Brazil files WTO complaint against Canada-CSeries deals

Feb. 8, 2017: Brazil, on behalf of Embraer, filed a complaint with the World Trade Organization over Canadian government investment in Bombardier’s CSeries.

“Brazil notified the WTO Secretariat that it had requested WTO dispute consultations with Canada regarding alleged subsidies provided to Canadian aircraft manufacturer Bombardier,” the WTO announced today. Coincidentally, today it was also revealed the federal government will provide C$372m in loans to Bombardier. Most will go toward the Global 7000 corporate jet program but some will go to the CSeries, which competes with Embraer’s EJets.

“The request for consultations formally initiates a dispute in the WTO. Consultations give the parties an opportunity to discuss the matter and to find a satisfactory solution without proceeding further with litigation. After 60 days, if consultations have failed to resolve the dispute, the complainant may request adjudication by a panel,” the WTO said.

The province of Quebec previously provided US$1bn in an equity investment into the CSeries program. A quasi-government pension plan fund also invested more than US$1bn for a 30% share of BBD’s train business. Bombardier asked the Feds for US$1bn.

Embraer was quick to complain that this created a de facto government company that created unfair competition to Embraer. The Brazilian company complained that Bombardier was able to undercut Embraer as a result in a competition to sell airplanes to Delta Air Lines.

The federal money is interest-free, according to a news report. Interest-free, or below-market, loans were found to be illegal in the US vs European Union trade dispute over Airbus subsidies.

“We are very confident that all forms of support provided to Bombardier, including the repayable program contributions announced by the federal government yesterday, are fully compliant with Canada’s international trade obligations and we are prepared to defend our position alongside the Canadian government as Minister Champagne stated yesterday,” a BBD spokesman wrote LNC today.

 

12 Comments on “Brazil files WTO complaint against Canada-CSeries deals

  1. I think that this issue will have a repercussion in the WTO much higher than the simple dispute for the regional airliners market. On the one hand, there are obvious doubts about how the programs of non-competitive competitors from Russia, China and Japan are being managed. On the other hand, many developing countries will be interested in verify if advanced countries are sincere in their advocacy of fair trade practices.

  2. Our trade minister also announced that the interest-free loan ‘complied with WTO rules’: Will be interesting to see just how this is so.

  3. The latest 372 M$ loan is not a “subsidy.”

    As I understand the announcement, the 372 M$ loan conforms to an existing program and will be repayable through royalties on aircraft sales, similarly to the original federal aid to the C Series.

    About two thirds of the loan will relate to the Global 7000, and the rest (125 M$), will be allocated to the C Series.

    If adequate government practices are followed, the 125 M$ C Series loan can’t be applied to already-incurred costs. It will be paid out in proportion of new investments in R&D…. Therefore….

    …. Considering the current status of the CS100 and CS300 (already certified), the new 125 M$ loan will likely help finance development costs of a new version of the C Series (CS500).

    As for Brazil’s WTO complaint, by the time it is sorted out, Bombardier will have long bought back the Québec Government’s investment is the C Series program, according to pre-set conditions that were published when the 1,0 G$ investment was announced.

  4. “new 125 M$ loan will likely help finance development costs of a new version of the C Series (CS500).”
    Hardly, a CS500 is a long way off the radar ( Bombardier has learnt to not try and do too many developments at once) and the money is just to pay the bills as CSeries numbers ramp up.

    In reality, they arent getting the price they want for the Cseries models and need to subsidise the costs.

    • The way things work with government financing, loan funds can only be paid out when eligible costs are incurred by the the company. To receive the loan, BBD will have to incur new eligible expenses relating to the C Series program. The loan is a percentage of eligible costs, for example, at a maximum of 25%, 500 M$ of new eligible costs would allow for the full 125 M$ to be paid out.

      These new costs could relate to the CS500, but also to something else, like improvements to the existing CS100 and CS300. For example, some time ago, Rob Dewar has referred to the possibility of adding gear doors or modifying winglets.

      BBD won’t get the new 125 M$ C Series loan without spending new R & D money on the C Series.

      • Easily got around by the accountants, plenty of normal business activities can be classified as ‘research and development’. Not in this case but i’d heard one place who booked the cleaners expense as R&D.

  5. Why do we have in this heading the equivalent of Embraer’s cries and criticism? Why not also mention the constant financial support from the Brazilian Development Bank (BNDES), the financing of the KC-390 by the Brazilian military, R & D tax credits for the entire range of business aircraft? Why not also mention that Bombardier will have to repay a quarter of the sum loaned this year? In short, why always repeat the headlines of the newspapers without qualifying, putting perspectives on the issues on both sides?

    • If Bombardier feels undermined by Brazilian government practices, the government of Canada can (and should) file a complaint with the WTO.
      The analysis of WTO disputes in this industry is not new and has already involved aid to Boeing and Airbus. In summary, what Embraer executives are saying is: (1) there is illegal state assistance and (2) there are programs whose nature is legal but with values and conditions that go beyond the agreed limits.

  6. One point that outsiders may have missed is that there was and is severe objection in the rest of Canada to Bombardier support because of the total control its share structure gives to the owning family. Hence only one-third of the initial ‘R and D support loan’ request has been provided and that under strict conditions. To make matters worse the ground transportation part of Bombardier has totally mucked up some politically sensitive street-car contracts to Toronto (peculiar as this Bombardier division is much more profitable than the airline one and highly successful and efficient in Europe). In effect only the government of Quebec is totally committed to Bombardier while its share structure remains unchanged.

  7. This is a “repayable” loan.

    To put it in pespective, the Canadian Gvt did provide Bombardier (before the CSeries) Cdn$586M in “repayable” subsidies/loans for past/completed aerospace programs (mainly for the “Global Express” and the CRJ).

    So far, the Feds got repaid 740 M$ via royalties from each plane sold. Those royalties still keep coming…

    (I just wished all gouvernment subsidies would be set up like that…)

    I just wish Brazil good luck.

    In past complaints, the WTO vastly sided (in $ amount) with Canada – the last time in 2002. That “PROEX” financing program got nailed big time at the WTO.

  8. Why embraer (who is heavily subsidized by the brazilian governement who protect his economy by applying a huge tax on every single import including airplanes), do no pursue COMAC for being 100% state owned and financed ?

    • A/C MECHANIC,

      You are misinformed about import tariffs for commercial aircraft in Brazil. In tributary terms there is no advantage to Embraer’s aircraft over Boeing’s, Airbus’s and ATR. In fact, by the actual rules of baggage, smaller planes like the ERj-145 are at a great disadvantage compared to airplanes with higher luggage capacity.

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