BRASILIA, Dec 17 (Reuters) - The World Trade Organization on Wednesday decided to set up a panel to rule on European Union complaints that Brazil unfairly raised import duties, escalating differences as the two sides try to reach a long-delayed trade pact.
The WTO's dispute settlement body agreed to establish a panel of experts to rule on the case after the European Union decided raise its complaint to formal litigation. Past decisions have sometimes taken several years.
The European Union accuses Brazil of adopting protectionist measures to bar imports in favor of local producers of cars, information technology and other goods.
The Brazilian government has said its industrial policies comply with WTO regulation and that the complaints aim to curtail its ability to promote technological development.
"This was expected. Brazil is convinced that it needs to defend the rights of all emerging countries to implement their own industrial policies," said a senior Brazilian official, who asked not to be named because he is not allowed to speak publicly.
The dispute comes at a time when Brazil and its Mercosur partners are trying to advance trade negotiations with the European Union that have dragged on for two decades.
Brazilian officials said the dispute should not affect trade negotiations that were put on hold due to presidential elections in Brazil and Uruguay in October. The other members of Mercosur include Argentina, Paraguay and Venezuela.
Although both blocs are interested in freeing up commerce that encompasses $130 billion in annual trade they have stark differences in trade policies.
According to International Monetary Fund data, Brazil is the most closed major economy in the Americas, with trade accounting for only about a quarter of gross domestic product.
Brazil has offered steep tax breaks to automakers that set up shop in the country, angering trading partners such as Europe and China that have to pay higher duties to sell their cars in one of the world's biggest markets.
Incoming trade minister Armando Monteiro has said Brazil will seek to exchange offers with the European Union early next year. Both blocs had planned to exchange offers in January. (Additional reporting by Tom Miles in Geneva; Editing by Chizu Nomiyama)