UPDATE 2-WTO rules against Brazil on industrial stimulus

(Recasts with preliminary ruling, adds analyst comment)

By Alonso Soto

Nov 11 The World Trade Organization
has ruled that some Brazilian industrial stimulus programs hurt
foreign competitors, a government official said on Friday, 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.

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 U.S. 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.

(Reporting by Alonso Soto; Editing by Meredith Mazzilli and
Matthew Lewis)

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