Bombardier Aerospace and Embraer S.A. government subsidy controversy
Encyclopedia
Brazil and Canada engaged in the Bombardier Aerospace and Embraer S.A. government subsidy controversy over government subsidies to domestic plane-makers in the late 1990s and early 2000s. It was truly an international, adjudicated trade dispute.
(WTO):
, from at least 1999-2000.
ruling named a Brazilian scheme paying banks providing loans to Embraer clients, the Proex program, an illegal subsidy. The ruling concluded, "...PROEX interest rate equalization payments on exports of Brazilian regional aircraft are subsidies... (b) PROEX interest rate equalization payments... are not "permitted"... (c) Brazil has failed to comply with ...the SCM Agreement... 8.2. Accordingly, we find that payments on exports of regional aircraft under the PROEX interest rate equalization scheme are export subsidies inconsistent with Article 3 of the SCM Agreement. ...[W]e recommend that Brazil withdraw the subsidies identified above without delay. [W]e conclude that Brazil shall withdraw the subsidies within 90 days."
The WTO states, "our conclusion that the PROEX III programme, as such, is not inconsistent with the SCM Agreement is based on the view that it is legally possible for Brazil to operate the PROEX III programme in such a way that it will: (a) not result in a benefit being conferred on producers of regional aircraft and, hence, not constitute a subsidy... (b) result in a benefit being conferred on producers of regional aircraft, but conform to the requirements of the safe haven of the second paragraph of item (k), in which case it would not constitute a prohibited export subsidy... 6.3 We wish to be clear, however, that it does not necessarily follow from our conclusion that future application of the PROEX III programme will, likewise, be consistent with the SCM Agreement."
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ruling found Canadian "assistance programs" in contravention of WTO anti-subsidy policy. While rejecting some of Brazil's claims, the ruling suggested Canada remove these subsidies and determined that "(b) ...Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement; [and] ...(f) ...that TPC assistance to the Canadian regional aircraft industry constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement".
reported on one of the six illegal Canadian subsidies in late 2001 months prior to the actual ruling. While dismissing some of Brazil's claims that Canadian aircraft financing deals were illegal subsidy events, the 2002 ruling did: "(e) uphold Brazil's claim that the EDC Canada Account financing to Air Wisconsin constitutes a prohibited export subsidy... (f) ...that the EDC Canada Account financing to Air Nostrum constitutes a prohibited export subsidy... (g) ...that the EDC Corporate Account financing to Comair in July 1996, August 1997 and February 1999 constitutes a prohibited export subsidy..."
WTO cases
Four cases were brought to the World Trade OrganizationWorld Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO):
- WTO Dispute DS46: Brazil — Export Financing Programme for Aircraft (Complainant: Canada), 19 June 1996
- WTO Dispute DS70: Canada — Measures Affecting the Export of Civilian Aircraft (Complainant: Brazil), 10 March 1997
- WTO Dispute DS71: Canada — Measures Affecting the Export of Civilian Aircraft (Complainant: Brazil), 10 March 1997
- WTO Dispute DS222: Canada — Export Credits and Loan Guarantees for Regional Aircraft (Complainant: Brazil), 22 January 2001
Rulings against Brazil
Brazil ran an illegal subsidy program, Proex, benefiting its national aviation industry, EmbraerEmbraer
Embraer S.A. is a Brazilian aerospace conglomerate that produces commercial, military, and executive aircraft and provides aeronautical services....
, from at least 1999-2000.
1999 DS46 conclusion
A 1999 WTOWorld Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
ruling named a Brazilian scheme paying banks providing loans to Embraer clients, the Proex program, an illegal subsidy. The ruling concluded, "...PROEX interest rate equalization payments on exports of Brazilian regional aircraft are subsidies... (b) PROEX interest rate equalization payments... are not "permitted"... (c) Brazil has failed to comply with ...the SCM Agreement... 8.2. Accordingly, we find that payments on exports of regional aircraft under the PROEX interest rate equalization scheme are export subsidies inconsistent with Article 3 of the SCM Agreement. ...[W]e recommend that Brazil withdraw the subsidies identified above without delay. [W]e conclude that Brazil shall withdraw the subsidies within 90 days."
2000 DS46 conclusion
A 2000 WTO ruling requested the Brazilian government eliminate this Proex (Programa de Financiamento às Exportações) program, as it was, in fact, an illegal subsidy. The ruling stated, "...we conclude that Brazil has failed to implement the ...1999 recommendation that it withdraw the export subsidies for regional aircraft under PROEX within 90 days."Program modification
As a result of the 2000 WTO ruling, Brazil presented a modified program that satisfied the WTO, Proex III.The WTO states, "our conclusion that the PROEX III programme, as such, is not inconsistent with the SCM Agreement is based on the view that it is legally possible for Brazil to operate the PROEX III programme in such a way that it will: (a) not result in a benefit being conferred on producers of regional aircraft and, hence, not constitute a subsidy... (b) result in a benefit being conferred on producers of regional aircraft, but conform to the requirements of the safe haven of the second paragraph of item (k), in which case it would not constitute a prohibited export subsidy... 6.3 We wish to be clear, however, that it does not necessarily follow from our conclusion that future application of the PROEX III programme will, likewise, be consistent with the SCM Agreement."
Rulings against Canada
A WTO panel also ruled that Canada illegally subsidized its indigenous regional airliner industry, comprising Bombardier AerospaceBombardier Aerospace
Bombardier Aerospace is a division of Bombardier Inc. and is the third-largest airplane manufacturer in the world. It is headquartered in Dorval, Quebec, Canada.- History :...
.
1999 DS70 conclusion
In 1999, a WTOWorld Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
ruling found Canadian "assistance programs" in contravention of WTO anti-subsidy policy. While rejecting some of Brazil's claims, the ruling suggested Canada remove these subsidies and determined that "(b) ...Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement; [and] ...(f) ...that TPC assistance to the Canadian regional aircraft industry constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement".
2002 DS222 conclusion
A 2002 WTO ruling named some low-interest loans from the Canadian government designed to aid Bombardier in gaining market share as illegal subsidies. CBCCanadian Broadcasting Corporation
The Canadian Broadcasting Corporation, commonly known as CBC and officially as CBC/Radio-Canada, is a Canadian crown corporation that serves as the national public radio and television broadcaster...
reported on one of the six illegal Canadian subsidies in late 2001 months prior to the actual ruling. While dismissing some of Brazil's claims that Canadian aircraft financing deals were illegal subsidy events, the 2002 ruling did: "(e) uphold Brazil's claim that the EDC Canada Account financing to Air Wisconsin constitutes a prohibited export subsidy... (f) ...that the EDC Canada Account financing to Air Nostrum constitutes a prohibited export subsidy... (g) ...that the EDC Corporate Account financing to Comair in July 1996, August 1997 and February 1999 constitutes a prohibited export subsidy..."