WTO panel rules that certain Brazil high-tech goods' programs violate trade rules

A number of Brazil's programs to promote domestic production of its high-tech goods and automobiles contain provisions that violate WTO rules, a World Trade Organization dispute panel said Wednesday.

The parties have 30 days to appeal the decision and Brazil must act in terms of the panel ruling within 90 days. "Otherwise, Brazil will be expected to remove its illegal tax program without delay," said the EU trade mission in a statement after the panel announced its decision.

The complaints concern a wide range of industrial stimulus programs that Japan and the European Union complained about as unfair competition.

The WTO panel said the unfair measures include tax breaks, regulatory discrimination, and local content requirements that are inconsistent with the General Agreement on Tariffs and Trade (GATT), the WTO's Agreement on Trade-Related Investment Measure (TRIMs Agreement).

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They also include the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

A further two additional programs were found to provide illegal export subsidies in violation of the SCM Agreement.

In December 2013, the EU and then in July 2015 Japan initiated WTO dispute proceedings against Brazil, targeting seven that include more than 90 legal instruments under those programs which they charged were inconsistent with WTO rules.

Panels were established in December 2014 for the EU and in September 2015 for Japan. Both panels were staffed by the same three panelists and the chair of the panels later informed WTO members that the two disputes would follow a harmonized procedure.

The EU trade mission statement described the dispute as one of most comprehensive disputes ever launched by the EU as it noted that the dispute panel found that numerous Brazilian tax programs are illegal under WTO rules.

The ruling states that the program discriminate against EU automotive, ICT and electronic products and grant prohibited import and export subsidies to Brazilian companies.

The dispute also covered fiscal incentives contingent on Brazilian firms meeting certain export performance requirements.

The EU said Brazil is an important trade partner for the European Union.
Since mid-2012, the EU has enjoyed a trade surplus with Brazil, which can be linked to the decrease in world commodity prices.

EU exports to Brazil reached their peak in 2013 but have recently declined due to the economic slowdown in Brazil, the weakening of the real, and the Brazilians' increasing use of restrictive trade policies.

The value of exports of goods to Brazil in 2013 was close to 40 billion euros (48 million U.S. dollars).

In 2016, the value of exports was close to 31 billion euros (37 billion U.S. dollars).

The EU said transport equipment, machinery and appliances constitute the bulk of EU exports to Brazil. However, the EU said the discriminatory taxes and other barriers undermine trade prospects.

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