World Trade Organization

CANADA ACCOUNT

1. 
   Brazil claims that the Canada Account programme per se provides prohibited export subsidies to the Canadian regional aircraft industry,⁵⁶⁶ contrary to Article 3.1(a) and 3.2 of the SCM Agreement. Brazil also challenges the Canada Account as applied, including funding, support, funds and benefits granted in the regional aircraft sector under the auspices of the Canada Account programme.
   
2. 
   Brazil notes that EDC’s 1995 Annual Report describes the Canada Account in the following terms:
   

1. 
   Brazil asserts that the Canada Account exists for the sole purpose of supporting exports, and that Canada Account support is therefore contingent upon export performance within the meaning of Article 3.1(a) of the SCM Agreement.
   
2. 
   Without conceding that the Canada Account programme, or assistance granted thereunder, is contingent on export, Canada argues primarily that Canada Account assistance is not a "subsidy" within the meaning of Article 1 of the SCM Agreement. Canada asserts that Canada Account operations are financing and loan guarantee activities undertaken by the EDC on the account of the Government of Canada. Thus, any obligations under the Canada Account are funded by the Government of Canada. Canada asserts that the Canada Account is not a pool of money used to subsidise export sales.
   

1. Is the Canada Account programme per se a prohibited export subsidy?

   1. 
      In order to assess Brazil's claim against the Canada Account programme, we must first determine whether the Canada Account programme mandates the grant of prohibited export subsidies in a manner inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement. In this regard, we recall our earlier discussion⁵⁶⁸ on the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation.
      
   2. 
      During the Panel proceedings, we addressed the following question to Brazil:
      

3. 
   In response, Brazil stated that:
   

1. 
   Leaving aside the issue of export contingency, we understand Brazil to argue that Canada Account assistance is, as a matter of law, granted in the form of subsidies. However, we find nothing in Brazil's various submissions in support of this argument. As Brazil itself notes, "Canada Account funds are used to support export transactions which the federal government deems to be in the national interest but which, for reasons of size or risk, the Export Development Corporation (EDC) cannot support through regular export credits."⁵⁶⁹ Brazil has failed to demonstrate that such "support" necessarily involves subsidization. Although such "support" might conceivably take the form of subsidization, there is nothing to suggest that this must, in law, be the case. Indeed, we consider that such "support" could be provided in a broad variety of ways other than subsidization.
   
2. 
   In our view, Brazil effectively concedes that the Canada Account mandate does not require the grant of subsidies when it states that EDC has interpreted the Canada Account mandate to require it to fund projects that give “Canadian exporters an edge when they bid on overseas projects.”⁵⁷⁰ For Brazil, this "edge" necessarily refers to subsidization. Even if the "edge" did imply the grant of subsidies,⁵⁷¹ and even if in practice the Canada Account were applied so as to grant subsidies, this would not mean that, in law, the Canada Account mandate requires the grant of subsidies. Rather, in such circumstances, the grant of subsidies would be the result of the exercise of the administering authority's discretion in interpreting the Canada Account mandate. We again recollect "that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority … to act inconsistently with the General Agreement could not be challenged as such…"⁵⁷²
   
3. 
   For these reasons, we find that Brazil has failed to demonstrate that the Canada Account programme as such mandates subsidies that are contingent upon export performance. Rather, the Canada Account programme constitutes discretionary legislation. In light of the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation, we find that we may not make any findings on the Canada Account programme per se. We therefore confine our analysis to Brazil's claims concerning the actual application of the Canada Account programme.
   

1. Does the Canada Account programme as applied provide prohibited export subsidies?

   1. 
      Brazil asserts that the Canada Account provides grants, interest-free loans, low-interest loans, guarantees and other give-aways and support which confer an Article 1.1(b) "benefit" on Canadian exporters of regional aircraft by artificially facilitating their sale. In particular, Brazil asserts that in the absence of Canada Account subsidies, high-risk buyers would pay higher interest rates and would be required to make higher down-payments.
      
   2. 
      Brazil notes that, according to the "Canada Account Profile" contained in the EDC 1995 Annual Report, there are two types of Canada Account expenditure: "budgetary expenditures" covering concessionary support, and "non-budgetary expenditures" covering non-concessionary support. Brazil asserts that concessionary assistance in the form of "budgetary expenditures" would certainly confer "benefits". However, because of the limited Canada Account definition of concessionary financing, Brazil asserts that non-concessionary support in the form of "non-budgetary expenditures" could also confer "benefits" when it allows the recipient to borrow at rates that the recipient would not be able to obtain on the market. Brazil states that the Canada Account Profile limits its definition of concessionary financing to "interest-free or low-interest loans repayable over extended periods." Brazil asserts that this definition would seem, for example, not to characterize as concessional those loans that, while extended at "market" interest rates, do not account for the particularly high risk-status of the borrower. In other words, a nominally non-concessional rate would amount to a concessional rate if extended to a borrower with a poor credit rating. Thus, Brazil argues that while ostensibly non-concessional loans may be at market rates, the loans would be concessional if they were extended at lower rates than the particular recipient would have been able to obtain on the market.
      
   3. 
      In support of its claim, Brazil submitted a November 1998 press report⁵⁷³ in which Dr. Allaire, a senior Bombardier official, acknowledged that Bombardier had used the Canada Account for "a very small number of transactions" under terms of financing described as "close to commercial."
      
   4. 
      On the basis of information in the record, we asked Canada to identify all projects / transactions in the civil aircraft sector between 1 January 1995 and 30 June 1998 which involved Canada Account financing. In response , Canada informed us that during the relevant period Canada Account debt financing had been provided for two "export transactions" in the civil aircraft sector: one transaction involved delivery of 3 Dash 8-300s to South African Express in 1995, and the other transaction involved delivery of 3 Dash 8-300s to LIAT in 1996. This information was presented in a chart. As the source of this chart is cited as EDC and Bombardier, and as Canada informed us of all Canada Account assistance in the civil aircraft sector since 1 January 1995, we understand that the two Canada Account transactions described by Canada are the same Bombardier transactions referred to by Dr. Allaire in the aforementioned November 1998 press report.
      
   5. 
      In light of all the above information, we asked Canada to provide details of the terms of the two instances of Canada Account debt financing acknowledged by Canada. Canada refused to provide this information to the Panel. Canada asserted that:
      

1. 
   In commenting on Canada's refusal to provide the information requested by the Panel, Brazil asked the Panel to "adopt adverse inferences, presuming that the information withheld is prejudicial to Canada's position."
   

1. Is there a prima facie case against Canada Account financing in the regional aircraft sector?

   1. 
      We recall that, in order for Brazil's claim against Canada Account financing in the regional aircraft sector to succeed, there must be a prima facie case that Canada Account assistance in the regional aircraft sector constitutes a prohibited export subsidy. For a prima facie case of "subsidy" within the meaning of Article 1 of the SCM Agreement, there must be a prima facie case that a "financial contribution" by a government or public body confers a "benefit".
      
   2. 
      We are in no doubt that the Canada Account debt financing in issue constitutes a "financial contribution" by a public body, since Brazil has demonstrated that such assistance debt financing constitutes a "direct transfer of funds" by a public body, within the meaning of Article 1.1(a)(i) of the SCM Agreement.
      
   3. 
      We recall that Canada Account debt financing would confer a "benefit" if it was provided on terms more advantageous than those that would be available to the recipient on the market. With regard to Dr. Allaire's press statement, we understand Brazil to argue that "close to commercial" terms means that the terms are more advantageous for the recipient than those available on the market.
      
   4. 
      Canada asserts that Dr. Allaire’s comment was made in reference to the Commercial Interest Reference Rates established by the OECD Consensus. Canada argues that, according to the OECD Consensus, the Commercial Interest Reference Rates ("CIRRs") “represent commercial lending interest rates in the domestic market of the currency concerned.”⁵⁷⁴ According to Canada, these commercial reference rates are, therefore, by definition, “close to commercial rates”. Canada states that "these commercial reference rates may be above or below the market for a particular credit".⁵⁷⁵
      
   5. 
      By stating that OECD Consensus CIRRs "may be above or below the market for a particular credit", we consider that Canada is implicitly acknowledging that the "close to commercial rates" referred to by Dr. Allaire could themselves have been "below the market". For this reason, we find a prima facie case that the Canada Account debt financing in issue confers a "benefit", and therefore constitutes a "subsidy" within the meaning of Article 1 of the SCM Agreement.
      

2. Has Canada rebutted the prima facie case?

   1. 
      We recall that once a prima facie case is established, "the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption." Canada has asserted that "it has not put in a defense regarding whether these contributions are subsidies within the meaning of Article 1 of the SCM Agreement." Nor has Canada sought to rely on the safe haven provided for in item (k) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement.⁵⁷⁶ In the absence of additional submissions by Canada, we find that Canada has not rebutted the prima facie case against the Canada Account debt financing in issue.
      
   2. 
      In light of the above, we find that the Canada Account debt financing in issue constitutes a "subsidy" within the meaning of Article 1 of the SCM Agreement.⁵⁷⁷
      

3. Is the Canada Account debt financing contingent on export?

   1. 
      We must now consider whether Canada Account debt financing in the regional aircraft sector is "contingent … upon export performance". Brazil asserts that as an alternative to EDC, and as the financier of last resort for export transactions, the Canada Account grants funds contingent in law upon export performance. Brazil also argues that Canada does not challenge Brazil's assertion that Canada Account assistance is contingent on export.
      
   2. 
      During the Panel proceedings, we asked Canada whether it "concede[s] that EDC and Canada Account activities are 'contingent … upon export performance' within the meaning of Article 3.1(a) of the SCM Agreement". Canada replied "[n]o, Canada does not concede this point." We also asked Canada "[g]iven the mandate of the EDC, is it reasonable to assume that any transaction financed with EDC assistance is necessarily an export transaction. If not, why not?" Canada replied inter alia that:
      

1. 
   We also asked Canada whether "all EDC debt financing takes the form of export credits". Canada replied that "it would appear that all of the debt financing provided by the EDC since 1 January 1995 in the civil aircraft sector has taken the form of export credits, with the exception of debt financing of parts sold to Canadian civil aircraft manufacturers and debt financing for 5 Canadair regional Jets for Air Canada [which] are domestic transactions …" In response to another question from the Panel, Canada asserted that "[t]he term 'export credits' refers to direct financing for export of goods."
   
2. 
   We conclude from the preceding paragraph, and from Canada's description of the relevant transactions as "export transactions",⁵⁷⁸ that the Canada Account debt financing in issue takes the form of export credits and, in Canada's own words, was granted "for export of goods". In our opinion, export credits granted "for the purpose of supporting and developing, directly or indirectly, Canada's export trade" are expressly contingent in law on export performance.⁵⁷⁹ We therefore find that the Canada Account debt financing in issue is "contingent in law… upon export performance" within the meaning of Article 3.1(a) of the SCM Agreement.
   
3. 
   In light of our above findings, we conclude that the Canada Account debt financing at issue constitutes "subsid[ies] contingent in law … upon export performance" prohibited by Article 3.1(a) of the SCM Agreement. We also conclude that, in granting this prohibited export subsidy, Canada necessarily acted in violation of Article 3.2 of the SCM Agreement.
   
1. 
   
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