The trade row between Brazil and Canada over regional aircraft subsidies will now go to full arbitration under the auspices of the World Trade Organisation's (WTO) dispute settlement body.

Two arbitration panels have been established to rule on the legality of state help for rival manufacturers Bombardier and Embraer.

One panel will hear Canada's complaint over Brazil's Proex support programme, which is designed to offset the high interest rates imposed on Brazilian companies when they are raising finance abroad.

Bombardier has complained bitterly that it represents no more than an illegal hand-out to aid Embraer regional jet exports.

The other panel will handle Brazil's claims that several Canadian Government programmes directly and indirectly subsidise development and sales of Bombardier regional aircraft. Embraer had pushed for a full WTO hearing, arguing that uncertainties in the market were harming its sales negotiations.

The arbitration panels were established after the failure of bilateral efforts to resolve the dispute, with the Brazilian and Canadian Governments unable to agree on implementation of recommendations which were presented earlier this year by two specially appointed trade envoys.

Essentially, the envoys recommended that both Governments' support mechanisms should be operated in accordance with WTO guidelines.

Predictably, each manufacturer accuses the other's Government of operating illegally, and the establishment of two panels creates the possibility that both countries will be able to claim victory.

Any rulings from the panel, however, are at least 18 months away from being implemented.

Fairchild Dornier has also complained to the European Commission over the Proex programme.

Source: Flight International