WTO Requires Changes to Plane Subsidies

The World Trade Organization on Monday ruled illegal two export subsidy programs that rival aircraft manufacturers Empresa Brasileira de Aeronautica of Brazil and Bombardier Inc. of Canada used to boost sales.

Both companies claimed victory in the three-year trade dispute after the WTO announced its final decision in Geneva, after appeals by the Canadian and Brazilian governments.

The ruling requires the governments to make minor modifications to the programs but allows the plane makers to continue to count on subsidies.

Embraer, as the Brazilian company is known, said the decision declares illegal a program through which the Canadian government has already given $250 million to its regional aircraft industry.

Bombardier countered, however, that the ruling confirms that Brazil must withdraw its own program, which includes certain subsidies for undelivered aircraft.

The different interpretations on the ruling underscore the degree of rivalry between the two companies as they fight for market share as demand for regional jets expands. Demand for regional aircraft is expected to double to about 8% of the world fleet in the next 20 years. Fairchild Dornier, a regional-aircraft maker that is a U.S.-German joint venture and has about 10% of the market for regional aircraft, is forecasting sales of 4,000 planes worth $100 billion for the industry in the next 15 years.

Brazil’s Proex subsidy program supported exports through a system of interest rate adjustments for customers seeking to buy Embraer’s 50- and 37-seat planes.