Annex A-1 Response of Brazil to Communication of 16 May 2001 from Canada to Brazil
Annex A-2 Communication of 21 May 2001 from Brazil to the Panel
Annex A-3 First Written Submission of Brazil
Annex A-4 Response of Brazil to Submission of Canada Regarding Jurisdictional Issues
Annex A-5 Communication of 25 June 2001 from Brazil to the Panel
Annex A-6 Oral Statement of Brazil Regarding JurisdictionalIssues at the First Meeting of the Panel
Annex A-7 Oral Statement of Brazil Regarding Substantive Issues at the First Meeting of the Panel
Annex A-8 Response of Brazil to Oral Statement of Canada Regarding Jurisdictional Issues at the First Meeting of the Panel
Annex A-9 Responses of Brazil to Questions from the Panel Following the First Meeting of the Panel
Annex A-10 Second Written Submission of Brazil
Annex A-11 Responses of Brazil to Questions from the Panel Prior to the Second Meeting of the Panel
Annex A-12 Oral Statement of Brazil at the Second Meeting of the Panel
Annex A-13 Submission of Brazil Regarding Source Data at the Second Meeting of the Panel
Annex A-14 Responses of Brazil to Questions from the Panel Following the Second Meeting of the Panel
Annex A-15 Response of Brazil to Additional Question from the Panel Following the Second Meeting of the Panel
Annex A-16 Comments of Brazil on Responses of Canada to Questions and Additional Questions from the Panel Following the Second Meeting of the Panel
Annex A-17 Comments of Brazil on Response of Canada to Oral Statement of Brazil at the Second Meeting of the Panel
Annex A-18 Comments of Brazil on Interim Report of the Panel
Annex A-19 Comments of Brazil on Comments of Canada on Interim Report of the Panel
ANNEX A-1 RESPONSE OF BRAZIL TO COMMUNICATION OF
16 MAY 2001 FROM CANADA TO BRAZIL
(21 May 2001)
In a letter to the Panel dated 16 May 2001, Canada requested that Brazil provide “confirmation” and “clarification” on a number of points concerning Brazil’s challenge to several Canadian subsidies. In accordance with normal practice in the WTO, Brazil intends to present its position to the Panel, to Canada, and to the Third Parties, in its first written submission to the Panel at the time established by the Panel in its Working Procedures.
COMMUNICATION OF 21 MAY 2001
FROM BRAZIL TO THE PANEL
(21 May 2001)
1. With this letter, Brazil requests that the Panel exercise its discretion, under Article 13.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), to request from Canada documents and other information concerning the terms of any support from 1 January 1995 onward committed or granted by the Export Development Corporation (“EDC”), Canada Account, Investissement Québec (“IQ”), or any subsidiary organizations thereof, in connection with the sale of regional aircraft by Bombardier, the Canadian manufacturer. As you are aware from its request for establishment of this Panel, Brazil considers that Canadian support for its regional aircraft industry under these programs, each of which was challenged in Canada – Measures Affecting the Export of Civilian Aircraft (“Canada – Aircraft”)1, constitutes prohibited export subsidies. A recent transaction involving Air Wisconsin, discussed below, is but one example of this support.
2. This request is necessitated by Canada’s refusal to produce evidence that is solely within its possession, and that is necessary to the Panel’s assessment of this dispute. Later in this letter, Brazil will present evidence available from public sources establishing a prima facie case that Canada Account support for the Air Wisconsin transaction, and EDC and IQ support for the Canadian regional aircraft industry, constitutes a prohibited export subsidy. In subsequent submissions, Brazil will provide additional evidence supporting its claims, both with respect to the Air Wisconsin transaction and other deals. However, given the confidential nature of regional aircraft transactions2, the only direct evidence available – documents concerning the terms of Canadian government support for regional aircraft transactions – is in the sole possession of the Canadian government.
Canada’s refusal to produce information
3. Canada’s repeated failure to provide highly relevant evidence within its sole possession is well-documented. In the Canada – Aircraft dispute, Canada refused, in consultations with Brazil, to provide documentary information regarding support under the very same programs at issue in this dispute.3 Moreover, the Report of the Panel in that dispute includes 26 citations to Canada’s refusal to provide specific documentary information requested not by Brazil, but by the Panel itself, with respect once again to the very same programs challenged in the current dispute.4 4. This pattern appears to be repeating itself in these proceedings. In consultations with Canada on 21 February 2001, Brazil affirmatively requested transaction-specific information about the details of EDC, Canada Account and IQ support for Canadian regional aircraft industry transactions.5 Other than a statement that support for one transaction – the Air Wisconsin deal – would “probably” be through the Canada Account, Canadian representatives at the consultations refused to produce any such information.6
5. Canada’s failure to provide this information to Brazil during consultations is directly contrary to its legal obligations. Tribunals in a variety of public international law fora have long recognised that governments party to international disputes have a particular responsibility to provide documents within their exclusive control.7 Indeed, in India – Patent Protection for Pharmaceutical and Agricultural Chemical Products (“India – Pharmaceuticals”), the Appellate Body specifically recognised that all Members are required to be “fully forthcoming” at all stages of WTO dispute settlement proceedings, noting that:
All parties engaged in dispute settlement under the DSU must be fully forthcoming from the very beginning both as to the claims involved in a dispute and as to the facts relating to those claims. . . . This must be so in consultations as well as in the more formal setting of panel proceedings.8
Canada’s failure to provide information requested by Brazil in consultations in this dispute is in direct contravention of these requirements.
The Panel’s unconditional authority to request information 6. In its Report in Canada – Aircraft, the Appellate Body confirmed both the authority of a panel, under Article 13.1 of the DSU, to request information from whomever it likes, whenever it likes, and the legal obligation of a Member to comply with the panel’s request.9 According to the Appellate Body, “Article 13.1 imposes no conditions on the exercise of [a panel’s] discretionary authority.”10 Moreover, in its Report in India – Pharmaceuticals, the Appellate Body specifically advised Members to call upon a panel’s authority to request information when evidence necessary to a panel’s consideration is not produced in consultations:
If, in the aftermath of consultations, any party believes that all the pertinent facts relating to a claim are, for any reasons, not before the panel, then that party should ask the panel in that case to engage in additional fact-finding.11
Finally, Article 11 of the DSU requires a panel to make “an objective assessment of the matter before it”.
7. Action by the Panel at this stage is fully justified by Canada’s failure to observe the requirement to be “fully forthcoming” in consultations with Brazil, in the words of the Appellate Body in India – Pharmaceuticals. Canada’s failure to provide evidence solely within its possession is not without effect; it has directly caused (and will continue to cause) the absence of “pertinent facts” necessary to the Panel’s consideration of this case. Only direct evidence of Canadian support for its regional aircraft industry – evidence that is, once again, solely in Canada’s possession – can resolve this matter definitively. In these circumstances, so that the Panel may effectively discharge its duty to make “an objective assessment of the matter before it,” under DSU Article 11, it is both “necessary and appropriate”, within the meaning of DSU Article 13.1, for the Panel to engage in the “additional fact-finding” discussed by the Appellate Body in India – Pharmaceuticals, and to request documentary information regarding EDC, Canada Account and IQ support for Canadian regional aircraft transactions, including the Air Wisconsin deal.
Confidentiality 8. The Appellate Body concluded that a panel’s authority to request information under Article 13.1 of the DSU is unconditional. In Canada – Aircraft, however, Canada argued that compliance with a panel’s request under Article 13.1 was conditional. Canada argued that it could not comply with the Panel’s request for the production of documentary evidence in this case because it objected to an amendment the Panel had made to Canada’s proposed confidentiality procedures.12 The Appellate Body rejected Canada’s claim that objections to the confidentiality procedures justified a refusal to provide the documentary information requested by the Panel.13 Prima facie case 9. Canada also claimed that the Panel’s authority to request information was limited because Brazil had allegedly not, in advance of the Panel’s request for information, established a prima facie case. This defense was rejected by the Appellate Body as “quite simply, bereft of any textual or logical basis”.14 Although Article 13.1 thus does not require a Member to establish a prima facie case before a panel may request information, to satisfy the Panel that Brazil is not engaging in a “fishing expedition”, Brazil presents here evidence establishing a prima facie case that Canadian support constitutes prohibited export subsidies.
10. Under Article 1.1 of the SCM Agreement, a subsidy exists when a government makes a “financial contribution” that confers a “benefit,” which has been defined by the Appellate Body as “terms more favourable than those available to the recipient in the market”.15 Under Article 3.1(a) of the SCM Agreement, a subsidy is prohibited if it is contingent, in law or in fact, on export. Based on these legal standards, Brazil first presents evidence establishing that support under the Canada Account for one recent transaction – Air Wisconsin – constitutes a prohibited export subsidy. As noted above, this is only one example of a transaction supported by EDC, the Canada Account or IQ. Second, Brazil presents evidence regarding support via the EDC. Third, Brazil presents evidence with respect to IQ support.
Prima facie case with respect to Canada Account 11. Canada Account support for the Air Wisconsin transaction constitutes a prohibited export subsidy. On 10 January 2001, Canadian Minister of Industry Brian Tobin, along with Canadian Minister for International Trade Pierre Pettigrew, announced government support for the sale to Air Wisconsin of 75 Bombardier regional jets, with an option for the purchase of 75 more. While details of the Canadian government support were not provided, Rod Giles, a spokesman for EDC, noted that “[t]his transaction will be done under the [EDC’s] Canada account, which is used in those instances where [the business deal] is deemed to be in the national interest.”16 A “backgrounder” regarding the Canada Account, which is administered by the EDC, was attached to the Industry Canada news release accompanying the Ministers’ announcement.17 12. Minister Tobin characterized the support Canada was making available to Air Wisconsin as a loan or direct financing at a rate equal to that allegedly offered by Brazil for Bombardier rival Embraer’s offer to Air Wisconsin.18 Specifically, Minister Tobin stated that Canada was matching support allegedly offered by Brazil to help Embraer secure the sale.19 According to Minister Tobin, the support allegedly offered by Brazil was itself a subsidy, granted at below-market rates.20 Thus, anything “matching” that rate is by definition also a subsidy. In fact, Minister Tobin characterized the support offered by Canada itself in those very terms: “‘What we’re doing is using the borrowing strength and capacity of the government to give a better rate of interest.’”21
13. The $2.35 billion Air Wisconsin deal was confirmed by Bombardier on 16 April 2001, with International Trade Ministry spokesman Sebastien Theberge stating that “the deal is in essence the one announced (by Mr. Tobin)”.22
14. Support by the Canada Account, which according to Canadian officials is the source of Canadian government support for the Air Wisconsin transaction, was found by the Panel in Canada – Aircraft to be a prohibited export subsidy.23 Canadian measures adopted by Canada to implement the Panel’s non-appealed findings on Canada Account were challenged by Brazil, under Article 21.5 of the DSU, as inconsistent with Article 3 of the SCM Agreement. The Article 21.5 Panel agreed, concluding that Canada had failed to implement the recommendations and rulings of the Dispute Settlement Body with respect to Canada Account.24 This result was not appealed, and Canada has not announced further measures to bring Canada Account into compliance with its obligations under the SCM Agreement.
15. In fact, Canada has re-affirmed that support for the Canadian regional aircraft industry via the Canada Account continues to constitute prohibited export subsidies. In the recent Air Wisconsin transaction and current documents regarding Canada Account, Canada states that Canada Account support constitutes a financial contribution that confers a benefit, within the meaning of Article 1 of the SCM Agreement, and that it is contingent in law or in fact on export, within the meaning of Article 3.1(a) of the SCM Agreement.
16. With respect to “financial contribution”, EDC’s website confirms that Canada Account provides “insurance coverage, financing and guarantees”25, each of which constitutes either a “direct transfer of funds” or a “potential direct transfer of funds or liabilities”, under Article 1.1(a)(1)(i) to the SCM Agreement. Moreover, as noted above, Minister Tobin stated that Canadian support for the Air Wisconsin transaction would take the form of a loan or direct financing, which constitute “direct transfer[s] of funds”.
17. With respect to “benefit”, Minister Tobin acknowledges, as noted above, that Canada is matching what he characterized as subsidized support from Brazil to Air Wisconsin. Brazil recalls the Appellate Body’s determination that a benefit arises when a financial contribution confers “terms more favourable than those available to the recipient in the market”.26 Any Canadian support “matching” terms more favourable than those available to Air Wisconsin in the market is, by definition, itself on similarly more favourable terms than those available to Air Wisconsin in the market. Moreover, the Minister stated that Canada was in this instance “using the borrowing strength and capacity of the government to give a better rate of interest.”27 Both of these statements, as well as others noted above, satisfy the Appellate Body’s “benefit” standard.
18. Finally, with respect to export contingency, EDC’s website confirms that “[t]he Canada Account is used to support export transactions . . ”.28 Similarly, the Canada Account “backgrounder” accompanying Industry Canada’s announcement of its support for the Air Wisconsin deal states that Canada Account is one way for EDC to satisfy its “mandate to support and develop Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities”.29
19. Thus, while the Appellate Body has held that setting forth a prima facie case is not a prerequisite to a request for information under DSU Article 13.1, Brazil has, with this evidence, established a prima facie case that Canada Account support for the Air Wisconsin transaction constitutes a prohibited export subsidy. As noted above, in its submissions to this Panel, Brazil will provide further information from publicly-available sources regarding other examples of EDC, Canada Account and IQ support for the Canadian regional aircraft industry. Direct evidence of this support, however, is solely within Canada’s possession.
Prima facie case with respect to EDC 20. Canada itself, in proceedings considering the consistency of the Brazilian PROEX programME with the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), acknowledged that EDC provides support to the Canadian regional aircraft industry on terms below the commercial interest reference rates (“CIRR”) established by the OECD’s Arrangement on Guidelines for Officially Supported Export Credits. Canada noted “instances where certain of EDC’s financing transactions were at a rate less than the CIRR applicable on the date the transaction closed”.30 21. The Appellate Body stated, in its Report in Brazil – Aircraft, that a net interest rate “below the relevant CIRR is a positive indication that the government payment in that case has been ‘used to secure a material advantage in the field of export credit terms,’” within the meaning of item (k) to Annex I of the SCM Agreement.31 The Appellate Body also noted in that case that the term “benefit”, within the meaning of Article 1.1(b) of the SCM Agreement, is different from the term “material advantage” in item (k), and that item (k) and “material advantage” become an issue only after support has been deemed to confer a benefit and constitute a subsidy. In other words, export support that confers a material advantage will always confer a benefit, but export support that confers a benefit will not always secure a material advantage.32 22. Because Canada has acknowledged that EDC has lent at rates , it has also provided, in the Appellate Body’s words, “a positive indication” that EDC not only secures a material advantage, but also confers a benefit.
23. With respect to export contingency, Article 10(1) of the Export Development Act states that EDC was founded “for the purposes of supporting and developing, directly or indirectly, Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities.”33 As such, EDC support for the Canadian regional aircraft industry is contingent in law or in fact on export, within the meaning of Article 3.1(a) of the SCM Agreement.
24. Once again, while setting forth a prima facie case is not a prerequisite to an Article 13.1 request for information, the evidence provided above in fact establishes that EDC support for the Canadian regional aircraft industry constitutes a prohibited export subsidy.
Prima facie case with respect to IQ 25. Along with federal aid, the Air Wisconsin transaction also benefited from IQ support, as part of a $226 million loan guarantee package recently made available to purchasers of Bombardier aircraft.34 According to IQ spokesman Jean Cyr:
. . . [I]n 1996 the provincial investment fund created a five-year $450-million program to provide loan guarantees to Bombardier’s customers. About $300 million of that has been used, and Cyr said that on Dec. 20, Bombardier “came to us and said they were negotiating this big deal with Air Wisconsin that would require” more than the remaining $150 million.
So the provincial cabinet approved another $76 million, making a total of $226 million available to airlines that buy Bombardier aircraft. That entire sum will not go entirely to the Air Wisconsin deal, Cyr said.35
26. As reported, IQ spokesman Cyr’s comments establish that IQ has provided both a financial contribution, in the form of loan guarantees, and a benefit, by substituting the credit rating of the Government of Quebec for that of the borrower, Air Wisconsin. This principle was firmly established by Canada itself when, in Brazil – Aircraft, it described the beneficial effect of a loan guarantee in the following terms:
The transaction cited by Brazil is a simple US Ex-Im Bank loan guarantee under which the Government of the United States extends its own sovereign credit risk to cover a percentage of the amount financed. In such circumstances, the lending bank establishes financing terms in the light of the risk of the US Government, not the borrower.36
Thus, provision of a guarantee and substitution of a government’s credit rating for that of the borrower confers a benefit.
27. With respect to export contingency, Article 25 of the Act Respecting Investissement-Québec and Garantie-Québec states that as part of its mission, IQ is directed to facilitate “export activities”.37 Similarly, paragraph 1 of Quebec Decree 572-2000 enables IQ to offer financial support to encourage companies, inter alia, to undertake export projects, including, under paragraph 2, the sale of goods outside of Quebec.38 Moreover, paragraph 2 to Quebec Decree 841-2000 requires IQ to limit its financial support to, among other things, “market development” projects39, which under paragraph 3 include the growth of export sales and the sale of goods outside of Quebec.40 Paragraph 10 to Annex II of Decree 841-2000 provides additional information about the “market development” projects that can receive IQ support, e.g., the promotion of exports in existing markets, the creation of export consortiums, and the extension of export credit margins.41 28. During consultations, Brazil asked Canada for details concerning IQ and its activities. Canada’s representatives stated that they had no information concerning IQ, did not bring any official capable of discussing IQ to the consultations, and were therefore not prepared to discuss it. The Member whose actions are the subject of consultations has an obligation, under Article 4.2 of the DSU, to accord sympathetic consideration to the requests of other Members. In the absence of any information provided by Canada, the evidence set forth herein is sufficient to establish a prima facie case that IQ support constitutes a prohibited export subsidy.
Documents and information to be requested
29. To facilitate an objective assessment of the matter before it, i.e., whether EDC, Canada Account and IQ provide prohibited export subsidies to support sales by the Canadian regional aircraft industry, Brazil considers that the Panel would need to request, at a minimum, documents providing the following transaction-specific information for the period 1 January 1995 to the present:
Type of support (e.g., loan, loan guarantee, equity guarantee, equity support, etc.)
Base interest rate provided to recipient (for direct transfers of funds) or secured by recipient (for potential direct transfers of funds)
Risk spread added onto the base interest rate
Fee and/or premium charged
Tenor of support
Credit rating of recipient
Date of transaction
Value of transaction (in the currency of the transaction)
Value of EDC/Canada Account/IQ support for transaction (in the currency of the transaction)
Cash payment requirements for transaction
Spare parts coverage of EDC/Canada Account/IQ support
Any conditions attached to award or receipt of the support
30. For the foregoing reasons, Brazil requests that the Panel immediately exercise its discretion to request from Canada documents concerning EDC, Canada Account and IQ support for Canadian regional aircraft transactions from 1 January 1995 onward, including but not limited to the Air Wisconsin deal. This confidential information is not available from public sources, and Canada’s failure to produce it, both in the previous Canada – Aircraft dispute and thusfar in these proceedings, is well-documented. A request by the Panel that Canada produce this documentary information, pursuant to DSU Article 13.1, is “necessary and appropriate” to enable the Panel to discharge its duty to make “an objective assessment of the matter before it,” pursuant to Article 11 of the DSU.
Brazilian consultation questions to Canada Exhibit Bra-1
“Bombardier Snags $2.4 B order from U.S. Exhibit Bra-2
airline: Air Wisconsin: Government helps
out with low-cost loan,” The National Post,
17 April 2001
“Canada Ready to match Brazilian Financing Exhibit Bra-3
Terms to Preserve Aerospace Jobs,” Industry
Canada News Release, 10 January 2001
“Canadian government lends $1.7 billion to Exhibit Bra-4
Bombardier,” Canadian Machinery and
Metalworking, 11 January 2001
“Ottawa backs Bombardier,” PoliticX, Exhibit Bra-5
11 January 2001
“Canada to aid Bombardier in jet deal: Tobin Exhibit Bra-6
vows to protect jobs in subsidy battle with Brazil,”
Ottawa Citizen, 11 January 2001
“Canada to match illegal Brazilian aerospace Exhibit Bra-7
subsidies to save market share,” Ottawa Citizen,
11 January 2001
“Ottawa Backs Bombardier in Brazil Trade War,” Exhibit Bra-8
Globe and Mail, 10 January 2001
“Ottawa backs Bombardier: Loan to U.S. firm to Exhibit Bra-9
buy jets slaps Brazil’s aerospace subsidies,” The
Montreal Gazette, 11 January 2001
“Canada to use illegal low-cost finance in aircraft Exhibit Bra-10
subsidy dispute with Brazil,” BBC Summary of
World Broadcasts, 20 January 2001
“Air Wisconsin orders 51 jets from Bombardier,” Exhibit Bra-11
Milwaukee Journal Sentinel, 17 April 2001
“Bombardier lashes out at professor,” Globe and Exhibit Bra-12
Mail, 12 January 2001
“Ottawa bankrolls jet deal,” Globe and Mail, Exhibit Bra-13
11 January 2001
“Bombardier cranks up job mill after signing Exhibit Bra-14
$2.35-billion jet deal: Federal subsidy gives
U.S. airline below-market rate,” Ottawa
Citizen, 17 April 2001
“Bombardier signs contract with Air Wisconsin Exhibit Bra-15
for up to 150 CRJ200 regional jets,” Bombardier
Press Release, 16 April 2001
EDC website, “How We Work” Exhibit Bra-16
Export Development Act Exhibit Bra-17
Act Respecting Investissement-Québec and Exhibit Bra-18
Décret 572-2000, 9 mai 2000, Concernant le Exhibit Bra-19
programme du Fonds pour l’accroissement de
l’investissement privé et la relance de l’emploi
Décret 841-2000, 28 juin 2000, Concernant le Exhibit Bra-20