US considers WTO action on Brazil soda ash tax

The US is considering a possible challenge in the World Trade Organization to a local Brazilian soda ash tax, US Trade Representative (USTR) nominee Susan Schwab told the Senate Finance Committee in t…

The US is considering a possible challenge in the World Trade Organization to a local Brazilian soda ash tax, US Trade Representative (USTR) nominee Susan Schwab told the Senate Finance Committee in the week ending 21 May 2006. USTR is in the process of determining “whether there is, in fact, a good case to go forward with”, she told Senator Craig Thomas (Republican, Wyoming) in her 16 May 2006 nomination hearing. The Brazilian state of Rio de Janeiro imposes a 19% merchandise and service circulation (ICMS) tax on soda ash imports; this compares to a 2% ICMS tax imposed on a Brazilian firm in Rio de Janeiro, the only producer of soda ash in Brazil. Soda ash producers and their congressional allies have objected to the tax since it was first imposed in 2001, and they argue it is a violation of the national treatment obligations in Article 3 of the General Agreements on Tariffs and Trade in a submission for the 2006 National Trade Estimate Report. GATT Article 3.1 stipulates that internal taxes should not be applied to imported or domestic products so as to afford protection to domestic producers. Thomas has been pushing US trade officials to hold bilateral consultations outside the WTO with Brazil in order to solve the problem without WTO litigation, a Senate aide said. “We haven“t asked them to take formal action”, the aide said. He said Wyoming makes up about 85% of US output. At a minimum, the soda ash industry wants Brazil to provide USTR with a schedule for eliminating the tax, according to an industry source. Should it fail to do so, the source said USTR should ask for formal consultations within the WTO, which is the first step required to launch dispute settlement proceedings. The Brazilian taxes have cost the US soda ash industry an estimated USD 10 to USD 15 million annually in lost trade, an industry source said. In a separate move, chemicals producer FMC Corp. raised prices of soda ash by USD 15 per short ton for all grades of the product on 18 May 2006.