TRADE: The Rich Finance and the Poor Subsidise, Says WTO

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, May 23 2000 (IPS) - A dispute between Brazil and Canada about aircraft export subsidies has once again revealed the ambiguities of the World Trade Organisation (WTO) system and the differences in the standards used to evaluate the financial activities of poor and wealthy countries.

The vague nature of the WTO legal regimen was evident Monday when Canada tried to initiate retaliatory measures against Brazil, while two appeals from the South American country are still pending resolution by the trade organisation’s Dispute Settlement Body (DSB) on this same case.

Inconsistencies between two articles of the Dispute Settlement Understanding (DSU), which regulates the appeals and countermeasures process without establishing a sequential order between the two, allowed Canada to present its petition.

Canada, which requested DSB authorisation to retaliate against Brazil for an annual total equivalent to 476 million dollars, clarified that it would not implement countermeasures until the Brazilian appeal is settled.

But Canadian representative Sergio Marchi claimed his country’s right to pursue countermeasures concurrently with the appeals proceedings, saying there is no reason why arbitration on the total compensation cannot take place at the same time.

The delegation from Brasilia criticised the recommendations of this special body of the WTO because its report “presented an imbalance between what (industrialised) member countries can do and what developing member countries can do.”

Celso Amorim, head of the Brazilian delegation before the WTO, said that the DSB reports hold no substantive differences in the nature of the statements made by Brazil and Canada.

“The only difference is that one statement was made by a developing country and the other by a developed country,” observed Amorim.

The dispute between the two countries arose from Canada’s demand that Brazil limit itself to WTO compliant interest rate payments for the export of regional aircraft through its Export Financing Programme (PROEX).

Brazil responded at the time, in July 1998, with a similar claim, alleging that the Canadian government and some of its provinces provided assistance for the production of regional transport planes, the same as subsidies, which are prohibited under WTO rules.

The aircraft produced by the Brazilian manufacturer Embraer broke onto the world’s mid-distance airplane market during the last two decades, where the Canadian partnership Bombardier held a dominant position.

Amorim told IPS that, for the nations of the developing South, the possibilities of establishing an advanced technology industry “become very difficult, due to the articles of the WTO subsidies agreement” and the restrictive tendency that predominates among the institution’s special bodies when it comes time to formulate interpretations of the rules.

As far as subsidies for technological initiatives, “it is not that developing countries are unable to do more than the industrialised countries,” he explained.

The reality is that developing nations have a lower margin, not just in the material plane – because it is given that they have fewer resources -, but because the conditions on subsidies are designed suzil-Canada conflict, Amorim explained “that it prevents us from being competitive in the construction, in the architecture of financial packages.”

about subsidies, “know how to disguise them very well,” Amorim commented.

The diplomat said the absurd thing is that, for advanced technology, it is not a question of whether or not there are subsidies for the product or if the product is competitive, but that it has become a competition of financial packages.

In a summary of the Brazil-Canada conflict, Amorim explained “that it prevents us from being competitive in the construction, in the architecture of financial packages.”

He also criticised that certain aspects of the WTO subsidies agreement are governed by the rules of the Organisation of Economic Co-operation and Development (OECD), widely known as the club of wealthy nations.

The delegations from Argentina, the United States, Hong Kong, India, Malaysia, Santa Lucia, the European Union and Uruguay demanded an urgent solution to the inconsistencies existing in DSB proceedings.

DSB president Stuart Harbinson, of Hong Kong, stated that the body agrees to refer the Canadian request to arbitration to determine the level of compensation, but warned that no countermeasures would be adopted until the results of Brazil’s appeal are known.