Brazilian Car Import Tax Hike Concerns WTO Members

Japan is said to be leading a chorus of protest at the World Trade Organization against a protectionist measure announced by Brazilian authorities in September to shield the nation's car manufacturing and car assembly industry from cheap foreign imports.

As part of a package of measures to shield the domestic industry following the rapid appreciation in the nation's currency the Real, Brazil announced in September that it would hike the industrial products tax on car makers by up to 30% on vehicles that are assembled mainly from foreign-manufactured components.

However, the issue was raised by Japan at a recent meeting of WTO members, and the country is concerned that the policy contravenes the terms of the WTO's General Agreement on Tariffs and Trade, which stipulates that members, such as Brazil, cannot offer more favourable tax terms to domestic producers than those imposed on foreign companies.

It is believed that South Korea and other car-producing countries have also voiced their concerns at the tax hike, and while a formal complaint has not yet been submitted to the WTO's dispute resolution panel, the pressure is undoubtedly increasing on Brazil to reverse the measure.

In order to avoid the new rates, Brazil has informed companies that they will have to meet six of eleven criteria relating to domestic component supply and assembly. Brazilian authorities have provided a transitional period of just sixty days for firms to adjust to the change. Exporters to the Brazilian market who fail to adapt their supply chains will be subject to the hike from the end of November, although car manufacturers looking to expand operations in Brazil are understood to be seeking more generous transitional terms.

The hike will not impact imports from nations in the South American Mercosur trade bloc or Mexico.

October 18, 2011

Source: Tax News