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Joint Press Release with the Ministry of Foreign AffairsJapan Requested the Establishment of a Panel under the WTO Agreement on Brazil’s Measures Concerning Discriminatory Taxation and Charges

On September 17, 2015, the Government of Japan requested that the World Trade Organization (WTO) establish a panel under the WTO Agreement on certain measures concerning discriminatory taxation and charges for the automotive sector, information and communication technology, etc. that Brazil has introduced.

1. Overview

(1) In September 2011, Brazil raised the rates for the country’s Industrial Product Tax (IPI), a value-added tax imposed on industrial products, by 30% with respect to automobiles. In October 2012, Brazil introduced a new tax advantage scheme named “Inovar-Auto,” which allows automobile manufacturers to offset their taxable IPI depending on the ratio of local contents used in manufacturing 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 communications devices and related goods, Brazil has established tax advantages for companies in Brazil that carry out certain production and investment activities, and/or use local contents.

(2) These measures treat imported products unfavorably in terms of receiving 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), general most-favoured-nation treatment (Article I of the GATT 1994) and other obligations under the WTO Agreement.
*Note: GATT: General Agreement on Tariffs and Trade

(3) In addition, Brazil has established tax advantages for exporting companies which are contingent on export performance. This practice is likely to fall under the category of export subsidies that are prohibited by the WTO Agreement.

(4) In light of this situation, on July 2, 2015, Japan requested consultations with Brazil under the WTO Agreement. The consultations were held on September 15 and 16, 2015 in pursuit of a solution to the measures at issue.

(5) As the consultations failed to settle the dispute, on September 17, 2015, Japan requested the WTO to establish a panel on Brazil’s measures concerning discriminatory taxation and charges.

2. Future schedule

Japan will seek an appropriate solution to this issue in accordance with the WTO Agreement.

(Reference) Panels under the WTO Agreement

If consultations between governments fail to settle a dispute, based on a request from the complaining party, a WTO panel (first instance), which is a quasi-judicial third-party organization, examines the matter in question and gives rulings regarding its consistency with the WTO Agreement. If any violations are confirmed, the panel recommends correction of the measures. Any party which is not satisfied with the panel rulings may appeal to the WTO Appellate Body (second instance).

Release date

September 17, 2015

Division in Charge

For general information on WTO dispute settlements:
Multilateral Trade System Department & Office for WTO Compliance and Dispute Settlement, Trade Policy Bureau
For 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
1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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