Document: WT/DS222/R Page A-1 ANNEX A Submissions of Brazil Contents Page Annex A-1 Response of Brazil to Communication of 16 May 2001 from Canada  to Brazil A-2 Annex A-2 Communication of 21 May 2001 from Brazil to the Panel A-3 Annex A-3 First Written Submission of Brazil A-14 Annex A-4 Response of Brazil to Submission of Canada Regarding Jurisdictional Issues A-45 Annex A-5 Communication of 25 June 2001 from Brazil to the Panel A-53 Annex A-6 Oral Statement of Brazil Regarding Jurisdictional  Issues at the First
Date: 16 May 2001
Document codes: WT/DS222/R
Complainant: Brazil
Respondent: Canada
Third parties: Australia, EU, India, U.S.
Dispute stage: Panel
Agreements cited: Art. 1, 3  Subsidies and Countervailing Measures (SCM)

ANNEX A
Submissions of Brazil
Contents Page
Annex A-1 Response of Brazil to Communication of 16 May 2001 from
Canada to Brazil
A-2
Annex A-2 Communication of 21 May 2001 from Brazil to the Panel A-3
Annex A-3 First Written Submission of Brazil A-14
Annex A-4 Response of Brazil to Submission of Canada Regarding
Jurisdictional Issues
A-45
Annex A-5 Communication of 25 June 2001 from Brazil to the Panel A-53
Annex A-6 Oral Statement of Brazil Regarding Jurisdictional Issues at the First
Meeting of the Panel
A-57
Annex A-7 Oral Statement of Brazil Regarding Substantive Issues at the First
Meeting of the Panel
A-58
Annex A-8 Response of Brazil to Oral Statement of Canada Regarding
Jurisdictional Issues at the First Meeting of the Panel
A-70
Annex A-9 Responses of Brazil to Questions from the Panel Following the
First Meeting of the Panel
A-73
Annex A-10 Second Written Submission of Brazil A-87
Annex A-11 Responses of Brazil to Questions from the Panel Prior to the
Second Meeting of the Panel
A-122
Annex A-12 Oral Statement of Brazil at the Second Meeting of the Panel A-130
Annex A-13 Submission of Brazil Regarding Source Data at the Second
Meeting of the Panel
A-150
Annex A-14 Responses of Brazil to Questions from the Panel Following the
Second Meeting of the Panel
A-152
Annex A-15 Response of Brazil to Additional Question from the Panel
Following the Second Meeting of the Panel
A-161
Annex A-16 Comments of Brazil on Responses of Canada to Questions and
Additional Questions from the Panel Following the Second
Meeting of the Panel
A-163
Annex A-17 Comments of Brazil on Res ponse of Canada to Oral Statement of
Brazil at the Second Meeting of the Panel
A-176
Annex A-18 Comments of Brazil on Interim Report of the Panel A-191
Annex A-19 Comments of Brazil on Comments of Canada on Interim Report of
the Panel
A-193

ANNEX A-1
RESPONSE OF BRAZIL TO COMMUNICATION OF
16 MAY 2001 FROM CANADA TO BRAZIL
(21 May 2001)
In a letter to the Panel dated 16 May 2001, Canada requested that Brazil provide
“confirmation” and “clarification” on a number of points concerning Brazil’s challenge to several
Canadian subsidies. In accordance with normal practice in the WTO, Brazil intends to present its
position to the Panel, to Canada, and to the Third Parties, in its first written submission to the Panel at
the time established by the Panel in its Working Procedures.

ANNEX A-2
COMMUNICATION OF 21 MAY 2001
FROM BRAZIL TO THE PANEL
(21 May 2001)
1. With this letter, Brazil requests that the Panel exercise its discretion, under Article 13.1 of the
Understanding on Rules and Procedures Go verning the Settlement of Disputes (“DSU”), to request
from Canada documents and other information concerning the terms of any support from
1 January 1995 onward committed or granted by the Export Development Corporation (“EDC”),
Canada Account, Investissement Québec (“IQ”), or any subsidiary organizations thereof, in
connection with the sale of regional aircraft by Bombardier, the Canadian manufacturer. As you are
aware from its request for establishment of this Panel, Brazil considers that Canadian support for its
regional aircraft industry under these programs, each of which was challenged in Canada – Measures
Affecting the Export of Civilian Aircraft (“ Canada – Aircraft ”)
1, constitutes prohibited export
subsidies. A recent transaction involving Air Wisc onsin, discussed below, is but one example of this
support.
2. This request is necessitated by Canada’s refusal to produce evidence that is solely within its
possession, and that is necessary to the Panel’s assessment of this dispute. Later in this letter, Brazil
will present evidence available from public sources establishing a prima facie case that Canada
Account support for the Air Wisconsin transaction, and EDC and IQ support for the Canadian
regional aircraft industry, constitutes a prohibited export subsidy. In subsequent submissions, Brazil
will provide additional evidence supporting its claims, both with respect to the Air Wisconsin
transaction and other deals. However, given the confidential nature of regional aircraft transactions
2,
the only direct evidence available – documents concerning the terms of Canadian government support
for regional aircraft transactions – is in the sole possession of the Canadian government.
Canada’s refusal to produce information
3. Canada’s repeated failure to provide highly relevant evidence within its sole possession is
well-documented. In the Canada – Aircraft dispute, Canada refused, in consultations with Brazil, to
provide documentary information regarding support under the very same programs at issue in this
dispute.3 Moreover, the Report of the Panel in that dispute includes 26 citations to Canada’s refusal to
provide specific documentary information requested not by Brazil, but by the Panel itself, with respect
once again to the very same programs challenged in the current dispute.4
4. This pattern appears to be repeating itself in these proceedings. In consultations with Canada
on 21 February 2001, Brazil affirmatively requested transaction-specific information about the details

1 WT/DS70/R (14 April 1999) (Adopted 20 August 1999).
2 Brazil – Export Financing Programme for Aircraft , WT/DS46/R (14 April 1999) (Adopted
20 August 1999), para. 7.27 (Panel notes that regional aircraft transactions involve “confidential business
information not generally available to the public at large.”).
3 WT/DS70/R, para. 4.80.
4 WT/DS70/R, 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 (note 621), 9.327, 9.345, 9.347 (note
633).

of EDC, Canada Account and IQ support for Canadian regional aircraft industry transactions. 5 Other
than a statement that support for one transaction – the Air Wisconsin deal – would “probably” be
through the Canada Account, Canadian representatives at the consultations refused to produce any
such information.6
5. Canada’s failure to provide this information to Brazil during consultations is directly contrary
to its legal obligations. Tribunals in a variety of public international law fora have long recognised
that governments party to international disputes have a particular responsibility to provide documents
within their exclusive control.
7 Indeed, in India – Patent Protection for Pharmaceutical and
Agricultural Chemical Products (“ India – Pharmaceuticals ”), the Appellate Body specifically
recognised that all Members are required to be “fully forthcoming” at all stages of WTO dispute
settlement proceedings, noting that:
All parties engaged in dispute settlement under the DSU must be fully forthcoming
from the very beginning both as to the claims involved in a dispute and as to the facts
relating to those claims. . . . This must be so in consultations as well as in the more
formal setting of panel proceedings.8
Canada’s failure to provide information requested by Brazil in consultations in this dispute is in direct
contravention of these requirements.
The Panel’s unconditional authority to request information
6. In its Report in Canada – Aircraft , the Appellate Body confirmed both the authority of a
panel, under Article 13.1 of the DSU, to request information from whomever it likes, whenever it
likes, and the legal obligation of a Member to comply with the panel’s request. 9 According to the
Appellate Body, “Article 13.1 imposes no conditions on the exercise of [a panel’s] discretionary
authority.”10 Moreover, in its Report in India – Pharmaceuticals , the Appellate Body specifically
advised Members to call upon a panel’s authority to request information when evidence necessary to a
panel’s consideration is not produced in consultations:

5 Brazil attaches its list of consultation questions to Canada as Exhibit Bra-1.
6 EDC officials have publicly stated that they will not provide “financing details” for the Air Wisconsin
transaction. “Bombardier Snags $2.4 B order from U.S. airline: Air Wisconsin: Government helps out with
low-cost loan,” The National Post, 17 April 2001 (Exhibit Bra-2).
7 See, e.g. , Mexico/USA General Claims Commission, William A. Parker (USA) v. United
Mexican States, IV Recueil des Sentences Arbitrales 35, 39 (31 March 1926) (“In any case where evidence
which would probably influence its decision is peculiarly within the knowledge of the claimant or of the
respondent Government, the failure to produce it, unexp lained, may be taken into account by the Commission in
reaching its decision.”); Charles N. Brower, The Anatomy of Fact-Finding before International Tribunals: An
Analysis and a Proposal Concerning the Evaluation of Evidence , in F
ACT-FINDING BEFORE INTERNATIONAL
TRIBUNALS 147, 150-151 (R. Lillich, Ed., 1991) (Judge Brower of the Iran-United States Claims Tribunal
perceives “the emergence of a lex evidentia that will embrace common principles for the evaluation of evidence
by international tribunals,” including the principle that, “[w]hen it reasonably should be expected that certain
evidence exists and that it is in the control of a party, the failure of that party to produce such evidence gives rise
to a justifiable inference that such evidence, if pr oduced, would be adverse to that party.”); Durward V.
Sandifer, E VIDENCE BEFORE INTERNATIONAL TRIBUNALS (Rev. Ed., Univ. Press of Virginia 1975) 112
(“[P]arties to international judicial proceedings have a more extensive obligation to produce all evidence within
their control than that normally imposed upon litigants in municipal proceedings.”).
8 WT/DS50/AB/R (19 December 1997) (Adopted 16 January 1998), para. 94.
9 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/AB/R (2 August 1999)
(Adopted 20 August 1999), para. 189.
10 WT/DS70/AB/R, para. 185.

D. CANADA PROVIDES PROHIBITED SUBSIDIES THROUGH IQ
103. The publicly available evidence concerning the operations of IQ, like the publicly available
evidence concerning EDC, is only the tip of the iceberg. 145 Nonetheless, that evidence makes clear
that, at a minimum, through IQ guarantees, Canada provides prohibited export subsidies. Those
guarantees are financial contributions that confer a benefit by absorbing risk that would otherwise fall
upon the participants in the transactions. They are contingent, in law or in fact, upon export. They
are, therefore, prohibited by the Agreement.
VI. CONCLUSION
104. This is a dispute about subsidies, but it is more than that. As a subsidies dispute, the activities
of EDC, the Canada Account, and IQ are at issue. The evidence Brazil has presented demonstrates
conclusively that, through each of these mechanisms, Canada provides a subsidy that is contingent
upon export, and Brazil requests that this Panel so determine, as set out in Brazil’s request for the
establishment of the Panel.
105. At a broader level, however, this is a dispute about transparency and the functioning of the
WTO dispute settlement system as it relates to subsidies. None of the Canadian programmes that are
the subject of this dispute has even been notified to the Committee on Subsidies and Countervailing
Measures pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement. 146 At
consultations, Canada declined to provide information in response to Brazil’s questions, and, indeed,
Canada’s delegation to the consultations stated that it was totally unprepared even to talk about IQ. In
the prior proceeding, Canada adamantly refused to cooperate in providing relevant information in its
sole possession, even when requested to do so by the Panel. Canada went so far as to argue that it had
no duty to cooperate.147
106. Thus, what is at issue here is not only the consistency or inconsistency of Canada’s
programmes with its WTO obligations, but, perhaps even more important, the consistency or
inconsistency of Canada’s obligations of transparency and good faith cooperation. The Panel’s
determination on the merits of this dispute will have very important implications for the standards that
apply to export credits in the WTO. The Panel’s determination on the issues of transparency and good
faith that have been raised by Canada’s stance in this and in the prior dispute will have very important
implications for the standards that apply not just to export credits, but to all disputes in the WTO.

145 See supra para. 73.
146 The latest Canadian notification is dated 9 May 2000. G/SCM/N/48/CAN. Perhaps Canada’s next
notification will rectify the apparent oversight.
147 WT/DS70/AB/R, para. 186.

ANNEX A-4
RESPONSE OF BRAZIL TO SUBMISSION OF CANADA
REGARDING JURISDICTIONAL ISSUES
(22 June 2001)
1. The Panel has asked Brazil to respond to Canada’s preliminary submission regarding the
Panel’s jurisdiction, dated 18 June 2001.1 In that submission, Canada claims that certain of Brazil’s
claims are inconsistent with Articles 6.2 and 21.5 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (“DSU”).
I. BRAZIL’S CLAIMS WITH RESPECT TO THE CANADA ACCOUNT ARE
CONSISTENT WITH ARTICLE 21.5 OF THE DSU
2. Canada argues that Brazil cannot challenge, in proceedings brought pursuant to Article 6 of
the DSU, the existence or consistency with the covered agreements of measures taken to comply with
the earlier recommendations and rulings of the DSB with respect to Canada Account. 2 R a t h e r ,
Canada states that Brazil’s only recourse is to Article 21.5 of the DSU. Canada’s conclusion is in
error, on both factual and legal grounds.
3. As a factual matter, Canada’s conclusion that three of Brazil’s “claims” would “require this
Panel to adjudicate issues of compliance with the earlier DSB rulings in a different case” is also
factually incorrect.3 Canada is incorrect to identify each of the numbered paragraphs regarding the
Canada Account in Brazil’s request for establishment of this Panel as a separate “claim.” 4 Brazil’s
makes one overarching claim in its request for establishment with respect to Canada Account support,
in numbered paragraph 1; namely, that “[e]xport credits, including financing, loan guarantees, or
interest rate support by or through the Canada Account are and continue to be prohibited export
subsidies within the meaning of Articles 1 and 3” of the Agreement on Subsidies and Countervailing
Measures (“SCM Agreement”).
4. Numbered paragraphs 2 through 4 explain the nature of that claim in more detail. Those
paragraphs explain that Brazil is challenging Canada Account support to the regional aircraft industry
both as such and as applied in the Air Wisconsin transaction. In paragraph 2, Brazil asks the Panel to
find that the Article 21.5 Panel in the Canada – Aircraft dispute found the Canada Account to be
inconsistent with Article 3 of the SCM Agreement
5 but that, despite this, to date, Canada has done
nothing to rectify this inconsistency. The references in paragraphs 1 and 3 to the continuing nature of
the export subsidization effected by the Canada Account are specific assertions requesting findings of
fact by the Panel regarding the as yet unamended Canada Account. Canada itself, in its first written
submission, refers to the history of the Canada – Aircraft dispute with respect to the Canada
Account.
6

1 This submission is hereafter referred to as “Canada’s Preliminary Submission”.
2 See Canada – Measures Affecting the Export of Civili an Aircraft – Recourse by Brazil to Article 21.5
of the DSU, WT/DS70/RW (Adopted 4 August 2000), para. 6.2.
4 WT/DS222/2 (1 March 2001).
6 Canada’s First Written Submission to the Panel, dated 18 June 2001, paras. 30-31.

5. In addition, Canada’s arguments fail on legal grounds. While it is indeed the case that a
Member may challenge “measures taken to comply” with the recommendations and rulings of the
DSB under Article 21.5 of the DSU, the ordinary meaning of Article 6.2 of the DSU and Articles 4.1,
4.4 and 4.5 of the SCM Agreement do not preclude a Member from similarly bringing a new dispute
settlement proceeding under those provisions.
6. Article 6.2 of the DSU refers generically to “measures” that are the subject of a request for
the establishment of a panel. Similarly, Article 4.1 of the SCM Agreement subjects to dispute
settlement “a prohibited subsidy . . . granted or maintained by another Member.” Article 4.4 states
that unsuccessful consultations may result in referral of “the matter” to the DSB for the establishment
of a panel. Finally, Article 4.5 authorizes a panel to request assistance from the Permanent Group of
Experts regarding whether “the measure in question” is a prohibited subsidy. Nothing in the ordinary
meaning of these provisions limits dispute settlement thereunder to particular types of measures ; nor
does the ordinary meaning of these provisions preclude review of “measures” that remain in place
with no effort to comply with earlier recommendations and rulings of the DSB.
7. Moreover, even where steps have been taken to comply, the object and purpose of the
expedited proceedings provided by Article 21.5 of the DSU would be undermined by Canada’s claim.
In discussing the meaning of the phrase “consistency with a covered agreement” in Article 21.5, the
Panel in Australia – Measures Affecting Importation of Salmon – Recourse to Article 21.5 by Canada
emphasized that the purpose behind Article 21.5 is to offer expedited relief for a Member that has
already successfully challenged another Member’s measures:
The rationale behind this is obvious: a complainant, after having prevailed in an
original dispute, should not have to go through the entire DSU process once again if
an implementing Member in seeking to co mply with DSB recommendations under a
covered agreement is breaching, inadvertently or not, its obligations under other
provisions of covered agreements. In such circumstances an expedited procedure
should be available. This procedure is provided for in Article 21.5. It is in line with
the fundamental requirement of ‘prompt compliance’ with DSB recommendations
and rulings expressed in both Article 3.3 and Article 21.1 of the DSU.
7
It should be noted that the Panel stated that an expedited procedure is “ available” to a Member, not
that it is either compulsory or the sole procedure available. Thus, if that Member chooses to forego
those expedited procedures, it is certainly its prerogative to do so. Requiring Members to avail
themselves of only those expedited procedures would be contrary to the object and purpose of
Article 21.5.
8. In the circumstances of this particular case, Brazil considered it efficient to forego
Article 21.5’s expedited procedures. Brazil’s challenge to Canada Account support for the Canadian
regional aircraft industry involves claims against the measure both as such and as applied in particular
transactions. Moreover, a panel constituted under Article 21.5 of the DSU to conduct review of
“measures taken to comply” with the recommendations and rulings of the DSB with respect to the
Canada Account would not be authorized to review the consistency with the covered agreements of
Canada Account support as applied in particular regional aircraft transactions. As stated by both
Brazil and Canada before a meeting of the Appellate Body in Canada – Measures Affecting the
Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU ,
8 support granted in
transactions subsequent to an implementation deadline are not “measures taken to comply” with the
recommendations and rulings of the DSB.

8 WT/DS70/AB/RW (Adopted 4 August 2000).

9. Therefore, to consolidate the review of its “as such” and “as applied” claims, Brazil
considered it preferable to bring all of those claims before this Panel, rather than bringing some of
those claims before an Article 21.5 panel. To require Brazil to have split its claims between two
panels – one constituted under Article 21.5 and one under Article 6 – would not be justified by the
ordinary meaning of the provisions concerned, and would not be consistent with the object and
purpose of Article 21.5 of the DSU.
10. This is particularly true where, as here, no measure to comply has been taken. Here, Brazil
has not challenged a measure taken to comply under Article 21.5, but rather has chosen to challenge
Canada Account anew as a “measure” under Article 6.2, in accordance with the ordinary meaning of
that provision.
11. Finally, following adoption of the Article 21.5 Report, Brazil chose not to exercise its rights,
under Article 22.6 of the DSU, to suspend concessions. Instead, it chose to negotiate with Canada
with a view to resolving these disputes. In the meantime, the 30-day period for requesting
authorization to suspend concessions under Article 22.6 passed. Certainly, Canada does not suggest
that at this time Brazil could ask the Dispute Settlement Body for authority to suspend concessions
based upon either the previously-adopted reports or any new Article 21.5 report. Yet, if Brazil were
not permitted to seek a new determination from a new Panel, that would mean that any Member that
initially chose negotiation over retaliation would forever forego the opportunity to suspend
concessions. This is not an interpretation that would further the cause of amicable dispute settlement.
12. Brazil therefore requests that Canada’s preliminary request be denied in this respect.
II. BRAZIL’S REQUEST FOR ESTABLISHMENT OF THIS PANEL IS CONSISTENT
WITH ARTICLE 6.2 OF THE DSU
A. LEGAL OBLIGATIONS UNDER ARTICLE 6.2 OF THE DSU
13. In its preliminary submission, Canada also argues that certain of Brazil’s “claims” are
inconsistent with the requirements established by Article 6.2 of the DSU.
14. Before reviewing the requirements of Article 6.2 and Brazil’s compliance with those
requirements, Brazil notes again that Canada is incorrect to identify each of the numbered paragraphs
in Brazil’s request for establishment of this Panel as a separate “claim”. Brazil makes one
overarching claim in its request for establishment with respect to Canada Account support, in
numbered paragraph 1. Numbered paragraphs 2 through 4 give more detail. Similarly, Brazil’s
overarching claim with respect to support by th e Export Development Programme is included in
numbered paragraph 5, with the purpose of paragraph 6 being to demonstrate that Brazil’s challenge
is both to the particular forms of EDC support discussed in paragraph 5 as such, and to EDC support
as applied.
B. BRAZIL’S REQUEST FOR ESTABLISHMENT OF THIS PANEL SATISFIES THE
REQUIREMENTS OF ARTICLE 6.2 OF THE DSU
15. Brazil’s request for establishment of this Panel satisfies the requirements of Article 6.2 of the
DSU, which provides that:
The request for establishment of a panel shall be in writing. It shall indicate whether
consultations were held, identify the specific measures at issue and provide a brief
summary of the legal basis of the complaint sufficient to present the problem clearly.

16. The Appellate Body has on several occasions described the purpose behind the requirements
of Article 6.2. In European Communities – Regime for the Importation, Sale and Distribution of
Bananas, the Appellate Body stated that “precision” in a request for establishment is important for
two reasons:
First, it often forms the basis for the terms of reference of the panel pursuant to
Article 7 of the DSU; and, second, it informs the defending party and the third parties
of the legal basis of the complaint.9
17. In Brazil – Measures Affecting Desiccated Coconut , the Appellate Body referred to these
same two purposes in slightly different terms. The Appellate Body stated that a “specific” request for
establishment establishes the “jurisdiction of the panel by identifying the precise claims at issue in the
dispute”, and fulfills a “due process objective”, facilitating a response to the complainant’s case by
other parties and third parties.
10
18. To fulfill these dual objectives, in its Report in Korea – Definitive Safeguard Measure on
Imports of Certain Dairy Products , the Appellate Body imposed four specific requirements on a
request for establishment:
The request must: (i) be in writing; (ii) indicate whether consultations were held; (iii)
identify the specific measures at issue; and (iv) provide a brief summary of the legal
basis of the complaint sufficient to present the problem clearly.11
As shown below, Brazil’s request meets each of these criteria.
1. Requirements (i) and (ii)
19. Brazil’s request for establishment of this Panel is in writing, and indicates that consultations
were held but did not resolve the dispute. Thus, the first two requirements set out in Korea – Dairy
are satisfied.
2. Requirement (iii)
20. Brazil’s request also satisfies the third requirement discussed in Korea – Dairy; namely, that
the request for establishment identify the specif ic measures at issue. For the three Canadian
programmes at issue – Canada Account, the E xport Development Corporation (“EDC”), and
Investissement Québec (“IQ”) – Brazil has identified the specific categories of support subject to its
challenge. Numbered paragraph 1 of its request states that Brazil is challenging Canada Account
“export credits, including financing, loan guarantees, or interest rate support . . . ”. Numbered
paragraph 5 states that Brazil is challenging EDC “export credits, including financing, loan
guarantees, or interest rate support . . . ”. Finally, numbered paragraph 7 states that Brazil is also
challenging IQ “export credits and guarantees . . . , including loan guarantees, equity guarantees,
residual value guarantees, and ‘first loss deficiency guarantees’ . . .”.
21. Brazil’s request specifically not only covers challenges to these measures as such, but states
clearly that it is also a challenge to the measures as applied in, e.g., the Air Wisconsin transaction.
Finally, contrary to Canada’s claim at paragraphs 42, 51 and 56, the very first paragraph of Brazil’s
request states that it is only concerned with these measures with respect to their role in regional

9 WT/DS27/AB/R (Adopted 25 September 1997), para. 142.
10 WT/DS22/AB/R (Adopted 20 March 1997), pg. 9.
11 WT/DS98/AB/R (Adopted 14 December 1999), para. 120.

aircraft transactions. Brazil also notes that the title of the dispute is Canada – Export Credits and
Loan Guarantees for Regional Aircraft.12
22. Canada’s principal complaint appears to be that Brazil’s claims are “extremely broad,” “so
broad as to defy definition”, and that they “could potentially cover hundreds of clients and many
thousands of transactions since 1995”.
13 Canada appears to suggest that a claim must be narrow to
satisfy Article 6.2 of the DSU.
23. Article 6.2 contains no such requirement. Brazil is entitled to raise broad claims that entire
Canadian programmes are inconsistent with Canada’s obligations under the SCM Agreement.
Broadly-defined measures, such as the US tax treatment of foreign sales corporations, have often been
the subject of WTO disputes, in circumstances wh ere those measures would affect many more than
the “hundreds” of clients affected by Brazil’s claims against the Canada Account, EDC and IQ. It is a
Member’s prerogative to challenge any measure, no matter how broad, that it considers is inconsistent
with another Member’s WTO obligations.
24. In any event, Brazil notes that its claims are not nearly as broad as they could be. As noted
above, Brazil’s request clarifies that it is only concerned with the Canada Account, EDC and IQ with
respect to their role in regional aircraft transactions. Moreover, it has limited those claims to
particular forms of support provided by or through the Canada Account, EDC and IQ. Canada
Account uses types of support not included in Brazil’s claims, including export credits insurance,
performance insurance, and political risk insurance. 14 EDC similarly provides various types of
support not subject to Brazil’s claims, such as accounts receivable insurance, bonding, and political
risk insurance. IQ also extends support not included in Brazil’s claims, such as suretyship 15 and
exchange rate guarantees. 16 For these reasons, Brazil’s request complies with the third requirement
set forth in Korea – Dairy.
3. Requirement (iv)
25. As noted above, the Appellate Body stated in Korea – Dairy that the fourth requirement
flowing from Article 6.2 of the DSU is the inclus ion in a request for establishment of “a brief
summary of the legal basis of the complaint sufficient to present the problem clearly”. 17 T h e
Appellate Body emphasized that as long as the legal basis is identified and presents the problem
clearly, “Article 6.2 demands only a summary – and it may be a brief one – of the legal basis of the
complaint”.
18
26. As discussed above, Brazil’s request for establishment of the Panel includes three overarching
claims, against support by or through the Canada Account, EDC and IQ for the Canadian regional

12 In any event, in European Communities – Customs Classifica tion of Certain Computer Equipment ,
the Appellate Body noted that “Article 6.2 of the DSU does not explicitly require that the products to which the
‘specific measures at issue’ apply be identified.” WT/DS62/AB/R-WT/DS67/AB/R-WT/DS68/AB/R (Adopted
22 June 1998), para. 67. While a particular aspect of the covered agreement at issue might require product
specification, Canada makes no such assertion with respect to the SCM Agreement.
13 Canada’s Preliminary Submission, paras. 41, 51.
14 S UMMARY REPORT TO TREASURY BOARD ON CANADA ACCOUNT OPERATIONS, F ISCAL YEAR
1998/99, pg. 4 (Exhibit Bra-46).
15 An Act respecting Investissement-Québec and Garantie Québec, Art. 30(1) (Exhibit Bra-18).
l’investessement privé et la relance de l’emploi, Art. 11(d) (Exhibit Bra-19).
17 WT/DS98/AB/R (Adopted 22 June 1998), para. 120.
18 Id.

aircraft industry. Brazil also expressly states in numbered paragraphs 1, 5 and 7 that those measures
are prohibited export subsidies, within the meaning of Articles 1 and 3 of the SCM Agreement.19
27. Brazil has done more than simple “identification of the treaty provisions claimed,” however.
To ensure that the problem is presented clearly, as required by the Appellate Body in Korea – Dairy,
numbered paragraphs 1 through 7 include details, discussed above, of the specific categories of
support involved.
4. Attendant Circumstances
28. Even had Brazil done nothing more than simply identify the treaty provisions involved, that
would have been adequate to protect Canada from prejudice to its interests, or from harm to its due
process rights. As the Appellate Body in Korea – Dairy has explained, the determination whether a
defending party’s Article 6.2 due process rights are harmed does not rest solely on the text of the
request for the establishment of a panel.
20 Instead, as the Appellate Body in Thailand – Anti Dumping
Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland notes,
“The fundamental issue in assessing claims of prejudice is whether a defending party was made aware
of the claims presented by the complaining party, sufficient to allow it to defend itself.” 21 Thus, the
“simple listing of the articles of the agreement or agreements involved may, in the light of [the]
attendant circumstances [of the dispute], suffice to meet the standard of clarity” required by
Article 6.2 that is necessary to protect a Member’s due process rights. 22 In resolving whether a
defending party’s due process rights are harmed by “the simple listing of the articles of the
agreement” involved in the dispute, a Panel may, among other things, “take into account . . . the actual
course of the panel proceedings”.
23
29. The “attendant circumstances” in this case demonstrate that Canada’s ability to defend itself
has not been prejudiced. As noted in Brazil’s first written submission, the Canada Account, EDC and
IQ – the three programmes included in its request for establishment – were also challenged in an
earlier dispute, Canada – Measures Affecting the Export of Civilian Aircraft . That dispute began in
March 1997 with Brazil’s request for consultations,
24 which was followed by a request for the
establishment of a panel in July 1998. 25 In its initial phase, the dispute led to the release of a panel
report in April 199926, and an Appellate Body report in August 1999.27
30. Brazil’s challenge to Canada’s implementation of the panel and Appellate Body reports led to
the establishment of a panel in November 1999 under Article 21.5 of the DSU
28, a report by that panel
in May 2000,29 and a report by the Appellate Body in July 2000. 30 Consultations were requested by
Brazil with respect to these very same programmes in January 2001. 31 As required by Article 4.2 of

19 As noted above, numbered paragraphs 2-4 expand further upon the overarching claim regarding
Canada Account included in numbered paragraph 1, which includes citation to Articles 1 and 3 of the SCM
Agreement. Thus, it was not necessary for Brazil to cite to those same provisions yet again in numbered
paragraphs 2 through 4.
20 WT/DS98/AB/R (Adopted 22 June 1998), para. 127.
21 WT/DS122/AB/R (12 March 2001) (Adopted 5 April 2001) para. 95 (emphasis supplied).
22 WT/DS98/AB/R (Adopted 22 June 1998), para. 127 (emphasis supplied).
23 WT/DS98/AB/R (Adopted 22 June 1998), para. 127.
24 WT/DS70/1 (14 March 1997).
25 WT/DS70/2 (13 July 1998).
26 WT/DS70/R (14 April 1999) (Adopted 20 August 1999).
27 WT/DS70/AB/R (2 August 1999) (Adopted 20 August 1999).
28 WT/DS70/9 (23 November 1999).
29 WT/DS70/RW (9 May 2000) (Adopted 4 August 2000).
30 WT/DS70/AB/RW (21 July 2000) (Adopted 4 August 2000).
31 WT/DS222/1 (25 January 2001).

the SCM Agreement, Canada was provided with a statement of available evidence illustrating the
basis for Brazil’s concerns.32 Consultations were held in February 2001. During those consultations,
specific and detailed questions were put to Canada by Brazil.33 Brazil submitted an extremely specific
letter to the Panel on 21 May 2001 in which it further detailed its claims against Canada. Brazil’s
First Written Submission, filed nine days later on 30 May 2001, two weeks after Canada’s 16 May
letter, also fully detailed all of Brazil’s claims.
31. In addition, throughout this entire period, in an effort to resolve these disputes outside the
auspices of WTO dispute settlement, Brazil and Canada, at the very highest diplomatic and political
levels, have engaged in bilateral discussions on these very same programmes and issues.
32. Finally, and perhaps most importantly, despite Canada’s purported confusion as to the subject
matter of the current dispute and Brazil’s request for the establishment of a panel, Canada’s First
Written Submission, filed 18 June 2001, contains a detailed and specific defence of its Canada
Account, EDC and IQ regional aircraft financing programmes, both “as such,” and “as applied” in the
specific context of the Air Wisconsin and other transactions. This detailed defence thus responds to
each of the claims Brazil raised in its request for the establishment of a panel to consider Canada’s
regional jet financing activities.
33. For these reasons, it is not credible for Canada to claim that Brazil’s claims are not stated with
sufficient clarity, or that its right to present a defence has been prejudiced. In the words of the
Appellate Body in Korea – Dairy , the “attendant circumstances” suggest that Canada is very much
aware of the issues and claims involved and, as such, has been and will continue to be able to
vigorously defend itself.
34. Canada’s 16 May 2001 request to Brazil for clarification of its claims, and Brazil’s
21 May 2001 response to this request, does nothing to change these “attendant circumstances.”
35. In paragraph 34 of its preliminary submission, Canada cites to the Appellate Body’s statement
in Thailand – Anti-dumping Duties on Angles, Shapes and Sections of Iron or Non-alloy Steel and H-
Beams from Poland that “nothing in the DSU prevents a defending party from requesting further
clarification on the claims raised in a panel request from the complaining party, even before the filing
of the first written submission”.
34 At paragraphs 58-59 of its preliminary submission, Canada states
that it availed itself of this option with its 16 May request, but that in its 21 May response Brazil
“refused to clarify its claims”.
35
36. Canada does not state precisely how its 16 May request changes the litany of “attendant
circumstances” cited above illustrating its clear understanding of the measures and claims at issue in
this dispute. Instead, Canada implicitly attempts to transform the Appellate Body’s observation in
Thailand – Steel that nothing in the DSU prevents a de fending Member from submitting such a
request into a requirement that a complaining Memb er provide a detailed response. While nothing in
the DSU prevents a defending Member from requesting the clarification sought in Canada’s 16 May
letter, equally nothing in the DSU requires a complaining Member to provide a response sufficiently
detailed to satisfy the defending Member. The Appellate Body’s statement in Thailand – Steel does
not, as Canada implies, impose a legal obligation on Brazil to unfold all of the details of its case in
response to Canada’s detailed 16 May request. Certainly, the Appellate Body did not intend to create

32 Id.
33 Exhibit Bra-1.
34 WT/DS122/AB/R (12 March 2001) (Adopted 5 April 2001), para. 97.
35 Canada did not, however, cite the Appellate Body Report in Thailand – Steel in its 16 May request.

a new “litigation technique”36, encouraging Members to avail themselves of procedural counterclaims
where none otherwise exist.
37. In any event, in addition to the attendant circumstances described above, Brazil notes that it
provided considerable detail regarding its claims and evidence in its 21 May letter asking the Panel to
exercise its authority under Article 13.1 of the DSU to request documentary evidence from Canada
regarding the terms of Canada Account, EDC and IQ support for the Canadian regional aircraft
industry. Absent a requirement in the DSU or the Panel’s working procedures requiring even more
detail, Brazil was thus entitled to present its case in its first written submission.
III. CONCLUSION
38. For the foregoing reasons, Brazil’s request for establishment of this Panel is consistent with
the terms of Articles 6.2 and 21.5 of the DSU. Brazil therefore requests that the Panel reject Canada’s
argument that certain of Brazil’s claims are outside the jurisdiction of the Panel and should therefore
not be considered on their merits.

ANNEX A-5
COMMUNICATION OF 25 JUNE 2001
FROM BRAZIL TO THE PANEL
(25 June 2001)
Secretary to Panel
Canada – Export Credits and Loan
Guarantees for Regional Aircraft
25 June 2001
Please find attached correspondence between the Brazilian Mission in Geneva and Embraer,
which is provided in response to the request of the Panel Canada - Export Credits and Loan
Guarantees for Regional Aircraft (DS222), dated 20 June 2001, that the parties submit certain factual
information relevant to this dispute.
Best regards,
Roberto Azevedo

(UNOFFICIAL TRANSLATION)

20 June 2001

The WTO Panel examining the Canadian export credit programmes has asked Brazil in an
urgent and confidential communication dated today, 20 June, for the full details of the terms and
conditions of Embraer's offer of financing to Air Wisconsin. The deadline for the response expires on
25 June next, Monday.
Therefore we would appreciate receiving a response from you as soon as possible.
Sincerely,
Celso Amorim
Ambassador

(UNOFFICIAL TRANSLATION)
25 June 2001
Mr. Roberto Azevêdo
Counsellor
Permanent Mission of Brazil
17B, Ancienne Route
1218 Genève
Switzerland
Dear Counsellor,
Please refer to our letter dated 20 June 2001, describing the terms and conditions of
EMBRAER’s financing offer to Air Wisconsin (“AWC”), for the purchase of regional jets.
Firstly, we would like to inform you that our initial commercial offer covered [], as detailed
below:

Aircraft prices were established in accordance with the configuration specified by AWC.
Likewise, delivery schedule conformed to AWC’s request.
EMBRAER made two financing offers, neithe r of them involving any support from the
Brazilian Government.
A. The first offer
EMBRAER committed itself to identifying and structuring the financing by means of credit
lines obtained in the commercial financial market.
(1) For [], EMBRAER committed itself to providing:
/g216[]
/g216[]
/g216[]
(2) For []

We were told by AWC that our offer was not competitive. [] We therefore improved the
offer to take these and other points into account.
B. The second offer:
EMBRAER committed itself to identifying and structuring the financing by means of credit
lines obtained in the commercial financial market.
(1) For []
We are at your disposal for any further details that may be necessary.
Sincerely,

ANNEX A-6
ORAL STATEMENT OF BRAZIL REGARDING JURISDICTIONAL
ISSUES AT THE FIRST MEETING OF THE PANEL
(27 June 2001)
1. On 22 June, we responded to Canada’s allegation that Brazil’s request for establishment of
this Panel was inconsistent with the terms of Article 6.2 and 21.5 of the DSU. The EC also provided
its views on this issue in its 22 June third party submission.
2. I will not repeat here the views already expressed in Brazil’s 22 June submission other than to
note that Brazil’s request for the establishment of a Panel in this case was simple and straightforward.
Brazil stated clearly that this dispute involved export credits and guarantees for regional aircraft
provided through three Canadian programmes – Ca nada Account, EDC and Investissement Québec.
Brazil made clear that it challenged each of those programmes as prohibited export subsidies within
the meaning of Articles 1 and 3 of the SCM Agreement. These are the only articles of the covered
agreements at issue in this dispute. Brazil also referred to offers or grants by Canada under these
programmes that gave rise to Brazil’s request.
3. Put simply, Brazil has asked the Panel to make yes or no determinations as to whether these
three programmes – and specific transactions within those programmes – constitute prohibited export
subsidies within the meaning of Articles 1 and 3 of the SCM Agreement. Brazil also has asked that
you make specific factual findings, which you are empowered to do by Article 11 of the DSU.
4. Obviously, as everyone is aware from the written submissions before the Panel and the entire
history of the disputes involving regional aircraft, the issue of whether these programmes violate these
articles raises many controversial arguments of law and fact. In addition, Canada may raise other
provisions of the SCM as an affirmative defence for these programmes. The fact that the case may
become complex, however, does not create a lack of clarity in Brazil’s request for the establishment
of a Panel.
5. Brazil also rejects any suggestion that the wording of its request in any way prejudiced
Canada’s or the third parties’ ability to participate in the current dispute. Canada – which had, of
course, the benefit of consultations with Brazil on the issues raised in this dispute in March of this
year – has put forth a detailed and wide-reaching defence of its programmes. The EC, which also
claimed its rights have been curtailed, has also submitted extensive comments on the legal issues it
considers relevant to this dispute. These submissions reflect the customary standards of submissions
made by both Canada and the EC in both the Brazil and Canada regional aircraft disputes and show
no sign of confusion as to the issues at stake here. It simply is not credible to say that Canada and the
EC have been deprived of due process by the alleged lack of adequate notice of Brazil’s claims.
6. In Brazil’s view, Canada’s objection to the wording of Brazil’s request for a Panel represents
nothing more than a gambit to avoid a determination as to whether the challenged programmes are
prohibited export subsidies within the meaning of articles 1 and 3. These objections, along with the
EC’s objections, should be rejected by the Panel.

ANNEX A-7
ORAL STATEMENT OF BRAZIL REGARDING
SUBSTANTIVE ISSUES AT THE FIRST MEETING OF THE PANEL
(27 June 2001)
Mr. Chairman, Members of the Panel, Representatives of the WTO Secretariat, and Members
of the Canadian Delegation:
1. Thank you for the opportunity to meet with you today. This morning, I will discuss Brazil’s
claims against Canadian support for its regional aircraft industry through three programmes: the
Export Development Corporation (“EDC”), the Canada Account, and Investissement Québec (“IQ”).
In Brazil’s view, each programme is a prohibited export subsidy “as such,” and each programme
provides prohibited export subsidies “as applied.” Before discussing these programmes, however, I
would like to begin with some important background.
2. The event that triggered this process was the 10 January 2001 announcement by Canada’s
Industry Minister, Mr. Brian Tobin, that Canada woul d provide export credits to assist the Canadian
manufacturer, Bombardier, in selling regional jet aircraft to Air Wisconsin, an airline in the
United States. This transaction was the subject of your 20 June request for information from both
parties.
3. Mr. Tobin admitted that the support Canada was offering was contrary to Canada’s
obligations under the Subsidies Agreement, but he justified the action as “matching” of an illegal
offer that he said was made by the Brazilian manufacturer, Embraer, with assistance from the
Government of Brazil.
4. There are three things wrong with Mr. Tobin’s statement.
5. First, the Article 21.5 Panel in the earlier Canada – Aircraft dispute held that recourse to the
“matching” provisions of the OECD Export Cr edit Arrangement does not bring an export credit
practice into “conformity with” the “interest rates provisions” of the OECD Arrangement.
1 It does
not, therefore, permit a Member to take advantage of the “safe haven” included in item (k) of the
Illustrative List of Export Subsidies annexed to the Subsidies Agreement.
6. Second, even if conformity with the matching provisions of the Arrangement permitted
recourse to the “safe haven” in item (k), Canada’s action did not meet the requirements of those
provisions. Article 29 of the OECD Arrangement requires Participants, such as Canada, intending to
match credit terms and conditions allegedly offered by non-Participants, such as Brazil, to follow the
procedures in Article 53. These procedures, in turn, require the Participant to “make every effort to
verify” that the terms and conditions it is intending to match “are officially supported.”
7. Canada made no effort to verify with the Government of Brazil whether the terms and
conditions being offered by Embraer were officially supported. Indeed, when Mr. Tobin was asked at

1 Canada – Measures Affecting the Ex port of Civilian Aircraft – Recourse by Brazil to Article 21.5 of
the DSU, WT/DS70/RW (Adopted as modified by the Appellate Body, 4 August 2000), paras. 5.120-5.140.

his press conference whether he had informed Brazil of Canada’s action, he responded, “I just did.” 2
Mr. Tobin was correct. Brazil first learned of Canada’s claim that Brazil was offering support to
Embraer from reports of his press conference.
8. Third, and most important, Embraer made its offers to Air Wisconsin without any support of
any kind whatsoever from the Government of Brazil or from any entity controlled by the Government
of Brazil. Embraer had no support from PROEX, the Brazilian subsidy programme that has been the
subject of other disputes. It had no support from the BNDES, the Brazilian development bank that
Canada has complained of in other contexts. Embraer’s offers were for its own account and at its own
risk. The terms of those offers are detailed in th e 25 June response Brazil provided to the Panel’s
request for information regarding the Air Wisconsin transaction.
9. Although there was no official Brazilian support for the terms and conditions offered by
Embraer, the company nevertheless found itself be ing underbid, not by its commercial competitor,
Bombardier, but by the exchequer of the Government of Canada.
10. While the Air Wisconsin transaction was the event that convinced Brazil that further
negotiations with Canada were unlikely to resolve this dispute, it was far from the only reason Brazil
requested this Panel. Embraer finds itself competing with the Canadian Treasury through several
Canadian programmes, including the Export Development Corporation (“EDC”), Canada Account,
and Investissement Québec (“IQ”). In this statement, I will follow the organizational structure of
Brazil’s First Written Submission. First, I will discuss EDC, then Canada Account, and finally,
Investissement Québec. In each instance, I will describe the evidence satisfying each of the three
elements of a prohibited subsidies claim: financial contribution, benefit, and export contingency in
law or in fact.
I. Export Development Corporation “As Such”
11. I will begin with the claim that support for the Canadian regional aircraft industry through the
Export Development Corporation – EDC – constitutes prohibited export subsidies “as such.”
12. It is undisputed that the reason for EDC’s ve ry existence is to “complement” the market.
3
The word “complement” is a euphemism for “ in addition to what the market provides”. Something
“in addition to” what the market provides may be “better” or “worse” than what the market provides,
but it is not the same. Clearly, however, the financial support EDC provides is not likely to be
“worse” than what the market provides. The evidence I will discuss later in my statement
demonstrates that, in “complementing” the market, EDC in fact provides “better” than what the
market provides.
13. This is not unexpected. It would be pointless for a government to establish an organization to
provide something worse than what the market provides. The organization would have no patrons if
that were the case. They all would flock to the better terms of the market. But the patrons of EDC –
Canadian exporters – do not flock to the market. Instead they flock to EDC, because what they find
there is better than what they would find in the market. There is no other valid reason for them to
utilize the services of EDC, and Canada has provided none.
14. Canadian exporters go to EDC for “financial contributions” that are included within Brazil’s
“as such” claim. Most, if not all of these, are delivered by EDC through its “market window.” I will
discuss these financial contributions overall, and then will review the specific example of loan

2 Exhibit Bra-21, paras. 98-101.
3 E XPORT DEVELOPMENT CORPORATION, 1995 Chairman and President’s Message , pg. 4 (“ EDC
Message”) (Exhibit Bra-24).

guarantees. Next, I will review why the superior services EDC offers are themselves financial
contributions within Brazil’s “as such” claim. All of these financial contributions confer benefits “as
such,” are de jure export contingent, and are therefore prohibited.
A. Market Windows
15. Nearly all financial contributions by EDC’s Co rporate Account, whether in the form of loans
or loan guarantees, are so-called “market window” operations. This issue was discussed at length in
Brazil’s First Written Submission. There is relatively little direct evidence of how exactly EDC’s
market window lending activities work, given Canada’s reluctance to provide information.
16. Several points can be made, however, whic h demonstrate that whenever EDC operates
through the “market window,” it grants export subsidies “as such.” As an agent of the Government of
Canada, EDC borrows at Canada’s sovereign rate, pays no income taxes, and is not expected to pay
dividends. Despite this inherently low cost of funds – something no commercial institution enjoys –
EDC does not consider itself constrained by the same OECD Export Credit Arrangement disciplines
placed upon the government export credit agencies of the other Participants. As long as it does not
extend support below “what the relevant borrower ha s recently paid in the market for similar terms
and with similar security,”
4 EDC considers itself free to ignore the limitations placed on export credit
agencies by the OECD Arrangement. Among othe r points, it is not clear how Canada defines the
words “recently” and “similar”. It claims to operate, instead, as a market-based institution in direct
competition with private financial institutions and exporters, including exporters in developing
countries.
17. EDC does not, in fact, operate as a market-based financial institution. A market-based
financial institution, for example, would not limit its support to Canadian exporters, but EDC does
exactly that. This behaviour is typical of a governmental export credit agency, not a private bank. A
market-based financial institution’s shareholders would demand that it support any transaction and
any customer, regardless of nationality, provided it considered the transaction sufficiently profitable.
EDC supports only Canadians, with the goal of obtaining “a competitive advantage for Canadian
exporters, not just a level playing field.”
5 To obtain this “competitive advantage,” EDC retains the
discretion and has the incentive to pass along the benefits of its extraordinarily low cost of funds to
Canadian exporters.
18. The United States, at paragraph 5 of its th ird party submission, confirms Brazil’s point that
market window operations are largely free of market constraints. Such operations “are in a position to
confer benefits by exceeding, if sometimes only in a small way, what purely market-based financial
institutions can (or may be willing) to offer. Their ability to do so explains their existence, since there
would otherwise be no reason for market windows to exist in parallel with private financial market
actors, much less any logical reasons for govern ments to limit their market window activities to
nationals.”
19. EDC and its market window operations “as such” are inconsistent with Canada’s obligations
under the Subsidies Agreement. The sole reason for their existence, and their only logical use, is to
provide what the market does not provide – support on terms better than its clientele, Canadian
exporters and their customers, could otherwise obtain on the market.
20. Further, export credits in any form can also confer a benefit by reducing, if not eliminating,
the need of the seller to lower its price to remain competitive. When

4 Canadian First Written Submission, para. 67 (emphasis removed).
5 Testimony of EDC President Mr. Ian Gillespie before the Standing Committee on Foreign Affairs and
International Trade, 6 November 1997, pg. 15 (Exhibit Bra-26).

goods are sold on credit, the total cost to the buyer is a combination of the price of the goods and the
cost of the credit. When governments provide financing at rates lower than otherwise would be
available to the parties, they also permit the selle r to keep the price of the goods higher than it
otherwise could. In this way, export credits can be viewed as conferring a benefit on the seller of the
goods in the form of price support.
B. Loan guarantees
21. A specific example of the kinds of financial services EDC offers is loan guarantees. Canada
has acknowledged that loan guarantees are provided by the EDC to Canadian regional aircraft
purchasers.6 Loan guarantees are expressly mentioned in the first subparagraph of Article 1.1(a)(1) as
“financial contributions” in the form of “potential direct transfers of funds or liabilities”.
22. A financial contribution provides a “benefit,” within the meaning of Article 1.1(b) of the
Subsidies Agreement, if it accords “terms more favourable than those available to the recipient on the
market.”7 By definition, EDC loan guarantees allow a recipient to obtain funds on terms more
favourable than it otherwise could obtain on the market. In discussing a US Export-Import Bank loan
guarantee, Canada acknowledged as much, stating that “[i]n such circumstances, the lending bank
establishes financing terms in the light of the risk of the US Government, not the borrower.”8
23. EDC, as an agent of the Government of Canada, provides credits at extremely favourable
rates. It enjoys a credit rating of AAA from Standard & Poors and the Japan Credit Rating Agency,
and Aa1 from Moody’s.
9 Purchasers of Canadian regional aircraft do not enjoy similar standing.
Even large international airlines, let alone smaller regional airlines, do not enjoy such standing.
United Air Lines, for example, holds a Ba1 credit rating from Moody’s, and a BB+ rating from
Standard & Poors. An EDC loan guarantee would allow United to enjoy the benefits of EDC’s AAA
rating, which will certainly help it secure better financing terms than it could secure on its own. Thus,
EDC guarantees provide benefits “as such.”
24. In its defence, Canada asserts – at paragraph 84 of its First Written Submission – that EDC
charges fees for its guarantees. But what fees? How much are they? How are they determined?
What kind of guarantee does this fee buy? To establish its right to this defence, Canada at least must
demonstrate that the fees EDC charges regional aircraft purchasers are commensurate with those
charged by commercial guarantors with AAA credit ratings to regional aircraft purchasers wishing to
enjoy the benefits of those guarantors’ AAA rating s. Moreover, even if Canada could show that
purchasers of regional aircraft enjoy the same credit rating as the Canadian government, the guarantee
would still confer a benefit as long as “there is a difference between the amount that the firm
receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm
would pay on a comparable commercial loan absent the government guarantee.”
10
25. Finally, there can be no serious question that EDC loan guarantees are contingent upon or tied
to export, within the meaning of Article 3.1(a) of the Subsidies Agreement. Section 10(1) of the
Export Development Act states that EDC “was esta blished . . . for the purposes of supporting and

6 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/R (Adopted as modified by
the Appellate Body, 20 August 1999), paras. 6.99-6.100.
7 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/AB/R (Adopted 20 August
1999), para. 158.
8 Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU ,
WT/DS46/RW (Adopted as modified by the Appellate Body, 4 August 2000), Annex 1-2 (para. 36) (emphasis
added).
9 EXPORT DEVELOPMENT CORPORATION ANNUAL REPORT 2000, pg. 41 (Exhibit Bra-22).
10 Subsidies Agreement, Article 14(c).

developing, directly or indirectly, Canada’s export trade and Canadian capacity to engage in that trade
and to respond to international business opportunities.”11
C. Services
26. Under the third subparagraph of Article 1.1(a)(1) of the Subsidies Agreement, financial
contributions can take the form of “services other than general infrastructure.” EDC provides various
types of assistance to the Canadian regional aircraft industry and its purchasers. Its financing support
and financing packages for Canadian regional aircraft purchasers, as well as the financing and loan
guarantees that are part of that support and those packages, are examples.
27. Canada has acknowledged that EDC provides its financing support and financing packages on
terms more favourable than a recipient could receive on the market. According to the EDC, it
“complements the banks and other financial intermediaries,” and absorbs risk for Canadian exporters
“beyond what is possible by other financial intermediaries.” 12 Additionally, “EDC’s financing
support gives Canadian exporters an edge when they bid on overseas projects,”13 which – Canada has
explained – refers to “the ability of EDC officials to assemble better structured financial packages . . .
.”14 All of these services – financial packages that are better structured, assistance that complements
and goes beyond that provided by commercial banks, support that grants an edge – by definition offer
something better than that available to Canadian exporters on the market. They therefore confer
benefits.
28. The previous panel examining EDC support did not find, as Canada claims at paragraph 77 of
its submission, that a determination of benefit “cannot be inferred or extrapolated from the generic
statements of the EDC or its officials.” A review of the paragraphs from the Canada – Aircraft report
cited by Canada reveals no such principle. In any event, while Brazil’s claim in the earlier case was
that the statements I have just read suggested that EDC provides lower interest rates than are
commercially available, its claims in this dispute are broader than that. These statements establish, at
a minimum, that EDC – by its own admission – provides “services” that are better than what a
recipient could get on the market.
29. With respect to export contingency, I refer again to Section 10(1) of the Export Development
Act, which provides EDC’s export mandate.
15
30. Finally, Mr. Chairman, I would like also to note that the arguments I have just raised may
equally be made to support an “as applied” claim.
II. EDC Corporate Account “As Applied”
31. In addition to its challenge against EDC “as such,” Brazil also challenges EDC’s application
in several regional aircraft transactions. I will not, however, repeat the details of the individual
transactions, discussed in paragraphs 43 and 59 of Brazil’s First Written Submission.
32. The Panel will note Canada’s statement at paragraph 64 of its First Written Submission that
EDC has not participated in the Midway transaction described in Brazil’s Submission. Similarly, at
paragraph 65 of its Submission, Canada states that EDC did not provide loan guarantees for the
Comair transaction described in Brazil’s Submission. Brazil accepts the correction. We would note,

11 Exhibit Bra-17.
12 EDC Message, pgs. 4, 2 (emphasis added) (Exhibit Bra-24).
13 WT/DS70/R, para. 6.57 (quoting former EDC President Paul Labbé) (emphasis added).
15 Export Development Act, Section 10(1) (Exhibit Bra-17).

however, that the non-transparent nature of EDC’s operations makes it difficult for outsiders to obtain
information about its transactions. The degree of non-transparency that characterizes EDC’s
operations can be appreciated by the fact that most of the information Brazil cited in its First
Submission about EDC’s operations was from third country sources, not Canadian sources.
33. It is significant, however, that Canada has not denied Brazil’s allegations regarding EDC
support for the Kendell and ASA transactions, also described in paragraphs 43 and 59 of Brazil’s First
Submission. The evidence discussed in Brazil’s S ubmission indicates that EDC provided financial
contributions for these transactions in the form of di rect or indirect transfers of funds or liabilities.
EDC support for these transactions was for periods ranging from [ ] years, which are beyond the 10-
year maximum term identified in the OECD Arrangement.
34. The interest rates on these particular transactions are not disclosed in any public source of
which Brazil is aware. However, the Panel should note that, in another proceeding, Canada has
admitted that the EDC Corporate Account has extended fixed interest-rate export credits at interest
rates below the OECD Arrangement’s minimum interest rate, the CIRR.16 EDC has not identified the
specific transactions, except to state that they occurred sometime after 1 January 1998.
35. These financial contributions confer a benefit. As the Appellate Body in Brazil – Aircraft
stated, a net interest rate to a borrower below the relevant CIRR is “positive evidence” that the rate
secures a “material advantage,” under item (k) of Annex I to the Subsidies Agreement. 17 T h i s
reasoning applies equally to the other terms of the OECD Arrangement, including its maximum
repayment terms. As discussed at paragraphs 51-54 of Brazil’s First Submission, export support that
confers a “material advantage” will always confer a benefit, since item (k) and the “material
advantage” standard only become an issue when a subsidy, including a benefit, has already been
demonstrated.
36. Brazil has identified particular instances in which the EDC Corporate Account has provided
financial contributions beyond the 10-year maximum repayment term included in the OECD
Arrangement and below the relevant CIRR identified by the Arrangement. In the Appellate Body’s
words, Brazil has provided “positive evidence” of EDC support on terms more favourable than those
available to the recipient on the market. If it is Canada’s position that its better-than-OECD terms are,
nevertheless, “commercial,” it is Canada’s burden to prove it.
37. Finally, regarding export contingency, I refer again to Section 10(1) of the Export
Development Act, which provides EDC’s export mandate.
III. Canada Account “As Such”
38. I will now turn to Brazil’s claims against Canada Account support for regional aircraft. It
now appears that Canada Account is the vehicle by which Canada has provided the major part of its
support to the Air Wisconsin transaction. This was not clear to us from Mr. Tobin’s press conference
which suggested that Canada’s official support for that transaction came in a variety of guises.
Moreover, at consultations, Canada’s representatives were either unable or unwilling to say any more
than that the support “probably” would be provided by Canada Account, rather than through EDC’s
Corporate Account.
39. The Article 21.5 Panel in the earlier Canada – Aircraft dispute determined that Canada had
failed to implement the recommendations and rulings of the DSB with respect to Canada Account.

16 WT/DS46/RW, Annex 1-4, pg. 82, Response of Canada to Question 4(a).
17 Brazil – Export Financing Programme for Aircraft , WT/DS46/AB/R (Adopted 20 August 1999),
para. 182.

Canada has notified no further action with regard to bringing Canada Account into compliance
subsequent to adoption of the Article 21.5 Panel’s ruling by the DSB. It should therefore be of no
surprise, Mr. Chairman, that Canada Account continues to be inconsistent “as such” with
Article 3.1(a) of the Subsidies Agreement. We have asked the Panel to make a finding confirming
this fact.
40. Separately, Brazil makes the same arguments about the “as such” inconsistency with
Article 3.1(a) of Canada Account loans and guarantees as it does with respect to EDC loans and
guarantees. Canada Account provides financial contributions in the form of loans and guarantees, 18
which are direct or potential direct transfers of funds within the meaning of Article 1.1(a)(1) of the
Subsidies Agreement.
41. Every time a loan guarantee is issued by the Canada Account, it enables the recipient to
obtain funds on terms more favourable than it otherwise could obtain on the market. In Canada’s own
words, when describing a loan guarantee, “the lending bank establishes financing terms in the light of
the risk of the [government guarantor], not the borrower.”
19 In the case of the Canada Account, a
guarantee would lead a lender to establish terms in light of the Government of Canada’s AAA rating,
not the lower rating of the aircraft purchaser. The recipient realizes a very real and significant benefit
because of a Canada Account guarantee.
42. With respect to export contingency, paragraph 80 of Brazil’s First Written Submission
demonstrates that only export transactions are eligible for Canada Account support. The Panel in the
earlier Canada – Aircraft dispute found that Canada Account was de jure contingent on export.
20
Canada has made no changes to Canada Account that would affect that finding.
43. We have demonstrated the three elements of a prohibited export subsidies claim. The Panel
should therefore conclude that Canada Account loans and guarantees are prohibited export subsidies
“as such.”
IV. Canada Account “As Applied”
44. Brazil also challenges the way Canada Account is applied, which is illustrated by the Air
Wisconsin transaction. The facts of Canada Account’s participation in that transaction are described
in Brazil’s First Written Submission. Unfortunately, they were not provided by Canada to Brazil on
25 June 2001. In any event, through Canada Account, Canada is providing a financial contribution in
the form of a loan (or the debt portion into a US leveraged lease) on terms that its Industry Minister
described as follows:
What we’re doing here is using the borrowing strength and the capacity of the
government to give a better rate of interest on a loan than could otherwise be secured
by Bombardier.
21
45. Canada does not contest that Canada Account support for the Air Wisconsin transaction
confers a benefit, or that such support is contingent in law or in fact on export. Instead, it claims that
its actions are justified under the “safe haven” included in the second paragraph of item (k) to the
Illustrative List of Export Subsidies annexed to the Subsidies Agreement. Specifically, Canada claims

18 EDC SUMMARY REPORT TO TREASURY BOARD ON CANADA ACCOUNT OPERATIONS FISCAL YEAR
1998/1999, pg. 4 (Exhibit Bra-46). See also EDC website, “How We Work” (Exhibit Bra-16).
19 WT/DS46/RW, Annex 1-2 (para. 36).
20 WT/DS70/R, para. 9.230.
21 Transcript of Press Conference of Industry Minister Brian Tobin, 10 January 2001, para. 20 (Exhibit
Bra-21).

that it was “merely matching Brazil’s offer in a manner consistent with the ‘interest rates provisions’
of the [OECD] Arrangement.”22
46. The problem with this argument, as I said at the outset, is that there is no Brazilian offer for
Canada to match. There is only an Embraer offer. The Arrangement permits matching only of
officially supported credits, not privately offered credits. Further, even if official credits had been
offered – and they were not – the Article 21.5 Panel in the earlier Canada – Aircraft dispute made
clear that the matching provisions may not be used by WTO Members to justify a prohibited subsidy.
Finally, even if the matching provisions were available, Canada failed to “make every effort to verify”
that official support was involved in Embraer’s offer to Air Wisconsin. It did not direct any inquiries
to Brazil – something it is required to do, we believe, by Article 53 of the Arrangement.
B. Canada Offered Air Wisconsin More Favourable Terms
47. Moreover, even if matching allowed a Member to preserve its ability to use the “safe haven”
in item (k) to shield support not conforming w ith the interest rates provisions of the OECD
Arrangement, and even if Canada had satisfied the requirement to “make every effort to verify” that
official support was involved, it did not match Embraer’s offer. Rather, in making a “non-identical”
match,
23 it seems clear that Canada offered Air Wisconsin terms more favourable than those offered
by Embraer. Bombardier, after all, won the contract.
48. Mr. Chairman, here I intended to compare the terms of Embraer’s offer to Air Wisconsin to
the terms of the sale and financing provided to Air Wisconsin by Bombardier and Canada. Canada,
however, failed to share with Brazil on 25 June 2001 the terms of the Air Wisconsin transaction and,
as we already stated, Brazil is asking the Panel to draw the appropriate adverse inferences from
Canada’s failure to fulfil the Panel’s instructions as well as its failure to comply with Article 18.1 of
the DSU.
49. If there are any doubts, let us make absolutely clear that all information provided by Brazil is
highly sensitive and confidential.
V. Investissement Québec “As Such”
50. I will now turn to Brazil’s claims against Investissement Québec support for regional aircraft
“as such.” As Brazil noted in its First Written Submission,24 Investissement Québec provides a range
of support to companies that qualify as financial contributions. These include loan guarantees, first
loss deficiency guarantees to equity investors, and “any other form of intervention provided for in . . .
[Investissement Québec’s] business plan.”25
51. During consultations, Canada was either unable or unwilling to advise Brazil how
Investissement Québec was providing support to Bombardier’s Air Wisconsin transaction. In fact,
Canada’s representatives told us they were unprepared even to discuss Investissement Québec, a
programme that was clearly identified in Brazil’s request for consultations.
52. In its First Submission, Canada takes pains to state that Investissement Québec “has never
provided residual value guarantees” for Bombardier aircraft sales.26 However, Canada does not deny
that Investissement Québec has provided significant support to Bombardier in general, and in the Air

23 Id., para. 46 and note 36.
24 Brazilian First Written Submission, paras. 84-86.
25 An Act Respecting Investissement-Québec and Garantie-Québec, Art. 25 (Exhibit Bra-18).
26 Canadian First Written Submission, footnote 80.

Wisconsin transaction in particular. Indeed, Canada admits that if Air Wisconsin chooses to structure
the transaction [ ], “. . . [W]ith respect to [ ] aircraft, the Government of Québec is providing a
guarantee [ ].”27 This guarantee is provided under Article 28(1) of the IQ Act. In addition, Canada
does not deny that, in 1996, Investissement Québec “created a five-year $450-million programme to
provide loan guarantees to Bombardier’s customers,” and that the provincial cabinet recently
approved “another $76 million” for this purpose.
28
53. As Canada notes in its First Submission, “the provision of such guarantees by a government
or public body constitutes [a direct or] potential direct transfer of funds or liabilities within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement and would therefore be a ‘financial
contribution.’”29
54. These guarantees also provide a benefit. As discussed above with respect to Canada Account,
each time Investissement Québec issues a guarantee to a purchaser, this guarantee enables the
recipient to borrow funds based upon the credit rating of the Government of Québec. This is because
the credit rating of the Government of Québec is at le ast A+. This is invariably higher than the credit
rating of virtually any commercial purchaser, particularly one buying regional aircraft. Guarantees
issued by Investissement Québec thus confer a significant benefit because these guarantees allow
firms buying Bombardier aircraft to borrow funds at a more favourable rate than would otherwise be
available to them on the market
55. Like EDC, Canada again attempts to defend Investissement Québec by claiming that
Investissement Québec charges a fee for its guarantees. Yet Canada again fails to describe the size of
these fees, or even how they are assessed. As such, Canada bears the burden of proof to establish that
these alleged fees affect the benefit that Investissement Québec guarantees provide to purchasing
companies.
56. Canada also argues that IQ’s support is not contingent upon export because it is available for
sales within Canada outside Québec. Canada’s view is both erroneous and subversive of the export
subsidies disciplines of the Agreement.
57. Let me first explain why Canada’s view is erroneous. Article XXIV:12 of GATT 1947 calls
upon contracting parties to ensure that GATT’s provisions are observed by regional and local
governments within its territory. This requirement is now incorporated into the WTO by GATT 1994.
Further, the Understanding on the Interpretation of Article XXIV , which is part of GATT 1994,
provides that each WTO Member is responsible for the observance of all provisions of GATT 1994,
“and shall take such reasonable measures as may be available to it to ensure such observance by
regional and local governments and authorities within its territory.” The Understanding then goes on
to specify that if the “reasonable measures” taken are not sufficient to remove an offending measure,
“The provisions relating to compensation and suspension of concessions or other obligations apply.”
58. WTO Members are responsible for measures taken by their sub-central authorities. In this
case, this means that for WTO purposes a measure taken by Québec is effectively a measure taken by
Canada. The question, therefore, is: may Canada convert a subsidy, otherwise contingent upon
export, into a non-export contingent subsidy by making part, but not all, of its territory eligible for
sales of the subsidized product?

27 Canadian First Written Submission, footnote 37.
28 “Ottawa backs Bombardier: Loan to US firm to buy jets slaps Brazil’s aerospace subsidies,” The
Montreal Gazette, 11 January 2001 (Exhibit Bra-9).

59. Canada’s designation of part of its territory – in this case, Québec – as ineligible for the
subsidy has the necessary effect of increasing the incentive of producers to export and the likelihood
that they will do so because all of their home territory is not available to them. Canada seems to
imply that, because nine of its 10 provinces remain eligible markets for the subsidized goods, this is
somehow close enough to 10 out of 10. But if a Member may make one province ineligible, why not
two? Why not three? Why not nine?
60. Would Canada agree to apply its position to Brazil’s PROEX subsidy if Brazil were to make
part of its domestic territory eligible for interest rate support for regional aircraft? Would Canada be
willing to do so if Brazil were to designate a small village in the Amazon that did not have an air strip
as the eligible domestic territory?
61. If not, how is the line to be drawn? The WTO dispute settlement process is ill-equipped to
decide how much domestic territory must be made eligible for the subsidy in order to do away with an
export designation. There is admittedly a large difference between a small village and an entire
country except for a single province or state, but how is the line to be drawn?
62. Clearly, it cannot be drawn in any acceptable manner, and this demonstrates how Canada’s
position is subversive of the subsidy disciplines of the WTO. If eligibility of part, but not all, of a
Member’s territory for a subsidy is enough to re move export contingency, many small, partial
domestic eligibility designations are likely to follow rapidly. Brazil maintains, therefore, that IQ
guarantees are in law or in fact contingent on exports.
VI. Investissement Québec “As Applied”
63. In addition to its challenge against Investissement Québec “as such,” Brazil also challenges
Investissement Québec’s application in regional aircraft transactions supporting the sale of aircraft by
Bombardier to Air Wisconsin.
64. As I have already noted, IQ spokesman Jean Cyr has indicated that Investissement Québec
established a five-year, $450 million fund to provide guarantees to Bombardiers’ customers. Mr. Cyr
also reported that when Bombardier approached the Québec government seeking further support for
its sale to Air Wisconsin, in December 2000, approximately $150 million of the $450 million fund
remained unused. In response to Bombardier’s specific request for support, the provincial cabinet
approved an additional $76 million to support the sale to Air Wisconsin. The result was that $226
million was made available to support the export sale to Air Wisconsin.
65. Canada has not denied that Investissement Québec provides guarantees. At paragraph 87 of
its First Written Submission, Canada notes that Brazil has only referred to loan guarantees and has
confirmed that loan guarantees are financial contributions for purposes of Article 1.1(a)(1)(i) of the
SCM Agreement.
66. Canada has also not denied that Investissement Québec provided subsidies to support the sale
to Air Wisconsin. In fact, at footnote 37 of its Firs t Written Submission, Canada notes that if the [],
the Government of Québec is providing a guarantee [ ] of each aircraft.” This is not the only example
of specific application of Investissement Québec support for Bombardier’s export sales. A further
example is discussed at paragraph 90 of Brazil’s First Written Submission.
67. Canada has taken the position that the guarantees provided by Québec through Investissement
Québec to support Bombardier’s sales are not subsidies, on the basis that they confer no benefit, and
are not export subsidies, because they are not made contingent on export. I will deal with each point
separately.

68. With respect to benefit, as I have already noted, the guarantees provided by Investissement
Québec are based on the credit rating of the Province of Québec, not the credit rating of the borrower.
There is no question that these loan guarantees will provide a benefit.
69. Moreover, with respect to the Air Wisconsin tran saction, Canada stated, at paragraph 46 of its
First Written Submission, that its financing offer to Air Wisconsin was made to match what it
assumed to be Brazil-supported below-market financ ing for Embraer aircraft. As Canada confirmed,
in footnote 37, the Québec government support was included in this transaction. Therefore, it is clear
that the Government of Québec was also providing support intended to match the assumed Brazil-
supported, below-market financing. As I have already noted, there was no officially supported below
market financing to match. The result is that th e subsidy provided by Canada Account conferred a
benefit and, likewise, the subsidy provided by Québec through Investissement Québec conferred a
benefit.
70. With respect to export contingency, I have already addressed this issue generally.
Investissement Québec guarantees are export subsidies because they are contingent on export. With
respect to the Air Wisconsin transaction, the contingency on export is even more apparent. Mr. Cyr
confirmed that the provincial cabinet only decided to approve additional funds after Bombardier
“came to us and said they were negotiating this big deal with Air Wisconsin that would require” more
than the remaining $150 million. Air Wisconsin is, of course, a US airline. Every Canadian regional
jet manufactured in Québec, in fact, has been exported not only out of Québec, but out of Canada.
The Government of Québec also knew that Bombardier was competing with Embraer for the contract
and believed that Bombardier was competing with Brazil-supported, below-market financing. The
additional funds requested by Bombardier were a pproved by the provincial government so that
Bombardier could win the Air Wisconsin contract . Therefore, the subsidy provided to support
Bombardier’s sale to Air Wisconsin was clearly ti ed to exports and, therefore, was contingent on
exports.
71. Finally, and still, with regard to IQ, Mr. Chairman, I have to admit I am a little bit confused.
A moment ago I mentioned the statement made by IQ spokesman Mr. Cyr that, in 1996 the provincial
investment fund created a five-year $450 million programme to provide loan guarantees to
Bombardier’s customers. Mr. Cyr then stated that, about $300 million of that fund had been used
when Bombardier approached IQ on 20 December 2000 and “said they were negotiating this big deal
with Air Wisconsin that would require” more than the remaining $150 million. This statement is
contained in Brazil’s Exhibit 9. Mr. Cyr’s statem ent seems to be confirmed by a publication of 17
June 1995 stating that Brit Air, a purchaser of regional jet aircraft from Bombardier, obtained the
assistance of Bombardier, of a French bank, and of the Société de Développement Industriel du
Québec (SDI) to complete the financing.
30 The relevant text of the announcement, which we are
distributing as an exhibit, reads in French: “Chaque Regional Jet coûte 20 million de dollars, une fois
aménagé à l’intérieur. Compte tenu de son prix, Brit Air a obtenu l’assistance de la société
Bombardier, celle d’une banque française, de mê me que celle de la Société de développement
72. Yet, at paragraph 117 of Canada’s Second Written Submission of 4 December 1998 in
Canada - Aircraft, Canada stated that none of the guarantees or financing activities under the “export
development” eligibility criterion of SDI (which be came IQ in 1998) was related to the civil aircraft
sector.
31 On the basis of that statement, the Panel in Canada - Aircraft , at paragraph 9.275, found
that, “Brazil has failed to adduce any evidence of IQ assistance to the Canadian regional aircraft
sector. Accordingly, there is no basis for a prima facie case that IQ assistance has been provided to

30 Exhibit Bra-52.
31 Id.

the regional aircraft industry.” 32 Mr. Chairman, these statements seem contradictory to us. Brazil
would appreciate it if Canada could clarify this apparent contradiction and inform the Panel whether
IQ has ever, in fact, been used to assist the Canadian regional aircraft industry, both prior to
4 December 1998, and, of course, after that date.
VII. Conclusion
73. Mr. Chairman, for all of these reasons, Brazil requests the Panel to conclude that EDC,
Canada Account, and IQ are, “as such” and “as applied,” prohibited export subsidies. We will do our
best to answer any questions you might have.

32 Id.

ANNEX A-8
RESPONSE OF BRAZIL TO ORAL STATEMENT OF
CANADA REGARDING JURISDICTIONAL ISSUES
AT THE FIRST MEETING OF THE PANEL
(28 June 2001)
1. Brazil noted at the 27 June 2001 meeting of the Panel that it would like to address some
issues made by Canada in its Oral Statement on Jurisdictional Issues.
2. Canada claims that three “inconsistencies” between Brazil’s First Written Submission and its
22 June 2001 response to Canada’s 18 June 2001 Preliminary Submission regarding the Panel’s
Jurisdiction have left Canada confused about the scope of Brazil’s claims. A review of those three
instances reveals that no such inconsistencies exist.
3. Before reviewing these three alleged inconsistencies between two of Brazil’s submissions,
however, Brazil notes that these inconsistencies do not implicate the “specificity” requirement of
Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(“DSU”). Article 6.2 speaks only to the specificity of Brazil’s request for establishment of the Panel.
Much as Brazil cannot, as Canada states, use its subsequent submissions to “cure” deficiencies in its
request for establishment,
1 nor can Canada use those subsequent submissions to create deficiencies.
4. In its specific allegations, Canada first, at paragraph 22 of its oral statement on jurisdiction,
points to an alleged inconsistency between paragraph 78 of Brazil’s First Written Submission, and
paragraph 24 of Brazil’s 22 June response. Paragraph 78 of Brazil’s First Written Submission states
that “Canada Account offers . . . export credits insurance, financing services, performance insurance,
and political risk insurance,” and notes that those four categories of support constitute “financial
contributions” under Article 1.1(a)(1) of the Agreement on Subsidies and Countervailing Measures
(“SCM Agreement”). This is a factually accurate statement, and does not state that all of those forms
of “financial contributions” are subject to Brazil’s claims with respect to Canada Account.
5. In contrast, paragraph 24 of Brazil’s 22 June response identifies which of those specific forms
of “financial contributions” are not the focus of its claims. As stated in its request for establishment,
Brazil’s claims against Canada Account are limited to “financing, loan guarantees, or interest rate
support” for the regional aircraft industry.
6. Second, at paragraph 23 of its oral statement on jurisdiction, Canada points to an alleged
inconsistency between paragraph 40 of Brazil’s First Written Submission, and paragraph 24 of
Brazil’s 22 June response. Paragraph 40 of Brazil’s First Written Submission states that “EDC offers
‘a wide range of financial services,’” including “credit insurance, financing services, bonding
services, political risk insurance and equity.” It also states that all of those activities constitute
“financial contributions” under Article 1.1(a)(1) of the SCM Agreement. Again, this is a factually
accurate statement, and does not state that all of those forms of “financial contributions” are subject to
Brazil’s claims with respect to EDC.

1 Oral Statement of Canada on Jurisdictional Issues, 27 June 2001, paras. 15, 18, 21, 22.
WT/DS/222/R

7. In contrast, paragraph 24 of Brazil’s 22 June response identifies which of those specific forms
of “financial contributions” are not the focus of its claims. As stated in its request for establishment,
Brazil’s claims against EDC are limited to “financing, loan guarantees, or interest rate support” for the
regional aircraft industry.
8. Third, at paragraph 24 of its oral statement on jurisdiction, Canada points to an alleged
inconsistency between paragraph 92 of Brazil’s First Written Submission, and paragraph 24 of
Brazil’s 22 June response. Paragraph 92 of Brazil’s First Written Submission states that IQ provides
loans, guarantees (“suretyship”) and “‘any other form of intervention provided for in its business
plan.’” Paragraph 92 also states that all of these types of support constitute “financial contributions”
under Article 1.1(a)(1) of the SCM Agreement. This is a factually accurate statement, and does not
state that all forms of IQ loan or surety support are the subject of Brazil’s claims regarding IQ.
9. In contrast, paragraph 24 of Brazil’s 22 June response identifies those “financial
contributions” that are not the focus of its claims. As stated in its request for establishment, Brazil’s
claims against IQ are limited to “loan guarantees, equity guarantees, residual value guarantees, and
‘first loss deficiency guarantees’” for the regional aircraft industry.
10. Brazil does not consider the terms “guarantee” and “suretyship” necessarily to be
synonymous in the field of export credits. As noted, Brazil’s claim is limited to the various forms of
guarantees listed in the request for establishment. To the extent that “suretyship” is another term for
these guarantees, Brazil’s statement at paragraph 24 of its 22 June response that it is not challenging
“suretyship” may have been misplaced. Brazil’s intent was to illustrate a type of guarantee not
covered by its claims (“exchange rate guarantees”).
11. Canada’s main complaint is that Brazil’s request for establishment is too broad. In its oral
statement regarding jurisdiction, for example, Cana da complained about the “broadly-worded nature
of Brazil’s Panel request.”2 This complaint is misplaced. Nothing in Article 6.2 of the DSU requires
that Brazil’s claims be narrow. Brazil was entitled, in its request for establishment of this Panel, to
bring comprehensive claims against EDC, Canada Account and IQ. Brazil is entitled to maintain
those claims throughout the duration of these proceedings. Brazil is also entitled to narrow those
claims if the facts, as they are developed, dictate that it should do so.3
12. Indeed, as noted in paragraph 32 of its Statement for the First Meeting of the Panel, Brazil
accepted, in good faith, Canada’s correction that EDC was not involved in the Comair and Midway
transactions, and narrowed its claim accordingly. Additionally, Canada’s observation regarding the
EC’s Third Party Submission and the implications of the use of the “catch-all clause ‘including, but
not limited to’” is inapposite.
4 Brazil has neither asserted any right to expand, nor has it in fact
expanded, its claims beyond the specific forms of EDC, Canada Account and IQ export credits listed
in its request for establishment.
13. Moreover, the breadth of Brazil’s claims is driven by the lack of information available about
EDC, Canada Account and IQ. Canada has not notified any of these measures under Article 25 of the
SCM Agreement.5 Canada also refused to discuss the terms of its support for the Canadian regional

2 Oral Statement of Canada on Jurisdictional Issues, 27 June 2001, para. 34.
3 For example, as noted in paragraph 32 of its Statement for the First Meeting of the Panel, Brazil
accepts Canada’s correction that EDC was not involved in the Comair and Midway transactions. That is
information that could have been, but was not, furnished to Brazil during consultations. Regardless, now that it
has been brought to Brazil’s attention, Brazil has narrowed its claim accordingly.
4 Oral Statement of Canada on Jurisdictional Issues, 27 June 2001, para. 30.
5 The Panel in Canada – Measures Affecting the Export of Civilian Aircraft recognized the evidentiary
difficulties facing a claimant “especially where details of the alleged subsidy has [sic] not been notified under
WT/DS/222/R

aircraft industry via EDC, Canada Account and IQ during consultations with Brazil on
21 February 2001. Nor did Canada provide oral or written responses to the list of questions put to it
by Brazil during consultations.6 Canada’s actions were contrary to the Appellate Body’s requirement
that parties be “fully forthcoming” and freely disclose facts relating to claims, “in consultations as
well as in the more formal setting of panel proceedings.” 7 Canada cannot decline to notify its
measures, refuse to be responsive in consultations about those measures, and then object that Brazil’s
claims regarding those measures are so “vague and broadly-worded” as to prejudice Canada’s ability
to defend itself. Were that acceptable, a defending Member would deliberately fail to be “fully
forthcoming,” in the knowledge that doing so woul d facilitate a challenge to jurisdiction based upon
the complaining Member’s failure to observe the requirements of Article 6.2 of the DSU.
14. Brazil’s request for establishment of this Panel satisfies the requirements of Article 6.2, as
spelled out clearly by the Appellate Body in Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products.8 It is in writing. It indicates that consultations were held. It identifies the
measures at issue as specific types of export credits provided by three Canadian programs – EDC,
Canada Account and IQ. Finally, it provides a brief summary of the legal basis for Brazil’s claim,
i.e., that these three programmes, and specific transactions thereunder, constitute prohibited export
subsidies within the meaning of Articles 1 and 3 of the SCM Agreement. For these reasons, Brazil
asks that the Panel reject Canada’s claim that certain of Brazil’s claims are not within this Panel’s
jurisdiction.

Article 25 of the SCM Agreement . . .” WT/DS70/R (Adopted as modified by the Appellate Body, 20 August
1999), para. 9.53.
6 Exhibit Bra-1.
7 India - Patent Protection for Pharmaceutical and Agricultural Chemical Products , WT/DS50/AB/R
(19 December 1997) (Adopted 16 January 1998), para. 94.
8 WT/DS98/AB/R (Adopted 14 December 1998), para. 120.

ANNEX A-9
RESPONSES OF BRAZIL TO QUESTIONS FROM THE PANEL
FOLLOWING THE FIRST MEETING OF THE PANEL
(6 July 2001)
Questions to the Parties – 29 June 2001
THESE QUESTIONS ARE INTENDED TO FACILITATE THE WORK OF THE
PANEL, AND DO NOT IN ANY WAY PREJUDGE THE PANEL'S FINDINGS ON THE
MATTER BEFORE IT. NOR DO THEY PREJUDGE ANY RULINGS THAT MAY BE
MADE BY THE PANEL REGARDING ITS JURISDICTION.
PLEASE NOTE THAT THE PANEL USES THE TERMS "AS SUCH" AND "AS
APPLIED" BECAUSE THEY ARE USED BY THE PARTIES. THE PANEL'S USE OF
THESE TERMS IS IN NO WAY INDICATIVE OF THE PANEL'S VIEWS ON THE
IDENTITY OF THE SPECIFIC MEASURES AT ISSUE.
Questions for both Parties
1. What, if any, is the precedential effect of the findings of the Canada – Aircraft (DS70)
Panel on this Panel's consideration of Brazil's claims regarding the Canada Account and EDC
programmes as such? What, if any, is the precedential effect of the findings of the Canada –
Aircraft (DS70) Panel on the matching provisions of the OECD Arrangement under item (k) of
the Illustrative List of the SCM Agreement.
Panel reports do not have the effect of a legal precedent. Thus, the Panel in this case is fully
entitled to consider Brazil’s claims regarding the Canada Account and EDC programmes “as such.”
The Panel’s jurisdiction and competence to review those programmes as such and make the
appropriate findings are not, and could not be, affected by the fact that the same programmes were
challenged as such in a previous case.
The Panel is entitled to, and in the view of Brazil should, consider the findings of the DS70
Panel with respect to Canada Account and EDC. The Panel may, of course, disagree with some of the
findings in DS70. It may, on the other hand, determine the findings and the factual and legal
conclusions made by the DS70 Panel useful for its analysis of Brazil’s claims in these proceedings.
Similarly, with respect to the matching prov isions of the OECD Arrangement under item (k),
the Panel may, but does not necessarily have to agree with, the DS70 Panel’s conclusions. In Brazil’s
view, while the Panel could, of course, disagree with some of the findings in DS70 on the matching
provisions of the OECD Arrangement, it will likely find those findings useful for its analysis of
Brazil’s arguments that seeking recourse to the matching provisions of the Arrangement is not
“conformity with” the “interest rate provisions” for the purpose of the second paragraph of item (k).
WT/DS/222/R

For a further discussion of issues relevant to this question, please see the response to
Question 2 below.
2. Does this Panel have jurisdiction to review Brazil's claims regarding the Canada
Account and EDC programmes as such? In particular, is the principle of res judicata , or a
similar principle, applicable in this case, so as to preclude the Panel's consideration of issues
previously ruled on by a Panel?
The Panel does have jurisdiction to review Brazil’s claims regarding Canada Account and
EDC as such. Neither the principle of res judicata nor any similar principle that might be applicable
in this case precludes this Panel’s consideration of issues that may have been previously ruled upon
by another WTO panel. This is the case, even though the programmes – on the books – may not have
changed since they were last reviewed by a WTO panel, for the following reasons.
In the DS70 proceedings the Panel did not rule that EDC was consistent with the SCM
Agreement. It ruled that “Brazil has failed to demonstrate that the EDC programme as such mandates
the grant of subsidies” and, for that reason, the Panel “may not make any findings on the EDC
programme per se .”
1 The Panel in DS70 thus found that the evidence adduced by Brazil was
insufficient. The Panel, in other words, did not find that EDC was discretionary; rather, it found that
Brazil had not proved that it was mandatory.
In this case, in addition to the evidence previously presented, Brazil has presented new
evidence and new arguments on the basis of that new evidence. The DS70 Panel did not have that
evidence and those new arguments before it. This Panel is therefore not prevented from taking a fresh
look at the EDC programme and may, after considering the new evidence and arguments offered by
Brazil, come to a different conclusion.
Similarly, the DS70 Panel did not rule that Canada Account as such was consistent with the
SCM Agreement. It found that Brazil had failed to make a prima facie case and, as a result, the Panel
could not “make any findings on the Canada Account programme per se.”
2 With respect to Canada
Account, Brazil has now presented additional information and evidence that presents a prima facie
case.
Moreover, the DS70 Panel requested Canada to provide it with specific information regarding
EDC transactions. Canada refused to comply with the request. Had Canada complied, the Panel
would have possessed additional evidence regardin g EDC’s Canada Account and Corporate Account
activities. Brazil asked the Panel to draw adverse inferences, which it declined to do.
3 The Appellate
Body found that, while the Panel had the legal authority to draw adverse inferences, it did not err in
law or abuse its discretionary authority in declining to do so. 4 The Appellate Body went further,
however, and stated that if the Appellate Body “had been deciding the issue that confronted the Panel,
we might well have concluded that the facts of record did warrant the [adverse] inference.”
5 T h e
Appellate Body further emphasized that by its find ing it did “not intend to suggest that Brazil is
precluded from pursuing another dispute settlement complaint against Canada, under the provisions of
the SCM Agreement and the DSU, concerning the consistency of certain of the EDC’s financing

1 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/R (Adopted as modified by
the Appellate Body 20 August 1999), para. 9.129 (emphasis in original).
2 Id., para. 9.213.
3 Id., para. 9.181-182.
4Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/AB/R (Adopted
20 August 1999), paras. 203-205.
5 Id., para. 205.
WT/DS/222/R

measures with the provisions of the SCM Agreement.”6 Brazil, in this case, is following the advice of
the Appellate Body.
The new information and evidence Brazil has provided in this case allows it to make a prima
facie case that not only certain of the Canada Account and EDC financing measures are inconsistent
with the provisions of the SCM Agreement, but that the modus operandi of the programme as such is
also inconsistent with the Agreement. The new evid ence relates not only to specific transactions. It
also relates to the raison d’etre of EDC in both its Canada Account and Corporate Account activities.
That evidence shows that the very existence of these programmes – and, therefore, the programmes as
such – is to provide export subsidies.
The new evidence is not limited to the Air Wisconsin transaction, although that transaction is
a good example of the way the challenged programm es operate and of the interaction between EDC
(Corporate Account) and EDC (Canada Account). 7 Canada’s defences with respect to the Air
Wisconsin transaction can be summarized as foll ows. When official government financing is
provided, Canada “matches” such financing offered by other governments. When there is no official
government financing, Canada operates through the market window and offers financing on terms
available in the commercial marketplace. This is the way EDC operates the Canada Account and the
Corporate Account. These operations are, in other words, the programmes “as such.” Brazil
challenges the programmes as such because the very way in which they are designed to operate is
inconsistent with the SCM Agreement. A more detailed discussion of this argument is contained in
Brazil’s response to Question 28.
Further, by operating through the market window and by providing financing on terms that
Canada alleges are available in the commercial marketplace – another function inherent in the
challenged programmes – these programmes also fail to comply with the SCM Arrangement, and
constitute a prohibited subsidy. Canada has failed to show that the programmes provide financing on
terms available in the commercial marketplace when they allegedly operate through the market
window. Quite the contrary, Brazil has shown that when the programmes ostensibly operate through
the market window, the terms of the financing provided are more favourable than those to be found on
the market. For a more detailed discussion, Brazil refers the Panel to paragraphs 28-39 of its First
Written Submission and paragraphs 15-20 of its Oral Statement at the first meeting of the Panel.
In sum, the new evidence put forward by Brazil in this case, while indisputably showing that
the programmes are inconsistent with the SCM Agreement “as applied,” also shows that providing
prohibited subsidies is inherent in the way the programmes are designed to operate and, therefore, that
they are inconsistent with the SCM Agreement “as such.”
Questions for Canada – Numbers 3-24
Questions for Brazil
25. Please identify the specific measures in re spect of which Brazil is requesting the Panel to
make findings. In particular, is Brazil requesting findings (1) on the Canada Account, EDC and
IQ programmes as such, (2) on the Canada Account, EDC and IQ programmes as applied (on
the basis of evidence regarding specific transactio ns), (3) on the specific Canada Account, EDC

6 Id., para. 206.
7 In this regard, Brazil recalls that Minister Tobin himself was not clear on whether EDC would handle
the Air Wisconsin transaction under the Canada Account or the Corporate Account, and that the news release
that accompanied his press conference described both, without specifying which would apply. Exhibit Bra-3.
WT/DS/222/R

and IQ transactions identified in its first submission, or (4) on some combination of (1), (2) and
(3)?
Brazil is requesting findings by the Panel on points (1), (2), and (3). Brazil is requesting that
the Panel find the Canada Account, EDC and IQ programmes as such inconsistent with Canada’s
obligations under the SCM Agreement. Brazil is also requesting that the Panel find the Canada
Account, EDC and IQ programmes inconsistent with Canada’s obligations under the SCM Agreement
as applied on the basis of evidence regarding specific transactions. Finally, Brazil is requesting that
the Panel find the specific Canada Account, EDC and IQ transactions identified in its First Written
Submission as breaching Canada’s obligations under the SCM Agreement.
26. What is the distinction between a claim concerning (1) a measure "as such" and (2) a
measure "as applied"? What is the relevance of individual transactions in addressing claims
concerning (1) a measure "as such" and (2) a measure "as applied"?
A measure “as such” is inconsistent with a Member’s obligations when it calls for action by
the executive authority that is inconsistent with a Member’s WTO obligations. A measure is
inconsistent “as applied” when its application is inconsistent with the WTO obligations of a Member.
8
Individual transactions may serve to illustrate and prove that a measure is inconsistent “as such”
because it envisions that the transactions in question be carried out in a manner inconsistent with the
WTO. Individual transactions may also serve to illustrate and prove that a measure is inconsistent “as
applied” because, even if it does not require that the transactions in question be carried out in a
manner inconsistent with a Member’s WTO obligations, it is applied in an inconsistent manner.
In this case, Brazil challenges EDC, Canada Account and IQ both “as such” and “as applied.”
Brazil has shown that individual transactions breach Canada’s obligations under the SCM Agreement.
This should be sufficient for a finding that the programmes are inconsistent “as applied.”
In addition, however, individual transactions serve to illustrate that it is inherent in the design
and the modus operandi of the three challenged Canadian programmes to operate in a manner that is
inconsistent with the SCM Agreement.
27. Please identify the specific findings or re commendations, if any, that Brazil is requesting
on the issue of whether or not Canada has implemented the findings and recommendations
resulting from Brazil's recourse to Article 21.5 in the DS70 proceeding?
Brazil is requesting a ruling by the Panel that, as a matter of fact , Canada has done nothing
since the adoption of the Report in the Article 21.5 DS70 proceedings to bring Canada Account in
compliance with the SCM Agreement.
The Panel in the DS70 proceedings found 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”
9 and concluded that “Canada shall withdraw
[those] subsidies … within 90 days.” 10 The Appellate Body affirmed.11 The Article 21.5 Panel found
that “the measures taken by Canada to comply with the DSB recommendation on the application of

8 See United States – Denial of Most-Favoured Nation Treatment as to Non-Rubber Footwear from
Brazil, BISD 39S/128 (19 June 1992), para. 6.13, citing United States – Taxes on Petroleum and Certain
Imported Substances (“Superfund Taxes”) BISD 34S/136 (17 June 1987) and EEC – Regulation on Imports of
Parts and Components, BISD 37S/132 (16 May 1990).
9 WT/DS70/R, para. 10.1(b).
10 Id., para. 10.4.
11 WT/DS70/AB/R, paras. 220 and 221.
WT/DS/222/R

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.”12 Canada did not appeal that finding.
Brazil is not asking this Panel to review the findings of the DS70 Article 21.5 Panel or to
uphold or confirm the findings of that Panel. Similarly, Brazil is not asking this Panel to draw
conclusions as to what Canada should have done. Brazil simply is requesting a factual finding that,
since the adoption of the DS70 Article 21.5 Report, Canada has not made any changes in Canada
Account. It is Brazil’s understanding that Canada does not dispute this as a matter of fact. Indeed, in
response to a question from the Panel during the second day of the Panel’s first meeting, Canada
confirmed that it had made no changes in the statutes and regulations that constitute the legal basis of
EDC (Corporate Account or Canada Account).
28. The United States argues that the dist inction between discretionary and mandatory
legislation has been described by a WTO Panel as a "well established" principle (para. 2 of the
US oral statement). Does Brazil consider th at the distinction between discretionary and
mandatory legislation is "well established"? If so, is the distinction applicable in this case?
Brazil agrees with the United States that the distinction between discretionary (“as applied”)
and mandatory (“as such”) legislation is an established principle of GATT and WTO jurisprudence.
Brazil does not believe, however, that the principle in those precise terms is applicable in this case to
the Canadian programmes challenged by Brazil.
The recent Report in United States – Measures Treating Export Restraints as Subsidies noted
that “a number of Panels, in disputes concerning the consistency of a legislation, have not considered
the mandatory/discretionary question in the abstract and as a necessary threshold issue. Rather, the
Panels in those cases first resolved any contro versy as to the requirements of the GATT/WTO
obligations at issue, and only then considered in light of those findings whether the defending party
had demonstrated adequately that it had sufficient discretion to conform with those rules. That is, the
mandatory/discretionary distinction was applied in a given substantive context.”
13
The “substantive context” of EDC is that of an Export Credit Agency (“ECA”). ECAs exist
to subsidize exports. This is their purpose. Their “subsidies … enable the country’s industries to
capture part of an expanded world market for their goods – or, at least, … keep [them] from being
excluded from it.”14 They “provide or […] insure credits to insolvent markets; … [they] absorb the
risks that ‘no banker in his right mind’ is willing to assume.”15
The history of item (k) and the Arrangement make this clear. The Arrangement was
concluded in 1978, after many long years of negotiation.16 Meanwhile, the Tokyo Round negotiations
were concluded only a year later, in 1979. The Tokyo Round included a Subsidies Code that, inter
alia, obligated parties not to use export subsidies in a manner inconsistent with the Code (Article 8.2)
and not to grant export subsidies on products other than certain primary products (Article 9.1).

12 Canada – Measures Affecting the Ex port of Civilian Aircraft – Recourse by Brazil to Article 21.5 of
the DSU, WT/DS70/RW (Adopted as modified by the Appellate Body 4 August 2000), para. 6.1.
13 United States – Measures Treating Export Restraints as Subsidies , WT/DS194/R (29 June 2001)
(Not yet adopted), para. 8.11 (emphasis in original) (footnotes omitted).
14 JOHN E. RAY, MANAGING OFFICIAL EXPORT CREDITS – THE QUEST FOR A GLOBAL REGIME, Institute
for International Economics (1995), pg. 13 (Exhibit Bra-54)
15 Id. (emphasis added).
16 Id., pgs. 40-44. See also G ARY CLYDE HUFBAUER AND JOANNA SHELTON ERB, S UBSIDIES IN
INTERNATIONAL TRADE 68-69 (Washington, D.C., Institute for International Economics 1984) (Exhibit Bra-55).
WT/DS/222/R

The participants in the recently-concluded OECD Arrangement, most if not all of which were
potential signatories to the plurilateral Tokyo R ound Code, were faced with the fact that actions by
their respective ECAs permitted by the newly-negotiated Arrangement would, nonetheless, be
inconsistent with their obligations under the Code. In the words of Gary Hufbauer, one of the Tokyo
Round negotiators, “many countries were unwilling to condemn as export subsidies those practices
condoned in the OECD.”
17 The solution to this problem was the second paragraph of item (k) – the
safe haven clause for practices that conform to the interest rate provisions of the Arrangement.18 ECA
operations indeed are export subsidies, the negotiators recognized, but they will not be considered as
an export subsidy so long as they comply with the interest rate provisions of the Arrangement.
Thus, item (k) allows ECAs to perform their normal function and, at the same time, meet
GATT, and now WTO, requirements. Whenever an ECA operates within the scope of item (k), it is
not considered to be providing an export subsidy. If the operation of an ECA, however, is not covered
by the exceptions in item (k), it is providing a prohibited subsidy “as such” because providing export
subsidies, as the Tokyo Round negotiators realized, is inherent in the very existence and functioning
of an ECA. That, to repeat, is why they created item (k).
In that context, the argument that Canada’s programmes are not mandatory and therefore are
not inconsistent with the SCM Agreement must fail. EDC, whether through its Canada Account or its
Corporate Account operations, constitutes a measure that is designed “as such” to provide export
subsidies. EDC financing is a financial contribution that confers a benefit and is contingent upon
exportation. Canada, of course, has available the potential affirmative defense of item (k). But the
presence of this potential defense does not affect the nature of the programmes “as such.”
Further, even if the programmes may not always require a violation of the SCM Agreement
(e.g., when matching or operating through the market window, assuming the Panel agrees with
Canada on those issues) they would still be inconsistent with the SCM Agreement. As the Panel in
United States – Measures Treating Export Restraints as Subsidies concluded, if a measure requires a
violation of a WTO obligation, “whether in some or in all cases,” the measure “as such” is
inconsistent.
19 Referring to the Appellate Body report in Argentina – Footwear, the Panel concluded
that “a measure is inconsistent with WTO rules if that measure mandates action inconsistent with
WTO rules in particular circumstances, even if in other circumstances the action might not be
inconsistent with WTO rules.”20 Canada’s programmes require providing prohibited export subsidies
except in the circumstances where those subsidies might fall within the “safe haven” of item (k).
29. With regard to Brazil's claims regarding Canada Account, EDC and IQ as such, does
Brazil consider that Canada Account, EDC and IQ as such require the provision of prohibited
export subsidies?
Yes. As discussed in detail in Brazil’s response to Question 28, EDC’s Corporate and Canada
Accounts as such require the provision of prohibited export subsidies because they are established and
operate as export credit agencies that have as the raison d’etre of their existence the provision of
export subsidies. As explained in Brazil’s response to Question 28, ECAs provide prohibited export
subsidies unless they comply with the disciplines imposed by the GATT, and later the WTO, on their
functioning and operations through the rules of the OECD Arrangement and also fall within the scope
of the exceptions provided in item (k). Brazil has shown that the programmes in question provide
financial contributions that confer a benefit and are contingent upon export. Therefore, Canada must

17 Hufbauer and Erb, supra, pg. 70 (Exhibit Bra-55).
18 Ray, supra, pgs. 36-38 (Exhibit Bra-54).
19 WT/DS194/R, para. 8.77.
20 Id., para. 8.78.
WT/DS/222/R

meet the burden of proof of its affirmative defense and show that the programmes fall within the
scope of the exception of item (k). Canada has failed to do so.
A classic example of a prohibited subsidy – and a good illustration of Brazil’s argument – are
export loan guarantees. Export loan guarantees provided by government financing institutions or
ECAs always confer a benefit because they confer the government’s superior credit rating to a private
party. If the government’s credit rating were not superior, there would be little point to the guarantee.
As Brazil pointed out in its Oral Statement, EDC lo an guarantees allow the recipient to obtain funds
on terms more favourable than it otherwise could obtain on the market.
21
IQ is somewhat different in the sense that it covers various activities, including investment
promotion in Quebec, supporting business development in Quebec, etc. One aspect of the
programme, however, calls for the provision of loan and equity guarantees. With respect to that
particular component of IQ, the programme operates as an ECA, and, for the reasons described above,
is inconsistent with the SCM Agreement “as such.”
30. Please respond to paragraph 52 of Canada's 18 June 2001 preliminary submission
regarding the jurisdiction of the Panel.
In paragraph 52 of its 18 June 2001 preliminary submission, Canada states that Brazil
challenges not only EDC financial contributions defined in Article 1.1(a)(1)(i) but also an unlimited
range of financial services defined in Article 1.1(a)(1)(iii) of the SCM Agreement. Canada asserts
that, because Brazil did not specify in its claim which services it challenged and did not identify the
specific provisions of Article 1 on which it relied, Brazil’s claim is contrary to Article 6.2 DSU.
Canada’s argument should be rejected.
Brazil notes that Article 1 of the SCM Agreement does not deal with Canada’s obligations
under the SCM Agreement; rather, it simply defines the term “subsidy.” A subsidy as defined in
Article 1 is prohibited by Article 3 if it is conditioned on export. The obligation is in Article 3.
In Korea – Dairy, the Appellate Body found that the EC’s request for the establishment of a
Panel was adequate even though it simply listed articles that contained multiple obligations.
22 F o r
example, in that case the EC simply cited Article XIX, and, as the Appellate Body noted,
“Article XIX of the GATT 1994 has three sections and a total of five paragraphs, each of which has at
least one distinct obligation.”
23 Nonetheless, the Appellate Body found that Korea was not prejudiced
by this broad request.24
Here, Brazil’s request for the establishment of the Panel is far more specific than the EC
request that the Appellate Body found adequate in Korea – Dairy . Brazil’s request specified that
certain “export credits” were “export subsidies” within the meaning of Articles 1 and 3. Of necessity,
this description included paragraph 1 of Article 1, since that paragraph defines subsidies. It also, of
necessity, included subparagraphs (a) and (b) of paragraph 1, because those sub-paragraphs define the
constituent elements of a subsidy. It also, of necessity, included sub-sub-paragraph (1) of sub-
paragraph (a) because that defines “financial contribution” and the term “export credits” could only fit
in that sub-sub-paragraph. Certainly Canada cannot plausibly suggest that it believed sub-sub-
paragraph (2) of sub-paragraph (a), dealing with income and price support in the sense of Article XVI

21 For a more detailed discussion, Brazil refers the Panel to paras. 21-25 of its Oral Statement of
27 June 2001.
22 Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products , WT/DS98/AB/R
(Adopted 12 January 2000), para. 129.
23 Id.
24 Id., para. 131.
WT/DS/222/R

of GATT 1994, had anything to do with “export credits.” In this regard, Brazil would note that it is
Canada, not Brazil, that is a Participant on the OECD Arrangement on Guidelines for Officially
Supported Export Credits . Presumably, therefore, Canada knows what the term “export credits”
means.
Similarly, and although this argument was not raised by Canada or the Third Parties, Brazil
notes that the reference to “export subsidies” within the meaning of Article 3 of necessity
encompassed both paragraphs of that Article – there are only two, and the second consists of a single
sentence with no subparagraphs. Of necessity it encompassed only sub-paragraph (a) of paragraph 1
as that is the subparagraph dealing with export subsidies. The only other subparagraph, (b), concerns
a preference for the use of domestic over imported goods, and is not related in any way to “export,” or
“export credits,” or “export subsidies.”
The fact that Brazil did not specify in its claim which financial services it challenges does not
violate Article 6.2 DSU. In its request for establishment, Brazil’s claim is that the three Canadian
programmes at issue are prohibited under Article 3 of the SCM Agreement. Under Article 1, the
precise way in which the Canadian programmes grant financial contributions, and the way in which
they confer benefits, are arguments in support of that claim. In European Communities – Bananas ,
the Appellate Body emphasized that “Article 6.2 of the DSU requires that the claims, and not the
arguments” be sufficiently specified in a request for establishment.
25 It is noteworthy that there
cannot be a “violation” of Article 1 of the SCM Agreement, which simply identifies various types of
financial contributions and defines a subsidy. Brazil cannot claim that Canada has violated Article 1;
it can only claim that Canada has violated Article 3.
Moreover, Brazil again notes that Canada’s complaint is, for the most part, with what it
believes is the breadth of Brazil’s claim with respect to EDC financial services. Members are entitled
to maintain broad claims, however. After confirming that Brazil has met the threshold requirements
of Article 6.2 of the DSU – that its request for establishment be in writing, indicate that consultations
were held, identify the measures at issue, and provide a brief summary of the legal basis for its claim
26
– the ultimate question for the Panel is whether Canada’s right to defend itself has been prejudiced.
That question can only be answered on a case-by-case basis, based on the “attendant circumstances.”
27
The “attendant circumstances” demonstrate that Canada’s own actions have driven the
breadth of Brazil’s claims.28 As the Appellate Body noted in Thai – Steel, a defending Member’s own
conduct is relevant to the precision of a complaining Member’s request for establishment. 29 Canada
has not notified any of the challenged measures under Article 25 of the SCM Agreement. Moreover,
it refused to discuss the terms of its support for the Canadian regional aircraft industry via EDC,
Canada Account and IQ during consultations with Brazil on 21 February 2001. It also refused to
provide oral or written responses to the list of questions put to it by Brazil during consultations.
Canada’s actions are contrary to the Appellate Body’s requirement that parties be “fully forthcoming”
and freely disclose facts relating to claims, “in consultations as well as in the more formal setting of
Panel proceedings.”
30 Canada cannot decline to notify its measures, refuse to be responsive in

25 European Communities – Regime for the Implementation, Sale and Distribution of Bananas ,
WT/DS27/AB/R (Adopted 25 September 1997), para. 143.
26 WT/DS98/AB/R, para. 120.
27 Id., paras. 127, 124.
28 In paragraphs 29-33 of its 22 June 2001 reply to Canada’s preliminary submission regarding the
Panel’s jurisdiction, Brazil identified additional “attendant circumstances” demonstrating that Canada’s ability
to defend itself in these proceedings has not been prejudiced.
29 Thailand – Anti-dumping Duties on Angles, Shapes and Sections of Iron or Non-alloy Steel and H-
beams from Poland, WT/DS122/AB/R (Adopted 5 April 2001), para. 91.
30 India - Patent Protection for Pharmaceutical and Agricultural Chemical Products , WT/DS50/AB/R
(Adopted 16 January 1998), para. 94.
WT/DS/222/R

consultations about those measures, and then object that Brazil’s claims regarding those measures are
so broad as to prejudice Canada’s ability to defend itself.
31. Please respond to paragraph 14 of Canada's oral statement of 27 June 2001 (on
substance).
In paragraph 14 of its oral statement, Canada raises three possibilities with respect to the
terms of Embraer’s offers to Air Wisconsin. Brazil will address them one by one.
First, the Government of Brazil did not and has not made a commitment to Embraer, formal
or informal, to provide support in connection with the Air Wisconsin offer. Embraer could not have
made the offers to Air Wisconsin with the “understanding” that the government would provide the
necessary support; there can be no such understanding before the completion of the approval process,
much less before the initiation of the process. Brazil cannot say whether Embraer made the offers “in
the expectation” that the government would provide support. Even assuming that was the case,
however, the authorities in charge of reviewing and approving applications of support would not have
based their decision on Embraer’s expectations, but on the criteria specified in the appropriate legal
instruments.
Second, Brazil is not in a position to discuss the accuracy of the representations made by Air
Wisconsin officials to [] the Canadian officials. In the absence of an opportunity to present witnesses
for cross examination, the Panel’s task will be to ev aluate the evidence as it is. Brazil would think
that its own statement would have stronger evidentiary value than that [].
Third, Canada finds it incredible that Embraer would have been able to arrange commercial
financing and find sources of commercial credit that would provide terms such as those offered to Air
Wisconsin. Canada’s views on this matter are irrelevant. Canada is essentially questioning
Embraer’s commercial and marketing strategy, which Canada is neither entitled nor qualified to do.
Companies have been known to offer aggressive pricing to win market share. The Air
Wisconsin transaction []. One can speculate more what Embraer intended to do, but the fact remains
that Brazil offered no government support to Embraer for the Air Wisconsin transaction.
32. According to the unofficial translation of Embraer's financing offer to Air Wisconsin,
"EMBRAER made two financing offers, neither of them involving any support from the
Brazilian Government". Does this assertion mean that, in respect of the proposed transaction
with Air Wisconsin, there was no intention on the part of Embraer to seek/arrange any support
from the Brazilian Government at any time, or to seek/arrange any support under Brazil's
PROEX programme?
The same unofficial translation also states, for both offers, that "EMBRAER committed
itself to identifying and structuring the financing by means of credit lines obtained in the
commercial financial market". Please explain how the English phrase "commercial financial
market" may be derived from the Portuguese phrase "mercado financeiro".
As discussed in the response to Question 31, Brazil cannot say what the intention on the part
of Embraer was when the offers to Air Wisconsin were made. In response to Question 33, Brazil has
provided [] as Exhibit Bra-56. [].
Brazil can definitively state that the Brazilian Government did not provide support to Embraer
or Air Wisconsin for this transaction. Support from the Brazilian Government would have required
Embraer to go through the requisite process, and would have been approved only if the criteria
WT/DS/222/R

specified in the applicable legal instruments had b een met. No request was made to initiate that
process.
Brazil would note that Embraer extended two offers to Air Wisconsin. After Embraer made
its first offer, it was told that the offer was not competitive. Embraer then improved the offer
(including the doubling of its first loss deficiency guarantee). Apparently, even Embraer’s improved
offer was not sufficient to compete with the offer made by Bombardier and Canada.
As to the translation, there was a mistake. The proper translation of the Portuguese phrase
“mercado financeiro” in English is “financial market.”
33. Was Embraer's second offer to Air Wisconsin made in writing? If so, please provide a
copy of that second offer.
Brazil has provided as Exhibit Bra-56 [].31
34. Does Brazil consider that Canada’s offer to Air Wisconsin was more favourable than the
second EMBRAER offer to Air Wisconsin? If so, please explain precisely why.
Yes, Brazil believes that Canada’s offer to Air Wisconsin was more favourable than the
second Embraer offer. The offers were clearly not identical, and Air Wisconsin just as clearly
accepted Bombardier’s offer with Canadian government support. It would not have done so had it not
found the offer more favourable. Neither Brazil nor, in Brazil’s view, the Panel, is able to establish
the contrary.
Finding itself with no basis for its claim that Brazil supported Embraer in the Air Wisconsin
transaction, Canada falls back on a “no-benefit, no-subsidy” theory. It notes the statement by an Air
Wisconsin official to the effect that the offers in their entirety were equivalent. Brazil makes two
observations about that statement. First, it appears that Air Wisconsin was contractually obligated to
make this statement, if we are reading Canada’s Air Wisconsin submission correctly. No one would
seriously expect Air Wisconsin to make a conflicting statement – such as, perhaps, that Canada’s offer
was better – in the face of this contractual obligation. Second, the Air Wisconsin spokesman
evaluated the offers in their “entirety.” Embraer’s offer, however, contained a special element
unrelated to financing.
32 Thus, when Canada subsidized to “match” Embraer’s offer (assuming
Embraer’s offer was actually matched) it did not simply match the financing. It used a subsidy to
meet Embraer’s offer in its “entirety” which went beyond financing.
35. Please comment on paragraph 75 of Canada's first written submission, including the
contents of Exhibit CDA-12.
Canada asserted in paragraph 75 of its First Written Submission that “standard commercially
available financing terms for regional aircraft sales range from 10 to 18 years.” Canada has not
elaborated on which commercial entities offer those terms, but Brazil recalls that in Canada – Aircraft
Canada referred specifically to two large banks, Bank of America and Citibank, as providing
financing in the field.
33

31 Pursuant to Article 16 of the Panel’s Working Procedures, Brazil requests that the confidential,
bracketed information included in the above paragraph be excluded from the version of this submission attached
to the Panel Report. As already noted, Brazil requests similar treatment for Exhibit Bra-56 itself.
32 See Brazil’s letter to the Panel of 25 June 2001, containing the description of the terms of the
Embraer offer to Air Wisconsin, last paragraph.
33 WT/DS70/R, para. 6.31.
WT/DS/222/R

Brazil therefore conducted a Westlaw search of the financing activities of these two banks
with respect to aircraft. That search shows no in dication that the market supports terms of financing
in the range alleged by Canada.34
Practically all financing done by these banks was for sales of large aircraft. In the
predominant majority of those cases, the term of financing does not exceed 12 years – the upper limit
specified in the OECD Arrangement for large aircraft. The only two exceptions, where the term of
financing exceeded 12 years, are a credit to FedEx to be used in aircraft leasing (Bank of America)
and an 18 year financing to LanChile for the pu rchase of Airbus (Citibank with several major
European banks).
Further, contrary to Canada’s implied suggestion that Citibank and Bank of America were
among those that financed Bombardier transactions, the search showed no such financing. The only
mention of Bombardier concerns a E66 million contribution by Citibank toward a credit facility for
Bombardier to refinance existing debt and for general corporate purposes.
The search found financing for only one regional jet transaction in which the term was
specified. This was for lease sale of two ERJ-145s to LOT Polish Airlines financed for a period of
10 years.
36. Please respond to the arguments advanced by Canada, the European Communities and
the United States (both in their written submissions and oral statements) to the effect that
matching is in conformity with the "interest rates provisions" of the OECD Arrangement.
Recourse to the matching provisions of the OECD Arrangement does not constitute
“conformity with” the “interest rate provisions” of the OECD Arrangement. The ordinary meaning of
item (k), in its context, along with the object and purpose of the SCM Agreement, supports this
interpretation.
In Brazil’s view, however, a threshold question is whether Canada even adhered to the
requirements of the Arrangement’s matching provisions in the Air Wisconsin transaction. If the Panel
finds that Canada failed to observe those requirements, it need not answer what would become a moot
question – whether matching allows a Member to maintain “conformity with” the interest rate
provisions of the OECD Arrangement.
It is Canada’s burden to show that it did adhere to the requirements of the Arrangement’s
matching provisions in the Air Wisconsin transaction. Brazil notes that the deadline for Canada to
provide factual evidence demonstrating its adherence to the Arrangement’s matching provisions, as
set by paragraph 14 of the Panel’s Working Procedures, has passed. In any event, Canada failed to
meet the requirements of the matching provisions in several ways.
First, although Article 53(a) of the Arrangement states that an Arrangement Participant “shall
make every effort to verify” that terms not conforming with the Arrangement are “officially
supported,” it did not do so here. Making “every effort to verify” whether support from the Brazilian
government was the source of the non-conforming terms certainly should have included actually
asking the Brazilian government. Canada did not do so. Had it done so, it would have learned that
Embraer’s offer to Air Wisconsin involved no support from the Brazilian government. The offer
provided to Air Wisconsin by Embraer was Embraer’s alone.
Second, Canada has not demonstrated that it informed its fellow Participants of the nature and
outcome of the verification efforts called for by Article 53(a). Nor has it provided evidence

34 Exhibit Bra-57.
WT/DS/222/R

demonstrating that it notified other Arrangement Participants of the terms and conditions of its
support for the Air Wisconsin transaction, as it is required to do under Articles 53(b) and 47(a) of the
Arrangement.
Third, in a footnote to its first submission, Canada states that it was justified in extending
“non-identical matching” to Air Wisconsin. 35 As is evident from Canada’s 26 June response to the
Panel’s 20 June request for information regarding the terms of its Air Wisconsin offer, Canada in fact
extended terms and conditions that were not identical to those offered by Embraer. Non-identical
matching is permitted, under Article 52 of the Arrangement, with respect to non-notified, non-
conforming terms and conditions offered by another Participant . This option is not available,
however, under Article 53, which regulates matching of non-conforming terms and conditions offered
by a non-participant.
Fourth, if Canada is allowed to use non-identical matching, it bears the very significant
burden of demonstrating that the “non-identical” offer it extended to Air Wisconsin was equal to, and
not more favourable than, Embraer’s offer. Canada cannot meet this burden. As discussed in Brazil’s
response to Question 34, Canada’s offer was in fact more favourable to Air Wisconsin than Embraer’s
offer.
Therefore, in the Air Wisconsin transaction, Canada did not adhere to the Arrangement’s
matching requirements. Further, Canada in fact offered Air Wisconsin considerably more favourable
terms than did Embraer. However, even if the Panel disagrees with Brazil on those points, Canada is
not entitled to the “safe haven” of item (k), because recourse to matching does not allow Canada to
maintain “conformity with” the “interest rate provisions” of the OECD Arrangement.
The Article 21.5 Panel in Canada – Aircraft agreed. It focused on the meaning of the phrase
“in conformity with,” and correctly concluded that matching – even if done according to the
procedures included in the matching provisions of the Arrangement – brings the matching offer out
of, and not into, conformity with the interest rates provisions of the Arrangement.
36
The Panel distinguished between “exceptions” in the Arrangement – for which specific and
narrowly-tailored variations are spelled out – and “derogations” – for which no specific or tailored
allowances for variation are demarcated.37 According to the Panel, considering a derogation (such as
matching a non-conforming offer) to be “in conformity with” the interest rates provisions of the
Arrangement would undermine the entire purpose of the Arrangement, which is to impose discipline
upon the use of officially-supported export credits.
38
Moreover, the Article 21.5 Panel in Canada – Aircraft noted that any interpretation of
item (k) must “provide clarity and certainty concerning what the (SCM Agreement) rules are and how
to comply with them.”
39 The interpretation advocated by Canada, the EC and the US – an
interpretation that preserves recourse to the “safe haven” of item (k) when matching is employed –
would remove all clarity and certainty about the application of the SCM Agreement for the
approximately 120 WTO Members who do not happen to be participants in the OECD Arrangement.
While the Arrangement includes a slew of notification provisions making instances of matching by
Participants transparent to other Participants, non-participants are left completely in the dark.

35 Canadian First Written Submission, 18 June 2001, footnote 36.
36 WT/DS70/RW, para. 5.125.
37 Id., paras. 5.121-5.125.
38 Id., para. 5.120. See also OECD Arrangement (1998), Introduction (“Purpose and Application”)
(Exhibit Bra-42).
39 WT/DS70/RW, para. 5.133.
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Under the Arrangement’s rules, a Participant wishing to initiate a non-conforming offer or
match another Participant’s non-conforming offer is required to observe strict notification and waiting
period requirements, both vis-à-vis all Participants and the specific Participant who made the initial
non-conforming offer. 40 When it comes to matching, Participants therefore have significant
information about what any other Participant intends to do, based on the following rules:
• A Participant must notify all other Participants if it wishes to initiate a non-conforming
offer.41 The initiating Participant must then respect certain waiting periods before going
ahead with its non-conforming offer.
• A Participant intending to identically match another Participant’s notified non-conforming
offer, the matching Participant may proceed after observing a waiting period. But if the
match is non-identical, the matching Participant must notify all Participants and respect
additional waiting periods.42
• If a Participant intends to identically match another Participant’s non-notified, non-
conforming offer, it must give notice to the latter and observe certain waiting periods. But if
the match is non-identical, the matching Participant must also notify all Participants and
respect additional waiting periods.43
When non-participants are involved, however, the picture changes. If a Participant intends to
match a non-participant’s non-conforming offer, it need only notify other Participants and respect
certain waiting periods. The non-participant receives no notice of the Participant’s intent to match, or
of the match itself.
The rather obvious differential treatment of Participants and non-participants concerned the
Article 21.5 Panel in Canada – Aircraft .44 Canada, the EC and the US all recognize this problem,
although each offers a different solution. 45 This lack of agreement – even among those WTO
Members who are also Participants in the Arrangement – illustrates the extent to which permitting
recourse to matching would undermine “clarity and certainty concerning what the (SCM Agreement)
rules are and how to comply with them.”
46
In addition, the various interpretations of how “matching” applies, offered by Canada, the EC
and the US, raise serious questions of conformity with the most-favoured-nation requirements of
Article I of GATT 1994. The inequitable notification requirements that would be imported into the
SCM Agreement under the interpretation urged by Canada, the EC and the US would constitute a rule
or formality in connection with exportation, and would accord an advantage, favour, privilege or
immunity to some but not all Members. Such an interpretation is not to be favoured.
Canada’s view that non-participants would be freed from the notification requirements of the
Arrangement’s matching provisions, and therefore granted a competitive advantage over
Participants,
47 does not cure the Article I violation. Whether Participants or instead non-participants
would benefit more from the importation of the OE CD Arrangement’s matching rules into the SCM

40 OECD Arrangement (1998), Articles 47(a), 50, 52.
41 OECD Arrangement (1998), Article 47(a).
42 OECD Arrangement (1998), Article 50.
43 OECD Arrangement (1998), Article 52.
44 WT/DS70/RW, para. 5.132.
45 Canadian First Written Submission, footnote 46; Oral Statement of Canada, 27 June 2001, para. 32;
EC Third Party Submission, 22 June 2001, para. 70; US Third Party Submission, 22 June 2001, para. 16.
46 WT/DS70/RW, para. 5.133.
47 Oral Statement of Canada, paras. 38-40.
WT/DS/222/R

Agreement is irrelevant; any interpretation of item (k) that would require more favourable treatment
for some WTO Members would ensure a violation of Article I of GATT 1994.
Moreover, Canada’s suggestion that the absence of an obligation to provide notifications
somehow compensates for the fact that non-particip ants do not themselves receive the Participants’
notifications is inapposite. Such “counterbalancing” of less favourable treatment in one area with
allegedly more favourable treatment in another does not cure an Article I violation, as discussed by
the Panel in United States – Section 337 of the Tariff Act of 1930 in the context of Article III:4.48
As long as Canada’s view of the acceptability of “non-identical” matching prevails 49, it is
disingenuous for Canada, the EC and the US to argue that permitting Members to match and retain
entitlement to the safe haven in Item (k) will create an incentive not to make non-conforming offers.50
As Brazil has demonstrated in the context of the Air Wisconsin transaction, “non-identical matching”
is not really matching at all. An allowance for non-identical matching is nothing more than a license
to counter with a more favourable offer, and ultimately leads to a “race to the bottom.” The reality of
non-identical matching and the downward spiral it creates is precisely what the Article 21.5 Panel in
Canada – Aircraft meant when it expressed concern that permitting matching “would directly
undercut real disciplines on official support for export credits,”51 and would raise the question why the
rules included in Item (k) or the OECD Arrangement were necessary at all.
For all of these reasons, complying with the matching provisions of the OECD Arrangement
should not permit prohibited export subsidies to take recourse to the “safe haven” of item (k).

48 L/6439, BISD 36S/345, para. 5.14 (“The Panel rejected any notion of balancing more favourable
treatment of some imported products against less favourable treatment of other imported products. If this notion
were accepted, it would entitle a contracting party to derogate from the no less favourable treatment obligation
in one case, or indeed in respect of one contractin g party, on the ground that it accords more favourable
treatment in some other case, or to another contracting party.”).
49 Canadian First Written Submission, paras. 18, 46 (note 36).
50 Canadian First Written Submission, para. 59; EC Third Party Submission, para. 66; US Third Party
Submission, para. 13.
51 WT/DS70/RW, para. 5.125.

List of Exhibits
Department of Foreign Affairs and International Exhibit Bra-58
Trade News Release, 9 July 2001
“Bombardier wins big jet order; Ottawa gives Exhibit Bra-59
Northwest cut-rate financing,” The Globe and Mail,
10 July 2001
Standard & Poor’s, Non-US Local and Regional Exhibit Bra-60
Government Ratings Since 1975
Moody’s Ratings List, Government Bonds and Exhibit Bra-61
Country Ceilings
Order in Council respective responsibilities of Exhibit Bra-62
Investissement-Québec and Garantie-Québec
“S&P affirms Bombardier rating,” The Globe and Exhibit Bra-63
Mail, 9 August 2000
WT/DS/222/R

I. INTRODUCTION
1. This submission is Brazil’s second written submission in this proceeding, containing Brazil’s
further arguments as to why direct financing, loan guarantees and interest rate support provided by
Canada through the Export Development Corporat ion’s (“EDC”) Corporate and Canada Accounts,
and Investissement Québec (“IQ”), constitute prohibited export subsidies within the meaning of
Articles 1 and 3 of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).
This second submission supplements the arguments made in Brazil’s first written submission, its
statements to the Panel meeting on 27-28 June 2001, and its 6 July 2001 responses to the Panel’s
questions.
2. As a threshold matter, before addressing the substantive arguments regarding the nature of the
challenged measures, Brazil has provided in Section II below additional responses to Canada’s
arguments regarding jurisdictional issues. Brazil submits that it is perfectly clear what Canadian
measures and what provisions of the SCM Agreement are at issue in this dispute, and that any issues
regarding the factual nature or legal construction of those measures are the precise substantive issues
that this Panel was established to address. In addition, Brazil explains that the fact that there were
previous proceedings before a different panel examining some aspects of some of the challenged
measures is no bar to this Panel’s examination of the substantive issues before it.
3. In Section III, Brazil responds to arguments raised by Canada and the Third Parties regarding
Brazil’s claim that EDC support for the Canadian regional aircraft industry through its Corporate and
Canada Accounts constitute prohibited export subsidies. Brazil submits that Canada’s attempts to
describe EDC’s Corporate and Canada Accounts as “discretionary” rather than “mandatory” measures
are unsuccessful. Those measures are therefore subject to challenge “as such.” Brazil also challenges
the application of the Corporate and Canada Accounts in particular transactions, and addresses the
documentary evidence provided by Canada in response to specific questions from the Panel regarding
those transactions. That evidence demonstrates that EDC’s Corporate and Canada Accounts
constitute prohibited export subsidies “as applied.”
4. In Section IV, Brazil addresses Canada’s arguments regarding Brazil’s claim that Canada
Account and IQ support for the Air Wisconsin transaction constitute prohibited export subsidies.
Canada has failed to establish that its offer to Air Wisconsin was “in conformity with” the “interest
rates provisions” of the OECD Arrangement on Guidelines for Officially Supported Export Credits
(“OECD Arrangement”). That offer is therefore not entitled to the so-called “safe haven” of item (k)
to the Illustrative List of Export Subsidies included as Annex I to the SCM Agreement.
5. Furthermore, Canada’s alternative defence that its offer did not provide a “benefit” to Air
Wisconsin because it merely matched market terms offered by Embraer also fails. First, Canada has
not explained how EDC’s vehicle for “official sup port,” the Canada Account, can act outside the
constraints of the “interest rates provisions” of the OECD Arrangement and still not constitute a
prohibited export subsidy under the SCM Agreement. Second, Canada has not demonstrated that the
terms of Embraer’s offer to Air Wisconsin constitute the “market.” Third, Canada has overlooked the
benefit conferred upon Bombardier by a financial contribution extended to Air Wisconsin.
6. Section V responds to Canada’s arguments that IQ support for the Canadian regional aircraft
industry does not constitute prohibited export subsidies either “as such” or “as applied.” Brazil
addresses the relevance of various Québec Government decrees submitted by Canada in response to
the Panel’s questions, as well as information regarding guarantees provided by IQ in particular
regional aircraft transactions. Given Canada’s failure to provide much of the information specifically
requested by the Panel, Brazil requests that the Panel adopt adverse inferences, and presume that the
information, if produced, would demonstrate that IQ guarantees constitute export subsidies.

7. To the extent that Canada’s 6 July 2001 responses to the Panel’s questions have not been
addressed elsewhere in this submission, Brazil provides brief comments in Section VI. Brazil notes,
however, that due to logistical difficulties faced by Canada, the exhibits to Canada’s responses to the
Panel’s questions were not received by the responsible Brazilian officials in Geneva until Tuesday,
10 July 2001, only three days before the due date for this submission. Accordingly, Brazil has not had
sufficient time to review the materials submitted by Canada in detail and is not yet prepared to
comment fully on those materials. Brazil will make additional comments on Canada’s responses to
the Panel’s questions in its statement to the second meeting of the Panel.
II. JURISDICTIONAL ISSUES
A. Brazil’s Panel Request Satisfies the Requirements of Article 6.2 of the DSU
8. Canada has argued that Brazil’s request for the establishment of a panel did not satisfy the
requirements of Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (“DSU”). Brazil believes that its submissions on this issue on 22 June 2001 and
28 June 2001 respond fully to Canada’s arguments, and therefore Brazil will not re-state the points
made therein. However, Brazil makes the following points in response to the arguments made by
Canada on jurisdiction in its response to the Panel’s questions.
9. First, both Brazil’s request for consultations and its request for the establishment of a Panel
specifically refer to export credits and guarantees provided by Canada, by means of the Export
Development Corporation, the Canada Account, and the Province of Québec, to the regional aircraft
industry. In its response to the Panel’s Question 5, Canada disputed that Brazil’s request was limited
to the regional aircraft industry, stating that certain of the indented and numbered paragraphs of
Brazil’s request for a Panel did not contain the “important qualifier ‘for the regional aircraft
industry.’” However, the very first sentence of the first paragraph of the panel request refers to the
regional aircraft industry. The notion that Canada, reading further down the request, was unclear as to
what industry was at issue in this dispute simply defies belief.
1 Nothing in Canada’s submissions on
the issue of jurisdiction provide any reasonable doubt that Brazil properly identified, and Canada was
fully aware, that this dispute involved export credits to the regional aircraft industry.
10. It is also beyond doubt that Brazil’s request involved three Canadian measures – EDC,
Canada Account, and Province of Québec aid through Investissement Québec. Brazil has never
referred to or discussed other measures, and Canada, in its response to the Panel’s Question 5, appears
to accept that Brazil’s request identified Canada Account, EDC, and IQ as the measures at issue,
albeit, in Canada’s view, in “general and imprecise language.”
2
11. Second, Brazil has challenged these three programmes as subsidies within the meaning of
Article 1 of the SCM Agreement that are contingent , in law or in fact, on export and are therefore
prohibited within the meaning of Article 3 of the SCM Agreement. Canada has not alleged that Brazil
is seeking to proceed based on articles of the SCM Agreement not identified in the request for a Panel.
12. Canada has suggested that Brazil’s request was not sufficiently specific in that it did not list
separately Article 1.1(a)(1)(i) of the SCM Agreement.
3 However, the Appellate Body has stated that a

1 Both the request for consultations and the request for establishment of a panel use the heading
Canada – Export Credits and Loan Guarantees for Regional Aircraft. Canada has previously argued that the
title given to the case is not relevant to the clarity of the panel request. However, had Brazil considered that the
title given to the dispute unduly narrowed its claim, it would surely have pursued the matter with the Secretariat
before submitting its request for the establishment of a panel.
2 Canada’s Answers to the Panel’s Questions, 6 July 2001, page 5.
3 Oral Statement of Canada on Jurisdictional Issues, 27 June 2001, para. 22.
WT/DS/222/R

reference to an article of a covered agreement in a panel request incorporates a claim of inconsistency
with the subheadings of that article:
[A]s the request for the establishment of a panel of the European Communities
included a claim of inconsistency with Article 23, a claim of inconsistency with
Article 23.2(a) is within the Panel’s terms of reference.4
Brazil’s panel request referred to the three challenged measures as violating Articles 1 and 3 of the
SCM Agreement. In this respect, Brazil’s request is comparable to that of Canada in United States –
Measures Treating Exports Restraints As Subsidies , in which Canada’s request claimed simply that
certain US measures violated Article 1.1 of the SCM Agreement, but Canada’s first written
submission elaborated that the challenged measures treated exports restraints in a manner contrary to
several subheadings of Article 1.1, including Articles 1.1(a)(1)(i)-(iv).
5
13. Third, Brazil has specifically challenged export credits in the form of financing, guarantees,
and interest rate support offered through these programmes. Brazil has not challenged any other
operations of these programmes. While there may be issues in the course of these proceedings as to
precisely how Canada provides financing, guarantees or interest rate support under these programmes,
these are factual issues to be resolved in the course of the proceedings, and do not create jurisdictional
issues or introduce any lack of clarity in Brazil’s panel request.
14. Contrary to Canada’s claims that Brazil has sought to “cure” alleged deficiencies in its panel
request, Brazil’s repeated descriptions of the scope of its panel request – financing, guarantees, and
interest rate support provided by EDC, Canada A ccount, and Investissement Québec to the regional
aircraft industry – have simply repeated verbatim the language of the panel request and explained how
that language is clear, specific, and fully understood by Canada.
15. Nevertheless, it appears that Canada is unwilling to take “yes” for an answer on this issue.
No matter how often Brazil explains that its request is as straightforward as described above, Canada
continues to try to sow confusion. Canada’s responses to the Panel’s questions contain a perfect
illustration of Canada’s tactics and the resultant difficulties faced by Brazil in this respect. In Brazil’s
First Written Submission, Brazil stated its understanding that EDC provided guarantees to Comair. In
response, Canada stated in its First Written Submission that EDC did not provide loan guarantees to
Comair. Brazil indicated in its response to Canada’s oral statement on jurisdictional issues that it
would accept Canada’s clarification on this point and adjust its arguments accordingly.
16. Now Brazil reads, in Canada’s answer to the Panel’s Question 11, of “EDC pricing offered to
Comair.” Evidently, EDC provided some sort of fi nancing to Comair after all, though perhaps not in
the form of a guarantee as Brazil previously understood. At this point, Brazil still does not know
whether or how EDC financed Bombardier sales to Comair.
17. Canada’s side-stepping on whether EDC was involved with Comair perfectly illustrates the
problems with Canada’s arguments on jurisdiction. Brazil notes that Canada failed to notify any of
these programmes, failed to provide information at consultations, and now casts Brazil’s inability to
describe the operations of the three challenged programmes with perfect accuracy as creating a
jurisdictional problem. Thus, in its statement to the Panel on jurisdiction, Canada pointed to alleged
inconsistencies between Brazil’s First Written Submission and its 25 June 2001 submission on

4 United States – Import Measures on Certain Products from the European Communities,
WT/DS165/AB/R, para. 111 (Adopted 10 January 2001).
5 United States – Measures Treating Exports Restraints As Subsidies ¸ WT/DS194/2, Request for the
Establishment of a Panel by Canada (25 July 2000). See also WT/DS194/R (29 June 2001) (Not yet adopted),
paras. 5.20-5.28.

jurisdictional issues regarding descriptions of how these measures operate. 6 These alleged
inconsistencies all relate to the details of the operations of the challenged measures. Like the issue of
whether or how EDC supported the Comair transaction, the alleged inconsistencies are simply factual
details regarding the three programmes that, while rele vant to the resolution of the matters before the
Panel, simply do not rise to the level of a lack of clarity as to the identity of the measures at issue.
18. In its response to the Panel’s Question 6, Canada continues to allege that Brazil’s request used
“general and imprecise language” to describe the export credits at issue. However, Canada does not
argue that Brazil would be in any way prohibited from requesting a Panel to examine all export
credits provided by the three listed Canadian measures. In any event, Brazil’s panel request did not
challenge export credits of every hue. Instead, Brazil chose to enumerate the types of export credits –
financing, guarantees, and interest rate support – at issue. In its response to the Panel’s questions,
Canada, while no longer arguing that Brazil’s wording was the equivalent of “including but not
limited to,” continues to argue that the use of the word “including” was imprecise. The normal
meaning of the word “including” is “if one takes into account; inclusive of.”
7 The meaning of
“inclusive,” in turn, is “that includes, encloses, or contains.” Absent any use of expansive language
such as “but not limited to” or “ inter alia, ” the word “including” should be given its normal
construction of describing the relevant items within the whole set. In effect, Canada’s objection
appears to be that Brazil did not list all of the types of export credits that were not included in its
request. Brazil is not aware of any obligation to do so, and submits that the fact that it did not do so in
no way affects the clarity or specificity of the description of the types of export credits actually listed
in its request.
19. In any event, Brazil’s request does not give rise to the type of problems that led the Appellate
Body to impugn the use of language such as “including but not limited to” in India – Patent
Protection for Pharmaceutical and Agricultural Chemical Products .8 In that case, the United States
did not make any reference to Article 63 of the TRIPS Agreement in its panel request or, indeed, in its
first written submission. In its oral statement at the first substantive meeting of the panel, however,
the United States sought for the first time to raise Article 63 as an alternative claim, justified by the
“not limited to” language of the panel request. The Appellate Body ruled that the phrase was not
sufficient to bring the claim within the terms of reference of the panel.
20. The circumstances are very different in this case. First, Brazil’s panel request does not
contain any language comparable to the “but not limited to” phrase that could be interpreted as
enabling Brazil later to expand the scope of its panel request. Second, Brazil has not in fact made any
new or alternative claims subsequent to its panel request that have in any way gone beyond the
contents of the panel request.
21. Canada now alleges that Brazil’s request fails to comply with the requirements of Article 6.2
of the DSU because Brazil did not state that it was challenging the three named measures “as such, as
applied, and in individual transactions.” Brazil is not aware that the phrase “as such, as applied, and
in individual transactions” is a term of legal art that must be included in each panel request. The
argument whether the challenged measures – ED C, Canada Account, and IQ – violate the SCM
Agreement “as such” or “as applied” goes to the substance of the dispute before the Panel, rather than
the threshold issue of jurisdiction.

6 The more pertinent comparison would be between Brazil’s request for a panel and its subsequent
submissions, but Canada has not alleged any inconsistencies between the request for a panel and Brazil’s
subsequent descriptions of its claim.
7 THE NEW SHORTER OXFORD ENGLISH DICTIONARY (Third Ed., 1993), pgs. 1337-38. The Latin root
of “to include” is “in + claudere, to shut in, enclose.”
8 WT/DS50/AB/R (Adopted 16 January 1998), para. 90.
WT/DS/222/R

22. Canada’s position in this case is diametrically opposed to the position it took in United States
– Exports Restraints. In that case, the United States argued that Canada’s request for a panel failed to
satisfy the requirements of Article 6.2 of the DSU because Canada failed to make clear whether its
challenge to the US measures was “as such” or “as applied.” The United States also objected to the
vagueness of Canada’s identification of the US “practices” at issue.9 In response, Canada argued that
the United States in effect claimed that because its measures were not mandatory, they were not
properly before the Panel and should be dismissed. In Canada’s view, however, the question whether
a measure was mandatory or discretionary “is an issue that addresses whether that measure as such
violates the GATT provisions invoked, not whether a panel has jurisdiction to hear a particular
matter.”10 According to the Panel, Canada characterized the US requests for a preliminary ruling as
an effort “to distract this Panel from its true task: resolving the dispute between Canada and the
United States.”11 The Panel agreed with Canada, and declined to make a preliminary ruling on the
ground that the Article 6.2 issues raised by the United States went to the substance of Canada’s
claims, and therefore were properly addressed as part of the substantive analysis of the claims.12
23. The position taken by Canada, and indeed the Panel, in United States – Exports Restraints
applies with equal force in this case. The question whether Canada’s measures constitute “as such” or
“as applied” violations of the SCM Agreement goes to the essence of the substantive issues that must
be interpreted by the Panel. Resolution of these issues will depend on the Panel’s analysis of the
factual evidence before it regarding the nature and operation of the measures.
13 As Canada put it in
United States – Exports Restraints, the Panel should not be distracted from that analysis.14
24. This distinction between jurisdictional and substantive issues is also consistent with the
reasoning of the Appellate Body in India - Patent Protection for Pharmaceutical and Agricultural
Chemical Products, where the Appellate Body, referring to its decision in European Communities –
Bananas, “observed that there is a significant difference between the claims identified in the request
for the establishment of a panel . . . and the arguments supporting those claims, which are set out and
progressively clarified in the first written submissions, the rebuttal submissions, and the first and
second panel meetings with the parties as a case proceeds.” 15 Thus, the Panel in United States –
Exports Restraints considered Canada’s claim to be that the United States’ measures violated
Article 1.1 of the SCM Agreement, and the questions whether the US measures were mandatory or
discretionary, or “as such” or “as applied” violations, to be substantive arguments supporting these
claims. Similarly, in this case, Brazil claims that the three listed forms of export credits provided by
EDC, Canada Account, and IQ, which it argues constitute subsidies under Article 1 of the SCM
Agreement, are violations of Article 3 of the Agreement. These claims are “significantly different”
from the arguments that Brazil may advance in support of the claims, and that the Panel must address
in the course of its substantive analysis.
25. In its response to the Panel’s Question 6, Canada argues that “if a measure is not identified in
the request for establishment of a panel,” the measure is outside the panel’s terms of reference
“regardless of whether or not the respondent has suffered prejudice.” There are two flaws in Canada’s
argument. First, Brazil does not understand Canada to argue that Brazil has raised claims regarding
measures that were not identified in the panel request, but rather that “for all three programs Brazil’s
request used general and imprecise language.” There is a difference between failing to identify a
measure in the panel request, and whether or not the language used to identify a measure was “general

9 WT/DS194/R, para. 4.24-4.27.
10 Id., paras. 4.60-61.
11 Id., para. 4.81.
12 Id., para. 8.2.
13 Please refer also to Brazil’s answer to the Panel’s question 27.
14 WT/DS194/R, para. 4.81.
15 WT/DS50/AB/R, para. 88 (emphasis in original).

and imprecise.” Moreover, Canada’s position regarding the relevance of prejudice appears to
contradict the position it took in United States – Exports Restraints, in which Canada opposed the US
Article 6.2 claim on the ground that the United States had not been prejudiced because it was able to
respond fully to Canada’s claims.16
26. Finally, Canada alleges that its due process rights have been violated by the alleged lack of
clarity or specificity in Brazil’s request for the establishment of a panel. Brazil notes, however, that
Canada has failed to provide any evidence that its ability to defend itself before this Panel has actually
been delayed, complicated, or otherwise frustrated by this alleged lack of clarity.
27. In contrast, Canada’s actions thus far have caused serious practical difficulties for Brazil.
First, as Brazil has previously explained, Canada failed to provide substantive responses to Brazil’s
questions during consultations. The Appellate Body in India - Patent Protection for Pharmaceutical
and Agricultural Chemical Products stated that the due process demands of the DSU make it
especially necessary that “facts must be disclosed freely” during consultations.
17 The Appellate Body
recognized that “the facts that are established during consultations do much to shape the substance
and the scope of subsequent panel proceedings.” 18 To the extent that Canada feels that a perceived
lack of clarity in Brazil’s panel request has caused confusion as to the matters at issue – and Brazil
strenuously disputes Canada’s claim that it has suffered any such prejudice – Canada’s failure to
respond fully during consultations “did much” to shape Brazil’s panel request.
28. Moreover, as the Panel is aware, Canada chose not to share its response to the Panel’s
20 June 2001 request for information regarding the Air Wisconsin transaction with Brazil in a timely
manner and as required by the Panel’s working procedures. Canada also failed to deliver the exhibits
to its responses to the Panel’s questions to the Brazilian Mission in Geneva in a timely fashion on
6 July 2001. On both occasions, Canada failed to request that both Parties be allowed equal additional
time to submit their data. Accordingly, while Canada obtained both of Brazil’s submissions in a
timely fashion, Brazil had no time to review Canada’s Air Wisconsin materials before the Panel’s
meeting on 27-28 June 2001, and insufficient time to review Canada’s responses to the Panel’s
questions before the due date of this submission.
19 As a practical matter, therefore, Canada’s actions
in this matter have had a much greater impact on Brazil’s due process rights than Brazil’s alleged
“general and imprecise language” has had on Canada.
B. The Panel Is Not Precluded by Res Judicata from Addressing Brazil’s Claims
29. In its questions to the Parties, the Panel asked whether the principle of res judicata precluded
its review of Brazil’s claims regarding EDC’s Corporate and Canada Accounts “as such.” The res
judicata principle means that once a matter has been settled by judgment, it may not again be the
subject of a claim. Canada appears unclear as to whether the principle actually applies to WTO
disputes, noting only that it “may be” a generally recognized principle of law. While there is no WTO
precedent on the applicability of the principle, Canada points out that the Panel in India – Patent
Protection for Pharmaceutical and Agricultural Chemical Products found that panels are not legally
bound by previous decisions of panels or the Appellate Body, even if the subject matter is the same.
This makes clear that res judicata does not apply.

16 WT/DS194/R, para. 4.80.
17 WT/DS50/AB/R, para. 94.
18 Id.
19 Brazil understands and sympathizes with the difficulties faced by Canada in assembling the extensive
documents requested by the Panel in a relatively short period of time. Brazil faces similar difficulties and
therefore is always willing to attempt to accommodate other parties’ reasonable scheduling requests. However,
Brazil strenuously objects to other Members attempting to turn the dispute settlement process into a litigation
game in which one side manipulates the procedural rules to gain advantage.
WT/DS/222/R

30. In arguing that res judicata does not apply, however, Brazil does not mean to suggest that
disappointed parties may continue to use the dispute settlement process over and over again to litigate
the same claim until a favourable result is obtained. Nevertheless, because the entire purpose of the
dispute settlement mechanism is to enable Members to preserve their rights and obligations under the
covered agreements, a Member should not be denied access to that mechanism in circumstances
where previous recourse to that mechanism did not fully resolve the matter in dispute and where
intervening events cause additional concern regarding the Member’s rights and obligations.
31. In any event, as Brazil explained in its answers to the Panel’s questions, the issues before this
Panel have not been settled by the decisions in the earlier Canada – Aircraft dispute.
20 The Panel in
that case declined to make the findings requested by Brazil that EDC and Canada Account, as such,
violated the SCM Agreement, stating that Brazil “failed to demonstrate” its claims.
21 Brazil appealed
the Panel’s decision, noting that Canada had failed to provide much of the information necessary to
Brazil’s claim (and information that was the subject of specific requests from the Panel for the
production of documentary evidence by Canada), and argued that the Panel should have drawn
adverse inferences.
32. While it did not specifically consider the applicability of res judicata , the Appellate Body
considered that its and the Panel’s decisions in Canada – Aircraft would not preclude Brazil from
“pursuing another dispute settlement complaint against Canada, under the provisions of the SCM
Agreement and the DSU concerning the consistency of certain of EDC’s financing measures with the
provisions of the SCM Agreement.” 22 It is unlikely that the Appellate Body would have made this
statement if it considered that any applicable doctr ine of law could operate to bar a subsequent claim
by Brazil.
33. Moreover, the circumstances in which the Canada – Aircraft Panel declined to make Brazil’s
requested “as such” findings also mitigate strongly against any possible application of res judicata to
Brazil’s current claims. As noted in Brazil’s answer to the Panel’s Question 2, Canada refused to
provide the previous Panel with the information that would have enabled it to decide – one way or the
other – Brazil’s “as such” claims regarding EDC and Canada Account.23 Canada therefore has no-one
but itself to blame for the fact that the Canada – Aircraft Panel was unable to make final decisions
regarding Brazil’s claims that might implicate res judicata in this matter.
34. In its response to the Panel’s questions, Canada stated that the Panel need not decide whether
the principle applies to WTO disputes, because, in Canada’s view, Brazil has “failed to offer any
evidence or arguments that would warrant this panel departing from the findings” of the Panel in the
previous Canada—Aircraft case.24 As discussed above, there are simply no findings regarding the “as
such” claims that could possibly implicate res judicata in this case. Moreover, the issue whether
Brazil’s evidence or arguments warrant this Panel making the requested findings goes to the substance
of the matters before the Panel, rather than the jurisdictional question whether the Panel may address
these claims at all.

20 Canada – Measures Affecting th e Export of Civilian Aircraft , WT/DS70/R (Adopted as modified by
the Appellate Body 20 August 1999).
21 WT/DS70/R, paras. 9.129, 9.213.
22 Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R (Adopted
20 August 1999), para. 206.
23 Examples of Canada’s failure to provide information specifically requested by the Panel in Canada –
Aircraft are included in WT/DS70/R at paras. 6.80, 6.17 1, 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 (note 621),
9.327, 9.345, 9.347 (note 633).
24 Canada’s Answers to the Panel’s Questions, 6 July 2001, Question 2.

35. Brazil’s current “as such” claims against EDC, the Canada Account and IQ are based to a
significant degree upon arguments and evidence that were not presented to the earlier Canada –
Aircraft Panel. Indeed, much of the evidence that Brazil has presented to the current Panel did not
come to light until quite recently due, in part, to the lack of transparency in Canada’s export credit
scheme. Brazil was unaware, for example, of the extent to which EDC operates through the market
window and provides financing below the te rms set forth in the OECD Arrangement until Canada
admitted this fact during the Article 21.5 proceedings in Brazil – Aircraft .
25 Canada had also
apparently been less than forthcoming with othe r OECD Participants about this conduct, likely
because many, including the United States, have condemned market window activities. 26 B r a z i l
notes, for example, that Canada apparently considers its “market window” policy to be secret; it has
requested confidential treatment for a [ ].
36. New evidence continues to come to light. With its responses to the Panel’s questions, Canada
for the first time discloses four Decrees that expl ain how the Société de développement industriel du
Québec (“SDI”), and now IQ, are used to support sa les of Bombardier aircraft. Exhibits Cda-33 to
Cda-36 were never considered by the Canada – Aircraft Panel. That Panel also did not consider the
evidence concerning IQ contained in Exhibit Bra-9.
37. Similarly, in Canada’s Second Written Submission of 4 December 1998 in the earlier Canada
– Aircraft dispute, Canada stated that none of the guarantees or financing activities under the “export
development” eligibility criterion of SDI (which be came IQ in 1998) was related to the civil aircraft
sector.27 The Panel in Canada – Aircraft, at paragraph 9.275, accepted Canada’s statement and found
that, “Brazil has failed to adduce any evidence of IQ assistance to the Canadian regional aircraft
sector.” In Exhibit Bra-9, however, dated 11 Ja nuary 2001, IQ spokesman Jean Cyr admits that IQ
created a five-year fund in 1996 to provide loan guarantees to Bombardier customers. This new
evidence directly contradicts Canada’s claim to the previous Panel that IQ was not used to finance the
civil aircraft sector, and demonstrates that there are new facts about IQ for this Panel to consider.
38. This Panel also has new evidence regarding Canada Account. For example, like IQ, the
earlier Canada – Aircraft Panel did not have the benefit of Exhibits Cda-15 to Cda-24, even though
these exhibits reveal the means by which Canada Account provides funds and guarantees to
Bombardier customers. In addi tion, EDC’s Canada Account has fundamentally changed since it was
first considered in Canada – Aircraft .
28 When coupled with Brazil’s new arguments and evidence,
these facts require re-examination of the Canada Account program “as such.” The same is true, as
discussed above, for EDC, and IQ.
39. Brazil has provided its substantive arguments regarding this evidence both in its previous
submissions and below. As noted above, the reports in the earlier Canada – Aircraft dispute clarify
that Brazil’s “as such” claims were not proven based on the evidence available to Brazil at the time
and provided to the Panel. Whether the cumulative effect of the “old” evidence put before the
previous Panel and the “new” evidence presented for the first time to this Panel is now sufficient to
prove Brazil’s claims is a substantive, rather than a jurisdictional, issue for this Panel to decide.

25 Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the
DSU, WT/DS46/RW (Adopted as modified by the Appellate Body 4 August 2000), para. 81.
26 Lawrence H. Summers, “The Importance of Continuing to Fight Against International Trade
Finance Subsidies,” Remarks at the 65th Anniversary of the Export Import Bank, 16 May 2000, pg. 3
(“Summers speech”) (Exhibit Bra-29).
27 See Exhibit Bra-52, which includes the relevant excerpt (para. 117) from Canada’s
4 December 1998 Second Written Submission.
28 See, e.g., the Policy Directive submitted by Canada as Exhibit Cda-16, which post-dates the Panel
Report in Canada – Aircraft.
WT/DS/222/R

III. EDC SUPPORT TO THE CANADIAN REGIONAL AIRCRAFT INDUSTRY
CONSTITUTES PROHIBITED EXPORT SUBSIDIES
A. EDC’s Corporate Account and EDC’s Canada Account “As Such”
40. Brazil argues that EDC’s Corporate and Canada Accounts constitute prohibited export
subsidies “as such.” Before further discussing the evidence in support of this argument, Brazil would
like to address two threshold issues.
41. First, Canada’s rebuttals to Brazil’s claims focus entirely on the question whether EDC’s
Corporate and Canada Accounts provide benefits “as such.” Canada does not dispute that EDC
support is de jure conditioned on export. Brazil focuses, therefore, on Canada’s claim that EDC
Corporate and Canada Account financial contributions do not confer benefits “as such.”
42. Second, Canada’s claim that the previous Panel addressing EDC’s Corporate and Canada
Accounts affirmatively found these measures to be consistent “as such” with the SCM Agreement is
inaccurate. As noted above, the Panel in Canada – Aircraft concluded that, as an evidentiary matter,
Brazil “failed to demonstrate” that EDC’s Corporate and Canada Accounts constituted mandatory
legislation subject to challenge “as such.”
29 In its submissions to this Panel, Brazil has presented
newly-available evidence and added it to the evidence presented to the Canada – Aircraft Panel.
Brazil believes it has now met the burden of making a prima facie case that EDC’s Corporate and
Canada Accounts are mandatory and constitute prohibited export subsidies “as such.”
1. EDC Is an Export Credit Agency and As Such Requires the Provision of
Subsidies Contingent Upon Export
43. Brazil’s claims encompass both the Corporate Account and the Canada Account, which are
the two sides of one programme, EDC. As Canada notes in paragraph 4 of its First Written
Submission, “EDC administers two programs, the Canada Account and the Corporate Account.” 30
When EDC provides “official support,” it does so mostly through the Canada Account. 31 When EDC
operates through the “market window” and provides, as Canada alleges, financing according to “what
the relevant borrower has recently paid in the market for similar terms and with similar security,” it
does so through the Corporate Account.32
44. Whether operating through the Corporate Account or through the Canada Account, EDC “as
such” provides export subsidies within the meaning of Articles 1 and 3 of the SCM Agreement. As
discussed in detail in Brazil’s 6 July responses to Questions 28 and 29 from the Panel, EDC’s
Corporate and Canada Accounts “as such” require the provision of export subsidies because they are
established and operate as export credit agencies (“ECAs”) with the raison d’etre of providing export
subsidies.
45. The history and existence of the “safe haven” in item (k) of the Illustrative List of Export
Subsidies, which Canada has invoked to justify its Air Wisconsin subsidy, illustrates this fact.
During the negotiation of the Tokyo Round Subsidies Code, the participants in the recently-concluded
OECD Arrangement were faced with the fact that their ECAs, while permitted by the Arrangement,
would nonetheless be inconsistent with their obligations under the Code. Their solution was the

29 WT/DS70/R, paras. 9.129, 9.213.
30 A similar statement is contained in paragraph 20 of Canada’s First Written Submission.
31 For a more detailed discussion, see paras. 74-81 of Brazil’s First Written Submission and paras. 38-
43 of Brazil’s Statement for the First Meeting of the Panel.
32 Canadian First Written Submission, para. 67 (emphasis removed).

second paragraph of item (k).33 Export credits provided by ECAs are export subsidies, the negotiators
recognized, but they will not be considered prohibit ed export subsidies so long as they comply with
the interest rate provisions of the Arrangement. If an ECA is not covered by the safe haven of
item (k), it is providing a prohibited subsidy “as su ch” because providing export subsidies, as the
Tokyo Round negotiators realized, is inherent in the very existence and functioning of an ECA. That
is, again, why they created the second paragraph of item (k) in the first place.
46. Brazil’s arguments that EDC support via the Corporate and Canada Accounts constitutes
export subsidies “as such” must be viewed in that context. EDC, whether through its Canada Account
or its Corporate Account operations, constitutes a measure that is indeed designed “as such” to
provide export subsidies. Like other ECAs, EDC does not pay income taxes, does not pay dividends,
and borrows on the credit of the Government of Canada.
34 The OECD Arrangement was meant to
limit the extent to which these advantages could be abused.
47. Brazil is not saying, as Canada argues at paragraph 37 of its First Written Submission, “that
because EDC is a government entity and as such does not pay income taxes, any financing by it
constitutes a subsidy.” Brazil’s argument is that not paying taxes is illustrative of, and an essential
prerequisite to, an ECA’s capability to perform its normal mission – to provide export subsidies. As
noted by former US Treasury Secretary Lawrence Summers:
. . . Market Window institutions either directly, or potentially, contravene [OECD]
Arrangement rules because they are controlled and implicitly subsidized by the state.
Thus, Market Window institutions operate with an unfair competitive advantage
because they benefit from special government concessions including guarantees by
the state that enable them to raise funds at a lower cost than their private sector
competitors, and because they are exempted from certain taxes and dividend
payments. At the same time they act like official export credit agencies in restricting
financing to national exporters.
35
48. Brazil’s claims encompass different forms of EDC financial contributions provided via the
Corporate and Canada Accounts – guarantees, loans and financial services. The advantages EDC
wields as a government ECA mean that when it provides these financial contributions, it confers
benefits “as such.” That is the very reason the OECD Arrangement was adopted – to control the way
in which those benefits could be conferred. Simp ly saying that an ECA operates “on commercial
principles” does not erase the advantages addressed by Secretary Summers, or the importance of the
OECD Arrangement’s rules to lim it potential abuse. In this context, the market window standard
outlined by Canada does not turn a mandatory measure into a discretionary one.
2. Specific Examples Illustrate that EDC Is an Export Credit Agency and As Such
Requires the Provision of Subsidies Contingent Upon Export
49. Specific types of financial contributions challenged by Brazil illustrate the extent to which
EDC confers benefits “as such.” These are described below.

33 JOHN E. RAY, MANAGING OFFICIAL EXPORT CREDITS – THE QUEST FOR A GLOBAL REGIME, Institute
for International Economics (1995), pgs. 36-38 (Exhibit Bra-54).
34 Export Development Corporation 1999-2000 Reference Guide, pg. 9 (Exhibit Bra-23).
35 Summers speech, pg. 3 (Exhibit Bra-29).
WT/DS/222/R

(a) Loan Guarantees
50. Loan guarantees provided by EDC’s Corpor ate and Canada Accounts confer benefits by
according “terms more favourable than those available to the recipient on the market.” 36 As Canada
has noted, where there is a government loan guarantee, “the lending bank establishes financing terms
in the light of the risk of the . . . Government, not the borrower.”
37 Similarly, EDC’s Resolution
Respecting Minimum Lending Yields, submitted by Canada as Exhibit Cda-47, provides that “where
financing is to be secured by a guarantee, the credit rating of the guarantor shall be used . . . .”
51. EDC, as an agent of the Government of Canada, enjoys a credit rating of AAA from Standard
& Poors.38 An EDC loan guarantee allows purchasers of Canadian regional aircraft, who do not enjoy
similar standing, to enjoy the benefits of EDC’s AAA rating, which will certainly help them secure
better financing terms than they could secure on their own. Thus, EDC guarantees provide benefits
“as such.”
52. Canada asserts that EDC charges fees for its guarantees,
39 but has nowhere demonstrated that
the fees it charges regional aircraft purchasers are commensurate with those charged by commercial
guarantors with AAA credit ratings to regional aircraft purchasers wishing to enjoy the benefits of
those guarantors’ AAA ratings. Even if it could do so, the EDC guarantee would still confer a benefit
as long as “there is a difference between the amount that the firm receiving the guarantee pays on a
loan guaranteed by the government and the amount that the firm would pay on a comparable
commercial loan absent the government guarantee.”
40 In this regard, Brazil would note that loan
guarantees are listed specifically in item (j) of the Illustrative List of Export Subsidies in Annex I to
the Agreement, and are, per se, prohibited.
(b) Financial Services
53. Similarly, Brazil has demonstrated that EDC financial services confer benefits “as such.”
Under Article 1.1(a)(1)(iii) of the SCM Agreement, financial contributions can take the form of
“services other than general infrastructure.” The ordinary meaning of the term “services” is
“assistance or benefit provided to someone by a person or thing.” 41 EDC financing support and
financing packages for Canadian regional aircraft purchasers, as well as the financing and loan
guarantees that are part of that support and those packages, constitute assistance to the Canadian
regional aircraft industry and its purchasers.
54. Canada has acknowledged that EDC provides its financing support and financing packages on
terms more favourable than a recipient could receive on the market. According to the EDC, it
“complements the banks and other financial intermediaries,” and absorbs risk for Canadian exporters
“beyond what is possible by other financial intermediaries.” 42 Additionally, “EDC’s financing
support gives Canadian exporters an edge when they bid on overseas projects,” 43 which Canada has
explained refers to “the ability of EDC officials to assemble better structured financial packages . ..”44
All of these services – financial packages that are better structured, assistance that complements and

36 WT/DS70/AB/R, para. 158.
37 WT/DS46/RW, Annex 1-2 (para. 36) (emphasis added).
38 Export Development Corporation Annual Report 2000, pg. 41 (Exhibit Bra-22).
40 SCM Agreement, Article 14(c).
41 The New Shorter Oxford English Dictionary (Third Ed., 1993), pg. 2789.
42 E XPORT DEVELOPMENT CORPORATION, 1995 Chairman and President’s Message , pgs. 4, 2
(emphasis added) (Exhibit Bra-24).
43 WT/DS70/R, para. 6.57 (quoting former EDC President Paul Labbé) (emphasis added).

goes beyond that provided by commercial banks, support that grants an edge – by definition offer
something better than that available to Canadian exporters on the market. They therefore confer
benefits.
55. As noted in paragraph 28 of Brazil’s Oral Statement, the Canada – Aircraft Panel did not
find, as Canada claims, that a determination of benefit “cannot be inferred or extrapolated from the
generic statements of the EDC or its officials.” 45 That Panel found that evidence provided by Brazil,
including some statements by officials, did not establish that EDC provides lower interest rates than
are commercially available. In this dispute, Brazil’s claim is different and in fact broader; it is that
these statements establish that EDC provides “services” that are better than what a recipient could get
on the market. Canada’s argument should therefore be rejected.
56. The European Communities’ (“EC”) suggestion that “services” can only be “financial
contributions” if they are offered “for less than full consideration” or if they “involve a cost to the
government” must also be rejected.46 This argument improperly collapses the “financial contribution”
and “benefit” elements of a prohibited export subsidies claim.47
57. Moreover, even if directed to the “benefit” element of a prohibited export subsidies claim, the
EC’s argument harkens back to the so-called “cost to government” interpretation, which was rejected
by the Appellate Body in the earlier Canada – Aircraft case.
48 A “benefit” is conferred when a
recipient gets a financial contribution on terms more favourable than it could receive on the market.
The evidence cited by Brazil demonstrates that EDC provides services – financial packages that are
better structured, assistance that complements and goes beyond that provided by commercial banks,
support that grants an edge – that by definition offer something better than Canadian exporters or their
customers can get on the market.
58. The EC also appears to argue that the relevant benchmark against which to judge whether
services confer benefits is “the conditions on which equivalent services are offered by the government
elsewhere in the Member concerned.”
49 Again, however, the EC fails to apply the “benefit” standard
adopted by the Appellate Body in Canada – Aircraft . The relevant question is whether a Member
grants a recipient something better than what that recipient or its customer could get on the market. A
Member does not avoid conferring a “benefit” by granting services on similarly below-market terms
to several different recipients.
(c) EDC’s Benchmark
59. Finally, with respect to EDC’s Corporate Account, Canada claims that it operates “on
commercial principles,” providing financing according to “what the relevant borrower has recently
paid in the market for similar terms and with similar security.” 50 S i m i l a r l y , C a n a d a c l a i m s t h a t
“official support” via EDC’s Canada Account does not confer a benefit when it operates according to
this standard.51 With this standard, Canada considers that it does not provide export subsidies via
EDC’s Corporate Account, since it does not confer a “benefit,” within the meaning of Article 1.1(b)

46 EC Third Party Submission, paras. 46, 51; EC Oral Statement, para. 24.
47 Brazil – Export Financing Programme for Aircraft , WT/DS46/AB/R (Adopted 20 August 1999),
para. 157.
48 WT/DS70/AB/R, para. 156.
50 Canadian First Written Submission, para. 67 (emphasis removed).
51 Specifically, in the Air Wisconsin transaction, Canada claims that if Brazilian government support
was not involved, and Canada was only matching Embraer’s offer, then Canada Account support “would be on
terms no more favourable than those available to the recipient on the market.”
 Canadian Oral Statement,
para. 16.
WT/DS/222/R

of the SCM Agreement. This standard, however, masks (i) the nature of the benefit, and (ii) the true
beneficiary.
60. The Appellate Body, borrowing context from Article 14(b) of the Subsidies Agreement,
would compel a “benefit” standard requiring th at EDC operations not extend support beyond “the
terms the borrower would have been able to obtain on the purely commercial market.” 52 In contrast,
Canada states that EDC operates “on commercial principles,” and asserts that this equates with market
pricing and the provision of financing at market rates.53
61. There is a difference between operating on commercial principles and actually financing at
market rates, however. This is because in many instances, products and terms offered by EDC are not
available on the commercial market. Brazil has noted, for example, how Canada heralds EDC’s
ability to “complement” the services of banks and other financial intermediaries, or in other words, its
ability to provide things that the commercial market does not provide. As the United States notes at
paragraph 7 of its Third Party Submission, the appropriate benchmark against which to judge whether
EDC provides terms more favourable than available on the market must be terms that are actually
available on the commercial market . Just operating “on commercial principles” is not enough – the
benchmark for EDC’s market window operations must be what is available on the market itself.
62. A further problem with Canada’s benchmark is that it focuses only on the purchaser of
Canadian regional aircraft as the beneficiary of EDC financial contributions. Another beneficiary,
however, is the producer of the aircraft, Bombardier. It is undisputed that producers of aircraft
frequently are expected to provide financing for their customers. The question, therefore, is whether –
in the absence of EDC – Bombardier could make equally attractive financing available to its
customers. If not, then in order to keep the mont hly payment required by customers no higher than it
would be with EDC support, Bombardier would have had to cut its price. Whether Air Wisconsin, for
example, could have obtained terms as favourable as those offered by EDC elsewhere in the market is
irrelevant if Bombardier could not obtain them. This conclusion applies to all “market window”
operations of EDC’s Corporate Account and, therefor e, to the programme “as such.” If Bombardier
were able to find equally favourable financ ing elsewhere, market window operations would be
completely unnecessary – since, supposedly, they are no more than what is already available in the
market. But, of course, this again raises the question: if EDC’s market window does no more than
offer what the market offers, what is the function of EDC? Canada never explains.
3. Canada’s Reliance on the Affirmative Defence of the “Safe Haven” of Item (k)
Does Not Affect the Mandatory Nature of the Measures
63. Consistent with the intent of the negotiato rs of the Tokyo Round Subsidies Code, and the
SCM Agreement, the “safe haven” included in the second paragraph of item (k) is potentially
available for EDC’s operations. But the presence of this potential defence does not affect the nature
of EDC “as such.” The potential availability of an affirmative defence does not change a mandatory
measure into a discretionary measure. As discussed above and in Brazil’s response to Question 28
from the Panel, item (k) was drafted and adopted to provide a limited exception to the prohibition, not
to the mandatory character of the export subsidy . A measure that exists to provide export subsidies
remains mandatory whether or not it may fall within the scope of the “safe haven” of item (k).
54

52 See US Third Party Submission, para. 6.
54 Nor does the presence of the potential defence under item (k) affect the nature of the programmes
“as such,” even if in some cases financing might be covered by item (k). As also discussed in Brazil’s response
to Question 28 from the Panel, even if the programmes might not always require a violation of the SCM
Agreement, they would still be inconsistent with the SCM Agreement “as such.”

64. A good analogy is Article 27 of the SCM Agreem ent. It contains a temporary, eight-year
exception from Article 3 of the SCM Agreement for developing countries meeting certain conditions.
It is a matter of affirmative defence. The availability of the defence does not change the character of
the export subsidy; it simply makes the prohibition temporarily inapplicable. Likewise, item (k),
second paragraph, provides a safe haven for qualifying export credits without regard to whether they
are “mandatory” or “discretionary.”
B. EDC’s Corporate and Canada Accounts “As Applied”
65. In its First Written Submission, Brazil identified five regional aircraft transactions
demonstrating that as applied, EDC’s Corporate and Canada Accounts provide prohibited export
subsidies.
55 Because one of those transactions – Air Wisconsin – involves Canadian resort to the
“safe haven” of item (k), Brazil will rebut Canada’s arguments with respect to that transaction in a
separate section of this submission.
66. Of the four remaining customers identified by Brazil, Canada asserted that neither Midway
nor Comair received EDC support. Specifically , Canada says EDC’s Corporate Account did not
participate in the Midway transaction. 56 In Canada’s 6 July response to Question 14 from the Panel,
Brazil now learns that support for the Midway tran saction came from IQ. This is further evidence of
how Canada’s tactic of “stonewalling” in consultations has denied Brazil the due process to which it
is entitled. Brazil will address IQ support for the Midway transaction in Section V below.
67. Canada also stated that EDC’s Corporate Account did not provide loan guarantees for the
Comair transaction.57 As noted above, however, Canada does not deny the evidence submitted by
Brazil58 that the Comair transaction involved either EDC Corporate Account support in a form other
than guarantees, or guarantees from some other instrumentality of the Canadian government (one
example might be the Canada Account). Brazil notes, for example, Canada’s statements, in
paragraphs 3-4 of its 6 July response to Question 11 from the Panel, that pricing for ASA [ ] on “EDC
pricing offered to Comair.” Given Canada’s failure to be fully forthcoming with information
regarding the Comair and Midway transactions, Brazil requests that the Panel specifically ask Canada
whether a government guarantee or other support was provided to Comair or Midway, and through
which Canadian government agency it was provided.
68. Moreover, Brazil asks the Panel to recall Canada’s admission, in another proceeding, that the
EDC Corporate Account has extended fixed interest-rate export credits at interest rates below the
OECD Arrangement’s minimum interest rate, the CIRR.
59 Brazil discussed these transactions at
paragraph 56 of its First Written Submission, and ag ain at paragraphs 34-35 of its Oral Statement.
These financial contributions confer a benefit. The Panel will recall the Appellate Body’s statement
in Brazil – Aircraft that a net interest rate to a borrower below the relevant CIRR is “positive
evidence” that the rate secures a “material advantage,” under item (k) of Annex I to the Subsidies
Agreement.60 As discussed at paragraphs 51-54 of Brazil’s First Submission, export support that
confers a “material advantage” will always confer a benefit, since item (k) and the “material
advantage” standard only become an issue when a subsidy, including a benefit, has already been
demonstrated.

55 Brazilian First Written Submission, paras. 43, 59.
58 Brazilian First Written Submission, paras. 43, 59.
59 WT/DS46/RW, para. 6.99 (The Panel was “struck by Canada’s assertion that export credits provided
by EDC through the ‘market window,’ even at interest rates below CIRR, were nevertheless ‘commercial’
export credits that did not confer a benefit within the meaning of Article 1.”).
60 WT/DS46/AB/R, para. 182.
WT/DS/222/R

69. Canada has not identified the specific transactions involved, except to state that they occurred
sometime after 1 January 1998. 61 Because rates below CIRR constitute “positive evidence” of
material advantage and benefit, Brazil requests that the Panel specifically ask Canada for details
regarding these transactions.
70. Brazil will now turn to the two remaining customers discussed in its First Written
Submission, ASA and Kendell. Canada provided in formation regarding the terms of EDC Corporate
Account support for sales to those customers with its 6 July responses to Question 11 from the Panel.
1. ASA
71. ASA Holdings, Inc. and Atlantic Southeast Airl ines (collectively “ASA”) described certain of
the terms underlying its purchase of Canadian regional aircraft in filings with the US Securities and
Exchange Commission (“US SEC”). Brazil discussed those terms in paragraphs 43 and 59 of its First
Written Submission, and in Exhibits Bra-36 through Bra-38. Canada has provided further details
regarding EDC support in its 6 July response to Question 11 from the Panel. EDC financing for sales
to ASA conferred and continues to confer a benefit, within the meaning of Article 1.1(b) of the SCM
Agreement, in two ways.
72. First, as noted in the US SEC documents included in Exhibits Bra-36 through Bra-38, EDC
financing support exceeded the 10-year maximum repayment term included in the OECD
Arrangement for regional aircraft. As discussed in paragraphs 50-54 of its First Written Submission,
terms beyond the 10-year maximum constitute “positive evidence” of a benefit, within the meaning of
Article 1.1(b) of the SCM Agreement.
73. In its response to Brazil’s argument, Canada claims that “[s]tandard commercially available
financing terms for regional aircraft range from 10 to 18 years” and that, therefore, EDC financing is
“entirely within the ordinary commercial range.”
62 In its 6 July response to Question 35 from the
Panel, Brazil refutes this assertion. Brazil’s research into the activities of th e two large, international
banks named by Canada, the results of which are included in Exhibit Bra-57, shows no indication that
the market supports terms of financing for regional aircraft in the range alleged by Canada.
74. Second, Canada’s 6 July response to Question 11 from the Panel, and Exhibits Cda-42
through Cda-44, demonstrate that EDC financial contributions were granted on terms more favourable
than those available on the market. In its response to Question 11 from the Panel, Canada describes
how it provided financing to ASA in March 1997 and August 1998 at a rate of the [] plus [] basis
points, which it describes as [ ] basis points [ ]. The Panel in the earlier Canada – Aircraft dispute had
occasion to refer to [ ]. After first noting that an EDC Standing Board Resolution of 17 June 1992
applies to all EDC Corporate Account lending, including that for regional aircraft, the Panel then
noted that “EDC’s lending yield must cover cost plus a minimum risk margin (which varies according
to the credit rating of the recipient).”
63 The Panel then went on to observe that, “Brazil makes no
attempt to suggest that this policy is inconsistent with that of commercial banks.”64 Based on this lack
of evidence, the Panel concluded, “we are not convinced by Brazil’s argument that EDC’s net interest
margin does not provide sufficient basis for comp aring EDC’s debt financing performance with that
of commercial banks.”
65

63 WT/DS70/R, para. 9.173. The undated EDC “Resolution Respecting Minimum Lending Yields”
included as Exhibit Cda-47 appears to be the same document to which the earlier Panel referred.
64 Id.
65 Id. para. 9.174.

75. Brazil made no attempt, as the Panel said, because the opaque nature of EDC and its
operations prevented Brazil from obtaining the relevant information. Now, Canada’s answer to
Question 11 provides relevant information. That answer makes clear that not only in the ASA
transaction, but even in all other transactions where its [] is achieved, Canada, in fact, provides below
market financing. Canada states, at paragraph 4 of its response to Question 11, that it provided
financing at [] to ASA, [] basis points below its []. The OECD Commercial Interest Reference Rate, it
will be recalled, is 100 basis points above the seven-year US Treasury Bill. As of the writing of this
submission, T-Bill plus []. But the CIRR, by itself, does not include a risk premium. Thus, while
CIRR alone may be sufficient to secure the “safe haven” in the second paragraph of item (k), it is not
enough to avoid conferring a benefit. []
66 The prime rate, however, is available only to borrowers
with the best credit ratings, and even Canada does not argue that regional carriers are candidates for
the prime rate. Thus, EDC’s [] would confer a benefit on a borrower worthy of the prime rate, to say
nothing of a regional airline, or especially a regional airline like ASA that gets an [] the already
subsidized rate. Indeed, Canada’s Exhibit Cda-47, which is EDC’s “[]” suggests that EDC’s [].
2. Kendell
76. Press reports described certain of the terms involved in EDC support for the sale of Canadian
regional aircraft to Kendell Airlines. Brazil discussed those terms in paragraphs 43 and 59 of its First
Written Submission, and in Exhibits Bra-34 through Bra-35. Canada has provided further details
regarding EDC support in its 6 July response to Qu estion 11 from the Panel. EDC financing for the
sale to Kendell conferred and continues to confer a benefit, within the meaning of Article 1.1(b) of the
SCM Agreement, in two ways.
77. First, EDC financing support exceeded the 10-year maximum repayment term included in the
OECD Arrangement for regional aircraft.
67 As discussed above, terms beyond the 10-year maximum
constitute “positive evidence” of a benefit, within the meaning of Article 1.1(b) of the SCM
Agreement.
78. Second, Canada’s 6 July response to Question 11 from the Panel, and Exhibits Cda-37
through Cda-41, demonstrate that EDC financial contributions were granted on terms more favourable
than those available on the market. For example, the [ ] term revealed in Exhibit Cda-38 exceeds the
OECD Arrangement’s 10-year maximum for regional aircraft, and the financing is based on a floating
rate, LIBOR, thereby making the transaction ineligible for the safe haven of item (k). Moreover, the
margin added to LIBOR, [] for a borrower that Exhibit Cda-39 reveals is rated, by Canada’s own “LA
Encore” system, as [], is below market by any reasonable definition.
IV. CANADIAN SUPPORT FOR THE AIR WISCONSIN TRANSACTION
CONSTITUTES PROHIBITED EXPORT SUBSIDIES
79. Canada’s actions in the Air Wisconsin transaction, announced on 10 January 2001 by
Canadian Industry Minister Brian Tobin, was the precipitating event that led Brazil to request this
Panel.68 Only a month before, in December 2000, Brazil had amended its export credit measure,
PROEX, to bring it into compliance with WTO requirements. Canada totally disregarded the changes
made by Brazil. More importantly, Brazil never provided or offered, formally or informally, any
support of any kind whatsoever to Embraer in the Air Wisconsin transaction – and from the date of

66 Id.
67 Dominic Jones, “Ready, Steady . . . ,” Air Finance Journal , January 2000, pg. 48 (EDC financing
was for a period of 12 years) (Exhibit Bra-34).
68 Transcript of Press Conference of Industry Minister Brian Tobin, 10 January 2001 (“Tobin Press
Conference”) (Exhibit Bra-21).
WT/DS/222/R

Minister Tobin’s press conference until now, Canada has produced no evidence to the contrary. Still,
Minister Tobin, in that press conference, announced that Canada was simply matching “Brazil’s”
support to Embraer.
80. Minister Tobin had no factual basis for that very regrettable and very untrue statement. Other
Canadian officials, since January, have repeatedly, just as inaccurately and imprudently, repeated that
statement. Neither Minister Tobin nor any official of the Canadian Government ever asked Brazil
whether in fact Brazil was supporting Embraer in that transaction. Thus, while the Air Wisconsin
transaction is far from the only transaction with which this dispute is concerned, it is a very important
one. And the record shows that it was Canada, not Brazil, that supported the Air Wisconsin
transaction with export subsidies that are prohibited by the WTO.
81. Canada provided support for the Air Wisconsin transaction through a Canada Account loan
and an IQ guarantee. Minister Tobin best summarized the support provided to Bombardier during his
10 January 2001 press conference, where he stated that Canada was “using the borrowing strength and
the capacity of the government to give a better rate of interest on a loan than could otherwise be
secured by Bombardier.”69
82. Although Minister Tobin repeatedly stated during his 10 January 2001 press conference that
the use of Canada Account to match competing, below-market offers was not a general practice, it
appears that it is becoming so. Just this week, on 9 July 2001, Bombardier announced a $1.7 billion,
75-aircraft sale to Northwest. Minister Tobin and International Trade Minister Pierre Pettigrew
announced that the Canadian Government will “match the financing terms that Brazil is offering
Northwest Airlines.”
70 Minister Pettigrew described the support as “concessionary.” 71 Even though
Bombardier has already won the contract, Canada has also pledged to double its support if in the
future Northwest exercises an option to purchase an additional 75 aircraft.72
83. The Air Wisconsin transaction is a perfect illustration of the manner in which the three
programs challenged by Brazil in this case are inconsistent “as such” with Canada’s obligations under
the SCM Agreement. It also demonstrates the inconsistency of those programs with the SCM
Agreement “as applied.”
A. Canada Account Support for the Air Wisconsin Transaction
84. Canada raises two alternative defences with respect to its Canada Account support for the Air
Wisconsin transaction. If Brazilian government support was involved in Embraer’s offer to Air
Wisconsin – which it was not – Canada claims that it was only “matching” Brazilian support, and that
it is therefore entitled to the “safe haven” of item (k). In that case, Canada acknowledges that it
confers a “benefit,” within the meaning of Article 1.1(b) of the SCM Agreement. If Brazilian
government support was not involved, Canada alternatively claims that it was only matching
Embraer’s, and thus market, terms. Brazil will address each of these defences in turn.
1. Canada’s Defence that Its Offer Was Consistent with the SCM Agreement
Because It Matched Brazil’s Offer Must Fail
85. Canada’s first argument is that in the Air Wisconsin transaction it took recourse to the
“matching” provisions of the OECD Arrangement, which maintained “conformity with” the “interest

69 Tobin Press Conference, para. 66 (Exhibit Bra-21).
70 Department of Foreign Affairs and International Trade News Release, 9 July 2001 (Exhibit Bra-58).
71 “Bombardier wins big jet order; Ottawa gives Northwest cut-rate financing,” The Globe and Mail ,
10 July 2001 (Exhibit Bra-59).
72 Id.

rates provisions” of the Arrangement. Recourse to item (k) is, of course, an affirmative defence.
Canada has the burden of establishing entitlement to that defence. In its previous submissions to the
Panel, Brazil has already provided three reasons why Canada cannot do so. First, Embraer’s offer to
Air Wisconsin involved no support from the Brazilian government. Second, Canada did not match
Embraer’s offer, but rather offered more favourable terms. Third, “matching” does not bring a
Member into “conformity with” the “interest rates provisions” of the OECD Arrangement.
(a) Brazil Neither Offered Nor Promised Support for the Air Wisconsin
Transaction
86. Canada’s justifications for its support for the Air Wisconsin transaction rest on the
assumption that it “matched” a competing officially supported offer. As Brazil has previously
explained, Canada’s justifications fail for two reasons. First, had Canada complied with Article 53 of
the OECD Arrangement, which requires a Particip ant wishing to “match” a non-participant’s offer to
“make every effort to verify” that the terms and conditions it is intending to match “are officially
supported,” Canada would have learned that Embraer’s offers were for its own account and at its own
risk. Embraer did not even request, let alone receive, support of any kind whatsoever from the
Government of Brazil or from any other Brazilian government entity.
87. Canada’s efforts at verifying Brazilian government participation in the Air Wisconsin fell
considerably short of the standard included in Article 53 of the OECD Arrangement. According to
Exhibit Cda-1 and paragraph 13 of Canada’s First Written Submission, on 20 October 2000, a
Bombardier salesperson “learned that Brazil was prepared to finance the sale of regional jets to Air
Wisconsin on terms far more favourable than those that Air Wisconsin would have been able to obtain
in the commercial marketplace.”
73
88. Between 20 October 2000 and 10 January 2001, when Industry Minister Tobin announced
that Canada was “matching” Brazilian support for the Air Wisconsin transaction,
74 Canada did not
contact Brazil to verify, in good faith, the accuracy of the information it had received. Canada
therefore has not met its burden to show that it “made every effort to verify” that there was indeed
Brazilian government support involved in Embraer’s offer to Air Wisconsin. Moreover, as Brazil has
demonstrated, Embraer in fact neither requested nor received any such support.
(b) Canada Has Failed to Prove That, Even If There Was Government
Support by Brazil Offered or Promised to Embraer for the Air
Wisconsin Transaction, Canada Matched the Offer
89. Even assuming that Embraer’s offer was made with Brazilian government support, Canada
must show that it matched that offer. Canada states that it was justified in extending “non-identical
matching” to Air Wisconsin.
75 In its response to Question 36 from the panel, Brazil noted that “non-
identical” matching does not appear to be available with respect to allegedly non-conforming terms
offered by non-participants in the OECD Arrangement such as Brazil. Even if “non-identical”
matching were permitted in this case, however, Canada bears the burden of showing that its “non-
identical” offer included financing terms that were economically equivalent to Embraer’s offer. 76
Canada has not done so.

73 The same assertion is made in paragraph 43 of Canada’s First Written Submission.
74 Tobin Press Conference, paras. 7, 15, 20, 27, 74, 126 (Exhibit Bra-21).
75 Canadian first written submission, footnote 36.
76 The ordinary meaning of the verb “match” is “be equal to; correspond to, go with, be the match or
counterpart of.” THE NEW SHORTER OXFORD ENGLISH DICTIONARY (Third Ed., 1993), pg. 1713.
WT/DS/222/R

90. As evidence that it merely matched the terms of Embraer’s offer, Canada offers a statement
by an Air Wisconsin official that Canada’s offer was “no more favorable than” Embraer’s offer,
“viewed in its entirety.”77 A statement by an airline interested in preserving the legality, and thus the
viability, of its recently-negotiated deal is of limited use. Apart from the airline official’s self-interest,
it also appears that Air Wisconsin actually was contractually obligated to make this statement.78
91. Moreover, it is significant that the Air Wisconsin official stated that the two offers were
equivalent in their “entirety.” While matching only extends to the financing terms of an offer, the
“entirety” of an offer goes beyond its financing terms. For example, Embraer’s offer contained a
special element unrelated to financing.
79 Thus, when Canada subsidized to “match” Embraer’s offer
(assuming Embraer’s offer was actually matched) it did not simply match the financing. Instead, it
used a subsidy to meet Embraer’s offer in its “entirety,” which went beyond financing.
92. Canada’s argument that it matched Brazil’s offer is also curious given its reaction of surprise
and disbelief when it saw the terms of Embraer’s offer, submitted by Brazil to the Panel on
25 June 2001. Canada stated on numerous occasions during the first meeting of the Panel that it still
did not know some of the terms of Embraer’s offer, and did not understand others about which it did
know. But if Canada did not know or understand so me of the key terms of Embraer’s offer, how can
it claim to have “matched” that offer?
93. It is Canada’s burden to show that it actually matched Embraer’s offer – term by term,
component by component – so that the decisive factor in Air Wisconsin’s choice was not the more
favourable financing terms offered by Canada but, as Canada asserted at the first meeting of the
Panel, the quality of the planes. Canada has not even attempted to do so, and thus has failed in
demonstrating its entitlement to an affirmative defence.
(c) Canada Has Failed to Show that “Matching” Is a Practice Covered by
the “Safe Haven” of Item (k)
94. Even if Embraer’s offer included Brazilian government support, and even if Canada in fact
matched that offer, Canada bears the burden of showing that recourse to matching maintains
“conformity with” the “interest rates provisions” of the OECD Arrangement.” Once again, Canada
has failed to do so.
95. In its responses to questions from the Panel, Brazil has affirmatively demonstrated that
matching does not bring a Member into conformity with the interest rates provisions of the
Arrangement. Rather than repeating those arguments here, Brazil refers the Panel to its detailed
response to Question 36 from the Panel.
96. In conclusion, Canada did not “make every effort to verify” that Embraer’s offer to Air
Wisconsin included Brazilian government support. In fact, Embraer neither sought nor received such
support. Even if Embraer’s offer had included government support, however, Canada did not merely
match that support, even on “non-identical” terms. It in fact provided terms considerably more
favourable than those included in Embraer’s offer. Finally, even if Canada did match Embraer’s
offer, recourse to matching does not maintain “conformity with” the “interest rates provisions” of the
OECD Arrangement. For all of these reasons, Canada has not established its entitlement to the “safe
haven” included in item (k).

77 Exhibit Cda-2.
78 Canadian response to Panel’s 20 June 2001 request for information regarding the Air Wisconsin
transaction, belatedly submitted 26 June 2001, Attachment (pg. 14) (One []).
79 See Brazil’s letter to the Panel of 25 June 2001, containing the description of the terms of the
Embraer offer to Air Wisconsin, last paragraph.

2. Canada’s Claim that by Offering Terms Equivalent to Embraer’s Offer It
Offered Market Terms of Financing Must Fail
97. Canada argues that if there was no Brazilian government support for Embraer’s offer to Air
Wisconsin, Canadian support matching Embraer’s offer “would be on terms no more favourable than
those available to the recipient in the market.” 80 This argument must be rejected for two reasons:
first, Canada in fact offered terms more favourable than the terms included in Embraer’s offer; and,
second, the terms of Canada’s official support, even if equivalent to the terms of Embraer’s offer,
were not terms available to Bombardier in the market.
(a) Canada Cannot Show that the Terms of Its Official Financial Support
Are Identical or Equivalent to the Financing Terms Included in
Embraer’s Offer
98. According to Canada, if Embraer did not receive support from the Brazilian government, the
terms of its offer reflected the market. By matching Embraer’s offer, Canada asserts, it did not
provide Air Wisconsin with terms more favourable than those available in the market. According to
Canada, no “benefit,” within the meaning of Article 1.1(b) of the SCM Agreement, was thereby
conferred. Even assuming, however, that Embraer’s offer reflected the market for financing terms –
an assumption that Brazil will demonstrate is not the case – Canada did not “match” the terms of
financing included in Embraer’s offer.
99. At the outset, Brazil notes the remarkable nature of Canada’s claim. Support for the Air
Wisconsin transaction was provided via EDC’s vehicle for “official support” – the Canada Account.
EDC resorts to the Canada Account only when it must go below the standard enumerated in
paragraph 67 of its First Written Submission – in other words, when it is providing a “benefit” with
terms better than “what the relevant borrower has recently paid in the market for similar terms and
with similar security.”
100. In the Air Wisconsin transaction, however, Canada claims that even “official support” granted
via EDC’s Canada Account does not always confer a benefit, and is not always subject to the OECD
Arrangement. If “official support” is used to ma tch an offer that also entails “official support,”
Canada considers itself constrained by the terms of the OECD Arrangement, and dependent upon the
“safe haven” of item (k). Paradoxically, if “official support” is used to match an offer that does not
similarly entail “official support,” there are no OECD constraints on Canada’s ability to use its
“official support” vehicle and that vehicle’s extraordinarily low cost of funds to support Bombardier
in competition with a purely private entity acting without government support.
101. In effect, Canada’s argument is that ED C is subject to the constraints of the OECD
Arrangement – and thus the provisions of the SCM Agreement – only when Canada decides it is.
Moreover, other Members have no way of knowing whether, in a given situation, Canada considers
EDC to be bound by the Arrangement and must, it seems, await Canada’s subsequent explanations to
determine with which, if any, rules of the Arrangement (and thus of the second paragraph of item (k))
EDC felt constrained to comply in any given situat ion. The flexibility EDC maintains to choose, and
change, the constraints to which its support is subject, raises the question why Canada even
participated in the OECD Arrangement at all.
102. In any event, Canada has failed to demonstrate that it matched the terms of Embraer’s offer.
Its only claim, as discussed above, is that Embraer’s and Canada’s offers were equivalent in their

80 Canadian Oral Statement, para. 16. See also Canadian Response to Question 10 from the Panel,
para. 1.
WT/DS/222/R

“entirety.”81 Whether Canada’s offer was equivalent to Embraer’s offer in its “entirety” is irrelevant,
however. The offers may have been equivalent in their “entirety,” at least in the judgment of a
potential purchaser, because, for example, the more favourable terms of financing in one offer may
have compensated better pricing or other incentives in the other. What Canada must do is
demonstrate that the financing terms of the two offers were equivalent.
103. Canada cannot do so. As discussed above and in Brazil’s 6 July response to Question 34
from the Panel, Embraer’s offer contained a special element unrelated to financing, 82 and when
Canada “matched” Embraer’s offer in its “entirety,” it did not simply match the financing terms of
that offer. It used a subsidy to meet Embraer’s offer in its “entirety,” which extended beyond the
financing of that offer.
104. Finally, the combination of a loan from EDC’s Canada Account and an equity guarantee from
IQ could not have been on terms comparable to the terms of Embraer’s offer. By offering loan and
equity guarantees, Canada transfers its high credit rating to the borrower and the equity investors and
thus always confers a benefit. As Minister Tobin specifically acknowledged in his press conference,
Canada was “using the borrowing strength and the capacity of the government to give a better rate of
interest on a loan than could otherwise be secured by Bombardier.”
83
(b) The Terms of Embraer’s Offer Do Not Constitute the “Market”
105. Canada asserts that if it matched the terms of an Embraer offer to Air Wisconsin that involved
no Brazilian government support, it did not confer a benefit, since it merely offered “terms no more
favourable than those available to the recipient in the market.” 84 Canada provides no support for its
assertion that the terms Embraer offered are indeed no more favourable than those available in the
market. Moreover, Canada fails to acknowledge that the “market” cannot be established solely with
reference to an offer, not accepted, made by a single company with respect to a single transaction.
106. As Brazil discussed in greater detail in its 6 July response to Question 31 from the Panel,
Embraer could have offered below-market terms for a variety of reasons. It may have wanted to win
market share. It may have been willing to forego profits (or even suffer losses) to secure a launch
customer, or to win a new customer in the expectat ion that future business would follow. It may,
moreover, have arranged financing through private investors, or it may have self-financed. One can
speculate on what Embraer’s marketing strategy may have been. The point, however, is that Canada
cannot show that Embraer’s offer is equivalent to the “market.”
(c) The Terms of Embraer’s Offer Are Irrelevant; the Official Support
Extended by Canada Confers a Benefit Because Its Terms Are Better
than the Terms of Financing Bombardier Can Find in the Market
107. Finally, whether matching an unassisted Embraer offer resulted in terms “no more favourable
than those available to the recipient in the market” depends upon who the recipient is. A benefit may
be conferred upon Air Wisconsin by a financial contribution from Canada Account. Equally,
however, a benefit may be conferred upon Bombardier by that same financial contribution. When it
offered Canada Account support to Air Wisconsin, Canada “thereby conferred” a benefit upon
Bombardier, by allowing Bombardier to make an of fer to Air Wisconsin with terms of financing that
Bombardier would otherwise be unable to offer.

81 See Exhibit Cda-2.
82 See Brazil’s letter to the Panel of 25 June 2001, containing the description of the terms of the
Embraer offer to Air Wisconsin, last paragraph. See also the final two pages of Exhibit Bra-56.
83 Tobin Press Conference, para. 20 (Exhibit Bra-21).
84 Canadian Oral Statement, para. 16.

108. This was made clear by Minister Tobin during his press conference. He stated: “What
happens in the case of Embraer is that they were able to secure preferential, below commercial rates
of interest in providing financing on the sale of aircraft, and that is something that Bombardier cannot
do on its own.” 85 Minister Tobin emphasized further: “What we’re doing is using the borrowing
strength and the capacity of the government to give a better rate of interest on a loan than could
otherwise be secured by Bombardier.” 86 Minister Tobin has, in fact, defined very precisely why
Canada has conferred a benefit with its support for the Air Wisconsin transaction – because Canada
provided Bombardier financing on terms that Bombardier could not otherwise obtain in the
commercial market.
109. Canada’s involvement in the Air Wisconsin transaction constitutes a prohibited export
subsidy that does not fall within the “safe haven” of item (k). What Canada essentially told
Bombardier was, “Go as low as you need to win the sale, we will do whatever is necessary to support
you.” No market lender would make such a statem ent to an unrelated vendor. Only an ECA would
make such a statement, to a national vendor. By reducing the cost of the financing component of the
Bombardier package to Air Wisconsin, Canada permitted Bombardier to avoid responding to
Embraer’s price competition to the degree that it would have to have done in order to match the
overall cost (price plus financing) offered by Embraer. In so doing, Canada conferred a prohibited
export subsidy on Bombardier as well as Air Wisconsin.
B. IQ Support for the Air Wisconsin Transaction
110. In footnote 37 of its First Written Submission, and again in its 26 June response to the Panel’s
20 June request for information regarding the Air Wisconsin transaction, Canada discusses the
provision by IQ of a [] equity guarantee to Air Wisconsin. IQ spokesman Jean Cyr stated that the
Québec Government increased the IQ funds available to support Bombardier sales after Bombardier,
on 20 December 2000, “‘came to us and said they were negotiating this big deal with Air Wisconsin
that would require’” more than what was at the time available in an existing IQ program.
87 That same
day, the provincial government adopted Decree 1488-2000, which increased the amount available to
Bombardier customers to $226 million. Canada has submitted this Decree as Exhibit Cda-36.88
111. In Section V below, Brazil discusses why IQ suppor t is contingent in law or in fact on export.
Those arguments apply equally to IQ support for the Air Wisconsin transaction. Brazil focuses here
on the reasons why the guarantee to Air Wisconsin is a financial contribution and confers a “benefit.”
This reasoning applies equally to the other loan and equity guarantees that Canada has admitted, in its
response to Question 14 from the Panel, have been granted by IQ to support Bombardier’s exports of
regional aircraft. Those other IQ guarantees are discussed in Section V below.
112. Brazil has earlier explained why government-supplied export loan guarantees are prohibited
subsidies. Loan guarantees are per se prohibited by item (j) to the Illustrative List of Export
Subsidies. Moreover, an IQ loan guarantee, like an EDC loan guarantee, constitutes a financial
contribution and confers a benefit by substituting a superior governmental credit rating for a
borrower’s inferior credit rating. The loan guaran tee enables an airline to borrow funds based upon

85 Tobin Press Conference, para. 15 (Exhibit Bra-21).
86 Tobin Press Conference, para. 20 (Exhibit Bra-21).
87 “Ottawa backs Bombardier: Loan to US firm to buy jets slaps Brazil’s aerospace subsidies,” The
Montreal Gazette, 11 January 2001 (Exhibit Bra-9).
88 Décret 1488-2000, 20 décembre 2000, concernant une participation de 226 000 000 $
WT/DS/222/R

the credit rating of the Government of Québec, which is A+ or A2. 89 As Canada has itself stated,
when a government guarantee is issued, “the lending bank establishes financing terms in the light of
the risk of the . . . Government, not the borrower.” 90 The IQ guarantee thus confers a significant
benefit, and therefore a subsidy.
113. Equity guarantees are equally prohibited. They, too, are financial contributions that confer
benefits and, in the case of IQ, are contingent upon export. Before turning to these points, however,
Brazil will discuss Canada’s attempt to dismiss IQ equity guarantees as just a version of something
available in the market.
114. In its Exhibit Bra-50, Brazil has presented evidence that third-party equity guarantees of the
kind involved in these transactions are not commerci ally available in the market. Canada attempts to
deflect this evidence in paragraph 4 of its 6 July response to Question 14 from the Panel, by stating
that it is “informed” that “such private sector commercial actors as GE, Rolls-Royce, and Pratt &
Whitney have been known to provide such guarantees.” So, indeed, they have, but this fact does not
contradict Brazil’s evidence: that equity guarantees are not available in the market.
115. Each of these firms is a manufacturer of jet engines; indeed, they are the world’s three major
manufacturers. They supply both Bombardier and Em braer, as well as Airbus and Boeing. Engines
are the single most expensive component of an aircraft, usually constituting between 30 and 40 per
cent of the total value. These engine manufacturers compete to have their engines used on an aircraft,
and have a strong stake in its success. The ERJ 145, for example, uses Rolls-Royce engines, while
the CRJ 200 uses GE engines. Because the engine manufacturers are virtual partners with airframe
manufacturers, it is not unheard of for engine manufacturers to assist in the marketing and financing
of an airplane. When this occurs, however, it involves the overall relationship between the two
private companies – the engine manufacturer and the airframe manufacturer – in the sale of a product
in which they both have an interest.
Engine manufacturers do not, to Brazil’s knowledge, provide equity guarantees, or any other kinds of
support, for the sale of aircraft that carry a compet itor’s engines. They are not market actors in the
business of providing guarantees for a profit; they are manufacturers interested in selling the engines
they produce. Embraer’s evidence remains unrebutted: third party equity guarantees are not available
in the market. IQ therefore provides for Canadian exporters something that is not available on the
market at any price, and thus is by definition more favorable than the market.
116. Having disposed of this preliminary point, Brazil will now address the status of equity
guarantees as subsidies. Equity guarantees are financial contributions in the same sense that loan
guarantees are financial contributions. Canada has acknowledged that both IQ equity and loan
guarantees are “potential direct transfers of funds or liabilities,” and are therefore “financial
contributions” within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
91
117. In paragraphs 89-91 of its First Written Submission, Brazil discussed the manner in which
equity guarantees protect equity investors from risk inherent in regional aircraft transactions. IQ
equity guarantees such as that provided to Air Wisconsin confer a benefit by providing a
governmental guarantee to equity investors, thus making equity participation more readily available to
the transaction. In this case, they substitute Québec’s A+ to A2 credit rating for Bombardier’s A-

89 Standard & Poor’s, Non-US Local and Regional Government Ratings Since 1975, pg. 7 (Exhibit
Bra-60); Moody’s Ratings List, Government Bonds and Country Ceilings, pg. 5 (Exhibit Bra-61).
90 WT/DS46/RW, Annex 1-2 (para. 36) (emphasis added).

credit rating. 92 Indeed, even if a governmental credit rating were no better than that of a
manufacturer, such as Bombardier, a benefit noneth eless would be conferred on Bombardier because
it would remove a potential liability from Bombardier’s books, thereby enhancing Bombardier’s
credit rating. The IQ guarantee provided to Air Wi sconsin therefore confers a benefit and constitutes
a subsidy.
118. Canada has not addressed whether the guarantee to Air Wisconsin carries a fee. Brazil notes
that while some of the earlier Québec decrees establishing and funding the IQ guarantee program for
Bombardier customers indeed require IQ to charge annual fees, 93 Decree 1488-2000, which as
discussed above was adopted to facilitate the Air Wisconsin transaction, eliminates the requirement of
a fee altogether.94
V. INVESTISSEMENT QUÉBEC SUPPORT FOR THE CANADIAN REGIONAL
AIRCRAFT INDUSTRY CONSTITUTES PROHIBITED EXPORT SUBSIDIES
A. Investissement Québec Constitutes a Prohibited Subsidy As Such
119. As Brazil noted in its First Written Submission, 95 IQ provides a range of support to purchasers
of Canadian regional aircraft. These include loan guarantees, first loss deficiency guarantees to equity
investors, and “any other form of intervention provided for in . . . [Investissement Québec’s] business
plan.”96 Canada has acknowledged that “the provision of such guarantees by a government or public
body constitutes [a direct or] potential direct transfer of funds or liabilities within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement and would therefore be a ‘financial contribution.’”
97
120. Canada argues that IQ guarantees are not susceptible to challenge “as such” because
“[n]othing in the Investissement Québec Act mandates it to provide financing at all.” 98 This is
inaccurate. The series of Québec government decrees provided by Canada in its 6 July response to
Question 9 from the Panel clarify that IQ guarantees to regional aircraft purchasers were issued
pursuant to Article 28 of An Act Respecting Investissment-Québec and Garantie-Québec (“IQ Act”).
99
Article 28 states that:
The Government may, where a project is of major economic significance for Québec,
mandate [IQ] to grant and administer the assistance determined by the Government to
facilitate the realization of the project. The mandate may authorize the agency to fix
the terms and conditions of the assistance.
100

92 Standard & Poor’s rating, as reported in “S&P affirms Bombardier rating,” The Globe and Mail ,
9 August 2000 (Exhibit Bra-63).
93 See Décret 1187-98, 16 septembre 1998, concernant une participation de 150 000 000 $
d’Investissment-Québec pour la vente d’avions par Bombar dier Inc., at (b) (Exhibit Cda-35). See also Décret
relativement à la vente d’avions par Bombardier Inc., at quatrième alinéa, (b) (Exhibit Cda-34).
94 See Exhibit Cda-36.
95 Brazilian First Written Submission, paras. 84-86.
96 An Act Respecting Investissement-Québec and Garantie-Québec (“IQ Act”), Art. 25 (Exhibit
Bra 18).
99 Décret 1488-2000, 20 décembre 2000, concernant une participation de 226 000 000 $
d’avions par Bombardier Inc. (Exhibit Cda-35).
100 IQ Act, Art. 28 (Exhibit Bra-18).
WT/DS/222/R

121. Thus, when Article 28 serves as the legal basis for a decree under which IQ guarantees are
provided in regional aircraft transactions, the Government of Québec “mandates” IQ to provide the
assistance described in the decree.
122. Canada also argues that IQ guarantees are not susceptible to challenge “as such” because IQ
is not required, with the provision of those guarantees, to confer a “benefit,” within the meaning of
Article 1.1(b) of the SCM Agreement. 101 This is likely a reference to the statement in Article 28 of
the IQ Act that IQ may itself “fix the terms and conditions of the assistance.” Thus, Canada appears
to argue that even if Article 28, which serves as the legal basis for the decrees under which IQ
guarantees are provided, “mandates” the provision of those guarantees, it does not mandate that the
terms of those guarantees confer a “benefit,” or in other words “terms more favourable than those
available to the recipient in the market.”102
123. This also is inaccurate. Loan guarantees are per se prohibited by item (j) to the Illustrative
List of Export Subsidies. Moreover, Brazil has noted that any time a government issues a loan
guarantee to a purchaser, the guarantee enables the recipient to borrow funds based upon the credit
rating of the Government of Québec, which, as noted above, is A+ or A2. Since this is invariably
superior to the credit rating of virtually any commercial purchaser, particularly one buying regional
aircraft, loan guarantees issued by IQ thus confer a significant benefit by allowing firms buying
Bombardier aircraft to borrow funds at a more favorable rate than would otherwise be available to
them on the market. IQ does not maintain any discretion to forego this benefit; it is automatically
dictated by the different credit ratings of the purchaser and the Government of Québec. Thus, IQ loan
guarantees confer benefits, and constitute subsidies, “as such.”
124. As discussed above with respect to the Air Wisconsin transaction, IQ equity guarantees
similarly confer a benefit, by providing a govern mental guarantee to equity investors, and thus
making equity participation more readily available to the transaction. An IQ equity guarantee
substitutes Québec’s A+ to A2 credit rating for Bombardier’s A- credit rating.
103 Indeed, even if a
governmental credit rating were no better than that of a manufacturer, such as Bombardier, a benefit
nonetheless would be conferred on Bombardier because it would remove a potential liability from
Bombardier’s books, thereby enhancing Bombardier’s credit rating. Again, IQ does not maintain any
discretion to forego this benefit; it is a function of the higher credit rating of the Government of
Québec. Thus, IQ equity guarantees confer benefits, and constitute subsidies, “as such.”
125. In its defence, Canada asserts that IQ charges fees for its guarantees. 104 While some of the
decrees included in Canada’s 6 July response to Question 9 from the Panel indeed require, as a
condition on the grant of a guarantee, that IQ charge annual fees of not less than 0.5 per cent, 105 the
most recent decree, as noted above, eliminates this condition altogether.106 In paragraph 7 of its 6 July
response to Question 14 from the Panel, Canada states that in exchange for its guarantee, “Quebec
receives both an up-front fee of [] basis points . . . as well as an annual fee equivalent to [] basis points

101 Canadian First Written Submission, para. 42 (“Nothing mandates [IQ] to provide financing that
would confer a ‘benefit’ within the meaning of Article 1 of the SCM Agreement.”).
102 WT/DS70/AB/R, para. 158.
103 Standard & Poor’s rating, as reported in “S&P affirms Bombardier rating,” The Globe and Mail ,
9 August 2000 (Exhibit Bra-63).
104 Canadian First Written Submission, para. 91; Canadian 6 July response to Question 14 from the
Panel, para. 7.
105 See Décret 1187-98, 16 septembre 1998, concernant une participation de 150 000 000 $
d’Investissment-Québec pour la vente d’avions par Bombar dier Inc., at (b) (Exhibit Cda-35). See also Décret
relativement à la vente d’avions par Bombardier Inc., at quatrième alinéa, (b) (Exhibit Cda-34).
106 Décret 1488-2000, 20 décembre 2000, concernant une participation de 226 000 000 $

. . . ” However, and as Brazil also noted with respect to EDC guarantees, Canada makes no effort, in
asserting its defence, to demonstrate that these fees are commensurate with those charged by
commercial guarantors with A+ or A2 credit rating s to firms wishing to enjoy the benefits of those
guarantors’ A+ or A2 ratings.
126. Even if Canada could show that purchasers of regional aircraft enjoy the same credit rating as
the Government of Québec, Article 14(c) of the SCM Agreement provides that a guarantee will still
confer a benefit as long as “there is a difference between the amount that the firm receiving the
guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a
comparable commercial loan absent the government guarantee.” 107 Whenever a regional aircraft
purchaser – which inevitably has a lower credit rating than the Government of Québec – receives an
IQ loan guarantee, there will be, in the terms of Article 14(c), a difference between the amount it pays
on a loan and the amount it would pay on the loan absent the IQ guarantee. If not the letter, then the
logic of Article 14(c) could similarly be applied to equity guarantees.
127. Thus, IQ is required to issue guarantees, and those guarantees will always confer benefits. IQ
guarantees therefore constitute subsidies within the meaning of Article 1.1 of the SCM Agreement.
128. With respect to export contingency, in paragraphs 98-99 of its First Written Submission,
Brazil demonstrated that IQ support for transactions involving the sale of goods such as aircraft are de
jure contingent on the export of those goods outside of Québec. Canada claims that the IQ decrees
relied upon by Brazil in those paragraphs of its submission do not apply to aircraft sales financing. 108
Those decrees most certainly do, however, apply to support for transactions involving the sale of
goods. Regional aircraft are goods. The decrees thus require that every time IQ supports the sale of
aircraft, it does so on the condition that the recipient export those aircraft outside of Québec.
Moreover, Canada overlooks Brazil’s citation to Article 25 of the IQ Act, which provides that IQ
“shall participate in the growth of enterprises, in particular by facilitating research and development
and export activities.”
109
129. Canada argues that a requirement to export outside of Québec is not equivalent to a
requirement to export outside of Canada. 110 In its Oral Statement for the first meeting of the Panel,
Brazil demonstrated that a requirement that recipients of IQ support export out of Québec is
tantamount to a requirement that they export out of Canada.111 Brazil noted that Canada’s designation
of part of its territory as ineligible for IQ support has the necessary effect of increasing the incentive
of producers to export and the likelihood that they will do so because all of their home territory is not
available to them. Canada seems to imply that, because nine of its 10 provinces remain eligible
markets for the subsidized goods, this is somehow close enough to 10 out of 10. Under Canada’s
theory, IQ support would not be considered contingent on export as long as Canada made, say, Prince
Edward Island eligible for IQ support for regional aircraft. This would subvert the export subsidy
disciplines included in the SCM Agreement. If eligibility of part, but not all, of a Member’s territory
for a subsidy is enough to remove export contingency, many small, partial domestic eligibility
designations are likely to follow rapidly. IQ guarantees are, therefore, de jure contingent on export.
B. Investissement Québec constitutes a prohibited subsidy as applied
1. Preliminary issues

107 The Appellate Body looked to Article 14 of the SCM Agreement as “relevant context” for the
interpretation of the “benefit” requirement in Article 1.1(b) of the Agreement. WT/DS70/AB/R, para. 155.
109 IQ Act, Art. 25 (Exhibit Bra-18).
111 Brazilian Oral Statement, paras. 56-62.
WT/DS/222/R

130. In paragraphs 90-91 of its First Written Submission, Brazil discussed the provision of IQ
guarantees to several Bombardier customers, including Mesa, Atlantic Southeast, Midway and
Northwest Airlines.112 The Panel noted, in Question 14 to Canada, that Canada had not denied IQ’s
involvement in those transactions.
131. While in its response to Question 14 Canada lists several Bombardier customers to which IQ
provided guarantees, in paragraph 1 of its response, it states that IQ was not involved in the Atlantic
Southeast or Northwest transactions. However, Canada does not deny that IQ’s direct predecessor,
the Société de développement industriel du Québec (“SDI”), was involved in the Atlantic Southeast
and Northwest transactions. As discussed in paragraph 82 of Brazil’s First Written Submission, in
March 1998, IQ was effectively substituted for SDI, and took over SDI’s operations in their
entirety.
113 SDI in fact administered two of the Québec decrees (concerning guarantees for
Bombardier customers) provided by Canada in response to Question 9 from the Panel. 114 Brazil
requests that the Panel inquire of Canada whether SDI was involved in the Atlantic Southeast and
Northwest transactions discussed in paragraph 91 of Brazil’s First Written Submission.
132. As a matter of simple math, the list of transactions included in Canada’s response to
Question 14 cannot be complete. IQ spokesman Jean Cyr stated that at the time of the Air Wisconsin
transaction, $300 million of a $450 million IQ fund established in 1996 to support Bombardier
transactions had been used (additional funding was added to meet Bombardier’s needs for the Air
Wisconsin transaction).115 Canada’s list includes [] aircraft, each of which received a maximum [] per
cent equity guarantee. Of those [ ] aircraft, [] received an additional [] per cent loan guarantee. If the
average price of a Bombardier aircraft is $[] million, an equity guarantee of [] per cent on [] aircraft
would equal $[] million. A loan guarantee of [] per cent on [] aircraft would be an additional $[]
million, for a total of $[] million in committed funds. Mr. Cyr, however, stated that $300 million had
been used. Canada has not accounted for this difference of nearly $[] million. Brazil requests that the
Panel ask Canada to do so.
133. Canada lists several Bombardier customers to which IQ provided guarantees; namely, Mesa,
Midway, Air Littoral, Atlantic Coast Airlines and Air Nostrum. Brazil notes, however, that Canada
has not provided the information specifically requested by the Panel with respect to those transactions.
Question 14 asks Canada to provide “all documentation regarding the review of these transactions by
IQ,” as well as “the credit ratings of the relevant airlines at the time of these transactions.” Despite
this specific request from the Panel, Canada has provided no documentation whatsoever regarding the
review of these transactions. Nor has it provided the credit ratings of the customers.
134. This information is highly relevant to the Panel’s determination whether the guarantees
provided by IQ confer “benefits,” within the meaning of Article 1.1(b) of the SCM Agreement. Brazil
has noted that IQ guarantees provide benefits by making available the superior credit rating of the
Government of Québec. Québec’s superior credit rating allows firms with lower ratings to obtain

112 IQ guarantee support was also provided to Air Wisconsin. See Brazilian First Written Submission,
para. 85.
113 See also Article 1 of the Order in Council respective responsibilities of Investissement-Québec and
Garantie-Québec, which provides that “[i]n any regulation, contract, certificate or other document, regardless of
its nature or form, a reference to the Société de développement industriel du Québec is a reference to
Investissement-Québec where it relates to,” for example, the performance of SDI’s mandate under Article 7 of
its authorizing legislation. (Exhibit Bra-62). Before IQ took over SDI’s operations in March 1998, Article 7
was cited as the legal basis for the Québec decrees regarding guarantees for Bombardier customers. See
Exhibits Cda-33 and Cda-34.
114 Exhibits Cda-33 and Cda-34.
115 “Ottawa backs Bombardier: Loan to US firm to buy jets slaps Brazil’s aerospace subsidies,” The
Montreal Gazette, 11 January 2001 (Exhibit Bra-9).

equity or borrow funds on terms better than would otherwise be available to them on the market.
Canada has failed to provide the credit ratings for the customers listed in its response to Question 14.
Brazil therefore requests that the Panel adopt adverse inferences, and presume that the information, if
provided, would have demonstrated that the credit ratings of these customers were at the time of the
transactions indeed lower than the credit rating of the Government of Québec.
135. Canada has also failed to provide any, let alone all “documentation regarding the review of
these transactions by IQ,” as specifically requested by the Panel. The documentation requested by the
Panel undoubtedly would have shed light on whether IQ guarantees conferred benefits upon those
customers (or upon Bombardier). That documentatio n would also have provided further information
about any conditions attached to the receipt of the IQ support, such as a condition that the aircraft be
exported.
136. For these reasons, Brazil requests that the Panel adopt adverse inferences, and presume that
the documentation, if provided, would have demonstrated that the IQ guarantees conferred benefits
and were contingent on export.
137. Canada has also not adequately fulfilled the Panel’s request, in Question 17, to provide
“regulations, guidelines, policies or similar documents applicable to the decision to approve specific
transactions and/or concerning the fixing of the terms and conditions of IQ support to the regional
aircraft industry.” In the first place, Exhibit Cda-51 concerns SDI, rather than IQ. Brazil notes that
when IQ took over from SDI in 1998, the Québec decrees concerning the provision of guarantees to
Bombardier customers were updated.
116 Brazil suspects that like the decrees in Exhibits Cda-35 and
Cda-36, there exists a more recent version of the “critères d’évaluation” referring to IQ and including
any modified factors, and requests that the Panel seek any such documents from Canada.
138. More importantly, the general “critères d’évaluation” included in Exhibit Cda-51 do not fulfil
the Panel’s request for regulations, guidelines, policies, etc. “concerning the fixing of the terms and
conditions of IQ support to the regional aircraft industry.” Exhibit Cda-51 does not speak to the
fixing of terms and conditions at all, let alone terms and conditions with respect to IQ support for
regional aircraft transactions. Surely some guidelines exist. Brazil requests that the Panel once again
seek this documentary evidence from Canada.
2. IQ Guarantees As Applied in the Transactions Cited by Canada Constitute
Prohibited Export Subsidies
139. As noted above, in its 6 July response to Question 14 from the Panel, Canada stated that five
Bombardier customers have received IQ equity guarantees. One of those customers also received an
IQ loan guarantee.
140. Brazil has separately addressed the IQ guarantee to a sixth customer, Air Wisconsin, in
Section IV of this submission. Although Canada does not include the IQ guarantee to Air Wisconsin
in its reply to Question 14, it acknowledged that guarantee in footnote 37 of its First Written
Submission.
141. Canada has acknowledged that IQ equity and loan guarantees, as “potential direct transfers of
funds or liabilities,” are “financial contributions.”117 Moreover, Brazil has discussed above how such
guarantees confer a “benefit” by making available Québec’s higher credit rating to help secure debt or
equity on terms better than would be available on the market in the absence of the guarantees.

116 Compare Exhibits Cda-33 and Cda-34 (which are dated 1996 and 1997, respectively, and refer to
SDI) with Exhibits Cda-35 and Cda-36 (which are dated 1998 and 2000, respectively, and refer to IQ).
WT/DS/222/R

142. In its defence, and although it has provided no documentary proof, Canada claims that IQ
charges fees for these guarantees. 118 Canada has not established, however, that these fees are
commensurate with those charged by commercial guar antors with A+ or A2 credit ratings to firms
wishing to enjoy the benefits of those guarantors’ A+ or A2 ratings.
143. Canada also claims that []. [] might mitigate IQ’s exposure, it does not mitigate the benefit
conferred by the IQ guarantee on the recipient of that guarantee. Whether IQ manages to collect
something from []. To whatever degree IQ part icipates, it contributes to the comparative
attractiveness of Bombardier’s offer.
144. In any event, it appears that the [].
145. Brazil refers to the Québec government decrees provided by Canada in response to
Question 9 from the Panel. Those decrees, provided as Exhibits Cda-33 through Cda-36, establish the
SDI/IQ guarantee program under which the guarantees discussed in Canada’s response to Question 14
were granted. The 1996 decree provided as Exhibit Cda-33, in the preamble section at page 4303
(and in the operative section at page 4204), calls for the establishment of a company, the equity of
which will be wholly-owned by SDI. The sole purpose of this company is to invest in a newly-
established “société commerciale,” which in subsequent decrees is identified as CQC.
119
146. The 1996 decree also states that the société commerciale is to be capitalized with equal
contributions from Bombardier and the company wholly-owned by SDI. Each is to contribute
$100,000 and a sum equal to 10 per cent of the net price of each Bombardier plane that receives an
SDI/IQ guarantee.
120 The 1996 decree expressly states that this capital is to be used to [] any
guarantees provided to Bombardier customers by SDI/IQ. 121 Thus, even if [] to IQ guarantees were
relevant to whether the IQ guarantees conferred a benefit on the recipient, it appears that the [] are
made by CQC, an entity that receives half of its funding from IQ itself.
147. In its response to Question 14, Canada also notes that all IQ guarantees have been provided
for terms exceeding the 10-year maximum included in the OECD Arrangement (for regional aircraft).
As discussed in paragraphs 50-54 of Brazil’s First Written Submission, terms beyond the 10-year
maximum constitute “positive evidence” of a benefit, within the meaning of Article 1.1(b) of the SCM
Agreement.
148. Finally, with respect to de jure export contingency, Brazil refers the Panel to the arguments
made above regarding IQ “as such.” Those arguments apply equally to the IQ guarantees in the
transactions cited by Canada in its response to Question 14.
149. Those IQ guarantees are also de facto contingent on export. As noted by the Panel in
Australia – Subsidies Provided to Producers and Exporters of Automotive Leather , a Member’s
awareness that its domestic market is too small to absorb domestic production of a subsidized product
indicates the subsidy is granted on the condition that it be exported.
122 Canada’s 6 July responses to

118 Canadian 6 July response to Question 14 from the Panel, para. 7.
119 Exhibit Cda-36, at point (a) of the operative section; Exhibit Cda-35, at point (a) of the operative
section.
120 The contributions are capped at $24 million.
121 Exhibit Cda-33, at pg. 4203 (“[L]e capital social [de la société commerciale] sera destiné à contre-
BOMBARDIER INC. (ou en faveur d’entités ou fiducies intermédiaires à but unique formées au pays ou à
l’étranger) . . .”).

the Panel’s questions illustrate its awareness that its domestic market cannot, and as a matter of
historical fact has not, supported Bombardier’s production of regional aircraft. Canada notes that
96.4 per cent of Bombardier’s regional aircraft have been sold outside of Canada, 123 and that 100 per
cent of the regional aircraft transactions receiv ing IQ support have been for export outside of
Canada.124 IQ guarantees are, therefore, also de facto contingent on export.
150. Brazil also notes that Canada’s failure to comply with the Panel’s request in Question 14 for
“all documentation regarding the review of these transactions by IQ” makes it difficult for the Panel
and Brazil to determine whether the IQ guarantees were in fact conditioned on export. Brazil
reiterates its request that the Panel adopt adverse inferences, and presume that the documentation
withheld by Canada would establish that the IQ guarantees were contingent on export, within the
meaning of Article 3.1(a) of the SCM Agreement.
VI. COMMENTS ON CANADA’S RESPONSES TO QUESTIONS BY THE PANEL
151. Brazil received Canada’s responses to the Panel’s questions on Friday, 6 July 2001, but
because of logistical difficulties faced by Canada, did not receive Canada’s exhibits to its responses at
the Brazilian Mission in Geneva until Tuesday, 10 July 2001. Accordingly, Brazil has not had
adequate time to review those responses fully, and will have additional comments in its statement at
the second meeting of the Panel later in greater detail on Canada’s answers. For the moment, Brazil
has commented on some of Canada’s responses th roughout this submission, and also adds the
following brief comments.
152. Canada’s definition of the “market” in response to question 4(b) appears inconsistent with its
justification of its matching Embraer’s offer to Air Wisconsin in question 10. In response to
question 4(b), Canada states that the market “includes banks, other commercial financial institutions
and the public bond market, but does not include export credit agencies.” This is consistent with other
statements of Canada’s which defined the market as what the borrower has recently paid in the market
for similar terms and security. Canada has also repeatedly stated that the appropriate financing rate
for borrowing airlines must be determined by refe rence to the airline’s credit rating rather than the
terms of particular transactions.
125 In response to question 10, however, Canada takes the position
that a single offer by Embraer is, by itself, the “market” apparently regardless of what the “banks,
other commercial financial institutions and the public bond market” listed in question 4 might do.
Canada fails to acknowledge that Embraer’s offer to Air Wisconsin may itself have been below the
“market.” Canada’s definition of the “market” in question 4, in contrast, is consistent with Minister
Tobin’s assertion, noted by the Panel in question 10 and to which Canada does not directly respond,
that Canada’s Air Wisconsin transaction was “a better rate than one would normally get on a
commercial lending basis.”
153. In question 23, the Panel asked Canada to identify how many transactions involving the sale
of Bombardier aircraft since 1995 have been “financed in the commercial market, i.e. without any . . .
form of government assistance.” In response, Ca nada states that “[]% of Bombardier’s order book
was financed in the commercial market.” Canada’s answer is not clear, however, in that Canada has

123 Canadian 6 July response to Question 20 from the Panel. Although Canada does not provide data
to support its claim, a good portion of the 3.6 per cent domestic sale figure involved deliveries to Air Canada.
The sale to Air Canada, however, was described by former EDC President Paul Labbé as an export sale. To
justify the receipt of support from EDC – the Export Development Corporation – the Air Canada sale was made
through an SPC established in the United States. The aircra ft were in turn provided to Air Canada under a lease
arrangement with the SPC, but since they were sold via a US entity, they qualified for treatment as an export
transaction within EDC’s mandate. WT/DS70/R, para. 6.112.
124 Canadian 6 July response to Question 19 from the Panel.
125 See, e.g., WT/DS46/RW, Annex 1-3, Oral Statement of Canada, para. 79.
WT/DS/222/R

previously defined the “commercial market” to include Canadian government support provided
through so-called “market window” operations. 126 For this reason, the Panel should seek additional
clarification as to how many Bombardier transactions were financed in the commercial market,
exclusive of any transactions in which Canadian government entities participated on a “market
window” basis.
VII. CONCLUSION
154. For the foregoing reasons, Brazil requests that the Panel conclude that support for the
Canadian regional aircraft industry through ED C’s Corporate and Canada Accounts, as well as
Investissement Québec, constitute prohibited export subsidies both “as such” and “as applied.”
Pursuant to Article 4.7 of the SCM Agreement, Brazil further requests a recommendation from the
Panel that Canada withdraw these subsidies without delay.

126 See, e.g., paragraph 3 of Canada’s answer to question 4: “EDC can and does participate in
financing arranged by commercial banks on market terms.”

ANNEX A-11
RESPONSES OF BRAZIL TO QUESTIONS FROM THE PANEL
PRIOR TO THE SECOND MEETING OF THE PANEL
(26 July 2001)
Canada
40. Please provide the credit ratings for Air Littoral, Atlantic Coast Airlines and Air
Nostrum at the time of the transactions referred to in Canada’s reply to Question 14 from the
Panel.
Brazil considers that the Panel’s question should also refer to Midway. Although Canada
claims that no “public credit rating” was available for Midway, surely it applied its internal credit
rating programme to gauge the risk involved in extending guarantee support valued at [] per cent of an
approximately $[] million transaction. If IQ di d not know Midway’s credit rating, Brazil wonders
how Canada can claim that IQ support for Midway is on market terms.
In Brazil’s view, the Panel should also ask fo r additional information regarding how Canada
generates the credit ratings for EDC transactions. In its response to the Panel’s Question 4, Canada
states that it generates internal credit ratings using financial modelling software. However, Canada
has provided no information regarding exactly which data is input into its database, and how the
database analyses the data. Accordingly, the Panel should ask the following questions:
Please explain in detail how the process of generating an internal rating works.
Does this process rely solely on quantitative financial data or does it involve
some subjective judgment? If non-quantitative factors are considered, please
provide these factors and explain how they were considered in the generation of
the rating.
Please provide copies of all documents from industry sources used to generate
credit ratings for the listed transactions.
41. Please provide the documentation requested in Question 14 from the Panel, particularly
in respect of the specific guarantee fees involved, and any [], or explain why such documentation
is not available.
In addition, please provide all documentation regarding the review by IQ of the Air
Littoral, Atlantic Coast Airlines and Air Nostrum transactions referred to in Canada’s response
to Question 14 from the Panel.
In Brazil’s view, the Panel’s question should also include Mesa and Midway. In response to
Question 14 from the Panel, Canada stated that IQ provided guarantees to Mesa, Midway, Air
Littoral, Atlantic Coast Airlines and Air Nostrum. Canada failed to provide “all documentation
regarding the review of” not only the Air Littoral, Atlantic Coast Airlines and Air Nostrum

transactions, but also the Mesa and Midway transactions . Accordingly, Brazil asks that the Panel
extend its request for documentation to include the latter two transactions.
Brazil also notes that Canada’s initial failure to provide documentary information specifically
requested by the Panel need not lead to renewed requests by the Panel for that information. As a
participant before the Appellate Body in the earlier Canada – Aircraft dispute, Canada is well aware
of the Panel’s authority to adopt adverse inferences in response to a refusal to provide information
requested by the Panel. Yet, Canada failed to provide that information. In Brazil’s view, Canada’s
failure justifies the adoption of adverse inferences, as discussed in paragraph 136 of its Second
Written Submission.
45. At paras. 74 and 75 of its second written submission, Brazil argues in essence that, for
the ASA transaction, “EDC financial contributions were granted on terms more favorable than
those available on the market.” Please comment.
Brazil notes that in its response to the Panel’s Question 11, Canada failed to provide any
specific information regarding the benchmarks or credit ratings used for ASA. Instead, Canada states
that it was able to impute a shadow investment grade rating for ASA based on the company’s
financial performance, which it claims to have provided in Exhibit Cda-44. However, Exhibit Cda-44
provides only the company’s net accounts receivable days for 1991/1995 and accounts payable days
for 1995. The Panel should ascertain whether these were the only financial results considered in
establishing ASA’s credit rating and, if not, obtain all of the information used to establish that rating.
Finally, Brazil notes that in its response to Panel Question 11, Canada states that although
EDC’s pricing was [] was [] approved. The Panel should ascertain whether EDC made any such
exceptions in any other regional aircraft transact ions, and if so obtain details regarding the
circumstances of such exceptions.
48. At paras 66 and 67 of its second written submission, Canada states that IQ charges an
up-front fee of [] basis points, and an annual fee equivalent to [] basis points on its effective
exposure. In addition, Canada asserts that IQ is provided with a []. In its letter of 25 June
2001, which includes details of IQ’s participation in the Air Wisconsin transaction, there is no
reference to either an annual fee, or to a []. Please explain why IQ’s participation in the Air
Wisconsin transaction does not appear consistent with the practice set forth in the
abovementioned paras 66 and 67.
In Brazil’s view, the Panel should also ascertain whether IQ takes its up-front fee of [] basis
points and its annual fee of [] basis points only on its effective exposure of [] per cent (its [] per cent
guarantee minus a counter guarantee of [] per cent) or on its entire [] per cent guarantee. The Panel
should also ascertain whether IQ has taken any equity positions in transactions in which EDC is
providing any kind of financing or support.
Brazil
49. In its rebuttal submission (para. 38), Braz il argues that “EDC’s Canada Account has
fundamentally changed since it was first considered in Canada--Aircraft”. Brazil then cites in a
footnote the Policy Directive submitted by Ca nada as Exhibit Cda-16. Please describe the
alleged change(s). Does Brazil consider that such change(s) has(ve) any impact on the nature of
the Canada Account as such, e.g., mandatory or discretionary legislation?
In paragraphs 29-39 of its 13 July Second Written Submission, Brazil cited documents such
as that included in Exhibit Cda-16 under the heading “The Panel is Not Precluded by Res Judicata
from Addressing Brazil’s Claims.” Brazil’s point was to demonstrate that even if res judicata applies

to WTO disputes, it does not apply here. This is because Brazil’s failure to establish its “as such”
claim in the earlier Canada – Aircraft dispute was a failure of proof. Brazil’s current “as such” claim
is based upon proof and argument that was not before the Panel in the earlier Canada – Aircraft
dispute.
In its 6 July responses to Questions 8 and 9 from the Panel, Canada provided a series of legal
instruments regarding the creation, funding, opera tion and administration of EDC’s Canada Account.
Those documents are included in Exhibits Cda-15 through Cda-24. Although some of those
documents are not dated, the date provided on several of them indicates that they were issued or
modified subsequent to the Panel’s ruling in Canada – Aircraft , which was circulated on
14 April 1999.1 For example, Exhibit Cda-16 is dated 18 November 1999, and Exhibit Cda-17 is
dated 29 December 1999 and 15 November 1999.
Both Exhibit Cda-17 and the Appendix to Exhibit Cda-16 include a “policy guideline” that is
relevant to Brazil’s “as such” claim. Before the Article 21.5 Panel in Canada – Aircraft , Canada
stated that under this policy guideline, “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) . . .”
2 Thus, Canada acknowledged that without the policy guideline and
the safe haven of item (k), Canada Account support would constitute a prohibited export subsidy.
The Article 21.5 Panel determined that the policy guideline was not sufficient to qualify
Canada Account support for the safe haven. 3 By Canada’s own admission, without the protection of
the safe haven, Canada Account support constitutes a prohibited export subsidy. Thus, it is the failure
of the policy guideline included in Exhibits Cda-16 and Cda-17 that speaks to the nature of EDC’s
Canada Account “as such.”
Brazil notes, however, that this policy guideline is not the only argument and evidence
supporting its “as such” claim against the Canada Account. The Panel will recall that EDC uses the
Canada Account only when the terms of its support would not be consistent with “what the relevant
borrower has recently paid in the market for similar terms and with similar security,” and thus could
not be provided through the Corporate Account. 4 Canada Account support is, therefore, apparently
not consistent with what Canada deems to be the market, and thus confers a benefit and constitutes a
subsidy. Moreover, Brazil has argued to this Panel that Canada Account loan guarantees constitute
subsidies “as such,” since they enable a recipient to secure funds on terms otherwise only available to
a recipient, like the Government of Canada, with a AAA credit rating. Every use of the Canada
Account will in these respects necessarily result in a subsidy. Further, Canada’s support of
Bombardier’s sale to Air Wisconsin u tilising Canada Account, a violation adm itted by Canada, not
only is an instance of Canada Account “as applied” but an example of how Canada Account, “as
such,” operates.

1 WT/DS70/R (Adopted as modified by the Appellate Body, 20 August 1999).
2 Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of
the DSU, WT/DS70/RW (Adopted as modified by the Appellate Body 4 August 2000), para. 5.61.
3 Id., para. 5.148. The Article 21.5 Panel was necessarily reviewing compliance of the Canada Account
“as such” with the SCM Agreement. Review under Article 21.5 of the DSU is limited to measures taken to
comply with the recommendations and rulings of the DSB. Canada Account “as applied” in particular
transactions would not be subject to review under Article 21.5.
4 The standard for EDC Corporate Account support is included in Canada’s First Written Submission,
dated 18 June 2001, at para. 67.

50. At para. 75 of its second written submission, Brazil refers to the US dollar prime rate,
and the CIRR, as of the date of its submission. Why is current data relevant for the purpose of
assessing transactions dating from March 1997 and August 1998?
Brazil referred to the U.S. dollar rate and the CIRR as of the date of Brazil’s submission
simply for illustrative purposes. The main points of paragraph 75 are first, that the CIRR is calculated
as 100 basis points above the seven-year U.S. Treasury rate, and that by providing financing at T-bill
plus [], Canada’s financing was presumptively below the market. More importantly, Canada’s
financing to ASA does not appear to reflect any risk premium associated with the airline’s credit
rating. Canada has previously stated that “in financing transactions, the credit risk premium is as
important a constituent element of the final interest rate paid by a purchaser as the base to which the
premium would be added.”5 Moreover, Canada has previously stated that the applicable risk premia
for airlines such as Northwest and US Air are in the range of the 10-year U.S. T-bill plus 250 basis
points, and that these airlines “enjoy credit standings significantly better than a number of airlines in
the industry. Airlines that are less credit-worthy can face spreads as high as 350 bps.”6 Presumably, a
small airline such as ASA would have a higher credit risk than US Air or Northwest. Brazil also
notes that the offer provided to ASA (Exhibit Cda-43) states []. This appears to be a further
illustration of how this transaction was on below-market terms.
51. Regarding para. 78 of Brazil’s rebuttal submis sion, is financing based on a floating rate,
e.g. LIBOR, unavailable in the commercial market? In addition, Brazil argues that “the margin
added to LIBOR, a mere [] for a borrower that Exhibit Cda-39 reveals is rated, by Canada’s
own “LA Encore” system, as [], is below market by any reasonable definition.” On what
ground can Brazil argue that it is “below market”? In answering this question, please respond
to Canada’s Rebuttal, para. 40, in particular its argument that “EDC participated in the
Kendall transaction, a public offering, on an e qual risk-sharing basis with seven commercial
banks”.
While Brazil is aware of officially-supported floating rate transactions in the large aircraft
sector, Brazil is not aware of any floating rate transactions in the regional aircraft sector that are not
supported by government export credit agencies (whether or not acting through so-called “market
windows”), and therefore cannot state with certainty that such financing is available in the
commercial market.
Brazil notes further that floating rate transactions are not protected by the safe haven of
item (k) of Annex I to the SCM Agreement. The Article 21.5 Panel in Canada – Aircraft stated that:
[I]t would appear that the safe haven could only be potentially available to those
specific kinds of official financing support to which the CIRRs . . . apply, given that
these are the only existing systems of minimum interest rates under the Arrangement.
. . . 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 transactions. Thus, we conclude that only official

5 Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU,
WT/DS46/RW (Adopted as modified by the Appellate Body, 4 August 2000), Annex 1-3, Oral Statement Of
Canada, 3 February 2000, para. 79.
6 WT/DS46/RW, Annex 1-3, Oral Statement Of Canada, 3 February 2000, chart 3 (submitted with
Exhibit Cdn-14 to the Canadian Oral Statement) (attached as Exhibit Bra-64).

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.7
Brazil notes that Canada has not explained how its LA Encore system generates credit ratings,
either by providing the input (the data used to generate the ratings) or the output (the ratings
themselves) that this programme generates. The mere fact that Canada uses a computer programme
that may also be used by commercial banks establishes nothing about how Canada uses that
programme, or whether it generates (and Canada then uses) ratings that fully reflect all commercial
risks associated with the transaction.
The margin of LIBOR plus [] bps for a borrower rated [] by Canada’s programme is [] by
Canada’s own definitions. Canada has previously stated that LIBOR-based floating rates can be
translated into equivalent U.S. T-bill-based fixed rates by adding a “swap spread” of approximately of
[] to the LIBOR-based rate.
8 Thus, for example, Canada has stated that “British Airways, which is the
best rated non-sovereign airline, obtains rates of LIBOR + 30 to 40 bps for large aircraft deals (an
additional 20-30 bps should be added for regional aircraft, even for clients with British Airways’
credit rating. This translates to T + 105-120 (+125-150 for regional aircraft)” when the swap spread is
added.9
Canada has also stated that “[f]or the last nine years, the average yield spread for AAA credits
has been approximately the 10-year Treasury Bond rate plus 43 basis points; and no airline enjoys
such a rating,”10 and that “in December 1999, a representative sample of airline companies operating
in the US market obtained financing at T+110 to 250 basis points,”11 and finally that the “interest rate
payable by a borrower with a particularly poor credit rating may be in excess of T + 350 basis
points.”12
Thus, in Canada’s own words, the appropriate spread for the best-rated airline for a regional
jet transaction would be either LIBOR + 50-70 bps (floating rate) or T-bill plus 125-150 bps (fixed
rate transactions). For a “representative” airline with a credit rating ranging from AAA to BBB-, the
appropriate spread would be up to T-bill + 250 bps, which, adjusting for the swap spread, translates
into a floating rate spread of LIBOR + 170 bps. An airline with a poor credit rating, such as BB,
would have a credit rating “in excess of T + 350 bps” – which translates into LIBOR + 270. []
13
Regarding the terms of the Kendell transaction, Br azil notes that Canada’s statement that the
transaction was on an “equal risk sharing basis” does not appear to be fully accurate. As a threshold
matter, Brazil notes that Canada has not to date pr ovided the actual loan agreement. Instead, Canada
has simply provided executive summaries regarding the anticipated terms of the deal. These terms
may, of course, have changed significantly before final signature.

7 Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of
the DSU, WT/DS70/RW (Adopted as modified by the Appellate Body, 4 August 2000), paras. 5.101-102.
8 WT/DS46/RW, Annex 1-2, Rebuttal Submission of Canada, 17 January 2000, para. 40, note 24.
9 WT/DS46/RW, Annex 1-2, Rebuttal Submission Of Canada, 17 January 2000, para. 51, note 26.
10 WT/DS46/RW, Annex 1-5, Canada’s Comments on Brazil’s Responses to Questions of the Panel,
17 February 2000, paras. 10-11 (Comment on Brazil’s response to Question 9).
11 Id.
12 Id.
13 Based on the information provided by Canada in its 6 July 2001 response to the Panel’s questions, it
appears that the Kendell transaction was completed in the months immediately after July 1999. The information
provided by Canada in the Brazil – Aircraft case regarding swap spreads and credit ratings for various airlines
was stated to be current as of December 1999 – very close in time to the date of the Kendell transaction.

In any event, it appears that EDC funded [] per cent of the transaction, with the other [] per
cent spread among four other underwriters. 14 While seven banks were originally contemplated as
participating in the deal, three of the banks appear to have pulled out.15 This would suggest that these
banks considered the deal to be too unprofitable, or too risky, for their participation.
Several issues regarding the Kendell deal rema in unresolved by the information provided by
Canada. Would the commercial banks have been willing to finance the entire loan amount of the
transaction on their own without the participation of a government export credit agency? Certainly,
the larger the amount of the loan, the higher the risk and therefore the higher the interest rate? Was
EDC’s participation essential, therefore, in order to make the deal work?
Canada submits that two of the other banks “set the terms” of the deal. However, it seems
inevitable that those banks did so in the full knowledge that EDC was likely to be the major
participant. Thus, the terms that those banks were likely to set were influenced by EDC’s
participation, to Kendell’s and Bombardier’s advantage. This is shown by the fact that EDC appeared
to be initially willing to finance up to [] per cent of the purchase price of the aircraft, whereas the
banks were willing to support only [] per cent of the financing amount. 16 This shows that EDC was
willing to participate on terms more generous than the commercial banks.
While it appears clear that the Kendell transaction was on terms more favourable than
available in the market, the Panel should nevertheless request that Canada provide the following
additional information to the Panel:
Please provide the final, signed financing agreement for the Kendell transaction.
Were any of the participating banks aw are of EDC’s participation before the
terms of the deal were set?
Why did three of the original seven banks decide not to participate in the deal?
Why, in light of EDC’s [] per cent participation, does Canada consider the deal
to be on an equal risk-sharing basis?
Please provide details regarding any fees received by [] for syndicating the loan.
Did EDC enter into any agreements of any kind with [] or any of the banks
involved in this deal that would in any way affect the risk borne by EDC or any
of the banks in this deal?
Did EDC and the participating banks participate in pari passu with respect to
every term and condition of the deal? Were there any differences in the nature
and extent of the risk assumed by EDC and the participating banks? Which
entity assumed the risk of repossessio n? Which entity assumed the risk of
cancellation of any orders for aircraft?

14 Exhibit Cda-39.
15 Canada’s answer to Question 11 from the Panel lists seven institutions originally intended to
participate (though Canada counts only five), whereas the documents provided in Exhibit Cda-39 (pg. 2) lists
four banks participating in addition to EDC.
16 Exhibit Cda-39 (pg. 3).

The answers to these questions would provid e much clearer information regarding EDC’s
participation in the Kendell transaction, and in particular, whether that participation was on terms that
constitute a “benefit.”
52. In what respects does Brazil believe that Bombardier’s offer cannot qualify as
“matching offer” under the OECD Arrangement? In particular, in para. 89 of its second
written submission, Brazil argues that “[e]ven if ‘non-identical’ matching were permitted in this
case, however, Canada bears the burden of showing that its ‘non-identical’ offer included
financial terms that were economically equivalent to Embraer’s offer.” Is it Brazil’s view that
“economic equivalence” is the test to dete rmine whether an offer can qualify as a valid
“matching” under the OECD Arrangement? If yes, please explain why.
Canada’s offer cannot qualify as a “matching offer” under the OECD Arrangement because it
does not comply with specific obligations included in the Arrangement with respect to matching.
Most importantly, as Brazil has repeatedly observed, Canada did not fulfil its obligation,
under Article 53 of the Arrangement, to “make every effort to verify” that terms allegedly not
conforming with the Arrangement were “officially supported.” Had it done so, with a simple request
to Brazil, it would have discovered that support from Brazil was neither requested nor granted.
Embraer’s offer to Air Wisconsin was completely on its own account.
Even if Brazilian support had been involved, Brazil explained in its answer to the Panel’s
Question 36 that the terms and conditions of Canada’s offer to Air Wisconsin are self-evidently not
“identical” to the terms of Embraer’s offer. The question then is whether Canada may offer terms and
conditions that while not actually identical, nevertheless “match” the competing offer in that they
result in essentially the same financial terms. As Brazil explained in its answer to Question 36,
Article 52 of the OECD Arrangement permits such non-identical matching with respect to non-
notified, non-conforming terms and conditions offered by another Participant in the Arrangement.
However, Article 53, which regulates matching of non-conforming terms and conditions offered by a
non-participant, does not envisage non-identical matching. As a legal matter, therefore, Canada
would not appear to be permitted under the Arrangement to engage in non-identical matching of
Embraer’s offer to Air Wisconsin.
Therefore, even if recourse to matching did maintain “conformity with” the interest rates
provisions of the Arrangement – which Brazil and the Article 21.5 Panel in Canada – Aircraft believe
is not the case – Canada has not complied with the matching requirements as set out in the
Arrangement.
Brazil reiterates its statement in its Second Written Submission that, if non-identical matching
of a non-participant’s offer were permitted, Canada would bear the burden of establishing that its non-
identical offer “matched” Embraer’s offer. Canada is, after all, claiming recourse to the affirmative
defence included in the second paragraph of Item (k) to the Illustrative List of Export Subsidies. As
the Panel notes, Brazil in its submission stated that Canada would thus have to show that its non-
identical offer provided terms that were economically equivalent to Embraer’s offer. Brazil does not
see the term “economically equivalent” as the sole term of legal art for the standard that the Panel
must follow. It is simply the dictionary meaning of the term “match.” Brazil believes that the term
“economically equivalent” fairly summarises the applicable standard, which is that Canada’s non-
identical offer, to “match” Embraer’s offer, must result in the same or equivalent financial or
economic terms. Canada itself states, at paragraph 103 of its Second Written Submission, that
“[m]atching, by definition, implies equal or similar attributes.” If this were not the case, the result
would be undercutting, which Canada confirms at paragraph 102 of its submission is not permitted by
the Arrangement.

Even assuming, arguendo, (i) that Embraer’s offer involved “official support” from Brazil,
(ii) that Canada complied with the specific requirements regarding matching included in the OECD
Arrangement, and (iii) that recourse to matching maintains “conformity with” the interest rates
provisions of the Arrangement, Canada has not established that its offer to Air Wisconsin did not
undercut Embraer’s offer. Brazil has gone one step further, by explaining in its 6 July response to
Question 34 of the Panel, and in paragraphs 89-93 and 102-118 of its Second Written Submission,
why the terms of Canada’s Air Wisconsin deal were more favourable than any offer made by
Embraer, and hence cannot be said to “match” any such offer.
53. Regarding paras. 52 and 125 of its second written submission, is Brazil of the view that
EDC and IQ guarantee fees are lower than thos e charged by commercial guarantors with AAA
(for EDC) or with A+ or A2 (for IQ) credit ratings to firms wishing to enjoy the benefits of those
guarantors? If yes, please explain why and how. In doing so, please explain how account
should be taken of any [].
Canada has simply stated that a fee is charged for the guarantees in question. Canada, which
is in sole possession of the information, has not explained how the amount of those fees was
determined. Since Canada has raised fees as a defence to Brazil’s claim that IQ guarantees confer
benefits, it is Canada’s burden to provide this information.
With regard to fees for loan guarantees, another arguable defence, under an a contrario
interpretation of Item (j) of Annex I to the SCM Agreement, would be that fees sufficient to cover the
long-term operating costs and losses of the guarantee programme are sufficient to exclude such a
measure from the prohibitions of Article 3. It would be up to the party invoking any protection
afforded by Item (j), however, to establish its eligibility for any such protection. Canada has not even
attempted to do this.
Moreover, there is no Item (j) equivalent for equity guarantees. Brazil has also presented
unrebutted evidence that the market does not offer these guarantees. Exhibit Bra-50 includes letters
from leading financial institutions stating that equity guarantees are not offered on the market. Thus,
with regard to equity guarantees, Brazil has establ ished that Canada is offering something that the
market does not provide, apparently at any price. This, in Brazil’s view, is quintessentially a benefit.
Even assuming for the sake of argument that the market might provide equity guarantees at some
price, it would be up to Canada to show (1) that the price it charges is equal to or more than the
market price and (2) that the market price is that of a guarantor whose credit rating is equal to or
better than that of Canada or Québec, as the case may be.
With respect to [], please see Brazil’s comment on Question 48, above, as well as paragraphs
143-146 of Brazil’s Second Written Submission.

ANNEX A-12
ORAL STATEMENT OF BRAZIL AT THE
SECOND MEETING OF THE PANEL
(31 July 2001)
Mr. Chairman, Members of the Panel, Members of the delegation of Canada,
1. In its submissions thus far in these proceedings, Brazil has presented evidence that subsidies
provided by Canada through the Canada Account and the Corporate Account of the Export
Development Corporation, and subsidies provided by Canada through the Province of Québec, are
prohibited by Article 3 of the Subsidies Agreement.
2. The public record, however, contains only fragments of the relevant information, and during
the several years in which the dispute between Brazil and Canada has taken place, Canada has
steadfastly refused to provide relevant information. Indeed most of the information Brazil was able to
obtain came from third country sources where cu stomers of Bombardier, the Canadian aircraft
manufacturer, were required to disclose aspects of their finances to public investors. Very little came
from Canada itself.
3. Thanks to the efforts of this Panel in taking its responsibilities under Article 13 of the DSU
seriously, however, that situation has changed. You have asked the questions that needed to be asked,
and Canada finally has come forth with information that should have been either notified to the
Subsidies Committee long ago or provided to Brazil in consultations, consistent with the Appellate
Body’s requirement that Members be “fully forthcoming” at all stages of WTO dispute settlement
proceedings.
1
4. The bulk of that information was provided by Canada in its response to Questions from the
Panel filed on Thursday, 26 July. In the two busine ss days afforded to review that information, our
team has been working ceaselessly in an effort to analyze it in the context of the issues presented in
this dispute. There is much information, some of which, as I shall point out, raises even more
questions.
5. Responding to this information, which we are seeing for the first time, will take some time,
but we think it is important that we be as complete as possible. So I apologize in advance for the
length of this statement.
6. This statement is organized in the following manner. In rebuttal to arguments made by
Canada, I will show why EDC’s Canada Account and Corporate Account confer a benefit, why the
guarantees provided by IQ confer a benefit, why the guarantees provided by EDC and IQ are
prohibited subsidies, and why IQ is contingent on export. I then will discuss specific transactions
supported by the challenged Canadian programmes, beginning with the Air Wisconsin transaction.

1 India – Patent Protection for Pharmaceutical an d Agricultural Chemical Products, WT/DS50/AB/R
(Adopted 16 January 1998), para. 94.

7. Before I proceed, however, Mr. Chairman, I would like to make a preliminary point. In
footnote 1 of its Second Submission, Canada asks Brazil to clarify whether by referring to “EDC,”
Brazil intends to refer to anything other than EDC’s Corporate Account. Brazil is not aware that EDC
has any operations other than Canada Account and Corporate Account, both of which are the subject
of Brazil’s claims. Canada’s First Written S ubmission, at paragraph 20, describes EDC in these
terms. If any other operations exist, however, Brazil, and, I am sure, the Panel, would be very
interested to learn of them.
I. EDC Confers a Benefit
8. Canada has not contested that support via either the EDC Corporate or Canada Accounts is a
financial contribution that is contingent on export. Canada has argued, however, that EDC Corporate
and Canada Account support does not confer a benefit.
9. In response to Question 44 from the Panel, Canada argues that Bombardier’s inability to make
equally attractive financing available to its customer in the absence of EDC support is irrelevant.
According to Canada, it is the purchaser of Bombardier aircraft, not Bombardier itself, that requires
financing. In Canada’s view, the financial contribution is made to the purchaser, so, therefore, the
sole issue is whether the purchaser – the recipient of the financing – received a benefit.
10. Canada’s argument is flawed. Nothing in the text of Article 1.1(b) of the Agreement suggests
that there must be only one recipient of the benefit. That article does not read: “a benefit is thereby
conferred on the recipient of the financial contribution .” It states simply, “a benefit is thereby
conferred,” meaning, conferred on anyone.
11. EDC’s financial contribution allows Bombardier to offer its customers a product on terms
more favorable than the terms it could afford to offer without EDC’s support. A benefit is conferred
on Bombardier because, as a result of the financial contribution made through EDC, the necessity for
Bombardier to lower its price in order to win customers is eliminated or reduced. The Panel in Brazil
– Aircraft recognized that a financial contribution provided to a purchaser or a lender in support of an
export credit transaction also benefits the producer. That Panel said:
We note that PROEX III payments are made in support of export credits extended to
the purchaser, and not to the producer, of Brazilian regional aircraft. … [These]
payments allow the purchasers of a product to obtain export credits on terms more
favourable than those available to them in the market … [T]his will … confer a
benefit on the producers of that product as well, as it lowers the cost of the product to
their purchasers and thus makes their product more attractive relative to competing
products.
2
12. Canada’s claim that EDC’s Corporate Account operates “on commercial principles” has no
bearing on this conclusion. In spelling out an alleged market benchmark in paragraph 67 of its First
Written Submission, Canada focuses unduly on its claim that Bombardier customers do not receive
“benefits” from EDC Corporate Account support. In so doing, it ignores a key beneficiary of the
transactions – Bombardier itself, which uses EDC because it cannot find equally favourable financing
elsewhere.

2 Brazil – Export Financing Programme for Aircraft – Second Recourse to Article 21.5 of the DSU ,
WT/DS46/RW/2 (26 July 2001) (Not yet adopted), para. 5.28 (note 42) (emphasis in the original).

II. The Guarantees Provided by IQ Confer a Benefit
A. The guarantee fees charged by IQ are not “at market”
13. As with EDC, Canada claims that IQ charges “market” fees for its guarantees. Canada
argues, in its answer to Question 47 from the Panel, that the guarantee fees charged by IQ are at the
market rate because “the effective risk exposure of IQ,” which “is key to the determination of what
constitutes an appropriate fee,” “is greatly diminished” as a result of [ ].3
14. There are a number of points to be made with respect to that argument. First, []. By
providing guarantees to the borrower, IQ facilitates more favourable financing terms because of
Québec’s superior credit rating, thus conferring a benefit. This is what “sweetens” the deal for the
purchaser of Bombardier aircraft, and therefore, for Bombardier itself. That IQ might be provided []
is irrelevant to the question of “benefit.”
15. The Air Wisconsin transaction provides a perfect illustration of Brazil’s point. By Canada’s
own admission, the [] “is not part of the offer to Air Wisconsin” because the [].”
4 When the purchaser
goes to a lender or looks for equity investors with an IQ guarantee, the lender or the investors see only
the full [] per cent IQ guarantee backed by the credit rating of the Government of Québec. The []
might mitigate IQ’s exposure, but does not reduce the benefit to purchasers and Bombardier.
16. Second, contrary to Canada’s assertions, it appears that the []. As Brazil has explained in
paragraph 144 of its Second Written Submission, the [] appear to be issued by Canadair Québec
Capital (“CQC”), a company capitalized in equal parts by Bombardier and a company wholly-owned
by IQ. Thus, the [] to the IQ guarantee is made by an entity that receives part of its funding from IQ
itself. In paragraph 3 of its response to Question 48 from the Panel, Canada refers to Decree 879-97
of 1997 in support of the proposition that []. However, the provision referred to by Canada relates to
the capitalization of CQC. Further, a subsequent decree, Decree 1187-98 of 1998, makes it clear that
the [] must be provided not by [] but by CQC, a company created specifically for that purpose.
5 []
17. In this regard, Brazil would also like to point out the significance of Bombardier’s
involvement in the guarantees provided by IQ. The activities of IQ and Bombardier are intertwined to
a very significant extent. Together, they formed CQC for the purpose of providing [] against IQ’s
guarantees to Bombardier and otherwise facilitating Bombardier’s activities. Bombardier, as a [],
obviously has an important role in determining the terms and conditions for the provision of the []
and, therefore, has an influence on the terms and conditions of the provision by IQ of the guarantees
themselves. In fact, through CQC, IQ and Bomb ardier are business partners for the purpose of
supporting and facilitating the export of regional aircraft.
18. I would like to point out, in addition, that at paragraph 117 of Canada’s Second Written
Submission of 4 December 1998 in Canada - Aircraft , Canada stated that none of the guarantees or
financing activities under the “export development” eligibility criterion of SDI (which became IQ in
1998) was related to the civil aircraft sector.
6 In this case, however, Canada has been compelled to
provide documentation demonstrating not only that IQ has, in fact, been used to assist the Canadian
regional aircraft industry, but that assisting the Canadian regional aircraft industry is one of the major
functions of IQ and that IQ works very closely with Bombardier to that effect – and apparently was
doing so prior to December 1998.

3 Canadian 26 July response to Question 47 from the Panel, para. 2.
4 Canadian 26 July response to Question 48 from the Panel, para. 3.
5 Decree 1187-98, pg. 1, para. (a) (Exhibit Cda-35).
6 See Statement of Brazil for the First Meeting of the Panel, para. 72 and Exhibit Bra-52.

19. Third, Canada argues, in paragraphs 3 and 4 of its response to Question 47 from the Panel,
that “[] per cent of the aircraft being financed are financed without IQ equity guarantees,” which
“demonstrates that most of the time, Bombardier’s customers are, at best, indifferent to IQ equity
guarantees.” The conclusion drawn by Canada is that “the fees charged by IQ in return for the
guarantees are market rate.”
20. Canada’s logic is flawed. The fact that [] per cent of the aircraft being financed are financed
without IQ equity guarantees is irrelevant. What ma tters is the terms of IQ equity guarantees in the
cases where they are provided, whatever the percentage of those cases is. Brazil has shown that IQ
confers a benefit whenever it provides a guarantee. Moreover, as Canada has explained in its
response to Question 39 from the Panel, IQ has used virtually all of the funds available in its budget
for support of the Canadian regional aircraft industry. Presumably, if IQ had a larger budget for that
purpose, more funds would have been used to provide equity guarantees. In fact, in December 2000,
the IQ fund for regional aircraft support was replenished to support the Air Wisconsin transaction.
7
21. Fourth, Canada states that “IQ provides financing services in competition with other
financial institutions interested in participating in the aircraft financing market.” 8 However, Canada
fails to specify what the financing services ar e and who the other competing financial institutions
might be. Canada further asserts that the administrative fee charged by IQ “is routinely charged by
any commercial financial institution.” 9 This is a hollow assertion. We know of no commercial
financial institutions that provide equity guarantees, and have submitted unrebutted evidence in
Brazilian Exhibit 50 that equity guarantees are not available in the market. In order to refute Brazil’s
argument that IQ’s equity guarantees confer a benefit, Canada must show that other financial
institutions provide equity guarantees in the field of aircraft financing and charge fees equivalent to
the fees charged by IQ. Canada has not done so. It has merely pointed out that suppliers of aircraft
engines sometimes contribute to equity guarantees for aircraft that use their engines. But this is a
guarantee furnished by a participant in the sale. It is not a guarantee that is available from a financial
institution in the market.
22. Moreover, the most recent Québec decree, which was issued in 2000 to replenish the IQ
guarantee fund for the Air Wisconsin transaction, eliminates the requirement that fees even be
charged.
10 Nevertheless, Canada still argues that in fact fees are charged. It relies on paragraph B of
the IQ criteria set out in Canadian Exhibit 51, which requires that “IQ will not make support available
for transactions if the remuneration it is to r eceive is less than that offered in the market.” 11 A closer
look at paragraph B, however, demonstrates otherwise. According to paragraph B, if the “competitive
nature” of the transactions requires that IQ receive less than it would in the market, it will do so.
Given Canada’s propensity, in the Air Wisconsin transaction, and now the recently-announced
Northwest deal, to justify Canadian subsidies based on competition from Embraer, this clause in
paragraph B takes on great significance.
23. The standard provided in paragraph B once again begs the question of what Canada considers
the “market” to be when it comes to guarantees. As we will show below in our discussion of specific
transactions, IQ has provided guarantees with no fees charged, and, when it has charged fees, it
uniformly charges [] per cent regardless of the credit ratings of the airlines involved. It is hard to
trace in this pattern any effort to follow a market. No market guarantor would charge the same fee to
recipients with wildly varying credit ratings.

7 “Ottawa backs Bombardier: Loan to US firm to buy jets slaps Brazil’s aerospace subsidies,” The
Montreal Gazette, 11 January 2001 (Exhibit Bra-9).
8 Canadian response to Question 47 from the Panel, para. 4.
9 Canadian 26 July response to Question 48 from the Panel, para. 2.
10 Decree 1488-2000 (Exhibit Cda-36).

24. As I have already noted, IQ guarantees will automatically confer a benefit by providing a
purchaser with the Government of Québec’s superior credit rating, permitting it to obtain better
financing than it could obtain on its own. To demonstrate that there is no benefit, Canada would have
to prove that IQ’s fees are equal to those charged regional aircraft purchasers by commercial
guarantors with A+ credit ratings. Under Article 14(c) of the Subsidies Agreement, there would still
be a benefit as long as there is a difference between the amount the purchaser pays on a loan
guaranteed by IQ, and the amount it would pay on a loan not guaranteed by IQ.
B. IQ is not a discretionary measure
25. In paragraphs 25 and 28 of its Second Written Submission, Canada argues that even if IQ
were required to confer a benefit with its guarantees, it is not “mandated” to provide those guarantees.
According to Canada, IQ merely enjoys the discretion to provide guarantees. Brazil has demonstrated
that this is not true. Article 28 of the IQ Act, which serves as the legal basis for the Québec decrees
under which IQ guarantees are issued, “mandates” IQ to provide assistance.
12 I note, Mr. Chairman,
that Canada has not made this argument with respect to EDC Corporate or Canada Account
guarantees.
26. In any event, the type of “discretion” discussed by Canada is not relevant under the traditional
mandatory-discretionary distinction. This “discretion” does not remove IQ guarantees from the
category of mandatory measures susceptible to challenge “as such.” In an analogous situation, the
GATT panel in EC – Audio Cassettes held that an antidumping measure would not be transformed
into a discretionary measure merely because the administering authorities in a country had the
discretion to initiate an antidumping investigation.
13 Similarly, any option IQ has to issue or not issue
guarantees does not make the measure discretionary.
27. I also refer the Panel to the recent decision in US – Exports Restraints. The Panel in that case
noted that “a measure is inconsistent with WTO rules if that measure mandates action inconsistent
with WTO rules in particular circumstances, even if in other circumstances the action might not be
inconsistent with WTO rules.” 14 Analogously, in the “particular circumstances” where IQ issues
guarantees, Brazil argues that those guarantees will always be inconsistent with WTO rules, even if in
the “other circumstances” when IQ does not issue guarantees, it would not be acting inconsistent with
WTO rules.
III. While Not Every Financial Contribution by a Government Agency Is a Prohibited
Subsidy, Guarantees Provided by EDC and IQ Are Prohibited Subsidies
28. Brazil has shown that EDC and IQ function as ECAs and provide subsidies “as such.”
Canada argues that, by Brazil’s logic, “any financing by an export credit agency would be per se
illegal.”15 In Canada’s view, Brazil’s assault on guarantees would mean that a Member could never
provide a financial contribution in the form of a guarantee without also at the same time conferring a
benefit, and thus granting a subsidy.
29. But this is not the case, and Brazil has not argued that it is. For example, even if the
guarantee constituted a subsidy, it would not be prohibited if it was not contingent on export (or

12 Brazilian Second Written Submission, paras. 120-121.
13 EC – Anti-Dumping Duties on Audio Tapes in Cassettes Originating in Japan, ADP 136,
28 April 1995, para. 362.
14 United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R (29 June 2001)
(Not yet adopted), para. 8.78.
15 Canadian 26 July response to Question 44 from the Panel, para. 6.

domestic content). Further, export credits that conform to the interest rates provisions of item (k) are
not prohibited. Moreover, an export loan guarantee at premium rates adequate to cover the long-term
operating costs and losses of the programme would arguably be permitted under an a contrario
interpretation of item (j). We understand, of course, from the position Canada took in Brazil –
Aircraft, that it does not believe that such a contrario interpretations attach. This, however, is an
issue the Panel need not reach, since Canada has not raised an item (j) defence.
IV. IQ Support Is Contingent on Export
30. Canada argues that IQ support is not contingent in law or in fact on export. Brazil has
demonstrated otherwise. Article 25 of the IQ Act provides that IQ “ shall participate in the growth of
enterprises, in particular by facilitating research and development and export activities.” Thus, IQ is
required to participate in export activities. It has fulfilled that requirement by granting support under
Québec decrees that establish a fund available solely for transactions involving Bombardier aircraft.16
And as Canada itself noted in its response to Question 19, every single regional aircraft transaction
receiving IQ support under these decrees has been an export sale outside of Canada. Regional aircraft
transactions are a perfect illustration, therefore, of the requirement in Article 25 that IQ support export
activities, and the decrees included in Canadian Exhibits 33-36 are measures that represent IQ’s
fulfilment of that requirement.
31. Adding to IQ’s de jure export contingency, I refer to other Québec decrees discussed in
paragraphs 98-99 of Brazil’s First Written Submission. In paragraph 35 of its Second Written
Submission, Canada overlooks the second decree cited by Brazil – number 841-2000, regarding the
Program for Financing Enterprises. That decree concerns IQ support for market development
projects, including the sale of goods. It states that IQ support for transactions involving the sale of
goods may only be extended if the goods are sold for export. Canada claims that this decree is not
applicable to regional aircraft transactions. But regional aircraft are goods, Mr. Chairman, and thus
the decree applies on its face.
32. I note that Article 25 of the IQ Act requires “export,” period. It does not state that IQ support
is conditioned on export outside of Québec. It requires “export.” Québec decree 841-2000, however,
does require export only “outside of Québec.” Yet, in its Oral Statement for the first meeting of the
Panel, and again in its Second Written Submission, Brazil has demonstrated that a requirement for
recipients of IQ support to export out of Québec is a requirement that they export out of Canada.
17
33. Even if Québec decree 841-2000 does not apply to regional aircraft transactions, however, the
four Québec decrees included as Canadian Exhibits 33-36 do apply. While the decrees do not include
an express export requirement, the Appellate Body in Canada – Autos recognized that it will be the
rare case in which export contingency “is set out expressly, in so many words, on the face of the law,
regulation or other legal instrument.”
18 Therefore, the Appellate Body held that the legal instrument
“does not always have to provide expressis verbis that the subsidy is available only upon fulfilment of
the condition of export performance. Such conditionality can also be derived by necessary
implication from the words actually used in the measure.”19
34. I note, Mr. Chairman, that the “words actually used” in the decrees in Canadian Exhibits 33-
36 specify that the IQ guarantees can only be gr anted to support transactions involving Bombardier

16 Exhibits Cda-33 through Cda-36.
17 Brazilian Oral Statement for first meeting of Panel, paras. 56-62; Brazilian Second Written
Submission, para. 129.
18 Canada – Certain Measures Affecting the Automotive Industry , WT/DS139/AB/R, WT/DS142/AB/R
(Adopted 19 June 2000), para. 100.
19 Id.

aircraft. The “necessary implication” of these words is that the guarantees are to support exports.
Canada itself admits that a full 100 per cent of the aircraft receiving these guarantees have been
exported.20 Both the officials who grant the guarantees and the recipients themselves understand the
“necessary implication” of the “the words actually used in the measure.”
35. These same factors mean that IQ guarantees are also contingent in fact on export, or “tied to
actual . . . exportation.” Regarding de facto export contingency, I refer the Panel to the decision in
Australia – Leather . That Panel stated that a Member’s awareness that its domestic market is too
small to absorb domestic production of a subsidized product indicates that the subsidy is granted on
the condition that it be exported.21 Canada is of course aware that 100 per cent of the regional aircraft
transactions receiving IQ support have been for export outside of Canada. IQ guarantees are “tied to
actual . . . exportation” because IQ will not grant them unless an actual export sale of a regional
aircraft occurs. IQ guarantees are, therefore, also de facto contingent on export.
V. The Air Wisconsin Transaction
36. Much has been said about the Air Wisconsin transaction, which involved both Canada
Account and IQ support. Canada has acknowledged that its support for the Air Wisconsin deal
constitutes a subsidy. Industry Minister Tobin stated it very clearly: “What we’re doing is using the
borrowing strength and the capacity of the government to give a better rate of interest on a loan than
could otherwise be secured by Bombardier.”
22 He could hardly have paraphrased the Appellate
Body’s definition of the term “benefit” better.
37. As I already noted, there was both Canada Account and IQ support for the Air Wisconsin
deal. I will begin by addressing the three things Canada must establish to justify Canada Account
support for the Air Wisconsin deal under item (k), given Tobin’s acknowledgement.
38. First, Canada must show that it followed the requirements included in the matching
provisions of the OECD Arrangement. Canada did not do so. It did not, for example, “make every
effort to verify” that Brazilian official support was involved in Embraer’s offer to Air Wisconsin. The
fact of the matter is that Brazil was not involved in Embraer’s offer to Air Wisconsin, and a simple
question to Brazil at some time during the many months while the deal was pending would have
resolved the matter. Since Brazil was not involved in Embraer’s offer to Air Wisconsin, the column
marked “Brazil” in the Annex to Canada’s 26 July responses to the Panel’s questions should be blank.
39. Second, Canada must demonstrate that its “non-identical” offer matched Embraer’s offer.
Again, it has not done so. To “match” means to offer financial terms that are the same, or at least
equivalent. The statement by an Air Wisconsin official, cited by Canada from its Exhibit 2, that
Canada’s offer was no more favorable than Embraer’s offer “in its entirety” does not prove
equivalence. Equivalence of the “entirety” of the two offers is irrelevant. All that matters is
equivalence of the financing terms. The chart included as Annex A to Canada’s 26 July responses in
fact demonstrates that the Canadian and Embraer of fers were not, at a minimum, equivalent. For
example, Canada’s chart does not even mention the [] contained in Embraer’s offer.
23

20 Canadian 6 July response to Questions 19 and 20 from the Panel.
21 Australia – Subsidies Provided to Producers and Exporters of Automotive Leather, WT/DS126/R
(Adopted 16 June 1999), para. 9.67.
22 Tobin Press Conference, para. 20 (Exhibit Bra-21).
23 Exhibit Bra-56 (second to last page). Pursuant to Article 16 of the Panel’s Working Procedures,
Brazil requests that the confidential, bracketed informa tion included in the above paragraph be excluded from
the version of this submission attached to the Panel Report.

40. Third, Canada would need to show that recourse to matching maintains “conformity with”
the interest rates provisions of the Arrangement. As Brazil explained in its 6 July response to
Question 36, however, this is not the case.
41. Canada has not satisfied these three requirements. Consequently, it argues in the alternative
that Canada Account support has not conferred a benefit on Air Wisconsin. When Canada matched a
private offer from Embraer, however, it conferred a massive benefit on Bombardier. By taking care
of the financing, Canada insulated Bombardier from the need to lower its price to clinch the deal. As
one example, although [] are listed in both the “C anada” and “Brazil” columns on page v of the chart
included as Exhibit A to Canada’s 26 July responses to questions from the Panel, Canada is well
aware that the Government of Brazil does not provide these []. While Embraer had to bear the cost of
this [] itself, Canada bore that cost for Bombardier.
42. I will now briefly return to the subject of IQ equity guarantees in the context of the Air
Wisconsin deal. Canada’s defence is that IQ charged Air Wisconsin a fee for the guarantee. This
does not appear to be true. As I have already noted, the December 2000 Québec decree that
facilitated the IQ guarantee for the Air Wisconsin deal removes the requirement, present in earlier
decrees, that a fee be charged. []
43. Even if IQ charged a fee of [] basis points for the guarantee, Canada must do more than
simply state, again in its response to Question 48, that “[s]uch a [] basis point administrative fee is
routinely charged by any commercial financial institution.” Canada has not provided one example of
an equity guarantee provided by any commercial fi nancial institution, at any time, in any place, for
any fee, much less an example in which a [] basis point fee is charged.
44. While Canada has provided the Panel with documents regarding other IQ guarantees,
24 it has
failed to do so for the Air Wisconsin guarantee . Documents provided by Canada about other IQ
guarantees demonstrate that 60 per cent of the other regional airlines receiving those guarantees have
[] credit ratings. Since Canada has not provided the relevant document with respect to the Air
Wisconsin transaction, the Panel should presume that Air Wisconsin’s credit rating is similarly [].
Canada itself described Air Wisconsin as “a relatively low quality credit.” 25 Canada has not
established that a commercial financial institution with an A+ credit rating would charge [] basis
points to provide a guarantee to a [] credit risk. IQ support for the Air Wisconsin transaction therefore
confers a benefit, and constitutes a subsidy.
45. I have already noted that partial [] provided by CQC or [] are irrelevant, and do not dilute the
value of the IQ guarantee for the recipient and Bombardier. Such a [] might mitigate IQ’s exposure,
but it does not reduce the benefit to the recipient or Bombardier.
VI. Other Transactions
46. I would now like to discuss the evidence befo re the Panel regarding particular transactions
other than Air Wisconsin supported by EDC and Investissement Québec that are at issue in this
dispute. Before I go through the terms of each transaction in detail, I will explain how we determined
that, based on the evidence provided by Canada, the transactions at issue in this dispute were financed
at below “market” rates. I would also like to make some general comments regarding the methods
used by Canada to determine the market rates for each transaction.
A. Methodology

24 Exhibits Cda-60 through Cda-64.

1. Previous statements and benchmarks used by Canada
47. The first method we used to determine whether Canada financed at “market” rates was to
compare the rates for each transaction with what Canada itself has said about the market for regional
jets. A little over a year ago, as may be seen in Brazilian Exhibit 64, Canada stated that the applicable
risk premia for major airlines such as Northwest and US Air are in the range of the 10-year US T-bill
plus 250 basis points. Canada also stated that “British Airways, which is the best rated non-sovereign
airline, obtains rates of LIBOR plus 30 to 40 bps for large aircraft deals (an additional 20-30 bps
should be added for regional aircraft), even for clients with British Airways’ credit rating. This
translates to US T-bill plus 105 to 120 basis points (125 to 150 for regional aircraft)” when the
appropriate swap spread is added.
26 I should note that the “swap spread” represents a calculation of
what it would cost to convert a floating rate to a fixed rate. While swap spreads may vary over time,
the current “swap spread” between LIBOR and T-bill rates is approximately the same as it was at the
time of Canada’s statements – approximately 75-85 basis points.
48. Based on these figures, Canada stated that “in December 1999, a representative sample of
airline companies operating in the US market obtained financing at T+110 to 250 basis points”
27 and
airlines like British Airways, American, Northwest and US Air “enjoy credit standings significantly
better than a number of airlines in the industry. Airlines that are less credit-worthy can face spreads
as high as 350 bps.”28
49. Thus, in Canada’s view, the appropriate spread for the best-rated airline for a regional jet
transaction would be either LIBOR + 50-70 bps (floating rate) or T-bill plus 125-150 bps (fixed rate
transactions). For a “ representative” airline with a credit rating ranging from AAA to BBB-, the
appropriate spread would be up to T-bill + 250 bps. Airlines that are less credit worthy have a credit
rating “in excess of T + 350 bps.”
50. In addition, credit spreads tend to be lower for North American transactions than for deals
involving airlines in other markets. Transactions involving regional jets have higher spreads than
transactions involving large aircraft.
51. I would also note that before the second Article 21.5 Panel in Brazil—Aircraft , Canada
reiterated that as of 31 January 2001, no US airline whatsoever had any kind of an “A” rating. 29
There is no reason to believe that the credit ratings for all airlines have plummeted in the last two
years. The ratings provided by Canada in response to this Panel’s questions must be viewed in the
context of these statements.
2. Canada’s Credit Ratings Are Inconsistent with the Market
52. Brazil next compared the credit ratings provided by Canada to ratings that are publicly
available through credit agencies such as Standard & Poor’s and Moody’s. We noted that in many
cases, Canada’s ratings are flatly inconsistent with the ratings that are available publicly. For
example, Canada rated Comair at one point as []. 30 When I discuss particular transactions, I will

26 Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the
DSU, WT/DS46/RW (Adopted 4 August 2000), Annex 1-2, Rebuttal Submission Of Canada, 17 January 2000,
para. 51, note 26.
27 WT/DS46/RW, Annex I-5, paras. 10-11.
28 WT/DS46/RW, Annex 1-3, Oral Statement Of Canada, 3 February 2000, chart 3 (submitted with
exhibit Cdn-14) (Exhibit Bra-64).
29 WT/DS46/RW/2, para. 5.36, n. 51

provide more examples of how Canada’s ratings, and the spreads it associates with those ratings, are
inconsistent with the market.
53. Canada also relies extensively on its LA Encore software system to establish credit ratings for
airlines involved in EDC or IQ transactions. As Brazil pointed out in its reply to Panel Question 40
on 26 July, there is not much information available about how the LA Encore system actually works.
We do not know precisely which data are input into the system, what weights are given to each
parameter, and whether or not subjective criteria are used in evaluating the data.
54. Nevertheless, it appears clear that the LA Encore system is not reliable. Canada states that in
1996, using a pre-LA Encore methodology, it assigned Comair a rating of [].
31 Subsequently, Canada
input Comair’s 1996 data obtained from the FAMAS co mmercial financial analysis system into the
LA Encore system and generated a rating of [], which is [] full notches [] the rating estimated by
EDC. Similarly, in its response to Question 45, Canada explains that prior to using LA Encore,
Canada rated ASA, at the time of its first letter of offer, as []. Canada goes on to say that had LA
Encore been available, it would have assigned a rating of [] to ASA, which is a full [] notches [] the
previous rating. These facts suggest that either EDC’s own ratings or the ratings generated by the LA
Encore system are consistently inaccurate. Canada does not appear to have further investigated these
discrepancies or revised the LA Encore system to adjust for the difference between its output and
Canada’s own previous estimates. We are left, therefore, with a software program that when used by
Canada, seems to overstate credit ratings by anywhere from [] to [] notches. Given that each notch
may account for a difference of approximately 15 basis points in the spread offered to a company, this
discrepancy could make a difference of between [] and [] basis points in an offering spread. This
raises serious questions regarding the reliability of offers developed based on the LA Encore output.
3. Canada Uses Comparables That Are Not Reliable
55. The problem with Canada’s use of inflated ratings is that it enables EDC to bypass the risks
associated with the regional jet market and instead base its regional jet financing on a comparison
with industrial papers that carry far less risk and are completely unrelated to the regional jet market.
For example, in one pricing matrix in Exhibit 59, Canada has rated Comair – a company never rated
by Standard & Poor’s – as an [] grade, and proceeds to base Comair pricing on comparisons with
companies like []. This just does not make sense.
56. In fact, we have found that in most cases these comparables are simply not reliable or useful
in determining market rates for regional jet financing. But first, let me discuss the most important
comparable that Canada has not used. Canada does not appear to have used any data regarding
regional jet transactions that did not involve government support as benchmarks to determine market
rates. Brazil notes that in its response to Panel Question 43, Canada stated that over [] per cent of
Bombardier’s sales did not involve any government support, even through so-called “market window”
operations. These transactions should surely provide a plentiful and accurate resource for determining
the appropriate market rates for Canada’s officially-supported transactions. It is difficult to see how
Canada could reasonably arrive at market rates for its transactions without ever referring to the vast
majority of Bombardier transactions that it claims were financed without any government
participation, even market window participation.
57. Brazil also notes that in its response to the Panel’s Question 4(b), Canada stated that in
establishing its benchmark “market” rate, Canada defines the market – and I quote – to include
“banks, other commercial financial institutions, but not export credit agencies.” Despite this, it
appears that Canada has relied extensively on EDC’s pricing for other transactions to determine
“market” rates. For example, Canada’s answers to Panel Questions 37 and 45 state that Canada relied

31 Exhibit Cda-59.

on then-current EDC pricing offered to other airlines to set rates for particular transactions. Canada
explains that in formulating its []. Canada then states that its [] was based on EDC’s previous pricing
to Comair! This is purely circular – first Canada finances Comair with reference to what it previously
offered to []; then it finances [] with reference to wh at it just provided to Comair. This does nothing
to establish whether these transactions are at actual market rates. Moreover, Canada’s statement that
it considers the market exclusive of export credit agency transactions is untrue. In fact, Canada is
relying on a self-justifying market consisting of its own transactions – the transactions of an export
credit agency.
58. Brazil also notes that in at least one instance in 1996, shown in Canadian Exhibit 59, EDC has
relied on “[]” in determining the rate at which to pr ovide financing. This is consistent with Minister
Tobin’s statement, almost five years later, regarding the Air Wisconsin deal, that Canada used EDC
“to give a better rate of interest on a loan than could otherwise be secured by Bombardier.”
Obviously, the [] has nothing to do with the market rate for the deal and completely undermines
Canada’s arguments that EDC actually seeks to finance Bombardier transactions at market rates. It
seems reasonable to assume that the “[],” and the willingness of EDC to accommodate Bombardier
with below market rates were the determining factors in deciding which transactions, and at which
rates, were supported by EDC between the date of the 1996 memo provided in Canadian Exhibit 59
and Minister Tobin’s statement earlier this year.
59. Many of the other comparables relied on by Canada are also of little value in establishing
market rates for regional jet transactions. In many cases, Canada relied on rates at which general US
industrial bonds were trading to establish rates. However, Canada does not appear to have considered
or adjusted for whether those general industrial bonds were representative of conditions in the airline
industry, especially the regional jet industry. Given the apparent availability of over seventy per cent
of Bombardier transactions as potential comparables, the reliance without further analysis on general
industrials is unreasonable and would not have produced reliable market rates. Furthermore, while
Canada relies in several instances on the general industrial spreads, in other instances, Canada does
not even discuss these. The likely reason, as I will demonstrate shortly, is that Canada’s spreads are
frequently below even the general industrial spreads.
60. Canada also relied on other transactions that were not comparable in any meaningful sense to
establish its market rates. For example, in its Exhibit 39, Canada based its pricing for a sale of
regional jets to Kendell Airlines in part on a comparison to the terms of a sale of a single []. Thus,
Canada compared a sale of up to [] regional jets with a value of approximately $[] million to a small
non-US regional airline with a non-aircraft $[] million sale to a $[] billion-dollar US company. For
obvious commercial and financial reasons, this is simply not a relevant comparison.
61. Finally, Brazil notes that according to the response to Question 37, Canada relied on
financing offered by [], which Brazil understands to be a reference to []. Canada has not explained
how [] financing data are helpful in establishing true market rates for regional jet financing.
4. Comparison with EETC Issues
62. In several instances, Canada has said that it relied on spreads for Enhanced Equipment Trust
Certificates (EETCs) to determine financing rates for EDC and IQ supported transactions. EETCs are
a relatively new financial instrument for debt financ ing in the aircraft sector, in use since the mid-
1990s. EETCs have been described as a cross between a corporate bond and an asset-backed security
and now account for approximately 75 per cent of all debt raised by US airlines. EETCs are typically
backed by both the credit quality of the underlying issuers and specific aircraft as collateral. To date,
EETCs have generally been used in the large aircraft sector and have not been used much in the
regional jet sector. In addition, the issues are for the most part secured by large aircraft rather than by

regional jets. The value of the collateral enables airlines with poor credit ratings to obtain better
credit ratings than they would otherwise hold.
63. EETCs have been particularly successful in the North American market because of a
provision of the US bankruptcy code which permits holders of the security to obtain almost immediate
possession of the aircraft used as collateral in the event of an airline defaulting and filing for
bankruptcy. This explains why the EETCs have not yet become popular in European and other
markets.
64. As these details suggest, there are considerable differences between an EETC issue and a
straightforward bank-financed loan. These include the fact that EETCs are securitized transactions in
a secondary market, that EETCs generally are secured by large rather than regional jets, that EETCs
are generally not used outside the North American market, and that the credit ratings may be affected
by the size and the term of the transaction. For these reasons, the credit risk or spread on a EETC
issue would generally be lower than the spread that the same airline could obtain in a commercial
bank-financed transaction. Canada has used the EETC spreads as a benchmark for determining
market rates, both in the Brazil – Aircraft case, as Brazil has shown in its Exhibit 64, and in this case
itself, as in Canadian Exhibit 17. Therefore, Brazil considered it appropriate also to rely on the EETC
spreads as a benchmark. Accordingly, Brazil has compared the rates offered by Canada with spreads
in EETC transactions, in several different ways.
65. First, Brazil compared the spreads offered by Canada with the weighted-average of the
spreads at which all EETCs issued by each airline were trading at the time of the Canadian offer.
These comparisons are provided as Exhibit Bra-65. When I review the details of each transaction for
which data is available, I will show how the spreads offered by Canada are in every instance lower
than the spreads at which EETCs are trading.
66. Second, as a cross-check, Brazil compared the spreads offered by Canada with an estimate of
the likely spread for that transaction based on the average spreads for all EETCs in the year in which
the transaction took place. For this comparison, Brazil took the average offering spreads from all
EETCs issued in the year of each Canadian transaction as its starting point. We then added the impact
of the credit rating of the company based on Canada’s ratings, with which, I emphasize, we do not
agree. This impact was calculated as plus or minus 15 basis points based on an analysis of all EETCs
offered during the period 1996-1999, which is the period covering the Canadian transactions at issue
here. As shown in Exhibit Bra-66, Brazil compared the spread offered by Canada, where known, to
the constructed spread based on the EETC spreads to determine whether EDC’s rate was below
market.
67. Much of the available data regarding Canada’s transactions were provided in its responses to
the Panel’s questions on 26 July. Accordingly, Brazil has not had time to do a comprehensive
analysis of these transactions in the two business days since it received Canada’s latest data.
Nevertheless, several things are clear: first, for the reasons I have just explained, Canada’s methods
of setting rates for officially-supported financing are not compatible with the market; second,
Canada’s financing is for terms longer than permitted under the OECD Arrangement; and third, as I
will now show, Canada’s rates for particular transactions were well below any reasonable definition
of the market.
B. Transactions
1. Atlantic Southeast Airlines
68. Canada offered financing to Atlantic Southeast Airlines (ASA) in several steps. Again, I will
discuss these sequentially. ASA bought [] CRJ 200 aircraft, with options on an additional [], from

Bombardier in April 1997. The terms of EDC’s offer are provided in Canadian Exhibit 42. EDC
financed up to [] per cent of the price of these aircraft, at a rate of US 10-year T-bill plus [] basis
points. The financing had a term of [] years.
69. Let us first look at the credit ratings assigned to ASA by Canada in April 1997. Canada states
in response to Question 45 that at the time of the first offer, it did not have its LA Encore software
available and therefore relied on a [] for ASA of [], making ASA []. By the time of the second offer,
LA Encore had been developed and gave ASA a credit rating of [].
70. Quite apart from the discrepancy between EDC’ s own ratings and the LA Encore ratings, to
which I have previously referred, ASA’s ratings stand out in []. Brazilian Exhibit 67 shows the
Standard & Poor’s credit ratings history for most major US airlines. According to the Standard &
Poor’s ratings, in April 1997, [] had a rating of [], [] had a rating of [] (changing to [] in late April)
and [] had a credit rating of []. Yet Canada assigned ASA, a small regional airline, a rating of [].
Canada has not explained why ASA’s rating should be [] than these other major airlines.
71. The pricing at T-bill plus [] points for this transaction is plainly below market. As Canada
has previously stated, the best-rated airline could only hope to obtain spreads of T-bill plus 125 basis
points, at a minimum. Moreover, the table provided as Exhibit 66 shows that this transaction was
approximately [] basis points below the estimated market pricing.
72. On 26 August 1998, Canada offered additional financing on similar terms as the first offer, as
shown in Canadian Exhibit 43. By now LA Encore had given ASA a rating of []. However, [] was
rated [], [] was rated [], [] was rated [], [] was rated [], and [] was rated []. Today, the two highest
rated airlines are [], which has an [] rating, and [], which has a [] rating. Again, ASA, a regional
airline which is not rated by the major ratings agencies, was given a [] rating than any of these
companies, and Canada does not explain why.
73. ASA’s spread is also at odds with the market. Canada offered ASA financing at T-bill plus []
basis points. The most immediate measure of how this is below the market is that it is [] prevailing at
this time. As the Panel is aware, the Appellate Body has stated that a rate below the CIRR is a
“positive indication” that the government support provides a material advantage and is presumptively
below the market.
32 Furthermore, Canada stated before the first Brazil – Aircraft Article 21.5 Panel
that on certain occasions it has provided financing at rates below the prevailing CIRR. 33 However,
Canada explained that it only did so because of the time lag required for the CIRRs, which are
announced monthly, to adjust to the market. As we will see today, Canada has offered [] on at least
two occasions, based on our review of the very limited number of transactions for which data are
before the Panel.
74. The US dollar denominated CIRR in effect on 26 August 1998 was 6.52 per cent. The
monthly average 10-year T-bill for August 1998 was [] per cent. Thus, Canada’s effective rate of []
per cent plus the spread of [] basis points gives a total rate of [] per cent. This is [] basis points [].
Canada bears the burden of rebutting the presumption that this rate is below the market. This Canada
has failed to do. Furthermore, Canada’s assertion that it [] simply because of a time lag does not
withstand scrutiny. Because the CIRR is set at the 7-year Treasury plus 100 basis points, by pricing at
10-year T-bill plus []. Brazilian Exhibit 70 contains the source documentation for the applicable
CIRR and T-bill rates.

32 Brazil – Export Financing Programme for Aircraft , WT/DS46/AB/R (Adopted 20 August 1999),
para. 182, n.2.
33 WT/DS46/RW, Annex I-4, question 4(a).

75. In addition, this spread is below what Canada has previously said the best-rated non-
sovereign airline could expect to get in a regional jet transaction. Moreover, as the graph included in
Exhibit 65 shows, it is below the weighted-average of all the EETCs trading for each of the
companies participating in the EETC market in July 1998. To the extent that EETCs represent the
market, EDC’s financing to ASA is []. Finally, the table provided in Exhibit 66 shows that ASA’s
spread is [].
76. Finally, Canada has not established that there is an alternative market benchmark below the
CIRR, nor has it pointed to any truly commercial operations comparable to these transactions.
2. Comair
77. Let me know turn to the Comair transactions. Before addressing the substantive issues in
these transactions, I would like to discuss one preliminary point concerning the obligation placed
upon Members by Article 3.10 of the DSU to engage in WTO dispute settlement in good faith. The
extent to which this obligation is ignored, and the difficulties Members face in enforcing Canada’s
obligations under the Subsidies Agreement, is nowhere more evident than in the case of the Comair
transaction.
78. In its First Written Submission, Brazil cited to Comair filings with the US Securities and
Exchange Commission stating that EDC supported Comair purchases of Bombardier jets with
guarantees. Canada denied this claim in paragraph 65 of its First Written Submission.
79. Canada denied the claim because Brazil – or rather Comair’s filings with a US Government
agency – misidentified the form of support involved – guarantees as opposed to loans. Brazil was not
merely relying on rumour to substantiate its claim, however. It relied on official filings by Comair to
an agency of the US government that, by the way, identified the correct vehicle for Canadian support
– EDC. In these circumstances, for Canada to sit back and remain silent about EDC support for the
transaction simply is not consistent with its obligation to participate in these proceedings in good
faith.
80. And in any event, we now discover that Co mair’s filings with the US SEC were actually
correct. In footnote 1 to its 26 July response to Question 37, Canada acknowledges that EDC did in
fact provide guarantees for the Comair transaction, including in 1995, after the effective date of the
Subsidies Agreement. Because these guarantees were provided by EDC’s Canada Account, rather
than its Corporate Account , Canada felt it was consistent with its good faith obligation to deny
Brazil’s claim. But Comair’s US SEC filings simply refer to “EDC,” without specifying Canada
Account or Corporate Account. Canada’s denial of Brazil’s claim was therefore untruthful. Canada
has not provided information about the 1995 guarantees to Comair described in footnote 1 to its
response to Question 37. Under the circumstances, Brazil requests that the Panel presume that those
guarantees were granted on below-market terms.
81. It appears that Brazil has fallen prey to similar Canadian tactics with respect to the 1999
Northwest transaction identified in Brazil’s First Written Submission. While Canada denied IQ or
SDI support for Northwest and ASA in its responses to Questions 14 and 38 from the Panel, it
acknowledged EDC support for ASA. It has rema ined silent regarding EDC Corporate or Canada
Account support to Northwest for the 1999 deal, however. Because the extent of Canada’s tactics are
only now coming to light, Brazil requests that the Panel ask Canada whether EDC Corporate or
Canada Account support was provided for this deal.
82. Allow me to turn to the substantive issues raised by the Comair transactions. In its
submission of 26 July, Canada acknowledged that it provided loans into US leveraged lease structures
for [] aircraft delivered from 1996 to 2000. Canada provided an explanation of how it priced the

financing for these deliveries that raises far more questions than answers. For example, Canada states
that EDC had estimated Comair’s credit rating in April 1996 to be [].
83. Canada also states that, using the LA Encore software, it now estimates Comair’s 1996 credit
rating as []. As I have noted, this discrepancy suggests that the software is not reliable. I might also
add that the LA Encore estimate of Comair’s credit rating is flatly contradicted by Canada’s statement
in the Brazil – Aircraft proceedings that [].
84. Canada offered pricing in April 1996 at T-bill plus [] basis points. This is [] basis points
below EDC’s [] and also is [] than the spread of T-bill plus [] to [] basis points that Canada has said
the best-rated non-sovereign airline, [], can obtain in the market for regional jet transactions. Once
again, the pricing is below what could be obtained in the market, as shown in Exhibit 66.
85. Canada further explains that EDC lowered its pricing in December 1996 and March 1997 to
T-bill plus [], in part due to “Comair’s strong financial performance.” At this point, Canada’s offer
was [] basis points below EDC’s []. Canada apparently treated Comair as a [] rated credit, which
would make it one of the highest rated airlines in history.
86. In August 1997, using the LA Encore software, Canada assigned Comair an [] rating.
Canada’s spread for this transaction was T-bill plus [], according to the memorandum provided in
Canadian Exhibit 59. Canada fails to explain why, if Comair had such “strong performance,” its LA
Encore rating dropped [] notches ([]) in just a year.
87. Canada also fails to explain why, given this drop in Comair’s rating, EDC was willing to
reduce its pricing. Canadian Exhibit 59 shows that on 12 August 1997, EDC now offered a rate of T-
bill plus [] basis points, which was [] basis points below its []. This represents the second occasion on
which the data before the Panel shows that EDC offered [].
88. The US dollar denominated CIRR in effect on 12 August 1997 was 7.46 per cent. The
monthly average 10-year T-bill for August 1997 was [] per cent. Thus, Canada’s effective rate of []
per cent plus the spread of [] basis points gives a total rate of [] per cent. This is [] basis points [].
Canada bears the burden of rebutting the presumption that this rate is below the market. Again,
Canada has failed to do so.
89. Canada further claims that sometime between December 1996 and March 1997, Comair
received bids to do an EETC issue. Brazil understands that it is not possible to do an EETC issue
without a credit rating from one of the major ratings services, such as Standard & Poor’s or Moody’s.
If Comair had received bids to do an EETC, it would likely have applied for a rating. Canada does
not provide details regarding any such application. Moreover, given the advantages of EETC
financing that I have described, Canada does not explain why Comair did not avail itself of this offer
to issue EETCs.
90. On 10 March 1998, EDC made a new offer to Comair of T-bill plus [] basis points, as may be
seen in Exhibit 59. This was considered as [] basis points below EDC’s []. EDC still rated Comair as
a [] risk at this time. As may be seen in the Standard & Poor’s ratings history provided as Brazil’s
Exhibit 67, [].
91. EDC’s March 1998 pricing is also [] the weighted average spread of all transactions for each
airline participating in the EETC market in that m onth, as may be seen in Brazilian Exhibit 65. This
pricing is also below Brazil’s estimated market price by [] basis points, as shown in Brazilian Exhibit
66.

92. Canada states in its responses that as of its February 1999 offer, Comair’s rating had []
another [] notches to [], even though Comair was considered “first among its peers in the industry.”
Again, Canada does not explain the inconsistency. Canada now offered a fixed rate of T-bill plus []
points, based on increase in EDC’s cost of funds, according to Exhibit 59. I would note that Canada’s
response to Question 37 states that the offer was at T-bill plus [] basis points, but the 11 January
memorandum provided in Canadian Exhibit 59, which was not discussed in Canada’s written answers,
approves the transaction at T-bill plus [] basis points. This memorandum further notes that EDC’s
cost of funds was T-bill plus [] basis points – only [] basis points [] than the approved offer – and []
basis points below EDC’s [].
93. It seems impossible that Canada could consider an offer of [] basis points [] its cost of funds
to be at market for a fixed rate loan with a term of [] years. It also seems impossible that Canada
would consider a return of [] basis points [ ] its cost of funds, and [] points [] its [], to be a “market”
level risk for a fixed rate loan to a company with a rating that has been [] steadily according to its own
LA Encore software. I note that before the first Article 21.5 Panel in Brazil – Aircraft, Canada told
the Panel that while spreads of less than 10 basis points are common in the large aircraft sector,
spreads of less than 20-30 basis points, net of risk premia and transaction costs, would be “unlikely”
in the regional jet sector.
34
94. Moreover, even assuming the February 1999 offer was at T-bill plus [] basis points, this was
still well [] the EETC market. As the chart prov ided as Exhibit 65 shows, EDC’s offer to Comair at
that rate was [] than the rates at which all EETCs i ssued by other airlines were trading in that month.
Furthermore, this pricing was also [] the estima ted market spread for this transaction, shown in
Exhibit 66.
3. Atlantic Coast Airlines
95. Canada offered financing to Atlantic Coast Airlines (ACA) in several steps. While it is not
entirely clear from the materials provided by Canada which terms applied to which aircraft, Brazil has
identified several different deals that appear to have been financed by Canada. I will discuss these in
chronological order.
96. In its Exhibit 59, regarding Comair’s pricing, Canada refers to February 1996 pricing to ACA
in which EDC offered pricing of T-bill plus [] basis points to ACA. Canada states that it rated ACA
as [] at that time. Canada’s pricing is [] basis points [] the spread of T-bill plus [] points that Canada
has said we may expect for representative airlines, and certainly below what we might expect for a
small regional airline with [].
97. I would also point out that the pricing offered to ACA is well [] the spreads at which the [], on
which Canada itself relies, were trading in February 1996. I refer you to Brazil’s Exhibit 68, which
shows the [] over the period 1996-2001 for various credit ratings for industrial spreads. As you will
see, [] rated companies were above [] basis points in February 1996. I would also refer you to the
table provided in Brazilian Exhibit 66, which estimates that EDC’s financing for this transaction was
approximately [] basis points below the estimated market spread.
98. In its answer to Question 14, Canada states that it provided IQ equity guarantees for a sale of
[] aircraft, out of [] ordered, to ACA in May 1997. In its response to Question 40, Canada states that
the credit rating for ACA at the time of that transaction was []. Thus, ACA’s credit rating had
apparently [] over the course of a year.

99. Canada provides documentation regarding an ACA transaction in Canadian Exhibit 63. This
consists of a recommendation dated June 1998 by CQC for a guarantee for a sale of [] Bombardier
aircraft for deliveries beginning in February 1999. Canadian Exhibit 63 states that ACA had a credit
rating of [] as of 1998. Grade [] is, of course, like grade [], considered to be [].
100. Canadian Exhibit 39 refers to another officially supported transaction with ACA. In
analyzing its pricing strategy for Kendell Airlines , Canada refers to an April 1999 transaction
involving EDC financing of an unspecified number of aircraft for a term of [] at a rate of T-bill plus []
basis points, which Canada refers to as a swap from LIBOR plus [] basis points. Canada states that
ACA’s credit rating at the time of this transaction was [], which Brazil understands to be the
equivalent of approximately [] under Standard & Poor’s ratings. Thus, ACA’s credit rating
apparently [] from 1996 to 1997, and then [ ] between 1998 and 1999. It appears that ACA’s credit
rating improves every time EDC decides to provide it with direct financing. Brazil notes that Canada
has made no effort to show how ACA’s rating is ba sed on credit ratings of other regional airlines in
the market.
101. In any event, the offering spread of T-bill plus [] basis points for the transaction described in
Canadian Exhibit 39 appears to be well below market. First, Canada has previously stated that the
spread for airlines such as [] would be in the region of T-bill plus [] basis points. Canada’s rate is
approximately [] basis points below this measure.
102. Also, the pricing offered to ACA in April 1999 is again well below the spreads at which the
general industrial indices were trading in that month. Looking again at Exhibit 68, you will see that []
rated companies were at a spread of over [] basis points above the 10 year T-bill in April 1999. I
would also refer you to the table provided in Brazil’s exhibit 66, which estimates that EDC’s
financing for this transaction was approximately [] basis points below the estimated market spread.
103. Moreover, as the graph provided as Exhibit 65 shows, T-bill plus [] basis points is below the
weighted-average of all the EETCs trading for ea ch of the companies participating in the EETC
market in April 1999, except for []. It is very interesting to note that EDC’s financing of ACA, at T-
bill plus [] the spread at which ACA’s own EETCs were trading at in the market during April 1999 – a
spread of approximately [] basis points. Given what I explained regarding the differences between
EETCs and bank transactions, it is clear that ED C’s financing of ACA is even further below what
ACA could have hoped to obtain in the market for this transaction.
104. Regarding the description of this transaction in Exhibit 39, I would note that Canada
compares this transaction to a sale of []. I have previously explained that this comparison is simply
inappropriate. In addition, while Canada may consider the comparison between ACA and [] to be
relevant, the market plainly does not. I refer you to Brazil’s Exhibit 69, which shows a comparison
between the spreads at which EETCs issued by various airlines traded over the period May 1998-May
2001. As you will see, ACA trades at spreads significantly [] than [] spreads. This graph also shows
that EDC’s pricing is consistently [] the spreads at which EETCs are traded.
4. Air Nostrum
105. Canada states in response to Question 14 that it provided financing for the sale of Bombardier
jets to Air Nostrum, a regional airline in Spain, in January 1999. It appears that Canada financed []
aircraft, plus [] options, out of a total of [] ordered. Canada has not provided information as to how
the remaining aircraft were financed. Brazil notes an apparent discrepancy in the dates provided by
Canada for this transaction, in that Canada gave January 1999 as the date in its answer to Question 14,
but the material provided in Canadian Exhibit 64 suggests the deal was approved in December 1997,
with deliveries to begin in May 1998.

106. The other details of this transaction are not entirely clear. While Canada stated in its response
to Question 14 that IQ only provided an equity guarantee, from the chart titled “Détails du
Financement” in Canadian Exhibit 64, it appears th at Air Nostrum made a [] downpayment, with the
remainder of the transaction financed as debt by []. To the extent that Canada financed [] per cent of
the transaction, this is clearly inconsistent with the terms of the OECD Arrangement limiting the
amount that may be financed to 85 per cent of the transaction.
107. At this point I would note that the involvemen t of Canada Account, and the apparent approval
of the transaction in December 1997, suggest that Canada may not have been entirely accurate when it
told the previous Canada – Aircraft Panel that Canada Account was only involved in two export
transactions in the civil aircraft sector during the period January 1995 through June 1998, involving
Dash turboprops sold to [] and [].35
108. Québec also provided a guarantee of [] per cent of the amount financed. The summary of the
transaction provided by Canada in Canadian Exhibit 64 describes this guarantee by CQC as a
“garantie du gouvernement.” The summary further states that the portion guaranteed by Québec
would be subordinate to the portion financed by EDC (“SEE” in the French acronym).
109. The Canada Account portion of the financing appe ars to have been at a [] per cent interest rate
– []. The CQC and EDC portions of the financing we re at [] per cent. A simple weight-averaging of
these three portions according to the percentages of the deal financed by each agency results in a
weighted average rate for the deal of [] per cent.
110. I would further note that according to the su mmary of the transaction in Canadian Exhibit 64,
the fee for the guarantee provided by CQC – [] per cent – appears to have been included in the
financing rate for the transaction. Depending on how you look at it, therefore, either the guarantee
was provided [] or the effective interest rate was [] basis points [] than I just described. If the amount
of the guarantee fee is subtracted from the interest rate charged by CQC, the resulting interest rate is
[] per cent, which reduces the weighted-average rate for the deal to [] per cent.
111. Brazil notes that the financing appears to have been denominated in Deutschmarks. In
December 1997, the CIRR for Deutschmark-denominated transactions was 5.87 per cent. Thus, the
Air Nostrum deal was financed at an overall rate th at was almost [] basis points []. Moreover, since
Air Nostrum’s credit rating was [ ], which is [ ], th is interest rate was well below market by any
definition.
112. For example, at the time of this financing, the US 10-year Treasury bill was trading at a rate
of [] per cent. Thus, Canada provided financing at a rate that was, in absolute terms, [] basis points
above the T-bill. By Canada’s own standards, which I outlined previously, one would expect the
spread for a transaction involving a high risk buyer such as Air Nostrum to be upwards of T-bill plus
[] basis points. Even allowing for a reasonable conversion of Deutschmark borrowing rates to the
dollar, Canada provided financing at rates that were significantly below market.
113. I note that a comparison to the [] spreads provided in Exhibit 68 shows that the rate at which
Air Nostrum, a [] rated company, was financed well below the spreads for similarly low-rated
industrials for whichever date the transaction occurred, December 1997 or January 1999.
5. Kendell Airlines

35 Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R (Adopted
20 August 1999), para. 9.217.

114. Brazil explained in its answer to Panel Question 51 that it considers the terms of the Kendell
transaction to be below market. I will not repeat those details, except to point out that we do not
know the interest rates at which the other banks participated in the transaction. Usually, when an
export credit agency is involved in a transaction, it is the price maker, not the price taker. I would
also refer the Panel to Exhibit 65, which shows that in June 1999 – the month in which EDC approved
the financing – Kendell’s spread, at [] basis points, was [] than every airline except [] and [].
Moreover, I would note that EDC based its financ ing in part on a comparison between Kendell and
ACA. However, as Brazilian Exhibit 65 shows, ED C’s financing for Kendell was at a [] spread than
[] were trading in that month. Kendell’s financing wa s also at a [] rate than the spread estimated in
Exhibit 66.
115. Finally, I would note that EDC’s spread for Ke ndell is [] than the spreads at which similarly-
rated [] were trading in June 1999. As the graph in Exhibit 68 shows, those [] were trading at over []
basis points above the US T-bill in that month.
6. Air Littoral
116. Canada has stated that it financed the sale of [] aircraft, out of a total of [] ordered, to Air
Littoral, a French regional airline, in 1997. Canada states in its response to the Panel’s Question 14
that IQ actually provided an equity guarantee for this transaction. However, the documentation
provided in Canadian Exhibit 62 suggests that CQC provided a loan guarantee of [] per cent (on the
“prêt senior”) at a fee of [] per cent for this transaction.
117. Canadian Exhibit 62 indicates that [] per cent of the transaction was financed by unspecified
banks at a rate of LIBOR [] basis points, which is very roughly equal to T-bill [] basis points. Brazil
notes that according to Canada’s response to Question 40, the credit rating for Air Littoral at the time
of the transaction was [], which is well below investment grade. Under Canada’s standard, and
prevailing [], we would expect the market to finance this deal, if at all, at a rate of at least T-bill plus
[] basis points. At a minimum, it is evident that Air Littoral would not have attracted equity investors
absent the Canadian guarantee.
7. Mesa Air and Midway Airlines
118. Finally, I will briefly discuss two companies, Mesa and Midway, to which Canada – through
either IQ or CQC – provided equity and/or loan guarantees. Canada’s response to Question 14 and
Canadian Exhibit 60 indicate that Mesa obtained both a loan guarantee and an equity guarantee.
While the pricing for these guarantees was [] per cent, Canada has not produced any evidence to show
how it determined these fees were at market rates.
119. Canada states in its response to Question 14 that it provided an equity guarantee for up to
[] per cent of the Midway transaction. The documentation provided in Canadian Exhibit 61, however,
suggests that CQC also provided direct financing fo r [] per cent of the deal, with the remaining [] per
cent being raised through an EETC issue.
VII. Conclusion
120. Mr. Chairman, for the reasons stated in this and previous submissions, Brazil requests the
Panel to find that support to the Canadian regiona l aircraft industry through Investissement Québec
and EDC’s Corporate and Canada Accounts constitu tes prohibited export subsidies, both “as such”
and “as applied.”
121. In my statement today, we have included considerable argument and analysis regarding the
application of these measures in particular transactions. We would have preferred to present this

argument and analysis to the Panel at an earlier phase of these proceedings. As I noted at the outset of
my statement, the information provided by Canada with its 26 July responses to Panel questions is the
type of information that should have been provided to Brazil in consultations. Because of Canada’s
failure to observe the requirement to be “fully forthcoming” in dispute settlement proceedings, we
have instead had only two business days to analyze data regarding Canadian-supported transactions,
and have been forced to provide that analysis to the Panel at the eleventh hour. This is not the way
the drafters of the DSU, or the Appellate Body, intended dispute settlement to be conducted. We ask
that you consider that fact in reviewing the evidence and argument provided by Brazil today.
122. Thank you for your attention and patience. We will do our best to answer any questions you
have.

ANNEX A-13
SUBMISSION BY BRAZIL REGARDING SOURCE DATA
AT THE SECOND MEETING OF THE PANEL
(2 August 2001)
SUBMISSION BY BRAZIL OF SOURCE DATA
1. In response to requests from the Chairman of the Panel and Canada, Brazil today provides the
Panel and Canada with the following exhibits and data:
(a) revised copies of Exhibit Bra-65, to which Brazil has added the appropriate figures in
each bar in each of the graphs contained in the exhibit.
(b) a disk containing copies of the graphs in Exhibit Bra-65 in an excel file labelled
eetc.xls. This file also contains the data from which each graph was derived. These
data consist of Morgan Stanley Dean Witter’s (MSDW) periodic reports of the
spreads at which all Enhanced Equipment Trust Certificates (EETCs) in the market
are trading. At the first meeting of the Panel, on 26 June 2001, Canada provided the
Panel with a hard copy of the current MSDW report, as Exhibit Cda-14. Brazil used
essentially the same methodology as Canada used in February 2001 before the Brazil
– Aircraft Article 21.5 Panel
1 to create the bar charts in Exhibit Bra-65. Thus, Brazil
took the same MSDW data and, for each month in which Canada provided financing
to the airlines listed in Exhibit Bra-65, computed the weighted average spread for
each EETC traded in the market during that month.2 The weights used to average the
data were the amounts of each tranche for each company’s EETC, weighted as
follows:
/g229
/g229
=
== n
i
i
n
i
ii
A
SA
S
1
1
where:
 A i = Amounts of the issue for each tranche (may vary from 2 to 4 tranches)
Si = Bid Spread of Tranche I at that specific date.
A simple example of this calculation is as follows:

1 See Exhibit Bra-64.
2 One transaction for which Brazil made this comparison was in March 1998; however, MSDW made
no data available for that month. Accordingly, Brazil based the comparison on page 2 of Exhibit Bra-65 on the
closest month for which information was available (May 1998), and inflated the EDC pricing by 5 basis points.

15/May
Collateral Class Amt Ratings 1998
Atlantic Coast 1997-1 A 58 A2/A– 125
6 CRJ-200Ers B 25 Baa2/BBB 140
8 Bae J-41s C 23 Ba2/BB-
Issued 9/19/97 D 6 B1/BB-
(144A–no reg rights)
The resulting spread for this transaction would be:
2558
140*25125*58
+
+ = 130
(c) revised copies of the graph provided as the second page of Exhibit Bra-68 ([]), to
which Brazil has added pointers marking the spreads for the transactions for which
Brazil referred to this exhibit.
(d) a disk containing Exhibit Bra-68 and the source data used to generate that chart.
Exhibit Bra-68 is presented in a power point file titled bloomberg.ppt. Both the
charts presented in this exhibit and the underlying data used to create it are contained
in a zip file on this disk titled bloomberg.zip, which contains extensive data obtained
from Bloomberg’s databases. These data consist of daily data for both the 10-year
US Treasury Bills and the [] for each different credit rating notch. Brazil used the
Bloomberg data to plot the graphs in Exhibit Bra-68 based on information in
Canada’s answer to question 45 and information contained in an EDC memorandum
dated 18 January 1999, provided in Exhibit Cda-59, which contained information
regarding Canada’s [] for certain points in time. Brazil used Canada’s definitions to
plot the curve for all Bloomberg data for the period 1 January 1996 – 27 July 2001, as
follows:
Notch – (Spread)
t = (Market Yield)t – (10-Year T-Bill)t ,
Thus, for each notch (AAA, AA+, and so on), Brazil computed the spread at a
given date t as the difference (in terms of basis points above the 10-year US T-
bill) between the Market Yield for that specific notch and the 10-year US T-
bill Yield for that particular date. In accordance with US Federal Reserve
Bank practice, Brazil plotted the graph in Exhibit Bra-68 based on weekly data
for each Monday, and has provided the entire dataset in the attached disk.
(e) a soft copy of Exhibit Bra-69 is contained in the file eetc.xls, which, as described
above, also contains Exhibit Bra-65. Exhibit Bra-69 was generated using the same
source data used to generate Exhibits Bra-65 and -68.

ANNEX A-14
RESPONSES OF BRAZIL TO QUESTIONS FROM THE
PANEL FOLLOWING THE SECOND MEETING
OF THE PANEL
(8 August 2001)
Questions to the Parties Following the Second Meeting of the Panel - 8 August 2001
Both parties
54. In situations in which there are several co mmercial transactions, at a range of prices,
how does one determine the "market price"?
Determining market price in situations in wh ich there are several commercial transactions, at
a range of prices, can be difficult. Fortunately, that is not the situation facing the Panel. The “market
pricing” at issue here is not the sales price of an aircraft, but the price of the financing terms available
from commercial sources to support sales of regiona l aircraft. Thus, the market benchmark against
which Canada’s financing must be compared is not the price for the transaction, but rather, in the
words of the first Brazil – Aircraft Article 21.5 Panel, “the interest rates in the marketplace for
regional aircraft,”1 or, in the words of the Appellate Body, “w here the net interest rate applicable to
the particular transaction stands in relation to the range of commercial rates available.” 2 Indeed,
Canada itself has also recognised that the relevant market is that for financing terms rather than price
terms, stating that “EDC offers financing at market rates by setting the interest rate payable to the
borrower to reflect risk, in accordance with market principles.”3
Thus, one determines the market for a given transaction by comparing the financing terms for
that transaction with the financing terms that a commercial institution would provide for a similar
transaction. This is the market to which Minister Tobin referred when he described Canada as
providing “a better rate of interest on a loan than could otherwise be secured by Bombardier.” 4 The
market for financing terms should not, however, be determined by reference to other officially-
supported transactions or to the sales price at which the aircraft are being sold.
As Brazil has explained, there are many sources of information regarding the commercial
market for financing terms that can be utilised to de velop an appropriate measure. In this and in the

1 Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU,
WT/DS46/RW (9 May 2000), para. 6.80. Canada has also implicitly recognized that the relevant market is for
financing terms rather than price terms, describing its so-called ‘market window’ operations as “providing
financing on terms and conditions consistent with those available from commercial banks and lenders. In that
sense, the borrower obtains a net interest rate that is consistent with the market .” Id., Annex 1-4, Responses by
Canada to Questions from the Panel, 3 February 2000, Question 2.
2 Brazil – Export Financing Programme for Aircraft, WT/DS46/AB, para. 182.
3 Oral Statement of Canada, 27 June 2001, para. 6 (emphasis added).
4 Exhibit Bra-21, para. 20.

Brazil – Aircraft cases, Canada has utilised a number of measures of the market for financing –
EETCs, Moody’s and Standard & Poor’s ratings, indices of general industrial bonds – but not the
most relevant measure, which would be other sales of regional jets that were financed in the
commercial market. Brazil has not criticised the use of these measures per se, but has noted that each
of the measures has its limitations when used as a proxy for market rates for bank-financed regional
jet transactions (see also the response to question 57 below) and may understate the appropriate
spreads for regional aircraft. Brazil has also criticised how Canada used these indices to determine
ratings and spreads for its officially supported transactions and has shown that, even using these
indices, Canada’s officially supported transactions were below market rates.
55. If it is commercial practice to engage in transactions at a short-term loss for long-term
commercial reasons, should such transactions be treated as "market" transactions? Please
explain.
Transactions in which a seller accepts short-term losses for long-term commercial reasons are
not “market” transactions as that term is normally used. A seller may decide to liquidate stock at a
“fire sale,” for example or to penetrate a new market. Article VI of GATT 1994 and the Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the “Anti-
Dumping Agreement”) explicitly recognise the phenomenon. Article 2.2 of the Anti-Dumping
Agreement refers to sales “in the ordinary course of trade,” and Article 2.2.1 provides that sales below
cost may be treated as not being in the ordinary course of trade. Of course, if it is the “commercial
practice” of a significant number of the sellers in a trade to sell below cost, then, arguably, the market
has moved to that level. This could occur if a product faced competition from a newer product. But
individual sellers can and do sell, intentionally, below market – wherever the market is – for a variety
of legitimate business reasons. These could include, as noted above, the need to liquidate stock or the
desire to penetrate a new market. It could also result from a desire to introduce a new product, or an
existing product to a new audience. Embraer’s offer to Air Wisconsin may be one such instance of an
offer that is below the prevailing market.
In any event, the issue in this case is not whether Canada “engaged in transactions” at a short-
term loss in the Air Wisconsin and other transactions, but whether, by financing at below what
Bombardier could otherwise obtain in the market, to paraphrase Minister Tobin, Canada provided
prohibited export subsidies. As explained in the response to question 56 below, by providing below-
market financing in the Air Wisconsin transaction, Canada enabled Bombardier to obtain the sale
without having to compete on price terms and risk the possibility of selling at a loss, short-term or
otherwise.
56. Please analyse the significant elements of Embraer's second offer, and the Canada
Account / Bombardier offer, to Air Wisconsin, and indicate how the significant elements
demonstrate that such offers were, or were not, comparable.
Embraer’s second offer and the Canada/Bombardier offer differed in a variety of important respects,
including the following:
• Embraer’s offer consisted of []; Canada/Bombardier’s offer consisted of [] firm orders
and no options.
• Embraer offered []; Canada/Bombardier offered 50-seat (CRJ-200) aircraft.
• Embraer’s offer included []; [].
• Embraer [].

• Embraer []; []. For the same amount financed, this discrepancy will necessarily mean that
the borrower under the Canadian transaction will pay significantly lower semi-annual
payments than it would under the Embraer Canadian transaction.
The offers were clearly different, beginning with the number of aircraft offered. Assuming
that it is theoretically possible for such different offers to be “comparable” or “equal” in an economic
sense, the burden rests on Canada, the Member claiming comparability or equality to prove it.
Canada has not done so. All it has offered is the contractually-mandated statement of Air Wisconsin,
after the fact, that the Bombardier/EDC offer, “viewed in its entirety,” was “no more favorable” than
that offered by Embraer.5 This statement does not explain how Air Wisconsin ‘viewed’ the two offers
in “their entirety” or why the Bombardier/EDC transaction, with a different value from the Embraer
offer and covering very different aircraft, was “no more favorable” than the Embraer offer.6
Moreover, the statement does not address the issue before this Panel – whether the financing
terms of the two transactions were economically equivalent. It also does not address the larger
question, which the Panel would face were it possible to answer the first question in the affirmative.
That question is whether it is even permissible for an export credit agency to get into a bidding war, in
alliance with a national manufacturer/seller, to compete with a private manufacturer/seller who is
offering its own financing to support the sale of its goods. Brazil submits that such bidding wars are
impermissible, and will only promote a “race to the bottom,” at the expense of free and open
competition. Of course, an ECA may legitimately offer support that is eligible for the safe haven of
item (k) of Annex I. The support Canada offered, however, does not qualify for this safe haven since
it exceeds the 10 year maximum term established by the OECD Arrangement.
Brazil
57. Brazil has expressed concern regarding the use of indices of general industrial bonds. In
particular, Brazil has asserted that such ratings do not take account of the fact that there may
be different risks involved in an airline company as opposed to an industrial company. Why
would such different risks not be dealt with by the fact that companies are rated, so that if an
airline company is higher risk than an industrial company, it will typically be rated lower?
Brazil believes that the utility of indices of general industrial bonds as a proxy for identifying
market rates for financing of regional jet transactions is limited by several factors. First, the [] general
industrial corporate bonds represent simple averages at which bonds issued by a wide variety of
companies in a wide variety of industries are tradin g at a given point in time. While bonds issued by
airlines may be included in the calculation of this average, the average itself does not reveal whether
bonds issued by a particular sector should be valued above or below the average at a particular point
in time.
Second, there are substantial differences in liqui dity between the average industrial spreads
and a bank loan financing a regional jet purchase. The industrial spreads are based on thousands of
bonds being traded in huge volumes (with daily trad ing volume estimated at $10 billion) by traders
around the world each day. A bank loan to finance a particular purchase of a regional jet, on the other
hand, is an isolated transaction, much less liqui d, requiring much greater and more immediate
assumption of risk by a lender than the lender would experience buying and selling general industrial
bonds.

5 Exhibit Cda-2.
6 Brazil has previously explained that the Air Wisconsin statement is of little value because Air
Wisconsin was contractually required by Bombardier to make this declaration. See Brazil’s Response to
Question 34, 6 July 2001.

Third, general industrial bonds do not accurately reflect the spreads for industry sectors that
may not normally be publicly rated or issue corporate bonds, such as many airlines that purchase
regional jets. Moreover, the different risks between airline companies and industrial companies are
not necessarily reflected in the different ratings of the companies. As noted above, the broad
industrial averages are simply averages. A major airline rated A-, such as Southwest Airlines, may
trade at a different spread than, for example, a major computer company with the same rating. This
difference in spreads reflects differences in the market estimation of the prospects for each industry,
the nature of the collateral securing each bond, competitiveness within each industry, and the manner
in which the bonds are structured within each industry. These factors are reflected to some extent
within the ratings, but are largely left to the discretion of the market. Put simply, spreads change a lot
more frequently than do credit ratings. In the ev ent of a change in the performance of a particular
bond issuer or its industry, the market will react much more immediately than will the credit ratings
agencies. The result will be a discrepancy between the spreads at which similarly rated companies in
different industries may trade.
The market agrees that the general industrials curves do not reflect the peculiarities of the
regional airlines industry. For example, in a report on EETCs, Salomon Smith Barney (“SSB”) states
that “EETCs trade at a considerable premium compared with comparably rated generic corporate
bonds.”
7 SSB further states that “… investors demand a spread premium for EETCs because of their
close link with the highly volatile and cyclical airline industry. The overall credit profile of the airline
industry is considerably lower than the average credit profiles of the market at large. … Aside from
the low credit ratings of most airline EETC issuers, we believe that the market demands a credit-
related premium because of the airline industry’s historically high degree of trading volatility.
Furthermore it doesn’t help that the airline sector has been a chronic underperformer in the equity
market.”
8 In addition, SSB notes that “… some investors do not perceive this sector to be particularly
liquid, or at least not as liquid as other corporate sectors.”9
SSB’s analysis supports Brazil’s and the market’s views that companies with the same credit
rating will not necessarily enjoy the same spreads when issuing papers in the bonds market. Aside
from the obvious fact that a loan differs radically from a corporate bond or from an asset backed
security, the airline sector as a whole will normally enjoy much higher spreads than other industrial
sectors. In other words, even if the general industrials curve could be used as a benchmark for the
pricing of loans, a bank loan to an airline should be priced with a “considerable premium” over the
curve value. EDC’s pricing strategies do not give any consideration whatsoever to these
particularities of the airline industry, which are even more acute for regional airlines than for the large
aircraft sector.
Moreover, the similarity in ratings does not in itself mean that companies will obtain
financing at the same spreads for particular transactions. Contrary to paragraph of 45 of Canada’s
statement, and notwithstanding its name, Southwest Airlines is a major airline with revenues of
$5.6 billion in 2000 and a fleet of over 350 Boeing large jets and no regional jets. 10 This is a
substantially different company from Atlantic Southeast Airlines (ASA), which had revenue of
$410 million in 1998.11 Southwest is currently rated A- by Standard & Poor’s.12 Assuming that ASA,

7 Salomon Smith Barney, The ABCs of EETCs – A Guide to Enhanced Equipment Trust Certificates ,
8 June 2001, page 37. Pages 36-47 of this report are attached as Exhibit Bra-71.
8 Id., page 46.
9 Id.
10 http://www.southwest.com/about_swa/press/factsheet.html.
11 http://www.rati.com/airlines/AirlineFinance. 1998 is the most recent year for which information
regarding ASA is publicly available.
12 Exhibit Bra-67.

with less than one-tenth of Southwest’s sales revenues,13 was [] by EDC, this does not mean that the
market would finance a sale of [] regional jets to ASA at the same rates as it would finance a sale of
the same size to Southwest.
Brazil does not mean to suggest that indices for industrial bonds provide no guidance
whatsoever as to the likely financing rates for pa rticular bank-financed regional jet transactions.
Indeed, Brazil showed in its statement to the second meeting of the Panel that Canada had financed
several transactions at rates well below the prevailing industrial spreads. Canada has stated that over
[] per cent of Bombardier’s order book for regional jets was financed in this manner. These
transactions would provide much better indices than the general industrial bonds.
More importantly, Canada certainly cannot pick and choose when to rely on the industrials
indices. The Panel will note that whenever Canada rates a company as “investment grade” – with a
rating of BBB- or better – it will use the fair market value curve because the spreads for these papers
are quite low. However, when the company cannot obtain such a good rating, even under EDC’s
rating system, then Canada does not use the general industrials curve as its reference, since the
spreads increase dramatically for “non-investment grade” issues.
Brazil notes that Canada has previously relied on EETC spreads as a conservative proxy for
regional jet spreads before both the Brazil – Aircraft and this Panel. Thus, in Brazil – Aircraft, Canada
has stated as recently as 4 April 2001, that:
As discussed in paragraphs 78-79 of Canada's First Submission, the financing spreads
required from airlines purchasing regional aircraft (as shown in the MSDW Report in
Exhibit CDA-17) far exceed the spread inco rporated in the US dollar CIRR (a 100
basis point spread over the appropriate US Treasury average). The spreads shown in
the MSDW Report are for Enhanced Equipment Trust Certificates (EETCs). EETCs
are a secured form of financing that feature a number of tranches with a varying level
of priority claim over the aircraft. Each tranche will carry a rating that reflects the
seniority of the claim on the aircraft as well as other credit enhancements that are
designed to reduce risk. As a result of these risk-reducing attributes, EETCs are [sic]
tranches are usually rated well above the airline’s unsecured debt rating. This enables
the airlines (particularly those with lower credit ratings) to achieve lower overall debt
pricing on aircraft financing. The initial loan-to-value ratios for the higher-rated
EETC tranches are usually well below 70 per cent of the initial fair market value,
further reducing the risk profile associated with EETCs when compared to PROEX
III support. In its First Submission, Canada refers to an American Airlines EETC
tranche trading at 135 basis points above US Treasury rates. As the highest-rated
EETC tranche for one of the highest rated US airlines, this EETC tranche is a
conservative relative benchmark when compared against the spreads required for
financing regional aircraft, yet it is still 35 basis points higher than a rate achieved by
the CIRR alone. A lender will certainly provide a borrower a material advantage if,
by offering financing at the CIRR, it is permitted to offer a less credit-worthy
borrower the same low interest rate as a more credit-worthy borrower.
14
The Exhibit Cda-17 to which Canada refers in the paragraph above is the same Morgan
Stanley Dean Witter report that Canada submitted to this Panel as Exhibit Cda-14 to its First

13 Many other factors in addition to sales revenues would enter into this calculus. Brazil uses sales
revenue merely to illustrate that while companies’ credit ratings may be equivalent, the terms at which the
companies might obtain financing may not necessarily be so.
14 WT/DS46/RW/2, Annex I-3, Oral Statement of Canada to the Panel, para. 88 (4 April 2001)
(citations omitted) (emphases added).

Submission and which Canada discussed at the first meeting of the Panel on 26 June 2001. At that
Panel meeting, Canada interpreted the EETC spreads as showing that “the financing spreads required
from airlines purchasing regional aircraft far exceed the US dollar CIRR. Even the highest rated US
airlines, such as American, are routinely required to pay interest rates significantly greater than the
CIRR.”15 Canada’s analysis in this paragraph is identical to and validates the analysis Brazil provided
to the Panel on 31 July 2001, just one month later.
58. What proportion of Embraer export sales of regional aircraft have not involved BNDES
and / or PROEX support?
Approximately [] per cent of Embraer’s export sales of regional jets to date have involved
neither BNDES nor PROEX support. Brazil notes that it has not committed new PROEX support for
any transactions since 18 November 1999.
59. Brazil has argued that, in considering whet her or not a benefit is conferred by Canadian
support, the Panel should also consider the possibility of benefit to Bombardier. To what extent
is the benefit to Bombardier different from the benefit to its customers? Could there be a
benefit to Bombardier in the absence of any benefit to its customers?
Yes, there could be a benefit to Bombardier even in the absence of a benefit to its customers.
The Air Wisconsin transaction provides an example of how this might occur. An extremely important
consideration for prospective aircraft purchasers is the monthly cost of the aircraft. In general, this
cost is composed of the amount required to amortise the principle of the loan and the interest on the
outstanding balance. In the large number of transactions that involve leases, the customer is faced
with a required payment that usually reflects only the cost necessary to pay the financing, with the
equity investors taking their reward from tax deductions against other income and the proceeds from
the sale of the aircraft at the end of the lease.
Assume that both Embraer and Bombardier offer aircraft at a price of $ χ, and the customer
asks for financing. Embraer then offers to arrange financing at γ%, while Bombardier is able to
provide government financing at γ%. The government support has benefited Bombardier by relieving
it of the necessity of providing or arranging its own financing, even though the customer may view
the offers as equal, and therefore not be benefited. If, to be more competitive, Embraer offered lower
cost financing, below what the market would prov ide, this would be the equivalent of a price
reduction, since the monthly payment would not be affected by Embraer’s choice of which element to
reduce – the price it asks for its product or the interest rate differential it is ready to cover. If Canada
were to “match” Embraer’s lower cost financing, again arguably there might be no benefit to the
customer (the monthly payment is the same), but the benefit to Bombardier would be even greater, by
relieving the company of having to take any action to meet Embraer’s lower offer. Simply put, when
Embraer offers both the goods and financing, it essentially is offering a price of $ χ on a cash basis
and $ χ plus on a “self-financed” basis. Both prices represent Embraer’s price for its aircraft. When
Embraer reduces its price, it offers $ χ minus. In contrast, when Bombardier obtains EDC support, it
is able to continue to offer a price of $ χ, but is able to offer financing at γ minus %. Any financial
support offered by Canada in this situation thus amounts to a pure price subsidy, enabling Bombardier
to reduce its offer without having to reduce its price.
In addition, it could be argued that the purchaser may also benefit when Bombardier, with the
help of EDC, “matches” Embraer’s prices, because it now has an option of two suppliers instead of
just one at a given cost. The purchaser can now purchase a Bombardier aircraft – not just any aircraft
– with financing rates that are below those available in the market.

15 Oral Statement of Canada, 26 June 2001, para. 14 (emphases added).

In any event, Brazil notes that this case is about Canadian subsidies that provide Bombardier
with financing terms that it could not otherwise obta in in the commercial market for financing. This
financing confers a benefit on Bombardier by enabling it to sell more aircraft, as in the Air Wisconsin
and other transactions.16
60. In response to Question 25 from the Panel, Br azil asserted that it is seeking findings in
respect of specific EDC / IQ transactions. Is that still Brazil's position?
Yes. Brazil has challenged three Canadian measures or programmes – EDC (Corporate
Account), Canada Account, and Investissement Quebec – “as such” and “as applied.” In order for
Brazil to prevail on its “as applied” claims, the Panel must find that the challenged programmes have
been applied in specific transactions in a manner that is inconsistent with the SCM Agreement.
Brazil does not see how it could prevail on its “as applied” claims without a finding that specific
transactions were financed under the challenged programmes in a manner that was inconsistent with
the SCM Agreement. No matter whether this dependence of an “as applied” claim on findings
regarding specific transactions is viewed as a legal or an evidentiary prerequisite to prevailing on an
“as applied” challenge, the Panel must make findings regarding the specific transactions in order for
Brazil to prevail on its “as applied” claim. This is especially the case here, where the challenged
measures are designed to provide financing and guarantees for specific transactions.
Canada has suggested that Brazil has broken new ground by referring to its “as applied” claim
as well as specific transactions in its submissions. Brazil disagrees, and sees its references to its “as
applied” claims and specific transactions as simply reflecting the dependence of its “as applied”
claims on findings regarding specific transactions as described above. Brazil’s response to
question 25 is consistent with this position. Indeed, Brazil suspects that, had Brazil not referred to
specific transactions, Canada would have argued that Brazil had failed to satisfy the legal and
evidentiary bases for an “as applied” challenge.
Brazil could have challenged a single transaction as constituting an “as applied” violation of
the SCM Agreement. For example, Brazil could simply have challenged the Air Wisconsin
transaction itself, without bringing any broader challenge to Canada’s programmes either “as such” or
“as applied.” The Norway - Procurement of Toll Collection Equipment for the City of Trondheim
17
and Australia - Subsidies Provided to Producers and Exporters of Automotive Leather ,18 cases are
examples of limited challenges to a single incidence of a Member’s application of a particular
measure. In this case, Brazil’s challenge is to how the measures are applied generally, the evidence of
which is found in specific transactions.
Brazil also notes that the evidence regarding particular transactions also illustrates how
Canada’s programmes constitute “as such” violations of the SCM Agreement. For example,
information from specific transactions before the Panel shows that IQ provides guarantees backed by
its A+ credit rating to [] rated companies, enablin g those companies to obtain better financing terms
than they would otherwise obtain, and thereby conferring a benefit on those companies.

16 See Brazil – Export Financing Programme for Aircraft, Second Recourse by Canada to Article 21.5
of the DSU, WT/DS46/RW/2, 10 July 2001, para. 5.28 and n. 42 (“We note that PROEX III payments are made
in support of export credits extended to the purchaser, and not to the producer, of Brazilian regional aircraft. In
our view, however, to the extent that Canada can establish that PROEX III payments allow the purchasers of a
product to obtain export credits on terms more favourable than those available to them in the market, this will, at
a minimum, represent a prima facie case that the payments confer a benefit on the producers of that product as
well, as it lowers the cost of the product to their purchasers and thus makes their product more attractive relative
to competing products. We do not understand the parties to dispute this proposition.”) (italics in original;
underlining added).
17 GPR/DS.2/R, adopted on 13 May 1992.
18 WT/DS126/R (25 May 1999)

61. If one assumes that the second Embraer offer to Air Wisconsin was not officially
supported, and that the offer was available in the market, how would the Canada Account offer
to Air Wisconsin confer a benefit on Air Wisconsin?
Canada has provided government support that it claims “matches” Embraer’s offer to Air
Wisconsin. However, Canada’s offer to Air Wisconsin differs in a number of important respects from
Embraer’s offer. ( See response to Question 56, above). To take simply one element, Canada has
provided a [] per cent government equity guarantee to “match” []. Canada’s is the better guarantee.
In addition, Canada’s financing is for [] years with an average life of [] years, against [].
Thus, Canada’s official financing terms are on their face better that those offered by Embraer.
Canada claims that Embraer’s offer is superior in some respects (e.g., amount financed) but
the degree to which superiority in one area should be weighed against inferiority in another has not
been established by Canada. Since Canada is the Member claiming these non-identical offers are
equal, it is Canada’s burden to prove that this is the case. When a Member provides government
support to match a non-supported offer, and when those offers are not identical, it is the burden of that
Member, not the complaining Member, to show that they are equal, for purposes of establishing that
no benefit has been conferred.
Moreover, Canada cannot seriously argue that no benefit was conferred by Canada's offer to
Air Wisconsin. First, Minister Tobin himself admitted that Canada's support to Bombardier in the Air
Wisconsin transaction conferred a benefit. In hi s view, Embraer was "able to secure preferential,
below commercial rates of interest in providing financing on the sale of aircraft, and that is something
that Bombardier cannot do on its own.”
19 Thus, Minister Tobin specifically stated that Canada's
support to Bombardier conferred a benefit on Bombardier by providing it with something Bombardier
was not able to secure on its own in the market: "What we're doing is using the borrowing strength
and the capacity of the government to give a better rate of interest on a loan than could otherwise be
secured by Bombardier." 20 Brazil notes that while Canada claimed in its answers to the Panel’s
questions to have followed a pricing methodology designed to reflect market terms, Canada does not
claim to have used the same methodologies in the Air Wisconsin transaction. Canada made no effort
whatsoever – other than to claim PROEX support was being given by Brazil – to determine whether
or not the financing terms it was offering Air Wisconsin actually reflected commercial market terms.
Second, Canada's own statements speak to the fact that Bombardier received a benefit.
Canada argues that, in case there was no Brazil government support for the Embraer offer to Air
Wisconsin, all Canada did was offer terms available in the market. But Canada's argument misses the
point. Bombardier was clearly not able to secure in the commercial marketplace the terms of
financing it received through EDC Canada Account. As noted above, the relevant market is the
market for financing terms, not the sales price at which the aircraft are available. Canada argues that
no benefit was conferred on Air Wisconsin becau se, with EDC's support, Bombardier matched
Embraer's offer. But a benefit was conferred on Bombardier because, by Canada's own admission,
Bombardier was not able to obtain such terms of financing in the commercial marketplace.

19 Exhibit Bra-21, para. 15.
20 Exhibit Bra-21, para. 20.

Moreover, a benefit was also conferred on Air Wisconsin because, again according to
Minister Tobin, Canada provided a “better rate than one would normally get on a commercial lending
basis.”21
62. The second page of the [] contained in Exhibit B RA-56 refers to []. It also refers to a [].
Please confirm that [].
The []. The reference to [] refers to the [].

21 Exhibit Bra-21, para. 66.

ANNEX A-15
RESPONSES OF BRAZIL TO ADDITIONAL QUESTIONS
FROM THE PANEL FOLLOWING THE SECOND
MEETING OF THE PANEL
(15 August 2001)
Additional Questions to the Parties Following the Second Meeting of the Panel
10 August 2001
Brazil
73. In Canada's answer to the Panel's question 56, with respect to repayment term, Canada
argues that []. Please comment, taking into account Brazil's statement (in response to the
Panel's question 56) that "[]".
Canada appears to have misread the [] that was provided as Exhibit Bra-56. While the faxed
copy of the term sheet is a little difficult to read, the second page of the term sheet, under the heading
"[].” Canada may have read the figure [].” Nevertheless, the statement in Brazil’s answer to question
56 that [].
The reference to [].
Please also explain Brazil's contention that under the Bombardier offer there would be
significantly lower semi-annual payments. Please demonstrate this, assuming a loan amount of
$1 billion and an interest rate of 6 per cent for both offers. Please also assume, in the case of
Embraer's offer, that 20 per cent of the loan amount would be [].
In its response to question 57, Brazil explained that Canada’s [] with a term of [] years and an
average life of [] years would result in a lower semi-annual payment than [], for the same amount
financed. Brazil determined this by making a samp le calculation of the monthly loan factor payable
by the borrower under the various financing terms offered by the two parties. Brazil has re-produced
this calculation in the worksheet attached as Exhibit Bra-72.
This worksheet shows four calculations of monthly payments based on the Panel’s
assumptions. Boxes 1 and 2 on the left side of th e sheet show the calculation of the total average
monthly payment for Embraer’s offer, based on the Panel’s assumptions of a total value of $1 billion,
with $200 million financed as a straight loan [] at a rate of 6 per cent, and the remaining terms as per
[], provided as Exhibit Bra-56. The remaining $800 million would be [].
1 The rate remains 6 per
cent. This results in a average monthly payment of [] for the $200 million portion of the transaction
and [] for the $800 million portion of the transaction. Thus, the total average monthly payment for the
$1 billion transaction would be [].

1 Brazil notes that the Panel’s assumption of a price of $200 million [] and $800 million [] values the
planes at different prices. This does not, however, affect the outcome of the Panel’s hypothetical.

Boxes 3 and 4 on the right side of the sheet show the calculation of the monthly payment for
Canada’s terms. Box 3 shows the amount calculated for a straight loan of $1 billion, with [] per cent
financed at an interest rate 6 per cent, for a term of [] years with a maximum average life of [] years.
When structured as a [], this results in an average monthly payment of []. Box 4 shows the calculation
when the same transaction is structured as a [], which results in an average monthly payment of []. In
both cases, Canada’s terms result in a significantly lower monthly payment than Embraer’s offer –[]
per month less in the case of Canada’s [] option and [] per month less in the case of Canada’s [].
Brazil calculated the amounts in Boxes 1 and 3 (the straight loan calculations) using the
assumptions stated and the Excel function Goal Seek. Brazil calculated the amounts in Boxes 2 and 4
(the USLL calculations) using the Goal Seek function and, in order to determine the monthly payment
factor, the ABC software programme, which generates a flow of payments that is consistent with the
interest rate under the loan and the average life constraint. This software is well known in the market
and is used by [] (see Exhibit Cda-70) and others.

ANNEX A-16
COMMENTS OF BRAZIL ON RESPONSES OF CANADA TO QUESTIONS
AND ADDITIONAL QUESTIONS FROM THE PANEL FOLLOWING
THE SECOND MEETING OF THE PANEL
(20 August 2001)
Questions to the Parties Following the Second Meeting of the Panel - 8 August 2001
Both parties
54. In situations in which there are several co mmercial transactions, at a range of prices,
how does one determine the "market price"?
Brazil notes that Canada has, in effect, agreed that the relevant market is the market for
financing terms available to a specific borrower for similar terms and with similar security. In
addition to the terms available to that borrower, however, Brazil considers that the market also
includes financing terms that Bombardier has obtained in the commercial market, in the [] per cent of
its transactions that did not include any government participation, for similar borrowers and similar
transactions for the sale of regional aircraft.
55. If it is commercial practice to engage in transactions at a short-term loss for long-term
commercial reasons, should such transactions be treated as "market" transactions? Please
explain.
In paragraph 6 of its answer to this question, Canada suggests that any offer made by a private
party is per se a “market transaction.” This is unduly simplistic, in that it compels the conclusion that
no offer can ever be “below market.” This does not make sense as a matter of either logic or law, and
would permit a “race to the bottom” in the field of export credits where every offer by a private entity,
no matter how low, would justify yet another, lower offer by a government that was simply matching
the “market” established by the previous offer by a private party. Brazil does not believe that this is
the purpose of the disciplines of either the OECD Arrangement or, more importantly, the SCM
Agreement. As the Panel in the Article 21.5 proceedings of the first Canada – Aircraft case noted, if
“matching of derogations no matter how low the interest rate or how generous the other terms” would
be permitted, “there would be no real disciplines of any kind on export credits.”
1
56. Please analyse the significant elements of Embraer's second offer, and the Canada
Account / Bombardier offer, to Air Wisconsin, and indicate how the significant elements
demonstrate that such offers were, or were not, comparable.
In its Response to Question 56, Canada mischaracterizes the terms of Embraer’s offer to Air
Wisconsin. Canada then uses this mischaracterization to summarily conclude that “Canada’s
financing offer was not more favourable to Air Wisc onsin than Embraer’s.” Canada’s analysis of the

1 Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of
the DSU, WT/DS70/RW (Adopted as modified by the Appellate Body 4 August 2000), para. 5.137.

Air Wisconsin transaction does not establish that Bombardier’s offer, supported by the full faith and
credit of the Canadian treasury, was either equal to, or less favourable than Embraer’s offer.
Before turning to specific examples of Canada’s mischaracterization of Embraer’s offer to Air
Wisconsin, Brazil wishes to address the eleventh-hour letter solicited by Canada from Air Wisconsin
on 7 August 2001 (Exhibit Cda-68). It is worth no ting that this letter from Air Wisconsin, which
states that “the terms of the financing support” of the two offers were equally favourable contradicts a
previous letter, contained in Exhibit Cda-2, which states that Canada’s offer was “no more favourable
than” Embraer’s offer, “viewed in its entirety .” (Emphasis added.) Embraer’s offer “in its entirety,”
the Panel will recall, includes []. Contrary to what Canada seems to imply in section 7 of its response
to Question 62 from the Panel, this [] was not part of the financing terms of the offer.
Given this apparent contradiction between th e two Air Wisconsin letters, the Panel should
disregard the statement in the second letter. That letter was clearly prepared at the request of Canada
or Bombardier after Brazil pointed out that it is the financing terms of the offers, not the offers in their
entirety, that matter. The letter is, therefore, of dubious evidentiary value. Brazil has previously
noted that Air Wisconsin is contractually mandated to state that the terms of support provided by
Canada/Bombardier were no more favourable than those offered by Embraer. As such, the Panel
should view any statements by Air Wisconsin officials, including the new Exhibit Cda-68, with
extreme suspicion.
Brazil now turns to examples of Canada’s mischaracterization of Embraer’s offer to Air
Wisconsin.
Number of Aircraft
Apart from two statements by Air Wisconsin officials, discussed above, Canada has yet to
produce evidence showing that an offer premised on a firm order for [] aircraft, [] Bombardier CRJ-
200s, is equal to or superior to Canada/Bombardier’s offer to support the purchase of [], fifty-seat
CRJ-200s.
Financed Amounts
Canada asserts that Embraer’s financing offer must have been superior to
Canada/Bombardier’s because Canada offered to finance [] per cent of the purchase price of [] fifty-
seat aircraft, while Embraer offered []. Canada arrives at this conclusion by claiming that, based on
these figures, Embraer offered []. This conclusion is, again, faulty.
The mere fact that Embraer may have offered [] of each aircraft while Canada “only” offered
to finance [] per cent does not mean that the total amount of financing Canada supplied was somehow
less than the total amount of financing offered by Embraer. The reason for this is relatively
straightforward. The [] per cent financed by Canada was the result of the [] per cent equity guarantee
also provided by Canada through IQ. Embraer’s offer contained [].
Repayment Term
Brazil refers the Panel to the response of Brazil to Question 73 from the Panel, and Brazil’s
comments below on Canada’s response to Question 74 from the Panel.

Interest Rate
In response to Question 56 Canada admits that it did not quite understand the interest rates
that Embraer offered and that a comparison of this term cannot be made. Specifically, Canada states
that it “is not clear what is meant” by "[].’” Yet Canada nevertheless concludes that the interest rate
terms of both offers are equally favourable. It is worth clarifying that Embraer’s offer of [].
Administration Fee
In its response to Question 56, Canada states that “Canada’s offer requires payment of an up-
front administration fee equal to [] per cent of the financed amount payable at the time of financing of
each aircraft.” Canada then intimates that, because “Embraer’s offer does not include any
administration or similar up front fees,” in this respect, Embraer’s offer was more favourable to Air
Wisconsin than Canada’s offer.
Brazil readily admits that [] does not contain every possible fee and term that one would
normally expect to find in a contract for the sale of regional aircraft. As Brazil has previously stated,
however, the reason for this is simple – Embraer did not enter into a contract to sell aircraft to Air
Wisconsin, Bombardier/Canada did. Thus, it is only logical to expect that the terms of
Bombardier/Canada’s offer to Air Wisconsin are more fully developed than Embraer’s. After all,
Bombardier/Canada executed a purchase agreement with Air Wisconsin that set forth every
conceivable fee and term of the arrangement. Embraer did not execute such an agreement. As
Canada itself notes in its discussion under the subheading titled “Security,” even though “[],” had
Embraer won the sale, such provisions would have been incorporated in the final loan agreements.
Contrary to Canada’s assertion, the mere fact that Embraer’s offer does not refer to certain
terms that likely would have been included in a final purchase agreement does not thus mean that
Embraer’s offer was more favourable than Canada’s. Indeed, as Brazil has previously stated, when
the offers are compared as whole, it is clear that Embraer and Bombardier/Canada offered Air
Wisconsin different aircraft packages and different financing packages.
Security
In its discussion under the subheading titled “Security,” Canada correctly notes that “[]. . . .”
Canada admits, however, that had Embraer won the sale, those provisions would have been added to
the final loan agreements. Not knowing what t hose terms would have been, Canada still somehow
concludes that those terms would have been “comparable to those included in Canada’s offer.”
Canada assumes, without any support, that any provisions added by Embraer to the final loan
agreements would have been “comparable to those included in Canada’s offer.” Moreover, even
though Canada acknowledges that such provisions would have been included in the final loan
agreements had Embraer won the sale, it makes the surprising statement that the absence of those
provisions from Embraer’s term sheet render Embraer’s offer more favourable than Canada’s.
Other Financing Support
Under the heading “Other Financing S upport,” Canada states that, because
Bombardier/Canada’s offer does not include [] in the event Embraer won the contract, in “this respect
the Embraer offer is more favourable to Air Wisconsin.” This argument is also flawed.
Embraer indeed offered a []. Contrary to what Canada seems to assert, however, []. Embraer,
a private aircraft manufacturer, made an offer at what would likely have been a short-term loss in
order to win the contract and develop a new market. What Bombardier did was resort to the Canadian

treasury to beat Embraer’s offer. It did not try to beat the offer by securing better financing from a
financing institution in the market or providing the financing itself. It did not offer lower financing or
price reductions at its own expense. Canadian government support made it unnecessary for
Bombardier to make the type of []. 2 Bombardier decided to remove any risk of losing the deal by
making sure that it made an unbeatable offer with the support of the Canadian government.
Canada
66. Has the LA Encore programme used by the EDC been adapted for specific
EDC considerations, or is it identical to the programme used by Lloyds Bank, Barclays Bank,
and ABN-Amro?
Brazil notes that the US Comptroller of the Currency has stated that most credit scoring
models are either “statistical” systems or “expert” systems.3 A statistical system is one that relies on
quantitative factors that are indicators of default, while an expert system is one that “attempts to
duplicate a credit analyst’s decision making.”4 The Comptroller of the Currency describes LA Encore
as an “expert” type of system. 5 Thus, LA Encore requires that its operator use qualitative or
subjective factors to determine credit ratings.
In its response to this question, at paragraph 5, Canada admits that EDC has customised LA
Encore to take into account these qualitative or subjective factors, or to “reflect EDC’s own corporate
risk methodologies.” Canada provides no information on how this was done other than to say that it
takes into account a database of “more than 900 S&P rated industrials.” Canada asserts that its
customisation has been reviewed by external consultants, but Canada has still not provided any
precise information regarding the subjective factors used in obtaining LA Encore ratings.
Nevertheless, based on Canada’s answer, it appears that EDC does not make any attempt to
consider issues particular to the aircraft sector in general, or specifically the regional aircraft sector, in
developing its ratings. As Brazil explained in its response to Question 57, there are several reasons
why the average spreads for general industrials may not be applicable to the regional aircraft sector.
EDC’s customised LA Encore system seems to eschew any consideration of those factors and, as
discussed in more detail in Brazil’s comments on Canada’s submission of 13 August 2001, produces
ratings that are completely at odds with those published by Standard & Poor’s.
Brazil refers the Panel to the 20 August 2001 Comments by Brazil on Canada’s Submission
of 13 August 2001 for a more detailed analysis of the flaws of the LA Encore programme as used by
EDC.
67. With reference to paragraph 5 of Canada's oral statement of 31 July 2001, please
identify the "strong evidence" of Brazilian Government support for Embraer's offers to Air
Wisconsin.
In its response to Question 67 Canada repeats previous statements relating to the evidence it
allegedly has that Embraer’s offer to Air Wisconsin was supported by the Brazilian government. All
those previous statements and the Canadian response to Question 67 can be summarized as follows:

2 See Exhibit Bra-56 [ ]. Pursuant to Article 16 of the Panel’s Working Procedures, Brazil requests that
the confidential, bracketed information included in this footnote and the above paragraph be excluded from the
version of the submission attached to the Panel Report.
3 Rating Credit Risk – Comptroller’s Handbook, Section A, Assets, Comptroller of the Currency,
Administrator of National Banks, April 2001, available at http://www.occ.treas.gov/handbook/S&S.htm.
4 Id.
5 Id.

(i) Canada does not believe that Embraer could have provided the terms of financing it offered
without support from the Brazilian government; (ii) Canada relies on statements by Air Wisconsin
and Bombardier officials that Embraer “expected” to secure the support of the Brazilian government;
and, (iii) Canada purports to have identified some “general pattern” of conduct by Embraer that
Embraer must have followed in the Air Wisconsin transaction. None of this is “strong evidence.” In
fact, none of this is reliable evidence at all.
Canada itself begins its response by admitting that the “strongest evidence” of what
Embraer’s offer involved – [].
It is worth noting that Canada’s assertions contradict its own evidence. Canada has submitted
information that its own terms of financing in five transactions varied between [] and [] years and has
argued that those terms did not confer a benefit.
6 Similarly, Canada has stated that “it has, on
occasion, provided export credits, on commercial terms, at interest rates below the CIRR.” 7 Thus,
such terms are not necessarily below the market. Either way, however, Canada did not merely meet
the terms of Embraer’s offer: []. Nor did it merely meet the market. But even assuming, arguendo,
that Canada did meet the terms of Embraer’s offer or the market, it still conferred a benefit on
Bombardier, providing to Bombardier terms that Bombardier was not able to secure by itself in the
market.
Canada makes much of the [] declaration and of its new Exhibit Cda-68.
8 But all Exhibit
Cda-68 claims is that Embraer allegedly said to Air Wisconsin that it “expected its offer to be
supported by the Government of Brazil through BNDES.” Embraer may have expected or hoped that
it would get the Brazilian Government to support its offer through BNDES, but it never did get that
support. As Brazil has stated, the Brazilian Government neither offered nor provided support to
Embraer or Air Wisconsin for this transaction. That Embraer expected or hoped to get the support of
the Brazilian Government for its Air Wisconsin offer is not “strong evidence” – and is, in fact, no
evidence whatsoever – that there was support by Government of Brazil to Embraer for the Air
Wisconsin transaction.
Canada relies heavily on alleged “similar offers of government support made by Brazil” in
other transactions, on general statements that Embraer relied on Brazil government support, and on
Embraer’s “practice” of seeking and receiving government support. Brazil would like to make several
points with respect to those assertions.
First, as Brazil responded to Question 58 from the Panel, approximately [] per cent of
Embraer’s export sales of regional jets to date have involved neither BNDES financing nor PROEX
support. In addition, Brazil has not committed new PROEX support for any transactions since 18
November 1999.
9 Thus, all Canada’s arguments about some “pattern,” “routine,” or “practice” are
baseless. In [] per cent of the cases since 1995 Embraer has not relied on Brazilian Government
support, whether from PROEX or from any other agency or programme.
Second, Canada speculates that, because Embraer, according to an SEC filing, does not
conduct its own self-financing, and “[],” (emphasis supplied) the only other option was Brazilian

6 First Submission of Canada, 18 June 2001, para. 75.
7 Id., para. 71.
8 It is worth pointing out that the [] declaration (Exhibit Cda-1) where Mr.[], states that he was
informed by Air Wisconsin of some particulars of Embraer’s offer, contradicts the letter of Air Wisconsin
(Exhibit Cda-2) stating that “Confidentiality commitmen ts to Embraer preclude Air Wisconsin from providing
more detailed information” regarding Embraer’s offer. The only information contained in that letter is that Air
Wisconsin valued Canada’s offer as “no more favourable than that offered by Embraer, viewed in its entirety.”
9 Brazil Response to Question 58 from the Panel, 8 August 2001.

Government support. This is pure speculation on the part of Canada, not “strong evidence.” Neither
Brazil nor Canada can say whether or not [] was available or would have been available to Embraer,
or whether Embraer would have changed its practice and made an exception in this case, where it was
making an exceptional effort to capture a sale.
Canada is constructing what it refers to as “strong evidence” on the basis of the assumption
that [] was not available. There is no evidence to support this assumption. In addition, Canada argues
that Embraer could not have intended to finance the Air Wisconsin offer directly. As Brazil pointed
out in its response to Questions 31 and 32 from th e Panel, one can speculate what Embraer hoped to
do or would have done, but this is certainly not “strong evidence.”
Third, even if Canada’s arguments about some general practice of Embraer to rely on
government support had merit, this would be no more than circumstantial evidence about Brazilian
government support in any specific transaction, such as the Air Wisconsin transaction. It would not
be “strong” evidence.
Fourth, Canada’s assertions regarding Brazilian Government support “in the context” of the
campaigns for the sale of regional aircraft to SA Airlink and Japan Air Systems are factually
incorrect. There was no support whatsoever from either PROEX or BNDES in the SA Airlink
transaction, nor has there been any commitment for any support of any kind made to Embraer by
either PROEX or BNDES in the JAS offer.
Finally, Brazil would like to make a very important, systemic point. Canada’s approach to
this issue in general, and Canada’s response to Question 67 from the Panel, in particular, are based on
Canada’s assumption that Brazil bears the burden of proof that Embraer’s offer to Air Wisconsin did
not involve Brazilian Government support. Canada has been trying to turn the burden of proof issue
in this matter upside down. The Panel should reject Canada’s attempt.
The whole issue of whether Embraer’s offer to Air Wisconsin involved Brazilian Government
support is relevant to these proceedings only because Canada claimed, as an affirmative defence, that
it matched Brazil’s offer and that Canada is therefore covered by the “safe haven” of the second
paragraph of item (k). Canada has the burden of establishing this affirmative defence. Canada has the
burden of proving that Embraer’s offer did involve Brazilian Government support, that Canada
merely matched the terms of that support, and that its “matching” is consistent with the SCM
Agreement.
What Canada has been doing instead is attempting to shift the burden of proof to Brazil to
show that Embraer’s offer to Air Wisconsin did not involve support from the Brazilian Government.
For example, Canada states, in its response to Question 67, that “Brazil has offered no evidence
whatsoever” for the proposition that Embraer may have made []. But Brazil does not have to offer
any such evidence. All Brazil was doing was outlining some of the possible scenarios in order to
illustrate that, contrary to Canada’s assertion, government support was not the only option available to
Embraer. Further, Canada argues that Brazil has failed to explain why “Embraer’s offer to Air
Wisconsin would have been any different than the practice” of Embraer to rely on some from of
official government support. But Brazil, again, does not have to explain that. In fact, Brazil has
stated that there may be several explanations for Embraer’s strategy but has specifically pointed out
that it does not know what Embraer’s intentions, expectations, or hopes might have been. In fact, [].
Canada tries to shift the burden of proof to Br azil, then accuses Brazil of having failed to
meet that burden, and on that basis concludes that Canada was therefore entitled to match Embraer’s
offer. The Panel should reject Canada’s arguments. It is Canada’s burden to establish that Embraer’s

offer involved Brazilian Government support. Canada had to “make every effort to verify” 10 that
Embraer’s offer involved government support before it supposedly “matched” it, yet it did not even
attempt to contact Brazil. Now, Canada essentially claims that it has made a prima facie case because
[], and because Embraer previously “routinely” obtained Brazilian Government support. None of
these assertions can withstand scrutiny. Canada, therefore, has not met its burden of proving its
affirmative defence. There is no “serious” evidence that Brazil provided support to Embraer for the
Air Wisconsin transaction and there can be no such evidence because Brazil neither provided nor
offered support.
68. Article 25 of the IQ Act refers to "export" activities. Is the term "export" defined in the
IQ Act, or in some other legislative instrument? If so, please provide the relevant material.
Does the term "export" mean export outside of Québec, export outside of Canada, or both?
The term “export” is normally interpreted to refer to goods or services “sold by residents of
one country to residents of another in return, usually for foreign exchange,”
11 or “to carry or send
abroad.”12 Brazil understands that the Canadian courts have also interpreted “export” to refer to the
transfer of goods outside Canada rather than between the Canadian provinces. Thus, the Supreme
Court of Canada has stated that:
Generally speaking, export, no doubt, involves the idea of a severance of goods from
the mass of things belonging to this country with the intention of uniting them with
the mass of things belonging to some foreign country. It also involves the idea of
transporting the thing exported beyond the boundaries of this country with the
intention of effecting that.
13
Similarly, courts of Ontario have determined that “export” refers to “export outside Canada,”
stating that:
“To export,” in commercial usage, means to send out commodities of any kind from
one country to another. The primary meaning of the words is “to carry out of” but
one does not speak of “exporting” goods from Toronto to Montreal, for instance,
although in the course of the voyage the vessel might pass outside the limits of
Canada.14
Thus, it appears that the Canadian courts apply the standard definition of the term. Canada
admits that the term is not defined in its legisl ative instruments. Accordingly, the Panel should
assume that the standard definition prevails.
Canada’s reference to Decree 572-2000, which was issued under the IQ Act, is equally
unavailing. The fact that the drafters of the Decree considered it necessary to define “export” to refer
to “outside Québec” in that specific Decree only su ggests that the term as used elsewhere, such as in
the IQ Act itself, bore its normal meaning of “outside the country.”
Finally, even if “export” means only “export from Québec,” as Brazil has pointed out in
paragraph 129 of its Second Written Submission, a requirement of export from Québec is tantamount
to a requirement of export from Canada. If a government makes part of its territory ineligible for the

10 1998 OECD Arrangement, Article 53(a).
11 Walter Goode, Dictionary of Trade Policy Terms , Centre for International Economic Studies,
University of Adelaide, 2nd ed., 1998, page 103.
12 Black’s Law Dictionary, 5th Ed. (1979), at 520.
13 R. v. Carling Export Brewing & Malting Company, [1930] 2 D.L.R. 725 at 733.
14 Rex v. Gooderham and Worts Ltd., [1928] 3 D.L.R. 109.

subsidy and claims that, as a result, the subsidy is not contingent on export, many small, partial
domestic eligibility designations are likely to follow rapidly. Such an outcome would be inconsistent
with the letter and the spirit of the SCM Agreement.
69. Could IQ Decrees 572-2000 and 841-2000 apply in principle to financing regarding sales
of Bombardier regional aircraft?
Brazil disagrees with Canada’s statement that “Decree 841-2000 could not apply to financing
of Bombardier regional aircraft because it applies only to small enterprises.” Canada fails to support
this assertion. Canada points to no provision of Decree 841-2000 restricting the application of the
Decree to small enterprises only.
In fact, nothing in Decree 841-2000 suggests that its application is restricted to small
enterprises. The Decree approves a “Programme for Financial Assistance to Enterprises.” Section 1
of the Programme, under the rubric “Objectives,” states that the objective of the Programme is to
promote the economic development of Quebéc by providing financial assistance to enterprises that are
activité commerciale”). There is no restriction as to the size of the enterprise.
Further, Section 2 states that the assistance is provided for the purpose, inter alia , of
realization of investment projects, technological innovation, development of markets, etc. Again,
there is no restriction relating to the size of the enterprise. Brazil also notes that the definition of the
term “development of markets” (Section 10 of Annex II of the Programme) includes development of
new markets outside of Quebéc, the promotion of exports to existing markets, the financing of
contracts, and the provision of bank guarantees, activities that are all quite relevant to the operations
of Bombardier.
On the other hand, there are provisions of the Decree suggesting that it is not restricted to
small enterprises. For example, Section 19 of the Programme states that the maximum term of the
financial assistance provided by Garantie-Quebéc is 10 years; however, the maximum term is 15 years
with respect to major projects for the development of markets (“projets majeurs de développement de
marchés”). It is hard to reconcile that provision with the assertion that the assistance is provided to
small enterprises only.
Further, certain provisions of the Programme address situations where the amount of the
financial assistance could be significant. For example, Section 30 of the Programme envisages
situations where the amount of the financial assistance is over $10 million. These provisions hardly
support Canada’s assertion that the Decree applies to small enterprises only.
The only restriction relating to size appears in Section 8 of the Decree which restricts the
financial assistance to “new economy” companies employing less than 100 persons and having an
annual volume of sales of less than $10 million. “New economy” companies are defined in Section 3
of Annex II as companies operating in several sectors, including the aeronautical sector. Section 8,
however, restricts the assistance to “new economy” companies but only with respect to the
“realization of a project of a new economy.” Nothing restricts the application of the Decree to any
company of any size with respect to other activities eligible for funding, such as major projects for the
development of markets, the development of new ma rkets, the expansion of existing markets, the
provision of bank guarantees, the financing of a contract, all of which are activities listed in
Section 10 of Annex II.
Finally, Brazil notes that Decree 841-2000 was adopted in June 2000. Only a month earlier,
Decree 594-2000, which specifically adopts a programme for the assistance to small enterprises, was

adopted.15 It is hard to explain why, given the adoption only a month earlier of a decree that explicitly
targets small enterprises, Decree 841-2000, which provides no restrictions as to the size of the
recipients of the assistance, should be interpreted to apply to small enterprises only.
Canada’s response with respect to Decree 572-2000 is equally unpersuasive. Decree 572-
2000 promotes investment and employment in Quebéc by allowing IQ to provide financial support to
encourage companies to engage in investment projects and exportation and to promote the emergence
of new projects (Section 1, “Objectives”). The Decree specifically envisages financial assistance,
inter alia, to investment projects over $10 million (Section 6(a)) and the provision of credits and loan
guarantees to buyers outside of Quebéc for the purchase of goods and services. Canada admits in its
response that this measure could be used to finance the sale of Bombardier aircraft but asserts that
Decree 572-2000 is “not well suited for financing regional aircraft sales” because of “the Quebéc
content limitation and other restrictions.”
As Canada notes, the Quebéc content limitation requires that a loan guarantee does not exceed
75 per cent of the Quebéc content of the products exported. Canada does not explain, however, why
this limitation makes the Decree “not well suited” to financing Canadian regional aircraft. Canada
does not specify what the “other restrictions” are that make the Decree “not well suited” to financing
regional aircraft. Finally, Canada states that the Decree has not been used to finance regional aircraft.
While this may be so, the Decree can be used to finance regional aircraft in the future.

petites entreprises (Exhibit Bra-74).

70. Canada has informed the Panel that equity guarantees have been provided by engine
manufacturers such as Rolls-Royce, GE, and Pratt & Whitney. Is Canada aware of other
instances where equity guarantees have been prov ided in respect of aircraft transactions? For
example, are EETCs packaged with equity guar antees? If there is no market for equity
guarantees outside of IQ and engine manufact urers, how should the Panel determine whether
or not the equity guarantees provided by IQ confer a benefit? Is Article 14(c) of the SCM
Agreement relevant in this regard?
Canada does not directly dispute Brazil’s argument, in its statement to the Panel on 31 July,
that equity guarantees are not available in the market. Nor did Canada dispute that statement and
provide any contrary evidence when it should have done so – in its rebuttal submission at the second
meeting of the Panel. Belatedly, on 8 August, Canada submits information that it claims constitutes
“clear evidence of a private sector market for the transfer of risk in a manner similar to the guarantees
provided by IQ.” (Emphasis added). According to Canada, “Financial instruments similar to IQ
equity guarantees are, in fact, available in the market.” (Emphasis added).
Canada does not, however, claim that it would be possible for Embraer to find a guarantee
equal to that offered by IQ at any price. More importantly, even for what it claims are “similar”
guarantees, Canada is remarkably silent on the price of those guarantees.
Canada’s Exhibit Cda-74 purports to show an equity guarantee offered by a private insurer [].
But this guarantee is only for [] per cent of the price of the aircraft for [] months, [], or the [] per cent
for [] years that Canada provided to Air Wisconsin through IQ. Moreover, even though this was a []
transaction, Canada has deleted from the Exhibit the premium paid for the insurance. Thus, there is
no way to determine how the premium charged for this guarantee compared to the apparent [] per cent
premium charged by IQ.
This document, which is dated 21 February 2001, was obviously available to Canada prior to
the preparation of its submission to the Panel. It is unfortunate that Canada saw fit not to submit this
document as an exhibit to its first or second written submissions, as that would have given the Panel
and Brazil an opportunity to discuss it at a meeting of the Panel and, perhaps, to ask Canada about the
premium.
Canada claims that its Exhibit Cda-75 “shows that aircraft manufacturers can create
innovative financing mechanisms centered around risk and remuneration.” No doubt, but this
Exhibit, too, covers only an apparent [] per cent [], and does not disclose the cost of that guarantee.
Canada’s Exhibit Cda-76 consists of letters from two insurance brokers claiming that there is
a well-established market for equity guarantees. But apart from their claims, they offer no evidence to
contradict Brazil’s Exhibit Bra-50 to the contrary, and, moreover, they do not mention premiums for
the guarantees.
Finally, Brazil would note that none of these purported equity guarantees discloses the quality
of the guarantee offered. The Panel will recall that Embraer faced two difficulties in its equity
guarantee competition with Canada: (1) the fact that Canada offered a [] per cent guarantee to []; and
(2) the fact that Québec’s superior credit rating ga ve its guarantee more value to the equity investors
than did Embraer’s. To show that Canada merely “matched” Embraer’s offer, Canada would have to
prove that, for the same premium Québec received, Embraer could have [] from the market that would
have been of equivalent value to the equity investors. Canada has not done so.
71. With reference to paragraph 105 of Brazil's oral statement of 31 July 2001, please
clarify the dates of the Air Nostrum transaction.

Canada’s clarifications have no bearing on the fact that EDC (Corporate and Canada
Account) and IQ support for the Air Nostrum transaction was on terms below the market.
72. Please comment on paragraph 135 of Brazil's second written submission.
In its response to Question 72, Canada states that it “has provided all of the documentation
that exists” regarding IQ’s review of the Mesa, Midway, Air Littoral, Atlantic Coast Airlines, and Air
Nostrum transactions. This response is highly suspect in light of the conflicting answers and
documentation that Canada has produced to the Panel involving the Air Nostrum sale. Brazil asks the
Panel to consider the following points.
On 29 June 2001, the Panel asked Canada, in Question 14, to “provide full details of the terms
and conditions” of IQ’s support for certain aircraft sales, and “all documentation regarding the review
of these transactions by IQ.” On 6 July 2001, Canada responded, in part, by firmly stating that IQ was
only involved in the Air Nostrum deal to the extent that it provided an “‘equity guarantee’ of up to a
maximum of [] per cent of the aircraft purchase price.” However this statement conflicts with the
summary of the Air Nostrum transaction that a ppears in Exhibit Cda-64, a document that Canada
withheld until 26 July 2001.
Exhibit Cda-64 contains a chart that is titled “Détails du Financement.” This chart
summarizes the terms of IQ’s support of the Air Nostrum deal, and indicates that Air Nostrum was to
make a []. Thus, Exhibit Cda-64 indicates that, contrary to Canada’s suggestion that it only provided
a simple “equity guarantee,” IQ actually financed a significant portion of the Air Nostrum transaction
through CQC, which is, of course, jointly owned by IQ and Bombardier.
Instead of disclosing to the Panel this discrepancy, Canada now simply states that Exhibit
Cda-64 “did not reflect the final terms and conditions of the guarantee provided by IQ.” Instead, in
response to Question 71, Canada now provides a new document, Exhibit Cda-77, dated 18 June 1998.
Canada states that this document contains IQ’s “final recommendation and transaction summary” for
Air Nostrum. The “Détails du Financement” chart provided with Exhibit Cda-77 indicates that the
percentages contained in Exhibit Cda-64 have changed. The new chart still shows that [] provided
debt financing for [] per cent of the “montant financé,” but the percentages have changed, and are as
follows: [ ].
16 Moreover, Exhibit Cda-77 states that the separate SDI/IQ guarantee was for [] per
cent, rather than [] per cent, of the transaction.
Although the percentages and terms contained in Exhibit Cda-77 differ from Exhibit Cda-64
only slightly, Brazil notes that they differ significantly from those in Canada’s response to
Question 14. More importantly, however, the appearance of Exhibit Cda-77 at this late stage in this
dispute is extremely troubling, and casts a cloud on Canada’s statement that “it has provided all of the
documentation that exists regarding the review” of this and other transactions by IQ. Canada states
that it “was not previously aware of the existence” of Exhibit Cda-77. If this is true, then one must
question whether the documents that Canada has provided regarding IQ do, in fact, represent IQ’s
final recommendations for the Mesa, Midway, Air Littoral, Atlantic Coast Airlines, and Air Nostrum
transactions. This is particularly true in light of Canada’s initial statement in response to Question 14
that IQ only provided an “equity guarantee” to Air Nostrum. Brazil therefore asks the Panel to take
adverse inferences and presume that other document s exist that show that subsidies contingent on
export have been granted.

16 That the three entities provided support in the form of debt financing is confirmed by the “[]”
provision included in Exhibit Cda-77. That provision refers to support by each of the three entities as debt.

Additional Questions to the Parties Following the Second Meeting of the Panel - 15 August 2001
74. Please comment on Brazil's contention (i n response to Question 56) that under the
Bombardier offer there would be "significantly lower semi-annual payments" than under the
Embraer offer. Please calculate the amount of semi-annual payments for both offers, assuming
a loan amount of $1 billion and an interest rate of 6 per cent for both offers. Please also assume,
in the case of Embraer's offer, [].
Canada’s answer shows that the financing terms of Embraer’s offer and the offer by
Bombardier/Canada are not equivalent. As Brazil understands the Panel’s question, the purpose of
the hypothetical is to demonstrate whether the financing terms of the two offers are different.
Canada’s conclusion that “it is impossible to directly compare semi-annual payments under the two
offers on the basis of the Panel’s assumptions” in effect is an acknowledgement of the fact that
Embraer’s offer and the offer by Bombardier/Canada are different. A further acknowledgement of
this fact are the results of the calculations provided by [] in its model []. As Canada itself points out,
the model shows “very different repayment profiles fo r the two offers.” This completely contradicts
Canada’s previous position that the financing terms of the two offers are equivalent. Moreover, in its
response to this Question Canada has failed to rebut Brazil's arguments that the semi-annual payments
under Bombardier's offer would be significantly lower than those under Embraer's offer.
75. Relating to Canada's answer to panel question 67, is Canada of the view that the
showing of the "possibility", "probability" or "expectation" of the future Brazilian government
support would be sufficient to satisfy a legal element of "official support" under the OECD
Arrangement in respect of "matching" provisions?
Canada acknowledges that Article 53 of the OECD Arrangement requires a Participant to
“make every effort to verify” whether official support is involved in an offer that that Participant
seeks to match. Canada did not make “every effort to verify” whether official support from the
Government of Brazil was involved in Embraer’ s offer to Air Wisconsin. Making “every effort”
would have involved actually asking Brazil. Had Canada simply asked Brazil, it would have
discovered that neither Embraer nor Air Wisconsin received Brazilian government support.
Canada has stated that asking Brazil whether Brazilian official support was involved in
Embraer’s offer would have been futile, because “Brazil is, even today, denying its involvement in the
offer to Air Wisconsin.”
17 This is true. Brazil is “denying” its “involvement in the offer to Air
Wisconsin” precisely because there was no involvement, and Canada has provided no evidence to the
contrary. Under Canada’s logic, it is entitled to make an erroneous assumption because inquiry would
have revealed an unwelcome truth. The obligation to “make every effort to verify” would be empty if
it only required Canada to seek verification from sources it is certain will give it the answer it wants to
hear.
76. In response to panel question 67, Canada states that "it is simply not credible that []."
Does this mean that Embraer offered financing terms and conditions that were not available in
the "market"? If so, could Embraer's offer be used as a "market benchmark" in determining
the "benefit" issue? Please explain.
In its answer to Question 76 from the Panel Canada again repeats its assertions that
“Embraer’s offer was to involve Brazilian government support.” Canada’s only actual response to the
Panel’s question is that “the only alternative” to Brazilian government support “however unlikely it
may be, is that [] would have been arranged” which “would be, by definition, on terms available in the
market.” Canada does not provide any further explanation.

17 Second Submission of Canada, 13 July 2001, para. 92.

As Brazil has explained above, in its comments to Canada’s answer to Question 56 from the
Panel, Embraer offered to Air Wisconsin []. 18 Moreover, in its response to Question 31 from the
Panel19 and in its Second Submission,20 Brazil pointed out that Embraer could have [] for a variety of
reasons. The point is, however, that Canada cannot show that Embraer’s offer is equivalent to the
market.
Canada wants to create for itself a win-win situation. Whether Embraer’s offer was supported
by the Brazilian government or not, Canada’s position dictates that it wins: it either “matched” the
offer or did not confer a benefit. Canada simply ignores the fact that, as Minister Tobin stated clearly,
the Canadian treasury helped Bombardier offer terms that Bombardier could not otherwise obtain in
the market.

18 See Exhibit Bra-56. Pursuant to Article 16 of the Panel’s Working Procedures, Brazil requests that
the confidential, bracketed information included in this footnote and the above paragraph be excluded from the
version of the submission attached to the Panel Report.
19 Brazil Responses to Questions from the Panel, 6 July 2001.
20 Second Submission of Brazil, 13 July 2001, para. 106.

I. Introduction
1. This submission contains Brazil’s comme nts on Canada’s submission of 13 August 2001,
titled “Canada’s Response to New Arguments in Brazil’s Second Oral Statement.” 1 As previously
explained to the Panel, Brazil does not consider that its second oral statement, delivered on
31 July 2001, contained new arguments or information. Instead, at the second meeting of the Panel,
Brazil simply applied the evidence concerning the measure of the market provided by Canada in
previous statements in these and the Brazil – Aircraft proceedings to the information provided by
Canada in its responses to the Panel’s questions submitted on 26 July 2001.
2. In the short time available between the submission of Canada’s data and the second meeting
of the Panel, Brazil was able to construct reasonable proxies for the financing terms that would have
been available in the market at the time of each of the Canadian transactions at issue. No matter
which benchmark Brazil used, Canada’s financing was below the market benchmark. In certain
instances, Brazil also demonstrated that Canada’s financing was provided at rates below the
prevailing commercial interest reference rate (the “CIRR”) established under the OECD Arrangement
on Guidelines for Officially Supported Export Credits (the “OECD Arrangement”). Moreover, Brazil
demonstrated that the credit ratings assigned by Canada to various Bombardier customers were
inconsistent with both Canada’s own statements regarding the creditworthiness of airlines and the
published ratings of the major credit rating agencies.
3. In its response, Canada predictably attacks Brazil’s proxy benchmarks as imperfect, and
continues to defend its financing practices as in accordance with commercial principles. As Brazil
explains below, however, Canada has failed to justify the credit ratings it assigns to its customers,
failed to show that it relies on objective estimates of the market in providing officially supported
export credits, and failed to rebut Brazil’s evidence that particular transactions were financed at below
market rates.
4. In paragraph 5 of its response, Canada states that the pricing of aircraft financing is a “highly
technical and specialised exercise, requiring both objective and subjective consideration of a large
number of factors.” This is undoubtedly true, but neither the complexity of the issue nor Canada’s
subjectivity in this exercise removes the matter from the Panel’s jurisdiction. Notwithstanding the
complexity of the field, there are rules that must be followed. Brazil notes that Canada is a participant
in the OECD Arrangement, a set of rules negotiated, and incorporated into the SCM Agreement, for
the express purpose of regulating this field. Brazil notes also that in challenging Brazil’s PROEX
programmes, at times successfully, Canada did not consider that the technical and specialised nature
of aircraft financing prevented it from arguing that Brazil was providing financing below clearly
discernible market benchmark rates. Moreover, Canada never suggested that Brazil’s subjective
consideration of the large number of factors at play was in any way relevant to the issue.
5. Canada asserts that Brazil is asking the Panel to use Brazil’s judgement on these matters in
place of Canada’s. To the contrary, Brazil asks the Panel to use the Panel’s own judgement in place
of Canada’s own “subjective consideration of a large number of factors” to determine whether Canada
has complied with rules that it negotiated and that it has been vigilant in enforcing against Brazil. For
the reasons explained below, Canada’s 13 August 2001 submission fails to rebut Brazil’s showing at
the second meeting of the Panel that Canada has failed to follow those rules in providing official
support for export financing on below market terms.

1 Canada’s submission is cited to herein as “Canada’s Response” or “Canada’s 13 August response.”

II. Canada’s Objections to Braz il’s Methodology Are Misplaced
A. Brazil Simply Applied Canada’s Own Methodology to EDC’s Financing
6. Canada asserts that Brazil’s challenge to EDC’s pricing was based on “fundamentally flawed”
methodologies. Despite Canada’s disavowals, however, Brazil’s statement at the second meeting of
the Panel was based in large part on Canada’s own evidence concerning the market and, moreover,
accurately reflected Canada’s evidence.
7. In paragraphs 21-25, Canada objects to Brazil’s use of the same benchmarks previously used
by Canada to challenge Brazil’s PROEX II programme. As Canada notes in paragraph 22, it
employed those benchmarks to demonstrate “that the rate offered under PROEX II, US Treasury plus
20 bps, was not available in the market.” In paragraphs 47-50 of its 31 July statement to the Panel,
Brazil used these benchmarks to demonstrate that by Canada’s own measure, financing provided by
EDC’s Corporate and Canada Accounts, and IQ, are similarly not available on the market.
8. Canada objects to Brazil’s characterization of the rates employed by Canada as indicative of
the market. According to Canada, it was not using those rates in Brazil – Aircraft to “establish a hard
limit for the international aircraft financing market.” 2 This is not credible. As is illustrated in a
Canadian exhibit from Brazil – Aircraft reproduced as Exhibit Bra-64, Canada was using financing
rates secured by other airlines to demonstrate that the PROEX II T-bill + 20 bps benchmark would
always be “massively below market.” To do so, and to do so credibly, Canada needed to demonstrate
the extent to which market financing rates would always be “massively” above T-bill + 20 bps.
Canada’s intent, in employing those market financing rates, was to lend credibility to its argument by
showing precisely where the market in fact is. The Panel apparently considered Canada’s argument to
be both valid and persuasive, as it found that PROEX II did not comply with the “hard limit” against
which Canada argued it should be measured.
9. It is entirely appropriate for Brazil now to use those same rates as one way (among several
presented by Brazil in its 31 July statement to the Panel) to demonstrate that Canadian financing is
below market.
10. Canada then criticizes two specific aspects of Brazil’s argument. Canada first objects to
Brazil’s citation of Canada’s statement in Brazil – Aircraft that representative airlines with credit
ratings ranging from AAA to BBB- would have to pay spreads of up to 250 bps over US treasury.
Brazil directly quoted a Canadian submission, however, which reads as follows: “in December 1999,
a representative sample of airline companies operating in the US market obtained financing at T+110
to 250 basis points.”3
11. Canada’s objection appears to be with Brazil’s assumption that when Canada referred to
“representative” airlines, it was not referring to airlines with credit ratings ranging from AAA to
BBB-. However, in stating that a “representativ e sample of airline companies operating in the US
market obtained financing at T+110 to 250 basis points,” Canada was referring to the chart now
included as Exhibit Bra-64. That chart includes American Airlines, which was at that time rated
BBB-, and which Canada described at the first meeting of this Panel as one of the “highest rated” US
airlines. Presumably, the other airlines not among the “highest rated” would have had even higher
spreads.

2 Canada’s Response, para. 22.
3 Brazilian 31 July statement to the Panel, para. 48, citing Brazil – Export Financing Programme for
Aircraft – Recourse by Canada to Article 21.5 of the DSU, WT/DS46/RW (Adopted as modified by the
Appellate Body 4 August 2000), Annex I-5, paras. 10-11.

12. Canada next states that it “did not argue that highly rated airlines would have to pay US
Treasury plus 125 bps or more.” 4 This is, quite simply, untrue. What Canada in fact said is even
more forceful than that. Canada in fact said that the “ best rated non-sovereign airline,” which was at
the time British Airways, would have to pay “US T-bill plus 105 to 120 basis points (125 to 150 for
regional aircraft).”5 Not just highly-rated airlines, but the best-rated airlines, would thus have to pay
T-bill + 125-150 bps to finance regional aircraft. All other airlines would then have had higher
spreads.
13. Canada now argues that it could not possibly have meant what it said, however, since it also
argued in Brazil-Aircraft (again in the chart now attached as Exhibit Bra-64), that American Airlines,
which was at the time rated BBB-, was paying T-bill + 111 bps. 6 According to Canada, this
demonstrates that an airline rated below the “best-rated” airline would be able to obtain financing
below T-bill + 125-150 bps. Canada neglects to point out, however, that the weighted average T-bill
+ 111 bps rate paid by American was for large aircraft, rather than regional aircraft . Specifically,
Canada was citing financing by American for the purchase of two Boeing 777-200s, three 767-300s,
and ten 737-800s.
7 Canada itself stated that financing for regional aircraft requires an additional 20-
30 basis points. Thus, for the purchase of regional aircraft, American, as a BBB- rated airline, would
have paid T-bill + 131-141 bps. There is, therefore, a slight inconsistency between Canada’s spreads
of T-bill + 125-150 bps for British Airways (rated BBB+) and of T-bill + 131-141 bps for the lower-
rated American Airlines (BBB-). Notwithstanding this inconsistency, it was Canada’s position that
any airline that was not one of the “highest rated” airlines would have to pay spreads in excess of 150
basis points over the T-bill for regional jet financing in January 2000. Brazil notes that the industrial
spreads provided in Exhibit Bra-68 indicate that the spread for a BBB- grade investment in
January 2000 was approximately 160 bps over T-bill.
B. Canada Relies on EETC Spreads as Market Benchmarks
14. Canada’s objections to Brazil’s use of EETC spreads are equally unavailing. Canada suggests
that Brazil made “exclusive use” of EETCs as a “sole benchmark” for establishing pricing for the
regional aircraft industry.
8 This is surprising, given that, as Brazil has explained, Canada has itself
previously relied on EETCs as a proxy for market rates for regional jet transactions. 9 Thus, on
2 March 2001, Canada told the second Brazil – Aircraft Article 21.5 Panel that:
1. As shown in the annexed Morgan Stanley Dean Witter Market Update (the
“MSDW Report”) the airline with the best credit rating (i.e., lowest risk) is American,
whose debt currently trades between 135 to 200 basis points above Treasury rates.
That is, even at the lowest end of the lowest risk airline, the 135 basis point spread is
still 35 basis points higher than a rate achieved at CIRR alone.
2. The spread between the CIRR and market rates is higher - in some cases far
higher - for other, less creditworthy airlines. As the MSDW Report shows, the spread
paid by an airline above US Treasury rates can range up to 500 basis points. Thus,

4 Canada’s Response, para. 24.
5 WT/DS46/RW, Annex I-2, Rebuttal Submission Of Canada, 17 January 2000, para. 51, note 26
(emphasis added).
6 Canada’s Response, para. 24.
7 WT/DS46/RW, Annex I-4, Responses by Canada to Questions of the Panel, 3 February 2000, Reply
to Question 11.
8 Canada’s Response, para. 34.
9 Brazil certainly did not use EETCs “exclusively” as the “sole benchmark.” Brazil refers the Panel to
paras. 46-61 of Brazil’s Statement for the Second Meeting of the Panel, 31 July 2001, for Brazil’s methodology.

even comparing PROEX III to market rates - without taking into consideration other
terms and conditions - PROEX confers a material advantage.10
15. The MSDW Report to which Canada refers is of course the report showing the spreads for
EETCs, on which Brazil based the charts in Exhibits Bra-65 and 66. In that proceeding, Canada also
stated that:
1. As discussed in paragraphs 78-79 of Canada’s First Submission, the
financing spreads required from airlines purchasing regional aircraft (as shown in the
MSDW Report in Exhibit CDA-17) far exceed the spread incorporated in the US
dollar CIRR (a 100 basis point spread over the appropriate US Treasury average).
The spreads shown in the MSDW Report are for Enhanced Equipment Trust
Certificates (EETCs). EETCs are a secured form of financing that feature a number
of tranches with a varying level of priority claim over the aircraft. Each tranche will
carry a rating that reflects the seniority of the claim on the aircraft as well as other
credit enhancements that are designed to reduce risk. As a result of these risk-
reducing attributes, EETCs are tranches [sic] are usually rated well above the airline’s
unsecured debt rating. This enables the airlines (particularly those with lower credit
ratings) to achieve lower overall debt pricing on aircraft financing. The initial loan-
to-value ratios for the higher-rated EETC tranches are usually well below 70 per cent
of the initial fair market value, further reducing the risk profile associated with
EETCs when compared to PROEX III support. In its First Submission, Canada
refers to an American Airlines EETC tranche trading at 135 basis points above US
Treasury rates. As the highest-rated EETC tranche for one of the highest rated US
airlines, this EETC tranche is a conser vative relative benchmark when compared
against the spreads required for financing regional aircraft, yet it is still 35 basis
points higher than a rate achieved by the CIRR alone. A lender will certainly provide
a borrower a material advantage if, by offering financing at the CIRR, it is permitted
to offer a less credit-worthy borrower the same low interest rate as a more credit-
worthy borrower.
11
Thus, in April of this year, Canada considered the highest-rated EETC tranche to be a “conservative
relative benchmark when compared against the spreads required for financing regional aircraft.” Now
that its own transactions are being measured against this standard, however, Canada describes the use
of this benchmark as “fundamentally flawed.” Thus, in paragraph 36 of its response, Canada objects
to Brazil’s use of weighted average spreads for all tranches of an EETC issuance. Given that Canada
has previously stated that the highest-rated tranche (with the lowest spread) was “conservative,” there
is no reason to believe that Brazil’s use of weighted-average spreads led in any way to an unfair
comparison.
16. Canada also states that Brazil used the weighted-average of all EETC issues for a particular
year. However, as Brazil explained in its submission of source data, the graphs in Exhibit Bra-65
were not based on averages for a particular year, but on the spreads at which other EETCs in the
market were trading in the month in which EDC offered or provided financing. By this measure,
EDC’s financing was consistently below the spreads at which EETCs were trading in that month.
Exhibit Bra-66, provided as a cross-check,
12 took simple averages of all EETCs trading in that month,
and reached similar conclusions.

10 Brazil – Export Financing Programme for Aircraft – Second Recourse by Canada to Article 21.5 of
the DSU, WT/DS46/RW/2 (26 July 2001), Annex I-1, First Submission of Canada, 2 March 2001, paras. 78-79.
11 WT/DS46/RW/2, Annex A-3, Oral Statement of Canada, 4 April 2001, para 88 (emphasis added).
12 See Brazil’s 31 July statement to the second meeting of the Panel, para. 66.

17. At the first meeting of this Panel, on 27 June 2001, Canada continued to rely on the EETC
spreads to question the veracity of Brazil’s statement regarding the terms of Embraer’s offer to Air
Wisconsin. Canada asserted that “the financing spreads generally required from airlines purchasing
regional aircraft far exceed the US dollar CIRR. Even the highest rated US airlines, such as
American, are routinely required to pay interest rates significantly greater than the CIRR when
financing aircraft even at loan to value ratios of below 70 per cent [citing MSDW’s 10 February 2001
EETC market update, Exhibit Cda-14].”
13 Again, once this analysis is applied to Canada’s
transactions, Canada disavows the analysis. Nevertheless, the data provided in Canada’s Response
continues to show that Canada provides financing at rates that do not match the standard of
“significantly greater than CIRR” that Canada propounded to the Panel at the end of June. For
example, in Brazil’s 31 July statement, at paragraphs 73-74, Brazil noted that EDC’s 26 August 1998
offer to ASA []. At paragraphs 87-88 of the same statement, Brazil noted that EDC’s 12 August 1997
offer to Comair [].
18. Canada correctly notes that Brazil objected to aspects of how Canada used EETCs in the
second Brazil – Aircraft Article 21.5 proceedings. In paragraphs 31-32 of its 13 August response,
Canada quotes from Brazil’s comments on Canada’s responses to questions in that proceeding. But
Canada does not explain the context of Brazil’s quoted remarks. In the Brazil – Aircraft proceeding,
Canada sought to show that Brazil’s PROEX III programme, which permitted buydowns of interest
rates to the CIRR, thereby permitted Brazil to fi nance at below market rates. In response to
question 18 from that Panel, Canada stated as follows:
5. Canada has presented detailed argument and evidence before this Panel at
paragraphs 84 to 97 of its First Submission and at paragraphs 78 to 90 of its Rebuttal
Submission demonstrating that CIRR is not an appropriate benchmark in regional
aircraft transactions because it does not appropriately reflect the rates at which
regional aircraft financing is generally offered in the marketplace.
6. The CIRR interest rate in most cases will be well below commercial rates
available for regional aircraft transactions. For example, as demonstrated in
paragraph 88 of Canada’s Rebuttal Submission, the CIRR is 35 basis points lower
than a rate achieved by the highest-rated EETC tranche for one of the highest rated
US airlines (American Airlines).14
19. Thus, Canada itself relied on the EETCs, rather than evidence of rates provided by
commercial banks in other regional jet financing transactions, to determine the “commercial rates
available for regional jet transactions.” In particular, Canada relied on the spread achieved by the
highest tranche for the highest airline. Brazil’s response, in addition to the passage quoted in
paragraph 31 of Canada’s 13 August Response, explai ned that for many of the same reasons pointed
out in its statement to the second meeting of this Panel and its response to Question 18, EETCs are not
a perfect proxy for bank-financed regional jet transactions. In particular, Brazil pointed out that the
January 2001 spread for the American Airlines transaction may not be indicative of the issuing spread
at that time. In conclusion, Brazil stated as follows:
Finally, simply taking Canada’s analysis as it is given, Canada does not explain how
it is possible for the debt of the airline with the best credit rating to trade at 35 to 100

13 Canada’s 27 June statement to the first meeting of the Panel, para. 14 (bullet 2).
14 WT/DS46/RW/2, Annex A-4, Responses by Canada to Questions of the Panel, 17 April 2001,
paras. 5-6.

basis points above the CIRR when, at the same time, its own lending to airlines below
the CIRR is “commercial.”15
20. This conclusion states precisely the issue before this Panel. Canada asserts here, as well as in
Brazil – Aircraft , that its financing terms, though well below the debt of the airline with one of the
highest credit ratings – are nevertheless consistent with the market. Canada cannot avoid this
contradiction simply by changing its mind as to the appropriateness of the EETCs as a proxy for
market rates.
21. Canada claims that in employing the market financing rates used by Canada in Brazil –
Aircraft, Brazil has “failed to recognize that the market for the debt of these and other externally-rated
airlines is dynamic,” and has thus linked those rates neither “to the specifics of the EDC transactions
nor to the time at which EDC made its offers.”
16 To the contrary, Brazil’s methods in this case were
more precise than those used by Canada in Brazil – Aircraft. Brazil in this case attempted to compare
Canada’s pricing both to the contemporaneous spreads at which EETCs were trading in the month in
which Canada made its commitments and the offering spreads at which EETCs were issued in each
year. Thus, Exhibit Bra-65 compares EDC’s pricing in the relevant month to the spreads at which
EETCs were trading in that month . Brazil notes that because few or no new EETCs are issued in a
given month, by using bid spreads rather than offer spreads for the comparison in Exhibit Bra-65,
Brazil compared Canada’s financing to a broader range of data than if Brazil attempted to rely solely
on spreads for new offers.
22. Furthermore, in Exhibit Bra-66, Brazil compared EDC’s pricing to the average offer spread
for all new EETC offers in that year. Again, using an annual average spread provided a broader range
of data against which to compare Canada’s pricing. Moreover, by using annual averages, Brazil
presumably “flattened” any spikes in spreads for particular issues and thus provided a more fair
comparison for EDC’s pricing. While Brazil has never claimed that either of these comparisons were
statistically perfect,17 Brazil believes that both methods of comparison are more accurate than the
comparisons Canada itself made in Brazil – Aircraft and at the first meeting of this Panel and, more
importantly, provide fair and consistent comparisons for Canada’s pricing. Under both comparisons,
the conclusion is stark – EDC’s pricing is consistently below what the market would appear to
suggest.
23. In any event, Canada’s protestations that reliance on EETCs as a proxy benchmark is
“fundamentally flawed” ring hollow in light of the fact that EDC itself relies on [].
C. Brazil Also Showed that EDC’s Pricing Was Below General Industrial Bond
Spreads
24. Brazil’s Exhibit Bra-68 showed that even assuming Canada’s credit ratings to be accurate ,
EDC’s pricing was below the spreads at which [] were trading at the time of EDC’s offer for several
of the transactions discussed in Brazil’s statement. Canada does not rebut these conclusions.
25. Nevertheless, Canada continues to rely extensively on the [] to justify its pricing in the
worksheets provided in pages 3-10 of Annex II to its submission. Brazil has previously explained that
the industrial indices represent averages of general corporate debt that are further adjusted using fair
market curves that are in themselves blunt averages across a wide array of sectors and debt. At least

15 WT/DS46/RW/2, Annex B-6, Brazil’s Comments on Responses to Questions by Canada and Third
Parties, para. 26.
16 Canada’s Response, para. 25.
17 Brazil notes again that it had only two business and two weekend days to prepare its comments on
Canada’s data, compared to the period of 9 business days and four weekend days Canada has had to respond.

the EETCs represent actual market rates on aircraft financing secured by aircraft. In several of the
worksheets (see pages 7-10) provided in Annex II, however, the [] are the only factor supporting
Canada’s claim that its rates are at market. If the broad averages are not considered as representative
of the regional jet sector (and Canada has failed to show that they are), Canada’s pricing is well below
market in each of these cases.
26. Canada has also attacked Brazil for using data from one time period as a comparable for
transactions from a different period. As explained above, Brazil’s methodology reasonably attempted
to account for time factors. Despite this attack on Brazil, Canada itself uses data from one period to
justify pricing in another. For example, in Annex II, Canada relies on the [] to support every
comparison with the exception of the Atlantic Coast Airlines February 1996 and Kendell Airlines
August 1999 offers. Canada uses these [] as representative comparisons in charts covering financing
offered in July 1996 (a year before the []), March 1998, August 1998, February 1999, and March
1999. This suggests that Canada is simply cherry-picking data it considers favourable to support its
own position. In contrast, the advantage of Brazil’s use of EETC issues is that it gave Brazil a
representative sample of over 30 different issues and over 100 different tranches on which to base
reasonable estimates of the market pricing.
18
D. Canada’s Attacks on Brazil’s Methodology Are Contradictory
27. Canada’s attacks on Brazil’s methodology are also contradictory in other respects. For
example, Canada states on page 1 of Annex I that there is a “large gap” between the EETC pricing
and the pricing from comparable corporate bond spreads and the Fair Market Curve spreads”
(emphasis added). However, Canada acknowledges on page 1 of Annex II that “there are not many
unsecured airline corporate bonds. Moreover, to Canada’s knowledge there have been no corporate
bonds issued by US regional airlines ” (emphasis added). Thus, Canada, while rejecting the use of
EETC pricing, prefers instead a proxy that it acknowledges does not exist in the regional aircraft
sector. Nevertheless, in justifying its pricing on a transaction-by-transaction basis on pages 3-11,
Canada compares its pricing to “not many” corporate bonds in the large aircraft sector without any
consideration of whether these spreads should be adjusted for the regional aircraft sector even though,
as discussed above, Canada has said that spreads for the regional aircraft sector should be 20-30
points higher than in the large aircraft sector.
19
E. EDC’s Other Pricing Sources Are Also Unreliable
28. Canada rejects Brazil’s criticism of other aspects of its pricing for regional jet transactions. In
paragraph 14, Canada states that EDC relies on its own past pricing not to determine whether those
transactions are at “market” but simply to “ensure consistency and completeness.” The distinction is
hollow. In either case, EDC’s pricing memos show that EDC follows its own subjective assessment,
rather than prevailing market practices, in setting financing terms for its transactions.
29. In its statement Brazil noted that even though Canada asserts that over [] per cent of
Bombardier’s sales of regional jets were financed in the commercial market without any government
support, EDC does not appear to measure its pricin g against the pricing for those transactions. In
response, Canada states that it is difficult for ED C to obtain information regarding the terms of those
transactions. This does not make sense, as Bombardier is an interested party in both the commercial
and officially supported transactions. Should EDC wish to compare its financing against the
financing obtained by Bombardier in the commercia l market, it need only ask Bombardier for the
relevant information.

18 See, e.g., Exhibit Cda-14, which lists US airlines’ EETC issues and tranches.
19 See WT/DS46/RW, Annex I-2, Rebuttal Submission of Canada, 17 January 2000, para. 51 (note 26).

30. Canada attempts to argue that the “importance of the transaction to Bombardier” is relevant to
establishing the market rate for a given transaction.20 This defies belief. Brazil doubts very much that
the importance of a given transaction to Embraer would ever justify the government of Brazil
providing whatever support it considered necessary for Embraer to make the sale. No commercial
bank would ever consider the importance of a sale to Bombardier in setting its financing terms for a
transaction.
31. Furthermore, it is no defence that the [] may have been “just one of several considerations for
EDC.” While Canada may consider that its efforts to ensure that Bombardier prevails in transactions
that are important to it are, in Canada’s own word s, “just one” of the “ subjective considerations” on
which, again in Canada’s words, it should not be “second guess[ed],” the issue before the Panel is
whether EDC’s financing was based on commercial market principles and terms. 21 The [] cannot
possibly be construed as either a commercial market principle or term.
III. Canada’s Methodology to Assign Credit Ratings Is Unreliable and Overstates Ratings
32. Canada’s submission fails to justify either the manner in which EDC assigns credit ratings to
borrowers or the actual ratings it has assigned. In its statement to the second meeting of the Panel,
Brazil showed that the ratings assigned by Canada to various borrowers were consistently higher than
the ratings published for better, more credit wort hy airlines. Moreover, Brazil also showed that
Canada’s ratings for particular airlines frequently changed for no apparent reason, and seemed to be
post hoc rationalisations for particular financing spreads.
33. In its 13 August response, Canada makes little effort to justify the credit ratings on which its
financing terms are based, devoting only a single page of its submission to the issue. Canada attempts
to defend its LA Encore system, but, as explained below, that system has no value as an independent
or objective means to determine whether Canada’s financing terms are at market. Canada simply
assumes that the credit ratings it assigns to various airlines are valid, and, based on these ratings,
attempts to justify the terms of its financing. Howeve r, the accuracy of the credit rating assigned to a
borrower is crucial to determining the appropriate financing rate for that borrower. If Canada assigns
a better credit rating to a company than the market would, then presumptively any financing provided
on the basis of that rating is also better than the market would provide.
A. LA Encore Is Wholly Unreliable as An Objective Tool
34. In its response to the Panel’s question 66, Canada acknowledged that its LA Encore ratings
system has been customised to use subjective factors. While Canada asserts that it provided
additional documentation regarding LA Encore in its response to question 66 that establishes the
programme’s reliability, Brazil notes that Canada has not provided any information regarding the
precise manner in which EDC has customised LA Encore or any description of the subjective factors
used in the programme. Moreover, such informatio n as Canada has placed on the record regarding
LA Encore shows that the programme, as used by EDC, is totally unreliable for the purpose of
verifying whether Canada’s financing was at market rates.
35. For example, Canada acknowledges that LA Encore underwent a “recalibration of specific
weighting,” but does not explain how this was done. All that Brazil and the Panel know, for a fact, is
that this recalibration upgraded previous ratings given by EDC itself by up to [].
22 The flexibility and
customisation of LA Encore seems to be one of the main characteristics of the software. Canada’s
Exhibit 72 refers repeatedly to the manner in which the software may be customised. According to

20 Canada’s Response, para. 26-28.
21 Canada’s Response, paras. 28, 3, and 5, respectively.
22 Brazil’s 31 July statement to the second meeting of the Panel, para. 54.

that Exhibit, the software has “customisation tools” that allow the user to establish its “own credit
practices, policy guidelines or internal ratings approach.” Further, “[a] powerful set of support tools
makes customisation possible at every level…” (emphasis added). In fact, the customisation of results
is ensured, inter alia, by a “tuner,” that allows the user to “reconfigure subjective questions and adjust
their impacts throughout the assessment network.”23
36. Canada’s Exhibit 73 provides further evidence of the lack of objectivity of the software.
Sections 3.2 and 3.2.1 describe in detail how the user may establish its own “weight rule” and assign
different weights to the various parameters it has selected to be examined. Again, Canada has
provided no information as to how its own “weight rules” actually work. In fact, this software is so
easy to customise that the results obtained with the programme are actually meaningless to anyone
outside the institution that uses it. In the words of the expert cited by Canada, Mr. Kumra, “this
flexibility generally precludes the outputs of the system from being used outside the organization.
The very attributes that allow extensive customization of the knowledge base for specific credit
environments prevent two organizations from being able to objectively use the measure as a basis for
transactions since they cannot use the (differently) customized systems as a common basis for
comparison.”
24
37. According to Canada’s own exhibits, the LA Encore results obtained by EDC reflect EDC’s
own methodologies, its own culture, and the risk appetite of an official export credit agency. None of
these factors is dependent on the commercial market for financing terms for regional jet transactions.
It is no wonder, therefore, that EDC’s use of LA En core can improve the credit rating of an airline
company by []. In these circumstances, the Panel should not consider EDC’s use of its customised
software as in any way supportive of Canada’s clai m that EDC finances at market rates. The Panel
should not only consider particular transactions financed through EDC as violations of the SCM
Agreement. It should also hold that EDC’s use of the “market window” as such is a violation because
the whole “market window” concept is based on significantly inflated credit ratings of the borrowers.
B. EDC’s Credit Ratings for Its Customers Are Vastly Overstated
38. In addition to, and because of, LA Encore’s fundamental unreliability and subjectivity, the
credit ratings assigned by EDC to its various customers are much better than agencies such as
Standard & Poor’s normally assigns to the airline industry. An analysis of EDC’s ratings shows that
EDC’s customers consistently get better ratings than all airlines rated by Standard & Poor’s, with the
exception of British Airways (described by Canada in Brazil – Aircraft as the “best rated non-
sovereign airline”), Southwest Airlines (considered to be the best managed large airline in the
United States), and, in some instances, American Airlines (described by Canada at the first meeting of
this Panel as one of the “highest rated” US airlines). Canada’s Response makes no effort to show how
its ratings bear any relationship to the published ratings for the airline industry. As noted above,
overstating a customer’s credit rating enables EDC to provide financing at spreads that may not be
available based on an inferior credit rating.
39. The extent to which Canada overstates credit ratings may be seen from the chart attached as
Exhibit Bra-73. This chart shows a comparison between the credit ratings assigned by EDC to
various customers, taken from Canada’s submission , and the ratings given by Standard & Poor’s to
various commercial airlines at the time of each EDC transaction. In the right hand columns of this
chart, Brazil has calculated the difference in number of notches between the ratings provided by

23 Exhibit Cda-72, page 3.
24 Exhibit Cda-73, page 16-17 (emphasis added). In addition, according to the same expert, part of LA
Encore’s “power derives from its extreme flexibility which allows users to directly modify the underwriting
models that are used by the system by augmenting the KB with additional rules or by adjusting the weightings
within the existing knowledge base.” Id., page 14.

Canada (using the ratings for both secured and unsecured debt) and the ratings published by Standard
& Poor’s for the relevant date. 25 A “+” symbol in the columns headed “Difference” indicates the
number of notches by which EDC’s customer has a better credit rating than the published Standard &
Poor’s airline for each company. A “-” symbol in those columns indicates the number of notches by
which EDC’s customer has a worse credit rating than the Standard & Poor’s rating.
40. This analysis shows that, for example, Canada rated Atlantic Southeast Airlines (ASA) [], in
August 1998. In March 1997, Canada rated ASA []. ASA’s rating in both cases was []. The
significance of this rating can be seen by reference to the spreads for [] for August 1998, provided in
Exhibit Bra-68. The first page of this exhibit shows that the spread for an [] with the rating of []
(unsecured) [] was approximately [] bps above the 10-year US T-bill. The spread for [ ] with the
rating of [] assigned by Standard & Poor’s to American, in contrast, was over [] bps above the 10-year
T-bill. Nothing in Canada’s response comes even close to justifying these differences, or explaining
how or why ASA came to have []. Nevertheless, Ca nada uses these ratings to provide terms to EDC
customers such as ASA that would not apparently be available to Standard & Poor’s highest-rated
airlines. Canada uses these inflated ratings, in other words, to release EDC from the requirements of
the OECD Arrangement and to justify its foray into “market window” financing.
41. The story is the same for EDC’s other customers. In both March 1998 and February 1999, for
example, EDC gave Comair a []. 26 Again, Canada has provided no explanation of why Comair
merited []. However, the materials provided by Canada in Annex II to its 13 August 2001 submission
illustrate the extent to which Canada’s argument depends on these ratings. Page 10 of Annex II
shows Canada’s comparisons for Comair’s February 1999 pricing of T-bill plus [] basis points, and
states this was “well above” the market, including bond issues and the []. This may be so only if it is
assumed that Comair’s rating of [ ] is reasonable. If Comair were given the [].
42. The same contrast exists on page 9 of Annex II. This analysis gives Canada’s comparisons
for Comair’s March 1998 pricing of T-bill plus [] basis points, which Canada claims was “within”
market for that period. However, page 9 indicates that EDC’s pricing was below all of the
comparables Canada itself uses, except for []. Again, if Comair were given the same rating as [],
EDC’s pricing would be [] in addition to the other indices on which Canada relies.
43. The same analysis holds true for all of the customers for whom Canada has provided
information in its 13 August 2001 submission, with the possible exception of Kendell.
27 For [], all the
evidence indicates that the credit ratings for thes e companies are simply not consistent with credit
ratings for other airlines in the market, and therefore are simply not a reliable market-consistent basis
on which to determine market spreads for financing for these customers.
44. Finally, Brazil notes also that Canada’s ratings are much better than the ratings Canada itself
has said are normally found in the airline industry. In Brazil – Aircraft , Canada noted that as of
January 2001, no airline had an “A” rating.28 Yet, as shown in attached Exhibit Bra-73, [].
IV. Specific Transactions

25 The Standard & Poor’s ratings were provided in Exhibit Bra-67.
26 Comair’s rating of [].
27 Kendell is the only EDC customer in this analysis that obtained a []. Given that the Kendell
transaction [], the credit rating assigned by EDC to Kendell may be said to be consistent with Standard & Poor’s
ratings. Rather than justifying EDC’s practices, however, this further illustrates the anomalies in EDC’s ratings
of []. Brazil’s comments regarding the specifics of the Kendell transaction are provided below.
28 WT/DS46/RW/2, para. 5.36, n. 51.

45. Brazil has shown that Canada’s response fails to rebut Brazil’s allegations regarding the
systemic manner in which Canada fails to adhere to market benchmarks in determining either credit
ratings or spreads for particular transactions. In addition to these systemic issues and the specific
ratings and spreads already discussed, Brazil has the following additional comments regarding the
transactions discussed in Brazil’s statement to the second Panel meeting and Canada’s Response
thereto. Brazil notes that these comments are limited to rebutting the arguments in Canada’s
Response. They are not comprehensive but complementary to the comments made in previous
submissions and statements by Brazil.
A. Atlantic Southeast Airlines
46. Brazil notes that while Canada provided pricing memos for the Comair and Kendell
transactions, it never did so for the ASA transaction. Thus, when Canada refers in Annex II of its
August 13 response to the different benchmarks EDC used to price the ASA transaction, the Panel has
no way of knowing whether those were the actual benchmarks EDC used to price the transaction, or
whether, instead, Canada searched for the specific purpose of this dispute for any benchmark that falls
below the rates it offered ASA.
B. Atlantic Coast Airlines
47. On page 5 of Annex II, Canada defends its pricing of offers to EDC in part on the ground that
one of its offers was ultimately not accepted by ACA. Brazil notes that whether or not EDC’s early
offers were accepted, EDC appears to have relied on its February 1996 offer to ACA in pricing EDC
support for the Comair transaction. The chart on page 5 of Exhibit Cda-59 specifically refers to the
February 1996 offer to ACA as an example of “past EDC pricing to US airlines.” Thus, these offers
provide further evidence that EDC does not follow market principles.
48. Brazil also notes that, as with the ASA transaction, Canada never provided pricing memos for
the ACA transaction. Brazil’s comments above with respect to the ASA transaction are therefore also
relevant to the ACA transaction.
C. Air Nostrum
49. Brazil notes that Air Nostrum received [] loan from Canada Account, as well as []. As Brazil
pointed out earlier, the weighted average of [].
29 In addition, Air Nostrum received a [] per cent
equity guarantee provided through IQ. In its separate comments on Canada’s 8 August response to
question 72, Brazil has addressed Exhibit Cda-77, and what Canada now states are different terms for
the Air Nostrum transaction. For example, Exhibit Cda-77 indicates that IQ provided a [] per cent
guarantee to Air Nostrum, rather than a [] per cent guarantee, as Canada previously stated. In any
event, the terms in Exhibit Cda-77 (as with those in Exhibit Cda-64 before it), have been
demonstrated elsewhere by Brazil not to be market terms of financing.
30
50. Canada alleges, in paragraphs 100-103 of its 13 August response, that it was matching terms
offered by the Brazilian government to Air Nostrum. The Panel has twice requested “all
documentation regarding the review” of IQ transactions, including the Air Nostrum transaction.
31
Canada failed to provide information about this alleged “match” in response to either request from the
Panel. It is unfortunate that Canada has chosen now, at this late date, to make this allegation. In any
event, Canada’s “matching” defence – which Brazil assumes to be recourse to the safe haven of item
(k) – must fail. Canada has not provided any documentary evidence supporting its claim; nor has it

29 See Brazil’s 31 July statement to the second meeting of the Panel, para. 109 and Exhibit Cda-64.
30 See, e.g., Id., paras. 105-113.
31 See Questions 14 and 41 from the Panel.

demonstrated that it actually matched competing terms. Even on 8 August, when it provided, in
Exhibit Cda-77, a revised version of the documenta tion regarding Canadian government support for
Air Nostrum, Canada failed to provide any documentary information supporting its alleged match.
Moreover, as the Panel is aware, Brazil does not consider that recourse to matching maintains
“conformity with” the interest rates provisions of the OECD Arrangement.
D. Kendell Airlines
51. Canada suggests that because commercial banks joined EDC in financing the Kendell
transaction, this transaction must be considered as “by definition” a commercial transaction. This
argument is flawed, for two reasons. First, the fact that EDC provided part – a large part – of the
financing means that this is an officially suppor ted transaction, not a commercial market transaction.
Second, Canada asserts, without support, that EDC was a price taker not a price maker in this
transaction. Given that EDC enjoys the highest possible credit rating, EDC’s presence in the deal
necessarily affected the financing terms. Whether EDC was the chicken or the egg in establishing the
financing terms for this deal, the fact remains that this was an officially supported transaction, the
terms of which were necessarily affected by the support of a AAA-rated ECA.
52. Brazil also notes that Canada accepts on page 11 of Annex II that the terms of the Kendell
transaction were lower than the industrial curves would indicate. 32 Canada’s defence is that the
pricing was “driven” by the commercial banks. As noted above, there is no support for this assertion.
Canada describes the Kendell transaction as “evidence that the commercial market can in some
circumstances provide financing more competitive than certain benchmarks.” 33 Canada does not
appear to realise that the “circumstances” present in the Kendell transaction that enable the financing
to be “more competitive than certain benchmarks” are no more than the involvement in the transaction
of a major government export credit agency with a AAA rating. Whether or not EDC itself actually
drafted the proposed terms, the reality is that it s involvement means that this is not a commercial
transaction, and does not provide a benchmark against which other transactions that are officially
supported in whole or in part may be measured.
53. Brazil notes that Canada continues to assert that EDC participated in this transaction on a pari
passu basis. In addition, Brazil notes that in its statement at the second meeting of the Panel, Canada
asserted that EDC provided financing for [] per cent, rather than [] per cent of this transaction. Given
that four other banks in addition to EDC participated in this transaction, it is not clear how EDC could
have financed [] per cent of the deal and still been on precisely the same terms as the other four banks.
Moreover, Canada’s assertion that EDC only financed [] per cent of the transaction is inconsistent
with the pricing strategy included in Exhibit Cda-39, which states that “[i]t is anticipated that EDC
will fund up to [] per cent of the notes while [] together with 3 other identified underwriters, will hold
the other [] per cent.” Canada has failed to resolve this inconsistency.
54. Brazil also notes that even though Canada stated at the second meeting of the Panel 34 that
only four banks participated in the Kendell transaction, on page 11 of Annex II, Canada continues to
list seven banks as involved in the transaction.
V. Investissement Québec

32 As noted above, the Kendell transaction is the only situation in which EDC’s credit rating of the
borrower seems to be in line with the ratings given by the commercial rating agencies. This may be a result of
the presence of other commercial banks in the transaction and the resultant pressure on EDC in this instance to
conform better to market practices.
33 Canada’s Response, Annex II, page 11 (emphasis added).
34 Canada’s 31 July statement to the second meeting of the Panel, para. 49.

55. Canada makes several assertions with respect to IQ support. First, although it continues to
insist, in paragraph 111 of its submission, that IQ charges fees for its guarantees, it has provided no
evidence of those fees whatsoever with respect to the Air Wisconsin transaction. In fact, Canada has
failed altogether to provide documentation for th e IQ guarantee to Air Wisconsin similar to that
provided in Exhibits Cda-60 through Cda-64 for IQ guarantees to other Bombardier customers. With
respect to other transactions for which Canada has shown evidence of a fee,
35 it has only shown the
[] basis point “up-front fee,” and not the [] basis point “annual fee” Canada claims is also charged.
56. Whether IQ charges no fees, a [] basis point up-front fee, or an additional [] basis point annual
fee, however, is irrelevant, unless Canada can demonstrate that those fees are commensurate with
what a commercial guarantor with an A+ credit ra ting would charge. An IQ guarantee, backed by
Québec’s A+ credit rating, confers a benefit by allowing Bombardier or its customers to secure better
financing or to make equity participation more attract ive than in the absence of that guarantee. Since
Canada has defended IQ guarantees by asserting that IQ charges “market” fees, it is Canada’s burden
to prove as much.
36 Canada has not done so.
57. Second, Canada claims that the Midway transaction, which involved an IQ equity guarantee,
does not also include financing support from CQC. This is not credible. The “Détails du
Financement” chart included with Exhibit Cda-61 indicates that [] per cent of the “montant maximal
financé” for the Midway transaction came via an EETC, with the remaining [] per cent coming from
CQC. The “Sommaire de transaction” also included in Exhibit Cda-61 states that the transaction was
composed of [] per cent debt and [] per cent equity, corresponding to the [] EETC-CQC split
discussed in the “Détails du Financement” chart. Canada has not provided full information regarding
the terms of the CQC equity support for this transaction, despite the fact that the Panel has twice
asked it to do so.
37 Brazil therefore requests that the Panel adopt adverse inferences, and presume that
the information regarding CQC’s equity support for the Midway transaction, if provided, would
demonstrate export subsidization.
58. Separately, the “Sommaire de transaction” page states that [] per cent of that “montant
financé” was subject to a guarantee, which is presumably the [] per cent equity guarantee discussed by
Canada in its response to Question 14.
59. Exactly the same terms appear in Exhibit Cda-63, concerning the Atlantic Coast Airlines
transaction. The “Détails du Financement” chart included with that exhibit indicates that [] per cent
of the “montant financé” for the Midway transaction was financed as debt from an unspecified
creditor, with the remaining [] per cent coming from CQC. The “Sommaire de transaction” also
included in the exhibit states that the transaction was composed of [] per cent debt and [] per cent
equity, corresponding to the [] Unnamed Creditor-CQC split discussed in the “Détails du
Financement” chart. Once again, Brazil notes that Canada has not provided full information
regarding the terms of the CQC equity support for this transaction, despite the fact that the Panel has
twice asked it to do so.
38 Brazil again requests that the Panel adopt adverse inferences, and presume
that the information regarding CQC’s equity suppo rt for the ACA transaction, if provided, would
demonstrate export subsidization.

35 See Exhibits Cda-60 through Cda-64.
36 United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India ,
WT/DS33/AB/R (23 May 1997), pg. 16 (“International tribunals, including the ICJ, have generally and
consistently accepted and applied the rule that the party who asserts a fact, whether the claimant or the
respondent, is responsible for providing proof.”).
37 See Questions 14 and 41 from the Panel.
38 See Questions 14 and 41 from the Panel.

60. Brazil notes that Canada does not deny that CQC provided debt financing support for the Air
Nostrum transaction. As noted in paragraphs 106 of Brazil’s 31 July statement for the second meeting
of the Panel, the “Détails du Financement” chart included with Exhibit Cda-64 indicates that after Air
Nostrum’s []. The “Sommaire de transaction” included in the same Canadian exhibit states that SDI
(now IQ) further guaranteed [] per cent of that “montant financé.” With its new Exhibit Cda-77,
discussed in more detail in Brazil’s comments on Canada’s 8 August response to question 72, Canada
now states that Canadian government support came in the form of debt financing, with [].
61. Third, in paragraph 112 of its submission, Canada again resorts to the impact of alleged [],
this time to rebut Brazil’s claim that charging the same fee to recipients of IQ guarantees with varying
credit ratings is inconsistent with market practices . According to Canada, [], IQ’s risk that any
particular purchaser will default is spread across the portfolio of all transactions. [].
62. Even assuming, arguendo, [] Canada’s argument is without merit. [] and the way in which it
[], may very well “greatly diminish” IQ’s risk exposure, as Canada argued in its response to question
47. However, as Canada itself emphasized in its response to question 48, []. Those []. When an
aircraft purchaser goes to a lender or looks for equity investors with an IQ guarantee, the lender or the
investors see the full [] per cent guarantee backed by the superior, A+ credit rating of the Government
of Québec. Whatever the effect of a [], Québec’s A+ rating confers a benefit on the lower-rated
purchasers receiving IQ guarantees, by allowing them to secure more favourable terms for debt or
equity.
39 Moreover, charging the same fee for this benefit, regardless of the purchaser’s credit rating,
is not market-based.
63. Brazil also notes that []. The alleged []. Thus, IQ’s risk exposure is not diminished with
respect to the remaining [] per cent of its guarantee. Moreover, Finally, [] appear only to apply to IQ
equity guarantees, and not IQ loan guarantees.
VI. Conclusion
64. Using Canada’s own data and Canada’s ow n methodology, Brazil was able to show that
Canada’s financing through the challenged programmes is below the market. Canada’s attacks
against Brazil’s data and methodology are therefore groundless. Moreover, Canada has not been able
to justify the credit ratings it assigns to its customers and has failed to show that it relies on objective
estimates of the market in providing government support. Canada’s 13 August response, therefore,
fails to rebut Brazil’s showing that Canada provides export financing support on below market terms.

39 See paragraph 143 of Brazil’s 13 July rebuttal submission, and paragraphs 14-15 of Brazil’s 31 July
statement for the second meeting of the Panel.

ANNEX A-18
COMMENTS OF BRAZIL ON
INTERIM REPORT OF THE PANEL
(26 October 2001)
Brazil thanks the Panel and the Secretariat for their efforts in producing the Panel’s interim report,
dated 19 October 2001. Brazil is not requesting an additional meeting to discuss the interim report,
but asks the Panel to consider the following comments:
1. Paragraph 7.18. Brazil notes a typographical error in the first sentence:
“. . . we view the claims in this proceeding to be different and broader than those that
were the subject of the Canada – Aircraft ruling.”
2. Paragraph 7.106. Brazil notes some typographical errors in this paragraph:
“Leaving aside for the moment the issue of export contingency, we first address that
of subsidization, in particular, whether Canada the Corporate Account mandates the
conferral of benefits within the meaning of Article 1 of the SCM Agreement.”
3. Paragraph 7.147. The Panel states that United Express is operated by Air Wisconsin. It
would be more accurate to state that Air Wisconsin operates as United Express.
1
4. Paragraph 7.221. Brazil believes that the Panel has misconstrued Brazil’s argument in this
paragraph. Referring to paragraph 15 of the Comments of Brazil on Responses of Canada to
Questions from the Panel Following the Second Meeting of the Panel, 20 August 2001, the Panel
states that Brazil purported to “use EETC data in the same manner as Canada used it [in the Brazil –
Aircraft – Second Article 21.5 proceeding].” However, nothing in paragraph 15 suggests that Brazil
claimed that it was using the EETC data in exactly the same manner as Canada did in the Second
Article 21.5 proceeding. To the contrary, paragraph 15 states that since Canada considered the
highest rated tranche of an EETC to be a conservative benchmark, there was no reason to believe that
Brazil’s use of weighted-average spreads – rather than a “conservative” spread – would provide an
unfair comparison against which to measure EDC fi nancing. In paragraph 15, Brazil quoted directly
from Canada’s submission in the Brazil – Aircraft – Second Article 21.5 proceeding, without ever
suggesting that Canada used weighted-average spreads in that phase of the Brazil – Aircraft
proceedings. Several other statements by Brazil make clear that it did not “purport[] to use EETC
data in the same manner as Canada.” For example, Brazil explained, in paragraphs 19-22 of its
20 August 2001 submission, that it used the EETC data in several different ways in order to provide
“fair and consistent comparisons” for Canada’s pricing. Brazil notes, however, that it would be
inaccurate for the Panel to imply that Canada has never previously used weighted average EETC
spreads as a benchmark. Brazil’s Exhibit Bra-64 shows that Canada in fact used weighted average
spreads in the Brazil – Aircraft – First Article 21.5 proceeding.
2

1 See http://www.airwis.com/
2 Exhibit Bra-64 is a chart used by Canada in the first Brazil – Aircraft Article 21.5 proceeding, which
shows weighted-average spreads for EETCs issued by various airlines.

5. Paragraph 7.226. The Panel states that it is “unrealistic” to expect EDC to have access to data
regarding the [] per cent of Bombardier sales not receiving EDC support, since EDC was not party to
those transactions. Brazil requests that the Panel add the following footnote, after the final sentence
of the paragraph:
“We note, however, that Brazil was able to comply with the Panel’s requests to
provide details, [], regarding Embraer’s offer to Air Wisconsin, although Brazil was
not a party to that offer. See attachment to Brazil’s letter of 25 June 2001 to the
Panel. See also Response of Brazil to Question 33 and Exhibit BRA-56”.
6. Paragraph 7.231. There appears to be a typographical error in the sixth sentence of this
paragraph:
We find it difficult to accept that the existence of “benefit” (in the context of
financing) is not determined on the basis of whether or not Bombardier provides
internal or external financing.
7. Paragraph 7.232. The third sentence appears to include a typographical error. It should begin
with “EDC,” rather than “ASA.”
8. Paragraph 7.294 (footnote 244). The second sentence of footnote 244 includes a
typographical error. The reference should be to “Exhibit CAN-58.”
9. Paragraph 7.304 (footnote 249). Footnote 249 appears to include several typographical
errors.
10. Paragraph 7.352 (footnote 278). The Panel stat es that Exhibit CAN-61 does not indicate the
existence of IQ financing to Midway. However, as Brazil noted in paragraphs 57-58 of its 20 August
submission, the “Détails du Financement” chart incl uded with Exhibit CAN-61 indicates that [] per
cent of the “montant maximal financé” for the Midway transaction came via an EETC, with the
remaining [] per cent coming from CQC. This corresponds to the indication in the “Sommaire de
transaction” that the transaction was composed of [] per cent debt and [] per cent equity. The [] per
cent CQC equity guarantee mentioned in the “Sommaire de transaction” is different from CQC’s
[] per cent equity participation in the transaction. Canada has denied that CQC provided “financing”
to Midway; it has not denied that CQC participated in the transaction as an equity investor.
The Panel requested Canada to provide “full details of the terms and conditions” of IQ
support, and “all documentation regarding the review” of IQ transactions. 3 Canada only provided
information regarding the details of CQC’s [] per cent equity guarantee for the Midway transaction,
and not details of CQC’s [] per cent equity participation. This is the reason for Brazil’s request that
the Panel adopt adverse inferences.

3 See Questions 14 and 41 from the Panel.

ANNEX A-19
COMMENTS OF BRAZIL ON COMMENTS OF CANADA
ON INTERIM REPORT OF THE PANEL
(2 November 2001)
Paragraph 7.18
In its comment to Paragraph 7.18, Canada states that the legal framework under which
the Canada Account is operated has “not changed.”
Brazil notes that the legal framework under whic h the Canada Account operates has, in fact,
changed since the Panel’s decision in the first Canada - Aircraft dispute. As a result of that Panel’s
ruling, Canada enacted a policy memorandum stating that Canada Account support would respect the
terms of the OECD Arrangement. The Article 21.5 proceedings in that dispute centered on this policy
memorandum. Although the Article 21.5 Canada - Aircraft Panel found that this policy
memorandum did not bring Canada Account into c onsistency with its obligations under the SCM
Agreement, this memorandum is apparently still in effect. Canada provided a copy of the
memorandum to this Panel as Exhibit Cda – 50. The Panel should therefore reject Canada’s
comment.
Paragraph 7.145
Canada’s comment to Paragraph 7.145 states that, “In the last sentence, ‘… Canada
assumes that because the Embraer offer was not supported by the Brazilian Government …’
should be changed to ‘…Canada assumes that if the Embraer offer was not supported by the
Brazilian Government …’. This would more accurately reflect Canada’s argument, which was
made in the alternative to Canada’s principal position that Embraer’s offer was supported by
the Brazilian Government.”
Brazil objects to this comment and the proposed amendment. In the preceding paragraphs
the Panel discusses Canada’s argument that Canada had “matched” Brazil's offer in compliance with
the OECD Arrangement. In paragraph 7.145 the Panel refers to Canada's argument in the alternative:
that because Canada’s offer was extended on the same terms as Embraer’s offer, Canada’s offer was
market-based. The purpose of the last sentence of paragraph 7.145 is thus not to reflect Canada’s
doubts on whether Embraer’s offer was realistic without the support of Brazil. The word “because” is
there to show a cause and effect relationship, a causal link. The point of that sentence is that Canada
assumes that an offer not supported by the government is, for that reason alone, market-based. The
Panel should therefore reject Canada’s comment.
Paragraph 7.152 & 7.316
In its comment to Paragraph 7.152 and Paragraph 7.316, Canada states that, “It is not
correct that Canada Account (or Corporate Account) financing is only available for export
transactions.” Canada now claims that EDC may enter into “’domestic financial transactions’ .

. . provided that in doing so, EDC is supporting and developing . . . Canada’s export trade and
Canadian capacity to engage in that tr ade and to respond to international business
opportunities.”
Brazil objects to this comment and notes that Canada chose not to make this argument to the
Panel, despite having had ample opportunity to do so. Because Canada has waited until after the
release of the Interim Report to present this claim, there is no information in the record supporting
Canada’s assertion. Throughout the course of this proceeding, Canada has constantly reminded the
Panel of the importance of respecting a Member’s right to due process. Because Canada’s claim
regarding EDC’s alleged domestic support was not previously raised, Brazil did not have an
opportunity to fully litigate the issue before the Panel. Consequently, Brazil’s due process rights
would be severely compromised if the Panel were to alter the Interim Report to reflect Canada’s
belated claim. In any event, even if the Panel we re to consider this argument (which it should not),
the proviso in the last sentence of Canada’s comment proves that the Canada Account and Corporate
Account can only be used to support and develop Canada’s export trade. The Panel should therefore
reject Canada’s comment.
Paragraph 7.218, Footnote 177 & Paragraph 7.221, Footnote 179
Canada’s comment to these footnotes states that, “The reference should be to Comments
of Brazil on Canada’s Response to New Arguments in Brazil’s Second Oral Statement.”
Brazil notes that this statement is incorrect. Brazil never submitted a document with this title
to the Panel. Brazil did not consider that the information it presented at the Second Meeting of the
Panel contained “new” arguments. The reference should therefore be to “Comments by Brazil on
Canada’s Submission of 13 August 2001,” paragraph 15.
Paragraph 7.276
Canada’s comment to Paragraph 7.276 states that, “On the basis of the [], the Panel has
concluded, incorrectly, that EDC financing [] does not include []. To clarify, the [] provides that
[] will include[]. The [] further allows for the lowering of the fixed margin for credit risk
identified in the [] on the authority of the Pr esident or Senior Vice President Finance and Chief
Financial Officer. Thus, an authorized margin be low the identified fixed margin is the [] for
that transaction.”
Brazil objects to this comment. The Panel f ound, correctly in Brazil’s view, that EDC’s []
would approximate the rate a commercial lender would seek, and that rates [] were indicative of a
benefit, absent evidence to the contrary. Canada now argues that because EDC officials may
authorize rates [], those rates are “appropriate.” Brazil disagrees. The mere fact that someone at EDC
authorizes a rate [] does not in any way establish that the rate is in any way “appropriate” when
measured against commercial rates. The “fixed ma rgin” built into the [] presumably reflects the
“commercial principles” upon which Canada has insisted EDC operates. The Panel is entitled to
presume that anything [] does not reflect those same commercial principles.
In any event, Canada has not, either prior to is suance of the Panel’s interim report or in its
comments on that report, provided any support for the position that a rate [] could be an "[]”. In
response to Brazil’s statements regarding support to Comair at rates [ ]
1, Canada had ample
opportunity to make this argument to the Panel in its 13 August submission, but voluntarily chose not
to do so. Canada thus cannot now present, and the Panel cannot accept, this additional argument
without violating Brazil’s right to due process. The Panel should therefore reject Canada’s comment.

1 See Statement of Brazil for the Second Meeting of the Panel, 31 July 2001, paras. 84-85.

Paragraph 7.392, Footnote 303
Canada’s comment on footnote 303 states, in pa rt, that this note “suggests, incorrectly,
that Canada failed to provide information when requested to do so by the Panel.”
Brazil notes that although Canada’s 25 June letter summarily refers to IQ's role, as does
page 12 of the attachment to that letter, Canada did not provide the Panel with CQC’s “Sommaire de
transaction” (Exhibit Cda-106), which provides the details of IQ’s involvement, until 31 August 2001,
in response to the Panel’s 24 August 2001 letter. The Panel should therefore reject Canada’s
comment.
Paragraph 7.387
Canada’s comment on this paragraph states th at, “It appears that the last word of the
second last sentence, ‘excluded’, should read ‘included’.”
Brazil believes the word “excluded,” in the sentence to which Canada refers, should be
replaced with the word “provided.”
Technical Correction
Brazil notes that Canada’s exhibits in this proceeding were labelled or referred to as either
“Exhibit CDA-XX” or “Exhibit Cda-XX.”