(iv) Interpretation of "contingent ... in fact ... upon export performance" and "in fact tied to ... anticipated exportation or export earnings"

9.331 In our view, the ordinary meaning of "contingent" in Article 3.1(a) is "dependent for its existence on something else, "conditional; dependent on, upon".⁶²⁵ The ordinary meaning of "tied to" in footnote 4 is "restrain or constrain to or from action; limit or restrict as to behaviour, location, conditions, etc.".⁶²⁶ The phrase "tied to" requires a specific connection between the grant of the subsidy and "actual or anticipated exportation or export earnings" in order for a subsidy to be "contingent ... in fact ... upon export performance" within the meaning of Article 3.1(a) of the SCM Agreement. When read in the context of the "contingency" referred to in Article 3.1(a), we consider that the connection between the grant of the subsidy and the anticipated exportation or export earnings required by "tied to" is conditionality. We note that the parties agree with this interpretation. Canada has repeatedly emphasised the conditionality inherent in "tied to". For its part, Brazil has "agree[d] with Canada's statement ... that 'tied to ... anticipated exportation' means that 'one of the conditions for the grant of the subsidy is the expectation that exports will flow thereby.'" We concur with the parties that this is an appropriate and useful formulation of the nature of the requisite conditionality.

9.332 We consider that we can examine most effectively whether there exists the requisite conditionality between the grant of TPC assistance to the Canadian regional aircraft industry and anticipated exportation or export earnings, by determining whether the facts demonstrate that such TPC assistance would not have been granted to the regional aircraft industry but for anticipated exportation or export earnings. Again, we note that the parties effectively agree that a "but for" test is appropriate for the purpose of determining whether a subsidy is "tied to" anticipated exportation or export earnings. Canada has stated that a subsidy is "tied to" anticipated exportation or export earnings if the subsidy "would not [have been] paid but for the expectation that exports would ensue" (emphasis in original). Brazil, in turn, has argued that export-orientation is the condition for the grant of the TPC subsidies in issue because these subsidies "would not have been granted were it not for the virtually total export orientation of the Canadian regional aircraft industry."

9.333 The parties disagree on which factors are relevant in determining whether TPC assistance to the Canadian regional aircraft industry would not have been granted but for anticipated exportation or export earnings. Brazil posits that this test is fulfilled when a subsidy is granted to a recipient because it has been, and is anticipated to remain, export-oriented. Canada has advanced a number of arguments rejecting Brazil's position. First, Canada asserts that Brazil's approach would "mean that there would be one law for larger economies that are not dependent on international trade and another for smaller economies that are." Second, Canada asserts that Brazil's approach would be over-broad, since "any subsidy that would help in the development of the competitive advantage of a state -- that would make its industries more efficient globally -- would then be prohibited as an export subsidy. Third, Canada asserts that "Brazil's interpretation would render government planning for WTO-consistent subsidies impossible", since "greater efficiency could lead to greater exports."

9.334 Canada seems to be arguing that export-orientation should not be taken into account at all in considering whether de facto export contingency exists. In our opinion, Canada's arguments are based on a misunderstanding of Brazil's approach to de facto export contingency. Canada's comments are based on its view that "Brazil argues that Article 3.1(a) applies not only to subsidies that are conditional upon export performance, but also those subsidies that have an 'export propensity'."⁶²⁷ However, we do not understand Brazil to argue that any subsidy that could lead to increased exports is de facto export contingent. Instead, Brazil refers to subsides that are granted precisely because they are expected to lead to increased exports.⁶²⁸

9.335 Canada also advances an additional argument for rejecting Brazil's export-orientation approach, in the form of the final sentence of footnote 4: "[t]he mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be an export subsidy within the meaning of this provision." Canada argues that Brazil's approach to de facto export contingency is inconsistent with this sentence. Again, however, we consider that Canada has missed the essence of Brazil's argument. Brazil does not in fact argue that the mere fact that a subsidy is granted to an exporter renders that subsidy de facto export contingent. Rather, Brazil argues⁶²⁹ that "[w]hile Article 3.1(a) provides that the mere granting of a subsidy to an exporting entity will not 'for that reason alone' make it a prohibited export subsidy, the Panel is not here faced with such a case." We understand Brazil to argue that subsidies granted to exporters are not "for that reason alone" de facto export contingent; they are de facto export contingent if, in addition, they are granted precisely because the recipient was export-oriented and anticipated by the granting authority to remain so.

9.336 For these reasons, we do not consider that Canada has effectively demonstrated that export-orientation should not be taken into account in the context of determining whether a subsidy would not have been granted but for anticipated exportation or export earnings. This does not mean, however, that export-orientation alone can necessarily be determinative.

9.337 In our view, no fact should automatically be rejected when considering whether the facts demonstrate that a subsidy would not have been granted but for anticipated exportation or export earnings. We note that footnote 4 provides that the "facts" must demonstrate de facto export contingency. Footnote 4 therefore refers to "facts" in general, without any suggestion that certain factual considerations should prevail over others. In our opinion, it is clear from the ordinary meaning of footnote 4 that any fact could be relevant, provided it "demonstrates" (either individually or in conjunction with other facts) whether or not a subsidy would have been granted but for anticipated exportation or export earnings. We consider that this is true of the export-orientation of the recipient, or of the reason⁶³⁰ for the grant of the subsidy, just as it is true of a host of other facts potentially surrounding the grant of the subsidy in question. In any given case, the relative importance of each fact can only be determined in the context of that case, and not on the basis of generalities.

9.338 We would emphasise, however, that our finding that a broad range of facts could be relevant in this context does not mean that the de facto export contingency standard is easily met. On the contrary, footnote 4 of the SCM Agreement makes it clear that the facts must "demonstrate" de facto export contingency. That is, de facto export contingency must be demonstrable on the basis of the factual evidence adduced.

9.339 Putting this into more concrete terms, we consider that the factual evidence adduced must demonstrate that had there been no expectation of export sales (i.e., "exportation" or "export earnings") "ensuing" from the subsidy, the subsidy would not have been granted. To us, this implies a strong and direct link between the grant of the subsidy and the creation or generation of export sales. That is, we consider that the "but for" test is concerned principally with anticipated export sales. Thus, the closer a subsidy brings a product to sale on the export market, the greater the possibility that the facts may demonstrate that the subsidy would not have been granted but for anticipated exportation or export earnings. Conversely, the further removed a subsidy is from sales on the export market, the less the possibility that the facts may demonstrate that the subsidy would not have been granted but for anticipated exportation or export earnings. In this light, subsidies for pure research, or for general purposes such as improving efficiency or adopting new technology, would be less likely to satisfy the "but for" test than subsidies that directly assist companies in bringing specific products to the (export) market.

(v) Application of the "but for" test

9.340 We recall that, in the present instance, there must be a prima facie case that TPC assistance to the Canadian regional aircraft industry is "contingent ... in fact ... upon export performance", in the sense of being "tied to ... anticipated exportation or export earnings. In light of the above analysis, there must be a prima facie case that the facts demonstrate that TPC assistance to the Canadian regional aircraft industry would not have been granted but for "anticipated exportation or export earnings." In our opinion, the following considerations, based on materials and arguments submitted by the parties are especially relevant in this regard:

• as Canada admits, the Canadian aerospace sector exports a large proportion of its output, due to the small size of the Canadian domestic market;⁶³¹ (emphasis supplied)
• the 1996-1997 TPC Business Plan notes that TPC's "approach" in the aerospace and defence sector is to "[d]irectly support the near market R & D projects with high export potential"; (emphasis supplied)
• section 3.2.3 of the "Terms and Conditions" set forth in the TPC Interim Reference Binder states "TPC will provide contributions to specific industrial development projects in order to enable Canadian Aerospace and Defence Industries to compete fairly and openly on the world competitive stage"; (emphasis supplied)
• the Industry Minister's Message included in the 1996-1997 TPC Annual Report states:

  "Aerospace and defense also make a significant contribution to our economic well-being. The sector is highly export oriented. Exports accounted for about 70 percent of sales, or $7.4 billion, in 1995. And there is the prospect of real growth in this area. Canada's aerospace sector currently ranks sixth in the world. With investments from TPC, and with industry's concerted efforts, this sector will be better equipped to compete effectively in the world marketplace and could grow to fourth place"; (emphasis supplied)

• the 1996-1997 TPC Annual Report states that "[t]he 12 largest firms [in the A&D sector] account for most of the R&D and shipments, of which 80 percent are exported. ... TPC is proud to be an investment partner in this export-oriented success story"; (emphasis supplied)
• an Industry Canada press release, issued in respect of the $100 million TPC contribution to Pratt & Whitney, quotes Industry Minister Manley as stating "[A]erospace is a critical sector for Canada's economy, with exports growing at a rate of 10% per year. TPC's investment in these projects will help increase the global competitiveness of this industry, while supporting jobs in Montreal, in Halifax and across the country, generating economic growth and export dollars"; (emphasis supplied)
• Concerning the $57 million contribution to de Havilland for the development of the Dash 8-400, Mr. Herb Gray, Leader of the Government in the House of Commons and then-Solicitor General of Canada, stated that "[t]hese two outputs of the Dash 8-400 project -- the creation of jobs and the building of exports -- are just what the government had in mind when we established Technology Partnerships Canada earlier this year"; (emphasis supplied)
• TPC website material states that "TPC approved projects are forecasted to generate sales of more than $65 billion (mostly exports) and create or maintain 13,166 direct and indirect jobs"; (emphasis supplied)
• the TPC Applications Kit requires applicants to describe "potential broad economic and social benefits, such as: job creation and retention, increased exports, new investment ....". The Applications Kit also states that TPC "invests in projects that have the potential to create jobs, generate export, launch new industries, and transform or strengthen the competitiveness of industry"; (emphasis supplied)
• according to the TPC Interim Reference Binder, Schedule C of the TPC Aerospace and Defence Sector Generic Model Agreement requires applicants to distinguish between domestic sales and exports when reporting forecast and actual sales; (emphasis supplied)
• the TPC Interim Reference Binder requires TPC employees, when completing Project Summary Forms, to explain the reasons for recommending support or rejection of the project. In particular, employees are given the following instructions:

"Strategic Considerations, Benefits, Indicators

In justifying the recommendation in strategic terms emphasise "business results". The following may be considered:

1. Link the project with departmental strategies and priorities as relevant:

a) improvement of international competitiveness; when sales will result directly from the project, report annual sales in terms of domestic and export sales and any import replacement"; (emphasis supplied)

• section 3.2.3 of the "Terms and Conditions" set forth in the TPC Interim Reference Binder states that TPC will "fill a financial void...where government action is required to level the competitive playing field, at the near-market end of the spectrum"; and that "[c]ontributions under the Aerospace and Defence component will be directed to projects that will maintain and build upon the technological capabilities and production, employment and export base extant in the aerospace and defence sector"; (emphasis supplied)
• Industry Canada website material concerning TPC "Application information" states that one factor considered by TPC in determining the need for federal government involvement is whether "assistance is required to level the playing field against international competitors; (emphasis supplied)
• section 3.3 of the TPC Charter, entitled "Aerospace and Defence (including Defence Conversion)" states that "[i]nvestments will be directed to projects that build on and maintain technological capabilities and the production, employment and export base of the sector"; (emphasis supplied)
• the 1996-1997 TPC Business Plan records the proportion of the aerospace and defense industry's revenue allocable to exports; (emphasis supplied) and the TPC contributions identified by Brazil have been for the development of specific products, and have been provided expressly on the basis of the projected sales of those products, the market for which is known to be almost entirely outside Canada; the statistics maintained by TPC, and the public statements about TPC, separately recount, and emphasize, the amount of export sales "generated" by these contributions. (emphasis supplied)

9.341 In our view, these facts demonstrate that TPC funding in the regional aircraft sector is expressly designed and structured to generate sales of particular products, and that the Canadian Government expressly takes into account, and attaches considerable importance to, the proportion of those sales that will be for export, when making TPC contributions in the regional aircraft sector. In this regard, we note again in particular that TPC contributions in the aerospace and defence sector, including the regional aircraft industry, are provided for "near-market projects with high export potential" (emphasis added). To us, therefore, these facts demonstrate that TPC assistance to the Canadian regional aircraft industry would not have been granted but for some expectation of exportation or export earnings.⁶³² Accordingly, we find that there is sufficient basis for a prima facie case that the facts demonstrate that TPC assistance to the Canadian regional aircraft industry is "in fact tied to ... anticipated exportation or export earnings", and therefore "contingent ... in fact ... upon export performance" within the meaning of Article 3.1(a) of the SCM Agreement.

9.342 We do not consider that Canada has effectively rebutted the prima facie case.

9.343 Throughout the Panel proceedings, and during its final oral submission to the Panel, Canada's basic rebuttal argument has been that the TPC is not conditional on exports taking place. In particular, Canada argues that there are no penalties if export sales are not realised. While this argument may be relevant in determining whether a subsidy would not have been granted but for actual exportation or export earnings, we find this argument insufficient to rebut a prima facie case that a subsidy would not have been granted but for anticipated exportation or export earnings.

9.344 Furthermore, Canada has failed to adduce any evidence demonstrating that TPC assistance to the Canadian regional aircraft industry would have been granted irrespective of anticipated exportation or export earnings. We note that Canada has made an assertion concerning the "key considerations" behind the $87 million TPC contribution to Bombardier (see para. 9.294 above), in order to demonstrate the absence of export contingency. However, Canada has provided no evidence to support this assertion, or to show that the export-related considerations, described above, that permeate the general information about the policy and operation of TPC (such as anticipated exportation or export earnings) were not also taken into account by the TPC administrators. In the absence of supporting evidence, such assertions are insufficient to rebut the prima facie case, based on a considerable volume of documentary evidence, that TPC assistance to the Canadian regional aircraft industry, including but not limited to the $87 million contribution to Bombardier, is de facto export contingent.

9.345 We also note that Canada has submitted documents designated as Business Confidential Information concerning the $87 million subsidy to Bombardier, in order to demonstrate that this contribution is not export contingent. However, the material submitted by Canada has been redacted to such an extent that it is simply of no value to the Panel, and there is no means for the Panel to be certain that information pointing to de facto export contingency has not been redacted. Moreover, Canada has outright refused (on the basis of "Cabinet privilege") to provide what in the Panel's view are the most relevant of the documentation that it requested regarding the five contributions identified by Brazil: the Project Summary Forms, and the memoranda and other documents supporting the recommendations and decisions to provide these contributions. For this reason, the Business Confidential documents submitted by Canada are not sufficient to rebut a prima facie case that TPC assistance to the Canadian regional aircraft industry, including but not limited to the $87 million contribution to Bombardier, would not have been granted but for anticipated exportation or export earnings.

9.346 We recall Canada's own formulation (with which Brazil and we concur) of the nature of the required conditionality as being that "one of the conditions for the grant of the subsidy is the expectation that exports will flow thereby". We believe that the facts available demonstrate that one of the conditions of the grant of TPC contributions to the Canadian regional aircraft industry is indeed such an expectation, in the form of projected export sales anticipated to "flow" directly from these contributions.

9.347 For the above reasons, we find that TPC assistance to the Canadian regional aircraft industry is "contingent ... in fact ... upon export performance" within the meaning of Article 3.1(a) of the SCM Agreement.⁶³³

(vi) Conclusion

9.348 In light of the above findings, we conclude that TPC assistance to the Canadian regional aircraft industry constitutes "subsidies contingent ... in fact ... upon export performance", contrary to Articles 3.1(a) and 3.2 of the SCM Agreement.

2. Assistance provided under the DIPP programme

9.349 Brazil has adduced very little evidence in support of its claim that DIPP assistance to the Canadian regional aircraft industry constitutes subsidies contingent on export, contrary to Articles 3.1(a) and 3.2 of the SCM Agreement. In short, Brazil argues simply that the DIPP programme was TPC's predecessor.

9.350 Brazil identified one instance of joint DIPP / SDI assistance provided in April 1989. However, Brazil subsequently withdrew this claim on the grounds that the contribution is not subject to the SCM Agreement because, in its view, the SCM Agreement does not apply to allegedly prohibited export subsidies granted prior to 1 January 1995.

9.351 Canada made no specific arguments concerning Brazil's claim against DIPP assistance to the Canadian regional aircraft industry.

9.352 In the absence of any relevant evidence adduced by Brazil, we have no basis for determining the terms on which DIPP assistance has been provided to the Canadian regional aircraft industry, or whether such assistance was contingent on export. In the absence of any relevant evidence, we therefore find that there is no basis for a prima facie case that DIPP assistance to the Canadian regional aircraft industry constitutes "subsidies contingent ... in fact ... upon export performance", contrary to Articles 3.1(a) and 3.2 of the SCM Agreement.

To continue with Conclusions and Recommendation

⁶²⁵ The New Shorter Oxford English Dictionary, Vol. 1 (Oxford: Clarendon Press, 1993).

⁶²⁶ Id.

⁶²⁷ See para. 5.77 above.

⁶²⁸ Brazil asserts in response to Question 19 from the Panel (27 November 1998) that "Brazil's entire claim does not, as Canada claims, turn on the 'export propensity' of the Canadian regional aircraft industry alone. The Panel is faced with a situation in which several factors converge, together illustrating that the Canadian Government and the provinces have supported the Canadian regional aircraft industry precisely because it is a total export industry, and precisely because they anticipate that this performance will continue".

⁶²⁹ See para. 5.104 above.

⁶³⁰ We note that Canada has accepted (see para. 5.98 above) that the reason for the grant of the subsidy could be relevant to the extent that the reason "establishes the condition for the grant of the subsidy".

⁶³¹ See paras. 6.241 and 6.242 above.

⁶³² We note that other conditions for TPC assistance in addition to anticipated exportation or export earnings, may include the creation of jobs, the launching new industries, or transforming or strengthening the competitiveness of Canadian industry. However, the existence of such additional conditions does not preclude a finding that TPC contributions are "contingent ... upon export performance", since Article 3.1(a) of the SCM Agreement applies when export contingency exists "solely or as one of several other conditions..."

⁶³³ As a result of this finding, there is no need to address Brazil's request for adverse inferences in light of Canada's refusal to submit certain BCI or documents protected by cabinet privilege. We explained above why we reject Canada's arguments based on the inadequate protection of BCI. With regard to cabinet privilege, we note that in certain circumstances, such as national security, a Member may consider itself justified in withholding certain information from a panel. However, in such circumstances, we would expect that Member to explain clearly the basis for the need to protect that information. In the present case, Canada has invoked cabinet privilege for the purpose of protecting documents concerning the approval of contributions under the TPC. Canada has failed to explain why such information needs to be protected. In the absence of any such explanation, we are not at all convinced of the merits of Canada's reliance on cabinet privilege in the present case.