Brazil and Canada engaged in the Bombardier Aerospace and Embraer S.A. government subsidy controversy over government subsidies to domestic plane-makers in the late 1990s and early 2000s. It was truly an international, adjudicated trade dispute.
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Four cases were brought to the World Trade Organization[1] (WTO):
Brazil ran an illegal subsidy program, Proex, benefiting its national aviation industry, Embraer, from at least 1999-2000.
A 1999 WTO ruling[6] named a Brazilian scheme paying banks providing loans to Embraer clients, the Proex program, an illegal subsidy.[7] The ruling concluded, "...PROEX interest rate equalization payments on exports of Brazilian regional aircraft are subsidies... (b) PROEX interest rate equalization payments... are not "permitted"... (c) Brazil has failed to comply with ...the SCM Agreement... 8.2. Accordingly, we find that payments on exports of regional aircraft under the PROEX interest rate equalization scheme are export subsidies inconsistent with Article 3 of the SCM Agreement. ...[W]e recommend that Brazil withdraw the subsidies identified above without delay. [W]e conclude that Brazil shall withdraw the subsidies within 90 days."[6]
A 2000 WTO ruling[8] requested the Brazilian government eliminate this Proex (Programa de Financiamento às Exportações) program, as it was, in fact, an illegal subsidy.[9] The ruling stated, "...we conclude that Brazil has failed to implement the ...1999 recommendation that it withdraw the export subsidies for regional aircraft under PROEX within 90 days."[8]
As a result of the 2000 WTO ruling, Brazil presented a modified program that satisfied the WTO,[10] Proex III.
The WTO states, "our conclusion that the PROEX III programme, as such, is not inconsistent with the SCM Agreement is based on the view that it is legally possible for Brazil to operate the PROEX III programme in such a way that it will: (a) not result in a benefit being conferred on producers of regional aircraft and, hence, not constitute a subsidy... (b) result in a benefit being conferred on producers of regional aircraft, but conform to the requirements of the safe haven of the second paragraph of item (k), in which case it would not constitute a prohibited export subsidy... 6.3 We wish to be clear, however, that it does not necessarily follow from our conclusion that future application of the PROEX III programme will, likewise, be consistent with the SCM Agreement."[11]
A WTO panel also ruled that Canada illegally subsidized its indigenous regional airliner industry, comprising Bombardier Aerospace.
In 1999, a WTO ruling[12] found Canadian "assistance programs" in contravention of WTO anti-subsidy policy.[7] While rejecting some of Brazil's claims, the ruling suggested Canada remove these subsidies and determined that "(b) ...Canada Account debt financing since 1 January 1995 for the export of Canadian regional aircraft constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement; [and] ...(f) ...that TPC assistance to the Canadian regional aircraft industry constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement".[12]
A 2002 WTO ruling[13] named some low-interest loans from the Canadian government designed to aid Bombardier in gaining market share as illegal subsidies.[14] CBC reported on one[15] of the six[13] illegal Canadian subsidies in late 2001[15] months prior to the actual ruling. While dismissing some of Brazil's claims that Canadian aircraft financing deals were illegal subsidy events, the 2002 ruling did: "(e) uphold Brazil's claim that the EDC Canada Account financing to Air Wisconsin constitutes a prohibited export subsidy... (f) ...that the EDC Canada Account financing to Air Nostrum constitutes a prohibited export subsidy... (g) ...that the EDC Corporate Account financing to Comair in July 1996, August 1997 and February 1999 constitutes a prohibited export subsidy..."[13]