BRAZIL - CERTAIN MEASURES AFFECTING TRADE AND INVESTMENT IN THE AUTOMOTIVE SECTOR
Document: Request for Consultations by the European Communities
Date: 20 May 1997
Document codes: WT/DS81/1; G/TRIMS/D/8; G/SCM/D13/1
Complainant: EU
Respondent: Brazil
Dispute stage: Consultation
Agreements cited: Art. I, III, X, XIII, XXIII  GATT 1994Art. 3, 5, 27  Subsidies and Countervailing Measures (SCM)Art. 2  Trade-Related Investment Measures (TRIMs)

BRAZIL - CERTAIN MEASURES AFFECTING TRADE AND INVESTMENT
IN THE AUTOMOTIVE SECTOR
Request for Consultations by the European Communities
The following communication, dated 7 May 1997, from the Permanent Delegation of the
European Commission to the Permanent Mission of Brazil and to the Dispute Settlement Body, is
circulated in accordance with Article 4.4 of the DSU.
On behalf of the European Communities, I hereby request consultations with Brazil pursuant
toArticle 4 of the Understanding onRules and Procedures Governingthe Settlement of Disputes (DSU),
Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994), Article 8 of the
Agreement on Trade-Related Investment Measures (TRIMS Agreement) and Articles 4, 7 and 30 of
the Agreement on Subsidies and Countervailing Measures (SCM Agreement), regarding certain measures
affecting trade and investment in the automotive sector implemented by Brazil since December 1995,
including, in particular, Law No 9440 of 14 March 1997, Law No 9449 of 14 March 1997 and Decree
No 1987 of 20 August 1996 as well as any measures consolidated or confirmed therein and any
implementing measures adopted thereunder.
The measures at issue provide, inter alia, for the following:
- benefits to manufacturers of motor vehicles and parts, in the form of a reduction in
duties on their imports of certain products, conditional on compliance with certain requirements regarding
the purchase or use of domestic products, and with trade balancing requirements and other criteria
which may be imposed by the Ministry of Industry, Trade and Tourism;
- tariff and other benefits to manufacturers of motor vehicles and parts established in
certain regions of Brazil which comply with similar requirements; and
- the opening of a tariff quota for the importation of motor vehicles manufactured by
certain foreign producers and originating in certain countries.

The European Communities wish to express their concern with the apparent lack of conformity
of these measures with Brazil’ s obligations under the WTO Agreement, including, in particular, the
GATT 1994, the SCM Agreement and the TRIMS Agreement. More specifically, the European
Communities consider that the measures at issue may violate, inter alia, Articles I:1, III:4, X and XIII
of GATT 1994, Articles 3 and 27.4 of the SCM Agreement and Article 2 of the TRIMS Agreement.
The European Communities also consider that the measures may nullify or impair benefits accruing
to the European Communities directly or indirectly under the GATT 1994 within the meaning of
Article XXIII:1(b) of GATT 1994 and may cause adverse effects to the interests of the European
Communities within the meaning of Article 5 of the SCM Agreement.
With respect to the first two measures mentioned above, the European Communities consider
that such tariff and other benefits granted to manufacturers of motor vehicles and parts in Brazil constitute
specific subsidieswithinthe meaning of Articles1 and 2 of the SCM Agreement, consistingof a financial
contribution by the Brazilian Government (in the form of revenue foregone) which confers on the
manufacturers of motor vehicles and parts the benefit of a reduction in costs and consequently the
possibility of offering a lower price to users or final consumers. As these subsidies are contingent
upon compliance with trade balancing requirements and requirements regarding the purchase or use
of domestic products, they fulfil the criteria of Article 3.1 of the SCM Agreement.
Indeed, these subsidies would be prohibited altogether by Article 3.2 of the SCM Agreement
and would thus be subject to the provisions of Article 4 of the Agreement, were it not for Brazil’ s
status as a developing country member and the consequent possibility to invoke the provisions of
Article 27 of the Agreement. In this respect, the consultations should address the question whether
the introduction of subsidies contingent on trade balancing requirements constitutes a breach of
Article 27.4 of the SCM Agreement by increasing the level of Brazil’ s export subsidies and whether
the use of such subsidies is consistent with the development needs of Brazil within the meaning of the
same provision.
Inany case, theEuropeanCommunities considerthatthesesubsidieshave caused adverse effects
to their interests within the meaning of Article 5 of the SCM Agreement by reducing imports of EC
vehiclesintotheBrazilianmarket, bydisplacingexportsof EC vehiclesfrom otherthirdcountrymarkets
and by creating price undercutting, price suppression, price depression and loss of sales for EC vehicles
in the Brazilian market.
Lastly, the European Communities consider that the provisions concerning the extension of
the subsidies granted to certain regions, which are contingent upon trade balancing and local content
requirements, for a period longer than eight and five years respectively after the entering into force
of the WTO Agreement constitutes a further breach of Articles 3 and 27 of the SCM Agreement; in
accordance with the latter provision the extension of the local content exemption is not possible after
the expiry of the five year period while the extension of the export subsidy exemption is only possible
following consultations with and the authorization of the Subsidies Committee.
I look forward to receiving your reply to this request from the European Communities and
setting a mutually convenient date for these consultations.