The EU requested consultations with the Government of Brazil under the dispute settlement provisions of the World Trade Organization (WTO) on tax measures that discriminate against imported goods and provide prohibited support to Brazilian exporters.
In recent years, Brazil has increased its use of the tax system in ways which are incompatible with its WTO obligations, providing advantages to domestic industries and sheltering them from competition. This is mainly done through selective exemptions or reductions from taxes on domestic goods.
In September 2011 the Brazilian Government imposed a large tax increase on motor vehicles (an additional 30% on their value), coupled with an exception for domestically produced cars and trucks. This discriminatory tax was due to expire in December 2012, but in September 2012 it was instead replaced by an equally problematic tax regime, named Inovar-Auto, set to last five more years. In parallel, the Brazilian authorities took steps affecting other goods, ranging from computers and smartphones to semiconductors. Under other similar programmes, tax benefits are reserved for goods produced in certain areas in Brazil, whatever the sector. The Brazilian authorities have also broadened existing systems of tax exemptions for Brazilian exporters by enlarging the number of potential beneficiaries.
These tax measures have a negative impact on EU exporters, whose products face higher taxes than domestic competitors. In addition, the measures restrict trade by favouring the localisation of production and supplies, and give an advantage to Brazilian exporters. The measures also result in Brazilian consumers facing higher prices, less choice and lower access to innovative products.
The EU has raised the issue in bilateral talks with Brasilia and in WTO bodies, but so far this has not brought progress. The measures have also been highlighted several times in the EU’s annual Protectionism Reports. The EU’s decision to request WTO consultations is aimed at engaging with the Brazilian Government in consultations with a view to ensuring the respect of WTO.
Trade facts and figures
The EU is Brazil’s biggest trading partner, accounting for 20.8% of its total trade (2012). Brazil is an important trade partner for the EU: in 2012 the EU’s overall exports to Brazil were worth more €39 billion, of which nearly €18 billion consisted of machinery and transport equipment, including motor vehicles and parts, and electronic goods and components.
Brazil’s total imports of goods have increased in recent years and in 2012 they topped €191 billion. However, the imports-to-GDP ratio (including goods and services) remains low at 14% of GDP. Recently, there has been a decrease of certain imports into Brazil: registration of imported vehicles, for instance, decreased from 857,900 units in 2011 to 788,100 units in 2012 and 581,700 units in January-October 2013 (-11.4 % year-on-year), in spite of the fact that vehicles imported from Argentina and Mexico continued to benefit from special tax exemptions under the Inovar-Auto programme.
Next steps in WTO dispute settlement procedures
The request for consultations formally initiates proceedings under the WTO dispute settlement understanding aimed at seeking to solve a dispute. Consultations give the EU and Brazil the opportunity to discuss the matter and to find a satisfactory solution without resorting to litigation.
If consultations do not reach a satisfactory solution within 60 days, the EU may request the WTO set up a Panel to rule on the compatibility of Brazil’s measures with WTO rules.