Tokyo has been paying more attention to the dispute between Brazil and Canada at the World Trade Organization over the subsidies of the Canadian government to Bombardier. Japan places its own position as the main exporter of aircraft components, according to a WTO document quoted by Law 360 journalists.
Brazil‘s Council of Ministers of the Foreign Trade Chamber (CAMEX) has formally requested consultations with the Canadian Government at the World Trade Organization (WTO) on the 8th of February 2017 regarding subsidies benefiting Bombardier’s CSeries aircraft program.
Brazil’s request for consultations highlights the wide range and massive scale of subsidies provided to Bombardier, amounting to over US$4 billion in support, from Canada’s national, provincial, and local governments. In 2016 alone, over US$2.5 billion was provided to the Canadian aircraft manufacturer, according to Brazil.
Japan as the third party supplying parts for both Bombardier and Embraer sees that it has a substantial trade interest in consultations at the WTO.
The country of the rising sun reported that it has gained around $4.6 billion in 2016 from aircraft parts export. According to Law 360, the export to Brazil and Canada reached $102 million and $138 million respectively.
CSeries vs E-Jets
Brazil‘s government, backed up by Embraer, brought its case one day after Montreal-based Bombardier announced on 7th of Febuary 2017 CA$372.5 million ($283 million) in repayable contributions from the Canadian government for development of Bombardier’s CSeries aircraft and Global 7000 business jets.
Brazil‘s action further put more force to WTO to take action against Canada over alleged subsidies which is considered to cut the competitiveness between Embraer and Bombardier.
Ottawa‘s support might have helped Bombardier get an order for 75 CSeries jets, worth an estimated US$5.6 billion, from Delta Airlines, beating the competition from Embraer’s E-Jets. Brazil believes that Bombardier offered a discount to below break-even price in order to close the deal – something it couldn’t have done without the alleged subsidies, Global Trade Review noted.
Paulo Cesar Silva, Embraer’s CEO, further stated: “The subsidies that the Canadian company has already obtained and continues receiving from the Canadian government 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”.
In Canada, the Globe and Mail reported that the Conservative Party came out strongly against the government aid, rejecting the measure as an unwarranted “taxpayer handout” by the Trudeau Liberals. Opposition Leader Rona Ambrose questioned why Ottawa was making the massive loan when a senior Bombardier executive told media in March 2016 that federal funding would be helpful but not required.
Bombardier’s CEO Alain Bellemare has said repeatedly in that the company’s liquidity situation is now sufficient to fund its current aircraft programs well through initial production. At the beginning of February 2017 announcement, Bellemare said the money would help give Bombardier “additional support, additional flexibility” as it develops technology, weathers softness in demand for some products, and plans its next aircraft.
Commenting on the CA$372.5 million repayable contribution from Canada‘s governement, Bellemare stated: “The repayable contributions announced today will help to ensure that Canada remains at the centre of Bombardier’s research and development activities, which are focused on developing the most efficient, reliable and environmentally friendly aircraft in the world.“
Will the trade match over soon?
The dispute between Brasilia and Ottawa is not unprecedented. In November 2001, a WTO panel found that, by providing the export subsidies, Canada had violated some WTO obligations. Brazil claimed that Canada‘s government had counter-measured a total of US$ 248 million to Bombardier.
The current dispute is still in the consultation phase at the WTO, with the possibilities to solve the problem at the bilateral table. However, if the talk fails, Brazil would seek out a WTO panel to adjudicate the subsidies of Canada‘s government to Bombardier.
The dispute between both countries resembles the similar battle between Airbus, backed by the EU, and Boeing, backed by the USA, regarding the EU subsidies granted to A380 programs and Washington State‘s subsidies for the B777 program. Requested on 16th of October 2004, the WTO released the conclusion 12 years later on the 22nd of September 2016.
The WTO Panel will make necessary analysis to form the rulings. However, the winner of the trade match might not be announced soon and Japan might have to wait longer for the decision.