Brazil to challenge Canada at WTO over Bombardier funding

SAO PAULO (Reuters) - Brazil will challenge government funding for Bombardier Inc at the World Trade Organization (WTO), escalating the latest trade spat between the Canadian jet maker and its Brazilian rival Embraer SA.

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Brazil’s Foreign Ministry said on Monday that its trade chamber authorized WTO proceedings against Canada regarding $2.5 billion in state support for Bombardier from the province of Quebec.

Bombardier and Embraer have battled for decades over the regional jet market and traded accusations of unfair subsidies in the 1990s that their countries hashed out at the WTO.

The latest case stems from recent support for Bombardier’s roughly $5.4 billion CSeries airliner program, which challenges Embraer’s largest commercial jets, along with the smallest narrow-body aircraft made by Boeing Co and Airbus Group SE.

“There are indications that Canada’s federal government soon intends to make another significant capital injection in the company to ensure the viability of the new CSeries and its placement in the market at artificially reduced prices,” the Brazilian Foreign Ministry said in a statement.

Bombardier’s chief executive said last week the company was still seeking federal funds.

Prime Minister Justin Trudeau said the government was working “very productively” with Bombardier and he hoped to make announcements in coming months.

“Canada’s subsidies have created serious distortions in the market, in addition to violating current international norms,” said Embraer Chief Executive Paulo Cesar Silva in a statement welcoming the Brazilian government’s decision.

Bombardier, which considered bankruptcy protection last year, got a $1 billion bailout from the Quebec government. The planemaker also sold a 30 percent stake in its rail division to public and private pension fund manager Caisse de depot et placement du Quebec for $1.5 billion.

Alex Lawrence, a spokesman for Canadian Trade Minister Chrystia Freeland, said by email on Monday that no proceedings have been filed on this matter at the WTO.

“We will continue to comply with all of our international trade obligations,” he wrote.

The Quebec government and the Caisse could not immediately be reached for comment.

Foreign Minister Jose Serra told Reuters in July that Brazil was mulling a WTO challenge of investments in Bombardier, which Trudeau brushed off the following day.

“There is no country in the world that doesn’t heavily subsidize its aerospace sector,” he said at the time.

Embraer shares were little changed on the news, slipping 1 percent from Friday’s close, while Bombardier rose 6 percent in midday Toronto trading.

Reporting by Brad Haynes; Additional reporting by Alonso Soto and Lisandra Paraguassu in Brasilia, Andrea Hopkins in Ottawa and Allison Lampert in Montreal; editing by Bill Trott and Tom Brown