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Oct 15

Following Japan, Korea disputes IPI increase at WTO

As expected more and more countries are lining up to challenge the unreasonable protective measure by the Brazilian government to increase the Tax on Industrialised Products (IPI). Last month, Brazil raised the so-called IPI by 30 percentage points for imported cars that aren’t made with at least 65% local content. Excluded are those from companies that produce locally or in Mercosul partners. Established carmakers such as Volkswagen, Fiat,General Motors Co. and Ford, which together account for about three-fourths of car sales, had complained about the influx of cars as Brazil’s currency strengthened and demand jumped.

Japan may be the first country to challenge at the World Trade Organization the Brazilian this increase in the IPI tax. In addition to Japan, South Korea also objected to the increase for imported cars decided by the Brazilian government. The two countries that are producers of automobiles, said that Brazil violates the agreement of trade-related investments as well as an article of the World Trade Organization (WTO) on national treatment of companies.

Both Korea and Japan has decided to challenge the measure of the Brazilian government in the Market Access Committee , which periodically examines new barriers raised by the countries. The report itself noted that the Japanese action could pave the way for other governments complain of Brazil, as it did. Japan will ask judges at the WTO to examine the measure. Though most Japanese car makers produce locally, exempting them from the tax, the country’s government is concerned that a similar measure could be repeated by other countries. The issue was raised with Brazil during a meeting of the WTO’s market access committee on Friday, said Atsushi Saito, Japan’s representative at the Geneva-based organization. In addition to Japan, members from South Korea, Australia, Europe and the U.S. also voiced their concerns, Saito said. When asked if Japan planned to file a formal complain with the WTO, Saito replied in an email that “If you understand that ‘formal complaint’ is part of a dispute settlement process, we don’t have any plans at this stage.”

More than 20% of cars sold this year are imported, up from just 5% in 2005, according to automakers association Anfavea. But the tax hike was challenged by car companies who are building or plan to build factories in the country and who say that because they won’t be able to meet the full local content requirements during the first few years of operations, they would cancel plans to bring production onshore.

Government willing to negotiate?

The government has since said it would negotiate with those companies to reach a compromise. This is also confirmed by China’s JAC Motors. JAC Brazil says it has finalized a deal to build a $500 million car factory in Brazil. JAC Brazil says in an emailed release the factory will be built in the northeastern state of Bahia. The plant should be ready by 2014.The automaker said in August it wanted to build a factory in Brazil. But those plans were questioned after Brazil hiked the import taxes on foreign cars, threatening the Chinese-made vehicles JAC ships to Brazil. JAC says in its Friday statement it hopes the decision to invest will convince officials to scrap that tax hike.

BMW considers building a factory in the country, but..

BMW asked Brazil’s Trade and Development Minister Fernando Pimentel to reevaluate the increase in the IPI tax as it considers building a factory in the country, O Estado de S. Paulo reported, citing Henning Dornbusch, chief executive officer of BMW’s Brazil unit. The Brazilian government’s decision to raise the tax on cars with less than 65 percent of their parts produced in Brazil may lead BMW to build its plant in China, India or Russia instead, according to the newspaper. The company will announce its decision by November, O Estado said. The Ministry of Trade and Development’s press office said Pimentel hasn’t made any commitment relating to BMW’s request because the decision must be made in conjunction with Finance Minister Guido Mantega, O Estado said.

 

Sep 24

Protectionism let JAC Motors freezes plant opening in Brazil

One of the automakers hardest hit by the protective measure of the Dilma administration, the increase in the IPI (Excise Tax), China’s JAC Motors accused Brazil of breaching the guidelines of the WTO (World Trade Organization) and confirmed that it has frozen its plans to open a factory in the country.

“The way in which the Brazilian government raised the tax is a serious violation of the basic principles of the WTO,” said JAC Motors, in a written response to Folha.

“The discontinuous, irrational and partial Brazilian policy strongly undermined the confidence of JAC and other automakers to invest in Brazil. Therefore JAC is forced to re-evaluate its decision to invest in Brazil,” the company said.

The Chinese automaker says that the measure did not forecast an adjustment period and cites three alleged violations of Brazil to the general guidelines of the WTO: market access, fair competition and non-discrimination.

In JAC’s judgment, Brazil adopted the measure looking to limit Chinese cars, compromising fair competition. The company says that it functions without subsidies from the Chinese government and has not been accused of dumping (charging artificially low prices).

“The Brazilian government offered special treatment to Mercosul and other countries (Mexico) to the detriment of China, breaking the principle of MFN (Most Favored Nation),” the Chinese automaker says.

MFN, taken by the WTO as one of the most important guidelines for international trade, states that in normal situations, one cannot differentiate between trading partners.

$600 MILLION FACTORY

JAC also mentions that the increase in the IPI differentiates between domestic and imported products, in violation of the principle of “national treatment” whereby imported products must have the same conditions of local competition after already entering the domestic market. The directive allows customs duties which is not the case of the IPI.

Representatives of JAC met on Tuesday with the Commerce Ministry to pressure the Chinese government to act on behalf of the company. But until yesterday there was no official statement on the issue.

At the beginning of August, JAC had announced the construction of a factory in Brazil, which would start production in 2014. The planned investment was $600 million to produce 100 thousand units per year. According to the company, this would generate 3500 jobs directly and another 10,000 indirectly.

JAC is a Chinese company that sold the most cars in Brazil this year – about 14.5 thousand.

Founded in 1964, the China Anhui Jianghuai Automobile Company is headquartered in the city of Hefei (east). Last year, it sold 460 thousand units, earning 50% more than in 2009.

 

Source: Folha.com

Sep 16

Brazil will raise taxes on imported cars to protect domestic production

The government will more than doubled the IPI (Tax on Industrialized Products) for domestic and imported vehicles that do not meet requirements such as investments in technology and a percentage of 65% domestic produced materials.

Because of a common automotive regime between Brazil and Argentina, automakers operating in the neighboring country and sold to the Brazilian market will also be affected. The announcement was made Thursday by the Ministers Guido Mantega (Finance), Fernando Pimentel (Development) and Mercadante (Science and Technology).

According to Mantega, the measure can leave cars 25% to 28% more expensive than today. The government says the measure will impact on car prices by up to two months.

Maserati

This Maserati will be around 30% more expensive after the new implementation of the higher taxes on imports

Currently, the tax rates of the cars produced in Brazil range from 7% to 25% depending on the model and power the car. The new rate will increase by 30 percentage points, from 37% to 55% depending on engine capacity. For cars up to 1,000 cc, the IPI will rise from 7% to 37%. For vehicles from 1000 to 2000 cc, the rate, currently between 11% and 13%, will rise to 41% to 43%. In addition to passenger cars, the measure will include the manufacture of tractors, buses, trucks and light commercial vehicles.

NATIONAL PRODUCTION

To maintain the current rate and avoid the increase, automakers must prove they aare manufacturing cars with a least 65% domestic produced materials and that they have centers of technological development in Brazil. In 60 days, the Ministry of Development, Industry and Foreign Trade will check the qualifications of companies that meet the requirements and will not have tax increase. In addition, companies will have 15 months to maintain or expand their investments in technology.

The measurement will be in effect until December 2012 and is part of the plan to stimulate the industry ‘Brasil Maior’, announced last month by President Rousseff.

COMPETITIVENESS

The objective of the measure is to foster competitiveness in Brazil, and make the vehicles manufactured in the country have more local content. The government hopes thereby to stimulate production in the country one of the ways to generate more employment in the country. “It’s a complementary program of  “Brazil Maior” to compete more solid with the import cars by means of stimuli for the Brazilian industry, one that produces vehicles in Brazil and Argentina,” said Mantega.

“It has happened that the market is depleted, the crisis has reduced consumption. There is excess capacity and a greater competition for markets. Brazil has maintained high sales, re-established after the 2008 crisis of production and consumption. But there is an appropriation that by international manufacturers, “he said.

The minister said the goal is to prevent the export of manufacturing jobs. “We run the risk of being exporting jobs to other countries. We were concerned with the increase of vehicles in stock. Industry is innovation, creates jobs and the market should be enjoyed by the domestic industry,” said Mantega.