The Brazilian foreign ministry says on 19 December it will launch a formal trade dispute against Canada in the World Trade Organisation over claims of improper financial assistance to Bombardier.
Brazil’s federal trade chamber (CAMEX) has authorised the foreign ministry to submit the case to the WTO’s dispute settlement process, according to a statement released by the foreign ministry.
The case hinges upon $2.5 billion provided to Bombardier by the Quebec province, including $1.5 billion injected into Bombardier’s rail division by the government-owned CPDQ pension fund and another $1 billion used by the provincial government itself to set up a joint venture with Bombardier to manage the CSeries programme.
Canadian officials have described both transactions as investments, but Brazil’s trade leaders consider them to be improper subsidies under WTO rules.
The assistance “affected the competitive conditions in the market in a way that is incompatible with the commitments made by Canada in the WTO,” the foreign ministry says.
In a separate statement, Embraer welcomes the foreign ministry’s announcement, expanding Brazil’s complaint to “over $4 billion” in allegedly improper subsidies provided by Canada to Bombardier, including the $2.5 billion spent in 2016.
Embraer also argues that such assistance rescued Bombardier from financial collapse and allowed its rival to sell commercial aircraft at artificially low prices.
Bombardier chief executive Alain Bellemare has acknowledged recently that the company’s survival was in doubt by the end of last year, as costly delays to the CSeries programme and cancellation of the Learjet 85 depleted financial reserves. Following the $2.5 billion commitment from Quebec, Bombardier was able to win two major deals for the CSeries with Air Canada and Delta Air Lines, but later admitted the contracts would result in up to $500 million in losses.
Bombardier is continuing to negotiate with the Canadian federal government to invest another $1 billion, setting up a three-party joint venture to manage the CSeries with Quebec and the company.
Brazil’s appeal to the WTO comes 20 years after Canada launched a trade war with Brazil over subsidies to Embraer. Brazil counter-sued over subsidies by Canada to Bombardier and the case dragged on for five years. Ultimately, the WTO found that both companies had received improper subsidies.
The WTO is continuing to adjudicate appeals in a separate trade, 12-year-old dispute between the US and EU over allegations of subsidies to Boeing and Airbus, respectively.