BRAZIL – CERTAIN MEASURES CONCERNING TAXATION AND CHARGES REPORTS OF THE PANEL
Date: 30 August 2017
Document codes: WT/DS472/R; WT/DS497/R
Complainant: EU
Respondent: Brazil
Third parties: Argentina, Australia, Canada, China, Colombia, India, Japan, South Korea, Russia, South Africa, Taiwan, Turkey, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. I:1, III:2, III:4, III:5  GATT 1994Art. 3.1(b), 3.2, 1.1  Subsidies and Countervailing Measures (SCM)Art. 2.1, 2.2  Trade-Related Investment Measures (TRIMs)

BRAZIL – CERTAIN MEASURES CONCERNING TAXATION AND CHARGES
REPORTS OF THE PANEL
 •

LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF 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 PARTIES
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 THIRD PARTIES
Contents Page
Annex C-1 Executive summary of the arguments of Argentina 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
 •

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, and Add.1, adopted 9 May 2016
Argentina – Footwear (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 Reports 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 2000,
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 Automotive
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 Affecting 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 2000: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 Affecting the Renewable
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff
Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 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 Grain, WT/DS276/R, adopted 27 September 2004, upheld by
Appellate Body Report 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

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 Appellate 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, adopted 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 Footwear, WT/DS461/R and Add.1, adopted 22 June 2016, as
modified by Appellate Body 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

Short Title Full Case Title and Citation
EC – Bananas III Panel Reports, European Communities – Regime for the Importation, Sale and
Distribution 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 – Conditions for the Granting of
Tariff Preferences to Developing Countries, WT/DS246/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, BISD 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 of 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, adopted 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

Short Title Full Case Title and Citation
Korea – Various Measures
on Beef
Appellate Body Report, 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 Appellate 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) Requirements – 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 (Article 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, adopted
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 Sales
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

Short Title Full Case Title and Citation
EC) WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body
Report WT/DS108/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 Cross-Border Supply of
Gambling and Betting Services, WT/DS285/R, adopted 20 April 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 Conventional
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 Affecting Trade in Large Civil Aircraft
(Second Complaint), WT/DS353/R, adopted 23 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
Appropriations 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 States – 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

TABLE OF EXHIBITS CITED 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 February 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 Resolution 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 December 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

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

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 Production 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 Interministerial 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 produced 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

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 11,196/2005
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 to 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 Implementing Order 290/2014
JE-158 Portaria MDIC 257 of 23 September 2014 Implementing Order 257/2014
WT/DS472/R • WT/DS497/R

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 (RECAP) 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 Normative 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 of 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 December 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 November, 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

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 Goods 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 Department 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 1994 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 Technical 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 Communication 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, Technology and Innovation
MDGs Millennium Development Goals
MDIC Ministry of Development, Industry and Trade
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

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 Countervailing 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 Secretariat 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 Industrialised 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

1 INTRODUCTION
1.1 Complaints by the European 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 September 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/DS472/5, 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

on 28 September 2015, the Dispute Settlement Body (DSB) established a pane l pursuant to the
request of Japan in document WT/DS497/3, 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 agreement 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 Confidential 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 collectively 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 Panel's Working Procedures on BCI in Annex A-2.
WT/DS472/R • WT/DS497/R

2 FACTUAL ASPECTS
2.1 General description of relevant aspects of the Brazilian tax system
2.1. In this section 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 (Contribuição 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 – Contribution 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 consequences 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 product 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, functioning, 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) those 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 out 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

Constitution18 and regulated through Laws 5,172 of 25 October 1966 19 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 Federative 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

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 product), 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 monthly 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

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 obligations 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 reimbursement 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 Constitution 30 and regulated through Laws 9,718 of 27
November 199831 and 10,637 of 30 December 2002 32, 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 RFB 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), Article 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).
35 Law 10,637/2002, (Exhibits JE-94 and BRA-100), Article 2.
36 Law 10,833/2003, (Exhibit JE-93), Article 2.
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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 persons 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 resale; 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. Companies 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 and 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 2004 45 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 European 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).
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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), Article 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. The 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 JE-222).
54 Law 10,168 /2000, (Exhibit JE-222), Article 2 §4.
55 Law 10,168/2000, (Exhibit JE-222), Article 2.
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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 programmes56:
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 Panel 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 panel.
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 Japan'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).
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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. Interministerial 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 Implementing 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 Interministerial 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 Implementing 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 Order 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.
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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 2009 (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 JE-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 Interministerial 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 2007, (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 Order 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 October 2011, (Law 12,507/2011). Only in Japan's request for the establishment of
a panel
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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 October 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 MCTI/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 establishment 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), (Exhibit 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 772/2013), (Exhibit JE-175).
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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 MDIC 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 companies.
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. Normative 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 companies" 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 Order 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 Instruction 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.
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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 December 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% reduction 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% reduction 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 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 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), (Exhibit 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.
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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 automation 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 technical 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 Mercosur 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 5,906/2006, (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.
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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 levied 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.
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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 invest 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 authorities 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 Program 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 Decree 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 5,906/2006, (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, as 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.
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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 entities 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
microcomputers 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 8,248/1991, (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.
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 Decree 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.
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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 recommendation 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 obtained 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. See 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 the 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 requesting 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.
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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 accredited 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 abovementioned 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 products. 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 852/2008, (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), Article 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 Instruction 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 same
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.
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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 products 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 the 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 Normative 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 amended 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), Article 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 displays 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 use 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, (Exhibit 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).
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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), Article 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, (Exhibit 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), Article 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 Instruction RFB
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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 the 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 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 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.
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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 the 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 Instruction RFB 853/2008, (Exhibit JE-86), Article 10(II). See also Decree
6,759/2009, (Exhibit JE-8), Article 284.
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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 digital 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,
equipment, 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 JE-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), Article 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); Decree 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.
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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 "developed 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 of 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; Interministerial 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 product 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), 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.
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 Instruction 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.
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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 payments 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 accreditation 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 December 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), Article 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), Article 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 draft 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 comments on Brazil's request 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.
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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 companies 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), Articles 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, Ministry of External Relations (Legal Guide for Foreign Investors in
Brazil), (Exhibit JE-207).
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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 12,546/2011 243 , 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
advantages 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 Decree 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 No. 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 referred 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.
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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 1991 251 ,
Decree 4,458 of 5 November 2002 252, and Decree 6,500 of 2 July 2008 253 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 IPI tax reduction, due to expire on 31 December 2017 256, 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 establishment.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 21 §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.
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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 -industrial work, and (xiii) classified under codes 8703.32.10 265
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 tricycles 269, 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 cylinder 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. 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.
270 Decree 7,819/2012, (Exhibit JE-132), Article 23.
271 Decree 7,819/2012, (Exhibit 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, (Exhibit JE-132), Articles 21-23, as amended by Decree 8,015/2013,
(Exhibit JE-133), Article 1.
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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 programme 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 annual turnover of less than R$ 90,000,000 (90
million real),277 companies that manufacture vehicles characterized as quadricyles and tricycles 278,
and companies that manufacture vehicles under certain TIPI tariff codes by assembling the body
on a chassis 279 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, 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). 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 7,819/2012, (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, (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.
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), Article 23.
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2.2.5.5.1 Accreditation requirements
2.113. INOVAR-AUTO provides for three different types of accreditations 280 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 models 284 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 number 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 relation
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 manufacture 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 accreditation 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 in 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.
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expenditure and investment to be made in Brazil in the above -mentioned areas 290 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 Commitment 295, 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 Commitment 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), Article 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
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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 MANUFACTURING AND ENGINEERING INFRASTRUCTURE 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 and
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 services 306 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 exclusively 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 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.
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).
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operation, and acquisition of national equipment, services and spare parts 308 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 this 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 services 313 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 parts 315 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 Investments 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 Expenditure 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 passive 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 Interministerial 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 7,819/2012, (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 services 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 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.
316 The scope of the term "tools" and the five stages in the development of tools are established 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.
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d. Participation in the Brazilian Vehicle Labelling Programme established by INMETRO:
The minimum percentage of models 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 entitled 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 strategic 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 of imported inputs by Tier 1 328 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), Article 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 incorporated 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 parts 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 practices 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 Order 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 MDIC 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.
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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 presumed 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
& F reight (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 expenditure 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 Implementing 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 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).
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 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).
334 CST 0 (National, except as indicated in codes 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).
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), Article 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.
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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 project 343 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 the 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 tools 350 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, (Exhibit 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 amended 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 7,819/2012, (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 strategic 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, (Exhibit 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.
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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 establishments
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 shall 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 reduced 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, (Exhibit
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 7,819/2012, (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), Article 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.
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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 agreements 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 tricycles 366,
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 Decree 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), 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.
367 Decree 7,819/2012, (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 Implementing 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.
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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/PASEP-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, intermediate 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), Article 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 PIS/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.
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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 exports, 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 sales.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 period 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 Normative
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.
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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 sales.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 equipment 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, as 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 Brazil's comments on the draft descriptive part.
389 Law 11,196/2005, (Exhibit JE-182), Article 132.
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tools, apparatuses, instruments and equipment for incorporation into the tangible fixed assets, by
legal persons registered as predominantly 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 5,789/2006 393 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 years.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 application 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 application 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 11,196/2005, (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.
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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. 00084/2005 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 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. Thus, 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 erodes 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.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. 00025/2012, (Exhibits JE-183 and BRA-51),
paras. 93-97.
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3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
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 Union 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 into 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 relating 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 requires 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 subsidies 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

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 exemptions 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 manufacturing 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

tax rate for motor vehicles – are i nconsistent 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 other 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 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 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
collectively – 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

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 production;

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 equipment.

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

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 PARTIES
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 THIRD 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, 9.2 60, 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, 7.1196, 7.1209, 9.223, 9.224, 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,

WT/DS472/R • WT/DS497/R

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 beyond the scope of Article 15.2 of the DSU 409, that the purpose of interim review is
"not necessarily" for a party to re -argue previously made arguments 410, and that the purpose of
interim review is "not to allow a party to raise new arguments or develop arguments 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 comments 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 (Korea), para. 6.2; US –
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 precise aspects of the interim report".
(emphasis added) See also Panel Report, India – Agricultural Products, paras. 6.5-6.6.
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

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 resolve 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
proceedings to address the complainants' argument that the relevant production -steps are
inconsistent with the exact same provisions, 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

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 consideration 422 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 Joint 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 Reports 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
"programmes" 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 parties 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
Aircraft, para. 8.5; and US – Conditional 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. However, 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 under the SCM Agreement once it had found a violation of the Agreement on Agriculture".
WT/DS472/R • WT/DS497/R

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,
inconsistently 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 Article 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 discusses 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 affect 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

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 products 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. 186; 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.
436 Panel Report, Japan – Film, para. 10.8. See also Panel Reports, US – Carbon Steel, para. 8.11; and
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

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
following [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 within 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 2014, (Exhibit JE-158).
WT/DS472/R • WT/DS497/R

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 two 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" product 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
"incentivised" 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 claims 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 the 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 whether the "subsidized" (in other words,
incentivised) product is finished or intermediate.
WT/DS472/R • WT/DS497/R

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 chain, 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 challenged 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) of 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 Body Report, Korea – Dairy, para. 74; Appellate Body Report, Argentina – Footwear (EC),
para. 81.
WT/DS472/R • WT/DS497/R

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 the 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 Report, 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 tax
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 imported 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 [that] fall to be assessed under Article III:2"))
WT/DS472/R • WT/DS497/R

proportions", and that such requirements are contrary to Article III:5. Article III:5 prohibits
"internal quantitative regulations 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 consist 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
claims 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
investment 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 the 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 with 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 Agreement.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 the 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 requirements 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

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 TRIM 454, 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 Agreement 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 1994 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 imported 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 panel 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 affect 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

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 conducts 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 with 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

7.56. Finally, the 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 Brazil
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 argues 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 these 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, 181, 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 Appellate 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). According to Brazil, since the measures "are
WT/DS472/R • WT/DS497/R

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 whether 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 the 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 laws, 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 presented 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 measures 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, 296-297, 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

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 manufacturers 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 of 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 disputes
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 trade-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 pursuant 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

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 products 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
requirements 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, 431, 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 and 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. Brazil'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
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 party 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

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 III.
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 extent 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 submission, 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 written
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

7.81. Brazil's argument thus raises the more specific aspects of the relationship between the
national treatment non -discrimination 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 applicable, 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
exclusion 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 Panel therefore addresses this
argument.
477 Panel Report, Indonesia – Autos, paras. 14.43-14.46.
478 Emphasis added.
WT/DS472/R • WT/DS497/R

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 discriminatory 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 discriminatory 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
domestic 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 provided 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
application 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
subsidies 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 of 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 1948, p. 66.
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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 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.
7.94. 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 (DS497).
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 the interim panel report, para. 22.
WT/DS472/R • WT/DS497/R

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 further 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 is 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 intermediate 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 not 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 internal 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 GATT 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 – Alcoholic 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

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
Brazil 493 : (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. 163: "…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 submission, 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 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 meaning 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.
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

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 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 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 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.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 incentivized 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 recalls 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 added)
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

7.111. In the view of the Panel, given the overlapping nature of the cited provisions, as explained
above in section 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 imported 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 PPB 503 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 refers 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 written submission, paras. 406-415.
WT/DS472/R • WT/DS497/R

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 with 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 Article 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 products 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 issue 512, 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 first 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 submission, 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 question 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 the 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, 97, at p. 114.
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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 basis 516, by examining relevant factors 517
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 the 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 panel 520
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, Taxes 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 Working 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 Appellate 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 shape 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. 20-21, DSR 1997:1,
449, at pp. 466-467).
524 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,
(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

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 1994.
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 5,906/2006, 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 responses 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, para. 1034).
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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 issue 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 pertain 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 Panel 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 notes 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 chemical 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 Report, Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97, at p. 110.
WT/DS472/R • WT/DS497/R

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. Turning 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 more 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 programmes 539) or carry out certain
manufacturing steps in Brazil (in the case of the PADIS and PATVD programmes); and/or
c. Develop the products in Brazil 540 (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 that 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 technicians 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 Jurídica, 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) and 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

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 these 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 reductions 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.
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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 programmes.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 programmes 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 product 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

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 Brazil 563;
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 of 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

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 Intermediate 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. 42.
573 Japan's response to Panel question No. 42. See also Japan's second written submission, para. 144.
WT/DS472/R • WT/DS497/R

accredited companies are neutral as regards the total tax burden along the production chain,
because they do not generate tax credits 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
domestic 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 chain.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 sistently 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/PASEP 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 Article III:2 of the GATT 1994. However, in light of the
different mechanism of taxation on final and intermediate products respectively, the Panel addresses these two
categories of products separately.
579 The Panel notes that, although the non-cumulative regime is the general rule for the PIS/PASEP and
COFINS contributions (see paragraph 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, there 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 COFINS cumulative regime, the Panel refers to its conclusion on finished products in
paragraph 7.154 above.
WT/DS472/R • WT/DS497/R

to be used later to offset future tax liabilities. Third, the situation absent the tax exemptions
and/or reductions 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 tax 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 products 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 interest 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. 57-59 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

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 -
incentivized) 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 to 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 reductions 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 process refund or offset
requests").
WT/DS472/R • WT/DS497/R

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 stated 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 DSB
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 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, 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,
WT/DS472/R • WT/DS497/R

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 respect 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 to 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 submissions, 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

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, distribution, 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 GATT 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 Additionally, 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 incentives 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 ICT 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 the 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 Report, India – Autos, para. 7.418).
WT/DS472/R • WT/DS497/R

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, reductions 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 paragraphs 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

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 Article 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 extent 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
domestic 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 – Asbestos, 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 clarified 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, functions". 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 functions". 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 classification 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 between 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,
(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 Panel Reports, US – Poultry (China), para. 7.426; Indonesia – Autos, paras. 14.112-14.113
(citing Appellate Body Report, Canada – Periodicals, pp. 20-21, DSR 1997:1, 449, at pp. 466-467).
WT/DS472/R • WT/DS497/R

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 and 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, 945-946 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.
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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 products 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 origin-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 stipulates 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 Body Report, US – COOL, para. 269. (emphasis added)
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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 applied 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 accreditation 628, 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 submissions, 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 have been produced in accordance with certain production step requirements. In other words
WT/DS472/R • WT/DS497/R

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 Panel 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 imported 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 discrimination, 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 programmes. 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
programme, 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 accreditation, 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

European Union has not demonstrated that it would be impossible for foreign producers to comply
with the R&D requirements, or even that compliance 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 percentage 630 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 programmes
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 asserts 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 opening statement in the first substantive meeting, paras. 150-152.
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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. Brazil 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 that 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.
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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
suspensions 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
discrimination 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 burdens".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 that 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 response 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, 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.
642 Brazil's opening statement in the second substantive meeting, paras. 4-5.
WT/DS472/R • WT/DS497/R

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-incentivised 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 that, 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 -incentivised
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 imported 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
incentivized 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 inputs 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 example, 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

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 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,
(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, 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.
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 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 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.
WT/DS472/R • WT/DS497/R

(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 imported 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.
10.74; Canada – Wheat Exports and Grain Imports, para. 6.164; China – Publications and Audiovisual
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

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
advantageous 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 manufacturing 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 incorporated 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

conditions of competition of any product at the market.664 According to Brazil, 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
programmes
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 for 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 characterizes 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

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 in 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
described 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 Closures 676 and for Speed Alarms, Tracking and Control 677, which
are broadly representative of how the PPBs as a whole operate.
7.287. The operational language of the PPB 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 further 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 pieces 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, (Exhibit JE-31).
677 Interministerial Implementing Order 103/2013, (Exhibit JE-32).
WT/DS472/R • WT/DS497/R

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 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 Trade and Science, Technology and Innovation.
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 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,
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 mechanisms; 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

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' technology 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 Whenever 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 Trade 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 communication 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 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 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

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 operations 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 case 681 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 parts; 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 production 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 report.
WT/DS472/R • WT/DS497/R

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 outsourced 682. 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
company 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 Panel 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

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 are 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 for 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 particular, 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 -consistent 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 Agreement 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

contain exemptions 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. Specifically, 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 and 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 8,247/2014, (Exhibit JE-75), Article 1.
WT/DS472/R • WT/DS497/R

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 contained 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 outsourcing 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 the 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

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

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 written 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, 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 afford protection to domestic production.
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, 97, 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

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 are 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 paragraph 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 different 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 programmes 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 response 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.
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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 reductions 708; (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 exemptions 709 ; (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 exemptions 710; 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 domestically 712; (b) for the PADIS programme,
the requirement that in order for the manufacturer of a particular product to be accredited, specific
manufacturing steps must be performed by accredited legal entities 713 ; (c) for the PATVD
programme, the requirement as one of the conditions for accreditation to produce specific goods in
accordance with 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 GATT 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

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 1994, 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).
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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 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.
7.3.4.2 Whether the ICT programmes are trade-related investment measures 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.
725 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 7.117.
726 European Union's first written submission, paras. 695-700; Japan's first written submission,
paras. 359-364.
WT/DS472/R • WT/DS497/R

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 TRIMs 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.
WT/DS472/R • WT/DS497/R

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 considers 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 identified 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 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 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 materials, 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
exemptions (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 exemptions (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 paragraphs 2.41 to 2.45 above.
732 See paragraph 2.73 above.
733 See paragraph 2.84 above.
WT/DS472/R • WT/DS497/R

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 intermediate 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
incentivized 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, 438-442, 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 paras. 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

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 applicable 740) 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 that 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
suspensions 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

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 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.
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 necessary 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. 28-37.
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 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 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 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.
WT/DS472/R • WT/DS497/R

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 dispute 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.
WT/DS472/R • WT/DS497/R

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 government 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 rationale
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 Report, 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

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 (2 nd 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
comparable 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 taxpayers,
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 comparably 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 Development ("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 (referring 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

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 (2 nd 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 tax 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 collected. 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: Panel 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 Reports, 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 Report, 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

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 objective 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 programme 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 of 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 (exemptions) of IPI tax and PIS/PASEP and COFINS contributions on the sales
of incentivized goods (digital TV transmitters); and
b. Zero rates (e xemptions) of IPI tax and PIS/PASEP, COFINS, PIS/PASEP -importation,
COFINS-importation and on purchases of certain capital goods, inputs and computational
tools and of 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 consists of:
a. Zero rates (e xemptions) 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

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 purposes 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 products;
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 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
manufacture the incentivized 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 (2 nd 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

involves a change in a Member's tax rules, an assessment of the reasons underlying that
change.776
7.408. With respect the Informatics programme, 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 industries, 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,
reductions 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

The benchmark 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-incentivized
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 they 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-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 25 th 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
incentivized 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

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 25 th 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 foregoes 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 demonstrating 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 notes 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 (DS472) and 399 and 433 (DS497).
WT/DS472/R • WT/DS497/R

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 duties 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
otherwise 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
companies 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 products 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

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 of 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 period791 (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
Government 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 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 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
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 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 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.
790 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.
791 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.
792 See footnote 788 above.
WT/DS472/R • WT/DS497/R

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 lasted 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 circumstances 796 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-cumulative regime. In particular, 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 general 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 finished 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

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 products 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 (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 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

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 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.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 could 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%. European
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. (Although 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

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
purchases 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 paragraph 2.22 above
810 See paragraphs 2.17 and 2.18 above.
WT/DS472/R • WT/DS497/R

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 -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 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. 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 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, 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 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 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.
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 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, paras. 780 (DS472) and fn 451 (DS497).
WT/DS472/R • WT/DS497/R

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 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).
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 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 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 period 821 (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 standpoint, 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 circumstances 822 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

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 -cumulative 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 -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 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 paragraphs 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 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 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.
WT/DS472/R • WT/DS497/R

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 period 829 (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 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.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
programmes, 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.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 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 (DS472), 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 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%.
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 contributions).
WT/DS472/R • WT/DS497/R

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 -
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 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 moment 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 circumstances 838 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, 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 Government 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 offset 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. 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%.
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 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.
839 See paragraph 2.22 above
WT/DS472/R • WT/DS497/R

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 -cumulative
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 contributions, 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-accredited 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 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.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 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 the 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.
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 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).
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

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 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 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 period 847 (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-importation 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 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 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 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 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 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.
847 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.
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/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).
849 See paragraph 2.32 above.
WT/DS472/R • WT/DS497/R

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
programmes, 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 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 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 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 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. Furthermore, 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-importation 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 Although 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

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 manufacturing 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 applicable 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 manufacturing 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-accredited 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
manufacturing 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 entered into by non-accredited companies.
7.478. The Panel notes that under the benchmark treatment 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 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 paragraph 2.22 above
WT/DS472/R • WT/DS497/R

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 manufacturing of incentivized products,
"government revenue that is otherwise due is foregone or not collected".
j. The exemptions (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

Memoranda, the stated aim of the Informatics programme 858 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 of 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
"government 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, paras. 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

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 or 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 SCM 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

domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement 864, 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 effects 865
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 products, 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

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 respect 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 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(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 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 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:

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 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.
870 Appellate Body Report, Argentina – Financial Services, para. 6.169.
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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 recalled 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 'necessary 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,
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 –
876 Appellate Body Report, Colombia – Textiles, para. 5.67. (footnotes omitted)
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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 from 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 Report, Colombia – Textiles, para. 5.68. (footnotes omitted)
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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 morals 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 Article 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 Report, EC – Seal Products, 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 Products, 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 Appellate 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 precise 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 Body 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).
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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, alternatively, 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 interests 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 –
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 Measures on Beef, para. 163.
894 Appellate Body Report, Brazil – Retreaded Tyres, para. 146.
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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 – Publications 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 measures 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 panel 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 respect 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 latitude, 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 necessity 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 of the necessity test under Article XX. See Appellate Body Reports, US –
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7.532. The Appellate Body established 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 that 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 measure 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 stated 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 the 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 1299).
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 Body'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 alternative measure it proposes would be reasonably available." Appellate
Body Reports, US – COOL (Article 21.5 – Canada and Mexico), para. 5.337. Nevertheless, that statement by
the Appellate Body suggests that if the burden under an Article XX analysis is on 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 contribution 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 complaining 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 Products 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. 156.
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.
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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 provisionally 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 Article 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
revealing 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 countries 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 not 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 same 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 Body Reports, EC –
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).
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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 Appellate 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

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 reality 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 emphasizes 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
[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 Service 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 based 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 free 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 submission, 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), because 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 information 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 such 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 submission, para. 466.
WT/DS472/R • WT/DS497/R

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, "if 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 would 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" and 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 morals
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 conveyed 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 domestically 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 submission, para. 167. See also United States' third party
submission, para. 28.
WT/DS472/R • WT/DS497/R

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, 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. 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 television 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, according 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 submission, para. 116.
941 Brazil's second written submission, para. 125-126.
WT/DS472/R • WT/DS497/R

'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 respective 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 "digital
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).
947 Brazilian 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), (Exhibit BRA-38), p. 5.
WT/DS472/R • WT/DS497/R

42.4% of households in Brazil have internet access, 49.4% of residents have internet access, and
48.9% of households in Brazil 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 all".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 this 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 recalls 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 pursued 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 convenes 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 Development 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), Article 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

would in practice tantamount [sic] to say 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 the 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 examine
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 demanding 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 provided 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. 159-160.
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

Additionally, the Explanatory Memorandum for the provisional measure implementing the PATVD
programme indicates that there 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 park 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 Brazil 969 , 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 JE-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 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. 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 Interministerial 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

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 services."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 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 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 Brazilian
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

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 importance 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 achieve 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.
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 that 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

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 concerns 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 understated. 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 Panel 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.
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).
WT/DS472/R • WT/DS497/R

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 or 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 market 997 ; and the decree establishing the SBTVD states that an
objective of the SBTVD was to promote domestic production of digital television 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 establishment of a panel was circulated in November 2014, and Japan's
request for establishment of a panel was circulated in September 2015.
992 Brazil's first written submissions, 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 Panel 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 itself is designed to contribute to the objective of bridging the digital divide.
WT/DS472/R • WT/DS497/R

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 domestic 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 relevant 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 particular geographical area or market …
the extent to which international supply of a product is stable and accessible. Appellate Body
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 the 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 this 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

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 argues 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 measure 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.

1005 Appellate Body Report, China – Publications and Audiovisual Products, para. 306.
1007 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 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
WT/DS472/R • WT/DS497/R

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 transmitters 1010; 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 duties 1015 all digital television
transmitters1016 that are currently incentivised under the programme. 1017 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, 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 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 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 response 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 suggested 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 Union'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

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 another. 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 aspects 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 alternatives 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 Conclusion 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

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 justified 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

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

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 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".
7.635. 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; Japan'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

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 vehicles; 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 running 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 meaning 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

in running order of up to 2 100 kg, designed for military use or agro -industrial work,
classified under codes 8703.32.10 and 8703.33.10.1036

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
considers 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 198; second written submission, paras. 71-72.
WT/DS472/R • WT/DS497/R

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 Japan 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 identified
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 submission, 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 tax rate for "vehicles manufactured nationally" that meet certain features.
WT/DS472/R • WT/DS497/R

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 Brazil 1052 (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 "Importers/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
accreditation 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 Metrology, Quality and
Technology (INMETRO). See paragraph 2.115 above.
WT/DS472/R • WT/DS497/R

(iii) participation in the vehicle 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 inherent 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
process 1058 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. Complying 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 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).
1059 See paragraph 2.122 above.
WT/DS472/R • WT/DS497/R

7.663. The Panel recalls that the calculation of presumed IPI tax credits differs depending on
whether the accredited 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 FNDCT 1066, 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, (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).
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 in 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 codes 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 dedutível", 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

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 technology 1068 ; 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 designed 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 Brazil 1072, 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 manufacture 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 Decree 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 companies 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 eventually
becomes an accreditation as a manufacturer in Brazil". See Brazil's response to Panel question No. 28.
WT/DS472/R • WT/DS497/R

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 process 1077, 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 origin 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 Article 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 addition, 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, 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

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 higher 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 Panel concludes that the accreditation process 1078 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
manufacturers 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 particular, 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

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
domestic 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 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.
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 Panel question No. 28.
WT/DS472/R • WT/DS497/R

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 resulting 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 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.
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,
second 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 Introduction
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

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 Union 1087 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, offering 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 Agreement, 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 particular 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 GATT 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 equipment 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 written 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

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 laboratory 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 t he 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 GATT 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 "affecting" 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 submission,
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.
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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 relevant 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 Union'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 submission, 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.
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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 broader 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 finished 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 distinction 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 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 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 meaning 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,
(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).
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.
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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 determine 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 concerning 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 III: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 the 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 respect 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 credits 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

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 submission, 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.
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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 respect 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 vehicles.
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 imposed 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 this 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 required 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 there 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 calculation of presumed IPI
tax credits modifies 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 Body Report, Korea – Various Measures on Beef, para. 137.
WT/DS472/R • WT/DS497/R

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 Panel 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 vehicles
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 in 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 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).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. 243-
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 finding GATT Panel Report, Italy – Agricultural Machinery, para. 13.
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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, 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.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 such 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
condition 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 MANUFACTURING AND ENGINEERING INFRASTRUCTURE ACTIVITIES TO BE PERFORMED
IN BRAZIL1124
Calendar
year
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)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 that: "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 '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" 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
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), Article 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.
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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 AND ENGINEERING INFRASTRUCTURE ACTIVITIES THAT CAN BE PERFORMED IN BRAZIL TO
SATISFY THE ACCREDITATION REQUIREMENT1126
Manufacture of passenger cars
and light commercial vehicles
Manufacture of trucks Manufacture of chassis fitted
with engines
Moulding Moulding 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 manufacture
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
Electrical 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 and
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 heat 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 manufactured 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 infrastructure
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 7,819/2012, (Exhibit JE-132), Article 7(I).
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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 would 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 Article 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 of 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 benefits 1133, 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,
1133 Implementing Order 257/2014, (Exhibit JE-158), Article 1.
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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 Brazilian strategic inputs and tools and not to imported inputs and
tools, the Panel notes that Article 41 of Law 12,715/2012 1135 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 must 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 identified 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 written submission, fn 260.
WT/DS472/R • WT/DS497/R

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 expenditure 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 month 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 laboratories 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

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 programme.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 requirement 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, para. 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

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 products 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 domestic 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 content.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

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 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 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
complaining 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 Japan'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

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 recalls 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 features.
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 violates 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

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 scope 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 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 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
demonstrate 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 indicated 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 measure 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 programme 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 incentivizing 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 submissions, para. 675 (DS497).
1160 Brazil's first written submissions, paras. 676-677 (DS497).
1162 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 7.117.
1163 European Union's first written submission, paras. 439 -443; Japan's first written submission, paras.
257-261.
WT/DS472/R • WT/DS497/R

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 light 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 Article 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.

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 requirements, 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

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 benefit 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 equipment 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 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 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 through 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 submission, 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

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 contingent upon the use of domestic over imported goods
within the meaning of Article 3.1(b) of the SCM Agreement, and thus prohibited
7.817. 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 and 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 domestic 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 complaining 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 (DS497).
WT/DS472/R • WT/DS497/R

"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 that the accreditation requirement
to perform a number of specific manufacturing and engineering infrastructure activities in Brazil
constitutes 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 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.

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 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 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 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.
WT/DS472/R • WT/DS497/R

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 (2 nd 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 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.
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 Interministerial Explanatory Memorandum No. 00025/2012, (Exhibits JE-183 and BRA-51),
paras. 44-45.
WT/DS472/R • WT/DS497/R

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 sales 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 the 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 treatment
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 25 th 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

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, "government 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 programme 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

the meaning of Article 3.1(b) of the SCM Agreement 1188 , and thus are prohibited subsidies,
inconsistent with Article 3.1(b) and 3.2 of the SCM Agreement.
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 those 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.
1190 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.
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

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 human, 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 Article 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

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 whether 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 measure 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 health, 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 measure 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 within 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, referring 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)
WT/DS472/R • WT/DS497/R

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 pollutant
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 designed 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

1210 Brazil's first written submissions, para. 616 (DS472) and para. 549 (DS497), referring to 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), (Exhibit BRA-71).
1212 European 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 paragraph 7.867 above, and European Union's second written submission, para. 157.
WT/DS472/R • WT/DS497/R

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 report 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

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 Panel 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 CO2 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 characterization. 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 Mitigation and Adaptation, (Exhibit BRA-71), p 63.
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, (Exhibit 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).
1230 Appellate Body Report, Colombia – Textiles, para. 5.68. (footnotes omitted) (emphasis added)
WT/DS472/R • WT/DS497/R

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 the 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 objective 1236, 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 IPI 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, at 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 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.
1238 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 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

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 Additionally, 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 requirement, 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 company 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) expenditure 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), Article 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

expenditure 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 expenditure 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 the 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 goals, 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 auto-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 requirement 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. 498-527 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

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 specific 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 give 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
discriminatory 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
industry, 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 CO2 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 Report, 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 equipment. 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

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 CO2 emissions, Brazil argues
that the Brazilian vehicle fleet i s not yet at the energy efficiency level reached in other countries,
thereby generating higher CO2 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 that 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, unless 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 (referring to Appellate Body Reports, EC –
Appellate Body Report, Korea – Various Measures on Beef, para. 166)). See also Appellate Body Report,
Colombia – Textiles, para. 5.70.
1258 See paragraph 7.524 above.
1260 Brazil's first written submissions, para. 622 (DS472) and para. 555 (DS497), (referring to Appellate
Body Report, Brazil – Retreaded Tyres, paras. 144 and 179).
1262 Brazil's first written submissions, para. 624-625 (DS472) and paras. 557-558 (DS497).
1264 European Union's second written submission, para. 157.
1265 Article about WHO study on deaths caused by traffic accidents, (Exhibit BRA-75).
WT/DS472/R • WT/DS497/R

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 importance.
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 CO2 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 because 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. Furthermore, 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); 403/2008, (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.
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 CO2 emissions. As discussed above, this evidence is not
relevant to those 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

intended objective is vehicle safety and the reduction of CO2 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 evidence 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 those aspects 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

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 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.
WT/DS472/R • WT/DS497/R

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 Union'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

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 reach 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 would 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 written 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 Panel'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. 157-160.
1288 European Union's second written submission, paras. 159 and 165.
WT/DS472/R • WT/DS497/R

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 in 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

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 Panel considers that this alternative measure would be WTO -consistent since it would
apply to any product, either domestic or imported, that meets 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 countries, 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

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
efficiency 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 chapeau 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 first 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 first 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 demonstrative 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).
1297 Brazil's first written submission, paras. 683-684 (DS472) and paras. 616-617 (DS497).
WT/DS472/R • WT/DS497/R

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
European 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 test
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:
…

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 submission, 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

(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 measure 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 effective 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 relevant, 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 Body 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

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 measures 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 concerns 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 implementation 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 Body 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 definition, 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 facilitating 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

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 restrictions 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 be 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 original)
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

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 promotes 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 (DS472) and paras. 583-587 (DS497).
1332 Brazil's first written submissions, para. 654 (DS472) and para. 587 (DS497), referring to Appellate
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 submission, para. 103.
1338 Appellate Body Report, US – Shrimp, para. 128.
WT/DS472/R • WT/DS497/R

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 rules 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
findings 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 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.
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 context 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 respect of this particular specific accreditation requirement.
WT/DS472/R • WT/DS497/R

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 aspects 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 efficiency, 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 domestic production or consumption.

1344 The Panel refers to its statements on this issue in paragraph 7.891 above.
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

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 requirements 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
INOVAR-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 (DS472) 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 submission, 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

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 further 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 domestic 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 are 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 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 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 further 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.
1364 Brazil's first written submissions, paras. 683-684 (DS472) and paras. 616-617 (DS497).
WT/DS472/R • WT/DS497/R

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 Japan.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:

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 first 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

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 Agreement (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 to 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 Complementation 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, and 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 Body Report, EC -
Bananas III, para. 190).
1380 Appellate Body Report, Canada – Autos, para. 78.
WT/DS472/R • WT/DS497/R

"immediately" 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 referred 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 submission, 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

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 Association] 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 were 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' responses to Panel question No. 52. (emphasis original)
WT/DS472/R • WT/DS497/R

a. Decree 350/1991 refers to the MERCOSUR Treaty, and indicates therein that the
signatory 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 Decree 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 Article 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 written 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 preferential 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
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

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 imported 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 Body 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 of 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 tax 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 that 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 imported 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

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 advantages 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
submission, 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

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 countries 1, 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 paragraph.
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 conflict 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

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
justified 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 complaining parties also argue that

1407 Brazil's first written submissions, paras. 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 7,819/2012
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 treatment
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 treatment 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 first 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 parties' 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

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 regarding 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 Preferences
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, noting 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 consistency, a

1411 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.
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 110.
1416 Appellate Body Report, EC – Tariff Preferences, para. 117.
WT/DS472/R • WT/DS497/R

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 Preferences 1419, 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
specifically 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 articulated
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 Report, 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 preference 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 jurisdiction 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 Act, 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

the legal framework 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 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. 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
complaining 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 treatment 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 Clause.
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 submission, 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

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 paragraph 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 BRA-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 opening 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

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 are 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 notification 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 provision, 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, if 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 notification 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
notification 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, that 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 relying 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 purpose 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 little 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, paras. 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 guidance
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 Body Report, EC – Chicken Cuts, para. 238.
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

request, and the responding party subsequently seeks to justify the arrangement under a different
provision. Thus, complaining 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 notes 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 provision 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.
1440 Transparency Mechanism for Regional Trade Agreements, General Council Decision of 14 December
2006, WT/L/671.
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 of 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 Transparency 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 only 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 notification 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 on
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 allegedly 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 terms 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) of the Enabling Clause does not permit notification of a measure adopted pursuant to one provision of the
WT/DS472/R • WT/DS497/R

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 covering 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, with 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 Transparency 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, para. 129.
WT/DS472/R • WT/DS497/R

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 governed 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 include 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 of
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 measures 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 whole 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 have
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 effectiveness 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

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 inconsistency 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 agreement 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 Article 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
manner 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

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 agreement "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 Clause 1458 ). Additionally, it has been clarified that the various
agreements constituting the 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 complaining 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 Trade 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, para. 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 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 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

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 Enabling 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 second 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 falls 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 Panel 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

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 9 1473 , 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

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 Treaty 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 instruments 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 percentage 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 restrictions, 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 promote 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 harmonious 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

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 ECAs 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 industry 1480; 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 treatment 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 comments on other parties' responses to Panel question No. 53.
1478 Brazil's second written submission, para. 181.
1479 The Panel notes the Appellate Body's statement 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." 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); Decree 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

7.1115. In the view of the Panel, on the basis of the evidence and arguments before it, other WTO
Members could 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 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 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." Appellate Body
Report, Canada – Wheat Exports and Grain Imports, para. 191.
WT/DS472/R • WT/DS497/R

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 for "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 submissions, 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 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.
1492 Decree 4,458/2002, (Exhibit JE-164), ECA No. 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, Article 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

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 company" 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/COMTD/82).
1498 See paragraphs 2.150 to 2.152 above.
1499 See paragraphs 2.150 to 2.152 above.
WT/DS472/R • WT/DS497/R

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 level 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 of 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
payments 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 written 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

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 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 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 structurally 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 structurally 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
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. 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, paras. 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

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 deemed 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

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 inputs 1518 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 -importation 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 (2 nd 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, instruments and equipment.
1520 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812.
WT/DS472/R • WT/DS497/R

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 competitiveness of Brazilian companies.

1521 European Union's first written submission, para. 1154; Japan's opening statement at the first
1522 Brazil's first written submission, 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

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 structurally
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 products 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
manufacture 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 structurally 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 suspensions 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 No. 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

that the tax suspensions are the rule for structurally 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 explained 1531 , 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 suspensions 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 companies.
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 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 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

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 three 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 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 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 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 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
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 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 writing 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

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 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 moment of importation
(in the case of imported products) or from one taxation period 1544 (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
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

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 structurally 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.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 REIMCOMP. 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
products, 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 -cumulative 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 question No. 41.
1547 See Brazil's response to Panel question No. 21.
WT/DS472/R • WT/DS497/R

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 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.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 IPI 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 PIS/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 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.
WT/DS472/R • WT/DS497/R

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 period 1554 (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-importation 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 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 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 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
1556 See paragraph 2.32 above.
1557 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%.
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

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 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.
7.1196. Also, a lthough the non -cumulative regime is the general rule for the PIS/PASEP and
COFINS contributions 1563, to the extent that the purchases of the raw materials, intermediate
goods and packaging materials 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 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 buyer 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 includes 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 paragraph 2.22 above
WT/DS472/R • WT/DS497/R

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.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 suspensions 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 -
importation 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 credits 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 the 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

pays the tax to the Brazilian Government. 1567 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. 1568 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,
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 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 (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 period 1573 (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 also 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 same 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 COFINS 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 (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 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.
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: if there is a claim
WT/DS472/R • WT/DS497/R

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 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 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 generate 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 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
1575 See paragraph 2.32 above.
1576 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%.
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 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%.
WT/DS472/R • WT/DS497/R

7.1208. Furthermore, from the buyer's standpoint, as explained in paragraph 2.17 1581 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 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.
7.1209. Also, although the non -cumulative regime is the general rule for the PIS/PASEP and
COFINS contributions 1582, 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 Whether 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 registered 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 paragraph 2.22 above.
1583 See paragraph 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

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. Pursuant 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 packaging 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 submissions, 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

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 one 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

4 This standard is met when the facts demonstrate 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 not 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, regulation 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

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 contingency 1598 , 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 be 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 argument.
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 favourable 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 items, 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); Brazil'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 first written submission, paras. 160-163; Brazil's first written submissions,
para. 762.
WT/DS472/R • WT/DS497/R

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 of 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 -favourable 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 RECOMMENDATIONS
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 concludes 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

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
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 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

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 Agreement, 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 Agreement.
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 Union 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 the 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 within which the measure must be withdrawn. " In other words, the Panel is required to
WT/DS472/R • WT/DS497/R

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 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 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 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;
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 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

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

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 prohibited 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 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 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

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 (DS472)
WT/DS472/R • WT/DS497/R

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.
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 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
mentioned in this Article provided the Basic Production Process be complied 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.
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

IV - pasting of the negative 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
TELECOMMUNICATIONS 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.
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

 …
§ 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.
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, (Exhibit BRA-116).
WT/DS472/R • WT/DS497/R

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 production 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 considers 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 accredited 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, including 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.
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, according 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).
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9.20. Additionally, Article 2 states in relevant 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 manufacturing 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.
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 with.
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).
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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, manufactured 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
materials 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 subassemblies from basic raw materials and inputs) are respected.
The product MULTILAYER PRINTED CIRCUIT shall have local added value if it meets
the Basic 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 metallization;

1613 Implementing Order 35/2002, (Exhibit BRA-116).
1614 Implementing Order 56/2000, (Exhibit BRA-116).
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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, all 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) are respected.
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 accordance 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).
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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 mandatory
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) - printed 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 least 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.
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).
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9.34. MDIC/MCT Implementing Order No. 160, of 24 April 2003 1617, 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 - 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 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 boards;
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.
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 smart 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).
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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 August 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."
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9.42. MDIC/MCT Implementing Order No. 179, of 5 July 2004 1620, 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 steps:
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 (rubbing);
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 board, 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 basic raw materials and inputs) are respected.
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).
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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 parts;
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 - plastic 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.
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 - integration 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).
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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 the 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.
The following Basic Production Process 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 Implementing Order 289/2003, (Exhibit BRA-116).
1624 Implementing Order 296/2001, (Exhibit BRA-116).
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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 raw materials and inputs) are respected.
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 - manufacture 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).
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9.56. Implementing Order No. 410, of 4 September 2003 1626, 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 - assembly 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 complied 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.
The following Basic Production 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).
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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.
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 - assembly 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.
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 photoresistor;

1628 Implementing 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).
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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.
The following Basic Production Process is hereby set forth for the products OPTICAL
SENSORS, (NCM 8543.89.99):
I - plastic injection 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 body; and step

1630 Implementing Order 454/2003, (Exhibit BRA-116).
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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 of the steps (production in Brazil of the respective
components and subassemblies from basic raw materials and inputs) are respected.
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
boards, 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.
The following Basic Production Process is hereby set forth for 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).
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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 respected.
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 Panel 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 and inputs) are respected.
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).
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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 lids;
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.
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 antenna.

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 rods 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).
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b) PEDESTAL SUBASSEMBLY:
1. assembly of the pedestal box faces;
2. integration of the engine control module;
3. integration of the engine 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 - Uninterrupted 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 radar 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 the 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.
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g) SECONDARY RADAR ANTENNA:
1. placement 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 quadripod;
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 coiling 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.
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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, 1999, 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 - containers. 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.
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:
subassemblies 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).
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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.
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 welding 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.
The following Basic Production Process is hereby set forth for the product GLOBAL
POSITIONING SYSTEM - 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).
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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 VI, 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.
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 Implementing 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 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 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).
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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. Additionally, § 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.
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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 operation 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 part 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
mechanical 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).
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).
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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.
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).
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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 terms 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 mechanical 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 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.
9.100. Also, the steps in Article 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.
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

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) are
respected.
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 incorporated 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

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.
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 painting 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 Production 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 covered 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

question if that power supply is produced in Brazil in accordance with its own PPB, and thus is a
domestic product.
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 not 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
requirements of the steps (production in Brazil of the respective components and subassemblies
from basic raw materials and inputs) are respected.
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

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

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

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 - 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 terminals 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

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 PPBs 1653 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 subassemblies from basic raw materials and inputs).
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 assembled 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

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, according 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 components 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 integrated 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

9.125. MDIC/MCT Implementing Order No. 21, of 2 September 2010 1657 , 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 applicable, 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
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 submissions, 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

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, provided 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.
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

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 inputs) 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 products.
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
outsourcing.
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, Article 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 footnote 1619 above.
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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
question if a portion of those integrated circuits are produce in Brazil in accordance with their own
PPB, and thus are domestic products.
The Basic Production 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
applicable;
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, when 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 requirements 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.
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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 their own PPB, and thus are domestic products.
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 digital 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).
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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 reconstruction.
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 materials 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.
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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 Brazil 1669. 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.
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 - manufacturing 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).
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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 FREQUENCY 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 winding; 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 following 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 plastic 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
Exempted 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 264/2013, (Exhibit BRA-116).
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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.
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 board, 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 - manufacturing 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 adjustments.
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).
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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 microprocessor 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.
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 product operation; and
h) packaging of product.
II - SEED SENSOR:

1673 See footnote 1619 above.
1674 Implementing Order 91/2013, (Exhibit BRA-116).
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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 of 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.
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 outsourcing” 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).
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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: twenty 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.
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 laminated, 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 circuit 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 384/2013, (Exhibit BRA-116).
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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 applies. 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.
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).
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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 MOUNTED 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.
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 mechanical 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 products.

1679 Implementing Order 237/2006, (Exhibit BRA-116).
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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 contained 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 schedule:
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).
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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 paragraph 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 specific 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%
Assembled 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 circuit 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 referred 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%), in 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 PPBs referred to in Article 2.
See footnote 1619.
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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.
9.171. 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.
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 units 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 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, 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).
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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 – electric
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, 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 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.
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
Section I may be performed by third parties, provided it is performed in the Country.

1684 Implementing Order 224/2014, (Exhibit BRA-116).
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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 parties. 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 and inputs) are respected.
The following Basic Production Process is hereby set forth for the product MOBILE C -
ARC X RAY EQUIPMENT, COUPLED, BASED ON DIGITAL 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 components 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 country; 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).
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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 accredited 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 for 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
MERCOSUL 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.
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).
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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
accredited 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.
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 least 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 subject 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).
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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; and
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.
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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.
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).
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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.
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.
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).
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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 assembly, 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 patient 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 reports 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
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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 respective 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.
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 injection;
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 inherent 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

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 subassemblies from basic raw materials and inputs) are respected.
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 welding 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 contained 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 chargers), 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 minimum 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

steps (production in Brazil of the respective components and subassemblies from basic raw
materials and inputs) are respected.
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 lamination;
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.
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 stripping;

1698 Implementing Order 231/2014, (Exhibit BRA-116).
1699 Implementing Order 236/2015, (Exhibit BRA-116).
WT/DS472/R • WT/DS497/R

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.
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, encapsulation 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 sections; 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-volatile-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

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 respective 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 -VOLATILE 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
STORAGE 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.
The Basic Production Process for the product PORTABLE TERMINAL OF CELLULAR
TELEPHONE produced in the Country, established by MDIC/MCTI Implementing Order
No. 306 of 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 schedule:
2014 2015 2016 From 2017 on
5% 25% 40% 50%

1701 Implementing Order 323/2014, (Exhibit BRA-116).
WT/DS472/R • WT/DS497/R

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.
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 main 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

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 - transformer 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 components 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 subassemblies 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

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.
Establishes the following Basic Production Process for MACHINES FOR SELECTING AND
COUNTING PAPER MONEY (BANK NOTES), produced in Brazil:
I - injection of the housing'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 circuit 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/dielectric 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 circuit 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 MONEY (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

9.225. Interministerial Implementing Order No. 17, of 28 January 2014 1704, 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 cutting;
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

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); 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 - electrical 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.
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

d) power feed and distribution.
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, when 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
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b) image and signal processing software.
§ 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.
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 parties.
§ 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).
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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: exempted.
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, 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%.
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%.
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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 January 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.
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
component 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 Implementing Order 80/2014, (Exhibit JE-29).
WT/DS472/R • WT/DS497/R

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 disk 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 Brazil 90% 90% 90% 90%
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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 integrated 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 with 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 incorporated, 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.
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).
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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:
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I - from 1 January to 31 December 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 Brazil 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.
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

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 subassemblies from basic raw materials and inputs) are respected.
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 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 CONTROL 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 Interministerial Implementing Order 103/2013, (Exhibit JE-32).
WT/DS472/R • WT/DS497/R

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 tacograph
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 frequency
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.
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9.260. Interministerial Implementing Order No. 111, of 29 May 2014 1714 , A rticle 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
following 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 used 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).
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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 Flash 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, and thus are domestic products.

1715 See footnote 1619 above
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9.264. Interministerial Implementing Order No. 119, of 23 April 2013 1716, 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 - manufacture 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).
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9.266. Interministerial Implementing Order No. 203, of 23 August 2012 1717, 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 subassemblies, 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.
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 Process 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 Interministerial Implementing Order 203/2012, (Exhibit JE-35).
1718 Interministerial Implementing Order 268/2013, (Exhibit JE-37).
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IV - additivation (incorporation of external additives: 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 third 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 from 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 injection, 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 Basic Production Process for CYLINDERS WITH PHOTOSENSITIVE 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 Production Process for ORGANIC DRUM ASSEMBLIES:
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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 Production 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 from 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,
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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; and 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 counterparts 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.
The Basic Production Proces s for INDUSTRIAL AUTOMATION GOODS set out in the
Annex to this Implementing Order 1721, 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 electrical motors through frequency variation; and Devices to
regulate and control electrical motors (Servo converters).
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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 mechanical 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.
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) printers;
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 boards;
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).
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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 parties.
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.
Establishes the following Basic Production Process for DOT MATRIX PRINTERS,
produced in Brazil:
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;
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 MATRIX 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.

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).
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As of 1 July 2013, the Basic Production Process for SELF -SERVICE MACHINES AND
TERMINALS AND AUTOMATIC 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 shall 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 modules) 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 - assembly 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 recycling 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).
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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 MACHINES 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
dispensers; 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 -
SERVICE 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.
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 to in Article 1.
See footnote 1618 above.
1727 See footnote 1619 above.
1728 Interministerial Implementing Order 385/2013, (Exhibit JE-42).
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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.
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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 preparation 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 sheets, 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).
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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.
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 inputs) are
respected.
Interministerial Implementing Order No. 184, of 7 July 2014 1734, Article 1 states in relevant part
that:

1731 See footnote 1619 above.
1732 Interministerial Implementing Order 266/2014, (Exhibit JE-44).
1733 Interministerial Implementing Order 60/2013, (Exhibit JE-28).
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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 communication 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 with 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 Implementing Order 184/2014, (Exhibit JE-45).
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Calendar year 2013 2014 onwards
Produced in 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 Drives (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.
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Brazil of the respective components and subassemblies from basic raw materials and inputs,
including where respective PPBs 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.
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 Production 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. Additionally, 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 (motherboard):
 Percentage
Assembled in Brazil 90 %

1736 See footnote 1619 above.
1737 Interministerial Order 165/2014, (Exhibit JE-66).
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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 Brazil 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 these are external:
Calendar year 2013 from 2014 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 %
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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 MACHINES 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 electrical 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.
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).
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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.
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.
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 percent (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).
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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 third 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 subassemblies, 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.
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 accumulation 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.

1743 Interministerial Implementing Order 165/2011, (Exhibit BRA-31).
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The Basic Production Process for the product 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) , 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 following 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 manufacturing, 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 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.
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 Nomenclature – 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).
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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 subparagraph; 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.
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 - 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 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 Implementing Order 62/2014, (Exhibit JE-89).
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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.