WORLD TRADE
ORGANIZATIONWT/DS70/RW
9 May 2000
(00-1750)
Original:  English
CANADA – MEASURES AFFECTING THE EXPORT
OF CIVILIAN AIRCRAFT
Recourse by Brazil to Article 21.5 of the DSU
Report of the Panel
The report of the Panel on Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by
Brazil to Article 21.5 of the DSU is being circulated to all Members, pursuant to the DSU.  The report
is being circulated as an unrestricted document from 9 May 2000 pursuant to the Procedures for the
Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1).  Members are reminded that in
accordance with the DSU only parties to the dispute may appeal a panel report.  An appeal shall be
limited to issues of law covered in the Panel report and legal interpretations developed by the Panel.
There shall be no ex parte  communications with the Panel or Appellate Body concerning matters
under consideration by the Panel or Appellate Body.WT/DS70/RW
Page i
TABLE OF CONTENTS
Page
I. INTRODUCTION AND FACT UAL BACKGR OUND ....................................................1
II. FINDINGS AND RECOMMENDATIONS RE QUESTED BY TH E PARTIES............3
III. ARGUMENTS OF THE PART IES AND THIRD PARTIES ..........................................3
IV. INTERIM REVIEW .............................................................................................................3
A. COMMENTS BY BRAZIL ...............................................................................................3
B. COMMENTS BY CANADA .............................................................................................4
V. FINDI NGS..................................................................................................................... ........4
A. TECHNOLOGY PARTNERSHIPS CANADA ......................................................................4
1. Summary of original Canada - Aircraft  findings on TPC.............................4
2. Description of the measures taken by Canada to implement the DSB’s
recommendations ..........................................................................................5
3. Summary of the part ies' arguments ...............................................................5
(a) Brazil ...................................................................................................................... ..............5
(b) Canada ...................................................................................................................... ..............6
4. Evaluation by the panel.................................................................................6
(a) Scope of the disagreemen t between the parties ......................................................................6
(b) Burden of proof............................................................................................................. ..........7
(c) Substantiv e analysis........................................................................................................ ........8
(i) Eligible industries remain specifically targeted because of their export orientation.............8
(ii) Interest in ne ar-market projects........................................................................................... ...9
(iii) Export performance as an implicit se lection and assessme nt criterion................................12
(iv) Documentation.............................................................................................................. ........14
(d) Alternative implem entation methods....................................................................................15
(e) Repayment of prior TPC assistance to the Canadian regional aircraft industry ...................16
(f) Summary..................................................................................................................... ..........17
B. CANADA ACCOUNT ...................................................................................................17
1. Summary of original Canada - Aircraft  findings on Canada Account ......17
2. Summary of the part ies' arguments .............................................................18
(a) The measur e at i ssue ........................................................................................................ .....18
(b) Standard for assessing Ca nada’s implem entation.................................................................19
(c) Sufficiency of the Policy Guideline......................................................................................20
3. Evaluation by the Panel...............................................................................21
(a) Textual analysis of the se cond paragraph of item (k) ...........................................................22
(i) What are “export credit practices” in the sens e of item (k) of the Illustrative List of Export
Subsidies? ..................................................................................................................... ........23
(ii) What are the Arrangement’s “interest rates provisions”?...................................................24
(iii) Which types of “export credit practices” could conceptually be “in conformity with” the
“interest rates provisions” of the OECD  Arrangement in its current form? .......................26
(iv) What provisions and considerations are relevant to judging “conformity” with the
Arrangement’s “interest rates provisions” and hence qualification for the safe haven in item
(k)? ........................................................................................................................... .......30WT/DS70/RW
Page ii
(b) Considerations based on the context of the second paragraph of item (k) and the object and
purpose of the SCM Agreement ...........................................................................................35
(c) The sufficiency of the Policy Guideline to ensure that future Canada Account transactions in
the regional aircraft sector will qualify for the safe haven of the second paragraph of item (k),
and that prohibited export subsidies under Canada Account thereby have ceased...............39
(i) Substance of the Policy Guideline ........................................................................................39
(ii) Form of the Policy Guideline............................................................................................... .41
(d) Summary..................................................................................................................... ..........42
VI. CONCLUSION .................................................................................................................. .43
ANNEX 1-1  (FIRST SUBMISSI ON OF BRA ZIL).........................................................................44
ANNEX 1-2 (REBUTTAL SUBMISSI ON OF BRAZ IL)...............................................................60
ANNEX 1-3  (FIRST ORAL STAT EMENT OF BRAZIL) .............................................................81
ANNEX 1-4  (CONCLUDING STATEM ENT OF BR AZIL)..........................................................88
ANNEX 1-5  (RESPONSES BY BRAZIL TO QUE STIONS FROM THE PANEL)......................92
ANNEX 1-6  (COMMENTS OF BRAZIL ON CANADA'S RESPONSES TO
QUESTIONS FROM THE PANEL).................................................................................101
ANNEX 2-1  (FIRST SUBMISSI ON OF C ANADA) ....................................................................102
ANNEX 2-2  (REBUTTAL SUBMIS SION OF C ANADA) ..........................................................122
ANNEX 2-3  (ORAL STATEMEN T OF C ANADA) .....................................................................127
ANENX 2-4  (ANSWERS TO QUESTIONS POSED TO CANADA BY THE PANEL
AND BY BRA ZIL)............................................................................................................142
ANNEX 2-5  (COMMENTS OF CANADA ON BRAZIL'S RESPONSES TO THE
QUESTIONS FROM THE PANEL).................................................................................160
ANNEX 3-1  (SUBMISSION OF THE EU ROPEAN COMMUNI TIES)......................................162
ANNEX 3-2  (SUBMISSION OF THE UNITED STATES)..........................................................168
ANNEX 3-3  (ORAL STATEMENT OF THE EUROPEAN COMM UNITIES)...........................174
ANNEX 3-4  (ORAL STATEMENT OF THE UNITED ST ATES) ..............................................183
ANNEX 3-5  (ANSWER OF THE UNITED STATES TO QUESTIONS POSED BY
BRAZI L)........................................................................................................................ ....186
ANNEX 3-6  (ANSWERS OF THE UNITED STATES TO QUESTIONS POSED BY
THE PAN EL) ....................................................................................................................1 87
ANNEX 3-7  (RESPONSES BY THE EUROPEAN COMMUNITIES TO THE
QUESTIONS FROM THE PAN EL AND FROM BR AZIL)............................................193WT/DS70/RW
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I. INTRODUCTION AND FACTUAL BACKGROUND
1.1 On 20 August 1999, the Dispute Settlement Body (“the DSB”) adopted the Appellate Body
Report in WT/DS70/AB/R and the Panel Report  an d recommendations in WT/DS70/R as upheld by
the Appellate Body Report in the dispute Canada – Measures Affecting the Export of Civilian Aircraft
(“Canada – Aircraft ”).  In its report, the Panel found, regarding Canada Account, that the Canada
Account debt financing at issue constituted “subsid[ies] contingent in law … upon export
performance” prohibited by Article 3.1(a) of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement"), and that in granting this prohibited export subsidy, Canada had
necessarily acted in violation of Article 3.2 of the SCM Agreement,  i.e., that Canada Account debtfinancing since 1 January 1995 for the export of Canadian regional aircraft constituted export
subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement.  The Panel found with
regard to Technology Partnerships Canada (“TPC”) that TPC assistance to the Canadian regional
aircraft industry constituted “subsidies contingent … in fact … upon export performance”, contrary to
Articles 3.1(a) and 3.2 of the SCM Agreement.
1.2 The Panel recommended that Canada withdraw these subsidies within 90 days.  The Appellate
Body recommended that the DSB request  that Canada bring its export subsidies found in the Panel
Report, as upheld by the Appellate Body Report, to be inconsistent with Canada’s obligations under
Articles 3.1(a) and 3.2 of the SCM Agreement into conformity with its obligations under that
Agreement.  Specifically, the Appellate Body recalled that the Panel had recommended that Canada
withdraw the subsidies identified in sub-paragraphs (b) and (f) of paragraph 10.1 of the Panel Report
within 90 days.
1.3 On 18 November 1999, Canada submitted to the Chairman of the DSB, pursuant to Article 21.6
of the Dispute Settlement Understanding (“ the DSU”), a status report (WT/DS70/8) on
implementation of the recommendations of the DSB in the dispute.  The status report described
measures taken by Canada which in Canada’s view  implemented the DSB’s rulings to withdraw the
measures within 90 days.
1.4 With respect to Canada Account debt financing for the export of Canadian regional aircraft,
which was found to be inconsistent with Canada’s obligations under the SCM Agreement, the status
report indicated that there would be no deliveries of regional aircraft after 18 November 1999
benefiting from such Canada Account financing.  In addition, the Minister for International Trade had
approved a policy guideline requiring that all Canada Account transactions after that date for allsectors, not only those involving the regional aircraft sector, comply with the OECD Arrangement on
Guidelines for Officially Supported Export Credits  (the " OECD Arrangement ").  By this policy, the
Minister undertook not to authorize any transaction under the Canada Account unless it complied with
the OECD Arrangement , and no Canada Account transaction may proceed without such Ministerial
authorization.
1.5 Concerning TPC assistance to the Canadian re gional aircraft industry which was found to be
inconsistent with Canada’s obligations under the SC M Agreement, the status report stated that Canada
would not make any disbursements pursuant to any existing TPC Contribution Agreement for the
Canadian regional aircraft industry effective 18 November 1999.  In this respect, Canada had
amended TPC’s Contribution Agreements pertaining to the Canadian regional aircraft industry inorder to terminate all obligations to disburse funds effective 18 November 1999.  As a result, some
$16.4 million of funding pursuant to those agreements would go undisbursed.  In addition, Canada
had cancelled the conditional approval given prior to  the Appellate Body report for two other regional
aircraft industry projects.  Canada attached to this communication letters confirming cancellation ofWT/DS70/RW
Page 2
such funding.  Canada also had taken steps to restructure TPC in order to bring the structure and
administrative practices of the Agency into conformity with the SCM Agreement and so to avoid
future disputes in this matter.  TPC had been re-mandated by the government and now operated under
revised Terms and Conditions and Framework Document.  The revisions covered such core activities
as project eligibility, assessment criteria, and repayment principles.
1.6 On 23 November 1999, Brazil submitted a communication to the Chairman of the DSB
(WT/DS70/9) seeking recourse to Article 21.5 of the DSU.  In that communication, Brazil indicated
its view that the measures taken by Canada to comply with the recommendations and rulings of the
DSB were not consistent with the SCM Agreement and the DSU, and that therefore Canada had not
implemented the recommendations of the DSB concerning either Canada Account or TPC.  Inparticular, regarding Canada Account, Brazil recalled that there were a large number of provisions in
the OECD Arrangement  that allowed for derogations from its general rules.  Therefore, in Brazil’s
view, Canada's vague statement that the new policy guideline complied with the OECD Arrangement
was inconsistent with the recommendations and rulings of the DSB and Article 3 of the SCM
Agreement.  In addition, Brazil had not received any documentation with the revised policy guidelinesof Canada Account.  Regarding TPC, Brazil had no information on the new administrative framework
for the programme, and since TPC payments were contingent in fact upon export performance,
compliance by Canada with Article 3 of the SCM Agreement required more than a mere
reformulation of some of the TPC rules and regulations.
1.7 Accordingly, Brazil indicated, because "there [was] a disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the recommendations and
rulings of the DSB" between Brazil and Canada, within the terms of Article 21.5 of the DSU, Brazilsought recourse to Article 21.5 in the matter and requested that the DSB refer the disagreement to the
original panel, if possible, pursuant to Article 21.5.  Brazil attached
1 the terms of an agreement
reached by Brazil and Canada concerning the procedures to be followed pursuant to Articles 21 and
22 of the DSU.  Brazil stressed that such agreement did not prejudge its rights concerning an appeal of
the review panel report.
1.8 At its meeting on 9 December 1999, the DSB decided, in accordance with Article 21.5 of the
DSU, to refer to the original panel the matter raised by Brazil in document WT/DS70/9.  At that DSB
meeting, it also was agreed that the Panel should have standard terms of reference as follows:
“To examine, in the light of the relevant provisions of the covered agreements cited
by Brazil in document WT/DS70/9, the matter referred to the DSB by Brazil in thatdocument and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements.”
1.9 The Panel was composed as follows:
Chairperson: Mr. David de Pury
Members: Mr. Maamoun Abdel-Fattah
Mr. Dencho Georgiev
1.10 Australia, the European Communities and the United States reserved their rights to participate
in the Panel proceedings as third parties.
1.11 The Panel met with the parties and third parties on 6 February 2000.
                                                     
1 See Annex to document WT/DS70/9.WT/DS70/RW
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1.12 The interim report of the Panel was sent to the parties on 31 March 2000.  The parties
submitted written comments on the interim report on 7 April 2000.  On 14 April 2000, Canada
responded to two comments made by Brazil.  Brazil chose not to respond to Canada's comments on
the interim report.  Neither party requested an interi m review meeting with the Panel.  The final report
of the Panel was sent to the parties on 28 April 2000.
II. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES
2.1 Brazil requests the Panel to “determine that Canada has not implemented the
recommendations and rulings of the DSB or otherwise complied with its obligations under the
Subsidies Agreement”.
2.2 Canada requests the Panel to “reject Brazil’s claim”.
III. ARGUMENTS OF THE PARTIES AND THIRD PARTIES
3.1 With the agreement of the parties, the Panel has decided that in lieu of the traditional
descriptive part of the Panel report setting forth the arguments of the parties, the parties’ submissions
will be annexed in full to the Panel’s report.  Accordingly, the submissions of Brazil are set forth in
Annex 1, and the submissions of Canada are set forth in Annex 2.  In addition, the third partysubmissions of the European Communities and the United States are set forth in full in Annex 3.
Australia, the only other third party, made neither a written nor an oral submission.
IV. INTERIM REVIEW
4.1 On 7 April 2000, both parties requested the Panel to review, in accordance with Article 15.2
of the DSU, precise aspects of the interim report issued on 31 March 2000.  Neither party requested
an additional meeting with the Panel.  Canada re sponded to two of the comments made by Brazil.
A. 
COMMENTS BY BRAZIL
4.2 Brazil identified two typographical errors in the interim report, which have been corrected.
4.3 Regarding para. 5.32, Brazil asked us to state that sales forecasts will in some instances be
used in the context of "new" TPC assistance to the Canadian regional aircraft industry. There is
nothing in the record to suggest that sales forecasts will definitely be used in the context of the new
TPC.  Furthermore, in responding to Brazil's commen t, Canada asserted that "[I]t is not certain that
sales forecasts will ever be used in the context of the 'new' TPC assistance to the regional aircraft
industry".  Accordingly, we have not made the change requested by Brazil.
4.4 In respect of para. 5.33, Brazil asserted that the third sentence of this paragraph does not
accurately reflect the factual record in these procee dings.   Brazil argued that documentary evidence
that it submitted establishes that "increased export performance" is in fact identified by IndustryCanada as a "net economic benefit" to Canada as that term is defined by the "new" TPC.  However, it
is possible for a transaction to have "net economic benefit" without export performance.  Although
export performance may well provide net economic benefit, the opposite is not necessarily true.  We
have amended the third sentence of this paragraph, in order to clarify that nowhere in the "new" TPC
Investment Decision Document or the "new" TPC Investment Application Guide (the two documents
referred to in that paragraph) is export performance identified as a "technological" or "net economic
benefit".
4.5 With regard to para. 5.37, Brazil questioned our finding that "Brazil has failed to cite to any
Canadian submission to the Panel which contains any such argument".  Brazil referred to ExhibitWT/DS70/RW
Page 4
CAN-9 in support.  However, Exhibit CDN-9 does not contain any argument by Canada that it has
implemented the DSB recommendation on TPC by removing the word "export" from the "old" TPC
documents referenced therein.  It simply includes a list of TPC documents in effect prior to 17
November 1999.  Indeed, some of the "old" TPC documents cited in Exhibit CDN-9 do not even
contain the word "export" (see, for example, Repayment of Contributions Policy Guidelines, ProjectSummary Form, and Statement of Work). We have made no change to this paragraph.
4.6 In order to avoid any misstatement of Brazil's arguments concerning the Appellate Body
report in Chile - Alcohol (WT/DS87/AB/R and WT/DS110/AB/ R), we have deleted former
footnote 45.
4.7 Brazil requested the inclusion of a new footnote at the end of the first sentence of paragraph
5.50.  Brazil asked the Panel to include text taken from para. 45 of Canada's first written submission
(Annex 2-1) and para. 15 of Canada's second wri tten submission (Annex 2-2).  In response, Canada
asserted that Brazil's proposed footnote "takes language from Canada's submission out of context.
This could lead to the perpetuation of the misunderstanding of Canada's position on this point."  We
agree with Canada.  In any event, we note that the relevant text is included in the aforementionedAnnexes to the Panel's report.  We have therefore not included the new footnote requested by Brazil.
B. 
COMMENTS BY CANADA
4.8 Regarding our findings on Canada Account, Canada indicated that it understood the reference
in paragraph 5.147(d) of our report to Article 24 of Annex III of the OECD Arrangement  to mean that
humanitarian tied aid falls within the safe haven of the second paragraph of item (k) and therefore can
be provided under Canada Account.  Canada requested that we insert a statement in our findings to
clarify this.  We have made no finding in respect of humanitarian tied aid, and therefore have insertedfootnotes 102 and 127 to so indicate.
4.9 Canada further noted regarding our findings on Canada Account that in a given transaction,
there could be a combination of a guarantee or an insurance policy by an export credit agency issued
in favour of a lending bank and the provision of interest rate support by the participating country to
the lending bank.  Canada stated that Canada understood us to consider that such a transaction wouldfall within the safe haven of the second paragraph of item (k) because it includes "official financing
support", and requested that we insert a statement in our findings to clarify this point.  We have
inserted footnotes 97 and 103 to reiterate and clarify our finding as to the provisions of the
Arrangement  that would need to be respected in order fo r such a transaction to be in conformity with
the interest rate provisions of the Arrangement , and to recall our finding that conformity with the
SCM Agreement of a guarantee or insurance as such could only be judged on the basis of Articles 1
and 3 of that Agreement.
4.10 Canada requested that we insert an introductory sentence before paragraph 81 of its oral
statement (Annex 2-3).  We have inserted the requested sentence at the beginning of that paragraph.
V. FINDINGS
A. 
TECHNOLOGY PARTNERSHIPS CANADA
1. Summary of original Canada - Aircraft  findings on TPC
5.1 In the original Canada - Aircraft  proceeding, Brazil adduced evidence concerning five TPC
transactions in the regional aircraft sector.  The Panel noted that "three [of the five] transactions
accounted for 68% of TPC contributions to the aerospace and defence sector during the period 1996-1997."  The Panel found "that Brazil's arguments concerning these three specific contributionsWT/DS70/RW
Page 5
establish a prima facie  case that TPC assistance to the Canadian regional aircraft industry confers
'benefits' within the meaning of Article 1.1(b) of the SCM Agreement".  The Panel therefore found
that "TPC assistance to the Canadian regional ai rcraft industry constitutes 'subsidies' within the
meaning of Article 1.1 of the SCM Agreement".  The Panel then found, on the basis of a number of
"considerations" / "facts", that "TPC assistance to the Canadian regional aircraft industry is …'contingent … in fact … upon export performance' within the meaning of Article 3.1(a) of the SCM
Agreement".  In light of the above, the Panel concluded that "TPC assistance to the Canadian regional
aircraft industry constitutes 'subsidies contingent … in fact … upon export performance', contrary to
Articles 3.1(a) and 3.2 of the SCM Agreement".
5.2 The Appellate Body upheld the Panel's finding th at "TPC assistance to the Canadian regional
aircraft industry" is contingent on export performance, within the meaning of Article 3.1(a) of the
SCM Agreement.
2. Description of the measures taken by Canada to implement the DSB’s recommendations
5.3 Canada has taken two types of action in order to implement the recommendation of the DSB
concerning TPC assistance to the Canadian regional aircraft industry.  First, Canada has terminatedexisting TPC activities in the Canadian regional aircraft sector.  Thus, Canada (1) has cancelled
funding under five TPC transactions identified by Canada, (2) has withdrawn approvals-in-principle
for two new TPC funding projects in the regional aircraft sector, and (3) has closed all TPC files in
the regional aircraft sector.
5.4 Second, Canada has restructured the TPC programme and documentation so that, in its opinion,
most of the factual considerations forming the basis for the Panel's finding of de facto  export
contingency no longer apply.  According to Canada, the only factual consideration still applicable is
the export orientation of the Canadian regional aircraft industry.
3. Summary of the parties' arguments
(a) Brazil
5.5 Brazil notes that, consistent with Article 4.7 of the SCM Agreement, the Panel and the DSB
recommended that Canada "withdraw" its prohibited export subsidies.  Brazil recalls that the Panelfound that prohibited export subsidies were provided in the form of TPC assistance to the Canadian
regional aircraft industry.  Accordingly, Brazil considers that Canada should withdraw the TPC
programme altogether with regard to the Canadian regional aircraft industry.  At a minimum, Brazil
considers that Canada's TPC implementation measures must ensure that prohibited export subsidies
cannot be granted to the regional aircraft industry, and not merely that they might not be granted.Brazil states that withdrawal of the prohibited TPC subsidy programme should consist of measures
that make it clear to the Panel that Canada is not  simply going to continue the same TPC programme
as before once the present Article 21.5 proceedings are completed.  Brazil asserts that Canada's
implementation measures change only the superficial evidence of export contingency (by purging
from TPC documents any express reference to the word "export"), but make no substantive changewhatsoever in the underlying programme.
5.6  As an argument in the alternative, Brazil also requests repayment of prior TPC assistance to the
Canadian regional aircraft industry, if either (1) the Panel considers itself required to follow the
reasoning of the Australia - Leather Article 21.5  panel
2, or (2) the Panel finds that there can be no
                                                     
2 Australia - Subsidies Provided to Producers and Exporters of Automotive Leather - Recourse to
Article 21.5  of the DSU by the United States, WT/DS126/RW, adopted 11 February 2000, hereinafter " Australia
- Leather Article 21.5 ".WT/DS70/RW
Page 6
grounds for making a finding concerning de facto  export contingency under the "new" TPC
programme in the absence of actual financial contributions granted under the "new" TPC.
(b) Canada
5.7 Canada submits that the measures it has taken fully satisfy the requirement to withdraw the TPC
assistance to the Canadian regional aircraft industry that was found to constitute prohibited exportsubsidies.  Canada considers that these measures "ensure" - through programmatic changes - that any
future assistance under the TPC programme with respect to regional aircraft will be consistent with
the SCM Agreement.  Canada denies Brazil's assertio n that it is obliged to withdraw / abolish the TPC
programme in respect of the Canadian regional aircraft industry.  Canada asserts that it can implement
the Panel's recommendation by replacing the "old" WTO-inconsistent TPC programme with a "new"WTO-consistent programme.
5.8 With regard to Brazil's qualified request for repayment, Canada asserts that it was the operation of
TPC in the regional aircraft sector that was at issue in the previous proceeding, and that it is the
operation of TPC, as newly constituted, that is at issue in this Article 21.5 proceeding.  Canada asserts
that since there is no evidence, and, indeed, no suggestion, that new subsidies have been granted to"circumvent" a Panel ruling, repayment of subsidies, even if such a remedy were available under the
SCM Agreement, is not warranted.
4. Evaluation by the panel
(a) Scope of the disagreement between the parties
5.9 Brazil's primary
3  claim concerns the measures taken by Canada to restructure the TPC
programme insofar as it will apply in the future to the Canadian regional aircraft industry.  In
particular, Brazil's primary claim raises issues concerning the substance of the prospectiveimplementation action undertaken by Canada.  With respect to Brazil's primary claim, therefore, there
is no disagreement between the parties resulting fr om the fact that, in order to implement the
recommendation of the DSB concerning TPC assistan ce to the Canadian regional aircraft industry,
Canada has taken prospective action.  The parties agree that to "withdraw" the subsidy in this case
requires some sort of prospective action on the part of Canada.
5.10 We recall that Article 21.5 disputes arise "[w]here there is disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the recommendations and
rulings"4 of the DSB.  Since there is no disagreement between the parties5 that, in order to implement
the recommendation of the DSB concerning TPC assistance to the Canadian regional aircraft industry,
Canada is required to take some form of prospective action, we do not consider it necessary to providea comprehensive interpretation of what is requir ed for an implementing Member to "withdraw" a
prohibited export subsidy. Rather, it is sufficient to conclude (and we note that the parties seem to
agree with this) that a Member cannot be understood to  have withdrawn a prohibited subsidy if it has
not ceased to provide  such a subsidy, as that Member therefore would not have ceased to violate its
WTO obligations in respect of such a subsidy.  In  our view, therefore, Canada's obligation arising
from the DSB's recommendation in this dispute incl udes the obligation to cease providing prohibited
export subsidies to the regional aircraft sector under the TPC.   We note that in the circumstances of
                                                     
3 Only in the alternative does Brazil raise any claims concerning past TPC assistance to the regional
aircraft industry.  However, Brazil has explicitly stated that a remedy concerning (exclusively) future TPC
assistance to the regional aircraft industry is preferred (see para. 5.45 below).
4 Emphasis supplied.
5 We recall that we are not, at this juncture, addressing Brazil's alternative claim regarding repayment
of past TPC assistance to the Canadian regional aircraft industry.WT/DS70/RW
Page 7
this Article 21.5 proceeding concerning TPC, such an assessment is by nature forward-looking.
Accordingly, we shall focus on Canada's restructur ing of the TPC programme insofar as it will apply
to the Canadian regional aircraft industry in the future.  If necessary, we shall then examine Brazil's
alternative claim regarding past TPC assistance to the regional aircraft industry.
5.11 With regard to the future, Brazil claims that Canada should abolish / withdraw the TPC
programme in respect of the Canadian regional aircraft industry.  At a minimum, though, Brazil
asserts that Canada must "ensure" that de facto  export subsidies cannot be granted to the regional
aircraft industry, and not merely that they might not be granted.6  According to Brazil, if Canada
maintains funding to the Canadian regional airc raft industry under the "new" TPC, Canada must
ensure that the program will operate in full compliance with the SCM Agreement.7  Canada denies
that it is required to abolish / withdraw the TPC programme in respect of the Canadian regional
aircraft industry, but asserts that it "has taken th e steps within Canada's control to ensure that any
assistance that TPC may provide in the future to the Canadian regional aircraft industry will not be
contingent on export performance in law or in fact".8
5.12 Thus, Brazil and Canada effectively agree on the need for Canada to satisfy Brazil's minimum
implementation standard, i.e., to "ensure" that future TPC assistance to the Canadian regional aircraft
industry will not be de facto  contingent on export performance.  The parties disagree, however, on
whether Canada has taken sufficient steps to satisf y that standard.  To resolve this disagreement, we
must examine whether or not Canada has taken sufficient steps to ensure that future TPC assistance to
the regional aircraft industry will not be de facto  contingent on export performance.
(b) Burden of proof
5.13 In examining this issue, we note that "Brazil recognises that it bears the burden of showing
that Canada has failed to implement. … It then becomes Canada's burden to explain how Brazil was
wrong and how Canada's purported changes actually constitute effective implementation."9  Canada
agrees that the initial burden of proof falls on Brazil.
5.14 We agree that Brazil, as the complaining party, bears the burden of proof in this proceeding.
We agree with the Appellate Body's statement in  EC - Hormones  that "[t]he initial burden lies on the
complaining party, which must establish a prima facie  case of inconsistency …",10 and consider that
this should apply in the context of Article 21.5 proceedings.  Since the burden is on Brazil ( i.e., the
complaining party) to show that Canada has fail ed to implement the recommendation of the DSB (by
reference to the minimum implementation standard agreed on by the parties), Brazil must establish
that Canada has failed to "ensure" that future TPC assistance to the Canadian regional aircraft industrywill not be de facto  contingent on export performance.
                                                     
6 Brazil could be understood to have proposed an impossible implementation standard, since no
sovereign state will ever be able to provide an absolute guarantee that it will not in the future provide de facto
export subsidies.  Any such guarantee would effectively el iminate the totality of a state's discretionary authority.
Brazil acknowledges this point, by stating that "[o]bviously, a sovereign state cannot [eliminate all of itsdiscretionary authority] and remain a sovereign state" (Brazil's reply to TPC question 1(a) from the Panel).  Inlight of Brazil's acknowledgement, we understand Brazil to argue that Canada need only ensure that de facto
export subsidies cannot be granted to the regional aircraft industry within the context of the "new" TPC
programme.  This understanding is confirmed by Brazil's assertion that "Canada must ensure  that the program
will operate in full compliance with the [SCM] Agreement" (Second written submission of Brazil (Annex 1-2),
para. 19, underline emphasis supplied).
7Id.
8 Canada's reply to the Panel's TPC question 2, para. 57 (Annex 2-4), emphasis supplied.
9Brazil’s reply to the Panel’s TPC question 1(a) (Annex 1-5).
10 EC - Hormones , WT/DS26/AB/R, WT/DS48/AB/R, pa ra. 98, adopted 13 December 1998.WT/DS70/RW
Page 8
(c) Substantive analysis
5.15 Brazil considers that it has discharged its burden of proof by demonstrating "that all the
essential elements of the [TPC] program remain unchanged, and that many of these elements will
never change".11  In this regard, Brazil claims that the facts surrounding the "new" TPC still support
an inference of de facto  export contingency.  In particular, Brazil refers to the following four factors
which, in its opinion, lead to an inference that future TPC assistance to the Canadian regional aircraft
industry continues to be de facto  export contingent:
• eligible industries remain "specifically targeted" because of their export orientation;
• eligible activities continue to betray an interest in near-market projects;
• export performance is an implicit selection and assessment criterion; and
• many TPC documents have not yet been replaced or amended.
We shall examine each of these factors in turn.
(i) Eligible industries remain specifically targeted because of their export orientation
5.16 Brazil argues that the continued de facto  export contingency of TPC may be inferred from the
fact that the Canadian regional aircraft industry continues to be "specifically targeted" for TPC
assistance because of its undisputed export orientation.12  Brazil asserts that "[n]othing, in short, has
changed - neither the industries eligible for TPC contributions, nor the recognized export-orientation
of the industry that enjoys the lion's share of those contributions, nor the significance of that industry's
export orientation to Canadian government officials, nor that industry's prospects for continueddominance of TPC's treasury.  None of these factors is destined for change."
13  Brazil asserts that, to
maintain the export orientation of the Canadian regional aircraft industry, "the Canadian aerospace
industry receives the vast majority of the rapidly increasing pool of TPC finds available".14  Braz il
further argues that "in choosing which industry w ould receive the lion's share of 'old' and 'new' TPC
funds, Canada was not casually indifferent to the trading patterns of that industry.  Instead, Canadachose, as TPC's showcase, an industry that exports significantly more than others, because  it exports
significantly more than others.  The 'new' TPC retains a focus on contributions to the aerospace
industry."
15  According to Brazil, "the targeted industr ies of the 'old' TPC are the same recipients
under the 'new' TPC".16
5.17 Thus, we understand Brazil to argue that " nothing has changed" because TPC assistance
continues to be "specifically targeted" at the Canadian aerospace or regional aircraft industries, in the
sense that these industries will continue to receive the "vast majority", or "lion's share", of TPCassistance.  In addressing this argument, we recall that the “specific targeting” concept (in those or
other words) did not form part of our reasoning regarding contingency in fact on export performance
in that dispute.  While we do not exclude the possi bility that, in a given case, a factual circumstance of
"specific targeting" might be considered by a panel to be part of the totality of facts leading to an
inference of export contingency, this was not the case in the original Canada - Aircraft  dispute.  That
is, of the factual considerations enumerated by us at para. 9.340 of our Report, none  concerned the
                                                     
11 Brazil's reply to TPC question 1(a) from the Panel (Annex 1-5) (emphasis supplied).
12 Brazil's reply to TPC question 2 from the Panel (Annex 1-5).
13 Brazil's first written submission, para. 22, Annex 1-1).
14 Brazil's first written submission, para. 23 (Annex 1-1).
15 Brazil's second written submission, paras 32 and 33 (Annex 1-2).
16 Brazil's concluding remarks, para. 9 (Annex 1-4).WT/DS70/RW
Page 9
alleged targeting of the Canadian aerospace industry generally, or the Canadian regional aircraft
industry in particular, by TPC, none  concerned the amount of total TPC funding directed at the
Canadian aerospace or regional aircraft industries,17 and none  concerned the fact that the aerospace or
regional aircraft industries were eligible for TPC assistance. Arguing a failure to implement on the
grounds that there has been no change in alleged factual circumstances, which themselves were notpart of our original ruling, is of questionable merit and logic.  Indeed, we consider that the question of
whether TPC assistance is "specifically targeted" to the aerospace and regional aircraft industries is
not relevant to the present dispute, which concerns the issue of whether or not Canada has
implemented the DSB recommendation on TPC assistance to the Canadian regional aircraft industry.
That recommendation cannot have required Canada to take implementation action to ensure that TPCassistance is not "specifically targeted" at the aerospace and regional aircraft industries, because such
alleged "specific targeting" did not form part of the basis for the finding of de facto  export
contingency that gave rise to that recommendation.
18  The fact that "nothing has changed" concerning
the alleged "specific targeting" of the aerospace and regional aircraft industries therefore has no
bearing on the present dispute.
5.18 For these reasons, we do not consider it necessary to examine Brazil's argument that "nothing
has changed" because TPC assistance continues to "specifically target" the Canadian  aerospace and
regional aircraft industries.
(ii) Interest in near-market projects
5.19 Brazil argues that the de facto  export contingency of future TPC funding to the Canadian
regional aircraft industry should be inferred from the fact that the available descriptions of eligible
activities under the "new" TPC betray an interest in "near market" projects with highcommercialization potential. Brazil also argues that essentially the same projects continue to be
eligible for "new" TPC contributions as were eligib le under the "old" TPC, such that "if funding for
the development of commercial products was available in the 'old' TPC, it is similarly available in the
'new' TPC, and as it did before contributes to an inference  of de facto  export contingency".
19
                                                     
17 We recall that, in our original findings, we referred to the fact that three specific transactions
examined by us accounted for approximately 68 per cent of TPC contributions to the aerospace and defencesector during the period 1996-1997 (see para. 9.307 of Canada - Aircraft , WT/DS70/R).  However, we made
this factual reference in the context of our original findings on subsidization.  This factual reference played no
part whatsoever in our original findings on de facto  export contingency.
18 We note the statement of the Australia - Leather Article 21.5  panel (which Brazil has quoted in its
reply to the Panel's TPC question 5 (see Annex 1-5)) th at "[t]he specific details of the factual evidence
underlying the conclusion that the subsidies were in fact contingent upon export performance … do not, in ourview, determine what is required in order to 'withdraw the subsidy' within the meaning of Article 4.7 of the
SCM Agreement" (WT/DS126/RW, adopted 11 February 2000, note 24). We do not understand this statement
to mean that factual considerations underlying a panel’s finding that a subsidy is de facto  export contingent are
irrelevant for determining what action must be taken to remove that de facto  export contingency.  Indeed, the
context in which that statement was made by the Australia - Leather Article 21.5  panel was altogether different.
In that case, the question of implementation of the DSB’s recommendation was addressed, in the first instance
by the parties, on the basis of the “subsidy” element, rather than the “export contingency” element, of the
prohibited subsidy.  Specifically, the parties both made arguments concerning the amount of the subsidy  that
should be repaid, and Australia based its arguments concerning this point on its interpretation of the panel’soriginal finding of export contingency .  The quoted statement of the panel was made in addressing this
argument, and we believe was intended to express the view that the basis for the original finding of de facto
export contingency was not useful or relevant for calculating the amount of the subsidy to be repaid.
19 First written submission of Brazil (Annex 1-1) at para. 30.WT/DS70/RW
Page 10
5.20 We recall that our earlier findings in Canada - Aircraft  were based in part on the express
recognition in the 1996/1997 TPC Business Plan that "TPC's 'approach' in the aerospace and defence
sector is to '[d]irectly support the near market R & D projects with high export potential '".20
5.21 In its review of our findings, the Appellate Body  asserted that, if a panel takes the "nearness-
to-the-export-market factor" into account, "it should  treat it with considerable caution". … [T]he mere
presence or absence of this factor in any given case does not give rise to a presumption that a subsidy
is or is not de facto  contingent upon export performance".  Accordingly, we shall proceed with
caution when addressing Brazil's arguments regarding the alleged nearness-to-the-export-market of
"new" TPC projects in the regional aircraft sector.
5.22 We note that the 1996-1997 TPC Business Plan, which contained the aforementioned
reference to "near market R & D projects with high export potential" is no longer valid, and no longer
exists for the purposes of TPC as it is now constituted.21  The 1996-1997 TPC Business Plan is
therefore irrelevant when considering whether future  TPC assistance to the Canadian regional aircraft
industry will be de facto  contingent on export performance.22
5.23 In order to substantiate its claim that eligible activities for "new" TPC funding betray an
interest in near-market projects, Brazil states that, according to "new" TPC documentation, TPC will
fund "projects 'aimed at the discovery of knowledg e, with the objective that such knowledge may be
useful in developing new products ,' and those projects leading to 'translation of industrial research
findings into a plan, blueprint or design for new, modified or improved products  …'".23  In response,
Canada asserts that the inclusion of Industrial Research as an Eligible Activity "permits TPC to
support earlier stage research and development that is further removed from the production and sale of
specific products.  The pre-competitive development category of eligible activity enables TPC tosupport the development of horizontal technologies that cut across the operations of recipient firms …
rather than the development of specific products". 
24
5.24 In our view, the mere fact that the results of a project may in the future be useful in the
development of new products, or the modificatio n / improvement of existing products, does not by
itself render the project near-market.  This view is confirmed by former footnotes 28 and 29 to formerArticle 8.2(a) of the SCM Agreement
25, concerning non-actionable subsidies, which appears to have
strongly influenced Canada's choice of wording in the "new" TPC documents cited by Brazil.26  In our
                                                     
20 Canada - Aircraft , WT/DS70/R, para. 9.340, emphasis in original findings.
21 Oral statement of Canada (Annex 2-3) at para. 45.
22 For the reasons set forth at para. 5.40, we see no reason to draw any inferences concerning Canada's
failure to provide the 2000/2001 - 2001/2002 TPC Business Plans, which are still under development.
23 Second written submission of Brazil (Annex 1-2) at para. 35 (emphasis in Brazil's submission).
Brazil is referring to the "new" TPC Terms and Conditions, and the "new" TPC Investment Application Guide,at this juncture.
24 First written submission of Canada (Annex 2-1) at para. 34.
25 Pursuant to Article 31 of the SCM Agreement, Articles 8 and 9 of that Agreement applied for an
initial period of five years, ending 31 December 1999, and could have been extended beyond that date on the
basis of a consensus by the SCM Committee.  As of 31 December 1999, no such consensus had been reached.
26 Former footnote 28 provided:
The term "industrial research" means planned search or critical investigation aimed at discovery of new knowledge,
with the objective that such knowledge may be useful in developing new products, processes or services, or in
bringing about a significant improvement to existing products, processes or services.
Former footnote 29 provided:
The term "pre-competitive development activity" means  the translation of industrial research findings into a plan,blueprint or design for new, modified or improved products, processes or services whether intended for sale or use,including the creation of a first prototype which would not be capable of commercial use.  It may further include the
conceptual formulation and design of products, processes or services alternatives and initial demonstration or pilotWT/DS70/RW
Page 11
view, the non-actionable subsidy projects referred to in former footnotes 28 and 29 concerned
"industrial research" and "pre-competitive development activity" projects that were sufficiently
removed from the market to suggest that their impact  on the market was likely to be minimal.  As a
result, it would be incongruous for us to find similarly defined TPC projects to be "near-market".
5.25 Brazil has also argued that "new" TPC eligible activities betray an interest in "near market"
projects because they are similar to "old" TPC eligible activities which were found to be "near
market". In this regard, Brazil relies exclusively on a description of "old" TPC activities contained in
a January 1998 TPC website excerpt.27  According to Brazil, the description of "new" TPC eligible
activities is similar to the description of "old" TPC eligible activities found in the January 1998 TPC
website excerpt.  We do not consider it necessary to pursue this argument, since our original findingthat TPC funding in the aerospace & defence sector (and therefore in the regional aircraft industry
component thereof) was focused on "near market" projects was based on the aforementioned
statement in the 1996-1997 TPC Business Plan, and not the January 1998 TPC website excerpt.  We
therefore do not see the relevance of comparing the "new" description of eligible activities with the"old" description of TPC eligible activities contained in the January 1998 TPC website excerpt.  Offar greater relevance, however, is the fact that the 1996/1997 TPC Business Plan, which contained the
explicit reference to "near market" projects ("with hi gh export potential”) is no longer valid for the
"new" TPC.  Aerospace & defence activities eligible for "new" TPC funding will necessarily differ
from aerospace & defence activities eligible for fund ing under the "old" TPC, since  - as provided for
in the 1996/1997 TPC Business Plan - "old" TPC funding in the aerospace & defence sector was
explicitly and exclusively focused on "near-market projects", which - on the basis of the evidence
before us - is not the case for "new" TPC funding in the aerospace & defence sector
28.
5.26 Accordingly, Brazil has failed to demonstrate that the available descriptions of eligible
activities under the "new" TPC betray an interest in "near market" projects with high
commercialization potential, or that activities elig ible for funding under the "new" TPC are essentially
the same as those eligible for funding under the "old" TPC.29
                                                                                                                                                                    
projects, provided that these same projects cannot be converted or used for industrial application or commercial
exploitation.  It does not include routine or periodic alterations to existing products, production lines, manufacturingprocesses, services, and other on-going operations even though those alterations may represent improvements.
27 First written submission of Brazil (Annex 1-1) at para. 29.
28 We note as well the Industry Canada press release concerning the “new” TPC (Exhibit BRA-18),
which was cited by Brazil in connection with its “specific targeting” argument (First oral statement of Brazil
(Annex 1-3) at para. 20).  Although this document has not been identified by Brazil in connection with its “near
market” argument, nonetheless we have examined it in this context to determine the extent to which it might berelevant to the question of whether the same projects or similarly “near market” projects as were funded underthe “old” TPC would continue to be funded under the “new” TPC.  We conclude that this document does notcontain information relevant to this question.  In particular, this document indicates that the same companies are“free” to apply for funds under the “restructured” TPC on the basis of a new application form.  In our view, this
cannot be construed as meaning that the same pr ojects would be considered eligible, specifically because  of the
reference to the fact that TPC has been restructured and the application form revised.
29 We note Brazil's argument that "[r]emoving 'commercialization' or the 'near market R&D' focus from
TPC's focus … and shifting instead to a focus on 'industrial research and pre-competitive development,' would
not make it any less possible to infer  from the facts that TPC constitutes a prohibited export subsidy" (First
written submission of Brazil (Annex 1-1) at para. 25).  We agree.  For that reason, our conclusion in thepreceding paragraph does not preclude us from examining other factual arguments adduced by Brazil todemonstrate that future TPC assistance to the regional aircraft industry will be de facto contingent upon export
performance.WT/DS70/RW
Page 12
(iii) Export performance as an implicit selection and assessment criterion
5.27 Brazil notes that the goals and objectives of the "new" TPC, like those of the "old" TPC,30
concern the creation of Canadian jobs, the increase of Canadian economic growth, or the increase of
Canadian wealth.  Brazil asserts that an inference of de facto  export contingency may be drawn from
an intimate "link" between (1) the fulfilment of these goals and objectives and (2) exports.  Brazilasserts that, because of this "link", TPC assistance to the regional aircraft industry will be implicitly
conditioned on, or tied to, export performance.
5.28 Canada notes that the mandate and overall programme objective of the restructured TPC
provide that "TPC is a technology investment fund established to contribute to the achievement of
Canada's objectives of increasing economic growth, creating jobs and wealth, and supportingsustainable development".
31  According to Canada, the restructured TPC's mandate and objectives do
not encompass the enhancement of exports or Canada's export base.
5.29 We recall that our original findings were based in part on the Terms and Conditions of the
"old" TPC, which stated that the Aerospace & Defence component of the TPC would be "directed to
projects that will maintain and build upon the … export base  extant in the aerospace and defence
sector".32  We note that the Terms & Conditions of the "new" TPC no longer explicitly direct the
Aerospace & Defence component thereof at projects that maintain and build upon the "export base" of
the aerospace & defence sector.  It is presumably for this reason that Brazil refers to the alleged
implicit conditionality between the grant of "new" TPC assistance to the Canadian regional aircraft
industry and the export performance of that industry.
5.30 While it is certainly true that the provision of funds on the basis of the "new" TPC’s mandate
and objectives could result in additional exports by funded sectors, we recall the Appellate Body'sruling that the mere knowledge, or anticipation, that exports will result from a subsidy does not by
itself render that subsidy de facto  contingent on export performance, because it does not by itself
demonstrate conditionality.
5.31 Brazil has argued that the requisite conditionality  may be inferred from the fact that recipients
of "new" TPC assistance implicitly "commit to export  performance".  In this regard, Brazil has sought
to draw an analogy with the facts of the Australia - Leather  case
33 where the panel, in Brazil's own
words, "determined that requesting undifferentiated sales performance targets led to an inference of de
facto  export contingency because the Australian govern ment knew that in order to reach those targets,
the recipient would have to export".34  According to Brazil, "[t]he same logic applies in the case of the
Canadian regional aircraft industry;  the Canadian government knows that the industry exportsvirtually all its products, and thus to reach sales forecasts, it must export".
35
5.32 Without taking any view on the findings of the Australia - Leather  panel, we note that Brazil
has adduced no evidence that "new" TPC assistance to the Canadian regional aircraft industry will be
                                                                                                                                                                    
30 First written submission of Brazil (Annex 1-1) at para. 32.
31 TPC Terms & Conditions, and  SOA  Framework (see First written submission of Canada (Annex 2-
1) at para. 22).
32 Canada - Aircraft , WT/DS70/R, para. 9.340, bullet 12 (emphasis supplied).
33 Australia - Subsidies Provided to Producers and Exporters of Automotive Leather (hereinafter
"Australia - Leather "),  WT/DS126/R, adopted 16 June 1999.
34 Second written submission of Brazil (Annex 1-2) at footnote 62.
35 Id.WT/DS70/RW
Page 13
conditioned on the fulfilment of sales targets  (as was found to be the case in Australia - Leather36).
Brazil claims instead that the grant of "new" TPC assistance to the regional aircraft industry is
contingent on the fulfilment of sales forecasts.  However, in response to a question from the Panel,
Brazil was unable to adduce any evidence to substantiate its claim of contingency on sales forecasts.
Brazil only adduced evidence to the effect that sales forecasts will be used in the context of the "new"
TPC programme.37  In response, Canada explicitly denied that the granting of TPC assistance to the
regional aircraft sector is contingent on the fulfilment of sales forecasts.38  In the absence of any
evidence to the contrary, we see no reason to doubt Canada's explicit denial.  Furthermore, although
sales forecasts may be used in the context of "new" TPC assistance to the regional aircraft industry, as
they were under the "old" TPC,39 this does not by itself mean that "new" TPC assistance to the
Canadian regional aircraft industry will be contingent on fulfilment of those sales forecasts.  The fact
that a subsidy repayment schedule may be based on royalties from forecast sales does not mean that
compliance with the sales forecast becomes a condition for the bestowal of the subsidy;  it simply
means that a sales forecast was used to fix the repayment schedule.40  This situation is different from
that before the Australia - Leather  panel, where the relevant payments were "conditioned on Howe's
agreement to satisfy, on the basis of best endeavours, the aggregate performance targets".41   For these
reasons, we disagree with Brazil that the logic of the Australia - Leather  panel applies in the present
case.
5.33 Furthermore, we note that Part 4 of the "n ew" TPC Investment Decision Document requires
TPC administrators to record the "[b]enefits [of th e project] to Canada".  Section 5 of the "new" TPC
Investment Application Guide defines "technological and net economic benefits to Canada" as
"increasing economic growth, creating jobs and wealth, and supporting sustainable development".Nowhere in these documents is increased export performance identified as a "technological" or "net
economic benefit" to Canada.  Indeed, Part 4 of  the aforementioned Investment Decision Document
explicitly provides that "TPC will not accept or consider information concerning the extent to which a
company does or may export".  The only conclusion that we can reach from the face of these
documents is that projects will be compared against one another, and eventually selected for funding,on the basis  inter alia  of the amount of technological and/or net economic benefits to which they are
expected to give rise.  While it is clear that for some projects, these benefits will derive largely or
exclusively from exports, there is no factual basis in the documents (which are at this point the only
available evidence) on which to conclude that projects generating the most exports  will be those
selected for funding.  Indeed, the documents indicate that the administrators simply will not havespecific information about the volume of exports that might result from any project for which TPC
                                                     
36 The Australia - Leather  panel found that relevant payments were "conditioned on Howe's agreement
to satisfy, on the basis of best endeavours, the aggregate performance targets" (see Australia - Leather ,
WT/DS126/R, para. 9.71).
37 Brazil's reply to the Panel’s TPC question 3 (Annex 1-5).
38 Comments of Canada on Brazil's replies to questions (Annex 2-5) at para. 11.
39 According to an Industry Canada News Release dated 18 November 1999 (Exhibit BRA-18, page 4)
repayment schemes will be based on "e.g. royalties on total company or division sales …".  We note that the use
of sales forecasts in the context of royalty-based financing schemes in the civil aircraft sector is not uncommon,
and on its own appears to have no particular implica tions under the SCM Agreement, as evidenced by footnote
16 of that Agreement ("Members recognize that where royalty-based financing for a civil aircraft programme isnot being fully repaid due to the level of actual sales falling below the level of forecast sales, this does not in
itself constitute serious prejudice …").
40 Furthermore, we note that the royalties that will form the basis of any royalty-based financing
scheme will be "royalties on total company or division sales", and not "royalties tied to product sales" (see 18November 1999 Industry Canada press release (Exhibit BRA-18)).  Presumably, therefore, the sales forecastsreferred to by Brazil will be company- or division-wide.  We are reluctant to conclude that the fulfilment ofcompany- or division-wide sales forecasts could constitute a condition for the grant of product- or project-specific assistance.
41 Australia - Leather , para. 9.71.WT/DS70/RW
Page 14
funding is sought.  Thus, whereas TPC assistance is conditional on a project having certain
technological or net economic benefits to Canada, in our view this simply cannot be assumed to be
synonymous with export performance, and therefore it does not mean  ipso facto  that such assistance
is contingent on export performance.  This remains true even though TPC administrators know that
fulfilment of net economic benefits in certain cases may be likely to result in increased exports.  Thefact that they will have no concrete quantifiable information on exports in our view will act in
practical terms to limit their discretion to select projects on the basis of export performance.
5.34 For the above reasons, we are not persuaded that "new" TPC assistance to the regional aircraft
industry will be implicitly conditioned on, or tied to, export performance as a result of an intimate
"link" between (1) the fulfilment of the "new" TPC goals and objectives and (2) exports.
(iv) Documentation
5.35 Brazil notes that a large proportion of "old" TPC documents, some of which were relied on by
the Panel in our original findings of de facto  export contingency, have not yet been replaced or
amended or, if they have, they have not yet been provided to the Panel.  Brazil considers that these
documents have therefore not been cleansed of references to the term "export", despite Brazil'sunderstanding that Canada claims to have implemented the recommendations and ruling of the DSB
"by removing references to the term 'export' from TPC documents".
42  Brazil claims that the failure to
replace or amend the relevant "old" TPC documents demonstrates that Canada has failed to implement
the DSB's recommendation by failing Canada's own measure of what constitutes effective
implementation, namely the removal of references to "export" from TPC documents.  In the
alternative, Brazil claims that Canada's failure to provide certain "new" TPC documents supports a
presumption that as-yet-unreplaced TPC documents supporting the Panel's original inference ofde facto  export contingency still apply.
5.36 Canada acknowledges that not all TPC documents have yet been replaced.  However, Canada
asserts that the key TPC documents (the Terms and Conditions and the Special Operating Agency
("SOA") Framework Document ) are in place, and that all subsidiary TPC documents must respect the
authority provided in these key documents.  This authority explicitly requires that TPC beadministered in accordance with Canada's international obligations, including its WTO obligations.
Canada further asserts that no "old" TPC documents are valid under the "new" TPC programme, and
that "old" TPC documents no longer exist for the purposes of the "new" TPC programme.
5.37 As a preliminary matter, we do not understand Canada to have argued that it has implemented
the DSB recommendation on TPC assistance to the Canadian regional aircraft industry by, in Brazil'sown words, "removing references to the term 'export'  from TPC documents".  Brazil has failed to cite
to any Canadian submission to the Panel which contains any such argument.  We therefore reject
Brazil's claim that Canada has failed to implement the DSB recommendation by Canada's own
measure of what constitutes effective implementation.
5.38 It is regrettable that Canada has not yet been able to finalize all documents concerning the
operation of the "new" TPC programme, since those documents may have provided useful insight into
the operation of the "new" TPC programme in respect of the Canadian regional aircraft industry.
However, we note that the two key TPC documents are in place, and that Brazil has failed to
demonstrate
43 that anything in these documents leads to an inference of export contingency.  We also
                                                     
42 Second submission of Brazil (Annex 1-2) at para. 51.
43 As discussed above, we are not persuaded by Brazil's arguments concerning the alleged "link"
between export performance and fulfilment of the TPC goals and objectives set forth in the Terms and
Conditions.WT/DS70/RW
Page 15
note Canada's assertion that all subsidiary TPC documents must respect the authority contained in
those two key documents.
5.39 Furthermore, we note Canada's assertion that "old" TPC documents are no longer valid, and
"no longer exist for the purposes of TPC as it is now constituted".44  In the absence of any evidence
from Brazil leading us to doubt this assertion, we see no reason why we should presume that as-yet-unreplaced -- but invalid -- TPC documents supporting the Panel's original inference of de facto
export contingency still apply.  Indeed, we recall that the "new" TPC Investment Application Guide
provides that "TPC will not accept or consider information concerning the extent to which your
company does or may export".  The continued application of any of the "old" TPC documents relied
on by the Panel in our original findings of de facto  export contingency would be manifestly at odds
with this statement.
5.40 In light of the above, we see no basis for relying on previous TPC documents, which are no
longer applicable, and which were a contributory factor that helped to demonstrate the de facto  export
contingency of "old" TPC assistance to the regional aircraft industry, to conclude that "new" TPC
assistance to the regional aircraft industry will also be de facto  contingent on export performance.
5.41 For these reasons, we are unable to find that Canada has failed its own measure of what
constitutes effective implementation ( i.e., the removal of references to "export" from TPC
documents), and we are equally unable to presume that as-yet-unreplaced -- but invalid -- TPC
documents supporting the Panel's original inference of de facto  export contingency still apply.
Indeed, with regard to the "new" TPC documentation that has been made available by Canada, we
find it difficult to imagine what additional elements could usefully have been included by Canada to
demonstrate that future TPC assistance to the Canadian regional aircraft industry will not be de facto
contingent on export performance.
Conclusion
5.42 For the above reasons, we are unable to accept Brazil's claim that Canada has not
implemented the recommendation of the DSB concerning TPC assistance to the Canadian regional
aircraft industry.  Our conclusion is based on our analysis of those facts currently surrounding theapplication of the restructured TPC programme which are relevant to Canada's implementation of the
DSB recommendation on TPC assistance to the regional aircraft industry.  Of course, the facts
surrounding the application of the restructured TPC programme may change.  The above conclusion
in no way prejudges the issue of whether TPC assistance to the regional aircraft industry granted in
the context of changed factual circumstances would, or would not, be de facto  contingent on export
performance in the future.
(d) Alternative implementation methods
5.43 We recall Brazil's argument that Canada be required to implement the recommendation of the
DSB concerning TPC assistance to the Canadian regional aircraft industry by withdrawing the TPC
programme altogether with regard to the Canadian regional aircraft industry.  We note that withdrawalof the TPC programme from the Canadian regional aircraft industry would exceed the minimum
implementation standard agreed on by the parties ( i.e., to ensure that future TPC assistance to the
Canadian regional aircraft industry will not be de facto  contingent on export performance).  Since we
have concluded that Canada has fulfilled the minimum implementation standard agreed on by the
parties, the question of whether or not Canada should do more (by withdrawing the TPC programmealtogether from the Canadian regional aircraft industry) is not a relevant issue.
                                                     
44 Oral statement of Canada (Annex 2-3) at para. 45.WT/DS70/RW
Page 16
5.44 In addition, Brazil also argued that Canada could implement the DSB recommendation on
TPC assistance to the Canadian regional aircraft industry either by making TPC generally available,
or by ensuring that future assistance did not take the form of a subsidy.  However, we do not
understand Brazil to argue that Canada has failed to implement the DSB recommendation by failing to
take either course of action.  It is therefore not necessary for us to consider this matter further.
(e) Repayment of prior TPC assistance to the Canadian regional aircraft industry
5.45 We recall that Brazil made a conditional request for repayment of prior TPC assistance to the
Canadian regional aircraft industry.  Brazil has clearly stated that this "is an alternative, though not a
preferred, remedy".45
5.46 Brazil's request for repayment is conditional on either or both of two scenarios materialising:
first, if the Panel considers itself required to follow the interpretation of Article 4.7 of the SCM
Agreement offered by the panel in Australia - Leather Article 21.5 ;  second, if the Panel considers that
it cannot render a judgement concerning Brazil's allegations of de facto  export contingency under the
restructured TPC programme as a result of the absence of any financial contributions made under the
restructured programme.  In the latter case, Brazil considers that it will be left without an "effectiveremedy" apart from the retroactive repayment of past  TPC assistance to the Canadian regional aircraft
industry.
5.47 With regard to the first condition, we are aware that the Australia - Leather Article 21.5  panel
recently found that a DSB recommendation to "withdraw" a prohibited export subsidy under Article
4.7 of the SCM Agreement "is not limited to prospective action only but may encompass repayment
of the prohibited subsidy".
46  However, Brazil has explicitly expressed the "hope"47 that the Panel
does not consider itself bound to follow Australia - Leather Article 21.5 .  Indeed, Brazil "believes that
the Panel in Australia - Leather  [Article 21.5 ] reached a result that is not required by the language of
the [SCM] Agreement"48, and "does not believe that this or any other Panel should follow Australia -
Leather [Article 21.5 ]".49
5.48 In light of these comments by Brazil, we consider that Brazil does not in fact want us to make
any finding along the lines of Australia - Leather Article 21.5 .  The same is more obviously true of
Canada50.  As noted above, we consider that a panel's findings under Article 21.5 of the DSU should
be restricted to the scope of the "disagreement" between the parties.  In the present case, therefore, we
do not consider it necessary to make any finding as to whether Article 4.7 of the SCM Agreement
may encompass repayment of subsidies found to be prohibited.
5.49 The second condition attached to Brazil's request for repayment of past TPC assistance to the
Canadian regional aircraft is based on Brazil understanding Canada to argue that the Panel is
precluded from finding whether "new" TPC assistan ce to the regional aircraft industry will be de facto
contingent on export performance because Canada has not provided any such assistance under the
"new" TPC programme.  Brazil considers that if the Panel were to follow such an approach, Brazil
would be left without any "effective remedy" other than repayment of past assistance.
                                                     
45 Brazil's reply to the Panel’s TPC question 6 (Annex 1-5).
46 Australia - Leather Article 21.5 ,  para. 6.39, emphasis in original.
47 Oral statement of Brazil (Annex 1-3) at  para. 30.
48 Id. at para. 27.
49 Id. at para. 34.
50 Canada informed the Panel that, in the Brazil - Aircraft  Article 21.5 proceedings, Canada "indicated
very clearly that its interpretation of the obligation to withdraw export subsidies under Article 4.7 of the [SCM]Agreement does not allow for a retroactive withdrawal of subsidies that have already been granted" (Oral
statement of Canada (Annex 2-3) at para. 88).WT/DS70/RW
Page 17
5.50 We are in no doubt that Brazil has misunderstood Canada's position.  Canada has asserted that
it "manifestly did not take" the position understood by Brazil.  Canada has confirmed that it "believes
that this Panel can - and indeed should - assess whether the restructured TPC programme implements
the DSB's rulings and recommendations regarding de facto export contingency".51 Thus, both Canada
and Brazil agree that the Panel should examine the "new" TPC programme, even in the absence of anyassistance to the Canadian regional aircraft industry having been granted under that "new"
programme.
5.51 In light of the above, neither of the conditions attached to Brazil's alternative request for
repayment have been met.  We therefore do not consider it necessary to address the substance of that
request.
(f) Summary
5.52 In summary, we are unable to accept Brazil's claim that Canada has not implemented the
recommendation of the DSB concerning TPC assistan ce to the Canadian regional aircraft industry.
Moreover, we have found that it is not necessary to consider the alternative implementation methods
identified by Brazil.  Finally, we have found that neither of the conditions attached to Brazil’s requestfor repayment have been met.
B. 
CANADA ACCOUNT
1. Summary of original Canada - Aircraft  findings on Canada Account
5.53 The Canada Account operates under the mandate of the EDC, and, per EDC’s 1995 annual
report, is used to “support export transactions which the federal government deems to be in the
national interest but which, for reasons of size or risk, [the EDC] cannot support through regular
export credits”52.
5.54 Regarding whether the Canada Account financing conferred subsidies, we found, on the basis
of evidence concerning two financing transactions at “close to commercial” terms, that Canada
Account financing in the regional aircraft sector pr ovided subsidies, as, in our view, the reference to
“close to commercial” terms constituted evidence which Canada failed to rebut that the financing was
provided on below-market terms.  Concerning the question of export contingency, the Panel found, onthe basis of an admission by Canada that all debt financing from EDC (under which the Canada
Account operates) in the civil aircraft sector since January 1995 had taken the form of export credits,
and on the basis of the EDC’s announced purpose in providing financing to support and develop
directly or indirectly Canada’s export trade, that Canada Account financing was contingent in law on
export performance.  Thus we found that “the Canada Account debt financing at issue constitutedprohibited export subsidies”, and that “Canada Account financing since 1 January 1995 for the export
of Canadian regional aircraft constitute[s] export subsidies inconsistent with Article 3.1(a) and 3.2 of
the SCM Agreement”.
53
5.55 Neither party raised an appeal specifically concerning our finding on Canada Account, but
Canada did appeal as a horizontal issue our determination that the existence of a “benefit” in the senseof SCM Article 1 should be determined on the basis of a comparison with the market.  The Appellate
Body upheld this market-based approach.
                                                     
51 Oral statement of Canada (Annex 2-3) at para. 30.
52 EDC 1995 Annual Report, “Canada Account Profile” (cited in para. 9.211 of our report in the
original dispute (WT/DS70/R)).
53 We recall that Canada did not seek to rely on the safe haven provided for in item (k) of the
Illustrative List of Export Subsidies in Annex 1 of the SCM Agreement.WT/DS70/RW
Page 18
2. Summary of the parties' arguments
(a) The measure at issue
5.56 Canada identifies two types of measures concerning Canada Account which it states
implement the Panel’s recommendation, mandated by SCM Article 4.7, to “withdraw the subsidies
without delay”.
5.57 Canada argues first, that the two transactions examined by the Panel have been completed (in
1996 and 1998), so that there will be no further deliveries of regional aircraft under these transactions,
and that no new Canada Account financing has been granted in the regional aircraft sector since 18
November 1999 ( i.e., the expiry of the 90-day period for withdrawal of the prohibited Canada
Account subsidies54).  Thus, Canada asserts that it has completed the (past) financing transactions
under the Canada Account found by the Panel to be subsidies contingent in law upon export
performance55.  Brazil does not challenge this assertion, nor does Brazil seek further action by Canada
with respect to these past subsidies.  Given th at there is no “disagreement” between the parties
concerning Canada’s implementation in respect of the past Canada Account subsidies, we do not
consider further this aspect of that implementation.56
5.58 Second , Canada indicates that it has adopted a new Policy Guideline to the effect that any
future Canada Account financing for regional aircraft will comply with the OECD Arrangement on
Guidelines for Official Supported Export Credits (“ the OECD Arrangement ” or “the
Arrangement” )57.  In Canada’s view, the Policy Guidel ine means that any such financing would not
be considered prohibited export subsidies pursuant to the second paragraph of item (k) of the
Illustrative List of Export Subsidies (“the Illustrative List”) found in Annex I to the SCM Agreement.
The specific wording of the Guideline is that any transaction or class of transactions under CanadaAccount “which does not comply with the OE CD Arrangement on Guidelines for Officially
Supported Export Credits would not be in the national interest”
58.  Canada states that the Guideline
operates such that any future Canada Account transactions that do not comply with the OECD
Arrangement  would not be in the national interest.  Given that under the EDC legislation, the Minister
for International Trade, whose authorization is required, can only authorize financing under theCanada Account that is found to be in the national interest, and as financing that does not comply with
the OECD Arrangement  will be deemed by the Minister not to be in the national interest, Canada
argues that prohibited export subsidies can no longer be provided under Canada Account.  That is,
Canada maintains, to the extent that any future Canada Account financing constitutes export subsidies
in the sense of SCM Articles 1 and 3, it will be covered by the “safe harbour” of the second paragraphof item (k) of the Illustrative List, under which (in Canada's words) export credits that “comply” with
“the interest rates provisions” of the OECD Arrangement  are not to be considered prohibited export
subsidies
59.
                                                     
54 WT/DS70/R, para. 10.4.
55 First submission of Canada (Annex 2-1) at para. 62.
56 We recall that the scope of Article 21.5 proceedings is in principle defined by the scope of the
"disagreement" between the parties as to implementation (see para. 5.10 above).
57 Although the Panel’s ruling concerned Canada Account financing only in the regional aircraft sector,
according to Canada the new policy guideline applies to all Canada Account financing.
58 Exhibit CDN-13.
59 See, e.g., Oral statement of Canada (Annex 2-3) at para. 68.  We note that Canada uses the term
“comply with” in the Policy Guideline and in certain of its arguments, while the second paragraph of item (k)uses the term “conformity with”.  We understand Canada’s argument to be that any future Canada Accounttransactions will be eligible for the safe haven in the second  paragraph of item (k).  Thus we assume thatCanada intends to refer to “conformity with” when it uses the term “comply with”.   This assumption appears to
be confirmed by Canada's assertion that the Policy Guideline "does ensure that any future Canada AccountWT/DS70/RW
Page 19
5.59 We note that the scope of our ruling in the original dispute of necessity determines the
nature/scope of the measures that Canada needs to take in order to implement our recommendation to
withdraw the subsidy.  In particular, the questi on is whether our ruling was limited to the two
transactions that we examined in the original dispute60 or covered the Canada Account programme as
a whole (at least in respect of the regional aircraft sector), as applied.
5.60 In this regard, Brazil argues that our ruling was not limited to the two transactions that we
examined in the original dispute.  Rather, Brazil believes that our ruling went beyond these
transactions and covered the Canada Account programme as a whole, as applied.  Thus, Brazil argues,
Canada has an obligation to do more than simply complete the two transactions and refrain from
providing new financing, and must at a minimu m demonstrate that prohibited export subsidies  cannot
be provided via the Canada Account in the future .  Thus, for Brazil, the measure at issue in this
dispute is the action taken by Canada in respect of the future application  of the Canada Account
programme .
5.61 We note that Canada’s view concerning the scope of our original ruling and thereby the scope
and nature of the measure at issue is consistent with that of Brazil.  In particular, Canada states that"[a]lthough the Panel's conclusion concerned the programme as applied, it did not appear to be limited
by its terms to the two transactions that had been before the Panel.  Consequently, Canada understood
the Panel ruling to mean that it was essential to take steps to ensure that any future financing
transactions involving regional aircraft would be consistent with Canada's obligations under the SCM
Agreement".  Canada argues that it has done so, by issuing the Policy Guideline "making clear that
any financing transaction not in compliance with the OECD Arrangement  (necessarily including the
interest rates provisions thereof), will not be approved for Canada Account financing"
61.  Thus,
Canada argues, future Canada Account transactions will be consistent with Canada's obligations under
the SCM Agreement in that they will qualify for the safe haven in the second paragraph of item (k) of
the Illustrative List62.
5.62 We agree with the parties concerning the scope of our original ruling.  Specifically, that ruling
covered Canada Account as applied in the regional aircraft sector.  In our view, therefore, this givesrise to an obligation on Canada’s part to address elements of the Canada Account programme  in order
to implement the DSB's recommendation. Thus, the measure at issue in this dispute is the actions
taken by Canada in respect of the Canada Account programme ,  namely, the Policy Guideline.
(b) Standard for assessing Canada’s implementation
5.63 Our task is to assess whether the Policy Guideline is inconsistent with Canada's obligation to
"withdraw" the prohibited subsidies under the Canada  Account.  We do not believe that it is necessary
for us to develop a comprehensive definition of the term "withdraw the subsidy" (the only available
remedy for prohibited subsidies pursuant to SCM Article 4.7) to be able to make this assessment.
Rather, it is sufficient to conclude (and we note that the parties seem to agree with this) that a Member
cannot be understood to have withdrawn a prohibited subsidy if it has not ceased to provide  such a
                                                                                                                                                                    
financing transactions will be in conformity with the interest rate provisions of the [OECD] Arrangement …"
(see para. 5.72 below).
60 These were the only two Canada Account transacti ons involving the regional aircraft sector during
the period covered by our initial review in this dispute (1 January 1995 - 30 June 1998).
61 Canada's reply to the Panel’s Canada Account question 5 (Annex 2-4).
62 We note here that there is no disagreement between the parties that Canada Account financing
remains contingent on export performance, as Brazil has argued that this is the case and Canada has notcontested this argument.  In fact, Canada does not even argue that subsidies  will not continue to be provided in
the regional aircraft sector.  Rather, Canada's argument is that any future Canada Account subsidies for regional
aircraft will not be prohibited  by virtue of qualifying for the safe haven of the second paragraph of item (k).WT/DS70/RW
Page 20
subsidy, as that Member therefore would not have ceased to violate its WTO obligations in respect of
such a subsidy.  In our view, therefore, Canada's obligation arising from the DSB's recommendation
concerning prohibited subsidies under the Canada Account includes the obligation to cease providing
prohibited export subsidies to the regional aircraft sector.
5.64 We note that in the circumstances of this Article 21.5 proceeding concerning Canada
Account, such an assessment is by nature forward- looking.  That is, the simple absence of new
Canada Account transactions in the regional aircraft sector since 18 November 1999 does not provide
a sufficient basis for us to conclude one way or another as to whether prohibited export subsidies
under that programme have ceased.  Rather, to be able to reach a conclusion on this issue, we must
consider the Policy Guideline in terms of its effects on the future  application of the Canada Account
programme .  Here again, we note that the parties do not disagree.
5.65 This raises the question of what standard we should use to make such a determination.  We
note that the parties’ arguments indicate that both consider the correct standard to be whether or not
the Policy Guideline “ensures” that prohibited subsidies have ceased.  Brazil states, for example, that
Canada is required, through implementation, “at a minimum to ensure  that prohibited export subsidies
via the Canada Account cannot  be granted”63.  Canada for its part also accepts the appropriateness of
the “ensure” standard, as it argues that the Policy Guideline “ ensure[s]  that any future Canada
Account financing transactions will be in conformity  with the interest rate provisions of the [OECD]
Arrangement and therefore the provisions referred to in the second paragraph of item (k)”64.
5.66 Since there is no disagreement between the parties on this matter, we consider that the
standard put forward by the parties, that of "ens uring" the cessation of prohibited export subsidies in
the future, is appropriate in this case.  Thus, we shall examine whether the Policy Guideline is
sufficient to “ensure” that in future the Canada Account programme, as it will be applied, will not
provide prohibited export subsidies to the Canadian regional aircraft industry.
(c) Sufficiency of the Policy Guideline
5.67 The parties disagree over the sufficiency of the Policy Guideline as a means of ensuring that
in future Canada Account will not provide prohibited export subsidies to the regional aircraft sector,as to both its substance and its form.
5.68 As noted, Brazil argues as a general matter that Canada is required, through implementation,
“at a minimum to ensure that prohibited export subsidies via the Canada Account cannot  be
granted"
65. In other words, Brazil seeks an assurance that prohibited export subsidies through Canada
Account have definitively ceased.  Brazil argues that the Policy Guideline lacks any precision andtherefore is inadequate to constitute such an assurance.  We recall as set forth in para. 5.14 that Brazil,
as the complaining party, bears the burden of proof in this dispute, specifically to establish that
Canada has failed to “ensure” that future Canada Account transactions in the regional aircraft sector
will not provide prohibited export subsidies.
5.69 Brazil argues that the Guideline simply states that as a policy matter, the Minister for
International Trade will not approve transactions that are not in compliance with the OECD
Arrangement .   For Brazil, the Policy Guideline is a "vague hortatory statement[]" regarding Canada's
intentions. Brazil specifically takes issue with Canada’s argument that the Guideline states an
intention to meet the criteria to qualify for an exception under the second paragraph of item (k) of the
Illustrative List of export subsidies through conformity with the “interest rates provisions” of the
                                                     
63 Second written submission of Brazil (Annex 1-2) at para. 19.  Emphasis supplied.
64 Oral statement of Canada (Annex 2-3) at para. 67. Emphasis supplied.
65 Second written submission of Brazil (Annex 1-2) at para. 19.  Emphasis supplied.WT/DS70/RW
Page 21
OECD Arrangement .  Brazil argues that the Guideline does not say this, and that even if it did,
Canada does not define the interest rate provisions with which it intends to comply, or how it will
apply those provisions.  Without such precision, it is not evident to Brazil that Canadian practices
would qualify for the specific “safe haven” in the second paragraph of item (k). In particular, Brazil
points to the fact that, whereas the second paragraph of item (k) refers specifically to conformity with"the interest rates provisions” of the OECD Arrangement , the Policy Guideline refers to compl[iance]
with "the OECD Arrangement” more generally.  In Brazil’s view, this difference in terminology,
along with the absence of any detail in the Policy Guideline as to what Canada means by compliance
with "the OECD Arrangement" and the basis on which eligibility of Canada Account transactions for
the safe haven in the second paragraph of item (k) will be judged, means that the Policy Guideline isinsufficient to implement the DSB’s recommendation.
5.70 In Brazil’s view, Canada’s “minimum burden” with respect to implementation concerning the
Canada Account is to “explain with some precision  what ‘comply with the OECD Arrangement’ will
mean, so that Members are informed of the terms on which a measure previously judged to be or to
provide a prohibited export subsidy will operate in future”; and Canada has failed to discharge thisburden.  In other words, for Brazil, Canada has the burden of demonstrating its entitlement to the
“positive defense” offered by the second paragraph of item (k).
5.71 Concerning the question of substantive compliance with the OECD Arrangement , Canada
agrees with Brazil that the burden would be on Canada, as the one making use of the “exception” to
the SCM Agreement set forth in the second paragraph of item (k) of the Illustrative List, to prove that
it is entitled to that exception.  Canada appears to differ with Brazil concerning the timing, however.
Whereas Brazil believes that this burden exists now, Canada argues that it would need to be satisfiedonly at such future point as Canada invoked the second paragraph of item (k) and were challenged
with respect to that defense.
5.72 In terms of effectiveness, however, Canada argues that the Policy Guideline “does ensure that
any future Canada Account financing transactions  will be in conformity with the interest rate
provisions of the [OECD] Arrangement and therefore the provisions referred to in the secondparagraph of item (k)”.  That is, Canada argues that any future Canada Account financing that
otherwise would constitute an export subsidy will fall within the safe haven of the second paragraph
of item (k) and thus not be prohibited under the SCM Agreement.
3. Evaluation by the Panel
5.73 As noted, Canada’s defense to Brazil’s claim is that the Policy Guideline ensures that all
future Canada Account transactions in the regional aircraft sector will qualify for the safe haven of the
second paragraph of item (k).  Thus, to be able to determine whether this is the case, we must resolve
basic interpretational issues concerning that provision.
5.74 First, we must determine what constitute “export credit practices” in the sense of the second
paragraph of item (k).  Thereafter, we must consider how to make a determination in respect of the“conformity” of such practices with the “interest rates provisions” of the relevant “international
undertaking”, specifically, the OECD Arrangement .  In considering this issue, we turn to a detailed
examination of the text
66 of the OECD Arrangement67, as whatever the scope of the term “export
                                                     
66 We recall that Article 31.1 of the Vienna Convention on the Law of Treaties provides that a treaty
shall be interpreted "in good faith in accordance with the or dinary meaning to be given to the terms of the treaty
in their context and in the light of its object and purpose".
67 We recall that the EC - Bananas III  panel found it necessary to interpret certain provisions of the
Lomé Convention , since it was referred to in the WTO General Council's Lomé waiver  (WT/DS27/R/USA, para.WT/DS70/RW
Page 22
credit practices” in the sense of the second paragraph of item (k), at present only such practices that
are “in conformity with the interest rates provisions” of that Arrangement  qualify for the safe haven of
the second paragraph of item (k).
5.75 After our review of the Arrangement 's text, we next consider a number of systemic issues that
arise in the context of the second paragraph of item (k).  In particular, we evaluate our conclusionsdrawn from the texts of item (k) and of the Arrangement  in the light of the context of item (k) and the
object and purpose of that provision and the SCM Agreement.  In particular, we consider whether our
conclusion based on the texts is consistent with the overall object and purpose of the SCM Agreement
of disciplining trade distorting subsidies while at the same time maintaining special and differential
treatment for developing countries in respect of export subsidies.
5.76 In the light of our conclusions on the above issues, we then need to consider whether the
Policy Guideline does, as Canada argues, ensure in respect of the Canada Account programme that
any future Canada Account transactions in the regional aircraft sector will qualify for the safe haven
of the second paragraph of item (k).
(a) Textual analysis of the second paragraph of item (k)
5.77 Before commencing our detailed textual analysis, we recall that the second paragraph of item
(k) reads as follows:
"Provided, however, that if a Member is a party to an international undertaking on
official export credits to which at least twelve original Members to this Agreement
are parties as of 1 January 1979 (or a successor undertaking which has been adopted
by those original Members), or if in practice a Member applies the interest rates
provisions of the relevant undertaking, an export credit practice which is inconformity with those provisions shall not be considered an export subsidy prohibited
by this Agreement".
5.78 It is well accepted that the OECD Arrangement  is an "international undertaking on official
export credits" in the sense of the second paragraph of item (k).
68  Moreover, in practice the OECD
Arrangement  is at present the only international undertaking that fits this description.  Thus, we
understand the essence of the second paragraph of item (k) at least at present to be that “an export
credit practice" which is in "conformity" with "the interest rates provisions" of the OECD
Arrangement  "shall not be considered an export subsidy prohibited by" the SCM Agreement69.
                                                                                                                                                                    
7.97).  We likewise consider it necessary to interpret certain provisions of the OECD Arrangement , since it is
referred to in the second paragraph of item (k) of Annex I of the SCM Agreement.
68 This was confirmed by the Appellate Body in Brazil - Aircraft , WT/DS46/AB/R, para. 180, adopted
20 August 1999.
69 We take note of the reference to “a successor undertaking” in the second paragraph of item (k).  In
this regard, first, it is clear from this  reference that to the extent that the Arrangement  today is the only
undertaking of the kind referred to in the second paragraph of item (k), if in the future a "successor undertaking"were to take effect, export credit practices conforming with the interest rate provisions of that undertaking alsowould be eligible for the safe haven in that paragraph.  Thus, our detailed analysis of the Arrangement  in its
present  form is not in any way intended to exclude this possibility.  Second, for purposes of our analysis of the
Arrangement,  we assume that the Sector Understandings  on Export Credits for Ships, for Nuclear Power Plant,
and for Civil Aircraft, contained in Annexes I-III of the Arrangement , form an integral part of the Arrangement
itself.  Even if in the strict sense this were not the case (an issue that we do not here decide), in our view theseSector Understandings  at a minimum would constitute “successor undertakings” in the sense of the second
paragraph of item (k), as the Arrangement  as originally implemented in 1979 did not contain these Annexes.
Rather, its very brief sector-specific provisions (which at the time pertained to conventional power plants, to
ground satellite communications stations, and to ships) were contained in paragraph 4 of its main text.  TheWT/DS70/RW
Page 23
5.79 Given this, in practice eligibility for item (k)’s safe haven from the prohibition on export
subsidies is defined entirely in terms of the OECD Arrangement , at least for the time being.   Thus,
the critical element of our analysis must be to examine the Arrangement  in detail, to determine what it
applies to and how conformity with its interest rate provisions can be determined.  We considertherefore that before we can come to any judgement as to the sufficiency or insufficiency of the Policy
Guideline to ensure that all transactions under the Canada Account will be eligible for the safe haven
in item (k), as Canada argues, we must determine the answers to the following questions:  (1) what are
“export credit practices” in the sense of item (k) of the Illustrative List; (2) what are the “interest rates
provisions” of the OECD Arrangement ; (3) which types of export credit practices conceptually could
be in conformity with the interest rate provisions of the Arrangement  in its current form; (4) what
provisions and considerations are relevant to judging conformity with the Arrangement’s  interest rates
provisions? Only once we have answered these questions will we be in a position to judge whether the
Canada Account Policy Guideline is sufficient to ensure that Canada Account transactions in the
future will qualify for the safe haven of the second paragraph of item (k) (or at any rate should bepresumed to qualify therefor, in the absence of evidence to the contrary).
(i) What are “export credit practices” in the sense of item (k) of the Illustrative List of Export
Subsidies?
5.80 Because at the most basic level the safe haven in the second paragraph of item (k) is available
only for certain "export credit practices", we must first consider the definition and scope of this term.
We consider that in its ordinary meaning, this must be a relatively broad term.  That is, this term on itsown suggests any practices that might be associat ed in some way with export credits (i.e., export
financing).  This certainly would involve export credits as such, but presumably other sorts of
practices as well.  The first paragraph of item (k) provides useful context in this regard.  In particular,
we note that the first paragraph refers exclusively to "export credits" and "credits", in contrast to the
second paragraph’s reference to "export credit practices".  This supports the conclusion that thesecond paragraph of item (k) concerns a broader  range of "practices" than export credits as such.
5.81 In our view, the OECD Arrangement  provides further context for understanding the term
“export credits”, particularly in view of the role of the Arrangement   in determining qualification of
the safe haven in the second paragraph of item (k).  Here we note in particular the stated “scope of
application” of the Arrangement , found in its Article 2, namely “all official support for exports of
goods and/or services, or to financial leases” with repayment terms of two years or more, as well as
tied aid
70.  This supports our view of the broad meaning of “export credit practice”.   Furthermore, we
can conceive of no basis to consider any practice associated with export credits as a priori not
constituting an “export credit practice” in the sense of the second paragraph of item (k). 71
                                                                                                                                                                    
Sector Understandings  were negotiated and implemented later, and incorporate by reference provisions of the
Arrangement .  Thus, if they are not formally integral to the Arrangement , there is no doubt that these
Understandings  at a minimum constitute successor undertakings, and thus, conformity with the "interest rates
provisions” of the Understandings  would qualify an export credit practice for the safe haven in the second
paragraph of item (k).
70 Canada states that, pursuant to the Arrangement 's Sector Understanding  on Export Credits for Civil
Aircraft , tied aid for aircraft is not permitted except for humanitarian purposes.  (Oral statement of Canada
(Annex 2-3) at Attachment, footnote 1.)
71 As discussed below, this does not mean that all such practices can be "in conformity with" the
interest rate provisions of the OECD Arrangement .  However, while there may be no basis in the Arrangement
in its current form to judge the “conformity” of all such practices with the Arrangement ’s “interest rates
provisions” (i.e., those provisions simply may not apply to all such practices), this clearly does not a priori
exclude the possibility that new provisions or undertakings might be developed in the future that would permit
such a judgement in respect of such practices.WT/DS70/RW
Page 24
(ii) What are the Arrangement’s “interest rates provisions”?
5.82 Before considering in detail the question of the OECD Arrangement’s  “interest rates
provisions” and “conformity” therewith, we note that in its own words, the Arrangement  is a
"Gentlemen's Agreement" among its participants, which "seeks to encourage competition among
exporters from the OECD-exporting countries based on quality and price of goods and servicesexported rather than on the most favourable officially supported export credits", by placing
"limitations on the terms and conditions of export credits that benefit from official support", including
minimum premium benchmarks, the minimum cash payments to be made at or before the starting
point of credit, maximum repayment terms and minimum interest rates which benefit from official
financing support.  Thus, it "sets out the most generous  repayment terms and conditions that may be
supported".  The Arrangement  applies to officially supported export credits with repayment terms of
two years or more, relating to exports of goods and/or services or to financial leases, and addresses the
circumstances in which official support in the form of trade-related tied and partially untied aid may
be given and/or mixed with officially supported export credits
72.  It contains, in addition to its main
text, special Sector Understandings  which apply to aircraft, ships and nuclear power plant.  The
Participants to the Arrangement , as listed in Article 1(a) thereof, are “Australia, Canada, the European
Community (which includes the fo llowing countries:  Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the
United Kingdom) Japan, Korea, New Zealand, Norway, Switzerland, and the United States”73.
5.83 To answer the question of which are the interest rate provisions of the Arrangement , we once
again turn to its ordinary meaning.  Here we note that there is no section of the Arrangement  entitled
"Interest rates provisions", nor does the Arrangement use or define this term.  Nevertheless, we note
that there are a number of provisions that specifically address interest rates as such.  These are Article
15 –Minimum Interest Rates; Article 16 – Construction of CIRRs; Article 17 – Application of CIRRs;
Article 18 – Cosmetic Interest Rates; and Article 19 – Official Support for Cosmetic Interest Rates.
(In addition, in the specific context of this dispute, Article 22 of the Sector Understanding  on Export
Credits for Civil Aircraft74 covers minimum interest rates with respect to all new aircraft except large
aircraft75, along with spare engines, spare parts, maintenance and service contracts in respect of those
aircraft76, and Article 28(b) covers minimum interest rates with respect to used aircraft.)
5.84 Among these provisions, Article 15 appears to contain the basic interest rate provisions of the
Arrangement , as the other provisions identified that specifically address interest rates seem to be
dependent on and thus subordinate to it.  Specifically, Article 15 establishes the basic rule that“minimum interest rates” are to be applied, i.e., resp ected, by all Participants when providing “official
financing support”.  After establishing as a general principle the application of “minimum interest
rates”, Article 15 goes on to specify that the Commercial Interest Reference Rates (“CIRRs”), "shall"
                                                     
72 OECD Arrangement , "Introduction" section.  Emphasis added.
73 Article 1(b) further provides that “[o]ther countries willing to apply these Guidelines may become
Participants following prior invitation of the existing Participants”.
74 Annex III of the OECD Arrangement .
75 We note that, according to the list of aircraft models in the Sector Understanding  on civil aircraft,
aircraft with up to 70 seats are classified as other than large aircraft.  This is consistent with informationprovided during the original dispute, i.e., that regi onal aircraft generally are in the 30-70 seat range.
(WT/DS70/R, at footnote 535).
76 Spare engines, spare parts, maintenance and service contracts are covered by Part 3 of the Sector
Understanding  concerning civil aircraft.  Article 27 of that Understanding  provides that except as specifically
set forth in Part 3, the relevant provisions of Parts 1 and 2 apply to spare engines, spare parts, and maintenanceand service contracts.  As there are no specific provisio ns in Part 3 concerning interest rates, the applicable
interest rates for spare engines, spare parts, maintenance and service contracts in respect  of regional aircraft thus
would be those in Part 2 (i.e., the CIRRs).WT/DS70/RW
Page 25
be applied.  Specifically in respect of regional aircraft, Articles 22 and 28(b) of Annex III (the Sector
Understanding  for civil aircraft) provide that the CIRRs “shall” apply.
5.85 We note that the basic rule, that "minimum intere st rates shall apply" is worded in a general
manner, suggesting the possibility that more than  one framework or system of “minimum interest
rates” (i.e., other than the CIRRs) could be agreed under the Arrangement , and that to the extent that
this is the case, these other systems also would cons titute particular "minimum interest rates" in the
sense of the Arrangement .  Indeed this is the case with respect to the Sector Understandings  for ships
(which applies a minimum interest of 8 per cent in all cases) and for nuclear power plant (which
applies "Special Commercial Interest Reference Rates").  We note further, however, that at present,
the only “minimum interest rates” referred to in (and thus covered and regulated) by the main text of
Arrangement  are the CIRRs, and that as indicated, the CIRRs apply to regional aircraft, pursuant to
the Articles 22 and 28(b) of the Sector Understanding  for civil aircraft.
5.86 With respect to the CIRRs, Article 15 contains a number of general rules, all essentially
oriented toward ensuring that the CIRRs reflect commercial fixed-interest lending rates and practices.
In particular, Article 15 states that the CIRRs should represent final commercial lending interest ratesin the domestic market of the currency concerned, that they should closely correspond to the rate for
first-class domestic borrowers, that they should be based, where appropriate, on the funding cost of
fixed interest-rate finance over a period of no less than five years, that they should not distort
domestic competitive conditions, and that they should closely correspond to a rate available to first-
class foreign borrowers.
5.87 Article 16 puts into concrete technical terms how CIRRs are to be constructed, i.e., on the
basis of a fixed margin over government bond yields of varying maturities.  More specifically, thisArticle provides that the CIRR for a currency generally should be at a fixed margin of 100 basis
points above a base rate, which in turn is set at either a three-year, five-year or seven-year government
bond yield, depending on the repayment terms of the financing in question, or at a five-year
government bond yield for all maturities, at the option of the country providing the support
77. Article
16 also provides that countries lending in a curren cy other than their own shall apply the CIRRs for
that currency.  Finally, Article 16 contains provisions whereby a country can change the base rate
system that it applies, and whereby a CIRR can be established for the currency of a non-Participant (if
a Participant wishes to provide official support in that currency).
5.88 Article 17, concerning the application of CIRRs, limits the amount of time in which interest
rates can be fixed, and imposes an additional margin over the CIRR where financing terms are fixedin advance of the contract date.  In addition, where official financing support for floating rate loans is
provided, the lender is not allowed to offer the borrower the option of applying the lower of the CIRR
at the time of the contract or the short-term lending rate, over the life of the loan.  That is, the
borrower is not permitted during the life of a loan to switch between the CIRR as of the contract date
and a short-term rate, depending on which is lower at a given time
78.
5.89 Finally, Articles 18 and 19 impose limits on “cosmetic interest rates”, which the Arrangement
describes as rates below the relevant CIRR which benefit from official support, and which may
involve a compensatory measure including a corresponding increase in the contract value or other
                                                     
77  Specific exceptions are set forth for the Yen and for the Euro.
78 Canada argues in its answers to questions (see Canada’s replies to the Panel’s Canada Account
questions 2(b), 2(d) (Annex 2-4))  that Article 17(b) of the Arrangement  means that official support in the form
of floating rate financing is in conformity with the Arrangement .  While Article 17(b) does refer to floating rate
financing, it contains no minimum interest rate rule in respect of such financing, and indeed makes clear that theCIRR is not applicable thereto.  The issue of floating ra te financing and Article 17(b) is discussed in more detail
in paras. 0 - 5.106, infra .WT/DS70/RW
Page 26
contractual adjustment.  These Articles provide, inter alia  that official financing support by means of
direct financing shall not  be provided at rates below the CIRR, and that other official financing
support also shall not be offered at below-CIRR (cosmetic) rates.  Thus, these provisions appear to be
intended to prevent Participants from offering official financing support for lower-than-CIRR
financing, whether or not the below-CIRR rate is achieved directly through the face interest rate orthrough adjustment of the other terms and condit ions of the financing to circumvent the CIRR
minimum.
5.90 In particular, we note that pursuant to Article 19(c), a Participant intending to support a
transaction should clarify, in response to an inquiry from another Participant, the " financial terms and
mechanisms , including the compensatory measure" (emphasis supplied), while pursuant to Article
19(d) a Participant with information suggesting that "non-conforming terms" may have been offered
by another Participant shall try to determine whether the transaction benefits from official financing
support and whether or not the terms of the support conform to the provisions of Article 15
("minimum interest rates").  An important conclusion  that we draw from this is that the mechanism in
19(c) and (d) clearly implies that conformity with the CIRR  cannot be judged unless all terms and
conditions  of a transaction, including any "compensatory measures", are known.
5.91 There are no other provisions of the Arrangement  that directly or explicitly pertain to the
interest rate, and thus it would seem that the natural reading of the Arrangement  is that the above-
mentioned articles constitute the entirety of the Arrangement's  “interest rates provisions” (at least in
respect of regional aircraft).  Clearly the central one of these provisions is the CIRR, which as noted is
the only minimum interest rate system defined and thus regulated by the Arrangement  in this sector
79.
5.92 We note that our view as to which are the interest rate provisions of the Arrangement  is very
different from that of Canada.  Canada presented a list of what it considers those provisions to be80,
which, as Canada explains, encompasses all provisions of the Arrangement  that in Canada's view
affect the interest rate as such or the amount of interest paid in a transaction.  In support of its
position, Canada argues that compliance with the CIRR alone should not be enough to qualify an
“export credit practice” for the safe haven in item (k)81.  We agree that this is an important
consideration, and as noted above, Article 19 (which both we and Canada have identified as one of the
"interest rate provision") seems to suggest a way to address this question of "circumvention".  Thus, it
is by no means evident to us that the best or only way to address this question is through an expansive
definition, such as that proposed by Canada, of what constitute the “interest rates provisions” of the
Arrangement .  (This issue is discussed in detail in paras. 5.107-5.114, infra .)
(iii) Which types of “export credit practices” could conceptually be “in conformity with” the
“interest rates provisions” of the OE CD Arrangement in its current form?
5.93 Having identified the "interest rates provisions" of the OECD Arrangement , we are next faced
with the question of the types of "export credit practices" in respect of which interest rate provisions
exist and therefore apply.  This is a critical question, because, as noted above, qualification for thesafe haven of the second paragraph of item (k) at present is exclusively determined by the conformity
of an "export credit practice" with the interest rate provisions of the Arrangement .  Thus, before we
                                                     
79As noted, the other Sector Understandings  (on export credits for ships and for nuclear power plant)
also have interest rate rules, which are specific to those sectors.
80   See, Oral statement of Canada (Annex 2-3) at paras. 69-80 and Attachment.  In this list, Canada
identifies the following Articles of the Arrangement  as its interest rates provisions relevant to regional aircraft:
2, 3, 7, 9, 10, 13, 14, 15, 16, 17, 19, 21(a), 26, and 29, and identifies as well the following Articles of the Sector
Understanding :  21, 22, 23, 24, and 25 of Annex III, Part 2 (new  aircraft other than large aircraft), and 28, 29,
30 and 31 of Annex III, Part 3 (spare engines, sp are parts, maintenance and service contracts).
81 Oral statement of Canada (Annex 2-3) at para. 76.WT/DS70/RW
Page 27
can be in a position to determine the conformity of a given export credit practice with those interest
rate provisions, we will need to know whether it is of the type that conceptually could be subject to,
and thus in conformity with, those provisions.  This means, as a matter of logic, that conformity with
the interest rate provisions is a meaningful issue only in respect of types of export credit practices for
which such provisions exist.
5.94 Thus, we return to Article 15 which, as we noted, is the Arrangement 's central interest rate
provision in that it sets forth the basic minimum interest rate rule.  The chapeau of Article 15 reads in
relevant part as follows:
"The Participants providing official financing support through direct
credits/financing, refinancing and interest ra te shall apply minimum interest rates; the
Participants shall apply the relevant Commercial Interest Reference Rates (CIRRs)."
5.95 Thus Article 15 makes very clear what is subject to its minimum interest rate rule.  That is,
Article 15 states explicitly that what is subject to the minimum interest rate rules is not all forms of
“official support” covered by the Arrangement  but rather “official financing support”, which is
limited to “ direct credits/financing, refinancing or interest rate support ”82.  In other words, this
provision of the Arrangement  seems to specify that at present these, and only these, forms of “official
support" covered by the Arrangement  are subject to the minimum interest rate rule.
5.96 We note that the minimum interest rate rule specifically applicable to regional aircraft83 (i.e.,
paragraph 22 of Part 2 of Annex III of the Arrangement , the part of the Sector Understanding  on civil
aircraft other than large aircraft), is identical to that in Article 15 of the Arrangement .  In particular,
this provision states:
“The Participants providing official financing support shall apply minimum interest
rates; the Participants shall apply the relevant CIRR set out in Article 15 of the
Arrangement”.
5.97 Thus, we conclude that in the case of regional aircraft, as is the general rule under the
Arrangement , what is subject to the minimum interest rate rule is official financing support – direct
credits/financing, refinancing or interest rate support.
5.98 On the basis of our identification of the Arrangement ’s "interest rates provisions" and of the
types of "export credit practices" to which those provisions apply, the only logical conclusion that we
can draw is that the only forms  of export credit practices which at present are potentially eligible for
the safe haven are those subject to the interest rate provisions of the Arrangement  in its current form,
namely direct credits/financing, refinancing and interest rate support84.  By implication, this means
that the other forms of official support for export credits covered by the Arrangement  (e.g., guarantees
and insurance), are simply not eligible for the safe haven, because they are not covered by the existing
interest rate rule, and therefore cannot be "in confor mity" or out of conformity with it.  Thus, for now,
                                                     
82 The Introduction section of the Arrangement  contains the same definition of “official financing
support” as that in Article 15.
83 Canada, in its list of Arrangement  provisions that it considers to be the interest rate provisions, refers
to this provision as relevant in the context of regional ai rcraft.  As noted in footnote 75 above, this is consistent
with information provided in the original dispute.
84 With repayment terms of two years or more, recalling that the Arrangement’s coverage is limited to
transactions of this maturity.WT/DS70/RW
Page 28
there is no safe haven from the prohibition on export subsidies for these forms of official support85.
Rather, their conformity with the SCM Agreement can only be judged on the basis of Articles 1 and 3
of that Agreement.
5.99 We note that Canada takes a very different position, arguing that export credit insurance and
guarantees (“pure cover”) also are subject to the “interest rates provisions” of the Arrangement  and
thus are eligible for the safe haven.  Specifically, Canada argues that export credit guarantees involve
an interest rate in respect of the underlying loan, an d that the guaranteed loan itself must respect the
relevant interest rate provisions, which for Canada means that the “interest rates provisions” apply to
guarantees/insurance as such86.  On the basis of the above discussion, however, Canada’s reading of
the Arrangement  does not seem to be supported by the text thereof, given that Article 15 explicitly
omits from its own scope of application guarantees and insurance.
5.100  Moreover, we note that the Arrangement  establishes explicit rules concerning guarantees and
insurance, specifically by establishing minimum premium benchmarks. The minimum benchmarks
are set with respect to adequacy of premiums to cover the "sovereign" and "country" credit risk
involved in supported transactions.  These benchmarks also apply explicitly to official financingsupport.  Thus, both the minimum premium rule and the minimum interest rate rule on their faces
make clear whether or not they apply to guarantees and insurance.
5.101  The conclusion that only official financing support is potentially eligible for the safe haven
does not necessarily mean, however, that all official financing support would be eligible.  Rather,
continuing the logic of the analysis, it would appear that the safe haven could only be potentially
available to those specific kinds of official financing support to which the CIRRs (or if applicable, thespecial minimum interest rates under the Sector Understandings ) apply, given that these are the only
existing  systems of minimum interest rates under the Arrangement .  Thus, in the case of regional
aircraft, as the CIRRs are the relevant minimum interest rates, it is only support that is subject to the
CIRRs with respect to which “conformity” with minimum interest rates – which are exclusively
defined in terms of the CIRRs – even would be re levant and could be judged.  Thus, the question of
which export credit practices pertaining to regional aircraft are potentially eligible for the safe haven
in the second paragraph of item (k) cannot be full y answered without considering the nature of the
CIRRs.
5.102  Perhaps the most important aspect of the CIRRs
87 in this regard is that they are fixed  interest
rates established for various currencies, rather than floating rates.  In particular, under Article 15 of
the Arrangement , as a general principle CIRRs are to be established on the basis of fixed interest rate
finance over a period of no less than five years.  Article 16 provides more specifically that CIRRs
generally are to be set at 100 basis points above the medium- to long-term yields on government
bonds issued in the relevant currencies.  Given that they are expressed solely as fixed  interest rates, the
CIRRs can only meaningfully be applied to transactions with fixed interest rates.  That is, there is
simply no practical or meaningful way to apply rules concerning minimum fixed  interest rates to
floating  rate transactions88.  Thus, we conclude that only official financing support at fixed interest
rates is subject to minimum interest rates, given that the CIRRs are expressed as, and thus can only
apply to, fixed rate transactions.
                                                     
85 As noted above, this by no means rules out the possibility that in the future interest rate provisions
might be developed for other types of export credit practices, in which case the safe haven would potentially beavailable for such practices.
86 Canada’s reply to the Panel’s Canada Account question 2(b) (Annex 2-4) at para. 9.
87 As is the case as well for the other specific interest rates in certain of the Sector Understandings .
88 Canada also is of this view.  (Canada’s reply to the Panel’s Canada Account question 2(b) (Annex 2-
4) at para. 8.)WT/DS70/RW
Page 29
5.103  As noted above, Canada argues that Article 17(b) of the Arrangement  authorizes, and thus
makes eligible for the safe haven of item (k), official financing support at floating rates, even where
such financing is at a below-CIRR interest rate.  In particular, Canada states that Article 17(b)
establishes that  “the minimum floating interest rate is the ‘short-term market rate’”89, and further
argues that this is “generally understood to refer to international benchmarks such as LIBOR”.
5.104  Article 17(b) reads as follows:
"b) Where official financing support is provided for floating rate loans, banks
and other financing institutions shall not be allowed to offer the option of the
lower of either the CIRR (at the time of the original contract) or the short-
term market rate throughout the life of the loan."
Thus, as Canada notes, Article 17(b) does contain a reference to official support for floating rate
loans.  In our view this text does not, as Canada argues, clearly authorize  official support for floating
rate financing at rates below CIRR90, or establish that any such financing is “in conformity” with the
interest rate provisions of the Arrangement  and therefore qualifies for the safe haven in item (k).
5.105  Indeed, Article 17(b) does not set forth any specific rules with respect to the absolute or
relative levels of interest rates at which floating rate financing can be offered.  Rather, Article 17(b)
appears exclusively to pertain to (and to prohibit) the possibility that a lender could offer a borrower
the option to switch between an interest rate at the CIRR that was prevailing on the date of the
original contract and the short-term market rate prevailing at any given moment during the life of the
loan.  Thus, in our view, the reference to the "sho rt-term market rate" is only a descriptor of the
prevailing floating interest rate.  In our view, this provision simply recognizes that, over the life of a
loan, short-term interest rates may move above and/or below the fixed interest rate that was prevailingat the original date of the loan contract, and esta blishes a rule prohibiting switching between fixed and
floating-rate financing throughout the life of the loan to take advantage of such movements.  This is
not the same as affirmatively authorizing the provision of floating rate financing at interest rates
below the relevant CIRR, or indeed as establishing any rule whatsoever concerning minimum levels
for floating interest rates.  We can find no basis for reading into this provision any such rule, let aloneany implicit reference to LIBOR or any other putative "minimum" floating interest rate.
5.106  Thus, on the basis of the foregoing analysis we conclude that the safe haven in the second
paragraph of item (k) at present is potentially available only to export credit practices in the form of
direct credits/financing, refinancing, and interest rate support at fixed interest rates with repayment
terms of two years or more
91.  In other words, any such practices involving floating interest rates, as
well as official support for export credits with shorter maturity or in the forms of guarantees and
insurance, because none are subject to  the Arrangement ’s “interest rates provisions”, most especially
the CIRR but also the sector-specific minimum interest rates in the Sector Understandings , would not
                                                     
89 Canada’s reply to the Panel’s Canada Account question 2(b) (Annex 2-4) at para. 8.
90 We are aware that the subject of official support at floating interest rates has been under discussion
among Arrangement Participants for some time (See, e.g., Canada’s reply to the Panel’s Canada Account
question 2(b) (Annex 2-4) at para. 8).  Our understanding is that some Participants believe that such support isfully authorized and fully qualifies for the safe haven in the second paragraph of item (k), while others believethat it is permitted but not subject to any minimum interest rate rule, and still others believe that it is outright
prohibited under the Arrangement .   We note that in any case, Canada has indicated that “except in cases of
matching or humanitarian tied aid, all Canada Account financing transactions in the regional aircraft sector willtake the form of fixed-rate financing at interest rates at or above CIRR.”  (Canada’s reply to the Panel’s CanadaAccount question 3(d) (Annex 2-4) at para. 1.)
91 Here, we again emphasize that in our view, it woul d be perfectly possible for minimum interest rates
to be negotiated in respect of floating rate transactions.  Were this to be done, such transactions in our view
would be potentially eligible for the safe haven.WT/DS70/RW
Page 30
be eligible for the safe haven, as it simply would not be possible to judge their “conformity” with the
relevant interest rate provisions of the Arrangement , all of which pertain exclusively to fixed rates.
(iv) What provisions and considerations are relevant to judging “conformity” with the
Arrangement’s “interest rates provisions” and hence qualification for the safe haven in item
(k)?
5.107  Having determined which export credit practices are potentially  eligible for the safe haven in
the second paragraph, we recall that of course, not every individual transaction that is so eligible will
necessarily qualify for that safe haven.  Rather, to take advantage of the safe haven, eligible export
credit practices must be “in conformity  with the interest rates provisions”92 of the Arrangement .  Thus,
we turn next to the question of how, i.e., on th e basis of what provisions and considerations,
conformity with the interest rate provisions should be judged.
5.108  It is in this context of “conformity”, rather  than the context in which it was provided by
Canada, that Canada’s list of the provisions that it considers to be the “interest rates provisions”93
arguably is most relevant.  That is, as noted above,  Canada has identified a sizeable list of provisions
which it argues must be considered part of the Arrangement ’s “interest rates provisions”, because
these provisions directly or indirectly affect the amount of interest charged and the timing of when it
is paid.  In Canada’s view, the fact that item (k) refers to “interest rates provisions” and not simply to
the “interest rate” means that it must refer to more than the CIRR standing alone.  In other words,
Canada argues, if this term referred only to the CIRR, the benefit of the safe haven would be extended
to financing transactions that apply the CIRR, but do not abide by any of the other Arrangement  rules,
such as those relating to maximum terms and mi nimum risk premiums, thereby circumventing the
disciplines of the SCM Agreement94.
5.109  As discussed above, the text of the Arrangement  itself seems to define its “interest rates
provisions” much more narrowly than argued by Canada.  Nevertheless, Canada’s basic point is very
important, and seems to us to go to the issue of conformity .  That is, if not supported  and reinforced
by provisions related to the financing terms and conditions other than the interest rate, a minimum
interest rate rule standing alone could exercise no real discipline on the generosity of terms of officialsupport for export credits. Obviously, any financing transaction has a number of terms and conditions,
many of which do directly or indirectly affect the interest rate.  These include, as Canada points out,
the amount of the cash down payment, the maximum repayment term, the timing of principal and
interest payments, maximum “holding periods” or lock-in periods for interest rates, risk premiums,
and similar terms.  To use an example, if the interest rate of a transaction were fixed at CIRR, but forexample the repayment term was 30, 50 or 100 years, or no amortization of principal was required
over the life of the loan, the fact that the interest rate respected the CIRR would not in any real sense
discipline the terms of the financing. Thus, if the generosity of the other terms and conditions were
unlimited, such terms and conditions could completely circumvent any limiting effect that the
minimum interest rate rule was intended to exercise.
5.110  Of course, the Arrangement  does address and set limits with respect to many such terms and
conditions, not limited to the minimum interest rate.  Thus, in developing an approach for determining
whether a given “official financing support” transaction qualifies for the safe haven of the second
paragraph of item (k), it would seem appropriate to adopt an approach to the question of “conformity”
with the interest rate provisions that is sufficiently broad to capture not just  conformity with the CIRR
standing alone, but also respect for the Arrangement ’s limits on the generosity of the other financing
                                                     
92 Second paragraph, item (k), emphasis supplied.
93 Oral statement of Canada (Annex 2-3) at paras. 69-80 and Attachment.
94 Id. at paras. 75-77.WT/DS70/RW
Page 31
terms having an effect on the interest rate.  That is, recalling95 that the stated purpose of the
Arrangement  is, inter alia , to “encourage competition among exporters...based on quality and price of
goods and services exported rather than on the most favourable officially supported terms”, by placing
“limitations on the terms and conditions of export credits that benefit from official support”, it would
not make sense from the standpoint of the Arrangement  to so narrowly interpret the concept of
“conformity” with the interest rate provisions as to provide an exemption under the SCM Agreement
for transactions that unabashedly circumvent that purpose.  Nor would such a narrow interpretation
make sense from the standpoint of the SCM Agreement, as doing so would have the effect of
exempting from the prohibition on export subsidies practices that respected the CIRRs in name only,
even if their other terms were so generous as to  remove any limiting effect of the minimum interest
rate rule.
5.111  In our view, Articles 19(c) and (d) of the Arrangement  (which concern official support for
cosmetic interest rates) appear in effect to establis h this very approach to judging conformity with the
Arrangement 's interest rate provisions.  That is, as discussed above96, Articles 19(c) and (d) provide
for an evaluation by a Participant of all terms and conditions  of a transaction in order to judge
whether it "conform[s] to the provisions of Article 15", i.e., the minimum interest rate rule.
5.112  Article 27 of the Arrangement , concerning the “no derogation engagement”, provides further
contextual support for this approach to judging conf ormity with the interest rate provisions, in the
sense that it refers to all elements of a financing transaction as parts of a single package.  Specifically,
under this provision, Participants are not to derogate  from “maximum repayment terms, minimum
interest rates, premium benchmarks, the six-month limitation on the validity period for export credit
terms and conditions, or extend the repayment term by extending the repayment date of the firstinstalment of principal set out in the Arrangement”.  Thus, the Arrangement  seems to recognize that
financing terms and conditions must be treated as a package, and that derogation from one will
undercut the others.
5.113  By the same token, however, we do not agree with the very broad reading advocated by
Canada of what “conformity” with the interest rate provisions would be, as this reading would sweepin inter alia  all of the provisions that permit various kinds of exceptions and derogations from some
provisions of the Arrangement  that affect interest rates.  In particular, we cannot reconcile identifying
as “conforming” with the interest rate provisions any practice that on its face breaks , i.e., does not
conform with , the interest rate rules (even where this is tolerated as matching).  Such a reading would
seriously undermine the disciplines of the SCM Agreement in the field of export credits. (We discussthe provisions of the Arrangement  concerning exceptions and derogations in more detail in paragraphs
5.120 - 5.125, infra .)
5.114  Thus, we conclude that full conformity with the “interest rates provisions” – in respect of
“export credit practices” subject to the CIRR – must be judged on the basis not only of full conformity
with the CIRR but in addition full adherence to the other rules of the Arrangement  that operate to
support or reinforce the minimum interest rate rule by limiting the generosity of the terms of official
financing support.
Provisions of the Arrangement  imposing disciplines or limits that reinforce the minimum interest rate
rule
5.115  A review of the Arrangement  in the light of the above discussion suggests that the provisions
that would need to be respected in order for official  financing support to be in full conformity with the
interest rate provisions would include, in addition to  the provisions concerning the CIRR, most of the
                                                     
95 See para. 5.82 supra .
96 At paras. 5.89-5.92, supra .WT/DS70/RW
Page 32
articles of Chapter II of the Arrangement , along with (for this dispute) most of the articles of Annex
III, Parts 2 and 3 ( Sector Understanding  on Export Credits for Civil Aircraft, All New Aircraft Except
Large Aircraft (Part 2) and Used Aircraft, Spare Engines, Spare Parts, Maintenance and Service
Contracts (Part 3)).  These provisions are discussed in detail in this section.
5.116  Taking Chapter II of the Arrangement  first, the first provision thereof, Article 7 on cash
payments, limits the generosity of financing terms by establishing a minimum percentage that must be
paid in cash (i.e., a maximum percentage that can be financed).  Article 8 defines the starting and
ending point of the repayment term, Article 9 defines the starting point of credit for different types of
contracts, and Article 10 establishes specific maximum repayment terms for different categories of
countries.  Article 12 establishes criteria and procedures for classifying countries for maximumrepayment terms.  Article 13 establishes rules concerning the schedule for repayment of principal.
Again, the underlying purpose of all of these provisions is to set limits on the generosity of the
financing terms.
5.117  Article 14 establishes rules governing the schedule and other aspects relating to the payment
of interest, with a view to ensuring that interest is  paid at regular intervals over the life of a loan,
rather than deferred, again imposing limits on the generosity of the financing terms.  Article 20
requires the application of risk premiums at least sufficient to cover sovereign credit risk and country
credit risk
97.  (Subsidiary to Article 20, Articles 21, 22, 23, and 24 establish various rules and
procedures for setting and verifying the minimum premium benchmarks, on a Participants’-wide
basis.)  Article 25 sets limits on the amount and kind of official support that can be provided for so-
called “local costs”98.  (According to Canada, the local cost provision is not relevant in the context of
aircraft finance99.)  Finally, Article 26 establishes the maximum validity period for credit terms and
conditions for an individual export credit or line of credit, again limiting the generosity of the
financing terms and thus reinforcing the minimum interest rate rule.
5.118  Similar provisions pertaining directly to regional aircraft are found in Part 2 of the Sector
Understanding for civil aircraft (Annex III), pertaining to new aircraft other than large aircraft100, as
well as in Part 3 of that Understanding , which pertains to used aircraft (of all sizes), spare engines,
spare parts, maintenance and service contracts101.  Specifically, Article 21 of the Sector
Understanding  fixes maximum repayment terms for different categories of new “non-large” aircraft
and Article 28 does the same for different categories of used aircraft.   In addition, Article 23 of the
Sector Understanding , pertaining to “non-large” aircraft, provides that the insurance premium or
guarantee fee shall not be waived in whole or in part.  Article 24 of that Annex prohibits aid supportexcept in the form of untied grants, although it appears to permit tied aid for humanitarian purposes
102.
Article 29 (a) – (c) of the Sector Understanding  establish limits on the financing terms for spare
engines and spare parts, while Article 30 establishes limits on official financing support for
maintenance and service contracts.
                                                     
97 The Arrangement 's risk premium rules apply equally to direct financing, refinancing, guarantees and
insurance.
98 Article 25 defines local costs as expenditures for goods and services in the buyer’s country that are
necessary either for executing the contract or for completing the project of which the exporter’s contract forms apart, which costs exclude commissions payable to the exporter’s agent in the buyer’s country.
99 Canada’s reply to the Panel’s Canada Account question 2(a) (Annex 2-4) at para. 4
100 As indicated above, regional aircra ft, i.e. aircraft with no more than 70 seats, are covered by Part 2
of the Sector Understanding  on civil aircraft.
101 There are also similar provisions in the other Sector Understandings , but these are not relevant to
this dispute and so are not mentioned here.
102 We note that in our view it is unlikely that any tied aid for truly humanitarian purposes would be
challenged under the SCM Agreement as a prohibited subsidy.  As this issue is not before us, we do not considerit necessary to make a finding regarding whether any such aid would qualify for the safe haven of the second
paragraph of item (k).WT/DS70/RW
Page 33
5.119  Thus, all of the provisions identified above limit the generosity of some aspect of the
financing terms where official financing support is provided, and thereby reinforce the minimum
interest rate rule.  While not all of these provisions would necessarily apply in respect of any given
instance of official financing support, under the approach described, those that did apply would need
to be respected fully for that transaction to be “in conformity” with the Arrangement ’s interest rate
provisions and thus to qualify for the safe haven in the second paragraph of item (k) of the Illustrative
List of Export Subsidies103.
Provisions of the Arrangement  providing for exceptions and derogations
5.120  The final Articles of Chapter 2 (in particular Articles 27 and 29), as well as Articles 25, 29(d)
and 31 of Annex III, concern inter alia  various situations in which certain variations, exceptions and
derogations from the Arrangement ’s terms are foreseen and explicitly permitted or not prohibited.
Articles 47-53 contain procedures (notifications, etc.) to be followed in these situations.  In our view,
it is not obvious on its face that sweeping all of these provisions into the group of provisions that must
be respected for a transaction to be in “conformity” with the interest rate provisions would be
consistent with the approach outlined above.  This is because these provisions essentially run counterto, rather than reinforcing, the Arrangement ’s minimum interest rate rule and other limits on the
generosity of financing terms.  Thus, the issue is whether a transaction that makes use of flexibilities
and/or outright departures from the rules through any or all of these Articles or any part(s) thereof can
be considered to be “in conformity” with the interest  rate provisions in the sense of item (k).  On the
one hand, an argument could be made that anything that is explicitly not prohibited by the
Arrangement  must be ipso facto   “in conformity” with it, even if it is recognized as a derogation.
(This is in fact what Canada argues
104.)  On the other hand, if even matched derogations (i.e., non-
conforming  departures from the rules) are considered to be “in conformity”, then the notion of
“conformity” cannot be understood to represent a discipline or limitation of any kind.
5.121  We note in this context as an initial matter that not all exceptions under the Arrangement  are
necessarily equal.  In this regard, Canada itself makes a distinction between “variations”, which are
“permitted” “within limits” under the Arrangement , and the “matching” of terms and conditions that
are “outside of the Arrangement’s rules”105.  In its answers to questions, Canada confirms that this
distinction is the same as that in the Arrangement ’s Chapter IV (procedures) between “permitted
exceptions” and “derogations”106.  Chapter IV makes clear on the one hand that permitted exceptions
in fact refer to certain variations in terms that  are foreseen and permitted, subject to limits, under
various specific provisions of the Arrangement .  Chapter IV further makes clear on the other hand that
derogations are terms and conditions that depart from the Arrangement ’s provisions, i.e., in a way not
foreseen and not permitted, even within limits, under the plain language of the Arrangement .
5.122  We turn to the specifics of the Articles in question while bearing in mind all of these general
considerations.  Article 27 of Chapter 2, entitled the “no derogation engagement for export credits”, in
fact envisages certain deviations.  That is, as noted, this Article provides that Participants shall notderogate from maximum repayment terms, minimum interest rates, minimum premium benchmarks,
                                                     
103 In this connection, we note that a transaction that involved interest rate support and a guarantee or
insurance would need to respect the interest rate provisions of the Arrangement , as well as the requirements
pertaining to minimum premia and all of the other provisions identified above that applied to the transaction, for
that transaction to be "in conformity" with the interest rate provisions of the Arrangement .  As noted above (at
para.5.98) the conformity of insurance or guarantees as such with the SCM Agreement can only be judged onthe basis of Articles 1 and 3 of the Agreement.
104 See, e.g., Canada’s reply to the Panel’s Canada Account question 3(i) (Annex 2-4).
105 Oral statement of Canada (Annex 2-3) at Attachment, introductory paragraph and paragraph
concerning Article 29.
106 Reply of Canada to the Panel’s Canada Account questions 3(k) and 3(l) (Annex 2-4).WT/DS70/RW
Page 34
the limitation on the validity period for credit terms and conditions, and shall not extend the
repayment term by extending the repayment date of the first instalment of principal per Article 13(a).
5.123  Nevertheless, Article 27 goes on to provide that countries may go below the relevant
minimum premium benchmark in certain cases where the country credit risk is “externalised/removed
or limited/excluded for the entire life of the debt repayment obligation”.  Chapter IV (Article 48)explicitly refers to this deviation as a “permitted exception”.  Article 49 identifies a list of “permitted
exceptions” having to do inter alia  with maximum repayment terms, principal and interest payments,
and discounts to minimum sovereign risk premium benchmarks.
5.124  Article 29, on matching, further clarifies the distinction between “derogations” and “permitted
exceptions”.  In particular, while under this Article there is a general permission to match terms andconditions offered by both Participants and non-Participants, some matching, i.e., where Participants
“match credit terms and conditions by supporting terms that compl y with the Arrangement”
107 is not
considered a derogation.  Rather, this seems to refer to matching another country’s offer of terms that
are within the permitted variations that exist under certain provisions.  (For example, under Article 10,
there is a certain amount of permitted variation concerning maximum repayment terms, which isexplicitly recognized in Article 49 as a permitted exception.  Article 51 specifically deals with the
matching of permitted exceptions.)  Thus, if a country offers terms that are within permitted
variations, the Arrangement  appears to consider that such terms “comply” with the provisions of the
Arrangement , and that any matching of those terms therefore also “complies”.  Canada agrees with
this interpretation
108.
5.125  On the other hand, Article 29 further provides that if an initiating offer “ does not comply  with
the Arrangement”109, competing Participants are permitted to match those non-complying terms.  The
Arrangement  defines “derogation” as terms and conditions that “depart from” the rules of the
Arrangement110; thus, this reference in Article 29 equates non-compliance with derogation.  This
reading is confirmed in Article 47(b), which refers to derogations as “ non-conforming  terms and
conditions”.  That is, these parts of the matching provisions confirm that, although matching of
derogations is in certain cases  not prohibited,  this does not alter the fact that both the originalderogation and the matching remain, by the Arrangement’s  own terms  out of conformity  with the
provisions of the Arrangement
111.  We note that Canada takes the opposite view, namely that the
initial derogation does not comply with the Arrangement , but that matching, because tolerated, does
fully comply therewith112.  For the reasons discussed above, however, we disagree.  In our view,
Canada’s approach would directly undercut real disciplines on official support for export credits113.
                                                     
107 Emphasis supplied.
108 Canada’s reply to the Panel’s Canada Account question 3(k) (Annex 2-4).
109 Emphasis supplied.
110 OECD Arrangement  Article 47(a).
111 We also note, in the context of  “derogations”, Article 28 of the Arrangement  which allows action to
avoid or minimise losses, i.e., establishment of more favourable terms and conditions than permitted , after the
contract award, where the sole intentio n is to avoid or minimise losses from events which could give rise to non-
payment or claims.  In other words, where a default or similar event has occurred or is likely, renegotiation ofmore favourable terms than permitted is not prevented by the Arrangement .  Under the approach outlined, if
there were such a renegotiation, a transaction that had previously qualified for the safe haven would fall outside
of it to the extent that the renegotiated terms were in fact “more favourable than permitted”.
112 Canada does not appear to disagree with the reading that both derogations and matching are out of
accord with the Arrangement ’s rules, but nevertheless argues that matching is “compliant” with the
Arrangement   (Canada’s replies to the Panel’s Canada Account questions 3(i) and 3(l) (Annex 2-4)).
113 Our analysis of matching of derogations and permitted exceptions applies equally to the relevant
provisions of Parts 2 and 3 of the Sector Understanding  for civil aircraft (i.e., its Articles 25, 29(d) and 31).WT/DS70/RW
Page 35
Conclusion based on textual analysis
5.126  As the foregoing discussion indicates, the text of the Arrangement  provides considerable
guidance concerning how the term “conformity” in the second paragraph of item (k) of the Illustrative
List should be understood.  In the first place, the Arrangement  text provides explicitly that derogations
from provisions of the Arrangement , and the matching of such derogations, do not “conform” with the
provisions of the Arrangement .114  Thus, any transaction that involves derogations or matching of
derogations by definition cannot be in conformity with the interest rate provisions  of the
Arrangement , as under the approach outlined above, conformity with the interest rate provisions
requires conformity not just with the minimum interest rate rule but also with the other provisions that
support/reinforce that rule.  As such, an otherwise eligible transaction115 involving derogations or
matching of derogations could not qualify for the safe haven of the second paragraph of item (k).  On
the other hand, the Arrangement  explicitly defines permitted exceptions and the matching of
permitted exceptions, within the allowed limits, to be in compliance, i.e., in conformity with the
relevant provisions of the Arrangement .  Therefore, under this approach, making use of permitted
exceptions, within the specified limits, would not disqualify an eligible transaction from the safehaven, so long as the transaction conformed with the minimum interest rate and all of the other
applicable disciplines.
5.127  Through the above textual analysis, we have arrived at a process for judging the conformity of
a specific, individual transaction with the interest rate provisions of the Arrangement , and thus
qualification for the safe haven in item (k).  Under this approach, first, it would need to be determined
that the transaction was in the form of either direct credits/financing, refinancing or interest rate
support with repayment terms of at least two years, at fixed interest rates, and therefore was subject tothe Arrangement  generally and to the CIRRs (or a sector-specific minimum interest rate, if applicable)
specifically.  Second, it would need to be determined whether the interest rate was at or above the
CIRR (or the applicable sector-specific rate).  Th ird, it would need to be determined which of the
other provisions of the Arrangement  that operate to reinforce the minimum interest rate rule applied to
that particular transaction (a determination that would need to be made on a case-by-case, transaction-specific basis).  Fourth, the details of the transaction would need to be examined to determine whether
or not it respected all such additional provisions, and did not involve any derogations or matching of
derogations.
(b) Considerations based on the context of the se cond paragraph of item (k) and the object and
purpose of the SCM Agreement
5.128  It is clear from the above that a textual analysis leads us to a tentative conclusion that the safe
haven in the second paragraph of item (k) of the Illustrative List of Export Subsidies is considerably
narrower than argued by Canada.  That is, the textual analysis suggests that a number of export credit
practices covered by the Arrangement  would not qualify for the safe haven because of their form or
maturity alone (i.e., those not in the form of official financing support, and those with repaymentterms of less than two years).  The textual analysis also suggests that application of the CIRR (or
relevant sector-specific minimum interest rate) by itself, while a necessary condition for "conformity
with the interest rates provisions" of the Arrangement , is not a sufficient condition therefor; in
addition, the other provisions supporting the minimum interest rate rule, to the extent that they apply
to a given transaction, also would need to be fully respected for a transaction to be "in conformity"with the interest rate provisions.  Thus to the extent that a transaction derogated in some respect from
                                                     
114 Canada does not appear to disagree with the reading that both derogations and matching are out of
accord with the Arrangement ’s rules, but nevertheless argues that matching is “compliant” with the
Arrangement   (Canada’s replies to the Panel’s Canada Account questions 3(i) and 3(l)).
115 That is, a transaction at a fixed interest rate involving official financing support.WT/DS70/RW
Page 36
any of those provisions, or involved matching of another country's derogation, that transaction would
not be "in conformity" with the Arrangement 's interest rate provisions.
5.129  In our view, this reading of the text of the second paragraph of item (k) and of the OECD
Arrangement  is the most natural and logical reading, as it flows from the words of those texts.  We
recognize, however that there is another possibl e reading of these provisions, namely the broad
reading advocated by Canada.  In considering this alternative reading, we note that it is incumbent
upon us to try to resolve any ambiguities in the texts in a manner which is the most consistent possible
with the object and purpose of the SCM Agreement and of the WTO Agreement.  In our view, the
object and purpose of the SCM Agreement and the WTO Agreement do not support the textual
analysis proposed by Canada.  Rather, they support the textual analysis developed by the Panel above.
5.130  In particular, under Canada’s approach, all substantive  provisions of the OECD Arrangement
would be considered its “interest rates provisions” and all "export credit practices" which conformed
to those of the "interest rates provisions" applicable to them would be "in conformity with" the
interest rate provisions of the OECD Arrangement .  That is, under this approach, the term “interest
rates provisions” would be understood as a means of distinguishing the substantive  from the
procedural  provisions of the Arrangement , in recognition of the fact that non-Participants cannot use
those procedural provisions.  In other words, the safe haven would be understood to apply to all types
of practices covered by the Arrangement  that are in compliance with the relevant substantive
provisions of the Arrangement , whether or not any minimum interest rate applied in respect of the
export credit practice in question116.
5.131  One implication of the broad approach in this context is that any practice that is not out of
conformity  with the relevant provisions of the Arrangement , whether or not even covered by
provisions explicitly pertaining to interest rates, would qualify for the safe haven in item (k)117.  In
this regard, matching of derogations, because tolerated  although not in compliance,  would be
considered to be "in conformity" under this approach.  We note that the main argument in support of
this sort of a broad reading of the term “in conformity with the interest rates provisions”, would be
that the Participants to the OECD Arrangement  would not have on the one hand negotiated for
themselves a set of rules in the OECD with a broad scope, covering, regulating in different ways, and
permitting a variety of practices, and on the other hand negotiated a safe haven in item (k) of the SCM
Agreement covering only a subset of those practices.
                                                     
116 Thus, under Canada’s approach, in addition to direct financing, refinancing and interest rate support,
which are subject to the minimum interest rate rule, guarantees and insurance, which are subject to other rules
but not to the minimum interest rate rule, would be eligible for the safe haven.  In addition, Canada argues that“matching” of “derogations” also would be eligible for it, on the basis that such matching is not prohibited.Derogations are terms and conditions that do not comply with the Arrangement .  As noted, the Arrangement
does not prohibit Participants from matching the terms of such derogations/non-compliant terms offered byParticipants as well as non-Participants.
117 One example is that of export credit guarantees, which as discussed above, are subject under the
Arrangement  to rules concerning minimum premiums, but are not subject to any specific provision on interest
rates.  Under this broad approach, so long as this general rule was respected, such guarantees would qualify forthe safe haven, even if the provision of the guarantee allowed the interest rate to fall below the minimum interestrate (the CIRR).  Because the minimum interest rate rule does not apply to guarantees, under this interpretation
that rule would not act to limit the eligibility of the guarantee for the safe haven, in spite of the guarantee’s
effect on the interest rate.  Another example would be the provision of floating rate financing.  Here again,because the CIRR is only expressed in terms of fixed interest rates, it cannot be applied to floating ratefinancing.  Thus, this approach would say that floating rate financing which respected other provisionsconcerning financing (e.g., cash payments, maximum financing terms, etc.) would qualify for the safe haven,even if the interest rate were set far below the market rate, on the basis that by not being covered by the CIRR it
was not out of conformity with it, and thereby was in conformity with it.WT/DS70/RW
Page 37
5.132  In considering this alternative approach, we note first that the second paragraph of item (k) is
quite unique in the sense that it creates an exemption from a prohibition in a WTO Agreement, the
scope of which exemption is left in the hands of a certain subgroup  of WTO Members – the
Participants, all of which as of today are OECD Members – to define, and to change as and when they
see fit.  Given this, it is important that the second paragraph of item (k) not be interpreted in a mannerthat allows that subgroup of Members to create for itself de facto  more favourable treatment under the
SCM Agreement than is available to all other WTO Members. The OECD Arrangement , as a
plurilateral arrangement to which most WTO Members are not Participants, clearly has the potential
to give rise to such differential treatment of Participants and non-Participants.
5.133  Related to this, i.e., because the Arrangement  as such is in the hands of a subgroup of WTO
Members, it is important that any interpretation of the second paragraph of item (k) provide clarity
and certainty concerning what the (SCM Agreement) rules are and how to comply with them.  Thus,
any interpretation should be clear and transparent, and capable of application by all Members, rather
than left to the discretion of individual Members or groups of Members.
5.134  In our view, the reading advocated by Canada would pose serious problems in respect of these
important considerations.  In particular, information about the actions of Participants is available only
to Participants.  None of this information is published, nor can it be obtained upon request by non-
Participants.  Thus, a reading that would, for example, include within the safe haven in the second
paragraph of item (k) a transaction involving matching of a derogation, would put all non-Participants
at a systematic disadvantage as they would not have access to the information about the terms and
conditions being offered or matched by Participants.  This concern obviously is relevant as well to the
issue of transparency and clarity of the rules.  We note that the CIRRs and the sector-specific interestrates are published.  Therefore, all WTO Members, whether Participants or not, can offer financing on
terms consistent with the minimum interest rates
118.  Similarly, the text of the Arrangement  itself sets
forth the limits to most of the permitted exceptions.  Thus these as well can be applied by all WTO
Members, whether Participants or not119.  Financing terms and conditions known only to Participants
clearly cannot be universally applied.
5.135  We note further in this context the particular potential for different, indeed stricter , rules de
facto  applying to developing than to developed countries, or at a minimum for developed countries to
be able de facto  to enjoy the same less strict rules as are provided de jure , through the SCM
Agreement's special and differential treatment provisions, to developing countries.  Arguably, such
situations would be out of keeping with one of the key stated purposes of the WTO Agreement,
                                                     
118 We note that, by contrast, no information is published on the minimum premium benchmarks.
Thus, only Participants have access to this information.  Given this, it is at present impossible for a non-Participant to have any idea whethe r a given transaction respects the rules concerning minimum premiums.
Thus, until such time as the Participants make this information publicly available, non-Participants should be
presumed to be respecting the minimum premium rules in the context of any analysis under the secondparagraph of item (k).  Canada also has recognized this issue and come to the same conclusion.  In particular,
Canada states that “it would be unreasonable to exp ect a non-OECD WTO Member to charge a premium level
which is unknown to such Member, in order for that Member to be in full compliance with the interest rates
provisions of the Arrangement .  Canada is prepared to accept the conseq uence that in relation to premiums and
for the purpose of the second paragraph of Item (k), a higher threshold is imposed on those WTO Members thatare also OECD Participants” (Canada’s reply to the Panel’s Canada Account question 3(h)).
119 As in the case of minimum premiums, however, where the Arrangement  text does not set forth
explicit limits to permitted variations (e.g., Article 49(a)(2) of the Arrangement ) and no information is published
concerning specific cases of such variations, non-Participants should be presumed to be respecting such limits in
the context of any analysis under the second paragraph of item (k).WT/DS70/RW
Page 38
namely the need for positive efforts on behalf of developing countries (which is the basis for the
extensive special and differential treatment provisions of the SCM Agreement)120.
5.136  In particular, the broad approach advocated by Canada would in fact raise the issue of
structural inequity in respect of developing countries.  Specifically, this approach could result in either
more favourable treatment, de facto , for developed compared to developing countries, or the de facto
elimination of special and differential treatment for developing countries. An example of the first case
would be provision of a government guarantee, which on its face is not subject to any interest rate
rule.  In practical terms, an interpretation of item (k) that would allow any government to make
available to a borrower its own cost of borrowing through the provision of a guarantee and have that
guarantee qualify for the protection of the second paragraph of item (k), irrespective of the interestrate applied, would generate a result that was systematically skewed in favour of developed countries.
This is because developing countries’ cost of borrowing will normally be higher than that of
developed countries, meaning that the former argu ably could never meet the financing terms offered
by the latter.   An example of the second case would be a reading of item (k) whereby a developed
country could match the (subsidized, but because of SCM Article 27 not prohibited) terms offered bya developing country, and qualify for the protection of the second paragraph of item (k).  In this case,
special and differential treatment de facto  would be eliminated.
5.137  Third, it is important to keep in mind the role of the safe haven in the second paragraph of
item (k) in the overall context of the prohibition on export subsidies.  In particular, we note that export
subsidies are prohibited because of their direct trade-distortive effects, and that among the various
forms of export subsidies, subsidized export credits arguably have the most immediate and thus
greatest potential to distort trade flows.  In view of this, we believe that an interpretation of item (k)that would create a very broad exemption from prohi bition in respect of export credits would not be
consistent with the purpose of that prohibition in the context of the SCM Agreement.  In particular,
the broad reading would significantly weaken any actual disciplines on export credits and related
practices.  In effect, this approach would say that practices not explicitly subject to the CIRR but in
conformity with other provisions of the Arrangement  could have effective interest rates well below
CIRR and nevertheless be protected by the second paragraph of item (k).  Under this approach as
well, matching of derogations no matter how low the interest rate or how generous the other terms
also would qualify for that protection, even where the initiator of the derogation was not a WTO
Member.  In such circumstances, there would be no real disciplines of any kind on export credits.
Such a reading of the Arrangement  and of item (k) at a minimum would raise the question of why
either of these sets of rules was necessary.
5.138  Moreover, this latter situation would have th e unheard-of result of allowing WTO Members to
opt out of WTO rules on the basis of the behaviour of non-WTO Members.  An interpretation that
would excuse non-conformity with the SCM Agreement on the grounds that such behaviour was
necessitated by the behaviour of non-WTO Members, would be unacceptable
121, and would represent
a radical and unjustifiable departure from all practice under GATT and WTO.  In no case to date has
any Member's conformity with GATT/WTO rules b een defined by the behaviour of non-Members.
5.139  Finally, in our view the negotiating history of this provision does not support the broad
reading advocated by Canada.  In particular, we note that an early (if not the first) Tokyo Round
                                                     
120 The Preamble to the WTO Agreement states that “there is need for positive efforts designed to
ensure that developing countries, and especially the leas t-developed among them, secure a share in the growth in
international trade commensurate with the needs of their economic development”.  Article 27 of the SCM
Agreement, special and differential treatment of developing country Members, makes operational this principlein the context of the WTO rules on subsidies.
121 E.g., if there were no limits on offering equivalent terms and conditions to those offered by a non-
WTO Member.WT/DS70/RW
Page 39
proposal concerning this provision referred to the broad term "substantive guidelines", rather than the
narrower term "interest rates provisions".  (Proposal of the United States dated 6 December 1978.)
The proposal did not identify or define this term, however.  The reference to "substantive” provisions
was not pursued in the negotiations, as the first version to be included in a Chairman's draft text of the
Tokyo Round Subsidies Code of what became the second paragraph of item (k) (dated 15 December,1978, just two weeks after the US proposal), already referred to the narrower term "interest rates
provisions".
5.140  In sum, we recognize that there is another possible reading of the second paragraph of item
(k) and of the OECD Arrangement .  In our view, however, such a reading generates a result that in
addition to being much more difficult to sustain on the basis of a textual analysis, is simplyinconsistent with the overarching principles and purposes of the WTO Agreement and the SCM
Agreement, including by introducing an imbalance of Members' rights and obligations to the
detriment of developing countries.
(c) The sufficiency of the Policy Guideline to ensure that future Canada Account transactions
in the regional aircraft sector will qualify for the safe haven of the second paragraph ofitem (k), and that prohibited export subsidies under Canada Account thereby have
ceased
(i) Substance of the Policy Guideline
5.141  Having confirmed our approach to determining wh ether an individual transaction qualifies for
the safe haven of the second paragraph of item (k), we turn now to the question at the heart of this
dispute in respect of Canada Account, namely whether the Policy Guideline is sufficient to ensure that
future Canada Account transactions in the regional aircraft sector will qualify for that safe haven, andthat prohibited export subsidies under Canada Account in that sector thereby have ceased.  We note as
an initial matter the case-by-case nature of the requ ired analysis outlined above.  Because of this,
there is a limit on the extent to which we can judge definitively today whether a given future Canada
Account transaction in the regional aircraft sector will qualify for the safe haven of the second
paragraph of item (k).
5.142  This being said, however, we recall that in Brazil’s view, “the minimum burden accorded to
Canada must be to explain with some precisi on what ‘comply with the OECD Arrangement’ will
mean, so that Members are informed of the terms on which a measure previously judged to be or to
provide a prohibited export subsidy will operate in the future”.  Given that Canada has stated that the
Policy Guideline “ensure[s] that any future Canada Account financing transactions will be inconformity with the interest rate provisions of the [OECD] Arrangement and therefore the provisions
referred to in the second paragraph of item (k)”
122,  in our view it is incumbent upon Canada to
provide an explanation not only of what in its view constitutes conformity with the interest rate
provisions of the OECD Arrangement , but also how the Policy Guideline ensures such conformity.
5.143  We note that Canada has in fact provided certain explanations on these points123.  As
discussed in the previous sections, the approach to this question that we have adopted differs
considerably in substance from the approach advocated by Canada, however.  Thus, even if the Policy
Guideline contained all of the details that Canada has provided in its arguments concerning
“conformity” with the “interest rates provisions” of the Arrangement , we would find on substantive
grounds that it would not ensure that future Canada Account transactions would so conform.  Wenote, however, that in fact the Policy Guideline contains no details at all, but simply indicates that
transactions that “do not comply” with “the OECD Arrangement” will not be considered to be in the
                                                     
122 Oral statement of Canada (Annex 2-3) at para. 67.
123 Id. at paras. 69-80 and Attachment.WT/DS70/RW
Page 40
national interest.  Thus, we find that the Policy Guideline is insufficient to accomplish what Canada
says it will accomplish, namely to “ensure that any future Canada Account financing transactions will
be in conformity with the interest rate provisions of the [OECD] Arrangement and therefore the
provisions referred to in the second paragraph of item (k)”.
5.144  In particular, the Policy Guideline is both ge nerally worded and worded in the negative.  In
both of these aspects it seems to fall considerably short of what might reasonably be considered the
minimum sufficient assurance which Canada wishes to provide.  Concerning the generality of the
wording, as just noted, the Policy Guidel ine simply refers to compliance with the OECD
Arrangement .  As has been discussed in detail, however, general conformity with whichever
provisions of the Arrangement  happen to apply to a given transaction would not appear to be
sufficient to qualify for the relatively narrow safe haven in the second paragraph of item (k).  Rather,
only conformity with the Arrangement ’s interest rate provisions, which presupposes that those
provisions apply  (i.e., that the practice in question is in the form of official financing support at fixed
interest rates), along with conformity with the Arrangement ’s other disciplines on financing terms,
would qualify a practice for the safe haven.
5.145  The negative wording of the Policy Guideline raises a similar concern.  Specifically, the
Guideline provides that any transaction or class of transactions that “ does not  comply with the OECD
Arrangement on Guidelines for Officially Supported Export Credits would not  be in the national
interest”124, which under the governing legislation means that they cannot be authorized.  This is not
necessarily the same thing, however, as saying that only transactions that do comply will be
considered to be in the national interest (and thereb y can be authorized).  In particular, this wording
leaves open the possibility that transactions that are not subject  to the interest rate provisions of the
Arrangement  (i.e., the CIRR) might be authorized on the grounds that they could not be deemed to be
out of compliance , as the relevant provisions would not even apply.  As discussed, however, we have
found that any such transactions would not qualify for the safe haven.
5.146  In response to a question from the Panel concerning the negative wording of the Guideline,
Canada argues that the use of the negative is necessary to preserve the discretion of the Minister  not
to authorize a transaction even if it does comply with the Arrangement , if the transaction is otherwise
considered not to be in the national interest.  We are not persuaded by this answer, however, as in our
view it would be possible to craft affirmatively-worded language that would leave open this
discretion125.
5.147  We consider that for Canada to reasonably ensure (which it indicates is its intention) that
future Canada Account transactions in the regional aircraft sector will qualify for the safe haven of the
second paragraph of item (k) and therefore will not be prohibited export subsidies, a great deal more
detail than is contained in the Policy Guidelin e would be needed, in particular, the following:
(a) That all Canada Account transactions in the regional aircraft sector would take the
form of either direct credits/financing, refinancing or interest rate support (i.e.,official financing support) with repayment terms of two years or more;
(b) That such official financing support would be at fixed interest rates;
                                                     
124 Exhibit CDN-13.  Emphasis supplied.
125An example of such language could be along the lines that conformity with the interest rate
provisions of the Arrangement  would be treated by the Minister as a necessary  but not necessarily sufficient
condition for a Canada Account transaction to be considered to be in the national interest.WT/DS70/RW
Page 41
(c) That the net interest rates126 of all such transactions would be at or above the relevant
CIRR;
(d) That all applicable provisions of Articles 7-10 and 12-26 of the Arrangement , and of
Articles 18-24127 and Articles 27-29(a)-(c) of Annex III would be respected in full;
(e) That any permitted exceptions would be within the limitations specified in the
relevant provisions of the Arrangement ;
(f) That no derogations would be made, either at Canada’s initiative or via matching.
5.148  Given the lack of such detail, therefore, we  find that Canada has not accomplished what it
states it intends to accomplish through the Policy Guideline, namely to ensure cessation of prohibited
export subsidies to the regional aircraft under Canada Account by ensuring that all future CanadaAccount transactions in the regional aircraft sector will qualify for the safe haven in the second
paragraph of item (k).
(ii) Form of the Policy Guideline
5.149  In conjunction with its substantive criticisms of the Policy Guideline, Brazil appears also to
consider its  legal form inadequate, as in Brazil’s view it contains only a general hortatory intention to
comply with the OECD Arrangement .  That is, Brazil argues that “at the implementation stage of
dispute settlement proceedings, when a Member has already been found to be in violation of its WTO
obligations, … unelaborated policy guidelines offering vague hortatory statements regarding the
Member’s intentions do not constitute effective implementation”
128. In answer to a Panel question
seeking clarification of why Brazil believes the Guideline to be only hortatory, Brazil argues that
under Canadian law, Policy Guidelines are not binding and cannot fetter Ministerial discretion.  That
is, they provide guidance on how decision makers  will exercise their discretion but they are not
binding and do not require a specific outcome.  In Brazil’s view, for the Guideline to become
mandatory under Canadian law, at a minimum mandatory language would need to be used, and
provision would need to be made for consequences in the event of non-compliance129.
5.150  Canada argues that through the Policy Guideline, the Minister for International Trade has
adopted the policy that “ only those transactions that comply with the OECD Arrangement  will be
considered to be in the national interest”130.  Canada further argues that “by this policy, the Minister
informs EDC and the world  that he will not authorize any financing transaction under the Canada
Account programme unless it complies with the OECD Arrangement”131.
5.151  In response to a question from the Panel as to whether Canada considers that it has
“undertaken” to respect all of the provisions of the OECD Arrangement  and whether Canada
considers that any such undertaking is legally binding on Canada, Canada states that Canada has
“undertaken” to respect all of the provisions of the OECD Arrangement  with respect to financing
transactions under the Canada Account, and that through the Policy Guideline the Minister has
                                                     
126 In the case of interest rate support, the concept of net interest rates is key, as it is the interest rate
after  the support that must respect the CIRR.
127 The reference to Article 24 of Annex III in this context is in respect of the requirement that no aid
support be provided except in the form of an untied grant.   As indicated above (at footnote 102) we make nofinding concerning tied aid for humanitarian purposes.
128 Second submission of Brazil (Annex 1-2) at para. 72.
129 Brazil’s answer to the Panel’s Canada Account question 1 to Brazil (Annex 1-5).
130 First submission of Canada (Annex 2-1) at para. 57.  (Emphasis in original.)
131 Id. at para. 58.  (Emphasis supplied.)WT/DS70/RW
Page 42
“undertaken” not to authorise any financing transaction under Canada Account that does not comply
with the OECD Arrangement .  In Canada’s view, for all practical purposes the effect of the Guideline
is “almost the same” as that of a legislative instrument, because the exercise of discretion under the
Canada Account programme is in the hands of the Minister and it is the Minister who has given the
undertaking.  Canada states that in addition, officials administering the programme and/or referringfinancing transactions to the Minister for authorization will act in accordance with the Guideline.  In
Canada’s view, the Guideline is effective in requiring  that all Canada Account financing transactions
in the regional aircraft sector will comply with the OECD Arrangement  and thereby comply with the
interest rates provisions of the Arrangement
132.  Thus Canada emphasizes that, contrary to Brazil’s
argument, the Guideline is “serious and effective” and “not at all hortatory”133.
5.152  We recall Brazil’s statement concerning what it believes Canada’s implementation obligation
to be in respect of Canada Account, namely that “vague hortatory statements of a Members
intentions” are not enough, and that Canada’s “ minimum burden … must be to explain with some
precision what ‘comply with the OECD Arrangement’ will mean, so that Members are informed of
the terms on which a measure previously judged to be or to provide a prohibited export subsidy willoperate in the future”
134.  Thus, Brazil’s arguments concerning the Guideline’s form are closely linked
to its arguments concerning the Guideline’s substance.  As discussed above, we have found that the
Policy Guideline’s substance  is not sufficiently precise to accomplish what Canada claims it will
accomplish, that is, to ensure  the definitive cessation of prohibited export subsidies to the regional
aircraft sector under Canada Account.  Accordingl y, we do not need to, and do not, make a separate
finding concerning the sufficiency of the legal form  of the Guideline.  We do note in principle,
however, that whatever form a Member’s implementation of a Panel ruling takes, it should involvesufficient limitation of discretion as to render that implementation legally effective.
(d) Summary
5.153  In summary, we have established a process for judging the conformity of a specific,
individual transaction with the interest rate provisions of the Arrangement , and thus qualification for
the safe haven in item (k).  This process is based on the text of the SCM Agreement and the OECD
Arrangement , read in the light of the object and purpose of the SCM Agreement.  Under this
approach, first, it would need to be determined that the transaction was in the form of either direct
credits/financing, refinancing or interest rate support with repayment terms of at least two years, at
fixed interest rates, and therefore was subject to the Arrangement  generally and to the CIRRs (or a
sector-specific minimum interest rate, if applicable) specifically.  Second, it would need to bedetermined whether the interest rate was at or a bove the CIRR (or the applicable sector-specific rate).
Third, it would need to be determined which of the other provisions of the Arrangement  that operate
to reinforce the minimum interest rate rule applied to that particular transaction (a determination that
would need to be made on a case-by-case, transaction-specific basis).  Fourth, the details of the
transaction would need to be examined to determine whether or not it respected all such additionalprovisions, and did not involve any derogations or matching of derogations.  We have applied this
process to the Policy Guideline, and found that the Policy Guideline is not sufficient to ensure that
future Canada Account transactions in the regional aircraft sector will be in conformity with the
interest rate provisions of the OECD Arrangement , and thereby qualify for the safe haven in the
second paragraph of item (k) of Annex I of the SCM Agreement.
                                                     
132 Canada’s reply to the Panel’s Canada Account question 4 (Annex 2-4).
133 Canada’s comments on Brazil’s answers to question 1 from the Panel to Brazil (Annex 2-5).
134 Second submission of Brazil (Annex 1-2) at para. 76.  (Emphasis supplied.)WT/DS70/RW
Page 43
VI. CONCLUSION
6.1 For the reasons set forth in this Report, and on the basis of those facts currently surrounding
the application of the restructured TPC programme which are relevant to Canada's implementation of
the DSB recommendation on TPC assistance to the regional aircraft industry, we conclude that
Canada has implemented the DSB recommendation in respect of TPC assistance to the Canadianregional aircraft industry.    However, we conclude that the measures taken by Canada to comply with
the DSB recommendation on the application of the Canada Account programme are not sufficient to
ensure that future Canada Account transactions in the Canadian regional aircraft sector will be in
conformity with the interest rate provisions of the OECD Arrangement , and are therefore not
sufficient to ensure that such Canada Account transactions will not be prohibited export subsidies.
6.2 Accordingly, we conclude that (1) Canada has implemented the 20 August 1999 DSB
recommendation that Canada withdraw TPC assistan ce to the Canadian regional aircraft industry
within 90 days, and that (2) Canada has failed to implement the 20 August 1999 recommendation of
the DSB that Canada withdraw the Canada Account assistance to the Canadian regional aircraft
industry within 90 days.
6.3 Canada requests that we suggest, pursuant to Article 19.1 of the DSU, the establishment of
verification procedures in respect of Canada's future  arrangements to bring any subsidies in respect of
Canada Account financing transactions for re gional aircraft into compliance with the SCM
Agreement, provided that such procedures are al so applicable to Brazil with respect to its
implementation of the rulings and recommendations in Brazil- Export Financing Programme for
Aircraft .  Canada asks only that the Panel endorse the establishment  of such verification procedures,
and is not proposing an ongoing role for the Panel should a verification process be established.  Brazildoes not, in principle, oppose the establishment of such verification procedures, but considers that
they are not compatible with the spirit, if not the le tter, of Article 19 of the DSU.  Brazil believes that
such procedures are better agreed to by the parties in the course of bilateral consultations.
6.4 We note that, by virtue of Article 19.1 of the DSU, the Panel "may suggest ways in which the
Member concerned could implement the recommendations".  In our view, Article 19.1 envisionssuggestions regarding what could be done to a measure to bring it into conformity or, in the case of
Article 4.7 of the SCM Agreement, what could be done to "withdraw" a prohibited subsidy.  It does
not address the issue of surveillance of those steps.  For that reason, we decline to make the
suggestion requested by Canada.
135
                                                     
135 This does not mean that the Panel in any way discourages agreements between WTO Members that
may facilitate transparency with regard to the implementation of WTO obligations.WT/DS70/RW
Page 44
ANNEX 1-1
FIRST SUBMISSION OF BRAZIL
(23 December 1999)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ..............................................................................................................45
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOT
CONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’SRECOMMENDATIONS AND RULIN GS.......................................................................45
A. C
ANADA SHOULD WITHDRAW THE TPC P ROGRAMME ENTIRELY , AS IT RELATES
TO THE REGIONAL AIRCRAFT INDUSTRY .................................................................45
B. C ANADA ’S IMPLEMENTATION STRATEGY DOES NOT CHANGE THE STATUS OF
TPC C ONTRIBUTIONS AS SUBSIDIES UNDER ARTICLE 1 OF THE SUBSIDIES
AGREEMENT .............................................................................................................46
C. T HE AMENDMENTS TO THE TPC P ROGRAM ME A RE COSMETIC , AND DO NOT
CHANGE THE STATUS OF TPC C ONTRIBUTIONS TO THE CANADIAN REGIONAL
AIRCRAFT INDUSTRY AS DE FACTO  EXPORT CONTINGENT UNDER ARTICLE 3 OF
THE SUBSIDIES AGREEMENT ....................................................................................47
1. The Canadian Regional Aircraft Industry Remains Export-Oriented,
and the Canadian Government’s Recognition of the Significance of thatExport-Orientation Is  Still Evident .............................................................48
2. Canada’s Removal of the “Near to Market” Terminology from TPC
Documents Is Irrelevant ..............................................................................50
3. The Goals and Objectives of the TPC Programme Remain Intimately
Linked to Export .........................................................................................52
4. Canada Has Failed to Provide Many Documents Necessary to
Determine Whether the ‘New’ TPC Programme Remains De Facto
Contingent on Export ..................................................................................54
III. CANADA’S AMENDMENTS TO THE CANADA ACCOUNT DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOTCONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’S
RECOMMENDATIONS AND RULIN GS.......................................................................55
IV. CONCLUSION .................................................................................................................. .57
LIST OF EXHIBITS............................................................................................................... .........58
I. INTRODUCTIONWT/DS70/RW
Page 45
1. In Canada – Measures Affecting the Export of Civilian Aircraf t1, subsidies by the Canadian
government to the regional aircraft industry via two programmes – Canada Account and Technology
Partnerships Canada (“TPC”) – were determined by this Panel and the Appellate Body to constitute
prohibited export subsidies under Article 3.1(a) of the Agreement on Subsidies and Countervailing
Measures (“Subsidies Agreement”).  Pursuant to Article 4.7 of the Subsidies Agreement, the Paneland the Appellate Body identified the subsidies to  be withdrawn by Canada:  Canada Account debt
financing for the export of Canadian regional aircraft, and TPC assistance to the Canadian regional
aircraft industry.
2
2. The Panel’s and the Appellate Body’s recommendations and rulings regarding Canadianwithdrawal of these subsidies were adopted by the Dispute Settlement Body (“DSB”) on 20 August
1999.  On 18 November 1999, the 90-day period for implementation of the DSB’s recommendations
and rulings expired.  On 19 November 1999, Canada announced measures ostensibly constituting
implementation of the DSB’s recommendations and rulings.  Brazil has attached Canada’s 19
November 1999 letter to the DSB, and its 19 November 1999 statement to the DSB, as Exhibits Bra-1and Bra-2, respectively.
3. The Canadian measures do not adequately implement the DSB’s recommendations and
rulings, and the impugned programmes remain inconsistent with the Subsidies Agreement.  As a
result, and under Article 21.5 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (“DSU”), Brazil requested that the DSB refer the matter to this Panel for
resolution.
3  Pursuant to that request, the Panel was established on 9 December 1999.
4. Brazil will demonstrate in this submission that the measures heralded by Canada as effective
implementation of its obligations under the Subsidies Agreement are little more than cosmetic, and
make no substantive changes to the underlying subsidy programmes.  Accordingly, Brazil reiterates
its request that the Panel resolve, in these proceedings, the disagreement between Brazil and Canadaregarding “the existence or consistency with [the Subsidies Agreement] of measures taken to comply
with the recommendations and rulings of the DSB.”
4
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOTCONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’S
RECOMMENDATIONS AND RULINGS
A. CANADA SHOULD WITHDRAW THE TPC PROGRAMME ENTIRELY, AS IT
RELATES TO THE REGIONAL AIRCRAFT INDUSTRY
5. Canada’s amendments to the TPC programme neither implement the recommendations and
rulings of the DSB, nor bring TPC into conformity  with the Subsidies Agreement.  First, Canada’s
actions do not remove TPC contributions from the ca tegory of government financial contributions that
confer a “benefit” and constitute a “subsidy.”  Second, de facto  export contingency is still “ inferred
from the total configuration of the facts constituting and surrounding” any TPC contributions to the
Canadian regional aircraft industry.
5
                                                     
1 WT/DS70/R (14 April 1999) (Adopted as modified by the Appellate Body, 20 August 1999)
[hereinafter “Panel Report”]; WT/DS70/AB/R (2 August 1999) (Adopted 20 August 1999) [hereinafter“Appellate Body Report”].
2 Panel Report, paras. 10.1 ((b) and (f)), 10.3; Appellate Body Report, para. 221.
3 Brazilian Letter to DSB, 23 November 1999 (Exhibit Bra-3).
4 DSU, Article 21.5.
5 Appellate Body Report, para. 167.WT/DS70/RW
Page 46
6. Particularly with regard to de facto  export contingency, the cosmetic changes undertaken by
Canada and described below are simply not enough.  Were they sufficient, the entire purpose behind
the prohibition of de facto  export contingency in Article 3.1(a) of the Subsidies Agreement – to
prevent circumvention of the provision prohibiting de jure  export contingency – would be
undermined.6  Withdrawing a de facto  export subsidy like TPC, the very design and structure of
which betrays its de facto  export contingency, cannot adequately be achieved without complete and
total abolition of the TPC programme altogether, as it applies to the Canadian regional aircraft
industry.
7. The facts surrounding TPC’s structure, objectives and economic backdrop, and the facts
surrounding assistance to the regional aircraft industry, require this result to rid the programme of any
remaining “inference” of de facto  export contingency.  This result, in fact, is also supported by the
textual interpretation of the term “subsidy” proposed by Canada itself.  Before the Appellate Body,
Canada argued that the terms “‘[s]ubsidy’ and ‘subsidy programme’ are used interchangeably” in the
Subsidies Agreement, and that TPC was a “subsidy programme” cognizable under the SubsidiesAgreement.
7  If this is the case, then the DSB’s recommendation, pursuant to Article 4.7 of the SCM
Agreement, that Canada “withdraw the subsidy,” further confirms that Canada is required to withdraw
TPC, in its entirety, as it relates to the regional aircraft industry.
B. CANADA’S IMPLEMENTATION STRATEGY DOES NOT CHANGE THE STATUS OF
TPC CONTRIBUTIONS AS SUBSIDIES UNDER ARTICLE 1 OF THE SUBSIDIES
AGREEMENT
8. The status of TPC contributions as “subsidies” under Article 1 of the Subsidies Agreement
remains unchanged by Canada’s implementation strategy.  TPC contributions are still “financial
contribution[s] by a government,” under Article 1.1(a) (1) of the Subsidies Agreement.  TPC’s Special
Operating Agency Framework Document (“TPC Framework Document”) – the document thatreplaced, with only slight modifications, the “old” TPC Charter
8 – states that “TPC’s activities are
funded through Parliamentary appropriations.”9  Canada’s announcements regarding implementation
also do not suggest that TPC contributions are no longer provided in one of the forms listed in sub-
paragraphs (i) through (iv) of Article 1.1(a)(1) to the Subsidies Agreement.
9. Canada has not, moreover, demonstrated that TPC contributions will no longer confer a
“benefit” within the meaning of Article 1.1(b).  The “benefit to recipient” standard adopted by the
Panel, and affirmed by the Appellate Body, states that a “benefit” exists if a recipient has “received a
‘financial contribution’ on terms more favourable than those available to the recipient in the
market.”10  Indeed, the Panel determined that while TPC’s rate of return on its contributions to the
regional aircraft industry was projected at a maximum of [        ] per cent,11 a commercial investor
would expect a rate of return of 19.91 – 21.92 per cent on a similar investment.  TPC contributions,
therefore, are still on terms more favourable than those available to the recipient on the market.
10. TPC’s most recent annual report, moreover, distinguishes TPC from commercial financial
lenders:  “[U]nlike commercial financial institutions th at measure return solely in financial terms, the
return to TPC is also measured in terms of a broad range of non-financial benefits to Canada that flow
                                                     
6 Appellate Body Report, para. 19.
7 Submission of Appellant Canada, 13 May 1999, paras. 45-46 (Exhibit Bra-28).
8 Superceded TPC Charter ( in TPC Interim Reference Binder, March 1998) (Exhibit Bra-4).
9 TPC Special Operating Agency Framework Docu ment, pg. 6 (Exhibit Bra-5) [hereinafter “TPC
Framework Document”].
10 Appellate Body Report, para. 157; Panel Report, para. 9.112.
11 Panel Report, para. 9.312.  See also  Canada’s reply to questions from the Panel, dated 21 December
1998, reply to question 33.WT/DS70/RW
Page 47
from successful projects.”12  The annual report also notes that given the failure of some TPC-funded
projects, “TPC’s expected repayment may be less than nominal.”13
11. Under these circumstances, TPC contributions, even after implementation of Canada’s
purported compliance measures, continue to confer “benefits” and continue to constitute “subsidies”under Article 1.1(b) of the Subsidies Agreement.
C. THE AMENDMENTS TO THE TPC PROGRAMME ARE COSMETIC, AND DO NOT
CHANGE THE STATUS OF TPC CONTRIBUTIONS TO THE CANADIAN REGIONAL
AIRCRAFT INDUSTRY AS DE FACTO  EXPORT CONTINGENT UNDER ARTICLE 3
OF THE SUBSIDIES AGREEMENT
12. Canada’s amendments to TPC are merely cosmetic, and do not constitute effective
implementation of its obligations under the Subsidies Agreement.  Even after the amendments to
TPC:the same three industry sectors will receive TPC assistance;
• the same types of projects will be eligible for TPC funds;
• the same objectives and fundamental economic realities underlie TPC’s creation and continued
existence;
• the aerospace industry continues to receive far a nd away the greatest share of TPC contributions
and disbursements; and,
• the Canadian aerospace industry in general, and the regional aircraft industry in particular,
remains export-oriented.
13. The only real difference – apart from the fact that Canada forecasts available TPC funds to
increase by 396 per cent  between now and 2003
14 – is that the word “export” is less ubiquitous than it
was previously, at least in those documents made publicly available by the Canadian government.
14. This is not enough.  As the Panel is aware, subsidies provided to the Canadian regional
aircraft industry under the auspices of the TPC were found to be prohibited export subsidies in fact ,
rather than in law.  A determination that subsidies are “contingent . . . in fact . . . upon export
performance,” in the words of the Appellate Body, “must be inferred  from the total configuration of
the facts constituting and surrounding the granting of the subsidy . . .”15  This is distinct from a
determination of de jure  export contingency, which is demonstrated “on the basis of the words of the
relevant legislation, regulation or other legal instrument.”16
15. Merely sanitizing publicly-released documents to remove references to the word “export” isnot sufficient to bring Canada into compliance with this Panel’s determination of de facto  export
contingency.  According to the Appellate Body, demonstration of de facto  export contingency
depends not upon uncovering express reference to “export” as a condition for receipt of a subsidy
(although such references abound in Canadian materials), but rather depends on the inference  of
                                                     
12 TPC Annual Report, 1998-1999, pg. 20 (Exhibit Bra-6).
13 Id. at pg. 21.
14 TPC Annual Report, 1998-1999, pg . 28 (row titled “Total funds available for new contributions in
future years,” comparing 1999-2000 figure with 2002-2003 figure) (Exhibit Bra-6).
15 Appellate Body Report, para. 167 (emphasis in original).
16 Id.WT/DS70/RW
Page 48
export contingency drawn from the totality of th e facts.  This is the entire purpose of the de facto
export contingency provision – to prevent Members from circumventing the prohibition of de jure
export contingency by merely purging all references to the term “export.”17  It is this question of proof
– demonstrating express  contingency on export versus inferred  contingency on export – that defines
the very difference between a de jure , as opposed to a de facto , case.
16. Canada’s implementation measures change only the superficial evidence of export
contingency, but make no substantive change whatsoever in the underlying programme.  De facto
export contingency is still, in the words of the Appellate Body, “ inferred  from the total configuration
of the facts constituting and surrounding” any TPC contributions to the Canadian regional aircraftindustry, regardless of Canada’s efforts to purge from its documents express reference to the word
“export.”
18  TPC’s structure, objectives and economic backdrop require this inference, and thus
require a determination that Canada has not complied with the recommendation and ruling of the DSB
that Canada “withdraw the subsidy.”
17. Canada may assert, as it has previously, that Brazil’s claim of Canadian non-compliance rests
solely on the fact that TPC subsidies are granted to “enterprises that export,” a fact that, while
certainly relevant to the Panel’s review,19 cannot (under footnote 4 to the Subsidies Agreement) form
the entire basis of a determination of de facto  export contingency.  In the sections to follow, however,
Brazil will describe a series of facts  both related to and apart from the export orientation of the
Canadian regional aircraft industry.  These facts, together, lead to the very same inference derived by
the Panel in its original decision:  TPC contributions to the Canadian regional aircraft industriesremain de facto  contingent upon and in fact tied to export performance.
1. The Canadian Regional Aircraft Industry Remains Export-Oriented, and the Canadian
Government’s Recognition of the Significan ce of that Export-Orientation Is Still
Evident
18. An expert report included with Brazil’s submissions to the Panel, and the Panel itself, noted
the export orientation or the export propensity of the Canadian regional aircraft industry.
20  This fact
remains unchanged.  Brazil has attached, as Exhibit Bra-7, a series of tables and supporting
documentation updating the results of this expert report.  This update demonstrates that during theperiod from 23 October 1998 (the end date for the earlier expert report) through 15 December 1999,
every sale of Canadian regional aircraft – without exception – was for export.
19. Moreover, the appeal of this export orientation to the Canadian government has not been
eliminated by Canada’s amendments to TPC:
• TPC has previously justified its support to its main beneficiary by pointing out that the
industry is “highly export  oriented”;
21
• The Canadian Minister of Industry has justified particular instances of TPC support with
the statement that “[a]erospace is a crucial sector for Canada’s economy, with exports
growing at 10 per cent per year.”22
                                                     
17 Id.  The European Communities initially proposed the de facto  contingency prohibition “since
experience has shown that government practices may be easily manipulated or modified in order to avoid this
[de jure ] prohibition ,” which on its own is therefore “open to circumvention.”  Elements of the Negotiating
Framework , Submission of the European Communities, MTN.GNG/NG10/W/31 (27 November 1989).
18 Appellate Body Report, para. 167.
19 Appellate Body Report, para. 173.
20 Panel Report, para. 9.325 (footnote 623).
21 TPC Annual Report, 1996-1997, pg. 5 (emphasis added) (Exhibit Bra-8).
22 Industry Canada News Release, 10 January 1997 (emphasis added) (Exhibit Bra-9).WT/DS70/RW
Page 49
• The Leader of the Government in the House of Commons has stated that a key “output”
of a TPC-supported project – the Dash 8-400 – is “the building of exports ,” which he
argued was, along with job creation, “just what the government had in mind when we
established” TPC.23
• As recently as October 1999, the Canadian government touted the Canadian aerospace
industry as “[g]lobally competitive with exports  exceeding 70 per cent of output,” and as
“Commercial market focused/ Export Oriented .”24  TPC, which “invests with industry in
near-market opportunities,” is listed among those government programmes supporting
this export-based industry.25
• Industry Canada’s 1998/99 Survey of the Canadian Aerospace and Defence Industry,
published on 29 November 1999, projects that the Canadian aerospace industry’s exports
will increase to 70 per cent of total sales in 2000.26
• a June 1999 study sponsored in part by Industry Canada concludes that the Canadian
aerospace industry exported  78 per cent of its production in 1998, and projects a 90 per
cent increase in export  sales during the period 1991-2001.27  The same study notes that
“rapid growth of the value of export sales ” was achieved by a shift from exports of
“manufactured components and sub-systems” to exports of “complete aircraft and
systems.”28
• The Aerospace Industries Association of Canada projects that 71 per cent of the
industry’s sales revenue will be derived from exports in 2000,29 and that the industry’s
“exports  continue to be the principal engine of [its] growth”30 – factors that surely did not
escape Industry Canada when it succumbed to the Association’s “advocacy efforts [to]
secur[e] an additional $150 million in funding for [TPC].”31
20. Like any other “fact” relevant under footnote 4 to the Subsidies Agreement, the Canadiangovernment’s acknowledgement of the overwhelmi ng export orientation of the industry, and its
admission that this factor drives the government’s commitment to fund that industry, can serve in part
as the basis for an inference  that, without that export orientation, the abundant funding sources of TPC
would not be available to the industry.
21. The crucial role the regional aircraft industry specifically, and the aerospace industry
generally, play in Canada is translated into the funding priorities of Canadian subsidy programmes:as before the amendments announced by the Canadian government on 19 November, TPC continues
to provide contributions to the same three categories of industry as before (Aerospace and Defence,
                                                     
23 Industry Canada News Release, 17 December 1996 (emphasis added) (Exhibit Bra-10).
24 “Think Canada, Think Bottom Line, Think Aero space Industry, Think Investment,” October 1999,
pgs. 3, 33 (emphasis added) (Exhibit Bra-11).
25 Id. at pg. 20.
26 Industry Canada, “Results of the 1998/99 Survey of the Canadian Aerospace and Defence Industry,”
29 November 1999 (emphasis added) (Exhibit Bra-12).
27 “Canadian Aerospace Suppliers Base Strategy for Change,” 25 June 1999, pgs. 1, 16-17 (relevant
excerpt included at Exhibit Bra-13).
28 Id. at pg. 17(emphasis added).
29 Aerospace Industries Association of Canada Annual Report, 1999, pg. 4 (Exhibit Bra-14).
30 Id. at pg. 13 (emphasis added).
31 Id. at pg. 12.WT/DS70/RW
Page 50
Enabling Technologies, and Environmental Technologies),32 and continues, as before, to be captive to
the regional aircraft and the aerospace industry.  Since inception of the programme, 65 per cent of
TPC contributions have gone to the aerospace industry;33 in the period 1998-1999, 76 per cent of TPC
disbursements went to that industry.34  The economic significance of this bias will become
increasingly relevant to the industry in the coming years, since available TPC funds are slated toincrease by 396 per cent between now and 2003.
35
22. Nothing, in short, has changed – neither the industries eligible for TPC contributions, nor the
recognized export-orientation of the industry that enjoys the lion’s share of those contributions, nor
the significance of that industry’s export orientation to Canadian government officials, nor thatindustry’s prospects for continued dominance of TPC’s treasury.  None of these factors is destined for
change.
23. When the Canadian government grants TPC funds to the Canadian regional aircraft industry –
today as in the past – it is eminently aware, as its statements reveal, of that industry’s overwhelmingexport-orientation.  To keep it that way, the Canadian aerospace industry receives the vast majority of
the rapidly increasing pool of TPC funds available.  These facts lead directly to the unavoidable
conclusion that, without exceptional export performance, the Canadian regional aircraft industry
would not receive TPC subsidies.  The inescapable inference is, therefore, that continued receipt of
those subsidies is in fact tied to export performance.
2. Canada’s Removal of the “Near to Market” Terminology from TPC Documents Is
Irrelevant
24. As part of its implementation strategy, Canada announced that it will now “focus on
promoting technological innovation and enhancing th e technological capability of Canadian industry,
rather than commercialization,” and that eligible activities will now be for “industrial research and
pre-competitive development.”
36  Canada then goes on to specify three categories of TPC “Eligible
Activities” – “industrial research,” “pre-competitive development,” and “studies.”37  Brazil makes the
following three observations regarding this aspect of Canada’s implementation strategy.
25. First , TPC’s “new” emphasis on “technological innov ation” rather than “commercialization”
is presumably in response to the Panel’s identification of TPC’s focus on “‘near market R & D’”
projects as one factor supporting a finding of de facto  export contingency.38  This “new” emphasis,
however, does not immunize TPC from characterization as a prohibited export subsidy.  The
Appellate Body noted that “[i]t is. . . no ‘ less . . . possible ’ that the facts, taken together, may
demonstrate that a pre-production subsidy for research and development is ‘contingent . . . in fact . . .upon . . . export performance.’”
39  Removing “commercialization” or the “near market R & D” focus
from TPC’s focus, therefore, and shifting instead to a focus on “industrial research and pre-
                                                     
32 See Framework Document, pgs. 5-6 (Exhibit Bra-5).  See also  TPC Terms and Conditions, pg. 1
(Exhibit Bra-15); TPC Investment Application Guide, pgs. 3-4 (Exhibit Bra-16).
33 TPC Current Statistics, 6 December 1999 (Exhibit Bra-17).
34 TPC Annual Report, 1998-1999, pg. 27 (Exhibit Bra-6).
35 Id. at pg. 28 (row titled “Total funds available for new contributions in future years,” comparing
1999-2000 figure with 2002-2003 figure).
36 Industry Canada News Release, 18 November 1999, pg. 3 (Exhibit Bra-18).
37 TPC Terms and Conditions, pg. 2 (Exhibit Bra-15); TPC Investment Application Guide, pg. 4
(Exhibit Bra-16).
38 Panel Report, paras. 9.339, 9.340, 9.341.
39 Appellate Body Report, para. 174.WT/DS70/RW
Page 51
competitive development,”40 would not make it any less possible to infer  from the facts that TPC
constitutes a prohibited export subsidy.41
26. Second , and to the extent that this factor is still relevant as one among many contributing to
an inference  of de facto  export contingency,42 Canada’s amendments to TPC do not in fact rid it of
considerations regarding “commercialization.”  TPC’s most recent “Current Statistics,” published on
the TPC website on 6 December 1999, state that “TPC contracted projects, if successful, are
forecasted to generate sales of more than $89.6 billion  . . .”43  TPC still considers that its subsidies are
to be used to “generate sales” – a virtual synonym for “commercialization.”
27. Moreover, two of the categories of TPC “eligible activities” betray an interest in projects
linked to actual products.  Under the category of “Industrial research,” TPC funds projects “aimed at
the discovery of new knowledge, with the objective that such knowledge may be useful in developing
new products , processes or services, or in bringing about a significant improvement to existing
products , processes or services.”44  Eligible projects in the category of “Pre-competitive development”
specifically include the “ translation  of industrial research findings into a plan, blueprint or design for
new, modified or improved products , processes or services.”45
28. Finally, immediately after noting that “Canada’s aerospace and defence industries supply
regional and business jet and turboprop aircraft, commercial helicopters, propulsion and major
avionics systems, and electronics parts and com ponents, and aviation support systems such as air
traffic control systems,” TPC’s website states that “[i]nvestments by Technology Partnerships Canadahelp this vital part of the Canadian economy maintain and expand its position of technological
excellence and so contribute to the country’s well-being.”
46  The industry’s successful
commercialization of broad product lines, and TPC’s role in “helping” the industry “maintain and
expand” its position through commercialization of those products, are two factors that do not escape
the Canadian government.
29. Third , the three categories of TPC “eligible activities” are remarkably similar pre- and post-
implementation.  Brazil has attached as Exhibit Bra-20 an excerpt from the TPC website, dated 21
January 1998, describing certain of the prerequisites for TPC assistance:
The project activities must include one of the following:  development or
demonstration  of a product, process and/or technology; certain preproduction
activities ; technical or marketing feasibility studies .47
30. These descriptions exhibit considerable similarity to the “new” TPC categories of eligible
activities:  what was previously “development or demonstration” or “preproduction activities,” forexample, is now “pre-competitive development”; what was then the category of “feasibility studies” is
now simply “studies.”
48  Nothing of substance has changed; if funding for the development of
commercial products was available in the “old” TPC,  it is similarly available in the “new” TPC, and
as it did before contributes to an inference  of de facto  export contingency.
                                                     
40 Industry Canada News Release, 18 November 1999, pg. 3 (Exhibit Bra-18).
41 Appellate Body Report, para. 167.
42 Id.
43 TPC Current Statistics, 6 December 1999 (emphasis added) (Exhibit Bra-17).
44 TPC Terms and Conditions, pg. 2 (emphasis added) (Exhibit Bra-15); TPC Investment Application
Guide, pg. 4 (emphasis added) (Exhibit Bra-16).
45 Id. (emphasis added).
46 TPC website, “Aerospace and Defence,” pg. 1 (Exhibit Bra-19).
47 TPC website, “Project Identification and Description,” 21 January 1998 (Exhibit Bra-20).
48 Compare  Id. with TPC Terms and Conditions, pg. 2 (Exhibit Bra-15).WT/DS70/RW
Page 52
3. The Goals and Objectives of the TPC Programme Remain Intimately Linked to Export
31. Canada’s materials regarding the “new” TPC are replete with references to the programme’s
objectives, most commonly phrased as “increasing economic growth, creating jobs, and supportingsustainable development.”
49  These same objectives are at times characterized as the “new” TPC’s
“programme objectives,”50 but are repeated elsewhere in the TPC materials as part of the
programme’s mandate,51 selection criteria,52 assessment criteria,53 or examples of strategic benefits to
be established by an applicant to secure TPC funds.54
32. These same objectives were also central to the “old” TPC.  TPC’s Charter and its BusinessPlan formerly stated that the programme’s mandate was “to stimulate economic growth and create
jobs in Canada,” and that two of its objectives were “to increase growth and wealth creation.”
55  The
“Terms and Conditions” document for the “old” TPC stated that the programme was to “contribute to
achieving Canada’s objectives of:  (a) increasing economic growth and wealth creation; (b) supportingsustainable development,” etc.
56  Similarly, the closing paragraph of Industry Canada News Releases
announcing contributions under the “old” TPC included a statement that TPC “is a central element of
the government’s agenda to promote technologica l development as a catalyst for economic growth
and job creation, through increased productivity and competitiveness.”57
33. More importantly, achieving these objectives – increasing or creating economic growth,
wealth and jobs – has been expressly linked, by the Canadian government itself, as well as by otherorganizations, to the export performance  of Canadian industry:
                                                     
49 Industry Canada News Release, 18 November 1999, pg. 3 (Exhibit Bra-18).
50 TPC Framework Document, pg. 4 (Under section titled “Program Objectives,” Canada states that
“[c]ontributions under TPC will be administered in a way that will contribute to:  increasing economic growth
and creating jobs and wealth; supporting sustainable development . . .” etc.) (Exhibit Bra-5).
51 Id. at pg. 4 (Under section titled “Mandate,” Canada states that “TPC is a technology investment
fund established to contribute to the achievement of Canada’s objectives such as increasing economic growth,jobs and wealth creation, and supporting sustainable development.”).
52 TPC Investment Application Guide, pg. 6 (Under  section titled “What are the criteria that TPC uses
for selecting investments,” Canada notes that investment outlines and proposals are assessed on the extent to
which they demonstrate, among other things, “that the project contributes to the strategic objectives of the
government, including technological and net economic benefits to Canada (increasing economic growth,creating jobs and wealth, and supporting sustainable development).”) (Exhibit Bra-16).
53 TPC Terms and Conditions, pg. 2 (Under section titled “Assessment Criteria,” Canada states that
applications for TPC funds will be assessed according to the extent to which they demonstrate, among other
things, “that the project contributes to the strategic obj ectives of the government, including technological and
net economic benefits to Canada.”) (Exhibit Bra-15).
54 TPC Investment Application Guide, pg. 8 (Under section titled “What is the format for preparing a
TPC investment outline,” Canada states that certain information regarding “strategic benefit” must bedemonstrated, including “[p]otential economic benefit to Canada (for example, jobs created or maintained,
economic growth, wealth creation, sector or supplier development, contribution to sustainable development,
new corporate mandates, leveraged investments, strategic alliances, etc.).” (Exhibit Bra-16).
55 Superceded TPC Charter ( in TPC Interim Reference Binder, March 1998), pg. 3 (Exhibit Bra-4);
TPC Business Plan, 1996-1997, pg. iii (Exhibit Bra-21).
56 Superceded TPC Terms and Conditions ( in TPC Interim Reference Binder, March 1998), pg. 1
(Exhibit Bra-22).
57 See, e.g., Industry Canada News Release, 10 January 1997 (Exhibit Bra-9);  Industry Canada News
Release, 17 December 1996 (Exhibit Bra-10).WT/DS70/RW
Page 53
• Industry Canada’s International Business Strategy (“CIBS”) makes clear that “ exports are
critical to Canada’s economic and social well-being, and serve as the engine that is
driving Canada’s economy .”58
• In particular, the CIBS makes explicit the connection between job creation and exports,
arguing that “ [i]ncrease [sic] trade means new and better jobs  for Canadians – it is
estimated that for every $1 billion of exports, 11,000 Canadian jobs are created  or
sustained .”59
• In describing its “Jobs Strategy,” the aim of which is “to co-ordinate efforts to create
more and better jobs for Canadians,” Industry Canada states that “[w]ith one in three
Canadian jobs dependent on exports , a critical component of the Jobs Strategy  is to
encourage more Canadian firms to export  . . .”60
• Industry Canada affirms that “ Canada’s economic growth and job creation  in the past
three years have been driven by exports  to the United States.”61
• In its review of the Aerospace and Defence sector, Industry Canada emphasizes that
[t]he Canadian aerospace and defence industry is a vital and growing component of
our national economy.  It is a major contributor to research and development (R&D);
employment; national income; exports ; national defence; and international prestige.
It is also one of Canada’s leading advanced-technology sectors, and its innovative
products are recognized around the world.  It ranks fifth among world exporters of
aircraft and aircraft parts, and could well achieve fourth place , if present trends
continue.  However, the continued growth of the aerospace and defence industry, and
its contribution to the wealth and job creation in Canada, will depend largely on its
ability to capture a growing share of world aerospace and defence markets .62
In other words, to achieve wealth and job cr eation in Canada – two of TPC’s objectives –
aerospace exports have been, are, and will be necessary.
• The Canadian Minister of Industry has identified the close relationship between Canadian
aerospace exports, Canadian economic growth and the creation of Canadian jobs.
According to the Minister, “[a]erospace is a crucial sector for Canada’s economy, with
exports growing at a rate of 10 per cent per year,” with the result that “TPC’s investment
in [aerospace industry] projects will help increase the global competitiveness of this
industry, while supporting jobs in Montreal, in Halifax and across the country,
generating economic growth and export dollars .”63
• The Conference Board of Canada also acknowle dges the link between exports and TPC’s
goals of job creation and increasing economic growth, noting that:
                                                     
58 Industry Canada, CIBS Overview, “Executive Summary,” pg. 2 (emphasis added) (Exhibit Bra-23).
59 Id. at pg. 1 (emphasis added).
60 Industry Canada, CIBS Strategic Overview, “Int ernational Business Development Priorities,” pg. 1
(emphasis added) (Exhibit Bra-24).
61 Industry Canada, CIBS Geographic Overview, pg. 1 (emphasis added) (Exhibit Bra-25).
62 Industry Canada, CIBS Aerospace and Defence, pg. 1 (emphasis added) (Exhibit Bra-26).
63 Industry Canada News Release, 10 January 1997 (emphasis added) (Exhibit Bra-9).WT/DS70/RW
Page 54
Exports have been a driving force in the [Canadian] economy  over the past 10 years, with
real growth averaging 7 per cent on an annual basis – well ahead of the average 2 per cent
annual real GDP growth.  One in three jobs in Canada is dependent on trade .  If Canadian
business cannot continue to access markets abroad for their products, services and
investments, the continued growth of the Canadian economy will be threatened .64
34. The significance of the link between export performance and growth, wealth or jobs has not
changed with Canada’s amendments to TPC.  When TPC makes the increase or creation of economic
growth, wealth and jobs part of its selection criteria,65 its assessment criteria,66 or a “strategic benefit”
to be demonstrated by an applicant to secure a TPC subsidy,67 the Panel should infer that it is
implicitly conditioning receipt of that subsidy on export performance.  Without committing to export
performance, an applicant cannot meet TPC’s selection or assessment criteria, cannot demonstrate
that it will provide the requisite strategic benefits imposed by the TPC programme, and will not
receive a TPC subsidy.
4. Canada Has Failed to Provide Many Docu ments Necessary to Determine Whether the
‘New’ TPC Programme Remains De Facto  Contingent on Export
35. Although Canada has made certain documents regarding the “new” TPC publicly available,
many others have not been provided.  The Panel’s decision regarding TPC’s de facto  export
contingency relied, for example, upon the TPC Business Plan, the TPC Aerospace and Defence
Generic Model Agreement, TPC Project Summary Forms, and the two-volume, 350-page TPCInterim Reference Binder.
68  “Business confidential” documents provided by Canada with its replies
to questions from the Panel in the original proceedings, moreover, were also relevant to a review of
the question of de facto  export contingency.  These documents include Programme Forecasts and
Progress Reports.69
36. Yet, none of these documents has been made publicly available with regard to the “new”
TPC.  Since Canada has not produced replacements for these documents, the Panel should consider
that the original documents still apply, and still, as before, constitute facts demonstrating that TPC
subsidies are contingent in fact on export performance, as detailed in paragraph 9.340 of the Panel
Report.
37. The “new” TPC Framework Document, moreov er, refers to several new documents that
Canada has not provided, including the Treasury Board’s “repayable contributions policy,”70 TPC’s
“Evaluation Framework,”71 any “specialized reports” developed for the TPC Advisory Board,72 “case
                                                     
64 Conference Board of Canada, Performance and Potential 1999 , “Working Smarter, Not Harder,” pg.
107 (footnote omitted) (emphasis added) (Exhibit Bra-27).
65 TPC Investment Application Guide, pg. 6 (Sectio n titled “What are the criteria that TPC uses for
selecting investments”) (Exhibit Bra-16).
66 TPC Terms and Conditions, pg. 2 (Section titled “Assessment Criteria”) (Exhibit Bra-15).
67 TPC Investment Application Guide, pg. 8 (Section titled “What is the format for preparing a TPC
investment outline”) (Exhibit Bra-16).
68 Panel Report, para. 9.340.
69 These documents were included behind “BCI Tab 1” and “BCI Tab 2,” respectively, to Canada’s 21
December 1998 replies to questions from the Panel.
70 TPC Framework Document, pg. 7 (Exhibit Bra-5).  The press release announcing Canada’s
implementation strategy suggests that TPC’s repayment policies have in fact been changed.  Industry CanadaNews Release, 18 November 1999, pg. 4 (“Repayments will no longer be primarily based on royalties tied toproduct sales but will take different forms depending on the project . . .”) (Exhibit Bra-18).
71 TPC Framework Document, pg. 10 (Exhibit Bra-5).
72 Id.WT/DS70/RW
Page 55
evaluation” forms,73 the “Memorandum of Understanding” between TPC and the Industry Sector,74
“records of decisions” issued by the Secretariat of the Programmes and Services Board,75 minutes of
Interdepartmental Advisory Committee meetings and TPC Management Board meetings,76 and
“sector strategies, technical assessments, priorities and technology roadmaps” developed by the Sector
Branches.77
38. Canada cannot seriously claim compliance with the DSB’s recommendations and rulings onthe basis of amendments made to TPC – a programme judged to be a prohibited export subsidy –
without actually demonstrating that those changes were made.  As demonstrated in paragraph 9.340 of
the Panel Report, the devil is indeed in the details of the TPC programme.  Canada’s failure to providethe documents listed in the preceding paragraph – which presumably detail its efforts at compliance –
should lead the Panel to presume that the documents do not in fact demonstrate compliance.
78
III. CANADA’S AMENDMENTS TO THE CANADA ACCOUNT DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOTCONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’S
RECOMMENDATIONS AND RULINGS
39. Although Canada’s 19 November 1999 statement to the DSB first claims that “there will be
no deliveries of regional aircraft after 18 November 1999 benefitting from such Canada Account
financing,” it goes on to say that “any delivery of regional aircraft after 18 November 1999 which
benefits from Canada Account financing wi ll comply with the [OECD] Arrangement.”
79  Brazil
presumes, therefore, that Canada intends to retain the discretion to support sales or deliveries of
Canadian regional aircraft with Canada Account financing.
40. Canada Account financing is still, under Article 3.1(a), contingent in law on export.  Canada
Account debt financing “takes the form of export credits and, in Canada’s own words, was granted‘for export of goods’.”
80  Canada Account export credits are issued, moreover, “‘for the purpose of
supporting and developing, directly or indirectly, Canada’s export trade.’”81
41. Confirming the Panel’s conclusion of de jure  export contingency, the President of the Export
Development Corporation, which administers the Ca nada Account, has stated that “Canada Account
funds are used to support export transactions  which the federal government deems to be in the
national interest but which, for reasons of size or risk, the Export Development Corporation (EDC)
cannot support through regular export credits.”82
42. The materials submitted by Canada to the DSB purportedly demonstrating implementation donot speak to, much less alter, Canada Account’s de jure  export contingency.  Brazil submits,
                                                     
73 Id. at pg. 18, 20.
74 Id. at pg. 18.
75 Id. at pg. 19.
76 Id.
77 Id. at pg. 20.
78 The Panel may, of course, request these documents from Canada.  Any refusal to provide these
documents should lead to the inference and presumption that the documents reveal something short of Canadian
compliance with the recommendations and rulings of the DSB regarding TPC.
79 Exhibit Bra-2, pg. 2.
80 Panel Report, para. 9.230.
81 Id.
82 Export Development Corporation, Chairman and President’s Message  (emphasis added) (Exhibit
Bra-29).  See also  Panel Report, para. 6.149.WT/DS70/RW
Page 56
therefore, that the Panel should maintain its previous ruling that Canada Account financing is de jure
contingent on export, within the meaning of Article 3.1(a) of the Subsidies Agreement.
43. Regarding the status of Canada Account financing as a “subsidy” under Article 1 of the
Subsidies Agreement, Canada’s comments do not suggest that its implementation strategy removessuch financing from the category of “financial contribution[s] by a government,” under Article
1.1(a)(1) of the Subsidies Agreement.  The press release announcing Canada’s implementation, for
example, states that “the collection risk” for Canada Account transactions “ultimately rests with the
Government of Canada.”
83  Similarly, Canada’s announcements do not suggest that Canada Account
financing is no longer provided in one of the forms listed in sub-paragraphs (i) through (iv) of Article1.1(a)(1) to the Subsidies Agreement.
44. Canada’s statements outlining its implementation strategy do not, moreover, directly address
the Panel’s finding that Canada Account financing could be at rates “below the market,”
84 and thus on
terms constituting a “benefit” under Article 1.1(b) of the Subsidies Agreement, i.e., terms “more
advantageous for the recipient than those available on the market.”85
45. To implement the DSB’s recommendations and rulings, Canada simply states that under a
“policy guideline” issued by the Minister for International Trade, no Canada Account transactions
will be authorized unless they “comply with th e OECD Arrangement on Guidelines for Officially
Supported Export Credits.”86
46. Canada appears to suggest that even if Canada Account financing otherwise constitutes aprohibited export subsidy, it is exempted by the so-called “safe harbor” in item (k) of the Illustrative
List of Export Subsidies, included as Annex 1 to the Subsidies Agreement.  This rather cryptic
suggestion, however, is not sufficient to satisfy Canada’s significant burden of establishing
entitlement to what is an affirmative defence.  Had Canada opted for this defence in the original Panel
proceedings, it would have carried the significant burden of proving entitlement to it; leaving reliance
on this defence to the implementation phase of dispute settlement proceedings does not change
Canada’s burden.  Mere assertion of the defence, without more, is not enough.
47. For example, the OECD Arrangement on Guidel ines for Officially Supported Export Credits
– to which item (k) refers – includes 88 articles covering a wide variety of issues, along with an annex
dedicated to aircraft.  Canada has not specified whic h articles of the Arrangement or which portions of
the aircraft annex are relevant under item (k), or precisely how it will maintain compliance with those
provisions.  Nor has Canada provided the Minister of International Trade’s “policy guideline,” under
which future Canada Account financing allegedly compliant with the terms of the OECDArrangement will apparently be issued.
87
48. For these reasons, Canada has not brought itself into compliance with either the
recommendations and rulings of the DSB, or the terms of the Subsidies Agreement, with regard to the
Canada Account.
                                                     
83 Industry Canada News Release, 18 November 1999, pg. 2 (Exhibit Bra-18).
84 Panel Report, para. 9.224.
85 Panel Report, para. 9.222.
86 Canadian Statement to the DSB, pg. 2 (Exhibit Bra-2).  See also  Canadian Letter to the DSB (Exhibit
Bra-1).
87 Id.  Should the Panel request this document from Canada, any refusal to provide it should lead to the
inference and presumption that the document would reveal something short of Canadian compliance with the
recommendations and rulings of the DSB regarding the Canada Account.WT/DS70/RW
Page 57
IV. CONCLUSION
49. Canada has not withdrawn the subsidies determined by the Panel and the Appellate Body to
be prohibited export subsidies.  The amendments  proposed to TPC are inadequate to implement the
recommendations and rulings of the DSB, and are not otherwise in compliance with Canada’sobligations under the Subsidies Agreement.  The cosmetic changes included in Canada’s
implementation strategy consist of little more than an effort to strike the word “export” from TPC
documents.  This is not sufficient to cure a programme rendered de facto  export contingent, since de
facto  export contingency “must be inferred  from the total configuration of the facts constituting and
surrounding the granting of the subsidy . . .”
88  Under the “facts constituting and surrounding” TPC
subsidies, implementation of the DSB’s recommendations and rulings and compliance with the
Subsidies Agreement requires nothing short of complete and total withdrawal of TPC, as it relates to
the regional aircraft industry.
50. With regard to the Canada Account, Canada’s cryptic statement that debt financing under the
programme will in future conform to the terms of the OECD Arrangement is not sufficient to
discharge its burden of proving what amounts to an appeal to an affirmative defence.
51. Accordingly, Brazil requests that the Panel determine that Canada has not implemented the
recommendations and rulings of the DSB or otherwise complied with its obligations under the
Subsidies Agreement.
                                                     
88 Appellate Body Report, para. 167 (emphasis in original).WT/DS70/RW
Page 58
LIST OF EXHIBITS
Canadian Letter to DSB, 19 November 1999 Exhibit Bra-1
Canadian Statement to DSB, 19 November 1999 Exhibit Bra-2
Brazilian Letter to DSB, 23 November 1999 Exhibit Bra-3Superceded TPC Charter ( in TPC Interim Reference Binder,
March 1998)Exhibit Bra-4
TPC Special Operating Agency Framework Document Exhibit Bra-5
TPC Annual Report, 1998-1999 Exhibit Bra-6Updated Expert Report Exhibit Bra-7TPC Annual Report, 1996-1997 Exhibit Bra-8Industry Canada News Release, 10 January 1997 Exhibit Bra-9
Industry Canada News Release, 17 December 1996 Exhibit Bra-10
“Think Canada, Think Bottom Line, Think Aerospace Industry,
Think Investment,” October 1999Exhibit Bra-11
Industry Canada, “Results of the 1998/99 Survey of the
Canadian Aerospace and Defence Industry,”
29 November 1999Exhibit Bra-12
“Canadian Aerospace Suppliers Base Strategy for Change,”
25 June 1999Exhibit Bra-13
Aerospace Industries Association of Canada Annual Report,
1999Exhibit Bra-14
TPC Terms and Conditions Exhibit Bra-15
TPC Investment Application Guide Exhibit Bra-16TPC Current Statistics, 6 December 1999 Exhibit Bra-17Industry Canada News Release, 18 November 1999 Exhibit Bra-18
TPC website, “Aerospace and Defence” Exhibit Bra-19WT/DS70/RW
Page 59
TPC website, “Project Identification and Description,”
21 January 1998Exhibit Bra-20
TPC Business Plan, 1996-1997 Exhibit Bra-21
Superceded TPC Terms and Conditions ( in TPC Interim
Reference Binder, March 1998)Exhibit Bra-22
Industry Canada, CIBS Overview, “Executive Summary” Exhibit Bra-23
Industry Canada, CIBS Strate gic Overview, “International
Business Development Priorities”Exhibit Bra-24
Industry Canada, CIBS Geogra phic Overview Exhibit Bra-25
Industry Canada, CIBS Aerospace and Defence Exhibit Bra-26
Conference Board of Canada, Performance and Potential 1999 ,
“Working Smarter, Not Harder”Exhibit Bra-27
Submission of Appellant Canada, 13 May 1999, paras. 45-46 Exhibit Bra-28
Export Development Corporation, Chairman and President’s
MessageExhibit Bra-29WT/DS70/RW
Page 60
ANNEX 1-2
REBUTTAL SUBMISSION OF BRAZIL
(17 January 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ..............................................................................................................62
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOT
CONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’SRECOMMENDATIONS AND RULIN GS.......................................................................62
A. TPC C
ONTRIBUTIONS STILL CONSTITUTE SUBSIDIES UNDER ARTICLE 1 OF THE
SUBSIDIES AGREEMENT ...........................................................................................62
B. D ETERMINING WHETHER CANADA HAS IMPLEMENTED THE RECOMMENDATIONS
AND RULINGS OF THE DSB D OES NOT REQUIRE EVIDENCE OF TPC
CONTRIBUTIONS SUBSEQUENT TO 18 N OVEMBER 1999..........................................62
1. Canada Mischaracterizes the Appellate Body’s Test for De Facto
Export Contingency ....................................................................................63
2. Canada’s Argument Reduces Article 21.5 to ‘Inutility’..............................63
C. C OSMETIC CHANGES DO NOT CURE TPC OF DE FACTO  EXPORT CONTINGENCY ...64
1. TPC Remains Focused on the Aerospace Industry and the Regional
Aircraft Industry, the Export Orientation of Which Has Been Singledout by the Canadian Government As Significant........................................66
2. Removing the ‘Near to Market’ Terminology from TPC Documents is
Irrelevant .....................................................................................................69
3. To Qualify for TPC Funds, Applicants Must Demonstrate a
Contribution to Goa ls and Objectives Requiring a Commitment toExport Performance ....................................................................................69
(a) Export Contingency Need Not Be the Sole  Condition for Receipt of a Subsidy..................71
(b) Brazil Has Relied on Valid Evidence ...................................................................................71
4. References to the Term ‘Export’ Have Not Been Removed from All
TPC Documents ..........................................................................................73
III. CANADA’S AMENDMENTS TO THE CANADA ACCOUNT DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOT
CONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’S
RECOMMENDATIONS AND RULIN GS.......................................................................75
A. D
ETERMINING WHETHER CANADA HAS IMPLEMENTED THE RECOMMENDATIONS
AND RULINGS OF THE DSB D OES NOT REQUIRE EVIDENCE OF CANADA ACCOUNT
FINANCING SUBSEQUENT TO 18 N OVEMBER 1999 ..................................................75
B. C ANADA ’S CLAIM THAT THE RECOMMENDATIONS AND RULINGS OF THE DSB
REQUIRED NO IMPLEMENTATION BY CANADA IS IN ERROR ....................................76
IV. CANADA’S PROPOSAL REGARDING THE ESTABLISHMENT OF
‘VERIFICATION PROCEDURE S’ .................................................................................78WT/DS70/RW
Page 61
V. CONCLUS ION ................................................................................................................... 78
LIST OF EXHIBITS............................................................................................................... .........80WT/DS70/RW
Page 62
I. INTRODUCTION
1. In its first submission1  Canada claims to have adopted measures implementing the
recommendations and rulings of the Dispute Settle ment Body (“DSB”) regarding the withdrawal of
subsidies provided by the Canadian government to the regional aircraft industry via two programmes
– Technology Partnerships Canada (“TPC”) and Canada Account.  In Canada –  Measures Affecting
the Export of Civilian Aircraft2  these subsidies were determined to constitute prohibited export
subsidies under Article 3.1(a) of the Agreement on Subsidies and Countervailing Measures
(“Subsidies Agreement”), and were accordingly ordered withdrawn, pursuant to Article 4.7 of thatAgreement.
2. Brazil reiterates its claim that the Canadian measures do not adequately implement the DSB’s
recommendations and rulings, and that the impugned programmes remain inconsistent with the
Subsidies Agreement.  In this submission, Brazil addresses arguments levied by Canada in its firstsubmission, and demonstrates that Canada’s implementation measures are insufficient to comply with
the recommendations and rulings of the DSB that it “withdraw ” TPC and Canada Account subsidies
to the regional aircraft industry.
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOT
CONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’SRECOMMENDATIONS AND RULINGS
A. TPC CONTRIBUTIONS STILL CONSTITUTE SUBSIDIES UNDER ARTICLE 1 OF THE
SUBSIDIES AGREEMENT
3. Without repeating the arguments included in paragraphs 8-11 of its first submission, Brazil
simply reiterates that the legal status of TPC contributions as “subsidies” under Article 1 of the
Subsidies Agreement remains unchanged under the “new” TPC.
4. Canada argues that the question whether TPC contributions will continue to constitute
subsidies is “not the issue in this case.
3   With this statement, Canada effectively concedes that should
the Panel determine that contributions under the “new ” TPC will continue to be contingent in fact on
export performance under Article 3 of the Subsidies Agreement, it should also presume that those
contributions will continue to constitute “subsidies” under Article 1 of the Agreement.
B. DETERMINING WHETHER CANADA HAS IMPLEMENTED THE
RECOMMENDATIONS AND RULINGS OF THE DSB DOES NOT REQUIRE
EVIDENCE OF TPC CONTRIBUTIONS SUBSEQUENT TO 18 NOVEMBER 1999
5. In its first submission, Canada contends that in the absence of new “financial contributions”
to the regional aircraft industry made subsequent to 18 November 1999 under the “restructured” TPC,
this Panel cannot judge whether Canada has effectively implemented the recommendations and
rulings of the DSB.  Specifically, Canada claims that “in the absence of any such financial
contribution and a full consideration of those facts, there can be no grounds to support Brazil’s
allegations of de facto  export contingency under the restructured TPC programme.4
                                                     
1  First Article 21.5 Submission of Canada, dated 10 January 2000 [“Canadian First Submission”].
2  WT/DS70/R (14 April 1999) (Adopted as modified by the Appellate Body, 20 August 1999) [ “Panel
Report”]; WT/DS70/AB/R (2 August 1999) (Adopted 20 August 1999) [ “Appellate Body Report”].
3  Canadian First Submission, para. 39.
4  Id. at para. 45.WT/DS70/RW
Page 63
6. Canada appears to draw this conclusion from th e first element of the Appellate Body’s test for
de facto  export contingency, which Canada characterizes as an inquiry into whether “there is granting
of assistance by Canada.5    Since no new assistance has been granted under the “new” TPC, Canada
asserts that the Panel cannot conclude that Canada has failed to implement the recommendations andrulings of the DSB.  Canada’s assertion is in error, for two reasons.
1. Canada Mischaracterizes the Appellate Body’s Test for De Facto  Export Contingency
7. First, Canada mischaracterizes and takes wholly out of context the first element of the
Appellate Body’s test.  What the A ppellate Body actually said is that
the initial inquiry must be on whether the granting authority  imposed a condition
based on export performance in providing the subsidy.  In the words of Article 3.2
and footnote 4, the prohibition is on the “ granting   of a subsidy”, and not on receiving
it.  The treaty obligation is imposed on the granting  Member, and not on the
recipient.  Consequently, we do not agree with Canada that an analysis of “contingent
. . . in fact . . . upon export performance” should focus on the reasonable knowledge
of the recipient.
6
Brazil has retained the original italicized emphasi s employed by the Appellate Body to demonstrate
that the Appellate Body’s point with this first element was to show the error of Canada’s assertion that
an interpreter should look to a subsidy recipient’s  knowledge to determine whether the recipient,
rather than the grantor, understood the subsidy to be conditioned in fact on export performance.
8. To interpret this first element of the Appellate  Body’s test otherwise, as Canada suggests the
Panel should, would be to render redundant Article 1.1 of the Subsidies Agreement – which already
requires demonstration of a “financial contribution by a government.”  In Brazil – Export Financing
Programme for Aircraft , the Appellate Body held that the Panel erred in importing the notion of a
“benefit,” from Article 1.1(b) of the Subsidies Agreement, into the definition of a “financial
contribution” in Article 1.1(a); it termed these two sub-parts of the same Article “two separate legal
elements.7   Since there was no textual basis to read one provision (regarding “benefit”) into another
provision (regarding “financial contribution”), the Appellate Body concluded that it was notpermissible to do so.
9. Similarly, there is no textual basis to import the notion of a “financial contribution by a
government,” from Article 1 of the Subsidies Agreement, into the legal test of “contingen[cy] . . . in
fact . . . upon export performance,” from Article 3 of the Agreement.  Nor, when read in context, doesthe Appellate Body’s exposition of the first element of demonstrating de facto  export contingency
create such a requirement.
2. Canada’s Argument Reduces Article 21.5 to ‘Inutility’
10. Second, Canada’s claim confuses a de novo  challenge to a financial contribution not yet
judged  to be a prohibited export subsidy, with a challenge to those measures allegedly remedying
something already judged  to be a prohibited export subsidy.  If accepted, Canada’s claim would make
measures allegedly constituting effective implementation impervious to effective challenge under
Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
                                                     
5  Id. at para. 38.
6  Appellate Body Report, para. 170 (emphasis in original).
7  WT/DS46/AB/R (2 August 1999) (Adopted 20 August 1999) para. 157.WT/DS70/RW
Page 64
(“DSU”).  This is because a Member determined by a Panel to have adopted measures constituting
subsidies contingent in fact on export could, under Canada’s theory, escape effective Article 21.5
scrutiny by merely refraining from applying  any remedial measures until the 20-day time period to
seek compensation has passed.8
11. The opportunity to manipulate the system in this way did not escape Canada;  according toTPC’s website, Canada waited until 10 January 2000 to award its first contribution under the “new”
TPC.
9   Nor should it escape other Members.  The effect, of course, would be to reduce Article 21.5 to
“inutility,” a result considered unacceptable by the Appellate Body.10   Members that have
successfully challenged a subsidy contingent in fact on export would be left, effectively, with littlemore than a Pyrrhic victory.   When it comes to enforcement of the most egregious of export subsidies
– those subsidies determined by a Panel or the Appellate Body to be levied in a manner designed to
circumvent  the prohibition of de jure  export contingency – Members would be left without an
effective remedy.
11
12. Finally, beyond undermining Article 21.5, accepting Canada’s theory would also undermineany incentive a Member would have to implement the DSB’s recommendations and rulings at all.  If
implementation measures remedying a finding of a subsidy programme’s de facto  export contingency
are impervious to effective challenge, what incentive would a Member have to undertake those
implementation measures?  More specifically, if all Ca nada considers it needed to do to insulate TPC
from challenge was to refrain from making a contribution under the “new” TPC, why did it bother to
undertake any implementation measures at all?
13. It would not have had to do so, under its own logic, since it could have defended Brazil’s
challenge under Article 21.5 strictly on the basis that no new subsidies to the regional aircraft industry
had been granted.  Obviously, Canada undertook the implementation measures detailed in its first
submission because it considered itself compelled to do more than simply not issue TPC subsidies tothe regional aircraft industry for the time being.
12  The fact that Canada felt compelled to do so
demonstrates that it does not consider the absence of subsequent subsidies to immunize it from
Brazil’s Article 21.5 challenge.  For this and the other reasons expressed above, Canada’s argument
must be rejected.
C. COSMETIC CHANGES DO NOT CURE TPC OF DE FACTO  EXPORT CONTINGENCY
14. “TPC assistance to the Canadian regional aircraft industry” was determined by the Panel and
the Appellate Body to be contingent in fact on export performance.13   Canada’s response, however, as
demonstrated by its implementation strategy and detailed in its first submission, has been to treat TPC
                                                     
8  See DSU Article 22.2.
9  Moreover, this contribution does not involve the regional aircraft industry.  TPC News Release,
10 January 2000 (Exhibit Bra-30).  According to TPC’s website, no other TPC awards had been made since17 November 1999, one day before expiration of the “reasonable period of time” for implementation.  TPC
News Release, 17 November 1999 (Exhibit Bra-31).
10 United States – Standards for Reformulated and Conventional Gasoline , WT/DS2/AB/R, pg. 23 (29
April 1996) (Adopted 20 May 1996) (An interpreter “is not free to adopt a reading that would result in reducingwhole clauses or paragraphs of a treaty to redundancy or inutility.”).
11 The Panel will recall that the European Commun ities proposed the express prohibition of subsidies
contingent in fact on export because the de jure  provision is “open to circumvention.”  Elements of the
Negotiating Framework , Submission of the European Communities, MTN.GNG/NG10/W/31
(27 November 1989).
12 In paragraph 2 of its first submission, Canada confirmed this fact, characterizing its TPC
implementation measures as “new measures to ensure full and faithful implementation of the DSB rulings andrecommendations and compliance with the SCM Agreement.”
13 Panel Report, paras. 10.1(f), 10.3; Appe llate Body Report, paras. 220(b), 221.WT/DS70/RW
Page 65
as though it had been judged de jure , rather than de facto , export contingent.  Canada considers that
by demonstrating that it made some changes to TPC, such as the removal of the term “export” from
some (although not all) TPC documents, or the inclusion of self-serving statements regarding its
undertaking not to consider export information, the task of implementing the DSB’s recommendations
and rulings is complete.
15. This is not effective implementation of a determination of de facto  export contingency.
According to the Appellate Body, while de jure  export contingency is indeed demonstrated (or
remedied) “on the basis of the words of the relevant legislation, regulation or other legal instrument,”
de facto  export contingency is to be “ inferred  from the total configuration of the facts constituting and
surrounding the granting of the subsidy . . .14   Brazil demonstrated in its first submission, at
paragraphs 18-38, that the facts surrounding the “new” or the “restructured” TPC still support an
inference of de facto  export contingency.  Under the “new” TPC,
• contributions remain targeted to specific industries – in particular, the aerospace industry, which
is to continue, as before, receiving two-thirds of TPC fund15  – that are overwhelmingly export-
oriented and recognized by the Government of Canada as such (discussed at section 1 below);
• the same types of projects continue to be eligible for “new” TPC funds as were eligible under the
“old” TPC (discussed at section 2 below);
• applicants must demonstrate that they will contribute to goals and objectives the achievement of
which requires a commitment to export performa nce, according to the Government of Canada
itself (discussed at section 3 below);
• Canada has failed to amend or to provide documents that the Panel previously considered
supported an inference of de facto  export contingency (discussed at section 4 below).
16. Apart from removing references to the word “export” from some TPC documents, the only
thing that the DSB’s recommendations and rulings have prompted Canada to do is to increase, by 396
per cent , what TPC itself projects to be “Total funds available for new contributions in future years.16  
Additionally, over the period 1998-2003, TPC’s “Available contribution funding” is slated to increase
from $203 million to $367 million.17
17. Thus, under the “new” TPC, the same recipient industries will receive even more government
subsidies to undertake the same types of projects.  This is not effective implementation.
18. The facts surrounding TPC, described in paragraphs 18-38 of Brazil’s first submission, lead to
the conclusion that funds granted to the regional aircraft industry under the “new” TPC will continue,
unavoidably, to be contingent in fact on export performance.  It is for this reason that Brazil argued, in
its first submission, that “withdrawing the subsidy” in the case of TPC – the very design, structure,
                                                     
14 Appellate Body Report, para. 167 (emphasis in original).
15 Canadian First Submission, para. 32.  Canada notes at paragraph 32 that “it cannot be assumed that
regional aircraft industry-related projects will receive the majority of the funds.”  This may be so, but is utterly
irrelevant.  If the regional aircraft industry is able  to receive $1 of funds contingent in fact on export
performance, Canada has not implemented the recommendations and rulings of the DSB.
16 TPC Annual Report, 1998-1999, pg . 28 (row titled “Total funds available for new contributions in
future years,” comparing 1999-2000 figure with 2002-2003 figure) (Exhibit Bra-6).  Canada complains inAnnex A to its first submission that “[t]his is a distortion of the actual programme funding situation.”  Brazilreiterates that these figures are taken directly from the TPC Annual Report.
17 TPC Annual Report, 1998-1999, pg. 28 (row  titled “Available contribution funding”).WT/DS70/RW
Page 66
and economic reality of which betrays its de facto  export contingency – cannot be achieved without
withdrawal of the programme altogether, with regard to the regional aircraft industry.18
19. At a minimum , Canada’s implementation measures must ensure  that prohibited export
subsidies cannot  be granted to the regional aircraft industry under the facts surrounding the operation
of TPC, and not merely that they might not  be granted.  Since TPC, as it applies to the regional
aircraft industry, was judged de facto  export contingent, maintaining funding under the “new” TPC
requires that Canada ensure  that the programme will operate in full compliance with the Subsidies
Agreement.  It is not sufficient for Canada to simply provide a framework which, in consideration of
the “total configuration of the facts constituting and surrounding the granting of the subsidy19 , could
permit it to maintain operation of TPC as a de facto  export contingent programme.  To constitute
effective implementation, any amendments made by Canada to TPC should not focus on making the
programme merely de jure  compliant (which it may already have been), but instead on making it de
facto  compliant, on a consideration of the “total configuration of the facts.20
20. A review of the “total configuration of the facts” reveals that Canada has not met this
obligation.  Brazil recalls that under the “new” TP C, the same industry recipients are getting even
more TPC subsidies to undertake the same types of projects.  This does not suggest effective
implementation of a finding of de facto  export contingency.
1. TPC Remains Focused on the Aerospace Industry and the Regional Aircraft Industry,
the Export Orientation of Which Has Been Singled out by the Canadian Government AsSignificant
21. As discussed in Brazil’s first submission, the same three industries eligible for funding under
the “old” TPC are targeted for continued funding under the “new” TPC.
21   Moreover, Canada has
confirmed that the aerospace industry will continue, as it did under the “old” TPC, to receive two-thirds of all “new” TPC funds.
22   Although the Panel determined that the regional aircraft industry
had in its period of review received approximately 68 per cent of TPC funds allotted to the aerospace
industry.23   Canada contends that under the “new” TPC, “it cannot be assumed that regional aircraft-
industry related projects will receive the majority of the funds.24   Whether regional aircraft-industry
related projects are to receive the majority  of the “new” TPC’s funds or $1 of those funds, if TPC
subsidies remain de facto  export contingent, Canada has not implemented the recommendations and
rulings of the DSB.
                                                     
18 As discussed in paragraph 7 of its first submission, Brazil reiterates that this result is also supported
by Canada itself.  In its submissions to the Appellate Body, Canada argued that the word “subsidy” is usedinterchangeably with the term  “subsidy programme” in the Subsidies Agreement, and that TPC is just such a“subsidy programme.”  See Submission of Appellant Canada, 13 May 1999, paras. 45-46 (Exhibit Bra-28).  The
requirement that Canada “withdraw the subsidy,” therefore, must by force of Canada’s own logic mean that it is
required to withdraw TPC in its entirety.
19 Appellate Body Report, para. 167 (emphasis in original).
20 Id.
21 For a list of the three industries eligible for funds under the “new” TPC, see,  e.g., TPC Terms and
Conditions, pg. 1, Section 3.1 (“Eligible Areas”) (Exhibit Bra-15).  For a list of the identical three industries
eligible for funds under the “old” TPC, see, e.g., Panel Report, paras. 6.173, 9.283.
22 Canadian First Submission, para. 32.
23 Panel Report, para. 9.307.
24 Canadian First Submission, para. 32.  Canada al so states that “no new regional aircraft-related
projects have been approved or contracted since 14 November 1997.”  This is simply not true.  In March 1998,TPC announced a $9.9 million subsidy to Sextant Avionique Canada Inc. for the development of both the
avionics system for the Dash 8-400 and the flight control system for the CRJ-700.  Panel Report, para. 6.193.WT/DS70/RW
Page 67
22. Furthermore, Canada did not, with its amendments to TPC, change the nature of the Canadian
aerospace industry generally or the regional aircraft segment specifically.  Brazil has demonstrated
that the Canadian aerospace industry in general and the regional aircraft segment in particular
continue to be overwhelmingly export-oriented.  More importantly, the Canadian government itself
recognizes the exceptional export performance of the industry, and has cited that performance as itsmotivation for funding the industry.
25
23. Canada complains that certain of the Canadian government documents cited to establish this
point, in paragraph 19 of Brazil’s first submission, may not be relied upon to challenge Canada’s
implementation and to demonstrate a continued inference of de facto  export contingency.  According
to Canada, this evidence “relates not to the restructured TPC, but to TPC as it was previously
constituted.26
24. Canada cites two decisions for support.  At paragraph 41 of its first submission, Canada cites
to what it claims to be a principle “duly recognised by the Panel in Australia – Subsidies Provided to
Producers and Exporters of Automotive Leather .”  According to Canada, the Panel stated that “WTO
Members cannot be prevented from replacing purported prohibited export subsidies with other
measures that are not prohibited, thereby bringing themselves into compliance with their multilateral
obligations under the SCM Agreement.27
25. Brazil encourages the Panel to review paragraph 9.64 of the decision in Australia – Leather ,
for two reasons.  First, the sentence extracted by Canada merely records an argument made by
Australia , rather than a conclusion made by the Panel .  The Panel only offers its views on the issue in
the final sentence of paragraph 9.64, commencing with its statement that “We agree that . . .”
26. Even if the sentence extracted by Canada represents a conclusion of the Panel, however, that
conclusion represents only half of the story.  In the first instance, Canada has not “replaced” TPCcontributions to the aerospace industry and the regional aircraft segment with anything else; TPC is
still available to this same industry for the same types of projects even after implementation.
27. Moreover, after the sentence from Australia – Leather  quoted by Canada, the Panel stated that
even if measures previously constituting prohibited export subsidies are no longer in place, and haveinstead been “replaced” with purportedly non-prohibited “other measures” providing funds to the
same recipient, statements made by a Member in conjunction with the earlier but now superseded
measures are relevant to an analysis of the subsequent, purportedly compliant measures.
28
28. Therefore, since the “new” TPC has retained its focus on the same recipient industries fundedunder the “old” TPC, comments made by the Canadian government regarding its rationale for funding
those recipients are relevant to the Panel’s analysis of the “new” TPC.  For example, the Leader of the
Government in the House of Commons noted that  a key “output” of the TPC-funded Dash 8-400
project was “the building of exports,” which was, with job creation, “just what the government had in
mind when we established” TPC.
29   Canada cannot seriously expect to maintain funding to the same
industry under the “new” TPC, and yet at the same time escape the implications of its earlier
statements regarding why it chose that industry in the first place.  Australia – Leather  provides
support for the Panel, in its analysis of any “inferences” of de facto  export contingency flowing from
                                                     
25 See Brazilian First Submission (and sources cited therein), para. 19.  Regarding the role of the
regional aircraft industry’s export-orientation in TPC’s funding decisions, see, e.g., the comments by the Leader
of the Government in the House of Commons, included in Brazil’s first submission, para. 19.
26 Canadian First Submission, para. 43.
27 WT/DS126/R (25 May 1999) (Adopted 16 June 1999), para. 9.64.
28 Id. at para. 9.65.
29 Industry Canada News Release, 17 December 1996 (Exhibit Bra-10).WT/DS70/RW
Page 68
the surrounding facts, to consider statements by the Canadian government regarding its support for
particular recipient industries of “old” TPC funding, where Canada has maintained its focus on those
same recipients in the “new” TPC.
29. Canada also cites the Appellate Body in Chile – Taxes on Alcoholic Beverages  for the
principle that “previous . . . measures” cannot be relied upon to assume continued non-compliance
with a Member’s obligations.30  Since certain of the documents relied upon by Brazil pre-date 18
November 1999 – the date on which the “new” TPC took effect – Canada contends that any reliance
upon them to infer de facto  export contingency would fall afoul of the Appellate Body’s ruling in
Chile – Alcohol .
30. While Brazil does not quarrel with Canada’s statement of the rule in  Chile – Alcohol , that
rule is simply inapplicable in the circumstances of this case.  Chile – Alcohol   did not, in the first
instance, involve subsidies de facto  contingent on export performance.  Furthermore, Canada’s
objection, and its citation to the rule in Chile – Alcohol , would only have been appropriate and
relevant had Brazil not relied upon the “measures” constituting the “new” TPC, and instead relied
upon the “measures” constituting the “old” TPC.
31. But this is not the situation at hand.  The facts enumerated in paragraph 19 of Brazil’s first
submission are not, to begin, Canadian “measures.”  They are instead facts that remain unaltered by
anything Canada claims to have accomplished with its amendments to TPC.  Canada has retained its
commitment to offer two-thirds of  “new” TPC funds to an industry that it has previously recognized
as “highly export oriented31,  “globally competitive with exports exceeding 70 per cent of output,32
and “crucial . . . for Canada’s economy, with  exports growing at 10 per cent per year.33   Even after
18 November 1999, Canada continues to recognize this industry as a source of ever increasing export
revenue.34   As far as Brazil is aware, nothing that Canada has proposed in restructuring TPC alters the
truth of these statements.
32. These statements lead to the inference that  in choosing which industry would receive the
lion’s share of “ old” and “new” TPC funds, Canada was not casually indifferent to the trading
patterns of that industry.  Instead, Canada ch ose, as TPC’s showcase, an industry that exports
significantly more than others, because  it exports significantly more than others.
33. The “new” TPC retains a focus on contributions to the aerospace industry.  Canada simply
cannot expect to retain a focus on this industry, and yet at the same time escape the inference created
by all of its previous statements about the esteem in which it holds that industry as a result of its
export performance .  Such an expectation is neither credible, nor demanded by the rule in Chile –
Alcohol .  Some elements, essential to the Panel's and Appellate Body's consideration, were not, and
cannot be, erased by the cosmetic amendments to TPC.
                                                     
30 Canadian First Submission, para. 44,  quoting  WT/DS87/AB/R, WT/DS110/AB/R
(13 December 1999) (Adopted 12 January 1999) para. 74.
31 TPC Annual Report, 1996-1997, pg. 5 (Exhibit Bra-8); “Think Canada, Think Bottom Line, Think
Aerospace Industry, Think Investment,” October 1999, pg. 33 (Exhibit Bra-11).
32 “Think Canada, Think Bottom Line, Think Aero space Industry, Think Investment,” October 1999,
pg. 3 (Exhibit Bra-11).
33 Industry Canada News Release, 10 January 1997 (Exhibit Bra-9).
34 Industry Canada, “Results of the 1998/99 Survey of the Canadian Aerospace and Defence Industry,”
29 November 1999 (Exhibit Bra-12).WT/DS70/RW
Page 69
2. Removing the ‘Near to Market’ Terminology from TPC Documents is Irrelevant
34. Canada claims that TPC now focuses on funding projects aimed at “improving the
technological capability of the firm or sector, rather than on the commercial viability and export
potential of supported products.35   In its first submission, Brazil noted, first, the Appellate Body’s
statement that “[i]t is . . . no ‘ less possible’  that the acts, taken together, may demonstrate that a pre-
production subsidy for research and development is  ‘contingent . . . in fact . . . upon . . . export
performance.’36   Simply including “Industrial Research” as a category of funding under the “new”
TPC does not make it any less possible to infer  from the facts that TPC constitutes a prohibited export
subsidy.
35. Second, Brazil demonstrated that the available descriptions of eligible activities under the
“new” TPC, to the extent they are different at  all from eligible activities under the “old” TPC37  betray
an interest in “near market” projects with high commercialization potential.  The “new” TPC Terms
and Conditions, along with the “new” TPC Investment  Application Guide, describe as eligible those
projects “aimed at the discovery of knowledge, with  the objective that such knowledge may be useful
in developing new products ,” and those projects leading to “translation of industrial research findings
into a plan, blueprint or design for new, modified or improved products  . . . 38
36. Finally, Canada has withheld from the Panel documents that could shed some light on these
categories of eligible activities, and whether they contribute to an inference of de facto  export
contingency – for example, the “new”  TPC’s “Fra mework Investment Proposals.”  Exhibit Cdn-9
states that Canada has not yet provided, and is still developing, this document, which presumably
could contain a description of the three eligible categories of TPC projects.39   Canada cannot claim, as
it has in paragraphs 33-34 of its first submission, that it has implemented the recommendations and
rulings of the DSB by making TPC “less near-market,” without providing the documents
demonstrating this fact.
3. To Qualify for TPC Funds, Applicants Must Demonstrate a Contribution to Goals and
Objectives Requiring a Commitment to Export Performance
37. Brazil demonstrated in its first submission that  to qualify for TPC funds, an applicant must
demonstrate that it meets TPC’s “selection criteria” and “assessment criteria,” and that it provides the
“strategic benefits” sought by the programme.  Brazil also demonstrated that among those selection or
assessment criteria and strategic benefits is the requirement that applicants establish that TPC funds
would be used to create Canadian jobs, to in crease Canadian economic growth, or to increase
Canadian wealth.  To wit:
• The “new” TPC’s Investment Application Guide states that applicants’ proposals “are assessed in
the context of their relevance to the objectiv es of TPC, namely the extent to which they
demonstrate,” among other things, “that the project contributes to the strategic objectives of the
government, including technological and net economic benefits to Canada (increasing economic
growth, creating jobs and wealth, and supporting sustainable development).40
                                                     
35 Canadian First Submission, para. 33.
36 Appellate Body Report, para. 174.
37 Brazilian First Submission, paras. 29-30.
38 TPC Terms and Conditions, pg. 2 (emphasis added) (Exhibit Bra-15); TPC Investment Application
Guide, pg. 4 (emphasis added) (Exhibit Bra-16).
39 Exhibit Cdn-9 (Serial 16).  Although Canada claims that this document is not available, it is able at
paragraph 34 of its first submission to describe in some detail what is included in one of the categories,“Industrial Research.”
40 TPC Investment Application Guide, pg. 6 (Exhibit Bra-16).WT/DS70/RW
Page 70
• The Investment Application Guide also states that a proposal must include information regarding
the “strategic benefit” offered by the project, including “[p]otential economic benefit to Canada
(for example, jobs created or maintained, economic growth, wealth creation . . .).41
• The “new” TPC’s Terms and Conditions state th at applicants’ proposals “will be assessed in
terms of the extent to which they demonstrate,” among other things, “ that the project contributes
to the strategic objectives of the government, including technological and net economic benefits
to Canada42,  the latter of which are defined in the In vestment Application Guide as “increasing
economic growth, creating jobs and wealt h, and supporting sustainable development.43
• The “new” TPC’s Investment Decision Document, to be completed by TPC officials evaluating
an applicant’s proposal, requires that those officials identify “strategic considerations” of the
project that would constitute “benefits to Canada,” including “the link between the proposed R&D
initiative and achieving Canada’s objectives of increasing economic growth, creating jobs and
wealth and sustainable development.44
38. In paragraph 33 of its first submission, Brazil then demonstrated, quoting numerous IndustryCanada publications and the Canadian Minister of Industry, along with economic experts like the
Conference Board of Canada, that creating Canadi an jobs, increasing Canadian wealth and spurring
Canadian economic growth requires, first and foremost, exports .  These objectives are driven by, and
cannot be achieved without, massive Canadian exports.
39. For a regional aircraft applicant for TPC funds to demonstrate a proposed project’s
contribution to “increasing economic growth, creating jobs and wealth,” therefore, it must – even if
implicitly – commit to export performance.  The “new” TPC has, in other words, imposed mandatory
selection and assessment criteria that can only be met if an applicant can demonstrate export
performance.  Such a requirement is the very essence of de facto  “export contingency” – concealing
export contingency in a requirement that does not actually employ the word “export.”
40. The Panel is not here faced, however, with a situation in which it is required to determine that
all subsidies contingent on “increasing economic growth, creating jobs and wealth,” in all cases, are
prohibited export subsidies, as Canada claims at paragraph 42 of its first submission.  Brazil has
discussed elsewhere in this and its first submission the “total configuration of the facts constituting
and surrounding” TPC subsidies to the regional aircraft industry which lead to an “inference” of de
facto  export contingency.45
41. For example, with the “new” TPC, Canada has retained as its target the aerospace industry,
which will continue to receive two-thirds of all TPC funds.46   The Panel found, and the Appellate
Body confirmed, that this same funding under the “old” TPC was intended by Canada to circumventits obligations under the Subsidies Agreement – it was provided contingent in fact on export
performance.
47   The Canadian government has frequently extolled the overwhelming export-
                                                     
41 Id. at pg. 8.
42 TPC Terms and Conditions, pg. 2 (Exhibit Bra-15).
43 TPC Investment Application Guide, pg. 6 (Exhibit Bra-16).
44 TPC Investment Decision Document, pg. 2 (Exhibit Cdn-7).
45 Appellate Body Report, para. 167.
46 Canadian First Submission, para. 32.
47 Elements of the Negotiating Framework , Submission of the European Communities,
MTN.GNG/NG10/W/31 (27 November 1989) (The prohibition of subsidies contingent in fact on export was
proposed because the de jure  provision is “open to circumvention”).WT/DS70/RW
Page 71
orientation of that industry generally, and the regional aircraft industry specifically48  including in its
decisions to award TPC funds.49   It has, as such, shown something considerably more than casual
indifference regarding the trading patterns of that  industry retained in the “new” TPC as the main
target for funding.
42. In these circumstances, the requirement that successful applicants demonstrate the ability to
fulfill particular assessment and selection criteria that are inextricably linked to export becomes all the
more significant, and adds to the inference that the “new” TPC retains its de facto  export contingency.
TPC knows, before it even sees an application, that regional aircraft industry applicants will be able to
fulfill these criteria by virtue of their extreme export orientation.  The deck, as the saying goes, isstacked.  In these circumstances, TPC does not have to express the export contingency of its
contributions; it knows that requiring applicants to demonstrate a proposal’s ability to contribute to
“increasing economic growth, creating jobs and wealth” is nothing more than a euphemism for export
contingency, as that requirement applies to regional aircraft industry applicants.
43. In its decision in Australia – Leather , the Panel was faced with similar circumstances, and
made a similar inference of de facto  export contingency.  Where Australia was aware that an
applicant, to meet an objective or requirement for a subsidy, must, “of necessity, have to continue and
probably increase exports,” Australia’s imposition of the objective or requirement was considered a
condition on the grant of the subsidy.
50   The Panel reached this conclusion, in the circumstances of
that case, even though there was no express mention of exports or an export requirement.  In the
specific circumstances of the case before this Panel, Brazil contends the Panel should do the same.
(a) Export Contingency Need Not Be the So le Condition for Receipt of a Subsidy
44. Canada attempts to counter Brazil’s claim with two arguments.  First, Canada attempts, at
paragraphs 22-25 of its first submission, to de-emphasize the requirement that a TPC applicantdemonstrate how its proposal will “increase economic growth, jobs and wealth,” by listing that
requirement as one among many.  Canada’s attempt must fail, however.  Article 3.1(a) of the
Subsidies Agreement requires only that export performance be “one of several other conditions,” and
not the sole condition for receipt of a subsidy.  It is, quite simply, irrelevant that the “new” TPC
requires that an applicant demonstrate “strategic benefits” or meet selection and assessment criteriathat do not constitute evidence of de facto  export contingency, as long as it must comply with one
requirement that does constitute evidence of de facto  export contingency.
(b) Brazil Has Relied on Valid Evidence
45. Second, Canada objects on two grounds to the evidence used by Brazil in paragraph 33 of its
first submission to demonstrate that for the regional aircraft industry to increase economic growth,
jobs and wealth in Canada requires export perfor mance.  In Annex A to its first submission, Canada
argues, in the first instance, that Brazil’s sources are “from the period prior to the restructuring of
TPC.
51
46. Canada’s argument is in error.  Brazil did not rely on evidence relating to TPC “as it waspreviously constituted,” thus objecting to “previous [Canadian] measures,” in the words of the
                                                     
48 See sources cited in Brazilian First Submission, para. 19.
49 See, e.g., Industry Canada News Release, 17 December 1996 (The then-Government House Leader
stated that “[t]hese two outputs of the Dash 8-400 project – the creation of jobs and the building of exports – arejust what the government had in mind when we established Technology Partnerships Canada . . .”) (Exhibit Bra-10).
50 Australian Leather, para. 9.67.
51 Canadian First Submission, Annex A, para. 5.WT/DS70/RW
Page 72
Appellate Body in Chile – Alcohol.52   To demonstrate that applicants for TPC funds are required to
show that their proposals provide “ strategic benefits” or meet “selection” and “assessment criteria”
related to the creation of Canadian jobs, econom ic wealth and growth, Brazil relied on the “ new”
TPC’s Investment Application Guide, Terms and Conditions, and (in this submission) Investment
Decision Document.53   These citations are repeated above, at the outset of this section of Brazil’s
submission.
47. Brazil then went on, in paragraph 33 of its first submission, to demonstrate that according to
the Canadian government and the Conference Board of Canada, increasing and creating Canadian
jobs, economic wealth and growth requires exports.  It is utterly irrelevant whether the statementssupporting this conclusion, contained in paragraph 33 of Brazil’s first submission, were made before
or after 18 November 1999.  As far as Brazil is aware, Canada did not, with its amendments to the
TPC programme, change or even attempt to change these aspects of the Canadian economy.  Unless
Canada can show that something about the Canadian economy and the Canadian regional aircraft
industry changed on 18 November 1999 as a result of its implementation measures, such thatincreasing and creating Canadian jobs, economic wealth and growth no longer depends, as a matter of
necessity, on export, the documents and statements compiled by Brazil at paragraph 33 of its first
submission retain both their validity and persuasive force, and contribute to an inference that TPC
retains its de facto  export contingency.
48. Canada also states that the evidence cited by Brazil in paragraph 33 of its first submission is
either “of a general nature,” providing “general sectoral information unrelated to TPC,” or “from non-governmental sources.
54   Brazil notes, in the first instance, that six of the seven documents quoted in
paragraph 33, to establish the link between exports and the increase and creation of Canadian jobs,
economic wealth and growth, were in fact published by Industry Canada, a government source.  TPC
is an agency of Industry Canada and reports to the Minister of Industry.55
49. Brazil also notes that the source of this generic information regarding the Canadian economyis utterly irrelevant, as long as the source is reliable.  As discussed above, Brazil first relied on the
“new” TPC Investment Application Guide, Terms and Conditions, and (in this submission)
Investment Decision Document56  to demonstrate that applicants for TPC funds are required to show
that their proposals provide “strategic benefits” or meet “selection criteria” and “assessment criteria”related to the creation of Canadian jobs, economic wealth and growth.  To establish the link, in the
Canadian economy, between exports and the increase of jobs, wealth and growth, Brazil then turned
to documents published by Industry Canada.
50. To establish this link, why must Brazil rely, as Canada insists it must, solely on documents or
statements made by TPC itself?  TPC is not the only authority on the Canadian economy.  TPC has
itself elsewhere acknowledged its own reliance on othe r government authorities for what it dubs, in its
first submission, “general sectoral information.
57   In the Memorandum of Understanding between
TPC and the Industry Sector of Industry Canada, for example, TPC has committed to rely on Industry
Canada’s Industry Sector Branches as the “first source for technological and sectoral analysis and
                                                     
52 Id. at paras. 43-44, quoting  Chile – Alcohol , para. 74.
53 Brazilian First Submission, paras. 31, 34.  Brazil notes that the Investment Decision Document was
not available until Canada filed its first submission on 10 January 2000.
54 Canadian First Submission, Annex A, para. 5 (introductory paragraph and discussion of the Industry
Canada CIBS documents cited by Brazil at footnotes 60, 61 and 62 to paragraph 33 of its first submission).
55 TPC Special Operating Agency Framework Do cument, cover page, pg. 8 (Exhibit Bra-5).
56 Brazilian First Submission, paras. 31, 34.
57 Canadian First Submission, Annex A, para. 5.WT/DS70/RW
Page 73
advice.58   Sectoral advice emanating from Industry Canada is therefore considered reliable and
persuasive by TPC.  Brazil’s citation to Industry Canada documents to establish a fundamental fact
about the Canadian economy – the link between exports and the increase and creation of Canadian
jobs, economic wealth and growth – is equally reliable and persuasive.
4. References to the Term ‘Export’ Have Not Been Removed from All TPC Documents
51. Canada has acknowledged that not all TPC documents have in fact been cleansed of
references to the term “export.”  In Exhibit Cdn-9, Canada lists 40 TPC documents59  only 13 (or
32 per cent) of which have been reformulated and provided to the Panel.60   On the one hand, Canada
claims that it has effectively implemented the recommendations and rulings of the DSB, thus ridding
TPC of de facto  export contingency, by removing references to the term “export” from TPC
documents.  On the other hand, Canada has failed to provide 68 per cent of those documents.
52. Canada has, therefore, failed to implement the recommendations and rulings of the DSB, by
Canada’s own measure of what cons titutes effective implementation .  Alternatively, Canada’s failure
to provide certain  “new” TPC documents supports a presumption that as-yet-unreplaced TPC
documents supporting the Panel’s original inference of de facto  export contingency still apply.  In
either case, Brazil requests that the Panel determine that Canada has failed effectively to implement
the recommendations and rulings of the DSB.
53. Experience demonstrates that many of the documents not provided by Canada could
potentially aid the Panel’s determination whether Canada has effectively implemented the DSB’s
recommendations and rulings, since they served as some of the sources of facts from which the Panel
inferred de facto  export contingency.  For example, a “new” TPC Aerospace and Defence Sector
Generic Model Agreement has not been provided.61   The Panel determined that this Model
Agreement served as one source of facts from which the de facto  export contingency of TPC could be
inferred, citing to the requirement that applicants “distinguish between domestic sales and exports
when reporting forecast and actual sales.62
54. Similarly, TPC’s Business Plan was found by the Panel to include facts leading to aninference of de facto  export contingency, with the statemen t that TPC’s approach in the aerospace
                                                     
58 Exhibit Cdn-10, pg. 1, para. 6 (emphasis added).  Brazil notes that Industry Canada’s Industry Sector
focuses on “develop[ing] initiatives to maximize Canada’s share of global trade and investment” and on“working with industry to get more Canadian firms involved in trade, in more sectors and in more markets.”
The result of Industry Sector’s activities will be to “help Canada, the most open of G7 countries, become a
nation of traders.  Currently, Canada’s top five exporters account for 21 per cent of Canadian exports and lessthan 10 per cent of Canadian SMEs export at all.”  About the Industry Sector of Industry Canada , Industry
Canada website, published 27 May 1999 (Exhibit Bra-32).
59 Although the list is numbered 1-36, Serial 16 actually lists five separate documents.
60  In fact, only 12 of the 40 documents were provided to the Panel.  Canada states, however, that there
is no equivalent under the “new” TPC for the document listed as Serial 15.
61 It is unclear whether this document is mentioned in the list included as Exhibit Cdn-9.  It may be
Serials 8 or 9.  In any case, the document has not been provided.
62 Panel Report, para. 9.340 (bullet point 10) (emphasis in original).  Brazil notes that even if the Model
Agreement were to request only undifferentiated sales data and forecasts, without a distinction between
domestic sales and exports, it would still lead to an inference of de facto  export contingency in the instance of
contributions to the Canadian regional aircraft industry.  The Panel in Australia – Leather  determined that
requesting undifferentiated sales performance targets led to an inference of de facto  export contingency because
the Australian government knew that in order to reach  those targets, the recipient would have to export.
Australia – Leather , para. 9.67.  The same logic applies in the case of the Canadian regional aircraft industry;
the Canadian government knows that the industry exports virtually all it produces, and thus to reach sales
forecasts, it must export.WT/DS70/RW
Page 74
sector is to support projects with “high export potential.63   Canada has not provided a Business Plan
for the “new” TPC.
55. It is simply inaccurate to claim, as Canada has at paragraph 51 of its first submission, that the
documents not yet completed and produced “will not exist until such time as the restructuredprogramme approves and contracts new investments. ”  Many of these documents are simply generic
forms or templates, and were produced in the original proceedings without connection to any
particular TPC investment.  The Panel’s conclusion that de facto  export contingency could be inferred
from those documents came not from information regarding any particular investments.  Brazil refers,
for example, to the TPC Aerospace and Defence Sector Generic Model Agreement
64 and the TPC
Business Plan65
56. The same must be said of the “new” TPC documents cited by Canada as “under development”
in Exhibit Cdn-9.  It is by no means clear why many of these documents will not be created “until
such time as the restructured programme approves and contracts new investments.66   Brazil cites to
some, but not all, of the examples of the “new” TPC documents listed in Exhibit Cdn-9 that are
apparently “under development”:  the “TPC Repa yment Policy” (Serial 2), “Assessment Guidelines
for Due Diligence” (Serial 3), the various “Framework Investment Proposals” (Serial 16), the “TPC
Business Plan” (Serial 18), “TPC Review Procedures ” (Serial 20), “Special Purpose Equipment List”
(Serial 21), “TPC Policies and Procedures on Incrementality, Irreversibility and Retroactivity”
(Serial 25), etc.  The nature of these documents does not suggest that they are in any way associated
with individual contributions, such that they w ould not be created until contributions were made.
57. Even those documents that would, once completed, be associated with individual projects and
contributions, start out as blank, generic forms or templates.  These forms would certainly be
developed well in advance of the grant of actual contributions under the “new” TPC.  Brazil notes
several examples from Exhibit Cdn-9, although this list is by no means exhaustive:  “StandardContribution Agreement” (Serial 8), “Performance Measures – Project Data Sheet” (Serial 23), “TPC
Project File Structure” (Serial 24), “Evaluation Fr amework” (Serial 25), “Claims Package for Clients”
(Serial 28), “PBS Integrity Review Checklist” (Serial 29), “Claims Verification Checklist” (Serial 32),
“Contribution Verification Checklist”  (Serial 36), etc.  These “Standard Agreements,” “Packages,”
“Sheets,” “Frameworks,” “Checklists” and the like should exist in the abstract, even without data
regarding particular contributions written on them.
58. In any event, investments have already been approved under the “new” TPC.  On
10 January 1999 –  the very day on which Canada filed its first submission with this Panel and
claimed that these documents were as yet unavailable because no contributions had yet been approved– TPC announced the award of a contribution to an Ontario company for the development of a
robotics system.  The news release recording this announcement is included as Exhibit Bra-30.
Therefore, even if the TPC documents withheld from the Panel were in fact not produced until actual
investments under the “new”  TPC were approved, such approvals have in fact occurred.  The
documents should, therefore, exist.
59. If the Panel permits Canada to hold back these documents until after the close of these
proceedings, and the documents, when eventually produced, betray evidence of continued de facto
export contingency, Brazil may, of course, be able to bring a new case against TPC support.  At the
same time, however, the remedy provided Brazil under Article 21.5 of the DSU would be utterly and
completely undermined.  Telling Brazil to “wait and see” would reduce Article 21.5 to a nullity, a
                                                     
63 Panel Report, para. 9.340 (bullet point 2) (emphasis in original).
64 Id. (bullet point 10).
65 Id. (bullet point 2).
66 Canadian First Submission, para. 51.WT/DS70/RW
Page 75
result that, according to the Appellate Body in United States – Standards for Reformulated and
Conventional Gasoline , cannot attach.67
60. In sum, Canada cannot claim compliance with the DSB’s recommendations and rulings on the
basis of amendments made to TPC documents , without actually demonstrating that those amendments
were made.68   In fact, if documents that originally contributed to the Panel’s inference of de facto
export contingency do not yet exist for the “new” TPC,  Canada has offered this Panel further evidence
of its failure to implement the recommendations and rulings of the DSB by 18 November 1999.  The
Panel should conclude that Canada’s failure to produce these documents constitutes a failure to
implement the recommendations and rulings of the DSB, or, in the very least, should presume that the
original documents, and the inferences of de facto  export contingency drawn therefrom, continue to
apply.
III. CANADA’S AMENDMENTS TO THE CANADA ACCOUNT DO NOT MAKE IT
CONSISTENT WITH THE SUBSIDIES AGREEMENT, AND DO NOTCONSTITUTE EFFECTIVE IMPLEMENTATION OF THE DSB’S
RECOMMENDATIONS AND RULINGS
61. Canada’s implementation of the recommendation that it withdraw “Canada Account debt
financing since 1 January 1995 for the export of Canadian regional aircraft
69  consists of a one-
sentence “Policy Guideline” not to approve transactions that do not comply with the OECD
Arrangement on Guidelines for Officially Supported Export Credits.70   In its first submission, Canada
now asserts that the intent of this “Policy Guideline”  is, specifically, to appeal to the second
paragraph of Item (k) of the Illustrative List of Export Subsidies, and the OECD Arrangement’s
“interest rates provisions” cited therein.
62. This is, quite simply, insufficient.  Canada’s “Policy Guideline” merely suggests that
prohibited export subsidies via Canada Account might not  be granted; as noted above, to be sufficient,
an implementation measure must instead ensure  that prohibited export  subsidies cannot  be granted.
A. DETERMINING WHETHER CANADA HAS IMPLEMENTED THE
RECOMMENDATIONS AND RULINGS OF THE DSB DOES NOT REQUIREEVIDENCE OF CANADA ACCOUNT FINANCING SUBSEQUENT TO
18 NOVEMBER 1999
63. In its first submission, Brazil argued that Canada has a burden to demonstrate its entitlement
to a defence included in Item (k), since it chooses to appeal to such a defence.
71   According to
Canada, however, it has no obligation and bears no burden to demonstrate what compliance with
Item (k) means unless, at some time “in the future, there is a financing transaction under Canada
Account in relation to which Canada claims the exception in Item (k) and the exception is
challenged.72   According to Canada, because the Panel “expressly did not find that the Canada
Account programme per se  was a prohibited export subsidy,” and instead found that the Canada
Account programme constituted a prohibited export subsidy as it was applied in the context of two
specific transactions for the export of regional aircraft, Canada had no duty to do anything whatsoever
                                                     
67 WT/DS2/AB/R, pg. 23 (An interpreter “is not free to adopt a reading that would result in reducing
whole clauses or paragraphs of a treaty to redundancy or inutility.”).
68 Of course, TPC also must not be de facto  export contingent, based on the “ total configuration of the
facts constituting and surrounding” its operation.  Appellate Body Report, para. 167.
69  Panel Report, para. 10.1(b).
70 Canadian First Submission, para. 57.  See also  Exhibit Cdn-13.
71 Brazilian First Submission, para. 46.
72 Canadian First Submission, paras. 67-68.WT/DS70/RW
Page 76
in order to implement the Panel ’s ruling, other than to ensure that those two transactions were
completed by 18 November 1999.73
64. As it has for TPC, Canada therefore effectively claims that its implementation measures with
regard to Canada Account are impervious to challenge under Article 21.5 of the DSU, since it has notyet extended Canada Account financing for regional aircraft subsequent to the adoption of those
measures.
65. This position must be rejected.  The consequence of Canada’s position would be to reduce
Article 21.5 of the DSU to “inutility” in any and all instances of successful “as applied” challenges tothe violation by a Member of any of its WTO obligations (not just those contained in the Subsidies
Agreement).  A Member determined by a Panel to have maintained measures inconsistent with its
WTO obligations could escape effective Article 21.5 scrutiny by merely refraining from applying
those measures until the 20-day time period to seek compensation had passed.
74   Rendering
Article 21.5 useless for the entire category of “as applied” challenges is not a result envisaged by theDSU, nor one accepted by the Appellate Body
75  and should therefore be rejected.
B. CANADA’S CLAIM THAT THE RECOMMENDATIONS AND RULINGS OF THE DSB
REQUIRED NO IMPLEMENTATION BY CANADA IS IN ERROR
66. Canada’s argument that the Panel’s findings did not require it to take any action at all, apart
from ensuring that the two Canada Account transactions identified in paragraph 54 of its firstsubmission were completed by 18 November 1999, does not accord with the Panel’s definition of the
subsidy to be withdrawn.  The Panel did not hold that only the two transactions identified in
paragraph 54 of Canada’s first submission were prohibited export subsidies.  This is too narrow an
interpretation of the Panel’s determination regarding Canada Account financing “as applied.”  The
Panel’s conclusion was, rather, “that Canada Account debt financing since 1 January 1995 for theexport of Canadian regional aircraft constitutes export subsidies inconsistent with Article 3.1(a) and
3.2 of the SCM Agreement.
76   From 1 January 1995 onward, Canada Account debt financing for
Canadian regional aircraft exports will be considered to constitute a prohibited export subsidy, unless
Canada implements sufficient changes.
67. Thus, to achieve effective implementation, Canada was required  t o  d o  m o r e  t h a n  s i m p l y
ensure the completion of the two Canada Account transactions identified in paragraph 54 of its first
submission.  What it did is simply not enough, and is fully susceptible to challenge under Article 21.5
of the DSU.
68. The “Policy Guideline” included as Exhibit Cdn-13 states simply that the Minister for
International Trade will, as a policy matter, not ap prove transactions that are not in compliance with
the OECD Arrangement on Guidelines for Officially  Supported Export Credits.  Canada asserts that
this “Policy Guideline” states an intention to “meet the criteria to qualify for an exception under the
second paragraph of Item (k)” of the Illustrative List of Export Subsidies included in Annex 1 to theSubsidies Agreement.
77
69. The “Policy Guideline” does no such thing.  It does not refer to conformity with the second
paragraph of Item (k), or the “interest rates provisions” of the OECD Arrangement referred to therein.
                                                     
73 Id. at para. 56.
74 See DSU Article 22.2.
75 United States – Gasoline , pg. 23 (An interpreter “is not free to adopt a reading that would result in
reducing whole clauses or paragraphs of a treaty to redundancy or inutility.”).
76 Panel Report, para. 10.1(b).
77 Canadian First Submission, para. 68.WT/DS70/RW
Page 77
It merely states a hortatory intention to comply with the OECD Arrangement generally, without any
indication of the specific provisions with which it intends to comply.  Under the “Policy Guideline,” it
is by no means evident that Canadian practices would qualify it for the specific “safe haven” included
in the second paragraph of Item (k).
70. Even Canada’s assertion that the “Policy Guideline” refers to Item (k) and thus the “ interest
rates provisions” of the OECD Arrangement begs an obvious question – what does Canada consider
to be the “interest rates provisions” of the Arrangement with which it will comply?  Even if the Panel
accepts Canada’s bald, unsupported assertion that the reference in the “ Policy Guideline” to
compliance with the OECD Arrangement means, sp ecifically, compliance with the second paragraph
of Item (k) and the application of the Arrangement’s “interest rates provisions,” Canada has not
identified which articles of the Arrangement constitute the “interest rates provisions” mentioned in
Item (k).
71. In the DSB’s recommendations and rulings regarding the Canada Account, Canada was
determined to have maintained measures constituting or providing prohibited export subsidies.  The
Panel is not here conducting de novo  review of Canada Account debt financing for regional aircraft.
In these circumstances, implementing the DSB’s recommendations and rulings regarding the Canada
Account should at a minimum ensure that prohibited export subsidies via the Canada Account cannot
be granted, and not merely that they might not be granted.
72. To determine whether the “Policy Guideline” so ensures, Canada should be held to a duty of
disclosure similar to that contained in the notification provisions of Article 25 to the Subsidies
Agreement, thus enabling Members to inform them selves of the terms on which a measure previously
judged to be or to provide a prohibited export subsidy will “comply with the OECD Arrangement” in
future.  Without the provision of this type of information, the lack of transparency regarding what
Canada considers “comply with th e OECD Arrangement” to mean, or with which “interest rates
provisions” Canada intends to comply, will enable it to continue to operate the Canada Account as a
prohibited export subsidy, undetected and undetectable.  There will be no assurance that prohibited
export subsidies will not continue.  At the implementation stage of dispute settlement proceedings,
when a Member has already been found to be in violation of its WTO obligations, more is required;
unelaborated policy guidelines offering vague hortatory statements regarding the Member’s intentionsdo not constitute effective implementation.
73. If this is permitted, Canada will have accomplished a very clever trick – it will have
successfully passed off as an implementation m easure something that, in the original Panel
proceedings, it repeatedly contended it was already doing.
74. In the original Panel proceedings, Canada submitted “that Canada Account activity is not
inconsistent with Article 3 as it benefits from the exception contained in Item (k) of Annex I of the
SCM Agreement.
78   More specifically, on three separate occasions, Canada represented to the Panel,
without elaboration, that Canada Account financ ing and loan guarantees for exports “have been
consistent with the interest rate provisions of  the OECD Consensus, as required by Item (k) of
Annex I.79
                                                     
78 Panel Report, para. 6.64.
79 First Written Submission of Canada, 16 November 1998, para. 173 (Exhibit Bra-33).  See also  First
Oral Submission of Canada, 26 November 1998, para. 101 (“Canada Account financing and loan guarantees forexports committed since the entry into force of the SCM Agreement have complied with the interest rateprovisions of the OECD Consensus, as required by Item (k) of Annex I.”) (Exhibit Bra-34); Second WrittenSubmission of Canada, 4 December 1998, para. 77 (“Canada Account transactions are consistent with the
interest rates provisions of the OECD Consensus.”) (Exhibit Bra-35).WT/DS70/RW
Page 78
75. Canada subsequently decided not to invoke “the second paragraph of item (k) as a positive
defence.80   The relevant point, however, is that Canada expects to pass off the “Policy Guideline”
contained in Exhibit Cdn-13 as a new measure  sufficient to constitute valid implementation of the
DSB’s recommendations and rulings, when it was, according to its previous submissions to this Panel,
already applying this measure well in advance of the Panel’s determination that the Canada Account
provides prohibited export subsidies to the Canadian regional aircraft industry.
76. To claim satisfactory implementation of the DSB’s rulings and recommendations, Canada
must bear the burden to do more than this.  The minimum burden accorded Canada must be to explain
with some precision what “comply with the OECD Arrangement” will mean, so that Members areinformed of the terms on which a measure previously judged to be or to provide a prohibited export
subsidy will operate in future.  Canada has failed to discharge this minimum burden.  Accordingly,
Brazil requests that this Panel determine that Canada has failed to implement the recommendations
and rulings of the DSB with regard to the Canada Account.
IV. CANADA’S PROPOSAL REGARDING THE ESTABLISHMENT OF
VERIFICATION PROCEDURES’
77. Canada proposes that the Panel suggest to the parties, pursuant to Article 19.1 of the DSU,
that they establish a reciprocal arrangement fo r verifying their mutual compliance with their
obligations under the Subsidies Agreement.
81   Brazil notes that the parties have been engaged for
some time in negotiations concerning these disputes and have discussed, inter alia , the question of
verification.  Brazil also notes, however, that the issue of transparency thus far has had to do with
Canada’s programmes, not Brazil’s.82
78. While Brazil does not, in principle, oppose such an agreement, it considers that resolution of
the matter in the context of dispute settlement is not clearly compatible with the spirit, if not the letter,of Article 19 of the DSU.  Brazil also believes that  such an arrangement is better agreed to by the
parties in the course of bilateral discussions.  It is, in particular, fundamentally necessary for Brazil
that any such arrangement involves balanced and truly reciprocal offers of transparency, not only by
Brazil, but also by Canada.  Discussions between the parties in this regard are on-going, but no
agreement has been reached either on the specific Canadian and Brazilian programmes to be includedand subjected to verification, or on the institutiona l framework for a potential monitoring mechanism.
V. CONCLUSION
79. For the reasons expressed in this and Brazil’s first submission, Canada has not withdrawn the
subsidies determined by the Panel and the Appellate Body to be prohibited export subsidies.  The
implementation measures Canada has adopted, in the case of both TPC and Canada Account, merely
suggest to Members that Canada might not  continue to grant subsidies contingent in fact on export
performance, rather than provide an assurance  that it cannot  do so.
80. Moreover, Canada’s defence – that its implementation measures are protected from challenge
until such time as they are actually applied – is untenable.  Such a solution reduces Article 21.5 of the
                                                     
80 Panel Report, para. 6.161.  See also Id. , para. 9.225 (footnote 576).
81 Canadian First Submission, paras. 59-61.
82 Both the Panel and the Appellate Body noted Canada’s failure to produce documents requested by
the Panel in the original proceedings.  Appellate Body Report, para. 199 (“Canada refused to provide theinformation requested by the Panel.”).  See also  Panel Report, paras. 6.80, 6. 171, 6.203, 6.258, 6.259, 6.260,
6.279, 6.303, 6.304, 6.326, 6.327, 9.176, 9.188, 9.218, 9. 244, 9.253, 9.272, 9.293, 9.294, 9.299, 9.303, 9.313,
9.314 (footnote 621), 9.327, 9.345, 9.347 (footnote 633).WT/DS70/RW
Page 79
DSU to inutility, and would render hollow a finding that a Member had maintained measures
inconsistent with its WTO obligations.
81. Accordingly, Brazil requests that the Panel reject Canada’s defence, and determine that
Canada has not implemented the recommendations and rulings of the DSB with regard to TPC andCanada Account.WT/DS70/RW
Page 80
LIST OF EXHIBITS
TPC News Release, 10 January 2000 Exhibit Bra-30
TPC New s Release, 17 November 1999 Exhibit Bra-31About the Industry Sector of Industry Canada , Industry
Canada website, published 27 May 1999Exhibit Bra-32
First Written Submission of Canada, 16 November 1998,
para. 173Exhibit Bra-33
First Oral Submission of Canada, 26 November 1998, para.
101Exhibit Bra-34
Second Written Submission of Canada, 4 December 1998,
para. 77Exhibit Bra-35WT/DS70/RW
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ANNEX 1-3
FIRST ORAL STATEMENT OF BRAZIL
(6 February 2000)
Mr. Chairman and Members of the Panel,
1. Brazil thanks the Panel for this opportunity to present its views regarding Canada’s
implementation of the Report in Canada – Measures Affecting the Export of Civilian Aircraft .  As the
Panel is aware, Brazil considers that the implementation measures adopted by Canada to withdraw
subsidies provided by the Canadian government to the regional aircraft industry via two programmes
– Technology Partnerships Canada, or “TPC,” and Canada Account – are inadequate.  The measures
remain inconsistent with the Subsidies Agreem ent and the rulings and recommendations of the
Dispute Settlement Body.
Significance of 18 November
2. Let me begin by addressing Canada’s argument that the Panel may not consider anything that
happened before 18 November 1999, the date on which Canada purports to have implemented the
DSB’s recommendations and rulings.
3. First, Canada argues that Brazil may not, in these proceedings, rely on any documents dated
prior to 18 November, even though the facts addressed in those documents remain unchanged after
18 November.  In its Rebuttal Submission, Brazil addressed this argument in considerable detail.  I
would simply note here that where facts remain unchanged by Canada’s implementation measures,the publication date of documents supporting those facts is utterly irrelevant.
4. Second, Canada argues that its implementation measures are impervious to challenge under
Article 21.5 of the DSU, since no TPC or Canada Account subsidies have been provided to the
regional aircraft industry after 18 November.  As noted in Brazil’s Rebuttal Submission, I ask the
Panel to consider the impact that Canada’s argument, if accepted, would have on the broad question
of implementation not just in this case, but in all cases.  Canada’s argument would reduce Article 21.5
to inutility.
5. As the Panel is aware, Brazil argues that the structure of TPC, as it applies to the regional
aircraft industry, is tainted by de facto  export contingency.  The facts underlying that structure must
be changed for Canada to claim that it has impl emented the recommendations and rulings of the DSB.
The changes made to TPC are merely cosmetic.  In Brazil’s view, in fact, the only way for Canada to
rid TPC of the inference of de facto  export contingency, as it applies to the regional aircraft industry,
is to exclude that industry from TPC funding opportunities, or alternatively, to change radically theprogramme’s eligibility and allocation requirements.
6. Canada argues, however, that Brazil cannot here challenge the amendments made to TPC,
since no subsidy has actually been granted to the Canadian regional aircraft industry since 18
November 1999.  The obvious implication of Canada’s argument is that Brazil must wait until yet
another prohibited TPC subsidy is granted to the regional aircraft industry, presumably after the
Article 21.5 review has ended, and then begin dispute settlement proceedings anew.  In the meantime,Canada demands that Brazil – and this Panel – simply take Canada’s word that it will not do wrong
again.WT/DS70/RW
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7. This is not acceptable.  Were the Panel to accept Canada’s argument, the inescapable result
would be to lock Brazil into a futile spiral of endless challenges to a continual string of TPC subsidies,
identical to ones already judged by this Panel and the Appellate Body to be prohibited.  There would
be, in that case, no way for Brazil to vindicate its rights and force Canada to observe its obligations.
This is not an effective remedy, and cannot be considered acceptable.
8. Canada’s position presents this Panel with the same problem faced by the Panel in Australia –
Leather .  That Panel found that the approach urged by Australia, as recorded in paragraph 6.35 of the
Report, was unacceptable.  In paragraph 6.38 of its Report, the Panel stated that this approach “would
grant full absolution to Members who grant export subs idies that are fully disbursed to the recipient
before a recommendation to withdraw the subsidy is issued in dispute settlement, and for which the
export contingency is entirely in the past.”  According to the Panel, the drafters of Article 3.1(a) of the
Subsidies Agreement would not have included “the strict prohibition against subsidies contingent on
export performance, including one-time subsidies contingent in fact on export performance, only to
undermine that prohibition by providing a remedy which is ineffective in the case of such subsidies.”To ensure an effective remedy, the Panel then required retroactive repayment of the subsidies granted.
9. This is precisely the situation with which this Panel is faced.  Canada’s proposal is to
“withdraw the subsidy” prospectively only, but at the same time to make the measures constituting
that withdrawal impervious to challenge.
10. Mr. Chairman, Brazil believes that the decision in Australia – Leather  to require retroactive
repayment was wrong, and that such a result is not required by the language of the Subsidies
Agreement.  However, Canada leaves the Panel in this case with no choice.  If, under Canada’s
theory, Brazil is not permitted to challenge Canada ’s amendments to the TPC, the only remaining
remedy is the retroactive repayment of TPC subsidies provided to the regional aircraft industry.
Leaving Brazil without any effective remedy would negate completely the “strict prohibition againstsubsidies contingent on export performance” included in Article 3.1(a).
11. Brazil therefore requests, first and foremost, that the Panel reject Canada’s argument that its
implementation measures, in the form of amendments to the TPC, are impervious to challenge under
Article 21.5.  In the alternative – and although Brazil does not in general agree with the requirementof retroactive repayment of prohibited export subsidies – Brazil requests that should the Panel accept
Canada’s argument, it then recommend the retroactive repayment of TPC subsidies to the regional
aircraft industry.  Later in this statement, I will have more to say about the similarities between the
facts of Australia – Leather  and the facts of this case, should it be necessary for the Panel to reach the
question of retroactive repayment of TPC subsidies to the regional aircraft industry.
TPC
12. I now turn to the substance of Canada’s implementation measures regarding TPC.  Brazil has
demonstrated in detail that those measures make nothing more than cosmetic changes to thedocuments underlying TPC.  Canada’s actions fail to meet its obligations to achieve effective
implementation.
13. TPC subsidies to the Canadian regional aircraft industry were not held to be de jure  export
contingent.  Rather, those subsidies were determin ed by this Panel and the Appellate Body to be
contingent in fact upon export performance.  In other words, this Panel, affirmed by the Appellate
Body, determined that in providing subsidies to the regional aircraft industry via TPC, Canada
circumvented  the Subsidies Agreement.  As the Appellate Body noted at paragraph 167 of its report in
this case, “the Uruguay Round negotiators have, through the prohibition against export subsidies thatWT/DS70/RW
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are contingent in fact  upon export performance, sought to prevent circumvention of the prohibition
against subsidies contingent in law  upon export performance.”
14. Canada contends that merely removing the term “export” from TPC documents constitutes
effective implementation.  As I will discuss shortly, that would normally be true for subsidies that arecontingent in law on export, but it is not true for subsidies that are contingent in fact
 on export.
However, even if we accept, for the sake of argument, that Canada is correct, Brazil has shown in itssubmissions that Canada has failed to meet even its own measure of what constitutes effective
implementation.  Canada has failed to provide most of the documents associated with the “new” TPC
to the Panel.  As Canada itself admitted, in its Exhibit 9, it has failed to provide 68 percent of thosedocuments.  Canada cannot maintain that it has effectively implemented the DSB’s recommendations
and rulings by virtue of changes to TPC’s documentation, without providing that documentation.
Moreover, Brazil has demonstrated that those few documents Canada has provided still reveal a
number of the factors considered by the Panel to support a finding of de facto  export contingency.
15. But Canada’s discussion of TPC documents  is beside the point.  As I have already noted,
removing the term “export” from those documents might have been sufficient implementation had
TPC been judged contingent in law  on export performance.  It is not, however, sufficient to remedy
something determined to have circumvented  the Subsidies Agreement; that is, something determined
to be contingent in fact  on export performance.
16. Remedying de facto  export contingency requires more than merely going through a checklist
of what Canada terms, at paragraph 21 of its First Submission, “the factual elements considered
relevant by the Panel and Appellate Body in determining that contributions to the Canadian regional
aircraft industry” were de facto  export contingent.  As stated in paragraph 6.21, footnote 24 of
Australia – Leather , “the specific details of the factual evidence underlying the conclusion that the
subsidies were in fact contingent upon export performance . . . and therefore prohibited do not, in ourview, determine what is required in order to ‘withdraw the subsidy’ . . .”
17. In other words, the task of remedying de facto  export contingency is not a mere matter of
formula.  For implementation to be effective, more  than “the specific details of the factual evidence
underlying the conclusion that” TPC subsidies were de facto  export contingent must change.
However, the facts leading to the inevitable “ inference ” of TPC’s de facto  export contingency have
not or cannot be changed.  For this reason, Brazil has argued that TPC, as it applies to the regional
aircraft industry, must be withdrawn in its entirety.
18. At a minimum, since Canada was judged to have circumvented the prohibitions of the
Subsidies Agreement by providing TPC subsidies contingent in fact on export, its implementation
measures must ensure  that prohibited export subsidies cannot  be granted to the regional aircraft
industry in future, and not merely that they might not  be granted.
19. Short of the retroactive repayment of subsidies already granted, requiring positive action by a
Member to ensure that such subsidies will not be provided is the only means available to provide an
effective remedy.  Without such positive action, or in its place, without retroactive repayment,
Members lodging successful “as applied” challenges to de facto  export subsidies would be locked in
an unending loop of litigation concerning something that had been already been found to violate the
Subsidies Agreement.
20. The problem is that the facts of the “new” TPC do not ensure that prohibited export subsidies
cannot  be granted to the regional aircraft industry in future.  Brazil describes those facts in detail in its
submissions, and I will not repeat them here.  The salient point, however, is that under the “new”
TPC, the same, specifically-selected industries will receive even more TPC money than before for theWT/DS70/RW
Page 84
same types of projects.  I ask the Panel to note that on page 3 of the Industry Canada news release
included as Brazil’s Exhibit 18, Canada reports that it has even encouraged those companies whose
TPC applications were closed on 18 November 1999 simply “to submit new proposals” under the
TPC as amended.
21. In paragraph 22 of its First Submission, Canada claims that its sole motivation with the “new”
TPC is “to promote technological innovation and enhance the technological capability of Canadian
industry.”  But “Canadian industry” is not the bene ficiary of the “new” TPC.  Rather, specifically-
selected sectors of Canadian industry are the bene ficiaries.  And, it is the overwhelmingly export-
oriented aerospace industry that will continue to receive two-thirds of all TPC funds, as Canada itselfstates at paragraph 32 of its first submission.
22. The regional aircraft sector is, moreover, totally export-oriented.  As you know, even
Bombardier sales to Air Canada were structured as export sales to obtain export financing and to
launch an export product.  The Canadian government has consistently expressed somethingconsiderably short of casual indifference to the tr ading patterns of this industry, and has in fact
explicitly said that it selected this industry to receive TPC funds because  of its export orientation.
Statements like this cannot now be “unsaid.”  They reveal the intent of the Canadian government in
extending TPC funds to this industry.  And according to Section 5.15.1.3 of Canada’s Special Import
Measures Handbook, cited by the United States at paragraph 5 of its submission, Canada considers the
grantor’s intent to be an important indication of export contingency where a government, rather than
revealing a “direct linkage to export performance,” instead circumvents the prohibition of exportsubsidies by establishing de facto  export contingency.
23. Brazil has also demonstrated that, given the regional aircraft industry’s virtually total export-
orientation, any consideration of production or sales targets for applicants will, necessarily, be a
reference to export performance.  Additionally, the “strategic benefits,” “selection criteria” and“assessment criteria” that must be demonstrated by regional aircraft industry applicants to receive
TPC funds are, when applied to that industry, nothing more than euphemisms for export contingency.
Furthermore, Brazil has demonstrated that the “new” TPC retains its “near market” focus, and will
continue to fund the same types of projects as it did before.  Finally, Brazil has noted that Canada has
not granted the Panel access to the majority of documents associated with the “new” TPC –documents that, under the “old” TPC, demonstrated facts from which the inference of de facto  export
contingency was drawn.
24. Under all of these circumstances – in the words of the Appellate Body at paragraph 167 of its
Report, “the total configuration of the facts constituting and surrounding” TPC – the “inference” of de
facto  export contingency still exists.  Canada’s measures do not, therefore, constitute effective
implementation.  Brazil asks that the Panel so conclude.
Repayment of TPC Subsidies
25. Canada states that it has terminated $16.4 million in TPC subsidies to the regional aircraft
industry as part of what it calls “full and faithful implementation” of the DSB’s recommendations and
rulings.  This $16.4 million figure apparently represents the amount of outstanding disbursements not
yet paid under the five TPC subsidies to the Canadian regional aircraft industry discussed in the
original Panel proceedings.  Those five large non-recurring grants, discussed in paragraph 9.285 of the
Panel Report, totaled $266.6 million.
26. Whether Canada’s prospective termination of $16.4 million in as-yet-unpaid TPC subsidies is
sufficient to achieve effective implementation quite obviously raises the question of the applicability
of the Article 21.5 decision in Australia – Leather .  I have introduced that decision earlier, but allowWT/DS70/RW
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me to expand somewhat upon it.  In that case, the Panel determined that to “withdraw the subsidy”
under Article 4.7 of the Subsidies Agreement means more than simply withholding any prospective,
not-yet-paid portion of a subsidy.  Rather, at paragr aph 6.39 of its Report, the Panel determined that to
“withdraw the subsidy” means to repay the subsidy.
27. As I have already stated, Brazil believes that the Panel in  Australia – Leather  reached a result
that is not required by the language of the Subsidies Agreement.  As long as an effective remedy is
available apart from retroactive repayment, Brazil does not believe that repayment should, in general
and as a matter of law, be recommended.
28. However, Brazil faces two unknowns.  First, this Panel may consider itself, like the Panel in
Australia – Leather , not to be bound by the arguments of the Parties or the Third Parties regarding the
issue of retroactive repayment.  In that case,  it may decide to follow the reasoning in Australia –
Leather .
29. Second, the Panel may accept Canada’s argument that its amendments to the TPC are
impervious to challenge under Article 21.5, leaving Brazil without any effective remedy.  In that case,
as I have already stated, the only way to achieve an effective remedy and uphold the “strict
prohibition against subsidies contingent on export performance” is to follow the reasoning of the
Panel in Australia – Leather .
30. Brazil hopes that neither of these situations comes to pass.  But if they do, the Panel will find
that the circumstances of Australia – Leather  are similar to the facts surrounding the grant of TPC
subsidies to the regional aircraft industry.  Applying the reasoning in Australia – Leather  to the facts
of this case leads to the conclusion that the TPC subsidies to the regional aircraft industry should be
repaid in full and their impact eliminated.
31. First, the form in which TPC subsidies were provided is similar to the form in which the
subsidies in Australia – Leather  were provided.  Both cases involve large “investment” grants enjoyed
by recipients, and therefore allocable, over a period of time.  Second, like the subsidies provided in
Australia – Leather , TPC subsidies, which were first granted in 1996, were not notified by Canada,
under Article 25.2 of the Subsidies Agreement, until 30 April 1999, after the Panel rendered itsdecision in this case.
32. Third, and again like Australia, Canada was held to have circumvented the Subsidies
Agreement via the provision of subsidies contingent in fact on export performance.  And like
Australia, when faced with a determination that it had provided prohibited subsidies, Canada worked
a second circumvention; in Australia – Leather , as described at paragraphs 6.13 and 6.50 of the
Report, Australia simply replaced one de facto  export contingent subsidy with another.  Similarly,
under the “new” TPC, the same, specifically-selected recipient industry is to receive even more TPC
money to conduct the same types of projects funded by the “old” TPC.  As I stated earlier, Canada has
even encouraged companies whose TPC applications were closed on 18 November 1999 simply “tosubmit new proposals” under the “new” TPC.
33. Under these circumstances, the Panel in Australia – Leather  determined, at paragraph 6.45 of
its Report, that nothing less than “full repaym ent would suffice to satisfy the requirement to
‘withdraw the subsidy’ . . .”  Unde r that line of reasoning, Canada has not secured “full repayment” of
the TPC subsidies provided to the regional aircraft industry, and has not therefore withdrawn the
subsidy.
34. Once again, I reiterate that Brazil does not believe that this or any other Panel should follow
Australia – Leather .  However, if this Panel accepts the interpretation of Article 4.7 offered by theWT/DS70/RW
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Panel in Australia – Leather , or if it accepts Canada’s argument that its amendments to the TPC are
not subject to challenge under Article 21.5, it should determine that Canada’s failure to secure
repayment means that it has not implemented the DSB’s recommendations and rulings, and that the
subsidies must be repaid.
Canada Account
35. In paragraph 2 of its First Submission, Canada states that its implementation of the DSB’s
recommendations and rulings regarding the Canada Acco unt involves two steps:  first, the completion
of Canada Account transactions involving the regional aircraft industry; and second, the adoption of apolicy to conform Canada Account financing to the terms of the OECD Arrangement.
36. Brazil has explained why these actions do not constitute effective implementation.  The
Canadian “policy statement” included as Canadian Exhibit 13 does not, as Canada claims at paragraph
10 of its Rebuttal Submission, state that Canada Account financing “must” comply with the OECDArrangement.  Nor does it state what “comply with the OECD Arrangement” means.  Canada now
asserts that it means that Canada Account financing will adhere to Item (k) of the Illustrative List of
Export Subsidies and the “interest rates provisions” of the OECD Arrangement.  The policy statement
does not say this, but even if it did, neither the statement itself nor anything else issued by Canada
defines what are the “interest rates provisions” with which it intends to comply, or how it will apply
those provisions.
37. Brazil has also noted that Canada already stated – on at least three occasions during the
original Panel proceedings – that Canada Account financing already complied with the terms of the
OECD Arrangement and, specifically, with the terms of Item (k).  Extracts from the submissions in
which Canada made this statement were included as Brazilian Exhibits 33-35.  Contrary to Canada’s
claim, measures that were already in place at the time of the Panel’s and the Appellate Body’s rulingcannot credibly be touted as evidence of “full and faithful implementation.”
38. Canada Account financing to the regional aircraft industry was determined by this Panel to
constitute a prohibited export subsidy.  Measures adopted by Canada to implement the Panel’s ruling
must ensure that the same thing will not happen again.  In the absence of information regarding what“comply with the OECD Arrangement” means, or with which “interest rates provisions” Canada
intends to comply, Canada will be able to continue to operate Canada Account as a prohibited export
subsidy, undetected and undetectable.  This is not effective implementation.
39. Several questions arise.  For example, does “comply with the OECD Arrangement” mean that
Canada Account financing will in every instance be issued at or above the OECD Arrangement’s
Commercial Interest Reference Rate, with an appropriate add-on for the risk factors associated with
the particular transaction and the particular parties involved?  Does it mean that all Canada Account
financing will in every instance adhere to the 10-year maximum repayment term set by the OECD
Arrangement?  The Canadian “policy statement” fails to address these questions.
40. In the companion case against Brazil’s PROEX, Brazil provided details regarding its
implementation measures, and not just vague suggestions styled as government “policy.”  It offered
specifics about how it had amended PROEX to comp ly with the DSB’s recommendations and rulings.
In light of Canada’s implementation strategy with respect to the Canada Account, maybe Brazil
should instead have issued a “policy statement” stating its intention to “comply with the OECD
Arrangement.”  I hesitate to speak for Canada, but my guess is that it would not have found such astatement sufficient to implement effectively the recommendations and rulings of the DSB.  I also
presume that the Panel in the PROEX case would not have found such a change acceptable.  Nor
should this Panel, in consideration of Canada’s “policy statement” regarding the Canada Account.WT/DS70/RW
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41. Brazil is not a Participant in the OECD Arrang ement.  Our understanding, however, is that it
is unenforceable, not subject to dispute settlement, and subject, in its application, to often widely-
varying interpretations by its various Participants.  Under these circumstances, there is no way of
knowing what Canada means when it says it will “comply with the OECD Arrangement” or the“interest rates provisions” included in the Arrangement.
42. Based on the information provided, Canada cannot possibly claim that it has put in place what
it purports at paragraph 2 of its First Submission to be “new measures to ensure full and faithful
implementation of the DSB rulings and recommendations.”  Canada has not offered anything “new”at all with regard to Canada Account, and has fallen well short of providing assurances that Canada
Account cannot continue to provide prohibited export subsidies to the regional aircraft industry.  The
Panel should conclude that this is not effective implementation.
Conclusion
43. In conclusion, Brazil requests that the Panel determine that Canada has not implemented the
recommendations and rulings of the DSB, with regard to both TPC and the Canada Account.  Once
again, Brazil thanks the Panel for this opportunity to present its views, and welcomes any questions
the Panel might have.WT/DS70/RW
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ANNEX 1-4
CONCLUDING STATEMENT OF BRAZIL
(6 February 2000)
Mr. Chairman and members of the Panel:
1. We heard a large number of arguments from the parties and the third parties today, some
referring to technical details of the case, some to political considerations, some to procedural aspects
of the case.  I felt that, in the midst of all these arguments, we may lose the focus of what is really at
stake before the Panel, and of what the essence of this case is.  That is why I choose to make this briefsummary of Brazil's views.
2. I guess the best way to start is to picture a scenario.  I would ask the Members of the Panel to
imagine a situation where a given country has a highly export-oriented industry.  Some segments of
this industry reach 100% export orientation.  That country decides to support the export sales of that
industry and builds a subsidy programme around it.  The programme is very carefully  designed to
avoid a possible finding of de jure  export contingency.  At first 90% of all funds in the programme are
directed to that industry, and in subsequent years, never less than 2/3 of the funds are allocated to that
same highly export-oriented industry.
3. A Member who is directly affected by the exports of the beneficiary industry questions that
programme in the WTO.  A Panel constituted to examine the dispute understands that it is not facing acase where an industry that happens to be highly export oriented incidentally receives subsidies.  That
Panel finds that it is before a case where a highly export-oriented industry is specifically targeted to
receive massive subsidies because  it exports.
4. After the DSB recommends that the subsidizing country withdraw  the prohibited subsidy –
and not merely bring it into conformity with the WTO disciplines – that country completely ignores
those recommendations and simply makes cosmetic alterations to the regulations of the original
subsidizing programme.  For example, they delete the word exports from all flyers and administrative
documents.
5. The subsidizing country announces that it now has a "new" programme and that it has
faithfully implemented the recommendations of the DSB.  The fact, however, is that under this "new"
programme the same companies will continue to receive subsidies to use in the same type of projects
approved under the "old" programme.  Actually, they will now receive even more money, since the
results of the original programme have proven to be quite successful.
6. Such "implementation" is obviously challenged by the complaining country, which brings
about Article 21.5 procedures.  Under these procedur es, the complainant shows unequivocally that the
programme remains essentially the same and requests that the Panel make a finding of non-
implementation.  The subsidizing country nonetheless alleges that it has put in place a new
programme, which cannot be deemed to be a de facto  export subsidy.  After all, it implemented the
recommendations of the DSB in good faith and it could not possibly prove, after just a few weeks of
implementation, that the de facto  export contingency has disappeared.  The complainant, it submits, is
proposing a burden of proof that is impossible  to be meet.  It further argues that, quite on the contrary,
it is the complainant who bears the burden of proof.  It is the complainant that has to prove that the
"new" programme is also de facto  contingent on export subsidies.  Furthermore, such proof wouldWT/DS70/RW
Page 89
have to be based on "new" factual evidence, which could positively infer that the payments under the
new subsidy programme are still de facto  contingent on exports.
7. Mr. Chairman and members of the Panel, Brazil agrees that the complainant has the initial
burden of proof, but since no payments were made under the new programme, it would be impossible
for the complaining country to meet the standard s suggested by this subsidizing country.  The
subsidizing country figures, therefore, that if it takes no actions during 60 or 90 days – or whatever the
duration of the Article 21.5 Review Panel is – it will get away with its carefully planned
circumvention of the Subsidies Agreement.  Th e "impossible" burden of proof is now on the
complainant.
8. Turning to the specific case of TPC payments, let me recall that the Appellate Body put before
us a three-part test.  First, one has to establish the "granting of a subsidy" – and Canada does not
dispute that this occurs.  The second part of the test concerns the expression "tied to".  Finally, oneshould determine that exports are "anticipated" or "expected".  Canada does not dispute that the
regional aircraft industry in Canada is highly export-oriented, and even pointed out that this is a fact
that will not change.  Canada anticipates and expects export sales from that industry and this is not
disputed either.  What Canada does argue, is that Brazil failed to meet the second part of the test, the
one concerning the "tied to" provision.
9. Mr. Chairman, Brazil has provided conclusive evidence that the targeted industries of the
"old" TPC are the same recipients under the "new" TPC.  Canada itself confirmed that when
answering a follow-up question posed by you this mo rning.  When it first examined this case, this
Panel found that the way TPC was conceived and operated provided ample evidence that the subsidies
granted to the targeted industries were "tied to" anticipated and expected export earnings.  The
Appellate Body unconditionally confirmed this fi nding.  Under the "new" TPC the same three
industries are targeted and Canada knows that whatever sales are made by those industries will be
almost entirely directed to foreign markets.  Noth ing has changed, the granting of the subsidy is still
firmly "tied to" anticipated and expected export earnings of the same industry.
10. Brazil showed that we still have the same answers to the three parts of the test the Appellate
Body put before us.  By doing this, Brazil has given the Panel ample evidence that Canada did not
implement the recommendations of the DSB and has, therefore, met its burden of proof.  On the other
hand, Canada has given us nothing that would resemble a credible effort to implement those
recommendations.  It claims, nonetheless, that it must be deemed to be in compliance, since it has
adopted the implementing measures in good faith and that Brazil is proposing a standard of proof that
is impossible to meet.  I will soon show that this is definitely not the case.
11. Mr. Chairman, Brazil admits that the task to implement recommendations to withdraw a de
facto  export subsidy is more complex than when we are dealing with a de jure  export subsidy;  but it
is by no means impossible, as Canada claims.
12. One possible way to implement the findings on TPC could be, for example, the simple
withdrawal of the 100 per cent export-oriented re gional aircraft industry from the list of eligible
recipients of the programme.
13. Nevertheless, if Canada still wanted to avoid such action, its changes to the regulations of the
programme would have to ensure that the de facto  contingency would not exist anymore.  Let me
recall that payments under the "old" TPC were not found to be de jure  contingent on exports.
However, Mr. Chairman, the regulatory changes made to TPC not only would allow the programme to
be operated as before, it virtually ensures that it will.  The representative from the EC said in the third
party session that Canada must be given the "benefit of the doubt".  There is no doubt hereWT/DS70/RW
Page 90
Mr. Chairman.  TPC will operate as before, will benefit exactly  the same companies – but, I forgot,
now there will be even more money to be dispensed.
14. Canada claims that it could not possibly make changes to TPC that would ensure that the de
facto contingency would disappear.  This is an impossible task they say.  Let me assure you
Mr. Chairman that this is not true.  It would not be particularly difficult to devise changes to the
programme that would ensure the withdrawal of the export contingency.  I could think of hundreds of
alternatives.
The Chairman of the Panel asks if Mr. Azevêdo could provide examples of these alternatives.
15. Mr. Chairman, certainly the Canadian officials are aware of the concept of general availability
of a subsidy.  Canada could make TPC subsidies available to all industries.  It did not do so.  It
maintained the programme resources limited to the same highly export oriented industries targeted bythe "old" TPC.  Canada could also make eligibility automatic and reduce the subjectivity of the criteria
and conditions governing the approval of grants.  Canada did not do so.  Instead, Canada maintained
highly subjective criteria and conditions, linking disbursements to vague goals such as "increasing
economic growth, creating jobs, and supporting sustainable development", or to "strategic" concerns.
I could go on providing examples of how Canada could reduce or eliminate the specificity of the
programme, therefore eliminating the contingency on export earnings.  But I do not wish to offer
Canada an implementation roadmap.  I wonder if la ter they would not simply characterize these
examples as a sufficiency test proposed by Brazil.
16. The point is that Canada could have introduced changes that would ensure that, operating with
a broader range of automatically eligible recipients (export oriented and otherwise), the granting
authority had little or no room to arbitrarily make funds available based on the export propensity ofthe beneficiary.  Canada chose not to do so.  In fact Canada scrupulously tried to make sure that the
programme would function just as it did before.  The standard proposed by Brazil is by no meansimpossible to meet.  It falls well within the boundaries of what is reasonable.
17. With regard to the Canada Account I believe th at there's not a whole lot to be said.  Before
this Panel, during the original procedures of this case, Canada affirmed, in good faith I am sure, that
Canada Account complied with the terms of the OECD Arrangement.  Brazil pointed this out in its
submissions in the current proceedings.  Regardless of that good faith interpretation of the OECD
Arrangement, this Panel found Canada Account to violate the SCM Agreement – a finding confirmed
by the Appellate Body.  Canada has now issued a "policy guideline" which, in effect, merely
reproduces in writing what Canada had already said it was doing before the programme was found to
grant prohibited subsidies.
18. If this is to be considered as effective implementation Mr. Chairman, the implications for the
Multilateral Trading System would be grave inde ed.  Members could from then on feel obliged to
merely state in writing, as a policy guideline or as part of a regulation, that the programmes found not
to be in conformity with the WTO Agreement will  henceforth operate in full compliance with the
recommendations of the DSB; in compliance with th e WTO Agreements;  or any similar variation.  In
good faith, Mr. Chairman, they will then interpret the DSB recommendations, or the WTO
Agreements, and implement the "new" programmes as they see fit.  In the case of the Canada
Account, the WTO Members not participants in th e OECD Arrangement, as Canada itself asserts,
would not even be able to verify such implementation.
19. I would further note that, regarding Canada Account, Canada itself acknowledges the issue of
interpretation of the OECD Arrangement.  Let me r ead a sentence found in the introductory paragraph
of the document where Canada lists what it considers to be the relevant interest rate provisions of the
OECD Arrangement:  "within limits, variations of certain of these provisions are permitted under theWT/DS70/RW
Page 91
terms of the Arrangement."  Mr. Chairman, the DSB found that Canada Account subsidies were to be
withdrawn, and Canada asks Brazil and the other WTO Members to believe that, from now on, they
will interpret the OECD Arrangement, in good faith as before, but now in ways that would not be
found to be in violation of the SCM Agreement.
20. Mr. Chairman, nothing has changed with regard to Canada Account.  If Canada's policy
guideline is found to be effective implementation, the multilateral trading system will have suffered a
serious setback.WT/DS70/RW
Page 92
ANNEX 1-5
RESPONSES BY BRAZIL
TO QUESTIONS FROM THE PANEL
(14 February 2000)
Canada Account
Q1. Could Brazil please elaborate regarding the basis on which it considers the Policy Guideline
“purely hortatory” (Brazil’s second submission at para. 69)?  In Brazil’s view, what changes would
be necessary for it to become mandatory?
Response
The Policy Guideline adopted for Canada Account is hortatory because, according to Brazil’s
information, Policy Guidelines are not binding in Canadian law and cannot fetter Ministerial
discretion.  They provide guidance on how decision makers will exercise their discretion, but they are
not binding and do not require a specific outcome.  In Maple Lodge Farms v. Canada  [1982] 2SCR 2
at 7, the Supreme Court of Canada held that Ministerial discretion cannot be fettered through the
issuance of a Policy Guideline.
The Federal Court of Canada has also held that Policy Guidelines may be issued, but should
not be drawn so narrowly that they “crystal lize into binding and conclusive rules.”  See Dawkins v.
Canada  [1992] 1 FC 639 at 649.  Similarly, decision-makers that issue Policy Guidelines may not
construe those Policy Guidelines as binding obligations which restrict their ability to exercise
discretion.  Saunders Farms v. B.C.  [1985] 32 Admin. L.R. (2d) 145 (BCCA).
Therefore, the Policy Guideline adopted by Canada for use with Canada Account cannot bind
the Minister because that would fetter Ministerial discretion and violate Canadian law.
Consequently, as the Policy Guideline is not binding but merely provides direction, it is merely
hortatory.
In fact, Canada’s actions demonstrate that its Policy Guideline does not remove Canada
Account financing from the category of prohibit ed export subsidies; the policy was already in
existence before the Panel determined that Canada provided prohibited export subsidies via the
Canada Account.  Despite the fact that Canada stated to the Panel in the original proceedings, on at
least three different occasions, that Canada Account financing and loan guarantees for exports “have
been consistent with the interest rate provisions of the OECD Consensus, as required by Item (k) of
Annex I,” the Panel determined that Canada Account support constituted prohibited export
subsidies.1  If this policy did not provide a disincentive for Canada to maintain prohibited export
subsidies via the Canada Account before  the Panel’s determination, why would it do so after  the
Panel’s determination?
                                                     
1 First Written Submission of Canada, 16 November 1998, para. 173 (Exhibit Bra-33).  See also  First
Oral Submission of Canada, 26 November 1998, para. 101 (“Canada Account financing and loan guarantees forexports committed since the entry into force of the SCM Agreement have complied with the interest rateprovisions of the OECD Consensus, as required by Item (k) of Annex I.”) (Exhibit Bra-34); Second Written
Submission of Canada, 4 December 1998, para. 77 (“Canada Account transactions are consistent with the
interest rates provisions of the OECD Consensus.”) (Exhibit Bra-35).WT/DS70/RW
Page 93
As to what changes would be necessary for the guideline to become mandatory under
Canadian law, Brazil would note that it is not expert on Canadian law.  However, it would seem that
a minimum mandatory language should be used, and provision should be made for consequences in
the event of non-compliance.
Q2. Does Brazil agree with Canada’s identification of the “interest rate provisions” of the
OECD Arrangement as set forth at paragraphs 69- 80 of its oral statement and in the document
provided by Canada entitled “Item (k):  Interest Rates Provisions of the OECD Arrangement”?  Are
there other provisions of the OECD Arrangement that Canada has not mentioned but that in Brazil’sview form part of the “interest rate provisions” of the OECD Arrangement in the sense of the second
paragraph of item (k) of the Illustrative List of Export Subsidies?  Are there any provisions identified
by Canada that in Brazil’s view do not form part of the “interest rate provisions” of the OECD
Arrangement in the sense of the second paragraph of item (k) of the Illustrative List of Export
Subsidies?  Please explain in detail.
Response
Brazil, like most Members of the WTO, is not a Participant in the OECD Arrangement, and
for that reason has limited knowledge of the Arrangement and its workings.  Therefore, rather than
questioning the specific list of “interest rates provisions” listed by Canada, Brazil has asked Canada a
series of questions regarding the significance of the provisions it cites.
It should fall to Canada, as one of a minority of WTO Members that is a Participant in the
Arrangement, to explain what those provisions are and how, precisely, it will apply them.  As stated
in its Statement to the Panel, Brazil’s understanding is that in their application  – and not merely in
their identification  – the provisions of the OECD Arrangement are subject to widely-varying
interpretations by the various Participants.  There is no dispute settlement mechanism in the
Arrangement to regulate or constrain those different interpretations.  There are no publicly-available
documents recording the agreement of the Participants to abide by particular interpretations of
particular provisions.
Brazil understands, however, that in applying the Arrangement, some Participants have
adopted rather controversial interpretations of various provisions that affect the scope of financing
subject to the disciplines of the Arrangement.  Brazil’s questions to Canada are posed in an attempt to
discover whether Canada itself, as a Participant in the Arrangement, has adopted some of these
interpretations in its provision of export financing.
We begin, for example, with Article 2 of the Arrangement, which states that it applies to
“official support for exports.”  The Arrangement contains no definition of the term “official support,”
and Brazil has confirmed with the OECD that the Participants have not reached agreement on a
definition.2  As a result, Brazil understands, some Participants take the position that “official support”
consists only of the provision of support at rates below a government’s cost of funds.  According to
those Participants, support extended at rates equal to or above the government’s cost of fundsconstitutes so-called “market window” support.  These Participants consider that, so long as support
is granted through this “market window,” it may be provided at rates below the minimum
Commercial Interest Reference Rates (“CIRR”) applicable to “official support” for exports. This
interpretation of the “market window” exception may be perfectly acceptable, but it demonstrates
why Brazil considers Canada’s statement that it will “comply with the OECD Arrangement”ambiguous.
                                                     
2 OECD Arrangement, Article 88.  See also  Correspondence with OECD Secretariat (Exhibit Bra-37).  WT/DS70/RW
Page 94
Further, there is an apparent discrepancy in the particular “interest rates provisions”
identified by Canada, even under Canada’s own standard.  According to Canada, the “interest rates
provisions” of the OECD Arrangement, incorporated  into Item (k), include those provisions that
“affect what the interest rate and the amount of interest payable will be in a given transaction.”3
Brazil understands that the so-called “Knaepen Package,” which took effect on 1 April 1999, requires
Participants to adhere to certain sovereign and country risk premiums.  These requirements may have
been incorporated into the Arrangement, and may be incorporated via Canada’s listing of Article
21(a).  As a non-Participant, Brazil does not know whether this is the case.  However, those
requirements, which in Canada’s words “affect what the interest rate and the amount of interestpayable will be in a given transaction,” should be included as “interest rates provisions” of the
Arrangement, or Canada should explain why they are not.  Thus far, Canada has been silent on this
point.
Finally, Brazil has not knowingly asserted in this proceeding that Canada will not comply
with the “non-derogation commitment,” as Canada argues at paragraph 71 of its Oral Statement.
Indeed, Brazil is not certain what that commitment is, and Canada has not specified which provisions
compose the “non-derogation commitment set forth in the Arrangement.”  If Canada is referring to
Article 27, however, titled “No Derogation for Export Credits,” Brazil notes that Canada has not
included this provision on its list.
Q3. Could Brazil describe in detail what it considers is required for full compliance with the
interest rate provisions of the OECD Arrangement in the sense of the second paragraph of item (k) of
the Illustrative List of Export Subsidies.  That  is, what precisely would Canada have to do for
Canada Account transactions in the regional aircraft sector to qualify for the safe haven of the
second paragraph of item (k)?  How if at all does  this differ from what Canada has said would be
necessary?  If Canada Account transactions in the regional aircraft sector complied to the letter withall of the provisions of the OECD Arrangement that Canada identified in paragraphs 69-80 of its
oral statement and in the Canadian document entitled “Item (k):  Interest Rates Provisions of the
OECD Arrangement”, does Brazil believe that such  transactions would qualify for the safe haven in
the second paragraph of item (k)?  Please explain in detail.
As discussed in its response to Question 2, Brazil considers that Canada has not fulfilled its
implementation commitments by merely listing what it considers the “interest rates provisions” of the
OECD Arrangement to be.  Canada should state how it intends to apply those provisions, and what it
means when it says it will “comply” with them.
Brazil has described above the ambiguities surrounding the application of the Arrangement
regarding, for example, the definition of “offic ial support” and the concept of “market windows.”
Without information from Canada regarding how it intends to apply  each of the provisions included
on its list, a non-Participant like Brazil will have no way of knowing what to “comply with” those
provisions actually means.  Only with this information could the Panel, or any WTO Member who is
a non-Participant in the Arrangement, reasonably determine whether the Canada Account, as the
Panel’s question states, “complies to the letter with  all of the provisions of the OECD Arrangement”
included on Canada’s list.
The Arrangement would appear to make the obtaining of information difficult for non-
Participants.  For example, it appears to Brazil that Article 52 of the Arrangement requires a
Participant intending to match alleged non-conforming terms and conditions by another Participant toinform that Participant.  However, Article 53 a ppears to permit a Participant to match the alleged
non-conforming terms and conditions of a non-Participant by simply notifying other Participants of
                                                     
3 Canadian document provided to the Panel on 6 February 2000, “Item (k): Interest Rates Provisions of
the OECD Arrangement,” pg. 1.WT/DS70/RW
Page 95
that fact, with no notice to the non-Participant.  Thus, if the matching provisions of the OECD
Arrangement were considered to be part of its “i nterest rates provisions,” it would appear that a
Participant would have to notify another WTO Member that is a Participant but not one that, like
Brazil, is not a Participant.  It is also unclear to Brazil what a non-Participant’s obligations would beunder these provisions.  The point is, however, that it is up to Canada as the Member invoking the
second paragraph of Item (k) to explain whether it intends to comply with these, and the other
provisions, and if so, how it intends to do so.  This is not a question of proof; it is a question of
explanation.
Q4. Concerning Canada’s proposal that the Panel endorse the verification mechanism suggested
by Canada, Brazil states that it considers that resolution of the matter in the context of dispute
settlement “is not clearly compatible with the spirit, if not the letter, of Article 19 of the DSU”
(Brazil’s second submission at para. 78).  Could Brazil please elaborate on this point.  In particular,
in what specific sense might Canada’s proposal be c onsidered out of keeping with the spirit and with
the letter of Article 19?  Are there any other provisions of the DSU or the SCM Agreement that would
be relevant to Canada’s proposal?
Response
Under Article 19.1 of the DSU, a Panel may make recommendations that a Member violating
its commitments bring its measure into conformity w ith a particular agreement.  Within the context of
prohibited export subsidies, however, Panels are, more specifically, required by Article 4.7 of the
Subsidies Agreement to recommend that a Member pr oviding such a subsidy “withdraw the subsidy.”
Put simply, while a bilateral transparency and verification mechanism may be desirable, it is not a
replacement for the requirement that Canada withdr aw the prohibited export subsidies identified in
the recommendations and rulings of the DSB.  Canada is proposing that the Panel recommend
verification, not implementation.  Brazil would also note that Article 3.2 of the Dispute Settlement
Understanding provides that recommendations and rulings of the Dispute Settlement Body cannot
add to the obligations of the Members.  A verification requirement would add to the obligations of
the parties.
Bilateral discussions between Brazil and Canada regarding transparency and verification of
programmes maintained for the support of their regional aircraft manufacturers are on-going.
Whether those discussions succeed or fail will depend in part on Canada’s willingness to submit a
broader range of programmes than merely the Canada Account and TPC to the terms of any
transparency and verification arrangement.  Any such arrangement must be truly reciprocal to beacceptable to Brazil.
Further, the proposed bilateral agreement envisions the disclosure of extensive amounts of
highly confidential commercial information. Confidentiality requirements, therefore, are vital in any
bilateral arrangement.  As the Panel is aware, confidentiality has been, and continues to be, an issue
in these cases.
The Panel will recall that in Brazil – Export Financing Programme for Aircraft, WT/DS46,
the interim report of the original Panel, containi ng its findings and conclusions, was prematurely
released to the Parties, despite the understanding – otherwise adhered to in these proceedings – that
all reports would be issued simultaneously.  Late in the afternoon of the premature release, Northwest
Airlines announced that it was awarding a contract for a large number of aircraft to the Canadianproducer, Bombardier, rather than to Embraer of Brazil.  Northwest had previously informed both
manufacturers that it would await the results of the WTO proceedings before making its decision.
Brazil is confident that it did not provide the interim report in DS46 to Northwest.WT/DS70/RW
Page 96
Likewise, in this Article 21.5 proceeding, the Panel will recall that Brazil’s confidential
Second Submission to this Panel somehow was obtained by the European Communities, despite the
fact that it had not been provided to the EC by Brazil.  While it has not been established exactly how
the unauthorized disclosure to the EC occurred, the Panel will appreciate that incidents of this naturedo not contribute to building confidence that unauthorized disclosure of highly sensitive commercial
information under a transparency agreement will not occur.
Technology Partnerships Canada
Q1. At paras. 18 and 19 of its second submission, Brazil claims that “[a]t a minimum, Canada’s
implementation measures must ensure that proh ibited export subsidies cannot be granted to the
regional aircraft industry under the facts surr ounding the operation of the TPC programme . . .”
(emphasis in original).  Out of preference, Braz il would have Canada implement the Panel’s findings
on TPC assistance by eliminating the TPC programme altogether with respect to the regionalaircraft sector.
(a) Please comment on Canada’s assertion (para. 32 of oral submission of Canada)
that, with regard to TPC assistance to the regional aircraft industry, Brazil has set
Canada an “impossible burden of proof”.  Is it possible, in practice, for a panel to
verify that a sovereign state has eliminated all discretionary authority to grant de
facto export subsidies to a specific sector of its domestic industry?  Is the elimination
of all such discretionary authority required by Article 3.1(a) of the SCM Agreement?
Response
Brazil does not agree that it suggested that a sovereign state must eliminate all of its
discretionary authority.  Obviously, a sovereign state cannot do that and remain a sovereign state.
Nor does Brazil agree that it has set Canada “an impossible burden of proof.”  Brazil recognizes that
it bears the burden of showing that Canada has failed to implement, and Brazil has done so.  Brazil
has shown that all the essential elements of the programme remain unchanged, and that many of these
elements will never change.  It then becomes Canada’s burden to explain how Brazil was wrong andhow Canada’s purported changes actually constitute effective implementation.  This Canada has not
done.  This is especially true here, where Canada has admitted that it has not in fact yet even
completed its revisions of the programme.
The Panel will not, of course, be able to verify in these Article 21.5 proceedings that Canada
never again will grant a subsidy de facto  contingent on export to the regional aircraft industry.  For
the recommendations and rulings of the DSB in this case to have any meaning, however, withdrawal
of the prohibited subsidy should consist of measures that make it clear to the Panel that Canada is not
simply going to continue the same programme as before once these proceedings are completed.
Otherwise, to obtain an effective remedy, Brazil would be required to engage in endless challenges to
future generations of TPC subsidies issued under circumstances virtually identical to ones already
judged to be prohibited by this Panel.
Brazil does not consider that the elimination of all discretionary authority is required by
Article 3.1(a) of the Subsidies Agreement.  For exam ple, in Brazil’s view, Article 3.1(a) does not
prohibit the exercise of discretion in evaluating th e financial or technical feasibility of a proposal.
Rather, the specific question in this proceeding  is whether Canada has “withdrawn the subsidy,”
under Article 4.7 of the Agreement.  Under the “n ew” TPC, Canada has not withdrawn the subsidy;
instead, the same, specifically-selected industries will receive even more TPC money than before for
the same types of projects.  By any reasonable standard, this is not sufficient to achieve the effective
remedy required by Article 4.7.WT/DS70/RW
Page 97
(b) Would elimination of the TPC programme have the effect desired by Brazil (i.e.,
elimination of discretionary authority to grant prohibited export subsidies to the
Canadian regional aircraft industry) if Canada were subsequently able to introduce
a new programme that could, in principle, lead to the grant of de facto exportsubsidies to the Canadian regional aircraft industry?
Response
Brazil agrees that it is not possible to prevent all eventualities.  However, the fact that a
remedy could be subject to manipulation, does not mean that no remedy should be provided.
Regardless of what new programmes are created in the future, the issue now before the Panel is
whether Canada has fully implemented the DSB’s recommendations and rulings.
Q2. Does Brazil consider that the provision of specific subsidies to export-oriented industries – in
the absence of other factual considerations demonstrating de facto export contingency – necessarily
violates Article 3.1(a) of the SCM Agreement?  Please explain.
Response
When an industry is specifically targeted for a subsidy because  of its undisputed export
orientation, a violation of Article 3.1(a) of the SCM Agreement occurs.  As the United States said, at
paragraph 7 of its Third Party Submission, “there is a fundamental difference between a government
granting a subsidy to an enterprise which happens to export and a government granting a subsidy to
an enterprise because  it exports.”4
Moreover, Brazil has demonstrated that the export-orientation of the industry has not
changed since the original Panel proceedings, and Canada has acknowledged that it maintains the
same focus in the “new” TPC as it did in the “old” TPC – two-thirds of all funds will continue to go
to the aerospace industry.  Canada cannot maintain the identical focus on this industry, originally
selected because  of its exports, in the “new” TPC, with the export-orientation of the industry as
evident as ever, and expect that the motivations underlying this focus in the “old” TPC are no longer
relevant.
The Panel will recall that the Appellate Body concluded that a de facto  export subsidy exists
when it is “tied to” actual or anticipated exportation or export earnings.  Brazil has shown that TPC
subsidies were and, under the “new” TPC, will con tinue to be, provided to the aircraft sector because
of its high export performance.  As Canada has decided to provide subsidies to this industry because
it exports, TPC subsidies clearly are “tied to” actual or anticipated exportation or export earnings.
Q3. At footnote 62 of its second submission, Brazil states that, “to reach sales forecasts”, the
Canadian regional aircraft industry must export.  Is the grant of TPC assistance to the regional
aircraft sector contingent on fulfillment of sales forecasts?
Response
Brazil noted in its submissions to the Panel that Canada has not yet provided 68 per cent of
the documents associated with the “new” TPC.  Therefore, Canada has made it impossible to
determine whether this or other factors considered by the Panel in the original proceedings toconstitute evidence demonstrating de facto  export contingency are maintained in the “new” TPC.
Canada has also admitted to the Panel that it has not yet completed the revision of many of these
                                                     
4 Emphasis in original.WT/DS70/RW
Page 98
documents.  For these reasons alone, the Panel may properly find that Canada has failed to implement
the recommendations and rulings of the DSB.
Under the TPC Aerospace and Defence Sector Generic Model Agreement, applicants are
required to report forecast and actual sales.5  Since Canada did not provide a new version of this
document by the deadline for implementation of th e recommendations and rulings of the DSB, the
Panel should presume that the prior version still applies.  Given its status as a generic form
agreement, there is no reason why a new version of this document will not be created “until such time
as the restructured programme approves and contracts new investments,” as Canada suggests.
Brazil also notes that even after 18 November 1999, TPC’s website states that TPC
contributions, 65 per cent of which are allocated to the aerospace industry, “are forecasted to generate
sales of more than $89.6 billion . . .”6  TPC therefore records and tracks sales forecasts.
Finally, Brazil notes that under the “new” TPC, one form of repayment of TPC contributions
will be based upon “royalties on total company or division sales.”7  To prepare a repayment schedule
based upon royalties from sales, TPC must obtain information on and evaluate forecasted sales.
Q4. If, hypothetically (and as Brazil claims), the current measures taken by Canada to comply
with the DSB recommendation are not a sufficient change in the factual situation which led to the
initial conclusion that TPC assistance to the regional aircraft industry is de facto contingent onexport, what alternative action(s) does Brazil consider Canada could take to implement the DSB
recommendation other than withdrawal of the TPC programme in respect of the Canadian regional
aircraft industry?
Response
Alternatives available to Canada would include making TPC funds available to Canadian
industry generally, and changing TPC so that its contributions do not confer benefits, and therefore
do not constitute subsidies, within the meaning of Article 1.1 of the SCM Agreement.
Q5. At para. 37 of its first submission, Canada claims that “[t]he restructuring of TPC has
removed all elements that had formed the basis for the Panel and Appellate Body finding of de facto
export contingency, with the exception of one, namely that the Canadian regional aircraft industry
has a high propensity to export its final products”.  Does Brazil agree that all other elements that
had formed the basis of the Panel and Appellate Body rulings on export contingency – with the
exception of the export orientation of the Canadian regional aircraft industry – were removed by
Canada?  If not, why not?  If yes, and if the export orientation is the only element remaining, does it
not then logically follow that the subsidies granted are no longer export contingent, especially in the
light of the Appellate Body’s statement in para. 173 of its report that the “export orientation of a
recipient may be taken into account as a relevant fact, provided that it is one of several facts which
are considered and is not the only fact supporting a finding”?
Response
Brazil does not agree with Canada’s claim that it has removed all elements forming the basis,
in the original proceedings, for the determination that TPC contributions to the regional aircraft
industry were de facto  export contingent.  In paragraph 15 of its Second Submission, Brazil describes
                                                     
5 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/R (14 April 1999) (Adopted
as Modified by the Appellate Body, 20 August 1999) para. 9.340 (bullet point 10) (“Panel Report”).
6 TPC Current Statistics, 6 December 1999 (Exhibit Bra-17).
7 Industry Canada News Release, 18 November 1999, pg. 4 (Exhibit Bra-18).WT/DS70/RW
Page 99
the factors that in its view support a continued inference of de facto  export contingency and a
determination that Canada has not “withdrawn the subsidy”:
• First , Brazil points to the export-orientation of the industry, along with the specificity of
TPC, which maintains two-thirds of its contributions for the aerospace industry.  That
factor is discussed in the section beginning at paragraph 21 of Brazil’s Second
Submission (as well as in the section beginning at paragraph 18 of Brazil’s First
Submission).
• Second , Brazil notes that essentially the same projects continue to be eligible for
contributions under the “new” TPC as were eligible under the “old” TPC.  A discussion
of this factor begins at paragraph 34 of Br azil’s Second Submission (and is also included
in Brazil’s First Submission in the section commencing with paragraph 24).
• Third , Brazil shows that applicants for funds under the “new” TPC must demonstrate
that their proposed project fulfills selection and assessment criteria, and programme goals
and objectives, the achievement of which requires a commitment to export performance.Brazil also demonstrates that the link between these criteria and export is particularly
evident for aerospace and regional aircraft industry applicants, which are awarded two-
thirds of TPC funds.  This discussion begins at paragraph 37 of Brazil’s Second
Submission (as well as in Brazil’s First Submission in the section beginning with
paragraph 31).
• Fourth , Brazil demonstrates that Canada has not amended or provided documents that
the Panel considered resulted in an inference of de facto  export contingency.  Brazil’s
discussion of this factor begins at paragraph 51 of its Second Submission (and is also
included with the section beginning at paragraph 35 of Brazil’s First Submission).
In this regard, we would recall the language of the Panel in Australia – Leather , at paragraph
6.21, note 24: “The specific details of the factual evidence underlying the conclusion that thesubsidies were in fact contingent upon export performance within the meaning of Article 3.1(a) of the
SCM Agreement and therefore prohibited do not, in our view, determine what is required in order to
‘withdraw the subsidy’ within the meaning of Article 4.7 of the SCM Agreement.
Q6. At para. 11 of its oral statement, Brazil “requests that should the Panel accept Canada’s
argument, it then recommend the retroactive payment of TPC subsidies to the regional aircraft
industry”.  Was this request contained in Brazil’s fi rst two written submissions to the Panel?  If not,
why not?  Is Brazil seeking repayment of TPC subsidies to the Canadian regional aircraft industry?
If so, what would be the basis for the Panel to recommend repayment?
Response
Brazil’s First and Second Submissions did not contain a request for this retroactive
repayment, which, as expressly stated in paragraph 11 of its Statement for the Meeting of the Panel,
is an alternative, though not a preferred, remedy.  Brazil’s presentation of arguments regarding theretroactive repayment of TPC subsidies was in response to the circulation of the Article 21.5 decision
in Australia – Leather , which was not circulated to the Members until 21 January 2000, four days
after Brazil’s Second Submission was filed on 17 January 2000.
Brazil submits that retroactive repayment may be appropriate only in the event that either or
both of two scenarios materializes.  First, if the Panel considers itself required to follow the reasoning
of the Panel in Australia – Leather , Brazil has argued that the factual similarity between Australia –
Leather  and the case at hand make the reasoning of Australia – Leather applicable here.  Second, ifWT/DS70/RW
Page 100
the Panel accepts Canada’s argument that “in the absence of any such financial contribution and a full
consideration of [the] facts, there can be no grounds to support Brazil’s allegations of de facto  export
contingency under the restructured TPC programme,”8 Brazil will be left without recourse to Article
21.5 review of Canada’s implementation measures.  In that event, Brazil will be left with no effectiveremedy apart from the retroactive repayment of TPC subsidies granted to the Canadian regional
aircraft industry.
Question to both parties
Please comment on the EC argument (para. 7 of the EC’s oral statement) that, in light of the
Panel’s terms of reference set forth in document WT/DS70/9, “[t]he Panel may not . . . in this case
consider whether Canada has failed to implement the report retroactively since Brazil has only asked
for a finding that the changes to the two progra mmes at issue have not implemented the Report”.
Response
This argument was raised by the European Communities and the parties before the Panel in
Australia – Leather  and was not accepted by that Panel.  As Brazil stated in its oral presentation,
Brazil believes the EC and the parties were correct in their positions in Australia – Leather , and that
the case was wrongly decided.  However, the fa ct remains that this Panel, like the Panel in Australia
– Leather , might not find itself constrained by the positions of the parties.  In its statement, Brazil
attempted to allow for this fact and to point out the implications of Australia – Leather  for this case,
should the Panel decide to accept the reasoning of that case.
                                                     
8 Canadian First Submission, para. 45.WT/DS70/RW
Page 101
ANNEX 1-6
COMMENTS OF BRAZIL ON CANADA'S RESPONSES
TO QUESTIONS FROM THE PANEL
(16 February 2000)
In Canada's answers to questions 1 and 2 posed by the Panel regarding TPC, Canada
acknowledges (paras. 53-58) that it has actually completed very few changes to the TPC programme.
Canada lists 24 documents pertaining to the TPC programme, but states that it has thus far in factamended only three of these documents.  There are drafts available for 13 documents.  However, not
even drafts are available for the remaining eigh t documents, including such potentially important
materials as the "Statement of Work" and "Evaluation Framework".  Canada's attempts to reform
TPC are incomplete, leaving the Panel no basis on which to decide that TPC no longer retains its
export contingency.  For this simple reason alone, the Panel cannot conclude that Canada has
implemented the rulings and recommendations of the DSB.WT/DS70/RW
Page 102
ANNEX 2-1
FIRST SUBMISSION OF CANADA
(10 January 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION............................................................................................................ 104
II. TECHNOLOGY PART NERSHIPS  CANADA ............................................................. 105
A. F INDINGS OF THE PANEL AND THE APPELLATE BODY........................................... 105
B. M EASURES TAKEN BY CANADA ............................................................................ 106
1. Termination of Acti vities under TPC ....................................................... 106
(a) Canada has Cancelled Funding .......................................................................................... 106(b) Canada has Withdrawn A pprovals-in-P rinciple................................................................. 107
(c) Canada has Closed all TPC Files in the Regional Aircraft Sector ..................................... 107
2. Canada has Restructured the TPC Programme......................................... 107
(a) TPC statements of it’s overall objectives: The restructured TPC’s objectives focus on
innovation and not e xport prom otion ................................................................................. 108
(b) The types of information called for in applications for TPC funding: Information on exports
is not called for or accepted under the restruct ured TPC ................................................... 109
(c) The considerations, or eligibility criteria, employed by TPC in deciding whether to grant
assistance: Eligibility criteria under the restructured TPC do not encompass export
considerations................................................................................................................. .... 109
(d) The Factors to be identified by TPC officials in making recommendations about
applications for funding: Under the restructured TPC  administrators will not consider
exports when making funding recommendations............................................................... 110
(e) The restructured TPC’s record of funding in the export field generally, and in the
aerospace and defence se ctor in pa rticular ......................................................................... 110
(f) The nearness-to-the-export-market of projects funded: The restructured TPC is
considerably less near-market ............................................................................................ 110
(g) Significance of projected export sales to funding decisions under the restructured TPC:
There will be no recording of  projected E xport Sales........................................................ 111
C. A
S CANADA HAS COMPLIED WITH THE RECOMMENDATIONS AND RULINGS OF
THE DSB, B RAZIL ’S ALLEGATIONS ARE UNFOUNDED .......................................... 111
III. CANADA ACCO UNT...................................................................................................... 114
A. F INDINGS OF THE PANEL AND THE APPELLATE BODY........................................... 114
B. M EASURES TAKEN BY CANADA ............................................................................ 114
1. No Outstanding Contracts......................................................................... 114
2. Canada has Taken Measures in Respect of Future Export Financing
Transactions.............................................................................................. 115
(a) The Minister has A dopted a Guideline............................................................................... 115
(b) Canada Proposes the Establishmen t of Verification Procedures........................................ 115WT/DS70/RW
Page 103
C. A S CANADA HAS COMPLIED WITH THE RECOMMENDATIONS AND RULINGS OF
THE DSB, B RAZIL ’S ALLEGATIONS ARE UNFOUNDED .......................................... 116
IV. REQUESTED  FINDING................................................................................................. 117
Annex A ........................................................................................................................ ....................118
LIST OF EXHIBI TS ............................................................................................................... ...... 121WT/DS70/RW
Page 104
I. INTRODUCTION
1. In Canada – Measures Affecting the Export of Civilian Aircraft (Canada – Aircraft )1  the
Panel and the Appellate Body found that contribut ions under Technology Partnerships Canada (TPC)
to the Canadian regional aircraft industry were de facto  contingent on export performance and thus
such contributions were prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of
the Agreement on Subsidies and Countervailing Duties  (SCM Agreement).2   The Panel also
concluded that Canada Account debt financing as applied to certain regional aircraft exports
constituted subsidies, which were de jure  contingent on exports, and thus inconsistent with
Articles 3.1(a) and 3.2.  Canada did not appeal this finding.  On 20 August 1999, the DisputeSettlement Body (DSB) adopted the Reports of th e Panel and the Appellate Body.  It recommended
that Canada bring assistance to the regional aircraft industry under TPC and Canada Account into
conformity with its obligations under the SCM Agreement within 90 days, that is by
18 November 1999.
2. In response, Canada has put in place new measures to ensure full and faithful implementation
of the DSB rulings and recommendations and compliance with the SCM Agreement.   In summary:
• with regard to TPC, Canada terminated all oblig ations for the disbursement of funds to  the
Canadian regional aircraft sector, and undertook a complete restructuring of the TPC programme
to ensure that actual or anticipated exports will play no role whatsoever in eligibility or decision-
making regarding future TPC assistance; and
• with respect to the Canada A ccount programme, transactions financed under this programme
were all completed as of 18 November 1999.  Further, to prevent prohibited export subsidiesunder this programme in the future, Canada adopted a policy requiring  that any future Canada
Account transactions comply with the OECD  Arrangement on Guidelines for Officially
Supported Export Credits, thus bringing them within the exception of the second paragraph of
Item (k) of the Illustrative List of Export Subsidies (Annex I to the SCM Agreement).
3. described in detail below, these measures fully satisfy the requirement to withdraw the TPC
and Canada Account assistance to the Canadian regional aircraft industry that was found to constitute
prohibited export subsidies.  In addition, these measures ensure – through programmatic changes –
that any future assistance under either of these programmes with respect to regional aircraft will beconsistent with the SCM Agreement. Canada has, therefore, fully implemented the DSB
recommendations.
4. Brazil nonetheless challenges Canada’s implementation measures pursuant to Article 21.5 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).  It arguesthat Canada’s measures are insufficient to constitute effective implementation of the
recommendations and rulings of the DSB.
5. Brazil's contentions have no merit.
6. With regard to TPC, Brazil ignores the termination of ongoing assistance and the
restructuring of TPC.  It asks the Panel to find export contingency, not based on the three part test
established by the Appellate Body, but rather on a combination of past statements made about the
programme before restructuring and an argument that TPC objectives of economic growth and jobs
should be regarded as legal surrogates for export contingency.  Brazil’s contentions amount to a
                                                     
1 WT/DS70/R and WT/DS70/AB/R, Reports of the Panel and the Appellate Body adopted on
2 August 1999.
2  Unless otherwise stated, all Articles refer to the SCM Agreement.WT/DS70/RW
Page 105
request that the Panel find that TPC must cease all contributions under any conditions to the regional
aircraft industry because of the export orientation of the sector. That request has no foundation in the
SCM Agreement or the recommendations and rulings of the DSB.
7. With regard to the Canada Account programme, Brazil’s contentions are equally unfounded.
Transactions financed under this programme were all completed as of 18 November 1999.  In
addition, Canada has adopted measures to ensure that financing under the Canada Account for
transactions after 18 November 1999 will have to conform with the exception in Item (k) of the
Illustrative List of Export Subsidies.
8. Canada therefore respectfully requests that the Panel reject Brazil’s allegations and
arguments, and find that Canada’s measures implement fully and faithfully the rulings and
recommendations of the DSB.
II. TECHNOLOGY PARTNERSHIPS CANADA
A. FINDINGS OF THE PANEL AND THE APPELLATE BODY
9. In Canada Aircraft , the Panel found that that TPC contributions to the regional aircraft sector
were subsidies “contingent . . . in fact . . . upon export performance” within the meaning of
Article 3.1(a).  Brazil did not allege, and the Panel and Appellate Body did not find, that the TPCprogramme per se  constituted an export subsidy under Articles 3.1(a) and 3.2.  Rather Brazil
challenged, in the words of the Panel “the actual application of the TPC . . . programme . . . in the
Canadian regional aircraft sector”
3
10. The Appellate Body upheld the Panel’s findings, while further elaborating on theinterpretation of “contingent . . . in fact . . . upon export performance” and modifying the analysis of
the legal weight to be accorded to the nearness-to-the-market of a financed project.
4   De facto  export
contingency, according to the Appellate Body, requires proof of three different substantive elements:
(1) “the granting of a subsidy”;
(2) that “is tied to ”;
(3) “actual or anticipated exportation or export earnings.5
11. In agreeing with the Panel that contributions to the regional aircraft industry under the TPC
programme as then constituted were de facto  contingent on export performance, the Appellate Body
noted that the Panel considered sixteen factual elements covering a variety of matters, which the
Appellate Body grouped into the following eight categories6 :
(a) TPC’s statements of its overall objectives;(b) the types of information called for in applications for TPC funding;
(c) the considerations, or eligibility criteria, employed by TPC in deciding whether to
grant assistance;
(d) the factors to be identified by TPC officials in making recommendations about
applications for funding;
                                                     
3 Panel Report at para. 9.282
4 Appellate Body Report at paras. 162-180; see Panel Report at para. 9.339.
5 Appellate Body Report at para. 169.
6 Appellate Body Report at para. 175WT/DS70/RW
Page 106
(e) TPC’s record of funding in the export field generally and in the aerospace and
defence sector in particular;
(f) the nearness-to-export-market of the projects funded;
(g) the importance of the projected export sales by applicants to TPC’s funding
decisions; and
(h) the export orientation of the firms or the industry supported.
12. The Panel and Appellate Body found that those factual elements taken together  warranted a
finding of a prima facie case of de facto export contingency. However, the Panel and the Appellate
Body both affirmed that the export propensity of a recipient could not, by itself, form the basis for afinding of export contingency.
7   Further, as the Appellate Body emphasised, “the facts must
‘demonstrate’ that the granting of a subsidy is  tied to  or contingent upon  actual or anticipated
exports.  It does not suffice to demonstrate solely that a government granting a subsidy anticipated
that exports would result.8
B. MEASURES TAKEN BY CANADA
13. Canada implemented the recommendations and rulings of the DSB by taking two sets of
measures.  First, Canada terminated all obligations  for the disbursement of funds relating to the
Canadian regional aircraft industry under TPC as it was previously constituted.  Second, in order to
ensure that any future transaction involving the Canadian regional aircraft industry would be
compliant with the SCM Agreement, Canada comprehensively amended the structure andadministration of TPC.
1. Termination of Activities under TPC 
(a) Canada has Cancelled Funding
14. As of 18 November 1999, the Government of Canada terminated all obligations for the
disbursement of funds pursuant to the five Canadian regional aircraft industry Contributions
Agreement cited in Canada- Aircraft .
15. As shown in the amendments to the Contribution Agreements contained in Canada’s
Exhibit 1, the Government of Canada and the private party to each of the Contribution Agreements
entered into irrevocable amendments providing that:
“Notwithstanding any other provisions of this Agreement, the Minister shall not, on
or after 18 November 1999, disburse any part of the contribution provided for in the
Contribution Agreement, whether or no t the Claim on which such disbursement
would otherwise be made, was submitted before or after 18 November 1999.”
16. As a result of these cancellations, more than $16.4 million of funding has been cancelled.
                                                     
7 Panel Report at paras. 9.336-9.337; Appellate Body Report at para. 173 (stating that “[t]he second
sentence of footnote 4 precludes a panel from making a finding of de facto  export contingency for the sole
reason that the subsidy is ‘granted to enterprises which export’.  In our view, merely knowing that a recipient’s
sales are export-oriented does not demonstrate, without mo re, that the granting of a subsidy is tied to actual or
anticipated exports.”)
8 Appellate Body Report at para. 171 (emphasis in original; footnote omitted).WT/DS70/RW
Page 107
(b) Canada has Withdrawn Approvals-in-Principle
17. In 1998 TPC had approved-in-principle two projects in the regional aircraft sector, for which
no Contribution Agreements had yet been concluded.  As documented by letters in Canada Exhibit 2,
on 5 November 1999, Industry Canada informed the applicants that it would not proceed with
contracts for the projects in question, and the app licants acknowledged that the Minister of Industry
has no obligations vis-à-vis  the applicants pursuant to the prior approvals-in-principle.  Consequently,
as of 18 November 1999, TPC had no obligation what soever to disburse funds to the Canadian
regional aircraft industry.
(c) Canada has Closed all TPC Files in the Regional Aircraft Sector18. As described below, the Government of Canada undertook a thorough restructuring of the
TPC programme.  The restructuring applied not only to the regional aircraft sector, but to the
programme as a whole.  To bring all TPC activities under the restructured programme, all files
relating to outstanding applications for financial assistance submitted prior to the restructuring were
closed as of 18 November 1999. Letters so advising the applicants are contained in Canada Exhibit 3.
In order to pursue funding under TPC, applicants must now submit applications under the new
programme in accordance with the new Terms and Condition
9  and the new Investment Application
Guide.10
2. Canada has Restructured the TPC Programme
19. Following the Panel and Appellate Body rulings, Industry Canada undertook fundamental
amendments to the structure and administration of TPC to ensure that TPC assistance is notcontingent in law or in fact upon export performa nce.  Indeed, export performance is not even a
consideration in TPC activities.
20. The new restructured TPC came into effect on 18 November 1999.  The specific elements of
the TPC restructuring are set forth in a series of documents that are described below and appended asExhibits.  The most important of these are the TPC Terms and Condition
11, the Special Operating
Agency Framework Document (SOA Framework)12 the Investment Application Guide13  and the
Investment Decision Document (IDD).14    These documents set out and reflect the key aspects of the
programme, including its mandate, objectives and guiding principles, as well as eligibility and
application and requirements and the required format for bringing recommendations forward forapproval.
21. Canada has taken all the steps it can to address the factual elements considered relevant by
the Panel and Appellate Body in determining that contributions to the Canadian regional aircraft
industry under the previous version of the TPC programme were de facto  export contingent.   The
following analysis uses the categories employed by the Appellate Body.
                                                     
9 Exhibit Can -  4.
10 Exhibit Can -  5.
11 Supra , note 9.
12 Exhibit Can – 6.
13 Supra note 10.
14 Exhibit Can – 7.WT/DS70/RW
Page 108
(a) TPC statements of it’s overall objectives: The restructured TPC’s objectives focus on
innovation and not export promotion
22. The restructured TPC’s objectives, put simply , are to promote technol ogical innovation and
enhance the technological capability of Canadian industry. The mandate and overall programme
objective of the restructured TPC are set out in the Terms and Conditions and the SOA Framework as
follows:
“In a context in which innovation is essential in an increasingly knowledge-based
economy, TPC is a technology investment fund established to contribute to the
achievement of Canada’s objectives of increasing economic growth, creating jobs
and wealth, and supporting sustainable development.  TPC will advance and support
government initiatives by investing strategically in research, development and
innovation in order to encourage private sector investment, and so maintain and growthe technology base and technological capabilities of Canadian industry.  TPC will
also encourage the development of SMEs in all regions of Canada.
15  
23. As set out in the SOA Framework, specific programme objectives indicate that contributions
under TPC will be administered in a way that will contribute to:
• “increasing economic growth, jobs and wealth;
• supporting sustainable development;
• maintaining and building the industrial technology and skill base essential to a knowledge-based
economy;
• encouraging the development of SMEs in all regions of Canada;
• encouraging private sector investment;
• managing the contributions so that all repayments are recycled into TPC, allowing potential for
future growth;
• managing the sharing ratios on TPC contributions, with a target of an average TPC sharing ratio
of no more than 33 per cent (with typical project sharing ratios between 25 per cent and 30 per
cent); and
• taking an investment approach through sharing in rewards as well as risks.16
24. Consistent with these objectives, the Terms and Conditions stipulate that Aerospace and
Defence component:
“…encourages and supports the development and application of those technologies
essential for the development of these sectors.  It involves projects that sustain andexpand the technological capacity and capability of these sectors.  Support is also
available for defence conversion projects aimed at reducing the dependency of
enterprises on military contracts.
17   
                                                     
15 Supra  note 12 at section 2.1 and Supra  note 9 at section 2.
16 Supra  note 12 at para. 2.2.
17 Supra note 9 at section 3.1.WT/DS70/RW
Page 109
25. In short, the restructured TPC’s mandate and objectives clearly do not encompass the
enhancement of exports or Canada’s export base.
(b) The types of information called for in applications for TPC funding: Information on exports
is not called for or accepted under the restructured TPC
26. The  restructured TPC’s application procedure has been reformed consistent with the new
objectives of the programme.  As such applicants must provide information on the proposed research
and development initiative and its strategic benefit to Canada.18 The Investment Application Guide
does not require the applicant to submit information regarding actual or anticipated exportation and
explicitly states that: “ TPC will not accept or consider information concerning the extent to which
your company does or may export ”.19
(c) The considerations, or eligibility criteria, employed by TPC in deciding whether to grant
assistance: Eligibility criteria under the restructured TPC do not encompass export
considerations
27. All investment proposals submitted for consideration will be evaluated against the revised
assessment criteria as set out in the restructured programme’s Terms and Conditions. Project
assessment concentrates on the contribution that a project makes to improving the technological
capability of a firm, rather than on the commercial viability and export potential of a specific product.
28. Applications for contributions are assessed in the context of the relevance of the project to
the objectives of TPC and whether they fall within one of the eligible activities set out in section 3.3
of the Terms and Conditions.  Specifically, proposals are assessed in terms of the extent to which
they demonstrate:
“a. that the that project contributes to the strategic objectives of the government,
including technological and net economic benefits to Canada;
b. that the project is technologically feasible, and the applicant possesses, or can
reasonably be expected to secure, the requisite technological and managerial
capabilities, and financial resources, to achieve the stated objectives of the project;
c. that a contribution under TPC is necessary to ensure that the project (either
individually or as part of a portfolio of related activities of the applicant) proceedswith the desired scope, timing or location; and
d. that the contribution can be repaid.
20
29. In granting assistance in the aerospace and defence sector under TPC, as previously
constituted , consideration was given to whether a project maintained and built “upon the
                                                                                                                                                                   
18 Supra , note 10 at section 7.  Applicants to the programme have been advised that the Minister of
Industry reserves the right to release commercially conf idential information, provided in the course of applying
for assistance, for the purposes of the conduct of an international or internal trade dispute, in which Canada is aparty or a third party intervenor (Investment Application Guide at page 7). Clauses similar to those used in thefive contribution agreement amendments (See Exhibit Can – 1) will also now form part of all futurecontribution agreements. This permits Canada to releas e commercially confidential information contained in
these agreements.
19 Ibid.
20 Supra note 9 at section 4.WT/DS70/RW
Page 110
technological capabilities and production, employment and export base.21 . The focus under TPC is
now squarely on the “development and application of technology” and the expansion of “technology
capacity and capability”.  Indeed, under the restructured TPC, export performance is explicitly not a
consideration.  Section 6.1 of the Terms and Conditions mandate that:
“TPC will be administered in accordance with Canada’s international agreements,
and in particular, the granting of contributions will not be contingent, either in law or
in fact, upon actual or anticipated export performance.”
30. TPC has also taken a number of steps to enhance it's transparency and will publicly announce
all TPC investments identifying who the recipient is, the amount of funding provided, and the
government’s rationale for granting the assistance.
(d) The Factors to be identified by TPC officials in making recommendations about applications
for funding: Under the restructured TPC  administrators will not consider exports whenmaking funding recommendations
31. When making a funding recommendation under the restructured TPC, officials will base their
decision on the information compiled in the course of the due diligence process and summarised in
the Investment Decisions Document  (IDD).  This document, which is included as Canada Exhibit 7,
draws out all of the information on a project that is relevant for the purposes of assessing it in relation
to the mandate and objectives of TPC.  The IDD is submitted to TPC Management Board, theProgrammes and Services Board, the Deputy Minister of Industry Canada and the Minister of
Industry Canada, as required for approval.  The IDD contains all the necessary information to
authorise TPC to enter into Contribution Agreements (i.e. the contribution amount, sharing ratio, and
any special conditions).  Decision-makers are explicitly directed that “TPC will not accept or
consider information concerning the extent to which a company does or may export.
22
(e) The restructured TPC’s record of funding in the export field generally, and in the aerospace
and defence sector in particular
32. While the aerospace and defence component of TPC will continue to receive two-thirds of
the programme funds, it cannot be assumed that regional aircraft industry-related projects will receive
the majority of the funds.  In fact, no new regional aircraft-related projects have been approved or
contracted since 14 November 1997.
(f) The nearness-to-the-export-market of projects funded: The restructured TPC is considerably
less near-market
33. TPC has been restructured to enable it to be less near-market.  The programme's objectives
themselves now focus on the contribution a project makes to improving the technological capability
of the firm or sector, rather than on the commercial viability and export potential of supported
products.
34. The programme now includes Industrial Research as an eligible category; this permits the
restructured TPC to support earlier stage research and development that is further removed from the
production and sale of specific products.  The pre-competitive development category of eligible
activity enables TPC to support the development of horizontal technologies that cut across the
operations of recipient firms (e.g. measures to improve product quality, improve engineering
                                                     
21 See Exhibit Can 8 at para. 3.2.3.
22 See Exhibit Can 7 at part 4.WT/DS70/RW
Page 111
efficiency, develop generic technologies with multiple applications, etc.) rather than the development
of specific products.
(g) Significance of projected export sales to funding decisions under the restructured TPC: There
will be no recording of projected Export Sales.
35. As noted above, TPC will no longer accept or gather, much less consider, any information
whatsoever related to  actual or anticipated exports or export sales.  Accordingly, TPC Contribution
Agreements will not record projections of export sales by recipients as was previously the case.
C. AS CANADA HAS COMPLIED WITH THE RECOMMENDATIONS AND RULINGS OF
THE DSB, BRAZIL’S ALLEGATIONS ARE UNFOUNDED
36. Canada has terminated all obligations for the disbursement of funds relating to Canadian
regional aircraft industry under TPC as of 18 November 1999.  It has, in addition, restructured the
programme and its administration to de-link funding under TPC from any consideration of actual or
anticipated exports or export earnings.  Canada has, therefore, complied fully with the
recommendations and rulings of the DSB.
37. The restructuring of TPC has removed all elements that had formed the basis for the Panel
and Appellate Body finding of de facto  export contingency, with the exception of one, namely that
the Canadian regional aircraft industry has a high propensity to export its final products.23  T h i s
element is clearly beyond the purview of the TPC.  A company’s or an industry’s export orientation,
or lack thereof, is not within the control of the Government of Canada. Moreover, as the Appellate
Body has found, the SCM Agreement does not prohibit the granting of subsidies to firms or
industries that are export oriented, including in circumstances where the government is aware of thisexport orientation:
“The second sentence of footnote 4 precludes a panel from making a finding of de
facto export contingency for the sole reason that the subsidy is ‘granted to
enterprises which export ’.  In our view, merely knowing that a recipient’s sales are
export-oriented does not demonstrate, without more, that the granting of a subsidy is
tied to actual or anticipated exports…We agree with the Panel that…the export
orientation of a recipient may be taken into account as a relevant fact, provided that it
is one of several facts which are considered and it is not the only fact supporting the
finding . [emphasis added]”.
24
38. Despite the measures taken by Canada with respect to TPC, Brazil argues that nonetheless
these measures fail to comply with the rulings and recommendations of the DSB.   Brazil does not
attempt to demonstrate, as it must, that contributions under the restructured TPC will be de facto
export contingent by applying the three-part test established by the Appellate Body: that (1) there is
granting of assistance by Canada under the restructured TPC that is (2) tied to (3) actual or
anticipated exports. Rather, it makes the following three main arguments, none of which satisfies the
standard for establishing de facto export contingency established by the Appellate Body.
39. First, Brazil makes the point that Canada’s measures do not alter the status of TPC
contributions as subsidies under Article 1 of the SCM Agreement.  Canada’s future assistance under
TPC may or may not constitute subsidies.  However, that is not the issue in this case. The issue of
relevance to this proceeding is whether such assistance is contingent in fact upon export performance.
                                                     
23 The “export propensity” of the aerospace sector is a fact of the market.  The world aircraft industry
is one of the most globalized industries with few c ountries producing all the necessary technology domestically
and relying on economics of scale for profitability.   The Canadian aerospace sector is no different.
24 Appellate Body Report at para. 173.WT/DS70/RW
Page 112
Canada notes, in any event, that it has not made any contributions to the regional aircraft industry
since 18 November 1999.
40. Second, Brazil asserts that de facto  export contingency is still “inferred from the total
configuration of facts constituting and surrounding any TPC contributions to the Canadian regional
aircraft industry”.25  Brazil argues, therefore, that the withdrawal of the de facto  export subsidy by
Canada cannot be adequately achieved without a “complete and total abolition26  of the TPC
programme as it relates to the Canadian regional aircraft industry.
41. Canada has undertaken a complete restructuring of the TPC programme in order to meet the
concerns identified by the Panel and the Appell ate Body and to comply with the recommendations
and rulings of the DSB.  Canada is not under any  obligation to abolish the TPC programme. As was
duly recognised by the Panel in Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather:
“WTO Members cannot be prevented from replacing purported prohibited export
subsidies with other measures that are not prohibited, there by bringing themselves
into compliance with their multilateral obligations under the SCM Agreement.27  
42. Third, Brazil tries to infer export contingency from a combination of past statements by
Canadian government officials and industry groups endorsing exports; continued eligibility of
aerospace and defence companies for TPC assistance; and allegations that objectives such aseconomic growth and jobs should be regarded as legal surrogates for export performance.  This
proposition is, however, untenable.  By such logic, all subsidies are export subsidies and would be
prohibited.
43. As set out in Annex A to this submission, Br azil’s factual evidence suffers from a number of
errors and distortions.  Leaving these aside, however, virtually all of the evidence cited by Brazil
relates not to the restructured TPC, but to TPC as it was previously constituted.
28    Indeed, in many
cases Brazil uses the same quotations that it relied on in challenging TPC as it was previously
structured and administered without acknowledging that such information is dated and superseded by
the changes introduced by Canada.
44. The Appellate Body ruled that “Footnote 4 makes it clear that de facto  export contingency
must be demonstrated by the facts.29  [emphasis original] Absent such a demonstration it cannot be
assumed that assistance to the Canadian regional aircraft industry is de facto  export contingent under
the restructured TPC programme. In Chile – Taxes on Alcoholic Beverages30  the Appellate Body
held that where there has been a finding of non-compliance with WTO rules and a Member has
adopted a replacement measure, that Member cannot be assumed to have continued the previous
prohibited practice.  The Appellate Body found:
“The final factor that the Panel relied upon in reaching the conclusion under the issue
of ‘so as to afford protection’ was ‘the way this new measure fits in a logical
connection with existing and previous systems of de jure  discrimination against
imports.’  In our view, the Panel has relied on the fact that previous Chilean
measures, which are no longer applicable, involved some protection of domestic
alcoholic beverages to show that the new tax system will also be applied ‘ so as to
                                                     
25 First Written Submission by Brazil, Article 21.5 Panel at para. 5 - footnotes omitted
26 Ibid, at para. 6.
27 WT/DS126/R at para. 9.64.
28 See Annex A, paras. 4 and 5.
29 Appellate Body report, para. 169.
30 WT/DS/87/AB/R, WT/DS/110/AB/R, Report of the Appellate Body adopted on 13 December 1999.WT/DS70/RW
Page 113
afford protection’.  The Panel’s reliance on this factor is wrong. Members of the
WTO should not be assumed, in any way, to have continued previous protection or
discrimination through the adoption of a new measure.  This would come close to an
assumption of bad faith .31   [emphasis added, footnotes omitted]
45. The object of Canada's restructuring of TPC is to ensure that future TPC transactions with the
Canadian regional aircraft industry will not be de facto   contingent upon export performance.
Establishing de facto  export contingency requires a consideration of all the facts surrounding the
granting of assistance.  In the absence of any such financial contribution and a full consideration of
those facts, there can be no grounds to support Brazil's allegations of de facto  export contingency
under the restructured TPC programme.
46. Finally, Brazil notes that Canada has not provided revised versions of the documents
previously produced before the Panel in the original proceedings and certain other documents
referenced in the SOA Framework, and argues that  the Panel should draw a negative inference from
this fact.
47. The restructuring of TPC involves a complete re-engineering of all of TPC’s policies and
procedures and related documents.  While the Terms and Conditions have been modified, not all
supporting documents have been finalised.  Attached as Exhibit Can-9 is a list of TPC administrative
documents currently being revised with an indication of the status of the revision.  For the
convenience of the Panel and Brazil, the table provides a mapping from old documents to newdocuments. Canada notes, once again, that no new contributions to the Canadian regional aircraft
industry will be approved until the programme has been fully restructured.
48. Canada has provided the key restructuring documents, namely the new Terms and
Conditions, the SOA Framework and the Investment Application Guide and the IDD.  Copies of the
documents identified in the above–referenced list that have been finalised are included in Exhibit
Can-9. Moreover, Canada is prepared to provide additional documents, as they become available.
49. Attached, as Exhibit Can-10 is the Industry Sector – TPC Memorandum of Understanding, as
requested by Brazil.  This document sets out the respective roles and responsibilities of TPC andIndustry Sector Branches.
50. Attached, as Exhibit Can-11 is the Treasury Board Policy on Repayable Contributions, as
requested by Brazil.  This document is not specific to TPC, but rather sets out the Government of
Canada’s policy in this area with which TPC must abide as indicated in its Terms and Conditions.
32
51. Moreover, Canada is unable to provide many of the documents requested by Brazil becausethey will not exist until such time as the restructured programme approves and contracts new
investments. Specifically these documents incl ude: completed Case Assessment or Project Summary
Forms (now IDDs), completed Sector Branch Technical Assessments, Programme Forecasts and
Progress Reports (as specified in the Contribution Agreement and which allow TPC to monitor
progress).  Moreover, the TPC Advisory Board, the Interdepartmental Advisory Committee, and theTPC Management Board have not met since 18 November 1999. As such there are no minutes,
reports or records of decision available. While the Programmes and Services Board did meet on 8
December 1999, no minutes have yet been prepared.  Canada also notes that the Board did not
consider any project-specific items pertinent to the restructured programme at that meeting.
                                                     
31 Ibid at para. 74.
32 Exhibit Can – 4 at section 5.WT/DS70/RW
Page 114
52. In summary, Canada has terminated all obligations for the disbursement of funds to the
regional aircraft sector under TPC, as it was previously constituted.  This included cancelling funding
under existing Contribution Agreements, withdraw ing the approvals-in-principle that had been
granted for specific projects and closing all TP C files resulting to applications for financial
assistance. Canada has also made fundamental and pervasive changes to the nature and
administration of TPC that ensure that funding under the programme, if and when it occurs with
respect to the regional aircraft industry, will in no way be tied to or contingent upon any
consideration of actual or anticipated exports or export earnings.  Canada therefore has withdrawn the
subsidies found to be de fact o export contingent by the Panel and Appellate Body, and has complied
with its obligations under the SCM Agreement and with the recommendations and rulings of the
DSU.
III. CANADA A CCOUNT
A. FINDINGS OF THE PANEL AND THE APPELLATE BODY
53. In Canada – Aircraft  the Panel rejected Brazil’s claim the Canada Account programme as
such is inconsistent with the SC M Agreement.  The Panel also rejected Brazil’s argument that the
Canada Account programme mandates prohibited export subsidies.  It found that:
“Brazil has failed to demonstrate that the Canada Account programme as such
mandates subsidies that are contingent upon export performance.  Rather, the Canada
Account programme constitutes discretionary legislation.  In light of the distinctionthat GATT/WTO panels have consistently drawn between discretionary legislation
and mandatory legislation, we find that we may not make any findings on the Canada
Account programme per se. We therefore confine our analysis to Brazil’s claimsconcerning the actual application of the Canada Account programme .”  [emphasis
added.
33
54. The Panel found, however, that the application of the Canada Account debt financing in thetwo export transactions involving regional ai rcraft between 1 January 1995 and 30 June 1998 –
covering deliveries to South African Express and LIAT – constituted subsidies that were contingentin law upon export performance within the meaning of Article 3.1(a).  The Panel ruled that Brazil
made a prima facie  case that such debt financing was a subsidy contingent on export performance,
and that Canada had not rebutted that case “nor sought to rely on the safe haven provided for in item
(k) of the Illustrative List of Export Subsidies…. .
34  The Panel concluded, as a result, that the debt
financing in question constituted subsidies that were contingent in law upon export performance.
B. MEASURES TAKEN BY CANADA
1. No Outstanding Contracts
55. The Canada Account debt financing transactions with respect to South African Express and
LIAT that were examined by the Panel in Canada Aircraft  were completed in 1995 and 1998.  Since
18 November 1999, there have been no new financing transactions in the regional aircraft sector
under the Canada Account programme.
                                                     
33 Panel Report at para. 9.213.
34 Panel Report at para. 9.225.WT/DS70/RW
Page 115
2. Canada has Taken Measures in Respect of Future Export Financing Transactions
56. While the Panel expressly did not find that the Canada Account programme per se  was a
prohibited export subsidy, Canada has taken further action to assure that the discretionary authority ofthe Export Development Corporation (EDC) in re lation to financing under Canada Account will, in
the future, be applied in a way consistent with the SCM Agreement.  First, Canada has amended the
guidance under which the Canada Account opera tes to require conformity with the OECD
Arrangement on Guidelines for Officially Supported  Export Credits (the OECD Arrangement).  The
second paragraph of item (k) of the Illustrative List of export subsidies permits export creditfinancing that abides by the interest rate provis ions of the OECD Arrangement.  Second, recognising
the importance of verification of compliance, Canada is prepared to agree to procedures, discussed
below, that will enable the disputing parties to  verify that each is complying with the SCM
Agreement in the way it administers export-finance related governmental programmes.
(a) The Minister has Adopted a Guideline
57. Under subsection 23(1) of the Export Development Act
35 Canada’s Minister for International
Trade, with the concurrence of the Minister of Finance, may authorise EDC to enter into any
transaction or class of transactions which in the opinion of the Minister for International Trade is in
the national interest, including Canada Account financing transactions.  The Minister for
International Trade adopted the policy that, with respect to financing under Canada Account, only
those transactions that comply with the OECD Arra ngement will be considered to be in the national
interest.
“Policy Guideline - Canada Account
For the purposes of an authorisation under subsection 23(1) of the Export
Development Act of a financing transaction or class of transactions, it is the policy of
the Minister for International Trade to consid er that any such transactions or class of
transactions which does not comply with the OECD Arrangement on Guidelines for
Officially Supported Export Credits w ould not be in the national interest.”
58. This policy, which is included as Exhibit Can – 13, was adopted by the Minister on
15 November 1999 and communicated officially to the President and Chief Executive Officer of
EDC on 29 December 1999.   By this policy, the Minister informs EDC and the world that he will not
authorise any financing transaction under the Canada Account programme unless it complies with the
OECD Arrangement. Under Canadian law, no Canada Account transaction may proceed withoutMinisterial authorisation and the Minister may not approve transactions that he does not find to be in
the national interest. It should be noted that, while only regional aircraft financing was at issue in the
dispute, the Minister has chosen to require that all financing transactions under the Canada Account,
not only those in the regional aircraft sector, wi ll be in conformity with the OECD Arrangement
(b) Canada Proposes the Establishment of Verification Procedures
59. To facilitate a definitive resolution of this dispute, Canada is prepared to agree to the
establishment of verification procedures in respect of Canada's future arrangements to bring any
subsidies in respect of Canada Account financing transactions for regional aircraft into compliance
with the SCM Agreement, provided that such arrangem ents are also applicable to Brazil with respect
to its implementation of the rulings and recommendations in Brazil- Export Financing Programme
for Aircraft  (PROEX).
36
                                                     
35 R.S.,c.E-20 Exhibit Can-12.
36 WT/DS46/R and WT/DS46/AB/R adopted on 20 August 1999WT/DS70/RW
Page 116
60. Endorsement of this proposal for bilateral verification procedures would be consistent with
the objectives of the DSU, and could be suggested by the Panel pursuant to Article 19.1 of the DSU.
Canada also notes that in consultations with Brazil on 16 and 19 November 1999 concerningimplementation of the Panels’ recommendations and rulings in the two cases, Canada proposed that
the Parties establish procedures that would enable each government to verify the compliance of the
other with respect to specific future transactions under the pertinent measures to bring that Party into
consistency with the SCM.
C. AS CANADA HAS COMPLIED WITH THE RECOMMENDATIONS AND RULINGS OF
THE DSB, BRAZIL’S ALLEGATIONS ARE UNFOUNDED
62. The financing transactions found by the Panel to be subsidies contingent in law upon export
performance have been completed, i.e. all disbursements under the relevant loan agreements havebeen made.  No new financing transactions in the regional aircraft sector have been entered into since
18 November 1999. To ensure complete implementation of the rulings and recommendations of the
DSB and full compliance with the SCM Agreement, the Minister for International Trade has made a
commitment not to authorise any financing transaction under Canada Account unless it complies with
the OECD Arrangement.  Canada is also prepared to enter into an agreem ent with Brazil to enable
each to monitor compliance with the SCM Agreement in regard to financing of regional aircraft.
63. Article 3.1(a) prohibits subsidies contingent in law or in fact upon export performance.
Footnote 5 to that Article provides, in turn that “Measures referred to in Annex I as not constituting
export subsidies shall not be prohibited under this or any other provisions of this Agreement.”
64. One such exception can be found in the second paragraph of Item (k) of Annex I.  According
to the Appellate Body in PROEX:
“The second paragraph applies when a Member is ‘a party to an international
undertaking on official export credits’ which satisfies the conditions of the proviso,
or when a Member ‘applies the interest rate provisions of the relevant undertaking’.In such circumstances, an ‘export credit practice’ which is in conformity with the
provisions of  ‘an international undertaking on official export credits’ shall not be
considered an export subsidy prohibited by the SCM Agreement .  The OECD
Arrangement is an ‘international undertaking on official export credits’ that satisfies
the requirements of the proviso in the second paragraph in item (k).
37
65. An export credit practice that is in conformity with the interest rate provisions of the OECD
Arrangement on Guidelines for Officially Supported  Export Credits (OECD Arrangement) is not a
prohibited export subsidy under the SCM Agreement.
66. Pursuant to the Ministerial Guideline discussed above, all future Canada Account financing
transactions will abide by the OECD Arrangement. Therefore, to the extent that future financing
transactions under the Canada Account programme are subsidies within the meaning of Article 1.1and export subsidies within the meaning of Article 3.1, these transactions will benefit from the
exception in Item (k).
67. In its submission Brazil has suggested that Canada must establish its entitlement to use
Item (k) as an affirmative defence
38   Canada agrees that it is the Member claiming an exception that
must demonstrate its entitlement to that exception.  If, in the future, there is a financing transaction
                                                     
37 Appellate Body Report at para. 180.
38 Supra note 25 at para. 46.WT/DS70/RW
Page 117
under Canada Account in relation to which Canada claims the exception in Item (k) and the claim to
that exception is challenged, Canada will accordingly bear the burden of demonstrating compliance
of the transaction with the exception in Item (k), to the extent Canada relies thereon.
68. Brazil has also asserted that Canada has not indicated which of the provisions of the OECD
Arrangement it considers pertinent and in what way Canada intends to comply with them in respect
to any future Canada Account activities.  While that is true, Canada does not see why it would be
obligated to provide such a delineation as to it’s future course, other than indicating, as Canada has,
that it will meet the criteria to qualify for an exception under the second paragraph of Item (k). It isalso far from clear what the legal consequence would be of attempting in this proceeding to delineate
in the abstract, and before-the-fact, the various ways that Canada considers WTO members can act
within the exception in the second paragraph of Item (k).  As noted above, should Canada invoke the
exception, in any possible future challenge it would have the burden of demonstrating compliance
with second paragraph of Item (k) at that time. Canada also notes that the Canada-Brazil verificationprocedure that it has proposed would facilitate monitoring of compliance on a reciprocal basis.
69. In summary, the Canada Account financing tr ansactions that were found to be prohibited
export subsidies were completed prior to 18 November 1999.  Canada has therefore withdrawn the
subsidies found to be export contingent by the Panel and complied with the recommendations and
rulings of the DSB.  Canada has also taken steps to ensure that all future Canada Account financing
transactions will comply with the OECD Arrangement and benefit from the exception in Item (k).Finally, and perhaps most importantly, Canada suggests the development of a verification procedure
under which Canada and Brazil would exchange relevant information regarding specific financing
transactions in the regional aircraft sector so as to enable verification of their respective compliance
with the SCM Agreement.
IV. REQUESTED FINDING
70. Canada requests that the Panel reject Brazil’s claim.WT/DS70/RW
Page 118
Annex A
Factual Errors and Misrepresentations
Contained within the Submission by Brazil
1. On three occasions, Brazil asserts that funding for Technology Partnerships Canada (TPC) is
rapidly increasing (e.g. 396 per cent).  (Para. 13, 21, 23, citation: footnote 14 - TPC Annual Report,
1998-99, pg. 28 (row titled "Total funds available for new contributions in future years," comparing
1999-2000 figure with 2002-2003 figure)(Exhibit Bra-6).
This is a distortion of the actual programme funding situation. This schedule actually shows that TPC
funding has been increased by 20 per cent.  This increase in total programme funding (from $250
million to $300 million) was announced as part of the Government of Canada's February 1999
Budget Speech and as such pre-dates the  Canada- Measures  Report.
2. Brazil asserts (Para 20) that the Government of Canada admits that the export orientation of
the regional aircraft industry "… drives the government’s commitment to fund that industry…".
Brazil adduces no evidence to support this allegation.  This is not the policy of the Government of
Canada.
3. Brazil asserts (Para 21) that TPC is "captive" to the regional aircraft sector.  In its use of
statistics Brazil is not comparing like figures, but rather mixes apples and oranges.
As of 30 November 1999, TPC had approved $972 million of contributions of which 65 per cent of
total funding was for the Aerospace & Defence component of the programme.  However, only 27 per
cent or $265 million of these contributions were provided in support of regional aircraft industryprojects. Furthermore, no new regional aircraft projects have been approved or contracted since
14 November 1997.
During the 1998/99 fiscal year, 76 per cent of di sbursements (i.e. $152 million of a total of $202
million) were from the Aerospace & Defence component of the programme while $88.9 million (or
44 per cent of total disbursements) were paid to the sponsors of regional aircraft industry-relatedprojects.
4. The Brazilian submission relies on extensive reference to documents and material from the
period prior to the restructuring of TPC, many of which were previously submitted in the Canada -
Measures  case.  These documents do not provide an accurate representation of the restructured
programme.
Footnote(s) Citation
21  TPC Annual Report, 1996-97, pg.5 (Exhibit Bra-8).22 and 63 Industry Canada News Releas e, 10 January 1997 (Exhibit Bra-9).
23 Industry Canada News Release, 17 December 1996 (Exhibit Bra-10).
5. The Brazilian submission also introduces other evidence, not previously submitted in the
Canada - Measures  case.  Again this information is from the period prior to the restructuring of TPC.
Moreover, much of this information is either of a general nature or from non-governmental sources.
As noted above, these documents do not provide an accurate representation of the restructured
programme.WT/DS70/RW
Page 119
Footnote(s) Citation/Comments
12 TPC Annual Report, 1998-99, pg.20 (Exhibit Bra-6).
13 Id. at pg. 21.
14 TPC Annual Report, 1998-99, pg.28 (row titled “Total funds available for
new contributions in future years,” comparing 1999-2000 figure with 2002-
2003 figure) (Exhibit Bra-6).
34 TPC Annual Report, 1998-99, pg.27 (Exhibit Bra-6).
35 Id. at pg. 28 (row titled “Total funds available for new contributions in future
years, ” comparing 1999-2000 figure with 2002-2003 figure).
24 AThink Canada, Think Bottom Line, Think Aerospace Industry, Think
Investment,” October 1999, pgs. 3,33 (Exhibit Bra-11).
25 Id. at pg.20
This general overview of the Canadian aerospace industry was published in
October 1999, however most of the data used is from 1997.
26 Industry Canada, AResults of the 1998 /99 Survey of the Canadian Aerospace
and Defence Industry,” 29 November 1999 (Exhibit Bra-12).  
This survey was published on 29 November, 1999, using 1998/99 survey
data.
27 A Canadian Aerospace Suppliers Base Strategy for Change,” 25 June 1999,
pgs. 1, 16-17 (relevant excerpt included at Exhibit Bra-13).
28 Id. at pg.17.
This was an independent assessment done by Price Waterhouse Coopers and
commissioned by the Aerospace Industries Association of Canada, published
on 25 June 1999, and does not represent the views of the Government of
Canada.  (Only 1 of 12 members of the study's Steering Committee was from
Industry Canada.  TPC representatives were not interviewed.)
29 Aerospace Industries Association of Canada, Annual Report, 1999, pg.4
Exhibit Bra-14).
30 Id. at pg.13.
31 Id. at pg.12.
This report was published 20 September 1999 and is not a government
publication.
33, 43 TPC Current Statistics, 6 December 1999 (Exhibit Bra-17).
Although published after the 18 November 1999 implementation deadline,
all data relates to projects undertaken prior to the  restructuring of TPC.WT/DS70/RW
Page 120
58 Industry Canada, CIBS Overview, “Executive Summary,” pg.2 (Exhibit Bra-
23).
59 Id. at pg.1.
60 Industry Canada, CIBS Strategic Overview, “International Business
Development Priorities,” pg. 1 (Exhibit Bra-24).
These documents published 7 March 1997, provide general sectoral
information unrelated to TPC.
61 Industry Canada, CIBS Geographi c Overview, pg.1 (Exhibit Bra-25).
This document, published 30 March, 1997, provides general sectoral
information unrelated to TPC.
62 Industry Canada, CIBS - Aerospace and Defence, pg. 1 (Exhibit Bra-26).
This document published 10 March 1999, provides general sectoral
information unrelated to TPC.
64 Conference Board of Canada, Performance and Potential 1999, “Working
Smarter, Not Harder,” pg. 107. (Exhibit Bra-27).
This report, published in October 1999, provides an independent assessment
of Canada's economy.  It is not a government publication and does not
represent the views of the Government of Canada.WT/DS70/RW
Page 121
LIST OF EXHIBITS
Exhibit Can-1 Amendments to TPC Contribution Agreements terminating disbursement of
funds
Exhibit Can-2 Letters withdrawing approvals-in-principle under TPCExhibit Can-3 Letters closing all files relating to outstanding applications under TPCExhibit Can-4 Revised TPC terms and conditionsExhibit Can-5 TPC investment application guide
Exhibit Can-6 TPC special operating agency framework document
Exhibit Can-7 Investment decisions documentExhibit Can-8 Original TPC terms and conditionsExhibit Can-9 List of TPC administrative documents being revised as at 7 January 2000Exhibit Can-10 Industry Sector-TPC memorandum of understandingExhibit Can-11 Treasury Board policy on repayable contributions
Exhibit Can-12 Export Development Act – R.S., c. E-20
Exhibit Can-13 Policy Guideline – Canada AccountWT/DS70/RW
Page 122
ANNEX 2-2
REBUTTAL SUBMISSION OF CANADA
(17 January 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION............................................................................................................ 123
II. CANADA HAS FULLY COMPLIED WITH THE RECOMMENDATIONS AND
RULINGS OF THE DSB ................................................................................................. 123
A. T ECHNOLOGY PARTNERSHIPS CANADA ................................................................ 123
B. C ANADA ACCOUNT ................................................................................................ 124
III. BRAZIL’S ALLEGATIO NS ARE UNF OUNDED....................................................... 124
A. T ECHNOLOGY PARTNERSHIPS CANADA ................................................................ 124
B. C ANADA ACCOUNT ................................................................................................ 125
IV. REQUESTED  FINDING................................................................................................. 126WT/DS70/RW
Page 123
I. INTRODUCTION
1. In Canada – Measures Affecting the Export of Civilian Aircraft (Canada – Aircraft )1 the
Panel and the Appellate Body found that contribut ions under Technology Partnerships Canada (TPC)
to the Canadian regional aircraft industry were de facto  contingent on export performance and thus
such contributions were prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of
the Agreement on Subsidies and Countervailing Duties  (SCM Agreement). The Panel also concluded
that Canada Account debt financing as applied to certain regional aircraft exports constitutedsubsidies, which were de jure  contingent on exports, and thus inconsistent with Articles 3.1(a) and
3.2 of the SCM Agreement.  Canada did not appeal this finding.
2. On 20 August 1999, the Dispute Settlement B ody (DSB) adopted the Reports of the Panel
and the Appellate Body.  It recommended that Canada bring assistance to the regional aircraftindustry under TPC and Canada Account into conf ormity with its obligations under the SCM
Agreement within 90 days, that is by 18 November 1999.
3. In response, Canada has put in place new measures to ensure full and faithful implementation
of the DSB rulings and recommendations and compliance with the SCM Agreement.  Brazil
nonetheless challenges Canada’s implementation measures pursuant to Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and argues thatCanada’ s measures are insufficient to constitute effective implementation of the recommendations
and rulings of the DSB.
4. In Canada’s first written submission in these 21.5 proceeding
2, Canada established that it has
fully implemented the DSB recommendations and rulings and that thus Brazil ’s allegations areunfounded.   The purpose of this second submission is not to put forward any additional information
or arguments but to provide a summarised version of Canada’s position.
II. CANADA HAS FULLY COMPLIED WITH THE RECOMMENDATIONS AND
RULINGS OF THE DSB
A. TECHNOLOGY PARTNERSHIPS CANADA
5. As of 18 November 1999, Canada has terminated all obligations for the disbursements of
funds pursuant to the five Canadian regional aircraft Contribution Agreements cited in Canada-
Aircraft , and has withdrawn the approvals-in-principle that were issued under TPC for two other
regional aircraft projects.
3
6. In addition, taking full account of the factual elements which led the Panel and the Appellate
Body to reach the finding of de facto  export contingency, Canada has restructured the TPC
programme and its administration to ensure that actual or anticipated exports or export earnings play
no role in the goals, the application process, or decision-making under TPC.  The key aspects of therestructured TPC are set out in the TPC Terms and Condition
4, the Special Operating Agency
Framework Document5 the Investment Application Guide6 and the Investment Decision Document7
Various secondary administrative documents are currently being finalised.8
                                                     
1 WT/DS70/R and WT/DS70/AB/R, Reports of the Panel and the Appellate Body adopted on
2 August 1999.
2  Submitted on 10 January 2000.
3  Exhibits Can - 1 and Can - 2.
4  Exhibit Can - 4.
5  Exhibit Can - 6.
6  Exhibit Can - 5.WT/DS70/RW
Page 124
7. Files relating to outstanding applications for financial assistance submitted prior to the
restructuring were closed as of 18 November 1999.  In order to pursue funding under TPC, applicants
must submit applications in accordance with the new Terms and Conditions and InvestmentApplication Guide.  No transactions in relation to the Canadian regional aircraft industry will be
approved until such time as the restructuring of the programme (including the finalisation of all
secondary documentation) has been fully completed.
8. These measures fully and faithfully implement the DSB rulings and recommendations in
Canada-Aircraft  and are in compliance with the provisions of the SCM Agreement.
B. CANADA ACCOUNT9. The Canada Account debt financing transactions that were examined by the Panel in Canada-
Aircraft  were completed in 1995 and 1998 and there have been no new financing transactions in the
regional aircraft sector under the Canada Account programme since 18 November 1999.
10. Canada has taken further action to ensure that financing under the Canada Account will, in
the future, be consistent with the SCM Agreement.  First, Canada has confirmed in a Ministerial
Guideline that all Canada Account financing transa ctions must comply with the OECD Arrangement
on Guidelines for Officially Supported Export Credits (the OECD Arrangement). Second,recognising the importance of verification of compliance, Canada is prepared to agree to procedures
that will enable the disputing parties to verify th at each is complying with the SCM Agreement in the
way it administers export-finance related governmental programmes.
11. These measures fully and faithfully implement the DSB rulings and recommendations in
Canada-Aircraft  and are in compliance with the provisions of the SCM Agreement.
III. BRAZIL’S ALLEGATIONS ARE UNFOUNDED
A. TECHNOLOGY PARTNERSHIPS CANADA
12. Despite the measures taken by Canada with respect to TPC, Brazil argues that these measures
fail to comply with the rulings and recommendations of the DSB.
13. Brazil does not attempt to demonstrate, as it must, that contributions under the restructured
TPC will be de facto  export contingent by applying the three-part test established by the Appellate
Body.  This test requires the proof of three substantive elements:
(1) the granting of a subsidy by Canada under the restructured TPC;(2) that is tied to;
(3) actual or anticipated exports.
9
14. Rather than applying the three-part test set out by the Appellate Body, Brazil attempts to
infer export contingency from evidence that suffers from a number of errors and distortions and
                                                                                                                                                                   
7  Exhibit Can - 7.
8  See Exhibit Can - 9 for a list of all the administrative documents currently being revised, with an
indication of the status of the revision. Where not provided under another Exhibit to Canada’s first
21.5 submission, copies of finalised documents are included in Exhibit Can – 9.
9  Appellate Body Report at para. 169.WT/DS70/RW
Page 125
relates, almost entirely, to TPC as previously constituted. 10  The Appellate Body has clearly ruled
that de facto  export contingency must be demonstrated  by the facts.11  Brazil has failed to
demonstrate, on the facts, that TPC as currently constituted will result in transactions that are de facto
export contingent.
15. As fully set out in Canada’s first submission in these 21.5 proceedings, and as noted above,
Canada has terminated all obligations for the disbursement of funds to the regional aircraft sector
under TPC, as it was previously constituted.  No new transactions have been approved under the
restructured TPC and therefore no new financial contributions have occurred. Canada has also madefundamental and pervasive changes to the nature and administration of TPC that ensure that funding
under the programme, if and when it occurs with respect to the regional aircraft industry, will in no
way be tied to or contingent upon any consideration of actual or anticipated exports or export
earnings
16. By these actions, Canada has withdrawn the subsidies found by the Panel and Appellate
Body to be de facto  export contingent and thus has complied with the recommendations and rulings
of the DSB and with its obligations under the SCM Agreement.  Brazil’s allegations are therefore
unfounded.
B. CANADA ACCOUNT
17. Despite the measures taken by Canada with respect to Canada Account, Brazil argues that
these measures fail to comply with the rulings and recommendations of the DSB.
18. The financing transactions found by the Panel to be subsidies contingent in law upon export
performance have been completed, i.e. all disbursements under the relevant loan agreements havebeen made.  Furthermore, no new financing transactions in the regional aircraft sector have been
entered into since 18 November 1999.
19. To ensure complete implementation of the rulings and recommendations of the DSB and full
compliance with the SCM Agreement, the Minister for International Trade has made a commitmentnot to authorise any financing transaction under Canada Account unless it complies with the OECD
Arrangement.  Pursuant to the second paragraph in  Item (k) of Annex I to the SCM Agreement, an
export credit practice that is in conformity with the interest rate provisions of the OECD Arrangement
is not a prohibited export subsidy under the SCM Agreement.  Therefore, to the extent that future
financing transactions under the Canada Account programme are subsidies within the meaning ofArticle 1.1 and export subsidies within the meaning of Article 3.1, these transactions will benefit
from the exception in Item (k).
20. Brazil has suggested that Canada must establish its entitlement to use Item (k) as an
affirmative defence.  Canada agrees that should Canada claim the exception under Item (k) in relation
to any future financing transaction under Canada Account, and if the claim to that exception is
challenged, Canada will accordingly bear the burden of demonstrating compliance with Item (k) atthat time.
21. Recognising that it is in the interest of  both Canada and Brazil to avoid such future
challenges and in an attempt to reach a definitive solution to this dispute, Canada suggests that the
Parties develop a verification procedure.  Under this procedure the two governments would exchange
                                                     
10 Annex A to Canada’s first Article 21.5 submission sets out these errors and distortions and the dated
nature of the Brazilian evidence.
11 Supra , note 8.WT/DS70/RW
Page 126
relevant information regarding specific financing transactions in the regional aircraft sector so as to
enable verification of their respective compliance with the SCM Agreement.
Canada has withdrawn the subsidies found by the Panel to be de jure  contingent on exports and has
thus complied with the recommendations and rulings of the DSB and with its obligations under theSCM Agreement. Brazil’s allegations are therefore unfounded.
IV. REQUESTED FINDING
23. Canada requests that the Panel reject Brazil’s claim and find that Canada’s measures fully
implement the rulings and recommendations of the DSB.WT/DS70/RW
Page 127
ANNEX 2-3
ORAL STATEMENT OF CANADA
(6 February 2000)
I. INTRODUCTION
Thank you, Mr. Chairman,
Mr. Chairman, distinguished members of the Panel, distinguished members of the delegation
of Brazil, on behalf of Canada, let me first express our sincere appreciation to the Panel for agreeing
to serve once more in this dispute, which we know has already been demanding of your time and
attention.  We will try to cooperate in every way possible to facilitate your task.
1. Mr. Chairman, in this proceeding under Article 21.5 of the DSU, Brazil has claimed that
Canada has not complied with the rulings and recommendations of the DSB regarding Canada’s TPC
and EDC programmes.  As the Panel knows well, it found that TPC contributions to the Canadian
regional aircraft industry were subsidies contingent in fact upon export performance under the then
applicable criteria and circumstances, and that two EDC Canada Account transactions were subsidies
contingent in law upon export performance. The DSB recommended that Canada withdraw the
subsidies within 90 days.
2. Canada has done so. Specifically, in response to those findings and recommendations, as of
18 November 1999, the date fixed for compliance, Canada has taken two types of actions.
3. First, Canada has terminated all subsidies and all obligations to provide subsidies to the
Canadian regional aircraft industry that were outstanding under TPC as of the compliance date.  The
two Canada Account debt financing transactions addressed by the Panel have been completed and
there have been no new Canadian regional aircraft financing transactions under Canada Account.
Brazil does not dispute this.
4. Second, in response to the rulings and recommendations of the DSB, Canada has modified
the rules and ministerial guidance under which these programmes operate so that any future
assistance that Canada may provide to the regional aircraft industry under the TPC and the EDC
Canada Account programmes will not conflict with the requirements of Article 3.1 (a) of the SCM
Agreement.
5. In the case of TPC, Canada terminated all obligations to disperse funds related to the
Canadian regional aircraft industry under the previous programme.  Canada then completely
restructured TPC to remove any consideration of export performance in the granting of assistance.
6. In the case of the EDC Canada Account Programme, Canada has taken a policy decision that
future Canada Account financing of regional aircraft will be carried out in accordance with the
OECD Arrangement.  Thus, to the extent that fu ture financing transactions under Canada Account
may be prohibited export subsides, they will benefit from the exception in the second paragraph of
item (k) of the Illustrative List of Export Subsidies.
7. Thus, Canada has not only withdrawn the subsidies that were found to be prohibited, but has
revised its programmes to be fully consistent with Canada’s obligations under the SCM Agreement.WT/DS70/RW
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8. Furthermore, in response to the criticism directed at Canada by this Panel and the Appellate
Body for failing to produce certain commercially c onfidential information in the earlier proceedings,
Canada is revising the form of the confidentiality provisions contained in TPC contribution
agreements and in EDC transactions, so as to facilitate, if requested, the disclosure of suchinformation in the context of WTO dispute settlement proceedings.  Finally, to facilitate a definitive
resolution of this dispute Canada has proposed to Brazil the development of a bilateral compliance
verification procedure.
9. In the face of Canada’s actions, Brazil has not been able to base its claims in this proceeding
on any currently pertinent evidence that even remotely suggests non-compliance– for there is none.
Instead, Brazil bases its claims on (i) innuendo, (i i) a presumption of bad faith and (iii) a wholly
unfounded legal theory that Canada, rather than Brazil, has the burden of proof in this case.
10. Ensuring compliance with the export subsidy rules is the goal of Canada’s actions, and it is
the effect that would be expected on the basis of the changes Canada has made.  According to Brazil,
Canada’s burden is to prove that the restructured programmes could never possibly be applied so as
to grant export contingent subsidies.  But ther e is no basis in the DSU or the SCM Agreement, or
international law for imputing to Canada an obliga tion to prove that discretionary laws could not
possibly be used to grant export subsidies.  Brazil presumably advances this novel theory because
only by imposing that essentially impossible burden on the defending party could Brazil prevail in a
complaint where neither the law nor the facts support Brazil’s claim.
11. The remainder of Canada’s opening statement is divided into two parts: My colleague, Ms.
Kirsten Hillman, will first address the TPC programme, and I will then address the Canada Account.
In each case, Mr. Chairman, we will briefly summarise the compliance measures that Canada has
taken both to withdraw the subsidies found to be ille gal and to prevent future illegal export subsidies.
We will also respond to the various claims made by Brazil.  With your permission, Sirs, I will now
ask Ms. Hillman to address the Panel.
II. TPC COMPLIANCE
12. Thank you Mr. Chairman.  It is an honour to have the opportunity to appear before this Panel
to discuss Canada’s implementation with respect to TPC.  As you know, this Panel did not find that
TPC was per se an export subsidy.  Rather the Panel found that TPC assistance as applied to the
Canadian regional aircraft industry was contingent in fact on export performance.
13. Canada has implemented the rulings and recommendations of the DSB as follows:
14. First, effective 18 November 1999 Canada terminated all obligations for the disbursement of
funds to the Canadian regional aircraft industry under TPC. As a result more than $16.4 million in
funding to the sector has been cancelled.
15. Second, the Government of Canada withdrew tw o approvals in principle that had been issued
under the old TPC programme to projects relating to the Canadian regional aircraft industry.
16. Third, the Government of Canada closed all application files under TPC as it was previously
constituted.  These three actions together mean that Canada has no obligations to disburse funds to
the Canadian regional aircraft industry under the former TPC.  In addition, under the restructuredTPC no new investments have been approved and none will be approved until such time as all the
necessary administrative documentation related to the restructured TPC has been finalized.
17. And the fourth implementation measure that the Government has taken to amend the very
structure and administration of TPC in so as to address the factual elements that led the Panel andWT/DS70/RW
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Appellate Body to find that contributions to the Canadian regional aircraft industry were de facto
contingent upon export.
Restructuring of the TPC Programme
18. As of 18 November 1999, TPC, as it was previously constituted, no longer exists. The former
TPC has been abolished and a new programme has been created with a new mandate from Cabinet.
Under this new mandate exports or export performance will have absolutely no relevance to
assistance to the Canadian regional aircraft industry – or to any other industry.
19. In undertaking the task of restructuring TPC, Canada was guided by the analysis and findings
of the Panel and the Appellate Body.  The Appellate Body concluded that there are three elements to
a subsidy that is contingent in fact upon export performance.  There must be (1) the granting of a
subsidy (2) that is tied to (3) actual or anticipated exports.  In reforming TPC, Canada focused on thesecond element of this three part test, and sought to eliminate those aspects of the TPC programme
that led the Panel to conclude (and the Appellate Body to confirm) that the subsidies were “tied to”
anticipated exports.
20. As to the first element – whether there is a subsidy – as Canada has noted, no new
transactions have been approved under the restructured TPC.  Future TPC assistance may or may not
constitute subsidies under Article 1 of the SCM Agreement.
21. The third element of the Appellate Body test is “anticipated exports”.  Here we would note,
Mr. Chairman, that the Canadian regional aircraft industry, like virtually every aircraft industry in the
world, can be “anticipated” to export.  Brazil suggests that the Government of Canada should take
steps to alter the export orientation of the Canadian regional aircraft industry1 and should even
attempt to change the nature of the Canadian economy as a whole. Clearly an industry’s export
orientation, or lack thereof, is not within the control of the Government.  In fact, the Brazilian,
American and European regional aircraft industries, even though they exist in much larger domestic
markets than that of Canada, are all also substa ntially export dependent. Furthermore, the SCM
Agreement is very clear that subsidies to industries that export are not forbidden as such.  The mere
awareness or even anticipation of such exports does not preclude subsidization to such an industry.As the Appellate Body has clearly stated, and I quote “It does not suffice to demonstrate solely that a
government granting a subsidy anticipated that exports would result”.
22. According to the Appellate B ody, a subsidy to an export oriented industry only becomes a
prohibited subsidy when, the facts demonstrate that the granting of a subsidy is tied to or conditionalon actual or anticipated exports. This is the second element of the Appellate Body’s test, to which I
will now turn.
23. In this case, the facts surrounding the administration of TPC led the Panel and the Appellate
Body to conclude that TPC assistance was tied to or conditional upon anticipated exports.  Inresponse to this finding, Canada addressed the elements that the Panel and the Appellate Body
determined were indicative of export contingency.  We have reformed TPC so export performance is
not even a consideration  when funding is granted under TPC - let alone a condition  for the granting
of assistance.
24. The modifications made to the TPC programme in order to implement the rulings and
recommendations of the DSB are fully set out in Canada’s first submission and I will not reiteratethem in detail here today.  I would simply like briefly mention a few of the major changes, these
include:
                                                     
1 See para. 47 of Brazil’s second Submission.WT/DS70/RW
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• First, the objectives of the restructured TPC focus on the promoting innovation and on improving
the technological capability of Canadian industry;
• Second, information on exports will not be accepted from applicants under the restructured TPC;
and
• Third, administrators will not in any way consider exports when making funding
recommendations.
25. In addition, confidentiality clauses will be included in all future contribution agreements so
as to permit the Government to release the pertinent information contained in these agreements in thecontext of WTO dispute settlement proceedings.
26. In summary, Mr. Chairman, the “total configur ation of the facts” demonstrates that funding
under the restructured TPC is not contingent in any sense on export performance.  The European
Communities are clearly of the same view and have stated in their third party submission that, and Iquote: “The EC considers that Canada’s actions with regard to TPC do prima facie  amount to
implementation of the Appellate Body’s findings…there does not seem to be any basis on which
continued de facto  export contingency or some other violation of the SCM Agreement can be
established.”
27. Let me now turn to the arguments raised by Brazil.
Brazil's Arguments
28. As I have just set out, Canada has terminated all obligations to disburse funds to the
Canadian regional aircraft industry under the former TPC programme.  As Mr. Hankey noted, Brazil
does not dispute this, and certainly does not offer any evidence to the contrary.
29. In addition, in order to achieve compliance, Canada has restructured TPC so that assistance
to the regional aircraft industry under this programme will not run afoul of Article 3 of the SCM
Agreement in the future.   In its second submission, and again here this morning, Brazil presents a
lengthy and rather inflamed critique of a position that Canada manifestly did not take; namely thatuntil such time as there is a transaction under the restructured TPC, a Panel constituted under
Article 21.5 of the DSU cannot determine whether Canada has complied with the DSB’s rulings and
recommendations.  That was not and is not Canada’s view.
30. Lest we all be distracted by a jurisdictional argument not made, let me be very clear.  Canada
certainly believes that this Panel can – and indeed should – assess whether the restructured TPC
programme implements the DSB’s rulings and recommendations regarding de facto export
contingency.  In that regard, as we have demonstrated and as the restructured TPC’s Terms and
Conditions and Framework Document make e xplicit, export performance is in no way a
consideration in the granting of assistance under the new TPC.  Consequently, there is no evidence tosupport Brazil’s claim that the restructured programme is de facto export contingent.
31. Beyond that, Canada’s point was simply the obvious one that since there have been no
transactions under the restructured TPC, it is natura lly impossible at present, to look at facts relating
to specific applications of the new programme.  Canada is confident that when such transactions
arise, they will be fully consistent with the SCM Agreement.  At the same time, Canada recognises
that, in the future, Brazil may want to examine the facts surrounding specific transactions to satisfy
itself that the restructured TPC as applied in practice is not de facto export contingent.WT/DS70/RW
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32. Brazil, for its part, does not adduce evidence that the granting of funds under the restructured
TPC programme would be de facto export contingent .  Nor does Brazil attempt to apply the three part
test set out by the Appellate Body for determining export contingency, namely that there must be (1)
a subsidy that (2) is tied to (3) anticipated exports.  Rather Brazil fabricates its own test based on animpossible burden of proof and a presumption of bad faith.  In its second submission, Brazil states,
and I quote, that:
“The implementation measures Canada has adopted, in the case of both TPC and
Canada Account, merely suggest to Members that Canada might not continue togrant subsidies contingent in fact on export performance, rather than provide an
assurance that it cannot do so.”
2
33. Brazil’s proposed test imposes the burden of proof in this case on Canada, rather than Brazil.However, as we all know, it is the complaining party that bears the burden of proof.
3 Brazil is arguing
that Canada must prove that Canadian law prevents it from granting subsidies that are de facto
contingent on exports. There is no basis in the fi ndings of the Panel or the Appellate Body, the SCM
Agreement, or international law fo r imputing to Canada an obligation to prove that discretionary laws
could not possibly be used to grant export subsidies.  Of course, the proper test in this case is the
three part test set out by the Appellate Body that requires Brazil to demonstrate on the facts assistance
under the restructured TPC is tied to, or contingent upon export performance. It is precisely because
Brazil cannot meet the test of the Appellate Body that it tries to invent and impose its own test.
34. According to Brazil’s test, Canada’s restructured TPC programme must always be tainted by
the finding that some aspects of the former programme operated to create de facto export subsidies insome circumstances. At the heart of this test is the presumption that Members intend to circumvent
their WTO obligations – hence the purported necessity for Canada to establish that its replacement
programmes cannot grant de facto export contingent subsidies.
35. In effect, Brazil argues that TPC can never be restructured to comply with Canada’s WTO
obligations.  This directly contradicts by the Appellate Body’s rule in Chile – Alcohol, which is, and I
quote, “[m]embers of the WTO should not be assu med, in any way, to have continued previous
protection or discrimination through the adoption of  a new measure.”  The Appellate Body has found
that, and here again I quote, “This would come close to an assumption of bad faith.”
36. Brazil argues that the rule in Chile – Alcohol does not apply in the case of de facto violations.
However, Brazil offers no rationale to explain why de facto violations should be subject to a different
legal standard than de jure violations.  This is clearly unsupported by the text of the SCM Agreement,
WTO rulings or indeed common sense.   Indeed, Brazil’s argument is contradicted by the Appellate
Body in this very case where it held that the prohibition of de jure and de facto export subsidies aresubject to the same legal standard, but are established through different evidence.
37. Brazil also argues that, in any event, its allegations of non-implementation are based solely
on the new TPC programme
4 and that therefore the rule in Chile - Alcohol does not apply.  This is
clearly at odds with the text of Brazil’s subm issions.  While Brazil’s submissions do make some
reference to the restructured TPC programme, the evidence it puts forward as representing the “totalconfiguration of the facts” from which de facto export contingency must be inferred consists almost
exclusively of evidence relating to the old programme.  This evidence is largely recycled from
Brazil’s submission to the Panel in the original proceedings. Here I refer you to Annex I of Canada’s
                                                     
2 See para. 79 of Brazil’s second Submission.
3 While this principle is articulated in many decisions under the WTO, the one most often cited in
support of this proposition is the Appellate Body’s ruling in Wool Shirts .
4 See para. 30 of Brazil’s second Submission.WT/DS70/RW
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first submission where Canada reviews Brazil’s evidence and reveals that it is dated and riddled with
errors and misrepresentations.
38. In its second submission Brazil does acknowledge that its arguments rely heavily on dated
evidence but argues that such evidence should be presumed to be equally applicable to the new TPC
programme.5  This reasoning is directly at odds with the statement of the Appellate Body in Chile –
Alcohol and amounts to an unsubstantiated allegation of bad faith.
39. Indeed, the only evidence that Brazil adduces regarding the restructured TPC relates to the
objectives of the programme and its subsidiary documentation.
40. Brazil underlines that one of the objectives of TPC is the promotion of economic growth, and
the creation of wealth and jobs, and notes that potential projects are assessed in relation to the extent
to which they achieve these objectives. Brazil contends that the consideration of economic benefits of
a project is equivalent to making export performance a condition to granting funding. Brazil’sreasoning goes something like this:
• In assessing a potential project, TPC considers the economic benefits of the project to Canada.
• Examples of economic benefits include ec onomic growth, creating jobs and wealth.
• Economic growth and wealth are achieved in Canada, in part, through trade, which includes, of
course, exports.
• Therefore, and here is where Brazil makes an untenable leap of logic, the consideration of the
economic benefits of a project is equivalent to making export performance a condition of the
granting of funding.
41. Brazil’s assertion that economic objectives such as creating jobs, increasing Canadian wealth
and spurring economic growth are surrogates for export conditionality is untenable.  If this argument
were to be accepted, and positive economic objectives were equated with exports, the scope ofprohibited export subsidies would be radically expanded from that envisioned by the drafters of the
SCM Agreement.  Clearly, when governments give subsidies to industry, the intent is to make a
positive contribution to the economy in one form or another.  However, Brazil’s reasoning would
effectively prohibit all subsidies to any industry that exports,  unless that subsidy has no benefit
whatsoever to the economy.  This is clearly not acceptable as it would preclude WTO Members fromproviding any subsidies to industries that export – a result directly contrary to the text of footnote 4 of
the SCM Agreement.
42. Despite Brazil’s spurious argument, Mr. Chairman, the fact remains that under the
restructured TPC, the eligibility criteria reflect the overall objectives of the revised programme anddo not include any consideration whatsoever of exportation or export earnings.
43. Finally, Mr. Chairman, Brazil has made much of the fact that Canada has not produced
certain documents related to the restructured programme. However, the key documents that provide
the restructured TPC with Cabinet authority to operate have been provided by Canada.  These are the
Terms and Conditions and the Special Operating Agency (SOA) Framework Document.
6
44. The remaining documents are subsidiary documents that must respect the authority provided
in the Terms and Conditions and the SOA Framewor k Document. This authority explicitly requires
                                                     
5 See para. 28 of Brazil’s second Submission.
6 See Exhibits Can-4 and Can-6.WT/DS70/RW
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that TPC be administered in accordance with Canada’s international obligations.  Therefore all
subsidiary documents must respect Canada’s WTO obligations.
45. Canada would like to underline, once again, that the restructuring of TPC involves a
complete re-engineering of all TPC’s administrative documents.  Consequently, no documents
relating to TPC, as it was previously constituted, are valid under the new programme.  To put it
another way, those documents no longer exist for the purposes of TPC as it is now constituted.
46. Despite Canada’s assurances – which I now reaffirm – that it will provide these documents as
soon as they are finalized, Brazil has accused Canada  of bad faith and alleged that Canada is “holding
back” relevant documents.7  Canada takes exception to this baseless allegation.
47. Furthermore, Canada wishes once again to reiterate and make absolutely clear that no
investments have been approved under the restructured TPC, and none will be approved until such
time as all the supporting documents have been finalized.  Despite Canada’s assurance to this effect,Brazil, in its second submission, accuses Canada of having approved an investment under the revised
TPC.  Brazil refers to a press release made on 10 January 2000 regarding a TPC contribution to an
Ontario company for the development of a robotics system.  I have here a copy of the title and
signature pages of the Contribution Agreement in question that I would like to submit to the Panel as
Canada’s Exhibit 14.  As you will see this project was approved prior to November 18, 1999, under
the former TPC.
48. To summarise, Mr. Chairman, the thrust of Brazil’s submission is that it should be presumed
that the restructured TPC programme will in practice violate the SCM Agreement, even though Brazil
can point to nothing to substantiate its cl aim beyond evidence and innuendo regarding the
predecessor programme and the regional aircraft industry’s propensity to export.
49. Canada, for its part, has carefully noted the findings of the Panel and the Appellate Body and
has made substantial and meaningful changes to the TPC programme so as to bring it into compliance
with Canada’s obligations under the SCM Agreement.
50. Accordingly, Mr. Chairman, Canada requests that the Panel find that Canada has fully and
faithfully implemented the rulings and recommendations of the DSB by:
• Withdrawing assistance to the Canadian regional aircraft industry under TPC as previously
constituted;  and
• Amending the structure and administration of TPC so that assistance granted to the Canadian
regional aircraft industry under this programme is not contingent in fact upon export
performance.
51. Thank you for your attention.  Mr. Hankey, will now address the measures taken by Canada
in respect of the EDC Canada Account.
III. EXPORT DEVELOPMENT CORPORATION – CANADA ACCOUNT
52. Mr. Chairman, Members of the Panel, I would like to turn now to the measures that Canada
has taken to bring the Canada Account programme into compliance with the recommendations and
rulings of the DSB.  Before doing so, however, I sh all briefly review the findings of this Panel with
respect to the Canada Account.
                                                     
7 See para. 59 of Brazil’s second Submission.WT/DS70/RW
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Appellate Body and Panel findings
53. In the original proceeding Brazil claimed that the Canada Account programme was
inconsistent with the SCM Agreement and that it ma ndated export subsidies. The Panel rejected these
claims. It found that the programme constituted discretionary legislation and did not mandate
subsidies that are contingent on export performance. The Panel did not, as a result, make any findings
on the Canada Account per se.
54. The Panel did find, however, that Canada Acco unt debt financing in two transactions -- one
involving South African Express and the other LIAT  -- constituted export subsidies prohibited by
Article 3.1(a).  The Panel ruled that Brazil made a prima facie case that such debt financings were
subsidies contingent on export performance, and that Canada had not rebutted that case, nor had
Canada – and I quote – “sought to rely on the safe haven provided for in item (k) of the Illustrative
List of Export Subsidies”.8
55. These findings of the Panel – that the debt financing in the South African Express and LIAT
transactions was contingent in law on export performance and that the Canada Account programme
constituted discretionary legislation – were not appealed to the Appellate Body.   The Panel’s
findings were limited, therefore, to Canada Account debt financing in two transactions.
EDC Compliance
56. Let me recall that the two Canada Account debt financing transactions that the Panel
addressed were completed in 1995 and 1998.  Since 18 November 1999, there have been no financing
transactions in the regional aircraft sector.  Canada has also taken action to ensure that, in the future,
the discretionary authority under the Canada Account programme will be exercized in a way that is
consistent with the SCM Agreement.  Under Canadian law, no Canada Account transaction mayproceed without the approval of the Minister for International Trade and no transaction may be
approved unless the Minister determines that it is in the “national interest”.
57. Canada adopted a Policy Guideline on 15 November 1999 that informs EDC and the world
that the Minister for International Trade, from that date forward, will consider any Canada Accountfinancing transaction that does not comply with  the OECD Arrangement for Officially Supported
Export Credits not to be “in the national interest”.
58. The Minister is thereby saying that all future Canada Account financing transactions must
comply with the OECD Arrangement if they are to receive the required Ministerial authorization.This is perfectly clear and unambiguous.   A copy of the Guideline can be found at Tab 13 of
Canada's Exhibits and is also publicly available and has been posted on the web site of the
Department of Foreign Affairs.  I have here a printout from the web site that I would like to present
as Canada’s Exhibit 15.
59. As the Appellate Body noted in the Brazil-Aircraft (PROEX) case, the OECD Arrangement
is an international undertaking on official export credits that satisfies the requirements of the proviso
in the second paragraph of item (k). Pursuant to this paragraph of item (k), an export credit practice
that is in conformity with the interest rates provis ions of the Arrangement is not a prohibited subsidy
under the SCM Agreement. Therefore, by conforming to the OECD Arrangement, future Canada
Account  financing transactions will conform with the requirements of the exception provided by the
second paragraph of item (k).
                                                     
8 Panel Report at para. 9.225.WT/DS70/RW
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60. Finally, Canada has indicated that it is prepared to agree to the establishment of verification
procedures whereby Canada and Brazil would exchange relevant information regarding specific
future financing transactions in the regional aircraft sector so as to allow both Canada and Brazil to
verify compliance of such transactions with the SCM Agreement.  Canada has proposed thisprocedure in the interest of avoiding future dispute settlement proceedings, believing that such a
procedure would provide sufficient transparency to allow both Parties to satisfy themselves that the
other is in compliance with its WTO obligations.  Canada would like to make clear that it asks only
that the Panel endorse the establishment of such an arrangement, and is not proposing an ongoing role
for the Panel should a verification process be established.  We also note, Mr. Chairman, that in thelight of the rulings and recommendations of the Panel and Appellate Body concerning the provision
of confidential information, EDC is revising the fo rm of its confidentiality agreements entered into
with its customers, to facilitate, if required, disclo sure of such information in the context of the WTO
dispute settlement proceedings.
61. In summary, the South African Express and LIAT transactions were completed before 18
November 1999.  The implementation of the Policy Guideline will ensure that all future Canada
Account financing transactions will comply with  the OECD Arrangement, and thereby with the
proviso in the second paragraph of item (k). Canada has, therefore, fully complied with the
recommendations and rulings of the DSB.
Brazil's arguments
62. Mr. Chairman, Members of the Panel, Brazil has produced no evidence to call into question
Canada’s compliance in this case, because there is none.
63. Instead Brazil resorts to the same arguments it has advanced in the case of TPC. It argues that
completion of the two transactions found to be de jure  export contingent by this Panel is “simply not
enough” and suggests that Canada must “do more” to bring itself into compliance with the DSB’s
recommendations and rulings.  Canada has, of course, done “more” by adopting the Ministerial
Policy Guideline. Brazil, however, dismisses this action on the basis that the Ministerial Guideline
“does not ensure that prohibited export subsidies cannot be granted”.  This legal standard forcompliance has no foundation in the WTO or international law.
64. Brazil’s novel legal standard seeks not only to reverse the burden of proof onto Canada, but
to create an extraordinary degree of burden: that Canada must prove that the Canada Account
programme cannot  be used to grant export subsidies.  Brazil states this position in paragraph 71 of its
second submission as follows: “…implementing the DSB’s recommendations and rulings regarding
the Canada Account should at a minimum ensure that prohibited export subsidies via the Canada
Account cannot  be granted, but  not merely that they might not be granted”.
65. Ms. Hillman has already noted that this standard finds no support whatsoever in the DSU, the
SCM Agreement or international law.  The Appellate Body has said that the complaining party bears
the burden of proving a violation and there is nothing in Article 21.5 that suggests a different burdenof proof in a proceeding under that Article.
66. In addition to seeking to reverse the burden of proof and to set it at an unreasonably high
level, Brazil complains about Canada’s compliance on  two grounds.  First, Brazil complains that the
Guideline refers to the OECD Arrangement, and does not explicitly state that Canada will therebymeet the criteria to qualify for an exception under the second paragraph of Item (k).  Second, it
complains that Canada has not identified which of the articles in the Arrangement it believes
constitute the “interest rates provisions” referred to in item (k).WT/DS70/RW
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67. With respect to Brazil’s first point, Canada has already explained in its submissions why the
Guideline does ensure that any future Canada Acc ount financing transactions will be in conformity
with the interest rate provisions of the Arrangemen t and therefore the provisions referred to in the
second paragraph of item (k).  In requiring compliance with the OECD Arrangement, Canadarequires compliance with the totality of the Arrangem ent, including all of its interest rates provisions.
Canada has thereby required that all future Canada Account financing transactions will conform to
the requirements of the exception provided in the second paragraph of item (k).
68. Regarding Brazil’s second argument, Canada has already noted the reasons why Canada does
not think it is necessary to set out all the provisions of the Arrangement with which Canada must
comply.  First, the Guideline ensures that Canada will comply with all provisions of the OECD
Arrangement, which include the Arrangement’s interest rates provisions.  Second, it is far from clear
what the legal consequence would be of attempting in this proceeding to delineate in the abstract, and
before-the-fact, the various ways that Canada considers WTO members can act within the exceptionin the second paragraph of Item (k).  Canada accepts that should it invoke the exception in the future,
Canada would have the burden of demonstrating compliance with the second paragraph of Item (k)
and is prepared to do so, should a transaction be challenged.
69. That said, Canada is willing to set forth its view as to which provisions of the current text of
the OECD Arrangement would constitute interest rates provisions within the meaning of item (k) for
the purposes of this dispute and in the context of regional aircraft transactions.
70. Canada considers that the most logical interpretation of the term “interest rates provisions”
would include all provisions in the OECD Arrangement that affect what the interest rate and the
amount of interest payable will be in a given regional aircraft transaction.
71. For the purposes of this dispute, the relevant “interest rates provisions” are generally
contained in Chapter II of the Arrangement, which deals with the general rules governing the
provision of officially supported export credits, and in Annex III, which contains the sector specific
rules on Export Credits for Civil Aircraft.  Canada notes that there may be other provisions of the
Arrangement that are relevant to other sectors.  Also, contrary to what Brazil has asserted, bycomplying with the OECD Arrangement, Canada will also respect the non-derogation commitment
set forth in the Arrangement.
72. For ease of understanding, we would group the most relevant provisions into two categories:
73. First, there are provisions that set the minimum interest rates for official financing support
and that establish how these minimum rates are constructed and applied, and the terms by which they
are offered.  These include all the articles that cover the definition, construction and application of the
minimum interest rates called the Commercial Interest Reference Rates, or CIRRs, such as Articles
15, 16 and 17 of Chapter II and Article 22 of Annex III.
74. In the second group of provisions are those that either directly or indirectly affect the amount
of the interest charged and the timing of when it is paid, in a given transaction.  These include
provisions such as Article 7, which deals with cash payments, because the amount of the cash
payment will affect the amount of interest ch arged; Article 10, which deals with the maximum
repayment term, because the length of the term will  determine the applicable minimum interest rates,
as well as the overall amount of interest payable throughout the life of the loan; Article 14, whichdeals with payment of interest, because the payment profile will determine when an interest rate
materializes in the form of an actual cash outlay; and Article 29, which deals with matching another
government’s   terms and conditions that are outside of the Arrangement rules, because the terms and
conditions that are being matched in such a case include interest rates. The requirements for a risk-WT/DS70/RW
Page 137
based premium referred to in Article 21(a) and providing for higher effective interest rates for higher
credit risks for direct lenders should also be included.
75. In Canada’s view, this identification of interest rates provisions flows from the plain meaning
of the words.   The text of paragraph 2 of Item (k) refers to “interest rates provisions” and not simply
to “interest rate”.   Thus, it must refer to more than the CIRR.
76. As this Panel and the Appellate Body have noted, pursuant to the second paragraph of Item
(k), an export credit practice that is in confor mity with the “interest rates provisions” of the
Arrangement is not a prohibited subsidy under the SC M Agreement. If the term were applied only to
the CIRR, the benefit of the exception would be extended to financing transactions that apply the
CIRR, but do not abide by any of the other Arrangement rules, such as those relating to maximum
terms and minimum risk premiums.
77. A financing transaction that applied a naked interest rate alone – one that is divorced from
the other terms and conditions that affect the interest rate, and are generally part of any financing
transaction – could very easily confer a benefit to the recipient that would be considered a subsidy
under Article 1 of the Agreement and, if contingent on export, a prohibited export subsidy under
Article 3.
78. Finally, one should bear in mind that the Illustrative List of the SCM Agreement was carried
over from the Tokyo Round Subsidies Code.  After more than ten years of negotiations, the OECD
Arrangement was adopted in 1978.  In 1979, the To kyo Round Subsidies Code was agreed together
with other Tokyo Round Agreements. It is inconcei vable that the signatories of the GATT Subsidies
Code, who were at the same time participants in  the OECD Arrangement, would have agreed to an
item (k) that  incorporated only a single, isolated provision of the Arrangement thus undermining therest of the Arrangement less than one year after its adoption.
79. To assist the Panel, Canada has prepared a list of provisions that Canada considers to be
“interest rates provisions” for the purposes of Item (k) in the context of this dispute.  We are pleased
to provide a copy of this list to the Panel, and to Brazil.
80. We would be happy to further discuss our rationale for this categorization of “interest rates
provisions”, if the Panel so wishes.
81. I will now briefly address the findings of the 21.5 Panel in Australia – Leather .  In Australia
– Leather , the factual circumstances of the “circumvention” are fundamentally different from the
facts of this case.  Brazil argued that the Panel decision was not correctly decided.   But even if the
Panel considers that the reasoning was not correct, the findings of the Panel in Australia – Leather
are not in any way appropriate to this case.  Let me explain.
82. In Australia – Leather , the Panel was faced with two, one-time financial contributions.  The
first of these financial contributions was found by the Panel to have been a subsidy contingent uponexport performance.   Australia purported to implement the Panel’s findings, which had not been
appealed, by placing the specific export subsidy found to have been prohibited, with another specific
export subsidy.  It was this second subsidy that was required to be removed.  This, very clearly, is not
the case here.
83. As you well know, it was the operation of TPC in the regional aircraft sector that was at
issue.  And it is the operation of TPC, as newly constituted, that is at issue in this proceeding.  There
is no evidence, and, indeed, no suggestion, that new subsidies have been granted to “circumvent” a
Panel ruling.  The claim here is that the restructuring of TPC has not gone far enough.  In theseWT/DS70/RW
Page 138
circumstances, naturally, repayment of subsidies, even if such a remedy were available under the
SCM Agreement, is not warranted.
84. Mr. Chairman, Brazil has made a valiant effort to bring the findings of the 21.5 panel in
Australia - Leather  into the discussion of this case.  But, despite such effort, Brazil has failed to
demonstrate the relevance of that decision in the context of the matter that is now before the Panel.
85. First, Brazil has not explained why the Panel should now entertain Brazil’s argument for a
retrospective application of Canada’s obligation to withdraw, under Article 4.7 of the SCMAgreement, to subsidies that had already been granted before the recommendations of the DSB.
Second, Brazil has not demonstrated how the specific findings of the panel report in Australia -
Leather  would be applicable to the facts of this case.  I will address each issue in turn.
86. First, Mr. Chairman, Brazil is now in effect seeking to modify its original claim for a remedy.
In fact, Brazil now asks the Panel to issue new recommendations as to what constitute Canada ∋s
obligation to withdraw subsidies found to have be en contingent upon export performance.  Brazil
asks the Panel to use those new recommendations to assess Canada ∋s compliance with those same
recommendations.
87. Brazil does so, however, in the context of a procedure that is solely concerned with
determining whether Canada has implemented the original  rulings and recommendations of the DSB.
Brazil is trying to get not only what it never got but, more importantly, what it never sought.  This
can only be characterized as “trial by ambush”, to borrow Lord Denning’s famous phrase.
88. Brazil has known Canada’s position on the interpretation and application of Article 4.7, in
particular insofar as it applies to subsidies already granted.  Canada’s position on this issue was set
out in Canada’s second written Submission (para. 142 ss.) in the PROEX dispute running parallel to
this case, where, of course, Canada is the complainant.  In that submission, Canada indicated very
clearly that its interpretation of the obligation to withdraw export subsidies under Article 4.7 of theAgreement does not allow for a retroactive withdrawal of subsidies that have already been granted.
In that case, Brazil heartily supports Canada’s view.  In fact, in that case, Brazil has severely
criticized the decision in Australia – Leather  as bad policy and bad law.
89. In any event, Brazil could not have been unaware of Canada’s interpretation of the scope and
application of the obligation to “withdraw”.
90. Nevertheless, during the various stages of the Panel process or even before the Appellate
Body, Brazil has never taken exception with Canada’s interpretation.  It raises serious question of
fairness and equity now for Brazil to ask the Panel to make a finding of non-compliance becauseCanada did not withdraw subsidies that had been granted before the recommendations of the DSB.
Brazil never made that claim; in the course of implementing the rulings and recommendations of the
DSB, Canada was not aware and could not have been aware of the nature of the obligation that Brazil
now seeks to impose on Canada.
91. The role of the Panel under Article 21.5 of the DSU is to determine whether Canada’s
implementation measures are in conformity with the rulings and recommendations of the DSB.  Theultimate role of the Panel is to settle the dispute between the parties.  That dispute was framed by the
parties in the course of their various submissions.  The dispute, and therefore the rulings and
recommendations of the DSB, do not include the withdr awal of subsidies that were granted before the
recommendations of the DSB.WT/DS70/RW
Page 139
92. In conclusion on this point Mr. Chairman, Canada respectfully submits that in the light of the
above considerations, it would not be an appropriate use of the Panel’s jurisdiction under Article 21.5
to now grant Brazil a remedy that it never sought.WT/DS70/RW
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ATTACHMENT
Item (k):  Interest Rates Provisions of the OECD Arrangement
This document sets out Canada's view of which provisions pertinent to regional aircraft
financing in the current text of the OECD Arrangem ent would, for purposes of this dispute constitute
"interest rates provisions" within the meaning of item (k) of Annex I of the SCM Agreement.  The
provisions described below affect what the interest rate and the amount of interest payable will be in
a given transaction.  Within limits, variations of certain of these provisions are permitted under the
terms of the Arrangement.  Canada notes that provisions in the Arrangement that are pertinent to
sectors other than regional aircraft have not been listed.  This list is thus without prejudice to
Canada's position as far as other sectors are concerned.  While Canada has not listed definitional
provisions of the Arrangement, those provisions apply to the provisions listed below.
Article 2:  Scope of Application
This article restricts the scope of the Arrangement to officially supported export credits with
repayment terms of two years or more, and to official support in the form of tied aid.9
Article 3:  Special Sectoral Applications and Exclusions
This article sets out the applicability of specia l guidelines to certain specific sectors.  The
guidelines applicable to the aircraft sector provide that in cases where provisions in the Sector
Understanding on Export Credits for Civil Aircra ft (Annex III) correspond w ith provisions in the
Arrangement, the provisions of the Sector Understanding prevail.
The relevant provisions in the Sector Understanding are Articles 21, 22, 23, 24 and 25 of
Annex III, Part 2, which covers new aircraft, and Articles 28, 29, 30 and 31 of Annex III, Part 3,
which covers used aircraft, spare engines, spare parts, maintenance and service contracts.
Article 7:  Cash Payments
This article requires providers of official support to require purchasers of goods and services
to make cash payments of a minimum of 15 per cent  of the export contract value of the goods or
services, at or before the starting-point of a credit (defined in Article 9 of the Arrangement).
Article 9:  Starting-point of Credit
This article requires that the repayment term begin by the actual date of delivery.  However,
depending on the complexity of the underlying export contract, other dates may be applicable.
Article 10:  Maximum Repayment Term
This article sets out the maximum term for repayment of the export credit, which can be
either five years (with a possible extension to eight and a half), or ten years, depending on whether
the recipient country is classified as a Category I or Category II country.  (The category of country is
determined by world Bank data based on GNP per capita).
                                                     
9 Tied aid support is not permitted for civilian aircraft, except for humanitarian purposes (Annex III,
Article 24).WT/DS70/RW
Page 141
Article 13:  Repayment of Principal
This article requires that the principal sum of the export credit is normally to be repaid in
equal, and at least semi-annual instalments.  It also permits equal, blended payments of principal andinterest in the case of leases.  Within limits, variations are allowed.
Article 14:  Payment of Interest
This article requires payments of interest to be made in at least semi-annual instalments
during the repayment term.  Within limits, variations are allowed.
Article 15:  Minimum Interest Rates
This article requires providers of official financing support to apply minimum interest rates,
or the relevant Commercial Interest Reference Rates (CIRRs), and sets out the principles by which
CIRRs are established.  These include the principle that CIRRs should closely correspond to the rate
for first-class domestic borrowers and to the rate available to first-class foreign borrowers.
Article 16:  Construction of CIRRs
This article requires CIRRs to be set at a fixed margin of 100 basis points above their
respective base rates.  For most OECD Participants, the base rates are the yields of government bonds
with terms that roughly correspond to the average life of the loan.
Article 17:  Application of CIRRs
This article provides that CIRRs can be held for 120 days at an additional cost of 20 basis
points.  When official financing support is provided for floating rate loans (rather than on a CIRR
basis), the Participants must not grant the borrower the option of choosing the lower of CIRR or the
short-term market rate throughout the life of the loan.
Article 19:  Official Support for Cosmetic Interest Rates
This article forbids the offering of artificially reduced interest rates, which give the borrower
the illusion of obtaining more favourable financing terms than are envisaged under the Arrangement.
Article 21(a):  "Premium shall be risk-based."
Paragraph (a) of Article 21 requires that premiums be risk-based.  This is understood to mean
that premiums must "not [be] inadequate to cover long-term operating costs and losses" (as provided
in Article 22(a)).
Article 26:  Validity Period for Export Credits
This article imposes a limit of six months on the length of time offers can remain outstanding
for acceptance by the buyer/borrower.
Article 29:  Matching
This article permits the offering of terms and conditions that are outside of the Arrangement's
rules, but only if such terms and conditions are matching another government's offer with terms and
conditions that are outside of the Arrangement's rules.WT/DS70/RW
Page 142
ANNEX 2-4
ANSWERS TO QUESTIONS POSED TO CANADA
BY THE PANEL AND BY BRAZIL
(14 February 2000)
Questions Posed by the Panel Concerning Canada Account
Q1.  The Panel notes that the Policy Guidelines is worded in the negative, i.e., that a Canada
Account financing transaction or class of financing transactions that does not comply with the OECD
Arrangement would  comply with the OECD Arrang ement would not be considered to be in the
national interest.  This wording suggests that there may be transactions or classes of transactions that
are outside the scope of, and therefore not subject to, the Arrangement.  As a matter of logic, any such
transactions could not “not comply with” the Arrangement, and therefore would neither be subject to,
nor contrary to, the Guideline.  Could Canada plea se explain why the Guideline was not worded in
the affirmative, i.e. , that only transactions that do  comply with the Arrangement would  be considered
to be in the national interest?  Could Canada please indicate whether all Canada Accounttransactions in the regional aircraft sector will  be subject  to the Arrangement and will comply
therewith. Question 1:
Response
1. Under subsection 23(1) of Canada’s Export Development Act, a prerequisite to authorization
of a financing transaction under the Canada Account is a determination by the Minister forInternational Trade that the transaction is in the national interest.  In making this
determination, the Minister may reject a financing transaction for any number of reasons.
The wording of the Policy Guideline in the nega tive is designed to preserve the Minister’s
ability to conclude that a proposed Canada Account financing transaction is not in the
national interest based on other factors even though  it complies with the OECD Arrangement.
That is, if the Guideline were worded in the af firmative, as suggested in the Panel’s query, it
could be read to provide in effect that comp liance with the OECD Arrangement means that a
transaction, without more, would be in the national interest.  This would leave no scope for
other “national interest” considerations to be factored in by the responsible Minister.
2. As written, the Ministerial Guideline means that a transaction that does comply with the
Arrangement may be in the “national interest”, but that a transaction that does not comply
with the OECD Arrangement will be considered, ipso facto , and without more, incapable of
being in the “national interest”.  Compliance with the OECD Arrangement is therefore the
one essential condition that must always be met in order for the transaction to be found to be
in the national interest and authorized under the Canada Account.
3. All Canada Account transactions in the regional aircraft sector will be subject to and will
comply with the OECD Arrangement.
Q2. Concerning Canada’s apparent pledge, through the Policy Guideline, that “any future
Canada Account financing transactions will be in conformity with the OECD Arrangement”
(Canada’s Oral Statement at para. 67.), the Panel notes, as acknowledged by Canada, that the “safe
haven” in the second paragraph of item (k) of the Illustrative List makes specific reference to the
“interest rate provisions” of the understanding in  question, i.e., the OECD Arrangement.  CanadaWT/DS70/RW
Page 143
has provided a paper (“Item (k): Interest Rates Provisions of the OECD Arrangement”) and an oral
statement concerning what it considers to be the in terest rate provisions of the OECD Arrangement.
(a) Is it Canada’s view that, in general, all of  the substantive interest rate provisions that
it has identified (i.e., all of the provisions other than matching) must both apply and
be complied with for an export credit practice to be in conformity with the interest
rate provisions of the OECD Arrangement ?  Please explain.  If yes, does Canada
consider that where this is not the case because of matching with non-complying
terms and conditions, (i.e., where the transaction in question is matching the termsand conditions of a non-complying transaction), the transaction is question
nevertheless is in conformity with the interest rate provisions of the Arrangement?
Please explain.
Response
1. All of the substantive interest rates provisions must be complied with to the extent that they
are applicable. Not all substantive interest rates provisions are always applicable. For
instance, for export credits in some sectors other than regional aircraft, Article 25 ("Local
Costs") would, in Canada's view, represent a su bstantive interest rates provision; however,
we did not retain Article 25 on our list because we decided to limit the list to those provisions
that are relevant for the purpose of this case because they are generally applicable to regionalaircraft. The local cost issue does not arise in the regional aircraft sector.
2. Also, some of the substantive interest rates provisions that are relevant for regional aircraft
might not apply depending on the circumstances of the underlying export credit transaction.
For example, Article 10 ("Maximum Repayment Term") has substantive rules that are
significantly amended by the specific provisions stipulated in Annex III. We still found itimportant to list Article 10 because the concept of a maximum repayment term as set out in
the main Arrangement text is directly related to the levels of the CIRRs (see Article 16), and
CIRRs are applicable to regional aircraft.
3. The right to match is an intrinsic part of the disciplines of the Arrangement. It operates as a
right to match financing by those countries which might provide financing pursuant to termsand conditions other than the standard terms and conditions.  It works as a rather effective
deterrent to those countries that might be tempted to not comply. Recent experience has
shown that the total number of matching notifications has declined to less than 10 per year
(all Participants combined). Because matching effectively amends some or all of the other
interest rates provisions in their applicability to a particular transaction, matching is itself asubstantive interest rates provision. Therefore, a matching transaction undertaken in
conformity with the Arrangement is also in co nformity with the interest rates provisions of
the Arrangement.
(b) If in answering (a) Canada indicates that it does not believe that all of the substantive
provisions that it has identified must apply and be complied with for a transaction to
be in conformity with the interest rate provisions of the Arrangement, does Canada
consider that a transaction which complies with any one of these provisions or somesubgroup of them is in conformity with the interest rate provisions of the
Arrangement?   Please explain, and identify the provision of provisions in questions.
In particular, does Canada consider that export credits that are not CIRR-based (e.g.,
floating-rate financing), or export credit practices that do not involve an interest rate
as such (e.g., export credit guarantees), can qualify for the sage haven of the secondparagraph of Item(k)? Please provide a detailed explanation.WT/DS70/RW
Page 144
Response
1. All the substantive interest rates provisions that are applicable and therefore can be complied
with under the circumstances of the underlying export credit transaction, must be compliedwith for the transaction to be in conformity  with the interest rates provisions of the
Arrangement. Canada does not hold the view that any country should be allowed to not
comply with an interest rates provision that is applicable to a transaction and still claim
conformity with the interest rates provisions of the Arrangement.
2. Floating rates are a good example for illustrating this point. Clearly, floating rate financing is
envisaged by the Arrangement, and the face value of the floating interest rate can be below
the face rate of the CIRR; otherwise, the restriction imposed in Article 17.b) on choosing
between the "lower of either the CIRR (...) or the short-term market rate" would be pointless.
A floating rate transaction like the one described in Article 17.b) is in full conformity with
the interest rates provisions of the Arrangement (indeed, Article 17 is itself an interest ratesprovision); CIRR is constructed on a fixed rate basis (Article 16) and therefore not applicable
in a pure floating rate scenario. It is also clear from the plain wording of the Article 17.b) that
the minimum floating interest rate is "the short-term market rate"; this is generally
understood to refer to international market benchmarks such as LIBOR.
3. Canada wishes to clarify that export credit guarantees do involve an interest rate in respect of
the underlying loans that are being guaranteed.  A financial institution which receives an
insurance policy or an unconditional guarantee (in either case, with or without interest ratesupport by government) from an export credit agency in respect of the financing of an export
transaction may only provide a loan that respects the relevant interest rates provisions of the
Arrangement.
4. While Article 17.b) confirms that official support can be provided on a floating rate basis at
short-term market rates below CIRR, a narrow interpretation of the provision limits itsapplication to cases of “pure cover” as described above, i.e. loans insured or guaranteed by
an export credit agency and extended at short-term market rates without interest rate support
from the government. Canada holds the view that official support in the form of direct loans
extended by export credit agencies at short-term market rates is equally legitimate under the
Arrangement. Indeed, Canada believes that precluding direct lenders from undertakingfloating rate transactions would give an undue advantage to those OECD Participants that
operate insurance/guarantee systems. Moreover, short-term market rates such as LIBOR can
be presumed to satisfy the principles for minimum interest rates set out in Article 15, insofar
as they can be applied.
5. OECD Participants are fully aware of Canada’s practice to offer floating rate financing under
official support. While discussions on floating rate practices continue at the OECD, no
Participant has alleged that Canada’s floating rate practice represents a derogation from the
Arrangement. Based on all of the above, Canada is of the firm view that official support
provided in the form of direct loans at short- term market rates is fully compliant with the
Arrangement and its interest rates provisions.
6. Notwithstanding that Canada believes that floating rates are encompassed within the OECD
Arrangement, and should be included as “interest rates provisions” and thus fall under theexception in Item k, the issue of floating rates is still under discussion in the OECD.  In the
interest of contributing to a speedy resolution of this dispute, Canada wants to avoid making
this an issue in this case and has consequently decided not to implement any floating rate
transactions under Canada Account in the regional aircraft sector unless and until this issue isWT/DS70/RW
Page 145
clarified either under the OECD Arrangement or in the context of WTO proceedings that
addresses this issue.
Q3. Would Canada please elaborate on how it intends to comply with the interest rate provisions
of the Arrangement, as it has identified them, in respect of Canada Account transactions in theregional aircraft sector?
(a) Please describe the form of forms th at all Canada Account transactions in the
regional aircraft sector will take.   Please indicate, in particular, whether all such
Canada Account transactions will take the fo rm of official support for export credits
with repayment terms of two years of more.  In not please explain, and indicate how
such transactions would be considered to be in conformity with the interest provisions
of the Arrangement.
Response
1. Any regional aircraft transaction entered into under the Canada Account will likely take the
form of direct lending.   While official support could be given by way of  other means, for
example guarantees, it is Canada’s practice to provide support via direct lending.   Because of
the nature of the product, we do not expect any borrower to request repayment terms of less
than two years.   Accordingly, Canada would expect that all future Canada Accounttransactions in the regional aircraft sector will take the form of official support for export
credits with repayment terms of two years or more.  Whether in the form of a direct loan or a
guarantee, the interest rates provisions of  the OECD Arrangement will be followed.
(b) Will all Canada Account transactions in the regional aircraft sector fall within, and
comply with the terms of Articles 7, 9, 10, 13, 14, 17, and 26 of  the Arrangement inrespect of cash payments, starting poin t of credit, maximum repayment term,
repayment of principal, payment of in terest, application of CIRRs, and validity
period for export credits, respectively?  If not, how would any such transactions be
considered to be in conformity with the in terest rate provisions of the Arrangement?
Response
1. Except in cases of matching or in cases of humanitarian aid, all Canada Account transactions
in the regional aircraft sector will comply with Article 7 ("Cash Payments"), Article 9
("Starting Point of Credit"), Article 13 ("Repayment of Principal"), Article 14 ("Payment of
Interest"), Article 17 ("Application of CIRR"), and Article 26 ("Validity Period of ExportCredits"). As for the maximum repayment term, Article 21 of Annex III effectively replaces
Article 10 as the relevant interest rates provision for the purpose of compliance with regards
to new regional aircraft
2. Canada Account transactions in the regional aircraft sector that are undertaken in full
compliance with the matching provisions of the OECD Arrangement, will also be in
compliance with the Arrangement and its interest rates provisions. This is because matching
itself is an interest rates provision of the Arrangement as it specifically allows the offering ofterms and conditions that are more favourable than otherwise allowed under the interest rates
provisions of the Arrangement, provided they do not render the offer more favourable than
the competing offer which is supported by another government and includes non-compliant
terms and conditions for the same transaction (i.e., provided the terms do not “overmatch”).
(c) Why does Canada not include Article 8 “repayment terms” in its list of relevant
provisions?WT/DS70/RW
Page 146
Response
1. Canada chose not to include definitional provisions in its list. Article 8 does not specify a
rule; rather it provides a definition that is re quired for the purpose of setting rules in the
subsequent articles.  While the list of interest rates provisions provided to the Panel did not
list definitional provisions of the Arrangement, as Canada noted in that document, those
provisions apply.
(d) With all Canada Account transactions in the regional aircraft sector take the form of
fixed rate financing at interest rates at or above the CIRR?  If not, please explain in
what sense any floating-rate financing and any below-CIRR fixed rate financing
would be in conformity with the interest rate provisions of the Arrangement, given the
requirement in Article 22 of the Sector Understanding that the CIRR shall be applied.
Response
1. As indicated in our answer to question 2 b:  Notwithstanding that Canada believes that
floating rates are encompassed within the OECD Arrangement, and should be included as
“interest rate provisions” and thus fall under the exception in Item k, the issue of floating
rates is still under discussion in the OECD.  In the interest of contributing to a speedy
resolution of this dispute, Canada wants to avoid making this an issue in this case and hasconsequently decided not to implement any floating rate transactions under Canada Account
in the regional aircraft sector unless and until this issue is clarified either under the OECD
Arrangement or in the context of WTO proceedings that directly address this issue.
Accordingly, except in cases of matching or humanitarian tied aid, all Canada Account
financing transactions in the regional aircraft sector will take the form of fixed-rate financingat interest rates at or above the CIRR.
2. Also, if support were to be provided by way of “pure cover”, i.e. a guarantee issued to a
lending bank, the interest rates provision in Article 17.b) would be applicable. It is
conceivable that the financing bank could price the loan on a floating rate basis and at a face
rate below CIRR. The transaction would still be in full compliance with the interest ratesprovisions of the Arrangement. (Indeed, Article 17 is itself an interest rates provision.)
Article 22 of the Sector Understanding simply reconfirms the applicability of the CIRR
regime to regional aircraft; this is required because Article 6 of the Sector Understanding
creates a different system of minimum interest rates for large aircraft. It is not the purpose of
Article 22 of the Sector Understanding to invalidate Article 17.b) of the Arrangement.
(e) Will any so-called “market window” financing or other transactions be undertaken
under the Canada Account in the regional aircraft sector?  If so, please explain in
detail the nature of any such transactions and the sense in which Canada considers
the they would be in conformity with the interest rate provisions of the Arrangement.
Response
1. Canada understands this question to ask whether Canada Account financing in the regional
aircraft sector will be provided outside of the standard terms and conditions of the OECD
Arrangement, notwithstanding whether such financing is consistent with the market.  The
answer is no.  All Canada Account financing in the regional aircraft sector will be within the
OECD Arrangement, whether or not the terms of a particular financing transaction are in fact
market terms.WT/DS70/RW
Page 147
(f) Will any Canada Account transactions in the regional aircraft sector be provided in
the form of export credit guarantees?  If so, in what sense does Canada consider that
such transaction would be in conformity with the interest rate provisions of the
Arrangement.
Response
1. Canada Account transactions in the regional aircraft sector will typically take the form of
direct loans, although, for example, guarantees could also be envisaged. Guarantee
transactions would also have to be in compliance with the relevant interest rates provisions ofthe Arrangement.
2. The package of disciplines reflected in the inte rest rates provisions is as important in a
guarantee context as it is in the context of direct financing.  See also Canada’s response to
question 2(b).
3. All future Canada Account transactions, whether undertaken on a direct lending basis or on a
guarantee basis, will comply with the relevant interest rates provisions of the OECD
Arrangement.
(g)  How is it envisioned that the provision of official support for cosmetic interest rates
with respect to the regional aircraft sector will be prevented (Article 19)?
Response
1. Canada will simply not offer any cosmetic interest rates as defined in Article 18 when
entering into regional aircraft transactions on Canada Account.
2. As a matter of clarification, interest rates below CIRR offered under the matching provisions
of the Arrangement are not cosmetic interest rates because they do not involve compensatory
measures (i.e. hidden measures) in the form of contractual adjustments. Matching is “open”,
not “cosmetic”.
(h) Could Canada please describe how it will be ensured that appropriate risk-based
premiums will be charged on Canada Account transactions in the regional aircraft
sector.   Why are the premium-related provisions of the Arrangement other than
Article 22.a not, in Canada’s view, part of the “interest rate provisions” of the
Arrangement?
Response
1. Canada selected only Article 21.a) because it articulates the principle of risk-based premiums
and is the only premium-related provision that is available to WTO members that are not also
OECD Participants. Clearly, the obligation to comply with the OECD Arrangement in itsentirety imposes disciplines on Canada Account transactions in the regional aircraft sector
that go beyond the obligation to adhere to the mere principle of Article 21.a).  There are
provisions in the Arrangement that add greater precision as to the nature of these premium-
related disciplines.
2. Basically, OECD Participants have agreed on a common system for classifying countries into
risk categories and setting minimum premiums in relation to the risk levels associated with
each category that are expected to cover the Participants' long-term operating costs andlosses. The actual country classifications and premium levels applicable to countries remain
confidential because OECD Participants would like to avoid political interference with the
country classification process. For an extensive description of the OECD premium system,
we attach the OECD communications piece on premiums as a Canada’s Exhibit 17.WT/DS70/RW
Page 148
3. Canada recognises that it would be unreasonable to expect a non-OECD WTO Member to
charge a minimum premium level which is unknown to such Member, in order for that
Member to be in full compliance with the in terest rates provisions of the Arrangement.
Canada is prepared to accept the consequence that in relation to premiums and for thepurpose of the second paragraph of Item (k), a higher threshold is imposed on those WTO
Members that are also OECD Participants.
(i) Please explain in detail how the matching provision will be applied with respect to
Canada Account transactions in the regional aircraft sector.   What, if any, are the
limits on matching under the Arrangement?  Does Canada consider that any CanadaAccount transaction in the regional aircraft sector that “matches”, in the sense of the
Arrangement, a non-complying transaction would be in conformity with the interest
rate provisions of the Arrangement? Please explain.
Response
1. Canada confirms that it considers any Canada Account transaction in the regional aircraft
sector that is undertaken in full compliance with the matching provisions of the OECD
Arrangement, to be in conformity with the Arrangement and its interest rates provisions.
2. This is because matching itself is an interest rates provision of the Arrangement as it
specifically allows the offering of terms and conditions that are more favourable than
otherwise allowed under the Arrangement, provided they do not render the offer more
favourable than the competing offer that is officially supported by another government and
includes non-compliant terms and conditions for the same transaction.
3. Clearly, "overmatching", i.e. offering more favourable terms and conditions than the
competing, non-compliant offer, is not compliant with the Arrangement. Any case of
matching by an OECD participant such as Canada must be notified to the other OECD
Participants prior to the issuance of the commitment and will be scrutinised by them,
particularly in cases of "non-identical matching" which are subject to a discussion procedure."Non-identical matching" is still compliant pr ovided it is not "overmatching". For instance,
Canada would not have an issue with another Participant notifying a "non-identical
matching" at CIRR over 12 years to match a non-compliant offer at CIRR minus 5 per cent
over 10 years as there is no reason why a matching Participant should be obliged to provide a
cash subsidy if another tool is available to reduce the distortion created by the non-compliantoffer to be matched.
4. For more details on the matching procedures of the Arrangement, we refer the Panel to
Articles 50 through 53. We draw the Panel's attention to the high level of due diligence and
disclosure required in the case of matching of a non-Participant.  These cases are rare.
5. In Canada's view, the right to match is also available to WTO members that are not OECD
Participants. If the matching transaction of a non-Participant were challenged at the WTO
and found to provide a prohibited export subsidy, the "safe haven" of Item (k) would be
available to that non-Participant, provided that the matching was undertaken in good faith
and on the basis of reasonable due diligence.
(j) Please describe in detail, including the nature of the differences, any particular
provisions of the Sector Understanding on Export Credits for Civil Aircraft (Annex III
of the Arrangement) that prevail over co rresponding provisions of the Arrangement.
To the extent that provisions of the Sector Understanding apply, will all Canada
Account transactions in the regional aircraft sector fall within their scope and be in
full compliance with them?  Please explain in detail.
ResponseWT/DS70/RW
Page 149
1. Annex III prohibits tied aid, except for humanitarian purposes (Article 24 of Annex III). This
is an additional restriction applicable to the regional aircraft sector that Canada will
obviously respect when entering into regional aircraft transactions on Canada Account.
2. Annex III also sets different maximum repayment terms. Rather than linking the repayment
term to the wealth of the recipient country, the Sector Understanding ties it to the type (and
effectively, the size) of the aircraft being exported. This rule can be more generous in one
case (e.g. a Category A aircraft going into a Country I country) and more restrictive in
another case (e.g. a Category B aircraft going into a Category II country).
3. As envisaged in Article 3, the sector-specific rule (i.e. Article 21 of Annex III) prevails over
and effectively replaces the general Arrangement rule (i.e. Article 10).
4. Article 21 and Article 24 of Annex III are the interest rates provisions of the Sector
Understanding that govern the repayment term and tied aid support. They are applicable to all
Canada Account transactions in the regional aircraft sector,  and all Canada Accounttransactions in the regional aircraft sector will comply with these two articles, except in cases
of matching..
(k) In the context of the responses to the above questions, would Canada please provide
full details on all "variations" "allowed" under the relevant provisions of the Arrangement,
referred to inter alia in the introductory paragraph of the Canada's paper ("Within limits,
variations  of certain of these provisions ar e permitted under the terms of the Arrangement").
Will Canada Account transactions in the regional aircraft sector in all cases respect theapplicable limits on any variations?  Please explain in detail.
Response
1. Canada Account transactions in the regional aircraft sector will respect the applicable limits
on allowed variations.
2. Allowed variations are called Permitted Exceptions under the Arrangement, and a
comprehensive list can be found in Articles 48 and 49. The only Permitted Exception that is
relevant for the purpose of regional aircraft transactions is the variation listed under Article
49 a) 2), which relates to irregular payment practices with respect to principal and interest.
3. One formal limitation on irregular payment practices is the no derogations engagement in
relation to the repayment date of the first instalment of principal (Article 27). Generally
speaking, and acknowledging that not all of  the OECD Participants’ conventions can be
found written in the Arrangement text, the basic principle is that Permitted Exceptions are not
supposed to make the offer more favourable than the most favourable terms and conditionsthat are allowed under the Arrangement. For instance, Canada would not have an issue with
another Participant notifying a modest balloon payment after 7 years if the average life of the
loan remained shorter than in the case of a standard repayment profile of 20 equal, semi-
annual instalments.
4. The number of notifications of Permitted Exceptions generally exceeds 100 per year.
Participants clearly consider Permitted Exceptions  to be "permitted", i.e. in conformity with
the Arrangement.
(l) Will Canada please elaborate on its apparent pledge, at para. 71 of its oral
statement, that Canada "will also respec t the non-derogation co mmitment se t forth in
the Arrangement".WT/DS70/RW
Page 150
Response
1. Article 27.a) of the Arrangement states that "(t)he Participants shall not derogate from
maximum repayment terms, minimum interest rates, minimum premium benchmarks (...), the
six-month limitation on the validity period for export credit terms and conditions, or extend
the repayment term by extending the repayment date of the first instalment of principal (...)."
2. A derogating Participant is not in compliance with the Arrangement, nor in compliance with
its interest rates provisions. As Canada Account transactions must comply with theArrangement, Canada will not derogate from the Arrangement.
3. Canada notes that derogations are different from Permitted Exceptions and are also different
from matching. Permitted Exceptions and matching are compliant; derogations are not.
Q4. Does Canada agree with the EC that Canada has "undertaken" to respect all of the
provisions of the OECD Arrangement?  If so, does Canada consider that this "undertaking" is legally
binding on Canada Account transactions in the regional aircraft sector, and would Canada please
elaborate on the specifics of this undertaking, making reference both to the interest rate provisions of
the Arrangement as identified by Canada and to Canada's responses to questions 1-3, above.
Response
1. Canada has undertaken to respect all of th e provisions of the OECD Arrangement with
respect to financing transactions under the Canada Account.  Through the Ministerial Policy
Guideline the Minister for International Trade has undertaken not to authorise any financing
transaction under Canada Account that doe s not comply with the OECD Arrangement.
While the Ministerial Guideline is an administrative instrument and not a legislative one, for
all practical purposes the effect is almost the same.  This is because the exercise of discretionunder the Canada Account programme is in the hands of the Minister and it is the Minister
who has given the undertaking.  In addition, officials administering the programme and/or
referring financing transactions to the Minister for authorization will act in accordance with
the Guideline.  With respect to the differ ence between administrative guidelines and
legislative instruments we refer the Panel to the comments made by the Panel in United
States – Sections 301 –310 of the Trade Act of 1974  (Sections 301-310 ) where it stated:
“We recognize of course that an undertaking given by one Administration can be
repealed by that Administration or by another Administration. But this is no different
from the possibility that statutory language under examination by a panel be
amended subsequently by the same or another Legislator.”
2. The critical question, according to the Panel is whether the instrument in question is “lawful
and effective.”  In this case, the Ministerial Guideline is effective in requiring that all Canada
Account financing transactions in the region al aircraft sector comply with the OECD
Arrangement and thereby comply with the interest rates provisions of the Arrangement.
3. Canada’s view of which interest rates provisions are pertinent to this dispute is fully set out
in Canada’s exhibit -- and a detailed explanation of how these would apply in practice can be
found in Canada’s responses to questions 1 and 2 from the Panel.
Q5. Would Canada please indicate the extent of and basis for its compliance obligations with
respect to Canada Account.   In this regard, we note that Brazil (at paragraph 66 of its second
submission) characterizes Canada's position as be ing that the Panel's findings did not require
Canada to take any action other than to ensure that  the two Canada Account transactions identifiedWT/DS70/RW
Page 151
in paragraph 54 of Canada's first submission were completed by 18 November 1999.   Canada
appears to disagree, as it stated at the meeting with  the Panel that it does consider that the Panel's
ruling imposes a legal obligation on Canada to take remedial action with respect to future  Canada
Account transactions in the regional aircraft.  Does Canada confirm the Panel's understanding of
Canada's position?  Could Canada please discuss the implications, if any, of Australia-Leather for
Canada's arguments as to its obligations concerning Canada Accounts.
Response
1. Yes, Canada confirms the Panel’s understanding of Canada’s position.
2. In the original proceeding, the Panel found that the Canada Account was a discretionary
programme that did not mandate subsidies contingent on export performance; the Panel
therefore made no findings on the Canada Account programme per se.  The Panel concluded,
however, that Brazil had established a prima facie case, unrebutted by Canada, thatapplications of the Canada Account programme in the form of two debt financings involving
regional aircraft were subsidies within the meaning of Article 1. (Because these financings
were expressly for exports, the Panel also found them to be contingent in law upon export
performance within the meaning of Article 3.1(a).)  The Panel therefore concluded that
“Canada Account debt financing since 1 January 1995 for the export of Canadian regional
aircraft constitutes export subsidies inconsistent with Article 3.1(a) and 3.2 of the SCM
Agreement.”
3. Although the Panel’s conclusion concerned the programme as applied, it did not appear to be
limited by its terms to the two transactions that had been before the Panel.  Consequently,
Canada understood the Panel ruling to mean that it was essential to take steps to ensure that
any future financing transactions involving regional aircraft would be consistent with
Canada’s obligations under the SCM Agreement.  Canada did so, by issuance of theMinisterial Policy Guideline making clear that any financing transaction not in compliance
with the OECD Arrangement (necessarily includin g the interest rates provisions thereof) will
not be approved for Canada Account financing.
4. Canada does not believe that the panel decision in Australia – Leather, which addressed
whether the withdrawal of an individual subsidy might, in some factual circumstances,encompass the repayment of the subsidy, has any implications at all for the steps Canada it
has taken to ensure that any future Canada A ccount financings involving regional aircraft are
consistent with the SCM Agreement.  Because the discretionary Canada Account programme
was not per se found to mandate prohibited export subsidies, there can be no issue of
withdrawing the Canada Account programme itsel f.  Even Brazil has not argued for that
result.
5. Nor does Canada believe that Australia – Leather has relevance for the Canada Account
financings that formed the basis for this Panel’s conclusion on the Canada Account as
applied.  Even assuming that Australia – Leather’s controversial conclusion that repayment
may be a required form of “withdrawal” in some circumstances were to be accepted, it could
not, in Canada’s view, apply here.  The Australia – Leather case involved a one-time  subsidy
to a producer and its replacement measure which were contingent on a still ongoing stream ofexports, which that Panel viewed as remediable only through repayment.  In this dispute, by
contrast, the two transactions before the Panel in the original proceeding were completed,
including the export of all aircraft that were “subsidized”, in 1995 and 1998, long before the
date for compliance.WT/DS70/RW
Page 152
Q6. Could Canada please elaborate on the legal basis for its argument that DSU Article 19.1
would allow the Panel to endorse, as part of its findings under DSU Article 21.5, the verification
mechanism that it has proposed.  Are there any othe r provisions of the DSU or the SCM Agreement
that are relevant to this issue?
Response
1. Canada believes that reciprocal verification provisions would make both Brazil and Canada
more confident of their respective compliance in the future.  The second sentence of Article19.1 authorizes a panel to "suggest" ways to implement a recommendation.  Canada believes
that endorsing the concept of reciprocal verification arrangements would be a useful
suggestion, consistent with the spirit of Article 19.1.
Questions posed to Canada by the Panel regarding TPC
Q1. Please provide an up-dated version of Exhibit Cdn-9, and provide copies of all finalized
"new" documents not already submitte d to the Panel.  Please provide the latest draft version of any
"new" document still "under development".  If no dr aft versions are available, please describe in
detail the nature of the planned changes to the "new" document still under development".
Response
1. Exhibit Cdn-9 contains 35 serials of which 11 have already been provided to the Panel.
Appended below are copies of all recently finalized “new” documents, as well as the latest
draft versions of “new” documents still under development.  Moreover, summary sheets
describing in detail the nature of the planned changes to documents for which draft versions
are not presently available are also included.  Finally, a new serial, the Contribution
Verification Checklist, is provided in draft form.
2. The draft documents submitted with this response are still under active consideration by TPC
management and, therefore, are subject to change.  Similarly, the planning assumptions
underlying the summary sheets on documents not available in draft form could also change
as the documents are developed.  However, as all of these document must respect TPC’s
Terms and Conditions, in their final form they will not be permitted to request or considerinformation concerning the extent to which applicant enterprises do or may export.
3. All of the documents identified in Exhibit Cdn-9 that remain to be finalized will be rolled out
as they are completed and approved.  It is reiterated that TPC will not approve contributions
to the Canadian regional aircraft industry until the programme has been fully restructured.
Therefore, TPC has a vested interest in comp leting this important task in a timely manner.
But while time may be important, it is far more critical that TPC’s policy and procedural
documents be revised through a detailed review process that ensures that Canada is
honouring its international obligations.
4. The current status of TPC documents are identified below under the three categories solicited
by the Panel, namely:
- finalized “new” documents not already submitted to the Panel;
- “new” documents still “under development”; and
- documents for which draft versions are not available at this time.WT/DS70/RW
Page 153
Exhibit Cdn-9 Serial
No.Document
Finalised “new” documents not already submitted to the Panel (copies provided)
5 Financial Data Outline (retitled)
6 Contribution Agreement Repayment Terms (retitled)
30 Environmental Assessment and Review Process
“New” documents still “under development”(latest draft versions provided)
2 TPC Repayment Policy
3 Assessment Guidelines for Due Diligence
20 TPC Review Procedures (including Standard Letters)
21 Special Purpose Equipment List
24 TPC Project File Structure
25 TPC Policies and Procedures on Incrementally, Irreversibility and Retroactivity
28 Claims Package for Clients
29 PSB Integrity Review Checklist
31 Procedures for Project Amendments (retitled)
32 Claims Verification Checklist
33 Policy on Eligible Overhead Costs
34 Policy Guideline for Treatment of Eligible Equipment costs and Project Assets
(retitled)
New Contribution Verification Checklist
Documents for which draft versions are not available at this time  (summary sheets provided)
7 Statement of Work
8 & 9 TPC Standard Contribution Agreement (merged)
16 Framework Investment Proposals:
 Industrial Research Pre-competitive Development
 Studies
18 TPC Business Plan (2000/2001-2001/2002)
22 Schedules of Estimated and Actual Project Benefits (retitled)
23 Performance Measures – Project Data Sheet
26 Evaluation Framework
35 Quality Assurance ChecklistWT/DS70/RW
Page 154
Q2.  Does Canada agree with Brazil's argument (para. 5 of its oral submission) that the only way
for Canada to remove de facto export contingency is to "exclude [the regional aircraft industry] from
TPC funding opportunities, or alternatively, to change radically the programme's eligibility andallocation requirements", and that (para. 17 of Brazil's oral submission)"TPC, as it applies to the
regional aircraft industry, must  be withdrawn in its entirety"?  If not, what other ways of
implementing the DSB recommendation would be possi ble in Canada's view if, hypothetically (and as
Brazil claims), the current measures taken by Canada to comply with the DSB recommendation are
not considered a sufficient change in the factual situation which led to the initial conclusion that TPCassistance to the regional aircraft industry is de facto contingent on export?
Response
1. Canada rejects Brazil’s argument and considers that it is not required to cease all TPC
assistance to the Canadian regional aircraft industry. As noted previously, based on guidance
provided by the Panel and the Appellate Body and in accordance with the test for de facto
export contingency developed therein, Canada has taken the steps within Canada's control to
ensure that any assistance that TPC may prov ide in the future to the Canadian regional
aircraft industry will not be contingent on export performance in law or in fact.   To go
further and require Canada to “exclude [the regional aircraft industry] from TPC funding”
would go beyond the rulings and recommendations of the DSB and be contrary to footnote 4of the SCM Agreement.
2. Given the substantial steps already taken, we are aware of no other steps that Canada could
take or needs to take, other than ensuring that future subsidiary documents and implementing
measures as they are adopted conform with the changes already implemented.
Question to both Parties
Please comment on the EC argument (para. 7 of the EC's oral statement) that, in light of the
Panel's terms of reference set forth in document  WT/DS70/9, "[t]he Panel may not… in this case
consider whether Canada has failed to implement the report retroactively since Brazil has only asked
for a finding that the changes to the two progra mmes at issue have not implemented the Report."
Response
1. We believe that the EC is correct.  Brazil did not request the Panel to examine the sufficiency
of Canada’s withdrawal of pr evious subsidies, but has only questioned whether the changes
to the two programmes are sufficient to conform with the SCM Agreement. This is in stark
contrast to the situation in the Australia – Leather  21.5 hearing where the Panel found
repayment of the subsidy in question to be required.  In that case, the issue of repayment was
already before the Panel as the United States was seeking repayment of a portion of the
monies already paid out.  In deciding how much repayment was necessary, the Panel may
have gone further than any Party desired, but the issue of repayment had been placed before
the Panel.
2. Canada notes that Canada has fully complied with its WTO obligations in terminating, by the
required date, all assistance found to have been export subsidies.WT/DS70/RW
Page 155
Questions by Brazil to Canada in the Canada Case Re Canada Account
Q1. Please identify any publicly-available sources from which information regarding particular
Canada Account transactions could be obtained.
Response
1. As Canada noted at the hearing, information on specific Canada Account transactions is not
made publicly available due to commercial confidentiality.   It is for this reason that Canadaproposed a reciprocal verification procedure so that Brazil could have access to that
information.
2. Information on the Canada Account in general  can be found from the following publicly
available sources:
• EDC’s Annual Report
• The Summary Report of the Canada Account Report to the Treasury Board.  (This summary
report can be found on EDC’s website.)
• The Government Expenditure Plan and Main Estimates
Q2. Is there any information available to WTO Members that are not Participants in the OECD
Arrangement of that have not negotiated bilateral transparency or verification arrangements with
Canada that would allow those Members to determine whether particular Canada Account
transactions constitute prohibited export subsidies?
Response
1. Canada is not aware of any sources of information that would allow WTO members that are
not OECD members and that are not party to bilateral verification procedures to determine
whether particular Canada Account transactions constitute prohibited export subsidies.
Q3.  In a document provided to the Panel during its meeting of 6 February, Canada states that
Article 15 of the OECD Arrangement, which "requires providers of official financing support to apply
minimum interest rates, or the relevant Commercia l Interest Reference Rates (CIRRs), " is amongst
the "interest rates provisions" referred in the second paragraph of Item (k) to Annex 1 to the
Subsidies Agreement10 Brazil poses the following questions:
(a) Please define the term "official financing support."
Response
1. "Official financing support" is referred to in the fourth paragraph of the Introduction to the
OECD Arrangement: "Dir ect credits/financing, refinancing and interest rate support are
referred to as official financing support."
(b) Is Canada's term "official financing support" the same as the term "official support,"
form the OECD  Arrangement?  If not, what is the difference between the two terms?
                                                     
10 "Item (k): Interest Rates Provisions of the OECD Arrangement," Canadian document provided to the
Panel on 6 February 2000, pg. 2WT/DS70/RW
Page 156
Response
1. All "official financing support" is "official support ", but not all "official support" is "official
financing support". The fourth paragraph of the Introduction is clear in that regard. Aidfinancing (credits and grants) as well as export credit insurance and guarantees (without
interest rate support, i.e. “pure cover”) are listed as possible forms of "official support", but
they do not represent "official financing support".
(c)  As Canada Account now exists, subsequent to the adoption of Canada's
implementation measures, would support fr om it for transactions involving Canadian
regional aircraft constitute "official financing support"?  If so, why?  If not, why not?
Response
1. All Canada Account financing transactions involv ing regional aircraft will comply with the
Arrangement. If Canada Account were used to provide loan guarantees, the transactionswould, as a matter of definition, not constitute "official financing support"; however, they
would still comply with the Ar rangement rules on "official support". In the more typical
cases of direct financing offered under Canada Account, the transactions will, of course,
comply with the Arrangement rules on "official financing support". Whether a transaction is
undertaken in the form of a direct loan or a guarantee, it will be structured in a way to be in
full compliance with the relevant intere st rates provisions of the Arrangement.
Q4. As Canada Account now exists, subsequent to the adoption of Canada's implementation
measures, would support from it for transactions involving Canadian regional aircraft always be
extended at interest rates equal to of above the OECD Arrangement's CIRR?
Response
1. Notwithstanding that Canada believes that floating rates are encompassed within the OECD,
and should be included as “interest rate provisions” and thus fall under the exception in Item
k, the issue of floating rates is still under discussion in the OECD.  In the interest of
contributing to a speedy resolution of this dispute, Canada wants to avoid making this an
issue in this case and has consequently decided not to implement any floating ratetransactions under Canada Account in the regional aircraft sector unless and until this issue is
clarified either under the OECD Arrangement or in the context of WTO proceedings that
directly address this issue.  Accordingly, except in the cases of matching and humanitarian
tied aid, all Canada Account financing transactions in the regional aircraft sector will take the
form of fixed rate financing at interest rates at or above the CIRR.
(a)   If Canada responds in the negative, under what circumstances would such financing
not be extended at interest rates equal to or above the OECD Arrangement's CIRR?
Response
1. If official support were provided by way of “pure cover”, i.e. a guarantee issued to a lending
bank, the interest rates provision in Article 17.b) would be applicable. It is conceivable that
the financing bank could price the loan on a floating rate basis and at a face rate below CIRR.The transaction would still be in full compliance with the interest rates provisions of the
Arrangement. (Indeed, Article 17 is itself an interest rates provision.)
(b) If Canada responds in the affirmative, please reconcile this response with the
following: first, Canada's statement, reporte d at paragraph  of the Panel Report, that
Canada Account financing is used where s upport under EDC's Corporate Account
cannot be extended, i.e., where a particular transaction involves risk factors  orWT/DS70/RW
Page 157
requires financing terms in excess of thos e which EDC's Corporate Account would
normally undertake; and second, Canada's statement, in the 3-4 February Panel
meeting in the companion Article 21.5 case against PROEX, that EDC's Corporate
Account does sometimes lend at rates below the CIRR.
Response
1. Support under Canada Account will continue to be offered in circumstances where for risk,
size or capacity reasons, EDC cannot provide support under the Corporate Account.  In suchcases, the risks will be assessed and the borrower offered terms and conditions commensurate
with the risk, but in accordance with the interest rates provisions of the Arrangement.  A risk
premium would be applied to compensate Canada for the risk incurred.   Canada’s statement,
in the 3-4 February Panel meeting in the companion Article 21.5 case against PROEX, that
EDC’s Corporate Account has sometimes lent at rates below the CIRR, is correct.  In such acase the terms and conditions are not only commensurate with the risk, but are also consistent
with the terms and conditions that would be available to the borrower from commercial
banks/lenders.
Q5. As Canada Account now exists, subsequent to the adoption of Canada's implementation
measures, would support from it for transactions involving Canadian regional aircraft always
comply with the 10-year maximum repayment term applicable to regional aircraft transactions under
the OECD Arrangement?
11
(a) If Canada responds in the negative, under what circumstances would such financing
not comply with the 10-year  maximum repayment term?
Response
1. Canada confirms that Canada Account transactions in the regional aircraft sector will always
comply with the maximum repayment terms of Article 21 of Annex III of the Arrangement,
except in those cases where Canada might exercise its right to match non-compliant terms
and conditions in accordance with Article 29 of the Arrangement, as confirmed by Article 25of Annex III.
(b) If Canada responds in the affirmative, please reconcile this response with the
following: first, Canada's statement, at  paragraphs 6.159-6. 160 of the Panel Report,
that Canada Account financing is used where support under EDC's Corporate
Account cannot be extended, i.e., where a particular transaction involves risk factorsor requires financing terms in excess of those which EDC's Corporate Account would
normally undertake; and second, the fact that EDC's Corporate Account provides
repayment terms (specifically, 16.5 -year terms)
12 beyond the maximum 10-year term
identified for regional aircraft tran sactions in the OECD Arrangement
Response
1. The circumstances that would give rise to 16.5 year terms under Corporate Account would
not be such that Canada Account support would be required. Canada Account continues to be
used in circumstances where Corporate Account can not be extended, for reason of risk, size
of transaction, or country concentration reasons. In other words, such a term would be
granted because it would be consistent with the terms and conditions available to that
                                                     
11 OECD Arrangement, Annex III, Part 2, Chapter V, Article 21(a).
12 Canada - Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R (2 August 1999)
(Adopted 20 August 1999) para. 65.WT/DS70/RW
Page 158
particular borrower from commercial bank s/lenders.  Canada could not, under Canada
Account, support terms in excess of the ten-year repayment term identified for regional
aircraft transactions in the OECD Arrangemen t, unless it was doing so in order to match
another country’s financing offer on other than the standard terms and conditions of theOECD Arrangement.
Q6. In a document provided to the Panel during its meeting on 6 February, Canada states that
Article 29 of the OECD Arrangement, which "per mits the offering of terms and condition that are
outside of the Arrangement's rules, but only if such terms and conditions  are matching another
government's offer with terms and conditions  that are outside of the Arrangement's rules" is amongstthe "interest rates provisions" referred to in the second paragraph of Item (k)  to Annex 1 to the
Subsidies Agreement.
13
(a) When Canada states that in the circumstances detailed in Article 29, it may provide
"terms and conditions that are outside of the Arrangement's rules" would theprovision of those "terms and conditions" still constitute  "official financing support",
as that term is defined by Canada?
Response
1. Whether or not a transaction is undertaken on a matching basis, if it falls under the
Arrangement's definition of "official financing  support" (i.e., official support offered by wayof direct credits/financing, refinancing and/or interest rate support), it remains "official
financing support". Canada notes that the definition is the OECD Arrangement definition, not
a definition devised by Canada.
(b) Does Canada consider it to be consistent with the interest rates provisions OECD
Arrangement to offer terms that are "outside  of the Arrangement's rules" where it is
"matching another government's offer with terms and conditions that are outside of
the Arrangement's rules"?
Response
1. Yes. Article 29 grants a positive right. As a result, matching (unlike unilateral derogations) is
compliant with the Arrangement. It is an interest rates provision because it allows
Participants to offer terms and conditions affecting the interest rate and the amount of interest
payable that are more favourable than the terms and conditions envisaged in the other interest
rates provisions of the Arrangement.
(c) Does Canada consider it to be consistent with the Subsidies Agreement to offer terms
that are "outside to the Arrangement's rules", where it is "matching another
government's offer with terms and conditions that are outside of the Arrangement's
rules"?  If Canada's response is in the affirmative, please identify which provision of
the Subsidies Agreement permits "matching" in these circumstances.
Response
1. Matching involves the provision of an export subsidy.  An export subsidy is, as a rule,
prohibited under the SCM Agreement.  Matching is, however, permitted under the second
paragraph of Item (k) as an export credit practice that complies with the interest rates
provisions of the OECD Arrangement.
                                                     
13 "Item (k): Interest Rates Provisions of the OECD Arrangement," Canadian document provided to the
Panel on  6 February 2000, pg. 3WT/DS70/RW
Page 159
Q7. In paragraph 71 of its Statement for the Meeting of the Panel, dated 6 February 2000,
Canada stated that the "interest rates provisions" of  the OECD Arrangement relevant to this dispute
are "generally" contained in Chapter 11 and Annex III to the Arrangement.  Please identify any
exceptions.
Response
1. In its list of "interest rates provisions", Canada also identified Article 2 ("Scope of
Application") and Article 3 ("Special Sectoral Applications and Exclusions"). These twoarticles can be found in Chapter I of the Arrangement.
2. Canada listed Article 2 because the scope of the Arrangement naturally determines the scope
of the interest rates provisions of the Arrangement. Article 3 is of particular relevance in the
context of export credits for regional aircraft because it effectively establishes how the
interest rates provisions of the Annexes are related to the interest rates provisions of theArrangement.
Canada wishes to note that it limited its list to those interest rates provisions that are relevant for
regional aircraft transactions. Other interest rates provisions might be relevant in other sectors. For
illustrative purposes only, Article 25 ("Local Cost") would, in Canada's view, be among the interest
rates provisions that are relevant for export credits in support of power projects.WT/DS70/RW
Page 160
ANNEX 2-5
COMMENTS OF CANADA ON BRAZIL'S RESPONSES
TO THE QUESTIONS FROM THE PANEL
(17 February 2000)
CANADA ACCOUNT
Question 1
1. Canada confirms the statements made in its written submissions and in its response to
question 4 from the Panel regarding the serious and effective nature of the Ministerial Policy
Guideline.  The Guideline is not at all hortatory.
Question 4
2. Canada would like to re-confirm that Canada is committed to complying with the rulings and
recommendations of the Panel and Appellate Body on an on-going basis.  Accordingly, and in
response to the criticism directed at Canada by the Panel and the Appellate Body for failing to
produce certain commercially confidential information in the earlier proceedings, Canada is revising
the form of the confidentiality provisions to be contained in future TPC contribution agreements and
in future EDC transactions, so as to facilitate, if requested, the disclosure of such information in thecontext of WTO dispute settlement proceedings.
TECHNOLOGY PARTNERSHIPS CANADA
Question 2
3. The Panel has asked Brazil whether the provision of specific subsidies to export-oriented
industries, for that reason alone, necessarily violat es Article 3.1(a) of the SCM Agreement.  While it
is not stated directly, Brazil's answer, and in particular Brazil's quotation of the United States third
party submission, implies that in Brazil's opinion, granting a subsidy to an industry that exports isnot, in and of itself a violation of Article 3.1(a).
4. Canada has two comments regarding Brazil's response.5. First, Brazil's assertion that "two-thirds of all funds [under TPC] will go to the aerospace
industry", and its implication that "aerospace" and "regional aircraft" mean the same thing, are
incorrect.  Regional aircraft is but one part of the aerospace industry, which is one component of theA&D sector.  The sector includes 800 establishments and encompasses everything from satellites to
combat boots.  This sector is, in turn, only one of the areas designated for funding under TPC.
Indeed, it is in an effort to focus on Enabling and Environmental technology projects, and
recognizing that projects in the A&D sector are sign ificantly more costly than those in other eligible
areas, that TPC has placed a limit on the share of funds that can be allocated to A&D.
6. In any event, as Brazil rightly notes in its Second Submission, the issue is not whether
Canadian regional aircraft related projects receive the majority of TPC funds (which they clearly do
not) or $1 of those funds, but whether TPC funding is export contingent.  The facts demonstrate that
it is not.WT/DS70/RW
Page 161
7. Second, TPC provides funding for R&D in the A&D sector because it is a sector with
significant potential for important industrial research and development.
8. The OECD Economic Survey of Canada noted the widely held view that Canadian industry
suffers from an innovation gap compared with other developed countries, ranking 9th out of
10 countries in industrial research.  This innovation gap has contributed to weak productivity
performance over the past two decades, resulting in sub-optimal employment growth and contributing
to high government deficits.
9. In exploring ways of increasing industrial R&D,  it is natural for the Government to look for
sectors or technologies that are already or potentially positioned to conduct R&D on a large scale and
at the leading edge of the technology spectrum.
10. Canada's A&D sector is one such sector.  It is one of the country's largest investors in R&D
and a source of high-paying jobs employing some 800,000 Canadians.  R&D expenditures in the
A&D sector total more than $1 billion annually.  The R&D intensity (R&D/sales) of the A&D sector
was 7.28 per cent in 1998, well in excess of the average of 1.2 per cent for all Canadian
manufacturing enterprises.
Question 3
11. Brazil did not answer the Panel's question;  namely, whether the granting of TPC assistance
to the regional aircraft sector is contingent on the fulfilment of sales forecasts.  The answer is no, and
Canada notes that Brazil has offered no evidence to the contrary.
Question 4
12. Brazil proposes two alternatives for reform ing TPC:  (1) "making funds available to
Canadian industry generally", and (2) "changing TPC so that its contributions do not confer benefits,
and therefore do not constitute subsidies within the meaning of Article 1.1 of the SCM Agreement".
13. The first proposal – making TPC generally available – would be legally irrelevant to
remedying a practice found to be an export subsidy, since export subsidies are deemed to be specific
under Article 2, regardless of general availability.  Brazil is also wrong on the facts, since TPC
contributions are available to Canadian industry generally.  Funds are available to two technologies(enabling and environmental) that cut across all industrial, agricultural and service sectors, and a
group of industrial sectors broadly termed aerospace and defence that encompass a vast area of the
Canadian economy.
14. Regarding Brazil's second alternative – elim inating any benefit from TPC contributions,
Canada notes that Canada is not required to refrain from subsidizing the regional aircraft industry,
provided Canada has taken steps so that any such subsidization will not be contingent on exportperformance.  Canada has done so.WT/DS70/RW
Page 162
ANNEX 3-1
SUBMISSION OF THE EUROPEAN COMMUNITIES
(17 January 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION............................................................................................................ 163
II. BUSINESS CONFIDENTI AL INFORMATION.......................................................... 163
III. TECHNOLOGY PART NERSHIPS  CANADA ............................................................. 163
1. Introduction .............................................................................................. 163
2. Assessment by  the EC .............................................................................. 164
IV. THE CANADA ACCOUNT SUBSIDIES ...................................................................... 165
1. Introduction .............................................................................................. 165
2. Assessment by  the EC .............................................................................. 166
V. TRANSPARENCY AGREEMENT BETWEEN CANADA AND BRAZIL .............. 166
VI. CONCLUSION................................................................................................................. 1 67WT/DS70/RW
Page 163
I. INTRODUCTION
1. The European Communities (hereafter "the EC") makes this third party submission because
of its systemic interest in the correct interpretation of the SCM Agreement  and the of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).
2. It will comment on the facts and arguments of the parties as they appear from the Reports and
the first written submissions of the parties.  The arguments presently before the Panel are not
however as yet fully developed and the EC anticipates that it will have more to say at the third party
session of the meeting with the Panel. The EC does not consider that it is appropriate for it at this
stage to discuss arguments that have not yet been developed by the parties.
3. Section III will discuss the Technology Partnerships Canada programme (“TPC”) and
Section IV the Canada Account subsidies.
II. BUSINESS CONFIDENTIAL INFORMATION
4. The EC must first recall its position on the special procedures for the protection of “Business
Confidential Information.”
5. The EC recognises that certain information used in panel proceedings may be of such a
nature that particular care is called for to protect it.  The EC cannot accept however that protective
procedures are adopted which it is impossible for the EC to follow.  As the EC explained before the
Appellate Body, EC officials are not allowed to en ter into personal commitments to third country
governments concerning the conduct of dispute se ttlement proceedings.  Such obligations may only
be undertaken by the EC, which is bound vis-à-vis other WTO Members by Article 18.2 DSU to
ensure that confidential information is protected.  In the case of the EC, the effectiveness of this
obligation is ensured by the fact that EC officials are all bound by the EC Treaty and their terms of
employment not to disclose confidential information, including business confidential information.
III. TECHNOLOGY PARTNERSHIPS CANADA
1. Introduction
5. The Panel has found and the Appellate Body has affirmed that the TPC programme as
applied to the regional aircraft industry constituted a de facto export subsidy, and was therefore
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.  The Panel recommended that
Canada bring these subsidies into conformity of the SCM Agreement  within 90 days.
7. Canada claims to have implemented the Appe llate Body’s findings in the following way :
(a) Canada has terminated all obligations to regional aircraft projects under the TPC
programme, with effect from 18 November 1999.  It has cancelled all outstanding
funding for regional aircraft projects.  It has also withdrawn approvals-in-principle
and has closed all files relating to outstanding applications.  Canada claims that it
now has no further obligation to disburse funds or consider applications with regardto regional aircraft under the  TPC programme as previously constituted.
(b) Canada has also restructured the TPC pr ogramme, with a view to eliminating the
inconsistencies identified by the Panel and the Appellate Body.  In particular, in the
framework of the new TPC, it has restructured the TPC’s objectives to remove theWT/DS70/RW
Page 164
references to export promotion, it has removed export considerations from the
eligibility and approval criteria and it has opened up the programme to activities
which a further from the market (e.g. industrial research), although certain elements
of the documentation have not yet been finalised.  Significantly, Canada states thatunder the new TPC information on export sales will no longer be gathered or
recorded.
8. Canada claims that these actions amount to implementation of the Panel’s and Appellate
Body’s findings.
2. Assessment by the EC
9. The Panel found TPC to be de facto export contingent.  Establishing whether de facto export
contingency has ceased (and not been re-introduced in some way) obviously involves difficultquestions of fact.
10. The EC considers that Canada’s actions with regard to the TPC do prima facie amount to
implementation of the Appellate Body’s findings.  In addition since no disbursements have been
made since 18 November and no new applications for assistance have been approved since that date,
there does not seem to be any basis on which continued de facto export contingency or some other
violation of the SCM Agreement  can be established.
11. The TPC was found to constitute an export subsidy in fact, not in law.  Therefore Canada is
not required to change the law in order to brin g the TPC into conformity with the SCM Agreement,
but it must satisfactorily address the elements which have been found by the Appellate Body to
justify a conclusion of de facto export contingency.  The Panel and the Appellate Body held that a
number of facts relating to the TPC, when considered together, demonstrated that the granting of TPC
subsidies was tied to actual or anticipated export
1  and that export contingency could be “… inferred
from the total configuration of the facts..2
12. It should be noted that Canada is required to remove the export contingency , it is not required
to stop subsidising the aircraft industry.  In order to meet the ‘but for’ test established by the Panel in
paragraph 9.332 of its Report, Canada must satisfy the Panel that TPC assistance will in future be
granted without reference to actual or anticipated export earnings, in order to avoid a finding of de
facto  export contingency as defined by Article 3.1(a) and footnote 4 of the SCM Agreement.  Put
another way, Canada must ensure that the freedom of choice of applicants to decide between sellingon the domestic or export markets is not limited in any way by the conditions attached to the receipt
of the subsidy.
13. The EC notes that the amendments to the TPC programme introduced by Canada are
designed to address each of the groups of facts found to warrant the conclusion of de facto export
contingency. In the restructured TPC programme export performance is no longer referred to as an
objective, export considerations have been removed as a criterion for eligibility or approval, and thescope of eligible activities under TPC have been expanded to include industrial research, thus shifting
the focus of support further away from the mark et.  The systematic gathering of information on
export performance has also been stopped.  Therefore it seems that export contingency can no longer
be inferred from the total configuration of the facts, the balance of which has clearly been changed by
the amendments to the TPC, and in this way Canada has prima facie removed the basis for a finding
of de facto export contingency.
                                                     
1  Paragraphs 9.316 to 9.348 of the Panel Report.  Sixteen factual elements were identified.
2  Paragraph 167 of Appellate Body ReportWT/DS70/RW
Page 165
14. Brazil claims in its First Written Submission that Canada’s amendments to the TPC are
“cosmetic” and do not change the fact that the programme is export contingent.  In particular, it
argues that the sectoral coverage of the TPC has not changed, that the aerospace sector (including
regional aircraft) will continue to receive the largest share of funds and that the regional aircraftindustry remains export-oriented.
15. The EC considers that Canada is not prevented by the SCM Agreement  from limiting
eligibility for a subsidy to certain sectors or from concentrating funding on certain industries.  As for
the export-oriented nature of the regional aircraft industry, while the Appellate Body found that itwas legitimate for the Panel to consider it as a relevant fact in its assessment of export contingency, it
cannot by itself justify such a finding, in view of the provisions of footnote 4 of the SCM Agreement  .
However, Brazil has not produced any other relevant arguments to support its contention that the
restructured TPC is still export-contingent; most of its other argument3  seem to relate the operation
of the previous TPC programme.
16. In the view of the EC, the requirements imposed on a WTO Member to remove de facto
export contingency cannot be so onerous as to effectively prevent a Member from exercising its basic
right to grant subsidies which are not prohibited. In this regard, the fact that a Member continues to
subsidise the same firms or sectors under a modified scheme is not by itself sufficient to conclude
that the status of the scheme has not changed.
17. It is of course possible that in the future the restructured TPC programme may, in the light of
evidence on its actual operation, be found to provide export subsidies to regional aircraft.  For
instance, if the stated eligibility criteria were not adhered to and/or funding was found to be
disproportionately granted to export projects, such a situation may arise. In such a case, the
amendments to the restructured TPC prove not to have been sufficient to prevent a finding of exportcontingency.  However, at the moment, there are no facts before the Panel, with regard to the
restructured TPC, to indicate that this is likely happen.  The Panel can only take its decision on the
basis of the information currently available; the implementing party must be assumed to be acting in
good faith unless there are good reasons to believe the contrary.
IV. THE CANADA ACCOUNT SUBSIDIES
1. Introduction
18. In the original proceeding, the Panel found that the Canada Account programme provided
debt financing (export credits on projects which are deemed to be in the national interest, but which
the EDC cannot support for reasons of size or risk) which constituted de jure export subsidies
prohibited by Article 3.1(a) of the SCM Agreement . Canada did not seek to rebut the prima facie
evidence of an export subsidy provided under this programme, nor did it appeal the Panel’s finding to
the Appellate Body.
19. The Panel also held that since Canada Account financing was discretionary,  it could only
rule on the particular cases of support.
4   This finding was not challenged on appeal. As a result, the
Panel merely found a number of transactions  to have been de jure export contingent.
20. Canada has however accepted that the Canada Account programme was inconsistent with the
SCM Agreement , and has taken steps to rectify this inconsistency and make the programme
compatible with the Agreement.
                                                     
3 Section D.3 of Brazil’s submission.
4 Paragraph 9.213 of the Panel Report.WT/DS70/RW
Page 166
21. First Canada points out that the cases of Canada Account debt financing transactions on
which the Panel ruled had been completed in 1995 and 19985  and that there had been no transactions
financed under Canada Account since 18 November 1999.  Secondly, it has, for future transactions,
adopted a policy that the Minister of Finance will not consider Canada Account financing which doesnot conform to the OECD Arrangement on Export Credits to be in the national interest.
2. Assessment by the EC
22. Since, according to Canada, the Minister is required to approve all such transactions and may
not approve financing transactions which are not in the national interest, it would seem that all
Canada Account transactions (not only those concerning regional aircraft) will in future comply with
the OECD Arrangement.  Under the second pa ragraph of item (k) of Annex 1 of the SCM Agreement ,
in conjunction with footnote 5,  any Member which respects the provisions of the OECD
Arrangement (Canada is a party to it) is not cons idered to be granting a prohibited export subsidy.
Therefore, since Canada has undertaken to respect all the provisions of the OECD Arrangement
(including presumably the interest rate provisions), it appears to the EC that Canada has prima facie
correctly implemented the Panel’s findings by amending the Canada Account programme to
eliminate those elements which the Panel found be inconsistent with the SCM Agreement .
23. Brazil has not produced any evidence to call into question Canada’s implementation.  It
merely suggests that Canada could have opted to assert the affirmative defence under the secondparagraph of item (k) before the original panel, and argues that Canada still bears the burden of
proving this affirmative defence in the implementation Panel.
24. This is clearly correct (and would also be correct if Canada had invoked the defence and it
had been rejected).  The EC presumes that Canada did not invoke item (k) in the original panelproceeding because the Canada Account financing did not meet the requirements of the OECD
Arrangement at that time.
25. Now that the programme has been amended by Canada’s undertaking to comply with the
OECD Arrangement, it must, in accordance with  the presumption of good faith to which WTO
Members are entitled, be considered to no longer constitute a prohibited export subsidy.
26. Unless Brazil can show reasons which lead to Panel to conclude that the programme will not
be applied according to the rules, the Panel must  conclude that the implementation is sufficient.
V. TRANSPARENCY AGREEMENT BETWEEN CANADA AND BRAZIL
27. Canada proposes to enter into a transparency agreement with Brazil to ensure financing
complies with the SCM Agreement  and asks the Panel to suggest this in its recommendations.
28. Canada and Brazil are of course free to settle their dispute in whatever way they wish so long
as the settlement complies with the WTO Agreement.
29. The EC does not however consider that it would be appropriate for the Panel to suggest a
transparency agreement.  Canada and Brazil already have an obligation to notify all their subsidies,
including the ones found by the Panel in this case.  They do not seem to have fully complied with this
obligation..  It would appear more appropriate for the  Panel to insist that Canada and Brazil fulfiltheir WTO commitments than to make the suggestion requested by Canada.
                                                     
5 It appears from the Panel Report (paragraph 6.171) that deliveries  were also completed by 1998.WT/DS70/RW
Page 167
VI. CONCLUSION
30. The EC is conscious that the case before the Panel today poses a number of important issues
concerning the interpretation of the SCM Agreement .
31. The state of the arguments presented by the parties and the information and time for reflection
available to the EC has not allowed it to make as full a contribution to the reflections of the Panel as it
might have liked. It will therefore supplement its arguments at the Third Party Session in the light of
the other submissions to be presented to the Panel before that meeting.WT/DS70/RW
Page 168
ANNEX 3-2
SUBMISSION OF THE UNITED STATES
(17 January 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION............................................................................................................ 169
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME AND THE CANADA
ACCOUNT ........................................................................................................................ 169
A. T HE DETERMINATION OF WHETHER A SUBSIDY IS CONTINGENT IN FACT UPON
EXPORT REQUIRES A PANEL TO EXAMINE ALL OF THE FACTS SURROUNDING THE
GRANTING OF THE SUBSIDY .................................................................................. 169
B. T HE UNITED STATES DISAGREES WITH BRAZIL ’S AND CANADA ’S
CHARACTERIZATIONS OF ITEM (K) OF THE ILLUSTRATIVE LIST............................ 171
III. CANADA’S PROPOSAL FOR “VER IFICATION PR OCEDURES”........................ 172
IV. CONCLUSION................................................................................................................. 1 73WT/DS70/RW
Page 169
I. INTRODUCTION
1. The United States welcomes this opportunity to present its views in the Article 21.5
proceeding that Brazil has requested to review Canada’s implementation of the recommendations andrulings of the Dispute Settlement Body (“DSB”) in Canada -- Measures Affecting the Export of
Civilian Aircraft, WT/DS70/R, 14 April 1999 (“Panel Re port”); WT/DS70/AB/R, 2 August 1999
(“Appellate Body Report”).  As was the case befo re the Panel and the Appellate Body, the United
States does not intend to comment upon the specific factual matters at issue in this dispute.  Rather,
the United States intends to limit its comments to certain fundamental interpretive issues relating to
the proper legal interpretation of what constitutes a subsidy that is “contingent in fact” upon export
performance and the proper approach for addressing claims involving item (k) of the Illustrative List.
The United States will also comment briefly on Canada’s proposal to establish “verification
procedures” that it claims will “facilitate a definitive resolution of this dispute.
1   The United States
does not comment at this time upon the other issues raised in this proceeding.
II. CANADA’S AMENDMENTS TO THE TPC PROGRAMME AND THE CANADA
ACCOUNT
2. Brazil claims that Canada’s amendments to the TPC programme and the Canada Account do
not make the programmes consistent with the WTO Agreement on Subsidies and Countervailing
Measures (“the SCM Agreement”), and do not constitute effective implementation of the DSB’srecommendations and rulings.  The United States takes no position on these issues.  The United
States does, however, wish to make certain brief observations that it hopes will assist the Panel in
reaching its own determinations.
A. THE DETERMINATION OF WHETHER A SUBSIDY IS CONTINGENT IN FACT
UPON EXPORT REQUIRES A PANEL TO EXAMINE ALL OF THE FACTS
SURROUNDING THE GRANTING OF THE SUBSIDY
3. Brazil properly notes in its submission that the Panel and the Appellate Body each concluded
that TPC assistance to the Canadian regional aircraft industry was contingent “in fact” (or “ de facto ”)
upon export performance.
2   As the Appellate Body explained, the purpose of the prohibition on
export subsidies that are contingent in fact upon export performance is to prevent circumvention of
the prohibition against export subsidies contingent in law upon export performance.3   Moreover,
although the legal standard for demonstrating such  contingency is the same for the two types of
export subsidy, the types of evidence that may be employed to meet the legal standard may differ.The Appellate Body explained that proving de facto  export contingency is much more difficult than
proving de jure  export contingency because:
There is no single legal document which will demonstrate, on its face, that a subsidy
is “contingent . . . in fact . . . upon export performance”.  Instead, the existence of
this relationship of contingency, between  the subsidy and export performance, must
be inferred  from the total configuration of the facts constituting and surrounding the
granting of the subsidy, none of which on its own is likely to be decisive in any given
case.
4
4. Thus, it is not enough merely to examine the legal criteria controlling an alleged de facto
export subsidy.  Nor is it enough simply to examine the formal, non-legal criteria that a Government
considers in determining whether to grant the subsidy.  Rather, a Panel must look at all of the facts
                                                     
1 Canada Submission, paras. 59-61.
2 See Panel Report, para. 9.347; Appellate Body Report, para. 180.
3 Appellate Body Report, para. 167.
4 Appellate Body Report, para. 167.WT/DS70/RW
Page 170
surrounding the granting of the subsidy to determ ine whether – despite the absence of any formal
requirements – the granting of the subsidy was in fact tied to actual or anticipated exportation.
5. In this sense, the United States noted before the Appellate Body that Canada’s own approach
for identifying de facto  export subsidies under its domestic countervailing duty law views the intent
of the subsidizing government as a primary consideration.  Section 5.15.1.3 of the “Special Import
Measures Act (“SIMA”) Handbook5  contains the following discussion on “Guidelines on What
Constitutes an Export Subsidy”:
Sometimes . . . a subsidy may not be explicitly contingent on export performance but
may have the same effect.  For example, where a grant or concessional loan is
provided to aid the establishment of an industry which will produce largely for
export markets, the subsidy may be a "de-facto" export subsidy.
If the subsidy cannot be readily identified as an export subsidy, on the basis of a
direct linkage to export performance, then it may be useful to examine other factors
to determine whether there is an export linkage.  These factors could include the
granting authority's intention in establishing the programme gleaned from
government statements or publications which announced or publicized the
programme.  The enabling legislation should also be reviewed to determine whether
it indicates a linkage to export performance.   However, if increased external trade
and balance-of-payments considerations are incidental to national industrial orregional objectives, then the subsidy may not be intended as an export subsidy.
Accordingly, the intention may be difficult to distinguish in practice. . . .
Trade impact is another factor in making the distinction.  Domestic subsidies are
introduced to relieve distortions in the domestic economic scene, whereas export
subsidies are intended to have a major trade impact.  Of course, any domestic
subsidy will often have some indirect trade  impact, however minor, and subsidies
which lower the costs of industries producing tradeable goods are properly a matter
for concern.  Also, subsidies are rarely provided with one purpose in mind.
Objectives such as sectoral, structural, scientific, or regional policies are also bound
up in subsidy decisions.6
Thus, the SIMA Handbook recognizes the intent and objectives of the subsidizing government as
relevant factors for determining whether a particular subsidy is a de facto  export subsidy.
6. Moreover, the EC argued before the Appellate Body that “[o]ne circumstance in which an
indication of de facto  export contingency might arise is where the recipient is required to achieve
certain minimum production and sales targets which in the light of the facts of the case can only be
achieved through increased export effort and not from sales on the domestic market.”  The
United States agrees wholeheartedly with the EC’s statement.  If there is something about the product
itself, or the nature of the market for that product, which indicates that a recipient will have to export
to fulfill the conditions of the subsidy, that would be persuasive evidence of de facto  export
contingency.  This is not to say, however, that such a circumstance is the only circumstance that
would indicate the existence of a de facto  export subsidy.
7. Finally, Canada quotes the Appellate Body’s statement that:
                                                     
5 The Special Import Measures Act (“SIMA”) is the Canadian antidumping and countervailing duty
law.  The SIMA Handbook is the working manual of the Revenue Canada Anti-Dumping and Countervailing
Directorate.  It can be accessed online at http://www.rc.gc.ca/sima.
6 SIMA Handbook, para. 5.15.1.3 (Nov. 27, 1998)  (emphasis added).WT/DS70/RW
Page 171
The second sentence of footnote 4 precludes a panel from making a finding of de
facto export contingency for the sole reason that the subsidy “is granted to
enterprises which export”.  In our view, me rely knowing that a recipient’s sales are
export-oriented does not demonstrate, without more, that the granting of a subsidy istied to actual or anticipated exports. . . .  We agree with the Panel that, under the
second sentence of footnote 4, the export orientation of a recipient may be taken into
account as a relevant fact, provided that it is one of several facts which are
considered and is not the only fact supporting a finding.
7
Canada views the Appellate Body’s statement as support for the proposition that the SCM Agreement
does not prohibit the granting of subsidies to firms or industries that are export oriented, “including in
circumstances where the government is aware of this export orientation.8   In the view of the United
States, this statement is not quite accurate.  As the above excerpt demonstrates, the Appellate Body in
fact stated that the export orientation of a firm is not enough standing alone  to support a finding of de
facto  export contingency.  In the view of the United States, there is a fundamental difference between
a government granting a subsidy to an enterprise which happens to export and a government granting
a subsidy to an enterprise because  it exports.
8. As noted at the beginning of this discussion, the United States takes no position on the issue
of whether the amendments that Canada has made to the TPC programme comply with the rulings
and recommendations of the DSB.  The United States hopes, nonetheless, that its comments on the
need to examine all of the facts surrounding the decision to grant the subsidy will prove useful to thePanel as it evaluates the complex issue at hand.
B. THE UNITED STATES DISAGREES WITH BRAZIL’S AND CANADA’S
CHARACTERIZATIONS OF ITEM (K) OF THE ILLUSTRATIVE LIST
9. The second type of financing at issue in this proceeding is the “Canada Account.”  In
challenging Canada’s amendments to the Canada Account, Brazil notes Canada’s statement that
future transactions under the Account will be authorized only if they comply with the OECD
Arrangement on Guidelines for Officially Supported Export Credits.
9   The relevance of the OECD
Arrangement to this issue is that the second paragraph of item (k) of the SCM Agreement’sIllustrative List states that:
if a Member is a party to an international understanding on official export credits . . .
or if in practice a Member applies the interest rates of the relevant undertaking, an
export credit practice which is in conformity with those provisions shall not beconsidered an export subsidy prohibited by this Agreement.
10
Brazil characterizes this language as an “affirmative defense” and argues that it is “not sufficient ” forCanada merely to assert the defense in this proceeding.
11   While disputing whether it has an
obligation to “do more” at the present time, Canada does not dispute Brazil’s description of the cited
language as an affirmative defense and, in fact, “agrees that it is the Member claiming an exception
that must demonstrate its entitlement to that exception.12
10. The United States disagrees with Brazil’s and Canada’s characterization of the secondparagraph of item (k) as an “affirmative defense” or an “exception” to the SCM Agreement.  In the
                                                     
7 Canada Submission, para. 37, citing  Appellate Body Report, para. 173.
8 Canada Submission, para. 37.
9 Brazil Submission, para. 45.
10 SCM Agreement, Annex I (Illustrative List), item (k).
11 Brazil Submission, para. 46.
12 Canada Submission, para. 67.WT/DS70/RW
Page 172
view of the United States, a complainant that challenges a practice contained in the Illustrative List
has the burden of establishing that the practice constitutes an export subsidy.  If the complainant
establishes a prima facie  case, the burden then shifts to the defendant to rebut the prima facie  case.
In the view of the United States, the items contained in the Illustrative List are not “exceptions” to therest of the SCM Agreement, but rather are particular applications of the general standards in Article 1
to particular types of government practices.
11. The United States has no further comments to make on the issue of Canada’s amendments to
the Canada Account.
III. CANADA’S PROPOSAL FOR “V ERIFICATION PROCEDURES”
12. Finally, the United States wishes to comment briefly on Canada’s proposal to establish
“verification procedures,” which it asserts will “facilitate a definitive resolution of this dispute.
13  
Canada’s willingness to accept these procedures is conditioned on Brazil’s willingness to accept
similar procedures with respect to the rulings and recommendations in Brazil – Export Financing
Programme for Aircraft  (PROEX).14   Canada claims that the “[e]ndorsement of this proposal for
bilateral verification procedures would be consiste nt with the objectives of the DSU, and could be
suggested by the Panel pursuant to Article 19.1 of the DSU.”
13. In the view of the United States, if they so desire, Canada and Brazil certainly may agree to
establish procedures that would enable each part y to monitor the other’s compliance with the rulings
and recommendations applicable to the programmes at issue.  However, the United States disagrees
that Article 19.1 of the DSU would permit the Panel to suggest such procedures.  By its plain terms,
Article 19.1 permits a panel to suggest ways to implement the recommendations that it makes after
concluding that a measure is inconsistent with a covered agreement.  It does not permit – or evencontemplate – that a panel may take further steps and play some role in monitoring the
implementation process itself.  As the Appellate Body stated in India – Patent Protection for
Pharmaceutical and Agricultural Products :
[a]lthough panels enjoy some discretion in establishing their own working
procedures, this discretion does not extend to modifying the substantive provisions of
the DSU. . . .  Nothing in the DSU gives a panel the authority to disregard or to
modify other explicit provisions of the DSU.
15
14. Furthermore, the United States observes that nothing would prevent Canada and Brazil from
agreeing on “transparency” procedures under Article 25 of the DSU, which permits parties by mutualagreement to resort to arbitration as an alternative to dispute settlement.  Article 25.2 of the DSU
explicitly permits parties to agree on the procedures to be followed in that context.
16
                                                     
13 Canada Submission, paras. 59-61.
14 WT/DS46/R and WT/DS46/AB/R adopted on 20 August 1999.
15 India – Patent Protection for Pharmaceutical and Agricultural Products, WT/DS50/AB/R, 19
December 1997, para. 92.
16 DSU, art. 25.2.WT/DS70/RW
Page 173
15. Lacking additional details, the United States is not in a position to comment upon the actual
structure that the verification procedures would take.  Once again, this presumably would be an issue
for the parties to decide among themselves.
IV. CONCLUSION
16. In conclusion, the United States thanks the Panel for providing an opportunity to comment on
the important issues at stake in this proceeding, and hopes that its comments will be useful.WT/DS70/RW
Page 174
ANNEX 3-3
ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
(6 February 2000)
1. Introduction
1. The European Communities makes this third party submission because of its systemic
interest in the correct interpretation of the SCM Agreement and the correct application of the DSU.
2. The EC is in particular most concerned by the fact that the recent Article 21.5 panel on
Australia – Automotive Leather1 has considered itself entitled to interpret the WTO Agreement as
allowing retroactive remedies.  Since similar issues may be involved in this case and the present
Panel may have to confront the question, the EC feels it must devote some time today to explaining
why the approach of the Article 21.5 panel on Australia – Automotive Leather  is a serious error.
2. Panels may not decide ultra petitum
3. The Panel in this case ought not to reach the issue of retroactivity of remedies which proved
so problematic in the Article 21.5 report by the Australia – Automotive Leather  since the terms of
reference of this Panel are carefully circumscribed2 as covering only the measures that Canada has
taken (or not taken) to amend the two programmes at issue – the Canada Account export credit
financing and the operation of the TPC programme.
4. WTO dispute settlement is a member-driven process that  can only be initiated by members
and is continuously under the control of the parties who are free to choose the panellists they desire
and to terminate the process when they wish.  The DSU expressly states that the purpose of dispute
settlement is to preserve the rights and obligations of Members, that it cannot add to or diminish
those rights and that it should encourage amicable settlements and aim at a satisfactory resolution ofdisputes.
5. The Appellate Body made clear in India – Patent Protection
3 that a claim that has not been
made in the request for the establishment of the panel cannot be the subject of a finding by a panel
and explained this inter alia  on the grounds of procedural fairness.4
6. Although there is in principle no bar to the parties or the panel developing new arguments
during the process, the EC considers that this does not allow new arguments to be developed by a
panel which declare or assume the existence of rights that the parties have not claimed.  Such action
raises the same systemic and procedural fairness concerns as arise when a panel makes findings on a
new claim.
7. The Panel may not therefore find in this case consider whether Canada has failed to
implement the report retroactively since Brazil has only asked for a finding that the changes to the
two programmes  at issue have not implemented the Report.
                                                     
1 Report under Article 21.5 DSU by the Panel on Australia – Subsidies Provided to Producers and
Exporters of Automotive Leather , WT/DS126/RW, 21 January 2000.
2 WT/DS70/9 of 23 November 1999.
3 Report by the Panel on India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products – Complaint by the European Communities and their Member States , WT/DS79/R, 24 August 1998,
at paragraphs 85 - 90.
4 See esp. paragraph 88.WT/DS70/RW
Page 175
3. The requirement to withdraw subsidies can only be prospective
8. However, since it cannot be excluded that arguments about retroactive remedies under the
SCM Agreement  may arise in this case and in view of the unacceptability of retroactive remedies for
the EC, and we are sure for other Members, the EC will now set out its view and comment on the
Australia – Automotive Leather report.
9. The EC agrees with the parties to this dispute and the other third party that the remedy under
Article 4 SCM Agreement, like all other remedies under the WTO dispute settlement system, can only
be, and were only intended by the Members to be, prospective  in nature.  They are not intended to
and indeed cannot remove the effects of a trade distortion or restriction situated in the past.
3.1 The text and context of the relevant provisions
10. The terms “withdraw the measure” or “withdraw the subsidy” in Article 4.7 SCM Agreement
do not require retroactive implementation any mo re than the term “bring the measure into
conformity” in Article 19.1 DSU.
11. The term “withdraw” is a general term which may cover many different concepts including
revocation, repeal, repayment of money, liquidation of  an interest or a neutralisation of an effect.
The definitions in the New Shorter Oxford Dictionary include5:
Take back or away (something bestowed or enjoyed). Cause to decrease or disappear.  
Remove (money) from a place of deposit.
12. The term “withdraw” is used in Article 4.7 precisely because there may be many ways of
implementing a panel report concerning export subsidies – as the EC will discuss in more detail
below.
13. “Withdraw”  does not imply a retroactive  remedy but rather in the context a prospective
remedy.   If an investment is withdrawn the investor may receive more or much less that he put in.  A
right, or even an obligation, to withdraw does not imply recovering exactly the sum originally
invested.  Indeed Articles 3.7 and 26.1(b) DSU al so use the term “withdrawal of the measure” when
referring to implementation in the sense of Article 19.1 DSU and this has been held to mean only
prospective implementation in the report of the Article 21.5 panel in European Communities –
Bananas – Recourse by Ecuador ,6 where the panel held that:
In framing this issue for consideration, we do not imply that the European
Communities is under an obligation to remedy past discrimination.  Article 3.7 of the
DSU provides that "… the first objective of the dispute settlement is usually to
secure the withdrawal of the measures concerned if these are found to be inconsistent
with the provisions of any of the covered agreements."  This principle requirescompliance ex nunc  as of the expiry of the reasonable period of time for compliance
with the recommendations and rulings adopted by the DSB.  If we were to rule that
the licence allocation to service suppliers of third-country origin were to be
"corrected" for the years 1994 to 1996, we would create a retroactive effect of
remedies ex tunc .  However, in our view, what the EC is required to ensure is to
                                                     
5 New Shorter English Oxford Dictionary - CD - January 1997.
6 Report by the Panel on European Communities – Regime for the Importation, Sale and Distribution
of Bananas – Recourse to Article 21.5 by Ecuador , WT/DS27/RW/ECU, 12 April 1999, at paragraph 6.105.WT/DS70/RW
Page 176
terminate discriminatory patterns of licence allocation with  prospective  effect as of
the beginning of the year 1999.
14. In the same way, the Article 22.6 Report on the recourse to Article 22 DSU by the US in EC
–Bananas ,7 considered that the level of nullification and impairment had to be assessed as it existed
at the end of the reasonable period of time (which may, for a number of reasons, be different from
that which existed before). This supports the view that the obligation to implement only relates to the
future, not the past.
15. An additional element of context supporting the non-retroactivity of remedies in the WTO is
the fact that both Articles 19.1 DSU and 4.7 SCM Agreement  allow Members a period of time in
which to implement panel reports. Since these provisions do not require immediate implementation,
why should they be interpreted to require retroactive implementation?
3.2 The object and purpose of the WTO Agreement
16. The above interpretation is fully supported by a consideration of the object and purpose of
the WTO Agreement.
17. The fundamental reason why WTO remedies are not retroactive is that the objective of the
WTO Agreement is the removal of restrictions on trade, not compensation for past restrictions or the
creation of rights to restrict trade in the future.  This objective can only be achieved by ensuring thattrade-restricting or trade distorting-measures are removed for the future.  Past trade restrictions or
distortions  cannot be remedied. In particular, creating new restrictions and distortions in the future
cannot eliminate the fact that trade was distorted or restricted in the past but in fact only frustrate the
object and purpose of the WTO Agreement.  The situation is very different from legal procedures that
seek to provide monetary compensation.
18. Specifically, in the case of subsidies, a benefit and a corresponding trade advantage that has
been enjoyed in the past cannot be removed. All that can be removed is the benefit that is yet to be
enjoyed. A requirement to remove more than the prospective benefit in an effort to “punish” or
“deter” or “compensate” would logically mean that the company concerned suffers a disadvantage
for the future.  This would not remove the earlier benefit and the resulting restrictions or distortions
of trade but merely create new ones contrary to the fundamental objectives of the WTO Agreement.
19. Indeed, the Australia – Automotive Leather panel did itself recognise that there was no intent
in the SCM Agreement  that the remedy attempt to restore the status quo ante  or to provide reparation
or compensation when it ruled that there was no basi s on which to add interest to the amount to be
repaid.
20. An additional purpose of the WTO Agreement and in particular its dispute settlement system
is to provide “security and predictability to the multilateral trading system” (Article 3.2 DSU).  This
purpose is also frustrated by retroactive remedies.
21. It is clear that the operation of the WTO Agreement can affect  the rights and obligations of
private operators even though, as international law, it cannot create  rights and obligations for private
operators except where this expressly provided for. The EC is firmly of the view that the WTO
Agreement and the SCM Agreement  in particular do not have direct effect in municipal legal systems
                                                     
7 European Communities - Regime for the Importation, Sale and Distribution of Bananas  - Recourse to
Arbitration by the European Communities und er Article 22.6 of the DSU WT/DS27/ARB of  9 April 1999,
paragraph 4.8.WT/DS70/RW
Page 177
– that is they are not “self-executing”.8  This fact has consequences for the degree of interference in
private rights that the WTO Agreement was intended to give rise.
22. The EC would observe more generally that under the SCM Agreement  there is a distinction
to be drawn between the interest of private parties in the continuation of a law or other general
measure and the individual rights arising out of a particular act of a government, such as the grant of
a subsidy.  The former can be withdrawn, the latter cannot be simply be revoked under the
constitutional systems of most WTO Members.
23. Consequently, the EC considers that the obl igation to “withdraw” the prohibited export
subsidy in Article 4.7 SCM Agreement can only be to withdraw the general measure or programme to
the extent that it is contrary to the SCM Agreement  and, as regard individual or “one-off” subsidies to
withdraw that portion of it that co rresponds to the future effects, that is the prospective benefit, and
not that which corresponds to effects which have occurred in the past.
24. The panel in Australia – Automotive Leather relied in fact heavily on a different “object and
purpose” argument to support its interpretation.  This was that a retroactive remedy was necessary in
order to allow an effective remedy.9
25. The Australia – Automotive Leather panel expressly states in paragraph 6.37: “we decline to
read ‘withdraw the subsidy’ in a manner that does not give it effective meaning.” Its motivation isexplained in paragraph 6.35 as follows:
In our view, terminating a programme found to be a prohibited export subsidy, or not
providing, in the future, a  prohibited subsidy, may constitute withdrawal in some
cases.  However such actions have no impact and consequently no enforcementeffect, in the case of prohibited subsides granted in the past.
10
26. The Australia – Automotive Leather panel seems to be saying that its rigorous interpretation
of the terms of the SCM Agreement  would lead to a different conclusion to that it arrives at in that
case where the defending party would have to take some other unpalatable action.  It seems therefore
that the basis for the Panel’s finding is that the need for a deterrent effect in the SCM Agreement .
27. The EC would observe that this approach based on requiring an effective remedy or a
deterrent effect might mean that a subsidy which is  paid in regular instalments over, say, 10 years
would be treated differently to a subsidy of equiva lent value paid immediately in one lump sum.  In
the former case, if the  Australia – Automotive Leather panel had been confronted with the former
subsidy it might have considered that that cessation of future payments was sufficient withdrawal (on
the basis that there would have been an “effective remedy”).  In the latter case, it would have required
repayment of the whole amount. This would treat equivalent subsidies differently for no good reason
and elevate form over substance.  The approach advocated by the EC and the parties in that case
would allow the two cases to be treated consistently.
28. The EC contests that the SCM Agreement  or any other part of the WTO Agreement is
intended to have any deterrent effect.  This is not only apparent from the object and purpose of the
WTO Agreement, described above, but also from the fact that in the event of non-compliance,
                                                     
8 This view is confirmed by the Report by the Panel on United States – Sections 301-310 of the Trade
Act of 1974 , WT/DS152/R, 22 December 1999, at paragraph 7. 72. The absence of direct effect of WTO
provisions in the EC has recently been confirmed by the court of Justice in case-149/96, Portugal v. Council .
Judgment of the Full Court of 23 November 1999 . See also annotation by Rosas in Common Market Law
Review [2000].
9 Paragraphs 6.35 to 6.38 of the report.
10 Paragraph 6.34.WT/DS70/RW
Page 178
suspension of concessions under Article 22 DSU must be “equivalent” to the level of the nullification
and impairment caused by the measure found to be WTO-incompatible and countermeasures under
Article 4.10 SCM Agreement  must be appropriate and not disproportionate.  As the Arbitrators in EC
– Bananas explained:
… the purpose of countermeasures to induce compliance . But this purpose does not
mean that the DSB should grant authorisation to suspend concessions beyond what is
equivalent  to the level of nullification or impairment. In our view, there is nothing  in
Article 22.1 of the DSU, let alone in paragraphs 4 and 7 of Article 22, that could beread as a justification for counter-measures of a punitive  nature.
29. If countermeasures are not to have a punitive or deterrent element, then nor should the
voluntary compliance.  Otherwise, voluntary compliance would be discouraged.
30. In any event, the “need for an effective remedy” argument of the Australia – Automotive
Leather panel is misguided since the correct approach of withdrawing the prospective portion of the
benefit of the financial contribution does provide an effective remedy.  The Australia – Automotive
Leather panel’s reason for rejecting this approach was, apart from its wrong interpretation of the
word “withdraw”, simply that “the valuation of the benefit of a subsidy, its allocation over time, and
the calculation of the "prospective portion" thereof, are complicated questions, for which there are no
guidelines in the SCM Agreement.”
11
31. This is not acceptable.  WTO dispute settlement generally, and subsidy proceedings inparticular, will often involve complex issues of fact but this is no reason for a panel to abandon its
mission and require, for example, the repayment of the whole of the financial contribution rather than
just a part.  This is just as unacceptable as saying that since it is difficult to calculate a precise
amount, no amount need be repaid.
3.3 Past practice
32. The absence of a remedy for past and consu mmated violations has always been a well-known
feature of the GATT/WTO system.  It is established and accepted that it can lead in some cases tothere being no remedy at all for the complaining pa rty.  The EC considers that this established
practice confirms the conclusions it reaches above.
33. A useful discussion of the practice of the GATT Contacting Parties is contained in the panel
report under the Agreement on Government Procurement on Norway - Procurement of Toll
Collection Equipment for the City of Trondheim.
12  In the WTO, panels have also always operated on
the basis that remedies cannot be retroactive and the EC has already referred the Panel to the reports
in the banana litigation.
3.4 Application to subsidies and the present case
34. There may be several ways of withdrawing a prohibited export subsidy in a particular case.
The application of the above principles to the case of prohibited export subsidies must bear in mind
that such subsidies are made up of three elements.  First there must be a financial contribution.
Second, for there to be a subsidy, the financial contri bution must give rise to a benefit to the recipient.
Third the subsidy is only prohibited if it is contingent upon export performance.  Each of these
elements may have components that are past and components that only arise in the future.
                                                     
11  Paragraph 6.44 of the Australia – Automotive Leather Report.
12  See e.g. the discussion in the panel report under the Agreement on Government Procurement on
Norway - Procurement of Toll Collection Equipment for the City of Trondheim . GPR/DS.2/R, adopted on 13
May 1992, paras. 4.21, 4.24 and 4.26.WT/DS70/RW
Page 179
35. Withdrawing the measure or prohibited export subsidy may be achieved by effectively
withdrawing any of these elements.
36. In some cases the choice may be constrained by the practical impossibility of withdrawing
one or other of these elements. Thus the Australia – Automotive Leather panel noted that removal of
the export contingency was not possible in that case since the contingency was found to exist at the
date of grant which was in the past.  But equally, withdrawal of effects that have already been
manifested, including a benefit which has been enjoyed in the past, is also not possible.  The onlyeffects that can be prevented, that is the only benefit that can be withdrawn, is the benefit that is yet
to be enjoyed in the future.  Attempting to withdraw a benefit enjoyed in the past by ordering the
repayment of the whole of the financial contribution paid simply imposes a penalty on the company
(even though the panel attempts to deny this) for the future which may even create a new and
additional distortion of trade contrary to the object and purpose of the WTO Agreement.
4. Is the TPC now in conformity with the WTO Agreements?
37. The question of whether the TPC has now been brought into conformity with the SCM
Agreement  depends evidently on the facts which the Panel will verify but on which the EC is ill-
equipped to comment – especially since it has not been provided with all the facts.  The EC can agree
with US that it is not sufficient to establish that there is a de facto  export subsidy to show that
subsidies are provided to companies which export.   It must at a minimum be established that they
have been provided to companies  because they export .  Establishing the legal rule does not however
help to resolve the case since there does not appear to be any basis on which to decide that subsidies
are still being provided to companies “because they export”.
38. In fact, it would appear logically impossible to establish that companies are in fact receiving
subsidies “because they export” where there are no exports.  Brazil is complaining that the TPC
programme is still de facto export contingent.  The EC makes the following comments on the legal
constructions that are used by Brazil in its second written submission in an attempt to establish de
facto export contingency of a programme – the new TPC – of which the details are not known and
under which no subsidies have been paid.
39. The original panel report in conjunction with Article 4.7 SCM Agreement  obliges Canada to
take positive action to remove the inconsistency found.  But it does not create any additional
obligation to that which applies generally with respect to export subsidies.  For the EC this follows
from general principles and is confirmed by Article 3.2 DSU which states that:
Recommendations and rulings of the DSB cannot add to or diminish the rights and
obligations provided in the covered agreements.
40. Thus the Panel Recommendation cannot diminish a Member’s rights or increase its
obligations under the SCM Agreement .  As the EC has already submitted, Canada is not required to
abolish the TPC, nor is it prevented from subsidising the regional aircraft sector, provided that it doesso in a manner consistent with the SCM Agreement .
41. Similarly, Canada is not prevented from increasing the TPC budget; this is not inconsistent
with the SCM Agreement .  It should be remembered that WTO Members still have adequate redress
against the injurious use of subsidies under Part III of the SCM Agreement , even if they are not
prohibited.
42. Thus Brazil is wrong to argue that Canada must now take measures to ensure  that TPC
cannot in the future give rise to export subsidies.  As the Community has already submitted, Canada,WT/DS70/RW
Page 180
in restructuring the TPC, is simply required to do tw o things. Firstly, to remove those features of the
regime that gave rise to the original finding, and secondly,  not to introduce any new elements into
the restructured programme which can already be demonstrated to give rise to export contingency.
In this respect, the restructured TPC has to be judged on its merits and on the extent to which it hasaddressed the inconsistencies identified by the Appellate Body.  To the extent that Canada has
remedied such inconsistencies, it must be given the benefit of the doubt.   It is not sufficient for Brazil
to make assumptions about the new programme on the basis of statements made in relation to the old
TPC.
43. On this point, the EC notes Brazil’s allegation that the restructured TPC  has “retained its
focus” on the same recipient industries funded by the old TPC.  The Appellate Body did not identify
the apportioning of TPC funds by sector as a factor leading to de facto  export contingency.
Consequently, Canada is not required to change the distribution of funding by sector in order to
remedy de facto contingency.
44. In view of the measures that have been taken and the fact that no new support has been
granted, the EC maintains its view that the inconsis tency must be considered to have been removed,
or at least that the contrary cannot yet be proved. Brazil is right to point out that absence of any
financial contribution is not by itself sufficient to ensure implementation,
13 but in this case changes
that have been made to the restructured TPC must create a presumption that any such contribution
will not lead to the granting of an export subsidy. In this regard, implementation of a panel reportdoes not require an absolute guarantee of future good behaviour, especially in the case of de facto
export subsidies, where the Government may not even know that it is granting such a subsidy.
45. Brazil argues that the Article 21.5 DSU proceeding will be ineffective and therefore reduced
to “inutility” (referring to the case law of the Appellate Body) if the measures taken by Canada arejudged sufficient.  The EC does not consider that this is a reason for the Panel to create new rights
and obligations in violations of Article 3.2 DSU for three reasons:
• First the WTO Agreement, as international law, cannot be expected to guarantee “effective
remedies” in all cases.
• Second, there is an available remedy in the possibility of bringing new panel proceedings.
• Third, the alleged “ineffectiveness” of a remedy does not mean that the corresponding provision
of the Agreement is reduced to inutility.  As the panel in US – Foreign Sales Corporations held,
inutility in the sense used by the Appellate Body means “without meaning” or “redundant” and
refers to the "principle of effective treaty interpretation" which requires that a treaty be
interpreted so as to give meaning to all its term s.  This does not mean that there must be a
satisfactory sanction for the violation of every provision.
14
46. The EC also takes issue with Brazil’s statement15 that  “When it comes to enforcement of the
most egregious of export subsidies – those subsidies determined by a Panel or the Appellate Body to
be levied in a manner designed to circumvent the prohibition of de jure export contingency –Members would be left without an effective remedy.”
47. The EC does not consider it appropriate for WTO remedies to depend on the presumed intent
or “design” of Members, a matter that is notoriously difficult to establish.
                                                     
13 Paragraphs 6 and 13 of Brazil’s  second submission
14 See Report by the Panel on United States – Tax Treatment for “Foreign Sales Corporations” ,
WT/DS108/R, 8 October 1999, at paragraph 7.9.
15  Paragraphs 13 (and 53) of Brazil’s second submission.WT/DS70/RW
Page 181
48. While it is true that the Uruguay Round negotiators sought to prevent circumvention of the de
jure prohibition16, it does not follow that all de facto export subsidies are motivated by
circumvention.  De facto  export subsidies can be determined to exist in many other circumstances,
depending on the panel’s appreciation of the totality of the facts in question, which do not involve
any notion of circumvention.  Indeed, there is arguably no need to demonstrate that a Government
originally intended to grant an export subsidy at all; Footnote 4 of the SCM Agreement merely
requires that the subsidy “…is in fact tied to actual or anticipated exportation….” .  The Appellate
Body did not conclude that Canada intended to circumvent any provisions of the SCM Agreement.
There is no basis for Brazil’s claim that de facto  export subsidies are the “most egregious form of
export subsidies”, since all export subsidies are subject to the same remedy under Part II of the SCM
Agreement.
5. Item (k) of the Illustrative List
49. The EC now comes to the issue of item (k) of the Illustrative List.  Canada has declared that
it will not in future approve Canada Account fi nancing “which does not comply with the OECD
Arrangement.”17  If it respects this commitment (and in the view of the EC Canada is entitled to a
presumption of good faith), there can be no prohibited export subsidy because of footnote 5 to the
SCM Agreement  and the second paragraph of item (k).  Much has already been written on this matter
and the EC will confine its remarks to the argument made by the US that item (k) is part of thedefinition of a subsidy rather than being in the nature of an “affirmative defence,” which is the
position of all the parties and of the EC.
50. The US position is that:
… the items contained in the Illustrative List are not "exceptions" to the rest of the
SCM Agreement, but rather are particular applications of the general standards in
Article 1 to particular types of government practices.
18
51. This cannot be right and the US does seek to justify its self-serving19 contention.  But the EC
will briefly examine the relevant provisions.  The Illustrative List is incorporated into Article 3.1(a)in two ways.  First the prohibition in Article 3.1(a) is stated to include   the subsidies illustrated in
Annex I.  Second, footnote 5 states that that:
"Measures referred to in Annex I as not constituting export subsidies shall not be
prohibited under this or any other provision of this Agreement".
52. Let us consider these two sources of incorporation in turn:
53. It seems absolutely clear that the word “including” means that in principle the Annex to does
diminish the generality of the prohibition in Article 31.(a).  The word “illustrated” does not do so
either.  This is particularly clear from the explanation given by the 1960 GATT Working Party
Report that originally proposed the list:
20
                                                     
16  Paragraph 167 of Appellate Body Report
17 Paragraph 57 of Canada’s First Written Submission.
18 Paragraph 10 of the US Third Party Statement.
19 Its position is motivated by its desire to defend its own export subsidy programme.
20 See the EC submissions reported at 4.940 and 4.941 of the Report.WT/DS70/RW
Page 182
“The Working Party agreed that this list should not be considered exhaustive or to
limit in any way the generality of the provisions of paragraph 4 of Article XVI.”21
54. It is the fact that the Illustrative List in Annex I is incorporated into Article 3.1(a) withoutrestricting the generality of the prohibition that renders footnote 5 necessary.  The drafters realisedthat Annex I contained certain exceptions and they wanted to preserve these in the SCM Agreement .
However what they clearly did not intend was that the Illustrative List should be exhaustive of the
disciplines applying to the measures it described.  If it were, there would be no need for Article 3.1(a)
but simply a reference to the Annex and a statement prohibiting “any other subsidies contingent upon
export performance”.  The fact that the drafters did otherwise must have some meaning.
55. That the US position is erroneousness is also clear from the consequences that it would
entail:
• The first consequence of the US position would seem to be that Brazil has to prove that the new
Canada Account export credits are inconsistent with the second paragraph of item (k).  If that
were true, the Panel could never have found a viol ation in the original proceeding where Brazil
left it to Canada to raise this defence and Canada declined to do so.  Accordingly, if there was no
established violation, there can be no obligation to implement and, also, Brazil would have to
prove that the existing practice does not comply with the Arrangement.
• Second, the US approach of making the Illustrative List exhaustive for those matters addressed
by it, would mean that stricter disciplines only exist for those rare measures not included in the
Illustrative List.  This also cannot have been the intention. The intent of the parties in
incorporating Annex I was not to ensure that ever ything that was previously not prohibited would
now be exempted (which would mean no progress ).  It was to ensure that what was previously
prohibited would remain prohibited (which means no backtracking ).  If the Illustrative List
exempted measures that are simply not identified as export subsidies, the general words of
Article 3.1(a) would fail in their basic task of introducing stricter disciplines.
• Finally, the US approach by making the Illustrative List relevant to the definition of subsidy in
Article 1, would make the Illustrative List a rich source of exceptions to all the disciplines of theSCM Agreement .  Where the drafters wanted the Illustrative List to be relevant for the purpose of
the definition of subsidy, they said so.  Footnote 1 to the SCM Agreement  is a clear example.
6. Conclusion
56. The EC is conscious that the case before the Panel today is complex and poses a number of
important issues concerning the interpretation of the SCM Agreement .  The EC has sought to provide
arguments that it thinks may assist the Panel in coming to the correct conclusion on a number of these
issues.  The EC has not however commented on all the issues which the Panel may potentially decideare relevant to a resolution of this case.  It would be happy to respond to any questions that the Panel
may have on such issues, just as it is ready, if requested, to clarify and develop the comments that it
has made today.
                                                     
21 BISD 9S/187, immediately following the list.WT/DS70/RW
Page 183
ANNEX 3-4
ORAL STATEMENT OF THE UNITED STATES
(6 February 2000)
1. Mr. Chairman and Members of the Panel, it is my honour to appear before you today to
present the views of the United States as a third party in this Article 21.5 proceeding.  It is not myintent today simply to repeat the comments already stated in our written submission.  Instead, I will
first comment briefly on certain statements made by  the EC in its written submission, and then make
a few broader observations on the overall purpose of the SCM Agreement, which the United States
believes should inform the Panel as it considers the difficult issues at hand.  Finally, although I had
not intended to do so, I will also make a few brief comments on the Australia – Leather  decision in
light of the EC’s comments this afternoon.
2. Turning first to the comments of the EC in its written submission, in paragraph 12 of its
17 January submission, the EC claims that Cana da will be able to avoid a finding of de facto  export
contingency for the TPC programme if it is able to satisfy the Panel that future assistance is being
granted without reference to actual or anticipated export earnings.  To quote the EC’s submission,
“Canada must ensure that the freedom of choice of applicants to decide between selling on thedomestic or export markets is not limited in any way by the conditions attached to the receipt of the
subsidy”.
3. The EC’s argument before the Panel is similar to the arguments that it raised without success
before the Appellate Body.  There, the EC argued that there are various tests that the Panel shouldhave applied in determining the export contingency of the TPC programme.  For example, the EC
argued that the panel could have considered “whether the recipient’s freedom to direct his sales effort
to the domestic or the export market is somehow restricted”.
1  This is essentially what the EC is
arguing here.
4. The Appellate Body rejected this kind of rigid approach.  To quote its opinion (at para. 169):
We agree with the Panel that what facts should  be taken into account in a particular
case will depend on the circumstances of that case.  We also agree with the Panel that
there can be no general rule  as to what facts or what kinds of facts must  be taken into
account.2
The Appellate Body’s statement reflects the simple truth that the determination whether a subsidy iscontingent in fact upon export is a complicated task.  Again quoting the Appellate Body (this time at
para. 167), proving de facto  export contingency is “much more difficult” than proving de jure  export
contingency because the existence of the contingency must be “inferred” from all of the facts
surrounding the granting of the subsidy.
5. Therefore, addressing the EC’s suggested test, it may well be that the recipients of a
particular subsidy have complete freedom of choice to decide between selling in the domestic market
and selling in the export market.  The subsidy may still be a prohibited export subsidy.  In the
Australian Leather  case, for example, the subsidy recipient was free as a legal matter to choose its
own markets; it just happened that the nature of the market for its products meant that it had to export
                                                     
1 Report of the Appellate Body, Canada -- Measures Affecting th e Export of Civilian Aircraft ,
WT/DS70/AB/R, 2 August 1999, para. 104.
2 Id., para. 169 (partial emphasis added).WT/DS70/RW
Page 184
to meet the relevant sales targets.  In this manner, the sales targets in essence became de facto  export
targets.3  The EC acknowledged the possibility of this type of scenario in its comments before the
Appellate Body.  The facts will vary from case to case.
6. Finally, in approaching this issue, it is important to keep in mind the Appellate Body’s
observation (at para. 167) that the Uruguay Round ne gotiators sought to prevent the circumvention of
the prohibition on de jure  export subsidies when they included the prohibition on de facto  export
subsidies.  A clever government that wishes to provide export subsidies to its exporters may be able
to do so in a way that leaves its reasons unclear.  However, a subsidy that is neutral on its face maystill be prohibited.  The task for a panel is to determ ine whether, in spite of this facial neutrality, the
surrounding facts lead to the inference that the gr ant of the subsidy was contingent upon export, that
is, that it was tied to actual or anticipated exportation or export earnings.  To quote this panel (at para.
9.332), “do the facts demonstrate” that the subsidy would not have been granted “but for” anticipated
exportation or export earnings?
7. The United States would now like to comment briefly on certain broader points that we hope
will influence the spirit in which the Panel evaluates this dispute.
8. This proceeding, as well as the companion proceeding brought by Canada against Brazil, is
extremely important, for it revolves around the cr itical issue of compliance with DSB rulings and
recommendations and the resultant effect on the SCM Agreement’s ability to discipline injurious andprohibited subsidies.
9. As this Panel noted in its original opinion, subsidies by their very nature involve situations
where governments insert themselves into the marketplace by providing benefits to favored
companies, that is, financial contributions on better than market terms.  While the SCM Agreementallows certain, non-injurious subsidies, it flatly prohibits export subsidies.  These two cases are a
good example of why this is so.
10. When a government chooses to provide an export subsidy, it effectively is deciding to
interfere in the marketplace to provide its producers with an unjustified advantage over their foreign
competitors in their competitors’ home markets and in third country markets .  Inevitably, this
provokes a response from the affected countries and their producers.  For example, in the companion
case to this dispute, Brazil argued before the Appellate Body that PROEX subsidies were intended to
match the subsidies provided by the Government of Canada to its producer.  The result is a ruinous
subsidy competition that distorts the world trading system, punishes taxpayers, and bleeds offresources that might better be used for other purposes.  The governments concerned may well want to
call off this competition; effective rules on export subsidies, effectively enforced, can make this
possible.
11. Finally, I would like to comment briefly on the Panel’s decision in the Australian Leather
Article 21.5 proceeding.  If the Panel would like detailed comments on this issue, I would prefer to
provide them in writing.  However, I am happy to provide some initial oral comments.
12. As an initial matter, the United States feels that the Panel’s decision in the Leather  case is not
directly relevant to this dispute, because Brazil is not seeking the repayment of past TPC and Canada
Account subsidies.  For this reason, this Panel does not need to reach the issue addressed by the
Leather panel.
                                                     
3 Report of the Panel, Subsidies Provided to Producers and Exporters of Automotive Leather ,
WT/DS126/R, 25 May 1999, para. 9.67.WT/DS70/RW
Page 185
13. If  the Panel is nonetheless interested in our  views, then I would simply observe that the
Leather  panel has spoken, so it is appropriate to conclude that its determination is definitive with
regard to that case.  The United States intends to support adoption of the report at the next meeting of
the Dispute Settlement Body.
14. The United States notes that the Leather Panel itself acknowledged that the proper manner of
withdrawing a prohibited export s ubsidy may differ from case to case.
15. While the Panel's conclusion in Leather  went beyond the position that we took, we can't fault
the logic of that conclusion.
16. As I noted at the beginning of my comments, the United States would be pleased to provide a
more detailed response in writing if the Panel so desires.
17. As the United States noted in its written submission, we take no position on the issue of
whether the amendments that Canada has made to the TPC programme and the Canada Account
comply with the rulings and recommendations of the DSB.  The United States hopes, nonetheless,
that our comments today will prove useful to the Panel as it evaluates the complex issues at hand.
18. This concludes my comments.  On behalf of the United States, I thank you again for providing
us with this opportunity to present our views.WT/DS70/RW
Page 186
ANNEX 3-5
ANSWER OF THE UNITED STATES TO QUESTION POSED BY BRAZIL
(14 February 2000)
Q1. Please confirm the United States’ statement, at the 6 February Meeting of the Panel, that it
did not receive Brazil’s Rebuttal Submission, dated 17 January 2000.
Response
The United States confirms the referenced statement.WT/DS70/RW
Page 187
ANNEX 3-6
ANSWERS OF THE UNITED STATES TO QUESTIONS POSED BY THE PANEL
(14 February 2000)
Questions to third parties
US
Q1. The US argues that the items contained in the Illustrative List are not, in Canada’s words,
‘exceptions’ to the rest of the SCM Agreement, but rather are particular applications of the general
standards in Article 1 to particular types of government practices.  Would the US please elaborate on
this statement.  In particular, is the US suggesting that Canada’s view is that the entire IllustrativeList consists of exceptions to the rest of the SCM Agreement?  Whatever the response to the
preceding question, would the US disagree with a statement that the second paragraph of item (k)
might at least in some circumstances be characterized as an “exception” to the first paragraph, in
the sense that measures defined in the first paragraph of item (k) are prohibited export subsidies
except if nevertheless they conform to the provisions of the second paragraph?
Response
1. With respect to the Panel’s request that the United States elaborate on its statement, thequestion of the status of the items contained in the Illustrative List is connected to the so-called “ a
contrario  issue”.  Because the US position regarding the latter issue has been set out more fully in its
written submissions in other dispute settlement proceedings, the United States will restate this
position below for the benefit of this Panel, and hopes that this more detailed treatment of the issue
will assist the Panel in its resolution of the matter before it.  Following that discussion, the UnitedStates will address the other questions posed by the Panel in Question #1.
The “ A Contrario”  Issue
2. The basic question underlying the a contrario  issue is this:  In the case of a measure that is
described by a particular item of the Illustrative List, is the measure’s status as a prohibited or non-
prohibited export subsidy governed by the standards contained in the item itself or by the general
standards set forth in Article 1 and Article 3.1(a) of the SCM Agreement?  For example, in the case
of Canadian export financing under the Canada Account, if one assumes that the type of financing in
question is of a type dealt with by item (k), is the prohibited/non-prohibited status of such financingcontrolled by item (k) or by Article 1 and Article 3.1(a)?
3. In the view of the United States, as a general matter of public international law, it is item (k)
which is controlling.  The principle of generalia specialibus non derogant  holds that “a matter
governed by a specific provision, dealing with it as such, is thereby taken out of the scope of the
general provision dealing with the category of subject to which that matter belongs, and which
otherwise might govern it as part of that category.”
1  While the Appellate Body has not necessarily
invoked this principle by name, it repeatedly has emphasized the importance of analyzing a measure
based on the provision of the WTO agreements that most specifically addresses the measure.2  Of all
                                                     
1  Gerald Fitzmaurice, The Law and Procedure of the Court of International Justice, 1951-4:  Treaty
Interpretation and Other Treaty Points , 1957 British Y.B. Int’l L. 236; see also  Case Concerning Payment of
Serbian Loans , P.C.I.J. Ser. A, No. 20/21, page 30; and Grotius, De Iure Belli Ac Pacis , Lib. II, Cap. XVI,
XXIX (Classics, 3, 1929).
2  European Communities - Regime for the Impor tation, Sale and Distribution of Bananas
(“Bananas ”),  WT/DS27/AB/R, Report of the Appellate Body adopted 25 September 1997, paragraph 204WT/DS70/RW
Page 188
the provisions in the SCM Agreement, item (k) clearly is the provision that most specifically
addresses export credit practices.
4. In addition to general principles of public international law, the items of the Illustrative List
are controlling – where they apply – by virtue of footnote 5 of the SCM Agreement.  Specifically,
while Article 3.1(a) prohibits export subsidies, including those described in the Illustrative List,
footnote 5 to Article 3.1(a) provides that “[m]easure s referred to in Annex I as not constituting export
subsidies shall not be prohibited under this or any other provision of this Agreement.”  Footnote 5
makes clear that a practice identified by the Illustrative List as not constituting an export subsidy is
not prohibited by Article 3.1(a) or any other provis ion of the SCM Agreement.  Thus, if, for example,
an export credit practice is permitted under item (k) – rather than prohibited – that is the end of the
matter; no further analysis is needed.  As such, footnote 5 constitutes an express incorporation into
the SCM Agreement of the generalia  principle.3
5. The disagreement as to whether an item of the Illustrative List is controlling appears to focus
on the word “illustrative”.  While all of the parties and third parties involved in this dispute agree that
the Illustrative List is “illustrative”, they disagree on the manner in which it is illustrative.  Canada
and the EC appear to argue that if a particular type of financial contribution is described by a
particular item in the Illustrative List, but cannot be considered as an export subsidy under the
standard contained in the particular item, that financial contribution nonetheless can be found to be an
export subsidy under some other standard.
6. In the view of the United States, this is not what the drafters intended when they used the
term “illustrative” to refer to Annex I of the SCM Agreement.  Instead, a more reasonable
interpretation is that the drafters used the term “i llustrative” simply to signify that not all types of
financial contributions are covered by the Illustrative List.4  However, where an item of the
Illustrative List does address a particular type of financial contribution – as is the case with respect to
item (k) and export credits – that item sets forth the standard for determining whether the financial
contribution is or is not an export subsidy.
7. Consider, for example, item (j) of the Illustrative List, which deals with export guarantee and
insurance programmes.  Looking just at the standard for premium rates, premium rates give rise to an
export subsidy if they are “inadequate to cover the long-term operating costs and losses of the
programmes.”  Implicit in item (j), however, is the notion that premium rates do not give rise to an
export subsidy if they are “adequate” to cover long-term operating costs and losses.  Thus, on its face,
item (j) provides Members with a predictable standard to use in establishing and administering exportguarantee and insurance programmes.
                                                                                                                                                                   
(where the issues before a panel implicate two provisi ons, a panel should examine the more specific provision
first); and Argentina - Measures Affecti ng Imports of Footwear, Tex tiles, Apparel and Other Items ,
WT/DS56/AB/R, Report of the Appellate Body adopted 22 April 1998, para. 45 (“Because the language of
Article II:1(b), first sentence, is more specific and germane to the case at hand, our interpretive analysis begins
with, and focuses on, that provision.”).
3  Footnote 5 is not unique in this regard.  Article 1.2 of the DSU, which provides that special or
additional rules and procedures prevail over the general rules of the DSU, constitutes a very significant
application of the generalia  principle.
4  For example, with the exception of  export credits, which are dealt with in item (k) and which relate
to the sale of goods, the Illustrative List does not address export-contingent loans, such as government loansprovided solely to exporters for purposes of capacity expansion.  Indeed, debt financing provided underCanada’s TPC programme does not fall under item (k).  Similarly, with the exception of export credit-related
guarantees, which are dealt with in item (j), the List does not address loan guarantees to producers that are
contingent on export performance.  Likewise, the List does not address forgiveness of government-held debtwhich may be contingent upon export performance.  Finally, the List does not address export-oriented equityinfusions, a practice alleged in this very case.  Canada - Measures Affecting th e Export of Civilian Aircraft
(“Canada Aircraft ”), WT/DS70/AB/R, Report of the Appellate Body adopted 20 August 1999, paras. 217-219.WT/DS70/RW
Page 189
8. Under the approach to the Illustrative List  taken by Canada and the EC, however, any
predictability is lost.  For example, if item (j) was only “illustrative”, there would be numerous ways
in which an export insurance or guarantee programme could be considered to be an export subsidyeven though the premium rates conform to the standard  in item (j).  If premium rates were inadequate
to cover short-term  operating costs or losses, a programme could be considered to be an export
subsidy.  If premium rates were inadequate to cover short- or long-term non-operating  costs, a
programme could be considered to be an export subsidy.  If premium rates were less than what an
exporter might pay for comparable coverage in the marketplace, there could be an export subsidyunder a “benefit to recipient” approach.  This would be particularly true in a situation where a
specific export transaction involves an unusually severe risk of nonpayment or currency fluctuation.
5
9. It is extremely unlikely that the drafters of the SCM Agreement went to the trouble of
crafting in the Illustrative List specific and detailed rules for particular types of financialcontributions, such as the rules in item (j) and it em (k), with the intent that those rules could be
readily ignored in favor of more general standard s found elsewhere in the SCM Agreement.  Instead,
a more plausible reading is that the drafters intended to use the Illustrative List as a vehicle for
establishing detailed rules for certain types of financial contributions, rules that elaborate on the
general principles contained in Article 1 but that cannot be ignored in favor of those more general
principles.
10. The counter-arguments that have been made against this interpretation are not persuasive.
For example, the EC has argued that in order for footnote 5 to exclude a measure from the
prohibitions of the SCM Agreement, there has to be “a clear statement in Annex I that a measure does
not constitute  an export subsidy.”
6  In its prior submissions to the Appellate Body on this issue, the
EC stated that “footnote 5 requires an ‘affirmative statement’ in the Illustrative List to the effect thata measure does not constitute an export subsidy.
7  Under either standard, the EC has identified only
the second paragraph of item (k) as falling within the purview of footnote 5.8
11. However, the text of footnote 5 does not require such a “clear” or “affirmative” statement,
and there is a reason for this:  the drafters had a different intent.  Footnote 5 first appeared in the thirddraft agreement prepared by the Chairman of the Negotiating Group on Subsidies.
9  In this draft,
footnote 5 appeared for the first time – as footnote 4 to Article 3.1(a).  Footnote 4 read as follows:
“Measures expressly  referred to in the Illustrative List as not constituting export subsidies shall not be
prohibited under this or any other provision of this Agreement.”  (Emphasis added).  Thus, the
                                                     
5  Similarly, the approach taken by Canada and the EC would render irrelevant the “material
advantage” clause in the first paragraph of item (k), a clause which the Appellate Body already hasacknowledged must be given meaning.  Brazil - Export Financing Programme for Civil Aircraft  (“Brazil
Aircraft ”), WT/DS46/AB/R, Report of the Appellate Body adopted 20 August 1999, para. 179.  Under the
Canadian and EC interpretation, export credits that otherwise fall under the first paragraph could constitute
prohibited export subsidies regardless of whether they “are used to secure a material advantage.”
6  United States - Tax Treatment for “Foreign Sales Corporations”  (“FSC”), WT/DS108/R, Report of
the Panel circulated 8 October 1999, para. 4.932 (emphasis in original).
7  Brazil Aircraft , para. 77.
8  Id.; and FSC, para. 4.932.  If the drafters truly intended that footnote 5 apply only to the second
paragraph of item (k), presumably they would have articulated this intent more directly by expressly referring
to that paragraph.
9  MTN.GNG/NG10/W/38/Rev. 2 (2 November 1990).  In the prior two drafts, the prohibition against
certain subsidies was contained in Article 1.1, which re ferred to three categories of subsidies:  (a) subsidies
contingent upon export performance; (b) subsidies listed in the Illustrative List; and (c) subsidies contingentupon the use of domestic over imported goods.  MTN.GNG/NG10/W/38 (18 July 1990); andMTN.GNG/NG10/W/38/Rev. 1 (4 September 1990).  In the third draft, Article 1.1 was redesignated as Article
3.1, and the first two categories were combined into a single subparagraph (a).WT/DS70/RW
Page 190
original version of footnote 5 had an additional word – “expressly” – which, had it been retained,
might have supported the EC interpretation.
12. The word “expressly” was not retained, however.  In the very next draft, the word was
deleted from the footnote (still numbered as footnote 4).10  This change demonstrates that the drafters
intended to expand, rather than restrict, the scope of footnote 5.11  The change also demonstrates that
the drafters did not intend the sort of narrow construction of footnote 5 advanced by the EC.
13. The second principal argument – advanced by both Canada and the EC –  is that the US
interpretation somehow would transform the Illustrative List into an exhaustive list that allegedly
would allow “all sorts of measures” to escape the export subsidy prohibition.12  Both Canada and the
EC have offered as an example item (a) of the Illustrative List, which prohibits “direct subsidies,”
claiming that under the US approach, indirect  export subsidies would escape item (a) and, thus,
prohibition under Article 3.1(a).13
14. However, this is a mischaracterization of the US position.  First, as noted above, the USposition is not that the Illustrative List is exhaustive.  Instead, the US position is that the Illustrative
List does not deal with all possible financial contributions, but for those that it does deal with, it
establishes, by virtue of footnote 5, a dispositive legal standard insofar as prohibited subsidies are
concerned.  Second, in the case of the EC’s item (a) example, the US position is that item (a) simply
does not address “indirect” subsidies.  Thus, indirect subsidies do not “escape” any prohibition.Instead, the standard for a prohibited indirect  subsidy must either be found elsewhere in the
Illustrative List or, if the specific provisions of the Illustrative List are silent, in the general principles
of Articles 1 and 3.1(a) of the SCM Agreement.
15. Finally, the opponents of the a contrario  interpretation have never been able to explain how
their approach to footnote 5 and the Illustrative List does not render various portions of the
Illustrative List ineffective.  For example, they have been unable to explain how their approach does
not render the “material advantage” clause of item (k) superfluous.  Because such an outcome is
incorrect under public international law,
14 a correct interpretation of footnote 5 and the Illustrative
List is that the provisions of the Illustrative List are controlling with respect to the measures
addressed therein.
                                                     
10  MTN.GNG/NG10/W/38/Rev. 3 (6 November 1990).
11  Cf., Bananas , para. 186, in which the Appellate Body found that where the negotiating history of the
Lomé Waiver demonstrated that the word “foreseen” was replaced by “required”, the “change clearly suggests
that the CONTRACTING PARTIES wanted to restrict the scope of the Lomé Waiver.”  In the case of footnote5, the change runs in the opposite direction; the drafters clearly wanted to expand the scope of footnote 5.
Likewise, one is “not entitled to assume that the disappearance [of “expressly”] was merely accidental
or an inadvertent oversight on the part of either harassed negotiators or inattentive draftsmen.”  United States -
Restrictions on Imports of Cotton and Man-Made Fibre Underwear , WT/DS24/AB/R, Report of the Appellate
Body adopted 25 February 1997, page 17.  The negotiating record demonstrates that after the word “expressly”was deleted from the text, footnote 5 – then footnote 4 – continued to be the subject of discussion, including anunsuccessful attempt to delete the footnote altogether.  Negotiating Group on Subsidies and Countervailing
Measures; Meeting of 6 November 1990:  Note by the Secretariat , MTN.GNG/NG10/24 (29 November 1990),
page 2.
12  FSC, para. 4.933.
13  Brazil Aircraft, WT/DS46/R, Report of the Panel, as modified by the Appellate Body, adopted
20 August 1999, para. 4.64; FSC, para. 4.933-4.934.
14  See, e.g., Japan - Taxes on Alcoholic Beverages , (“Japan Alcoholic Beverages ”), WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, Report of the Appellate Body adopted 1 November 1996, page 12.WT/DS70/RW
Page 191
Canada’s View
16. Canada’s view appears to be that footnote 5, as well as any item in the Illustrative List that –
in Canada’s view – is encompassed by footnote 5, is an exception to Article 3.15  In the view of the
United States, neither footnote 5 nor the items in the Illustrative List constitute “exceptions”.  To the
contrary, footnote 5 and the Illustrative List are part of Article 3, not exceptions to it.
The Second Paragraph of Item (k)
17. Whether one considers the second paragraph of item (k) to be an “exception to”, a
“qualification of”, or a “refinement of” the first paragraph is, in the view of the United States,
essentially a semantic exercise with no legal significance.  The Appellate Body has stated that the
assignment of the burden of proof is not affected by describing a particular provision as an
“exception” to something else.16  Likewise, characterizing a provision as an “exception” does not
affect the interpretation of the provision.  As the Appellate Body has stated:
[M]erely characterizing a treaty provision as an "exception" does not by itself justify
a "stricter" or "narrower" interpretation of that provision than would be warranted by
examination of the ordinary meaning of the actual treaty words, viewed in context
and in the light of the treaty's object and purpose, or, in other words, by applying the
normal rules of treaty interpretation.17
18. Thus, whether or not one characterizes the second paragraph of item (k) as an exception to
the first paragraph, the complainant in a dispute – in this case, Brazil – has the burden of proving that
the alleged offending practice fails to satisfy the terms of the second paragraph.
Q2. In any case, what are the pr actical implications, if any, for the issues before the Panel (and
for the parties’ arguments) of the US argument c oncerning the parties’ characterizations of the
Illustrative List (or at least of the second paragraph of item (k) thereof)?  That is, the parties seem to
agree that it would be for Canada eventually to choose whether to invoke that provision as a defense,
and if it did so, to provide evidence to demonstrate its compliance therewith.  Does the US agree or
disagree with this?  Please explain.
Response
1. The practical implications of the US argument depend upon whether the Panel considers
itself bound by an agreement between the two pa rties as to how the SCM Agreement should be
interpreted; i.e., the parties’ agreement that Canada bears the burden of proving that Canada Account
financing now conforms to the second paragraph of item (k).  If the Panel simply decides that it will
accept the parties’ interpretation because it happens to be something on which they agree, then the
US argument is irrelevant.
2. However, in the view of the United States, a panel is not obliged to accept the interpretation
of an agreement that happens to be shared by the two litigants present before it.  Although it is true
that WTO dispute settlement is a Member-driven process, that does not mean that a panel can ignore
its mandate under Article 11 of the DSU to “make an objective assessment of the matter before it ... .”
                                                     
15 Canada - Measures Affecting th e Export of Civilian Aircraft , WT/DS70/AB/R, Report of the Panel,
as modified by the Appellate Body, adopted 20 August 1999, para. 5.81.
16  EC - Measures Affecting Meat and Meat Products, WT/DS26/AB/R, WT/DS48/AB/R, Report of the
Appellate Body adopted 16 January 1998, para. 104.
17  Id.WT/DS70/RW
Page 192
3. Thus, the United States believes that the Panel must interpret the SCM Agreement
objectively and independently of any agreement between the parties.  When it does so, the United
States believes that it should interpret the SCM Agreement – and, in particular, item (k) – in the
manner described by the United States in its response to Question #1.  Such an interpretation leads tothe conclusion that the burden is on Brazil to demonstrate that the Canada Account does not conform
to the second paragraph of item (k).
Q3. Concerning the verification mechanism proposed by Canada, the US argument seems to be
that were the Panel to endorse any such mechanism , this would constitute a violation of Article 19.1
of the DSU, in that it would constitute a “modification” thereof which the Appellate Body has ruled
is impermissible.  Is this a correct underst anding of the US argument.  Please elaborate.
Response
1. The Panel’s understanding is correct.  Under the DSU, panels may suggest methods of
implementation, not methods of monitoring implementation.  Surveillance of implementation is the
subject of other provisions of the DSU, not Article 19.WT/DS70/RW
Page 193
ANNEX 3-7
RESPONSES BY THE EUROPEAN COMMUNITIES
TO THE QUESTIONS FROM THE PANEL AND
FROM BRAZIL
(14 February 2000)
Question 1 to the EC
The EC takes the view that because Canada has "undertaken" to respect all the provisions of
the OECD Arrangement, Canada has prima facie correctly implemen ted the Panel's findings. Would
the EC please elaborate on what it means by "undertaken". That is, is the EC's position dependent on
the specific nature of characteristics of that undertaking, and if so, what are the elements thatpersuade the EC that the undertaking does constitu te prima facie correct implementation? Under
what circumstances, if any, would the EC consider that a statement issued by a government body, or
made by a government employee acting in an official capacity, did not have the status of an
undertaking constituting  prima facie evidence of compliance with a ruling by the DSB ?
Response
1. The EC did not use the term “undertaken” to suggest that Canada had entered into a bindingcommitment.  Canada has rather declared that it will not in future approve Canada Account financing“which does not comply with  the OECD Arrangement.”
1
2. In the original proceeding, the Panel took th e view that since Canada Account financing was
discretionary,  it could only rule on particular cases of support.2  This finding was not challenged on
appeal.  As a result, the Panel merely found a number of transactions  to have been de jure export
contingent.
3. There is not therefore any finding of an ex port subsidy programme to implement although
Canada has taken some steps to ensure that the programme will not in future give rise to the same
problems.
4. There is a change in Canada’s practice on Canada Account financing since before the
declaration it claimed that this financing was “consistent” with the OECD Arrangement, which can
be taken simply to mean that Canada did not consider that Canada Account financing fell under the
OECD Arrangement. Now, it positively declares that future Canada Account financing will comply
with the Arrangement.
5. But this is not really the question before the Panel.  If it was not possible in the original
proceeding to declare the Canada Account financing incompatible with the SCM Agreement  as a
programme , that is in general, because it was discretionary, then it is still not possible now.  The
existence of the Panel Report cannot add to or diminish the rights and obligations of Members
(Article 3.2 DSU).
Question 2 to the EC
Would the EC please elaborate on the specific reasons why it does not believe that it would
be appropriate for the Panel to suggest a transparency agreement, as proposed by Canada. In
                                                     
1 Paragraph 57 of Canada’s First Written Submission.
2 Paragraph 9.213 of the Panel Report.WT/DS70/RW
Page 194
particular, does the EC consider that such a s uggestion by the Panel would be impermissible under
the DSU and/or the SCM Agreement, or simply inadvisable for other reason? Please explain.
Response
1. The EC finds itself in agreement with the statement of the US that Article 19.1 DSU, by its
plain terms, allows a panel to suggest ways of implementing the recommendations that it makes after
concluding that a measure is inconsistent with the covered agreement.  A transparency agreement is
not capable in itself to achieve the result of bringing Canada's subsidies into conformity.  It is rather ameans of verifying compliance, which is not a matter in which panels should become involved.
2. Accordingly, Article 19.1 DSU does not give to the Panel the necessary authority to make the
suggestion and it is therefore impermissible.
QUESTION FROM BRAZIL
Brazil notes several references to its Rebuttal Submission, dated 17 January 2000, in the
European Communities' Statement for the Meeting of the Panel on 6 February 2000. Please identify
from whom the European Comm unities received this document.
Response
1. The European Communities received Brazil’s second written submission by e-mail. No
record of the origin of the transmission was kept. It expected to have received the text from Brazil.
2. The European Communities is concerned that Brazil contests its right of have received the
second submission and states that it did declined to send a copy to the EC as required by the Working
Procedures of the Panel. How can the EC usefully contribute to the consideration of this matter by the
Panel if it is not aware of all the arguments that have been presented to the Panel prior to the
meeting?
3. Article 10:3 of the Understanding on Rules and procedures governing the settlement of
disputes (DSU) states that :
4. Third parties shall receive the submission s of the Parties to the dispute to the first meeting of
the Panel. (emphasis added).
5. Furthermore, the DSU does not foresee any specificity in the application of this rule to panels
reconvened pursuant to Article 21.5.
6. As the meeting of 6 February 2000 was the first and only meeting of the Panel in this case,
the EC was entitled to receive all submissions made to that meeting.
7. A refusal by Brazil to allow the EC to have its second written submission would be a breach
of the DSU and the Working Procedures an undermine the validity of the procedure.
8. The European Communities can assure Brazil that  there has been no breach of confidentiality
since its second written submission has only been made available to Members participating in theproceeding and for that purpose, as required by the DSU.
__________