WORLD TRADE WT/DS81/1
G/TRIMS/D/8
ORGANIZATION G/SCM/D13/1
20May1997
(97-2065)
Original: English
BRAZIL -CERTAIN MEASURES AFFECTING TRADE AND INVESTMENT
INTHE AUTOMOTIVE SECTOR
Request forConsultations bytheEuropean Communities
Thefollowing communication, dated 7May1997, from thePermanent Delegation ofthe
European Commission tothePermanent Mission ofBrazil andtotheDispute Settlement Body, is
circulated inaccordance withArticle 4.4oftheDSU.
_______________
Onbehalf oftheEuropean Communities, Ihereby request consultations withBrazil pursuant
toArticle 4oftheUnderstanding onRules andProcedures Governing theSettlement ofDisputes (DSU),
Article XXIII oftheGeneral Agreement onTariffs andTrade 1994 (GATT 1994), Article 8ofthe
Agreement onTrade-Related Investment Measures (TRIMS Agreement) andArticles 4,7and30of
theAgreementonSubsidiesandCountervailingMeasures(SCMAgreement),regardingcertainmeasures
affecting trade andinvestment intheautomotive sector implemented byBrazil since December 1995,
including, inparticular, LawNo9440of14March 1997, LawNo9449of14March 1997andDecree
No1987 of20August 1996 aswellasanymeasures consolidated orconfirmed therein andany
implementing measures adopted thereunder.
Themeasures atissue provide, interalia,forthefollowing:
- benefits tomanufacturers ofmotor vehicles andparts, intheform ofareduction in
dutiesontheirimportsofcertainproducts,conditionaloncompliancewithcertainrequirementsregarding
thepurchase oruseofdomestic products, andwithtrade balancing requirements andother criteria
which maybeimposed bytheMinistry ofIndustry, Trade andTourism;
- tariff andother benefits tomanufacturers ofmotor vehicles andparts established in
certain regions ofBrazil which comply withsimilar requirements; and
- theopening ofatariff quota fortheimportation ofmotor vehicles manufactured by
certain foreign producers andoriginating incertain countries.
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G/TRIMS/D/8
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TheEuropean Communities wishtoexpress theirconcern withtheapparent lackofconformity
ofthese measures withBrazil ’sobligations under theWTO Agreement, including, inparticular, the
GATT 1994, theSCM Agreement andtheTRIMS Agreement. More specifically, theEuropean
Communities consider thatthemeasures atissuemayviolate, interalia,Articles I:1,III:4, XandXIII
ofGATT 1994, Articles 3and27.4oftheSCM Agreement andArticle 2oftheTRIMS Agreement.
TheEuropean Communities alsoconsider thatthemeasures maynullify orimpair benefits accruing
totheEuropean Communities directly orindirectly under theGATT 1994 within themeaning of
Article XXIII:1(b) ofGATT 1994 andmaycause adverse effects totheinterests oftheEuropean
Communities within themeaning ofArticle 5oftheSCM Agreement.
Withrespect tothefirsttwomeasures mentioned above, theEuropean Communities consider
thatsuchtariffandotherbenefitsgrantedtomanufacturersofmotorvehiclesandpartsinBrazilconstitute
specific subsidies within themeaning ofArticles 1and2oftheSCM Agreement, consisting ofafinancial
contribution bytheBrazilian Government (intheform ofrevenue foregone) which confers onthe
manufacturers ofmotor vehicles andparts thebenefit ofareduction incosts andconsequently the
possibility ofoffering alower price tousers orfinalconsumers. Asthese subsidies arecontingent
upon compliance withtrade balancing requirements andrequirements regarding thepurchase oruse
ofdomestic products, theyfulfil thecriteria ofArticle 3.1oftheSCM Agreement.
Indeed, these subsidies would beprohibited altogether byArticle 3.2oftheSCM Agreement
andwould thusbesubject totheprovisions ofArticle 4oftheAgreement, were itnotforBrazil ’s
status asadeveloping country member andtheconsequent possibility toinvoke theprovisions of
Article 27oftheAgreement. Inthisrespect, theconsultations should address thequestion whether
theintroduction ofsubsidies contingent ontrade balancing requirements constitutes abreach of
Article 27.4oftheSCM Agreement byincreasing thelevelofBrazil ’sexport subsidies andwhether
theuseofsuchsubsidies isconsistent withthedevelopment needs ofBrazil within themeaning ofthe
same provision.
Inanycase,theEuropean Communities consider thatthesesubsidies havecaused adverse effects
totheirinterests within themeaning ofArticle 5oftheSCM Agreement byreducing imports ofEC
vehicles intotheBrazilian market, bydisplacing exports ofECvehicles fromotherthirdcountry markets
andbycreating priceundercutting, pricesuppression, pricedepression andlossofsalesforECvehicles
intheBrazilian market.
Lastly, theEuropean Communities consider thattheprovisions concerning theextension of
thesubsidies granted tocertain regions, which arecontingent upon trade balancing andlocalcontent
requirements, foraperiod longer thaneight andfiveyears respectively aftertheentering intoforce
oftheWTO Agreement constitutes afurther breach ofArticles 3and27oftheSCM Agreement; in
accordance withthelatter provision theextension ofthelocalcontent exemption isnotpossible after
theexpiry ofthefiveyearperiod while theextension oftheexport subsidy exemption isonlypossible
following consultations withandtheauthorization oftheSubsidies Committee.
Ilookforward toreceiving yourreply tothisrequest from theEuropean Communities and
setting amutually convenient dateforthese consultations.