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
- INTRODUCTION AND FACTUAL BACKGROUND
- FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES
- ARGUMENTS OF THE PARTIES AND THIRD PARTIES
- INTERIM REVIEW
- COMMENTS BY BRAZIL
- COMMENTS BY CANADA
- FINDINGS
- TECHNOLOGY PARTNERSHIPS CANADA
- Summary of original Canada - Aircraft findings on TPC
- Description of the measures taken by Canada to implement the DSB's
recommendations
- Summary of the parties' arguments
(a) Brazil
(b) Canada
- 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
- CANADA ACCOUNT
- Summary of original Canada - Aircraft findings on
Canada Account
- Summary of the parties' arguments
(a) The measure at issue
(b) Standard for assessing Canada's implementation
(c) Sufficiency of the Policy Guideline
- 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
- 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.