6.234 Canada states that TPC is a programme administered by the Department of Industry of the Government of Canada (Industry Canada). It was established in 1996 under the authority of the Department of Industry Act,³⁷² with a funding in the amount of $150 million in 1996/97, $200 million in 1997/98 and $250 million thereafter, with repayments and revenues recycled to sustain and increase the fund.³⁷³

6.235 According to Canada, TPC provides support to a broad base of sectors and technologies that touch on virtually all industrial sectors of Canada. Specifically, eligible sectors and technologies include the Aerospace and Defence sector (including defence conversion), environmental technologies and "'enabling'" technologies, which include biotechnologies, information and communication technologies, and advanced materials and advanced manufacturing technologies. Canada indicates that as of September 30, 1998 TPC had approved 65 projects representing a total of $582 million in multi-year investments; and that of these, 48 projects ($174.5 million) involved environmental and enabling technologies, with the balance going to the Aerospace and Defence sector.

6.236 Canada states that the basic objectives of the TPC programme, set out in its Charter³⁷⁴, include "'to maintain and build the industrial technology and skill base essential for internationally competitive products and services'"³⁷⁵. Canada asserts that TPC does not have "'export performance'" as a condition, in law or in fact, of project support. Canada submits that nothing in the application documents or the contribution agreements of TPC identifies export performance as a condition for eligibility for or approval of contributions.³⁷⁶

6.237 Canada states that the basic objectives of TPC, approved by the Government of Canada following its 1995 Budget, are to:

6.238 Canada argues that TPC's eligibility criteria reflect these objectives and are set out in the application documents.³⁷⁷

6.239 Canada provides Volumes I and II of the Interim Reference Binder (Binder) of the TPC programme,³⁷⁸ including the following documents³⁷⁹:

6.240 Canada argues that none of these documents in any way indicates or intimates that "'export performance'" is a criterion of eligibility for the TPC programme. Canada states that Ministerial assessment criteria under TPC are not related to export performance.

6.241 For Canada, the "export propensity" of the aerospace sector is a fact of the market rather than a condition or requirement of the programme. The world aircraft industry is one of the most globalised industries, with few countries producing all the necessary technology domestically and all relying on economies of scale for profitability, and the Canadian aerospace sector is no different.

6.242 Canada submits that in view of the small size of the Canadian market, the significant dependence of the Canadian economy in general and the manufacturing sector in particular on exports,³⁸⁰ it would not be unusual if a large proportion of the sales of Canadian manufacturers are made in markets other than Canada.³⁸¹

6.243 For Canada, however, there is no requirement, in law or in fact, that the products resulting from the research and development investment by the Government of Canada be exported; there are no penalties if exports do not take place; royalties are not reduced if exports increase; repayment obligations are not in anyway affected by whether the sales are made in Canada or outside Canada. Accordingly, Canada argues, TPC contributions are not, in law or in fact, conditional on or tied to export performance.

6.244 Canada submits that Brazil has not presented a prima facie case with respect to export contingency. Canada challenges the evidence adduced by Brazil in support of its "export propensity"- and "intent"-based argument that TPC funding to the civil aircraft industry is contingent on export performance.

6.245 For Canada, evidence adduced by Brazil from Industry Canada's annual report, acknowledging the export orientation of the aerospace sector (para. 6.175) is not relevant to the question of export contingency.

6.246 Canada also disputes as incorrect the conclusion of the "Clark Report" that all CRJ and Dash 8 sales since 1992 have been for export. (See section VI.G for detailed arguments concerning the Clark Report.) Thus, for Canada, this evidence has been rebutted, and does not establish a prima facie case.

6.247 Canada also maintains that the statements cited by Brazil of Canadian Ministers acknowledging the importance of the aerospace sector to the Canadian economy and that the creation of jobs and building of exports was an objective of TPC is not relevant to the question of export contingency.

6.248 That is, Canada argues, Brazil has not adduced any evidence to show that TPC contributions are contingent on export performance, in the sense that contributions would not be paid unless exports took place, that there would be rewards if exports took place or that there would be penalties if exports did not take place. Canada maintains that there is no such evidence because this is not how TPC contributions are made.

6.249 According to Canada, TPC's area of activity is defined very broadly, and TPC has invested in projects ranging from closed loop, zero-effluent environmental solutions for the pulp and paper industry, research into a vaccine for cancer, precision laser welding technology to advanced flight simulators. Canada states that the TPC programme is thus aimed at building and improving Canada's technological and international competitiveness. TPC invests in products and technologies that advance this general objective.

6.250 Canada argues that the TPC is not contingent on export performance because it is neutral as to the destination of a successful product or the fruits of a successful technology. That is, a contribution is made where a product or a technology has the potential of achieving market success, either domestically or internationally.

6.251 According to Canada, eligibility for the programme does not depend on export performance: export performance does not increase TPC's share of the costs that are eligible under the programme - that is, there will not be more TPC contributions if there are exports; there are no penalties if there are no export sales; there are no rewards if products are exported. Rather, practically the opposite is true: higher sales - export or domestic - mean that a producer has to pay more in royalty payments to the Government of Canada.

6.252 Canada submits that at no point in the process of qualifying for a TPC investment is there a requirement that exports take place: the eligibility criteria for the TPC do not include export performance; in applying for a TPC contribution, an enterprise is not required to show that it makes any exports; and in entering into an agreement to receive TPC contributions, an enterprise is not required to show or promise that it will export. Canada notes the example of a contribution for the treatment of tar sands in Athabasca in Northern Canada, indicating that there is no requirement there that the process that is developed is then exported. For Canada, this is how TPC is applied in the aerospace sector; thus the TPC programme is not contingent on export performance.

6.253 According to Canada, TPC contributions are conditional on success - and on presenting a successful business plan. Canada argues that regardless of the destination of sales in a business plan, the questions that the administrators of the programme will put to the proponent of the project will not concentrate on the export aspects of the project, but rather on whether the project is going to be viable, i.e., whether the business plan makes sense so that the contribution is not wasted. In answer to a Panel question regarding assessment criteria, Canada indicates that "other assessment criteria" that may apply include regional distribution; sectoral balance (both within and across eligible sectors); the need for an appropriate mix of projects between large firms and small to medium enterprises (SME); availability of funds; and portfolio management considerations (for example, balanced risk profile, matching cash flows to requirements). Also in response to a Panel question regarding performance indicators for projects in the aerospace and defense sector, Canada states that there are no performance indicators unique to projects in the Aerospace and Defence sector, but that rather the following key indicators (and as reported in the 1997/98 TPC Annual Report) are tracked for the Programme as a whole: progress on SME delivery: the distribution of the number of projects and dollars of investment by size of recipient; regional balance: the distribution of the number of projects and dollars of investment by region; sectoral balance: the distribution of the number of projects and dollars of investment by component (TPC's target being that the Environmental and Enabling Technologies component of the programme utilizes one-third or more of the programme's budget by 1998-99; leverage: dollars of private sector investment in innovation per dollar of TPC investment; sharing ratio: the weighted average sharing ratio (TPC's target being to average below 33 per cent; job creation: the number of forecasted jobs created or maintained over the life of the investments; and economic activity: the value of forecasted sales over the life of the investments.

6.254 Canada states that where a recipient fails to make any sales - including export sales - the investment of the Government of Canada in the project will have failed. According to Canada, the recipient does not suffer additional penalties because it did not sell into export markets, and if additional contributions by the government are due, they are not terminated because exports do not take place, nor are royalties payable to the government increased on domestic sales if export sales are not made.

6.255 Canada also argues that no distinction is made between export and domestic sales for the purpose of TPC royalty payments. That is, Canada states, export royalties are not lower than domestic ones.

6.256 Regarding the phrase "maintain and build upon the technological capabilities and production, employment and export base" of Canada in the TPC eligibility criteria for the aerospace and defence sector, which was the subject of a Panel question, Canada states that subsidies that develop a country's global competitiveness and thus maintain and build upon its export base are not inconsistent with the SCM Agreement for that reason alone. To so argue in Canada's view would be to suggest that the SCM Agreement permits only subsidies that are, at best, neutral as to competitiveness and productivity, which would simply render illegal just about every industrial and labour adjustment programme the world over.

6.257 Thus, for Canada, the fact that an increase in global competitiveness was an objective of the TPC does not make the TPC, or contributions given under it to the aerospace sector, illegal under Article 3, as governments do not generally make investments to make their economies less competitive.

6.258 Responding to a Panel question regarding advice from the Department of Foreign Affairs and International Trade to TPC, Canada states that the Government of Canada through TPC tries to spur investment by the private sector in technologies and sectors that are considered to be important for Canada's competitiveness and for increased productivity. In the process, Canada states, the Government wishes to ensure that it shares in the upside benefits of its investments, so that new investments can be made, and in doing so has to ensure that a proposed project has a market. According to Canada, in determining the strength of this market, the Government takes advantage of all the information available to it, including the expertise of the Department of Foreign Affairs and International Trade.

6.259 In response to a Panel request for full details and documentation relating to the evaluation and decisions relating to the five TPC contributions acknowledged by Canada, Canada states that most of the information requested by the Panel is highly 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. According to Canada, these private parties, and others in the process of submitting applications under the TPC programme, have already expressed reluctance in sharing information, or additional information, concerning their business plans, and such reluctance, if it were to continue, would have a serious deleterious impact on the functioning of the TPC programme.

6.260 Canada states that it has requested the interested private parties to release Canada from obligations arising under the business confidentiality clauses of Canada's arrangements with them. With the exception of Bombardier, these interested parties have indicated that they are not prepared to allow Canada to release business confidential information, or have not responded to the request for release³⁸². Canada indicates that Bombardier agreed to release specific business confidential documents relating to the CRJ-700 programme that illustrate the operation of TPC, and that exceptionally sensitive confidential information in those documents was redacted to protect the commercial interests of Bombardier.³⁸³

6.261 Canada states that it is unable to comply with the Panel's request for all project assessments and funding decisions documents. Since the level of contribution was in excess of $20 million, Cabinet approval was required for this investment, and therefore according to Canada, the recommendation, options, communications strategy, supporting rationale and analysis are contained in a Memorandum to Cabinet (MC) and as such constitutes a cabinet confidence and cannot be divulged. Similarly, the Project Summary Form (PSF) in this case was required to be presented to the Minister of Industry Canada for signature, and therefore constitutes Ministerial advice that Canada states cannot be released.

6.262 Canada summarizes the basis for its investment in the CRJ-700 project, indicating that the key considerations were: that the timing of the project coincided with planned Canadair workforce reductions and would create or maintain 1,000 jobs during the development phase alone; that the CRJ-700 was planned to advance the state-of-the-art in regional jet operating performance and would provide tangible benefits to operators in Canada and abroad; that the project would offer real opportunities for participation by domestic aerospace sub-contractors to expand their sales base and enhance their technical capabilities; that project risk was considered manageable in light of Bombardier's proven track record and because the technical risk was mitigated by the fact this aircraft was a stretch version of an existing platform - the CRJ50; that market risk was also manageable given the CRJ50's strong position in the regional jet market, and the preference by airlines to utilize families of aircraft to reduce part inventories and training requirements; and that independent market forecasts and Industry Canada's sectoral experts confirmed that the size of the potential market for a 60-90 seat regional jet to be in excess of 1,000 units through 2010.

6.263 Canada also indicates that there are no Memoranda of Understanding between TPC and relevant companies. The rights and obligations of the Government of Canada and the applicants are set out in the contribution agreements.

To continue with Comments of Brazil

³⁷² Statutes of Canada 1995, c. 1, sections 4(1)(a), 5(c), 5(d), 6(c) and 14(1)(c) (Exh. CDN-26).

³⁷³ Technology Partnerships Canada, 1996-97 Annual Report (Ottawa: Industry Canada, 1996) at 26-28 (Exh. CDN-27).

³⁷⁴ Technology Partnerships Canada, Charter, 2 December 1996 (Ottawa: Industry Canada, 1996) at 3. (Exh. CDN-28).

³⁷⁵ Id..

³⁷⁶ A TPC applications kit and a TPC model contribution agreement are set out in Exhs. CDN-29 and 30.

³⁷⁷ Technology Partnerships Canada, Terms and Conditions, at 1 (Exh. CDN-65).

³⁷⁸ Exh. CDN-65

³⁷⁹ Canada initially provided the documents listed in this paragraph, and subsequently, in response to a request from the Panel, provided Volumes I and II in their entirety.

³⁸⁰ In 1997, the total value of Canadian exports was Can$344 bn, constituting 40 per cent of Canada's GDP. See Statistics Canada, "Gross domestic product (expenditure-based)", (1998) online: Statistics Canada Homepage (http://www.statcan.ca/english/Pgdb/Economy/Economic/Econ04.htm ( (date accessed: 14 November 1998) (Exh. CDN-31).

³⁸¹ Exports constitute 70 per cent of the total sectoral production. 53.5 per cent of manufacturing shipments were exported in 1996. Canadian Industry Statistics Development Team, "The Canadian Economy" (1998) Strategis, online: Industry Canada homepage (http://strategis.ic.gc.ca/SSC/ci00034e.html( (date accessed: 14 November 1998) (Exh. CDN-32).

³⁸² Exh. CDN-106

³⁸³ Exh. CDN-107