US embassy cable - 04BRASILIA2162

UNCLAS SECTION 01 OF 03 BRASILIA 002162 
 
SIPDIS 
 
STATE FOR WHA/BSC, EB/TPP/MTA/IPC SWILSON, AND CA/VO 
STATE PASS TO USTR FOR SCRONIN, LYANG AND BPECK 
USDOC FOR 
4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL/DRISCOLL 
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO 
TREASURY FOR OASIA/SEGAL 
NCS FOR DEMPSEY 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, KCRM, PGOV, ECON, BR, IPR & Biotech 
SUBJECT: BRAZIL: PIRACY CPI'S FIFTH IPR BILL 
 
REFS: A) BRASILIA 2150 B) BRASILIA 2017 C) BRASILIA 1668 
 
1.  This is the final cable in a series of five on 
legislation put forward on July 16, 2004 by Deputies 
belonging to the Congressional Investigative Commission on 
Piracy (reftels).  Below is Embassy's unofficial 
translation of the text of the fifth bill. 
 
2. Bill 3968/2004 
  (of the Piracy CPI) 
 
Regulates the installation of a System of Flow Measurement 
(SMV) in industrial beverage establishments and provides 
other provisions. 
 
The National Congress decrees: 
 
Art. 1 - This law determines the installation of equipment 
to measure flow and conductivity and equipment to control, 
register and mark the quantities measured in the industrial 
establishments of beverages, alcoholic beverages and 
vinegars classified in position 2202 and 2203 of the Table 
of Incidence of Tax on Industrialized Products (TIPI), 
according to regulation. 
 
Art. 2 - The System of Flow Measurement (SMV) should be 
installed by industrial establishments covered under this 
law on each filler, understood as the equipment utilized to 
fill the barrels in which the beverage is conditioned for 
final sale to the consumer. 
 
Sole paragraph.  The system described in the caput should 
continuously measure the flow, electric conductivity and 
temperature of the liquids that feed each filler and flow 
through the tubing to which it is associated, without 
interfering with the regular process of beverage 
manufacture. 
 
Art. 3 - This law applies to all industrial beverage 
establishments subject to the IPI tax regulations according 
to current legislation, except those whose installed annual 
production capacity is less than five million liters, 
computing capacities of respective branches, associated 
companies, partners, controlled and controllers. 
 
Art. 4 - These industrial establishments have twelve months 
from the publication of this law to install said equipment 
and equipment for flow control. 
 
Art. 5 - The States, Federal District and Municipalities 
can make an agreement with the Union to operate together 
with the Union in the establishment of criteria and 
installation procedures, inspection and control of the Flow 
System. 
 
Art. 6 - This law goes into effect on the date of its 
publication. 
 
JUSTIFICATION 
 
During public meetings, one of the measures adopted by the 
Federal Government in 2001 to inhibit counterfeiting and 
tax evasion was mentioned, a project for installing flow 
measurement by manufacturers of beer and soft drinks, 
established by Federal Revenue, based on Provisional 
Measure no. 2.158-35 of August 24, 2001. 
 
On May 3, 2004, through Of. No. 689/2004, the Presidency of 
CPI requested information about the status of the project 
in question. 
 
In response to our request, SRF sent us a note with the 
following clarifications: 
 
(...) 
 
2. The requirement for the installation of Flow Measurers 
by manufacturers of beer and soft drinks was established by 
art. 36da Provisional Measure no. 2.158-35 of August 24, 
2001, regulated by SRF through Normative Instruction SRF 
no. 265, of December 20, 2002 that attributed to the 
General Coordination of Inspection (Cofis) the 
responsibility for establishing: 
a) conditions of operation, as well as technical 
characteristics and equipment safety; 
b) procedures for ratification and licensing of equipment 
and respective manufacturers of same; 
c) minimum limits of production or invoicing, starting at 
which the installation of equipment becomes mandatory; 
3. SRF, with the purpose of initiating the process of 
implantation in the sector of beer manufacture, signed 
several technical cooperation agreements with the National 
Union of the Beer Industry (SINDICERV), as well as States 
of the Federation, such as Bahia, Pernambuco, Ceara, Para, 
Sao Paulo, Rio de Janeiro, Minas Gerais and Parana, for the 
specification and installation of flow meters; in addition 
to the objective previously mentioned, also promotes the 
interchange of information and interchange of mutual 
assistance in the supervision of tax compliance, which will 
permit significantly greater control of this segment of 
fiscal interest. 
 
4. The General Coordination of Inspection, with reference 
to above-mentioned items "a" and "c", then edited the 
Executive Declarative Act Cofis no. 20, of October 1, 2003, 
undertaking the specification of requirements for the 
System of Flow Measure to be installed in the beer 
industry. 
 
5. The System of Flow Measurement will be composed of flow 
measuring equipment, conduction meters as well as equipment 
for the control, recording, marking and remote transmission 
of the quantities measured to SRF.  The System of Flow 
Measurement should continuously monitor production of 
fluids in the industrial establishments where it is 
installed, with the following functions: 
 
- measurement of flow (that is volume by unit and time); 
- measurement of electric conductivity and temperature of 
the liquids that feed each filler; 
- record measurements obtained from the flow, conductivity 
and temperature and make this information available for use 
by the Secretary of Federal Revenue; 
- remote communication with systems at the Secretary of 
Federal Revenue, for the transfer of recorded information. 
 
6. The measurement of electrical conductivity and 
temperature will allow, under certain conditions, the 
differentiation between types of liquids that feed a 
filler.  The flow measurements supplied by SMV will allow 
an estimate to be made of the volume of fluids produced, in 
a specific period of time, at an industrial establishment. 
 
7. The System of Flow Measurement for the beer industry, is 
in a phase of validation of norms and procedures related to 
the installation, verification of conformity and 
registration of the system to be established by an 
Executive Declarative Act by Cofis.  After publication of 
said act, the first equipment should be installed in a 
maximum of three months, and expectations are to install it 
on all beer production lines nationwide within six months, 
counted from the first equipment registered by SRF. 
 
8. With reference to the soft drink industry, an agreement 
was signed on April 27, 2004 between SRF and the Brazilian 
Association of Soft Drink Industry (ABIR) for the 
implementation of a System of Flow Measurement for the 
sector.  The expectation is that there will be a reduced 
time frame for this segment due to the similarity in 
equipment and their requirements (...) 
According to the information received from SRF, it is felt 
that the project of installation of flow meters, short and 
medium term, is the solution for the control of 
counterfeiting of drinks and consequent tax evasion. 
 
It is also felt, however, that specific legislation 
currently in force, needs refinement with regard to 
definition of capacity and responsibilities for the 
improvement of control of the Flow Measurement System. 
 
Therefore, CPI debated presenting the bill mandating 
installation of flow measurement equipment in industrial 
establishments of beverages classified under TIPI, except 
those whose annual installed production capacity is less 
than five million liters, when computing the capacity of 
respective branches, associated companies, partners, 
controlled and controllers. 
 
The project also determined that Federal Revenue, INMETRO 
and ANVISA, within the scope of their power, define the 
flow parameters, electric conductivity, liquid temperature 
and interference caused by the flow system in the process 
of drink manufacture. 
 
Since this is precision equipment that requires investment 
by the industries, it will be convenient to allow a period 
of 12 months from publication of the law so that industry 
and public entities have time to make adjustments necessary 
to install the Flow System. 
 
In the end, the efficiency of the Flow System should be 
achieved with the joint efforts of the Union, States, DF 
and municipalities in the elaboration of procedures for 
installation, inspection and control of the Flow System, 
which is why the proposal anticipates an agreement between 
the Union and the rest of the entities. 
 
We are convinced that this proposal will make possible not 
just the fight against counterfeiting and evasion, but will 
permit better conditions for Brazil's participation in the 
highly competitive and global market that is today's 
beverage market. 
 
Sessions Room July 16, 2004 
 
Deputy Medeiros, President 
Deputy Josias Quintal, Reporter 
 
End unofficial Embassy translation. 
 
Danilovich