Brazil drops aero spat with Canada, seeks wider subsidy talks

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Bombardier's logo is seen on the building of the company's service centre at Biggin Hill, Britain March 5, 2018. Picture taken March 5, 2018. REUTERS/Peter Nicholls/File Photo

Feb 18 (Reuters) - Brazil on Thursday ditched a trade complaint against Canada over aircraft subsidies and instead called for broader negotiations between aircraft producing nations to halt a slide toward aircraft trade wars, sidestepping the World Trade Organization.

The unexpected move by Brazil, home to the world's third largest planemaker Embraer (EMBR3.SA), comes as larger rivals Airbus (AIR.PA) and Boeing (BA.N) remain locked in a 16-year-old trade dispute at the WTO that has led to transatlantic tariffs.

While the European and U.S. giants dominate the market for large passenger jets, Brazil has for years waged a battle for control of the regional jet market with Canada's Bombardier (BBDb.TO), spawning their own series of mutual trade complaints.

In 2017, Brazil complained to the WTO about Canadian federal and local government help for the CSeries jet, which it claimed had received $3 billion in Canadian aid to compete with the Embraer E2.

But the dispute never progressed beyond procedural wrangles and in 2018 the loss-making CSeries was sold to Europe's Airbus and renamed A220, leaving Brazil sidelined but still aggrieved over alleged subsidies. Canada denies giving unfair support.

"Brazil remains convinced of the strength of its case. Nevertheless, it has become clear that the dispute could not effectively remedy the impacts of such large-scale subsidies on the commercial aircraft market," Brazil's foreign ministry said.

The market has changed since Brazil filed its WTO complaint because Airbus has started assembling some A220 planes in the United States, it said in a statement.

"After withdrawing this dispute, Brazil will focus, with renewed impetus, on launching negotiations intended to produce more effective rules regarding governmental support to the commercial aircraft sector," it added.

It suggested the format of negotiations could be based on a successful deal brokered by aircraft producing nations at the Organization for Economic Co-operation and Development in 2007. That resulted in agreed caps on public export financing even as the same nations remained at odds over production subsidies.

Embraer welcomed Brazil's initiative and said planemakers should compete solely on the strength of their products and not on subsidies.

No immediate comment was available from other parties.

Earlier on Thursday, Airbus reiterated calls for a negotiated settlement to end its long-running spat with Boeing.

Reporting by Marcelo Rochabrun; Editing by Christian Plumb and Emelia Sithole-Matarise

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