TRADE: WTO Rules Against Canada in Dispute with Brazil

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, Feb 20 2002 (IPS) - The World Trade Organisation (WTO) ruled in favour of Brazil in a dispute with Canada, although some trade negotiators say the decision highlighted imbalances in the multilateral trade system that put developing countries at a disadvantage.

The WTO Dispute Settlement Body adopted a report Tuesday by a panel that ruled that Canada’s subsidies for aircraft exports by Quebec’s regional jetmaker Bombardier, Inc were illegal.

The WTO panel ordered Canada to stop granting the sort of cheap loans that were used to finance the sales of 199 business jets to Air Wisconsin and Comair, in the United States, and Air Nostrum in Spain.

For the past six years, Brazil and Canada have been caught up in a trade war as their national jetmakers, Brazil’s Embraer SA and Canada’s Bombardier, disputed the global market for regional aircraft.

The focus of the litigation in the WTO was the government subsidies that the two companies used to finance exports of medium- sized aircraft.

In an earlier ruling issued in response to a Canadian complaint, the Dispute Settlement Body came down against Embraer, and authorised Canada to apply 1.4 billion dollars in retaliatory trade sanctions against Brazil.

But today, an unofficial estimate sets the total amount of sanctions that Brazil might impose on Canada as a result of Tuesday’s Dispute Settlement Body ruling at around four billion dollars.

However, as the dispute raged on, analysts noted that in some cases, the multilateral trade system, comprised of 144 countries of all sizes, is governed by rules that favour the powerful.

One illustration of that is the WTO Agreement on Subsidies and Countervailing Measures, which contains clauses lifted word for word from the recommendations on export-financing credit practices drawn up by the Organisation for Economic Cooperation and Development (OECD), known as the “rich nations’ club”.

An earlier Dispute Settlement Body verdict in the Brazil-Canada dispute established that those provisions could be applied within the WTO, which should update them each time the OECD does so.

“Any time the OECD decides to change the arrangement, they change it for the entire WTO as well as for themselves,” said Luiz Felipe de Seixas Correa, Brazil’s ambassador to the multilateral trade system.

“Brazil believes that only WTO members should have the power to change WTO obligations,” he added, saying “we found the implications of this aspect of the report disturbing.”

Brazil’s diplomats also pointed to other aspects, which referred to government loan guarantees, which they said put developing countries at a disadvantage.

The guarantees allow private parties to obtain better terms than they could obtain in the market, but “the problem is that not all guarantees are equal,” said Seixas Correa, who pointed out that “the market places a higher value” on guarantees from the governments of certain countries.

Under these conditions, some exporters can offer potential buyers government-backed financing that cannot be matched by their competitors.

Seixas Correa noted that Brazil’s Minister of Foreign Relations Celso Lafer described such provisions as “a perverse form of special and differential treatment in favour of some countries.”

Brazil has pushed for reforms of the WTO Agreement on Subsidies and Countervailing Measures, to keep it from “stacking the cards against some members, in particular against developing countries,” in the words of Seixas Correa.

During the Dispute Settlement Body session, Canada was backed by the United States and the European Union, which defended the application of the OECD provisions within the WTO.

Nevertheless, Ottawa said it would not appeal the WTO panel ruling, which means it has 90 days to eliminate the export- financing subsidies in question.

The trade dispute between the two countries will be discussed Friday by Brazilian President Fernando Henrique Cardoso and Canadian Prime Minister Jean Chrétien in Stockholm, during a meeting of leaders of 13 countries with “progressive” governments.

The long-drawn-out legal and trade battle between Embraer and Bombardier, and especially the appearance of a strong rival, the German-U.S. company Fairchild-Dornier, on the market makes a truce between Cardoso and Chrétien advisable, commented a diplomatic source in Geneva.