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Joint Press Release with the Ministry of Foreign Affairs The WTO Dispute Settlement Panel Came to a Decision that Brazil's Measures Concerning Discriminatory Taxation and Charges are Inconsistent with the WTO Agreement Circulation of the WTO Panel Report on Brazil's Measures Concerning Discriminatory Taxation and Charges

On August 30, 2017, the World Trade Organization (WTO) circulated the panel report regarding Brazil’s measures concerning discriminatory taxation and charges, a matter that has been examined by the WTO at the request of Japan and the EU. The report presents a ruling that Brazil’s measures: [i] are inconsistent with the national treatment requirement (Article: III 2 and III: 4 of the GATT 1994); and [ii] fall under the category of export subsidies (Article 3.1(a) of the SCM Agreement) and local content subsidies (Article 3.1(b) of the SCM Agreement), both of which are prohibited under the SCM Agreement. This WTO ruling fully upheld Japan’s claims.

1. Overview

On September 17, 2015, Japan requested the WTO establish a panel on certain measures concerning discriminatory taxation and charges, in connection with certain conditions such as engagement in certain production and investment activities within Brazil, and use of local contents. In the same month, the WTO panel was established.

Japan claimed that these measures by Brazil are inconsistent with the WTO Agreement, notably with the national treatment requirement (Article III: 2 and III: 4 of the GATT 1994). These measures also fall under either the category of export subsidies (Article 3.1 (a) of the SCM Agreement) and the category of local content subsidies (Article 3.1 (b) of the SCM Agreement), both of which are prohibited under the SCM Agreement.

The panel meetings (oral hearings) were held in February and May 2016. The WTO finally circulated the panel report presenting a ruling that Brazil’s measures are inconsistent with the WTO Agreement. The ruling, fully upholding Japan’s claims, requests that Brazil bring its measures into conformity with the WTO Agreement and withdraw the prohibited subsidies.

2. Details of the Decision

The panel report recommends that Brazil bring its measures into conformity with the WTO Agreement and withdraw the prohibited subsidies (the export subsidies and the local content subsidies) within 90 days. The following are the major points of the panel's ruling:

  1. Brazil's tax advantage scheme called “Inovar-Auto” allows automobile manufacturers to offset the “Industrial Product Tax (IPI)” depending on the ratio of local contents used in manufacturing the automobiles, on the condition of meeting certain requirements, such as 1) carrying out certain manufacturing processes in Brazil and 2) investing in research and development in Brazil. These measures are inconsistent with the national treatment requirement (Article III: 2 and III: 4 of the GATT 1994) and also fall under the category of local content subsidies, prohibited under Article 3.1 (b) of the SCM Agreement.
  2. Concerning domestic production in the field of information and communication technology (electricity and electronics, semiconductors, televisions etc.), Brazil established tax advantages for companies if such companies meet certain requirements related to production, research and development and investment within Brazil, and use of components produced in the country. These measures are inconsistent with the national treatment requirement (Article III: 2 and III: 4 of the GATT 1994). They also fall under the category of local content subsidies, prohibited under Article 3.1 (b) of the SCM Agreement.
  3. Brazil established tax advantages for exporting companies that earn certain ratios of its sales from exports (PEC and RECAP). The exporting companies enjoy the exemption, reduction or deferment of a certain federal taxes imposed on their purchase and imports of capital goods (machinery, devices, etc.), or raw materials and other goods respectively. These tax advantages fall under the category of export subsidies which are contingent on the companies’ export performance, prohibited under Article 3.1 (a) of the SCM Agreement.

3. Future schedule

Parties to the dispute may appeal to the WTO Appellate Body within 60 days after the date of circulation of the panel report. If no appeal is filed, the panel’s decision in the report will become the WTO’s final decision.

4. References

  1. Relevant METI news releases
    1. Japan Requested Consultations with Brazil under the WTO Agreement Over Certain Measures Concerning Discriminatory Taxation and Charges (News release on July 2, 2015 )
    2. Japan Requested the Establishment of a Panel under the WTO Agreement on Brazil’s Measures Concerning Discriminatory Taxation and Charges (News release on September 17, 2015 )
    3. A Panel Under the WTO Agreement was Established Regarding Brazil’s Measures Concerning Discriminatory Taxation and Charges (News release on September 28, 2015 )
  2. Outline of a WTO panel
    If consultations between member countries/territories fail to settle a dispute, based on a request from the complainant, the WTO panel examines the measure at issue and gives a ruling regarding the consistency with the WTO Agreement. A party to the dispute, which is not satisfied with the panel rulings, may appeal to the WTO Appellate Body.

Release date

August 30, 2017

Divisions 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 website

Ministry of Economy, Trade and Industry1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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