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Press Release with the Ministry of Foreign AffairsJapan Requested Consultations with Brazil under the WTO Agreement Over Certain Measures Concerning Discriminatory Taxation and Charges

On July 2, 2015, the Government of Japan requested consultations with Brazil under the WTO Agreement over certain measures concerning discriminatory taxation and charges on automotive sector, information and communication technology, etc.

1. Overview

  1. In September 2011, Brazil raised the rates of the Industrial Product Tax (IPI), a value-added tax imposed on industrial products, by 30% with respect to automobiles. In October 2012, Brazil introduced the new tax advantage scheme named “Inovar-Auto” that allows automobile manufacturers to offset their taxable IPI depending on the ratio of local contents used in manufacturing the automobiles if they meet certain requirements such as 1) carrying out certain manufacturing processes inside Brazil and 2) investing in domestic research and development in Brazil. Also, in the field of information and communication technology, automation and related goods, Brazil has established tax advantages for companies that carry out certain production and investment activities within Brazil.
  2. These measures unfavorably treat imported products in terms of receiving the tax advantages, provide favorable treatment only to domestic products and some imported products from some countries that meet certain requirements, and also include local content requirements. These measures, therefore, appear to be inconsistent with the national treatment requirement (Article III of the GATT 1994), the general most-favoured-nation treatment (Article I of the GATT 1994), and other obligations under the WTO Agreement.
  3. In addition, Brazil has also established tax advantages for exporting companies, which are contingent on the companies’ export performances. This is likely to fall under the category of export subsidies that are prohibited by the WTO Agreement.
  4. Japan makes this request for consultations with Brazil under the WTO Agreement in pursuit of a solution to the measures at issue.

2. Future schedule

Details of the schedule for the consultation will be coordinated with the Government of Brazil.

Reference

Reference 1: Consultation under the WTO Agreement
The WTO Agreement requires WTO Members to hold a consultation under the WTO Agreement before Members request that the WTO establish a panel to examine whether the measures at issue are inconsistent with the WTO Agreement. The WTO Agreement encourages Members to settle disputes through mutual agreement between both countries (Article 4 of DSU).

Reference 2:
GATT: General Agreement on Tariffs and Trade
DSU: WTO Agreement Annex 2 Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding)

Release date

July 2, 2015

Division in Charge

General information on WTO dispute settlements:
Multilateral Trade System Department & Office for WTO Compliance and Dispute Settlement, Trade Policy Bureau

Information on the economic relationship between Japan and Brazil:
Latin America and Caribbean Office, Trade Policy Bureau

Related Information

WTO

Ministry of Economy, Trade and Industry
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