Issuance of the Appellate Body Report concerning “Brazil－Certain Measures Concerning Taxation and Charges” in the WTO Dispute Settlement Procedures
(Statement by Foreign Minister Taro Kono)
1. On December 14th (December 13th Geneva time), the Appellate Body of the World Trade Organization (WTO) issued its report in the case “Brazil－Certain Measures Concerning Taxation and Charges”, in which Japan and the European Union had filed their complaints against Brazil under the WTO Dispute Settlement Procedures. In its report, the Appellate Body finds that Brazil’s tax benefits measures in the automobile and Information and Communication Technology (ICT) sectors are inconsistent with the WTO Agreements and recommends that Brazil bring its measures into conformity with its obligations under the WTO Agreements.
2. Japan highly appreciates the Appellate Body’s rulings supporting Japan’s claims. Japan considers it significant that the Appellate Body reconfirmed that the discriminatory and market-distorting tax benefits measures challenged in this dispute cannot be accepted under the WTO Agreements, in the context of strengthening the free and fair multilateral trading regime that Japan values.
3. Following this report, Japan calls on Brazil to faithfully and promptly bring its WTO-inconsistent measures into conformity with its obligations under the WTO Agreements.
[Reference] Timeline and outline of this case
(1) In recent years, Brazil has introduced and maintains the measures that reduce taxes imposed on automobile manufacturers provided that they comply with certain requirements. In these measures, the rates of tax reductions are dependent on the level of production and investment in Brazil and the proportion of domestically manufactured components used in the production. In the Information and Communication Technology (ICT) sector, Brazil has put in place measures similar to those in the automobile sector. Brazil also defers and exempts certain federal taxes on exporting companies on condition that they achieve a certain threshold of export performance.
(2) In July 2015, Japan requested consultations with Brazil based on the WTO Agreements. In September 2015, Japan requested that the WTO establish a panel with respect to Brazil’s tax measures, and the panel was established in the same month.
(3) In August 2017, the Panel Report was circulated to the Members. The Panel Report supported Japan’s claims, found that Brazil’s tax benefits measures were inconsistent with the WTO Agreements, and recommended Brazil to bring its measures into conformity with its obligations under the WTO Agreements.
(4) Brazil appealed to the Appellate Body in September 2017. Subsequently, Japan and the European Union appealed certain issues of law in the same month.
(5) The Appellate Body Report finds that Brazil’s tax measures concerning automobiles and ICT products are inconsistent with its national treatment obligations (Articles III:2 and III:4 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article 2.1 of the Agreement on Trade-Related Investment Measures (TRIMs Agreement)). It also finds that certain tax measures in these sectors are inconsistent with Article 3.1(b) of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The Appellate Body however reversed the Panel’s finding that the tax benefits for exporting companies are inconsistent with Article 3.1(a) of the SCM Agreement.
(6) In the WTO dispute settlement system, the parties to a dispute can appeal issues of law covered in the panel report to the Appellate Body. According to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), an Appellate Body Report shall be adopted by the Dispute Settlement Body (DSB) and unconditionally accepted by the parties to the dispute within 30 days following its circulation to the Members.