Japan may challenge a government decision in Brazil to increase taxes on vehicle imports according to the Valor Economico newspaper.

It said that Japan will ask judges at the World Trade Organisation to examine the measure, which raised tax on cars that aren't made with at least 65% local content, by nearly one third.

Although Japanese car makers do make cars in Brazil, exempting them from the tax, the Japan's government is concerned that a similar measure could be repeated by other countries, Valor said.

The issue was raised with Brazil during a meeting of the WTO's market access committee last week, Atsushi Saito, Japan's representative at the Geneva-based organisation told Dow Jones Newswires. In addition to Japan, members from South Korea, Australia, Europe and the US also voiced their concerns.

Asked if Japan planned to file a formal complaint with the WTO, Saito said that there are no such plans at this stage.

Brazil last month raised the so-called IPI tax on cars, excluding those from companies that produce locally or in Mercosul partners. Established carmakers such as Volkswagen, Fiat, General Motors and Ford - which together account for about 75% of car sales - had complained about the influx of cars as Brazil's currency strengthened and demand jumped.

More than 20% of cars sold this year in Brazil are imported, up from just 5% in 2005, according to automakers’ association Anfavea.

The tax hike is also a concern to car companies who are building, or plan to build, factories in the country and who say that they will not be able to meet the full local content requirements during the first few years of operations.

The government has said it would negotiate with those companies to reach a compromise.

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