however, by enactment
restrictions placed on foreign activities and
foreign investments by the 1988 Constitu- concession in territories owned by the fed- of Law No 11,442 of 5 January 2007.
tional National Assembly later proved to eral government, such as the territorial sea,
be counterproductive and, for this reason, and to pursue hydraulic energy potentials Health
were stricken by different constitutional and mineral resources (including those Article 199, paragraph 3, of the Constitu-
amendments. These amendments were en- of the subsoil, regardless of whether they tion provides limitations on foreign invest-
acted primarily during the centrist admin- are located on private property or not), as ments in the health sector, prohibiting the
istration of Fernando Henrique Cardoso provided by Article 20 of the Constitution. direct or indirect participation of foreign
(1995-2003), in the context of privatization Nevertheless, Petrobras still has exclusive capital in health care companies. Such
reforms that occurred in the country during rights to the refinement and distribution of provision is not absolute, however, as it is
his government. new findings, as well as to the distribution subject to regulations set forth in law.10 As
One of the previous restrictions worth of ethanol within the country. a result, difficulties have arisen in defining
noting was paragraph 3 of Article 178 the extent to which foreign capital may par-
of the Constitution, which established Telecommunications ticipate in the health sector.11 For instance,
a monopoly of transportation along the Another historical restriction on foreign foreigners may participate in health insur-
Brazilian coast for national vessels. As a capital is related to telecommunication ance plans and family planning services but
consequence, Brazil was shut out from the services. According to Article 21 of the not in the direct management of hospitals.
international shipping market. The rule was Constitution, the performance of services Several bills proposed by Brazil’s Sen-
stricken down by Constitutional Amend- and activities in this sector is reserved to ate and currently under discussion in the

Page 70 The International Law Quarterly Fall 2011


limitations on foreign investments,  from previous page

National Congress are attempts to bet- est, foreigners may have some of their landowner may be disappropriated from, or
ter regulate the health sector, a priority investment restricted. Notably, such re- lose, the property if it is verified that he or
given the pressing needs and public interest strictions do not conflict with the concept she is not using land in accordance with the
involved. Indeed, health services in the of equality of treatment and protection standards set forth both by the Constitution
country are commonly thought to be in a mentioned above. Indeed, they are forms of and its related legislation. In this regard,
critical situation.12 regulation of investments, not an exclusion Article 186 provides:
of such, and a practice that accords with the The social function is met when the rural
Other areas Constitution’s concern for the public and property complies simultaneously with,
Finally, it should be noted that the par- collective interest as well as social rights. according to the criteria and standards
ticipation of foreign capital in companies prescribed by law, the following
involving nuclear energy,13 post offices,14 General Considerations requirements:
telegraph, and airspace sectors is com- We now turn to the primary focus of I - rational and adequate use;
pletely prohibited by both the Constitution this article: existing limitations on foreign II - adequate use of available natural
(under Article 21) and applicable laws.15 investments in relation to the acquisition resources and preservation of the
Nevertheless, in practical terms it is still of real property inside Brazilian territory.16 environment;
possible for these activities to be financed The ownership of rural property in Brazil III - compliance with the provisions that
by foreign capital—for example, through has always been a matter of debate, just as in regulate labour relations;
private banks—a legislative incongruence. many other Latin American countries. Bra- IV - exploitation that favours the well-
Additionally, there are no restrictions on zil still has—albeit less now than ten years being of the owners and workers.
the participation of foreign capital in com- ago—one of the highest concentrations of
panies producing parts or components used Thus, while an owner may have the right
wealth in the world, often attributed to the to charge for the use of his or her property
in the nuclear and airspace sectors. numerous latifundios (properties covering for a certain activity, if the owner refuses
large land tracts) and even unproductive to allow the use of such property, the owner
Limitations on Foreign plots of land.17 In this context, foreign may suffer disappropriation (the loss of the
Investments in Rural involvement in the Brazilian economy, es- property upon the payment of compensa-
Property pecially through the acquisition of land for tion by the government) or expropriation
Article 172 of the Brazilian Constitu- crops, preservation and scientific purposes, (the loss of the property without govern-
tion, states: has always been viewed suspiciously by ment compensation), depending on the
The law shall regulate, based on the some parts of society.18 An episode worth case. Expropriation may occur if illegal
national interest, foreign capital remembering in this regard is the destruc- activities—such as those involving illegal
investments, shall encourage tion of Monsanto’s laboratories in 2003 by drugs—are engaged in, and such expropria-
reinvestments and shall regulate the members of the Landless Rural Workers’ tion may affect the right to the entire prop-
remittance of profits. Movement (Movimento dos Trabalhadores erty, not just a segment of it. Law No. 4,504
Thus, Article 172 of the 1988 Brazil- Rurais Sem Terra – MST).19 Thus, it be- of 30 November 1964 (enacted, ironically,
ian Constitution incorporates both Law hooves all foreign buyers and developers during the first year of the military regime)
No. 4,131 of 3 September 1962 and its of land to demonstrate benevolent intent: and Law No. 8,629 of 25 February 1993,
regulatory decree, Decree No. 55,762 of “Caesar’s wife must be above suspicion.” regulate disappropriation for public use and
17 February 1965, establishing the rules necessity and social interest.
The Social Purpose of Land In addition, pursuant to Article 191 of the
applicable to foreign capital in the country.
Under the current system, there is no Ownership of land in Brazil is not an Constitution, private property that has not
distinction between foreign and national absolute right. The first restriction imposed been explored for any particular use may
capital with regard to taxation, given that on property is that one does not own what result in adverse possession (usucapião)
both foreign and national capital are grant- is above or below the ground (“ad coelum by an occupying third party.20 Importantly,
ed equal protection and equal treatment et ad inferos,” or “to heaven and to hell,” plots of land owned by the federal and
as to their assets and investments inside as the Romans put it). Therefore, the air- the state governments are not subject to
national territory. Such treatment comports space above one’s property and the mineral adverse possession, even if they have not
with Article 5 of the Constitution, which resources underneath it belong solely to the been used for any particular purpose. These
establishes full equality between national federal government (Article 20, IX, of the unproductive, unused, plots of land are the
and foreign individuals. Constitution). so-called terras devolutas (fallow lands).21
Notwithstanding the foregoing, due to Another restriction is that property has These underused lands have been at the
reasons of national sovereignty, national to be used in accordance with the social center of a long conflict in rural areas,22 and
integrity, public safety and national inter- function of the land. As a consequence, a many of the famous favelas (illegal shanty

Fall 2011 The International Law Quarterly Page 71


limitations on foreign investments,  from previous page

towns) were built on such properties. for acquisition of rural property; Law No. Federal Attorney General’s Legal Opinion
5,709 of 7 October 1971 and its regulation, (Parecer do Advogado Geral da União -
Proof of Residence Decree No. 74,965 of 26 November 1974, AGU) No. LA-01 of 19 August 2010, are
According to Article 1 of Law No. 5,709 which establishes the basis of the legal as follows:
of 7 October 1971, only foreign individuals regime for the acquisition of rural property • Prohibition of foreign individuals or le-
with an established residence may acquire by foreigners; and Law No. 6,634 of 2 May gal entities to own more than one-fourth
property. The law does not mention per- 1979, and Decree No. 85,064 of 26 August of the total rural land surface of the
manent or provisory residence, just proof 1980, ruling on border strips and other territory of municipalities; additionally,
of residence in the national territory. The areas restricted to foreigners. in any case, foreigners originally from
foreigner has to present proof of enrollment the same nationality cannot altogether
Restrictions on the Acquisition of own more than 40% of the territory of a
before the respective Brazilian Taxpayers’
Real Property by Foreigners municipality.
List (Cadastro de Pessoa Fisica – CPF,
for individuals, Cadastro Nacional de Pes- One of the main restrictions for foreign • Binding obligation of foreign entities to
soa Juridica – CNPJ, for legal entities), investments is the prohibition regarding explore agricultural and development
proof of residence or proof of incorporation land located at border strips (faixas de projects in accordance with their statutes
within the national territory and other docu- fronteira) up to 150 kilometers inland (as or bylaws.
ments (Article 9 of Law No. 5,709/1971). provided by Article 1 of both Law No. • Limitation of areas to foreign entities:
6,634/1979 and Decree No. 85,064/1980). foreign or national companies with a
Legislation Restricting and Those restrictions are also applicable to majority of foreign capital, are allowed
Regulating Foreign Controlled costal zones and areas deemed by the Na- to acquire real property only up to 100
Properties tional Security Council to involve national rural units (módulos rurais).23 Acquisi-
security. Further, as provided by Article tions involving higher amounts than that
As the Brazilian Constitution allows
7, Law No. 5,709/1971, and Article 34, shall be preceded by an authorization of
statutes to regulate and limit property in
Decree No. 85,064/1980, border strips and the National Congress. It is important
foreign hands, restrictions on foreign-con-
national security zones may be explored by to note that these rural units may vary
trolled property can come in many forms.
foreigners only upon authorization by the from 5 to 100 hectares depending on the
In this regard, Article 190 should be noted: municipality.24
National Security Council.
The law shall regulate and limit the Coastal zones (zonas costeiras) are al- • Limitation of areas to foreign nationals:
acquisition or lease of rural property ways considered territory of the federal foreign individuals may acquire only up
by foreign individuals or legal entities,
government, regardless of whether they to 50 rural units in property in continu-
as well as it shall establish the cases in
concern foreign or individual citizens and ous or discontinuous areas, provided
which it will depend on an authorization
legal entities. As such, although it is pos- that they have been granted a previous
by the National Congress.
sible for part of these areas to be leased authorization by the National Institute
Article 190 has accepted all legislation to foreigners or nationals, they can never for Colonization and Agriculture Reform
on the matter prior to the 1988 Constitu- be sold or in any way transferred to third (Instituto Nacional de Colonizacao e
tion, meaning Law No. 4,504 of 30 No- parties. Reforma Agraria – INCRA).
vember 1964, the so-called Land Statute Other restrictions introduced by Law • Areas in border strips, as previously
(Estatuto da Terra), which is the basis No. 5,709/1971 and recently defined by the mentioned, may not be acquired by for-
eigners or foreign-controlled companies,
unless they have received prior authori-
zation from the National Security Office

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$125 quarter page These rules shall be applied in case
Elizabeth Ortega of transfer, merger, or assignment of real
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eco@ecostrats.com $500 full page The acquisition of rural property by
foreign legal entities and individuals is
conditioned upon authorization by the Na-

Page 72 The International Law Quarterly Fall 2011


limitations on foreign investments,  from previous page

tional Congress, whenever such properties One of the problems lately identified companies that hold rural property in the
involve lands of more than 100 rural units in connection with Legal Opinion LA- country.27 Future operations may be sus-
(for legal entities) or 50 rural units (for 01/2010 concerns a situation in which the pended by justice. Further, the Boards of
individuals). The acquisition of lands of parties have already entered into a commit- Trade are also required to assist the notaries
less than three rural units does not require ment for the purchase and sale of real prop- in identifying foreign capital participation
prior authorization from public authorities. erty, with all applicable formalities. Upon in the acquisition of land by companies.
Federal Attorney General’s Legal Opin- the issuance of the Legal Opinion, some Also, it is important to realize that dark
ion LA-01 of 19 August 2010 gives rel- foreign purchasers have decided to cease times may lie ahead for foreign rural land
evant importance to notaries and clerks payments, arguing that they would not be owners, as the National Congress is push-
around the country. Although an Attorney able to register the ownership of the land ing for an old nationalistic piece of leg-
General Opinion is not a law, Article 40 of anyway. As the commitment has been reg- islation (Legislative Bill No. 302 of 26
the Complementary Law (Lei Complemen- istered in the Real Estate Registry, however, November 2009, former Legislative Bill
tar) No. 73 of 10 February 1993 states that the sellers likewise could not make full use No. 4,440/01 of 4 April 2011) that proposes
AGU’s opinions that were published and of such property. As a result, several claims to limit the purchase of land by foreigners
signed by the President of the Republic are have been filed before the local courts for in the Legal Amazon Region to up to fifteen
binding on the federal administration. The the annulment of the commitment. rural units.28 The bill has already been ap-
main amendment introduced by the Legal Further, a decision issued on 14 July proved by the House of Representatives
Opinion was the equalization of national 2010 by the National Council of Justice and is pending approval by the Senate.29
companies with a majority of foreign capi- (Conselho Nacional de Justica – CNJ),
tal to foreign companies. Another relevant which is responsible for the supervision José Samurai Saiani
issue discussed by the Legal Opinion was of the judicial power, has determined that was educated at the
the constitutionality of Article 1, paragraph notaries and clerk offices should supervise Pontifícia Univer-
1, of Law No. 5,079/1971. the acquisition of real property by national sidade Católica de
The interpretation set forth in the Legal companies controlled by foreigners, in- São Paulo, where he
Opinion, however, has not always pre- forming the respective State Court of Ap- received his LL.B in
vailed. After enactment of Constitutional peals about any and all required registries 1992 and a master’s
Amendment No. 6 of 15 August 1995, degree in comparative
in these circumstances. The information
which abolished the definitions of national J. Saiani civil law in 2003. He
would then be forwarded to INCRA. Cur-
companies and national companies of na- is a member of the Brazilian Bar Associa-
rently, around 4.3 million hectares of land
tional capital, Legal Opinion CQ 181/98 tion, the São Paulo Lawyers’ Association
are registered before the institute, but this
provided that, although the Constitution and the International Bar Association.
number could be up to five times higher,
allows for different treatment of foreign and His practice areas are corporate, project
taking into consideration Brazilian com-
national capital, limitations and restrictions finance and infrastructure. Mr. Saiani is a
panies with foreign capital.25
on companies with majority capital owned partner at Machado, Meyer, Sendacz and
In fact, Legal Opinion LA-01/2010,
by foreigners could only be imposed by law. Opice Advogados
which had its constitutionality questioned
The problem now is that many notaries
by specialists (who believe that the Con- Olavo Franco Caiuby
and clerk offices are not registering real
property containing any percentage of for- stitution does not allow for discrimina- Bernardes graduated
eign participation (which was not the Legal tion between national and foreign capital from the Pontifícia
Opinion’s original intent) under fear they and, therefore, have not received Law No. Universidade Católica
may face problems ahead. In any case, 5,709/1971 into the system)26 has cooled de São Paulo (PUC-
the Legal Opinion, as publicly declared foreign investors’ interest in acquiring new SP) and was subse-
by Federal Attorney General Luiz Inácio property and in investing capital in the quently admitted to
Lucena Adams, shall not be retroactive but agribusiness and research sector. the São Paulo Bar. He
shall be applicable only to future registra- O. Bernardes has worked with sev-
tions. In this sense, in the name of the rule Recent developments eral São Paulo firms,
of law and vested rights, the Legal Opinion In March of this year, in another at- including Machado, Meyer. While with
has created two types of properties that can tempt to limit the so-called “foreign inva- that firm, he set the legal framework of in-
be owned by foreigners: existing properties sion” in the purchase of rural property, the frastructure projects such as bids, private-
that were duly acquired under previous Attorney-General, without previous notice public partnerships, administrative con-
rules (the 1994 and 1998 Legal Opinions); and on behalf of the federal government, cessions and other public concessions and
and new acquisitions subject to the current decided to block sales, purchases and merg- permissions. Currently pursuing an LL.M
rules (post-August 2011). ers of businesses by foreigners of Brazilian in the U.S., Mr. Bernardes is employed as

Fall 2011 The International Law Quarterly Page 73


limitations on foreign investments,  from previous page

a foreign associate with Smith International Participação do capital estrangeiro no setor de able at <https://www.chase.com/online/commercial-
saúde, Revista de Direito Público da Economia, bank/document/Perspective_ BrazilRising.pdf> (last
Legal Consultants in Miami. Belo Horizonte, 39-57 (Oct./Dec.2008). According accessed on 9 Oct. 2011).
to Sundfeld and Câmara, in order to define the extent
The authors wish to thank Lina Sayuri of the restriction of foreign capital in the health sec-
18 The Letter to the People from the 5th MST National
Yamaki for her contributions to this article. Congress, available at <http://www.landaction.org/
tor, the purpose of such restriction must be taken into article.php3?id_article=170>.
consideration; e.g., to preserve from contrary interests
those activities essential to the protection and recu- 19 Brazil activists target Monsanto, BBC News, 3
Endnotes: peration of health. In light of this, the authors state the June 2003, available at <http://news.bbc.co.uk/2/hi/
1 U.N. Conf. on Trade & Dev. [UNCTAD], World importance of understanding the distinction between: americas/2961284.stm>.
Investment Report 2011, Non-Equity Modes of In- (1) health assistance (services of assistance or medical 20 Rural adverse possession is regulated by Law No.
ternational Production and Development, available treatment directly aimed at protecting or recovering 10,406 of 10 January 2002, the Brazilian Civil Code
at <http://www.unctad-docs.org/files/UNCTAD- health); (2) activities related to the health sector or to (Código Civil Brasileiro). Urban adverse possession is
WIR2011-Full-en.pdf>. the services of health assistance (services, commerce regulated by Law No. 10,257 of 10 July 2001 (Statute
2 Fernando Nakagawa e Eduardo Rodrigues, and industry of products used in the protection or of the City).
Remessa de lucros em agosto bate recorde do mês, recovering of health); and (3) auxiliary services or
21 As provided by Articles 22, II and 26, IV, of the
Estadao, 23 Sept. 2011, available at <http://economia. support assistance services. The restriction provided
that Article 199, paragraph 3, would apply solely to Constitution. Generally speaking, terras devolutas are
estadao.com.br/noticias/economia+geral,remessa-
the activities related to the first item. pieces of land located in the border strips of the Fed-
de-lucros-em-agosto-bate-recorde-do-mes,85370,0.
eral Territories and of the Federal District that are not
htm>. 12 Recently, the Federal Senate organized a “Health used by any of the federative governmental spheres
3 Law No 4,131/1962 is still in force but has been Week” in which 47 bills involving different aspects (federal, state or municipal). Additionally, they cannot
modified. It was first amended in 1964 in the wake of the sector where debated. See <http://www.senado. be validly considered to be under the possession or
of the military revolution. Further amendments were gov.br/noticias/semana-da-saude-no-senado-tem- ownership of any particular individual or legal entity.
made in 1966, 1983, 1991, 1995, 1997, 2001 and 47-projetos-em-pauta.aspx> (last accessed 12 Oct.
2006. 2011). The primary bill intended to permit more par- 22 For a piece of land to be considered as terra devo-
ticipation of foreign companies in the health sector is luta, it should be registered as such in the competent
4 The Amendment still allows for statutes to regu- Real Estate Registry Office. In the event a claim for
late the sector in favour of national vessels. Legislative Bill No. 6,482 of 4 April 2002, which has
been awaiting a vote by the House of Representatives adverse possession is filed, the State cannot then argue
5 Mixed capital companies are legal entities con- for many years. that the conflicting lands are terras devolutas, unless it
trolled by governmental bodies and incorporated by can so prove by presenting the relevant official register.
means of a legal authorization. The capital of such 13 The nuclear power plants Angra I and II, however,
The prevailing understanding set forth by the Brazil-
companies is composed of both private and govern- were financed primarily by foreign capital, at a time
ian courts in case law is as follows: “Civil. Adverse
mental investments. The majority of its voting capital, when foreign capital was severely restricted in Bra-
possession. The State has argued that the real property
however, shall always be kept by a governmental body zil. The country relied heavily on foreign assistance,
object of the claim is a terra devoluta . . . . The absence
or legal entity. particularly from what was then West Germany, for
of register on the Real Estate Registry Office does not
the construction of its nuclear program. For further
6 As well as opening the oil market to private imply in the presumption that the property is classified
information, see <http://www.globalsecurity.org/
companies under the concession regime, Law No. as terra devoluta. The State has the burden to prove
wmd/world/brazil/nuke.htm> (last accessed 12 Oct.
9,478/1997 created the National Oil Agency (Agência such argument.” AgRg in Ag 514.921/MG, Pres. Min.
2011). Also, the Alcântara Airspace Basis has de-
Nacional do Petróleo - ANP), an autarky responsible veloped many partnerships with different countries, Humberto Gomes de Barros, 3d panel, 17 Nov. 2005,
for the regulation of the local oil and natural gas in- particularly Russia. published at DJ on 5 Dec. 2005, p. 317).
dustry, as well as its derivatives and related products. 23 A “rural unit” is a unit of measure expressed in
14 Interestingly, companies such as FedEx and UPS
7 In this context, recently enacted Law No 12.351 are not considered direct competitors of the post office hectares intended to demonstrate the interdependence
of 22 December 2010 is also worth mentioning, as it (Empresa Brasileira de Correios e Telegrafos), as they among the dimension, the geographical location of ru-
established a new regime for future licensing of the ex- are, in fact, logistic companies that are not permitted ral lands and the terms and conditions of its economic
ploration and production of oil, natural gas and related to be used for the dispatch of letters, post cards and exploration.
products, on a shared production regime, applicable to telegrams. See <http://thebrazilbusiness.com/article/ 24 Certain municipalities in the Amazon Region are
the pré-salt areas. Law No. 12.351 also implemented empresa-brasileira-de-correios-e-telegrafos> (last as big as some European countries.
an oil fund to support social and economic develop- accessed 9 Oct. 2011).
ment in the country. 25 S e e < h t t p : / / w w w . c n j . j u s . b r / a t o s -
15 Law No. 4,118 of 27 August 1962 and other per- administrativos/9444:cnj-determina-que-cartorios-
8 A recent change brought about in 2002 by Consti- tinent laws and decrees regulate the nuclear sector. controlem-compra-de-terras-por-empresas-
tutional Amendment (Emenda Constitucional – EC) Law No. 6,538 of 22 June 1978 and other pertinent controladas-por-estrangeiros> (last accessed 9 Oct.
No. 36 of 28 May 2002. Before the enactment of the laws and decrees regulate post office and telegraph 2011).
amendment, foreign individuals and companies were services.
forbidden altogether from participating in that sector. 26 See Parecer da AGU que limita a venda de terras
Recently approved Law No. 12.485 of 12 September 16 In this regard, Article 190 of the Constitution é inconstitucional, on: <http://painelflorestal.com.br/
2011 has abolished the restriction on the ownership provides: “The law shall regulate and limit the acquisi- noticias/legislacao/9553/parecer-da-agu-que-limita-a-
of cable television by foreigners. tion or lease of rural property by foreign individuals -venda-de-terras-e-inconstitucional> (last accessed 9
or legal entities, as well as it shall establish the cases Oct. 2011).
9 Legislative Bill No. 6,716 of 23 December 2009, in which it will depend on an authorization by the
which has already been approved by the Senate and 27 See <http://www.conjur.com.br/2011-mar-18/agu-
National Congress.”
is currently under discussion in the House of Repre- atencao-ministerios-compra-terras-estrangeiros> (last
sentatives, proposes raising the allowed percentage of 17 See Robert Plummer, Brazil reduces pov- accessed 9 Oct. 2011).
foreign capital from 20% to 49%. erty but industry feels the strain, BBC News, 12
May 2011, <http://www.bbc.co.uk/news/mobile/ 28 The Legal Amazon (Amazônia Legal) comprises
10 The applicable rules include Law No. 9,656 of 3 business-13295170>( last accessed 9 Oct. 2011); the states of Acre, Amapá, Amazonas, Mato-Grosso,
June 1998, which regulates private health-care plans Chris Kraul, Brazil hates to bid Lula farewell, L.A. Rondônia, Roraima, Tocantins, Pará and a portion of
and health-insurance sectors, and also regulations Times, 2 Oct. 2010, available at <http://articles. the state of Maranhão.
issued by the National Health and Sanitation Agency latimes.com/2010/oct/02/world/la-fg-brazil-elec- 29 See <http://www.senado.gov.br/atividade/materia/
(Agência Nacional de Vigilância Sanitária – ANVISA). tion-20101002>; The Economic Ascendancy of Brazil: detalhes.asp?p_cod_mate=94352> (last accessed 9
11 Carlos Ari Sundfeld & Jacintho Arruda Câmara. What it Means for US Companies, Perspective, avail- Oct. 2011.

Page 74 The International Law Quarterly Fall 2011


beyond the world cup,  from page 1

Even in the face of an increasingly unsta- welcome economic boost for the next few This strong internal market, which kept
ble global economic environment, which years, the fact is that Brazil is already mov- the country afloat during the recession that
seems capable of relapsing into recession ing towards consolidating the economy of plagued the world’s leading economies,
in the next few months, Brazil’s short and a developed country. will act as the engine for Brazil’s projected
medium-term future looks as bright as For the first time in its history, Brazil’s growth of 4% to 5% in the coming years.6 It
ever. The 2014 FIFA World Cup and the economy rests upon the solid foundation of should also be noted that, by the year 2017,
Brazil is projected to become the emerging
economic power with the largest number
of millionaires. In fact, from 2010 to 2011,
the number of Brazilian billionaires almost
doubled, with the country now home to 30
of the world’s 1,210 individuals in this ex-
clusive club.7 Present and future investors
will, therefore, not only be able to explore
a solid middle-class market, but also take
advantage of the abundant opportunities
stemming from the growing pool of high
net-worth consumers.
Currently the seventh largest economy
in the world, Brazil is expected to over-
2016 Olympic Games, to be held in the city a middle class that encompasses the major- come the United Kingdom and France to
of Rio de Janeiro, alone confirm that the ity of the population. Since 2003, when occupy the fifth position before the end of
country will maintain the intense economic center-leftist President Luiz Inácio Lula da the decade.8 The country’s international
activity that has been drawing the world’s Silva took office and focused governmental reserves—now rapidly climbing to $400
attention. attention on sponsoring a more equitable billion9—supply a comfortable insulation
For the World Cup alone, the Brazilian distribution of wealth, forty-million people from sudden global economic downturns
federal government plans to invest $15 bil- have ascended to the middle class, a status and provide foreign investors a low-risk en-
lion in infrastructure projects over the next now common to 55% of all Brazilians.5 vironment. Even the inflation rate, regarded
two years, expecting to generate 700,000 by some as a possible point of instability,
direct and indirect jobs and a $117 billion has reversed the rise observed in the first
boost in total economic activity.3 These half of 2011 and is predicted to remain
gigantic figures are anchored in commit- under control for the years to come.10
ments made by Brazil to the international Indeed, Brazil appears ready to over-
community and are bound to remain un- come this last obstacle to consolidating
changed, even in an adverse economic its status as a developed economy. The
climate elsewhere. country’s current base interest rate of 12%,
In the next few years, while preparing to as defined by the Central Bank’s Monetary
host the two greatest sporting events in the Policy Committee, not only contrasts with
world, Brazil will remain a secure breed- that of all developed economies, but also
ing ground for investments across a wide greatly differs from the interest rates of
spectrum of economic activity. Airports, nearly all economies in the world. While
hotels, stadiums, telecommunications—no Brazilian government-issued bonds pay
business venture is excessive and no in- holders at a 6% annual rate after factoring
vestment possibility should go unexplored in inflation, similar investments worldwide
in a country that has to transform itself to are averaging a return of negative 0.8%. By
receive the massive influx of four million ordering a significant increase in Brazil’s
tourists in a thirty-day span.4 Of course, primary budget surplus, President Dilma
this begs the question: After the World Cup Rousseff has created the conditions for a
and the Olympic Games have come and gradual decrease in interest rates,11 a policy
gone, can Brazil maintain this economic that will bring Brazilian rates within the
strength? world average in the coming years. By the
The answer is a most emphatic yes. end of the decade, Brazil is likely to have
While hosting the games will ensure a World cup trophy interest rates that hover close to zero or

Fall 2011 The International Law Quarterly Page 75


beyond the world cup,  from previous page

that dip into the negative spectrum, thereby global economic superpowers. Although Trade, Brazil Ministry of Dev., Indus. and Foreign
Trade, Knowing Brazil in Numbers 6 (2011) [here-
mirroring the monetary reality of today’s these great events provide exceptional inafter Knowing Brazil].
developed economies. business opportunities in themselves, they 2 Bradley Brooks, New Wealth Buoys Brazilian
In light of Brazil’s decreasing interest should best be interpreted as definitive rec- Yacht Market, Miami Herald, 29 Aug. 2011, at A8.
rates and the negative rates worldwide, ognition, by the international community, 3 Orlando Silva, Brazil Minister of Sports, Remarks
investors will feel pressed to concentrate of Brazil’s capabilities. The honor of host- at the Public Conference in Brasília (21 July 2011).
their assets in the real economy. In this ing in sequence the two greatest sporting 4 Id.
respect, Brazil once again appears as one of events on the planet has been bestowed 5 Rodrigo Martins & Willian Vieira, Privileged And
the best bets, with vast markets and a grow- Unknown, CartaCapital, 7 Sept. 2011, at 28-32 (Br.).
only on three other countries in the history
ing middle class eager to enter the world of 6 Brazil will grow despite adverse scenario, Nuevo
of the games—the United States and Ger-
Herald, 27 July 2011, at A7 (U.S.)
consumerism. In 2010, Brazilian industrial many among them. Brazil now rightfully
7 Martins, supra note 5.
production grew 10.5%, with some sectors, belongs to this select group.
8 Council on Foreign Relations, Task Force Re-
such as steel, peaking at nearly 25%.12 New port no 66: Global Brazil and U.S.-Brazil Relations
oil discoveries in the Brazilian pre-salt also Cristiano Rabelo, born in Rio de Janeiro, 3 (2011).
stand out as an unmatched opportunity for Brazil, is a career diplomat currently serv- 9 Knowing Brazil, supra note 1 at 20.
investment. As fossil fuels will account ing as Deputy Consul of Brazil in Miami 10 Alex Ribeiro, IMF sees Brazil’s Consumer Price
for approximately 75% of the world’s in- and Head of the Brazilian Consulate Gen- Index within Target Range in 2012, Valor Econômico,
crease in demand for energy during the eral’s Trade Bureau. He has a master’s 21 Sept. 2011, available at http://www.valor.com.
degree in diplomacy from Instituto Rio br/financas/1012454/fmi-ve-ipca-na-meta-em-2012
next 20 years,13 Brazil’s estimated 30-to- (Br.).
200 billion barrel pre-salt oil reserves14 are Branco, Brazil’s diplomatic academy.
11 Arnaldo Galvao & Matthew Bristow, Brazil Lifts
likely to supply a significant portion of the The information and opinions in this article Primary Surplus Target to 91 Billion Reais as Slow-
world’s energy use in the period. reflect solely the author’s personal views down Looms, Bloomberg, 29 Aug. 2011, available
at <http://www.bloomberg.com/news/2011-08-29/
With its triad of stability, economic and do not necessarily reflect the views or brazil-lifts-2011-primary-surplus-target-to-91-billion-
growth and assured markets, Brazil is now policy of the Brazilian Ministry of Exterior reais-mantega-says.html>.
one of the holy grails of global invest- Relations. 12 Knowing Brazil, supra note 1 at 10.
ing. Due to the country’s healthy macro- 13 Oxford Analytica, Inc.,The Impact of Pre-Salt:
economic situation, this scenario should Endnotes: a Long-Term Perspective, 10 (2010).

remain relatively unchanged in the near 1 Brasília Dep’t of Planning and Dev. of Foreign 14 Id. at 14.
future, making Brazil a
safe haven for the turbu-
lent years ahead. Brazil’s
arrival in the group of de-
veloped economies will
not only benefit the Bra-
zilians, who will receive
an unprecedented increase
in their quality of life, but
the global economy in
general, serving as a point
of stability and growth as
traditional economies are
affected by the aftershock
of the 2008/2009 crisis and
issues created by mounting
public debt in European
Union nations.
The excitement and eco-
nomic development occa-
sioned by the World Cup
and the Olympic Games
in Brazil serve as a symbol
of the country’s ascension
to the small gathering of

Page 76 The International Law Quarterly Fall 2011


The Florida Bar Continuing Legal Education Committee and
The International Law Section present
WEBINAR

International Law Section


Webinar Series
2011-2012
COURSE CLASSIFICATION: INTERMEDIATE LEVEL
Presentation Dates: November 10, 2011, December 8, 2011,
February 15, 2012, March 15, 2012, and April 26, 2012
12:00 noon – 1:00 p.m. EST
Course Nos. 1401, 1402, 1403, 1404, 1405, 1406

The Florida Bar International Law Section is pleased to announce its 2011-2012 International Law Webinar Series. Over the course
of six months, we will provide an easy and affordable manner to earn CLE credits and listen to presentations from the comfort of your
home or office. You may register for each live webinar individually or purchase the entire live series at a discount. In addition, each
program will be audiotaped and an audio cd (including electronic course material) will be available after April 26, 2012.

November 10, 2011


12:00 noon – 1:00 p.m. weBINAR
What to Do When the Export Laws of the United States
May Have Been Violated (1401R) As a webinar attendee you will listen to the program
Peter A. Quinter, Becker & Poliakoff P.A., Fort Lauderdale over the telephone and follow the materials online.
Registrants will receive webinar connection
December 8, 2011 instructions 2 days prior to the scheduled course
12:00 noon – 1:00 p.m. date via e-mail. If you do not have an e-mail address,
Managing U.S. Discovery “Assistance” in contact Order Entry Department at 850-561-5831,
International Arbitration (1402R) 2 days prior to the event for the instructions.
Gustavo J. Lamelas, DLA Piper LLP (US), Miami

February 15, 2012


12:00 noon – 1:00 p.m. CLE CREDITS
5 Ways Corporations Can Limit their International
Liability Exposure (1403R) CLER PROGRAM
Santiago A. Cueto, Cueto Law Group P.L., Coral Gables (Max. Credit: 6.0 hours for the Entire Series)
General: 1.0 hour (per program)
March 15, 2012 Ethics: 1.0 hour (April 26 Webinar Only)*
12:00 noon – 1:00 p.m.
Managing Criminal Exposure Under the FCPA and Other CERTIFICATION PROGRAM
Laws Impacting International Trade (1404R) (Max. Credit: 6.0 hours for the Entire Series)
Robert J. Becerra, Fuerst Ittleman, P.L., Miami International Law: 1.0 hour (per program)
Angela J. Crawford, DLA Piper LLP (US), Tampa
Seminar credit may be applied to satisfy CLER / Certification requirements in
the amounts specified above, not to exceed the maximum credit. See the CLE
April 26, 2012* link at www.floridabar.org for more information.
Prior to your CLER reporting date (located on the mailing label of your Florida
12:00 noon – 1:00 p.m. Bar News or available in your CLE record on-line) you will be sent a Reporting
Ethics Considerations in International Affidavit if you have not completed your required hours (must be returned by
Dispute Resolution (1405R) your CLER reporting date).
Richard J. Dewitt, Dewitt Law / Resolve Disputes, Coral Gables

REFUND POLICY: A $25 service fee applies to all requests for refunds. Requests must be in writing and postmarked no later than two business days following the
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Fall 2011 The International Law Quarterly Page 77


TO REGISTER OR ORDER AUDIO CD BY MAIL, SEND THIS FORM TO: The Florida Bar, Order Entry Department, 651 E. Jefferson
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ELECTRONIC MATERIALS: Every CLE course will feature an electronic course book in lieu of a printed book for all live presentations, live
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REGISTRATION FEE (CHECk wHICH APPLY):


what to Do when the Export Laws of the United Managing Criminal Exposure Under the FCPA
States May Have Been Violated – November 10, 2011 and Other Laws Impacting International Trade –
(1401R351) March 15, 2012 (1404R351)
 Member of International Law Section: $40  Member of International Law Section: $40
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Managing U.S. Discovery “Assistance” in Ethics Considerations in International Dispute
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Page 78 The International Law Quarterly Fall 2011


The Florida Bar Continuing Legal Education Committee and
The International Law Section present

International Income Tax and


Estate Planning 2011– Audio CD
COURSE CLASSIFICATION: INTERMEDIATE LEVEL
Recorded Thursday, October 27, 2011
Course No. 1299R

schedule: 1:30 p.m. – 2:20 p.m.


Globalization and Legal Education
8:25 a.m. – 8:30 a.m. Professor Patricia White, Dean, University of Miami School of
Opening Remarks Law, Coral Gables
William H. Newton, III, Esq., Law Offices of William H. Newton,
III, Miami – Program Chair 2:20 p.m. – 3:10 p.m.
Margarita P. Muina, Esq., Law Offices of Margarita P. Muina, Current Issues in Estate and Gift Tax Planning for U.S.
P.A., Miami – Program Vice Chair Situs Assets
Margarita P. Muina, Esq., Law Offices of Margarita P. Muina,
8:30 a.m. – 9:20 a.m. P.A., Miami
Overview of International Tax and Estate Planning
Developments 3:25 p.m. – 4:15 p.m.
William H. Newton, III, Esq., Law Offices of William H. Newton, Expatriation – Current Issues and Required Disclosures
III, Miami Shawn P. Wolf, Esq., Packman, Neuwahl and Rosenberg, Coral
Gables
9:20 a.m. – 10:10 a.m. William Yates, Esq., Associate Chief Counsel (International),
Putting FATCA into Context: The International Focus on Internal Revenue Service, Washington, D.C.
Information Exchange
Professor Patricia Brown, Director, Masters of Taxation 4:15 p.m. – 5:05 p.m.
Program, University of Miami School of Law, Coral Gables Transfer Pricing in the Current Economic Environment
Ian Gray, Esq., Economics Partners, L.L.C., Denver, CO
10:25 a.m. – 11:15 a.m. Robert A. Feinschreiber, Esq., Feinschreiber & Associates, Key
Choice of Entity Issues and International Tax Planning Biscayne
Seth Entin, Esq., Greenberg Traurig, Miami
5:05 p.m. – 5:10 p.m.
11:15 a.m. – 12:05 p.m. Closing Remarks
Cutting-Edge Developments With Respect to Tax Fraud William H. Newton, III, Esq., Law Offices of William H. Newton,
and Collection Considerations as Related to International III, Miami – Program Chair
Tax Margarita P. Muina, Esq., Law Offices of Margarita P. Muina,
Andrew H. Weinstein, Esq., Holland and Knight L.L.P., Miami P.A., Miami – Program Vice Chair
Kevin Packman, Esq., Holland and Knight L.L.P., Miami

audio cd (1299C): CLER PROGRAM


(Cost including electronic materials) (Max. Credit: 8.0 hours)
•  Member of the International Law Section: $195 plus tax General: 8.0 hours   Ethics: 1.5 hours
•  Non-section member: $245 plus tax CERTIFICATION PROGRAM
(Max. Credit: 8.0 hours)
International Law: 8.0 hours   Tax Law: 6.0 hours
Wills, Trusts & Estates: 6.0 hours

ome
onal Inc
Internati E s tate
Tax a n d
2011
Planning To order audio CD or course material, go to
1299C
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Fall 2011 The International Law Quarterly Page 79


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Section Calendar
Mark your calendars for these important dates.
For more information contact: Angela Froelich: 850-561-5633 / afroelic@flabar.org

2011 Mar. 15 – WEBINAR: Managing Criminal Exposure


Under the FCPA and Other Laws Impacting International
Dec. 8 – WEBINAR: Managing U.S. Discovery Trade (1404R)
“Assistance” in International Arbitration (1402R) (12:00 noon – 1:00 p.m.)
(12:00 noon – 1:00 p.m.) Robert J. Becerra, Fuerst, Ittlelman, P.L., Tampa
Gustavo J. Lamelas, DLA Piper L.L.P., Miami Angela Crawford, DLA Piper L.L.P., Tampa
Apr. 26 – WEBINAR: Ethics Considerations in
2012 International Dispute Resolution (1405R)
(12:00 noon – 1:00 p.m.)
Feb. 15 – WEBINAR: 5 Ways Corporations Can Limit Richard J. Dewitt, Dewitt Law / Resolve Disputes, Coral
their International Liability Exposure (1403R) (12:00 Gables
noon – 1:00 p.m.)
Santiago A. Cueto, Cueto Law Group P.L., Coral Gables June 22 – Annual Seminar at The Florida Bar
Convention (#1367R)
Feb. 24 – The 10th Annual International Litigation and Gaylord Palms Resort, Kissimmee/Orlando
Arbitration Conference (#1387R)
J.W. Marriott Marquis, Miami
Feb. 25 – Pre-Vis Moot
Miami

Page 80 The International Law Quarterly Fall 2011