Dispute Settlement
Panel Cases to which Canada is a Party
Canada/Brazil WTO Panels - Aircraft
Dispute Settlement - Canada/Brazil Regional Aircraft Dispute
Article 21.5 - Compliance Panels, January 2000
Up-date on the Canada/Brazil Regional Aircraft Dispute
Issue:
On December 9, acting on requests by Canada and Brazil, the WTO Dispute Settlement Body (DSB) established panels to determine whether Brazil's and Canada's respective implementation measures have brought the programs in question (Brazil - PROEX, Canada - Technology Partnerships Canada, EDC's Canada Account) into compliance with each country's WTO obligations.
Canada has filed a submission with the WTO stating its position regarding Brazil's non-compliance with the August 2 ruling in the PROEX export subsidy case. A WTO panel is examining Brazil's implementation of the rulings, which required that equalization payments under the Brazilian program be withdrawn. Instead of withdrawing the payments, Brazil has only lowered the rate of the subsidy on some contracts, while leaving it intact on others.
Background:
The Canada - Brazil dispute over export subsidies for regional aircraft is a longstanding issue. After years of failed attempts at bilateral negotiations aimed at the removal of the PROEX subsidies, Canada initiated a WTO panel against the PROEX export subsidy in the summer of 1998. Brazil responded with a panel against a number of Canadian programs, both federal and provincial. The WTO found against both countries and gave them until November 18, 1999 to remove the offending subsidies.
Canada has fully implemented the WTO rulings on Technology Partnerships Canada (TPC) and the Export Development Corporation's Canada Account (See News Release, November 18, 1999). Changes have been made to both TPC and EDC's Canada Account to bring them into compliance with Canada's obligations under the WTO.
Information received to date leads Canada to conclude that Brazil has not implemented the Panel ruling and has not brought the PROEX export subsidy program into compliance with its WTO obligations. Non-compliance by Brazil is a serious concern for Canada and Canada had no choice but to seek a WTO compliance panel. Brazil has also requested a panel to examine Canada's compliance with the rulings on TPC and Canada Account.
Australia, the European Union and the United States have reserved their rights to participate as third parties in both panels. The EU and the United States have longstanding interests in the issues under consideration and were third parties to the original panels. Australia has interests in the treatment of subsidies within the WTO.
Canada and Brazil have agreed on the sequencing of WTO dispute settlement procedures, to help with the orderly and efficient management of this dispute. Both disputes are proceeding in parallel.
Canada has agreed not to request authorization to suspend concessions until after the circulation of the report. Brazil has indicated that it may appeal a ruling on non-compliance to the WTO's Appellate Body. (Such an appeal would likely add 60-90 days to the process.) In the event that Brazil is found not to have complied with the panel rulings, Canada would have 15 days following the circulation of the panel report to request authorization to suspend concessions. Decisions on this matter would not be made without full consultation.
Should a Canadian request for authorization to suspend concessions be granted, Brazil may request arbitration of the Canadian quantum of damages. Both countries have agreed that this arbitration process should take no more than 30 days.
Click here to access the New Policy Guideline for Canada's Account
TIMETABLES FOR PANELS
(Revised on February 22, 2000)
CANADA - MEASURES AFFECTING THE EXPORT OF CIVILIAN AIRCRAFT -
RECOURSE TO ARTICLE 21.5 OF THE DSU BY BRAZIL
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(1) Panel established
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9 December 1999
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(2) Organizational meeting
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10 December 1999
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(3) Receipt of written submissions of the parties:
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(a) Brazil
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23 December 1999
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(b) Canada
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10 January 2000
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(c) third parties
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17 January 2000
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(4) Rebuttals by both parties
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17 January 2000
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(5) Meeting with the parties/ third party session
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6/7 February 2000
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(6) Interim report
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Week of 20 March 2000 (final date to be confirmed by WTO)
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(7) Final report to parties and to translation
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Expected two weeks after release of interim report
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(8) Circulation of the report to the Members
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As soon as the final report is translated into French and Spanish. (Assume 3 weeks after release of final report)
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BRAZIL - EXPORT FINANCING PROGRAMME FOR AIRCRAFT -
RECOURSE TO ARTICLE 21.5 OF THE DSU BY CANADA
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(1) Panel established
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9 December 1999
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(2) Organizational meeting
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10 December 1999
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(3) Receipt of written submissions of the parties:
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(a) Canada
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23 December 1999
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(b) Brazil
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10 January 2000
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(c) third parties
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17 January 2000
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(4) Rebuttals by both parties
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17 January 2000
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(5) Meeting with the parties/ third party session
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3/4 February 2000
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(6) Interim report
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Week of 20 March 2000 (final date to be confirmed by WTO)
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(7) Final report to parties and to translation
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Expected two weeks after release of interim report
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(8) Circulation of the report to the Members
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As soon as the final report is translated into French and Spanish.
(Assume 3 weeks after release of final report)
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Summary of Canada's DSU Article 21.5 Submission in the Case Against Brazilian Compliance to the Dispute Settlement Body Findings on PROEX Programme.
(Submitted to the WTO 21.5 Panel on December 23, 1999)
In this proceeding under Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Canada contends that the measures taken by Brazil in respect of the Programa de Financiamento às Exportações (PROEX) and export subsidies on sales of Brazilian regional aircraft, neither withdraw the export subsidies nor otherwise comply with the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the findings and the recommendations of the Panel, as modified by the Appellate Body, in Brazil - Export Financing Programme for Aircraft (PROEX).
The Panel found that interest equalisation payments made under PROEX for the benefit of purchasers of exported Brazilian regional aircraft were subsidies contingent upon export performance. The Panel further found that these subsidies were not covered by any exceptions or affirmative defences under the SCM Agreement and were therefore prohibited in accordance with Article 3 of that Agreement. The Panel recommended that Brazil withdraw these prohibited export subsidies within ninety days of the adoption of its report by the DSB, that is, by 18 November 1999. Brazil has not done so.
Brazil has failed to meet its obligation to modify the PROEX export subsidy programme in two senses, each of which constitutes a failure to withdraw its export subsidies under Article 4.7 and thereby to bring its measures into conformity with the SCM Agreement.
First, in respect of regional aircraft that have been or will be delivered after 18 November 1999 Brazil has not ceased granting export subsidies pursuant to conditional commitments made before that date. Contrary to Article 4.7 and Article 3.2, Brazil is thus continuing to grant export subsidies by issuing NTN-I bonds to buy down purchasers' financing costs under conditions that the DSB found to constitute illegal export subsidies.
Second, Brazil has not modified the PROEX export subsidy programme for new financing commitments by the Government of Brazil respecting future sales or leases of regional aircraft in a way that withdraws the illegal export subsidies or otherwise brings the programme into conformity with the SCM Agreement. Brazil has announced certain measures that it claims would bring the PROEX export subsidy programme into compliance with the recommendations and rulings of the DSB and with its obligations under the SCM Agreement. Those measures call for PROEX interest rate buy-down subsidies to aim to achieve an effective interest rate for a transaction equivalent to US 10-year Treasury Bonds plus 20 basis points. Canada submits that such payments would continue to be subsidies contingent upon export performance that do not benefit from any exceptions or affirmative defences under the SCM Agreement.
Accordingly, Canada requests that the Panel find that:
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in respect of PROEX export subsidies committed on exports of regional aircraft but not yet granted as of 18 November 1999: Brazil continues to pay subsidies found to have been illegal and is therefore not in compliance with the recommendations and rulings of the DSB and Articles 4.7 and 3.2 of the SCM Agreement; and
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in respect of post-November 18 conditional commitments to pay PROEX subsidies on the export of Brazilian regional aircraft: Brazil has failed to implement measures that would bring the PROEX export subsidy programme into compliance with the recommendations and rulings of the DSB and Articles 4.7 and 3.2 of the SCM Agreement.
Summary of Canada's DSU Article 21.5 Submission in Defense of Canadian Measure to Comply with the DSU Recommendations on Canadian Programmes.
(Submitted January 10, 2000)
In Canada - Measures Affecting the Export of Civilian Aircraft (Canada - Aircraft), the Panel and the Appellate Body found that contributions under Technology Partnerships Canada (TPC) to the Canadian regional aircraft industry were de facto contingent on export performance and thus such contributions were prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of the Agreement on Subsidies and Countervailing Duties (SCM Agreement). The Panel also concluded that Canada Account debt financing as applied to certain regional aircraft exports constituted subsidies, which were de jure contingent on exports, and thus inconsistent with Articles 3.1(a) and 3.2. Canada did not appeal this finding. On 20 August 1999, the Dispute Settlement Body (DSB) adopted the Reports of the Panel and the Appellate Body. It recommended that Canada bring assistance to the regional aircraft industry under TPC and Canada Account into conformity with its obligations under the SCM Agreement within 90 days, that is by 18 November 1999.
In response, Canada has put in place new measures to ensure full and faithful implementation of the DSB rulings and recommendations and compliance with the SCM Agreement. In summary:
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with regard to TPC, Canada terminated all obligations for the disbursement of funds to the Canadian regional aircraft sector, and undertook a complete restructuring of the TPC programme to ensure that actual or anticipated exports will play no role whatsoever in eligibility or decision-making regarding future TPC assistance; and
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with respect to the Canada Account programme, transactions financed under this programme were all completed as of 18 November 1999. Further, to prevent prohibited export subsidies under this programme in the future, Canada adopted a policy requiring that any future Canada Account transactions comply with the OECD Arrangement on Guidelines for Officially Supported Export Credits, thus bringing them within the exception of the second paragraph of Item (k) of the Illustrative List of Export Subsidies (Annex I to the SCM Agreement).
As described in detail below, these measures fully satisfy the requirement to withdraw the TPC and Canada Account assistance to the Canadian regional aircraft industry that was found to constitute prohibited export subsidies. In addition, these measures ensure - through programmatic changes - that any future assistance under either of these programmes with respect to regional aircraft will be consistent with the SCM Agreement. Canada has, therefore, fully implemented the DSB recommendations.
Brazil nonetheless challenges Canada's implementation measures pursuant to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It argues that Canada's measures are insufficient to constitute effective implementation of the recommendations and rulings of the DSB.
Brazil's contentions have no merit.
With regard to TPC, Brazil ignores the termination of ongoing assistance and the restructuring of TPC. It asks the Panel to find export contingency, not based on the three part test established by the Appellate Body, but rather on a combination of past statements made about the programme before restructuring and an argument that TPC objectives of economic growth and jobs should be regarded as legal surrogates for export contingency. Brazil's contentions amount to a request that the Panel find that TPC must cease all contributions under any conditions to the regional aircraft industry because of the export orientation of the sector. That request has no foundation in the SCM Agreement or the recommendations and rulings of the DSB.
With regard to the Canada Account programme, Brazil's contentions are equally unfounded. Transactions financed under this programme were al l completed as of 18 November 1999. In addition, Canada has adopted measures to ensure that financing under the Canada Account for transactions after 18 November 1999 will have to conform with the exception in Item (k) of the Illustrative List of Export Subsidies.
Canada therefore respectfully requests that the Panel reject Brazil's allegations and arguments, and find that Canada's measures implement fully and faithfully the rulings and recommendations of the DSB.
Updated: March 2, 2000
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