¹ Brazil — Export Financing Programme for Aircraft, Report of the Panel, WTO Doc. WT/DS46/R, August 20, 1999 [hereinafter Brazil — Aircraft Panel Report] and Report of the Appellate Body, WTO Doc. WT/DS46/AB/RW, July 7, 2000 [hereinafter Brazil — Aircraft Appellate Body Report]; Canada — Measures Affecting the Export of Civilian Aircraft—Recourse by Brazil to Article 21.5 of the DSU, Report of the Panel, WTO Doc. WT/DS70/RW, May 9, 2000 [hereinafter Canada — Aircraft Panel Report] and Report of the Appellate Body, WTO Doc. WT/DS7o/AB/RW, July 21 2000 [Canada — Aircraft Appellate Body Report].

² Agreement on Subsidies and Countervailing Measures, April 15, 1994, WTO Doc. LT/UR/A-1A/9 [hereinafter SCM Agreement].

³ Arrangement on Guidelines for Officially Supported Export Credits (known as the OECD Consensus), text can be accessed at <http://www.oecd.org/pdf/M00029000/M00029130.pdf> .

⁴ “Embraer Update,” this text can be accessed online at <http://www.embraer.com/ing/embhoje.htm> (date accessed: October 16, 1998).

⁵ “Bombardier Aerospace Profile,” text can be accessed online at <http://www.aerospace.bombardier.com/htmen/6_0.htm> (date accessed: October 16, 1998).

⁶ “The Ubiquitous Turboprop” (May 1998) 35(5) Air Transport World 53 at 10.

⁷ The “cachement” area, which is the area from which passengers could be drawn, has been increased to 1,000 nautical miles for regional airlines, allowing carriers to offer routes in new markets and non-stop service to other areas. Ibid.

⁸ The seventy-seat CRJ-700 by Bombardier; the fifty-seat ERJ-145 and the thirty-seven-seat ERJ-135 by Embraer; and the thirty-five-seat 328JET and the forty-two-seat 428JET by Fairchild-Dornier.

⁹ “Regional Fleet Forecast Predicts Continuing Move to Jets” (June 1998) 16(23) Commuter Regional Airline News at 3.

¹⁰ “Embraer Steps up Production to Meet Demand,” Gazeta Mercantil (June 8, 1998) at C-8.

¹¹ Market analysts Warburg Dillon Read notes that “[f]our manufacturers are positioned to serve specific niches in what we believe is a 125+ unit per year industry.” “Regional Jets: Making Props Passe,” industry report, August 10, 1998, at 4 (on ile with author).

¹² The government ofBrazil created PROEX on June 1, 1991, by Law no. 8187/91, which was entitled “Authorizing the Granting of Financing to the Export of Brazilian Goods and Services.”

¹³ Canada had, in the meantime, placed two requests for the establishment of panels before the Dispute Settlement Body [hereinafter DSB]. The irst was with-drawn because of the strenuous procedural objections of Brazil concerning certain aspects of the request; the second, dated October 23, was withdrawn fol-lowing a high-level meeting in Ottawa. Brazil’s later complaint, in its preliminary motion before the PROEX panel, that Canada took two years to bring its case before the World Trade Organization [hereinafter WTO] should therefore be seen in the light of its own early attempts, by whatever means, to delay the proceedings.

¹⁴ Article 1 provides that:

For the purpose of this Agreement, a subsidy shall be deemed to exist if:

• (a)(1)

  (a)(1) there is a inancial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as “government”), i.e. where:

• (i)

  (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees);

• (ii)

  (ii) government revenue that is otherwise due is foregone or not collected (e.g. iscal incentives such as tax credits);

• (iii)

  (iii) a government provides goods or services other than general infrastructure, or purchases goods;

• (iv)

  (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments;

• or

• (a) (2)

  (a) (2) there is any form of income or price support in the sense ofArticle XVI of GATT 1994;

• and

• (b)

  (b) a beneit is thereby conferred [footnote omitted].

¹⁵ Article 3 provides that:

Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1 , shall be prohibited:

• (a)

  (a) subsidies contingent, in law or in fact,4 whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I.

• 4

  4 This standard is met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy within the meaning of this provision.

• 5

  5 Measures referred to in Annex I as not constituting export subsidies shall not be prohibited under this or any other provision of this Agreement.

¹⁶ Many issues were re-litigated in the Article 21.5 challenge against Canada. See Canada—Aircraft Panel Report and Appellate Body Report, supra note 1.

¹⁷ Law no. 8187/91, June 1, 1991, Article 1.

¹⁸ Resolution 2380/97 of the Brazilian Congress.

¹⁹ “Financing Program Offers Incentives for Importers of Brazilian Goods,” text can be accessed online at <http://www.bankboston.com/today/enews/tradetrends/tt%5FWnancing.html (date accessed January 22, 1998).

²⁰ The goods are listed in the annex to the Order (Portaria) of the Minister of State for Industry, Trade and Tourism (MICT) 53/97, dated May 7, 1997 (on file with the author).

²¹ Presentation by Paulo Cesar, director of finance of Embraer, to a conference of appraisers of regional jets on May 28, 1998, at 15-16. See also interview with Mauricio Botelho, president of Embraer, who noted that “[i]n special circumstances [interest rate equalization] can be extended to 15 years.” “Willing to Win,” Airfinance Journal (December 1996) at 4.

²² Circular letter of the Central Bank of Brazil, Doc. No. 26o1/95, November 29, 1995. PROEX subsidies are de facto available for fifteen-year terms (for aircraft), while for the purpose of establishing the permitted rate reduction, the maximum term is still ten years.

²³ The agent bank may charge an agency fee of 12–15 bps, which would be deducted from the 3.8 percentage point subsidy.

²⁴ For the text of Article 1, see note 14.

²⁵ For the text of Article 3, see note 15.

²⁶ Brazil — Aircraft Panel Report, supra note 1 at para. 7.12.

²⁷ Ibid. at paras. 7.15 and 7.38.

²⁸ Ibid. at para. 7.15.

²⁹ Ibid. at para. 4.161–2.

³⁰ Ibid. at para. 200.

³¹ Ibid. at para. 210.

³² Footnote 5 to the SCM Agreement, supra note 2, provides that “[m]easures referred to in Annex I as not constituting export subsidies shall not be prohibited under this or any other provision of this Agreement.”

³³ At paragraph 7.18, Brazil—Aircraft Panel Report, supra note 1, the panel notes: “It is by no means clear to us that it is permissible to use the irst paragraph of item (k) as the basis for an a contrario argument as asserted by Brazil,197 or that PROEX payments in fact constitute the ‘payment by [governments] of all or part of the costs incurred by exporters or inancial institutions in obtaining credits.’”198

The analysis contained in this footnote was picked up, albeit implicitly, by the panel in United States — Tax Treatment for “Foreign Sales Coprorations” (FSC), WTO Doc. WT/DS108/R, October 8, 1999, Report of the Panel. At para. 7.118 of this case, the panel observes:

³⁴ Brazil—Aircraft Panel Report, supra note 1 at para. 7.23 [emphasis added].

³⁵ Ibid. at para. 7.24.

³⁶ Ibid. at para. 7.26.

³⁷ The panel also rejected Brazil’s interpretation of “field of export credit terms.” It held that:

³⁸ Ibid. at para. 7.30. Signiicantly, the panel observed that “the irst paragraph of item (k) could — as noted in paragraph 7.26 above — be used by developed country Members as a justiication to match, with export subsidies that would otherwise be prohibited, export subsidies provided by developing countries consistent with Article 27” (ibid. at para. 7.32).

³⁹ Ibid. at para. 7.34. The panel noted Brazil’s admission that “Brazil’s PROEX programme, applied to support exports of regional aircraft, acts to reduce the cost of export financing for the aircraft buyer” (ibid. at para. 7.35). It found that “as a factual matter Brazil does not argue that PROEX payments do not confer a ‘material advantage’ as that term has been interpreted by this Panel.” The panel went on to observe that

⁴⁰ Ibid. at para. 7.37.

⁴¹ Ibid. at paras. 7.49–57. The panel rejected Brazil’s more outlandish argument that Article 27 was lex specialis to Article 3 and supplanted it altogether. See paras. 7.39–41.

⁴² Ibid. at para. 7.57.

⁴³ Ibid. at para. 7.42.

⁴⁴ Ibid. at para 7.59.

⁴⁵ The parties had disagreed as to whether agricultural subsidies could be part of this “aggregate total.” The panel did not make a inding on this issue as the two Brazilian programs in question did not include such subsidies. Ibid. at para. 7.60.

⁴⁶ Budgeted amounts for PROEX export subsidies had remained more or less steady over the years, although the level of expenditure had fluctuated widely (and increased significantly) since the entry into force of the Marrakech Agreement Establishing the World Trade Organization, infra note 48. Ibid. at para. 7.66.

⁴⁷ Ibid.

⁴⁸ Marrakech Agreement Establishing the World Trade Organization, Annex 2, in Results of the Uruguay Round of Multitlateral Trade Negotiations — The Legal Texts 404 (1994), reprinted in 33 ILM 1226 (1994).

⁴⁹ Brazil — Aircraft Panel Report, supra note 1 at para. 7.76.

⁵⁰ Ibid at para. 7.81 .

⁵¹ Ibid. at para. 7.84.

⁵² Ibid. at para. 7.85.

⁵³ Brazil — Aircraft Appellate Body Report, supra note 1 at para. 143.

⁵⁴ Ibid. at para. 179.

⁵⁵ Ibid. at para. 181 .

⁵⁶ Ibid. at para. 157.

⁵⁷ As Canada noted in its submission to the panel on October 23, 1998: “If Brazil meets its prima facie burden, Canada cannot afford the luxury of not adducing the evidence necessary to defend its impugned programmes, and may have to rely upon confidential proprietary business information.”

⁵⁸ Some clients, for example, negotiate “most favoured client” clauses into their purchase contracts. If they become aware of circumstances where other clients have received better treatment, the seller would be open to lawsuits for contractual breach. The banker, in turn, would be liable for the damages arising out of both the breach of confidentiality and the seller’s contractual liabilities, which would not arise if the bank protects the confidential information adequately.

⁵⁹ Letter to the panel, November 13, 1999 (on file with the author). Canada stated that,

We note Brazil’s concern that the proposals initially made by the Panel would unduly restrict the ability of the parties to deal effectively with business conidential information during the course of this very rapid proceeding. These potential dificulties could be overcome by making special arrangements for 24-hour access to the documents at the WTO, if required. Similarly, each Party could allow access to the documents at its mission by the other Party, on request, at any time. Required access need in no way be limited to working hours.

In Canada’s view, the working procedures originally issued on 3 November 1998 struck a reasonable balance between the interests of the Parties to have access to evidence submitted to the Panel and to provide protection for conidential business information. Canada further submits that the interests of private parties not Party to this dispute in the protection of commercially sensitive information through the control of access by a neutral third party outweighs any inconvenience that may be caused to either Party as a result of such procedure.

⁶⁰ Letter from the government of Brazil to Mr. David de Pury, chairman of the Panel, October 23, 1998 (on file with the author).

⁶¹ Reply Submission of Canada, October 30, 1998, at para. 3, appended to the Canada — Aircraft Panel Report, supra note 1 [hereinafter Reply Submission of Canada].

⁶² Ibid. at para. 6.

⁶³ Ibid. at para. 7.

⁶⁴ J.G. Merrills states that “inquiry” can be defined as: “a specific institutional arrangement which states may select in preference to arbitration or other techniques, because they desire to have some disputed issue independently investigated’ [emphasis added]. See Merrills, J. G., International Dispute Settlement, 2nd ed. (Cambridge: Grotius Publications, 1991), at 43.Google Scholar Commissions of inquiry were introduced by the Hague Convention for the Pacific Settlement of International Disputes, July 29, 1899, entered into force September 4, 1900. Among the limitations on their mandate was that they should handle only questions of fact and not of law and that their indings should not be seen as obligatory. See Merrills, supra note 64 at 44. This is manifestly at odds with the objectives and the nature of WTO dispute settlement.

⁶⁵ Reply Submission of Canada, supra note 61 at para. 12.

⁶⁶ United States — Measures Affecting Imports of Woven Wool Shirts and Blouses from India, May 27, 1995, WTO Doc. WT/DS33/5.

⁶⁷ Reply Submission of Canada, supra note 61 at para. 17.

⁶⁸ Canada —Aircraft Panel Report, supra note 1 at para. 9.53.

⁶⁹ Ibid. at para. 9.51.

⁷⁰ [emphasis added]. Even when Canada responded regarding the purported transactions identiied on the record, the panel seemed not to take notice of Canada’s answers. Again, with respect to Export Development Corporation [hereinafter EDC] loan guarantees, on December 13, 1998, the panel asked in question 29: “At para. 4.6 of its first submission, Brazil refers to ‘long-term loan guarantees’ allegedly granted by EDC to Comair in 1995. Could Canada please provide details of any loan guarantees provided by EDC to Comair in 1995. Please include copies of all relevant loan guarantee agreements.”

In Canada’s answers of December 21, 1998, Canada replied to question 7 as follows:

The irst transaction was in support of the sale of two used de Havilland Twin Otters and two used de Havilland Dash 8-102s to an airline operating in the South Paciic. The guarantee was provided at commercial rates.

The second transaction was in support of pre-shipment inancing of a flight inspection system sold to a sovereign Latin American buyer. The guarantee was provided at commercial rates.

On the same date, Canada replied to question 29 as follows: “EDC provided no such loan guarantees to Comair in 1995. EDC’s loan guarantee activity in the civil aircraft sector since 1 January 1995 has been described in answer to Question 7 of the Panel.”

The Canada — Aircraft panel reposed question 29 to Canada on January 11 , 1999, changing the date from 1995 to 1997. Yet, Canada had already provided a complete description of the EDC’s loan guarantee activity in Canada’s answer to question 7 on December 21, 1998. Nonetheless, Canada replied again to the reposed question 29, indicating that no such guarantees had been provided to Comair in 1997. Canada had identiied all the applicable EDC loan guarantees in the record in its answer to question 7. There were no more.

⁷¹ Questions of December 13, 1998 by the Canada — Aircraft panel.

⁷² Canada — Aircraft Panel Report, supra note 1 at para. 9.179.

⁷³ Canada’s legal defence was also constrained by conventional domestic requirements relating to the conidentiality of cabinet documents, in that certain key documents, no matter how exculpatory, could not be produced. To the extent, therefore, that Brazil could establish a prima facie case in respect of matters subject to cabinet conidences, Canada would be barred by its domestic constitutional arrangement to defend itself and would have to “take its lumps,” as it were.

⁷⁴ Canada — Measures Affecting the Export of Civilian Aircraft — Recourse by Brazil to Article 21.5 of the DSU, Canada’s First Written Submission, at para. 4, appended to the Canada — Aircraft Panel Report, supra note 1 [hereinafter Canada — Aircraft Canada’s First Written Submission].

⁷⁵ Despite the physical weight of the evidence, it was suficiently light in substance (and Brazil’s submission was sufficiently strong in rhetoric) for Canada to suspect that Brazil might be “splitting” its case. In its reply submission, Canada asked for a ruling on whether Brazil had made out a prima facie case and requested that the panel require Brazil to submit all available evidence so that Canada might be made aware of the case against it. As the panel refused to make a ruling, and given that there was, in fact, no more evidence, Canada determined, for the most part, to let Brazil’s evidence (and Brazil’s puzzling distor-tion of it) speak for itself.

⁷⁶ Canada — Measures Affecting the Export of Civilian Aircraft — Recourse by Brazil to Article 21.5 of the DSU, Brazil’s First Submission, at para. 4.3 appended to the Canada — Aircraft Panel Report, supra note 1 .

⁷⁷ Ibid.

⁷⁸ Ibid. at para. 4.4 [footnotes omitted].

⁷⁹ Canada - Aircraft Canada’s First Written Submission, supra note 74 at para. 4. In respect of the quotes noted earlier, for example, Canada pointed out that

Brazil has, however, omitted the qualifying subordinate clause of this sentence. The full sentence, placed in context, is set out in Brazil’s Exhibit 7, second page:

In addition to the shift from sovereign to commercial loans, the complexity, scale and duration of financing are changing, and thereby changing the risks associated with insuring and financing Canadian exports.

To reinforce its capacity to manage these changing risks, EDC has established a new Financial Services Ofice and procedures for evaluating loan portfolios on an industry, geographic, and individual transaction basis. Our goal is to help absorb risk on behalf of Canadian exporters, beyond what is possible by other financial intermediaries, by diversifying the Corporation ‘s business both on a country and sectoral basis. We are determined to achieve this goal through growth in both emerging and established markets” [emphasis added throughout] (ibid. at para. 35.)

⁸⁰ Canada — Aircraft Panel Report, supra note 1 at para. 9.112.

⁸¹ Ibid.

⁸² Ibid.

⁸³ Brazil’s argument in its first written submission was an interesting, but ultimately self-defeating, exercise in sleight-of-hand drafting. At para. 4.19 of its submission, Brazil said:

Brazil casually juxtaposed return on equity and net interest margin, implying that the far lower numbers of the latter were somehow meaningful in regard to the former. Canada demonstrated, however, that for commercial banks the net interest margin is a better indicator of inancial performance than a return on equity and that the EDC in fact had a better net interest margin than many major commercial banks. Brazil’s too-clever-by-half drafting did not, however, serve it well in the end.

⁸⁴ Canada - Aircraft Panel Report, supra note 1 at para. 9.166.

⁸⁵ Ibid. at para. 9.167.

⁸⁶ Ibid. at para. 9.168.

⁸⁷ One argument was dismissed by the rather simple, but effective, observation that “assertions based on unsecured bonds provide no guidance in reviewing returns on secured lending” (ibid. at para. 9.169). Another elicited the following comment from the panel:

Other allegations liberally thrown about by Brazil merited no more than “Brazil makes no attempt to suggest” and “Brazil has made no attempt to establish” for ready dismissal by the panel (ibid. at para. 9.173).

⁸⁸ Ibid. at para. 9.175.

⁸⁹ Ibid. at para. 9.176.

⁹⁰ Ibid. at para. 9.178.

⁹¹ Ibid.

⁹² Ibid. at para. 9.179.

⁹³ Ibid. at para. 9.181 [emphasis added].

⁹⁴ The panel observed: “The only evidence adduced by Brazil in support of its claim that EDC grants subsidies in the form of loan guarantees to purchasers or lessors of Canadian regional aircraft has been fully rebutted by Canada” (ibid. at para. 9.190).

⁹⁵ In response to Brazil’s ongoing request for drawing adverse inferences, the panel noted:

⁹⁶ The panel found that

⁹⁷ Ibid. at para. 9.256.

⁹⁸ Ibid. at para. 9.257.

⁹⁹ Ibid. at para. 9.258.

¹⁰⁰ Ibid. at para. 9.259.

¹⁰¹ Ibid. at para. 9.260.

¹⁰² Ibid.

¹⁰³ Ibid. at para. 9.261 [emphasis added].

¹⁰⁴ Ibid. at para. 9.274–5.

¹⁰⁵ Ibid.

¹⁰⁶ The panel observed: “The SDI Annual Report 1997-1998 refers to three contributions under the Aerospace Industry Development Fund. We consider that these contributions are covered by Brazil’s claim, since its claim effectively covers all SDI assistance to the regional aircraft industry” (ibid. at para. 9.277).

¹⁰⁷ Ibid. at para. 9.279.

¹⁰⁸ The decision to privatize de Havilland had been a political one, taken by a newly elected provincial government pursuant to a neo-conservative electoral platform. The analyses done in advance of the sale were either not available or not complete and could therefore not be relied upon to rebut an Article 1 allegation.

¹⁰⁹ Canada —Aircraft Panel Report, supra note 1 at para. 9.237.

¹¹⁰ Ibid. at para. 9.246 [emphasis added]. Brazil, having failed to offer any credible evidence of subsidization — as there was none — now claimed that the sale of negative equity for US $49 million was a subsidy because absent the previous, unchallenged subsidies, the equity would have been even more negative (ibid. at para. 9.240). The panel rejected this argument and correctly determined that, “in the absence of any evidence to the contrary, we have no basis for rejecting Canada’s assertion, based on a signed statement from a de Havilland executive, that de Havilland had a negative equity value at the time of the January 1997 sale” (ibid. at para. 9.244).

¹¹¹ With respect to whether Canada Account activity in itself constitutes subsidies, the panel made the following observation:

¹¹² Ibid. at para. 9.216 [footnote omitted].

¹¹³ Ibid. at para. 9.224 [emphasis added].

¹¹⁴ Canada — Aircraft Appellate Body Report, supra note 1 at para. 174.

¹¹⁵ Ibid.

¹¹⁶ Ibid. at para. 177.

¹¹⁷ Ibid. at para. 172.

¹¹⁸ See also Behboodi, Rambod, “‘Should’ Means ‘Shall’: The Procedural Rulings of the Appellate Body in the Aircraft Subsidies Cases” (2000) 3 J.I.E.L. 563.Google Scholar

¹¹⁹ Canada — Measures Affecting the Export of Civilian Aircraft — Recourse by Brazil to Article 21.5 of the DSU, Brazil’s Appellant’s Submission, at para. 51, available by request from most governments.

¹²⁰ Ibid. at para. 53.

¹²¹ Ibid. at para. 55.

¹²² Canada — Measures Affecting the Export of Civilian Aircraft — Recourse by Brazil to Article 21.5 of the DSU, Canada’s Appellee Submission, at para. 103, available by request from most governments [hereinafter Canada — Aircraft Canada’s Appellee Submission].

¹²³ Ibid. at para. 94.

¹²⁴ Ibid. at para. 95.

¹²⁵ Argentina — Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, Doc. WT/DS121/R, Report of the Panel, circulated on June 25, 1999.

¹²⁶ Kazazi, M., Burden of Proof and Related Issues: A Study on Evidence before International Tribunals (The Hague: Kluwer Law International, 1996), at 137–8.Google Scholar

¹²⁷ As the Appellate Body recently stated:

In the present case, the Panel was correct to seek information and advice from experts to help it to understand and evaluate the evidence submitted and the arguments made by the United States and Japan with regard to the alleged violation ofArticle 5.6. The Panel erred, however, when it used that expert information and advice as the basis for a inding of inconsistency with Article 5.6, since the United States did not establish a prima facie case of inconsistency with Article 5.6 based on claims relating to the “determination of sorption levels.” The United States did not even argue that the “determination of sorption levels” is an alternative measure which meets the three elements under Article 5.6 [emphasis added].

Japan — Measures Affecting Agricultural Products (Japan — Agricultural Products), Report of the Appellate Body, WTO Doc. WT/DS76/AB/R, March 19, 1999, at paras. 129-30.

¹²⁸ Canada — Aircraft Canada’s Appellee Submission, supra note 122 at para. 112.

¹²⁹ Canada — Aircraft Appellate Body Report, supra note 1 at para. 184 [footnotes omitted] [emphasis added].

¹³⁰ United States — Prohibition of Shrimps and Certain Shrimp Products, WTO Doc. WT/DS58/AB/R (98-000); United States — Import Prohibition of Certain Shrimp and Shrimp Products, WTO Doc. WT/DS58/R, May 15, 1998.

¹³¹ Canada — Aircraft Appellate Body Report, supra note 1 at para. 184 [emphasis in the original].

¹³² Ibid. at para. 185 [emphasis in the original].

¹³³ Ibid. at para. 187 [footnotes omitted] [emphasis added].

¹³⁴ Ibid. at para. 188.

¹³⁵ Ibid.

¹³⁶ Ibid.

¹³⁷ Ibid. at para. 189.

¹³⁸ Ibid. at para. 192.

¹³⁹ Ibid. at para. 196.

¹⁴⁰ Ibid. at para. 198.

¹⁴¹ Ibid. at para. 201.

¹⁴² Ibid. at para. 202.

¹⁴³ Ibid. at para. 204.

¹⁴⁴ Ibid. at para. 200.

¹⁴⁵ Ibid. at para. 205.

¹⁴⁶ Ibid. at para. 206.