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CANADA - MEASURES AFFECTING THE EXPORT
40. Second, Brazil asserts that de facto export contingency is still "inferred from the total configuration of facts constituting and surrounding any TPC contributions to the Canadian regional aircraft industry".25 Brazil argues, therefore, that the withdrawal of the de facto export subsidy by Canada cannot be adequately achieved without a "complete and total abolition26 of the TPC programme as it relates to the Canadian regional aircraft industry.
41. Canada has undertaken a complete restructuring of the TPC programme in order to meet the concerns identified by the Panel and the Appellate Body and to comply with the recommendations and rulings of the DSB. Canada is not under any obligation to abolish the TPC programme. As was duly recognised by the Panel in Australia - Subsidies Provided to Producers and Exporters of Automotive Leather:
42. Third, Brazil tries to infer export contingency from a combination of past statements by Canadian government officials and industry groups endorsing exports; continued eligibility of aerospace and defence companies for TPC assistance; and allegations that objectives such as economic growth and jobs should be regarded as legal surrogates for export performance. This proposition is, however, untenable. By such logic, all subsidies are export subsidies and would be prohibited.
43. As set out in Annex A to this submission, Brazil's factual evidence suffers from a number of errors and distortions. Leaving these aside, however, virtually all of the evidence cited by Brazil relates not to the restructured TPC, but to TPC as it was previously constituted.28 Indeed, in many cases Brazil uses the same quotations that it relied on in challenging TPC as it was previously structured and administered without acknowledging that such information is dated and superseded by the changes introduced by Canada.
44. The Appellate Body ruled that "Footnote 4 makes it clear that de facto export contingency must be demonstrated by the facts.29 [emphasis original] Absent such a demonstration it cannot be assumed that assistance to the Canadian regional aircraft industry is de facto export contingent under the restructured TPC programme. In Chile - Taxes on Alcoholic Beverages30 the Appellate Body held that where there has been a finding of non-compliance with WTO rules and a Member has adopted a replacement measure, that Member cannot be assumed to have continued the previous prohibited practice. The Appellate Body found:
45. The object of Canada's restructuring of TPC is to ensure that future TPC transactions with the Canadian regional aircraft industry will not be de facto contingent upon export performance. Establishing de facto export contingency requires a consideration of all the facts surrounding the granting of assistance. In the absence of any such financial contribution and a full consideration of those facts, there can be no grounds to support Brazil's allegations of de facto export contingency under the restructured TPC programme.
46. Finally, Brazil notes that Canada has not provided revised versions of the documents previously produced before the Panel in the original proceedings and certain other documents referenced in the SOA Framework, and argues that the Panel should draw a negative inference from this fact.
47. The restructuring of TPC involves a complete re-engineering of all of TPC's policies and procedures and related documents. While the Terms and Conditions have been modified, not all supporting documents have been finalised. Attached as Exhibit Can-9 is a list of TPC administrative documents currently being revised with an indication of the status of the revision. For the convenience of the Panel and Brazil, the table provides a mapping from old documents to new documents. Canada notes, once again, that no new contributions to the Canadian regional aircraft industry will be approved until the programme has been fully restructured.
48. Canada has provided the key restructuring documents, namely the new Terms and Conditions, the SOA Framework and the Investment Application Guide and the IDD. Copies of the documents identified in the above-referenced list that have been finalised are included in Exhibit Can-9. Moreover, Canada is prepared to provide additional documents, as they become available.
49. Attached, as Exhibit Can-10 is the Industry Sector - TPC Memorandum of Understanding, as requested by Brazil. This document sets out the respective roles and responsibilities of TPC and Industry Sector Branches.
50. Attached, as Exhibit Can-11 is the Treasury Board Policy on Repayable Contributions, as requested by Brazil. This document is not specific to TPC, but rather sets out the Government of Canada's policy in this area with which TPC must abide as indicated in its Terms and Conditions.32
51. Moreover, Canada is unable to provide many of the documents requested by Brazil because they will not exist until such time as the restructured programme approves and contracts new investments. Specifically these documents include: completed Case Assessment or Project Summary Forms (now IDDs), completed Sector Branch Technical Assessments, Programme Forecasts and Progress Reports (as specified in the Contribution Agreement and which allow TPC to monitor progress). Moreover, the TPC Advisory Board, the Interdepartmental Advisory Committee, and the TPC Management Board have not met since 18 November 1999. As such there are no minutes, reports or records of decision available. While the Programmes and Services Board did meet on 8 December 1999, no minutes have yet been prepared. Canada also notes that the Board did not consider any project-specific items pertinent to the restructured programme at that meeting.
52. In summary, Canada has terminated all obligations for the disbursement of funds to the regional aircraft sector under TPC, as it was previously constituted. This included cancelling funding under existing Contribution Agreements, withdrawing the approvals-in-principle that had been granted for specific projects and closing all TPC files resulting to applications for financial assistance. Canada has also made fundamental and pervasive changes to the nature and administration of TPC that ensure that funding under the programme, if and when it occurs with respect to the regional aircraft industry, will in no way be tied to or contingent upon any consideration of actual or anticipated exports or export earnings. Canada therefore has withdrawn the subsidies found to be de facto export contingent by the Panel and Appellate Body, and has complied with its obligations under the SCM Agreement and with the recommendations and rulings of the DSU.
III. CANADA ACCOUNT
A. FINDINGS OF THE PANEL AND THE APPELLATE BODY
53. In Canada - Aircraft the Panel rejected Brazil's claim the Canada Account programme as such is inconsistent with the SCM Agreement. The Panel also rejected Brazil's argument that the Canada Account programme mandates prohibited export subsidies. It found that:
54. The Panel found, however, that the application of the Canada Account debt financing in the two export transactions involving regional aircraft between 1 January 1995 and 30 June 1998 - covering deliveries to South African Express and LIAT - constituted subsidies that were contingent in law upon export performance within the meaning of Article 3.1(a). The Panel ruled that Brazil made a prima facie case that such debt financing was a subsidy contingent on export performance, and that Canada had not rebutted that case "nor sought to rely on the safe haven provided for in item (k) of the Illustrative List of Export Subsidies�..34 The Panel concluded, as a result, that the debt financing in question constituted subsidies that were contingent in law upon export performance.
B. MEASURES TAKEN BY CANADA
55. The Canada Account debt financing transactions with respect to South African Express and LIAT that were examined by the Panel in Canada Aircraft were completed in 1995 and 1998. Since 18 November 1999, there have been no new financing transactions in the regional aircraft sector under the Canada Account programme.
2. Canada has Taken Measures in Respect of Future Export Financing Transactions
56. While the Panel expressly did not find that the Canada Account programme per se was a prohibited export subsidy, Canada has taken further action to assure that the discretionary authority of the Export Development Corporation (EDC) in relation to financing under Canada Account will, in the future, be applied in a way consistent with the SCM Agreement. First, Canada has amended the guidance under which the Canada Account operates to require conformity with the OECD Arrangement on Guidelines for Officially Supported Export Credits (the OECD Arrangement). The second paragraph of item (k) of the Illustrative List of export subsidies permits export credit financing that abides by the interest rate provisions of the OECD Arrangement. Second, recognising the importance of verification of compliance, Canada is prepared to agree to procedures, discussed below, that will enable the disputing parties to verify that each is complying with the SCM Agreement in the way it administers export-finance related governmental programmes.
(a) The Minister has Adopted a Guideline
57. Under subsection 23(1) of the Export Development Act35 Canada's Minister for International Trade, with the concurrence of the Minister of Finance, may authorise EDC to enter into any transaction or class of transactions which in the opinion of the Minister for International Trade is in the national interest, including Canada Account financing transactions. The Minister for International Trade adopted the policy that, with respect to financing under Canada Account, only those transactions that comply with the OECD Arrangement will be considered to be in the national interest.
58. This policy, which is included as Exhibit Can - 13, was adopted by the Minister on 15 November 1999 and communicated officially to the President and Chief Executive Officer of EDC on 29 December 1999. By this policy, the Minister informs EDC and the world that he will not authorise any financing transaction under the Canada Account programme unless it complies with the OECD Arrangement. Under Canadian law, no Canada Account transaction may proceed without Ministerial authorisation and the Minister may not approve transactions that he does not find to be in the national interest. It should be noted that, while only regional aircraft financing was at issue in the dispute, the Minister has chosen to require that all financing transactions under the Canada Account, not only those in the regional aircraft sector, will be in conformity with the OECD Arrangement
(b) Canada Proposes the Establishment of Verification Procedures
59. To facilitate a definitive resolution of this dispute, Canada is prepared to agree to the establishment of verification procedures in respect of Canada's future arrangements to bring any subsidies in respect of Canada Account financing transactions for regional aircraft into compliance with the SCM Agreement, provided that such arrangements are also applicable to Brazil with respect to its implementation of the rulings and recommendations in Brazil- Export Financing Programme for Aircraft (PROEX).36
60. Endorsement of this proposal for bilateral verification procedures would be consistent with the objectives of the DSU, and could be suggested by the Panel pursuant to Article 19.1 of the DSU. Canada also notes that in consultations with Brazil on 16 and 19 November 1999 concerning implementation of the Panels' recommendations and rulings in the two cases, Canada proposed that the Parties establish procedures that would enable each government to verify the compliance of the other with respect to specific future transactions under the pertinent measures to bring that Party into consistency with the SCM.
C. AS CANADA HAS COMPLIED WITH THE RECOMMENDATIONS AND RULINGS OF THE DSB, BRAZIL'S ALLEGATIONS ARE UNFOUNDED
62. The financing transactions found by the Panel to be subsidies contingent in law upon export performance have been completed, i.e. all disbursements under the relevant loan agreements have been made. No new financing transactions in the regional aircraft sector have been entered into since 18 November 1999. To ensure complete implementation of the rulings and recommendations of the DSB and full compliance with the SCM Agreement, the Minister for International Trade has made a commitment not to authorise any financing transaction under Canada Account unless it complies with the OECD Arrangement. Canada is also prepared to enter into an agreement with Brazil to enable each to monitor compliance with the SCM Agreement in regard to financing of regional aircraft.
63. Article 3.1(a) prohibits subsidies contingent in law or in fact upon export performance. Footnote 5 to that Article provides, in turn that "Measures referred to in Annex I as not constituting export subsidies shall not be prohibited under this or any other provisions of this Agreement."
64. One such exception can be found in the second paragraph of Item (k) of Annex I. According to the Appellate Body in PROEX:
65. An export credit practice that is in conformity with the interest rate provisions of the OECD Arrangement on Guidelines for Officially Supported Export Credits (OECD Arrangement) is not a prohibited export subsidy under the SCM Agreement.
66. Pursuant to the Ministerial Guideline discussed above, all future Canada Account financing transactions will abide by the OECD Arrangement. Therefore, to the extent that future financing transactions under the Canada Account programme are subsidies within the meaning of Article 1.1 and export subsidies within the meaning of Article 3.1, these transactions will benefit from the exception in Item (k).
67. In its submission Brazil has suggested that Canada must establish its entitlement to use Item (k) as an affirmative defence38 Canada agrees that it is the Member claiming an exception that must demonstrate its entitlement to that exception. If, in the future, there is a financing transaction under Canada Account in relation to which Canada claims the exception in Item (k) and the claim to that exception is challenged, Canada will accordingly bear the burden of demonstrating compliance of the transaction with the exception in Item (k), to the extent Canada relies thereon.
68. Brazil has also asserted that Canada has not indicated which of the provisions of the OECD Arrangement it considers pertinent and in what way Canada intends to comply with them in respect to any future Canada Account activities. While that is true, Canada does not see why it would be obligated to provide such a delineation as to it's future course, other than indicating, as Canada has, that it will meet the criteria to qualify for an exception under the second paragraph of Item (k). It is also far from clear what the legal consequence would be of attempting in this proceeding to delineate in the abstract, and before-the-fact, the various ways that Canada considers WTO members can act within the exception in the second paragraph of Item (k). As noted above, should Canada invoke the exception, in any possible future challenge it would have the burden of demonstrating compliance with second paragraph of Item (k) at that time. Canada also notes that the Canada-Brazil verification procedure that it has proposed would facilitate monitoring of compliance on a reciprocal basis.
69. In summary, the Canada Account financing transactions that were found to be prohibited export subsidies were completed prior to 18 November 1999. Canada has therefore withdrawn the subsidies found to be export contingent by the Panel and complied with the recommendations and rulings of the DSB. Canada has also taken steps to ensure that all future Canada Account financing transactions will comply with the OECD Arrangement and benefit from the exception in Item (k). Finally, and perhaps most importantly, Canada suggests the development of a verification procedure under which Canada and Brazil would exchange relevant information regarding specific financing transactions in the regional aircraft sector so as to enable verification of their respective compliance with the SCM Agreement.
70. Canada requests that the Panel reject Brazil's claim.
Factual Errors and Misrepresentations Contained within the Submission by Brazil 1. On three occasions, Brazil asserts that funding for Technology Partnerships Canada (TPC) is rapidly increasing (e.g. 396 per cent). (Para. 13, 21, 23, citation: footnote 14 - TPC Annual Report, 1998-99, pg. 28 (row titled "Total funds available for new contributions in future years," comparing 1999-2000 figure with 2002-2003 figure)(Exhibit Bra-6).
This is a distortion of the actual programme funding situation. This schedule actually shows that TPC funding has been increased by 20 per cent. This increase in total programme funding (from $250 million to $300 million) was announced as part of the Government of Canada's February 1999 Budget Speech and as such pre-dates the Canada- Measures Report. 2. Brazil asserts (Para 20) that the Government of Canada admits that the export orientation of the regional aircraft industry "� drives the government's commitment to fund that industry�". Brazil adduces no evidence to support this allegation. This is not the policy of the Government of Canada. 3. Brazil asserts (Para 21) that TPC is "captive" to the regional aircraft sector. In its use of statistics Brazil is not comparing like figures, but rather mixes apples and oranges. As of 30 November 1999, TPC had approved $972 million of contributions of which 65 per cent of total funding was for the Aerospace & Defence component of the programme. However, only 27 per cent or $265 million of these contributions were provided in support of regional aircraft industry projects. Furthermore, no new regional aircraft projects have been approved or contracted since 14 November 1997. During the 1998/99 fiscal year, 76 per cent of disbursements (i.e. $152 million of a total of $202 million) were from the Aerospace & Defence component of the programme while $88.9 million (or 44 per cent of total disbursements) were paid to the sponsors of regional aircraft industry-related projects. 4. The Brazilian submission relies on extensive reference to documents and material from the period prior to the restructuring of TPC, many of which were previously submitted in the Canada - Measures case. These documents do not provide an accurate representation of the restructured programme.
25 First Written Submission by Brazil, Article 21.5 Panel
at para. 5 - footnotes omitted
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