Dispute case report - wto embraer vs bombardier

OVERVIEW

In the late 1990’s, the Canadian government filed a dispute against Brazil with the World Trade Organization (WTO). The dispute focused on competition between Bombardier (based in Canada)and Embraer (based in Brazil), and the effect Brazil’s export financing program (PROEX) had on their competition within the regional aircraft industry. PROEX provided an interest rate equalizationfor buyers of Brazilian exports as explained below:

“For sales of regional aircraft, PROEX interest rate equalization subsidies amount to 3.8 percentage points of the actual interest rate on anyparticular transaction. The lending bank charges its normal interest rate for the transaction, and receives payment from two sources: the purchaser, and the Government of Brazil. Of the total interestrate payments, the Government of Brazil pays 3.8 percentage points, and the purchaser pays the rest. In this way, PROEX reduces the financing costs of the purchaser and, thus, reduces the overallcost to the purchaser of purchasing an Embraer aircraft”.

ARGUMENTS

1. Canadian Claim
The Canadian government filed the dispute because of Brazil’s export financing program. The Brazilian Programade Financiamento às Exportações (PROEX) was being used to support purchases of Embraer aircraft.
The Canadian government believed that the financing provided by PROEX was a government subsidydesigned to support the export of Embraer aircraft. The Brazilian export subsidy provided special financing terms for customers purchasing Embraer aircraft. According to the Canadians, these terms werebetter than the commercially available alternatives used to finance the purchase of Bombardier aircraft. As a result, Canada believed that the PROEX program was artificially creating an absolute advantagefor Brazil in the regional aircraft industry, and damaged Canadian exports of Bombardier aircraft.
The Government of Canada stated that the PROEX program was inconsistent with Brazil's obligations...