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EU Advances WTO Complaints on Brazilian Taxes, Russian Import Duties

Monday, November 03, 2014
Sandler, Travis & Rosenberg Trade Report

The European Commission reports that on Oct. 31 it requested the formation of a World Trade Organization dispute settlement panel to hear its complaint against certain Brazilian taxes and launched a WTO complaint against Russia’s import duties.

Brazil. A Commission press release asserts that Brazil applies high internal taxes in several sectors, such as automobiles, information technologies, and machines used by industry and professionals, and that imported goods may not benefit from selective exemptions or reductions as Brazilian products can. For instance, the Commission states, the tax on imported vehicles may exceed that collected on Brazilian-made cars by 30 percent of a car’s value. Combined with customs duties levied at the border and other charges, this may amount in some cases to a tax of 80 percent on the import value.

The EU also maintains that Brazilian manufacturers are required to use domestic components as a condition of benefitting from tax advantages, a practice that promotes import substitution by inducing foreign producers to relocate to Brazil and to limit foreign sourcing. Furthermore, the Commission states, the challenged tax measures shield uncompetitive Brazilian manufacturers from international competition and limit product choice for Brazilian consumers. For example, a smartphone costs 50 percent more in Brazil than in the EU or most other countries, even though manufacturers of IT goods in Brazil enjoy tax breaks ranging from 80 to 100 percent.

The press release notes that after EU and Brazilian authorities held consultations earlier this year to try to resolve the dispute, Brazil took steps to extend and prolong some of its discriminatory taxation regimes. For example, significant tax relief measures for Brazilian IT goods and machinery were extended until 2029 while imports continue to be fully taxed.

Russia. The EU has requested WTO consultations with Russia concerning its import duties on paper products, refrigerators and palm oil. A Commission press release states that while Russia committed to keep its import duties below specified limits when it joined the WTO, it “diverges” from these limits in one of two ways: applying a higher duty rate, or fixing a minimum amount that needs to be paid even if not justified by the agreed duty rate expressed in a percentage of the product value. The Commission claims that these higher duties “have a clear negative impact on European exports of paper products, refrigerators and palm oil that are worth approximately €600 million a year” but also raise a “systemic concern” because they violate “one of the key WTO principles.”

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