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WTO cases | Brussels, 30 August 2017

The EU wins WTO dispute challenging Brazil’s tax subsidies in the ICT, electronics and automotive sectors

Today, the WTO handed a full victory to the EU in its challenge against Brazil’s wide-ranging import-substitution and export-performance subsidies.

In one of the most comprehensive disputes ever launched by the EU, the Panel found that numerous Brazilian tax programmes are illegal under WTO rules. The ruling states that the programmes 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.

Brazil's tax programmes in the automotive, ICT and electronic sectors are geared towards substituting imports with domestic production through the gradual localisation of manufacturing activities. This ruling confirms that local content requirements, whereby tax advantages favour domestic goods over imported goods, are illegal under WTO law.

The parties have 30 days to appeal the decision. Otherwise, Brazil will be expected to remove its illegal tax programmes without delay.


Background
Brazil is an important trade partner for the EU. 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. In 2016, the value of exports was close to €31 billion. Transport equipment, machinery and appliances constitute the bulk of EU exports to Brazil. However, the discriminatory taxes and other barriers undermine trade prospects.

The EU initiated the WTO dispute in December 2013. Later on, in July 2015, Japan launched a parallel dispute against the same Brazilian programmes and the two cases were merged. The two reports are issued today and are substantially the same.

 

For more information

EU-Brazil relations
WTO dispute settlement in a nutshell
DS472/Brazil Taxation