Paulo Cesar de Souza e Silva is president and CEO of Embraer SA.
Last week, the government of Brazil requested consultations with the Canadian government at the World Trade Organization regarding subsidies provided to local manufacturer Bombardier for the development of its new C Series commercial jets. Brazil’s request, supported by my company, highlights subsidies in excess of $4-billion (U.S.) provided by Canada’s national, provincial and local governments.
Countries with an aeronautical industry must help foster fair competition under balanced conditions by bringing the practice of providing illegal subsidies to an end, without delay. An agreement guaranteeing fair competition is the best way to govern the relationship between competing companies, international governments and their taxpayers.
The alternative is an unpalatable one: more and more interference from states, increased burden on taxpayers and the continued risk of competition between companies turning into a dispute between countries.
The amount and nature of the subsidies provided by the Canadian government distort international competition in the sector, and violate multilateral trade rules, in particular those mandated by the WTO.
In 2016 alone, the Canadian government, through the province of Quebec, injected more than $2.5-billion into Bombardier, including $1-billion directly into its C Series program, and $1.5-billion funnelled through the company’s transportation unit. Adding to the support it has already received, $372.5-million (Canadian) has been committed by the federal government, partially directed into the C Series program. As a result, Bombardier offered its aircraft to international customers at a price far below the real cost, and ultimately at the expense of Canadian taxpayers.
Attempts to resolve this matter via diplomatic channels have proved unsuccessful, leaving the Brazilian government with no option but to request WTO consultations, action that Embraer supports.
WTO consultations will ensure that Canada provides Brazil with the required information regarding subsidies provided to Bombardier. This is an important first step toward correcting significant market distortions generated by these subsidies, and re-establishing a level playing field in the commercial aviation market.
International trade disputes provide a powerful incentive to improve the sector’s current legal framework, and bring our industry closer to establishing a truly competitive and level playing field. For example, in the early 2000s, after a six-year trade dispute at the WTO, Brazil, Canada and other Organisation for Economic Co-operation and Development ECD countries negotiated a new aircraft sector understanding on international trade rules for export credits. Thanks to this agreement, no trade disputes on export financing were raised at the WTO.
The aeronautical industry is global like no other. Aircraft, the products we produce, connect people, cities and countries, and facilitate international business. Regardless of the prevailing culture, government or level of economic development, the same planes arrive and depart from thousands of airports across countries around the globe.
Most new jet-aircraft projects require more than a billion dollars in investment and, on average, take six to eight years from development, through certification, to delivery. Historically, the key to success for companies in the sector is generating deep technical and intellectual value and allowing for continual innovation.
Today, few countries retain the necessary technological expertise to compete in this industry, one characterized by intense competition and an extensive chain of partners. From the supplier with hundreds of thousands of parts, to a manufacturer who controls the entire technological and production cycle, the ability to operate globally is fundamental to survival. No company can remain economically viable by supplying only its domestic market.
In this environment, it is critical to have enforceable global rules to preserve balanced conditions of competition between manufacturers. Government support in the form of illegal subsidies results in severe and often irreversible imbalances that undermine fair competition, unfairly distort international markets and cause significant harm to competitors, suppliers and their workers.Report Typo/Error
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