Dispute Settlement
WTO Panel Cases to which Canada is a Party
Canada/Brazil Aircraft Subsidies Dispute
STATEMENT BY CANADA TO THE WTO DISPUTE SETTLEMENT BODY 22 MAY 2000
BRAZIL - EXPORT FINANCING PROGRAMME FOR AIRCRAFT:
RECOURSE BY CANADA TO ARTICLE 4.10 OF THE SCM AGREEMENT AND ARTICLE 22.2 OF THE DSU
MR. CHAIRMAN, IN THE MATTER OF BRAZIL - EXPORT FINANCING PROGRAMME FOR AIRCRAFT, CANADA IS TODAY REQUESTING AUTHORIZATION FROM THE DSB TO TAKE APPROPRIATE COUNTERMEASURES PURSUANT TO ARTICLE 4.10 OF THE SCM AGREEMENT AND ARTICLE 22.2 OF THE DSU IN THE AMOUNT OF $700 MILLION CANADIAN DOLLARS PER YEAR.
IT IS WITH REGRET THAT WE MAKE THIS REQUEST. HOWEVER, WE HAVE BEEN FORCED INTO THIS STEP BY THE PERSISTENT DISREGARD BY BRAZIL OF ITS BINDING OBLIGATIONS UNDER THE WTO AGREEMENT.
CANADA VALUES STRONGLY ITS RELATIONS WITH BRAZIL. WE HAVE ANEXTENSIVE AND SIGNIFICANT ARRAY OF BILATERAL POLITICAL, TRADE AND INVESTMENT LINKS. HOWEVER, WE FULLY EXPECT BRAZIL TO LIVE UP TO ALL OF ITS INTERNATIONAL COMMITMENTS.
IT IS WORTH RECALLING, VERY BRIEFLY, THE HISTORY OF THIS DISPUTE, SINCE IT PUTS OUR REQUEST IN CONTEXT.
CANADA FIRST REQUESTED CONSULTATIONS WITH BRAZIL BACK IN 1996. WE ALSO REQUESTED A PANEL IN 1996, AND THEN WITHDREW OUR PANEL REQUEST IN FAVOUR OF EFFORTS TO SEEK A NEGOTIATED SETTLEMENT. CANADA HAS ALWAYS BEEN PREPARED TO WORK TOWARDS A MUTUALLY SATISFACTORY SOLUTION.
UNFORTUNATELY, THESE NEGOTIATIONS FAILED TO RESOLVE THE DISPUTE, AND SO WE WERE COMPELLED TO SUBMIT ANOTHER PANEL REQUEST IN JULY 1998.
SUBSEQUENTLY, IN APRIL 1999, THE PANEL FOUND THAT BRAZIL VIOLATED ITSOBLIGATIONS UNDER ARTICLE 3 OF THE SCM AGREEMENT BY PROVIDING PROHIBITED EXPORT SUBSIDIES.
IN AUGUST, 1999, THE APPELLATE BODY UPHELD THIS FINDING.
THE RESULTING DSB RULINGS INCLUDED THE RECOMMENDATION THAT BRAZIL WITHDRAW ITS ILLEGAL EXPORT SUBSIDIES WITHIN 90 DAYS. BRAZIL HAD UNTIL NOVEMBER 18, 1999 TO COMPLY WITH THIS RULING. IT FAILED TO DO SO.
CANADA THEN ENTERED INTO AN AGREEMENT WITH BRAZIL TO ESTABLISH THE CORRECT "SEQUENCING": WE AGREED THAT WE WOULD NOT PROCEED IMMEDIATELY TO SEEK COUNTERMEASURES, BUT WOULD FIRST ASK AN ARTICLE 21.5 PANEL TO DETERMINE WHETHER BRAZIL HAD COMPLIED WITH THE DSB RULINGS.
THE ARTICLE 21.5 COMPLIANCE PANEL CIRCULATED ITS DECISION ON MAY 9, 2000.
AS EXPECTED, THE PANEL FOUND THAT BRAZIL'S MEASURES TO COMPLY WITH THE DSB RECOMMENDATIONS AND RULINGS EITHER DO NOT EXIST, OR ARE NOT CONSISTENT WITH THE SCM AGREEMENT, AND THAT BRAZIL HAD FAILED TO WITHDRAW THE EXPORT SUBSIDIES FOR REGIONAL AIRCRAFT UNDER PROEX.
THE ARTICLE 21.5 PANEL REPORT THUS FULLY ENDORSED THE POSITION THAT CANADA HAS MAINTAINED SINCE THE VERY BEGINNING OF THIS DISPUTE: BRAZIL'S PROEX EXPORT SUBSIDIES PROGRAM IS ILLEGAL, AND CANNOT CONTINUE TO BE OFFERED FOR UNDELIVERED AIRCRAFT, OR FOR NEW CONTRACTS.
THUS BRAZIL HAS LOST IN THREE SEPARATE PROCEEDINGS: BEFORE THE ORIGINAL PANEL, BEFORE THE APPELLATE BODY, AND BEFORE THE COMPLIANCE PANEL.
THERE IS A WELL-ESTABLISHED RULE IN BASEBALL: THREE STRIKES AND YOU'RE OUT. UNFORTUNATELY, BRAZIL DOES NOT SEEM OR WANT TO UNDERSTANDTHIS RULE. IT NOW WANTS A FOURTH CHANCE AT THE BAT BY SEEKING TO APPEAL THE DECISION OF THE COMPLIANCE PANEL TO THE APPELLATE BODY.
EVEN ASSUMING THAT AN ARTICLE 21.5 PANEL DECISION CAN BE APPEALED -- WHICH IS BY NO MEANS CLEAR -- THE ONLY PURPOSE OF SUCH AN APPEAL WOULD BE FOR BRAZIL TO SEEK TO DELAY, ONCE AGAIN, ITS OBLIGATIONS TO COMPLY.
SUCH DELAYS IN IMPLEMENTATION ONLY SERVE TO COMPOUND THE DAMAGE ALREADY SUFFERED BY CANADA'S REGIONAL AIRCRAFT INDUSTRY.
EVERY MONTH, THIRTEEN NEW BRAZILIAN REGIONAL AIRCRAFT ARE DELIVERED, WITH THIS NUMBER SLATED TO INCREASE BY 2001. AND EVERY MONTH, BRAZIL GRANTS MORE THAN FORTY-SEVEN MILLION DOLLARS (CANADIAN) WORTH OF ILLEGAL SUBSIDIES.
BRAZIL'S APPEAL OF THE COMPLIANCE PANEL REPORT IS SIMPLY AN ATTEMPTTO CONTINUE TO PAY THESE SUBSIDIES -- SUBSIDIES FOUND THREE TIMES BY THE WTO TO BE PROHIBITED -- FOR AN ADDITIONAL TWO MONTHS.
CANADA RESISTS THIS ATTEMPT, NOT ONLY FOR THE COMMERCIAL HARM IT CAUSES, NOT ONLY FOR THE DISTORTIONS IN THE INTERNATIONAL ECONOMY IT IMPLIES, BUT ALSO TO UPHOLD THE INTEGRITY OF THE DISPUTE SETTLEMENT PROCESS AND THE SYSTEM OF LAWS THAT GOVERN THE CONDUCT OF NATIONS. IT IS TIME BRAZIL HEEDED THAT PROCESS AND RESPECTED THAT LAW.
MOREOVER, THE FAILURE OF BRAZIL TO COMPLY WITH ITS OBLIGATIONS HAS TO BE INCLUDED IN THE CALCULUS OF INSTITUTIONAL AND SYSTEMIC IMPLICATIONS, SINCE THE INABILITY OF THE WTO TO OBTAIN COMPLIANCE WITH ITS RULINGS WILL ONLY BRING THE DISPUTE SETTLEMENT SYSTEM INTO DISREPUTE.
MR. CHAIRMAN, IF THE COMPLIANCE PANEL REPORT IS NEVERTHELESS APPEALED, THEN WE WILL OF COURSE AWAIT THE OUTCOME OF THE APPELLATEPROCESS BEFORE RETURNING TO THE DSB TO SEEK AUTHORIZATION TO TAKE COUNTERMEASURES.
THIS IS A POINT OF FUNDAMENTAL IMPORTANCE. WE ARE FULLY RESPECTING THE PRINCIPLE OF "SEQUENCING": WE WILL NOT SEEK COUNTERMEASURES UNTIL THE APPELLATE BODY REPORT HAS BEEN ADOPTED.
MOREOVER, ANY REQUEST FOR COUNTERMEASURES WILL BE FULLY CONSISTENT WITH THE FINDINGS OF BOTH THE ARBITRATORS AND THE APPELLATE BODY.
HOWEVER, THERE IS NO REASON WHY THE ARBITRATION ON THE LEVEL OF COUNTERMEASURES CANNOT PROCEED CONCURRENTLY WITH THE APPEAL. THE ARBITRATION IS A SEPARATE, LARGELY TECHNICAL EXERCISE TO ASSESS THE APPROPRIATE LEVEL OF COUNTERMEASURES. IT WOULD BE A NEEDLESS WASTE OF TIME, AND WOULD CONTINUE TO DAMAGE CANADIAN INTERESTS, IF THIS PROCESS COULD NOT BEGIN UNTIL THE APPEAL WAS OVER.
INDEED, THE DSB ALREADY RECOGNIZED THIS FACT IN THE AUSTRALIAN SALMON DISPUTE. IN JULY 1999, ON THE SAME DAY, AND IN THE SAME DISPUTE, THE DSB ESTABLISHED TWO CONCURRENT PROCEEDINGS: IT ESTABLISHED AN ARTICLE 21.5 COMPLIANCE PANEL TO DETERMINE THE WTO-CONSISTENCY OF AUSTRALIA'S IMPLEMENTING MEASURES, AND IT ALSO REFERRED TO ARBITRATION CANADA'S REQUEST TO RETALIATE. THE SITUATION TODAY IS VERY SIMILAR.
IN THE PRESENT CASE, IF THE ARBITRATION IS COMPLETED BEFORE THE APPELLATE BODY HAS RENDERED ITS DECISION, THEN WE WILL SIMPLY HOLD THE ARBITRAL AWARD IN RESERVE AND AWAIT THE OUTCOME OF THE APPEAL.
THIS IS FULLY CONSISTENT WITH CANADA'S LONGSTANDING, STRONG SUPPORT FOR THE PRINCIPLE OF MULTILATERALISM IN WTO DISPUTE SETTLEMENT.
I MUST ADD THAT DURING RECENT NEGOTIATIONS, CANADA OFFERED TO DELAY INVOKING ITS RIGHTS TO SEEK COUNTERMEASURES UNDER ARTICLE 4.10 OF THESCM AGREEMENT IN EXCHANGE FOR A BRAZILIAN COMMITMENT TO FORGO ISSUING NEW PROEX BONDS ON ANY AIRCRAFT DELIVERED WHILE SETTLEMENT NEGOTIATIONS WERE ONGOING. BRAZIL REJECTED THIS OFFER.
ACCORDINGLY, MR. CHAIRMAN, WE NOW MAINTAIN OUR REQUEST FOR APPROPRIATE COUNTERMEASURES.
THE TEXT OF THE WTO AGREEMENT IS CLEAR: OUR REQUEST MUST BE GRANTED, UNLESS:
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S THE DSB DECIDES BY CONSENSUS TO REJECT THE REQUEST (AND WE WOULD OBVIOUSLY NOT JOIN IN ANY SUCH CONSENSUS); OR
S BRAZIL REQUESTS THAT IT BE REFERRED TO ARBITRATION.
THERE ARE NO OTHER OPTIONS.
MR. CHAIRMAN, WE HAVE ACTED IN ORDER TO SAFEGUARD OUR LEGAL RIGHTS. BOTH THE WTO AGREEMENT AND THE CANADA-BRAZIL BILATERAL AGREEMENT PROVIDE TIMELINES WITHIN WHICH A COMPLAINING PARTY MUST ACT. WE HAVE RESPECTED THOSE TIMELINES, AND HAVE THEREBY PRESERVED OURRIGHTS.
I WOULD STRESS, AGAIN, THAT WE HAVE BEEN FORCED INTO THIS ACTION AS A LAST RESORT.
THERE ARE NO WINNERS IN A SITUATION OF RETALIATION.
THIS IS WHY -- DESPITE THE LONG-STANDING DISPUTE AND THE THREE CLEAR DECISIONS IN OUR FAVOUR -- CANADA WILL CONTINUE TO NEGOTIATE WITH BRAZIL, IN UTMOST GOOD FAITH, IN AN EFFORT TO RESOLVE THIS DISPUTE. IN FACT, BILATERAL NEGOTIATIONS WILL RESUME AGAIN THIS WEEK.
IN CLOSING, WE CALL ON BRAZIL, YET AGAIN, TO RESPECT ITS WTO OBLIGATIONS AND TO COMPLY WITH THE DSB RULINGS.
THANK YOU, MR. CHAIRMAN.
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