Brazil faces record WTO sanctions

Embraer's ER145 is its best-selling regional jet

The World Trade Organisation (WTO) has approved $1.3bn in trade sanctions on Brazil - the largest ever agreed by the trade group.

The action relates to a dispute between Brazil and Canada over subsidies to their commercial aircraft industries.

The figure, due to be formally announced on Monday, was revealed to a Brazilian newspaper by Brazilian foreign minister Luiz Felipe Lampreia.

Canada had accused Brazil of subsidising the export of its Embraer regional jets through its Proex programme, giving the equivalent of $2.5m to $4.5m per plane to compensate for high Brazilian interest rates.

Under the ruling, Canada - which makes the rival Bombardier jets - would be entitled to levy $230m in higher tariffs against Brazilian products for the next five years until 2005.

The two countries brought complaints against each other to the WTO for illegal export subsidies, but the WTO ruled in July that while Canada had stopped its subsidies, Brazil had not.

"Canada is very satisfied with the fact that it can apply retaliation. Our objective is to avoid retaliation. We really do hope for a negotiated settlement," Canadian International Trade Minister Pierre Pettigrew said.

Canada had asked for $3.3bn in retaliatory tariffs after four years of unsuccessful negotiations with Brazil. It now hopes to reach a deal with the Brazilian government quickly.

"Both the Brazilian and Canadian governments agree that the sanctions should be transformed into new opportunities for negotiating," Brazilian Foreign Minister Lampreia added.

Regional jet battle

Embraer is Brazil's biggest manufacturing exporter, with a 45% share of the regional jet market and a backlog of $20bn worth of orders.

It showed 54% growth in sales in its latest series of results, and is rolling out a new series of larger regional jets, seating between 70 and 110 passengers.

The regional jet market is one of the fastest growing segments of the commercial airline industry, as more airline companies add small "feeder" routes to boost business at their main hubs.

Bombardier had dominated the regional jet market for a number of years, manufacturing the CRJ70 and Dash 8 series. It also makes business jets, including the long-range Global Express, and owns Belfast-based Shorts.

The issue of subsidies to aircraft manufacturers is a highly sensitive one in world trade talks, given the high cost of developing new commercial jets.

Boeing and Airbus have accused each other of unfairly subsidising development costs for years, and the row took a new turn when it was announced that Britain, France and Germany would pay one-quarter of the $12bn development costs of the new Airbus A3XX superjumbo jet.