DISPUTE SETTLEMENT: DISPUTE DS46

Brazil — Export Financing Programme for 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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Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 14 April 1999
Appellate Body Report circulated: 2 August 1999
Article 21.5 Panel Report circulated: 9 May 2000
Article 21.5 Appellate Body Report circulated: 21 July 2000
Recourse to Article 22.6 Arbitration Report circulated: 28 August 2000
Second Recourse to Article 21.5 Panel Report circulated: 26 July 2001

  

Summary of the dispute to date  back to top

The summary below was up-to-date at
See also: One-page summary of key findings of this dispute

Consultations

Complaint by Canada.

On 19 June 1996, Canada requested consultations with Brazil under Article 4 of the SCM Agreement, which provides for special procedures for export subsidies. Canada claimed that export subsidies granted under the Brazilian Programa de Financiamento às Exportações (PROEX) to foreign purchasers of Brazil’s Embraer aircraft are inconsistent with Articles 3, 27.4 and 27.5 of the SCM Agreement.

Canada requested the establishment of a panel on 16 September 1996, alleging violations of both the SCM Agreement and the GATT 1994. The DSB considered this request at its meeting on 27 September 1996. Due to Brazil’s objection to the establishment of a panel, Canada agreed to modify its request, limiting the scope of the request to the SCM Agreement. The modified request was submitted by Canada on 3 October 1996 but was subsequently withdrawn prior to a DSB meeting at which it was to be considered.

 

Panel and Appellate Body proceedings

On 10 July 1998, Canada again requested the establishment of a panel. At its meeting on 23 July 1998, the DSB established a panel. The European Communities and the United States reserved their third-party rights. On 16 October 1998, Canada requested the Director-General to determine the composition of the panel. On 22 October 1998, the panel was composed.

The panel report was circulated to Members on 14 April 1999. The panel found that Brazil’s measures were inconsistent with Articles 3.1(a) and 27.4 of the SCM Agreement.

On 3 May 1999, Brazil notified its intention to appeal certain issues of law and legal interpretations developed by the Panel. On 2 August 1999, the Appellate Body report was circulated to Members. The Appellate Body upheld all the findings of the panel, but reversed and modified the panel’s interpretation of the “material advantage” clause in item (k) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement.

On 20 August 1999, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report,

At the DSB meeting on 19 November 1999, Brazil announced that it had withdrawn the measures at issue within 90 days and had thus implemented the recommendations and rulings of the DSB.

 

Compliance proceedings

On 23 November 1999, Canada requested the establishment of a panel under Article 21.5 of the DSU, requesting that the panel find that Brazil had not taken measures to comply fully with the rulings and recommendations of the DSB. Canada and Brazil also notified the DSB of an agreement concerning the procedures to be applicable pursuant to Articles 21 and 22 of the DSU and Article 4 of the SCM Agreement. At its meeting on 9 December 1999, the DSB agreed to refer to the original panel pursuant to Article 21.5 of the DSU. Australia, the European Communities and the United States reserved their third-party rights. On 17 December 1999, the compliance panel was composed.

The compliance panel report was circulated to Members on 9 May 2000. The compliance panel found that Brazil's measures to comply with the recommendations and rulings of the DSB either did not exist or were not consistent with the SCM Agreement. In reaching this conclusion, the compliance panel notably rejected Brazil's defence that PROEX payments were permitted under item (k) of Annex I of the SCM Agreement, adding that, if a WTO Member encountered an export credit that had been provided on terms that it could not meet consistent with the SCM Agreement, the proper response was to challenge that export credit in WTO dispute settlement.

On 22 May 2000, Brazil notified the DSB of its intention to appeal certain issues of law and legal interpretations developed by the compliance panel.

On 21 July 2000, the Appellate Body report was circulated to Members. The Appellate Body upheld the compliance panel's conclusion that Brazil had failed to implement the recommendations of the DSB because of the continued issuance by Brazil of NTN-I bonds, after 18 November 1999, pursuant to letters of commitment issued before 18 November 1999. The Appellate Body also upheld the compliance panel's findings that payments made under the revised PROEX are prohibited by Article 3 of the SCM Agreement and are not justified under item (k) of the Illustrative List of the same Agreement. The Appellate Body therefore upheld the compliance panel's conclusion that Brazil had failed to implement the recommendations of the DSB.

At its meeting on 4 August 2000, the DSB adopted the Appellate Body report and the compliance panel report, as modified by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

On 10 May 2000, Canada requested authorization from the DSB to take appropriate countermeasures, pursuant to Article 4.10 of the SCM Agreement and Article 22.2 of the DSU, in an amount of CanD 700 million per year

At the DSB meeting on 22 May 2000, Brazil objected to the level of suspension proposed by Canada and held that the principles and procedures set out in Article 22.3 have not been followed.  Brazil therefore requested the matter be referred to  arbitration, pursuant to Article 22.6 of the DSU and Article 4.11 of the SCM Agreement. Brazil also noted that the compliance panel report had not yet been adopted by the DSB and that, in fact, it had just appealed its findings. The DSB referred the matter to the original panel for arbitration, it being understood that no countermeasures would be sought pending the Appellate Body report and until after the Arbitrator's decision

On 28 August 2000, the Decision of the Arbitrator was circulated to Members. The Arbitrator found that the appropriate countermeasures in this case amounted to CanD 344.2 million per year. The Arbitrator found that Canada may request authorization by the DSB to suspend tariff concessions or other obligations under GATT 1994, the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures. At the DSB meeting of 12 December 2000, Canada received, pursuant to Article 22.7 of the DSU and Article 4.10 of the SCM Agreement, authorization from the DSB to suspend the application to Brazil of tariff concessions or other obligations under GATT 1994, the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures covering trade in a maximum amount of CanD 344.2 million per year.

 

Implementation of adopted reports

At the DSB meeting on 12 December 2000, Brazil informed the DSB of changes that it had made to the measures at issue in this case and claimed that PROEX had been brought into compliance with Brazil’s obligations under the SCM Agreement. Canada was of the view that Brazil continued to violate its SCM Agreement obligations. Therefore, there was disagreement between Canada and Brazil as to whether the measures taken by Brazil to comply with the rulings and recommendations of the DSB bring it into conformity with the provisions of the SCM Agreement and result in the withdrawal of the export subsidies to regional aircraft under PROEX.

 

Compliance proceedings (second recourse)

Following the DSB authorization to Canada to impose countermeasures against Brazil (see above), Brazil announced that it had revised the interest rate equalization component of PROEX, its export financing programme related to the sale of regional aircraft, and had, thereby, eliminated the prohibited export subsidy found in violation of the SCM Agreement by the original panel, under its new PROEX III scheme. On 22 January 2001, Canada, being of the view that Brazil continued to violate its SCM Agreement obligations, requested the DSB to refer the matter again to the original panel, pursuant to Article 21.5 of the DSU. At its meeting of 16 February 2001, the DSB referred the matter to the original panel. Australia, the European Communities and Korea reserved their third-party rights.

On 26 July 2001, the compliance panel report was circulated to Members. The compliance panel concluded as follows:

  • It has not been established that PROEX III as such was inconsistent with Article 3.1(a) of the SCM Agreement;
     
  • PROEX III as such is justified under the second paragraph of item (k) of the Illustrative List of Export Subsidies of Annex I of the SCM Agreement;
     
  • PROEX III cannot be justified under paragraph 1 of the above-mentioned item.

At its meeting on 23 August 2001, the DSB adopted the compliance panel report on this second recourse to Article 21.5 of the DSU.

 

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