Appeal Panel Slams Canada's TPC, Questions EDC And Rules ProEx Is Not Illegal.
GENEVA, ---The World Trade Organization (WTO) in Geneva today published the results of appeals in two disputes 'Brazil - Export Financing Program for Aircraft' and 'Canada - Measures Affecting the Export of Civilian Aircraft'.
In 'Canada - Measures Affecting the Export of Civilian Aircraft' the Appellate Body (AB) affirmed the findings of the dispute settlement panel that Canada's Technology Partnerships (TPC) program is an illegal export subsidy and must be withdrawn within 90 days. Brazil proved that under this program Canada has given over $250 million to the Canadian regional aircraft industry and its leading producer Bombardier.
Most of these funds are earmarked for the development of Bombardier's new 70 seat aircraft whereas the development of Embraer's 70-108 seat jets, the ERJ-170, ERJ-190-100 and ERJ-190-200 are being developed with financing under normal commercial conditions as well as their own and partners funds. Significantly, the AB noted that TPC support is considered an illegal subsidy for both pre-production subsidies and research and development activities.
The AB was highly critical of Canada's failure to supply information concerning its Export Development Corporation (EDC) which the panel had requested. Brazil asked the AB to draw inferences adverse to Canada because of its refusal to respond to panel questions. However, because this issue dealt with factual matters, the AB concluded that they did not have the authority to reverse the panel as a matter of law.
In a highly unusual step however, the AB effectively encouraged Brazil to re-file its complaint on EDC financing and for the panel to reconsider the refusal by Canada to submit information. The AB described Canada's justification for its refusal to supply the requested information as "quite simply, bereft of any textual or logical basis."
We are confident that the Brazilian government will give serious consideration to accepting the AB's invitation and starting new proceedings against EDC, a proceeding that would encompass all of Bombardier's sales to date. As the Canada Account has already been condemned by the WTO, the competition with Bombardier is now beginning to move towards a far more level playing field.
In a major reversal of the panel decision in the case of 'Brazil - Export Financing Program for Aircraft' the AB determined that interest equalization subsidies like those granted to aircraft exports under ProEx are not automatically illegal under WTO rules. The AB clarified that the marketplace is the proper benchmark for determining program like ProEx's legality.
Maurício Botelho, Embraer's President and CEO stated, "We welcome the AB rulings. All along we have said that we have no problem competing with Bombardier on the merits of our aircraft but we cannot compete with the Canadian Government and their prohibited subsidies' program. We are pleased that the WTO agrees. Any changes that will have to be made in ProEx will be minor and will have no adverse affect on our competitiveness in the marketplace."
Mr Botelho continued, "We are delighted that the AB has agreed with so many of the points put forward by Brazil during the appeals process. We now look forward to getting back to doing what we do best, manufacturing the world's best regional aircraft which are intrinsically competitive. I have every reason to believe that now as always, Embraer and the Brazilian government will fulfill their obligations and existing commitments."
Background To WTO Dispute
On March 10th 1997, Brazil requested WTO consultation with Canada regarding product development grants from the Canadian government to Bombardier under Technology Partnership Canada and below market financing by Canada's Export Development Corporation.
Brazil was concerned that Canada's wide range of federal and provincial subsidies to the regional aircraft sector was reducing the cost of Bombardier aircraft by more than US$ 2 million per aircraft.
Because virtually all Bombardier aircraft were sold for export, Brazil considered these subsidies were de-facto export subsidies inconsistent with WTO rules.
The Brazilian authorities engaged in extensive consultations with Canada over the next 15 months but these failed to achieve an acceptable result.
On July 10th 1998, Brazil requested that the WTO establish a panel to examine the legality of Canadian payments to Bombardier and the regional aircraft industry under TPC, financing under the Canada account and the Export Development Corporation (EDC), as well as a number of other federal and provincial subsidies targeted at the regional aircraft industry.
