Brazil has requested an official World Trade Organisation (WTO) consultation with Canada regarding alleged subsidies given to aircraft manufacturer Bombardier, but the trade relationship between the two countries will most likely remain intact, according to experts.
Brazil, whose own aircraft manufacturer Embraer is a direct competitor of Bombardier, argues that the Canadian government’s recent C373mn (US$283mn) interest-free loans to the firm’s CSeries programme go against WTO regulations. Canada’s trade minister, François-Philippe Champagne, has said the loans comply with the rules.
“Brazil sustains that Canada granted subsidies to Bombardier that reach US$4bn through many formats, including research incentives, reduction in local taxes, and injection of capital based on non-bearing interest funds by the Quebec government directly in the CSeries programme and into one company with financial problems related directly with the programme,” says Lúcio Feijo-Lopes of law firm Feijo Lopes Advogados in Sao Paulo.
This government support is what, according to Brazilians, helped Bombardier get an order for 75 CSeries jets, worth an estimated US$5.6bn, from Delta Airlines, beating the competition from Embraer’s E-Jets. Brazil believes Bombardier offered a discount to below break-even price in order to close the deal – something it couldn’t have done without the alleged subsidies.
“Brazil is arguing that, with the completion and delivery of such subsidised aircrafts, Bombardier has become more competitive than Embraer, causing direct losses to the company and future losses that will arrive in the international bids that will occur throughout 2017,” Feijo-Lopes tells GTR.
The parties now have 60 days to try to reach a settlement, after which the WTO will set up a dispute panel, with the final decision likely to take more than a year.
“If Brazil is right, Canada would have to immediately cease the subsidies granted to Bombardier, which are allegedly affecting international competition. On a broader perspective, it will contribute to WTO case law with respect to sector-oriented subsidies that may harm competition worldwide,” he adds.
However, Feijo-Lopes doesn’t believe the case has potential to harm what he calls a “long amicable and respectful trade relationship”, worth US$5.99bn in 2015.
“In my view, the fact that Brazil requested a consultation at the WTO for this specific Embraer/Bombardier matter does not affect the friendly affairs between the two countries and the in and outflow of investments,” he concludes.