World Trade Organization

), and European Communities - Computer Equipment (WT/DS62, 67/R, adopted 22 June 1998).

506 European Communities - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, para. 143.

507 See para. 4.47 above.

508 European Communities - Customs Classification of Certain Computer Equipment, WT/DS62, 67, 68/AB/R, adopted 22 June 1998, para. 70.

509 See, for example, paragraphs 40, 43 and 45 of Canada's preliminary submission regarding the jurisdiction of the Panel, dated 23 October 1998.

510 European Communities - Customs Classification of Certain Computer Equipment, WT/DS62, 67, 68/AB/R, adopted 22 June 1998, paras. 68, 69 and 70.

511 Canada's preliminary submission regarding the jurisdiction of the Panel, dated 23 October 1998, para. 37.

512 See, for example, European Communities - Bananas (WT/DS27//R, adopted 25 September 1997), and European Communities - Computer Equipment (WT/DS62, 67/R, adopted 22 June 1998).

513 ^ Brazil's reply to Canada's preliminary submission, dated 30 October 1998, page 4.

514 According to EDC's 1997 Annual Report (page 27), loan interest was by far EDC's greatest source of income during 1997. EDC's corporate plan provides for this trend to continue through 1998.

515 Canada's preliminary submission regarding the jurisdiction of the Panel, dated 23 October 1998, para. 33.

516 See para. IV.A.3(a)ii.5 above.

517 Brazil's reply to Canada's preliminary submission, dated 30 October 1998, para. 4.16.

518 European Communities - Customs Classification of Certain Computer Equipment, WT/DS62, 67, 68/AB/R, adopted 22 June 1998, para. 70.

519 European Communities - Customs Classification of Certain Computer Equipment, WT/DS62, 67, 68/AB/R, adopted 22 June 1998, para. 70.

520 Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R, adopted 22 April 1998, para. 84.

521 EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26,48, AB/R, adopted 13 February 1998, para. 147.

522 India - Patent Protection for Pharmnaceutical And Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998 para. 94.

523 Our questions also addressed more general issues relevant to the case.

524 Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R, adopted 22 April 1998, para 79.

525 Section VIII.4 of the 4 November 1998 Procedures, and Section VIII.5 of the final Procedures.

526 Canada also points to the superiority of photocopies over handwritten notes for the purposes of Canadian rules of evidence. As Canadian rules of evidence are not relevant in this proceeding, we shall not address this argument.

527 At the time of the second substantive meeting, we asked the parties a series of questions that could have led to the submission of new evidence or arguments. In order to ensure due process, we allowed each party 18 days (i.e., equivalent to the time between the deadline for the respondent's first submission and the deadline for rebuttal submissions) in which to comment on any new evidence or arguments adduced by the other party in response to our questions.

528 European Communities - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997¸ para. 145

529 Canada states that it is not necessary for this Panel to determine whether impugned programmes, activities or transactions are “subsidies”, if it finds that they are not “contingent … on export performance”, and vice versa. A contrario, we understand Canada to argue that it is necessary for the Panel to determine whether impugned programmes etc. are subsidies if it finds that they are contingent on export.

530 See para. IX.G.2(a)i.5 above.

531 The Panel notes that Canada therefore purports to interpret the term "benefit" consistent with Article 31.1 of the Vienna Convention on the Law of Treaties.

532 The Panel notes that Article 14(a) provides, for example, that "government provision of equity capital shall not be considered as conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual investment practice … of private investors …".

533 See para. V.B.1(b)i.1 above.

534 In this regard, we note an apparent inconsistency in Canada's arguments as we see no difference between Canada's reliance on item (k) as specific contextual guidance for the interpretation of "subsidy" under Article 1, and the very a contrario reading of item (k) that Canada has expressly rejected for the purpose of defining when government credit constitutes a "subsidy" within the meaning of Article 1 of the SCM Agreement. That is, we consider that Canada is effectively seeking to rely on an a contrario reading of item (k), while at the same time asserting that it rejects this approach.

535 We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to assistance provided to the Canadian civil aircraft industry. With the exception of its first written submission, however, all findings requested by Brazil concerning assistance provided under the EDC programme refer to the "regional aircraft industry". Similarly, all arguments adduced by Brazil concern the regional aircraft industry. We consider that the Canadian regional aircraft industry is a sub-set of the Canadian civil aircraft industry. For these reasons, we only examine Brazil's claim against assistance provided under the EDC programme insofar as such assistance relates to the Canadian regional aircraft industry. Brazil stated that "[r]egional aircraft generally range from 30 to 70 seats, and serve markets up to about 1,600 kilometres apart". Brazil noted in addition that customized regional aircraft may occasionally include up to 78 seats, and that Bombardier and Fairchild Dornier USA are currently developing regional aircraft that may range up to 90 seats (see para. 1.2 of Brazil's first written submission).

536 Export Development Act, Section 10(1).

537 Export Development Corporation, 1995 Chairman and President’s Message (“Message”), pages 2 and 4.

538 United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, BISD 41S/131, para. 118, adopted on 4 October 1994 ("United States – Tobacco").

539 CanadExport On-Line, Focus on Export Development Corporation, pg. 2 (statement of Mr. Paul Labbé, former President of the EDC).

540 Export Development Act, Section 10(1).

541 CanadExport On-Line, Focus on Export Development Corporation, page 2 (statement of Mr. Paul Labbé, former President of the EDC).

542 Canada expressly denies that giving an "edge" implies the grant of subsidies. Canada asserts that the "edge" given to Canadian exporters derives from EDC's experience and expertise.

543 See para. VI.A.2(a)i.5 above.

544 CanadExport On-Line, Focus on EDC, page 2.

545 Infoentrepreneurs website, page 13.

546 See para. VI.A.2(a)i.4 above.

547 Export Development Corporation, 1995 Chairman and President's Message, page 2.

548See para. VI.A.1(a)i.13 above.

549 See para. above above.

550 Export Development Act, Section 10.

551 “The trials of megabanks”, The Economist, October 31, 1998, 23 at 23.

552 Canada asserted that "when a loan becomes non-performing, all financial institutions, including the EDC, cease to recognize interest income on that non-performing loan. However, all financial institutions continue to carry the interest expense of that non-performing loan. In other words, the gross interest income is the interest income on performing loans, but interest expense is the cost of funding all loans in the portfolio, performing and non-performing" (see para. above above).

553 See para. VI.A.1(a)i.7 above.

554 See para. IX.C.2(a)i.10 above

555 See para. VI.A.1(a)i.7 above.

556 Section II(a), Analysis of EDC's Financial Performance, EDC Corporate Finance and Control, 12 December 1998.

557 We recall that the burden is on Brazil, as the complaining party, to adduce evidence sufficient to support its case.

558 See para. VI.A.3(b)i.5 above.

559 WTO document WT/DS70/2.

560 "A very tactical regional response", Airfinance Journal, November 1994, pages 18-20.

561 See para. VI.A.5(a)i.2 above.

562 See para. VI.A.5(c)i.2 above.

563 See para. VI.A.5(a)i.1 above.

564 Standard & Poor’s Presale Report, “CRAFT No. 1 Trust 1998 – A,” page 3.

565 WTO document WT/DS70/2.

566 We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to assistance provided to the Canadian civil aircraft industry. With the exception of its first written submission, however, all findings requested by Brazil concerning assistance provided under the Canada Account refer to the "regional aircraft industry". Similarly, all arguments adduced by Brazil concern the regional aircraft industry. For this reason, we only examine Brazil's claim against assistance provided under the Canada Account insofar as such assistance relates to the Canadian regional aircraft industry.

567 EDC 1995 Annual Report, “Canada Account Profile”.

568 See para. IX.D.1(a)i.1 above.

569 EDC 1995 Annual Report.

570 CanadExport On-Line, Focus on Export Development Corporation, page 2 (statement of Mr. Paul Labbé, former President of the EDC).

571 Canada expressly denies that giving an "edge" implies the grant of subsidies. Canada asserts that the "edge" given to Canadian exporters derives from EDC's experience and expertise.

572 See para. IX.D.1(a)i.1 above.

573 "Ottawa slams Brazil's Bombardier claims", Globe & Mail, 23 November 1998 (Exh. BRA-87).

574 OECD Consensus, at 12.

575 See para. VI.A.6(b)i.9 above.

576 Although Canada initially stated that "Canada Account financing and loan guarantees for exports committed since the entry into force of the SCM Agreement have been consistent with the interest rate provisions of the OECD Consensus", Canada subsequently asserted that it is "not invoking the second paragraph of item (k) [of the Illustrative List in Annex I of the SCM Agreement] as a positive defense to any of the claims made by Brazil."

577 As a result of this finding, it is not necessary to consider Brazil's request for "adverse inferences".

578 see para. IX.E.2(a)i.4 above.

579 We note that Canada does not include export credits or debt financing for export transactions in its illustrative list of EDC services that in its view are not contingent on export (see para. VI.A.1(b)ii.2 above).

580 During proceedings, Canada stated that the 1992 deal contained a "put/call" option, and that the 1997 sale was triggered by OAC's "put", not by Bombardier's "call".

581 Initially, Brazil had argued that the Government of Ontario forgave the 15-year promissory note effective March 31, 1996. Canada adduced evidence, however, to demonstrate that the promissory note has not been forgiven, and that Bombardier has commenced repayments in line with the promissory note. Brazil has not disputed the evidence adduced by Canada.

582 See para. VI.C.1(a)i.1 above.

583 See para. VI.C.1(a)i.6 above.

584 See para. VI.C.1(a)i.6 above..

585 See para. VI.C.1(c)i.3 above.

586 See para. VI.C.1(c)i.2 above.

587 See para. VI.C.1(c)i.3 above.

588 See para. VI.C.1(c)i.4 above.

589 See para. VI.C.1(a)i.6 above.

590 We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to various forms of assistance provided to the Canadian civil aircraft industry. With regard to Subsidiary Agreement assistance, however, arguments adduced by Brazil concerning the issue of export contingency are restricted to the "regional aircraft industry". For this reason, we only examine Brazil's claim against Subsidiary Agreement assistance insofar as it is provided to the Canadian regional aircraft industry.

591 See para. VI.B.2(a)i.1 above.

592 See para. VI.B.2(a)i.1 above.

593 WTO document G/SCM/N/16/CAN, 25 June 1997, para. XXIX:5.

594 1985 Canada-Québec Subsidiary Agreement on Industrial Development, Art. 2.2(d). Id. at Schedule A, para. (d).

595 See para. VI.D.1(a)i.4 above.

596 The Panel notes that Canada subsequently corrected its administrative error and provided Annex A to the Rolls Royce contribution agreement on 22 January 1999.

597 See para. VI.D.1(a)i.4 above.

598 See para. VI.D.1(a)i.2 above.

599 We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to various forms of assistance provided to the Canadian civil aircraft industry. With regard to SDI assistance, however, arguments adduced by Brazil concerning the issue of export contingency are restricted to the "regional aircraft industry". For this reason, we only examine Brazil's claim against SDI assistance insofar as it is provided to the Canadian regional aircraft industry.

600 Government Assistance Programs - A Practical Handbook (15^th ed., 1995), para. 135.230.

601 An Act Respecting the Société de Développement Industriel du Québec, para. 2.

602 Id. at para. 135.240.

603 SDI Website at 2.

604 Gouvernement du Québec, Ministère de L’Industrie, du Commerce, de la Science et de la Technologie, Répertoire des services offerts à l’exportation, page 53.

605 See para. VI.E.1(a)i.2 above.

606 Materials from SDI/Investissement-Québec website, at 1 (Exhibit 65).

607 Id. at 1, 3.

608 WTO document WT/TPR/S/53 (19 November 1998), at page 59.

609 Id.

610 Société de développement industriel du Québec, 1997-1998 Annual Report, at 36-37, 40.

611Id. at 22, Table 1.

612 See para. IX.B.2(a)i.2 above.

613 WTO document WT/DS70/2.

614 We recall our interpretation of the meaning of "benefit" at para. IX.C.2(a)i.10 above.

615 We note that Brazil's request for establishment of a panel (WT/DS70/2) refers to various alleged prohibited export subsidies provided to the "Canadian industry producing civil aircraft". Our terms of reference, therefore, relate to assistance provided to the Canadian civil aircraft industry. With the exception of its first written submission, however, all findings requested by Brazil concerning TPC refer to the "regional aircraft industry". Similarly, all arguments and evidence adduced by Brazil concerns the regional aircraft industry. For this reason, we only examine Brazil's claim against TPC assistance insofar as such assistance relates to the Canadian regional aircraft industry.

616 In response to a question from the Panel, Brazil confirmed that the phrase "predecessor programs" in its request for establishment is restricted to the DIPP.

617 TPC Annual Report 1996-1997. The TPC programme was launched in 1996.

618 See Section C above.

619 We note that Canada does not dispute Brazil's argument that a commercial investor would expect a rate of return of 16.91 - 21.92 percent on TPC's $87 million contribution to Bombardier. With regard to the $87 million TPC contribution to Bombardier, Canada's own estimate of TPC's return on that contribution is [X-BCI] percent. Thus, even Canada's own estimate of TPC's return is substantially below the commercial investor benchmark proffered by Brazil and not rebutted by Canada. In this context, we recall as well the statement by a Canadian official in the context of EDC (see para. [135] above), that commercial investors demand a return on equity of between 15 and 20 percent. We find this statement to be useful corroboration of Brazil’s estimated commercial rates of return, as in our view, TPC contributions are similar to equity investments in that, as with equity investments, TPC contributions will only be repaid if the funded projects are commercially successful.

620For this reason, we do not consider it necessary to address the merits of Canada's criticisms of the methodology behind Brazil's estimates of TPC's rate of return.

621 In light of this finding, we do not consider it necessary to address Brazil's request that the Panel adopt "adverse inferences" in examining the question of whether the TPC financing at issue constitutes a "subsidy". We regret, however, that Canada chose not to provide the Panel with the full details requested by the Panel concerning this financing, and we believe that had it been necessary to do so, the Panel may have been required to make inferences on the basis of the information available.

622 Canadian Taxpayers Federation study, “Corporate Welfare – A Report on Sixteen Years of Industry Canada Financial Assistance,” April 16, 1998.

623 Canada's principal argument is that Brazil has overlooked a domestic transaction involving one Dash 8, and that Brazil has misclassified one transaction concerning 26 CRJs as for export, when in fact the transaction was domestic. We do not consider it necessary to make findings on the accuracy of Brazil's argument, since in this paragraph Canada effectively acknowledges the "export propensity" of the aerospace sector, and that a "large proportion" of Canadian civil aircraft are exported.

624 Article 31.1 of the Vienna Convention on the Law of Treaties provides that a treaty shall be interpreted "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."

625 The New Shorter Oxford English Dictionary, Vol. 1 (Oxford: Clarendon Press, 1993).

626 Id.

627 See para. V.C.1(b)v.1 above.

628 Brazil asserts in response to Question 19 from the Panel (27 November 1998) that "Brazil's entire claim does not, as Canada claims, turn on the 'export propensity' of the Canadian regional aircraft industry alone. The Panel is faced with a situation in which several factors converge, together illustrating that the Canadian Government and the provinces have supported the Canadian regional aircraft industry precisely because it is a total export industry, and precisely because they anticipate that this performance will continue".

629 See para. V.C.2(a)i.4 above.

630 We note that Canada has accepted (see para. V.C.1(b)vii.15 above) that the reason for the grant of the subsidy could be relevant to the extent that the reason "establishes the condition for the grant of the subsidy".

631 See paras. VI.B.3(b)i.11 and VI.B.3(b)i.12 above.

632 We note that other conditions for TPC assistance in addition to anticipated exportation or export earnings, may include the creation of jobs, the launching new industries, or transforming or strengthening the competitiveness of Canadian industry. However, the existence of such additional conditions does not preclude a finding that TPC contributions are "contingent … upon export performance", since Article 3.1(a) of the SCM Agreement applies when export contingency exists "solely or as one of several other conditions…"

633 As a result of this finding, there is no need to address Brazil's request for adverse inferences in light of Canada's refusal to submit certain BCI or documents protected by cabinet privilege. We explained above why we reject Canada's arguments based on the inadequate protection of BCI. With regard to cabinet privilege, we note that in certain circumstances, such as national security, a Member may consider itself justified in withholding certain information from a panel. However, in such circumstances, we would expect that Member to explain clearly the basis for the need to protect that information. In the present case, Canada has invoked cabinet privilege for the purpose of protecting documents concerning the approval of contributions under the TPC. Canada has failed to explain why such information needs to be protected. In the absence of any such explanation, we are not at all convinced of the merits of Canada's reliance on cabinet privilege in the present case.

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