The customary front pages news of petty quarrels, spirited squabbles and like frissons between Mercosul´s largest partners, Argentina and Brazil, have now been relegated to the interior sections, if not altogether foregone. They have been substituted by other yet more external commerce related news, this time a trade war between Brazil and Canada resulting from the interpretation of the findings of two World Trade Organization (WTO) panels established with a view to examine the reciprocal accusations of illegal subsidies for the aviation industry. In fact, EMBRAER of Brazil and Bombardier of Canada compete for the position of world leader in the manufacture of regional jets. Bombardier has been surpassed in the recent past by the Brazilian company in number of sales and attributed this development to illegal subsidies practiced by the export financing programme of Brazil, PROEX. On the other hand, Brazil accused Canada of subsidising Bombardier illegally both on national and regional levels.
The Dispute Resolution Body (DSB) of the WTO found in favour of Canada, condemning Brazil to compensate Canada in the order of US$ 1,7 billion dollars. The bi-lateral trade is puny, which signifies that the commercial relationship between the two countries will be affected for many years to come, as those compensations are, of course, tariff based and applicable on external trade. In addition, the panel found that the financing criteria of PROEX were to be brought into line with patterns established by the Organisation for Economic Co-operation and Development (OECD), an association of which Brazil is not a member, as it is a developing country and, at the time of developments, was a signatory of the transitory clause of the International Monetary Fund (IMF) Agreement and was thus administering exchange controls.
This decision itself was the subject of much criticism in Brazil and in developing countries, in general, as it was correctly perceived that the DSB has been consistently reneging developing countries rights ensured by other international treaties and that the WTO´s dispute resolution system lacks legal authority to examine the matter of conflict of treaties. A disastrous precedent for developing countries in this regard had, immediately before the Brazil-Canada dispute, been established in the case brought by the United States of America (USA) against India, on the matter of quantitative restrictions for textile, agricultural and other goods, when it was decided that IMF exceptions granted to developing countries are not applicable in the WTO context.
To add spice to the matter, Brazil has been consistently discomfited in the WTO´s dispute resolution system, having previously lost cases against the European Union on the matters of milk products as well as poultry and against the USA on the matter of its automotive programme. Thus, not only the DSB, and the WTO itself, have been subject of scathing criticism, as developed countries won 90% of the cases against developing countries, in the 5 years of the WTO, but the competence of the Brazilian Ministry of External Relations, to which responsibility over external trade matters is attributed, has been seriously questioned.
If the foregoing were not enough to fuel the press, Canada chose not only to decline acceptance of the modifications introduced by Brazil in its PROEX programme, having subjected the matter once more to the DSB for consideration, but chose to retaliate against Brazil, in a manner inconsistent with the multilateral legal regime. This retaliation firstly came in the manner of outright additional subsidies to Bombardier whenever it faces EMBRAER in a competitive bid. Subsequently, Canada did what will probably trigger a trade war with Brazil and certainly will ruin bi-lateral relations for many years to come: as the North America Free Trade Agreement (NAFTA) partner in charge of phyto-sanitary measures, it declared Brazilian beef unsafe on the grounds of BSE, mad cow´s decease, prohibited imports thereof, in which it was immediately followed by the USA and Mexico.
Brazilians are very proud of the national beef. The country has the largest free-ranging and grass feeding herd of cattle in the world and no tradition of stable breeding, as the weather and the vastness of its territory are conducive to the former rather than the latter practice. Brazil has never had one single case of the BSE. Once the measure was decreed by Canada, a popular up-roar ensued, and this very strong reaction from the civil society pushed the Brazilian government to go on record. The Brazilian president, Mr. Fernando H. Cardoso, a former university professor fluent in four languages, normally man of a very conciliatory nature, declared that there would be a trade war with Canada if the measures were not reversed in three weeks. We shall wait and see.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.