A. Introduction

9.1 This dispute concerns prohibited export subsidies allegedly provided by the Government of Canada or its provinces to the Canadian civil aircraft industry.

9.2 On 10 March 1997, Brazil requested consultations with Canada concerning "certain subsidies granted by the Government of Canada or its provinces that support the export of civilian aircraft from Canada."⁴⁹⁷ Consultations were requested under Article 4 of the Agreement on Subsidies and Countervailing Measures (hereinafter "SCM Agreement"). Consultations were held in Geneva on 30 April 1997, but the parties failed to reach a mutually satisfactory solution.

9.3 On 10 July 1998, Brazil requested the establishment of a panel⁴⁹⁸ pursuant to Article 4.4 of the SCM Agreement and Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereinafter the "DSU"). This Panel was established on 23 July 1998, with the following standard terms of reference:

9.4 The parties requested a number of preliminary rulings, and raised a number of preliminary issues, concerning the jurisdiction of the Panel, the temporal application of the SCM Agreement, fact-finding by the Panel, procedures for the protection of business confidential information, deadlines for the submission of new evidence and allegations, deadlines for the submission of affirmative defences, the Panel's right to seek information in respect of defences not raised, the Panel's right to seek information without finding the establishment of a prima facie case, and the Panel's right to seek information in respect of allegations not made.

1. Jurisdiction of the Panel

9.5 Canada has raised two preliminary issues concerning the jurisdiction of the Panel. The first issue is whether certain measures identified in Brazil's request for a panel had been the subject of a request for consultations and were in fact consulted upon, and thus could be the subject of a panel request under Article 4.4 of the SCM Agreement. The second issue is whether certain of the measures identified in Brazil's request for a panel were sufficiently specific as required by Article 6.2 of the DSU. Canada asked the Panel to issue the requested rulings prior to the deadline for the parties' first submissions.

(a) Article 4.4 of the SCM Agreement

(i) Arguments of the parties

9.6 Canada recalls that, with regard to the Export Development Corporation ("EDC"), Brazil's request for establishment of a panel referred to "financing and loan guarantees provided by the [EDC], including equity infusions into corporations established to facilitate the export of civil aircraft", whereas Brazil's request for consultations referred to "[EDC] equity infusions into corporations specially established to facilitate the export of aircraft", and "EDC loan guarantees for exported aircraft".

9.7 Canada submits that Brazil's claim concerning EDC "financing" is outside the Panel's jurisdiction because that claim was not included in Brazil's request for consultations. Canada notes that the only EDC activities referred to in Brazil's request for consultations were "equity infusions" and "loan guarantees". Canada asserts that "financing" is a form of activity distinct from either "equity infusions" or "loan guarantees".

9.8 Canada recalls that Article 4.1 - 4.4 of the SCM Agreement provides:

9.9 Canada submits that there must be a rational connection between "the subsidy in question" identified in the complaining party's request for consultations under Article 4.2 of the SCM Agreement, and the "matter" referred to the DSB in the request for establishment of a panel under Article 4.4 of the SCM Agreement. Canada submits that the "matter" must necessarily follow from the "subsidy in question". Canada asserts that the SCM Agreement is not observed, and due process is not served, if Canada is forced to respond to a "matter" on which no consultations were requested.

9.10 Brazil makes a number of arguments in support of its request that the Panel reject this preliminary issue raised by Canada. First, Brazil asserts that the identification of the EDC in its request for consultations, combined with the broad language of that request of a panel (" ... certain subsidies granted by the Government of Canada or its provinces that support the export of civilian aircraft from Canada"), covered all subsidy aspects of the EDC. Second, Brazil asserts that EDC "financing" was discussed during consultations with Canada. Third, Brazil denies that there is a marked distinction between "financing", and "equity infusions" and "loan guarantees". Brazil argues that "financing" is a broader, more general term encompassing direct lending, debt and equity support. Fourth, Brazil argues that a request for establishment will often not be identical to a request for consultations, because of the refinement of claims likely to result from consultations.

(ii) Evaluation by the Panel

9.11 We note that Canada's argument is based exclusively on Article 4.1 - 4.4 of the SCM Agreement.⁴⁹⁹ In focusing on Article 4.1 - 4.4 of the SCM Agreement to establish the jurisdiction of the panel, we consider that Canada has overlooked Article 7.1 of the DSU. Article 7.1 defines the terms of reference of a panel, providing that a panel's terms of reference are "to examine ... the matter referred to the DSB by (name of party) in [the] document [containing the party's request for establishment of a panel..." Thus, except where the parties agree on special terms of reference, the terms of reference are typically determined on the basis of the complaining party's request for establishment. The terms of reference are critical to the preliminary issue before us, since the Appellate Body stated generally in India - Patents that "[t]he jurisdiction of a panel is established by that panel's terms of reference ..."⁵⁰⁰ Likewise, the Appellate Body stated in Brazil - Desiccated Coconut that "a panel's terms of reference ... establish the jurisdiction of the panel by defining the precise claims at issue in the dispute." ⁵⁰¹

9.12 In our view, a panel's terms of reference would only fail to be determinative of a panel's jurisdiction if, in light of Article 4.1 - 4.4 of the SCM Agreement applied together with⁵⁰² Article 4.2 - 4.7 of the DSU, the complaining party's request for establishment were found to cover a "dispute" that had not been the subject of a request for consultations. Article 4.4 of the SCM Agreement permits a Member to refer a "matter" to the DSB if "no mutually agreed solution" is reached during consultations. In our view, this provision complements Article 4.7 of the DSU, which allows a Member to refer a "matter" to the DSB if "consultations fail to settle a dispute". Read together, these provisions prevent a Member from requesting the establishment of a panel with regard to a "dispute" on which no consultations were requested. In our view, this approach seeks to preserve due process while also recognising that the "matter" on which consultations are requested will not necessarily be identical to the "matter" identified in the request for establishment of a panel. The two "matters" may not be identical because, as noted by the Appellate Body in India - Patents, "the claims that are made and the facts that are established during consultations do much to shape the substance and the scope of subsequent panel proceedings"⁵⁰³

9.13 The terms of reference of this Panel are to:

9.14 Accordingly, our terms of reference are determined by document WT/DS70/2, i.e., Brazil's request for establishment of this Panel. This document refers expressly to "financing ... provided by the Export Development Corporation ..." In principle, therefore, EDC "financing" falls within our jurisdiction. As noted above, EDC "financing" would only fall outside our jurisdiction if EDC "financing" were not part of the "dispute" on which Brazil had requested consultations. In our view, Brazil requested consultations in respect of a "dispute" concerning prohibited export subsidies allegedly provided to the Canadian civil aircraft industry by inter alia EDC. This "dispute" is also the subject of Brazil's request for establishment of this Panel. Since the EDC "financing" identified in Brazil's request for establishment of a panel was part of the same "dispute" with respect to which consultations were requested, we find that EDC "financing" falls within the Panel's jurisdiction.

9.15 Canada asked the Panel to issue the requested ruling on the Panel's jurisdiction prior to the deadline for the parties' first written submissions. In our view, there is no requirement in the DSU for panels to rule on preliminary issues prior to the parties' first written submissions. Nor is there any established practice to this effect, for there are numerous panel reports where rulings on preliminary issues have been reserved until the final report.⁵⁰⁵ Furthermore, there may be cases where the panel wishes to seek further clarification from the parties before providing a preliminary ruling. Indeed, we considered it necessary to request such clarification in the present case. In our view, the possibility for obtaining such clarification would be lost - or at least significantly undermined - if a panel were required to rule on preliminary issues before the deadline for the parties' first written submissions. For these reasons, we rejected Canada's request for a preliminary ruling on this issue prior to the deadline for the parties' first submissions.

(b) Specificity of Brazil's request for establishment of a panel

(i) Arguments of the parties

9.16 Canada requests a preliminary ruling that Brazil's request for establishment of a panel does not meet the requirements of Article 6.2 of the DSU. Canada recalls that Article 6.2 of the DSU provides, in relevant part, that the request for the establishment of a panel shall:

9.17 According to Canada, certain items in Brazil's request for establishment are inconsistent with Article 6.2 because they are too vague to provide Canada with sufficient information concerning the claims at issue, and their lack of precision prejudices Canada's due process right to know the case against it. In support, Canada cites the Appellate Body in European Communities - Bananas, where it stated that:

9.18 Canada submits that the reasoning of the Appellate Body is applicable to the case where a defending party is not given specific information as to the factual basis of the claims against it. Canada argues that in cases with an accelerated time-table, the time allotted to a defending party is simply not adequate from a due process perspective for the preparation of a credible defence against a vague accusation. Canada also asserts that Brazil's request for establishment is more vague than its request for consultations. According to Canada, consultations afford parties the opportunity to give more precision to a dispute, not less.

9.19 Brazil denies that its request for establishment is inconsistent with Article 6.2 of the DSU. Brazil asserts that due process must flow two ways. Brazil asserts that it would violate all notions of basic fairness to blame Brazil for any alleged lack of specificity in stating the factual bases for its claim stemming from Canada's failure to disclose those facts crucial to the process envisioned in the DSU. Brazil also argues that the aforementioned extract from the Appellate Body in European Communities - Bananas required only that the "legal basis" of the complaining party's claim be "sufficiently precise." Brazil argues that Canada's claims concerning any alleged lack of specificity of the factual basis of Brazil's claims is therefore irrelevant. Brazil submits that it identified the two components of a claim essential to maintain Canada's due process rights pursuant to Article 6.2 of the DSU: (1) the particular provisions of the SCM Agreement with which Canada is charged with failure to comply; and (2) the particular Canadian measures demonstrating that failure. Brazil states that it therefore identified its claims with "sufficient precision", as required by Article 6.2 and the Appellate Body in European Communities - Bananas.

9.20 The preliminary issue raised by Canada concerns the following items identified in Brazil's request for establishment:

• "financing" provided by the EDC ;
• funds provided to the "civil aircraft industry" by Technology Partnerships Canada and "predecessor programs"; and
• "benefits" provided under the Canada-Québec Subsidiary Agreement on Industrial Development and the Société de Développement Industriel du Québec.

EDC "financing"

9.21 Canada recalls its claim that this matter was not included in Brazil's request for consultations, and states that nothing in the course of consultations could, therefore, guide Canada as to the nature of Brazil's claim. Canada argues that, given the accelerated procedure of Article 4 of the SCM Agreement, it is manifestly contrary to Canada's due process rights to have to respond to a claim that could potentially cover hundreds of clients, many thousands of financing transactions over several years, and a portfolio of C$10 billion.

9.22 Brazil submits that there is a veil of secrecy around the EDC, and that this veil of secrecy should not stand in the way of Brazil's right to pursue its claim. Brazil asserts that EDC "financing" was discussed in consultations, and that Canada was therefore on notice of Brazil's claim. Brazil also notes that in a preliminary submission to the Panel, Canada defined the term EDC "financing" to mean "EDC's financing activities (direct lending)", suggesting that Canada appears to understand fully the meaning of this term.

Funds provided to the "civil aircraft industry" by Technology Partnerships Canada and "predecessor programs"

9.23 Canada asserts that the term "civil aircraft industry" is over-broad for the purpose of Article 6.2 of DSU, because "[i]t includes firms ranging from machine shops and metal treatment facilities to those involved in advanced instrumentation and communications equipment. In Canada, this comprises over 200 enterprises employing over 38,000 workers."⁵⁰⁷ Canada asserts that Brazil is not unaware of the broad nature of the "civil aircraft industry", since it provided an all-encompassing definition of the "aircraft definition" during consultations. With reference to Korea - Alcoholic Beverages, Canada notes that there is no identified tariff heading and no previous decision to guide Canada as to what Brazil might mean by the "civil aircraft industry".

9.24 Canada also argues that Brazil failed to identify with adequate specificity which "predecessor programs" to Technology Partnerships Canada ("TPC"), and which activities or transactions, are being challenged by Brazil.

9.25 Brazil notes that Canada refers to the definition of "aircraft industry" provided by Brazil during consultations. Brazil asserts that Canada therefore had sufficient knowledge of the meaning of the term "aircraft industry". Brazil denies Canada's argument that the term "civil aircraft industry" is over-broad for the purpose of Article 6.2 of DSU, quoting the Appellate Body's statement in European Communities - Computer Equipment that Article 6.2 is not violated through a "lack of precision of the terms ... in the request for the establishment of a panel".⁵⁰⁸ Brazil asserts that Article 6.2 does not require the complaining party to circumscribe a narrow category of products to which the challenged measures apply. Brazil also challenges Canada's argument that Brazil should have specified the products subject to the challenged measures by use of tariff headings. Brazil cites from the panel in Korea - Alcoholic Beverages which, in interpreting the Appellate Body in European Communities - Computer Equipment, stated that "a panel request based on a broader grouping of products [than those included in an identified tariff heading] was sufficiently specific for the purposes of Article 6.2".

9.26 With regard to TPC "predecessor programs", Brazil argues that Canada must be well aware that there is only one "predecessor program" to the TPC, namely the Defence Industry Productivity Program ("DIPP").

To continue with Benefits provided under the Canada-Québec

⁴⁹⁷ WTO document WT/DS70/1.

⁴⁹⁸ WTO document WT/DS70/2.

⁴⁹⁹ Brazil argues that EDC "financing" was consulted on. If this were the case, we consider that this fact would normally dispose of the preliminary issue raised by Canada. However, Canada does not accept Brazil's argument that EDC "financing" was consulted on, and Brazil has provided no support for its position. We are therefore unable to establish whether or not EDC "financing" was in fact consulted on.

⁵⁰⁰ India - Patent Protection for Pharmaceuticals and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, para. 93.

⁵⁰¹ Brazil - Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, page 22.

⁵⁰² According to the Appellate Body in Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico, wherever possible, special or additional rules and procedures for dispute settlement in Annex 1 of the DSU (such as Article 4.1 - 4.4 of the SCM Agreement) should be read so as to complement the provisions of the DSU (WT/DS60/AB/R, adopted 25 November 1998, paras. 64-66).

⁵⁰³ India - Patent Protection for Pharmaceuticals and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, para. 94.

⁵⁰⁴ WTO document WT/DS70/3.

⁵⁰⁵ See, for example, European Communities - Bananas (WT/DS27//R, adopted 25 September 1997), and European Communities - Computer Equipment (WT/DS62, 67/R, adopted 22 June 1998).

⁵⁰⁶ European Communities - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, para. 143.

⁵⁰⁷ See para. 4.47 above.

⁵⁰⁸ European Communities - Customs Classification of Certain Computer Equipment, WT/DS62, 67, 68/AB/R, adopted 22 June 1998, para. 70.