Reopening Pandora’s Box in Search of a WTO-Compatible Industrial Policy? The Brazil – Taxation Dispute

28 Pages Posted: 19 Nov 2019

See all articles by Emanuel Ornelas

Emanuel Ornelas

Sao Paulo School of Economics

Laura Puccio

European Parliamentary Research Service

Date Written: October 1, 2019

Abstract

We critically assess the Appellate Body (AB) report on the Brazil-Taxation dispute, taken to the World Trade Organisation by the European Union and Japan, and encompassing seven different Brazilian industrial programmes granting tax benefits to different firms and products. The trigger of the dispute was most likely the automotive sector programme, instituted under pressure from the local industry and without much attention to effects on consumers or imports. The resulting WTO case underscores some salient issues related to the WTO-compatibility of subsidy programmes, in particular the application of the National Treatment rules to subsidies provided exclusively to domestic producers, and the identification of local content requirements, prohibited under the Agreement on Subsidies and Countervailing Measures (SCM). The AB diverged from the panel report and its jurisprudence on those issues. The AB tried to reconcile the existence of legitimate eligibility criteria in subsidy programmes and their discriminatory features with WTO rules under the General Agreement on Tariffs and Trade and the SCM. However, the legal test, developed by the AB in this dispute to distinguish prohibited local content requirements from legitimate eligibility criteria, may facilitate circumvention of the SCM prohibition of local content requirements and have important impacts on trade flows.

Keywords: WTO; subsidies; industrial policy; fiscal measures and trade; GATT; national treatment; local content requirements

Suggested Citation

Ornelas, Emanuel and Puccio, Laura, Reopening Pandora’s Box in Search of a WTO-Compatible Industrial Policy? The Brazil – Taxation Dispute (October 1, 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/82, Available at SSRN: https://ssrn.com/abstract=3489149 or http://dx.doi.org/10.2139/ssrn.3489149

Emanuel Ornelas (Contact Author)

Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://https://sites.google.com/site/emanuelornelaseo/

Laura Puccio

European Parliamentary Research Service ( email )

Brussels
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
30
Abstract Views
247
PlumX Metrics