Brazil is fortunate to be located in the east-central part of South America, where it borders almost all other South American countries except Chile and Ecuador. Brazil is a large country that, with an area of about 3,286,488 square miles, covers almost 48 percent of South America.

Brazil is comprised of 26 states plus its capital, the Federal District of Brasília. The country is divided geographically into five different regions: North, Northeast, Southeast, South and West-Central.

The population of Brazil is currently estimated at 163,947,554 inhabitants, and that number is likely to double within the next 35 years. The population is young; 65 percent of Brazilians are under 30 years old. The country has a population density of 46 inhabitants per square mile with 73.8 percent of the population living in urban areas.

Brazil is a Federal Republic and has had eight Constitutions. The first Constitution was signed in 1824, and the current one was enacted in 1988. The 1988 Constitution is regarded as the most democratic in Brazilian history.

The Federal Government has three branches: the Executive, the Legislative and the Judiciary.The exchange markets in Brazil are subject to Central Bank of Brazil rules, and operate with floating exchange rates. The most common markets are:

(a) the commercial floating exchange rate market, which is applicable to transactions related to: (i) import and export; (ii) foreign currency investments in Brazil as well as repatriation of profits or capital from those investments; (iii) foreign currency loans to Brazilian residents; (iv) certain other transactions involving remittances abroad and (v) transactions among the Federal Government, the States and Municipalities; and

(b) the “tourism” floating exchange rate market. Applicable regulations indicate the types of transactions that qualify for this market.

The distinction between these two exchange markets is that (i) the commercial exchange market is restricted to transactions that in certain cases require prior approval from the monetary authorities; and (ii) the tourism exchange market is open to transactions that do not require any approval from the monetary authorities.

There is, in addition, the “Euroreal market”. The Euroreal is the general designation applied to amounts in Brazilian national currency existing abroad either in cash or in the form of deposits with foreign banks.

2.1 Stocks and Securities Market

Foreign investment in the domestic securities market is permitted. However, it is limited to investors using the following vehicles:

(a) investment companies;

(b) investment funds;

(c) managed portfolios of individual or legal entities resident abroad; and

(d) managed portfolios of institutional investors located abroad.

Brazil has at present one of the most important financial centres in the developing world, in terms of market capitalisation (US$ 181.4 billion in November 1999). The São Paulo Stock Exchange, BOVESPA, is presently the largest stock exchange in South America, and is responsible for approximately 85% of the total national share market. The remainder is divided among eight other regional stock exchanges, the largest of which is the Rio de Janeiro Stock Exchange. Both exchanges are responsible for approximately 97,3% of all trading in Brazil and are privately owned by the member firms.

The markets are self regulated by the stock exchanges, but there is a government agency, the Securities Commission (the CVM), under the Ministry of Finance and the National Monetary Council (the CMN), with powers to oversee the markets; suspend participants; suspend trading of shares; authorise issues; audit public companies and exchanges; apply sanctions; and promote liquidation. The stock exchanges are considered to be auxiliary agencies to agencies the CVM.

Much of the growth of the Brazilian stock markets in the 90´s was due to the easing of restrictions on foreign capital which were introduced by means of a programme called ANNEX 4, an integral part of Central Bank of Brazil´s Resolution 1832. In 1998, the foreign capital entering Brazil totalled US$ 26.1 billion, in the period from January to November of 1999, alone the entry of foreign capital in the country reaching US$ 22.4% billion.

2.2. Commodities and Futures Exchange

The Brazilian Mercantile and Futures Exchange (BM&F), based in São Paulo and founded in 1986, is the tenth largest derivatives exchange in the world having transacted approximately 40 million contracts in the period of January to September, 1999. Since its inception, BMF has serviced basically the local market, grown at an average rate of sixty percent a year, and does not deal in share options, which are admitted for trade by both the São Paulo and Rio de Janeiro stock exchanges and in spot contracts.3.1. Purpose

In view of the formation of large trading blocks such as the European Union and the North American Free Trade Association, the southern Latin American countries have been working since July 1986 on a means to stimulate trade between the region and the rest of the world, and to encourage foreign investment.

In July 1990, a timetable for the formation of a Common Market between Brazil and Argentina was established. After December, 1990, Brazil and Argentina signed a treaty incorporating all previous agreements liberalising trade between the two countries. This agreement already reflected the characteristics and objectives of what was to become Mercosul.

On March 26, 1991, Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asuncion formalising the decision to integrate the economy of these countries into a Common Market of the South (MERCOSUL), effective as of January 1, 1995.

Mercosul has as its purpose the co-ordination of macroeconomic and sectorial policies; the free transit of goods, services and means of production; the establishment of joint customs duties; and the adoption of a common commercial policy towards other countries and communities.4.1. Banking Law

Law 4.595 of December 31, 1964, also known as the Brazilian Banking Law, was enacted in order to regulate the whole the Brazilian financial system, and is responsible for its present structure.

In accordance with article 17, any “public or private legal entities which have as their primary or accessory activity the assessment, intermediation or application of financial resources of their own or of third parties, in Brazilian or foreign currency, as well as the custody of third parties´ properties” are considered to be financial institutions. Additionally, the Banking Law establishes that individuals who regularly or occasionally perform any of the above-mentioned activities shall be treated as financial institutions.

Pursuant to the Banking Law, the Brazilian financial system is composed of:

(a) The National Monetary Council (“Conselho Monetário Nacional”);

(b) The Central Bank of Brazil (“Banco Central do Brasil”);

(c) The Bank of Brazil S.A. (“Banco do Brasil S.A.”)

(d) The National Bank of Economic and Social Development (“Banco Nacional do Desenvolvimento Econômico e Social” – BNDES); and

( e) other public and private financial institutions.

4.2. The National Monetary Council

The National Monetary Council is the controller of the Brazilian currency, thus being responsible for the authorisation of the issuance of paper money and for the determination of its characteristics, is composed of:

(a) The Economy Minister, who is its President;

(b) The Minister of Planning and Budget; and

(c) The President of the Central Bank of Brazil.

The National Monetary Council is assisted by five Consulting Commissions, which deal with: the rules and organization of the Brazilian financial system; the securities market and the futures market; rural credit; industrial credit; habitancy credit, sanitation and urban infra-structure; public debt; and monetary and exchange policies.

4.3. The Central Bank of Brazil

The Central Bank of Brazil has as its objective to perform and to enforce legal norms and rules issued by the National Monetary Council.

4.4. The Bank of Brazil S.A.

Before the enacting of Law 4.595/64, the Bank of Brazil S.A. (“Banco do Brasil S.A.”) used to function as a Central Bank, besides operating as a private bank.

The Bank of Brazil S.A. is today a commercial bank, although it is also engaged in activities which are not common to commercial banks as an instrument for the administration of financial and credit policies of the Federal Government.

4.5. The National Bank of Economic and Social Development

The National Bank of Economic and Social Development (“Banco Nacional do Desenvolvimento Econômico e Social” – BNDES) is considered by Law 4.595/64 as a public financial institution whose primary objective is the execution of Federal Government Investment Policies. It is also responsible for the Brazilian Privatization Program. The BNDES has two subsidiaries: the BANESPAR, whose objective is the development of the stock market, and FINAME, which is the administrator of the export financing operations.

4.6. Public Financial Institutions

Law 4.595/64 defines public financial institutions as auxiliary bodies in the execution of the Brazilian Federal Government credit policy.

As its has been previously mentioned, the National Bank of Economic and Social Development is the main instrument in the execution of such policy.

The first paragraph of Article 22 of the Banking Law establishes that the National Monetary Council is responsible for regulating the public financial institutions.

Notwithstanding the above, the Banking Law (article 24), determines that the non-federal public financial institutions are subject to the rules concerning private financial institutions.

4.7. Private Financial Institutions

In general, private financial institutions may only be constituted as joint stock companies, as Multiples Banks, Commercial Banks, Investment Banks, Developments Banks, Credit Financing and Investment Companies, Real State Credit Companies, Credit Cooperatives, Leasing Companies, Stock Brokerage Companies, Exchange Brokerage Companies, Securities Distribution Companies, Mortgage Companies and Foreign Banks.

According to the Theory of International Trade, each country should specialize in the production of those goods that would be more advantageous for their manufacturing, later on trading them for goods produced by other countries.

That would allow larger availability of goods and services for the respective populations and what is more important, lower prices, increasing the consumption possibilities and consequently the overall general standard of living.

However it is not what is demonstrated in the practice. Most of the countries attempt to produce practically everything, applying they so call “Substitution of Imports” imposed by their governments, creating a series of barriers to the international trade (high customs tariffs, special quotas, several prohibitions etc.).

Certain economic groups, with enough lobbyist power, press the governments towards producing some goods internally, which could be acquired from other countries for better price and quality. In consequence, restrictive rules against the trade of foreign commerce are implemented with the intention to protect such groups against foreign competition with similar products.

Developing countries, such as Brazil, believes that through industrialization, the income per capita would increase elevating the standard of living for the general population.

Since 1990, Brazil has been experiencing intense political and economic changes, seeking its place in the international commercial relationships. Among other things, these changes consist with the creation of a number of guidelines in the attempt to facilitate and expedite the foreign commerce process in the country.

5.1 International Commerce Controls in Brazil.

As previously mentioned, the National Monetary Council, Central Bank of Brazil, The Bank of Brazil and The National Bank of Economic Social and Development, also the following entities exert control in the Brazilian international commerce:

a. International Chamber of Commerce – Câmara de Comércio Exterior

b. Secretary of International Commerce – Secretaria de Comércio Exterior

c. Ministry of Foreign Affairs – Ministerio das Relações Exteriores

d. Department of Economic Policy – Secretaria de Política Econômica

e. Department of Economic Advisory – Secretaria de Acompanhamento Econômico

f. Department of International Affairs – Secretaria de Assuntos Internacionais

g. Brazilian Nomenclature Committee. Comitê Brasileiro de Nomenclatura

5.1.1 The International Chamber of Commerce.

The International Chamber of Commerce was created by Decree n. 1386/95, with the objective to develop policies and to coordinate the related activities with the international commerce of goods and services. Mainly also to establish guidelines for deregulation of international commerce.

Pursuant to article 5 of the mentioned Decree, all and any administrative demands practiced by Federal Administration Agencies, creating new controls, registrations, dealing directly and indirectly with operations of foreign commerce, shall be subject to a pre approval from the International Chamber of Commerce.

The International Chamber of Commerce is composed of:

a. Minister Chief of the Civil House of the Presidency of the Republic, (President).

b. Foreign Minister

c. Finance Minister

d. Planning Minister

e. Industry and Commerce Minister

f. Agriculture Minister

5.1.2. Department of Foreign Trade (SECEX)

The Department of Foreign Trade is under the Industry and Commerce Ministry and it was created by the Law n. 8.490/92 substituting the old Department of International Commerce (DECEX).

Its main objective, among others, is proposing policies and programs for foreign trade, focusing also in the areas of fiscal, trading, financing, and customs, participating also of agreements or pacts related to the foreign commerce.

It is also part of its objective to investigate of the necessity of commercial safeguards, as well as to propose measures foreseen by the World Trade Organization guidelines.

5.1.3 Ministry of Foreign Affairs

The main purpose of the Ministry of Foreign Affairs is to deal with international commerce, with the objective of promoting Brazilian exports abroad, maintaining a database with Brazilian exporters and Foreign Importers, and being in charge of research on foreign markets and Brazilian commercial trade.

The Ministry releases information on commercial opportunities in Brazil, organizes fairs and promotes trips of commercial missions to Brazil.

The Commercial Promotion Division (SECOM) carries out such duties by working with the Brazilian embassies and consulates.

4. Department of Economic Policy

This Department functions under the Finance Ministry, assigned to supervise, analyse, suggest alternative polices to the foreign section, in the trade field, international commerce, credit, and balance of payments.

Among other functions it also makes decisions on benefits of the participation of Brazil in international agreements, related to International Commerce.

5. Department of Economic Advisory

This Department also operates under the Finance Ministry, having as its main objective, among others, to supervise the national politics of Import and Export Taxes, and to implement anti-dumping actions.

6. Department of International Affairs.

Also an entity (subordinated) belonging to the Finance Ministry and having the following as its main duties:

a. To follow economic and financial negotiations with governments and international entities.

b. To analyse the economic politics of the international financial organizations.

c. To follow and coordinate the necessary actions during the process of Brazilian integration with MERCOSUL.

d. To follow and coordinate the necessary actions for the participation of Brazil in the World Trade Organization, and to participate in negotiations with international organizations.

4. Brazilian Nomenclature Committee

According to Decree n. 1745/95, the duties of this committee, among other attributions, are to disclose and to maintain up-to-date the Brazilian Nomenclature of Goods. Also to promote the adaptation of the Brazilian Nomenclature with the Customs Nomenclature of Brussels.

It also renders technical support to all the agencies and entities interested in the application of the Brazilian Nomenclature of Goods.

1. Integrated System for International Commerce – Sistema Integrado de Comércio Exterior (SISCOMEX)

The Integrated System for International Commerce (SISCOMEX) was created by Decree n.660/92, having gone into effect on Jan/4/93 for exportation and on Jan/1/97 for the importation.

The main objective of the system is to promote the complete integration of all operations related to international commerce, allowing computerized control of the information.

These are the users of SISCOMEX:

a. Importers, exporters, receivers and carriers;

b. Federal and state agencies that maintains activities related to international commerce;

c. Financial Institutions authorized by the Department of Foreign Trade (SECEX), to issue importing permits;

d. The Central Bank of Brazil and authorized financial institutions to operate with currency exchange.

The user´s access, except for item “d” above, is made by means of identification and password.

Since its creation, SICOMEX has as its one great objective to simplify and to standardize international commerce operations, ease of use attendance trough out the country, reduces bureaucracy, reducing the time for the release of goods to be exported, as well as the elimination of countless documents and forms of similar controls, substituted by a single document at the end of the process.

In conclusion SISCOMEX is a single central agency capable of attending to the needs of exporters and importers.In contrast to common law, Brazilian Law has its roots in Roman and Germanic Law, with strong influence of the Napoleonic Code of 1804 and the Germanic Code of 1896.

The Federal Constitution confers jurisdiction to the judiciary, jurisdiction being understood here as one of the functions of the sovereignty of the state, which manifests itself through the judiciary, deciding conflicts of interests, and, in this way, ensuring the rule of law.

The Brazilian judicial system is divided between the ordinary courts (civil and criminal) and the special judiciary (labour, military and electoral).

6.1. Ordinary Courts

The ordinary courts are both federal (basically in processes in which the federal government is a party or in which a foreign state or international organisation is involved) or state courts. In spite of the existence of three levels of jurisdiction within the state and federal judicial systems, each individual judge or panel of judges is free and independent of a superior court to decide in relation to the cases brought before them.

Legal proceedings at lower level courts, both state and federal, are tried by individual judges.

6.2. Specialised Courts

The Brazilian labour courts differ from the other courts in that they are presided over by panels of judges at all levels, including the courts of first instance.

At the trial court level, the specialised criminal and specialised civil courts .

Above these courts is the Supreme Court of Justice in Brasilia, which has the function of judging, among other matters, appeals against decisions of lower courts contrary to treaties or federal law and appeals against conflicting decisions of different courts (unification of jurisprudence).

Finally, at the top of the pyramid, is the Supreme Federal Tribunal. Created in the mold of the Supreme Court in the United States of America, it is a constitutional court formed by 11 judges responsible for guaranteeing that the principles of the Federal Constitution are applied and respected.

6.3- Recognition and Enforcement of Arbitration Awards.

Individuals and entities which are legally qualified to enter into agreements may resort to arbitration to settle disputes concerning their property rights.

The legal rules governing arbitration may be freely established. They may include general principles of law, custom and international trade rules.

Brazil is not party of the New York convention but has ratified the Panama Convention of 1975. However, the new Brazilian Arbitration Law (Law 9,307/96) includes a specific article addressing the recognition and enforceability of foreign decisions.