INTRODUCTION

On 18 June 1996, Canada requested consultations with Brazil under Article 4 of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) and Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), regarding “certain export subsidies granted under the Brazilian Programa de Financiamento as Exportações (“PROEX”) to foreign purchasers of Brazil's EMBRAER aircraft.”

Canada and Brazil held consultations on 22 and 25 July 1996 in Geneva, but failed to reach a mutually satisfactory solution. On 16 September 1996, Canada requested the establishment of a panel under Articles 4 and 30 of the SCM Agreement and Articles 4 and 6 of the DSU. In a communication dated 23 September 1996 and addressed to the Dispute Settlement Body (“DSB”), Brazil reserved its rights to invoke Article 27 of the SCM Agreement before any panel that was established to examine the matter at issue, and requested that the terms of reference proposed by Canada explicitly recognize Brazil's right to do so.

On 3 October 1996, Canada again requested the establishment of a panel. That request was subsequently withdrawn to allow the parties to seek a mutually satisfactory solution to the problem.

On 10 July 1998, Canada again requested the establishment of a panel under Article 4 of the SCM Agreement.

At its meeting on 23 July 1998, the Dispute Settlement Body (“DSB”) established a Panel in accordance with Article 4 of the SCM Agreement with the following standard terms of reference:

The European Communities (“EC”) and the United States (“US”) reserved their rights to participate in the panel proceedings as third parties.

On 16 October 1998, Canada requested the Director-General of the WTO to determine the composition of the Panel, pursuant to Article 8.7 of the DSU. On 22 October 1998, the Director-General composed the Panel as follows: