9.197 Brazil asserts that EDC, directly or indirectly, has made equity infusions into CRJ Capital which have facilitated CRJ Capital's ability to lease or sell Canadian regional aircraft at a reduced price, contrary to Article 3.1(a) and 3.2 of the SCM Agreement. Brazil argues that EDC made an equity infusion into Structured Finance, Inc., later called Exinvest, and that Exinvest subsequently created a special purpose company called CRJ Capital. Brazil relies on information from EDC sources to support its claim that CRJ Capital acts as an aircraft leasing company. For example, Brazil argues that, according to press reports, Mr. Henri de Sonquières, Vice-President of Financial Services and Transportation at EDC, characterized CRJ Capital as a leasing company, and stated that the plan is for it to be used in the lease or sale of as many as 75 CRJs. Brazil also argues that, in interviews, EDC officials stated that CRJ Capital purchases part of a plane, syndicates the rest to private-sector lenders, and leases the aircraft to an airline.

9.198 Brazil argues that such equity infusions constitute direct transfers of funds by equity infusion within the meaning of Article 1.1 of the SCM Agreement. Brazil also argues that such equity infusions provide a "benefit" within the meaning of Article 1.1 because "EDC's direct or indirect equity investment in CRJ Capital frees CRJ Capital up to accept a lower lease or loan payment from a lessor or purchaser of a Canadian regional aircraft than it would be able to accept in the absence of that equity investment, or to facilitate the ability of another SPC to do so. CRJ Capital is designed not to earn a profit during the term of the lease; therefore, only the debt portion of the capital used to finance the lease needs to be serviced during this period. No payment is made to equity investors. Thus, the greater the percentage of equity capital in CRJ Capital, the lower the percentage of debt capital that must be serviced. The benefit, in short, is lower lease or debt payments for the airlines."⁵⁶³

9.199 Canada acknowledges that Exinvest is a wholly owned subsidiary of EDC, and that EDC has made an equity infusion into CRJ Capital through Exinvest. However, Canada provides a CRJ Capital officer's certificate denying that CRJ Capital has "purchased and/or leased any aircraft", or "taken any ownership interest in any aircraft." According to Canada, CRJ Capital simply provides conventional financing for aircraft sales. Canada therefore denies what the Panel considers to be an essential element of the factual basis to Brazil's claim concerning EDC's equity financing, namely that CRJ Capital purchases and/or leases aircraft.

9.200 We note that Brazil considers that Canada's denial that CRJ Capital purchases and/or leases any aircraft should not be considered credible, since Brazil's allegation regarding CRJ Capital is based on EDC materials and statements by EDC officials. However, in the face of Canada's express denial that CRJ Capital operates as an aircraft leasing company, and an Officer's Certificate to that effect, we are unable to attach any weight to the press reports relied on by Brazil in support of its claim concerning EDC equity infusions into CRJ Capital. Accordingly, we find that there is no factual basis on which to establish a prima facie case that EDC has made equity infusions into CRJ Capital that have facilitated CRJ Capital's ability to lease or sell Canadian regional aircraft at a reduced price. We therefore reject Brazil's claim that EDC has granted prohibited export subsidies to the Canadian regional aircraft industry in the form of equity infusions into CRJ Capital.

9.201 Brazil also alleges that EDC has made an equity infusion into another special purpose company called Canadian Regional Aircraft Finance Transaction ("CRAFT"), which Brazil considers may be a successor to or replacement of sorts for Exinvest. Brazil asserts that CRAFT was launched in April 1998 as an aircraft securitization structure to provide lease and loan financing for customers buying Bombardier's CRJ and Dash 8 aircraft. Brazil argues that EDC and the Government of Québec provided preferred capital to the CRAFT structure. Brazil states that Standard & Poor's estimate that EDC and the Government of Québec's combined participation could exceed US $300 million.⁵⁶⁴ Brazil presumes that investment by the Canadian federal and provincial governments was required because the return to the other shareholders would be below the return demanded by private investors given the level of risk they would have to assume in the financing structure. Brazil asserts that, by accepting below market returns on their investment, EDC and the Québec Government allow the CRAFT SPC to reduce the monthly lease cost to the aircraft lessee. Brazil asserts that CRAFT falls within the Panel's terms of reference because it constitutes an EDC "equity infusion[] into [a] corporation[] established to facilitate the export of civil aircraft."⁵⁶⁵

9.202 Canada asserts that Brazil's allegations regarding CRAFT are "completely false". Canada notes that Brazil's understanding of the alleged role of EDC and the Government of Québec in CRAFT is based on a Standard & Poor's Presale Report on CRAFT that makes no reference to participation by the EDC or the Government of Québec. Canada asserts that, according to additional materials submitted by Brazil, the source of the information concerning participation by the EDC and the Government of Québec is Embraer. Canada has provided an attestation from the Director of CRAFT that "at no time has the Canadian Government or the Québec Government or any agency of the Canadian Government or Québec Government, in particular the Export Development Corporation, participated in the financing of CRAFT."

9.203 In light of Canada's express denial of any EDC equity participation in CRAFT, supported by a written attestation by a senior CRAFT official, we find that there is no factual basis to establish a prima facie case that the EDC has provided a prohibited export subsidy in the form of an equity infusion into CRAFT. We reject Brazil's claim accordingly.

E. Canada Account

9.204 Brazil claims that the Canada Account programme per se provides prohibited export subsidies to the Canadian regional aircraft industry,⁵⁶⁶ contrary to Article 3.1(a) and 3.2 of the SCM Agreement. Brazil also challenges the Canada Account as applied, including funding, support, funds and benefits granted in the regional aircraft sector under the auspices of the Canada Account programme.

9.205 Brazil notes that EDC's 1995 Annual Report describes the Canada Account in the following terms:

9.206 Brazil asserts that the Canada Account exists for the sole purpose of supporting exports, and that Canada Account support is therefore contingent upon export performance within the meaning of Article 3.1(a) of the SCM Agreement.

9.207 Without conceding that the Canada Account programme, or assistance granted thereunder, is contingent on export, Canada argues primarily that Canada Account assistance is not a "subsidy" within the meaning of Article 1 of the SCM Agreement. Canada asserts that Canada Account operations are financing and loan guarantee activities undertaken by the EDC on the account of the Government of Canada. Thus, any obligations under the Canada Account are funded by the Government of Canada. Canada asserts that the Canada Account is not a pool of money used to subsidise export sales.

1. Is the Canada Account programme per se a prohibited export subsidy?

9.208 In order to assess Brazil's claim against the Canada Account programme, we must first determine whether the Canada Account programme mandates the grant of prohibited export subsidies in a manner inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement. In this regard, we recall our earlier discussion⁵⁶⁸ on the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation.

9.209 During the Panel proceedings, we addressed the following question to Brazil:

9.210 In response, Brazil stated that:

9.211 Leaving aside the issue of export contingency, we understand Brazil to argue that Canada Account assistance is, as a matter of law, granted in the form of subsidies. However, we find nothing in Brazil's various submissions in support of this argument. As Brazil itself notes, "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."⁵⁶⁹ Brazil has failed to demonstrate that such "support" necessarily involves subsidization. Although such "support" might conceivably take the form of subsidization, there is nothing to suggest that this must, in law, be the case. Indeed, we consider that such "support" could be provided in a broad variety of ways other than subsidization.

9.212 In our view, Brazil effectively concedes that the Canada Account mandate does not require the grant of subsidies when it states that EDC has interpreted the Canada Account mandate to require it to fund projects that give "Canadian exporters an edge when they bid on overseas projects."⁵⁷⁰ For Brazil, this "edge" necessarily refers to subsidization. Even if the "edge" did imply the grant of subsidies,⁵⁷¹ and even if in practice the Canada Account were applied so as to grant subsidies, this would not mean that, in law, the Canada Account mandate requires the grant of subsidies. Rather, in such circumstances, the grant of subsidies would be the result of the exercise of the administering authority's discretion in interpreting the Canada Account mandate. We again recollect "that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority ... to act inconsistently with the General Agreement could not be challenged as such..."⁵⁷²

9.213 For these reasons, we find that Brazil has failed to demonstrate that the Canada Account programme as such mandates subsidies that are contingent upon export performance. Rather, the Canada Account programme constitutes discretionary legislation. In light of the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation, we find that we may not make any findings on the Canada Account programme per se. We therefore confine our analysis to Brazil's claims concerning the actual application of the Canada Account programme.

2. Does the Canada Account programme as applied provide prohibited export subsidies?

9.214 Brazil asserts that the Canada Account provides grants, interest-free loans, low-interest loans, guarantees and other give-aways and support which confer an Article 1.1(b) "benefit" on Canadian exporters of regional aircraft by artificially facilitating their sale. In particular, Brazil asserts that in the absence of Canada Account subsidies, high-risk buyers would pay higher interest rates and would be required to make higher down-payments.

9.215 Brazil notes that, according to the "Canada Account Profile" contained in the EDC 1995 Annual Report, there are two types of Canada Account expenditure: "budgetary expenditures" covering concessionary support, and "non-budgetary expenditures" covering non-concessionary support. Brazil asserts that concessionary assistance in the form of "budgetary expenditures" would certainly confer "benefits". However, because of the limited Canada Account definition of concessionary financing, Brazil asserts that non-concessionary support in the form of "non-budgetary expenditures" could also confer "benefits" when it allows the recipient to borrow at rates that the recipient would not be able to obtain on the market. Brazil states that the Canada Account Profile limits its definition of concessionary financing to "interest-free or low-interest loans repayable over extended periods." Brazil asserts that this definition would seem, for example, not to characterize as concessional those loans that, while extended at "market" interest rates, do not account for the particularly high risk-status of the borrower. In other words, a nominally non-concessional rate would amount to a concessional rate if extended to a borrower with a poor credit rating. Thus, Brazil argues that while ostensibly non-concessional loans may be at market rates, the loans would be concessional if they were extended at lower rates than the particular recipient would have been able to obtain on the market.

9.216 In support of its claim, Brazil submitted a November 1998 press report⁵⁷³ in which Dr. Allaire, a senior Bombardier official, acknowledged that Bombardier had used the Canada Account for "a very small number of transactions" under terms of financing described as "close to commercial."

9.217 On the basis of information in the record, we asked Canada to identify all projects / transactions in the civil aircraft sector between 1 January 1995 and 30 June 1998 which involved Canada Account financing. In response , Canada informed us that during the relevant period Canada Account debt financing had been provided for two "export transactions" in the civil aircraft sector: one transaction involved delivery of 3 Dash 8-300s to South African Express in 1995, and the other transaction involved delivery of 3 Dash 8-300s to LIAT in 1996. This information was presented in a chart. As the source of this chart is cited as EDC and Bombardier, and as Canada informed us of all Canada Account assistance in the civil aircraft sector since 1 January 1995, we understand that the two Canada Account transactions described by Canada are the same Bombardier transactions referred to by Dr. Allaire in the aforementioned November 1998 press report.

9.218 In light of all the above information, we asked Canada to provide details of the terms of the two instances of Canada Account debt financing acknowledged by Canada. Canada refused to provide this information to the Panel. Canada asserted that:

9.219 In commenting on Canada's refusal to provide the information requested by the Panel, Brazil asked the Panel to "adopt adverse inferences, presuming that the information withheld is prejudicial to Canada's position."

3. Is there a prima facie case against Canada Account financing in the regional aircraft sector?

9.220 We recall that, in order for Brazil's claim against Canada Account financing in the regional aircraft sector to succeed, there must be a prima facie case that Canada Account assistance in the regional aircraft sector constitutes a prohibited export subsidy. For a prima facie case of "subsidy" within the meaning of Article 1 of the SCM Agreement, there must be a prima facie case that a "financial contribution" by a government or public body confers a "benefit".

9.221 We are in no doubt that the Canada Account debt financing in issue constitutes a "financial contribution" by a public body, since Brazil has demonstrated that such assistance debt financing constitutes a "direct transfer of funds" by a public body, within the meaning of Article 1.1(a)(i) of the SCM Agreement.

9.222 We recall that Canada Account debt financing would confer a "benefit" if it was provided on terms more advantageous than those that would be available to the recipient on the market. With regard to Dr. Allaire's press statement, we understand Brazil to argue that "close to commercial" terms means that the terms are more advantageous for the recipient than those available on the market.

9.223 Canada asserts that Dr. Allaire's comment was made in reference to the Commercial Interest Reference Rates established by the OECD Consensus. Canada argues that, according to the OECD Consensus, the Commercial Interest Reference Rates ("CIRRs") "represent commercial lending interest rates in the domestic market of the currency concerned."⁵⁷⁴ According to Canada, these commercial reference rates are, therefore, by definition, "close to commercial rates". Canada states that "these commercial reference rates may be above or below the market for a particular credit".⁵⁷⁵

9.224 By stating that OECD Consensus CIRRs "may be above or below the market for a particular credit", we consider that Canada is implicitly acknowledging that the "close to commercial rates" referred to by Dr. Allaire could themselves have been "below the market". For this reason, we find a prima facie case that the Canada Account debt financing in issue confers a "benefit", and therefore constitutes a "subsidy" within the meaning of Article 1 of the SCM Agreement.

4. Has Canada rebutted the prima facie case?

9.225 We recall that once a prima facie case is established, "the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption." Canada has asserted that "it has not put in a defense regarding whether these contributions are subsidies within the meaning of Article 1 of the SCM Agreement." Nor has Canada sought to rely on the safe haven provided for in item (k) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement.⁵⁷⁶ In the absence of additional submissions by Canada, we find that Canada has not rebutted the prima facie case against the Canada Account debt financing in issue.

9.226 In light of the above, we find that the Canada Account debt financing in issue constitutes a "subsidy" within the meaning of Article 1 of the SCM Agreement.⁵⁷⁷

To continue with Is the Canada Account debt financing contingent on export?

⁵⁶³ See para. 6.138 above.

⁵⁶⁴ Standard & Poor's Presale Report, "CRAFT No. 1 Trust 1998 - A," page 3.

⁵⁶⁵ WTO document WT/DS70/2.

⁵⁶⁶ We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to assistance provided to the Canadian civil aircraft industry. With the exception of its first written submission, however, all findings requested by Brazil concerning assistance provided under the Canada Account refer to the "regional aircraft industry". Similarly, all arguments adduced by Brazil concern the regional aircraft industry. For this reason, we only examine Brazil's claim against assistance provided under the Canada Account insofar as such assistance relates to the Canadian regional aircraft industry.

⁵⁶⁷ EDC 1995 Annual Report, "Canada Account Profile".

⁵⁶⁸ See para. 9.124 above.

⁵⁶⁹ EDC 1995 Annual Report.

⁵⁷⁰ CanadExport On-Line, Focus on Export Development Corporation, page 2 (statement of Mr. Paul Labbé, former President of the EDC).

⁵⁷¹ Canada expressly denies that giving an "edge" implies the grant of subsidies. Canada asserts that the "edge" given to Canadian exporters derives from EDC's experience and expertise.

⁵⁷² See para. 9.124 above.

⁵⁷³ "Ottawa slams Brazil's Bombardier claims", Globe & Mail, 23 November 1998 (Exh. BRA-87).

⁵⁷⁴ OECD Consensus, at 12.

⁵⁷⁵ See para. 6.167 above.

⁵⁷⁶ Although Canada initially stated that "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", Canada subsequently asserted that it is "not invoking the second paragraph of item (k) [of the Illustrative List in Annex I of the SCM Agreement] as a positive defense to any of the claims made by Brazil."

⁵⁷⁷ As a result of this finding, it is not necessary to consider Brazil's request for "adverse inferences".