By William Jones, Contributing Reporter
RIO DE JANEIRO, BRAZIL – The European Union took legal action against Brazil’s high taxes imposed European imports. After lengthy negotiations at the World Trade Organization (WTO) headquarters in Geneva, Switzerland, the EU feel that they have been left with no option but to take on South America’s biggest economy in a trade dispute.
The EU is Brazil’s first trading partner and the European Union is struggling to find a resolution to the conflict, which, according to members of the European parliament, has led to a drop in EU car exports to Brazil this year. The EU accuses Brazil of protectionism, claiming that that the South American giant does not comply with WTO objectives.
The EU claims that Brazil’s taxation policy is “incompatible with its WTO obligations, and provides advantages to domestic industries, sheltering them from competition,” an EU official said in a statement. One German lawmaker referred to Brazil’s tax policies as not only protectionist but also “discriminatory.”
“These tax measures have a negative impact on EU exporters, whose products face higher taxes than domestic competitors,” the EU said. “The measures also result in Brazilian consumers facing higher prices, less choice and lower access to innovative products.”
Furthermore, the EU is mostly allegedly upset over the fact that the thirty percent tax on imported vehicles is inconsistent with domestically-produced vehicles that are not included in the same tax bracket. Brazil also heavily taxes electronic equipment, such as smartphones and computers from Europe.
Brazil’s Foreign Minister, Luiz Alberto Figuereido, rejected Europe’s charges. “We have solid arguments to show that we are complying with international trade rules,” Figuereido said in a statement. The EU commission will allow sixty days for the debate to reach a conclusion before threatening to impose restrictions on the Brazilian economy.
In 2011 car manufacturers using a minimum proportion of components made in Brazil in their vehicles, and also invest in innovation within the country, started paying a lower rate of IPI – the tax paid on industrialized products. Those failing to meet the requirements faced thirty percentage points added to their rate of tax.
At the time Finance Minister Guido Mantega said, “Brazil has been harassed by international industry. Consumption for vehicles has increased but imports have filled this extra demand. There’s a risk that jobs could go overseas.”
Read more (in Portuguese).
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