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

español - français - português
Search

WORLD TRADE
ORGANIZATION

WT/DS70/RW
9 May 2000

(00-1750)
  Original: English

CANADA - MEASURES AFFECTING THE EXPORT
OF CIVILIAN AIRCRAFT



Recourse by Brazil to Article 21.5 of the DSU




Report of the Panel



The report of the Panel on Canada - Measures Affecting the Export of Civilian Aircraft - Recourse by Brazil to Article 21.5 of the DSU is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 9 May 2000 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

TABLE OF CONTENTS

  1. INTRODUCTION AND FACTUAL BACKGROUND 
     
  2. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES
     
  3. ARGUMENTS OF THE PARTIES AND THIRD PARTIES 
     
  4. INTERIM REVIEW 
  1. COMMENTS BY BRAZIL 
     
  2. COMMENTS BY CANADA 

  1. FINDINGS
  1. TECHNOLOGY PARTNERSHIPS CANADA 
  1. Summary of original Canada - Aircraft findings on TPC
     
  2. Description of the measures taken by Canada to implement the DSB's recommendations
     
  3. Summary of the parties' arguments

(a) Brazil

(b) Canada

  1. Evaluation by the panel

(a) Scope of the disagreement between the parties

(b) Burden of proof 

(c) Substantive analysis

(i) Eligible industries remain specifically targeted because of their export orientation 

(ii) Interest in near-market projects

(iii) Export performance as an implicit selection and assessment criterion

(iv) Documentation 

(d) Alternative implementation methods 

(e) Repayment of prior TPC assistance to the Canadian regional aircraft industry 

(f) Summary

  1. CANADA ACCOUNT
  1. Summary of original Canada - Aircraft findings on Canada Account
     
  2. Summary of the parties' arguments

(a) The measure at issue 

(b) Standard for assessing Canada's implementation

(c) Sufficiency of the Policy Guideline

  1. Evaluation by the Panel

(a) Textual analysis of the second paragraph of item (k)

(i) What are "export credit practices" in the sense of item (k) of the Illustrative List of Export Subsidies?

(ii) What are the Arrangement's "interest rates provisions"?

(iii) Which types of "export credit practices" could conceptually be "in conformity with" the "interest rates provisions" of the OECD Arrangement in its current form? 

(iv) What provisions and considerations are relevant to judging "conformity" with the Arrangement's "interest rates provisions" and hence qualification for the safe haven in item (k)? 

(b) Considerations based on the context of the second paragraph of item (k) and the object and purpose of the SCM Agreement 

(c) The sufficiency of the Policy Guideline to ensure that future Canada Account transactions in the regional aircraft sector will qualify for the safe haven of the second paragraph of item (k), and that prohibited export subsidies under Canada Account thereby have ceased 

(i) Substance of the Policy Guideline 

(ii) Form of the Policy Guideline

(d) Summary

  1. CONCLUSION 

ANNEX 1-1 (FIRST SUBMISSION OF BRAZIL) 

ANNEX 1-2 (REBUTTAL SUBMISSION OF BRAZIL) 

ANNEX 1-3 (FIRST ORAL STATEMENT OF BRAZIL) 

ANNEX 1-4 (CONCLUDING STATEMENT OF BRAZIL) 

ANNEX 1-5 (RESPONSES BY BRAZIL TO QUESTIONS FROM THE PANEL)

ANNEX 1-6 (COMMENTS OF BRAZIL ON CANADA'S RESPONSES TO QUESTIONS FROM THE PANEL)

ANNEX 2-1 (FIRST SUBMISSION OF CANADA) 

ANNEX 2-2 (REBUTTAL SUBMISSION OF CANADA) 

ANNEX 2-3 (ORAL STATEMENT OF CANADA)

ANENX 2-4 (ANSWERS TO QUESTIONS POSED TO CANADA BY THE PANEL AND BY BRAZIL) 

ANNEX 2-5 (COMMENTS OF CANADA ON BRAZIL'S RESPONSES TO THE QUESTIONS FROM THE PANEL) 

ANNEX 3-1 (SUBMISSION OF THE EUROPEAN COMMUNITIES) 

ANNEX 3-2 (SUBMISSION OF THE UNITED STATES) 

ANNEX 3-3 (ORAL STATEMENT OF THE EUROPEAN COMMUNITIES)

ANNEX 3-4 (ORAL STATEMENT OF THE UNITED STATES) 

ANNEX 3-5 (ANSWER OF THE UNITED STATES TO QUESTIONS POSED BY BRAZIL) 

ANNEX 3-6 (ANSWERS OF THE UNITED STATES TO QUESTIONS POSED BY THE PANEL) 

ANNEX 3-7 (RESPONSES BY THE EUROPEAN COMMUNITIES TO THE QUESTIONS FROM THE PANEL AND FROM BRAZIL) 


I. INTRODUCTION AND FACTUAL BACKGROUND

1.1 On 20 August 1999, the Dispute Settlement Body ("the DSB") adopted the Appellate Body Report in WT/DS70/AB/R and the Panel Report and recommendations in WT/DS70/R as upheld by the Appellate Body Report in the dispute Canada - Measures Affecting the Export of Civilian Aircraft ("Canada - Aircraft"). In its report, the Panel found, regarding Canada Account, that the Canada Account debt financing at issue constituted "subsid[ies] contingent in law … upon export performance" prohibited by Article 3.1(a) of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), and that in granting this prohibited export subsidy, Canada had necessarily acted in violation of Article 3.2 of the SCM Agreement, i.e., that Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft constituted export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement. The Panel found with regard to Technology Partnerships Canada ("TPC") that TPC assistance to the Canadian regional aircraft industry constituted "subsidies contingent … in fact … upon export performance", contrary to Articles 3.1(a) and 3.2 of the SCM Agreement.

1.2 The Panel recommended that Canada withdraw these subsidies within 90 days. The Appellate Body recommended that the DSB request that Canada bring its export subsidies found in the Panel Report, as upheld by the Appellate Body Report, to be inconsistent with Canada's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement into conformity with its obligations under that Agreement. Specifically, the Appellate Body recalled that the Panel had recommended that Canada withdraw the subsidies identified in sub-paragraphs (b) and (f) of paragraph 10.1 of the Panel Report within 90 days.

1.3 On 18 November 1999, Canada submitted to the Chairman of the DSB, pursuant to Article 21.6 of the Dispute Settlement Understanding ("the DSU"), a status report (WT/DS70/8) on implementation of the recommendations of the DSB in the dispute. The status report described measures taken by Canada which in Canada's view implemented the DSB's rulings to withdraw the measures within 90 days.

1.4 With respect to Canada Account debt financing for the export of Canadian regional aircraft, which was found to be inconsistent with Canada's obligations under the SCM Agreement, the status report indicated that there would be no deliveries of regional aircraft after 18 November 1999 benefiting from such Canada Account financing. In addition, the Minister for International Trade had approved a policy guideline requiring that all Canada Account transactions after that date for all sectors, not only those involving the regional aircraft sector, comply with the OECD Arrangement on Guidelines for Officially Supported Export Credits (the "OECD Arrangement"). By this policy, the Minister undertook not to authorize any transaction under the Canada Account unless it complied with the OECD Arrangement, and no Canada Account transaction may proceed without such Ministerial authorization.

1.5 Concerning TPC assistance to the Canadian regional aircraft industry which was found to be inconsistent with Canada's obligations under the SCM Agreement, the status report stated that Canada would not make any disbursements pursuant to any existing TPC Contribution Agreement for the Canadian regional aircraft industry effective 18 November 1999. In this respect, Canada had amended TPC's Contribution Agreements pertaining to the Canadian regional aircraft industry in order to terminate all obligations to disburse funds effective 18 November 1999. As a result, some $16.4 million of funding pursuant to those agreements would go undisbursed. In addition, Canada had cancelled the conditional approval given prior to the Appellate Body report for two other regional aircraft industry projects. Canada attached to this communication letters confirming cancellation of such funding. Canada also had taken steps to restructure TPC in order to bring the structure and administrative practices of the Agency into conformity with the SCM Agreement and so to avoid future disputes in this matter. TPC had been re mandated by the government and now operated under revised Terms and Conditions and Framework Document. The revisions covered such core activities as project eligibility, assessment criteria, and repayment principles.

1.6 On 23 November 1999, Brazil submitted a communication to the Chairman of the DSB (WT/DS70/9) seeking recourse to Article 21.5 of the DSU. In that communication, Brazil indicated its view that the measures taken by Canada to comply with the recommendations and rulings of the DSB were not consistent with the SCM Agreement and the DSU, and that therefore Canada had not implemented the recommendations of the DSB concerning either Canada Account or TPC. In particular, regarding Canada Account, Brazil recalled that there were a large number of provisions in the OECD Arrangement that allowed for derogations from its general rules. Therefore, in Brazil's view, Canada's vague statement that the new policy guideline complied with the OECD Arrangement was inconsistent with the recommendations and rulings of the DSB and Article 3 of the SCM Agreement. In addition, Brazil had not received any documentation with the revised policy guidelines of Canada Account. Regarding TPC, Brazil had no information on the new administrative framework for the programme, and since TPC payments were contingent in fact upon export performance, compliance by Canada with Article 3 of the SCM Agreement required more than a mere reformulation of some of the TPC rules and regulations.

1.7 Accordingly, Brazil indicated, because "there [was] a disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings of the DSB" between Brazil and Canada, within the terms of Article 21.5 of the DSU, Brazil sought recourse to Article 21.5 in the matter and requested that the DSB refer the disagreement to the original panel, if possible, pursuant to Article 21.5. Brazil attached1 the terms of an agreement reached by Brazil and Canada concerning the procedures to be followed pursuant to Articles 21 and 22 of the DSU. Brazil stressed that such agreement did not prejudge its rights concerning an appeal of the review panel report.

1.8 At its meeting on 9 December 1999, the DSB decided, in accordance with Article 21.5 of the DSU, to refer to the original panel the matter raised by Brazil in document WT/DS70/9. At that DSB meeting, it also was agreed that the Panel should have standard terms of reference as follows:

"To examine, in the light of the relevant provisions of the covered agreements cited by Brazil in document WT/DS70/9, the matter referred to the DSB by Brazil in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.9 The Panel was composed as follows:
 

Chairperson: Mr. David de Pury
 
Members: Mr. Maamoun Abdel-Fattah
 
Mr. Dencho Georgiev

1.10 Australia, the European Communities and the United States reserved their rights to participate in the Panel proceedings as third parties.

1.11 The Panel met with the parties and third parties on 6 February 2000.

1.12 The interim report of the Panel was sent to the parties on 31 March 2000. The parties submitted written comments on the interim report on 7 April 2000. On 14 April 2000, Canada responded to two comments made by Brazil. Brazil chose not to respond to Canada's comments on the interim report. Neither party requested an interim review meeting with the Panel. The final report of the Panel was sent to the parties on 28 April 2000.

II. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES

2.1 Brazil requests the Panel to "determine that Canada has not implemented the recommendations and rulings of the DSB or otherwise complied with its obligations under the Subsidies Agreement".

2.2 Canada requests the Panel to "reject Brazil's claim".

III. ARGUMENTS OF THE PARTIES AND THIRD PARTIES

3.1 With the agreement of the parties, the Panel has decided that in lieu of the traditional descriptive part of the Panel report setting forth the arguments of the parties, the parties' submissions will be annexed in full to the Panel's report. Accordingly, the submissions of Brazil are set forth in Annex 1, and the submissions of Canada are set forth in Annex 2. In addition, the third party submissions of the European Communities and the United States are set forth in full in Annex 3. Australia, the only other third party, made neither a written nor an oral submission.

IV. INTERIM REVIEW

4.1 On 7 April 2000, both parties requested the Panel to review, in accordance with Article 15.2 of the DSU, precise aspects of the interim report issued on 31 March 2000. Neither party requested an additional meeting with the Panel. Canada responded to two of the comments made by Brazil.

A. COMMENTS BY BRAZIL

4.2 Brazil identified two typographical errors in the interim report, which have been corrected.

4.3 Regarding para. 5.32, Brazil asked us to state that sales forecasts will in some instances be used in the context of "new" TPC assistance to the Canadian regional aircraft industry. There is nothing in the record to suggest that sales forecasts will definitely be used in the context of the new TPC. Furthermore, in responding to Brazil's comment, Canada asserted that "[I]t is not certain that sales forecasts will ever be used in the context of the 'new' TPC assistance to the regional aircraft industry". Accordingly, we have not made the change requested by Brazil.

4.4 In respect of para. 5.33, Brazil asserted that the third sentence of this paragraph does not accurately reflect the factual record in these proceedings. Brazil argued that documentary evidence that it submitted establishes that "increased export performance" is in fact identified by Industry Canada as a "net economic benefit" to Canada as that term is defined by the "new" TPC. However, it is possible for a transaction to have "net economic benefit" without export performance. Although export performance may well provide net economic benefit, the opposite is not necessarily true. We have amended the third sentence of this paragraph, in order to clarify that nowhere in the "new" TPC Investment Decision Document or the "new" TPC Investment Application Guide (the two documents referred to in that paragraph) is export performance identified as a "technological" or "net economic benefit".

4.5 With regard to para. 5.37, Brazil questioned our finding that "Brazil has failed to cite to any Canadian submission to the Panel which contains any such argument". Brazil referred to Exhibit CAN-9 in support. However, Exhibit CDN-9 does not contain any argument by Canada that it has implemented the DSB recommendation on TPC by removing the word "export" from the "old" TPC documents referenced therein. It simply includes a list of TPC documents in effect prior to 17 November 1999. Indeed, some of the "old" TPC documents cited in Exhibit CDN-9 do not even contain the word "export" (see, for example, Repayment of Contributions Policy Guidelines, Project Summary Form, and Statement of Work). We have made no change to this paragraph.

4.6 In order to avoid any misstatement of Brazil's arguments concerning the Appellate Body report in Chile - Alcohol (WT/DS87/AB/R and WT/DS110/AB/R), we have deleted former footnote 45.

4.7 Brazil requested the inclusion of a new footnote at the end of the first sentence of paragraph 5.50. Brazil asked the Panel to include text taken from para. 45 of Canada's first written submission (Annex 2-1) and para. 15 of Canada's second written submission (Annex 2-2). In response, Canada asserted that Brazil's proposed footnote "takes language from Canada's submission out of context. This could lead to the perpetuation of the misunderstanding of Canada's position on this point." We agree with Canada. In any event, we note that the relevant text is included in the aforementioned Annexes to the Panel's report. We have therefore not included the new footnote requested by Brazil.

B. COMMENTS BY CANADA

4.8 Regarding our findings on Canada Account, Canada indicated that it understood the reference in paragraph 5.147(d) of our report to Article 24 of Annex III of the OECD Arrangement to mean that humanitarian tied aid falls within the safe haven of the second paragraph of item (k) and therefore can be provided under Canada Account. Canada requested that we insert a statement in our findings to clarify this. We have made no finding in respect of humanitarian tied aid, and therefore have inserted footnotes 102 and 127 to so indicate.

4.9 Canada further noted regarding our findings on Canada Account that in a given transaction, there could be a combination of a guarantee or an insurance policy by an export credit agency issued in favour of a lending bank and the provision of interest rate support by the participating country to the lending bank. Canada stated that Canada understood us to consider that such a transaction would fall within the safe haven of the second paragraph of item (k) because it includes "official financing support", and requested that we insert a statement in our findings to clarify this point. We have inserted footnotes 97 and 103 to reiterate and clarify our finding as to the provisions of the Arrangement that would need to be respected in order for such a transaction to be in conformity with the interest rate provisions of the Arrangement, and to recall our finding that conformity with the SCM Agreement of a guarantee or insurance as such could only be judged on the basis of Articles 1 and 3 of that Agreement.

4.10 Canada requested that we insert an introductory sentence before paragraph 81 of its oral statement (Annex 2-3). We have inserted the requested sentence at the beginning of that paragraph.

V. FINDINGS

A. TECHNOLOGY PARTNERSHIPS CANADA

1. Summary of original Canada - Aircraft findings on TPC

5.1 In the original Canada - Aircraft proceeding, Brazil adduced evidence concerning five TPC transactions in the regional aircraft sector. The Panel noted that "three [of the five] transactions accounted for 68% of TPC contributions to the aerospace and defence sector during the period 1996-1997." The Panel found "that Brazil's arguments concerning these three specific contributions establish a prima facie case that TPC assistance to the Canadian regional aircraft industry confers 'benefits' within the meaning of Article 1.1(b) of the SCM Agreement". The Panel therefore found that "TPC assistance to the Canadian regional aircraft industry constitutes 'subsidies' within the meaning of Article 1.1 of the SCM Agreement". The Panel then found, on the basis of a number of "considerations" / "facts", 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". In light of the above, the Panel concluded 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".

5.2 The Appellate Body upheld the Panel's finding that "TPC assistance to the Canadian regional aircraft industry" is contingent on export performance, within the meaning of Article 3.1(a) of the SCM Agreement.

2. Description of the measures taken by Canada to implement the DSB's recommendations

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.

3. Summary of the parties' arguments

(a) Brazil

5.5 Brazil notes that, consistent with Article 4.7 of the SCM Agreement, the Panel and the DSB recommended that Canada "withdraw" its prohibited export subsidies. Brazil recalls that the Panel found that prohibited export subsidies were provided in the form of TPC assistance to the Canadian regional aircraft industry. Accordingly, Brazil considers that Canada should withdraw the TPC programme altogether with regard to the Canadian regional aircraft industry. At a minimum, Brazil considers that Canada's TPC implementation measures must ensure that prohibited export subsidies cannot be granted to the regional aircraft industry, and not merely that they might not be granted. Brazil states that withdrawal of the prohibited TPC subsidy programme should consist of measures that make it clear to the Panel that Canada is not simply going to continue the same TPC programme as before once the present Article 21.5 proceedings are completed. Brazil asserts that Canada's implementation measures change only the superficial evidence of export contingency (by purging from TPC documents any express reference to the word "export"), but make no substantive change whatsoever in the underlying programme.

5.6 As an argument in the alternative, Brazil also requests repayment of prior TPC assistance to the Canadian regional aircraft industry, if either (1) the Panel considers itself required to follow the reasoning of the Australia - Leather Article 21.5 panel2, or (2) the Panel finds that there can be no grounds for making a finding concerning de facto export contingency under the "new" TPC programme in the absence of actual financial contributions granted under the "new" TPC.

(b) Canada

5.7 Canada submits that the measures it has taken fully satisfy the requirement to withdraw the TPC assistance to the Canadian regional aircraft industry that was found to constitute prohibited export subsidies. Canada considers that these measures "ensure" - through programmatic changes - that any future assistance under the TPC programme with respect to regional aircraft will be consistent with the SCM Agreement. Canada denies Brazil's assertion that it is obliged to withdraw / abolish the TPC programme in respect of the Canadian regional aircraft industry. Canada asserts that it can implement the Panel's recommendation by replacing the "old" WTO-inconsistent TPC programme with a "new" WTO-consistent programme.

5.8 With regard to Brazil's qualified request for repayment, Canada asserts that it was the operation of TPC in the regional aircraft sector that was at issue in the previous proceeding, and that it is the operation of TPC, as newly constituted, that is at issue in this Article 21.5 proceeding. Canada asserts that since there is no evidence, and, indeed, no suggestion, that new subsidies have been granted to "circumvent" a Panel ruling, repayment of subsidies, even if such a remedy were available under the SCM Agreement, is not warranted.


1 See Annex to document WT/DS70/9.

2 Australia - Subsidies Provided to Producers and Exporters of Automotive Leather - Recourse to Article 21.5 of the DSU by the United States, WT/DS126/RW, adopted 11 February 2000, hereinafter "Australia - Leather Article 21.5".

 


Continuation: 4. Evaluation by the panel