Japan and S.Korea warn Brazil on imported cars tax

Oct 14 (Reuters) - Japan and South Korea fired a warning shot at Brazil's treatment of foreign carmakers by raising the tax issue at a committee of the World Trade Organization, a trade official with knowledge of the complaint said on Friday.

"It's a warning," the official said after the closed-door meeting of the WTO's committee on market access. "It says, 'We are worried, what are you going to do?'"

The complaint is not a fully-fledged dispute, but could escalate if Brazil does not satisfy the two Asian nations.

Last month, Brazil said it would raise IPI tax on industrial goods by 30 percentage points for carmakers whose vehicles did not have at least 65 percent locally made parts and which did not invest in local research and development.

Foreign carmakers such as Germany's Volkswagen AG and U.S.-based General Motors Co were given 60 days to comply with the standards or face the higher tax.

South Korea is home to brands such as Hyundai , Kia and Daewoo, while Japan boasts Toyota and Honda .

Japan and South Korea allege Brazil's treatment of foreign cars contravenes WTO rules on trade-related investment measures and Article 3 of the GATT agreement, which says WTO members must treat foreign and domestic producers equally.

Brazil's determination to defend its burgeoning economy has raised eyebrows among diplomats at the WTO in Geneva, where free-trade advocates regard any protectionist steps as short-sighted and ultimately self-defeating.

The strength of the economy has pushed up the value of the currency, causing a problem for manufacturers who compete against imported goods for a share of Brazil's market.

Brazil suggested WTO ministers could consider the currency issue at a biennial meeting in December, but one diplomat said the issue was now off the top table and would instead be dealt with by the WTO's working group on trade, debt and finance.

Japan and South Korea's complaint was not debated by the committee since it only appeared on the meeting's agenda as "other business", a category normally used for items that are submitted after the agenda has been drawn up.

October 14, 2011

Source: Reuters