Brazil - Export Financing Programme for Aircraft (WT/DS46): Report of the Appellate Body

Summary

INTRODUCTION

Brazil and Canada appeal from certain issues of law and legal interpretation in the Panel Report, Brazil - Export Financing Programme for Aircraft (the “Panel Report”). The Panel was established to consider a complaint by Canada with respect to certain export subsidies granted under the Brazilian Programa de Financiamento às Exportações (“PROEX”) on sales of aircraft to foreign purchasers of Empresa Brasileira de Aeronáutica S.A. (“Embraer”), a Brazilian manufacturer of regional aircraft.

The Panel described certain factual aspects of PROEX at paragraphs 2.1 to 2.6 of the Panel Report. Below we provide a summary of these factual aspects, focusing on the details relating to interest rate equalization subsidies under PROEX to the regional aircraft industry.

PROEX is administered by the Comitê de Crédito as Exportações (the “Committee”), an inter-agency group within the Ministry of Finance in Brazil. Day-to-day operations of PROEX are conducted by the Bank of Brazil. Under PROEX, the Government of Brazil provides interest rate equalization subsidies for sales by Brazilian exporters, including Embraer.

For sales of regional aircraft, PROEX interest rate equalization subsidies amount to 3.8 percentage points of the actual interest rate on any particular transaction. The lending bank charges its normal interest rate for the transaction, and receives payment from two sources: the purchaser, and the Government of Brazil. Of the total interest rate payments, the Government of Brazil pays 3.8 percentage points, and the purchaser pays the rest. In this way, PROEX reduces the financing costs of the purchaser and, thus, reduces the overall cost to the purchaser of purchasing an Embraer aircraft.

The involvement of PROEX in aircraft financing transactions begins when the manufacturer - Embraer - requests approval for PROEX interest rate equalization subsidies before the conclusion of a formal contract with a buyer. If the Committee approves the request, it then issues a letter of commitment to the manufacturer, committing the Government of Brazil to PROEX support, provided that the buyer and the manufacturer conclude a contract for the transaction within a specified period of time, usually 90 days (subject to renewal), and in accordance with the terms and conditions set forth in the original request.