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EU takes Brazil to WTO over 'protectionist' car taxes

Hundreds of Fiat's cars stand at a airport in the Oliveira city, state of Minas Gerais, November 29, 2008. REUTERS/Jaja Carneiro
Hundreds of Fiat's cars stand at a airport in the Oliveira city, state of Minas Gerais, November 29, 2008. REUTERS/Jaja Carneiro

By Robin Emmott

BRUSSELS (Reuters) - The EU launched a case against Brazil at the World Trade Organization on Thursday over the South American nation's taxes on imports from cars to computers, but insisted the dispute should have no bearing on delicate free-trade talks.

The European Union is Brazil's biggest trading partner - accounting for a fifth of its total exports. Brazil would be a major beneficiary of a far-reaching trade accord the EU is negotiating with Mercosur, a group of Latin American countries.

But after 10 rounds of talks and several meetings in Geneva, home to the WTO, the two sides have failed to resolve a long-running row over Brazilian import taxes that Europe says are unfair and break global trade rules.

"The protection of Brazil's domestic industry comes at the expense of Europe's imported goods and that is unacceptable," said an EU official close to the discussions. "We have had many bilateral meetings but Brazil has taken no concrete steps."

EU car exports to Brazil fell by more than 11 percent this year partly because of the taxes, according to an influential German lawmaker in the European Parliament, Daniel Caspary. He called the taxes "discriminatory and protectionist."

Brazilian Foreign Minister Luiz Alberto Figueiredo told reporters that levying the taxes was within the country's rights. "We have solid arguments to show that we are complying with international trade rules," he said in Brasilia.

The European Commission, which handles trade issues for the EU's 28 members, and the Brazilian government now have 60 days to try to end the dispute or face a legal process that could allow Brussels to impose sanctions, although that is years off.

MERCOSUR TALKS

Brazil's 30 percent tax on imported motor vehicles, as well as import levies on goods ranging from computers to smartphones and semiconductors, have also angered Japan, the United States and other big trading nations, which could join the dispute.

Brazil has sought to build up a local car industry, offering tax breaks for carmakers that increase domestic investments.

That has prompted European car manufacturers, including BMW , Volkswagen and British luxury car builder Jaguar Land Rover, a unit of India's Tata Motors , to focus on building car plants in Brazil to get around taxes on imported vehicles.

But EU officials say there is no link between the WTO case and Europe's efforts to wrap up lengthy talks early next year with Mercosur, which brings together Brazil, Argentina, Uruguay, Paraguay and Venezuela.

A free-trade pact between Europe and Mercosur would encompass 750 million people and $130 billion in annual trade.

If all goes to plan, that would see Brazil signing its first major free-trade agreement next year and gaining duty-free access to the EU's market of 500 million consumers.

Without a deal, Brazil will lose its favorable access to the European Union next year because it is no longer considered a poor developing nation but an upper-middle income one.

Brazil, which exports goods from chemicals to coffee, is already the fifth largest foreign investor in Europe and wants greater access to EU markets for its agricultural exports, especially beef.

(Additional reporting by Alonso Soto in Brasilia; Editing by Mark Trevelyan)

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