Brussels, 04/11/2014 (Agence Europe) - On Friday 31 October, the EU asked the WTO for a special dispute body to be set up to rule on the EU's dispute with Brazil over the selective tax exemptions or reductions granted by Brasilia to its national industry.
The EU criticises Brazil for disburdening Brazilian manufacturers from part of the high taxes imposed in several of the country's industrial sectors - such as the automobile industry, information technology and machinery - by means of selective reductions or exemptions. “As a result, goods manufactured in the EU and sold in Brazil face higher taxes than Brazilian products”, the European Commission states in a press release. The tax on vehicles imported into Brazil can therefore exceed that collected on Brazilian-made cars by 30% of a car's value. Combined with customs duties levied at the border and other charges, this may amount in some cases to a prohibitive tax of 80% on the import value, the Commission states.
The EU also criticises Brazil for restricting trade by requiring Brazilian manufacturers to use domestic components, which enables national manufacturers to benefit from tax advantages if they use components made in Brazil. This promotes import substitution by encouraging foreign producers to relocate to Brazil and to limit foreign sourcing.
In addition, the EU believes that the tax measures it challenges protect uncompetitive Brazilian manufacturers from international competition and limit the choice of affordable quality products available to Brazilian consumers. Despite the tax reductions from which Brazilian manufacturers benefit - ranging from 80% to a total exemption - a smartphone costs 50% more in Brazil than in the EU or most other countries, the Commission states.
In spite of WTO consultations being requested on this issue by the EU in December 2013, Brazil has taken new measures to extend and prolong some of its discriminatory tax regimes. Tax reduction measures for Brazilian machinery and IT goods have recently been extended until 2029 - whilst imports continue to be fully taxed.
“The EU is now requesting the WTO to establish a panel of experts to rule on the matter, in order to achieve a fair, permanent and satisfactory solution. The aim is to eliminate the cases of discrimination and unlawful tax incentives, without calling into question Brazil's tax policy as such or its development policies”, the Commission states. Aiming to stimulate discussion on this specific issue, the EU has excluded the treatment of goods produced in Manaus and in other Brazilian free trade zones from its scope of action. (EH)