What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

espa�ol - fran�ais - portugu�s
Search

World Trade
Organization

WT/DS70/R
14 april 1999
(99-1398)
Original: English

Canada - Measures Affecting the Export of Civilian Aircraft

Report of the Panel

(Continued)


G. Benefits Provided under the Canada-Quebec Subsidiary Agreements on Industrial Development

1. Arguments of the parties

9.247 Brazil claims that benefits provided to the regional aircraft industry590 under the Canada-Québec Subsidiary Agreements on Industrial Development constitute prohibited export subsidies contrary to Article 3.1(a) and 3.2 of the SCM Agreement.

9.248 Brazil asserts that under the Subsidiary Agreements, the Governments of Canada and Québec jointly fund major industrial projects aimed at improving the competitiveness of Québec's economy. Brazil argues that Subsidiary Agreement assistance has "as an historical matter" been granted to the Canadian regional aircraft industry on terms described as "conditionally repayable". Brazil asserts that assistance under the Subsidiary Agreements may be in the form of repayable or non-repayable contributions. Brazil states that both types of contribution confer a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement. Brazil states that conditional repayment confers a benefit "because the recipient has no down-side risk; if the project is unsuccessful, the contribution need not be repaid."591 Even if the loan is repaid, Brazil asserts that a "benefit" is conferred if "the rate of return is such that the lender is not compensated for either the risk that it would have received no payment or the extended repayment period during which neither principal nor interest is due."592 Brazil notes that Canada notified the 1988 Memorandum of Understanding that provided the authority for the 1992 Subsidiary Agreement to the WTO SCM Committee. In its notification, Canada informed the Committee that "[a]ssistance was provided in the form of repayable or non-repayable contributions."593

9.249 According to Brazil, the purpose of the Subsidiary Agreements is explicitly to foster development of export markets for Québec products by "[p]romot[ing] access to new foreign as well as domestic markets."594 Brazil argues that financing provided under the auspices of the Subsidiary Agreements is often explicitly directed at export-oriented projects and industries. Brazil cites a study prepared by the Canadian Reform Party which reports that the regional aircraft sector has been a significant recipient of benefits under the Subsidiary Agreements. According to Brazil, Subsidiary Agreement funds disbursed to the Canadian regional aircraft industry were granted to an industry that is totally export oriented, precisely because it is an export industry and was anticipated to remain so. For these reasons, Brazil asserts that the Subsidiary Agreement as applied, but not per se, grants prohibited export subsidies to the regional aircraft sector, contrary to Article 3 of the SCM Agreement. In support of its claim, Brazil has adduced evidence with regard to a number of alleged instances of Subsidiary Agreement assistance. Brazil has referred to press releases concerning the grant of a $2.5 million repayable loan to Rolls Royce Canada Ltd., and a $4.6 million repayable loan to Lamines CTEK. However, in response to a question from the Panel, Brazil stated that it has not claimed that the assistance described in these press releases constitutes a subsidy within the meaning of Article 1 of the SCM Agreement, "among other reasons because this assistance is not [granted] to the regional aircraft industry."

9.250 Brazil also submitted a study prepared by the Canadian Reform Party which identifies five instances of assistance allegedly provided to Bombardier under the Subsidiary Agreement programmes. Brazil refers to this study to demonstrate that, "as an historical matter",595 Subsidiary Agreement assistance has been granted to the Canadian regional aircraft industry "on terms described as 'conditionally repayable'".

9.251 The final Subsidiary Agreement transaction identified by Brazil concerns a payment of $6,586,547 to Bombardier Canadair Group Montreal Que, identified in the 1996-1997 Public Accounts of Canada. This payment is presented by Brazil as proof that "Subsidiary Agreement assistance has gone to the Canadian regional aircraft industry".

9.252 While not conceding this issue, Canada notes that it has not put in a defence on whether Subsidiary Agreement assistance to the Canadian regional aircraft industry takes the form of "subsidies" within the meaning of Article 1 of the SCM Agreement. Canada argues primarily that Subsidiary Agreement assistance is not contingent on export. In particular, Canada notes that contributions under the Subsidiary Agreement promote access "to new foreign as well as domestic markets."

9.253 On the basis of information in the record, we asked Canada to submit details of the Subsidiary Agreement contributions to Rolls Royce and Lamines CTEK identified by Brazil. Canada replied:

Canada notes that it has not put in a defence regarding whether these contributions are subsidies within the meaning of Article 1 of the SCM Agreement. Canada notes that Brazil agrees with Canada regarding the relevance of the principle of judicial economy to the issues to be determined in this case. Accordingly, to the extent that any documents are produced by Canada in response to this question of the Panel, they are provided to further support Canada's submission that the contributions at issue are not "contingent on export performance" within the meaning of Article 3 of the SCM Agreement.

Canada notes two additional points. First, Brazil has made no specific allegation about contributions to Rolls Royce or Lamines CTEK. Neither has it has adduced any evidence whatever in support of its vague and unspecific allegations concerning "benefits" under the Subsidiary Agreement. Canada does not consider it appropriate to adduce evidence in response to allegations not made and a case that has not been established. Second, As Canada noted in paragraph 99 of its Second Oral Submission, the contribution to Lamines CTEK was in respect of certain electronic materials not related to the civil aircraft sector. As such, it is not within the Panel's jurisdiction.

Finally, most of the information requested by the Panel is sensitive business confidential information. 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.

Accordingly, Canada, with the consent of the Government of Quebec, has provided the Rolls Royce contribution agreement, as Business Confidential Information, with clauses relating to repayment terms blocked (see BCI Tab 4).

9.254 In commenting on Canada's refusal to provide this information in full, Brazil stated:

It appears that Canada has not provided in BCI Tab 4 all of the information requested by the Panel concerning Subsidiary Agreement assistance. First, the repayment terms are redacted from the agreement setting out the terms of the $2.5 million contribution to Rolls Royce. The Panel should therefore adopt adverse inferences, presuming that these terms tie repayment to export performance. Furthermore, Brazil notes that while Canada has provided the Rolls Royce contribution agreement, it appears to have provided as "Annex A" thereto the project description for the Lamines CTEK contribution, rather than the project description associated with the Rolls Royce contribution. The Panel should adopt adverse inferences, presuming from Canada's failure to produce the annex containing the project description for the Rolls Royce contribution that this description contains inculpatory information suggesting that the contribution is tied in fact to actual or anticipated export.596

2. Evaluation by the Panel

9.255 We shall commence our examination of Brazil's claim by determining whether there is a prima facie case that Subsidiary Agreement assistance to the Canadian regional aircraft industry has taken the form of "subsidies" within the meaning of Article 1 of the SCM Agreement. Only if we reach an affirmative conclusion in this regard will we consider whether such assistance is "contingent ... upon ... export performance" within the meaning of Article 3.1(a).

9.256 Brazil initially argued that Subsidiary Agreement assistance could be provided in the form of non-repayable contributions. In support, Brazil relied on Canada's notification to the WTO SCM Committee, made pursuant to Article 25.2 of the SCM Agreement. We note that, however, that Article 25.7 provides:

Members recognize that notification of a measure does not prejudge either its legal status under GATT 1994 and this Agreement, the effects under this Agreement, or the nature of the measure itself.

In our view, Article 25.7 of the SCM Agreement effectively precludes us from finding a prima facie case that Subsidiary Agreement assistance is provided in the form of non-repayable contributions simply on the basis of Canada's notification of that programme.

9.257 Brazil also submitted a study prepared by the Canadian Reform Party. This study refers to five instances of alleged Subsidiary Agreement assistance. The only instance of Subsidiary Agreement defined as "non-repayable" relates to a 1989 project for "Snowmobile Chassis made out of composite materials". This study therefore lends no support to Brazil's claim concerning non-repayable Subsidiary Agreement contributions to the Canadian regional aircraft industry.

9.258 Brazil has adduced no other evidence to demonstrate that Subsidiary Agreement assistance generally is provided in the form of non-repayable contributions, or that non-repayable contributions are provided to the Canadian regional aircraft industry in particular.

9.259 We note that Brazil has conceded that the two Subsidiary Agreement contributions to Rolls Royce and Lamines CTEK did not concern the Canadian regional aircraft industry. Accordingly, we shall not take these contributions into account when reviewing Brazil's claim against Subsidiary Agreement assistance to the Canadian regional aircraft industry.

9.260 Brazil also relies on the aforementioned Canadian Reform Party study to demonstrate that, "as an historical matter",597 Subsidiary Agreement assistance has been granted to the Canadian regional aircraft industry "on terms described as 'conditionally repayable'".598 Brazil asserts that "conditionally repayable" contributions confer a "benefit" if the rate of return is such that the lender is not compensated for either the risk that it would have received no payment or the extended repayment period during which neither principal nor interest is due. We note that the study identifies five instances of alleged Subsidiary Agreement assistance. However, Brazil fails to demonstrate that any of the five instances of alleged Subsidiary Agreement assistance concerns the regional aircraft industry. Since four of the alleged instances of Subsidiary Agreement assistance identified in the study are described as relating to projects concerning "Snowmobile Chassis made out of composite materials", "Continued development of VENUS I, "equipment for centre of excellence", and "Equipment for centre of excellence", and since none of the alleged Subsidiary Agreement assistance is expressly labelled as relating to regional aircraft projects, we are not convinced that any of the Subsidiary Agreement assistance referred to in the study concerns Canadian regional aircraft. Furthermore, none of the five instances of Subsidiary Agreement assistance identified in the study is described as being "conditionally repayable", as alleged by Brazil. For these reasons, we consider that this study provides no support to Brazil's claim that Subsidiary Agreement assistance is provided to the regional aircraft industry on "conditionally repayable" terms that confer a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement.

9.261 We note that Brazil also refers to a Subsidiary Agreement contribution to Bombardier Canadair Group Montreal Que, identified in the 1996-1997 Public Accounts of Canada, as proof that Subsidiary Agreement assistance has gone to the Canadian regional aircraft industry. We agree with Brazil that this contribution does appear to have been provided to a Canadian manufacturer of regional aircraft. However, Brazil fails to provide any evidence, or even to argue, that the relevant contribution confers a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement. As noted above, Brazil claims that Subsidiary Agreement assistance confers a "benefit" if it is either non-repayable, or if it is conditionally repayable and the rate of return is such that the lender is not compensated for either the risk that it would have received no payment or the extended repayment period during which neither principal nor interest is due. However (assuming arguendo that Brazil's analysis of "benefit" in such circumstances is accurate), Brazil makes no attempt to establish that this particular contribution is either non-repayable, or that it is conditionally repayable and the rate of return is such that the lender is not compensated for either the risk that it would have received no payment or the extended repayment period during which neither principal nor interest is due. In such circumstances, the evidence adduced by Brazil concerning the Subsidiary Agreement contribution to Bombardier provides no support for Brazil's claim that Subsidiary Agreement assistance to the Canadian regional aircraft industry takes the form of "subsidies".

9.262 For the above reasons, we find that there is no prima facie case in support of Brazil's claim that Subsidiary Agreement assistance to the Canadian regional aircraft industry has taken the form of subsidies within the meaning of Article 1 of the SCM Agreement.

9.263 In light of the above finding, it is not necessary for us to consider whether Subsidiary Agreement assistance to the regional aircraft industry is contingent on export. We recall that Brazil asked the Panel to adopt "adverse inferences" that the Subsidiary Agreement contributions to Rolls Royce and Lamines CTEK were de facto export contingent. Since it is not necessary for us to examine the issue of export contingency, we decline to consider Brazil's request for "adverse inferences" on this issue.

9.264 Accordingly, we reject Brazil's claim that Subsidiary Agreement assistance to the Canadian regional aircraft industry takes the form of prohibited export subsidies, contrary to Article 3.1(a) and 3.2 of the SCM Agreement.

H. Societe de Developpement Industriel du Quebec

1. Arguments by the parties

9.265 Brazil submits that SDI assistance has been provided to the Canadian regional aircraft industry599 in the form of prohibited export subsidies, contrary to Articles 3.1(a) and 3.2 of the SCM Agreement. Brazil asserts that, under the Société de Développement Industriel du Québec ("SDI"), the Government of Quebec sponsors export programs "designed to promote the export of Quebec-produced goods and services."600 Referring to the SDI Act, Brazil states that SDI was formed with the objective "to promote economic development in Québec, particularly by encouraging the development of businesses, the growth of exports, research and the development of new techniques."601 SDI provides Quebec businesses with "guarantee[s] of payment or repayment of a financial obligation" and "loan[s] at the current market rate"602 for the purpose of assisting those businesses with "[l]a conquète de marchés à l'exportation,"603 and to assist with "tout projet d'exportation" or "de démarrage à l'exportation."604 Brazil asserts that SDI not only funds exports to other of the Canadian Provinces, but also specifically supports transactions "à l'étranger".

9.266 Brazil asserts that SDI funding is extended on conditionally repayable terms that confer a "benefit" within the meaning of Article 1.1 of the SCM Agreement "because the recipient has no down-side risk -- that is to say, if the project is unsuccessful, SDI funds need not be repaid ..."605 Brazil claims that SDI funding is "contingent ...in fact ... upon export performance" within the meaning of Article 3.1(a) because (1) one of the objectives of the SDI is the "growth of exports" and (2) when SDI funds were disbursed to the Canadian regional aircraft industry, they were given to an industry that is overwhelmingly export oriented, precisely because it is an export industry and was anticipated to remain so.

9.267 Brazil notes that SDI was recently "regrouped" for administrative purposes into a new corporation, known as Investissement-Québec ("IQ").606 On the basis of materials from the SDI website, Brazil states that IQ maintains the resources, including the staff, of SDI.607 Brazil notes that, according to the WTO November 1998 Trade Policy Review of Canada, the IQ programme "provides export guarantees for projects considered too risky by private financial institutions."608 The Trade Policy Review also states that IQ assistance "is available for export development or expansion, or purchases of foreign companies, or for contract finance."609 Brazil asserts that IQ confers an Article 1.1 "benefit" by offering guarantees for projects which are "considered too risky by private financial institutions," because it provides resources which would otherwise not be available.

9.268 Brazil understands Canada to argue that SDI activities are "immunized" from the Article 3 prohibition because SDI also provides funding to domestic projects. Brazil does not contest that some SDI or IQ funds may have gone to other industries with sales in domestic markets. However, Brazil claims that "when SDI or IQ funds were disbursed to the Canadian regional aircraft industry, they were given to an industry that is overwhelmingly export oriented, precisely because it is an export industry and was anticipated to remain so."

9.269 Canada claims that Brazil's allegations about the SDI are unfounded and incorrect. While expressly denying that SDI assistance in the civil aircraft sector takes the form of "subsidies" within the meaning of Article 1.1 of the SCM Agreement, Canada states that it has not put in a defence regarding whether such SDI assistance constitutes "subsidies". Rather, Canada argued primarily that SDI assistance in the civil aircraft sector is not in law or in fact contingent upon export performance. Canada notes that, according to Article 2 of the SDI Act, the objective of the SDI is to "favoriser le développement économique du Québec, notamment en encouragent le développement des entreprises, la croissance des exportations et les activités de recherche et d'innovation." Canada claims that Brazil itself acknowledges that "exportation" in this context means exports outside Québec, including the other provinces of Canada. Canada submits that SDI has as a general objective the enhancement of Québec's competitiveness and, as a desirable but not necessary result, an increase in Québec's exports. Canada asserts that export performance is not a criterion of success for either the programme as a whole or its activities;610 nor is export performance a condition for receiving SDI contributions. Canada asserts that 458 SDI activities were authorised in 1997-1998, of which 53 percent involved loans or loan guarantees of less than C$200,000. Canada states that SDI comprises four sets of eligibility criteria, one of which concerns "export development". According to Canada, "export development" includes credit insurance, financing for foreign direct investment by Québec companies, and inventory financing. Canada asserts that one out of 39 financing activities and 96 out of 419 guarantees authorised were carried out under the exportation criterion.611 Canada claims that none of these related to the civil aircraft sector.

9.270 Canada also asks the Panel to ignore Brazil's "inappropriate use" of the WTO's November 1998 Trade Policy Review of Canada. Canada asserts that section A(i) of the WTO Trade Policy Review Mechanism provides that the review mechanism "is not, however, intended to serve as a basis for the enforcement of specific obligations under the Agreements or for dispute settlement procedures ...."

9.271 Canada confirms that it does consider that the fact that SDI funds are available to both domestic and export markets does immunise them to the prohibition of Article 3.1(a). According to Canada, Article 3.1(a) does not prohibit subsidies that are aimed at both domestic and export markets.

9.272 On the basis of information in the record, we asked Canada to provide details of three Aerospace Industry Development Fund contributions, and five Private Investment and Job Creation Promotion Fund ("FAIRE") transactions, all identified in the SDI Annual Report 1997-1998. Canada refused to provide this information in full. Canada asserted that it had not put in a defence regarding whether the Aerospace Industry Development Fund contributions are "subsidies", and that Brazil had not made a specific allegation against these contributions. Canada submitted some of the information requested by the Panel, but redacted information concerning repayment terms relevant to determining whether or not the relevant contributions constitute "subsidies". With regard to FAIRE, Canada asserted that the five activities were not in the civil aircraft sector. In commenting on Canada's failure to respond to the Panel in full in respect of the Aerospace Industry Development Fund contributions, Brazil asked the Panel to adopt "adverse inferences" that these contributions are de facto contingent on export.

To continue with Evaluation by the Panel


590 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 various forms of assistance provided to the Canadian civil aircraft industry. With regard to Subsidiary Agreement assistance, however, arguments adduced by Brazil concerning the issue of export contingency are restricted to the "regional aircraft industry". For this reason, we only examine Brazil's claim against Subsidiary Agreement assistance insofar as it is provided to the Canadian regional aircraft industry.

591 See para. 6.180 above.

592 See para. 6.180 above.

593 WTO document G/SCM/N/16/CAN, 25 June 1997, para. XXIX:5.

594 985 Canada-Québec Subsidiary Agreement on Industrial Development, Art. 2.2(d). Id. at Schedule A, para. (d).

595 See para. 6.300 above.

596 The Panel notes that Canada subsequently corrected its administrative error and provided Annex A to the Rolls Royce contribution agreement on 22 January 1999.

597 See para. 6.300 above.

598 See para. 6.298 above.

599 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 various forms of assistance provided to the Canadian civil aircraft industry. With regard to SDI assistance, however, arguments adduced by Brazil concerning the issue of export contingency are restricted to the "regional aircraft industry". For this reason, we only examine Brazil's claim against SDI assistance insofar as it is provided to the Canadian regional aircraft industry.

600 Government Assistance Programs - A Practical Handbook (15th ed., 1995), para. 135.230.

601 An Act Respecting the Société de Développement Industriel du Québec, para. 2.

602 Id. at para. 135.240.

603 SDI Website at 2.

604 Gouvernement du Québec, Ministère de L'Industrie, du Commerce, de la Science et de la Technologie, Répertoire des services offerts à l'exportation, page 53.

605 See para. 6.323 above.

606 Materials from SDI/Investissement-Québec website, at 1 (Exhibit 65).

607 Id. at 1, 3.

608 WTO document WT/TPR/S/53 (19 November 1998), at page 59.

609 Id.

610 Société de développement industriel du Québec, 1997-1998 Annual Report, at 36-37, 40.

611 Id. at 22, Table 1.