Canada measures affecting the export of civilian aircraft



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World Trade

Organization







WT/DS70/RW

9 May 2000






(00-1750)










Original: English


CANADA – MEASURES AFFECTING THE EXPORT

OF CIVILIAN AIRCRAFT


Recourse by Brazil to Article 21.5 of the DSU

Report of the Panel

The report of the Panel on Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 9 May 2000 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

TABLE OF CONTENTS

Page


I. introduction and factual background 1

II. findings and recommendations requested by the parties 3

III. arguments of the parties and third parties 3

IV. interim review 3

B. comments by brazil 3

C. comments by canada 4

V. findings 4

A. technology partnerships canada 4

B. canada account 17

VI. conclusion 42

List of Exhibits 58

List of Exhibits 80

list of exhibits 121



ANNEX 1-1 (FIRST SUBMISSION OF BRAZIL) 44

ANNEX 1-2 (REBUTTAL SUBMISSION OF BRAZIL) 60

ANNEX 1-3 (FIRST ORAL STATEMENT OF BRAZIL) 81

ANNEX 1-4 (CONCLUDING STATEMENT OF BRAZIL) 88

ANNEX 1-5 (RESPONSES BY BRAZIL TO QUESTIONS FROM THE PANEL) 92

ANNEX 1-6 (COMMENTS OF BRAZIL ON CANADA'S RESPONSES TO

QUESTIONS FROM THE PANEL) 101


ANNEX 2-1 (FIRST SUBMISSION OF CANADA) 102

ANNEX 2-2 (REBUTTAL SUBMISSION OF CANADA) 122

ANNEX 2-3 (ORAL STATEMENT OF CANADA) 127

ANENX 2-4 (ANSWERS TO QUESTIONS POSED TO CANADA BY THE PANEL

AND BY BRAZIL) 142



ANNEX 2-5 (COMMENTS OF CANADA ON BRAZIL'S RESPONSES TO THE

QUESTIONS FROM THE PANEL) 160



ANNEX 3-1 (SUBMISSION OF THE EUROPEAN COMMUNITIES) 162

ANNEX 3-2 (SUBMISSION OF THE UNITED STATES) 168

ANNEX 3-3 (ORAL STATEMENT OF THE EUROPEAN COMMUNITIES) 174

ANNEX 3-4 (ORAL STATEMENT OF THE UNITED STATES) 183

ANNEX 3-5 (ANSWER OF THE UNITED STATES TO QUESTIONS POSED BY

BRAZIL) 186



ANNEX 3-6 (ANSWERS OF THE UNITED STATES TO QUESTIONS POSED BY

THE PANEL) 187



ANNEX 3-7 (RESPONSES BY THE EUROPEAN COMMUNITIES TO THE

QUESTIONS FROM THE PANEL AND FROM BRAZIL) 193

I.introduction and factual background


i.1On 20 August 1999, the Dispute Settlement Body (“the DSB”) adopted the Appellate Body Report in WT/DS70/AB/R and the Panel Report and recommendations in WT/DS70/R as upheld by the Appellate Body Report in the dispute Canada – Measures Affecting the Export of Civilian Aircraft (“Canada – Aircraft”). In its report, the Panel found, regarding Canada Account, that the Canada Account debt financing at issue constituted “subsid[ies] contingent in law … upon export performance” prohibited by Article 3.1(a) of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), and that in granting this prohibited export subsidy, Canada had necessarily acted in violation of Article 3.2 of the SCM Agreement, i.e., that Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft constituted export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement. The Panel found with regard to Technology Partnerships Canada (“TPC”) that TPC assistance to the Canadian regional aircraft industry constituted “subsidies contingent … in fact … upon export performance”, contrary to Articles 3.1(a) and 3.2 of the SCM Agreement.

i.2The Panel recommended that Canada withdraw these subsidies within 90 days. The Appellate Body recommended that the DSB request that Canada bring its export subsidies found in the Panel Report, as upheld by the Appellate Body Report, to be inconsistent with Canada’s obligations under Articles 3.1(a) and 3.2 of the SCM Agreement into conformity with its obligations under that Agreement. Specifically, the Appellate Body recalled that the Panel had recommended that Canada withdraw the subsidies identified in sub-paragraphs (b) and (f) of paragraph 10.1 of the Panel Report within 90 days.

i.3On 18 November 1999, Canada submitted to the Chairman of the DSB, pursuant to Article 21.6 of the Dispute Settlement Understanding (“the DSU”), a status report (WT/DS70/8) on implementation of the recommendations of the DSB in the dispute. The status report described measures taken by Canada which in Canada’s view implemented the DSB’s rulings to withdraw the measures within 90 days.

i.4With respect to Canada Account debt financing for the export of Canadian regional aircraft, which was found to be inconsistent with Canada’s obligations under the SCM Agreement, the status report indicated that there would be no deliveries of regional aircraft after 18 November 1999 benefiting from such Canada Account financing. In addition, the Minister for International Trade had approved a policy guideline requiring that all Canada Account transactions after that date for all sectors, not only those involving the regional aircraft sector, comply with the OECD Arrangement on Guidelines for Officially Supported Export Credits (the "OECD Arrangement"). By this policy, the Minister undertook not to authorize any transaction under the Canada Account unless it complied with the OECD Arrangement, and no Canada Account transaction may proceed without such Ministerial authorization.

i.5Concerning TPC assistance to the Canadian regional aircraft industry which was found to be inconsistent with Canada’s obligations under the SCM Agreement, the status report stated that Canada would not make any disbursements pursuant to any existing TPC Contribution Agreement for the Canadian regional aircraft industry effective 18 November 1999. In this respect, Canada had amended TPC’s Contribution Agreements pertaining to the Canadian regional aircraft industry in order to terminate all obligations to disburse funds effective 18 November 1999. As a result, some $16.4 million of funding pursuant to those agreements would go undisbursed. In addition, Canada had cancelled the conditional approval given prior to the Appellate Body report for two other regional aircraft industry projects. Canada attached to this communication letters confirming cancellation of such funding. Canada also had taken steps to restructure TPC in order to bring the structure and administrative practices of the Agency into conformity with the SCM Agreement and so to avoid future disputes in this matter. TPC had been re mandated by the government and now operated under revised Terms and Conditions and Framework Document. The revisions covered such core activities as project eligibility, assessment criteria, and repayment principles.

i.6On 23 November 1999, Brazil submitted a communication to the Chairman of the DSB (WT/DS70/9) seeking recourse to Article 21.5 of the DSU. In that communication, Brazil indicated its view that the measures taken by Canada to comply with the recommendations and rulings of the DSB were not consistent with the SCM Agreement and the DSU, and that therefore Canada had not implemented the recommendations of the DSB concerning either Canada Account or TPC. In particular, regarding Canada Account, Brazil recalled that there were a large number of provisions in the OECD Arrangement that allowed for derogations from its general rules. Therefore, in Brazil’s view, Canada's vague statement that the new policy guideline complied with the OECD Arrangement was inconsistent with the recommendations and rulings of the DSB and Article 3 of the SCM Agreement. In addition, Brazil had not received any documentation with the revised policy guidelines of Canada Account. Regarding TPC, Brazil had no information on the new administrative framework for the programme, and since TPC payments were contingent in fact upon export performance, compliance by Canada with Article 3 of the SCM Agreement required more than a mere reformulation of some of the TPC rules and regulations.

i.7Accordingly, Brazil indicated, because "there [was] a disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings of the DSB" between Brazil and Canada, within the terms of Article 21.5 of the DSU, Brazil sought recourse to Article 21.5 in the matter and requested that the DSB refer the disagreement to the original panel, if possible, pursuant to Article 21.5. Brazil attached1 the terms of an agreement reached by Brazil and Canada concerning the procedures to be followed pursuant to Articles 21 and 22 of the DSU. Brazil stressed that such agreement did not prejudge its rights concerning an appeal of the review panel report.

i.8At its meeting on 9 December 1999, the DSB decided, in accordance with Article 21.5 of the DSU, to refer to the original panel the matter raised by Brazil in document WT/DS70/9. At that DSB meeting, it also was agreed that the Panel should have standard terms of reference as follows:

“To examine, in the light of the relevant provisions of the covered agreements cited by Brazil in document WT/DS70/9, the matter referred to the DSB by Brazil in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.”

i.9The Panel was composed as follows:

Chairperson: Mr. David de Pury

Members: Mr. Maamoun Abdel-Fattah

Mr. Dencho Georgiev

i.10Australia, the European Communities and the United States reserved their rights to participate in the Panel proceedings as third parties.

i.11The Panel met with the parties and third parties on 6 February 2000.

i.12The interim report of the Panel was sent to the parties on 31 March 2000. The parties submitted written comments on the interim report on 7 April 2000. On 14 April 2000, Canada responded to two comments made by Brazil. Brazil chose not to respond to Canada's comments on the interim report. Neither party requested an interim review meeting with the Panel. The final report of the Panel was sent to the parties on 28 April 2000.





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