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DISPUTE SETTLEMENT: DISPUTE DS222

Canada — Export Credits and Loan Guarantees for Regional Aircraft

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.

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See also: One-page summary of key findings of this dispute

Appellate Body and Panel Reports Adopted

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.

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 Status 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.

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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