Brazil Files Formal Arguments to WTO over C Series Subsidies

 - December 14, 2018, 10:46 AM

The Brazilian government on Friday filed its first written submission of arguments to the World Trade Organization in Geneva over the legality of certain financial support provided by the Canadian and Quebec governments to Bombardier. The WTO’s dispute-settlement panel, established in September 2017 after Brazil and Canada failed to come to terms during formal consultations launched in February of that year, now must examine Brazil’s detailed charges that 19 alleged subsidies provided by Canada and Quebec for Bombardier’s C Series program contravened WTO rules. Airbus took control of the C Series program this past June and subsequently renamed it the A220.

The Brazilian argument centers on a $2.5 billion injection of provincial funds by the government in Quebec during 2016 alone and “significant capital” from the Canadian federal government to ensure artificially low prices for the C Series. In all, Brazil claims that Bombardier received more than $4 billion worth of illegal subsidies. The WTO panel has agreed to examine programs worth $3 billion.

Brazilian authorities cite the sale to Delta Air Lines involving 75 C Series jets as one notable example of the advantage the government subsidies gave Bombardier. According to the WTO complaint, Delta received discounts of 65 to 75 percent below the aircraft’s list price. The losses resulting from that sale, as well as those to Air Canada and Air Baltic, forced Bombardier to take a $500 million “onerous contract” charge on its financial statements, said the complaint.  

“We appreciate the Brazilian government'’ efforts in preparing this important submission to the WTO today,” said Embraer CEO Paulo Cesar de Souza e Silva. “Canada's subsidies have allowed Bombardier (and now Airbus) to offer its aircraft at artificially low prices. These subsidies, which have been fundamental in the development and survival of the C Series program, are an unsustainable practice that distorts the entire global market, harming competitors at the expense of Canadian taxpayers. Embraer considers that this proceeding will help to restore a level playing field and ensure that competition in the commercial aircraft market is between companies, not governments.”

Although no longer in control of what is now known as the A220 program, Bombardier nevertheless issued a condemnation of Brazil's efforts. "Although the case is the responsibility of the Canadian government and Airbus, Bombardier strongly objects to the mischaracterizations made by Brazil in its filing and is supportive of the government of Canada, which continues to vigorously defend the interests of the aerospace industry at the WTO in the face of these meritless claims," it said in a statement.

For its part, Airbus likened the merits of this case to those of the failed effort by Boeing last year to effectively block the C Series sale to Delta by appealing for punitive tariffs to the International Trade Commission and the U.S. Department of Commerce. It also called Brazil's WTO filing "a smokescreen of Embraer and Boeing to blow a superior product out of the market." 

"Embraer is replicating what Boeing tried with Airbus and which resulted in 15 years [of] litigation that failed to achieve any meaningful result and resulted in the WTO confirming the compliance of the Airbus reimbursable loan system," concluded Airbus in a statement to AIN.