2004/13/EC: Commission Decision of 6 January 2004 terminating the examination procedure concerning the Brazilian Export Financing programme "PROEX" as applied in the regional aircraft sector
Date: 2004-01-06
Institutions: European Commission
Subjects: Brazil, Germany, aeronautical industry, air transport, complaint to the Commission, export financing, restriction on competition, transport company

8.1.2004

EN

Official Journal of the European Union

L 4/25

COMMISSION DECISION

of 6 January 2004

terminating the examination procedure concerning the Brazilian Export Financing programme
‘PROEX’ as applied in the regional aircraft sector

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

(2004/13/EC)

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 3286/94 of 22
December 1994 laying down Community procedures in the
field of the common commercial policy in order to ensure the
exercise of the Community's rights under international trade
rules, in particular those established under the auspices of the
Word Trade Organisation (1), and in particular Article 11(1)
thereof,

Whereas:

(1)

(2)

On 27 January 1999 the German manufacturer of
regional aircraft Dornier Luftfahrt GmbH (hereafter
referred to as ‘Dornier’),
lodged a complaint with the
Commission pursuant to Articles 3 and 4 of the trade
barriers Regulation. The complaint related to the Brazi-
lian export financing programme ‘Programa de Financia-
mentò às Exportacoes’ (PROEX), which, for exports of
aircraft, operates as an interest rate equalisation system.

The complainant alleged that the application of PROEX
to the Brazilian aircraft industry, and in particular to the
regional jet manufacturer Embraer, allowed the latter to
compete unfairly with Dornier on the 30-seat jet market.
In particular, that PROEX allowed purchasers of Embraer
aircraft to reduce their financing costs to levels below
those offered in the financial markets, which led to a
significant reduction of the aircraft price. The complai-
nant contended that PROEX constituted a prohibited
export subsidy under Article 3.1(a) of the WTO Agree-
ment on Subsidies and Countervailing Measures (SCM
Agreement). Dornier
further claimed that Embraer's
abuse of the PROEX programme caused material injury
to it on the Community market as well as adverse trade
effects on non EC markets and most notably the US and
Switzerland.

(3)

The Commission found that the complaint contained
sufficient prima facie evidence of a trade barrier and
announced the initiation of an examination procedure in
a notice published on 17 April 1999 in the Official
Journal (2). The Commission's main
are
summarised below.

findings

(1) OJ L 349, 31.12.1994, p. 71, as last amended by Regulation (EC)

No 356/95 (OJ L 41, 23.2.1995, p. 3).

(2) OJ C 108, 17.4.1999, p. 33.

(5)

(6)

(7)

PROEX acts as an interest rate equalisation system by
virtue of which the Brazilian Government reimburses
part of the interest rate which foreign purchasers of
Embraer aircraft have to pay to finance their purchase.
The reimbursement amounted to 3,8 percentage points
per annum over a period of 15 years. PROEX allowed
airlines to acquire aircraft at financing conditions that
were far more favourable than those available on the
market place, resulting in a net present value benefit in
the range of 15 % of the aircraft's purchase price. As a
result, Embraer was in a position to systematically
undercut the price of Dornier's 30-seat jet and gain the
lion's share of
jet
markets. In most fleet deals the PROEX financing terms
were by far the most decisive factor for airlines to opt
for the Brazilian jet.

the Community and US 30-seat

Under these circumstances the Commission considered
that the complainant's allegations on the existence of an
obstacle to trade were well founded and that PROEX
resulted in adverse trade effects and injury within the
meaning of Article 2(3) and (4) of the TBR.

In the course of the TBR examination, a panel estab-
lished, upon Canadian request by the Dispute Settlement
Body (the DSB) of the World Trade Organisation (the
WTO), concluded that PROEX payments constituted
prohibited export subsidies inconsistent with Article 3 of
the WTO Agreement on Subsidies and Countervailing
Measures (the SCM Agreement). The conclusions and
recommendations of the panel were upheld by the WTO
Appellate Body and both reports were adopted by the
DSB on 20 August 1999.

On 19 November 1999, Brazil
informed the DSB of
changes introduced to PROEX (PROEX II) in order to
implement the DSB recommendations. However, Canada
considered that PROEX II continued to provide export
subsidies contrary to the SCM Agreement and initiated a
compliance procedure under Article 21.5 of the Dispute
Settlement Understanding (DSU). The compliance panel
and the Appellate Body upheld Canada's position and
found PROEX II also to constitute an illegal export
subsidy.

L 4/26

EN

Official Journal of the European Union

8.1.2004

(8)

(9)

On 6 December 2000, Brazil adopted a further revised
version of PROEX (PROEX III) and Canada initiated a
further compliance panel under Article 21.5 DSU to
examine its WTO compatibility. This time, the panel
report
(adopted by the DSB on 23 August 2001)
concluded that, unlike its previous versions, PROEX III
as such was not in violation of Article 3.1(a) of the SCM
Agreement as it did not require Brazil to provide export
credits in such terms and conditions that they would
constitute subsidies. The panel conclusions referred only
to PROEX III as a law on its face and independently of
its application and it was clearly stated that it would not
necessarily follow that future applications of PROEX III
would be consistent with the SCM Agreement.

it would remain vigilant

After the adoption of the Panel by the DSB the European
Communities stated that
to
ensure that Brazil would respect its WTO obligations in
its application of PROEX III to individual transactions.
However, during the last two years of monitoring no
further
evidence
allegations have been made or
submitted against Brazil in that respect.

(10)

In the absence of any evidence concerning unfair trade
practices by Brazil after the adoption of the WTO Panel
the European Communities
report on PROEX III,

considers that no action is required and that, therefore,
in accordance with Article 11(1) of the Regulation, the
procedure should be terminated.

(11)

The Advisory Committee has been consulted on the
measures provided for in this Decision,

HAS ADOPTED THIS DECISION:

Sole Article

The examination procedure concerning the Brazilian Export
Financing programme ‘PROEX’ as applied in the regional
aircraft sector initiated on 17 April 1999 is hereby terminated.

Done at Brussels, 6 January 2004.

For the Commission

Pascal LAMY

Member of the Commission