CANADA - MEASURES AFFECTING THE EXPORT
OF CIVILIAN AIRCRAFT



Recourse by Brazil to Article 21.5 of the DSU




Report of the Panel

(Continuation)

ANNEX 1-3

FIRST ORAL STATEMENT OF BRAZIL

(6 February 2000)

Mr. Chairman and Members of the Panel,

1. Brazil thanks the Panel for this opportunity to present its views regarding Canada's implementation of the Report in Canada - Measures Affecting the Export of Civilian Aircraft. As the Panel is aware, Brazil considers that the implementation measures adopted by Canada to withdraw subsidies provided by the Canadian government to the regional aircraft industry via two programmes - Technology Partnerships Canada, or "TPC," and Canada Account - are inadequate. The measures remain inconsistent with the Subsidies Agreement and the rulings and recommendations of the Dispute Settlement Body.

Significance of 18 November

2. Let me begin by addressing Canada's argument that the Panel may not consider anything that happened before 18 November 1999, the date on which Canada purports to have implemented the DSB's recommendations and rulings.

3. First, Canada argues that Brazil may not, in these proceedings, rely on any documents dated prior to 18 November, even though the facts addressed in those documents remain unchanged after 18 November. In its Rebuttal Submission, Brazil addressed this argument in considerable detail. I would simply note here that where facts remain unchanged by Canada's implementation measures, the publication date of documents supporting those facts is utterly irrelevant.

4. Second, Canada argues that its implementation measures are impervious to challenge under Article 21.5 of the DSU, since no TPC or Canada Account subsidies have been provided to the regional aircraft industry after 18 November. As noted in Brazil's Rebuttal Submission, I ask the Panel to consider the impact that Canada's argument, if accepted, would have on the broad question of implementation not just in this case, but in all cases. Canada's argument would reduce Article 21.5 to inutility.

5. As the Panel is aware, Brazil argues that the structure of TPC, as it applies to the regional aircraft industry, is tainted by de facto export contingency. The facts underlying that structure must be changed for Canada to claim that it has implemented the recommendations and rulings of the DSB. The changes made to TPC are merely cosmetic. In Brazil's view, in fact, the only way for Canada to rid TPC of the inference of de facto export contingency, as it applies to the regional aircraft industry, is to exclude that industry from TPC funding opportunities, or alternatively, to change radically the programme's eligibility and allocation requirements.

6. Canada argues, however, that Brazil cannot here challenge the amendments made to TPC, since no subsidy has actually been granted to the Canadian regional aircraft industry since 18 November 1999. The obvious implication of Canada's argument is that Brazil must wait until yet another prohibited TPC subsidy is granted to the regional aircraft industry, presumably after the Article 21.5 review has ended, and then begin dispute settlement proceedings anew. In the meantime, Canada demands that Brazil - and this Panel - simply take Canada's word that it will not do wrong again.

7. This is not acceptable. Were the Panel to accept Canada's argument, the inescapable result would be to lock Brazil into a futile spiral of endless challenges to a continual string of TPC subsidies, identical to ones already judged by this Panel and the Appellate Body to be prohibited. There would be, in that case, no way for Brazil to vindicate its rights and force Canada to observe its obligations. This is not an effective remedy, and cannot be considered acceptable.

8. Canada's position presents this Panel with the same problem faced by the Panel in Australia - Leather. That Panel found that the approach urged by Australia, as recorded in paragraph 6.35 of the Report, was unacceptable. In paragraph 6.38 of its Report, the Panel stated that this approach "would grant full absolution to Members who grant export subsidies that are fully disbursed to the recipient before a recommendation to withdraw the subsidy is issued in dispute settlement, and for which the export contingency is entirely in the past." According to the Panel, the drafters of Article 3.1(a) of the Subsidies Agreement would not have included "the strict prohibition against subsidies contingent on export performance, including one-time subsidies contingent in fact on export performance, only to undermine that prohibition by providing a remedy which is ineffective in the case of such subsidies." To ensure an effective remedy, the Panel then required retroactive repayment of the subsidies granted.

9. This is precisely the situation with which this Panel is faced. Canada's proposal is to "withdraw the subsidy" prospectively only, but at the same time to make the measures constituting that withdrawal impervious to challenge.

10. Mr. Chairman, Brazil believes that the decision in Australia - Leather to require retroactive repayment was wrong, and that such a result is not required by the language of the Subsidies Agreement. However, Canada leaves the Panel in this case with no choice. If, under Canada's theory, Brazil is not permitted to challenge Canada's amendments to the TPC, the only remaining remedy is the retroactive repayment of TPC subsidies provided to the regional aircraft industry. Leaving Brazil without any effective remedy would negate completely the "strict prohibition against subsidies contingent on export performance" included in Article 3.1(a).

11. Brazil therefore requests, first and foremost, that the Panel reject Canada's argument that its implementation measures, in the form of amendments to the TPC, are impervious to challenge under Article 21.5. In the alternative - and although Brazil does not in general agree with the requirement of retroactive repayment of prohibited export subsidies - Brazil requests that should the Panel accept Canada's argument, it then recommend the retroactive repayment of TPC subsidies to the regional aircraft industry. Later in this statement, I will have more to say about the similarities between the facts of Australia - Leather and the facts of this case, should it be necessary for the Panel to reach the question of retroactive repayment of TPC subsidies to the regional aircraft industry.

TPC

12. I now turn to the substance of Canada's implementation measures regarding TPC. Brazil has demonstrated in detail that those measures make nothing more than cosmetic changes to the documents underlying TPC. Canada's actions fail to meet its obligations to achieve effective implementation.

13. TPC subsidies to the Canadian regional aircraft industry were not held to be de jure export contingent. Rather, those subsidies were determined by this Panel and the Appellate Body to be contingent in fact upon export performance. In other words, this Panel, affirmed by the Appellate Body, determined that in providing subsidies to the regional aircraft industry via TPC, Canada circumvented the Subsidies Agreement. As the Appellate Body noted at paragraph 167 of its report in this case, "the Uruguay Round negotiators have, through the prohibition against export subsidies that are contingent in fact upon export performance, sought to prevent circumvention of the prohibition against subsidies contingent in law upon export performance."

14. Canada contends that merely removing the term "export" from TPC documents constitutes effective implementation. As I will discuss shortly, that would normally be true for subsidies that are contingent in law on export, but it is not true for subsidies that are contingent in fact on export. However, even if we accept, for the sake of argument, that Canada is correct, Brazil has shown in its submissions that Canada has failed to meet even its own measure of what constitutes effective implementation. Canada has failed to provide most of the documents associated with the "new" TPC to the Panel. As Canada itself admitted, in its Exhibit 9, it has failed to provide 68 percent of those documents. Canada cannot maintain that it has effectively implemented the DSB's recommendations and rulings by virtue of changes to TPC's documentation, without providing that documentation. Moreover, Brazil has demonstrated that those few documents Canada has provided still reveal a number of the factors considered by the Panel to support a finding of de facto export contingency.

15. But Canada's discussion of TPC documents is beside the point. As I have already noted, removing the term "export" from those documents might have been sufficient implementation had TPC been judged contingent in law on export performance. It is not, however, sufficient to remedy something determined to have circumvented the Subsidies Agreement; that is, something determined to be contingent in fact on export performance.

16. Remedying de facto export contingency requires more than merely going through a checklist of what Canada terms, at paragraph 21 of its First Submission, "the factual elements considered relevant by the Panel and Appellate Body in determining that contributions to the Canadian regional aircraft industry" were de facto export contingent. As stated in paragraph 6.21, footnote 24 of Australia - Leather, "the specific details of the factual evidence underlying the conclusion that the subsidies were in fact contingent upon export performance . . . and therefore prohibited do not, in our view, determine what is required in order to 'withdraw the subsidy' . . ."

17. In other words, the task of remedying de facto export contingency is not a mere matter of formula. For implementation to be effective, more than "the specific details of the factual evidence underlying the conclusion that" TPC subsidies were de facto export contingent must change. However, the facts leading to the inevitable "inference" of TPC's de facto export contingency have not or cannot be changed. For this reason, Brazil has argued that TPC, as it applies to the regional aircraft industry, must be withdrawn in its entirety.

18. At a minimum, since Canada was judged to have circumvented the prohibitions of the Subsidies Agreement by providing TPC subsidies contingent in fact on export, its implementation measures must ensure that prohibited export subsidies cannot be granted to the regional aircraft industry in future, and not merely that they might not be granted.

19. Short of the retroactive repayment of subsidies already granted, requiring positive action by a Member to ensure that such subsidies will not be provided is the only means available to provide an effective remedy. Without such positive action, or in its place, without retroactive repayment, Members lodging successful "as applied" challenges to de facto export subsidies would be locked in an unending loop of litigation concerning something that had been already been found to violate the Subsidies Agreement.

20. The problem is that the facts of the "new" TPC do not ensure that prohibited export subsidies cannot be granted to the regional aircraft industry in future. Brazil describes those facts in detail in its submissions, and I will not repeat them here. The salient point, however, is that under the "new" TPC, the same, specifically-selected industries will receive even more TPC money than before for the same types of projects. I ask the Panel to note that on page 3 of the Industry Canada news release included as Brazil's Exhibit 18, Canada reports that it has even encouraged those companies whose TPC applications were closed on 18 November 1999 simply "to submit new proposals" under the TPC as amended.

21. In paragraph 22 of its First Submission, Canada claims that its sole motivation with the "new" TPC is "to promote technological innovation and enhance the technological capability of Canadian industry." But "Canadian industry" is not the beneficiary of the "new" TPC. Rather, specifically-selected sectors of Canadian industry are the beneficiaries. And, it is the overwhelmingly export-oriented aerospace industry that will continue to receive two-thirds of all TPC funds, as Canada itself states at paragraph 32 of its first submission.

22. The regional aircraft sector is, moreover, totally export-oriented. As you know, even Bombardier sales to Air Canada were structured as export sales to obtain export financing and to launch an export product. The Canadian government has consistently expressed something considerably short of casual indifference to the trading patterns of this industry, and has in fact explicitly said that it selected this industry to receive TPC funds because of its export orientation. Statements like this cannot now be "unsaid." They reveal the intent of the Canadian government in extending TPC funds to this industry. And according to Section 5.15.1.3 of Canada's Special Import Measures Handbook, cited by the United States at paragraph 5 of its submission, Canada considers the grantor's intent to be an important indication of export contingency where a government, rather than revealing a "direct linkage to export performance," instead circumvents the prohibition of export subsidies by establishing de facto export contingency.

23. Brazil has also demonstrated that, given the regional aircraft industry's virtually total export-orientation, any consideration of production or sales targets for applicants will, necessarily, be a reference to export performance. Additionally, the "strategic benefits," "selection criteria" and "assessment criteria" that must be demonstrated by regional aircraft industry applicants to receive TPC funds are, when applied to that industry, nothing more than euphemisms for export contingency. Furthermore, Brazil has demonstrated that the "new" TPC retains its "near market" focus, and will continue to fund the same types of projects as it did before. Finally, Brazil has noted that Canada has not granted the Panel access to the majority of documents associated with the "new" TPC - documents that, under the "old" TPC, demonstrated facts from which the inference of de facto export contingency was drawn.

24. Under all of these circumstances - in the words of the Appellate Body at paragraph 167 of its Report, "the total configuration of the facts constituting and surrounding" TPC - the "inference" of de facto export contingency still exists. Canada's measures do not, therefore, constitute effective implementation. Brazil asks that the Panel so conclude.

Repayment of TPC Subsidies

25. Canada states that it has terminated $16.4 million in TPC subsidies to the regional aircraft industry as part of what it calls "full and faithful implementation" of the DSB's recommendations and rulings. This $16.4 million figure apparently represents the amount of outstanding disbursements not yet paid under the five TPC subsidies to the Canadian regional aircraft industry discussed in the original Panel proceedings. Those five large non-recurring grants, discussed in paragraph 9.285 of the Panel Report, totaled $266.6 million.

26. Whether Canada's prospective termination of $16.4 million in as-yet-unpaid TPC subsidies is sufficient to achieve effective implementation quite obviously raises the question of the applicability of the Article 21.5 decision in Australia - Leather. I have introduced that decision earlier, but allow me to expand somewhat upon it. In that case, the Panel determined that to "withdraw the subsidy" under Article 4.7 of the Subsidies Agreement means more than simply withholding any prospective, not-yet-paid portion of a subsidy. Rather, at paragraph 6.39 of its Report, the Panel determined that to "withdraw the subsidy" means to repay the subsidy.

27. As I have already stated, Brazil believes that the Panel in Australia - Leather reached a result that is not required by the language of the Subsidies Agreement. As long as an effective remedy is available apart from retroactive repayment, Brazil does not believe that repayment should, in general and as a matter of law, be recommended.

28. However, Brazil faces two unknowns. First, this Panel may consider itself, like the Panel in Australia - Leather, not to be bound by the arguments of the Parties or the Third Parties regarding the issue of retroactive repayment. In that case, it may decide to follow the reasoning in Australia - Leather.

29. Second, the Panel may accept Canada's argument that its amendments to the TPC are impervious to challenge under Article 21.5, leaving Brazil without any effective remedy. In that case, as I have already stated, the only way to achieve an effective remedy and uphold the "strict prohibition against subsidies contingent on export performance" is to follow the reasoning of the Panel in Australia - Leather.

30. Brazil hopes that neither of these situations comes to pass. But if they do, the Panel will find that the circumstances of Australia - Leather are similar to the facts surrounding the grant of TPC subsidies to the regional aircraft industry. Applying the reasoning in Australia - Leather to the facts of this case leads to the conclusion that the TPC subsidies to the regional aircraft industry should be repaid in full and their impact eliminated.

31. First, the form in which TPC subsidies were provided is similar to the form in which the subsidies in Australia - Leather were provided. Both cases involve large "investment" grants enjoyed by recipients, and therefore allocable, over a period of time. Second, like the subsidies provided in Australia - Leather, TPC subsidies, which were first granted in 1996, were not notified by Canada, under Article 25.2 of the Subsidies Agreement, until 30 April 1999, after the Panel rendered its decision in this case.

32. Third, and again like Australia, Canada was held to have circumvented the Subsidies Agreement via the provision of subsidies contingent in fact on export performance. And like Australia, when faced with a determination that it had provided prohibited subsidies, Canada worked a second circumvention; in Australia - Leather, as described at paragraphs 6.13 and 6.50 of the Report, Australia simply replaced one de facto export contingent subsidy with another. Similarly, under the "new" TPC, the same, specifically-selected recipient industry is to receive even more TPC money to conduct the same types of projects funded by the "old" TPC. As I stated earlier, Canada has even encouraged companies whose TPC applications were closed on 18 November 1999 simply "to submit new proposals" under the "new" TPC.

33. Under these circumstances, the Panel in Australia - Leather determined, at paragraph 6.45 of its Report, that nothing less than "full repayment would suffice to satisfy the requirement to 'withdraw the subsidy' . . ." Under that line of reasoning, Canada has not secured "full repayment" of the TPC subsidies provided to the regional aircraft industry, and has not therefore withdrawn the subsidy.

34. Once again, I reiterate that Brazil does not believe that this or any other Panel should follow Australia - Leather. However, if this Panel accepts the interpretation of Article 4.7 offered by the Panel in Australia - Leather, or if it accepts Canada's argument that its amendments to the TPC are not subject to challenge under Article 21.5, it should determine that Canada's failure to secure repayment means that it has not implemented the DSB's recommendations and rulings, and that the subsidies must be repaid.

Canada Account

35. In paragraph 2 of its First Submission, Canada states that its implementation of the DSB's recommendations and rulings regarding the Canada Account involves two steps: first, the completion of Canada Account transactions involving the regional aircraft industry; and second, the adoption of a policy to conform Canada Account financing to the terms of the OECD Arrangement.

36. Brazil has explained why these actions do not constitute effective implementation. The Canadian "policy statement" included as Canadian Exhibit 13 does not, as Canada claims at paragraph 10 of its Rebuttal Submission, state that Canada Account financing "must" comply with the OECD Arrangement. Nor does it state what "comply with the OECD Arrangement" means. Canada now asserts that it means that Canada Account financing will adhere to Item (k) of the Illustrative List of Export Subsidies and the "interest rates provisions" of the OECD Arrangement. The policy statement does not say this, but even if it did, neither the statement itself nor anything else issued by Canada defines what are the "interest rates provisions" with which it intends to comply, or how it will apply those provisions.

37. Brazil has also noted that Canada already stated - on at least three occasions during the original Panel proceedings - that Canada Account financing already complied with the terms of the OECD Arrangement and, specifically, with the terms of Item (k). Extracts from the submissions in which Canada made this statement were included as Brazilian Exhibits 33-35. Contrary to Canada's claim, measures that were already in place at the time of the Panel's and the Appellate Body's ruling cannot credibly be touted as evidence of "full and faithful implementation."

38. Canada Account financing to the regional aircraft industry was determined by this Panel to constitute a prohibited export subsidy. Measures adopted by Canada to implement the Panel's ruling must ensure that the same thing will not happen again. In the absence of information regarding what "comply with the OECD Arrangement" means, or with which "interest rates provisions" Canada intends to comply, Canada will be able to continue to operate Canada Account as a prohibited export subsidy, undetected and undetectable. This is not effective implementation.

39. Several questions arise. For example, does "comply with the OECD Arrangement" mean that Canada Account financing will in every instance be issued at or above the OECD Arrangement's Commercial Interest Reference Rate, with an appropriate add-on for the risk factors associated with the particular transaction and the particular parties involved? Does it mean that all Canada Account financing will in every instance adhere to the 10-year maximum repayment term set by the OECD Arrangement? The Canadian "policy statement" fails to address these questions.

40. In the companion case against Brazil's PROEX, Brazil provided details regarding its implementation measures, and not just vague suggestions styled as government "policy." It offered specifics about how it had amended PROEX to comply with the DSB's recommendations and rulings. In light of Canada's implementation strategy with respect to the Canada Account, maybe Brazil should instead have issued a "policy statement" stating its intention to "comply with the OECD Arrangement." I hesitate to speak for Canada, but my guess is that it would not have found such a statement sufficient to implement effectively the recommendations and rulings of the DSB. I also presume that the Panel in the PROEX case would not have found such a change acceptable. Nor should this Panel, in consideration of Canada's "policy statement" regarding the Canada Account.

41. Brazil is not a Participant in the OECD Arrangement. Our understanding, however, is that it is unenforceable, not subject to dispute settlement, and subject, in its application, to often widely-varying interpretations by its various Participants. Under these circumstances, there is no way of knowing what Canada means when it says it will "comply with the OECD Arrangement" or the "interest rates provisions" included in the Arrangement.

42. Based on the information provided, Canada cannot possibly claim that it has put in place what it purports at paragraph 2 of its First Submission to be "new measures to ensure full and faithful implementation of the DSB rulings and recommendations." Canada has not offered anything "new" at all with regard to Canada Account, and has fallen well short of providing assurances that Canada Account cannot continue to provide prohibited export subsidies to the regional aircraft industry. The Panel should conclude that this is not effective implementation.

Conclusion

43. In conclusion, Brazil requests that the Panel determine that Canada has not implemented the recommendations and rulings of the DSB, with regard to both TPC and the Canada Account. Once again, Brazil thanks the Panel for this opportunity to present its views, and welcomes any questions the Panel might have.
 

ANNEX 1-4

CONCLUDING STATEMENT OF BRAZIL

(6 February 2000)

Mr. Chairman and members of the Panel:

1. We heard a large number of arguments from the parties and the third parties today, some referring to technical details of the case, some to political considerations, some to procedural aspects of the case. I felt that, in the midst of all these arguments, we may lose the focus of what is really at stake before the Panel, and of what the essence of this case is. That is why I choose to make this brief summary of Brazil's views.

2. I guess the best way to start is to picture a scenario. I would ask the Members of the Panel to imagine a situation where a given country has a highly export-oriented industry. Some segments of this industry reach 100% export orientation. That country decides to support the export sales of that industry and builds a subsidy programme around it. The programme is very carefully designed to avoid a possible finding of de jure export contingency. At first 90% of all funds in the programme are directed to that industry, and in subsequent years, never less than 2/3 of the funds are allocated to that same highly export-oriented industry.

3. A Member who is directly affected by the exports of the beneficiary industry questions that programme in the WTO. A Panel constituted to examine the dispute understands that it is not facing a case where an industry that happens to be highly export oriented incidentally receives subsidies. That Panel finds that it is before a case where a highly export-oriented industry is specifically targeted to receive massive subsidies because it exports.

4. After the DSB recommends that the subsidizing country withdraw the prohibited subsidy - and not merely bring it into conformity with the WTO disciplines - that country completely ignores those recommendations and simply makes cosmetic alterations to the regulations of the original subsidizing programme. For example, they delete the word exports from all flyers and administrative documents.

5. The subsidizing country announces that it now has a "new" programme and that it has faithfully implemented the recommendations of the DSB. The fact, however, is that under this "new" programme the same companies will continue to receive subsidies to use in the same type of projects approved under the "old" programme. Actually, they will now receive even more money, since the results of the original programme have proven to be quite successful.

6. Such "implementation" is obviously challenged by the complaining country, which brings about Article 21.5 procedures. Under these procedures, the complainant shows unequivocally that the programme remains essentially the same and requests that the Panel make a finding of non-implementation. The subsidizing country nonetheless alleges that it has put in place a new programme, which cannot be deemed to be a de facto export subsidy. After all, it implemented the recommendations of the DSB in good faith and it could not possibly prove, after just a few weeks of implementation, that the de facto export contingency has disappeared. The complainant, it submits, is proposing a burden of proof that is impossible to be meet. It further argues that, quite on the contrary, it is the complainant who bears the burden of proof. It is the complainant that has to prove that the "new" programme is also de facto contingent on export subsidies. Furthermore, such proof would have to be based on "new" factual evidence, which could positively infer that the payments under the new subsidy programme are still de facto contingent on exports.

7. Mr. Chairman and members of the Panel, Brazil agrees that the complainant has the initial burden of proof, but since no payments were made under the new programme, it would be impossible for the complaining country to meet the standards suggested by this subsidizing country. The subsidizing country figures, therefore, that if it takes no actions during 60 or 90 days - or whatever the duration of the Article 21.5 Review Panel is - it will get away with its carefully planned circumvention of the Subsidies Agreement. The "impossible" burden of proof is now on the complainant.

8. Turning to the specific case of TPC payments, let me recall that the Appellate Body put before us a three-part test. First, one has to establish the "granting of a subsidy" - and Canada does not dispute that this occurs. The second part of the test concerns the expression "tied to". Finally, one should determine that exports are "anticipated" or "expected". Canada does not dispute that the regional aircraft industry in Canada is highly export-oriented, and even pointed out that this is a fact that will not change. Canada anticipates and expects export sales from that industry and this is not disputed either. What Canada does argue, is that Brazil failed to meet the second part of the test, the one concerning the "tied to" provision.

9. Mr. Chairman, Brazil has provided conclusive evidence that the targeted industries of the "old" TPC are the same recipients under the "new" TPC. Canada itself confirmed that when answering a follow-up question posed by you this morning. When it first examined this case, this Panel found that the way TPC was conceived and operated provided ample evidence that the subsidies granted to the targeted industries were "tied to" anticipated and expected export earnings. The Appellate Body unconditionally confirmed this finding. Under the "new" TPC the same three industries are targeted and Canada knows that whatever sales are made by those industries will be almost entirely directed to foreign markets. Nothing has changed, the granting of the subsidy is still firmly "tied to" anticipated and expected export earnings of the same industry.

10. Brazil showed that we still have the same answers to the three parts of the test the Appellate Body put before us. By doing this, Brazil has given the Panel ample evidence that Canada did not implement the recommendations of the DSB and has, therefore, met its burden of proof. On the other hand, Canada has given us nothing that would resemble a credible effort to implement those recommendations. It claims, nonetheless, that it must be deemed to be in compliance, since it has adopted the implementing measures in good faith and that Brazil is proposing a standard of proof that is impossible to meet. I will soon show that this is definitely not the case.

11. Mr. Chairman, Brazil admits that the task to implement recommendations to withdraw a de facto export subsidy is more complex than when we are dealing with a de jure export subsidy; but it is by no means impossible, as Canada claims.

12. One possible way to implement the findings on TPC could be, for example, the simple withdrawal of the 100 per cent export-oriented regional aircraft industry from the list of eligible recipients of the programme.

13. Nevertheless, if Canada still wanted to avoid such action, its changes to the regulations of the programme would have to ensure that the de facto contingency would not exist anymore. Let me recall that payments under the "old" TPC were not found to be de jure contingent on exports. However, Mr. Chairman, the regulatory changes made to TPC not only would allow the programme to be operated as before, it virtually ensures that it will. The representative from the EC said in the third party session that Canada must be given the "benefit of the doubt". There is no doubt here Mr. Chairman. TPC will operate as before, will benefit exactly the same companies - but, I forgot, now there will be even more money to be dispensed.

14. Canada claims that it could not possibly make changes to TPC that would ensure that the de facto contingency would disappear. This is an impossible task they say. Let me assure you Mr. Chairman that this is not true. It would not be particularly difficult to devise changes to the programme that would ensure the withdrawal of the export contingency. I could think of hundreds of alternatives.

The Chairman of the Panel asks if Mr. Azev�do could provide examples of these alternatives.

15. Mr. Chairman, certainly the Canadian officials are aware of the concept of general availability of a subsidy. Canada could make TPC subsidies available to all industries. It did not do so. It maintained the programme resources limited to the same highly export oriented industries targeted by the "old" TPC. Canada could also make eligibility automatic and reduce the subjectivity of the criteria and conditions governing the approval of grants. Canada did not do so. Instead, Canada maintained highly subjective criteria and conditions, linking disbursements to vague goals such as "increasing economic growth, creating jobs, and supporting sustainable development", or to "strategic" concerns. I could go on providing examples of how Canada could reduce or eliminate the specificity of the programme, therefore eliminating the contingency on export earnings. But I do not wish to offer Canada an implementation roadmap. I wonder if later they would not simply characterize these examples as a sufficiency test proposed by Brazil.

16. The point is that Canada could have introduced changes that would ensure that, operating with a broader range of automatically eligible recipients (export oriented and otherwise), the granting authority had little or no room to arbitrarily make funds available based on the export propensity of the beneficiary. Canada chose not to do so. In fact Canada scrupulously tried to make sure that the programme would function just as it did before. The standard proposed by Brazil is by no means impossible to meet. It falls well within the boundaries of what is reasonable.

17. With regard to the Canada Account I believe that there's not a whole lot to be said. Before this Panel, during the original procedures of this case, Canada affirmed, in good faith I am sure, that Canada Account complied with the terms of the OECD Arrangement. Brazil pointed this out in its submissions in the current proceedings. Regardless of that good faith interpretation of the OECD Arrangement, this Panel found Canada Account to violate the SCM Agreement - a finding confirmed by the Appellate Body. Canada has now issued a "policy guideline" which, in effect, merely reproduces in writing what Canada had already said it was doing before the programme was found to grant prohibited subsidies.

18. If this is to be considered as effective implementation Mr. Chairman, the implications for the Multilateral Trading System would be grave indeed. Members could from then on feel obliged to merely state in writing, as a policy guideline or as part of a regulation, that the programmes found not to be in conformity with the WTO Agreement will henceforth operate in full compliance with the recommendations of the DSB; in compliance with the WTO Agreements; or any similar variation. In good faith, Mr. Chairman, they will then interpret the DSB recommendations, or the WTO Agreements, and implement the "new" programmes as they see fit. In the case of the Canada Account, the WTO Members not participants in the OECD Arrangement, as Canada itself asserts, would not even be able to verify such implementation.

19. I would further note that, regarding Canada Account, Canada itself acknowledges the issue of interpretation of the OECD Arrangement. Let me read a sentence found in the introductory paragraph of the document where Canada lists what it considers to be the relevant interest rate provisions of the OECD Arrangement: "within limits, variations of certain of these provisions are permitted under the terms of the Arrangement." Mr. Chairman, the DSB found that Canada Account subsidies were to be withdrawn, and Canada asks Brazil and the other WTO Members to believe that, from now on, they will interpret the OECD Arrangement, in good faith as before, but now in ways that would not be found to be in violation of the SCM Agreement.

20. Mr. Chairman, nothing has changed with regard to Canada Account. If Canada's policy guideline is found to be effective implementation, the multilateral trading system will have suffered a serious setback.

Continuation: Annex 1-5

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