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Embraer strongly welcomed the issuance by the WTO Dispute Settlement Body (DSB) of the Arbitral award authorizing Brazil to impose against Canada countermeasures totaling US$ 248 million, but remains concerned about potential Canadian noncompliance with WTO directions.
The Arbitrators granted this amount following Canada’s rejection of an earlier DSB instruction and its refusal to withdraw prohibited export subsidies granted to Bombardier, Canada’s regional jet aircraft manufacturer. Commenting on DSB’s action, Mauricio Botelho, President and CEO of Embraer, stated: “Embraer is pleased with the decision of the Arbitrators and the action of the DSB. This is a confirmation of the fact that Canada is subsidizing its regional jet industry and those subsidies distort the global market for regional jet aircraft. We further note that the Arbitrators rejected Canada’s argument that its subsidy was appropriate because it was designed to meet a competing Brazilian offer. This action by the DSB is the final stage of this dispute and allows Brazil to have the mandate derived from last year’s major victory against Canada.”

Canada specifically targeted one of Brazil’s most important exports – regional jet aircraft. The DSB award confirms that Canada will have to comply with international rules that Brazil and other WTO Members follow. The illegal subsidies, now penalized by the WTO, nevertheless enabled Bombardier to obtain five contracts for the sale of regional jets since 1996, in an unfair competition with Embraer. The amount of countermeasures granted by the WTO Arbitrators in this proceeding far exceeds the per-aircraft penalty that WTO granted Canada against Brazil in an earlier WTO proceeding regarding PROEX export credits. The current award against Canada is close to US$ 4.0 million per subsidized aircraft. The earlier award against Brazil was for a maximum of US$1.25 million per aircraft, that PROEX could potentially reach, according to the way it was worded. In this sense, the Arbitrators confirmed Brazil’s allegation that the level of the Canadian actual subsidy was more than three times what could potentially be reached through PROEX, before it was fixed two years ago.

Embraer had hoped that the DSB award would end the long-running dispute between Brazil and Canada regarding government-assisted financing of regional jet aircraft. However, despite the hope that an agreement can be reached between both countries, at least two issues concern do remain. The first stems from the fact that whenever Canadian or Quebecois government officials discuss the issue with the media, they claim that Canada’s subsidies are necessary to match PROEX subsidies. Canada made these assertions during the WTO proceeding and the Arbitrator panel rejected them. Brazil modified PROEX two years ago, and since then WTO has ruled that the program is compliant with its regulations. The current statements from Canadian officials are, therefore, inaccurate.

The second (an even more concerning issue) are the statements from high rank officials guaranteeing that Bombardier will continue to receive financial support for future aircraft sales. Statements like “the Quebec Government will do whatever it takes – including loan guarantees in the ballpark of $ 3 billion – to keep Bombardier Aerospace internationally competitive” made by an official, amount to a clear indication that Canada intends to continue to violate WTO rules by using illegal export subsidies to ensure that Bombardier wins contracts that otherwise might possibly go to Embraer, and as it happened in the past, trying to sway Canadian public opinion by asserting that they are only “matching” what Brazil is doing.

These issues, as seen by Embraer, can have a profoundly negative effect on the bilateral negotiations that seek to resolve this long-running dispute. Embraer supports the view of the WTO Arbitrators that a mutually satisfactory agreement between Brazil and Canada addressing these issues in their broader context would be the most appropriate solution. Embraer has long supported an agreement that provides a level playing field in export financing for a developing economy like Brazil when competing with exporters from developed countries such as Canada. Embraer has provided the Brazilian government with technical papers demonstrating the structural disadvantages it faces when seeking capital and financing in Brazil, and has not heard that any paper was presented by Canada addressing these structural concerns. Embraer strongly believes that, within the context of the ongoing bilateral negotiations, it is vital to directly and forthrightly address the structural inequalities that persist.

Taken from www.embraer.com


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