Reopening Pandora's Box in Search of a WTO-Compatible Industrial Policy? The Brazil-Taxation Dispute

Abstract

The Brazil-Taxation dispute concerns the complaints taken to the World Trade Organisation by the European Union and Japan against seven different Brazilian industrial subsidy programmes. One concerned the automotive sector and represents a clear case of policies dictated by strong domestic political-economy forces, with little attention to impacts on consumers or imports. The ensuing WTO dispute raises important issues concerning the WTO-compatibility of subsidy measures. In particular, the Appellate Body (AB) reversed the panel findings with respect to two issues: the extent to which subsidy measures can be exempted from complying with National Treatment rules under the General Agreement on Tariffs and Trade, and the identification of local content requirements (LCRs), which are prohibited under the Agreement on Subsidies and Countervailing Measures (SCM). In particular, the AB considered that subsidies, if not based on discriminatory taxation, could be justified under the GATT and could have some discriminatory elements without violating the National Treatment disciplines. Furthermore, it concluded that legitimate eligibility criteria under a subsidy programme should not be construed as prohibited LCRs under the SCM. However, the test devised by the AB to distinguish legitimate eligibility criteria from prohibited LCRs could facilitate circumvention of the LCRs prohibition under the SCM.

Domestic Investment Incentives in International Trade Law

“…125 Similarly, only non-discriminatory fiscal incentives would fall under Article III:8(b) GATT 1994. 126 To the extent that Article XI:1 of the GATT 1994 provides that not only quotas, import or export licenses, but also 'other measures' may de facto, or de jure have the effect of prohibiting or limiting the importation or the exportation or sale for export of a product, 127 investment incentives could also come under the provision's scope. Still, only those investment incentives which affect the opportunities for importation or exportation would violate Article XI.…”