World Economy

WTO Rules Against Brazil on Industrial Stimulus

WTO Rules Against Brazil on Industrial StimulusWTO Rules Against Brazil on Industrial Stimulus

The World Trade Organization has ruled that some Brazilian industrial stimulus programs hurt foreign competitors, a government official said, a major blow to a country struggling to shore up its industry amid a crippling recession.

The preliminary ruling, which has not been made public yet, backs the challenge by Japan and the European Union against industrial policies they say have hurt their producers, said the official who was briefed on the matter and asked for anonymity to speak freely, Reuters reported.

Brazil’s Foreign Ministry said the government will analyze the initial WTO panel report before the organization makes a final decision, but did not reveal its content, stating the document was confidential.

The programs implemented in 2011 gave tax breaks and other benefits to companies that manufactured cars and communication technology goods in the country.

A ruling against Brazil will add pressure on the country to scale back industry subsidies at a time when it is struggling with its worst recession in memory.

A widening budget deficit has already forced Brazil to roll back some of those subsidies since 2015, but the government remains under pressure from business groups to keep some stimulus to avoid further job cuts in the industry sector.

“It is expected that this negative ruling will force Brazil to review important aspects of its industrial policies, with emphasis to the local content requirements and tax exemptions to domestically made products,” said Renata Amaral, a trade expert with Brasilia-based consultancy Barral M Jorge.

Earlier on Friday, Brazil moved to launch a WTO case to challenge US tariffs on some Brazilian steel imports.

Brazil is also facing a probe into its sugar exports to China and weighing whether to drop its actions at the WTO against Thailand’s support for its sugar sector.

Meanwhile, Fitch Ratings affirmed its default ratings on Brazil government debt at BB with a negative outlook on Friday, and offered its outlook on the country’s struggling economy.

The update came as investors took profits in Brazil following the upset US presidential election result and an exceptional rise for equities and the Brazilian real this year.

The iShares MSCI Brazil Capped exchange-traded fund was down 8% for the week headed into the close, including a slide of nearly 3% Friday. The fund is up 57% this year, while the iShares MSCI Emerging Markets ETF, down 4% for the week, is up 7% this year.

The Brazilian real (BRL) weakened nearly 6% against the US dollar this week; it is stronger by 15% against the dollar this year.


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