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World Trade
Organization

WT/DS70/R
14 april 1999
(99-1398)
Original: English

Canada - Measures Affecting the Export of Civilian Aircraft

Report of the Panel


The report of the Panel on Canada - Measures Affecting the Export of Civilian Aircraft is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 14 April 1999 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.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 30 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel Report is available from the WTO Secretariat.


Table of Contents
I. Introduction
II. Factual Aspects
III. Findings and Recommendations Requested by the Parties
IV. Requests for Preliminary Rulings
A. Canada's Request Regarding the Panel's Jurisdiction 1. General issues (a) Arguments of Canada (i) The Panel's responsibility to decide the scope of its jurisdiction
(ii) Request that the Panel should rule before the first submissions of the Parties are due
(b) Arguments of Brazil
2. Consistency with Article 4.4 of the SCM Agreement of Brazil's Request for the Establishment of a Panel with respect to financing by the Export Development Corporation (a) Arguments of Canada (i) Applicable law 7
(ii) Whether Brazil requested consultations on financing provided by the Export Development Corporation
(b) Arguments of Brazil
(c) Response of Canada
3. Consistency with Article 6.2 of the DSU and Brazil's request for a Panel in respect of certain claims (a) Arguments of Canada (i) Applicable law
(ii) The matters at issue

(iii) Brazil's request for the establishment of a panel does not meet the requirements of Article 6.2 of the DSU
(b) Arguments of Brazil (i) EDC "financing"
(ii) Definition of "civil aircraft industry"

(iii) TPC "predecessor programmes"

(iv) Benefits provided under the Subsidiary Agreements and SDI
B. Request of Canada for Preliminary Finding on Jurisdiction: the SCM Agreement does not Apply to Contributions and Transactions that Took Place Before the Entry into Force of the Wto Agreement 1. Request of Canada
2. Response of Brazil
C. Brazil's Request Regarding Additional Fact Finding 1. Arguments of Brazil
2. Arguments of Canada
(a) Background to Brazil's motion: the consultations, "transaction-specific" information and confidentiality
(b) Brazil's request is inconsistent with WTO law and practice

(c) Brazil's request further supports Canada's preliminary submissions
3. Response of Brazil
4. Rebuttal of Canada
D. Canada's Request for a Deadline for the Submission of New Evidence 1. Arguments of Canada
2. Arguments of Brazil
E. Brazil's Request Regarding Deadline for Submission of New Evidence 1. Arguments of Brazil
2. Arguments of Canada

3. Actions of the Panel

4. Response of Brazil

5. Proposal by the Panel

6. Joint letter from Brazil and Canada, and Panel action
F. Arguments Concerning the Submission of Evidence in Response to Panel Questions Posed in Connection with the Second Meeting 1. Comment of Canada
2. Comment of Brazil
G. Procedures for Protection of Business Confidential Information 1. Procedure Proposed by Canada
2. Arguments of Brazil
(a) Advisors of a Party should be considered an approved person
(b) Review of Confidential Business Information should be permitted outside the WTO premises

(c) Third Parties should be granted access to Confidential Business Information

(d) A complete administrative record should be maintained for the Appellate Body
3. Action by the Panel
4. Statements of Canada
V. Arguments of the Parties Regarding Legal Issues Concerning SCM Articles 1 and 3 A. General 1. Arguments of Canada (a) Principles of Treaty Interpretation
(b) Burden of Proof
(i) A complainant must present a prima facie case in respect of each element of its claim.
(ii) The principles applicable to the evaluation of evidence
(c) Judicial Economy
2. Response of Brazil
B. "Subsidy" Per SCM Article 1 1. Arguments of Canada (a) The meaning of "financial contribution"
(b) The meaning of "benefit"
(i) Ordinary meaning
(ii) Context

(iii) The object and purpose of the SCM Agreement
2. Arguments of Brazil
3. Response of Canada
C. "Contingent, in Law or in Fact, ... on Export Performance" 1. Arguments of Canada (a) Brazil's interpretation of Article 3.1(a)
(b) Article 3.1(a) prohibits subsidies that are conditional on or tied to export performance
(i) The ordinary meaning of "contingent ... upon export performance"
(ii) The context of Article 3.1(a)

(iii) The object and purpose of the SCM Agreement

(iv) The negotiating history of the SCM Agreement

(v) The implications of Brazil's interpretation

(vi) The OECD Arrangement on Guidelines for Officially Supported Export Credits (OECD Consensus)

(vii) The United States misunderstands Canada's interpretation of Article 3
2. Arguments of Brazil
3. Response of Canada
VI. Arguments of Parties Regarding Canadian Measures Alleged by Brazil to be Prohibited Export Subsidies in the Sense of SCM Articles 1 and 3 A. Export Development Corporation ("EDC") 1. General arguments of the parties (a) Alleged concessionary terms of EDC financing; EDC risk level and performance (i) Arguments of Brazil
(ii) Arguments of Canada

(iii) Rebuttal of Brazil on EDC's risk level and performance

(iv) Response of Canada on EDC's risk level and performance
(b) Contingency on export performance (i) Arguments of Brazil
(ii) Arguments of Canada

(iii) Response of Brazil
2. EDC Debt Financing (a) Arguments of Brazil
(b) Arguments of Canada
(i) Substantive issues
(ii) Arguments regarding whether Brazil has presented a prima facie case against EDC financing.
(c) Response of Brazil
3. Loan guarantees (a) Arguments of Brazil
(b) Arguments of Canada
4. Equity infusions into corporations established to facilitate the export of civil aircraft (a) Arguments of Brazil
(b) Arguments of Canada

(c) Response of Brazil
5. Residual value guarantees (a) Arguments of Brazil
(b) Arguments of Canada

(c) Response of Brazil
6. Canada Account (a) Arguments of Brazil
(b) Arguments of Canada

(c) Comments of Brazil
B. Technology Partnerships Canada ("TPC") and Predecessor Defence Industry Productivity Programme ("DIPP") 1. General arguments of the parties (a) Arguments of Brazil
(b) Arguments of Canada
2. Subsidy (a) Arguments of Brazil
(b) Arguments of Canada

(c) Comments of Brazil
(i) TPC's anticipated or expected return is below market
(ii) TPC's expected return - "expected" at the time the loan commitment was made - was insufficient, even under Canada's "cost of funds" test
3. Export contingency (a) Arguments of Brazil
(b) Arguments of Canada

(c) Comments of Brazil
C. Sale by Ontario of Ownership Share in de Havilland 1. Subsidy (a) Arguments of Brazil
(b) Arguments of Canada

(c) Response of Brazil

(d) Comments of Canada
2. Export contingency (a) Arguments of Brazil
(b) Arguments of Canada
D. Canada-Québec Subsidiary Agreement on Industrial Development 1. Subsidy (a) Arguments of Brazil
(b) Arguments of Canada

(c) Comments of Brazil
2. Export contingency (a) Arguments of Brazil
(b) Arguments of Canada

(c) Response of Brazil
E. Société de Dévéloppement Industriel du Québec ("SDI") 1. Subsidy (a) Arguments of Brazil
(b) Arguments of Canada

(c) Comments of Brazil
2. Export contingency (a) Arguments of Brazil
(b) Arguments of Canada
F. Arguments Regarding the Finan Report Submitted by Brazil 1. Arguments of Canada
2. Response of Brazil
(a) The Time Frames Over Which Subsidies are Quantified and Aggregated (i) EDC Equity Infusions
(ii) Can$87 Million "Investment" in the 70-seat CRJ-700

(iii) Can$57 Million "'Investment'" in the Dash 8-400

(iv) Can$100 Million "Investment" in Turboprop Engines

(v) The Acquisition and Restructuring of de Havilland
(b) The Comparative Treatment of Repayable and Non-Repayable Contributions
(c) The Comparative Treatment of Actual and Anticipated Benefits
3. Rebuttal by Canada
G. Arguments Regarding the Clark Report 1. Arguments of Canada (a) Saturation of the Canadian regional turboprop market
(b) The 26 CRJs delivered to Air Canada
2. Response by Brazil
3. Rebuttal of Canada

4. Rebuttal of Brazil
VII. Arguments of Third Parties A. European Communities 1. Export contingency
2. Annex I (k), first paragraph SCM Agreement
B. Submission of the United States 1. Applicability of the SCM Agreement to subsidies provided prior to the entry into force of the WTO Agreement
2. Canada's interpretation of "export subsidy"

3. The relevance of item (k) of the Illustrative List to export financing activities of the EDC
VIII. Interim Review
IX. Findings A. Introduction
B. Preliminary Issues
1. Jurisdiction of the Panel (a) Article 4.4 of the SCM Agreement (i) Arguments of the parties
(ii) Evaluation by the Panel
(b) Specificity of Brazil's request for establishment of a panel (i) Arguments of the parties
(ii) Evaluation by the Panel
2. Temporal application of the SCM Agreement
3. Fact-finding by the Panel
(a) Arguments of the parties
(b) Evaluation by the Panel
4. Procedures governing Business Confidential Information (a) Arguments of the parties
(b) Evaluation by the Panel
5. Deadline for the submission of new evidence or allegations (a) Submission of new evidence
(b) Submission of new allegations
6. Deadline for the submission of affirmative defences
7. Panel's right to seek information in respect of defences Canada has not made

8. Panel's right to seek information in the absence of a preliminary ruling on the establishment of a prima facie case

9. Panel's right to seek information in the absence of an allegation by the complaining party
C. Definition of "Subsidy" Within the Meaning of Article 1 of the SCM Agreement 1. Arguments of the parties
2. Interpretation by the Panel
D. Export Development Corporation 1. Is the EDC programme per se a prohibited export subsidy?
2. Does the EDC programme as applied provide prohibited export subsidies?
(a) EDC debt financing (i) Arguments of the parties
(ii) Evaluation by the Panel
(b) EDC loan guarantees
(c) EDC residual value guarantees

(d) EDC equity financing
E. Canada Account 1. Is the Canada Account programme per se a prohibited export subsidy?
2. Does the Canada Account programme as applied provide prohibited export subsidies?

3. Is there a prima facie case against Canada Account financing in the regional aircraft sector?

4. Has Canada rebutted the prima facie case?

5. Is the Canada Account debt financing contingent on export?
F. Sale to Bombardier by the Ontario Aerospace Corporation of a 49 Per Cent Interest in de Havilland Inc.
G. Benefits Provided under the Canada-Quebec Subsidiary Agreements on Industrial Development
1. Arguments of the parties
2. Evaluation by the Panel
H. Societe de Developpement Industriel du Quebec 1. Arguments by the parties
2. Evaluation by the Panel
(a) Assistance provided under the IQ programme
(b) Assistance provided under the SDI programme
I. Technology Partnerships Canada and DIPP 1. Does the application of the TPC programme result in subsidies for the Canadian regional aircraft industry? (a) Arguments of the parties (i) $87 million to Bombardier
(ii) $57 million TPC contribution to de Havilland; and $100 million TPC contribution to Pratt & Whitney

(iii) $12.7 million TPC contribution to Allied Signal; and $9.9 million TPC contribution to Sextant Avionique
(b) Additional information on the specific TPC contributions identified by Brazil (i) $87 million to Bombardier
(ii) $57 million TPC contribution to de Havilland; and $100 million TPC contribution to Pratt & Whitney

(iii) $12.7 million TPC contribution to Allied Signal; and $9.9 million TPC contribution to Sextant Avionique
(c) Evaluation by the Panel (i) Is there a prima facie case that TPC assistance to the Canadian regional aircraft industry takes the form of subsidies?
(ii) Has Canada rebutted the prima facie case of subsidization?

(iii) Is TPC assistance to the Canadian regional aircraft industry contingent on export performance?

(iv) Interpretation of "contingent ... in fact ... upon export performance" and "in fact tied to ...
anticipated exportation or export earnings"

(v) Application of the "but for" test

(vi) Conclusion
2. Assistance provided under the DIPP programme
X. Conclusions and Recommendation
Annex I
Annex II

To continue with Introduction