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WORLD TRADE
ORGANIZATION

WT/DS70/AB/RW
21 July 2000
(00-2989)
 
  Original: English

CANADA - MEASURES AFFECTING THE EXPORT
OF CIVILIAN AIRCRAFT

RECOURSE BY BRAZIL TO ARTICLE 21.5 OF THE DSU


AB-2000-4

Report of the Appellate Body



  1. Introduction
     
  2. Arguments of the Participants and the Third Participants

  1. Claims of Error by Appellant - Brazil
     
  2. Arguments by Appellee - Canada
     
  3. Third Participants

  1. Issue Raised in this Appeal
     
  2. Technology Partnerships Canada
     
  3. Findings and Conclusions


WORLD TRADE ORGANIZATION

APPELLATE BODY
 

Canada - Measures Affecting the Export of
Civilian Aircraft
AB-2000-4
   
Recourse by Brazil to Article 21.5 of the DSU Present:
   
Brazil, Appellant Feliciano, Presiding Member
Canada, Appellee Bacchus, Member
  Ehlermann, Member
European Communities, Third Participant  
United States, Third Participant  

I. Introduction

  1. Brazil appeals certain issues of law and legal interpretation in the Panel Report, Canada - Measures Affecting the Export of Civilian Aircraft, Recourse by Brazil to Article 21.5 of the DSU (the "Article 21.5 Panel Report").1 The Article 21.5 Panel was established to consider a complaint by Brazil that certain measures taken by Canada to comply with the recommendations and rulings of the Dispute Settlement Body (the "DSB"), in Canada - Measures Affecting the Export of Civilian Aircraft ("Canada - Aircraft")2 , were not consistent with Article 3.1(a) of the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement").
     
  2. The original panel found, inter alia, that "Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft" and "[Technology Partnerships Canada] assistance to the Canadian regional aircraft industry [constitute] export subsidies inconsistent with Article[s] 3.1(a) and 3.2 of the SCM Agreement"3 . The original panel concluded that "Canada shall withdraw [these] subsidies … within 90 days."4
     
  3. Before the Appellate Body, Canada appealed certain of the original panel's legal interpretations relating to Technology Partnerships Canada ("TPC") assistance. Canada did not appeal the original panel's findings relating to the Canada Account. The Appellate Body upheld the original panel's finding that TPC assistance to the Canadian regional aircraft industry constitutes export subsidies inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
     
  4. Canada took steps to implement the recommendations and rulings of the DSB with respect to both the Canada Account and TPC. Taking the view that these measures were not consistent with Article 3.1(a) of the SCM Agreement, Brazil requested that the matter be referred to the original panel, pursuant to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU").5 On 9 December 1999, in accordance with Article 21.5 of the DSU, the DSB referred the matter to the original panel. The Article 21.5 Panel Report was circulated to the Members of the World Trade Organization (the "WTO") on 9 May 2000.
     
  5. The Article 21.5 Panel concluded that:

      … (1) Canada has implemented the 20 August 1999 DSB recommendation that Canada withdraw TPC assistance to the Canadian regional aircraft industry within 90 days, and that (2) Canada has failed to implement the 20 August 1999 recommendation of the DSB that Canada withdraw the Canada Account assistance to the Canadian regional aircraft industry within 90 days.6
       

  6. On 22 May 2000, Brazil notified the DSB of its intention to appeal certain issues of law covered in the Article 21.5 Panel Report and legal interpretations developed by the Article 21.5 Panel, pursuant to Article 4.8 of the SCM Agreement and paragraph 4 of Article 16 of the DSU, and filed a Notice of Appeal pursuant to Rules 20 and 31(1) of the Working Procedures for Appellate Review (the "Working Procedures"). Brazil appeals the Article 21.5 Panel's findings relating to TPC; the Article 21.5 Panel's findings relating to the Canada Account are not appealed by Canada and, therefore, do not form part of this appeal. On 29 May 2000, Brazil filed its appellant's submission.7 On 5 June 2000, Canada filed an appellee's submission.8 On the same day, the European Communities and the United States each filed a third participant's submission.9
     
  7. The oral hearing in the present appeal was held on 21 June 2000. The participants and third participants presented oral arguments and responded to questions put to them by the Members of the Division hearing the appeal.

II. Arguments of the Participants and the Third Participants
  1. Claims of Error by Appellant - Brazil
  1. Brazil alleges that the Article 21.5 Panel erred in law by failing to observe the clear mandate in its terms of reference10 and the requirement in Article 21.5 of the DSU that it review the revised TPC programme for its consistency with Article 3.1(a) of the SCM Agreement. Instead, the Article 21.5 Panel limited its review to whether the revised TPC was consistent with the recommendations and rulings of the DSB in the original dispute and concluded that "Canada has implemented the DSB recommendation in respect of TPC assistance to the Canadian regional aircraft industry."11 (emphasis added) The Article 21.5 Panel also considered that its review was limited to the specific "factual circumstances" detailed in the original panel report.12 In conducting its review in this limited fashion, the Article 21.5 Panel rejected certain evidence and legal arguments, raised by Brazil, that related to the consistency of the new measure with Article 3.1(a) of the SCM Agreement. In view of these errors, Brazil requests that the Appellate Body reverse the Article 21.5 Panel's findings and conclusions with respect to the revised TPC programme.
     
  2. According to Brazil, Article 21.5 of the DSU requires a panel to conduct a four-part analysis: (i) whether the parties disagree as to (ii) the existence or (iii) consistency with a covered agreement of (iv) measures taken to comply with the recommendations and rulings of the DSB. Brazil considers that the sole question in this appeal relates to element (iii). The term "consistency" is defined as "[t]he quality, state, or fact of being consistent; agreement (with something, of things etc.); uniformity, regularity."13 The word "consistent" is defined as "[a]greeing in substance or form; congruous, compatible (with, []to), not contradictory; marked by uniformity or regularity."14 The ordinary meaning of Article 21.5, therefore, requires an evaluation of a Member's implementation measures for agreement or congruity with the covered agreements. This could, in the view of Brazil, involve a review of those measures for consistency with any provision of any covered agreement, subject only to the original panel's terms of reference and the scope of the claim brought under Article 21.5.
     
  3. This interpretation, Brazil believes, is supported by the context of Article 21.5, namely the overall implementation mechanism detailed in Articles 21 and 22 of the DSU. Monitoring compliance would become meaningless if Members could satisfy their implementation obligations by adopting remedial measures that are inconsistent with their WTO obligations. In that case, a Member would be able to shield its implementation measures from the "expedited" review envisioned in Article 21.515 by tailoring measures around the specific "factual circumstances" addressed in the original panel or Appellate Body decisions. The implementing Member may also wish to establish that its implementation measures are WTO-consistent. The review by panels, under Article 21.5, of implementation measures for consistency with the covered agreements also enhances one of the central purposes of the DSU, namely prompt compliance with the recommendations and rulings of the DSB and prompt settlement of WTO disputes.
     
  4. Brazil notes that other Article 21.5 panels have concluded that their mandate included the determination of whether a Member's implementation measures were consistent with the covered agreements, and not just with the specific recommendations and rulings of the DSB and the specific factual circumstances of the original panel and Appellate Body reports.16
     
  5. By limiting its review under Article 21.5 of the DSU to whether the revised TPC programme is consistent with the recommendations and rulings of the DSB, the Article 21.5 Panel rejected as irrelevant evidence submitted by Brazil in support of one of its principal legal arguments.17 The evidence rejected is evidence on the revised TPC's continued "specific targeting" of the aerospace and regional aircraft industries. The Article 21.5 Panel reasoned that the evidence and argument involved "factual circumstances which themselves were not part of our original ruling"18 and that such, therefore, were "not relevant to the present dispute, which concerns the issue of whether or not Canada has implemented the DSB recommendation on TPC assistance to the Canadian regional aircraft industry."19 (emphasis added)
     
  6. Brazil recalls the importance, in the original panel report, of the export-orientation or export propensity of the Canadian regional aircraft industry.20 This export-orientation is translated into TPC's funding priorities, which have also not changed with the revised TPC. Since the inception of the programme, Brazil states, 65 per cent of TPC contributions have gone to the aerospace industry. Similarly, Canada has acknowledged that two-thirds of all contributions under the revised TPC will go to that industry. The economic significance of this specific targeting is considerable, since Canada has slated available funds under the revised TPC to increase by 396 per cent between now and 2003. In sum, Brazil argued to the Article 21.5 Panel that where the overwhelming export orientation of an industry has been repeatedly heralded by a government, and cited as its motivation for funding that industry, the continued specific targeting of that industry can serve as a fact from which an inference of de facto export contingency can be drawn. The Article 21.5 Panel's erroneous interpretation of the legal standard in Article 21.5, however, prevented it from making this analysis.
     
  7. For these reasons, Brazil requests that the Appellate Body find the Article 21.5 Panel to have been in error, and that it accordingly reverse the Article 21.5 Panel's findings and conclusions with respect to the revised TPC. Brazil acknowledges the difficulty faced by the Appellate Body in completing the Article 21.5 Panel's analysis in this case, in which some facts are in dispute or are not the subject of a specific factual finding by the Article 21.5 Panel.
  1. Arguments by Appellee - Canada
  1. In this proceeding, Brazil claims that the Article 21.5 Panel did not make a determination as to whether the amended TPC programme conforms with Article 3.1 (a) of the SCM Agreement, and that this alleged failure constitutes a legal error. In Canada's view, Brazil's appeal is without merit. The Article 21.5 Panel specifically found that Canada had complied with the DSB recommendations regarding TPC assistance. Since the DSB's recommendations in the original dispute included a recommendation for Canada to conform TPC assistance to its obligations under the SCM Agreement, the Article 21.5 Panel did make the finding that, according to Brazil, the Article 21.5 Panel did not make.
     
  2. Canada notes that Brazil devotes much time to arguing points that are not disputed by Canada and, more significantly, are not inconsistent with the decision of the Article 21.5 Panel. Canada does not dispute that the mandate of the Article 21.5 Panel was to assess whether Canada's implementation measures comply with the recommendation of the DSB that Canada bring TPC into conformity with Canada's obligations under the SCM Agreement.
     
  3. Brazil's arguments that Canada had not eliminated TPC's alleged "targeting" of industries with a propensity to export were rejected because the same allegations and arguments had already been considered in the original panel proceedings, where they were found not to form part of the basis for the finding that TPC assistance was export contingent. In rejecting Brazil's claims of "specific targeting", the Article 21.5 Panel was not refusing to consider new facts; it was rejecting the need to reconsider facts and contentions that had not changed. Brazil's argument was precisely that nothing had changed regarding the alleged targeting. The Article 21.5 Panel rejected that argument because Brazil was presenting the same allegations that had not been, and continued not to be, a basis for finding export contingency. In fact, Brazil was asking the Article 21.5 Panel to reconsider, and perhaps overrule, the original panel and Appellate Body decisions on a point that Brazil did not appeal during the original proceedings before the Appellate Body.
     
  4. Canada, therefore, requests that the Appellate Body reject Brazil's appeal as there is no basis for Brazil's contention that the Article 21.5 Panel failed to assess whether Canada's "measures taken to comply with the recommendations and rulings" of the DSB were in conformity with the SCM Agreement.
  1. Third Participants

1. European Communities

  1. The European Communities begins with comments on the agreement reached between Brazil and Canada, in this dispute, inter alia, on the conduct of proceedings under Article 21.5 of the DSU. The European Communities believes that, although parties may make agreements relating to procedural issues in dispute settlement proceedings, such agreements may not affect the rights of third parties. In certain Article 21.5 disputes, parties have agreed bilaterally to dispense with formal consultations under Article 4 of the DSU. The European Communities considers this to be inconsistent with the DSU and prejudicial to third party rights. While this issue was not raised before the Article 21.5 Panel and is not the subject of an appeal, the European Communities considers that it would be useful to all Members to have a ruling on this issue and would appreciate a statement from the Appellate Body to the effect that "the parties to a dispute may not enter into agreements regarding the conduct of dispute settlement proceedings that prejudice the rights and interests of other Members, in particular to participate as third parties." 21
     
  2. The European Communities agrees with Brazil that monitoring compliance under Article 21.5 of the DSU should be meaningful and consistent with the DSU's objective of prompt settlement and compliance. The terms of reference of an Article 21.5 panel must be considered to include the "matter" before the original panel, as well as the additional question of whether that "matter" has been properly resolved (existence and consistency of implementation measures). However, Article 21.5 does not allow an examination of claims that could have been - but were not - included in the original panel's terms of reference. Nor could an Article 21.5 review extend to any provision of any covered agreement, subject only to the terms of reference and the scope of the claim brought under Article 21.5. For instance, it would be inappropriate for Brazil to argue, under Article 21.5 of the DSU, that the revised TPC programme was inconsistent with Article 5 of the SCM Agreement.
     
  3. In the present dispute, however, the Article 21.5 Panel was entitled to examine the compatibility of the restructured TPC with Article 3.1(a) of the SCM Agreement. In conducting this examination, the Article 21.5 Panel was required to consider all the factual circumstances of the amended programme in order to ensure that the de facto export contingency had in fact been removed. The European Communities acknowledges that, in its substantive analysis, the Article 21.5 Panel compared the new factual situation with the old, rather than assessing the new factual situation under the SCM Agreement. However, since the substance of Brazil's complaint was that in reality "nothing had changed" in the restructured TPC, it is perhaps understandable that the Article 21.5 Panel considered that the questions of the existence of implementation of the DSB's recommendations and rulings and of the conformity with the SCM Agreement were very similar, if not the same.
     
  4. The European Communities believes the Article 21.5 Panel correctly understood its mandate under Article 21.5 of the DSU. However, there are indications in its Report, notably in paragraph 5.17, that the Article 21.5 Panel may not have actually applied the appropriate legal standard. The European Communities, nonetheless, considers that the facts before the Article 21.5 Panel did not establish, as a legal matter, that the restructured TPC was inconsistent with Article 3.1(a) of the SCM Agreement. Even if the Panel had taken the "specific targeting" into account, this would not have altered the outcome of the case. Canada is not precluded from limiting eligibility for a subsidy to certain sectors or from concentrating funding on certain industries. Moreover, the export-oriented nature of the regional aircraft industry cannot by itself justify such a finding.
  1. United States
  1. In its submission, the United States avers that it "has a strong interest in the systemic implications of the issues presented in this appeal."22 However, the United States does not make specific arguments on the substantive issues involved. As a result, no arguments by the United States are summarized here.

III. Issue Raised in this Appeal

  1. This appeal raises the issue of whether the Article 21.5 Panel erred in finding that Canada had "implemented the recommendation of the DSB concerning TPC assistance to the Canadian regional aircraft industry"23, in particular, by declining to examine Brazil's argument that the revised TPC programme is inconsistent with Article 3.1(a) of the SCM Agreement on the ground that that industry is "specifically targeted" for TPC assistance because of its export-orientation.

IV. Technology Partnerships Canada

  1. The original panel found, for the reasons enumerated in paragraph 9.340 of the original panel report, that TPC assistance to the Canadian regional aircraft industry involved subsidies that were contingent, in fact, upon export performance and, thus, inconsistent with Article 3.1(a) of the SCM Agreement.24 The Article 21.5 Panel summarized, as follows, the steps taken by Canada to implement the recommendations and rulings of the DSB regarding TPC:

5.3 Canada has taken two types of action in order to implement the recommendation of the DSB concerning TPC assistance to the Canadian regional aircraft industry. First, Canada has terminated existing TPC activities in the Canadian regional aircraft sector. Thus, Canada (1) has cancelled funding under five TPC transactions identified by Canada, (2) has withdrawn approvals-in-principle for two new TPC funding projects in the regional aircraft sector, and (3) has closed all TPC files in the regional aircraft sector.

5.4 Second, Canada has restructured the TPC programme and documentation so that, in its opinion, most of the factual considerations forming the basis for the Panel's finding of de facto export contingency no longer apply. According to Canada, the only factual consideration still applicable is the export orientation of the Canadian regional aircraft industry.

  1. Brazil's complaint, in the Article 21.5 proceedings, regarding TPC was limited to the second type of action taken by Canada to comply with the recommendations and rulings of the DSB, namely the restructuring of the TPC programme. Brazil does not disagree with the manner in which Canada has terminated existing TPC activities in the Canadian regional aircraft sector, and the Article 21.5 Panel did not examine those termination measures.
     
  2. Before the Article 21.5 Panel, Brazil made four different arguments to establish that the revised TPC programme involves de facto export contingent subsidies that are inconsistent with Article 3.1(a) of the SCM Agreement.25 The Panel considered each of these arguments in turn. For the reasons quoted below, the Article 21.5 Panel declined to examine the substance of the first of the four arguments made by Brazil, namely that the revised TPC programme "specifically targeted" the Canadian regional aircraft industry for assistance because of its export-orientation:

… the "specific targeting" concept (in those or other words) did not form part of our reasoning regarding contingency in fact on export performance in that dispute. … That is, of the factual considerations enumerated by us at para. 9.340 of our Report, none concerned the alleged targeting of the Canadian aerospace industry generally, or the Canadian regional aircraft industry in particular, by TPC, none concerned the amount of total TPC funding directed at the Canadian aerospace or regional aircraft industries, and none concerned the fact that the aerospace or regional aircraft industries were eligible for TPC assistance. … Indeed, we consider that the question of whether TPC assistance is "specifically targeted" to the aerospace and regional aircraft industries is not relevant to the present dispute, which concerns the issue of whether or not Canada has implemented the DSB recommendation on TPC assistance to the Canadian regional aircraft industry.26 (italics added)

  1. The Article 21.5 Panel next stated that the recommendations and rulings of the DSB:

… cannot have required Canada to take implementation action to ensure that TPC assistance is not "specifically targeted" at the aerospace and regional aircraft industries, because such alleged "specific targeting" did not form part of the basis for the finding of de facto export contingency that gave rise to that recommendation. 27 (emphasis added)


 


1 WT/DS70/RW, 9 May 2000.

2 The recommendations and rulings of the DSB resulted from the adoption, by the DSB, of the Appellate Body Report in Canada - Aircraft and the original panel report in that dispute, as modified by the Appellate Body Report (Appellate Body Report, Canada - Aircraft, WT/DS70/AB/R, adopted 20 August 1999; original panel report, Canada - Aircraft, WT/DS70/R, adopted 20 August 1999, as modified by the Appellate Body Report). The DSB recommended that Canada "withdraw" its prohibited export subsidies within 90 days, that is, by 18 November 1999.

3 Original panel report, Canada - Aircraft, para. 10.1.

4 Ibid., para. 10.4.

5 WT/DS70/9 (23 November 1999).

6 Article 21.5 Panel Report, para. 6.2.

7 Pursuant to Rule 21(1) of the Working Procedures.

8 Pursuant to Rule 22 of the Working Procedures.

9 Pursuant to Rule 24 of the Working Procedures.

10 WT/DS70/9 (23 November 1999).

11 Article 21.5 Panel Report, para. 6.1.

12 Ibid., para. 5.17.

13 Brazil's appellant's submission, para. 16, citing The New Shorter Oxford English Dictionary (Fourth Ed. 1993).

14 Ibid.

15 Australia - Measures Affecting Importation of Salmon, Recourse to Article 21.5 by Canada ("Australia - Salmon, Article 21.5"), WT/DS18/RW, adopted 20 March 2000, para. 7.10.

16 Australia - Salmon, Article 21.5, para. 7.10; European Communities - Regime for the Importation, Sale and Distribution of Bananas, Recourse to Article 21.5 by Ecuador, WT/DS27/RW/ECU, adopted 6 May 1999, para. 6.8.

17 Before the Article 21.5 Panel, Brazil made four arguments with a view to establishing that the revised TPC involves de facto export contingent subsidies that are inconsistent with Article 3.1(a) of the SCM Agreement. The four arguments that Brazil made were: that the revised TPC programme "specifically targeted" the Canadian regional aircraft industry for assistance because of its export-orientation; the nearness-to-the-market of the projects to be funded by the TPC; the "implicit" inclusion of export performance in the new TPC selection and assessment criteria; and, the absence of complete documentation for the revised TPC programme and the failure to replace all of the documentation relating to the "old" TPC (Brazil's four arguments are summarized in paragraph 5.15 of the Article 21.5 Panel Report and elaborated more fully in paragraphs 5.16, 5.19, 5.27 and 5.35 of the Article 21.5 Panel Report).

18 Article 21.5 Panel Report, para. 5.17.

19 Article 21.5 Panel Report, para. 5.17.

20 Original panel report, Canada - Aircraft, supra, footnote 2, para. 9.325.

21 European Communities' third participant's submission, para. 15.

22 United States' third participant's submission, p. 1.

23 Article 21.5 Panel Report, para. 5.42.

24 Original panel report, Canada - Aircraft, supra, footnote 2, para. 9.348.

25 Brazil's four arguments are identified, supra, in footnote 17 of this Report. These four arguments are also summarized in paragraph 5.15 of the Article 21.5 Panel Report and elaborated more fully in paragraphs 5.16, 5.19, 5.27 and 5.35 of the Article 21.5 Panel Report.

26 Article 21.5 Panel Report, para. 5.17.

27 Ibid.


Continuation: Section 29.