Brazil – certain measures concerning taxation and charges

ReportS OF THE PANEL

TABLE OF CONTENTS

1   Introduction.. 20

1.1   Complaints by the European Union and Japan. 20

1.2   Panel establishment and composition. 20

1.3   Panel proceedings. 21

1.3.1   General 21

1.3.2   Working procedures on Business Confidential Information (BCI) 21

2   Factual aspects. 22

2.1   General description of relevant aspects of the Brazilian tax system.. 22

2.2   The measures at issue. 28

2.2.1   The Informatics programme. 33

2.2.1.1   Introduction. 33

2.2.1.2   Tax treatment 33

2.2.1.3   Product coverage. 34

2.2.1.4   Eligible companies. 35

2.2.1.5   Requirements for obtaining the tax treatment 35

2.2.1.6   Related memorandum.. 38

2.2.2   The PADIS programme. 38

2.2.2.1   Introduction. 38

2.2.2.2   Tax treatment 39

2.2.2.3   Product coverage. 40

2.2.2.4   Eligible companies. 41

2.2.2.5   Requirements for eligibility. 41

2.2.2.6   Related memorandum.. 43

2.2.3   The PATVD programme. 43

2.2.3.1   Introduction. 43

2.2.3.2   Tax treatment 43

2.2.3.3   Product coverage. 44

2.2.3.4   Eligible companies. 44

2.2.3.5   Requirements for eligibility. 45

2.2.3.6   Related memorandum.. 46

2.2.4   The Digital Inclusion programme. 46

2.2.4.1   Introduction. 46

2.2.4.2   Tax treatment 46

2.2.4.3   Product coverage. 46

2.2.4.4   Eligible companies. 47

2.2.4.5   Related memoranda. 47

2.2.5   The INOVAR-AUTO programme. 48

2.2.5.1   Introduction. 48

2.2.5.2   Tax treatment 48

2.2.5.3   Product coverage. 50

2.2.5.4   Beneficiaries. 51

2.2.5.5   Requirements for eligibility. 51

2.2.5.6   Monitoring system.. 60

2.2.5.7   Related memorandum.. 61

2.2.6   The PEC programme. 61

2.2.6.1   Introduction. 61

2.2.6.2   Tax treatment 61

2.2.6.3   Product coverage. 62

2.2.6.4   Eligible companies. 62

2.2.6.5   Requirements for eligibility. 62

2.2.6.6   Related memorandum.. 63

2.2.7   The RECAP programme. 63

2.2.7.1   Introduction. 63

2.2.7.2   Tax treatment 63

2.2.7.3   Product coverage. 64

2.2.7.4   Eligible companies. 64

2.2.7.5   Requirements for eligibility. 64

2.2.7.6   Related memorandum.. 65

3   Parties' requests for findings and recommendations. 66

4   Arguments of the parties. 70

5   Arguments of the third parties. 70

6   Interim review... 70

6.1   General issues and editorial matters. 70

6.2   Provisions pertaining to developing countries. 71

6.3   The scope of the parties' requests for review of the Interim Reports. 71

6.4   The "in-house" argument 71

6.5   Article 4.7 of the SCM Agreement 72

6.6   Confidentiality of the Interim Reports. 73

7   Findings. 73

7.1   Overview of the measures and claims, and the Panel's order of analysis. 73

7.1.1   The measures at issue. 74

7.1.1.1   The Panel's terms of reference. 75

7.1.1.2   The categories of products concerned by the various taxes at issue. 77

7.1.2   Overview of the relationship between the complaining parties' multiple claims. 78

7.1.2.1   Differences in scope between Articles III:2, III:4 and III:5 of the GATT 1994. 78

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 80

7.1.3   Order of analysis of the complaining parties' multiple claims. 82

7.2   Brazil's general defences. 83

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. 83

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. 85

7.3   The ICT programmes. 90

7.3.1   Claims under Article III:2 of the GATT 1994. 90

7.3.1.1   Introduction. 90

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 93

7.3.1.3   Whether the imported and domestic products are "like products" within the meaning of Article III:2, first sentence. 95

7.3.1.4   Whether imported products are "taxed in excess of" like domestic products, within the meaning of Article III:2, first sentence. 100

7.3.1.5   Conclusion. 106

7.3.1.6   Judicial economy with respect to Japan's claim under Article III:2, second sentence. 107

7.3.2   Claims under Article III:4 of the GATT 1994. 108

7.3.2.1   Claims with respect to the conditions for accreditation, certain calculations related to required R&D expenditures, and administrative burden under the ICT programmes. 108

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  119

7.3.2.3   Conclusion. 132

7.3.3   Claims under Article III:5 of the GATT 1994. 132

7.3.3.1   Introduction. 132

7.3.3.2   The legal standard. 133

7.3.3.3   Analysis by the Panel 134

7.3.3.4   Conclusion. 136

7.3.4   Claims under Article 2.1 of the TRIMs Agreement 136

7.3.4.1   Introduction. 136

7.3.4.2   Whether the ICT programmes are trade-related investment measures within the meaning of the TRIMs Agreement 137

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 138

7.3.4.4   Conclusion. 139

7.3.5   Claims under Article 3.1(b) of the SCM Agreement 139

7.3.5.1   Introduction. 139

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. 141

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 143

7.3.5.4   Whether the subsidies granted under the ICT programmes are specific within the meaning of Article 2 of the SCM Agreement 169

7.3.5.5   Conclusion. 169

7.3.6   Brazil's invocation of Article XX(a) of the GATT 1994 to justify certain inconsistencies in respect of the PATVD programme. 171

7.3.6.1   Introduction. 171

7.3.6.2   Description of the legal test 171

7.3.6.3   Whether the discriminatory aspects of the PATVD programme are provisionally justified under Article XX(a) 179

7.3.6.4   Whether the discriminatory aspects of the PATVD programme satisfy the requirements of the chapeau of Article XX. 195

7.3.6.5   Conclusion. 195

7.4   The INOVAR-AUTO programme. 195

7.4.1   Claims under Article III:2 of the GATT 1994. 195

7.4.1.1   Introduction. 195

7.4.1.2   Reduced IPI tax rates. 197

7.4.1.3   Presumed IPI tax credits. 198

7.4.1.4   Article III:2, second sentence, of the GATT 1994. 207

7.4.2   Claims under Article III:4 of the GATT 1994. 207

7.4.2.1   Introduction. 207

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  209

7.4.2.3   Whether the relevant imported and domestic products are "like products". 210

7.4.2.4   Whether imported products are accorded "treatment less favourable" than that accorded to like domestic products. 212

7.4.2.5   Conclusion. 221

7.4.3   Claims under Article III:5 of the GATT 1994. 221

7.4.3.1   Introduction. 221

7.4.3.2   The legal standard. 222

7.4.3.3   Analysis by the Panel 222

7.4.3.4   Conclusion. 223

7.4.4   Claims under Article 2.1 of the TRIMs Agreement 223

7.4.4.1   Introduction. 223

7.4.4.2   Whether the INOVAR-AUTO programme is a trade-related investment measure within the meaning of the TRIMs Agreement 224

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 225

7.4.4.4   Conclusion. 225

7.4.5   Claims under Article 3.1(b) of the SCM Agreement 225

7.4.5.1   Introduction. 225

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. 227

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 228

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 231

7.4.5.5   Conclusion. 231

7.4.6   Brazil's invocation of Article XX of the GATT 1994 to justify certain inconsistencies in respect of the INOVAR-AUTO programme. 232

7.4.6.1   Introduction. 232

7.4.6.2   Whether the discriminatory aspects of the INOVAR-AUTO programme are justified under Article XX(b) of the GATT 1994. 233

7.4.6.3   Whether the discriminatory aspects of the INOVAR-AUTO programme are justified under Article XX(g) 250

7.4.7   Claims under Article I:1 of the GATT 1994. 259

7.4.7.1   Introduction. 259

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. 261

7.4.7.3   Whether the relevant products at issue are "like" products. 262

7.4.7.4   Whether the tax reductions at issue confer an "advantage". 264

7.4.7.5   Whether that advantage is not accorded "immediately" and "unconditionally" to other WTO Members  265

7.4.7.6   Conclusion. 265

7.4.8   Brazil's justifications under the Enabling Clause. 265

7.4.8.1   Introduction. 265

7.4.8.2   The burden of invoking the Enabling Clause. 268

7.4.8.3   Brazil's affirmative defence under paragraph 2(b) of the Enabling Clause. 271

7.4.8.4   Brazil's affirmative defence under paragraph 2(c) of the Enabling Clause. 277

7.4.8.5   Separate opinion on Brazil's affirmative defence under paragraph 2(c) of the Enabling Clause  282

7.5   The PEC and RECAP programmes. 283

7.5.1   Claims under Article 3.1(a) of the SCM Agreement 283

7.5.1.1   Overview.. 283

7.5.1.2   Whether the tax suspensions granted under the PEC and RECAP programmes constitute subsidies within the meaning of the SCM Agreement 286

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 302

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  302

7.5.1.5   Conclusion. 305

7.6   Final comments. 305

8   Conclusions and recommendations. 305

8.1   Complaint by the European Union (DS472) 305

8.2   Complaint by Japan (DS497) 308

9   Appendix to the Panel Report. 311