Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Bombardier, maker of planes and trains and other things -- Ignore unavailable to you. Want to Upgrade?

To: Jay Anderson who wrote (610)	8/2/1999 7:28:00 AM
From: Graham Dellaire	Respond to of 1177

Bombardier faces WTO today Firm could reap billions if aerospace subsidy ruling goes its way; decision seen as critical to industry Heather Scoffield The Globe and Mail Monday, August 2, 1999 Ottawa -- Bombardier Inc. stands to reap a multibillion-dollar windfall if a major trade ruling on aerospace subsidies today is in the company's favour. But a parallel ruling will probably jeopardize a key federal research and development fund, Technology Partnerships Canada, by upholding an earlier World Trade Organization decision that it acts as an illegal subsidy. "It's critical [to the Canadian aerospace industry] to have a favourable decision on both," said Peter Smith, president of the Aerospace Industries Association of Canada. His industry relies both on Technology Partnerships Canada and on business spawned by Bombardier to remain competitive. The World Trade Organization is scheduled to issue a final appeal decision today as to whether the governments of Canada and Brazil illegally subsidized regional jet sales by companies in their respective countries. Initial decisions in the spring condemned Brazil's Pro-ex financing program as well as Technology Partnerships Canada. The WTO told both countries to get rid of the programs immediately, but they both appealed the decisions. Brazil is also hoping to reverse a pro-Canada ruling on the operations of Canada's Export Development Corp. Canadian officials are expecting the appeal outcomes to largely reflect the initial decisions, but with some clarification about how to implement the rulings. The WTO ruled that Pro-ex acted as an export subsidy -- which is illegal under international trade rules -- by offering discount financing rates to customers buying regional jets made by Brazil's Embraer (Empresa Brasiliera de Aeronautica SA). The big question for the appeal panel is whether the Brazilian government will have to remove the Pro-ex subsidy from jet orders placed in the past but not yet filled. If Bombardier and Ottawa get their way, the ruling will force Brazil to remove Pro-ex from these deals, and Embraer will have to renegotiate billions of dollars' worth of regional jet sales. "It's huge for the Canadian aerospace industry," said Robert Greenhill, vice-president of strategic initiatives for Bombardier. "I think the likelihood of winning on the Pro-ex side is extremely high." Without Pro-ex, the Embraer offers will be more expensive, and Bombardier jets could be more tempting for Embraer clients who now hold optional contracts or orders for planes that have not yet been delivered. The federal government estimates that the Brazilian government has spent $4.5-billion (U.S.) on regional jet financing since 1996. Of that amount, only $800-million was for planes that have already been delivered. The rest is for planes still on order or for optional orders, according to the Department of Foreign Affairs and International Trade. About $1.3-billion is for financing of unfilled orders -- planes that have been bought but have not yet been produced or delivered. And $2.4-billion is for optional orders. In all, the Brazilian subsidies have supported up to $12-billion in tentative or unfilled sales that could now be up for grabs, since buyers will see prices rise by up to 18 per cent. Bombardier says it could win half of those orders -- or $6-billion worth. "It would be a very significant number," Mr. Greenhill said. "It would be several billion dollars U.S." But Bombardier's victory could be tainted. If the WTO does indeed order Brazil to remove the Pro-ex subsidy from unfilled orders and options, it could also order Ottawa to halt instalments of Technology Partnerships Canada funding for Canadian aerospace companies. About 25 aerospace companies, including Bombardier, have received funding from Technology Partnerships Canada in the past three years, said Mr. Smith of the Aerospace Industries Association. Most of the investments are worth tens of millions of dollars, and a few are worth more than $100-million (Canadian) each. (Brazil claims Canadian government programs have provided up to $3.6-billion in illegal export subsidies for regional jet production.) Both Canada and Brazil are already bracing for losses, Canada on Technology Partnerships Canada and Brazil on Pro-ex. Industry Canada, which is in charge of Technology Partnerships Canada, is already designing ways to maintain funding in the future for aerospace research and development, anticipating a loss at the WTO on the program. And Brazil is considering ways to change Pro-ex without damaging Embraer's competitiveness, Brazilian newspapers report. But the Canada-Brazil dispute is not expected to end with today's ruling. Embraer has threatened in the past to sue the Brazilian government if it goes back on previous financing commitments for unfilled orders or options. And if the WTO ruling does not thoroughly condemn Pro-ex, Ottawa is expected to say it will look for other ways to beat the Brazilian subsidy system. The appeal ruling will also be watched closely for what it says about Canada's Export Development Corp., a Crown corporation that finances and promotes Canadian exports and sells risk insurance to Canadian companies. Brazil has accused EDC of illegally subsidizing aircraft sales by offering below-market financing, but was not able to give the WTO sufficient proof that this was happening. Ottawa refused to divulge details about any of its transactions, and the WTO said it did not have enough information to make a ruling. But the WTO, Brazil and the United States -- which has been a third-party participant in the case -- have heavily criticized the federal government and EDC for being too secretive. If the appellate body reverses its ruling on EDC or condemns the EDC process for being too opaque, EDC operations may have to change. Bombardier, however, is sure that EDC will stand up to scrutiny, since it provides loans at commercial rates and is a profitable institution. "We're extremely comfortable that EDC is fine," Bombardier's Mr. Greenhill said.