This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.
See also:
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The summary below was up-to-date at
See also: One-page summary of key findings of this dispute
Consultations
Complaint by Brazil.
On 22 January 2001,
Brazil requested consultations with Canada concerning subsidies which
are allegedly being granted to Canada’s regional aircraft industry.
Brazil’s claims are as follows:
- Export credits, within the meaning of Item (k) of Annex I to the SCM
Agreement, are being provided to Canada’s regional aircraft industry
by the Export Development Corporation (EDC) and the Canada Account.
- Loan guarantees, within the meaning of Item (j) of Annex I to the
SCM Agreement, are being provided by EDC, Industry Canada, and the
Province of Quebec, to support exports of Canada’s regional aircraft
industry.
- Brazil takes the view that all of the above-mentioned measures are
subsidies, within the meaning of Article 1 of the SCM Agreement, since
they are financial contributions that confer a benefit.
- According to Brazil, they are also contingent, in law or in fact,
upon export, and constitute, therefore, a violation of Article 3 of
the SCM Agreement.
Panel and Appellate Body proceedings
Further to Brazil’s request, the DSB
established a panel at its meeting of 12 March 2001. Australia, the EC,
India and the US reserved their third party rights. On 7 May 2001,
Brazil requested the Director-General to determine the composition of
the Panel. On 11 May 2001, the Panel was composed.
On 9 August 2001, the Panel informed the DSB
that it would not be possible to complete its work within the 3 months
deadline from its composition. The panel informed that it expected to
complete its work by October 2001. On 28 January 2002, the Panel
circulated its report to the Members. The Panel:
- rejected Brazil’s claims that the EDC
Corporate Account, Canada Account, the IQ programmes “as such”
constitute prohibited export subsidies contrary to Article 3.1(a) of the
SCM Agreement;
- rejected Brazil’s claim that the EDC Corporate
Account, Canada Account and the IQ programmes “as applied”
constitute prohibited export subsidies contrary to Article 3.1(a) of the
SCM Agreement;
- upheld Brazil’s claim that the EDC Canada
Account financing to Air Wisconsin, to Air Nostrum and to Comair
constitutes a prohibited export subsidy contrary to Article 3.1(a) of
the SCM Agreement;
- rejected Brazil’s claim that the EDC Corporate
Account financing to ASA, ACA, Kendell Air Nostrum and Comair in
December 1996, March 1997 and March 1998 constitutes a prohibited export
subsidy contrary to Article 3.1(a) of the SCM Agreement;
- rejected Brazil’s claim that IQ equity
guarantees to ACA, Air Littoral, Midway, Mesa Air group, Air Nostrum and
Air Wisconsin constitute prohibited export subsidies contrary to Article
3.1(a) of the SCM Agreement; and
- rejected Brazil’s claim that IQ loan
guarantees to Mesa Air Group and Air Wisconsin constitute prohibited
export subsidies contrary to Article 3.1(a) of the SCM Agreement.
The Panel also recommended that Canada
withdraw the subsidies identified within 90 days.
At its meeting on 19 February 2002, the DSB
adopted the panel report.
Implementation of adopted reports
At the DSB meeting on 8
March 2002, Canada stated that it was considering its options on how
best to implement the recommendations and rulings of the DSB.
Proceedings under Article 22 of the DSU (remedies)
On 23 May 2002, on the grounds that Canada had
failed to implement the recommendations of the DSB within the 90-day
time-period granted by the DSB, Brazil requested authorization to
suspend concessions pursuant to Article 22.2 of the DSU. Brazil proposed
that the suspension of concessions takes the form of some or all of the
following countermeasures:
- suspension of its obligations under paragraph 6(a) of Article VI of
GATT 1994to determine the effect of subsidization under EDC Canada
Account and EDC Corporate Account programmes;
- suspension of application of obligations under the Agreement on
Import licencing procedures relating to licensing requirement on
imports from Canada; and
- suspension of tariff concessions and related obligations under GATT
1994 concerning those products in the list attached to Brazil’s
communication of 23 May 2002.
At the DSB meeting on 3 June 2002, Brazil and
Canada informed the DSB that they had reached an agreement in this
matter. Under the terms of the agreement, the parties agreed that it
would in no way prejudice the right of Brazil to request authorization
to take appropriate countermeasures under Article 4.10 of the SCM
Agreement and Article 22.2 of the DSU, nor affect the relevant time
periods under the DSU.
At the DSB meeting on 24 June 2002, Brazil
stated that it was requesting authorization to suspend concessions for
an amount of US$3.36 billion towards Canada as the latter had failed to
withdraw its prohibited export subsidies within the time-frame specified
by the Panel. Canada disputed Brazil’s right to request authorization
from the DSB to suspend concessions. It argued that Brazil had not
fulfilled the conditions spelt out in Article 22.2 of the DSU and as
such it could not avail itself of Article 22.6 of the DSU. Canada also
objected to the countermeasures proposed by Brazil. The DSB referred the
matter to arbitration according to Article 22.6 of the DSU and Article
4.11 of the SCM Agreement.
On 17 February 2003, the arbitrator circulated
its award. The arbitrator determined that the suspension of concessions
by Brazil covering trade in a total amount of US$247,797,000 would
constitute appropriate countermeasures within the meaning of Article
4.10 of the SCM Agreement. On 6 March 2003, Brazil requested
authorization to suspend concessions or other obligations under Article
22.7 of the DSU and Article 4.10 of the SCM Agreement. At its meeting on
18 March 2003, the DSB authorized the suspension of concessions.
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