6.388 In response to Brazil's argument that 10 of the 26 CRJs were sold prior to 1995, Canada argues that counting a sale as when a delivery is made, Air Canada has acquired 22 CRJs since 1 January 1995⁴⁶⁷ two of which were paid for in cash in January 1997 (para. 6.373), and the remaining 20 were financed through US leveraged leases. With respect to Dash 8 sales and Brazil's argument that Canada cannot "have its cake and eat it too", Canada submits that its comments on the Clark Report were simply responding to the assertions and analysis of that document and that it was the Clark Report that chose to review the period before 1995. In Canada's view, its comments on the Clark Report took no position on whether the transactions prior to 1995 are within the scope of the Panel's jurisdiction.

6.389 Canada's denies that it acknowledges that any of the 26 Air Canada CRJs were sold via EDC's equity financing vehicle to a US SPC (para. 6.381). Canada asserts that the statements of Canada cited by Brazil in this regard make no mention of EDC involvement, nor of CRJ Capital, and argues that Brazil continues to mischaracterize CRJ Capital as "'EDC's equity financing vehicle'". Canada recalls its statements and the officers' certificate that it submitted,⁴⁶⁸ to this effect.

6.390 Regarding Brazil's argument that the aircraft acquired by Air Canada through leveraged leases are export sales, Canada submits that the fact that the owners of these US leveraged lease financed aircraft are owner-trustees located in the United States does not make these transactions into export sales. For Canada, US leveraged leases are just a means of financing an acquisition which are used to finance a variety of capital goods. Canada states that, for example, a Canadian electrical utility could finance a new coal-fired electrical power plant built and located wholly within Canada with a US leveraged lease, and that the power plant never leaves Canadian soil and thus is not exported.⁴⁶⁹

6.391 For Canada, regarding the term "export" for the purposes of Article 3 of the SCM Agreement, the ordinary meaning is to "send out (goods ...) esp. for sale in another country".⁴⁷⁰ Canada submits that there is nothing in the context, object and purpose, or negotiating history of the SCM Agreement that would indicate that the interpretation of "export" should be any different than the ordinary meaning. In this sense, Canada states, there is no indication of these aircraft being exported.

6.392 Canada takes issue with Brazil's characterization of its argument regarding Transport Canada's requirements (para. 6.384). Canada states that its argument is that each aircraft was required by contract to be manufactured in compliance with Transport Canada requirements for domestic aircraft.⁴⁷¹ This, Canada submits, is evidence that these aircraft were not intended for export, as if they had been intended for export to the United States, they would have been manufactured in compliance with the requirements of that jurisdiction - that is, requirements set by the US Federal Aviation Authority.

6.393 In this regard, the Standard Certificate of Airworthiness should be contrasted with an Export Airworthiness Certificate, according to Canada. Canada states that CRJs acquired by Air Canada receive a Standard Certificate of Airworthiness,⁴⁷² whereas export customers such as those in the United States would receive an Export Airworthiness Certificate⁴⁷³, the significance of which is set out in the Canadian Aviation Regulations.⁴⁷⁴

6.394 Canada submits that according to these Regulations, where the Canadian Minister of Transport agrees to issue an Export Airworthiness Certificate in respect of an aircraft being exported as conforming to a foreign airworthiness standard, the Minister must verify compliance with any special requirements set out in that foreign standard⁴⁷⁵, which for aircraft exported to the United States are set out in an Appendix to the Regulations.⁴⁷⁶ According to Canada, The US Federal Aviation Authority (or FAA) will accept Canadian export airworthiness certification, as long as the aircraft conforms to certain FAA requirements, pursuant to a bilateral agreement between Canada and the United States concerning, among other things, the airworthiness of imported civil aircraft.⁴⁷⁷

6.395 Canada argues that the 24 CRJs in question were not manufactured to comply with the requirements for Export Airworthiness Certificates for the United States - precisely because there was no intention to export them, and they were not exported. Canada states that the results of a Transport Canada database search on all of the CRJs in question show that none of the 24 CRJs acquired by Air Canada under US leveraged leases have been exported⁴⁷⁸, and that none of them ever was registered by Transport Canada as being imported into Canada.⁴⁷⁹ Canada also argues that if an aircraft is imported, that fact is registered in the Canadian Civil Aircraft Registry, so in the Registry for a used Dash 8 imported by Air Nova, the entry lists the "Year imported", as 1988. Similarly, the entries for two SAAB 340Bs show they were imported in 1994 and 1995 respectively. Canada submits, however, that the Canadian Civil Aircraft Registry entries for all Air Canada CRJs, shows that the aircraft financed through US leveraged leases have never been imported.

6.396 Canada also disagrees with Brazil's argument that it would be illegal under section 202.42 of the Canadian Aviation Regulations for Air Canada to operate foreign-registered aircraft without obtaining a Canadian Certificate of Registration. Canada states that this section does allow for the operation of foreign-registered aircraft on lease operations in Canada, without requiring that those aircraft receive a Canadian Certificate of Registration.⁴⁸⁰ Canada argues that a Canadian operator operating a foreign-registered aircraft can only do so only for a period of twenty-four months in a thirty month period⁴⁸¹, but also notes that under the Convention on International Civil Aviation, Article 18, an aircraft cannot be validly registered in more than one State⁴⁸², meaning that either the CRJs are registered in Canada, or they are registered elsewhere (such as the United States) - they cannot be registered in two countries at the same time.

6.397 Canada asserts that a Canadian Certificate of Registration is necessary for Canadian aircraft, as is clear in the Canadian Aviation Regulations⁴⁸³. The fact that the Air Canada CRJs have Canadian Certificates of Registration thus does not make it "'all the more evident that the CRJs at issue... are therefore 'foreign-registered'", in Canada's view. Canada reiterates that the CRJs cannot be both Canadian registered and foreign-registered. And since these aircraft have never been exported and subsequently imported, they never were foreign-registered.

4. Rebuttal of Brazil

6.398 Brazil takes issue with Canada's argument that the Clark Report used an "'incorrect'" definition of the term "sale." Brazil recalls Canada's argument that a sale only occurs when a plane is delivered, and that had the Clark Report used this date, it would have accounted for the purchase of two Dash 8 aircraft in 1992 by Air BC, a Canadian airline. Brazil notes that it appears that these aircraft were ordered in 1989, and were therefore not included in the Clark Report's results.

6.399 For Brazil, Canada's criticism is of no consequence, since it relates to sales occurring before the effective date of the Subsidies Agreement, no matter what the proper definition of "sale." In any event, the Clark Report adopted the "date of sale" used by Canada in trade remedy cases, where it identifies the "date of sale" as:

6.400 This definition would not, according to Brazil, dictate that the correct date of sale is determined by the delivery date.

To continue with Arguments of Third Parties

⁴⁶⁷ Bombardier Inc, list of CRJ delivery dates to Air Canada (Exh. CDN-90)

⁴⁶⁸ Exh. CDN-93

⁴⁶⁹ Memorandum to Blair Hankey from William Macan, 14 November 1998, "US Cross-Border Leasing - No 'Export' Requirement" (Exh. CDN-79)

⁴⁷⁰ Hawkins and Allen, eds., The Oxford Encyclopedic English Dictionary (Oxford University Press: Oxford, 1991) definition of "export" at 500 (Exh. CDN-80).

⁴⁷¹ Declaration of Michel Bourgeois, 24 November 1998. (Exh. CDN-69).

⁴⁷² Standard Certificate of Airworthiness, 27 May 1996, CRJ serial number 7120, Canadian Registration Mark C-FWSC (a CRJ delivered to Air Canada) (Exh. CDN-69).

⁴⁷³ Export Certificate of Airworthiness, 17 August 1998, for CRJ serial number 7253 (Exh. CDN-69).

⁴⁷⁴ See, Transport Canada, online: Transport Canada homepage, www.tc.gc.ca (date accessed: 3 December 1998) Canadian Aviation Regulations - General Information on the CARS (Exh. CDN-81)

⁴⁷⁵ Airworthiness Manual, Chapter 509, CAR 509.03(1) "Authority for Export"; and also see Canadian Aviation Regulations, subpart 9 - Export Airworthiness Certificates (Exh. CDN-82)

⁴⁷⁶ Canadian Aviation Regulations, Airworthiness Manual, Chapter 509, Appendix B "Foreign Special Requirements" and Annex I "United States of America". (Exh. CDN-83)

⁴⁷⁷ Exchange of Notes regarding Agreement Concerning the Airworthiness and Environmental Certification, Approval, or Acceptance of Imported Civil Aeronautical Products: Note No. ETT-1583, dated 31 August 1994, from Lloyd Axworthy, Minister of Transport, to Paul Robinson, Ambassador for the United States of America; Note No. 330, dated 31 August 1994, from John Rouse, Charge d'Affaires to Lloyd Axworthy, Minister of Transport. (Exh. CDN-78)

⁴⁷⁸ Affidavit of Sheila Dowd, Chief, Aircraft Registry and Leasing, General Aviation Branch of the Department of Transport. (Exh. CDN-84) One aircraft, mark C-FZSI, purchased outright for cash by Air Canada and delivered in January 1997, (see Exh. CDN-70) was sent to Argentina in November 1997, and was subsequently returned to Air Canada in April 1998.

⁴⁷⁹ Affidavit of Sheila Dowd, (Exh. CDN-84).

⁴⁸⁰ Canadian Aviation Regulations Section 202.42 is expressly subject to Section 203.03. (Exh. CDN-85) Section 203.03, and Subpart 3 in general, set out the conditions for, among other things, a Canadian operator to operate a foreign-registered aircraft that the operator has leased for use in Canada. (Exh. CDN-86) See also Standard 223, Respecting the Operation of a Leased Aircraft by a Non-registered Owner. (Exh. CDN-87)

⁴⁸¹ Canadian Aviation Regulations Section 203.08. (Exh. CDN-86).

⁴⁸² Convention on International Civil Aviation, International Civil Aviation Organization Doc. 7300/5, 1980 (Exh. CDN-88)

⁴⁸³ Canadian Aviation Regulations Sections 202.13 to 202.17 and 202.69.

⁴⁸⁴ Exh. BRA-99.