WT/DS472/R  
WT/DS497/R  
 
30 August  2017 
(17-4582) Page: 1/417 
  Original: English  
 
  
  
BRAZIL – CERTAIN MEASURES CON CERNING TAXATION AND  CHARGES  
REPORTS OF THE PANEL  
 
 WT/DS472/R • WT/DS497/R  
 
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  TABLE OF CONTENTS  
 
1   INTRODUCTION  ................................ ................................ ................................ ........  20 
1.1   Compla ints by the European Union and Japan  ................................ ................................ 20 
1.2   Panel establishment and composition  ................................ ................................ ............ 20 
1.3   Panel proceedings  ................................ ................................ ................................ .......21 
1.3.1    General  ................................ ................................ ................................ .................. 21 
1.3.2    Working procedures on Business Confidential Information (BCI)  ................................ ....21 
2   FACTUAL ASPECTS ................................ ................................ ................................ ..... 22 
2.1   General description of relevant aspects of the Brazilian tax system  ................................ ...22 
2.2   The measur es at issue  ................................ ................................ ................................ 28 
2.2.1    The Informatics programme  ................................ ................................ ...................... 33 
2.2.1.1    Introduction  ................................ ................................ ................................ ......... 33 
2.2.1.2    Tax treatment  ................................ ................................ ................................ ......33 
2.2.1.3    Product coverage  ................................ ................................ ................................ ..34 
2.2.1.4    Eligible companies ................................ ................................ ................................ .35 
2.2.1.5    Requirements for obtaining the tax treatment  ................................ .......................... 35 
2.2.1.6    Related memorandum  ................................ ................................ ........................... 38 
2.2.2    The PADIS programme  ................................ ................................ ............................. 38 
2.2.2.1    Introduction  ................................ ................................ ................................ ......... 38 
2.2.2.2    Tax treatment  ................................ ................................ ................................ ......39 
2.2.2.3    Product coverage  ................................ ................................ ................................ ..40 
2.2.2.4    Eligible companies ................................ ................................ ................................ .41 
2.2.2.5    Requirements for eligibility  ................................ ................................ ..................... 41 
2.2.2.6    Related memorandum  ................................ ................................ ........................... 43 
2.2.3    The PATVD programme  ................................ ................................ ............................ 43 
2.2.3.1   Introduction  ................................ ................................ ................................ ......... 43 
2.2.3.2    Tax treatment  ................................ ................................ ................................ ......43 
2.2.3.3    Product coverage  ................................ ................................ ................................ ..44 
2.2.3.4    Eligible companies ................................ ................................ ................................ .44 
2.2.3.5    Requirements for eligibility  ................................ ................................ ..................... 45 
2.2.3.6    Related memorandum  ................................ ................................ ........................... 46 
2.2.4    The Digital Inclusion programme  ................................ ................................ ............... 46 
2.2.4.1    Introduction  ................................ ................................ ................................ ......... 46 
2.2.4.2   Tax treatment  ................................ ................................ ................................ ......46 
2.2.4.3    Product coverage  ................................ ................................ ................................ ..46 
2.2.4.4    Eligible companies ................................ ................................ ................................ .47 
2.2.4.5    Related memoranda  ................................ ................................ .............................. 47 
2.2.5    The INOVAR -AUTO programme  ................................ ................................ ................. 48 WT/DS472/R • WT/DS497/R  
 
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  2.2.5.1    Introduction  ................................ ................................ ................................ ......... 48 
2.2.5.2    Tax treatment  ................................ ................................ ................................ ......48 
2.2.5.3    Product coverage  ................................ ................................ ................................ ..50 
2.2.5.4    Benefici aries ................................ ................................ ................................ ......... 51 
2.2.5.5    Requirements for eligibility  ................................ ................................ ..................... 51 
2.2.5.6    Monitoring system ................................ ................................ ................................ .60 
2.2.5.7    Related memorandum  ................................ ................................ ........................... 61 
2.2.6    The PEC programme  ................................ ................................ ................................ 61 
2.2.6.1    Introduction  ................................ ................................ ................................ ......... 61 
2.2.6.2    Tax treatment  ................................ ................................ ................................ ......61 
2.2.6.3    Product coverage  ................................ ................................ ................................ ..62 
2.2.6.4    Eligible companies ................................ ................................ ................................ .62 
2.2.6.5    Requirements for eligibility  ................................ ................................ ..................... 62 
2.2.6.6    Related memorandum  ................................ ................................ ........................... 63 
2.2.7    The RECAP programme ................................ ................................ ............................. 63 
2.2.7.1    Introduction  ................................ ................................ ................................ ......... 63 
2.2.7.2    Tax treatment  ................................ ................................ ................................ ......63 
2.2.7.3    Product coverage  ................................ ................................ ................................ ..64 
2.2.7.4    Eligible companies ................................ ................................ ................................ .64 
2.2.7.5    Requirements for eligibi lity ................................ ................................ ..................... 64 
2.2.7.6    Related memorandum  ................................ ................................ ........................... 65 
3   PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  ................................  66 
4   ARGUMENTS OF THE PAR TIES  ................................ ................................ ...................  70 
5   ARGUMENTS OF THE THI RD PARTIES  ................................ ................................ ........  70 
6   INTERIM REVIEW  ................................ ................................ ................................ ...... 70 
6.1   General issues and editorial matters  ................................ ................................ ............. 70 
6.2   Provisions pertaining to developing countries  ................................ ................................ .71 
6.3   The scope of the parties' requests for review of the Interim Reports  ................................ .71 
6.4   The "in -house" argument  ................................ ................................ ............................. 71 
6.5   Article 4.7 of the SCM Agreement  ................................ ................................ ................. 72 
6.6   Confidentiality of the Interim Reports  ................................ ................................ ............ 73 
7   FINDINGS  ................................ ................................ ................................ .................  73 
7.1   Overview of the measures and claims, and the Panel's order of analysis  ............................ 73 
7.1.1    The measures at issue  ................................ ................................ .............................. 74 
7.1.1.1    The Panel's terms of reference  ................................ ................................ ................ 75 
7.1.1.2    The categories of products concerned by the various taxes at issue  ............................. 77 
7.1.2    Overview of the relationship between the complaining parties' multiple claims  ................ 78 
7.1.2.1    Differences in scope between Articles III:2, III:4 a nd III:5 of the GATT 1994  ............... 78 
7.1.2.2    Differences in scope between Article III:4 of the GATT  1994, Article 2 of the 
TRIMs Agreement, and Article 3.1(b) of the SCM Agreement  ................................ ................... 80 
7.1.3    Order of analysis of the complaining parties' multiple claims  ................................ ......... 82 WT/DS472/R • WT/DS497/R  
 
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  7.2   Brazil's general defences  ................................ ................................ ............................. 83 
7.2.1    Whether the challenged programmes are outside the scope of Article III of the 
GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM 
Agreement, because they regulate production and not products  ................................ .............. 83 
7.2.2    Whether Article III:8(b) of the GATT 1994 exempts certain of the challenged 
measures from the disciplines of  Article III of the GATT 1994 and related provisions  .................. 85 
7.3   The ICT programmes  ................................ ................................ ................................ ..90 
7.3.1    Claims under Article III:2 of the GATT 1994  ................................ ................................ 90 
7.3.1.1    Introduction  ................................ ................................ ................................ ......... 90 
7.3.1.2    Whether the products that are the subject of the challenged measures are 
"domestic products" in the sense of Article III of the GATT 1994, Article 2.1 of the  TRIMs 
Agreement, and Article 3.1(b) of the SCM Agreement  ................................ ............................. 93 
7.3.1.3    Whether the imported and domestic products are "like products" within the 
meaning of Article III:2, first sentence  ................................ ................................ ................. 95 
7.3.1.4    Whether imported products are "taxed in excess of" like domestic products, 
within the meaning of Article III:2, first sentence  ................................ ................................ . 100 
7.3.1.5    Conclusion  ................................ ................................ ................................ .........  106 
7.3.1.6    Judicial economy with respect to Japan's claim under Article III:2, second 
sentence  ................................ ................................ ................................ .........................  107 
7.3.2    Claims under Article III:4 of the GATT 1994  ................................ ..............................  108 
7.3.2.1    Claims with respect to the conditions for accreditation, certain calculations 
related to required R&D expenditures, and a dministrative burden under the ICT 
programmes  ................................ ................................ ................................ ....................  108 
7.3.2.2    Claims with respect to the alleged imposition, under the terms of the PPBs, or 
similar requirements, of an obligation to use domesti c inputs in the production of the 
incentivized products under the ICT programmes  ................................ ................................ . 119 
7.3.2.3    Conclusion  ................................ ................................ ................................ .........  132 
7.3.3    Claims und er Article III:5 of the GATT 1994  ................................ ..............................  132 
7.3.3.1    Introduction  ................................ ................................ ................................ ....... 132 
7.3.3.2    The legal standard  ................................ ................................ ..............................  133 
7.3.3.3    Analysis by the Panel  ................................ ................................ ...........................  134 
7.3.3.4    Conclusion  ................................ ................................ ................................ .........  136 
7.3.4    Claims under Article 2.1 of the TRIMs Agreement  ................................ ......................  136 
7.3.4.1    Introduction  ................................ ................................ ................................ ....... 136 
7.3.4.2    Whether the ICT programmes are trade -related investment measures  within the 
meaning of the TRIMs Agreement  ................................ ................................ ......................  137 
7.3.4.3    Whether the ICT programmes are TRIMs that are inconsistent with Article III of 
the GATT 1994, and therefore inconsistent Article 2.1 of  the TRIMs Agreement  .......................  138 
7.3.4.4    Conclusion  ................................ ................................ ................................ .........  139 
7.3.5    Claims under Article 3.1(b) of the SCM Agreement ................................ .....................  139 
7.3.5.1    Introduction  ................................ ................................ ................................ ....... 139 
7.3.5.2    Whether the tax exemptions, reductions and suspensions granted under the ICT 
programmes are contingent upon the use of domestic over imported goods within the 
meaning of Article 3.1(b) of the SCM Agreement and thus prohibited  ................................ ..... 141 
7.3.5.3    Whether the tax exemptions, reductions and suspensions grant ed under the ICT 
programmes constitute subsidies within the meaning of the SCM Agreement  ...........................  143 WT/DS472/R • WT/DS497/R  
 
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  7.3.5.4    Whether the subsidies granted under the ICT programmes are specific within 
the meaning of  Article 2 of the SCM Agreement  ................................ ................................ ... 169 
7.3.5.5    Conclusion  ................................ ................................ ................................ .........  169 
7.3.6    Brazil's invocation of Article XX(a) of the GATT 1994 to ju stify certain 
inconsistencies in respect of the PATVD programme  ................................ .............................  171 
7.3.6.1    Introduction  ................................ ................................ ................................ ....... 171 
7.3.6.2    Description of the lega l test ................................ ................................ ..................  171 
7.3.6.3    Whether the discriminatory aspects of the PATVD programme are provisionally 
justified under Article XX(a)  ................................ ................................ ..............................  179 
7.3.6.4    Whether the discriminatory aspects of the PATVD programme satisfy the 
requirements of the chapeau of Article XX  ................................ ................................ ...........  195 
7.3.6.5    Conclusion  ................................ ................................ ................................ .........  195 
7.4   The INOVAR -AUTO programme  ................................ ................................ ..................  195 
7.4.1    Claims under Article III:2 of the GATT 1994  ................................ ..............................  195 
7.4.1.1    Introduction  ................................ ................................ ................................ ....... 195 
7.4.1.2    Reduced IPI tax rates  ................................ ................................ ..........................  197 
7.4.1.3    Presumed IPI tax credits  ................................ ................................ ......................  198 
7.4.1.4    Article III:2, second sentence, of the GATT 1994  ................................ ....................  207 
7.4.2    Claims under Article III:4 of the GATT 1994  ................................ ..............................  207 
7.4.2.1    Introduction  ................................ ................................ ................................ ....... 207 
7.4.2.2    Whether the measures at issue are laws, regulations, or requirements affecting 
the internal sale, offering for sale, purchase, transport ation, distribution or use  of 
domestic and imported products  ................................ ................................ ........................  209 
7.4.2.3    Whether the relevant imported and domestic products are "like products"  .................  210 
7.4.2.4    Whether imported products are accorded "treatment less favourable" than that 
accorded to like domestic products  ................................ ................................ .....................  212 
7.4.2.5    Conclusion  ................................ ................................ ................................ .........  221 
7.4.3    Claims under Article III:5 of the GATT 1994  ................................ ..............................  221 
7.4.3.1    Introduction  ................................ ................................ ................................ ....... 221 
7.4.3.2    The legal standard  ................................ ................................ ..............................  222 
7.4.3.3    Analysis by the Panel  ................................ ................................ ...........................  222 
7.4.3.4    Conclusion  ................................ ................................ ................................ .........  223 
7.4.4    Claims under Article 2.1 of the TRIMs Agreement  ................................ ......................  223 
7.4.4.1    Introduction  ................................ ................................ ................................ ....... 223 
7.4.4.2    Whether the INOVAR -AUTO programme is a trade -related investment measure 
within the meaning of the TRIMs Agreement  ................................ ................................ ....... 224 
7.4.4.3    Whether the INOVAR -AUTO programme is a TRIM that is inconsistent  with 
Article III of the GATT 1994, and therefore inconsistent Article 2.1 of the TRIMs 
Agreement  ................................ ................................ ................................ ......................  225 
7.4.4.4    Conclusion  ................................ ................................ ................................ .........  225 
7.4.5   Claims under Article 3.1(b) of the SCM Agreement ................................ .....................  225 
7.4.5.1    Introduction  ................................ ................................ ................................ ....... 225 
7.4.5.2    Whether the reductions through presumed tax credits granted under the 
INOVAR -AUTO programme are contingent upon the use of domestic over imported goods 
within the meaning of Article 3.1(b) of the SCM Agreement, and thus prohibited  .....................  227 WT/DS472/R • WT/DS497/R  
 
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  7.4.5.3    Whether the reductions through presumed tax credits granted under the 
INOVAR -AUTO programme constitute subsidies within the meaning of the SCM 
Agreement  ................................ ................................ ................................ ......................  228 
7.4.5.4    Whether the subsidies granted under the INOVAR -AUTO programme are specific 
within the meaning of Article 2 of the SCM Agreement  ................................ ..........................  231 
7.4.5.5    Conclusion  ................................ ................................ ................................ .........  231 
7.4.6    Brazil's invocation of Article XX of the GATT 1994 to justify certain inconsistencies 
in respect of the INOVAR -AUTO programme  ................................ ................................ ........  232 
7.4.6.1    Introduction  ................................ ................................ ................................ ....... 232 
7.4.6.2    Whether the discriminatory aspects of the INOVAR -AUTO programme are 
justified under Article XX(b) of the GATT 1994  ................................ ................................ ..... 233 
7.4.6.3    Whether the discriminatory aspects of the INOVAR -AUTO programme are 
justified under Article XX(g)  ................................ ................................ ..............................  250 
7.4.7    Claims under Article I:1 of the GATT 1994  ................................ ................................  259 
7.4.7.1    Introduction  ................................ ................................ ................................ ....... 259 
7.4.7.2    Whether the tax reductions under Articles 21 and 22(I) of Decree 7,819/2012 
fall within the scope of Article I:1 of t he GATT 1994  ................................ .............................  261 
7.4.7.3    Whether the relevant products at issue are "like" products  ................................ ....... 262 
7.4.7.4    Whether the tax reductions a t issue confer an "advantage"  ................................ ...... 264 
7.4.7.5    Whether that advantage is not accorded "immediately" and "unconditionally" to 
other WTO Members  ................................ ................................ ................................ .........  265 
7.4.7.6    Conclusion  ................................ ................................ ................................ .........  265 
7.4.8    Brazil's justifications under the Enabling Clause  ................................ .........................  265 
7.4.8.1    Introduction  ................................ ................................ ................................ ....... 265 
7.4.8.2    The burden of invoking the Enabling Clause  ................................ ...........................  268 
7.4.8.3    Brazil's affirmative defence under paragraph  2(b) of the En abling Clause  ...................  271 
7.4.8.4    Brazil's affirmative defence under paragraph  2(c) of the Enabling Clause  ...................  277 
7.4.8.5    Separate opin ion on Brazil's affirmative defence under paragraph 2(c) of the 
Enabling Clause  ................................ ................................ ................................ ...............  282 
7.5   The PEC and RECAP programmes  ................................ ................................ ...............  283 
7.5.1    Claims under Article 3.1(a) of the SCM Agreement  ................................ .....................  283 
7.5.1.1    Overview  ................................ ................................ ................................ ...........  283 
7.5.1.2    Whether the tax suspensions granted und er the PEC and RECAP programmes 
constitute subsidies within the meaning of the SCM Agreement  ................................ .............  286 
7.5.1.3    Whether the subsidies granted under the PEC and RECAP programmes are 
specific within the meaning of Article  2 of the SCM Agreement  ................................ ..............  302 
7.5.1.4    Whether the tax suspensions granted under the PEC and RECAP programmes 
are contingent upon export performance within the meaning of Article 3.1(a) of the SCM 
Agreement and thus prohibited  ................................ ................................ ..........................  302 
7.5.1.5    Conclusion  ................................ ................................ ................................ .........  305 
7.6   Final comments  ................................ ................................ ................................ ........  305 
8   CONCLUSIONS AND RECO MMENDATIONS  ................................ ...............................  305  
8.1   Complaint by the European Union (DS472)  ................................ ................................ .. 305 
8.2   Complaint by Japan (DS497)  ................................ ................................ .....................  308 
9   APPENDIX TO THE PANE L REPORT  ................................ ................................ ..........  311  WT/DS472/R • WT/DS497/R  
 
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LIST OF ANNEXES  
ANNEX A  
WORKING PROCEDURES O F THE PANEL  
Contents  Page  
Annex  A-1 Working Procedures of the Panel  A-2 
Annex  A-2 Additional Working Procedures of the Panel Concerning Business Confidential 
Information  A-7 
Annex  A-3 Joint working procedures of the Panels  A-8 
Annex A -4 Additional Joint Working Procedures of the Pan els Concerning Business 
Confidential Information  A-13 
ANNEX B  
ARGUMENTS OF THE PAR TIES 
EUROPEAN UNION  
Contents  Page  
Annex  B-1 First part of the executive summary of the arguments of the European Union  B-2 
Annex  B-2 Second part of the executive summary of the arguments of the European Union  B-13 
JAPAN  
Contents  Page  
Annex  B-3 First part of the executive summary of the arguments of Japan  B-27 
Annex  B-4 Second part of the executive summary of the arguments of Japan  B-38 
 
BRAZIL  
Contents  Page  
Annex  B-5 First part of the executive summary of the arguments of Brazil  B-49 
Annex  B-6 Second part of the executive summary of the arguments of Brazil  B-60 
ANNEX C  
ARGUMENTS OF THE THI RD PARTIES  
Contents  Page  
Annex  C-1 Executive summary of the arguments of Arg entina  C-3 
Annex  C-2 Executive summary of the arguments of Australia  C-10 
Annex  C-3 Executive summary of the arguments of Canada  C-11 
Annex C -4 Executive summary of the arguments of Korea  C-13 
Annex C -5 Executive summary of the arguments of Ukraine  C-15 
Annex C -6 Executive summary of the arguments of the United States  C-17 WT/DS472/R • WT/DS497/R  
 
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  CASES CITED IN THESE  REPORTS  
 
Short Title  Full Case Title and Citation  
Argentina – Financial 
Services  Appellate Body Report, Argentina – Measures Relating to Trade in Goods and 
Services , WT/DS453/AB/R  and Add.1,  adopted 9 May 2016  
Argentina – Footwe ar (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R , adopted 12 January 2000, DSR 2000:I, p. 515  
Argentina – Hides and 
Leather  Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and 
Import of Finished Leather , WT/DS155/R  and Corr.1 , adopted 16 February 
2001, DSR 2001:V, p. 1779  
Argentina – Import 
Measures  Panel Reports, Argentina  – Measures Affecting the Importation of Goods , 
WT/DS438/R  and Add.1 / WT/DS444/R  and Add.1 / WT/DS445/R  and Add.1, 
adopted 26 January 2015, as modified (WT/DS438/R) and upheld (WT/DS444/R 
/ WT/DS445/R) by Appellate Body R eports WT/DS438/AB/R / WT/DS444/AB/R 
/ WT/DS445/AB/R  
Australia – Salmon  Appellate Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R , adopted 6 November 1998, DSR 1998:VIII, p. 3327  
Australia – Salmon (Article 
21.5 – Canada)  Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse 
to Article 21.5 of the DSU by Canada , WT/DS18/RW , adopted 20 March 20 00, 
DSR 2000:IV, p. 2031  
Brazil – Desiccated Coconut  Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/AB/R , adopted 20 March 1997, DSR 1997:I, p. 167  
Brazil – Retreaded Tyres  Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/AB/R , adopted 17 December 2007, DSR 2007:IV, p. 1527  
Brazil – Retreaded Tyres  Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/R , adopted 17 December 2007, as modified by Appellate Body 
Report WT/DS332/AB/R, DSR 2007:V, p. 1649  
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1377  
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotiv e 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19 June 2000, DSR 
2000:VI, p. 2985  
Canada – Autos  Panel Report, Canada – Certain Measures Aff ecting the Automotive Industry , 
WT/DS139/R , WT/DS142/R , adopted 19 June 2000, as modified by Appellate 
Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2 000:VII, p. 3043  
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products , WT/DS103/AB/R , WT/DS113/AB/R , and 
Corr.1, adopted 27 October 1999, DSR 1999:V, p. 2057  
Canada – FIRA GATT Panel Report, Canada – Administration of the Foreign Investment Review 
Act, L/5504 , adopted 7  February  1984, BISD  30S/140  
Canada – Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R , adopted 30 July 1997, DSR 1997:I, p. 449  
Canada – Pharmaceutical 
Patents  Panel Report, Canada – Patent Protection of Pharmaceutical Products , 
WT/DS114/R , adopted 7 April 2000, DSR 2000:V, p. 2289  
Canada – Renewable Energy 
/ Canada – Feed-in Tariff 
Program  Appellate Body Reports, Canada – Certain Measures Affectin g the Renewable 
Energy Generation Sector / Canada – Measures Relating to the Feed -in Tariff 
Program , WT/DS412/AB/R  / WT/DS426/AB/R , adopted 2 4 May 2013, DSR 
2013:I, p. 7  
Canada – Renewable Energy 
/ Canada – Feed-in Tariff 
Program  Panel Reports, Canada – Certain Measures Affecting the Renewable Energy 
Generation Sector / Canada – Measures Relating to the Feed -in Tariff Program , 
WT/DS412/R  and Add.1 / WT/DS426/R  and Add.1, adopted 24 May 2013, as 
modified by Appellate Body Reports WT/DS412/AB/R / WT/DS426/AB/R, DSR 
2013:I, p. 237  
Canada – Wheat Exports 
and Grain Imports  Appellate Body Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/AB/R , adopted 27 September 2004, 
DSR 2004:VI, p. 2739  
Canada – Wheat Exports 
and Grain Imports  Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment 
of Imported G rain, WT/DS276/R , adopted 27 September 2004, upheld by 
Appellate Body Repor t WT/DS276/AB/R, DSR 2004:VI, p. 2817  
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R , adopted 23 October WT/DS472/R • WT/DS497/R  
 
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  Short Title  Full Case Title and Citation  
2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)  
China – Auto Parts  Appellate Body Reports, China – Measures Affecting Imports of Automobile 
Parts, WT/DS339/AB/R  / WT/DS340/AB/R  / WT/DS342/AB/R , adopted 12 
January 2009, DSR 2009:I, p. 3  
China – Auto Parts  Panel Reports, China – Measures Affecting Imports of Automobile Parts , 
WT/DS339/R , Add.1 and Add.2 / WT/DS340/R , Add.1 and Add.2 / 
WT/DS342/R , Add.1 and Add.2, adopted 12 January 2009, upheld 
(WT/DS339/R) and as modified (WT/DS340/R / WT/DS342/R) by Appellate 
Body Reports WT /DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, DSR 
2009:I, p. 119  
China – Publications and 
Audiovisual Products  Appellate Body Report, China – Measures Affecting Trading Rights and 
Distribution Services for Certain Publications and Audiovisual Entertainment  
Products , WT/DS363/AB/R , adopted 19 January 2010, DSR 2010:I, p. 3  
China – Publications and 
Audiovisual Products  Panel Report, China – Measures Affecting Trading Rights and Distribution 
Services for Certain Publications and Audiovisual Entertainment Products , 
WT/DS363/R  and Corr.1, adopted 19 January 2010, as modified by Appellate 
Body Report WT/DS363/AB/R, DSR 2010:II, p. 261  
China – Rare Earths  Appellate Body Reports, China – Measures Related to the Exportation of Rare 
Earths, Tungsten, and Molybdenum , WT/DS431/AB/R  / WT/DS432/AB/ R / 
WT/DS433/AB/R , adopted 29 August 2014, DSR 2014:III, p. 805  
China – Rare Earths  Panel Reports, China – Measures Related to the Exportation of Rare Earths, 
Tungsten, and Molybdenum , WT/DS431/R  and Add.1 / WT/DS432/R  and Add.1 
/ WT/DS433/R  and Add.1, adopted 29 August 2014, upheld by Appel late Body 
Reports WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, DSR 2014:IV, 
p. 1127  
China – Raw Materials  Appellate Body Reports, China – Measures Related to the Exportation of Various 
Raw Materials , WT/DS394/AB/R  / WT/DS395/AB/R  / WT/DS398/AB/R , adopted 
22 February 2012, DSR 2012:VII, p. 3295  
China – Raw Materials  Panel Reports, China – Measures Related to the Exportation of Various Raw 
Materials , WT/DS394/R , Add.1 and Corr.1 / WT/DS395/R , Add.1 and Corr.1 / 
WT/DS398/R , Add.1 and Corr.1, adopted 22 February 2012, as modified by 
Appellate Body Reports WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, 
DSR 2012:VII, p. 3501  
Colombia – Ports of Entry  Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry , 
WT/DS366/R  and Corr.1, ad opted 20 May 2009, DSR 2009:VI, p. 2535  
Colombia – Textiles  Appellate Body Report, Colombia – Measures Relating to the Importation of 
Textiles, Apparel and Footwear , WT/DS461/AB/R  and Add. 1, adopted 22 June 
2016 
Colombia – Textiles  Panel Report, Colombia – Measures Relating to the Importation of Textiles, 
Apparel and Footwe ar, WT/DS461/R  and Add.1, adopted 22 June 2016, as 
modified by Appellate B ody Report WT/DS461/AB/R  
EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting Asbestos 
and Asbestos -Containing Products , WT/DS135/AB/R , adopted 5 April 2001, DSR 
2001:VII, p. 3243  
EC – Asbestos  Panel Report, European Communities – Measures Affecting Asbestos and 
Asbestos -Containing Products , WT/DS135/R  and Add.1, adopted 5 April 2001, 
as modified by Appellate Body Report WT/DS135/AB/R, DSR 2001:VIII, p. 3305  
EC – Bananas III  Appellate Body Report, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas , WT/DS27/AB/R , adopted 25 September 1997, 
DSR 1997:II, p. 591  WT/DS472/R • WT/DS497/R  
 
- 10 - 
 
  Short Title  Full Case Title and Citation  
EC – Bananas III  Panel Reports, European Communities – Regime for the Importation, Sale and 
Distributio n of Bananas , WT/DS27/R/ECU (Ecuador)  / WT/DS27/R/GTM, 
WT/DS27/R/HND (Guatemala and Honduras)  / WT/DS27/R/MEX (Mexico)  / 
WT/DS27/R/USA (US), adopted 25  September 1997, as modified by Appellate 
Body Report WT/DS27/AB/R, DSR 1997:II, p.  695 to DSR 1997:III, p. 1085 
EC – Chicken Cuts  Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R , WT/DS286/AB/R , adopted 27 
September 2005, and Corr.1, DSR 2005:XIX, p.  9157 
EC and certain member 
States – Large Civil Aircraft  Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 1 
June 2011, DSR 2011:I, p. 7  
EC – Seal Products  Appellate Body Reports, European Communities – Measures Prohibiting the 
Importation and Marketing of Seal Products , WT/DS400/AB/R  / 
WT/DS401/AB/ R, adopted 18 June 2014, DSR 2014:I, p. 7  
EC – Seal Products  Panel Reports, European Communities – Measures Prohibiting the Importation 
and Marketing of Seal Products , WT/DS400/R  and Add.1 / WT/DS401/R  and 
Add.1, adopted 18 June 2014, as modified by Appellate Body Reports 
WT/DS400/AB/R / WT/DS401/AB/R, DSR 2014:II, p. 365  
EC – Tariff Preferences  Appellate Body Report, European Communities – Conditi ons for the Granting of 
Tariff Preferences to Developing Countries , WT/DS 246/AB/R , adopted 20 April 
2004, DSR 2004:III, p. 925  
EC – Tariff Preferences  Panel Report, European Communities – Conditions for the Granting of Tariff 
Preferences to Developing Countries , WT/DS246/R , adopted 20 April 2004, as 
modified by Appellate Body Report WT/DS246/AB/R, DSR 2004:III, p. 1009  
EEC – Animal Feed Proteins  GATT Panel Report, EEC – Measures on Animal Feed Proteins , L/4599, adopted 
14 March  1978, BISD  25S/49  
EEC – Parts and 
Components  GATT Panel Report, European Economic Community – Regulation on Imports of 
Parts and Components , L/6657, adopted 16  May 1990, BIS D 37S/132  
Guatemala – Cement I  Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland 
Cement from Mexico , WT/DS60/R , adopted 25 November 1998, as reversed by 
Appellate Body Report WT/DS60/AB/R, DSR 1998:IX, p. 3797  
India – Agricultural Products  Appellate Body Report, India – Measures Concerning the Importation o f Certain 
Agricultural Products , WT/DS430/AB/R , adopted 19 June 2015  
India – Autos  Panel Report, India – Measures Affecting the Automotive Sector , WT/DS146/R , 
WT/DS175/R , and Corr.1, adopted 5 April 2002, DSR 2002:V, p.  1827 
India – Solar Cells  Appellate Body Report, India – Certain Measures Relating to Solar Cells and 
Solar Modules , WT/DS456/AB/R  and Add.1, adopted 14 October 2016  
India – Solar Cells  Panel Report, India – Certain Measures Relating to Solar Cells and Solar 
Modules , WT/DS456/R  and Add.1, adopted 14 October 2016, as modified by 
Appellate Body Report WT/DS456/AB/R  
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R , WT/DS55/R , WT/DS59/R , WT/DS64/R , Corr.1 and Corr.2, adopted 
23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201  
Italy – Agricultural 
Machinery  GATT Panel Report, Italian Discrimination Against Imported Agricultural 
Machinery , L/833, adopted 23  October  1958, BISD  7S/60  
Japan – Agricultural 
Products II  Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R , adopted 19 March 1999, DSR 1999:I, p. 277  
Japan – Alcoholic Beverages 
II Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R , 
WT/DS10/AB/R , WT/DS11/AB/R , adopted 1 November 1996, DSR 1996:I, p. 97  
Japan – Alcoholic 
Beverages  I GATT Panel Report, Japan – Customs Duties, Taxes and Labelling Practices on 
Imported Wines and Alcoholic Beverages , L/6216, ado pted 10  November  1987, 
BISD 34S/83  
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and 
Paper , WT/DS44/R , adopted 22 April 1998, DSR 1998:IV, p. 1179  
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R , adopted 12 January 2000, DSR 2000:I, 
p. 3 WT/DS472/R • WT/DS497/R  
 
- 11 - 
 
  Short Title  Full Case Title and Citation  
Korea – Various Measures 
on Beef  Appellate Body Repo rt, Korea – Measures Affecting Imports of Fresh, Chilled 
and Frozen Beef , WT/DS161/AB/R , WT/DS169/AB/R , adopted 10 January 2001, 
DSR 2001:I, p. 5 
Mexico – Corn Syrup 
(Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose 
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the 
DSU by the United States , WT/DS132/AB/RW , adopted 21 November 2001, 
DSR 2001:XIII, p. 6675  
Russia – Tariff Treatment  Panel Report, Russia – Tariff Treatment of Certain Agricultural and 
Manufacturing Products , WT/DS485/R , Corr.1, Corr.2, and Add.1, adopted 26 
September 2016  
Spain – Soyabean Oil  GATT Panel Report, Spain – Measures Concerning Domestic Sale of Soyabean 
Oil – Recourse to Article XXIII:2 by the United States , L/5142, 17  June 1981, 
unadopted  [80SOYABN]  
Thailand – Cigarettes 
(Philippines)  Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes 
from the Philippines , WT/DS371/AB/R , adopted 15 July 2011 , DSR 2011:IV, p. 
2203 
Thailand – Cigarettes 
(Philippines)  Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the 
Philippines , WT/DS371/R , adopted 15 July 2011, as modified by Appellate Body 
Report WT/DS371/AB/R , DSR 2011:IV, p. 2299  
Turkey – Rice Panel Report, Turkey – Measures Affecting the Importation of Rice , 
WT/DS334/R , adopted 22 October 2007, DSR 2007:VI, p. 2151  
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R , WT/DS162/AB/R , adopted 26 September 2000, DSR 2000:X, 
p. 4793  
US – Carbon Steel  Panel Report, United States – Countervailing Duties on Certain  Corrosion -
Resistant Carbon Steel Flat Products from Germany , WT/DS213/R  and Corr.1, 
adopted 19 December 2002, as modified by Appellate Body Report 
WT/DS213/AB/R, DSR 2002:IX, p. 3833  
US – Clove Cigarettes  Appellate Body Report, United States – Measures Affecting the Production and 
Sale of Clove Cigarettes , WT/DS406/AB/R , adopted 24 April 2012, DSR 2012: 
XI, p. 5751  
US – Continued Zeroing  Appellat e Body Report, United States – Continued Existence and Application of 
Zeroing Methodology , WT/DS350/AB/R , adopted 19 February 2009, DSR 
2009:III, p. 1291  
US – COOL  Appellate Body Reports, United States – Certain Country of Origin Labelling 
(COOL) Requirements , WT/DS384/AB/R  / WT/DS386/AB/R , adopted 23 July 
2012, DSR 2012:V, p. 2449  
US – COOL (Article 21.5 – 
Canada and Mexico)  Appellate Body Reports, United States – Certain Country of Origin Labelling 
(COOL) Requi rements – Recourse to Article 21.5 of the DSU by Canada and 
Mexico , WT/DS384/AB/RW  / WT/DS386/AB/RW , adopted 29 May 2015  
US – COOL (Articl e 22.6 – 
United States)  Decisions by the Arbitrator, United States – Certain Country of Origin Labelling 
(COOL) Requirements – Recourse to Article 22.6 of the DSU the United States , 
WT/DS384/ARB  and Add.1 / WT/DS386/ARB  and Add.1, circulated to WTO 
Members 7 December 2015  
US – Countervailing and 
Anti-Dumping Measures 
(China)  Appellate Body Report, United States – Countervailing and Anti -Dumping 
Measures on Certain Products from China , WT/DS449/AB/R  and Corr.1, adopt ed 
22 July 2014, DSR 2014:VIII, p. 3027  
US – Corrosion -Resistant 
Steel Sunset Review  Appellate Body Report, United States – Sunset Review of Anti -Dumping Duties 
on Corrosion -Resistant Carbon Steel Flat Products from Japan , 
WT/DS244/AB/R , adopted 9 January 2004, DSR 2004:I, p. 3  
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R , adopted 20 March 2000, DSR 2000:III, p. 
1619  
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R , adopted 20 March 2000, as modified by Appellate Body Report 
WT/DS108/AB/R, DSR 2000:IV, p. 1675  
US – FSC (Article 21.5 – 
EC) Appellate Body Report, United States – Tax Treatment for "Foreign S ales 
Corporations" – Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW , adopted 29 January 2002, DSR 2002:I, p. 55  
US – FSC (Article 21.5 – Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – 
Recourse to Article 21.5 of the DSU by the European Communities , WT/DS472/R • WT/DS497/R  
 
- 12 - 
 
  Short Title  Full Case Title and Citation  
EC) WT/DS108/RW , adopted 29 January 2002, as modified by Appellate Body 
Report WT/DS10 8/AB/RW, DSR 2002:I, p. 119  
US – Gambling  Appellate Body Report, United States – Measures Affecting the Cross -Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R , adopted 20 April 
2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)  
US – Gambling  Panel Report, United States – Measures Affecting the Cros s-Border Supply of 
Gambling and Betting Services , WT/DS285/R , adopted 20 Ap ril 2005, as 
modified by Appellate Body Report WT/DS285/AB/R, DSR 2005:XII, p. 5797  
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R , adopted 20 May 1996, DSR 1996:I, p. 3  
US – Gasoline  Panel Report, United States – Standards for Reformulated and Conventiona l 
Gasoline , WT/DS2/R , adopted 20 May 1996, as modified by Appellate Body 
Report WT/DS2/AB/R, DSR 1996:I, p. 29  
US – Large Civil Aircraft (2nd 
complaint)  Appellate Body Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23 March 2012, DSR 
2012:I, p. 7  
US – Large Civil Aircraft (2nd 
complaint)  Panel Report, United States – Measures Affect ing Trade in Large Civil Aircraft 
(Second Complaint) , WT/DS353/R , adopted 2 3 March 2012, as modified by 
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649  
US – Offset Act (Byrd 
Amendment)  Appellate Body Report, United States – Continued Dumping and Subsidy Offset 
Act of 2000 , WT/DS217/AB/R , WT/DS234/AB/R , adopted 27 January 2003, DSR 
2003:I, p. 375  
US – Poultry (China)  Panel Report, United States – Certain Measures Affecting Imports of Poultry 
from China , WT/DS392/R , adopted 25 October 2010, DSR 2010:V, p. 1909  
US – Section 211 
Appropr iations Act  Appellate Body Report, United States – Section 211 Omnibus Appropriations Act 
of 1998 , WT/DS176/AB/R , adopted 1 February 2002, DSR 2002:II, p. 589  
US – Section 110(5) 
Copyright Act (Article 25)  Award of the Arbitrators, United States – Section 110(5) of the US Copyright 
Act – Recourse to Arbitration under Article 25 of the DSU , WT/DS160/ARB25/1 , 
9 November 2001, DSR 2001:II, p. 667  
US – Section 337 Tariff Act  GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , L/6439, 
adopted 7  November  1989, BISD  36S/345  
US – Shrimp  Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products , WT/DS58/AB/R , adopted 6 November 1998, DSR 
1998:VII, p. 2755  
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R , 
adopted 17 February 2004, DSR 2004:II, p. 571  
US – Tobacco  GATT Panel Report, United States – Measures Affecting the Importation, 
Internal Sale and Use of Tobacco , DS44/R, adopted 4  October  1994, 
BISD 41S/131  
US – Tuna II (Mexico)  Appellate Body Report, United States – Measures Concerning the Importation, 
Marketing and Sale of Tuna and Tuna Products , WT/DS381/AB/R , adopted 13 
June 2012, DSR 2012:IV, p. 1837  
US – Tuna II (Mexico) 
(Article 21.5 – Mexico)  Appellate Body Report, United Stat es – Measures Concerning the Importation, 
Marketing and Sale of Tuna and Tuna Products – Recourse to Article 21.5 of the 
DSU by Mexico , WT/DS381/AB/RW  and Add.1, adopted 3 December 2015  
US – Upland Cotton  Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R , adopted 21 March 2005, DSR 2005:I, p. 3  
US – Wool Shirts and 
Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R , adopted 23 May 1997, and 
Corr.1, DSR 1997:I, p. 323  
 WT/DS472/R • WT/DS497/R  
 
- 13 - 
 
   
TABLE OF EXHIBITS CI TED IN THESE REPORTS  
No. Full Title  Short Title (where relevant)  
BRA-21 Brazilian Federal Constitution  Brazilian Federal Constitution  
BRA-26 List of existing PPBs in Brazil concerning the Informatics Law  List of existing PPBs in Brazil 
concerning the Informatics Law  
BRA-28  Implementing Orders adopting PPBs   
BRA-29 Ordinance No. 214, of 20 November 2006  Ordinance No. 214/2006  
BRA-30 Ordinance No. 68, of 29 of Februa ry 2012  Ordinance No. 68/2012  
BRA-31 Ordinance No. 165, of 22 of June 2011  Ordinance No. 165/2011  
BRA-38 Brazilian Media Research 2015 (Pesquisa Brasileira de Mídia 
2015)   
BRA-39 The Digital Divide, ICT, and Broadband Internet   
BRA-40 Decree No. 4,901,  of 26 November 2003  Decree 4,901/2003  
BRA-41 Decree No. 5,820, of 29 June 2006  Decree 5,820/2006  
BRA-42 "UNESCO convenes session to discuss open and inclusive 
access to information"   
BRA-43 The Millennium Development Goals Report 2015   
BRA-44 National  Survey through Household Sampling ( Pesquisa 
Nacional por Amostragem de Domicílios  - PNAD)   
BRA-51 Interministerial Explanatory Memorandum ( Exposição de 
Motivos Interministerial  - EMI) No. 00025/2012 - 
MF/MDIC/MCTI/MEC/MC/SEP/MS/MPS, dated 2 April 2012  Interministerial Explanatory 
Memorandum No. 00025/2012  
BRA-52 WHO Article on road traffic injuries   
BRA-54 CONAMA Resolution No. 18 of 17 June 1986  CONAMA Resolution No. 
18/1986  
BRA-56 CONAMA Resolution No. 3 of 25 August 1989  CONAMA Resolution No. 3/1989  
BRA-57 CONAMA Resolution No. 4 of 25 August 1989  CONAMA Resolution No. 4/1989  
BRA-58 CONAMA Resolution No. 1 of 15 February 1993  CONAMA Resolution No. 1/1993  
BRA-59 CONAMA Resolution No. 6 of 1 October 1993  CONAMA Resolution No. 6/1993  
BRA-60 CONAMA R esolution No. 7 of 31 August 1993  CONAMA Resolution No. 7/1993  
BRA-61 CONAMA Resolution No. 8 of 31 December 1993  CONAMA Resolution No. 8/1993  
BRA-62 CONAMA Resolution No. 16 31 December 1993  CONAMA Resolution No. 
16/1993  
BRA-63 CONAMA Resolution No. 27  of 30 December 1994  CONAMA Resolution No. 
27/1994  
BRA-64 CONAMA Resolution No. 14 of 29 December 1995  CONAMA Resolution No. 
14/1995  
BRA-65 CONAMA Resolution No. 15 of 29 December 1995  CONAMA Resolution No. 
15/1995  
BRA-66 CONAMA Resolution No. 16 of 29 December 1995  CONAMA Resolution No. 
16/1995  
BRA-67 CONAMA Resolution No. 17 of 29 December 1995  CONAMA Resolution No. 
17/1995  
BRA-68 CONAMA Resolution No. 315 of 2 November 2002  CONAMA Resolution No. 
315/2002  
BRA-69 CONAMA Resolution No. 403 of 12 Decem ber 2008  CONAMA Resolution No. 
403/2008  
BRA-70 CONAMA Resolution No. 415 of 2009  CONAMA Resolution No. 
415/2009  
BRA-71 Transport and Urban Mobility Sectorial Plan for Climate Change 
Mitigation and Adaptation ( Plano Setorial de Transporte e de 
Mobilidade Urbana para Mitigação e Adaptação à Mudança do 
Clima  (PSTM)  Transport and Urban Mobility 
Sectorial Plan for Climate 
Change Mitigation and 
Adaptation  
BRA-75 Article about WHO study on deaths caused by traffic accidents   
BRA-82 Lives Saved by Vehicle Safet y Technologies and Associated 
Federal Motor Vehicle Safety Standard, 1960 to 2012, U.S. 
Department of Transportation, January 2015   
BRA-83 "Automotive safety: Brazil is still delayed" ( Segurança nos 
carros: o Brasil ainda está na rabeira )  
BRA-85 Law 12, 715/2012 of 17 September 2012  Law 12,715/2012  
BRA-93 Treaty of Montevideo, 1980   
BRA-100 Law 10,637 of December 30, 2002  Law 10,637/2002  
BRA-103 Law 11,457 of March 16, 2007  Law 11,457/2007  WT/DS472/R • WT/DS497/R  
 
- 14 - 
 
  No. Full Title  Short Title (where relevant)  
BRA-104 Appeal Against Split Decision in Interlocutory Appeal No. 
1.220.942 - SP (2012/0095341 -6)  
BRA-114 Communication from LAIA to the Chair of the Trade and 
Development Committee, WTO, 19 May 2016  Communication from LAIA  
BRA-115 Communication from LAIA to the Chair of the Trade and 
Development Committee, WTO, 1 9 May 2016 [english 
translation]  Communication from LAIA  
BRA-116 List of Implementing Orders adopting PPBs   
JE-1 Law 8,248 of 23 October 1991 (Informatics Law)  Law 8,248/1991  
JE-2 Law 13,023 of 8 August 2014, amending the Informatics Law 
(Law 8,248 of  23 October 1991)  Law 13,023/2014  
JE-3 Law 5,172, 25 October 1966 (some relevant Articles on IPI 
only) Law 5,172/1966 (Articles 
relevant to IPI only)  
JE-5 Decree 7,660 of 23 December 2011 (approving the TIPI)  Decree 7,660/2011  
JE-7 Decree 5,906 of 26 S eptember 2006 (regulating Articles 4, 9, 
11, and 16 -A of Law 8,248 of 23 October 1991 – Informatics 
Law) Decree 5,906/2006  
JE-8 Decree 6,759 of 5 February 2009 governing customs activities  Decree 6,759/2009  
JE-9 Decree 7,212 of 15 June 2010 regulating the charging, 
inspection, collection and administration of the IPI tax  Decree 7,212/2010  
JE-12 Implementing Order (Portaria) MDIC/MCT 202 of 13 February 
2014 providing for the adoption of an electronic system for 
interested companies to request accredita tion to enjoy the tax 
incentives pursuant to the Informatics Law  Interministerial Implementing 
Order 202/2014  
JE-13 Implementing Order (Portaria) MDIC 267 of 30 Aug 2013 
providing for provisional qualification for entitlement to the tax 
benefits of Law 8 ,248 of 23 October 1991 as set out in Article 
23-A of Decree 5,906 of 26 September 2006  Implementing Order 267/2013  
JE-15 Implementing Order (Portaria) 1,309 of 19 December 2013  Implementing Order 1,309/2013  
JE-16 Ministerial Implementing Order (Portari a) SDP/MDIC 1 of 18 
September 2013 regulating provisional accreditation for tax 
relief pursuant to the Informatics Law  Interministerial Implementing 
Order 1/2013  
JE-17 Interministerial Order (Portaria) 170 of 4 August 2010 laying 
down provisions governin g the composition and operation of 
the Interministerial Technical Group for the analysis of Basic 
Productive Processe (GT -PPB), and regulating the procedures 
for the analysis and approval of the Basic Productive Process  Implementing Order 170/2010  
JE-18 MDIC/MCT Interministerial implementing Order (Portaria) 177 
of 18 October 2002 on administrative procedures for 
monitoring compliance with the Basic Production Process  Interministerial Implementing 
Order 177/2002  
JE-20 Implementing Order (Portaria) 685 of  25 Oct 2007 for the 
inclusion of new models of products eligible for  tax benefits 
under the Informatics Law  Implementing Order 685/2007  
JE-21 Implementing Order (Portaria) 148 of 19 March 2007 
(Interministerial Technical Chamber to analyse the concessio n 
of incentives)  Implementing Order 148/2007  
JE-22 Implementing Order (Portaria) 950 of 12 December 2006 
(requirement of "development" in the country)  Implementing Order 950/2006  
JE-23 Normative Instruction RBF 1,300 of 20 November 2012 (Tax 
credits)  Normative Instruction RBF 
1,300/2012  
JE-24 Interministerial Implementing Order No 16 of 28 January 2014 
establishing the Basic Production Process for machines for 
selecting and counting paper money (banknotes)produced in 
Brazil  Interministerial Implementi ng 
Order No 16 /2014  
JE-25 Interministerial Implementing Order (Portaria) 17 of 28 
January 2014 amending the Basic Production Process for 
semiconductor components, optoelectronic devices, thick and 
thin film components, photovoltaic cells and standard vola tile 
memory modules, produced in Brazil  Interministerial Implementing 
Order 17/2014  
JE-26 Interministerial Implementing Order (Portaria) 19 of 28 
January 2014 establishing the Basic Production Process for 
fixed x -ray machines with image acquisition via f lat digital 
detector produced in Brazil  Interministerial Implementing 
Order 19/2014  
JE-27 Interministerial Implementing Order (Portaria) 43 of 14 
February 2013 on the Basic Production Process for computer 
products produced in Brazil  Interministerial Impl ementing 
Order 43/2013  
JE-28 Interministerial Implementing Order (Portaria) 60 of 25 
February 2013 on Basic Production Process for netbooks, 
notebooks and ultrabooks produced in Brazil  Interministerial Implementing 
Order 60/2013  WT/DS472/R • WT/DS497/R  
 
- 15 - 
 
  No. Full Title  Short Title (where relevant)  
JE-29 Interministerial Implementing Order (Portaria) 80 of 14 April 
2014 amending the Basic Production Process for low capacity 
digital processing units, based on microprocessors and 
assembled on a single body or housing produced in Brazil  Interministerial Implementing 
Order 80/ 2014  
JE-30 Interministerial Implementing Order (Portaria) 85, of 29 April 
2014 amending the Basic Production Process for digital 
processing units assembled in a single body or housing, of the 
server type, produced in Brazil  Interministerial Implementing 
Order 85/2014  
JE-31 Interministerial Implementing Order (Portaria) 93 of 1 April 
2013 establishing a basic production process for optical splice 
closures produced in Brazil  Interministerial Implementing 
Order 93/2013  
JE-32 Interministerial Implementing  Order (Portaria) 103 of 2 April 
2013 on the Basic Production Process for products for speed 
alarms, tracking and control produced in Brazil  Interministerial Implementing 
Order 103/2013  
JE-33 Interministerial Implementing Order (Portaria) 111 of 29 May 
2014 Amending the Basic Production Process for tablet pcs with 
touch screen, produced in Brazil  Interministerial Implementing 
Order 111/2014  
JE-34 Interministerial Implementing Order (Portaria) 119, of 23 April 
2013 on basic production process for fixed/p ortable digital 
electrical signalling apparatus to control motor vehicle traffic, 
produced in Brazil  Interministerial Implementing 
Order 119/2013  
JE-35 Interministerial Implementing Order (Portaria) 203 of 23 
August 2012 , the basic production process for  liquid crystal 
devices for products with mcn code: 8528 and for products with 
mcn code: 471 produced in Brazil  Interministerial Implementing 
Order 203/2012  
JE-36 Interministerial Implementing Order (Portaria) 263 of 19 March 
2014 amending the Basic Prod uction Process for mobile phones 
produced in Brazil  Interministerial Implementing 
Order 263/2014  
JE-37 Interministerial Implementing Order (Portaria) 268 of 30 
August 2013 on the basic production processes for supplies for 
multi-functional photocopier ma chines and laser printers 
produced in Brazil  Interministerial Implementing 
Order 268/2013  
JE-38 Interministerial Implementing Order (Portaria) 278 of 4 
September 2013 on the Basic Production Process for industrial 
automation goods produced in Brazil  Interministerial Implementing 
Order 278/2013  
JE-39 Interministerial Implementing Order (Portaria) 333 of 16 
October 2013 establishing the Basic Production Process for self -
service coin counting machines, produced in Brazil  Interministerial Implementing 
Order  333/2013  
JE-40 Interministerial Implementing Order (Portaria) 335 of 16 
October 2013 establishing the Basic Production Process for dot 
matrix printers produced in Brazil  Interministerial Implementing 
Order 335/2013  
JE-41 Interministerial Implementing Order (Portaria) 382 of 30 
December 2013 establishing the Basic Production Process for 
Self-Service Machines and Terminals and Automatic Ticket, 
Banknote or Coin Dispensers,produced in Brazil  Interministerial Implementing 
Order 382/2013  
JE-42 Interminist erial Implementing Order (Portaria) 385 of 30 
December 2013 providing for the Basic Production Process for 
air traffic surveillance radar produced in Brazil  Interministerial Implementing 
Order 385/2013  
JE-43 Interministerial Implementing Order (Portaria)  388 of 30 
December 2013 establishing the Basic Production Process for 
smart cards produced in Brazil  Interministerial Implementing 
Order 388/2013  
JE-44 Interministerial Implementing Order (Portaria) 266 of 7 
October 2014 for intelligent card reader prod uced in Brazil  Interministerial Implementing 
Order 266/2014  
JE-45 Interterministerial Implementing Order (Portaria) 184 of 7 July 
2014 notebook, netbook, ultrabook produced in Brazil  Interministerial Implementing 
Order 184/2014  
JE-46 Interministerial I mplementing Order (Portaria) 34 of 26 
February 2015 (rejection of application)  Interministerial Implementing 
Order 34/2015  
JE-66 Implementing Order (Portaria) 165 of 17 June 2014  Implementing Order 165/2014  
JE-71 Law 11,484, of 31 May 2007 providing for  the incentives to the 
Digital TV equipment and electronic semiconductor components 
industries and on the intellectual property protection of 
integrated circuit topographies, establishing the Semiconductor 
Technological Development Support Program - PADIS and 
Support Program for the Technological Development of the 
Digital TV Equipment Industry – PATVD  Law 11,484/2007  WT/DS472/R • WT/DS497/R  
 
- 16 - 
 
  No. Full Title  Short Title (where relevant)  
JE-73 Decree 6,233, of 11 October 2007 establishing the criteria for 
the purpose of accreditation to the Semiconductor 
Technological Develo pment Support Program - PADIS, which 
grants income tax exemption and reduces PIS/PASEP, COFINS 
and IPI contributions to zero  Decree 6,233/2007  
JE-75 Decree 8,247 of 23 May 2014, amending Decree 6,233/2007  Decree 8,247/2014  
JE-76 Regulatory Instruction R FB 852 of 13 June 2008 laying down 
procedures for qualification for the Programme for the 
Technological Development of the semiconductor Industry 
(PADIS) by Secretary of the Federal Revenue Department of 
Brazil  Regulatory Instruction RFB 
852/2008  
JE-77 Joint Ordinance MCT/MDIC/MF 297 of 13 May 2008  establishing 
the procedures and deadline for analysis of the PADIS, 
implementing Decree 6233 of 11 October 2007 (GTI -PADIS)  Interministerial Implementing 
Order 297/2008  
JE-78 Interministerial Ordinance (Porta ria) MCT/MDIC 290 of 7 May 
2008 (project proposals)  Interministerial Implementing 
Order 290/2008  
JE-85 Decree 6,234, from 11 October 2007 establishing criteria for 
the fulfilment of the incentives under the Support Program for 
the Technological Developme nt of the Digital TV Equipment 
Industry – PATVD, which reduces the PIS/PASEP, COFINS and 
IPI tax rates to zero  Decree 6,234/2007  
JE-86 Normative Instruction RFB 853 of 13 June 2008 laying down 
procedures for qualification for the Technological Developmen t 
Programme for the Digital TV Equipment Industry - PATVD by 
Secretary of the Federal Revenue Department of Brazil  Normative Instruction RFB 
853/2008  
JE-88 Interministerial Ordinance 291 of 7 May 2008 (project 
proposal)  Interministerial Implementing 
Order 291/2008 (project 
proposal)  
JE-89 Portaria 62 of 31 march 2014 (PPB digital TV transmitter 
produced in Brazil)  Implementing Order 62/2014  
JE-91 Law. 11,196 of November 21 of 2005 Instituting the Program 
for Digital Inclusion (Lei do Bem)  Law 11,196/200 5  
JE-92 Law 13,097, of 19 January 2015 (extending the Digital 
Inclusion programme)  Law 13,097/2015  
JE-93 Law 10,833 of 29 December 2003 amending Federal Tax 
Legislation (COFINS) – non-cumulative regime  Law 10,833/2003  
JE-94 Law 10,637 of 30 December 2002 Law 10,637/2002  
JE-95 Law 12,715 of  17 September 2012  Law 12,715/2012  
JE-97 Decree 5,602 of 6 December 2005 governing the Digital 
Inclusion Programme by The President of the Republic  Decree 5,602/2005  
JE-99 Implementing Order (Portaria) 2 of 26 au gust 2013 (criteria 
and procedures relating to the requirement of a minimum  
applications developed in Brazil, smartphones)  Implementing Order 2/2013  
JE-100 Implementing Order 87 (Portaria) of 10 April 2013 (minimum 
technical requirements for the smartpho nes that benefit from 
the reduced tax rate provided for by Law 11,196 of 21 
November 2005)  Implementing Order 87/2013  
JE-104 CLEPA letter, correspondence between car maker and supplier 
on traceability of 24 February 2014   
JE-105 Calculating the Presumed  IPI Tax Credit for Vehicle 
Manufacturers, Edison da Matta, Sindipecas, Valoracao da 
parcela deductivel, September 2014  E. da Matta, " Valoração da 
parcela deductível ", Sindipeças, 
September 2014  
JE-109 Interministerial Explanatory memorandum of the provis ional 
measure that then became Law 11,848/2007  Interministerial Explanatory 
Memorandum No. 00008/2007  
JE-127 Decree 7,567 of 15 September 2011  Decree 7,567/2011  
JE-129 Law 12,546 of 14 December 2011 (Articles 5, 6 and 52)  Law 12,546/2011 (Articles 5, 6 
and 52)  
JE-132 Decree 7,819 of 3 October 2012  Decree 7,819/2012  
JE-133 Decree 8,015 of 17 May 2013, amending Decree 7,819/2012  Decree 8,015/2013  
JE-134 Decree 8,294 of 12 August 2014, amending Decree 7,819/2012  Decree 8,294/2014  
JE-143 Reply to access t o documents request (confidentiality of Terms 
of Commitment)  Reply to access to documents 
request (confidentiality of Terms 
of Commitment)  
JE-154 Portaria 113 of 15 April 2013  Implementing Order 113/2013  
JE-157 Portaria MDIC 290 of 14 November 2014  Imple menting Order 290/2014  
JE-158 Portaria MDIC 257 of 23 September 2014  Implementing Order 257/2014  WT/DS472/R • WT/DS497/R  
 
- 17 - 
 
  No. Full Title  Short Title (where relevant)  
JE-159 SINIEF Convention s/n of 15 December 1970 (relevant 
excerpts), 
http://www1.fazenda.gov.br/confaz/confaz/convenios/sinief/cv
sn_70.htm  SINIEF Convention  15/1970 
(relevant excerpts)  
JE-160 CONFAZ Convention 38 (relevant excerpts) 
http://www1.fazenda.gov.br/confaz/Confaz/Convenios/ICMS/2
013/CV038_13.htm  CONFAZ Convention 38 
(relevant excerpts)  
JE-163 Decree 350 of 21 November 1991 on the Treaty for the 
formation of a common market between the Republic of 
Argentina, the Federative Republic of Brazil, the Republic of 
Paraguay and the Oriental Republic of Uruguay (MERCOSUR)  Legislative Decree 350/1991  
JE-164 Decree 4,458 of 5 November 2002 on the Economic  
Complementation Agreement No. 55 between Mercosur and the 
United Mexican States  Decree 4,458/2002  
JE-165 Decree 6,500 of 2 July 2008 on the Economic Complementation 
Agreement No. 14 between the Republic of Argentina and the 
Federative Republic of Brazil  Decree 6,500/2008  
JE-174 Sindipeças e -mail to members on traceability, 20 January 2014  Sindipeças e -mail to members 
on traceability  
JE-175 Portaria 772 of 12 August 2013  Implementing Order 772/2013  
JE-177 Portaria 280 of 4 September 2013  Implementing Order 280/2013  
JE-179 Portaria 297 of 30 September 2013  Implementing Order 297/2013  
JE-180 Explanatory Memorandum of Provisional Measure 66 of 29 
August 2002   
JE-181 Law 10,865 of 30 April 2004  Law 10,865/2004  
JE-182 Law 11,196 of 21 November 2005 (REC AP) Law 11,196/2005  
JE-183 Explanatory Memorandum of Provisional Measure 563 of 2 April 
2012 Interministerial Explanatory 
Memorandum 00025/2012  
JE-186 Exporters_2012 study on Brazilian exports - delays in refunds - 
pages 56 -59 Exporters_2012 study on 
Brazilian exports – delays in 
refunds – pp. 56 -59 
JE-187 Decree 5,649 of 29 December 2005  Decree 5,649/2005  
JE-188 Decree 5,789 of 25 May 2006  Decree 5,789/2006  
JE-189 Provisional Measure 668 of 30 January 2015  Provisional Measure 668/2015  
JE-191 Normati ve Instruction (Instrução Normativa) RFB 948 of 15 
June 2009.  Normative Instruction RFB 
948/2009.  
JE-192 Normative Instruction (Instrução Normativa) RFB 1,424 of 19 
December 2013  Normative Instruction RFB 
1,424/2013  
JE-193 Normative Instruction SRF 595 o f 27 December 2005  Normative Instruction SRF 
595/2005  
JE-194 TIPI Chapter 87 products description  TIPI Chapter 87 products 
description  
JE-195 Normative Instruction SRF 605 of 4 January 2006  Normative Instruction SRF 
605/2006  
JE-199 Law 12,546 of 14 Dece mber 2011  Law 12,546/2011  
JE-200 Law 13,137 of 19 June 2015  Law 13,137/2015  
JE-201 Normative Instruction (Instrução Normativa) RFB 1,401 of 9 
October 2013  Normative Instruction RFB 
1,401/2013  
JE-203 Decree 6,518 of 30 July 2008 providing for the impleme ntation 
of the Sixty Eighth Additional protocol to Economic 
Complementation Agreement No. 2, signed between the 
Governments of the Federative Republic of Brazil and the 
Oriental Republic of Uruguay  Decree 6,518/2008  
JE-204 Decree 7,658 of 23 December 2011  laying down provisions 
concerning the implementation of the 69th Additional Protocol 
to Economic Complementation Agreement No. 2 signed by the 
Governments of the Federal Republic of Brazil and the Oriental 
Republic of Uruguay  Decree 7,658/2011  
JE-207 Brazilian Ministry of External Relations, "Legal Guide to Foreign 
Investors in Brazil" (2012)   
JE-219 Normative Instructions SRF 594 of 26 December 2005 (Articles 
6 and 7)  Normative Instructions SRF 
594/2005 (Articles 6 and 7)  
JE-220 Law 9,718 of 27 Novembe r, 1998 (Chapter 1)  Law 9,718/1998 (Chapter 1)  
JE-222 Law 10,168 of December 29 2000  Law 10,168/2000  
JE-245 CMC Decision No. 27/12, Adesão da República Bolivariana da 
Venezuela ao Mercosul, 30 July 2012  MERCOSUR Decision No. 27/12  
 
 WT/DS472/R • WT/DS497/R  
 
- 18 - 
 
  ABBREVIATIONS USED IN THESE REPORTS  
Abbreviation  Description  
ADE Executive Declaratory Act  
BCI Business Confidential Information  
CAPDA  Committee of Research and Development Activities of Amazonia  
CATI Committee of Technology and Information  
CDMA  Code Division Multiple Access  
CIDE Contribution of Intervention in the Economic Domain  
CIF Cost, Insurance & Freight value  
COFINS contribution  Contribution to Social Security Financing  
COFINS importation  Contribution to Social Security Financing applicable to Imports of Go ods or Services  
CONAMA  Brazilian National Environmental Council  
CO2 Carbon Dioxide  
CST Tax Situation Code  
DENATRAN  National Motor Vehicle and Traffic Department  
DERAT  Tax Administration Federal Revenue Department Branch  
DRF Federal Revenue Departmen t Branch  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
ECA Economic Complementation Agreement  
FM Frequency Modulation  
FNDCT  National Fund for Scientific and Technological Development  
GATT 1 994 General Agreement on Tariffs and Trade 1994  
GPS Global Positioning System  
GPRS  General Packet Radio Service  
GSM Global System for Mobile Communication  
GT-PPB Interministerial Technical Group of PPB's Assessment  
GTI-PADIS  Interministerial Technica l Group to Evaluate Lawsuits in the context of the PADIS 
programme  
ICMS Tax on the Circulation of Goods and on Inter -State and Inter -City Transport and 
Communications Services  
ICT Information and Communication Technology  
ICT products  Information and Com munication Technology, Automation and Related Goods  
IVA An Indirect Tax similar to a Value -Added Tax  
INMETRO  National Institute of Metrology, Quality and Technology  
INOVAR -AUTO  Programme to Promote Technological Innovation and Densification of the Produ ctive 
Chain of Motor Vehicles  
IPI tax  Tax on Industrialised Products  
LAIA Latin American Integration Association  
LBS Location Based Service  
LCD Liquid crystal display  
LED Light emitting diode  
MC Ministry of Communications  
MCTI Ministry of Science, T echnology and Innovation  
MDGs  Millennium Development Goals  
MDIC  Ministry of Development, Industry and Trade  
MERCOSUR  Mercado Común del Sur (Southern Common Market)  
MCN MERCOSUR Common Nomenclature  
MFN Most Favoured Nation  
MF Ministry of Finance  
NC Common Nomenclature  
NTM Non-Tariff Measure  
OLED  Organic light emitting diode  
PADIS  Programme of Incentives for the Semiconductors Sector  
PASEP  Civil Service Asset Formation Programme  
PATVD  Programme of Support to the Technological Development of the Industry of Digital 
TV Equipment  
PDP Plasma display panel  
PEC Regime for predominantly exporting companies  
PIS  Social Integration Programme  
PIS/PASEP - Importation  Social Integration and Civil Service Asset Formation Programmes applicable to 
Imports  
PPB Basic Productive Process  
PROCONVE  Motor Vehicle Air Pollution Control Program  
PTA Preferential Trade Arrangements  
R$ Brazilian real  WT/DS472/R • WT/DS497/R  
 
- 19 - 
 
  Abbreviation  Description  
R&D Research and Development  
RECAP  Special Regime for the Purchase of Capital Goods for Exporting Enterprises  
REPES Special Tax Regime for the Exportation Platform of Information Technology Services  
RFB Federal Revenue Service of Brazil  
RTA Regional Trade Agreements  
SBTVD  Brazilian digital television standard  
SCM Agreement  Agreement on Subsidies and Countervail ing Measures  
S&D Special and Differential Treatment  
SDP Secretariat for Production Development  
SINIEF  Integrated National System of Economic and Tax Information  
SISCOMEX  Integrated Foreign Trade System  
STE Secretary for Telecommunications  
SRF Secre tariat of the Federal Revenue Service of Brazil  
SUDAM  Superintendency for the Development of the Amazonia  
SUDENE  Superintendency for the Development of the Northeast  
TFEL Thin film electroluminescent displays  
TIPI Table of Application of the Tax on Ind ustrialised Products  
TRIMs Agreement  Agreement on Trade -Related Investment Measures  
TV Digital Television  
UN United Nations  
UNECE  United Nations Economic Commission for Europe  
UNESCO  United Nations Educational, Scientific and Cultural Organization  
VAT Value -Added Tax  
Vienna Convention  Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 
UNTS 331; 8 International Legal Materials 679  
WHO World Health Organization  
WTO World Trade Organization  
 WT/DS472/R • WT/DS497/R  
 
- 20 - 
 
  1  INTRODUCTION  
1.1  Complaints by the E uropean Union and Japan  
1.1.  On 19 December 2013, the European Union requested consultations with Brazil pursuant to 
Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes (DSU), Article XXII of the General Agreement on Tariffs and Trade 1994 (the 
GATT  1994), Article 4 of the Agreement on Subsidies and Countervailing Measures (the SCM 
Agreement), and Article 8 of the Agreement on Trade -Related Investment Measures (the TRIMs 
Agreement), with respect to the measures and claims set out below.1 
1.2.  Consultations were held on 13 -14 February 2014. An additional consultation meeting took 
place on 4 April 2014.  
1.3.  On 2 July 2015, Japan requested consultations with Brazil pursuant to Articles 1 and 4 of the 
Understanding on Rules and P rocedures Governing the Settlement of Disputes (DSU), 
Article  XXII:1 of the GATT 1994, Articles 4 and 30 of the SCM Agreement and Article 8 of the 
TRIMs Agreement with respect to the measures and claims set out below.2 
1.4.  Consultations were held on 15 -16 Sept ember 2015.  
1.2  Panel establishment and composition  
1.5.  On 31 October 2014, the European Union requested the establishment of a panel pursuant to 
Article  6 of the DSU, Article XXIII of the GATT 1994, Articles 4.4 and 30 of the SCM Agreement, 
and Article 8 of the T RIMs Agreement, with standard terms of reference.3 At its meeting on 17 
December 2014, the Dispute Settlement Body (DSB) established a panel pursuant to the request 
of the European Union in document WT/DS 472/5 , in accordance with Article  6 of the DSU.4 
1.6.  The Panel's terms of reference are the following:  
To examine, in the light of the relevant provisions of the covered agreements cited by 
the parties to the dispute, the matter referred to the DSB by the European Union in 
document WT/DS472/5 and to make such f indings as will assist the DSB in making 
the recommendations or in giving the rulings provided for in those agreements.5 
1.7.  On 16 March 2015 , the European Union requested the Director -General to determine the 
composition of the panel, pursuant to Article 8.7 of the DSU . On 26 March 2015, the Director -
General accordingly composed the Panel as follows:  
Chairperson:  Mr Eirik Glenne  
 
Members:   Mr Toufiq Ali  
   Mr Alvaro Espinoza  
 
1.8.  Argentina, Australia, Canada, China, Colombia, India, Japan, the Republic of Korea, t he 
Russian Federation, South Africa,  Chinese Taipei, Turkey and the United States notified their 
interest in participating in the Panel proceedings as third parties.  
1.9.  On 17 September 2015, Japan requested the establishment of a panel pursuant to 
Articles  4.7 and  6 of the DSU, Article XXIII of the GATT 1994, Article 8 of the TRIMs Agreement, 
and Articles 4.4 and 30 of the SCM Agreement, with standard terms of reference.6 At its meeting 
                                                
1 See WT/DS472/1, G/L/1061, G/SCM/D100/1, G/TRIMS/D/39.  
2 See WT/DS497/1, G/L/1119, G/SCM/D108/1, G/TRIMS/D/41.  
3 WT/DS472/5.  
4 WT/DSB/M/353.  
5 WT/DS472/ 6. 
6 WT/DS497/3.  WT/DS472/R • WT/DS497/R  
 
- 21 - 
 
  on 28 September 2015, the Dispute Settlement Body (DSB) established a pane l pursuant to the 
request of Japan in document WT/DS4 97/3, in accordance with Article  6 of the DSU.7 
1.10.   The Panel's terms of reference are the following:  
To examine, in the light of the relevant provisions of the covered agreements cited by 
the parties to the  dispute, the matter referred to the DSB by Japan in document 
WT/DS497/3 and to make such findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in those agreements.8 
1.11.   On 29 September 2015 , following the agreemen t of the parties, the Panel was composed as 
follows:  
Chairperson:  Mr Eirik Glenne  
 
Members:   Mr Toufiq Ali  
   Mr Alvaro Espinoza  
 
1.12.   Argentina, Australia, Canada, China, Colombia, the European Union, India, the Republic of 
Korea, the Russian Federation, Singa pore, Turkey, Ukraine and the United States notified their 
interest in participating in the Panel proceedings as third parties.9 
1.3  Panel proceedings  
1.3.1   General  
1.13.   After consultation with the European Union and Brazil, the Panel adopted its Working 
Procedures10 and timetable on 28 April 2015.  
1.14.   Following the establishment of the Panel upon request from Japan, and pursuant to 
Article  9.3 of the DSU, the Panels were composed with the same persons and, in agreement with 
the parties, are following a joint procedure.11 
1.15.   After consultation with the European Union, Japan and Brazil, the Panel adopted its Joint 
Working Procedures12 and joint timetable on 9 October 2015. Paragraph 26(d) of the Joint Working 
Procedures provides that each party shall serve on all third parties (WT/DS 472 and WT/DS497) its 
written submissions in advance of the first substantive meeting with the Panel and each third party 
shall serve any document submitted to the Panel directly on the parties and all other third parties 
(WT/DS472 and WT/DS497).  
1.16.   The Panel  held a first substantive meeting with the parties from 23 February to 25 February 
2016. A session with the third parties took place on 24 February 2016. The Panel held a second 
substantive meeting with the parties from 31 May to 1 June 2016. On 9 August 2 016, the Panel 
issued the descriptive part of its Report to the parties. The Panel issued its Interim Reports to the 
parties on 11 November 2016. The Panel issued its Final Reports to the parties on 20 December 
2016. 
1.3.2    Working procedures on Business Confide ntial Information (BCI)  
1.17.   Working procedures on BCI were adopted on 28 April 2015.13 Additional Joint Working 
Procedures on BCI were adopted on 9 October 2015.14 
                                                
7 WT/DSB/M/368.  
8 WT/DS497/4.  
9 Turkey notified its third party interest on 9 October 2015. See WT/DS497/4.  
10 See the Panel's Working Procedures in Annex A -1. 
11 For the reader's convenience, the Panels in WT/DS472 and WT/DS497 are herein c ollectively referred 
to as the "Panel". Additionally, any references to "this report" or the Panel's "report" should be understood to 
refer to the Panel's Final Reports in both disputes.  
12 See the Panel's Joint Working Procedures in Annex A -3. 
13 See the P anel's Working Procedures on BCI in Annex A -2. WT/DS472/R • WT/DS497/R  
 
- 22 - 
 
  2  FACTUAL ASPECTS  
2.1  General description of relevant aspects of the Brazilian tax system  
2.1.  In this sectio n the Panel outlines certain topics which, although they are not themselves the 
measures at issue, have been addressed by the parties in their submissions and may be of 
relevance for the purposes of this Panel's findings. The Panel notes that the parties t o the dispute 
seem to agree on the basic functioning of the tax system in Brazil and most of the aspects of the 
concerned tax programmes including their defining measures, but disagree with respect to the 
WTO-consistency of those measures.15  
2.2.  The measures a t issue in this dispute concern mainly the following Brazilian Federal taxes 
and contributions16: 
a. IPI (Imposto sobre Produtos Industrializados  – Tax on Industrialised Products);  
b. PIS/PASEP  (Programa de Integração Social  – Social Integration Programme / Programa 
de Formação do Patrimônio do Servidor Público  – Civil Service Asset Formation 
Programme);  
c. PIS/PASEP -Importation  (Programa de Integração Social e de Formação do Patrimônio 
do Servidor Público incidente na Importação de Produtos Estrangeiros ou Serviços  – 
Social Integration and Civil Service Asset Formation Programmes applicable to Imports 
of Foreign Goods or Services);  
d. COFINS  (Contribuição para o Financiamento da Seguridade Social  – Contribution to 
Social Security Financing);  
e. COFINS -Importation  (Contri buição para o Financiamento da Seguridade Social 
incidentes sobre a importação de bens e serviços  – Contribution to Social Security 
Financing applicable to Imports of Goods or Services); and  
f. CIDE  (Contribuição sobre Intervenção no Domínio Econômico  – Contr ibution of 
Intervention in the Economic Domain).  
The IPI tax  
2.3.  The IPI  tax is a Brazilian Federal tax that applies to all national or foreign industrialized (i.e. 
manufactured) products.17 It is envisaged in item IV of Article 153 of the Brazilian Federal 
                                                                                                                                                  
14 See the Panel's Additional Joint Working Procedures on BCI in Annex A -4. 
15 In this respect, "Brazil understands that the overall factual explanations made by the complaining 
parties are correct; the legal co nsequences from the facts, however, are incorrect". See Brazil's response to 
Panel question No.  17. 
16 Other taxes concerned are ordinary customs duties, the corporate income tax and the duties on 
profits from exploitation of patents.  
17 An industrialized pr oduct is defined by Decree 7,212 of 15 June 2010 as that which results from any 
operation defined as industrialization, even if it is incomplete, partial or intermediate. Industrialization, in turn, 
is defined as any operation that modifies the nature, fun ctioning, presentation or finality of a product, or that 
perfects its consumption, such as: (i) those carried out on raw materials or intermediary products leading to a 
new item (transformation); (ii) those which seek to change, improve or in any way alter  the functioning, use, 
finishing or appearance of a product (processing); (iii) those which consist of the joining of products, pieces or 
parts and which results in a new product or autonomous unit, even with the same tax classification 
(assembly); (iv) th ose which seek to change the presentation of the product through placing into packaging, 
whether to replace the original or not, except when the packaging is only for use during the carriage of the 
goods (packaging or re -packaging); or (v) those carried ou t on a used product or remaining part of a 
deteriorated or unused product, which renews or restores the product for use (renewal or reconditioning). 
Decree 7,212 of 15 June 2010, (Decree 7,212/2010), (Exhibit JE -9), Articles 2 -4. WT/DS472/R • WT/DS497/R  
 
- 23 - 
 
  Constitution18 and regulated through Laws 5,172 of 25 October 196619 and 4,502 of 30 November 
1964, and Decree 7,212 of 15 June 2010.20 
2.4.  The IPI tax rates are product -specific, and generally range between 0% and 20%, although 
they can reach up to 300%. The Brazil ian government issued a table ( Tabela de Incidência do 
imposto sobre produtos industrializados – TIPI) by means of Decree 7,660 of 23 December 201121, 
setting out the applicable tax rates per product.   
2.5.  The IPI tax is linked to the price or value of the indu strialized product on which it is imposed. 
In the case of domestic products, the taxable base is the transaction value. In the case of 
imported products, the taxable base is the customs value plus the import duties and charges paid.  
In the case of industri alised products acquired in auction, the taxable base is the price of the 
auctioned product.22 
2.6.  The entities with the legal responsibility for the payment of the IPI tax to the Federal 
Revenue Service are the industrial establishments, or assimilated entitie s, that sell an 
industrialized product. The entities assimilated to industrial establishments under the IPI rules are 
importers, wholesalers or retailers that commercialize industrialized products. The final economic 
burden is borne by the purchaser of the  final good, whether it is a legal or a natural person.  
2.7.  The taxable event is, in the case of domestic products,  the exit of the industrialized product 
from the industrial establishment; in the case of an imported product, the customs clearance of 
the produ ct; and, in the case of abandoned or seized goods, the acquisition of the product at 
auction.23  
2.8.  The IPI tax is not paid directly by the entity bearing the ultimate burden of paying the IPI 
tax. In the case of domestic products, the IPI tax is charged by th e industrial establishment selling 
the industrialized product to the industrial establishment, or assimilated entity, buying the 
industrialized product. The taxes retained by the industrial establishment selling the industrialized 
product must be remitted to the Federal Revenue Service on a monthly basis, specifically on the 
25th day of the subsequent month following the transaction. In the case of imported products, the 
IPI tax is charged by the customs authorities to the importer of the industrialized pro duct during 
the customs clearance process.  
2.9.  It is important to note that the IPI tax applies only with respect to transactions between 
industrial establishments or assimilated entities or individuals. For instance, an industrial 
establishment that performed  any type of industrialization on a product, but did not finish the 
product (i.e. did not complete the last stage of a production chain before commercialization of the 
final product), will charge the IPI tax to an establishment purchasing the industrialize d product (or 
intermediate  product) to further manufacture it. The industrial establishment that further 
manufactured the product will charge the IPI tax to the wholesaler or retailer that purchases the 
industrialized product to commercialize it. However, the IPI tax will not be due on the sale made 
by the wholesaler or retailer to the final consumer, because there was no further manufacturing of 
the product.  
2.10.   By constitutional requirement, the IPI tax "shall be non -cumulative, and the tax due in each 
transaction shall be compensated by the amount charged in previous transactions".24 Article 225 of 
Decree 7,212/2010 states that "non -cumulativeness becomes effective by means of the credit 
system of the tax due on products entering the facilities of the taxpaye r, which will be deducted 
from the amount due on the exit of products, in the same period".25 This means that when a 
taxpayer remits to the government the IPI tax collected for any given transaction, the taxpayer 
may deduct the IPI tax paid in earlier stage s of the supply chain. This ensures that the tax is 
levied only on the value added.  
                                                
18 Constitution of the Fede rative Republic of Brazil, (Brazilian Federal Constitution), (Exhibit BRA -21). 
19 Law 5,172 of 25 October 1966, (Law 5,172/1966), (Exhibit JE -3). 
20 Decree 7,212/2010, (Exhibit JE -9). 
21 Decree 7,660 of 23 December 2011, (Decree 7,660/2011), (Exhibit JE -5). 
22 Law 5,172/1966, (Exhibit JE -3), Article 47.  
23 Law 5,172/1966, (Exhibit JE -3), Article 46.  
24 Brazilian Federal Constitution, (Exhibit BRA -21), Article 153, para. 3(II).  
25 Brazil's response to Panel question No. 69.  WT/DS472/R • WT/DS497/R  
 
- 24 - 
 
  2.11.   Under this non -accumulation rule, when an industrial establishment buys an industrialized 
product that will be subject to further manufacturing (i.e. an intermediate produ ct), the seller 
charges the IPI tax to the buyer and the buyer obtains a credit in the same amount of the tax 
paid. This credit will be deducted from the buyer's IPI tax debits when paying its monthly IPI tax 
liabilities due on the 25th day of the subseque nt month following the transaction . When the 
industrial establishment sells the now finished  product to a wholesaler or retailer, it will charge the 
IPI tax to that wholesaler or retailer and remit the tax to the Federal Revenue Service when paying 
its mon thly tax liabilities.  
2.12.   For example, if the industrial establishment pays R$10 of IPI tax when purchasing the 
industrialized intermediate  product, it will obtain a credit of R$10 to deduct from its IPI tax debits 
when paying its IPI tax liabilities due on t he 25th day of the subsequent month following the 
transaction . If the industrial establishment sells the now finished  product and, after having added 
some value to the product, charges R$20 of IPI tax to the wholesaler, the industrial establishment 
selling  the product will transfer R$20 to the Federal Revenue Service. However, because it had 
already obtained, and in normal circumstances used in paying its monthly IPI tax liabilities, the tax 
credit of R$10, the real amount of tax paid for that specific prod uct by that industrial 
establishment will have been only R$10, which is the tax corresponding to the value added.  
2.13.   In the case of a tax exemption (including through zero rates) on the sales of an 
industrialized intermediate  product, if  an industrial establi shment sells an industrialized  
intermediate  product with the IPI tax exempted, the industrial establishment that will further 
manufacture the intermediate  product will not have to pay the IPI tax to the seller and the seller 
will not have to remit any mone y to the Federal Revenue Service. In this situation, the buyer will 
not obtain a tax credit. For instance, if an industrial establishment buys an industrialized 
intermediate  product with an exempted IPI tax that would otherwise be of R$10, it will not be 
required to pay R$10 to the seller, but it will not obtain a credit of R$10. This industrial 
establishment will further manufacture the industrialized intermediate  product to obtain an 
industrialized  finished  product, and, when it sells the finished  product , it will charge the IPI tax 
equivalent to its value added, for example, R$10, plus the previous value added of R$10, to the 
wholesaler. Thus, the industrial establishment will transfer R$20 to the Federal Revenue Service, 
but only after the industrialized  finished  product is sold.  
2.14.   When an industrial establishment sells an industrialized finished product to a wholesaler or 
retailer, it will charge the IPI tax to the wholesaler or retailer and remit the tax to the Federal 
Revenue Service when paying its mon thly tax liabilities, although it will be able to deduct from its 
tax debits the tax credits previously accrued.  
2.15.   In the case of a tax exemption (including through zero rates) on the sale of an industrialized 
finished  product, if an industrial establishmen t sells an industrialized finished  product  with the IPI 
tax exempted, the wholesaler or retailer will not have to pay any IPI tax  to the seller and the seller 
will not have to remit any money to the Federal Revenue Service.  
2.16.   By the same principle of non -accumulation, industrial establishments are entitled to obtain 
credits on the amount of IPI tax paid on the purchase of inputs , raw materials  and p ackaging 
materials  used in the production of their industrialized products.26 Thus, as explained in the case of 
intermediate  industrialized products (which are inputs for the industrial establishment buying 
them), when the industrial establishment buys inputs , raw materials  and packaging materials , it 
will pay the IPI tax to the seller, but will obtain a tax credit on the same amount of the tax paid, 
which it will be able to deduct from its IPI tax debits when paying its monthly IPI tax liabilities due 
on the 25th day of the subsequent month following the transaction . When the industrial 
establishment sells the indus trialized product to another industrial establishment or assimilated 
entity, it will charge the IPI tax to the buyer and remit the tax to the Federal Revenue Service 
when paying its monthly tax liabilities.  
2.17.   For example, if the industrial establishment pay s R$10 of IPI tax when purchasing the 
inputs , raw materials  and packaging materials , it will obtain a credit of R$10 to deduct from its IPI 
tax debits when paying its IPI tax liabilities due on the 25th day of the subsequent month following 
the transaction . If the industrial establishment sells an industrialized product ( intermediate  or 
finished ) and, after having added some value to the product, charges, for example, R$20 of IPI tax 
                                                
26 Brazil's response to Panel's question No. 69.  WT/DS472/R • WT/DS497/R  
 
- 25 - 
 
  to the industrial establishment or assimilated entity, then the industrial  establishment selling the 
product will transfer R$20 to the Federal Revenue Service. However, because it had already 
obtained, and in normal circumstances used, the tax credit of R$10, the real amount of tax paid 
for that specific product by that industri al establishment will have been R$10, which is the tax 
corresponding to the value added.  
2.18.   In the case of tax exemptions  (including through zero rates)  on the purchases of  inputs , raw 
materials  and packaging materials , if an industrial establishment buys inputs, raw materials  and 
packaging materials  with the IPI tax exempted or suspended, it will not have to pay the tax to the 
seller and the seller will not have to remit any money to the Federal Revenue Service. In this 
situation, the buyer will not obtain a tax credit. For instance, if an industrial establishment buys an 
input with an exempted IPI tax that would otherwise be R$10, it will not be required to pay R$10 
to the seller, but it will not obtain a credit of R$10. This industrial establishment will use  the input 
to manufacture an industrialized product ( intermediate  or finished ) and, when it sells the finished  
product, it will charge the IPI tax equivalent of its value added R$10, plus the previous value 
added of R$10, to the wholesaler. Thus, the indus trial establishment will transfer R$20 to the 
Federal Revenue Service, but only after the product is sold.  
2.19.   It is important to note that Article 225 of Decree 7,212/2010 states that "when, during a 
certain period of analysis, from the comparison of debits and credits, a credit balance is found, it 
will be transferred to the next period".27 This means that when the IPI tax credits in a given month 
exceed the IPI tax debits for that month, the excess credits may be carried forward, i.e. used to 
offset IPI obli gations arising in subsequent months.  
2.20.   In cases where, in spite of the carry -forward, the IPI tax debits are lower than the IPI tax 
credits after a 3 -month period, the entity liable for the tax may either use the IPI tax credits in 
question to compensate o ther Federal tax liabilities, or request a re imbursement  of the IPI tax 
credits, within five years of the accrual of the IPI credits.28 The re imbursement  process may take 
from several months to years.29 
The PIS/PASEP and COFINS Contributions  
2.21.   PIS/PASEP and CO FINS are Brazilian Federal contributions that apply to gross revenues 
earned by all types of legal entities. The PIS/PASEP and COFINS contributions are envisaged in 
Article 195 of the Brazilian Federal Constitution30 and regulated through Laws 9,718 of 27 
November 199831 and 10,637 of 30 December 200232, in the case of PIS/PASEP, and Law 10,833 
of 29 December 2003, in the case of COFINS.33 
2.22.   The PIS/PASEP and COFINS contributions are subject, as a general rule, to the non -
cumulative regime.34  
2.23.   The contribution rat es for the non -cumulative regime are, as a general rule, 1.65%35 for 
PIS/PASEP and 7.6%36 for COFINS, for a combined rate of 9.25%, although different rates apply to 
the revenue arising from sales to certain companies, from sales of certain specific products , or 
from the provision of certain services.  
                                                
27 Brazil's response to Panel's question No. 69.  
28 Normative Instruction RF B 1,300 of 20 November 2012, (Normative Instruction RFB 1,300/2012), 
(Exhibit JE -23), Article 21.  
29 The general rule, according to Article 24 of Law 11,457 of 16 March 2007, is that an administrative 
decision must be rendered within not more than three hundred and sixty (360) days from the taxpayer's filing 
of administrative petitions, answers or appeals. Law 11,457 of 16 March 2007, (Law 11,457/2007), (Exhibit 
BRA-103), Artic le 24. See also, i.e. Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 - SP 
(2012/0095341 -6), (Exhibit BRA -104), para. 5.  
30 Brazilian Federal Constitution, (Exhibit BRA -21). 
31 Law 9,718, of 27 November 1998, (Law 9,718/1998), (Exhibit JE -220).  
32 Law 10,637 of 30 December 2002, (Law 10,637/2002), (Exhibits JE -94 and BRA -100).  
33 Law 10,833 of 29 December 2003, (Law 10,833/2003), (Exhibit JE -93). 
34 Brazil's first written submissions, para. 64 (DS472) and para. 28 (DS497).  
35 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 2.  
36 Law 10,833/2003, (Exhibit JE -93), Article 2.  WT/DS472/R • WT/DS497/R  
 
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  2.24.   The taxable base is the taxable legal person's monthly turnover , which is considered to be 
all income earned by the legal entity, regardless of its name or accounting classification.37 In the 
case of a legal enti ty engaged in trade in goods, the taxable base is the gross revenue from the 
total sales recognised for the reporting period, minus the revenue resulting from certain deductible 
items, such as subsidies, capital gains, and cancelled sales.  
2.25.   The taxable per sons are all enterprises that receive revenue from their business activities. A 
legal entity selling a product will charge the amount of PIS/PASEP and COFINS contributions with 
respect to that product to the legal entity buying the product, and will then r emit the amount of 
the contributions to the Government when it pays its PIS/PASEP and COFINS liabilities due on the 
25th day of the subsequent month following the transaction.  
2.26.   Similarly to the IPI tax, the PIS/PASEP and COFINS contributions under the non -cumulative 
regime operate as taxes on value -added, where companies generate credits in relation to their 
purchases of taxed products, which they can offset with debits when paying their PIS/PASEP and 
COFINS liabilities due on the 25th day of the subsequent month following the transaction. The 
system of tax credits ensure that prior -stage PIS/PASEP and COFINS can be deducted at each 
stage of the supply chain.  
2.27.   Tax credits can be generated for the contributions paid with respect to purchases of goods 
for resal e; purchases of goods or services used as inputs for the production of goods or the supply 
of services; any reimbursements linked to cancelled sales; energy, capital lease costs and logistical 
costs; and machinery, equipment and other goods incorporated in to fixed assets (i.e. capital 
goods).38 
2.28.   As in the case of the IPI tax, if a company cannot use all its credits in a given month, 
because they exceed its tax liabilities for that period, the credits can be carried forward for future 
use in subsequent months.39 If after three months the debits are insufficient, the company can 
compensate the credits with other liabilities or ask for reimbursement, within five years of 
generating the credit.40 The reimbursement process can take from several months to years.41 
2.29.   Comp anies whose taxation is based on the “presumed profit method” are subject to the 
cumulative regime .42 The cumulative regime appears to be used by small businesses.43 Under the 
cumulative regime, companies pay a rate of 3.65% (i.e. 0.65% for PIS/PASEP and 3% for 
COFINS) of their gross monthly revenue.  Companies under this regime pay the contributions every 
month on the basis o f their turnover without any offsets resulting from their purchases of goods 
and services for resale or for use in their production proc esses. In other words, there are no tax 
credits corresponding to the PIS/PASEP and COFINS  contributions  paid by upstream economic 
operators, and the system does not focus on the value added by each company in the supply 
chain.44 
The PIS/PASEP -Importation an d COFINS -Importation Contributions  
2.30.   The PIS/PASEP -Importation and COFINS -Importation are the import -focused variants of 
PIS/PASEP and COFINS. They are regulated through Law 10,865 of 30 April 200445 and Normative 
Instructions SRF 594 of 26 December 200546 and RFB 1,401 of 9 October 2013.47 
                                                
37 Law 10,833/2003, (Exhibit JE -93), Article 1; and Law 10,637/2002, (Exhibits JE -94 and BRA -100), 
Article 1.  
38 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 3;  Law 10,833/2003, (Exhibit JE -93), 
Article  3; and Brazil's response to Panel question No. 23.  
39 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 3 §4; and Law 10,833/2003, (Exhibit JE -93), 
Article 3 §4.  
40 Law 10,637/2002, (Exhibit JE -94 and BRA -100), Article 5 §1 and §2; and Law 10,833/2003, (Exhibit 
JE-93), Article 6 §1 and §2.  
41 See, for example, Brazil's first written submissions, paras. 774 -787. 
42 Brazil's first written submission, para. 64.  
43 European Union's first written submission, para. 70.  
44 See Law 9,781 of 27 November 1998, (Law 9,781/1998), (Exhibit JE -220). See also Europ ean Union's 
first written submission, para. 79; and Japan's first written submission, paras. 12 and 13.  
45 Law 10,865 of 30 April 2004, ( Law 10,865/2004), (Exhibit JE -181). WT/DS472/R • WT/DS497/R  
 
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  2.31.    The contribution rates used to be the standard nominal rates of the PIS/PASEP and COFINS 
non-cumulative regime. However, due to an amendment effective as of May 2015, the rates are 
2.1% for PIS/PASEP -Importation and 9.65% fo r COFINS -Importation, for a combined rate of 
11.75%.48 For some categories of products, the applicable rates are higher (e.g. the combined 
rates for pharmaceuticals is 15.79%; for cosmetics 20%; and for tyres 16.56%).49 These 
categories of products also have  higher PIS/PASEP and COFINS contributions rates.  
2.32.   The two contributions apply to individual import transactions and are levied upon 
importation of goods. The taxable base is the customs value of the goods .50 
2.33.   Importers are also subject to the non -cumulative regime, so they can offset the amounts 
paid upon importation with their domestic PIS/PASEP and COFINS liabilities. Thus, importers pay 
the contributions only with respect to added value, i.e. the difference between the customs value 
and the importers' sale s price. The tax credit mechanism with respect to the non -cumulative 
PIS/PASEP and COFINS domestic regime applies equally in the case of importers.  
2.34.   It is important to note that Law 10,865/2004 envisages that the COFINS -Importation 
contribution is increased  by 1% for imports of certain listed goods.51 However, contrary to the 
general rules on non -accumulation, due to an amendment of June 2015 of Law 10,865/2004, the 
additional 1% does not give right to any COFINS credit for importers, so it cannot be deducted  
from their domestic COFINS liabilities.52 
The CIDE Contribution  
2.35.   CIDE is a Brazilian Federal contribution that applies to remittances/royalty payments 
abroad. It is regulated by Law 10,168 of 19 December 2000.53 
2.36.   The tax rate is 10%.54 The taxable persons are legal entities holding a license of use or 
acquiring technological knowledge, as well as those entering into agreements that imply 
technological transfer, made with persons residing or domiciled abroad. It is also payable by legal 
entities entering into ag reements aimed at technical and administrative assistance services and 
similar services to be provided by persons residing or domiciled abroad, as well as by legal entities 
which pay, credit, deliver, use or remit royalties on any ground whatsoever to bene ficiaries 
residing or domiciled abroad. The contribution does not apply to compensation for license of use or 
rights for marketing or distribution of computer software, unless they involve the transfer of a 
relevant technology license. The basis of calcula tion is the amount paid, credited, delivered, used 
or remitted every month, to persons residing or domiciled abroad.55 
                                                                                                                                                  
46 Normative Instruction SRF 594 of 26 December 2005, ( Normative Instruction SRF 594/2005),  (Exhibit 
JE-219).  
47 Normative Instruction RFB 1,401 of 9 October 2013, (Normative Instruction RFB 1,401/2013), 
(Exhibit JE -201).  
48 Law 10,865/2004, (Exhibit JE -181), Article 8, as amended by Provisional Measure 668 of 30 January 
2015, (Provisional Measure 668/2015), (Exhibit JE -189), Article 1; and Law 13,137 of 19 June 2015, 
(Law 13,137/2015), (Exhibit JE -200), Article 1.  
49 Law 10,865/2004, (Exhibit JE -181), Artic le 8, as amended by Provisional Measure 668/2015, (Exhibit 
JE-189), Article 1; and Law 13,137/2015, (Exhibit JE -200), Article 1.  
50 Normative Instruction RFB 1,401/2013, (Exhibit JE -201), Article 1(II).  
51 Law 10,865/2004, (Exhibit JE -181), Article 8 §21. Th e list of goods is set out in the Annex to Law 
12,546/2011, (Exhibit JE -199).  
52 Law 10,865/2004, (Exhibit JE -181), Article 15 §1 -A, as amended by Law 13,137/2015, (Exhibit JE -
200), Article 1.  
53 Law 10,168 of 19 December 2000, (Law 10,168/2000), (Exhibit J E-222).  
54 Law 10,168 /2000, (Exhibit JE -222), Article 2 §4.  
55 Law 10,168/2000, (Exhibit JE -222), Article 2.  WT/DS472/R • WT/DS497/R  
 
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  2.2  The measures at issue  
2.37.   The claims brought by the European Union and Japan concern certain tax treatment 
established under the following pro grammes56: 
a. The Informatics programme;  
b. The programme of Incentives for the Semiconductors Sector ( Programa de Incentivos ao 
Setor de Semicondutores ), hereinafter the PADIS programme;  
c. The programme of Support for the Technological Development of the Industry  of Digital 
TV Equipment ( Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de 
Equipamentos para TV Digital ), hereinafter the PATVD programme;  
d. The programme for Digital Inclusion ( Inclusão Digital ), hereinafter the Digital Inclusion 
programme;   
e. The programme of Incentive to the Technological Innovation and Densification of the 
Automotive Supply Chain ( Programa de Incentivo à Inovação Tecnológica e 
Adensamento da Cadeia Produtiva de Veículos Automotores ), hereinafter the INOVAR -
AUTO programme;  
f. The regime for predominantly exporting companies, hereinafter the PEC programme; 
and 
g. The Special Regime for the Purchase of Capital Goods for Exporting Enterprises ( Regime 
Especial de Aquisição de Bens de Capital para Empresas Exportadoras ), hereinafter the  
RECAP programme.  
2.38.   The European Union's and Japan's respective panel requests state that these programmes 
"[are] set up and implemented"57, "established and administered"58 "through the following 
[instruments] ….as well as any amendments or extensions, any re placement measures, any 
renewal measures, any implementing measures, and [any] other related measures"59: 
The INFORMATICS programme  
 
a. Law 8,248 of 23 October 199160;  
b. Law 10,176 of 11 January 200161; 
c. Law 10,637  of 30 December  200262; 
d. Law 13,023 of 8 August 201463;  
e. Decree 5,906 of 26 September 200664;  
f. Decree 6,759 of 5 February 2009 (final and transitional provisions), as amended by 
subsequent acts65;  
                                                
56 For ease of reference, the Panel will refer to Informatics, PADIS, PATVD, Digital Inclusion, INOVAR -
AUTO, PEC and RECAP as "programmes". The Pan el notes, however, that in the Portuguese version the term 
"programme" is only used in respect to PADIS, PATVD, Digital Inclusion and INOVAR -AUTO.  
57 European Union's request for the establishment of a panel.  
58 Japan's request for the establishment of a pan el. 
59 European Union's and Japan's requests for the establishment of a panel.  
60 Law 8,248 of 23 October 1991, (Law 8,248/1991), (Exhibit JE -1). 
61 Law 10,176 of 11 January 2001, (Law 10,176/2001).  
62 Law 10,637/2002, (Exhibits JE -94 and BRA -100). Only in Ja pan's request for the establishment of a 
panel.  
63 Law 13,023 of 8 August 2014, (Law 13,023/2014), (Exhibit JE -2). Only in Japan's request for the 
establishment of a panel.  
64 Decree 5,906 of 26 September 2006, (Decree 5,906/2006), (Exhibit JE -7). WT/DS472/R • WT/DS497/R  
 
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  g. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section II)66; 
h. Decree 8,010  of 16 May 201367; 
i. Interministerial  Implementing Order MDIC/MCTI 177 of 18 October 200268; 
j. Implementing Order MCT 950 of 12 December 200669; 
k. Interministerial Implementing Order MCTI/MDIC/MF 148 of 19 March 200770; 
l. Interministerial Implementing Order MCTI/MDIC 685 of 25 October 200771; 
m. Intermini sterial Implementing Order MDIC/MCT 170 of 4 August 201072; 
n. Implementing Order MDIC 267 of 30 August 201373; 
o. Interministerial Implementing Order SDP/MDIC 1 of 18 September 201374; 
p. Implementing Order MCT 1,309 of 19 December 201375; 
q. Interministerial Implementin g Order MCTI/MDIC 202 of 13 February 201476; 
r. Implementing Orders adopting Basic Production Processes ("PPBs") pursuant to the 
provisions of the above mentioned instruments; and  
s. Accreditations ( habilitações ) granted pursuant to the Informatics programme.  
The PADIS programme  
 
a. Law 11,484 of 31 May 200777;  
b. Decree 6,233 of 11 October 200778;  
c. Decree 8,247  of 23 May 201479; 
d. Normative Instruction RFB 852 of 13 June 200880; 
                                                                                                                                                  
65 Decree 6 ,759 of 5 February 2009, (Decree 6,759/2009), (Exhibit JE -8). 
66 Decree 7,212/2010, (Exhibit JE -9). 
67 Decree 8,010 of 16 May 2013, (Decree 8,010/2013). Only in Japan's request for the establishment of 
a panel.  
68 Interministerial Implementing Order MDIC/MCTI  177 of 18 October 2002, (Interministerial 
Implementing Order MDIC/MCTI 177/2002), (Exhibit JE -18). 
69 Implementing Order MCT 950 of 12 December 2006, (Implementing Order MCT 950/2006), (Exhibit 
JE-22). 
70 Interministerial Implementing Order MF/MCT/MDIC 148 of 19 March 2007, (Interministerial 
Implementing Order MF/MCT/MDIC 148/2007), (Exhibit JE -21). 
71 Interministerial Implementing Order MDIC/MCT 685 of 25 October 2007, (Interministerial 
Implementing Order MDIC/MCT 685/2007), (Exhibit JE -20). 
72 Interministeri al Implementing Order MDIC/MCT 170 of 4 August 2010, (Interministerial Implementing 
Order MDIC/MCT 170/2010), (Exhibit JE -17). 
73 Implementing Order MDIC 267 of 30 August 2013, (Implementing Order MDIC 267/2013), (Exhibit 
JE-13). 
74 Interministerial Implemen ting Order SDP/MDIC 1 of 18 September 2013, (Interministerial 
Implementing Order SDP/MDIC 1/2013), (Exhibit JE -16). 
75 Implementing Order MCT 1,309 of 19 December 2013, (Implementing Order MCT 1,309/2013), 
(Exhibit JE -15). 
76 Interministerial Implementing Or der MDIC/MCT 202 of 13 February 2014, (Interministerial 
Implementing Order MDIC/MCT 202/2014), (Exhibit JE -12). 
77 Law 11,484 of 31 May 2007, (Law 11,484/2007), (Exhibit JE -71). 
78 Decree 6,233 of 11 October 2007, (Decree 6,233/2007), (Exhibit JE -73). 
79 Decree 8,247 of 23 May 2014, (Decree 8,247/2014), (Exhibit JE -75). Only in Japan's request for the 
establishment of a panel.  WT/DS472/R • WT/DS497/R  
 
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  e. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section III)81; 
f. Decree 6,759 of 5 February 2 009 (especially Book III, Title II, Chapter VII, Section VII), 
as amended by subsequent acts82; 
g. Interministerial Implementing Order MCT/MDIC/MF 297 of 13 May 2008 establishing the 
procedures and deadline for analysis of the PADIS implementing Decree 6,233 o f 11 
October 2007 (GTI -PADIS)83; 
h. Interministerial Implementing Order MCT/MDIC 290/200884; 
i. Implementing Orders establishing PPBs applicable under PADIS; and  
j. Accreditations ( habilitações ) granted pursuant to the PADIS programme.  
The PATVD programme  
 
a. Law 11,484  of 31 May 200785; 
b. Decree 6,234 of 11 October 200786;  
c. Normative Instruction RFB 853 of 13 June 200887; 
d. Decree 7,212 of 15 June 2010 (especially Chapter VI, Section IV)88; 
e. Decree 6,759 of 5 February 2009 (especially Book III, Title II, Chapter VII, Section 
VIII)89; 
f. Interministerial Implementing Order MCT/MDIC 291 of 7 May 200890; 
g. Implementing Orders establishing PPBs applicable under PATVD; and  
h. Accreditations ( habilitações ) granted pursuant to the PATVD programme.  
The DIGITAL INCLUSION programme  
 
a. Law 11,196 of 21  November 200591;  
b. Law 12,507 of 11 October 201192; 
c. Law 12,715 of 17 September 201293; 
                                                                                                                                                  
80 Normative Instruction RFB 852 of 13 June 2008, (Normative Instruction RFB 852/2008), (Exhibit JE -
76). 
81 Decree 7,212/2010, (Exhibit J E-9). 
82 Decree 6,759/2009, (Exhibit JE -8). 
83 Interministerial Implementing Order MCT/MDIC/MF 297 of 13 May 2008, (Interministerial 
Implementing Order MCT/MDIC/MF 297/2008), (Exhibit JE -77). Only in Japan's request for the establishment 
of a panel.  
84 Interm inisterial Implementing Order MCT/MDIC 290 of 7 May 2008, (Interministerial Implementing 
Order MCT/MDIC 290/2008), (Exhibit JE -78). Only in Japan's request for the establishment of a panel.  
85 Law 11,484/2007, (Exhibit JE -71). 
86 Decree 6,234 of 11 October 2 007, (Decree 6,234/2007), (Exhibit JE -85). 
87 Normative Instruction RFB 853 of 13 June 2008, (Normative Instruction RFB 853/2008), (Exhibit JE -
86). 
88 Decree 7,212/2010, (Exhibit JE -9). 
89 Decree 6,759/2009, (Exhibit JE -8). 
90 Interministerial Implementing Ord er MCT/MDIC 291 of 7 May 2008, (Interministerial Implementing 
Order MCT/MDIC 291/2008), (Exhibit JE -88). Only in Japan's request for the establishment of a panel.  
91 Law 11,196 of 21 November 2005, (Law 11,196/2005), (Exhibit JE -91). 
92 Law 12,507 of 11 Octo ber 2011, (Law 12,507/2011). Only in Japan's request for the establishment of 
a panel  WT/DS472/R • WT/DS497/R  
 
- 31 - 
 
  d. Law 13,097 of 19 January 201594; 
e. Decree 5,602 of 6 December 200595;  
f. Implementing Order MC 87 of 10 April 201396; 
g. Implementing Order STE 2 of 26 August 201397; and  
h. Other Implem enting Orders establishing PPBs applicable under the Digital Inclusion 
programme.  
The INOVAR -AUTO programme  
 
a. Law 12,546 of 14 December 201198;  
b. Law 12,715 of 17 September 201299;  
c. Law 12,844 of 19 July 2013100; 
d. Law 12,996 of 18 June 2014101; 
e. Decree 7,819 of 3 Oc tober 2012102;  
f. Decree 8,015 of 17 May 2013103; 
g. Decree 8,294 of 12 August 2014104; 
h. Implementing Order MCTI 296 of 1 April 2013105; 
i. Implementing Order MDIC 106 of 11 April 2013106; 
j. Implementing Order MDIC 113 of 15 April 2013107; 
k. Interministerial Implementing Order MCT I/MDIC 772 of 12 August 2013108; 
l. Implementing Order MDIC 280 of 4 September 2013109;  
                                                                                                                                                  
93 Law 12,715 of 17 September 2012, (Law 12,715/2012), (Exhibit JE -95). Only in Japan's request for 
the establishment of a panel.  
94 Law 13,097 of 19 January 2015, (Law 13, 097/2015), (Exhibit JE -92). Only in Japan's request for the 
establishment of a panel.  
95 Decree 5,602 of 6 December 2005, (Decree 5,602/2005), (Exhibit JE -97). 
96 Implementing Order MC 87 of 10 April 2013, (Implementing Order MC 87/2013), (Exhibit JE -100).  
97 Implementing Order STE 2 of 26 August 2013, (Implementing Order STE 2/2013), (Exhibit JE -99). 
98 Law 12,546/2011, (Exhibit JE -199).  
99 Law 12,715/2012, (Exhibit JE -95). 
100 Law 12,844 of 19 July 2013, (Law 12,844/2013). Only in Japan's request for the establi shment of a 
panel.  
101 Law 12,996 of 18 June 2014, (Law 12,996/2014). Only in Japan's request for the establishment of a 
panel.  
102 Decree 7,819 of 3 October 2012, (Decree 7,819/2012), (Exhibit JE -132).  
103 Decree 8,015 of 17 May 2013, (Decree 8,015/2013), (Exh ibit JE -133).  
104 Decree 8,294 of 12 August 2014, (Decree 8,294/2014), (Exhibit JE -134).  
105 Implementing Order MCTI 296 of 1 April 2013, (Implementing Order MCTI 296/2013), (Exhibit JE -
178).  
106 Implementing Order MDIC 106 of 11 April 2013, (Implementing Order MDIC 106/2013), (Exhibit JE -
176).  
107 Implementing Order MDIC 113 of 15 April 2013, (Implementing Order MDIC 113/2013), (Exhibit JE -
154).  
108 Interministerial Implementing Order MCTI/MDIC 772 of 12 August 2013, (Interministerial 
Implementing Order MCTI/MDIC 77 2/2013), (Exhibit JE -175).  WT/DS472/R • WT/DS497/R  
 
- 32 - 
 
  m. Implementing Order MDIC 297 of 30 September 2013110; 
n. Implementing Order MDIC 257 of 23 September 2014111; 
o. Implementing Order MDIC 290 of 14 November 2014112; 
p.  Implementing Order MD IC 318 of 26 December 2014113; 
q. ICMS Convention 38 of 22 May 2013114; 
r. SINIEF Convention of 15 December 1970115; 
s. Accreditations ( habilitações ) granted pursuant to the INOVAR -AUTO programme; and  
t. Terms of Commitment ( termos de compromisso ) signed by accredited compa nies. 
The PEC programme  
 
a. Law 10,637 of 30 December 2002116;  
b. Law 10,865 of 30 April 2004117;  
c. Law 12,715 of 17 September 2012118; 
d. Decree 6,759 of 5 February 2009 (especially Book III, Title I, Chapter VII, and Book III, 
Title II, Chapter VII, Section V)119; 
e. Normat ive Instruction SRF 595 of 27 December 2005120;  
f. Normative Instruction RFB 948 of 15 June 2009121;  
g. Normative Instruction RFB 1,424 of 19 December 2013122; and  
h. Accreditations ( habilitações ) or registration ( registro ) of individual "predominantly 
exporting compan ies" pursuant to the scheme.  
The RECAP programme  
 
                                                                                                                                                  
109 Implementing Order MDIC 280 of 4 September 2013, (Implementing Order MDIC 280/2013), 
(Exhibit JE -177).  
110 Implementing Order MDIC 297 of 30 September 2013, (Implementing Order MDIC 297/2013), 
(Exhibit JE -179).  
111 Implementing Ord er MDIC 257 of 23 September 2014, (Implementing Order MDIC 257/2014), 
(Exhibit JE -158).  Only in Japan's request for the establishment of a panel.  
112 Implementing Order MDIC 290 of 14 November 2014, (Implementing Order MDIC 290/2014), 
(Exhibit JE -157). Only  in Japan's request for the establishment of a panel.  
113 Implementing Order MDIC 318 of 26 December 2014, (Implementing Order MDIC 318/2014). Only in 
Japan's request for the establishment of a panel.  
114 ICMS Convention 38 of 22 May 2013, (ICMS Convention 38/ 2013), (Exhibit JE -160). Only in Japan's 
request for the establishment of a panel.  
115 SINIEF Convention of 15 December 1970, (SINIEF Convention 1970), (Exhibit JE -159). Only in 
Japan's request for the establishment of a panel.   
116 Law 10,637/2002, (Exhibits JE-94 and BRA -100).  
117 Law 10,865/2004, (Exhibit JE -181).  
118 Law 12,715/2012, (Exhibit JE -95). Only in Japan's request for the establishment of a panel.  
119 Decree 6,759/2009, (Exhibit JE -8). 
120 Normative Instruction SRF 595 of 27 December 2005, (Normative Ins truction SRF 595/2005), 
(Exhibit JE -193).  
121 Normative Instruction RFB 948 of 15 June 2009, (Normative Instruction RFB 948/2009), (Exhibit JE -
191).  
122 Normative Instruction RFB 1,424 of 19 December 2013, (Normative Instruction RFB 1,424/2013), 
(Exhibit JE -192). Only in Japan's request for the establishment of a panel.  WT/DS472/R • WT/DS497/R  
 
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  a. Law 11,196 of 25 November 2005123;  
b. Law 12,715 of 17 September 2012124; 
c. Decree 5,649 of 29 December 2005125;  
d. Decree 5,789 of 25 May 2006126;  
e. Decree 6,759 of 5 February 2009 (especially Book III, Title II, Chapter  VII, 
Section  IV)127; 
f. Normative Instruction SRF 605 of 4 January 2006128; and  
g. Accreditations ( habilitações ) granted pursuant to the RECAP programme.  
2.2.1   The Informatics programme  
2.2.1.1   Introduction  
2.39.   The Informatics programme provides for exemptions and reductions on the applicable Tax 
on Industrialised Products (IPI tax) on the sale of information technology goods. It also provides 
for suspensions of the IPI tax on the purchase or import of raw materials, intermediate goods and 
packaging materials used in the production o f information technology and automation goods 
incentivised under the Informatics programme.  
2.40.   The relevant tax exemptions, reductions and suspensions provided for in the Informatics 
programme entered into force in October 1991 and are due to expire on 31 Dec ember 2029.129 
2.2.1.2   Tax treatment  
2.41.   The Informatics programme provides for the following exemptions and reductions on the IPI 
tax on information technology and automation goods:  
a. 95% reduction until 31 December 2024, 90% reduction until 31 December 2026 and 
85% redu ction until 31 December 2029, for goods produced in Central -West Region and 
in the regions of influence of the Superintendence for the Development of Amazonia 
(SUDAM) and the Superintendence for the Development of the Northeast (SUDENE)130; 
and  
b. 80% reductio n until 31 December 2024, 75% reduction until 31 December 2026, and 
70% reduction until 31 December 2029, for goods produced in other locations in 
Brazil.131 
2.42.   The Informatics programme provides for specific reduction rates for portable 
microcomputers and smal l-capacity digital processing units based on microprocessors valued at no 
more than R$11,000.00; magnetic optical disk units; printed circuits with assembled electrical and 
electronic components; cabinets; and power sources that are recognizable as exclusi vely or 
primary designed for such equipment:  
                                                
123 Law 11,196/2005, (Exhibit JE -182).  
124 Law 12,715/2012, (Exhibit JE -95). Only in Japan's request for the establishment of a panel.  
125 Decree 5,649 of 29 December 2005, (Decree 5,649/2005), (Exhib it JE-187).  
126 Decree 5,789 of 25 May 2006, (Decree 5,789/2006), (Exhibit JE -188).  
127 Decree 6,759/2009, (Exhibit JE -8). 
128 Normative Instruction SRF 605 of 4 January 2006, (Normative Instruction SRF 605/2006), (Exhibit 
JE-195).  
129 Law 8,248/1991, (Exhibit JE -1); as amended by Law 13,023/2014, (Exhibit JE -2). 
130 Law 8,248/1991, (Exhibit JE -1), Article 4 §1D and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 4.  
131 Law 8,248/1991, (Exhibit JE -1), Article  4 §1A and §7; as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 4.  WT/DS472/R • WT/DS497/R  
 
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  a. Full exemption until 31 December 2024, 95% reduction until 31 December 2026 and 
85% reduction until 31 December 2029, for goods produced in Central -West Region and 
in the regions of influence of SUDAM and SUDENE132; and  
b. 95% reduction until 31 December 2024, 90% reduction until 31 December 2026, and 
70% reduction until 31 December 2029, for goods produced in other locations in 
Brazil.133 
2.43.   The following specific IPI tax reductions apply to information technology and aut omation 
goods that have additionally obtained the status of "developed in Brazil":  
a. 100% reduction until 31 December 2024, 95% reduction until 31 December 2026 and 
90% reduction until 31 December 2029134; and  
b. Full exemption until 31 December 2024, 95% reducti on until 31 December 2026 and 
85% reduction until 31 December 2029, for goods produced in Central -West Region and 
in the regions of influence of SUDAM and SUDENE.135  
2.44.   The Informatics programme also provides for IPI suspensions on raw materials, 
intermediate goods and packaging materials used in the production of information technology and 
automation goods incentivised under the Informatics programme, applied at the time that the raw 
materials, intermediate goods and packaging materials are released from the i ndustrial 
establishment.  
2.45.   The suspension is subject to the condition that more than 60% of the company's total gross 
revenue be derived from the sale of products covered by the Informatics programme.136 The 
suspension expires, and the IPI tax becomes definit ely non -due, with the export or domestic sale 
of products in which raw materials, intermediate goods and packaging materials purchased with 
suspended IPI tax have been used.137  
2.2.1.3   Product coverage  
2.46.   The following categories of information technology and automati on goods are covered under 
the Informatics programme:  
a. Semiconductor electronic components, optoelectronics, and their respective electronic 
inputs;  
b. Machines, equipment, and devices based on digital technology that function to collect, 
treat, structure, sto re, switch, transmit, recover, or present information, and their 
respective electronic inputs, parts, pieces, and physical support for operation;  
c. Programs for computers, machines, equipment, and devices for treating information, and 
their respective techni cal documentation (software);  
d. Technical services related to goods and services described in paragraphs (a), (b) and (c) 
above;  
e. Landline telephone apparatuses, with a wireless received -microphone that incorporates a 
digital control, Code 8517.11.00 of the M ercosur Common Nomenclature (MCN);  
                                                
132 Law 8,248/1991, (Exhibit JE -1), Article 4 §1E and §5; as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/20 06, (Exhibit JE -7), Article 3.  
133 Law 8,248/1991, (Exhibit JE -1), Article 4 §1E and §5; as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 3.  
134 Law 8,248/1991, (Exhibit JE -1), Article 4 §7; as amended by  Law 13,023/2014, (Exhibit JE -2), 
Article  1; and Decree  5,906/2006, (Exhibit JE -7), Article 4.  
135 Law 8,248/1991, (Exhibit JE -1), Article 4 §1E and §5; as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 3.  
136 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29  §2. 
137 Normative Instruction RFB 948/2009, (Exhibit JE -191), Articles 19 -20. WT/DS472/R • WT/DS497/R  
 
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  f. Portable terminals for cellular telephony, Code 8517.12.31 of the MCN; and  
g. Video output units (monitors) classified in Sub -positions 8528.41 and 8528.51 of the 
MCN, without interfaces and circuitry for receiving radio fre quency signals or even 
composite video, suitable for operating with machinery, equipment, or devices based on 
digital technique, of Position 8471 of the MCN (with functions for collecting, treating, 
structuring, storing, switching, transmitting, recovering  or presenting information).138 
2.47.   The specific list of products falling under these categories, identified according to their MCN 
codes, as well as a list of goods excluded from the Informatics programme, is provided in 
Annexes  I and II of Decree 5,906/2006.139 
2.2.1.4   Eligible companies  
2.48.   The eligible companies under the Informatics programme are companies that (i)  develop or 
produce information technology and automation goods and services in compliance with the 
relevant Basic Productive Processes (PPBs), and (ii)  invest in information technology research and 
development activities in Brazil.140 
2.2.1.5   Requirements for obtaining the tax treatment  
2.49.   In order to obtain the tax exemptions, reductions and suspensions provided for in the 
Informatics programme, companies manufacturing the relevant information technology and 
automation goods and/or purchasing/importing the relevant raw materials, intermediate goods 
and packaging materials used in the production of the incentivised products, must obtain an 
accreditation.  
2.50.   Companies can get ac credited by submitting an application to the Ministry of Science, 
Technology and Innovation (MCTI). The application must include a project proposal containing, 
among other information: (a) the products to be manufactured; (b) the research and development 
plan prepared by the company; (c) proof that the company will adhere to the relevant PPBs; and 
(d) evidence, when appropriate, that the products satisfy the requirement of having been 
developed in Brazil.141 
2.51.   Once accreditation is obtained, accredited companie s shall report to the Executive Branch 
annually on their compliance with their R&D obligations during the previous year. If the 
requirements are not fulfilled or the reports are not approved, accreditation may be suspended, 
without prejudice to the company  being required to reimburse the amounts previously reduced or 
exempted, updated and increased by monetary penalties applicable to fiscal debts related to the 
taxes of the same nature.142 
2.2.1.5.1   Investment in Research and Development (R&D)  
2.52.   Companies must invest ann ually in R&D on information and automation technology to be 
conducted in Brazil a percentage of their gross sales on the internal market resulting from 
commercialization of incentivized information technology goods and services, after deduction of 
taxes le vied in connection with those sales, as well as deduction of the value of the purchases of 
products entitled to an exemption or reduction of the IPI tax. Under the Informatics Law, the 
original minimum percentage of a company's gross revenue obtained with the sales of IT products 
in the domestic market that had to be invested in R&D was 5%, subject to gradual reductions.143 
                                                
138 Law 8,248/1991, (Exhibit JE -1), Article 16A; and Decree 5,906/2006, (Exhibit JE -7), Article 2  
139 Decree 5,906/2006,  (Exhibit JE -7), Annexes I and II.  
140 Law 8,248/1991, (Exhibit JE -1), Article 4; and Decree 5,906/2006, (Exhibit JE -7), Article 1.  
141 Decree 5,906/2006, (Exhibit JE -7), Article 22.  
142 Law 8,248/1991, (Exhibit JE -1), Articles 9 and 11 §9, as amended by  
143 Law 8 ,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  WT/DS472/R • WT/DS497/R  
 
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  2.53.   At the time of the establishment of the panel, one such reduction was already in force. The 
percentage was reduced by 20% from 1 January 2004 until 31 December 2029.144 In the case of 
goods produced in the Central -West Region and the regions of influence of SUDAM and SUDENE, 
the percentage was reduced by 13% from 1 January 2004 until 31 December 2029.145  
2.54.   Thus, accredited companies have to inve st at least 4% of their gross revenue in R&D,146 and 
at least 4.35% if investments are related to the sales of ICT products produced in the Mid -west, 
North (SUDAM) and Northeast (SUDENE) regions.147 
2.55.   The 4% investment is broken down into two parts: the first co rresponding to 1.84%148, and 
the second corresponding to 2.16%149, of the company's gross revenue obtained with the sales of 
IT products in the domestic market . 
2.56.   The share of 1.84% must be invested as follows:150 
a. At least 0.8% by means of conventions signed with research centres or Brazilian 
educational entities accredited with the MCTI's Committee of Technology and 
Information (CATI)151; 
b. At least 0.64% by means of conventions with research centres or Brazilian educational 
entities accredited with the CATI and locat ed in the Mid-west, North (SUDAM) and 
Northeast (SUDENE) regions .152 At least 30% of that amount must be invested in 
universities, colleges, educational entities and research centres or institutes created or 
maintained by Federal, State or District authoriti es located in such regions153; 
c. At least 0.4% as financial resources quarterly deposited in the National Science and 
Technology Development Fund (FNDCT).154 
2.57.   Up to two -thirds of the remaining 2.16% share can be invested as financial resources in the 
Assistance P rogram for Development of the Information Technology Sector.155 
2.58.   In turn, the 4.35 % investment is broken down into two parts: the first corresponding to 
2.001%156, and the second corresponding to 2.349%157, of the company's gross revenue  obtained 
with the sales i n the domestic market of IT products produced in the Mid -west, North (SUDAM) 
and Northeast (SUDENE) regions . 
                                                
144 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
145 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
146 Law 8,248/1991, (Exhibit JE-1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
147 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and D ecree 5,906/2006, (Exhibit JE -7), Article 8.  
148 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
149 Law 8,248/1991, (Exhibit JE -1), Article 11 § 6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Articles 8 and 10.  
150 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,90 6/2006, (Exhibit JE -7), Article 8.  
151 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
152 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, a s amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
153 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
154 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
155 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13, 023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Articles 8 and 10.  
156 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8. 
157 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Articles 8 and 10.  WT/DS472/R • WT/DS497/R  
 
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  2.59.   The share of 2.001% must be invested as follows:158 
a. At least 0.87% by means of conventions signed with research centres or Brazilian 
educational enti ties accredited with the CATI159; 
b. At least 0.696% by means of conventions with research centres or Brazilian educational 
entities accredited with the CATI and located in the Mid-west, North (SUDAM) and 
Northeast (SUDENE) regions .160 At least 30% of that amount  must be invested in 
universities, colleges, educational entities and research centres created or maintained by 
Federal, District or State Authorities located in such regions161; 
c. At least 0.435% as financial resources quarterly deposited in the FNDCT162; 
d. Up to  two-thirds of the remaining 2.349% share can be invested as financial resources in 
the Assistance Program for Development of the Information Technology Sector.163 
2.60.   The percentages were also reduced by 25% for accredited companies that produce portable 
microc omputers and small -capacity digital processing units based on microprocessors valued at no 
more than R$11,000.00; magnetic optical disk units; printed circuits with assembled electrical and 
electronic components; cabinets; and power sources that are recogn izable as exclusively or 
primarily designed for such equipment; and calculated exclusively on gross sales derived from the 
commercialization of those products in the domestic market.164 
2.2.1.5.2   Compliance with Basic Productive Processes (PPBs)  
2.61.   Companies must produce  the information technology and automation goods in accordance 
with the terms of particular product -specific PPBs165, which set out the necessary production steps 
or minimum set of operations to be carried out in Brazil.  
2.62.   A PPB is defined as the minimum set of operations performed at a manufacturing facility 
that characterizes the actual industrialization of a given product.166 Thus, PPBs indicate the 
minimum stages or steps of the manufacturing process of a product that must be performed in 
Brazil.  
2.63.   Some PPBs also require that specific components, parts and pieces used in the production of 
the information technology and automation good be produced, in a specific percentage, in 
accordance with their own respective PPBs. Other PPBs require a percentage of local a ssembly for 
specific components, parts and pieces.  
2.64.   The PPBs are established by product or groups of products in individual Implementing 
Orders ( Portarias) .  
                                                
158 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/ 2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
159 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
160 Law 8,2 48/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
161 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
162 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
163 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and Decree 5,906/2006, (Exhibit JE -7), Article 10.  
164 Law 8,248/1991, (Exhibit JE -1), Article 11 §6 and §7, as amended by Law 13,023/2014, (Exhibit JE -
2), Article 1; and De cree 5,906/2006, (Exhibit JE -7), Article 8.  
165 Implementing Orders establishing or amending PPBs include the following exhibits: Exhibit JE -25, 
Exhibit JE -26, Exhibit JE -27, Exhibit JE -28, Exhibit JE -29, Exhibit JE -30, Exhibit JE -31, Exhibit JE -32, Exhibit 
JE-33, Exhibit JE -34, Exhibit JE -35, Exhibit JE -36, Exhibit JE -37, Exhibit JE -38, Exhibit JE -39, Exhibit JE -40, 
Exhibit JE -41, Exhibit JE -42, Exhibit JE -43, Exhibit JE -44, Exhibit JE -45, Exhibit JE -46, Exhibit JE -66, Exhibit 
BRA-28, Exhibit BRA -29, Exhibit  BRA-30, Exhibit BRA -31, and Exhibit BRA -116. 
166 Decree 5,906/2006, (Exhibit JE -7), Article 16.  WT/DS472/R • WT/DS497/R  
 
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  2.65.   For a PPB to be established, an interested company or group of companies must submit a 
request for  the establishment of a PPB with respect to a specific product or group of products.167 
The request shall be examined by an inter -ministerial technical group (GT -PPB) composed by 
representatives of the MCTI and the Ministry of Development, Industry and Trade  (MDIC).168 The 
GT-PPB shall make a project proposal based on the information provided in the request and 
technical visits made to the company; it shall subject the proposal to public consultation for 15 
days; and shall submit its technical opinion and recom mendation to the MDIC and the MCTI.169 The 
MDIC and the MCTI must then issue an interministerial implementing order approving or refusing 
the PPB within 120 days from the date of submission of the request by the company.170  
2.66.   Although the PPBs are established w ith respect to a specific product or group of products 
upon request of a company, once established the PPBs shall apply to all companies with respect to 
that specific product or group of products.  
2.2.1.5.3   Status of goods "developed in Brazil"  
2.67.   Products that have o btained the status of "developed in Brazil" are subject to additional tax 
reductions.  
2.68.   Two requirements must be met in order for information technology and automation goods to 
be considered "developed in Brazil":  
a. Products must comply with the specification s, rules and standards laid out in Brazilian 
legislation; and  
b. The specifications, projects and developments must have been carried out in Brazil by 
technicians of proven skill in such activities who are residents and domiciled in Brazil.171 
2.69.   Applications for the status of "developed in Brazil" must be addressed to the MCTI.  
2.2.1.6   Related memorandum  
2.70.   No related memorandum is found on the record.  
2.2.2   The PADIS programme  
2.2.2.1   Introduction  
2.71.   The PADIS programme exempts (through zero rates) accredited companies from paying 
certain taxes with respect to semiconductors and information displays (displays), as well as inputs, 
tools, equipment, machinery, and software for the production of semiconductors and displays 
("production goods").  
                                                
167 The application must contain information about the company, the product, including main inputs or 
components, market shares, investments, job and production. S ee Interministerial Implementing 
Order  MDIC/MCT 170/2010, (Exhibit JE -17), Articles 1, 3, 4 and 5, and Annex 1.  
168 According to Article 6 of Interministerial Implementing Order  MDIC/MCT 170/2010, (Exhibit JE -17), 
the GT -PPB will assess the application on th e basis of the following criteria: (i) inter -regional equilibrium must 
be sought, avoiding the relocation of industry from regions where the good in question is traditionally 
manufactured or the simple transfer of industrial plants operated by the requesti ng undertaking and that are 
already established in Brazil; (ii) addition of national value to the production, by attracting investments which 
will effectively generate an increase in levels of productivity and competitiveness, incorporate state -of-the-art 
product technologies and production processes and enable the training and qualification of human resources in 
scientific and technological development; (iii) contribution to attaining the macro -objectives contained in the 
Productive Development Policy (PDP ) and future government policies that promote scientific and technological 
development; and (iv) increased job creation in the region concerned.  
169 Interministerial Implementing Order  MDIC/MCT 170/2010, (Exhibit JE -17), Articles 4 and 11.  
170 Law 8,248/1991,  (Exhibit JE -1), Article 4, §2; and Interministerial Implementing 
Order  MDIC/MCT  170/2010, (Exhibit JE -17), Articles 12 and 13.  
171 Implementing Order  MCT 950/2006, (Exhibit JE -22), Article 1; and Implementing Order  
MCT 1,309/2013, (Exhibit JE -15), Article 1 . WT/DS472/R • WT/DS497/R  
 
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  2.72.   The tax exemptions (through zero rates) provided  for in the PADIS programme entered into 
force in 2007 and are in effect until 22 January 2022.172 
2.2.2.2   Tax treatment  
2.73.   Pursuant to the PADIS programme, the following tax rates shall be reduced to zero:  
a. For imports or sales in the Brazilian market of machinery, app aratus, instruments, 
equipment, computation tools (software) and inputs used in certain activities provided 
that they are incorporated into fixed assets of the companies accredited under the PADIS 
programme that purchase/ import them173:  
i. Social Integration Programme (PIS) and Civil Service Asset Formation Programme 
(PASEP) contributions and the Contribution to Social Security Financing (COFINS) 
contributions levied on the revenues of the seller when goods are purchased by 
companies accredited under the PADIS  programme174; 
ii. PIS/PASEP -Importation and COFINS -Importation contributions levied on imports by 
companies accredited under the PADIS programme175; 
iii. IPI tax levied on imported or domestic goods when imported or purchased in the 
Brazilian market by companies accre dited under the PADIS programme176; and  
iv. CIDE contributions on remittances sent abroad by companies accredited under the 
PADIS programme  to pay for the use of patents or trademarks and for the provision 
of technology and technical assistance related to the ab ovementioned activities.177 
v. Import tax on machinery, apparatus, instruments, equipment, computation tools 
(software) to be incorporated into the companies accredited under the PADIS 
programme  as well as on raw materials and inputs might also be reduced to ze ro 
when the importer is a company accredited under the PADIS programme.178 
b. For sales of semiconductor electronic devices, information displays and inputs and 
equipment intended for the manufacture of electronic semiconductor devices and 
information displays by companies accredited under the PADIS programme in the 
Brazilian market179: 
                                                
172 Law 11,484/2007, (Exhibit JE -71), Article 64; and Decree 7,212/2010, (Exhibit JE -9), Article 151. 
Special expiration dates apply with respect to tax reductions on CIDE contributions and on income tax and 
duties on profits from sales of finished product s. See Law 11,484/2007, (Exhibit JE -71), Article 65, as amended 
by Law 12,715/2012, (Exhibit JE -95), Article 57.  
173 Law 11,484/2007, (Exhibit JE -71), Article 3; Decree  6,233/2007, (Exhibit JE -73), Article 2; and 
Normative Instruction RFB 852/2008, (Exhibit JE-76), Article  10. See also Decree 6,759/2009, (Exhibit JE -8), 
Article 282; Decree 7,212/2010, (Exhibit JE -9), Article 151.  
174 Law 11,484/2007, (Exhibit JE -71), Article 3(I); Decree 6,233/2007, (Exhibit JE -73), Article 2(I); and 
Normative Instruction RFB 8 52/2008, (Exhibit JE -76), Article 10(I).  
175 Law 11,484/2007, (Exhibit JE -71), Article 3(II); Decree 6,233/2007, (Exhibit JE -73), Article 2(II); 
and Normative Instruction RFB 852/2008, (Exhibit JE -76), Article 10(II).  
176 Law 11,484/2007, (Exhibit JE -71), Arti cle 3(III); Decree 6,233/2007, (Exhibit JE -73), Article 2(III); 
and Normative Instruction RFB 852/2008, (Exhibit JE -76), Article 10(III).  
177 Law 11,484/2007, (Exhibit JE -71), Article 3 §3; Decree 6,233/2007, (Exhibit JE -73), Article 3; and 
Normative Instruc tion RFB 852/2008, (Exhibit JE -76), Article 12.  
178 Law 11,484/2007, (Exhibit JE -71), Article 3 §5; and Decree 6,233/2007, (Exhibit JE -73), 
Article  2(IV).  
179 These tax reductions do not apply cumulatively with other reductions or benefits relating to the sam e 
taxes or contributions. See Law 11,484/2007, (Exhibit JE -71), Article 4 §7; Decree 6,233/2007, (Exhibit 
JE-73), Article 4 §2; and Normative Instruction RFB 852/2008, (Exhibit JE -76), Article  11 §2.  WT/DS472/R • WT/DS497/R  
 
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  i. PIS/PASEP and COFINS contributions on the revenue or income earned and on the 
revenue generated from the sale of projects (design) by companies accredited under 
the PADIS programme180;  
ii. IPI tax levied on shipments from the industrial establishment181; and  
iii. The rate of the income tax and duties on profits from exploitation and on the 
revenue generated from the sale of projects (design) by the PADIS programme.182 
2.2.2.3   Product coverage  
2.74.   The product s covered under the PADIS programme are the following:  
a. Semiconductor electronic devices183; 
b. Information displays184; 
c. Inputs and equipment intended for the manufacture of electronic semiconductor devices 
and information displays and manufactured according to th e relevant PPB185; 
d. Machinery, appliances, instruments and equipment for incorporation into the fixed assets 
of the accredited purchaser/ importer, intended for activities related to final products 
(i.e. those listed in Annex II of Decree 6,233/2007)186; 
e. Inputs  intended for activities related to final products (i.e. those listed in Annex III of 
Decree 6,233/2007)187; and  
f. Computational tools (software) intended for activities related to final products (i.e. those 
listed in Annex IV of Decree 6,233/2007).188  
                                                
180 Law 11,484/2007, (Exhibit JE -71), Articles 4(I) and 4 §1; Decree 6,233/2007, (Exhibit JE -73), 
Articles  4(I) and 4 §1; and Normative Instruction RFB 852/2008, (Exhibit JE -76), Articles 11(I) and 11 §1.  
181 Law 11,484/2007, (Exhibit JE -71), Article 4(II); Decree 6,233/2007, (Exhibit JE -73), Article 4(II); 
and Nor mative Instruction RFB 852/2008, (Exhibit JE -76), Article 11(II).  
182 Law 11,484/2007, (Exhibit JE -71), Articles 4(III) and 4 §1; Decree 6,233/2007, (Exhibit JE -73), 
Articles 4(III) and 4 §1; and Normative Instruction RFB 852/2008, (Exhibit JE -76), Articles 11(III) and 11 §1.  
183 PADIS covers electronic semiconductor devices under NCM headings 85.41 and 85.42, including 
those assembled and encapsulated under a chip on board (NCM 8523.51). See Decree 6,233/2007, (Exhibit JE -
73), Annex I: Final Products, as amend ed by Decree  8,247/2014, (Exhibit JE -75), Article 2; and Law 
11,484/2007, (Exhibit JE -71), Article 2(I). See Law 11,484/2007, (Exhibit JE -71), Article 2 §5, as amended by 
Law 12,715/2012, (Exhibit JE -95), Article 57; Decree 6,233/2007, (Exhibit JE -73), Art icle 6 §5 as amended by 
Decree  8,247/2014, (Exhibit JE -75), Article 1; and Decree 6,759/2009, (Exhibit JE -8), Article 283 §5.  
184 Decree 6,233/2007, (Exhibit JE -73), Annex I: Final Products; and Law 11,484/2007, (Exhibit JE -71), 
Article  2(II). Information di splays must have technology based on components of liquid crystal (LCD), 
photoluminescents (plasma display panel – PDP), electroluminescents (light emitting diodes – LED, organic 
light emitting diodes – OLED or thin film electroluminescent displays – TFEL)  or similar with microstructures of 
electric field emission, intended for use as inputs in electronic equipment. Information displays do not include 
cathode ray tubes. See Law 11,484/2007, (Exhibit JE -71), Article 2 §2; Decree 6,233/2007, (Exhibit JE -73), 
Article 6 §1; Normative Instruction RFB 852/2008, (Exhibit JE -76), Article  4 §1(I); Decree  7,212/2010, (Exhibit 
JE-9), Article 150 §3; and Decree 6,759/2009, (Exhibit JE -8), Article 283 §2.  
185 Decree 6,233/2007, (Exhibit JE -73), Annex I: Final Products, as  amended by Decree  8,247/2014, 
(Exhibit JE -75), Article 2; and Law 11,484/2007, (Exhibit JE -71), Article 2(III).  
186 Decree 6,233/2007, (Exhibit JE -73), Annex II: Machinery, appliances, instruments and equipment for 
incorporation into the fixed assets, for u se in activities related to final products, as amended by 
Decree  8,247/2014, (Exhibit JE -75), Article 1.  
187 Decree 6,233/2007, (Exhibit JE -73), Annex III: Inputs intended for activities in relation to final 
products, as amended by Decree  8,247/2014, (Exhibi t JE-75), Article 1.  
188 Decree 6,233/2007, (Exhibit JE -73), Article 13(III) and Annex IV: Computational tools for the 
manufacture of final products; and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  13(III).  WT/DS472/R • WT/DS497/R  
 
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  2.2.2.4   Eligible  companies  
2.75.   The tax exemptions (through zero rates) provided for in the PADIS programme shall be 
accorded to legal persons previously accredited by the Brazilian Federal Revenue Service (RFB)189 
that: 
a. Import or sell in the Brazilian market machinery, apparatu s, instruments, equipment, 
computation tools (software) and inputs to be incorporated into their fixed assets, 
provided that they are used in activities related to final products listed in Annex II of 
Decree 6,233/2007190; and  
b. Sell in the Brazilian market se miconductor electronic devices, information displays and 
inputs and equipment intended for the manufacture of electronic semiconductor devices 
and information displays.  
2.2.2.5   Requirements for eligibility  
2.76.   In order to obtain accreditation and become companies ac credited under the PADIS 
programme, legal persons must meet the following requirements:  
a. Invest in research and development  (R&D)191: 
Companies accredited under the PADIS programme must invest annually at least 5% of 
their gross sales in the Brazilian market in R&D activities in Brazil.192 The taxes levied 
on the sales of semiconductor electronic devices, information displays and inputs and 
equipment intended for the manufacture thereof as well as the purchase value of 
products incentivized under PADIS must be d educted from the gross sales in the 
Brazilian market.193 At least 1% out of the 5% shall be directed toward official or 
accredited research institutes or centres or Brazilian education entities, which are 
registered with the CATI or the Committee of Research  and Development Activities of 
Amazonia (CAPDA).194  
 
b. Engage in the following activities : 
i. With respect to semiconductor electronic devices195 
 Concept, development and design;  
 Diffusion or physical -chemical processing; or  
 Cutting, encapsulation and testing.  
 
ii. With respect to information displays196 
                                                
189 Decree 6,233/2007, (Exhibit JE -73), Article 5; and Normative Instruction RFB 852/2008, (Exhibit JE -
76), Article  3. 
190 Decree 6,233/2007, Exhibit JE -73.  
191 Law 11,484/2007, (Exhibit JE -71), Articles 2 and 6; and Decree 6,233/2007, (Exhibit JE -73), Articles 
6 and 8, as amended by Decree  8,247/2014, (Exhibit JE -75), Article 1. See also Decree 7,212/2010, (Exhibit 
JE-9), Article 150 §1; Decree 6,759/2009, (Exhibit JE -8), Article 283; and Normative Instruction 
RFB 852/2008, (Exhibit JE -76), Article  4. 
192 Law 11,484/2007, (Exhibit JE -71), Article  6; and Decree 6,233/2007, (Exhibit JE -73), Article 8, as 
amended by Decree  8,247/2014, (Exhibit JE -75), Article 1. These provisions also indicate the specific areas in 
which investment in R&D must be made.  
193 See Decree 6,233/2007, (Exhibit JE -73), Articl e 8, as amended by Decree  8,247/2014, (Exhibit JE -
75), Article 1.  
194 Law 11,484/2007, (Exhibit JE -71), Article 6 §2; and Decree 6,233/2007, (Exhibit JE -73), Article 8 
§2. 
195 Law 11,484/2007, (Exhibit JE -71), Article 2(I), as amended by Law 12,715/2012, (Exhi bit JE -95), 
Article 57; and Decree 6,233/2007, (Exhibit JE -73), Article 6(I), as amended by Decree  8,247/2014, (Exhibit 
JE-75), Article 1. See also Normative Instruction RFB 852/2008, (Exhibit JE -76), Article 4(I); Decree 
6,759/2009, (Exhibit JE -8), Articl e 283(I); and Decree 7,212/2010, (Exhibit JE -9), Article 150 §1(I).  
196 Law 11,484/2007, (Exhibit JE -71), Article 2(II); and Decree 6,233/2007, (Exhibit JE -73), 
Article  6(II), as amended by Decree  8,247/2014, (Exhibit JE -75), Article 1. See also Normative In struction RFB WT/DS472/R • WT/DS497/R  
 
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   Concept, development and design;  
 Manufacture of photosensitive, photo or electroluminescent elements and 
light emitting diodes; or  
 Final assembly of displays and electrical and optical testing.  
 
iii. With respect to inputs an d equipment intended for the manufacture of electronic 
semiconductor devices and information displays: manufacture in accordance with the 
relevant PPBs.197 
2.77.   It must be noted that, as far as information displays are concerned, either the activities of 
concept,  development and design, or the manufacture of photosensitive, photo or 
electroluminescent elements and light emitting diodes, must be performed in Brazil in order to 
obtain the concerned tax treatment on the PIS/PASEP and COFINS contributions and the IPI tax. 
Similarly, the manufacture of inputs and equipment intended for the manufacture of electronic 
semiconductor devices and information displays must be performed in Brazil in order to obtain the 
reductions on the PIS/PASEP and COFINS contributions and th e IPI tax.198 
2.78.   The accredited company must exclusively perform one or some of the activities mentioned 
in paragraph 2.76 above.199 
2.79.   Investment in R&D and the activities mentioned above with respect to semiconductor 
electronic devices, information displays and inputs and equipment must be made in accordance 
with a project approved by the MCTI and the MDIC.200 
2.80.   Once accreditation is obtained, accredited companies shall submit reports annually to the 
Ministry of Science, Tec hnology and Innovation in order to demonstrate compliance with the 
investment obligation.201 Failure to meet the established minimum percentage would result in an 
obligation to invest the residual amount in the National Fund for Scientific and Technological 
Development, FNDCT (CT -INFO or CT -Amazonia) as well as a fine and interest.202 Failure to 
comply with the stated obligation would result in the company having to pay the income tax and 
duties on profits, together with interest and penalties, including those imposed on contributions 
and unpaid taxes.203 Accreditations under PADIS can be suspended, among other reasons, if 
accredited companies do not comply with their investment commitments in R&D in Brazil.204 
Suspensions of the accreditation shall become cancellat ions if the company does not address the 
                                                                                                                                                  
852/2008, (Exhibit JE -76), Article 4(II); Decree 6,759/2009, (Exhibit JE -8), Article 283(II); and Decree 
7,212/2010, (Exhibit JE -9), Article 150 §1(II).  
197 Law 11,484/2007, (Exhibit JE -71), Article 2 §3, as amended by Law 12,715/2012, (Exhibit  JE-95), 
Article 57; and Decree 6,233/2007, (Exhibit JE -73), Article 6 §3, as amended by Decree  8,247/2014, (Exhibit 
JE-75), Article 1.  
198 Law 11,484/2007, (Exhibit JE -71), Article 4 §2. See also Decree 6,233/2007, (Exhibit JE -73), 
Article  15; and Normative  Instruction RFB 852/2008, (Exhibit JE -76), Article 15.  
199 Law 11,484/2007, (Exhibit JE -71), Article 2(III), as amended by Law 12,715/2012, (Exhibit JE -95), 
Article 57; and Decree 6,233/2007, (Exhibit JE -73), Article 6(III), as amended by Decree  8,247/2014,  (Exhibit 
JE-75), Article 1. See also Normative Instruction RFB 852/2008, (Exhibit JE -76), Article 4 §3; Decree 
6,759/2009, (Exhibit JE -8), Article  283 §3; and Decree 7,212/2010, (Exhibit JE -9), Article 150 §4.  
200 Law 11,484/2007, (Exhibit JE -71), Articles 2 §4 and 5, as amended by Law 12,715/2012, (Exhibit 
JE-95), Article 57; and Decree 6,233/2007, (Exhibit JE -73), Articles 6 §4 and 7, as amended by 
Decree  8,247/2014, (Exhibit JE -75), Article 1. See also Normative Instruction RFB 852/2008, (Exhibit JE -76), 
Article 4 §4; Decree  6,759/2009, (Exhibit JE -8), Article 283 §4; and Decree 7,212/2010, (Exhibit JE -9), Article 
150 §5. Project approval is subject to: (i)  proof of good standing by the company of the taxes and 
contributions managed by the Brazilian Federa l Revenue Service; (ii)  compliance with the instructions 
established under the relevant Interministerial Implementing Order; and (iii)  prior verification by the Brazilian 
Federal Revenue Service that the goods submitted by the accredited company fall under  the relevant Annexes 
of Decree 6,233/2007. See Decree  6,233/2007, (Exhibit JE -73), Article 7 §1. See also Law 11,484/2007, 
(Exhibit JE -71), Article 5 §1; and Decree  7,212/2010, (Exhibit JE -9), Article 153, sole paragraph.  
201 Law 11,484/2007 (Exhibit JE -71), Article 7; and Decree 6,233/2007 (Exhibit JE -73), Article 9.  
202 Law 11,484/2007 (Exhibit JE -71), Article 8; and Decree 6,233/2007 (Exhibit JE -73), Article 10.  
203 Law 11,484/2007 (Exhibit JE -71), Article 8, paragraph 2; and Decree 6,233/2007 (Exhibit JE -73), 
Article 10, paragraph 2.  
204 Law 11,484/2007, (Exhibit JE -71), Article 9; Decree 6,233/2007, (Exhibit JE -73); and 
Decree  7,212/2010, (Exhibit JE -9), Articles 11 and 156.  WT/DS472/R • WT/DS497/R  
 
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  violation within 90 days from the suspension notification205 or if a company incurs two suspensions 
in less than two years.206 
2.2.2.6   Related memorandum  
2.81.   Interministerial Explanatory Memorandum No 00008/2007 by the Ministry of Finance, the 
Ministry of Science and Technology and the Ministry of Development, Industry and Trade describes 
the aim of the PADIS programme as follows:  
The aim of establishing PADIS is to encourage the setting -up in Brazil of companies 
involved in the con ception, development, design and manufacturing of electronic 
semiconductor devices and displays, where the latter are to be used as inputs in 
electronic equipment, with technology based on liquid crystal components - LCD, 
photoluminescent (plasma display p anels - PDP), electroluminescent (light emitting 
diodes - LED, organic light emitting diodes - OLED or thin film electroluminescent 
displays - TFEL) or similar with electric field emitting microstructure.207 
2.2.3   The PATVD programme  
2.2.3.1   Introduction  
2.82.   The PATVD program me exempts accredited companies from paying certain taxes with 
respect to radio frequency signal transmitting equipment for digital television ("digital television 
transmission equipment"), as well as machinery, apparatus, instruments, equipment, inputs an d 
software for the production of digital television transmission equipment ("production goods").  
2.83.   The tax exemptions (through zero rates) provided for in the PATVD programme entered into 
force in 2007 and are in effect until 22 January 2017.208 
2.2.3.2   Tax treatment  
2.84.   Pursuant to the PATVD programme, the following tax rates shall be reduced to zero:  
a. For imports or purchases in the Brazilian market of new machinery, apparatus, 
instruments, equipment, computation tools (software) and inputs used in the 
manufacture of dig ital television transmission equipment provided that they are 
incorporated into fixed assets of the companies accredited under the PATVD programme 
that purchase/ import them:  
i. PIS/PASEP and COFINS contributions levied on the revenues of the seller when 
goods are purchased by companies accredited under the PATVD programme209; 
ii. PIS/PASEP -Importation and COFINS -Importation contributions levied on imports by 
companies accredited under the PATVD programme210; 
iii. IPI tax levied on imported or domestic goods when imported  or purchased in the 
Brazilian market by companies accredited under the PATVD programme211; and  
                                                
205 Law 11,484/2007, (Exhibit JE -71), Article 9 §1; Decree 6,233/2007, (Exhibit JE -73), Article  11 §1; 
and Decree 7,212/2010, (Exhibit JE -9), Article 156 §1.  
206 Law 11,484/2007, (Exhibit JE -71), Article 9 §2; Decree 6,233/2007, (Exhibit JE -73), Article  11 §2; 
and Decree 7,212/2010, (Exhibit JE -9), Article 156 §2.  
207 Explanatory memorandum of t he provisional measure that then became Law 11,848/2007, (Exhibit 
JE-109), para. 2.  
208 Law 11,484/2007, (Exhibit JE -71), Article 66. See also Decree 7,212/2010, (Exhibit JE -9), Articles 
159 and 160.  
209 Law 11,484/2007, (Exhibit JE -71), Articles 14(I) and 14 §1; Decree 6,234/2007, (Exhibit JE -85), 
Article  2(I); and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  10(I).  
210 Law 11,484/2007, (Exhibit JE -71), Articles 14(II) and 14 §1; Decree 6,234/2007, (Exhibit JE -85), 
Article  2(II); and Normative In struction RFB 853/2008, (Exhibit JE -86), Article  10(II). See also Decree 
6,759/2009, (Exhibit JE -8), Article 284.  WT/DS472/R • WT/DS497/R  
 
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  iv. CIDE contributions on remittances sent abroad by companies accredited under the 
PATVD programme to pay for the use of patents or trademarks and for the provision 
of technology and technical assistance related to the development and manufacture 
of digital television transmission equipment.212 
v. Import tax might also be reduced to zero when the importer is a company accredited 
under the PATVD programme.213 
b. For sales of dig ital television transmission equipment by companies accredited under the 
PATVD programme in the Brazilian market214: 
i. PIS/PASEP and COFINS contributions on the revenue or income earned215; and  
ii. IPI tax levied on shipments from the industrial establishment.216 
2.2.3.3   Product coverage  
2.85.   The products covered under the PATVD programme are the following:  
a. Digital television transmission equipment (MCN code 8525.50.2)217; 
b. Machinery, appliances, instruments and equipment for incorporation into the fixed assets 
of the purchaser/ impo rter, intended for the manufacture of digital television 
transmission equipment218; 
c. Inputs for the manufacture of digital television transmission equipment219; and  
d. Computational tools (software) for the manufacture of digital television transmission 
equipment.220  
2.2.3.4   Eligible companies  
2.86.   The tax exemptions (through zero rates) provided for in the PATVD programme shall be 
accorded to legal persons previously accredited by the RFB221 that: 
a. Import or sell in the Brazilian market new machinery, apparatus, instruments, 
equip ment, computation tools (software) and inputs to be incorporated into their fixed 
                                                                                                                                                  
211 Law 11,484/2007, (Exhibit JE -71), Articles 14(III) and 14 §1; Decree 6,234/2007, (Exhibit JE -85), 
Article 2(III); and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  10(III). See also Decree 
6,759/2009, (Exhibit JE -8), Article 284 §4.  
212 Law 11,484/2007, (Exhibit JE -71), Article 14 §3; Decree 6,234/2007, (Exhibit JE -85), Article 3; and 
Normative Instruction RFB 853/2008, (Exhibit J E-86), Article  12. 
213 Law 11,484/2007, (Exhibit JE -71), Article 14 §5. See also Decree 6,759/2009, (Exhibit JE -8), 
Article  284 §5.  
214 These tax reductions do not apply cumulatively with other reductions or benefits relating to the same 
taxes or contributions . See Law 11,484/2007, (Exhibit JE -71), Article 15, sole paragraph; Decree 6,234/2007, 
(Exhibit JE -85), Article  4, sole paragraph; Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  11, sole 
paragraph; and Decree 7,212/2010, (Exhibit JE -9), Artic le 160, sole paragraph.  
215 Law 11,484/2007, (Exhibit JE -71), Articles 15(I); Decree 6,234/2007, (Exhibit JE -85), Article 4(I); 
and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  11(I).  
216 Law 11,484/2007, (Exhibit JE -71), Articles 15(II); Decre e 6,234/2007, (Exhibit JE -85), Article 4(II); 
and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  11(II).  
217 Decree 6,234/2007, (Exhibit JE -85), Annex I: Final Products.  
218 Decree 6,234/2007, (Exhibit JE -85), Article 13(I) and Annex II: Machiner y, appliances, instruments 
and equipment for incorporation into the fixed assets, intended for the manufacture of the final products; and 
Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  13(I).  
219 Decree 6,234/2007, (Exhibit JE -85), Article 13( II) and Annex III: Inputs for the manufacture of final 
products; and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  13(II) .  
220 Decree 6,234/2007, (Exhibit JE -85), Article 13(III) and Annex IV: Computational tools for the 
manufacture of final products; and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  13(III).  
221 Decree 6,234/2007, (Exhibit JE -85), Article 5; and Normative Instruction RFB 853/2008, (Exhibit JE -
86), Article  3. WT/DS472/R • WT/DS497/R  
 
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  assets provided that they are used in the manufacture of digital television transmission 
equipment; and  
b. Sell in the Brazilian market digital television transmission equipment .  
2.2.3.5   Requirements for eligibility  
2.87.   In order to obtain accreditation and become accredited under the PATVD programme, legal 
persons must meet the following requirements:  
a. Invest in research and development  (R&D)222 
Companies accredited under the PATVD programme must invest annually at least 2.5% 
of their gross sales in the Brazilian market , after deduction of taxes levied on sales of 
transmission equipment,  in R&D activities in Brazil.223 At least 1% out of the 2.5% shall 
be directed toward official or accredited r esearch institutes or centres or Brazilian 
education entities, which are registered with the CATI or CAPDA.224  
 
The investment in R&D must be in relation to digital television transmission equipment, 
as well as in software and inputs for digital television transmission equipment.225 
 
b. Engage in developing and manufacturing activities of digital television transmission 
equipment  (MCN code 8525.50.2)226; and  
c. Either comply with the relevant PPB227 or, alternatively, meet the criteria for a product to 
be considered "de veloped in Brazil" .228 
2.88.   Investment in R&D and the development and manufacture of digital television transmission 
equipment must be made in accordance with a project approved by the MCTI and the MDIC.229 
2.89.   Once accreditation is obtained, accredited companies shall  submit reports annually to the 
Ministry of Science, Technology and Innovation in order to demonstrate compliance with the 
                                                
222 Law 11,484/2007, (Exhibit JE -71), Articles 13 and 17,  Decree 6,234/2007, (Exhibit JE -85), Article 6; 
and Normative Instruction RFB 853/2008, (Exhibit JE -86), Article  4. See also Decree 6,759/2009, (Exhibit JE -
8), Article  285. 
223 Law 11,484/2007, (Exhibit JE -71), Article 17; and Decree 6,234/2007, (Exhibit JE -85), Article 8. The 
taxes levied on the sales of the digital television transmission equipment must be deducted from the gross 
sales in the Brazilian market. See Law 11,484/2007, (Exhibit JE -71), Article 17; and Decree 6,234/2007, 
(Exhibit JE -85), Article 8. 
224 Law 11,484/2007, (Exhibit JE -71), Article 17, paragraph 2; and Decree 6,234/2007, (Exhibit JE -85), 
Article 8 §2.  
225 Law 11,484/2007, (Exhibit JE -71), Article 17 §1; and Decree 6,234/2007, (Exhibit JE -85), Article 8 
§1. 
226 Law 11,484/2007, (Exhibit JE -71), Article 13; Decree 6,234/2007, (Exhibit JE -85), Article 6. See also 
Decree 6,759/2009, (Exhibit JE -8), Article 285; and Decree 7,212/2010, (Exhibit JE -9), Article 158 §1.  
227 The PPB is established by Interministerial Implementing Order of the Ministry o f Development, 
Industry and Foreign Trade and the Ministry of Science and Technology. Implementing Order 
MDIC/MCTI  62/2014 sets out the PPB for digital television equipment "produced in Brazil". See Law 
11,484/2007, (Exhibit JE -71), Article 13 §1; Intermin isterial Implementing Order MDIC/MCTI  62/2014, (Exhibit 
JE-89); and Decree 6,234/2007, (Exhibit JE -85), Article 6 §1. See also Decree 6,759/2009, (Exhibit JE -8), 
Article 285 §1; and Decree 7,212/2010, (Exhibit JE -9), Article 158 §2.  
228 The criteria that a p roduct must fulfil in order to be considered as "developed in Brazil" are set out in 
an Implementing Order adopted by the Ministry of Science and Technology. See Law 11,484/2007, (Exhibit JE -
71), Article 13 §1; and Decree 6,234/2007, (Exhibit JE -85), Artic le 6 §1. See also Decree 6,759/2009, (Exhibit 
JE-8), Article 285 §1; and Decree 7,212/2010, (Exhibit JE -9), Article 158 §2.  
229 Law 11,484/2007, (Exhibit JE -71), Articles 13 §2 and 16; Decree 6,234/2007, (Exhibit JE -85), 
Articles 6 §2 and 7; and Normative In struction RFB 853/2008, (Exhibit JE -86), Article  2. Project approval is 
subject to: (i) proof of good standing by the company of the taxes and contributions managed by the Brazilian 
Federal Revenue Service; (ii)  compliance with the instructions established  under the relevant Interministerial 
Implementing Order; and (iii)  prior verification by the Brazilian Federal Revenue Service of compliance with the 
requirements of the assets presented by the company. See Law 11,484/2007, (Exhibit JE -71), Article 16 §1 
and Decree 6,234/2007, (Exhibit JE -85), Article 7 §1. See also Decree 6,759/2009, (Exhibit JE -8), Article 285 
§2; and Decree 7,212/2010, (Exhibit JE -9), Article 158 §3.  WT/DS472/R • WT/DS497/R  
 
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  investment obligation.230 Failure to meet the established minimum percentage would result in an 
obligation to invest the residual amoun t in the National Fund for Scientific and Technological 
Development, FNDCT (CT -INFO or CT -Amazonia) as well as a fine and interest.231 Failure to 
comply with the stated obligation would result in the company having to pay interest and penalties 
on late payme nts in relation to the contributions and unpaid taxes.232 Accreditations under PATVD 
can be suspended if accredited companies do not comply with the PPBs or with their investment 
commitments in R&D in Brazil, among other reasons.233 Suspensions of accreditatio n shall become 
cancellations if the company does not address the violation within 90 days from the suspension 
notification234 or if a company incurs two suspensions in less than two years.235 
2.2.3.6   Related memorandum  
2.90.   Interministerial Explanatory Memorandum No. 00008 /2007 by the Ministry of Finance, the 
Ministry of Science and Technology and the Ministry of Development, Industry and Trade describes 
the aim of the PATVD programme as follows:  
The aim of establishing PATVD is to encourage the setting -up in Brazil of comp anies 
involved in the development and manufacturing of radio -frequency transmitter 
equipment for digital television.236 
2.2.4   The Digital Inclusion programme  
2.2.4.1   Introduction  
2.91.   The Digital Inclusion Programme exempts  (through zero rates) Brazilian retailers from 
paying PIS/PASEP and COFINS contributions with respect to the sale of certain digital consumer 
goods produced in Brazil in accordance with the relevant PPBs.  
2.92.   The Digital Inclusion programme entered into force in 2005 and was supposed to be in force 
until 31 Dece mber 2018.237  
2.2.4.2   Tax treatment  
2.93.   The Digital Inclusion programme reduces to zero the PIS/PASEP and COFINS contributions 
on the gross income from the retail sale in Brazil of certain digital consumer goods.238 
2.2.4.3   Product coverage  
2.94.   The products covered under the Digital  Inclusion programme are the following:  
                                                
230 Law 11,484/2007 (Exhibit JE -71), Article 18; and Decree 6,234/2007 (Exhibit JE -85), Ar ticle 9.  
231 Law 11,484/2007 (Exhibit JE -71), Article 19; and Decree 6,234/2007 (Exhibit JE -85), Article 10.  
232 Law 11,484/2007 (Exhibit JE -71), Article 19, paragraph 2; and Decree 6,234/2007 (Exhibit JE -85), 
Article 10, paragraph 2.  
233 Law 11,484/2007, (Exhib it JE-71), Article 20; Decree 6,234/2007, (Exhibit JE -85), Article 11; and 
Decree 7,212/2010, (Exhibit JE -9), Article 164. See also Decree 6,234/2007, (Exhibit JE -85), Article 11(IV) 
and (VI).  
234 Law 11,484/2007, (Exhibit JE -71), Article 20 §1; Decree 6,234 /2007, (Exhibit JE -85), Article 11 §1; 
Normative Instruction RFB 853/2008, (Exhibit JE -86), Article 9 §1; and Decree  7,212/2010, (Exhibit JE -9), 
Article 164 §1.  
235 Law 11,484/2007, (Exhibit JE -71), Article 20 §2; Decree 6,234/2007, (Exhibit JE -85), Article 11 §2;  
Normative Instruction RFB 853/2008, (Exhibit JE -86), Article 9 §2; and Decree  7,212/2010, (Exhibit JE -9), 
Article 164 §2.  
236 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 7.  
237 Law 11,196/2005, (Exhibit JE -91), Articl e 30(II), as amended by Law 13,097, (Exhibit JE -92), 
Article  5. According to Brazil, pursuant to Law 13,241/2015, the Digital Inclusion programme is no longer in 
force. See Brazil's comments on the draft descriptive part, comment on paragraph 2.87 of the d raft descriptive 
part. The complaining parties disagree with Brazil's assertion. See European Union's comments on the interim 
report, para. 9; European Union's comments on Brazil's request for review of the interim report, para. 3 and fn 
1; Japan's comment s on Brazil's requ est for review of the interim report, paras. 2 -3. The Panel takes no 
position on whether the Digital Inclusion programme is in force at the date of the issuance of the report.  
238 Law 11,196/2005, (Exhibits JE -91), Article 28; and Decree  5,602/2005, (Exhibit JE -97), Articles 1 
and 2.  WT/DS472/R • WT/DS497/R  
 
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  a. Digital processing units (TIPI code 8471.50.10) with a maximum retail sale value of 
R$ 2,000 (Brazilian reais), produced in Brazil in accordance with the relevant PPB;  
b. Automatic, digital, portable data processing ma chines with weight of less than 3.5 kg, 
with screen area greater than 140 cm² (TIPI codes 8471.30.12, 8471.30.19 or 
8471.30.90) with a maximum retail sale value of R$ 4,000, produced in Brazil in 
accordance with the relevant PPB;  
c. Automatic data processing machines, working in systems (TIPI code 8471.49), 
containing exclusively: a) one digital processing unit (TIPI code 8471.50.10); b) one 
monitor (video output unit) (TIPI code 8471.60.7); c) one keyboard (input unit) (TIPI 
code 8471.60.52); and d) one mouse  (input unit) (TIPI code 8471.60.53) and sold 
jointly at a maximum retail sale value of R$ 4,000, produced in Brazil in accordance with 
the relevant PPB;  
d. Keyboard (input unit; TIPI code 8471.60.52) and mouse (input unit; TIPI 
code 8471.60.53), when sold wi th a digital processing unit with TIPI code 8471.50.10, 
with a maximum retail sale value of R$ 2,100 jointly;  
e. Modems (TIPI codes 8517.62.55, 8517.62.62 or 8517.62.72), with a maximum retail 
sale value of R$ 200;  
f. Portable, automatic data processing machines , without a keyboard, which have a central 
processing unit with data input and output through a touch screen with area greater 
than 140 cm2 and less than 600 cm2, and which do not have a remote control function 
(Tablet PC) (TIPI code 8471.41) with a retail  sale value of less than R$ 2,500, produced 
in Brazil in accordance with the relevant PPB;  
g. Cellular network, smartphone type mobile telephones which permit high -speed Internet 
access (TIPI code 8517.12.31), with a retail sale value of less than R$ 1,500, w hich in 
addition to being produced in Brazil in accordance with the relevant PPB, must meet the 
technical requirements set out in an act from the Ministry for Communications239; and  
h.  Client terminal equipment (digital routers) (TIPI codes 8517.62.41 and 8517 .62.77) 
with a retail sale value of less than R$ 150, developed and produced in Brazil in 
accordance with the relevant PPB.240 
2.2.4.4   Eligible companies  
2.95.   The Digital Inclusion programme provides for zero rates with respect to PIS/PASEP and 
COFINS contributions for c ompanies that sell in Brazil at retail level certain digital consumer goods 
produced in accordance with the relevant PPBs (and subject to certain other conditions). 
Companies subject to the Simples  tax regime fall outside the scope of this programme.241 
2.2.4.5   Related memoranda  
2.96.   No related memorandum is found on the record.  
                                                
239 Implementing Order MC 87/213, (Exhibit JE -100) in conjunction with Implementing Order STE 
2/2013, (Exhibit JE -99). 
240 Law 11,196/2005, (Exhibit JE -91), Article 28; and Decree 5,602/2005, (Exhibit JE -97), Artic les 1 and 
2. 
241 Law 11,196/2005, (Exhibits JE -91), Article 30. The Simples  tax regime is a simplified regime 
designed for companies that in a calendar year had a gross income equal or lower than R$ 240,000. See Legal 
Guide for Foreign Investors in Brazil, M inistry of External Relations (Legal Guide for Foreign Investors in 
Brazil), (Exhibit JE -207).  WT/DS472/R • WT/DS497/R  
 
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  2.2.5   The INOVAR -AUTO programme  
2.2.5.1   Introduction  
2.97.   The Programme to Promote Technological Innovation and Densification of the Productive 
Chain of Motor Vehicles ( Programa de Incentivo à Inovação Tecnológica e  Adensamento da Cadeia 
Produtiva de Veículos Automotores , hereinafter the INOVAR -AUTO programme) provides for a 
reduction of the IPI tax burden on certain motor vehicles (i) either through presumed IPI tax 
credits granted to accredited companies; (ii) or t hrough reduced IPI tax rates on the importation 
of vehicles originating in certain countries, as well as on certain domestic vehicles.  
2.98.   The INOVAR -AUTO programme started in 2012 and shall remain in effect until 31 December 
2017.242 
2.99.   Prior to the entry into for ce of the INOVAR -AUTO programme, which constitutes the 
measure at issue in this dispute, Brazil introduced Provisional Measure 540 in August 2011 
whereby it reduced the IPI tax on certain automotive products provided that specific conditions 
were met. This  Provisional Measure, which became Law 12,546/2011243, was subsequently 
implemented by Decree 7,567/2011.244  
2.2.5.2   Tax treatment  
2.100.   INOVAR -AUTO provides for a reduction of the IPI tax due on certain motor vehicles 
through two instruments: (i)  presumed IPI tax credits granted to accredited companies; and 
(ii) reduced IPI tax rates on the importation of vehicles originating in certain countries as well as 
on certain domestic vehicles.245 
2.101.   First, accredited companies under the INOVAR -AUTO programme are entitled to tax 
advant ages consisting of "presumed tax credits" to fully or partially offset the IPI tax on motor 
vehicles listed in Annex I of Decree 7,819/2012 up to 30 percentage points.  
2.102.   Second, INOVAR -AUTO provides for reduced IPI tax rates in the following instances:  
a. For vehicles listed in Annex I of Decree 7,819/2012, when imported by companies 
accredited as "domestic manufacturers" or "investors" from countries that are 
signatories to the agreements established by Legislative Decree 350 of 21 November 
1991, Decree 4,458 of 5 November 2002 and Decree 6,500 of 2 July 2008246: 
From 1 January 2013, a 30 percentage point reduction in the applicable IPI tax rate on 
these vehicles shall apply until 31 December 2017.247  
 
This reduction shall apply to imports by accredited manufactur ers or investors248 at the 
time of customs clearance and the exit from the importing establishment249 and only for 
                                                
242 Law 12,715/2012, (Exhibit JE -95), Article 40 §1; and Decree 7,819/2012, (Exhibit JE -132), Article 1 
§1. 
243 Law 12,546 of 14 December 2011 (Law 12,546/2011) , (Exhibit JE -129 and JE -199).  
244 Decree 7,567 of 15 September 2011 (Decree 7,567/2011), (Exhibit JE -127). The Panel notes that 
Decree 7,567 modified the IPI tax rates on certain motor vehicles, prior to the entry into force of the INOVAR -
AUTO programme. See Dec ree 7,567, (Exhibit JE -127), Article 10 and Annex V.  
245 Decree 7,819/2012, (Exhibit JE -132), Articles 11 -19.  
246 Decree 7,819/2012, (Exhibit JE -132), Article 21, referring to Decree 350 of 21 November 1991 on 
the Treaty for the formation of a common market between the Republic of Argentina, the Federative Republic 
of Brazil, the Republic of Paraguay and the Oriental Republic of Uruguay (MERCOSUR), (Decree 350/1991), 
(Exhibit JE -163); Decree 4,458 of 5 November 2002 on the Economic Complementation Agreement N o. 55 
between Mercosur and the United Mexican States, (Exhibit JE -164); Decree 6,500 of 2 July 2008 on the 
Economic Complementation Agreement No. 14 between the Republic of Argentina and the Federative Republic 
of Brazil, (Exhibit JE -165). The agreements r eferred to in those decrees include the MERCOSUR Treaty 
(between Brazil, Argentina, Paraguay, Uruguay and Venezuela), Economic Complementation Agreement (ECA) 
No. 55 (between Brazil, Argentina, Paraguay, Uruguay and Mexico), and ECA No. 14 (between Brazil and 
Argentina).  
247 Decree 7,819/2012, (Exhibit JE -132), Articles 1 and 21.  WT/DS472/R • WT/DS497/R  
 
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  products of the same brand as that of vehicles manufactured by the accredited 
company.250 Limitations, requirements and quantitative restrictions s et out in the 
agreements referred to in Legislative Decree 350 of 21 November 1991251, 
Decree  4,458 of 5 November 2002252, and Decree  6,500 of 2 July 2008253 shall also 
apply.254  
 
b. For vehicles listed in Annex I of Decree 7,819/2012 when imported by any company 
(including both accredited and unaccredited companies) under the agreement 
established by Decree 6,518 of 30 July 2008 and Decree 7,658 of 23 December 2011255: 
2.103.   A 30 percentage point reduction in the applicable IPI tax rate shall apply to these vehicles.  
2.104.   This I PI tax reduction, due to expire on 31 December 2017256, shall apply at the time of 
customs clearance and the exit from the importing establishment.257 Limitations, requirements and 
quantitative restrictions set out in the agreement referred to in Decree 6,518/ 2008 and 
Decree  7,658/2011 shall apply.258  
a. For vehicles listed in Annex I of Decree 7,819/2012 imported directly by an accredited 
company, subject to limitations per calendar year259:  
A 30 percentage point reduction in the applicable IPI tax rate shall apply  to a limited 
number of vehicles listed in Annex I when imported by accredited companies.260 The 
maximum number of vehicles covered by this tax reduction is either 4,800 per calendar 
year or the arithmetic mean of the vehicles imported by the company between  2009 
and 2011, whichever is lower.261 Products listed in Annex VI of Decree  7,819/2012 are 
explicitly excluded from the scope of this IPI tax reduction.262 
 
This IPI tax reduction shall apply at the time of customs clearance and the exit from the 
importing es tablishment.263  
 
b. For certain national motor vehicles264: 
Additional Note 87 -5 of the TIPI in Annex IX of Decree  7,819/2012 provides for reduced 
IPI tax rates for vehicles manufactured in Brazil with the following characteristics: 
(i) manual transmission, (ii)  transfer case, (iii) chassis independent from the bodywork, 
(iv) minimum clear height from the ground of the front or rear axles of 200 mm, 
(v) minimum clear height from the ground between the axles of 300 mm, (vi) minimum 
                                                                                                                                                  
248 It covers imports by the accredited company or by order, or on behalf, of the accredited company. 
See Decree 7,819/2012, (Exhibit JE -132), Article 21 §1(II).  
249 Decree 7,819/2012, ( Exhibit JE -132), Article 21 §1(I).  
250 Decree 7,819/2012, (Exhibit JE -132), Article 21 §1(IV).  
251 Decree 350/1991, (Exhibit JE -163).  
252 Decree 4,458/2002, (Exhibit JE -164).  
253 Decree 6,500/2008, (Exhibit JE -165).  
254 Decree 7,819/2012, (Exhibit JE -132), Article 2 1 §1(III).  
255 Decree 7,819/2012, (Exhibit JE -132), Article 22(I), referring to Decree 6,518 of 30 July 2008 
providing for the implementation of the Sixty Eighth Additional protocol to Economic Complementation 
Agreement No. 2, signed between the Governments of the Federative Republic of Brazil and the Oriental 
Republic of Uruguay, (Exhibit JE -203); and Decree 7,658 of 23 December 2011 laying down provisions 
concerning the implementation of the 69th Additional Protocol to Economic Complementation Agreement No.  2 
signed by the Governments of the Federal Republic of Brazil and the Oriental Republic of Uruguay, (Decree 
7,658/2011), (Exhibit JE -204) The agreement referred to in those decrees is ECA No. 2 between Uruguay and 
Brazil.  
256 Decree 7,819/2012, (Exhibit JE -132), Article 22 §7, as amended by Decree 8,294/2014, (Exhibit JE -
134), Article 1.  
257 Decree 7,819/2012, (Exhibit JE -132), Article 22 §1(I).  
258 Decree 7,819/2012, (Exhibit JE -132), Article 22 §1(II).  
259 Decree 7,819/2012, (Exhibit JE -132), Article 22(II).  
260 Decree 7,819/2012, (Exhibit JE -132), Article 22(II).  
261 Special rules apply for calendar year 2012. See Decree 7,819/2012, (Exhibit JE -132), Article 22 §4, 
as amended by Decree  8,015/2013, (Exhibit JE -133), Article 1.  
262 Decree 7,819/2012, (Exhibit JE -132), Article 22 §2.  
263 Decree 7,819/2012, (Exhibit JE -132), Article 22 §1(I).  
264 Decree 7,819/2012, (Exhibit JE -132), Annex IX.  WT/DS472/R • WT/DS497/R  
 
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  approach angle of 35º, (vii) min imum departure angle of 24º, (viii) minimum ramp 
angle of 28º, (ix) resurfacing capacity from 500 mm, (x) combined total gross weight of 
at least 3000 kg, (xi)  maximum weight in running order of up to 2100 kg, (xii) designed 
for military use or agro -indust rial work, and (xiii) classified under codes 8703.32.10265 
and 8703.33.10.266 
 
i. The reduced IPI tax rate indicated above is set at 45% between 1 January 2013 and 
31 December 2017. From 1 January 2018, the reduced IPI tax rate shall be 15%.267 
2.105.   The Panel also notes  that certain tax reductions are provided for vehicles listed in Annex I 
of Decree 7,819/2012 manufactured by companies whose annual production volume is less than 
1,500 units and annual turnover is less than R$ 90,000,000 (90 million real)268, for vehicles 
characterized as quadricyles and tricycles269, and for any company manufacturing products under 
certain TIPI tariff codes by assembling the body on a chassis.270 These particular tax reductions 
are not relevant to the present dispute.  
2.2.5.3   Product coverage  
2.106.   The pre sumed tax credits and the tax reductions under the INOVAR -AUTO programme 
apply to the following products:  
a. With respect to presumed IPI tax credits granted to accredited companies: motor 
vehicles listed in Annex I of Decree 7,819/2012.271 
b. With respect to IPI tax reductions:  
i. Vehicles listed in Annex I of Decree 7,819/2012 originating from countries that are 
signatories to the agreements established by Legislative Decree 350 of 21 November 
1991, Decree 4,458 of 5 November 2002 and Decree 6,500 of 2 July 2008;  
ii. Imported vehicles from Uruguay listed in Annex VIII of Decree 7,819/2012;  
iii. Imported vehicles listed in Annex VIII of Decree 7,819/2012 up to 4,800 
vehicles/year or the arithmetic mean of the imported vehicles by the company 
between 2009 and 2011, whichever is lower;  
iv. Vehicles manufactured in Brazil with certain characteristics falling under codes 
8703.32.10 and 8703.33.10.272 
2.107.   The Panel notes that certain tax reductions apply to vehicles listed in Annex VIII of 
Decree  7,819/2012 manufactured by companies with a nnual production volume less than 1,500 
                                                
265 Motor cars and other motor vehicles principally designed for the transport of persons (other than 
those of heading 87.02), of a cylin der capacity exceeding 1,500 cm3 but not exceeding 2,500 cm3, with 
carrying capacity of six seated people or less, including the driver.  See TIPI Chapter 87 products description, 
(Exhibit JE -194).  
266 Motor cars and other motor vehicles principally designed for the transport of persons (other than 
those of heading 87.02), of a cylinder capacity exceeding 2,500 cm3, with carrying capacity of six seated 
people or less, including the driver. See TIPI Chapter 87 products description, (Exhibit JE -194).  
267 Decree 7 ,819/2012, (Exhibit JE -132), Annex IX, TIPI Additional Note (NC) 87 -5. 
268 Decree 7,819/2012, (Exhibit JE -132), Article 22(IV), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. According to Article 22 §3 of Decree 7,819/2012, these limits can be  reviewed annually. See 
Decree 7,819/2012, (Exhibit JE -132), Article 22 §7, as amended by Decree 8,294/2014, (Exhibit JE -134), 
Article 1.  
269 Decree 7,819/2012, (Exhibit JE -132), Article 22(V), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. Se e also Decree 7,819/2012, (Exhibit JE -132), Article 22 §1 and §7, as amended by 
Decree  8,015/2013, (Exhibit JE -133), Article 1; and Decree 8,294/2014, (Exhibit JE -134), Article 1.  
270 Decree 7,819/2012, (Exhibit JE -132), Article 23.  
271 Decree 7,819/2012, (Exh ibit JE -132), Articles 11 -17. The presumed tax credits also apply to 
operational expenditures in Brazil. See Decree 7,819/2012, (Exhibit JE -132), Article 15 §1(I), as amended by 
Decree 8,015/2013, (Exhibit JE -133), Article 1.  
272 See Decree 7,819/2012, (Exh ibit JE -132), Articles 21 -23, as amended by Decree 8,015/2013, 
(Exhibit JE -133), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  units and annual turnover less than R$ 90,000,000 (90 million real); vehicles listed in Annex VIII 
of Decree  7,819/2012 characterized as quadricyles and tricycles; and vehicles manufactured by 
assembling the body on a chassis and classified under the following TIPI tariff codes: 8704.2, 
8704.3, 8704.90.00, 8702.10.00 Ex 02, and 8702.90.90 Ex 02. These particular tax reductions are 
not relevant to the present dispute.  
2.2.5.4   Beneficiaries  
2.108.   Beneficiaries of the INOVAR -AUTO prog ramme differ depending on whether the reduction 
of the IPI tax burden on motor vehicles takes place (i)  through presumed IPI tax credits; or 
(ii) through reduced IPI tax rates.  
2.109.   To be entitled to presumed IPI tax credits, a company must be accredited as a " domestic 
manufacturer", an "investor", or an "importer/distributor", as explained in further detail below.  
2.110.   To be entitled to the reduced IPI tax rates, a company must fall under one of the following 
instances of IPI tax reduction:  
a. Be accredited as a "dome stic manufacturer" or "investor" (that imports certain vehicles 
from countries that are signatories to the relevant agreements)273; 
b. Import certain vehicles from Uruguay under the relevant agreements274; 
c. Be accredited as an "importer/distributor" of certain veh icles under the INOVAR -AUTO 
programme275; or 
d. Manufacture in Brazil motor vehicles that meet certain technical features.276 
2.111.   The Panel notes that companies that manufacture certain vehicles and have an annual 
production volume of less than 1,500 units and an ann ual turnover of less than R$ 90,000,000 (90 
million real),277 companies that manufacture vehicles characterized as quadricyles and tricycles278, 
and companies that manufacture vehicles under certain TIPI tariff codes by assembling the body 
on a chassis279 also b enefit from reduced IPI tax rates. These particular tax reductions are not 
relevant to the present dispute.  
2.2.5.5   Requirements for eligibility  
2.112.   As indicated above, all companies using presumed IPI tax credits, and certain companies 
using reduced IPI tax rates, mu st obtain one of three forms of accreditation. Companies are 
subject to different requirements depending on the type of accreditation they apply for.  
                                                
273 Decree 7,819/2012, (Exhibit JE -132), Article 21. The agreements referred to in Article 21 of Decree 
7,819/2012 include the MERCOSUR Treaty (between Brazil, Argent ina, Paraguay, Uruguay and Venezuela), 
Economic Complementation Agreement (ECA) No. 55 (between Brazil, Argentina, Paraguay, Uruguay and 
Mexico), and ECA No. 14 (between Brazil and Argentina). See footnote 246 above.  
274 Decree 7,819/2012, (Exhibit JE -132), Article 22(I). The agreement referred to in Article 22(I) of 
Decree 7,819/2012 is ECA No. 2 between Uruguay and Brazil. See footnote 255 above.  
275 Decree 7,819/201 2, (Exhibit JE -132), Article 22(II).  
276 Decree 7,819/2012, (Exhibit JE -132), Annex IX.  
277 Decree 7,819/2012, (Exhibit JE -132), Article 22(IV), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. According to Article 22 §3 of Decree 7,819/2012, (Exh ibit JE -132), these limits can be reviewed 
annually. See Decree 7,819/2012, (Exhibit JE -132), Article 22 §7, as amended by Decree 8,294/2014, (Exhibit 
JE-134), Article 1.  
278 Decree 7,819/2012, (Exhibit JE -132), Article 22(V), as amended by Decree 8,015/2013 , (Exhibit JE -
133), Article 1. See also Decree 7,819/2012, (Exhibit JE -132), Article 22 §1 and §7, as amended by 
Decree  8,015/2013, (Exhibit JE -133), Article 1, and Decree 8,294/2014, (Exhibit JE -134), Article 1.  
279 Decree 7,819/2012, (Exhibit JE -132), Arti cle 23.  WT/DS472/R • WT/DS497/R  
 
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  2.2.5.5.1   Accreditation requirements  
2.113.   INOVAR -AUTO provides for three different types of accreditations280 available for  economic 
operators, in order to be entitled to presumed IPI tax credits:  
a. Accreditations for companies that manufacture in Brazil products listed in Annex I of 
Decree 7,819/2012 ("domestic manufacturers")281; 
b. Accreditations for companies that market in Brazi l products listed in Annex I of Decree 
7,819/2012 and do not engage in manufacturing activities in Brazil 
("importers/distributors"282)283; and  
c. Accreditation for companies whose projects for establishing factories in Brazil, or in the 
case of companies already  established in Brazil, projects for setting up new factories or 
industrial projects, to produce new models284 of products listed in Annex I of 
Decree  7,819/2012 ("investors"), have been approved.285 
2.114.   To obtain accreditation, a company must comply with certain requirements of both a 
general and specific nature. All such companies must comply with the same two general 
requirements, and each also must comply with certain additional specific requirements that vary 
by the type of accreditation. The details of these requirements are set forth below.  
2.115.   A company applying for accreditation as a "domestic manufacturer" shall comply with the 
two general requirements286 as well as three out of four specific requirements, one of which must 
be the performance of a minimum numbe r of defined manufacturing and engineering infrastructure 
activities in Brazil.287 Such a company also shall have to provide an estimate of its expenditure on 
R&D, engineering, basic industrial technology and capacity -building of suppliers in Brazil in relat ion 
to its total gross revenue.288 
2.116.   A company applying for accreditation as an "importer/distributor" shall comply with the 
two general requirements and the following three specific requirements: (i)  investments in R&D in 
Brazil; (ii)  expenditure on engineeri ng, basic industrial technology and capacity -building of 
suppliers in Brazil; and, (iii)  participation in the vehicle labelling programme by National Institute 
of Metrology, Quality and Technology (INMETRO).289 Such a company shall submit its expected 
                                                
280 Granted by the Ministry of Development, Industry, and Foreign Trade for a period of 12 months, 
renewable once for a period of 12 months upon request by the accredited company. See Law 12,715/2012, 
(Exhibit JE -95), Article 40 §7; and Decree 7,819/ 2012, (Exhibit JE -132), Article 3(II).  
281 Decree 7,819/2012, (Exhibit JE -132), Article 2(I), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article  1. 
282 The European Union and Japan refer to this category as "domestic distributors". Brazil uses the term  
"importers" to refer to the same category of accredited companies under the INOVAR -AUTO programme. 
Article 2(II) of Decree 7,819/2012, (Exhibit JE -132), as amended by Article 1 of Decree 8,015/2013 (Exhibit 
JE-133), refers to "companies …that do not manuf acture but market in [Brazil]" the relevant products.  
283 Decree 7,819/2012, (Exhibit JE -132), Article 2(II).  
284 For the purposes of Article 2(III) of Decree 7,819/2012, (Exhibit JE -132), "new models" are those 
which have never obtained the Make/Model/Version  Code from the National Motor Vehicle and Traffic 
Department - DENATRAN, as manufactured in the country, and that this fact is stated on the request which is 
sent to DENATRAN for the granting of the abovementioned Make/Model/Version Code. See Implementing 
Order  MDIC 297/2013, (Exhibit JE -179), Article 2.  
285 Decree 7,819/2012, (Exhibit JE -132), Article 2(III). Companies establishing more than one factory or 
industrial plant must request one accreditation for each factory or industrial plant. This accreditatio n can be 
renewed once. See Law 12,715/2012, (Exhibit JE -95), Article 40 §8.  
286 Law 12,715/2012, (Exhibit JE -95), Article 40 §4(I) (II); and Decree 7,819/2012, (Exhibit JE -132), 
Article  4(I)(II). 
287 Decree 7,819/2012, (Exhibit JE -132), Article 7. This does not  apply to companies manufacturing 
exclusively vehicles listed in Annex IV of Decree  7,819/2012. In such cases, in order to get the accreditation 
manufacturers must commit to perform a minimum number of manufacturing activities in Brazil and invest 
either i n research and development or in engineering, basic industrial technology and capacity -building of 
suppliers in Brazil. The requirement relating to the vehicle labelling programme does not apply to them. See 
Decree 7,819/2012, (Exhibit JE -132), Article 7 § 1. 
288 Implementing Order MDIC 113/2013, (Exhibit JE -154) Article 6, as amended by Implementing Order 
MDIC 280/2013, (Exhibit JE -177), Article 1.  
289 Decree 7,819/2012, (Exhibit JE -132), Article 6.  WT/DS472/R • WT/DS497/R  
 
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  expend iture and investment to be made in Brazil in the above -mentioned areas290 and shall 
demonstrate that it is authorized to import, sale, supply technical assistance services, organize a 
distribution network and use the brands of the manufacturer with regard to  the imported vehicles 
in Brazil.291 
2.117.   A company applying for accreditation as an "investor" shall submit to the MDIC an 
investment project containing a description and the technical features of the vehicles to be 
imported and manufactured.292 Accreditation shal l be granted once the investment project is 
approved by that Ministry.293 An "investor" shall be required to apply for a specific accreditation for 
every factory, plant or industrial project that it plans to establish. Such accreditations can be 
renewed once , subject to compliance with the physical -financial timetable for the investment 
project.294 
2.118.   All of the rights and obligations of an accredited company are detailed in its individual 
Terms of Commitment295, which should also contain: (i)  criteria for the asses sment, verification 
and monitoring of the commitments undertaken; (ii)  terms and conditions for the monitoring of 
commitments and the calculation of presumed IPI tax credits; and, (iii)  the methodology for 
calculation of the value and characteristics of st rategic inputs and tools for purposes of the 
determination of the presumed IPI tax credit accrued as a result of expenditure on these two 
items, including procedures for the calculation of the value, verification and monitoring and the 
definition of the go ods considered as "strategic inputs" pursuant to Article 12(I) of 
Decree  7,819/2012.296  
2.119.   Accredited companies must submit quarterly monitoring reports in accordance with 
Annexes III, IV and V of Implementing Order 113/2013 to the Secretary of Production 
Development of the Ministry of Development, Industry and Foreign Trade.297 
2.120.   Failure to comply with the requirements or commitments undertaken shall result in the 
cancellation of a company's accreditation.298 In the case of presumed IPI tax credits, cancellation 
shall result in the company being obliged to pay the IPI tax that was otherwise due on the basis of 
the presumed credit used plus an amount set forth in the corresponding tax legislation.299  
2.121.   The two general requirements that all companies seeking accreditation  must meet are as 
follows:  
a. Compliance with all tax obligations at the federal level300; and  
b. Commitment to achieve certain minimum levels of energy efficiency for products 
marketed in Brazil.301 
                                                
290 Implementing Order MDIC 113/2013, (Exhibit JE -154), Article 5, and Decree  7,819/2012, (Exhibit 
JE-132), Article  6(I), as amended by Decree  8,015/2013, (Exhibit JE -133), Article 1.  
291 Decree 7,819/2012, (Exhibit JE -132), Article 6(II), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
292 Decree 7,819/2012,  (Exhibit JE -132), Article 5 §3. See also Annexes I and II to Implementing 
Order  MDIC 297/2013 which set out the terms for the investment project, (Exhibit JE -179).  
293 Decree 7,819/2012, (Exhibit JE -132), Article 5 §1.  
294 Decree 7,819/2012, (Exhibit JE -132),  Article 5 §2; and Implementing Order  MDIC 297/2013, (Exhibit 
JE-179), Article 5.  
295 Decree 7,819/2012, (Exhibit JE -132), Article 4 §1, and Implementing Order MDIC 113/2013, (Exhibit 
JE-154), Article 3(I). The Brazilian government considers the Terms of Com mitment as personal data protected 
under domestic tax confidentiality provisions. See Reply to access to documents request (confidentiality of 
Terms of Commitment), (Exhibit JE -143).  
296 Implementing Order MDIC 113/2013, (Exhibit JE -154), Article  3(II), (III ) and (IV).  
297 Implementing Order 113/2013, as amended by Implementing Order 280/2013, (Exhibit JE -177), 
Article 7.  
298 Decree 7,819/2012, (Exhibit JE -132), Article 9.  
299 Decree 7,819/2012, (Exhibit JE -132), Article 10.  
300 Law 12,715/2012, (Exhibit JE -95), Arti cle 40 §4(I); and Decree 7,819/2012, (Exhibit JE -132), 
Article  4(I). 
301 Law 12,715/2012, (Exhibit JE -95), Article 40 §4(II); and Decree 7,819/2012, (Exhibit JE -132), 
Article 4(II). Annex II of Decree 7,819/2012 establishes a formula to calculate the maximum  value of energy 
consumption for companies to be granted accreditation or a reduction of one or two percentage points on the WT/DS472/R • WT/DS497/R  
 
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  2.122.   To obtain accreditation, each company also must meet some combinat ion of the following 
specific requirements:  
a. Performance of a minimum number of defined manufacturing and engineering 
infrastructure activities302: 
These activities must (i) be carried out directly by the accredited company or 
through third parties; (ii) cove r at least 80% of manufactured vehicles; and (iii)  be 
subject to the following schedule:303 
 
 MINIMUM NUMBER OF MAN UFACTURING AND ENGIN EERING INFRASTRUCTUR E ACTIVITIES TO BE 
PERFORMED IN BRAZIL304 
 Manufacture of 
passenger cars 
and light 
commercial 
vehicles  Manufacture of 
trucks  Manufacture of 
chassis fitted 
with engines  Manufacture of 
automobiles in 
the situation 
referred to in 
Article 12 
§5(III)305 
 (Total number of 
manufacturing and 
engineering 
infrastructure 
activities: 12)  (Total number of 
manufacturing a nd 
engineering 
infrastructure 
activities: 14)  (Total number of 
manufacturing and 
engineering 
infrastructure 
activities: 11)  Calendar 
year 
2013 8  9  7  6  
2014 9  10  8  6  
2015 9  10  8  7  
2016 10  11  9  7  
2017 10  11  9  8  
 
 
b. Investment in  research and technological development (R&D) in Brazil:  
The minimum percentage of gross revenues for sale of goods and services306 which 
accredited companies must invest in R&D in Brazil is as follows: 0.15% in 2013, 0.30% 
in 2014, and 0.50% in 2015 -2017.307  
 
The activities covered by these investments are (i)  directed basic research, (ii)  applied 
research, (iii)  experimental development, (iv)  technical support services and (v)  design, 
planning, construction or modernisation of laboratories and infrastructure  for their 
                                                                                                                                                  
IPI tax rate. In addition, pursuant to Article 4 §2 of Decree  7,819/2012, this commitment does not apply to 
companies that exclusiv ely manufacture or market in Brazil the vehicles listed in Annex IV of that Decree.  
302 Decree 7,819/2012, (Exhibit JE -132), Annex III.  
303 Decree 7,819/2012, (Exhibit JE -132), Article 7(I).  
304 Decree 7,819/2012, (Exhibit JE -132), Article 7(I), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
305 Manufacture of automobiles by companies established in Brazil, that become accredited as domestic 
manufacturers, with an investment project relating to the installation of a single factory of vehicles class ified in 
the tariff codes listed in Annex XIII of Decree 7,819/2012, whose maximum annual production capacity is 
35,000 units and whose specific investments reach at least R$17,000 real. See Decree 7,819/2012, (Exhibit 
JE-132), Article 12 §5(III), as amend ed by Decree 8,015/2013, (Exhibit JE -133), Article 1.  
306 Taxes and contributions affecting the sale of goods and services are excluded. See 
Decree  7,819/2012, (Exhibit JE -132), Article 8(IV).  
307 Decree 7,819/2012, (Exhibit JE -132), Article 7(II).  WT/DS472/R • WT/DS497/R  
 
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  operation, and acquisition of national equipment, services and spare parts308 needed to 
carry out these activities.309  
 
Donations of goods and services are not considered to be expenditure.310 Investments 
in the FNDCT can fall within the scope of thi s requirement.311 
 
The investment must be made in Brazil (i) directly by the legal person that benefits 
from the INOVAR -AUTO programme, (ii)  through an accredited supplier, or (iii)  by 
means of a contract with a university, research institute, specialised co mpany or self -
employed inventor pursuant to Article 2(ix) of Law 10,973 of 2 December 2004.312  
 
c. Expenditure on engineering, basic industrial technology and capacity -building of 
suppliers in Brazil:  
The minimum percentage of gross revenues for sale of goods and services313 which 
accredited companies must spend in engineering, basic industrial technology and 
capacity -building of suppliers in Brazil is as follows: 0.5% in 2013, 0.75% in 2014, and 
1% in 2015 -2017.314  
 
The activities covered by this expenditure are (i) engineering development, (ii)  basic 
industrial technology, (iii)  training of personnel, (iv)  product development, (v)  design, 
planning, construction or modernisation of laboratories, applied research centres, test 
tracks and infrastructure for their op eration, and acquisition of national equipment, 
services and spare parts315 needed to carry out these activities, (vi)  development of 
tools316, moulds and patterns for moulds, matrices and devices, and industrial and 
quality control instruments and apparatus, and their accessories and parts, used in the 
production process, (vii)  R&D activities in relation to industrial tooling and engineering 
and (viii)  capacity building of suppliers.317  
 
Donations of goods and services are not covered by this provision.318 Invest ments in 
the FNDCT can fall within the scope of this requirement.319 
 
Expenditure must be made in Brazil (i) directly by the legal person that benefits from 
the INOVAR -AUTO programme, (ii)  through an accredited supplier, or (iii)  by means of 
a contract with a university, research institute, specialised company or self -employed 
inventor pursuant to Article 2(ix) of Law 10,973 of 2 December 2004.320 
 
                                                
308 Expenditu re on the acquisition of software, equipment and spare parts will be considered as made in 
Brazil provided that they are used in the laboratories indicated in the Terms of Commitment. See 
Interministerial Implementing Order  MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §8.  
309 Interministerial Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §1; and 
Decree  7,819/2012, (Exhibit JE -132), Article 7 §4. Expenditure by accredited companies in the development of 
new devices of active and passiv e vehicle safety if they are incorporated in products listed in Annex I of 
Decree  7,819/2012 no later than 30 July 2017 and constitute technological advances can also fall within this 
category. See Decree 7,819/2012, (Exhibit JE -132), Article 7 §5; and Int erministerial Implementing 
Order  MCTI/MDIC  772/2013, (Exhibit JE -175), Article 1 §3.  
310 Decree 7,819/2012, (Exhibit JE -132), Article 8(II). See also Interministerial Implementing 
Order  MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §6(II).  
311 Decree 7,819/2 012, (Exhibit JE -132), Article 8(III). See also Interministerial Implementing 
Order  MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §6(III).  
312 Decree 7,819/2012, (Exhibit JE -132), Article 8(I).  
313 Taxes and contributions affecting the sale of goods and ser vices are excluded. See 
Decree  7,819/2012, (Exhibit JE -132), Article 8(IV).  
314 Decree 7,819/2012, (Exhibit JE -132), Article 7(III).  
315 Expenditure on the acquisition of software, equipment and spare parts will be considered as made in 
Brazil provided that th ey are used in the laboratories indicated in the Terms of Commitment. See 
Interministerial Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §8.  
316 The scope of the term "tools" and the five stages in the development of tools are establishe d in 
Interministerial Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Articles 1 §12 and §13.  
317 Interministerial Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §5. See also 
Decree 7,819/2012, (Exhibit JE -132), Article 7 §6.  
318 See footnote 310 above.  
319 See footnote 311 above.  
320 See footnote 312 above.  WT/DS472/R • WT/DS497/R  
 
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  d. Participation in the Brazilian Vehicle Labelling Programme established by INMETRO:  
The minimum percentage of model s of products listed in Annex I of Decree  7,819/2012 
which are marketed by the company and subject to this requirement is the following: 
36% in 2013, 49% in 2014, 64% in 2015, 81% in 2016 and 100% in 2017.321 
 
2.2.5.5.2   Presumed IPI tax credits  
2.2.5.5.2.1   Requirements to be enti tled to presumed IPI tax credits  
2.123.   To be entitled to accrue and use presumed IPI tax credits, companies must first obtain an 
accreditation granted by the MDIC, pursuant to the requirements outlined above.  
2.2.5.5.2.2   Accrual and calculation of presumed IPI tax credits  
Accredited "domestic manufacturers" and "importers/distributors"  
 
2.124.   Companies accredited as "domestic manufacturers" and "importers/distributors" can 
accrue presumed IPI tax credits by making expenditures on the following items in Brazil: 
(i) strategic inputs322; (ii) tools323; (iii) research; (iv) technological development; (v)  technological 
innovation; (vi)  contributions to the FNDCT; (vii)  capacity -building of suppliers324; and, (viii)  basic 
engineering and industrial technology.325 
2.125.   Concerning expenditure on strate gic inputs and tools  in Brazil, before 1  October  2014 the 
presumed IPI tax credit was the result of multiplying the amount of expenditure by a coefficient 
that varies depending on the type of vehicle and the calendar year.326Expenditure on strategic 
inputs a nd tools incurred directly in the process of production of auto parts by the accredited 
company shall be taken into account, based on a pro rata  share of the cost of the industrial 
activities in proportion to the production in question.327 
2.126.   From 1 October 201 4, the calculation of the presumed IPI tax credit accrued from 
expenditure on strategic inputs and tools in Brazil incorporates a new element introduced by 
Implementing Order  MDIC 257/2014: the deductible part. The deductible part is the sum of the 
value o f imported inputs by Tier 1328 and Tier 2329 suppliers. Implementing Order MDIC 257/2014 
establishes a traceability system whereby suppliers of strategic inputs and tools to accredited 
companies (Tier 1) (and their direct suppliers, i.e. Tier 2) are required t o provide information to 
the purchasing accredited companies on the value and characteristics of the products supplied. 
Suppliers shall indicate not just the value of the invoices but also the value of the deductible 
                                                
321 Decree 7,819/2012, (Exhibit JE -132), Art icle 7(IV). This requirement does not apply to vehicles listed 
in Annex  IV. See Decree 7,819/2012, (Exhibit JE -132), Article 7 §2.  
322 "Strategic inputs" are defined as any raw materials, parts and components used in the manufacture 
of, and physically incorp orated in, the vehicles referred to in Annex I to Decree 7,819/2012. See Implementing 
Order  MDIC 257/2014, (Exhibit JE -158), Article 1.  
323 "Tools" are defined as specific tools for each type of part, linked to a machine and used to stamp or 
inject auto part s intended for the manufacturing process of vehicles referred to in Annex I to 
Decree  7,819/2012. See Implementing Order MDIC 257/2014, (Exhibit JE -158), Article 2.  
324 The notion of "capacity building of auto parts suppliers" encompasses concepts and practi ces related 
to planning, strategies, production processes, technologies, innovation, development of new products, 
management and cooperation between the purchasers and the suppliers of auto parts in order to attain further 
improvements. See Implementing Or der MDIC 113/2013, (Exhibit JE -154), Article 1. Article 2 of Implementing 
Order  MDIC 113/2013, (Exhibit JE -154) establishes the activities carried out by the auto parts manufacturers 
on which expenditure in capacity building of auto parts suppliers must be  done in Brazil.  
325 Law 12,715/2012, (Exhibit JE -95), Article 41; and Decree 7,819/2012, (Exhibit JE -132), Article 12.  
326 Decree 7,819/2012, (Exhibit JE -132), Article 12 §3. See also Decree 7,819/2012, (Exhibit JE -132), 
Article 12 §5.  
327 Implementing Order M DIC 113/2013, (Exhibit JE -154), Article 4. Article 4 -A of Implementing 
Order  MDIC 113/2013, as amended by Article 11 of Implementing Order MDIC 257/2014, (Exhibit JE -158), 
provides for specific rules to calculate the presumed IPI tax credit resulting from expenditure in strategic inputs 
and tools between 1 June 2013 and 30 September 2014.  
328 Tier 1 suppliers are those who supply strategic inputs and tools to accredited companies.  
329 Tier 2 suppliers are the Tier 1 suppliers' direct providers.  WT/DS472/R • WT/DS497/R  
 
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  part.330 This deductible part shall be de ducted from the total value of expenditure on strategic 
inputs and tools made in Brazil, which constitutes the base to calculate the presumed IPI tax 
credit. The accredited companies will use this information when filing their tax returns.  
2.127.   The calculation of the deductible part differs depending on whether it is a Tier 1 or a Tier  2 
automotive supplier. The deductible part of Tier 2 inputs is calculated based on the Tax Situation 
Codes (CST) indicated in the tax invoices issued to Tier 1 suppliers.331 If the CST indicated in the 
tax invoice is 1, 2, 6, 7 or 8, then 100% of the value is deducted from the expenditure used to 
calculate the presumed IPI tax credit.332 If the CST is 3 or 4, 50% of the value is deducted from 
the expenditure used to calculate the presu med IPI tax credit.333 If the CST is 0 or 5, no deduction 
is applied and 100% of the expenditure incurred counts towards calculating the presumed IPI tax 
credit.334 The deductible part of Tier 1 inputs is the actual value of direct imports (Cost, Insurance 
& Freight (CIF) value) plus the import tax (II) plus the Tier 2 deductible part (i.e. imported 
content).335  
2.128.   Regarding expenditure made in Brazil (referred to as "made in the country" in the 
legislation) on research; technological development; technological inn ovation; and payments to 
the FNDCT336, the presumed credit shall correspond to 50% of the expenditure, limited to 2% of 
the total gross proceeds from sales of goods and services of the second month prior to the 
calculation of the credit.337 
2.129.   Regarding expenditu re made in Brazil ("made in the country") on  payments to the FNDCT 
pursuant to the specific legislation; capacity -building of suppliers; and engineering and basic 
industrial technology338; the presumed credit shall correspond to 50% of the expenditure which 
exceeds 0.75%, up to a limit of 2.75% of the total gross proceeds from sales of goods and 
services of the second month prior to the calculation of the credit.339 
2.130.   Expenditure on the acquisition of software, equipment and spare parts will be considered 
to be e xpenditure "made in the country" provided that the software, equipment and spare parts 
are used in the laboratories indicated in the Terms of Commitment.340  
                                                
330 Annex I of Imp lementing Order MDIC 257/2014 contains a template of "Consolidated Declaration of 
the Deductible Part" where suppliers of strategic inputs and tools indicate the supplier's company name and tax 
number; the purchaser's company name and tax number; the month  and year the declaration refers to; the 
total value of the invoices; and, the total value of the deductible part. See Exhibit JE -158. 
331 See E. da Matta, " Valoração da parcela dedutível ", Sindipeças, September 2014, (Exhibit JE -105); 
and Implementing Order  MDIC 257/2014, (Exhibit JE -158), Annex  III, paragraph 5(b). In the event that no 
CST is indicated in the tax invoice issued to the supplier, it will be classified as CST 2. See Implementing Order 
MDIC 257/2014, (Exhibit JE -158), Annex III, paragraph 2(a).  
332 CST 1 (Foreign – Direct import, except as indicated in CST 6), CST 2 (Foreign – Purchased in the 
internal market, except as indicated in code 7), CST 6 (Foreign – Direct import, without a national equivalent 
present in a list of a CAMEX Resolution and n atural gas), CST 7 (Foreign - Purchased in the internal market, 
without a national equivalent present in a list of a CAMEX Resolution and natural gas) and CST 8 (National, 
merchandise or good with Imported Content higher than 70%). See Annex to SINIEF Conve ntion, Un -
numbered, of 15 December 1970, (Exhibit JE -159).  
333 CST 3 (National, merchandise or good with Imported Content higher than 40% but lower than or 
equal to 70%) and CST 4 (National, produced in accordance with the basic productive processes which ar e 
dealt with in Decree -Law 288/67, and in Laws 8,248/91, 8,387/91, 10,176/01 and 11,484/07). See Annex to 
SINIEF Convention, Un -numbered, of 15 December 1970, (Exhibit JE -159).  
334 CST 0 (National, except as indicated in codes 3, 4, 5 and 8) or CST 5 (Nation al, merchandise or good 
with Imported Content lower than or equal to 40% (forty percent). See Annex to SINIEF Convention, Un -
numbered, of 15 December 1970, (Exhibit JE -159).  
335 See E. da Matta, " Valoração da parcela dedutível ", Sindipeças, September 2014, ( Exhibit JE -105); 
and Implementing Order MDIC 257/2014, (Exhibit JE -158), Annex  III paragraph 5(a).  
336 Decree 7,819/2012, (Exhibit JE -132), Article 12(III) to (VI).  
337 Taxes and contributions on sales are excluded. See Decree 7,819/2012, (Exhibit JE -132), Art icle 12 
§9, as amended by Decree 8,294/2014, (Exhibit JE -134), Article 1.  
338 Decree 7,819/2012, (Exhibit JE -132), Article 12(VI) to (VIII).  
339 Taxes and contributions on sales are excluded. See Decree 7,819/2012, (Exhibit JE -132), Article 12 
§10, as amended by Decree  8,294/2014, (Exhibit JE -134), Article 1.  
340 Decree 7,819/2012, (Exhibit JE -132), Article 12§12, as amended by Decree 8,294/2014, (Exhibit JE -
134), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  Accredited investors  
 
2.131.   Companies accredited as "investors" shall calculate their presumed IPI tax cre dits by 
applying a 30% tax rate on the IPI tax base on the release of vehicles listed in Annex I of 
Decree  7,819/2012 imported by the import branch of the accredited company.341 This applies 24 
months following the first accreditation and it is linked to com plying with the physical -financial 
timetable foreseen in the investment project.342 The vehicles covered under this treatment are 
those covered in the approved investment project343 and are limited to one twenty -fourth of the 
annual production capacity set out  in the approved investment project multiplied by the remaining 
months in the calendar year.344 Furthermore, the IPI tax usually charged on imported vehicles at 
the time of customs clearance is suspended.345 
2.2.5.5.2.3   Use of presumed IPI tax credits  
2.132.   The rules governing the use of the presumed IPI tax credits differ depending on whether 
the tax credits (i) result from expenditure in Brazil on strategic inputs and tools; (ii) result from 
expenditure in Brazil on any item set out in Article 12 of Decree  7,819/2012 other tha n strategic 
inputs and tools; or (iii)  have been accrued by accredited investors.  
2.133.   First, presumed IPI tax credits resulting from expenditure made in Brazil on strategic 
inputs and tools can be used from 1 January 2013 to offset the IPI tax due on the exit from the 
establishment of the products set out in Annex I of Decree 7,819/2012 which either have been 
manufactured by accredited "domestic manufacturers" or are marketed by accredited 
"importers/distributors".346 The use of tax credit is limited to 30% of th e tax base.347 
2.134.   If at the end of each calendar month there is a remaining amount of IPI tax credit after 
using the credit to offset the IPI tax due on the exit of the above -mentioned products, the 
remaining credit can be used to offset the IPI tax due on vehi cles imported by the accredited 
company. In this case, the use of tax credit is also limited to 30% of the tax base and up to a 
maximum of 4,800 vehicles per calendar year.348 
2.135.   Where an amount of IPI tax credit remains because of the two limits mentioned abov e 
(30% of the tax base or 4,800 vehicles per calendar year), it can be used in subsequent months 
until 31 December 2017.349 
2.136.   Second, presumed IPI tax credits resulting from expenditure in Brazil on any item set out 
in Article 12 other than strategic inputs an d tools350 can be used to offset the IPI tax due for 
operations in the internal market by the parent company of the juridical person.351 
                                                
341 Decree 7,819/2012, (Exhibit JE -132), Article 13, as amended by Decree 8,015/2013, (Exhi bit JE -
133), Article 1. The calculation of the presumed IPI tax credit is done by the parent company of the accredited 
company. See Decree 7,819/2012, (Exhibit JE -132), Article 13§5.  
342 Decree 7,819/2012, (Exhibit JE -132), Article 13 §1(I) and (II), as amen ded by Decree 8,015/2013, 
(Exhibit JE -133), Article 1; and Implementing Order  MDIC 297/2013, (Exhibit JE -179), Article 7.  
343 Decree 7,819/2012, (Exhibit JE -132), Article 13 §1(III), as amended by Decree 8,015/2013, (Exhibit 
JE-133), Article 1.  
344 Decree 7,81 9/2012, (Exhibit JE -132), Article 13 §2.  
345 Law 12,715/2012, (Exhibit JE -95), Article 41 §6.  
346 Decree 7,819/2012, (Exhibit JE -132), Article 14, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
347 Decree 7,819/2012, (Exhibit JE -132), Article 14 § 1. 
348 Decree 7,819/2012, (Exhibit JE -132), Article 14 §2, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. This does not apply to the imported vehicles set out in Annex VI and the presumed IPI tax 
credit resulting from the acquisition of strate gic inputs and tools used for manufacturing these vehicles. See 
Decree 7,819/2012, (Exhibit JE -132), Article 14 §5 and §6, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. The exemption established in Article 14 §6 of Decree 7,819/2012, (Exhib it JE-132), as 
amended by Article 1 of Decree 8,015/2013 (Exhibit JE -133), does not cover imported automobiles and light 
commercial vehicles in case of accredited investors who plan to manufacture in Brazil those vehicles set out in 
Annex I of Decree 7,819 /2012. See Decree 7,819/2012, (Exhibit JE -132), Article 14 §7, as amended by Decree 
8,015/2013, (Exhibit JE -133), Article 1.  
349 Decree 7,819/2012, (Exhibit JE -132), Article 14 §3.  WT/DS472/R • WT/DS497/R  
 
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  2.137.   If an amount of IPI tax credit remains after using the credit to offset the IPI tax due for 
operations in the internal mark et by the parent company of the juridical person, the parent 
company can transfer the remaining credit, in full or in part, to other industrial establishments (or 
establishments assimilated to an industrial one) of the same legal person.352 These establishme nts 
will be able to use the presumed IPI tax credit at the end of the month in which it was 
calculated353 and only to offset the IPI tax due; they will not be entitled to compensation or 
reparation in kind.354 
2.138.   In case no tax is due for operations in the intern al market by the parent company of the 
juridical person or there is a remaining amount of credit after paying the IPI tax for such 
operations or the operations of another industrial establishment, the rules governing reparation in 
kind and compensation sha ll apply.355 
2.139.   Finally, accredited investors can use their presumed IPI tax credits to offset the IPI tax due 
on the exit of the products from the importing establishment of the accredited legal person subject 
to two limits.356 First, the maximum number of impor ted vehicles for which the tax credit can be 
applied is one forty -eighth of the expected annual production capacity set out in the approved 
investment project multiplied by the remaining number of months of the calendar year, including 
the month in which t he accreditation was granted.357 The second limit relates to the commitment 
to comply with the physical -financial timetable of the investment project.358 
2.140.   Any remaining amount of credit after offsetting the IPI tax due according to the previous 
paragraph can be  used to offset the IPI tax due at the time the vehicles manufactured by the 
accredited company exit the factory, from the beginning of the marketing of the vehicles covered 
by the investment project up to an amount equivalent to 35% of the debit balance, calculated in 
each IPI tax calculation period.359 
2.141.   In case there is still a remaining amount of tax credit after using it in the two situations 
described above, it can be used in the subsequent months, until 31 December 2017.360 
2.2.5.5.3   Requirements to be entitled to r educed IPI tax rates  
2.142.   In order to be entitled to reduced IPI tax rates, companies must:  
a. Be accredited as "domestic manufacturers" or "investors" that import vehicles classified 
under the TIPI tariff codes listed in Annex I from countries that are signatori es to the 
                                                                                                                                                  
350 Research; technological development; technological innovation; payments to the FNDCT; capacity -
building of suppliers; and, engineering and basic industrial technology. See Decree 7,819/2012, (Exhibit JE -
132), Article 12(III) to (VIII).  
351 Decree 7,819/2012, (Exhibit JE -132), Article 15 §1(I), as amended by Decree 8,015/2013, (Exhi bit 
JE-133), Article 1. The presumed IPI tax credit can be used at the end of the month in which it was calculated. 
See Decree 7,819/2012, (Exhibit JE -132), Article 15 §2, as amended by Decree 8,015/2013, (Exhibit JE -133), 
Article 1.  
352 Decree 7,819/2012, ( Exhibit JE -132), Article 15 §1(II), as amended by Decree 8,015/2013, (Exhibit 
JE-133), Article 1. Article  15 §3 - §8 of Decree 7,819/2012 provides for guidelines and requirements that must 
be fulfilled when transferring the IPI tax credit.  
353 Decree 7,819/2 012, (Exhibit JE -132), Article 15 §2, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
354 Decree 7,819/2012, (Exhibit JE -132), Article 15 §7, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
355 Decree 7,819/2012, (Exhibit JE -132), A rticle 15 §1(III), as amended by Decree 8,015/2013, (Exhibit 
JE-133), Article 1.  
356 Decree 7,819/2012, (Exhibit JE -132), Article 16. Article 17 of Decree 7,819/2012 provides that the 
use of the presumed IPI tax credit must relate to the products set out in  Annex I which exit the industrial 
establishment (or an establishment assimilated to an industrial one) of the accredited company.  
357 Decree 7,819/2012, (Exhibit JE -132), Article 16(I).  
358 Decree 7,819/2012, (Exhibit JE -132), Article 16(II).  
359 Decree 7,819/ 2012, (Exhibit JE -132), Article 16 §1, as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1.  
360 Decree 7,819/2012, (Exhibit JE -132), Article 16 §2.  WT/DS472/R • WT/DS497/R  
 
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  agreements established by Legislative Decree 350 of 21 November 1991, Decree 4,458 
of 5 November 2002 and Decree 6,500 of 2 July 2008361; or 
b. Import vehicles classified under the TIPI tariff codes listed in Annex VIII from Uruguay 
under the agreemen ts established by Decree 6,518 of 30 July 2008 and Decree 7,658 of 
23 December 2011362; or 
c. Be accredited as companies that import products classified under the TIPI tariff codes 
listed in Annex  VIII up to a certain limit per calendar year363; or 
d. Manufacture in  Brazil vehicles with certain characteristics classified under TIPI tariff 
codes 8703.32.10 and 8703.33.10.364 
2.143.   As noted above, companies that manufacture certain vehicles and have an annual 
production volume of less than 1,500 units and an annual turnover of  less than R$ 90,000,000 (90 
million real),365 companies that manufacture vehicles characterized as quadricyles and tricycles366, 
and companies that manufacture vehicles under certain TIPI tariff codes by assembling the body 
on a chassis367 are also entitled to reduced IPI tax rates. However, these particular tax reductions 
are not relevant to the present dispute.  
2.2.5.6   Monitoring system  
2.144.   The INOVAR -AUTO programme uses a monitoring system ( Sistema de 
Acompanhamento )368, also referred to as a traceability system, to ensure  compliance with its 
requirements.  
2.145.   Accredited companies that have made expenditures on strategic inputs and tools shall 
submit quarterly reports on such expenditure through the Monitoring System of the INOVAR -AUTO 
programme.369 
2.146.   Accredited companies must subm it quarterly monitoring reports to the Secretary of 
Production Development of the MDIC.370 In addition, for monitoring purposes, the Secretary of 
Production Development shall have access to the Integrated Foreign Trade System ( Sistema 
Integrado de Comércio E xterior  – SISCOMEX), which is an administrative tool that allows for the 
registration, monitoring and control of foreign trade operations in a single window.371 
                                                
361 Reduced IPI tax rate under Article 21 of Decree 7,819/2012, (Exhibit JE -132), as amended by 
Decree  8,015/2013, (Exhibit JE -133), Article 1. This reduced IPI tax rate shall apply from 1 January 2013 until 
31 December 2017.  
362 Reduced IPI tax rate under Article 22(I) of Decree 7,819/2012, (Exhibit JE -132).  
363 Reduced IPI tax rate under Article 22(II) of Dec ree 7,819/2012, (Exhibit JE -132). The limit consists 
of the arithmetic mean of the number of vehicles imported by the aforementioned company in the calendar 
years of 2009 to 2011; or 4,800 vehicles, whichever is lower.  
364 Decree 7,819/2012, (Exhibit JE -132), Additional Note NC (87 -5) to the TIPI. See paragraph 2.102 (d) 
above.  
365 Decree 7,819/2012, (Exhibit JE -132), Article 22(IV), as amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. According to Article 22  §3 of Decree 7,819/2012, (Exhibit JE -132), these limits can be reviewed 
annually. See Decree 7,819/2012, (Exhibit JE -132), Article 22 §7, as amended by Decree 8,294/2014, (Exhibit 
JE-134), Article 1.  
366 Decree 7,819/2012, (Exhibit JE -132), Article 22(V), a s amended by Decree 8,015/2013, (Exhibit JE -
133), Article 1. See also Decree 7,819/2012, (Exhibit JE -132), Article 22 §1 and §7, as amended by 
Decree  8,015/2013, (Exhibit JE -133), Article 1; and Decree 8,294/2014, (Exhibit JE -134), Article 1.  
367 Decree 7,81 9/2012, (Exhibit JE -132), Article 23.  
368 Implementing Order MDIC 113/2013, (Exhibit JE -154), Article 4 -B, as amended by Implementing 
Order  MDIC 257/2014, (Exhibit JE -158), Article 11.  
369 Implementing Order MDIC 257/2014, (Exhibit JE -158), Article 9.  
370 Implem enting Order MDIC 113/2013, (Exhibit JE -154), Article 7, as amended by Implementing 
Order  MDIC 280/2013, (Exhibit JE -177), Article 1.  
371 Implementing Order MDIC 113/2013, (Exhibit JE -154), Article 7 -A, as amended by Implementing 
Order  290/2014, (Exhibit JE -157), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  2.2.5.7   Related memorandum  
2.147.   Interministerial Explanatory Memorandum No 00025/2012 describes the aim of the  
INOVAR -AUTO programme as follows:  
[The INOVAR -AUTO programme] aims to strengthen the national automotive industry 
and create impulses [incentives] for an improvement of the technological content of 
the vehicles produced in the country.372 
2.2.6   The PEC programme  
2.2.6.1   Introduction  
2.148.   Pursuant to the regime for "predominantly exporting companies" (the PEC programme), 
the IPI tax and the PIS/PASEP, COFINS, PIS/PASEP -Importation and COFINS -Importation 
contributions are suspended with respect to raw materials, intermediate goo ds and packaging 
materials purchased by predominantly exporting companies.  
2.149.   The tax suspensions provided for in the PEC programme entered into force in 
December  2002 (in the case of the IPI tax) and April 2004 (in the case of the PIS/PASEP, COFINS, 
PIS/PASE P-Importation and COFINS -Importation contributions).373 
2.2.6.2   Tax treatment  
2.150.   The PEC programme provides for the suspension of the IPI tax as well as the PIS/PASEP, 
COFINS, PIS/PASEP -Importation and COFINS -Importation contributions with respect to raw 
materials, int ermediate goods and packaging materials.374 
2.151.   The above -mentioned suspensions apply on the purchases of raw materials, intermediate 
goods and packaging materials by legal persons registered (in the case of the IPI tax) or 
accredited (in the case of the PIS/PAS EP, COFINS, PIS/PASEP -Importation and COFINS -
Importation contributions) as predominantly exporting companies.375 The tax suspension applies:  
a. at the time the product leaves the industrial establishment in the event of purchases in 
the domestic market376; or 
b. at the time of the customs clearance in the event of imports.377 
2.152.   The suspension expires, and the IPI tax, the PIS/PASEP, COFINS, PIS/PASEP -Importation 
and COFINS -Importation contributions become definitively non -due, upon exportation or sale in 
the domestic mar ket of the final goods incorporating the raw materials, intermediate goods and 
packaging materials for which the taxes and contributions were suspended.378 
                                                
372 Interministerial Explanatory Memorandum ( Exposição de Motivos Interministerial  - EMI) No. 
00025/2012 - MF/MDIC/MCTI/MEC/MC/SEP/MS/MPS, dated 2 April 2012, (Exhibits JE -183 and BRA -51), 
paras.  44-45. 
373 Law 10,637/2002, (Exhibit JE -94), Ar ticle 68 (for IPI tax); and Law 10,865/2004, (Exhibit JE -181), 
Article 53 (for PIS/PASEP and COFINS contributions).  
374 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §1.II (for IPI tax); and 
Law 10,865/2004, (Exhibit JE -181), Article  40 (for PIS/ PASEP and COFINS contributions).  
375 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §1.II (for IPI tax); Law 10,865/2004, 
(Exhibit JE -181), Article 40 (for PIS/PASEP and COFINS contributions); Decree 6,759/2009, (Exhibit JE -8), 
Article 276 (for P IS/PASEP -Importation and COFINS -Importation); and Normative Instruction SRF 595/2005, 
(Exhibit JE -193), Article 1 (for PIS/PASEP and COFINS contributions).  
376 Normative Instruction RFB 948/2009, (Exhibit JE -191), Article 12; and Normative Instruction 
SRF 595/2005, (Exhibit JE -193), Article 8.  
377 Normative Instruction RFB 948/2009, (Exhibit JE -191), Article 13; and Decree 6,759/2009, (Exhibit 
JE-8), Article 247.  
378 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §I.II; Law 10,865/2004, (Exhibit JE -
181), Article 40; Normative Instruction RFB  948/2009, (Exhibit JE -191), Article 20; and Normative Instruction 
SRF 595/2005, (Exhibit JE -193), Article  9. WT/DS472/R • WT/DS497/R  
 
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  2.2.6.3   Product coverage  
2.153.   The products covered by the PEC programme are raw materials, intermediate goods and 
packaging materials purchased by a legal person registered or accredited as a predominantly 
exporting company, and used in the production of its final products.379  
2.154.   No definition of the terms "raw materials", "intermediate goods" and "packaging materials" 
can be found in the Brazilian legislation.  
2.2.6.4   Eligible companies  
2.155.   Companies eligible for the tax treatment provided under the PEC programme are 
predominantly exporting companies.  
2.156.   For purposes of the IPI tax suspension, a predominantly exporting company is a legal  
person whose gross revenue derived from exports to other countries during the calendar year 
immediately prior to the year of purchase of the covered products, exceeded 50% of its total gross 
revenue from the sales of goods and services over the same perio d, after taxes and other 
contributions levied on sales.380 
2.157.   For purposes of the suspensions of the PIS/PASEP, COFINS, PIS/PASEP -Importation and 
COFINS -Importation contributions, a predominantly exporting company is a legal person whose 
gross revenue from expo rts, in the calendar year immediately prior to the year of purchase of the 
covered products, was equal to or greater than 50% of its total gross revenue from the sale of 
goods and services in the same period, after taxes and other contributions levied on s ales.381 
2.158.   Companies just starting activities in Brazil, or which did not reach the export percentage 
required in the previous year may be entitled to the PIS/PASEP and COFINS  suspensions if they 
commit to reach and maintain the required export level for a per iod of three calendar years.382 
2.2.6.5   Requirements for eligibility  
2.159.   In order for predominantly exporting companies to be entitled to this tax treatment, the 
companies must meet the following requirements:  
a. Registration  (for IPI tax suspensions) / Accreditation  (for suspensions of PIS/PASEP and 
COFINS, PIS/PASEP -Importation and COFINS -Importation contributions):  
Companies must apply for prior registration/accreditation with the Federal Revenue 
Department Branch ( DRF) or Tax Administration Federal Revenue Department Br anch 
(DERAT).383 If the application is accepted, the registration/accreditation is granted 
through an Executive Declaratory Act (ADE) by the DRF or DERAT Delegate.384 
 
b. Compliance with the export requirement:  
As mentioned above, in order for a legal person to b e registered as a predominantly 
exporting company, its gross revenue derived from exports to other countries during the 
calendar year immediately prior to the year of purchase of the covered products must 
exceed 50% (for IPI tax suspensions) or be equal to  or greater than 50% (for 
                                                
379 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §1.II; and Law 10,865/2004, (Exhibit JE -
181), Article  40. 
380 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §3.  
381 Law 10,865/2004, (Exhibit JE -181), Article 40 §1.  
382 Normative Instruction SRF 595/2005, (Exhibit JE -193), Article 3 §1.  
383 The company must submit its application for registration / accreditation within the jurisdiction of the 
company's main establishment, accompanied by relevant information of the company, as well as a declaration, 
under the penalties of law, that it meets or will meet and maintain the export requirement. See Norma tive 
Instruction RFB 948/2009, (Exhibit JE -191), Article 15; and Normative Instruction SRF 595/2005, (Exhibit JE -
193), Article 4.  
384 Normative Instruction RFB 948/2009, ( Exhibit JE -191), Article 17; and Normative 
Instruction  SRF 595/2005, (Exhibit JE -193), Article 6.  WT/DS472/R • WT/DS497/R  
 
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  suspensions of PIS/PASEP and COFINS, PIS/PASEP -Importation and COFINS -Importation 
contributions)  of its total gross revenue from the sales of goods and services over the 
same period, after taxes and other contributions levied on s ales.385  
 
2.160.   As regards  PIS/PASEP and COFINS  suspensions, companies just starting activities in Brazil, 
or which did not reach the export percentage required in the previous year, may be entitled to the 
suspensions if they commit to reach and maintain the required export level for a period of three 
calendar years.386 
2.161.   The registration and/or accreditation shall be cancelled, ex-officio , in the event that 
accreditation/registration requirements are not met, including the export requirement.387 In the 
event of cancell ation, purchases of the covered products shall no longer benefit from the tax 
suspensions, and the suspended taxes, plus charges and applicable penalties, shall be due.  
2.2.6.6   Related memorandum  
2.162.   Explanatory Memorandum No. 00211 of 29 August 2002 by the Ministry of Finance  
explains , with respect to the implementation of the IPI tax suspension under the PEC Programme, 
as follows:  
Article 31 establishes a suspension of the Imposto sobre Produtos Industrializados  
(IPI), with respect to mentioned products, in order t o avoid the accumulation of 
credits, which implies providing for better operating conditions and cash flow for 
domestic companies, making them more competitive, including by reducing the prices 
of their products. Such suspension is extended to predominantl y exporting companies 
in the terms and conditions to be established by the Secretariat of the Federal 
Revenue ( Secretaria da Receita Federal ), with a view to supporting national export 
activities.388  
2.2.7   The RECAP programme  
2.2.7.1   Introduction  
2.163.   Pursuant to the "Special  regime for the acquisition of capital goods for exporting 
companies" (RECAP programme), the PIS/PASEP, COFINS, PIS/PASEP -Importation or COFINS -
Importation contributions are suspended with respect to new machinery, tools, apparatuses, 
instruments and equip ment for incorporation into tangible fixed assets by predominantly exporting 
companies.  
2.164.   The tax suspensions provided for in the RECAP programme entered into force in 
November  2005.389 
2.2.7.2   Tax treatment  
2.165.   The RECAP programme provides for the suspension of the PIS/ PASEP, COFINS, PIS/PASEP -
Importation and COFINS -Importation contributions with respect to purchases of new machinery, 
                                                
385 Law 10,637/2002, (Exhibits JE -94 and BRA -100), Article 29 §3; Normative 
Instruction  RFB 948/2009, (Exhibit JE -191), Article 14; Law 10,865/2004, (Exhibit JE -181), Article 40 §1; and 
Normative Instruction SRF 595/2005, (Exhibit JE -193), Article  3. 
386 Normative Instruction SRF 595/2005, (Exhibit JE -193), Article 3 §1.  
387 See Normative Instruction RFB 948/2009, ( Exhibit JE -191), Article 18(II)  (for IPI tax suspensions); 
and Normative Instruction SRF 595/2005, (Exhibit JE -193), Article 7(II) (for the  suspension of PIS/PASEP, 
COFINS, PIS/PASEP -Importation and COFINS -Importation contributions).  
388 Explanatory Memorandum No. 00211 of 29 August 2002, (Exhibit JE -180), para. 20. The Panel notes 
that the original translation of this Explanatory Memorandum, a s provided by the complaining parties, stated 
that "Such suspension is appropriate for predominantly exporting companies…". See Explanatory Memorandum 
No. 00211, (Exhibit JE -180). Brazil corrected this translation, and Brazil's correction was not objected to by the 
complaining parties. See Brazil's comments on draft descriptive part, comment on paragraph 2.87 of the draft 
descriptive part. See generally European Union's comments on Brazil's comments on the draft descriptive part; 
and Japan's comments on Bra zil's comments on the draft descriptive part.  
389 Law 11,196/2005, (Exhibit JE -182), Article 132.  WT/DS472/R • WT/DS497/R  
 
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  tools, apparatuses, instruments and equipment for incorporation into the tangible fixed assets, by 
legal persons registered as predominant ly exporting companies.390  
2.166.   The suspension becomes a zero rate once the export commitments have been achieved.391 
2.2.7.3   Product coverage  
2.167.   The products covered by the RECAP programme are new machinery, tools, apparatuses, 
instruments and equipment for incorporation to  the tangible fixed assets by legal persons 
registered as predominantly exporting companies.392 
2.168.   The Appendix to Decree 5,789/2006393 contains the list of goods that can be purchased 
under the RECAP programme.  
2.2.7.4   Eligible companies  
2.169.   Companies eligible for the tax treatment provided under the RECAP programme are 
predominantly exporting companies.  
2.170.   For purposes of the RECAP programme, a predominantly exporting company is a legal 
person whose gross revenue from exports, in the calendar year immediately before the year in 
which it became a member of the programme, was equal to or greater than 50% of its total gross 
revenue from the sale of goods and services over the same period, and who commits to 
maintaining that percentage of exports for a period of two calendar years .394 
2.171.   Companies just starting activities in Brazil, or which did not reach the export percentage 
required in the previous year, may be entitled to the suspensions if they commit to reach and 
maintain the required export level for a period of three calendar ye ars.395 
2.2.7.5   Requirements for eligibility  
2.172.   In order for predominantly exporting companies to be entitled to these suspensions, they 
must meet the following requirements:  
a. Accreditation:  
Companies must apply for accreditation to the DRF or the DERAT.396 If the applica tion is 
accepted, the accreditation is granted through an ADE by the DRF or DERAT Delegate.397 
 
b. Compliance with the export requirement:  
As mentioned above, in order for a legal person to be accredited as a predominantly 
exporting company, its gross revenue f rom exports, in the calendar year immediately 
before the year in which they became a member of the programme, must be equal to or 
greater than 50% of its total gross revenue from the sale of goods and services over the 
                                                
390 Law 11,196/2005, (Exhibit JE -182), Article 14; Decree 5,649/2005, (Exhibit JE -187), Articles 1 and 
9; and Normative Instruction SRF 605/2006, (Exhibit JE -195), Article 2.  
391 Law 11,196/2005, (Exhibit JE -182), Article 14 §8; Decree 5,649/2005, (Exhibit JE -187), Article 10; 
and Decree 6,759/2009, (Exhibit JE -8), Article 274.  
392 Law 11,196/2005, (Exhibit JE -182), Article 14;  and Decree 5,649/2005, (Exhibit JE-187),  Article 9.  
393 Decree 5,789/2006, (Exhibit JE -188), Appendix. See also Law 11,196/2005, (Exhibit JE -182), 
Article  16 
394 Law 11,196/2005, (Exhibit JE -182), Article 13.  
395 Law 11,196/2005, (Exhibit JE -182), Article 13 §2.  
396 The company must submit its applicati on for accreditation within the jurisdiction of the company's 
main establishment, accompanied by relevant information of the company, as well as a declaration, under the 
penalties of law, that it meets or will meet and maintain the export requirement. See Normative Instruction 
SRF 605/2006, (Exhibit JE -195), Article 8 . 
397 Normative Instruction SRF 605/2006 , (Exhibit JE -195), Article 10. Accreditations last for three years. 
When an accreditation lapses, a new accreditation may be requested. See Law 11,196/200 5, (Exhibit JE -182), 
Article 14 §1; Decree 5,649/2005, (Exhibit JE-187), Article 9; and Decree 6,759/2009, (Exhibit JE -8), 
Article  271. WT/DS472/R • WT/DS497/R  
 
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  same period, and must commit to maint aining that percentage of exports for a period of 
two calendar years.398 
 
Companies just starting activities in Brazil, or which did not reach the export percentage 
required in the previous year, may be entitled to the suspensions if they commit to reach 
and maintain the required export level for a period of three calendar years.399 
 
2.173.   The accreditation shall be cancelled in the event that registration requirements are not met, 
including the export requirement.400 In the event of cancellation, purchases of the cove red 
products shall no longer receive the tax suspensions, and the suspended taxes, plus charges and 
applicable penalties, shall be due.401  
2.174.   Also, if an accredited company does not meet the export commitment, or does not 
incorporate the capital goods into its  fixed assets, or sells the goods before the conversion of the 
suspension into a zero rate, it shall be required to pay the suspended contributions as well as 
interest and penalties.402 
2.2.7.6   Related memorandum  
2.175.   Interministerial Explanatory Memorandum No. 00084/200 5 by the Ministry of Finance and 
the Ministry of Development, Industry and Trade explains , with respect to the RECAP Programme, 
as follows:  
The creation of RECAP aims at encouraging investment on production and improving 
exports by correcting the distorti ons that generate a cost on the capital goods of 
predominantly exporting companies. This scheme suspends the incidence of the 
contribution to PIS/PASEP and of COFINS on sales and imports of new machines, 
appliances, instruments and equipment, listed in a r egulation, when purchased by 
predominantly exporting companies. Like the REPES, the RECAP aims at eliminating 
the accumulation of PIS and COFINS credits for exporters, complementing the scheme 
already established by Article 40 of Law No. 10,865 of 30 April  2004, which suspends 
the levying of the contribution with regard to the sales of raw materials, intermediary 
products and packaging materials when they are destined to predominantly exporting 
legal persons.403  
2.176.   Also, Interministerial Explanatory Memorandum No. 00025/2012 explains , with respect to 
the reduction to 50% of the required percentage of exports to qualify as a predominantly 
exporting company, as follows:  
By extending the concept of predominantly exporting company to those who export 
50% of their g ross revenue, including those applying to (…) Recap, almost all Brazilian 
companies that generate credits to be reimbursed in kind in relation to their export 
activities are covered. Thus, it is expected that, at least at the federal level, the 
accumulatio n of export credits loses relevance. (…) Finally, the adoption of a measure 
that contributes to solve the serious problem of accumulation of tax credits arising 
from exports, which erodes the working capital of exporting companies and reduces 
their competi tiveness, undoubtedly makes this proposal for a provisional measure to 
meet the requirements of emergency and relevance.404 
                                                
398 Law 11,196/2005, (Exhibit JE -182), Article 13.  
399 Law 11,196/2005, (Exhibit JE -182), Article 13 §2.  
400 Decree 5,649/2005 , (Exhibit JE-187), Article 8; and Normative Instruction SRF 605/2006, (Exhibit 
JE-195), Article 12.  
401 Decree 5,649/2005, (Exhibit JE-187), Article 8; and Normative Instruction SRF 605/2006, (Exhibit 
JE-195), Article 16.  
402 Law 11,196/2005, (Exhibit JE -182), Article 14 §4; Decree 5,649/2005, (Exhibit JE-187), Article 12 ; 
and Decree 6,759/2009, (Exhibit JE -8), Article 275.  
403 Interministerial Explanatory Memorandum No. 00084/2005, (Exhibit JE -185), para. 5.  
404 Interministerial Explanatory Memorandum No. 00025/2 012, (Exhibits JE -183 and BRA -51), 
paras.  93-97. WT/DS472/R • WT/DS497/R  
 
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  3  PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  
3.1.   The European Union requests the Panel to find that:405 
i. The INOVAR -AUTO programme, as  embodied and developed in the above -mentioned 
instruments and also as applied by the relevant Brazilian authorities, is inconsistent with 
Brazil's obligations under:  
 
a. Article I:1 of the GATT 1994, inasmuch as motor vehicles originating in the 
European Uni on are not accorded immediately and unconditionally any advantage, 
favour, privilege or immunity granted to like products originating in certain other 
countries;  
 
b. Article III:2 of the GATT  1994, inasmuch as motor vehicles of the European Union 
imported int o Brazil are subject to a IPI tax burden in excess of that borne by like 
domestic products;  
 
c. Article III:4 of the GATT  1994, inasmuch as motor vehicles, automotive 
components and tools of the European Union imported into Brazil are accorded less 
favourable  treatment than that accorded to like products of Brazilian origin, as a 
result of the conditions for accreditation to the programme and the rules on the 
earning and use of tax credits;  
 
d. Article III:5 of the GATT  1994, inasmuch as:  
  
i. The conditions relati ng to the minimum number of manufacturing activities 
which manufacturers of motor vehicles need to perform in Brazil amount to 
an internal quantitative regulation relating to the processing of products, 
and such conditions require a specified proportion of  the final product to be 
from domestic sources; and  
 
ii. the conditions relating to the minimum number of manufacturing activities 
in Brazil also amount to an internal quantitative regulation that is applied 
so as to afford protection to domestic production;  
 
e. Article 2.1 of the TRIMs Agreement, in conjunction with Article 2.2 and with 
paragraph 1(a) of the Agreement's Illustrative List, inasmuch as the programme is 
a trade -related investment measure inconsistent with Article III:4 of the 
GATT  1994 because it r equires the purchase or use of strategic inputs and tools of 
Brazilian origin or from Brazilian sources in order to benefit from tax advantages; 
and 
 
f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programme 
provides tax advantages that are s ubsidies within the meaning of Article 1.1 of the 
SCM Agreement, which are contingent upon the use of strategic inputs and tools 
from Brazil over similar goods imported from other WTO Members, including the 
European Union.  
 
ii. The set of advantages contingent  upon domestic production and technological development 
of information and communication technology, automation and related goods (ICT 
products), as embodied and developed in the Informatics, PADIS, PATVD and Digital 
Inclusion programmes and also as applie d by the relevant Brazilian authorities, is 
inconsistent with Brazil's obligations under:  
 
a. Article III:2 of the GATT  1994, inasmuch as they impose a tax burden on imported 
ICT, automation and related products in excess of that applied to like domestic 
products, as a result of the operation of tax exemptions or reductions;  
 
b. Article II:1(b) of the GATT 1994, should Brazil argue (or the Panel find) that the 
PIS/PASEP -Importation and COFINS - Importation are not internal taxes, inasmuch 
                                                
405 European Union's first written submission, para. 1254.  WT/DS472/R • WT/DS497/R  
 
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  as they would amount to " other duties and charges" imposed on imported ICT 
products in excess of the duties and charges set forth in Brazil's Schedule of Tariff 
Concessions;  
 
c. Article III:4 of the GATT  1994, inasmuch as:  
 
i. the conditions for accreditation necessary for ICT, automati on and related 
goods to benefit from the exemptions or reductions result in less 
favourable treatment granted to imported products than that accorded to 
like domestic products; and  
 
ii. these measures afford less favourable treatment to imported inputs and 
equipment than that accorded to like domestic products by imposing, 
under the terms of the corresponding PPBs, an obligation to use local 
inputs and equipment in the production of ICT, automation and related 
products, as a condition to benefit from the exemp tions or reductions;  
 
d. Article III:5 of the GATT  1994, inasmuch as:  
 
i. the conditions imposed under the terms of the corresponding PPBs 
regarding the minimum number of processing activities that producers of 
ICT, automation and related products need to perfor m in Brazil in order to 
benefit from the exemptions or reductions, amount to an internal 
quantitative regulation relating to the processing of products, which 
requires a specified proportion of the final product to be sourced locally; 
and 
 
ii. the conditions r elating to the minimum number of processing activities in 
Brazil amount to an internal quantitative regulation that is applied so as to 
afford protection to domestic production;  
 
e. Article 2.1 of the TRIMs Agreement, in conjunction with Article 2.2 and with 
paragraph 1(a) of the Agreement's Illustrative List, inasmuch as the measures 
constitute trade -related investment measures inconsistent with Article III:4 of the 
GATT 1994 by requiring, under the terms of the PPBs, the purchase or use of 
inputs and manufac turing equipment of Brazilian origin or from Brazilian sources in 
order to benefit from the exemptions or reductions; and  
  
f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the exemptions or 
reductions granted in relation to ICT, automation and re lated products that comply 
with the terms of the PPBs are subsidies within the meaning of Article 1.1 of the 
SCM Agreement, that are contingent upon the use of domestic over imported 
inputs and equipment.  
 
iii. The RECAP programme, as embodied and developed in the above -mentioned instruments 
and also as applied by the relevant Brazilian authorities, is inconsistent with Brazil's 
obligations under Articles 3.1(a) and 3.2 of the SCM Agreement inasmuch as it provides for 
subsidies contingent upon export performance ; and 
 
iv. The scheme consisting of export contingent subsidies for the purchase of raw materials, 
intermediate goods and packaging materials, as embodied and developed in the above -
mentioned instruments and also as applied by the relevant Brazilian authoritie s, is 
inconsistent with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement 
inasmuch as it provides for subsidies contingent upon export performance.  
 
3.2.  Japan requests the Panel to find that:406 
i. The tax advantage scheme under the INOVAR -AUTO programme and related measures, and 
each of the legal instruments through which they are established and administered – both 
individually and collectively, by and in themselves, or in conjunction with the increased IPI 
                                                
406 Japan's first written submission, para. 597.  WT/DS472/R • WT/DS497/R  
 
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  tax rate for motor vehicles – are inconsistent as such and as applied with Brazil's 
obligations under:  
 
a. Article I:1 of the GATT 1994, inasmuch as the tax advantages available to motor 
vehicles imported from Mercosur countries and Mexico are not available to motor 
vehicles imported from oth er Members, including Japan;  
 
b. Article III:2 of the GATT  1994, inasmuch as:  
 
i. Imported motor vehicles are subject, directly or indirectly, to an IPI tax 
burden in excess of that applied, directly or indirectly, to like domestic 
products; and  
 
ii. Imported motor vehicles and directly competitive or substitutable products 
that are domestically produced are taxed in a manner that affords 
protection to domestic production;  
 
c. Article III:4 of the GATT  1994, inasmuch as motor vehicles, automotive 
components, and tools i mported into Brazil are accorded less favourable treatment 
than that accorded to like products of Brazilian origin, as a result of the conditions 
for accreditation and for earning and using IPI tax credits;  
 
d. Article III:5 of the GATT  1994, inasmuch as:  
 
i. The criteria and/or requirements to benefit from tax advantages under 
INOVAR -AUTO, including (inter alia) the requirement to perform certain 
manufacturing steps in Brazil, and the reduction in the IPI tax credits 
based on the level of local content in autom otive components and tools, 
amount to internal quantitative regulations relating to the mixture, 
processing or use of products, which require that specified amounts or 
proportions of products be supplied from domestic sources; and  
 
ii. The said criteria and/o r requirements also amount to internal quantitative 
regulations that are applied so as to afford protection to domestic 
production;  
 
e. Article 2.1 of the TRIMs Agreement, separately and in conjunction with Article 2.2 
and with paragraph 1(a) of the Agreement 's Illustrative List, inasmuch as:  
 
i. INOVAR -AUTO and related legal instruments are TRIMs that are 
inconsistent with Article III of the GATT 1994; and  
 
ii. They require the purchase or use of products (including automotive 
components and/or tools) from domestic  sources in order to obtain tax 
advantages; and  
 
f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programme and 
related legal instruments are and/or confer subsidies within the meaning of 
Article  1.1 of the SCM Agreement that are contingent up on the use of domestic 
over imported automotive components and/or tools.  
 
ii. The Informatics , Digital Inclusion, PADIS, and PATVD programmes, and each of the legal 
instruments through which they are established and administered – both individually and 
collect ively – are inconsistent as such and as applied  with Brazil's obligations under:  
 
a. Article III:2 of the GATT  1994, inasmuch as:  
 
i. Imported ICT, automation and related products are subject, directly or 
indirectly, to internal tax burdens in excess of those ap plied, directly or 
indirectly, to like domestic products; and  
 WT/DS472/R • WT/DS497/R  
 
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  ii. Imported ICT, automation and related products and directly competitive or 
substitutable products that are domestically produced are taxed in a 
manner that affords protection to domestic product ion;  
 
b. Article II:1(b) of the GATT 1994, only in the event that the Panel finds that the 
PIS/PASEP -Importation and COFINS -Importation are not internal taxes falling 
under Article III:2 of the GATT 1994, inasmuch as "other duties or charges" are 
imposed on ICT, automation and related goods imported from Japan, in excess of 
the duties and charges set forth in Brazil's Schedule of Tariff Concessions;  
 
c. Article III:4 of the GATT  1994, inasmuch as:  
 
i. The conditions for accreditation result in less favourable trea tment for 
imported products than that accorded to like domestic products; and  
 
ii. The requirement to use local inputs and equipment in the production of 
ICT, automation and related products results in less favourable treatment 
for imported inputs and equipme nt than that accorded to like domestic 
products;  
 
d. Article III:5 of the GATT  1994, inasmuch as  
 
i. The criteria and/or requirements to benefit from tax advantages under the 
respective programmes, including ( inter alia ) the requirement to perform 
certain manuf acturing steps in Brazil, and the minimum levels of local 
content or national value added (including those imposed under the terms 
of the corresponding PPBs), amount to internal quantitative regulations 
relating to the mixture, processing or use of product s in specified amounts 
or proportions, which require that a specified amount or proportion of the 
final product be supplied from domestic sources; and  
 
ii. The said criteria and/or requirements also amount to internal quantitative 
regulations that are applied  so as to afford protection to domestic 
production;  
 
e. Article 2.1 of the TRIMs Agreement, separately and in conjunction with Article 2.2 
and paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement, 
inasmuch as:  
 
i. The programme and related  legal instruments are TRIMs that are 
inconsistent with Article III of the GATT 1994; and  
 
ii. They require the purchase or use of products (i.e., Brazilian inputs and 
manufacturing equipment) from domestic sources in order to obtain tax 
advantages; and  
 
f. Articles 3.1(b) and 3.2 of the SCM Agreement, inasmuch as the programmes and 
related legal instruments are and/or confer subsidies within the meaning of 
Article  1.1 of the SCM Agreement that are contingent upon the use of domestic 
over imported inputs and equi pment.  
 
iii. The RECAP programme and each of the legal instruments through which it is established and 
administered – both individually and collectively – are inconsistent as such and as applied 
with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM  Agreement inasmuch as 
they are and/or confer subsidies within the meaning of Article 1.1 of the SCM Agreement 
that are contingent upon export performance; and  
 
iv. The PEC programme and each of the legal instruments through which they are established 
and admi nistered – both individually and collectively – are inconsistent as such and as 
applied with Brazil's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement 
inasmuch as they are and/or confer subsidies within the meaning of Article  1.1 of the SCM 
Agreement that are contingent upon export performance.  WT/DS472/R • WT/DS497/R  
 
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3.3.  Brazil requests the Panel to reject the European Union and Japan's claims in this dispute in 
their entirety.407 
4  ARGUMENTS OF THE PAR TIES  
4.1.  The arguments of the parties are reflected in their executive summ aries, provided to the 
Panel in accordance with paragraph 21 of the Joint Working Procedures adopted by the Panel (see 
Annexes B -1 and B -2).  
5  ARGUMENTS OF THE THI RD PARTIES  
5.1.  The arguments of Argentina, Australia, Canada, Ukraine and the United States are re flected 
in their executive summaries, provided in accordance with paragraph 22 of the Joint Working 
Procedures adopted by the Panel (see Annexes C -1, C-2, C-5, C-6 and C -7). The Republic of Korea 
requested that its oral statement be taken as its executive summary (see Annex C -4). Japan also 
submitted an executive summary of its arguments, as a third party in DS472 (see Annex C -3). The 
other third parties, China, Colombia, India, Russian Federation, Singapore, South Africa, Chinese 
Taipei and Turkey did not submit written or oral arguments to the Panel.  
6  INTERIM REVIEW  
6.1  General issues and editorial matters  
6.1.  Except where otherwise specifically indicated, the references to paragraph numbers in this 
section (and throughout this report) refer to the paragraph, sect ion, and footnote numbers in this 
Final Report, and not the numbering in the Interim Reports.    
6.2.  In addition to the requests by the parties,  discussed below,  corrections were made for 
typographical, stylistic and other non -substantive aspects of the Report , including those identified 
by the parties.  
6.3.  All parties requested that the Panel clarify and, in some cases , revise its reasoning and 
findings in a number of paragraphs. In addition, all parties requested the Panel to revise its 
depiction of the parties' arguments in a number of paragraphs. In response to these requests, and 
on its own review of the Report, the Panel adjusted the following aspects of the Report: the Table 
of Exhibits; paragraphs 2.13, 2.15, 2.18, 2.20, 2.22, 2.71, 2.72, 2.75, 2.83, 2.86, 2 .87, 2.91, 
2.99, 7.3, 7.24, 7.25, 7.26, 7.31, 7.33, 7.38, 7.67, 7.69, 7.73, 7.80, 7.86, 7.87, 7.88, 7.116, 
7.120, 7.134, 7.150, 7.154, 7.161, 7.163, 7.171, 7.173, 7.229, 7.251, 7.272, 7.279, 7.305, 
7.309, 7.310, 7.352, 7.356, 7.359, 7.369, 7.370, 7.371, 7. 403, 7.404, 7.405, 7.406, 7.432, 
7.433, 7.434, 7.436, 7.438, 7.440, 7.441, 7.444, 7.449, 7.450, 7.451, 7.454, 7.456, 7.458, 
7.459, 7.460, 7.463, 7.466, 7.468, 7.469, 7.470, 7.473, 7.476, 7.477, 7.478, 7.479, 7.480, 
7.518, 7.522, 7.581, 7.582, 7.689, 7.690,  7.696, 7.724, 7.733, 7.746, 7.766, 7.771, 7.796, 
7.816, 7.825, 7.888, 7.893, 7.927, 7.929, 7.995, 7.1118, 7.1145, 7.1165, 7.1167, 7.1168, 
7.1169, 7.1170, 7.1171, 7.1174, 7.1175, 7.1176, 7.1179, 7.1181, 7.1183, 7.1186, 7.1187, 
7.1189, 7.1190, 7.1191, 7.119 4, 7.1197, 7.1199, 7.1202, 7.1203, 7.1204, 7.1207, 7.1210, 
7.1232, 7.1235, 9.12, 9.16, 9.20, 9.26, 9.30, 9.37, 9.38, 9.49, 9.55, 9.63, 9.87, 9.88, 9.92, 9.97, 
9.98, 9.104, 9.107, 9.112, 9.115, 9.116, 9.117, 9.118, 9.121, 9.122, 9.124, 9.134, 9.138, 9.139, 
9.142, 9.143, 9.151, 9.152, 9.160, 9.164, 9.168, 9.169, 9.173, 9.174, 9.179, 9.185, 9.186, 
9.187, 9.191, 9.197, 9.207, 9.209, 9.210, 9.215, 9.216, 9.217, 9.218, 9.222, 9.225, 9.229, 
9.234, 9.23 5, 9.23 6, 9.23 7, 9.24 2, 9.24 3, 9.24 4, 9.24 9, 9.25 6, 9.25 7, 9.260, 9.26 8, 9.27 6, 
9.285, 9.28 8, 9.29 2, 9.29 6, 9.30 1, 9.30 6; the headings of sections 7.2.2, 7.3.5.3.3.2(a), 
7.3.5.3.3.2(b), 7.3.5.3.3.2(d), 7.3.5.3.3.2(e), 7.3.5.3.3.2(f), 7.3.5.3.3.2(g), 7.3.5.3.3.2(h), 
7.3.5.3.3.2(i), 7.3.5.3.3.2(j), 7.4.5.3.3 , and 7.5.1. 2.3; and footnotes 23 7, 388, 471, 476, 484, 
485, 512, 531, 532, 533, 535, 587, 680, 691, 789, 801, 814, 827, 845, 856, 1035, 1135, 1295 , 
1528, 1537, 1552, 1571, and 1605 . The Panel inserted paragraphs 2.29, 7.446, 7.465, 7.475, 
7.926, 7.1184, 7.1185, 7.119 6, 7.1209, 9.22 3, 9.22 4, 9.318 and 9.319 ; and footnotes 11, 42, 43, 
44, 442, 443, 444, 469, 505, 506, 578, 579, 586, 672, 791, 795, 796, 803, 807, 809, 816, 821, 
829, 835, 839, 847, 853, 857, 1084, 1128, 1129, 1273, 1400, 1487, 1529, 1530, 1539, 1544, 
                                                
407 Brazil's first written submissions, para.  868 (DS472) and para. 770 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  1547, 1554, 1560, 1563, 1573, 1579, 1582, 1583, 1655, 1703, and 1744.  The Panel also deleted 
paragraphs 2.60 and 7.1192 of the Interim Reports, and footnotes 161, 162, 1478, 1493, 1509, 
1545, and 1546  of the Interim Reports.  
6.4.  The Panel made structural changes to section 8 in order to distinguish between its findings 
and recommendations in respect of DS472 (complaint by the European Union) and DS497 
(complaint by Japan).  
6.2  Provisions pertaining to developing countries  
6.5.  The Panel inserted section 7.6 that refers to Articles 12.10 and 12.11 of the DSU. These 
provisions pertain to developing countries. The Panel explains in section 7.6 how it took these 
provisions into account in respect of Brazil's participation in this dispute.  
6.3  The scope of the parties' requests for  review of the Interim Reports  
6.6.  The European Union requests additional findings on a number of issues. These requests are 
challenged by Brazil.408  
6.7.  The Panel notes the findings of the previous panels that a request from a party to reverse a 
decision goes beyo nd the scope of Article 15.2 of the DSU409, that the purpose of interim review is 
"not necessarily" for a party to re -argue previously made arguments410, and that the purpose of 
interim review is "not to allow a party to raise new arguments or develop argument s which were at 
most merely alluded to during the course of the proceeding".411 However, the Panel also notes that 
in the latter dispute, the panel did decide to "address certain of the points made by [the 
requesting Member] in its request for review".412 The Panel also notes the approach adopted by 
the panel in Russia – Pigs, where the panel reviewed the "Interim Report only in light of the 
comments made by the parties which relate to 'precise aspects' of the Interim Report."413 That 
panel also rejected requests  from the parties that amounted "to a party re -litigating arguments" 
previously made to the Panel.414  
6.8.  The Panel , therefore , declines to address those requests  from any party  for new findings, or  
that amount to re -litigation of previous arguments. In additio n, the panel will only review the 
Interim Report in light of the comments made the parties which pertain to precise aspects of the 
Interim Report.  
6.4  The "in -house" argument  
6.9.  With respect to paragraphs 7.314 and 7.747 , the European Union argues that the Pane l's 
completion of its legal analysis in respect of the "in -house scenario" is "essential to secure a 
positive solution" to the dispute.415 In the European Union's view, "in order to comply with the 
Panel's report, Brazil may consider it sufficient to leave t he required production steps intact and 
ask accredited companies to internalise those steps."416 In the European Union's view, the 
"complainants would be compelled to start a new panel procedure and repeat their legal claims, 
even though those legal claims a re properly before [the] Panel."417 The European Union therefore 
requests the Panel to complete its legal analysis in respect of the "in -house" scenario. In the 
                                                
408 See European Union's c omments on the Interim Report, paras. 26, 41, 48, 50 and 64. Brazil's 
comments on the European Union and Japan's requests for review of the interim panel report, paras. 10 -11 
((referring to Panel Reports, China – Raw Materials , para. 6.69; Japan – DRAMs (K orea) , para. 6.2; US – 
Poultry (China) , para. 6.2; US – Zeroing (EC) (Article 21.5 – EC), para. 7.26).  
409 Panel Report, China – Raw Materials , para. 6.69.  
410 Panel Report, Japan – DRAMs (Korea) , para. 6.2.  
411 Panel Report, US – Zeroing (EC) (Article 21.5 – EC), para. 7.26  
412 Panel Report, US – Zeroing (EC) (Article 21.5 – EC), para. 7.26  
413 Panel Report, Russia – Pigs, para. 6.6. The Panel referred to Article 15.2 of the DSU, referring to a 
party's right to "submit a written request for the panel to review pre cise aspects of the interim report ". 
(emphasis added) See also Panel Report, India – Agricultural Products , paras. 6.5 -6.6. 
414 Panel Report, Russia – Pigs, para. 6.7.  
415 European Union's comments on the Interim Report, para. 26.  
416 European Union's comments on the Interim Report, para. 26.  
417 European Union's comments on the Interim Report, para. 26.  WT/DS472/R • WT/DS497/R  
 
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  alternative, the European Union requests the Panel to "include in the Report the elements that 
would allow the Appellate Body to complete the legal analysis".418  
6.10.   The Panel understands the argument raised by the European Union above. However, the 
Panel recalls that  "a panel has the discretion 'to address only those arguments it deems necessary 
to resolv e a particular claim' and 'the fact that a particular argument relating to that claim is not 
specifically addressed in the 'Findings' section of a panel report will not, in and of itself, lead to the 
conclusion that that panel has failed to make the 'objec tive assessment of the matter before it' 
required by Article 11 of the DSU'".419  
6.11.   In this respect, the Panel has found that the relevant aspects of the programmes concerning 
production -step requirements, as challenged by the complaining parties in this dispu te, are WTO -
inconsistent for the reasons elaborated upon in sections 7.3.2.2.4 and 7.4.2.4.2 (in respect of 
Article III:4 of the GATT 1994) as well as sections 7.3.4 and 7.4.5 (in respect of Article 2.1 of the 
TRIMs Agreement) and sections 7.3.5 and 7.4.5 (in respect of Article 3.1(b) of the SCM 
Agreement). In light of these findings, the Panel does not consider it necessary in the se 
proceeding s to address the complainants' argument that the relevant production -steps are 
inconsistent with the exact same pro visions, for reasons other than those identified by the Panel.  
6.12.   With respect to the European Union's request in the alternative, for the Panel to m ake 
additional  factual findings for the Appellate Body to complete the analysis, the Panel considers that 
its factual findings are sufficient should the Appellate Body decide to rule on this issue. Indeed, the 
Panel considers that the European Union admits as much when it states that the "relevant facts 
under the outsourcing scenario and the in -house scenario are  the same … the only difference being 
that the accredited company carries out those production steps in -house, instead of avail[]ing 
itself of the possibility to outsource them to another company in Brazil". Contrary to the European 
Union's suggestion,  should the Appellate Body want to review the Panel's analysis, it will be able to 
benefit from  the descriptive part  of the Report , the exhibits contained in the Panel record (and 
identified in the descriptive part) , and the Appendix  attached to the Report .  
6.13.   Regarding the European Union's speculations as to the manner in which Brazil could come 
into compliance with its obligations, the Panel considers it inappropriate at this stage to prejudge 
the manner in which Brazil may come into compliance with such obliga tions. In accordance with  
the relevant provisions of the DSU, and at the appropriate juncture, if the complaining parties 
consider that Brazil has not brought its measures into compliance, then the complaining parties 
may have recourse to dispute settleme nt proceedings pursuant to Article 21.5 of the DSU, if they 
so wish. Any issues pertaining to the manner of Brazil's compliance can be addressed at that 
stage.  
6.14.   For these reasons, the Panel declines the European Union's request to make any additional 
findings in respect of this particular issue.     
6.5  Article 4.7 of the SCM Agreement  
6.15.   In their requests for interim review, the European Union and Japan requested the Panel to 
add certain language to section 8, referring to Article 4.7 of the SCM Agreement. Articl e 4.7 of the 
SCM Agreement states that:  
If the measure in question is found to be a prohibited subsidy, the panel shall 
recommend that the subsidizing Member withdraw the subsidy without delay. In this 
regard, the panel shall specify in its recommendation  the time -period within which the 
measure must be withdrawn.  
6.16.   On 6 December 2016 the Panel submitted an additional question to the parties at the 
interim review stage of the proceedings, regarding the appropriate time -period that, in the view of 
the parties , the panel should specify in its recommendation. On 9 December 2016 the Panel 
received the parties' responses to this question, and on 12 December 2016 the Panel received the 
parties' comments on each other's responses to the question.  
                                                
418 European Union's comments on the Interim Report, para. 26.  
419 Appellate Body Report, EC – Fasteners , para. 511 (referring to Appellate Body Report, EC – Poultry , 
para. 135).  WT/DS472/R • WT/DS497/R  
 
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  6.17.   The Panel notes th at previous panels addressing the specific time -period contemplated 
under Article 4.7 of the SCM Agreement have tended to specify 90 days as the time -period in 
which the subsidy must be withdrawn.420 In this dispute, such a time -period would be significantly  
shorter than the period of time ostensibly contemplated in Article 21.3(c) of the DSU.421 This is 
because, for example, a local content requirement in a subsidy would need to be remedied 
"without delay" (i.e. typically 90 days) when challenged as a prohibit ed subsidy under the SCM 
Agreement, whereas the same local content requirement in the same instruments when challenged 
under the GATT 1994 would need to be remedied within a "reasonable period of time" (ostensibly 
up to 15 months, subject to the arbitrator 's discretion). It is difficult for the Panel to reconcile 
these provisions. However, the Panel notes the Appellate Body's statements in Canada – 
Renewable Energy / Canada – Feed-in Tariff Program  to the extent that the expedited remedy 
provided under Arti cle 4.7 of the SCM Agreement is an "important consideration422 In light of the 
Appellate Body's statements, the Panel is of the view that it must respect the specific remedy 
contemplated in Article 4 of the SCM Agreement. In light of these considerations, th e Panel added 
paragraphs 8.10, 8.11, 8.21 and 8.22 to its conclusions.  
6.6  Confidentiality of the Interim Reports  
6.18.   Pursuant to the DSU, all panel proceedings remain confidential until the Panel Report is 
circulated to WTO Members. Paragraph 25 of the Panel's J oint Working Procedures states that "The 
interim report, as well as the final report prior to its official circulation, shall be kept strictly 
confidential and shall not be disclosed." The confidential nature of the Interim Reports was 
explicitly reiterate d when they were transmitted to the parties on 11 November 2016. On 12 
November 2016, the Panel was made aware of press reports about the contents of the confidential 
Interim Reports. In light of this, the Panel wishes to emphasize its disappointment and c oncern 
that the confidentiality of the Interim Report s was not respected.  
7  FINDINGS  
7.1  Overview of the measures and claims, and the Panel's order of analysis  
7.1.  The complaining parties challenge the WTO -consistency of specific aspects of seven distinct 
"programme s" comprised of multiple laws, decrees, implementing orders ( Portarias ) and other 
legal instruments. Four of these programmes, namely the Informatics, PADIS, PATVD and Digital 
Inclusion programmes, bear substantial similarities to one another, not only in that all four 
programmes are related to the information communication  technology (ICT) sector, but also in the 
design and the way they operate. A fifth programme, the INOVAR -AUTO programme, pertains to 
the automotive sector. Although the complaining partie s invoke the same provisions of the covered 
agreements in respect of the INOVAR -AUTO programme as they do in respect of the ICT 
programmes, the INOVAR -AUTO programme differs from the ICT programmes not only in terms of 
its sectoral coverage (the automotive  industry), but also in terms of its design and operation. 
Finally, the complaining parties raise export subsidies claims against two additional programmes – 
the PEC and RECAP programmes. Since these programmes are only challenged under a single 
provision,  namely Article 3.1(a) of the SCM Agreement, the Panel addresses these claims 
separately and after the prior mentioned claims.  
                                                
420 See, e.g. Panel Reports, Korea – Commercial Vessels , para. 8.5; Canada – Aircraft Credits and 
Guarantees , para. 8.4; Canada – Autos , para. 11.7; Australia – Automotive Leather II , para. 10.7; Brazil – 
Aircraft , para. 8.5; and US – Condition al Tax Incentives for Large Civil Aircraft , para. 8.6.  
421 Article 21.3(c) of the DSU states that: "The reasonable period of time shall be … (c) a period of time 
determined through binding arbitration within 90 days after the adoption of the recommendations and rulings. 
In such arbitration, a guideline for the arbitrator should be that the reasonable period of time to implement 
panel or Appellate Body recommendations should not exceed 15 months from the date of adoption of a panel 
or Appellate Body report. Ho wever, that time may be shorter or longer, depending upon the particular 
circumstances."  
422 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 5.7 
(referring to Appellate Body Report, EC – Export Subsidies on Sugar , paras. 332-335). The Appellate Body 
stated that "[i]n EC – Export Subsidies on Sugar , the remedy provided under Article 4.7 was the reason why 
the Appellate Body found that the panel had improperly exercised judicial economy when it failed to make 
findings u nder the SCM Agreement once it had found a violation of the Agreement on Agriculture".  WT/DS472/R • WT/DS497/R  
 
- 74 - 
 
  7.2.  Specifically with respect to the four ICT programmes (the Informatics, PADIS, PATVD and 
Digital Inclusion programmes) as well as  the INOVAR -AUTO programme, the complaining parties 
claim that these programmes : 
a. Introduce tax and regulatory discrimination in favour of domestic finished and 
intermediate  products, and against imported finished423 and intermediate  like products,  
inconsiste ntly with Article III:2 and III:4 of the GATT  1994;  
b. Introduce regulatory discrimination against imported inputs , in the form of incentives to 
use domestic products over imported like products (so -called local content 
requirements), inconsistently with Arti cle III:4 and III:5 of the GATT 1994;  
c. Constitute trade -related investment measures (TRIMs) that are inconsistent with 
Article  III of the GATT 1994, including conditions that require the purchase or use of 
products from any domestic source,  and therefore co nsequently inconsistent with 
Article  2.1 of the TRIMs Agreement; and  
d. Constitute prohibited subsidies contingent upon the use of domestic over imported 
goods, inconsistently with Article 3.1(b) of the SCM Agreement.  
7.3.  These claims, under the various provisio ns of Article III of the GATT 1994, Article 2.1 of the 
TRIMs Agreement, and Article  3.1(b) of the SCM Agreement, deal (at least in part) with product 
discrimination in respect of imported products vis-à-vis domestic like products. Thus, the subject 
matter of these claims overlap to some extent.  
7.4.  The Panel proceeds by first describing the measures at issue, in the context of which the 
Panel also addresses a challenge by Brazil to the Panel's terms of reference in dispute DS472. 
Thereafter, the Panel discusse s in general terms the overlaps and differences between the various 
provisions prohibiting discrimination between imported and domestic like products in Article III of 
the GATT 1994, as well as the scope of the overlaps and differences between the provisio ns of 
Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement and Article 3.1(b) of the SCM 
Agreement. Finally, for the purposes of this overview, the Panel describes its order of analysing 
the complaining parties' various claims.  
7.1.1   The measures at  issue  
7.5.  As an initial matter, the Panel considers it useful to describe the precise measures at issue in 
this dispute, because Brazil claims that one of the instruments of such programme is not included 
in the Panel's terms of reference. The Panel also cons iders it useful to make some clarifying 
remarks on the categories of products discussed in this report.  
7.6.  In defining the measures as challenged by the complaining parties, the Panel notes the 
statement by the European Union that "[t]he measures at issue in  this dispute are the set of 
advantages in relation to taxes, duties, contributions and charges embodied in and applied through 
a comprehensive set of interrelated programmes."424 The European Union further elaborated that, 
in respect of the INOVAR -AUTO prog ramme, the European Union challenges the "system of 
advantages conferred by Brazil to its automotive sector through the … programme".425 With 
respect to the ICT programmes (the Informatics, PADIS, PATVD, and Digital Inclusion 
programmes), the European Union "raises claims against the fiscal schemes … specifically as 
contained in [the] four programmes".426 Finally, in respect of the PEC and RECAP programmes, the 
European Union challenges the "fiscal schemes which are contingent upon export performance and 
that a ffect multiple economic sectors in Brazil".427 Japan, for its part, notes that the challenged 
                                                
423 The terms "finished products", "intermediate products", and "inputs" are further explained in section 
7.1.1.2  below.  
424 European Union's response to Panel question No. 39.  
425 European Union's response to Panel question No. 39.  
426 European Union's response to Panel question No. 39.  
427 European Union's response to Panel question No. 39.  WT/DS472/R • WT/DS497/R  
 
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  measures "include the seven programmes", and that "[i]n particular, Japan challenges the 
discriminatory aspects of these tax incentive programmes".428  
7.7.  The Panel cons iders that the measures at issue are the sets of allegedly discriminatory 
advantages embodied in each of the identified programmes. The Panel recalls its description of the 
functioning of the challenged programs in section 2 above.  
7.8.  The Panel proceeds by assessing Brazil's argument with respect to the Panel's terms of 
reference in dispute DS472. Thereafter, the Panel will elaborate on the terms used by the Panel 
and the parties to describe the categories of produ cts at issue in this dispute.  
7.1.1.1   The Panel's terms of reference  
7.9.  Brazil alleges that Implementing Order 257/2014 is not within the Panel's terms of reference 
in dispute DS472 because it was not explicitly identified in the European Union's panel request, as 
required by Article 6.2 of the DSU.429 
7.10.   The Appellate Body in US – Countervailing and Anti -Dumping Measures (China)  explained 
that Article 6.2 of the DSU serves a crucial function in WTO dispute settlement as it "establish[es] 
and delimit[s] a panel's jurisdic tion"430 and "fulfils a due process objective".431 In particular, 
insofar as a panel request fails to identify "the specific measures at issue", the panel established 
thereunder does not have jurisdiction to make any findings in respect of those measures.432 
7.11.   In China – Raw Materials  the Appellate Body stated that "whether a panel request identifies 
the 'specific measures at issue' may depend on the particular context in which those measures 
operate and may require examining the extent to which they are capable of  being precisely 
identified."433 The Appellate Body in US – Continued Zeroing also indicated that "the identification 
of a measure within the meaning of Article 6.2 need be framed only with sufficient particularity so 
as to indicate the nature of the measure  and the gist of what is at issue."434  
7.12.   Thus, it may not be necessary to identify every aspect of a challenged measure (or legal 
instrument implementing a challenged measure) in the panel request, provided that the measure 
or legal instrument not explicitly mentioned in the panel request has a "clear relationship to a 
'measure' that is specifically described therein, so that it can be said to be 'included' in the 
specified 'measure'".435 Accordingly, such a condition may be satisfied where the measure or legal 
instrument that is not specified in the request "is subsidiary or so closely related to a measure 
specifically identified that the responding party can reasonably be found to have received adequate 
notice of the scope of the claims asserted by the complain ing party".436 Such a condition may also 
be satisfied where the measures or legal instruments not explicitly referred to in the request 
"implement, supplement, and amend" or "refine" the measures explicitly identified.437 
7.13.   With these principles in mind, the Pan el turns to review Brazil's objection relating to 
Implementing Order 257/2014.  
                                                
428 Japan's response to Panel question No. 39.   
429 Implementing Order 257 of 23 September 2014, (Exhibit JE -158).  
430 Appellate Body Report, US – Countervailing and Anti -Dumping Measures (China) , para. 4.6 (referring 
to Appellate Body Reports, Brazil – Desiccated Coconut , p. 22, DSR 1997:I, 167, at p. 18 6; US – Continued 
Zeroing , para. 161; EC and certain member States – Large Civil Aircraft , para. 640.  
431 Appellate Body Report, US – Countervailing and Anti -Dumping Measures (China) , para. 4.7.  
432 See e.g. Appellate Body Report, US – Continued Zeroing , para.  161 ("[A]s a panel's terms of 
reference are established by the claims raised in panel requests, the conditions of Article 6.2 serve to define 
the jurisdiction of a panel.").  
433 Appellate Body Report, China – Raw Materials , para. 220. (footnotes omitted)  
434 Appellate Body Report, US – Continued Zeroing , para.  169. 
435 Panel Report, Japan – Film, para.  10.8. 
436 Panel Report, Japan – Film, para.  10.8. See also Panel Reports, US – Carbon Steel , para.  8.11; and 
Australia – Salmon (Article 21.5 – Canada) , para.  7.10. 
437 Appellate Body Report, EC – Bananas III , para.  140 (upholding the panel's findings at paragraph 
7.27 of the panel report). See also Communication from the Panel (Preliminary Ruling), India – Agricultural 
Products , 28 May 2013, WT/DS430/5, para.  3.43. WT/DS472/R • WT/DS497/R  
 
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  7.14.   Brazil contends that Implementing Order 257/2014 (alleged to be part of the INOVAR -AUTO 
programme) and consequently Article 41 of Law 12,715/2012 as applied in accordance with 
Implementing Order 257/2014, is outside the Panel's terms of reference because the European 
Union failed to identify this Implementing Order in the panel request as part of the measures at 
issue.438 
7.15.   According to the European Union, Implementing Order 257/2014  merely develops and 
implements Decree 7,819/2012, which is explicitly identified in their panel request, and therefore 
is covered by the phrase in the panel request regarding "any amendments or extensions, any 
replacement measures, any renewal measures, a ny implementing measures, and other related 
measures of the foregoing."439 
7.16.   In assessing Brazil's objection, the Panel must consider the precise content of the Panel's 
terms of reference and the challenged measures.  
7.17.   The European Union's panel request indicat es that, in respect of the INOVAR -AUTO 
programme, the European Union is challenging the "tax advantages consist[ing] in a reduction of 
the IPI tax burden" as well as various other aspects of the INOVAR -AUTO programme, including 
the "earn[ing of] tax credit s which can be used, under certain conditions, to offset the IPI 
otherwise due on the domestic sale of motor vehicles covered by the programme."440 The panel 
request also indicates that the "INOVAR -AUTO programme is set up and implemented through the 
followi ng [legal instruments]", wherein the European Union lists a number of specific legal 
instruments.  
7.18.   For the Panel,  the measures at issue (in respect of INOVAR -AUTO) include the tax 
advantages accorded under the programme, including the rules on earning tax credits, and are 
implemented through various legal instruments. The Panel, therefore, does not consider that these 
legal instruments are themselves the measures at issue, but together their operation within the 
parameters of the programmes, form the "measu res". In the Panel's view, the legal instruments 
indicated by the European Union in its panel request indicate and are evidence of the content of 
the challenged measures, including the rules on earning tax credits.  
7.19.   Turning to the legal instrument alleged to be outside the Panel's terms of reference, the 
Panel notes that Implementing Order 257/2014 lays down, according to its preamble, "additional 
rules on the incentive scheme … [of] INOVAR -AUTO, regulated by Decree No 7.819 of 3 October 
2012, and establish ing procedures to be observed as regards expenditure on strategic materials 
and tools, and the related information processing".441 In particular, this implementing order 
develops the language of Article 12 of Decree 7,819/2012 that regulates the calculation of 
presumed IPI tax credits in the INOVAR -AUTO programme.  
7.20.   The Panel notes that Article 12 of Decree 7,819/2012 itself implements Article 41 of Law 
12,715/2012, and that both Decree 7,819/2012 and Law 12,715 are explicitly identified in the 
European Union' s panel request as legal instruments implementing the INOVAR -AUTO programme. 
Implementing Order 257/2014 therefore has no purpose apart from specifying the procedure and 
methodology of calculating the presumed IPI tax credits. Thus, applying the legal stan dard 
adopted by the Appellate Body, Implementing Order 257/2014 "has a clear relationship to", inter 
alia, Decree 7,819/2012, which "is specifically described" in the European Union's panel request, 
"so that it can be said to be 'included' in the specified  'measure'".  
                                                
438 Brazil's first written submission, para. 539 (DS472). Brazil maintains in particular that since 
Implementing Order 257/2014 (dated 23 September 2014) was in force before the date of the European 
Union's panel request in DS472 (namely 31 October 2014), the  European Union was under the obligation to list 
it explicitly, as it did with the other Implementing Orders in its panel request. Brazil's first written submission, 
para. 539 (DS472). In its view, allowing for the inclusion of Implementing Order 257/2014 would 
unwarrantedly enlarge the scope of the dispute DS472 to any aspect of accounting and credit generation within 
the INOVAR -AUTO programme and violate Brazil's due process rights, since Brazil did not have adequate notice 
that these measures would be wi thin the scope of the dispute. Brazil's first written submission, para. 544 
(DS472).  
439 European Union's responses to the Panel question No. 40.  
440 European Union's request for the establishment of a panel, p. 2.  
441 Implementing Order 257 of 23 September 201 4, (Exhibit JE -158).  WT/DS472/R • WT/DS497/R  
 
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  7.21.   The Panel therefore considers that the rules contained in Implementing Order 257/2014 are 
an integral part of the rules on earning tax credits. In this respect, the Panel does not consider 
that the rules on calculation of "how tax credits are  earned" are additional to, or separate from, 
the "rules on earning tax credits" that are challenged in the panel request. Furthermore, as noted, 
the legal instrument embodying these rules on the calculation of the tax credits has a "clear 
relationship" to  those instruments identified in the panel request, as they are fundamentally linked 
to the legal instruments specifically identified in the panel request as implementing the challenged 
measure. The Panel further considers that Brazil can reasonably be con sidered to have received 
adequate notice of the scope of the claims asserted by the European Union.  
7.22.   In light of the foregoing, the Panel concludes that the rules on calculation of presumed tax 
credits under the INOVAR -AUTO programme, as contained in Imple menting Order 257/2014, are 
within the Panel's terms of reference.  
7.1.1.2   The categories of products concerned by the various taxes at issue  
7.23.   The Panel notes that the claims of the complaining parties in respect of the ICT and 
INOVAR -AUTO programmes pertain to tw o distinct "types" of products, "incentivised products" and 
inputs for the "incentivised products". Brazil, in its defence, has subcategorized the "incentivised 
products" as "intermediate" and "finished" products. Despite not being treaty language, these 
distinctions form a useful analytical tool in understanding the arguments and claims of the parties. 
The Panel therefore recalls and elaborates upon its explanation of the functioning of the 
programmes in section 2.2 above.442  
7.24.   As explained above, a "finished product", as identified by Brazil, is a product that will not 
undergo any further manufacturing. Such "finished" products will be "incentivised" if the company 
producing them is accredited under a particular pr ogramme. If a finished product is "incentivised", 
it means that it receives a particular tax benefit on its sale. In sum, if a particular product is not a 
product that will undergo any further manufacturing, that product can be considered as a 
"finished" p roduct in the context of this panel report. The complaining parties' claims with respect 
to alleged discrimination on finished products are under Articles III:2 and III:4 of the GATT 1994, 
and Article 2.1 of the TRIMs Agreement.  The European Union's claim s under Article III:5 also 
concerns finished products.443  
7.25.   Certain other products at issue in this dispute will be subject to further manufacturing. Such 
products have been identified by Brazil as "intermediate" products. These products will also be 
"incentiv ised" if the company producing them is accredited under a particular programme. If an 
intermediate product is incentivised, it will be subject to a particular tax benefit on its sale. 
However, such intermediate products will be further used in the producti on of a "finished" product. 
The complaining parties' claims with respect to alleged discrimination on intermediate products are 
also under Articles III:2 and III:4 of the GATT 1994, and Article 2.1 of the TRIMs Agreement.  The 
European Union's claim s under Article III:5 also concerns intermediate  products.444  
7.26.   Finally, "inputs" for incentivized products are products that are incorporated into the 
intermediate or finished incentivized products during the production process (indeed, all 
intermediate products can  be considered inputs into final products). Thus, some inputs into 
incentivized products are incentivized intermediate products. Other inputs, whether in the form of 
basic raw materials or intermediate products are, strictly speaking, not "incentivised", b ut a 
company producing an incentivised finished or intermediate product, and accredited under certain 
programmes, may be entitled to receive a tax benefit on the purchase of such inputs, to the extent 
that they are incorporated into "incentivised" intermed iate or finished products. The complaining 
parties' claims with respect to alleged discrimination on "inputs" are under Article III:4 and III:5 of 
the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement.445 
The Panel notes that the term "inputs" in the context of the  analysis of the PPBs  can introduce a 
                                                
442 In addition to the categories described in this section, this Report also addresses tools and packaging 
materials. These products are not relevant for the categorization explained in this section.  
443 See European Union's comments on t he interim report, para. 11.  
444 See European Union's comments on the interim report, para. 11.  
445 The Panel notes that although the "discrimination" in respect of Article 3.1(b) of the SCM Agreement 
is allegedly on inputs , Brazil's arguments vary depending w hether the "subsidized" (in other words, 
incentivised) product is finished  or intermediate .  WT/DS472/R • WT/DS497/R  
 
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  certain confusion. In particular, the term "inputs" encompasses both raw materials and other basic 
components, on the one hand, and intermediate products in a production chai n, on the other hand. 
The complaining parties' claims with respect to the PPBs  do not encompass raw materials and 
other basic components, and thus are limited to intermediate products, and some intermediate 
products themselves are incentivized under the ch allenged programmes. To avoid the potential for 
confusion, in its analysis of the PPBs , the Panel will refer to the products at issue as "manufactured 
components and subassemblies".  
7.27.   Claims and arguments of the parties differ depending on whether the produc t allegedly 
discriminated against is an incentivized finished product, an incentivized intermediate product, or a 
non-incentivized input.  
7.1.2   Overview of the relationship between the complaining parties' multiple claims  
7.28.   Having described the measures at issue,  the Panel notes that in respect of the four ICT 
programmes and the INOVAR -AUTO programme, the complaining parties have presented certain 
cumulative and overlapping claims, involving multiple provisions of the covered agreements. 
Indeed, various different aspects of the challenged programmes are claimed to be inconsistent 
with Article III:2 of the GATT 1994 (covering tax discrimination on products), Article III:4 of the 
GATT 1994 (covering regulatory discrimination on products) as well as Article III:5 of t he GATT 
1994 (covering product discrimination imposed through quantitative regulations). Additionally, 
some of the same aspects of the challenged programmes are claimed to be inconsistent with 
Article 2.1 of the TRIMs Agreement, as well as Article 3.1(b) o f the SCM Agreement.  
7.29.   The Panel therefore considers it useful to briefly address the relationship between these 
claims and related WTO provisions in order to establish a coherent order of analysis. Moreover, the 
Panel notes that the arguments raised by Braz il require a horizontal understanding of the scope of 
application of Article III of the GATT  1994 and related WTO provisions prohibiting discrimination 
between imported and domestic like products. Brazil argues generally that the disciplines of Article 
III (and related provisions of the TRIMs and the SCM Agreements) governing product 
discrimination are not applicable to the challenged programmes, which are concerned with 
production requirements, and not products per se .446 Additionally, Brazil argues that its  challenged 
programmes constitute subsidies to domestic producers within the meaning of Article III:8(b) of 
the GATT  1994, and thus, according to Brazil, the programmes are exempted from the application 
of Article III:2, III:4 and III:5 of the GATT 1994, a nd consequently also from Article 2.1 of the 
TRIMs Agreement.447  
7.30.   In sum, several of the complaining parties' claims concern the WTO prohibitions against 
product discrimination in respect of imported products vis-à-vis domestic like products, as 
expressed in  the GATT 1994, the TRIMs Agreement, and the SCM Agreement. The Panel recalls 
that it is a basic principle of interpreting the WTO Agreement that all WTO provisions apply 
cumulatively and simultaneously, and should be interpreted harmoniously.448 In light of  this, the 
Panel proceeds with its analysis by addressing the relationship between, and scope of, the multiple 
provisions invoked by the complaining parties in respect of the ICT and INOVAR -AUTO 
programmes.  
7.1.2.1   Differences in scope between Articles III:2, III :4 and III:5 of the GATT 1994  
7.31.   The complaining parties claim that the four ICT programmes and the INOVAR -AUTO 
programme entail taxation and requirements applicable to the incentivized products at issue, 
whether finished  or intermediate , and their inputs , inconsistently with Article III:2, III:4 and III:5 
of GATT 1994.  
7.32.   Article III of the GATT 1994 generally prohibits discrimination against imported products. 
Paragraph 1 of Article III states clearly that, in all forms, governmental acts should not be applied  
to imported or domestic products "so as to afford protection to domestic production" :  
                                                
446 See paragraph 7.61 below.  
447 See paragraph 7.71 below.  
448 Appellate Bod y Report, Korea – Dairy , para. 74; Appellate Body Report, Argentina – Footwear (EC) , 
para. 81.  WT/DS472/R • WT/DS497/R  
 
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  The contracting parties recognize that internal taxes and other internal charges, and 
laws, regulations and requirements affecting the internal sale, offering for sale,  
purchase, transportation, distribution or use of products, and internal quantitative 
regulations requiring the mixture, processing or use of products in specified amounts 
or proportions, should not be applied to imported or domestic products so as to affo rd 
protection to domestic production.  
7.33.   Therefore any type of governmental action (including both tax measures and domestic 
regulations) which favours domestic products over like imported products is contrary to Article III 
of the GATT 1994. While Article II I:2 prohibits tax discrimination between imported and domestic 
like products, Article III:4 and III:5 deal with discrimination introduced through regulations . 
Specifically, Article III:4 prohibits regulatory discrimination between imported and like domesti c 
products. As explained in further detail in section 7.3.2.1  below, any regulatory measure that 
affects the conditions of competition in the domestic market to the detriment of imported like 
products is inconsistent with Artic le III:4. Measures prohibited by Article III:4 include, but are not 
limited to , requirements, conditions for obtaining an advantage, and other types of incentives  that 
favour the use of domestic products over imported like products.449 (Similarly, trade -related 
investment measures in the form of requirements to purchase or use domestic products in order to 
obtain an advantage are inconsistent with the TRIMs Agreement, and subsidies contingent on the 
use of domestic over imported goods are inconsistent with th e SCM Agreement.) Article III:5 
focuses on discrimination between imported and like domestic products, imposed through 
quantitative regulations relating to mixture proportions.  
7.34.   It is well established that a single measure can be inconsistent with two or m ore provisions 
of Article III at the same time.450 This is because multiple features of a single measure may 
operate simultaneously. In such a situation, different aspects of the same measure could be 
considered to be covered by the disciplines of either or both Article III:2 and III:4.  
7.35.   In the present dispute, the challenged programmes include both fiscal and non -fiscal 
aspects, applicable to the products at issue, whether finished or intermediate, as well as non -fiscal 
aspects applicable to their inputs. The  complaining parties allege that certain tax aspects of the 
programmes, insofar as they apply to incentivized finished  and intermediate products, are 
discriminatory and inconsistent with Article III:2. The complaining parties also allege that the 
specific conditions and criteria to be satisfied by incentivized finished and intermediate products in 
order to receive the tax advantages, are inconsistent with Article III:4 of the GATT 1994, by 
consisting of conditions for obtaining the advantage in respect of t he incentivized products.  
7.36.   In addition to this discrimination in respect of the incentivized finished and intermediate 
products at issue, the complaining parties allege that the requirements to be satisfied to obtain the 
tax advantages also function as so -called "local content requirements", resulting in discrimination 
against imported inputs used in the production of the incentivized  finished  and intermediate  
products at issue, in favour of like domestic inputs. The complaining parties allege that these 
aspects of the ICT and INOVAR -AUTO programmes are also inconsistent with Article III:4 of the 
GATT 1994.  
7.37.   The complaining parties also argue that those same regulatory criteria and conditions 
resulting in discrimination on inputs are also inconsistent with A rticle III:5. In this respect, the 
complaining parties allege that certain requirements included in the challenged programmes are 
"internal quantitative regulation[s] relating to the processing of products in specific amounts or 
                                                
449 See paragraph 7.258  and footnote 648 below.  
450 See Appellate Body Re port, Thailand – Cigarettes (Philippines) , footnote 144 to para. 114:  
We note that even if a measure at issue consisted solely of administrative requirements, we do 
not exclude the possibility that such requirements may have a bearing on the respective ta x 
burdens on imported and like domestic products, and may therefore be subject to Article III:2. 
Although Thailand may be correct in stating that prior WTO reports have examined measures 
consisting of "administrative requirements relating to the sale of im ported products" under Article 
III:4 (Thailand's appellant's submission, para. 69), this does not in our view demonstrate that, if 
such requirements subject imported and like domestic products to internal taxes or other internal 
charges, the same measures,  or certain aspects of the same measures, could not also be 
scrutinized under Article III:2. (See Panel Report, Argentina – Hides and Leather , para. 11.143 
(finding that administrative measures concerning the pre -payment of tax "qualify as tax 
measures [th at] fall to be assessed under Article III:2"))  WT/DS472/R • WT/DS497/R  
 
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  proportions", and that such  requirements are contrary to Article III:5. Article III:5 prohibits 
"internal quantitative regulation s relating to the mixture, processing or use of products in specified 
amounts or proportions which requires, directly or indirectly, that any specified am ount or 
proportion of any product which is the subject of the regulation must be supplied from domestic 
sources." Article III:5 also explicitly prohibits any regulation from applying internal quantitative 
regulations "in a manner contrary to the principles  set forth in paragraph 1."  
7.38.   In the current dispute, the complaining parties submit three claims of discrimination under 
Article III – specifically they allege that each programme introduces origin -based tax 
discrimination as a result of conditions  that co nsist of local content and quantitative requirements 
relating to the mixture, processing or use of products in specified amounts or proportions, contrary 
to Article III:2, III:4 and III:5 of GATT 1994. As much as possible the Panel will address those 
claim s in the order submitted, in light of their overlaps and taking into account the specific 
functioning of each programme. In doing so the Panel will also ensure due process and the respect 
of Brazil's dispute settlement rights.  
7.1.2.2   Differences in scope between Article III:4 of the GATT  1994, Article 2 of the 
TRIMs Agreement, and Article 3.1(b) of the SCM Agreement  
7.39.   With respect to the ICT and INOVAR -AUTO programmes, in addition to the claims under 
Article III:2, III:4 and III:5 of the GATT 1994, the complaining p arties also bring claims of 
inconsistency under Article 2.1 of the TRIMs Agreement and Article 3.1(b) of the SCM Agreement.  
7.40.   Article 2.1 of the TRIMs Agreement states that "no Member shall apply any TRIM that is 
inconsistent with the provisions of Article III … of GATT 1994". Thus, the scope of Article III of the 
GATT 1994 and Article 2.1 of the TRIMs Agreement overlap broadly; the only difference is that to 
be inconsistent with Article 2.1 of the TRIMs Agreement, the measure must be a trade -related 
investm ent measure (TRIM). As explained by the Panel in Canada – Renewable Energy / Canada – 
Feed-in Tariff Program , it follows that any measure found to be inconsistent with Article III of the 
GATT, that is also a TRIM, will be incompatible with Article  2.1 of t he TRIMs  Agreement.451 In the 
present dispute, this would apply to final products, intermediate products, and inputs.  
7.41.   The TRIMs Agreement also lists, in the Illustrative List annexed to the agreement, examples 
of TRIMs that are specifically inconsistent wit h Article III:4 of the GATT 1994. Paragraph 1(a) of 
the Annex to the TRIMs Agreement explains that "TRIMs that are inconsistent with the obligation 
of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those … 
compliance wit h which is necessary to obtain an advantage, and which require … the purchase or 
use by an enterprise of products of domestic origin or from any domestic source". This provision 
therefore refers to so -called "local content requirements". Thus, if a Panel f inds that a particular 
measure is a TRIM, and that such a measure contains a so -called local content requirement, then 
that local content requirement is necessarily inconsistent with both Article III:4 of the GATT 1994 
and Article 2.1 of the TRIMs Agreemen t.452  
7.42.   In addition, the prohibition on local content requirements is also codified in Article 3.1(b) of 
the SCM Agreement, which prohibits "subsidies contingent … upon the use of domestic over 
imported goods". Over and above the similarities in language to p aragraph 1(a) of the Annex to 
the TRIMs Agreement, there are reasons to believe that Article 3.1(b) codifies in the SCM 
Agreement the principle of non -discrimination already contained in Article III of the GATT 1994. 
This is demonstrated both by the GATT d ispute Italy – Agricultural Machinery  of 1958, and by the 
records of the SCM negotiations of the Uruguay Round.  
7.43.   In the Italy – Agricultural Machinery  dispute in 1958, the GATT panel found that a subsidy 
to Italian farmers to purchase Italian -made tractors  was inconsistent with Article III:4, because 
the subsidy programme, which fell within the scope of Article III:4, favoured domestic tractors 
over imported tractors. The GATT panel found that Article III:8(b) did not apply to the subsidy in 
question, as th e subsidy was not to producers  of Italian tractors but to purchasers  thereof.  
                                                
451 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 7.117.  
452 See Panel Reports, Indonesia – Autos , para. 14.61 ("The TRIMs Agreement and Article III:4 prohibit 
local content requ irements that are TRIMs and therefore can be said to cover the same subject matter."); India 
– Solar Cells , para. 7.54 ("TRIMs falling under paragraph 1(a) of the TRIMs Illustrative List are necessarily 
inconsistent with Article III:4 of the GATT 1994").  WT/DS472/R • WT/DS497/R  
 
- 81 - 
 
  7.44.   Furthermore, the negotiating history of the SCM Agreement demonstrates the intention by 
the drafters to include in the SCM Agreement, for clarity and certainty, the pre -existing  
prohibitions on product discrimination as contained in the GATT 1947:  
Some participants [in the Uruguay Round Negotiating Group on Subsidies and 
Countervailing Measures] expressed their reservation on the proposed category of 
other trade -related subsidie s [i.e., prohibited subsidies]. They considered that 
subsidies proposed for this category were already covered by Article III of the 
General Agreement (subsidies that were contingent upon the use of domestic over 
imported goods) or by Article XVI:4 (subsid ies contingent upon export 
performance). Some other participants explained that although these subsidies 
were already prohibited by other provisions of the General Agreement, their 
inclusion into the category of prohibited subsidies would serve the purpose  of 
better clarity and certainty.453 
7.45.   A harmonious reading of Article 3.1(b) of the SCM Agreement (which prohibits subsidies 
contingent upon of the use of domestic over imported products ) and Article III:4 of the GATT 1994 
(which prohibits laws, regulations a nd requirements that discriminate against imported products, 
including local content requirements), read in light of paragraph 1(a) of the Annex to the TRIMs 
Agreement, indicates that a subsidy contingent on the use of domestic over imported products 
would  be inconsistent with both Article 3.1(b) of the SCM Agreement and Article III:4 of the 
GATT  1994.  
7.46.   Since any measure that is a TRIM and that is inconsistent with Article III of the GATT 1994 
is consequently also inconsistent with Article 2.1 of the TRIMs Agreement, it follows that a 
measure that is both a subsidy and a TRIM454, and that requires (or is contingent upon) the use of 
domestic products over imported products, will be inconsistent with Article III:4 of the GATT 1994, 
Article 2.1 of the TRIMs Agree ment and Article 3.1(b) of the SCM Agreement.  
7.47.   Although there is some overlap between these three provisions, as explained above, there 
are also differences in their respective scope of application. In particular, the scope of Article III:4 
of the GATT 199 4 is broader than that of Article 2.1 of the TRIMs Agreement and Article 3.1(b) of 
the SCM Agreement, since it refers generally to "laws, regulations and requirements". A measure 
is only covered by Article 2.1 of the TRIMs Agreement if it is a TRIM within the meaning of that 
agreement.455 Similarly, a measure is only covered by Article 3.1(b) of the SCM Agreement if it is 
a subsidy within the meaning of that agreement. In this regard, on an issue not discussed by the 
Appellate Body on appeal, the panel in Canada – Autos  stated as follows:  
We recognize that Article 3.1(b) in some sense has its roots in Article III:4 of GATT 
and in certain interpretations of that provision, which relates to non -discrimination. 
We do not consider however that Article 3.1(b ) ipso facto has the same scope as 
Article III:4. To the contrary, while Article III:4 of GATT speaks of "treatment no less 
favourable" and of requirements "affecting" internal sale, Article 3.1(b) speaks of 
subsidies "contingent upon the use of domestic over imp orted goods ".456 
7.48.   The Appellate Body in Canada – Renewable Energy / Canada – Feed-in Tariff Program  also 
noted the partial overlaps between Article III:4 of the GATT 1994, Article 2 of the TRIMs 
Agreement and Article 3.1(b) of the SCM Agreement:  
Both the nati onal treatment obligations in Article III:4 of the GATT 1994 and the 
TRIMs Agreement, and the disciplines in Article 3.1(b) of the SCM Agreement, are 
cumulative obligations. Article III:4 of the GATT 1994 and the TRIMs Agreement, as 
                                                
453 Note by the Secretariat, Meeting of 26 -27 September 1989, GATT Doc. MTN.GNG/NG10/13 (Oct. 16, 
1989), para. 6.  
454 Therefore presumably also a "law, regulation [or] requirement" within the scope of Article III:4.  
455 The Panel notes the statement by the pane l in Indonesia – Autos  that if a measure constitutes a local 
content requirement, then it would "necessarily be 'trade -related' because such requirements, by definition, 
always favour the use of domestic products over imported products, and therefore affec t trade." Panel Report, 
Indonesia – Autos , para. 14.82. Nonetheless, for a measure (including a local content requirement) to be a 
TRIM and therefore subject to paragraph 2.1 of the TRIMs Agreement, such a measure must also be an 
"investment measure". This  must be determined on a case -by-case basis.  
456 Panel Report, Canada – Autos , para. 10.215. (emphasis added)  WT/DS472/R • WT/DS497/R  
 
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  well as Article 3.1(b) of the SCM Agreement, prohibit the use of local content 
requirements in certain circumstances . These provisions address discriminatory 
conduct...457 
7.49.   In sum, a subsidy prohibited under Article 3.1(b) of the SCM Agreement would appear to be 
inconsistent with A rticle III:4 of the GATT 1994. Such a subsidy would therefore also be 
inconsistent with Article 2.1 of the TRIMs Agreement to the extent that the measure is a TRIM. By 
contrast, a demonstration of inconsistency with Article III:4 of the GATT 1994 does not necessarily 
imply inconsistency with Article 3.1(b) of the SCM Agreement (the scope of which is narrower in 
prohibiting only subsidies  that are contingent upon the use of domestic over imported products) or 
Article 2.1(b) of the TRIMs Agreement (unless the  measure is a TRIM, in which case a finding of 
inconsistency with Article III:4 of the GATT 1994 would imply a finding of inconsistency with 
Article  2.1 of the TRIMs Agreement).  
7.1.3   Order of analysis of the complaining parties' multiple claims  
7.50.   The Panel needs  to explain its order of analysis of the complaining parties' multiple claims.  
7.51.    The Panel recalls that the complaining parties in the present dispute have alleged that the 
ICT and INOVAR -AUTO programmes impose tax and regulatory discrimination on final products 
and intermediate products, contrary to Article III:2 and III:4 of the GATT 1994; as well as 
regulatory discrimination on inputs in the form of local content requirements, contrary to Article 
III:4 and III:5 of the GATT 1994. Additionally they have ar gued that all measures constitute 
TRIMs, and therefore all findings of inconsistency in respect of Article III must result in 
consequential findings of inconsistency with Article 2.1 of the TRIMs Agreement. Finally, the 
complaining parties argue that the m easures constitute prohibited subsidies contingent upon the 
use of domestic over imported goods, contrary to Article 3.1(b) of the SCM Agreement. 
Additionally, the complaining parties challenge the PEC and RECAP programmes under a single 
provision, namely Article 3.1(a) of the SCM Agreement.  
7.52.   With respect to the broad set of claims regarding the ICT and INOVAR -AUTO programmes, 
Brazil submits two general defences regarding the applicability of Article III of the GATT 1994, 
Article 2 of the TRIMs Agreement, a nd Article 3 of the SCM Agreement, to the challenged 
measures. Brazil also submits additional specific arguments regarding each specific provision 
invoked by the complaining parties, in respect of all challenged programmes.  
7.53.   In light of the sweeping nature  of Brazil's general defences, the Panel starts its analysis by 
first assessing Brazil's two general defences, notwithstanding the fact that these defences are not 
made in respect of two of the challenged programmes, namely the PEC and RECAP programmes.  
7.54.   Subsequently, the Panel will proceed by addressing the specific claims of the complaining 
parties with respect to each programme. Recalling that the Informatics, PADIS, PATVD and Digital 
Inclusion programmes are all related to the ICT sector, and are similar  in design and operation, 
the Panel proceeds by assessing the complaining parties' claims of WTO -inconsistency on these 
four programmes together, on a programme -by-programme basis, and distinguishing between 
different claims. Specifically, the Panel conduc ts its analysis for each programme by first assessing 
the complaining parties claims under Article III:2 of the GATT 1994, before turning to Article III:4 
and the broad WTO prohibition against conditioning an advantage or subsidy on the use of 
domestic ove r import products, also included in Article 3.1(b) of the SCM Agreement and the 
Illustrative List annexed to the TRIMs Agreement.  The Panel will decline by judicial economy to 
consider the claims under Article III:5 of the GATT 1994 and will thus proceed t o address the 
claims that such programmes include subsidies contingent upon the use of domestic over imported 
products under Article 3.1(b) of the SCM Agreement before turning to the claims that the same 
programmes constitute TRIMs measure inconsistent wit h Article 2.1 of the TRIMs Agreement.  
7.55.   The Panel will continue its analysis by addressing the INOVAR -AUTO programme. The Panel 
will conduct its analysis of the claims in the same order as its analysis for the ICT programmes, as 
indicated above.  
                                                
457 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 5.5. 
(emphasis added)  WT/DS472/R • WT/DS497/R  
 
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  7.56.   Finally, t he Panel will address the sole claims under Article 3.1(a) of the SCM Agreement for 
the PEC and RECAP programmes, in that order.  
7.2  Brazil's general defences  
7.57.   The Panel now turns to two general defences raised by Brazil in respect of the complaining 
parties' claims of discrimination (specifically Article III:2, III:4, and III:5 of the GATT 1994, Article 
2.1 of the TRIMs Agreement, Article 3.1(b) of the SCM Agreement) for the ICT -related 
programmes (i.e. the Informatics, PADIS, PATVD and Digital Inclusion progr ammes) and the 
INOVAR -AUTO programme.  
7.58.   First, Brazil submits that Article III of the GATT 1994 does not apply to the challenged 
measures because the disciplines of Article III govern discrimination on products , whereas the 
challenged programmes are not prod uct-related but rather impose process and production -step 
requirements. Similarly, the disciplines of Article 2 of the TRIMs Agreement and Article 3 of the 
SCM Agreement relate to products , and are therefore equally inapplicable to the measures at 
issue.458  
7.59.   Brazil's second general defence is that the challenged measures constitute "payments of 
subsidies exclusively to domestic producers" within the meaning of Article III:8(b) of the 
GATT  1994, and, therefore are exempted from the disciplines of paragraphs 2,  4 and 5 of Article 
III of the GATT 1994. In Brazil's view this would also exclude the challenged programmes from the 
scope of Article 2 of the TRIMs Agreement. According to Brazil, the disciplines in Article III:2, III:4 
and III:5 of GATT 1994 are not app licable to the challenged programmes and therefore the Panel 
need not consider whether such challenged programmes are inconsistent with Article III:2, III:4 
and III:5 of GATT 1994, or other related and overlapping prohibitions included in Article 2 of the 
TRIMs Agreement and in Article 3.1(b) of the SCM Agreement.459  
7.60.   For due process reasons, and without taking a view at this stage of the analysis on whether 
Brazil's allegations are correct factually and legally, the Panel will consider these defences by Braz il 
to the fullest extent possible before entertaining any specific claims by the complaining parties of 
the challenged programmes' alleged inconsistencies with Article III:2, III:4 and III:5 of the 
GATT  1994, Article 2 of the TRIMs Agreement and Article 3. 1(b) of the SCM Agreement.  
7.2.1   Whether the challenged programmes are outside the scope of Article III of the 
GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM 
Agreement, because they regulate production and not products  
7.61.   Brazil argue s that Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement, and 
Article 3.1(b) of the SCM Agreement, relate to differences in the treatment of imported and 
domestic products based on the origin of the relevant products.460 In the view of Brazil,  the 
measures at issue concern only pre -market obligations regarding production and investment in 
research and development (R&D) by producers.461 According to Brazil, "[n]othing in the plain text 
of these provisions authorizes [an] interpretation that differ ent treatment related to factors other 
than origin and unrelated to the use of products or to percentages of domestically produced inputs 
is covered by those provisions."462 Brazil therefore argues that the challenged measures are not 
within the scope of the se provisions.463  
                                                
458 See paragraph 7.61 below.  
459 See paragraph 7.71 below.  
460 Brazil's first written submissions, paras. 80 -93 (DS472) and paras. 52 -60 (DS497).  
461 Brazil's first written submissions, paras. 167, 173, 1 81, 184, 229, 231, 232, 287, 327, 340, 377, 
461, 477, 489, 578, 586, 744 and sections 5.1.2.3.1, 5.2.2.3.1, 5.3.2.3.1, and 5.4.3.2.1 (DS472) and paras. 
125, 140, 143, 182, 185, 186, 208, 238, 276, 290, 318, 333, 398, 413, 424, 426, 497, 514, and 519, and 
sections 4.1.2.4.1, 4.2.2.4.1, 4.3.2.4.1, and 4.4.2.4.1 (DS497).  
462 Brazil's first written submission, para. 57 (DS497). Brazil specifically asserts that per the Ad Note to 
Article XVII of the GATT 1994, the term "goods" is "limited to products as understood  in commercial practice", 
which would exclude production step requirements, research and development (R&D) requirements or 
development requirements. Brazil's first written submissions, para. 241 (DS472) and para. 194 (DS497). Brazil 
also argues that the Ap pellate Body has distinguished between goods in the market, and production, in the 
subsidies context. Brazil's first written submissions, para. 182 (DS472) and para. 141 (DS497) (referring to 
Appellate Body Report, EC – Large Civil Aircraft , para. 1054). A ccording to Brazil, since the measures "are WT/DS472/R • WT/DS497/R  
 
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  7.62.   In the view of the complaining parties, it is irrelevant whether the measures are imposed on 
producers or production -steps, and not directly on products in the market itself. The European 
Union notes that the "key element" to determine whe ther the measures are within the scope of the 
relevant provisions is whether the measures modify the conditions of competition to the detriment 
of imported products, relative to domestic like products, and cites jurisprudence that it considers 
to support t he view "that measures affecting the equality of the conditions of competition between 
domestic and imported products cannot be limited to measures directly regulating products or 
imposing market requirements."464 Japan further argues that " if merely being d irected towards 
particular producers or pertaining to production processes cured any WTO -inconsistency, then 
circumvention of WTO disciplines would be trivially easy."465 
7.63.   In the Panel's view, the plain text of Article III of the GATT 1994 is sufficient to re fute 
Brazil's argument. Article III:1, containing the overarching national treatment obligation that is 
then elaborated in the remaining paragraphs of Article III, is phrased in broad and inclusive 
language, referring to, and covering among other things, " internal taxes and other internal 
charges, and laws, regulations and requirements affecting  the internal sale, offering for sale, 
purchase, transportation, distribution or use of products".  Article  III:4 contains similar language, 
also referring to all law s, regulations and requirements affecting […]  internal sale, offering for sale, 
purchase, transportation, distribution or use" of imported and domestic like products. This broad 
language cannot be seen as limited to measures directed at products only once they are in the 
market, as Brazil argues. Not only is the language not limited in that way, logically there is no 
reason why a measure directed at a producer rather than a product could not "affect" the internal 
sale, offering for sale, purchase, etc. of d omestic and imported products. Furthermore, if the 
formalistic approach advanced by Brazil were correct, it would be simple to entirely avoid the 
bedrock national treatment requirement of the multilateral trading system.  
7.64.   Additionally, there is a long line of jurisprudence confirming this view of Article III, 
extending back to the GATT era. As explained by the GATT panel in US – Section 337 : 
The fact that Section 337 is used as a means for the enforcement of United States 
patent law at the border does not pr ovide an escape from the applicability of Article 
III:4; ... Nor could the applicability of Article III:4 be denied on the ground that most 
of the procedures in the case before the Panel are applied to persons rather than 
products,  since the factor determi ning whether persons might be susceptible to 
Section 337 proceedings or federal district court procedures is the source of the 
challenged products, that is whether they are of United States origin or imported.466 
 
7.65.   WTO panels and the Appellate Body also have made it clear that if  the application of a 
governmental measure can potentially affect trade in products, then that measure is covered by 
the national treatment obligation contained in Article III:2 and III:4 of the GATT  1994, even if the 
measure is presen ted in the form of requirements on firms, producers, or production, as opposed 
to direct requirements on products. In this respect, for example, the Appellate Body in China – 
Publications and Audiovisual Products  stated that measures that do not directly r egulate goods or 
importation of goods but rather impose obligations on enterprises, can nonetheless be inconsistent 
with Article III:4, because they can affect trade in products.467 Thus, Article III:4 of the GATT 1994 
disciplines all measures that "affect" the internal sale, offering for sale, purchase, transportation, 
distribution, or use of products, in such a way that accords less favourable treatment to imported 
                                                                                                                                                  
related to pre -market conditions that do not fall under the purview of Article III, they do not affect imported 
products in a manner inconsistent with Article III." Brazil's first written submissions, para. 184 ( DS472) and 
para. 143 (DS497).  
463 See Brazil's first written submissions, paras. 176 -185, 200 -201, 224 -231, 265 -268, 329 -333, 338 -
345, 384, 395 -400, 477 -480, 487 -490, 547 -548, 581 -583, 585 -586, 593 -594 and 744 -745 (DS472) and 
paras. 135 -144, 156 -157, 177 -185, 206 -208, 216 -219, 279 -283, 288 -295, 325, 333 -338, 413 -414, 416 -419, 
424-427, 472 -473, 497, 510, 516, 518 -519, 525 -527 and 675 -676 (DS497). See also Brazil's opening 
statement at the first meeting, paras. 39 -46. Brazil also argues that because the measur es are outside the 
scope of Article III, the measures are not inconsistent with Article 2.1 of the TRIMs Agreement. Brazil's first 
written submissions, paras. 286 -288, 292, 346 -347, 380 -381, 460 -461, 479 -480, 494, and 743 -744 (DS472) 
and paras. 240 -242, 29 6-297, 397 -398, 431 -432 and 675 -676 (DS497).  
464 European Union's second written submission, paras. 12 -20.  
465 Japan's second written submission, paras. 25 -28. 
466 GATT Panel Report, US – Section 337 , para. 5.10. (emphasis added)  
467 Appellate Body Report, China – Publications and Audiovisual Products , para. 227.  WT/DS472/R • WT/DS497/R  
 
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  products. The phrase "laws, regulations, or requirements" encompasses a variety of government al 
measures, from mandatory rules which apply across the board, to government action that merely 
creates incentives or disincentives for otherwise voluntary action by private persons.468 
7.66.   Several other WTO disputes have concerned regulations affecting produce rs or production 
that also were found to be subject to the disciplines of Article III. In Thailand – Cigarettes 
(Philippines) , the challenged measure subjected resellers of imported cigarettes to VAT when they 
did not satisfy prescribed conditions for obta ining input tax credits necessary to achieve zero VAT 
liability. The Appellate Body found that "[w]hether such conditions are satisfied thus has a direct 
consequence for the amount of tax liability imposed on imported cigarettes". In Indonesia – Autos , 
the panel noted that "[u]nder the Indonesian car programmes the distinction between the 
products for tax purposes is based on such factors as the nationality of the producer or the origin 
of the parts and components contained in the product". The requirements  imposed on those car 
manufacturers fell under the scope of Article III:2 of the GATT 1994 because of the discriminatory 
effect on imported products. Similarly, the panel in India – Autos  found that an indigenisation 
requirement imposed on car manufacturer s modified the conditions of competition in the market to 
the detriment of imported products and was therefore inconsistent with Article III:4. In Argentina 
– Hides and Leather , the panel addressed a tax collection mechanism that required the pre -
payment o f taxes limited to internal sales made by only certain taxable persons, so -called agentes 
de percepción , whilst in respect of import transactions a pre -payment obligation would arise 
without regard to who made them. The panel found that by requiring the pr e-payment of the IVA 
(an indirect tax similar to a value -added tax) on imports by non -registered taxable persons when 
no pre -payment of the IVA or additional IVA payment of equal amount was required on internal 
sales to non -registered taxable persons, the responding party acted contrary to Article III:2, first 
sentence. In all of these disputes, the relevant measures were imposed on persons and not 
directly on products and the cited provisions of Article III continued to apply.  
7.67.   Brazil's general defence is c ategorical: that all measures directed at producers (so -called 
"pre-market" measures) are for that reason alone (and without regard to their actual or potential 
discriminatory market effects) entirely exempted from Article III.469 However, in previous disput es 
such measures have been found  to be inconsistent with Article III . As noted in para graph  7.66 
above, there are many such instances, and this general defence by Brazil thus fails.  
7.68.   Furthermore, because any tra de-related investment measure that is inconsistent with Article 
III of the GATT 1994 is also inconsistent with the TRIMs Agreement, this defence by Brazil fails in 
respect of the claims under that Agreement.  
7.69.   The Panel further considers that such reasoning  is equally applicable to claims under Article 
3.1(b) of the SCM Agreement. In the Panel's view, whether a particular measure is a "pre -market" 
requirement is not determinative of whether or not the measure is within the scope of the SCM 
Agreement. Indeed,  Brazil's interpretation would enable Members to circumvent their obligations 
under the SCM Agreement.  
7.70.   In light of the foregoing, the Panel concludes that Article III of the GATT 1994 is not per se 
inapplicable to certain measures, in particular "pre -market" measures directed at producers. For 
the same reasons, the Panel concludes that the TRIMs Agreement and the SCM Agreement are not 
per se inapplicable to such measures. The panel will therefore conduct its analysis of each of the 
challenged measures purs uant to the cited provisions of Article III and the TRIMs Agreement on a 
case-by-case basis.  
7.2.2   Whether Article III:8(b) of the GATT 1994 exempts certain of the challenged 
measures from the disciplines  of Article III of the GATT 1994 and related provisions  
7.71.   Brazil's second general defence to the claims under Article III of the GATT 1994 is that the 
disciplines of that Article are inapplicable to the Informatics and INOVAR -AUTO programmes 
because those programmes provide subsidies paid exclusively to domestic p roducers within the 
meaning of Article III:8(b) of the GATT 1994. According to Brazil, these alleged subsidies to 
producers are provided to offset the costs of participating in the programmes, do not pass through 
                                                
468 Panel Report, China – Publications and Audiovisual Products , para. 7.1512.  
469 See Brazil's first written submissions, para. 184 (DS472) and para. 143 (DS497). See also Brazil's 
first written submission, paras. 167 and 173 (DS472).  WT/DS472/R • WT/DS497/R  
 
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  to the final products, and therefore do not  affect the conditions of competition in the market, such 
that those measures are excluded from the scope of application of the disciplines of Article III of 
GATT 1994.470 
7.72.   The complaining parties argue that Article III:8(b) does not cover subsidies in the fo rm of 
exempted or reduced taxes, and instead only exempts payments to domestic producers to the 
extent that such payments do not discriminate between domestic and imported goods.471 The 
European Union also argues that the subsidies at issue in this dispute a re not subsidies exclusively 
to domestic producers within the meaning of Article III:8(b), but rather benefit certain products 
and not producers.472 
7.73.   A number of third parties also have expressed views on this issue. Australia, Korea and 
Ukraine indicate that  for a subsidy to be exempted from the disciplines of Article III, pursuant to 
Article  III:8(b) of the GATT 1994, that subsidy must not discriminate between imported products 
and domestic products such that the competitive opportunities for imported produc ts in the market 
are adversely affected.473  
7.74.   Other third parties have referred to Article III:8(b) in the context of interpreting 
Article  3.1(b) of the SCM Agreement. Canada and the United States rely on Article III:8(b) of the 
GATT 1994 to support their arg ument that Article 3.1(b) of the SCM Agreement permits the 
granting of production  subsidies – including subsidies in the form of exempted or reduced taxes  – 
to domestic producers, which necessarily includes the right to impose certain production 
requiremen ts and production steps, so long as these production steps are required to be 
performed by the producer receiving the subsidy (i.e. all production steps must take place "under 
one roof").474  
7.75.   Brazil's argument therefore raises the question of the meaning and  operation of Article 
III:8(b). Among the issues are the scope of the provision, and its role within the overall non -
discrimination obligation in Article III. In particular, does Article III:8(b), as Brazil seems to argue, 
carve out of the application of A rticle III all subsidies paid exclusively to domestic producers on 
that basis alone, regardless of whether they introduce or are associated with discrimination based 
on the origin of products? Or instead does it only clarify, as the complaining parties and  some third 
parties assert, that the act of paying subsidies exclusively to domestic producers by itself does not 
constitute inconsistency with the national treatment obligation in Article III, but only to the extent 
that such subsidies do not introduce an  element of discrimination between domestic and imported 
products?  
7.76.    The Panel turns first to the text of Article III:8(b) of the GATT 1994:  
                                                
470 Brazil's first written submission, paras. 174, 187 -199, 289, 290 -291, 328, 330, 346, 378, 401, 442, 
460, 478, 494, 549 -555, 557, 560, and 745 (DS472) and paras. 126, 143, 145 -155, 239, 240 -241, 277, 280, 
296, 319, 397, 414, 43 1, and 475 -483 (DS497). The Panel notes that Brazil argues that under the ICT 
programmes, the tax treatment afforded to domestic producers of intermediate products is not a subsidy 
because such tax treatment merely compensates for investment in research an d development and other costs 
of compliance. Nevertheless, Brazil insists that if the panel disagrees with such reasoning, then their 
arguments in respect of domestic producers of finished products would also apply to producers of intermediate 
products. Br azil's first written submission, fn 120 (DS472) and fn 111 (DS497).  
471 European Union's second written submission, 23 -33; Japan's second written submission, paras. 47 -
59. In particular, according to Japan, " Article III:8(b) does not categorically exempt  all subsidies that are 
granted exclusively to domestic producers from the other paragraphs of Article III; rather, such subsidies may 
still be subject to the disciplines of the other paragraphs of Article III under certain conditions."  Japan's second 
written submission, para. 50. (emphasis original)  
472 European Union's second written submission, para. 35.  
473 Australia's third party submission, paras. 12 -15. Korea's third party statement, paras. 2 -6; Ukraine's 
third party submission, para. 11.  
474 Canada's third p arty submission, para. 6 and fn 5; United States' third party statement, para. 12. 
According to Canada and the United States, such subsidies to domestic producers would not be subject to the 
disciplines of Article III of the GATT 1994, even if they amount to discrimination against imported products. 
However, both Canada and the United States consider that any discrimination resulting from subsidies to 
domestic producers that are contingent on the use of local content (in the form of products manufactured by  
domestic producers other than the subsidized producer) would constitute discrimination subject to the 
disciplines of Article III.  WT/DS472/R • WT/DS497/R  
 
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  The provisions of this Article shall not prevent the payment of subsidies exclusively to 
domestic producers, includ ing payments to domestic producers derived from the 
proceeds of internal taxes or charges applied consistently with the provisions of this 
Article and subsidies effected through governmental purchases of domestic products.  
7.77.   The Panel notes, first, that at a  minimum the text of Article III:8(b) makes clear that 
subsidies given exclusively to domestic producers, do not per se  and for that reason alone violate 
Article III of the GATT 1994. In fact, subsidies as such are not regulated by Article III, but rather 
by the provisions of Article XVI of the GATT 1994 and by the SCM Agreement. Indeed, all parties 
agree that Article  III:8(b) implies that WTO Members can provide subsidies to their domestic 
producers without giving the same subsidies to foreign producers wi thout falling afoul of the 
national treatment obligation of Article III.475  
7.78.   In this regard, the Panel notes that without Article III:8(b), Article III as a whole, and 
Article III:4 in particular, might be seen as prohibiting all subsidization that was provi ded only to 
domestic, and not to foreign, producers. This is because both Article III:1 (the overarching 
provision establishing the basic rule that is then further elaborated in the remaining paragraphs of 
Article III) and Article III:4 speak of, and disci pline, inter alia regulatory measures "affecting" the 
sale, offering for sale, purchase, transportation, distribution, or use, of products. It is clear that a 
subsidy is a form of regulatory measure that can and often does "affect" the sale, purchase, etc.  of 
products in ways that create advantages in the domestic market vis-à-vis products that have not 
benefited from the subsidy, including for example imported products. In fact, providing a 
competitive advantage in relation to market conditions is a typica l intention behind subsidization. 
The "adverse effects" provisions of the subsidy disciplines in Article XVI of the GATT 1994 and the 
SCM Agreement are precisely aimed at the adverse trade effects that can be caused by the 
competitive advantages provided b y subsidization. Thus, in the absence of a provision such as 
Article III:8(b), Article III:4 might be read to require governments of importing Members to 
provide subsidies to foreign competitor firms whenever they subsidize their own domestic firms; or 
alternatively to prohibit all subsidies provided only to domestic and not also to foreign producers. 
Such an approach would be inconsistent with the very existence of the SCM Agreement, which in 
principle permits subsidies, except for two precise types of pro hibited subsidies (namely export 
subsidies and subsidies contingent upon the use of domestic goods), and contains no requirement 
that subsidies, to be permitted, must be provided to foreign as well as domestic recipients.  
7.79.   In sum, at a minimum, Article III :8(b) of the GATT 1994 makes explicit that Article III does 
not require subsidization of foreign producers in tandem with domestic producers. In other words, 
the provision of subsidies only to domestic producers and not to foreign producers cannot in itsel f 
be inconsistent with Article III. Such exclusive provision of subsidies (or any eventual effects 
therefrom in the domestic market) does not by itself constitute discriminatory treatment in respect 
of imported products of the type prohibited by Article II I. 
7.80.   Brazil argues that Article III:8(b) stands for more than this principle, however, and that 
Article III:8(b) effectively exempts all tax and regulatory discrimination between imported and 
domestic products from the disciplines of Article III to the exten t that the measures in question are 
subsidies to domestic producers. By contrast, the complaining parties, citing the panel report in 
Indonesia – Autos , argue that in order for any measure to be excluded from the disciplines  of 
Article III pursuant to Arti cle III:8(b), such a measure must " not have any component that 
introduces discrimination between imported and domestic products".476  
                                                
475 European Union's second written submission, para. 29; Japan's second written submission, para. 50; 
Brazil's first written s ubmission, paras. 186 -199 (DS472) and paras. 145 -155 (DS497).  
476 Brazil's second written submission, para. 39 (referring to Panel Report, Indonesia – Autos,  
para. 14.43). See also European Union's second written submission, paras. 29 -30; Japan's second wri tten 
submission, paras. 50 -53. Brazil argued in its first written submission that "the Informatics Programme falls 
outside the scope of Article III of the GATT 1994, since it provides subsidies paid exclusively to domestic 
producers under Article III:8(b) of [the] GATT 1994", and that "[t]he provision as it is worded ( 'shall not 
prevent) means that if a measure is covered by Article III:8(b), it cannot be inconsistent with any provision in 
Article III". See Brazil's first written submissions, paras. 186 -199 (DS472) and 145 -155 (DS497). Brazil 
repeats this argument for all ICT programmes. See Brazil's first written submissions, paras. 328, 330, 346, 
378, 401, 442, 460, 478, 494, 549 -555, 557, 560, and 745 (DS472) and paras. 277, 280, 296, 319, 397, 414, 
431, and 475 -483 (DS497). Yet in its second written submission, Brazil concedes that for a measure to be 
covered by Article III:8(b) it "must not have any component that introduces discrimination between imported WT/DS472/R • WT/DS497/R  
 
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  7.81.   Brazil's argument thus raises the more specific aspects of the relationship between the 
national treatment non -discriminatio n provisions in Article III of the GATT 1994, and the 
multilateral rules governing the provision of subsidies (contained in Article XVI of the GATT 1994 
and the SCM Agreement). In particular, the issue is whether Brazil's reading of Article III:8(b) is 
the only one that avoids a conflict of law between the non -discrimination obligation in Article III of 
the GATT 1994 on the one hand, and the ability to subsidize domestic producers on the other 
hand.  
7.82.   In this regard, the Panel first notes that multilateral r ules on subsidies have coexisted with 
those on national treatment – including the proviso in Article III (Article III:8(b)) that clarifies the 
nature of that coexistence – since the entry into force of the GATT 1947. The Panel does not 
consider that the ad option of the SCM Agreement altered this basic harmonious coexistence. 
Indeed, as discussed above, the negotiating history of the Uruguay Round suggests that the 
intention of Article 3.1(b) of the SCM Agreement was simply to codify the already -existing 
prohibition, pursuant to Article III:4 of the GATT 1994, of subsidies contingent on the use of 
domestic over imported goods. In this respect, the Panel recalls its discussion from paragraphs 
7.39 to 7.49 above to the effect that the provisions on discrimination in Article III of the GATT 
1994 and the provisions of the SCM Agreement can apply to the same measure simultaneously. 
Thus, in principle, there is no conflict betw een the non -discrimination rules in Article III of the 
GATT 1994 insofar as they apply to subsidies, and the rules that directly govern subsidies, 
including both Article XVI of the GATT 1994 and the provisions of the SCM Agreement.  
7.83.   The Panel considers the panel report in Indonesia – Autos to provide useful guidance on this 
point. Similar to this Panel's observations above, the panel in that dispute found, based on the 
WTO principle that all WTO provisions are generally cumulative and simultaneously applicab le, that 
Article III and Article XVI of GATT coexist and deal with distinct matters and are simultaneously 
applicable: Article III is applicable to all forms of product discrimination and Article XVI deals 
generally with the conditional right of WTO Member s to provide subsidies to their domestic 
producers, a principle reiterated in Article III:8(b) of GATT. The panel found in particular that a 
subsidy to domestic producers that introduces discrimination between imported and domestic like 
products is covered  by – and inconsistent with - the provisions of Article  III, by virtue of such 
product discrimination, i.e., that Article III:8(b) does not exempt it from that Article simply by 
virtue of being a subsidy to domestic producers. To the contrary, the panel fo und that Article 
III:8(b) confirms that subsidies to domestic producers do not violate Article III so long as they do 
not have any component that introduces discrimination between imported and domestic 
products.477  
7.84.    The Panel finds further support for this view of the scope, role and operation of Article 
III:8(b) in the language of the provision that constitutes its immediate context, namely 
Article  III:8(a), which concerns the application of the substantive provisions of Article III to 
government procuremen t. In particular, Article III:8(a) states that the provisions of Article III 
"shall not apply  to" government procurement whereas, by contrast, Article III:8(b) states that the 
provisions of Article III "shall not prevent  the payment of subsidies exclusivel y to domestic 
producers".478 This difference in wording suggests a different scope of application for Article 
III:8(b) compared to Article III:8(a). Thus, while discrimination resulting from government 
procurement is completely exempted from the application of Article III by virtue of Article III:8(a), 
Article III:8(b) stands for the more limited proposition that the national treatment obligation in 
Article III does not extend to, or prohibit, the act of limiting subsidization only to domestic (to the 
exclusi on of foreign) producers.  
7.85.   Concerning the element of discrimination that could be introduced by a subsidy, as referred 
to by the panel in Indonesia – Autos , the language of Article III:8(b) itself confirms that even if a 
measure is a subsidy that is provide d exclusively to domestic producers, this fact is not sufficient 
to remove the measure from the application of Article III. In particular in respect of measures 
based on product taxes (the kind of measure specifically at issue in this dispute), Article III :8(b) 
                                                                                                                                                  
and domestic products". Brazil's second written submission, para. 39. The Panel understands that Brazil has at 
a minimum in its first written submission argued that a production subsidy is exempted from the scope of the 
non-discrimination provisions in Article III, pursuant to Article III:8(b). The Pane l therefore addresses this 
argument.  
477 Panel Report, Indonesia – Autos , paras. 14.43 -14.46.  
478 Emphasis added.  WT/DS472/R • WT/DS497/R  
 
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  indicates that WTO Members can provide subsidies exclusively to their domestic producers using 
the proceeds of internal taxes or charges  so long as those taxes or charges are applied 
consistently with Article III . That is, a Member can collect a prod uct tax on a non -discriminatory 
basis, and then use the funds collected to subsidize only its domestic producers, without violating 
Article III. The converse, which exactly contradicts Brazil's position, is that directly applying a 
product tax in a discrim inatory fashion (i.e., in a manner "inconsistent with Article III" as a means 
of subsidizing domestic producers would violate Article III. Put another way, if, as Brazil argues, 
Article III:8(b) exempts tax discrimination from the scope of Article III, the  reference in Article 
III:8(b) itself to "taxes and charges applied consistently with the provisions of [Article III]" would 
be meaningless. Thus, Article III:8(b) does not change the applicability of Article III to 
discriminatory application of a product tax, even where such a discriminatory application 
constituted a subsidy exclusively to domestic producers. Indeed, this point was explicitly debated 
during the negotiations of the Havana Charter, and a proposal that would have allowed precisely 
such discri minatory application of product taxes as a means of indirect subsidization of domestic 
producers was rejected.479  
7.86.   Nor are discriminatory non -tax regulatory measures that involve the provision of a subsidy 
exclusively to domestic producers, for that reason a lone, placed outside the disciplines  of Article 
III. In particular, the language of Article III:8(b) refers to Article III in its entirety, and not only to 
Article III:2. Furthermore, Article III:8(b) contains two examples of subsidies exclusively to 
domes tic producers that would be consistent with Article III. The first of these is the tax -based 
measure referred to in the preceding paragraph, and the second is a non -tax based measure that 
is more in the nature of a "law, regulation, etc.", namely the provi sion of a subsidy through 
government purchase of domestic products. The Italy – Agricultural Equipment GATT dispute 
confirms the applicability of Article III:4 to non -tax-based subsidies that involve product 
discrimination. In that case, the subsidy was pr ovided for the purchase of Italian tractors only (and 
not foreign tractors), and on that basis was found to discriminate against imported tractors in the 
manner prohibited by Article III:4. Article III:8(b) thus did not save the measure from the 
applicatio n of Article III:4 – it was found not to be a subsidy to tractor producers but to tractor 
purchasers, provided on the basis of their decision to purchase domestic rather than imported 
tractors. In the Panel's understanding, while the tractor subsidy could be viewed as a subsidy 
exclusively to domestic (rather than foreign) producers of agricultural goods, this fact would not 
and did not excuse from the applicability of Article III:4, pursuant to Article III:8(b), the product 
discrimination effected through the subsidy.  
7.87.   On the basis of the foregoing considerations, the Panel therefore proceeds with its analysis 
of the claims under the cited provisions of Article III of the GATT 1994 on the understanding that 
subsid ies that are provided exclusively to domesti c producers  pursuant to Article III:8(b) of the 
GATT 1994 are not per se exempted from the disciplines of Article III of the GATT 1994 . 
7.88.   The Panel does not prejudge at this stage whether the product -related aspects of any 
subsidies that it may find to exist  under the challenged measures are discriminatory in a manner 
inconsistent with Article III:2, III:4 and III:5 of the GATT 1994. It suffices for the Panel to 
conclude that, in light of the foregoing, measures in the form of subsidies provided exclusively t o 
domestic producers are not for that reason alone exempted from the disciplines  of Article III of the 
GATT 1994, because for the reasons explained above, aspects of a subsidy resulting in product 
discrimination (including requirements to use domestic good s, as prohibited by Article 3.1 of the 
SCM Agreement) are not exempted from the disciplines  of Article III pursuant to Article  III:8(b). 
For the same reason, the Panel concludes that the measures at issue in this dispute are not per se  
exempted from the disciplines  of Article 2.1 of the TRIMs Agreement.  
                                                
479 E/CONF.2/C.3/6, p. 17; E/CONF.2/C.3/A/W.32, p. 2. The Reports of the Committees and Principal 
Sub-Committees of the Interim Commission for the  International Trade Organization concerning the provision 
of the Havana Charter for an International Trade Organization that corresponds to Article III:8(b) of the GATT 
1994 state that: "nothing in Article 18 could be construed to sanction the exemption o f domestic products from 
internal taxes imposed on like imported products or the remission of such taxes". Interim Commission for the 
International Trade Organization, Reports of the Committees and Principal Sub -Committees: ICITO I/8, 
Geneva, September 194 8, p. 66.  WT/DS472/R • WT/DS497/R  
 
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  7.3  The ICT programmes  
7.3.1   Claims under Article III:2 of the GATT 1994  
7.3.1.1   Introduction  
7.89.   The European Union and Japan raise claims under Article III:2 of the GATT 1994, first 
sentence, with respect to certain aspects of  the ICT programmes (i.e. Informatics, PADIS, PATVD, 
and Digital Inclusion). Specifically, the complaining parties allege that Brazil imposes a tax burden 
on imported ICT products in excess of that imposed on domestic like products.  
7.90.   Japan also raises claim s under the second sentence of Article III:2 of the GATT 1994 with 
respect to certain aspects of the ICT programmes.  
7.91.   As developed in paragraphs 7.61 and 7.71 above, Brazil argues that these aspects of the 
challenged programmes are not within the scope of Article III:2, because (i) these aspects of the 
programmes are pre -market requirements that are not covered by Article III, and (ii) the 
programmes constitute subsidies paid exclusively to domestic p roducers within the meaning of 
Article III:8(b) of GATT.480  
7.92.   The Panel has considered Brazil's threshold arguments in sections  7.2.1 and 7.2.2 above.  
With respect to Brazil's first arg ument, the Panel already concluded in paragraph  7.70 above that 
the fact of the measures' status as a "pre -market" requirement does not have an impact on 
whether the measure is within the scope of Article III:2 of the GATT 1994 .  
7.93.   With regards to Brazil's second argument, i.e. that the programmes constitute subsidies to 
domestic producers within the meaning of Article III:8(b) of the GATT 1994, the Panel recalls its 
finding in paragraph 7.87 above tha t, as a general principle, Article III:8(b) does not exempt from 
the substantive disciplines of Article III components of such production subsidies that introduce tax 
discrimination on imported like products.  
7.94.   Brazil also distinguishes in its defence with respect to the ICT programmes between finished 
and intermediate products. In this respect, Brazil states, and the complaining parties have not 
disputed, that the digital television (TV) transmitting equipment under the PATVD programme; all 
the digital cons umer goods under the Digital Inclusion programme; and 70% of the product 
coverage of the Informatics programme fall under the "finished products" category. Accordingly, 
30% of the products under the Informatics programme, and all of the products under the PADIS 
programme fall under the "intermediate products" category.481 Although Brazil does not explicitly 
define the meaning of the term "intermediate products", the Panel understands from the parties' 
submissions that "intermediate products" refers to product s that require further manufacturing to 
produce a finished product.482 
7.95.   With respect to finished ICT products, Brazil argues that any possible difference in taxation 
aims at compensating accredited companies for the costs they must incur in order to meet the 
requirements provided for in the challenged programmes.483 With respect to intermediate ICT 
products, Brazil contends that there is no difference in the tax burden on imported products 
compared to domestic products, because its tax system is neutral in terms  of tax collection 
throughout the production chain.484  
                                                
480 Brazil's first written submissions, paras. 176 -199, 327 -328, 330, 377 -378, 380 -381, 477 -479 
(DS472) and 135 -155, 276 -277, 280, 318 -19, 322 -323, 405, 414, 427, and 477 (DS497).  
481 Brazil's first written submissions, paras. 267 (DS472) and 218 (D S497).  
482 Japan's second written submission, paras. 141 -142; Brazil's response to Panel question No.  24, 
Brazil's comments on the other parties' responses to Panel question No.  65 
483 Brazil's first written submissions, paras. 156 and 205 (DS472) and 105 and 161 (DS497).  
484 Brazil's first written submissions, paras. 185 (DS472) and 144 (DS497). Brazil also argues that in 
practice the tax rates of intermediate imported products are always identical or lower than the tax rates 
applicable to domestic intermediate products, although Brazil argues that it never undertook the affirmative 
burden of establishing identical or lower taxation. See Brazil's second written submission, paras. 88 -89; Brazil's 
comments on the European Union and Japan's requests for review of th e interim panel report, para. 22.  WT/DS472/R • WT/DS497/R  
 
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  7.96.   For the complaining parties, the distinction between "finished" and "intermediate" products 
is irrelevant because Article III:2 of the GATT 1994 refers to "products" in general, without making 
any furth er distinction.485  
7.97.   The Panel notes that "intermediate products" is not treaty language. Article III:2 of the 
GATT 1994 does not make any distinction between finished or intermediate products; it simply 
refers to "products" in general. Therefore, the Panel i s of the view that both categories of products 
(i.e. finished and intermediate goods) are subject to the disciplines of Article III:2 of the GATT 
1994. However, to the extent that the relevant taxes operate differently with respect to finished 
and intermed iate products, as stated by Brazil, the Panel believes that it is useful for its analysis to 
maintain this distinction in order to better scrutinize the effective tax burden imposed by Brazil on 
these two categories of products. For the purposes of its ana lysis, the Panel's references to 
"intermediate products" should therefore be understood as referring to products that are subject to 
further industrialization in the manufacturing process of another product.  
7.98.   Article III:2 of the GATT 1994 enshrines the nat ional treatment obligation with respect to 
internal taxes and other internal charges. Article III:2 and its Ad Note486 read as follows:  
The products of the territory of any contracting party imported into the territory of 
any other contracting party shall no t be subject, directly or indirectly, to internal taxes 
or other internal charges of any kind in excess of those applied, directly or indirectly, 
to like domestic products. Moreover, no contracting party shall otherwise apply 
internal taxes or other intern al charges to imported or domestic products in a manner 
contrary to the principles set forth in paragraph 1.*  
Ad Article III  
A tax conforming to the requirements of the first sentence of paragraph 2 would be 
considered to be inconsistent with the provision s of the second sentence only in cases 
where competition was involved between, on the one hand, the taxed product and, on 
the other hand, a directly competitive or substitutable product which was not similarly 
taxed.  
7.99.   Based on the language of Article III:2 and its Ad Note , the Appellate Body established that 
the national treatment obligation with respect to internal taxes and other internal charges includes 
two separate obligations. The first obligation is contained in the first sentence and refers to "like 
products". The second obligation is provided for in the second sentence of Article III:2 and covers 
"directly competitive or substitutable products".487 
7.100.   The Appellate Body has established that in order to determine whether there is an 
inconsistency with the first sentence of Article III:2 of the GATT 1994, two questions need to be 
answered:  
a. Whether imported and domestic products are like products; and  
b. Whether the imported products are taxed in excess of the domestic products.488 
7.101.   In addition, the Panel notes tha t in this dispute, a fundamental issue raised by Brazil 
concerns whether the products receiving the challenged tax treatment are "domestic products", 
within the meaning of Article III:2. The Panel therefore will address this first. Then, the Panel will 
                                                
485 European Union's second written submission, para. 289; European Union's response to Panel 
question No.48; Japan's second written submission, para.  141; and Japan's response to Panel question No. 42.  
486 Annex I to the GAT T contains the 'Notes and Supplementary Provisions'. The portions of the text of 
the GATT marked with an asterisk should be read in conjunction with notes and supplementary provisions in 
Annex I of the Agreement.  
487 See Appellate Body Reports, Japan – Alcoh olic Beverages II , pp. 18 -31, DSR 1996:I, 97, at pp. 111 -
123; and Canada – Periodicals , pp. 25 -29, DSR 1997:I, 449, at pp. 470 -474. 
488 Appellate Body Report, Canada – Periodicals , pp. 20–23, DSR 1997:I, 449, at pp. 465 -468. See also 
Appellate Body Report, Japan – Alcoholic Beverages II , pp. 19 –20, DSR 1996:I, 97, at pp. 111 -115. WT/DS472/R • WT/DS497/R  
 
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  consider the two questions above, to determine whether the internal tax or charge is inconsistent 
with the first sentence of Article III:2 of the GATT 1994.489 
7.102.   As regards the second sentence of Article III:2 of the GATT 1994, the Appellate Body has 
established that three separate issues must be addressed:  
a. Whether the imported products and the domestic products are "directly competitive or 
substitutable products";  
b. Whether the directly competitive or substitutable imported and domestic products are 
"not similarly taxed"; and  
c. Whether the dissimilar taxation of the directly competitive or substitutable imported and 
domestic products is "applied ... so as to afford protection to domestic production".  
7.103.   If the answers to these three questions are affirmative, then the i nternal tax or internal 
charge shall be found to be inconsistent with the second sentence of Article III:2 of the GATT 
1994.  
7.104.   Before starting the legal analysis under each of the two sentences of Article  III:2, it is 
important to clarify that, for a measure  to fall within the scope of Article III:2, it must qualify as an 
internal tax or an internal charge.490 In this connection, the Appellate Body has explained that the 
time at which a charge is collected or paid is not decisive for a tax or charge to qualify as 
"internal" within the meaning of Article III:2.491 
7.105.   In the present dispute, the parties agree that the challenged measures are taxes.492 The 
relevant taxes  under this claim are four indirect taxes levied by the Federal Government of 
Brazil493: (i) the Tax on I ndustrialised Products  (IPI); (ii)  the Social Integration Programme  
contribution  (PIS); (iii)  the Civil Service Asset Formation Programme  contribution (PASEP ); and 
(iv) the Contribution to Social Security Financing (COFINS).494 The table below summarizes whi ch 
taxes are relevant with respect to each of the programmes challenged under Article III:2 of the 
GATT  1994:  
RELEVANT TAXES PER ICT PROGRAMME495 
Programme  
Tax  Informatics  PADIS  PATVD  Digital Inclusion  
IPI X X X  
PIS/PASEP   X X X 
COFINS   X X X 
 
                                                
489 Appellate Body Report, Canada – Periodicals , pp. 20–23, DSR 1997:I, 449, at pp. 465 -468. 
490 See Appellate Body Reports, China – Auto Parts , para. 1 63: "…a key indicator of whether a  charge 
constitutes an 'internal charge' within the meaning of Article III:2 of the GATT 1994 is 'whether the obligation 
to pay such charge accrues because of an internal factor (e.g., because the product was re-sold internally or 
because the product was used internally), in the sense that such 'internal factor' occurs after the importation of 
the product of one Member into the territory of another Member'".  
491 Appellate Body Reports, China – Auto Parts , para. 162.  
492 See European Union's first written submis sion, paras. 771, 918 and 1059; Japan's first written 
submission, paras. 10 -16; Brazil's first written submissions, paras. 59 (DS472) and 23 (DS497). The European 
Union and Japan have raised an alternative claim under Article II:1(b) of the GATT 1994 with respect to the 
four ICT programmes (Informatics, PADIS, PATVD and Digital Inclusion) in the event that Brazil contends that 
PIS/PASEP -Importation and COFINS -Importation are not taxes but "other duties and charges" on imports 
within the meaning of Article I I:1(b) of the GATT 1994. Since Brazil has not argued that PIS/PASEP -
Importation and COFINS -Importation are "other duties and charges" within the meaning of Article  II:1(b), the 
Panel shall not address these particular claims. See European Union's first wri tten submission, para. 1149; and 
Japan's first written submission, fn 26 to para. 14.  
493 According to Brazil, the Brazilian tax system has different types of taxes. Taxes are collected at the 
federal, state and municipal levels. In Brazil, the three levels of government may impose taxes and fees 
related to state police powers and public services, and "improvement charges" to fund public works. See 
Brazil's first written submissions, paras. 59 (DS472) and 23 (DS497).  
494 For ease of reference, and following the  parties' practice, the Panel will refer to the PIS and the 
PASEP contributions jointly by using the term PIS/PASEP.  
495 See European Union's first written submission, paras. 613, 774, 920 and 1074.  WT/DS472/R • WT/DS497/R  
 
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  7.106.   Finally, a demonstration of inconsistency with Article III:2 can be made on a de jure or de 
facto basis. The Appellate Body in  US – COOL  stated:  
As under Article III:4, the national treatment obligation of Article 2.1 [TBT] prohibits 
both de jure  and de fact o less favourable treatment. That is, " a measure may be de 
facto inconsistent with Article 2.1 even when it is origin -neutral on its face ." In such a 
case, the panel must take into consideration "the totality of facts and circumstances 
before it", and asse ss any "implications" for competitive conditions "discernible from 
the design, structure, and expected operation of the measure". Such an examination 
must take account of all the relevant features of the market, which may include the 
particular characteris tics of the industry at issue, the relative market shares in a given 
industry, consumer preferences, and historical trade patterns. That is, a panel must 
examine the operation of the particular technical regulation at issue in the particular 
market in whic h it is applied.496  
7.107.   The Panel shall in turn proceed with its analysis of the complaining parties' claims under 
Article  III:2, first sentence, of the GATT 1994.  
7.3.1.2   Whether the products that are the subject of the challenged measures are 
"domestic products" in the sense of Article III of the GATT 1994, Article 2.1 of the 
TRIMs Agreement, and Article 3.1(b) of the SCM Agreement  
7.108.   A first issue that the Panel needs to address is whether the products that are the subject of 
the challenged measures – that is the incen tivized finished and intermediate products and (at least 
some of) the inputs used to produce them – are "domestic products" for purposes of the cited 
provisions. This is because some of those provisions juxtapose the treatment of "domestic" and 
"imported" products. The Panel addresses here the issue of whether the incentivised products can 
be considered to be "domestic" within the meaning of Article III of the GATT 1994, Article 2.1 of 
the TRIMs Agreement and Article 3.1(b) of the SCM Agreement.  
7.109.   While ther e seems to be no difference of views among the parties as to which are the 
imported products allegedly discriminated against by the challenged measures, Brazil has argued 
in the context of at least some of the claims that the incentivized products and thei r inputs are not 
"domestic" products in the sense of the cited provisions.497 In Brazil's view, the term "domestic" is 
not defined in the covered agreements, and must be established on a "case -by-case" basis, in light 
of the object and scope of specific prov isions, and in the factual content of each situation.498 Brazil 
considers that the term domestic cannot be interpreted in a manner that would prevent Members 
from "conferring subsidies to producers contingent upon the performance of production steps of 
goods  in their territory, including those that are meant to be integrated into a local production 
chain."499 Brazil argues that a determination of whether a product is "domestic" must be assessed 
in an "economic" sense, taking into account such factors as the cha racteristics of the product and 
sector, and the valued added in the territory of a Member.500 In Brazil's view, "a product produced 
according to a PPB cannot be equated with a domestic product", within the meaning of the covered 
agreements.501 
7.110.   The Panel recall s that Article III:2 of the GATT 1994 prohibits the application to imported 
products of taxes or internal changes in excess of those applied to like "domestic" products. Article 
III:4 of the GATT 1994 prohibits less favourable treatment of imported product s pursuant to laws, 
regulations, etc. than that accorded to like products of "national origin". Similarly, Article 2.1 
provides that TRIMs that are inconsistent with Article III of the GATT 1994 also are inconsistent 
with the TRIMs Agreement. Thus, this pr ovision incorporates by reference the concepts of 
"domestic" products found in the various provisions of Article III. In addition, paragraph 1(a) of 
the Annex to the TRIMs Agreement prohibits TRIMs that require the purchase or use of "products 
of domestic origin or from any domestic source". Article 3.1(b) of the SCM Agreement prohibits 
subsidies contingent on the use of "domestic" over imported goods.  
                                                
496 Appellate Body Report, US – COOL , para. 269. (emphasis ad ded) 
497 Brazil's second written submission, paras. 28 -37.  
498 Brazil's second written submission, para. 30.  
499 Brazil's second written submission, para. 31.  
500 Brazil's second written submission, para. 32.  
501 Brazil's second written submission, paras. 34 -36.  WT/DS472/R • WT/DS497/R  
 
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  7.111.   In the view of the Panel, given the overlapping nature of the cited provisions, as explained 
above in sec tion 7.1.2.2 , a good that is domestic for purposes of one of those provisions normally 
should be domestic for the others. Article III as a whole is concerned with, and prohibits, 
discriminatory treatment of impo rted goods vis-à-vis domestic goods. The Panel considers that, to 
be internally coherent, all of the paragraphs of Article III of the GATT 1994 (and by extension 
Article 2.1 of the TRIMs Agreement insofar as it refers to Article III) should be based on the  same 
understanding of these concepts. Article 2.1 of the TRIMs Agreement concerns TRIMs that are 
inconsistent with Article III of the GATT, and Paragraph  1(a) of the Annex to the TRIMs 
Agreement, in its turn, concerns discriminatory treatment of imported goods that is inconsistent 
with Article  III. Thus, given these cross -references in the TRIMs Agreement, the concepts of 
imported and domestic goods (in the words of that Agreement "products of domestic origin"502) 
must be the same as in Article  III of the GA TT 1994. Similarly, the prohibition in Article 3.1(b) of 
the SCM Agreement of subsidies that are contingent on the use of domestic over imported goods is 
a codification of that same rule pursuant to Article III:4 of the GATT 1994, meaning that again 
these concepts in this provision of the SCM Agreement should be the same as those in 
Article  III:4, and thus by extension Article III as a whole. In other words, given the overlaps 
among these provisions, it would be incoherent for the concept of domestic goods to vary from 
one to another.  
7.112.   The Panel notes further that the complaining parties in this dispute have raised multiple 
claims under both Article III:4 of the GATT 1994 and under the TRIMs Agreement. A fortiori , 
therefore, a good that is domestic for one k ind of claim pursuant to Article III:4 of the GATT 1994 
must also be domestic for any other claims pursuant to the same provision.  
7.113.   The Panel recalls that in their specific arguments for the Article III:2 claims and for the 
claims related to accreditation requirements pursuant to Article III:4 and Article 2.1 of the TRIMs 
Agreement, the parties express no disagreement on this issue, and thus seem to accept that the 
incentivized products are domestic for purposes of those claims. In the Panel's view, based o n the 
considerations outlined above, this lack of disagreement would be sufficient to compel a conclusion 
by the Panel that the same is true, ipso facto , for the same products in the context of the claims 
regarding the alleged requirements to use domestic goods pursuant to Article III:4 of the GATT 
1994, paragraph 2(a) of the Annex to the TRIMs Agreement, and Article 3.1(b) of the SCM 
Agreement.  
7.114.   Given that Brazil has raised specific arguments to the contrary in respect of those claims, 
however, the Panel a lso must address those arguments. In short, Brazil argues that a product 
produced according to a PPB503 cannot be equated with a domestic product within the meaning of 
WTO law, because such a product is simply a product produced according to specific product ion 
step requirements.504 The complaining parties counter that all products are either domestic or 
imported, such that by excluding imported products from eligibility under the challenged 
programmes, those programmes discriminate in favour of domestic produc ts in ways prohibited by 
the cited provisions.505  
7.115.   For the further reasons to be explained below, the Panel finds that the incentivized 
products produced in accordance with PPBs are, as such, Brazilian domestic products. First, it is 
clear that on their own terms the challenged programmes are for the development of Brazilian 
industries to produce the incentivized products. To qualify for the incentives, those products must 
be produced in Brazil in accordance with the respective PPBs. In this sense, the progra mmes treat 
these goods, and only these goods, as "Brazilian enough" in the eyes of the government to qualify 
for the tax incentives.  
7.116.   The PPBs make clear that to qualify as an incentivized product, the production process, all 
of which must be carried out i n Brazil, starts with basic raw materials and components 
unassembled and in many cases unmanufactured. For example, basic components must be welded 
                                                
502 The Panel notes that paragraph 1(a) to the TRIMs Agreement refers to "products of domestic origin 
or from any domestic source". Given that this dispute concerns measures conditioned on the completion of 
certain manufacturing steps in Brazil, the Panel r efers here only to the former phrase "products of domestic 
origin".  
503 See section 7.3.2.2.4.1  below for a full discussion and explanation of PPBs.  
504 Brazil's second written submission, paras. 28 -37. 
505 European Union's second wr itten submission, paras. 406 -415. WT/DS472/R • WT/DS497/R  
 
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  together to make printed circuit boards; plastics and molds must be used to make injection -
molded parts, etc .506 
7.117.   The PPBs describe in relatively general terms of this sort the sequence of steps that must 
be followed in converting the basic raw materials and components into the incentivized products. 
What is fundamental is that this manufacturing process, starting with basic materials and resulting 
in an intermediate or finished good to be sold on the market, must take place in Brazil. This leaves 
no doubt that these products are Brazilian domestic products. It also is indisputable, by the nature 
of the PPBs and the  requirement that the operations that they describe be undertaken in Brazil, 
that identical imported products could never comply with these requirements.507 This further 
underscores that the incentivized products, i.e., the products produced in compliance wi th a PPB or 
analogous production step requirements, are Brazilian domestic products, for purposes of all of the 
claims in this dispute where this is a relevant issue.  
7.3.1.3   Whether the imported and domestic products are "like products" within the 
meaning of Art icle III:2, first sentence  
7.118.   The European Union and Japan argue that the relevant imported and domestic ICT 
products are like because the differential treatment provided for in the ICT programmes is based 
exclusively on the origin of the products.508 In this r espect, the European Union argues that the 
distinctions are drawn based on the place of production of the products (or some production 
steps); the origin of the components; the obligations undertaken by companies to invest in 
research and development (R&D)  engineering, as well as industrial technology and technological 
development in Brazil; compliance with the relevant basic production processes (PPBs); and 
establishment in Brazil.509 
7.119.   In the complaining parties' view, the fact that the differential treatment  is exclusively 
based on the origin of the products at issue precludes the need to examine the four traditional 
likeness criteria. In any event, the European Union argues that the examination of the four 
traditional likeness criteria confirms that the prod ucts at issue are like because the products (i)  are 
identified based on the Mercosur Common Nomenclature (MCN)510; (ii) have similar physical 
characteristics; (iii)  have the same end uses; and (iv)  generally attract the same consumers.511 
7.120.   Although Brazil does not take a definite position with regard to the likeness of the products 
at issue512, it argues that the tax reductions and exemptions under these programmes do not 
relate to the origin of the products but to the costs that manufacturers must incur in order to 
benefit from the ICT programmes.513 Therefore, Brazil considers that the complaining parties have 
not demonstrated that the programmes draw origin -based distinctions. For Brazil, the complaining 
parties have failed to demonstrate that the products at issu e are like within the meaning of Article 
III:2 of the GATT  1994, first sentence.514 
7.121.   The Panel recalls that the concept of "like products" is present in various provisions of the 
covered agreements. As stated by the Appellate Body, this concept is " a relative  one that evokes 
the image of an accordion … that stretches and squeezes in different places as different provisions 
of the WTO Agreement are applied".515 
                                                
506 See, for example, Implementing Order 146/2010, (Exhibit BRA -116).  
507 See paragraphs 7.135  and 7.136  below.  
508 European Union's firs t written submission, paras. 326 and 596; and Japan's first written submission, 
paras. 330, 335, 397, 401, 457, 459, 511 and 515.  
509 European Union's first written submission, paras. 598, 606, 775, 920, 927 and 1070.  
510 European Union's first written submiss ion, para. 608.  
511 European Union's first written submission, paras. 608, 776, 929 and 1072.  
512 Brazil's first written submissions, paras. 211 -215, 334 and 483 (DS472) and 167 -169, 284 and 420 
(DS497).  See also Brazil's response to the European Union's quest ion No. 4.  
513 Brazil's first written submissions, paras. 203 -204 (DS472) and 159 -160 (DS497).  
514 Brazil's first written submissions, paras. 208 and 394 (DS472) and 164 and 331 -332 (DS497). Brazil 
applies mutatis mutandis  the same arguments developed under th e Informatics programme to the PADIS and 
Digital Inclusion programmes. See Brazil's first written submissions, paras. 334 -335 and 483 -484 (DS472) and 
284-285 and 420 -421 (DS497).  
515 Appellate Body Report, Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 9 7, at p. 114.  WT/DS472/R • WT/DS497/R  
 
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  7.122.   The Appellate Body has  explained that within the context of Article III:2, first sentence, 
the concept of like products must be construed narrowly based on the existence of a second 
sentence in Article III that deals with directly competitive or substitutable products. It has also 
stated that how narrowly the term "like products" is to be construed is a mat ter to be determined 
separately for each tax measure on a case -by-case basis516, by examining relevant factors517 
including those criteria mentioned in the Working Party Report on Border Tax Adjustments , 
namely : (i) the product's properties, nature and quality ; (ii) the product's end -uses in a given 
market; and, (iii)  consumers' tastes and habits that change from country to country.518 In addition 
to those three factors, a fourth relevant criterion in order to determine likeness is the tariff 
classification of th e products at issue.519 
7.123.   The Panel also recalls that the Appellate Body has recognized that a determination of 
likeness involves "an unavoidable element of individual, discretionary judgement" by the panel520 
and that the different likeness criteria are interre lated "although each criterion addresses, in 
principle, a different aspect of the products involved, which should be examined separately".521 
7.124.   The Panel finds particularly relevant for the present claim the likeness analysis undertaken 
by numerous panels, whi ch have found that, when a measure makes a distinction between 
products based exclusively on the origin of the products, the likeness of such products can be 
presumed. In particular, the panel in Indonesia – Autos  found that:  
In Periodicals , the Appellate Body recognized the possibility of using hypothetical 
imports to determine whether a measure violates Article III:2, although in that case 
the Appellate Body rejected the hypothetical example used by the Panel.522 But this 
case is different. Under the Indone sian car programmes the distinction between the 
products for tax purposes is based on such factors as the nationality of the producer 
or the origin of the parts and components contained in the product. Appropriate 
hypotheticals are therefore easily constru cted. An imported motor vehicle alike in all 
aspects relevant to a likeness determination would be taxed at higher rates simply 
because of its origin or lack of sufficient local content. Such vehicles certainly can 
exist… In our view, such an origin -based distinction in respect of internal taxes 
suffices in itself to violate Article III:2, without the need to demonstrate the existence 
of actually traded like products.523 
7.125.   As noted by the Appellate Body, panels have applied such a "presumption" of likeness with  
respect to Articles III:2, III:4 and I:1 of the GATT 1994.524 According to this approach, "a 
                                                
516 Appellate Body Report, Japan – Alcoholic Beverages II , pp. 19 –21, DSR 1996:I, 97, at pp. 112 -114. 
517 Appellate Body Report, Canada –Periodicals , p. 21, DSR 1997:I, 449, at p. 466 . 
518 Appellate Body Report, Japan – Alcoholic Beverages II , pp. 20–21, DSR 1996:I, 97, at pp. 113 -114. 
See also Border Tax Adjustment Working Party Report, BISD 18S/97, para. 18.  
519 This criterion was also used in GATT disputes such as EEC - Measures on Animal Feed Proteins , BISD 
25S/49; and Japan - Customs Duties, Taxe s and Labelling Practices on Imported Wines and Alcoholic 
Beverages , BISD 34S/83. See Appellate Body Report, Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 97, 
at p. 114.  
520 It referred to the likeness criteria cited in the Border Tax Adjustment Workin g Party Report as well as 
any other criterion that might be relevant. See Appellate Body Report, EC – Asbestos , para. 101  (referring to 
Appellate Body Report, Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 97, at p. 114).  
521 In this connection, the Appe llate Body explained that:  
[T]he adoption of a particular framework to aid in the examination of evidence does not dissolve 
the duty or the need to examine, in each case, all of the pertinent evidence. … For instance, the 
physical properties of a product s hape and limit the end -uses to which the products can be 
devoted. Consumer perceptions may similarly influence – modify or even render obsolete – 
traditional uses of the products. Tariff classification clearly reflects the physical properties of a 
product.  Appellate Body Report, EC – Asbestos , para. 102 . 
522 (original footnote referring to Appellate Body Report, Canada – Periodicals , pp. 2 0-21, DSR 1997:1, 
449, at pp. 466 -467).   
523 Panel Report, Indonesia – Autos , para. 14.113.  
524 Appellate Body Report, Argent ina – Financial Services , para. 6.36 (referring to Panel Reports, 
Argentina – Hides and Leather , para. 11.168; China – Auto Parts , para. 7.216; Argentina – Import Measures , 
para. 6.274; Canada – Autos , para. 10.74; Canada – Wheat Exports and Grain Imports , para. 6.164; China – 
Publications and Audiovisual Products , para. 7.1447; India – Autos , para. 7.174; Thailand – Cigarettes 
(Philippines) , para. 7.661; Turkey – Rice, paras. 7.214 -7.216; and US – FSC (Article 21.5 – EC), paras. 8.132 -
8.135), Colombia – Ports of Entry , paras. 7.355 -7.356; and US – Poultry (China) , paras. 7.424 -7.432).  WT/DS472/R • WT/DS497/R  
 
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  complainant may establish 'likeness' by demonstrating that the measure at issue makes a 
distinction based exclusively on the origin of the product".525 
7.126.   The Appellate Body, in the context of a dispute involving claims under the General 
Agreement on Trade in Services, has provided further clarification on the operation of such 
"presumption" of likeness by stating the following:  
Once a complainant has made a prima facie  case that a measure draws a distinction 
between services and service suppliers based exclusively on origin, the respondent 
may rebut this by demonstrating that origin is indeed not the exclusive basis for the 
distinction drawn by the measure between the ser vices and service suppliers at issue. 
Alternatively, or in addition, a respondent may seek to rebut the prima facie  case 
based on the presumption approach by introducing arguments and evidence relating 
to the criteria for determining "likeness" adapted to trade in services, as explained 
above, demonstrating that a certain factor affects the relevant criteria for establishing 
"likeness", and that it therefore has an impact on the competitive relationship 
between the services and service suppliers.526  
7.127.   In light  of this statement by the Appellate Body, the Panel shall examine whether the 
complaining parties have made a prima facie  case that the relevant ICT programmes draw 
distinctions between the relevant products based exclusively on origin. If the Panel finds that the 
complaining parties have made such prima facie  case, the Panel shall then examine whether Brazil 
has successfully rebutted the prima facie  case made by the complaining parties. The Panel shall 
start its analysis, however, by defining the products at issue in this dispute for the purposes of its 
analysis under Article III:2. Only by identifying the products at issue shall the Panel be in a 
position to determine whether they are like within the meaning of Article III:2, first sentence, of 
the GATT 19 94. 
7.128.   The complaining parties have identified the following products at issue under their Article 
III:2 claims related to the ICT programmes:527 
a. Informatics programme : both the European Union and Japan refer to the ICT products 
listed in Annex I of Decree 5,90 6/2006, as amended by Decree 7,010/2009.528 
b. PADIS programme : the European Union and Japan identify the following products within 
the scope of the PADIS programme: (i)  semiconductors listed in Annex I of 
Decree  6,233/2007; (ii)  displays listed in Annex I of D ecree 6,233/2007; and (iii)  inputs 
and equipment, which are strategic for the semiconductors and displays industry, 
produced in accordance with the relevant PPB, listed in Annex I of Decree 6,233/2007, 
as amended by Decree 8,247/2014. In addition, Japan id entifies the products listed in 
Annex  II of Decree 6,233/2007, as amended by Decree 8,247/2014.  
c. PATVD programme : the European Union and Japan refer to the digital TV transmission 
equipment listed in Annex I of Decree 6,234/2007.  
d. Digital Inclusion programme : the European Union and Japan refer to digital consumer 
goods listed in Article 28 of Law 11,196/2005 (as amended by Laws 12,715 and 
13,241/2015) and Article 1 of Decree 5,602/2005 (as amended by Decrees 7,715/2012 
and 7,981/2013).529 
7.129.   Before considering the  issue of likeness, the Panel considers Brazil's claim that not all the 
products covered under the relevant programmes are relevant for the Panel's analysis. In 
particular, Brazil argues that not all the products identified by the complaining parties benef it from 
                                                
525 Appellate Body Report, Argentina – Financial Services , para. 6.36.  
526 Appellate Body Report, Argentina – Financial Services , para. 6.45.  
527 See European Union's and Japan's re sponses to Panel question No. 71.  
528 Japan further notes that those products falling under Annex I of Decree 5,906/2006 (as amended by 
Decree 7,010/2009) which fall under Annex II of Decree 5,906/2006 (as amended by Decree 6,405/2008) are 
not covered under the Informatics programme. See Japan's response to Panel question No. 71.  
529 The European Union also refers to Article 2 of Decree 5,602/2005. See European Union's response to 
Panel question No. 71 (referring to European Union's first written submission, pa ra. 1034).  WT/DS472/R • WT/DS497/R  
 
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  the alleged tax advantages because PPBs are not adopted for all products and, therefore, 
manufacturers cannot comply with all the requirements that must be met in order to benefit from 
the tax advantages.530  
7.130.   According to Brazil, the products at issu e under the complaining parties' Article III:2 claims 
with respect to the ICT programmes are the following:531 
a. Informatics programme : products covered under this programme for which PPBs have 
been adopted.532 
b. PADIS programme : products covered under this progra mme for which certain 
manufacturing activities are performed in Brazil.533 
c. PATVD programme : transmission equipment for digital TV manufactured in accordance 
with the PPB established by Implementing Order 62/2014.534  
d. Digital Inclusion programme : products cover ed under this programme manufactured in 
accordance with the corresponding PPBs.535 
7.131.   The Panel agrees with Brazil that not all of the products covered under the challenged 
programmes currently benefit from the tax reductions and exemptions provided for in the ICT 
programmes. In this regard, the fact that a certain product falls under the product scope of a 
specific ICT programme does not automatically entail that this product does benefit at the moment 
from a tax reduction or exemption. In order for any product  covered under the relevant ICT 
programmes to benefit, accredited companies must comply with certain requirements relating to 
their manufacture or must reach a certain level of investment in Brazil, as indicated in the 
descriptive part of this report.536  
7.132.   However, the Panel understands that the fact that not all of the products covered under 
the programmes currently benefit from the tax reductions and exemptions does not mean that 
these products should be, or are, excluded from the product scope of this dispu te. Indeed, the fact 
that the products at issue fall under the scope of the challenged ICT programmes means that the 
tax reductions and exemptions challenged by the complaining parties could potentially apply to 
these products, if the relevant requirements  were to be met. In this respect, the Appellate Body 
has indicated that "Article III [of the GATT 1994] protects expectations not of any particular trade 
volume but rather of the equal competitive relationship between imported and domestic 
products."537 
7.133.   Consequently, the Panel does not consider that the product coverage of this dispute must 
be limited to those products covered under the challenged ICT programmes that at the time of the 
panel's establishment benefit from the tax reductions and exemptions provi ded therein. To the 
extent that all products falling under the challenged ICT programmes can potentially benefit from 
                                                
530 Brazil's comment on the complaining parties' responses to Panel question No. 71.  
531 Brazil's comment on the complaining parties' responses to Panel question No. 71. The Panel notes 
that although Brazil maintains that the relevant measures perta in to "producers" not "products", Brazil 
nonetheless indicates in its comments on the complainants' responses to Panel question No. 71 the list of 
products that, in its view, are the subject of the complainants' claims.   
532 Brazil has submitted to the Pane l a list of all of the Implementing Orders for the existing PPBs for 
purposes of the Informatics Law with the description of the product subject to the PPB. See List of existing 
PPBs in Brazil concerning the Informatics Law, (Exhibit BRA -26). 
533 Brazil note s that "although the products at issue are listed in Annex I of Decree 6,233/2007, as 
amended, the tax incentives under PADIS will only be granted for semiconductors if the activities of 1) 
conception, development and design; 2) diffusion or physical chemi cal processing; or 3) encapsulation and 
testing, are performed; and, for information displays, if the activities of: 1) conception, development and 
design; 2) manufacturing of photosensitive, photo or electroluminescent elements and light emitting diodes; or 
3) final assembly of displays and electrical and optical testing, are performed." Brazil's comment on the 
complaining parties' responses to Panel question No. 71.  
534 Implementing Order 62/2014, (Exhibit JE -89). 
535 Brazil states that "[t]o be eligible for the tax incentive under the program, a company must comply 
with the basic production processes for the manufacture of the products described under the corresponding 
PPBs." Brazil's comment on the complaining parties' responses to Panel question No. 71.  
536 See sections 2.2.1.5 , 2.2.2.5 , 2.2.3.5  and 2.2.4.4  above.  
537 Appellate Body Re port, Japan – Alcoholic Beverages II,  p. 16, DSR 1996:I, 97, at p. 110.  WT/DS472/R • WT/DS497/R  
 
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  the tax reductions and exemptions at issue, the Panel is of the view that these products fall under 
the scope of the present claim.  
7.134.   Turnin g to the issue of likeness, the Panel notes that the ICT programmes, on their face, 
identify their product scope on the basis of the products' tariff codes in the Mercosur Common 
Nomenclature and not on the basis of their origin. No distinction between imp orted and domestic 
products can be found in the text of the ICT programmes. The Panel further observes that, in 
order for an ICT product to be subject to the tax treatment provided for in the challenged ICT 
programmes, companies must comply with one or mor e of the following requirements with respect 
to the relevant products538: 
a. Invest in R&D in Brazil (in the case of the Informatics, PADIS, and PATVD programmes);  
b. Manufacture in Brazil in accordance with the relevant PPBs (in the case of the 
Informatics, PADI S, PATVD, and Digital Inclusion programmes539) or carry out certain 
manufacturing steps in Brazil (in the case of the PADIS and PATVD programmes); and/or  
c. Develop the products in Brazil540 (in order to obtain additional tax reductions under the 
Informatics prog ramme or to obtain tax exemptions (through zero rates) under the 
PATVD programme).  
7.135.   With respect to the requirement that ICT products be manufactured in accordance with the 
relevant PPBs, it is the Panel's view that only ICT products manufactured in Brazil can meet this 
requirement given that PPBs require that a certain number of manufacturing operations that 
characterize the effective "production" of a certain product be performed in Brazil.541 This has been 
confirmed by Brazil.542 The same goes for the require ment that certain manufacturing steps be 
performed in Brazil. Thus, by necessary implication, only a product manufactured in Brazil can 
benefit from the tax treatment under the ICT programmes. Identical imported products, which are 
manufactured outside Bra zil, can therefore never qualify for the tax treatment under any of the 
ICT programmes since all ICT programmes contain such a requirement.  
7.136.   With respect to the requirement that products be "developed in Brazil", the relevant 
Implementing Order explains tha t in order to meet this requirement, the "specifications, projects 
and developments [of the products benefiting from the relevant tax treatment] must be carried 
out in Brazil".543 Imported products that have been "developed" outside of Brazil, but are like 
domestic  products developed in Brazil, can never meet this requirement, and therefore cannot 
qualify for the relevant tax treatment.544 
7.137.   As discussed in section 7.3.1.2  above, the Panel concludes that for the purpos es of Article 
III:2 of the GATT 1994, all incentivized products that receive the tax treatment under the 
challenged programmes, can be considered to be Brazilian domestic products.  
                                                
538 See sections 2.2.1.5 , 2.2.2.5 , 2.2.3.5  and 2.2.4.4  above.  
539 For Digital Inclusion, the tax exemptions relate to Brazilian retailers of certain digital consumer goods 
produced in accordance with the relevant PPBs.  
540 Implementing Order 950/2006 establishes tha t products "developed" in Brazil must comply with two 
requirements: (i) they must meet the specifications, rules and standards laid out in Brazilian legislation, and 
(ii) the specifications, projects and developments must be carried out in Brazil by techni cians of proven skill in 
such activities who are residents and domiciled in Brazil. One of the pieces of information that the company 
developing the product in Brazil must provide is the National Registry of Legal Entities ( Cadastro Nacional da 
Pessoa Jurí dica, CNPJ number), which is an identification number issued to Brazilian companies by the 
Secretariat of the Federal Revenue of Brazil. Implementing Order 950/2006, (Exhibit JE -22), Articles 1 -2. 
541 Brazil's first written submissions, paras. 128 (DS472) an d 85 (DS497).  
542 Brazil's first written submissions, paras. 128 (DS472) and 85 (DS497).  
543 See footnote 228 above.  
544 Under the Informatics programme, products that have obtained the status of "developed in Brazil " 
are subject to additional tax reductions. See paragraph 2.43 above. One of the requirements for accreditation 
under the PATVD is to either comply with the relevant PPB or, alternatively, meet the criteria for a product to 
be considered "developed in Brazil". See paragraph 2.87 above. In addition, under the Digital Inclusion 
programme, the status "developed in Brazil" is required for client terminal equipment (digital  routers) classified 
under MCN 8517.62.41 and 8517.62.77 with a retail sale value of less than R$ 150. See Law 11,484/2007, 
(Exhibit JE -71), Article 13 §1; and Law 11,196/2005, (Exhibits JE -91), Article 28(VIII).  WT/DS472/R • WT/DS497/R  
 
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  7.138.   The Panel further notes that Brazil has itself stated that "[f]oreign manu facturers 
established outside Brazil cannot be accredited companies under the Informatics, the PADIS and 
the PATVD programs" because the programmes confer subsidies to "domestic producers", that is, 
to companies that are located and operate in Brazil.545 
7.139.   Therefore, the Panel finds that the complaining parties have made a prima facie  case that 
the differential tax treatment provided for in the challenged ICT programmes is exclusively based 
on the origin of the products and Brazil has not successfully rebutted the prima facie  case of 
likeness made by the complaining parties.  
7.140.   In light of the foregoing, the Panel concludes that:  
a. The complaining parties have successfully made a prima facie  case that the different tax 
treatment between imported and domestic products  resulting from the ICT programmes 
is based exclusively on the origin of the products; and  
b. Brazil has not successfully rebutted the prima facie  case made by the complaining 
parties.  
7.141.   The Panel, therefore, finds that domestic and imported ICT products are pr esumed to be 
like for the purposes of the analysis under Article III:2, first sentence, of the GATT  1994.  
7.3.1.4   Whether imported products are "taxed in excess of" like domestic products, 
within the meaning of Article III:2, first sentence  
7.142.   Having determined that the products at issue are like for the purposes of its analysis under 
Article III:2, first sentence, the Panel shall proceed by examining whether the differential tax 
treatment established in the ICT programmes results in imported ICT products being taxed in 
excess of like domestic ICT products.  
7.143.   As noted above, the Panel will organize its analysis in line with the distinction raised by 
Brazil between "finished" and "intermediate" products in order to better scrutinize the effective tax 
burden imposed on the se two categories of ICT products.546 
7.3.1.4.1   Finished ICT products  
7.144.   With respect to finished ICT products , the European Union and Japan contend that, despite 
the fact that the TIPI provides for identical IPI tax rates for domestic and imported products, the 
final ta x burden on products from non -accredited companies (i.e. imported products) is higher 
than on domestic like products, because the latter can be incentivized (i.e. receive the tax 
reductions or exemptions under the relevant programmes) if manufactured by an  accredited 
company. As explained above, the complaining parties argue that imported products cannot 
benefit from the tax reductions or exemptions under the relevant programmes because they are 
not produced in Brazil by accredited companies that can comply  with the relevant PPBs and 
conduct certain manufacturing steps in Brazil.547 In addition, imported products that are developed 
outside Brazil cannot benefit from the tax exemptions under the PATVD and Digital Inclusion 
programmes or additional tax reduction s under the Informatics programme.548  
7.145.   The European Union contends that the design, structure and operation of the 
ICT programmes necessarily impose a heavier tax burden on imported products than on like 
domestic products. Therefore, in its view there is no need to examine the IPI tax rates currently 
applicable to individual products according to the TIPI.549  
                                                
545 Brazil's response to Panel question No.  57. 
546 See section 7.1.1.2  above.  
547 See paragraph 7.135  above.  
548 See paragraph 7.136  above.  
549 European Union's second written submission,  para. 291.  WT/DS472/R • WT/DS497/R  
 
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  7.146.   For its part, Brazil argues that the tax benefits granted under the ICT programmes offset 
the costs companies incur to fulfil the requirements of the pro grammes.550 
7.147.   The Panel recalls that the Appellate Body has clarified that it is irrelevant whether the 
taxation "in excess of" within the meaning of Article III:2 of the GATT 1994 is minimal or has no 
effects on trade. Even the smallest difference in taxation  between imported and domestic products 
is inconsistent with the first sentence of Article III:2 of the GATT 1994:  
Even the smallest amount of "excess" is too much. "The prohibition of discriminatory 
taxes in Article III:2, first sentence, is not condition al on a 'trade effects test' nor is it 
qualified by a de minimis standard."551 
7.148.   It has also been established that in order to determine whether imported products have 
been taxed "in excess of" like domestic products, it is not enough to look at the nominal ta x rates 
applied but rather at the actual tax burden that both categories of products bear.552  
7.149.   The Panel starts its analysis by noting that in respect of finished products , neither the 
complaining parties nor Brazil question the fact that the challenged prog rammes establish different 
levels of taxation.553 As acknowledged by the parties, the level of taxation on like imported and 
domestic finished products is different because of the tax reductions and exemptions provided for 
in the relevant ICT programmes. In this regard, the European Union argues that: "…the IPI rate 
resulting from the TIPI is in principle the same for imported and like domestic ICT products. 
Hence, the different level of taxation between imported and domestic products is not based on the 
product per se ".554 Brazil, for its part, argues that: "[t]he nominal difference in taxation between 
goods manufactured by producers accredited under the Programme and other products is not 
based upon the origin of such goods. The difference, when it exists, is related to the fulfil[]ment of 
the requirements of the programme".555 
7.150.   As noted above, the tax reductions and exemptions (including through zero rates) at issue 
apply to the relevant domestic ICT products, provided that the companies that manufacture these 
products, which must be located (and operate) in Brazil, fulfil certain requirements.556 The Panel 
recalls that the relevant requirements under each programme are as follows:  
a. Under the Informatics programme , accredited manufacturers must:  
i. Invest annually a per centage of their gross sales in the internal market resulting 
from commercialization of incentivized information technology goods and services in 
R&D in information and automation technology to be conducted in Brazil; and  
ii. Produce the information technolog y and automation goods in accordance with the 
terms of particular product -specific PPBs, which set out the necessary production 
steps or minimum set of operations to be carried out in Brazil; and  
iii. Obtain the status of "developed in Brazil"557 if they want to enjoy additional tax 
reductions.558 
b. Under the PADIS programme , accredited manufacturers must:  
                                                
550 Brazil's first written submissions, paras. 97, 173, 196, 198, 327, 377, 477 (DS472) and 12, 62, 117, 
125, 153, 276, 318, 413 (DS497).  
551 Appellate Body Report, Japan – Alcoholic Beverages II , p. 23, DSR 1996:I, 97, at p. 114.  
552 For example, by  looking at the taxation methods. See Appellate Body Report, Japan – Alcoholic 
Beverages II , p. 29,  DSR 1996:I, 97, at p. 120 (referring to GATT Panel Report, Japan - Customs Duties, Taxes 
and Labelling Practices on Imported Wines and Alcoholic Beverages , BISD 34S/83, para. 5.11).  
553 Brazil's first written submissions, paras. 336, 382 and 485 (DS472) and 286, 324 and 422 (DS497).  
554 European Union's first written submission, para. 597.  
555 Brazil's first written submission, para.  172 (DS497).  
556 For specific pro duct coverage under each of the challenged programmes, please see sections 2.2.1.3 , 
2.2.2.3 , 2.2.3.3  and 2.2.4.3  above.  
557 See footnote 544 above.  
558 See paragraph 2.43 above.  WT/DS472/R • WT/DS497/R  
 
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  i. Invest annually a percentage of their gross sales in the internal market resulting 
from commercialization of incentivized products in R&D to be conducted in Brazil;559 
and 
ii. Engage in the following activities in Brazil:  
 With respect to semiconductor electronic devices560: 
 Concept, development and design;  
 Diffusion or physical -chemical processing; or  
 Cutting, encapsulation and testing.  
 
 With respect to information displays561: 
 Concept, development and design;  
 Manufacture of photosensitive, photo or electroluminescent elements and 
light emitting diodes; or  
 Final assembly of displays and electrical and optical testing.  
 
c. With respect to supplies and equipment intended for the ma nufacture of electronic 
semiconductor devices and information displays: manufacture in accordance with the 
relevant PPBs.562 
d. Under the PATVD programme , accredited manufacturers must:  
i. Invest annually a percentage of their gross sales in the internal market re sulting 
from commercialization of incentivized products in R&D to be conducted in Brazil563; 
and 
ii. Engage in developing and manufacturing activities of digital television transmission 
equipment (MCN code 8525.50.2); and  
iii. Either comply with the relevant PPB or, alternatively, meet the criteria for a product 
to be considered "developed in Brazil".  
e. Under the Digital Inclusion  programme, companies that sell certain digital consumer 
goods at the retail level in Brazil shall benefit from the tax treatment under this 
programme provided that these goods are produced in accordance with the relevant 
PPBs.  
7.151.   The Panel noted above that only ICT products manufactured in Brazil can satisfy the 
requirements to benefit from the tax reductions or exemptions.564 Imported finished ICT products 
will never be able to qualify for the tax reductions and exemptions established in the relevant ICT 
programmes, because such products are never manufactured in Brazil by companies located or 
operating in Brazil; such finished products are never pr oduced in accordance with the relevant 
PPBs or similar production requirements. Additionally, imported products developed outside of 
Brazil will never be able to obtain the status of being "developed in Brazil" and thus will never be 
able to qualify for th e additional reductions under the Informatics programme or meet the 
alternative accreditation requirement under the PATVD programme.565 Consequently, imported ICT 
products, which are manufactured outside Brazil, will never be able to obtain the tax reduction s 
and exemptions available to like domestic ICT products manufactured by accredited companies, 
under the challenged programmes.  
7.152.   The Panel notes that Brazil argues that the tax reductions and exemptions relate to the 
costs that companies must incur in orde r to fulfil the requirements of the programmes.566 Brazil 
                                                
559 Investment must be made in the fields set out in Article 6 §1 of  Law 11,484/2007, (Exhibit JE -71). 
560 See paragraph 2.76 and footnote 195 above.  
561 See paragraph 2.76 and footnote 196 above.  
562 See paragraph 2.76 and footnote 197 above.  
563 Investment must be made in the fields set out in Article 17 §1 o f Law 11,484/2007, (Exhibit JE -71). 
564 See paragraph 7.135  above.  
565 See paragraph 7.136  above.  
566 Brazil's first written submissions, paras. 204 (DS472) and 160 and 172 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  asserts that the costs associated with the fulfilment of these requirements are higher than the 
benefits stemming from the programmes.567 The complaining parties contest this argument.568 
7.153.   For the Panel, a  tax incentive cannot be justified as offsetting a cost imposed through 
regulation, public policy or otherwise. The WTO -consistency of a tax is assessed on the basis of its 
applied level, which must be non -discriminatory, but otherwise WTO Members are free  to choose 
the type of taxation they wish and they are free to calculate as they wish the components of such 
taxes – the WTO rules on taxes are limited to prohibiting their discriminatory application.569 
Furthermore, in light of the legal standard under Arti cle III:2, first sentence, the Panel considers 
that a finding on the WTO -consistency of the measure is not based on any consideration of the 
rationale or justification for the measure. The justification for a (WTO -inconsistent) tax treatment 
can be assesse d in the context of the general exceptions of Article XX of the GATT. In any case, 
were the Panel to accept that the costs imposed by the ICT programmes on accredited companies 
through the imposition of requirements should be taken into account in the anal ysis of consistency 
of these programmes, the Panel considers that Brazil has not demonstrated what these costs are, 
and how they relate to the tax advantage at issue. Brazil, as the party that asserted this fact, 
bears the burden of proving its assertion.570 Brazil has not provided the Panel with enough data to 
demonstrate that the tax exemptions and reductions are justified to compensate for the costs 
linked to the requirements of the programmes.  
7.154.   In light of the above, the Panel concludes that, contrary to d omestic finished ICT products 
manufactured in Brazil by accredited companies, like imported ICT finished products cannot benefit 
from the tax reductions and exemptions (including through zero rates) established in the ICT 
programmes and are, therefore, sub ject to a higher tax burden than like domestic ICT products. 
Consequently, the Panel finds that imported finished ICT products are taxed in excess of like 
domestic finished ICT products, contrary to Article III:2, first sentence, of the GATT 1994.571  
7.3.1.4.2   Interm ediate ICT products  
7.155.   With respect to intermediate  ICT products , the European Union contends that domestic 
intermediate ICT products can benefit from tax reductions and exemptions when put on the 
market, whereas like imported intermediate ICT products will n ecessarily carry the full tax burden. 
In addition, the European Union argues that, even if the nominal value of the tax were the same at 
the end of the production cycle, the real value is not the same due to the cost of money over time. 
The European Union further adds that the interaction of the different challenged programmes 
operating together should be taken into account.572  
7.156.   Japan contends that domestic intermediate ICT products produced by accredited 
companies benefit from cash flow advantages (i.e. cash  availability) vis-à-vis like imported 
intermediate ICT products. Japan argues that the purchase of incentivized domestic intermediate 
ICT products does not involve the payment of the tax, or involves a lower payment, because of the 
tax exemption or reduct ion, whereas the purchase of like imported intermediate ICT products 
requires the payment of taxes by the purchaser, notwithstanding that the purchaser gets a tax 
credit. Japan also refers to the time -value of money, "i.e. the cost that companies face in t he 
absence of the ICT measures to pay up -front taxes on intermediate products and wait until a 
subsequent point in time to use the received credits that offset the up -front payments". Japan 
finally adds that Brazil's argument is not valid with respect to t he cumulative regime of PIS/PASEP 
and COFINS given that the cumulative regime does not provide for offsets.573 
7.157.   Brazil submits that there is no difference in the tax treatment between intermediate ICT 
products manufactured by accredited and non -accredited com panies. Brazil argues that tax 
reductions or exemptions of indirect taxes applied to intermediate ICT products manufactured by 
                                                
567 Brazil's first written submissions, paras. 173, 327, 377, and 477 (DS472) and paras. 117 -118, 125, 
153, 276, 318, and 413 (DS497).  
568 European Union's second written submission, para. 65.  
569 Taxes as subsidies are not discussed here.  
570 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323, at p. 335.  
571 The only exception being those instances where the applicable tax rate is zero. See European Union's 
second written submission, para. 291.  
572 European Union's response to Panel question No. 4 2. 
573 Japan's response to Panel question No. 42. See also Japan's second written submission, para. 144.  WT/DS472/R • WT/DS497/R  
 
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  accredited companies are neutral as regards the total tax burden along the production chain, 
because they do not generate tax cre dits to be used to offset debits along the production chain.574  
7.158.   Brazil argues that the tax burden on imported intermediate ICT products that follow the 
credit/debit rule that is generally applicable, on the one hand, and the tax burden on incentivized 
domes tic intermediate ICT products, which do not obtain tax credits because the tax is not paid 
(pursuant to the relevant programme(s)), on the other, are equivalent. According to Brazil, the 
only difference is the time at which the tax is charged. Brazil expla ins that the reason for this 
difference is to prevent companies from accumulating credits.575 
7.159.   The Panel noted above that Brazil considers 30% of products covered under the 
Informatics programme and 100% of products covered under the PADIS programme to be 
intermediate products in the sense that such products always undergo further manufacturing as 
part of other products. The Panel also recalls that Brazil argues that imported intermediate ICT 
products, which are never incentivized, are not subject to a higher tax burden than incentivized 
like domestic intermediate ICT products.576 The reason provided by Brazil is that tax reductions or 
exemptions of indirect taxes applied to intermediate products are neutral as regards the total tax 
burden along the production ch ain.577  
7.160.   The Panel therefore proceeds to examine how the Brazilian tax system applies to both 
incentivized domestic intermediate ICT products and like imported intermediate ICT products in 
order to determine whether the latter bear a higher tax burden, incon sistent ly with Article  III:2, 
first sentence, of the GATT 1994.578  
7.161.   In the case of sales of incentivized domestic intermediate ICT products, which are 
manufactured  by accredited companies , companies purchasing these products do not pay the IPI 
tax and PIS/PA SEP and COFINS contributions (under the PADIS programme) or do not pay or pay 
a reduced IPI tax (under the Informatics programme). Consequently, they do not obtain any credit 
(in the case of tax exemptions) or they obtain a reduced credit (in the case of t ax reductions) to 
offset against debits when paying their monthly liabilities.579 
7.162.   In the case of sales of imported intermediate ICT products , which are never incentivized 
because they are manufactured  by companies that cannot get accredited, the companies 
purchasing the imported (and, therefore, non -incentivized) intermediate ICT products must pay 
the IPI tax and PIS/PASEP and COFINS contributions. As a result of this payment, they obtain a 
tax credit that can later be used to offset debits from the same taxe s and contributions, or ask for 
compensation with other taxes or reimbursement.  
7.163.   Comparing these two situations described above (i.e. sales of incentivized domestic 
intermediate ICT products by accredited companies, and sales of like imported (and therefore , 
non-incentivized) intermediate ICT products by non -accredited companies), the Panel observes the 
following. First, the tax exemptions (including through zero rates) under the PADIS and the 
Informatics programmes do not involve any payment by the purchase r of the incentivized 
domestic intermediate ICT product but, at the same time, do not generate any tax credit that the 
purchaser can later use to offset future tax liabilities (i.e. tax debits). Second, the tax reductions 
under the Informatics programme in volve a smaller tax payment by the purchaser of the 
incentivized domestic intermediate ICT product but, at the same time, generate a lower tax credit 
                                                
574 Brazil's second written submission, para. 18.  
575 Brazil's second written submission, para. 24.  
576 Brazil's first written submissions, paras. 328 (DS472) and 277 (DS497).  
577 Brazil's first written submissions, paras. 219 (DS472) and 174 (DS497).  
578 The Panel notes that the European Union clarified that in its view, the distinction between final and 
intermediate products is irrelevant for its claims under Arti cle III:2 of the GATT 1994. However, in light of the 
different mechanism of taxation on final and intermediate products respect ively, the Panel addresses these two 
categories of products separately.  
579 The Panel notes that, although the non -cumulative regi me is the general rule for the PIS/PASEP and 
COFINS contributions (see para graph  2.22 above), to the extent that the sales of the intermediate products at 
issue could be subject to the PIS/PASEP and COFINS cumulative regime, th ere would be no mechanism of 
credits and debits. Therefore Brazil's argument regarding intermediate products does not apply to the 
PIS/PASEP and COFINS cumulative regime. Thus, for the intermediate products, whose taxation is subject to 
the PIS/PASEP and C OFINS cumulative regime, the Panel refers to its conclusion on finished products in 
paragraph  7.154  above.   WT/DS472/R • WT/DS497/R  
 
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  to be used later to offset future tax liabilities. Third, the situation absent the tax exemptions 
and/or r eductions involves the full payment of the tax by the purchaser and, at the same time, the 
granting to the purchaser of tax credits to be used later to offset tax liabilities.  
7.164.   The Panel is of the view that a thorough look into the operation of the tax holi stically is 
necessary in order to determine the effective tax burden on the products at issue. This requires 
that the Panel take into consideration the granting of tax credits to purchasers of imported (and, 
therefore, non -incentivized) intermediate ICT pr oducts following the payment of the tax. To the 
extent that the transaction at issue involves the payment of a tax as well as the granting of a tax 
credit, these two elements must be taken into account in order to make an overall assessment of 
the actual t ax burden imposed on imported intermediate ICT products, on the one hand, and like 
domestic incentivized intermediate ICT products, on the other.580  
7.165.   As regards Brazil's argument that the tax system is neutral in terms of tax collection, the 
Panel recalls th at previous panels have stated that the fact that the nominal value of the tax 
collected may be identical is not determinant of the tax measure's consistency under Article III:2. 
In this respect, the panel in Thailand – Cigarettes (Philippines) stated the following:  
We do not … consider that the scope of scrutiny of a given measure for its consistency 
with Article III:2, first sentence, can simply be limited to whether the final consumer 
ultimately pays the same VAT for imported and domestic cigarettes.581 
7.166.   The panel in Argentina – Hides and Leather  also dealt with the issue of tax neutrality. In 
that case, the panel addressed a situation in which the nominal tax amount to be paid was 
identical for imported and domestic products. However, the tax on imported pr oducts was required 
to be paid earlier than the tax on domestic products. The panel indicated that Article III:2 governs 
"actual tax burdens" and not "nominal tax burdens" and that "where imported and like domestic 
products are subject to identical tax rat es, the actual tax burden can still be heavier on imported 
products".582 The panel agreed with the respondent that even though there were no net tax 
payments, there was nevertheless a tax burden, resulting from (i) lost disposable capital and the 
foregone in terest on that capital, and (ii) in situations where there is no available capital to pre -
pay the tax, the cost of raising the capital and paying the interest.583  
7.167.   In other words, notwithstanding the fact that the same tax rate may be applied, the tax 
burden  in the following two situations differed: (i) when the tax is paid and a corresponding credit 
to be offset in the future is generated; and (ii)  when no tax at all is paid. The panel in that dispute 
found that the tax burden in these two situations was not  identical.  
7.168.   The Panel considers the panel's finding in Argentina – Hides and Leather  to be relevant for 
the purpose of its analysis. As noted above, if tax exemptions or reductions are applied, no credit 
or a lower tax credit is accrued, because the tax i s not due, or it is due at a lower rate, whereas 
under the credit/debit rule of the non -cumulative system that applies to imported (and, therefore, 
non-incentivized) intermediate ICT products, a tax credit (of the same value as the tax paid) is 
granted to the purchaser.  
7.169.   In this respect, the Panel observes that in a similar (albeit slightly different) vein to the 
Argentina – Hides and Leather panel report, there is a different effective tax burden on imported 
ICT products vis-à-vis like domestic ICT products  for two reasons: the availability of cash flow for 
those companies that benefit from the tax exemption or reduction, and the "time -value" of 
money.584  
7.170.   First, the Panel finds that the application of the rule of credits and debits for purchases of 
imported ( and, therefore, non -incentivized) intermediate ICT products involves the payment of a 
tax that is not faced by companies purchasing incentivized intermediate domestic ICT products 
                                                
580 Panel Report, Argentina – Hides and Leather , para. 11.184.  
581 Panel Report, Thailand – Cigarettes (Philippines) , para . 7.610.  
582 Panel Report, Argentina – Hides and Leather , para. 11.183.  
583 Panel Report, Argentina – Hides and Leather , para. 11.186 -11.188.  
584 This point has been argued by the European Union and Japan. See European Union's second written 
submission, paras. 5 7-59 and 331; European Union's response to Panel question No. 43, paras. 188 -191; and 
Japan's second written submission, para. 143.  WT/DS472/R • WT/DS497/R  
 
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  from accredited companies, which are exempted from the tax. Even in the case  of tax reductions 
under the Informatics programme, the tax to be paid would be lower than the tax for like imported 
intermediate ICT products, which are not incentivized. The Panel is of the view that this has the 
effect of limiting the availability of ca sh flow by companies purchasing imported intermediate ICT 
products and results in a higher effective tax burden on these products.  
7.171.   Second, the Panel agrees with the complaining parties that the value of the credit 
generated when the tax is paid diminishes over time. The real value of an amount diminishes with 
the passage of time, since money depreciates over time through the effect of inflation. Even if 
credits are generated, and those credits can be offset later in time, imported (and, therefore, non -
incen tivized) intermediate ICT products are subject to a higher tax burden than like incentivized 
domestic intermediate ICT products purchased from accredited companies, due to depreciation in 
the value of money over time.585 Brazil has indicated that the time -period that it takes a company 
to offset its tax credits can be very short, resulting in a very small impact on the value of that 
money. Brazil has also acknowledged, however, that in cases where the IPI tax debits are lower 
than the IPI tax credits, and the  company buying a product cannot offset the credits with debits 
after a 3 -month period, it can request compensation of the credits with other taxes, or 
reimbursement from the Brazilian Government.586 However, Brazil claims that the process for 
compensation with other taxes or reimbursement can take a long time .587 Regardless, the Panel 
emphasizes that Article III:2 refers to tax "in excess", which according to the Appellate Body 
prohibits any higher tax, even by a miniscule margin.  
7.172.   In light of the above, the P anel finds that imported intermediate ICT products, which are 
never incentivized, are subject to a higher tax burden than like domestic incentivized intermediate 
ICT products because, at the time of the sale, the purchaser faces a tax payment that purchase rs 
of incentivized domestic intermediate products do not face or face to a lesser extent. This results 
in a higher tax burden on imported intermediate ICT products than like domestic intermediate ICT 
products, because the payment of the tax limits the cash  availability of the purchaser, and 
generates a tax credit the value of which diminishes over time. Consequently, the Panel finds that 
imported intermediate ICT products are taxed in excess of like domestic incentivized intermediate 
ICT products contrary t o Article III:2, first sentence, of the GATT 1994.  
7.3.1.5   Conclusion  
7.173.   In light of the foregoing, the Panel concludes that under the ICT programmes, the 
production -step requirements and the requirement for products to obtain the status of "developed" 
in Brazil, res ult in imported finished and intermediate ICT products bearing a higher tax burden 
than like domestic finished and intermediate ICT products because:  
a. Finished imported products cannot benefit from the tax exemptions (including through 
zero rates) and reduc tions established in the challenged ICT programmes, as a result of 
certain accreditation requirements; and  
b. Imported intermediate ICT products, which are not incentivized as a result of certain 
accreditation requirements, face a tax payment that incentivize d like domestic 
intermediate ICT products do not face or face to a lesser extent. This tax payment 
results in a limit to the cash availability and the loss of value of the tax credit derived 
from the transaction for the purchasers of imported intermediate products.  
7.174.   The Panel therefore concludes that these aspects of the Informatics, PADIS, PATVD, and 
Digital Inclusion programmes result in imported products being subject to internal taxes in excess 
of those applied to like domestic products, inconsistently with Article III:2, first sentence, of the 
GATT 1994.  
                                                
585 This is distinct and additional to the concept of cash availability discussed in paragraph 7.170 above.  
586 Brazil's second written submission, paras. 11 -12 and 17.  
587 Brazil's closing statement at the first meeting of Panel, para. 15; Brazil's second written submission, 
paras. 185 and 234; and Brazil's comment on para. 2.28 of the draft descriptive  part. In particular, see Brazil's 
second written submission, para. 234 ("The tax administration takes a long time to pr ocess refund or offset 
requests "). WT/DS472/R • WT/DS497/R  
 
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  7.3.1.6   Judicial economy with respect to Japan's claim under Article III:2, second 
sentence  
7.175.   Japan, the only complaining party that has raised claims under this particular provision, 
argues that an objective ass essment of the ICT programmes leads to the conclusion that these 
programmes are designed and structured to protect the domestic industry. Japan states that the 
protective nature of the PADIS programme is confirmed by reference to the statements of the 
Brazilian government on the objective of this programme. In the case of the PATVD programme, 
Japan contends that the provisional measure that eventually became Law 11,848/2007 stated that 
the objective of the PATVD programme is promoting localization in Brazil .588 
7.176.   Brazil does not submit any specific argument with respect to this claim.  
7.177.   According to Article 11 of the DSU, the function of panels is to assist the DSB in 
discharging its responsibilities under the DSU and the covered agreements. For that purpose, 
panels must make such findings as will assist the DSB in making the recommendations or in giving 
the rulings provided for in the covered agreements. Article 3.4 of the DSU prescribes, in turn, that 
the recommendations or rulings by the DSB shall be aimed at ac hieving a satisfactory settlement 
of the matter. Article 3.7 reaffirms that the aim of the dispute settlement mechanism is to secure 
a positive solution to the dispute.  
7.178.   In line with the above provisions, panels are not obliged to rule on each of the claims  put 
forth by the complaining parties. Panels have the discretion to exercise the principle of judicial 
economy and assess only the claims that they consider necessary to secure a positive solution to a 
dispute.  
7.179.   In this respect, the Appellate Body has sta ted that:  
[T]he principle of judicial economy "allows a panel to refrain from making multiple 
findings that the same measure is inconsistent  with various provisions when a single, 
or a certain number of findings of inconsistency, would suffice to resolve t he dispute". 
Thus, panels need address only those claims "which must be addressed in order to 
resolve the matter in issue in the dispute", and panels "may refrain from ruling on 
every claim as long as it does not lead to a 'partial resolution of the matter '." 
Nonetheless, the Appellate  Body has cautioned that "[t]o provide only a partial 
resolution of the matter at issue would be false judicial economy", and that "[a] panel 
has to address those claims on which a finding is necessary in order to enable the D SB 
to make sufficiently precise recommendations and rulings so as to allow for prompt 
compliance by a Member with those recommendations and rulings 'in order to ensure 
effective resolution of disputes to the benefit of all Members".589 
7.180.   The Panel has addresse d above whether the tax measures challenged by the complaining 
parties are inconsistent with Article III:2, first sentence, of the GATT 1994. Although Japan 
presents an additional and not an alternative claim under the second sentence of Article III:2, 
Japan has not indicated why such findings on the second sentence would be necessary or useful to 
secure a positive solution to the dispute if the Panel were to find the measures to be inconsistent 
with the first sentence of Article III:2. Indeed, the Panel co nsiders that, in light of the findings 
regarding Article III:2, first sentence, additional findings regarding the same measure under the 
second sentence of Article III:2 are not necessary or useful to secure a positive solution to the 
dispute. In particula r, the Panel notes that its findings on the first sentence are made on the basis 
of hypothetical likeness, meaning that the analysis in respect of Article III:2, second sentence, 
would be similar to that under the first sentence. Accordingly, pursuant to t he principle of judicial 
economy, the Panel refrains from making any findings with respect to this particular claim.  
                                                
588 Japan's first written submission, paras. 338, 404, 462, and 518.  
589 Appellate Body Report, Argentina  – Import Measures , para. 5.190 (quoting Appellate Body Reports, 
Canada – Wheat Exports and Grain Imports , para. 133; US – Wool Shirts and Blouses , p. 19, DSR 1997:I, 323, 
at p. 340; US – Tuna II (Mexico) , paras. 403 -404; US – Upland Cotton , para. 732; Australia – Salmon , 
para. 223). (footnotes omitted; emphasis original)  WT/DS472/R • WT/DS497/R  
 
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  7.3.2   Claims under Article III:4 of the GATT 1994  
7.3.2.1   Claims with respect to the conditions for accreditation, certain calculations 
related to requi red R&D expenditures, and administrative burden under the ICT 
programmes  
7.3.2.1.1   Introduction  
7.181.   The European Union and Japan have raised claims under Article III:4 of the GATT 1994 
with respect to the following aspects of the ICT programmes, which in their view acco rd less 
favourable treatment to imported products than that accorded to like incentivized domestic 
products:  
a. The conditions for accreditation necessary for products to obtain the tax advantages;  
b. The aspect of the mechanism for the calculation of the amoun t of resources required to 
be invested in R&D under the Informatics and PADIS programmes, where the amounts 
paid when purchasing incentivised products are deducted from the calculation; and  
c. The lower administrative burden on companies purchasing domestic i ncentivised 
intermediate products.  
7.182.   As developed in paragraphs 7.61 and 7.71 above, Brazil argues that these aspects of the 
challenged programmes are not within the sc ope of Article III:4, because (i) these aspects of the 
programmes are pre -market requirements that are not covered by Article III:4, and (ii) the 
programmes constitute subsidies paid exclusively to domestic producers within the meaning of 
Article III:8(b) of GATT.590 In the event that the Panel finds that Article III:4 of the GATT 1994 
applies to the challenged programmes, Brazil contends in the alternative that the challenged 
programmes do not accord less favourable treatment to imported over domestic produc ts because 
the regulatory differences are not based on the origin of the products.591 
7.183.   The Panel has considered Brazil's threshold arguments in sections 7.2.1 and 7.2.2  above.  
With resp ect to Brazil's first argument, the Panel already found in paragraph 7.70 above that the 
fact that a measure may involve a "pre -market" requirement does not have an impact on whether 
the measure is within the sc ope of Article III:4 of the GATT 1994. The Panel addresses in further 
detail below whether the challenged measures at issue here are "laws, regulations or 
requirements" within the scope of Article III:4 of the GATT 1994.  
7.184.   With regard to Brazil's second arg ument, that the programmes constitute subsidies to 
domestic producers within the meaning of Article III:8(b) of the GATT 1994, the Panel recalls its 
findings in paragraph 7.87 above that, even if a measure is pr operly characterized as a subsidy 
exclusively to domestic producers, as a general principle Article III:8(b) does not exempt from the 
substantive disciplines of Article III components of such production subsidies that involve an 
element of discrimination t o the disadvantage of imported like products.  
7.185.   Therefore, the Panel will analyse the complaining parties' claims under Article III:4 of the 
GATT 1994.  
7.186.   The Panel recalls in this context that the accreditation requirements cited in this set of 
claims for eac h of the ICT programmes are described in detail in section 2.2 above. The Panel 
therefore will not repeat that description here, but instead will refer to these requirements in 
summary fashion. In this regard, t he Panel notes that such summaries suffice for purposes of the 
analysis of the present claims.  
7.187.   Article III:4 of the GATT 1994 contains the national treatment obligation with respect to 
internal laws, regulations and requirements affecting the internal sal e, offering for sale, purchase, 
transportation, distribution or use of products. Article III:4 of the GATT 1994 provides that:  
                                                
590 See footnote 480 above.  
591 See Brazil's first written submission s, sections 5.1.2.3, 5.2.2.3, 5.3.2.3, and 5.4.2.3 (DS472) and 
sections 4.1. 2.4, 4.2.2.4, 4.3.2.4, and 4.4.2.4 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  The products of the territory of any contracting party imported into the territory of 
any other contracting party shall be accord ed treatment no less favourable than that 
accorded to like products of national origin in respect of all laws, regulations and 
requirements affecting their internal sale, offering for sale, purchase, transportation, 
distribution or use. The provisions of t his paragraph shall not prevent the application 
of differential internal transportation charges which are based exclusively on the 
economic operation of the means of transport and not on the nationality of the 
product.  
7.188.   The Appellate Body has explained that  for an inconsistency with Article III:4 of the GATT 
1994 to be established, three elements must be satisfied:  
a. that the measure at issue be a "law, regulation, or requirement affecting the internal 
sale, offering for sale, purchase, transportation, distrib ution, or use" of products;  
b. that the imported and domestic products at issue be "like products"; and  
c. that imported products be accorded "treatment less favourable" than that accorded to 
like domestic products.592 
7.189.   The Panel examines the challenged measures on  the basis of these three elements.  
7.3.2.1.2   Whether the measures at issue are laws, regulations, or requirements 
affecting the internal sale, offering for sale, purchase, transportation, distribution or use  
of domestic and imported products  
7.190.   Article III:4 of the GA TT 1994 states that it is applicable " in respect of all laws, regulations 
and requirements affecting [the] internal sale, offering for sale, purchase, transportation, 
distribution or use" of products.   
7.191.   The European Union argues that the ICT programmes are enacted and implemented by 
their respective laws and regulations, including laws, decrees and a number of binding legal acts, 
such as implementing orders and declaratory acts of accreditation. The European Union submits 
that these laws create obligations t o comply with a variety of conditions, which are voluntarily 
undertaken by applicants asking for an accreditation so as to obtain the tax incentives provided 
under the program. The European Union submits that because compliance with the conditions for 
accreditation is necessary for a company to be accredited and hence have access to those 
incentives, the conditions for accreditation therefore constitute a "requirement" within the meaning 
of Article III:4 of the GATT 1994.593 Japan refers to the panel report i n India – Autos  for the 
proposition that the term "'requirements' includes not only conditions that companies are legally 
bound to carry out, but also those that they might voluntarily accept in order to obtain an 
advantage from a government."594 Additionall y, Japan refers to the Appellate Body report in EC – 
Bananas to argue that the term "affecting" means "having 'an effect on'", thereby "encompassing 
                                                
592 Appellate Body Report, Korea – Various Measures on Beef , para. 133.  
593 European Union's first written submission, paras. 629 -638, 796 -803, 947 -956 and 1089 -1090. The 
European Union argues that the tax incentive s provided under the ICT programmes, once compliance with the 
conditions for accreditation have been achieved, clearly "affect[] the internal sale, offering for sale, purchase, 
transportation, distribution, or use" of imported inputs as well as imported IC T products. The European Union 
asserts that a concrete link exists between the conditions for accreditation and the internal sale, offering for 
sale, purchase, or use of ICT products and their inputs in the Brazilian market, because the application of a 
reduced tax or contribution rate on the incentivized products is conditioned upon the producer's fulfilling all of 
the conditions for accreditation, and the difference in the applicable rate normally has an immediate effect on 
the selling price. In addition,  and only with respect to the Digital Inclusion programme, the European Union 
submits that that programme is essentially governed by Law 11,196/2005, also known as the "Goods Law", 
and by Decree 5,602/2005, which according to the European Union lay down th e most important rules 
governing the programme, including which products can benefit from certain fiscal advantages and under what 
conditions. The European Union asserts that it is indisputable that those acts are of general and prospective 
application and  constitute "laws" and or "regulations" both in the Brazilian legal system and for the purpose of 
Article III:4 of GATT 1994. European Union's first written submission, paras. 1089 -1090.  
594 Japan's first written submission, para. 67 (referring to Panel Repo rt, India – Autos , para. 7.418).  WT/DS472/R • WT/DS497/R  
 
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  anything that has an effect on any aspect of the sale, purchase, transportation, distribution, or use 
of the products at issue".595  
7.192.   Brazil argues that the requirements established in each of the ICT programmes do not 
affect products in the marketplace, and thus fall outside the scope of Article III:4 of the GATT 
1994.596 This is an instance of Brazil's general def ence that Article III:4 deals only with products 
and operations in the marketplace, and thus does not concern the pre -market requirements 
contained in the five programmes, as those only impose production -step requirements without any 
relationship to the sa le of products.597 The Panel has addressed this defence in section 7.2.1 
above.  
7.193.   It is undisputed that the ICT programmes are enacted and implemented through their 
respective laws and regulations, including laws, decrees and a nu mber of binding legal acts, such 
as implementing orders and declaratory acts of accreditation, and that those laws and regulations 
contain a series of conditions for companies to obtain accreditation and thereby be eligible for the 
tax exemptions, reductio ns or suspensions under the programmes.598 
7.194.   The Appellate Body has explained that the word "affecting", which qualifies the types of 
measures covered by Article III:4, assists in defining them and has a broad  scope of application.599 
The Appellate Body has also  determined that measures that create an incentive not to use 
imported products by definition affect t heir internal sale, offering for sale, purchase or use.600 
Additionally,  if the application of a measure can potentially "affect" trade in products and trea t 
imported products less favourably than domestic products, that measure can be considered to be 
inconsistent on its face with the national treatment obligation, even if the challenged regulation is 
written in terms of requirements on firms (as opposed to requirements on products). For instance, 
the Appellate Body in China – Publications and Audiovisual Products  explained that restrictions 
imposed on investors, wholesalers, and manufacturers, as well as on points of sale and ports of 
entry,  are inconsistent  with Article III:4 of the GATT of 1994.601 
7.195.   This Panel agrees with the panel in India – Autos  that the term "requirement" within the 
meaning of Article III:4 of the GATT 1994 includes those requirements that an enterprise 
voluntarily accepts in order to obta in an advantage from the government.602 In the present 
dispute, all of the ICT programmes include conditions or requirements that companies voluntarily 
undertake in order to be accredited and thereby obtain the tax reductions, exemptions or 
suspensions. The Panel therefore agrees with the complaining parties that the measures at issue 
constitute requirements within the meaning of Article III:4 of the GATT 1994.  
7.196.   With respect to whether these requirements "affect the internal sale, offering for sale, 
purchase, transportation, distribution or use" of products, the Panel recalls that the Appellate Body 
has explained that the word "affecting" has a broad scope of application.603  
7.197.   The Panel notes that the purpose of complying with the requirements for accreditation is  to 
obtain a tax exemption, reduction or suspension on the sales or purchases of products, so it is 
clear that the requirements at issue affect the sale, offering for sale or purchase of products. 
Furthermore, a tax incentive such as an exemption, reductio n or suspension in respect of a 
product can create an incentive to buy that product, in preference to a product that does not 
benefit from the exemption, suspension or reduction. Thus, this confirms that the requirements at 
issue affect the sale, offering for sale or purchase of products.  
                                                
595 Japan's first written submission, para. 69 (referring to Appellate Body Report, EC – Bananas III , 
para. 220).  
596 See paragraph 7.61 above.  
597 See paragraph 7.61 above.  
598 See paragraph s 2.37 and 2.38 above.  
599 Appellate Body Report, US – FSC ( Article 21.5 – EC), paras. 208 -210. 
600 Appellate Body Reports, China – Auto Parts , paras . 194–195. 
601 Appellate Body Report, China – Publications and Audiovisual Products , para. 227.  
602 Panel Report, India – Autos , para. 7.184. See also Panel Reports, Canada – Autos , para. 10.73; 
Turkey – Rice, para. 7.218; China – Auto Parts , para. 7.240; and  GATT Panel Report, EEC – Parts and 
Components , para. 5.21.  
603 Appellate Body Report, US – FSC ( Article 21.5 – EC), paras. 208 -210. WT/DS472/R • WT/DS497/R  
 
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  7.198.   Based on the above, the Panel concludes that the Informatics, PADIS, PATVD and Digital 
Inclusion programmes fall within the scope of "laws, regulations and requirements affecting [the] 
internal sale, offering for sale, pur chase, transportation, distribution or use" of products within the 
meaning of Article III:4 of the GATT 1994.  
7.3.2.1.3   Whether the relevant imported and domestic products are "like products"  
7.199.   First, the Panel recalls its finding in paragraph 7.117  above in the context of Article III:2 of 
the GATT 1994 that the incentivised products receiving the relevant tax treatment are Brazilian 
domestic products within the meaning of Article III:2. This is also true for Article III:4.  
7.200.   The Appellate Body has explained that t he concept of "likeness" evokes the image of an 
accordion.604 The Appellate Body has found that given that Article III:4 refers exclusively to "like 
products", the concept of likeness in that provision is broader than that in Article III:2 of the GATT 
1994.605 In particular, the Appellate Body established that the product scope in Article III:4 is 
broader than in the first sentence of Article III:2, but not broader than the combined product 
scope of the two sentences of A rticle III:2606 which the Panel thus understands to encompass both 
like and directly competitive products. The Appellate Body has also stated that "the determination 
of 'likeness' under Article III:4 is, fundamentally, a determination about the nature and ex tent of a 
competitive relationship between and among products."607 
7.201.   The Appellate Body has clarified that in the context of Article III:4, to determine the 
requisite "likeness" requires an examination of the competitive relationship between imported and 
domes tic products, using the following criteria: (i) the product's end -uses, (ii) consumers' tastes 
and habits, and (iii) the product's properties, nature and quality, and (iv) the tariff classification of 
the products at issue.608 
7.202.   The Panel recalls that the like ness of products can be presumed where the sole basis for 
the differential treatment is the origin of the products. In that context, the Panel recalls that its 
discussion about "hypothetical likeness" in the context of the claims under Article III:2 of the  GATT 
1994 is also applicable in respect of Article III:4.609 This means that a complainant may establish 
'likeness' by demonstrating that the measure at issue makes a distinction based on the origin of 
the product,610 without examining the traditional likenes s criteria to determine whether particular 
domestic and imported products can be presumed to be like.611 
7.203.   The European Union and Japan argue that the domestic and imported products incentivised 
under the ICT programmes (i.e. finished and intermediate  products ) at issue are like, and refer to 
                                                
604 Appellate Body Report, Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 97, at 114.  
605 Appellate Body Report, EC – Asbesto s, para. 96.  
606 Appellate Body Report, EC – Asbestos , para. 99.  
607 Appellate Body Report, EC – Asbestos , para. 99.  
608 Appellate Body Report, EC – Asbestos , paras 101 –102. In the context of Article III:4 of the GATT 1994, 
the Appellate Body has further clarifi ed the meaning of these four criteria. Regarding the physical properties of 
products, it has indicated that "in particular, panels must examine those physical properties of products that are 
likely to influence the competitive relationship between products  in the marketplace". Appellate Body Report, EC – 
Asbestos , para. 114. With regard to the end uses of the products, the Appellate Body has stated that this criterion 
relates to "the extent to which products are capable of performing the same, or similar, f unctions". Appellate Body 
Report,  EC – Asbestos, para. 117. As regards the consumers' tastes and habits, the Appellate Body has 
considered that this criterion concerns "the extent to which consumers are willing to use the products to perform 
these function s". Appellate Body Report,  EC – Asbestos , para. 117. Finally, with respect to the tariff classification 
criterion, the Appellate Body has explained that it "clearly reflects the physical properties of a product" and that 
having the same tariff classificati on is not on its own decisive. Appellate Body Report, EC – Asbestos , paras. 102 
and 146. It must be noted that the Appellate Body has recognized the end uses and the consumers' tastes and 
habits as "key elements relating to the competitive relationship bet ween products". Appellate Body Report, EC – 
Asbestos , para. 117.  
609 Appellate Body Report, Argentina – Financial Services , para. 6.36 (referring to Panel Reports, 
Argentina – Hides and Leather , para. 11.168; China – Auto Parts , para. 7.216; Argentina – Import Measures , 
para. 6.274; Canada – Autos , para. 10.74; Canada – Wheat Exports and Grain Imports , para. 6.164; China – 
Publications and Audiovisual Products , para. 7.1447; India – Autos , para. 7.174; Thailand – Cigarettes 
(Philippines) , para. 7.661; Turkey – Rice, paras. 7.214 -7.216; and US – FSC (Article 21.5 – EC), paras. 8.132 -
8.135), Colombia – Ports of Entry , paras. 7.355 -7.356; and US – Poultry (China) , paras. 7.424 -7.432).  
610 Appellate Body Report, Argentina – Financial Services , para. 6.36.  
611 See Pane l Reports, US – Poultry (China) , para. 7.426; Indonesia – Autos , paras. 14.112 -14.113 
(citing  Appellate Body Report, Canada – Periodicals , pp. 2 0-21, DSR 1997:1, 449, at pp. 466 -467).  WT/DS472/R • WT/DS497/R  
 
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  their arguments regarding product likeness developed under their claims in respect of Article III:2 
of the GATT 1994, which are based on a presumption of likeness as just described.612 
7.204.   Brazil argues that the European Union a nd Japan have not demonstrated that the domestic 
and imported ICT products at issue are like, and also refers to its arguments developed in respect 
of the claims under Article III:2 of the GATT 1994.613  
7.205.   The Panel notes that the product coverage under the IC T programmes with respect to the 
incentivised products, intermediate  or finished , is the same for the claims under Article III:2 of the 
GATT 1994 and the claims under Article III:4 of the GATT 1994.  
7.206.   The Panel recalls its conclusion in paragraph 7.140  above that the complaining parties had 
made a prima facie  case that there is a differential tax treatment between imported and like 
domestic products that is based on the origin of the products. The Panel found, for that reason, 
that domestic and imported products can be presumed to be like for the purposes of the analysis 
under Article III:2, first sentence, of the GATT 1994.  
7.207.   The same reasoning applies to the likeness analysis under Article III:4 of the GATT of 
1994.  The Informatics, PADIS, PATVD and Digital Inclusion programmes introduce regulatory 
distinctions exclusively on the basis of the origin of the concerned products. Therefore, for the 
exact same reasons described in the assessment of likeness under Article III:2 of the GATT 1994, 
the Panel finds that domestic and imported products can be presumed to be like for the purposes 
of the analysis of the claims under Article III:4 of the GATT 1994.  
7.208.   The Panel notes that this is consistent with the Appellate Body's ex planation that the 
product scope in Article III:4 of the GATT 1994 is broader than that in the first sentence of Article 
III:2, but not broader  than the combined scope of the first and second sentence of Article III:2 
together.614 Therefore, if product liken ess exists under Article III:2 of the GATT 1994, first 
sentence, product likeness will also exist under Article III:4 of the GATT 1994 for the same 
products at issue. The Panel therefore finds that for the purpose of its analysis under Article III:4, 
the relevant domestic and imported products can be considered to be like.  
7.3.2.1.4   Whether imported products are accorded "treatment less favourable" than 
that accorded to like domestic products  
7.209.   The last step of a panel's analysis under Article III:4 of the GATT 1994 i s to determine 
whether imported products are accorded "treatment no less favourable" than that accorded to like 
domestic products pursuant to the measure in question. The Appellate Body has explained that 
this examination must be founded on a careful analy sis of the measure and its implications in the 
marketplace. This does not mean, however, that the determination must be based on the actual 
effects of the measure in the marketplace.615 
7.210.   The Appellate Body has clarified that it is for the complaining party to  establish that the 
measure accords to the group of like imported products less favourable treatment than it accords 
to the group of like domestic products.616 In this regard, the Appellate Body has concluded that in 
order to determine whether there exists " treatment less favourable" for imported products, panels 
must analyse whether the measure at issue modifies the conditions of competition in the relevant 
market to the detriment of imported products:  
A formal difference in treatment between imported and li ke domestic products is thus 
neither necessary, nor sufficient, to show a violation of Article III:4. Whether or not 
imported products are treated 'less favourably' than like domestic products should be 
                                                
612 European Union's first written submission, paras. 626 -627, 792 -794, 94 5-946 and 1087 -1088 
(DS472) and 341, 408, 466 and 521 (DS497).  
613 Brazil's first written submission, paras. 234 -237, 340, 397 and 489 (DS472) and 187 -190, 290, 334 
and 425 (DS497).  
614 Appellate Body Report, EC – Asbestos , para. 99.  
615 Appellate Body Report, US – FSC ( Article 21.5 – EC), para. 215.  
616 Appellate Body Report, EC – Asbestos , para. 100.  WT/DS472/R • WT/DS497/R  
 
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  assessed instead by examining whether a measure modif ies the conditions of 
competition in the relevant market to the detriment of imported products.617 
7.211.   In US – Clove Cigarettes , the Appellate Body explained:  
In Thailand – Cigarettes (Philippines) , the Appellate Body further clarified that for a 
finding of less  favourable treatment under Article III:4 "there must be in every case a 
genuine relationship between the measure at issue and its adverse impact on 
competitive opportunities for imported versus like domestic products to support a 
finding that imported pro ducts are treated less favourably".618 
7.212.   Finally, a demonstration of less favourable treatment can be made on a de jure or de facto 
basis. The Appellate Body in  US – COOL  stated:  
As under Article III:4, the national treatment obligation of Article 2.1 [ of the  TBT 
Agreement ] prohibits both de jure  and de facto  less favourable treatment. That is, " a 
measure may be de facto  inconsistent with Article 2.1 even when it is origin -neutral 
on its face ." In such a case, the panel must take into consideration "the totali ty of 
facts and circumstances before it", and assess any "implications" for competitive 
conditions "discernible from the design, structure, and expected operation of the 
measure". Such an examination must take account of all the relevant features of the 
market, which may include the particular characteristics of the industry at issue, the 
relative market shares in a given industry, consumer preferences, and historical trade 
patterns. That is, a panel must examine the operation of the particular technical 
regulation at issue in the particular market in which it is applied.619  
7.213.   The Panel proceeds with its analysis by assessing the cited aspects of the ICT programmes 
alleged to be inconsistent with Article III:4 of the GATT 1994.  
7.3.2.1.4.1   The conditions for accreditation  
7.214.   The complaining parties challenge as inconsistent with Article III:4 the accreditation 
requirements – i.e., the conditions that companies must fulfil in respect of particular incentivized 
products to become accredited producers of, and thus eligible for t he tax incentives on, those 
products. Accreditation is product -by-product, rather than to a company as a whole. Thus, a 
company producing a range of different products each of which is covered by a challenged scheme 
must become accredited in respect of eac h of those products individually, by fulfilling the 
accreditation requirements applicable to each.  
7.215.   The European Union argues that in order for a product to enjoy the tax exemptions and 
reductions under the ICT programmes, that product must be produced by c ompanies complying 
with the conditions for accreditation, namely producing the product in accordance with the 
applicable PPB or similar production step requirements, or demonstrating that the product is 
"developed in Brazil"; and spending a prescribed amou nt on specified kinds of R&D. The European 
Union adds that a requirement that certain production steps be carried out in Brazil, or 
alternatively that a product be "developed in Brazil", in order for the product to benefit from a tax 
incentive is not origi n-neutral, because imported products that are like the domestic products have 
not undergone the same production steps in Brazil or will not have been "developed in Brazil", and 
thus by definition will be excluded from the incentive. The European Union furt her submits that 
purchasers of ICT products will have an incentive to acquire the domestic products that carry the 
lower tax burden. Hence, according to the European Union, the ICT programmes, access to which 
is obtained by compliance with the accreditatio n requirements, modify the equality of competitive 
                                                
617 Appellate Body Report, Korea – Various Measures on Beef , para. 137 (emphasis original); see also 
the 1958 GATT Panel Report, Italy – Agricultural Machinery which s tipulates that the scope of Article III is not 
only limited to laws and regulations that directly relate to conditions  of sale, purchase and use of products but 
that "the drafters of the Article intended to cover in paragraph 4 […] any laws or regulations which might 
adversely modify the conditions of competition between the domestic and imported products on the internal 
market." GATT Panel Report, Italy – Agricultural Machinery , para. 12.  
618 Appellate Body Report , US – Clove Cigarettes , fn 96 . 
619 Appellate B ody Report, US – COOL , para. 269. (emphasis added)  WT/DS472/R • WT/DS497/R  
 
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  conditions between imported and like domestic products.620 The European Union makes the same 
argument with regard to the other accreditation requirements for access to the tax incentives, i.e., 
the R&D inves tment requirements. In particular, according to the European Union imported 
products manufactured by a company that has not invested in R&D in Brazil will not qualify for the 
tax incentives. Also, for the European Union, insofar as the R&D investment requi rement is linked 
to improving the incentivised products, it should be concluded that such a requirement "affects" 
the sale of those products in Brazil (by giving them a qualitative technology advantage).621 
7.216.   Japan argues that the ICT programmes reduce tax bur dens on domestic ICT products, 
thereby enabling companies to produce and market such products in Brazil at reduced prices using 
the tax benefit, while imported ICT products are not eligible for the benefits under the ICT 
programmes, and thus are subject to  higher tax burdens. Accordingly, the ICT programmes deny 
equality of competitive opportunities for imported and domestic goods, thereby modifying the 
conditions of competition in the relevant market to the detriment of imported products.622  
7.217.   Japan submits t hat the ICT programmes are inconsistent with Article III:4, because the 
programmes draw origin -based distinctions with respect to covered ICT products. Japan maintains 
that the requirement that covered ICT products be produced in accordance with PPBs can o nly be 
satisfied if the final products are domestic.623 
7.218.   Brazil counters that Article III:4 of the GATT 1994 only applies to measures that affect a 
product once it has been produced and enters the domestic market, i.e. it refers only to market 
operations.624 According to Brazil, the requirements under the ICT programmes are not designed 
or structured, nor do they operate in a manner, to affect the conditions of competition to the 
detriment of imported products, mainly because they are not related to products, bu t aimed at 
stimulating technology development and capacity -building.625 
7.219.   Brazil also argues, for the Informatics and PADIS programmes, that, in the case of 
intermediate goods produced by the accredited companies, the indirect tax suspensions or 
exemptions app lied under the challenged programmes do not generate a difference in the effective 
tax burden due between imported and domestic products.626 
7.220.   The Panel notes that the aspects challenged by the complaining parties under Article III:4 
are different from, albeit  related to, the differential tax treatment of like domestic and imported 
products that they challenge under Article III:2. In respect of Article III:4, the complaining parties 
challenge the laws, regulations and requirements, namely the accreditation requ irements for 
gaining access to the tax incentives, which then in turn allegedly distort the conditions of 
competition for imported products vis-à-vis like domestic products, through that differential tax 
burden.  
7.221.   The Panel recalls that in order to determin e whether there exists "treatment less 
favourable" for imported products, panels must analyse whether the measures at issue modify the 
conditions of competition in the relevant market to the detriment of imported products .627 
7.222.   The Panel recalls that in order to be eligible for the tax exemptions, reductions and 
suspensions granted under the ICT programmes, companies must obtain accreditation628, and in 
                                                
620 European Union's first written submission, paras. 622 -625, 644 -647, 788 -792, 809 -813, 940 -944 
and 963 -969, 1082 -1086 and 1103 -1109. See also European Union's opening statement at the first meeting, 
paras . 133-135.  
621 European Union's second written submission, paras. 309 -311, 425, 463 and 493.  
622 Japan's first written submission, paras. 339 -341, 405 -409, 463 -467 and 519 -522.  
623 Japan's second written submission, para. 151.  
624 Brazil's first written submissi ons, paras. 224 -227 (DS472) and paras. 177 -180 (DS497)  
625 Brazil's first written submission, paras. 252 -259, 338 -341, 395 -398 and 487 -490 (DS472) and 205 -
208, 291 and 333 -336 (DS497); Brazil's second written submission, paras. 55, 79, 110 and 137.  
626 Brazil' s first written submissions, paras. 185, 218 and 336 (DS472) and paras. 144, 173 and 286 
(DS497).  
627 See for example, Appellate Body Report, Korea – Various Measures on Beef , para. 137.  
628 In respect of the Digital Inclusion programme, the Panel notes that in order for retailers to receive 
the relevant tax treatment available under the programme, it is not necessary for the retailers to be 
"accredited" under the programme. However, in order to be eligible for the relevant tax treatment, the 
products must hav e been produced in accordance with certain production step requirements. In other words WT/DS472/R • WT/DS497/R  
 
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  order to obtain accreditation companies must comply with the requirements imposed by each 
programme.  
7.223.   The Panel concluded in paragraphs 7.135  to 7.140  above that only products produced in 
Brazil can satisfy the conditions or requirements for accreditation of satisfying the PPBs  or similar 
production step requirements, and only products developed in Brazil can satisfy the requirement of 
being "developed in Brazil". Imported like products cannot satisfy those requirements, and thus 
can never qualify for the tax exemptions, reducti ons or suspensions granted under the relevant 
ICT programmes. This is because imported products are never manufactured in Brazil in 
accordance with the relevant production -step requirements, nor can imported products developed 
outside Brazil satisfy the re quirement of being "developed in Brazil". Consequently, imported like 
products are not able to obtain the tax exemptions, reductions and suspensions that are available 
to domestic products produced by accredited companies and developed in Brazil.  
7.224.   The Pane l also concluded in paragraphs 7.154  and 7.172  above that, as a consequence of 
these accreditation requirements contained in the challenged programmes, imported finished and 
intermediate  products bear a higher tax burden than like domestic finished  and intermediate  
products. Specifically, because imported products cannot satisfy these requirements (a) imported 
finished  products cannot benefit from the tax exemptions an d reductions established in the ICT 
programmes; and (b) imported intermediate  products face a tax payment that incentivized like 
domestic intermediate  products do not face or face to a lesser extent, resulting, for the purchasers 
of imported intermediate  products, in a reduced cash availability and a loss in the value of the tax 
credit derived from the purchase.  
7.225.   In the Panel's view, it is clear that the conditions for accreditation, which when fulfilled 
create a lower internal tax burden on domestic produc ts than on like imported products, modify 
the conditions of competition to the detriment of the imported products.629 Therefore, the Panel 
concludes that the accreditation requirements of the ICT programmes, by restricting access to the 
tax incentives only t o domestic products, result in less favourable treatment being accorded to 
imported products than to like domestic products.  
7.226.   The Panel notes that it reached this conclusion based on the fact, as explained in 
paragraph 7.135  above, that only a product manufactured in Brazil can meet the production -step 
requirements imposed by the PPBs, or similar requirements, imposed by the ICT programmes. The 
Panel also concluded in paragraph 7.136  above that import ed products that have been "developed" 
outside Brazil could never meet the requirement of being developed in Brazil.  
7.227.   The Panel notes that the European Union and Japan request the Panel to find that all of the 
conditions for accreditation taken altogether, including the production steps or manufacturing 
requirements, the R&D requirements and the requirement of being developed in Brazil, are 
inconsistent with Article III:4 of the GATT 1994. The Panel has made its findings in 
paragraph  7.173  above, with respect to only two of those conditions, the production step 
requirements under the PPBs or similar requirements, and the requirements to be "developed" in 
Brazil, and not with respect to the requirements to invest in  R&D.  
7.228.    The European Union argues that the same conclusions can be reached with regard to the 
R&D investment requirements, because imported products manufactured by a company that has 
not invested in R&D in Brazil will not qualify for the tax incentives.  
7.229.   The Panel is not convinced that the European Union has met its burden of making a prima 
facie demonstration with respect to the R&D requirements. The European Union has not explained 
how the requirement to invest in R&D alone  creates an origin -based discrim ination, and how that 
requirement alone  could disqualify imported products from the tax incentives. In particular, the 
                                                                                                                                                  
such requirements perform the same function in respect of the Digital Inclusion programme, as the 
accreditation requirements for the Informatics, PADIS and PATVD progra mmes. The Panel therefore uses the 
term "accreditation requirements" in this context to refer not only to accreditation of producers under the 
Informatics, PADIS and PATVD programmes, but also the eligibility of retailers under the Digital Inclusion 
progra mme, to receive the relevant tax treatment available under each programme.  
629 Those conditions for accreditation, themselves, are inconsistent with Article III:4 of the GATT 1994. 
Indeed, if there was no tax advantage attached to the conditions for accredi tation, and such requirements were 
made mandatory, they would be, in and of themselves, inconsistent with Article III:4 of the GATT 1994.  WT/DS472/R • WT/DS497/R  
 
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  European Union has not demonstrated that it would be impossible for foreign producers to comply 
with the R&D requirements , or even that c ompliance with such requirements are more onerous for 
foreign producers than domestic producers . Nor has the European Union indicated how these R&D 
requirements, taken together with the production -step requirements and the requirement for a 
product to be " developed in Brazil", create origin -based discrimination that is separable from the 
origin -based discrimination arising only from those other requirements.  
7.230.   The Panel concludes that the ICT programmes are inconsistent with Article III:4 of the 
GATT 1994, b ecause the requirements to produce in accordance with the PPBs, or similar 
production -step requirements, and the requirement for a product to be developed in Brazil, in 
order to obtain accreditation and thereby access to the tax incentives under the progra mmes, 
accord to imported products treatment less favourable than that accorded to like domestic 
products.  
7.3.2.1.4.2   The mechanism for the calculation of the amount of resources required to be 
invested in R&D under the Informatics and PADIS programmes  
7.231.   The Panel recal ls that, among the requirements for accreditation under the Informatics 
programme, companies must invest annually in R&D activities in Brazil a percentage630 of their 
gross sales on the internal market resulting from the commercialization of the incentivised  
products, after deduction of taxes levied in connection with those sales, as well as deduction of the 
value of the purchases of products incentivised under the Informatics programme  (or produced in 
the Manaus Free Trade Zone in Brazil).631 
7.232.   The Panel also re calls that, among the requirements for accreditation under the PADIS 
programme, companies must invest annually in R&D activities in Brazil at least 5% of their gross 
sales on the internal market resulting from the commercialization of the incentivised prod ucts, 
after deduction of taxes levied in connection with those sales, as well as deduction of the value of 
the purchases of products incentivised under the PADIS programme .632 
7.233.   The latter means that if companies accredited under the Informatics or PADIS progr ammes 
buy products, finished  or intermediate , incentivised under the same programme, the value of 
those purchases will be deducted from the calculation of the percentage of their gross sales 
required to be invested in R&D.  
7.234.   The European Union and Japan argu e that the way the minimum investment requirement 
is calculated gives an incentive to companies accredited under the Informatics and PADIS 
programmes to purchase domestic products incentivised under the same programme, in order to 
reduce the amount of reso urces that they are compelled to invest in R&D in Brazil. In their view, 
this incentive to purchase domestic products alters the conditions of competition between domestic 
and imported products, to the detriment of the latter.633 
7.235.   The European Union further a sserts that the higher a company's purchases are of products 
incentivised under the Informatics programme (or manufactured in the Manaus Free Trade Zone) 
or under the PADIS programme, the lower the amount of resources it will need to invest in R&D in 
Brazil in order comply with the R&D accreditation. The European Union maintains that accredited 
companies have an incentive to acquire products benefitting from these programmes, because the 
cost of those products will help them reduce the amount of resources t hat they have to invest in 
compulsory R&D in Brazil.634 
                                                
630 At the time of establishment of the Panel, accredited companies have to invest at least 4% of their 
gross revenue in  R&D, and at least 4.35% if investments are related to the sales of ICT products produced in 
the Mid -west, North (SUDAM) and Northeast (SUDENE) regions. See paragraph 2.54 above.  
631 Law 8,248/1991, (Exhibit JE -1), Article 11; and Decree 5,906/2006, (Exhibit JE -7), Article 8.  
632 Law 11,484/2007, (Exhibit JE -71), Article 6; and Decree 6,233/2007, (Exhibit JE -73), Article 8, as 
amended by Decree 8,247/2014, (Exhibit JE -75), Article 1.  
633 European Union's first written submission, paras. 649 and 811; European Union's second written 
submission, para. 323; European Union's response to Panel question No. 72; Japan's first written submission, 
para. 346; and Japan's response to Panel's question No. 72.  
634 European Union's ope ning statement in the first substantive meeting, paras. 150 -152. WT/DS472/R • WT/DS497/R  
 
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  7.236.   Brazil, in turn, submits that companies can offset from the amount required to be invested 
in R&D the value of their purchases of covered (incentivized) inputs, in order to prevent double 
counting. Braz il maintains in particular that this investment requirement works in much the same 
way as a value -added tax and that the deduction is made so that the investment requirement falls 
only on the added value of the covered product. Brazil adds that if this wer e not the case, 
accredited companies purchasing products from other accredited companies would have to bear 
the investment burden already borne by the previous company.635  
7.237.   The European Union contends that there is no risk of double counting, because what on e 
company has invested in R&D in order to obtain a tax reduction on product A, has nothing to do 
with what another company has to invest in R&D in order to obtain a tax reduction on product B, 
which incorporates product A as an input.636 
7.238.   The Panel recalls th at in order to determine whether there exists for the purpose of Article 
III:4 of the GATT 1994 "treatment less favourable" for imported products, panels must analyse 
whether the measures at issue modify the conditions of competition in the relevant market  to the 
detriment of imported products .637 
7.239.   It is an undisputed fact that companies can deduct the value of purchases of products 
incentivised under the Informatics programme (or produced in the Manaus Free Trade Zone in 
Brazil) or under the PADIS programme f rom the percentage of their gross sales that must be 
invested in R&D in order be accredited under the respective programme.  
7.240.   It is clear for the Panel that companies can reduce the amount of resources required to be 
invested in R&D by purchasing incentivis ed products, which in turn creates an incentive to 
purchase products (usually intermediate products) incentivised by the programme under which the 
company is accredited, either the Informatics or the PADIS programme.  
7.241.   As explained in paragraphs 7.136  and 7.138  above, like imported products can never be 
incentivised by the Informatics or the PADIS programme, so this incentive to purchase incentivised 
products modifies th e conditions of competition between domestic and like imported products, to 
the detriment of the imported products.  
7.242.   As described in paragraph 7.236  above, Brazil argues that the purpose of this deduction is 
to prevent double counting of R&D expenditures. However, in the Panel's view, the purchases of 
incentivised products by one company have nothing to do with the sales of incentivised products 
by another company. The sale of product A by one accredited company w ill be counted in its 
percentage required to be invested in R&D, but the purchase  of that product A by another 
accredited company will not be counted in its percentage required to be invested in R&D. Thus, the 
Panel rejects Brazil's argument. In any event,  what matters to the purchasing company is that the 
amount that it must spend on R&D is lower when it purchases an incentivized, and thus by 
definition domestic, product than when it purchases an imported (and thus by definition non -
incentivized) product, even if the two products are sold for exactly the same price. Thus, the Panel 
rejects Brazil's argument.  
7.243.   For the reasons explained above, the Panel finds that the mechanisms under the 
Informatics and PADIS programmes for the calculation of the amount of re sources required to be 
invested in R&D accord to imported products treatment less favourable than that accorded to like 
domestic products, and thus are inconsistent with Article III:4 of the GATT 1994.  
7.3.2.1.4.3   The lower administrative burden on companies purchasin g domestic 
incentivised intermediate products  
7.244.   The European Union argues that whenever a product benefits from an exemption or 
suspension of an indirect tax (or at least a very low tax rate), this implies a lower administrative 
burden for the purchaser of t hat product compared to the burden faced by the purchaser when it 
                                                
635 Brazil 's first written submission, fn 45 (DS497); and Brazil's second written submission, para. 70.  
636 European Union's opening statement in the first substantive meeting, paras. 153 -155. 
637 See e.g. Appellate Body Report, Korea – Various Measures on Beef , para. 137.  WT/DS472/R • WT/DS497/R  
 
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  buys products subject to the tax (or subject to the full rate).638 On this basis, the European Union 
argues that the exemptions under the ICT programmes entail a lower administrative burden in  
relation to the IPI tax and the PIS/PASEP and COFINS contributions when accredited companies 
sell the incentivised products, granting those products a competitive advantage over like imported 
products.639  
7.245.   The European Union submits that the lower administr ative burden creates an incentive in 
the Brazilian market in favour of domestic products incentivised under the programmes, and in 
particular with respect to the incentivised intermediate  products that are purchased by other 
producers. According to the Eur opean Union, this is because, first, purchasers will not need to 
anticipate the amount of those taxes when purchasing the products; and second, purchasers will 
not have to undergo the administrative procedure to claim a tax credit in relation to those taxe s 
and obtain compensation with the same or other taxes (or they will have very low tax credit to 
compensate), or to ask for reimbursement.640  
7.246.   The European Union adds that Brazil has explained that the reimbursement of tax credits 
that cannot be compensated is a lengthy and time -consuming procedure that can take years, 
which confirms that the advantage received by the companies that benefit from the exemption s or 
suspension s of indirect taxes on their purchases is very significant, both in terms of positive c ash 
flow as well as avoidance of administrative burden, and is not abstract and irrelevant, but instead 
is a concrete advantage recognised by Brazil itself.641 
7.247.   Brazil argues that the complaining parties want the Panel to make findings of de facto  
discriminat ion against imported products and domestic contingency without presenting any 
evidence to support those findings. Brazil adds that the complaining parties urge this Panel to draw 
unwarranted inferences regardless of whether those inferences have any basis in either the text of 
the measures, or evidence on the record. Brazil submits that the highly inferential nature of the 
complaining parties' case under Article III is illustrated by the fact that they are forced to refer to 
"unspecified administrative burd ens".642 
7.248.   With respect to the intermediate  incentivised products, the Panel has found in paragraphs 
7.136  and 7.138  above, that imported intermediate  products, which are  not incentivised, face a 
tax payment that incentivized like domestic intermediate  products do not face or face to a lesser 
extent, and that this tax payment results, for purchasers of imported intermediate products, in a 
limit to the cash availability as well as a loss in the value of the tax credit derived from the 
transaction. Consequently, the Panel found that the ICT programmes result in imported 
intermediate  products being treated less favourably than like domestic products, notwithstanding 
the fact t hat the sales of intermediate  products are subject to the mechanism of credits and debits, 
so that the purchaser will obtain a credit in the same amount as the tax paid.  
7.249.   The European Union's claim with respect to the alleged lower administrative burden on 
firms purchasing domestic intermediate products entitled to a tax suspension or exemption seems 
to merely add to the reasons for concluding that the tax exemptions and suspensions accorded to 
imported intermediate  products result in less favourable treatme nt than that accorded to like 
domestic products, rather than to be a stand -alone claim. Nevertheless, the Panel will assess the 
European Union's claim.  
7.250.   The Panel recalls that in order to determine whether there exists "treatment less 
favourable" for impor ted products in the sense of Article III:4 of the GATT 1994, panels must 
                                                
638 European Union's first written submission, paras. 647, 807, 812, 960, 966, 1100 and 1105; 
European Union's second written submission, paras. 324 and 433; European Union's respo nse to Panel 
questions No. 2 and 72.  
639 European Union's first written submission, paras. 647, 807, 812, 960, 966, 1100 and 1105; 
European Union's second written submission, paras. 324 and 433; European Union's response to Panel 
questions No. 2 and 72.  
640 European Union's first written submission, para. 647, 807, 812, 960, 966, 1100 and 1105; European 
Union's second written submission, paras. 324 and 433; European Union's response to Panel questions No. 2 
and 72.  
641 European Union's first written submission, p aras. 647, 807, 812, 960, 966, 1100 and 1105; 
European Union's second written submission, paras. 324 and 433; European Union's response to Panel 
questions No. 2 and 72.  
642 Brazil's opening statement in the second substantive meeting, paras. 4 -5. WT/DS472/R • WT/DS497/R  
 
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  analyse whether the measures at issue modify the conditions of competition in the relevant market 
to the detriment of imported products .643 
7.251.   As a factual matter,  purchasers of non -incent ivised intermediate  products will always have 
to pay the IPI tax and the PIS/PASEP and COFINS contributions when they purchase the product. 
It is also a fact  that taxes paid on intermediate  products generate a tax credit in the amount of the 
tax or contrib ution paid, in favour of the purchaser – a tax credit that can be offset with other 
debits on their IPI tax, or PIS/PASEP and COFINS contribution' debits.644 Similarly, it is undisputed 
that, if the tax credit cannot be offset by debits after three taxation periods, the company can 
request that the tax credit is compensated with other Federal taxes, or reimbursed. It is accepted 
by Brazil that the process of compensation and reimbursement can be burdensome for companies, 
and can take years.645 
7.252.   The Panel notes t hat, while a purchaser of an incentivised intermediate  product subject to 
a tax exemption or reduction will not need to anticipate any tax, or will only need to anticipate a 
reduced  amount  of tax , to the Brazilian Government, the purchaser of a non -incenti vised 
intermediate  product will need to anticipate the full amount of those taxes when purchasing the 
products, and will have to undergo the administrative procedure to claim a tax credit in relation to 
those taxes, to request compensation with the same or  other taxes, or to ask for reimbursement.  
7.253.   The Panel agrees with the European Union that this difference in treatment creates an 
incentive to purchase incentivised intermediate  products, produced by accredited companies, over 
non-incentivised products. In  the view of the Panel, when faced with a decision to choose from 
either a product whose purchase will entail no payment of taxes, or a product whose purchase will 
entail the payment of the tax and the administrative burden that comes with the procedure of  
offsetting the tax with other debits (or requesting compensation or reimbursement), a purchaser, 
under normal circumstances, will prefer to avoid the administrative burden that comes with the 
payment of the tax.  
7.254.   Since an imported product will never be eli gible for the tax reductions or exemptions, the 
incentive to avoid the administrative burden, by purchasing incentivised intermediate  products, 
modifies the conditions of competition between domestic and like imported products, to the 
detriment of the impo rted products.  
7.255.   Thus, the ICT programmes are inconsistent with Article III:4 of the GATT 1994, because 
they accord to imported intermediate  products treatment less favourable than that accorded to like 
domestic intermediate  products, due to the lower admini strative burden imposed on firms 
purchasing incentivised intermediate  products.  
7.3.2.2   Claims with respect to the alleged imposition, under the terms of the PPBs, or 
similar requirements, of an obligation to use domestic inputs in the production of the 
incentiviz ed products under the ICT programmes  
7.3.2.2.1   Introduction  
7.256.   The complaining parties argue that the production step requirements with which 
manufacturers must comply to receive the tax incentives under the four ICT programmes involve 
requirements to use domestic inpu ts in the production of the incentivized products. This allegation 
is relevant for the remaining element of the complaining parties' claims under Article III:4 of the 
GATT 1994 as well as their claims under Article 3.1(b) of the SCM Agreement.646  
7.257.   The Panel notes that it already has found the accreditation requirements of the ICT 
programmes – which include the production step requirements – to be inconsistent with 
Article  III:4 of the GATT 1994. That said, however, the question of whether the production step 
requirements of the ICT programmes require the use of domestic inputs is different from the basis 
                                                
643 See for e xample, Appellate Body Report, Korea – Various Measures on Beef , para. 137.  
644 See paragraph 2.11 above.  
645 See, for example, Brazil's first written submission, para. 702 (DS497).  
646 In limiting its discussion in this section to issues related to Article III:4 of the GATT 1994 and Article 
3.1(b) of the SCM Agreement, the Panel does not consider that this discussion is not also relevant to the claims 
under Article 2.1 of the TRIMs Agreement, addressed below.  WT/DS472/R • WT/DS497/R  
 
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  for the Panel's ruling on the other aspects of the ICT programmes. In addition, this issue is raised 
in, and is central to, the complaining parties' claims th at the ICT programmes provide subsidies 
that are contingent on the use of domestic over imported goods, inconsistent with Article 3.1(b) of 
the SCM Agreement.647 Given this latter consideration, the Panel will proceed to analyse this issue.  
7.258.   If the Panel fin ds that the alleged requirement to use domestic goods exists, the Panel 
considers that this will lead ipso facto  to the further finding of inconsistency with Article III:4 of 
the GATT 1994 that the complaining parties claim. This is because, while Article III:4 itself does 
not refer to such requirements, it is well settled on the basis of a considerable line of jurisprudence 
that such requirements are inconsistent with Article III:4 by operating to the disadvantage of 
imported products, including where the use of domestic goods is only one of the options for 
complying with the requirements of a law or regulation (or for obtaining an advantage).648 
7.259.   In addition, such a finding of a requirement to use domestic goods, if made, will also 
constitute a finding by the  Panel that the contingency element of the claims under Article 3.1(b) of 
the SCM Agreement has been satisfied, i.e., that to the extent the programmes provide subsidies, 
any such subsidies would be contingent on the use of domestic over imported goods.  
7.260.   In this respect, pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement, subsidies 
contingent, whether solely or as one of several other conditions, upon the use of domestic over 
imported goods are prohibited, and shall not be granted or maintained.649 
7.261.   The Panel notes that the ordinary meaning of the word "contingent" is "conditional: 
dependent on, upon "650, so a subsidy is "contingent upon the use of domestic over imported 
goods", and thus, prohibited under Article 3.1(b) of the SCM Agreement, if the use of d omestic 
goods is required or necessary in order to receive the subsidy.651  
7.262.   If the Panel finds that such requirement to use domestic goods over imported goods exists, 
it will proceed with the further analysis of whether the ICT programmes provide subsidies. If, 
however, the Panel finds no requirement to use domestic goods over imported goods, that will 
dispose of the claims under Article 3.1(b) of the SCM Agreement and the Panel will stop its 
analysis of those claims at that point.  
7.263.   The Panel recalls that that  for an inconsistency with Article III:4 of the GATT 1994 to be 
established, three elements must be satisfied: (a) that the measure at issue be a "law, regulation, 
or requirement affecting the internal sale, offering for sale, purchase, transportation, dis tribution, 
or use" of products; (b) that the imported and domestic products at issue be "like products"; and 
                                                
647 See section 7.3.5.2  below.  
648 See, e.g., Appellate Body Report, US – FSC (Article 21.5 – EC), para. 220, where the Appellate Body 
held that the local content requirements operated to provide a disincentive to the us e of imports, 
notwithstanding the possibility to obtain the benefits in question without using domestic inputs, and thus 
constituted less favourable treatment of imports under Article III:4 of the GATT 1994. See also Canada – FIRA, 
(GATT Panel Report, Canada – FIRA,  paras. 5.7 – 5.11), where undertakings to purchase goods of Canadian 
origin and undertakings to buy from Canadian suppliers both were found to be inconsistent with Article III:4. 
See for a similar finding GATT Panel Report, Italy – Agricultural Machinery , para. 13.  
649 Article 3.1(b) of the SCM Agreement states in relevant parts that: "Except as provided in the 
Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited: … (b) 
subsidies contingent, whethe r solely or as one of several other conditions, upon the use of domestic over 
imported goods." Article 3.2, in turn, states that "[a] Member shall neither grant nor maintain subsidies 
referred to in paragraph 1.  
650 Shorter Oxford English Dictionary (6th ed. , 2007)  
651 Indeed, such an interpretation was confirmed by the Appellate Body in Canada – Autos, where the 
Appellate Body recalled its discussion of Article 3.1(a) and explained as follows:  
In our discussion of Article 3.1(a) in Section VI of this Report, we recalled that in Canada – 
Aircraft  we stated that "the ordinary connotation of 'contingent' is 'conditional' or 'dependent for 
its existence on something else'." Thus, a subsidy is prohibited under Article 3.1(a) if it is 
"conditional" upon export perfo rmance, that is, if it is "dependent for its existence on" export 
performance. In addition, in Canada – Aircraft , we stated that contingency "in law" is 
demonstrated "on the basis of the words of the relevant legislation, regulation or other legal 
instrume nt." (emphasis added) As we have already explained, such conditionality can be derived 
by necessary implication from the words actually used in the measure. We believe that this legal 
standard applies not only to "contingency" under Article 3.1(a), but als o to "contingency" under 
Article 3.1(b) of the SCM Agreement. Appellate Body Report, Canada – Autos , para. 123.  WT/DS472/R • WT/DS497/R  
 
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  (c) that imported products be accorded "treatment less favourable" than that accorded to like 
domestic products.652 The Panel examines the challenged  measures on the basis of these three 
elements.  
7.3.2.2.2   Whether the measures at issue are laws, regulations, or requirements 
affecting the internal sale, offering for sale, purchase, transportation, distribution or use 
of domestic and imported products  
7.264.   The Panel r ecalls its analysis in section 7.3.2.1.2  above with respect to whether the 
measures at issue are laws, regulations, or requirements affecting the internal sale, offering for 
sale, purchase, transportation, distr ibution or use of domestic and imported products. The Panel 
will not repeat its analysis, as it applies equally to this claim.  
7.3.2.2.3   Whether the relevant imported and domestic products are "like products"  
7.265.   First, the Panel recalls its finding in paragraph 7.117  above in the context of Article III:2 of 
the GATT 1994 that the incentivised products receiving the relevant tax treatment are Brazilian 
domestic products within the meaning of Article III:2. This is also true for Article III:4 . 
7.266.   As explained, in addition to their allegations of inconsistency with Article III:4 in respect of 
finished and intermediate products, the complaining parties also allege that the ICT programmes 
are inconsistent with Article III:4 in respect of components and subassemblies. The European 
Union explains that imported components and subassemblies that can be used in the production of 
finished and intermediate products are like products, and that those components and 
subassemblies "are defined essentially by th eir inherent technological features. Thus, components 
and subassemblies manufactured in Brazil and imported are in a directly competitive relationship 
in the market."653 Both complaining parties consider that the challenged programmes distinguish 
"between im ported and domestic products that are identical in all respects except for their origins, 
and there is no need to carry out a detailed case -by-case analysis of the 'like[ness]' element under 
Article III:4."654 
7.267.   Brazil argues that the challenged programmes do not make an origin distinction between 
imported and domestic products, and that the complaining parties have therefore not met their 
burden of proof.655 Brazil did not contest the likeness of the products under the traditional criteria 
of likeness, as argued  by the complaining parties.656 
7.268.   As stated above, previous panels used "hypothetical" likeness with respect to Articles III:4, 
under which approach "a complainant may establish 'likeness' by demonstrating that the measure 
at issue makes a distinction based ex clusively on the origin of the product".657 Under this 
approach, a complaining party must make a prima facie case that a measure draws a distinction 
based exclusively on origin.658 
7.269.   The Panel notes that the complaining parties' argument is that the relevant pro grammes 
require the use of domestically produced components and subassemblies in the production of a 
finished or intermediate product in order for that finished or intermediate product to receive 
                                                
652 Appellate Body Report, Korea – Various Measures on Beef , para. 133.  
653 European Union's first written submission, para. 627. See also European Union's first written 
submission, paras. 794, 695 and 1087.  
654 European Union's first written submission, paras. 626 -628, 793 -795, 945 -946 and 1087 -1088; 
Japan's first written submission, para. 59; Japan's first written submission, paras. 341 -342, 411 and 412, 465 -
466, and 523.  
655 Brazil's first written submissions, paras. 234 -237, 397 and 489 (DS472) and 188 -190, 290, 335 and 
426 (DS497).  
656 See paragraph 7.119  above.  
657 Appellate Body Report, Argentina – Financial Services , para . 6.36. See also Appellate Body Reports, 
Argentina – Financial Services , para. 6.36 (referring to Panel Reports, Argentina – Hides and Leather , para. 
11.168; China – Auto Parts , para. 7.216; Argentina – Import Measures , para. 6.274; Canada – Autos , para. 
10.74; Canada – Wheat Exports and Grain Imports , para. 6.164; China – Publications and Audiovisual 
Products , para. 7.1447; India – Autos , para. 7.174; Thailand – Cigarettes (Philippines) , para. 7.661; Turkey – 
Rice, paras. 7.214 -7.216; US – FSC (Article 21. 5 – EC), paras. 8.132 -8.135; Colombia – Ports of Entry , paras. 
7.355 -7.356; and US – Poultry (China) , paras. 7.424 -7.432).  
658 Appellate Body Report, Argentina – Financial Services , para. 6.45.  WT/DS472/R • WT/DS497/R  
 
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  certain tax benefits. Such regulatory distinction is clearly  based on the origin of the products 
traded. The Panel does not prejudge at this point of its analysis the issue of whether the imported 
products identified by the complaining parties are indeed treated less favourably than the domestic 
like products. The Panel does consider, however, that the products alleged by the complaining 
parties to be disadvantaged are like the products that are allegedly favoured. The Panel addresses 
below whether the measures function as local content requirements that require the  use of 
domestic over imported goods.  
7.270.   The Panel therefore concludes that domestically produced components and subassemblies 
and imported components and subassemblies are like products, within the meaning of Article III:4 
of the GATT 1994.  
7.3.2.2.4   Whether imported  products are accorded "treatment less favourable" than 
that accorded to like domestic products  
7.271.   To recall, the complaining parties argue that to receive the relevant tax benefits under the 
ICT programmes, manufacturers must comply with certain production -step requirements that 
modify the conditions of competition for imported inputs  in favour of domestic like inputs . The 
complaining parties consider this to be the case because the process of complying with each 
required production step specified in a basic production process (PPB) (or specified otherwise) 
results in the creation of an "input" good that then must be "used" in an ensuing step or steps in 
the production of the incentivized finished or intermediate product (i.e. the product receiving the 
advanta geous tax treatment). They make this argument without regard for whether a single 
company itself performs all of the production steps and thus itself creates the "inputs" in question 
(so-called "in -house" production), or instead outsources some production steps to third parties, by 
acquiring from them the outputs of those production steps, which it then incorporates as "inputs" 
into its production of the incentivized product.  
7.272.   Thus, for the complaining parties, " the requirement to perform certain manufactur ing steps 
in Brazil [in all cases] is tantamount to requiring the incorporation of domestic content into the 
finished product" , whenever the performance of those manufacturing steps results in the creation 
of a product.659 They argue in this regard that such  conditions for receiving the tax benefit on an 
incentivized product  require that " specific  inputs of particular products , and/or specific amounts or 
proportions of such inputs,  be sourced  domestically", such that "the use of imported inputs can 
disqualify  a final product for eligibility" under the ICT programmes.660 In the view of the 
complaining parties, this alleged obligation to use local inputs in the production of ICT products, as 
a condition to receive the tax benefits under the ICT programmes, affords  less favourable 
treatment to imported inputs than that accorded to like domestic inputs.661 
7.273.   Brazil disagrees with the complaining parties' characterization of the production step 
requirements, arguing that the PPBs (or the analogous production step requirem ents) are not 
related to either domestic or foreign products, as they are not related to products in the first place. 
Rather, Brazil asserts, PPBs aim at ensuring technological and industrial development along 
various steps of the production chain for the industry to "dominate the production cycle", and are 
origin -neutral.662 Brazil considers that the complaining parties have erroneously conflated 
production steps with products, and manufacturing requirements with local content 
requirements.663 Concerning the i ndividual ICT programmes, Brazil argues that the Informatics, 
PATVD and Digital Inclusion programmes all refer to production processes (the so -called PPBs), 
while the PADIS programme describes the types of product design and productive steps with which 
accredited companies must comply, and that none of these requirements may be presumed to 
relate to the origin of the inputs and products used in the production process, or to affect the 
                                                
659 Japan's first written submission, para. 296. See also European  Union's first written submission, para. 
600 ("PPBs may not only require that certain stages in the production or processing operations of the 
information technology product take place in Brazil … PPBs also require that the company accredited under the 
programme itself carries out the production of certain inputs or intermediate products or that a percentage or 
quantum of locally sourced inputs or intermediate products (produced locally, often in accordance with their 
own respective PPB) must be incorporate d into the end -product.").  
660 Japan's first written submission, para. 342.  
661 European Union's first written submission, para. 652,  
662 Brazil's first written submission, para. 73 (DS472). See also Brazil's first written submission, para. 42 
(DS497).  
663 Brazil's first written submission, para. 78 (DS472).  WT/DS472/R • WT/DS497/R  
 
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  conditions of competition of any product at the market.664 According to Bra zil, the ICT programmes 
do not require, in law or in fact, that a certain level of local components be used; to the contrary, 
in most cases imported inputs, parts and components constitute the large majority of the total cost 
of production covered by those  programmes.665 
7.274.   The parties' arguments reveal fundamental differences both as to whether as a matter of 
fact the PPBs and other production step requirements under the ICT programmes consist of or 
contain requirements to use domestic inputs; and whether as a matter of law requirements to 
perform a series of production steps domestically constitute, without more, requirements to use 
domestic inputs. The Panel turns first to an analysis of the factual questions, on the basis of the 
details of the PPBs and other production step requirements themselves. The Panel conducts this 
factual analysis programme -by-programme, for the Informatics, PATVD, PADIS, and Digital 
Inclusion programmes.  
7.3.2.2.4.1   The operation of the PPBs and other production step requirements in the ICT 
prog rammes  
7.275.   The Panel notes that in order for a company to become accredited and then to obtain the 
tax benefits under the Informatics  programme, it must produce the relevant technology and 
automation goods in accordance with the terms of particular product -specific PPBs.666  
7.276.   Under the PADIS  programme, in order to become accredited and then to obtain the 
relevant tax benefits, a company must comply with different requirements depending upon the 
products for which it seeks the tax benefits. Specifically, with respe ct to "semiconductor electronic 
devices", the company must perform the "concept, development and design", or "diffusion or 
physical -chemical processing", or "cutting, encapsulation and testing".667 With respect to 
"information displays", the company must eit her perform the "concept, development and design", 
or the "manufacturing of photosensitive, photo or electroluminescent elements and light emitting 
diodes", or the "final assembly of displays and electrical and optical testing".668 None of the 
requirements f or these products include PPBs. They do, however, specify production -step details. 
Finally, with respect to "supplies and equipment intended for the manufacture of electronic 
semiconductor devices and information displays", the company must manufacture tho se products 
in accordance with the relevant PPBs.669 
7.277.   Under the PATVD  programme, in order to obtain accreditation and then to obtain the 
relevant tax benefits, a company must either comply with the relevant PPB or alternatively meet 
the criteria for a product  to be considered "developed in Brazil".670 
7.278.   Under the Digital Inclusion  programme, retailers can obtain certain tax benefits on their 
sales in Brazil of certain digital consumer goods produced in accordance with their relevant 
PPBs.671 
7.279.   The Panel notes that all  four programmes refer to production -step requirements contained 
in so-called PPBs  or in other legal instruments.672 The Panel has scrutinized the evidence submitted 
by the parties, including all PPBs submitted to the Panel as evidence (further detailed in t he 
Appendix attached to this Report). Based on that examination, the Panel makes the following 
observations about the functioning of the PPBs themselves.  
7.280.   A PPB is defined as "the minimum set of operations, in a manufacturing establishment, 
which character izes the effective industrialization of given product".673 Indeed, a PPB is essentially 
a set of product -specific production steps that must be performed in Brazil, in order for a company 
                                                
664 Brazil's opening statement at the first meeting of the Panel, para. 45.  
665 Brazil's opening statement at the second meeting of the Panel, para. 34.  
666 See section 2.2.1.5  above.  
667 See section 2.2.2.5  above.  
668 See section 2.2.2.5  above.  
669 See section 2.2.2.5  above.  
670 See section 2.2.3.5  above.  
671 See section 2.2.4.4  above . 
672 See section 2.2.2.5  above.  
673 Decree 5,906/2006, (Exhibit JE -7), Article 16.  WT/DS472/R • WT/DS497/R  
 
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  to benefit from the tax incentives in respect of that product under th e relevant programme(s). The 
specific requirements within each product -specific PPB vary, depending on the nature of the 
production process for that particular product.674 
7.281.   Certain PPB production -step requirements must be performed by the company accredited 
as the producer of the incentivised finished  or intermediate  product that is the subject of the PPB, 
while other production -step requirements may be performed by "third parties" based in Brazil.675 
This varies by PPB.  
7.282.   The Panel further notes that not all prod uction step requirements are contained in PPBs. 
This is the case, as noted above, for some of the products covered by PADIS. In addition, under 
PATVD, the tax benefits can be obtained either by complying with the production steps in the 
PPBs, or by meeting  the criteria for the product to be considered "developed in Brazil".  
7.283.   Finally, the Panel notes that not all PPBs or other production step requirements are 
relevant under all of the ICT programmes. In particular, a large number of PPBs are relevant under 
the Informatics programme, and a subset of these is relevant under the Digital Inclusion 
programme. Other PPBs are relevant, respectively, under the PADIS and PATVD programmes. In 
addition, only PADIS has production step requirements that are not contained i n separate PPBs.  
7.284.   In this regard, the Panel notes that while it presents its analysis in respect of the PPBs and 
other production step requirements overall, the Panel has scrutinized all of the PPBs and the other 
production step requirements, the analysis o f which can be found in the Appendix attached to this 
Report. That Annex describes in detail, for each PPB or set of production step requirements, the 
specific instances of the types of provisions referred to herein.  
7.285.   Turning to the specific provisions of the PPBs, the Panel notes that all of them are titled as 
"basic production processes" for the specified, incentivized product in question "produced in 
Brazil". These titles, and the underlying legal instruments, make clear that all of the operations 
descri bed in the PPBs must be carried out in Brazil. In terms of their content, all of the PPBs 
consist of a collection of production steps, most of which involve the conversion through a 
manufacturing process of basic raw materials in completely disaggregated f orm into a component 
or set of components or subassemblies, with the final step or steps involving the integration of all 
of these components or subassemblies into the final product along with, in some cases, testing and 
other final steps.  
7.286.   To illustrate t his point, the Panel examines by way of example two PPBs under that 
programme, for Optical Splice Closures676 and for Speed Alarms, Tracking and Control677, which 
are broadly representative of how the PPBs as a whole operate.  
7.287.   The operational language of the P PB for Optical Splice Closures reads as follows:  
Article 1. Establishes the following Basic Production Process for OPTICAL SPLICE 
CLOSURES:  
I - manufacture of the moulds for the injection of the plastic parts;  
II - injection of the plastic parts;  
III - stamping of the metal parts;  
IV - assembly of the air valve and closure kit sub -assemblies and base items;  
V - final integration of the product; and  
VI - product impermeability test.  
                                                
674 The PPBs are f urther described in general in section 2.2.1.5.2  above.  
675 As a simple example, the PPB for "flexible organic drum assemblies" requires that the "cutting of the 
substrate", "soldering", and "assembly of all the parts and pieces,  totally separated, at a basic component 
level" must be performed in Brazil. The cutting of the substrate and soldering may be performed by the entity 
producing the flexible drum assembly or by a third party in Brazil, and the assembly of the parts and pie ces at 
a basic component level must be performed exclusively by the entity producing the flexible organic drum 
assembly itself. See Interministerial Implementing Order 268/2013, (Exhibit JE -37), Article 7.  
676 Interministerial Implementing Order 93/2013, (Ex hibit JE -31). 
677 Interministerial Implementing Order 103/2013, (Exhibit JE -32). WT/DS472/R • WT/DS497/R  
 
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  Sole Paragraph. Provided that the Basic Production Process is complie d with, the 
activities or operations required in the production stages may be carried out by third 
parties in Brazil, except with regard to stages V and VI which may not be conducted 
by third parties.  
Article 2. Whenever duly corroborated technical or eco nomic factors so determine, any 
stage of the Basic Production Process may be temporarily suspended or changed 
through a joint Implementing Order issued by the Ministers of State for Development, 
Industry and Foreign Trade and Science, Technology and Innova tion.  
Article 3. This Implementing Order shall come into force on the date of its publication.  
7.288.   As shown by Article 1 of this PPB, for an optical splice closure to be eligible for the tax 
benefits under the Informatics programme, all of the steps outlined in that Article must be 
undertaken in Brazil. Thus, the moulds for plastic injection must be made in Brazil, the plastic 
parts must be injected in Brazil, the metal parts must be stamped in Brazil, and so forth. This 
demonstrates that the production proces ses envisaged, all of which must be performed in Brazil, 
consist of fundamental manufacturing from basic inputs. In other words, a product produced 
through simple assembly of components and subassemblies would not satisfy the conditions of the 
PPB. This is  consistent with how Brazil describes the PPBs.678  
7.289.   The PPB for Speed Alarms, Tracking and Control  functions similarly, albeit with some 
additional features. Its operational language reads as follows:  
Article 1. The Basic Production Process for PRODUCTS FOR SPEED ALARMS, 
TRACKING AND CONTROL industrialized in Brazil, as set out in the Annex to 
Interministerial Implementing Order MDIC/MCT No 14 of 22 January 2007, shall now 
read as follows:  
 
I - stamping, cutting, folding and surface treatment of metal parts,  when applicable;  
II - injection of the housing's plastic parts, when applicable;  
III - manufacture of the printed circuits from laminate;  
IV - assembly and soldering, or equivalent process, of all components on the printed 
circuit boards;  
V - assembly  of the electrical and mechanical parts, totally separated, at a basic 
component level; and  
VI - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, in accordance with indents I to V abo ve.  
 
§ 1 Provided that the Basic Production Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties, 
except with regard to the stage set out in indent VI which may not be conducted by 
third parties.  
 
§ 2 Liquid crystal, plasma and other display technologies are temporarily exempted 
from assembly.  
 
§ 3 The following assembled modules and sub -assemblies are temporarily exempted 
from compliance with the stages set out in indents III and IV , of the header paragraph 
to this Article:  
 
I - Frequency Modulation (FM) communication modules;  
II - Pager communication modules;  
III - Global Positioning System (GPS) communication modules;  
IV - satellite communication modules;  
V - thermal printer m echanisms; and  
VI - Code Division Multiple Access (CDMA) communication modules.  
 
Article 2. 90% of the total number of Global System for Mobile Communications 
(GSM) communication modules used in the production of PRODUCTS FOR SPEED 
                                                
678 Brazil's first written submissions, paras. 128 -155 (DS472) and 85 -104 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  ALARMS, TRACKING AND C ONTROL as set out in the Annex to this Implementing 
Order shall be produced in accordance with their respective Basic Production Process 
in the calendar year.  
 
§ 1 Should the percentage set out in the header paragraph not be achieved, the 
company shall be  required to make up the difference in units produced, before  31 
December of the following year, without prejudice to current obligations in that 
calendar year.  
 
§ 2 The difference referred to in § 1 may not exceed 5% with regard to the production 
in the year in which it was not possible to achieve the set limit.  
 
Article 3 The stage established in Article 1, indent III (manufacture of the printed 
circuits from laminate) shall be exempted with regard to printed circuits manufactured 
with 'via in pad' tech nology and an amount of 'blind' points greater than 500 holes per 
square decimetre to be used exclusively in TRACKERS.  
 
Sole paragraph The exemption set out in this Article is conditioned to the additional 
investment of at least 1.5% by the manufacturer i n R&D of its gross turnover in the 
domestic market resulting from the sale with tax benefit, less the corresponding 
contributions on such sales, as well as the value of acquisitions of goods with the 
same incentive, in the calendar year.  
 
Article 4 Whenev er duly corroborated technical or economic factors so determine, any 
stage of the Basic Production Process may be temporarily suspended or changed 
through a joint Implementing Order issued by the Ministers of State for Development, 
Industry and Foreign Tra de and Science, Technology and Innovation.  
 
Article 5 Interministerial Implementing Order MDIC/MCT No 14 of 22 January 2007 is 
hereby repealed.  
 
Article 6 This Implementing Order shall come into force on the date of its publication.  
  
ANNEX  
PRODUCTS  
Automobile immobiliser with transponder  
Automobile immobiliser by FM  
Automobile immobiliser by pager  
Automobile immobiliser with/without remote control  
Vehicle tracker without GPS and communication via satellite  
Vehicle tracker with GPS and commu nication via satellite  
Vehicle tracker without GPS and communication via satellite with flat antenna  
Vehicle tracker with GPS positioning and communication via GSM/GPRS [Global 
System for Mobile Communication/General Packet Radio Service]  
Vehicle trac ker with Location Based Service (LBS) positioning and communication 
via GSM/GPRS  
Vehicle tracker/immobiliser with GPS and communication via mobile phone  
Vehicle tracker/immobiliser with GPS and communication via radio  
Vehicle tracker/immobiliser with  GPS and communication via satellite  
Vehicle tracker/immobiliser with GPS and communication via radio frequency  
Electronic tacograph  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via mobile phone  
Electronic ta cograph with automobile tracker/immobiliser, with GPS and 
communication via radio  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via satellite  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via radio frequency  
Electronic tacograph with automobile tracker/immobiliser, by triangulation and 
communication via radio frequency  
Electronic tacograph immobiliser by pager  WT/DS472/R • WT/DS497/R  
 
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  Electronic tacograph immobiliser by FM  
 
7.290.   As shown by Article  1 of this PPB, for speed alarms, tracking and control to be eligible for 
the tax benefits under the Informatics programme, all of the steps outlined in that Article must be 
undertaken in Brazil. Thus, the stamping, cutting, folding and surface treatment o f metal parts;  
injection of any plastic parts of the housing; manufacture of the printed circuits from laminate; 
assembly and soldering, or equivalent process, of all components on the printed circuit boards; 
assembly of the electrical and mechanical parts , totally separated, at a basic component level; and 
the integration of the printed circuit boards and the electrical and mechanical parts in the 
formation of the final product, all must be undertaken in Brazil. Here again, these are not mere 
assembly oper ations but fundamental manufacturing processes from basic inputs.  
7.291.   The PPB for speed alarms, tracking and control has one additional aspect that the PPB for 
optical splice closures lacks, namely a PPB within a PPB (a so -called "nested PPB"679). In particular,  
Article 2 provides that at least 90% of the GSM modules used to produce any of the products for 
speed alarms, tracking and control listed in the Annex to the PPB must be produced in compliance 
with their own PPB. In other words, this means that a separate  PPB exists for GSM modules, and 
that this separate PPB must be complied with for at least 90% of the GSM modules used in 
production of the products for speed alarms, tracking and control products listed in the Annex. The 
Panel notes that Brazil has accept ed that all nested PPBs can be outsourced to a third party in 
Brazil.680  
7.292.   The Panel notes that by virtue of being accredited, a producer of a given incentivized 
product takes responsibility for all of the production steps required in the respective PPB, and 
correspondingly it alone receives the tax advantages in respect of that incentivized product. As 
noted above, however, this does not mean that that one company must perform all of the 
production steps itself in order to retain its accreditation. To the con trary, in every case681 the 
PPBs allow the accredited company to outsource at least some of the required production steps to 
third parties, so long as those third parties themselves comply with the requirements of the PPB in 
respect of the steps they perform .  
7.293.   Starting with the example of the PPB for optical splice closures, an accredited producer can 
outsource steps I -IV, meaning that another company or companies can produce the injection 
moulds, inject the plastic parts, stamp the metal parts, and assemble the air valve and closure kit 
sub-assemblies and base items. Similarly, concerning speed alarms, tracking and control, an 
accredited producer can outsource all of the production steps other than the final step of 
integrating the printed circuit boards and all of the electrical and mechanical parts to form the final 
product. Thus, the accredited producer can outsource to another company or companies any 
stamping, cutting, folding or surface treatment of metal parts; any injection of the housing's 
plastic par ts; the manufacture of the printed circuits from laminate; the assembly and soldering, 
or equivalent process, of all components on the printed circuit boards; and the assembly of the 
electrical and mechanical parts, totally separated, at a basic component level. The underlying 
condition for all of this outsourcing is, as indicated, that all of the third parties involved must 
comply with the requirements of the PPB for the respective steps that they are performing.  
7.294.   To put this in concrete terms, if a produce r of optical splice closures wishes to outsource a 
stamped metal part, it must assure itself that the part was stamped in Brazil, either by the 
company from which it obtains the part or by another company in Brazil. Similarly, if a producer of 
a speed alar m wishes to outsource a printed circuit board, it must assure itself both that the 
printed circuits themselves were manufactured in Brazil from laminate, and that all of the 
components of the printed circuit boards were assembled and soldered or similarly attached to the 
boards in Brazil (whether by one or multiple companies). In this sense, each of the steps, in a PPB 
                                                
679 The term "nested PPBs" was first used by the United States in its third party submission, and 
continued to be used throughout  the dispute. See United States third party submission, para. 15. See also, 
e.g., European Union's second written submission, para. 239; and European Union's response to Panel question 
No. 79.  
680 In Brazil's response to Panel  question No. 67, it explained as follows: "[W]ith respect to PPBs that 
include requirements that a specific input or component be produced in accordance with its own PPB, the 
specific input or component can be produced by third parties in Brazil. The prod uction of a specific input by 
third parties, in accordance with its own PPB, is still subject to verification by the authorities." See also the 
parties' responses to Panel Question No. 56.  
681 The details are set forth in the Appendix attached to this repor t.  WT/DS472/R • WT/DS497/R  
 
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  for the creation of a manufactured component or subassembly for the incentivized product can be 
considered a "mini -PPB" for the component or  subassembly that is produced in that step; and the 
principal requirements of these mini -PPBs (as for the main PPBs as a whole) are basic 
manufacturing processes that must be performed in Brazil.  
7.295.   The situation of "nested PPBs" is analytically similar to t hat of the production step 
requirements, with the main difference being what appears to be an implicit presumption that the 
products that are subject to the nested PPBs will be outsourced682. In any case, whoever makes 
the GSM modules in a specific instance,  the fact that those products are subject to their own PPB 
implies that they are subject to their own production step requirements that must be carried out in 
Brazil and presumably their own outsourcing provisions for some of those production steps.  
7.296.   With this in mind, the Panel proceeds to evaluate each of the claims in respect of each of 
the challenged programmes.  
7.3.2.2.4.2   The Panel's analysis of the Informatics programme  
7.297.   The Panel recalls that in the context of their claims under both Article  III:4 of the GATT 
1994 and Article 3.1(b) of the SCM Agreement, the complaining parties argue that the production 
step requirements on their own constitute requirements to use domestic goods in the production of 
incentivized products, without regard to whether those require ments are met "in -house" with the 
accredited producer performing all of the required steps itself,  or through outsourcing some of 
those steps. Brazil argues that the production step requirements have exclusively to do with 
production and in no case require  the use of domestic goods, and thus are not covered either by 
Article III:4 of the GATT 1994 or by Article 3.1(b) of the SCM Agreement.683 That said, there 
seems to be no theoretical disagreement among the parties that at least in the case in which a 
compan y is required, when it acquires a product from an outside source, to only acquire a 
domestic product, there would be a requirement to use domestic goods in the sense covered by 
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.  
7.298.   Given these views of the parties, in its analysis of whether, as alleged, the PPBs under the 
Informatics programme contain or constitute requirements to use domestic goods, the Panel 
considers it useful to separately analyse the two possible scenarios for compli ance with the PPBs 
as just described: the in -house scenario and the outsourcing scenario. The Panel will first consider 
the outsourcing scenario.  
7.299.   In assessing this issue the Panel considers first the case of "main" PPBs that contain 
nested PPBs (such as th e PPB for speed alarms, tracking and control, with its own nested PPB for 
GSM modules). The Panel recalls its finding in paragraph 7.117  above that all products produced in 
accordance with a PPB are, as such, Br azilian domestic products, by virtue of having been 
produced in Brazil from basic raw materials and other inputs through a specified mandatory 
manufacturing process. On this basis, the Panel considers that the incentivized products produced 
in accordance w ith the nested PPBs, which are used as components and subassemblies in the 
production of the products covered by the main PPBs, constitute Brazilian domestic products in 
their own right. The Panel further recalls that the main PPBs that contain nested PPBs  require that 
at least some minimum proportion of the components and subassemblies of the type covered by 
the nested PPBs must have been produced in accordance with those nested PPBs. (As discussed 
above, the nested PPB for GSM modules contained in the mai n PPB for speed alarms, tracking and 
control requires that at least 90% of the GSM modules used be produced in accordance with the 
separate PPB for GSM modules.) As also discussed in paragraph 7.295  above, the P anel considers 
that in most cases, the components and subassemblies that are the subject of the nested PPBs will 
be outsourced, rather than produced, by the producer of the product covered by the main PPB; 
and in any case, as noted, Brazil has acknowledged  that outsourcing is permitted for items subject 
to nested PPBs.684 Therefore, where products subject to nested PPBs are outsourced, the 
requirements that (at least a certain proportion of) such products comply with their respective 
PPBs thus constitute expl icit requirements to use domestic goods – the components and 
subassemblies covered by the nested PPBs – in the sense covered by Article III:4 of the GATT 
1994 and Article 3.1(b) of the SCM Agreement.  
                                                
682 See footnote 680 above.  
683 The Panel has already rejected these arguments in section 7.2 above.  
684 See footnote  680 above.  WT/DS472/R • WT/DS497/R  
 
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  7.300.   Put another way, whenever a producer of a product covere d by a main PPB obtains 
components or subassemblies covered by their own nested PPB it is obtaining domestic goods. 
Because the nested PPB imposes a mandatory minimum amount of such domestic goods to be 
used in producing the product subject to the main PPB , the only way to satisfy this requirement, 
when outsourcing, is by acquiring and using domestic goods. Thus, every PPB with a nested PPB 
inside contains an explicit requirement to use domestic goods in the cases where the goods 
covered by the nested PPB a re outsourced.  
7.301.   This analysis also holds true for the basic production step requirements of all PPBs under 
the Informatics programme, which typically are set forth in the PPBs' Article  1. All PPBs, as 
discussed, contain outsourcing provisions that require t hat outsourced production steps comply 
with the respective requirements of the PPBs, and in every case at least some of those outsourcing 
provisions apply to production steps for the creation of manufactured components or 
subassemblies from basic component s and raw materials which, as the Panel has found, are for 
that reason domestic products. The Panel further considers that, similarly to the case of the 
outsourcing of products produced in accordance with nested PPBs, the outsourcing of production 
steps fo r the manufacture in Brazil of components and subassemblies from basic components and 
raw materials gives rise to a requirement to use domestic goods in the sense covered by Article 
III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement. In particu lar, when an accredited 
company outsources components and subassemblies it can only comply with the PPB in question if 
the production step requirements for those components and subassemblies are respected, and 
respecting those requirements in turn means th at those components and subassemblies must be 
Brazilian domestic goods.  
7.302.   Thus, under the Informatics programme, regarding the outsourcing requirements in 
respect of the production step requirements for components and subassemblies used in the 
production of  an incentivized product, the PPBs require the use of domestic goods, in the sense 
covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.  
7.303.   The Panel notes that certain PPBs contain alternative options to compliance with certain 
production -steps in the PPBs, in order for a company to obtain the concerned tax treatment. As 
discussed in paragraph 7.258 , the Panel considers that the mere existence of options for 
compliance that are potentially WTO -consist ent could not preclude a finding of inconsistency in 
respect of the PPBs as a whole. The Panel highlights that were it otherwise, Members could 
circumvent WTO rules, such as the fundamental principle of non -discrimination, by imposing 
measures that conditi on advantages on several alternative options, some of which are WTO -
consistent, and others WTO -inconsistent. In short, the Panel does not consider that the existence 
of alternative, potentially WTO -consistent options, alters the inconsistency with Article III:4 of an 
option that requires the use of domestic products over imported products.685 
7.304.   This is also applicable to Article 3.1(b) of the SCM Agreement. In this respect, the Panel 
considers that where a particular requirement can be achieved by a number of m eans, and one of 
those means entails a contingency upon the use of domestic over imported goods, that particular 
aspect of the requirement is inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement. The 
Panel considers that the mere existence of opt ions for compliance that are potentially WTO -
consistent could not preclude a finding of inconsistency in respect of the measure as a whole. Were 
it otherwise, Members could circumvent the prohibition of subsidies contained in Article 3.1 of the 
SCM Agreeme nt by conditioning the grant of such subsidies on several alternative options, and so 
long as one of them is WTO -consistent, the measure could not be found to be inconsistent with 
Article 3.1(b) of the SCM Agreement. In this context as well, the Panel does  not consider that the 
existence of alternative, potentially WTO -consistent options, alters the inconsistency with Article 
3.1(b) and 3.2 of the SCM Agreement of an option that entails a contingency upon the use of 
domestic over imported goods.686  
7.305.   The Panel  recalls from paragraph 2.63 above that multiple PPBs require specific 
percentages of specific input goods be assembled in Brazil. In the view of the Panel, these specific 
percentages do not alter the Panel's co nclusion that the production -step requirements within the 
PPBs favour the use of domestic like products, to the detriment of like imported products, 
inconsistently with Article III:4  of the GATT 1994 . The Panel also notes that multiple PPBs also 
                                                
685 See footnote 648 above.  
686 See also Panel Report, Canada – Autos , paras. 10.84 -10.87.  WT/DS472/R • WT/DS497/R  
 
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  contain ex emptions or alternative options that are time -specific. Additionally, certain PPBs contain 
time-limited exemptions of products or production -steps, including time -limited exemptions that 
apply to the percentages discussed in paragraph 2.63 above. In the Panel's view, such exemptions 
confirm the Panel's conclusion that generally the production -step requirements within the PPBs 
require the use of domestic over imported goods. In particular, the Panel notes the stat ement of 
the panel in Russia – Tariff Treatment that "a panel can in principle find an existing measure to be 
inconsistent as such … even if that measure mandates WTO -inconsistent action that will take place 
only in the future."687 In this respect, the fact that a PPB explicitly provides for a future date at 
which an exemption will cease to apply, is sufficient for the Panel to conclude that the measure is 
inconsistent with Article III:4. However, to the extent that a product, entity or production -step, is 
fully exempted (with no defined time -limit), the Panel recognizes that there would be no 
inconsistency with Article III:4 of the GATT 1994 of Article 3.1(b) of the SCM Agreement arising 
therefrom.  
7.306.   The Panel now applies this analysis to each of the other ICT programmes: PATVD, PADIS 
and the Digital Inclusion programme.  
7.3.2.2.4.3   The Panel's analysis of the PATVD programme  
7.307.   The Panel recalls that under the PATVD  programme, in order to obtain accreditation and 
obtain the relevant tax benefits, companies must either comply with the relevant PPB or 
alternatively meet the criteria for a product to be considered "developed in Brazil".688 
7.308.   For the same reasons given above in respect of the Informatics programme, the Panel 
considers that with respect to the outsourcing provisions in  the PPBs in respect of components and 
subassemblies, which require that when such components and subassemblies are outsourced they 
must be Brazilian domestic products, the PPBs in the PATVD programme require the use of 
domestic goods in the sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the 
SCM Agreement. Additionally, for the reasons described in paragraphs 7.303  and 7.304  above, the 
Panel does  not consider that the existence of a potentially WTO -consistent alternative option for 
compliance (i.e., that the incentivized product be "developed in Brazil"), alters this conclusion. As 
noted above, the Panel's analysis of the PPBs in question is set f orth in the Appendix attached to 
this Report.  
7.3.2.2.4.4   The Panel's analysis of the PADIS programme  
7.309.   The Panel recalls that under the PADIS  programme, for an accredited company to obtain 
the relevant tax benefits, it must comply with different requirements depending on the products 
for which it is seeking the tax benefits. Specifically, with respect to "semiconductor electronic 
devices", the company must perform the "concept, development and design", or "diffusion or 
physical -chemical processing", or "cutting, encapsu lation and testing".689 With respect to 
"information displays", the company must either perform the "concept, development and design", 
or the "manufacturing of photosensitive, photo or electroluminescent elements and light emitting 
diodes", or the "final ass embly of displays and electrical and optical testing".690 Finally, with 
respect to supplies and equipment intended for the manufacture of electronic semiconductor 
devices and information displays, the company must manufacture those products in accordance 
with the relevant production -step requirements imposed through PPBs.691 
7.310.   In respect of the production step requirements for semiconductor electronic devices, and 
information displays, accredited companies must comply with one of the several possible 
production s teps referred to above. Any of these steps can be outsourced and some of them 
                                                
687 Panel Report, Russia – Tariff Treatment , para. 7.103. See also Appellate Body Report, US – 
Corrosion -Resistant Steel Sunset Review , para. 82.  
688 See section 2.2.3.5  above.  
689 See section 2.2.2.5  above.  
690 See section 2.2.2.5  above.  
691 See section 2.2.2.5  above. Specif ically, such "dedicated inputs and equipment intended for the 
manufacture of" semiconductor electronic devices and information displays must be "manufactured according 
to the Basic Production Process established by the Ministries of Development, Industry a nd Foreign Trade and 
of Science, Technology and Innovation". See Law 11,484/2007, (Exhibit JE -71), Article 2 §3, as amended by 
Law 12,715/2012, (Exhibit JE -95), Article 57; and Decree 6,233/2007, (Exhibit JE -73), Article 6 §3, as 
amended by Decree 8,247/20 14, (Exhibit JE -75), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  involve the manufacturing of components or subassemblies from basic components and raw 
materials.692  
7.311.   For the same reasons given above in respect of the Informatics programme, the Panel 
considers that with respect to the outsourcing provisions in the production step requirements in 
respect of components and subassemblies, which require that when such components and 
subassemblies are outsourced they must be Brazilian domestic product s, the production step 
requirements in the PADIS programme require the use of domestic goods in the sense covered by 
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement. Additionally, for the 
reasons described in paragraphs 7.303  and 7.304  above, the Panel does not consider that the 
existence of a potentially WTO -consistent alternative option for compliance (i.e., "concept, 
development and design"), alters this conclusion.  
7.312.   In respect of supplies and equipment intended for the manufacture of electronic 
semiconductor devices and information displays, the Panel notes that the relevant legal 
instruments provide that the production -step requirements are co ntained in product -specific PPBs. 
However, in reviewing the evidence before the Panel, the Panel finds that no PPBs have as yet 
been adopted in respect of these particular products. Although the PADIS programme 
contemplates the adoption of PPBs in the futu re, the Panel cannot make findings in respect of 
production -step requirements that do not (yet) exist. At this point in time, it suffices for the Panel 
to note that, in accordance with its findings above, to the extent that any future PPBs adopted 
under th e PADIS programme contain outsourcing provisions or nested PPBs in respect of 
manufactured components and subassemblies that operate in the same manner as those in the 
Informatics and PATVD programmes, such PPBs would require the use of domestic goods in t he 
sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.  
7.313.   On the basis of the foregoing considerations, the Panel concludes that with respect to the 
outsourcing provisions, and where applicable, the nested PPBs, the PPBs and other production step 
requirements, under the Informatics, PATVD and PADIS programmes are explicitly contingent on 
the use of domestic goods in the sense covered by Article III:4 of the GATT 1994 and Article 
3.1(b) of the Agreement. As a consequence, t he Panel concludes that those aspects of the 
challenged programmes that include the PPBs are inconsistent with Article III:4, and that they also 
constitute a contingency on the use of domestic over imported goods for purposes of the claims 
under Article 3. 1(b) of the SCM Agreement.  
7.314.   In light of these conclusions and the parties' divergent views in respect of the in -house 
scenario for complying with the PPBs, the Panel again recalls that the WTO -inconsistency of a 
requirement for compliance with a law or regu lation cannot be cured by the existence of an 
alternative, potentially WTO -consistent, option for compliance with that law or regulation. Given 
this, the Panel considers it unnecessary to address the in -house scenario. In particular, were the 
Panel to find , as Brazil implies, that that scenario does not involve a requirement to use domestic 
goods in the sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM 
Agreement, this would not alter the Panel's finding in respect of the outsourc ing scenario that such 
measures are inconsistent with Article III:4 and constitute a contingency on the use of domestic 
over imported goods for purposes of the claims under Article 3.1(b) of the SCM Agreement. Thus, 
the Panel makes no finding in respect of  the in -house scenario.  
7.3.2.2.4.5   The Panel's analysis of the Digital Inclusion programme  
7.315.   Under the Digital Inclusion  programme, retailers that sell in Brazil certain digital consumer 
goods produced in accordance with their respective PPBs693 qualify for certain tax benefits.  
7.316.   The Panel's analysis of the role of PPBs under the Digital Inclusion programme departs 
from that under the other ICT programmes. This is because under this programme the tax benefits 
are in respect of sales of certain products by retailers, rathe r than in respect of production of 
                                                
692 As Brazil has indicated, a company seeking accreditation under the PADIS programme "has to select 
one of the set of activities to the development of the covered products. The company may perform all of the 
activities in th e set or may outsource some of the activities to other companies … [T]here is no requirement 
that all set of activities for a specific product be conducted by one single company. The only requirement is 
that the activities be carried out in Brazil." Brazil 's first written submission, fn 179 (DS497).  
693 See section 2.2.4.4 .  WT/DS472/R • WT/DS497/R  
 
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  certain products by producers. In this respect, the Panel recalls its finding above at 
paragraph  7.299  that all products produced in accordance with PPBs are, by definition, Br azilian 
domestic products. This means that the only goods eligible for the tax benefits under the Digital 
Inclusion programme are domestic goods (i.e., the goods produced in accordance with the 
specified PPBs), and the retailers in turn only obtain the tax  benefits to the extent that they have 
purchased these domestic goods (for resale), instead of like imported goods.  
7.317.   The Panel therefore finds that this is a straightforward situation of incentives that are 
provided in respect of a preference (in this case  by retailers) for domestic over imported goods, as 
discussed above in section  7.3.2.2.4.1 . On this basis, and for the same reasons as outlined in that 
discussion, the Panel finds that the Digital Inclusion programme is inconsi stent with Article III:4 of 
the GATT 1994. Furthermore, the Panel finds that for the same reasons, this programme involves 
a contingency on the use of domestic over imported goods in the sense covered by Article 3.1(b) 
of the SCM Agreement.  
7.3.2.3   Conclusion  
7.318.   In light of the foregoing, the Panel concludes that (a) t he production -step requirements  
and the requirement for products to obtain the status of "developed" in Brazil under the 
Informatics, PADIS, and PATVD programmes, and certain eligibility requirements u nder the Digital 
Inclusion programme; (b) the aspect of the mechanism for the calculation of the amount of 
resources required to be invested in R&D under the Informatics and PADIS programmes, where 
the amounts paid when purchasing incentivised products are  deducted from the calculation; and 
(c) the lower administrative burden on companies purchasing domestic incentivised intermediate 
products under the Informatics and PADIS programmes; accord to imported products treatment 
less favourable than that accorded  to like domestic products, inconsistently with Article III:4 of the 
GATT 1994.  
7.319.   The Panel also concludes that the PPBs and other production step requirements of the 
Informatics, Digital Inclusion, PATVD and PADIS programmes accord to imported products 
treatment less favourable than that accorded to like domestic products, inconsistently with Article 
III:4 of the GATT 1994. The Panel further concludes that the same aspects of these programmes 
give rise to contingency on the use of domestic over imported good s in the sense of Article 3.1(b) 
of the SCM Agreement. The Panel will incorporate this finding in its analysis of the claims under 
that provision.  
7.3.3   Claims under Article III:5 of the GATT 1994  
7.3.3.1   Introduction  
7.320.   The European Union and Japan present claims under both the first and second sentence of 
Article III:5 of the GATT 1994.  
7.321.   The Panel recalls that, as one of the requirements to be accredited under the ICT 
programmes, companies must commit to produce their incentivized goods in accordance with the 
PPBs, or si milar requirements, which indicate the minimum stages or steps of the manufacturing 
process of a product that must be performed in Brazil.694 The Panel recalls, as well, that some 
PPBs also require that specific components, parts and pieces used in the produ ction of the ICT 
products be produced, in a specific percentage, in accordance with their own respective PPBs, and 
other require a percentage of local assembly for specific components, parts and pieces.695 
7.322.   The European Union and Japan submit that the ICT pro grammes are inconsistent with 
Article  III:5, first sentence, of the GATT 1994, because the conditions under the terms of the PPBs 
(a) to perform a minimum number of processing activities or manufacturing steps in Brazil, and 
(b) to use a proportion of loca l inputs to manufacture ICT products in Brazil, in order to benefit 
from the exemptions or reductions, amount to an internal quantitative regulation relating to the 
                                                
694 See sections 2.2.1.5.2 , 2.2.2.5 , 2.2.3.5 , and 2.2.4.4 .  
695 See section 2.2.1.5.2  above.  WT/DS472/R • WT/DS497/R  
 
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  processing or use of products, which requires a specified amount or proportion of the produ cts to 
be supplied from domestic sources.696 
7.323.   The European Union and Japan submit that the ICT programmes are also inconsistent with 
Article III:5, second sentence, of the GATT 1994, because, in any event, the conditions relating to 
the minimum processing act ivities that must be carried out in Brazil amount to an internal 
quantitative regulation that is applied so as to afford protection to domestic production.697  
7.324.   Brazil submits that the ICT programmes do not establish requirements relating to products 
within t he meaning of Article III:5 of the GATT 1994. Brazil submits that the production -step 
requirements are related to workforce and technology and not to the mixture, processing or use of 
products in specified amounts or proportions. Brazil also argues that th e production -step 
requirements do not establish an obligation to source goods domestically, as they only require that 
certain stages of production be performed in Brazil. Brazil submits, as well, that the ICT 
programmes are not designed, structured or appl ied so as to afford protection to domestic 
production.698 
7.3.3.2   The legal standard  
7.325.   Article III:5 of the GATT 1994, first sentence, provides as follows:  
No contracting party shall establish or maintain any internal quantitative regulation 
relating to the mixture,  processing or use of products in specified amounts or 
proportions which requires, directly or indirectly, that any specified amount or 
proportion of any product which is the subject of the regulation must be supplied from 
domestic sources.  
7.326.   According to an  early GATT panel in US – Tobacco , in order to find inconsistency with 
Article III:5 of the GATT 1994, first sentence, the challenged measure must meet two criteria: 
(a) that it be an "internal quantitative regulation relating to the mixture, processing or  use of 
products in specified amounts or proportions"; and (b) that it "requires, directly or indirectly, that 
any specified amount or proportion of any product which is the subject of the regulation must be 
supplied from domestic sources".699 
7.327.   Article III:5 of the GATT 1994, second sentence, provides, in turn, as follows:  
Moreover, no contracting party shall otherwise apply internal quantitative regulations 
in a manner contrary to the principles set forth in paragraph 1.700 
7.328.   A regulation infringes Article III:5 of the GATT 1994, second sentence if two conditions are 
met: (a) it is an internal quantitative regulation; and (b) it is applied "so as to afford protection to 
domestic production".701  
7.329.   Article III:5 of GATT 1994, second sentence, is further clarified by th e Ad Note to this 
paragraph, which provides that:  
                                                
696 European Union's first written submission, paras. 662 -675, 822 -836, 981 -992 and 1111 -1113; 
Japan 's first written submission, paras. 348 -352, 414 -418, 470 -475 and 525 -530; and European Union and 
Japan's responses to Panel question No. 79.  
697 European Union's first written submission, paras. 676 -688, 836 -840, 993 -997, and 1114 -1117; and 
Japan's first wr itten submission, paras. 353 -355, 419 -421, 476 -478 and 531 -532. 
698 Brazil's first written submissions, paras. 265 -285, 342 -345, 399 -400, and 491 -493 (DS472) and 
220-236, 292 -295, 337 -338 and 428 -430 (DS497).  
699 GATT Panel Report, US –Tobacco , paras. 67 – 68. 
700 Article III:1 of the GATT 1994 provides as follows: The contracting parties recognize that internal 
taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering 
for sale, purchase, transportation, distri bution or use of products, and internal quantitative regulations 
requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied 
to imported or domestic products so as to afford protection to domestic product ion. 
701 Article III:1 of the GATT 1994; GATT Panel Report, Spain - Soybean Oil , para. 4.4 (not adopted) ; see 
also GATT Panel Report, EEC – Animal Feed Proteins , paras 4.5 and 4.6 and Appellate Body Report,  Japan – 
Alcoholic Beverages II , p. 18, DSR 1996:I, 9 7, at p. 111 ("Article III:1  articulates a general principle that 
internal measures should not be applied so as to afford protection to domestic production").  WT/DS472/R • WT/DS497/R  
 
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  Regulations consistent with the provisions of the first sentence of paragraph 5 shall 
not be considered to be contrary to the provisions of the second sentence in any case 
in which all of the products subje ct to the regulations are produced domestically in 
substantial quantities. A regulation cannot be justified as being consistent with the 
provisions of the second sentence on the ground that the proportion or amount 
allocated to each of the products which a re the subject of the regulation constitutes an 
equitable relationship between imported and domestic products.  
7.3.3.3   Analysis by the Panel  
7.330.   The Panel has already dealt with the conditions under the terms of the challenged PPBs, 
both to perform a minimum number of  processing activities or manufacturing steps in Brazil, and 
to use a proportion of local inputs to manufacture ICT products in Brazil, in the context of the 
complaining parties' claims under Article III:4 of the GATT 1994.702 
7.331.   The Panel has concluded, in par agraph 7.319  above, that the conditions under the terms of 
the PPBs to perform certain processing activities or manufacturing steps in Brazil, and to use a 
proportion of local inputs to manufacture ICT products in Brazil, are inconsistent with Article III:4 
of the GATT 1994, as they accord less favourable treatment to imported products (inputs for the 
production of incentivized goods) than that accorded to domestic like products.  
7.332.   Given the fact that the Panel ha s already dealt with the conditions under the terms of the 
corresponding PPBs challenged by the complaining parties, in the context of its analysis under 
Article  III:4 of the GATT 1994, the Panel will assess whether it is appropriate to apply the principle  
of judicial economy in the context of the claims under Article III:5 of the GATT 1994.  
7.333.   In this respect, the European Union considers that its claim under Article III:5 of the 
GATT  1994 should be distinguished from its claim under Article III:4 and that th e Panel should 
make findings on both provisions. The European Union submits that Article III:5 of the GATT 1994 
contains a set of obligations which speak directly to certain elements in the programmes at issue 
and, in turn, the obligation under Article III :4 of the GATT 1994 is broader in scope. The European 
Union adds that under its claim pursuant to Article III:4 of the GATT 1994, it challenges the 
conditions for accreditation under the programmes, which, in the European Union's view, are 
different to the  specific features contested under Article III:5 of the GATT 1994.703  
7.334.   The European Union maintains that although Article III:4 of the GATT 1994 is meant to 
cover more situations in practice when compared to Article III:5, this reason alone should not be 
used to exercise judicial economy, as Article III:5 has a very precise meaning and was meant to 
clarify that imposing local content requirements when regulating the processing of products 
internally would run against the national treatment principle enshrined  in Article III.704 
7.335.   Japan argues that Articles III:4 and III:5 of the GATT 1994 have distinct scopes and focus 
on different aspects of discrimination, although they overlap with one another to a certain extent. 
Japan maintains that Article III:4 concerns dis crimination between domestic and imported 
products and Article III:5 covers internal quantitative regulations which require that any specified 
amount or proportion of any product must be supplied from domestic sources, so those provisions 
focus on differen t aspects of discrimination and findings of inconsistency under Article III:5 would 
differ from findings under Article III:4.705 
7.336.   Brazil submits, in turn, that the scope of Article III:5 is significantly narrower than that of 
Article III:4 of GATT 1994, and i f inconsistency with Article III:4 were to be found, there would 
probably be no further reason to analyse the claims under the narrower provision.706 
7.337.   The United States, as a third party, is of the view that if the Panel determines that the 
disputed programme s are inconsistent with Articles III:2 and III:4 of the GATT 1994, there would 
not seem to be value in addressing additional claims under Article III:5.707 
                                                
702 See section 7.3.2.2  above.  
703 European Union's res ponse to Panel question No. 2.  
704 European Union's response to Panel question No. 79.  
705 Japan's response to Panel questions No. 2 and 79.  
706 Brazil's response to Panel question No. 2.  WT/DS472/R • WT/DS497/R  
 
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  7.338.   As explained in paragraphs 7.177  to 7.179  above, panels are not obliged to rule on each of 
the claims put forth by the complaining parties. Panels have the discretion to exercise the principle 
of judicial economy and assess only the claims that they consider necessary  to secure a positive 
solution to a dispute.  
7.339.   The Panel notes that the specific features challenged under Article III:5 of the GATT 1994 
(namely the conditions under the terms of the corresponding PPBs (a) to perform a minimum 
number of processing activiti es or manufacturing steps in Brazil, and (b) to use a proportion of 
local inputs to manufacture ICT products in Brazil) were also specifically challenged by the 
complaining parties in their claims under Article III:4 of the GATT 1994.  
7.340.   In this respect, the  European Union specifically challenged, under Article III:4 of the 
GATT  1994: (a) for the Informatics programme, the imposition under the terms of the relevant 
PPBs of an obligation to use locally -produced inputs in the production of ICT products, as a 
condition to benefit from the exemptions or reductions708; (b) for the PADIS programme, the 
requirement to use locally -produced inputs resulting from the list of processing activities to be 
carried out in Brazil, as a condition to benefit from the exemptions709; (c) for the PATVD 
programme, the imposition under the terms of Implementing Order 62/2014 of an obligation to 
use locally -produced components in the production of radio frequency signal transmission 
equipment for digital television, as a condition to bene fit from the exemptions710; and (d) for the 
Digital Inclusion programme, the conditions necessary for consumer electronics to benefit from the 
exemptions (including those on inputs).711 
7.341.   Japan, in turn, specifically challenged under Article III:4 of the GATT 19 94: (a) for the 
Informatics programme, the requirement that specific inputs of particular products, and/or specific 
amounts or proportions of such inputs, be sourced domestically712; (b) for the PADIS programme, 
the requirement that in order for the manufact urer of a particular product to be accredited, specific 
manufacturing steps must be performed by accredited legal entities713; (c) for the PATVD 
programme, the requirement as one of the conditions for accreditation to produce specific goods in 
accordance wit h the relevant PPBs, which in turn specify that particular inputs must be of Brazilian 
origin714; and (d) for the Digital Inclusion programme, the requirements to carry out a specific set 
of manufacturing steps in Brazil in accordance with the relevant PPBs,  and that specific inputs 
and/or specific amounts or proportions of such inputs be manufactured domestically.715 
7.342.   The Panel recalls that it assessed those exact same features under Article III:4 of the 
GATT 1994 and found, in paragraph 7.319  above, that those features were inconsistent with 
Article III:4 of the GATT  1994. The Panel sees no difference in the features of the ICT programmes 
covered by the complaining parties in their claims under Article III:4 and the features covered by 
the complaining parties in their claims under Article III:5.  
7.343.    Moreover, both the European Union and Japan have explained that, as in the case of their 
claims under Article III:4 of the GATT 1994, they have challenged under Article III:5  of the GATT 
1994 all the PPBs as one of the requirements under the conditions for accreditation.716  
7.344.   The Panel is fully aware of its task of securing a positive solution to this dispute. However, 
the Panel sees no reason why it would need to assess two clai ms under two different provisions of 
Article III of the GATT of 1994, covering the same features of the ICT programmes, in order to 
secure a positive solution to the dispute. This is because the same aspects that lead to the finding 
of inconsistency with A rticle III:4 of the GATT 1994 (specifically the finding of discrimination 
against imported inputs through the imposition of local content requirements), are the same 
aspects that the complaining parties allege to be inconsistent with Article III:5 of the G ATT 1994.  
                                                                                                                                                  
707 United States' third party statement, para. 9.  
708 European Union's first  written submission, para. 620.  
709 European Union's first written submission, para. 815.  
710 European Union's first written submission, para. 971.  
711 European Union's first written submission, para. 1081.  
712 Japan's first written submission, para. 342.  
713 Japan' s first written submission, para. 410.  
714 Japan's first written submission, para. 468.  
715 Japan's first written submission, para. 523.  
716 European Union's and Japan's response to Panel question No. 76.  WT/DS472/R • WT/DS497/R  
 
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  7.345.   Even if Article III:5 of the GATT 1994 has a more precise meaning and refers to local 
content requirements when regulating the processing of products internally, in the context of this 
dispute, the complaining parties have framed their claims und er Article III:4 and III:5 of the GATT 
1994 in such a way so as to cover the exact same features.  
7.346.   The Panel therefore considers that, in the specific context of this dispute, if Brazil brings its 
measures into conformity with Article  III:4 of the GATT of 1 994, it will also bring its measures into 
conformity with Article III:5 of the GATT of 1994. In particular, the reasons for the alleged 
inconsistency in respect of Article III:5 are, in the Panel's view, fully resolved by the Panel's 
findings in respect of  Article III:4. In this respect the Panel also emphasizes that all factual 
findings relevant to an assessment of the complaining parties' claims under Article III:5 have 
already been made in respect of the complaining parties' claims under Article III:4.  
7.3.3.4   Conclusion  
7.347.   The Panel concludes that it is not necessary to make findings with respect to the 
complaining parties' claims under Article III:5 of the GATT 1994 in order to secure a positive 
solution to this dispute, and therefore exercises judicial economy with respect to these claims.  
7.3.4   Claims under Article 2.1 of the TRIMs Agreement  
7.3.4.1   Introduction  
7.348.   The complaining parties submit that the ICT programmes (i.e. the Informatics, PADIS, 
PATVD and Digital Inclusion programmes) are inconsistent with Article 2.1 of the  TRIMs 
Agreement, both independently and in conjunction with Article 2.2 and paragraph 1(a) of the 
Agreement's Illustrative List, because they are inconsistent with Article III of the GATT 1994.717 
7.349.   The complaining parties claim that the ICT programmes consti tute trade -related 
investment measures and are therefore within the scope of the TRIMs Agreement. The complaining 
parties further submit that the ICT programmes are inconsistent with Article  III:2, III:4 and III:5 
of the GATT 1994. Therefore, in their view , the ICT programmes also violate Article 2.1 of the 
TRIMs Agreement.718  
7.350.   Additionally, the complaining parties contend that the ICT programmes are TRIMs that fall 
under paragraph 1(a) of the Annex to the TRIMs Agreement because they require that accredited 
companies purchase or use products of domestic origin or from domestic sources in terms of 
particular inputs or a proportion of volume of its local production in order to obtain tax reductions 
and exemptions.719 
7.351.   Brazil agrees with the complaining parties tha t the ICT programmes are investment 
measures. However, it submits that they do not relate to trade in goods because they deal with 
research, development and production.720 Brazil argues that the ICT programmes do not impose 
local content requirements inconsi stent with the covered agreements.721 Brazil submits that the 
ICT programmes fall outside the scope of Article III of the GATT 1994 by virtue of Article III:8(b) 
of the GATT 1994 and, therefore, do not violate either the GATT 1994 or the TRIMs Agreement.722 
7.352.   With respect to Brazil's arguments that the ICT programmes are outside the scope of 
Article III of the GATT 1994, because they relate to pre -market requirements rather products, and 
additionally by virtue of Article III:8(b) of the GATT, the Panel has addres sed both of these 
                                                
717 European Union's first written submission, paras. 690, 841, 998 and 1118; Japan's first written 
submission, paras. 371, 437, 479 -496 and 533 -548. 
718 European Union's first written submission, paras. 702 -703, 848 -849, 1007 -1008 and 1128 -1129; 
and Japan's first written submission, paras. 366, 431, 490 and 542.  
719 European Union's first written submission, paras. 705 -707, 851 -852, 1010 -1011 and 1131; and 
Japan's first written submission, paras. 370, 435 -436, 494 -495 and 546 -547. 
720 Brazil's first written submissions, paras. 237 and 296 (DS472) and 431 (DS497).  
721 Brazil's first written submissions, paras. 287 -288 (DS472) and 239 (DS497).  
722 Brazil's first written submissions, paras. 290 -292, 346 -347, 460 -461 and 494 -495 (DS472) and 240, 
296, 397 and 431 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  arguments above and found that the challenged measures are subject to the disciplines  of Article 
III.723 
7.353.   The Panel notes that Article 2.1 of the TRIMs Agreement states as follows:  
Without prejudice to other rights and obligations under GATT  1994, no Member shall 
apply any TRIM that is inconsistent with the provisions of Article III or Article XI of 
GATT 1994.  
7.354.   Additionally, the Panel in Indonesia – Autos indicated that two elements must be shown in 
order to demonstrate inconsistency with Arti cle 2.1: first, that the challenged measure is a TRIM; 
second, that the TRIM is inconsistent with Article III or Article XI of GATT.724 Additionally, the 
Panel in Canada – Renewable Energy / Canada – Feed-in Tariff Program indicated that Article  2.1 
of the T RIMs Agreement imposes an obligation on Members not to apply any TRIM that is 
inconsistent with the national treatment provisions of Article  III of the GATT, including 
Articles  III:2, III:4 and III:5. It follows that any measure found to be inconsistent wi th Article III 
of the GATT, that is also a TRIM, will be incompatible with Article  2.1 of the TRIMs  Agreement.725 
7.355.   The Panel notes that in order for a measure to be found to be inconsistent with Article 2.1 
of the TRIMs Agreement, it must be a trade -related i nvestment measure, within the meaning of 
the TRIMs Agreement, and it must be found to be inconsistent with Article III of the GATT 1994. 
The Panel proceeds by assessing these two steps in turn.  
7.3.4.2   Whether the ICT programmes are trade -related investment measu res within the 
meaning of the TRIMs Agreement  
7.356.   The complaining parties submit that the Informatics programme is a trade -related 
investment measure for six reasons. First, it contains an obligation for all companies seeking 
accreditation to invest a minimum percentage of their gross revenue in R&D in the ICT sector in 
Brazil. Second, the requirement established in the PPBs that certain processing operations or 
production steps take place in Brazil in order to benefit from the tax reductions and exemptions 
incentivizes investment and local production. Third, Brazil admits that in the establishment of a 
PPB it is guided by the amount of investments to be carried out in Brazil by the company in order 
to produce the product in question. Fourth, Brazil has further acknowledged that the Informatics 
programme is an instrument for companies to relocate to Brazil and attract foreign investment. 
Fifth, the PPBs establish local content requirements expressed in terms of minimum percentages of 
locally -produced parts or com ponents (sometimes produced in accordance with their own PPBs) 
that the accredited company must purchase or manufacture itself in Brazil in order to be used in 
the manufacturing processes in order to obtain the tax reductions and exemptions. Finally, the 
Informatics programme provides for domestic content requirements that are "related to trade in 
goods" since they affect ICT products marketed in Brazil.726 
7.357.   The complaining parties submit that the PADIS programme is a trade -related investment 
measure for five reasons. First, it contains an obligation for all companies seeking accreditation to 
invest a minimum percentage of their gross revenue in R&D in Brazil. Second, the declared 
objective of the PADIS programme is to attract investment in the area of semicond uctors and 
displays, and it is advertised as a fiscal incentive scheme to attract foreign investment. Third, the 
requirement that certain processing operations or production steps take place in Brazil in order to 
benefit from the tax reductions and exempti ons incentivizes investment and local production. 
Fourth, by its structure and design, the PADIS programme promotes productive investments in 
Brazil. Finally, the PADIS programme "relates to goods" because it relates to semiconductors, 
displays and strateg ic input, as well as all the production means and inputs necessary to 
                                                
723 See sections 7.2.1 and 7.2.2 above.  
724 Panel Report, Indonesia – Autos , para. 14.64.  
725 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 7.117.  
726 European Union's first written submission, paras. 695 -700; Jap an's first written submission, 
paras.  359-364. WT/DS472/R • WT/DS497/R  
 
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  manufacture them, and the tax exemption it provides applies on the domestic sale or import of 
those products.727 
7.358.   The complaining parties submit that the PATVD programme is a trade -related investment 
measure for four reasons. First, it contains an obligation for all companies seeking accreditation to 
invest a minimum percentage of their gross revenue in R&D in Brazil. Second, by its structure and 
design, PATVD promotes productive investments  in Brazil in the field of radio frequency signal 
transmission equipment for digital television. The Brazilian government has acknowledged that one 
of the aims of the programme is to attract foreign investment. This idea is reinforced by the 
Explanatory Me morandum of the provisional measure that became Law 11,484/2007, which 
provides that one of the objectives of the programme is to promote the localisation in Brazil of 
companies developing and manufacturing radio frequency signal transmission equipment for  digital 
television. Third, the PATVD programme incentivises local production and investment by requiring, 
through PPBs, that certain processing operations or production -steps take place in Brazil, and that 
some components are made in Brazil. In fact, Impl ementing Order 62/2014 requires PATVD 
beneficiaries to exclusively use printed circuit boards and other electric and mechanical parts made 
in Brazil in the production of radio frequency signal transmission equipment for digital television. 
Similar local co ntent requirements have been found to be "necessarily … 'trade -related' because 
such requirements, by definition, always favour the use of domestic over imported products, and 
therefore affect trade. Finally, the PATVD programme "relates to goods" because it relates to radio 
frequency signal transmission equipment for digital television, as well as all the production means 
and inputs necessary to manufacture them, and the tax exemption it provides applies on the 
domestic sale or import of those products.728 
7.359.   The complaining parties submit that the Digital Inclusion programme is a trade -related 
investment measure for five reasons. First, it incentivises local production and investment by 
requiring, through the PPBs, that certain processing operations or producti on steps take place in 
Brazil in order to benefit from the tax exemptions. In this respect, the complaining parties recall 
that what guides the establishment of PPBs by the Brazilian government is, inter alia , the level of 
investment in Brazil in the manuf acturing process by the accredited company. Second, the 
Brazilian government has admitted that one of the objectives of Digital Inclusion is to promote 
investment in order to promote production of consumers' electronics in Brazil. Third, the 
complaining pa rties argue that this programme has been conceived to operate with other tax 
incentive programmes that constitute investment measures, such as the Informatics programme. 
Finally, the Digital Inclusion programme "relates to goods" because it relates to cons umer 
electronic products and their components, which are goods.729 
7.360.   In the view of the Panel, the ICT programmes affect, and indeed are aimed at promoting, 
investment. The programmes also have an impact on trade, by affecting the sale and purchase of 
imported  products, including the inputs used in the production of incentivized finished and 
intermediate  products. In this regard, it is important to note that, if a measure contains local 
content requirements, it would necessarily be a "trade -related" measure, be cause such 
requirements, by definition, always favour the use of domestic products over imported products, 
and therefore affect trade.730 
7.361.   The Panel therefore concludes that the ICT programmes are trade -related investment 
measures within the meaning of the TR IMs Agreement.  
7.3.4.3   Whether the ICT programmes are TRIMs that are inconsistent with Article III of 
the GATT 1994, and therefore inconsistent Article 2.1 of the TRIMs Agreement  
7.362.   In order to make a finding of inconsistency in respect of Article 2.1 of the TRIMs 
Agreement, the relevant TRIMs must be found to be inconsistent with Article III of the GATT 1994.  
                                                
727 European Union's first written submission, paras. 843 -847; Japan's first written submission, 
paras.  425-429. 
728 European Union's first written submission, paras. 1000 -1006; Japan's first written submission, 
paras. 482-488. 
729 European Union's first written submission, paras. 1121 -1127; Japan's first written submission, 
paras.  537-540. 
730 Panel Report, Indonesia – Autos , para. 14.82.  WT/DS472/R • WT/DS497/R  
 
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  7.363.   The Panel has concluded in paragraphs 7.174 , 7.318 , and 7.319  above, that certain 
aspects of the ICT programmes are inconsistent with Article III:2 and III:4 of the GATT 1994. In 
light of its finding above that the programmes constitute trade -related investment measures, the 
Panel therefore con siders that those aspects of the ICT programmes found to be inconsistent with 
Article III:2 and III:4 of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs 
Agreement.  
7.364.   Additionally, the Panel notes that the local content requirements identif ied and discussed in 
section 7.3.2.2  above "require the purchase or use by an enterprise of products of domestic origin 
or from any domestic source", as referred to in paragraph 1(a) of the Illustrative List ann exed to 
the TRIMs Agre ement. Pursuant to Article 2.2 of the TRIMs Agreement, a TRIM on the Illustrative 
List is per se inconsistent with Article III:4 of the GATT 1994, and therefore inconsistent with 
Article 2.1 of the TRIMs Agreement. This further confir ms the Panel's findings in that section that 
the local content requirements are inconsistent with Article III:4 and, as indicated in paragraphs 
7.362  and 7.363  above,  consequentially inconsistent with Article 2.1 of the TRIMs Agreement).  
7.3.4.4   Conclusion  
7.365.   In light of the foregoing, the Panel concludes that the Informatics, Digital Inclusion, PATVD 
and PADIS programmes constitute trade -related investment measures, and that t he aspects of 
these programmes found to be inconsistent with Article III:2 and III:4 of the GATT 1994 are also 
inconsistent with Article 2.1 of the TRIMs Agreement.  
7.3.5   Claims under Article 3.1(b) of the SCM Agreement  
7.3.5.1   Introduction  
7.366.   The complaining parties have  raised claims under Article 3.1(b) of the SCM Agreement 
with respect to the ICT programmes.  
7.367.   As will be explained in detail below, Article 3.1(b) of the SCM Agreement prohibits 
subsidies contingent, whether solely or as one of several other conditions, upo n the use of 
domestic over imported goods.  
7.368.   The Panel recalls that companies accredited under the Informatics programme are entitled 
to IPI tax exemptions or reductions on the sales of incentivized products, and IPI tax suspensions 
on the purchase of raw ma terials, intermediate goods and packaging materials.731 
7.369.   Companies accredited under the PADIS programme are entitled to exemptions (through  
zero rates) of the IPI tax and the PIS/PASEP and COFINS contributions, and 100% reduction of the 
corporate income tax a nd the duties on profits from exploitation of patents, all arising from the 
sales of finished products and their projects (design). Accredited companies are also entitled to 
exemp tions (through zero rates ) of ordinary customs duties, the IPI tax and the PI S/PASEP, 
COFINS, PIS/PASEP -importation, COFINS -importation and CIDE contributions on purchases of new 
machinery, apparatus, instruments, equipment, computational tools and inputs.732 
7.370.   Companies accredited under the PATVD programme are entitled to exemp tions ( through 
zero rates) of the IPI tax and the PIS/PASEP and COFINS contributions arising from the sales of 
incentivized products. Accredited companies are also entitled to zero rates of the IPI tax and the 
PIS/PASEP, COFINS, PIS/PASEP -importation, COFINS -importation and CIDE contributions on 
purchases of new machinery, apparatus, instruments, equipment, computational tools and 
inputs.733 
                                                
731 See para graph s 2.41 to 2.45 above.  
732 See para graph 2.73 above.  
733 See para graph 2.84 above.  WT/DS472/R • WT/DS497/R  
 
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  7.371.   Companies accredited under the Digital Inclusion programme are entitled to exemptions 
(through  zero rates) of the PIS/PASEP an d COFINS contributions arising from the sales of 
incentivized products.734 
7.372.   The Panel also recalls that, as one of the requirements to be accredited under the ICT 
programmes, companies must commit to produce their incentivized goods in accordance with the 
PPBs, or similar requirements, which indicate the minimum stages or steps of the manufacturing 
process of a product that must be performed in Brazil.735 
7.373.   The European Union and Japan argue that the different exemptions, reductions and 
suspensions granted to accr edited companies under the Informatics, PADIS, PATVD and Digital 
Inclusion programmes (hereinafter ICT programmes) are subsidies within the meaning of the SCM 
Agreement, as they constitute financial contributions in the form of government revenue otherwise  
due that is foregone or not collected, through which a benefit is conferred.736 
7.374.   The European Union and Japan also argue that the alleged subsidies granted under the ICT 
programmes are contingent upon the use of domestic over imported goods and are, thus, 
prohibited under Article 3.1(b) of the SCM Agreement, because those PPBs or similar requirements 
provide that certain inputs, parts and components incorporated in the product must be produced in 
Brazil.737 
7.375.   Brazil presents three lines of argumentation, dependin g on whether the challenged tax 
treatment is: (i) on the sales of incentivized goods which can be considered to be finished goods  
(as they will not undergo further manufacturing); (ii) on the sales of incentivized goods which can 
be considered to be interm ediate goods  (as they will undergo further manufacturing); and (iii) on 
the purchases of raw materials,  intermediate goods , new machinery, apparatus, instruments, 
equipment, computational tools and inputs  used by accredited companies to produce their 
incen tivized goods.  
7.376.   With respect to the tax exemptions and reductions granted to accredited companies on the 
sales of the incentivized finished goods  that they produce (under the Informatics, PATVD and 
Digital Inclusion programmes), Brazil accepts that there is  a financial contribution in the form of 
"government revenue that is otherwise due is forgone or not collected", which confers a benefit.738  
7.377.   With respect to the tax exemptions and reductions granted to accredited companies on the 
sales of the incentivized intermediate goods  that they produce (under Informatics and PADIS), 
Brazil contends that there is neither revenue foregone nor any benefit conferred. Brazil argues 
that, according to the principle of non -accumulation in the Brazilian tax system, the payment s of 
taxes on the sales of intermediate goods are neutral in terms of tax collection. Brazil argues that, 
according to the mechanism of credits and debits under the principle of non -accumulation, the 
companies that purchase intermediate goods  generate tax credits when they pay the IPI tax and 
the PIS/PASEP and COFINS contributions (under the non -cumulative regime) to the seller. These 
purchasing companies can later offset the credits generated by the taxes and contributions (that 
have been paid) with debits  from the same taxes and contributions, or ask for compensation with 
other taxes or reimbursement.739 
7.378.   With respect to the tax suspensions on the purchases of raw materials, intermediate goods 
and packaging materials used by the accredited companies to produc e their incentivized goods 
(under Informatics) and the tax exemptions on the purchase of new machinery, apparatus, 
instruments, equipment,  computational tools and inputs  used by the accredited companies to 
produce their incentivized goods (PADIS and PATVD) , Brazil contends that there is neither revenue 
foregone nor any benefit conferred. Brazil argues that, according to the principle of non -
                                                
734 See paragraph 2.93 above.  
735 See sections 2.2.1.5.2 , 2.2.2.5 , 2.2.3.5  and 2.2.4.4  above .  
736 European Union's first written submission, paras. 709 -722, 856 -871, 1015 -1022 and 1135 -1143; 
Japan's first written submission, paras. 372 -377, 43 8-442, 497 -501 and 549 -553.  
737 European Union's first written submission, paras. 723 -727, 872 -878, 1023 -1025 and 1144 -1147; 
Japan's first written submission, paras. 372 -377, 438 -442, 497 -501 and 549 -553.  
738 Brazil's first written submissions, fn 120 and pa ras. 462 and 496 (DS472) and fn 111 and paras. 399 
and 433 (DS497); and Brazil's response to Panel question No. 25.  
739 Brazil's first written submissions, paras. 294 -295 and 349 -351 (DS472) and 244 -245 and 299 -301 
(DS497).  WT/DS472/R • WT/DS497/R  
 
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  accumulation in the Brazilian tax system, the payments of taxes and contributions on the sales of 
raw materials, input s, intermediate goods, packaging materials, new machinery, apparatus, 
instruments, equipment  and computational tools are neutral in terms of tax collection. Brazil 
argues that, according to the mechanism of credits and debits under the principle of non -
accumulation, the companies that purchase raw materials, intermediate goods, packaging 
materials, new machinery, apparatus, instruments, equipment, computational tools and inputs 
generate tax credits when they pay the IPI tax (if applicable740) and the PIS/PASE P and COFINS 
contributions to the seller. These companies can later offset the credits generated by the taxes and 
contributions paid, against debits from the same taxes and contributions. If the companies do not 
generate enough tax debits to fully offset t he credits, they can ask for compensation or 
reimbursement. Brazil submits, however, that asking for compensation or reimbursement is 
burdensome for both the government and the taxpayers. Brazil explains that the tax exemptions 
or suspensions are, thus, a tax administration measure to prevent the accumulation of tax credits 
by companies whose final products are exempted or subject to low taxation, and that are unable 
to generate enough tax debits to offset the tax credits generated.741 
7.379.   Brazil also submits tha t the requirements to be accredited under the different programmes 
do not reflect contingency upon the use of domestic over imported goods, because the 
requirements are not related to products, but to production.742 Brazil argues that the tax 
exemptions, red uctions or suspensions granted under the ICT programmes are "payments of 
subsidies exclusively to domestic producers" covered by GATT Article III:8(b).  
7.380.   In order to determine whether the tax exemptions, reductions and suspensions granted 
under the ICT progr ammes are inconsistent with Article 3.1(b) of the SCM Agreement, the Panel 
must assess:  
a. Whether the tax exemptions, reductions and suspensions granted under the ICT 
programmes constitute subsidies, i.e., whether the tax exemptions, reductions and 
suspensio ns granted under the ICT programmes constitute financial contributions by the 
Brazilian Government, in the form of "government revenue that is otherwise due is 
foregone or not collected", through which a benefit is conferred; and  
b. Whether the tax exemptions , reductions and suspensions granted under the ICT 
programmes are contingent upon the use of domestic over imported goods and thus 
prohibited.743 
7.3.5.2   Whether the tax exemptions, reductions and suspensions granted under the ICT 
programmes are contingent upon the use of domestic over imported goods within the 
meaning of Article 3.1(b) of the SCM Agreement and thus prohibited  
7.381.   The European Union and Japan argue that the subsidies conferred under the ICT 
programmes are contingent upon the use of domestic over imported , because they are only 
granted to ICT goods produced in accordance with the PPB or similar production -step 
requirements, which contain requirements that the components and subassemblies incorporated in 
the product are produced locally, sometimes by the ac credited company, sometimes by other 
domestic companies.744 
7.382.   Brazil rejects the complaining parties' claims and argues that the measures at issue are 
not related to products, but to production, and that the production -step requirements under the 
                                                
740 The IPI tax is not applicable to the sales of capital goods.  
741 Brazil's first written submission, paras. 296 -298, 352 -353 and fn 302 (DS472) and 246 -248, 302 -
303 and fn 273 (DS497).  
742 Brazil's first written submission paras. 299 -304, 354, 463 and 497 (DS472) and 249 -254, 304, 400 
and 434 (DS497).  
743 As explained in paragraphs 7.496  to 7.498  below, pursuant to Article 2.3 of the SCM Agreement, 
consideration of the question of contingency also will address whether the subsidies are specific in the sense 
argued by the complaining parties. (The complaining parties make no claims or arguments in respect of any 
other mode of specificity.)  
744 European Union's first written submission, paras. 723 -727, 872 -877, 1023 -1026 and 1144 -1148; 
Japan's first written submission, paras. 375, 441, 500 and 554.  WT/DS472/R • WT/DS497/R  
 
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  programmes do  not require directly or indirectly the use of domestic over imported goods.745 Brazil 
also argues that a product produced according to a PPB cannot be equated with a domestic 
product within the meaning of WTO law, because a product produced according to a P PB is simply 
a product produced according to specific production step requirements.746  
7.383.   Canada and the United States argue as third parties that Article 3.1(b) of the SCM 
Agreement does not prohibit subsidies where the receipt of the subsidy is conditioned o n the 
recipient of the subsidy performing certain production steps that may result in the creation of 
intermediate products.747 In the view of these third parties, neither the GATT 1994 nor the SCM 
Agreement "limit a subsidizing Member's ability to define th e level of production required for 
subsidy eligibility purposes" and that a "Member's ability to condition the provision of a subsidy on 
a production requirement would be significantly curtailed if a Member could not require the 
production of an intermedia te good. A production requirement would then have to be limited to 
simple assembly operations."748  
7.384.   Article 3 of the SCM Agreement states in relevant parts that:  
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the mean ing of Article 1, shall be prohibited:  
… 
(b) subsidies contingent, whether solely or as one of several other conditions, upon 
the use of domestic over imported goods.  
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph  1. 
7.385.   Thus,  pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement, subsidies contingent, 
whether solely or as one of several other conditions, upon the use of domestic over imported 
goods are prohibited, and shall not be granted or maintained. The ordinary meaning  of the word 
"contingent" is "conditional: dependent on, upon "749, so a subsidy is "contingent upon the use of 
domestic over imported goods", and thus, prohibited under Article 3.1(b) of the SCM Agreement, if 
the use of domestic goods is required or necessar y in order to receive the subsidy.750  
7.386.   The Panel recalls its finding in paragraph 7.313  above that the tax exemptions, reductions 
and suspensions granted under the ICT programmes, through the PPBs and other produc tion step 
requirements, are contingent upon the use of domestic over imported goods within the meaning of 
Article 3.1(b). Thus, if the Panel finds that the ICT programmes constitute subsidies within the 
meaning of the SCM Agreement, it will as a consequenc e conclude that these subsidies are 
inconsistent with SCM Article 3.1(b).  
                                                
745 Brazil's first written submission, paras. 299 -304, 354, 463 and 497 (DS472) and 249 -254, 304, 400 
and 434 (DS497).  
746 Brazil's second written submission, paras. 2 8-37.  
747 Canada's third party submission, paras. 4 -5; United States' response to Panel question No. 6.  
748 Canada's third party submission, para. 7.  
749 Shorter Oxford English Dictionary (6th ed., 2007)  
750 Indeed, such an interpretation was confirmed by the Ap pellate Body in Canada – Autos , where the 
Appellate Body recalled its discussion of Article 3.1(a) and explained as follows:  
In our discussion of Article 3.1(a) in Section VI of this Report, we recalled that in Canada – 
Aircraft  we stated that "the ordina ry connotation of 'contingent' is 'conditional' or 'dependent for 
its existence on something else'." Thus, a subsidy is prohibited under Article 3.1(a) if it is 
"conditional" upon export performance, that is, if it is "dependent for its existence on" expor t 
performance. In addition, in Canada – Aircraft , we stated that contingency "in law" is 
demonstrated "on the basis of the words of the relevant legislation, regulation or other legal 
instrument." (emphasis added) As we have already explained, such conditi onality can be derived 
by necessary implication from the words actually used in the measure. We believe that this legal 
standard applies not only to "contingency" under Article 3.1(a), but also to "contingency" under 
Article 3.1(b) of the SCM Agreement. Ap pellate Body Report, Canada – Autos , para. 123.  WT/DS472/R • WT/DS497/R  
 
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  7.3.5.3   Whether the tax exemptions, reductions and suspensions granted under the ICT 
programmes constitute subsidies within the meaning of the SCM Agreement  
7.387.   The SCM Agreement defines subsid ies as consisting of a "financial contribution" by a 
government or any public body, which confers a benefit. With respect to the term financial 
contribution, Article 1.1(a)(1) of the SCM Agreement defines and identifies the government 
conduct that constitu tes a financial contribution for purposes of the Agreement, and 
subparagraphs (i) -(iv) exhaust the types of government conduct deemed to constitute a financial 
contribution.751 
7.388.   The only type of financial contribution argued by the complaining parties is subp aragraph 
(ii), namely "government revenue that is otherwise due is foregone or not collected (e.g. fiscal 
incentives such as tax credits)".  
7.389.   Thus, Article 1.1 of the SCM Agreement, in its relevant part, defines a "subsidy" of the 
type alleged in this dispu te as follows:  
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:  
(a)(1)   there is a financial contribution by a government or any public body 
within the territory of a Member (referred to in this Agreement as "government"), i.e.  
where:  
… 
(ii) government revenue that is otherwise due is foregone or not collected 
(e.g. fiscal incentives such as tax credits)1; 
… 
and 
(b) a benefit is thereby conferred.  
_______________________________  
1 In accordance with the provisions of Article XVI  of GATT 1994 (Note to Article XVI) and the 
provisions of Annexes I through III of this Agreement, the exemption of an exported product 
from duties or taxes borne by the like product when destined for domestic consumption, or the 
remission of such duties o r taxes in amounts not in excess of those which have accrued, shall not 
be deemed to be a subsidy.  
7.390.   Therefore, with respect to the claims under the SCM Agreement regarding the ICT 
programmes, the Panel must consider whether:  
a. There is a financial contributi on by a government, in the form of government revenue 
otherwise due that is foregone or not collected; and  
b. A benefit is thereby conferred.  
7.3.5.3.1   The legal framework for financial contribution in the form of "government 
revenue that is otherwise due is foregone or not collected  
7.391.   The question of financial contribution in the form of "government revenue that is otherwise 
due is foregone or not collected" has been examined in a number of prior disputes. The Panel 
notes the following particularly relevant explanations  of this form of financial contribution.  
7.392.   In US – Large Civil Aircraft (2nd complaint) , the Appellate Body summarized its 
interpretation of the concept of "government revenue that is otherwise due is foregone or not 
collected", as developed previously in US – FSC and US – FSC (Article  21.5 – EC): 
                                                
751 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 613.  WT/DS472/R • WT/DS497/R  
 
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  The Appellate Body observed that the foregoing of revenue otherwise due implies that 
less revenue has been raised by the government than would have been raised in a 
different situation, and that the word "foregone" suggests that the government has 
given up an entitlement to raise revenue that it could "otherwise" have raised. This 
purported entitlement, however, cannot exist in the abstract. There must be "some 
defined, normative benchmark against which a comparison can be made between the 
revenue actually raised and the revenue that would have been raised 'otherwise'".752 
Moreover, the basis of comparison must be the "prevailing domestic standard" 
established by the tax rules applied by the Member in question, because "{w}hat is 
'otherwise due' … depends on the rules of taxation that each Member, by its own 
choice, establishes for itself".753 
… 
The Appellate Body underscored that a financial contribution does not arise under 
Article  1.1(a)(1)(ii) simply because a governme nt does not raise revenue that it could 
have raised. Although a government might be said to "forego" revenue when it 
chooses not to tax certain income, this alone is not determinative of whether the 
revenue foregone is "otherwise due".  
… 
The Appellate Body  remarked that, because Members, in principle, have the sovereign 
authority to determine their own rules of taxation, the comparison under 
Article  1.1(a)(1)(ii) must necessarily be between the rules of taxation contained in the 
challenged measure and other  rules of taxation of the Member concerned.  
… 
The Appellate Body further recognized that it may be difficult to identify the 
appropriate benchmark for comparison under Article  1.1(a)(1)(ii), because domestic 
rules of taxation are varied and complex. The Ap pellate Body stated that, "{i}n 
identifying the appropriate benchmark for comparison, panels must obviously ensure 
that they identify and examine fiscal situations which it is legitimate to compare"754, 
and that this will be the case when there is "a rationa l basis for comparing the fiscal 
treatment of the income subject to the contested measure and the fiscal treatment of 
certain other income".755 The Appellate Body added that, in general terms, "like will be 
compared with like"756, and that it is important to e nsure that the examination under 
Article  1.1(a)(1)(ii) "involves a comparison of the fiscal treatment of the relevant 
income for taxpayers in comparable situations".757 758 
7.393.   The Appellate Body in US – Large Civil Aircraft (2nd complaint)  also explained the rati onale 
behind the inclusion of "government revenue that is otherwise due is foregone or not collected" in 
the SCM Agreement, as a form of financial contribution:  
[T]he SCM Agreement  recognizes that WTO Members are sovereign in determining the 
structure and rates of their domestic tax regimes. Also, because tax systems are not 
static, Members must have some flexibility to make adjustments to their systems. At 
the same time, the SCM Agreement  recognizes that tax regimes may be used to 
achieve outcomes equivale nt to the results that are achieved where a government 
                                                
752 (footnote original) Appellate Body Report, US – FSC, para.  90.  
753 (footnote original) Appellate Body Report, US – FSC, para.  90.  
754 (footnote original) Appellate Body Report, US – FSC (Article  21.5 – EC), para.  90. 
755 (footnote original) Appellate Body Report, US – FSC (Article  21.5 – EC), para.  90. 
756 (footnote original) Appellate Body Report, US – FSC (Article  21.5 – EC), para.  90. By way of 
example, the Appellate Body indicated that, if the measure at issue involves income earned in sales 
transactions, it might not be appropriate to compare the treatment of this income with employment income.  
757(footnote original) Appellate Body Re port, US – FSC (Article  21.5 – EC), para.  92. By way of further 
example, the Appellate Body stated that, if the measure at issue is concerned with the taxation of foreign -
source income in the hands of a domestic corporation, it might not be appropriate to compare the measure 
with the fiscal treatment of such income in the hands of a foreign corporation.  
758 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 806 -810. WT/DS472/R • WT/DS497/R  
 
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  provides a direct payment. This explains why the Agreement includes the foregoing of 
government revenue otherwise due among the measures that constitute financial 
contributions under Article  1.1(a)(1).759 
7.394.   Finally, the Appellate Body in US – Large Civil Aircraft (2nd complaint)  enunciated a three -
step legal test for assessing whether a measure constitutes the foregoing of government revenue 
otherwise due, as follows:  
The identification of circumstances in which government revenue that is otherwise due 
is foregone requires a comparison between the tax treatment that applies to the 
alleged subsidy recipients and the tax treatment of comparable income of comparably 
situated taxpayers. Accordingly, a panel exam ining a claim under Article  1.1(a)(1)(ii) 
of the SCM Agreement  should first identify the tax treatment that applies to the 
income of the alleged recipients. Identifying such tax treatment will entail 
consideration of the objective reasons behind that treat ment and, where it involves a 
change in a Member's tax rules, an assessment of the reasons underlying that change.  
As a second step, the panel should identify a benchmark for comparison —that is, the 
tax treatment of comparable income of comparably situate d taxpayers.760 We 
recognize that this is not always a straightforward exercise, and may in some 
circumstances be exceedingly difficult. Identifying a benchmark involves an 
examination of the structure of the domestic tax regime and its organizing principles . 
In some cases, the principles will be ones well recognized in the tax regimes of 
Members; in other cases, they will be unique to the particular domestic regime. It 
may be that disparate tax measures, implemented over time, do not easily offer up 
coherent  principles serving as a benchmark. In any event, the task of the panel is to 
develop an understanding of the tax structure and principles that best explains that 
Member's tax regime, and to provide a reasoned basis for identifying what constitutes 
compara ble income of comparably situated taxpayers. Evidence relied upon in such an 
analysis must be located in the "rules of taxation that each Member, by its own 
choice, establishes for itself".761 In doing so, a Member will be held to account for the 
tax structu re and principles that it itself employs. This is akin to the approach 
undertaken in the field of public finance for purposes of estimating what are known as 
"tax expenditures".762  
Finally, as a third step, the panel should compare the reasons for the chall enged tax 
treatment with the benchmark tax treatment it has identified after scrutinizing a 
Member's tax regime. Such a comparison will enable a panel to determine whether, in 
the light of the treatment of the comparable income of comparably situated taxpa yers, 
the government is foregoing revenue that is otherwise due in relation to the income of 
the alleged recipients.763 
7.395.   In sum, in order to assess whether "government revenue that is otherwise due is foregone 
or not collected", the Panel must:  
a. First, identif y the tax treatment that applies to the income of the alleged recipients, 
considering the objective reasons behind that treatment;  
                                                
759 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 811.  
760 (footnote original) Although the Appellate Body has previously referred to the tax treatment of 
"comparable income", we understand that the same approach would apply to identifying any comparable 
taxable activity, transaction, or property of com parably situated taxpayers. (See Revenue Statistics, 1965 -
2010, Annex A, The OECD Classification of Taxes and Interpretative Guide  (OECD, 2011) (referring to the 
following categories of taxation: taxes on income, profits, and capital gains; social security  contributions; taxes 
on payroll and workforce; taxes on property; taxes on goods and services; and other taxes))  
761 (footnote original) Appellate Body Report, US – FSC, para.  90.  
762 (footnote original) The Organisation for Economic Co -operation and Develop ment ("OECD") describes 
tax expenditures as tax laws, regulations, or practices that reduce or postpone revenue for a comparatively  
narrow population of taxpayers relative to a benchmark tax. ( Tax Expenditures in OECD Countries   
(OECD, 2010), p.  12 (refer ring to B.  Anderson, PowerPoint presentation at the 5th Annual Meeting of  
OECD -Asia Senior Budget Officials held on 10 -11 January 2008 in Bangkok, available at 
<www.oecd.org/dataoecd/40/6/39944419.pdf>))  
763 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. WT/DS472/R • WT/DS497/R  
 
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  b. Second, identify a benchmark for comparison, i.e. the tax treatment of comparable 
income of comparably situated taxpayers. Th is involves an examination of the structure 
of the Member's domestic tax regime and its organizing principles; and  
c. Third, compare the challenged tax treatment, and its reasons, with the identified 
benchmark tax treatment. Such a comparison will enable a pa nel to determine whether 
the government is foregoing revenue that is otherwise due in relation to the income of 
the alleged recipients.  
7.3.5.3.2   The legal test for determining the existence of a benefit from a financial 
contribution in the form of revenue foregone  
7.396.   With respect to the concept of benefit, as explained by the Appellate Body in US – 
Softwood Lumber IV , "a financial contribution will confer a benefit upon a recipient within the 
meaning of Article 1.1(b) of the SCM Agreement when it provides an advantage to its recipient."764 
The Appellate Body Report in Canada – Aircraft  explained that the existence of any such advantage 
is to be determined by comparing the position of the recipient with and without the financial 
contribution, and that the marketplace provi des an appropriate basis for making this 
comparison.765 In other words, a panel must assess whether the recipient receives a financial 
contribution on terms more favourable than those available to the recipient in the market.766 
7.397.   However, as the panel in Canada  – Renewable Energy / Canada – Feed-in Tariff Program 
noted, the marketplace has not been explicitly used as a benchmark to determine whether 
financial contributions taking the form of "government revenue that is otherwise due is foregone or 
not collected"  confer a benefit.767 
7.398.   In fact, as recognized by the panel in US – Large Civil Aircraft (2nd complaint) , "[i]n those 
cases where a financial contribution has been found to exist in the form of the foregoing of 
revenue otherwise due, the conclusion that a bene fit exists has been made with little difficulty."768 
In the panel's view, a tax break "[i]s essentially a gift from the government, or a waiver of 
obligations due, and it is clear that the market does not give such gifts."769 Thus, when a panel 
finds that a ta x measure constitutes a financial contribution in the form of foregone revenue, it will 
be able to readily conclude, that a benefit is conferred.  
7.399.   For example, the panel in US – FSC (Article 21.5 – EC) stated that the recipient was 
"'better off' than it wo uld have been absent the contribution, that is, if it had been in another 
situation, where the conditions for obtaining the tax treatment under the Act were not fulfilled and 
it was therefore subject to otherwise applicable … taxation rules." 770 
7.400.   Based on th e above, the Panel will start its analysis of the existence of a subsidy by 
assessing whether the tax treatment granted under the ICT programmes constitute financial 
contributions in the form of government revenue otherwise due that is foregone or not coll ected. If 
the Panel concluded that the treatment granted under the ICT programmes involves revenue 
foregone and thus provides a financial contribution, the Panel will then address whether the 
financial contribution confers a benefit.  
                                                
764 Appellate Body Report, US – Softwood Lumber IV , para. 51. See also Panel Report, Canada – 
Renewable Energy / Canada – Feed-in Tariff Program , para. 7.271.  
765 Appellate Body Report, Canada – Aircraft , para. 157. See also: P anel Report, Canada – Renewable 
Energy / Canada – Feed-in Tariff Program , para. 7.271.  
766 Appellate Body Report, Canada – Aircraft, para. 158.  
767 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , footnote 509. See 
also: Panel Report s, US – FSC, para. 7.103; and US – FSC (Article 21.5 – EC), paras. 8.44 -8.48; and Appellate 
Body Reports, US – FSC, para. 140; and US – FSC (Article 21.5 – EC), para. 198.  
768 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.169.  
769 Panel Repo rt, US – Large Civil Aircraft (2nd complaint) , para. 7.171.  
770 Panel Report, US – FSC (Article 21.5 – EC), para. 8.46.  WT/DS472/R • WT/DS497/R  
 
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  7.3.5.3.3   Whether the tax exemp tions, reductions and suspensions granted under the 
ICT programmes constitute financial contributions in the form of "government revenue 
that is otherwise due is foregone or not collected"  
7.401.   As explained in paragraph 7.395  above, in order to assess whether the tax exemptions, 
reductions and suspensions granted under the ICT programmes constitute financial contributions 
in the form of "government revenue that is otherwise due is foregone or not collected", it will 
respond the following questions: (a) what is the challenged tax treatment that applies to the 
income of the alleged recipients, and what are the objective reasons behind this treatment; (b) 
what is the benchmark treatment or tax treatment of comparable inco me of comparably situated 
taxpayers; and (c) what is the difference between the challenged tax treatment, and its reasons, 
with the identified benchmark tax treatment?771 
7.3.5.3.3.1   The tax treatment that applies to the income of the alleged recipients, and 
the objecti ve reasons behind this treatment  
7.402.   As described in paragraphs 7.368  to 7.371  above, the tax treatment applicable to 
accredited companies under the Informatics programm e consists of:  
a. IPI tax exemptions or reductions on the sales of incentivized goods; and  
b. IPI tax suspensions on purchases of raw materials, intermediate goods and packaging 
materials.772 
7.403.   The tax treatment applicable to accredited companies under the PADIS pro gramme 
consists of:  
a. Zero rates (exemptions) of the IPI tax and PIS/PASEP and COFINS contributions on the 
sales of incentivized goods;  
b. 100% reduction of the corporate income tax and duties on profits from exploitation of 
patents, arising from the sales of incentivized goods and their projects (design); and  
c. Zero rates (exemptions) of ordinary customs duties, IPI tax and PIS/PASEP, COFINS, 
PIS/PASEP -importation, COFINS -importation on purchases of certain capital goods, 
inputs and computational tools  and o f the CIDE contributions on remittances sent abroad 
for payment  of contracts related to the  manufacturing of the incentivized goods .773 
7.404.   The tax treatment applicable to accredited companies under the PATVD programme 
consists of:  
a. Zero rates (e xemption s) of IPI tax  and PIS/PASEP and COFINS contributions on the sales 
of incentivized goods (digital TV transmitters); and  
b. Zero rates (e xemption s) of IPI tax and PIS/PASEP, COFINS, PIS/PASEP -importation, 
COFINS -importation and on purchases of certain capital goods, inputs and computational 
tools and o f the CIDE contributions on remittances sent abroad for payment  of contracts 
related to the  manufacturing of the incentivized goods .774 
7.405.   The tax treatment applicable to accredited companies under the Digital Inclusion 
programme co nsists of:  
a. Zero rates (e xemption s) of PIS/PASEP and COFINS contributions on the sales of 
incentivized goods.775 
                                                
771 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. 
772 See paragraphs 2.41 to 2.45 above.  
773 See paragraph 2.73 above.  
774 See paragraph 2.84 above.  
775 See paragraph 2.93 above.  WT/DS472/R • WT/DS497/R  
 
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  7.406.   The Panel notes that the case at issue involves a range of different taxes and different tax 
treatments. In particular, each of the examined progr ammes provides a different package of 
exemptions, reductions, and/or suspensions from one or more particular types of tax. In the 
Panel's view, these different tax treatments can be best classified and identified for purposes of 
determining whether revenue  that is otherwise due is foregone or not collected and a benefit 
thereby is conferred on the basis of (i)  the tax at issue, (ii)  whether the tax treatment is on the 
purchase of products by accredited companies or on their sale of incentivized products, an d 
(iii) the degree of transformation of the incentivized products. Based on these criteria, the Panel 
has grouped the tax treatments into the following categories:  
a. The IPI tax exemptions (including through zero rates) and reductions granted to 
accredited companies on their sales of the incentivized finished goods that they produce 
(for purposes of Informatics and PATVD);  
b. The exemptions (through zero rates) of the PIS/PASEP and COFINS contributions 
granted to accredited companies on their sales of the incen tivized finished goods that 
they produce (for purposes of PATVD and Digital Inclusion);  
c. The 100% reduction granted to accredited companies of the corporate income tax and 
the duties on profits from exploitation of patents arising from their sales of incent ivized 
finished goods and their projects (design) (for purposes of PADIS);  
d. The IPI tax exemptions (including through zero rates) and reductions granted to 
accredited companies on their sales of the incentivized intermediate goods that they 
produce (for pur poses of Informatics and PADIS);  
e. The exemptions (through zero rates) of the PIS/PASEP and COFINS contributions 
granted to accredited companies on their sales of the incentivized intermediate goods 
that they produce (for purposes of PADIS);  
f. The IPI tax susp ensions on purchases of raw materials, intermediate goods and 
packaging materials (for purposes of Informatics) and IPI tax exemptions  (through zero 
rates)  on purchases of inputs (for purposes of PADIS and PATVD) used to manufacture 
the incentivized produc ts; 
g. The exemptions (though zero rates) of the PIS/PASEP and COFINS contributions or 
PIS/PASEP -importation and COFINS -importation contributions on purchases of inputs 
(for purposes of PADIS and PATVD) used to manufacture the incentivized products;  
h. The exemp tions (through zero rates) of the PIS/PASEP and COFINS contributions or 
PIS/PASEP -importation and COFINS -importation contributions on purchases of certain 
capital goods and computational tools (for purposes of PADIS and PATVD) used to 
manufacture the incen tivized products, that will be incorporated into the fixed assets of 
the accredited company;  
i. The exemptions (through zero rates) of the CIDE contributions on remittances sent 
abroad for payment of contracts for the exploitation of patents or use of tradema rks and 
for the provision of technology and technical assistance for the manufactur ing of 
incentivized products (for purposes of PADIS and PATVD); and  
j. The exemptions (through zero rates) of ordinary customs duties on purchases of certain 
capital goods, inp uts and computational tools used in the manufacture of incentivized 
products (for purposes of PADIS).  
7.407.   The Panel recalls that the Appellate Body in US – Large Civil Aircraft (2nd complaint) 
explained that the identification of the tax treatment that applies  to the income of the alleged 
recipients will entail consideration of the objective reasons behind that treatment and, where it WT/DS472/R • WT/DS497/R  
 
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  involves a change in a Member's tax rules, an assessment of the reasons underlying that 
change.776 
7.408.   With respect the Informatics pr ogramme, Brazil argues as follows:  
The Informatics Law was established as part of Brazil's new national policy and was 
aimed at fostering technology and know -how in the Brazilian IT sector. The goal of the 
legislation is to develop technology -based indust ries, to expand the country's scientific 
infrastructure and to leverage its high -skilled human resources.777 
7.409.   With respect to PADIS, as explained earlier in this Report, Interministerial Explanatory 
Memorandum No  00008/2007 describes the aim of the programme as follows:  
The aim of establishing PADIS is to encourage the setting -up in Brazil of companies 
involved in the conception, development, design and manufacturing of electronic 
semiconductor devices and displays…778 
7.410.   With respect to PATVD, Interministerial Exp lanatory Memorandum No  00008/2007 
describes the aim of the programme as follows:  
The aim of establishing PATVD is to encourage the setting -up in Brazil of companies 
involved in the development and manufacturing of radio -frequency transmitter 
equipment for digital television.779 
7.411.   Brazil also argues that the tax exemptions or suspensions on purchases of inputs and 
capital goods under the Informatics, PADIS and PATVD programmes are a tax administration 
measure to prevent the accumulation of tax credits by compani es whose final products are 
exempted or subject to low taxation, and that would not able to generate enough tax debits to 
offset the tax credits generated.780  
7.412.   Finally, with respect to Digital Inclusion, Brazil argues that the programme "aims at 
increasing t he access of the Brazilian population to computers and information technology 
products…".781 
7.413.   The Panel will address later the evidence before it in respect of these arguments, and 
whether the alleged reasons affect the comparison between the challenged tax t reatment and the 
benchmark treatment.  
7.3.5.3.3.2   The relevant benchmark treatments and the difference between each of the 
challenged tax treatments and the identified benchmark tax treatments  
7.414.   The Panel will address separately the specific benchmark for each of the c ategories of tax 
treatments previously identified. In so doing, the Panel notes that the challenged tax treatments 
are "exemptions", "reductions" or "suspensions" of economy -wide taxes that apply, in principle, to 
all transactions by all businesses. As exp lained in detail below, on the basis of the evidence before 
the Panel and the analytical framework set forth above, in every instance the Panel finds that the 
benchmarks to be applied are the economy -wide tax treatments from which the exemptions, 
reduction s and suspensions are taken.  
a. The IPI tax exemptions  (including through zero tax rates)  and reductions granted to 
accredited companies on their sales of the incentivized finished goods that they 
produce (for purposes of Informatics and PATVD).  
 
                                                
776 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 812.  
777 Brazil's first written submission, paras. 107 (DS472) and 79 (DS497).  
778 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 2.  
779 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 7.  
780 Brazil's first written submissions, paras. 296 -298, 352 -353 and fn 302 (DS472) and paras. 246-248, 
302-303 and fn 273 (DS497).  
781 Brazil's first written submission, paras. 469 (DS472) and 405 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  The benc hmark treatment  
7.415.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to sales of products covered by the Informatics and PATVD programmes by 
non-accredited companies, i.e. the obligation to pay the f ull amount of the applicable IPI tax rate 
on the sales of non -incentivized products. In particular, the accredited and non -accredited 
companies producing and selling the products covered by the Informatics and PATVD programmes 
are identically situated, exc ept for the fact of accreditation. Brazil has provided no evidence 
demonstrating any other difference that could explain the differential IPI tax treatment of these 
products. Thus, the treatment applicable to sales by non -accredited companies of non -incent ivized 
products can be considered the benchmark treatment or normal rule of general application.  
Comparison  
7.416.   The Panel now compares the IPI tax exemptions and reductions granted to accredited 
companies on the sales of the incentivized finished goods that th ey produce, under the Informatics 
and PATVD programmes, with the benchmark treatment identified in the previous paragraph, i.e. 
the treatment applicable to sales by non -accredited companies of non -incentivized products.  
7.417.   The Panel notes that under the bench mark treatment the non -accredited company selling 
the non -incentivized finished product will always charge the IPI tax to the company buying the 
non-incentivized finished product, at the moment of the sale. The non -accredited company selling 
the non -incent ivized product then will remit to the Federal Revenue Service the amount of IPI tax 
charged, when it pays its monthly liabilities due on the 25th day of the month following the 
transaction. Thus, the Brazilian Government will receive the full amount of IPI  tax due from the 
non-accredited company selling the non -incentivized product.  
7.418.   In contrast, pursuant to the challenged treatment under the Informatics and PATVD 
programmes, whereby the tax is exempted or reduced, the accredited company selling the 
incentiv ized product will not have to remit any amount of tax, or will only have to remit part of the 
tax, to the Brazilian Government.  
7.419.   If the Panel compares the challenged treatment, where the Brazilian Government receives 
either none, or only part, of the IPI ta x that otherwise would have been due, with the benchmark 
treatment, where the Brazilian Government receives the full amount of IPI tax due, it is clear that 
under the challenged treatment the Brazilian Government foregoes revenue that is otherwise due. 
Thus, the Panel finds that, with respect to the IPI tax exemptions and reductions granted to 
companies accredited under the Informatics and PATVD programmes on the sales of the 
incentivized finished goods that they produce, "government revenue that is otherwi se due is 
foregone or not collected". The Panel notes that Brazil does not contest this finding.782 
b. The exemptions (through zero rates) of the PIS/PASEP and COFINS contributions 
granted to accredited companies on their sales of the incentivized finished g oods that 
they produce (for purposes of PATVD and Digital Inclusion).  
 
The benchmark treatment  
7.420.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to sales of products covered by the PATVD and Digit al Inclusion programmes 
by non -accredited companies, i.e. the obligation to pay the full amount of the applicable 
PIS/PASEP and COFINS contributions rates on the sales of non -incentivized products. In particular, 
the accredited and non -accredited companies  producing and selling the products covered by the 
PATVD and Digital Inclusion programmes are identically situated, except for the fact of 
accreditation. Brazil has provided no evidence demonstrating any other difference that could 
explain the differential  PIS/PASEP and COFINS contributions treatment of these products. Thus, 
the treatment applicable to sales by non -accredited companies of non -incentivized products can be 
considered the benchmark treatment or normal rule of general application.  
                                                
782 Brazil's first written submission, fn 120 and para. 462 (DS472) and fn 111 and para. 399 (DS497); 
and Brazil's response to Panel question No. 25.  WT/DS472/R • WT/DS497/R  
 
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  Comparison  
7.421.   The Panel now compares the exemptions of the PIS/PASEP and COFINS contributions 
granted to accredited companies on the sales of the incentivized finished goods that they produce, 
under the PATVD and Digital Inclusion programmes, with the benchmark treatment identified in 
the previous paragraph, i.e. the treatment applicable to sales by non -accredited companies of non -
incentivized products.  
7.422.   The Panel notes that under the benchmark treatment the non -accredited company selling 
the non -incentivized finished produ ct will always charge the PIS/PASEP and COFINS contributions 
to the company buying the non -incentivized finished product, at the moment of the sale. The non -
accredited company selling the non -incentivized product then will remit to the Federal Revenue 
Service the amount of PIS/PASEP and COFINS contributions charged, when it pays its monthly 
liabilities due on the 25th day of the month following the transaction. From the Brazilian 
Government's standpoint, the Government will receive the full amount of PIS/PA SEP and COFINS 
contributions due from the non -accredited company selling the non -incentivized product.  
7.423.   In contrast, pursuant to the challenged treatment under the PATVD programmes and 
Digital Inclusion programmes, whereby the contributions are exempted, th e accredited company 
selling the incentivized product will not have to remit any amount of contributions to the Brazilian 
Government.  
7.424.   If the Panel compares the challenged treatment, where the Brazilian Government receives 
none of the PIS/PASEP and COFINS c ontributions that otherwise would have been due, with the 
benchmark treatment, where the Brazilian Government receives the full amount of PIS/PASEP and 
COFINS contributions due, it is clear that under the challenged treatment the Brazilian 
Government foreg oes revenue that is otherwise due. Thus, the Panel finds that, with respect to the 
exemptions of the PIS/PASEP and COFINS contributions granted to companies accredited under 
the PATVD and Digital Inclusion programmes on the sales of the incentivized finish ed goods that 
they produce, "government revenue that is otherwise due is foregone or not collected". The Panel 
notes that Brazil does not contest this finding.783 
c. The 100% reduction granted to accredited companies of the corporate income tax and 
the dutie s on profits from exploitation of patents arising from their sales of 
incentivized finished goods and their projects (design) (for purposes of PADIS).  
 
The benchmark treatment  
7.425.   The Panel considers that in the case at issue the appropriate benchmark treatme nt is the 
treatment applicable to sales of products covered by the PADIS programme by non -accredited 
companies, i.e. the obligation to pay the full amount of the applicable corporate income tax and 
duties on profits from exploitation of patents rates on th e sales of non -incentivized products. In 
particular, the accredited and non -accredited companies producing the products covered by the 
PADIS programme are identically situated, except for the fact of accreditation. Brazil has provided 
no evidence demonstra ting any other difference that could explain the differential income tax and 
duties on profits treatment of these products. Thus, the treatment applicable to sales by non -
accredited companies of non -incentivized products can be considered the benchmark tre atment or 
normal rule of general application.  
Comparison  
7.426.   The Panel now compares the 100% reduction granted to accredited companies of the 
corporate income tax and the duties on profits from exploitation of patents arising from their sales 
of incentivized finished goods that they produce and their projects, under the PADIS programme, 
with the benchmark treatment identified in the previous paragraph, i.e. the treatment applicable to 
sales by non -accredited companies of non -incentivized products.  
7.427.   The Panel no tes that under the benchmark treatment the non -accredited company selling 
the non -incentivized finished product will always have to pay to the Federal Revenue Service the 
                                                
783 Brazil's first written submission, paras. 462 and 496 (DS4 72) and 399 and 433 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  corporate income tax and the duties on profits from exploitation of patents arising f rom their sales 
of the non -incentivized finished goods that they produce and their projects. The Government will 
receive the full amount of corporate income tax and duties on profits from exploitation of patents 
due from the non -accredited company selling the non -incentivized product.  
7.428.   In contrast, pursuant to the challenged treatment under the PADIS programme, whereby 
the taxes and duties are exempted, the accredited company selling the incentivized product will 
not have to remit any amount of taxes and dut ies to the Brazilian Government.  
7.429.   If the Panel compares the challenged treatment, where the Brazilian Government receives 
none of the corporate income tax and duties on profits from exploitation of patents that otherwise 
would have been due, with the benchm ark treatment, where the Brazilian Government receives 
the full amount of corporate income tax and duties on profits from exploitation of patents due, it is 
clear that under the challenged treatment the Brazilian Government foregoes revenue that is 
otherwi se due. Thus, the Panel finds that, with respect to the 100% reductions granted to 
accredited companies under the PADIS programme of the corporate income tax and the duties on 
profits from exploitation of patents, arising from the sales of incentivized fin ished goods that they 
produce and their projects "government revenue that is otherwise due is foregone or not 
collected". The Panel notes that Brazil does not contest this finding.784 
d. The IPI tax exemptions (including through zero rates) and reductions gr anted to 
accredited companies on their sales of the incentivized intermediate goods that they 
produce (for purposes of Informatics and PADIS).  
 
The benchmark treatment  
7.430.   The Panel considers that in the case at issue the appropriate benchmark treatment is the  
treatment applicable to sales of products covered by the Informatics and PADIS programmes by 
non-accredited companies, i.e. the obligation to pay the full amount of the applicable IPI tax rate 
on the sales of the non -incentivized intermediate goods that t hey produce, subject to the 
mechanism of credits and debits under the principle of non -accumulation. In particular, the 
accredited and non -accredited companies producing and selling the products covered by the 
Informatics and PADIS programmes are identical ly situated, except for the fact of accreditation. 
Brazil has not demonstrated the existence of any other difference that could explain the differential 
IPI tax treatment of these products. Thus, the treatment applicable to sales by non -accredited 
companie s of non -incentivized products can be considered the benchmark treatment or normal 
rule of general application.  
Comparison  
7.431.   The Panel now compares the IPI tax exemptions and reductions granted to accredited 
companies on their sales of the incentivized inter mediate goods that they produce, under the 
Informatics and PADIS programmes, with the benchmark treatment identified in the previous 
paragraph, i.e. the treatment applicable to sales by non -accredited companies of non -incentivized 
intermediate products.  
7.432.   The Panel notes that under the benchmark treatment, the non -accredited company selling 
the non -incentivized intermediate goods will always charge the IPI tax to the buyer of the 
products, at the moment of the sale, and the buyer of the products will accrue a  tax credit in the 
amount of the IPI tax paid. The non -accredited company selling the non -incentivized intermediate 
products then will remit to the Federal Revenue Service the amount of IPI tax charged, when it 
pays its monthly liabilities due on the 25th day of the month following the transaction. In turn, the 
buyer of the non -incentivized intermediate products will be allowed to use the credit it has accrued 
to offset its IPI tax debits when it pays its monthly liabilities due on the 25th day of the month  
following the transaction, i.e. during the same taxation period where the non -accredited company 
selling the non -incentivized intermediate products pays the tax to the Brazilian Government.785 
However, if the buyer of the non -incentivized intermediate produ cts is not able to offset the credit 
accrued with other debits during that taxation period, it will be allowed to offset it during 
                                                
784 Brazil's first written submission, paras. 348 (DS472) and 298 (DS497).  
785 See paragraphs 2.16 to 2.17 above.  WT/DS472/R • WT/DS497/R  
 
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  subsequent taxation periods.786 If the buyer of the non -incentivized products is not able to offset 
the credit after three taxation periods, it will be allowed to ask the Brazilian Government for 
compensation with other Federal debits, or reimbursement.787 The Brazilian Government has, by 
law, 360 days to respond to the request for compensation or reimbursement. If the Brazilian 
Government does not respond within 360 days, the buyer of the non -incentivized intermediate 
products will be entitled to receive the compensation or reimbursement from the Government, as 
well as the interest generated.788 It is fairly common that companies are not able to offset the full 
amount of their credits and have to request compensation or reimbursement, so this scenario 
seems rather frequent.789 
7.433.   Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the buyer of the non -incentivized intermediate products, the Government will receive the full 
amount of IPI tax due from the non -accredited company selling the non -incentivized intermediate 
products and the buyer of the non -incentivized products will be able to offset the amount o f IPI tax 
paid during the same taxation period. However, if the buyer of the non -incentivized intermediate 
products is not able to offset the credit during the same taxation period, the Brazilian Government 
will retain the amount of tax paid by the non -accredited company selling the non -incentivized 
intermediate product until the buyer of the non -incentivized products is able to offset it ( during 
subsequent taxation periods); or until the Brazilian Government compensates or reimburses the 
face amount of the  credit, without interest, to the buyer of the non -incentivized products (within 
360 days of the date of the request for compensation or reimbursement). Under this second 
scenario, the Brazilian Government thus will hold the advantage of cash availability or cash flow, 
along with the associated implicit interest income (revenue) that could be generated on the full 
amount of that tax that it has collected from the seller.790 This cash availability and associated 
implicit interest can last from one taxation per iod791 (if the buyer is able to offset the credit during 
the second taxation period) to 360 days after the request for compensation or reimbursement (if 
the buyer has to request it). During this period, the government is able to make use of the taxes 
receive d (i.e., "earning" implicit interest). So long as the compensation or reimbursement is made 
to buyer of the non -incentivized products within 360 days after the request, the Brazilian 
Government will not have to pay the buyer of the non -incentivized product s any interest on the 
use of the buyer's money during that period. Only if 360 days are surpassed is the government 
obligated to compensate or repay to the buyer of the non -incentivized products not just the face 
amount of the credit but also the associate d interest. Thus, it is only after 360 days that the 
government would no longer enjoy the implicit interest revenue from the free use of the buyer's 
money that is blocked in the form of its credit.792 
                                                
786 See paragraphs 2.19 to 2.20 above.  
787 See paragraph 2.20 above.  
788 See paragraph 2.20 above, and Appe al Against Split Decision in Interlocutory Appeal No. 1.220.942 
– SP (2012/0095341 -6), (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: if there is a claim 
for reimbursement of credits of IPI, PIS/COFINS (in cash or by means of offset  against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then such delay in the reimbursement 
gives rise to application of monetary restatement." Also, Brazil has explained that "delays in processing 
reimbursement requests can result in financial costs for the government, which may have to pay interest on 
the amount overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's first 
written submission, para. 780 (DS472) and fn 451 (DS497).  
789 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax d ebits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, para. 758 (DS472) and para. 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, " a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a period over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS co ntributions and 18.5% possess tax credits under the IPI tax). See Exporters_2012 
study on Brazilian exports – delays in refunds, (Exhibit JE -186), p. 55; and European Union's first written 
submission, fn 849.  
790 According to the European Union, the benchmar k rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
791 This period would be, for instance, of one mont h, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
792 See footnote 788 above.   WT/DS472/R • WT/DS497/R  
 
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  7.434.   In contrast, pursuant to the challenged treatment under t he Informatics and PADIS 
programmes, whereby the IPI tax is exempted or reduced , the accredited company selling the 
incentivized products will not have to charge the IPI tax to the buyer of the incentivized products 
and will not have to remit any amount of  tax, or will only have to remit part of the tax,  to the 
Brazilian Government. The buyer of the incentivized products, in turn, will not accrue any credit , or 
will accrue a lower amount of credit .793 
7.435.   Thus, the Brazilian Government will not receive the amount  of tax that would have 
otherwise been due on the 25th day of the month following the transaction. By the same token, it 
also will not have to allow the buyer of the incentivized products to offset the amount of tax 
paid.794  
7.436.   If the Panel compares the challe nged treatment with the best case scenario for the buyer 
of the non -incentivized products at issue under the benchmark treatment, where the tax is paid to 
the Government and offset during the same taxation period, there would be no revenue foregone 
by the Brazilian Government, as the government would not earn the implicit interest on unused 
credits. However, if the Panel compares the challenged treatment with the rather frequent  scenario 
where the buyer of the non –incentivized products at issue is not able to offset the tax credit it has 
accrued during the same taxation period in which the tax is paid, then under the challenged 
treatment the Government will never be able to benefit from the cash availability and implicit 
interest income, which could have las ted from one taxation period795 to 360 days after the request 
for compensation or reimbursement, under the benchmark treatment. Therefore, under this rather 
frequent  scenario, the Government is foregoing revenue in the form of the implicit interest on the 
tax revenue collected where the offsetting credits have not (yet) been used.  
7.437.   Furthermore, from the buyer's standpoint, as explained in paragraph 2.17 above, when the 
buyer of the incentivized intermediate products  sells its finished goods incorporating those 
products, under normal circumstances796 the Brazilian Government ultimately will collect the full 
amount of IPI tax corresponding to both the value added by the accredited company selling the 
incentivized product  and the value added by the buyer of the incentivized products, i.e., the same 
nominal amount of IPI tax that it would have received in the absence of the suspensions. This does 
not, however, diminish or eliminate the advantage to the buyer of the incentiv ized intermediate 
products that it (rather than the government) enjoys of the cash availability and associated 
implicit interest income, due to not having to pay the tax to the accredited company selling the 
incentivized products, from the moment it otherw ise would have had to pay that tax until the 
moment it sells its finished good.  
e. The exemptions (through zero rates) of the PIS/PASEP and COFINS contributions 
granted to accredited companies on their sales of the incentivized intermediate goods 
that they  produce (for purposes of PADIS).  
 
The benchmark treatment  
7.438.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to sales of products covered by the PADIS programme by non -accredited 
companies, i.e. t he obligation to pay the full amount of the applicable PIS/PASEP and COFINS 
contributions rates on the sales of the non -incentivized intermediate goods that they produce, 
subject to the mechanism of credits and debits under the non -cumulati ve regime . In pa rticular, the 
accredited and non -accredited companies producing and selling the products covered by the PADIS 
programme are identically situated, except for the fact of accreditation. Brazil has not 
demonstrated the existence of any other difference that c ould explain the differential PIS/PASEP 
and COFINS contributions treatment of these products. Thus, the treatment applicable to sales by 
non-accredited companies of non -incentivized products can be considered the benchmark 
treatment or normal rule of gener al application.  
                                                
793 See paragraph 2.18 above.  
794 See paragraph 2.13 above.  
795 This period would be, for instance, of one month, if the Government receives the payment from the 
seller  on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
796 The Panel notes that normal circumstances might not exist when the incentivized intermediate 
products are incorporated into fi nished products that are also incentivized under the Informatics or Digital 
Inclusion programmes, in which case those finished products pay no or a very low IPI tax.  WT/DS472/R • WT/DS497/R  
 
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  Comparison  
7.439.   The Panel now compares the exemptions of the PIS/PASEP and COFINS contributions 
granted to accredited companies on their sales of the incentivized intermediate goods that they 
produce, under the PADIS programme, with the benchmar k treatment identified in the previous 
paragraph, i.e. the treatment applicable to sales by non -accredited companies of non -incentivized 
intermediate products.  
7.440.   The Panel notes that under the benchmark treatment, the non -accredited company selling 
the non -incentivized intermediate goods will always charge the PIS/PASEP and COFINS 
contributions to the buyer of the products, at the moment of the sale, and the buyer of the 
products will accrue a tax credit in the amount of the PIS/PASEP and COFINS contributions  paid. 
The non -accredited company selling the non -incentivized intermediate products then will remit to 
the Federal Revenue Service the amount of PIS/PASEP and COFINS contributions charged, when it 
pays its monthly liabilities due on the 25th day of the mo nth following the transaction. In turn, the 
buyer of the non -incentivized intermediate products will be allowed to use the credit it has accrued 
to offset its PIS/PASEP and COFINS contributions debits when it pays its monthly liabilities due on 
the 25th da y of the month following the transaction, i.e. during the same taxation period where 
the non -accredited company selling the non -incentivized intermediate products pays the tax to the 
Brazilian Government.797 However, if the buyer of the non -incentivized inte rmediate products is 
not able to offset the credit accrued with other debits during that taxation period, it will be allowed 
to offset it during subsequent taxation periods.798 If the buyer of the non -incentivized products is 
not able to offset the credit after three taxation periods, it will be allowed to ask the Brazilian 
Government for compensation with other Federal debits, or reimbursement.799 The Brazilian 
Government has, by law, 360 days to respond to the request for compensation or reimbursement. 
If the  Brazilian Government does not respond within 360 days, the buyer of the non -incentivized 
intermediate products will be entitled to receive the compensation or reimbursement from the 
Government, as well as the interests generated.800 It is fairly common that  companies are not able 
to offset the full amount of their credits and have to request compensation or reimbursement, so 
this scenario seems rather frequent.801 
7.441.   Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the buyer of the non -incentivized intermediate products, the Government will receive the full 
amount of PIS/PASEP and COFINS contributions due from the non -accredited company selling the 
non-incentivized intermediate products and the buyer of the non -incentivized pr oducts will be able 
to offset the amount of PIS/PASEP and COFINS contributions paid during the same taxation period. 
However, if the buyer of the non -incentivized intermediate products is not able to offset the credit 
during the same taxation period, the B razilian Government will retain the amount of tax paid by 
the non -accredited company selling the non -incentivized intermediate product until the buyer of 
the non -incentivized products is able to offset it ( during subsequent taxation periods); or until the 
Brazilian Government compensates or reimburses the face amount of the credit, without interest, 
to the buyer of the non -incentivized products (within 360 days of the date of the request for 
compensation or reimbursement). Under this second scenario, the Br azilian Government thus will 
hold the advantage of cash availability or cash flow, along with the associated implicit interest 
income (revenue) that could be generated on the full amount of that tax that it has collected from 
                                                
797 See paragraphs 2.16 to 2.17 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions.)  
798 See paragraphs 2.19 to 2.20 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions)  
799 See paragraph 2.20 above . (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions.)  
800 See paragraph 2.20 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions.)  
801 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, paras. 758 (DS472) and 691 (DS4 97). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a p eriod over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). See Exporters_2012 
study on Brazilian exports – delays in refunds, (Exhibit JE -186), p. 55; and Europ ean Union's first written 
submission, fn 849.  WT/DS472/R • WT/DS497/R  
 
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  the seller.802 This cash availab ility and associated implicit interest can last from one taxation 
period803 (if the buyer is able to offset the credit during the second taxation period) to 360 days 
after the request for compensation or reimbursement (if the buyer has to request it). During  this 
period, the government is able to make use of the taxes received (i.e., "earning" implicit interest). 
So long as the compensation or reimbursement is made to buyer of the non -incentivized products 
within 360 days after the request, the Brazilian Gove rnment will not have to pay the buyer of the 
non-incentivized products any interest on the use of the buyer's money during that period. Only if 
360 days are surpassed is the government obligated to compensate or repay to the buyer of the 
non-incentivized p roducts not just the face amount of the credit but also the associated interest. 
Thus, it is only after 360 days that the government would no longer enjoy the implicit interest 
revenue from the free use of the buyer's money that is blocked in the form of i ts credit.804 
7.442.   In contrast, pursuant to the challenged treatment under the PADIS programme, whereby 
the PIS/PASEP and COFINS contributions are exempted, the accredited company selling the 
incentivized products will not have to charge the PIS/PASEP and COFINS contributions to the buyer 
of the incentivized products and will not have to remit any amount of tax to the Brazilian 
Government. The buyer of the incentivized products, in turn, will not accrue any credit.805 
7.443.   Thus, the Brazilian Government will not receive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction. By the same token, it 
also will not have to allow the buyer of the incentivized products to offset the amount of tax 
paid.806  
7.444.   If the Panel compares the challenged treatment with the best case scenario for the buyer 
of the non -incentivized products at issue under the benchmark treatment, where the tax is paid to 
the Government and offset during the same taxation period, there would be no revenue forego ne 
by the Brazilian Government, as the government would not earn the implicit interest on unused 
credits. However, if the Panel compares the challenged treatment with the rather frequent  scenario 
where the buyer of the non –incentivized products at issue is  not able to offset the tax credit it has 
accrued during the same taxation period in which the tax is paid, then under the challenged 
treatment the Government will never be able to benefit from the cash availability and implicit 
interest income, which coul d have lasted from one taxation period807 to 360 days after the request 
for compensation or reimbursement, under the benchmark treatment. Therefore, under this rather 
frequent  scenario, the Government is foregoing revenue in the form of the implicit interest  on the 
tax revenue collected where the offsetting credits have not (yet) been used.  
7.445.   Furthermore, from the buyer's standpoint, as explained in paragraph  2.17 above808, when 
the buyer of the incentivized intermedia te products sells its finished goods incorporating those 
products, under normal circumstances the Brazilian Government ultimately will collect the full 
                                                
802 According to the European Union, the benchmark rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. Europe an 
Union's first written submission, fn 883.  
803 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the  
next taxation period.  
804 See paragraph 2.20 above (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions) and Appeal Against Split Decision in 
Interlocutory Appeal No. 1.220.942 – SP (2012/0095341 -6), (Exhibit BRA -104), para. 6, stating as follows: "It 
is a simple logic: if there is a claim for reimbursement of credits of IPI, PIS/COFINS (in cash or by means of 
offset against other taxes) and these credits are acknowledged by the Federal Revenue Office with delay, then 
such delay in the reimbursement gives rise to application of monetary restatement." Also, Brazil has explained 
that "delays in processing reimbursement requests can result in financial  costs for the government, which may 
have to pay interest on the amount overdue at the SELIC overnight lending rate – currently at 14.25% per 
annum." Brazil's first written submissions, paras. 780 (DS472) and fn 451 (DS497).  
805 See paragraph 2.18 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions.)  
806 See paragraph 2.13 above. (A lthough the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions.)  
807 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
808 Although the explanation is given in the context of the IPI tax, the same logic also applies to the 
PIS/PASEP and COFINS contributions.  WT/DS472/R • WT/DS497/R  
 
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  amount of PIS/PASEP and COFINS contributions corresponding to both the value added by the 
accredited com pany selling the incentivized product and the value added by the buyer of the 
incentivized products, i.e., the same nominal amount of PIS/PASEP and COFINS contributions that 
it would have received in the absence of the suspensions. This does not, however, diminish or 
eliminate the advantage to the buyer of the incentivized intermediate products that it (rather than 
the government) enjoys of the cash availability and associated implicit interest income, due to not 
having to pay the tax to the accredited comp any selling the incentivized products, from the 
moment it otherwise would have had to pay that tax until the moment it sells its finished good.  
7.446.   Also, a lthough the non -cumulative regime is the general rule  for the PIS/PASEP and 
COFINS contributions809, to the  extent that  the sales of the intermediate goods at issue could be 
subject to the cumulative regime, there would be no mechanism of credits and debits.  In this case, 
if the Panel compares the challenged treatment , where the Brazilian Government receives no ne of 
the PIS/PASEP and COFINS contributions that otherwise would have been due, with the treatment 
under the cumulative regime, where the Brazilian Government receives the full amount of 
PIS/PASEP and COFINS contributions due, it is clear that under the c hallenged treatment the 
Brazilian Government foregoes revenue that is otherwise due  under the cumulative regime .  
f. The IPI tax suspensions on purchases of raw materials, intermediate goods and 
packaging materials (for purposes of Informatics) and IPI tax  exemptions (through 
zero rates) on purchases of inputs (for purposes of PADIS and PATVD) used to 
manufacture the incentivized products.  
 
The benchmark treatment  
7.447.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to purchases by non -accredited companies of raw materials, intermediate 
goods, packaging materials and inputs that will be used by those companies to manufacture 
products covered by the Informatics and PADIS programmes, i.e. the obligation to pay the full 
amount of the applicable IPI tax rate on the purchases of raw materials, intermediate goods, 
packaging materials and inputs used to manufacture products, subject to the mechanism of credits 
and debits under the principle of non -accumulation . In particular, the accredited and non -
accredited companies purchasing the raw materials, intermediate goods, packaging materials and 
inputs used to manufacture their products are identically situated, except for the fact of 
accreditation. Brazil has not demonstrated the existence of any other difference that could explain 
the differential IPI tax treatment of these products. Thus, the treatment applicable to purchases by 
non-accredited companies of raw materials, intermediate goods, packaging materials an d inputs 
used in the manufacture of their products can be considered as the benchmark treatment or 
normal rule of general application.  
Comparison  
7.448.   The Panel now compares the IPI tax suspensions or exemptions granted to accredited 
companies on their purchas es of raw materials, intermediate goods and packaging materials, 
under the Informatics programme, and inputs, under the PADIS and PATVD programmes, with the 
benchmark treatment identified in the previous paragraph, i.e. the treatment applicable to 
purchase s by non -accredited companies of raw materials, intermediate goods, packaging materials 
and inputs.  
7.449.   The Panel notes that under the benchmark treatment, the seller of the raw materials, 
intermediate goods, packaging materials and inputs will always charge t he IPI tax to the non -
accredited company buying the products, at the moment of the sale, and the non -accredited 
company buying the products will accrue a tax credit in the amount of the IPI tax paid. The seller 
then will remit to the Federal Revenue Servic e the amount of IPI tax charged, when it pays its 
monthly liabilities due on the 25th day of the month following the transaction. In turn, the non -
accredited company buying the products will be allowed to use the credit it has accrued to offset 
its IPI tax  debits when it pays its monthly liabilities due on the 25th day of the month following the 
transaction, i.e. during the same taxation period where the seller pays the tax to the Brazilian 
Government.810 However, if the non -accredited company buying the prod ucts is not able to offset 
                                                
809 See para graph  2.22 above  
810 See paragraphs 2.17 and 2.18 above.  WT/DS472/R • WT/DS497/R  
 
- 158 - 
 
  the credit accrued with other debits during that taxation period, it will be allowed to offset it during 
subsequent taxation periods.811 If the non -accredited company buying the products is not able to 
offset the credit after three taxation periods, it will be allowed to ask the Brazilian Government for 
compensation with other Federal debits, or reimbursement.812 The Brazilian Government has, by 
law, 360 days to respond to the request for compensation or reimbursement. If the Brazilia n 
Government does not respond within 360 days, the non -accredited company buying the products 
will be entitled to receive the compensation or reimbursement from the Government, as well as 
the interests generated.813 It is fairly common that companies are not  able to offset the full 
amount of their credits and have to request compensation or reimbursement, so this scenario 
seems rather frequent.814 
7.450.    Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, the Government will receive the full amount of 
IPI tax due from the seller and the non -accredited company buying the products will be able to 
offset the amount of IPI tax paid during the same taxation period. However, if the non -accred ited 
company buying the products is not able to offset the credit during the same taxation period, the 
Brazilian Government will retain the amount of tax paid by the seller until the non -accredited 
company buying the products is able to offset it ( during s ubsequent taxation periods); or until the 
Brazilian Government compensates or reimburses the face amount of the credit, without interest, 
to the non -accredited company buying the products (within 360 days of the date of the request for 
compensation or reim bursement). Under this second scenario, the Brazilian Government thus will 
hold the advantage of cash availability or cash flow, along with the associated implicit interest 
income (revenue) that could be generated on the full amount of that tax that it has  collected from 
the seller.815 This cash availability and associated implicit interest can last from one taxation 
period816 (if the non -accredited company is able to offset the credit during the second taxation 
period) to 360 days after the request for compens ation or reimbursement (if the non -accredited 
company requests it). During this period, the government is able to make use of the taxes 
received (i.e., "earning" implicit interest). So long as the compensation or reimbursement is made 
to the non -accredited  company buying the products within 360 days after the request, the 
Brazilian Government will not have to pay the non -accredited company buying the products any 
interest on the use of the buyer's money during that period. Only if 360 days are surpassed is the 
government obligated to compensate or repay to the non -accredited company buying the products 
not just the face amount of the credit but also the associated interest. Thus, it is only after 360 
days that the government would no longer enjoy the implici t interest revenue from the free use of 
the buyer's money that is blocked in the form of its credit.817 
                                                
811 See paragraphs 2.19 and 2.20 above.  
812 See paragraph 2.20 above.  
813 See paragraph 2.20 above.  
814 Brazil acknowledges that "many sectors of the econo my have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, para. 758 (DS472) and para. 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little more than one third of 
the surveyed exporti ng companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a period over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). See Exporters_2012 
study on Brazilian exports – delays in refunds, (Exhibit JE -186), p. 55; and European Union's first written 
submission, fn 849.  
815 According to the European Union, the benchmark rate of the Brazilian Central Bank (available at t he 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
816 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
817 See paragraph 2.20 above and Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 – 
SP (2012/0095341 -6) (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: if there is a claim for 
reimbursement of credits of IPI, PIS/COFINS (in cash or by means of offset against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then such delay in the reimbursement 
gives rise to application of monetary restatement." Also, Brazil has explained that "delays in processing 
reimbursement requests can result in financial costs for t he government, which may have to pay interest on 
the amount overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's first 
written submission, paras. 780 (DS472) and fn 451 (DS497).  WT/DS472/R • WT/DS497/R  
 
- 159 - 
 
  7.451.   With respect to imported raw materials, intermediate goods, packaging materials and 
inputs, the Panel notes that the IPI tax is collected by the customs a uthorities from the importer 
during the customs clearance process.818 Therefore, the Government will enjoy the advantage of 
cash availability or cash flow, along with the associated implicit interest income (revenue) that 
could be generated on the full amoun t of that tax that is collected, from the moment the product is 
imported until the moment the non -accredited company buying the product is able to offset the 
credit, or receives compensation or reimbursement (within 360 days of the request).  
7.452.   In contrast, p ursuant to the challenged treatment under the Informatics, PADIS and 
PATVD programmes, whereby the IPI tax is suspended or exempted, the seller will not have to 
charge the IPI tax to the accredited company buying the products and will not have to remit any  
amount of tax to the Brazilian Government. The accredited company buying the products, in turn, 
will not accrue any credit.819 
7.453.   Thus, the Brazilian Government will not receive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction, in the case of 
domestic products, or on the date of importation (in the case of imported products). By the same 
token, it also will not have to allow the accredited company buying the products to offset the 
amount of tax paid.820  
7.454.   If the Panel compares the challenged treatment with the best case scenario for the non -
accredited company buying domestic products at issue under the benchmark treatment, where the 
tax is paid to the Government and offset during the same taxation period, t here would be no 
revenue foregone by the Brazilian Government, as the government would not earn the implicit 
interest on unused credits. However, if the Panel compares the challenged treatment with the 
rather frequent  scenario where the non -accredited comp any buying the products at issue is not 
able to offset the tax credit it has accrued during the same taxation period in which the tax is paid, 
then under the challenged treatment the Government will never be able to benefit from the cash 
availability and i mplicit interest income, which could have lasted from the moment of importation 
(in the case of imported products) or from one taxation period821 (in the case of domestic 
products) to 360 days after the request for compensation or reimbursement, under the be nchmark 
treatment. Therefore, under this rather frequent  scenario, the Government is foregoing revenue in 
the form of the implicit interest on the tax revenue collected where the offsetting credits have not 
(yet) been used.  
7.455.   Furthermore, from the buyer's st andpoint, as explained in paragraph 2.17 above, when the 
accredited company buying the raw materials, intermediate goods, packaging materials and inputs 
sells its finished goods incorporating those products, und er normal circumstances822 the Brazilian 
Government ultimately will collect the full amount of IPI tax corresponding to both the value added 
by the seller and the value added by the accredited company buying the products, i.e., the same 
nominal amount of IPI  tax that it would have received in the absence of the suspensions. This does 
not, however, diminish or eliminate the advantage to the accredited company buying the products 
that it (rather than the government) enjoys of the cash availability and associate d implicit interest 
income, due to not having to pay the tax to the seller of the products, from the moment it 
otherwise would have had to pay that tax until the moment it sells its finished good.  
g. The exemptions (through zero rates) of the PIS/PASEP and  COFINS contributions or 
PIS/PASEP -importation and COFINS -importation contributions on purchases of inputs 
(for purposes of PADIS and PATVD) used to manufacture the incentivized products.  
 
                                                
818 See paragraph 2.8 above.  
819 See paragraph 2.18 above.  
820 See paragraph 2.13 above.  
821 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
822 The Panel notes that normal circumstances might not exist in the case at issue, because under the 
Informatics, PADIS and PATVD programmes, the finished products manufactured with the raw materials, 
intermediate goods, inputs and packaging materials with the IPI tax exempted or suspended, will also have the 
IPI tax exempted or reduced.  WT/DS472/R • WT/DS497/R  
 
- 160 - 
 
  The benchmark treatment  
7.456.   The Panel considers that in the case at iss ue the appropriate benchmark treatment is the 
treatment applicable to purchases by non -accredited companies of inputs that will be used by 
those companies to manufacture the products covered by the PADIS and the PATVD programmes, 
i.e. the obligation to pay  the full amount of the applicable PIS/PASEP and COFINS, or PIS/PASEP -
importation and COFINS -importation contributions, on the purchase of inputs, subject to the 
mechanism of credits and debits under non -cumulati ve regime . In particular, the accredited and  
non-accredited companies purchasing the inputs used to manufacture products are identically 
situated, except for the fact of accreditation. Brazil has not demonstrated the existence of any 
other difference that could explain the differential tax treatment  with respect to the PIS/PASEP and 
COFINS contributions, or PIS/PASEP -importation and COFINS -importation contributions, of these 
products. Thus, the treatment applicable to purchases by non -accredited companies can be 
considered as the benchmark treatment or normal rule of general application.  
Comparison  
7.457.   The Panel now compares the suspensions of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, granted to accredited companies on 
the purchases of inputs, under the PADIS and PATVD programmes, with the treatment identified in 
the previous paragraph, i.e. the treatment applicable to purchases by non -accredited companies of 
inputs.  
7.458.   The Panel notes that under the benchmark treatment, the seller of the inputs w ill always 
charge the PIS/PASEP and COFINS contributions to the non -accredited company buying the 
products, at the moment of the sale, and the non -accredited company buying the products will 
accrue a tax credit in the amount of the PIS/PASEP and COFINS con tributions paid. The seller then 
will remit to the Federal Revenue Service the amount of PIS/PASEP and COFINS contributions 
charged, when it pays its monthly liabilities due on the 25th day of the month following the 
transaction. In turn, the non -accredite d company buying the products will be allowed to use the 
credit it has accrued to offset its PIS/PASEP and COFINS contributions debits when it pays its 
monthly liabilities due on the 25th day of the month following the transaction, i.e. during the same 
taxation period where the seller pays the tax to the Brazilian Government.823 However, if the non -
accredited company buying the products is not able to offset the credit accrued with other debits 
during that taxation period, it will be allowed to offset it duri ng subsequent taxation periods.824 If 
the non -accredited company buying the products is not able to offset the credit after three 
taxation periods, it will be allowed to ask the Brazilian Government for compensation with other 
Federal debits, or reimbursemen t.825 The Brazilian Government has, by law, 360 days to respond 
to the request for compensation or reimbursement. If the Brazilian Government does not respond 
within 360 days, the non -accredited company buying the products will be entitled to receive the 
compensation or reimbursement from the Government, as well as the interests generated.826 It is 
fairly common that companies are not able to offset the full amount of their credits and have to 
request compensation or reimbursement, so this scenario seems rather  frequent.827 
7.459.   Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, the Government will receive the full amount of 
                                                
823 See paragraphs 2.16 to 2.17 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions).  
824 See pa ragraphs 2.19 and 2.20 above. (Although the explanation is given in the context of the IPI 
tax, the same logic also applies to the PIS/PASEP and COFINS contributions) .  
825 See paragraph 2.20 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions).  
826 See paragraph 2.20 above.  
827 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to ac cumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, paras. 758 (DS472) and 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazil ian Industry Confederation, "a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a period over three months." (22.5% of the companies possess tax cr edits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). See Exporters_2012 
study on Brazilian exports – delays in refunds, (Exhibit JE -186), p. 55; and European Union's first written 
submission, fn 849.  WT/DS472/R • WT/DS497/R  
 
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  PIS/PASEP and COFINS contributions due from the seller and the  non-accredited company buying 
the products will be able to offset the amount of PIS/PASEP and COFINS contributions paid during 
the same taxation period. However, if the non -accredited company buying the products is not able 
to offset the credit during the  same taxation period, the Brazilian Government will retain the 
amount of tax paid by the seller until the non -accredited company buying the products is able to 
offset it ( during subsequent taxation periods); or until the Brazilian Government compensates o r 
reimburses the face amount of the credit, without interest, to the non -accredited company buying 
the products (within 360 days of the date for the request for compensation or reimbursement). 
Under this second scenario, the Brazilian Government thus will hold the advantage of cash 
availability or cash flow, along with the associated implicit interest income (revenue) that could be 
generated on the full amount of that tax that it has collected from the seller.828 This cash 
availability and associated implicit  interest can last from one taxation period829 (if the non -
accredited company is able to offset the credit during the second taxation period) to 360 days 
after the request for compensation or reimbursement (if the non -accredited company requests it). 
During this period, the government is able to make use of the taxes received (i.e., "earning" 
implicit interest). So long as the compensation or reimbursement is made to the non -accredited 
company buying the products within 360 days after the request, the Brazili an Government will not 
have to pay the non -accredited company buying the products any interest on the use of the 
buyer's money during that period. Only if 360 days are surpassed is the government obligated to 
compensate or repay to the non -accredited compa ny buying the products not just the face amount 
of the credit but also the associated interest. Thus, it is only after 360 days that the government 
would no longer enjoy the implicit interest revenue from the free use of the buyer's money that is 
blocked i n the form of its credit.830 
7.460.   With respect to imported inputs, the Panel notes that the PIS/PASEP -importation and 
COFINS -importation contributions are collected by the customs authorities from the importer 
during the customs clearance process.831 Therefore, the  Government will enjoy the advantage of 
cash availability or cash flow, along with the associated implicit interest income (revenue) that 
could be generated on the full amount of that tax that is collected, from the moment the product is 
imported until the  moment the non -accredited company buying the product is able to offset the 
credit, or receives compensation or reimbursement (within 360 days of the request). Moreover, 
the Brazilian Government will enjoy the advantage of having charged the additional 1% of 
COFINS -importation contribution that does not generate a tax credit.832  
7.461.   In contrast, pursuant to the challenged treatment under the PADIS and PATVD  
programme s, whereby the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and 
COFINS -importatio n contributions are suspended, the seller will not have to charge the 
contributions to the accredited company buying the products and will not have to remit any 
amount of tax to the Brazilian Government. The accredited company buying the products, in turn,  
will not accrue any credit.833 
                                                
828 According to the  European Union, the benchmark rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
829 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
830 See paragraph 2.20 above and Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 – 
SP (2012/0095341 -6), (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: if there is a claim for 
reimbursement of credits of IPI, PIS /COFINS (in cash or by means of offset against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then such delay in the reimbursement 
gives rise to application of monetary restatement." Also, Brazil has explained tha t "delays in processing 
reimbursement requests can result in financial costs for the government, which may have to pay interest on 
the amount overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's first 
written submission (D S472), paras. 780 and fn 451 (DS497).  
831 See paragraph 2.32 above.  
832 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outside fr om 
the scope of the dispute for the European Union. Brazil's first written submission, paras. 788 -799 (DS472). 
However, the European and Japan are not challenging the imposition of the additional 1%, but the suspensions 
of the applicable rates of COFINS -importation contributions, which includes this 1%.  
833 See paragraph 2.18 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributio ns).  WT/DS472/R • WT/DS497/R  
 
- 162 - 
 
  7.462.   Thus, the Brazilian Government will not receive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction (in the case of 
domestic products), or on the date of importation (in the case of imported products). By the same 
token, it also will not have to allow the accredited company buying the products to offset the 
amount of tax paid.834  
7.463.   If the Panel compares the challenged treatment with the best case scenario for the non -
accredit ed company buying domestic products at issue under the benchmark treatment, where the 
tax is paid to the Government and offset during the same taxation period (in the case of domestic 
products), there would be no revenue foregone by the Brazilian Governmen t, as the government 
would not earn the implicit interest on unused credits. However, if the Panel compares the 
challenged treatment with the rather frequent  scenario where the non -accredited company buying 
the products at issue is not able to offset the t ax credit it has accrued during the same taxation 
period in which the tax is paid, then under the challenged treatment the Government will never be 
able to benefit from the cash availability and implicit interest income, which could have lasted from 
the mo ment of importation (in the case of imported products) or from one taxation period835 (in 
the case of domestic products) to 360 days after the request for compensation or reimbursement, 
under the benchmark treatment. Therefore, under this rather frequent  scenario, the Government 
is foregoing revenue in the form of the implicit interest on the tax revenue collected where the 
offsetting credits have not (yet) been used. Moreover, in the case of imported products, the 
Brazilian Government is foregoing the advant age of the additional 1% of COFINS -importation 
contribution that does not generate a tax credit.836  
7.464.   Furthermore, from the buyer's standpoint, as explained in paragraph 2.17837 above, when 
the accredited company buy ing the inputs sells its finished goods incorporating those products, 
under normal circumstances838 the Brazilian Government ultimately will collect the full amount of 
PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contri butions, corresponding to both the value added by the seller and the value added by the 
accredited company buying the products, i.e., the same nominal amount of contributions that it 
would have received in the absence of the suspensions. This does not, how ever, diminish or 
eliminate the advantage to the accredited company buying the products that it (rather than the 
government) enjoys of the cash availability and associated implicit interest income, due to not 
having to pay the tax to the seller of the prod ucts, from the moment it otherwise would have had 
to pay that tax until the moment it sells its finished good.  
7.465.   Also, a lthough the non -cumulative regime is the general rule  for the PIS/PASEP and 
COFINS contributions839, to the extent that the purchases of the  inputs at issue could be subject to 
the cumulative regime, there would be no mechanism of credits and debits. In this case, if the 
Panel compares the challenged treatment, where the Brazilian Government receives none of the 
PIS/PASEP and COFINS contributi ons that otherwise would have been due, with the treatment 
under the cumulative regime, where the Brazilian Government receives the full amount of 
PIS/PASEP and COFINS contributions due, it is clear that under the challenged treatment the 
Brazilian Governm ent foregoes revenue that is otherwise due  under the cumulative regime . 
h. The exemptions (through zero rates) of the PIS/PASEP and COFINS contributions or 
PIS/PASEP -importation and COFINS -importation contributions on purchases of certain 
capital goods and  computational tools (for purposes of PADIS and PATVD) used to 
                                                
834 See paragraph 2.13 above.  
835 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offse t the credit on the 25th day of the 
next taxation period.  
836 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outside from 
the scope of the dispute for the European Union. B razil's first written submission, paras. 788 -799 (DS472). 
However, the European and Japan are not challenging the imposition of the additional 1%, but the suspensions 
of the applicable rates of COFINS -importation contributions, which includes this 1%.  
837 Although the explanation is given in the context of the IPI tax, the same logic also applies to the 
PIS/PASEP and COFINS contributions.  
838 The Panel notes that normal circumstances might not exist in the case at issue, because under the 
Informatics, PADIS an d PATVD programmes, the finished products manufactured with the raw materials, 
intermediate goods, inputs and packaging materials with the IPI tax exempted or suspended, will also have the 
IPI tax exempted or reduced.  
839 See para graph  2.22 above  WT/DS472/R • WT/DS497/R  
 
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  manufacture the incentivized products, that will be incorporated into the fixed assets 
of the accredited company.  
 
The benchmark treatment  
7.466.   The Panel considers that the appropriate benchmark tre atment is the treatment applicable 
to purchases by non -accredited companies of certain capital goods and computational tools that 
will be used by those companies to manufacture the products covered by PADIS and PATVD, i.e. 
the obligation to pay the full am ount of the applicable PIS/PASEP and COFINS, or PIS/PASEP -
importation and COFINS -importation contributions, on the purchase of certain capital goods and 
computational tools, subject to the mechanism of credits and debits under the non -cumulati ve 
regime .840 In particular, the accredited and non -accredited companies purchasing the capital goods 
and computational tools used to manufacture products are identically situated, except for the fact 
of accreditation. Brazil has not demonstrated the existence of any oth er difference that could 
explain the differential tax treatment with respect to the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, of these products. Thus, the 
treatment applicable to purchases by non -accredited companies can be considered as the 
benchmark treatment or normal rule of general application.  
Comparison  
7.467.   The Panel now compares the suspensions of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contribution s, granted to accredited companies on 
the purchases of certain capital goods and computational tools, under the PADIS and PATVD 
programmes, with the treatment identified in the previous paragraph, i.e. the treatment applicable 
to purchases by non -accredite d companies.  
7.468.   The Panel notes that under the benchmark treatment, the seller of the capital goods and 
computational tools will always charge the PIS/PASEP and COFINS contributions to the non -
accredited company buying the products, at the moment of the sale , and the non -accredited 
company buying the products will accrue a tax credit in the amount of the PIS/PASEP and COFINS 
contributions paid. The seller then will remit to the Federal Revenue Service the amount of 
PIS/PASEP and COFINS contributions charged, when it pays its monthly liabilities due on the 25th 
day of the month following the transaction. In turn, the non -accredited company buying the 
products will be allowed to use the credit it has accrued to offset its PIS/PASEP and COFINS 
contributions debit s when it pays its monthly liabilities due on the 25th day of the month following 
the transaction, i.e. during the same taxation period where the seller pays the tax to the Brazilian 
Government.841 However, if the non -accredited company buying the products i s not able to offset 
the credit accrued with other debits during that taxation period, it will be allowed to offset it during 
subsequent taxation periods.842 If the non -accredited company buying the products is not able to 
offset the credit after three taxation periods, it will be allowed to ask the Brazilian Government for 
compensation with other Federal debits, or reimbursement.843 The Brazilian Government has, by 
law, 360 days to respond to the request for compensation or reimbursement. If the Brazilian 
Government does not respond within 360 days, the non -accredited company buying the products 
will be entitled to receive the compensation or reimbursement from the Government, as well as 
the interests generated.844 It is fairly common that companies are not able to offset the full 
                                                
840 The Panel notes that Law 11,774/2008, art. 1, as amended by Law 12.546/2011, explicitly allows for 
the immediate utilization of credits on purchases of capital goods. The Law states as follows: "The legal 
entities, in case of acquisitio n in the domestic market or of importation of machines and equipment intended 
for the production of goods and the provision of services, may opt for the discount of credits of the 
'Contribuição para o Programa de Integração Social/Programa de Formação do P atrimônio do Servidor Público 
(PIS/Pasep)' and of the 'Contribuição para Financiamento da Seguridade Social (Cofins)' addressed in item III 
of § 1 of art. 3 of Law 10,637, of December 30, 2002, item III of § 1 of art. 3 of Law 10833, of December 29, 
2003, and § 4 of art. 15 of Law 10,865, of April 30, 2004, in the following way: …XII - immediately, in the case 
of acquisitions occurred as of July, 2012." See Brazil's response to Panel's question 23.  
841 See paragraphs. 2.16 to 2.17 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions).  
842 See para graphs  2.19 to 2.20 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions).  
843 See paragraph 2.20 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions).  
844 See paragraph 2.20 above.  WT/DS472/R • WT/DS497/R  
 
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  amount of their credits and have to request compensation or reimbursement, so this scenario 
seems rather frequent.845 
7.469.   Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, the Government will receive the full amount of 
PIS/PASEP and COFINS contributions due from the seller and the non -accredited company buying 
the products will be able to offset the amount of PIS/PASEP and COFINS contributions paid during 
the same taxation period. However, if the non -accredited company buying the products is not able 
to offset the credit during the same taxation period, the Brazilian Government will retain the 
amount of tax paid by the seller until the non -accredited company buy ing the products is able to 
offset it ( during subsequent  taxation periods); or until the Brazilian Government compensates or 
reimburses the face amount of the credit, without interest, to the non -accredited company buying 
the products (within 360 days of t he date for the request for compensation or reimbursement). 
Under this second scenario, the Brazilian Government thus will hold the advantage of cash 
availability or cash flow, along with the associated implicit interest income (revenue) that could be 
generated on the full amount of that tax that it has collected from the seller.846 This cash 
availability and associated implicit interest can last from one taxation period847 (if the non -
accredited company is able to offset the credit during the second taxation p eriod) to 360 days 
after the request for compensation or reimbursement (if the non -accredited company requests it). 
During this period, the government is able to make use of the taxes received (i.e., "earning" 
implicit interest). So long as the compensatio n or reimbursement is made to the non -accredited 
company buying the products within 360 days after the request, the Brazilian Government will not 
have to pay the non -accredited company buying the products any interest on the use of the 
buyer's money during  that period. Only if 360 days are surpassed is the government obligated to 
compensate or repay to the non -accredited company buying the products not just the face amount 
of the credit but also the associated interest. Thus, it is only after 360 days that the government 
would no longer enjoy the implicit interest revenue from the free use of the buyer's money that is 
blocked in the form of its credit.848 
7.470.   With respect to imported capital goods and computational tools, the Panel notes that the 
PIS/PASEP -importa tion and COFINS -importation contributions are collected by the customs 
authorities from the importer during the customs clearance process.849 Therefore, the Government 
will enjoy the advantage of cash availability or cash flow, along with the associated impl icit interest 
income (revenue) that could be generated on the full amount of that tax that is collected, from the 
moment the product is imported until the moment the non -accredited company buying the product 
is able to offset the credit, or receives compen sation or reimbursement (within 360 days of the 
                                                
845 Brazil  acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits d ue are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, paras. 758 (DS472) and 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little mor e than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a period over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). See Exporters_2012 
study on Brazilian exports – delays in refunds, (Exhibit JE -186), p. 55; and European Union's first written 
submission, fn 849.  
846 According to the European Union, the benchmark rate of th e Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
847 This period would be, for instance, of one month, if the Go vernment receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
848 See paragraph 2.20 and footnote  29 above . See also  Appeal Against Split Decision in Interlocutory 
Appeal No. 1.220.942 – SP (2012/0095341 -6) (Exhibit BRA -104), para. 6, stating as follows: "It is a simple 
logic: if there is a claim for reimbursement of credits of IPI, PIS/COFIN S (in cash or by means of offset against 
other taxes) and these credits are acknowledged by the Federal Revenue Office with delay, then such delay in 
the reimbursement gives rise to application of monetary restatement." Also, Brazil has explained that "del ays 
in processing reimbursement requests can result in financial costs for the government, which may have to pay 
interest on the amount overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's 
first written submissions, paras.  780 (DS472) and fn 451 (DS497).  
849 See paragraph 2.32 above.  WT/DS472/R • WT/DS497/R  
 
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  request). Moreover, the Brazilian Government will enjoy the advantage of having charged the 
additional 1% of COFINS -importation contribution that does not generate a tax credit.850  
7.471.   In contrast, pursuant to the  challenged treatment under the PADIS and PATVD  
programme s, whereby the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and 
COFINS -importation contributions are suspended, the seller will not have to charge the 
contributions to the accredited company buying the products and will not have to remit any 
amount of tax to the Brazilian Government. The accredited company buying the products, in turn, 
will not accrue any credit.851 
7.472.   Thus, the Brazilian Government will not receive the amount of tax that w ould have 
otherwise been due on the 25th day of the month following the transaction (in the case of 
domestic products), or on the date of importation (in the case of imported products). By the same 
token, it also will not have to allow the accredited compa ny buying the products to offset the 
amount of tax paid.852 
7.473.   If the Panel compares the challenged treatment with the best case scenario for the non -
accredited company buying domestic products at issue under the benchmark treatment, where the 
tax is paid to th e Government and offset during the same taxation period (in the case of domestic 
products), there would be no revenue foregone by the Brazilian Government, as the government 
would not earn the implicit interest on unused credits. However, if the Panel comp ares the 
challenged treatment with the rather frequent  scenario where the non -accredited company buying 
the products at issue is not able to offset the tax credit it has accrued during the same taxation 
period in which the tax is paid, then under the chall enged treatment the Government will never be 
able to benefit from the cash availability and implicit interest income, which could have lasted from 
the moment of importation (in the case of imported products) or from one taxation period853 (in 
the case of dom estic products) to 360 days after the request for compensation or reimbursement, 
under the benchmark treatment. Therefore, under this rather frequent  scenario, the Government 
is foregoing revenue in the form of the implicit interest on the tax revenue coll ected where the 
offsetting credits have not (yet) been used. Moreover, in the case of imported products, the 
Brazilian Government is foregoing the advantage of the additional 1% of COFINS -importation 
contribution that does not generate a tax credit.854 
7.474.   Furth ermore, from the buyer's standpoint, as explained in paragraph 2.17855 above, when 
the accredited company buying the capital goods and computational tools sells its finished goods 
that were produced using the capi tal goods and computational tools , under normal 
circumstances856 the Brazilian Government ultimately will collect the full amount of PIS/PASEP and 
COFINS contributions, or PIS/PASEP -importation and COFINS -importation contributions, 
corresponding to both the value added by the seller and the value added by the accredited 
company buying the products, i.e., the same nominal amount of contributions that it would have 
received in the absence of the suspensions. This does not, however, diminish or eliminate the 
advantage to the accredited company buying the products that it (rather than the government) 
enjoys of the cash availability and associated implicit interest income, due to not having to pay the 
                                                
850 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outside from 
the scope of the dispute for the European Union. Brazil's first written submissions, para. 788 -799 (DS472). 
However, the European and Japan are not challenging the imposition of the additional 1%, but the suspensions 
of the applicable rates of COFINS -import ation contributions, which includes this 1%.  
851 See paragraph 2.18 above. (Although the explanation is given in the context of the IPI tax, the same 
logic also applies to the PIS/PASEP and COFINS contributions.)  
852 See paragraph 2.13 above.  
853 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
854 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outside from 
the scope of the dispute for the European Union. Brazil' s first written submission, paras. 788 -799 (DS472). 
However, the European and Japan are not challenging the imposition of the additional 1%, but the suspensions 
of the applicable rates of COFINS -importation contributions, which includes this 1%.  
855 Althoug h the explanation is given in the context of the IPI tax, the same logic also applies to the 
PIS/PASEP and COFINS contributions.  
856 The Panel notes that normal circumstances might not exist in the case at issue, because under the 
PADIS and PATVD programmes,  the finished products manufactured with exempted capital goods and 
computational tools will themselves be exempted from the payment of the PIS/PASEP and COFINS 
contributions.  WT/DS472/R • WT/DS497/R  
 
- 166 - 
 
  tax to the seller of the products, from the moment it otherwise would have had to pay that tax 
until the moment it sells its finished good.  
7.475.   Also, a lthough the non -cumulative regime is the general rule for the PIS/PASEP and 
COFINS contributions857, to the extent that the purchases of the capital goods and computational 
tools at issue could be subject to the cumulative regime, there would be no mechanism of credits 
and debits. In this case, if the Panel compares the challenged treatment, where the Brazilian 
Government receives none of the PIS/PASEP and COFINS contributions that otherwise would have 
been due, with the treatment under the cumulative regime, where the Brazilian Government 
receives the full amount of PIS/PASEP and COFINS contributions due, it is clear that under the 
challenged treatment the Brazilian Government foregoes revenue that is otherwise due  under the 
cumulative regime . 
i. The exemptions  (through zero rates)  of the CIDE contributions on remittances sent 
abroad for payment of contracts for the exploitation of patents or use of trademarks 
and for the provis ion of technology and technical assistance for the manufactur ing of 
incentivized products (for purposes of PADIS and PATVD).  
 
The benchmark treatment  
7.476.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applic able to the remittances sent abroad for payment of contracts for the exploitation 
of patents or use of trademarks and for the provision of technology and technical assistance for 
the manufactur ing of products covered by the PADIS and PATVD programmes by no n-accredited 
companies, i.e. the obligation to pay the full amount of the applicable CIDE contributions on 
remittances sent abroad for the payment of contracts related to the manufacturing of the non -
incentivized products . In particular, the accredited and  non-accredited companies entering into 
contracts for the exploitation of patents or use of trademarks and for the provision of technology 
and technical assistance for the manufacturing of their products are identically situated, except for 
the fact of acc reditation. Brazil has provided no evidence demonstrating any other difference that 
could explain the differential CIDE contributions treatment. Thus, the treatment applicable to 
remittances sent abroad for the payment of contacts entered into  by non -accre dited companies 
can be considered the benchmark treatment or normal rule of general application.  
Comparison  
7.477.   The Panel now compares the exemptions granted to accredited companies of the CIDE 
contributions on remittances sent abroad for payment of contracts  for the exploitation of patents 
or use of trademarks and for the provision of technology and technical assistance for the 
manufactur ing of incentivized products, under the PADIS and PATVD programmes, with the 
benchmark treatment identified in the previous  paragraph, i.e. the treatment applicable to 
remittances sent abroad for the payment of contracts enter ed into by non -accredited companies.  
7.478.   The Panel notes that under the benchmark treatment the non -accredited company 
entering into contracts for the exploi tation of patents or use of trademarks and for the provision of 
technology and technical assistance for the manufacturing of their products  will always have to pay 
the CIDE contributions arising from the remittances sent abroad for the payment of those 
contracts . The Brazilian Government will receive the full amount of CIDE contributions from the 
non-accredited company entering into contracts for the exploitation of patents or use of 
trademarks and for the provision of technology and technical assistance fo r the manufacturing of 
their products . 
7.479.   In contrast, pursuant to the challenged treatment under the PADIS and PATVD 
programmes, whereby the contributions are exempted, the non -accredited company entering into 
contracts for the exploitation of patents or use  of trademarks and for the provision of technology 
and technical assistance for the manufacturing of their products will not have to pay any amount 
of contributions to the Brazilian Government.  
                                                
857 See para graph  2.22 above  WT/DS472/R • WT/DS497/R  
 
- 167 - 
 
  7.480.   If the Panel compares the challenged treatment, where the Braz ilian Government receives 
none of the CIDE contributions that otherwise would have been due, with the benchmark 
treatment, where the Brazilian Government receives the full amount of CIDE contributions, it is 
clear that under the challenged treatment the Br azilian Government foregoes revenue that is 
otherwise due. Thus, the Panel finds that, with respect to the exemptions of the CIDE contributions 
granted to accredited companies under the PADIS and PATVD programmes on remittances sent 
abroad for payment of c ontracts for the exploitation of patents or use of trademarks and for the 
provision of technology and technical assistance for the manufactur ing of incentivized products, 
"government revenue that is otherwise due is foregone or not collected".  
j. The exemp tions (through zero rates) of ordinary customs duties on purchases of 
certain capital goods, inputs and computational tools used in the manufacture of 
incentivized products (for purposes of PADIS).  
 
The benchmark treatment  
7.481.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to the purchases of certain inputs, capital goods and computational tools 
used in the manufacture of products covered by the PADIS programme by non -accredited 
companies, i.e. the  obligation to pay the full amount of the applicable ordinary customs duties on 
purchases of certain inputs, capital goods and computational tools. In particular, the accredited 
and non -accredited companies purchasing the inputs, capital goods and computat ional tools are 
identically situated, except for the fact of accreditation. Brazil has provided no evidence 
demonstrating any other difference that could explain the differential CIDE contributions 
treatment. Thus, the treatment applicable to purchases by non-accredited companies can be 
considered the benchmark treatment or normal rule of general application.  
Comparison  
7.482.   The Panel now compares the exemptions granted to accredited companies of the ordinary 
customs duties on purchases of certain inputs, capita l goods and computational tools used in the 
manufacture of incentivized products, under the PADIS programme, with the benchmark treatment 
identified in the previous paragraph, i.e. the treatment applicable to purchases by non -accredited 
companies.  
7.483.   The Pane l notes that under the benchmark treatment the non -accredited company 
purchasing the inputs, capital goods and computational tools will always have to pay the ordinary 
customs duties on purchases of certain inputs, capital goods and computational tools use d in the 
manufacture of incentivized products. The Brazilian Government will receive the full amount of 
ordinary customs duties from the non -accredited company purchasing the inputs, capital goods 
and computational tools.  
7.484.   In contrast, pursuant to the chall enged treatment under the PADIS programme, whereby 
the ordinary customs duties are exempted, the non -accredited company purchasing the inputs, 
capital goods and computational tools will not have to pay any amount of duties to the Brazilian 
Government.  
7.485.   If the Panel compares the challenged treatment, where the Brazilian Government receives 
none of the ordinary customs duties that otherwise would have been due, with the benchmark 
treatment, where the Brazilian Government receives the full amount of ordinary cu stoms duties, it 
is clear that under the challenged treatment the Brazilian Government foregoes revenue that is 
otherwise due. Thus, the Panel finds that, with respect to the exemptions of ordinary customs 
duties granted to accredited companies under the p rogramme on the purchases of inputs, capital 
goods and computational tools used in the manufacture of incentivized products, "government 
revenue that is otherwise due is foregone or not collected".  
Reasons for the difference in tax treatment  
7.486.   Finally, with respect to the Panel's obligation to take into consideration the reasons for the 
difference in tax treatment, the Panel recalls that, according to Brazil and the relevant Explanatory WT/DS472/R • WT/DS497/R  
 
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  Memoranda, the stated aim of the Informatics programme858 is to develop tec hnology -based 
industries in Brazil. In the case of PADIS859, the stated aim is to encourage the setting -up in Brazil 
of companies involved in the conception, development, design and manufacturing of electronic 
semiconductor devices and displays. In the case of PATVD860, it is to encourage the setting -up in 
Brazil of companies involved in the development and manufacturing of radio -frequency transmitter 
equipment for digital television. In the case of Digital Inclusion861, the stated aim is to increase the 
access o f the Brazilian population to computers and information technology products. Brazil also 
argues in this dispute that the tax suspensions and exemptions on the purchases of inputs and 
capital goods under the Informatics, PADIS and PATVD programmes are a tax  administration 
measure to prevent the accumulation of tax credits by companies whose final products are 
exempted or subject to low taxation, and that would not able to generate enough tax debits to 
offset the tax credits generated. Even if such considerat ion may appear reasonable, at least in 
principle, there is no evidence on the record, including in all the legal instruments examined, 
indicating that the policy basis for such tax treatment in the challenged programmes is, in fact, the 
prevention of the a ccumulation of tax credits. Moreover, other  companies that are credit -
accumulating companies cannot qualify for the suspensions, while other companies that might 
qualify for the suspensions are not credit -accumulating companies.862 
7.487.   The Panel notes that the a lleged reasons relate to objectives of setting up and developing 
technology -based industries in Brazil, and giving access to those products to the population. The 
Panel does not see any reason why these alleged reasons could impact the Panel's findings wit h 
respect to the comparison between the challenged tax treatment and the benchmark treatment.  
7.3.5.3.3.3   Conclusion on whether the tax exemptions, reductions and suspensions 
granted under the ICT programmes constitute financial contributions in the form of 
"governme nt revenue that is otherwise due is foregone or not collected"  
7.488.   In light of the above, the Panel concludes that each of the challenged tax reductions and 
exemptions granted to accredited companies on the sales of the finished goods  that they produce  
(under the Informatics, PATVD and Digital Inclusion programmes) constitute financial contributions 
where "government revenue that is otherwise due is foregone or not collected".  
7.489.   The Panel also concludes that each of the challenged tax exemptions and reductions 
granted to accredited companies on the sales of the intermediate goods that they produce (under 
the Informatics and PADIS programmes) constitute financial contributions where "government 
revenue that is otherwise due is foregone or not collected".  
7.490.   The Panel concludes, as well, that each of the challenged tax suspensions and exemptions 
granted to accredited companies on its purchases of raw materials, intermediate goods and 
packaging materials  (under the Informatics programme) and inputs, capital goods and 
computational tools  (under the PADIS and PATVD programmes) constitute financial contributions 
where "government revenue that is otherwise due is foregone or not collected".  
7.3.5.3.4   Whether the financial contributions granted under the ICT programmes confer 
a benefit  
7.491.   Several panels have concluded that, whenever there is revenue foregone by the 
government, a benefit is conferred.863 Having concluded that the tax treatments at issue constitute 
financial contributions where "government revenue that is otherwise due is foreg one or not 
collected", the Panel concludes that the subsidies at issue confer a benefit.  
                                                
858 Brazil's first written  submission, paras. 107 (DS472) and 79 (DS497).  
859 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 2.  
860 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 7.  
861 Brazil's first written submission, p aras. 469 (DS472) and 405 (DS497).  
862 See paragraphs 7.1168  and 7.1169  below.  
863 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.169 -7.171.  See also:  Panel Reports, 
Canada – Renewable Energy / Canada – Feed-in Tariff Program, fn 509; US – FSC, para. 7.103; and US – FSC 
(Article 21.5 – EC), paras. 8.44 -8.48; and Appellate Body Reports, US – FSC, para. 140; and US – FSC (Article 
21.5 – EC), para. 198.  WT/DS472/R • WT/DS497/R  
 
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  7.492.   With respect to the tax reductions and exemptions granted to accredited companies on the 
sales of the finished goods  that they produce, it is clear that, by not having  to pay the full amount 
of taxes and contributions concerned, the buyers of the incentivized products under the 
Informatics, PATVD and Digital Inclusion programmes are better off with the exemptions and 
reductions than in the benchmark scenario of having t o pay the full amount of taxes or 
contributions concerned on their purchases on non -incentivized products.  
7.493.   With respect to the tax exemptions and reductions granted to accredited companies on the 
sales of the intermediate goods that they produce, it is al so clear that, by retaining the advantage 
of cash availability, the buyers of the incentivized products under the Informatics and PADIS 
programmes are better off with the exemptions than in the benchmark scenario of having to pay 
the full amount of taxes o r contributions on their purchases of non -incentivized products.  
7.494.   Finally, with respect to the tax suspensions and exemptions granted to accredited 
companies on purchases of raw materials, inputs, intermediate goods, packaging materials, capital 
goods and computational tools, it is clear that, by retaining the advantage of cash availability, the 
accredited companies under the Informatics, PADIS and PATVD programmes buying the inputs, 
capital goods and computational tools are better off with the exemptions a nd suspensions than in 
the benchmark scenario of having to pay the full amount of taxes or contributions on their 
purchases of raw materials, inputs, intermediate goods, packaging materials, capital goods and 
computational tools.  
7.3.5.3.5   Conclusion on whether the tax exemptions, reductions and suspensions 
granted under the ICT programmes constitute subsidies within the meaning of Article 1 
of the SCM Agreement  
7.495.   Having concluded that the tax exemptions, reductions and suspensions granted under the 
ICT programmes con stitute financial contributions in the form of "government revenue that is 
otherwise due is foregone or not collected", through which a benefit is conferred, the Panel 
concludes that the measures at issue constitute subsidies within the meaning of Article 1 of the 
SCM Agreement.  
7.3.5.4   Whether the subsidies granted under the ICT programmes are specific within 
the meaning of Article 2 of the SCM Agreement  
7.496.   Article 1.2 of the SCM Agreement states as follows:  
 A subsidy as defined in paragraph 1 shall be subject to th e provisions of Part II or 
shall be subject to the provisions of Part III or V only if such a subsidy is specific in 
accordance with the provisions of Article 2.  
7.497.   Article 2.3 of the SCM Agreement states as follows:  
 Any subsidy falling under the provisions of Article 3 shall be deemed to be specific.  
7.498.   Pursuant to these provisions, a subsidy falling within the meaning of Article 1.1 of the SCM 
Agreement will be subject to the provisions of Part II (prohibited subsidies) if such a subsidy is 
specific, and a sub sidy that is prohibited under the provisions of Article 3 shall be deemed to be 
specific  
7.499.   Because the Panel has already concluded that the conditions for receiving the subsidies 
granted under the ICT programmes involve contingency upon the use of domestic o ver imported 
goods in the sense of Article 3.1(b) of the SCM Agreement, the Panel also concludes, ipso facto, 
that pursuant to Article 2.3, the subsidies granted under the ICT programmes are specific, and 
thus subject to the provisions of Part II of the SC M Agreement.  
7.3.5.5   Conclusion  
7.500.   In light of the foregoing, the Panel concludes that the exemptions, reductions and 
suspensions granted under the Informatics, PADIS, PATVD and Digital Inclusion programmes are 
subsidies within the meaning of Article 1.1 of the SCM A greement and contingent upon the use of WT/DS472/R • WT/DS497/R  
 
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  domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement864, and 
thus are prohibited subsidies, inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.  
7.501.   The Panel would like to clar ify that it has concluded that the subsidies at issue are 
prohibited because, based on the specific facts of this dispute, these subsidies are contingent upon 
the use of domestic over imported goods. However, the Panel is not saying with this that Brazil, or 
any other WTO Member, is not allowed to grant subsidies exclusively to their domestic producers 
with the aim of fostering the development of their industries.  
7.502.   In fact, the SCM Agreement prohibits (only) subsidies contingent upon the use of domestic 
over imported goods, or upon export performance, because those types of subsidies are 
particularly trade -distorting.  
7.503.   This means that Members are allowed to grant non -prohibited specific subsidies, 
exclusively to their domestic producers, without implicating th e national treatment obligation 
contained in Article III of the GATT 1994. While as a general matter such non -prohibited subsidies 
are subject to the disciplines in Part III of the SCM Agreement in respect of the adverse effects865 
that those subsidies may c ause to the interests of other Members, and subject as well to the 
possibility of countervailing action by other Members pursuant to Part V of that Agreement, they 
remain permitted. As the specificity provisions of Article 2 of the SCM Agreement make clear , it is 
permissible to aim such subsidies at an enterprise or industry, or a group of enterprises or 
industries, such as the ICT and the automotive sectors (again subject to the disciplines regarding 
adverse effects and a potential countervailing action).  
7.504.   In the context of this dispute involving subsidies of a developing Member, it is particularly 
worth recalling that while the prohibitions in Part II of the SCM Agreement, and the provisions 
concerning countervailing measures in Part V of that Agreement, a re fully applicable to developing 
Members, the applicability of the adverse effects disciplines in Part III is considerably limited by 
the special and differential treatment provisions of the SCM Agreement. In particular, claims of 
serious prejudice cannot  be brought in respect of developing Members' subsidies.866 This provides 
developing Members with a considerably expanded scope of possibilities for providing subsidies, 
due to the considerably reduced possible repercussions.  
7.505.   Thus, a developing Member can p rovide subsidies for the development of such domestic 
industries, and without concern for whether those subsidies may cause serious prejudice to other 
Members' interests, so long as it does not condition those subsidies on the use of domestic goods, 
or on exportation. For example, a subsidy could be given separately to domestic producers of parts 
and components and to domestic producers of final products that use those parts and components, 
so long as the latter subsidy is not conditioned on the use of the domestic parts and components 
(or other domestic goods, or on exportation) in the production of the subsidized final products. If 
the subsidy to the producers of parts and components improved the price competitiveness of those 
products vis-à-vis imported p roducts, any serious prejudice resulting from this situation could not 
be challenged.  
7.506.   Of course, all Members also are free to provide non -specific subsidies, which are not 
covered by the SCM Agreement at all. In this regard, Article 2.1(b) establishes tha t subject to 
certain requirements, subsidies provided pursuant to objective conditions and criteria, such as 
number of employees or size of enterprise, are non -specific.867 Thus, in principle, subsidies for 
small and medium enterprises could be designed in s uch a way as to fall outside the scope of the 
SCM Agreement entirely.  
                                                
864 See paragraphs 7.259  to 7.261  above.  
865 I.e. injury to domestic industry of another signatory, nullification or impairment of benefits accruing 
directly or indirectly  to other Members under the GATT 1994, or serious prejudice to the interests of another 
member. See Article 5 of the SCM Agreement.  
866 Article 27.9 of the SCM Agreement. This special and differential treatment provision underscores that 
the drafters of the  rules wished to allow considerable flexibility to developing Members to provide subsidies.  
867 So long as eligibility is automatic and the criteria and conditions are strictly adhered to. Objective 
criteria or conditions are conditions that are neutral, do not favour certain enterprises over others, and are 
economic in nature and horizontal in application.   WT/DS472/R • WT/DS497/R  
 
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  7.507.   In sum, the SCM Agreement leaves policy space for WTO Members – particularly 
developing Members – to devise WTO -consistent programmes to grant subsidies exclusively to 
their domestic pro ducers, to foster, through those subsidies, the development of their industries 
and to pursue other policy goals.  
7.3.6   Brazil's invocation of Article XX(a) of the GATT 1994 to justify certain 
inconsistencies in respect of the PATVD programme  
7.3.6.1   Introduction  
7.508.   In res pect of the PATVD programme, Brazil argues that there is no inconsistency with any 
provisions of the GATT 1994 or the TRIMs Agreement. Brazil also argues that, in the event the 
Panel does make any findings of inconsistency, such inconsistency is neverthele ss justified under 
subparagraph (a) of Article XX of the GATT 1994, which refers to measures "necessary to protect 
public morals".  
7.509.   Additionally, Brazil argues that in the event the Panel does make any findings of 
inconsistency under Article 2.1 of the TRI Ms Agreement, resulting from findings of inconsistency in 
respect of Article III of the GATT 1994, since the Article III inconsistencies are "justified under 
Article XX(a) … there would … be no violation of the TRIMs Agreement".868 Brazil has not raised 
any Article XX defence with regard to alleged inconsistencies with the SCM Agreement.  
7.510.   As an initial matter, the Panel highlights the Appellate Body's statements that "the aspects 
of a measure to be justified under the subparagraphs of Article XX are those that  give rise to the 
finding of inconsistency under the GATT 1994".869 The Appellate Body has further clarified in the 
context of Article XIV of the GATS, governing the general exceptions applicable in the context of 
the GATS, that:  
[I]n order for a panel prop erly to conduct its assessment under Article XIV of the 
GATS, it should be clear from the panel's analysis that, with respect to each individual 
measure, the aspects of the measure addressed are the same as those that gave rise 
to its earlier finding of in consistency. This is because a respondent may not justify the 
inconsistency of a measure by basing its defence on aspects of that measure different 
from those that were found by the panel to be inconsistent with a provision of the 
GATS.870 
7.511.   Therefore the aspe cts of the PATVD programme to be justified under Article XX(a) are 
those that the Panel found to be inconsistent with Article III of the GATT 1994, namely:  
a. Those aspects of the PATVD programme that have been found to discriminate against 
imported finished  products in favour of like domestic finished products, inconsistently 
with Articles III:2 and III:4; and  
b. Those aspects of the PPB under the PATVD programme that have been found to 
discriminate by incentivising the use of domestic input products over like imported input 
products, in the production of finished products that receive the tax treatment available 
under the programme, inconsistently with Article III:4.  
7.3.6.2   Description of the legal test  
7.512.   Article XX(a) of the GATT 1994 provides as follows:  
                                                
868 Brazil's first written submissions, para. 461 (DS472) and para. 398 (DS497).  
869 Appellate Body Report, EC – Seal Products , para. 5.185. Additionally, in Thailand – Cigarettes 
(Philippines) , the Appellate Body observed that:  
[W]hen Article XX(d) is invoked to justify an inconsistency with Article III:4, what must be shown 
to be "necessary" is the treatment giving rise to the finding of less favourable t reatment. Thus, 
when less favourable treatment is found based on differences in the regulation of imports and of 
like domestic products, the analysis of an Article XX(d) defence should focus on whether those 
regulatory differences are "necessary". Appellat e Body Report, Thailand – Cigarettes 
(Philippines) , para. 177.  
870 Appellate Body Report, Argentina – Financial Services , para. 6.169.  WT/DS472/R • WT/DS497/R  
 
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  Subject to th e requirement that such measures are not applied in a manner which 
would constitute a means of arbitrary or unjustifiable discrimination between countries 
where the same conditions prevail, or a disguised restriction on international trade, 
nothing in this  Agreement shall be construed to prevent the adoption or enforcement 
by any contracting party of measures:  
(a) necessary to protect public morals;  
7.513.   The Appellate Body has explained that:  
[T]he assessment of a claim of justification under Article XX involve s a two -tiered 
analysis in which a measure must first be provisionally justified under one of the 
subparagraphs of Article XX, before it is subsequently appraised under the chapeau of 
Article XX.871 
7.514.   According to the Appellate Body, the burden of proving that  a measure is justified under 
Article XX rests on the party invoking that defence.872 Specifically, the party invoking the defence 
bears the burden of proving not only that a measure is provisionally justified under a 
subparagraph of Article XX, but that the  measure is consistent with the requirements of the 
chapeau of Article XX.873 The Appellate Body has indicated, however, that  
[T]he nature and scope of arguments and evidence required to establish a prima facie  
case will necessarily vary according to the fa cts of the case, and from measure to 
measure, provision to provision, and case -to-case. Moreover, these rules and 
principles of WTO jurisprudence must not be applied in an unduly formalistic or 
mechanistic fashion, nor inhibit the substantive analysis that  must be undertaken by a 
panel.874  
7.515.   Article XX of the GATT 1994 therefore involves a two -tiered analysis. First, a panel must 
assess whether the measure at issue is provisionally justified under the subparagraph of Article XX 
invoked. Second, if the panel fi nds that the measure is provisionally justified, it must examine 
whether the application of the measure satisfies the requirements of the chapeau of Article XX.  
7.3.6.2.1   Provisional justification under Article XX(a)  
7.516.   The Appellate Body in Colombia – Textiles recall ed from previous jurisprudence that, 
generally speaking:  
[P]rovisional justification under one of the paragraphs of Article XX requires that a 
challenged measure "address the particular interest specified in that paragraph", and 
that "there be a sufficien t nexus between the measure and the interest protected". 
"The required nexus – or 'degree of connection' – between the measure and the 
interest is specified in the language of the paragraphs themselves, through the use of 
terms such as 'relating to' and 'n ecessary to'" in Article XX.875  
7.517.   Specifically with respect to Article XX(a), the Appellate Body stated in Colombia – Textiles 
that "[i]n order to establish whether a measure is justified under Article XX(a), the analysis 
proceeds in two steps. First the meas ure must be 'designed' to protect public morals. Second, the 
measure must be 'necessary' to protect such public morals."876 
                                                
871 Appellate Body Report, EC – Seal Products , para. 5.169. (footnotes omitted) This sequence of steps, 
as the Appellate Body  had previously noted, does not reflect "inadvertence or random choice but rather the 
fundamental structure and logic of Article XX of the GATT 1994". Appellate Body Report , China – Rare Earths , 
para. 5.86 (referring to Appellate Body Report, US – Shrimp , para. 119).  
872 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323, at p. 335.  
873 Appellate Body Report, US – Gasoline , pp. 22 -23, DSR 1996:I, 3, at pp. 21 -23. 
874 Appellate Body Report, US – Tuna II (Article 21.5 - Mexico) , para. 7.33.  
875 Appellate Body Report, Colombia – Textiles , para. 5.67 (referring to Appellate Body Reports, EC – 
Seal Products , para. 5.169; US – Gambling , para. 292).  
876 Appellate Body Report, Colombia – Textiles , para. 5.67. (footnotes omitted)  WT/DS472/R • WT/DS497/R  
 
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  7.518.   In order to determine whether a particular measure is "designed " to protect public morals, 
the Appellate Body in Colombia – Textiles explained that:  
With respect to the analysis of the "design" of the measure, the phrase "to protect 
public morals" calls for an initial, threshold examination in order to determine whether 
there is a relationship between an otherwise GATT -inconsistent meas ure and the 
protection of public morals. If this initial, threshold examination reveals that the 
measure is incapable of protecting public morals, there is not a relationship between 
the measure and the protection of public morals that meets the requiremen ts of the 
"design" step. In this situation, further examination with regard to whether this 
measure is "necessary" to protect such public morals would not be required. This is 
because there can be no justification under Article XX(a) for a measure that is not 
"designed" to protect public morals. However, if the measure is not incapable of 
protecting public morals, this indicates the existence of a relationship between the 
measure and the protection of public morals. In this situation, further examination of  
whether the measure is "necessary" is required under Article XX(a).877 
7.519.   In performing this "threshold examination", a panel must therefore assess whether the 
claimed objective is a "public morals" objective within the meaning of Article XX(a), and whether 
the measure is "designed" to protect that objective (in other words, whether the measure is not 
incapable of contributing to that objective).  
7.520.   The concept of "public morals" has been addressed by WTO panels in the past. The panel 
in Colombia – Textiles , in a  finding that was not appealed regarding the determination of whether 
a particular objective is a "public morals" objective or not, summarised the jurisprudence as 
follows:  
In interpreting the concept of "public morals" for the first time, [the panel in US – 
Gambling ] pointed out that the expression "denotes standards of right and wrong 
conduct maintained by or on behalf of a community or nation", and that its content for 
Members "can vary in time and space, depending upon a range of factors, including 
prevailing social, cultural, ethical and religious values". The panel also noted that  
Members, in applying similar societal concepts, have the right to determine the level 
of protection that they consider appropriate and added that Members should be given 
some scope to define and apply for themselves the concept of "public morals" in their 
respective territories, according to their own systems and scales of values.  
The panel in China – Publications and Audiovisual Products , in interpreting 
Article  XX(a) of the  GATT 1994 for the first time, adopted the interpretation of "public 
morals" proposed by the panel in US – Gambling . The panel considered that 
Article  XX(a) of the GATT 1994 and Article  XIV(a) of the GATS use the same concept 
and saw no reason to depart fr om the interpretation proposed in US – Gambling . 
The panel in EC – Seal Products  also interpreted the term "public morals" within the 
meaning of Article  XX (a) of the GATT 1994. The panel pointed out that the 
assessment of the scope of the expression sugge sts that "WTO Members are afforded 
a certain degree of discretion in defining the scope of 'public morals' with respect to 
various values prevailing in their societies at a given time."  The panel added that:  
[T]he question of whether a measure aims to addr ess public morals 
relating to a particular concern in the society of a regulating Member 
requires ... an assessment of two issues: first, whether the concern in 
question indeed exists in that society; and, second, whether such concern 
falls within the scop e of "public morals" as "defined and applied" by a 
regulating Member "in its territory, according to its own systems and 
scales of values".  
However, the Appellate Body in EC – Seal Products  made it clear that it did not 
consider that the term "to protect",  when used in relation to "public morals" under 
                                                
877 Appellate Body Repo rt, Colombia – Textiles , para. 5.68. (footnotes omitted)  WT/DS472/R • WT/DS497/R  
 
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  Article  XX(a), required the panel to identify the existence of a risk to public moral 
concerns, and that it had difficulty in accepting that a panel is required to identify the 
exact content of the public mor als standard at issue.878 
7.521.   Policies covered under the public morals exception in past disputes have addressed issues 
such as money laundering, organized crime, fraud, underage gambling, and pathological 
gambling879; content review to prevent the dissemination o f cultural goods with a content that has 
a negative impact on a Member's public morals880; and public concerns related to seal welfare.881 
7.522.   If a panel determines that a particular claimed objective is indeed a public morals objective 
within the meaning of Artic le XX(a), the panel must determine whether the measure is designed  to 
achieve that objective. As described above, the Appellate Body has explained that the standard for 
whether or not a measure is "designed to protect" public morals is whether the measure is "not 
incapable" of protecting that objective.882 The Appellate Body has further explained that "[i]n order 
to determine whether such a relationship exists, a panel must examine evidence regarding the 
design of the measure at issue, including its content, structure, and expected operation."883 
Furthermore, the Appellate Body explained that "in the context of the 'design' step of the analysis, 
a panel is not precluded from taking into account evidence and considerations that may also be 
relevant to the examina tion of the contribution of the measure in the context of the 'necessity' 
analysis".884 
7.523.   Nevertheless, the Appellate Body also explained that it does "not see the examination of 
the 'design' of the measure as a particularly demanding step … By contrast, the a ssessment of the 
'necessity' of a measure involves a more in -depth, holistic analysis".885 Additionally, the Appellate 
Body explained that:  
[O]nce an analysis of the "design " of a measure reveals that the measure is not 
incapable of protecting public morals,  such that there is a relationship between the 
measure and the protection of public morals, a panel may not refrain from conducting 
the "necessity " step of the analysis. The Appellate Body has emphasized that "[a] 
panel must not … structure its analysis of  the ["design" step] in such a way as to lead 
it to truncate its analysis prematurely and thereby foreclose consideration of crucial 
aspects of the respondent's defence relating to the 'necessity' analysis."886 
7.524.   Thus, if a measure is found to be designed to p rotect a public morals objective, the panel 
must assess whether or not the measure is "necessary" to protect public morals. The analysis of 
the term "necessary" in the context of the general exceptions has evolved in the WTO 
jurisprudence over time. The Ap pellate Body in EC – Seal Products  found that the analysis of 
necessity under Article XX of the GATT 1994 consists of the following:  
[A] necessity analysis involves a process of "weighing and balancing" a series of 
factors, including the importance of the  objective, the contribution of the measure to 
that objective, and the trade -restrictiveness of the measure. The Appellate Body has 
                                                
878 Panel Report, Colombia – Textiles , paras. 7.299 -7.302 (referring to Appellate Body Reports, EC –
 Seal Products , paras. 5.198 -5.199; and Panel Reports, US – Gambling , paras. 6.465 and 6.461; China – 
Publications and Audiovisual Products , para. 7.759; EC – Seal Products , paras. 7.380 -7.381 and 7.383).  
879 Panel Report, US – Gambling , paras. 6.481 -6.487.  
880 Appellate Body Report, China – Publications and Audiovisual Products , paras. 206 -233.  
881 Panel Rep ort, EC – Seal Product s, paras. 7.415 -7.421 and 7.631.  
882 Appellate Body Report, Colombia – Textiles , para. 5.68.  
883 Appellate Body Report, Colombia – Textiles , para. 5.69 (referring to Appellate Body Reports, US – 
Shrimp , paras. 135 -142; and EC – Seal Produ cts, para. 5.144).  
884 Appellate Body Report, Colombia – Textiles , para. 5.76. The Panel notes that in EC – Seal Products 
the Appellate Body followed (and upheld) the panel's approach of determining the precise objective of the 
relevant measure. See Appellat e Body Report, EC – Seal Products , paras. 5.133 -5.167. See also Panel Report, 
EC – Seal Products , paras. 7.357 -7.411. However, in light of the Appellate Body's decision in Colombia – 
Textiles , the Panel understands that a comprehensive analysis of the prec ise objectives of the measure is not 
required, and that a panel need only assess whether the discriminatory aspects of the measure are "not 
incapable" of contributing to the stated objective claimed by the responding party invoking Article XX. 
Appellate Bo dy Report, Colombia – Textiles , paras. 5.70 and 5.76.  
885 Appellate Body Report, Colombia – Textiles , para. 5.70.  
886 Appellate Body Report, Colombia – Textiles , para. 5.77 (referring to Appellate Body Report, 
Argentina  – Financial Services , para. 6.203).  WT/DS472/R • WT/DS497/R  
 
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  further explained that, in most cases, a comparison between the challenged measure 
and possible alternatives should then be undertaken. As the Appellate Body has 
stated, "[i]t is on the basis of this 'weighing and balancing' and comparison of 
measures, taking into account the interests or values at stake, that a panel 
determines whether a measure is 'necessary' or, alternativel y, whether another, WTO -
consistent measure is 'reasonably available'". Such an analysis, the Appellate Body 
has observed, involves a "holistic" weighing and balancing exercise "that involves 
putting all the variables of the equation together and evaluating  them in relation to 
each other after having examined them individually, in order to reach an overall 
judgement".887 
7.525.   Therefore, the first element that a panel should consider when analysing whether a 
measure is "necessary" to protect public morals is the imp ortance of the interests or values that 
the measure is intended to protect. The Appellate Body in Korea – Various Measures on Beef , in 
the context of interpreting the "necessity" test in Article XX(d), concluded that the more vital or 
important those inter ests or values are, the easier it would be to accept as "necessary" a measure 
otherwise found to be inconsistent with the GATT 1994.888 
7.526.   A second element to be "weighed and balanced" is the contribution of the measure to the 
objective pursued. A panel's asses sment of the contribution shall be guided by the particular 
circumstances of the case and the evidence at issue.889 In Brazil – Retreaded Tyres , the Appellate 
Body stated that "a contribution exists when there is a genuine relationship of ends and means 
between the objective pursued and the measure at issue".890  
7.527.   As regards the existence of a particular methodology that a panel should follow to assess 
the contribution of a measure, the Appellate Body stated as follows:  
The selection of a methodology to assess a  measure's contribution is a function of the 
nature of the risk, the objective pursued, and the level of protection sought. It 
ultimately also depends on the nature, quantity, and quality of evidence existing at 
the time the analysis is made. Because the P anel, as the trier of the facts, is in a 
position to evaluate these circumstances, it should enjoy a certain latitude in 
designing the appropriate methodology to use and deciding how to structure or 
organize the analysis of the contribution of the measure at issue to the realization of 
the ends pursued by it. This latitude is not, however, boundless. Indeed, a panel must 
analyze the contribution of the measure at issue to the realization of the ends pursued 
by it in accordance with the requirements of Artic le XX of the GATT 1994 and Article 
11 of the DSU.891 
7.528.   The Appellate Body also clarified that there is not a "generally applicable standard 
requiring the use of a pre -determined threshold of contribution in analysing the necessity of a 
measure under Article XX  of the GATT 1994".892 However, "the greater the contribution, the more 
easily a measure might be considered to be 'necessary'."893 The Appellate Body further confirmed 
that a panel's contribution analysis "can be done either in quantitative or in qualitative terms".894 
In this connection, the Appellate Body noted that, in cases where a measure is part of a broader 
policy, it might be difficult in the short term to isolate the contribution of that specific measure to 
the objective pursued, from that attributable to other measures that are part of the same policy. It 
further added that the contribution of a measure might not be perceived immediately but only over 
                                                
887 Appellate Body Report, EC – Seal Products , para. 5.214 (referring to Appellate Body Reports, EC – 
Seal Products , para. 5.169; Brazil – Retreaded Tyres , para. 182; and US – Gambling , para. 307 (referring to 
Appellate Body Report, Korea – Various Measures on Beef, para. 166)). See also Appellate Body Report, 
Colombia – Textiles , paras. 5.70 -5.75. 
888 Appellate Body Report, Korea - Various Measures on Beef , para. 162.  
889 Appellate Body Report, EC – Seal Products , para. 5.211.  
890 Appellate Body Report, Brazil – Retreaded Tyres , para. 145.  
891 Appellate Body Report, EC – Seal Products , para. 5.210 (referring to Appellate Body Report, Brazil – 
Retreaded Tyres , para. 145).  
892 Appellate Body Report, EC – Seal Products , para. 5.213.  
893 Appellate Body Report, Korea - Various Me asures on Beef , para. 163.  
894 Appellate Body Report, Brazil – Retreaded Tyres , para. 146.  WT/DS472/R • WT/DS497/R  
 
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  time, and that an estimation of a measure's contribution can be made in terms of how "apt" the 
measure is to contribute to the relevant objective.895  
7.529.   A third element to be "weighed and balanced" is the level of trade -restrictiveness of the 
measure. The Appellate Body in China – Publications and Audiovisual Products  stated that "[t]he 
less restrictive the eff ects of the measure, the more likely it is to be characterized as 
'necessary '".896 It further added that if a Member decides to adopt a highly trade -restrictive 
measure, "it will have to ensure that the measure is carefully designed so that the other element s 
to be taken into account in weighing and balancing the factors relevant to an assessment of the 
'necessity' of the measure will 'outweigh' such restrictive effect."897 
7.530.   The Appellate Body has indicated that "in principle a panel must assess the restrictive 
effect of a measure on international commerce".898 However, the Appellate Body did not dismiss 
the possibility that this assessment could extend beyond the restrictive effects on imported 
products given that "this assessment must be undertaken in the light o f the measure at issue, the 
specific obligation of the covered agreements that the measure infringes, and the defence being 
invoked."899 
7.531.   Finally, the necessity analysis typically requires a determination as to "whether a WTO -
consistent alternative measure wh ich the Member concerned could 'reasonably be expected to 
employ' is available, or whether a less WTO -inconsistent measure is 'reasonably available'".900 The 
Appellate Body has indicated that "whether a measure is 'necessary' cannot be determined by the 
level of contribution alone, but will depend on the manner in which the other factors of the 
necessity analysis, including a consideration of potential alternative measures, inform the 
analysis."901 The Appellate Body has also clarified that:  
While there may be  circumstances in which a weighing and balancing exercise would 
not require that a panel proceed to evaluate alternative measures …, we also do not 
consider that such an exercise mandates a preliminary determination of the necessity 
of the challenged measu re before proceeding to assess those alternatives … We 
therefore disagree with [the] assertion that a preliminary determination of necessity is 
required before proceeding to compare the challenged measure with possible 
alternatives.902  
                                                
895 Appellate Body Report, Brazil – Retreaded Tyres , para. 151. See also Appellate Body Report, EC – 
Seal Products , para. 5.213.  
896 Appellate Body Report, China – Public ations and Audiovisual Products , para. 310. See also Appellate 
Body Reports, Korea - Various Measures on Beef , para. 163; and Brazil – Retreaded Tyres , para. 150.  
897 Appellate Body Report, China – Publications and Audiovisual Products , para. 310.  
898 Appellate  Body Report, China – Publications and Audiovisual Products , para. 306.  
899 Appellate Body Report, China – Publications and Audiovisual Products , para. 306. In that dispute, the 
panel took into consideration not just the restrictive effect of the Chinese me asures on imports but also on 
beneficiaries of the right to trade. The Appellate Body upheld the panel's findings in this regard.  
900 Appellate Body Report, Korea – Various Measures on Beef , para. 166.  
901 Appellate Body Report, EC – Seal Products , para. 5.215 . 
902 Appellate Body Report, EC – Seal Products , fn 1299. (referring to Appellate Body Reports, US – 
Gambling , paras. 306 and 307; Brazil – Retreaded Tyres , paras. 156 and 178; and China – Publications and 
Audiovisual Products , para. 241 (stating that if a p anel reaches a preliminary conclusion that a measure is 
necessary, this result must be confirmed by comparing the measure with possible alternatives)). See also 
Appellate Body Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 5.229, stating in r espect of an 
analysis of the "necessity" of a particular measure that:  
[T]he particular manner of sequencing the steps of this analysis is adaptable, and may be 
tailored to the specific claims, measures, facts, and arguments at issue in a given case.  
Accordingly, panels are afforded a certain degree of latitude to tailor the sequence and order of 
analysis in a given case when assessing the relevant factors and conducting the overall weighing 
and balancing under Article 2.2 [of the TBT Agreement]. This lat itude, however, is not boundless. 
Rather, it is informed by the specific claims, measures, facts, and arguments at issue, as 
mentioned above. For instance, while the particular circumstances of a given case may call for 
"preliminary conclusions" on the nec essity of the trade -restrictiveness of the challenged measure 
before proceeding to a comparison with an alternative, such preliminary determinations are not 
mandatory, and may not be appropriate in the circumstances of other cases. (footnotes omitted)  
The Panel considers this guidance relevant for an assessment of necessity under Article XX. The Panel notes 
that prior to making its statement above in the context of Article 2.2 of the TBT Agreement, the Appellate Body 
reviewed its jurisprudence in respect o f the necessity test under Article XX. See Appellate Body Reports, US – WT/DS472/R • WT/DS497/R  
 
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  7.532.   The Appellate Body es tablished that it rests upon the complaining party to identify possible 
reasonably available alternatives to the measure at issue that the responding Member could have 
adopted.903 The Appellate Body explained that "in order to qualify as an alternative, a me asure 
proposed by the complaining Member must be not only less trade -restrictive than the measure at 
issue, but should also 'preserve for the responding Member its right to achieve its desired level of 
protection with respect to the objective pursued'."904 The Panel understands that the burden on 
the complaining party of "identifying" an alternative measure does not require simply suggesting 
an alternative without any substantiation; a complaining party must also demonstrate that the 
proposed alternative is l ess trade -restrictive, and contributes to the achievement of the pursued 
objective to an equal or greater extent than the challenged measure.905  
7.533.   Once the complainant has identified such alternative measures, it is for the responding 
party to demonstrate tha t the proposed alternatives are not reasonably available alternatives that 
could achieve the same desired level of protection.906 The Appellate Body has stated that "[a]n 
alternative measure may be found not to be 'reasonably available' … where it is merely theoretical 
in nature, for instance, where the responding Member is not capable of taking it, or where the 
measure imposes an undue burden on that Member, such as prohibitive costs or substantial 
technical difficulties."907 Furthermore, the alternative measu re must not only be WTO -consistent or 
less trade -restrictive; it must also achieve at least the same level of protection as the challenged 
measure.908 In this regard, the Appellate Body has accepted as a basic principle the right of a 
Member to determine the  level of protection it deems appropriate.909 
7.534.   Having considered these four elements of the necessity analysis independently, a panel 
must assess them holistically in order to come to a conclusion on whether or not a particular 
measure is "necessary". As stat ed by the Appellate Body in Colombia – Textiles :  
The Appellate Body has noted that "the very utility of examining the interaction 
between the various factors of the necessity analysis, and conducting a comparison 
with potential alternative measures, is th at it provides a means of testing these 
factors as part of a holistic weighing and balancing exercise". In this respect, the 
weighing and balancing exercise can be understood as "a holistic operation that 
involves putting all the variables of the equation together and evaluating them in 
                                                                                                                                                  
COOL (Article 21.5 – Canada and Mexico) , paras. 5.205 and 5.228. The Appellate Body indicated that in EC – 
Seal Products , in the context of the necessity analysis under Article XX of t he GATT 1994, a "'preliminary 
conclusion' was not considered to be a requisite aspect of the sequence and order of analysis". Appellate Body 
Reports, US – COOL (Article 21.5 – Canada and Mexico) (referring to Appellate Body Report, EC – Seal 
Products , fn 1 299).  
903 Appellate Body Report, Brazil – Retreaded Tyres , para. 156.  
904 Appellate Body Report, Brazil – Retreaded Tyres , para. 156.  
905 Although the Appellate Body has not explicitly indicated this, a number of Appellate Body reports 
tend to indicate that the  burden on the complainant is greater than merely "suggesting" or "stating" a possible 
alternative. See Appellate Body Reports, Brazil – Retreaded Tyres , para. 156; and US – Gambling , paras. 310 -
311. The Panel is wary of assigning weight to the Appellate B ody's allocation of burden of proof in respect of an 
analysis under Article 2.2 of the TBT Agreement, in light of the "differences between, on the one hand the 
burden on the respondent under Article XX of the GATT 1994 to prove that an alternative measures  proposed 
by the complainant would impose an undue burden … and that this alternative is therefore not reasonably 
available and, on the other hand, the burden on the complainant under Article 2.2 of the TBT Agreement to 
make a prima facie case that the alt ernative measure it proposes would be reasonably available." Appellate 
Body Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 5.3 37. Nevertheless, that statement by 
the Appellate Body suggests that if the burden under an Article XX analysis is o n the respondent to 
demonstrate that the measure is not reasonably available because of an "undue burden", then the burden 
must be on the complainant to demonstrate that the alternative is less trade -restrictive, and would make at 
least an equivalent contr ibution to the objective, as the challenged measure. Appellate Body Reports, US – 
COOL (Article 21.5 – Canada and Mexico) , para. 5.327. Additionally, the Appellate Body has indicated in the 
context of Article 5.6 of the SPS Agreement, that it is for the co mplaining party to establish a prima facie case 
that an alternative measure is reasonably available, achieves the appropriate level of protection, and is less 
trade -restrictive than the challenged measure. See Appellate Body Reports, Japan – Agricultural P roducts II , 
paras. 123 and 126; India – Agricultural Products , para. 5.220.  
906 Appellate Body Report, Brazil – Retreaded Tyres , para. 156.  
907 Appellate Body Report, US – Gambling , para. 308. See also Appellate Body Report, Brazil – 
Retreaded Tyres , para. 15 6. 
908 Appellate Body Report, Brazil – Retreaded Tyres , para. 156.  
909 Appellate Body Reports, Korea – Various Measures on Beef , para. 157; Brazil – Retreaded Tyres , 
para. 210.  WT/DS472/R • WT/DS497/R  
 
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  relation to each other after having examined them individually, in order to reach an 
overall judgment."910 
7.535.   On the basis of this holistic analysis, a panel can conclude whether a measure is 
necessary, and therefore provisionall y justified under subparagraph (a) of Article XX.  
7.3.6.2.2   The chapeau of Article XX of the GATT 1994  
7.536.   Once a measure has been found to be provisionally justified under one of the 
subparagraphs of Article XX of the GATT 1994, a panel must assess whether the measure  has 
been "applied in a manner which would constitute a means of arbitrary or unjustifiable 
discrimination between countries where the same conditions prevail, or a disguised restriction on 
international trade". As stated by the Appellate Body, the functio n of the chapeau is to "prevent 
the abuse or misuse of a Member's right to invoke [Article XX] exceptions".911 The Appellate Body 
further clarified that "the chapeau operates to preserve the balance between a Member's right to 
invoke the exceptions of Articl e XX, and the rights of other Members to be protected from conduct 
proscribed under the GATT 1994."912 The Appellate Body has stated that the manner in which the 
measure is applied "can most often be discerned from the design, the architecture, and the 
revea ling structure of a measure".913 The burden of demonstrating that a provisionally justified 
measure meets the requirements of the chapeau rests upon the party invoking the exception.  
7.537.   With respect to "arbitrary or unjustifiable discrimination between countrie s where the same 
conditions prevail", the Appellate Body has explained that the standard of discrimination under 
GATT obligations is not the same as under Article XX exceptions. In particular, the Appellate Body 
stated that "the nature and quality of this discrimination is different from the discrimination in the 
treatment of products which was already found to be inconsistent with one of the substantive 
obligations of the GATT 1994".914 In EC – Seal Products , the Appellate Body clarified that "[t]his 
does no t mean, however, that the circumstances  that bring about the discrimination that is to be 
examined under the chapeau cannot be the same as those that led to the finding of a violation of a 
substantive provision of the GATT 1994."915  
7.538.   As to the interpretation  of the phrase "between countries where the same conditions 
prevail", the Appellate Body considered that "only 'conditions' that are relevant for the purpose of 
establishing arbitrary or unjustifiable discrimination in the light of the specific character o f the 
measure at issue and the circumstances of a particular case should be considered under the 
chapeau."916 The Appellate Body also stated that "the identification of the relevant 'conditions' 
under the chapeau should be understood by reference to the appl icable subparagraph of Article XX 
under which the measure was provisionally justified and the substantive obligations under the 
GATT 1994 with which a violation has been found."917 A respondent arguing that conditions in the 
compared countries are not the sa me bears the burden of proving its claim.918 
7.539.   In the event that a panel finds that the measure discriminates by treating differently 
countries where the same conditions prevail, it shall continue its analysis by examining whether 
this discrimination is "arbit rary or unjustifiable". In this connection, the Appellate Body explained 
that the analysis of whether discrimination is arbitrary or unjustifiable within the meaning of the 
chapeau "should focus on the cause of the discrimination, or the rationale put forw ard to explain 
its existence".919 As indicated by the Appellate Body in EC – Seal Products , "one of the most 
                                                
910 Appellate Body Report, Colombia – Textiles , para. 5.75 (referring to Appellate Bo dy Reports , EC – 
Seal Products , para. 5.215; and Brazil – Retreaded Tyres , para. 182).  
911 Appellate Body Report, EC – Seal Products , para. 5.297.  
912 Appellate Body Report, EC – Seal Products , para. 5.297 (referring to Appellate Body Report, US – 
Shrimp , para . 156).  
913 Appellate Body Report, Japan – Alcoholic Beverages II , p. 29, DSR 1996:I, 97, at p. 120.  
914 Appellate Body Report, US – Shrimp , para. 150 (referring to Appellate Body Report, US – 
Gasoline , p. 23, DSR 1996:I, 3, at p. 21).  
915 Appellate Body Report,  EC – Seal Products , para. 5.298. (emphasis added)  
916 Appellate Body Report, EC – Seal Products , para. 5.299.  
917 Appellate Body Report, EC – Seal Products , para. 5.301.  
918 Appellate Body Report, EC – Seal Products , para. 5.301.  
919 Appellate Body Report, Brazil  – Retreaded Tyres , paras. 225 -226 (referring to Appellate Body 
Reports, US – Gasoline , pp. 25 -26 and 29, DSR 1996:I, 3, at pp. 23 -24 and 27; US – Shrimp , paras. 163 -166, 
172 and 177; and US – Shrimp (Article 21.5 – Malaysia) , paras. 144 and 147).  WT/DS472/R • WT/DS497/R  
 
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  important factors in the assessment of arbitrary or unjustifiable discrimination is the question of 
whether the discrimination can be reconciled with , or is rationally related to, the policy objective 
with respect to which the measure has been provisionally justified under one of the subparagraphs 
of Article XX."920  
7.540.   In respect of whether the measure constitutes a "disguised restriction on international 
trade", the Appellate Body in US – Gasoline  clarified that:  
"Arbitrary discrimination", "unjustifiable discrimination" and "disguised restriction" on 
international trade may, accordingly, be read side -by-side; they impart meaning to 
one another. It is cle ar to us that "disguised restriction" includes disguised 
discrimination  in international trade. It is equally clear that concealed  or unannounced  
restriction or discrimination in international trade does not exhaust the meaning of 
"disguised restriction." We consider that "disguised restriction", whatever else it 
covers, may properly be read as embracing restrictions amounting to arbitrary or 
unjustifiable discrimination in international trade taken under the guise of a measure 
formally within the terms of an exception listed in Article XX. Put in a somewhat 
different manner, the kinds of considerations pertinent in deciding whether the 
application of a particular measure amounts to "arbitrary or unjustifiable 
discrimination", may also be taken into account in determining the presence of a 
"disguised restriction" on international trade. The fundamental theme is to be found in 
the purpose and object of avoiding abuse or illegitimate use of the exceptions to 
substantive rules available in Article XX.921 
7.541.   On the ba sis of this analysis, a panel can conclude whether a measure satisfies the 
requirements of the chapeau of Article XX. If a measure is provisionally justified under a 
subparagraph of Article XX, and satisfies the requirements of the chapeau of Article XX, s uch a 
measure is justified under Article XX.  
7.542.   As indicated above, Article XX of the GATT 1994 involves a two -tiered analysis. First, the 
Panel must assess whether the measure at issue is provisionally justified under a subparagraph of 
Article XX. Second, i f the Panel finds that the measure is provisionally justified, it must examine 
whether the application of the measure satisfies the requirements of the chapeau of Article XX. 
The Panel proceeds with its analysis in this order.  
7.3.6.3   Whether the discriminatory a spects of the PATVD programme are provisionally 
justified under Article XX(a)  
7.543.   Brazil argues that any aspects of the PATVD programme found to be inconsistent with the 
GATT 1994 are justified under Article XX(a) of the GATT 1994.  
7.544.   According to Brazil, there is a "gap between demographics and regions that have access to 
modern information and telecommunications technology and those that do not have access or 
have restricted access".922 This "digital divide" is a particular problem in developing countries, and 
due to increasing services "such as video on demand, video conferencing and virtual classrooms 
that require access to high -speed, high -quality connections" that are otherwise inaccessible and 
unaffordable, "closing the 'digital divide' would improve literacy , democracy, social mobility, 
economic quality, and growth."923  
7.545.   Brazil states that it has chosen digital television as a means to bridge this digital divide and 
promote social inclusion. It contends that "proper and timely access of the Brazilian population  to 
information and education is a matter of public interest in Brazil", that television is the Brazilian 
population's "predominant source of information", and that digital television will "enable a 
universal network of distance learning, encourage R&D, [a nd] foster the expansion of Brazilian 
technologies so as to guarantee access to information at costs compatible with viewers' 
income."924 Brazil argues that "[s]ince television remains the population's predominant source of 
                                                
920 Appell ate Body Report, EC – Seal Products , para. 5.306.  
921 Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 3, at p. 23 . 
922 Brazil's first written submissions, paras. 408 (DS472) and 346 (DS497.  
923 Brazil's first written submissions, paras. 410 (DS 472) and  348 (DS497).  
924 Brazil's first written submissions, paras. 411 -412 (DS472) and 349 -350 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  information , ensuring appropriate conditions to the implementation of the digital television system, 
falls squarely within the range of policies necessary to protect public morals."925  
7.546.   Brazil therefore adopted a "specific and unique digital television standard that answers to 
Brazil's reali ty and needs".926 To this end, Brazil argues that:  
A vital part of implementing the digital system all over the country was to ensure the 
supply of digital TV transmitting equipment and the capacity to develop and 
manufacture this equipment in Brazilian ord er [sic] to comply with the schedule 
established for the transition from analogue to digital transmission. Consequently, 
PATVD was created in 2007 to facilitate the integration and operation of the new 
technology in the country and therefore is justified u nder paragraph (a) of Article XX 
of GATT 1994.927 
7.547.   Brazil further elaborates that "in light of the objectives of the programme, from the very 
beginning there has been an interest in fomenting the local capacity to develop and manufacture 
this equipment, so as  to ensure that there would be no risk of discontinuity in the supply of the 
transmitting equipment required to carry out the transition as planned."928 
7.548.   The European Union argues that the social and economic development objectives claimed 
by Brazil character ise any governmental action, and that if objectives such as "access to 
information and education" were protected under Article XX, then any governmental action taken 
in the public interest could be justifiable under Article XX.929 The European Union emphasiz es that 
although Brazil argues that it set up the PATVD programme because "'it was not certain that 
foreign suppliers would develop and manufacture compatible digital television transmitters' … the 
Explanatory Memorandum of the provisional measure that the n became the law setting up the 
PATVD programme makes clear that it was urgent to set up the PATVD programme because of the 
risk that transmitters in question would be imported in Brazil ".930 Furthermore, the European Union 
argues that the PATVD programme do es not aim to protect Brazil's public morals, but rather 
pursues an industrial policy objective of Brazil.931 According to the European Union, there is "no 
                                                
925 Brazil's second written submission, para. 116.  
926 Brazil's first written submissions, paras. 411 (DS472) and 349 (DS497); Brazil's second written 
submission, p ara. 114. Brazil explains that:  
[T]here are three main digital television standards in the world: i) the Advanced Television 
Standard Committee – ATSC (American system); ii) the Digital Video Broadcasting – BVD 
(European system); and iii) the Integrated Se rvice Digital Broadcasting – ISDB (Japanese 
system). These standards were established by major developed economies and were tailored 
towards their needs and interests. Each standard has its own specificities that does not 
necessarily fit or comply with the  needs of different countries.  
 
Taking that into consideration, and the importance of television broadcasting in Brazil as a vector 
of social inclusion and cultural diversity, Brazil decided to adopt a specific and unique standard of 
digital television ba sed upon the Japanese model (ISDB) with added technological innovations, 
such as video codification H.264 and the middleware developed in Brazil. The Brazilian Digital 
Television System (SBTVD) preserved the characteristics of the Brazilian TV, open and fr ee for 
all, but introduced the possibility of being received by portable and mobile receivers, in addition 
to allowing the interactivity of the viewer with the program. Brazil's second written submission, 
paras. 113 -114. 
927 Brazil's second written submissio n, para. 117.  
928 Brazil's second written submission, para. 118.  
929 European Union's second written submission, para. 467. The European Union claims that the 
objective advanced by Brazil is not a public moral objective within the meaning of Article XX(a), bec ause it "is 
just a general social and economic development objective which characterise [ sic] nearly any governmental 
action", and that "[p]ublic policy objectives that ultimately refer to the social and economic development of a 
country (like access to in formation and education) are part and parcel of the objectives pursued by any 
government that strives to improve the social and economic condition of its community". European Union's 
second written submission, para. 467. The European Union states that if s uch an objective were within the 
meaning of Article XX, then Article XX would be "virtually available to justify any governmental action which is 
taken in the public interest". European Union's second written submission, para. 467. See also European 
Union' s opening statement at the first meeting of the Panel, paras. 159 -160. 
930 European Union's opening statement at the first meeting of the Panel, para. 162 -163 (quoting 
Brazil's first written submission, para. 424 (DS472)).  
931 European Union's second written s ubmission, para. 466.  WT/DS472/R • WT/DS497/R  
 
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  genuine relationship of ends and means between the public morals allegedly protected by Brazil 
and the  PATVD programme".932 
7.549.   Additionally, both the European Union and Japan argue that Brazil has not met its burden 
of demonstrating that the discriminatory aspects of the PATVD programme are "necessary" within 
the meaning of Article XX(a). According to Japan, "i f the components of printed circuit boards used 
in digital TV equipment were manufactured in a country other than Brazil, this would not diminish 
the Brazilian public's access to information and education. Indeed it could possibly increase it, 
because it w ould be easier for domestic producers to receive the tax advantages under PATVD."933 
Similarly, the European Union argues that "Brazil did not even argue (let alone demonstrate) that 
equivalent digital TV transmitters could not be imported in [ sic] Brazil" a nd that "if the components 
of printed circuit boards used in digital TV equipment were manufactured in a country other than 
Brazil, or if the equipment were developed by technicians who are not resident in Brazil or in 
facilities outside Brazil this would not diminish the Brazilian public's access to digital TV."934 The 
United States as a third party makes a similar argument.935 Both complaining parties and the 
United States as a third party have proposed certain alternative measures that they claim are 
WTO-consistent, less trade -restrictive, reasonably available to Brazil, and that would contribute to 
the objective of increasing access to digital TV to an equivalent or greater extent than the 
discriminatory aspects of the PATVD programme.936 
7.550.   Both complaining part ies also argue that Brazil has failed to demonstrate that the 
discriminatory aspects of the PATVD programme satisfy the requirements of the chapeau of 
Article  XX.  
7.3.6.3.1   Whether the discriminatory aspects of the PATVD programme are designed to 
protect public mor als 
7.551.   As discussed above, the Panel must address as a threshold issue whether the 
discriminatory aspects of the measure are designed to protect public morals. This entails first 
determining whether the claimed objective of the measure is indeed a "public mor als" objective, 
within the meaning of Article XX(a) of the GATT 1994. If the Panel finds that the claimed objective 
is a "public morals" objective, the Panel will then address whether the measure is "designed to" 
achieve that objective (in other words, whe ther the measure is "not incapable" of contributing to 
that objective).  
7.3.6.3.1.1   Whether the claimed objective of the measure is a "public moral" objective 
within the meaning of Article XX(a)  
7.552.   The Panel understands from Brazil's multiple submissions, statements and  responses, that 
the alleged objective of the PATVD programme is to ensure supply of digital television equipment 
in accordance with the Brazilian digital television standard (the SBTVD), "so as to ensure that 
there would be no risk of discontinuity in the  supply of the transmitting equipment required to 
                                                
932 European Union's opening statement at the first meeting of the Panel, para. 164.  
933 Japan's second written submission, para. 166.  
934 European Union's second written submission, paras. 479 and 488.  
935 The United States argues that:  
Brazil fails to explain why digital TV transmitters must be developed and manufactured in Brazil 
in order to accomplish the objective of providing access to information and education via digital 
television. Making sure digital TV transmitters are available to  Brazilians may be relevant to this 
objective, but there would not seem to be any reason why those transmitters must be developed 
or made in Brazil to provide such access. The public would have as much access to information 
and education if it were conveye d by imported transmitters as by domestic transmitters. Thus, 
there does not appear to be a genuine relationship between the provision of tax benefits to 
domestic producers of digital TV transmitters via PATVD and the goal of making digital television 
accessible in Brazil. United States' third party submission, para. 26  
936 These alternatives are: tax exemptions (or suspensions) on all sales of digital TV transmitters that 
comply with Brazil's digital TV standards, regardless of whether they are imported or d omestically produced; 
the elimination of tariffs on the importation of digital TV transmitters; and the provision of subsidies directly to 
producers of digital TV transmitters, without imposing discrimination between products. See European Union's 
opening statement at the first meeting of the Panel, para. 165; European Union's response to Panel question 
No. 5; Japan's opening statement at the first meeting of the Panel, para. 19; Japan's response to Panel 
question No. 5; and Japan's second written submissio n, para. 167. See also United States' third party 
submission, para. 28.  WT/DS472/R • WT/DS497/R  
 
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  carry out the transition [from analogue to digital television] as planned."937 In particular, Brazil 
indicates that:  
[A]t the time the decision to adopt the SBTVD was taken, although imports were 
expected, t here was no guarantee at all that the transmitting equipment, compliant 
with Brazil's standards, would be produced worldwide and made available in the 
Brazilian market in the necessary scale. Moreover, even if imports occurred as 
expected, there was a risk  of discontinuity that could affect the transition schedule. 
Depending solely on the possibility of importation was accordingly not an option.938  
7.553.   That this was the objective of the PATVD programme is further evidenced, in Brazil's view, 
by the Explanatory M emorandum for the Provisional Measure implementing the PATVD, which 
indicates that implementation of the provisional measure was urgent, due to:  
[T]he fact that the timeframe for designing and building factories manufacturing 
transmitters is around 24 mon ths, and that in accordance with Decree No []5.820 of 
29 June 2006, laying down the technological standards to be adopted for the 
transmission of digital broadcasting signals of sounds and images, if the incentives set 
out in this proposal are not adopted swiftly, there is a risk that these products will be 
imported, thus undermining the creation of an industrial base for the sector.939 
7.554.   According to Brazil, this continuity of supply  would ensure "appropriate conditions to the 
implementation of the digital tel evision system", which is "within the range of policies necessary to 
protect public morals … justified under paragraph (a) of Article XX of GATT 1994."940  
7.555.   However, Brazil has also stated that:  
The PATVD has objectives other than just providing the Brazilian  population with 
access to digital television, and one goal should not prevail over the other … the 
PATVD also aims at promoting local capability and investments in R&D of such 
technologies in Brazil …  
In this sense, PATVD's concept of requiring annual inv estments in R&D activities by 
the accredited companies, and requiring the development and manufacture of digital 
transmitters in Brazil, serves to encourage research and development and foster the 
expansion of Brazilian technologies and of a national indus try related to 
communication and information technology, which are all goals pursued by the 
SBTVD.941 
7.556.   The Panel recalls the statement of the panel in EC – Seal Products  that: 
[T]he question of whether a measure aims to address public morals relating to a 
particular concern in the society of a regulating Member requires, in our view, an 
assessment of two issues: first, whether the concern in question indeed exists in that 
society; and, second, whether such concern falls within the scope of 'public morals' as 
                                                
937 Brazil's second written submission, para. 118.  
938 Brazil's second written submission, para. 120.  
939 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), paragraph 19. The 
Panel notes that this passage was quoted in Brazil's second written submission and translated by Brazil slightly 
differently to the European Union and Japan. These differences in translation are not substantive in the Panel's 
view. Specifically, ac cording to Brazil, the Explanatory Memorandum refers to "[t]he time necessary to project 
and set up manufacturing plants for transmitting equipment, approximately 24 months, and the publication of 
Decree n. 5,820, of June 29, 2006, that defined the set of technological standards to be adopted for the 
broadcast of digital sounds and images, if the incentives indicated in this draft are not adopted quickly, there is 
a risk that these products be imported to the detriment of the creation of an industrial park for the sector." 
Brazil's second written submission, para. 118. The Panel notes that Brazil's translation correctly refers to 
Decree 5,820, whereas the original European Union translation incorrectly refers to Decree 25,820.  
940 Brazil's second written submi ssion, para. 116.  
941 Brazil's second written submission, para. 125 -126. WT/DS472/R • WT/DS497/R  
 
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  'defined and applied' by a regulating Member "in its territory, according to its own 
systems and scales of values'.942  
7.557.   The panel in EC – Seal Products further explained that such an assessment, in the context 
of that dispute, required the panel to:  
[E]xamine  whether the evidence as a whole show[ed] (a) the existence of the 
EU public's concerns on seal welfare and/or any other concerns or issues that the 
European  Union [sought] to address; and, (b) the connection between such concerns, 
if proven to exist, and the "public morals" (i.e. standards of right or wrong) as defined 
and applied within the European  Union.  
7.558.   In this respect, the Panel notes that, although Members have "some scope to define and 
apply for themselves the concept of 'public morals' in their re spective territories, according to their 
own systems and scales of values"943, this latitude does not excuse a responding party in dispute 
settlement from its burden of establishing that the alleged public policy objective at issue is indeed 
a public moral objective according to its value system.  
7.559.   In the Panel's view, Brazil has identified at least two objectives of the PATVD programme. 
First, according to Brazil, the objective of the PATVD programme itself was to establish and 
promote a domestic Brazilian in dustry capable of supplying digital television equipment to the 
domestic market. However, this objective was merely intermediate to an overarching objective 
contained in the legislation establishing the SBTVD standard, namely bridging the so -called "digita l 
divide" and promoting social inclusion. Thus, according to Brazil, the attainment of the 
intermediate objective is merely a precondition to the attainment of the second objective.  
7.560.   Brazil has not argued that the intermediate objective of promoting its do mestic industry is 
in and of itself a public moral objective. The Panel therefore limits its analysis to the overarching 
objective claimed by Brazil, namely bridging the digital divide and promoting social inclusion.  
7.561.   Regarding the second, overarching objec tive, namely bridging the digital divide and 
promoting social inclusion, the Panel recalls the following aspects of Brazil's argument. Brazil 
argues that there is a gap between certain "demographics and regions that have access to modern 
information and te lecommunications technology and those that do not have access or have 
restricted access", in developing countries.944 Additionally, Brazil argues that "[t]he transition to 
the digital television system is considered a key element in the access to information  and 
education … The proper and timely access of the Brazilian population to information and education 
is a matter of highest public interest in Brazil as it ensures a better means of social inclusion."945 
Brazil argues that closing the digital divide would improve literacy, democracy, social mobility, 
economic equality, growth, and generally people's standard of living.946  
7.562.   In support of this, Brazil has submitted into evidence an excerpt from a report from the 
Office of Social Communication of the Presidency of the Republic entitled Brazilian Media Research 
2015. That report indicates that "television continues to reign as the prevailing means of 
communication" and that 79% of people polled indicated that they "watch TV mainly to get 
informed".947 In terms of ac cess to television, the report indicated that "26% of Brazilian homes 
are served by a cable TV service, 23% have a parabolic dish installed, and 72% have access to 
open TV."948 On the distribution of access, the report notes that "[w]hereas cable TV is prese nt in 
large urban centers and is accessible to the richer and more educated portions of the population, 
the parabolic dish is more commonly found in the countryside".949 Further evidence of the 
existence of a digital divide is provided in the form of a 2013 National Survey through Household 
Sampling, carried out by the Brazilian Institute of Statistics and Geography, which indicates that 
                                                
942 Panel Report, EC – Seal Products , para. 7.383.  
943 Panel Report, US – Gambling , para. 6.461 (referred to by Panel Reports, EC – Seal Products , para. 
7.380; and Colombia – Textiles , para . 7.334).  
944 Brazil's first written submissions, para. 408 (DS472) and para. 346 (DS497).  
945 Brazil's first written submissions, para. 410 (DS472) and para. 348 (DS497).  
946 Brazil's first written submissions, para. 410 (DS472) and para. 348 (DS497).  
947 Brazili an Media Research 2015 (Pesquisa Brasileira de Mídia 2015), (Exhibit BRA -38), pp. 3 and 5.  
948 Brazilian Media Research 2015 (Pesquisa Brasileira de Mídia 2015), (Exhibit BRA -38), p. 5.  
949 Brazilian Media Research 2015 (Pesquisa Brasileira de Mídia 2015), (Ex hibit BRA -38), p. 5.  WT/DS472/R • WT/DS497/R  
 
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  42.4% of households in Brazil have internet access, 49.4% of residents have internet access, and 
48.9% of households in Bra zil have computer access.950  
7.563.   The Panel further notes that Brazil has submitted as evidence the United Nations 
Millennium Development Goals Report 2015 (UN MDG Report)951, as well as a United Nations 
Educational, Scientific and Cultural Organization (UNESCO) p ress release regarding a UNESCO 
session to discuss open and inclusive access to information.952 According to the UN MDG Report, 
Goal 8 of the Millennium Development Goals (MDGs) is to "develop a global partnership for 
development".953 Target 8.F of the MDGs is  to, "[i]n cooperation with the private sector, make 
available the benefits of new technologies, especially information and communications."954 The UN 
MDG Report elaborates that "[i]nformation and communication technologies (ICTs) have 
completely transformed  the way people live, work and communicate. Their role and importance 
continue to expand thanks to technological progress, expanding networks, falling prices and 
growth in applications and content."955 The UN MDG Report states, however, that "ICT access and 
use are unequally distributed within and between countries" and that "it will be essential to 
address the widening digital divide. Only then will the transformative power of ICTs and the data 
revolution be harnessed to deliver sustainable development for a ll".956  
7.564.   Finally, the Panel notes that Brazil has submitted as evidence two decrees respectively 
establishing and implementing the SBTVD.957 Article 1(I) of Decree 4,901 of 26 November, 2003, 
establishing the SBTVD, indicates that one objective of the SBTVD is  "to promote social inclusion, 
cultural diversity in the country and the native language by means of access to digital technology, 
aiming at the democratization of information."958 Additionally, Article 4 of Decree 5,820 of 29 June, 
2006, implementing the SB TVD, states that "[a]ccess to SBTVD -T shall be assured [to] the public 
in general, in a manner free of charge, for the purpose of guaranteeing the adequate performance 
of the conditions for the exploitation [of] the object of the grants."959 
7.565.   In reviewing the  arguments and evidence submitted by Brazil, the Panel considers that 
Brazil has demonstrated that there is a problem of a "digital divide" in Brazil, and that the problem 
of the digital divide has implications for people's standards of living. As noted by  Brazil, the 
Preamble to the WTO Agreement explicitly states that the WTO Members "[r]ecogniz[e] that their 
relations in the field of trade and economic endeavour should be conducted with a view to raising 
standards of living". The Panel highlights that th is concern is internationally recognised as an issue 
confronting developing countries. Furthermore, and taking into account that Brazil has indicated 
that access to information and bridging the digital divide have an educational component, the 
Panel recall s the panel's statement in EC – Seal Products , in a finding that was not appealed, that 
"WTO Members are afforded a certain degree of discretion in defining the scope of 'public morals' 
with respect to various values prevailing in their societies at a give n time."960 Although this 
"degree of discretion" is not boundless, in light of the above the Panel is inclined to defer to Brazil.  
7.566.   The Panel notes the European Union's concern that the objective identified by Brazil is:  
[P]art and parcel of the objectives p ursued by any government that strives to improve 
the social and economic condition of its community … [and that] accepting that such 
general objectives may fall within public morals within the meaning of Article XX, 
                                                
950 National Survey through Household Sampling ( Pesquisa Nacional por Amostragem de Domicílios - 
PNAD ), (Exhibit BRA -44). The Panel notes that although Brazil submitted this evidence in the context of the 
programme for Digital Inclusion,  and not the PATVD programme, the Panel nevertheless considers this 
evidence to be relevant in the context of Brazil's Article XX(a) defence in respect of the PATVD programme.  
951 The Millennium Development Goals Report 2015, (Exhibit BRA -43). 
952 "UNESCO conv enes session to discuss open and inclusive access to information", (Exhibit BRA -42). 
953 The Millennium Development Goals Report 2015, (Exhibit BRA -43), p. 7.  
954 The Millennium Development Goals Report 2015, (Exhibit BRA -43), p. 67.  
955 The Millennium Developm ent Goals Report 2015, (Exhibit BRA -43), p. 67.  
956 The Millennium Development Goals Report 2015, (Exhibit BRA -43), p. 67. The Panel also notes that 
Brazil has submitted as evidence an article from the website www.internetworldstats.com which describes the 
problem of the digital divide. See The Digital Divide, ICT, and Broadband Internet, (Exhibit BRA -39). 
957 Decree No. 4,901, of 26 November 2003, (Exhibit BRA -40); and Decree No. 5,820, of 29 June 2006 
(Exhibit BRA -41). 
958 Decree 4,901/2003, (Exhibit BRA -40), A rticle 1(I).  
959 Decree 5,820/2006, (Exhibit BRA -41), Article 4.  
960 Panel Report, EC – Seal Products , para. 7. 381. WT/DS472/R • WT/DS497/R  
 
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  would in practice tantamount [ sic] to sa y that Article XX is virtually available to justify 
any governmental action which is taken in the public interest.961 
7.567.   In this respect, the Panel does not consider that including the objective of "bridging the 
digital divide and promoting social inclusion" in  the specific context of Brazil at the present 
moment is "tantamount to say that Article XX is virtually available to justify any governmental 
action which is taken in the public interest". Indeed, conditions and circumstances vary from WTO 
Member to Membe r. In the Panel's view, in order for a Member to rely on the defence of Article 
XX(a), it must be demonstrated that the particular objective is a public moral objective for that 
Member,  in its particular context. As the panel stated in US – Gambling , the c ontent of public 
morals "for Members can vary in time and space, depending upon a range of factors".962 
7.568.   The Panel therefore finds that Brazil has demonstrated that a concern exists in Brazilian 
society with respect to the need to bridge the digital divide an d promote social inclusion, and that 
such concern is within the scope of "public morals" as defined and applied by Brazil.  
7.3.6.3.1.2   Whether the discriminatory aspects of the measure are "designed to 
protect" public morals, within the meaning of Article XX(a) of th e GATT 1994  
7.569.   In light of the Panel's finding that "bridging the digital divide and promoting social 
inclusion" constitute a public morals objective within the meaning of Article XX(a) of the GATT 
1994, the Panel must determine whether Brazil has demonstrate d that the aspects of the PATVD 
programme found to be inconsistent with Article III of the GATT 1994 are designed to achieve this 
objective.  
7.570.   The Panel recalls that the standard adopted by the Appellate Body for determining whether 
a measure is "designed" to achieve a particular objective is whether that measure "is not 
incapable" of contributing to that objective.963 The Panel further recalls the Appellate Body's 
instructions that "[i]n order to determine whether such a relationship exists, a panel must exam ine 
evidence regarding the design of the measure at issue, including its content, structure, and 
expected operation".964 Furthermore, the Appellate Body explained that it does "not see the 
examination of the 'design' of the measure as a particularly demandin g step."965 
7.571.   Applying this standard in the present dispute, the Panel notes at the outset that the 
discriminatory aspects of the PATVD programme do not, on their face, bear any relation to 
bridging the digital divide, or social inclusion. Furthermore, the Pan el is not fully convinced by 
Brazil's argument that the PATVD programme is designed to contribute to closing the digital divide 
by establishing and promoting a domestic industry.  
7.572.   As described above, Brazil argues that the PATVD programme contributes to br idging the 
digital divide and promoting social inclusion, by ensuring "appropriate conditions to the 
implementation of the digital television system", and more specifically, ensuring "the supply of 
digital TV transmitting equipment and the capacity to deve lop and manufacture this equipment in 
Brazilian order [ sic] to comply with the schedule established for the transition from analogue to 
digital transmission".966 Brazil also argues that "at the time the decision to adopt the SBTVD was 
taken, although imports  were expected, there was no guarantee at all that the transmitting 
equipment, compliant with Brazil's standards, would be produced worldwide and made available in 
the Brazilian market in the necessary scale".967 
7.573.   The Panel first notes that Brazil has not pro vided any evidence to indicate that transmitting 
equipment would not be made available in the Brazilian market in the necessary scale. 
                                                
961 European Union's second written submission, para. 467. See also European Union's opening 
statement at the first meeting of the Panel, paras. 1 59-160. 
962 Panel Report, US – Gambling , para. 6.461.  
963 Appellate Body Report, Colombia – Textiles , paras. 5.68 and 5.77.  
964 Appellate Body Report, Colombia – Textiles , para. 5.69 (referring to Appellate Body Reports, US – 
Shrimp , paras. 135 -142; and EC – Seal Products , para. 5.144).  
965 Appellate Body Report, Colombia – Textiles , para. 5.70.  
966 Brazil's second written submission, paras. 116 -117. 
967 Brazil's second written submission, para. 120.  WT/DS472/R • WT/DS497/R  
 
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  Additionally, the Explanatory Memorandum for the provisional measure implementing the PATVD 
programme indicates that ther e was some urgency to adopt the implementing measures due to:  
The time necessary to project and set up manufacturing plants for transmitting 
equipment, approximately 24 months, and the publication of Decree n. 5,820, of June 
29, 2006, that defined the set  of technological standards to be adopted for the 
broadcast of digital sounds and images, if the incentives indicated in this draft are not 
adopted quickly, there is a risk that these products be imported to the detriment of 
the creation of an industrial p ark for the sector.968 
7.574.   A plain reading of the Explanatory Memorandum suggests that the motivation for adopting 
the PATVD programme was not, as claimed by Brazil969, because there were concerns over 
whether there would be a sufficient quantity of imported produ cts to adequately supply the 
market. To the contrary, the Explanatory Memorandum suggests that the motivation to implement 
the programme was precisely because there were concerns that the market could be supplied  by 
imported products, "to the detriment of the creation of an industrial park for the sector".970 
7.575.   Furthermore, notwithstanding the Explanatory Memorandum, there is a certain inherent 
tension to Brazil's argument. Brazil claims that because there were concerns that foreign suppliers 
would not or could  not affordably and sufficiently supply the market, it adopted the PATVD in order 
to incentivise domestic industry to produce relevant digital television equipment, to ensure access 
to digital television. Yet the mechanism adopted in order to incentivise a nd promote local 
production was in the form of tax incentives and local content requirements that discriminated 
against foreign products that could have supplied the market. In other words, Brazil basically 
argues that the discrimination against imported p roducts was adopted because of concerns that 
there may not be a sufficient quantity of imported products in the market.  
7.576.   This tension becomes more marked when one takes into account that the laws and decrees 
establishing and implementing PATVD do not even mention the digital divide or social inclusion, or 
any related objectives. To the contrary, the relevant Interministerial Explanatory Memorandum 
explicitly states that "[t]he aim of establishing PATVD is to encourage the setting -up in Brazil of 
companies i nvolved in the development and manufacturing of radio -frequency transmitter 
equipment for digital television".971 Furthermore, the Explanatory Memorandum does not identify 
this as an intermediate objective, but rather tends to indicate that the overarching o bjective (if 
there is any) is to achieve "rapid economic growth":  
[I]t should be noted that, by increasing economic efficiency and stimulating productive 
investment, the newly adopted measures create conditions for more rapid economic 
growth over the comi ng years, having a positive impact on tax collection in the long 
term, even if the tax burden as a proportion of the GDP falls below the current 
level.972  
7.577.   Brazil argues, however, that the PATVD programme is merely implementing the objectives 
of the SBTVD, a nd that the decrees establishing the SBTVD sets out the objectives of the PATVD, 
namely bridging the digital divide and achieving social inclusion.973  
7.578.   It is true that Decree 4,901/2003, establishing the SBTVD, does state that the SBTVD has 
the objectives "( I) to promote social inclusion, cultural diversity in the country and the native 
language by means of access to digital technology, aiming at the democratization of information; 
(II) to enable the creation of a universal network of distance education; … [a nd] (IV) to plan and 
                                                
968 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit J E-109), paragraph 19.  
969 Brazil states that:  
[A]t the time the decision to adopt the SBTVD was taken, although imports were expected, there 
was no guarantee at all that the transmitting equipment, compliant with Brazil's standards, 
would be produced worldw ide and made available in the Brazilian market in the necessary scale. 
Moreover, even if imports occurred as expected, there was a risk of discontinuity that could 
affect the transition schedule. Depending solely on the possibility of importation was accor dingly 
not an option. Brazil's second written submission, para. 120.  
970 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), paragraph 19.  
971 Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 7.  
972 Intermini sterial Explanatory Memorandum No. 00008/2007, (Exhibit JE -109), para. 16.  
973 Brazil's second written submission, paras. 114 -115 (referring to Exhibits BRA -40 and BRA -41).  WT/DS472/R • WT/DS497/R  
 
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  process the transition from analogue to digital television, in a manner which ensures the gradual 
accession of users at costs compatible with their incomes."974 However, that same decree also 
states that the objectives of the SBTVD inclu de "to encourage research and development and to 
foster the expansion of Brazilian Technologies and national industry related to information 
technology and communication; … [and] to promote the regional and local production of digital 
instruments and servi ces."975  
7.579.   Indeed, in assessing the design and structure of the PATVD programme, it is apparent that 
the discriminatory aspects of the programme were indeed intended to foster Brazilian technology 
and industry, and to promote Brazilian production of instrumen ts and services. However, where 
Brazil argues that these objectives were merely a means to an overarching end (namely bridging 
the digital divide), the SBTVD legislation appears to identify these objectives as ends in and of 
themselves . Recalling the inher ent tension described above, the design, structure, operation, and 
stated objectives of the measure all support the notion that the measure was adopted for the 
objective of promoting domestic production as an end in and of itself.  
7.580.   Brazil itself concedes t hat:  
The PATVD has objectives other than just providing the Brazilian population with 
access to digital television, and one goal should not prevail over the other … the 
PATVD also aims at promoting local capability and investments in R&D of such 
technolog ies in Brazil …  
In this sense, PATVD's concept of requiring annual investments in R&D activities by 
the accredited companies, and requiring the development and manufacture of digital 
transmitters in Brazil, serves to encourage research and development and foster the 
expansion of Brazilian technologies and of a national industry related to 
communication and information technology, which are all goals pursued by the 
SBTVD.976 
7.581.   The Panel notes that the standard adopted by the Appellate Body for determining whethe r 
a particular measure is "designed to" protect public morals, is whether the measure is not 
"incapable of contributing to the objective". Notwithstanding its deep reservations regarding the 
design of the measure, the Panel does not consider that it is in a position to make a finding in the 
negative, to the effect that the PATVD programme is incapable of contributing to bridging the 
digital divide and promoting social inclusion. Indeed, it is not inconceivable to the Panel that under 
certain circumstances, discriminatory measures could indeed contribute to the claimed objectives 
in a manner similar to that explained by Brazil.  
7.582.   Although the functioning of the measure appears to contradict its raison d'être , the Panel 
considers that in a situation where domes tic producers could not compete with foreign imports 
absent government protection, it is conceivable that the protection afforded to domestic producers 
could allow such producers to develop their industry. The development of the industry could enable 
an ot herwise uncompetitive domestic industry to become competitive to such an extent that it 
could supply the market alongside foreign imports in an open, competitive market, resulting in a 
lower price for consumers and therefore a net welfare benefit in terms of "social inclusion" and 
"access to information". In other words, more people could afford digital television, meaning more 
social inclusion and access to information. The Panel recognizes that this is a scenario that has not 
been shown to exist (nor has it been shown that such a scenario is even likely). Indeed, Brazil has 
not presented any evidence in support of its assertions that domestic producers required 
protecting, nor has it taken into account the capacity of foreign producers to supply the Brazil ian 
market  in order to secure access to digital television equipment , at least in the present 
circumstances. Nevertheless, the Panel agrees with Brazil that this is one way in which the 
discriminatory aspects of the measure at issue could potentially  contribute to the protection of 
public morals. The Panel is therefore not in a position to conclude that PATVD is "incapable" of 
contributing to the bridging the digital divide and promoting social inclusion.  
                                                
974 Decree 4,901/2003, (Exhibit BRA -40), Article 1.  
975 Decree 4,901/2003, (Exhibit BRA -40), Article 1.  
976 Brazil's second written submission, para. 125 -126.  WT/DS472/R • WT/DS497/R  
 
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  7.583.   The Panel therefore finds that, notwithstanding its  significant reservations regarding the 
design, structure, and expected operation, Brazil demonstrated that the measure is not incapable 
of contributing to the objective of bridging the digital divide and promoting social inclusion. In light 
of its finding  above that these objectives have been shown to be "public moral" objectives within 
the meaning of Article XX(a) of the GATT 1994, the Panel consequently finds that Brazil has 
demonstrated that the measure is designed to protect public morals within the me aning of 
Article  XX(a).  
7.3.6.3.2   Whether the discriminatory aspects of the measure are "necessary" to achieve 
the claimed objectives  
7.584.   Since the Panel has found that the discriminatory aspects of the measure are designed to 
protect a public moral objective, the Pan el must consequently assess whether Brazil has 
demonstrated that the discriminatory aspects of the measure are necessary to achieve that public 
moral objective. The Panel recalls that this is a holistic analysis, involving weighing and balancing 
the import ance of the interest being protected, the contribution of the measure to the protection of 
that interest, and the trade -restrictiveness of the measure, in light of any WTO -consistent less 
trade -restrictive reasonably -available alternatives that could achie ve the same level of protection.  
7.585.   As a preliminary point, the Panel notes the Appellate Body's expectation that panels 
somewhat precisely define the level of "contribution" that the challenged measure makes to the 
objective, as well as the level of "trade -restrictiveness" of the measure.977 As a general matter, the 
Panel notes that it can only make its assessment of the precise degree of the importance of the 
interest being protected, the contribution to the objective, and the trade -restrictiveness of the 
measure, on the basis of the parties' arguments and evidence. Furthermore, the Panel 
understands that a lack of precision from the parties in defining these levels does not relieve the 
Panel of its duty to perform a weighing and balancing analysis, regardless  of methodological 
difficulties arising from imprecision on the part of the parties.978 
7.3.6.3.2.1   The importance of the objective  
7.586.   The Panel begins its analysis of the necessity of the discriminatory aspects of the PATVD 
programme by assessing the importance of the int erest being protected. According to the 
Appellate Body, the more "vital or important" the interest being protected, the easier it would be 
to accept as "necessary" a measure designed to protect that interest.979 
7.587.   Brazil argues that the objective of the discri minatory aspects of the PATVD programme, 
namely to bridge the digital divide and promote social inclusion, is an interest of the highest 
degree.980 Brazil has asserted that "[f]ew interests are more 'vital' and 'important' than protecting 
public morals."981 Brazil quotes the panel report in China – Publications and Audiovisual Products , 
where the panel stated that:  
In our view, it is undoubtedly the case that the protection of public morals ranks 
among the most important values or interests pursued by Members as a matter of 
public policy. We do not consider it simply accidental that the exception relating to 
'public morals' is the first exception identified in the ten sub -paragraphs of Article XX. 
We therefore concur that the protection of public morals is a hi ghly important value or 
interest.982  
                                                
977 Appellate Body Report, Colombia – Textiles , paras. 5.107 -5.113.  
978 The Panel recalls the Appellate Body's statement that "once an analysis of the 'design' of a measure 
reveals that the measure is not incapable of protecting public morals, such that there is a relationship between 
the measure and the protection of public morals, a panel may not refrain from conducting the 'necessity' step 
of the analysis." Appellate Body Report, Colombia – Textiles , para. 5.77 (referring to Appellate Body Report, 
Argentina – Financial Services , para. 6.203)  
979 Appellate Body Report, Korea – Various Measures on Beef , para. 162.  
980 Brazil's first written submissions, para. 420 (DS472) and para. 358 (DS497).  
981 Brazil's first written submissions, para. 417 (DS472) and para. 355 (DS497).  
982 Brazil's first written submissions, para. 417 (DS472) and para. 355 (DS497) (quoting Panel Report, 
China – Publications and Audiovisual Products , para. 7.817). The Panel notes t hat Brazil mistakenly indicated 
that this quote was from the Appellate Body report in that dispute, and not the panel report.  WT/DS472/R • WT/DS497/R  
 
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  7.588.   The Panel notes that in US – Gambling , the panel (in a finding upheld by the Appellate 
Body) assessed the importance of the public moral objective at issue by examining the specific 
"interests and values protected by the  [measure]", namely "the threat of money laundering, 
organized crime, fraud and risks to children (i.e. underage gambling) and to health (i.e. 
pathological gambling)".983 The panel noted that those specific "societal interests" could be 
"characterized as 'vi tal and important in the highest degree' in a similar way to the 
characterization of the protection of human life and health against a life -threatening health risk by 
the Appellate Body in EC – Asbestos ".984  
7.589.   Similarly, the panel in EC – Seal Products noted the claim by the responding party in that 
dispute that the specific "'moral concern with regard to the protection of animals' is regarded as a 
value of high importance in the European Union."985 The panel found that "the protection of such 
public moral conce rns is indeed an important value or interest".986  
7.590.   In Colombia – Textiles the Appellate Body indicated that:  
[I]n a finding that is not contested on appeal, the Panel held that, in Colombia, the 
objective of combating money laundering reflects societal inte rests that can be 
described as vital and important in the highest degree. We also observe that, before 
the Panel and on appeal, Panama has not denied that, for Colombia, the fight against 
money laundering is a societal interest that could be described as v ital and important 
in the highest degree.987 
7.591.   In light of this jurisprudence, the Panel considers that in determining the importance of a 
particular objective, it is more pertinent to assess the importance of the particular societal interest 
being protected, rather than assuming that by virtue of its status as a "public moral" objective the 
interest is per se vital or important to the highest degree.  
7.592.   In assessing the importance of the particular public moral objective at issue in this dispute, 
namely bridging  the digital divide and promoting social inclusion, the Panel notes that this 
objective is internationally recognized as an important policy objective, and indeed is recognized 
as a target of the UN MDGs. The importance of the MDGs should not be understate d. This is true in 
any developing country, but in the Panel's view the specific MDG target at issue here is particularly 
important in Brazil, where the percentage of households and individuals with internet access or 
computer access is low. Overall, the Pa nel considers that the objective of bridging the digital divide 
and social inclusion and access to information is a reasonably important policy objective.  
7.3.6.3.2.2   The contribution to the objective  
7.593.   The Panel now turns to assess the contribution that the PATVD progr amme makes to the 
objective of bridging the digital divide and promoting social inclusion.  
7.594.   Brazil explains that the PATVD programme contributes to the protection of public morals 
because it is essential to the development and manufacture of digital transm itters in Brazil. 
According to Brazil, the fact that it has adopted "a unique and tailor -made standard for digital TV" 
requires that the government adopts measures to guarantee the provision of compatible 
transmitters.988 Brazil argues that "[w]hen the stand ard was adopted, it was not certain that 
foreign suppliers would develop and manufacture compatible digital television transmitters. Brazil 
then decided to facilitate to the maximum extent possible the development of the technological 
and industrial capaci ty necessary for the Brazilian population to maintain their access to culture 
and information under the new technological paradigm."989 
                                                
983 Panel Report, US – Gambling , para. 6.489. See also Appellate Body Report, US – Gambling , 
paras.  296-299. 
984 Panel Report, US – Gambling , para. 6.492  
985 Panel Report, EC – Seal Products , para. 7.632.  
986 Panel Report, EC – Seal Products , para. 7.632. (emphasis added)  
987 Appellate Body Report, Colombia – Textiles , para. 5.105.  
988 Brazil's first written submissions, paras. 422 -426 (DS472)  and paras. 360 -366 (DS497).  
989 Brazil's first written submissions, para. 424 (DS472) and para. 362 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  7.595.   Brazil states, however, that the "schedule of migration from analogue to digital 
transmission will begin in 2016 and expec t to be concluded by the end of 2018."990 Brazil has 
therefore not presented any statistics or data to demonstrate the extent to which the programme 
has successfully resulted in the Brazilian public achieving access to digital television. Nevertheless, 
Brazil argues that "the contribution does not have to be measurable immediately after the 
questioned measure is applied or enters into force. It is sufficient to demonstrate that it is ' capable  
of making a contribution'."991 Brazil also argues that:  
The Appellat e Body has rightly said that "[t]he greater the contribution, the more 
easily a measure might be considered to be 'necessary'." The measure's contribution 
need not be absolute or infallible. It merely needs to 'contribute, at least to some 
extent , to addre ssing these concerns." The PATVD program contributes to protecting 
public morals far more than just 'to some extent' - no other practical alternative is as 
effective.992 
7.596.   Indeed, the Panel agrees with Brazil that no minimum level of contribution is required i n 
order for a particular measure to be "necessary" within the meaning of Article XX. In this respect, 
the Panel recalls the Appellate Body's statements that "mandating in advance a pre -determined 
threshold level of contribution would [not] be instructive o r warranted in a necessity analysis" and 
"whether a measure is 'necessary' cannot be determined by the level of contribution alone, but will 
depend on the manner in which the other factors of the necessity analysis, including a 
consideration of potential a lternative measures, inform the analysis."993 Furthermore, the Panel 
recalls that the Appellate Body has indicated that a panel's contribution analysis "can be done 
either in quantitative or in qualitative terms".994 
7.597.   At this stage of the analysis, in assessing  the actual (or expected) contribution of the 
measure to that objective, the Panel recalls its concerns raised in paragraphs 7.571  to 7.580  
above regarding the design , structure, operation, and objectives of the measure. The Panel does 
not consider it necessary to fully rearticulate each of these concerns in the context of its 
assessment of the contribution made by the discriminatory aspects of the measure to the claim ed 
objective. It suffices for the Panel to recall the following: Brazil has not provided relevant evidence 
in support of its assertion that "at the time the decision to adopt the SBTVD was taken, although 
imports were expected, there was no guarantee at al l that the transmitting equipment, compliant 
with Brazil's standards, would be produced worldwide and made available in the Brazilian market 
in the necessary scale"995; the evidence before the Panel indicates that Brazil's primary motivation 
for implementing  the programme was because there were concerns that the market could be 
supplied by imported products, "to the detriment of the creation of an industrial park for the 
sector"996; the design and structure of the measure appears to contradict its own intended 
purpose, in that the measure discriminates against, and dis -incentivises the sale of, imported 
products that supply the market997; and the decree establishing the SBTVD states that an 
objective of the SBTVD was to promote domestic production of digital telev ision equipment.998  
7.598.   In light of these concerns, the Panel considers that although it is possible that the PATVD 
programme will contribute to the objective of the bridging the digital divide and promoting social 
                                                
990 Brazil's first written submissions, para. 427 (DS472) and para. 365 (DS497). The Panel recalls that 
the European Union's request for establishmen t of a panel was circulated in November 2014, and Japan's 
request for establishment of a panel was circulated in September 2015.  
991 Brazil's first written submissions, para. 427 (DS472) and para. 366 (DS497). (emphasis original)  
992 Brazil's first written su bmissions, paras. 421 -422 (DS472) and paras. 359 -360 (DS497) (quoting 
Appellate Body Report, Korea – Various Measures on Beef , para. 163 (the Panel notes that Brazil mistakenly 
referred to paragraph 49); and Panel Report, US – Gambling , para. 6.494 (the Pa nel notes that Brazil 
mistakenly referred to the Appellate Body report instead of the panel report)).  
993 Appellate Body Report, EC – Seal Products , para. 5.215.  
994 Appellate Body Report, Brazil – Retreaded Tyres , para. 146.  
995 See paragraph 7.573  above; Brazil's second written submission, para. 120.  
996 See paragraph 7.574  above; Interministerial Explanatory Memorandum No. 00008/2007, (Exhibit JE -
109), paragraph 19.  
997 See paragraph 7.575  above.  
998 See paragraph 7.578  above; Exhibit BRA -40, Article 1. The Panel also notes that Brazil has not fully 
articulated how or why the SBTVD its elf is designed to contribute to the objective of bridging the digital divide.  WT/DS472/R • WT/DS497/R  
 
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  inclusion999, the evidence before the Panel indi cates that the PATVD is unlikely to actually make 
much, if any, contribution to this objective. In particular, the Panel emphasizes the inherent 
contradiction of a measure that is designed to ensure that a particular market is supplied with 
particular prod ucts at affordable prices, by discriminating against imported products in that 
particular market. The Panel considers this contradiction to be evident both in the market for 
finished digital television equipment products, as well as the market for componen ts to be used in 
the production of the finished digital television equipment products.  
7.599.   The Panel also considers it relevant at this point to recall the finding of the Appellate Body 
in India – Solar Cells , regarding an assessment in the context of Article  XX(j) of the GATT 1994 as 
to whether products are "in general or local short supply". The Appellate Body stated that "an 
assessment of whether a Member has identified 'products in general or local short supply' requires 
a case -by-case analysis of the rela tionship between supply and demand based on a holistic 
consideration of all relevant factors."1000 Although the Appellate Body made this comment in the 
context of Article XX(j), the Panel considers it to be relevant in light of Brazil's argument that the 
discriminatory aspects of the PATVD programme were necessary because of concerns that 
imported products could not adequately supply the market.1001 
7.600.   In the present dispute, Brazil has not undertaken any analysis, nor presented any evidence 
(quantitative or qualita tive), in support of its contention that imported products could not supply 
the market. Indeed, Brazil has not substantiated its argument.  
7.601.   The Panel can therefore see no reason to conclude that the discriminatory aspects of the 
PATVD programme will necess arily lead to any increase in market supply, nor that the 
discriminatory aspects are likely, or apt, to lead to such an increase. The Panel recalls its finding 
above that the discrimination at issue here could potentially contribute to increased supply of 
digital television equipment in the market, thereby facilitating the closing of the digital divide and 
promotion of social inclusion. However, in the absence of evidence to the contrary, it is equally 
plausible that the decline in supply of imported like p roducts as a result of the discrimination is 
either equivalent to, or less than, the increase in supply of domestically produced like products.  
7.602.   In the Panel's view, Brazil has not demonstrated that the manner in which the PATVD 
programme incentivises dome stic production has led, will lead, or is apt to lead, to an increase in 
social inclusion or access to information. Thus, in the Panel's view, although it is possible that the 
PATVD programme could , in theory, contribute to social inclusion and access to i nformation, Brazil 
has not demonstrated that the PATVD programme does, or will, in fact, contribute to the 
realisation of Brazil's policy goal. In the Panel's view, it is likely that the PATVD programme will not 
make much, if any, contribution to the objec tive of social inclusion and access to information. 
Nonetheless, the Panel continues its analysis.  
                                                
999 The Panel recalls its finding above that the measure is "designed to" protect public morals, because it 
is not incapable of making a contribution to the objective of bridging the digital divide and promoting social 
inclusion.  
1000 Appellate Body Report, India – Solar Cells , para. 5.74. Some of these factors include:  
[T]he extent to which a particular product is 'available' for purchase in a particular geographical 
area or market,  and whether this is sufficient to meet demand in the relevant area or market … 
the level of domestic production of a particular product and the nature of the products … the 
relevant product and geographic market, potential price fluctuations in the releva nt market, the 
purchasing power of foreign and domestic consumers, and the role that foreign and domestic 
producers play in a particular market … [d]ue regard should be given to the total quantity of 
imports that may be 'available' to meet demand in a part icular geographical area or market … 
the extent to which international supply of a product is stable and accessible. Appellate Body 
Report, India – Solar Cells , para. 5.71.  
1001 The Panel notes that Brazil did not argue that the PATVD programme was justified  under Article 
XX(j) of the GATT 1994. The Panel does not consider that this has any bearing on the legitimacy of Brazil's 
defence under Article XX(a). However, in light of the fact that the intermediate objective of Brazil was to 
resolve a concern over th e sufficiency of supply of digital television products to the market, in order to 
consequently achieve the overarching public moral objective, and considering that Article XX(j) explicitly refers 
to measures "essential to the acquisition or distribution of  products in general or local short supply", the Panel 
considers Article XX(j) to be relevant context for determining whether or not Brazil has demonstrated that 
certain products could or would be in short supply in the Brazilian market. Specifically in th is dispute, the Panel 
considers the guidance of the Appellate Body report in India – Solar Cells to be indicative of the type of 
evidence any Member should present in order to demonstrate that particular products are in short supply in a 
particular market.   WT/DS472/R • WT/DS497/R  
 
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  7.3.6.3.2.3   The level of trade -restrictiveness  
7.603.   The Panel now turns to assess the trade -restrictiveness of the discriminatory aspects of the 
PATVD programme.  
7.604.   Brazil arg ues that the trade -restrictiveness of the measure is offset, or "countervail[ed]" 
by the investment costs of the PATVD programme.1002 Brazil argues that the trade impact of the 
PATVD programme is low because tax incentives are granted to companies that have p reviously 
incurred expenditure in order to be eligible for the tax benefit. Thus, "investment costs countervail 
any financial impact on the relevant goods stemming from the tax reduction".1003 Further, Brazil 
notes that it does not impose any ban on imports o f digital television transmission equipment into 
Brazil.1004 
7.605.   The Panel fails to see the relevance of the investment requirements in respect of the trade -
restrictiveness of the measure. The term trade -restrictiveness primarily relates to the impact of 
the meas ure on imports of like products into Brazil.1005 In the Panel's view, the fact that companies 
must invest in R&D in Brazil in order to be accredited neither mitigates nor enhances the level of 
trade -restrictiveness of the challenged aspects of the programme.  
7.606.   However, the Panel does acknowledge Brazil's argument that "PATVD does not ban or 
prohibit imports of digital TV transmission equipment into Brazil".1006 In the view of the Panel, 
while it is clear that the conditions of competition have been altered to the detriment of like 
imported products, PATVD does not exclude those like imported products from entering the market 
and being sold as finished products to end users, nor does it preclude like imported products from 
entering the market and being incorporated into finished products produced domestically.  
7.607.   The Panel recognises that a determination of the trade -restrictiveness of a particular 
measure should be as precise as possible. However, the Panel is not in a position to make a 
quantitative estimation of the  level of trade -restrictiveness. In the present dispute, the 
discriminatory aspects of the PATVD programme result in a disincentive to purchase imported 
products (both finished products and the components used to produce those finished products), 
which in the view of the Panel will have a material impact on imports of those products. The Panel 
therefore considers that the actual and potential overall trade -restrictiveness of the PATVD 
programme is material.1007  
7.3.6.3.2.4   Comparison with reasonably available alternative  measures  
7.608.   The Panel recalls the Appellate Body's instructions in EC – Seal Products that "[w]hile there 
may be circumstances in which a weighing and balancing exercise would not require that a panel 
proceed to evaluate alternative measures …, we also do no t consider that such an exercise 
mandates a preliminary determination of the necessity of the challenged measure before 
proceeding to assess those alternatives".1008 In light of the findings above, and in particular the 
Panel's finding regarding the contribut ion made by the measure to the objective, the Panel does 
not consider it necessary to make a preliminary decision on whether the measure is "necessary" 
based on the three factors described above, but proceeds by considering whether the alternative 
measures  proposed by the complaining parties are WTO -consistent measures that are reasonably 
available to Brazil, that are less trade -restrictive than the PATVD programme, and that could 
achieve an equal or higher level of contribution to the objective.  
                                                
1002 Brazil's first written submissions, para. 431 (DS472) and para. 369 (DS497).  
1003 Brazil's first written submissions, para. 431 (DS472) and para. 369 (DS497).  
1004 Brazil's first written submissions, para. 432 (DS472) and para. 370 (DS497).  
1005 Appellate Body  Report, China – Publications and Audiovisual Products , para. 306.  
1006 Brazil's first written submissions, para. 432 (DS472) and para. 370 (DS497).  
1007 The Panel notes that in Colombia – Textiles the Appellate Body considered that there was 
insufficient clarit y with respect to the degree of trade -restrictiveness, such that the Appellate Body saw "no 
basis to proceed with a comparison of the measure at issue with any possible alternative measures". See 
Appellate Body Report, Colombia – Textiles , para. 5.115. In the present dispute, the Panel considers that the 
Panel's determination of the level of trade -restrictiveness is sufficiently clear to engage in a comparison of the 
trade -restrictiveness of alternative measures reasonably available to Brazil, as discussed in section 7.3.6.3.2.4  
below.  
1008 Appellate Body Report, EC – Seal Products , fn 1299. See also Appellate Body Reports, US – COOL 
(Article 21.5  – Canada and Mexico) , para. 5.235.  WT/DS472/R • WT/DS497/R  
 
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  7.609.   Both comp laining parties have proposed certain WTO -consistent, less trade -restrictive 
alternative measures that they claim are reasonably available to Brazil and that would contribute 
to the objective of achieving access to digital TV to an equivalent or greater ex tent than the 
discriminatory aspects of the PATVD programme. These alternatives are: tax exemptions (or 
suspensions) on all sales of digital TV transmitters that comply with Brazil's digital TV standards, 
regardless of whether they are imported or domestic ally produced1009; the elimination of tariffs on 
the importation of digital TV transmitters1010; or the provision of subsidies directly to producers of 
digital TV transmitters, without imposing discrimination between products.1011 
7.610.   The Panel recalls that once a comp lainant has identified an alternative measure, and 
shown that such alternative measure is less trade -restrictive, and contributes to the achievement 
of the pursued objective to an equal or greater extent, than the challenged measure, it is then for 
the res ponding party to demonstrate why the proposed alternatives are not reasonably 
available.1012  
7.611.   Brazil has argued that the PATVD programme contributes to the objective of bridging the 
digital divide and promoting social inclusion, by ensuring continuity of supp ly of digital television 
equipment meeting the requirements of the SBTVD.1013 The Panel recalls its finding above that 
Brazil has not demonstrated that the PATVD programme will make much contribution to this 
objective, if any. The Panel further recalls that i t was able to conclude that the degree of actual 
and potential trade -restrictiveness was material.  
7.612.   The first alternative is for Brazil to exempt from IPI, PIS -PASEP, COFINS, PIS/PASEP -
Importation , and COFINS -Importation contributions,  the sales of all dig ital television transmitters 
that comply with Brazil's digital television standards, regardless of whether they are imported or 
domestically produced.1014 In the view of the Panel, this alternative is WTO -consistent, would be 
trade -enhancing rather than trade -restrictive, and is likely to increase the supply of digital 
television equipment to the market and lower the price of digital television equipment for end 
consumers, thereby resulting in a greater contribution than the PATVD programme to the objective 
of bridging the digital divide and promoting social inclusion.  
7.613.   The second alternative is for Brazil to exempt from custom duties1015 all digital television 
transmitters1016 that are currently incentivised under the programme.1017 In the view of the panel, 
this alter native is WTO -consistent, would be trade -enhancing rather than trade -restrictive, and is 
likely to increase the supply of digital television equipment to the market and lower the price of 
digital television equipment for end consumers, resulting in lower p rices for consumers, thereby 
resulting in a greater contribution than the PATVD programme to the objective of bridging the 
digital divide and promoting social inclusion.  
                                                
1009 See European Union's opening sta tement at the first meeting of the Panel, para. 165; European 
Union's response to Panel question No. 5; Japan's opening statement at the first meeting of the Panel, 
para. 19; Japan's response to Panel question No. 5; and Japan's second written submission, para. 167. The 
Panel notes that the United States also suggested this as an alternative. See United States' third party 
submission, para. 28.  
1010 See European Union's opening statement at the first meeting of the Panel, para. 165; and European 
Union's respon se to Panel question No. 5. The Panel notes that the United States also suggested this as an 
alternative. See United States' third party submission, para. 28.  
1011 See European Union's opening statement at the first meeting of the Panel, para. 165; European 
Union's response to Panel question No. 5; Japan's opening statement at the first meeting of the Panel, 
para. 19; Japan's response to Panel question No. 5; and Japan's second written submission, para. 167. The 
Panel notes that the United States also suggeste d this as an alternative. See United States' third party 
submission, para. 28.  
1012 See paragraphs 7.532  to 7.533  above.  
1013 See paragraphs 7.545  to 7.547  above.  
1014 European Union's opening statement at the first meeting of the Panel, para. 165; European Union's 
response to Panel question No. 5; Japan's opening statement at the first meeting of the Panel, para. 19; 
Japan's response to Panel question No. 5; Japan's second written submission, para. 167.  
1015 The European Union explains that the current applied ad valorem duty for products falling within this 
tariff line is 12%. European Un ion's response to Panel question No. 5.  
1016 The European Union describes this as "'transmission apparatus (transmitters) for television, whether 
or not incorporating a reception apparatus or a sound recording or reproduction apparatus', falling within the 
MCN code 8525.59.2". European Union's response to Panel question No. 5.  
1017 See European Union's opening statement at the first meeting of the Panel, para. 165; European 
Union's response to Panel question No. 5.  WT/DS472/R • WT/DS497/R  
 
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  7.614.   The third alternative is for Brazil to provide subsidies directly to producers of dig ital 
television equipment, regardless of the origin of the manufactured products.1018 In the view of the 
Panel, this alternative is WTO -consistent, would be trade -enhancing rather than trade -restrictive, 
and is likely to increase the supply of digital televis ion equipment to the market and lower the 
price of digital television equipment for end consumers, resulting in lower prices for consumers, 
thereby resulting in a greater contribution than the PATVD programme to the objective of bridging 
the digital divide  and promoting social inclusion.  
7.615.   Brazil argues that these alternative measures are not reasonably available because the 
PATVD programme has multiple objectives, one of which includes the promotion of "local capability 
and investments in R&D of [digital tel evision] technologies in Brazil".1019 In Brazil's view, the 
PATVD programme "serves to encourage research and development and foster the expansion of 
Brazilian technologies and of a national industry related to communication and information 
technology".1020 Brazil argues that the alternative measures are not reasonably available because 
the proposed alternatives do not make a sufficient contribution to this objective.  
7.616.   Brazil has not argued that the objective of promoting its domestic industry is a public 
morals objective, nor has Brazil argued that this objective is covered by any other sub -paragraph 
of Article XX of the GATT 1994.  
7.617.   The Panel agrees with Brazil that a measure may have multiple goals, and that it is not 
necessary that one goal should prevail over a nother. However, in order for an aspect of a measure 
that is found to be GATT -inconsistent to be justified under Article XX, the objective being pursued 
must fit within one of the subparagraphs of Article XX. A panel cannot reject a reasonably available 
alternative that achieves the desired level of protection of an interest protected under Article XX, 
purely because that alternative does not achieve a certain level of protection of an interest not 
protected under Article XX.  
7.618.   The Panel therefore considers that any of the three proposed alternatives would be not 
only WTO -consistent and less trade -restrictive than the discriminatory aspects of the PATVD 
programme, but can make a more substantial contribution to the claimed objective than the 
discriminatory as pects of the PATVD programme. Furthermore, Brazil has not demonstrated that 
these alternatives are not "reasonably available" to Brazil.  
7.619.   In the view of the Panel, this finding also sheds light on the Panel's concerns regarding the 
nature and objective of t he PATVD programme. Specifically, these alternative measures, which if 
adopted would make a clear contribution to the stated objective of bridging the digital divide 
through increased supply of more affordable digital television products to the market, sta nd in 
stark contrast to the PATVD programme.  
7.620.   Brazil has not demonstrated that the proposed alternatives are not financially, technically, 
or otherwise, reasonably available, nor has Brazil rebutted the complaining parties' demonstrations 
that such alterna tives would be WTO -consistent, less trade -restrictive than the PATVD programme, 
and more likely to contribute to the objective than the PATVD programme.  
7.621.   The Panel therefore concludes that the alternative measures suggested by the complaining 
parties are re asonably available to Brazil, WTO -consistent, less trade -restrictive than the PATVD 
programme, and are likely to result in a greater contribution than the PATVD programme to the 
objective of bridging the digital divide and promoting social inclusion.  
7.3.6.3.2.5   Conc lusion on necessity under Article XX(a)   
7.622.   The Panel has conducted a holistic analysis, weighing and balancing the importance of the 
objective, the contribution made by the measure to that objective, and the trade -restrictiveness of 
the measure, in light of reasonably available alternative measures. In the Panel's view, and 
particularly in light of reasonably available alternatives that in the Panel's view are not only WTO -
                                                
1018 See European Union's opening statement at the  first meeting of the Panel, para. 165; European 
Union's response to Panel question No. 5; Japan's opening statement at the first meeting of the Panel, para. 
19; Japan's response to Panel question No. 5; Japan's second written submission, para. 167.  
1019 Brazil's second written submission, para. 125.  
1020 Brazil's second written submission, para. 126.  WT/DS472/R • WT/DS497/R  
 
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  consistent and less trade -restrictive but are likely to contribute to a greater extent than the 
discriminatory aspects of the PATVD programme to the objective, Brazil has not demonstrated that 
the aspects of the measure found to be inconsistent with provisions of the GATT 1994 are 
"necessary" to achieve social inclusion and access to informa tion, within the meaning of Article 
XX(a) of the GATT 1994.  
7.3.6.4   Whether the discriminatory aspects of the PATVD programme satisfy the 
requirements of the chapeau of Article XX  
7.623.   Brazil contends that the PATVD programme is not applied in a manner that constitutes  an 
arbitrary or unjustifiable discrimination. Brazil considers that the PATVD programme is necessary 
to guarantee the development and manufacture of digital television transmitting equipment in 
Brazil, in order to achieve the implementation of Brazil's di gital television system.1021 Brazil notes 
that the conditions prevailing between the relevant countries are not the same since the Brazilian 
digital television system is unique.1022 Brazil argues that the application of the PATVD programme 
does not constitute a disguised restriction to trade because the purpose of the programme is to 
guarantee investment in R&D, and the conditions necessary to implement the Brazilian Digital 
Television System.1023 
7.624.   The complaining parties argue that Brazil has failed to demonstrate t hat the discriminatory 
aspects of the PATVD programme satisfy the requirements of the chapeau of Article  XX. In 
particular, the complaining parties argue that the PATVD programme, and particularly the local 
content requirements in PATVD, discriminate betwe en countries where the same conditions 
prevail, in a manner that "runs counter to the purported objective of PATVD", inconsistently with 
the chapeau of Article XX.1024 Additionally, both complaining parties allege that the discriminatory 
aspects of the PATVD programme comprise a "disguised restriction on trade", since "Brazil has 
introduced a measure that discriminates on the basis of national origin not only with respect to 
digital TV equipment, but also with respect to the components of such equipment."1025 
7.625.   In light of its findings above that the measure is not provisionally justified under Article 
XX(a) of the GATT 1994, the Panel does not consider it necessary to make findings on whether 
Brazil has demonstrated that its defence under Article XX(a) meets the re quirements of the 
chapeau to Article XX.  
7.3.6.5   Conclusion  
7.626.   In light of the  foregoing, the Panel concludes that those aspects of the PATVD programme 
found to be inconsistent with Article III of the GATT 1994 and Article 2.1 of the TRIMs Agreement 
are not justifie d under Article XX(a) of the GATT 1994.1026  
7.4  The INOVAR -AUTO programme  
7.4.1   Claims under Article III:2 of the GATT 1994  
7.4.1.1   Introduction  
7.627.   The European Union and Japan raise claims under Article III:2 of the GATT 1994, first 
sentence, with respect to certain aspects of the INOVAR -AUTO programme. Specifically, the 
                                                
1021 Brazil's first written submissions, para. 446 (DS472) and para. 384 (DS497).  
1022 Brazil's first written submissions, para. 450 (DS472) and para. 388 (DS497).  
1023 Brazil's first written submissions, para. 457 (DS472) and para. 395 (DS497).  
1024 European Union's second written submission, para. 470; Japan's second written submission, 
para. 168. 
1025 European Union's second written submission, para. 470; Japan's second written submission, 
para. 169. 
1026 The Panel notes that pursuant to Article 3 of the TRIMs Agreement, "[a]ll exceptions under GATT 
1994 shall apply, as appropriate to the provisions of this Agreement".  WT/DS472/R • WT/DS497/R  
 
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  complaining parties allege that Brazil imposes a tax burden on imported motor vehicles in excess 
of that imposed on domestic like motor vehicles.1027 
7.628.   Japan also raises claims under the second sentence of Article II I:2 of the GATT 1994 with 
respect to certain aspects of the INOVAR -AUTO programme.1028 
7.629.   Brazil argues that the complaining parties have not provided sufficient evidence that the 
INOVAR -AUTO programme modifies the competitive conditions between imported and lik e 
domestic motor vehicles to the detriment of the former.1029  
7.630.   As developed in paragraphs 7.61 and 7.71 above, Brazil also argues that the challenged 
aspects of the prog rammes are not within the scope of Article III:2, because: (i) these aspects of 
the programmes are pre -market requirements that are not covered by Article III, and (ii) the 
programmes constitute subsidies paid exclusively to domestic producers within the m eaning of 
Article III:8(b) of GATT.1030  
7.631.   The Panel has considered Brazil's threshold arguments in sections 7.2.1 and 7.2.2  above.  
With respect to Brazil's first argument , the Panel already found in paragraph 7.70 above that the 
fact of the measures' status as "pre -market" requirements does not have an impact on whether 
the measure is within the scope of Article III:2 of the GAT T 1994. With regards to Brazil's second 
argument, i.e. that the programmes constitute subsidies to domestic producers within the meaning 
of Article III:8(b) of the GATT 1994, the Panel recalls its findings in paragraph 7.87 above that, as 
a general principle, Article III:8(b) does not exempt from the substantive disciplines of Article III 
components of such production subsidies that introduce tax discrimination on imported like 
products.  
7.632.   As noted above, in order  to determine whether there is an inconsistency with the first 
sentence of Article III:2 of the GATT 1994, two questions need to be answered:  
a. Whether imported and domestic products are like products; and  
b. Whether the imported products are taxed in excess of  the domestic products.1031 
7.633.   If the answers to both questions are affirmative, then the internal tax or charge shall be 
found to be inconsistent with the first sentence of Article III:2 of the GATT 1994.1032 
7.634.   As regards the second sentence of Article III:2 of the GATT 1994, three separate issues 
must be addressed:  
a. Whether the imported products and the domestic products are "directly competitive or 
substitutable products";  
b. Whether the directly competitive or substitutable imported and domestic products are 
"not simi larly taxed"; and  
c. Whether the dissimilar taxation of the directly competitive or substitutable imported and 
domestic products is "applied ... so as to afford protection to domestic production".  
7.635.   If the answers to these three questions are affirmative, then  the internal tax or internal 
charge shall be found to be inconsistent with the second sentence of Article III:2 of the 
GATT  1994.  
                                                
1027 European Union's first written submission, paras. 320 -345; Ja pan's first written submission, 
paras.  195-229.  
1028 Japan's first written submission, paras. 230 -244.  
1029 Brazil's first written submissions, paras. 564 -567 (DS472) and 501 -504 (DS497).  
1030 Brazil's first written submissions, paras. 547 and 475 -483 (DS472) and  paras. 472 and 549 -556 
(DS497).  
1031 Appellate Body Report, Canada –Periodicals , pp. 22–23, DSR 1997:1, 449, at p. 468 . See also 
Appellate Body Report, Japan – Alcoholic Beverages II , pp. 19 –23, DSR 1996:I, 97, at pp. 111 -115. 
1032 Appellate Body Report, Canada  –Periodicals , pp. 22–23, DSR 1997:1, 449, at p. 468 . WT/DS472/R • WT/DS497/R  
 
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  7.636.   As noted above, in the present dispute the parties agree that the challenged measures are 
taxes.1033 The relevant tax  under this  claim with respect to the INOVAR -AUTO programme is the 
IPI tax.1034  
7.637.   The complaining parties have identified two ways whereby companies can reduce their IPI 
tax burden under the INOVAR -AUTO programme: (i) through reduced IPI tax rates for certain 
motor vehic les; and (ii) through the use of presumed IPI tax credits with which to offset their IPI 
tax liabilities. The Panel shall address these two instances separately. As the Panel did with respect 
to the ICT programmes, it shall start its analysis by examining whether the products at issue are 
like. It shall then assess whether imported motor vehicles are taxed in excess of like domestic 
motor vehicles.  
7.4.1.2   Reduced IPI tax rates  
7.4.1.2.1   Whether imported and domestic motor vehicles are "like products", within the 
meaning of Article III:2, first sentence  
7.638.   First, the Panel recalls its finding in paragraph 7.117  above, in the context of Article III:2 
of the GATT 1994 as applied to the ICT programmes, that incentivised products manufact ured in 
Brazil are Brazilian domestic products within the meaning of Article III:2. The Panel similarly 
considers that motor vehicles manufactured in Brazil are domestic Brazilian products.  
7.639.   The complaining parties identify as an instance of special treatm ent the reduced IPI tax 
rates provided under the Additional Note NC 87 -5 to the TIPI in Annex IX of Decree 7,819/2012 
with respect to certain motor vehicles domestically produced.1035  
7.640.   Additional Note NC 87 -5 to the TIPI reads as follows:  
From 1 January 2013 to 31 December 2017:  
NC (87 -5). Tax rates shall be reduced to 45% for vehicles manufactured nationally  
with manual transmission, transfer case, chassis independent from the bodywork, 
minimum clear height from the ground of the front or rear axles of 200 mm , minimum 
clear height from the ground between the axles of 300 mm, minimum approach angle 
of 35º, minimum departure angle of 24º, minimum ramp angle of 28º, resurfacing 
capacity from 500 mm, combined total gross weight from 3 000 kg, maximum weight 
in run ning order of up to 2 100 kg, designed for military use or agro -industrial work, 
classified under codes 8703.32.10 and 8703.33.10.  
From 1 January 2018:  
NC (87 -5). Tax rates shall be reduced to 15% for vehicles manufactured nationally  
with manual transmissi on, transfer case, chassis independent from the bodywork, 
minimum clear height from the ground of the front or rear axles of 200 mm, minimum 
clear height from the ground between the axles of 300 mm, minimum approach angle 
of 35º, minimum departure angle of  24º, minimum ramp angle of 28º, resurfacing 
capacity from 500 mm, combined total gross weight from 3 000 kg, maximum weight 
                                                
1033 See European Union's first written submission, paras. 771, 918 and 1059; Japan's first written 
submission, paras. 10 -16; Brazil's first written submissions, para. 59 (DS472) and para. 23 (DS497). The 
European Union and Japan have raised an alternative claim under Article II:1(b) of the GATT 1994 with respect 
to the four ICT -related programmes (Informatics, PADIS, PATVD and Digital Inclusion) in the event that Brazil 
contends that PIS/PASEP -Importation and COFINS -Importation are not taxes but "other duties or charges" on 
imports within the meaning of Article II:1(b) of the GATT 1994. Since Brazil has not argued that PIS/PASEP -
Importation and COFINS -Importation are "other duties and charges" within the me aning of Article  II:1(b), the 
Panel shall not address these particular claims. See European Union's first written submission, para. 1149; and 
Japan's first written submission, fn 26 to para. 14.  
1034 See European Union's first written submission, para. 320.  
1035 European Union's first written submission, para. 341 ; Japan’s first written submission, para 189 . WT/DS472/R • WT/DS497/R  
 
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  in running order of up to 2 100 kg, designed for military use or agro -industrial work, 
classified under codes 8703.32.10 and 8703.3 3.10.1036 
 
7.641.   Thus, Additional Note NC 87 -5 provides that from 1 January 2013 to 31 December 2017 
tax rates shall be reduced to 45% for certain vehicles manufactured nationally. From 1 January 
2018, tax rates shall be reduced to 15% for these same vehicles provi ded that they are 
manufactured domestically.  
7.642.   The Panel considers that the text of the Additional Note NC 87 -5 clearly establishes an 
origin -based distinction given that it explicitly requires that the vehicles at issue be produced 
domestically in order to benefit from the reduced IPI tax rate.  
7.643.   Therefore, the Panel finds that the likeness of domestic and imported vehicles fulfilling the 
characteristics set out in Additional Note NC -87-5 can be presumed, for the purposes of the 
analysis under Article III:2, first sentence, of the GATT 1994.  
7.4.1.2.2   Whether imported motor vehicles are "taxed in excess of" like domestic motor 
vehicles  
7.644.   The text of Additional Note NC 87 -5 provides that the tax rates applicable to certain motor 
vehicles manufactured domestically "shall be  reduced" to 45% from 1 January 2013 to 31 
December 2017 and to 15% from 1 January 2018 onwards. Imported motor vehicles with these 
characteristics shall not benefit from this reduced tax rate.  
7.4.1.2.3   Conclusion  
7.645.   The Panel therefore finds that the imported motor v ehicles at issue are taxed in excess of 
domestic like motor vehicles given that the tax reduction only affects those motor vehicles 
manufactured domestically. Consequently, the Panel finds that imported motor vehicles are taxed 
in excess of like domestic m otor vehicles within the meaning of Article III:2, first sentence, of the 
GATT 1994.  
7.4.1.3   Presumed IPI tax credits  
7.4.1.3.1   Whether imported and domestic motor vehicles are "like products"  
7.646.   First, the Panel recalls its finding in paragraph 7.117  above, in the context of Article III:2 
of the GATT 1994 as applied to the ICT programmes, that incentivised products manufactured in 
Brazil are Brazilian domestic products within the meaning of Article III:2. The Panel similarly 
conside rs that motor vehicles manufactured in Brazil are domestic Brazilian products.  
7.647.   The European Union and Japan argue that the imported and domestic motor vehicles at 
issue are like because the INOVAR -AUTO programme provides for differential treatment based 
exclusively on the origin of the products.1037 In this respect, the European Union argues that the 
distinctions are drawn based on the place of production of the products (or some production 
steps), the origin of the components and the obligations undertaken by  companies to invest in 
R&D, and engineering and industrial technology and technological development in Brazil.1038 
7.648.   The European Union and Japan argue that the INOVAR -AUTO programme draws origin -
based distinctions at three different stages: (i) conditions for  accreditation; (ii)  rules on accrual 
and calculation of presumed IPI tax credits; and (iii)  rules on the use of such tax credits.1039 
Additionally, the European Union argues that the origin -based discrimination is reinforced by the 
fact that presumed IPI tax  credits cannot be used to offset IPI tax liabilities at the point of import 
                                                
1036 Decree 7,819/2012, (Exhibit JE -132), Annex IX, TIPI Additional Note (NC) 87 -5. (emphasis added)  
1037 European Union's first written submission, para. 326; and  Japan's first written submission, 
para. 198. 
1038 European Union's first written submission, para. 333.  
1039 European Union's first written submission, para. 115; second written submission, paras. 329 -334; 
and Japan's first written submission, paras. 196 and 19 8; second written submission, paras. 71 -72. WT/DS472/R • WT/DS497/R  
 
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  and, therefore, the IPI tax levied on imported motor vehicles at the time of their importation is 
always the full rate.1040 
7.649.   As far as accreditation is concerned, Japan considers that  it is more difficult for 
manufacturers of imported motor vehicles to get accredited under the INOVAR -AUTO programme 
compared to domestic manufacturers. In this respect, Japan argues that domestic manufacturers 
can easily satisfy the requirement of produci ng motor vehicles in Brazil because this is their 
regular activity, and also because it is easier for domestic manufacturers to comply with the 
requirements relating to domestic expenditure.1041 Japan considers that, even though foreign 
manufacturers can pote ntially have access to the advantages under INOVAR -AUTO by opting for 
the importer/distributor accreditation type, such foreign manufacturers face a higher burden in 
getting accredited than domestic manufacturers, for instance by becoming established in th e 
Brazilian market and incurring costs in Brazil which they would otherwise not incur given that they 
do not conduct manufacturing activities in Brazil.1042 
7.650.   As far as accrual and calculation of presumed IPI tax credits is concerned, the European 
Union and Jap an argue that companies that import motor vehicles, and manufacturers of imported 
products, cannot accrue significant IPI tax credits compared to domestic manufacturers because 
such companies do not make expenditure in strategic inputs and tools in Brazil (since they do not 
perform manufacturing activities in Brazil). In the case of accredited importers/distributors, this 
limits their ability to import motor vehicles at a lower IPI tax rate. For its part, Japan argues that it 
is less likely that manufacture rs of imported motor vehicles accrue presumed IPI tax credits, 
because such manufacturers do not carry out manufacturing activities in Brazil and consequently 
are unlikely to make expenditure in Brazil, especially on strategic inputs and tools, which are t he 
items that generate higher presumed IPI tax credits.1043 
7.651.   As far as the use of presumed IPI tax credits is concerned, the European Union and Japan 
point out that the use of presumed IPI tax credits with respect to imported motor vehicles is 
limited for two reasons. First, the complaining parties state that any tax credits may only be 
applied to imported motor vehicles if there is any tax credit left after offsetting the IPI tax due on 
domestic products. Second, the complaining parties further add that there is a limit to the number 
of imported motor vehicles that can benefit from the tax reduction: 4,800 imported motor vehicles 
per year.1044 
7.652.   In the complaining parties' view, the fact that the differential treatment is exclusively 
based on the origin of the produ cts precludes the need to examine the four traditional likeness 
criteria. In any event, the European Union argues that the examination of the four traditional 
likeness criteria confirms that the products at issue are like because the products (i)  are ident ified 
based on the Mercosur Common Nomenclature (MCN);1045 (ii) have similar physical characteristics, 
(iii) have the same end uses; and (iv)  generally attract the same consumers.1046 
7.653.   Brazil contends that the level of presumed IPI tax credits is not related to t he origin of the 
products but to the different levels of contribution that the accredited companies make to the 
objectives of the INOVAR -AUTO programme.1047 
7.654.   The Panel notes that, on its face, the IPI tax rates established in the TIPI are in principle 
the same  for imported and like domestic products.1048 The products covered under the INOVAR -
AUTO programme are identified in Annex I of Decree  7,819/2012 on the basis of their TIPI tariff 
                                                
1040 European Union's second written submission, para. 338. The European Union notes that there are 
two exceptions to this situation: (i) the motor vehicles imported by companies accredited as "investors"; and 
(ii) the annual quota of 4,800 imported motor vehicles per accredited company established in Article 22(II) of 
Decree  7,819/2012.  
1041 Japan's first written submission, para. 199.  
1042 Japan's first written submission, para. 202.  
1043 European Union's second written sub mission, para. 339; Japan's first written submission, para. 209.  
1044 European Union's second written submission, para. 340; Japan's first written submission, para. 212.  
1045 European Union's first written submission, para. 608.  
1046 European Union's first written submission, para. 334.  
1047 Brazil's first written submissions, para. 560 (DS472) and 496 (DS497); second written submission, 
para. 146.  
1048 The exception being Additional Note 87 -5 in Annex IX of Decree 7,819/2012, which explicitly 
provides for a reduced IPI t ax rate for "vehicles manufactured nationally" that meet certain features.  WT/DS472/R • WT/DS497/R  
 
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  code; no distinction between domestic and imported products is in principle est ablished.1049 
However, a first glance at the structure and operation of the INOVAR -AUTO programme shows that 
companies that fulfil certain requirements obtain an accreditation that entitles them to accrue and 
use presumed IPI tax credits, thereby reducing the ir IPI tax burden up to 30 percentage points. 
This reduction of their IPI tax burden would result in a differential tax treatment for those 
companies that are accredited, compared to those that are not accredited.1050  
7.655.   The Panel will in turn conduct a thoroug h assessment of the design, structure and 
operation of the INOVAR -AUTO programme to determine, first, whether this differential tax 
treatment is based exclusively on the origin of the products, as argued by the complaining parties. 
If this is the case, the  Panel will presume the likeness of imported and domestic products for the 
purpose of its analysis. In order to do so, the Panel shall assess in turn the three stages of 
allegedly origin -based discrimination identified by the complaining parties: (i) accre ditation ; (ii) 
accrual and calculation of presumed tax credits; and (iii) use of presumed tax credits. Second, the 
Panel will proceed to examine whether the differential tax treatment provided for in the INOVAR -
AUTO programme results in imported motor vehi cles being taxed in excess of domestic like motor 
vehicles.  
Accreditation  
7.656.   As explained above, there are three types of accreditation that entitle companies to accrue 
and use presumed IPI tax credits: (i) accreditation for domestic manufacturers; (ii) accre ditation 
for "importers/distributors", and (iii) accreditation for investors. All accredited companies must 
comply with two general requirements and with a series of specific requirements that differ 
depending on the type of accreditation.1051 
7.657.   The Panel notes  in the first place that, in order for companies to obtain any sort of 
accreditation that entitles them to accruing and using presumed IPI tax credits, they must either 
be located and operate in Brazil1052 (in the case of "domestic manufacturers" and "importe rs/ 
distributors") or in the process of establishing in the country as domestic manufacturers (in the 
case of "investors").1053 This entails that foreign companies exclusively located outside Brazil that 
manufacture products imported into Brazil cannot, per s e, get accredited and, consequently, 
cannot accrue and use presumed IPI tax credits. If foreign companies wish to obtain accreditation 
under the INOVAR -AUTO programme, they must establish themselves in Brazil as 
importers/distributors1054, or as investors tha t will later become domestic manufacturers. The 
Panel considers that the fact that foreign companies cannot get accredited as such indicates that 
the origin of the company is indeed relevant for receiving differential tax treatment in the form of 
presumed IPI tax credits. In this respect, the Panel observes that accreditation is a pre -requisite 
for accruing and using the tax credits, and that foreign companies, which manufacture imported 
products, cannot obtain accreditation because they are not located in Brazil, and that their 
products therefore cannot benefit from the presumed IPI tax credits.  
7.658.   The Panel further notes that companies applying for a "domestic manufacturer" 
accreditation and those applying for an "importer/distributor" accreditation must ful fil different 
requirements. "Domestic manufacturers" shall comply with three out of four specific requirements, 
one of which must be the performance of a minimum number of defined manufacturing and 
engineering infrastructure activities in Brazil.1055 "Importe rs/distributors" shall comply with the 
following three specific requirements: (i)  investments in R&D in Brazil; (ii) expenditure on 
engineering, basic industrial technology and capacity -building of suppliers in Brazil; and 
                                                
1049 Decree 7,567/ 2011, (Exhibit JE -127). See also European Union's first written submission, para. 
327. 
1050 See section 2.2.5.4  above.  
1051 See sections 2.2.5.5.1  and 2.2.5.5.2.1  above.  
1052 Brazil's response to Panel question No.  57. 
1053 Brazil has explained that the type of accreditation that relates to "investors" "is a temporary 
accreditat ion which eventually becomes an accreditation as a manufacturer in Brazil" . See Brazil's response to 
Panel question No.  28. 
1054 This category of accreditation does not involve carrying out manufacturing activities in Brazil.  
1055 The other two requirements must  be among these three: (i)  investments in R&D in Brazil; (ii) 
expenditure on engineering, basic industrial technology and capacity -building of suppliers in Brazil; and 
(iii) participation in the vehicle labelling programme by the National Institute of Metr ology, Quality and 
Technology (INMETRO). See paragraph 2.115  above.  WT/DS472/R • WT/DS497/R  
 
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  (iii) participation in the vehicl e labelling programme by the National Institute of Metrology, Quality 
and Technology (INMETRO).1056 In light of the difference in the accreditation requirements to be 
fulfilled and the fact that the only way for foreign companies who exclusively manufacture t heir 
motor vehicles abroad to obtain accreditation is to become "importers/distributors" in Brazil, the 
Panel considers that foreign companies seeking accreditation under the INOVAR -AUTO programme 
must go through a more burdensome accreditation process tha n domestic manufacturers. The 
reason is twofold.  
7.659.   First, one of the specific requirements imposed on domestic manufacturers is that they 
perform a minimum number of manufacturing activities in Brazil. The Panel is of the view that this 
requirement is inher ent to any domestic manufacturer, resulting in domestic manufacturers being 
subject de facto to only two other specific requirements. One of these requirements involves 
investing in R&D in Brazil, which is also linked to the development of their manufactur ing activity 
in the country. In contrast, importers/distributors must fulfil three requirements that are not 
inherent to their activity in Brazil: (i)  investing in R&D in Brazil; (ii)  making expenditure in certain 
items such as engineering, basic industria l technology and capacity -building of suppliers in Brazil ; 
and (iii)  participating in a vehicle labelling programme. Therefore, the Panel considers that, in 
practice, the INOVAR -AUTO programme is designed in a manner that requires foreign 
manufacturers to comply with three specific requirements,  whereas domestic manufacturers are 
required to meet only two specific requirements (the performance of a minimum number of 
defined manufacturing and engineering infrastructure activities in Brazil not constituting per se a 
requirement given that domestic manufacturers necessarily perform manufacturing activities in 
Brazil).  
7.660.   Second, the Panel is of the view that, even if it were to consider that the number of 
requirements imposed on domestic manufacturers and importe rs/distributors is the same, 
compliance with those requirements is more burdensome on foreign manufacturers than domestic 
manufacturers. A foreign manufacturer not planning to manufacture motor vehicles within Brazil 
can only be granted the presumed tax cr edits if that manufacturer obtains the importer/distributor 
accreditation. However, this accreditation also requires that the foreign manufacturers must be 
located and operate in Brazil.1057 There is no possibility for foreign manufacturers as such (located 
outside Brazil) to obtain any accreditation under the INOVAR -AUTO programme, unless they are 
also established in Brazil. Thus, unlike for domestic manufacturers, for foreign manufacturers 
compliance with the accreditation criteria necessarily entails establ ishing in Brazil, with a 
corresponding administrative and economic burden. Domestic manufacturers do not face such a 
burden because they are already established in Brazil.  
7.661.   Therefore, the burden of obtaining accreditation is higher for foreign manufacturer s than 
for domestic manufacturers. In light of the above, it is the Panel's view that the accreditation 
process1058 under the INOVAR -AUTO programme treats imported motor vehicles, which are 
produced by foreign manufacturers outside Brazil, differently to iden tical domestic motor vehicles 
produced by accredited domestic manufacturers, based exclusively on the origin of the 
manufacturers, and consequently, the origin of the motor vehicles.  
Accrual and calculation of presumed IPI tax credits  
7.662.   As explained above, c ompanies accredited as "domestic manufacturers" and 
"importers/distributors" can accrue presumed IPI tax credits by making expenditure in the 
following items in Brazil: (i)  strategic inputs; (ii)  tools; (iii) research; (iv) technological 
development; (v)  technological innovation; (vi)  contributions to the FNDCT; (vii)  capacity -building 
of suppliers; and, (viii)  basic engineering and industrial technology.1059 
                                                
1056 There is a fourth specific requirement set out in Decree  7,819/2012 dealing with the performance in 
Brazil of certain manufacturing steps. Co mplying with this requirement is not an option for 
importers/distributors given that their accreditation type does not foresee their participation in manufacturing 
activities in Brazil.  
1057 Brazil's response to Panel question No. 57.  
1058 In particular, the spe cific accreditation requirements under the INOVAR -AUTO programme. No claim 
has been raised by the complaining parties with regard to the general accreditation requirements provided for 
in Article 4 of Decree 7,819/2012, (Exhibit JE -132).  
1059 See paragraph 2.122  above.  WT/DS472/R • WT/DS497/R  
 
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  7.663.   The Panel recalls that the calculation of presumed IPI tax credits differs depending on 
whether the ac credited company makes expenditure in Brazil in strategic inputs and tools, on the 
one hand, or in the other six categories of expenditure mentioned in the paragraph above.  
7.664.   With respect to expenditure in Brazil in strategic inputs and tools , the Panel exp lained 
above that the method of calculation of the presumed tax credits changed in October 2014. Before 
1 October  2014 the presumed IPI tax credit resulting from expenditure in strategic inputs and 
tools in Brazil was the result of multiplying the amount o f expenditure by a coefficient that varied 
depending on the type of vehicle and the calendar year.1060Pursuant to Implementing Order MDIC 
257/2014, from October 2014 the calculation of the presumed IPI tax credits resulting from 
expenditure in Brazil in strat egic inputs and tools must take into account an additional element: 
the so -called "deductible part". The deductible part is deducted from the total value of expenditure 
in strategic inputs and tools made in Brazil, which constitutes the base to calculate t he presumed 
IPI tax credit.  
7.665.   In the case of strategic inputs and tools from providers that supply to direct suppliers of 
accredited companies (i.e. Tier 2 supplies), the deductible part is calculated based on the Tax 
Situation Codes (CST) indicated in the t ax invoices issued to the suppliers of the accredited 
companies:1061  
a. If the strategic inputs and tools are (i) directly imported from abroad; (ii) imports 
purchased in the Brazilian market; or (iii) Brazilian products with a level of imported 
content higher than 70% (i.e. CST 1, 2, 6, 7 or 8), then 100% of the value shall be 
deducted from the expenditure used to calculate the presumed IPI tax credit.1062  
b. If the strategic inputs and tools are Brazilian products (i) with a level of imported 
content higher than 40 % but lower than or equal to 70%; or (ii) produced in accordance 
with certain PPBs (i.e. CST 3 or 4), then 50% of the value shall be deducted from the 
expenditure used to calculate the presumed IPI tax credit.1063  
c. If the strategic inputs and tools are (i) do mestic products other than those classified 
under CST 3, 4, 5 and 8; or (ii) domestic products with a level of imported content lower 
than or equal to 40% (i.e. CST 0 or 5), then the deductible part is 0, and therefore 
100% of the expenditure incurred shal l count towards calculating the presumed IPI tax 
credit.1064 
7.666.   In the case of strategic inputs and tools supplied directly to accredited companies (i.e. Tier 
1 supplies), the deductible part is the actual value of direct imports (Cost, Insurance & Freight 
(CIF) value) plus the import tax plus the Tier 2 deductible part (i.e. imported content).1065  
7.667.   With respect to expenditure in Brazil in research; technological development; technological 
innovation; and payments to the FNDCT1066, the Panel recalls that the presumed c redit shall 
                                                
1060 Decree 7,819/2012, (Exhibit JE -132), Article 12 §3. See also Decree 7,819/2012, (Exhibit JE -132), 
Article 12 §5.  
1061 See E. da Matta, " Valoração da parcela dedutível ", Sindipeças, September 2014, (Exh ibit JE -105); 
and Implementing Order MDIC 257/2014, (Exhibit JE -158), Annex  III, paragraph 5(b). In the event that no 
CST is indicated in the tax invoice issued to the supplier, it will be classified as CST 2. See Implementing Order 
MDIC 257/2014, (Exhibit  JE-158), Annex III, paragraph 2(a).  
1062 CST 1 (Foreign – Direct import, except as indicated in CST 6), CST 2 (Foreign – Purchased in the 
internal market, except as indicated in code 7), CST 6 (Foreign – Direct import, without a national equivalent 
present i n a list of a CAMEX Resolution and natural gas), CST 7 (Foreign - Purchased in the internal market, 
without a national equivalent present in a list of a CAMEX Resolution and natural gas) and CST 8 (National, 
merchandise or good with Imported Content higher than 70%). See Annex to SINIEF Convention, Un -
numbered, of 15 December 1970, (Exhibit JE -159).  
1063 CST 3 (National, merchandise or good with Imported Content higher than 40% but lower than or 
equal to 70%) and CST 4 (National, produced in accordance with the  basic productive processes which are  
dealt with in Decree -Law 288/67, and in Laws 8,248/91, 8,387/91, 10,176/01 and 11,484/07). See Annex to 
SINIEF Convention, Un -numbered, of 15 December 1970, (Exhibit JE -159).  
1064 CST 0 (National, except as indicated in c odes 3, 4, 5 and 8) or CST 5 (National, merchandise or 
good with Imported Content lower than or equal to 40% (forty percent). See Annex to SINIEF Convention, Un -
numbered, of 15 December 1970, (Exhibit JE -159).  
1065 See E. da Matta, " Valoração da parcela dedut ível", Sindipeças, September 2014, (Exhibit JE -105); 
and Implementing Order MDIC 257/2014, (Exhibit JE -158), Annex  III paragraph 5(a).  WT/DS472/R • WT/DS497/R  
 
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  correspond to 50% of the expenditure, limited to 2% of the total gross proceeds from sales of 
goods and services of the second month prior to the calculation of the credit.1067 
7.668.   With respect to expenditure in Brazil in  payments to the FNDCT; capaci ty-building of 
suppliers; and engineering and basic industrial technology1068; the presumed credit shall 
correspond to 50% of the expenditure which exceeds 0.75%, and up to a limit of 2.75%, of the 
total gross proceeds from sales of goods and services in the second month prior to the calculation 
of the credit.1069 
7.669.   The Panel observes that higher tax credits (and consequently, lower tax burdens) are 
obtained by making expenditure in strategic inputs and tools because the starting point (i.e. initial 
base) to calcul ate the presumed IPI tax credit is 100% of the expenditure, whereas when 
expenditure is made in the other items, the basis for the calculation is 50% of the expenditure.1070 
Furthermore, the only cap applicable to the accrual of presumed IPI tax credits in th e case of 
expenditure in strategic inputs and tools is a reduction of 30 percentage points in the IPI tax rate, 
whereas more restrictive caps apply in the case of expenditure in other items.1071 The Panel is of 
the view that the INOVAR -AUTO programme is desig ned to favour the accrual of presumed IPI tax 
credits by domestic manufacturers vis-à-vis the other two types of accredited companies, because 
domestic manufacturers' manufacturing activities in Brazil require that they make expenditure in 
Brazil in strate gic inputs and tools, thereby generating higher presumed IPI tax credits. Foreign 
manufacturers who obtain accreditation as "importers/distributors" do not carry out manufacturing 
activities in Brazil1072, so the Panel sees no reason why they should purchase in Brazil strategic 
inputs and tools that are used in manufacturing processes. The Panel's view is supported by the 
definition of "strategic inputs" and "tools" under the INOVAR -AUTO programme, which makes it 
clear that they are to be used in the manufactu re of a vehicle:  
[S]trategic materials shall mean any raw materials, parts and components used in the 
manufacture  of, and physically incorporated in, the vehicles referred to in Annex I to 
Decree No 7.819 of 2012.…[T]ools shall mean specific tools for eac h type of part, 
linked to a machine and used to stamp or inject automotive parts intended for the 
manufacturing process  referred to in Article 1.1073 
7.670.   The same applies to the third category of accreditation, that of "investors" because they 
are in the process of establishing in the country. By the time they start making expenditure in 
strategic inputs and tools due to starting their manufacturing activities, they will be accredited as 
domestic manufacturers.1074 
7.671.   Furthermore, the Panel considers that if foreign man ufacturers accredited as 
"importers/distributors" were to make any expenditure or investment in Brazil, it would be in the 
other categories of expenditure that are not so targeted towards manufacturing, such as: 
(i) research; (ii)  technological development ; (iii) technological innovation; (iv)  contributions to the 
FNDCT; (v)  capacity -building of suppliers; and, (vi)  basic engineering and industrial technology. As 
                                                                                                                                                  
1066 Decree 7,819/2012, (Exhibit JE -132), Article 12(III) to (VI).  
1067 Taxes and contributions on sales are excluded. See Decr ee 7,819/2012, (Exhibit JE -132), Article 12 
§9, as amended by Decree 8,294/2014, (Exhibit JE -134), Article 1.  
1068 Decree 7,819/2012, (Exhibit JE -132), Article 12(VI) to (VIII).  
1069 Taxes and contributions on sales are excluded. See Decree 7,819/2012, (Exhibit JE-132), Article 12 
§10, as amended by Decree  8,294/2014, (Exhibit JE -134), Article 1.  
1070 See paragraph 2.127  above.  
1071 With respect to expenditure in Brazil in research; technological development; technological 
innovation; and payments to the FNDCT , the presumed IPI tax credit is capped at 2% of the total gross 
proceeds from sales of goods and services of the second month prior to the calculation of the credit. With 
respect to expenditure in Brazil in  payments to  the FNDCT; capacity -building of suppliers; and engineering and 
basic industrial technology ; the presumed credit is capped at 2.75%, of the total gross proceeds from sales of 
goods and services in the second month prior to the calculation of the credit. See Decree 7,819/2012, (Exhibit 
JE-132), Articles 12 §9 and §10, as amended by Decree 8,294/2014, (Exhibit JE -134), Article 1.  
1072 Subsection II of Decree 7,819/2012, which refers to the so -called "importer/distributor" type of 
accreditation is entitled "Of co mpanies that do not produce but only market vehicles in the country".  
1073 Implementing Order MDIC 257/2014, (Exhibit JE -158), Articles 1 and 2 (emphasis added)  
1074 Brazil explained that the accreditation as "investor" "is a temporary accreditation which eventu ally 
becomes an accreditation as a manufacturer in Brazil". See Brazil's response to Panel question No. 28.  WT/DS472/R • WT/DS497/R  
 
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  described above, expenditure in these items generates lower tax credits than expenditure in 
strategic inputs and tools.1075  
7.672.   Therefore, the Panel finds that the system of accrual and calculation of presumed IPI tax 
credits under the INOVAR -AUTO programme treats imported motor vehicles, which are produced 
by foreign manufacturers outside Brazil, differe ntly to identical domestic motor vehicles produced 
by accredited domestic manufacturers, based exclusively on the origin of the manufacturers, and 
consequently, the origin of the motor vehicles.  
Use of presumed IPI tax credits  
7.673.   As noted above, the use of pr esumed IPI tax credits resulting from expenditure made in 
Brazil in strategic inputs and tools is subject to two limits. First, the presumed IPI tax credits must 
be used by the accredited companies to first offset the IPI tax arising from the sales of dome stic 
motor vehicles, and, only if there is any presumed credit left, can it be used to offset the IPI tax 
arising from the sales of imported motor vehicles.1076 Second, the number of imported motor 
vehicles that can benefit from the reduction through presumed  credits of the IPI tax arising from 
their sales is limited to 4,800 imported motor vehicles per calendar year.  
7.674.   The Panel therefore observes that there exists indeed a differential treatment between 
imported and domestic products as regards the use of pres umed IPI tax credits resulting from 
expenditure made in Brazil in strategic inputs and tools. Priority in the use of these credits is given 
to offsetting the IPI tax due on domestic  motor vehicles. The IPI tax due on imported motor 
vehicles shall only be o ffset if there is credit left after having used the credit with respect to 
domestic products. In addition, a numerical limit is imposed on the number of imported motor 
vehicles whose IPI tax can be offset, whereas no limit on the number of domestic motor v ehicles 
applies. For these reasons, the Panel finds that the rules on the use of presumed IPI tax credits 
resulting from expenditure made in Brazil in strategic inputs and tools treat imported motor 
vehicles differently to identical domestic motor vehicles , within Brazil, based exclusively on the 
origin of the products.  
7.675.   In light of the foregoing, the Panel concludes that:  
a. The complaining parties have successfully made a prima facie  case that the differential 
treatments set out in the accreditation process1077, the system of accrual and calculation 
of presumed IPI tax credits, and the rules on the use of presumed IPI tax credits resulting 
from expenditure made in Brazil in strategic inputs and tools under the INOVAR -AUTO 
programme, are based exclusively on the o rigin of the vehicles; and  
 
b. Brazil has not successfully rebutted the prima facie  case made by the complaining parties.  
 
7.676.   Consequently, the Panel finds that domestic and imported motor vehicles are presumed to 
be like for the purposes of the analysis under A rticle III:2, first sentence, of the GATT  1994.  
                                                
1075 The Panel additionally notes that the new method to calculate the presumed IPI tax credits derived 
from expenditure in strategic inputs and tools as from October 2014 favours domestic over imported content. 
As noted above, expenditure in imported strategic inputs and tools and Brazilian strategic inputs and tools with 
a level of imported content higher than 70% does not generate any tax credit. In a ddition, only half of the 
expenditure made in Brazil in domestic strategic inputs and tools with a level of imported content higher than 
40% but lower than or equal to 70%, is taken into account to calculate the presumed IPI tax credit. The Panel 
observes that the only way for accredited companies to obtain the higher tax credits when making expenditure 
in Brazil in strategic inputs and tools is by purchasing domestic products (other than those classified under CST 
3, 4, 5 and 8) or domestic products with a  level of imported content lower than or equal to 40%. The Panel will 
discuss further this issue in the section dealing with Article III:4 of the GATT 1994.  
1076 This does not apply to the imported motor vehicles set out in Annex VI and the presumed IPI tax 
credit resulting from the acquisition of strategic inputs and tools used for manufacturing these motor vehicles. 
See Decree  7,819/2012, (Exhibit JE -132), Articles 14 §5 and §6, as amended by Decree 8,015/2013, (Exhibit 
JE-133), Article 1.  
1077 In particular, t he specific accreditation requirements under the INOVAR -AUTO programme. No claim 
has been raised by the complaining parties with regard to the general accreditation requirements provided for 
in Article 4 of Decree 7,819/2012, (Exhibit JE -132).  WT/DS472/R • WT/DS497/R  
 
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  7.4.1.3.2   Whether imported motor vehicles are "taxed in excess of" like domestic motor 
vehicles  
7.677.   The Panel has noted above that the TIPI provides for identical IPI tax rates for the motor 
vehicles falling under the scop e of the INOVAR -AUTO programme, regardless of their origin. The 
Panel has also concluded above that the differential tax treatment provided to domestic and 
imported vehicles derives from the rules on accreditation, accrual and subsequent use of presumed 
IPI tax credits under the INOVAR -AUTO programme, which reduces the IPI tax burden up to 30 
percentage points. The Panel has found that this differential treatment is based exclusively on the 
origin of the vehicles. As the Panel did with respect to the ICT pr ogrammes, the Panel shall in turn 
examine whether the differential tax treatment provided for in the INOVAR -AUTO programme 
results in imported vehicles being taxed in excess of domestic like vehicles. The Panel shall 
structure its reasoning following the t hree-stage analysis used to examine whether the vehicles at 
issue were like: (i)  accreditation, (ii)  accrual and calculation of the presumed IPI tax credits, and 
(iii) use of the presumed IPI tax credits.  
Accreditation  
7.678.   In the previous section, the Panel fo und that imported vehicles are manufactured by 
foreign companies that cannot get accredited under the INOVAR -AUTO programme unless they 
establish and operate in Brazil. The Panel also found that the burden on foreign companies seeking 
accreditation was hig her than for domestic manufacturers.  
7.679.   In the Panel's view, it is therefore clear that foreign companies per se cannot obtain 
accreditation under the INOVAR -AUTO programme because they are not located or operate in 
Brazil. Foreign companies seeking accredit ation under the INOVAR -AUTO programme should opt 
for becoming "importers/distributors" by establishing in Brazil in order to carry out certain 
marketing and sale activities in the Brazilian market. The other two types of accreditation do not 
seem viable gi ven that foreign manufacturers would effectively change their status from "foreign 
manufacturers" to become "domestic manufacturers" or "investors" (i.e. future domestic 
manufacturers), located in Brazil and conducting manufacturing activities (or planning  to conduct 
manufacturing activities) in Brazil.  
7.680.   This results in a higher tax burden applied to imported vehicles manufactured by foreign 
manufacturers for two reasons. First, the IPI tax burden on imported vehicles manufactured by 
foreign companies locate d outside Brazil cannot be reduced through presumed IPI tax credits 
because foreign companies, which are not located in Brazil, can never obtain the accreditation that 
entitles them to accrue and use such credits. Second, foreign companies that opt for est ablishing 
in Brazil in order to get accredited as importers/distributors face more burdensome requirements 
to be entitled to accrue and use credits than domestic manufacturers. In this respect, foreign 
manufacturers must bear an economic and administrative  burden that domestic manufacturers do 
not bear as a result of their need to establish in Brazil. Thus it is more burdensome to obtain 
presumed tax credits for foreign -produced vehicles, compared to like domestically -produced 
vehicles.  
7.681.   Therefore, the Pane l concludes that the accreditation process1078 under the INOVAR -AUTO 
programme is designed and operates in a manner that makes it more difficult for foreign 
manufacturers to reduce the IPI tax burden on imported vehicles compared to accredited domestic 
manufa cturers and domestic vehicles, contrary to Article III:2 of the GATT 1994.  
Accrual and calculation of presumed IPI tax credits  
7.682.   The Panel noted above that the method of calculating presumed IPI tax credits resulting 
from expenditure in Brazil in strategic i nputs and tools favours domestic vehicles over imported 
vehicles because higher tax credits (and consequently, lower tax burdens) are obtained by making 
expenditure in strategic inputs and tools. This kind of expenditure is basically made by one of the 
three types of accredited companies, i.e. domestic manufacturers, which are the only accredited 
                                                
1078 In particu lar, the specific accreditation requirements under the INOVAR -AUTO programme. No claim 
has been raised by the complaining parties with regard to the general accreditation requirements provided for 
in Article 4 of Decree 7,819/2012, (Exhibit JE -132).  WT/DS472/R • WT/DS497/R  
 
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  companies that conduct manufacturing activities in Brazil and, therefore, need strategic inputs and 
tools.  
7.683.   The Panel recalls its finding that higher tax credits a re obtained by making expenditure in 
strategic inputs and tools because the starting point (i.e. initial base) to calculate the presumed IPI 
tax credit is 100% of the expenditure, whereas when expenditure is made in the other items, the 
basis for the calcu lation is 50% of the expenditure.1079 The Panel further recalls that the only cap 
applicable to the accrual of presumed IPI tax credits in the case of expenditure in strategic inputs 
and tools is a reduction of 30 percentage points in the IPI tax rate, wherea s more restrictive caps 
apply in the case of expenditure in other items.1080 As explained above, the Panel considers that 
this design and structure of the INOVAR -AUTO programme favours the accrual of presumed IPI tax 
credits by domestic manufacturers vis-à-vis the other two types of accredited companies because 
their manufacturing activities in Brazil require that they make expenditure in Brazil in strategic 
inputs and tools, thereby generating higher presumed IPI tax credits. Foreign manufacturers who 
obtain accreditation as "importers/distributors" do not carry out manufacturing activities in 
Brazil1081, so the Panel sees no reason why they should purchase strategic inputs and tools that 
are used in manufacturing processes. The same goes for "investors", who do not carry out 
manufacturing activities in Brazil.1082 
7.684.   The fact that domestic manufacturers benefit from the possibility of accruing higher 
presumed IPI tax credits by purchasing strategic inputs and tools necessary to conduct their 
manufacturing activities le ads the Panel to the conclusion that the design and operation of the 
system of rules on accrual and calculation of presumed IPI tax credits under the INOVAR -AUTO 
programme necessarily leads to lower IPI tax burdens for vehicles produced by accredited 
domes tic manufacturers vis-à-vis imported vehicles produced by foreign manufacturers, because 
domestic manufacturers can accrue higher tax credits.  
7.685.   Therefore, the Panel concludes that incentivized domestic motor vehicles manufactured by 
accredited domestic manu facturers benefit from a lower tax burden than like imported motor 
vehicles manufactured by foreign manufacturers as a result of the design and operation of the 
system of rules on accrual and calculation of presumed IPI tax credits, contrary to Article III :2 of 
the GATT 1994.  
Use 
7.686.   The Panel recalls its finding in paragraph 7.673  above that the presumed IPI tax credits 
must be used by the accredited companies to first offset the IPI tax arising from the sales of 
domestic motor vehicles, and, only if there is any presumed credit left, to offset the IPI tax arising 
from the sales of imported motor vehicles. The Panel also recalls that the number of imported 
motor vehicles that can benefit from the presumed credits is limited to 4,800 imported motor 
vehicles per calendar year.  
7.687.   Based on the above, the Panel concludes that domestic motor vehicles are prioritized vis-
à-vis imported like motor vehicles with respect to the use of presumed IPI tax credits. This 
prioritization  of domestic over imported vehicles for the use of presumed IPI tax credits resulting 
from expenditure in strategic inputs in tools in Brazil results in imported motor vehicles being 
taxed in excess of like domestic motor vehicles, contrary to Article III: 2 of the GATT 1994.  
                                                
1079 See paragraph 7.669  above.  
1080 With respect to expenditure in Brazil in research; technological development; technological 
innovation; and payments to the FNDCT , the presumed IPI tax credit is capped at 2% of the tota l gross 
proceeds from sales of goods and services of the second month prior to the calculation of the credit. With 
respect to expenditure in Brazil in  payments to the FNDCT; capacity -building of suppliers; and engineering and 
basic industrial technology ; the presumed credit is capped at 2.75%, of the total gross proceeds from sales of 
goods and services in the second month prior to the calculation of the credit. See Decree 7,819/2012, (Exhibit 
JE-132), Articles 12 §9 and §10, as amended by Decree 8,294/2014 , (Exhibit JE -134), Article 1.  
1081 Subsection II of Decree 7,819/2012, which refers to the so -called "importer/distributor" type of 
accreditation is entitled "Of companies that do not produce but only market vehicles in the country".  
1082 Brazil's response to P anel question No. 28.  WT/DS472/R • WT/DS497/R  
 
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  7.4.1.3.3   Conclusion  
7.688.   In light of the foregoing, the Panel concludes that under the INOVAR -AUTO programme, 
certain aspects of the accreditation process, the system of rules on accrual and calculation, and 
the use of presumed IPI tax credits result ing from expenditure in strategic inputs in tools in Brazil, 
result in a higher tax burden imposed on imported motor vehicles vis-à-vis like domestic motor 
vehicles. The Panel therefore concludes that these aspects of the INOVAR -AUTO programme 
programmes r esult in imported products being subject to internal taxes in excess of those applied 
to like domestic products, inconsistently with Article III:2, first sentence, of the GATT 1994.   
7.4.1.4   Article III:2, second sentence, of the GATT 1994  
7.689.   Japan, the only complain ant that has raised claims under this particular provision, argues 
that an objective review of the measure, taking into account the origin -based distinctions drawn at 
the accreditation, calculation and use of the presumed credits stages and the differentia l indirect 
taxation, cannot have any other policy rationale than providing protection to the domestic 
industry.1083 
7.690.   Brazil submits that "as INOVAR -AUTO conforms to the requirements of Article III:2, first 
sentence, it also conforms to [the] second sentence, a s the products at issue are similarly 
taxed."1084 
7.691.   The Panel has addressed above whether the tax measures challenged by the complaining 
parties are inconsistent with Article III:2, first sentence, of the GATT 1994. Although Japan 
presents an additional and not  an alternative claim under the second sentence of Article III:2, 
Japan has not indicated why such findings on the second sentence would be necessary or useful to 
secure a positive solution to the dispute if the Panel were to find the measures to be incons istent 
with the first sentence of Article III:2. Indeed, the Panel, on its own motion, considers that, in light 
of the findings regarding Article III:2, first sentence, additional findings regarding the same 
measure under the second sentence of Article III :2 are not necessary or useful to secure a positive 
solution to the dispute. In particular, the Panel notes that its findings on the first sentence are 
made on the basis of hypothetical likeness, meaning that the analysis in respect of Article III:2, 
secon d sentence, would be similar to that under the first sentence. Accordingly, pursuant to the 
principle of judicial economy, the Panel refrains from making any findings with respect to this 
particular claim.  
7.4.2   Claims under Article III:4 of the GATT 1994  
7.4.2.1   Introd uction  
7.692.   The European Union and Japan have raised claims under Article III:4 of the GATT 1994 
with respect to the following aspects of the INOVAR -AUTO programme, which in their view accord 
less favourable treatment to imported products than that accorded to like domestic products:  
a. In respect of finished motor vehicles, the conditions for accreditation in order for 
presumed tax credits to apply to motor vehicles, together with the rules on accrual and 
calculation of presumed IPI tax credits, and the rules on the use of presumed IPI tax 
credits1085; 
b. In respect of automotive components and equipment:  
i. The aspect of the accreditation requirements that requires the use of local inputs in 
the production of motor vehicles, through the imposition of manufacturing steps t o 
be performed in Brazil; and  
                                                
1083 Japan's first written submission, para. 229.  
1084 Brazil's first written submission, para. 504 (DS497).  
1085 European Union's first written submission, paras. 368 -396; Japan's first written submission, paras. 
233-237.  WT/DS472/R • WT/DS497/R  
 
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  ii. The aspect of the rules on accrual and calculation of presumed IPI tax credits that 
requires expenditure in strategic inputs and tools with a high level of Brazilian 
content.1086  
7.693.   The European Union1087 also has one specific claim of inconsistency with Article III:4, in 
respect of that aspect of the rules on accreditation under the INOVAR -AUTO programme that 
incentivises the purchase of Brazilian laboratory equipment.1088 
7.694.   As developed in paragraphs 7.61 and 7.71 above, Brazil argues that these aspects of the 
challenged programmes are not within the scope of Article III:4, because (i) these aspects of the 
programmes are pre -market requirements that are not covered by Article III, and (ii) the 
programmes constitute subsidies paid exclusively to domestic producers within the meaning of 
Article III:8(b) of the GATT 1994.1089 In the event that the Panel finds that Article III:4 of the 
GATT 1994 applies to t he INOVAR -AUTO programme, Brazil contends that the challenged 
programme does not accord less favourable treatment to imported over domestic products 
because the regulatory differences are not based on the origin of the products.1090 
7.695.   The Panel has considered B razil's threshold arguments in sections 7.2.1 and 7.2.2  above.  
With respect to Brazil's first argument, the Panel already found in paragraph 7.70 above that the 
fact of the measures' status as a "pre -market" requirement does not have an impact on whether 
the measure is within the scope of Article III:4 of the GATT 1994.  
7.696.   With regard to Brazil's second argument, that the programmes constitut e subsidies to 
domestic producers within the meaning of Article III:8(b) of the GATT 1994, the Panel recalls its 
findings in paragraph 7.87 above that as a general principle Article III:8(b) does not exempt from  
the disciplines of Article III components of such production subsidies that introduce product 
discrimination in the form of less favourable treatment on imported like products.  
7.697.   Therefore, the Panel will analyse the complaining parties' claims under Artic le III:4 of the 
GATT  1994.  
7.698.   The Panel recalls that for an inconsistency with Article III:4 of the GATT 1994 to be 
established, three elements must be satisfied:  
a. that the measure at issue is a "law, regulation, or requirement affecting their internal 
sale, o ffering for sale, purchase, transportation, distribution, or use";  
b. that the imported and domestic products at issue are "like products"; and  
c. that imported products are accorded "treatment less favourable" than that accorded to 
like domestic products.1091 
7.699.   The Panel examines these three elements below.  
                                                
1086 European Union's  first written submission, paras. 397 -406; Japan's written submission, paras. 238 -
244.  
1087 Japan mentions this aspect of the INOVAR -AUTO programme in the factual section of its submission, 
and in its discussion of its claims under Article 2.1 of the TRIMs A greement, but it does not explicitly raise 
claims under Article III:4 of the GATT 1994. See Japan's first written submission, para. 259. The Panel notes 
that in the context of its claims under Article 2.1 of the TRIMs Agreement, Japan refers to this partic ular aspect 
of the INOVAR -AUTO programme only as support for its assertion that the INOVAR -AUTO programme is a 
"trade -related investment measure" within the meaning of the TRIMs Agreement. Neither in the context of its 
claims under Article III:4 of the GAT T 1994, nor in the context of its claims under Article 2.1 of the TRIMs 
Agreement, does Japan assert that this particular aspect of the programmes is inconsistent with Article III:4 of 
the GATT 1994. Furthermore, Japan does not refer to laboratory equipmen t in its response to Panel question 
72 on the particular aspects of the measures challenged under Article III:4.  
1088 European Union's first written submission, para. 354.  
1089 See footnote 1030. 
1090 Brazil's first w ritten submissions, paras. 584 -589 (including misnumbered paragraphs) (DS472) and 
508-523 (DS497).  
1091 Appellate Body Report, Korea – Various Measures on Beef , para. 133.  WT/DS472/R • WT/DS497/R  
 
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  7.4.2.2   Whether the measures at issue are laws, regulations, or requirements affecting 
the internal sale, offering for sale, purchase, transportation, distribution or use  of 
domestic and imported products  
7.700.   The Panel recall s the legal standard for a determination of whether measures  are "laws, 
regulations and requirements affecting [the] internal sale, offering for sale, purchase, 
transportation, distribution or use" of imported and domestic products,  within the meaning of 
Article III:4, as explained in paragraphs 7.190  to 7.196  above.  
7.701.   The complaining parties argue that the aspects of the programmes challenged under 
Article III:4 are "re quirements" that affect the internal use, purchase, and sale of domestic and 
imported goods, since compliance with such requirements results in a reduction of an indirect tax 
applied to motor vehicles.1092 The complaining parties also argue that c ertain of th ese 
requirements function as local content requirements, either incentivising or requiring the use of 
domestically produced components, strategic inputs and tools, and laboratory equipment used in 
the production of those motor vehicles, over imported compo nents, strategic inputs and tools, and 
laboratory equipment used in the production of those motor vehicles, and are therefore 
requirements affecting the use, purchase, and sale of those domestic and imported components, 
strategic inputs and tools, and labo ratory equipment.1093  
7.702.   It is undisputed that the INOVAR -AUTO programme is enacted and implemented through 
laws and regulations, including laws, decrees and a number of binding legal acts, and contain a 
series of conditions for companies to obtain accreditatio n to be eligible for the presumed IPI tax 
credits, a set of rules for the accrual of presumed IPI tax credits, and a set of rules for the use of 
the presumed IPI tax credits.1094  
7.703.   As noted in paragraph 7.195  above,  the Panel agrees with the panel in India – Autos  that 
the term "requirement" within the meaning of Article III:4 of the GATT 1994 includes those 
requirements that an enterprise voluntarily accepts in order to obtain an advantage from the 
government.1095 In the present dispute, the INOVAR -AUTO programme includes conditions or 
requirements that companies voluntarily accept to undertake in order to be accredited and hence, 
obtain the presumed IPI tax credits. The Panel therefore agrees with the complaining parti es that 
the accreditation requirements constitute requirements within the meaning of Article III:4 of the 
GATT 1994.  
7.704.   Additionally, in respect of the rules on accrual and use of presumed IPI tax credits, the 
Panel understands that these rules are imposed t hrough specific laws and decrees, as described in 
section 2.2.5  above. The Panel therefore considers that these rules are within the meaning of 
"laws" and "regulations" in the context of Article III:4 of the GAT T 1994.  
7.705.   With respect to whether these laws, regulations and requirements "affect the internal sale, 
offering for sale, purchase, transportation, distribution or use" of products, the Panel recalls that 
the Appellate Body has explained that the word "affec ting" has a broad scope of application.1096  
7.706.   The Panel notes that the purpose of complying with the requirements for accreditation is to 
obtain presumed IPI tax credits on the sale of products, so it is clear that the requirements at 
issue affect the sale and  offering for sale of products. Furthermore, a tax reduction in respect of 
the sale of products, including through presumed tax credits, can create an incentive to buy the 
products subject to the tax reduction, over products that do not have the tax reduct ion. Thus, this 
confirms that the requirements at issue affect the sale, offering for sale or purchase of products.  
                                                
1092 European Union's first written submission, paras. 374 -388; Japan's first written sub mission, 
para. 235.  
1093 European Union's first written submission, para. 404; Japan's first written submission, paras. 235 
and 239 -244. 
1094 See section 2.2.5 above.  
1095 Panel Report, India – Autos , para. 7.184. See also Panel Reports, Canada – Autos , para. 10.73; 
Turkey – Rice, para. 7.218; China – Auto Parts , para. 7.240; and GATT Panel Report, EEC – Parts and 
Components , para. 5.21.  
1096 Appellate Body Report, US – FSC ( Article 21.5 – EC), paras. 208 -210. WT/DS472/R • WT/DS497/R  
 
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  7.707.   Additionally, in respect of the rules on accrual and use of presumed IPI tax credits, the 
Panel notes that these rules determine the extent of the tax benefit, and how that tax benefit is 
applied to certain products. The Panel therefore considers that these rules also affect the sale, 
offering for sale of products, and purchase, of products.  
7.708.   Based on the above, the Panel concludes that the IN OVAR -AUTO programme is within the 
scope of "laws, regulations and requirements affecting [the] internal sale, offering for sale, 
purchase, transportation, distribution or use" of products within the meaning of Article III:4 of the 
GATT 1994.  
7.4.2.3   Whether the re levant imported and domestic products are "like products"  
7.709.   The Panel recalls the legal standard for a determination of whether products are "like 
products" within the meaning of Article III:4, as explained in paragraphs 7.199  to 7.202  above.  
7.710.   The complaining parties argue that the relevant domestic and imported products at issue – 
namely motor vehicles as well as components and equipment used in their production – are "like" 
because the INOVAR -AUTO programme discriminates based exclusively on the origin of the 
products. The complaining parties therefore argue that the Panel can apply a "hypothetical" 
likeness analysis.1097 In particular, the complaining parties argue that d omestic and imported 
motor vehicles listed in Annex I of Decree 7,819/2012 are like.1098 Additionally, the complaining 
parties argue that components used in the production of those motor vehicles are like products, 
and that strategic inputs and tools manufact ured in Brazil and imported strategic inputs and tools, 
are in a directly competitive relationship in the market and are like.1099 Finally, according to the 
European Union, imported and domestically -produced laboratory equipment used in the pursuit of 
R&D in Brazil is "like".1100  
7.711.   Brazil argues that the legal presumption that the INOVAR -AUTO programme discriminates 
based on origin is flawed because the INOVAR -AUTO programme relates to requirements 
concerning production rather than products.1101  
7.712.   The Panel has alread y indicated generally in section 7.2.1 above, that the status of a 
particular law, regulation or requirement as a "pre -market" or "production -stage" requirement 
does not preclude the application of Article III:4  of the GATT 1994.  
7.713.   Similarly, in the context of "likeness", the Panel does not consider that the status of a 
particular requirement (or the "stage of production" in which that requirement operates), has any 
bearing on whether or not it applies to "like" d omestic and imported products. In the Panel's view, 
and in light of the Panel's findings in paragraph 7.202  above, if a particular requirement applies to 
domestic and imported products, and discriminates between  those imported and domestic 
products exclusively on the basis of the origin of the products, then those products may be 
presumed to be "like" within the meaning of Article  III:4.  
7.714.   The Panel proceeds with its analysis by distinguishing between the distinct  types of 
products in respect of which the complaining parties allege "likeness", namely finished motor 
vehicles, and automotive components and equipment used in the production of finished motor 
vehicles. Specifically, the Panel considers whether the relev ant measures distinguish between 
imported and domestic products exclusively on the basis of origin.  
                                                
1097 European U nion's first written submission , paras. 371 -373; Japan's first written submission, paras. 
234 and 241.  
1098 European Union's first written submission, para. 372; Japan's first written submission, paras. 234 
and 243 -244. 
1099 European Union's first written submi ssion, para. 372; Japan's first written submission, paras. 234 
and 243 -244. 
1100 European Union's first written submission, para. 372.  
1101 Brazil's first written submissions, para. 508.  WT/DS472/R • WT/DS497/R  
 
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  7.4.2.3.1   With respect to finished motor vehicles  
7.715.   The Panel notes that the product coverage under the INOVAR -AUTO programme with 
respect to finished motor vehicles is the same for the claims under Article III:2 of the GATT 1994 
and the claims under Article III:4 of the GATT 1994.  
7.716.   The Panel concluded in paragraph 7.675  above that the complaining parties had made a 
prima fac ie case that there is a differential tax treatment between imported and like domestic 
products that is exclusively based on the origin of the products. The Panel found, for that reason, 
that domestic and imported products are presumed to be like for the pu rposes of the analysis 
under Article III:2, first sentence, of the GATT 1994.  
7.717.   The same reasoning applies to the likeness analysis under Article III:4 of the GATT 1994, 
i.e. that the INOVAR -AUTO programme introduces regulatory distinctions on the basis of t he origin 
of the concerned products. Therefore, for the exact same reasons described in the assessment of 
likeness under Article III:2 of the GATT 1994, the Panel finds that domestic and imported products 
are presumed to be like for the purposes of the ana lysis of the claims under Article III:4 of the 
GATT 1994.  
7.718.   The Panel notes that this is consistent with the Appellate Body's explanation that the 
product scope in Article III:4 of the GATT 1994 is broader than that in the first sentence of 
Article  III:2, bu t not broad er than the combined scope of the first and second sentence of 
Article  III:2 together.1102 Therefore, if product likeness exists under Article III:2 of the GATT 1994, 
first sentence, product likeness will also exist under Article III:4 of the GATT 1994 for the same 
products at issue. Therefore, the Panel finds that imported and domestic finished motor vehicles 
are like for the purpose of Article III:4 of the GATT 1994.  
7.4.2.3.2   With respect to automotive components and equipment used in the production 
of fin ished motor vehicles  
7.719.   As stated above, previous panels have applied "hypothetical" likeness in the context of 
Article III:4 of the GATT 1994, under which approach "a complainant may establish 'likeness' by 
demonstrating that the measure at issue makes a dis tinction based exclusively on the origin of the 
product".1103 Under this approach, a complaining party must make a prima facie case that a 
measure draws a distinction based exclusively on origin.1104 
7.720.   The Panel notes that the complaining parties' argument is that  the INOVAR -AUTO 
programme requires or incentivises the use of domestically produced components, strategic inputs 
and tools, and laboratory equipment, in the production of finished  motor  vehicles  in order for those 
finished motor vehicles to receive certai n tax benefits. Such regulatory distinction is clearly based 
on the origin of the products traded. The Panel does not prejudge at this point the issue of 
whether the imported products identified by the complaining parties are treated less favourably 
than t he domestic like products. The Panel does consider, however, that the products alleged by 
the complaining parties to be disadvantaged are like the products that are allegedly favoured. The 
Panel addresses below whether the measures function as local conten t requirements that 
incentivise the use of domestically produced products, which by  definition  would  differentiate 
against like imported products exclusively on the basis of the origin of the product.1105  
7.721.   The Panel therefore concludes that domestically produ ced components and imported 
components are like, domestically produced strategic inputs and tools and imported strategic 
inputs and tools are like, and domestically produced laboratory equipment and imported laboratory 
equipment are like, within the meanin g of Article III:4 of the GATT 1994.  
                                                
1102 Appellate Body Report, EC – Asbestos , para. 99.  
1103 Appellate Body Report,  Argentina – Financial Services , para. 6.36  (referring to Panel Reports, 
Argentina – Hides and Leather , para. 11.168; China – Auto Parts , para. 7.216; Argentina – Import Measures , 
para. 6.274; Canada – Autos , para. 10.74; Canada – Wheat Exports and Grain I mports , para. 6.164; China – 
Publications and Audiovisual Products , para. 7.1447; India – Autos , para. 7.174; Thailand – Cigarettes 
(Philippines) , para. 7.661; Turkey – Rice, paras. 7.214 -7.216; and US – FSC (Article 21.5 – EC), paras. 8.132 -
8.135, Colombi a – Ports of Entry , paras. 7.355 -7.356; and US – Poultry (China) , paras. 7.424 -7.432).  
1104 Appellate Body Report, Argentina – Financial Services , para. 6.45.  
1105 See sections 7.4.2.4.2 , 7.4.2.4.3  and 7.4.2.4.4  below.  WT/DS472/R • WT/DS497/R  
 
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  7.4.2.4   Whether imported products are accorded "treatment less favourable" than that 
accorded to like domestic products  
7.722.   The Panel recalls that the last step of a panel's analysis under Article III:4 of the GATT 
1994 is to dete rmine whether imported products are accorded "treatment no less favourable" than 
that accorded to like domestic products pursuant to the measure in question. The Panel recalls the 
legal standard described in paragraphs 7.210  to 7.212  above.  
7.723.   The Panel recalls Brazil's threshold argument that "a production subsidy falling under the 
purview of Article III:8(b), such as the case of INOVAR -AUTO, may not necessarily allow ' the 
producer to sell a product at a lower price' or entail modifications in the conditions of 
competition."1106 Brazil effectively argues that "the tax regime established by the [INOVAR -AUTO 
p]rogramme has imposed no adverse effects on the competitive opportu nities for imported 
products."1107 In support of this view, Brazil argues that "[t]he Brazilian automotive sector remains 
one of the largest importers of the country. Since 2012, when INOVAR -AUTO was established, the 
deficit in Brazil's balance of trade conce rning the sector has continuously increased."1108  
7.724.   With respect to Brazil's first argument, the Panel initially notes its finding above that the 
relevant measures are not per se exempted from the disciplines of Article III of the GATT 1994, 
through Article II I:8(b). The Panel also notes the well -established jurisprudence that no adverse 
trade effects need to be demonstrated in respect of a finding of inconsistency with Article III:4.1109 
The Panel therefore does not consider that a lack of adverse effects, or the  deficit in Brazil's 
balance of trade in the sector, are relevant to a determination of whether the conditions of 
competition have been altered to the detriment of imported products and in favour of like domestic 
products.  
7.725.   The Panel also notes that Brazil  does repeat in some detail its general argument, restating 
its view that the relevant requirements challenged under Article III:4 are "pre -market" 
requirements that do not affect the conditions of competition. The Panel takes note of Brazil's view 
that th e relevant requirements do not modify the conditions of competition, but for the reasons 
indicated above1110, does not consider that the status of the requirements as "pre -market" per se 
precludes a finding that the measures modify the conditions of competiti on. The Panel therefore 
proceeds with its analysis in order to determine to what extent the conditions of competition are 
altered by the challenged requirements.  
7.4.2.4.1   Conditions for accreditation, and rules on accrual and use of presumed IPI tax 
credits, in re spect of finished motor vehicles  
7.726.   The complaining parties argue that the accreditation requirements for obtaining the 
presumed IPI tax credits, the rules on accrual of presumed IPI tax credits, and the rules on use of 
presumed IPI tax credits, all modify th e conditions of competition to the detriment of imported 
motor vehicles and in favour of like domestic motor vehicles.1111 In the view of the complaining 
parties, these aspects of the INOVAR -AUTO programme favour domestic vehicles over imported 
vehicles, resu lting in a level of taxation applied to imported motor vehicles that exceeds that 
applied to domestic motor vehicles.1112 The complaining parties refer to their explanation of the 
accreditation requirements, and rules on accrual and use of presumed IPI tax cr edits in the context 
of their arguments under Article III:2 of the GATT 1994.1113 The Panel recalls the specific 
arguments of the complaining parties in respect of Article III:2, as explained in paragraphs 7.627  
to 7.628 , and 7.646  to 7.648 , above.  
7.727.   The Panel notes that the aspects challenged by the complaining parties under Article III:4 
are different from the aspects challenged by the parties under Article III:2. Specifically, under 
                                                
1106 Brazil's first written submissions, para. 555 (DS472) and para. 481 (DS497).  
1107 Brazil's first written submissions, para. 556 (DS472) and para. 482 (DS497).  
1108 Brazil's first written submissions, para. 556 (DS472 ) and para. 482 (DS497).  
1109 Appellate Body Report, Thailand – Cigarettes (Philippines) , para. 129.  
1110 See section 7.2.1above.  
1111 European Union's first written submission, para. 392; Japan's first written submissi on, para. 237.  
1112 European Union's first written submission, para. 392; Japan's first written submission, para. 237.  
1113 European Union's first written submission, paras. 399 -400; Japan's first written submission, 
para. 237.  WT/DS472/R • WT/DS497/R  
 
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  Article III:2 the complaining parties challenge the differential tax burden imposed on imported 
products as compared to like domestic products. In respe ct of Article III:4, the complaining parties 
challenge certain laws, regulations and requirements, relating in various ways to the 
implementation of the differential tax burden, which allegedly distort the conditions of competition 
for imported products in  respect of like domestic products, through the operation of that 
differential tax burden.  
7.728.   The Panel recalls that in order to determine whether there exists "treatment less 
favourable" for imported products, panels must analyse whether the measures at iss ue modify the 
conditions of competition in the relevant market to the detriment of imported products .1114 
7.729.   The Panel will examine in turn whether the aspects of the INOVAR -AUTO programme 
identified by the complaining parties in the context of their Article III :4 claims (i.e. the 
accreditation requirements to get the presumed IPI tax credits, rules on accrual of presumed IPI 
tax credits, and rules on use of presumed IPI tax credits) do modify the conditions of competition 
to the detriment of imported motor vehic les. 
Accreditation  
7.730.   The Panel recalls that in order to be eligible for the presumed IPI tax credits under the 
INOVAR -AUTO programme, companies must obtain accreditation, and in order to obtain 
accreditation companies must comply with the requirements impose d by the programme.  
7.731.   The Panel concluded in paragraphs 7.656  to 7.661  above that foreign manufacturers, as 
such, cannot obtain accreditation under the INOVAR -AUTO pro gramme, because they are not 
located or do not operate in Brazil. Indeed, such foreign manufacturers would have to become 
accredited as importers/distributers, in order for their products to be eligible for the tax benefits. 
The Panel further found that th is results in a higher tax burden on imported vehicles manufactured 
by foreign manufacturers, because foreign manufacturers are required to be legally established in 
Brazil in order to be accredited as importers/distributers, and foreign manufacturers seek ing 
accreditation as importers/distributors are required to comply with more accreditation 
requirements than domestic manufacturers in order to obtain the tax benefits. Foreign 
manufacturers consequently bear a higher burden than domestic manufacturers in becoming 
accredited. In addition, motor vehicles produced by foreign manufacturers that are not established 
in Brazil are taxed higher than motor vehicles produced by Brazilian manufacturers within Brazil.  
7.732.   The Panel therefore considers that certain requir ements for accreditation under the 
INOVAR -AUTO programme modify the conditions of competition to the detriment of imported 
motor vehicles and in favour of like domestic motor vehicles. Therefore, the Panel concludes that 
these requirements accord less favo urable treatment to imported products than that accorded to 
like domestic products, inconsistently with Article III:4.  
Accrual and calculation of presumed IPI tax credits  
7.733.   The Panel concluded in paragraphs 7.662  to 7.672  above that the INOVAR -AUTO 
programme is designed to favour the accrual of presumed IPI tax credits by domestic 
manufacturers vis-à-vis the other types of accredited companies, because of the fact that domestic 
manufacturers performing their manufacturing activities in Brazil are require d to make expenditure 
in Brazil on strategic inputs and tools, thereby generating higher presumed IPI tax credits. By 
contrast, foreign manufacturers that are accredited under the programme as importers/distributors 
and investors do not carry out manufacturing activities in Brazil, and the Panel sees no reason why 
they would purchase strategic inputs and tools in Brazil for the manufacture of motor vehicles. 
Therefore ther e is a greater burden on foreign manufacturers than domestic manufacturers when 
they seek to accrue presumed IPI tax credits to be used to offset taxes on the sale of motor 
vehicles.  
7.734.   The Panel considers that this aspect of the rules on accrual and calcula tion of presumed IPI 
tax credits modif ies the conditions of competition to the detriment of imported motor vehicles and 
in favour of like domestic motor vehicles. Therefore, the Panel concludes that these rules on 
                                                
1114 See for example, Appellate Bo dy Report, Korea – Various Measures on Beef , para. 137.  WT/DS472/R • WT/DS497/R  
 
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  accrual and calculation accord less favour able treatment to imported products than that accorded 
to like domestic products, inconsistently with Article III:4.  
Use of presumed IPI tax credits  
7.735.   The Panel concluded in paragraphs 7.673  to 7.674  above that the rules on the use of 
presumed IPI tax credits resulting from expenditure in strategic inputs and tools in Brazil, require 
that such credits be used on the sale of domestically produced vehicles before being use d to offset 
the IPI tax on imported motor vehicles. Additionally, the Panel concluded that there is a 
quantitative limit on the number of imported vehicles that can benefit from a reduction in the IPI 
tax through the use of presumed IPI tax credits, specif ically 4,800 imported vehicles per calendar 
year. The Panel concluded that these two aspects of the rules on the use of presumed IPI tax 
credits result in a differential tax burden on imported motor vehicles vis-à-vis like domestic motor 
vehicles.  
7.736.   The Pan el considers that these aspects of the rules on use of presumed IPI tax credits 
resulting from expenditure in strategic inputs and tools in Brazil modify the conditions of 
competition to the detriment of imported motor vehicles and in favour of like domest ic motor 
vehicles. Therefore, the Panel concludes that these aspects of the rules on use of presumed IPI tax 
credits resulting from expenditure in strategic inputs and tools in Brazil under  the INOVAR -AUTO 
programme accord less favourable treatment to impo rted products than that accorded to like 
domestic products, inconsistently with Article III:4.  
7.4.2.4.2   The accreditation requirement to perform a minimum number of 
manufacturing steps in Brazil, in respect of components used in the production of 
finished motor veh icles 
7.737.   The complaining parties challenge the accreditation requirement for gaining access to the 
presumed IPI tax benefits under which a company requesting accreditation as a "domestic 
manufacturer" must comply with a certain number of manufacturing steps i n Brazil.1115 In the view 
of the complaining parties, the requirement to comply with these manufacturing steps in Brazil 
effectively requires that certain components and inputs used in the manufacture of the motor 
vehicle must have been made or sourced locall y.1116 Thus, in the complaining parties' view, this 
requirement is effectively a "local content requirement" that requires the use of domestic products 
over imported products in the manufacture of motor vehicles, in order to gain certain tax benefits, 
thereby  altering the conditions of competition to the detriment of imported products and in favour 
of like domestic products.1117 
7.738.   If the Panel finds that the alleged requirement to use domestic goods exists, the Panel 
considers that this will lead ipso facto  to the further finding of inconsistency with Article III:4 of 
the GATT 1994 that the complaining parties claim. This is because, while Article III:4 itself does 
not refer to such requirements, it is well settled on the basis of a considerable line of jurisprudenc e 
that such requirements are inconsistent with Article III:4 by operating to the disadvantage of 
imported products, including where the use of domestic goods is only one of the options for 
complying with the requirements of a law or regulation (or for obta ining an advantage).1118 
7.739.   In addition, such a finding of a requirement to use domestic goods, if made, will also 
constitute a finding by the Panel that the contingency element of the claims under Article 3.1(b) of 
the SCM Agreement has been satisfied, i.e., th at to the extent the programmes provide subsidies, 
any such subsidies would be contingent on the use of domestic over imported goods.  
                                                
1115 European Union's first written submission, para. 399; Japan's first written submission, para. 239.  
1116 European Union's first written submission, para. 399; Japan's first written submission, paras. 2 43-
244.  
1117 European Union's first written submission, para. 399; Japan's first written submission, paras. 243 -
244. 
1118 See e.g. Appellate Body Report, US – FSC (Article 21.5 – EC), para. 220, where the Appellate Body 
held that the local content requirements operated to provide a disincentive to the use of imports, 
notwithstanding the possibility to obtain the benefits in question without using domestic inputs, and thus 
constituted less favourable treatment of imports under Article III:4 of the GATT 1994. See also Canada – FIRA, 
where undertakings to purchase goods of Canadian origin and undertakings to buy from Canadian suppliers 
both were found to be inconsistent with Article III:4. GATT Panel Report, Canada – FIRA, paras. 5.7 – 5.11. 
See for a similar findin g GATT Panel Report, Italy – Agricultural Machinery, para. 13.  WT/DS472/R • WT/DS497/R  
 
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  7.740.   In this respect, pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement, and as noted 
above1119, subsidies contingent, whe ther solely or as one of several other conditions, upon the use 
of domestic over imported goods are prohibited, and shall not be granted or maintained.1120 
7.741.   The Panel notes that the ordinary meaning of the word "contingent" is "conditional ; 
dependent on, upon "1121, so a subsidy is "contingent upon the use of domestic over imported 
goods", and thus, prohibited under Article 3.1(b) of the SCM Agreement, if the use of domestic 
goods is required or necessary in order to receive the subsidy.1122  
7.742.   If the Panel finds that s uch requirement to use domestic goods over imported goods exists, 
it will proceed with the further analysis of whether the INOVAR -AUTO programme provide s 
subsidies. If, however, the Panel finds no requirement to use domestic goods over imported goods, 
that will dispose of the claims under Article 3.1(b) of the SCM Agreement and the Panel will stop 
its analysis of those claims at that point.  
7.743.   The Panel recalls from paragraph 2.122  above that Decree 7,819/2012 requires as a 
conditi on of accreditation to be eligible for the presumed IPI tax credits under the INOVAR -AUTO 
programme, that a company seeking accreditation as a "domestic manufacturer" must comply with 
a minimum number of defined manufacturing and engineering infrastructure  activities specified in 
the law itself. Such activities must be performed in Brazil either by the accredited company or 
through third parties, must cover at least 80% of manufactured vehicles, and are subject to a 
schedule of the minimum number of activit ies to be performed, which varies by calendar year and 
type of vehicle manufactured.1123  
7.744.   This schedule is the following:  
MINIMUM NUMBER OF MAN UFACTURING AND ENGIN EERING INFRASTRUCTUR E ACTIVITIES TO BE P ERFORMED 
IN BRAZIL1124 
Calendar 
year Manufacture of 
passe nger cars and 
light commercial 
vehicles  Manufacture of 
trucks  Manufacture of 
chassis fitted with 
engines  Manufacture of 
automobiles in the 
situation referred 
to in Article 12 
§5(III)1125 
2013 8  9  7  6  
2014 9  10  8  6  
2015 9  10  8  7  
                                                
1119 See paragraphs 7.259  to 7.261  above.  
1120 Article 3.1 of the SCM Agreement states in relevant parts tha t: "Except as provided in the 
Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited: … (b) 
subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over 
imported goods." Article 3.2, in turn, states that "[a] Member shall neither grant nor maintain subsidies 
referred to in paragraph 1. " 
1121 Shorter Oxford English Dictionary (6th ed., 2007)  
1122 Indeed, such an interpretation was confirmed by the Appellate Body in Canada  – Autos, where the 
Appellate Body recalled its discussion of Article 3.1(a) and explained as follows:  
In our discussion of Article 3.1(a) in Section VI of this Report, we recalled that in Canada – 
Aircraft  we stated that "the ordinary connotation of 'con tingent' is 'conditional' or 'dependent for 
its existence on something else'." Thus, a subsidy is prohibited under Article 3.1(a) if it is 
"conditional" upon export performance, that is, if it is "dependent for its existence on" export 
performance. In addi tion, in Canada – Aircraft , we stated that contingency "in law" is 
demonstrated "on the basis of the words of the relevant legislation, regulation or other legal 
instrument." (emphasis added) As we have already explained, such conditionality can be derived  
by necessary implication from the words actually used in the measure. We believe that this legal 
standard applies not only to "contingency" under Article 3.1(a), but also to "contingency" under 
Article 3.1(b) of the SCM Agreement. Appellate Body Report, Canada – Autos , para. 123.  
1123 See paragraph 2.122  above, referring to Decree 7,819/2012, (Exhibit JE -132), Article 7(I).  
1124 Decree 7,819/2012, (Exhibit JE -132), Article 7(I), as amended by Decree 8,015/2013, (Exhibit JE -
133), Arti cle 1.  
1125 Manufacture of automobiles by companies established in Brazil, that become accredited as domestic 
manufacturers, with an investment project relating to the installation of a single factory of vehicles classified in 
the tariff codes listed in Annex  XIII of Decree 7,819/2012, whose maximum annual production capacity is 
35,000 units and whose specific investments reach at least R$17,000 real. See Decree 7,819/2012, (Exhibit 
JE-132), Article 12 §5(III), as amended by Decree 8,015/2013, (Exhibit JE -133), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  2016 10  11  9  7  
2017 10  11  9  8  
 
7.745.   The legal instruments specify the following manufacturing and engineering infrastructure 
activities performed in Brazil which can be used to satisfy the accreditation requirement for each 
specific type of vehicle:  
MANUFACTURING AN D ENGINEERING INFRAS TRUCTURE ACTIVITIES THAT CAN BE PERFORME D IN BRAZIL TO 
SATISFY THE ACCREDIT ATION REQUIREMENT1126 
Manufacture of passenger cars 
and light commercial vehicles  Manufacture of trucks  Manufacture of chassis fitted 
with engines  
Moulding  Mould ing N/A 
Welding  Welding  Welding  
Anti-corrosion treatment and 
painting  Anti-corrosion treatment and 
painting  Anti-corrosion treatment and 
painting  
Plastic injection  Plastic injection  Plastic injection  
Engine manufacture  Engine manufacture  Engine manufac ture 
Gearbox and transmission 
manufacture  Gearbox and transmission 
manufacture  Gearbox and transmission 
manufacture  
Steering and suspension 
system manufacture  Steering and suspension 
system manufacture  Steering and suspension 
system manufacture  
Electric al system assembly  Electrical system assembly  Electrical system assembly  
Braking and axle systems 
assembly  Braking and axle systems 
assembly  Braking and axle systems 
assembly  
Assembly, final inspection and 
compatibility tests  Assembly, final inspection a nd 
compatibility tests  Assembly, final inspection and 
compatibility tests  
Manufacture of self -supporting 
body or assembly of chassis  Chassis and bodywork 
assembly  Chassis assembly  
N/A Final assembly of cabins or 
bodywork; installation of 
acoustic and he at insulation, 
carpets and finishing  N/A 
N/A Production of bodywork 
primarily from spare parts 
moulded in the region  N/A 
Own laboratory infrastructure 
for product development and 
testing  Own laboratory infrastructure 
for product development and 
testing  Own laboratory infrastructure 
for product development and 
testing  
7.746.   The Panel recalls that in general these steps can be performed by the accredited motor 
vehicle manufacturer itself, or by third parties.1127 Furthermore, based on their descriptions in the 
relevant legal instruments, in the view of the Panel, the performance of certain  of these 
production -steps will result in the creation, in Brazil, of components or subassemblies that must be 
incorporated into a t least 80% of  finished motor vehicle s manufacture d by the company  in order 
for th at company to be accredited to receive certain tax benefits on the sale or transfer of a 
finished motor vehicle manufactured by that company, including: moulding; plastic injection; 
engine manufacture; gearbox and transmissi on manufacture; steering and suspension system 
manufacture; electrical system assembly; braking and axle systems assembly; manufacture of 
self-supporting body or assembly of chassis; chassis and bodywork assembly; chassis assembly; 
production of bodywork p rimarily from spare parts moulded in the region; and final assembly of 
cabins or bodywork, and potentially some of the other steps.1128  
                                                
1126 In respect of automobiles in the situation referred to in Article 12 §5(III) the Panel notes that such 
vehicles would still fit within one of the three basic categories, namely passenger cars and light commercial 
vehicles, trucks, or chassis  fitted with engines. The only difference in respect of that particular category of 
motor vehicles is that they are subject to a different number of requirements.  
1127 Decree 7,819/2012 explicitly states that the relevant manufacturing and engineering infras tructure 
activities (which must be performed in Brazil to qualify under the accreditation requirements) must be 
performed either by the accredited company or through third parties . See paragraph 2.122  above.  
1128 Decree 7,819/201 2, (Exhibit JE -132), Article 7(I).  WT/DS472/R • WT/DS497/R  
 
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  7.747.   The Panel recalls its analysis in paragraphs 7.290  to 7.302  and 7.307  to 7.313  above of 
the "outsourcing" scenario in the context of the ICT programmes. In the view of the Panel, these 
production step requirements under the INOVAR -AUTO  programme operate in an an alogous 
manner, and thus the same sort of analysis pursuant to Article III:4 of the GATT 1994 is 
applicable. First, for the same reasons explained above at paragraphs 7.290  to 7.295  and 7.299 , 
in the view of the Panel, the components and subassemblies that are produced in the various 
production steps discussed in the previous paragraph are Brazilian domestic products. Second, in 
the cases where these production steps are outsourced, the only way that the accredited 
manufacturer can qualify for the tax benefits is by outsourcing to a Brazilian producer of the 
components or subassemblies in question. If instead it acquired and used imported components 
and subassemblies, it w ould not meet the conditions of accreditation and thus would not qualify for 
the tax benefits.1129 
7.748.   Thus, in the outsourcing scenario, the production step requirements under the INOVAR -
AUTO programme require the use of domestic goods in the sense covered by Ar ticle III:4 of the 
GATT 1994 and Article 3.1(b) of the SCM Agreement.  
7.749.   For the same reasons as explained in respect of the ICT programme, having made this 
finding, the Panel does not need to consider whether under the "in -house" scenario the production 
step requirements also would constitute a requirement to use domestic goods.  
7.750.   Additionally, for the reasons described in paragraphs 7.303  to 7.304  above, the Panel does 
not consider that the existence of an alternative option for compliance, that may be WTO -
consistent, alters the fact that the option that requires the use of domestic  over imported  goods is 
inconsistent with Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.  
7.751.   Therefore, in the view of the Panel, with respect to the outsourcing provisions, the aspect 
of the accreditation requirements for domestic manufacturers that requires compliance with a 
minimum number of manufacturing steps in Brazil r esults in a requirement to use domestic over 
imported goods in the sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the 
SCM Agreement. The Panel therefore concludes that this aspect of the INOVAR -AUTO programme 
is inconsistent with Art icle III:4 of the GATT 1994.  
7.4.2.4.3   Rules on accrual of presumed IPI tax credits, in respect of strategic inputs and 
tools used in the production of finished motor vehicles  
7.752.   The complaining parties argue that the rules governing accrual of presumed IPI tax credits  
contain local content requirements in terms of purchases of strategic inputs and tools which must 
contain minimum percentages of domestic content, i.e. sourced in Brazil, in order for those inputs 
and tools be deemed "national" and result in the accrual o f a tax credit.1130 The complaining 
parties highlight firstly that on the face of the relevant law, expenditure on strategic inputs and 
tools in order to gain IPI tax credits requires that such expenditures be made on strategic inputs 
and tools of Brazilian o rigin.1131 Secondly, the complaining parties explain that under the terms of 
an Implementing Order implementing the INOVAR -AUTO programme, "the value of expenditures 
on strategic inputs and tooling is offset by a 'deductible portion' that includes the value o f imported 
sub-components, the value of sub -components with 0% Brazilian -origin content, and 50% of the 
value of sub -components with 30% to 60% of Brazilian -origin content."1132 
7.753.   The Panel notes as an initial matter that the term "strategic inputs" is defined as "raw 
materials, parts and components used in the manufacture of, and physically incorporated in" the 
finished motor vehicles that can receive certain tax benefits1133, and "tools" or "tooling" is defined 
                                                
1129 Decree 7,819/2012, (Exhibit JE -132), Article 14 -A, as amended by Decree No. 8,924/2014, (Exhibit 
JE-134), Article 1.  
1130 European Union's first written submission, para. 400; Japan's first written submission, paras. 240 
and 243.  
1131 European Union's first written submission, para. 400; Japan's first written submission, paras. 240 
and 243.  
1132 Japan's first written submission, para. 240. See also European Union's first written submission, 
para. 400; and Japan's first written s ubmission, para. 243.  
1133 Implementing Order 257/2014, (Exhibit JE -158), Article 1.  WT/DS472/R • WT/DS497/R  
 
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  as "specific tools for each type of part, linked to a machine and used to stamp or inject automotive 
parts intended for the manufacturing process" of those finished motor vehicles.1134  
7.754.   Turning to the complaining parties' first argument, that Article 41 of Law 12,715/2012 on 
its face refers to expenditure in B razilian strategic inputs and tools and not to imported inputs and 
tools, the Panel notes that Article 41 of Law 12,715/20121135 does state that the presumed IPI 
credit may be calculated on the basis of "expenditure made in Brazil" or as Japan translates the 
provision, "expenditures made in the Country". However, the Panel does not consider that this 
indicates that those strategic inputs and tools must have been made  in Brazil. In the Panel's view 
the plain terms of this provision require that certain items mu st be purchased within the borders of 
Brazil. However, that in and of itself does not imply that the precise products purchased within 
those borders must be of any particular origin.  
7.755.   Having said that, the Panel notes Japan's argument that the "'in the Cou ntry' requirement 
is construed to mean that both the buyer and the seller are located in Brazil."1136 Japan supports 
this by arguing that this interpretation:  
[I]s confirmed by  the explanatory text contained in a past version of Law 12,715 /2012,  
which identif ied a special case where expenditures on imported goods/services  were 
"deemed" to be carried out "in the Country". Specifically , the former Article 40 § 5 -A 
stated that certain expenditures on imported software, equipment and replacement 
parts would be "deemed " (considerados ) to have been carried out "in the Country" if 
there were no national items similar to the imported ones, and provided that they 
were used in laboratories. The existence of this provision in the previous version of 
the law suggests that only expenditures on specified kinds of imported inputs could be 
exceptionally considered as being made "in the Country" under certain prescribed 
circumstances, and the general rule was rather that expenditures on imported inputs 
are excluded from the expe nditures "in the Country". A for[t]iori, t he absence of any 
language setting out similar exceptions in  the current text of Article 41 of Law 12,715, 
Article 12 of Decree 7,819, and other provisions governing the expenditures that 
result in the accrual of I PI tax credits, confirms that the phrase expenditures carried 
out "in the Country" in that Article should be interpreted as excluding expenditures on 
imported goods/services.1137 
7.756.   The Panel agrees with Japan that its interpretation of the previous iteration of  the law is 
logical. However, the Panel does not consider that this is determinative of the present meaning of 
the law. In particular, the fact that the law changed  must be meaningful. Indeed, contrary to 
Japan's proposed interpretation, the Panel consider s that the absence of exceptions in the new 
version of the law tends to suggest that Article 41 does not in and of itself exclude the purchase of 
imported goods from eligibility for calculation of presumed IPI tax credits. The only requirement 
that Article  41 indicates on its face is that the purchase must occur within Brazilian borders.  
7.757.   The European Union also refers to a magazine article in support of its interpretation of 
Article 41.1138 However, the Panel does not consider this magazine article to be parti cularly 
relevant in the context of interpreting Article 41 of Law 12,715/2012. The Panel considers that in 
light of the explicit change in the wording of the law, as identified by Japan, and considering the 
minimal evidence provided by the complaining part ies, Article 41 of Law 12,715/2012 does not on 
its face indicate that only expenditure on Brazilian  inputs and tools counts towards the accrual of 
IPI tax credits.  
7.758.   Turning to the second argument by the complaining parties, the Panel recalls that, as 
noted  in paragraphs 2.126  to 2.127 , as of 1 October 2014, the calculation of the presumed IPI tax 
credit accrued from expenditure on strategic inputs and tools in Brazil i ncorporates a new element 
introduced by Implementing Order MDIC 257/2014: the deductible part. The deductible part is the 
                                                
1134 Implementing Order 257/2014, (Exhibit JE -158), Article 2.  
1135 See also Decree 7,819/2012 (Exhibit JE -132), Article 12, as amended by Decree No. 8,924/2014, 
(Exhibit JE -134),  Article 1.  
1136 Japan's first written submission, para. 141.  
1137 Japan's first written submission, para. 141 (referring to Law 12,715/2012, (Exhibit JE -95), Article 40 
§ 5-A, as amended by Law 12,996/2014). (footnotes omitted)  
1138 European Union's first writte n submission, fn 260.  WT/DS472/R • WT/DS497/R  
 
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  sum of the value of imported inputs by Tier 1 and Tier 2 suppliers. Implementing Order MDIC 
257/2014 establishes a traceability system  whereby suppliers of strategic inputs and tools to 
accredited companies (Tier 1) (and their direct suppliers, i.e. Tier 2) are required to provide 
information to the purchasing accredited companies on the value and characteristics of the 
products supplied . Suppliers shall indicate not just the value of the invoices but also the value of 
the deductible part. This deductible part shall be deducted from the total value of expenditure on 
strategic inputs and tools made in Brazil, which constitutes the base to calculate the presumed IPI 
tax credit. The accredited companies will use this information when filing their tax returns.  
7.759.   The calculation of the deductible part differs depending on whether it is a Tier 1 or a Tier 2 
automotive supplier. The deductible part  of Tier 2 inputs is calculated based on the Tax Situation 
Codes (CST) indicated in the tax invoices issued to Tier 1 suppliers. If the CST indicated in the tax 
invoice is 1, 2, 6, 7 or 8, then 100% of the value is deducted from the expenditure used to 
calculate the presumed IPI tax credit. If the CST is 3 or 4, 50% of the value is deducted from the 
expenditure used to calculate the presumed IPI tax credit. If the CST is 0 or 5, no deduction is 
applied and 100% of the expenditure incurred counts towards cal culating the presumed IPI tax 
credit. The deductible part of Tier 1 inputs is the actual value of direct imports (Cost, Insurance & 
Freight (CIF) value) plus the import tax (II) plus the Tier 2 deductible part (i.e. imported content).  
7.760.   Regarding expenditur e made in Brazil (referred to as "made in the country" in the legal 
instruments) on research; technological development; technological innovation; and payments to 
the FNDCT, the presumed credit shall correspond to 50% of the expenditure, limited to 2% of t he 
total gross proceeds from sales of goods and services of the second month prior to the calculation 
of the credit.  
7.761.   Regarding expenditure made in Brazil ("made in the country") on payments to the FNDCT 
pursuant to the specific legal instruments; capacity -building of suppliers; and engineering and 
basic industrial technology; the presumed credit shall correspond to 50% of the expenditure which 
exceeds 0.75%, up to a limit of 2.75% of the total gross proceeds from sales of goods and 
services of the second m onth prior to the calculation of the credit.  
7.762.   Expenditure on the acquisition of software, equipment and spare parts will be considered 
to be expenditure "made in the country" provided that the software, equipment and spare parts 
are used in the laboratorie s indicated in the Terms of Commitment.  
7.763.   The Panel further notes that in order to effectuate the deductible part, Brazil has also 
adopted a traceability system.1139 Indeed, the Panel considers that the evidence presented by the 
complaining parties in respect of this traceability and monitoring system of products purchased for 
the purposes of calculating the presumed IPI tax credits does indeed suggest that the origin of the 
products is determinative of the amount of the deductible part and, consequently, the a mount of 
the presumed IPI tax credit.  
7.764.   Additionally, the Panel notes that Brazil itself concedes that aspects of its rules on 
calculation of the presumed IPI tax credits may incentivise the purchase of domestic products over 
like imported products, and tha t Brazil even provides a policy justification as to why such 
incentives are in place. Brazil explains that "INOVAR -AUTO, through the method of calculation and 
use of presumed IPI credits, may favour certain domestic strategic inputs and machinery in order 
to ensure the effective supply and development of a domestic auto parts industry able to provide 
environmentally friendly and energy efficient auto parts for vehicles circulating in Brazil."1140 Brazil 
argues that such "potential difference is, in any case, j ustified under paragraphs (b) and (g) of 
Article XX".1141 
7.765.   Based on its review of this evidence, the Panel considers that the calculation of the 
deductible part does, by the necessary implication of the wording of the measure, require the use 
of domestic over imported goods in order to accrue tax credits. As explained in 7.258  above, a 
requirement to use domestic over imported goods is inconsistent with Article III:4 of the GATT 
                                                
1139 See Implementing Order MDIC 113/2013, (Exhibit JE -154). See also CLEPA letter, correspondence 
between car maker and supplier on traceability, 24 February 2014, (Exhibit JE -104); and Sindipeças e -mail to 
members on traceability, 20 January 2014, (Exhibit JE -174).  
1140 Brazil's first written submission, para. 483 (DS497).  
1141 Brazil's first written submission, para. 483 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  1994. The Panel therefore concludes th at this aspect of the INOVAR -AUTO programme is 
inconsistent with Article III:4 of the GATT 1994. Also, for the reasons indicated above in paragraph 
7.259  to 7.262 , the Panel considers that a finding of a requirement to use domestic goods also 
constitutes a finding by the Panel that the contingency element of the claims under Article 3.1(b) 
of the SCM Agreement has been satisfied.  
7.4.2.4.4   The accreditation requirements to inve st in R&D in Brazil and make 
expenditure in engineering, basic industrial technology and capacity -building of 
suppliers in Brazil, in respect of laboratory equipment used in performing R&D in Brazil  
7.766.   The European Union considers that one aspect of the rule s on accreditation in order to 
receive  presumed IPI tax credits contains an "explicit local content condition", requiring the use of 
Brazilian laboratory equipment as part of the purchases of strategic inputs and tools to be used in 
the required R&D activi ties, thus altering the conditions of competition for imported laboratory 
equipment in favour of domestic laboratory equipment, inconsistently with Article III:4 of the GATT 
1994.1142 Japan has not challenged this particular aspect of the INOVAR -AUTO programm e.1143  
7.767.   The Panel recalls that in order to obtain accreditation under the INOVAR -AUTO 
programme, a company seeking accreditation must make expenditures on R&D activities, 
engineering, technology or capacity -building of suppliers, in Brazil.1144 Additionally, the  particular 
provision of the INOVAR -AUTO programme referred to by the European Union states that:  
[T]he following shall be regarded as product and process research and development 
(R&D) activities in Brazil: … V – design, planning, construction or moderni sation of 
laboratories and infrastructure for their operation, and acquisition of national 
equipment, services and spare parts needed to carry out the activities set out in this 
paragraph.1145  
7.768.   The European Union also refers to the following provision with re spect to expenditure in 
engineering, basic industrial technology and capacity -building of suppliers in Brazil:  
For the purposes of this Implementing Order, the following shall be regarded as 
product and process engineering, basic industrial technology acti vities and capacity -
building of suppliers in Brazil:  … V - design, planning, construction or modernisation 
of laboratories, applied research centres, test tracks and infrastructure for their 
operation, and acquisition of national equipment, services and s pare parts needed to 
carry out the activities set out in subparagraph I, among others; VI - design, 
planning, construction or modernisation of laboratories, applied research centres and 
test tracks, in addition to all infrastructure for their operation, an d acquisition of 
national equipment, services and spare parts needed to carry out the activities set out 
in subparagraph II.1146 
7.769.   In the view of the Panel, by the necessary implication of these provisions, the option to 
purchase "national" equipment and spare parts in order to satisfy the accreditation requirements 
for the INOVAR -AUTO programme, functions as a requirement to purchase Brazilian equipment 
and spare parts. In other words, purchasing like imported equipment and spare parts could not 
satisfy this re quirement in order to be taken into account in calculating the amounts required to be 
invested and spent on R&D in Brazil.  
7.770.   Based on its review of this evidence, the Panel considers that the accreditation 
requirements to invest in R&D in Brazil and make ex penditure in engineering, basic industrial 
technology and capacity -building of suppliers in Brazil, in respect of laboratory equipment used in 
performing R&D in Brazil,  by the necessary implication of the wording of the measure, require the 
use of domestic  over imported goods in order to be accredited and obtain the tax benefits. As 
                                                
1142 European Union's first written submission, para. 372. See also European Union's first written 
submission, par a. 435 and fn 354; European Union's second written submission, paras. 90 and 186.  
1143 See footnote 1087 above.  
1144 This requirement is not compulsory for companies seeking accreditation as domestic manufacturers.  
See paragraph 2.115  above.  
1145 Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1 §1 (1)(V).  
1146 Implementing Order MCTI/MDIC 772/2013, (Exhibit JE -175), Article 1, §5(V) -(VI). WT/DS472/R • WT/DS497/R  
 
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  explained in paragraph  7.258  above, a requirement to use domestic over imported goods is 
inconsistent with Article III:4 of the GATT 1994. The Panel  therefore concludes that the INOVAR -
AUTO programme is inconsistent with Article III:4 of the GATT 1994. Also, for the reasons 
indicated above in paragraphs 7.259  to 7.260  above, the Panel considers  that a finding of a 
requirement to use domestic goods also constitutes a finding by the Panel that the contingency 
element of the claims under Article 3.1(b) of the SCM Agreement has been satisfied. The Panel 
recalls its view, as stated in paragraph 7.258  above, that if a particular option to comply with a 
certain requirement alters the conditions of competition to the detriment of imported products and 
in favour of like domestic products, then that requirement is inconsistent with Article III:4 of the 
GATT 1994, notwithstanding the existence of alternative options that may be WTO -consistent.1147  
7.771.   The Panel therefore concludes that this aspect of the INOVAR -AUTO programme is 
inconsistent with Article  III:4, because the accreditation requirements to invest in R&D in Brazil, 
and make expenditure in engineering, basic industrial technology and capacity -building of 
suppliers in Brazil , in respect of laboratory equipment,  accord treatment less favourable to 
imported produ cts than that accorded to like domestic  products.  
7.4.2.5   Conclusion  
7.772.   In light of the foregoing, the Panel concludes that under the INOVAR -AUTO programme, 
the conditions for accreditation in order to receive presumed tax credits, rules on accrual of 
presumed tax c redits, and rules on use of presumed tax credits resulting from expenditure in 
strategic inputs and tools in Brazil accord less favourable treatment to imported products than that 
accorded to like domestic products, inconsistently with Article III:4 of the  GATT 1994.  
7.773.   Additionally, the Panel concludes that (a) the accreditation requirement to perform a 
minimum number of manufacturing steps in Brazil; (b) the rules on accrual of presumed tax 
credits, with respect to purchases of strategic inputs an tools; an d (c) that aspect of the 
accreditation requirements in respect of expenditure and investment in R&D in Brazil, pertaining to 
the purchase of Brazilian laboratory equipment; accord less favourable treatment to imported 
products than that accorded to like do mestic products, inconsistently with Article III:4 of the GATT 
1994. The Panel further concludes that these same three aspects of the INOVAR -AUTO programme 
give rise to contingency on the use of domestic over imported goods in the sense of Article 3.1(b) 
of the SCM Agreement. The Panel will incorporate this finding in its analysis of the claims under 
that provision.  
7.4.3   Claims under Article III:5 of the GATT 1994  
7.4.3.1   Introduction  
7.774.   The European Union and Japan present claims under both the first and second sentence of 
Article III:5 of the GATT 1994.  
7.775.   The Panel recalls that, as one of the requirements to be accredited under the INOVAR -
AUTO programme, companies must perform a minimum number of defined manufacturing and 
engineering infrastructure activities in Brazil.1148 
7.776.   The Panel also recalls that accredited companies can earn more presumed IPI tax credits if 
they purchase automotive strategic inputs and tools with a higher level of local content than if they 
purchase strategic inputs and tools with a low level of local co ntent.1149  
7.777.   The European Union and Japan submit that the INOVAR -AUTO programme is inconsistent 
with Article III:5, first sentence, of the GATT 1994, because the requirements (a) to perform a 
minimum number of processing activities or manufacturing steps in Br azil, and (b) to use 
domestically produced automotive components and equipment, in order to earn IPI tax credits, 
amount to an internal quantitative regulation relating to the processing or use of products, which 
                                                
1147 See paragraphs 7.258  and 7.303 , and footnote 648 above.  
1148 See paragraph 2.115  above.  
1149 See paragraphs 2.126  to 2.127  above.  WT/DS472/R • WT/DS497/R  
 
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  requires a specified amount or proportion o f the products to be supplied from domestic 
sources.1150 
7.778.   The European Union and Japan submit that the INOVAR -AUTO programme is also 
inconsistent with Article III:5, second sentence, because, in any event, the above described 
requirements amount to an internal  quantitative regulation that is applied so as to afford 
protection to domestic production.1151 
7.779.   Brazil submits that the production step requirements programmes do not establish 
requirements relating to products within the meaning of Article III:5 of the GATT 1994. Brazil 
submits that the production -step requirements are related to workforce and technology and not to 
the mixture, processing or use of products in specified amounts or proportions. Brazil also argues 
that the production -step requirements do not es tablish an obligation to source goods domestically, 
as they only require that certain stages of production be performed in Brazil. Brazil submits, as 
well, that the INOVAR -AUTO programme is not designed, structured or applied so as to afford 
protection to domestic production.1152 
7.780.   Brazil also submits that the tax credits associated with expenditures on inputs are outside 
the scope of Article III:5 of the GATT 1994 because there is no obligation regarding the "mixture, 
processing or use" of these inputs, but rat her, they can be more closely associated to purchase 
obligations.1153 
7.4.3.2   The legal standard  
7.781.   The Panel refers to the legal framework developed in section 7.3.3.2  above.  
7.4.3.3   Analysis by the Panel  
7.782.   The Panel has already deal t with both the conditions to perform a minimum number of 
processing activities or manufacturing steps in Brazil, and to purchase domestically produced 
automotive strategic inputs and tools in order to earn IPI tax credits, in the context of the 
complainin g parties' claims under Article III:4 of the GATT 1994.1154 
7.783.   The Panel has concluded, in paragraphs 7.751  and 7.765  above, that the conditions to 
perform a minimum number  of processing activities or manufacturing steps in Brazil, and to use 
domestically produced automotive components and equipment, in order to earn presumed IPI tax 
credits, are inconsistent with Article III:4, as they accord less favourable treatment to im ported 
products (inputs in the production of incentivized goods) than that accorded to domestic like 
products.  
7.784.   Given the fact that the Panel has already dealt with the two conditions, in the context of its 
analysis under Article III:4 of the GATT 1994, th e Panel will assess whether it is appropriate to 
apply the principle of judicial economy in the context of the claims under Article III:5 of the GATT 
1994.  
7.785.   In this respect, the Panel recalls the arguments of the European Union, Japan, and Brazil 
regarding whether the Panel should make findings on Article III:5 in addition to its findings on 
Article III:4, as described in section 7.3.3.3  above.  
7.786.   As explained in paragraphs 7.177  to 7.179  above, panels are not obliged to rule on each of 
the claims put forth by the complaining parties. Panels have the discretion to exercise the principle 
of judicial economy and assess only the cla ims that they consider necessary to secure a positive 
solution to a dispute.  
                                                
1150 European Union's first written submission, paras. 408 -418; and Japan's first written submission, 
paras.  248-251. 
1151 European Union's first written submission, paras. 419 -433; and J apan's first written submission, 
para. 252. 
1152 Brazil's first written submissions, paras. 591 -594 (DS472) and 525 -527 (DS497).  
1153 Brazil's first written submissions, paras. 595 (DS472) and 528 (DS497).  
1154 See sections 7.4.2.4.2  and 7.4.2.4.3  above.  WT/DS472/R • WT/DS497/R  
 
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  7.787.   The Panel notes that the specific features challenged under Article III:5 of the GATT 1994 
(namely the conditions to perform a minimum number of processing activities or manufact uring 
steps in Brazil, and to use domestically produced automotive components and equipment, in order 
to earn IPI tax credits) were also specifically challenged by the complaining parties in their claims 
under Article III:4 of the GATT 1994.  
7.788.   The Panel reca lls that it assessed the exact same features under Article III:4 of the GATT 
1994 and found, in 7.4.2.4.2  and 7.4.2.4.3  above, that those features were inconsistent w ith 
Article III:4 of the GATT 1994. The Panel sees no difference in the features covered by the 
complaining parties in their claims under Article III:4 and the features covered by the complaining 
parties in their claims under Article III:5 of the GATT 1994 . 
7.789.   The Panel is fully aware of its task of securing a positive solution to this dispute. However, 
the Panel sees no reason why it would need to assess two claims under two different provisions of 
Article III of the GATT of 1994, covering the same features o f the INOVAR -AUTO programme, in 
order to secure a positive solution to the dispute. This is because the same aspects that lead to the 
finding of inconsistency with Article III:4 of the GATT 1994 (specifically the finding of 
discrimination against imported inputs through the imposition of local content requirements), are 
the same aspects that the complaining parties allege to be inconsistent with Article III:5 of the 
GATT 1994.  
7.790.   Even if Article III:5 of the GATT 1994 has a more precise meaning and refers to local 
content requirements when regulating the processing of products internally, in the context of this 
dispute, the complaining parties have framed their claims under Article III:4 and III:5 of the GATT 
1994 in such a way so as to cover the exact same fe atures.  
7.791.   As the Panel concluded with respect to the complaining parties' claims under Article III:5 
for the ICT programmes, the Panel considers that, in the specific context of this dispute, if Brazil 
brings the aspects of the INOVAR -AUTO programme found to  be inconsistent with Article III:4 of 
the GATT 1994 into conformity, it will also bring its measures into conformity with Article III:5 of 
the GATT 1994.1155 In particular, the reasons for the alleged inconsistency in respect of Article 
III:5 are, in the Pan el's view, fully resolved by the Panel's findings in respect of Article III:4. In 
this respect the Panel also emphasizes that all factual findings relevant to an assessment of the 
complaining parties' claims under Article III:5 have already been made in re spect of the 
complaining parties' claims under Article III:4.  
7.4.3.4   Conclusion  
7.792.   The Panel concludes that it is not necessary to make findings with respect to the 
complaining parties' claims under Article III:5 of the GATT 1994 in order to secure a positive 
solution to this dispute, and therefore exercises judicial economy with respect to these claims.  
7.4.4   Claims under Article 2.1 of the TRIMs Agreement  
7.4.4.1   Introduction  
7.793.   The complaining parties contend that the INOVAR -AUTO programme is inconsistent with 
Article  2.1 of th e TRIMs Agreement, both independently and in conjunction with Article 2.2 and 
paragraph 1(a) of the Agreement's Illustrative List, because it is inconsistent with Article III of the 
GATT 1994.1156 The complaining parties claim that the INOVAR -AUTO programme c onstitutes a 
trade -related investment measure and is therefore within the scope of the TRIMs Agreement. The 
complaining parties further submit that the INOVAR -AUTO programme is inconsistent with 
Article  III:2, III:4 and III:5 of the GATT 1994. Therefore, i n their view, the I NOVAR -AUTO 
programme also violate s Article 2.1 of the TRIMs Agreement.1157  
                                                
1155 See paragraph 7.347  above.  
1156 European Union's first written submission, paras. 435 -451; Japan's first written submission, 
paras . 253-266.  
1157 European Union's first written submission, paras. 445 -446; Japan's first written submission, 
para. 262. WT/DS472/R • WT/DS497/R  
 
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  7.794.   Finally, the complaining parties contend that the INOVAR -AUTO programme is a TRIM that 
falls under paragraph 1(a) of the Annex to the TRIMs Agreement because it req uires that 
accredited companies purchase or use products of domestic origin or from domestic sources in 
terms of particular inputs or a proportion of volume of its local production in order to obtain IPI tax 
reductions.1158 
7.795.   Brazil agrees with the complaining parties that the INOVAR -AUTO programme is an 
investment measure. However, it submits that it does not relate to trade in goods because it deals 
with research, development and production.1159 Brazil submits that the INOVAR -AUTO programme 
falls outside the scop e of Article III of the GATT 1994 by virtue of Article III:8(b) of the GATT 1994 
and, therefore, does not violate either the GATT 1994 or the TRIMs Agreement.1160 
7.796.   With respect to Brazil's arguments that the INOVAR -AUTO programme is outside the scope 
of Articl e III of the GATT 1994, because they relate to pre -market requirements rather products, 
and additionally by virtue of Article III:8(b) of the GATT, the Panel has addressed both of these 
arguments above in sections  7.2.1 and 7.2.2 above  and found that the challenged measures are 
not excluded from the disciplines of Article III.  
7.797.   The Panel notes that Article 2.1 of the TRIMs Agreement states as follows:  
Without prejudice to other rights and obligations under GATT 1994, no Member shall 
apply any TRIM that is inconsistent with the provisions of Article III or Article XI of 
GATT 1994.  
7.798.   The Panel in Indonesia – Autos indicated that two elements must be shown in order to 
demonst rate inconsistency with Article 2.1: first, that the challenged measure is a TRIM; second, 
that the TRIM is inconsistent with Article III or Article XI of GATT."1161 Additionally, the Panel in 
Canada – Renewable Energy / Canada – Feed-in Tariff Program indica ted that Article  2.1 of the 
TRIMs  Agreement imposes an obligation on Members not to apply any TRIM that is inconsistent 
with the national treatment provisions of Article  III of the GATT, including Articles  III:2, III:4 and 
III:5. It follows that any measur e found to be inconsistent with Article III of the GATT, that is also 
a TRIM, will be incompatible with Article  2.1 of the TRIMs  Agreement.1162 
7.799.   The Panel notes that in order for a measure to be found to be inconsistent with Article 2.1 
of the TRIMs Agreement,  it must be a trade -related investment measure, within the meaning of 
the TRIMs Agreement, and it must be found to be inconsistent with Article III of the GATT 1994. 
The Panel proceeds by assessing these two steps in turn.  
7.4.4.2   Whether the INOVAR -AUTO programm e is a trade -related investment measure 
within the meaning of the TRIMs Agreement  
7.800.   The complaining parties submit that the INOVAR -AUTO programme is a trade -related 
investment measure for five reasons. First, INOVAR -AUTO contains a clear obligation to invest  in 
R&D and/or engineering and basic industrial technology in the automotive sector in Brazil in order 
to get accredited. Second, domestic manufacturers seeking accreditation must perform a minimum 
number of manufacturing activities in Brazil, thereby ince ntivizing investment and local production. 
Third, the accreditation requirement relating to investment in design, planning, construction or 
modernisation of laboratories requires that the equipment, services and spare parts are sourced 
domestically. Fourth , the rules on accrual and calculation of presumed IPI tax credits provide that 
the higher the level of domestic content of strategic inputs and tools, the higher the IPI tax credits 
obtained. Finally, the European Union argues that the local content requi rements under INOVAR -
AUTO "relate to trade in goods" because they affect motor vehicles marketed in Brazil.1163 
                                                
1158 European Union's first written submission, paras. 447 -449; Japan's first written submission, 
para. 264. 
1159 Brazil's first written submiss ions, para. 675 (DS497).  
1160 Brazil's first written submissions, paras. 676 -677 (DS497).  
1161 Panel Report, Indonesia – Autos , para. 14.64.  
1162 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 7.117.  
1163 European Union's first writte n submission, paras. 439 -443; Japan's first written submission, paras. 
257-261. WT/DS472/R • WT/DS497/R  
 
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  7.801.   In the view of the Panel, the INOVAR -AUTO programme affects, and indeed is aimed at 
promoting, investment. The programmes also have an impact on tr ade, by affecting the sale and 
purchase of imported products, including the inputs used in the production of incentivized finished 
and intermediate  products. In this regard, as noted before, if a measure contains local content 
requirements, it would necess arily be a "trade -related" measure, because such requirements, by 
definition, always favour the use of domestic products over imported products, and therefore 
affect trade.1164 
7.802.   The Panel therefore concludes that the INOVAR -AUTO programme constitutes a trade -
related investment measure within the meaning of the TRIMs Agreement.  
7.4.4.3   Whether the INOVAR -AUTO programme is a TRIM that is inconsistent with 
Article III of the GATT 1994, and therefore inconsistent Article 2.1 of the TRIMs 
Agreement  
7.803.   In order to make a findi ng of inconsistency in respect of Article 2.1 of the TRIMs 
Agreement, the relevant TRIMs must be found to be inconsistent with Article III of the GATT 1994.  
7.804.   The Panel has found in paragraphs 7.645 , 7.688 , and 7.772  to 7.7731165, above that the 
INOVAR -AUTO programme is inconsistent with Article III:2 and III:4 of the GATT  1994. In li ght of 
its finding above that the programmes constitute trade -related investment measures, the Panel 
therefore considers that those aspects of the INOVAR -AUTO programme found to be inconsistent 
with Article III:2 and III:4 of the GATT 1994 are also inconsi stent with Article 2.1 of the TRIMs 
Agreement.  
7.805.   Additionally, the Panel notes that the local content requirements identified and discussed in 
sections 7.4.2.4.2 , 7.4.2. 4.3, and 7.4.2.4.4  above "require the purchase or use by an enterprise of 
products of domestic origin or from any domestic source", as referred to in paragraph 1(a) of the 
Illustrative List annexed to the TRIMs  Agreement. Pursuant to Article 2.2 of the TRIMs Agreement, 
a TRIM on the Illustrative List is per se inconsistent with Article III:4 of the GATT 1994, and 
therefore inconsistent with Article 2.1 of the TRIMs Agreement. This further confirms the Panel's 
findings above that the local content requirements are inconsistent with Article III:4 (and, as 
indicated above, consequentially inconsistent with Article 2.1 of the TRIMs Agreement).  
7.4.4.4   Conclusion  
7.806.   In light of the foregoing, the Panel concludes that the INOVA R-AUTO programme 
constitutes a trade -related investment measure, and that the aspects of the programme found to 
be inconsistent with Article III:2 and III:4 of the GATT 1994 are also inconsistent with Article 2.1 
of the TRIMs Agreement.1166  
7.4.5   Claims under Arti cle 3.1(b) of the SCM Agreement  
7.4.5.1   Introduction  
7.807.   The complaining parties have raised claims under Article 3.1(b) of the SCM Agreement 
with respect to the INOVAR -AUTO programme.  
                                                
1164 Panel Report, Indonesia – Autos , para. 14.82.  
1165 As noted in paragraph 7.766  and discussed in footnote 1087 above, Japan does not allege any 
inconsistency with Article III:4 of the particular aspect of the INOVAR -AUTO programme concerning laboratory 
equipment purchased for the purposes of the expenditure and investment accreditation requ irements, as 
discussed in section 7.4.2.4.4  above.  
1166 The Panel notes that its finding of inconsistency with Article III:4 of the GATT 1994 in respect of 
that aspect of accreditation requirements to invest in R& D in Brazil and make expenditure in engineering, basic 
industrial technology and capacity -building of suppliers in Brazil, concerning laboratory equipment used in 
performing R&D in Brazil, as discussed in section 7.4.2.4.4  above, is only relevant to the European Union's 
request for findings (DS472) and not Japan (DS497). See footnotes 1087 and 1165 above. Consequently, the  
Panel's conclusion of inconsistency with Article 2.1 of the TRIMs Agreement in respect of this particular aspect 
of the INOVAR -AUTO programme is also limited to the dispute brought by the European Union (DS472) and not 
Japan (DS497).  WT/DS472/R • WT/DS497/R  
 
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  7.808.   Article 3.1(b) of the SCM Agreement prohibits subsidies contingent, whether solely or as 
one of several other conditions, upon the use of domestic over imported goods.  
7.809.   The Panel recalls that companies accredited under the INOVAR -AUTO programme are 
entitled to reductions of the IPI tax due on the sales of certain motor vehicles through pr esumed 
IPI tax credits that can be used to fully or partially offset the IPI tax paid, up to 30 percentage 
points.1167 
7.810.   The European Union and Japan argue that the reductions of the IPI tax due on certain 
motor vehicles through presumed IPI tax credits granted  to accredited companies under the 
INOVAR -AUTO programme are subsidies within the meaning of the SCM Agreement, as they 
constitute financial contributions where "government revenue that is otherwise due is foregone or 
not collected", through which a benefi t is conferred.1168 
7.811.   The European Union and Japan also argue that the alleged subsidies granted under the 
INOVAR -AUTO programme are contingent upon the use of domestic over imported goods and are, 
thus, prohibited under Article 3.1(b) of the SCM Agreement, bec ause: (a) as one of the 
requirements to be accredited under the INOVAR -AUTO programme, companies must perform a 
number of specific manufacturing and engineering infrastructure activities in Brazil; (b) the highest 
amount of presumed credits can only be obt ained by purchasing domestic strategic inputs and 
tools; and (c) if an accredited company chooses to comply with the R&D and technology 
investment requirements through the setting up or refurbishing of testing laboratories, it should 
rely on national equip ment and spare parts.1169 
7.812.   Brazil states that the INOVAR -AUTO programme qualifies as a production subsidy aiming 
at promoting the quality of the vehicles and their energy efficiency. Brazil explains that, for that, 
the Program established a tax regime conceive d to offset the cost of compliance incurred by the 
accredited companies in the implementation of the INOVAR -AUTO programme's goals.1170  
7.813.   Brazil also submits that the INOVAR -AUTO programme does not require, in law or in fact, 
domestic products to be used and t he production -step requirements and investment requirements, 
do not impose any contingency upon the use of domestic over imported products. Brazil argues 
that labour, production -step and technology requirements do not affect products and fall outside 
the scope of both the GATT and Article 3 of the SCM Agreement.1171  
7.814.   Brazil also submits that the tax credits under the INOVAR -AUTO programme accrue from 
the purchase rather than the use of strategic inputs and tools, regardless of their origin, and that 
the method  for calculating the tax credit is not related to the origin of products, but rather to the 
level of contribution of the respective expenditure to the programme´s goals.1172 
7.815.   Brazil adds that the generation of credits through the purchase of inputs and tools i s only 
one of various manners of obtaining credits. They can be equally obtained through expenditures on 
research, development, innovation, payments to the FNDCT, supplier capacity building and 
engineering.1173 
7.816.   In order to determine whether the reductions thr ough presumed tax credits granted under 
the INOVAR -AUTO programme are inconsistent with Article 3.1(b) of the SCM Agreement, the 
Panel must assess:  
a. Whether the reductions through presumed tax credits granted under the INOVAR/AUTO 
programme constitute subsi dies, i.e., whether the reductions through presumed tax 
credits granted under the INOVAR -AUTO programme constitute financial contributions by 
                                                
1167 See section 2.2.5.2  above.  
1168 European Union's first written submission, paras. 454 -460; Japan's first written submission, paras. 
268-271. 
1169 European Union's first written submission, paras. 461 -465; Japan's first written submissio n, paras. 
272-273. The item (c) is only argued by the European Union.  
1170 Brazil's first written submissions, paras. 746 -749 (DS472) and paras.  678-681 (DS497).  
1171 Brazil's first written submissions, paras. 750 -755 (DS472) and paras.  682-689 (DS497).  
1172 Brazil 's first written submissions, paras. 750 -755 (DS472) and paras.  682-689 (DS497).  
1173 Brazil's first written submissions, paras. 750 -755 (DS472) and paras. 682 -689 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  the Brazilian Government, in the form of "government revenue that is otherwise due is 
foregone or not collected", through which a benefit is conferred; and  
b. Whether any such subsidies are contingent upon the use of domestic over imported 
goods and thus prohibited.1174  
7.4.5.2   Whether the reductions through presumed tax credits granted under the 
INOVAR -AUTO programme are continge nt upon the use of domestic over imported goods 
within the meaning of Article 3.1(b) of the SCM Agreement , and thus prohibited  
7.817.   The Panel recalls that the European Union and Japan argue that the subsidies granted 
under the INOVAR -AUTO programme are continge nt upon the use of domestic over imported 
goods and are, thus, prohibited under Article 3.1(b) of the SCM Agreement, because: (a) as one of 
the requirements to be accredited under the INOVAR -AUTO programme, companies must perform 
a number of specific manuf acturing and engineering infrastructure activities in Brazil; (b) the 
highest amount of presumed credits can only be obtained by purchasing domestic strategic inputs 
and tools; and (c) if an accredited company chooses to comply with the R&D and technology 
investment requirements through the setting up or refurbishing of testing laboratories, it should 
rely on national equipment and spare parts.1175 
7.818.   Brazil submits that the INOVAR -AUTO programme does not require, in law or in fact, 
domestic products to be used a nd the production -step requirements and investment requirements, 
do not impose any contingency upon the use of domestic over imported products. Brazil argues 
that labour, production -step and technology requirements do not affect products and fall outside 
the scope of both the GATT and Article 3.1(b) of the SCM Agreement.1176  
7.819.   Brazil also submits that the tax credits under the INOVAR -AUTO  programme accrue from 
the purchase rather than the use of strategic inputs and tools, regardless of their origin and that 
the method for calculating the tax credit is not related to the origin of products, but rather to the 
level of contribution of the respective expenditure to the programme´s goals.1177 
7.820.   Brazil adds that the generation of credits through the purchase of inputs and  tools is only 
one of various manners of obtaining credits. They can be equally obtained through expenditures on 
research, development, innovation, payments to the FNDCT, supplier capacity building and 
engineering.1178 
7.821.   Article 3 of the SCM Agreement states in  relevant parts that:  
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the meaning of Article 1, shall be prohibited:  
… 
(b) subsidies contingent, whether solely or as one of several other conditions, upon 
the use of d omestic over imported goods.  
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph  1. 
7.822.   Thus, pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement, subsidies contingent, 
whether solely or as one of several other conditions, upo n the use of domestic over imported 
goods are prohibited, and shall not be granted or maintained. The ordinary meaning of the word 
                                                
1174 As explained in paragraphs 7.497  to 7.498  above, pursuant to Article 2.3 of the SCM Agreement, 
consideration of the question of contingency also will address whether the subsidies are specific in the sense 
argued by the complaining parties. (The comp laining parties make no claims or arguments in respect of any 
other mode of specificity.)  
1175 European Union's first written submission, paras. 461 -465; Japan's first written submission, paras. 
272-273. The item (c) is only argued by the European Union.  
1176 Brazil's first written submissions, paras. 750 -755 (DS472) and paras. 682 -689 (DS497).  
1177 Brazil's first written submissions, paras. 750 -755 (DS472) and paras. 682 -689 (DS497).  
1178 Brazil's first written submissions, paras. 750 -755 (DS472) and paras. 682 -689 (D S497).  WT/DS472/R • WT/DS497/R  
 
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  "contingent" is "conditional: dependent on, upon "1179, so a subsidy is "contingent upon the use of 
domestic over imported goods" , and thus, prohibited under Article 3.1(b) of the SCM Agreement, if 
the use of domestic goods is required or necessary in order to receive the subsidy.1180  
7.823.   The Panel recalls its finding in paragraph 7.751  above t hat the accreditation requirement 
to perform a number of specific manufacturing and engineering infrastructure activities in Brazil 
constitute s a requirement to use domestic over imported goods to be eligible for the tax benefits 
under the programme, and t hus, entails a contingency upon the use of domestic over imported 
goods.  
7.824.   The Panel also recalls its finding in paragraph 7.765  above that the calculation of the 
deductible part for the rules on accrual of presum ed IPI tax credits resulting from expenditure in 
strategic inputs and tools require s the use of domestic over imported goods, and thus, entails a 
contingency upon the use of domestic over imported goods.  
7.825.   Finally, the Panel recalls its finding in paragraph 7.771  above that the accreditation 
requirement to make expenditure and invest in R&D in Brazil, in respect of laboratory equipment 
used in performing R&D in Brazil, results in a requirement to use domestic over imported goods, 
and thus, entails a contingency upon the use of domestic over imported goods.  
7.826.   Thus, if the Panel finds that the tax credits granted under the INOVAR -AUTO programme 
constitute subsidies within the meaning of the SCM Agreement, it will as a c onsequence conclude 
that these subsidies are inconsistent with Article 3.1(b) of the SCM Agreement.  
7.4.5.3   Whether the reductions through presumed tax credits granted under the 
INOVAR -AUTO programme constitute subsidies within the meaning of the SCM 
Agreement  
7.827.   The Panel recalls from section 7.3.5.3  above that, pursuant to the relevant part of Article 1 
of the SCM Agreement, a subsidy will exist in the case at issue, if:  
a. there is a financial contribution by a governmen t, in the form of government revenue 
otherwise due that is foregone or not collected; and  
b. a benefit is thereby conferred.  
7.828.   With respect to the term financial contribution, the Panel recalls from section 7.3.5.3. 1 
above that, in order to assess whether "government revenue that is otherwise due is foregone or 
not collected", the panel must:  
a. First, identify the tax treatment that applies to the income of the alleged recipients, 
considering the objective reasons beh ind that treatment.  
b. Second, identify a benchmark for comparison, i.e. the tax treatment of comparable 
income of comparably situated taxpayers. This will involve an examination of the 
structure of the Member's domestic tax regime and its organizing principl es.  
                                                
1179 Shorter Oxford English Dictionary (6th ed., 2007)  
1180 Indeed, such an interpretation was confirmed by the Appellate Body in Canada – Autos, where the 
Appellate Body recalled its discussion of Article 3.1(a) and explained as follows:  
In our discussi on of Article 3.1(a) in Section VI of this Report, we recalled that in Canada – 
Aircraft  we stated that "the ordinary connotation of 'contingent' is 'conditional' or 'dependent for 
its existence on something else'." Thus, a subsidy is prohibited under Arti cle 3.1(a) if it is 
"conditional" upon export performance, that is, if it is "dependent for its existence on" export 
performance. In addition, in Canada – Aircraft , we stated that contingency "in law" is 
demonstrated "on the basis of the words of the relev ant legislation, regulation or other legal 
instrument." (emphasis added) As we have already explained, such conditionality can be derived 
by necessary implication from the words actually used in the measure. We believe that this legal 
standard applies not only to "contingency" under Article 3.1(a), but also to "contingency" under 
Article 3.1(b) of the SCM Agreement. Appellate Body Report, Canada – Autos , para. 123.  WT/DS472/R • WT/DS497/R  
 
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  c. Third, compare the challenged tax treatment, and its reasons, with the identified 
benchmark tax treatment. Such a comparison will enable a panel to determine whether 
the government is foregoing revenue that is otherwise due in relation to the income o f 
the alleged recipients.1181 
7.829.   With respect to the concept of benefit, the Panel also recalls that in those cases where a 
financial contribution has been found to exist in the form of the foregoing of revenue otherwise 
due, the conclusion that a benefit exists  has been made with little difficulty because a tax break is 
essentially a gift from the government, or a waiver of obligations due, and it is clear that the 
market does not give such gifts.1182 
7.4.5.3.1   Whether the reductions through presumed tax credits granted unde r the 
INOVAR -AUTO programme constitute financial contributions in the form of government 
revenue that is otherwise due foregone or not collected  
7.830.   As explained in paragraph 7.828  above, in order to assess whether the presumed tax 
credits granted under the INOVAR -AUTO programme constitute financial contributions where 
"government revenue that is otherwise due is foregone or not collected", the Panel needs to 
respond to the following questions: a) What is the challen ged tax treatment that applies to the 
income of the alleged recipients, and what are the objective reasons behind this treatment? b) 
What is the benchmark treatment or tax treatment of comparable income of comparably situated 
taxpayers? And, c) What is the  difference between the challenged tax treatment, and its reasons, 
with the identified benchmark tax treatment?1183 
7.4.5.3.1.1   The tax treatment that applies to the income of the alleged recipients, and 
the objective reasons behind this treatment  
7.831.   As described in paragr aph 7.809  above, the tax treatment applicable to accredited 
companies under the INOVAR -AUTO programme consists of reductions of the IPI tax due on the 
sales of certain motor vehicles through presumed IPI tax credits that can be  used to fully or 
partially offset the IPI tax up to 30 percentage points.  
7.832.   The Panel recalls that the Appellate Body in US – Large Civil Aircraft (2nd complaint) 
explained that the identification of the tax treatment that applies to the income of the alleg ed 
recipients will entail consideration of the objective reasons behind that treatment and, where it 
involves a change in a Member's tax rules, an assessment of the reasons underlying that 
change.1184 
7.833.   Interministerial Explanatory Memorandum No 00025/2012 desc ribes the aim of the 
INOVAR -AUTO programme as follows:  
[The INOVAR -AUTO programme] aims to strengthen the national automotive industry 
and create impulses [incentives] for an improvement of the technological content of 
the vehicles produced in the country.  
… 
The measure will promote the increase of the Brazilian vehicle fleet efficiency and 
allow the national automotive industry to meet the current production standards of 
the international automotive industry.1185 
                                                
1181 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. 
1182 Panel R eport,  US – Large Civil Aircraft (2nd complaint) , paras. 7.169 -7.171. See also: Panel 
Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , fn 509; US – FSC, para. 7.103; and 
US – FSC (Article 21.5 – EC), paras. 8.44 -8.48; and Appellate Bod y Reports, US – FSC, para. 140; and US – 
FSC (Article  21.5 – EC), para. 198.  
1183 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. 
1184 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 812.  
1185 Interministeri al Explanatory Memorandum No. 00025/2012, (Exhibits JE -183 and BRA -51), 
paras.  44-45. WT/DS472/R • WT/DS497/R  
 
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  7.834.   The Panel will address below whether these sta ted reasons affect the comparison between 
the challenged tax treatment and the benchmark treatment.  
7.4.5.3.1.2   The relevant benchmark treatment and the difference between the 
challenged tax treatment and the identified benchmark tax treatment  
7.835.   The Panel notes that th e challenged tax treatment is a reduction of an economy -wide tax 
that applies, in principle, to all transactions by all businesses. As explained in detail below, on the 
basis of the evidence before the Panel and the analytical framework set forth above, th e Panel 
finds that the benchmark to be applied is the economy -wide tax treatment from which the 
reduction is taken.  
The benchmark treatment  
7.836.   The Panel considers that in the case at issue the appropriate benchmark treatment is the 
treatment applicable to sal es of motor vehicles covered by the INOVAR -AUTO programme by non -
accredited companies, i.e. the obligation to pay the full amount of the applicable IPI tax rate due 
on the sales of non -incentivized motor vehicles. In particular, the accredited and non -accredited 
companies producing and selling the motor vehicles covered by the INOVAR -AUTO programme are 
identically situated, except for the fact of accreditation. Brazil has provided no evidence 
demonstrating any other difference that could explain the differe ntial IPI tax treatment of these 
products. Thus, the treatment applicable to sales by non -accredited companies of non -incentivized 
products can be considered the benchmark treatment or normal rule of general application.  
Comparison  
7.837.   The Panel now compares t he reductions granted to accredited companies of the IPI tax due 
on the sales of certain motor vehicles, through presumed IPI tax credits, under the INOVAR -AUTO 
programme, with the benchmark treatment identified in the previous paragraph, i.e. the treatmen t 
applicable to sales by non -accredited companies of non -incentivized products.  
7.838.   The Panel notes that under the benchmark treatment the non -accredited company selling 
the non -incentivized motor vehicle will always charge the IPI tax to the company buying th e non -
incentivized finished product, at the moment of the sale. The non -accredited company selling the 
non-incentivized product then will remit to the Federal Revenue Service the amount of IPI tax 
charged, when it pays its monthly liabilities due on the 25th day of the month following the 
transaction. Thus, the Brazilian Government will receive the full amount of IPI tax due from the 
non-accredited company selling the non -incentivized product.  
7.839.   In contrast, pursuant to the challenged treatment under the INOV AR-AUTO programme, 
whereby the tax is reduced, the accredited company selling the incentivized product will only have 
to remit part of the tax to the Brazilian Government.  
7.840.   If the Panel compares the challenged treatment, where the Brazilian Government recei ves 
only part of the IPI tax that otherwise would have been due, with the benchmark treatment, where 
the Brazilian Government receives the full amount of IPI tax due, it is clear that under the 
challenged treatment the Brazilian Government foregoes revenue  that is otherwise due. Thus, the 
Panel finds that, with respect to the reductions of the IPI tax due on certain motor vehicles 
through presumed IPI tax credits that can be used to fully or partially offset the IPI tax, 
"government revenue that is otherwis e due is foregone or not collected". The Panel notes that 
Brazil does not contest this finding.1186 
Reasons for the difference in tax treatment  
7.841.   Finally, with respect to the Panel's obligation to take into consideration the reasons for the 
difference in tax tr eatment, the Panel recalls that, according to the relevant Explanatory 
Memoranda, the stated aim of the INOVAR -AUTO programme is to strengthen the national 
automotive industry and create incentives for an improvement of the technological content of the 
vehicles produced in the country, and promote the increase of the Brazilian vehicle fleet efficiency 
                                                
1186 Brazil's first written submissions, paras. 746 -749 (DS472) and paras. 678 -681 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  and allow the national automotive industry to meet the current production standards of the 
international automotive industry. The Panel does not see any reaso n why these alleged reasons 
could impact the Panel's findings with respect to the comparison between the challenged tax 
treatment and the benchmark treatment.  
7.4.5.3.1.3   Conclusion on whether the tax reductions through presumed tax credits 
under the INOVAR -AUTO prog ramme constitute financial contributions in the form of 
"government revenue that is otherwise due is foregone or not collected"  
7.842.   In light of the above, the Panel concludes that the reductions of the IPI tax due on certain 
motor vehicles through presumed IPI  tax credits under the INOVAR -AUTO programme constitute 
financial contributions where "government revenue that is otherwise due is foregone or not 
collected".  
7.4.5.3.2   Whether the financial contributions granted under the INOVAR -AUTO 
programme confer a benefit  
7.843.   Several panels have concluded that, whenever there is revenue foregone by the 
government, a benefit is conferred.1187 Having concluded that the tax treatments at issue 
constitute financial contributions where "government revenue that is otherwise due is foregone or 
not collected", the Panel concludes that the subsidies at issue confer a benefit.  
7.844.   With respect to the reductions of the IPI tax due on certain motor vehicles through 
presumed IPI tax credits, it is clear that, by not having to pay the full amount of tax es and 
contributions concerned, the buyers of the incentivized products are better off with the reductions 
than in the benchmark scenario of having to pay the full amount of taxes concerned on their 
purchases on non -incentivized products.  
7.4.5.3.3   Conclusion on wh ether the reductions through presumed tax credits granted 
under the INOVAR -AUTO programme constitute subsidies within the meaning of Article 
1 of the SCM Agreement  
7.845.   Having concluded that with the tax reductions granted under the INOVAR -AUTO 
programme, "gov ernment revenue that is otherwise due is foregone or not collected" and a benefit 
is thereby conferred, the Panel concludes that the IPI tax reductions on certain motor vehicles 
through presumed IPI tax credits constitute subsidies within the meaning of Ar ticle 1 of the SCM 
Agreement.  
7.4.5.4   Whether the subsidies granted under the INOVAR -AUTO programme are specific 
within the meaning of Article 2 of the SCM Agreement  
7.846.   The Panel refers to the Panel's explanation on the concept of specificity in paragraphs 
7.496  to 7.498  above. Based on that explanation, and because the case at issue involves claims of 
prohibited subsidies, if the Panel concludes, in its analysis below, that the subsidies granted under 
the INOVAR -AUTO programme are prohibited within the meaning of Article 3.1(b) of the SCM 
Agreement, the Panel will also be able to conclude ipso facto that, pursuant to Article 2.3, the 
subsidies granted under the INOVAR -AUTO progra mme are specific and thus subject to the 
provisions of Part II of the SCM Agreement.  
7.4.5.5   Conclusion  
7.847.   In light of the foregoing, the Panel concludes that the reductions through presumed tax 
credits granted under the INOVAR -AUTO programme are subsidies within the  meaning of Article 
1.1 of the SCM Agreement and contingent upon the use of domestic over imported goods within 
                                                
1187 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.169 -7.171.  See also: Panel Reports, 
Canada – Renewable Energy / Canada – Feed-in Tariff Program, fn 509; US – FSC, para. 7.103; and US – FSC 
(Article 21.5 – EC), paras. 8.44 -8.48; and Appellate Body Reports, US – FSC, para. 140; and US – FSC (Article 
21.5 – EC), para. 198. WT/DS472/R • WT/DS497/R  
 
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  the meaning of Article 3.1(b) of the SCM Agreement1188, and thus are prohibited subsidies, 
inconsistent with Article 3.1(b) and 3.2 of the SCM Agre ement.  
7.848.   As explained in paragraphs 7.501  to 7.507  above, the SCM Agreement leaves policy space 
for WTO Members – particularly developing Members - to devise WTO consis tent programmes to 
grant subsidies exclusively to their domestic producers, and to foster, through those subsidies, the 
development of their industries and to pursue other policy goals.  
7.4.6   Brazil's invocation of Article XX of the GATT 1994 to justify certain  inconsistencies 
in respect of the INOVAR -AUTO programme  
7.4.6.1   Introduction  
7.849.   In respect of the INOVAR -AUTO programme, Brazil argues there is no inconsistency with 
any provisions of the GATT 1994 or the TRIMs Agreement. Brazil also argues that, in the event the 
Panel does make any findings of inconsistency in respect of Article III of the GATT 1994, such 
inconsistency is nevertheless justified under sub -paragraph (b) of Article XX, which refers to 
measures "necessary to protect human, animal or plant life or health ", and sub -paragraph (g) of 
Article XX, which refers to measures "relating to the conservation of exhaustible natural resources 
if such measures are made effective in conjunction with restrictions on domestic production or 
consumption".  
7.850.   Additionally, Braz il argues that in the event the Panel does make any findings of 
inconsistency under Article 2.1 of the TRIMs Agreement, resulting from findings of inconsistency in 
respect of Article III of the GATT 1994, since the Article III inconsistencies are justified  under 
Article XX(b) and XX(g), there would be no violation of the TRIMs Agreement.1189 Brazil has not 
raised any Article XX defence with regard to alleged inconsistencies with the SCM Agreement.  
7.851.   As noted above, the Panel recalls the Appellate Body's stateme nts that "the aspects of a 
measure to be justified under the subparagraphs of Article XX are those that give rise to the 
finding of inconsistency under the GATT 1994".1190 The Appellate Body has further clarified in the 
context of Article XIV of the GATS, gov erning the general exceptions applicable in the context of 
GATS, that:  
[I]n order for a panel properly to conduct its assessment under Article XIV of the 
GATS, it should be clear from the panel's analysis that, with respect to each individual 
measure, the  aspects of the measure addressed are the same as those that gave rise 
to its earlier finding of inconsistency. This is because a respondent may not justify the 
inconsistency of a measure by basing its defence on aspects of that measure different 
from thos e that were found by the panel to be inconsistent with a provision of the 
GATS.1191 
7.852.   Therefore the aspects of the INOVAR -AUTO programme to be justified under Article XX(b) 
and (g) are those that the Panel found to be inconsistent with Article III:2 and III:4 o f the GATT 
1994.1192 
7.853.   The Panel proceeds by assessing Brazil's affirmative defences under Article XX(b), before 
turning to its affirmative defence under Article XX(g).  
                                                
1188 See paragraphs 7.258  to 7.260  above.  
1189 Brazil's first written submissions, para. 744 (DS472) and para. 676 (DS497).  
1190 Appellate Body Report, EC – Seal Produc ts, para. 5.185. Additionally, in Thailand – Cigarettes 
(Philippines) , the Appellate Body observed that:  
[W]hen Article XX(d) is invoked to justify an inconsistency with Article III:4, what must be shown 
to be "necessary" is the treatment giving rise to t he finding of less favourable treatment. Thus, 
when less favourable treatment is found based on differences in the regulation of imports and of 
like domestic products, the analysis of an Article XX(d) defence should focus on whether those 
regulatory differ ences are "necessary". Appellate Body Report, Thailand – Cigarettes 
(Philippines) , para. 177.  
1191 Appellate Body Report, Argentina – Financial Services , para. 6.169.  
1192 See sections 7.4.1 and 7.4.2 above.  WT/DS472/R • WT/DS497/R  
 
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  7.4.6.2   Whether the discriminatory aspects of the INOVAR -AUTO programme are 
justified under Article  XX(b) of the GATT 1994  
7.4.6.2.1   Description of the legal test  
7.854.   Article XX(b) of the GATT 1994 provides as follows:  
Subject to the requirement that such measures are not applied in a manner which 
would constitute a means of arbitrary or unjustifiable discrimination  between countries 
where the same conditions prevail, or a disguised restriction on international trade, 
nothing in this Agreement shall be construed to prevent the adoption or enforcement 
by any contracting party of measures:  
… 
(b) necessary to protect h uman, animal or plant life or health  
7.855.   As noted above with respect to Article XX(a), the Appellate Body has explained that:  
[T]he assessment of a claim of justification under Article XX involves a two -tiered 
analysis in which a measure must first be provisio nally justified under one of the 
subparagraphs of Article XX, before it is subsequently appraised under the chapeau of 
Article XX.1193 
7.856.   According to the Appellate Body, the burden of proving that a measure is justified under 
Article XX rests on the party invok ing that defence.1194 Specifically, the party invoking the defence 
bears the burden of proving not only that a measure is provisionally justified under a 
subparagraph of Article XX, but that the measure is consistent with the requirements of the 
chapeau of Ar ticle XX.1195 The Appellate Body has indicated, however, that  
[T]he nature and scope of arguments and evidence required to establish a prima facie  
case will necessarily vary according to the facts of the case, and from measure to 
measure, provision to provis ion, and case -to-case. Moreover, these rules and 
principles of WTO jurisprudence must not be applied in an unduly formalistic or 
mechanistic fashion, nor inhibit the substantive analysis that must be undertaken by a 
panel.1196  
7.857.   Article XX of the GATT 1994 the refore involves a two -tiered analysis. First, a panel must 
assess whether the measure at issue is provisionally justified under the subparagraph of Article XX 
invoked. Second, if the panel finds that the measure is provisionally justified, it must examine 
whether the application of the measure satisfies the requirements of the chapeau of Article XX.  
7.858.   Similarly to the legal standard under Article XX(a) of the GATT 1994, as discussed above, 
the first step of the analysis requires that a panel examine two elem ents in order to determine 
whether a measure is provisionally justified under subparagraph (b) of Article XX: (i) whether the 
challenged measure addresses the particular interest specified in subparagraph (b) of Article XX, 
that is, whether the measure is "designed to" protect human life or health, and (ii) whether "there 
[is] a sufficient nexus between the [challenged] measure and the interest protected", that is, 
whether the challenged measure is "necessary" to protect human life or health.1197  
7.859.   In order to avoid repetition, the Panel refers to its statements above on the general legal 
standard in respect of whether a measure is "designed to" protect a particular interest.1198 
However, the Panel notes that in the specific case of subparagraph (b) of Article XX, which deals 
with the protection of human, animal and plant life or health, past panels and the Appellate Body 
                                                
1193 Appellate Body Report, EC – Seal Products , para. 5.169. (footnotes omitted) See also footnote 871 
above.  
1194 Appellate Body Report, US – Gasoline , pp. 22 -23, DSR 1996:I, 3,  at p. 21 -23. 
1195 Appellate Body Report, US – Gasoline , pp. 22 -23, DSR 1996:I, 3, at p. 21 -23. 
1196 Appellate Body Report, US – Tuna II (Article 21.5 - Mexico) , para. 7.33.  
1197 Appellate Body Report, Colombia – Textiles , para. 5.67.  
1198 See paragraphs 7.518  and 7.522  to 7.523  above.  WT/DS472/R • WT/DS497/R  
 
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  have explained that the existence of a risk to human, animal or plant life or health must be 
determined in the first place.1199 In this regard, the A ppellate Body recalled that a panel "enjoy[s] 
a margin of discretion in assessing the value of the evidence, and the weight to be ascribed to that 
evidence", including the use of experts.1200 Once that risk is found to exist, the second step is to 
examine whe ther the policy underlying the measure aims to reduce such risk. In this connection, it 
is clearly established that Members have the right to determine the level of protection that they 
deem appropriate.1201  
7.860.   Once a measure is found to be "designed to" protec t human, animal or plant life or 
health", a panel must determine whether the measure is "necessary" to achieve that objective. In 
order to avoid repetition, the Panel refers to its statements above on the general legal standard in 
respect of whether a meas ure is "necessary to" protect a particular interest.1202 
7.861.   In the event that the Panel finds the challenged measure to be provisionally justified under 
subparagraph (b) of Article XX of the GATT 1994, as being necessary for the protection of human 
life and heal th, the Panel shall proceed to the second step of its analysis, to determine whether the 
measure satisfies the requirements of the chapeau of Article XX.  
7.862.   Under this second step, the Panel shall assess whether the discriminatory aspects of the 
challenged m easure have been "applied in a manner which would constitute a means of arbitrary 
or unjustifiable discrimination between countries where the same conditions prevail, or a disguised 
restriction on international trade". In order to avoid repetition, the Pan el refers to its statements 
above on the general legal standard in respect of whether a measure satisfies the requirements of 
the chapeau.1203  
7.863.   The Panel proceeds with the first step of the analysis.  
7.4.6.2.2   Whether the discriminatory aspects of the INOVAR -AUTO prog ramme are 
provisionally justified under Article XX(b)  
7.864.   Brazil argues that the INOVAR -AUTO programme is part of a set of Brazilian policies aimed 
at (i) improving vehicle safety and (ii) reducing CO 2 emissions. Therefore, Brazil considers that it 
falls withi n the range of policies designed to protect human, animal or plant life and health as well 
as the environment.1204 Brazil refers to Law 12,715/2012 that enacted the INOVAR -AUTO 
programme, which explicitly states that the objective of this programme is to supp ort "the 
technological development, the innovation, the safety, the protection of the environment, the 
energy efficiency  and the quality of automobiles, trucks, buses and auto parts".1205 
7.865.   As far as the objective of increasing vehicle safety is concerned, Braz il submits that the 
INOVAR -AUTO programme aims to promote automotive safety and related social benefits, which 
include the safety of passengers and the reduction of accidents.1206 Brazil argues that the INOVAR -
AUTO programme is the tool by which it aims to ac hieve the standards established by the United 
Nations Economic Commission for Europe (UNECE) through the World Forum for Harmonisation of 
Vehicle Regulations.1207 Brazil contends that the INOVAR -AUTO programme contributes to the 
objective of protecting human life and health by providing incentives for the production of safer 
vehicles.1208 
                                                
1199 Panel Report, EC – Asbestos , para. 8.170. The panel in that case said that "the use of the word  
'protection' implies the existence of a risk." See Panel Report, EC– Asbestos , para. 8.184.  
1200 Appellate Body Report, EC – Asbestos , para. 161.  
1201 Appellate Body Report, EC – Seal Products , para. 5.200 (referring to Panel Report, US – Gambling , 
para. 6.461, refe rring to Appellate Body Reports, Korea – Various Measures on Beef , para. 176; and EC – 
Asbestos , para. 168).  
1202 See paragraphs 7.524  to 7.535  above.  
1203 See section 7.3.6.2.2  above.  
1204 Brazil's first written submissions, section 6.1.2.8.1.1 (DS472) and section 5.1.2.8.1.1. (DS497).  
1205 Brazil's first written submissions, para. 606 (DS472) and para. 539 (DS497), referring to Law 
12,715/2012, (Exhibit BRA -85), Article 40. (emphasis added)  
1206 Brazil's first written submissions, para. 609 (DS472) and para. 542 (DS497).  
1207 Brazil's first written submissions, para. 612 (DS472) and para. 545 (DS497).  
1208 Brazil's first written submissions, pa ra. 613 (DS472) and para. 546 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  7.866.   With respect to the objective of reducing CO 2 emissions, Brazil argues that the INOVAR -
AUTO programme is part of a set of policies aimed at progressively reducing CO 2 and pollut ant 
emissions.1209 In this regard, Brazil states that the INOVAR -AUTO programme is specifically 
mentioned in Brazil's Transport and Urban Mobility Sectorial Plan for Climate Change Mitigation 
and Adaptation as a measure that contributes to the reduction of gr eenhouse gases emissions in 
the transport sector.1210 Brazil argues that its policies to increase energy efficiency in vehicles 
result in protection of the environment that leads to the protection of human, animal and plant life 
and health.1211 
7.867.   The European Unio n submits that Brazil has not demonstrated that the discriminatory 
aspects of INOVAR -AUTO have been adopted, enforced, or designed to protect human, animal or 
plant life or health.1212 In the European Union's view, the energy efficiency and vehicle safety 
objectives claimed by Brazil are not aims in themselves but rather elements of the real objective 
pursued by Brazil, which is the protection and development of the domestic industry.1213 
7.868.   Japan considers that Brazil has not demonstrated the existence of a "genuin e relationship" 
between the specific challenged features of the INOVAR -AUTO programme and the policy objective 
of protecting human, animal or plant life or health.1214 
7.869.   As noted above, the Appellate Body has explained in the context of Article XX(a) that , in 
order to determine whether a challenged measure is provisionally justified under the relevant 
subparagraph of Article  XX of the GATT 1994, panels must assess two elements: (i) whether the 
challenged measure is "designed to" protect public morals, and (ii) w hether the challenged 
measure is "necessary" to protect such public morals.1215 Given the similarities between Article 
XX(a) and XX(b) as regards the required nexus between the challenged measure and the interest 
protected, the Panel considers that the approa ch taken by the Appellate Body with respect to the 
analysis under Article XX(a) is also applicable to the analysis under subparagraph (b) of Article  XX.  
7.4.6.2.2.1   Whether the discriminatory aspects of the INOVAR -AUTO programme are 
designed to protect human life or health  
7.870.   The Panel will now proceed to examine whether the aspects of the INOVAR -AUTO 
programme found to be GATT -inconsistent are designed to protect human life or health in two 
steps. First, it will examine whether the claimed policy objectives; i.e. increa se vehicle safety and 
reduce CO 2 emissions, are objectives that fall within the range of policies aimed at protecting 
human life or health. Second, the Panel will analyse whether aspects of the INOVAR -AUTO 
programme found to be GATT -inconsistent are design ed to increase vehicle safety and reduce CO 2 
emissions.  
Whether the claimed objectives of the measure are within the scope of Article XX(b) of 
the GATT  1994  
7.871.   As noted above, Brazil has identified two policy objectives pursued by the INOVAR -AUTO 
programme: (i) improving vehicle safety and (ii) reducing CO 2 emissions. Although the European 
Union acknowledges that, in abstracto , energy efficiency and road safety are objectives that may 
fall under Article XX(b) of the GATT 1994, it argues that the real objectiv e of the INOVAR -AUTO 
programme is to develop the Brazilian car industry.1216 Japan has not rebutted Brazil's 
characterization of its policy objectives.  
7.872.   Past panels have found that a broad range of policies are aimed at the protection of 
human, animal and plan t life or health, including policies relating to the reduction of air pollution 
                                                
1209 Brazil's first written submissions, para. 614 (DS472) and para. 547 (DS497).  
1210 Brazil's first written submissions, para. 616 (DS472) and para. 549 (DS497), referring to Transport 
and Urban Mobility Sectorial Plan fo r Climate Change Mitigation and Adaptation ( Plano Setorial de Transporte e 
de Mobilidade Urbana para Mitigação e Adaptação à Mudança do Clima  (PSTM) , (Exhibit BRA -71). 
1211 Brazil's first written submissions, para. 616 (DS472) and para. 549 (DS497).  
1212 Europe an Union's second written submission, paras. 151 -152 (referring to Appellate Body Report, 
EC – Seal Products , para. 5.185).  
1213 European Union's second written submission, para. 155.  
1214 Japan's second written submission, para. 95.  
1215 Appellate Body Report, Colombia – Textiles , paras. 5.67 -5.68. 
1216 See para graph  7.867  above, and European Union's second written submission, para. 157.  WT/DS472/R • WT/DS497/R  
 
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  as a result of consumption of gasoline and the reduction of risks arising from the accumulation of 
waste tyres.1217  
7.873.   The Panel notes the importance of the existence of a risk for human, animal or plant life or 
health in the context of Article  XX(b). In EC – Asbestos , the panel considered that the first step to 
determine whether a measure is provisionally justified under Article XX(b) of the GATT 1994 is to 
determine the existence o f a risk to human, animal or plant life or health. In this regard, the 
Appellate Body recalled that a panel "enjoy[s] a margin of discretion in assessing the value of the 
evidence, and the weight to be ascribed to that evidence", including the use of exper ts.1218 Once 
that risk is found to exist, the second step is to examine whether the policy underlying the 
measure aims at reducing such risk.  
7.874.   With respect to the first objective invoked by Brazil, i.e. increasing vehicle safety, the 
Panel notes that Brazil h as provided evidence that higher vehicle safety standards have an impact 
on the reduction of the risk for human life or health in car accidents. A report by the World Health 
Organization establishing a Global Plan for the Decade of Action for Road Safety 2 011-2020 
identifies the risks that car accidents represent for human life and health by stating that "[r]oad 
traffic injuries are among the three leading causes of death for people between 5 and 44 years of 
age".1219 According to this report:  
Each year nearly  1.3 million people die as a result of a road traffic collision —more 
than 3000 deaths each day… Twenty to fifty million more people sustain non -fatal 
injuries from a collision, and these injuries are an important cause of disability 
worldwide. Ninety perce nt of road traffic deaths occur in low - and middle -income 
countries...  [R]oad traffic injuries are predicted to become the fifth leading cause of 
death in the world, resulting in an estimated 2.4 million deaths each year.1220 
7.875.   The Panel further notes that a re port from the US Department of Transportation states that 
one of the developments that can have an impact on the fatality rate is the development of vehicle 
safety technologies such as seat belts, air bags and electronic stability control.1221 Several reports  
referred to by Brazil also point to the fact that vehicle safety devices such as electronic stability 
control systems can prevent up to 33% of fatal accidents and reduce by 73% the number of 
accidents in which the vehicle may roll over. Such reports concl ude that this technology might 
save up to 4,000 lives and avoid 100,000 accidents involving injuries, in Brazil.1222 
7.876.   The World Health Organization report establishing a Global Plan for the Decade of Action 
for Road Safety 2011 -2020 lists the improvement of ve hicle safety as one of the effective 
interventions to prevent road traffic injuries. In fact, the United Nations General Assembly 
resolution that proclaimed a Decade of Action for Road Safety 2011 –2020 also calls upon UN 
member states to implement at the n ational level actions in five pillars, one such pillar being 
vehicle safety.1223 
7.877.   In light of the above, the Panel considers that Brazil has provided sufficient evidence to 
demonstrate that there is a risk for human life and health caused by car accidents and increasing 
vehicle safety contributes to protecting human life and health, by contributing to a lower number 
of casualties. Therefore, the Panel is of the view that increasing vehicle safety is one of the policies 
covered by subparagraph (b) of Article XX,  given that it can fall within the range of policies that 
protect human life or health.  
7.878.   With respect to the second objective invoked by Brazil, i.e. the reduction of CO 2 emissions, 
Brazil states that its Transport and Urban Mobility Plan estimates that 78%  of total national CO 2 
                                                
1217 Panel Reports, China – Raw Materials , para. 7.479 (referring to Panel Reports, US – Gasoline , 
para. 6.21 and Brazil – Retreaded Tyres , paras. 7.108 and 7.115).  
1218 Appellate Body Report, EC – Asbestos , para. 161.  
1219 WHO Article on road traffic injuries, (Exhibit BRA -52), p. 4.  
1220 WHO Article on road traffic injuries, (Exhibit BRA -52), p. 4.  
1221 "Lives Saved by Vehicle Safety Technologies and Associated Federal Motor Vehicle Safety Standard, 
1960 to 2012", U.S. Department of Transportation, January 2015, (Exhibit BRA -82). 
1222 "Automotive safety: Brazil is still delayed" ( Segurança nos carros: o Brasil ainda está na  rabeira ), 
(Exhibit BRA -83). 
1223 WHO Article on road traffic injuries, (Exhibit BRA -52), p. 11.  WT/DS472/R • WT/DS497/R  
 
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  emissions associated with transportation derive from the use of individual vehicles.1224 Brazil 
explains that the reduction in the CO 2 emissions obtained through the Motor Vehicle Air Pollution 
Control Program (PROCONVE) has a direct ef fect in improving air quality in the cities and reducing 
the risks of experiencing respiratory problems.1225 Numerous resolutions issued by the Brazilian 
National Environmental Council (CONAMA) refer to the need to reduce the emission level of 
pollutants give n that they contribute to the continuing deterioration of air quality.1226 A study 
prepared by the Brazilian Ministry of the Environment shows that vehicle emissions of CO 2 in Brazil 
are increasing significantly. In the five years that preceded the INOVAR -AUTO programme, such 
emissions increased by 61.5% for gasoline cars.1227 In order to reduce these CO 2 emissions, Brazil 
states that it put in place a series of measures over the past decades. One of the most relevant 
measures is the PROCONVE programme.1228 
7.879.   The Pane l notes that Brazil's view finds support in US – Gasoline , where the panel agreed 
with the parties that a policy to reduce air pollution resulting from the consumption of gasoline fell 
within the scope of subparagraph (b) of Article XX.1229 
7.880.   In light of the ab ove, the Panel considers that Brazil has demonstrated that the reduction 
of CO 2 emissions is one of the policies covered by subparagraph (b) of Article XX, given that it can 
fall within the range of policies that protect human life or health.  
7.881.   The Panel the refore finds that both increasing vehicle safety and the reduction of CO 2 
emissions are policy objectives that are covered by subparagraph (b) of Article XX of the GATT 
1994.  
Whether the discriminatory aspects of the INOVAR -AUTO programme are designed to 
protect human life or health  
7.882.   Having found that both increasing vehicle safety and the reduction of CO 2 emissions are 
policy objectives covered under subparagraph (b) of Article XX, the Panel turns to examine 
whether the aspects of the INOVAR -AUTO programme found to be inconsistent with Article III of 
the GATT  1994 are designed to achieve such policy objectives.  
7.883.   The Panel recalls from the legal standard described in paragraphs 7.518  and 7.522  to 
7.523  above that in determining whether a measure is "designed to" achieve a particular 
objective:  
[I]f the measure is not incapable  of protecting [the objective], this indicates the 
existence of a relationship between the measure and the protection of [the objective]. 
In this situation, further examination of whether the measure is "necessary" is 
required under Article XX(a).1230 
7.884.   The Panel notes that the parties disagree as to the policy objectives of those aspects of the 
INOVAR -AUTO programme found to be GATT -inconsistent. In this respect, the Panel will take into 
consideration the characterization of the policy objectives made by the respondent, although it is 
not bound by such character ization. In order to undertake an objective assessment that allows the 
Panel to identify the objectives pursued by the challenged measure, there are other elements that 
the Panel must take into account in addition to the characterization by Brazil. These e lements 
                                                
1224 Brazil's first written submissions, para. 626 (DS472) and para. 559 (DS497), referring to Transport 
and Urban Mobility Sectorial Plan for Climate Change Mitigat ion and Adaptation, (Exhibit BRA -71), p 63.  
1225 Brazil's first written submissions, para. 510 (DS472) and para. 443 (DS497).  
1226 See CONAMA Resolution Nos. 18/1986, (Exhibit BRA -54); 3/1989, (Exhibit BRA -56); 4/1989, 
(Exhibit BRA -57); 1/1993, (Exhibit BRA -58); 6/1993, (Exhibit BRA -59); 7/1993, (Exhibit BRA -60); 8/1993, 
(Exhibit BRA -61); 16/1993, (Exhibit BRA -62); 27/1994, (Exhibit BRA -63); 14/1995, (Exhibit BRA -64); 
15/1995, (Exhibit BRA -65); 16/1995, (Exhibit BRA -66); 17/1995, (Exhibit BRA -67); 315/2002, (Exhi bit BRA -
68); 403/2008, (Exhibit BRA -69); and 415/2009, (Exhibit BRA -70). 
1227 Brazil's first written submissions, para. 627 (DS472) and 560 (DS497).  
1228 Brazil's first written submissions, para. 505 (DS472) and para. 440 (DS497).  
1229 Panel Report, US – Gasoline , para. 6.21.  
1230 Appellate Body Report, Colombia – Textiles , para. 5.68. (footnotes omitted) (emphasis added)  WT/DS472/R • WT/DS497/R  
 
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  include the text of the relevant legal instruments, the legislative history and the evidence available 
on the record with respect to the design, structure and application of the challenged measure.1231  
7.885.   The Panel starts by looking at the text of the r elevant legal instruments. In this respect, 
the Panel finds that Law 12,715/2012, establishing the INOVAR -AUTO programme, provides that 
the aim of the programme is to "[support] technological development, innovation, safety, 
environmental protection, energ y efficiency and the quality of automobiles, lorries, buses and 
autoparts".1232 This idea is reinforced in Decree 7,819/2012 that implements and develops 
Articles  40 to 44 of Law 12,715/2012.1233 These objectives are also present in the legislative 
history of th e INOVAR -AUTO programme. In particular, Interministerial Explanatory Memorandum 
No. 00025/2012, that accompanied the Provisional Measure that established INOVAR -AUTO, 
indicates that the INOVAR -AUTO programme "aims to strengthen the national automotive indu stry 
and create impulses [incentives] for an improvement of the technological content of the vehicles 
produced in the country".1234 According to this Memorandum, the strengthening of the national 
automotive industry is expected to bring improvements in severa l fields, such as environmental 
protection, safety and energy efficiency.1235  
7.886.   Moving on to the design, architecture and structure of the challenged measure in order to 
make an objective assessment of its underlying policy objective1236, the Panel recalls that " the 
aspects of a measure to be justified under the subparagraphs of Article XX are those that give rise 
to the finding of inconsistency under the GATT 1994"1237 and moreover, that "a respondent may 
not justify the inconsistency of a measure by basing its defe nce on aspects of [a] measure 
different from those that were found by the panel to be inconsistent".1238  
7.887.   The Panel therefore conducts its assessment by looking at those aspects of the INOVAR -
AUTO programme found to be inconsistent with Article III:2 and III: 4, namely: (i) reduced tax 
rates for specific motor vehicles; (ii)  certain aspects of the specific accreditation requirements; 
(iii) certain aspects of the rules on calculation of tax credits; and (iv)  certain aspects of the rules 
on the use of presumed IP I tax credits.  
7.888.    The Panel further recalls its findings above that the specific accreditation requirements are 
inconsistent with Article III:2 and III:4 because: (1) foreign manufacturers are required to comply 
with three specific requirements whereas domes tic manufacturers are required to meet only two 
specific requirements; and (2) unlike for domestic manufacturers, for foreign manufacturers 
compliance with the accreditation criteria necessarily entails an additional burden of establishing a 
commercial pre sence in Brazil.1239 The Panel also found that the rules on accrual and use of 
                                                
1231 See Appellate Body Reports, EC – Seal Products , para. 5.144; US – COOL , para. 371; and US - Tuna 
II (Mexico) , para. 314. See also Panel Reports, China – Raw Materials , para. 7.479; and China – Rare Earths , 
para. 7.145.  
1232 Law 12,715/2012, (Exhibit JE -95), Article 40.  
1233 Decree 7,819/2012, (Exhibit JE -132), Article 1.  
1234 Interministerial Explanatory Memorandum No. 00025/2012, (Exhibits JE -183 and BRA -51), para. 44.  
1235 Interministerial Explanatory Memorandum No. 00025/2012, (Exhibits JE -183 and BRA -51), para. 44.  
1236 Panel Report, EC – Tariff Preferences , para. 7.200 (referring to Appellate Body Report, Japan – 
Alcoholic Beverages II , p. 29, DSR 1996:I, 97, a t p. 120, where the Appellate Body stated that "the aim of a 
measure may not be easily ascertained, nevertheless, its protective application can most often be discerned 
from the design, the architecture and the revealing structure of a measure").  
1237 Appella te Body Report, EC – Seal Products , para. 5.185. Additionally, in Thailand – Cigarettes 
(Philippines) , the Appellate Body observed that:  
[W]hen Article XX(d) is invoked to justify an inconsistency with Article III:4, what must be shown 
to be "necessary" i s the treatment giving rise to the finding of less favourable treatment. Thus, 
when less favourable treatment is found based on differences in the regulation of imports and of 
like domestic products, the analysis of an Article XX(d) defence should focus on  whether those 
regulatory differences are "necessary". Appellate Body Report, Thailand – Cigarettes 
(Philippines) , para. 177.  
1238 Appellate Body Report, Argentina – Financial Services , para. 6.169. The Appellate Body made this 
statement in the context of Art icle XIV of the GATS. The Panel can see no reason not to also apply this 
standard in the context of Article XX of the GATT.  
1239 See paragraphs 7.656  to 7.661  and 7.27 to 7.29 above. The Panel recalls that the INOVAR -AUTO 
programme provides for three different types of accreditations: (i) for companies that manufacture in Brazil; 
(ii) for importers/distributors (i. e. companies that market products in Brazil and do not engage in 
manufacturing activities in Brazil); and (iii) for investors (i.e. companies establishing factories in Brazil, or in 
the case of companies already established in Brazil, companies setting up new factories or industrial projects, 
to produce new models in Brazil). In order to obtain accreditation, all companies must comply with the same WT/DS472/R • WT/DS497/R  
 
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  presumed IPI tax credits are inconsistent with Article III:2 and III:4 because, respectively: the 
rules on accrual favour domestic  manufacturers over foreign  manufacturers since do mestic 
manufacturers are more likely to purchase strategic inputs and tools within Brazil; and the rules on 
use of presumed tax credits from expenditure in Brazil in strategic inputs and tools require that 
such tax credits can only be used in respect of im ported motor vehicles if any credits remain after 
offsetting the taxes on the sales of domestically manufactured motor vehicles, and also since such 
tax credits may only be used in respect of a maximum of 4,800 imported motor vehicles per 
year.1240 Additional ly, the Panel found that one specific accreditation requirement constituted a 
local content requirement, inconsistently with Article III:4 of the GATT 1994, namely the 
requirement to perform a minimum number of production steps within Brazil.1241 The Panel al so 
found that one particular aspect of the accreditation requirements in respect of expenditure and 
investment in R&D in Brazil, concerning the requirement to purchase laboratory equipment in 
Brazil, constituted a local content requirement, inconsistently with Article III:4 of the GATT 
1994.1242 Finally, the Panel found that one particular aspect of the rules on accrual and calculation 
of presumed tax credits, specifically concerning the calculation of the deductible part, constituted a 
local content requireme nt, inconsistently with Article III:4 of the GATT 1994.1243  
7.889.   In assessing whether these aspects found to be inconsistent are designed to achieve the 
objective of protecting human life and health, the Panel recalls Brazil's argument that  
[T]he R&D and product ion requirements as well as the method of calculating and 
using the presumed IPI credit were established in order to enhance the contribution of 
the [INOVAR -AUTO] programme to Brazil's safety and environmental objectives. In 
Brazil's experience, it is not feasible to achieve the desired level of technological 
advance in the auto industry without the proper incentives to R&D, productive 
capacity and a highly developed auto parts industry.1244 
7.890.   Brazil argues that the INOVAR -AUTO programme contributes to vehicle s afety through the 
accreditation  requirement that in order to be accredited, companies must comply with at least two 
out of three possible specific requirements, one of which is the option to "spend, in Brazil, at least 
the percentages shown in the table be low of the total gross proceeds from sales of goods and 
services, excluding taxes and contributions on sales, on research and development".1245 
Furthermore, "expenditure of the companies accredited under the INOVAR -AUTO scheme may be 
considered as development  of new devices for active and passive vehicle safety pursuant to the 
provisions, limits and conditions laid down in the joint act of the Minister for Development, 
Industry and Foreign Trade and the Minister for Science, Technology and Innovation", subject  to 
certain conditions.1246 
7.891.   Brazil's argument attempts to justify specific accreditation requirements, the content of 
which were never challenged by the complaining parties, and therefore need not be justified under 
Article XX. Brazil argues that the requirem ent to make expenditure in R&D in Brazil contributes to 
vehicle safety, and therefore the protection of human health. In the Panel's view, this justification 
is irrelevant, because the complaining parties have not challenged the requirement to make 
                                                                                                                                                  
two general accreditation requirements, as well as a combination of specific accreditation requirements that 
varies depending on the type of accreditation companies apply for. The general requirements applicable to all 
accredited companies are as follows: (i) compliance with all tax obligations at the federal level; and (ii) a 
commitment to achieve certain minimum  levels of energy efficiency for products marketed in Brazil. These 
general requirements have not been challenged by the complaining parties and the Panel has not made any 
finding in their regard. As for the specific accreditation requirements, each compan y also must meet some 
combination of the following: (i) performance of a minimum number of defined manufacturing and engineering 
infrastructure activities in Brazil; (ii) investment in research and technological development (R&D) in Brazil; 
(iii) expenditu re on engineering, basic industrial technology and capacity -building of suppliers in Brazil; and 
(iv) participation in the Brazilian Vehicle Labelling Programme established by INMETRO.  
1240 See paragraphs 7.682  to 7.687  and 7.730  to 7.732  above.  
1241 See section 7.4.2.4.2  above.  
1242 See section 7.4.2.4.3  above.  
1243 See section 7.4.2.4.4  above.  
1244 Brazil's second written submission, para. 148.  
1245 Brazil's first written submissions, para. 631 (DS472) and para. 564 (DS497) (referring to Decree 
7,819/2012, (Exhibit JE -132), Ar ticle 7).  
1246 Brazil's first written submissions, para. 631 (DS472) and para. 564 (DS497) (referring to Decree 
7,819/2012, (Exhibit JE -132), Article 7).  WT/DS472/R • WT/DS497/R  
 
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  expendi ture in R&D in Brazil per se , nor has the Panel made a finding that such a requirement is 
per se WTO-inconsistent.  
7.892.   The Panel reiterates that its finding of inconsistency in respect of the accreditation 
requirements generally is firstly based on the fact t hat foreign manufacturers are required to 
comply with more requirements than domestic manufacturers. It is this difference in the number of 
requirements (not the validity of the requirement as such) that Brazil is expected to justify under 
Article XX. Seco ndly, the Panel reached a conclusion that foreign manufacturers are subject to a 
higher burden than domestic manufacturers, because foreign manufacturers must become 
established in Brazil in order to gain the tax treatment for their products. It is therefo re for Brazil 
to explain why these WTO-inconsistent aspects of the accreditation requirements contribute to 
vehicle safety and protection of human health.  
7.893.   The Panel notes that it has found that one particular aspect of the accreditation 
requirement pertai ning to expenditure in R&D in Brazil (specifically in respect of purchasing 
Brazilian laboratory equipment) constitutes a local content requirement , inconsistently with Article 
III:4. Although Brazil has argued about that particular aspect of the expenditu re requirement  by 
which expenditure in vehicle safety counts towards fulfilment of the requirement,  Brazil has not 
demonstrated how the discriminatory aspect of the requirement, pertaining to the purchase of 
Brazilian laboratory equipment specifically, is designed to achieve th e objective  of vehicle safety . 
7.894.   In short, Brazil attempts to justify aspects of the accreditation requirements that were not 
found to be inconsistent and do not need to be justified under Article XX.  
7.895.   Turning to Brazil's argument in re spect of the objective of reducing CO 2 emissions, Brazil 
argues that:  
[T]he energy efficiency targets are a fundamental element of the program, as the 
energy efficiency targets are the main condition for the accredited companies to 
participate in the overa ll programme and is equally applicable to all accredited 
companies. INOVAR -AUTO encourages energy efficiency gains by both requiring 
minimum energy efficiency standards in light vehicles and providing additional 
incentives for companies surpassing those go als, and by providing the financial means 
to meet these goals. INOVAR -AUTO also fosters energy efficiency by encouraging 
minimum investments in R&D and engineering, energy efficiency labelling 
programmes and promoting the production of energy efficient aut o-parts.1247 
7.896.   Brazil elaborates in some detail on the specific energy efficiency targets that are 
mandatory for all companies seeking to be accredited under the INOVAR -AUTO programme.1248 
Brazil also points to the Brazilian vehicle labelling programme, which is " primarily focused on 
providing consumers information about energy efficiency and CO 2 emissions" and is an "elective 
condition to the accreditation to the programme".1249 
7.897.   In this respect the Panel notes that similarly to its discussion above in respect of the 
specific accreditation requirement relating to expenditure in the energy efficiency requirements, 
the complaining parties have not challenged the WTO -consistency of such energy efficiency 
requirements, and therefore Brazil need not justify such a requireme nt under Article XX.  
7.898.   Finally, Brazil also argues that the specific accreditation requirement related to vehicle 
labelling contributes to the protection of human health.1250 Again, the Panel repeats that the 
content of this specific accreditation requirement w as not challenged per se and was not found by 
the Panel to be WTO -inconsistent. Therefore, Brazil does not need to justify the WTO -consistency 
of the vehicle labelling requirement.  
                                                
1247 Brazil's first written submission, para. 569 (DS497).  
1248 Brazil's first written submissions, paras. 49 8-527 and 637 -639 (DS472) and paras. 435 -461 and 
570-572 (DS497).  
1249 Brazil's first written submissions, paras. 640 (DS472) and 573 (DS497).  
1250 Brazil's first written submissions, paras. 636 and 640 -641 (DS472) and 569 and 573 -574 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  7.899.   In short, the Panel considers that Brazil is indeed attempting to "justify  the inconsistency 
of a measure by basing its defence on aspects of [the] measure different from those that were 
found by the panel to be inconsistent".1251  
7.900.   Thus, Brazil has not explained with any of these arguments, how (i) the reduced tax rates 
for specifi c motor vehicles, (ii) the WTO -inconsistent aspects of the rules on accreditation in order 
to accrue tax credits, (iii) the WTO -inconsistent aspects of the rules on calculation of tax credits, or 
(iv) the WTO -inconsistent aspects of the rules on the use of  presumed IPI tax credits, are in any 
manner linked to the objectives of increasing vehicle safety or energy efficiency.1252  
7.901.   As the Appellate Body has explained, "the aspects of a measure to be justified under the 
subparagraphs of Article XX are those that g ive rise to the finding of inconsistency under the GATT 
1994".1253 In short, the Panel does not consider that any of these arguments by Brazil 
demonstrate how those aspects of the INOVAR -AUTO programme found to be inconsistent with 
Article III:2 and III:4 are  designed to achieve the stated objectives of vehicle safety or energy 
efficiency.  
7.902.   Notwithstanding its findings above, the Panel further notes Brazil's argument that "Brazil 
wishes to foster its industry to acquire the technology and know -how to manufactu re these 
automobiles in a sustained basis".1254 Brazil argues that previous efforts to ensure that its 
domestic industry could meet certain energy efficiency targets failed because companies lacked 
the appropriate incentives to meet those targets.1255 As Brazil states, it "could not simply require 
automobiles to be more efficient without any corresponding incentive. In this context the means 
by which the Programme's goals are reached are just as relevant in this analysis."1256 
7.903.   On the basis of this argument, the Pane l considers that the discriminatory aspects of the 
INOVAR -AUTO programme are not incapable of contributing to vehicle safety and the reduction of 
CO2 emissions. Indeed, it is not inconceivable to the Panel that under certain circumstances, the 
discriminato ry aspects of the INOVAR -AUTO programme could indeed contribute to the claimed 
objectives in a manner similar to that explained by Brazil.  
7.904.   In the view of the Panel, it is conceivable that the protection afforded to domestic 
producers by the discriminatory  aspects of the measure could enable such domestic producers to 
develop their industry. The development of the industry could enable an otherwise uncompetitive 
domestic industry to become competitive, resulting in technological development within the 
indus try, and ultimately enabling the domestic industry to produce more energy -efficient and safer 
motor vehicles. Ultimately, by elevating the domestic industry from a position of technological and 
competitive inferiority to a position in which the domestic in dustry could compete with foreign 
motor vehicles, the INOVAR -AUTO programme could conceivably contribute in the long -run to 
overall vehicle safety as well as overall reductions in CO 2 emissions.  
7.905.   The Panel therefore finds that Brazil has demonstrated that the measure is not incapable 
of contributing to the objective of increasing vehicle safety and reducing CO 2 emissions, and 
therefore could potentially contribute to these objectives. In light of its finding above that these 
objectives have been shown to be  objectives within the meaning of Article XX(b) of the GATT 
                                                
1251 Appellate Body R eport, Argentina – Financial Services , para. 6.169.  
1252 This includes those aspects of these rules found to impose local content requirements, inconsistently 
with Article III:4 of the GATT 1994. In particular, although Brazil has made an argument in respect of the 
specific accreditation requirement in respect of expenditure in R&D in Brazil, the Panel notes that its finding of 
inconsistency with this particular specific accreditation requirement relates to the requirement to purchase 
Brazilian laboratory equi pment. Brazil has not shown how the requirement to purchase Brazilian laboratory 
equipment is designed to achieve the objectives of vehicle safety or energy efficiency.  
1253 Appellate Body Report, EC – Seal Products , para. 5.185. Additionally, in Thailand – Cigarettes 
(Philippines) , the Appellate Body observed that:  
[W]hen Article XX(d) is invoked to justify an inconsistency with Article III:4, what must be shown 
to be "necessary" is the treatment giving rise to the finding of less favourable treatment. Thus,  
when less favourable treatment is found based on differences in the regulation of imports and of 
like domestic products, the analysis of an Article XX(d) defence should focus on whether those 
regulatory differences are "necessary". Appellate Body Report, Thailand – Cigarettes 
(Philippines) , para. 177.  
1254 Brazil's second written submission, para. 158.  
1255 Brazil's second written submission, para. 149.  
1256 Brazil's second written submission, para. 149.  WT/DS472/R • WT/DS497/R  
 
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  1994, the Panel consequently finds that Brazil has demonstrated that the measure is designed to 
protect human life and health within the meaning of Article  XX(b).  
7.4.6.2.2.2   Whether the discriminatory aspec ts of the INOVAR -AUTO programme are 
"necessary" to achieve the claimed objectives  
7.906.   The Panel found above that Brazil has demonstrated that the discriminatory aspects of the 
INOVAR -AUTO programme are "designed to" protect human life or health. The Panel the refore 
proceeds with its analysis by assessing whether Brazil has demonstrated that the discriminatory 
aspects of the INOVAR -AUTO programme are necessary to protect human life or health.  
7.907.   As noted above, this necessity analysis involves "a process of 'weig hing and balancing' a 
series of factors, including the importance of the objective, the contribution of the measure to that 
objective, and the trade -restrictiveness of the measure."1257 Additionally, in most cases, a 
comparison between the challenged measure and possible alternatives must be undertaken.1258  
The importance of the objectives  
7.908.   Brazil argues that the interests protected by the INOVAR -AUTO programme are vital and 
important to the highest degree. Brazil states that the INOVAR -AUTO programme's main goal  is to 
obtain safer and more fuel -efficient vehicles1259 and recalls that the Appellate Body has confirmed 
that the objectives of protection of human health and the protection of the environment are both 
vital and important.1260  
7.909.   With respect to the INOVAR -AUTO programme's claimed objective of increasing vehicle 
safety, Brazil argues that vehicle safety standards are directly linked to the protection of human 
life and health.1261 Brazil states that road deaths and injuries are a major public health concern 
and that it expects that increased vehicle safety is likely to reduce the number of victims and, as a 
result, protect human life and health.1262 
7.910.   With respect to INOVAR -AUTO's claimed objective of reducing CO 2 emissions, Brazil argues 
that the Brazilian vehicle fleet i s not yet at the energy efficiency level reached in other countries, 
thereby generating higher CO 2 emissions.1263 
7.911.   The European Union acknowledges that, in abstracto , energy efficiency and vehicle safety 
are objectives that may fall under Article XX(b) of the GATT 1994.1264 Japan does not address this 
particular issue.  
7.912.   The Panel observes that both increasing vehicle safety and the reduction of CO 2 emissions 
seem to be interests of particular importance for Brazil. With respect to vehicle safety, the Panel 
notes th at Brazil is ranked fifth in the world in terms of deadly vehicle accidents.1265 The Brazilian 
Ministry of Health has reported that car accidents were responsible for approximately 20.7% of all 
deaths from external causes in Brazil during 2013.1266 The fact that  the WHO launched a Global 
Plan for the Decade of Action for Road Safety 2011 -2020 is also indicative of the importance of this 
objective. In the WHO report, it is stated that 90% of road traffic deaths occur in low - and middle -
income countries and that, u nless immediate and effective action is taken, road traffic injuries are 
predicted to become the fifth leading cause of death in the world, resulting in an estimated 2.4 
                                                
1257 Appellate Body Report, EC – Seal Products , para. 5.214 (r eferring to Appellate Body Reports, EC – 
Seal Products , para. 5.169; Brazil – Retreaded Tyres , para. 182; and US – Gambling , para. 307 (referring to 
Appellate Body Report, Korea – Various Measures on Beef , para. 166)). See also Appellate Body Report, 
Colom bia – Textiles , para. 5.70. 
1258 See paragraph 7.524  above.  
1259 Brazil's first written submissions, para. 622 (DS472) and para. 555 (DS497).  
1260 Brazil's first written submissions, para. 622 (DS472) and para. 555 (DS49 7), (referring to Appellate 
Body Report, Brazil – Retreaded Tyres , paras. 144 and 179).  
1261 Brazil's first written submissions, para. 623 (DS472) and para. 556 (DS497).  
1262 Brazil's first written submissions, para. 624 -625 (DS472) and paras. 557 -558 (DS497).  
1263 Brazil's first written submissions, para. 626 (DS472) and para. 559 (DS497).  
1264 European Union's second written submission, para. 157.  
1265 Article about WHO study on deaths caused by traffic accidents, (Exhibit BRA -75). 
1266 Brazil's first written submissions, para. 624 (DS472) and para. 557 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  million deaths each year.1267 Further, one of the recommendations of this report at the n ational 
level is to implement five pillars, one of which relates to encouraging deployment of improved 
vehicle safety technologies for both passive and active safety.  
7.913.   The Panel, therefore, finds that increasing vehicle safety is an interest of high import ance.  
7.914.   With respect to the reduction of CO 2 emissions, the Panel notes that Brazil has launched 
numerous initiatives in recent decades to reduce pollutant emissions by motor vehicles, such as 
the Air Pollution Control Program by Motor Vehicles (PROCONVE).1268 Further, the Brazilian 
Transport and Urban Mobility Plan indicates that 78% of total national CO 2 emissions associated 
with transportation derive from the use of individual vehicles.1269 A study prepared by the Brazilian 
Ministry of the Environment shows that  vehicle emissions of CO 2 in Brazil have increased 
significantly. For example, in the five years that preceded the establishment of the INOVAR -AUTO 
programme this figure increased by 61.5% for gasoline cars.1270 In the Panel's view, this shows 
the importance of this objective for Brazil.  
7.915.   The Panel recalls that the Appellate Body has explained that "few interests are more 'vital' 
and 'important' than protecting human beings from health risks, and that protecting the 
environment is no less important".1271 
7.916.   In light of the above, the Panel finds that the level of importance of the interests pursued 
by Brazil (i.e. increase of vehicle safety and reduction of CO 2 emissions) is high.  
The contribution to the objectives  
7.917.   Brazil argues that the INOVAR -AUTO programme contribu tes to the protection of human 
life and health by increasing vehicle safety standards and reducing CO 2 emissions. Brazil argues 
that certain specific accreditation requirements contribute to these objectives.1272  
7.918.   The Panel recalls its findings above that the  specific accreditation requirements identified 
by Brazil as contributing to an increase in vehicle safety and the reduction of CO 2 emissions are 
not aspects of the INOVAR -AUTO programme that the Panel has found to be inconsistent per se . 
As noted above, t he Panel does not consider these particular aspects of the programme to be 
individually relevant for a justification of those aspects found to be inconsistent. In the Panel's 
view, the evidence presented by Brazil in order to demonstrate the contribution m ade by the 
discriminatory aspects of the INOVAR -AUTO programme is unrelated to those aspects of the 
programme that need to be justified.  
7.919.   In respect of Brazil's argument that the discriminatory aspects of the programme 
contribute to the stated objectives b ecause the discrimination strengthened the domestic industry, 
thereby facilitating the technological development of the industry, the Panel notes that Brazil has 
not submitted any evidence, quantitative or qualitative, to support this assertion.1273  
7.920.   Furtherm ore, the Panel notes that in the absence of evidence to support the notion that 
this hypothetical scenario could materialize, the Panel can only assess the likely contribution of the 
programme on the basis of the design, structure and operation of those as pects of the programme 
found to be inconsistent. In this respect the Panel notes that insofar as Brazil claims that its 
                                                
1267 WHO Article on road traffic injuries, (Exhibit BRA -52), p. 4.  
1268 See CONAMA Resolution Nos. 18/1986, (Exhibit BRA -54); 3/1989, (Exhibit BRA -56); 4/1989, 
(Exhibit BRA -57); 1/1993, (Exhibit BRA -58); 6/1993, (Exhibit BRA-59); 7/1993, (Exhibit BRA -60); 8/1993, 
(Exhibit BRA -61); 16/1993, (Exhibit BRA -62); 27/1994, (Exhibit BRA -63); 14/1995, (Exhibit BRA -64); 
15/1995, (Exhibit BRA -65); 16/1995, (Exhibit BRA -66); 17/1995, (Exhibit BRA -67); 315/2002, (Exhibit BRA -
68); 403/2 008, (Exhibit BRA -69); and 415/2009, (Exhibit BRA -70). 
1269 Transport and Urban Mobility Sectorial Plan for Climate Change Mitigation and Adaptation, (Exhibit 
BRA-71), p. 63.  
1270 Brazil's first written submissions, para. 672 (DS472) and para. 560 (DS497).  
1271 Appellate Body Report, Brazil – Retreaded Tyres , paras. 144 and 179.  
1272 See paragraphs 7.889  to 7.890 , 7.895 , and 7.898  above.  
1273 The Panel notes that Brazil has submitted evidence regarding the impact of the INOVAR -AUTO 
programme's energy efficiency requirements on CO 2 emissions. As discussed above, this evidence is not 
relevant to th ose aspects of the INOVAR -AUTO programme challenged by the complaining parties. See 
paragraphs 7.895  to 7.897  above.  WT/DS472/R • WT/DS497/R  
 
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  intended objective is vehicle safety and the reduction of CO 2 emissions, measures that discriminate 
against imported products do not app ear to make any contribution. To the contrary, if imported 
vehicles subject to the same requirements as domestic vehicles were not discriminated against in 
the ways the Panel has indicated in this report, it is possible that the number of safe and energy -
efficient vehicles within Brazil would actually increase, particularly in the short term, meaning that 
far from contributing to the state d objectives, the discriminatory aspects actually detract from the 
attainment of that objective.  
7.921.   In the Panel's view, B razil has not demonstrated that the discriminatory aspects of the 
INOVAR -AUTO programme have led, will lead, or are apt to lead, to an increase in vehicle safety or 
energy efficiency. Thus, in the Panel's view, although it is possible that the INOVAR -AUTO 
programme could , in theory, contribute to these objectives, Brazil has not demonstrated that the 
discriminatory aspects of the programme are likely or apt to contribute to the realisation of those 
goals. In the Panel's view, for the reason indicated in par agraph 7.920  above, it is likely that the 
INOVAR -AUTO programme will not make much, if any, contribution to these objectives. 
Nonetheless, the Panel continues its analysis.  
The level of trade -restrictiveness  
7.922.   Brazil argues that the level of trade -restrictiveness of INOVAR -AUTO is low because 
incentives are granted in a non -discriminatory manner to companies that fulfil the minimum 
requirements.1274 
7.923.   Neither Brazil nor the complaining parties have presented any eviden ce to demonstrate the 
trade -restrictiveness of the discriminatory aspects of the INOVAR -AUTO programme. Nevertheless, 
the Panel notes the following.  
7.924.   With respect to the reduced tax rates for certain motor vehicles, this discriminatory aspect 
of the INOVAR -AUTO programme results in a disincentive to purchase imported motor vehicles, 
which in the view of the Panel will have a material impact on imports of those products. The Panel 
therefore considers that the overall trade -restrictiveness of the INOVAR -AUTO programme is 
material.1275  
7.925.   With respect to the discriminatory rules on accreditation of presumed IPI tax credits, the 
Panel has observed that the specific accreditation requirements apply to all accredited companies, 
except for the requirement that certain m anufacturing and engineering activities be conducted in 
Brazil, which only applies to companies accredited as domestic manufacturers. However, the Panel 
has also noted that, in order to get accredited and be entitled to accrue presumed IPI tax credits, 
companies must be established in Brazil (in the case of domestic manufacturers and 
importers/distributors) or must commit to establish manufacturing facilities in Brazil (in the case of 
investors that do not have a commercial presence in Brazil yet). In the P anel's view, this is highly 
trade -restrictive because it prevents foreign companies operating outside Brazil from obtaining 
accreditation, regardless of their level of investment or expenditure in Brazil.  
7.926.   Additionally, the Panel found that th ose aspect s of the accreditation requirements requiring 
the performance of a minimum number of production -steps within Brazil (in respect of 
accreditation as a "domestic manufacturer"), and the purchase of Brazilian laboratory equipment, 
constitute local content require ments, which discriminate against imported automotive 
components and laboratory equipment. The Panel considers these local content requirements to be 
highly trade -restrictive for these imported products.  
7.927.   With respect to the discriminatory rules on calcula tion of presumed IPI tax credits, the 
Panel has noted that in order to accrue credits, expenditure must be made in Brazil by accredited 
                                                
1274 Brazil's first written submissions, para. 645 (DS472) and para. 578 (DS497).  
1275 The Panel notes that in Colombia – Textiles the Appellate Body considered that there was 
insufficient clarity with respect to the degree of trade -restrictiveness, such that the Appellate Body saw "no 
basis to proceed with a comparison of the measure at iss ue with any possible alternative measures". See 
Appellate Body Report, Colombia – Textiles , para. 5.115. In the present dispute, the Panel considers that the 
Panel's determination of the level of trade -restrictiveness is sufficiently clear to engage in a c omparison of the 
trade -restrictiveness of alternative measures reasonably available to Brazil, as discussed in section 7.3.6.3.2.4  
below.  WT/DS472/R • WT/DS497/R  
 
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  companies. In the specific case of expenditure in strategic inputs and tools, the Panel has found 
that these rules are d esigned in a manner so that domestic manufacturers can accrue higher 
presumed IPI tax credits than companies accredited as investors or distributors/importers, 
because domestic manufacturers are more likely to purchase strategic inputs and tools in Brazil 
given that such inputs and tools are required for those manufacturers to carry out their regular 
manufacturing activities. This is not the case for foreign manufacturers accredited as 
importers/distributors in Brazil, because their activity is limited to m arketing motor vehicles, and 
their type of accreditation does not foresee the development of any production activity in Brazil. In 
addition, the Panel has also found that the rules on calculation of presumed IPI tax credits 
resulting from expenditure in st rategic inputs and tools (referring in particular to the deductible 
part) favour those strategic inputs and tools with a higher level of local content by according 
higher presumed IPI tax credits. The Panel considers these particular aspects of the challen ged 
measure to be particularly trade -restrictive given that they penalize foreign companies and 
imported strategic inputs and tools (whose level of Brazilian content is likely to be non-existent or 
very low ). 
7.928.   With respect to the discriminatory rules on the  use of presumed IPI tax credits, the Panel 
has noted that these rules prioritize domestic vehicles over imported vehicles. In the view of the 
Panel, this particular aspect of the INOVAR -AUTO programme is particularly trade -restrictive, 
because it incentiv ises the purchase of domestically manufactured vehicles, which has a material 
impact on imports of like motor vehicles.  
7.929.   The Panel recognises that a determination of the trade -restrictiveness of a particular 
measure should be as precise as possible. Howeve r, the Panel is not in a position to make a 
quantitative estimation of the level of trade -restrictiveness. In the present dispute, in light of its 
observations above, the Panel finds that the level of trade -restrictiveness of these aspects of the 
rules on accreditation in order to receive the presumed IPI tax credits, calculation of the amount of 
presumed IPI tax credits  to be accrued , and the use of presumed IPI tax credits resulting from 
expenditure in strategic inputs and tools , is material.1276 
Comparison with reasonably available alternative measures  
7.930.   The complaining parties have put forward five alternative measures that they consider to 
be reasonably available, less trade -restrictive than the challenged measures, and able to 
contribute to the achievement of the objectives alleged by Brazil.  
7.931.   The first alternative is to provide tax exemptions to users for sales of all the products at 
issue that comply with its energy efficiency and vehicle safety standards, regardless of its 
origin.1277 The European Union state s that this alternative measure (i) is WTO -consistent as it is 
origin neutral; (ii) provides a higher contribution to the realization of the end pursued than the 
challenged measure because consumers will have enhanced access to a wider range of products; 
(iii) is less trade -restrictive than the challenged measure because it provides for the same 
preferential treatment for both domestic and imported products; and (iv) does not present any 
difficulty in terms of implementation.1278 The European Union also points  out that it is for Brazil to 
show that the alternative measure is not reasonably available.1279 
7.932.   The second alternative is the elimination or substantial reduction of customs duties on the 
products at issue that comply with Brazil's energy efficiency and vehi cle safety standards.1280 The 
European Union states that this alternative measure (i) is WTO -consistent as WTO Members are 
free to lower their customs duties below bound tariffs; (ii)  provides a higher contribution to the 
realization of the end pursued than t he challenged measure because consumers will have 
enhanced access to a wider range of products; (iii) is less trade -restrictive than the challenged 
measure; and (iv) does not present any difficulty in terms of implementation.1281 The European 
                                                
1276 See footnote 884 above.  
1277 European Union's second written submission, paras. 159 and 165.  
1278 European Union's second written submission, paras. 166 -169; and European Union's response to 
Panel's question No. 5.  
1279 European Union's second written submission, para. 169; and European U nion's response to Panel's 
question No. 5.  
1280 European Union's second written submission, paras. 159 and 170.  
1281 European Union's second written submission, paras. 172 -175; and European Union's response to 
Panel's question No. 5.  WT/DS472/R • WT/DS497/R  
 
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  Union points out  that this alternative measure is possible given that Brazil maintains applied ad 
valorem  duties of 35% for most of the products at issue.1282 
7.933.   The third alternative is the granting of IPI tax credits, or other types of tax credits, to all 
cars and components that satisfy specific efficiency targets, regardless of the manufacturing steps 
performed in Brazil or the level of domestic content.1283 Since the tax benefit is directly linked to 
the level of energy efficiency achieved, and not to the fulfilment of other r equirements, it would 
contribute to Brazil's policy objective more directly and effectively than the INOVAR -AUTO 
programme. In addition, this alternative is reasonably available because Brazil already rewards 
compliance with energy efficiency targets, subj ect to additional conditions unrelated to energy 
efficiency.1284 
7.934.   The fourth alternative is to provide subsidies for all products that comply with Brazil's 
energy efficiency and vehicle safety standards, regardless of the origin of the product.1285  
7.935.   The fifth alt ernative is the imposition of direct requirements relating to energy efficiency 
and vehicle safety that apply to all products regardless of their origin.1286  
7.936.   Brazil considers that the alternative measures submitted by the complaining parties either 
fail to r each the appropriate level of protection or are unavailable for technical or financial reasons. 
As regards the alternative measures consisting of tax exemptions or the provision of subsidies to 
all vehicles that reach certain fuel efficiency levels, Brazil  argues that they would undermine the 
INOVAR -AUTO programme's objectives because they would not contribute to the technological 
development of the Brazilian automotive sector. With respect to the alternative measure consisting 
of the reduction or eliminati on of tariffs for products that meet certain environmental and safety 
standards, Brazil also contends that this approach does not address a major concern under the 
INOVAR -AUTO programme, namely the transformation of the Brazilian automotive sector. As 
regards the alternative measure consisting of the imposition of direct requirements relating to 
energy efficiency and vehicle safety, Brazil argues that it already tried to impose such 
requirements in the past without success.1287  
7.937.   The Panel shall compare in turn  each of the alternative measures presented by the 
complaining parties with the challenged measure so as to confirm whether the challenged 
measures are "necessary" to protect human life and health as alleged by Brazil.  
Tax exemptions for all products that comply with certain standards  
7.938.   The first proposed alternative measure is to provide tax exemptions to users for sales of all 
products at issue that comply with Brazil's energy efficiency and vehicle safety standards, 
regardless of their origin.1288  
7.939.   Brazil arg ues that this alternative would undermine the INOVAR -AUTO programme's 
objectives because it would not contribute to the technological development of the Brazilian 
automotive sector.  
7.940.   The Panel considers that this alternative measure would be WTO -consistent  since it would 
apply to any product, either domestic or imported, that meet s certain standards relating to its 
levels of energy efficiency and vehicle safety. The fact that the products should comply with 
certain energy efficiency and vehicle safety stand ards would guarantee the contribution to the 
claimed policy objectives. In the Panel's view, this alternative would also be less trade -restrictive 
than the challenged measure since the measure would not be applied in a discriminatory manner 
and Brazil woul d be in a position to implement this measure because it does not present a special 
complexity or financial burden in terms of its application.  
                                                
1282 European Union's second wr itten submission, para. 171; and European Union's response to Panel's 
question No. 5.  
1283 Japan's second written submission, para. 97; and Japan's response to Panel's question No. 5.  
1284 Japan's second written submission, para. 97; and Japan's response to Pane l's question No. 5.  
1285 Japan's second written submission, para. 97; and Japan's response to Panel's question No. 5.  
1286 Japan's second written submission, para. 97; and Japan's response to Panel's question No. 5.  
1287 Brazil's second written submission, paras. 1 57-160. 
1288 European Union's second written submission, paras. 159 and 165.  WT/DS472/R • WT/DS497/R  
 
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  7.941.   Brazil has argued that the alternative measure is not valid because it would not contribute 
to one of the objecti ves of the challenged measures, i.e. the technological development of the 
Brazilian automotive sector. However, the Panel recalls its finding in the context of Article XX(a) 
above that a panel cannot reject a reasonably available alternative that achieves the desired level 
of protection of an interest protected under Article XX, purely because that alternative does not 
achieve a certain level of protection of an interest not protected under Article XX.1289  
7.942.   Brazil has not argued that the technological developm ent of the Brazilian automotive 
sector is per se an objective protected under Article XX. Brazil has only identified the objective of 
the measure that is justified under Article XX as the protection of human life and health, 
specifically through increasing  vehicle safety and reducing CO 2 emissions. As indicated above, the 
Panel cannot reject the proposed alternative measure simply because it does not contribute to a 
different objective that is not protected under Article XX.  
7.943.   In this case, the policy object ives submitted by Brazil were the increase of vehicle safety 
and the reduction of CO 2 emissions. The Panel considers that requiring certain energy efficiency 
and vehicle safety standards to products, regardless of their origin, to benefit from tax exemptio ns 
would definitely contribute to the achievement of the claimed policy objectives.  
Elimination or reduction of customs duties on products that comply with certain 
standards  
7.944.   The second alternative measure suggested is the elimination or substantial reducti on of 
customs duties on the products at issue that comply with Brazil's energy efficiency and vehicle 
safety standards, regardless of their origin.1290  
7.945.   Brazil argues that this alternative would undermine the INOVAR -AUTO programme's 
objectives because it woul d not contribute to the technological development of the Brazilian 
automotive sector.  
7.946.   The Panel considers that this alternative measure would be WTO -consistent since it would 
apply to any product, either domestic or imported, that meet certain standards r elating to its 
levels of energy efficiency and vehicle safety. As for the previous alternative measure, the fact that 
the measure would only affect products that comply with certain energy efficiency and vehicle 
safety standards would guarantee the contrib ution to the claimed policy objectives. In the Panel's 
view, this alternative would be less trade -restrictive than the challenged measure since the 
measure would not be applied in a discriminatory manner. Finally, the Panel considers that Brazil 
would be i n a position to implement this measure because it does not present a special complexity 
in terms of its application.  
7.947.   For the reasons indicated in paragraphs 7.941  and 7.942  above,  the Panel also rejects 
Brazil's argument that this alternative is not reasonably available because it would not contribute 
to the technological development of the Brazilian automotive sector.  
7.948.   The Panel notes that the European Union has form ulated two variants of the same 
alternative measure: the first one refers to the "elimination" of the customs duties and the second 
one consists of a "substantial reduction" of the customs duties. The European Union has explained 
in this respect, that give n that Brazil maintains applied duties of 35% ad valorem for most of the 
products at issue, Brazil would be in a position to apply the measure. The Panel finds that this 
double formulation of the alternative measure increases the flexibility that Brazil wo uld enjoy in 
terms of implementation. This flexibility might be needed given the impact on the revenues of 
Brazil that the elimination or substantial reduction of customs duties may have.  
Tax credits for all products that comply with certain standards  
7.949.   The third alternative measure suggested consists of granting IPI tax credits, or other types 
of tax credits, to all cars and components that satisfy specific efficiency targets, regardless of the 
manufacturing steps performed in Brazil or the level of domestic  content.1291  
                                                
1289 See paragraph 7.617  above.  
1290 European Union's second written submission, paras. 159 and 170.  WT/DS472/R • WT/DS497/R  
 
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  7.950.   Brazil argues that this alternative would undermine the INOVAR -AUTO programme's 
objectives because it would not contribute to the technological development of the Brazilian 
automotive sector.  
7.951.   The Panel first notes that this alternative measure  only refers to one of the two claimed 
policy objectives, i.e. the improvement of the levels of energy efficiency resulting in a reduction of 
CO2 emissions. The Panel considers that this alternative measure bears a number of similarities 
with the first alt ernative relating to tax exemptions given that tax credits operate in practice as 
partial tax exemptions. In this regard, the Panel considers that this alternative measure would be 
WTO-consistent since it would apply to any product, either domestic or impo rted, that satisfies 
specific efficiency targets. The measure would only affect products that satisfy specific efficiency 
targets, what would guarantee the alternative measure's contribution to the relevant policy 
objectives. The Panel is of the view that this alternative would be less trade -restrictive than the 
challenged measure since the measure would not be applied in a discriminatory manner. Finally, 
the Panel considers that Brazil would be in a position to implement this measure because, under 
INOVAR -AUTO, Brazil is already providing tax credits to products that satisfy certain conditions, 
the difference being that these conditions are related not just to energy efficiency but also to other 
aspects.  
7.952.   For the reasons indicated in paragraphs 7.941  and 7.942  above, the Panel also rejects 
Brazil's argument that this alternative is not reasonably available because it would not contribute 
to the technological development  of the Brazilian automotive sector.  
Subsidies for all products that comply with certain standards  
7.953.   The fourth alternative measure suggested consists of providing subsidies for all the 
products that comply with Brazil's energy efficiency and vehicle safety  standards, regardless of the 
origin of the product.1292  
7.954.   Brazil argues that this alternative would undermine the INOVAR -AUTO programme's 
objectives because it would not contribute to the technological development of the Brazilian 
automotive sector.  
7.955.   The Pane l considers that this alternative measure would be WTO -consistent since it would 
apply to any product, either domestic or imported, that meet s certain energy efficiency and vehicle 
safety standards. The contribution to the claimed policy objectives would b e assured given that 
only those products meeting the standards would benefit from the subsidies. Further, this 
alternative would be less trade -restrictive than the challenged measure since the measure would 
not be applied in a discriminatory manner. Finall y, the Panel notes that, unlike other alternative 
measures such as tax exemptions or credits, this measure would involve the actual disbursement 
of funds by the Brazilian government. The limitation on the availability of funds, especially in 
developing cou ntries, can hinder the implementation of this kind of measures. However, the Panel 
does not believe that this mere reason would turn this alternative measure into a measure which is 
not reasonably available, especially when the responding party has not sub mitted any argument in 
that respect.  
7.956.   For the reasons indicated in paragraphs 7.941  and 7.942  above, the Panel also rejects 
Brazil's argument that this alternative is not reasonably available because it would not contribute 
to the technological development of the Brazilian automotive sector.  
Direct requirements relating to energy efficiency and vehicle safety  
7.957.   The fifth alternative measure suggested consists of the impo sition of direct requirements 
on energy efficiency and vehicle safety standards to be met by all products, regardless of their 
origin.1293 
                                                                                                                                                  
1291 Japan's second written submission, para . 97; and Japan's response to Panel's question No. 5.  
1292 Japan's second written submission, para. 97; and Japan's response to Panel's question No. 5.  
1293 Japan's second written submission, para. 97; and Japan's response to Panel's question No. 5.  WT/DS472/R • WT/DS497/R  
 
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  7.958.   Brazil argues that it did try to impose such requirements in the past without success. In 
particular, Brazil states that  in light of the difficulties experienced in implementing the Motor 
Vehicle Air Pollution Control Program (PROCONVE), it decided to establish a system of 
requirements and incentives (i.e. INOVAR -AUTO) to contribute to the achievement of the energy 
efficien cy goals that Brazil sought to enforce. In Brazil's view, this "carrot and stick" approach was 
necessary for that purpose.1294 
7.959.   With respect to Brazil's argument that it has tried this approach in the past, the Panel 
considers that Brazil did not substantiate its assertion.1295 In the absence of evidence to 
demonstrate that the alternative failed to achieve the required level of contribution, and evidence 
that the challenged measure does indeed contribute to a greater degree, the Panel cannot reject 
the proposed a lternative. The Panel recalls its finding above that it has not been demonstrated 
that the INOVAR -AUTO programme makes any contribution to the objective. Furthermore, in the 
view of the Panel, the proposed alternative would indeed make a clear contribution  to the 
objective. The Panel therefore considers that this alternative is WTO -consistent, capable of 
contributing to the stated objective to an equivalent or greater degree than the challenged 
measure, is less trade -restrictive than the challenged measure,  and is reasonably available.  
Conclusion on reasonably available alternatives  
7.960.   In the Panel's view, the complaining parties have identified alternatives which are WTO -
consistent and less -trade -restrictive than the discriminatory aspects of the INOVAR -AUTO 
programme, and which would achieve an equivalent or higher degree of contribution to the 
claimed objective as the challenged measures. The Panel considers that Brazil has not 
demonstrated that the alternative measures identified by the complaining parties were not 
reasonably available, were not less trade -restrictive, or failed to make an equivalent contribution 
to the claimed policy objectives.  
7.4.6.2.2.3   Conclusion on necessity under Article XX(b)  
7.961.   The Panel has conducted a holistic analysis, weighing and balancing t he importance of the 
objective, the contribution made by the measure to that objective, and the trade -restrictiveness of 
the measure, in light of reasonably available alternative measures. In the Panel's view, and 
particularly in light of reasonably availa ble alternatives that in the Panel's view are not only WTO -
consistent and less trade -restrictive but are likely to contribute to a greater extent than the 
discriminatory aspects of the INOVAR -AUTO programme to the objective, Brazil has not 
demonstrated tha t the aspects of the measure found to be inconsistent with the provisions of 
Article III of the GATT 1994 are "necessary" to protect public health and life.  
7.4.6.2.3   Whether the discriminatory aspects of the INOVAR -AUTO programme satisfy 
the requirements of the ch apeau of Article XX of the GATT  1994  
7.962.   Brazil argues that the differences between companies that manufacture vehicles in Brazil 
and those that only market vehicles in Brazil do not constitute an arbitrary or unjustifiable 
discrimination. According to Brazil,  these differences relate to the level of contribution to the 
objectives pursued by the programme by both types of companies.1296 These differences relate to 
three issues: (i)  the conditions for accreditation, (ii)  the investment requirements, and (iii)  the IPI 
tax reductions and credits. First, as regards the conditions for accreditation, Brazil contends that 
they are reasonable.1297 Second, as regards the requirement that investments be made in Brazil, 
Brazil argues that it is consistent with the objectives of the INOVAR -AUTO programme because it is 
the only way to assure that those investments translate into reductions of CO 2 emissions in Brazil, 
                                                
1294 Brazil's f irst written submissions, paras. 512 -513 (DS472) and 445 -446 (DS497).  
1295 The Panel notes that Brazil refers to two "costly public civil actions" to support its argument that the 
PROCONVE programme experienced "difficulties" in implementation. See Brazil's f irst written submissions, 
para. 512 and fns 337 and 338 (DS472) and para. 445 and footnote 296 (DS497). Notwithstanding that Brazil 
has not submitted evidence of these civil actions, Brazil has not explained to the Panel how these civil actions 
are demonst rative of the "technical and logistical difficulties … [that] prevented the implementation of the two 
phases within the required deadline." See Brazil's first written submissions, para. 338 (DS472) and para. 445 
(DS497).  
1296 Brazil's first written submissio n, para. 682 (DS472) and para. 615 (DS497).  
1297 Brazil's first written submission, paras. 683 -684 (DS472) and paras. 616 -617 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  vehicular safety in Brazil, and conservation of petroleum and its derivatives.1298 Third, as regards 
IPI tax reductions  and credits, Brazil notes that the IPI tax reductions and credits under the 
INOVAR -AUTO programme are based on reasonable criteria. The higher the energy efficiency, the 
higher the tax reduction; the more a company contributes to the programme's goals, th e higher 
the credit it gets.1299 Brazil further argues that the INOVAR -AUTO programme is not a disguised 
restriction on international trade because "[t]here is nothing deceptive, or concealed about the 
application of the program".1300 
7.963.   The European Union argues t hat the INOVAR -AUTO programme unjustifiably discriminates 
between countries where the same conditions prevail. In the European Union's view, the incentives 
accorded to domestic producers result in a disguised restriction on international trade. The 
Europea n Union further contends that the discriminatory treatment under INOVAR -AUTO is not 
linked to the claimed objectives of increased vehicle safety and reduced CO 2 emissions.1301 Japan 
argues that Brazil has failed to establish a prima facie  case that the challe nged measure is not 
applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination 
between countries where the same conditions prevail because it refers to the same standards by 
which a violation of a WTO provision is deter mined to exist.1302 Japan further argues that the fact 
that the discriminatory aspects of the INOVAR -AUTO programme bear no connection to the 
claimed policy objectives demonstrates that the requirements of the chapeau have not been 
met.1303 Japan is of the view that the fact that the relevant aspects of the challenged measure 
have been applied in a manner that which would constitute a means of arbitrary or unjustifiable 
discrimination between countries where the same conditions prevail shows that they are also 
applied in a manner that constitutes a disguised restriction on international trade.1304  
7.964.   In light of its findings above that the measure is not provisionally justified under Article 
XX(b) of the GATT 1994, the Panel does not consider it necessary to make findi ngs on whether 
Brazil has demonstrated that its defence under Article XX(b) meets the requirements of the 
chapeau to Article XX.  
7.4.6.2.4   Conclusion  
7.965.   In light of the above, the Panel concludes that those aspects of the INOVAR -AUTO 
programme found to be inconsistent  with Article III of the GATT 1994 and Article 2.1 of the TRIMs 
Agreement are not justified under Article XX(b) of the GATT 1994.1305  
7.4.6.3   Whether the discriminatory aspects of the INOVAR -AUTO programme are 
justified under Article XX(g)  
7.4.6.3.1   Description of the legal t est 
7.966.   Article XX(g) of the GATT 1994 provides as follows:  
Subject to the requirement that such measures are not applied in a manner which 
would constitute a means of arbitrary or unjustifiable discrimination between countries 
where the same conditions prevai l, or a disguised restriction on international trade, 
nothing in this Agreement shall be construed to prevent the adoption or enforcement 
by any contracting party of measures:  
… 
                                                
1298 Brazil's first written submission, para. 687 (DS472) and para. 620 (DS497).  
1299 Brazil's first written submission, para. 689  (DS472) and para. 621 (DS497).  
1300 Brazil's first written submission, para. 693 (DS472) and para. 625(DS497).  
1301 European Union’s second written submission, paras. 176 and 178.  
1302 Japan’s second written submission, paras. 113 -114. 
1303 Japan’s second written sub mission, paras. 115 -116. 
1304 Japan’s second written submission, para. 117.  
1305 The Panel notes that pursuant to Article 3 of the TRIMs Agreement, "[a]ll exceptions under GATT 
1994 shall apply, as appropriate to the provisions of this Agreement".  WT/DS472/R • WT/DS497/R  
 
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  (g) relating to the conservation of exhaustible natural resources if such mea sures are 
made effective in conjunction with restrictions on domestic production or 
consumption.  
7.967.   As noted above with respect to Article XX(a) and (b), the Appellate Body has explained 
that: 
[T]he assessment of a claim of justification under Article XX inv olves a two -tiered 
analysis in which a measure must first be provisionally justified under one of the 
subparagraphs of Article XX, before it is subsequently appraised under the chapeau of 
Article XX.1306 
7.968.   Additionally, as noted, the burden of proving that a me asure is provisionally justified under 
one of the subparagraphs of Article XX rests on the party invoking that defence.1307 The party 
invoking the defence also bears the burden of proving that a measure provisionally justified under 
a subparagraph of Article XX is consistent with the requirements of the chapeau of Article XX.1308 
The Appellate Body has indicated, however, that  
[T]he nature and scope of arguments and evidence required to establish a prima facie  
case will necessarily vary according to the facts of  the case, and from measure to 
measure, provision to provision, and case -to-case. Moreover, these rules and 
principles of WTO jurisprudence must not be applied in an unduly formalistic or 
mechanistic fashion, nor inhibit the substantive analysis that must be undertaken by a 
panel.1309  
7.969.   Article XX of the GATT 1994 therefore involves a two -tiered analysis. First, a panel must 
assess whether the measure at issue is provisionally justified under the subparagraph of Article XX 
invoked. Second, if the panel finds th at the measure is provisionally justified, it must examine 
whether the application of the measure satisfies the requirements of the chapeau of Article XX.  
7.4.6.3.1.1   Provisional justification under Article XX(g)  
7.970.   The Panel notes that the general exception of subparag raph (g) of Article XX of the 
GATT  1994 presents two differences to the two general exceptions examined above (those of 
subparagraphs (a) and (b) of Article XX of the GATT 1994). First, the nexus between the measure 
and the interest protected, in Article X X(g), is expressed by the term "relating to" and not 
"necessary to". Second, the text of the provision incorporates a conditional clause that is not part 
of any other general exception under Article XX of the GATT 1994, namely: "if such measures are 
made e ffective in conjunction with restrictions on domestic production or consumption".1310 
7.971.   The analysis under this provision is "a holistic assessment [that] … must be applied on a 
case-by-case basis, through careful scrutiny of the factual and legal context in a given dispute".1311 
This context includes the exhaustible natural resource concerned and the specific conservation 
objective of the Member relying upon Article XX(g). The Appellate Body has explained that the 
intent and purpose expressed by the Members is rel evant, although there is no need for a panel to 
limit its analysis to the text of the measure at issue or to accept without further questioning the 
Member's characterization of the measure.1312 
7.972.   As indicated above, the Appellate Body has also emphasized the im portance of the design 
and structure of the challenged measure in analysing whether the measure satisfies the 
requirements set out in Article XX(g) of the GATT 1994. By focusing on the design and structure, 
                                                
1306 Appellate B ody Report, EC – Seal Products , para. 5.169. (footnotes omitted) See also footnote 871 
above.  
1307 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323, at p. 335.  
1308 Appellate Body Report, US – Gasoline , pp. 22 -23, DSR 1996:I, 3, at pp. 21 -23. 
1309 Appellate Body Report, US – Tuna II (Article 21.5 - Mexico) , para. 7.33.  
1310 The Appellate Body noted that the text of Article XX(g), in particular its use of "if", calls for an 
holistic assessment of all of its component elements. See Appellate Body Report, China – Rare Earths , 
paras.  5.94 and 5.101.  
1311 Appellate Body Report, China – Rare Earths , para. 5.95.  
1312 Appellate Body Report, China – Rare Earths , para. 5.95.  WT/DS472/R • WT/DS497/R  
 
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  the Appellate Body considers that panels benefit from an objective methodology for carrying out 
the above -mentioned analysis.1313  
7.973.   Additionally, there is no requirement to apply an "empirical effects test" under Article 
XX(g) of the GATT 1994. However, the Appellate Body has acknowledged that predictable ef fects 
of a measure, being those effects inherent in, and discernible from, the design and structure of a 
measure, may be relevant for a panel's analysis.1314 
7.974.   The Panel notes that the first step of a panel's analysis encompasses two elements: 
(i) whether the m easures at issue relate to the conservation of exhaustible natural resources; and 
(ii) whether the measures at issue are made effective in conjunction with restrictions on domestic 
production or consumption.  
7.975.   The Appellate Body has explained that the term " natural resources" in subparagraph (g) of 
Article XX of the GATT 1994 is "by definition, evolutionary".1315 In that sense, the Appellate Body 
in US – Shrimp  stated that the terms "exhaustible natural resources" must be read "in the light of 
contemporary conce rns of the community of nations about the protection and conservation of the 
environment".1316 The Appellate Body concluded that Article XX(g) referred to conservation of both 
living and non -living exhaustible natural resources.1317  
7.976.   With respect to the word "co nservation", the Appellate Body in China – Raw Materials  
concluded that "conservation" means "the preservation of the environment, especially of natural 
resources".1318 The Appellate Body later clarified that "for the purposes of Article XX(g), the 
precise co ntours of the word 'conservation' can only be fully understood in the context of the 
exhaustible natural resource at issue in a given dispute."1319 In this connection, the Appellate Body 
explained that the word conservation could encompass different actions d epending on whether the 
exhaustible natural resource was a living or a non -living one.1320  
7.977.   The Panel further notes that the Appellate Body reports in US – Shrimp  and China – Raw 
Materials  addressed the issue of the required nexus between the measure and the interest 
protected, specifically in respect of the term "relating to" in subparagraph (g) of Article XX of the 
GATT 1994. The Appellate Body found that "relate to" requires a "close and genuine relationship of 
ends and means" between the measure and the co nservation objective of the measure.1321 This 
excludes from the scope of subparagraph (g) measures which are "merely incidentally or 
inadvertently aimed at a conservation objective".1322 In addition, the Appellate Body noted that 
"the absence of a domestic restr iction, or the way in which a challenged measure applies to 
domestic production or consumption, may be relevant to an assessment of whether the challenged 
measure 'relates to' conservation."1323 The Appellate Body also emphasized the importance of 
                                                
1313 Appellate Body Report, China – Rare Earths , para. 5.96.  
1314 The reason is that, as stated by the Appellate Body in US – Gasoline , "in the field of conservation of 
exhaustible natural resources, a substantial period of time, perhaps years, may have to elapse before the 
effects attributable to i mplementation of a given measure may be observable". Appellate Body Report, US - 
Gasoline , p. 20, DSR 1996:I, 3, at p. 20. See Appellate Body Report, China – Rare Earths , paras. 5.98, 5.100 
and 5.113. In this respect, the Panel notes that the Appellate Bod y in Brazil – Retreaded Tyres  referred to 
measures adopted in order to attenuate global warming and climate change as an example of policies the 
effects of which can only be evaluated with the benefit of time. See Appellate Body Report, Brazil – Retreaded 
Tyres , para. 151.  
1315 Appellate Body Report, US – Shrimp , para. 130 (referring to Namibia (Legal Consequences) 
Advisory Opinion  (1971) I.C.J. Rep., p. 31, where the International Court of Justice stated that where concepts 
embodied in a treaty are "by defini tion, evolutionary", their "interpretation cannot remain unaffected by the 
subsequent development of law … Moreover, an international instrument has to be interpreted and applied 
within the framework of the entire legal system prevailing at the time of the  interpretation.")  
1316 Appellate Body Report, US – Shrimp , para. 129.  
1317 Appellate Body Report, US – Shrimp , para. 131.  
1318 Appellate Body Reports, China – Raw Materials , para. 355.  
1319 Appellate Body Report, China – Rare Earths , para. 5.89.  
1320 For example, in the  case of an exhaustible mineral resource, conservation could involve reducing or 
even stopping its extraction, whereas for a species facing the threat of extinction, it could encompass halting 
the activities creating the danger of extinction or facilitatin g the replenishment of that endangered species. See 
Appellate Body Report, China – Rare Earths , para. 5.89.  
1321 Appellate Body Reports, US – Shrimp , para. 136; and China – Raw Materials , para. 355.  
1322 Appellate Body Report, China – Rare Earths , para. 5.90.  
1323 Appellate Body Report, China – Rare Earths , para. 5.90.  WT/DS472/R • WT/DS497/R  
 
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  examining t he design and structure of the measure at issue in order to determine whether a 
measure is related to the conservation of exhaustible natural resources.1324 
7.978.   As for the second element under this first step of the Panel's analysis, namely whether the 
challenged  measures are made effective in conjunction with restrictions on domestic production or 
consumption, the Panel notes that the Appellate Body has explained that the measure at issue 
must be promulgated or brought into effect and must operate together with r estrictions on 
domestic production or consumption of exhaustible natural resources. Both restrictions (on 
international trade and on domestic production and consumption) must operate jointly towards the 
conservationist objective, i.e. they must "work toget her".1325 In addition, the Appellate Body 
clarified that, in order to comply with the "made effective" element of Article XX(g), it does not 
suffice that domestic production or consumption is subject to possible limitations at some 
undefined point in the futu re. The restriction on domestic production or consumption must be 
"real" and must reinforce and complement the restriction on international trade.1326  
7.979.   The Appellate Body has considered this to be a "requirement of even-handedness  in the 
imposition of restric tions, in the pursuit of conservation, upon the production or consumption of 
exhaustible natural resources".1327 This requirement, however, is not a separate requirement in 
addition to the requirement that the measure be "made effective in conjunction with re strictions on 
domestic production or consumption"; it is embodied in the terms of Article XX(g) as regards the 
imposition of restrictions, because the test and the assessment under XX(g) is holistic.1328 
Furthermore, according to the Appellate Body, Article X X(g) does not contain "a requirement that 
the burden of conservation be evenly distributed".1329 However, the Appellate Body also stated 
that "it would be difficult to conceive of a measure that would impose a significantly more onerous  
burden on foreign cons umers or producers and that could still be shown to satisfy all of the 
requirements of Article XX(g)."1330 Additionally, in US – Gasoline the Appellate Body stated that:  
There is, of course, no textual basis for requiring identical treatment of domestic and 
imported products. Indeed, where there is identity of treatment - constituting real, not 
merely formal, equality of treatment - it is difficult to see how inconsistency with … 
would have arisen in the first place. On the other hand, if no restrictions on 
domestically -produced like products are imposed at all, and all limitations are placed 
upon imported products alone, the measure cannot be accepted as primarily or even 
substantially designed for implementing conservationist goals. The measure would 
simply b e naked discrimination for protecting locally -produced goods.  
7.4.6.3.1.2   The chapeau of Article  XX of the GATT 1994  
7.980.   With respect to the second step of the analysis under Article XX of the GATT 1994, the 
Panel recalls the legal standard described in section 7.3.6.2.2  above.  
7.981.   As indicated above, Article XX of the GATT 1994 involves a two -tiered analysis. First, the 
Panel must assess whether the measure at issue is provisionally justified under a subparagraph of 
Article XX. Se cond, if the Panel finds that the measure is provisionally justified, it must examine 
whether the application of the measure satisfies the requirements of the chapeau of Article XX. 
The Panel proceeds with its analysis in this order.  
7.4.6.3.2   Whether the discrimin atory aspects of the INOVAR -AUTO programme are 
provisionally justified under Article XX(g)  
7.982.   As mentioned above, in order to determine whether the discriminatory aspects of the 
INOVAR -AUTO programme are provisionally justified under subparagraph (g) of Artic le XX, the 
                                                
1324 Appellate Body Report, China – Rare Earths , para. 5.111 (referring to Appellate Body Reports, US – 
Shrimp , paras. 135 -137; and China – Raw Materials , para. 355).  
1325 Appellate Body Report, China – Raw Materials , paras. 356 and 360  
1326 Appellate Body Report, China – Rare Earths , paras. 5.92 and 5.132.  
1327 Appellate Body Report, China – Rare Earths , para. 5.93 (referring to Appellate Body Report, US – 
Gasoline , p. 21, DSR 1996:I, 3, at p. 19). (emphasis orig inal) 
1328 Appellate Body Report, China – Rare Earths , para. 5.124.  
1329 Appellate Body Report, China – Rare Earths , para. 5.134.  
1330 Appellate Body Report, China – Rare Earths , para. 5.134. (emphasis added)  WT/DS472/R • WT/DS497/R  
 
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  Panel must perform a holistic analysis of the various elements of Article XX(g). For analytical 
purposes, the Panel addresses in turn, first whether the discriminatory aspects of the INOVAR -
AUTO programme relate to the conservation of natural re sources, and secondly, whether the 
discriminatory aspects of the programme are made effective in conjunction with restrictions on 
domestic production or consumption.  
7.4.6.3.2.1   Whether the discriminatory aspects of the INOVAR -AUTO programme relate 
to the conservation  of exhaustible natural resources  
7.983.   Brazil contends that the INOVAR -AUTO programme relates to the conservation of 
petroleum and its by -products, including gasoline, because the different tax treatment it provides 
directly aims to reduce gasoline consumption by increasing vehicle energy efficiency.1331 Brazil 
argues that the Appellate Body has found that petroleum and its by -products are "finite" and, 
consequently, an "exhaustible natural resource".1332 Brazil also argues that the INOVAR -AUTO 
programme is part of a broader policy and regulatory context for the conservation of petroleum 
and its derivatives.1333 In its view, the design and structure of the INOVAR -AUTO programme 
shows a clear link between the programme and the conservation of petroleum and its derivatives,  
including gasoline. First, the INOVAR -AUTO programme promotes significant energy efficiency 
gains through energy efficiency requirements. Second, it promotes investments in R&D and 
engineering and an energy conservation labelling scheme. Third,  it promote s the use of alternative 
fuels by providing special IPI tax rates to flex fuel vehicles.1334  
7.984.   The European Union does not dispute that petroleum and its derivatives, including 
gasoline, are "exhaustible natural resources" within the meaning of Article XX(g) o f the 
GATT  1994. However, it contends that Brazil has not demonstrated that the discriminatory aspects 
of the INOVAR -AUTO programme have been adopted, enforced or designed for the conservation of 
this exhaustible natural resource.1335 The European Union furth er argues that Brazil has not 
demonstrated the existence of a "close and genuine relationship of ends and means" between the 
discriminatory aspects of the INOVAR -AUTO programme and the conservation of petroleum and its 
by-products, including gasoline.1336 
7.985.   Japan does not rebut Brazil's arguments on the conservation of an exhaustible natural 
resource such as petroleum and its derivatives. However, Japan argues that Brazil's defence is 
misplaced because it focuses on aspects which have not been challenged by the complaining 
parties, such as requirements in the INOVAR -AUTO programme pertaining to energy efficiency 
levels and expenditure in R&D. Japan states that Brazil has not addressed the discriminatory 
aspects of INOVAR -AUTO, i.e. the discriminatory aspects of t he accreditation requirements, rules 
on calculation of presumed IPI tax credits arising from expenditure in strategic inputs and tools 
and the rules on the use of presumed IPI tax credits.1337  
7.986.   The Panel starts by noting that the complaining parties have not disputed that petroleum 
and its by -products, constitute an exhaustible natural resource. The Panel notes that the Appellate 
Body has already found that petroleum is a finite exhaustible natural resource.1338 
7.987.   Turning to the task of determining the nexus betwee n the discriminatory aspects of the 
INOVAR -AUTO programme and the conservation of petroleum and its by -products, including 
gasoline, the Panel recalls that the legal standard for determining whether the discriminatory 
aspects of a measure are "related to" conservation of exhaustible natural resources, is whether 
                                                
1331 Brazil's first written submissions, paras. 650 -654 (DS 472) and paras. 583 -587 (DS497).  
1332 Brazil's first written submissions, para. 654 (DS472) and para. 587 (DS497), referring to Appellate 
Body Report, US – Shrimp , para. 128.  
1333 Brazil's first written submissions, paras. 658 and 663 -667 (DS472) and paras. 591 and 596 -600 
(DS497).  
1334 Brazil's first written submissions, paras. 655 -668 (DS472) and paras. 588 -601 (DS497).  
1335 European Union’s second written submission, para. 180.  
1336 European Union’s second written submission, para. 181.  
1337 Japan’s second written submiss ion, para. 103.  
1338 Appellate Body Report, US – Shrimp , para. 128.  WT/DS472/R • WT/DS497/R  
 
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  there is a "close and genuine relationship of ends and means" between the measure and the 
conservation objective of the measure.1339 
7.988.   The Panel notes that Brazil has based its defence on (1) the general  requirement that 
applies to firms, that in order to get accredited vehicles must meet certain energy efficiency 
targets; (2) certain accreditation requirements relating to expenditure in R&D in Brazil; and (3) 
the accreditation requirement pertaining to c ompliance with the Brazilian vehicle labelling 
programme.1340  
7.989.   In this respect, the Panel recalls once again that "the aspects of a measure to be justified 
under the subparagraphs of Article XX are those that give rise to the finding of inconsistency under 
the GATT 1994"1341 and moreover, that "a respondent may not justify the inconsistency of a 
measure by basing its defence on aspects of [a] measure different from those that were found by 
the panel to be inconsistent".1342  
7.990.   As explained in the context of Article XX (b), those aspects of the INOVAR -AUTO 
programme found to be inconsistent with Article III:2 and III:4, are (i) reduced tax rates for 
specific motor vehicles; (ii)  certain aspects of the specific accreditation requirements; (iii)  certain 
aspects of the rule s on calculation of tax credits; and (iv)  certain aspects of the rules on the use of 
presumed IPI tax credits. The Panel also found that one specific accreditation requirement 
constituted a local content requirement, inconsistently with Article III:4 of th e GATT 1994, namely 
the requirement to perform a minimum number of production steps within Brazil. Additionally, the 
Panel found that one particular aspect of the rules on accreditation, concerning the requirement to 
purchase laboratory equipment in Brazil , in order to satisfy the requirements to make expenditure 
and investment in R&D in Brazil, constituted a local content requirement, inconsistently with Article 
III:4 of the GATT 1994. Finally, the Panel found that one particular aspect of the rules on acc rual 
and calculation of presumed tax credits, specifically concerning the calculation of the deductible 
part, constituted a local content requirement, inconsistently with Article III:4 of the GATT 1994.  
7.991.   In the view of the Panel, and in respect of Brazil's  argument regarding the nexus between 
the discriminatory aspects of the INOVAR -AUTO programme and the conservation of petroleum 
and its by -products, the Panel notes that Brazil has primarily developed its defence on the basis of 
aspects of the INOVAR -AUTO programme that have not been challenged by the complaining 
parties. In particular, the Panel recalls from paragraphs 7.895  to 7.897  above that the Panel has 
not made findings of inconsistency related to the energy efficiency requirement, which is a general 
accreditation requirement, nor has the Panel made findings on the consistency of the special IPI 
tax rates for vehicles that work with a flex fuel option. Furthermor e, in respect of the specific 
accreditation requirements related to expenditure in R&D in Brazil and vehicle labelling, the Panel 
recalls its explanation in paragraphs 7.889  to 7.894  and 7.898  above that the Panel did not make 
finding s of inconsistency on these particular requirements per se .1343 The Panel therefore does not 
expect Brazil to justify aspects of a measure that ha ve not been challenged, and on which the 
Panel has made no findings of inconsistency.  
                                                
1339 Appellate Body Reports, US – Shrimp , para. 136; and China – Raw Materials , para. 355. As 
explained above, this excludes measures which are "merely incidentally or inadvertently aimed at a 
conservation objective". Appellate Body Report, China – Rare Earths , para. 5.90.  
1340 See paragraph 7.983  above.  
1341 Appellate Body Report, EC – Seal Products , para. 5.185. Additionally, in Thailand – Cigarettes 
(Philippines) , the Appellate Body observed that:  
[W]hen Article XX(d) is invoked to justify an inconsistency with Article III:4, what must be shown 
to be "necessary" is the treatment giving rise to the finding of less favourable treatment. Thus, 
when less fav ourable treatment is found based on differences in the regulation of imports and of 
like domestic products, the analysis of an Article XX(d) defence should focus on whether those 
regulatory differences are "necessary". Appellate Body Report, Thailand – Cigarettes 
(Philippines) , para. 177.  
1342 Appellate Body Report, Argentina – Financial Services , para. 6.169. The Appellate Body made this 
statement in the context of Article XIV of the GATS. The Panel can see no reason not to also apply this 
standard in the con text of Article XX of the GATT.  
1343 The Panel notes that the only specific accreditation requirement found to be per se  inconsistent with 
a provision of the GATT 1994 is the requirement in respect of domestic manufacturers, pertaining to a 
minimum number of manufacturing and production processes to be performed in Brazil, which the Panel found 
to be inconsistent with Article III:4 of the GATT 1994. See paragraph 7.888  above. Brazil has not made any 
arguments in res pect of this particular specific accreditation requirement.  WT/DS472/R • WT/DS497/R  
 
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  7.992.   The Panel takes no position on whether the aspects of the INOVAR -AUTO programme 
identified by Brazil (and not challenged by the complaining parties) may have a close and  genuine 
relationship with the objective of conserving petroleum and its by -products, since such a finding is 
meaningless in terms of justifying those aspects of the measure found to be inconsistent. As 
stated above, it is not for this Panel to look at oth er aspects of the INOVAR -AUTO programme that 
have not been challenged and on which no findings have been made.1344 
7.993.   Notwithstanding that the specific aspects of the programme identified by Brazil are not 
challenged, the Panel notes the statements of Brazil tha t "[a]s demonstrated earlier in [Brazil's 
first written] submission, the programme promotes significant energy efficiency gains both by 
requiring minimum energy efficiency and by encouraging companies to surpass those targets."1345 
Brazil has further elaborat ed that "[t]he fuel efficiency standards, together with the investment 
and production step requirements, on the one hand, and the benefit structure, on the other, 
promote a long -lasting, structured and sustained development of cleaner, more efficient vehic les 
circulating in Brazil."1346 Furthermore, "INOVAR -AUTO's particular contribution is its 'carrot -and-
stick' structure, which allows for the overall energy efficiency improvement of the automotive 
sector in Brazil."1347 
7.994.   From these comments the Panel understands  Brazil to be arguing that by protecting its 
domestic industry from foreign competition, Brazil seeks to ensure that the domestic industry 
develops its competitiveness and technological capabilities. In this way, in Brazil's view, the 
discriminatory aspect s of the INOVAR -AUTO programme would ultimately in the long -run produce 
more energy -efficient motor vehicles, thereby contributing to the objective of conserving 
petroleum.  
7.995.   The Panel notes the similarities between this argument and one of Brazil's argumen ts in 
the context of Article XX(b).1348 As noted there, the Panel considers that it is not inconceivable that 
the protection afforded by the discriminatory aspects of the INOVAR -AUTO programme could 
ultimately contribute to increased energy -efficiency levels of motor vehicles produced in Brazil.1349 
However, for the same reasons explained by the Panel in that context, the Panel does not consider 
that Brazil has provided any evidence to demonstrate that this theoretical possibility is in fact likely 
to occur as a result of the discriminatory aspects of the INOVAR -AUTO programme.1350 On the 
contrary, such discriminatory treatment may exclude imported products  from the market , thus 
reducing competition domestically and weakening the domestic industry's competitiveness a nd 
technological capabilities. On the basis of the evidence before the Panel, the Panel concludes that 
Brazil has not demonstrated that the discriminatory aspects of the measure will in fact make any 
contribution to the objective of increasing energy effic iency, thereby conserving petroleum.  
7.996.   The Panel considers that Brazil has not demonstrated that there is a close and genuine 
relationship of ends and means between the discriminatory aspects of the INOVAR -AUTO 
programme and the objective of increasing ener gy efficiency. The Panel therefore considers that 
Brazil has not demonstrated that the discriminatory aspects of the INOVAR -AUTO programme are 
related to conservation of exhaustible natural resources. As the test under Article XX(g) is holistic, 
the Panel continues its discussion on the application of the second element of Article XX(g) to the 
facts of this dispute.  
7.4.6.3.2.2   Whether the discriminatory aspects of the INOVAR -AUTO programme are 
made effective in conjunction with restrictions on domestic production or consumption  
7.997.   Recalling that the analysis under Article XX(g) is a holistic analysis, the Panel proceeds 
with its analysis by assessing whether the discriminatory aspects of the INOVAR -AUTO programme 
are made effective in conjunction with restrictions on dom estic production or consumption.  
                                                
1344 The Panel refers to its statements on this issue in paragraph 7.891  above.  
1345 Brazil's first written submissions, para. 659 (DS472) and para. 592 (D S497).  
1346 Brazil's second written submission, para. 163.  
1347 Brazil's second written submission, para. 164.  
1348 See paragraph 7.902  above.  
1349 See paragraph 7.904  above.  
1350 See paragraphs 7.919  to 7.921  above.  WT/DS472/R • WT/DS497/R  
 
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  7.998.   Brazil argues that the requirement that the measure be made effective in conjunction with 
restrictions on domestic production or consumption is met because energy efficiency requirements 
translate into restrictions on the consumption of gasoline.1351 Brazil argues that the INOVAR -AUTO 
programme imposes these requirements on both domestic manufacturers and importers seeking 
accreditation. Therefore, it is Brazil's view that no difference in treatment exists regarding the level 
of restriction on the consumption of gasoline.1352 
7.999.   The European Union argues that the measure at issue is not made effective in conjunction 
with restrictions on domestic production or consumption. In addition to its argument that the 
energy efficiency require ments fall outside the scope of the Article XX analysis because they have 
not been challenged, the European Union states that the requirements imposed by the programme 
are not applied even -handedly because they do not apply to 30 out of 52 product codes co vered 
under the INOVAR -AUTO programme.1353 
7.1000.   Japan argues that Brazil's arguments with respect to whether the measure is "made 
effective in conjunction with restrictions on domestic production or consumption" are without merit 
because they focus on aspects of t he INOVAR -AUTO programme which have not been challenged 
and, therefore, need not be justified under the Article XX defence.1354 Japan argues that, assuming 
arguendo that the energy efficiency requirements were relevant under the Article XX analysis, the 
INOVA R-AUTO programme imposes a significantly more onerous burden on foreign producers than 
on accredited domestic producers with respect to energy efficiency requirements. The reason is 
that accredited domestic manufacturers can offset the costs incurred by fu lfilling the energy 
efficiency requirements with presumed IPI tax credits whereas foreign producers cannot, except 
for foreign producers accredited as importers/distributors and investors.1355 Japan further argues 
that Brazil has not attempted to demonstrate that the discriminatory aspects of INOVAR -AUTO 
work together with restrictions on domestic consumption such that they reinforce and complement 
each other towards the conservation objective.1356  
7.1001.   The Panel notes Brazil's argument that because "both domestic ma nufacturers and 
importers have to comply with the same energy conservation/efficiency requirements established 
in the programme, there is 'even -handedness' in the efficiency requirements applicable to 
domestic manufacturers and importers alike."1357 In this s ense, the Panel agrees with Brazil that 
the requirements identified by Brazil do indeed apply to both domestic and foreign manufacturers.  
7.1002.   The Panel repeats that those aspects of the INOVAR -AUTO programme referred to by 
Brazil, regarding energy efficiency requirements, vehicle labelling, investment in R&D, and special 
IPI tax rates to flex fuel vehicles1358, were not challenged by the complaining parties nor were they 
found to be WTO -inconsistent.1359 Nevertheless, the Panel recalls the finding of the Appellate B ody 
in US – Gasoline that in the context of this analysis, "[t]here is, of course, no textual basis for 
requiring identical treatment of domestic and imported products."1360 Furthermore, 
notwithstanding that Brazil has not presented any domestic restrictions that correspond to the 
specific discriminatory aspects of the measure, Brazil has  indicated that all domestic 
manufacturers are subject to certain requirements such as energy efficiency targets. Additionally, 
domestic manufacturers may be subject to either  vehicle labelling requirements, or requirements 
related to expenditure in R&D in Brazil. Brazil contends that all such requirements are likely to 
contribute to the objective of conserving petroleum.  
                                                
1351 Brazil's first written submissions, para. 672 (DS472) and 605 (DS497).  
1352 Brazil's first written submissions, para. 673 (DS 472) and 606 (DS497).  
1353 European Union’s second written submission, para. 182.  
1354 Japan’s second written submission, para. 107a.  
1355 Japan’s second written submission, para. 108.  
1356 Japan’s second written submission, para. 109.  
1357 Brazil's second written submissio n, para. 164.  
1358 Brazil's first written submissions, paras. 656 and 659 -661 (DS472) and paras. 589 and 592 -594 
(DS497).  
1359 The Panel recalls that those aspects found to be inconsistent and required to be justified under 
Article XX are (i) reduced tax rates for specific motor vehicles; (ii) certain aspects of the specific accreditation 
requirements; (iii) certain aspects of the rules on calculation of tax credits; and (iv) certain aspects of the rules 
on the use of presumed IPI tax credits. Furthermore, those  aspects of the specific accreditation requirements 
found to be inconsistent do not include the energy efficiency requirement or the vehicle labelling requirement 
per se .  
1360 Appellate Body Report, US – Gasoline , p. 19, DSR 1996:I, 3, at p. 19.  WT/DS472/R • WT/DS497/R  
 
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  7.1003.   In the view of the Panel, compliance with these require ments are indeed likely to 
contribute to the claimed objective. Furthermore, although these requirements have not been 
challenged by the complaining parties, they nevertheless serve as evidence of "restrictions on 
domestic manufacturers".  
7.1004.   The Panel furthe r notes that the Appellate Body has indicated that Article XX(g) does not 
contain "a requirement that the burden of conservation be evenly distributed".1361 Therefore, the 
Panel does not accept the argument that simply because 30 out of 52 product codes are n ot 
covered by the relevant requirements, the measure is not applied even -handedly. In the Panel's 
view, a requirement that applies both to domestic and foreign manufacturers, concerning 
production of motor vehicles in accordance with certain energy efficie ncy targets, constitutes a 
"restriction on domestic production" within the meaning of Article XX.  
7.1005.   However, Article XX(g) requires not only that such domestic restrictions exist, but that 
the discriminatory aspects of the measure (considered to be WTO -inconsistent, and for which 
justification is sought) are "made effective in conjunction with [such] restrictions". The Appellate 
Body has indicated that in order to satisfy this element, "the trade restriction must operate jointly 
with the restrictions on dome stic production or consumption", in other words that they must "work 
together with" the domestic restrictions.1362 Brazil has not made any such demonstration.  
7.1006.   In the present dispute, the Panel has found above that the discriminatory aspects of the 
measure ar e not "related to" that objective. Thus, even though the domestic restrictions pursue 
the conservation objective, the discriminatory aspects of the measure do not work "together with" 
those domestic restrictions to achieve the objective, and therefore cann ot be considered "even -
handed". Therefore, Brazil has not demonstrated that the discriminatory aspects of the measure 
are "made effective" in conjunction with the domestic restrictions.  
7.4.6.3.2.3   Conclusion on whether the discriminatory aspects of the INOVAR -AUTO 
programme are provisionally justified under Article XX(g)  
7.1007.    The Panel has conducted a holistic assessment of the legal standard under Article XX(g) 
of the GATT 1994, and concluded that Brazil has neither demonstrated that the discriminatory 
aspects of the me asure are related to the conservation of natural resources, nor has Brazil 
demonstrated that the discriminatory aspects of the measure are made effective in conjunction 
with restrictions on domestic production or consumption. The Panel therefore concludes that Brazil 
has not demonstrated that the discriminatory aspects of the INOVAR -AUTO programme are 
provisionally justified under Article XX(g).  
7.4.6.3.3   Whether the discriminatory aspects of the INOVAR -AUTO programme satisfy 
the requirements in the chapeau  
7.1008.   Brazil a rgues that the differences between companies that manufacture vehicles in Brazil 
and those that only market vehicles in Brazil do not constitute an arbitrary or unjustifiable 
discrimination. According to Brazil, these differences relate to the level of con tribution to the 
objectives pursued by the programme by both types of companies.1363 These differences relate to 
three issues: (i)  the conditions for accreditation, (ii)  the investment requirements, and (iii)  the IPI 
tax reductions and credits. First, as rega rds the conditions for accreditation, Brazil contends that 
they are reasonable.1364 Second, as regards the requirement that investments be made in Brazil, 
Brazil argues that it is consistent with the objectives of the INOVAR -AUTO programme because it is 
the only way to assure that those investments translate into reductions of CO 2 emissions in Brazil, 
vehicular safety in Brazil, and conservation of petroleum and its derivatives.1365 Third, as regards 
IPI tax reductions and credits, Brazil notes that the IPI tax r eductions and credits under the 
INOVAR -AUTO programme are based on reasonable criteria. The higher the energy efficiency, the 
higher the tax reduction; the more a company contributes to the programme's goals, the higher 
the credit it obtains.1366 Brazil furth er argues that the INOVAR -AUTO programme is not a disguised 
                                                
1361 Appellate Body Report, China – Rare Earths , para. 5.134.  
1362 Appellate Body Report, China – Raw Materials , para. 356.  
1363 Brazil's first written submissions, para. 682 (DS472) and para. 615 (DS497).  
1364 Brazil's first written submissions, paras. 683 -684 (DS472) and paras . 616-617 (DS497).  
1365 Brazil's first written submissions, para. 687 (DS472) and para. 620 (DS497).  
1366 Brazil's first written submissions, para. 689 (DS472) and para. 621 (DS497).  WT/DS472/R • WT/DS497/R  
 
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  restriction on international trade because "[t]here is nothing deceptive, or concealed about the 
application of the program".1367 
7.1009.    The European Union argues that the INOVAR -AUTO programme discriminat es between 
countries where the same conditions prevail in an unjustifiable manner. It further contends that 
the incentives granted under this programme result in a disguised restriction on international 
trade.1368 Japan argues that Brazil has failed to establ ish a prima facie  case that the challenged 
measure is not applied in a manner which would constitute a means of arbitrary or unjustifiable 
discrimination between countries where the same conditions prevail because it refers to the same 
standards by which a  violation of a WTO provision is determined to exist.1369 Japan further argues 
that the fact that the discriminatory aspects of the INOVAR -AUTO programme bear no connection 
to the claimed policy objectives demonstrates that the requirements of the chapeau hav e not been 
met.1370 Japan is of the view that the fact that the relevant aspects of the challenged measure 
have been applied in a manner that which would constitute a means of arbitrary or unjustifiable 
discrimination between countries where the same conditio ns prevail shows that they are also 
applied in a manner that constitutes a disguised restriction on international trade.1371  
7.1010.   In light of its findings above that the measure is not provisionally justified under Article 
XX(g) of the GATT 1994, the Panel does n ot consider it necessary to make findings on whether 
Brazil has demonstrated that its defence under Article XX(g) meets the requirements of the 
chapeau to Article XX.  
7.4.6.3.4   Conclusion  
7.1011.   In light of the above, the Panel concludes that those aspects of the INOVAR -AUTO 
programme found to be inconsistent with Article III of the GATT 1994 and Article 2.1 of the TRIMs 
Agreement are not justified under Article XX(g) of the GATT 1994.1372  
7.4.7   Claims under Article I:1 of the GATT 1994  
7.4.7.1   Introduction  
7.1012.   The European Union and Japan ra ise claims under Article I:1 of the GATT 1994 with 
respect to certain aspects of the INOVAR -AUTO programme. Specifically, the complaining parties 
allege that Brazil accords an advantage in the form of tax reductions implemented through Articles 
21 and  22(I) of Decree 7,819/2012, to motor vehicles imported into Brazil from a member -country 
of Mercado Comun del Sur  (MERCOSUR) or Mexico, that is not accorded to like motor vehicles 
imported into Brazil from other WTO Members, including the European Union and Ja pan.1373  
7.1013.   Brazil argues that the tax reductions are not within the scope of Article I:1 of the GATT 
1994, and are only accorded to Argentina, Mexico and Uruguay, and not to all members of 
MERCOSUR.1374  
7.1014.   The Panel recalls from paragraph 2.102  above that Articles 21 and 22(I) of 
Decree  7,819/2012 respectively provide for a 30 percentage point reduction of the IPI tax rates on 
certain categories of motor vehicles1375 if:  
                                                
1367 Brazil's first written submissions, para. 693 (DS472) and para. 625 (DS497).  
1368 European Union’s second written submission, para. 183.  
1369 Japan’s second written submission, paras. 113 -114. 
1370 Japan’s second written submission, paras. 115 -116. 
1371 Japan’s second written submission, para. 117.  
1372 The Panel notes that pursuant to Article 3 of the TRIMs Agreement, "[a]ll exceptions under GATT 
1994 shall apply, as appropriate to the provisions of [the TRIMs] Agreement".  
1373 European Union's first written submission, paras. 346 -365; Japan's first written submission, 
paras.  274-281.  
1374 Brazil's f irst written submissions, paras. 701 (DS472) and 633 (DS497); Brazil's response to Panel 
question No. 52.  
1375 The particular motor vehicles subject to a tax reduction are specified in Annex I and Annex VIII of 
Decree 7,819/2012, as indicated in paragraph 2.106  of this Report. The Panel notes that although Article 21 
refers to "vehicles" and Article 22(I) refers to "products", this distinction does not denote a difference in WT/DS472/R • WT/DS497/R  
 
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  a. Under Article 21, those motor vehicles are imported i nto Brazil by companies accredited  
as "domestic manufacturers" or "investors" under the INOVAR -AUTO programme, and 
the motor vehicles are imported from "countries that are signatories to the agreements 
established by Legislative Decree 350 of 21 November 1 991, Decree 4,458 of 5 
November 2002 and Decree 6 500 of 2 July 2008"1376; or 
b. Under Article 22(I), those motor vehicles are imported into Brazil by any company 
(whether accredited or unaccredited ) under the INOVAR -AUTO programme, and the 
motor vehicles are im ported "under the agreement established by Decree 6,518 of 30 
July 2008 and Decree 7,658 of 23 December 2011".1377  
7.1015.   Article I:1 of the GATT 1994 embodies the most -favoured -nation (MFN) principle. This 
provision reads as follows:  
With respect to customs duties  and charges of any kind imposed on or in connection 
with importation or exportation or imposed on the international transfer of payments 
for imports or exports, and with respect to the method of levying such duties and 
charges, and with respect to all rul es and formalities in connection with importation 
and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of 
Article III, any advantage, favour, privilege or immunity granted by any contracting 
party to any product originating in  or destined for any other country shall be accorded 
immediately and unconditionally to the like product originating in or destined for the 
territories of all other contracting parties.  
7.1016.   The Appellate Body has described the MFN obligation in Article I:1 as "pervasive", a 
"cornerstone of the GATT", and "one of the pillars of the WTO trading system".1378 In EC – Tariff 
Preferences , the Appellate Body confirmed its findings in EC – Bananas III  that the non -
discrimination obligation of Article I:1 of the GATT 1994 "plainly imposes … the obligation to treat 
'like products … equally, irrespective of their origin'".1379 In Canada – Autos , the Appellate Body 
established that Article I:1 prohibits discrimination between like imported products originating in or 
destined for the territories of all other WTO Members, and indicated that Article I:1 covers both de 
facto and de jure  discrimination.1380 The Appellate Body in EC – Seal Products  further summarized 
the legal standard under Article I:1 of the GATT 1994 as follows:  
Based o n the text of Article I:1, the following elements must be demonstrated to 
establish an inconsistency with that provision: (i) that the measure at issue falls 
within the scope of application of Article I:1; (ii) that the imported products at issue 
are "like " products within the meaning of Article I:1; (iii) that the measure at issue 
confers an "advantage, favour, privilege, or immunity" on a product originating in the 
territory of any country; and (iv) that the advantage so accorded is not extended 
                                                                                                                                                  
product scope between the two provisions.  Both provisions refer to all products covered in Annexes I and VIII 
to Decree  7,819/2012. See all parties' responses to Panel question No. 51.  
1376 Decree 7,819/2012, (Exhibit JE -132), Article 21. Decree 350/1991 refers to the MERCOSUR Treaty, 
and indicates  therein that the signatory countries include Brazil, Argentina, Paraguay and Uruguay. Decree 
350/1991, (Exhibit JE -163). Additionally, the Panel notes that Venezuela became a signatory to the MERCOSUR 
agreement in July 2006, deposited its instrument of ra tification in July 2012, and officially became a 
MERCOSUR member on 12 August 2012. CMC Decision No. 27/12, Adesão da República Bolivariana da 
Venezuela ao Mercosul , 30 July 2012, (Exhibit JE -245). Decree 4,458/2002 refers to Economic 
Complementation Agree ment (ECA) No. 55, and indicates therein that the signatory countries include Brazil, 
Argentina, Paraguay, Uruguay, other Member States of MERCOSUR, and Mexico. Decree 4,458/2002, (Exhibit 
JE-164). Decree 6,500/2008 refers to the 38th Additional Protocol t o ECA No. 14, and indicates therein that the 
signatory countries are Argentina and Brazil. Decree 6,500/2008 (Exhibit JE -165).  
1377 Decree 7,819/2012, (Exhibit JE -132), Article 22(I). Decree 6,518/2008 refers to the 68th Additional 
Protocol to Economic Comple mentation Agreement No. 2, and indicates therein that the signatory countries to 
ECA No. 2 are Brazil and Uruguay. Decree 6,518/2008, (Exhibit JE -203). Decree 7,658/2011 refers to the 69th 
Additional Protocol to Economic Complementation Agreement No. 2, an d reiterates that the signatory countries 
to ECA No. 2 are Brazil and Uruguay. Decree 7,658/2011, (Exhibit JE -204).  
1378 Appellate Body Report, EC – Seal Products , para. 5.86.  
1379 Appellate Body Report, EC –Tariff Preferences, para. 89 (referring to Appellate B ody Report, EC - 
Bananas III , para. 190).  
1380 Appellate Body Report, Canada – Autos , para. 78.  WT/DS472/R • WT/DS497/R  
 
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  "immediat ely" and "unconditionally" to "like" products originating in the territory of all 
Members.1381  
7.1017.   We proceed by applying this four -step analysis to the facts of the present dispute.  
7.4.7.2   Whether the tax reductions under Articles 21 and 22(I) of Decree 7,819/2012 
fall within the scope of Article I:1 of the GATT 1994  
7.1018.   Under the first element of the legal standard under Article I:1, the Panel shall assess 
whether the tax reductions of 30 percentage points in the IPI tax rates accorded to certain 
imported motor vehicles u nder Articles 21 and 22(I) of Decree 7,819/2012 are covered by Article 
I:1 of the GATT  1994.   
7.1019.   The European Union and Japan submit that the tax reductions accorded under Articles 21 
and 22(I) of Decree 7,819/2012 are within the scope of Article I:1 because they concern matters 
referred to in Articles III:2 and III:4 of the GATT 1994.1382  
7.1020.   Brazil argues that "the INOVAR -AUTO programme falls outside the scope of Article III of 
the GATT 1994 and, consequently, it also falls outside the scope of Article I:1."1383  
7.1021.   The scope of application of Article I:1 of the GATT 1994 is explicitly provided in the text 
thereof, and includes "all matters referred to in paragraphs 2 and 4 of Article III". Article III:2 
and III:4 cover, respectively, "internal taxes or other internal ch arges of any kind … applied, 
directly or indirectly, to … products" and "laws, regulations and requirements affecting the[] 
internal sale, offering for sale, purchase, transportation, distribution or use" of imported products".  
7.1022.   The Panel notes the Europea n Union's argument that Brazil fails to explain why a 
measure not falling under Article III would also escape the application of Article I.1384 Despite 
Brazil's limited explanation of its argument, the Panel understands Brazil to be arguing that if a 
measure does not concern a "matter referred to in Article III:2 or III:4" then it is outside the 
scope of Article I:1. Such an understanding would accord with the plain text of Article I:1. The 
Panel therefore proceeds in its analysis by examining whether the tax reductions at issue under 
Article I:1 constitute "matters referred to in paragraphs 2 and 4 of Article III". In other words, 
whether the measures at issue constitute either internal taxes or other internal charges of any 
kind applied directly or indirectly  to products; or  laws, regulations, or requirements affecting the 
internal sale, offering for sale, purchase, transportation, distribution or use of imported products.  
7.1023.   The Panel recalls from its discussion in section 7.2.1 above that the fact that a measure 
may be imposed on firms, or may relate to production and process methods, does not imply that 
its effects on trade in products are not covered by the disciplines of GATT Article III prohibiting 
discrimination  between imported and domestic like products. The Panel believes that this is also 
true with respect to the disciplines of GATT Article I prohibiting discrimination between like 
imported products.1385  
7.1024.   More specifically, the tax reductions challenged under Ar ticle I:1 and discussed here are 
explicitly imposed on products . Article 21 of Decree 7,819/2012 states that " vehicles  … may 
benefit from a reduction in IPI tax rates", and Article 22(I) of the same decree states that "[t]he 
reduction in IPI tax rates refe rred to in Article 21 … shall also apply to the products ".1386  
7.1025.   Since the tax reductions are on their face applied directly to products, the Panel considers 
that such tax reductions relate to "internal taxes … applied, directly or indirectly, to … products", 
                                                
1381 Appellate Body Report, EC – Seal Products , para. 5.86.  
1382 European Union’s first written submission, para. 348; Japan’s first written submission, para. 276.  
1383 Brazil's first written submissions, paras. 701 (DS472) and 633 (DS497).  
1384 European Union's opening statement at the first meeting, para. 84 (referring to Brazil's first written 
submission, para. 701 (DS472)). See also European Union's second written submissi on, para. 192.  
1385 Nor has Brazil indicated how or why the particular tax reductions challenged under Article I:1 could 
be exempted from the scope of Article III for any other reason.  
1386 Decree 7,819/2012, (Exhibit JE -132). (emphasis added) The Panel recalls  from footnote 1375 above 
that this difference in wording does not alter the product scope of Articles 21 and 22(I).  WT/DS472/R • WT/DS497/R  
 
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  and also comprise "laws, regulations and requirements affecting the[] internal sale, offering for 
sale, purchase, transportation, distribution or use" of imported products.  
7.1026.   The Panel therefore concludes that such tax reductions are indeed "matters referre d to in 
paragraphs 2 and 4 of Article III" and therefore are within the scope of Article I:1 of the GATT 
1994.1387  
7.4.7.3   Whether the relevant products at issue are "like" products  
7.1027.   Turning to the second element, the Panel shall assess whether the products at issue (i.e. 
imported motor vehicles listed in Annexes I and VIII of Decree 7,819/2012) originating from 
certain countries, and those same products imported from other WTO Members are "like products".  
7.1028.   The European Union and Japan contend that under Articles 21 a nd 22(I) of 
Decree  7,819/2012, Brazil accords tax reductions to certain types of motor vehicles imported from 
MERCOSUR members (namely Argentina, Paraguay, Uruguay and Venezuela) and Mexico, and not 
to the same types of motor vehicles from other WTO Member s, including the European Union and 
Japan. The complaining parties argue that the only distinction between whether a motor vehicle is 
or is not accorded the tax reduction is the origin of the motor vehicle, and that it is therefore not 
necessary for the Pa nel to examine the four criteria of likeness relied upon by panels and the 
Appellate Body in previous disputes.1388  
7.1029.   Brazil does not submit any arguments with respect to likeness under Article I:1, nor does 
Brazil object to reliance upon a "hypothetical liken ess" analysis. Indeed, no parties have argued 
that the relevant products at issue under Article I:1 of the GATT 1994 are not "like" within the 
meaning of Article I:1.   
7.1030.   For the Panel's analysis, it is necessary to determine the precise country -scope of the 
relevant tax reductions in order to determine which precise products are being compared for the 
purposes of ascertaining "likeness" of the products. Brazil argues that:  
The tax treatment afforded to Argentina, Mexico and Uruguay within the framework of 
INOVAR-AUTO is inscribed in the implementation process of the Economic 
Complementation Agreements negotiated by Brazil with these three countries under 
the umbrella of the Treaty of Montevideo -1980 … establishing the LAIA [Latin 
American Integration Associati on] to further economic integration in Latin America. It 
follows that the scope of Article 21 and 22 of Decree No. 7819 of 2012 is necessarily 
informed by the conditions established in the agreements to which the tax treatment 
applies. Therefore, Decree No  7819 does not apply to vehicles imported from 
countries that have not negotiated an ECA [Economic Complementation Agreement] in 
the automotive sector with Brazil, such as Venezuela and Paraguay.1389  
7.1031.   Additionally, Brazil maintains that the tax reductions und er Article 21 of Decree 
7,819/2012 "are not accorded because of the MERCOSUR Treaty. While there is a reference to the 
MERCOSUR Treaty in the Decree, the tax treatment under INOVAR -AUTO afforded to Argentina, 
Mexico and Uruguay within the framework of INOV AR-AUTO is inscribed in the implementation 
process of the Economic Complementation Agreements negotiated by Brazil with these three 
countries under the umbrella of the Treaty of Montevideo -1980".1390  
7.1032.   In the Panel's view, the plain language of the header para graph of Article 21 of Decree 
7,819/2012 indicates that the tax reductions under Article 21 apply to products imported by 
accredited companies from "countries that are signatories to the agreements established by" the 
various decrees referred to therein. A s discussed in footnote 1376 above, the countries that are 
signatories to the agreements established by the relevant decrees are as follows:  
                                                
1387 The Panel recalls that the tax reductions challenged under Article III of the GATT 1994 wer e found 
to be within the scope of Article III. See paragraph 7.636  and section 7.4.2.2  above.  
1388 European Union's first written submission, paras. 295 -296 and 350 -354; Japan's first written 
submission, paras. 179 -186 and  277. See also European Union's response to Panel question No. 52; Japan's 
response to Panel question No. 52.  
1389 Brazil's response to Panel question No. 52.  
1390 Brazil's comments on other parties' respon ses to Panel question No. 52. (emphasis original)  WT/DS472/R • WT/DS497/R  
 
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  a. Decree 350/1991 refers to the MERCOSUR Treaty, and indicates therein that the 
signato ry countries include Brazil, Argentina, Paraguay and Uruguay. Additionally, at the 
time of the Panel's establishment, Venezuela had become an additional signatory to (and 
member of) the MERCOSUR Treaty;  
b. Decree 4,458/2002 refers to Economic Complementation Agreement (ECA) No. 55, and 
indicates therein that the signatory countries include Brazil, Argentina, Paraguay, 
Uruguay, other Member States of MERCOSUR (which would include Venezuela), and 
Mexico; and  
c. Decree 6,500/2008 refers to the 38th Additional Proto col to ECA No. 14, and indicates 
therein that the signatory countries are Argentina and Brazil.1391 
7.1033.   On the basis of the plain language of Article 21, the relevant tax reductions apply to 
motor vehicles imported from all MERCOSUR members (i.e. Argentina, Parag uay, Uruguay and 
Venezuela) and Mexico.1392 The Panel therefore finds that the products to be compared are motor 
vehicles identified in Annexes I and VIII to Decree 7,819/2012, imported from MERCOSUR 
members (i.e. Argentina, Paraguay, Uruguay and Venezuela) a nd Mexico, on the one hand, and 
those same motor vehicles imported from other WTO Members (including the European Union and 
Japan) on the other hand.  
7.1034.   As explained in paragraphs 7.124  to 7.126  above, panels and the Appellate Body have 
followed a hypothetical analysis of likeness in situations where the measures at issue distinguish 
between products exclusively on the basis of origin.1393 Previous panels have followed such  an 
approach not only with respect to likeness under Article III, but also likeness under Article I:1.1394  
7.1035.   With respect to the measure at issue under Article I:1 of the GATT 1994, the Panel 
considers that the only relevant distinguishing factor between produ cts receiving the tax 
reductions under Articles 21 and 22(I) of Decree  7,819/2012 and products that do not receive that 
tax reduction, is indeed their country of origin. The Panel also notes that the fact that Brazil might 
provide the challenged tax reduct ions under Articles 21 and 22(I) of Decree 7,819/2012 only to 
Argentina, Mexico and Uruguay, and not to Paraguay or Venezuela, would not affect the Panel's 
reliance upon a hypothetical likeness analysis, or the Panel's conclusion that the relevant imported  
products being compared are like.  
7.1036.   Since Articles 21 and 22(I) of Decree 7,819/2012 explicitly and clearly grant tax 
reductions to certain products based exclusively on their origin, and taking into account that Brazil 
has not objected to such an analysis  in respect of the complaining parties' claims under Article I:1, 
the Panel therefore concludes that the relevant products at issue are "like" within the meaning of 
Article I:1.  
                                                
1391 See footnote 1375 above.  
1392 The Panel also notes certain inconsistencies in Brazil's argument. First, Brazil's interpretation of 
Articles 21 and 22(I) of Decr ee 7,819/2012 suggests that the relevant tax reductions accorded under those 
provisions are conditioned on the existence of an ECA. In this respect, ECA No. 2 (the relevant ECA between 
Brazil and Uruguay) is only referred to in Article 22(I) and not in Art icle 21. Therefore, pursuant to Brazil's 
interpretation, Uruguay should not benefit from the tax advantage accorded under Article 21. However, Brazil 
has made no such distinction between Articles 21 and 22(I). Second, and more pertinently, as noted above, 
Brazil argues that the relevant tax reductions accorded under Articles 21 and 22 are conditioned on the 
existence of an ECA. However, in its first written submissions, Brazil explicitly identifies the MERCOSUR Treaty 
as a relevant ECA. See Brazil's first w ritten submissions, para. 707 and fn 473 (DS472) and para. 639 and fn 
423 (DS497). It is therefore contradictory to assert that on the one hand the MERCOSUR Treaty is an ECA 
"negotiated under the auspices of [the Treaty of Montevideo]", but that the prefer ential treatment under 
Articles 21 and 22, resulting from "the implementation process of the Economic Complementation Agreements 
negotiated by Brazil", exclude signatories to the MERCOSUR Treaty. Compare Brazil's first written submissions, 
para. 707 and fn  473 (DS472) and para. 639 and fn 423 (DS497), with Brazil's comments on other parties' 
responses to Panel question No. 52.  
1393 Appellate Body Report, Canada – Periodicals , pp. 20 -21, DSR 1997:1, 449, at pp. 466 -467. See also 
Panel Report, Indonesia – Autos , para. 14.113.  
1394 See e.g. Panel Reports, Colombia – Ports of Entry , paras. 7.355 -7.357; US – Poultry (China) , 
paras.  7.431 -7.432.  WT/DS472/R • WT/DS497/R  
 
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  7.4.7.4   Whether the tax reductions at issue confer an "advantage"  
7.1037.   The Panel now turn s to the third element of the legal standard, whether the tax 
reductions at issue confer an "advantage, favour, privilege, or immunity" on the vehicles 
originating from MERCOSUR members and Mexico.  
7.1038.   The complaining parties argue that the relevant advantages  are the tax reductions 
accorded to (i)  motor vehicles imported from MERCOSUR members or from Mexico, by accredited 
companies; and (ii)  motor vehicles imported from Uruguay by unaccredited companies.1395  
7.1039.   Brazil has not made any arguments on this issue.  
7.1040.   The Appellate Body and past panels have interpreted the term "advantage" broadly. In EC 
– Bananas  III, the Appellate Body stated that "a broad definition has been given to the term 
'advantage' in Article I:1".1396 The Panel in EC – Bananas III indicated that an a dvantage within 
the meaning of Article I:1 of GATT 1994 "create[s] more favourable competitive opportunities" 
between products of different origins.1397 The Appellate Body has also indicated that a finding of 
inconsistency with Article I:1 "is not contingent upon the actual trade effects of a measure".1398  
7.1041.   The Panel understands that an "advantage" within the meaning of Article I:1 of the GATT 
1994 exists when a measure alters the conditions of competition for certain imported products 
relative to other like impo rted products.  
7.1042.   Applying this to the present dispute, the Panel considers that the tax reductions 
challenged under Article I:1 do indeed act as advantages relative to like imported products that do 
not receive that tax reduction. Insofar as one product rece ives a lower tax burden than another 
like product, there is a change in the conditions of competition for the like product relative to the 
less-taxed product.1399 Brazil has not presented any argument to the contrary.1400  
7.1043.   The Panel therefore concludes that the tax reductions accorded under Articles 21 and 
22(I) of Decree 7,819/2012 to motor vehicles imported from MERCOSUR members and Mexico, 
and not accorded to other WTO Members, constitute advantages within the meaning of Article I:1 
of the GATT 1994.1401  
                                                
1395 European Union's first written submission, paras. 356 -357; Japan's first written submission, 
paras.  278-279.  
1396 Appellate Bo dy Report, EC – Bananas III , para. 206.  
1397 Panel Report, EC – Bananas III , para. 7.239.  
1398 Appellate Body Report, EC – Seal Products , para. 5.87.  
1399 As the panel in Indonesia – Autos  stated, "duty free treatment obviously is an advantage" within the 
meaning o f Article I:1. Panel Report, Indonesia – Autos , para. 7.11.  
1400 The Panel notes that Brazil does raise arguments that any differential and more favourable 
treatment is nevertheless justified under the Enabling Clause. See section 7.4.8 below. Nevertheless, Brazil 
does not present any arguments in respect of the particular issue addressed here, namely whether the 
measure at issue confers an advantage to products from certain countries.  
1401 The Panel notes the following with respect to the scope of the relevant "advantages". First, 
Article  21 §1(III) of Decree 7,819/2012 states that the tax reductions accorded under Article 21 shall apply "to 
the products that meet the respective requirements, limits or quantitative restrictions under  the agreements 
referred to in the header paragraph" (namely the MERCOSUR Treaty, ECA No. 55, and ECA No.  14). Article 22 
§1(II) states that the tax reductions accorded under Article 22(I) shall apply "to the products that meet the 
respective requirements,  limits or quantitative restrictions of the relevant agreement" (namely ECA No. 2). 
Thus, to the extent any quantitative limitations do apply, such limitations constrain the scope of the 
advantage. Second, under Article 22(II)(b) of Decree 7,819/2012, a ta x reduction of 30 percentage points is 
available to a limited number of motor vehicles from any country that are imported by or on behalf of 
companies accredited under the INOVAR -AUTO programme. Decree 7,819/2012, (Exhibit JE -132). The Panel 
considers that  on the face of the relevant provisions, Articles 21, 22(I) and 22(II) appear to operate 
cumulatively, and do not displace or modify one another. The use of the word "also" (" ainda " in the original 
Portuguese) in Article 22 of Decree 7,819/2012 confirms th at the provisions apply cumulatively. The Panel 
therefore considers that the generic treatment accorded to vehicles from all  countries under Article 22(II)(b), 
does not modify the special dispensation (i.e. the advantages) granted to motor vehicles importe d from 
MERCOSUR members and Mexico under Articles 21 and 22(I). Third, motor vehicles imported from Uruguay 
are subject to two distinct advantages: first, the tax reduction accorded under Article 21 to motor vehicles 
imported from Uruguay by accredited  companies; and second, the tax reduction accorded under Article 22(I) 
to motor vehicles imported from Uruguay by any company ( accredited or unaccredited ).  WT/DS472/R • WT/DS497/R  
 
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  7.4.7.5   Whether  that advantage is not accorded "immediately" and "unconditionally" to 
other WTO Members  
7.1044.   Finally, the Panel must examine whether the advantages accorded by Brazil to motor 
vehicles originating in the territories of MERCOSUR members and Mexico are not exten ded 
"immediately" and "unconditionally" to like imported motor vehicles from other WTO Members.  
7.1045.   The European Union and Japan argue that the tax advantage accorded under Articles 21 
and 22(I) of Decree 7,819/2012 results in a detrimental impact on the compe titive opportunities 
for like imported products and therefore the relevant advantages are not accorded immediately 
and unconditionally to like imported motor vehicles from other WTO Members.1402  
7.1046.   Brazil has not made any arguments on this issue.  
7.1047.   The tax advan tages under Articles 21 and 22(I) of Decree 7,819/2012 are accorded solely 
to MERCOSUR Members and Mexico. On the basis of the evidence before it, the Panel concludes 
that the advantages accorded to motor vehicles imported into Brazil from MERCOSUR members  
and Mexico are not extended immediately and unconditionally to like products from other WTO 
Members.  
7.4.7.6   Conclusion  
7.1048.   In light of the foregoing, the Panel concludes that the tax reductions accorded to 
imported products from MERCOSUR members and Mexico under th e INOVAR -AUTO programme 
are advantages granted by Brazil to products originating in those countries, which are not 
accorded immediately and unconditionally to like products originating in other WTO Members, 
inconsistently with Article I:1 of the GATT 1994.   
7.4.8   Brazil's justifications under the Enabling Clause  
7.4.8.1   Introduction  
7.1049.   The Panel now turns to Brazil's defence under the 1979 Decision on Differential and More 
Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries (the Enabling 
Clause). 
7.1050.   At the outset, the Panel notes that a number of the issues raised by the parties in respect 
of the Enabling Clause pertain to notification of measures adopted pursuant to the Enabling 
Clause. The Panel is aware that there are ongoing and important deb ates between WTO Members 
in the Committee on Trade and Development, and the Committee on Regional Trade Agreements, 
regarding the legal requirements relating to notification under the Enabling Clause.1403 
Furthermore, the Panel notes that only one Appellate B ody report has previous ly addressed the 
interpretation of the Enabling Clause, namely the report in EC – Tariff Preferences , which 
concerned a tariff preference scheme adopted by a developed country in favour of imports from 
developing countries, and notif ied to the WTO as adopted pursuant to paragraph 2(a) of the 
Enabling Clause.1404 As further explained below, in that dispute the parties did not disagree on the 
WTO-consistency of said notification, and all parties were well aware of the conditions of the 
preference scheme notified by the European Union (formerly the European Communities) – 
aspects of which were considered to be inconsistent with the non -discrimination obligation of 
footnote 3 of the Enabling Clause. The present dispute raises different, addit ional and complex 
issues relating to the type and content of notifications required under paragraph 4 of the Enabling 
                                                
1402 European Union's first written submission, paras. 115 -117 and 361 -364; Japan's first written 
submissi on, paras. 114 -115 and 280 -281. 
1403 Notes on the Meeting of 5 -6 April 2016 and 27 June 2016, Committee on Regional Trade 
Agreements, WT/REG/M/80 and WT/REG/M/81, distributed 10 May 2016 and 12 July 2016, respectively. See 
also Note on the Meeting of 16 March  2016, WT/COMTD/M/98, distributed 25 May 2016; Communication from 
Uruguay on behalf of Latin American Integration Association (LAIA), Committee on Trade and 
Development/Committee on Regional Trade Agreements, WT/COMTD/W/217, WT/REG/W/105, distributed 14 
June 2016.  
1404 See generally Panel and Appellate Body Reports, EC – Tariff Preferences .  WT/DS472/R • WT/DS497/R  
 
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  Clause and how to interpret and apply the justifications under paragraph 2(b) and 2(c) of the 
Enabling Clause.  
7.1051.   The Enabling Clause states in relevant parts that:  
1. Notwithstanding the provisions of Article I of the General Agreement, 
contracting parties may accord differential and more favourable treatment to 
developing countries1, without according such treatment to other contracting 
parties. 
2.  The provisions of paragraph 1 apply to the following2: 
… 
 
b)   Differential and more favourable treatment with respect to the provisions 
of the General Agreement concerning non -tariff measures governed by 
the provisions of instruments multilateral ly negotiated under the auspices 
of the GATT;  
c)   Regional or global arrangements entered into amongst less -developed 
contracting parties for the mutual reduction or elimination of tariffs and, 
in accordance with criteria or conditions which may be prescr ibed by the 
CONTRACTING PARTIES, for the mutual reduction or elimination of non -
tariff measures, on products imported from one another;  
… 
 
3.  Any differential and more favourable treatment provided under this clause:  
a) shall be designed to facilitate and  promote the trade of developing 
countries and not to raise barriers to or create undue difficulties for the 
trade of any other contracting parties;  
b)  shall not constitute an impediment to the reduction or elimination of 
tariffs and other restrictions to  trade on a most -favoured -nation basis;  
… 
  
4.  Any contracting party taking action to introduce an arrangement pursuant to 
paragraphs 1, 2 and 3 above or subsequently taking action to introduce 
modification or withdrawal of the differential and more favou rable treatment so 
provided shall:4 
a)  notify the CONTRACTING PARTIES and furnish them with all the 
information they may deem appropriate relating to such action;  
 
 
1 The words "developing countries" as used in this text are to be understood to refer als o to 
developing territories.  
2 It would remain open for the CONTRACTING PARTIES to consider on an ad hoc  basis under the 
GATT provisions for joint action any proposals for differential and more favourable treatment not 
falling within the scope of this para graph.  
3 As described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the 
establishment of "generalized, non -reciprocal and non -discriminatory preferences beneficial to 
the developing countries" (BISD 18S/24).  
4 Nothing in these pro visions shall affect the rights of contracting parties under the General 
Agreement.  
7.1052.   In EC – Tariff Preferences , the Appellate Body found that the Enabling Clause is an 
"exception" to Article I:1 of the GATT 1994 and that, "to the extent that there is a con flict between 
measures under the Enabling Clause and the MFN obligation in Article I:1 [of the GATT 1994], the 
Enabling Clause, as the more specific rule, prevails over Article I:1".1405 The Appellate Body 
established that a panel should first look at the con sistency of the challenged measure with Article 
I:1 of the GATT 1994 and, in the event of inconsistency, the panel should, as a second step, 
examine whether the measure is nevertheless justified under the Enabling Clause.1406 
                                                
1405 Appellate Body Report, EC – Tariff Preferences , paras. 99 and 101.  
1406 Appellate Body Report, EC – Tariff Preferences , para. 101.  WT/DS472/R • WT/DS497/R  
 
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  7.1053.   As agreed by all parties, the exc eption in paragraph 1 is subject to the conditions set out 
in paragraphs 2, 3 and 4.1407 Paragraph  2 sets out the scope of application of the Enabling Clause, 
enumerating four specific types of "differential and more favourable treatment" that may be 
justifie d pursuant to the Enabling Clause. Paragraph 3 sets out a number of conditions or 
requirements that must be satisfied in order for any differential and more favourable treatment to 
be covered by the Enabling Clause. Paragraph 4 imposes certain procedural o bligations on any 
WTO Member seeking to introduce or modify an "arrangement" pursuant to paragraphs 1, 2 and 3 
of the Enabling Clause.  
7.1054.   Brazil contends that, in the event the Panel finds any inconsistency with Article I:1 of the 
GATT 1994 in respect of Arg entina, Mexico and Uruguay, such differential and more favourable 
treatment is nonetheless justified under both paragraph 2(b) and 2(c) of the Enabling Clause. The 
Panel therefore understands from Brazil's multiple written submissions and responses to ques tions 
that Brazil does not invoke the Enabling Clause with respect to the differential and more 
favourable treatment for motor vehicles imported from Paraguay and Venezuela.1408 Brazil asserts 
that this differential and more favourable treatment was notified to the WTO, as required under 
paragraph 4(a) of the Enabling Clause, and satisfies the substantive requirements in paragraph 3 
of the Enabling Clause. Brazil also argues that the European Union and Japan had the burden of 
invoking the Enabling Clause in th eir panel requests and since they did not do so, they cannot 
challenge the right of Brazil to invoke paragraph 2(b) and 2(c) of the Enabling Clause to justify the 
inconsistency of the INOVAR -AUTO programme with Article I:1 of the GATT 1994.1409  
7.1055.   The European Union and Japan object to Brazil's reliance on the Enabling Clause. They 
argue that Brazil did not comply with the notification requirement contained in paragraph 4(a) of 
the Enabling Clause, and that Brazil did not demonstrate that its measure is covered by either 
paragraph  2(b) or paragraph  2(c) of the Enabling Clause. The complaining parties also argue that 
the challenged measures and the justifications invoked by Brazil do not satisfy certain 
requirements in paragraph 3 of the Enabling Clause.1410 The comp laining parties also argue that 
                                                
1407 Brazil's first written submissions, pa ras. 702 and 704 (DS472) and paras. 634 and 636 (DS497); 
European Union's responses to Panel questions No. 53, 54 and 55; Japan's responses to Panel questions No. 
53, 54 and 55.  
1408 In response to questions from the Panel regarding any differential and more  favourable treatment 
accorded to Paraguay or Venezuela, Brazil indicated that, in its view, no differential and more favourable 
treatment is accorded under Articles 21 and 22(I) of Decree 7,819/2012 to vehicles imported from Paraguay or 
Venezuela. Brazil' s response to Panel question No. 52; Brazil's comments on other parties' responses to Panel 
question No. 52. The Panel has addressed this argument of Brazil in further detail above, in the context of the 
complaining parties' claims under Article I:1 of the  GATT 1994, and has concluded that Article 21 of Decree 
7,819/2012 does accord differential and more favourable tax treatment to companies accredited  under the 
INOVAR -AUTO programme that import motor vehicles from all MERCOSUR members, including Venezuela and 
Paraguay. See paragraphs 7.1030  to 7.1033  above. Brazil has not made any arguments under the Enabling 
Clause in respect of Venezuela and Paraguay, even on an arguendo basis in the event that the Panel were to 
find that indeed Decree  7,819/2012 did grant differential and more favourable treatment to goods imported 
from Paraguay and Venezuela. Additionally, the Panel notes that Articles 21 and 22(I) of Decree 7,819/2 012 
accord two distinct types of advantages to motor vehicles imported from Uruguay. See paragraph 7.1014  
above. The treatment provided to Uruguay under Article 21 of Decree  7,819/2012 is identical to the treatm ent 
provided to Paraguay and Venezuela under that provision (resulting from being a signatory to the MERCOSUR 
Treaty) while the treatment accorded to Uruguay under Article 22(I) of Decree 7,819/2012 is distinct (and 
results from being a signatory to ECA No . 2). The Panel notes at this stage that Brazil argues generally that the 
"preferential treatment given to … Uruguay in INOVAR -AUTO … is justified under the Enabling Clause", even 
though Brazil does not argue that the differential and more favourable treat ment accorded to Paraguay and 
Venezuela under Article 21 (which is identical to the differential and more favourable treatment accorded to 
Uruguay under Article 21) is  covered by the Enabling Clause. Brazil's response to Panel question No. 52.  
1409 Brazil's f irst written submissions, paras. 694 -742 (DS472) and 627 -674 (DS497); Brazil's response 
to Panel question No. 4; Brazil's second written submission, paras. 166 -181; Brazil's response to Panel 
questions No. 4, 53, 54 and 55; Brazil's comments on other parti es' responses to Panel questions No. 53, 54 
and 55.  
1410 European Union's opening statement at the first meeting, paras. 84 -97; European Union's responses 
to Panel question No. 4; European Union's second written submission, paras. 196 -200; European Union's 
responses to Panel questions No. 53, 54 and 55; Japan's opening statement, paras. 36 -42; Japan's responses 
to Panel question No. 4; Japan's second written submission, para. 129; Japan's responses to Panel questions 
No. 53, 54 and 55.  WT/DS472/R • WT/DS497/R  
 
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  they were under no obligation to raise the Enabling Clause in their panel requests since the 
measure was not plainly introduced pursuant to the Enabling Clause.1411  
7.1056.   The Panel will first address the issue raised by Brazil regar ding the burden of invoking the 
Enabling Clause, i.e. whether the European Union and Japan were obliged to raise matters relating 
to the Enabling Clause in their panel request if they wished to challenge the consistency of Brazil's 
justification under the Enabling Clause. The Panel will then address separately each of the two 
affirmative defences raised by Brazil – namely that the challenged measures are justified pursuant 
to paragraph 2(b) and 2(c) of the Enabling Clause. In conducting those analyses the P anel will 
consider first whether Brazil notified the challenged measure to the WTO as required by paragraph 
4(a) of the Enabling Clause, and second, whether Brazil demonstrated that the challenged 
measures comply with the requirements of paragraph 2(b) and  2(c). Finally, and only if necessary, 
the Panel will address whether the measure is consistent with the requirements of paragraph 3 of 
the Enabling Clause.  
7.4.8.2   The burden of invoking the Enabling Clause  
7.1057.   Brazil argues that based on the Appellate Body's decisi on in EC – Tariff Preferences , a 
complaining party has the burden of indicating in its panel request that a particular challenged 
measure is not consistent with the relevant provisions of the Enabling Clause.1412 Argentina as a 
third party supports this view and also asserts that because the European Union and Japan did not 
identify the relevant provisions of the Enabling Clause with which they take issue, their "argument 
does not appear to fulfil[] the standard set forth by the Appellate Body in EC – Tariff P references  
for raising this type of claim[]."1413 
7.1058.   The European Union and Japan maintain that because the INOVAR -AUTO programme 
does not "manifestly" (in the European Union's words) or "on its face" (in Japan's words) indicate 
that the discriminatory treatment  was introduced pursuant to the Enabling Clause, there was no 
burden on the complaining parties to invoke the Enabling Clause in their panel requests.1414  
7.1059.   In EC – Tariff Preferences  the Appellate Body highlighted the special status of the 
Enabling Clause, no ting that it was not a "typical 'exception', or 'defence', in the style of Article XX 
of the GATT 1994, or of other exception provisions".1415 The Appellate Body indicated that it was 
clear that the challenged measure in that dispute was "part of a preferenti al tariff scheme 
implemented … pursuant to the authorization in paragraph  2(a) of the Enabling Clause".1416 On 
that basis, the Appellate Body stated that:  
[W]hen a complaining party considers that a preference scheme of another Member 
does not meet one or mo re of [the requirements of the Enabling Clause], the specific 
provisions of the Enabling Clause with which the scheme allegedly falls afoul, form 
critical components of the 'legal basis of the complaint' and, therefore, of the 'matter' 
in dispute. Accordin gly, a complaining party cannot, in good faith, ignore those 
provisions and must, in its [panel request] identify them and thereby 'notif[y] the 
parties and third parties of the nature of [its] case'. For the failure of such a 
complaining party to raise th e relevant provisions of the Enabling Clause would place 
an unwarranted burden on the responding party.  
… [A]lthough a responding party must defend the consistency of its preference 
scheme with the conditions of the Enabling Clause and must prove such cons istency, a 
                                                
1411 European Union's respo nse to Panel questions No. 4 and 53; European Union's second written 
submission, paras. 195 -198 and 205; Japan's response to Panel questions No. 4 and 53; Japan's second 
written submission, para. 129.  
1412 Brazil's response to Panel question No. 4 (referring  to Appellate Body Report, EC – Tariff 
Preferences , para. 110).  
1413 Argentina's third party written submissions, paras. 13 (DS472) and 14 (DS497) (referring to 
Appellate Body Report, EC – Tariff Preferences , para. 113).  
1414 European Union's response to Panel  questions No. 4 and 53; European Union's second written 
submission, paras. 195 -198 and 205; Japan's response to Panel questions No. 4 and 53; Japan's second 
written submission, para. 129.  
1415 Appellate Body Report, EC – Tariff Preferences , paras. 106 and 1 10. 
1416 Appellate Body Report, EC – Tariff Preferences , para. 117.  WT/DS472/R • WT/DS497/R  
 
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  complaining party has to define the parameters within which the responding party 
must make that defence.1417  
7.1060.   From these paragraphs the Panel understands that the Appellate Body distinguished 
between the burden on the complainant of "raising" or "i nvoking" the Enabling Clause, that 
involves the identification of the relevant provisions of the Enabling Clause with which the 
complaining parties consider the measure to be inconsistent, and the burden on the respondent of 
"proving" that the relevant dif ferential and more favourable treatment satisfies the requirements 
of the Enabling Clause.1418  
7.1061.   The Panel also notes that the Appellate Body's statements in EC – Tariff Preferences were 
made in the context of a "tariff preference scheme" adopted by a develope d country in favour of a 
developing country. In particular the Panel notes that the EC – Tariff Preferences dispute did not 
involve any issues in respect of notification of regional trade agreements, unlike the present 
dispute.  
7.1062.   From the foregoing, and in light of other comments made by the Appellate Body in EC – 
Tariff Preferences1419, the Panel understands that the issue of whether the Enabling Clause has 
been properly invoked by the complaining parties pertains to the jurisdiction of the Panel, and 
specific ally whether the complaining parties' claim under Article I:1 of the GATT 1994 is within the 
Panel's terms of reference. Brazil has not clearly expressed its concerns with respect to the burden 
of invocation as a jurisdictional issue.1420 Regardless, the Pane l notes that a panel has a duty to 
address "issues which go to the root of their jurisdiction … if necessary, on their own motion – in 
order to satisfy themselves that they have authority to proceed."1421 
7.1063.   The Panel further notes that the Appellate Body's stat ements in EC – Tariff Preferences 
were made in the specific context of a "a preference scheme of another Member", and that the 
Appellate Body's rationale for placing the burden of invocation on the complainant was that 
"[e]xposing preference schemes to ope n-ended challenges would be inconsistent … with the 
intention of Members, as reflected in the Enabling Clause, to 'encourage' the adoption of 
preferential treatment for developing countries and to provide a practical means of doing so within 
                                                
1417 Appellate Body Report, EC – Tariff Preferences , paras. 113 -114. (footnotes omitted) (emphasis 
original)  
1418 To this end, the Panel notes as a general matter that regardless of the burden of "raising" or 
"invoking" the Enabling Clause, the Appellate Body has indicated that the burden of "proof" is always on the 
responding party (in this dispute, Brazil) to demonstrate that the differential and more favourable treatment 
found to be inconsistent  with Article I:1 of the GATT 1994 is nonetheless justified under the Enabling Clause. 
See Appellate Body Report, EC – Tariff Preferences , paras. 114 -115.  
1419 The Appellate Body stated that "India, as the complaining party, should reasonably have articulate d 
its claims of inconsistency with specific provisions of the Enabling Clause at the outset of this dispute as part of 
its responsibility to 'engage in [dispute settlement] procedures in good faith in an effort to resolve the dispute." 
Appellate Body Repor t, EC – Tariff Preferences , para. 117 (referring to DSU Art. 3.10 and Appellate Body 
Report, US – FSC, para. 166). Furthermore, because India's panel request identified those specific 
requirements of the Enabling Clause with which India considered the pref erence scheme to be inconsistent, 
"[t]he Panel's terms of reference … included India's allegations that certain aspects of the [challenged 
measure] were not 'consistent' with, or did not 'meet the requirements set out in', [specific provisions] of the 
Enabling Clause." Appellate Body Report, EC – Tariff Preferences , para. 119. Additionally, "India was required 
to raise the Enabling Clause in making its claim of inconsistency with Article  I:1" and "it was incumbent upon 
India to raise the Enabling Clause in making its claim of inconsistency with Article  I:1 of the GATT 1994". 
Appellate Body Report, EC – Tariff Preferences , paras. 123 and 125.  
1420 See Brazil's response to Panel question No. 4.  
1421 The Appellate Body stated that:  
[P]anels are required to address issues that are put before them by the parties to a dispute [and] 
panels have to address and dispose of certain issues of a fundamental nature, even if the parties 
to the dispute remain silent on those issues. In this regard, … '[t]he vesting of jurisdicti on in a 
panel is a fundamental prerequisite for lawful panel proceedings.' For this reason, panels cannot 
simply ignore issues which go to the root of their jurisdiction – that is, to their authority to deal 
with and dispose of matters. Rather, panels must  deal with such issues – if necessary, on their 
own motion – in order to satisfy themselves that they have authority to proceed. Appellate Body 
Report, Mexico – Corn Syrup (Article 21.5 – US), para. 36 (quoting Appellate Body Report, 
United States – 1916 A ct, para. 54).  
See also Award of the Arbitrators, US – Section 110(5) Copyright Act (Article 25) , para. 2.1; and Decisions by 
the Arbitrator , US – COOL (Article 22.6 – United States) , paras. 2.6 -2.7. WT/DS472/R • WT/DS497/R  
 
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  the legal fram ework of the covered agreements."1422 Furthermore, the Appellate Body emphasized 
that, in that dispute:  
[It was] clear, on the face of the Regulation and from official, publicly -available 
explanatory documentation, that the [challenged measure was] part of a  preferential 
tariff scheme implemented by the European Communities pursuant to the 
authorization in paragraph  2(a) of the Enabling Clause. As such, India would have 
been well aware that the Drug Arrangements must comply with the requirements of 
the Enabli ng Clause, and that the European Communities was likely to invoke the 
Enabling Clause in response to a challenge of inconsistency with Article  I:1.1423 
7.1064.   On the basis of the foregoing, the Panel considers that the burden of invoking the 
Enabling Clause is place d on the complaining party in situations where the complaining party is on 
notice that the challenged measure was adopted (and in the view of the adopting member, 
justified) under the Enabling Clause. In other words, a burden to invoke a particular provisi on of 
the Enabling Clause in a panel request could only be placed on a complaining party, if that 
complain ing party was appropriately informed prior to the time of the panel request that the 
responding party considered the relevant measure to be adopted an d justified pursuant to the 
Enabling Clause. Indeed, the Panel considers that an alternative approach could result in absurd 
outcomes, such as a complaining party invoking all the provisions of the Enabling Clause in its 
panel request in any dispute involv ing claims under Article I:1 of the GATT 1994 , in order to 
resolve its burden of invocation, and guard against all possible defences raised by a responding 
party pursuant to the Enabling Clause.  
7.1065.   In the present dispute, the only argument raised by Brazil i n support of placing the 
burden of invocation on the complaining parties is that the relevant measures were notified to the 
WTO as adopted pursuant to the Enabling Clause.  
7.1066.   The Panel notes that in situations where a WTO Member has notified a particular 
arrangement imposing discriminatory treatment as adopted or modified under the Enabling Clause, 
other WTO Members are presumed to be aware that the specific discriminatory treatment was 
adopted pursuant to the Enabling Clause. In such circumstances, in light of the Enabling Clause's 
special nature (as identified by the Appellate Body in EC – Tariff Preferences ), it is reasonable to 
impose the burden of pleading specific provisions of the Enabling Clause on the party alleging that 
the particular differential tr eatment is inconsistent with Article I:1 of the GATT 1994.  
7.1067.   The Panel recalls the complaining parties' argument that Brazil failed to notify the 
relevant arrangements imposing the differential and more favourable treatment, as required under 
paragraph 4(a) of the Enabling Clause.1424 In the Panel's view, if this assertion is correct, then that 
failure to notify would be a relevant factual distinction between EC – Tariff Preferences  (where the 
preference scheme was indisputably  adopted pursuant to the Enabling C lause)  and the present 
dispute (where even the fact of notification is contested by the parties). Furthermore, the Panel 
emphasizes that Brazil has not indicated any other reason to impose on the complaining parties 
the burden of invoking the Enabling Clau se.  
7.1068.   The Panel therefore concludes that a complaining party cannot be under an obligation to 
invoke the Enabling Clause in its panel request, unless  that complaining party is appropriately 
informed that the responding party considers the challenged measure  to have been adopted 
pursuant to (and justified under) the Enabling Clause. In the Panel's view, such an approach is 
sufficient to address the concerns raised by the complaining parties in paragraph 7.1058  above, 
without imposing an unnecessarily excessive burden on a party seeking to invoke the Enabling 
Clause in dispute settlement. In the present dispute, the Panel considers that, on the basis of the 
arguments and evidence presented by the parties in the prese nt dispute, the European Union and 
Japan could not have been presumed to be informed of Brazil's intentions unless  the adoption of 
those discriminatory taxes pursuant to the Enabling Clause was notified to the WTO, as required 
by paragraph 4(a) of the Enab ling Clause. The Panel addresses below in the context of each 
                                                
1422 Appellate Body Report, EC – Tariff Preferences , para.  114.  
1423 Appellate Body Report, EC – Tariff Preferences , para. 117.  
1424 European Union's opening statement at the first meeting, paras. 85 -86; response to Panel question 
No. 4; responses to Panel question to the third parties Nos. 8 and 9; second written sub mission, para. 193; 
Japan's opening statement at the first meeting, paras. 37 -38; response to Panel question No. 4.  WT/DS472/R • WT/DS497/R  
 
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  justification asserted by Brazil (i.e. in respect of paragraph 2(b) and paragraph 2(c) respectively), 
the issue of whether the challenged measures and their related justifications were notified to the 
WTO.  
7.4.8.3   Brazil's affirmative defence under paragraph  2(b) of the Enabling Clause  
7.1069.   Brazil asserts that the tax reductions accorded to motor vehicles from Argentina, Mexico 
and Uruguay, and found to be inconsistent with Article I:1 of the GATT 1994, are  justified under 
paragraph 2(b) of the Enabling Clause. Brazil asserts that this differential and more favourable 
treatment was notified to the WTO, as required under paragraph 4(a) of the Enabling Clause, and 
satisfies the substantive requirements in para graph 3 of the Enabling Clause.1425  
7.1070.   The European Union and Japan argue that Brazil did not comply with the notification 
requirement contained in paragraph 4(a) of the Enabling Clause, and that Brazil did not 
demonstrate that its measure is covered by paragra ph 2(b) of the Enabling Clause. The 
complaining parties also argue that the differential and more favourable treatment does not satisfy 
certain requirements in paragraph 3 of the Enabling Clause.1426 
7.1071.   Paragraph 4(a) of the Enabling Clause states that a Member "taking action to introduce 
an arrangement pursuant to paragraphs 1, 2 and 3 above … shall: (a) notify the CONTRACTING 
PARTIES".  
7.1072.   Brazil acknowledges that paragraph 4(a) imposes a requirement to notify any differential 
and more favourable treatment adopted pursuant to the Enabling Clause.1427 Brazil argues that the 
notification requirement in paragraph 4(a) is satisfied because the 1980 Treaty of Montevideo 
establishing the Latin American Integration Association (LAIA) was notified to the WTO under 
Article 2(c)  of the Enabling Clause. Brazil argues that the differential and more favourable 
treatment granted to Argentina, Mexico and Uruguay, is based on ECAs negotiated under the 
auspices of the 1980 Treaty of Montevideo instituting LAIA.1428 Brazil argues that the E CAs "are 
implementation measures of the Treaty of Montevideo and [we]re notified to the WTO by the LAIA 
Secretariat. INOVAR -AUTO's tax treatment to certain LAIA countries is the corollary of these ECAs 
and does not require further notification."1429 
7.1073.   The Europ ean Union and Japan argue that Brazil did not comply with the notification 
requirements in paragraph 4(a), because neither the Treaty of Montevideo nor the ECAs cover 
internal taxation and Brazil did not notify either the INOVAR -AUTO programme or the ECAs.1430 
The European Union also highlights that Brazil's only claimed notifications were under 
paragraph  2(c) and not under paragraph  2(b). Additionally, the European Union argues, and 
Ukraine agrees as a third party, that Brazil was required to comply with the notification 
requirements set forth in the Transparency Mechanism on Preferential Trade Arrangements, and 
failed to do so.1431 
7.1074.   As an initial matter, the Panel finds as a matter of fact that the 1980 Treaty of 
Montevideo was notified to the WTO on 1 July 1982,  as adopted pursuant to paragraph  2(c) of the 
                                                
1425 Brazil's first written submissions, paras. 695 -742 (DS472) AND 627 -674 (DS497).  
1426 European Union's opening statement at the first meeting , paras. 84 -97; European Union's responses 
to Panel question No. 4; European Union's second written submission, paras. 196 -200; European Union's 
responses to Panel questions No. 53, 54 and 55; Japan's opening statement, paras. 36 -42; Japan's responses 
to Panel question No. 4; Japan's second written submission, para. 129; Japan's responses to Panel questions 
No. 53, 54 and 55.  
1427 Brazil's first written submissions, paras. 740 -742 (DS472) and paras. 672 -674 (DS497).  
1428 Brazil's first written submissions, paras . 706-707 (DS472) and paras. 638 -639 (DS497).  
1429 Brazil's second written submission, para. 181. See also Brazil's response to Panel question No. 53; 
Communication from LAIA to the Chair of the Trade and Development Committee, WTO, 19 May 2016, 
(Exhibits BR A-114 and BRA -115).  
1430 Japan occasionally refers to the ECAs as Economic Complementarity  Agreements. See e.g. Japan's 
first written submission, para. 179. The Panel notes that Article 11 of the Treaty of Montevideo itself refers to 
Economic Complementarity  Agreements. See Treaty of Montevideo, 1980, (Exhibit BRA -93).  
1431 European Union's opening statement at the first meeting, paras. 86 -87; responses to Panel question 
to the third parties Nos. 8 and 9; second written submission, paras. 196 and 198; Japan's o pening statement, 
paras. 37 -38; second written submission, para, 129; Ukraine's third party written submission, para. 5; third 
party statement at the first meeting, para. 5; response to question No. 7 from the Panel to the third parties.  WT/DS472/R • WT/DS497/R  
 
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  Enabling Clause.1432 The Panel further notes that no explicit notification in respect of 
paragraph  2(b) has been identified by any party, or submitted to the Panel as evidence.  
7.1075.   In the Panel's view, three issues a re raised. First, since Brazil asserts that the notification 
of the Treaty of Montevideo under paragraph  2(c) is sufficient to satisfy the notification 
requirement for an arrangement adopted pursuant to paragraph  2(b), the Panel must determine 
whether a no tification of an arrangement adopted pursuant to paragraph  2(c) can also serve as a 
notification of an arrangement adopted pursuant to paragraph  2(b). Second, in the event that a 
notification under one provision can serve as a notification under another pr ovision, the Panel must 
determine whether the notification of the Treaty of Montevideo and the ECAs could substantively 
serve as a notification of the specific differential and more favourable treatment sought to be 
justified under paragraph  2(b). Third, i f Brazil prevails on both of the above issues, the Panel must 
decide whether the MERCOSUR Treaty and the ECAs, procedurally speaking, have been notified to 
the WTO as independent RTAs adopted pursuant to paragraph  2(c) of the Enabling Clause, or 
whether no tification of the "umbrella" Treaty of Montevideo1433 is sufficient.  
7.1076.   Addressing the first issue, the Panel notes that the ordinary meaning of paragraph 4(a) 
alone is unhelpful in determining whether a notification under one provision can function as a 
notific ation of that same measure being also adopted under another provision.  
7.1077.   The Panel notes, however, that the object and purpose  of a notification requirement is to 
enable other Members to be informed of arrangements that are inconsistent with Article I:1, bu t 
that are considered by the adopting Member to nonetheless be justified under the Enabling 
Clause.1434 Indeed, as Brazil itself indicates, paragraph 4(a) of the Enabling Clause "requires that 
when giving enhanced market access to products from developing cou ntries [pursuant to the 
Enabling Clause] the granting Member must notify all WTO Members as to inform them about the 
measures to be taken  [and] … give them the opportunity to question the deviation from the MFN 
obligation ."1435 The Panel agrees with Brazil's characterization of the notification requirement, and 
considers that the object and purpose of notification (namely informing other Members about the 
measures to be taken, and giving them the opportunity to question the deviation from the MFN 
obligation) w ould be circumvented if Members could initially notify an arrangement under one 
provision, but later justify it in dispute settlement under another provision.1436 
7.1078.   Furthermore, and bearing in mind the allocation of burden of invoking the Enabling 
Clause descri bed in paragraphs 7.1059  to 7.1060  above, permitting notification under one 
provision of the Enabling Clause to suffice for notification under all provisions of the E nabling 
Clause could result in undesirable outcomes. In order to comply with the Appellate Body's standard 
in respect of burden of invocation, in cases where the responding Member has  notified the 
challenged arrangement under a particular provision, a comp laining party would be at risk of 
failing to meet its burden of invocation if it only identifies the notified provision in its panel 
                                                
1432 Although Brazil  neither submitted the actual notification as evidence, nor explicitly indicated a 
document reference for the Panel to locate a publically available document, Argentina as a third party did 
indicate the document number of the notification. Additionally, th at document reference can also be located 
within an exhibit submitted by Brazil. See Communication from LAIA, (Exhibit BRA -114). Thus, the Panel can 
confirm that the 1980 Treaty of Montevideo was indeed notified to the WTO by Uruguay, on behalf of LAIA, on  
1 July 1982. See GATT document L/5342, 1 July 1982.  
1433 The Panel has found in paragraph 7.1074  above that the Treaty of Montevideo was notified.  
1434 The Panel notes that the Appellate Body has cautioned against r elying upon the object and purpose 
of a specific provision in order to interpret that particular provision, at least when "interpreting WTO law in the 
light of the purported 'object and purpose' of specific provisions … in isolation from the object and pur pose of 
the treaty on the whole". Appellate Body Report, EC – Chicken Cuts , para. 239. In this respect, the Panel notes 
that the general object and purpose of the Enabling Clause as identified by the Appellate Body in EC – Tariff 
Preferences provides littl e interpretative value in respect of the notification requirement itself, which is a 
procedural requirement unrelated to the substantive obligations that are the primary focus of the Enabling 
Clause. See Appellate Body Report, EC – Tariff Preferences , para s. 168 -169. The Panel considers it appropriate 
to take into account the object and purpose of the notification provision itself, in order to render an 
interpretation that gives effect to that provision. Such an approach accords with the Appellate Body's gu idance 
that Article 31(1) of the Vienna Convention does not "exclud[e] taking into account the object and purpose of 
particular treaty terms, if doing so assists the interpreter in determining the treaty's object and purpose on the 
whole." See Appellate Bo dy Report, EC – Chicken Cuts , para. 238.  
1435 Brazil's first written submissions, para. 741 (DS472) and para. 673 (DS497). (emphasis added)  
1436 The Panel notes that the purpose of "questioning" a deviation is irrelevant if the deviation is to be 
justified under  an entirely different provision to that under which it is claimed to be justified.  WT/DS472/R • WT/DS497/R  
 
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  request, and the responding party subsequently seeks to justify the arrangement under a different 
provision. Thus, complain ing parties would have an incentive to invoke the entirety of paragraph  2 
of the Enabling Clause in their panel requests, resulting in less clarity for responding parties.1437 
7.1079.   The Panel therefore does not consider that paragraph 4(a) of the Enabling Clause pe rmits 
notification of a measure adopted under one provision of the Enabling Clause to serve equally as a 
notification of that measure being adopted under another provision of the Enabling Clause, unless 
indicated in the notification itself.  
7.1080.   The Panel note s that the same logic exists in the explicit language of two General Council 
decisions that pertain to the notification requirement in the Enabling Clause. Specifically, the 
Transparency Mechanism for Preferential Trade Arrangements, adopted on 14 December  2010, 
contains procedures for notifying so -called "preferential trade arrangements" (PTAs) adopted 
pursuant to paragraph  2(a), (b) or (d) of the Enabling Clause.1438 The Transparency Mechanism for 
PTAs indicates in paragraph 4 that "[n]otifying Members shall  specify under which provision or 
provisions in paragraph 1 their PTAs are notified."1439 Similarly, the Transparency Mechanism for 
Regional Trade Agreements, adopted on 14 December 2006, contains procedures for notifying 
"regional trade agreements" (RTAs) ad opted pursuant to paragraph  2(c) of the Enabling 
Clause.1440 Paragraph 4 of that Transparency Mechanism indicates that "[i]n notifying their RTA, 
the parties shall specify under which provision(s) of the WTO agreements it is notified."1441 Both 
Transparency Mech anisms indicate that Members notifying an RTA or PTA must specify under 
which precise provision of the Enabling Clause the RTA or PTA is being notified.1442 Thus, per the 
plain language of the Transparency Mechanisms, a notification under one provision of the  Enabling 
Clause is not sufficient to serve as a notification under another provision of the Enabling Clause. In 
the view of the Panel, the Transparency Mechanisms serve to further confirm, at least in respect of 
those alleged notifications that took place  subsequent to the adoption of one or both transparency 
mechanisms, that paragraph 4(a) does not permit a notification of a measure adopted one 
provision of the Enabling Clause to function as a notification of adoption of that same measure 
under another pr ovision of the Enabling Clause.1443  
                                                
1437 This would contradict the whole purpose of allocating to the complaining party the burden of 
invoking the Enabling Clause, which according to the Appellate Body, is "to define the parameters within which 
the responding  party must make [its] defence." Appellate Body Report, EC – Tariff Preferences , para. 114. 
(emphasis original)  
1438 Transparency Mechanism for Preferential Trade Arrangements, General Council Decision of 14 
December 2010, WT/L/806.  
1439 Transparency Mechanism for PTAs, para. 4.  
1440 Transparency Mechanism for Regional Trade Agreements, General Council Decision of 14 December 
2006, WT/L/671.  
1441 Transparency Mechanism for RTAs, para. 4.  
1442 Transparency Mechanism for R TAs, para. 4; Transparency Mechanism for PTAs, para. 4.  
1443 The Panel notes that per the Appellate Body reports in US – Clove Cigarettes and US – Tuna II 
(Mexico) , these two General Council decisions are "subsequent agreements regarding the interpretation o f the 
treaty or the application of its provisions" pursuant to Article 31(3)(a) of the Vienna Convention, to be taken 
into account when interpreting the Enabling Clause. See Appellate Body Reports, US – Clove Cigarettes , para. 
262; US – Tuna II (Mexico) , paras. 366 -372. Indeed, the Panel considers that pursuant to Article II:2 of the 
WTO Agreement, the Enabling Clause is a component of the GATT 1994, the Transparency Mechanisms were 
adopted subsequent to the GATT 1994, and the terms and content of the Trans parency Mechanisms express 
agreement between members regarding specific requirements to be met in respect of notifying to the WTO a 
measure adopted pursuant to the Enabling Clause. However, the Panel is aware that these Transparency 
Mechanisms were not onl y adopted subsequently to the Enabling Clause, but also subsequent to the 
notification of the "umbrella treaty" allegedly notified by Brazil, namely the Treaty of Montevideo (notified on 1 
July 1982 in GATT document L/5342), as well as the alleged notifica tion of certain specific ECAs that Brazil 
claims to have notified as adopted under the Treaty of Montevideo, but not others. Specifically, the MERCOSUR 
agreement was allegedly notified on 5 March 1992 in document L/6985; ECA No. 55 was allegedly notified o n 
21 November 2012 in document WT/COMTD/77; the 38th Additional Protocol to ECA No. 14 and the 68th 
Additional Protocol to ECA No. 2 were allegedly notified on 8 November 2010, in document WT/COMTD/72; and 
the 69th Additional Protocol to ECA No. 2 was alle gedly notified on 25 October 2013 in document 
WT/COMTD/82. See Communication from LAIA, (Exhibits BRA -114 and BRA -115). The Panel recalls that the 
Transparency Mechanism for RTAs was adopted on 14 December 2006, and the Transparency Mechanism for 
PTAs was adopted on 14 December 2010. In light of its considerations in paragraphs 7.1077  to 7.1079  above, 
the Panel does not consider it necessary to determine in general ter ms whether a "subsequent agreement" 
adopted subsequent to a particular act, can be used to interpret an agreement that assesses the legality of 
that act. The Panel has concluded above that, without reference to the Transparency Mechanisms, paragraph 
4(a) o f the Enabling Clause does not permit notification of a measure adopted pursuant to one provision of the WT/DS472/R • WT/DS497/R  
 
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  7.1081.   In conclusion, the Panel considers that a notification of an RTA adopted under 
paragraph  2(c) of the Enabling Clause, even if valid, is not sufficient to serve as a notification of a 
PTA adopted under paragraph  2(b) of the  Enabling Clause. As indicated above, there was no 
notification made under 4(a) to support a justification under paragraph 2(b).  
7.1082.   The Panel therefore concludes that Brazil has not demonstrated that any arrangement 
providing for the differential and more fa vourable treatment at issue was notified to the WTO as 
adopted pursuant to paragraph  2(b).1444  
7.1083.   Moreover, with respect to the burden of invoking the Enabling Clause, the Panel recalls its 
finding in paragraph 7.1068  above to the effect that there was no burden on the complaining 
parties to invoke the Enabling Clause in their panel request unless the relevant measures were 
notified to the WTO. In light of its finding that no relevant arrangement was notified, the Pan el 
concludes that there was no burden on the complaining parties to invoke paragraph  2(b) of the 
Enabling Clause in their panel requests.  
7.1084.   Notwithstanding the absence of notification under paragraph 2(b), the Panel considers it 
appropriate to continue its analysis of the substantive provisions of the Enabling Clause, in order 
to determine whether Brazil has demonstrated that the differential and more favourable treatment 
at issue could fit within the scope of paragraph  2(b), assuming it had been duly notifi ed under 
paragraph 2(b).  
7.1085.   Paragraph  2(b) of the Enabling Clause states that the Enabling Clause applies to  
Differential and more favourable treatment with respect to the provisions of the 
General Agreement concerning non -tariff measures governed by the pr ovisions of 
instruments multilaterally negotiated under the auspices of the GATT.  
7.1086.   Brazil contends that the tax reductions challenged by the complaining parties fall within 
the scope of paragraph  2(b). According to Brazil, the internal tax reductions are n on-tariff 
measures (NTMs) because they constitute internal taxes subject to Article III of the GATT 1994 
and, consequently, are subject to the MFN obligation under Article I:1 of the GATT  1994.1445 Brazil 
argues that internal taxes are NTMs "governed by the p rovisions of instruments multilaterally 
negotiated under the auspices of the GATT" because the GATT 1947 (and subsequently the GATT 
1994) are relevant multilaterally -negotiated instruments covering internal taxation, and there is no 
specific agreement cove ring internal taxes.1446 
7.1087.   According to the complaining parties, Brazil failed to explain how the differential 
arrangements could be covered by paragraph  2(b).1447 In particular, the complaining parties argue 
that the term "non -tariff measures" does not include all measures unrelated to tariffs, but rather 
specifically non -tariff border measures, which would exclude internal taxes. The complaining 
parties also dispute that the GATT 1994 can be considered an "instrument[] multilaterally 
negotiated under the auspices  of the GATT".1448 
7.1088.   The alleged "differential and more favourable treatment" in this dispute is in the form of 
internal tax reductions. The issue before the Panel includes whether internal taxes are "non -tariff 
                                                                                                                                                  
Enabling Clause, to suffice as notification of that same measure being adopted pursuant to a different provision 
of the Enabling Clause. Therefore, wit h respect to those alleged notifications that occurred prior to the adoption 
of the transparency mechanisms, it is sufficient for the Panel's purposes to note that its interpretation of 
paragraph 4(a) of the Enabling Clause is not contradicted by the Trans parency Mechanisms.  
1444 In light of this finding, the Panel does not consider it necessary to examine the second and third 
issues described in paragraph 7.1075  above.  
1445 Brazil's first written submissions, paras. 708-709 and 729 (DS472) and paras. 640 -641 and 661 
(DS497); Brazil's second written submission, paras. 167 -171. Argentina agrees with Brazil that non -tariff 
measures include internal taxes. See Argentina's third party written submission, paras. 14 -18.  
1446 Brazil's second written submission, paras. 167 -175.  
1447 European Union's opening statement at the first meeting, paras. 88 -89; European Union's response 
to Panel question No. 4; European Union's second written submission, paras. 199 -200; Japan's opening 
statement at the first meeting, para. 39; Japan's response to Panel question No. 4; Japan's second written 
submission, para. 129.  
1448 Japan's opening statement at the first meeting, paras. 39 -42; response to Panel question No. 4(b); 
second written submission, pa ra. 129.  WT/DS472/R • WT/DS497/R  
 
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  measures governed by the provisions of instrument s multilaterally negotiated under the auspices 
of the GATT". In this respect, the Panel does not consider it necessary to define the term "non -
tariff measures" in isolation from the rest of paragraph  2(b).1449 The Panel proceeds by first 
assessing whether par agraph 2(b) applies to non -tariff measures governed exclusively by those 
provisions of the GATT 1994 that were incorporated from the GATT 1947. The Panel then examines 
the historical context of the Enabling Clause.  
7.1089.   In the Panel's view, the term "General A greement" in paragraph  2(b) refers to the 
"General Agreement on Tariffs and Trade 1947". Applying the principle of effectiveness in treaty 
interpretation1450, by which the Panel must give meaning to all parts of paragraph  2(b), the Panel 
considers that the te rms of paragraph 2(b) (referring to "[d] ifferential and more favourable 
treatment with respect to the provisions of the General Agreement concerning non-tariff measures 
governed by the provisions of instruments multilaterally negotiated under the auspices of the 
GATT "), at the time the Enabling Clause was adopted, meant non -tariff measures other than  those 
non-tariff measures governed exclusively by the provisions of the GATT 1947. If at the time of its 
adoption paragraph  2(b) covered non -tariff measures go verned exclusively  by the provisions of the 
GATT 1947, then the second half of paragraph  2(b) would have been superfluous.1451 The Panel 
therefore considers that at the time of the Enabling Clause's initial adoption, the scope of 
paragraph  2(b) did not includ e non -tariff measures governed solely by the provisions of the GATT 
1947.  
7.1090.    Paragraph 1(a) of the language of Annex 1A incorporating the GATT 1994  into the WTO 
Agreement  indicates that the GATT 1994 consists of, amongst other things, "the provisions in the  
[GATT 1947]".1452 Indeed, the provisions of the GATT 1994 that Brazil relies on here, namely 
Article III:2 and III:4 of the GATT 1994, are substantively no different to Article III:2 and III:4 of 
the GATT 1947 as they existed at the time of the Enabling Clau se's adoption. At the time of the 
Enabling Clause's adoption, these provisions would have been considered provisions of the 
"General Agreement". As indicated above, at the time of the Enabling Clause's adoption, non -tariff 
measures governed only by the pro visions of the General Agreement and not by the Tokyo Round 
Codes would not have been covered by paragraph  2(b).  
7.1091.   The Panel further notes that Brazil's proposed interpretation of paragraph 2(b) – that 
internal taxes are non -tariff measures "governed by the  provisions of instruments multilaterally 
negotiated under the auspices of the GATT" - would mean that any and all non -tariff measures 
governed by any provisions of any WTO covered agreement could be subject to differential and 
more favourable treatment in  favour of developing countries, via the Enabling Clause. This would 
imply that WTO Members are free under the Enabling Clause to adopt any non -tariff measures that 
discriminate in favour of developing countries. Such an interpretation would appear to cont radict 
the plain language of paragraph 2(b), which does not refer to differential and more favourable 
treatment with respect to any and all non -tariff measures, but rather refers to a limited category 
of differential and more favourable treatment, namely t hat "concerning non -tariff measures 
                                                
1449 Although the European Union and Japan argue that the term "non -tariff measures" in 
paragraph  2(b) does not include "behind -the-border" non -tariff measures such as internal taxes, the Panel 
does not consider it necessary to define the otherwise generic term "non -tariff measures" in isolation. 
Paragraph  2(b) when read as a whole does not refer to "non -tariff measures" generally, but rather refers to a 
limited category of non -tariff measures, namely "non -tariff measures governed by the provisions o f 
instruments multilaterally negotiated under the auspices of the GATT". It would be unnecessary and 
inappropriate for the Panel to interpret only one part of paragraph  2(b) without reference to the rest of the 
provision. Whether the alleged non -tariff mea sures at issue here have been demonstrated to be within the 
scope of 2(b) or not 2(b), that is the question before the Panel.  
1450 The Appellate Body in US – Gasoline stated that "[a]n interpreter is not free to adopt a reading that 
would result in reducing w hole clauses or paragraphs of a treaty to redundancy or inutility." Appellate Body 
Report, US – Gasoline , p. 21, DSR 1996:I, 3, at p. 21. See e.g. Appellate Body Reports, Japan – Alcoholic 
Beverages II , p. 12, DSR 1996:I, 97, at p. 106; Canada – Dairy , para. 133; US – Offset Act (Byrd 
Amendment) , para. 271.  
1451 If paragraph  2(b) had read solely "differential and more favourable treatment with respect to the 
provisions of the General Agreement concerning non -tariff measures" then its scope would necessarily h ave 
included both non -tariff measures governed exclusively by the provisions of the GATT 1947, and "non -tariff 
measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT". 
By virtue of the principle of effec tiveness in treaty interpretation, the latter reference in paragraph 2(b) must 
be meaningful.  
1452 Paragraph 1(a) of the language of Annex 1A incorporating the GATT 1994  into the WTO Agreement.  WT/DS472/R • WT/DS497/R  
 
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  governed by the provisions of instruments multilaterally negotiated under the auspices of the 
GATT".  
7.1092.   The Panel notes that the Enabling Clause was adopted by the GATT Contracting Parties 
during the Tokyo Round of negotiat ions, an important element of which was the conclusion of a 
number of plurilateral agreements governing certain non -tariff measures, including subsidies and 
countervailing duties, standards, customs valuation, government procurement, import licensing, 
and anti-dumping duties. These agreements, the Tokyo Round "Codes", also included a number of 
provisions on special and differential (S&D) treatment for developing countries.1453 A Decision of 
the Contracting Parties adopted during the Tokyo Round states that "ex isting rights and benefits 
under the GATT of contracting parties not being parties to [the Tokyo Round Codes], including 
those derived from Article I, are not affected by [the Tokyo Round Codes]."1454 This Decision 
explicitly recognized the continued applicab ility of the GATT MFN obligation in respect of those 
Contracting Parties that did not become party to the Tokyo Round Codes. In that context, 
paragraph 2(b) of the Enabling Clause clarifies that the S&D provisions in the Codes, as well as 
any measures adop ted in accordance with those S&D provisions, were institutionally justified, 
notwithstanding the MFN principle in Article I:1 of the GATT 1947. The goal of paragraph 2(b) was 
therefore to institutionally link the S&D provisions in the Tokyo Round Codes wit h the general MFN 
obligation of the GATT 1947, such that a Contracting Party granting more favourable treatment to 
developing countries, in accordance with the S&D provisions contained in the Tokyo Round Codes, 
would not be subject to claims of inconsisten cy under Article I:1.1455 
7.1093.   The Panel notes that paragraph 2(b) refers generally to "non -tariff measures governed by 
the provisions of instruments multilaterally negotiated under the auspices of the GATT", and does 
not refer explicitly to S&D provisions. If par agraph 2(b) were interpreted to grant a general right 
to adopt any discriminatory non -tariff measures, insofar as those non -tariff measures are the 
subject matter of the general provisions of the Tokyo Round Codes, such an interpretation would 
render super fluous those specific S&D provisions that were provided at the time in the Tokyo 
Round Codes (and today in the multilateral trade agreements), that explicitly permitted (and today 
permit) limited deviations from the MFN principle in favour of developing co untries. Bearing in 
mind the principle of effectiveness in treaty interpretation, the Panel therefore considers that the 
intended application of paragraph 2(b) must have been limited to the discrimination explicitly 
provided for in specific S&D provisions of the Tokyo Round Codes. In other words, paragraph 2(b) 
must have been intended to cover those situations in which specific "differential and more 
favourable treatment" in favour of developing countries was "governed by the provisions" of the 
Codes.  
7.1094.   Additionally, the Panel notes that paragraph 2(b) does not refer exclusively to the Tokyo 
Round Codes, but rather refers generally to instruments multilaterally negotiated under the 
"auspices of the GATT". Indeed, given the manner in which negotiations were co nducted during 
the GATT -era, the drafters must have anticipated that additional "codes" or agreements could be 
concluded in the future. Paragraph 2(b) ensured that the application of S&D treatment in respect 
of non -tariff measures governed by any  covered a greement other than the GATT 1947 would not 
be inconsistent with the GATT 1947 itself.  
7.1095.   The Panel notes that since the adoption of the Enabling Clause in 1979, the relationship 
between the different multilateral agreements has been clarified. As explained a bove, the 
provisions of the GATT 1947 have been incorporated into the WTO Agreement as part of the GATT 
1994.1456 The Enabling Clause has also been incorporated into the WTO Agreement as part of the 
                                                
1453 See e.g. Article 13 of the Agreement on Implementation of Arti cle VI of the GATT; Article 14 of the 
Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the GATT; Article I of the Protocol 
to the agreement on Implementation of Article VII of the GATT; Article 12 of the Agreement on Technical 
Barriers to Trade; and Article III of the Agreement on Government Procurement.  
1454 Paragraph 3, Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by 
the Contracting Parties of 28 November 1979, L/4905.  
1455 For example, Article  III:1 and III:2 of the Government Procurement Code indicates that parties to 
the Code shall take into account the "development, financial and trade needs of developing countries" and "in 
the preparation and application of laws, regulations and procedures affecting government procurement, 
facilitate increased imports from developing countries". In implementing this obligation, a GATT Contracting 
Party might have granted more favourable treatment to developing countries than to developed countries, in a 
mann er that some might have argued to be inconsistent with Article I:1 of the GATT 1947.  
1456 See paragraph 7.1090  above.  WT/DS472/R • WT/DS497/R  
 
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  GATT 1994.1457 The Tokyo Round Codes no longer exist, and have been replaced with the 
multilateral agreements indicated in Annex 1 of the WTO Agreement. The General Interpretative 
Note to Annex 1A of the WTO Agreement indicates that if a provision of a covered agreement 
conflicts with the GATT 1994, the other  agreemen t "shall prevail to the extent of the conflict". The 
S&D provisions of the WTO covered agreements therefore prevail over the GATT 1994 (and 
therefore also the Enabling Clause1458). Additionally, it has been clarified that the various 
agreements constituting t he WTO Agreement constitute a single package of rights and obligations 
that should be interpreted harmoniously and coherently.1459 
7.1096.   The Panel, being mindful of its duty not to "add to or diminish the rights and obligations 
provided in the covered agreements", is not in a position to modify the scope of the Enabling 
Clause as it was agreed upon by the GATT Contracting Parties, and subsequently the WTO 
Members, as adopted into the GATT 1994.1460 In light of its findings above, the Panel considers 
that a non -tariff m easure within the scope of paragraph 2(b) must be governed by specific 
provisions on special and differential treatment, that are distinct from the provisions of the GATT 
1994 incorporating the GATT 1947.1461 The provisions of the GATT 1994 that Brazil relies  on here, 
namely Article III:2 and III:4 of the GATT 1994, do not introduce any special and differential 
treatment for taxes in the form of non -tariff measures, are substantively identical to provisions in 
the GATT 1947, and are part of the GATT 1994. Braz il concedes that other than the GATT 1994 
there is no specific WTO covered agreement dealing with internal taxation.1462 Brazil has not 
indicated any provisions governing internal taxes other than Article III:2 and III:4 of the GATT 
1994.  
7.1097.   The Panel therefore  concludes that the tax reductions accorded to imported products from 
Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 
are not justified under paragraph  2(b) of the Enabling Clause.  
7.1098.   The Panel notes that the comp laining parties have also raised concerns regarding whether 
Brazil's justification under paragraph 2(b) could satisfy the substantive requirements of paragraph 
3(a) and 3(b) of the Enabling Clause.1463 Brazil maintains that the relevant differential and more 
favourable treatment is consistent with the substantive requirements of paragraph 3(a) and 
3(b).1464 In light of its findings above, the Panel does not consider it necessary to make findings on 
paragraph 3(a) or 3(b) of the Enabling Clause, in respect of Braz il's asserted justification under 
paragraph  2(b).1465  
7.4.8.4   Brazil's affirmative defence under paragraph  2(c) of the Enabling Clause  
7.1099.   In addition to its argument in respect of paragraph  2(b), in its second written submission 
Brazil indicated that in its view, any differential and more favourable treatment accorded to 
Argentina, Mexico and Uruguay, and found to be inconsistent with Article I:1 of the GATT 1994, is 
                                                
1457 Paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994  into the WTO 
Agreement.  
1458 As indicated, the Enabling Clause has also been incorporated into the WTO Agreement as part of the 
GATT 1994. See footnote 1457. 
1459 Appellate Body Report, Korea – Dairy, para. 74; Appellate Body Report,  Argentina – Footwear (EC), 
para. 81.  
1460 Articles 3.2 and 19.2 of the DSU.  
1461 Indeed, the Panel notes that in the time -period from the adoption of the WTO Agreement up to the 
date of the Panel's establishment, while many notifications to the Committee on Tr ade and Development have 
been made under paragraph 2(a), 2(c) and 2(d), the Panel could find no indication that any WTO Member 
notified any measures as adopted pursuant to paragraph 2(b) of the Enabling Clause.  
1462 See Brazil's second written submission, par a. 174.  
1463 European Union's opening statement at the first meeting, paras. 95 -96; European Union's response 
to Panel questions No. 4 and 54; Japan's response to Panel question No. 54; Japan's comments on Brazil's 
response to Panel question No. 52; Japan's opening statement at the first meeting, para. 42; Japan's response 
to Panel question No. 54; Japan's comments on Brazil's response to Panel question No. 52.  
1464 Brazil's first written submissions, paras. 736 -739 (DS472) and paras. 668 -671 (DS497).  
1465 The Pan el agrees with the European Union that because the measures at issue have not been 
demonstrated to be capable of being "within the scope of the Enabling Clause … it is not necessary to analyse 
into any further detail the provisions of paragraphs 3(a) and ( b) of the Enabling Clause for the purposes of the 
present proceedings." European Union's response to Panel question No. 54.  WT/DS472/R • WT/DS497/R  
 
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  justified under paragraph  2(c) of the Enabling Clause.1466 The Panel notes that the complainants  
have not raised any objection to the timeliness of raising this defence.1467  
7.1100.   Brazil asserts that any tax reductions accorded to motor vehicles from Argentina, Mexico 
and Uruguay, and found to be inconsistent with Article I:1 of the GATT 1994, are justified under 
paragraph 2(c) of the Enabling Clause. Brazil asserts that this differential and more favourable 
treatment was notified to the WTO, as required under paragraph 4(a) of the Enabling Clause, and 
satisfies the substantive requirements in paragraph 3 of the Enabli ng Clause.  
7.1101.   The European Union and Japan argue that with respect to this additional justification, 
Brazil did not comply with the notification requirement contained in paragraph 4(a) of the Enabling 
Clause, and that, in any case, Brazil did not demonstrate  that its measure is covered by 
paragraph  2(c) of the Enabling Clause. The complaining parties also argue that the differential and 
more favourable treatment does not satisfy certain requirements in paragraph 3 of the Enabling 
Clause.1468 
7.1102.   As explained above, paragraph 4(a) of the Enabling Clause states that a Member "taking 
action to introduce an arrangement pursuant to paragraphs 1, 2 and 3 above … shall: (a) notify 
the CONTRACTING PARTIES".  
7.1103.   The Panel recalls that the 1980 Treaty of Montevideo was notified to  the WTO on 1 
July 1982, as adopted pursuant to paragraph  2(c) of the Enabling Clause.1469  
7.1104.   Since Brazil has submitted the notification of the Treaty of Montevideo as adopted 
pursuant to paragraph  2(c), two issues are raised for the Panel's consideration.  
7.1105.   First, the Panel should decide whether the notification of the Treaty of Montevideo and 
the ECAs could substantively serve as a notification of the adoption under paragraph 2(c) of the 
Enabling Clause of the arrangement introducing the differential and more favourable treatment (in 
the form of tax treatment) found to be inconsistent with Article I:1 of the GATT 1994. In other 
words, whether the content and substance of the Treaty of Montevideo and the ECAs would or 
could comply with the notification requireme nts of paragraph 4(a), independently of whether such 
notification was procedurally correct (i.e. sent by the right actor or body, under the right 
procedure, at the right time, etc.). Second, in the event that the Panel considers that these 
agreements inclu de or refer to the appropriate substantive differential and more favourable 
treatment, the Panel must consider whether the notification was procedurally sufficient (i.e. 
whether such notification was sent by the right actor or body, under the right procedu re, at the 
right time, etc.).  
7.1106.   As an initial matter, the Panel notes that paragraph 4(a) does not explicitly indicate what 
precisely is required to be notified (nor who should make the notification).  
                                                
1466 Brazil's second written submission, para. 181.  
1467 The European Union in its responses to question from the panel following the se cond meeting with 
the parties, indicated that in its view "the only defence under the Enabling Clause raised by Brazil in this case 
is under paragraph  2(b) of the Enabling Clause." European Union's response to Panel question No. 53. Brazil's 
second written  submission indicates that Brazil is invoking paragraph  2(c), albeit for the first time. Brazil states 
therein that "the treatment given to certain LAIA Members fell under Articles 2(b) and 2(c) of the Enabling 
Clause", and that "[t]he Measure at issue fal ls under the purview of Article 2(c) of the Enabling Clause". Brazil's 
second written submission, para. 166. Indeed, the European Union in its opening statement at the second 
meeting, as well as in its discussion with the Panel during that second meeting, did discuss paragraph  2(c) and 
presented arguments to rebut Brazil's assertion that the measures could be justified under paragraph  2(c). See 
European Union's opening statement at the second meeting, paras. 54 -58. The Panel therefore does not 
consider that  the European Union's view, as expressed in their responses to questions following the second 
meeting, has any bearing on Brazil's right to invoke paragraph  2(c) at that stage of the proceedings.  
1468 European Union's opening statement at the first meeting, paras. 84 -97; European Union's responses 
to Panel question No. 4; European Union's second written submission, paras. 196 -200; European Union's 
responses to Panel questions No. 53, 54 and 55; Japan's opening statement, paras. 36 -42; Japan's responses 
to Pan el question No. 4; Japan's second written submission, para. 129; Japan's responses to Panel questions 
No. 53, 54 and 55.  
1469 See paragraph 7.1074  above.  WT/DS472/R • WT/DS497/R  
 
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  7.1107.   The Panel recalls Brazil's explanation that the notific ation requirement in paragraph 4(a) 
"requires that when giving enhanced market access to products from developing countries 
[pursuant to the Enabling Clause] the granting Member must notify all WTO Members as to inform 
them about the measures to be taken  [and] … give them the opportunity to question the deviation 
from the MFN obligation ."1470  
7.1108.   In the view of the Panel, in order for all WTO Members to be put on notice as to the 
differential and more favourable treatment being introduced by the adopting Member, there must 
be a clear connection between the RTA itself and the differential and more favourable treatment 
being adopted. In the Panel's view, the differential and more favourable treatment sought to be 
justified under paragraph  2(c) must have a close and genuine link to the arrangement notified to 
the WTO such as to put other WTO Members on notice  as to the adoption of the differential and 
more favourable treatment pursuant to the Enabling Clause. The key question in respect of the 
notification requirement  for paragraph  2(c) is therefore whether the RTA notified to the WTO put 
the rest of the Membership on notice as to the adoption of the particular differential and more 
favourable treatment sought to be justified under paragraph  2(c).  
7.1109.   Applying this standa rd to the current dispute, the Panel recalls that the differential and 
more favourable treatment to be justified under the Enabling Clause consists of internal tax 
reductions applied to motor vehicles imported from Argentina, Mexico and Uruguay. Brazil arg ues 
that these tax reductions "are implementation measures of the Treaty of Montevideo and [we]re 
notified to the WTO by the LAIA Secretariat. INOVAR -AUTO's tax treatment to certain LAIA 
countries is the corollary of these ECAs and does not require further  notification."1471  
7.1110.   In support of its argument, Brazil points to several Articles in the Treaty of Montevideo, 
specifically Article 3(c) and (e)1472, Article 91473, and Article 11.1474 Having reviewed these 
provisions1475 the Panel notes that Article 3(c) and (e) enshri ne certain principles of the LAIA 
integration framework, including an acknowledgement of the potential for LAIA members to adopt 
partial agreements (such as ECAs) between themselves. Article 9 sets forth certain substantive 
                                                
1470 Brazil's first written submissions, para. 741 (DS472) an d para. 673 (DS497). (emphasis added)  
1471 Brazil's second written submission, para. 181. See also Brazil's first written submissions, 
paras.  638-639. 
1472 Brazil's response to Panel question No. 52. Article 3(c) and (e) states:  
In the implementation of this Tre aty and in the advance towards its final objective, the member 
countries shall bear in mind the following principles: … (c) Flexibility, characterized by the 
capacity to allow the conclusion of partial agreements, regulated in a manner compatible with the 
gradual achievement of convergence and the strengthening of ties of integration; … (e) 
Multiplicity, to make possible various types of agreement between member countries, in harmony 
with the objectives and functions of the integration process, using all in struments capable of 
activating and expanding regional markets. Treaty of Montevideo, 1980, (Exhibit BRA -93), 
Article  3. 
1473 Brazil's second written submission, para. 179. Article 9 states:  
Partial agreements shall be subject to the following general rules:  (a) They shall be open for 
accession, after prior negotiations, to the other member countries; (b) They shall contain clauses 
advocating convergence so that their benefits extend to all member countries; (c) They may 
contain clauses advocating convergence  with other Latin American countries, in conformity with 
the mechanisms established in this Treaty; (d) They shall recommend different treatment for the 
three categories of countries recognized by this Treaty; each agreement shall specify the kind of 
treatment to be applied and negotiation procedures for its periodic revision at the request of any 
member country which considers itself at a disadvantage; (e) Tariff reductions may be applied to 
the same products or tariff sub -items and on the basis of a perce ntage reduction in the tariffs on 
imports originating from non -participating countries; (f) They shall be applied for a minimum 
period of one year; and (g) They may include, among others, specific rules regarding origin, 
safeguard clauses, non -tariff restr ictions, withdrawal of concessions, renegotiation of 
concessions, denunciation, co -ordination and harmonization of policies. In the event that such 
specific rules have not been adopted, account will be taken of the provisions adopted by member 
countries on  the matters in question. Treaty of Montevideo, Article 9, (Exhibit BRA -93). 
1474 Brazil's first written submissions, para. 706 (DS472) and para. 638 (DS497). Article 11 states that:  
The economic complementarity agreements shall be designed inter alia to pro mote the maximum 
utilization of the factors of production, to stimulate economic complementarity, to ensure 
equitable conditions of competition, to facilitate the competitiveness of products on the 
international market and to encourage the balanced and har monious development of member 
countries. Treaty of Montevideo, Article 11, (Exhibit BRA -93). 
These agreements shall be subject to the specific rules to be established for this purpose.  
1475 See footnotes 1472, 1473, and 1474 above.  WT/DS472/R • WT/DS497/R  
 
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  rules governing these partial ag reements. Article 11 describes the principles underpinning the 
adoption of the partial agreements.  
7.1111.   Brazil asserts that in pursuit of the objectives of LAIA, as enshrined in the Treaty of 
Montevideo, four specific ECAs were "negotiated under the auspices o f [the Treaty of Montevideo] 
in order to progressively achieve the reduction and elimination of tariff and non -tariff barriers in 
the automotive sector … in line with LAIA's objectives."1476 These ECAs are the MERCOSUR Treaty, 
ECA No. 55 (between Mexico and M ERCOSUR), ECA No. 14 (between Brazil and Argentina), and 
ECA No. 2 (between Brazil and Uruguay).1477 As indicated above, Brazil claims that the differential 
and more favourable treatment accorded to Argentina, Mexico, and Uruguay, is the "corollary of 
these E CAs and does not require further notification."1478 
7.1112.   In the view of the Panel, none of the provisions cited to in the Treaty of Montevideo bear 
the slightest relation in and of themselves, to the internal tax reductions found to be inconsistent 
with Article I: 1 of the GATT 1994. Furthermore, Brazil has not pointed to a single provision of any 
ECA that would attest to the fundamental premise of Brazil's argument, namely that the INOVAR -
AUTO programme is implementing the objectives of the ECAs. Indeed, in its own  review of the 
evidence before it1479, the Panel could not discern any such relationship: the MERCOSUR Treaty is 
completely silent with respect to the automotive industry1480; and while ECAs No. 55, No. 14 and 
No. 2 refer to trade in the automotive sector, they do not refer to internal taxation.1481  
7.1113.   Indeed, in its own review, the Panel notes that ECA No. 55, between MERCOSUR and 
Mexico, indicates that its objective is to "lay the foundations for the establishment of free trade in 
the motor vehicle sector and to pro mote the productive integration and complementation of their 
respective motor vehicle sectors".1482 However, the definition of "free trade" in ECA No. 55 is 
limited to tariff reductions, and the term "tariff" is defined in ECA No. 55 as concerning taxes or 
charges "in connection with importation of goods".1483 Additionally, the 38th Additional Protocol to 
ECA No. 14, in respect of Argentina and Brazil, indicates that "automotive goods shall be placed on 
the market between the parties with a 100% preferential tari ff (0% of ad valorem tariff within the 
area) provided that the origin requirements and the conditions laid down in the Agreements have 
been met".1484 Finally, the 68th Additional Protocol to ECA No. 2, between Uruguay and Brazil, 
indicates that "motor vehicle  products shall be sold between the Parties with 100% (one hundred) 
preference (0% (zero) 'ad valorem' intra -zone tariff), whenever they meet the requirements of 
origin and the conditions set out in this Agreement."1485  
7.1114.   The Panel considers that all of these provisions are indicative of tariff preferences granted 
by Brazil to Mexico, Argentina and Uruguay. However, these provisions do not refer to internal 
taxation. Moreover, the Panel could not find any provision authorizing Brazil to adopt any  
preferential t reatment it wishes towards products imported from those countries. In this respect, 
the Panel notes that the Enabling Clause contains four distinct sub -paragraphs defining its scope of 
application, and that these paragraphs distinguish between "tariff" mea sures (as referred to in 
paragraph 2(a), and the first clause of paragraph 2(c), of the Enabling Clause) and "non -tariff" 
measures (as referred to in paragraph 2(b) and the second clause of paragraph 2(c)). Without 
prejudice to the issue of whether an inte rnal tax measure could be considered a "non -tariff 
measure", the Panel does not consider that internal tax preferences are the same as tariff 
preferences.  
                                                
1476 Brazil's first written submissions, para. 707 (DS472) and para. 639 (DS497). See also Brazil's 
response to Panel question No. 53; Brazil's com ments on other parties' responses to Panel question No. 53.  
1477 Brazil's first written submissions, para. 707 (DS472) and para. 639 (DS497).  
1478 Brazil's second written submission, para. 181.  
1479 The Panel notes the Appellate Body's statement that " it is incu mbent upon a party to identify in its 
submissions the relevance of the provisions of legislation — the evidence — on which it relies to support its 
arguments. It is not sufficient merely to file an entire piece of legislation and expect a panel to discover , on its 
own, what relevance the various provisions may or may not have for a party’s legal position." Appellate Body 
Report, Canada – Wheat Exports and Grain Imports , para. 191.  
1480 Decree 350/1991, (Exhibit JE -163).  
1481 Decree 4,458/2002, (Exhibit JE -164); D ecree 6,500/2008 (Exhibit JE -165); Decree  6,518/2008, 
(Exhibit JE -203); Decree 7,658/2011, (Exhibit JE -204).  
1482 Decree 4,458/2002, (Exhibit JE -164), ECA No. 55, Article 1.  
1483 Decree 4,458/2002, (Exhibit JE -164), ECA No. 55, Article 2.  
1484 Decree 6,500/2008,  (Exhibit JE -165), 38th Additional Protocol to ECA No. 14, Article 9.  
1485 Decree 6,518/2008, (Exhibit JE -203), 68th Additional Protocol to ECA No. 2, Article  3.  WT/DS472/R • WT/DS497/R  
 
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  7.1115.   In the view of the Panel, on the basis of the evidence and arguments before it, other WTO 
Members co uld not have been expected to be informed that Brazil intended to accord internal tax 
reductions to motor vehicles from Argentina, Mexico and Uruguay, and not to motor vehicles from 
other WTO Members. Brazil has not demonstrated how the relevant tax reduct ions found to be 
inconsistent under Article I:1 of the GATT 1994 are related to the RTA that Brazil has notified to 
the WTO (the Treaty of Montevideo) or the ECAs allegedly implementing that RTA.  
7.1116.   As stated in paragraph 7.1105  above, the Panel considers that it would only be necessary 
to rule on whether the notification of the various agreements was procedurally sufficient, in the 
event that the Panel considered that the content of such agreements, as notified, w ould be 
substantively sufficient to satisfy the requirements of paragraph 4(a) of the Enabling Clause. In 
light of its findings above, the Panel does not consider it necessary to rule on the procedural 
aspects of the agreements (in other words, whether the  relevant agreements were notified 
correctly under either the Enabling Clause or the Transparency Mechanism on RTAs).  
7.1117.   Furthermore, the Panel notes that this finding in paragraph 7.1115  above has 
consequences for  the substantive justification under paragraph 2(c) itself. As explained above, to 
satisfy the notification requirement in paragraph 4(a), any differential and more favourable 
treatment adopted under paragraph  2(c) must have a close and genuine link to an RTA sufficient 
to alert other WTO Members to the adoption of such differential and more favourable treatment 
pursuant to the Enabling Clause.1486 In the Panel's view, a similar standard applies in respect of 
the substantive justification under paragraph  2(c) itself. In order for any differential and more 
favourable treatment to be justified under paragraph  2(c) of the Enabling Clause, there must exist 
a close and genuine link to a "regional arrangement entered into amongst less -developed 
contracting parties" ( i.e. an RTA).  
7.1118.   In the present dispute, Brazil has not identified an RTA with a close and genuine link to 
the tax reductions at issue. Brazil has made assertions regarding the Treaty of Montevideo and the 
ECAs, but has not pointed to a provision providing f or tax preferences in those RTAs nor 
demonstrated how the tax reductions at issue are related to those RTAs1487, and therefore how the 
relevant differential and more favourable treatment could be justified under paragraph  2(c).1488 
Since no RTA with a close and genuine link to the relevant differential and more favourable 
treatment has been indicated, it is the Panel's view that Brazil has not met its burden of proof in 
respect of the substantive requirements of paragraph  2(c).  
7.1119.   The Panel also finds that Brazil h as not demonstrated that the arrangements allegedly 
notified to the WTO included the relevant differential and more favourable treatment required to 
be notified to the WTO under paragraph  2(c), pursuant to paragraph 4(a) of the Enabling Clause. 
Therefore, the Panel concludes that the relevant differential and favourable treatment was not 
notified as adopted under paragraph 2(c), as required pursuant to paragraph 4(a).  
7.1120.   Moreover, with respect to the burden of invoking the Enabling Clause, the Panel recalls i ts 
finding in paragraph 7.1068  above to the effect that there was no burden on the complaining 
parties to invoke the Enabling Clause in their panel requests unless the relevant measures were 
notified to the WTO.  In light of its finding that no arrangement with a close and genuine link to the 
tax reductions was notified, the Panel concludes that there was no burden on the complaining 
parties to invoke paragraph  2(c) of the Enabling Clause in their panel requests.  
7.1121.   The Panel therefore concludes that the tax reductions accorded to imported products from 
Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 
are not justified under paragraph  2(c) of the Enabling Clause.  
7.1122.   The Panel  notes that the complaining parties have also raised concerns regarding whether 
Brazil's justification under paragraph 2(c) could satisfy the substantive requirements of paragraph 
                                                
1486 See paragraph 7.1108  above.  
1487 See paragraphs 7.1109  to 7.1115  above.  
1488 The Panel recalls the position of the Appellate Body that "it is incumbent upon a party to identify in 
its submissions the relevance of the provisions of legislation — the evidence — on which it relies to support its 
arguments. It is not sufficient merely to file an entire piece of legislation and expect a panel to discover, on its 
own, what relevance the various provisions may or may not have for a party’s legal position." A ppellate Body 
Report, Canada – Wheat Exports and Grain Imports , para. 191.  WT/DS472/R • WT/DS497/R  
 
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  3(a) and 3(b) of the Enabling Clause.1489 Brazil maintains that the relevant di fferential and more 
favourable treatment is consistent with the substantive requirements of paragraph 3(a) and 
3(b).1490 In light of its findings above, the Panel does not consider it necessary to make findings on 
paragraph 3(a) or (b) of the Enabling Clause,  in respect of Brazil's asserted justification under 
paragraph  2(c).1491  
7.4.8.5   Separate opinion on Brazil's affirmative defence under paragraph 2(c) of the 
Enabling Clause  
7.1123.   One Panelist disagrees with the Panel's findings in paragraphs 7.1112  to 7.1115  above. 
This Panelist notes the following:  
7.1124.   ECA No. 55, between MERCOSUR and Mexico, indicates that its objective is to "lay the 
foundations for the establishment of free trade in the motor vehicle sector and to  promote the 
productive integration and complementation of their respective motor vehicle sectors".1492 This 
Panelist is aware that the definition of "free trade" in ECA No. 55 is limited to tariff reductions, and 
that the term "tariff" is defined in ECA No. 55 as concerning taxes or charges "in connection with 
importation of goods".1493 Nevertheless, ECA No. 55 clearly indicates that certain preferences will 
be granted to motor vehicles imported into Brazil from Mexico.  
7.1125.   Similar reasoning applies to the 38th Add itional Protocol to ECA No. 14, in respect of 
Argentina and Brazil, which indicates that "automotive goods shall be placed on the market 
between the parties with a 100% preferential tariff (0% of ad valorem tariff within the area) 
provided that the origin requirements and the conditions laid down in the Agreements have been 
met", indicating the existence of tariff preferences on motor vehicles imported into Brazil from 
Argentina.1494 
7.1126.   Likewise, the 68th Additional Protocol to ECA No. 2, between Uruguay and Braz il, 
indicates that "motor vehicle products shall be sold between the Parties with 100% (one hundred) 
preference (0% (zero) 'ad valorem' intra -zone tariff), whenever they meet the requirements of 
origin and the conditions set out in this Agreement."1495 This i ndicates the existence of tariff 
preferences on motor vehicles imported into Brazil from Uruguay.  
7.1127.   In the view of this Panelist, such references in these agreements to tariff preferences are 
sufficient to put Members on notice that, at a minimum, motor veh icles imported into Brazil from 
Mexico, Argentina and Uruguay will be treated differently to motor vehicles imported into Brazil 
from other Members. Furthermore, the Treaty of Montevideo explicitly refers to "regional economic 
integration", and provides fo r "partial agreements" for this purpose.1496 Therefore, it is reasonable 
for Members to assume that such preferences would not be limited to fiscal measures applied at 
the border, but could potentially include internal fiscal measures. Thus, on the basis of t he tariff 
preferences clearly and explicitly indicated in these agreements, and in light of the provisions of 
the Treaty of Montevideo, Members could be presumed to be informed that motor vehicles 
imported into Brazil from Mexico, Argentina and Uruguay may  be subject to a differential tax 
burden.  
7.1128.   This Panelist therefore disagrees with the Panel's conclusion on this issue in paragraph  
7.1119  above, and considers that the ECAs are indeed substantively sufficient to satisfy the 
notification obligation in paragraph 4(a) of the Enabling Clause.  
                                                
1489 European Union's opening statement at the first meeting, paras. 95 -96; European Union's response 
to Panel questions No. 4 and 54; Japan's response to Panel question No. 54; Japan 's comments on Brazil's 
response to Panel question No. 52; Japan's opening statement at the first meeting, para. 42; Japan's response 
to Panel question No. 54; Japan's comments on Brazil's response to Panel question No. 52.  
1490 Brazil's first written submiss ions, paras. 736 -739 (DS472) and paras. 668 -671 (DS497).  
1491 As indicated above, the Panel agrees with the European Union that because the measures at issue 
have not been demonstrated to be capable of being "within the scope of the Enabling Clause … it is n ot 
necessary to analyse into any further detail the provisions of paragraphs 3(a) and (b) of the Enabling Clause 
for the purposes of the present proceedings." European Union's response to Panel question No. 54.  
1492 Decree 4,458/2002, (Exhibit JE -164), ECA N o. 55, Article 1.  
1493 Decree 4,458/2002, (Exhibit JE -164), ECA No. 55, Article 2.  
1494 Decree 6,500/2008, (Exhibit JE -165), 38th Additional Protocol to ECA No. 14, Article 9.  
1495 Decree 6,518/2008, (Exhibit JE -203), 68th Additional Protocol to ECA No. 2, Artic le 3.  
1496 See Treaty of Montevideo, 1980, (Exhibit BRA -93), Article 3(c) and (e), Article 9, and Article 11.  WT/DS472/R • WT/DS497/R  
 
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  7.1129.   Furthermore, in the view of this Panelist, regardless of whether and how these 
agreements were notified to the WTO, Brazil has at a minimum demonstrated that the European 
Union and Japan were  informed that the Treaty of Montevideo, the MERCOSUR Agreement, and 
the relevant ECAs were adopted pursuant to paragraph 2(c) of the Enabling Clause. Specifically, 
the documentation provided by Brazil demonstrates that, although the European Union and Jap an 
may dispute the form of the notification, the WTO Membership was informed of the adoption of the 
relevant ECAs pursuant to paragraph 2(c) of the Enabling Clause.1497 This Panelist therefore 
considers that the European Union and Japan were sufficiently on n otice that the Enabling Clause 
might be invoked by Brazil, a signatory to those ECAs, as a defence to a claim under Article I:1 of 
the GATT 1994, in respect of preferences granted to the signatories to those ECAs.  
7.1130.   This Panelist further recalls the Panel's  finding in paragraph 7.1068  above that, based on 
the Appellate Body's findings in EC – Tariff Preferences , "the burden of invoking the Enabling 
Clause is placed on the complaining party in situations where the complaining party is on notice 
that the challenged measure was adopted (and in the view of the adopting member, justified) 
under the Enabling Clause".  
7.1131.   In light of the considerations above, this Panelist concludes that the European Union and 
Japan were und er an obligation to include the relevant provisions of the Enabling Clause within 
their respective panel requests. In the view of this Panelist, the failure of the complaining parties 
to include the Enabling Clause in their panel requests means that their claims under Article I:1 of 
the GATT 1994 are outside the Panel's terms of reference.  
7.5  The PEC and RECAP programmes  
7.5.1   Claims under Article 3.1(a) of the SCM Agreement  
7.5.1.1   Overview  
7.1132.   The complaining parties have raised claims under Article 3.1(a) of the SCM Agreem ent 
with respect to two programmes: the Regime for Predominantly Exporting Companies (PEC 
programme) and the Special Regime for the Purchase of Capital Goods for Exporting Companies 
(RECAP programme).  
7.1133.   As will be explained in detail below, Article 3.1(a) of  the SCM Agreement prohibits 
subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon 
export performance.  
7.1134.   The Panel recalls that under the PEC programme, a legal person registered as a 
"predominantly exporting com pany" is entitled to the suspension of the IPI tax on its purchases of 
raw materials, intermediate goods and packaging materials. The IPI tax suspension expires, and 
the IPI tax becomes definitively non -due, with the export or domestic sale of products in which 
those purchased raw materials, intermediate goods and packaging materials have been "used in 
the manufacture" or "incorporated".1498 
7.1135.    Also, under the PEC programme, a legal person accredited as a predominantly exporting 
company is entitled to the suspen sion of the PIS/PASEP and COFINS contributions, or PIS/PASEP -
importation and COFINS -importation contributions, on its purchases of raw materials, intermediate 
goods and packaging materials. T he suspension becomes definitive, and the PIS/PASEP, COFINS, 
PIS/PASEP -importation and COFINS -importation contributions become definitively non -due, upon 
exportation or sale in the domestic market of the final goods incorporating the raw materials, 
intermediate goods and packaging materials.1499 
7.1136.   For purposes of the IPI tax  suspension under the PEC programme, a predominantly 
exporting company is a legal person whose gross revenue derived from exports to other countries 
during the calendar year immediately prior to the year of purchase, exceeded 50 per cent of its 
                                                
1497 See Communication from LAIA, (Exhibits BRA -114 and BRA -115) (referring inter alia to documents 
L/5342; L/6985; WT/COMTD/77; WT/COMTD/72; and WT/C OMTD/82).  
1498 See para graphs  2.150  to 2.152  above.  
1499 See paragraphs  2.150  to 2.152 above.  WT/DS472/R • WT/DS497/R  
 
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  total gross  revenue from the sales of goods and services over the same period, after taxes and 
other contributions on the sales.1500 
7.1137.   Also, for purposes of the suspensions of PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contribution s, under the PEC programme, a 
predominantly exporting company is a legal person whose gross revenue from exports, in the 
calendar year immediately before that of the purchase, was equal to or greater than 50 per cent of 
its total gross revenue from the sal e of goods and services in the same period, after taxes and 
contributions levied on sales.  Companies which have not yet attained the 50 per cent export 
threshold can be entitled to the suspension if they commit to reach and maintain the required 
export lev el for a period of three calendar years.1501 
7.1138.   Under the RECAP programme, a legal person accredited as a "predominantly exporting 
company" is entitled to the suspension of the PIS/PASEP and COFINS contributions, or PIS/PASEP -
Importation and COFINS -Importation c ontributions, on its purchases of new machinery, 
apparatuses, instruments and equipment. The suspension becomes a zero rate once the export 
commitments have been achieved.1502 
7.1139.   For purposes of the RECAP programme, a predominantly exporting company is a legal 
person whose gross revenue from exports was 50 per cent of, or greater than, its total gross 
revenue derived from sales of goods and services in the calendar year immediately preceding the 
year in which it became a member in the scheme. A legal person just starting operations, or who 
does not meet the export target, may qualify for the suspension by committing to achieve export 
sales equal to or greater than fifty per cent of its total gross revenue derived from the sale of 
goods and services over a period o f three calendar years.1503 
7.1140.   The European Union and Japan argue that the tax suspensions granted to registered or 
accredited companies under the PEC and RECAP programmes are subsidies within the meaning of 
the SCM Agreement, as they constitute financial contri butions in the form of government revenue 
otherwise due that is foregone or not collected, through which a benefit is conferred.1504 
7.1141.   The European Union and Japan also argue that the alleged subsidies granted under the 
PEC and RECAP programmes are contingent u pon export performance. The European Union and 
Japan submit that, to be entitled to the tax suspensions under both programmes, companies must 
be accredited as predominantly exporters and this requirement constitutes a contingency upon 
export performance.1505 The European Union submits that its challenge is not concerned with the 
question of whether or not WTO Members may, under the SCM Agreement, implement measures 
to exempt from indirect taxes upstream stages in the supply chain of goods for export.1506 
7.1142.   Brazil r ejects that the tax suspensions granted to registered or accredited companies 
under the PEC and RECAP programmes constitute financial contributions in the form of revenue 
foregone by the government, through which a benefit is conferred.1507 
7.1143.   Brazil contends th at there is neither revenue foregone nor any benefit with the tax 
suspensions granted to registered or accredited companies under the PEC programme. Brazil 
argues that, according to the principle of non -accumulation in the Brazilian tax system, the 
payment s of taxes and contributions on the sales of raw materials, intermediate goods and 
packaging materials  are neutral in terms of tax collection. Brazil argues that, according to the 
mechanism of credits and debits under the principle of non -accumulation, the  companies that 
                                                
1500 See paragraphs  2.155  to 2.156  above.  
1501 See paragraphs  2.157  to 2.158  above.  
1502 See paragraphs  2.165  to 2.166  above.  
1503 See paragraphs  2.169  to 2.171  above.  
1504 European Union's first written submission, paras. 1184 -1206 and 1227 -1247; Japan's first written 
submission, paras. 567 -569 and 586 -593; European Union's second written submission, paras. 507 -522 and 
531-548; Japan's second written submission, paras. 178 -188. 
1505 European Union's first written submission, paras. 1207 -1215 and 1248 -1252; Japan's first written 
submission, paras. 570 -572 and 594 -595; European Union's second written submission, paras. 523 -525 and 
549-550; Japan's second wr itten submission, para. 189.  
1506 European Union's first written submission, paras. 1166 and 1219.  
1507 Brazil's first written submissions, paras. 803 -805 and 859 (DS472) and 714 -715 and 763 (DS497); 
Brazil's second written submission paras. 206 -207 and 250 -251. WT/DS472/R • WT/DS497/R  
 
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  purchase raw materials, intermediate goods and packaging materials  generate tax credits when 
they pay the IPI tax and the PIS/PASEP and COFINS contributions to the seller. These companies 
can later offset the credits generated by the taxes and contributions paid, against debits from the 
same taxes and contributions. If the companies do not generate enough tax debits to fully offset 
the credits, they can ask for compensation or reimbursement. Brazil submits, however, that asking 
for compensat ion or reimbursement is burdensome for both the government and the taxpayers. 
Brazil explains that the tax suspensions are, thus, a tax administration measure to prevent the 
accumulation of tax credits by companies whose final products are exempted or subj ect to low 
taxation, and that are unable to generate enough tax debits to offset the tax credits generated.1508 
7.1144.   Brazil similarly contends that there is neither revenue foregone nor any benefit with the 
tax suspensions granted to accredited companies under the  RECAP programme. Brazil argues that, 
according to the principle of non -accumulation in the Brazilian tax system, the payments of taxes 
on the sales of new machinery, apparatuses, instruments and equipment  are neutral in terms of 
tax collection. Brazil arg ues that, according to the mechanism of credits and debits under the 
principle of non -accumulation, the companies that purchase new machinery,  apparatuses, 
instruments and equipment  generate tax credits when they pay the PIS/PASEP and COFINS 
contributions to the seller. These companies can later offset the credits generated by the taxes and 
contributions paid, against debits from the same taxes and contributions. If the companies do not 
generate enough tax debits to fully offset the credits, they can ask fo r compensation or 
reimbursement. Brazil submits, however, that asking for compensation or reimbursement is 
burdensome for both the government and the taxpayers. Brazil explains that the tax suspensions 
are, thus, a tax administration measure to prevent the  accumulation of tax credits by companies 
whose final products are exempted or subject to low taxation, and that are unable to generate 
enough tax debits to offset the tax credits generated.1509 
7.1145.   Brazil also submits that the requirement for accreditation does not reflect contingency 
upon export performance, but an objective value for the threshold dividing structural ly credit -
accumulating companies from those that do not accumulate tax credits. Brazil submits that the 
companies whose percentage of total gross r evenue derived from export is around 45% to 50% 
accumulate tax credits with their purchases of inputs and capital goods, and do not generate 
enough tax debits thereafter to offset those tax credits. Brazil submits that this 50% requirement 
is the threshold  dividing structural ly credit -accumulating companies from those that are able to 
offset their tax credits with tax debits.1510 
7.1146.   In order to determine whether the tax suspensions granted to registered or accredited 
companies under the PEC and RECAP programmes a re inconsistent with Article 3.1(a) of the SCM 
Agreement, the Panel will assess:  
a. First, whether the tax suspensions granted under the PEC and RECAP programmes 
constitute subsidies, i.e., whether the tax suspensions granted under the PEC and RECAP 
programme s constitute financial contributions by the Brazilian Government, in the form 
of "government revenue that is otherwise due is foregone or not collected", through 
which a benefit is conferred; and  
b. Second, if the Panel concludes that the tax suspensions gran ted under the PEC and 
RECAP programmes constitute subsidies within the meaning of the SCM Agreement, 
whether those subsidies are contingent upon export performance and thus 
prohibited.1511 
                                                
1508 Brazil's first written submission, paras. 803 -845 (DS472) and 716 -751 (DS497); Brazil's second 
written submission paras. 208 -242. 
1509 Brazil's first written submission, paras. 859 -865 (DS472) and 764 -765 (DS497); Brazil's second 
written submission, para s. 250 -251. 
1510 Brazil's first written submission, paras. 846 -852 and 866 -867 (DS472) and 752 -758 and 768 -769 
(DS497); Brazil's second written submission paras. 243 -249 and 250 -251. 
1511 As will be explained in paragraphs 7.497  to 7.498  above, pursuant to Article 2.3 of the SCM 
Agreement, consideration of the question of contingency also will address whether the subsidies are specific in 
the sense argued by the complaining parties (the complaining parties make no claims or arguments in respect 
of any other mode of specificity.)  WT/DS472/R • WT/DS497/R  
 
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  7.5.1.2   Whether the tax suspensions granted under the PEC and RECAP programmes  
constitute subsidies within the meaning of the SCM Agreement  
7.1147.   The Panel recalls from section 7.3.5.3  above that, pursuant to the relevant part of Article 
1 of the SCM Agreement, a subsidy will exist in the case at issue, if:  
a. there is a financial contribution by a government, in the form of government revenue 
otherwise due that is foregone or not collected; and  
b. a benefit is thereby conferred.  
7.1148.   With respect to the term financial contribution, the Panel recalls fr om section 7.3.5.3.1  
above that, in order to assess whether "government revenue that is otherwise due is foregone or 
not collected", the panel must:  
a. First, identify the tax treatment that applies to the income o f the alleged recipients, 
considering the objective reasons behind that treatment.  
b. Second, identify a benchmark for comparison, i.e. the tax treatment of comparable 
income of comparably situated taxpayers. This will involve an examination of the 
structure of the Member's domestic tax regime and its organizing principles.  
c. Third, compare the challenged tax treatment, and its reasons, with the identified 
benchmark tax treatment. Such a comparison will enable a panel to determine whether 
the government is fore going revenue that is otherwise due in relation to the income of 
the alleged recipients.1512 
7.1149.   With respect to the concept of benefit, the Panel also recalls that in those cases where a 
financial contribution has been found to exist in the form of the foregoing  of revenue otherwise 
due, the conclusion that a benefit exists has been made with little difficulty because a tax break is 
essentially a gift from the government, or a waiver of obligations due, and it is clear that the 
market does not give such gifts.1513 
7.1150.   Because this dispute involves products for export, it is important to note that footnote 1 
of the SCM Agreement states as follows:  
In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) 
and the provisions of Annexes I through I II of this Agreement, the exemption of an 
exported product from duties or taxes borne by the like product when destined for 
domestic consumption, or the remission of such duties or taxes in amounts not in 
excess of those which have accrued, shall not be de emed to be a subsidy.  
7.1151.   In this respect, the Appellate Body in US – FSC explained that the tax measures identified 
in footnote 1 as not constituting a subsidy involve the exemption of exported products from 
product -based consumption taxes.1514 
7.1152.   Thus, in the Pane l's analysis of whether the tax suspensions constitute financial 
contributions in the form of "government revenue that is otherwise due is foregone or not 
collected", through which a benefit is conferred, the Panel will also assess to what extent the tax 
suspensions affecting exported products may fall within the provisions of footnote 1 of the SCM 
Agreement, and thus fall outside the scope of the SCM Agreement.  
                                                
1512 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. 
1513 Panel Report,  US – Large Civil Aircraft (2nd complaint) , paras.  7.169 -7.171. See also: Panel 
Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , fn 509; US – FSC, para. 7.103; and 
US – FSC (Article 21.5 – EC), paras. 8.44 -8.48; and Appellate Body Reports, US – FSC, para. 140; and US – 
FSC (Article 21 .5 – EC), para. 198.  
1514 Appellate Body Report, US – FSC, para. 93.  WT/DS472/R • WT/DS497/R  
 
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  7.5.1.2.1   Whether the tax suspensions granted under the PEC and RECAP programmes 
constitute financial cont ributions in the form of "government revenue that is otherwise 
due is foregone or not collected"  
7.1153.   As explained in paragraph 7.1148  above, in order to assess whether the tax suspensions 
granted under the PEC and R ECAP programmes constitute financial contributions in the form of 
"government revenue that is otherwise due is foregone or not collected", the Panel needs to 
respond to the following questions: a) What is the challenged tax treatment that applies to the 
income of the alleged recipients, and what are the objective reasons behind this treatment? b) 
What is the benchmark treatment or tax treatment of comparable income of comparably situated 
taxpayers? And, c) What is the difference between the challenged tax t reatment, and its reasons, 
with the identified benchmark tax treatment?1515 
7.5.1.2.1.1   What is the tax treatment that applies to the income of the alleged 
recipients, and what are the objective reasons behind this treatment?  
7.1154.   As described in paragraphs 7.1134  to 7.1139  above, the tax treatment applicable to the 
PEC recipients is the tax suspension, and ultimate exemption (when the final product is exported 
or sold in the domestic ma rket), of the IPI tax and the PIS/PASEP, COFINS, PIS/PASEP -
importation and COFINS -importation contributions on the purchase of raw materials, intermediate 
goods and packaging materials.1516 
7.1155.   The tax treatment applicable to the RECAP recipients is the tax suspe nsion, and ultimate 
exemption (when the final product is exported or sold in the domestic market), of the PIS/PASEP, 
COFINS, PIS/PASEP -importation and COFINS -importation contributions on the purchase of new 
machinery, apparatuses, instruments and equipment .1517 
7.1156.   The Panel recalls that, as explained in paragraph 7.406  above in the context of the ICT 
programmes, the case at issue involves a range of different tax treatments, and each of the 
examined programmes provides  a different package of suspensions from one or more particular 
types of tax. In the Panel's view, these different tax treatments can be best classified and 
identified for purposes of determining whether revenue that is otherwise due is foregone or not 
collected and a benefit thereby is conferred in these specific programmes on the basis of (i) the 
tax at issue and (ii) whether the tax suspensions are on the purchases of inputs1518 or capital 
goods1519. Based on these criteria, the Panel has grouped the tax treat ments for PEC and RECAP 
programmes into the following categories:  
a. The IPI tax suspensions on purchases of raw materials, intermediate goods and 
packaging materials (for purposes of PEC).  
b. The suspensions of the PIS/PASEP and COFINS contributions, or PIS/PA SEP-importation 
and COFINS -importation contributions, on purchases of raw materials, intermediate 
goods and packaging materials (for purposes of PEC); and  
c. The suspensions of the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation 
and COFINS -import ation contributions, on purchases of new machinery, apparatuses, 
instruments and equipment that will be incorporated into the fixed assets of the 
accredited company (for purposes of RECAP),  
7.1157.   The Panel recalls that the Appellate Body in US – Large Civil Air craft (2nd complaint) 
explained that the identification of the tax treatment that applies to the income of the alleged 
recipients will entail consideration of the objective reasons behind that treatment and, where it 
involves a change in a Member's tax rul es, an assessment of the reasons underlying that 
change.1520 
                                                
1515 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -815. 
1516 See paragraphs 2.150  to 2.152  above.  
1517 See paragraphs 2.165  to 2.166  above.  
1518 Raw materials, intermediate goods and packaging materials.  
1519 New machinery, apparatuses, instrument s and equipment.  
1520 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 812.  WT/DS472/R • WT/DS497/R  
 
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  7.1158.   The European Union and Japan submit that the objective for the tax treatment at issue 
under both programmes is to increase the competitiveness of national companies through better 
cash availability conditions for exporting companies.1521 Brazil, in turn, argues that the reason for 
the tax treatment is to avoid the accumulation of credits by companies that will not be able to 
offset taxes paid with other debits.1522 
7.1159.   With respect to the PEC programme, Explan atory Memorandum No. 00211 of 29 August 
2002 by the Ministry of Finance describes the aim of the programme as follows:  
Article 31 establishes a suspension of the Imposto sobre Produtos Industrializados 
(IPI), with respect to mentioned products, in order to  avoid the accumulation of 
credits, which implies providing for better operating conditions and cash flow for 
domestic companies, making them more competitive, including by reducing the prices 
of their products. Such suspension is appropriate for predomina ntly exporting 
companies in the terms and conditions to be established by the Secretariat of the 
Federal Revenue (Secretaria da Receita Federal), with a view to supporting national 
export activities.1523 
7.1160.   With respect to the RECAP programme, Interministerial E xplanatory Memorandum No. 
00084/2005 by the Ministry of Finance and the Ministry of Development, Industry and Trade 
describes the aim of the programme as follows:  
The creation of RECAP aims at encouraging investment on production and improving 
exports by c orrecting the distortions that generate a cost on the capital goods of 
predominantly exporting companies. This scheme suspends the incidence of the 
contribution to PIS/PASEP and of COFINS on sales and imports of new machines, 
appliances, instruments and eq uipment, listed in a regulation, when purchased by 
predominantly exporting companies. Like the REPES, the RECAP aims at eliminating 
the accumulation of PIS and COFINS credits for exporters, complementing the scheme 
already established by Article 40 of Law No. 10,865 of 30 April 2004, which suspends 
the levying of the contribution with regard to the sales of raw materials, intermediary 
products and packaging materials when they are destined to predominantly exporting 
legal persons.1524  
7.1161.   Also, Interministerial E xplanatory Memorandum No. 00025/2012 explains that , with 
respect to the reduction to 50% of the percentage of total revenue required to be derived from 
exports in order for a company to qualify as a predominantly exporting company:  
By extending the concep t of predominantly exporting company to those who export 
50% of their gross revenue, including those applying to […]Recap, almost all Brazilian 
companies that generate credits to be reimbursed in kind in relation to their export 
activities are covered. Thu s, it is expected that, at least at the federal level, the 
accumulation of export credits loses relevance. […] Finally, the adoption of a measure 
that contributes to solve the serious problem of accumulation of tax credits arising 
from exports, which erode s the working capital of exporting companies and reduces 
their competitiveness, undoubtedly makes this proposal for a provisional measure to 
meet the requirements of emergency and relevance.1525 
7.1162.   In the Panel's view, both the complaining parties and Brazil are  correct regarding the 
objective reasons behind the tax treatment. The Panel finds that there is evidence demonstrating 
that the objective reasons for the tax treatment is to tackle the problem of credit -accumulation, 
and in so doing to increase the compet itiveness of Brazilian companies.  
                                                
1521 European Union's first written submission, para. 1154; Japan's opening statement at the first 
meeting of the Panel, para. 24.  
1522 Brazil's first written submis sion, paras. 757 -759 (DS472) and 690 -692 (DS497); Brazil's opening 
statement at the first meeting of the Panel, para. 17.  
1523 See paragraph 2.162  above.  
1524 See paragraph 2.175  above.  
1525 See paragraph 2.176  above.  WT/DS472/R • WT/DS497/R  
 
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  7.1163.   The Panel will address later the evidence before it in respect of these arguments, and 
whether the alleged reasons affect the comparison between the challenged tax treatment and the 
benchmark treatment.  
7.5.1.2.1.2   What are the relev ant benchmark treatments and the difference between 
each of the challenged treatments and the identified benchmark tax treatments?  
7.1164.   The Panel will address separately the specific benchmark for each of the three categories 
of tax treatments previously identi fied. In so doing, the Panel notes that the challenged tax 
treatments are "suspensions" of economy -wide taxes that apply, in principle, to all transactions by 
all businesses. As will be explained in detail below, on the basis of the evidence before the Pan el 
and the analytical framework set forth above, in every instance the Panel finds that the 
benchmarks to be applied are the economy -wide tax treatments from which the suspensions are 
taken or, in other words, the tax treatment applicable to non -accredited  companies.  
a. The IPI tax suspensions on purchases of raw materials, intermediate goods and 
packaging materials (for purposes of PEC).  
The benchmark treatment  
7.1165.   Brazil argues that the IPI tax suspensions are the benchmark treatment for structura lly 
credit -accumulating companies, including the predominantly exporting companies. For Brazil, the 
suspension of taxes is the rule for credit -accumulating companies, and not an exception to the 
rule.1526 
7.1166.   The European Union and Japan argue, in turn, that Brazil has failed t o prove the 
existence of a rule in Brazil's taxation system, according to which "predominantly credit -
accumulating companies" are not subject to taxation with regard their acquisition of inputs. The 
complaining parties argue that the correct benchmark shou ld include all domestic companies that 
pay the taxes suspended by these programmes.1527  
7.1167.   The Panel agrees with Brazil that there are other companies, in addition to the companies 
accredited or registered as predominantly exporting companies, which are entitle d to the IPI tax 
suspension on the purchase of raw materials, intermediate goods and packaging materials.  
Indeed, according to Article 29 of Law 10,637/2002, the tax suspension also applies to 
establishments dedicated primarily to the manufacture of produc ts classified in Chapters 2, 3, 4, 7, 
8, 9, 10, 11, 12, 15, 16, 17, 18, 19, 20, 23, 28, 29, 30, 31 and 64, under code 2209.00.00 and 
2501.00.00, and at positions 21.01 to 21.05.00 of the Industrial Goods Tax Classification Table; 
industrial establishments which primarily manufacture components, chassis, bodies, parts and 
pieces of automotive products; industrial establishments which primarily manufacture parts and 
pieces intended for the aerospace industry; and industrial establishments which primarily 
manu facture the goods benefiting from the informatics programme.1528 The suspension also 
applies to companies qualified under  the Special Regime for the Brazilian Aerospace Industry 
RETAERO and the Special Regime to Incentive Computers for Educational Use (REIMCO MP).1529 
However, in the Panel's view, the selection by the Brazilian Government  of companies entitled to 
the IPI tax suspensions does not seem to be directly linked to the problem of credit -accumulation, 
so as to create a general rule for structural ly or pre dominantly credit accumulating companies.  
Nothing in the text of Law 10,637/2002 or in the evidence on the record seems to suggest that the  
other companies to which the tax suspension s apply are structural credit accumulators, or that the  
tax suspension s in Article 29 of Law 10,637/2002 , and in the rules for the REATERO AND 
REIMCOMP regimes,  were created to tackle the problem of structural credit accumulation for these 
companies.  
7.1168.   Also, there are producers of low taxed products (more likely to accumulate tax  credits) 
that are not entitled to tax suspensions, and producers of high er taxed products (less likely to 
accumulate tax credits) that are entitled to such tax suspensions, contrary to Brazil's allegations 
                                                
1526 Brazil's first written submission, paras. 812 -818 and 860 -861 (DS472) and 725 -729 and 764 -765 
(DS497).  
1527 European Union's and Japan's responses to Panel question N o. 41.  
1528 Law 10,637/2002, (Exhibit JE -94).  
1529 See Brazil's response to Panel question No. 21.  WT/DS472/R • WT/DS497/R  
 
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  that the tax suspensions are the rule for structu rally credit accumulating companies.  As 
exemplified by the European Union in Exhibit JE -235, an examination of the products for which the 
IPI tax is suspended or exempted pursuant to Article 29 of Law 10,637/2002  indicates that there is 
no pattern of suspe nding the IPI tax only for products with no or low taxation. As can be seen 
from Exhibit JE -235, many of the products that are subject to special regimes are subject to a tax 
rate of 5%, 10%, 20% and ev en 30% and, for instance, Chapters 50 to 54 of the TIP I are subject 
to 0% rate and are not covered by Article 29 of Law 10,637/2002.1530 
7.1169.   Finally, there are credit -accumulating companies not entitled to the tax suspensions , 
which puts further into question the existence of a general rule for credit accumulators . For 
example, as Japan explained1531, companies that export products but do not reach the 50% 
threshold of gross revenue derived from exports can be credit accumulators and yet cannot benefit 
from the tax suspensions .  
7.1170.   In this respect , Brazil explains  that a specific good  "can have its rates reduced to a point 
where the company will accumulate credits, but this tax situation cannot be predicted. Such 
companies request this suspension and are included. By the same token, a company may become 
a credit accumulatin g company if the goods it produces suddenly have lower taxation. In this 
sense it is not possible to predict as a general rule and for all situations when a company that 
accumulates credits becomes a structurally credit accumulating company"1532 However,  the Panel 
is not convinced that the availability of suspens ions for the companies mentioned in paragraph 
7.1167  above  is sufficient to prove the existence of a general rule for structurally or predominantly 
credit accumulating comp anies. 
7.1171.   In light of the above, the Panel finds that Brazil has not demonstrated that the tax 
suspensions are the benchmark treatment for structurally credit -accumulating companies. As the 
Panel is not convinced by Brazil's proposed benchmark treatment, it w ill continue with its task of 
identifying the benchmark treatment, taking into account the complaining parties' position that the 
benchmark treatment should include all domestic companies that pay the taxes suspended by this 
programme.  
7.1172.   In this respect, th e Panel considers that in the case at issue the appropriate benchmark 
treatment is the treatment applicable to purchases by non -accredited companies of raw materials, 
intermediate goods and packaging materials that will be used by those companies to manufa cture 
their products, i.e. the obligation to pay the full amount of the applicable IPI tax rate on the 
purchases of raw materials, intermediate goods and packaging materials used to manufacture 
products, subject to the mechanism of credits and debits under  the principle of non -accumulation. 
In particular, the accredited and non -accredited companies purchasing the raw materials, 
intermediate goods and packaging materials used to manufacture their products are identically 
situated, except for the fact of accr editation. Brazil has not demonstrated the existence of any 
other difference that could explain the differential IPI tax treatment of these products. Thus, the 
treatment applicable to purchases by non -accredited companies of raw materials, intermediate 
goods and packaging materials used in the manufacture of their products can be considered as the 
benchmark treatment or normal rule of general application.  
Comparison  
7.1173.   The Panel now compares the IPI tax suspensions granted to accredited companies on 
their pur chases of raw materials, intermediate goods and packaging materials, under the PEC 
programme, with the benchmark treatment identified in the previous paragraph, i.e. the treatment 
applicable to purchases by non -accredited companies of raw materials, interm ediate goods and 
packaging materials.  
7.1174.   The Panel notes that under the benchmark treatment, the seller of the raw materials, 
intermediate goods and packaging materials will always charge the IPI tax to the non -accredited 
company buying the products, at the m oment of the sale, and the non -accredited company buying 
the products will accrue a tax credit in the amount of the IPI tax paid. The seller then will remit to 
the Federal Revenue Service the amount of IPI tax charged, when it pays its monthly liabilities due 
                                                
1530 European Union's response to Panel question No. 41, para. 156.  
1531 Japan's response to Panel question No. 41, para. 59.  
1532 Brazil's response to Panel question No.  21. WT/DS472/R • WT/DS497/R  
 
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  on the 25th day of the month following the transaction. In turn, the non -accredited company 
buying the products will be allowed to use the credit it has accrued to offset its IPI tax debits when 
it pays its monthly liabilities due on the 25th day of th e month following the transaction, i.e. 
during the same taxation period where the seller pays the tax to the Brazilian Government.1533 
However, if the non -accredited company buying the products is not able to offset the credit 
accrued with other debits during  that taxation period, it will be allowed to offset it during 
subsequent taxation periods1534. If the non -accredited company buying the products is not able to 
offset the credit after t hree taxation periods, it will be allowed to ask the Brazilian Government for 
compensation with other Federal debits, or reimbursement, within five years of the accrual of the 
credit.1535 The Brazilian Government has, by law, 360 days to respond to the request for 
compensation or reimbursement. If the Brazilian Government does not respond within 360 days, 
the non -accredited company buying the products will be entitled to receive the compensation or 
reimbursement from the Government, as well as the interests generated.1536 It is fairly common 
that companies are not able to offset the fu ll amount of their credits and have to request 
compensation or reimbursement, so this scenario seems rather frequent.1537 
7.1175.    Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, t he Government will receive the full amount of 
IPI tax due from the seller and the non -accredited company buying the products will be able to 
offset the amount of IPI tax paid during the same taxation period. However, if the non -accredited 
company buying th e products is not able to offset the credit during the same taxation period, the 
Brazilian Government will retain the amount of tax paid by the seller until the non -accredited 
company buying the products is able to offset it ( during subsequent taxation per iods); or until the 
Brazilian Government compensates or reimburses the face amount of the credit, without interest, 
to the non -accredited company buying the products (within 360 days of the date of the request for 
compensation or reimbursement). Under this  second scenario, the Brazilian Government thus will 
hold the advantage of cash availability or cash flow, along with the associated implicit interest 
income (revenue) that could be generated on the full amount of that tax that it has collected from 
the se ller.1538 This cash availability and associated implicit interest can last from one taxation 
period1539 (if the non -accredited company is able to offset the credit during the second taxation 
period) to 360 days after the request for compensation or reimbursement  (if the non -accredited 
company requests it). During this period, the government is able to make use of the taxes 
received (i.e., "earning" implicit interest). So long as the compensation or reimbursement is made 
to the non -accredited company buying the pr oducts within 360 days after the request, the 
Brazilian Government will not have to pay the non -accredited company buying the products any 
interest on the use of the buyer's money during that period. Only if 360 days are surpassed is the 
government obligat ed to compensate or repay to the non -accredited company buying the products 
not just the face amount of the credit but also the associated interest. Thus, it is only after 360 
days that the government would no longer enjoy the implicit interest revenue fro m the free use of 
the buyer's money that is blocked in the form of its credit.1540 
                                                
1533 See paragraphs 2.16 to 2.17 above.  
1534 See paragraphs 2.19 to 2.20 above.  
1535 See paragraph 2.20 above.  
1536 See paragraph 2.20 above.  
1537 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxati on, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's f irst written submission, paras. 758 (DS472) and 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFI NS, IPI and/or ICMS 
accumulated and not refunded for a period over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). Exporters_2012 study 
on Brazilian exports – delays in refunds (Exhibit JE -186), p. 55; and European Union's first written submission, 
fn 849.  
1538 According to the European Union, the benchmark rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writ ing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
1539 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
1540 See paragraph 2.20 above and Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 
– SP (2012/0095341 -6) (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: if there is a claim WT/DS472/R • WT/DS497/R  
 
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  7.1176.   With respect to imported raw materials, intermediate goods and packaging materials, the 
Panel notes that the IPI tax is collected by the customs authorities from the importer d uring the 
customs clearance process.1541 Therefore, the Government will enjoy the advantage of cash 
availability or cash flow, along with the associated implicit interest income (revenue) that could be 
generated on the full amount of that tax that is collecte d, from the moment the product is 
imported until the moment the non -accredited company buying the product is able to offset the 
credit, or receives compensation or reimbursement (within 360 days of the request).  
7.1177.   In contrast, pursuant to the challenged tre atment under the PEC programme, whereby 
the IPI tax is suspended, the seller will not have to charge the IPI tax to the accredited company 
buying the products and will not have to remit any amount of tax to the Brazilian Government. The 
accredited company buying the products, in turn, will not accrue any credit.1542 
7.1178.   Thus, the Brazilian Government will not receive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction, in the case of 
domestic products, or on the date of importation (in the case of imported products). By the same 
token, it also will not have to allow the accredited company buying the products to offset the 
amount of tax paid.1543  
7.1179.   If the Panel compares the challenged treatment with the best case s cenario for the non -
accredited company buying domestic products at issue under the benchmark treatment, where the 
tax is paid to the Government and offset during the same taxation period, there would be no 
revenue foregone by the Brazilian Government, as t he government would not earn the implicit 
interest on unused credits. However, if the Panel compares the challenged treatment with the 
rather frequent  scenario where the non -accredited company buying the products at issue is not 
able to offset the tax cred it it has accrued during the same taxation period in which the tax is paid, 
then under the challenged treatment the Government will never be able to benefit from the cash 
availability and implicit interest income, which could have lasted from the moment of  importation 
(in the case of imported products) or from one taxation period1544 (in the case of domestic 
products) to 360 days after the request for compensation or reimbursement, under the benchmark 
treatment. Therefore, under this rather frequent  scenario, the Government is foregoing revenue in 
the form of the implicit interest on the tax revenue collected where the offsetting credits have not 
(yet) been used.  
7.1180.   Furthermore, from the buyer's standpoint, as explained in paragraph 2.16 above, when 
the accredited company buying the raw materials, intermediate goods and packaging materials 
sells its finished goods incorporating those products, under normal circumstances the Brazilian 
Government ultimately will collect the full amount of  IPI tax corresponding to both the value added 
by the seller and the value added by the accredited company buying the products, i.e., the same 
nominal amount of IPI tax that it would have received in the absence of the suspensions. This does 
not, however, diminish or eliminate the advantage to the accredited company buying the products 
that it (rather than the government) enjoys of the cash availability and associated implicit interest 
income, due to not having to pay the tax to the seller of the products, from the moment it 
otherwise would have had to pay that tax until the moment it sells its finished good.  
b. The suspensions of the PIS/PASEP and COFINS contributions, or PIS/PASEP -
importation and COFINS -importation contributions on purchases of raw materia ls, 
intermediate goods and packaging materials (for purposes of PEC).  
 
                                                                                                                                                  
for reimbursement of credits of IPI, PIS/COFINS (in cash or by means of offset against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then  such delay in the reimbursement 
gives rise to application of monetary restatement." Also, Brazil has explained that "delays in processing 
reimbursement requests can result in financial costs for the government, which may have to pay interest on 
the amount  overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's first 
written submission, para. 780 (DS472) and fn 451 (DS497).  
1541 See paragraph 2.8 above.  
1542 See paragraph 2.18 above.  
1543 See paragraph 2.13 above.  
1544 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  WT/DS472/R • WT/DS497/R  
 
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  The benchmark treatment  
7.1181.   As in the case of the IPI tax suspensions, Brazil argues that the suspensions of the 
PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contributions, are the benchmark treatment for structural ly credit -accumulating companies, 
including the predominantly exporting companies. For Brazil, the suspension of taxes is the rule for 
credit -accumulating companies, and not an exception to t he rule.1545  
7.1182.   The European Union and Japan argue, in turn, that Brazil has failed to prove the 
existence of a rule in Brazil's taxation system, according to which "predominantly credit -
accumulating companies" are not subject to taxation with regard their acqu isition of inputs. The 
complaining parties argue that the correct benchmark should include all domestic companies that 
pay the taxes suspended by these programmes.1546  
7.1183.   As in the case of the IPI tax suspensions, Brazil is correct in its affirmation that there  are 
other companies, in addition to predominantly exporting companies, that are entitled to the 
suspensions of PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -
importation contributions, on their purchases of raw materials, intermed iate goods and packaging 
materials. Indeed, suspensions or exemptions also apply to manufacturers of certain products 
when such products are destined for direct public administration bodies; companies accredited 
under PADIS and PATVD; companies qualified under the Special Tax Regime for the Exportation 
Platform of Information Technology Services (REPES); companies qualified under  the RETAERO; 
companies qualified under  the Special Regime for the Defense Industry (RETID); and companies 
qualified under  REIMCOM P.1547 However, in the Panel's view, the selection by the Brazilian 
Government  of companies entitled to the suspensions of PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, does not seem to be directly linked 
to the problem of credit -accumulation, so as to create a general rule for structurally or 
predominantly credit accumulating companies. Other than in the REPES regime, which is also a 
regime for exporters, n othing in the evidence on the record seems to sugge st that the other 
companies to which the suspensions or exem ptions apply are structural credit accumulators, or 
that the suspensions were created to tackle the problem of structural credit accumulation for these 
companies.  
7.1184.   Also, as explained in paragraph 7.1169  above, there are credit -accumulating companies 
not entitled to the suspensions , which puts further into question the existence of a general rule for 
credit accumulators.  
7.1185.   In sum, the  Panel is not convinced  that the availability of suspensions or exemptions for 
the companies mentioned in paragraph 7.1183  above is sufficient to prove the existence of a 
general rule for structurally or predominantly credit accumulating companies.  
7.1186.   In light of the above, the Panel finds that Brazil has not demonstrated that the tax 
suspensions are the benchmark treatment for structurally credit -accumulating companies. As the 
Panel is not convinced by Brazil's proposed benchmark treatment, it will cont inue with its task of 
identifying the appropriate benchmark treatment, taking into account the complaining parties' 
position that the benchmark treatment should include all domestic companies that pay the taxes 
suspended by this programme.  
7.1187.   In this respect , the Panel considers that the appropriate benchmark treatment is the 
treatment applicable to purchases by non -accredited companies of raw materials, intermediate 
goods and packaging materials that will be used by those companies to manufacture their 
produ cts, i.e. the obligation to pay the full amount of the applicable PIS/PASEP and COFINS, or 
PIS/PASEP -importation and COFINS -importation contributions, on the purchase of the raw 
materials, intermediate goods and packaging materials used to manufacture prod ucts, subject to 
the mechanism of credits and debits under the non -cumulati ve regime . In particular, the 
accredited and non -accredited companies purchasing the raw materials, intermediate goods and 
packaging materials used to manufacture products are ident ically situated, except for the fact of 
                                                
1545 Brazil's first written submission, paras. 812 -818 and 860 -861 (DS472) and 725 -729 and 764 -765 
(DS497).  
1546 European Union's and Japan's response to Panel questio n No. 41.  
1547 See Brazil's response to Panel question No. 21.  WT/DS472/R • WT/DS497/R  
 
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  accreditation. Brazil has not demonstrated the existence of any other difference that could explain 
the differential tax treatment with respect to the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, of these products. Thus, the 
treatment applicable to purchases by non -accredited companies can be considered as the 
benchmark treatment or normal rule of general application.  
Comparison  
7.1188.   The Panel now compares the suspensi ons of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, granted to accredited companies on 
the purchases of raw materials, intermediate goods and packaging materials, under the PEC 
programme, with the t reatment identified in the previous paragraph, i.e. the treatment applicable 
to purchases by non -accredited companies of raw materials, intermediate goods and packaging 
materials.  
7.1189.   The Panel notes that under the benchmark treatment, the seller of the raw m aterials, 
intermediate goods and packaging materials will always charge the PIS/PASEP and COFINS 
contributions to the non -accredited company buying the products, at the moment of the sale, and 
the non -accredited company buying the products will accrue a ta x credit in the amount of the 
PIS/PASEP and COFINS contributions paid. The seller then will remit to the Federal Revenue 
Service the amount of PIS/PASEP and COFINS contributions charged, when it pays its monthly 
liabilities due on the 25th day of the month  following the transaction. In turn, the non -accredited 
company buying the products will be allowed to use the credit it has accrued to offset its 
PIS/PASEP and COFINS contributions debits when it pays its monthly liabilities due on the 25th 
day of the mon th following the transaction, i.e. during the same taxation period where the seller 
pays the tax to the Brazilian Government.1548 However, if the non -accredited company buying the 
products is not able to offset the credit accrued with other debits during that  taxation period, it will 
be allowed to offset it during subsequent taxation periods.1549 If the non -accredited company 
buying the products is not able to offset the credit after three taxation periods, it will be allowed to 
ask the Brazilian Government for c ompensation with other Federal debits, or reimbursement, 
within five years of the accrual of the credit.1550 The Brazilian Government has, by law, 360 days 
to respond to the request for compensation or reimbursement. If the Brazilian Government does 
not respo nd within 360 days, the non -accredited company buying the products will be entitled to 
receive the compensation or reimbursement from the Government, as well as the interests 
generated.1551 It is fairly common that companies are not able to offset the full am ount of their 
credits and have to request compensation or reimbursement, so this scenario seems rather 
frequent.1552 
7.1190.   Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, the Gov ernment will receive the full amount of 
PIS/PASEP and COFINS contributions due from the seller and the non -accredited company buying 
the products will be able to offset the amount of PIS/PASEP and COFINS contributions paid during 
the same taxation period. However, if the non -accredited company buying the products is not able 
to offset the credit during the same taxation period, the Brazilian Government will retain the 
amount of tax paid by the seller until the non -accredited company buying the products is a ble to 
offset it ( during subsequent taxation periods); or until the Brazilian Government compensates or 
reimburses the face amount of the credit, without interest, to the non -accredited company buying 
                                                
1548 See paragraphs 2.16 to 2.17 above. (Although the explanation is given in the context of the IPI tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions.)  
1549 See paragraphs 2.19 to 2.20 above. (Although the explanation is given in the context of the IP I tax, 
the same logic also applies to the PIS/PASEP and COFINS contributions.)  
1550 See paragraph 2.20 above. (Although the explanation is given in the context of the IPI tax, the 
same logic also applies to the PI S/PASEP and COFINS contributions.)  
1551 See paragraph 2.20 above.  
1552 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the  extra-fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, paras. 758 (DS472)  and 691 (DS497). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not ref unded for a period over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). Exporters_2012 study 
on Brazilian exports – delays in refunds (Exhibit JE -186), p. 55.  WT/DS472/R • WT/DS497/R  
 
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  the products (within 360 days of the date for the reque st for compensation or reimbursement). 
Under this second scenario, the Brazilian Government thus will hold the advantage of cash 
availability or cash flow, along with the associated implicit interest income (revenue) that could be 
generated on the full amo unt of that tax that it has collected from the seller.1553 This cash 
availability and associated implicit interest can last from one taxation period1554 (if the non -
accredited company is able to offset the credit during the second taxation period) to 360 days 
after the request for compensation or reimbursement (if the non -accredited company requests it). 
During this period, the government is able to make use of the taxes received (i.e., "earning" 
implicit interest). So long as the compensation or reimbursement is  made to the non -accredited 
company buying the products within 360 days after the request, the Brazilian Government will not 
have to pay the non -accredited company buying the products any interest on the use of the 
buyer's money during that period. Only if  360 days are surpassed is the government obligated to 
compensate or repay to the non -accredited company buying the products not just the face amount 
of the credit but also the associated interest. Thus, it is only after 360 days that the government 
would no longer enjoy the implicit interest revenue from the free use of the buyer's money that is 
blocked in the form of its credit.1555 
7.1191.   With respect to imported raw materials, intermediate goods and packaging materials, the 
Panel notes that the PIS/PASEP -importat ion and COFINS -importation contributions are collected by 
the customs authorities from the importer during the customs clearance process.1556 Therefore, 
the Government will enjoy the advantage of cash availability or cash flow, along with the 
associated impli cit interest income (revenue) that could be generated on the full amount of that 
tax that is collected, from the moment the product is imported until the moment the non -
accredited company buying the product is able to offset the credit, or receives compens ation or 
reimbursement (within 360 days of the request). Moreover, the Brazilian Government will enjoy 
the advantage of having charged the additional 1% of COFINS -importation contribution that does 
not generate a tax credit.1557  
7.1192.   In contrast, pursuant to the challenged treatment under the PEC programme, whereby 
the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contributions are suspended, the seller will not have to charge the contributions to the accredited 
company buying  the products and will not have to remit any amount of tax to the Brazilian 
Government. The accredited company buying the products, in turn, will not accrue any credit.1558 
7.1193.   Thus, the Brazilian Government will not receive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction (in the case of 
domestic products), or on the date of importation (in the case of imported products). By the same 
token, it also will not have to allow the accredited company buying the products to offset the 
amount of tax paid.1559  
                                                
1553 According to the European Union, the benchmark rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
1554 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
1555 See paragraph 2.20 above and Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 
– SP (2012/0095341 -6) (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: if there is a claim 
for reimbursement of cr edits of IPI, PIS/COFINS (in cash or by means of offset against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then such delay in the reimbursement 
gives rise to application of monetary restatement." Also, Brazil has explained that "delays in processing 
reimbursement requests can result in financial costs for the government, which may have to pay interest on 
the amount overdue at the SELIC overnight lending rate – currently at 14.25% per annum." Brazil's first 
written submissions, para. 780 (DS472) and fn 451 (DS497).  
1556 See paragraph 2.32 above.  
1557 See paragraph 2.34 above. The Panel notes that Brazil argues that this additiona l 1% is outside 
from the scope of the dispute for the European Union. Brazil's first written submission, paras. 788 -799 
(DS472). However, the European and Japan are not challenging the imposition of the additional 1%, but the 
suspensions of the applicable rates of COFINS -importation contributions, which includes this 1%.  
1558 See paragraph 2.18 above. (Although the explanation is given in the context of the IPI tax, the 
same logic also applies to the PIS/PASEP and COFINS contributions).  
1559 See paragraph 2.13 above.  WT/DS472/R • WT/DS497/R  
 
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  7.1194.   If the Panel compares the challenged treatment with the best case scenario for the non -
accredited company buying domestic products at issue under the benchmark treatment, where the 
tax is paid to the Government and offset during the same taxation period (in the case of domestic 
products), there would be no revenue foregone by the Brazilian Government, as the government 
would not earn the implicit interest on unused credits. However, if the Panel compares the 
challenged treatment with the rather frequent  scenario where the non -accredited company buying 
the products at issue is not able to offset the tax credit it has accrued during the same taxation 
period in which the tax is paid, then under the challenged treatme nt the Government will never be 
able to benefit from the cash availability and implicit interest income, which could have lasted from 
the moment of importation (in the case of imported products) or from one taxation period1560 (in 
the case of domestic product s) to 360 days after the request for compensation or reimbursement, 
under the benchmark treatment. Therefore, under this rather frequent  scenario, the Government 
is foregoing revenue in the form of the implicit interest on the tax revenue collected where t he 
offsetting credits have not (yet) been used. Moreover, in the case of imported products, the 
Brazilian Government is foregoing the advantage of the additional 1% of COFINS -importation 
contribution that does not generate a tax credit.1561  
7.1195.   Furthermore, from  the buyer's standpoint, as explained in paragraph 2.171562 above, 
when the accredited company buying the raw materials, intermediate goods and packaging 
materials sells its finished goods incorporating those produ cts, under normal circumstances the 
Brazilian Government ultimately will collect the full amount of PIS/PASEP and COFINS 
contributions, or PIS/PASEP -importation and COFINS -importation contributions, corresponding to 
both the value added by the seller and t he value added by the accredited company buying the 
products, i.e., the same nominal amount of contributions that it would have received in the 
absence of the suspensions. This does not, however, diminish or eliminate the advantage to the 
accredited compan y buying the products that it (rather than the government) enjoys of the cash 
availability and associated implicit interest income, due to not having to pay the tax to the seller of 
the products, from the moment it otherwise would have had to pay that tax until the moment it 
sells its finished good.  
7.1196.   Also, a lthough the non -cumulative regime is the general rule for the PIS/PASEP and 
COFINS contributions1563, to the extent that the purchases of the raw materials, intermediate 
goods and packaging materials at issu e could be subject to the cumulative regime, there would be 
no mechanism of credits and debits. In this case, if the Panel compares the challenged treatment, 
where the Brazilian Government receives none of the PIS/PASEP and COFINS contributions that 
otherw ise would have been due, with the treatment under the cumulative regime, where the 
Brazilian Government receives the full amount of PIS/PASEP and COFINS contributions due, it is 
clear that under the challenged treatment the Brazilian Government foregoes re venue that is 
otherwise due  under the cumulative regime . 
c. The suspensions of the PIS/PASEP and COFINS contributions on purchases of new 
machinery, apparatuses, instruments and equipment (for purposes of RECAP)  
 
The benchmark treatment  
7.1197.   As in the case of t he IPI tax suspensions, Brazil argues that the suspensions of the 
PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contributions, are the benchmark treatment for structurally credit -accumulating companies, 
                                                
1560 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buye r is able to offset the credit on the 25th day of the 
next taxation period.  
1561 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outside 
from the scope of the dispute for the  European Union. Brazil's first written submission, para. 788 -799 (DS472). 
However, the European and Japan are not challenging the imposition of the additional 1%, but the suspensions 
of the applicable rates of COFINS -importation contributions, which inclu des this 1%.  
1562 Although the explanation is given in the context of the IPI tax, the same logic also applies to the 
PIS/PASEP and COFINS contributions.  
1563 See para graph  2.22 above  WT/DS472/R • WT/DS497/R  
 
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  including the p redominantly exporting companies. For Brazil, the suspension of taxes is the rule for 
credit -accumulating companies, and not an exception to the rule.1564  
7.1198.   The European Union and Japan argue, in turn, that Brazil has failed to prove the 
existence of a rule in  Brazil's taxation system, according to which "predominantly credit -
accumulating companies" are not subject to taxation with regard their acquisition of capital goods. 
The complaining parties argue that the correct benchmark should include all domestic com panies 
that pay the taxes suspended by these programmes.1565  
7.1199.   For the same reasons explained in paragraphs 7.1183  to 7.1185  above, the Panel finds 
that Brazil has not demonstrated that the tax suspensi ons are the benchmark treatment for credit -
accumulating companies. As the Panel is not convinced by Brazil's proposed benchmark treatment, 
it will continue with its task of identifying the appropriate benchmark treatment, taking into 
account the complainin g parties' position that the benchmark treatment should include all 
domestic companies that pay the taxes suspended by this programme.  
7.1200.   In this respect, the Panel considers that the appropriate benchmark treatment is the 
treatment applicable to purchases b y non -accredited companies of new machinery, apparatuses, 
instruments and equipment that will be used by those companies to manufacture their products, 
i.e. the obligation to pay the full amount of the applicable PIS/PASEP and COFINS, or PIS/PASEP -
importat ion and COFINS -importation contributions, on the purchase of the new machinery, 
apparatuses, instruments and equipment, subject to the mechanism of credits and debits under 
the non -cumulative regime .1566 In particular, the accredited and non -accredited compan ies 
purchasing the new machinery, apparatuses, instruments and equipment used to manufacture 
products are identically situated, except for the fact of accreditation. Brazil has not demonstrated 
the existence of any other difference that could explain the d ifferential tax treatment with respect 
to the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contributions, of these products. Thus, the treatment applicable to purchases by non -accredited 
companies can be considered as  the benchmark treatment or normal rule of general application.  
Comparison  
7.1201.   The Panel now compares the suspensions of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -importation and COFINS -importation contributions, granted to accredited companies on 
the purchases of new machinery, apparatuses, instruments and equipment, under the RECAP 
programme, with the treatment identified in the previous paragraph, i.e. the treatment applicable 
to purchases by non -accredited companies.  
7.1202.   The Panel notes that under t he benchmark treatment, the seller of the new machinery, 
apparatuses, instruments and equipment will always charge the PIS/PASEP and COFINS 
contributions to the non -accredited company buying the products, at the moment of the sale, and 
the non -accredited c ompany buying the products will accrue a tax credit in the amount of the 
PIS/PASEP and COFINS contributions paid. The seller then will remit to the Federal Revenue 
Service the amount of PIS/PASEP and COFINS contributions charged, when it pays its monthly 
liabilities due on the 25th day of the month following the transaction. In turn, the non -accredited 
company buying the products will be allowed to use the credit it has accrued to offset its 
PIS/PASEP and COFINS contributions debits when it pays its monthly  liabilities due on the 25th 
day of the month following the transaction, i.e. during the same taxation period where the seller 
                                                
1564 Brazil's first written submission, paras. 812 -818 and 860 -861 (DS472) and 725 -729 and 764 -765 
(DS497).  
1565 European Union's and Japan's responses to Panel question No. 41.  
1566 The Panel notes that Law 11,774/2008, art. 1, as amended by Law 12.546/2011, explicitly allows 
for the immediate utilization of cr edits on purchases of capital goods. The Law states as follows:  "The legal 
entities, in case of acquisition in the domestic market or of importation of machines and equipment intended 
for the production of goods and the provision of services, may opt for t he discount of credits of the 
'Contribuição para o Programa de Integração Social/Programa de Formação do Patrimônio do Servidor Público 
(PIS/Pasep)' and of the 'Contribuição para Financiamento da Seguridade Social (Cofins)' addressed in item III 
of § 1 of art. 3 of Law 10,637, of December 30, 2002, item III of § 1 of art. 3 of Law 10833, of December 29, 
2003, and § 4 of art. 15 of Law 10,865, of April 30, 2004, in the following way: …XII - immediately, in the case 
of acquisitions occurred as of July, 2012."  See Brazil's response to Panel's question 23.  WT/DS472/R • WT/DS497/R  
 
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  pays the tax to the Brazilian Government.1567 However, if the non -accredited company buying the 
products is not able to offset the c redit accrued with other debits during that taxation period, it will 
be allowed to offset it during subsequent taxation periods.1568 If the non -accredited company 
buying the products is not able to offset the credit after three taxation periods, it will be al lowed to 
ask the Brazilian Government for compensation with other Federal debits, or reimbursement, 
within five years of the accrual of the credit.1569 The Brazilian Government has, by law, 360 days 
to respond to the request for compensation or reimbursement.  If the Brazilian Government does 
not respond within 360 days, the non -accredited company buying the products will be entitled to 
receive the compensation or reimbursement from the Government, as well as the interests 
generated.1570 It is fairly common that c ompanies are not able to offset the full amount of their 
credits and have to request compensation or reimbursement, so this scenario seems rather 
frequent.1571 
7.1203.    Thus, from the Brazilian Government's standpoint, and under the best case scenario for 
the non -accredited company buying the products, the Government will receive the full amount of 
PIS/PASEP and COFINS contributions due from the seller and the non -accredited company buying 
the products will be able to offset the amount of PIS/PASEP and COFINS contribu tions paid during 
the same taxation period. However, if the non -accredited company buying the products is not able 
to offset the credit during the same taxation period, the Brazilian Government will retain the 
amount of tax paid by the seller until the non -accredited company buying the products is able to 
offset it ( during subsequent  taxation periods); or until the Brazilian Government compensates or 
reimburses the face amount of the credit, without interest, to the non -accredited company buying 
the product s (within 360 days of the date for the request for compensation or reimbursement). 
Under this second scenario, the Brazilian Government thus will hold the advantage of cash 
availability or cash flow, along with the associated implicit interest income (reve nue) that could be 
generated on the full amount of that tax that it has collected from the seller.1572 This cash 
availability and associated implicit interest can last from one taxation period1573 (if the non -
accredited company is able to offset the credit durin g the second taxation period) to 360 days 
after the request for compensation or reimbursement (if the non -accredited company requests it). 
During this period, the government is able to make use of the taxes received (i.e., "earning" 
implicit interest). So long as the compensation or reimbursement is made to the non -accredited 
company buying the products within 360 days after the request, the Brazilian Government will not 
have to pay the non -accredited company buying the products any interest on the use of t he 
buyer's money during that period. Only if 360 days are surpassed is the government obligated to 
compensate or repay to the non -accredited company buying the products not just the face amount 
of the credit but also the associated interest. Thus, it is on ly after 360 days that the government 
would no longer enjoy the implicit interest revenue from the free use of the buyer's money that is 
blocked in the form of its credit.1574 
                                                
1567 See paragraphs 2.16 to 2.17 above. (Although the explanation is given in the context of the IPI tax, 
the same logic a lso applies to the PIS/PASEP and COFINS contributions.)  
1568 See paragraphs 2.19 to 2.20 above. (Although the explanation is given in the context of the IPI tax, 
the sa me logic also applies to the PIS/PASEP and COFINS contributions.)  
1569 See paragraph 2.20 above. (Although the explanation is given in the context of the IPI tax, the 
same logic also applies to the PIS/PASEP and C OFINS contributions.)  
1570 See paragraph 2.20 above.  
1571 Brazil acknowledges that "many sectors of the economy have their products subject to low or no 
taxation, reflecting the selective nature and the extra -fiscal character of indirect taxes in Brazil. These sectors 
tend to accumulate tax credits, as the tax debits due are lower than the credit acquired in the previous step of 
the production chain." Brazil's first written submission, paras. 758 (DS472) and 691 (DS4 97). Also, for 
instance, according to a 2014 Study by the Brazilian Industry Confederation, "a little more than one third of 
the surveyed exporting companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS 
accumulated and not refunded for a p eriod over three months." (22.5% of the companies possess tax credits 
under the PIS/COFINS contributions and 18.5% possess tax credits under the IPI tax). Exporters_2012 study 
on Brazilian exports – delays in refunds (Exhibit JE -186), p. 55; and European U nion's first written submission, 
fn 849.  
1572 According to the European Union, the benchmark rate of the Brazilian Central Bank (available at the 
website https://www.bcb.gov.br) was, at the time of writing of its first written submission, 13.25%. European 
Union's first written submission, fn 883.  
1573 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
1574 See paragraph 2.20 above and Appeal Against Split Decision in Interlocutory Appeal No. 1.220.942 
– SP (2012/0095341 -6), (Exhibit BRA -104), para. 6, stating as follows: "It is a simple logic: i f there is a claim WT/DS472/R • WT/DS497/R  
 
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  7.1204.   With respect to imported new machinery, apparatuses, instruments and equipment, the  
Panel notes that the PIS/PASEP -importation and COFINS -importation contributions are collected by 
the customs authorities from the importer during the customs clearance process.1575 Therefore, 
the Government will enjoy the advantage of cash availability or ca sh flow, along with the 
associated implicit interest income (revenue) that could be generated on the full amount of that 
tax that is collected, from the moment the product is imported until the moment the non -
accredited company buying the product is able t o offset the credit, or receives compensation or 
reimbursement (within 360 days of the request). Moreover, the Brazilian Government will enjoy 
the advantage of having charged the additional 1% of COFINS -importation contribution that does 
not generate a tax  credit.1576  
7.1205.   In contrast, pursuant to the challenged treatment under the RECAP programme, whereby 
the PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and COFINS -importation 
contributions are suspended, the seller will not have to charge the cont ributions to the accredited 
company buying the products and will not have to remit any amount of tax to the Brazilian 
Government. The accredited company buying the products, in turn, will not accrue any credit.1577 
7.1206.   Thus, the Brazilian Government will not rece ive the amount of tax that would have 
otherwise been due on the 25th day of the month following the transaction (in the case of 
domestic products), or on the date of importation (in the case of imported products). By the same 
token, it also will not have t o allow the accredited company buying the products to offset the 
amount of tax paid.1578 
7.1207.   If the Panel compares the challenged treatment with the best case scenario for the non -
accredited company buying domestic products at issue under the benchmark treatment,  where the 
tax is paid to the Government and offset during the same taxation period (in the case of domestic 
products), there would be no revenue foregone by the Brazilian Government, as the government 
would not earn the implicit interest on unused credits . However, if the Panel compares the 
challenged treatment with the rather frequent  scenario where the non -accredited company buying 
the products at issue is not able to offset the tax credit it has accrued during the same taxation 
period in which the tax i s paid, then under the challenged treatment the Government will never be 
able to benefit from the cash availability and implicit interest income, which could have lasted from 
the moment of importation (in the case of imported products) or from one taxation  period1579 (in 
the case of domestic products) to 360 days after the request for compensation or reimbursement, 
under the benchmark treatment. Therefore, under this rather frequent  scenario, the Government 
is foregoing revenue in the form of the implicit inte rest on the tax revenue collected where the 
offsetting credits have not (yet) been used. Moreover, in the case of imported products, the 
Brazilian Government is foregoing the advantage of the additional 1% of COFINS -importation 
contribution that does not g enerate a tax credit.1580 
                                                                                                                                                  
for reimbursement of credits of IPI, PIS/COFINS (in cash or by means of offset against other taxes) and these 
credits are acknowledged by the Federal Revenue Office with delay, then such delay in the reimbursement 
gives rise to applicati on of monetary restatement." Also, Brazil has explained that "delays in processing 
reimbursement requests can result in financial costs for the government, which may have to pay interest on 
the amount overdue at the SELIC overnight lending rate – currently  at 14.25% per annum." Brazil's first 
written submission, para. 780 (DS472) and fn 451 (DS497).  
1575 See paragraph 2.32 above.  
1576 See paragraph 2.34 above. The Panel not es that Brazil argues that this additional 1% is outside 
from the scope of the dispute for the European Union. Brazil's first written submission, paras. 788 -799 
(DS472). However, the European and Japan are not challenging the imposition of the additional 1 %, but the 
suspensions of the applicable rates of COFINS -importation contributions, which includes this 1%.  
1577 See paragraph 2.18 above. (Although the explanation is given in the context of the IPI tax, the 
same  logic also applies to the PIS/PASEP and COFINS contributions.)  
1578 See paragraph 2.13 above.  
1579 This period would be, for instance, of one month, if the Government receives the payment from the 
seller on the 25th  day of one taxation period and the buyer is able to offset the credit on the 25th day of the 
next taxation period.  
1580 See paragraph 2.34 above. The Panel notes that Brazil argues that this additional 1% is outsi de 
from the scope of the dispute for the European Union. Brazil's first written submission, paras. 788 -799 
(DS472). However, the European and Japan are not challenging the imposition of the additional 1%, but the 
suspensions of the applicable rates of COFI NS-importation contributions, which includes this 1%.  WT/DS472/R • WT/DS497/R  
 
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  7.1208.   Furthermore, from the buyer's standpoint, as explained in paragraph 2.171581 above, 
when the accredited company buying the new machinery, apparatuses, instruments and 
equipment sells its finished goods that were produced using the new m achinery, apparatuses, 
instruments and equipment , under normal circumstances the Brazilian Government ultimately will 
collect the full amount of PIS/PASEP and COFINS contributions, or PIS/PASEP -importation and 
COFINS -importation contributions, correspondin g to both the value added by the seller and the 
value added by the accredited company buying the products, i.e., the same nominal amount of 
contributions that it would have received in the absence of the suspensions. This does not, 
however, diminish or eli minate the advantage to the accredited company buying the products that 
it (rather than the government) enjoys of the cash availability and associated implicit interest 
income, due to not having to pay the tax to the seller of the products, from the moment  it 
otherwise would have had to pay that tax until the moment it sells its finished good.  
7.1209.   Also, although the non -cumulative regime is the general rule for the PIS/PASEP and 
COFINS contributions1582, to the extent that the purchases of the new machinery, appar atuses, 
instruments and equipment at issue could be subject to the cumulative regime, there would be no 
mechanism of credits and debits. In this case, if the Panel compares the challenged treatment, 
where the Brazilian Government receives none of the PIS/P ASEP and COFINS contributions that 
otherwise would have been due, with the treatment under the cumulative regime, where the 
Brazilian Government receives the full amount of PIS/PASEP and COFINS contributions due, it is 
clear that under the challenged treat ment the Brazilian Government foregoes revenue that is 
otherwise due  under the cumulative regime . 
7.1210.   Finally, with respect to the Panel's obligation to take into consideration the reasons for 
the difference in tax treatment, the Panel recalls that there is ev idence demonstrating that the 
objective reasons for the tax treatment is to tackle the problem of credit -accumulation, and in so 
doing to increase the competitiveness of Brazilian companies.1583 Even if the prevention of credit 
accumulation may appear reasona ble, at least in principle, Brazil did not demonstrate that the 
concerned programmes reflect the existence of a rule of general application containing the 
arguably reasonable policy goal of tackling the problem of credit -accumulation, and therefore this 
cannot impact the Panel's findings with respect to the comparison between the challenged tax 
treatment and the benchmark treatment.  
7.5.1.2.1.3   Conclusion on whether the tax suspensions granted under the PEC and 
RECAP programmes constitute financial contributions in the  form of "government 
revenue that is otherwise due is foregone or not collected"  
7.1211.   In light of the above, the Panel concludes that the tax suspensions granted to registered 
or accredited companies on its purchases of raw materials, intermediate goods and pac kaging 
materials (under the PEC programme) and new machinery, apparatuses, instruments and 
equipment (under the RECAP programme) constitute financial contributions in the form of 
"government revenue that is otherwise due is foregone or not collected".  
7.5.1.2.2   Whet her the financial contributions granted under the PEC and RECAP 
programmes confer a benefit  
7.1212.   Several panels have concluded that , whenever there is revenue foregone by the 
government, there is a benefit conferred.1584 Having concluded that the tax treatments at  issue 
constitute financial contributions in the form of "government revenue that is otherwise due is 
foregone or not collected", the Panel concludes that the subsidies at issue confer a benefit.  
7.1213.   In fact, with respect to the tax suspensions granted to regi stered or accredited companies 
on its purchases of raw materials, intermediate goods, packaging materials, new machinery, 
                                                
1581 Although the explanation is given in the context of the IPI tax, the same logic also applies to the 
PIS/PASEP and COFINS contributions  
1582 See para graph  2.22 above . 
1583 See p aragraph 7.1162  above.  
1584 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.169 -7.171.  See also: Panel 
Reports, Canada – Renewable Energy  / Canada – Feed-in Tariff Program , fn 509; US – FSC, para.  7.103; and 
US – FSC (Article 21.5 – EC), paras. 8.44 -8.48; and Appellate Body Reports, US – FSC, para. 140; and US – 
FSC (Article 21.5 – EC), para. 198.  WT/DS472/R • WT/DS497/R  
 
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  apparatuses, instruments and equipment, it is clear that, by retaining the advantage of the cash 
availability, along with the associat ed implicit interest income, the registered or accredited 
companies under the PEC and RECAP programmes buying raw materials, intermediate goods, 
packaging materials, new machinery, apparatuses, instruments and equipment are better off with 
the suspensions than in the scenario of having to pay the full amount of taxes or contributions on 
their purchases of those products.  
7.5.1.2.3   The relevance of footnote 1 of the SCM Agreement  for the PEC programme  
7.1214.   Having concluded that the tax suspensions granted under the PEC pro gramme constitute 
financial contributions in the form of "government revenue that is otherwise due is foregone or not 
collected", through which a benefit is conferred, the Panel now must consider whether they 
nonetheless fit within footnote 1 of the SCM Ag reement and thus fall outside the scope of the 
Agreement's disciplines.  
7.1215.   As previously mentioned, the European Union submits that its challenge brought is not 
concerned with the question of whether or not WTO Members may, under the SCM Agreement, 
implement measures to exempt from indirect taxes upstream stages in the supply chain of goods 
for export.1585 Brazil, in turn, argues that its tax suspensions are an effective means for applying 
the "destination principle" under footnote 1 of the SCM Agreement.1586 
7.1216.   Pursua nt to footnote 1 of the SCM Agreement, the exemption of an exported product 
from duties or taxes borne by the like product when destined for domestic consumption, or the 
remission of such duties or taxes in amounts not in excess of those which have accrued , shall not 
be deemed to be a subsidy. Thus, tax measures that involve the exemption or remission of 
product -based consumption taxes for exported products do not constitute subsidies. In other 
words, Members are allowed to exempt from internal taxes export ed products. However, if those 
exemptions or remissions are given in amounts in excess of the accrued taxes, the tax measure 
will not only constitute a subsidy, but may also be considered a prohibited subsidy.1587 
7.1217.   In this respect, the Appellate Body in US – FSC explained that the tax measures identified 
in footnote 1 as not constituting a subsidy involve the exemption of exported products from 
product -based consumption taxes.1588 
7.1218.   In the particular context of value -added tax systems, item (g) of Annex I of the SCM  
Agreement provides relevant context, stating that the exemption or remission of indirect taxes on 
exported products in excess of the taxes borne by products consumed domestically constitutes an 
export subsidy. As per footnote 60 of the SCM Agreement, this  provision of Annex I is the only 
provision addressing the problem of excessive remission of value -added taxes. While the measures 
at issue are suspensions, eventually giving rise to exemptions, on the purchase of raw materials, 
intermediate goods and pack aging materials, the Panel finds this provision relevant in establishing 
the principle of excessiveness where VAT is excused on exported products.  
7.1219.   Concerning tax suspensions or deferrals, the SCM Agreement also makes clear that these 
can give rise to expor t subsidies. In particular, footnote 59 to item ( e) of Annex I to the 
Agreement states that "deferral need not amount to an export subsidy where, for example, 
appropriate interest charges are collected", such that the non -collection of interest on deferred  
taxes could give rise to a subsidy.  
7.1220.   Annex II of the SCM Agreement also provides relevant context. This annex states as 
follows:  
Indirect tax rebate schemes can allow for exemption, remission or deferral of prior -
stage cumulative indirect taxes levied on inputs that are consumed in the production 
                                                
1585 European Union's first written submission, paras. 1166 and 1219.  
1586 Brazil's first written submissio ns, paras. 827 -839 (DS472) and 735 -746 (DS497).  
1587 This is confirmed by the following example of an export contingent subsidy explicitly listed in Annex 
I of the SCM Agreement, and prohibited under Article 3.1(a) of the SCM Agreement: "(g) The exemption or 
remission, in respect of the production and distribution of exported products, of indirect taxes in excess of 
those levied in respect of the production and distribution of like products when sold for domestic consumption."  
1588 Appellate Body Report, US – FSC, para. 93.  WT/DS472/R • WT/DS497/R  
 
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  of the exported product (making normal allowance for waste). Similarly, drawback 
schemes can allow for the remission or drawback of import charges levied on inputs 
that are consumed in the production of the export ed product (making normal 
allowance for waste).  
7.1221.   This means that tax measures that involve the exemption or remission of product -based 
consumption taxes for inputs that are consumed in the production exported products also cannot 
be considered subsidies. In  other words, Members are allowed to exempt from internal taxes those 
inputs that will be consumed in the production of products for export. According to footnote 61 of 
Annex II of the SCM Agreement, "inputs consumed in the production process are inputs ph ysically 
incorporated, energy, fuels and oil used in the production process and catalysts which are 
consumed in the course of their use to obtain the exported product. " 
7.1222.   In respect of the tax suspensions at issue, the Panel notes that these are available in  
respect of both domestic and export sales. In other words, they are not confined to eliminating the 
taxes on the purchase of raw materials, intermediate goods and packaging materials used in the 
production of the products actually exported, but instead do  so in respect of all sales of the 
products in question, domestically and for export, by accredited companies. Therefore, the Panel 
concludes that the measures at issue are not covered by footnote 1 of the SCM Agreement as they 
do not apply only to the pur chase of raw materials, intermediate goods and packaging materials 
used in the production for export sales, but also to domestic sales, and thus give rise to excess 
exemption of taxes in the sense of item (g) of Annex I of the SCM Agreement.  
7.5.1.2.4   Conclusion on whether the tax suspensions granted under the PEC and RECAP 
programmes constitute subsidies within the meaning of Article 1 of the SCM Agreement  
7.1223.   Having concluded that the tax suspensions granted under the PEC and RECAP 
programmes constitute financial contr ibutions in the form of "government revenue that is 
otherwise due is foregone or not collected", through which a benefit is conferred, the Panel 
concludes that the measures at issue constitute subsidies within the meaning of Article 1 of the 
SCM Agreement.  
7.5.1.3   Whether the subsidies granted under the PEC and RECAP programmes are 
specific within the meaning of Article  2 of the SCM Agreement  
7.1224.   The Panel refers to its explanation on the concept of specificity in paragraphs  7.496  
to 7.498  above. Based on that explanation, and because the case at issue involves claims of 
prohibited subsidies, if the Panel concludes, in its analysis below, that the subsidies granted under 
the PEC an d RECAP programmes are prohibited within the meaning of Article 3.1( a) of the SCM 
Agreement, the Panel will also be able to conclude ipso facto that, pursuant to Article 2.3, the 
subsidies granted under the PEC and RECAP  programmes are specific and thus su bject to the 
provisions of Part II of the SCM Agreement.  
7.5.1.4   Whether the tax suspensions granted under the PEC and RECAP programmes are 
contingent upon export performance within the meaning of Article 3.1(a) of the SCM 
Agreement and thus prohibited  
7.1225.   Articles 3 .1(a) and 3.2 of the SCM Agreement state as follows:  
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the meaning of Article  1, shall be prohibited:  
(a) subsidies contingent, in law or in fact4, whether solely or as o ne of several other 
conditions, upon export performance, including those illustrated in Annex  I5; 
… 
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph  1. 
___________________________  WT/DS472/R • WT/DS497/R  
 
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  4 This standard is met when the facts demons trate that the granting of a subsidy, without having 
been made legally contingent upon export performance, is in fact tied to actual or anticipated 
exportation or export earnings. The mere fact that a subsidy is granted to enterprises which 
export shall no t for that reason alone be considered to be an export subsidy within the meaning 
of this provision.  
5 Measures referred to in Annex  I as not constituting export subsidies shall not be prohibited 
under this or any other provision of this Agreement.  
7.1226.   Article  3.1(a) of the SCM Agreement prohibits those subsidies contingent, in law or in 
fact, whether solely or as one of several other conditions, upon export performance. Pursuant to 
Article 3 of the SCM Agreement, subsidies contingent upon export performance are  prohibited, and 
shall not be granted or maintained. To the extent that a measure falls within the scope of this type 
of contingency, it is inconsistent with both Articles 3.1 and 3.2 of the SCM Agreement.  
7.1227.   In EC and certain member States – Large Civil Airc raft, the Appellate Body recalled its 
discussion regarding export contingency in Canada – Aircraft, as follows:  
The Appellate Body explained in Canada – Aircraft  that the word "contingent" means 
"conditional" or "dependent for its existence on something el se"1589, and that the legal 
standard for export contingency expressed in Article  3.1(a) is the same for both de 
jure and de facto  contingency.1590 1591  
7.1228.   With respect to the evidentiary standard to prove an export contingency, the Appellate 
Body added:  
The Appellate  Body found that the evidence that may demonstrate de jure  export 
contingency is different from evidence that may reveal de facto  export contingency. 
De jure  contingency "can be demonstrated on the basis of the very words of the 
relevant legislation, regul ation or other legal instrument constituting the measure."1592 
Nonetheless, de jure  export  contingency does not have to be set out expressly, but 
can also be derived by "necessary implication" from the wording of a legal 
instrument.1593 By contrast, the evidence  needed to establish de facto  export 
contingency goes beyond a legal instrument and includes a variety of factual elements 
concerning the granting of the subsidy in a specific case.1594  
7.1229.   In the case at issue, the complaining parties argue de jure contingency only. The Panel 
will therefore assess whether the complaining parties established the existence of de jure  
contingency on the basis of the words of the relevant legislation, regulations and other relevant 
legal instruments or on whether such contingency ca n be derived by necessary implication from 
the words actually used in those instruments.  
7.1230.   Annex I of the SCM Agreement includes some examples of subsidies contingent upon 
export performance. Although this Annex includes very diverse examples, the Appellate Body in EC 
and certain member States – Large Civil Aircraft noted:  
A common feature of the examples provided in items (b) to  (l)1595 of the Illustrative List 
of Export Subsidies  in Annex I to the SCM Agreement is that the subsidy gives certain 
advantages to e xported products and favours exported products over products 
                                                
1589 (footnote original) Appellate Body Report, Canada – Aircraft , para. 166.  
1590 (footnote original) Appellate Body Report, Canada – Aircraft , para. 167.  
1591 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1037.  
1592 (footnote original) Appellate Body Report, Canada – Autos , para. 100.  
1593 (footnote original) Appellate Body Report, Canada – Autos , para. 100.  
1594 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1037 -1038.  
1595 (footnote original ) Item (a) of the Illustrative List of Export Subsidies  in Annex I to the SCM 
Agreement  refers to "{t}he provision by governments of direct subsidies to a firm or an industry contingent 
upon export performance."  WT/DS472/R • WT/DS497/R  
 
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  destined for domestic consumption.1596 Export -contingent subsidies will indeed favour 
a recipient's export sales over its domestic sales.1597 
7.1231.   While the European Union and Japan argue that the condition s to be accredited as a 
predominantly exporting company constitute export contingency1598, Brazil argues that the 
requirement that 50% of total revenue be derived from exports for accreditation does not reflect 
an export contingency, but an objective value fo r the threshold dividing credit accumulating 
companies from those that do not accumulate tax credits or, in order words, contingency upon 
credit accumulation.1599 
7.1232.   The requirement that 50 per cent of a company's gross revenue derives from exports in 
order to b e registered or accredited and, therefore, receive the tax suspensions, is an uncontested 
fact1600, and at first sight appears to be clear evidence of export conditionality or dependency. The 
Panel nevertheless must address Brazil's argument that this export requirement is a threshold for 
determining whether a firm is a structurally credit -accumulating  company . 
7.1233.   Since exports are exempted from taxes, it is indeed quite probable that exporting 
companies accumulate tax credits. Thus, there is some merit in Brazil 's argument. However, as 
explained before in the context of identifying the adequate benchmark for the analysis of financial 
contribution in the form of revenue foregone, there are companies that do not export goods, or 
that export less than the 50 per cen t requirement, which nevertheless accumulate tax credits, and 
which are not entitled to the tax suspensions.  
7.1234.   Brazil presents a table to show that the turning point for credit -accumulation is in the 45 
to 50 per cent range of share of exports in the revenue  of Brazilian companies.1601 However, Brazil 
has not fully explained the source or methodology used to obtain the data1602 and, additionally, the 
data appears to reflect the situation of 22 companies, which is insufficient for the Panel to be able 
to reach the c onclusion advanced by Brazil. Indeed, the Panel also notes that Brazil has changed 
the percentage of the export requirement over time, from 80 per cent to 70 per cent, to 60 per 
cent, and then to 50 per cent1603, which further puts into question Brazil's argu ment.  
7.1235.   In this respect, in the Panel's view, Brazil has not been able to demonstrate that the 
export requirement does not represent contingency upon export performance, but contingency 
upon credit -accumulation. Even if the prevention of credit accumulation may appear reasonable, at 
least in principle, Brazil did not demonstrate that the export requirements in the concerned 
programmes reflect the existence of a rule of general application addressing  the arguably 
reasonable policy goal of tackling the problem of structural credit -accumulation . 
7.1236.   However, it is important to note that the Panel's conclusion does not imply that Brazil is 
not entitled under WTO rules to address the problem of credit -accumulation. In the Panel's view, 
                                                
1596 (footnote original) For example, item (b)  refers to currency retention schemes "which involve a 
bonus on exports". Items (c) and (d) list, respectively, internal transport and freight charges, and government 
provision of goods and services, for exported products "on terms or conditions more favou rable than" those 
with respect to domestic products. Item (f) concerns allowance of special deductions related to exports "over 
and above those granted in respect to production for domestic consumption". Item (h) covers exemption, 
remission, or deferral of  indirect taxes on goods and services used in the production of exported product "in 
excess of" the exemption, remission or deferral of indirect taxes on goods and services used in the production 
of like products when sold for domestic consumption. Other i tems, such as items (e), (j), and (k), concern 
subsidies provided exclusively to exports.  
1597 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1053.  
1598 European Union's first written submission, paras. 1207 -1215 and 1248 -1252;  Japan's first written 
submission, paras. 570 -572 and 594 -595; European Union's second written submission, paras. 523 -525 and 
549-550; Japan's second written submission, para. 189.  
1599 Brazil's first written submission, paras. 846 -852 and 866 -867 (DS472); B razil's first written 
submission, paras. 752 -758 and 768 -769 (DS497).  
1600 Brazil's response to Panel question No. 17.  
1601 Brazil's first written submission, paras. 848 -849 (DS472).  
1602 In response to Panel question No. 66, Brazil explained that "[t]his table was  prepared by the 
Brazilian Federal Revenue Secretariat in 2012, with data of all Brazilian companies." This, in the Panel's view, 
is not sufficient for the Panel to be able to fully understand the source or methodology of the data.  
1603 European Union's firs t written submission, paras. 160 -163; Brazil's first written submissions, 
para. 762.  WT/DS472/R • WT/DS497/R  
 
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  Brazil could indeed devise a WTO -consistent rule that is effectively aimed at credit -accumulating 
companies, to avoid the problem of credit -accumulation.1604 
7.1237.   In light of the above, the Panel concludes that the subsidies granted under the PEC and 
RECAP programmes are contingent upon export pe rformance within the meaning of Article 3.1(a) 
of the SCM Agreement, and thus prohibited under Articles 3.1( a) and 3.2 of the SCM Agreement.  
7.5.1.5   Conclusion  
7.1238.   In light of the foregoing, the Panel concludes that the tax suspensions granted under the 
PEC and RECAP programmes are subsidies within the meaning of Article 1.1 of the SCM Agreement 
and contingent upon export performance within the meaning of Article 3.1(a) of the SCM 
Agreement, and thus are prohibited subsidies, inconsistent with Articles 3.1( a) and 3.2 o f the SCM 
Agreement.  
7.6  Final comments  
7.1239.   Article 12.10 of the DSU states that: "in examining a complaint against a developing 
country Member, the panel shall accord sufficient time for the developing country Member to 
prepare and present its argumentation."  
7.1240.   Furthermore, Article  12.11 of the DSU requires that:  
Where one or more of the parties is a developing country Member, the panel's report 
shall explicitly indicate the form in which account has been taken of relevant 
provisions on differential and more -favoura ble treatment for developing country 
Members that form part of the covered agreements which have been raised by the 
developing country Member in the course of the dispute settlement procedures.  
7.1241.   In adopting the timetable for the proceedings, the Panel took into account the need to 
give all the parties sufficient time to prepare and present their respective arguments. Furthermore, 
in the course of the proceedings, Brazil raised certain provisions of the Enabling Clause , with 
respect to preferential treatment through non -tariff measures and regional trade agreements . The 
Panel took account of these provisions by examining Brazil's arguments in detail, as set out in 
section  7.4.8above.  
8  CONCLUSIONS AND RECO MMENDATIONS  
8.1  Complaint by the European Union (DS472)  
8.1.  With respect to Brazil's assertion that Implementing Order 257/2014 is outside the Panel's 
terms of reference, the Panel concludes that the rules on calculation of presumed tax credits under 
the INOVAR -AUTO programme , as contained in Implementing Order 257/2014, are within the 
Panel's terms of reference.  
8.2.  With respect to whether Article III of the GATT 1994, the TRIMs Agreement, and the SCM 
Agreement, are not applicable to measures that regulate pre -market production steps, the Panel 
concludes that Article III of the GATT 1994, the TRIMs Agreement, and the SCM Agreement, are 
not per se  inapplicable to such measures, in particular "pre -market" measures directed at 
producers.  
8.3.  With respect to whether Article III of the G ATT 1994 and the TRIMs Agreement are not 
applicable to the challenged measures, or aspects of the challenged measures, because they are 
payments of subsidies exclusively to domestic producers, pursuant to Article III:8(b) of the GATT 
1994, the Panel conclu des that measures in the form of subsidies provided exclusively to domestic 
                                                
1604 The European Union acknowledges that "Brazil could devise a general rule to prevent tax credit 
accumulation with respect to companies (as opposed to sectors) whereby e. g. companies accumulating a 
particular amount of tax credits in the preceding or preceding years could benefit from a suspension on taxes." 
European Union's second written submission, para. 510.  WT/DS472/R • WT/DS497/R  
 
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  producers are not for that reason alone exempted from the disciplines of Article III of the GATT 
1994 or Article 2.1 of the TRIMs Agreement.  
8.4.  With respect to whether the incentivis ed products that are the subject of certain challenged 
measures are "domestic products" for the purposes of Article III of the GATT 1994, Article 2.1 of 
the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, the Panel concludes that the 
incentivized  products are Brazilian domestic products.  
8.5.  With respect to the European Union's claims in respect of the Informatics, PADIS, PATVD and 
Digital Inclusion programmes, the Panel concludes that:  
a. The production -step requirements under the Informatics, PADIS, P ATVD, and Digital 
Inclusion programme; and the requirement for products to obtain the status of 
"developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; 
result in imported products being subject to internal taxes in excess of t hose applied to 
like domestic products, inconsistently with Article III:2, first sentence, of the GATT 
1994;  
b. The production -step requirements under the Informatics, PADIS, PATVD, and Digital 
Inclusion programme, and the requirement for products to obtain t he status of 
"developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; 
the aspect of the mechanism for the calculation of the amount of resources required to 
be invested in R&D under the Informatics and PADIS programmes relating  to the 
deductible part; and the lower administrative burden on companies purchasing domestic 
incentivised intermediate  products under the Informatics and PADIS programmes; 
accord to imported products treatment less favourable than that accorded to like 
domestic products, inconsistently with Article III:4 of the GATT 1994;  
c. It is not necessary to make findings with respect to the complaining parties' claims under 
Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute, and 
the Panel therefore exercises judicial economy with respect to these claims;  
d. The Informatics, Digital Inclusion, PATVD and PADIS programmes constitute trade -
related investment measures, and the aspects of these programmes found to be 
inconsistent with Article I II:2 and III:4 of the GATT 1994 are also inconsistent with 
Article 2.1 of the TRIMs Agreement;  
e. The tax exemptions, reductions and suspensions granted under the Informatics, PADIS, 
PATVD and Digital Inclusion programmes are subsidies within the meaning of A rticle 1.1 
of the SCM Agreement which are contingent upon the use of domestic over imported 
goods within the meaning of Article 3.1(b) of the SCM Agreement, and thus are 
prohibited subsidies, inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement; 
and 
f. Those aspects of the PATVD programme found to be inconsistent with the GATT 1994 
and the TRIMs Agreement are not justified under Article XX(a) of the GATT 1994.  
8.6.  With respect to the European Union's claims in respect of the INOVAR -AUTO programme, the 
Panel concludes that:  
a. Certain aspects of the accreditation process, the system of rules on accrual and 
calculation of presumed tax credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil, result in imported 
products being subject to internal taxes in excess of those applied to like domestic 
products, inconsistently with Article III:2 of the GATT 1994;  
b. Certain aspects of the accreditation process, the system of rules on accrual and 
calculati on of presumed tax credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil; the accreditation 
requirement to perform a minimum number of manufacturing steps in Brazil; that aspect 
of the rules on accrual of presumed IPI tax credits pertaining to expenditure in strategic WT/DS472/R • WT/DS497/R  
 
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  inputs and tools; and those aspects of the accreditation requirements to invest in R&D in 
Brazil and make expenditures on engineering, basic industrial technology and capac ity-
building of suppliers in Brazil, pertaining to the purchase of Brazilian laboratory 
equipment; accord less favourable treatment to imported products than that accorded to 
like domestic products, inconsistently with Article III:4 of the GATT 1994;  
c. It is not necessary to make findings with respect to the complaining parties' claims under 
Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute, and 
the Panel therefore exercises judicial economy with respect to these claims;  
d. The INOVAR -AUTO programme constitutes a trade -related investment measure, and 
those aspects of the programme found to be inconsistent with Article III:2 and III:4 of 
the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement;  
e. The tax reducti ons through presumed tax credits granted under the INOVAR -AUTO 
programme are subsidies within the meaning of Article 1.1 of the SCM Agreement and 
contingent upon the use of domestic over imported goods within the meaning of Article 
3.1(b) of the SCM Agreem ent, and thus are prohibited subsidies, inconsistent with Article 
3.1(b) and 3.2 of the SCM Agreement;  
f. Those aspects of the INOVAR -AUTO programme found to be inconsistent with the GATT 
1994 and the TRIMs Agreement are not justified under Article XX(b) or X X(g) of the 
GATT 1994;  
g. The tax reductions accorded to imported products from MERCOSUR members and Mexico 
under the INOVAR -AUTO programme are advantages granted by Brazil to products 
originating in those countries, which are not accorded immediately and unc onditionally 
to like products originating in other WTO Members, inconsistently with Article I:1 of the 
GATT 1994;  
h. The complaining parties were not under a burden to invoke the Enabling Clause in their 
panel requests, and their claims under Article I:1 of the GATT 1994 are therefore within 
the Panel's terms of reference; and  
i. The tax reductions accorded to imported products from Argentina, Mexico and Uruguay 
and found to be inconsistent under Article I:1 of the GATT 1994 are not justified under 
paragraph 2(b ) or 2(c) of the Enabling Clause.  
8.7.  With respect to the European Union's claim s under Article 3.1(a) of the SCM Agreement, in 
respect of the PEC and RECAP programmes, the Panel concludes that the tax suspensions granted 
under the PEC and RECAP programmes are  subsidies within the meaning of Article 1.1 of the SCM 
Agreement and contingent upon export performance within the meaning of Article 3.1(a) of the 
SCM Agreement, and thus are prohibited subsidies, inconsistent with Articles 3.1( a) and 3.2 of the 
SCM Agre ement.  
8.8.  Pursuant to Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie  to constitute a case of 
nullification or impairment of benefits accruing under the  agreement in question. The Panel 
therefore finds that, to the extent that Brazil has acted in a manner inconsistent with the 
provisions of the GATT 1994, TRIMs Agreement, and SCM Agreement, it has nullified or impaired 
benefits accruing to the European Un ion under those agreements.  
8.9.  Pursuant to Article 19.1 of the DSU, to the extent that those aspects of the challenged 
programmes are WTO -inconsistent, the Panel recommends that Brazil bring the challenged 
measures into conformity with its obligations under t he covered agreements.  
8.10.   Pursuant to Article 4.7 of the SCM Agreement, the Panel recommends that Brazil withdraw 
the subsidies identified above without delay.  
8.11.   Article 4.7 further provides that "the panel shall specify in its recommendation the time -
period w ithin which the measure must be withdrawn. " In other words, the Panel is required to WT/DS472/R • WT/DS497/R  
 
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  specify what period would represent withdrawal "without delay”. Taking into account the 
procedures that may be required to implement our recommendation on the one hand, an d the 
requirement that Brazil withdraw its subsidies "without delay" on the other, the Panel recommends 
that Brazil shall withdraw the subsidie s identified in paragraphs 8.5(e ), 8.6(e), and 8.7 above 
within 90 days.  
8.2  Complaint by Japan (DS497)  
8.12.   With respect to Brazil's assertion that Implementing Order 257/2014 is outside the Panel's 
terms of reference, the Panel concludes that the rules on calculation of presumed tax credits under 
the INOVAR -AUTO programme, as contained in Implementing Order 257/2014, are wi thin the 
Panel's terms of reference.  
8.13.   With respect to whether Article III of the GATT 1994, the TRIMs Agreement, and the SCM 
Agreement, are not applicable to measures that regulate pre -market production steps, the Panel 
concludes that Article III of the GA TT 1994, the TRIMs Agreement, and the SCM Agreement, are 
not per se  inapplicable to such measures, in particular "pre -market" measures directed at 
producers.  
8.14.   With respect to whether Article III of the GATT 1994 and the TRIMs Agreement are not 
applicable t o the challenged measures, or aspects of the challenged measures, because they are 
payments of subsidies exclusively to domestic producers, pursuant to Article III:8(b) of the GATT 
1994, the Panel concludes that measures in the form of subsidies provided e xclusively to domestic 
producers are not for that reason alone exempted from the disciplines of Article III of the GATT 
1994 or Article 2.1 of the TRIMs Agreement.  
8.15.   With respect to whether the incentivised products that are the subject of certain challenge d 
measures are "domestic products" for the purposes of Article III of the GATT 1994, Article 2.1 of 
the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, the Panel concludes that the 
incentivized products are Brazilian domestic products.  
8.16.   With respe ct to Japan's claims in respect of the Informatics, PADIS, PATVD and Digital 
Inclusion programmes, the Panel concludes that:  
a. The production -step requirements under the Informatics, PADIS, PATVD, and Digital 
Inclusion programme; and the requirement for pro ducts to obtain the status of 
"developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; 
result in imported products being subject to internal taxes in excess of those applied to 
like domestic products, inconsistently with Articl e III:2, first sentence, of the GATT 
1994;  
b. It is not necessary to make findings with respect to Japan's claims under Article III:2, 
second sentence, of the GATT 1994, and the Panel therefore exercises judicial economy 
with respect to these claims;  
c. The pro duction -step requirements under the Informatics, PADIS, PATVD, and Digital 
Inclusion programme, and the requirement for products to obtain the status of 
"developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; 
the aspect of the  mechanism for the calculation of the amount of resources required to 
be invested in R&D under the Informatics and PADIS programmes relating to the 
deductible part; and the lower administrative burden on companies purchasing domestic 
incentivised intermedi ate products under the Informatics and PADIS programmes; 
accord to imported products treatment less favourable than that accorded to like 
domestic products, inconsistently with Article III:4 of the GATT 1994;  
d. It is not necessary to make findings with respe ct to the complaining parties' claims under 
Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute, and 
the Panel therefore exercises judicial economy with respect to these claims;  
e. The Informatics, Digital Inclusion, PATVD an d PADIS programmes constitute trade -
related investment measures, and the aspects of these programmes found to be WT/DS472/R • WT/DS497/R  
 
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  inconsistent with Article III:2 and III:4 of the GATT 1994 are also inconsistent with 
Article 2.1 of the TRIMs Agreement;  
f. The tax exemptions, r eductions and suspensions granted under the Informatics, PADIS, 
PATVD and Digital Inclusion programmes are subsidies within the meaning of Article 1.1 
of the SCM Agreement which are contingent upon the use of domestic over imported 
goods within the meaning  of Article 3.1(b) of the SCM Agreement, and thus are 
prohibited subsidies, inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement; 
and 
g. Those aspects of the PATVD programme found to be inconsistent with the GATT 1994 
and the TRIMs Agreement are not  justified under Article XX(a) of the GATT 1994.  
8.17.   With respect to Japan's claims in respect of the INOVAR -AUTO programme, the Panel 
concludes that:  
a. Certain aspects of the accreditation process, the system of rules on accrual and 
calculation of presumed tax  credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil, result in imported 
products being subject to internal taxes in excess of those applied to like domestic 
products, inconsistently with Article III:2 of the GATT 1994;  
b. It is not necessary to make findings with respect to Japan's claims under Article III:2, 
second sentence, of the GATT 1994, and the Panel therefore exercises judicial economy 
with respect to these claims;  
c. Certain aspec ts of the accreditation process, the system of rules on accrual and 
calculation of presumed tax credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil; the accreditation 
requirement to p erform a minimum number of manufacturing steps in Brazil; and that 
aspect of the rules on accrual of presumed IPI tax credits pertaining to expenditure in 
strategic inputs and tools; accord less favourable treatment to imported products than 
that accorded to like domestic products, inconsistently with Article III:4 of the GATT 
1994;  
d. It is not necessary to make findings with respect to the complaining parties' claims under 
Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute,  and 
the Panel therefore exercises judicial economy with respect to these claims;  
e. The INOVAR -AUTO programme constitutes a trade -related investment measure, and 
those aspects of the programme found to be inconsistent with Article III:2 and III:4 of 
the GATT  1994 are also inconsistent with Article 2.1 of the TRIMs Agreement;  
f. The tax reductions through presumed tax credits granted under the INOVAR -AUTO 
programme are subsidies within the meaning of Article 1.1 of the SCM Agreement and 
contingent upon the use of  domestic over imported goods within the meaning of Article 
3.1(b) of the SCM Agreement, and thus are prohibited subsidies, inconsistent with Article 
3.1(b) and 3.2 of the SCM Agreement;  
g. Those aspects of the INOVAR -AUTO programme found to be inconsistent w ith the GATT 
1994 and the TRIMs Agreement are not justified under Article XX(b) or XX(g) of the 
GATT 1994;  
h. The tax reductions accorded to imported products from MERCOSUR members and Mexico 
under the INOVAR -AUTO programme are advantages granted by Brazil to  products 
originating in those countries, which are not accorded immediately and unconditionally 
to like products originating in other WTO Members, inconsistently with Article I:1 of the 
GATT 1994;  WT/DS472/R • WT/DS497/R  
 
- 310 - 
 
  i. The complaining parties were not under a burden to invoke  the Enabling Clause in their 
panel requests, and their claims under Article I:1 of the GATT 1994 are therefore within 
the Panel's terms of reference; and  
j. The tax reductions accorded to imported products from Argentina, Mexico and Uruguay 
and found to be i nconsistent under Article I:1 of the GATT 1994 are not justified under 
paragraph 2(b) or 2(c) of the Enabling Clause.  
8.18.   With respect to Japan's claim under Article 3.1(a) of the SCM Agreement, in respect of the 
PEC and RECAP programmes, the Panel concludes t hat the tax suspensions granted under the PEC 
and RECAP programmes are subsidies within the meaning of Article 1.1 of the SCM Agreement and 
contingent upon export performance within the meaning of Article 3.1(a) of the SCM Agreement, 
and thus are prohibite d subsidies, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.  
8.19.   Pursuant to Article 3.8 of the DSU, in cases where there is an infringement of the 
obligations assumed under a covered agreement, the action is considered prima facie  to constitut e 
a case of nullification or impairment of benefits accruing under the agreement in question. The 
Panel therefore finds that, to the extent that Brazil has acted in a manner inconsistent with the 
provisions of the GATT 1994, TRIMs Agreement, and SCM Agreem ent, it has nullified or impaired 
benefits accruing to Japan under those agreements.  
8.20.   Pursuant to Article 19.1 of the DSU, to the extent that those aspects of the challenged 
programmes are WTO -inconsistent, the Panel recommends that Brazil bring the challen ged 
measures into conformity with its obligations under the covered agreements.  
8.21.   Pursuant to Article 4.7 of the SCM Agreement, the Panel recommends that Brazil withdraw 
the subsidies identified above without delay.  
8.22.   Article 4.7 further provides that "the pa nel shall specify in its recommendation the time -
period within which the measure must be withdrawn." In other words, the Panel is required to 
specify what period would represent withdrawal "without delay ". Taking into account the 
procedures that may be req uired to implement our recommendation on the one hand, and the 
requirement that Brazil withdraw its subsidies "without delay" on the other, the Panel recommends 
that Brazil shall withdraw the subsidie s identified in paragraphs 8.16(f), 8.17(f), and 8.18  above 
within 90 days . 
 
_______________  
 WT/DS472/R • WT/DS497/R  
 
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  9  APPENDIX TO THE PANEL REPORT  
9.1.  This Annex contains the Panel's scrutinization of the production -step requirements that must 
be met by a particular company in order to be eligible for the tax treatment available under th e 
Informatics, PADIS, PATVD, and Digital Inclusion programmes. This analysis is relevant to the 
Panel's analysis of the complaining parties' claims under Article III:4 of the GATT 1994 that relate 
to "input" products (which the Panel refers to as "componen ts and subassemblies"1605), and 
Article  3.1(b) of the SCM Agreement. The Panel distinguishes its analyses according to the legal 
instruments containing the production -step requirements, the vast majority of which are in the 
form of so -called "Basic Production  Processes" ("PPBs").  
9.2.  The Panel recalls its analyses and conclusions in paragraphs 7.275  to 7.391  of its report, 
regarding the "outsourcing" scenario for components and subassemblies under the chal lenged 
programmes. The Annex is presented in the context of that analysis. In particular, in the Annex, 
the Panel identifies, on the basis of the production step descriptions, those particular production -
step requirements compliance with which appears to r esult in the creation, from basic raw 
materials and inputs, of components and subassemblies for the production of the incentivised 
(finished or intermediate) products receiving certain tax benefits under the relevant programmes. 
Such production -steps inclu de those that require the production of specific components and 
subassemblies in accordance with their own specific PPBs. In this context, the Panel indicates 
whether or not the scrutinized legal instruments allow third parties in Brazil to perform certain  
production -step requirements, i.e., allow the accredited companies to outsource their 
performance, while retaining their accreditation for the products in question, and thus their access 
to the tax benefits in respect of those products. The Panel recalls in this regard its finding at 
paragraph 7.299  that where the outsourcing provisions, which require that outsourced production 
steps comply with the respective requirements of the PPBs, apply to production steps for the 
creation  of manufactured components and subassemblies in Brazil from basic components and raw 
materials, the resulting components and subassemblies are domestic products. Regarding the PPBs 
that contain such "nested" PPBs, the Panel also recalls that the outsourci ng of the components or 
subassemblies covered by those PPBs is allowed so long as their requirements are respected. The 
Panel also recalls its finding at paragraph 7.117  that products produced in accordance with PPBs 
are domest ic products. Finally, the Panel recalls its finding that, therefore, outsourcing of the 
components and subassemblies to import sources would not satisfy the requirements of the PPBs, 
and the resulting products subject to the PPBs would not qualify for the tax benefits.  
9.3.  As discussed in paragraphs 7.275  to 7.296  of the Panel Report, in the view of the Panel this 
demonstrates that the PPBs are generally not targeted exclusively at a single domestic pro ducer, 
but rather at the domestic industry as a whole.1606  
9.4.  The Panel further notes that certain PPBs contain alternative options to compliance with 
certain production -steps in the PPBs, in order for a company to obtain the concerned tax 
treatment. As explain ed in paragraphs 7.303  to 7.304  and 7.308  of the Panel Report, the Panel 
does not consider that the existence of potentially WTO -consistent alternative options alters a 
finding of inconsistency in respect of other options. The Panel therefore does not indicate such 
alternative options in this Annex.  
9.5.  The Panel notes that a number of PPBs require specific percentages of specific components 
and subassemblies to be assembled  in Brazil. For the reasons explained in paragraph 7.305  of the 
Panel Report, the Panel does not consider that these specific percentages are relevant to its 
assessment of WTO -consistency, and therefore does not generally indic ate this aspect in this 
Annex. However, to the extent that the specific component or subassembly in question is not 
identified elsewhere in the legal instrument, the Panel does make reference to such percentage -
based requirements.  
                                                
1605 This document is not intended to be an exhaustive analysis of each and every component and 
subassembly of each and every product subject to a PPB, but rather reflects the Panel's understanding of the -
functioning of each PPB. Also, this document incorporates the relevant language included in the translation of 
the PPBs presented as exhibits by the parties.  
1606 This is consistent with Brazil's multiple statements that the various ICT programmes are designed to 
stimulate development of the industry as a whole. See, e.g. Brazil's first written submissions, para. 73 (DS4 72) 
and para. 79 (DS497); and Brazil's second written submission, para. 59.  WT/DS472/R • WT/DS497/R  
 
- 312 - 
 
  9.6.  A number of PPBs also co ntain exemptions or alternative options that are time -specific. 
Additionally, certain PPBs contain time -limited exemptions for products or production -steps, 
including time -limited exemptions that apply to the percentages as described in paragraph 2.63 
above. Again, as explained in paragraph 7.305  of the Panel Report, the Panel does not consider 
that such exemptions are relevant to the Panel's assessment of WTO -consistency in respect of 
those products , entities or production -steps that are covered by the relevant legal instrument and 
are not exempted, nor do any time -limited exemptions preclude the Panel from being able to reach 
a conclusion in respect of mandated WTO -inconsistent action in the future.  The Panel therefore 
does not indicate such exemptions or alternative options in this Annex.  
_______________  
 
 
9.7.  MDIC/MCT Implementing Order No. 132, of 8 August 20021607, Article 1 states in relevant 
part that:  
The following Basic Production Process is hereb y set forth for the product VIDEO 
DISPLAY WITH PLASMA SCREEN:  
I - assembly and welding of all the components on the following boards:  
a) processing board of the plasma module (main board); b) source board; c) line filter 
board; d) audio and video board; e)  switch power board; f) control panel board; and 
g) remote control board.  
 
II - assembly of the electrical and mechanical parts, fully separate, at the level of 
components; and  
 
III – integration of the printed circuit boards with the electrical and mecha nical parts to build 
the end product, assembled in accordance with Items I and II above.  
 
§ 1. Third parties can perform the activities or operations inherent in the production stages 
mentioned in this Article provided the Basic Production Process be compl ied with.  
 
9.8.  The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step 1 - processing boards, source boards, 
line filter boards, audio and video boards, switch power bo ards, control panel boards, and remote 
control boards; and step II - electrical and mechanical parts. Both steps I and II can be performed 
by third parties. That is, the accredited producer of VIDEO DISPLAYS WITH PLASMA SCREEN can 
outsource these steps and  retain the tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
_______________  
 
 
9.9.  MDIC/MCT Implementing Order No. 189, of  14 November 20021608, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth for the product ELECTRIC 
ACCUMULATORS FIT FOR TELECOMMUNICATIONS EQUIPMENT OF POSITIONS NCM 
8525.20.21 AND 8517.30 AND STATIC CONVERTERS (UPS) NCM 8504.40 BASED ON 
DIGITAL TECHNIQUE, manufactured in Brazil:  
I - manufacture of the positive and negative grids;  
II - manufacture of containers, lids, pockets and separators;  
III - filling or pasting of the positive boards;  
                                                
1607 Implementing Order 132/2002, (Exhibit BRA -116) 
1608 Implementing Order 189/2002, (Exhibit BRA -116) WT/DS472/R • WT/DS497/R  
 
- 313 - 
 
  IV - pasting of the neg ative boards;  
V - assembly of the boards in the container;  
VI - addition of acid;  
VII - charge to build the boards (polarization);  
VIII - addition of gel, when applicable; and  
IX - closing of the container, addition of the valves and charge.  
§ 1. Third par ties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be complied with.  
9.10.   The Panel considers that at least steps I and II involve the creation, from basic raw 
materials and inputs, of component s or subassemblies, as follows: step I - positive and negative 
grids; and step II - containers, lids, pockets and separators. Steps I and II can be performed by 
third parties. That is, the accredited producer of ELECTRIC ACCUMULATORS FIT FOR 
TELECOMMUNICAT IONS EQUIPMENT OF POSITIONS NCM 8525.20.21 AND 8517.30 AND STATIC 
CONVERTERS (UPS) NCM 8504.40 BASED ON DIGITAL TECHNIQUE can outsource these steps and 
retain the tax benefits in question so long as the requirements of the steps (production in Brazil of 
the respective components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.11.   MICT/MCT Implementing Order No. 46, of 8 April 19941609, Article 1 states in relevant part 
that: 
For purposes of the provisions in article 4 of Law  8248, of October 23, 1991, it is 
hereby set forth that LARGE DIGITAL PROCESSING UNITS manufactured in Brazil shall 
have local added value if they comply with the Basic Production Process below, as well 
as the provisions in article 4 of this Order:  
I - assembly and welding of all the components on the set of printed circuit boards 
implementing at least two of the following five functions:  
a) communication channel;  
b) memory;  
c) central processing;  
d) integrated/interface control unit;  
e) system support and  diagnosis, or, alternatively, the assembly of at least three (3) 
printed circuit boards implementing either of these functions. This is required in both 
cases for at least one model of the family of large processors manufactured and sold 
by the company in  Brazil;  
 
II - assembly and integration of the printed circuit boards and of the electrical and 
mechanical sets to build the end product;  
III - management of the quality and productivity of both the process and the end 
product, involving the inspection of raw materials, intermediate products, secondary 
materials and packaging, statistical control of the process, tests and measurements 
and the quality of the end product. Additionally, at least the following operations shall 
be also performed: functional test s, setup simulation and recording of the product 
operation code.  
                                                
1609 Implementing Order 46/1994, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 314 - 
 
   … 
§ 3. The use of subassemblies assembled by third parties in Brazil is acceptable to 
meet the provisions in this Article, provided their production complies with Items I and 
II in the head section and in the paragraph above.  
9.12.   Additionally, Article 5 of Implementing Order No. 46, of 8 April 1994 states  in relevant part 
that: 
The provision of this Order is also applied to control units of peripherals, such as 
controllers for discs, tapes, print ers and optical or magnetic readers and to the 
expansions of the functions mentioned in Item I of Article 1, even when they are not 
in the same body or case of the digital processing units.  
9.13.   The Panel considers that step I involves the creation, from basic raw materials and inputs, 
of components or subassemblies as follows: printed circuit boards. Pursuant to paragraph 3 of 
Article 1, Step I can be performed by third parties. That is, the accredited producer of LARGE 
DIGITAL PROCESSING UNITS can outsource th is step and retain the tax benefits in question so 
long as the requirements of the step (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
9.14.   Also, Article 5 requires that the control unit s of peripherals, such as controllers for discs, 
tapes, printers and optical or magnetic readers and to the expansions mentioned in step I, even 
when they are not in the same body or case, be produced in accordance with this PPB. Therefore, 
this article as  well involves the creation, from basic raw materials and inputs, of components and 
subassemblies for the LARGE DIGITAL PROCESSING UNITS, and all provisions of the PPB, including 
the outsourcing provisions, apply. That is, the accredited producer of LARGE DIGITAL 
PROCESSING UNITS can "use subassemblies assembled by third parties in Brazil", so long as those 
are produced in accordance with the PPB, and retain the tax benefits.  
_______________  
 
 
9.15.   MICT/MCT Implementing Order No. 47, of 8 April 19941610, Article 1  states in relevant part 
that:  
For purposes of the provisions in article 4 of Law 8248, of October 23, 1991, it is 
hereby set forth that MEDIUM DIGITAL PROCE SSING UNITS  manufactured in Brazil 
shall have local added value if they comply with the Basic Prod uction Process below, 
as well as the provisions in article 4 of this Order:  
I - assembly and welding of all the components on the set of printed circuit boards 
implementing at least three (3) of the following five (5) functions:  
a) central processing;  
b) memory;  
c) integrated/interface control unit or controllers of peripherals;  
d) system support and diagnosis;  
e) communication channel or interface with units for input and output of data and 
peripherals, or, alternatively, the assembly of at least four (4) printed circuit boards 
implementing either of these functions;  
 
II - assembly and integration of the printed circuit boards and of the electrical and 
mechanical sets to build the end product  
III - management of the quality and productivity of both the proc ess and the end 
product, involving the inspection of raw materials, intermediate products, secondary 
materials and packaging, statistical control of the process, tests and measurements 
and the quality of the end product. Additionally, at least the followin g operations shall 
                                                
1610 Implementing Order 47/1994, (Ex hibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 315 - 
 
  be also performed: functional tests, setup simulation and recording of the product 
operation code.  
… 
§ 3. The use of subassemblies assembled by third parties in Brazil is acceptable to 
meet the provisions in the Article, provided their p roduction complies with Items I and 
II in the head section and in the paragraph above.  
9.16.   Additionally, Article 5 of Implementing Order No. 47, of 8 April 1994 states  in relevant part 
that: 
The provision of this Order is also applied to control units of perip herals, such as 
controllers for discs, tapes, printers and optical or magnetic readers and to the 
expansions of the functions mentioned in Item I of Article 1, even when they are not 
in the same body or case of the digital processing units.  
9.17.   The Panel consi ders that at least step I involves the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: printed circuit boards. Pursuant to paragraph 
3 of Article 1, step I can be performed by third parties. That is, the accredite d producer of MEDIUM 
DIGITAL PROCESSING U NITS can outsource this step and retain the tax benefits in question so 
long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs)  are respected.  
9.18.   Also, Article 5 requires that the control units of peripherals, such as controllers for discs, 
tapes, printers and optical or magnetic readers and to the expansions of the functions mentioned 
in step I, even when they are not in the same b ody or case, be produced in accordance with this 
PPB. Therefore, this article as well involves the creation, from basic raw materials and inputs, of 
components and subassemblies for the MEDIUM  DIGITAL PROCESSING UNITS, and all provisions 
of the PPB, includ ing step I and the outsourcing provisions, apply. That is, the accredited producer 
of MEDIUM  DIGITAL PROCESSING UNITS can "use subassemblies assembled by third parties in 
Brazil", so long as those are produced in accordance with the PPB, and retain the tax  benefits.  
_______________  
 
 
9.19.   MDIC/MCT Implementing Order No. 541 of 18 December 20031611, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth for the product 
MICROPROCESSOR -BASED UNINTERRUPTIBLE POWER SUPPLY (UP S OR NO BREAK) 
and MICROPROCESSOR -BASED VOLTAGE STABILIZING EQUIPMENT:  
I - injection of cabinet structural plastic parts;  
II - cutting, folding, stamping, treatment and welding of cabinet structural parts;  
III - manufacturing of printed circuit boards, acc ording to basic productive process;  
IV - assembly and welding of all components in printed circuit boards;  
V - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level; and  
VI - integration of printed circuit boards and e lectrical and mechanical parts to form 
the final product.  
Paragraph 1 The activities or operations described in sections I to IV may be 
performed by third -parties, provided Basic Production Process is complied with.  
                                                
1611 Implementing Order 541/2003, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 316 - 
 
  9.20.   Additionally, Article 2 states in releva nt part that:  
As of August 1st, 2003, printed circuits, electric cables and electric voltage 
transformers used in the products microprocessor -based uninterruptible power supply 
(UPS or no break) and microprocessor -based voltage stabilizing equipment shoul d be 
manufactured in the country.  
9.21.   The Panel considers that the following steps involve the creation, from basic raw materials 
and inputs, of components or subassemblies: step I - cabinet structural parts; steps III and IV - 
printed circuit boards; and step  V - electrical and mechanical parts. Steps I to IV can be performed 
by third parties. That is, the accredited producer of MICROPROCESSOR -BASED UNINTERRUPTIBLE 
POWER SUPPLIES (UPS OR NO BREAK) and MICROPROCESSOR -BASED VOLTAGE STABILIZING 
EQUIPMENT can outs ource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
9.22.   Also, Article 2 requires the manufac turing in Brazil of the printed circuits, electric cables and 
electric voltage transformers used in the MICROPROCESSOR -BASED UNINTERRUPTIBLE POWER 
SUPPLIES (UPS OR NO BREAK) and MICROPROCESSOR -BASED VOLTAGE STABILIZING 
EQUIPMENT. Therefore, where these com ponents and subassemblies are outsourced, the 
accredited producer only retains the tax benefits if the outsourced components and subassemblies 
are manufactured in Brazil.  
_______________  
 
 
9.23.   Implementing Order No. 13, of 29 January 20021612, Article 1 states in  relevant part that:  
The following Basic Production Process is hereby set forth for the product DIELECTRIC 
FILTER, manufactured in Brazil:  
I - resonator preparation;  
II - resonator assembly;  
III - printed circuit assembly;  
IV - end product assembly;  
V - frequency adjustment;  
VI - strapping, when applicable;  
VII - marking (identification); and  
VIII - final test.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be complied wit h. 
9.24.   The Panel considers that at least steps I through III involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: steps I and II - resonator; step 
III - printed circuits. Steps I to III can be performed by thir d parties. That is, the accredited 
producer of DIELECTRIC FILTERS can outsource these steps and retain the tax benefits in question 
so long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw  materials and inputs) are respected.  
                                                
1612 Implementing Order 13/2002, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 317 - 
 
  9.25.   Implementing Order No. 35, of 8 March 20021613, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product PLASTIC 
CASE FOR SMALL DIGITAL PROCESSING UNITS, manufac tured in Brazil:  
I – injection of the plastic and external parts of the case;  
II - cutting, folding and punching or other stamping process of the metallic parts;  
III - assembly of the plastic and metallic subassembly;  
IV - assembly and welding of all the c omponents on the printed circuit boards, when 
applicable; and  
V - integration of the printed circuit boards and the plastic and metallic parts to build 
the end product, in accordance with sections I to IV above  
§ 1. Third parties can perform the activities  or operations inherent in the production 
stages described in this Article provided the Basic Production Process be complied 
with. 
§ 2. It is possible to choose the performance of either stage I or II above when the 
case has a powering source manufactured in Brazil in accordance with the Basic 
Production Process set forth by MCT/MICT Implementing Order 101, April 7, 1993, or 
by a specific Implementing Order.  
9.26.   The Panel considers that at least steps I, II , III and IV involve the creation, from basic raw 
mater ials and inputs, of components or subassemblies, as follows: steps I and II - plastic and 
external parts of the case; step III - metallic parts; and step IV - printed circuit boards. All of 
these steps can be performed by third parties. That is, the accred ited producer of PLASTIC CASES 
FOR SMALL DIGITAL PROCESSING UNITS DIELECTRIC FILTERS can outsource these steps and 
retain the tax benefits in question so long as the requirements of the steps (production in Brazil of 
the respective components and subassemb lies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.27.   MDIC/MCT Implementing Order 56, of 28 September 20001614, Article 1 states in relevant 
part that:  
The product MULTILAYER PRINTED CIRCUIT shall have local added value if it meets 
the B asic Production Process described below, as well as the provisions in Articles 2 
and 3 of this Order:  
I - superficial treatment;  
II - circuit printing with dry film;  
III - corrosion;  
IV - sandwich assembly;  
V - pressing;  
VI - punching;  
VII - copper metalli zation;  
                                                
1613 Implementing Order 35/2002, (Exhibit BRA -116).  
1614 Implementing Order 56/2000, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 318 - 
 
  VIII - additive corrosion or metallization;  
IX - welding mask printing;  
X - printing of wording on the welding mask; and  
XI - contour routing.  
Sole Paragraph. The quality and productivity management of the process and of the 
end product shall be in corporated into the Basic Production Process described in 
Article 1 of this Order, involving at least the inspection of raw materials, intermediate 
products, secondary materials and packaging, the statistic control of the process, the 
tests and measurement  and the quality of the end product, as well as the provisions in 
Article 3 of this Order.  
… 
Article 4. Third parties can perform the activities or operations inherent in the 
production stages in Brazil.  
9.28.   The Panel notes that in accordance with Article 4, a ll of the production steps listed in items I 
to XI can be performed by third parties. It is difficult to determine, from the descriptions of the 
steps, precisely which of them involve the creation, from basic raw materials and inputs, of 
components and sub assemblies. That said, the reference in the "sole paragraph" of Article 1 to 
"inspection of raw materials [and] intermediate products" makes clear that this PPB involves such 
a conversion process (or processes). Thus, the accredited producer of MULTILAYER PRINTED 
CIRCUITS can outsource the steps involving such processes and retain the tax benefits in question, 
so long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) ar e respected.  
_______________  
 
 
9.29.   Implementing Order No. 88, of 15 May 20021615, Article 1 states in relevant part that:  
The following Basic Production Processes are hereby set forth for the manufactured 
products LIFE SIGN DISPLAY and CABLE WITH SENSOR FOR LIFE  SIGNS:  
I - LIFE SIGN DISPLAY  
a) assembly and welding all the components on the printed circuit boards 
implementing the functions of central processing, memory, control of peripherals, 
storage units and communication interfaces, of the serial, parallel and  local network 
type;  
b) assembly of the electrical and mechanical parts, fully separate, at the basic level of 
components; and  
c) integration of the printed circuit boards and the electrical and mechanical parts to 
build the end product, assembled in accor dance with sub -items "a" and "b" above.  
 
II - CABLE WITH SENSOR FOR LIFE SIGNS  
a) cutting and scouring of the cable with sensor; and  
b) welding of the cable on the connector terminals.  
§ 1. Third parties can perform the activities or operations inherent in  the production 
stages provided the Basic Production Process be complied with.  
                                                
1615 Implementing Order 88/2002, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 319 - 
 
  9.30.   Additionally, § 3 of Article 1 of Implementing Order No. 88, of 15 May 2002, states  in 
relevant part that : 
In addition to the assembly of the printed circuit boards, as provided  for in Subsection 
"a", Item I of this Article and other conditions of this Item, the assembly of the boards 
implementing the functions of electrocardiogram (ECG), invasive pressure, 
temperature, PH, breathing and oximetry –either separate or combined –is ma ndatory 
to manufacture the life sign displays.  
9.31.   The Panel considers that at least steps I(a) in conjunction with paragraph 3, and I(b), 
involve the creation, from basic raw materials and inputs, of components or subassemblies, as 
follows: step I(a) - printe d circuit boards with various functions including those listed in paragraph 
3; and step I(b) - electrical and mechanical parts. Steps I (a) to (b) can be performed by third 
parties. That is, the accredited producer of LIFE SIGN DISPLAYS can outsource at le ast these steps 
and retain the tax benefits in question so long as the requirements of the steps (production in 
Brazil of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
_______________  
 
 
9.32.   MDIC/MCT Implementin g Order No. 158, of 24 April 20031616, Article 1 states in relevant 
part that:  
The following Basic Production Process is hereby set forth for the product DISC UNIT 
TO READ OR RECORD DATA BY OPTICAL MEANS – OPTICAL DISC UNIT, manufactured 
in Brazil:  
I - plastic injection or stamping of the main base, the case and the tray;  
II - assembly and welding of all the components on the printed circuit boards;  
III - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
IV - integration of the printed circuit boards and the other electrical and mechanical 
parts to build the end product, assembled in accordance with Items I to III above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages described in Items I, II and III of this Article provided the Basic Production 
Process be complied with.  
9.33.    The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of the following components or subassemblies:  step I - main base, case and tray; step II - 
printed circuit boards; and step III - electrical and mechanical parts. Steps I to III can be 
performed by third parties. That is, the accredited producer of DISC UNITS TO READ OR RECORD 
DATA BY OPTICAL MEANS – OPTICAL DISC UNITS can outsource these steps and retain the tax 
benefits in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
________ _______  
 
 
                                                
1616 Implementing Order 158/2003, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 320 - 
 
  9.34.   MDIC/MCT Implementing Order No. 160, of 24 April 20031617, Article 1 states in relevant 
part: 
The following Basic Production Process is hereby set forth for the product ELECTRONIC 
CASH REGISTER, included in item 8470.50.19 of the MERCOSUR Common 
Nomenclature:  
I - insertion and welding of all the components on the printed circuit boards;  
II - keyboard assembly;  
III - drawer assembly;  
IV - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
V - integra tion of the printed circuit boards and the other electrical and mechanical 
parts to build the end product, assembled in accordance with Items I to IV above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages descr ibed in this Article provided the Basic Production Process be complied 
with. 
9.35.   The Panel considers that at least steps I and IV involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I - printed circuit bo ards; 
and step IV - electrical and mechanical parts. These steps can be performed by third parties. That 
is, the accredited producer of ELECTRONIC CASH REGISTERS can outsource these steps and retain 
the tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.36.   MDIC/MCT Implementing Order No. 163, of 5 July 20041618, Article 1 states in relevant part 
that: 
The follow ing Basic Production Process is hereby set forth for the product SMART 
LABEL, manufactured in the Country:  
I - assembly of integrated circuit (microchip or chip) in the flexible printed circuit;  
II - sticky of bottom part of laminated, with its separate ap plication to a siliconized 
substrate, as applicable;  
III - formation of self -adhesive laminated, as applicable;  
IV - application of non -adhesive part of self -adhesive laminated on sticky face (as 
applicable) of label in paper or film;  
V - formation of smar t label; and  
VI - winding of smart labels in reels, as applicable.  
Paragraph 1 All steps of above Basic Production Process should be performed in the 
Country.  
                                                
1617 Implementing Order 160/2003, (Exhibit BRA -116).  
1618 Implementing Order 163/2004, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  Paragraph 2 The activities or operations inherent to the production step described in 
Section I o f this Article may be performed by third -parties, provided the Basic 
Production Process is complied with.  
9.37.   Additionally, Article 2 of MDIC/MCT Implementing Order No. 163, of 5 July 2004, states  in 
relevant part that :  
As of August 1st, 2015, the integrated circuit (microchip or chip) mentioned in Section 
I of Article 1 should comply with following Basic Production Process:  
I - assembly of semiconductor, non -encapsulated chip;  
II - encapsulation of assembled chip;  
III - electric or optoelectronic test; and  
IV - marking (identification).  
9.38.   Further, Article 3 states  in relevant part that : 
The separate labels (printed, self -adhesive labels, as applicable), in paper or film, to 
be used in the product should be manufactured in the Country.  
9.39.   The Panel considers that st ep I of Article 1 involves the creation, from basic raw materials 
and inputs, of  components or subassemblies, i.e., flexible printed circuits. This step can be 
performed by third parties. That is, the accredited producer of SMART LABELS can outsource this 
step and retain the tax benefits in question so long as the requirements of the steps (production in 
Brazil of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
9.40.   Furthermore, Article 2 requires that as of 1 Augu st 2015, the integrated circuit (microchip or 
chip) used in step I (production of the flexible printed circuit) itself be produced in accordance with 
its own PPB. The Panel notes that all PPBs that include any such  "nested PPB" (i.e., requirements 
that a s pecific input or component be produced in accordance with its own PPB) allow the 
outsourcing of such inputs or components so long as the requirements of the nested PPBs are 
respected.1619 The Panel recalls its finding, at paragraph 7.117  of its report, that products 
produced in accordance with PPBs are domestic products. Therefore, where the accredited 
producer of SMART LABELS outsources the integrated circuits (microchip or chip) to be 
incorporated in the flexible printed circuits , it can only retain the tax benefits in question if those 
integrated circuits are produced in Brazil in accordance with their own PPB, and thus are domestic 
products.  
9.41.   In addition, Article 3 requires the manufacturing in Brazil of the separate labels to b e used 
in the SMART LABELS. Therefore, to the extent that the labels are outsourced, the accredited 
producer of SMART LABELS only retains the tax benefits in question if those labels are produced in 
Brazil.  
_______________  
 
 
                                                
1619 Brazil's response to Panel question No. 67: "[W]ith respect to PPBs that include requirements that  a 
specific input or component be produced in accordance with its own PPB, the specific input or component can 
be produced by third parties in Brazil. The production of a specific input by third parties, in accordance with its 
own PPB, is still subject to verification by the authorities."  WT/DS472/R • WT/DS497/R  
 
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  9.42.   MDIC/MCT Implementing Order No.  179, of 5 July 20041620, Article 1 states in relevant part 
that: 
The following Basic Production Process is hereby set forth for the product LIQUID 
CRYSTAL DEVICES FOR CELLULAR TELEPHONE:  
I - physical and chemical processing, including at least following step s: 
a) inspection and cleaning of glass plates;  
b) application of photo resistant material;  
c) photolithography;  
d) chemical bath;  
e) application of anti -reflective material, spacers and printing of orientation 
layer;  
f) generation of alignment layers (rubb ing); 
g) junction and sealing of plates;  
h) separation and cutting;  
i) filling of cells with liquid crystal;  
j) closing; and  
l) inspection and electric and optical tests;  
 
II - assembly of semiconductor chip on a layer of glass or on a flexible film;  
III - gluing or depositing of polarizers on the layer of glass;  
IV – assembly of interconnection through application of a flexible film with 
components or positioning of a connector, as applicable;  
V - assembly of device;  
VI - assembly of a printed circuit boar d, as applicable; and  
VII - final assembly of device set, comprising integration of all parts and pieces that 
form it.  
Paragraph 1 The activities or operations inherent to the production step described in 
Section I to IV, caption of this article may be per formed by third -parties, provided the 
Basic Production Process is complied with.  
9.43.   The Panel considers that at least step I  involve the creation, from basic raw materials and 
inputs, of components or subassemblies for the incentivized LCD devices, through a range of 
physical and chemical processing activities involving basic inputs and raw materials including glass 
plates, liquid crystal, photo -resistant and anti -reflective materials, spacers, and chemicals. Steps I 
can be performed by third parties. That is,  the accredited producer of LIQUID CRYSTAL DEVICES 
FOR CELLULAR TELEPHONE can outsource this step and retain the tax benefits in question so long 
as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from bas ic raw materials and inputs) are respected.  
_______________  
 
 
9.44.   MDIC/MCT Implementing Order No. 243, of 15 October 20011621, Article 1 states in relevant 
part that:  
The following Basic Production Process is hereby set forth for the manufactured 
product METALLIC  CASE FOR COMPUTER ITEMS:  
                                                
1620 Implementing Order 179/2004, (Exhibit BRA -116).  (The Panel notes that there is no "k ") in the 
original exhibit).  
1621 Implementing Order 243/2001, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  I - cutting, folding and punching or other stamping process of the metallic parts;  
II - welding and/or riveting of the metallic parts;  
III - superficial treatment and painting of the metallic parts;  
IV - injection of the plastic p arts; 
V - fixing of LEDs, keys and wiring on the front mask, when applicable; and  
VI - assembly and front fixing on the chassis.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages described in this Arti cle provided the Basic Production Process be 
complied with.  
9.45.   The Panel considers that at least steps I and IV involve the creation, from basic raw 
materials and inputs, of components or subassemblies as follows: step I - metallic parts; and Step 
IV - plasti c parts. These steps can be performed by third parties. That is, the accredited producer 
of METALLIC CASES FOR COMPUTER ITEMS can outsource the steps and retain the tax benefits in 
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.46.   MDIC/MCT Implementing Order No. 246, of 15 October 20011622, Article 1 states in relevant 
part that:  
The following Basic Production Process is he reby set forth for the manufactured 
product ELECTRONIC SCALE:  
I - insertion and welding of components on the printed circuit board;  
II - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
III - integratio n of the printed circuit boards and the other electrical and mechanical 
parts to build the end product, assembled in accordance with Items I and II above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages describ ed in this Article provided the Basic Production Process be complied 
with. 
§ 2. The load cell shall be manufactured in Brazil from its basic components.  
9.47.   The Panel considers that steps I and II and paragraph 2 involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I - printed circuit boards; 
step II - electrical and mechanical parts; and paragraph 2 – load cells. Steps I and II and 
paragraph 2 can be performed by third parties. That is, the accredited prod ucer of ELECTRONIC 
SCALES can outsource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
                                                
1622 Implementing Order 246/2001, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.48.   Implementing Order No. 289, of 11 July 20031623, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the products DIRECT 
CURRENT CONVERTER (AC - DC) and POWERING SOURCE FOR INKJET PRINTER AND 
CABLE MODEM:  
I - injection of plastic parts;  
II - stamping of the metallic parts, when applicable;  
III - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components;  
IV - assembly and welding of all the components on th e printed circuit boards; and  
V - integration of the printed circuit boards, when applicable, and the other electrical 
and mechanical parts to build the end product.  
§ 1. Third parties can perform the activities or operations described in Items I to IV 
provided the Basic Production Process be complied with.  
9.49.   Additionally, Article 2 of Implementing Order No. 289, of 11 July 2003, states  in relevant 
part that : 
The electric cables, connectors and transformers employed in the products direct 
current converter (A C-DC) and powering source for inkjet printer and cable modem 
have to be manufactured in Brazil from January 1, 2004  on. 
9.50.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of the following components or subasse mblies: plastic parts; step II - metallic parts; step 
III - electrical and mechanical parts; and step IV - printed circuit boards. All of these steps can be 
performed by third parties. That is, the accredited producer of DIRECT CURRENT CONVERTERS 
(AC- DC) and POWERING SOURCES FOR INKJET PRINTERS AND CABLE MODEM can outsource 
these steps and retain the tax benefits in question so long as the requirements of the steps 
(production in Brazil of the respective components and subassemblies from basic raw material s 
and inputs) are respected.  
9.51.   Also, Article 2 requires the manufacturing in Brazil of the electric cables, connectors and 
transformers employed in the DIRECT CURRENT CONVERTERS (AC - DC) and POWERING SOURCES 
FOR INKJET PRINTER AND CABLE MODEMS. Therefore, to  the extent that these components and 
subassemblies are outsourced, the accredited producer of DIRECT CURRENT CONVERTERS (AC - 
DC) and POWERING SOURCES FOR INKJET PRINTER AND CABLE MODEMS will only retain the tax 
benefits in question so long as the outsourc ed electric cables, connectors and transformers are 
produced in Brazil, i.e., are domestic products.  
_______________  
 
 
9.52.   MDIC/MCT Implementing Order No. 296, of 27 December 20011624, Article 1 states in 
relevant part that:  
The following Basic Production Proces s is hereby set forth for the product ELECTRONIC 
DEVICE TO ACTIVATE LOCKS OF SAFES WITH LATCH:  
I - injection of plastic parts, when applicable;  
II - stamping of the metallic case;  
                                                
1623 Imple menting Order 289/2003, (Exhibit BRA -116).  
1624 Implementing Order 296/2001, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  III - insertion and welding of components on the printed circuit board;  
IV - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
V - integration of the printed circuit boards and the electrical and mechanical parts to 
build the end product, assembled in accordance with Items I to IV above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be complied with.  
9.53.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs , of the following components or subassemblies: step I -plastic parts; step II - metallic case; 
step III - printed circuit board; and step IV - electrical and mechanical parts. All of these steps can 
be performed by third parties. That is, the accredited p roducer of ELECTRONIC DEVICES TO 
ACTIVATE LOCKS OF SAFES WITH LATCH can outsource these steps and retain the tax benefits in 
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic r aw materials and inputs) are respected.  
_______________  
 
 
9.54.   Implementing Order No. 298, of 24 November 20041625, Article 1 states in relevant part 
that:  
The following Basic Production Process is hereby set forth for the product PULMONARY 
VENTILATOR (RESPIRATOR ) (WITH AND WITHOUT TURBINE TECHNOLOGY) FOR 
VENTILATORY ASSISTANCE WITH BUILT -IN GRAPHIC MONITORING:  
I - stamping, cutting, folding and superficial treatment of the metallic parts of the 
case;  
II - injection of the plastic parts of the case;  
III - manufact ure of the printed circuit board from laminates;  
IV - assembly and welding –or an equivalent process –of all the electronic components 
on the printed circuit boards;  
V - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
VI - integration of the printed circuit boards and the electrical and mechanical parts to 
build the end product, in accordance with Items I to V.  
§ 1. Third parties can perform the activities or operations described in Items I to IV in 
Brazil provided the Basic Production Process be complied with.  
9.55.   The Panel considers that at least step s I to V involve the creation, from basic raw materials 
and inputs, of components or subassemblies, as follows: step I - metallic parts of the case; step II 
- plastic parts of the case; and Step III bare printed circuit boards; step IV – complete printed 
circuit boards ; and step V, electrical and mechanical parts . All of these steps can be performed by 
third parties. That is, the accredited producer of PULMONARY VENTILATORS (RESPIRATORS) 
(WITH AND WITHOUT TURBINE TECHNOLOGY) FOR VENTILATORY ASSISTANCE WITH BUILT -IN 
GRAPHIC MONITORING can outsource these steps and retain the tax benefits in question so long 
as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
                                                
1625 Implementing Order 298/2004, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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9.56.   Implementing Order No. 410, of 4 September 20031626, Article 1 states in relevant part 
that:  
The following Basic Production Process is hereby se t forth for the product 
CONNECTORS FOR PRINTED CIRCUIT NCM ITEM 8536.90.40:  
I - cutting of bars, tubes or pins;  
II - machining;  
III - thermal treatment;  
IV - surface treatment by electrodeposition of copper, gold, silver, nickel, zinc or tin; 
and 
V - assem bly of the parts.  
§ 1. All the stages of the Basic Production Process described above shall be performed 
in Brazil.  
§ 2. Third parties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be compl ied with.  
9.57.   The Panel considers that at least steps I and II involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I involves the cutting of 
bars, tubes and pins; and step II involves the machining of the  cut pieces. These steps can be 
performed by third parties. That is, the accredited producer of CONNECTORS FOR PRINTED 
CIRCUIT NCM ITEM 8536.90.40 can outsource these steps and retain the tax benefits in question 
so long as the requirements of the steps (p roduction in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.58.   Implementing Order No. 411, of 4 September 20031627, Article 1 states in relevant part 
that: 
The following Basic Productio n Process is hereby set forth for the product FREE -SPACE 
OPTICAL COMMUNICATION SYSTEM, manufactured in Brazil:  
I - stamping, cutting, folding, surface treatment of the metallic parts of the fixing 
supports;  
II - assembly of the metallic case from fully sep arate mechanic parts, at the level of 
components;  
III - assembly of the mechanic device for elevation and azimuth adjustment, from 
fully separate mechanic parts, at the level of components;  
IV - assembly of the transmission and reception telescopes, from f ully separate 
mechanic and optical parts, at the level of components;  
V - assembly and welding of all the components on the printed circuit boards; and  
VI - integration of the printed circuit boards, of the electric, mechanic and optical 
parts to build the  end product, as set forth in sections "I" to "V" above.  
                                                
1626 Implementing Order 410/2003, (Exhibit BRA -116).  
1627 Implementing Order 411/2003, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  § 1. Third parties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be complied with.  
9.59.   The Panel considers that steps I to V involve the  creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - metallic parts of the supports; step II 
- metallic case; steps III - mechanical device for elevation and azimuth adjustment; step IV - 
transmission and rec eption telescopes; and step V - printed circuit boards. Steps I to V can be 
performed by third parties. That is, the accredited producer of FREE -SPACE OPTICAL 
COMMUNICATION SYSTEMS can outsource these steps and retain the tax benefits in question so 
long a s the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.60.   Implementing Order No. 429, of 17 September 20031628, Article 1 states in relevant part 
that: 
The following Basic Production Process is hereby set forth for the product OPTICAL 
UNIT OF VIDEO OUTPUT FOR PROCESS MAINTENANCE, CONTROL AND SUPERVISION 
SYSTEMS:  
I - assembly and welding of all the components on the printed circuit boards;  
II - assem bly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
III - integration of the printed circuit boards and of the electrical and mechanical parts 
to build the end product, assembled in accordance with Items I and II above.  
§ 1. All the stages of the Basic Production Process described above shall be performed 
in Brazil.  
§ 2. Third parties can perform the activities or operations described in Items I and II 
provided the Basic Production Process be complied with.  
9.61.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps I and II can be performed by th ird parties. That is, the 
accredited producer of OPTICAL UNITS OF VIDEO OUTPUT FOR PROCESS MAINTENANCE, 
CONTROL AND SUPERVISION SYSTEMS can outsource these steps and retain the tax benefits in 
question so long as the requirements of the steps (production i n Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.62.   Implementing Order No. 446, of 8 October 20031629, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product 
MONOCHROMATIC LIQUID CRYSTAL DISPLAY, EXCEPT FOR USE IN CELL PHONES:  
I - Manufacture of the cells of segment and module displays:  
a) cutting of the glass plates;  
b) application of the photoresistor;  
c) fixing of the photore sistor;  
                                                
1628 Implementin g Order 429/2003, (Exhibit BRA -116).  
1629 Implementing Order 446/2003, (Exhibit BRA -116).  (The Panel notes that there is no "k)" in the 
original exhibit).  WT/DS472/R • WT/DS497/R  
 
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  d) photo recording of the photoresistor;  
e) chemical bath of the glass plate;  
f) cutting of the glass;  
g) removal of the photoresistor sensitized by the light with chemical bath;  
h) application of the alignment layer;  
i) alignment process (rubbing) ; 
j) application of anti -reflective material;  
l) application of spacers;  
m) alignment and closing of the two glass plates;  
n) filling of the cells; and  
o) gluing of the polarizers on the two faces of the cells.  
 
II - assembly of the controlling plate, when  applicable:  
a) gluing of the chip;  
b) welding of the chip; and  
c) application of epoxy resin.  
 
III - assembly of the connector;  
IV - assembly of the glass, rubber connector and metallic frame on the controlling 
plate; and  
V - optical and electric tests.  
Sole Paragraph. Third parties can perform the activities or operations described in 
Items I to IV provided the Basic Production Process be complied with.  
9.63.   The Panel considers that at least steps I to III involve the creation, from basic raw materials 
and inp uts, of components or subassemblies, as follows: step I - cells of segment and module 
displays; step II - controlling plates; and step III - connectors. Steps I to III can be performed by 
third parties. That is, the accredited producer of MONOCHROMATIC LIQ UID CRYSTAL DISPLAYS, 
EXCEPT FOR USE IN CELL PHONES can outsource these steps and retain the tax benefits in 
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and  inputs) are respected.  
_______________  
 
 
9.64.   Implementing Order No. 454, of 8 October 20031630, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the products OPTICAL 
SENSORS, (NCM 8543.89.99):  
I - plastic inj ection of the sensor body, when applicable;  
II - assembly and welding of all the components on the printed circuit boards;  
III - sensor assembly;  
IV - operation tests; and  
V - recording.  
Sole Paragraph. Third parties can perform the activities or operation s described in 
Items I and II provided the Basic Production Process be complied with.  
9.65.   The Panel considers that at least steps I and II involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I - sensor bo dy; and step 
                                                
1630 Implementing Order 454/2003, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  II - printed circuit boards. Steps I to II can be performed by third parties. That is, the accredited 
producer of OPTICAL SENSORS, (NCM 8543.89.99) can outsource these steps and retain the tax 
benefits in question so long as the requirements o f the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.66.   Implementing Order No. 476, of 7 November 20031631, Article 1 states in relevant part that:  
The following Ba sic Production Process is hereby set forth for the product TERMINAL 
FOR INTERNET DIRECT ACCESS:  
I - injection of the plastic parts;  
II - stamping of the metallic parts;  
III - assembly and welding of all the components on the following printed circuit 
board s, including the remote control:  
a) engine board;  
b) audio and video board;  
c) control panel board;  
d) remote control board;  
e) fax -modem board;  
f) processing board; and  
g) memory module.  
 
IV - assembly of the electrical and mechanical parts, fully separat e, at the basic level 
of components; and  
V – integration of the boards and of the electrical and mechanical parts to build the 
end product, assembled in accordance with stages "III" and "IV".  
§ 1. Third parties can perform the activities or operations inhe rent in the production 
stages set forth in this Article provided the Basic Production Process be complied with.  
9.67.    The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: s tep I - plastic parts; step II - metallic parts; 
step III - engine board; audio and video board; control panel board; remote control board; fax -
modem board; processing board; and memory module; and step IV - electrical and mechanical 
parts. Steps I to IV c an be performed by third parties. That is, the accredited producer of 
TERMINALS FOR INTERNET DIRECT ACCESS can outsource these steps and retain the tax benefits 
in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.68.   MDIC/MCT Implementing Order No. 536 of 18 December 20031632, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth fo r the product METALLIZED 
PLASTIC PARTS FOR CELLULAR TELEPHONE:  
I - plastic injection; and  
                                                
1631 Implementing Order 476/2003, (Exhibit BRA -116).  
1632 Implementing Order 536/2003, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  II - metallization.  
Paragraph 1 The activities or operations inherent to the production step described in 
section I of this article may be performed by third -parties in the country.  
9.69.   The Panel considers that step I involves the creation, from basic raw materials and inputs, 
of the following components or subassemblies: plastic parts. Step I can be performed by third 
parties. That is, the accredited producer of METALLIZE D PLASTIC PARTS FOR CELLULAR 
TELEPHONES can outsource this step and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are r espected.  
_______________  
 
 
9.70.   MDIC/MCT Implementing Order No. 566, of 23 December 20031633, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth for the product 
PIEZOELECTRIC DEVICE FOR SURFACE ACOUSTIC WAVES, call ed SAW device, NCM 
8529.90.19:  
I - assembly of the piezoelectric table, non -encapsulated:  
a) preparation of the printed wafer;  
b) wafer cutting;  
c) final assembly of the filter;  
 
II – encapsulation of the assembled tablet;  
III - electric test (assay);  
IV - strapping, when applicable; and  
V - marking (identification).  
§ 2. Third parties can perform the activities or operations inherent in the production 
stages set forth in this Article in Brazil provided the Basic Production Process be 
complied with.  
9.71.   The Pan el considers that step I involves the creation, from basic raw materials and inputs, 
of the following components or subassemblies: piezoelectric table. Step I can be performed by 
third parties. That is, the accredited producer of PIEZOELECTRIC DEVICES FOR SURFACE 
ACOUSTIC WAVES, called SAW devices, NCM 8529.90 can outsource this step and retain the tax 
benefits in question so long as the requirements of the step (production in Brazil of the respective 
components and subassemblies from basic raw materials an d inputs) are respected.  
_______________  
 
 
9.72.   MDIC/MCT Implementing Order No. 42, of 23 February 20061634, Article 1 states in relevant 
part that:  
The following Basic Production Process is hereby set forth for the product MEDICAL 
CASE OF TRANSCEIVER UNITS FOR RA DIO BASE STATION - RBS AND FOR CELLULAR 
REPEATERS:  
                                                
1633 Implementing Order 566/2003, (Exhibit BRA -116).  
1634 Implementing Order 42/2006, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  I - cutting, folding and punching or other puncturing process, laser cutting or 
stamping of the metallic plates in the mechanic structure and in the case -closing 
parts, such as doors, ceilings, sides and l ids; 
II - welding or riveting of the metallic parts mentioned in item I;  
III - surface treatment and painting of the metallic parts mentioned in item I; and  
IV - integration of metallic parts to build the end product.  
§ 1. Third parties can perform the act ivities or operations inherent in the production 
stages provided the Basic Production Process be complied with, except for IV, which 
cannot be outsourced.  
9.73.   The Panel considers that at least step I involves the creation, from basic raw materials and 
inputs, of components or subassemblies: metallic parts, including metallic plates. This step can be 
performed by third parties. That is, the accredited producer of MEDICAL CASES OF TRANSCEIVER 
UNITS FOR RADIO BASE STATION - RBS AND FOR CELLULAR REPEATERS can outso urce these 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Brazil of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
_______________  
 
 
9.74.   Implementing Order No. 44, of 3 February 20091635, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product PORTABLE 
SURVEILLANCE RADAR, manufactured in Brazil:  
I - moulding, cutting, folding, machining and surface trea tment, when applicable, of 
the following sets:  
a) structure, locks and discs;  
b) quadripod rods;  
c) UPS – Uninterrupted Power Supply box;  
d) radiating elements of the primary radar antenna;  
e) pedestal box (aluminum);  
f) control unit box;  
g) battery box;  
h) cable coiling support;  
i) supporting base for the primary radar antenna;  
j) support of the antenna radiating elements;  
l) support of the secondary radar antenna;  
m) box of the secondary radar antenna; and  
n) radiating elements of the secondary radar ante nna. 
 
II - assembly and integration of the following SUBASSEMBLIES from the respective 
operation stages:  
a) QUADRIPOD SUBASSEMBLY:  
1. integration of the vertical columns;  
2. placement of the flanges on the vertical column;  
3. integration of the quadripod r ods on the flanges;  
4. integration among the quadripod rods; and  
5. integration of the mechanic elevation device (jack).  
 
                                                
1635 Implementing Order 44/2009, (Exhibit BRA -116).  (The Panel notes that there is no "k)" in the 
original exhibit ). WT/DS472/R • WT/DS497/R  
 
- 332 - 
 
  b) PEDESTAL SUBASSEMBLY:  
1. assembly of the pedestal box faces;  
2. integration of the engine control module;  
3. integration of the eng ine with the reducer;  
4. integration of the position sensor (encoder) with the engine/reducer set;  
5. integration of the set with the lids;  
6. integration of the bubble level with the lid;  
7. integration of the sliding ring set with the set;  
8. integration  of the Hobbs meter with the pedestal face;  
9. electric connections;  
10. closing of the pedestal box; and  
11. electric tests.  
 
c) BATTERY BOX:  
1. integration of the batteries with the box;  
2. electric connections; and  
3. electric tests.  
 
d) UPS - Uninterru pted Power Supply SUBASSEMBLY:  
1. manufacture of the printed circuits of the boards in the feeding and power unit, 
from the laminates;  
2. assembly and welding of the components on the printed circuit boards of the 
feeding and power unit;  
3. integration of the printed circuit boards and other components in the feeding unit 
box; and  
4. electric tests.  
 
e) PRIMARY RADAR ANTENNA:  
1. assembly of the parts in the supporting base of the primary radar antenna;  
2. assembly of the secondary radar antenna support (IFF  - Identification Friend or 
Foe);  
3. assembly of the attenuators on the supports of the radiating elements;  
4. assembly of the radiating elements of the primary radar in the supports;  
5. assembly of the radiating set on the supporting base of the primary r adar antenna;  
6. assembly of the IFF transponder module on the support of the radiating elements in 
the primary radar; and  
7. electric connectors of the attenuators to the radiating elements.  
 
f) DATA CONTROL AND PROCESSING UNIT:  
1. manufacture of the prin ted circuits from the laminates, of the interface, data 
processing and signal processing boards;  
2. assembly and welding of the components on the interface board;  
3. integration of the interface board with the control unit;  
4. assembly and welding of the c omponents on data processing and signal processing 
boards;  
5. integration data processing board with the signal processing board;  
6. integration of the modules, amplifiers, filters, couplers, mixers and detectors with 
the control unit;  
7. integration of th e Hobbs meter with the control unit;  
8. integration of the transmitting, switching and receiving module with the control 
unit; 
9. electric connections;  
10. setup and electric tests; and  
11. closing of the control unit.  
 WT/DS472/R • WT/DS497/R  
 
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  g) SECONDARY RADAR ANTENNA:  
1. place ment of the radiating elements on the insulation support;  
2. integration of the set in the secondary radar antenna box;  
3. electric connections;  
4. electric tests; and  
5. closing of the secondary radar antenna box.  
 
h) VIEWING UNIT:  
1. setup of the viewing  unit (system installation and setup);  
i) CABLE COILING SUPPORT SET:  
1. integration of the regulating module with the cable coiling support;  
2. crimping of the connectors to the cable;  
3. welding of the cable on the regulating module;  
4. cable coiling; and  
5. electric tests.  
 
III - final assembly of the PORTABLE SURVEILLANCE RADAR through the following 
stages:  
a) integration of the pedestal set with the quadripod set;  
b) leveling adjustments;  
c) integration of the UPS sets and the battery box with the quadr ipod; 
d) integration of the antenna set with the pedestal;  
e) integration of the control unit with the antenna set;  
f) integration of the secondary radar antenna with the antenna set;  
g) electric connections of the radar set;  
h) integration of the coiling set with the radar set and viewing unit;  
i) radar system tests; and  
j) placement of the following units in metallic boxes: primary radar antenna, pedestal, 
control unit, secondary radar antenna, viewing unit, quadripod, feeding unit and 
battery boxes and c oiling support.  
 
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages described in this Article provided the Basic Production Process be 
complied with, with exception of the stages described in Item III, which cannot be 
outsourced.  
 
9.75.   The Panel considers that step I and II involves the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - structure, locks and discs, quadripod 
rods, UPS – uninterrupted power suppl y boxes, radiating elements of the primary radar antenna, 
pedestal boxes (aluminum), control unit boxes, battery boxes, cable coiling supports, supporting 
bases for the primary radar antenna, supports of the antenna radiating elements, supports of the 
secondary radar antenna, boxes of the secondary radar antenna, and radiating elements of the 
secondary radar antenna; and step II –quadripod subassemblies, pedestal subassemblies, battery 
boxes, UPS - Uninterrupted Power Supply subassemblies, primary radar ant ennas, data control 
and processing units, secondary radar antennas, viewing units, and cable coiling support sets. 
Steps I to II can be performed by third parties. That is, the accredited producer of PORTABLE 
SURVEILLANCE RADARS can outsource these steps a nd retain the tax benefits in question so long 
as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 WT/DS472/R • WT/DS497/R  
 
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  9.76.   MDIC/MCT Implementing Order No. 52, o f 17 February 20051636, Article 1 states in relevant 
part that:  
The Basic Production Process for the product INK CARTRIDGE WITHOUT BUILT -IN 
PRINTING HEAD FOR INKJET PRINTERS (NCM - 8473.3027), as set forth by 
MDIC/MCT Implementing Order No. 8, of July 13, 19 99, now becomes the following:  
I - water treatment by means of demineralization;  
II - mixture of the pigments with the demineralized water;  
III - plastic injection of the container;  
IV - assembly of the parts and pieces; and  
V - bottling and sealing.  
§ 1. All the stages of the Basic Production Process described above shall be performed 
in Brazil.  
§ 3. Third parties can perform the activities or operations inherent in the production 
stages set forth in Items "I", "II" and "III" of this Article provided t he Basic Production 
Process be complied with.  
9.77.    The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I – demineralized water; step II - ink; 
and steps III - conta iners. Steps I to III can be performed by third parties. That is, the accredited 
producer of INK CARTRIDGES WITHOUT BUILT -IN PRINTING HEAD FOR INKJET PRINTERS (NCM - 
8473.3027) can outsource these steps and retain the tax benefits in question so long as th e 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
9.78.   Implementing Order No. 69, of 29 February 20121637, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product 
RADIOFREQUENCY FILTER FOR BROADCAST EQUIPMENT, manufactured in Brazil:  
I - stamping, cutting, folding, machining and surface treatment of the metallic parts, 
when applicable;  
II - welding and assembly of the subassemblies constituting the filter;  
III - integration of the mechanic parts, fully separate, at the basic level of components 
to assemble the end product; and  
IV - performance of filter tuning.  
Sole Paragraph. Third parties c an perform the activities or operations inherent in the 
production stages provided the Basic Production Process be complied with, with 
exception of the stage described in Items III and IV, which cannot be outsourced.  
9.79.   The Panel considers that steps I and II  involves the creation, from basic raw materials and 
inputs, of the following components or subassemblies: metallic parts; and that step II involves the 
creation, from basic raw materials and inputs, of the following components or subassemblies: 
subassembl ies constituting the filter. Steps I to II can be performed by third parties. That is, the 
                                                
1636 Implementing Order 52/2005, (Exhibit BRA -116).  
1637 Implementing Order 69/2012, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 335 - 
 
  accredited producer of RADIOFREQUENCY FILTERS FOR BROADCAST EQUIPMENT can outsource 
these steps and retain the tax benefits in question so long as the requirements o f the steps 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs) are respected.  
_______________  
 
 
9.80.   Implementing Order No. 72, of 29 February 20121638, Article 1 states in relevant part that:  
The Basic Produc tion Process for the product ELECTRIC ACCUMULATOR FIT FOR 
PORTABLE CELL PHONE TERMINAL, position NCM 8517.12, as set forth by MDIC/MCT 
Implementing Order 229, of December 24, 2009, now becomes the following:  
I - manufacture of charge accumulation cells;  
II - injection of the upper and lower plastic lids, when applicable;  
III - stamping of terminals and pins, except when strapped or overmolded;  
IV - assembly and welding of all the components on the printed circuit boards, when 
applicable;  
V - assembly and we lding of the charge accumulation cells; and  
VI - integration of the set of charge accumulation cells with the mechanic parts to 
build the end product.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages provided the Basic Production Process be complied with, with 
exception of the stage described in Item VI, which cannot be outsourced.  
9.81.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassem blies, as follows: steps I and V - charge accumulation cells; 
step II - upper and lower plastic lids; step III - terminals and pins; and step IV - printed circuit 
boards. Steps I to V can be performed by third parties. That is, the accredited producer of 
ELECTRIC ACCUMULATOR FITS FOR PORTABLE CELL PHONE TERMINALS, position NCM 8517.12, 
can outsource these steps and retain the tax benefits in question so long as the requirements of 
the steps (production in Brazil of the respective components and subassemblie s from basic raw 
materials and inputs) are respected.  
_______________  
 
 
9.82.   Implementing Order No. 125, of 25 July 20071639, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product GLOBAL 
POSITIONING SYST EM - GPS ANTENNA:  
I - stamping, cutting, folding and surface treatment of the metallic parts, when 
applicable;  
II - injection of the plastic parts;  
III - manufacture of the printed circuit from the laminate;  
IV - assembly and welding –or an equivalent proce ss–of all the components on the 
printed circuit boards;  
                                                
1638 Implementing Order 72/2012, (Exhibit BRA -116).  
1639 Implementing Order 125/2007, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  V - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
VI - integration of the printed circuit boards with the electrical and mechanical parts to 
build the end product, in accordance with Items I to V.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages described above provided the Basic Production Process be complied 
with, with exception of stage V I, which cannot be outsourced.  
9.83.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - metallic parts; step II - plastic parts; 
step III – printed circuits; step IV - printed circuit boards; and step V - electrical and mechanical 
parts. Steps I to V can be performed by third parties. That is, the accredited producer of GLOBAL 
POSITIONING SYSTEM - GPS ANTENNAS can outsource these steps and retain the tax benefits in  
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.84.   Implementing Order No. 146, of 1 July 20101640, Article 1 states in r elevant part that:  
The Basic Production Process for the products DIGITAL TEMPERATURE CONTROLLER, 
DIGITAL TEMPERATURE INDICATOR, DIGITAL INDICATOR OF ELECTRIC QUANTITIES, 
DIGITAL DISPLAY OF ELECTRIC QUANTITIES and DIGITAL COUNTER, as set forth by 
MDIC/MCT I mplementing Order 86, of April 2, 2009, now becomes the following:  
I - injection or molding of the plastic parts;  
II - stamping of the metallic parts, when applicable;  
III - manufacture of the printed circuit, from the laminate;  
IV - assembly and welding o f all the components on the printed circuit boards;  
V - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
VI – integration of the printed circuit boards with the electrical and mechanical parts 
to build the end product.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages provided the Basic Production Process be complied with, with 
exception of the stage described in Item VI, which cannot be outsourced.  
9.85.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - plastic parts; step II - metallic parts; 
step III - printed circuits; step IV -printed circuit boards; and  step V - electrical and mechanical 
parts. Steps I to V can be performed by third parties. That is, the accredited producer of DIGITAL 
TEMPERATURE CONTROLLERS, DIGITAL TEMPERATURE INDICATORS, DIGITAL INDICATORS OF 
ELECTRIC QUANTITIES, DIGITAL DISPLAYS OF E LECTRIC QUANTITIES and DIGITAL COUNTERS 
can outsource these steps and retain the tax benefits in question so long as the requirements of 
the steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are  respected.  
_______________  
 
 
                                                
1640 Implementing Order 146/2010, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.86.   Implementing Order No. 157, of 29 August 20071641, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product MEMORY 
CARD with SECURE DIGITAL – SD technology, manufactured in the Duty -Free Zone of 
Manaus:  
I - plastic injection;  
II – manufacture of the hard or flexible printed circuit, when applicable;  
III - assembly and welding of all the components on the printed circuit boards; and  
IV - final assembly of the set.  
§ 1. Thir d parties can perform the activities or operations inherent in the production 
stages set forth in the Article provided the Basic Production Process be complied with, 
with exception of the stage described in Section IV, which cannot be outsourced.  
9.87.   Additiona lly, § 6 of Article 1 of Implementing Order No. 157, of 29 August 2007, states  in 
relevant part that : 
The hard printed circuit has to be manufactured from the laminate and the flexible 
printed circuit in order to comply with the provisions in Item II, manu factured in 
accordance with the relevant Basic Production Process.  
9.88.   Further, Article 2 states  in relevant part that : 
The monolithic integrated circuits or microchips employed to assemble the boards 
shall meet the relevant Basic Production Process for a mini mum percentage of fifty 
percent (50%) of the output in the calendar year as of January 1, 2009.  
9.89.   The Panel considers that steps I to III, along with paragraph 6 of Article 1, and Article 2, 
involve the creation, from basic raw materials and inputs, of compo nents or subassemblies, as 
follows: step I - plastic parts; step II and § 6 of Article 1 - hard or flexible printed circuits; and 
step III - printed circuit boards. Steps I to III can be performed by third parties. That is, the 
accredited producer of MEMOR Y CARDS with SECURE DIGITAL – SD technology can outsource 
these steps and retain the tax benefits in question so long as the requirements of the steps 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs)  are respected.  
9.90.   Also, Article 2 requires that 50% of the monolithic integrated circuits or microchips 
employed to assemble the boards be produced in accordance with their own PPB. The Panel recalls 
that all PPBs that include any such "nested PPB" allow the  outsourcing of the inputs or components 
covered by that PPB so long as its requirements are respected.1642 The Panel also recalls its 
finding, at paragraph 7.117  of its report, that products produced in accordance with PPBs are 
domestic products. Therefore, where the accredited producer of MEMORY CARDS with SECURE 
DIGITAL – SD technology outsources the monolithic integrated circuits or microchips to be 
incorporated in the printed circuit boards, it can only retain the tax benefits  in question if a portion 
of those integrated circuits or microchips are produced in Brazil in accordance with their own PPB, 
and thus are domestic products.  
_______________  
 
 
                                                
1641 Implementing Order 157/2007, (Exhibit BRA -116).  
1642 See footnote 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  9.91.   Implementing Order No. 158, of 22 June 20111643, Article 1 states in relevant part  that:  
The Basic Production Process for the products NON -IMPACT PRINTERS, INCLUDING 
THOSE COMBINED WITH OTHER INPUT OR OUTPUT UNITS, as set forth by MDIC/MCT 
Implementing Order 128, of July 2, 2009, now becomes the following:  
I - assembly and welding of a ll the components on the printed circuit boards 
implementing the following functions:  
a) central processing;  
b) printing carriage control;  
c) memory; and  
d) data communication interface with logic control.  
 
II - assembly of the electrical and mechanical pa rts, fully separate, at the basic level 
of components;  
III - integration of the printed circuit boards with the other parts to build the end 
product, assembled in accordance with Items I and II of this Article; and  
IV - final setup of the product and opera tion tests.  
§ 1. Third parties can perform the activities or operations described in Items I and II 
provided the Basic Production Process be complied with.  
9.92.   Additionally, § 4 of Article 1 of Implementing Order No. 158, of 22 June 2011, states  in 
relevant pa rt that : 
The communication interface boards with wireless technology (Wi -Fi, Bluetooth, 
WIMax, etc.) shall meet the following assembly schedule, based on the quantity of 
such boards employed in the calendar year:  
I - until December 31, 2012: exempted;  
II - January 1, 2013 – December 31, 2013: twenty percent (20%); and  
III – from January 1, 2014 onwards: fifty percent (50%).  
9.93.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as f ollows: step I - printed circuit boards for central 
processing, printing carriage control, memory; and data communication interface with logic control 
(subject to a partial, staged exemption pursuant to § 4 of Article 1); and step II -electrical and 
mechan ical parts. Steps I and II can be performed by third parties. That is, the accredited 
producer of NON -IMPACT PRINTERS, INCLUDING THOSE COMBINED WITH OTHER INPUT OR 
OUTPUT UNITS can outsource these steps and retain the tax benefits in question so long as th e 
requirements of the steps (production in Brazil of the respective components and subassemblies - 
- from basic raw materials and inputs) are respected (subject to the partial exemption for certain 
data communication boards).  
_______________  
 
 
9.94.   Implementing  Order No. 162, of June 22 20111644, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product POWERING 
SOURCE (AC/DC CONVERTER) FOR DEBIT AND CREDIT WIRE TRANSFER TERMINALS, 
manufactured in Brazil:  
                                                
1643 Implementing Order 158/2011, (Exhibit BRA -116).  
1644 Implementing Order 162/2011, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 339 - 
 
  I - assembly and welding of all the components on the printed circuit board;  
II - winding of the transformer coil;  
III - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
IV - integration of the printed ci rcuit board with the other parts to build the end 
product, assembled in accordance with Items I and II above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages provided the Basic Production Process be complied wi th, with exception of the 
stage described in Item IV, which cannot be outsourced.  
9.95.   The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies: step I - printed circuit boards; step II - transformer coils; 
and step III - electrical and mechanical parts. Steps I to III can be performed by third parties. 
That is, the accredited producer of POWERING SOURCES (AC/DC CONVERTER) FOR DEBIT AND 
CREDIT WIRE TRANSFER TERMINALS can outsource these ste ps and retain the tax benefits in 
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.96.   MDIC/MCT Implementing Order No. 1 75, of 3 October 20071645, Article 1 states in relevant 
part that:  
The Basic Production Process for the product WIRED TELEPHONE SET TOGETHER 
WITH WIRELESS TELEPHONE SET, INCLUDING CONTROL BY DIGITAL TECHNIQUES, 
as set forth by MDIC/MCT Implementing Order 15,  of January 22, 2007, now becomes 
the following:  
I - plastic injection of the body or case;  
II - manufacture of the direct current converter (AC/DC), of the voltage adapter and 
the battery charger in compliance with the provisions in Article 3 of this Orde r, when 
applicable;  
III - assembly and welding of all the components on the printed circuit boards;  
IV - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
V - integration of the printed circuit boards wi th the other parts to build the end 
product, in accordance with Items I, III and IV above.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages described above provided the Basic Production Process be com plied 
with, with exception of stage V, which cannot be outsourced.  
9.97.   Additionally, Article 2 of MDIC/MCT Implementing Order No. 175, of 3 October 2007, states  
in relevant part that : 
At least one of the following criteria has to be met, at the discretion of t he 
manufacturing company:  
I - assembly of the transceiver module;  
                                                
1645 Implementing Order 175/2007, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 340 - 
 
  II - manufacture of at least seventy percent (70%) of the total capacitors of the 
electrolytic, ceramic and multilayer ceramic types for surface assembly - SMD 
(Surface Mounted Device), in t erms of quantity, in the calendar year; or  
III - manufacture of the printed circuit from the laminate.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
stages described in this Article in Brazil.  
9.98.   Additionally, Article 3 of MDIC/MCT Implementing Order No. 175, of 3 October 2007, states  
in relevant part that : 
The direct current converter (AC/DC), the voltage adapter and the battery charger 
shall be manufactured in accordance with the minimum stages below:  
I - injection of  the plastic parts;  
II - stamping of the metallic parts, when applicable;  
III - manufacture of the voltage power transformer from the coil winding, or the use 
of domestic capacitors in the converter, at the discretion of the manufacturing 
company;  
IV - assembly and welding of all the components on the printed circuit boards; and  
V - integration of the printed circuit boards, when applicable, with the other parts to 
build the end product.  
9.99.   The Panel considers that steps I to IV involve the creation, from basi c raw materials and 
inputs, of components or subassemblies, as follows: step I - body or case; step II and Article 3 - 
direct current converter (AC/DC), voltage adapter and battery charger; step III - printed circuit 
boards; and step IV - electrical and me chanical parts. Steps I to IV (including the requirements in 
Article that pertain to step II) can be performed by third parties. That is, the accredited producer 
of WIRED TELEPHONE SET TOGETHER WITH WIRELESS TELEPHONE SET, INCLUDING CONTROL BY 
DIGITAL TECH NIQUES can outsource these steps and retain the tax benefits in question so long as 
the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
9.100.   Also, the steps in Ar ticle 2 (one of which the accredited company must choose) involve the 
creation, from basic raw materials and inputs, of the following components or subassemblies: the 
transceiver module, the total capacitors of the electrolytic, ceramic and multilayer cera mic types 
for surface assembly - SMD (Surface Mounted Device)of MDIC/MCT, and the printed circuit board. 
These steps can be performed by third parties. That is, the accredited producer of WIRED 
TELEPHONE SET TOGETHER WITH WIRELESS TELEPHONE SET, INCLUDING CONTROL BY DIGITAL 
TECHNIQUES can outsource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected . 
_______________  
 
 
9.101.   Implementing Order No. 177, of 28 August 20081646, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product AC/DC 
CONVERTER FOR PORTABLE DIGITAL DATA PROCESSING AUTOMATIC MACHINE 
(NCM: 8471.30.12 and 8471.30.19) - "LAPTOP":  
I - assembly and welding of the components on the printed circuit boards;  
                                                
1646 Implementing Order 177/2008, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 341 - 
 
  II - assembly of the electrical and mechanical parts, fully separate, at the basic level 
of components; and  
III - integration of the print ed circuit boards with the other electrical and mechanical 
parts to build the end product, assembled in accordance with Items I and II above.  
Sole Paragraph. Third parties can perform the activities or operations inherent in the 
production stages provided the Basic Production Process be complied with, with 
exception of the stage described in Item III, which cannot be outsourced.  
9.102.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies,  as follows: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps I and II can be performed by third parties. That is, the 
accredited producer of AC/DC CONVERTERS FOR PORTABLE DIGITAL DATA PROCESSING 
AUTOMATIC MACHINES (NCM : 8471.30.12 and 8471.30.19) - "LAPTOPS" can outsource these 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Brazil of the respective components and subassemblies from basic raw materials and inputs) ar e 
respected.  
_______________  
 
 
9.103.   Implementing Order MDIC/MCT No. 184 of 30 October 20061647, Article 1 states in relevant 
part that:  
The Basic Productive Process for product AUTOMATIC MACHINE FOR DATA 
PROCESSING, DIGITAL DATA, PORTABLE DATA OF WEIGHT NOT HIGHER  THAN 1 KG, 
CONTAINING AT LEAST ONE CENTRAL UNIT FOR PROCESSING AND ONE SCREEN 
(ÉCRAN), (NCM 8471.30.11, 8471.30.12, 8471.30.19, 8471.41.10 and 8471.41.90) 
set through Implementing Order MDCI/MTC 414 of September 8, 2003, is the 
following:  
I – assembly and  welding of all components in printed circuit boards;  
II – assembly of electrical and mechanical parts, fully separated, at basic level of 
components;  
III – assembly of the cabinet; and  
IV – integration of printed circuit boards and electrical and mechanic al parts in the 
composition of the final product, assembled according to items I and II above.  
Sole paragraph. The activities or operations described in items I, II and III may be 
performed in the country by third parties, provided that the Basic Productiv e Process 
is complied with.  
9.104.   Additionally, Article 4 of Implementing Order MDIC/MCT No. 184, of 20 October 2006, 
states  in relevant part that : 
Eighty -five per cent of the DC converters (CA/CC), battery chargers or power sources, 
as well as transformers inco rporated in such products, destined to assets to which the 
main section of Article 1 in this Order refer shall be manufactured in the country.  
9.105.   The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies (subject to the minimum percentage in Article 4 for 
compliance with the performance steps in Article 1), as follows: step I - printed circuit boards; 
step II - electrical and mechanical parts; and step III - cabinet. Steps I to III can be performed by 
third parties. That is, the accredited producer of AUTOMATIC MACHINES FOR DATA PROCESSING, 
DIGITAL DATA, PORTABLE DATA OF WEIGHT NOT HIGHER THAN 1 KG, CONTAINING AT LEAST 
                                                
1647 Implementing Order 184/2006, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  ONE CENTRAL UNIT FOR PROCESSING AND ONE SCREEN can outsource these steps  and retain the 
tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
______________  
 
 
9.106.   Implementing Order No. 196, of 2 Oct ober 20081648, Article 1 states in relevant part that:  
The Basic Production Process for the product METAL HOUSING, WITH OR WITHOUT 
POWER SUPPLY, FOR PROCESSING DIGITAL UNIT, established by MDIC/MCT 
Implementing Order 133 of May 18, 2005, should be as follows : 
I - cutting, bending and punching and stamping or extrusion of metallic parts, when 
applicable;  
II - superficial treatment and painting of metallic parts;  
III - injection of housing plastic parts with an area above 30cm2;  
IV - superficial treatment and p ainting of plastic parts, when applicable;  
V - fixing of light -emitting diodes (LED´s), keys and wiring at front mask, when 
applicable;  
VI - welding and/or riveting of metallic parts, when applicable;  
VII - mounting of plastic and metallic sub -assemblies; and 
VIII - integration of power supply, when applicable, and of metallic and plastic parts to 
form the final product.  
Sole paragraph. The activities or operations inherent to above production steps may 
be performed by third -parties, provided the Basic Prod uction Process is complied with, 
except for steps VI, VII and VIII, which shall not be subject to outsourcing.  
9.107.   Additionally, Article 3 of Implementing Order No. 196, of 2 October 2008, states  in 
relevant part that : 
When the metallic housing incorporates a power supply, this should be produced 
according to relevant Basic Productive Process, as determined in an Implementing 
Order.  
9.108.   The Panel considers that at least steps I and III involve the creation, from basic raw 
materials and inputs, of the following comp onents or subassemblies: step I - metallic parts; and 
step III - plastic parts. Steps I and III can be performed by third parties. That is, the accredited 
producer of METAL HOUSING, WITH OR WITHOUT POWER SUPPLY, FOR PROCESSING DIGITAL 
UNITS can outsource t hese steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
9.109.   In addition, Article 3 requires that, if th e METAL HOUSING FOR PROCESSING DIGITAL 
UNIT incorporates a power supply, this power supply be produced in accordance with its own PPB. 
The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of the 
inputs or components cove red by that PPB so long as its requirements are respected.1649 The Panel 
also recalls its finding, at paragraph 7.117  of its report, that products produced in accordance with 
PPBs are domestic products. Therefore, where the accred ited producer of METAL HOUSING FOR 
PROCESSING DIGITAL UNIT outsources the power supply, it can only retain the tax benefits in 
                                                
1648 Implementing Order 196/2008, (Exhibit BRA -116).  
1649 See footnote 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  question if that power supply is produced in Brazil in accordance with its own PPB, and thus is a 
domestic product.  
____________ ___ 
 
 
9.110.   MDIC/MCT Implementing Order No. 242, of 11 December 20071650, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth for the product MULTI -
FUNCTION DISTURBANCE DIGITAL METER:  
I - cutting, folding and punching  and stamping or extrusion of metallic plates of 
mechanic structure;  
II - welding and/or riveting of cabinet metallic parts, when applicable;  
III - superficial treatment and painting of cabinet metallic parts;  
IV - assembly and welding of all components in  printed circuit boards;  
V - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level; and  
VI - integration of printed circuit boards and electrical and mechanical parts to form 
the final product, assembled according to t he steps determined in above sections IV 
and V. 
Sole paragraph. The activities or operations inherent to above production steps may 
be performed by third -parties, provided the Basic Production Process is complied with, 
except for one of them, which shall n ot be subject to outsourcing.  
9.111.   The Panel considers that at least steps I, IV and V involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I - metallic parts; step IV - 
printed circuit boards; and step V - electrical and mechanical parts. Steps I, IV and V can be 
performed by third parties. That is, the accredited producer of MULTI -FUNCTION DISTURBANCE 
DIGITAL METERS can outsource these steps and retain the tax benefits in question so long as the 
requiremen ts of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
9.112.   Implementing Order No. 250, of 30 September 20111651, Article 1 states in relevant part 
that: 
The follow ing Basic Production Process is hereby set forth for the product PLASTIC 
HOUSING WITHOUT BUILT -IN POWER SUPPLY FOR DIGITAL PROCESSING UNIT, WITH 
BUILT -IN VIDEO OUTPUT UNIT (ALL IN ONE); PLASTIC HOUSING WITHOUT BUILT -IN 
POWER SUPPLY FOR PORTABLE DATA PROCES SING UNIT (NOTEBOOK AND 
NETBOOK); and PLASTIC HOUSING WITHOUT BUILT -IN POWER SUPPLY FOR 
PORTABLE MICROCOMPUTER, WITHOUT KEYBOARD, WITH TOUCH SCREEN - TABLET 
PC, industrialized in the Country:  
                                                
1650 Implementing Order 242/2007, (Exhibit BRA -116).  
1651 Implementing Order 250/2011, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  MOULD:  
I - machining comprising following operations:  
a) turning ; 
b) drilling;  
c) milling;  
d) electro -discharge;  
e) grinding; and  
f) polishing.  
 
II - thermal treatment;  
III - product assembly, comprising following steps:  
a) assembly and adjustments; and  
b) manual fixation of screws, bushings, pins and others.  
IV - adjustments and closing, comprising following steps:  
a) calibration and adjustments; and  
b) manual closing.  
 
THERMOPLASTIC INJECTION:  
I - plastic part injection;  
II - superficial treatment and painting of plastic parts;  
III - superficial treatment and painting  of metallic parts;  
IV - adjustment of any non -conformity;  
V - fixation of frames in housing body;  
VI - assembly and fixation of housing support;  
VII - riveting of metallic parts; and  
VIII - assembly of final product.  
Paragraph  1 Provided the Basic Product ion Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties, except for 
the steps contained in sections V to VIII, which shall not be subject to outsourcing.  
9.113.    The Panel considers that for Mould,  at least step I involves the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: machined parts; and that for 
Thermoplastic Injection, at least step I, involves the creation, from basic raw materials and inputs, 
of the components or subassemblies: plastic parts. These steps can be performed by third parties. 
That is, the accredited producer of PLASTIC HOUSINGS WITHOUT BUILT -IN POWER SUPPLY FOR 
DIGITAL PROCESSING UNIT, WITH BUILT -IN VIDEO OUTPUT UNIT (ALL IN ONE); PLAS TIC 
HOUSINGS WITHOUT BUILT -IN POWER SUPPLY FOR PORTABLE DATA PROCESSING UNITS 
(NOTEBOOKS AND NETBOOKS); and PLASTIC HOUSINGS WITHOUT BUILT -IN POWER SUPPLY FOR 
PORTABLE MICROCOMPUTERS, WITHOUT KEYBOARD, WITH TOUCH SCREEN - TABLET PCs can 
outsource these ste ps and retain the tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
_______________  
 WT/DS472/R • WT/DS497/R  
 
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9.114.   Implementing Order No. 149, of 26  June 20121652, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product STATIC 
CONVERTER WITH ELECTRONIC CONTROL, PROVIDED IT IS BASED ON DIGITAL 
TECHNIQUE, (NCM: 8504.40), USED AS CONTINUOUS CURRENT CONVERTER (AC/CC) 
or BATTERY CHARGER FOR CELL PHONE:  
I - WHEN THE STATIC CONVERTER OR BATTERY CHARGE HAS BUILT -IN ELECTRIC 
CABLE:  
a) plastic injection of covers or cabinets;  
b) stamping of electrical contacts, when applicable, except in case of metallic pa rts 
encapsulated in plastic parts;  
c) assembly and welding of all components of printed circuit boards, when applicable; 
and 
d) integration of printed circuit boards, when applicable, and of other parts to form 
the final product.  
II - WHEN STATIC CONVERTER  OR CHARGER DOES NOT HAVE A BUILT -IN ELECTRIC 
CABLE, BUT ARE USED WITH DATA CABLE:  
a) plastic injection of covers or cabinets;  
b) stamping of electrical contacts, when applicable, except in case of metallic parts 
encapsulated in plastic parts;  
c) assembly and welding of all components of printed circuit boards, when applicable; 
and 
d) integration of printed circuit boards, when applicable, and of other parts to form 
the final product.  
Sole paragraph. Provided the Basic Production Process is complied with, t he activities 
or operations inherent to production steps referred to in sections I and II may be 
performed by third -parties, except for the steps described in item "d" of each section, 
which shall not be subject to outsourcing.  
9.115.   Additionally, Article 4 of I mplementing Order No. 149, of 26 June 2012, states  in relevant 
part that : 
For manufacturing of CONTINUOUS CURRENT CONVERTER (AC/CC) or BATTERY 
CHARGER FOR CELL PHONE, WITH BUILT -IN ELECTRICAL CABLE, the transformers 
and electrical cables assembled with con nectors, and used by the company in the 
calendar year should comply with their respective Basic Production Processes, when 
they are produced at Manaus Free Trade Zone, or should comply with the production 
steps described in Exhibits I and II of this Order,  when they are produced in other 
regions of the Country, according to following percentages, in the calendar year and in 
quantity:  
I - transformers: eighty -five percent (85%); and  
II - electrical cables: ninety percent (90%).  
9.116.   Further, Article 5 of Implemen ting Order No. 149, of 26 June 2012, states  in relevant part 
that: 
For manufacturing of CONTINUOUS CURRENT CONVERTER (AC/CC) or BATTERY 
CHARGER FOR CELL PHONE, WITHOUT BUILT -IN ELECTRICAL CABLE (USED WITH 
DATA CABLE), the transformers and data cables used by the company in the calendar 
year should comply with their respective Basic Production Processes, when they are 
produced at Manaus Free Trade Zone, or should comply with the production steps 
                                                
1652 Implementing Order 149/2012, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  described in Exhibits I and II of this Order, when they are pro duced in other regions of 
the Country, according to following percentages, in the calendar year and in quantity:  
I - transformers: eighty -five percent (85%); and  
II - data cables:  
a) from January 1st to December 31, 2011: minimum of forty -five percent (45% ); 
b) from January 1st to December 31, 2014: minimum of fifty percent (50%); and  
c) as of January 1st, 2015: minimum of eighty percent (80%).  
9.117.   Article 1 of Exhibit I, annexed to Implementing Order No. 149, of 26 June 2012, states  in 
relevant part that : 
Production steps of ELECTRIC TRANSFORMER LOWER THAN 3KVA, WITH 
FERROMAGNETIC POWDER CORE are as follows:  
I - spool plastic injection/mould;  
II - winding of bobbins on spools, fitting and welding of winding terminals, when 
applicable; and  
III - assembly.  
9.118.   Article 1 of Exhibit II, annexed to Implementing Order No. 149, of 26 June 2012, states  in 
relevant part that : 
The production steps of WIRES AND CABLES WITH CONNECTORS OR DATA CABLES 
DESTINED TO CONVERTER AND BATTERY CHARGER FOR CELL PHONE are as follows:  
I - cutting of cable according to specified size;  
II - cable stripping;  
III - mesh winding, when applicable;  
IV - welding or crimping of terminals, when applicable;  
V - insertion of terminals in receiver housing, when applicable; or  
VI - welding of cable in term inals of connector housing; or  
VII - welding of cable in the printed circuit board assembled with components and 
USB type connector.  
9.119.   The Panel considers that at least steps I(a) –(c) and II(a) -(c) of Article 1 involve the 
creation, from basic raw materials and inputs, of components or subassemblies (subject to the 
minimum percentages in Articles 4 and 5 and Exhibits I and II for compliance with Article 1, on the 
basis of the production step requirements or own PPBs) as follows: steps I(a) and II (a) covers o r 
cabinets; steps I(b) and II(b) - electrical contacts; and steps I(c) and II(c) - printed circuit boards. 
Steps I(a) -(c) and II(a) -(c) can be performed by third parties. That is, the accredited producer of 
STATIC CONVERTERS WITH ELECTRONIC CONTROL, PROVID ED IT IS BASED ON DIGITAL 
TECHNIQUE, (NCM: 8504.40), USED AS CONTINUOUS CURRENT CONVERTER (AC/CC) or BATTERY 
CHARGERS FOR CELL PHONE can outsource these steps and retain the tax benefits in question so 
long as the requirements of the steps (production in B razil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  WT/DS472/R • WT/DS497/R  
 
- 347 - 
 
  9.120.   Also, Articles 4 and 5 require that specified minimum percentages of the transformers and 
the electrical cables be produced in accordance with their ow n PPBs1653 or the production step 
requirements in this PPB. Therefore, where the accredited producer of STATIC CONVERTERS WITH 
ELECTRONIC CONTROL, PROVIDED IT IS BASED ON DIGITAL TECHNIQUE, (NCM: 8504.40), USED 
AS CONTINUOUS CURRENT CONVERTER (AC/CC) or BATTE RY CHARGER FOR CELL PHONE 
outsources transformers or electric cables, it can only retain the tax benefits in question so long as 
a portion of these products respect the requirements of the steps (production in Brazil of the 
respective components and subass emblies from basic raw materials and inputs).  
_______________  
 
 
9.121.   Implementing Order No. 38, of 14 February 20131654, as amended by Implementing Order 
No. 233 of 15 July 20151655,Article 1 states in relevant part that:  
Basic Production Process for the product ref erred to as INTELLIGENT DATA STORAGE 
SYSTEM, established by MDIC/MCT Implementing Order No. 29 of February 10, 2012, 
should be as follows:  
I - assembly and welding of all components in printed circuit boards;  
II - integration of printed circuit boards asse mbled and other electrical and mechanical 
subassemblies to form the final product; and  
III - formatting, configuration and final tests.  
Paragraph 1 Alternatively to the requirement provided for in section I, the company 
may comply with the steps determined  in following sections:  
I - cutting, folding and punching, or other punching, laser cutting or stamping of 
metallic structures used in the mechanical structure and closing parts of cabinet or 
disk tray, such as doors, top, sides and covers;  
II - welding or  riveting of metallic parts of cabinet or disk tray;  
III - superficial treatment and painting of metallic parts of cabinet or disk tray;  
IV - injection of plastic parts of cabinet or disk tray; and  
V - investment in research and development (R&D) in additi on to that investment 
provided for in legislation, in a minimum of 5% (five percent) of net invoicing of 
internal market, resulting from the commercialization of products referred to in this 
Order.  
Paragraph 2 Alternatively to the selection contained in § 1 of this Article, the company 
may waive the assembly of boards (section I, caption of this article), limited to 10% of 
units (systems) produced annually, per company, provided following steps are 
performed:  
I - investment in research and development (R&D)  in addition to that investment 
provided for in legislation, in a minimum of 7% (seven percent) of net invoicing of 
internal market, resulting from the commercialization of products referred to in this 
paragraph; and  
                                                
1653 The Panel recalls that where a PPB contains any such "nested” PPB, outsourcing of the input or 
component covered by the nested PPB is permitted. See footnote 1619 above. The Panel further recalls its 
finding at paragraph 7.117  of its report that products produced in accordance with a PPB are domestic 
products.  
1654 Implementing Order 38/2013, (Exhibit BRA -116).  
1655 Implementing Order 233/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  II - compliance with other requirements  contained in sections II and III of caption of 
this article.  
Paragraph 3 The step determined in section I of caption of this article shall 
contemplate the assembly and welding of all components in printed circuit board(s) 
that are necessary to perform at least two of following functions:  
I - communication with disk controlling unit;  
II - placement of information in reading and writing sets;  
III - logic reading and writing of information; and  
IV - memory.  
Paragraph 4 Provided Basic Production Process is com plied with, the activities or 
operations inherent to production steps defined in caption and in § 1 of Article 1 may 
be performed by third -parties, except for one step, which may not be subject to 
outsourcing  
9.122.   Additionally, Article 3 of Implementing Order N o. 38, of 14 February 2013, states  in 
relevant part that : 
The SSD (Solid State Drive) module data storage units, used in assembling the plates 
shall meet the respective Basic Productive Process, in the percentage of production in 
the calendar year, accordi ng to the following schedule:  
I - until December 31, 2016: dismissed;  
II – from January 1 to December 31, 2017: forty percent (40%);  
III – from January 1 to December 31, 2018: sixty percent (60%);  
IV - from January 1, 2019 in view of: ninety percent (90%);  
9.123.   The Panel considers that step I involves the creation, from basic raw materials and inputs, 
of components or subassemblies (subject to the additional requirements and alternatives for 
complying with step I), i.e., printed circuit boards. Step I can be per formed by third parties, other 
than one step to be chosen by the accredited producer. The same holds true if that producer 
instead opts for the alternative provided for in § 1 of Article 1, which also involves the creation, 
from basic raw materials and inp uts, of components or subassemblies, as follows: step I - certain 
metallic structures for the cabinet or disk tray; and step III – plastic parts for the cabinet or disk 
tray. That is, the accredited producer of INTELLIGENT DATA STORAGE SYSTEMS can outsourc e 
these steps and retain the tax benefits in question so long as the requirements of the step 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs) are respected.  
9.124.   Also, Article 3 requires that a specific percentage of the SSD (Solid State Drive) module 
data storage units, used in assembling the plates be produced in accordance with their own PPB. 
The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of the 
inputs or compo nents covered by that PPB so long as its requirements are respected.1656 The Panel 
also recalls its finding, at paragraph 7.117  of its report, that products produced in accordance with 
PPBs are domestic products. Therefore, where the accredited producer of INTELLIGENT DATA 
STORAGE SYSTEMS outsources the referenced SSD (Solid State Drive) module data storage units 
that will be incorporated in the plates, it can only retain the tax benefits in question if a portion of 
those integrate d circuits or microchips are produced in Brazil in accordance with their own PPB, 
and thus are domestic products.  
_______________  
                                                
1656 See footnote 1619 above . WT/DS472/R • WT/DS497/R  
 
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9.125.   MDIC/MCT Implementing Order No. 21, of 2 September 20101657, Article 1 states in 
relevant part that:  
The following Basic Produc tion Process is hereby set forth for the product SUBSET 
PAPER CUTTING KNIFE, APPLIED TO SELF SERVICE TERMINALS:  
I - stamping, cutting and machining of metallic parts, as applicable;  
II - manufacturing of electric wiring (cable harnesses), according to Basi c Production 
Process;  
III - assembly and welding of components on printed circuit boards, as applicable;  
IV - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level; and  
V - integration of printed circuit boards, as app licable, and of electrical and mechanical 
parts, to form the final product.  
9.126.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step 1 - metallic parts; step II - electric wiring 
(according to its own PPB); step III - printed circuit boards; and step IV - electrical and mechanical 
parts. The Panel notes that step II – electric wiring, is subject to its own PPB. As discussed above, 
all PPBs that include any such "nested  PPB" allow the outsourcing of the inputs or components 
covered by that PPB so long as its requirements are respected.1658 The Panel also recalls its 
finding, at paragraph 7.117  of its report, that products produced in accordance with PPBs are 
domestic products. Therefore, where the accredited producer of SUBSET PAPER CUTTING KNIFE, 
APPLIED TO SELF SERVICE TERMINALS outsources the electric wiring to be incorporated in the 
paper cutting knives, it can only retain the tax benefits in  question if that wiring is produced in 
Brazil in accordance with its own PPB, and thus is a domestic product.  
9.127.   Furthermore, although the PPB for SUBSET PAPER CUTTING KNIFE, APPLIED TO SELF 
SERVICE TERMINALS does not contain explicit outsourcing provisions  for any of the other 
production steps, the Panel considers it reasonable to construe this silence as permission for 
outsourcing, rather than as a prohibition thereof. In particular, as a general matter the outsourcing 
provisions in the PPBs explicitly ide ntify where outsourcing is not permitted. This is done either by 
listing the production steps that can be outsourced, or those that cannot. This interpretation is 
consistent with Brazil's multiple statements that the various ICT programmes are designed to 
stimulate development of the industry as a whole.1659  
_______________  
 
 
9.128.   MDIC/MCT Implementing Order No. 24, of 15 February, 20061660, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby set forth for the product EQUIPMENT 
FOR ACCESS TO WIRELESS NETWORK (with WIRELESS MESH technology):  
I - assembly and welding of all components in printed circuit boards;  
                                                
1657 Implementing Order 21/2010, (Exhibit BRA -116).  
1658 See footnote 1619 above.  
1659 See, e.g. Brazil's first written s ubmissions, para. 73 (DS472) and para. 79 (DS497); Brazil's second 
written submission, para. 59.  
1660 Implementing Order 24/2006, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  II - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level; and  
III - integration of printed circuit boards and other electrical and mechanical parts to 
form the final product, assembled according to above Sections I and II.  
Sole paragraph. The activities or operations inherent to above production steps may 
be performed by third -parties, p rovided the Basic Production Process is complied with, 
except for step III, which shall not be subject to outsourcing.  
9.129.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as fol lows: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps I to II can be performed by third parties. That is, the 
accredited producer of EQUIPMENT FOR ACCESS TO WIRELESS NETWORK (with WIRELESS MESH 
technology) can outsourc e these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
______________  
 
 
9.130.   Implementing Order No. 26, of 7 February 20071661, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product VEHICULAR 
DATA COMMUNICATION UNIT:  
I - stamping, cutting, folding and superficial treatment of the metallic parts, when 
applicable;  
II - injection of plastic parts;  
III - manufacture of the printed circuit from laminates;  
IV - assembly and welding –or an equivalent process –of all the components on the 
printed circuit boards;  
V - assembly of the electrical and mechanical  parts, fully separate, at the basic level 
of components; and  
VI - integration of the printed circuit boards and the electrical and mechanical parts to 
build the end product, in accordance with sections I to V above.  
§ 1. Third parties can perform the acti vities or operations inherent in the production 
stages I to V above in Brazil, provided the Basic Production Process be complied with.  
… 
§ 3. As regards the GSM (Global System for Mobile Communication) communication 
module employed in the product referred to in the head section of this Article, it shall 
have parts manufactured in Brazil as of January 1, 2007 under the percentages in 
accordance with the schedule below, calculated based on the total quantity output in 
the calendar year.  
I - January 1, 2007 - December 31, 2007: minimum percentage of fifty percent 
(50%); and  
II - From January 1, 2008 on: minimum percentage of ninety percent (90%).  
                                                
1661 Implementing Order 26/2007, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 351 - 
 
  9.131.    The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or s ubassemblies, as follows: step I - metallic parts; step II - plastic parts; 
steps III - printed circuits; step IV – printed circuit boards; and step V - electrical and mechanical 
parts. Steps I to V can be performed by third parties. That is, the accredite d producer of 
VEHICULAR DATA COMMUNICATION UNITS can outsource these steps and retain the tax benefits 
in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and in puts) are respected.  
9.132.   In addition, § 3 of Article 1 requires that the GSM (Global System for Mobile 
Communication) communication modules employed in the VEHICULAR DATA COMMUNICATION 
UNITS have 90% of parts manufactured in Brazil. Therefore, to the extent th at the accredited 
producer of VEHICULAR DATA COMMUNICATION UNITS outsources the GSM (Global System for 
Mobile Communication) communication modules, it can only retain the tax benefits in question if a 
portion of the parts of those units are domestic produc ts.  
_______________  
 
 
9.133.   Implementing Order No. 31, of 7 February 20131662, Article 1 states in relevant part that:  
The Basic Production Process for the product NON -VOLATILE DATA STORAGE DEVICES 
BASED ON SEMICONDUCTORS (PEN DRIVE) NCM 8523.51.90, manufactured in the 
Country, established by Implementing Order No. 187 of July 19, 2011, should be as 
follows:  
I - manufacturing of plastic or metal casing;  
II - assembly and welding of all components in printed circuit boards; and  
III - assembly of set.  
Paragraph 1 Pr ovided the Basic Production Process is complied with, the activities or 
operations inherent to production steps described in this Article may be performed by 
third-parties, except for the step contained in section III, which shall not be subject to 
outsour cing. 
9.134.   Additionally, Article 2 of Implementing Order No. 31, of 7 February 2013, states  in relevant 
part that : 
As of July 1st, 2012, monolithic integrated circuits or flash -memory -type microchips, 
used to assemble the boards should comply with the respectiv e Basic Production 
Process, at a minimum percentage of fifty percent (50%) of production in the calendar 
year. 
9.135.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: st ep I - plastic or metal casing; step II - 
printed circuit boards. Steps I to II can be performed by third parties on the basis of paragraph 1 
of Article 1. That is, the accredited producer of NON -VOLATILE DATA STORAGE DEVICES BASED 
ON SEMICONDUCTORS (PEN D RIVE) NCM 8523.51.90 can outsource these steps and retain the 
tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
9.136.   Also, A rticle 2 requires that at least 50% of monolithic integrated circuits or flash -memory -
type microchips, used to assemble the printed circuit boards be produced in accordance with their 
own PPB. The Panel recalls that all PPBs that include any such "nested P PB" allow the outsourcing 
of the inputs or components covered by those PPBs, so long as their requirements are 
respected.1663 The Panel also recalls its finding, at paragraph 7.117  of its report, that products 
produced in accordan ce with PPBs are domestic products. Therefore, where the accredited 
                                                
1662 Implementing Order 31/2013, (Exhibit BRA -116).  
1663 See footno te 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  producer of NON -VOLATILE DATA STORAGE DEVICES BASED ON SEMICONDUCTORS (PEN DRIVE) 
NCM 8523.51.90 outsources the referenced integrated circuits, it can only retain the tax benefits in 
quest ion if a portion of those integrated circuits are produce in Brazil in accordance with their own 
PPB, and thus are domestic products.  
_______________  
 
 
9.137.   Implementing Order No. 253, of 29 December 20101664, Article 1 states in relevant part 
that:  
The Basic Pr oduction Process for the product PLASTIC SUBSET FOR CELL PHONES, set 
forth by MDIC/MCT Implementing Order 113, of July 16, 2007, hereby becomes 
described as follows:  
I - plastic injection of the base, lids, frame and front panel without keys, when 
applicab le; 
II - superficial treatment of the plastic parts mentioned in the previous section, when 
applicable;  
III - assembly and welding of all the components on the printed circuit boards, when 
applicable; and  
IV - integration of the printed circuit boards, whe n applicable, and of the electrical and 
mechanical parts to build the end product.  
§ 1. Third parties can perform the activities or operations inherent in the production 
stages prescribed in this Article provided the Basic Production Process be complied 
with, except for the stage described in section IV, which cannot be object of 
outsourcing.  
9.138.   Additionally, Article 3 of Implementing Order No. 253, of 29 December 2010, states  in 
relevant part that : 
The parts and pieces employed to build the product shall meet  the manufacturing 
conditions set forth in the Basic Production Process of the product CELL PHONE.  
9.139.   The Panel considers that steps I  and III, as well as Article 3, involve the creation, from 
basic raw materials and inputs, of components or subassemblies, as  follows: step I - plastic parts; 
step III - printed circuit boards, and Article 3, (other) parts and pieces.  Steps I and III can be 
performed by third parties on the basis of paragraph 1 of Article 1. Article 3 can be performed by 
third parties by virtue of being a PPB1665. That is, the accredited producer of PLASTIC SUBSET FOR 
CELL PHONES can outsource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components and subassembl ies 
from basic raw materials and inputs) are respected.  
9.140.   Also, Article 3 requires that the parts to build PLASTIC SUBSET FOR CELL PHONES comply 
with the PPB for the product CELL PHONE. The Panel recalls that all PPBs that include any such 
"nested PPB" allow  the outsourcing of the inputs or components covered by that PPB so long as its 
requirements are respected.1666 The Panel also recalls its finding, at paragraph 7.117  of its report, 
that products produced in accordance with PPBs a re domestic products. Therefore, where the 
                                                
1664 Implementing Order 253/2010, (Exhibit BRA -116).  
1665 The Panel recalls that all PPBs that include any such "nested PPB” allow the outsourcing of the 
inputs or components covered by that PPB so long as its require ments are respected. See footnote 1619 
above. The Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in accordance 
with PPBs are domestic products. Therefore, where the accredited producer of PLASTIC SUBSET FOR CELL 
PHONES outsources the parts and pieces to be incorporated, it can only retain the tax benefits in question if 
those parts and pieces are produced in Brazil in accordance with their own PPB, and thus are domestic 
products.  
1666 See footnote 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  accredited producer of PLASTIC SUBSET FOR CELL PHONES outsources any of the referenced 
parts, it can only retain the tax benefits in question if a portion of those parts are produced in 
Brazil in accordance with t heir own PPB, and thus are domestic products.  
_______________  
 
 
9.141.   Implementing Order No. 256, of 21 August 20131667, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product 
ULTRASOUND MACHINE WITH DOPP LER SPECTRAL ANALYSIS/ULTRASOUND 
EQUIPMENT WITH DOPPLER SPECTRAL ANALYSIS:  
I - manufacturing of transducers, according to their respective Basic Production 
Process;  
II - assembly and welding of all components on printed circuit boards that implement 
the fu nction for reception of signals or treatment/processing of images or image 
output;  
III - assembly of monitor stands and transducer cable supports, positioning of 
monitor, including installation and allocation of power and video signal cables, as 
applicable ; 
IV - assembly of finishing covers, connection and allocation of power supply cables, 
signals, controls and grounding;  
V - assembly of plates for cabling protection and main board (designated Card Cage), 
as applicable;  
VI - assembly of movement handle and  finishing covers, as applicable;  
VII - installation of anti -dust filters on equipment internal parts, as applicable;  
VIII - installation of software for interaction with equipment user;  
IX - complete operation tests (hardware and software), comprising tes t to check bi -
dimensional mode, verification of color Doppler, spectral, pulse or continuous modes, 
as applicable;  
X - general tests of image in real time, axial resolution, lateral resolution, monitor 
accuracy, movement mode, quality and sensitivity in bi -dimensional mode and 
interferences;  
XI - electric testing of: voltage variation, energy consumption, electric insulation, 
current leakage, contact resistance;  
XII - tests of image documents, involving image storage, examination printing and 
writing in a d igital device; and  
XIII - final packaging of equipment.  
Paragraph 1 Subject to Basic Production Process, the steps determined in sections "I" 
and "II" may be performed by third -parties.  
                                                
1667 Implementing Order 256/2013, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.142.   Additionally, Article 2 of Implementing Order No. 256, of 21 August 20 13, states  in 
relevant part that : 
When ULTRASOUND MACHINE WITH DOPPLER SPECTRAL ANALYSIS/ULTRASOUND 
EQUIPMENT WITH DOPPLER SPECTRAL ANALYSIS is commercialized with one or more 
items listed in this article, these should be produced according to the schedule  and 
according to their respective Basic Production Processes, or in compliance with 
MERCOSUL Rules of origin, as applicable:  
I - as of January 1st, 2015:  
a) autonomous system of electric energy supply safety (no break); and  
b) printer.  
II - As of January 1st, 2016:  
a) external system of video recording; or  
b) data storage unit.  
9.143.   Further, Article 3 states  in relevant part that :  
Subassemblies, parts and components that form the ULTRASOUND MACHINE WITH 
DOPPLER SPECTRAL ANALYSIS/ULTRASOUND EQUIPMENT WITH DOPPL ER SPECTRAL 
ANALYSIS should be produced according to the schedule and their respective Basic 
Production Processes, or in compliance with MERCOSUL origin rules, as applicable:  
I - as of January 1st, 2015:  
a) power supply; and  
b) gel heater, as applicable.  
II - As of January 1st, 2016:  
a) cabinet (structural chassis);  
b) caster (movement wheels), when applicable;  
c) support arm of monitor, when applicable;  
d) operation footswitch, as applicable;  
e) image display monitor; and  
f) software for image reconstructi on. 
9.144.   The Panel considers that at least steps I and II involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follows: step I – transducers, by virtue 
of being produced in accordance with their own PPB; and step II - printed circuit boards that 
implement the function for reception of signals or treatment/processing of images or image 
output. Steps I to II can be performed by third parties.1668 That is, the accredited producer of 
ULTRASOUND MACHINES WITH DOPPLER SPECTRAL ANA LYSIS/ULTRASOUND EQUIPMENT WITH 
DOPPLER SPECTRAL ANALYSIS can outsource these steps and retain the tax benefits in question 
so long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materia ls and inputs) are respected.  
                                                
1668 This outsourcing provision is in addition to that inherent in the specific PPB referred to in Article 1. 
See footnote 1619, above.  WT/DS472/R • WT/DS497/R  
 
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  9.145.   Furthermore, Article 2 requires that when the ULTRASOUND MACHINES WITH DOPPLER 
SPECTRAL ANALYSIS/ULTRASOUND EQUIPMENT WITH DOPPLER SPECTRAL ANALYSIS are 
commercialized with autonomous systems of electric energy supply safety ( no break), printers, 
external systems of video recording and/or data storage units, these components and 
subassemblies be produced in accordance with their respective PPBs, or in compliance with 
MERCOSUL Rules of origin. Similarly, Article 3 requires that the power supplies, gel heaters, 
cabinets (structural chassis) casters (movement wheels), support arms of monitor, operation 
footswitches, image display monitors and software for image reconstruction that form the 
ULTRASOUND MACHINES WITH DOPPLER SPECTRAL ANALYSIS/ULTRASOUND EQUIPMENT WITH 
DOPPLER SPECTRAL ANALYSIS be produced in accordance with their respective PPBs, or in 
compliance with MERCOSUL Rules of origin. The inclusion of the PPB option in Articles 2 and 3 
means that these steps can be performed b y third parties in Brazil1669. Therefore, where the 
accredited producer of ULTRASOUND MACHINES WITH DOPPLER SPECTRAL 
ANALYSIS/ULTRASOUND EQUIPMENT WITH DOPPLER SPECTRAL ANALYSIS outsources in Brazil 
the items listed in Articles 2 and 3 (rather than importing those items pursuant to M ERCOSUR  
rules of origin), it can only retain the tax benefits in question if those items are produced in Brazil 
in accordance with their own PPB, and thus are domestic products.  
_______________  
 
 
9.146.   Implementing Order No. 262, of 22 November 20121670, Article 1 states in relevant part 
that:  
The Basic Production Process for the product ONBOARD UNIT FOR TOLL STATION AND 
ACCESS CONTROL, determined by the MDIC/MCT Implementing Order No. 158 of 
August 27, 2002 should be as follows:  
I - manuf acturing of printed circuit, from laminated;  
II - injection of plastic parts;  
III - cutting, folding, stamping, treatment and welding of metallic parts;  
IV - assembly and welding of all components in printed circuit boards;  
V - assembly of electrical and m echanical parts, completely unbundled, at basic 
component level; and  
VI - integration of printed circuit boards and electrical and mechanical parts to form 
the final product.  
Sole paragraph. Provided the Basic Production Process is complied with, the activ ities 
or operations inherent to production steps set forth in this article may be performed 
by third -parties, except for the step contained in section VI, which shall not be subject 
to outsourcing.  
9.147.   The Panel considers that steps I to V involve the creation , from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuits; step II - plastic parts; 
step III - metallic parts; step IV – printed circuit boards; and step V - electrical and mechanical 
parts. Steps I to V c an be performed by third parties. That is, the accredited producer of 
ONBOARD UNITS FOR TOLL STATIONS AND ACCESS CONTROLS can outsource these steps and 
retain the tax benefits in question so long as the requirements of the steps (production in Brazil of 
the respective components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
                                                
1669 The Panel recalls that all PPBs that include any such "nested PPB” allow the outsourcing of the 
inputs or components covered by that PPB so long as its requirements are respected. See footnote 1619. The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in accordance with PPBs 
are domestic products.  
1670 Implementing Order 262/2012, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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9.148.   Implementing Order No. 264, of 23 August 20131671, Article 1 states in relevant part that:  
The Basic Production Process for product RADIO FREQUENC Y IDENTIFICATION DEVICE 
- RFID, manufactured in the Country, established by Implementing Order No. 194, of 
September 30, 2008, should be as follows:  
I - manufacturing of conductive circuit (antenna), comprising following steps:  
a) cutting and/or metal wind ing; or  
b) screen printing with conductive ink; or  
c) electrochemical, chemical, pressure with vapor processing; or  
d) chemical metal deposition.  
II - manufacturing of monolithic integrated circuits used in identification devices of 
RFID type, comprising f ollowing steps, subject to article 3:  
a) physical -chemical processing of chips;  
b) operational test, thinning and cut of processed chips;  
c) assembly of semiconductor, non -encapsulated chip;  
d) encapsulation of assembled chip, as applicable;  
e) electrical or optoelectrical test, as applicable; and  
f) marking (identification), as applicable.  
III - separation of integrated circuit/reel, as applicable;  
IV - welding of integrated circuit and the antenna;  
V - lamination of integrated circuit/antenna set in plast ic base, as applicable;  
VI - radiofrequency communication test; and  
VII - writing and initialization of integrated circuit, as applicable.  
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to producti on steps described in this article may be performed by 
third-parties, except for the steps contained in items of sections III, IV, V and VI, 
which shall not be subject to outsourcing.  
Article 3 The requirement contained in section II, Article 1 shall compl y with minimum 
percentages of following schedules, according to the frequency band of RADIO 
FREQUENCY IDENTIFICATION DEVICE - RFID use, based on the number of monolithic 
integrated circuits used in the calendar year:  
2012 2013 2014 2015 From 2016 on  
Exemp ted 20% 40% 60% 80% 
 
Paragraph 1 If percentage is not achieved, the company is required to comply with the 
residual difference in reference to the minimum percentage established, in units 
produced until December 31 of subsequent year, without prejudice of  current 
obligations.  
                                                
1671 Implementing Order 26 4/2013, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  Paragraph 2 The residual difference to which § 1 refers may not exceed ten percent 
(10%), based on the production in a year when it was not possible to reach the limit 
established.  
9.149.   The Panel considers that at least steps I and II invo lve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum percentages in 
Article 3 for compliance with Article 1 on the basis of the production step requirements), as 
follows: step I - conductive circuit (antenna); and step II  monolithic integrated circuits. Steps I to 
II can be performed by third parties. That is, the accredited producer of RADIO FREQUENCY 
IDENTIFICATION DEVICES - RFID can outsource these steps and retain the tax benefits in 
question so l ong as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.150.   Implementing Order No. 269, of 29 November 20121672, Article 1 states in relevant p art 
that: 
The following Basic Production Process is hereby set forth for the product X RAY 
SCANNER FOR SECURITY SCREENING:  
I - project of printed circuit boards for control and operational keyboard (as 
applicable);  
II - project and assembly of electrical b oard, at component basic level;  
III - project and assembly of detection cabinets and operational keyboard;  
IV - project and assembly of mechanical cabinets, mechanical structure and 
installation accessories;  
V - manufacturing of printed circuits on the boa rd of operating keyboard, from 
laminated;  
VI - assembly and welding of all components on printed circuit boards;  
VII - machining and other manufacturing processes that are compatible with rollers, 
conveyor belt and lead curtain, as applicable;  
VIII - manuf acturing of isolation transformer from bobbin winding;  
IX - integration of printed circuit boards assembled and other electrical and 
mechanical subassemblies to form the final product; and  
X - electric verification and operational tests, calibration and ad justments.  
Sole paragraph. Provided the Basic Production Process is complied with, the activities 
or operations inherent to production steps may be performed by third -parties, except 
for the steps contained in sections IX and X, which shall not be subject to outsourcing.  
9.151.   Additionally, Article 2 of Implementing Order No. 269, of 29 November 2012, states  in 
relevant part that : 
When the X RAY SCANNER FOR SECURITY SCREENING is commercialized with one or 
more products listed in this article, they should be produ ced in the Country, according 
to their respective Basic Production Processes, as applicable:  
                                                
1672 Implementing Order 269/2012, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  I - digital processing unit, based on microprocessor and assembled in same body or 
cabinet;  
II - video monitor;  
III - video divider;  
IV - frequency inverters;  
V - micro processed uninterruptible power supply equipment (UPS or no break); and  
VI - power supplies.  
9.152.   The Panel considers that at least steps I to VI and VIII involve the creation, from basic raw 
materials and inputs, of components or subassemblies, as follow s: steps I, V and VI – various 
types of printed circuit boards; step II - electrical board; step III - detection cabinets and 
operational keyboard; step IV - mechanical cabinets, mechanical structure and installation 
accessories; and step VIII - isolation transformer. Steps I to VIII can be performed by third 
parties. That is, the accredited producer of X RAY SCANNER FOR SECURITY SCREENING can 
outsource these steps and retain the tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
9.153.   Also, Article 2 requires that, when the X RAY SCANNER FOR SECURITY SCREENING is 
commercialized with digital processing units  based on microprocesso r and assembled in the same 
body or cabinet, video monitors, video dividers, frequency inverters, micro processed 
uninterruptible power supply equipment (UPS or no break), and/or power supplies, these 
components and subassemblies be produced in accordance with their own PPBs. The Panel recalls 
that all PPBs that include any such "nested PPB" allow the outsourcing of the inputs or components 
covered by that PPB so long as its requirements are respected.1673. The Panel also recalls its 
finding, at paragraph 7.117  of its report, that products produced in accordance with PPBs are 
domestic products. Therefore, where the accredited producer of X RAY SCANNER FOR SECURITY 
SCREENING outsources any of the listed items, it can only retain the tax benefits in question if 
those items are produced in Brazil in accordance with their own PPB, and thus are domestic 
products.  
_______________  
 
 
9.154.   Implementing Order No. 91, of 1 April 20131674, Article 1 states in relevant part that:  
To establish following Basic Production Process for the product PLANTING 
MONITORING EQUIPMENT, BASED ON DIGITAL TECHNIQUE and SEED SENSOR, 
manufactured in the Country:  
I - PLANTING MONITORING EQUIPMENT, BASED ON DIGITAL TECHNIQUE:  
a) manufacturing of housing;  
b) manufacturing of  printed circuit boards, from laminated;  
c) assembly and welding of components on printed circuit boards;  
d) configuration and writing of programs on boards;  
e) integration of electronic boards and mechanic parts;  
f) final assembly of product;  
g) test of p roduct operation; and  
h) packaging of product.  
II - SEED SENSOR:  
                                                
1673 See footnote 1619 above.  
1674 Implementing Order 91/2013, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  a) plastic injection of housing, as applicable;  
b) assembly and welding of components on printed circuit board;  
c) manufacturing of cable from drawing;  
d) final assembly of product;  
e) test o f product operation; and  
f) packaging of product.  
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties in the 
Country, except for items "f", "g" and "h" of section I and items "d", "e" and "f" of 
section II, which cannot1675 be subject to outsourcing.  
9.155.   The Panel considers that steps I(a) to I(c) involve the creation, from basic raw materials 
and inputs, of components or subassemblies, as follows: step I(a)  - housing; steps I(b) and (c) - 
printed circuit boards. Steps I(a) to (c) can be performed by third parties. That is, the accredited 
producer of PLANTING MONITORING EQUIPMENT, BASED ON DIGITAL TECHNIQUE can outsource 
these steps and retain the tax benefit s in question so long as the requirements of the steps 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs) are respected.  
9.156.   The Panel further considers that steps II(a) to II(c) involve the creation, from  basic raw 
materials and inputs, of components or subassemblies, as follows: step II(a) - housing; step II(b) 
- printed circuit boards; and step II(c) - cable. Steps II(a) to (c) can be performed by third parties. 
That is, the accredited producer of SEED S ENSORS can outsource these steps and retain the tax 
benefits in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.157.   Implementing Order No. 270, of 29 November 20121676, Article 1 states in relevant part 
that: 
The Basic Production Process for POWER SUPPLY AND CONVERTER OF CONTINUOUS 
CURRENT FOR SMALL -CAPACITY DIGITAL PROCESSING UNITS (NCM: 8471.50.10), 
established by MDIC/MCT Implementing Order No. 145 of July 02, 2008 should be as 
follows:  
I - manufacturing of power cable, according to § 2 and 3;  
II - assembly and welding of all components in printed circuit boards;  
III - assembly of electrical and mechanical parts, completely  unbundled, at basic 
component level; and  
IV - integration of assembled printed circuit boards and electrical and mechanical 
parts to form the final product.  
Paragraph 1 The activities or operations inherent to production steps may be 
performed by third -parties, provided the Basic Production Process is complied with, 
except for the step determined in Section IV, which may not be subject to 
outsourcing.  
Paragraph 2 The step contained in section I shall be considered complied with when 
power cable is manufact ured according to the Basic Production Process, in case it is 
                                                
1675 The English translation submitted by Brazil “which may be subject to ou tsourcing” contains an error. 
The original Portuguese version states “que não poderão ser objeto de terceirização”, that is “which cannot  be 
subject to outsourcing” (emphasis added).  
1676 Implementing Order 270/2012, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  produced at Manaus Free Trade Zone, or manufactured from drawing of copper wire, 
when they are produced in other regions of the Country.  
Paragraph  3 With the purpose of compliance with this Basi c Production Process, the 
step contained in section I should comply with following schedule, considering the 
percentage that should be calculated on the total number of cables used in the 
calendar year:  
I - from January 1st, 2013 to December 31, 2013: twen ty percent (20%);  
II - from January 1st, 2014 to December 31, 2014: fifty percent (50%); and  
III - as of January 1st, 2015: eighty percent (80%).  
Paragraph 4 Alternatively to the requirement contained in section I, the company may 
opt to manufacture printe d circuits from laminated, according to the schedule 
contained in Paragraph 3.  
9.158.   The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies subject to the options in paragraphs 2 and 4, a nd the 
minimum percentages in paragraph 3, for compliance with Article 1 on the basis of the production 
step requirements, as follows: step I - power cable; step II - printed circuit boards; and step III - 
electrical and mechanical parts. Compliance with s tep I is subject to paragraphs 2 and 3, which 
involve inter alia  staged implementation of the requirement which as of 2015 applies to at least 
80% of the cable used in the calendar year relating to POWER SUPPLIES AND CONVERTERS OF 
CONTINUOUS CURRENT FOR SM ALL-CAPACITY DIGITAL PROCESSING UNITS (NCM: 8471.50.10), 
or an alternative for compliance with respect to the printed circuit boards (step II). Thus, under 
this PPB, the accredited producer can outsource these steps and retain the tax benefits in question 
so long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.159.   Implementing Order No. 384, of 30 December 20131677, Article 1 states in releva nt part 
that:  
The Basic Production Process for the product MAGNETIC HARD DISK UNIT, produced 
in the Country, established by the MICT/MCT/MC Implementing Order No. 95 of April 
1st, 2013 should be as follows:  
I - manufacturing of printed circuits, as of lam inated, according to article 2;  
II - molding or plastic injection of external cabinet at a minimum percentage of fifty 
percent (50%), based on the production in the calendar year, as applicable;  
III - assembly and welding of all components in printed circu it boards;  
IV - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level;  
V - integration of printed circuit boards and other electrical and mechanical parts to 
form the final product, assembled according to sections III and IV above; and  
VI - formatting, calibration, adjustment and final tests.  
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties in the 
                                                
1677 Implementing Order 3 84/2013, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  Country, exce pt for the steps contained in sections V and VI, which shall not be 
subject to outsourcing.  
Article 2 The compliance with the step provided for in section I should observe 
following schedule, based on the production of calendar year:  
I - from January 1st, 2012 to June 30, 2013: ten percent (10%) of production for the 
period;  
II - as of July 1st 2013: exempted.  
9.160.   The Panel considers that steps I to IV involves the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I  - printed circuits; step II - external 
cabinets; step III – printed circuit boards; and step IV - electrical and mechanical parts. Steps I to 
IV can be performed by third parties. The Panel further notes that pursuant to Article 2, step I no 
longer applie s. Thus, the accredited producer of MAGNETIC HARD DISK UNITS can outsource steps 
II to IV  and retain the tax benefits in question so long as the requirements of those steps 
(production in Brazil of the respective components and subassemblies from basic raw  materials 
and inputs) are respected.  
_______________  
 
 
9.161.   Implementing Order No. 57, of 17 February 20051678, Article 1 states in relevant part that:  
The Basic Production Process for the product MULTILAYER CERAMIC CAPACITOR, 
IDEAL TO SURFACE MOUNTING (SMD – SURFACE MOUNTED DEVICE) established by 
Implementing Order MDIC/MCT n. 451, October 8, 2003, is modified as follows:  
I – Raw materials blending;  
II – Formation of ceramic layers;  
III – Printing of the internal electrode and overlaying;  
IV - Cut and formation in the firing chamber;  
V – External electrodes paint and burn;  
VI – Chroming;  
VII – Measuring of electric characteristics;  
VIII – Thermic treatment for taping; and  
IX – Measuring of electric characteristics and taping.  
§ 1. Third parties can perform the ac tivities or operations inherent to the production 
stages, provided they comply with the Basic Production Process.  
§ 2. The compliance of the steps described on items I to V is temporarily exempted.  
§ 3. The exemption referred in the paragraph above will re main into force until the 
growth of the internal demand meets levels that enable the execution of the steps on 
items I to V in the Country.  
9.162.   The Panel notes that in accordance with § 1, all of the production steps listed in items I to 
IX can be performed by  third parties, and further notes that pursuant to § 2 and 3, at the time this 
PPB entered into force, compliance with steps I to V were exempted until the growth of internal 
                                                
1678 Implementing Order 57/2005, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  demand was sufficient to enable these steps to be performed in Brazil, and there is no information 
on the record as to whether that exemption remains in effect. It also is difficult to determine, from 
the descriptions of the steps, precisely which of them involve the creation, from basic raw 
materials and inputs, of components and suba ssemblies. That said, given that step I refers to raw 
materials blending, it is clear that this PPB involves such a conversion process (or processes). 
Thus, the accredited producer of MULTILAYER CERAMIC CAPACITOR, IDEAL TO SURFACE 
MOUNTING (SMD – SURFACE M OUNTED DEVICE) can outsource the steps involving such processes 
(in respect of steps I to IV, at such time as the exemption thereof is lifted) and retain the tax 
benefits in question, so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.163.   Implementing Order No. 237, of 11 December 20061679, states in relevant part that:  
The following Basic Production Process for the product SUBSET FOR CE LL PHONE 
WITH INCORPORATED LIQUID CRYSTAL DISPLAY, as set forth by Implementing Order 
MDIC/MCT n. 277, of July 1, 2003, hereby becomes the following:  
I – Support, base, frame and panel injection, when applicable;  
II - Welding and assembly of all components  in the printed circuit boards, when 
applicable;  
III – Assembly of electrical and mechanical parts, non -integrated, in basic components 
levels;  
IV – Integration of the liquid crystal display, of the printed circuit board and of the 
electrical and mechanica l parts into the final product, assembled according to items II 
and III above.  
§ 1. Third parties can perform the activities or operations inherent in the production 
steps established in this Article , in the Country,  provided the Basic Production Process 
be complied with.  
9.164.   Further, Article 4 states  in relevant part that :  
The parts that will constitute the product shall comply with the industrialization 
conditions established on the Basic Production Process for the product cellphone.  
9.165.    The Panel considers tha t steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - support, base, frame, and panel; step 
II - printed circuit boards; and step III - electrical and mechanical parts.  Steps I to I II can be 
performed by third parties. That is, the accredited producer of SUBSETS FOR CELL PHONES WITH 
INCORPORATED LIQUID CRYSTAL DISPLAY can outsource these steps and retain the tax benefits 
in question so long as the requirements of the steps (productio n in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
9.166.   Also, Article 4 requires that the parts that will constitute the SUBSETS FOR CELL PHONES 
WITH INCORPORATED LIQUID CRYSTAL DISPLAY comply with the  Basic Production Process for the 
product CELLPHONE. The Panel recalls that all PPBs that include any such "nested PPB" allow the 
outsourcing of the inputs or components covered by that PPB so long as its requirements are 
respected. See paragraph 7.292  above. The Panel also recalls its finding, at paragraph 7.117  of its 
report, that products produced in accordance with PPBs are domestic products. Therefore, where 
the accredited producer of SUBSETS FO R CELL PHONES WITH INCORPORATED LIQUID CRYSTAL 
DISPLAY outsources any of the referenced parts, it can only retain the tax benefits in question if a 
portion of those parts are produced in Brazil in accordance with their own PPB, and thus are 
domestic produc ts. 
                                                
1679 Implementing Order 237/2006, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  _______________  
 
 
9.167.   Implementing Order No. 165, of 17 June 20141680, Article 1 states in relevant part that:  
Basic Productive Process for the product DIGITAL AUTOMATIC MACHINE FOR DATA 
PROCESSING, WITH BUILT -IN SCREEN - ALL IN ONE, produced in the Country, 
established by MDIC/MCTI Implementing Order No. 47 of February 20, 2013, should 
be as follows:  
I - assembly and welding of all components in printed circuit boards;  
II - assembly of electrical and mechanical parts; and  
III - integration of printed circuit boards and electrical and mechanical parts to form 
the final product.  
Sole paragraph. Provided the Basic Production Process is complied with, the activities 
or operations inherent to production steps may be performed by third -parties, except 
for the step c ontained in sections III, which shall not be subject to outsourcing.  
9.168.   Additionally, Article 2 of Implementing Order No. 165, of 17 June 2014, states  in relevant 
part that : 
In order to comply with provisions of Article 1, following percentages and assembly 
schedules in the Country, as well as component and part use are determined, when 
applicable, based on the quantity used in the calendar year, and considering 
provisions of article 3:  
I - printed circuit boards assembled with electric or electronic component s that 
implement central processing function (mother board):  
 Percentage  
Assembled in the Country:  90% 
 
II - printed circuit boards assembled with electric or electronic components that 
implement communication interface function, when these are not integ rated to the 
mother board:  
 Percentage  
Assembled in the Country:  90% 
 
III - printed circuit boards assembled with electric or electronic components that 
implement communication interface function, using wireless technology, according to 
following schedul e: 
Calendar year  2013 2014 From 2015 on  
Assembled in the Country:  50% 60% 80% 
 
IV - printed circuit boards assembled with electric or electronic components that 
implement power supply function, when internal, and Alternate/Continuous Current 
Converters - AC/CC, when external:  
Calendar year  2013 From 2014 on  
                                                
1680 Implementing Order 165/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  Produced in accordance to specific PPB  45% 80% 
 
V - power cables produced according to specific PPB or, in its absence, from drawing 
and annealing of its wires, according to following table and parag raph 10:  
Calendar year  2013 2014 From 2015 on  
Produced in accordance to specific PPB, or 
from drawing and annealing of its wires  30% 30% 60% 
 
VI - rigid magnetic disk units, when applicable:  
Calendar year  2013 From 2014 on  
Produced in accordance to spec ific PPB  30% 50% 
 
VII - printed circuit boards assembled with electric or electronic components that 
implement memory functions (RAM memory modules):  
Calendar year  2013 2014 2015 From 2016 on  
Produced in accordance to specific 
PPB 40% 60% 70% 80% 
Assemb led in the Country  50% 30% 20% 10% 
Total produced in the Country  90% 90% 90% 90% 
 
VIII - other components and parts that have memory function, whether as integrated 
circuits, or as modules or boards, specified below, as applicable:  
a) DRAM integrated cir cuit component; and  
b) Unit of data storage, SSD (Solid State Drive) module.  
Calendar year  2013 2014 2015 From 2016 on  
Minimum percentage required with 
specific PPB  30% 50% 60% 80% 
 
9.169.   Further, paragraph 10 states  in relevant part that :  
Power cables referr ed to in section V of this article should be produced from drawing 
and annealing of its wires, according to following schedule:  
I - from January 1st to December 31, 2013: sixty percent (60%), in weight;  
II - as of January 1st, 2014: ninety percent (90%), i n weight.  
9.170.   The Panel considers that steps I and II of Article 1 involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum percentages in 
Article 2 for compliance with Article 1 on the basis of the prod uction step requirements or own 
PPBs), as follows: step I - printed circuit boards; and step II - electrical and mechanical parts. 
Pursuant to the sole paragraph of Article 1, steps I to II can be performed by third parties.1681 That 
is, the accredited produc er of DIGITAL AUTOMATIC MACHINES FOR DATA PROCESSING, WITH 
BUILT -IN SCREEN - ALL IN ONE can outsource these steps and retain the tax benefits in question 
                                                
1681 This outsourcing provision is in addition to that inherent in the specific PP Bs referred to in Article 2. 
See footnote 1619.  WT/DS472/R • WT/DS497/R  
 
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  so long as the requirements of the steps (production in Brazil of the respective components and 
subass emblies from basic raw materials and inputs) are respected.  
9.171.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1682 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs are domestic products. Therefore, where the accredited producer of DIGITAL 
AUTOMATIC MACHINES FOR DATA PROCESSING, WITH BUILT -IN SCREEN - ALL IN ONE 
outsources any of the referenced parts, components or subassemblies, it can only retain the tax 
benefits in question if a portion of those items are produced in Brazil in accordance with their own 
PPB, and thus are domestic products . 
_______________  
 
 
9.172.   Implementing Order No. 211, of 18 August 20141683, Article 1 states in relevant part that:  
Basic Production Process for products: VOICE AND DATA SWITCHING EQUIPMENT 
INTEGRATED TO RADIO BASE STATION, SWITCHING AND CONTROL CENTERS - CCC, 
RADIO BASE STATION CONTROLLERS - BSC, EQUIPMENT FOR NETWORK 
INTERCONNECTION AND MULTIPLEXING USING MICRO WAVES OR OPTICAL SIGNALS 
INCORPORATED TO RADIO BASE STATIONS, TRANSCEIVER UNITS FOR RADIO BASE 
STATIONS – ERB, CELLULAR TRANSPONDERS AND SYSTEMS OF CONTI NUOUS 
CURRENT ENERGY, appropriate for cellular telephony, as set forth by the MDIC/MCT 
Implementing Order 160 of June 22, 2011, should be as follows:  
I - manufacture from laminate ten percent (10%), in quantity, of printed circuits used 
in transceiver unit s for radio base station and cellular transponders, according to § 2 
of this article;  
II - manufacture according to current PPB electric surge protection devices, when 
applicable.  
III - assembly and welding of all components in printed circuit boards;  
IV - assembly of electrical and mechanical subassemblies, completely unbundled, at 
basic component level; and  
V - integration of printed circuit boards and electrical and mechanical modules, 
assembled according to previous items, in order to form the final pro duct. 
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties, except for 
the step contained in sections V, which shall not be subject to outsourcing.  
… 
Paragraph 3 In order to manufacture the TRANSCEIVER UNITS FOR RADIO BASE 
STATION – ERG, CELLULAR TRANSPONDERS, a step corresponding to cabinet 
manufacturing, according to its specific Basic Production Process, should be added to 
the steps provided for in caption.  
… 
Paragraph 4 For the manufacture the SYSTEMS OF CONTINUOUS CURRENT ENERGY, 
the steps corresponding to manufacture of the cabinet and the electric accumulators , 
according to their specific Basic Production Processes, should be added to the steps 
provided for in caption.  
… 
                                                
1682 See footnote 1619 above.  
1683 Implementing Order 211/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.173.   Additionally, Article 4 of Implementing Order No. 211, of 18 August 2014, states  in 
relevant part that : 
Equipment for point -to-point or multipoint connection using Micro Wave technology 
should have their TRANSPONDER UNITS produce d according to the Basic Production 
Process determined in this Order.  
9.174.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuits; step II – electri c 
surge protection devices step III - printed circuit boards; and step IV - electrical and mechanical 
subassemblies. Steps I to IV can be performed by third parties. In addition, pursuant to Article 4, 
the TRANSPONDER UNITS for equipment for point -to-point or multipoint connection using Micro 
Wave technology must be produced according to this PPB (and thus are subject to its outsourcing 
provisions). That is, the accredited producer of VOICE AND DATA SWITCHING EQUIPMENT 
INTEGRATED TO RADIO BASE STATION, SWIT CHING AND CONTROL CENTERS - CCC, RADIO BASE 
STATION CONTROLLERS - BSC, EQUIPMENT FOR NETWORK INTERCONNECTION AND 
MULTIPLEXING USING MICRO WAVES OR OPTICAL SIGNALS INCORPORATED TO RADIO BASE 
STATIONS, TRANSCEIVER UNITS FOR RADIO BASE STATIONS – ERB, CELLULA R TRANSPONDERS 
AND SYSTEMS OF CONTINUOUS CURRENT  ENERGY  can outsource these steps and retain the tax 
benefits in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials  and inputs) are respected.  
9.175.   Furthermore, paragraphs 3 and 4 of Article 1 require that (i) the cabinet for TRANSCEIVER 
UNITS FOR RADIO BASE STATION – ERG, CELLULAR TRANSPONDERS and (ii) the cabinet and 
electric accumulators for SYSTEMS OF CONTINUOUS CURRENT  ENERGY be produced in accordance 
with their own PPBs. The Panel recalls that all PPBs that include any such "nested PPB" allow the 
outsourcing of the inputs or components covered by that PPB so long as its requirements are 
respected.  The Panel also recall s its finding, at paragraph 7.117  of its report, that products 
produced in accordance with PPBs are domestic products. Therefore, where the accredited 
producer of VOICE AND DATA SWITCHING EQUIPMENT INTEGRATED TO RADIO BASE STAT ION, 
SWITCHING AND CONTROL CENTERS - CCC, RADIO BASE STATION CONTROLLERS - BSC, 
EQUIPMENT FOR NETWORK INTERCONNECTION AND MULTIPLEXING USING MICRO WAVES OR 
OPTICAL SIGNALS INCORPORATED TO RADIO BASE STATIONS, TRANSCEIVER UNITS FOR RADIO 
BASE STATIONS – ERB, CELLULAR TRANSPONDERS AND SYSTEMS OF CONTINUOUS CURRENT 
outsources the referenced cabinets, it can only retain the tax benefits in question if those cabinets 
are produced in Brazil in accordance with their own PPB, and thus are domestic products.  
_______ ________  
 
 
9.176.   MDIC/MCT Implementing Order No. 224 of 09 September 20141684, Article 1 states in 
relevant part that:  
The Basic Production Process for the product FIBER OPTICS, produced in the Country, 
established by the MICT/MCT/MC Implementing Order No. 135 of A ugust 03, 1994, 
should be as follows:  
I - physical and chemical processing that results in obtainment of pre -form;  
II - fiber pulling;  
III - tests;  
IV - packaging.  
Paragraph 1 For compliance with provisions set forth hereunder, the step described in 
Sectio n I may be performed by third parties, provided it is performed in the Country.  
                                                
1684 Implementing Order 224/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.177.   The Panel considers that step I involves the creation, from basic raw materials and inputs, 
of components or subassemblies, i.e., pre -forms. Step I can be performed by third pa rties. That is, 
the accredited producer of FIBER OPTICS can outsource this step and retain the tax benefits in 
question so long as the requirements of the step (production in Brazil of the respective 
components and subassemblies from basic raw materials an d inputs) are respected.  
_______________  
 
 
9.178.   Implementing Order No. 24, of 5 February 20141685, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product MOBILE C -
ARC X RAY EQUIPMENT, COUPLED, BASED ON D IGITAL TECHNIQUES, produced in the 
Country, following Basic Production Process:  
I - Manufacturing of X ray detectors, when applicable, according to their respective 
Basic Production Process;  
II - Assembly and welding of all components in printed circuit bo ard(s) that is (are) 
contained in main equipment and that implement following functions:  
a) control and actuation of X rays;  
b) control and actuation of movement, as applicable;  
c) control and signal transmission interfaces; and  
d) supply and distribution of energy.  
III - Integration of computer and console cabling;  
IV - Installation of retaining brackets of computer and covers;  
V - Assembly and cabling of monitor set;  
VI - Integration of high -voltage generator to X ray equipment;  
VII - Integration of compo nents of C -arc set and console;  
VIII - Installation of a computer program for equipment configuration and operation;  
IX - Execution of mechanic, electric safety, radiation and image tests;  
X - Customization of regional configurations for destination countr y; and  
XI - System labeling and final product packaging.  
Paragraph 1 Provided the Basic Production Process is complied with, only the steps 
determined in sections "I", "II", "VI" and "XI" may be performed by third -parties, 
while others should be performed by manufacturing company, except in cases where 
outsourcing is part of the technology transfer project for companies installed in the 
Country.  
9.179.   Additionally, Article 2 of Implementing Order No. 24, of 5 February 2014, states  in relevant 
part that : 
When the MOBILE C -ARC X RAY EQUIPMENT, COUPLED, BASED ON DIGITAL 
TECHNIQUES is commercialized with one or more products listed in this article, they 
should be produced in the Country, according to their respective Basic Production 
Processes, according to following schedule, as applicable:  
                                                
1685 Implementing Order  24/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  I - As of July 1st, 2015:  
a) assembly of uninterruptible power supply equipment (no break).  
b) mechanical unit for tube support and examination table, as applicable.  
II - As of January 1st, 2016:  
a) rebuilder or console computer.  
III - As of January 1st, 2017:  
a) image display monitor; and  
b) image and signal processing software.  
Paragraph 1 Provided the Basic Production Process is complied with, the parts, 
components, accessories and software listed in sections I, II and III may be  produced 
by third parties, provided they are part of the project of technology transfer for 
companies installed in the Country, as applicable.  
9.180.   The Panel considers that at least steps I and II of Article 1 involve the creation, from basic 
raw materials and  inputs, of components or subassemblies, as follows: step I - X ray detectors (on 
the basis of their own PPB); and step II - printed circuit boards. Pursuant to paragraph 1 of Article 
1, steps I and II can be performed by third parties.1686 That is, the accre dited producer of MOBILE 
C-ARC X RAY EQUIPMENT, COUPLED, BASED ON DIGITAL TECHNIQUES can outsource these steps 
and retain the tax benefits in question so long as the requirements of the steps (production in 
Brazil of the respective components and subassemb lies from basic raw materials and inputs) are 
respected.  
9.181.   Also, Article 2 requires that when the MOBILE C -ARC X RAY EQUIPMENT, COUPLED, BASED 
ON DIGITAL TECHNIQUES is commercialized with uninterruptible power supply equipment (no 
break); mechanical units fo r tube support and examination table: rebuilders or console computers; 
image display monitors; and/or image and signal processing software; these components and 
subassemblies be produced in accordance with their respective PPBs, or in compliance with 
MERCO SUL Rules of origin. The Panel recalls that all PPBs that include any such "nested PPB" allow 
the outsourcing of the components or subassemblies covered by that PPB so long as its 
requirements are respected.1687 The Panel also recalls its finding, at paragrap h 7.117  of its report, 
that products produced in accordance with PPBs are domestic products. Therefore, where the 
accredited producer of MOBILE C -ARC X RAY EQUIPMENT, COUPLED, BASED ON DIGITAL 
TECHNIQUES outsources the referenc ed items, it can only retain the tax benefits in question if 
those items are produced in Brazil in accordance with their own PPB, and thus are domestic 
products.  
_______________  
 
 
9.182.   Implementing Order No. 62, of 31 March 20141688, Article 1 states in relevant p art that:  
The following Basic Production Process is hereby set forth for the product EQUIPMENT 
FOR TRANSMISSION OF DIGITAL TELEVISION SIGNALS, produced in Country:  
I - assembly and welding of all components in printed circuit boards;  
II - assembly of elec trical and mechanical parts, completely unbundled, at basic 
component level; and  
                                                
1686 This outsourcing provision is in addition to that inherent in the specific PPB referred to in Article 1.  
1687 See footnote 1619 above.  
1688 Implementing Order 62/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 369 - 
 
  III - integration of printed circuit boards and other electric parts to form the final 
product, assembled according to above Sections I and II.  
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties, except for 
the steps contained in Section III, which shall not be subject to outsourcing.  
9.183.   The Panel considers that steps I and  II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps I to II can be performed by third parties. That is, the 
accredi ted producer of EQUIPMENT FOR TRANSMISSION OF DIGITAL TELEVISION SIGNALS can 
outsource these steps and retain the tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from ba sic raw 
materials and inputs) are respected.  
_______________  
 
 
9.184.   Implementing Order No. 141, of 13 May 20151689, Article 1 states in relevant part that:  
Basic Production Process for the product DIGITAL PROCESSING UNIT, WITH SMALL 
CAPACITY, BASED ON MICROPROCES SOR, AND ASSEMBLED ON SAME BODY OR 
CABINET (NCM: 8471.50.10), produced in the country, and established by MDIC/MCT 
Implementing Order No. 80 of April 14, 2014 should be as follows:  
I - assembly and welding of all components in printed circuit boards;  
II - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level, except for the cabinet, subject to provisions of section III;  
III - assembly of cabinet at basic component level or from its basic structures, 
unbundled, in at lea st five parts, according to § 1, 2, 3 of this article; and  
IV - integration of printed circuit boards and electrical and mechanical parts to form 
the final product.  
Paragraph 1 For purpose of counting referred to in section II of this article, the front 
panel may be considered one of five parts of cabinet basic structure, and only the light 
emitting diode displays (LEDs), speaker (Beeper) and on/off key may be aggregated 
to it. 
Paragraph 2 For purpose of section III of this article, following components and  parts 
are not part of the cabinet: power supply, assembled printed circuit boards, cooling 
fan, memory card readers, optical disk units, whether magnetic and flexible, being 
that wiring and fixation elements are not considered as being basic structures.  
Paragraph 3 Provided the Basic Production Process established in this Order is 
complied with, the activities or operations inherent to production steps may be 
performed by third -parties, except for the step contained in section IV, which shall not 
be subjec t to outsourcing.  
9.185.   Additionally, Article 3 of Implementing Order No. 141, of 13 May 2015, states  in relevant 
part that : 
The wireless communication interface boards (Wi -Fi, Bluetooth, WiMax), intended for 
the SMALL DIGITAL PROCESSING UNITS should comply with  minimum assembly 
percentage of 80%, based on the quantity of these boards used in the calendar year.  
                                                
1689 Implementing  Order 141/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 370 - 
 
  9.186.   Further, Article 4 states  in relevant part that : 
The SMALL DIGITAL PROCESSING UNITS should use at least three of following inputs, 
manufactured according to the respective Basic Production Process:  
I - cabinets;  
II - rigid magnetic disk units;  
III - power supply;  
IV - printed circuits (for mother board); and  
V - label with radiofrequency identification (RFID) device.  
9.187.   Article 5 states  in relevant part that :  
In order to comply with provisions of Article 1, the following percentages and 
assembly schedules in the Country, as well as component and part use, are 
determined, when applicable, based on the quantity used in the calendar year:  
I - printed circuit boar ds assembled with electric or electronic components that 
implement memory functions (RAM memory modules):  
Calendar year  2014 2015 From 
2016 on  
Produced according to specific PPB  50% 60% 80% 
Assembled in Country  40% 30% 10% 
Total produced in the Country  90% 90% 90% 
 
II - other components and parts that have memory function, whether as integrated 
circuits, or as modules or boards, specified below, as applicable:  
a) DRAM or LPDRAM integrated circuit component;  
b) Nand Flash integrated circuit component; an d 
c) unit of data storage, SSD (Solid State Drive) module.  
Calendar year  2014 2015 From 
2016 on  
Minimum percentage required with specific PPB  50% 60% 80% 
 
9.188.   The Panel considers that steps I, II and III of Article 1 involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum amounts and 
percentages in Articles 3, 4 and 5 for compliance with Article 1 on the basis of the production step 
requirements or own PPBs), as follows: step 1 - printed circuit boards ; step II - electrical and 
mechanical parts; and step III - cabinet. Pursuant to paragraph 3 of Article 1, steps I to III can be 
performed by third parties.1690 That is, the accredited producer of DIGITAL PROCESSING UNIT, 
WITH SMALL CAPACITY, BASED ON MICROPR OCESSOR, AND ASSEMBLED ON SAME BODY OR 
CABINET (NCM: 8471.50.10) can outsource these steps and retain the tax benefits in question so 
long as the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
                                                
1690 This outsourcing provision is in addition to that inherent in the specific PPBs referred to in Article 5. 
See footnote 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  9.189.   More precisely with respect to the own PPBs in, pursuant to Articles 4 and 5, at least three 
of following inputs: cabinets, rigid magnetic disk units, power supply, printed circuits (for mother 
board) and label with rad iofrequency identification (RFID) devices, and specified minimum 
percentages of certain printed circuit boards and other electronic parts, used in the SMALL 
DIGITAL PROCESSING UNITS must be manufactured according to their own PPBs. The Panel 
recalls that a ll PPBs that include any such "nested PPB" allow the outsourcing of the inputs or 
components covered by that PPB so long as its requirements are respected. The Panel also recalls 
its finding, at paragraph 7.117  of its report, t hat products produced in accordance with PPBs are 
domestic products. Therefore, where the accredited producer of SMALL DIGITAL PROCESSING 
UNITS outsources the referenced components and subassemblies, it can only retain the tax 
benefits in question if those  components and subassemblies are produced in Brazil in accordance 
with their own PPB, and thus are domestic products.  
_______________  
 
 
9.190.   Implementing Order No. 185, of 28 May 20151691, Article 1 states in relevant part that:  
The Basic Production Process for the product ELECTRONIC FUND TRANSFER TERMINAL 
– DEBIT AND CREDIT, established by the MICT/MCT/MC Implementing Order No. 35 
of February 07, 2013, should be as follows:  
I - plastic injection of body or cabinet at a minimum percentage of 85%, based on 
annual manufacturing with incentives of Electronic Fund Transfer Terminal – Debit and 
Credit;  
II - manufacturing of power supply or AC/CC converter, or battery charger, from 
assembly and welding of all components on the printed circuit board, and winding of 
transformer spool, at a minimum percentage of 85%, based on annual manufacturing 
with incentives of Electronic Fund Transfer Terminal – Credit and Debit;  
III - assembly and welding of all components in printed circuit boards;  
IV - assembly of electrical and mec hanical parts, completely unbundled, at basic 
component level;  
V - manufacturing of GSM (Global System for Mobile Communications) communication 
modules, according to article 3; and  
VI - integration of printed circuit boards and other electrical and mechani cal parts to 
form the final product, assembled according to sections III and IV of this article.  
Sole paragraph. Provided the Basic Production Process is complied with, the activities 
or operations inherent to production steps may be performed by third -parties, except 
for the step VI, which shall not be subject to outsourcing.  
9.191.   Article 3 of Implementing Order No. 185, of May 28, 2015, states  in relevant part that : 
9.192.   From the total of communication modules GSM (Global System for Mobile 
Communications) used to p roduce the ELECTRONIC FUND TRANSFER TERMINAL – DEBIT AND 
CREDIT, ninety percent (90%) should be produced according to their respective Basic Production 
Process, and based on the production, in quantity, in the calendar year.  
9.193.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassemblies, subject to specified minimum percentages, as follows: 
step I - body or cabinet; step II - power supply or AC/CC converter, or battery charger; step III - 
printed circuit boards; step IV - electrical and mechanical parts; and step V - GSM (Global System 
for Mobile Communications) communication modules, subject to compliance, pursuant to Article 3, 
with its own PPB in respect of 90% of the modules incorporated in to the ELECTRONIC FUND 
                                                
1691 Implementing Order 185/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 372 - 
 
  TRANSFER TERMINALS – DEBIT AND CREDIT. Steps I to V can be performed by third parties. That 
is, the accredited producer of ELECTRONIC FUND TRANSFER TERMINALS – DEBIT AND CREDIT can 
outsource these steps and retain the tax benefits in  question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs1692) are respected.  
_______________  
 
 
9.194.   Implementing Order No. 188, of 8 July 20141693, Article 1 states in  relevant part that:  
The Basic Production Process for the product PROGRAMMABLE LOGIC CONTROLLER, 
produced in the Country, established by the MICT/MCT/MC Implementing Order No. 
511 of November 10, 2003, should be as follows:  
I - manufacturing of at least s eventy percent (70%) of printed circuits, as of 
laminated;  
II - assembly and welding of all components in printed circuit boards;  
III - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level; and  
IV - integration of pri nted circuit boards and electrical and mechanical parts to form 
the final product.  
Paragraph 1 Provided the Basic Production Process provided for in this Order is 
complied with, the activities or operations inherent to production steps may be 
performed by third-parties, except for the step contained in Section IV, which shall 
not be subject to outsourcing.  
9.195.   The Panel considers that steps I to I II involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuits; step II – printed 
circuit boards; and step III - electrical and mechanical parts. Steps I to III can be performed by 
third parties. That is, the accredited producer of PROGRAMMABLE LOGIC CONTROLLERS can 
outsource these steps and retain the  tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
_______________  
 
 
9.196.   Implementing Order No. 26, of 5 February 20141694, Article 1 states in relevant part that:  
The following Basic Production Process is hereby set forth for the product POSITRON 
EMISSION TOMOGRAPHY/COMPUTED TOMOGRAPHY (PET/CT), produced in the 
Country:  
I - assembly of X ray detectors, according to their respec tive Basic Production 
Process;  
II - assembly of photon detectors, according to their respective Basic Production 
Process;  
III - mechanical assembly of stationary base;  
                                                
1692 In the case of GSM communication modules, due to the requirements of the specific PPB for those 
products.  
1693 Implementing Order 188/2014, (Exhibit BRA -116).  
1694 Implementing Order 26/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  IV - mechanic installation and CT Gantry alignment with stationary base;  
V - mechanical installation of PET image ring, and mechanic alignment with CT 
Gantry;  
VI - mechanic assembly and alignment of patient table with CT Gantry;  
VII - mechanical assembly and connections of data cabling of PET image 
reconstruction unit;  
VIII - mechanical assem bly, connections of data cabling, installation of software and 
execution of operational tests of CT image reconstruction unit;  
IX - assembly and connections of the unit of energy distribution to Gantry set, to CT 
and PET image reconstruction units and to p atient table;  
X - mechanical alignment and integration tests of stationary base, CT Gantry, PET 
image ring and table;  
XI - tests of electric safety and radiation, comprising grounding impedance test, 
leakage current, dielectric strength and radiation leaka ge from PET source, as 
applicable;  
XII - operational tests, including calibration and image quality; and  
XIII - packaging of subsystems and accessories forming PET/CT.  
Provided the Basic Production Process is complied with, only the steps determined in 
Sections I, II, XIII may be performed by third -parties, while others should be 
performed by manufacturing company, except in cases where outsourcing is part of 
the technology transfer project for companies installed in the Country.  
9.197.   Additionally, Article 2 of Implementing Order No. 26, of February 5, 2014, states  in 
relevant part that : 
When the POSITRON EMISSION TOMOGRAPHY/COMPUTED TOMOGRAPHY (PET/CT) is 
commercialized with one or more products listed in this article, they should be 
produced in the Country, acc ording to their respective Basic Production Processes, 
according to following schedule, as applicable:  
I - as of January 1st, 2016:  
a) computer for data acquisition or image reconstruction;  
b) computer cabinet (metallic rack);  
c) printer for printing repor ts and images in paper;  
d) printer for printing examinations in special film.  
e) system of high voltage for filtering and control of supply to medical systems;  
f) system for high voltage management for control of continued supply for medical 
systems; and  
g) system for low voltage management for control of continued supply for medical 
systems  WT/DS472/R • WT/DS497/R  
 
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  II - as of January 1st, 2017:  
a) image display monitor; and  
b) image and signal processing software.  
9.198.   The Panel considers that at least steps I and II, by virtue of bein g subject to their own 
PPBs, involve the creation, from basic raw materials and inputs, of components or subassemblies, 
as follows: step 1 - X ray detectors; and step II - photon detectors. Pursuant to paragraph 1 of 
Article 1, steps I and II can be perfor med by third parties.1695 That is, the accredited producer of 
POSITRON EMISSION TOMOGRAPHY/COMPUTED TOMOGRAPHY (PET/CT) can outsource these 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Brazil of the res pective components and subassemblies from basic raw materials and inputs, on 
the basis of the applicable PPBs) are respected.  
9.199.   Also, Article 2 requires that when the POSITRON EMISSION TOMOGRAPHY/COMPUTED 
TOMOGRAPHY (PET/CT) is commercialized with: computers  for data acquisition or image 
reconstruction; computer cabinets (metallic rack); printers for printing reports and images in 
paper; printers for printing examinations in special film; systems of high voltage for filtering and 
control of supply to medical systems; systems for high voltage management for control of 
continued supply for medical systems; and/or systems for low voltage management for control of 
continued supply for medical systems; these components or subassemblies be produced in 
accordance wit h their respective PPBs. The Panel recalls that all PPBs that include any such 
"nested PPB" allow the outsourcing of the inputs or components covered by that PPB so long as its 
requirements are respected. The Panel also recalls its finding, at paragraph 7.117  of its report, 
that products produced in accordance with PPBs are domestic products. Therefore, where the 
accredited producer of POSITRON EMISSION TOMOGRAPHY/COMPUTED TOMOGRAPHY (PET/CT) 
outsources the referenced items, it can only retain the tax benefits in question if those items are 
produced in Brazil in accordance with their own PPBs, and thus are domestic products.  
_______________  
 
 
9.200.   Implementing Order No. 36, of 4 March 20151696, Article 1 states in relevant part that:  
Basic Production Process for the product INPUT UNIT, KEYBOARD FOR TRACKER WITH 
OR WITHOUT BUILT -IN VIDEO OUTPUT, produced in the country, established by 
MDIC/MCTI Implementing Order No. 24 of February 07, 2007, should be as follows:  
I - plastic part injecti on; 
II - manufacturing of printed circuit boards, as of laminated, at a minimum 
percentage of eighty percent (80%), as of July 1st, 2015;  
III - assembly and welding, or equivalent process, of all components in printed circuit 
boards;  
IV - assembly of elect rical and mechanical parts, completely unbundled, at basic 
component level; and  
V - final assembly.  
Sole paragraph. The activities or operations inherent to above production steps may 
be performed by third -parties, provided the Basic Production Process is complied with, 
except for stage V, which shall not be subject to outsourcing.  
                                                
1695 This outsourcing provision is in addition to that inh erent in the specific PPBs referred to in Article 1. 
See footnote 1619 above.  
1696 Implementing Order 36/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  9.201.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - plastic parts; steps II and  III - printed 
circuit boards; and step IV involves the creation, from basic raw materials and inputs, of the 
following components or subassemblies: electrical and mechanical parts. Steps I to IV can be 
performed by third parties. That is, the accredited p roducer of INPUT UNITS, KEYBOARDS FOR 
TRACKER WITH OR WITHOUT BUILT -IN VIDEO OUTPUTcan outsource these steps and retain the 
tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassembli es from basic raw materials and inputs) are respected.  
_______________  
 
 
9.202.   Implementing Order No. 188, of 28 May 20151697, Article 1 states in relevant part that:  
The Basic Production Process for the product FIXED CELLULAR TELEPHONE, which 
uses GSM, GPRS, EDGE,  W-CDMA, HSPA and LTE technologies, jointly or individually, 
manufactured in the Country, as set forth by the MCT/MICT Implementing Order No. 
356 of September 6, 1996, should be as follows:  
I - plastic injection of body or cabinet;  
II - assembly and weldin g of all components in printed circuit boards;  
III - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level;  
IV - integration of printed circuit boards and electrical and mechanical parts to form 
the final product, asse mbled according to the steps determined in sections I, II and 
III. 
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties, except for 
the step containe d in section IV, which shall not be subject to outsourcing.  
Paragraph 2 Until December 31, 2017, for subassemblies "module of frequency radio" 
and "cellular interface", the operation described in section II of this article is 
exempted. After this date, the  use of those subassemblies should comply with 
following schedule:  
Calendar year  2018 2019 From 2020 on  
Percentage  20% 40% 80% 
 
Paragraph 3 Until December 31, 2015, for subassembly "power supply" (or continuous 
current converters – AC-CC or battery charg ers), the operation described in section II 
of this article is exempted. As of January 1st, 2016, power sources should be 
manufactured according to the steps set forth in caption, at a minimum percentage, 
based on the total quantity produced in the calenda r year, according to following 
schedule:  
Calendar year  2016 2017 From 2018 on  
Percentage  30% 50% 80% 
 
9.203.   The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies (subject to the minimu m percentages in paragraphs 2 and 
3 for compliance with Article  1 on the basis of the production step requirements), as follows: step I 
- body or cabinet; step II - printed circuit boards; and step III - electrical and mechanical parts. 
Steps I to III can be performed by third parties. That is, the accredited producer of FIXED 
CELLULAR TELEPHONES, which uses GSM, GPRS, EDGE, W -CDMA, HSPA and LTE technologies can 
outsource these steps and retain the tax benefits in question so long as the requirements of the  
                                                
1697 Implementing Order 188/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
_______________  
 
 
9.204.   Implementing Order No. 231, of 5 September 20141698, Article 1 states in relevant part 
that:  
Article 1 The Basic  Production Process for the product PHOTOVOLTAIC PANEL OR 
MODULE, produced in the Country, established by the MICT/MCT/MC Implementing 
Order No. 274 of December 12, 2001, should be as follows:  
I - manufacturing of photovoltaic cells, according to their res pective Basic Production 
Process;  
II - welding of terminals in photovoltaic cells forming strings;  
III - assembly of cell sets (strings) in glass and welding of cell interconnections 
(strings);  
IV - assembly of coverage (plastic or glass film);  
V - panel l amination;  
VI - assembly of frame (optional for glass/glass panel);  
VII - assembly of electric connector and/or connection box; and  
VIII - tests and classification in the simulator.  
Paragraph 1 Provided the Basic Production Process provided for in this Ord er is 
complied with, the activities or operations inherent to production steps may be 
performed by third -parties, except for the steps contained in sections VII and VIII, 
which shall not be subject to outsourcing.  
9.205.   The Panel considers that at least steps I,  II, III, IV, and VI involve the creation, from basic 
raw materials and inputs, of components or subassemblies, as follows: step I - photovoltaic cells 
(according to their own PPB); step II – strings; step III – cell sets and cell interconnections; step 
IV - coverage (plastic or glass); and step VI - frames. Pursuant to paragraph 1, all of these steps 
can be performed by third parties. That is, the accredited producer of PHOTOVOLTAIC PANELS OR 
MODULES can outsource these steps and retain the tax benefits in  question so long as the 
requirements of the steps (production in Brazil of the respective components and subassemblies 
from basic raw materials and inputs – for photovoltaic cells, pursuant to the respective PPB) are 
respected.  
_______________  
 
 
9.206.   Implement ing Order No. 236, of 15 July 20151699, Article 1 states in relevant part that:  
It is established following Basic Production Process for the product CONNECTORIZED 
OPTICAL CABLE, manufactured in the Country:  
I - cutting of optical cable;  
II - optical cable st ripping;  
                                                
1698 Implementing Order 231/2014, (Exhibit BRA -116).  
1699 Implementing Order 236/2015, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
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  III - cleaning of optical fiber;  
IV - gluing of optical fiber to ceramic contact;  
V - fiber pulling;  
VI - fiber polishing, as applicable; and  
VII - crimping of connector.  
Paragraph 1 For compliance with this article, optical cables should comply w ith Basic 
Production Process defined for them, at a minimum percentage of fifty percent (50%).  
9.207.   Additionally, Article 2 of Implementing Order No. 236, of 15 July 2015, states in relevant 
part that:  
The activities or operations inherent to the production ste ps described in Article 1, 
except for one, may be performed by third -parties, provided the Basic Production 
Process is complied with.  
9.208.   The Panel considers that at least step I, with paragraph 1, by virtue of the application of its 
own PPB, involves the crea tion, from basic raw materials and inputs, of components or 
subassemblies, i.e., optical cable. Step I can be performed by third parties. That is, the accredited 
producer of CONNECTORIZED OPTICAL CABLES can outsource this step and retain the tax benefits 
in question so long as the requirements of the step (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.209.   Implementing Order No. 287, of 11 November 20141700, Article 1 states  in relevant part 
that:  
To establish following Basic Production Process for the product NON -VOLATILE DATA 
STORAGE UNIT, IN SEMICONDUCTOR MEDIA, produced in the Country:  
I - assembly and welding of all components in printed circuit boards;  
II - molding, en capsulation or plastic injection of plastic parts of external cabinet, as 
applicable;  
III - assembly of electrical and mechanical parts, completely unbundled, at basic 
component level;  
IV - final integration of product, assembled according to previous sect ions; and  
V - formatting, installation of residing computer programs and final tests, as 
applicable.  
Paragraph 1 Provided the Basic Production Process is complied with, the activities or 
operations inherent to production steps may be performed by third -parties, except for 
the steps contained in sections IV and V, which shall not be subject to outsourcing.  
9.210.   Additionally, Article 3 of Implementing Order No. 287, of November 11, 2014, states  in 
relevant part that : 
Integrated circuits or microchips of non -volati le-memory type, used in the assembly of 
printed circuit boards of product referred to in article 1 shall comply with the relevant 
                                                
1700 Implementing Order 287/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 378 - 
 
  Basic Production Process, according to production percentages in the calendar year, as 
follows:  
I - from January 1st, 2013 to December 31, 2014: zero percent (0%); and  
II - as of January 1st 2015: forty percent (40%).  
9.211.   The Panel considers that steps I to III of Article I involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minim um percentages in 
Article 3 for compliance with Article 1 on the basis of an own PPB), as follows: step I - printed 
circuit boards; step II - plastic parts of external cabinet; and step III - electrical and mechanical 
parts. Steps I to III can be performed  by third parties. That is, the accredited producer of NON -
VOLATILE DATA STORAGE UNITS, IN SEMICONDUCTOR MEDIA can outsource these steps and 
retain the tax benefits in question so long as the requirements of the steps (production in Brazil of 
the respectiv e components and subassemblies from basic raw materials and inputs) are respected.  
9.212.   More precisely with respect to the own PPB in Article 3, at least 40% of the integrated 
circuits or microchips of non -volatile -memory type used in the assembly of NON -VOLATI LE DATA 
STORAGE UNITS, IN SEMICONDUCTOR MEDIA must be produced in accordance with their own 
PPB. The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of the 
inputs or components covered by that PPB so long as its require ments are respected.  The Panel 
also recalls its finding, at paragraph 7.117  of its report, that products produced in accordance with 
PPBs are domestic products. Therefore, where the accredited producer of NON -VOLATILE DATA 
STOR AGE UNITS, IN SEMICONDUCTOR MEDIA outsources the referenced microchips, it can only 
retain the tax benefits in question if a portion of those microchips are produced in Brazil in 
accordance with their own PPB, and thus are domestic products.  
______________ _ 
 
 
9.213.   Implementing Order No. 323 of 31 December 20141701, Article 1 states in relevant part 
that: 
The Basic Production Process for the product PORTABLE TERMINAL OF  CELLULAR 
TELEPHONE  produced in the Country, established by MDIC/MCTI Implementing Order 
No. 306 o f December 28, 2012, should be as follows:  
I - assembly and welding of all components on printed circuit boards, at minimum 
percentage of 85%;  
II - manufacturing of charger according to its respective Basic Production Process, at 
minimum percentage of 85%;  
III – manufacturing of battery according to its respective Basic Production Process, at 
minimum percentage of 60%;  
IV – manufacturing of MicroSD Card (Secure Digital) and MicroSDHC Card (Secure 
Digital High Capacity), according to relevant Basic Productio n Process, when 
accompanying cellular telephones, according to following schedule:  
2014  2015  2016  From 2017 on  
10%  20%  40%  50  
 
V – manufacturing of memory integrated circuits, according to their respective Basic 
Production Process and following s chedule:  
2014  2015  2016  From 2017 on  
5%  25%  40%  50%  
                                                
1701 Implementing Order 323/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 379 - 
 
   
VI – manufacturing of data cable according to the terms and percentages set forth in 
Basic Production Process for "static converter with electronic control, provided it is 
based on digital tech nique (NCM: 8504.40), used as continuous current converter 
(AC/CC) or battery charger for cellular telephone", when they are not manufactured 
with charger, according to Section II of this Article; and  
VII – integration of printed circuit boards, subassembl ies and electrical and 
mechanical parts to form the final product.  
… 
Paragraph 2 In order to comply with provisions of this article, the use of 
subassemblies from third -parties in the Country is allowed, provided their production 
complies with the Basic Pr oduction Process established in sections I to VII of this 
article.  
9.214.   The Panel considers that steps I to VI involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuit boards; step II, by 
virtue of the application of its own PPB to at least 85% of production - chargers; step III, by virtue 
of the application of its own PPB to at least 60% of production - chargers; step IV, by virtue of the 
application of its own PPB in accordance with a phase d schedule - MicroSD Card (Secure Digital) 
and MicroSDHC Card (Secure Digital High Capacity); step V, by virtue of the application of its own 
PPB in accordance with a phased schedule - memory integrated circuits; and step VI, by virtue of 
the application o f its own PPB and subject to certain other specific conditions - data cables. 
Pursuant to paragraph 2, Steps I to VI can be performed by third parties. That is, the accredited 
producer of PORTABLE TERMINAL OF CELLULAR TELEPHONE can outsource these steps an d retain 
the tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs, for the most part 
on the basis of their own PPBs) are respected.  
______ _________  
 
 
9.215.   Implementing Order No. 325, of 31 December 20141702, Article 1 states in relevant part:  
The Basic Productive Process for the product MAGNETIC RESONANCE IMAGING 
EQUIPMENT, as established by MDIC/MCT Implementing Order No. 28, of February 
10, 2012,  should be as follows:  
I - magneto assembly, according to following steps:  
a) installation of studs and fixation of frontal and back rings on magneto body;  
b) installation of gradient coil on magneto;  
c) installation of mechanic support for fixation of mai n magneto cabling;  
d) installation of top cover supports;  
e) assembly of power bus between magneto and gradient coil – fixation of supports, 
screws and insulators;  
f) installation of interface for receiver antennas of magneto signal;  
g) assembly of resisti ve load assembly for circuits of radio frequency transmission 
(printed circuit board with electric and electronic components assembled with sink) in 
magneto support, and connections; and  
h) installation of supports for cable fixation, bridge support bracke ts (or magneto 
table support) and connection of suppression filter and its connections.  
II - installation of bridge assembly (or magneto table support) in the internal part of 
equipment;  
III - supply of assembled magneto with appropriate coolant;  
                                                
1702 Implementing Order 325/2014, (Exhibit BRA -116).  WT/DS472/R • WT/DS497/R  
 
- 380 - 
 
  IV - installation of computer programs for equipment configuration and operation; and  
V - test and final packaging of product.  
Paragraph 1 Outsourcing is allowed only for the step contained in section V, and other 
steps shall be performed by the manufacturing compa ny that has tax incentives 
provided for in Law No. 8,248 of 1991.  
9.216.   Additionally, Article 2 of Implementing Order No. 325, of December 31, 2014, states  in 
relevant part that : 
When the MAGNETIC RESONANCE IMAGING EQUIPMENT is commercialized with one 
or more pr oducts listed in sections of this article, they should be produced in the 
Country, according to their respective Basic Productive Processes, as applicable:  
I - reconstructive computer or console computer;  
II - computer cabinet (metallic rack);  
III - transf ormer with 200 to 480 Volt output;  
IV - voltage stabilizer;  
V - printer for printing reports and images in paper; and  
VI - printer for printing examinations in special film.  
9.217.   Article 3 states  in relevant part that : 
As of August 1st, 2012, refrigeration equi pment (chiller) should be produced in the 
Country, in case it is commercialized together with the MAGNETIC RESONANCE 
IMAGING EQUIPMENT.  
9.218.   Article 4 states  in relevant part that : 
As of January 1st, 2013, the system for distribution and control of high voltage  energy 
used by the magnetic resonance imaging equipment should be produced in 
compliance with its respective Basic Productive Process, as applicable.  
9.219.   The Panel notes that at least step I involves the creation, from basic raw materials and 
inputs, of compo nents or subassemblies, i.e., magnetos. Although step I cannot be performed by 
third parties, other outsourcing provisions apply.  
9.220.   First, Article 2 requires that, when the MAGNETIC RESONANCE IMAGING EQUIPMENT is 
commercialized with: reconstructive computer  or console computers; computer cabinets (metallic 
rack); transformers with 200 to 480 Volt output; voltage stabilizers; printers for printing reports 
and images in paper and/or printer for printing examinations in special film; these components 
and subass emblies be produced in accordance with their own PPBs. Similarly, Article 4 requires 
that the system for distribution and control of high voltage energy used by the MAGNETIC 
RESONANCE IMAGING EQUIPMENT should be produced in compliance with its own PPB.  
9.221.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected. The 
Panel also recalls its finding, at paragraph 7.117 of its report, that products produced in 
accordance with PPBs are domestic products. Therefore, where the accredited producer of 
MAGNETIC RESONANCE IMAGING EQUIPMENT outsources the items listed in Articles 3 and 4, it 
can only retain the tax benefits  in question if those items are produced in Brazil in accordance with 
their own PPBs, and thus are domestic products.  WT/DS472/R • WT/DS497/R  
 
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  9.222.   Furthermore, Article 3 states that refrigeration equipment (chiller) commercialized 
together with the MAGNETIC RESONANCE IMAGING EQUIPMENT  be produced in Brazil. Therefore, 
where the accredited producer of MAGNETIC RESONANCE IMAGING EQUIPMENT outsources the 
referenced equipment, it can only retain the tax benefits in question if that equipment is produced 
in Brazil.  
_______________  
 
9.223.   Intermi nisterial Implementing Order No. 16 of 28 January 20141703, Article 1 states in 
relevant part that:  
Establishes the following Basic Production Process for MACHINES FOR SELECTING AND 
COUNTING PAPER MONEY (BANK NOTES), produced in Brazil:  
I - injection of the h ousing's plastic parts;  
II - stamping of the housing's metal parts, when applicable;  
III - manufacture of the power source, in accordance with the respective Basic 
Production Process (PPB);  
IV - assembly and soldering of all components on the printed circu it boards;  
V - assembly of the electrical and mechanical parts, totally separate, at a basic 
component level;  
VI - use of power cord produced in accordance with the specific PPB in the Manaus 
Industrial Centre, or from the drawing and annealing of its wire s, in other regions of 
national territory;  
VII - integration of the printed circuit boards and the electrical and mechanical parts 
in the formation of the final product, assembled in accordance with indents IV and V 
above; and  
VIII - tests (voltage/dielect ric strength, insulation resistance and leakage current).  
… 
§ 3 With the exception of stages VII and VIII, all others may be outsourced to third 
parties in other regions of the country, fully observing the respective Basic Production 
Processes.  
9.224.   The Panel c onsiders that steps I to VI involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I – plastic parts; step II - metal parts; 
step III – power source  (on the basis of their own PPB); step IV - printed cir cuit boards; step V - 
electrical and mechanical parts; and step VI - power cord produced in accordance with the specific 
PPB. Steps I to VI can be performed by third parties. That is, the accredited producer of 
MACHINES FOR SELECTING AND COUNTING PAPER MON EY (BANK NOTES) can outsource this step 
and retain the tax benefits in question so long as the requirements of the step (production in Brazil 
of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
_______________  
 
                                                
1703 Implementing Order 325/2014, (Exhibit JE -24). WT/DS472/R • WT/DS497/R  
 
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  9.225.   Interministerial Implementing Order No. 17, of 28 January 20141704, Article 1 states in 
relevant part that:  
The Basic Production Processes for SEMICONDUCTOR COMPONENTS, 
OPTOELECTRONIC DEVICES, THICK AND THIN FILM COMPONENTS, PHOTOVOLTAIC 
CELLS and STANDARD  VOLATILE MEMORY MODULES, produced in Brazil, established 
through Interministerial Implementing Order MCT/MICT No 201 of 13 November 2007, 
shall now observe the following Articles.  
Article 2 SEMICONDUCTOR COMPONENTS AND OPTOELECTRONIC DEVICES:  
I - wafer cu tting;  
II - assembly and fastening of the non -encapsulated chip (die);  
III - soldering of the wires or solder contacts on the substrate;  
IV - moulding or encapsulation of the assembled chip;  
V - cutting or fastening of spheres for components with BGA (Ball  Grid Array) or 
FBGA (Fine Ball Grid Array) encapsulation, when applicable;  
VI - tinning and folding of components with TSOP (Thin Small -Outline Packages) 
encapsulation or similar, when applicable;  
VII - cutting or making into single units, when applicable ; 
VIII - electrical, functional and characterisation tests (trials) or optoelectronic 
tests; and  
IX - marking (identification).  
Article 3 THICK AND THIN FILM COMPONENTS:  
I - physical -chemical processing on the substrate;  
II - assembly of the components on the substrate, when applicable;  
III - electrical or optoelectronic test (trial); and  
IV - marking (identification).  
Article 4 PHOTOVOLTAIC CELLS:  
I - physical -chemical processing in the diffusion, texturing and metallisation 
stages;  
II - wafer cutting; and  
III - test (trial).  
9.226.   Article 5 of Interministerial Implementing Order No. 17 establishes the following 
production -step requirements for "STANDARD VOLATILE MEMORY MODULES":  
I - wafer cutting;  
II - assembly and fastening of the non -encapsulated chip (die);  
                                                
1704 Interministerial Implementing Order 17/2014, (Exhibit JE -25).  WT/DS472/R • WT/DS497/R  
 
- 383 - 
 
  III - soldering of the wires or solder contacts on the substrate;  
IV - moulding or encapsulation of the assembled chip;  
V - cutting or fastening of spheres for components with BGA (Ball Grid Array) or FBGA 
(Fine Ball Grid Array) encapsulation, when applicab le; 
VI - tinning and folding of components with TSOP (Thin Small -Outline Packages) 
encapsulation or similar, when applicable;  
VII - cutting or making into single units, when applicable;  
VIII - electrical, functional and characterisation tests (trials); and  
IX - marking (identification)  
X - assembly and soldering of components on the printed circuit boards;  
XI - recording of Electrically Erasable Programmable Read -Only Memory - EEPROM 
type memories or of the controlling integrated circuits; and  
XII - electri cal and functional tests and labelling to identify the modules, when 
applicable.  
§ 1 The stages set out in indents I to X of this Article may be exempted by up to 2% 
of the total of STANDARD VOLATILE MEMORY MODULES produced in the calendar 
year. 
§ 2 Up to 20% of imported monolithic integrated circuits of the Random Access 
Memory - RAM type may be used in the local assembly of STANDARD VOLATILE 
MEMORY MODULES produced in the calendar year.  
9.227.   The Panel notes that pursuant to paragraph 2 of Article 5, the accred ited producer of 
STANDARD VOLATILE MEMORY MODULES is permitted to use up to 20% of imported monolithic 
integrated circuits of the random access memory (RAM) type, meaning both that outsourcing of 
these integrated circuits is permitted, and that where such outsourcing is used, at least some 
portion of the referenced printed circuits must be domestic. That is, the accredited producer of 
STANDARD VOLATILE MEMORY MODULES can outsource the referenced integrated circuits and 
retain the tax benefits in question so  long as a portion of those integrated circuits is made in 
Brazil.  
_______________  
 
 
9.228.    Interministerial Implementing Order No. 19, of 28 January 20141705, Article 1 states in 
relevant part that:  
Sets out the following Basic Production Process for FIXED X -RAY MACHINES WITH 
IMAGE ACQUISITION VIA FLAT DIGITAL DETECTOR, produced in Brazil:  
I - assembly of the X -ray detectors in accordance with their respective Basic 
Production Process;  
II - assembly and soldering of all components on the printed circuit board(s) which 
are contained in the main equipment and which employ the following functions:  
a) control and activation of X -rays; 
b) control and activation of movements, when applicable;  
c) control interfaces and signal transmission; and  
                                                
1705 Interministerial Implementing Order 19/2014, (Exhibit JE -26).  WT/DS472/R • WT/DS497/R  
 
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  d) power feed and distribut ion. 
III - assembly and connections from high tension generator which feeds X -ray tube;  
IV - mounting and fixing of tube support;  
V - mounting and connection of X -ray tube to tube support;  
VI - mounting and connection of collimator to X -ray tube;  
VII - mounting and fixing of cover on base of examination table;  
VIII - mounting and fixing of chassis support and digital detector on the support bucky 
table with integrated column tube stand;  
IX - mounting and fixing of digital detector to the table and column, w hen applicable;  
X - mounting and fixing of control module, when applicable;  
XI - electrical and radiation safety tests, including grounding impedance test, leakage 
current, dielectric strength;  
XII - alignment of the collimator light field with the X -ray field; 
XIII - installation of operating and processing software;  
XIV- functioning, calibration, performance and reliability tests; and  
XV- packaging.  
§ 1 Provided that the Basic Production Process is complied with, only the stages set 
out in indents I, II and XV may be carried out by third parties. All other stages shall 
be carried out by the manufacturer, except in cases where outsourcing forms part of 
the technology transfer project to companies installed in Brazil.  
9.229.   Additionally, Article 2 of Interministe rial Implementing Order No. 19, of 28 January 2014, 
states  in relevant part that : 
When FIXED X -RAY MACHINES WITH IMAGE ACQUISITION VIA FLAT DIGITAL 
DETECTOR are sold with one or more products  set out in this Article , such machines 
shall be produced in the country, in accordance with their respective Basic Production 
Processes or in compliance with MERCOSUL rules of origin, fully observing the 
following schedule, when applicable:  
I - from 1 July 2015:  
a) mechanical assembly for vertical bucky stand; and  
b) mechanical assembly to support tube and examination table, when applicable.  
II - from 1 January 2016:  
a) reconstruction computer or console computer; and  
b) high tension generator.  
III - from 1 January 2017:  
a) monitor; and  WT/DS472/R • WT/DS497/R  
 
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  b) image and signal processing so ftware.  
§ 1 Provided that the Basic Production Process is complied with, the parts, pieces, 
components, accessories and software set out in indents I, II and III may be produced 
by third parties, as long as where such outsourcing forms part of the technolo gy 
transfer project to companies installed in Brazil, when applicable.  
9.230.   The Panel considers that at least steps I and II of Article 1 involve the creation, from basic 
raw materials and inputs, of components or subassemblies: step I, in accordance with its o wn PPB 
- X ray detectors; and step II - printed circuit boards. Pursuant paragraph 1 of Article 1, steps I to 
II can be performed by third parties. That is, the accredited producer of FIXED X -RAY MACHINES 
WITH IMAGE ACQUISITION VIA FLAT DIGITAL DETECTOR ca n outsource this step and retain the 
tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs – in the case of 
step I, pursuant to its own PPB ) are respected.  
9.231.   In addition, Article 2 requires that when FIXED X -RAY MACHINES WITH IMAGE 
ACQUISITION VIA FLAT DIGITAL DETECTOR are sold with: vertical bucky stands; support tubes 
and examination tables; reconstruction computers or console computers; high  tension generators; 
monitors; and image and signal processing software; such subassemblies and components be 
produced in accordance with their own PPBs.  
9.232.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the input s or components covered by that PPB so long as its requirements are respected. The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs are domestic products. Therefor e, where the accredited producer of FIXED 
X-RAY MACHINES WITH IMAGE ACQUISITION VIA FLAT DIGITAL DETECTOR outsources the 
referenced components and subassemblies, it can only retain the tax benefits in question if those 
components or subassemblies are produ ced in Brazil in accordance with their own PPBs, and thus 
are domestic products.  
_______________  
 
 
9.233.   Interministerial Implementing Order No. 43, of 14 February 20131706, Article 1 states in 
relevant part that:  
The Basic Production Process for COMPUTER PRODUCTS  produced in Brazil, 
established by Interministerial Implementing Order MDIC/MCTI No 161 of 27 June 
2012, shall now read as follows:  
I - assembly and soldering of all components on the printed circuit boards;  
II - assembly of the electrical and mechanical parts, totally separated, at a basic 
component level; and  
III - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, assembled in accordance with indents I and II 
above;  
§ 1 Provided that the Basic Production Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties in the 
country, except with regard to the step set out in indent III which may not be 
conducted by third parti es. 
§ 4 As of 1 January 2013, POWER SOURCES, DIRECT CURRENT CONVERTERS (AC -
DC) OR BATTERY CHARGERS, when they are external or when they are incorporated 
in the same body or housing of a COMPUTER PRODUCT, shall be produced in 
                                                
1706 Interministerial Implementing Order 43/2013, (Exhibit JE -27). WT/DS472/R • WT/DS497/R  
 
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  accordance with the stages set out in the header paragraph to this Article, at a 
minimum of 80% of the total produced in the calendar year.  
9.234.   Additionally, Article 2 of Interministerial Implementing Order No. 43, of 14 February 2013 
states  in relevant part that : 
§ 2 Communication interfac e boards with Wi -Fi, Bluetooth or WiMax wireless 
technology, intended for COMPUTER PRODUCTS, shall comply with the following 
assembly schedule, based on the amount of such boards used in the calendar year:  
I - from 1 January 2010 to 31 December 2010: exemp ted. 
II - from 1 January 2011 to 31 December 2011: 20%;  
III - from 1 January 2012 to 31 December 2013: 50%; and  
IV - from 1 January 2014 onwards: 80%.  
… 
§ 5 Video cameras or assembled printed circuit boards with electrical or electronic 
components which ca rry out video camera function used in the production of 
AUTOMATIC DIGITAL MACHINES FOR DATA PROCESSING WITH SCREEN 
INCORPORATED - 'ALL IN ONE', shall comply with the following schedule:  
I - for the period prior to 16 February 2012: exempted; and  
II - for the period after 16 February 2012: It shall follow the specific Basic Production 
Process established in Interministerial Implementing Order.  
9.235.   Also, Article 3 of Interministerial Implementing Order No. 43, of 14 February 2013, states  
in relevant part that : 
The assembled printed circuit boards with electrical or electronic components referred 
to as High -Speed WAN Interface Cards (HWIC) used exclusively in DIGITAL ROUTERS 
for wireless networks, and which carry out the function described in the Sole 
Paragraph, sh all be assembled in accordance with the following schedule:  
I - from 1 July 2012 to 31 December 2012: exempted;  
II - from 1 January 2013 to 31 December 2013: 40%; and  
III - from 1 January 2014 onwards: 90%.  
9.236.   Further, Article 4 of Interministerial Implementi ng Order No. 43, of 14 February 2013, 
states  in relevant part that : 
Assembled printed circuit boards with electrical or electronic components consisting of 
digital signal processing (DSP) module for voice and video with capacity equal to or 
greater than 16  channels, high density (PVDM), specifically for assembly in a DIMM -
240 socket, used exclusively in DIGITAL ROUTERS for wireless networks, shall be 
assembled in accordance with the following schedule:  
I - from 1 July 2012 to 31 December 2012: exempted;  
II - from 1 January 2013 to 31 December 2013: 40%; and  
III – from 1 January 2014 onwards: 90%.  WT/DS472/R • WT/DS497/R  
 
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  9.237.   Article 5 of Interministerial Implementing Order No. 43 of 14 February 2013 states  in 
relevant part that : 
POWER SOURCES used in: DIGITAL ROUTERS for wireless networ ks; SWITCHES; IP 
TERMINALS F OR THE TRANSMISSION AND RECEPTION OF VOICE/DATA (IP 
TELEPHONES); ANALOGICAL TELEPHONE ADAPTERS FOR IP NETWORKS (ATA); and 
MODULATORS/DEMODULATORS (ADSL), shall be assembled in accordance with the 
following schedule:  
I - from 1 J anuary 2013 to 31 December 2013: 30%; and  
II - from 1 January 2014 onwards: 80%.  
9.238.   The Panel considers that steps I and II of Article 1 involve the creation, from basic raw 
materials and inputs, of the following components or subassemblies (subject to the mi nimum 
percentages in paragraph 4 of Article 1, and in Articles 2, 3, 4 and 5 from compliance with Article 1 
on the basis of the production step requirements or own PPBs), as follows: step I - printed circuit 
boards; and step II - electrical and mechanical parts. Steps I to II can be performed by third 
parties. That is, the accredited producer of COMPUTER PRODUCTS can outsource these steps and 
retain the tax benefits in question so long as the requirements of the steps (production in Brazil of 
the respective  components and subassemblies from basic raw materials and inputs) are respected.  
9.239.   More precisely with respect to the own PPB in paragraph 5 of Article 2, video cameras or 
assembled printed circuit boards with electrical or electronic components which carry  out video 
camera function used in the production of AUTOMATIC DIGITAL MACHINES FOR DATA 
PROCESSING WITH SCREEN INCORPORATED - 'ALL IN ONE' must be produced in accordance with 
their own PPB.  
9.240.   The Panel recalls that all PPBs that include any such "nested PP B" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1707 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance wit h PPBs are domestic products. Therefore, where the accredited producer of 
AUTOMATIC DIGITAL MACHINES FOR DATA PROCESSING WITH SCREEN INCORPORATED - 'ALL IN 
ONE' outsources the video cameras or assembled printed circuit boards with electrical or electronic 
components which carry out video camera function, it can only retain the tax benefits in question if 
those items are produced in Brazil in accordance with their own PPB, and thus are domestic 
products.  
_______________  
 
 
9.241.   Implementing Order No. 80, of 14 Apr il 20141708, Article 1 states in relevant part that:  
The Basic Production Process for LOW CAPACITY DIGITAL PROCESSING UNITS, BASED 
ON MICROPROCESSORS AND ASSEMBLED ON A SINGLE BODY OR HOUSING (MCN: 
8471.50.10), developed in Brazil, set out in Interministeria l Implementing Order 
MDIC/MCTI No 51 of 20 February 2013, shall now be worded as follows:  
I - assembly and soldering of all components on the printed circuit boards;  
II - assembly of the electrical and mechanical parts, totally separate, at a basic 
compone nt level, except the housing, fully observing the provisions of indent III;  
III - assembly of the housing at a basic component level or from its basic structures 
separated into at least five parts, in accordance with the understanding established in 
§§ 1, 2, 3 of this Article; and  
                                                
1707 See footnote 1619 above.  
1708 Implementi ng Order 80/2014, (Exhibit JE -29).  WT/DS472/R • WT/DS497/R  
 
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  IV - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product.  
… 
§ 3 Provided that the Basic Production Process set out in this Implementing Order is 
complied with, th e activities or operations required in the production stages may be 
carried out by third parties, except with regard to the stages set out in indent IV, 
which may not be conducted by third parties.  
9.242.   Additionally, Article 3 of Implementing Order No. 80, of 1 4 April 2014, states  in relevant 
part that : 
Communication interface boards with Wi -Fi, Bluetooth or WiMax technology, intended 
for LOW CAPACITY DIGITAL PROCESSING UNITS, shall comply with the following 
assembly schedule, based on the amount of such boards used in a calendar year:  
I - from 1 January 2012 to 31 December 2013: 50%; and  
II - from 1 January 2014 onwards: 80%.  
9.243.   Also, Article 4 of Implementing Order No. 80, of 14 April 2014, states  in relevant part that : 
The LOW CAPACITY DIGITAL PROCESSING UNITS sh all use a minimum of two of the 
following five options, manufactured in accordance with the respective Basic 
Production Process, when applicable , with a total minimum of 60%, broken down 
between the options chosen, with each option chosen limited to a maxi mum of 30% 
for purposes of compliance with the PPB, of the total amount of the respective 
components used  in the LOW CAPACITY DIGITAL PROCESSING UNITS produced and 
sold with tax incentives by the company in the calendar year : 
I - housings;  
II - magnetic di sk units;  
III - power sources;  
IV - printed circuits (for the mother board); and  
V - label with radio -frequency identification (RFID).  
9.244.   Further, Article 5 of Implementing Order No. 80, of 14 April 2014, states  in relevant part 
that: 
For compliance with the provisions of Article 1 the following percentages and 
schedules for the assembly in the country and use of components, parts and pieces 
are hereby established, when applicable, based on the amount used in the calendar 
year:  
I - assembled printed circuit bo ards with electrical or electronic components which 
employ memory functions (RAM modules):  
Calendar -year 2013 2014 2015 2016 
onwards  
Produced in accordance with 
the specific PPB  30% 50% 60% 80% 
Assembled in Brazil  60% 40% 30% 10% 
Totals produced in Braz il 90% 90% 90% 90% 
  WT/DS472/R • WT/DS497/R  
 
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  II - other components, parts and pieces which act with memory function, whether as 
integrated circuits or as modules or boards, as specified below, when applicable:  
a) DRAM or LPDRAM integrated circuit components;  
b) Nand Flash integr ated circuit components; and  
c) Solid State Drives (SSD).  
Calendar -year 2013 2014 2015 2016 
onwards  
Minimum percentage required 
with specific PPB  30% 50% 60% 80% 
 
9.245.   The Panel considers that steps I to III of Article 1 involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum percentages in 
Articles 3, 4 and 5 for compliance with Article 1 on the basis of the production step requirements 
or own PPBs), as follows: step 1 - printed circuit boards; step II  - electrical and mechanical parts; 
and step III housing. Steps I to III can be performed by third parties. That is, the accredited 
producer of LOW CAPACITY DIGITAL PROCESSING UNITS, BASED ON MICROPROCESSORS AND 
ASSEMBLED ON A SINGLE BODY OR HOUSING can ou tsource this step and retain the tax benefits 
in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
9.246.   More precisely with respect to the o wn PPBs in Article 4, a specified minimum percentage 
of two of the following five products: housings, magnetic disk units, power sources, printed circuits 
(for the mother board) and label with radio -frequency identification (RFID) must be produced in a 
specific percentage in accordance with their own PPBs. Similarly, Article 5 requires that a specific 
percentage of DRAM or LPDRAM integrated circuit components, Nand Flash integrated circuit 
components and Solid State Drives (SSD) be produced in accordance wi th their own PPBs.  
9.247.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1709 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs are domestic products. Therefore, where the accredited producer of LOW 
CAPACITY DIGITAL PROCESSING UNITS outsources the referenced components or subassemblies 
to be i ncorporated, that producer can only retain the tax benefits in question if a portion of those 
components and sub -assemblies are produced in Brazil in accordance with their own PPBs, and 
thus are domestic products.  
_______________  
 
 
9.248.   Implementing Order No. 8 5, of 29 April 20141710, Article 1 states in relevant part that:  
The Basic Production Process for DIGITAL PROCESSING UNITS ASSEMBLED IN A 
SINGLE BODY OR HOUSING, OF THE SERVER TYPE, developed in Brazil, set out by 
Interministerial Implementing Order MDIC/MCT  No 46 of 20 February 2013, shall now 
read as follows:  
I - assembly and soldering of components on the printed circuit boards which employ 
central processing (mother board) and memory functions, and when the mother board 
is of the mono -processed type, the local network boards and fax -modem shall be 
assembled in accordance with the schedule set out in Article 4, indent III.  
II - assembly of the electrical and mechanical parts; and  
                                                
1709 See footnote 1619 above.  
1710 Implementing Order 85/2014, (Exhibit JE -30).  WT/DS472/R • WT/DS497/R  
 
- 390 - 
 
  III - integration of the printed circuit boards and the electrical and mechani cal parts in 
the formation of the final product.  
Sole Paragraph Provided that the Basic Production Process set out in this 
Implementing Order, is complied with, the activities or operations required in the 
production stages may be carried out by third part ies in the country, except with 
regard to the step set out in indent III, which may not be conducted by third parties.  
9.249.   Additionally, Article 4 of Implementing Order No. 85, of 29 April 2014 states  in relevant 
part that: 
For compliance with the provisions o f the header paragraph to Article 1 the following 
schedules are hereby established for use of components, parts and pieces produced in 
accordance with the respective Basic Production Processes, the percentages for which 
shall be set based on the total amou nt of the respective components used in the 
digital processing units of the server type, produced with incentive in the calendar 
year:  
I - assembled printed circuit boards with electrical or electronic components which 
employ central processing functions ( mother board):       
Calendar year  2013 2014 onwards  
Percentage assembled (monoprocessed)  90% 90% 
Percentage assembled (multiprocessed)  20% 20% 
 
II - assembled printed circuit boards with electrical or electronic components which 
employ memory functions,  produced in accordance with the respective PPBs:  
Calendar year  2013 2014 onwards  
Percentage assembled  80% 80% 
 
III - Network boards used in monoprocessed servers:  
Calendar year  2013 2014 onwards  
Network boards: Percentage assembled  80% 80% 
 
IV - Other components, parts and pieces which act with memory function, whether as 
integrated circuits or as modules or boards, as specified below, when applicable:  
a) DRAM or LPDRAM integrated circuit components;  
Calendar year  2012 2013 2014 2015 
onwards  
Minimum percentage required with 
specific PPB  - 30% 50% 60% 
 
b) Solid State Drives (SSD)  
Calendar year  2012 2013 2014 2015  2016 
onwards  
Minimum percentage required with 
specific PPB  - - - 50% 60% 
… 
§ 11 Communication interface boards with Wi -Fi, Bluetooth or W iMax technology, 
intended for DIGITAL PROCESSING UNITS ASSEMBLED IN A SINGLE BODY OR 
HOUSING, OF THE SERVER TYPE, shall comply with the following assembly schedule, 
based on the amount of such boards used in a calendar year:  WT/DS472/R • WT/DS497/R  
 
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  I - from 1 January to 31 Decemb er 2011: 20%;  
II - from 1 January 2012 to 31 December 2013: 50%; and  
III - from 1 January 2014 onwards: 80%.  
9.250.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies (subject to the m inimum percentages in Article 4 for 
compliance with Article  1 on the basis of the production step requirements or own PPBs), as 
follows: step I - printed circuit boards; and step II - electrical and mechanical parts. Steps I and II 
can be performed by thir d parties. That is, the accredited producer of DIGITAL PROCESSING 
UNITS ASSEMBLED IN A SINGLE BODY OR HOUSING, OF THE SERVER TYPE can outsource th ese 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Braz il of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
9.251.   More precisely with respect to the own PPBs in Article 4 a specified minimum percentage of 
assembled printed circuit boards with electrical or electronic components which employ central 
processing functions (mother board); assembled printed circuit boards with electrical or electronic 
components which employ memory functions; network boards used in monoprocessed servers; 
DRAM or LPDRAM integrated circuit co mponents; and solid state drives (SSD) be produced in 
accordance with their own PPBs.  
9.252.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1711 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs are domestic products. Therefore, where the accredited producer of DIGITAL 
PROCESSING UNITS ASSEMB LED IN A SINGLE BODY OR HOUSING, OF THE SERVER TYPE 
outsources the referenced components or subassemblies, it can only retain the tax benefits in 
question if a portion of those components or subassemblies are produced in Brazil in accordance 
with their own  PPB, and thus are domestic products.  
_______________  
 
 
9.253.   Implementing Order No. 93, of 1 April 20131712, Article 1 states in relevant part that:  
Establishes the following Basic Production Process for OPTICAL SPLICE CLOSURES:  
I - manufacture of the moulds for the injection of the plastic parts;  
II - injection of the plastic parts;  
III - stamping of the metal parts;  
IV - assembly of the air valve and closure kit sub -assemblies and base items;  
V - final integration of the product; and  
VI - product impermeability test. 
Sole Paragraph. Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties in Brazil, except with regard to stages V and VI which may not be conducte d 
by third parties.  
9.254.   The Panel considers that at least steps I to III involve the creation, from basic raw 
materials and inputs, of components or subassemblies: step I - moulds; step II - plastic parts; and 
                                                
1711 See footnote 1619 above.  
1712 Implementing Order 93/2013, (Exhibit JE -31).  WT/DS472/R • WT/DS497/R  
 
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  step III - metal parts. Steps I to III can be perf ormed by third parties. That is, the accredited 
producer of OPTICAL SPLICE CLOSURES can outsource these steps and retain the tax benefits in 
question so long as the requirements of the steps (production in Brazil of the respective 
components and subassembl ies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.255.   Interministerial Implementing Order No. 103, of 2 April 20131713, Article 1 states in 
relevant part that:  
The Basic Production Process for PRODUCTS FOR SPEED ALARMS, TRACKING AND 
CONTR OL industrialized in Brazil, as set out in the Annex to Interministerial 
Implementing Order MDIC/MCT No 14 of 22 January 2007, shall now read as follows:  
I - stamping, cutting, folding and surface treatment of metal parts, when applicable;  
II - injection o f the housing's plastic parts, when applicable;  
III - manufacture of the printed circuits from laminate;  
IV - assembly and soldering, or equivalent process, of all components on the printed 
circuit boards;  
V - assembly of the electrical and mechanical part s, totally separated, at a basic 
component level; and  
VI - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, in accordance with indents I to V above;  
§ 1 Provided that the Basic Product ion Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties, 
except with regard to the stage set out in indent VI which may not be conducted by 
third parties.  
9.256.   Additionally, Article 2 of I nterministerial Implementing Order No. 103, of 2 April 2013, 
states  in relevant part  that: 
90% of the total number of Global System for Mobile Communications (GSM) 
communication modules used in the production of PRODUCTS FOR SPEED ALARMS, 
TRACKING AND CONT ROL as set out in the Annex to this Implementing Order shall be 
produced in accordance with their respective Basic Production Process in the calendar 
year. 
9.257.   The Annex states in relevant part that :  
ANNEX  
PRODUCTS  
Automobile immobiliser with transponder  
Automobile immobiliser by FM  
Automobile immobiliser by pager  
Automobile immobiliser with/without remote control  
                                                
1713 Intermin isterial Implementing Order 103/2013, (Exhibit JE -32).  WT/DS472/R • WT/DS497/R  
 
- 393 - 
 
  Vehicle tracker without GPS and communication via satellite  
Vehicle tracker with GPS and communication via satellite  
Vehicle tracker without  GPS and communication via satellite with flat antenna  
Vehicle tracker with GPS positioning and communication via GSM/GPRS  
Vehicle tracker with Location Based Service (LBS) positioning and communication via 
GSM/GPRS  
Vehicle tracker/immobiliser with GPS and  communication via mobile phone  
Vehicle tracker/immobiliser with GPS and communication via radio  
Vehicle tracker/immobiliser with GPS and communication via satellite  
Vehicle tracker/immobiliser with GPS and communication via radio frequency  
Electronic taco graph  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via mobile phone  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via radio  
Electronic tacograph with automobile tracker/immobil iser, with GPS and 
communication via satellite  
Electronic tacograph with automobile tracker/immobiliser, with GPS and 
communication via radio frequency  
Electronic tacograph with automobile tracker/immobiliser, by triangulation and 
communication via radio f requency  
Electronic tacograph immobiliser by pager  
Electronic tacograph immobiliser by FM  
9.258.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - metal parts; st ep II - plastic parts; 
steps III – printed circuits; step IV - printed circuit boards; and step V - electrical and mechanical 
parts. Steps I to V can be performed by third parties. That is, the accredited producer of 
PRODUCTS FOR SPEED ALARMS, TRACKING AND  CONTROL can outsource th ese steps and retain 
the tax benefits in question so long as the requirements of the step s (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
9.259.   Also, Article 2 req uires that 90% of the total number of global system for mobile (GSM) 
communication modules used in the production of PRODUCTS FOR SPEED ALARMS, TRACKING 
AND CONTROL be produced according to their respective Basic Production Process. The Panel 
recalls that all PPBs that include any such "nested PPB" allow the outsourcing of the inputs or 
components covered by that PPB so long as its requirements are respected.  The Panel also recalls 
its finding, at paragraph 7.117  of its report, that products produced in accordance with PPBs are 
domestic products. Therefore, where the accredited producer of PRODUCTS FOR SPEED ALARMS, 
TRACKING AND CONTROL outsources the GSM communication modules to be incorporated in the 
PRODUCTS FOR SPEED ALARMS, TRACKING AND CONTROL it can only retain the tax benefits in 
question if those modules are produced in Brazil in accordance with their own PPB, and thus are 
domestic products.  
_______________  
 
 WT/DS472/R • WT/DS497/R  
 
- 394 - 
 
  9.260.   Interministerial Implementing Order No. 111, of 29 May 20141714, Article 1 states in 
relevant part that:  
The Basic Production Process for TABLET PCs WITH TOUCH SCREEN, produced in 
Brazil, set out by Interministerial Implementing Order MDIC/MCT No 53 of 20 
February 2013, shall now read as follows:  
I - assembly and solder ing of all components on the printed circuit boards which 
employ the functions described in the paragraphs of this Article;  
II - assembly of the electrical and mechanical parts, fully observing the provisions of 
the paragraphs of this Article; and  
III - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product.  
§ 1 Provided that the Basic Production Process set out in this Implementing Order is 
complied with, the activities or operations required  in the production stages may be 
carried out by third parties, except with regard to the steps set out in indent III, which 
may not be conducted by third parties.  
… 
§ 4 For compliance with the provisions of the header paragraph to this Article, the 
followi ng schedules are hereby established for the use of components, parts and 
pieces produced in accordance with the respective Basic Production Processes, the 
percentages for which shall be established based on the total amount of the respective 
components use d in the 'TABLET PC' , produced in accordance with the PPB and sold 
with the tax incentives set out in Decree No 5.906 of 26 September 2006, in the 
calendar year, taking into account the provisions of Article 2 : 
I - assembled printed circuit boards with ele ctrical or electronic components which 
employ central processing functions (mother board):  
Calendar Year  2012 2013 onwards  
Percentage  80% 90% 
 
II - assembled printed circuit boards with electrical or electronic components which 
employ the access function  to wireless communication networks, when applicable  
Calendar Year  2013 2014 onwards  
Percentage  50% 80% 
 
III - communication boards which provide access to the mobile network, when 
applicable:  
Calendar Year  2013 2014 onwards  
Percentage  20% 30% 
 
                                                
1714 Interministerial Implementing Order 111/2014, (Exhibit JE -33).  WT/DS472/R • WT/DS497/R  
 
- 395 - 
 
  IV - AC/DC battery chargers or converters:  
Calendar Year  2013 onwards  
Percentage  80% 
 
V - other components, parts and pieces which act with memory function, whether as 
integrated circuits or as modules or boards, as specified below, when applicable:  
a) Nand Fl ash integrated circuit components;  
b) DRAM or LPDRAM integrated circuit components;  
c) eMMC (Multi Media Card) components/ PPN (Perfect Page Nand); and  
d) uSD memory card, when accompanying the tablet.        
Calendar Year  2013 2014 2015 2016 
onwards  
Minimum percentage required with 
specific PPB  30% 40% 50% 60% 
 
VI - Battery:  
Calendar Year  2014 2015 2016 onwards  
Percentage  10% 20% 30% 
 
9.261.   The Panel considers that steps I to II of the header paragraph of Article 1 involve the 
creation, from basic raw ma terials and inputs, of components or subassemblies (subject to the 
minimum percentages in paragraph 4 of Article 1 for compliance with the header paragraph  on the 
basis of the production step requirements or own PPBs), as follows: step I - printed circuit boards; 
and step II - electrical and mechanical parts. Steps I to II can be performed by third parties. That 
is, the accredited producer of TABLET PCs WITH TOUCH SCREEN can outsource th ese steps and 
retain the tax benefits in question so long as the requir ements of the steps (production in Brazil of 
the respective components and subassemblies from basic raw materials and inputs) are respected.  
9.262.   More precisely with respect to the own PPBs in paragraph 4 of Article 1, specified minimum 
percentages of assembled  printed circuit boards with electrical or electronic components which 
employ central processing functions (mother board); assembled printed circuit boards with 
electrical or electronic components which employ the access function to wireless communication 
networks; communication boards which provide access to the mobile network, when applicable; 
AC/DC battery chargers or converters; Nand Flash integrated circuit components; DRAM or 
LPDRAM integrated circuit components; eMMC (Multi Media Card) components/ PP N (Perfect Page 
Nand); uSD memory card, when accompanying the tablet; and batteries; be produced in 
accordance with their own PPBs.  
9.263.   The Panel recalls that all PPBs that include any such "nested PPB" allow the outsourcing of 
the inputs or components covere d by that PPB so long as its requirements are respected.1715 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs are domestic products. Therefore, where the accredit ed producer of TABLET 
PCs WITH TOUCH SCREEN outsources the referenced components or subassemblies, it can only 
retain the tax benefits in question if a portion of those components or subassemblies are produced 
in Brazil in accordance with their own PPB, an d thus are domestic products.  
                                                
1715 See footnote 1619 above  WT/DS472/R • WT/DS497/R  
 
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  9.264.    Interministerial Implementing Order No. 119, of 23 April 20131716, Article 1 states in 
relevant part that:  
The following Basic Production Process is hereby established for FIXED/PORTABLE 
DIGITAL ELECTRICAL SIGNALLING APPARATUS TO CONTROL MOTOR VEHICLE 
TRAFFIC, industrialized in Brazil:  
I - plastics injection of the side covers;  
II - moulding of the chamber front protection, chamber rear protection, armoured 
cover for the scope and protection for the battery support;  
III - manufa cture of the tripod;  
IV - manufacture of the support for mounting the equipment on the tripod;  
V - manufacture of the transport case;  
VI - manufacture of the battery charger;  
VII - integration of the battery and trigger assemblies into the housing;  
VIII - integration of the electro -optical -mechanical assembly (capture, reading and 
image processing) into the housing;  
IX - integration of the rear panel assembly;  
X - electrical connections;  
XI - closure;  
XII - placing of the focus/brightness adjustment lens;  
XIII - placing of the battery;  
XIV - tests; and  
XV - integration of the rubber protections.  
§ 1. Provided that the Basic Production Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties,  
except with regard to the stages set out in indents VII to XV which may not be 
conducted by third parties.  
9.265.   The Panel considers that steps I to VI involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I  - side covers; step II - chamber front 
protection, chamber rear protection, and armoured cover for the scope and protection for the 
battery support; step III - tripod; step IV - support for mounting the equipment on the tripod; 
step V - transport case; an d step VI - battery charger. Steps I to VI can be performed by third 
parties. That is, the accredited producer of FIXED/PORTABLE DIGITAL ELECTRICAL SIGNALLING 
APPARATUS TO CONTROL MOTOR VEHICLE TRAFFIC can outsource these steps and retain the tax 
benefits in question so long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
                                                
1716 Interministerial Implementing Order 119/2013, (Exhibit JE -34). WT/DS472/R • WT/DS497/R  
 
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  9.266.   Interministerial Implementing Order No. 203, of 23 August 20121717, Article 1 states in 
relevant part that:  
The Basic Production Process for LIQUID CRYSTAL DEVICES FOR PRODUCTS WITH 
MCN code: 8528 and FOR PRODUCTS WITH MCN code: 471, established by 
Interministerial Implementing Order MDIC/MCT No 189 of 19 July 2011, shall  now 
read as follows:  
I - manufacture of the polarised glass cell;  
II - plastic injection of the polarised glass frame, when applicable;  
III - metal stamping, plastics injection or moulding of the base and frame, as 
applicable;  
IV - assembly and soldering of components on the printed circuit boards;  
V - assembly of the electrical and mechanical parts, totally separated, at a basic 
component level;  
VI - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the LIQUID CRYSTAL DEVICE, assembled in accordance with indents 
IV and V; and  
VII - adjustments and calibration.  
Sole Paragraph Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be c arried out by third 
parties, except with regard to the stages set out in indents VI and VII, which may not 
be conducted by third parties.  
9.267.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or suba ssemblies, as follows: step I - polarised glass cell; step II - polarised 
glass frame; step III - base and frame; step IV - printed circuit boards; and step V - electrical and 
mechanical parts. Steps I to V can be performed by third parties. That is, the a ccredited producer 
of LIQUID CRYSTAL DEVICES FOR PRODUCTS WITH MCN code: 8528 and FOR PRODUCTS WITH 
MCN code: 471 can outsource these step and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respect ive components and subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
9.268.   Interministerial Implementing Order No. 268, of 30 August 20131718, states  in relevant 
part that: 
Article 1. The Basic Production Processes for SUPPLIES FOR  MULTI -FUNCTIONAL 
PHOTOCOPIER MACHINES AND LASER PRINTERS (MCN - 8443.31 AND 8443.32), 
established by Interministerial Implementing Order MDIC/MCT No 61 of 28 February 
2012, shall now incorporate the following Articles.  
Article 2 The Basic Production Proce ss for TONER:  
I - mixing, plastification and homogenising of raw materials;  
II - grinding (preparatory mechanical break down for the micronization stage);  
III - micronization (fine grinding to obtain powder);  
                                                
1717 Interminist erial Implementing Order 203/2012, (Exhibit JE -35).  
1718 Interministerial Implementing Order 268/2013, (Exhibit JE -37).  WT/DS472/R • WT/DS497/R  
 
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  IV - additivation (incorporation of external ad ditives: lubricants or load modifiers);  
V - screening (separation of powder into fractions);  
VI - plastics injection of the toner container or recipient; and  
VII - filling (volumetric or gravimetric filling of containers or recipients with toner).  
Sole Par agraph Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties, except with regard to the stage set out in indent VII, which may not be 
conducted by thi rd parties.  
9.269.   Article 3 The Basic Production Process for DEVELOPER:  
I - coating of different nuclei by applying an isolating layer or additivation;  
II - mixing with toner (joining of toner particles to coated nuclei);  
III - screening (mechanical separation f rom agglomerator); and  
IV - filling (volumetric or gravimetric dosage of containers or recipients with 
developer).  
Sole Paragraph Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages ma y be carried out by third 
parties, except with regard to the stage set out in indent IV, which may not be 
conducted by third parties.  
9.270.    Article 4 The Basic Production Process for TONER SETS, DEVELOPER SETS AND TONER 
AND DEVELOPER SETS:  
I - plastics injectio n, moulding or blow moulding of toner containers or recipients;  
II - assembly of the following components: foam and/or sealing felt, toner dosage 
foam rolls, magnetic rolls, scraper blades, cross mixers, electronic toner density 
sensors, electrical polaris ing system, activating gears and bushes, dosage blades, 
cleaning blades, organic drum cylinders, stoppers, seals, etc, when applicable;  
III - filling and sealing of cartridges; and   
IV - closing of cartridges or containers.  
§ 1 Provided that the Basic Prod uction Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties, 
except with regard to the stages set out in indents III and IV which may not be 
conducted by third parties.  
9.271.   Article 5 The B asic Production Process for CYLINDERS WITH PHOTO SENSITIVE ALLOY  
I - plating of the photosensitive layer on the prepared cylinder; and  
II - assembly of the parts and pieces, totally separated, at a basic component level, 
when applicable.  
Sole Paragraph Prov ided that the Basic Production Process is complied with, the 
activity described in indent I may be carried out by third parties, except with regard to 
the stage set out in indent II, which may not be conducted by third parties.  
9.272.   Article 6 The Basic Producti on Process for ORGANIC DRUM ASSEMBLIES:  WT/DS472/R • WT/DS497/R  
 
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  I - incorporation of the organic layer on the prepared cylinder, through immersion or 
painting; and  
II - assembly of the plastic or metal parts and pieces, totally separated, at a basic 
component level;  
Sole Paragrap h Provided that the Basic Production Process is complied with, the 
activity described in indent I may be carried out by third parties, except with regard to 
the stage set out in indent II, which may not be conducted by third parties.  
9.273.    Article 7 The Basic P roduction Process for FLEXIBLE ORGANIC DRUM ASSEMBLIES:  
I - cutting of the substrate;  
II - soldering; and  
III - assembly of all the parts and pieces, totally separated, at a basic component 
level;  
Sole Paragraph Provided that the Basic Production Process i s complied with, the 
activities or operations required in the production stages may be carried out by third 
parties, except with regard to the stage set out in indent III, which may not be 
conducted by third parties.  
9.274.   Article 8 The Basic Production Process for TONER CARTRIDGES, WITH OR WITHOUT 
MECHANISM INCORPORATED, FOR LASER PRINTERS:  
I - plastics injection, moulding or blow moulding of toner containers or recipients;  
II - assembly of the following components: foam and/or sealing felt, toner dosage 
foam ro lls, magnetic rolls, scraper blades, cross mixers, electronic toner density 
sensors, electrical polarising system, activating gears and bushes, dosage blades, 
cleaning blades, organic drum cylinders, stoppers, seals, etc, when applicable;  
III - filling and  sealing of cartridges; and  
IV - closing of cartridges or containers.  
Sole paragraph Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties, except wit h regard to the stage set out in indents III and IV, which may not 
be conducted by third parties.  
9.275.   Article 9 The stages set out in Article 2, indents I to IV, Article 4, indent I and Article 8, 
indent I may be exempted provided that the company benefiting f rom the tax incentives invests at 
least an additional 1% in R&D to that laid down in legislation, as defined in Articles  11 and 12.  
9.276.   Article 10 The Basic Production Process for TONER CARTRIDGES, WITH OR WITHOUT 
MECHANISM INCORPORATED, WITH RADIO FREQUENCY I DENTIFICATION DEVICE - RFID, FOR 
LASER PRINTERS:  
I - the manufacture of the toner cartridge consists of the following stages:  
a) plastics injection, moulding or blow moulding of toner containers or 
recipients;  
b) assembly of the following components: foam and/or sealing felt, toner 
dosage foam rolls, magnetic rolls, scraper blades, cross mixers, electronic toner 
density sensors, electrical polarising system; activating gears and bushes, WT/DS472/R • WT/DS497/R  
 
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  dosage blades, cleaning blades, organic drum cylinders, stoppers, seals , etc, 
when applicable;  
c) filling and sealing of cartridges; and  
d) closing of cartridges or containers.  
II - manufacture of the RFID in accordance with the respective Basic Production 
Process; and  
III - individual final packaging of the toner cartridges.  
9.277.   The Panel considers that at least the following steps involve the creation, from basic raw 
materials and inputs, of components or subassemblies: step VI of Article 2 – plastic toner 
containers or recipients; steps I and II of Article 4, as follows: step I  – plastic toner containers or 
recipients; and step II – assembled toner cartridges; step I of Article 7 – cut substrate; steps I 
and II of Article 8, as follows: step I – plastic toner containers or recipients; and step II – 
assembled toner cartridges; an d steps I(a), I(b) and II of Article 10, as follows: step I(a) – plastic 
toner containers or recipients; step I(b) – assembled toner cartridges or containers; and step II – 
RFIDs, by virtue of their own PPB.  
9.278.   These steps can be performed by third parties, as follows. The outsourcing provisions for 
the referenced steps in Articles 2, 4, 7 and 8 are set forth in the sole paragraphs of Articles 2, 7, 
and 8, and paragraph 1 of Article 4. For steps I(a) and I(b) of Article 10, given their similarity with 
their c ounterparts in Articles 4 and 8, the panel infers that although Article 10 does not contain an 
explicit outsourcing provision, these steps also can be outsourced. Finally, step II of Article 10 also 
can be outsourced, as this step requires that the compone nts or subassemblies that it covers - 
RFIDs – be produced in accordance with their own PPB. The Panel notes in this regard that all PPBs 
that include any such "nested PPB" allow the outsourcing of the inputs or components covered by 
that PPB so long as its  requirements are respected.1719 The Panel also recalls its finding, at 
paragraph 7.117  of its report, that products produced in accordance with PPBs are domestic 
products.  
9.279.   Therefore, where the accredited producer of products cove red by Interministerial 
Implementing Order No. 268 outsources the components and subassemblies referred to above, it 
can only retain the tax benefits in question so long as the requirements of the referenced steps 
and/or the "nested" PPB (production in Bra zil of the respective components and subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
9.280.   Interministerial Implementing Order No. 278, of 4 September 20131720, Article 1 states in 
relevant part that:  
The Basic Production Proces s for INDUSTRIAL AUTOMATION GOODS set out in the 
Annex to this Implementing Order1721, laid down by Interministerial Implementing 
Order MDIC/MCT No 549 of 18 December 2003, shall now be as follows:  
I - stamping, cutting, folding and surface treatment of metal  parts;  
II - plastic injection of the housing, when applicable;  
III - manufacture of the printed circuits from laminate;  
                                                
1719 See footnote 1619 above.  
1720 Interministerial Implementing Order 278/2013, (Exhibit JE -38).  
1721 The products  listed in the Annex are Electronic frequency converters, for changing the speed of 
electrical motors; Automatic voltage regulators for activating electrical motors (Soft Starter Keys); Instruments 
and apparatus to regulate or control the speed of electric al motors through frequency variation; and Devices to 
regulate and control electrical motors (Servo converters).  WT/DS472/R • WT/DS497/R  
 
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  IV - assembly and soldering of all components on the printed circuit boards;  
V - assembly of the electrical and mechanical parts, total ly separated, at a basic 
component level; and  
VI - integration of the assembled printed circuit boards and the electrical and 
mechanical parts in the formation of the final product.  
§ 1 Provided that the Basic Production Process set out in this Implementin g Order is 
complied with, the activities or operations required in the production stages may be 
carried out by third parties, except with regard to the steps set out in indents V and 
VI, which may not be conducted by third parties.  
9.281.   The Panel considers that  steps I to V involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - metal parts; step II - housing; step 
III – printed circuits; step IV - printed circuit boards; and step V - electrical and mechani cal parts. 
Steps I to V can be performed by third parties. That is, the accredited producer of INDUSTRIAL 
AUTOMATION GOODS can outsource these steps and retain the tax benefits in question so long as 
the requirements of the steps (production in Brazil of t he respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
 
9.282.   Interministerial Implementing Order No. 333, of 16 October 20131722, Article 1 states in 
relevant part that:  
Establishes the following Basic Prod uction Process for SELF -SERVICE COIN COUNTING 
MACHINES, produced in Brazil:  
I - manufacture of the following modules/sub -assemblies of the product, in 
accordance with their respective Basic Production Processes:  
a) central processing units (CPU);  
b) printe rs; 
c) monitors;  
d) relay and communication boards;  
e) no-break modules; and  
f) power sources.  
II - manufacture of the housing, consisting of the assembly of the body, internal 
structure and doors at a basic input level (steel plates, glass fibre, acrylic,  soldering, 
painting, plastic injection of the front panel, when applicable, and joining of the 
mechanical and plastic parts);  
III - manufacture of the coin storage container: assembly of the body and door at a 
basic input level (steel plates, soldering an d joining of the mechanical parts), when 
applicable;  
IV - manufacture of all other mechanical structures mounted from a basic component 
level (steel plates, motors and plastic parts);  
V - assembly and soldering of all components on the printed circuit boar ds; 
VI - assembly of all the electrical and mechanical parts, totally separated, at a basic 
component level; and  
VII - integration of the printed circuit boards and the electrical and mechanical parts 
in the formation of the final product.  
                                                
1722 Interministerial Implementing Order 333/2013, (Exhibit JE -39).  WT/DS472/R • WT/DS497/R  
 
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  Sole Paragraph P rovided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties, except with regard to the stage set out in indent VII, which may not be 
conducted by third parti es. 
9.283.   The Panel considers that steps I to VI involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I, by virtue of the requirement to 
produce the following in accordance with their own PPBs - central proc essing units (CPUs), 
printers, monitors, relay and communication boards, no -break modules, and power sources; step 
II - housing; step III - coin storage containers; step IV - mechanical structures; step V - printed 
circuit boards; and step VI - electrical and mechanical parts. Pursuant to the sole paragraph of 
Article 1, steps I to VI can be performed by third parties.1723 That is, the accredited producer of 
SELF-SERVICE COIN COUNTING MACHINES can outsource these steps and retain the tax benefits 
in question s o long as the requirements of the steps (production in Brazil of the respective 
components and subassemblies from basic raw materials and inputs – those in step I on the basis 
of compliance with their own PPBs) are respected.  
_______________  
 
 
9.284.   Interministe rial Implementing Order No. 335, of 16 October 20131724, Article 1 states in 
relevant part that:  
Establishes the following Basic Production Process for DOT MATRIX PRINTERS, 
produced in Brazil:  
I - assembly and soldering of all components on the printed circu it boards;  
II - assembly of the electrical and mechanical parts, totally separated, at a basic 
component level; and  
III - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, assembled in accordance with indents I and II 
above;  
Sole Paragraph Provided that the Basic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties, except with regard to the stage set out in indent III, which may not be 
conducted by third parties.  
9.285.   Additionally, Article 2 states  in relevant part  that: 
§ 2 From 1 January 2014, a minimum of 80% of communication interface boards with 
wireless technology (Wi -Fi, Bluetooth, WiMax) used in DOT MAT RIX PRINTERS shall be 
assembled in relation to the total amount of such boards used in the calendar year.  
9.286.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of components or subassemblies (subject to the mini mum percentage set forth in 
paragraph 2 of Article 2 for compliance with the production step requirements in Article 1), as 
follows: step I - printed circuit boards; and step II - electrical and mechanical parts. Steps I to II 
can be performed by third par ties. That is, the accredited producer of DOT MATRIX PRINTERS can 
outsource these steps and retain the tax benefits in question so long as the requirements of the 
steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs) are respected.  
_______________  
 
9.287.   Interministerial Implementing Order No. 382, of 30 December 20131725, Article 1 states in 
relevant part that:  
                                                
1723 This outsourcing provision is in addition to that inherent in the specific PPBs referred to in Article 1.  
1724 Interministerial Implementing Order 335/2013, (Exhibit JE -40).  WT/DS472/R • WT/DS497/R  
 
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  As of 1 July 2013, the Basic Production Process for SELF -SERVICE MACHINES AND 
TERMINALS AND AUTOM ATIC TICKET, BANKNOTE OR COIN DISPENSERS produced in 
Brazil, established by Interministerial Implementing Order MDIC/MCTI No 41 of 14 
February 2013, shall now read as follows:  
I - assembly and soldering of all components on the printed circuit boards and t he 
assembly of the electrical and mechanical parts, totally separated, at a basic 
component level, of the following product modules:  
a) ticket and banknote dispensers, when applicable;  
b) central processing units (CPU), which shall comply with the respecti ve Basic 
Production Process;  
c) safe: manufacture/assembly of the body and door at a basic input level (steel 
plates, welding and joining of the mechanical parts), when applicable;  
d) housing: manufacture/assembly of the body and door at a basic input leve l (steel 
plates, welding; plastics injection of the front panels of the self -service machines, 
terminal and dispensers, when applicable, except the parts making up the specific 
functional modules of the product, such as card readers and other peripherals; and 
the joining of the mechanical and plastic parts);  
e) sensor control module, when applicable;  
f) envelope deposit module, when applicable, except bar code reader;  
g) delivery module for cheques and other documents, when applicable;  
h) printer, which sha ll comply with the respective Basic Production Process;  
i) monitor, which shall comply with the respective Basic Production Process;  
j) envelope dispenser module, when applicable;  
k) security system for detection of card cloning devices (anti -skimming modu les) and 
other spurious objects, when applicable;  
l) keyboard, when applicable; and  
m) recycling mechanism, when applicable.  
II - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, integ rated and assembled in accordance with 
indent  I. 
§ 1 Provided that the Basic Production Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties, 
except with regard to the step set out in indent II which may not be conducted by 
third parties.  
… 
§ 5 After time limit set out in § 4 and limited to 4 000 (four thousands) units annually 
per manufacturer, the recycling mechanism shall comply with the following Basic 
Production Process:  
I - assemb ly and soldering of all components on the printed circuit boards which 
employ the function of main controller; and  
II - integration of the assembled printed circuit boards and the electrical and 
mechanical parts in sub -assemblies, in the formation of the r ecycling mechanism.  
§ 6 After the time limit set out in § 4 and for production which exceeds 4 000 (four 
thousand) units annually per manufacturer, the assembly of the recycling mechanism 
shall be carried out at a basic component level, except with regard to the bill validator 
mechanism.  
9.288.   Additionally, Article 2 of Interministerial Implementing Order No. 382, of 30 December 
2013, states  in relevant part that : 
                                                                                                                                                  
1725 Interministerial Implementing Order 382/2013, (Exhibit JE -41).  WT/DS472/R • WT/DS497/R  
 
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  As of 1 July 2014, a minimum of 80% of the total number of the power sources used 
in SELF -SERVICE MA CHINES AND TERMINALS AND AUTOMATIC TICKET, BANKNOTE 
OR COIN DISPENSERS shall be manufactured in the calendar year, in accordance with 
the production process set out in the Sole Paragraph.  
Sole Paragraph Power sources shall comply with the following Basic P roduction 
Process:  
I - assembly and soldering of all components on the printed circuit boards;  
II - assembly of all the electrical and mechanical parts, totally separated, at a basic 
component level;  
III - manufacture of power source transformers from coil  winding;  
and 
IV - use of power cables manufactured from wire drawing and annealing, at a 
minimum of 90% in weight.  
9.289.   The Panel considers that step I of the header paragraph of Article 1 involves the creation, 
from basic raw materials and inputs, of componen ts or subassemblies (subject to the transitional 
provisions and provisions on product coverage, in the other paragraphs of Article 1, and/or their 
own PPBs), as follows: printed circuit boards; electrical and mechanical parts; ticket and banknote 
dispenser s; central processing units (CPU) in compliance with their own PPB; safes; housings; 
sensor control modules; envelope deposit modules; delivery modules for cheques and other 
documents; printers in compliance with their own PPB; monitors in compliance with their own PPB; 
envelope dispenser modules; security systems for detection of card cloning devices and other 
spurious objects; keyboards; and recycling mechanisms in compliance with their own PPB and 
required production steps, pursuant to paragraphs 5 and 6 . Pursuant to paragraph 1, step I can be 
performed by third parties.1726 That is, the accredited producer of SELF -SERVICE MACHINES AND 
TERMINALS AND AUTOMATIC TICKET, BANKNOTE OR COIN DISPENSERS can outsource these 
steps and retain the tax benefits in questio n so long as the requirements of the steps (production 
in Brazil of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
9.290.   Also, Article 2 requires that 80% of the total number of the power sources used in SELF -
SERV ICE MACHINES AND TERMINALS AND AUTOMATIC TICKET, BANKNOTE OR COIN DISPENSERS 
be manufactured in accordance with their own PPB. The Panel recalls that all PPBs that include any 
such "nested PPB" allow the outsourcing of the inputs or components covered by t hat PPB so long 
as its requirements are respected.1727 The Panel also recalls its finding, at paragraph 7.117  of its 
report, that products produced in accordance with PPBs are domestic products. Therefore, where 
the accredited pro ducer of SELF -SERVICE MACHINES AND TERMINALS AND AUTOMATIC TICKET, 
BANKNOTE OR COIN DISPENSERS outsources the power sources, it can only retain the tax 
benefits in question if a portion of those power sources are produced in Brazil in accordance with 
their own PPB, and thus are domestic products.  
_______________  
 
 
9.291.   Interministerial Implementing Order No. 385, of 30 December 20131728, Article 1 states in 
relevant part that:  
The following Basic Production Process is established for AIR TRAFFIC SURVEILLANCE 
RADAR produced in Brazil:  
I - cutting, bending, welding, milling, surface treatment and painting when applicable 
of the metal parts and pieces for electromechanical radar assemblies;  
                                                
1726 This outsourcing provision is in addition to that inherent in the specific PPBs referred t o in Article 1. 
See footnote 1618 above.  
1727 See footnote 1619 above . 
1728 Interministerial Implementing Order 385/2013, (Exhibit JE -42).  WT/DS472/R • WT/DS497/R  
 
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  II - cutting of cables and wires, crimping or welding of connectors, identifica tion and 
conducting of tests on electrical and electronic wiring;  
III - assembly of metal housings from their basic components (parts and pieces);  
IV - manufacture of at least 50%, in quantity, of the printed circuits from laminates, 
fully observing § 2 of  this Article;  
V - assembly and soldering of all components on the printed circuit boards;  
VI - assembly of the electrical and mechanical parts, totally separate, at a basic 
component level;  
VII - integration of the printed circuit boards and the electrica l and mechanical parts 
in the formation of the final product, assembled in accordance with indents I to VI 
above;  
VIII - execution of the factory acceptance tests on the final product;  
IX - final integration and full installation of the product, at a site indicated by the 
client, consisting of the following activities:  
a) mounting of the antenna and protection radome from its basic components;  
b) installation of the radar at final local site;  
c) interconnection of the radar with the antenna, power systems a nd monitoring and 
data transmission systems;  
d) adjustments and customisation of the radar using passing flights;  
e) adjustments and final performance testing of the radar with approved flights; and  
f) execution of the final acceptance tests on the product ; 
 
§ 1 Provided that the Basic Production Process set out in this Implementing Order is 
complied with, the activities or operations required in the production stages may be 
carried out by third parties, except with regard to those described in indents VI, VII 
and VIII, which may not be conducted by third parties.  
 
9.292.   In addition, Article 4 of Interministerial Implementing Order No. 385 of 30 December 2013 
states  in relevant part that : 
Digital processing units (industrial computers incorporated into radar) whic h perform 
digital processing and tracing functions shall be mounted, in Brazil, in accordance with 
their respective Basic Production Process.  
9.293.   The Panel considers that at least steps I to V of Article 1 involve the creation, from basic 
raw materials and inp uts, of components or subassemblies, as follows: step 1 - metal parts and 
pieces for electromechanical radar assemblies; step II - electrical and electronic wiring; step III - 
metal housings; step IV – printed circuits; and step V - printed circuit boards.  Steps I to V can be 
performed by third parties. That is, the accredited producer of AIR TRAFFIC SURVEILLANCE 
RADARS can outsource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the res pective components and subassemblies 
from basic raw materials and inputs) are respected.  
9.294.   Also, Article 4 requires that the digital processing units (industrial computers incorporated 
into radar) be produced in Brazil, in accordance with their own PPB. The Panel recalls that all PPBs 
that include any such "nested PPB" allow the outsourcing of the inputs or components covered by 
that PPB so long as its requirements are respected.1729 The Panel also recalls its finding, at 
paragraph 7.117 of its report, that products produced in accordance with PPBs are domestic 
products. Therefore, where the accredited producer of AIR TRAFFIC SURVEILLANCE RADARS 
outsources the referenced digital processing units, it can only retain the tax benefits in  question if 
units are produced in Brazil in accordance with their own PPB, and thus are domestic products.  
                                                
1729 See footnote 1619 above . WT/DS472/R • WT/DS497/R  
 
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  _______________  
 
 
9.295.   Implementing Order No. 388, of 30 December 20131730, Article 1 states in relevant part 
that:  
The Basic Production Processes for SMAR T CARDS, industrialized in Brazil, established 
through Interministerial Implementing Order MDIC/MCTI No 36 of 10 February 2012, 
shall now be as follows:  
I - CONTACT SMART CARDS - LAMINATE  
a) milling of the plastic card cavity;  
b) separation and preparation  of the monolithic integrated circuit module or 
microchip;  
c) application of the adhesive to the card cavity; and  
d) setting of the microchip module in the card.  
II - CONTACT SMART CARDS - INJECTED:  
a) plastic injection of the card;  
b) separation and prepa ration of the microchip module;  
c) application of the adhesive to the card cavity; and  
d) setting of the microchip module in the card.  
III - CONTACTLESS SMART CARDS:  
a) milling of the PVC sheet (forming of the shim), when applicable;  
b) printing of PVC she ets, when applicable;  
c) assembly of the microchip to the antenna; and  
d) fusion (lamination) of the shim assembly, antenna, PVC sheets and PVC crystal 
film. 
§ 1 Provided that the Basic Production Processes are complied with, the activities or 
operations r equired in the production stages may be carried out by third parties, 
except with regard to the stages set out in indents I and II, c) and d) and indent III, 
d) which may not be conducted by third parties.  
9.296.   Additionally, Article 2 of Implementing Order No. 388 of 30 December 2013 states  in 
relevant part that : 
From 1 January 2010, the monolithic integrated circuits mentioned in Article 1, 
indents I, II and III shall comply with the following Basic Production Process, for a 
minimum of 50% of production in the calendar year.  
I - assembly of the non -encapsulated semiconductor wafer;  
II - encapsulating of the semiconductor wafer, when applicable;  
III - electrical or optoelectronic test (trial); and  
IV - marking (identification), when applicable.  
§ 1 The monolithic  integrated circuits or microchips set out in this Article may be 
acquired from third parties, provided that the Basic Production Process established in 
this Article is complied with.  
9.297.   The Panel considers that at least steps I(b), II(a) and (b), and III(a) of Article 1 involve 
the creation, from basic raw materials and inputs, of components or subassemblies, as follows: 
                                                
1730 Implementing Order 388/2013, (Exhibit JE -43). WT/DS472/R • WT/DS497/R  
 
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  step I(b) - monolithic integrated circuit module or microchip; step II(a) - plastic card; step II(b) 
microchip module; and step III(a) – milled PVC shim. Steps I(b), II(a), II(b) and III(a) can be 
performed by third parties. That is, the accredited producer of SMART CARDS can outsource these 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Brazil of the respective components and subassemblies from basic raw materials and inputs) are 
respected.  
9.298.   In addition, Article 2 requires that 50% of the monolithic integrated circuits used in the 
production of SMART CARDS be produced in accordance with the ir own PPB which is set forth in 
Article 2. The Panel notes that pursuant to paragraph 1 of Article 2, outsourcing of the monolithic 
integrated circuits or microchips covered by the PPB is allowed, so long as the requirements of the 
PPB are respected.1731 The Panel also recalls its finding, at paragraph 7.117  of its report, that 
products produced in accordance with PPBs are domestic products. Therefore, where the 
accredited producer of SMART CARDS outsources the referenced monolith ic integrated circuits or 
microchips, it can only retain the tax benefits in question if those integrated circuits or microchips 
are produced in Brazil in accordance with their own PPB, and thus are domestic products.  
_______________  
 
 
9.299.   Interministerial Imp lementing Order No. 2 66, of 7 October 20141732, Article 1 states in 
relevant part that:  
The Basic Production Process for MAGNETIC CARD READER AND SMART CARD, 
CONNECTED TO THE AUDIO CHANNEL FOR MOBILE DEVICE, industrialized in the 
country, is the following:  
I - manufacturing the printed circuit board from the laminate;  
II - assembly and welding of all components on printed circuit boards;  
III - installation of electrical and mechanical parts, fully unbundled, entry -level 
components;  
IV - integration of printed  circuit boards and other electrical and mechanical parts in 
the formation of the end product, assembled in accordance with the items "II" 
and "III";  
V - recording the cryptographic key and final tests.  
§ 1. Since met the Basic Productive Process, activiti es or operations inherent to the 
production steps described in items I, II, III and IV may be subject to outsourcing.  
9.300.   The Panel considers that steps I to III involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as foll ows: step I printed circuit boards; step II – 
assembled printed circuit boards; and step III - electrical and mechanical parts. Steps I to III can 
be performed by third parties. That is, the accredited producer of MAGNETIC CARD READERS AND 
SMART CARDS, CON NECTED TO THE AUDIO CHANNEL FOR MOBILE DEVICE can outsource these 
steps and retain the tax benefits in question so long as the requirements of the steps (production 
in Brazil of the respective components and subassemblies from basic raw materials and input s) are 
respected.  
_______________  
 
9.301.   Interministerial Implementing Order No. 60, of 25 February 20131733, as amended by 
Interministerial Implementing Order No. 184, of 7 July 20141734, Article 1 states in relevant part 
that:  
                                                
1731 See footnote 1619 above . 
1732 Interministerial Implementing Order 2 66/2014, (Exhibit JE -44). 
1733 Interministerial Implementing Order 60/2013, (Exhibit JE -28).  WT/DS472/R • WT/DS497/R  
 
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  Basic Production Process for the AUTOM ATIC MACHINE FOR DIGITAL DATA 
PROCESSING, PORTABLE (NCM: 8471.30.12 AND 8471.30.19.) - NETBOOK, 
NOTEBOOK AND ULTRABOOK, industrialized in the country, established by the 
Interministerial Ordinance MDIC / MCTI No. 60 of February 25, 2013, shall now read 
as follows:  
I - assembly and soldering of all components on the printed circuit boards which 
perform the functions of central processing and memory, fully observing the 
provisions of this Article;  
II - assembly of the electrical and mechanical parts, fully ob serving the provisions of 
the paragraphs of this Article; and  
III - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product.  
§ 1. Provided that the Basic Production Process set out in this Imp lementing Order is 
complied with, the activities or operations required in the production stages may be 
carried out by third parties, except with regard to the step set out in indent III, which 
may not be conducted by third parties.  
… 
§ 3. For compliance w ith the provisions of the header paragraph to this Article, t he 
following schedules are hereby established for use of components, parts and pieces 
produced in accordance with the respective PPBs, the percentages for which shall be 
set based on the total am ount of the respective components used in the NETBOOKS, 
NOTEBOOKS and ULTRABOOKS (MCN codes: 8471.30.12 and 8471.30.19), produced 
in the calendar year, taking into account the provisions of Articles 2 and 3:  
I - assembled printed circuit boards with elect rical or electronic components which 
perform central processing functions (mother board):  
Calendar year  2013 2014 onwards  
Percentage assembled  80% 90% 
 
II - assembled printed circuit boards with electrical or electronic components which 
perform communica tion interface functions, when such interfaces are not connected to 
the mother board:  
Calendar year  2013 2014 onwards  
Percentage assembled  50% 80% 
 
III - AC/DC battery chargers or converters:  
Calendar year  2013 2014 2015 onwards  
Produced in accordance w ith the specific PPB  45% 70% 80% 
 
IV - batteries or charge accumulators:  
Calendar year  2013 2014 2015 onwards  
Produced in accordance with the specific PPB  10% 20% 30% 
 
V- magnetic disk units, when applicable;  
                                                                                                                                                  
1734 Interministerial Impleme nting Order 184/2014, (Exhibit JE -45).  WT/DS472/R • WT/DS497/R  
 
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  Calendar year  2013 2014 onwards  
Produced i n accordance with the specific PPB  30% 50% 
 
VI - assembled printed circuit boards with electrical or electronic components which 
perform memory functions (RAM modules):  
Calendar year  2013 2014 onwards  
Produced in accordance with the specific PPB  60% 80% 
Assembled in Brazil  30% 10% 
Totals produced in Brazil  90% 90% 
 
VII - DRAM integrated circuits which perform RAM functions:  
Calendar year  2013 2014 2015 2016 
onwards  
Produced in accordance with the specific PPB  0% 50% 80% 90% 
 
VIII - Solid State Drive s (SSD) of the NAND Flash type, when applicable, (whether in 
modules or integrated circuit):  
Calendar year  2012 2013  2014 onwards  
Produced in accordance with the specific PPB  40% 30% 40% 
Assembled in Brazil  50% 40% 40% 
Totals produced in Brazil  90% 70% 70% 
 
IX – LPDRAM memory component, when applicable:  
Calendar year  2013 2014  2015 onwards  
Produced in accordance with the specific PPB  30% 50% 60% 
 
X - eMMC memory component (embedded Multi Media Card), when applicable:  
Calendar year  2014 2015 2016  2017 
onwards  
Produced in accordance with the specific PPB  0% 30% 40% 50% 
 
§ 6. Communication interface boards with wireless technology (Wi -Fi, Bluetooth, 
WiMax, Active NFC (Near Field Communication), intended for NETBOOKS, 
NOTEBOOKS and ULTRABOOKS (MCN cod es: 8471.30.12 and 8471.30.19), shall 
comply with the following assembly schedule, based on the amount of such boards 
used in the calendar year:  
I - from 1 January 2012 to 31 December 2013: 50%; and  
II - from 1 January 2014 onwards: 80%.  
9.302.   The Panel conside rs that steps I and II of Article 1 involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum percentages in 
paragraph 3 of Article 1 for production in compliance with the listed production steps, and /or their 
own PPBs) as follows: step I printed circuit boards; and step II - electrical and mechanical parts. 
Pursuant to paragraph 1 of Article 1, steps I to II can be performed by third parties.1735 That is, 
the accredited producer of NETBOOKS, NOTEBOOKS an d ULTRABOOKS can outsource these steps 
and retain the tax benefits in question so long as the requirements of the steps (production in 
                                                
1735 This outsourcing provision is in addition to that inherent in the specific PPBs referred to in paragraph 
3 of Article 1. See footnote 1619 above.  WT/DS472/R • WT/DS497/R  
 
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  Brazil of the respective components and subassemblies from basic raw materials and inputs, 
including where respective PPB s are applicable) are respected.  
9.303.   More precisely in respect of Article 1, § 3 specified minimum percentages of: AC/DC 
battery chargers or converters; batteries or charge accumulators; magnetic disk units; assembled 
printed circuit boards with electrical or electronic components which perform memory functions 
(RAM modules); DRAM integrated circuits which perform RAM functions; Solid State Drives (SSD) 
of the NAND Flash type, when applicable, (whether in modules or integrated circuit); LPDRAM 
memory component,  when applicable; and eMMC memory component (embedded Multi Media 
Card) used in the production of NETBOOKS, NOTEBOOKS and ULTRABOOKS must be produced in 
accordance with their own PPBs.  
9.304.   The Panel recalls that all PPBs that include any such "nested PPB" all ow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1736 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that products produced in 
accordance with PPBs  are domestic products. Therefore, where the accredited producer of 
NETBOOKS, NOTEBOOKS and ULTRABOOKS outsources the referenced components or 
subassemblies, it can only retain the tax benefits in question if a portion of those components or 
subassemblies are produced in Brazil in accordance with their own PPBs, and thus are domestic 
products.  
_______________  
 
9.305.   Interministerial Order No. 165, of 17 June 20141737, Article 1 states in relevant part that:  
The Basic Production Process (BPP) for the DIGITAL AUTOMAT IC MACHINE FOR DATA 
PROCESSING, WITH BUILT -IN SCREEN – "ALL IN ONE", manufactured in Brazil, 
established by the Interministerial Order MDIC/MCTI No 47 of 20 February 2013, is 
replaced by the following:  
I – assembly and soldering of all of the component par ts onto the printed circuit 
boards;  
II – assembly of electrical and mechanical parts; and  
III – adding of the printed circuit boards and the electrical and mechanical parts to the 
manufacture of the final product.  
Sole Paragraph. Provided that the Basic Pr oduction Process established in this Order is 
followed, the activities or operations inherent in the production stages may be 
performed by third parties, with the exception of the stage referred to in sub -
paragraph III, which may not be outsourced.  
9.306.   Additio nally, Article 2 of Interministerial Order No. 165 of 17 June 2014 states  in relevant 
part that : 
In order to comply with the provisions of Article 1, the following percentages and 
timescales for manufacture in Brazil and use of components, parts and pieces , where 
applicable,  are hereby established, based on the quantity used in the calendar year  
and having regard to Article 3 : 
I – printed circuit boards assembled with electrical or electronic components that 
implement the central processing function (mother board):  
 Percentage  
Assembled in Brazil  90 %  
 
                                                
1736 See footnote 1619 above . 
1737 Interministerial Order 165/2014, (Exhibit JE -66).  WT/DS472/R • WT/DS497/R  
 
- 411 - 
 
  II – printed circuit boards assembled with electrical or electronic components that 
implement the communication interface function, where these are not part of the 
motherboard:  
 Percentage  
Assembled in Brazi l 90 %  
 
III – printed circuit boards assembled with electrical or electronic components that 
implement the communication interface function with wireless technology, in 
accordance with the following timescale:  
Calendar year  2013 2014 from 2015 onwards  
Assembled in Brazil  50 %  60 %  80 %  
   
IV – printed circuit boards assembled with electrical or electronic components that 
implement the voltage source function, where these are internal, and Alternating 
Current and Direct Current - AC/DC converters, where t hese are external:  
Calendar year  2013 from 201 4 onwards  
Produced in accordance with the specific BPP  45 %  80 %  
 
V – power cables produced in accordance with the specific BPP or, in the absence 
thereof, through wire drawing and annealing , as referred to i n the table below and in 
item § 10º: . 
Calendar year   2013 2014 from 2015 
onwards  
Produced in accordance with the specific BPP or  
through wire drawing and annealing  30 %  30 %  60 %  
   
VI – magnetic hard disk drives, where applicable:  
Calendar year  2013 from 2014 onwards  
Produced in accordance with the specific BPP  30% 50 %  
 
VII – printed circuit boards assembled with electrical or electronic components that 
implement the memory functions (RAM):  
Calendar year  2013 2014 2015  From 2016 
onwards  
Produced in accordance with the 
specific BPP  40 %  60 %  70 %  80 %  
Assembled in Brazil  50 %  30 %  20 %  10 %  
Total produced in Brazil  90 %  90 %  90 %  90 %  
    
VIII – other components, parts and pieces that operate with the memory function, 
either as integrated circuits or as modules or boards, specified below, where 
applicable:  
a) DRAM integrated circuit component; and  
b) SSD (Solid State Drive) data module storage drive  
Calendar year  2013 2014 2015  From 2016 onwards  
Produced in accordance with 
the specific BPP  30 %  50 % 60 %  80 %  WT/DS472/R • WT/DS497/R  
 
- 412 - 
 
   
9.307.   The Panel considers that steps I and II of Article 1 involve the creation, from basic raw 
materials and inputs, of components or subassemblies (subject to the minimum percentages in 
Article 2 for compliance with the production step or own PP B requirements in Article 1 ), as 
follows: step I - printed circuit boards; and step II - electrical and mechanical parts. Pursuant to 
Article 1, steps I and II can be performed by third parties.1738 That is, the accredited producer of 
DIGITAL AUTOMATIC MACHI NES FOR DATA PROCESSING, WITH BUILT -IN SCREEN – "ALL IN ONE" 
can outsource these steps and retain the tax benefits in question so long as the requirements of 
the steps (production in Brazil of the respective components and subassemblies from basic raw 
materials and inputs, including, where applicable, pursuant to their own PPBs) are respected.  
9.308.   More precisely with respect to the own PPBs in Article 2, specified minimum percentages of 
some components and subassemblies (printed circuit boards assembled with el ectrical or electronic 
components that implement the central processing function (motherboard), printed circuit boards 
assembled with electrical or electronic components that implement the communication interface 
function, where these are not part of the m otherboard, printed circuit boards assembled with 
electrical or electronic components that printed circuit boards assembled with electrical or 
electronic components that implement the voltage source function, where these are internal, and 
Alternating Curre nt and Direct Current - AC/DC converters, where these are external; power 
cables; magnetic hard disk drives, where applicable; printed circuit boards assembled with 
electrical or electronic components that implement the memory functions (RAM); DRAM integra ted 
circuit components and SSD (Solid State Drive) data module storage drives); for the DIGITAL 
AUTOMATIC MACHINES FOR DATA PROCESSING, WITH BUILT -IN SCREEN – "ALL IN ONE" must be 
produced in accordance with their own PPBs.  
9.309.   The Panel recalls that all PPBs  that include any such "nested PPB" allow the outsourcing of 
the inputs or components covered by that PPB so long as its requirements are respected.1739 The 
Panel also recalls its finding, at paragraph 7.117  of its report, that pr oducts produced in 
accordance with PPBs are domestic products. Therefore, where the accredited producer of DIGITAL 
AUTOMATIC MACHINES FOR DATA PROCESSING, WITH BUILT -IN SCREEN – "ALL IN ONE" 
outsources the referenced components or subassemblies, it can onl y retain the tax benefits in 
question if a portion of those components or subassemblies are produced in Brazil in accordance 
with their own PPBs, and thus are domestic products.  
_______________  
 
 
9.310.   Interministerial Implementing Order MCT/MICT/MC No. 273, of  17 December 19931740, 
Article 1 states in relevant part that:  
To define as levels of local added value for INFORMATION TECHNOLO GY GOODS  
manufactured in Brazil as applicable to telecommunications, for the effects of article 4 
of Law No. 8248, dated October 23 , 1991, the following Basic Production Process 
(PPB), as well as provided for in article 4 of this Ordinance:  
I - assembly and welding of all components on printed circuit boards;  
II - installation of electrical and mechanical parts totally not integrated in basic level 
of components;  
III - integration of printed circuit boards and electrical and mechanical parts in the 
formation of the final product, assembled/installed according to items I and II above;  
IV - management of quality and productivity of the p rocess and final product, 
involving inspection of raw materials, intermediate products, secondary and packing 
                                                
1738 This outsourcing provision is in addition to that inherent in the specific PPBs referred to in Article 2. 
See footnote 1619 above.  
1739 See footnote 1619 above.  
1740 Interministerial Implementing Order 273/1993, (Exhibit BRA -28).  WT/DS472/R • WT/DS497/R  
 
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  materials, statistic control of the process, testing and measurement, and quality of 
final product.  
Sole Paragraph. For compliance with the provis ions of this article, the use of subsets 
assembled in Brazil by third parties shall be permitted, so long as the production 
thereof meets the requirements under items I and II of this article.  
9.311.   The Panel considers that steps I and II involve the creation, f rom basic raw materials and 
inputs, of components or subassemblies, as follows: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps I to II can be performed by third parties. That is, the 
accredited producer of INFORMATION  TECHNOLOGY GOODS  can outsource these steps and retain 
the tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
__________ _____  
 
 
9.312.   Interministerial Implementing Order No. 214, of 20 November 20061741, Article 1 states in 
relevant part that:  
The Basic Production Process for ASSEMBLED PRINTED CIRCUIT BOARDS, established 
by MDIC/MCT Interministerial Ordinance 205, of December 03rd,  2002, is as follows:  
I – assembling and welding, or similar process, of all components in printed circuit 
boards; and  
II – configuration, recording of computer programs, when applicable, and test.  
§ 1 The subcontracting of any of the operations described in art. 1 hereof shall be 
permitted, provided that made in Brazil.  
9.313.   The Panel considers that step I involves the creation, from basic raw materials and inputs, 
of a component or subassembly, i.e., printed circuit boards. Step I can be performed by third 
parties. That is, the accredited producer of ASSEMBLED PRINTED CIRCUIT BOARDS can outsource 
these steps and retain the tax benefits in question so long as the requirements of the steps 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs) are respected.  
_______________  
 
 
9.314.   Interministerial Implementing Order No. 68, of 29 February 20121742, Article 1 states in 
relevant part that:  
Establish for the CA/CC CONVERTER FOR PORTABLE COMPUTER, WITHOUT 
KEYBOARD, AND TOUCH  SCREEN - TABLET PC, manufactured in Brazil, the following 
Basic Production Process:  
I – manufacturing of the transformer as from the coil rolling;  
II - manufacturing of power cables and data cable, when applicable, at a minimum 
percentage rate of ninety p ercent (90%) in quantity, in the calendar year;  
III – plastic injection of the covers or cabinet;  
IV – assembling and welding of all components in printed circuit boards;  
                                                
1741 Interministerial Implementing Order 214/2006, (Exhibit BRA -29). 
1742 Interministerial Implementing Order 68/2012, (Exhibit BRA -30).  WT/DS472/R • WT/DS497/R  
 
- 414 - 
 
  V - assembling of electrical and mechanical parts, fully separated, at basic componen t 
level; and  
VI – integration of printed circuit boards and other electrical and mechanical parts in 
the final product, assembled according to items IV and V above.  
§ 1- The activities or operations inherent in the production stages can be performed 
by thi rd parties, provided that the Basic Production Process is followed, except for the 
stage described in item VI which cannot be outsourced.  
9.315.   The Panel considers that steps I to V involve the creation, from basic raw materials and 
inputs, of components or suba ssemblies, as follows: step I - transformers; step II - power cables; 
step III - covers and cabinets; step IV - printed circuit boards; and step V - electrical and 
mechanical parts. Steps I to V can be performed by third parties. That is, the accredited pr oducer 
of CA/CC CONVERTER FOR PORTABLE COMPUTER, WITHOUT KEYBOARD, AND TOUCH SCREEN - 
TABLET PC can outsource these steps and retain the tax benefits in question so long as the 
requirements of the steps (production in Brazil of the respective components an d subassemblies 
from basic raw materials and inputs) are respected.  
_______________  
 
 
9.316.   Interministerial Implementing Order No. 165, of 22 June 20111743, Article 1 states in 
relevant part that:  
Establish for RECHARGEABLE BATTERY FOR PORTABLE EQUIPMENT, USE FOR  IT-
RELATED PURPOSES, manufactured in Brazil the following Basic Production Process:  
I – manufacturing of charge accumulation cells;  
II – injection of plastic parts, when applicable;  
III – stamping of terminals and coils, except when trimmed or overmolded;  
IV – assembling and welding of all components in the printed circuit boards, when 
applicable, except when the printed circuit board is made of flexible film;  
V - assembling and welding of charge accumulation cells; and  
VI – integration of printed circuit boards, when applicable, of the set of charge 
accumulation cells and mechanical parts in the final product.  
Sole paragraph. The activities or operations inherent in the production stages can be 
performed by third parties, provided that the Basic Production  Process is followed, 
except for the stage described in item VI which cannot be outsourced.  
9.317.   The Panel considers that steps I to IV involve the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: step I - charge accumu lation cells; step II - 
plastic parts; step III - terminals and coils; and step IV - printed circuit boards. Steps I to IV can 
be performed by third parties. That is, the accredited producer of RECHARGEABLE BATTERIES FOR 
PORTABLE EQUIPMENT, USE FOR IT -RELATED PURPOSES can outsource these steps and retain the 
tax benefits in question so long as the requirements of the steps (production in Brazil of the 
respective components and subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
9.318.   Interministerial Implementing Order No. 254, of 11 August 20131744, Article 1 states in 
relevant part that:  
                                                
1743 Interministerial I mplementing Order 165/2011, (Exhibit BRA -31).  WT/DS472/R • WT/DS497/R  
 
- 415 - 
 
  The Basic Production Process for the product INK CARTIDGE WITH OR WITHOUT 
INCORPORATED PRINTING HEAD WITH IDENTIFICATION BY RADIO FREQUENCY 
DISPOSIT IVE – RFID (Radio -Frequency Identification), FOR INK -JET PRINTER (NCM – 
8443.32 and 8443.31) , as set forth by MDIC/MCT Implementing Order 211, of 
October 27, 2010, hereby becomes the following:  
I – the manufacture of ink cartridge, comprehends the follow ing stages:  
a) Water treatment by means of demineralization;  
b) Blend of pigments with demineralized water;  
c) Recipient plastic injection;  
d) Parts and pieces assembly; and  
e) Bottling and Sealing.  
II – Identification dispositive of RFID manufacturi ng, according to the respective Basic 
Production Process;  
III – Installation of the RFID dispositive on the ink cartridge package; and  
IV – Final cartridge package.  
§ 1º Third parties can perform the activities or operations inherent in the production 
stages described in this article, provided the Basic Production Process be complied 
with, except for steps III and IV, which cannot be outsourced. . 
9.319.   The Panel considers that at least steps I to II involve the creation, from basic raw 
materials and inputs, of  components or subassemblies, as follows: step I (a) – demineralized 
water; step I (b) - ink; step I (c) – recipient ; and step II RFID (in accordance with their own PPB) . 
Steps I to II can be performed by third parties. That is, the accredited producer of INK CARTIDGE 
WITH OR WITHOUT INCORPORATED PRINTING HEAD WITH IDENTIFICATION BY RADIO 
FREQUENCY DISPOSITIVE – RFID (Radio -Frequency Identification), FOR INK -JET PRINTER (NCM – 
8443.32 and 8443.31)  can outsource these steps and retain the tax benefits in questi on so long as 
the requirements of the steps (production in Brazil of the respective components and 
subassemblies from basic raw materials and inputs) are respected.  
_______________  
 
9.320.   Law 11,484, of 3 1 May 20071745, Article 2, as amended by Law 12,715, of 17 Se ptember 
20121746, Article 57 , states in relevant part that:  
The beneficiary under the PADIS [Programa de Apoio ao Desenvolvimento da Indústria 
de Semicondutores e Displays (Programme for the Development of the Semiconductor 
and Display Industry)] shall be a legal person who makes investments in Research 
and Development – R&D in accordance with Article 6 and who engages either alone or 
jointly, in connection with:  
I – electronic semiconductor devices classified under 85.41 and 85.42 of the Mercosur 
Common Nome nclature – NCM, in the following activities:  
a) concept, development and design;  
b) diffusion or physical -chemical processing; or  
                                                                                                                                                  
1744 Interministerial Implementing Order 254/2013, (Exhibit BRA -116).  
1745 Law 11,484/2007, (Exhibit JE -71). See also Decree 6,233, (Exhibit JE -73). 
1746 Law 12,715/2012, (Exhibit JE -95). WT/DS472/R • WT/DS497/R  
 
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  c) cut, encapsulation and testing;  
II – information displays (displays) provided for in Paragraph 2 of this Article, in the 
activities of:  
a) concept, development and design;  
b) manufacture of photosensitive, photo or electroluminescent elements and light 
emitting diodes; or  
c) final assembly of displays and electrical and optical testing.  
III - dedicated inputs and equipment int ended for the manufacture of the products 
described in subparagraphs I and II of the header paragraph, set out in an act of the 
Executive Power and manufactured according to the Basic Production Process 
established by the Ministries of Development, Industr y and Foreign Trade and of 
Science, Technology and Innovation.  
Paragraph 1. For the purposes of this Article, it shall be considered that the legal 
entity engages in the activities:  
I – solely, when performing all the steps provided in the qualifying subpa ragraph; or  
II – jointly, when performing all the activities  provided in the qualifying indent.  
9.321.   The Panel considers that step II(b) involves the creation, from basic raw materials and 
inputs, of components or subassemblies, as follows: photosensitive, phot o or electroluminescent 
elements and light emitting diodes. The different activities in step II(b) can be performed by third 
parties. That is, the accredited producer of information displays (displays) can outsource these 
activities and retain the tax bene fits in question so long as the requirements of the steps 
(production in Brazil of the respective components and subassemblies from basic raw materials 
and inputs) are respected.  
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9.322.   Interministerial Implementing Order MDIC/MCTI No. 62, of 31  March 20141747, Article 1 
states in relevant part that:  
Establishes the following Basic Production Process for TRANSMISSION EQUIPMENT 
FOR DIGITAL TV, produced in Brazil:  
I - assembly and soldering of all components on the printed circuit boards;  
II - assemb ly of the electrical and mechanical parts, totally separated, at a basic 
component level; and  
III- integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, assembled in accordance with indents  I and II 
above;  
§ 1. Provided that the Basic Production Process is complied with, the activities or 
operations required in the production stages may be carried out by third parties in the 
country, except with regard to the stage set out in indent III, whi ch may not be 
outsourced.  
9.323.   The Panel considers that steps I and II involve the creation, from basic raw materials and 
inputs, of the following components or subassemblies: step I - printed circuit boards; and step II - 
electrical and mechanical parts. Steps  I to II can be performed by third parties. That is, the 
                                                
1747 Interministerial Implementi ng Order 62/2014, (Exhibit JE -89).  WT/DS472/R • WT/DS497/R  
 
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  accredited producer of TRANSMISSION EQUIPMENT FOR DIGITAL TV can outsource these steps 
and retain the tax benefits in question so long as the requirements of the steps (production in 
Brazil of the re spective components and subassemblies from basic raw materials and inputs) are 
respected.  
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