Second compliance panel set on Brazil aircraft subsidy

by Chakravarthi Raghavan

Geneva 16 Feb 2001 -- The WTO’s Dispute Settlement Body agreed to Canada’s request to set up a compliance panel to look into Brazil’s revised aircraft export financing programme and its compliance with earlier panel rulings.

Following an earlier compliance panel ruling (in the four-year old dispute) that Brazil’s measures to comply with rulings on withdrawal of prohibited subsidies under its PROEX scheme, were not in accord with the ruling, Canada sought an authorization to withdraw equivalent concessions from Brazil to the value of C$344.2 million annually.

Canada has however not yet taken any such ‘trade retaliation’, but continues to insist its right to do so at any time. Meanwhile, in December 2000, Brazil had announced that it had made further changes to its PROEX scheme to comply with its obligation - with Canada arguing that the rulings had still not been carried out.

The dispute between the two sides has now become further clouded by Canada’s announcement that it would “retaliate” against the Brazilian aircraft manufacturer, Embraer, in its international transactions, and the Canadian ban on beef imports from Brazil, on the ground of precautionary principle to safeguard public health in Canada over possible mad cow disease.

At the DSB itself, Canada’s Amb. Sergio Marchi and Brazil’s Amb. Celso Amorim exchanged further sharp remarks.

In requesting a second compliance panel, Canada rejected Brazil’s view that in terms of Art. 4 of the DSU, there should be ‘consultations’ between the two parties before a compliance panel is sought under Art.21.5. The Brazilian view on need for prior consultation was backed by the EU, and partially by Malaysia, which thought that while the consultations required under Art.4 of the DSU did not apply, there was nevertheless a need for some sort of consultation. Malaysia cited in this connection that in the shrimp-turtle case, before seeking an Art. 21.6 compliance panel against the US, it had held consultations with the US.

Marchi said on the substantive issue that though Brazil has repeatedly claimed that the latest version of its PROEX programme, incorporating changes made in December 2000, was WTO consistent, this was a matter for the Art. 21.5 panel (generally to be the original panellists). But the request for a new compliance panel to assess the compliance of the latest revised scheme, Marchi insisted, did not in any way prejudice Canada’s legal rights to impose sanctions as already authorized up to an annual C$344.2 million.

Amorim said  that prior consultations was essential, and Brazil regretted Canada’s refusal to do so. The 6 December revision to Brazil’s PROEX programme had brought it fully into conformity with the WTO.  If Canada did not agree, it should have sought a compliance panel immediately.

Instead, said Amorim, on the basis of a unilateral determination of Brazil’s non-compliance, Canada had sought authorization to retaliate, even as Brazil and Canada were consulting to reach a mutually agreed solution to the ‘old’ contracts.

Also, while the revised PROEX was still to be reviewed, Canada had announced that it would “retaliate” against the Brazilian aircraft manufacturer in international transactions. Such a retaliatory measure could not and had not been authorized by the DSB. It involved a programme that Canada, during bilateral talks ,“had guaranteed to be under revision and would soon be fixed.”

And while the revised PROEX had not been reviewed, and just one day after Brazil had objected to the compliance panel request, Canada on 2nd February had announced a ban on Brazilian meat products on sanitary and phyto-sanitary concerns.

Regardless of what the Brazilian government may or may not believe, said Amorim, public opinion in Brazil had established a firm and clear linkage between the beef ban and the state of affairs in the Brazil-Canada aircraft dispute. There had not been a single voice in Brazil which thought the beef ban to be an unfortunate coincidence.

This was also the view that seemed to prevail in Canada where “Canadian health officials themselves have denounced the lack of a scientific basis for the measure and the ill-disguised link between the ban and the aircraft dispute,” Amorim declared. And similar sentiments were found in virtually all Canadian press reports following the announcement of the beef ban -  from representatives of the private sector, academia, media analysts and politicians. Some of those people, representing a large and representative spectrum of Canadian society had been far more eloquent, Amorim added.

Brazil still wanted to believe that Canadian authorities had not fully appreciated the immeasurable consequences of the action taken on 2nd February (in banning Brazilian beef). By agreeing to receive the visit of a team of Canadian and NAFTA experts, Brazil had offered Canada an opportunity to withdraw these arbitrary measures without delay.

“Canada’s action,” Amorim said, “caused extensive damage and injury to the Brazilian economy in general, and Brazilian meat exporters in particular. Harm had been caused to a degree that surpasses any reasonable test of proportionality. This is a situation that cannot and will not be taken lightly. Brazil is reserving all its rights under the WTO agreements, particularly the SPS agreement.”

After making unilateral determinations and unilateral actions of such magnitude (as the beef ban), in seeking a renewed compliance panel, one wonders, asked Amorim, “what Canada is seeking by resorting to dispute settlement procedures. Is Canada trying to seek still further ways to damage the bilateral trade or trying to legitimise ex post the careless and unjustified action it has already taken?”

“Either way, Canada is pushing us towards a spiral of unpredictable consequences,” Amorim said.

In response to Amorim, the Canadian envoy insisted that the ban on Brazilin beef was a “prudent and reasonable measure” to protect Canadians from the risk of this serious disease. It was Canada’s policy not to accept certain animal products such as beef from a country, unless Canada had recognized that country to be free of BSE. Canada had submitted a formal notification of its BSE policy to the WTO on 16 April 1998.

After the adoption of this policy, Canada had requested a number of countries to provide Canada with information to assess the country’s BSE status. This request was based on multilateral criteria set by the International Office of Epizootics, the competent body recognized by the SPS agreement.

[The Canadian policy of banning imports of rendered animal protein products from countries not recognized by Canada as BSE-free was notified to the WTO on 31 January, and purports to be based on a decision of 7 December from the Canadian Food Inspection Agency (CFIA).  The notification to the WTO said that before CFIA recognized a country as BSE-free, the exporting country must complete an animal health questionnaire and conduct a risk assessment.

[Food safety experts note that there is no way by which live cattle can be judged to be contaminated by or free of BSE. Tests can only be carried out on carcasses after slaughter.]

Marchi said in a letter dated 28 May 1998, that Canada had notified Brazil of its new BSE policy and had sent a questionnaire to Brazil to be used in assessing BSE status. But despite this notification and follow-up requests, Marchi said, Brazil had not, until the suspension of imports on 2 February, provided the necessary information to allow the Canadian CFIA to make an assessment.

Marchi noted the FAO report of 25 January about the significant potential of BSE having spread beyond the borders of Europe, and reports from Brazil that it had initiated an audit of imports of live animals from BSE- infected countries - imports into Brazil from Europe which had continued until 1999.

The FAO report, and the information that Brazil had continued to import European live animals until 1999, were important factors in the CFIA decision to take temporary action, Marchi said. The CFIA had taken this decision based on its legal obligation to protect public health. The CFIA operated in a broader trilateral context of cooperation with the US and Mexican counterparts under a technical consultative programme with NAFTA members.

In conveying the decision on the ban to Brazil, Canada had indicated that on the basis that full information would be made available, Canada would conduct a risk assessment as a priority. Since the ban, Canada has had very good technical cooperation with the responsible Brazilian officials. It had sent a team of Canadian scientists to conduct an on-site visit, and the team had been joined by US and Mexican government teams.

The tripartite team was gaining further information and clarification on three specific risk factors: assessment of feeding and rendering practices in Brazil led by Canada; import practices led by Mexico and Brazil, and  surveillance and laboratory procedures led by Canada and the US.

The scientists were seeking and analysing information on important matters such as procedures in place to eliminate risk of contamination of cattle population through feed, management procedures to mitigate risk associated with impartation, and trace-back information on imports from BSE affected countries.

Canada, Marchi said, would complete the assessment expeditiously, once all pertinent information had been received. But Canada was not and would not be complacent about BSE, and was rigorous in monitoring and assessing such diseases.

Marchi said that Canada had been “disturbed” by suggestions of senior Brazilian officials in the media that the measures Canada had taken were related to the Canada-Brazil aircraft dispute and that they were a form of unofficial, unauthorized retaliation.

This was a serious allegation and Canada rejected such a link. The aircraft dispute was a separate and totally different issue. To allege a linkage between the aircraft dispute and BSE was “unhelpful, and completely unwarranted,” the Canadian envoy added.

In other actions, the DSB adopted a panel ruling against Argentina in a complaint by the EU about measures relating to export of bovine hides and import of finished leather. The complaints related to alleged customs procedures and information provided to Argentinian producers of finished leather.

Argentina said that some of the customs complaints had already been changed, and others were being discussed with the EC.

Earlier, the US reported it would implement the safeguards ruling against imports of wheat gluten from Europe but that it would require a reasonable period of time. Separately, the US (on 30 Jan) has requested consultations with the EU over the application of the tariff-quota-rate regime on corn gluten feed imported from the United States.

Under other business, a number of countries including Argentina and Hong Kong China complained that the US had not agreed to their joining the consultations being held at the instance of the EC and other complainants over the US Byrd amendment -  requiring the administration to use the amounts received from counter-vailing measures against dumping to compensate the domestic producers who had complained.

The United States has said that it had not agreed to the Argentina and Hong Kong requests since they had no substantive third party  supplier interest. Argentina and Hong Kong China said they had a systemic interest. Among the countries which have joined the consultations with the US are Australia, Chile, India, Indonesia and Thailand (all countries against whom the US has anti-dumping actions).-SUNS4838

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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