World Trade Organization
arguments regarding the clark report
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- The 26 CRJs delivered to Air Canada
- Response by Brazil
- Rebuttal of Canada
- Rebuttal of Brazil
arguments regarding the clark reportArguments of CanadaSaturation of the Canadian regional turboprop marketCanada criticises the “Clark Report” submitted by Brazil in support of its arguments concern the proportion of regional aircraft exported by Canada on a number of grounds. Canada asserts, first, that the report chooses a period of analysis that ignores the reality that the Canadian regional turboprop aircraft market has been saturated since 1992. Canada states that because of this saturation, since 1992, there have been only two firm sales of any new regional turboprop aircraft to Canadian customers450, and one import of a used Dash-8, in 1998. According to Canada, in the period 1984-90, Canadian airlines invested heavily in turboprop regional aircraft and the Canadian domestic regional aircraft fleet increased by 776 per cent451, thereafter stabilizing, as the Canadian market was saturated. Canada argues that as of 1 January 1998, Canadian carriers operated almost 100 Dash 8’s in regular service452, and states that from its introduction in 1983/84 to 31 December 1997, 481 Dash 8’s had been delivered. According to Canada, domestic Canadian carrier fleets therefore represent about 20 per cent of the Dash 8 deliveries. For Canada, it thus is not surprising that Dash 8 sales post 1992 have been for export. Canada argues, however, that when the domestic demand for turboprop regional aircraft returns as older aircraft need replacing, it is likely that Canadian airlines will order new Dash 8s, given the economies of training on and maintaining new aircraft that have the same lineage as their established turboprop fleets. The 26 CRJs delivered to Air CanadaAccording to Canada, the Clark Report's “determination” that the 26 CRJs delivered to Air Canada are “export sales”453 is untenable. Canada submits that these 26 CRJs were purchased by a Canadian airline (Air Canada) from a Canadian manufacturer (Bombardier), and were never intended for export: each aircraft was required by contract to be manufactured in compliance with Transport Canada requirements for a Canadian Certificate of Airworthiness and a Canadian Certificate of Registration. The Standard Certificate of Airworthiness should be contrasted with a Certificate of Airworthiness for Export: CRJs acquired by Air Canada require the former, whereas export customers (such as Slovenia and the United States) require the latter. Air Canada took delivery of the aircraft directly from Bombardier. Canada states that the aircraft are based and registered in Canada,454 and fly regular routes between Canadian centres, and between Canadian and US centres.455 Canada also takes issue with the Report's statement that that Air Canada ordered 26 of the 50-passenger CRJs in several separate transactions and that Air Canada was not interested in owning these aircraft.456 According to Canada, this assertion is not supported by the evidence. Canada states that to finance its acquisitions, Air Canada chose to use US leveraged leases for 24 CRJs, with the remaining two CRJs purchased for cash.457 Thus, Canada maintains, Air Canada has demonstrated a patent interest in owning CRJs. Canada asserted that the latter two purchases are established beyond any doubt by the Bills of Sale and Certificates of Acceptance for these aircraft. According to Canada, airlines purchasing aircraft look to a variety of financing mechanisms in order to reduce financing costs, and at present, the US leveraged lease is one of the most popular financing vehicles, as it allows an airline to pass US tax benefits to an equity participant, in return for lower financing costs.458 Canada states that similar advantages can be found in other jurisdictions: Japan, Germany and the United Kingdom. In Canada's view, given the globalisation of financial services and capital movements, these transactions cannot be characterised as exports simply because they are financed or underwritten in another country. That is, Air Canada’s choice of financing vehicle cannot change the fundamental nature of these transactions: they are domestic and not export sales. Thus, Canada argues, the “Clark Report” incorrectly concludes that 100 per cent of all of Bombardier’s regional aircraft sales have been for export. Canada also argues that the Clark Report's definition of “sale”, which counts firm orders as sales, is incorrect.459 Canada maintains that sales are properly marked when the plane is delivered; even firm orders may not turn into sales, as was evident during the downturn in the aircraft industry in the early 1990’s.460 Canada noted that Air BC acquired two Dash 8 aircraft in April and May 1992 on rolling one-month interim finance leases and subsequently took title to the aircraft in July 1992. Thus, using the proper definition of sale, de Havilland made domestic sales in the "review period" chosen by the Clark Report. Response by BrazilBrazil takes issue with Canada's criticism that the Clark Report does not include sales of Dash 8 series aircraft sold to domestic airlines prior to 1992, and that had the Clark Report taken account of the period 1984-1990, it would have found evidence of domestic sales (paras. 6.368-6.371). Brazil notes that it has conceded, pursuant to arguments by Canada, that a 1989 alleged subsidy by DIPP and SDI was not within the Panel's jurisdiction because it was made before the entry into force of the WTO Agreement (para. 4.77), and argues that Canada cannot “have its cake and eat it too.” For Brazil, the period before 1 January 1995 is either relevant and subject to the Panel’s jurisdiction or it is not. Canada cannot have it both ways. Brazil also disagrees with Canada's argument that because 26 CRJs are operated by Air Canada and registered to operate in Canada, they represent domestic rather than export sales (paras. 6.372-6.376). Brazil notes, first that 10 of the 26 CRJs operated by Air Canada were sold in 1993, before the effective date of the SCM Agreement.461 Brazil states that according to Canada, events occurring before the effective date of the SCM Agreement are not subject to the Panel’s jurisdiction. Second, Brazil argues, Canada admits that for at least 24 of the 26 CRJs, the aircraft were not sold to and are not currently owned by Air Canada, but that rather because they are operated by Air Canada, they constitute domestic sales. Brazil does not dispute that these aircraft are, for the moment, part of the Air Canada fleet, but submits that they are not owned by Air Canada and were in fact sold via EDC’s equity financing vehicle to a US SPC, from which Air Canada merely leases the aircraft, a fact which Brazil states that Canada acknowledges. In response to a Panel question concerning the basis for this alleged acknowledgement by Canada, Brazil notes Canada’s statement (para. 6.373) that “’US leveraged leases‘” were used to finance the sale of these aircraft, and Canada’s statement (para. 6.124) that CRJ Capital, which according to Brazil is the “’EDC equity financing vehicle‘”, was used for the Air Canada transaction. Brazil also states that this transaction is the focus of former EDC President Paul Labbé’s comments to the Canadian Parliament’s Committee on Foreign Affairs and International Trade (see para. 6.112). Brazil states that its arguments in this regard do not speak to the remaining two CRJs, which Canada alleges were purchased by Air Canada. Brazil notes that even if the two remaining CRJs operated by Air Canada and sold in 1997462 constitute domestic sales, the result would be that during the period from 1 January 1995 to the present, 99.64 per cent of sales by the Canadian regional aircraft industry would still have been for export.463 Third, regarding Canada's argument (para. 6.372) that Air Canada’s compliance with Transport Canada requirements regarding a Canadian Certificate of Airworthiness and a Canadian Certificate of Registration demonstrates that these CRJs “were never intended for export . . .”, Brazil states that as a matter of Canadian law, it is illegal to operate aircraft in Canada without a Canadian Certificate of Airworthiness.464 Brazil notes that because the CRJs are in fact operating in the Air Canada fleet, this would presumably subject them to this domestic regulatory requirement. For Brazil, however, the fact that Air Canada would secure a Canadian Certificate of Airworthiness does not diminish the fact that the aircraft were sold to a foreign buyer. Brazil also maintains that it is illegal under Canadian law for Air Canada to operate foreign-registered aircraft without obtaining a Canadian Certificate of Registration,465 and for Brazil the fact that Air Canada needed to secure this certificate simply makes it all the more evident that the CRJs at issue had been sold to and are owned by a US SPC, and are therefore “foreign-registered” within the meaning of Transport Canada regulations. Brazil characterizes Canada's argument (para. 6.375) that although these aircraft were sold to foreign buyers and structured as export sales precisely so that they would fall within EDC’s export financing mandate, the “'choice of financing vehicle cannot change the fundamental nature of these transactions‘” as another instance of Canada's trying to “’to have its cake and eat it too.‘” Brazil recalls a statement by EDC’s former president in testimony to Parliament that the “reality” of this sale was that it was to a US party,466 in order to take advantage of EDC financing to launch an export product. For Brazil, Canada cannot credibly now be heard to claim that these were not export sales. Rebuttal of CanadaIn response to Brazil's argument that 10 of the 26 CRJs were sold prior to 1995, Canada argues that counting a sale as when a delivery is made, Air Canada has acquired 22 CRJs since 1 January 1995467 two of which were paid for in cash in January 1997 (para. 6.373), and the remaining 20 were financed through US leveraged leases. With respect to Dash 8 sales and Brazil's argument that Canada cannot "have its cake and eat it too", Canada submits that its comments on the Clark Report were simply responding to the assertions and analysis of that document and that it was the Clark Report that chose to review the period before 1995. In Canada's view, its comments on the Clark Report took no position on whether the transactions prior to 1995 are within the scope of the Panel's jurisdiction. Canada’s denies that it acknowledges that any of the 26 Air Canada CRJs were sold via EDC’s equity financing vehicle to a US SPC (para. 6.381). Canada asserts that the statements of Canada cited by Brazil in this regard make no mention of EDC involvement, nor of CRJ Capital, and argues that Brazil continues to mischaracterize CRJ Capital as “’EDC’s equity financing vehicle‘”. Canada recalls its statements and the officers’ certificate that it submitted,468 to this effect. Regarding Brazil’s argument that the aircraft acquired by Air Canada through leveraged leases are export sales, Canada submits that the fact that the owners of these US leveraged lease financed aircraft are owner-trustees located in the United States does not make these transactions into export sales. For Canada, US leveraged leases are just a means of financing an acquisition which are used to finance a variety of capital goods. Canada states that, for example, a Canadian electrical utility could finance a new coal-fired electrical power plant built and located wholly within Canada with a US leveraged lease, and that the power plant never leaves Canadian soil and thus is not exported.469 For Canada, regarding the term “export” for the purposes of Article 3 of the SCM Agreement, the ordinary meaning is to “send out (goods …) esp. for sale in another country”.470 Canada submits that there is nothing in the context, object and purpose, or negotiating history of the SCM Agreement that would indicate that the interpretation of “export” should be any different than the ordinary meaning. In this sense, Canada states, there is no indication of these aircraft being exported. Canada takes issue with Brazil's characterization of its argument regarding Transport Canada's requirements (para. 6.384). Canada states that its argument is that each aircraft was required by contract to be manufactured in compliance with Transport Canada requirements for domestic aircraft.471 This, Canada submits, is evidence that these aircraft were not intended for export, as if they had been intended for export to the United States, they would have been manufactured in compliance with the requirements of that jurisdiction – that is, requirements set by the US Federal Aviation Authority. In this regard, the Standard Certificate of Airworthiness should be contrasted with an Export Airworthiness Certificate, according to Canada. Canada states that CRJs acquired by Air Canada receive a Standard Certificate of Airworthiness,472 whereas export customers such as those in the United States would receive an Export Airworthiness Certificate473, the significance of which is set out in the Canadian Aviation Regulations.474 Canada submits that according to these Regulations, where the Canadian Minister of Transport agrees to issue an Export Airworthiness Certificate in respect of an aircraft being exported as conforming to a foreign airworthiness standard, the Minister must verify compliance with any special requirements set out in that foreign standard475, which for aircraft exported to the United States are set out in an Appendix to the Regulations.476 According to Canada, The US Federal Aviation Authority (or FAA) will accept Canadian export airworthiness certification, as long as the aircraft conforms to certain FAA requirements, pursuant to a bilateral agreement between Canada and the United States concerning, among other things, the airworthiness of imported civil aircraft.477 Canada argues that the 24 CRJs in question were not manufactured to comply with the requirements for Export Airworthiness Certificates for the United States – precisely because there was no intention to export them, and they were not exported. Canada states that the results of a Transport Canada database search on all of the CRJs in question show that none of the 24 CRJs acquired by Air Canada under US leveraged leases have been exported478, and that none of them ever was registered by Transport Canada as being imported into Canada.479 Canada also argues that if an aircraft is imported, that fact is registered in the Canadian Civil Aircraft Registry, so in the Registry for a used Dash 8 imported by Air Nova, the entry lists the "Year imported", as 1988. Similarly, the entries for two SAAB 340Bs show they were imported in 1994 and 1995 respectively. Canada submits, however, that the Canadian Civil Aircraft Registry entries for all Air Canada CRJs, shows that the aircraft financed through US leveraged leases have never been imported. Canada also disagrees with Brazil's argument that it would be illegal under section 202.42 of the Canadian Aviation Regulations for Air Canada to operate foreign-registered aircraft without obtaining a Canadian Certificate of Registration. Canada states that this section does allow for the operation of foreign-registered aircraft on lease operations in Canada, without requiring that those aircraft receive a Canadian Certificate of Registration.480 Canada argues that a Canadian operator operating a foreign-registered aircraft can only do so only for a period of twenty-four months in a thirty month period481, but also notes that under the Convention on International Civil Aviation, Article 18, an aircraft cannot be validly registered in more than one State482, meaning that either the CRJs are registered in Canada, or they are registered elsewhere (such as the United States) – they cannot be registered in two countries at the same time. Canada asserts that a Canadian Certificate of Registration is necessary for Canadian aircraft, as is clear in the Canadian Aviation Regulations483. The fact that the Air Canada CRJs have Canadian Certificates of Registration thus does not make it “'all the more evident that the CRJs at issue… are therefore ‘foreign-registered’”, in Canada's view. Canada reiterates that the CRJs cannot be both Canadian registered and foreign-registered. And since these aircraft have never been exported and subsequently imported, they never were foreign-registered. Rebuttal of BrazilBrazil takes issue with Canada’s argument that the Clark Report used an “‘incorrect’” definition of the term “sale.” Brazil recalls Canada’s argument that a sale only occurs when a plane is delivered, and that had the Clark Report used this date, it would have accounted for the purchase of two Dash 8 aircraft in 1992 by Air BC, a Canadian airline. Brazil notes that it appears that these aircraft were ordered in 1989, and were therefore not included in the Clark Report’s results. For Brazil, Canada’s criticism is of no consequence, since it relates to sales occurring before the effective date of the Subsidies Agreement, no matter what the proper definition of “sale.” In any event, the Clark Report adopted the “date of sale” used by Canada in trade remedy cases, where it identifies the “date of sale” as: generally considered to be the date that the parties establish the terms of sale. The date of order confirmation is usually considered as the date of sale, although the date of sale could be the contract, purchase order or invoice date, whichever establishes the terms of sale.484 This definition would not, according to Brazil, dictate that the correct date of sale is determined by the delivery date. Directory: english -> tratop e -> dispu e dispu e -> Annex g list of exhibits submitted by the parties dispu e -> World Trade Organization dispu e -> Annex a submissions of Brazil Download 1.34 Mb. Share with your friends:
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