Thursday, November 10, 2011

Brazil goes protectionist

The WTO website stated that at the Council for Trade in Goods meeting, inter alia, the following issue was raised :

"Korea said that Brazil’s 30% tax on imported automobiles and requirements to use domestic components are against the WTO national treatment principle and the WTO Agreements on Subsidies and on Trade-Related Measures. Japan, EU, US, Canada, Colombia, Chinese Taipei, Australia and Hong Kong, China supported Korea’s statement. Japan added that Brazil’s action was contrary to the G-20 declaration against protectionism.  Brazil said that its rising currency had led to a substantial increase in imports of automobiles. It said that the measure in question was provisional in nature, and would expire next year. Instead of using trade remedies like anti-dumping  duties, Brazil said it had chosen to establish positive incentives to encourage investment and research."

Time would tell if this goes all the way to the Dispute Settlement panel. The argument of Brazil depicted here is interesting. It is justifying its action by saying that it could have imposed trade remedies like anti-dumping duties but preferred "positive incentives"!

“Brazilian consumption has been appropriated by imports,” said the Brazilian Finance Minister, according to the Economist,while imposing the tax. Issues of national treatment (treating imports the same as domestic products) vis a vis dumping due to currency devaluation could be the legal issues before the Settlement panel, if the dispute is not negotiated or Brazil withdraws its measures.

In the meantime, the Supreme Court of Brazil seems to have stayed the imposition of the  tax on "technical grounds" of not giving 90 days notice. The jury is still out on this!

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