Canada export credits and loan guarantees for regional aircraft

276 Brazil queried whether such counter-guarantees are actually offered by Bombardier per se, or by Canadair Québec Capital ("CQC"), a company capitalized in equal parts by Bombardier and a company wholly-owned by IQ. Canada has confirmed that it is Bombardier, not CQC, that is responsible for the counter-guarantees. [].

277 We note that, in its request for the establishment of a panel, Brazil claims that "first loss deficiency guarantees", in addition to equity guarantees, provided by IQ are prohibited export subsidies (See WT/DS222/2).

278 See Exhibit CAN-74.

279 See Exhibit CAN-75.

280 See Exhibit CAN-76.

281 Brazil also notes that Canada has not provided any evidence regarding the fees levied for these equity guarantee-like instruments. The question of fees is addressed at paras VII.H.2(b)iv.1-VII.H.2(b)iv.10.

282 Canada – Aircraft, Report of the Panel, footnote Error: Reference source not found, supra, para. 9.112.

283 Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 157.

284 For example, Brazil asserts that, in order to demonstrate that there is no "benefit", Canada would have to prove that IQ's fees are equal to those charged regional aircraft purchasers by commercial guarantors with A+ credit ratings. For its part, Canada (although it rejects Brazil's argument regarding the burden of proof) asserts that there is no "benefit" because the annual fees for IQ equity guarantees are market-based.

285 We note that IQ purports to levy both an up-front [] per cent administrative fee, and an annual fee of [] per cent on IQ's effective exposure. We do not understand Brazil to raise any claims regarding the up-front administrative fee. We understand that Brazil's claims are concerned only with the annual fee allegedly levied by IQ.

286 See European Communities – Hormones, Report of the Appellate Body, footnote Error: Reference source not found, supra.

287 Oral Statement of Brazil at the Second Meeting of the Panel, para. 23 (Annex A-12).

288 In its written submission of 20 August 2001, Brazil asserts that for transactions for which Canada has shown evidence of a fee, it has only shown the [] basis point up-front administrative fee, and not the [] basis point annual fee Canada claims is also charged (See Comments of Brazil on Responses of Canada to Questions and Additional Questions from the Panel Following the Second Meeting of the Panel (Annex A-16)). [].

289 Oral Statement of Brazil at the Second Meeting of the Panel, para. 110 (Annex A-12). In para. 106 of that submission, Brazil submits that the evidence provided by Canada suggests that IQ also provided [], in addition to the equity guarantee. In para. 61 of its 20 August 2001 comments on Canada's 13 August 2001 submission, Brazil notes that Canada does not deny the provision of [] (See Comments of Brazil on Responses of Canada to Questions and Additional Questions from the Panel Following the Second Meeting of the Panel (Annex A-16)). While we accept that the documentary evidence presented by Canada appears to indicate the existence of [], Brazil has made no attempt to assert that such [] constitutes a subsidy. Thus, even if IQ did provide [], we have no basis on which to make any findings against such []. Brazil has requested adverse inferences regarding IQ support to certain airlines (including []) more generally. We address this issue below.

Brazil also claims that IQ provided financing to Midway, and that Canada has failed to provide full information regarding the terms of the IQ equity support to Midway. Brazil therefore requests an adverse inference in respect of the IQ equity guarantee to Midway. Canada denies that IQ provided financing to Midway, and suggests that Brazil confused the equity guarantee with direct financing. Given Canada's denial, and since we do not see anything in Exhibit CAN-61 that would indicate the existence of IQ financing to Midway, we see no basis for Brazil's assertion that IQ provided financing to Midway. Furthermore, Brazil has failed to specify why, in its view, Canada has failed to disclose full information regarding the IQ equity guarantee to Midway. For our part, we do not see what additional information should have been provided by Canada. We therefore reject Brazil's request for an adverse inference regarding the IQ equity guarantee to Midway.

Brazil also asked the Panel to draw an adverse inference regarding IQ's equity guarantee to ACA, again alleging that Canada failed to provide full information regarding the terms of that transaction. We assume that Brazil is referring to the fact that Exhibit CAN-63 does not identify the creditor providing debt financing. In our view, however, the fact that Canada has failed to disclose the identity of the loan creditor has no bearing on the consistency of the IQ equity guarantee with the SCM Agreement. We therefore reject Brazil's request for an adverse inference regarding the IQ equity guarantee to ACA.

290 Canada initially submitted details of the first approval of the IQ equity guarantee to [] in Exhibit CAN-64. Canada subsequently informed the Panel that the first approval did not reflect the final terms and conditions of IQ's offer, which were then submitted as Exhibit CAN-77.

291 In response to Question 47 from the Panel, Canada asserted that "IQ has charged fees for every transaction in which it has participated and has provided for fees in every financing offer it has made" (Responses of Canada to Questions from the Panel Prior to the Second Meeting of the Panel (Annex B-9)). []

292 Oral Statement of Brazil at the Second Meeting of the Panel, para. 23 (Annex A-12).

293 Second Written Submission of Brazil, para. 148 (Annex A-10).

294 Australia – Subsidies Provided to Producers and Exporters of Automotive Leather, Report of the Panel, WT/DS126/R, adopted 16 June 1999.

295 See Responses of Canada to Questions 19 and 20 from the Panel, Responses of Canada to Questions from the Panel Following the First Meeting of the Panel (Annex B-7).

296 Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 171 (emphasis in original).

297 Canada – Certain Measures Affecting the Automotive Industry ("Canada – Autos"), Report of the Appellate Body, WT/DS139/AB/R-WT/DS142/AB/R, adopted 19 June 2000, para. 100.

298 Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 166.

299 See Second Written Submission of Brazil, para. 120 (Annex A-10).

300 Brazil relies on Section 25 of the IQ Act to establish the de jure export contingency of IQ equity guarantees. Section 25 sets forth the "mission" of IQ. Even if IQ equity guarantees were provided on the basis of Section 25, we do not consider that Section 25 would necessarily render such guarantees de jure export contingent. Brazil has relied on that part of the IQ mission dealing with the "[g]rowth of enterprises", described in Section 25 as including "export activities". Without finding that this part of the IQ mission would demonstrate de jure export contingency, we note that the IQ mission set forth in Section 25 also includes, for example, "[s]upport to enterprises", whereby IQ "shall also work to retain current investment in Québec by providing support to enterprises established in Québec that show particular dynamism or potential". In our view, there is nothing in the latter description of IQ's mission that would suggest export contingency. Furthermore, even if the IQ guarantees at issue were provided on the basis of Section 25, there is nothing to suggest that they were necessarily provided as part of the "[g]rowth of enterprises", rather than "[s]upport to enterprises". We have already stated our view that that part of IQ's mission regarding "[s]upport to enterprises" would not suggest export contingency. Accordingly, even if Section 25 were the legal basis for the IQ guarantees at issue, that fact alone would not necessarily mean that they were de jure export contingent.

301 To the extent that para. 131 of the Appellate Body's report on Canada – Autos (on the use of domestic over imported goods) requires an examination of the actual operation of a statute to determine whether or not there is de jure export contingency, we note that we have found no aspect of the operation of the IQ Act in specific transactions that would suggest export contingency (See our findings on de facto export contingency below).

302 See Second Written Submission of Brazil, paras. 110 and 118 (Annex A-10).

303 In the context of Brazil's claim against the IQ programme "as such", the parties disagreed as to whether or not Decrees 572-2000 and 841-2000 could be used for providing IQ support for regional aircraft transactions. Since Decrees 572-2000 and 841-2000 are not relevant to the IQ equity guarantees at issue, we do not consider it necessary to resolve this issue.

304 Australia – Leather, Report of the Panel, footnote Error: Reference source not found, supra, para. 9.67.

305 Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 175.

306 We note that part of IQ's mission is to "participate in the growth of enterprises, in particular by facilitating research and development and export activities" (Section 25, IQ Act (Exhibit BRA-18)).

307 Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 174.

308 Canada – Aircraft, Report of the Panel, footnote Error: Reference source not found, supra, para. 9.340.

309 See Response of Canada to Questions 18 and 19 from the Panel, Responses of Canada to Questions from the Panel Following the First Meeting of the Panel (Annex B-7).

310 We recall that, according to footnote 4 to Article 3.1(a) of the SCM Agreement, "[t]he mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy".

311 In this regard, we note Article 3.10 of the DSU which enjoins Members of the WTO, if a dispute arises, to engage in dispute settlement procedures "in good faith in an effort to resolve the dispute". As the Appellate Body has previously stated, the "procedural rules of WTO dispute settlement are designed to promote, not the development of litigation techniques, but simply the fair, prompt and effective resolution of trade disputes" (United States – Tax Treatment of "Foreign Sales Corporations", Report of the Appellate Body, WT/DS108/AB/R, adopted 20 March 2000, para. 166).

312 Strictly speaking, our request for documentation was limited to the IQ transactions identified by Brazil in its first written submission. Nevertheless, in responding to our question, Canada also referred to three additional IQ transactions not identified by Brazil in its first written submission. That being said, we regret that it was necessary for us to address a second request for documentary evidence to Canada, in the form of Question 41 from the Panel (See Responses of Canada to Questions from the Panel Prior to the Second Meeting of the Panel (Annex B-9)). Canada has offered no explanation as to why such documentary evidence, which was not supplied with respect to those transactions identified by the Panel or with respect to additional transactions revealed by Canada, could not have been included in its initial response to Question 14 from the Panel (See Responses of Canada to Questions from the Panel Following the First Meeting of the Panel (Annex B-7)). We do believe, however, that it was appropriate for us to request the documentation a second time, rather than simply reject Canada's answer as incomplete or unresponsive, as Brazil seemed to suggest we should do.

313 See Second Written Submission of Brazil, para. 112 (Annex A-10).

314 In particular, there is no need for us to consider whether or not IQ loan guarantees constitute the provision of "goods or services other than general infrastructure" within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement, as alleged by Brazil.

315 We also note that neither party has sought to rely on an a contrario reading of item (j) for the purpose of demonstrating, or refuting, the existence of "benefit".

316 Brazil's argument also ignores the terms of Article 14(c), which explains the circumstances in which government loan guarantees "shall not be considered as conferring a benefit" in the context of countervailing duty investigations. If all government loan guarantees necessarily conferred a "benefit", as argued by Brazil, the Article 14(c) guideline would be meaningless.

317 See Canada – Aircraft, Report of the Appellate Body, footnote Error: Reference source not found, supra, para. 155, regarding the contextual relevance of Article 14 for the purpose of determining the existence of "benefit".

318 We recall that the initial burden lies on the complaining party to establish a prima facie case of inconsistency (See para. iii.1, supra).

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