PROCEDURAL BACKGROUND

On 20 August 1999, the Dispute Settlement Body (“DSB”) adopted the Appellate Body Report (WT/DS46/AB/R) and the Panel Report (WT/DS46/R), as modified by the Appellate Body Report, in the dispute Brazil - Export Financing Programme for Aircraft (hereafter “Brazil - Aircraft”).

The DSB recommended that Brazil bring its export subsidies for regional aircraft under the Programa de Financiamento às Exportações (“PROEX”) interest rate equalization scheme into conformity with its obligations under Articles 3.1(a) and 3.2 of the Agreement on Subsidies and Countervailing Measures (hereafter “SCM Agreement”). The DSB further recommended that Brazil withdraw the export subsidies for regional aircraft within 90 days.

On 19 November 1999, Brazil submitted to the Chairman of the DSB, pursuant to Article 21.6 of the Dispute Settlement Understanding (hereafter “DSU”), a status report (WT/DS46/12) on implementation of the Appellate Body's and the Panel's recommendations and rulings in the dispute. The status report described measures taken by Brazil which, in Brazil's view, implemented the recommendation of the DSB to withdraw the measures within 90 days.

Canada disagreed that the Brazilian measure brought Brazil into conformity with its obligations under the SCM Agreement. As a result, on 23 November 1999, Canada requested the establishment of a panel under Article 21.5 of the DSU. On 9 December 1999, the DSB referred the matter to the original Panel pursuant to Article 21.5 of the DSU.

The report of the Article 21.5 Panel was circulated to Members on 9 May 2000. The Panel found that the measures taken by Brazil to comply with the Panel's recommendation either did not exist or were not consistent with the SCM Agreement. Accordingly, the Panel concluded that Brazil had failed to implement the 20 August 1999 recommendation of the DSB that it withdraw the export subsidies for regional aircraft within 90 days. The Appellate Body, in a report circulated to Members on 21 July 2000, upheld the Panel's conclusions. The DSB adopted the Appellate Body Report (WT/DS46/AB/RW) and the Panel Report (WT/DS46/RW), as modified by the Appellate Body Report, on 4 August 2000.

In the light of Brazil's failure to implement the 20 August 1999 recommendations of the DSB, on 12 December 2000 the DSB authorized Canada to take appropriate countermeasures in the amount of C$344.2 million annually.