Delsterx

Brazil allowed to block $385 million in Canadian exports over subsidies


Steve Erwin
The Canadian Press

TORONTO -- A world trade body has given Brazil the right to block $385 million worth of Canadian exports, but it's unlikely the South American country will retaliate against Canada because the two sides are holding talks to settle the six-year old trade dispute over aircraft subsidies.

The World Trade Organization arbitration panel ruling allows Brazil up to $385 million in countermeasures against Canada -- far below what Brazil had originally sought -- stemming from a WTO ruling last January. It said the Canadian government's cut-rate loan support for Bombardier aircraft sales had violated trade rules.

Brazil had originally sought the right to block $5.2 billion in Canadian exports.

The arbitration panel's ruling was delivered to International Trade Minister Pierre Pettigrew and Industry Minister Allan Rock on Monday and "marks an end to all current proceedings at the WTO surrounding the aircraft financing dispute between Canada and Brazil," according to a statement from Ottawa.

And while the award could allow Brazil to raise tariffs on Canadian exports to the South American country, "it is not expected that Brazil will impose the countermeasures, given the reciprocal damage this could cause to bilateral trade," the federal government said in the statement.

"The ruling is what we expected," Pettigrew said from Ottawa. "Negotiations to find a mutually satisfactory solution have progressed substantially. I believe that both countries will benefit greatly when we will have put this dispute behind us.

"Let's move forward and invest our energies into rebuilding our economic relationship."

The ruling stems from Canadian government loan support to help Montreal-based Bombardier win a $1.7-billion contract with U.S. regional carrier Air Wisconsin for 75 Bombardier jets. While Ottawa said the loans were meant to match a "below-market" offer from Brazil's Embraer SA for the contract, the WTO ruled that the federal subsidies violated international trade rules.

The January ruling by the WTO was also against Ottawa's support in several other Bombardier contracts, including deals with Spain's Air Nostrum and Comair, a regional unit of Delta Air Lines.

The WTO arbitration panel's ruling does not impact any of the contracts.

In August 2000, a similar World Trade Organization panel determined that Canada should be allowed to apply up to $2.1 billion in trade sanctions against Brazil over subsidies to Embraer.

Officials from both countries met five times this year to discuss the dispute, which pits Embraer, a top world aviation manufacturer, against Bombardier in the market for business and regional aircraft.

Boeing Corp. and Airbus Industrie SA are ranked ahead of both Bombardier and Embraer in the aircraft manufacturing business globally.

Negotiators from Canada and Brazil most recently met on Dec. 16 and are expected to meet again in March.