World Trade Organization
Canada-Québec Subsidiary Agreement on Industrial Development
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Canada-Québec Subsidiary Agreement on Industrial DevelopmentSubsidyArguments of BrazilBrazil argues that pursuant to the 1984 Economic and Regional Development Agreement, the governments of Canada and Québec entered into two Canada-Québec Subsidiary Agreements on Industrial Development (the “Subsidiary Agreements”), signed in 1985 and 1992, which together pledged Can$743 million in assistance to industrial projects in Québec.402 According to Brazil, although the Subsidiary Agreements were to have expired effective 31 March 1998,403 programmes receiving funding through the Subsidiary Agreements were announced in June 1998.404 Brazil submits a study prepared by the Canadian Reform Party405, which it cites to illustrate that the Canadian regional aircraft industry has received “conditionally-repayable” contributions under the auspices of the Subsidiary Agreements. Brazil notes that the spreadsheet included in the study is limited to funding granted before 22 October 1996, the date of the study. According to Brazil, Canada has not been forthcoming concerning Subsidiary Agreement assistance to the regional aircraft industry after this date (or concerning details of the terms of assistance granted prior to 22 October 1996 and included on the Reform Party spreadsheet). In response to a Panel question regarding which of the transactions identified in that spreadsheet Brazil alleged constitute subsidies within the meaning of SCM Article 1, Brazil replies that it offered the list of transactions to illustrate that the Canadian regional aircraft industry has received “conditionally-repayable” contributions under the auspices of the Subsidiary Agreements, and that Brazil does not consider that any of the specific contributions listed themselves constitute export subsidies to the Canadian regional aircraft industry prohibited by Article 3 of the SCM Agreement. Brazil submits406 an extract from the 1996-97 Public Accounts of Canada for the Department of Industry, which shows that Bombardier’s Canadair division received funds under the Subsidiary Agreements during that period. According to Brazil, Canada has not been forthcoming with information within its sole control about Subsidiary Agreement assistance to the Canadian regional aircraft industry. Brazil believes that the evidence it has presented is sufficient to warrant further questions from the Panel to Canada concerning the existence and terms of repayment for Subsidiary Agreement assistance to the regional aircraft industry. In response to a question from the Panel asking Brazil to cite instances of Subsidiary Agreement assistance in the form of “non-repayable contributions” provided to the civil aircraft industry, Brazil replies that Schedule B of the 1992 Subsidiary Agreement407 states that assistance under the Subsidiary Agreement may be granted in the form of “a repayable or non-repayable contribution.” Brazil argues that the Canadian Reform Party study that it submits as an exhibit408 demonstrates that as an historical matter certain assistance granted Bombardier under the auspices of the Subsidiary Agreements has been characterized as “’non-repayable‘” or simply as a “’contribution.‘” Brazil argues that Canada refuses to release information which would permit Brazil, and the Panel, to determine whether non-repayable contributions under the Subsidiary Agreements subject to the SCM Agreement have in fact been made. Brazil considers that it has presented evidence sufficient to establish its prima facie case, and that the burden of production has shifted to Canada to rebut that case. Brazil also argues that, according to Canada’s notification to the WTO’s SCM Committee, certain funds provided under the auspices of the Subsidiary Agreements are in the form of “non-repayable contributions,”409 and as such confer significant benefits on recipients within Article 1.1 of the SCM Agreement. Brazil further argues that even those contributions classified as “repayable” should be considered to confer benefits within the meaning of Article 1.1, noting its arguments (para. 6.323) as to why it considers conditionally-repayable contributions failing to compensate for various factors to constitute subsidies within the meaning of Article 1.1 of the Agreement. Arguments of Canada410In answer to a Panel request for information concerning alleged loans made under the 1992 Subsidiary Agreement to Rolls-Royce and Lamines CTEK, Canada notes that it has not put in a defence regarding whether these contributions are subsidies within the meaning of Article 1 of the SCM Agreement. Canada notes that Brazil agrees with Canada regarding the relevance of the principle of judicial economy to the issues to be determined in this case. Accordingly, Canada states, to the extent that any documents are produced by Canada in response to this question of the Panel, they are provided to further support Canada’s submission that the contributions at issue are not “contingent on export performance” within the meaning of Article 3 of the SCM Agreement. Canada also states that Brazil has made no specific allegation about contributions to Rolls Royce or Lamines CTEK, nor adduced any evidence in support of its allegations concerning “benefits” under the Subsidiary Agreement. Canada does not consider it appropriate to adduce evidence in response to allegations not made and a case that has not been established. In addition, Canada states that the contribution to Lamines CTEK was in respect of certain electronic materials not related to the civil aircraft sector, and as such is not within the Panel’s jurisdiction. Finally, Canada indicates, most of the information requested by the Panel is sensitive business confidential information, and Canada’s desire to present to the Panel such information as may help it arrive at a decision must be balanced against the commercial interests and legal rights of private parties not Party to this dispute. Canada notes that with the consent of the Government of Québec, it provides the Rolls Royce contribution agreement, as Business Confidential Information, with clauses relating to repayment terms blocked. 411 In response to a question from the Panel, Canada indicates that a $2.25 million contribution identified in the report by the Auditor General involved pharmaceuticals, and further, that the Auditor General’s use of the term “repayable” includes conditionally repayable. According to Canada, all contributions under the Subsidiary Agreement are repayable, over time, in fixed annual payments. Canada states that there are three conditionally repayable contributions, based on sales, and that all other contributions are unconditionally repayable. Comments of BrazilRegarding Canada’s citation to Brazil’s belief in judicial economy, Brazil recalls its reference to judicial economy in its letter to the Panel dated 13 December 1998 (see para. 6.281). Brazil states that Canada appears not to have provided all of the information requested by the Panel concerning Subsidiary Agreement assistance. First, Brazil notes, the repayment terms are redacted from the agreement setting out the terms of the $2.5 million contribution to Rolls Royce. According to Brazil, the Panel should therefore adopt adverse inferences, presuming that these terms tie repayment to export performance (paras. 4.146-4.151). Furthermore, Brazil notes that while Canada has provided the Rolls Royce contribution agreement, it appears to have provided as “Annex A” thereto the project description for the Lamines CTEK contribution, rather than the project description associated with the Rolls Royce contribution. Brazil submits that the Panel should adopt adverse inferences, presuming from Canada’s failure to produce the annex containing the project description for the Rolls Royce contribution that this description contains inculpatory information suggesting that the contribution is tied in fact to actual or anticipated export. Export contingencyArguments of BrazilUnder the Subsidiary Agreements, Brazil states, the governments of Canada and Québec jointly fund major industrial projects aimed at improving the competitiveness of Québec’s economy. The purpose of the Subsidiary Agreements is explicitly to foster development of export markets for Québec products by “[p]romot[ing] access to new foreign as well as domestic markets,”412 and for this reason, Brazil maintains, financing provided under the auspices of the Subsidiary Agreements is often explicitly directed at export-oriented projects and industries.413 In answer to a Panel question as to how the cited press articles support its “explicitly directed” allegation, Brazil states that the projects described are concrete examples establishing Brazil’s point that Subsidiary Agreement funding “explicitly” – meaning in actual fact – goes to export-oriented projects, as one describes Subsidiary Agreement funding to a company with 92 per cent of its revenue dedicated to export sales, and the other describes Subsidiary Agreement funding to a company “[m]ost of” the production of which is destined for export to the United States. In answer to a Panel question regarding why Brazil states that the purpose of the Subsidiary Agreements is to foster development of export markets, but cites only the 1985 Agreement, Brazil replied that the same quote does not appear in the text of the 1992 Subsidiary Agreement. Brazil reiterates that it does not claim that assistance granted to the Canadian regional aircraft industry under the Subsidiary Agreements is contingent in law on export, but rather that assistance granted to the Canadian regional aircraft industry under the auspices of the Subsidiary Agreements is contingent in fact on export. As a result, in Brazil’s view, it is not necessary that both, or either, of the Subsidiary Agreements include provisions speaking expressly to export contingency. Brazil cites a study prepared by the Canadian Reform Party which reports that the regional aircraft sector has been a significant recipient of benefits under the Subsidiary Agreements,414 and notes that the Canadian regional aircraft industry is 100 per cent export oriented according to the Clark Report. Brazil also notes that 1992 Subsidiary Agreement identifies aerospace is one of the “’key sectors‘” the support of which is central to the development of the Québec economy.415 According to Brazil, assistance under the Subsidiary Agreements may be “in the form of repayable or non-repayable contributions.”416 In answer to a question from the Panel as to why Brazil considers that “repayable loans” under the Subsidiary Agreement, referred to in the articles submitted by Brazil417, constitutes subsidies within the meaning of SCM Article 1, Brazil states that it cited to that assistance for the purposes of illustrating, with the help of other evidence cited that funding under the Subsidiary Agreements is contingent in fact upon export performance within the meaning of Article 3 of the SCM Agreement. Brazil states that it has not claimed that the specific assistance described in these exhibits constitutes a subsidy within the meaning of Article 1.1 of the SCM Agreement, among other reasons because this assistance is not to the regional aircraft industry. According to Brazil, loans provided under the Subsidiary Agreements grant benefits to businesses with an established export trade or significant export potential, consistent with the goal of the Subsidiary Agreements to “’[p]romote access to new foreign as well as domestic markets.‘”418 For Brazil, together the above factors suggest that Subsidiary Agreement funds are in fact tied to actual or anticipated exportation or export earnings. Arguments of CanadaCanada argues that the Subsidiary Agreement is not in law or in fact contingent upon export performance. Canada observes Brazil’s acknowledgement that contributions under the Subsidiary Agreement promote access “’to new foreign as well as domestic markets‘” [emphasis added by Canada] (para. 6.308) Canada submits that the evidence that Brazil has adduced does not address the correct interpretation of export contingency. That is, Canada argues, Brazil has not adduced any evidence to show that Subsidiary Agreement contributions are contingent on export performance, in the sense that contributions would not be paid unless exports took place, that there would be rewards if exports took place or that there would be penalties if exports did not take place. Canada submits that there is no such evidence because this is not how contributions under the Subsidiary Agreement are made. In Canada’s view, therefore, Brazil does not put before the Panel a prima facie case that contributions under the Subsidiary Agreement are contingent upon export performance. Canada states that the Subsidiary Agreement was signed by the Government Canada and the Government of Québec (Québec) on 27 March 1992 for a five year period,419 and that it was terminated on 31 March 1998.420 According to Canada, no new applications are entertained, but applications submitted prior to the date of termination are still in the process of being considered. Canada argues that the purpose of the Subsidiary Agreement was to improve the competitiveness and vitality of the Québec economy by providing financial support for major industrial projects in Québec. Canada indicates that contributions under the Subsidiary Agreement have been made in 111 major industrial projects, including 7 feasibility studies, and that only nine projects -- 8 per cent of the total -- were in the aerospace sector. According to Canada, the involvement of the Government of Québec in support provided under the Subsidiary Agreement touched virtually all industrial sectors in Québec, including hygiene products, electric power systems, aircraft and aircraft parts, glass, textiles, plastics, ferro-alloys, major appliances, chemicals, waterworks and sewage systems, and cosmetics. According to Canada, if alleged subsidies under the Subsidiary Agreement are, as Brazil points out, available for both domestic and export markets, by definition they are not contingent on export performance. Canada argues that Brazil’s de facto argument rests on its “export propensity” interpretation, which in Canada’s view is incorrect (paras. 5.53- 5.94). In Canada’s view, Brazil’s argument must therefore fail. In response to a Panel question as to the starting and ending dates for the 1985, 1988 and 1992 Subsidiary Agreements, and the dates on which funding began and ended under each, Canada states that the 1985 Subsidiary Agreement was entered into on 23 January 1985 and was terminated in June 1991, and contributions committed under it were terminated in 1996; and that the 1992 Subsidiary Agreement was entered into on 27 March 1992 and was terminated on 31 March 1998, and contributions committed under it will terminate in 2003. Canada further indicates that these agreements were entered into under the authority of a framework Memorandum of Understanding (MOU) on economic development between the Government of Québec and the Government of Canada. According to Canada, the first MOU was signed on 14 December 1984; the 1985 Subsidiary Agreement was entered into under the auspices of the 1984 MOU. The second framework MOU was signed on 9 June 1988, and the 1992 Subsidiary Agreement was entered into under this MOU. In response to a Panel question asking why Canada in its arguments does not refer to Brazil’s arguments concerning the 1985 Subsidiary Agreement, Canada states that Brazil makes no claims in respect of that Agreement. Response of BrazilBrazil notes Canada’s argument in defending Subsidiary Agreement funding from characterization as “’contingent on export,‘” that because some Subsidiary Agreement funding supports domestic products or markets, or because such funding has been directed to projects outside of the Canadian regional aircraft industry, it cannot be considered to be contingent upon export performance. Brazil does not contest that some Subsidiary Agreement funds may well have gone to other industries with sales in export markets, or to other industries with sales in domestic markets. Brazil submits that its claim that Subsidiary Agreement assistance constitutes a prohibited export subsidy under Article 3 of the SCM Agreement is unrelated to these incidences of Subsidiary Agreement funding. Rather, Brazil argues, when Subsidiary Agreement funds were disbursed to the Canadian regional aircraft industry, they were given to an industry that is totally export oriented according to the Clark Report, precisely because it is an export industry and was anticipated to remain so. Brazil considers that the evidence it has submitted, regarding conditional repayability of Subsidiary Agreement funds, the Agreement’s objectives, the assistance to export-oriented companies and assistance to the regional aircraft industry (paras.6.297-6.298) constitutes a prima facie case that Subsidiary Agreement assistance to the Canadian regional aircraft industry constitutes a prohibited export subsidy. 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