A trade dispute is building up between Brazil and Canada over the level of state support going to their rival regional-jet manufacturers, Embraer and Bombardier.

The dispute began in June 1996 with allegations from Canada that sales finance being provided by Brazil's PROEXexport agency for the Embraer EMB-145 had breached subsidy rules under the World Trade Organisation (WTO) agreement.

The Canadian complaint has not been taken any further, but Brazil responded in March, counter-claiming that Canada itself was supplying illegal aid to its aircraft industry, leading to an initial meeting at the WTO headquarters in Geneva, at the end of April.

Embraer says that Brazil was forced to make the response in order to prompt a decision from the WTO. It claims that Bombardier had been using the as-yet unresolved Canadian allegations to cast doubt on future PROEXfinancing deals with potential regional-jet customers.

Brazil's response focuses on two main areas. The first is over the support being given by Canada's Export Development Corporation, in particular its role in the formation of CRJ Capital, a financing operation set up to support sales of Bombardier's CRJ regional jet.

Secondly, Brazil is also questioning the Canadian repayable launch aid to support regional-aircraft projects. Aid of C$57 million ($41.2 million) was announced at the end of 1996 to support development of the new Dash 8-400 turboprop, while earlier this year Bombardier won another C$87 million for the 70-seat CRJ, and Pratt & Whitney Canada was awarded C$147 million to develop regional-airliner engines.

European Union trade commissioner Sir Leon Brittan has been rebuffed by the USA in an attempt to re-open talks over the 1992 bilateral deal on subsidies for large-aircraft development. Europe wants to see tighter controls on indirect subsidies for civil and military aerospace research, arguing that present rules unfairly advantage US industry. Europe has traditionally relied on direct support now capped at 33%.

Source: Flight International