In 2017, seven Brazilian industry subsidy programs were condemned by the WTO, in response to complaints of unfair competition by Japan and the European Union. The WTO concluded that the programs imposed excessive tariffs to imported products, in comparison with national products, and offer fiscal exemptions or competitive advantages based on local content rules or export performance. The deadline established back then for the adjustment of the programs was of 90 days. But Brazil appealed against the decision and accomplished the reversion of the condemnation of two of the seven programs. In addition, the WTO also reversed the decision of the 90-day deadline, and decided that the country should adjust the programs without delay.

The two programs that had their condemnation revoked are the PEC, a program destined to predominantly exporting companies that exempted them of taxes in the purchase of inputs, and the RECAP, the Special Regime of Acquisition of Capital Goods for Exporting Companies, which suspended the application of a specific tax in the purchase of machinery and equipment of highly exporting companies. Both programs are still in force.

Of the five programs whose condemnation has been maintained, three are no longer operative in Brazil. It is the case of Inovar-Auto, the incentive program to technological innovation and densification of the automobile production chain, replaced by the program Route 2030, which already complies with WTO guidelines; PATVD, of fiscal stimulus for digital TV; and the program of digital inclusion.

Two programs remain to be adjusted: Padis, which supports the technological development of the semi-conductor and displays industry, and the IT Law, a combination of measures initiated in 1991 offering reduction of the Tax on Industrialized Products (IPI) and other fiscal incentives for producers of hardwares, industrial automation and telecommunications. To comply with the WTO’s decision, the Brazilian government will have to withdraw the reduction of at least 80% of the IPI tax in the IT Law and of the PIS/COFINS tax in the Padis program. Brazil will also have to eliminate the local content requirement of Basic Production Processes (PPB).

Each of these procedures might have different deadlines to be finalized. Without a defined deadline by the WTO, Brazil continues to negotiate with Japan and the European Union. If negotiations fail to reach a consensus and the countries take the case to WTO arbitration, the parameter that will probably be used is of 15 months, and in exceptional circumstances, 18 months.

Source: Valor Econômico, G1 and Estadão