NEWS RELEASES
CANADA WILL NOT APPEAL WTO REPORT IN AIRCRAFT DISPUTE
February 19, 2002 (11:40 EST) No. 17
CANADA WILL NOT APPEAL WTO REPORT IN AIRCRAFT DISPUTE
International Trade Minister Pierre Pettigrew and Industry Minister Allan Rock today announced that Canada will not
appeal the January 28, 2002 World Trade Organization (WTO) panel report on Canada's export financing programs.
"We are committed to a trade system based on clear rules--a priority we hope will be shared by Brazil," said Minister
Pettigrew. "We disagree with certain elements of the decision, but since there are sufficient positive elements for Canada,
we have decided that, on balance, it's better to let the decision stand. We want to turn the page on this trade dispute and find
a mutually acceptable solution with Brazil."
Canada has won numerous WTO rulings against Brazil since the beginning of the dispute. In December 2000, the WTO
granted Canada the authority to apply up to $2.1 billion in countermeasures against Brazil (the award was the largest in
WTO history) for Brazil's failure to withdraw its illegal PROEX subsidies on 1,118 Embraer aircraft delivered after
November 18, 1999, the compliance deadline established by the WTO. The current case involves 118 Canadian aircraft,
many of which have already been delivered.
"Canadian aerospace capabilities and products are among the finest in the world," said Mr. Rock. "We are confident that
Bombardier and Embraer can compete successfully in the market for regional jets on the basis of their products."
Canadian and Brazilian officials resumed negotiations in New York City on February 8 to end this dispute. They have
agreed to meet again in early April.
In its report, the WTO panel found that Canada Account financing of the Air Wisconsin and Air Nostrum transactions, as
well as Corporate Account financing of three Comair transactions, were inconsistent with WTO rules. In the same report,
the WTO panel rejected Brazil's claims against the Government of Canada's Canada Account and Corporate Account
programs, and the Government of Québec's Investissement Québec, as well as on 8 out of 11 Corporate Account
transactions and all of the Investissement Québec transactions. Canadian Ambassador Sergio Marchi today advised the
WTO Dispute Settlement Body of Canada's position.
On January 10, 2001, Canada announced that it was acting to preserve jobs in Canada by matching the financing terms
Brazil was using to support the sale of its Embraer aircraft to Air Wisconsin. Through Export Development Corporation
(now Export Development Canada), the Government of Canada offered financing to Air Wisconsin Airlines Corporation on
terms comparable to those that Brazil was offering. These terms placed Bombardier Aerospace on an equal footing with
Embraer in competition for firm sales of 75 aircraft to Air Wisconsin. The Canadian government remains firm in its
commitment to Bombardier's clients and aerospace employees across the country.
For more information, please visit the following Web site:
http://www.dfait-maeci.gc.ca/tna-nac/Aircraft-e.asp
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A backgrounder and an address by the Honourable Sergio Marchi, Ambassador to the WTO, to the dispute settlement body
meeting on Intervention by Canada: Canada Export Credits and Loan Guarantees for Regional Aircraft.
For further information, media representatives may contact:
Sébastien Théberge
Office of the Minister for International Trade
(613) 992-7332
Media Relations Office
Department of Foreign Affairs and International Trade
(613) 995-1874
Selena Beattie
Office of the Minister of Industry
(613) 995-9001
Larry Shaw
Department of Industry
(613) 954-3508
This document is also available on the Department of Foreign Affairs and International Trade's Internet site:
http://www.dfait-maeci.gc.ca
Backgrounder
SUMMARY OF WTO RULING
ON CANADA'S EXPORT FINANCING
Brazil's Complaints Rejected
• EDC -- Canada Account
• EDC -- Corporate Account
• Investissement Québec
• Specific Investissement Québec financing of Atlantic Coast Airlines (ACA), Air Littoral, Midway, Mesa Air Group, Air
Nostrum and Air Wisconsin transactions
• Specific Corporate Account financing of Atlantic Southeast Airlines (ASA), ACA, Kendell Airlines, Air Nostrum and
Comair transactions
Brazil's Complaints Upheld
• Specific Canada Account financing of Air Nostrum and Air Wisconsin transaction
• Specific Corporate Account financing of three Comair transactions
CHECK AGAINST DELIVERY
NOTES FOR AN ADDRESS BY
THE HONOURABLE SERGIO MARCHI
AMBASSADOR TO THE WTO
TO
THE DISPUTE SETTLEMENT BODY MEETING
ON
INTERVENTION BY CANADA: CANADA EXPORT CREDITS
AND LOAN GUARANTEES FOR REGIONAL AIRCRAFT
Geneva, Switzerland
February 19, 2002
Mr. Chairman, this was a complicated case, made more complicated by the rather fluid nature of Brazil's complaints.
However, in the end most of these complaints were rejected by the Panel.
Let me summarize very briefly for Members what this Panel actually decided.
Brazil argued that the Corporate Account program of Canada's EDC [Export Development Corporation], "as such,"
involved the granting of prohibited exports subsidies, contrary to Article 3.1(a) of the SCM [Subsidies and Countervailing
Measures] Agreement.
The Panel rejected this argument.
Brazil also argued that EDC's Canada Account program, "as such," involved prohibited export subsidies.
The Panel also rejected this argument.
Brazil next argued that EDC's Corporate Account and Canada Account, "as applied," necessarily involved prohibited
export subsidies.
This was similarly dismissed by the Panel.
Brazil complained that the Investissement Québec program, both "as such" and "as applied," necessarily conferred
prohibited export subsidies.
These arguments were all rejected.
The Panel did find that in the case of certain specific transactions, EDC's financing was inconsistent with Article 3.1(a).
The largest of these transactions involved Canada Account financing to Air Wisconsin. However, the Panel rejected
Brazil's apparent challenges to many other transactions involving EDC's Corporate Account financing and Investissement
Québec equity and loan guarantees.
Thus, Mr. Chairman, however Brazil may wish to characterize the Panel's report, the fact remains that all of Canada's
programs and most of the transactions under those programs were vindicated.
It is important that the Air Wisconsin transaction is understood in its proper context.
Canada argued before the Panel that this transaction was consistent with the SCM Agreement because Canada was merely
matching Brazilian subsidies to the Brazilian company Embraer. As Canada explained when it announced its intention to
match, it did so to protect Canadian jobs in the face of ongoing Brazilian subsidies to Embraer and to ensure that Canada's
aircraft industry would be competing with Brazil's on a level playing field. At the Panel, Brazil denied that it was in any
way involved in Embraer's bid to win the Air Wisconsin contract. The Panel, however, looked at the evidence and
disagreed. It found that Embraer's offer to Air Wisconsin--the offer that prompted Canada's response--was not on market
terms and was made with the expectation of support from the Brazilian government.
Canada has long taken the position that in such circumstances, a matching offer of support is consistent with the interest
rates provisions of the OECD's [Organisation for Economic Cooperation and Development] Arrangement on Guidelines for
Officially Supported Export Credits and thus qualifies for the "safe haven" provided under the second paragraph of item (k)
in Annex I to the SCM Agreement. It is unfortunate that the Panel did not accept this position, which is shared by many
WTO Members.
We also remain hopeful that Canada and Brazil can reach a mutually satisfactory settlement to this dispute. Senior Canadian
and Brazilian negotiators met in New York on February 8, 2002 to discuss potential solutions. Both parties expressed
renewed interest in resolving this dispute and have agreed to resume negotiations in April.
In order to advance this process, Canada has chosen not to appeal this Panel report. This does not imply that Canada agrees
with all of the Panel's findings. Canada still believes that matching, in accordance with the OECD Arrangement, is an
important discipline on the use of illegal subsidies and qualifies for the safe haven in item (k), Annex I to the SCM
Agreement.
Canada also considers that the Panel erred in finding three of EDC's Corporate Account financing arrangements with
Comair to be subsidies. In Canada's view, these deals were on market terms. In reaching its findings, the Panel substituted,
ex post facto, its own judgements as to prevailing market conditions for judgements made by experienced bankers at the
time of the transactions on the basis of the information then available. Canada disagrees with the Panel's use of some
market benchmarks and its readjustment of others to arrive at its conclusions. Even after these adjustments, the Panel
deemed the interest rates offered by EDC to be below what it considered to be prevailing market rates by only the smallest
of margins--as little as four basis points or four one-hundredths of one percentage point. By contrast, the interest rate buy-down offered by Brazil under its PROEX program ranged from 250 to 380 basis points. The Panel's approach in the three
Comair transactions involved, in essence, a de novo review of the judgements made by EDC's bankers. It denies the experts
in the field any reasonable discretion when making commercial decisions.
There are also ample grounds for questioning whether the Comair transactions--and other transactions--were properly
before the Panel at all, given the vagueness of the claims in Brazil's request for the establishment of a panel.
However, Mr. Chairman, despite our reservations about certain aspects of the Panel's report, we believe it is preferable now
to seek a solution through negotiation rather than through continued WTO litigation. We therefore are prepared to allow the
report to be adopted today.
We look forward to continued and constructive discussions with Brazil with a view to resolving this long dispute.
Thank you, Mr. Chairman.
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