Brazil willing to negotiate changes to auto tax

Paulo Winterstein – WSJ, 10/13/2011

Brazil has agreed to negotiate changes in a higher tax on car imports to accommodate auto makers that have disclosed billions of dollars in new investments in the world’s fourth-largest vehicle market, but critics of the higher tax say the damage to competition, and the consumer, has already been done.

Last month, Brazil raised what is known as the IPI tax on cars by 30 percentage points, but exempted locally produced cars in a move seen as a way to protect long-established auto companies buffeted by a wave of imports that have flooded the market. Car makers that are building factories in Brazil protested the higher tax, however, because they say they won’t be able to immediately meet local-content requirements and so would still have to pay the tax.

Brazil’s Trade Ministry now says it is willing to negotiate with companies that are moving production onshore, gradually stepping up local-content requirements to the stipulated 65% in order to give the new companies time to find adequate local suppliers. These changes will be negotiated with each company individually, as the government won’t change the executive decree that raised the IPI, the ministry’s news office said Tuesday.

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