Jul 25, 1998

BRAZIL AND CANADA COMPETE FOR HIGH-TECH GLOBAL MARKET

 

Gemeva, 23 July (Chakravarthi Raghavan) -- The Dispute Settlement Body (DSB) of the World Trade Organization established Thursday two separate panels to look into complaints of Canada and Brazil against each other over alleged subsidisation of high-tech civil aerospace industries in violation of the WTO rules.  

The panels were named for purported violation of prohibited subsidies under the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO, and under a provision in it (Art. 4.4) for a speedy resolution of the dispute -- which requires the DSB to set a panel at the first meeting, and for the panel (Art. 4.6) to give a ruling within 90 days of its composition and establishment.  

The dispute between the two countries has strained bilateral relations, with Canadian Prime Minister, Jean Chretien, reported as having abruptly cancelled a visit to Brazil over the diplomatic row.  

Brazil told the DSU Thursday that in an additional effort to resolve this dispute, the President of Brazil and Prime Minister of Canada had named two distinguished special envoys who reviewed the matter and made certain recommendations, on the basis of which Brazil and Canada had engaged in further discussions. But these have not been able to resolve the dispute, with both parties now seeking a resolution through WTO dispute settlement panels.

The disputes bring out the asymmetries of the system and the problems, facing and would face even more in the future, developing countries in their efforts to catch up with and 'compete' in value-added high-tech industries in the world market. 

The dispute, as Brazil put it at the DSU against Canada, shows "the difficulties facing a developing country producer of high-technology products are compounded when they are faced with the fact that the government of a developed country is determined to subsidize its own industry".

The disputes over which the two countries have been holding consultations for nearly two years, and which has strained diplomatic relations between the two, relate to a private Brazilian aircraft manufacturer, EMBRAER, with its medium-sized passenger aircraft EMB-145 successfully entering the regional market, including the US, affecting the fortunes of the Canadian supplier. 

Canada in its complain charged Brazil with providing prohibited export subsidies, while the Brazilian complaint charges Canada with granting and maintaining "an extensive array" only providing export subsidies, but production and other subsidisation.  

Brazil, Canada has complained, provides EMBRAER export subsidies through interest rate equalization and export financing through its PROEX programme.  

The PROEX programme, Carlos Antonio da Rocha Paranhos, Minister Counsellor of the Brazilian delegation to the WTO, said is fully in accord with Brazil's WTO obligations. And the Canadian complaint is due to the fact that EMBRAER has proved it is able to "fairly compete" in a high-tech global market, and that the established Canadian producer is upset "with the arrival on the scene of an effective competitor from a developing country."  

The developing country competitor, Rocha Paranhos said, receives only WTO consistent support for export financing, while in contrast, Canada's many subsidies go far beyond export credits to include billions of dollars in production subsidies.  

"Developing countries do not have the resources to provide benefits of this kind or magnitude to their producers. So long as developed countries continue to subsidize the development and production of high-technology products, developing countries will be at a serious disadvantage," he added.  

In its own complaint, Brazil charged Canada with maintaining programmes and measures of support to the Canadian aerospace enterprise including

Rocha Paranhos told the DSB that in the first six months after his country's consultations with Canada began, the Canadian government had made three very large grants to its aircraft producer and its suppliers: $87 million in Oct 1996; $57 million in December 1996; and $147 million in January 1997.  

This is just "the tip of the iceberg" and economists have calculated that in recent years the amount of subsidies granted to the Canadian producer by the Government of Canada and its provinces exceeds $5 billion, the Brazilian negotiator said. 

"It is extremely difficult for companies in developing countries to succeed when faced with subsidies of this magnitude, since they have no realistic hope of obtaining similar support."  

"It is the publicly stated policy of the Government of Canada, with regard to the aerospace industry, 'to see that Canada moves into fourth place, ahead of Japan and Germany - by the year 2000.' Canada has apparently decided to reach this goal by way of massive and not always transparent subsidies, and also by attempting to stifle competition from a developing country," Rocha Paranhos added. 

But the Canadian envoy to the WTO, Amb. John Weekes, told the DSB that since the dispute began two years ago, the costs to the international and regional aircraft market, and the Canadian aerospace industry, as a result of the Brazilian programme, had been rising. Brazil's payments under the programme had helped to reduce the costs per airplane by two million dollars, and the Brazilian budget for the programme has increased by more than 50% annually since 1996, and now stood at well over $10 billion.