Brazil--Aircraft: Qualitative and temporal aspects of "withdrawal" under SCM article 4.7

Law and Policy in International Business, Summer 2002 by Krmpotic, Ivan

I. INTRODUCTION

There are few subjects in the area of international trade or World Trade Organization (WTO) jurisprudence that raise the ire of national governments to a greater degree than the issue of subsidies. Whether one is discussing the granting of subsidies by national governments on the one hand, or the imposition of countervailing duties on the other, there is no shortage of opinion on what is, and what should be, the proper role of the WTO. While no great progress has been made in recent years to bring government action and policy into the purview of the WTO dispute resolution system, the granting of subsidies and provision of government support to domestic industries has been a mainstay of national fiscal policies for decades. The Bretton Woods conference, which gave rise to international institutions such as the International Monetary Fund and the World Bank, likewise first articulated the notion that national governments had a role to play in the proper functioning of a national economy. This notion represented a departure from traditional laissez-faire thinking that so pervaded the policies of free-market economy countries since at least the time of Adam Smith's seminal work, The Wealth of Nations. The premise that government action might be required to reach an optimal level of output and equilibrium in the economy displaced the earlier notions about the role that governments played (or did not play) within the area of international economics. Increasingly, governments were eager to utilize the various fiscal and monetary instruments at their disposal to influence events and actors within their domestic economies in order to achieve their objectives. Government spending programs became the norm in market economies as a means of promoting full employment, growth, development, or virtually any objective that the governments sought to further in the national interest of the country.

In this light, it is not difficult to understand why measures designed to limit the discretion of national governments in the functioning of their economies have been met with resentment and, at times, resistance. This inertia is borne out with particular clarity in the negotiation and promulgation of the GATT and WTO codes on subsidies because it is here that governments were forced to actively examine the issue of government incentives to their industries, and more importantly, to define limits and proscribe measures to control such government involvement. This exercise proved to be a painful and inexact endeavor for the parties involved, as illustrated by the texts of the Tokyo and Uruguay Round of negotiations relating to the issues of subsidies and countervailing duties. Without getting bogged down in the negotiating history of the various agreements, it is sufficient to say that the Uruguay Round Agreement on Subsidies and Countervailing Duties Measures ("SCM Agreement") "nurtur[ed] seeds planted by the 1979 Subsidies Code."1 Not least among the advancements made under the SCM Agreement over the 1979 Subsidies Code is the inclusion for the first time of the definition of "subsidy," which made it possible to begin to effect an international discipline in this extremely sensitive area of international economic relations.2

one may begin to grasp the Herculean effort that will be required to interpret the SCM Agreement. Various dispute resolution panels have been tasked with the responsibility of ensuring compliance with the provisions relating to subsidies and countervailing duties, and their deliberations have provided some indication of the complexity of the matter.

This Note will discuss one such case that has tested the limits of subsidies jurisprudence. The Brazil-Export Financing Programme for Aircraft4 ("Brazil-Aircraft") case addresses meaning of compliance under Article 4.7 of the SCM Agreement. SCM Article 4.7 reads as follows: "If [a] measure in question is found to be a prohibited subsidy, the panel shall recommend that the subsidizing Member withdraw the subsidy without delay. . . ."5 Although a plain reading of the text would appear to indicate that compliance with a panel decision would be a relatively simple task from a technical-f not political-standpoint, the Brazil-Aircraft dispute indicates otherwise. From the time that Canada requested a panel to examine Brazilian measures concerning financing for aircraft in 1996, the parties have engaged in six separate proceedings. Five of those panel reviews specifically tried to determine whether Brazilian measures6 were in compliance with the WTO Agreements and whether Brazil has complied with the panel's rulings pursuant to SCM Article 4.7.

program, are presented in Part II of this Note. Part III seeks to illustrate the various approaches that have been applied over the years to the issue of remedies in international law and acts to provide a broader context within which to examine the issue of retroactivity of remedies generally. The way in which this development relates to the Brazil-- Aircraft dispute is then examined in the latter part of that section. Finally, Part IV works to demonstrate that the WTO jurisprudence is advancing to embrace a more modern notion of remedies, in both qualitative and temporal senses, due in large part to an arbitration body decision that both assimilated and improved upon earlier panel and Appellate Body reports.