Daily Management Review

Canada Government’s Bombardier Funding Challenged at WTO by Brazil


02/09/2017




Canada Government’s Bombardier Funding Challenged at WTO by Brazil
Accusing Canada of distorting the global aerospace industry with subsidies for planemaker Bombardier Inc, Brazil opened a formal complaint against Canada at the World Trade Organization (WTO).
 
Undercutting the market for commercial jets made by Brazilian rival Embraer SA was the support for Bombardier's new CSeries, argued Brazil as it has been threatening for months to open the WTO dispute.
 
The case echoes arguments in the world's largest trade dispute, a transatlantic spat over government support for Boeing Co and Airbus Group SE and builds on decades of antagonism between the two regional jet makers.
 
On Tuesday, the Canadian government interest-free loans worth C$373 million ($283 million) to Bombardier and Brazil's action came on the heels of this fresh support. The government would defend itself against the litigation and the loans complied with WTO rules, Canada's Trade Minister Francois-Philippe Champagne said.
 
A senior official said the complaint would include the loans announced on Tuesday and Brazil's Foreign Ministry criticized "at least $2.5 billion in government support" for the Canadian planemaker last year.
 
"It is the understanding of Brazil that these Canadian subsidies artificially affect international competitiveness," the ministry said in a statement.
 
$1 billion was injected into the company's CSeries program last year by the province of Quebec, where Bombardier is based. $1.5 billion in the company's rail unit was also invested by the province's largest pension fund.
 
The ongoing cash injections "have not only been fundamental in the development and survival of the CSeries program, but have also allowed Bombardier to offer its aircraft at artificially low prices," Embraer Chief Executive Officer Paulo Cesar Silva said in a statement.
 
According to Brazilians, beating out Embraer's competing E-Jets with below break-even prices, Bombardier scored an order from Delta Air Lines Inc for 75 CSeries jets, worth some $5.6 billion at list prices last year.
 
A roughly two-thirds discount to win the order, its biggest to date for the fledgling CSeries program, was offered by Bombardier, said sources.
 
Related to that Delta order and a separate deal with Air Canada, Bombardier booked a $500 million "onerous contract" charge.
 
Subsidies had been key in helping Bombardier win the Delta contract and could influence more sales campaigns this year, said Carlos Cozendey, undersecretary for economic affairs at Brazil's Foreign Ministry.
 
"All forms of support provided to Bombardier, including the repayable program contributions announced by the federal government yesterday and the investment from the Quebec government... are fully compliant with Canada's international trade obligations," Bombardier said in a statement.
 
An investment by the Brazilian Air Force in Embraer's new military cargo jet and loans for Embraer from Brazil's state development bank BNDES were cited as being comparable to its funding by Bombardier.
 
"The aerospace industry is heavily subsidized around the world," said lawyer Renata Amaral, head of the international trade practice at Brazilian firm Barral M Jorge & Associates. "The problem is when subsidies reach a degree that starts creating distortions in the market."
 
a decision on the current dispute was likely to stretch into 2018, said Amaral, who has advised Brazil on previous WTO cases.
 
Before the WTO convenes a panel of experts to help make a ruling in the case both countries now have up to 60 days to try to settle the dispute.
 
(Source:www.reuters.com) 






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