Bombardier Inc.’s ability to win a major CSeries order last year, and not the federal government’s latest cash infusion, was the real impetus for Brazil’s complaint against Canada at the World Trade Organization, according to a senior Brazilian official.
Brazil launched the formal dispute process Wednesday, just hours after the Canadian government announced that it will give Bombardier $372.5 million in repayable loans. But the complaint’s real motivation came in April 2016 when Bombardier sold 75 CSeries aircraft to Delta Air Lines Inc.
“What happened last year that accelerated the (dispute) was the perception that Bombardier was only able to win that bid on the basis of the subsidies that had been given, particularly the capital infusion that was able to guarantee that the company would not get into commercial trouble,” Carlos Cozendey, Brazil’s undersecretary for economic and financial affairs, said in an interview Wednesday.
“There was a huge amount of money that was put into the company, and specifically the CSeries program. There was a perception that that altered the conditions of competition in a big way.”
At list prices, the Delta deal was worth US$5.6 billion, but several reports said the aircraft were sold below cost.
The sale came shortly after the Quebec government said it would invest US$1 billion in the CSeries program, which was struggling at the time to win orders. Delta CEO Ed Bastian said that support helped clinch the deal.
“It gave us a lot of confidence to be able to step forward and make the decision, because the last thing you want to do is take a financial risk,” Bastian said at the time.
On Wednesday, Brazil submitted a request for consultations with Canada under the WTO’s dispute settlement system, the first step in the formal complaint process. The complaint also points to the most recent infusion from the federal government as a source of concern.
“In 2016 only, Bombardier received at least US$2.5 billion in government support. New contributions have been announced, which may further deepen distortions in the aircraft sector, to the detriment of Brazilian interests,” Brazil’s Ministry of Foreign Affairs said in a statement.
Brazilian aircraft manufacturer Embraer SA said Wednesday that it supports the move.
“The subsidies that the Canadian company has already obtained and continues receiving from the Canadian government have not only been fundamental in the development and survival of the CSeries program, but have also allowed Bombardier to offer its aircraft at artificially low prices,” Embraer CEO Paulo Cesar Silva said in a statement. “It is essential to restore a level playing field to the commercial aircraft market and ensure that competition is between companies, not governments.”
The $372.5 million in interest-free loans, significantly less than the US$1 billion requested by Bombardier, will go towards research and development of Bombardier’s new Global 7000 business jet and the ongoing development of the CSeries over the next four years.
Bombardier said it is “not concerned at all” about the WTO complaint.
“These are repayable program contributions coming from existing programs, and we are very confident that they are fully compliant with Canada’s international trade obligations,” spokesman Simon Letendre said in an email.
A spokesman for the Canadian Ministry of International Trade agreed, saying the government is confident the funding “respects international law.”
Canada and Brazil have a long history of trade disputes over government support to the aerospace sector, including a seven-year battle in the late 1990s and early 2000s.
This case could easily follow the same pattern, said Lawrence Herman, an international trade lawyer with a practice in Toronto.
“If the Brazilian case goes forward, what could well happen could be five or six years of trade litigation because Canada is almost certain to challenge the Brazilian government subsidies to its own aircraft manufacturer,” Herman said in an interview. “I think there’s a lot of interest on Canada’s part and on Brazil’s part in avoiding a bitter trade war as happened 15 years ago.”