The Trade dispute between Brazil and Canada over regional aircraft subsidies has escalated, with both sides launching new actions at the World Trade Organisation (WTO).

This time, Brazil may have played into Canada's hands in the complex and long-running battle over its export financing for Embraer regional jets.

The Brazilian Government says it plans to seek a WTO ruling on whether the loan offered by the Canadian Government to finance the $1.5 billion Air Wisconsin's order for up to 75 Bombardier CRJ regional jets constitutes an illegal subsidy.

Meanwhile, at Canada's insistence and amid Brazilian opposition, the WTO has convened a panel to determine whether the latest revision to Brazil's disputed Proex export finance programme is now compliant with international guidelines on subsidies.

The original Proex was ruled to be an illegal subsidy, and Brazil's first attempt at revising the programme, Proex 2, was deemed non-compliant. Brazil has refused to submit its latest revision, Proex 3,for WTO review.

In retaliation, the Canadian Government helped Bombardier win the Air Wisconsin order with financing designed deliberately to provide the same terms as Proex 3. Ottawa has welcomed the Brazilian decision to seek a WTO ruling on the deal. If the loan is ruled non-compliant with subsidy guidelines, the Canadian Government argues, this will simply reinforce its position that Proex is illegal.

The Canadian Government sees this as a "win-win" situation. Even if the WTO rules against the Air Wisconsin deal, it does not have to be withdrawn. Brazil's position has always been that deals signed before Proex was ruled illegal could not be changed.

Although Ottawa describes the Air Wisconsin deal as an "exception", it may offer similar "mirror financing" in other regional jet competitions.

Canada broke off talks on settling the dispute after Brazil refused to submit Proex 3 for compliance review.

The WTO has already granted Canada permission to levy up to C$347 million a year in trade sanctions against Brazil to offset illegal Proex subsidies.

Source: Flight International