(a) Arguments of Brazil

6.145 Brazil asserts that the operations of the Canada Account are marked by an extreme degree of secrecy. Brazil states that EDC's 1996 and 1997 Annual Reports omit any meaningful description of the Canada Account, and that the two most recent Canada Account reports have not in fact been tabled in the Canadian Parliament,²⁸⁰ and quotes EDC's 1995 Annual Report as follows regarding the Canada Account:

6.146 Brazil indicates that there are no publicly-available statements of the level of funding for regional aircraft development and sales provided under the auspices of the Canada Account, and notes that during consultations, Canada stated that details concerning all Canada Account transactions were confidential, and refused to disclose any details of the operations of the Canada Account.

6.147 Brazil submits that in response to a March 1996 inquiry from a Member of Parliament concerning assistance provided during the prior 15 years to the Canadian aerospace sector, EDC, which administers the Canada Account, stated that during that period, Bombardier received Can$450 million and US$61.172 million, while de Havilland received Can$131.04 million and US$279.656 million for loans and US$14.95 million for loan guarantees,²⁸⁶ that US$11.0 million was provided for a single project for Canadair, and that a loan to a foreign buyer in the amount of US$14.2 million was provided in support of a joint sale by Bombardier and Canadair.²⁸⁷ Brazil notes that the spreadsheets attached to the official response appear to include only those benefits granted through 1991.²⁸⁸

6.148 According to Brazil, the official response makes clear that the amounts listed represent only those transactions for which press releases were issued, and do not include transactions which were not the subject of press releases, as such information is considered commercially confidential.²⁸⁹ Brazil argues that because EDC administers the Canada Account, it is possible that these amounts include Canada Account transactions, and that without further disclosure from Canada, the Panel should so presume, and should presume as well that the funding is extended on concessional terms.

6.149 Brazil maintains that the major difference between the EDC and the Canada Account is that projects financed through the Canada Account do not even meet EDC's criteria because of extremely high risk, and therefore require ministerial approval. One exception according to Brazil is that the Canada Account has not been used for equity infusions to support exports of civilian aircraft, but instead has supported exports of civilian aircraft over the years with millions of dollars in grants, low-interest loans, interest-free loans, loan guarantees and similar direct or potentially-direct transfers of funds from the Canadian government. For Brazil, the Canada Account, unlike the EDC, does not even pretend to be a "self-supporting" operation, but is a direct charge to the books of the Department of Foreign Affairs and International Trade.²⁹⁰

6.150 Brazil asserts that like the EDC, the Canada Account exists for one purpose only: to support exports -- risky exports, recalling the EDC President's statement that "'Canada Account funds are used to support export transactions which the federal government deems to be in the national interest but which, for reasons of size or risk, the Export Development Corporation (EDC) cannot support through regular export credits.'"²⁹¹ According to Brazil, the Canada Account not only "'absorb[s] the risk on behalf of Canadian exporters beyond what is possible by other financial intermediaries,'"²⁹² it absorbs risk beyond what is possible from the EDC, and is an integral, vital part of Canada's effort to satisfy "'the seemingly endless appetite of Canadian exporters for financial support.'"²⁹³ Brazil claims that as an alternative to EDC and the financier of last resort for export transactions, the Canada Account grants funds contingent in law or in fact upon export performance, and is therefore prohibited by Article 3 of the Agreement. Brazil, in response to a Panel question, states that its claim regarding Canada Account is that Canada Account per se is de jure contingent on export, and that Brazil also challenges the Canada Account as applied.

6.151 Brazil argues that Canada does not challenge its assertion that Canada Account assistance is contingent on export, within the meaning of Article 3 of the SCM Agreement, and that Canada could not do so, in light of the above language of the EDC's 1995 Annual Report.

6.152 Brazil maintains that the grants, interest-free loans, low-interest loans, guarantees and other give-aways and support supplied through the Canada Account confer a benefit on the exporters of civilian aircraft in Canada by artificially facilitating their sale. For Brazil, in the absence of subsidies, high-risk buyers would pay higher interest rates and would be required to make higher down-payments. According to Brazil, the Canada Account eliminates these requirements, to the benefit of civilian aircraft exporters, and therefore is a subsidy and confers a benefit within the meaning of Article 1.1 of the SCM Agreement.

6.153 Brazil also argues that the most recent WTO Trade Policy Review of Canada reports that export financing through the Canada Account soared from $100 million in 1996 to $1.6 billion in 1997, an increase of 1600 per cent in a single year.

6.154 According to Brazil, EDC's 1995 Annual Report states that a portion of Canada Account financing is extended on what it refers to as non-concessional terms, while the remainder is extended at admittedly below-market or concessional rates. Brazil notes that a nominally non-concessional rate would amount to a concessional rate if extended to a borrower with a poor credit rating, i.e., that whether a rate is or is not concessional depends in large part upon the risk associated with a particular borrower. Brazil asserts that the Canada Account funds the riskiest of borrowers.

6.155 Brazil argues that from the perspective of the recipient, financing extended at rates that are concessional by definition constitutes a clear "benefit" to that recipient within the meaning of Article 1.1. For Brazil, support at concessional rates confers a benefit on the exporters of Canadian regional aircraft by artificially facilitating their sales.

6.156 Brazil submits a press article²⁹⁴ which quotes Bombardier's executive vice-president as stating that Bombardier has used the Canada Account for some transactions, under terms of financing which he describes as "'close to commercial'" (emphasis added by Brazil). Brazil requests the Panel to ask Canada, in light of this statement, to provide the Panel and Brazil with all of the details regarding all of the support given to the regional aircraft industry in Canada through the Canada Account.

6.157 Brazil argues that Canada has refused to reveal the existence, much less the terms, of any support from the Canada Account to the Canadian regional aircraft industry or its customers, while Bombardier has acknowledged using the Canada Account for some transactions on "close to commercial"²⁹⁵ terms. Brazil states that it utilized the services of an expert Canadian economic consulting firm and of a highly-reputable Canadian law firm to obtain information regarding the Canada Account. Brazil asserts that it has produced all the evidence about Canada Account support to the Canadian regional aircraft industry it could locate from public sources, which evidence in Brazil's opinion establishes that the Canada Account has been used to support the sale of Canadian regional aircraft on non-commercial terms. For Brazil, Canada is obligated as a legal matter under the rule of collaboration recognized in Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, "to provide the tribunal with relevant documents which are in its sole possession". Brazil argues that Canada has refused to comply with this obligation, and submits that the Panel accordingly should adopt inferences adverse to Canada with regard to the Canada Account.

6.158 Brazil further submits that Canada has suggested an appeal to item (k) of Annex I to the SCM Agreement, which Canada contends exempts Canada Account financing and loan guarantees from the prohibition in Article 3 of the Agreement (para. 6.161). According to Brazil, Canada bears the burden of proving its entitlement to this exemption, and has not done so.

(b) Arguments of Canada

6.159 Canada denies Brazil's allegations, maintaining that Canada Account operations are not inconsistent with Article 3. Canada characterizes "Canada Account" operations as financing and loan guarantee activities undertaken by the EDC on the accounts of the Government of Canada; that is, any obligations under the Canada Account are funded by the Government of Canada. The Canada Account is therefore not a pool of money used to subsidise export sales, Canada argues.

6.160 Canada submits that the EDC has been, throughout its history, self-sufficient and operates on the basis of prudent risk management, and that as a result it would not, on that basis, accept all requests for financing or loan guarantees. According to Canada, among the factors that would dissuade the EDC from extending financing or guarantees on its own account are that the transaction could:

6.161 Canada states that in exceptional circumstances the EDC may provide financing or loan guarantees under the Canada Account, and that requests that meet the EDC's basic objectives are authorised by Canada's Minister for International Trade with the concurrence of the Minister of Finance after taking into consideration the following:

6.162 According to Canada, Canada Account financing and loan guarantees for exports committed since the entry into force of the SCM Agreement have been consistent with the interest rate provisions of the OECD Consensus, as required by Item (k) of Annex I, and such financing and loan guarantees are therefore not prohibited, as provided in footnote 5 to Article 3. In response to a Panel question, Canada indicates that it is not invoking the second paragraph of item (k) as a positive defense to any of the claims made by Brazil, in view of its position that Brazil has not made out a prima facie case. Canada argues that in the context of government credit, a subsidy exists where: first, there is a net charge to the treasury of the Member providing the loan (for example, where a government provides credit at rates below those at which it borrows); and second, there is an advantage above and beyond the market (for example, where a government lends at rates below the market). Therefore, according to Canada, to make out a case on Article 1 that Canada Account constitutes a subsidy, Brazil, as the complainant, must establish a prima facie case on both elements of the test of Article 1. In Canada's view, Brazil has not done so.

6.163 Canada asserts that Brazil relies on two pieces of evidence in support of its allegation that the Canada Account is a subsidy, and that Brazil invites the Panel to presume that a subsidy exists because of an alleged "blanket of confidentiality" or a "veil of secrecy" that surrounds the Canada Account. For Canada, this evidence does not stand for the proposition in support of which it is adduced, and does not stand up to closer scrutiny.

6.164 Canada objects to the conclusion that Brazil draws a statement in the EDC's Annual Report -- that Canada Account funds are "'used to support export transactions which ... for reasons of size or risk, the ... EDC cannot support through regular export credits'" -- that the Canada Account provides subsidies. According to Canada, the EDC may determine not to engage in a given financing transaction on the basis of prudent portfolio management. A transaction may be rejected by the EDC because further exposure to a particular country or credit is judged not to be prudent for the corporation, given its existing portfolio. At the same time, the EDC under the Canada Account may not have the same exposure to the country or credit in question, and if the transaction is deemed by the Canadian Government to be in the national interest, such transaction may be considered under the Canada Account. Canada states that like the corporate account, the Canada Account is managed in accordance with prudent commercial risk practices, and therefore, the fact that the EDC under the Canada Account may advance credit where the EDC, for the reasons of portfolio management, would not do so under its corporate account, does not support the proposition that the Canada Account imposes a net charge against the treasury of Canada or that it provides an advantage above and beyond the market.

6.165 In response to Brazil's arguments on the alleged "non-transparency" of the Canada Account and Brazil's statement that an expert Canadian economic consulting firm and highly reputable Canadian law firm have produced all the evidence about Canada Account they could find from public sources, Canada provided a copy of the Summary of the Report to the Treasury Board on EDC's Canada Account Operations for the Fiscal Year 1995-96 that was posted on EDC's website.²⁹⁸ Canada acknowledges that, as argued by Brazil (para. 6.153) Canada Account loans may be provided on either concessional (that is, below market) or non-concessional (that is, commercial) terms. Canada notes that the Canada Account report²⁹⁹ contains two tables - one detailing concessional loans, and the other non-concessional loans. According to Canada, the "concessionary" financing is part of Canada's Official Development Aid, and is provided in accordance with the Helsinki tied-aid rules of the OECD Consensus. Canada maintains that since 1995, tied-aid has not been used in respect of any country other than China, and has not been used in respect of civil aircraft, which in any event is prohibited under the OECD Consensus. Since this concessionary financing is not used in respect of civil aircraft, it is Canada's view that it falls outside the Panel's jurisdiction.

6.166 Regarding the newspaper quote from Bombardier that Canada Account financing is at "close to commercial rates" (para. 6.155), Canada asserts that the comment was made in reference to the Commercial Interest Reference Rates established by the OECD Consensus.³⁰⁰ Canada notes its argument that Canada Account transactions are consistent with the interest rates provisions of the OECD Consensus.

6.167 Canada submits that according to the OECD Consensus, the Commercial Interest Reference Rates "represent commercial lending interest rates in the domestic market of the currency concerned."³⁰¹ These commercial reference rates are, therefore, by definition, "'close to commercial rates'", and indeed , may be above or below the market for a particular credit, Canada states. Accordingly, in Canada's view, Brazil's reference to this comment does not amount to proof that Canada Account financing confers an advantage above and beyond the market.

6.168 More important for Canada, the quoted statement says nothing at all about the "'net cost'" element of the test in Article 1, in Canada's view because the relevant Commercial Interest Reference Rate for the currency in which the Canada Account transactions for civil aircraft have been done (the commercial reference rate for the US dollar is equivalent to the yield on US Treasuries plus 100 basis points) was well above the cost of funds for the Government of Canada in both instances.

6.169 According to Canada, Brazil therefore has not raised a prima facie case with respect to either of the two prongs of the test for establishing that government export credit is a subsidy.

6.170 Canada further submits that since Brazil has not made a prima facie case that Canada Account lending constitutes an export subsidy, Canada is not invoking the second paragraph of Item (k) of Annex I of the SCM Agreement as a defence to any of the claims made by Brazil in respect of Canada Account financing.

6.171 Canada submits that in the regional aircraft sector, Canada Account plays a minor role in financing of exports. According to Canada, out of a total of 281 aircraft financed and delivered in the period 1 January 1995 to 29 October 1998,³⁰² Canada Account was used to finance only six deliveries, all of them Dash 8-300's³⁰³ split equally between LIAT of Antigua and South African Express of South Africa.³⁰⁴

6.172 In response to a Panel request for the details of these six deliveries, including terms, conditions and copies of the relevant finance arrangements, Canada replies that the information requested by the Panel is sensitive business confidential information, and that Canada's desire to present to the Panel such information as may help it arrive at a decision must be balanced against the commercial interests and legal rights of private parties not Party to this dispute.

(c) Comments of Brazil

6.173 Regarding Canada's response to the Panel's request for information on Canada Account financing of the six deliveries of regional jets, Brazil argues that Canada has refused to provide the documents requested by the Panel. As a result, the Panel should adopt adverse inferences, presuming that the information withheld is prejudicial to Canada's position (paras. 4.146-4.151). Such treatment is particularly compelling here, where Canada has acknowledged that the Canada Account has been used to finance particular regional aircraft transactions (para. 6.170), and where Bombardier has acknowledged that it has used Canada Account financing under terms described as "'close to commercial.'"³⁰⁵

To continue with Technology Partnerships Canada ("TPC") and Predecessor Defence

²⁸⁰ EDC's Summary Reports to Treasury Board on Canada Account Operations for the periods 1994-95, 1993-94 and 1992-93, respectively, Exhs. BRA-24, 25 and 26.

²⁸¹ EDC 1995 Annual Report, "Canada Account Profile" (Exh. BRA-27).

²⁸² Summary of the Report to Treasury Board on Canada Account Operations for the Fiscal Year 1994-1995 by the Export Development Corporation, p. 1 (Exh. BRA-24).

²⁸³ EDC 1995 Annual Report, "Canada Account Profile" (Exh. BRA-27). Larger transactions must be approved by the Cabinet.

²⁸⁴ Id. (emphasis added).

²⁸⁵ Id. See also Summary of the Report to Treasury Board on Canada Account Operations for the Fiscal Year 1994-1995 by the Export Development Corporation, p. 3 (Exh. BRA-24).

²⁸⁶ EDC Response to Inquiry of Ministry, Question No. Q-30 by Mr. Schmidt, dated 19 March 1996 (Exh. BRA-28).

²⁸⁷ Id.

²⁸⁸ Id.

²⁸⁹ Id.

²⁹⁰ EDC 1995 Annual Report, "Canada Account Profile" (Exh. BRA- 27).

²⁹¹ Id.

²⁹² Message at 2 (Exh. BRA- 7).

²⁹³ Id. at 4.

²⁹⁴ "Ottawa slams Brazil's Bombardier claims," The Globe and Mail, 23 November 1998 (Exh. BRA-87).

²⁹⁵ Id.

²⁹⁶ Exh. BRA-27.

²⁹⁷ Id..

²⁹⁸ Summary of the Report to the Treasury Board on EDC's Canada Account Operations for the Fiscal Year 1995-96, EDC online: homepage (date accessed: 10 December 1998). (Exh. CDN-92)

²⁹⁹ Exh. CDN-92, pp. 8-9

³⁰⁰ Letter to whom it may concern from Dr. Yvan Allaire, dated 27 November 1998. (Exh. CDN-64); Arrangement on Guidelines for Officially Supported Export Credits (OECD Consensus) TD/Consensus(97)70 (Exh. CDN-3).

³⁰¹ OECD Consensus, at 12 (Exh. CDN-3).

³⁰² Chart showing Canadian Regional Aircraft Exports - Financed and Delivered: 1 January 1995 - 29 October 1998 (Exh. CDN-61).

³⁰³ Chart showing Canadian Regional Jet Exports - Financed and Delivered: 1 January 1995 - 29 October 1998 (Exh. CDN-62).

³⁰⁴ Chart showing Canadian Regional Turboprop Exports - Financed and Delivered: 1 January 1995 - 29 October 1998 (Exh. CDN-63). See also, table provided in answer to Question 17 of the Panel.

³⁰⁵ Exh. BRA-87.