May 7, 1998 No. 111

THE GOVERNMENTS OF CANADA AND BRAZIL WELCOME

REPORT OF SPECIAL ENVOYS ON REGIONAL AIRCRAFT

The Government of Canada today announced that the Special Envoys appointed by Prime Minister Jean Chrétien and Brazilian President Fernando Henrique Cardoso have submitted their report on means for resolving the dispute between Canada and Brazil regarding support for exports of regional aircraft.

"President Cardoso and I welcome this report. The Special Envoys have provided us with a good framework and sound basic principles for resolving our differences concerning government support for regional aircraft sales," said the Prime Minister.

The Canadian Special Envoy is the Honourable Marc Lalonde, currently a partner with Stikeman, Elliott in Montreal. The Brazilian Special Envoy is Dr. Luiz Olavo Baptista of the University of São Paulo.

"Our officials will negotiate, over the next two months, a bilateral agreement based on the recommendations of the Envoys," added the Prime Minister. "This bilateral agreement will be consistent with our existing international trade obligations and will ensure that our aerospace companies compete on a level playing field." The dates for the initiation of these negotiations will be established through diplomatic channels.

- 30 -

A backgrounder is attached.

For further information, media representatives may contact:

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

This document is also available on the Department of Foreign Affairs and International Trade Internet site: http://www.dfait-maeci.gc.ca

Backgrounder

REPORT OF SPECIAL ENVOYS ON REGIONAL AIRCRAFT

During the Team Canada visit to Brazil in January of this year, the Prime Minister agreed with Brazilian President Fernando Henrique Cardoso to appoint Special Envoys to recommend ways to resolve the dispute between Canada and Brazil over trade in regional aircraft.

On January 29, Prime Minister Chrétien announced the appointment of the Honourable Marc Lalonde as the Canadian Special Envoy. At the same time, President Cardoso designated Dr. Luiz Olavo Baptista. Mr. Lalonde is a former Cabinet Minister and an Officer of the Order of Canada. Since 1984, he has practised corporate and commercial law as a partner with Stikeman, Elliott in Montreal. Dr. Baptista is a professor of international law at the University of São Paulo and a corporate lawyer.

The two Envoys worked together over the past three months, meeting in Canada and in Brazil with officials of the Canadian and Brazilian Governments and with officers of Bombardier and Embraer, and have now submitted their joint recommendations.

Key Recommendations:

The Envoys recommend that the two governments negotiate, within two months, a bilateral accord that:

is consistent with the World Trade Organization (WTO) Agreement;

subjects export financing programs to a "common template," using the Organization for Economic Co-operation and Development (OECD) Consensus as a model;

contains a dispute settlement mechanism, including annual consultations and recourse to a neutral and independent Monitor who can review support programs and provide an opinion on their consistency with the bilateral agreement;

provides for consultations with respect to domestic programs to determine their WTO consistency.

Benefits of an Accord for Canada

When implemented, the bilateral accord should resolve Canada's longstanding concerns regarding the Brazilian export subsidy PROEX and its effect on the market for regional aircraft. The PROEX program reduces the cost of financing for purchasers of Embraer regional jets by 3.8 percent through what are called "interest equalization" payments.