(a) Arguments of Brazil

6.220 Brazil discusses a number of factors which in its view demonstrate that TPC and DIPP support to the Canadian regional aircraft industry is "in fact tied to actual or anticipated exportation or export earnings". Brazil submits that the comments of Industry Minister John Manley in announcing its "'partnership'" with de Havilland, that "'Aerospace is a crucial sector for Canada's economy, with exports growing at 10 per cent per year'" apply equally to the TPC's interest-free $87 million loan to Bombardier, the $147 million loan to Pratt & Whitney, the loans to Allied Signal and Sextant Avionique, and the DIPP loan for initial development of the CRJ. Brazil also states that Mr. Herb Gray, Leader of the Government in the House of Commons and Solicitor General of Canada, added, in remarks that also apply equally to the other loans, that "'[t]hese two outputs of the Dash 8-400 project -- the creation of jobs and the building of exports -- are just what the government had in mind when we established Technology Partnerships Canada earlier this year.'"³⁶² Brazil emphasizes that each Dash 8 series aircraft sold since 1992, and each CRJ sold since its development, has been sold for export.

6.221 According to Brazil, in June 1998, after only two years of operation, TPC investments in the Canadian aerospace industry totaled Can$407.6 million,³⁶³ representing 72 per cent of total TPC funding to all sectors. According to Brazil, of that total Can$267 million (paras. 6.181, 6.186, 6.187, 6.193), or 66 percent, was invested in the regional aircraft industry. Brazil notes a press report indicating that the Canadian aerospace industry has indicated that an "'additional $300 million in annual TPC funding is required to build on current technology and secure the future for Canadian aerospace.'"³⁶⁴

6.222 For Brazil, TPC and DIPP assistance to the civilian regional aircraft industry is contingent in law or in fact upon export, in that, according to Brazil (citing to the Clark Report), all CRJ aircraft, and all Dash 8 aircraft sold since 1992, have been sold solely for export. For Brazil, although under the terms of the SCM Agreement "'[t]he mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy,'"³⁶⁵ funding mechanisms meet the definition of subsidy when they are "'in fact tied to actual or anticipated exportation or export earnings.'"³⁶⁶ Brazil asserts that the Canadian Government supports the Canadian aerospace industry (and Bombardier) through TPC precisely because it is an "'export-oriented'" sector the "'well-being'" of which "'is vital to Canada's economy.'"³⁶⁷ Most significantly for Brazil, every Dash 8-400 and every CRJ-700 sale benefiting from TPC and DIPP funding has been for export.³⁶⁸ Accordingly, the TPC and DIPP "investments" advanced to support these aircraft are export subsidies in law or in fact and are, accordingly, prohibited by Article 3 of the SCM Agreement.

6.223 That is, according to Brazil, Canada maintains massive amounts of support to its regional aircraft industry precisely because it is 100-per cent export oriented and precisely because they anticipate that this trend will continue. For Brazil, the available evidence supports only one conclusion: were it not for the total export orientation of the Canadian regional aircraft industry, Canada would not continue to give it billions of dollars in subsidies.

6.224 In Brazil's view, this is particularly important in determining whether TPC and DIPP grants constitute, within the meaning of Article 3 of the SCM Agreement, export subsidies "in fact." Brazil maintains that the drafters of Article 3 appreciated the fact that a subsidy need not be "legally contingent on export performance," if it is instead "in fact tied to actual or anticipated exportation or export earnings."

6.225 Brazil submits that the significant support offered to the Canadian regional aircraft industry is both a reward for past export performance, and a grant which various Canadian statements make eminently clear is given in anticipation of continued, exceptional export growth and total, 100 per cent export orientation.

6.226 For Brazil, Canadian practices embody precisely the meaning of the term "export subsidies in fact." To fail to apply the de facto export subsidy provision in these circumstances would be to render the prohibition of de facto export subsidies empty, and to give Members a license to provide export subsidies with abandon, subject only to the limitation that they avoid using the word "export" in their laws and regulations and in their dealings with export-oriented companies.

6.227 Brazil acknowledges that some TPC and DIPP funds may have gone to other industries with sales in export markets, or to other industries with sales in domestic markets, but states that Brazil's claim is unrelated to these possible instances of TPC and DIPP funding. For Brazil, when TPC funds were disbursed to the Canadian regional aircraft industry, they were given to an industry which is 100-per cent export oriented, precisely because it is an export industry and was anticipated to remain so.

6.228 Brazil contends that while Article 3.1(a) provides that the mere granting of a subsidy to an exporting entity will not "for that reason alone" make it a prohibited export subsidy, the Panel is not here faced with such a case. In Brazil's view, although Canada would have the Panel believe that Brazil's entire claim turns on what Canada calls the "export propensity" of the Canadian regional aircraft industry alone, there are many convergent factors contributing to Brazil's conclusion that support to the Canadian regional aircraft industry through TPC and DIPP is "in fact tied to actual or anticipated exportation or export earnings," i.e., that the Canadian Government and the provinces have supported the Canadian regional aircraft industry precisely because it is a total export industry, and precisely because they anticipate that this performance will continue:

6.229 Brazil disagrees with Canada's argument concerning small economies (para. 5.74). In Brazil's view, Canada is effectively arguing that despite the terms of Article 3.1(a), its alleged position as a "small economy" warrants that it be accorded special treatment. Brazil questions Canada's claim of "small economy" status for itself, noting that Canada is a founding Member of the WTO, a member, with the United States, Japan and the European Communities, of the WTO "Quad," and a member of the OECD. For Brazil, Canada's argument also must fail as a matter of law, because there is only one law, applying equally to large and small economies alike, and it is found in the ordinary meaning of Article 3.1(a).

6.230 Brazil further argues that this is not a case of a small economy of necessity having a small share of a global market, as Canada claims, or of support being given to an industry by a government indifferent to whether that industry sells in domestic or export markets, but is a case in which, by the deliberate action of the Canadian Government, whatever demand existed in the domestic market was satisfied by what were legally export sales, not domestic sales (paras. 5.113-5.115).

To continue with Arguments of Canada

³⁶² Exh. BRA-4 (emphasis added by Brazil).

³⁶³ TPC investment summary, from TPC website, dated 22 July 1998 (Exh. BRA- 47).

³⁶⁴ "As Bombardier takes off, Pratt descends: Diverging fortunes raise questions about subsidies," The Globe and Mail, 19 October 1998 (Exh. BRA- 41).

³⁶⁵ SCM Agreement, Article 3.1(a), note 4.

³⁶⁶ TPC Annual Report 1996-1997, p. 5 (Exh. BRA- 5); Industry Canada, News Release, 17 Dec. 1996 (Exh. BRA- 4).

³⁶⁷ Id.

³⁶⁸ Clark Report, at pgs. 7-8, 13, 50-51, and Tables 1 and 2.

³⁶⁹ TPC Annual Report 1996-1997, pg. 5 (Exh. BRA-5).

³⁷⁰ Canadian Taxpayers Federation study, "Corporate Welfare - A Report on Sixteen Years of Industry Canada Financial Assistance," 16 April 1998, Tab 4 (Exh. BRA-31). This statement of total DIPP funding to the aerospace sector represents aggregate DIPP funds released to four Canadian companies, i.e., Bombardier, de Havilland, Pratt & Whitney Canada Inc., and CAE Electronics Ltd.

³⁷¹ Committee on Foreign Affairs and International Trade, pg. 43:30 (emphasis added) (Exh. BRA-9).