Export Subsidies Case Study

1. Do you think Bombardier and Embraer are guilty as charged? Please explain your answer.

In my opinion I think Bombardier and Embraer are guilty as charged because both accuse each other of what they are individually guilty of. In that they both had government help in manufacturing aircraft whether it was a low interest federal loan or a subsidy, they are both guilty of breaching WTO subsidy practices. Although to their credit as smart businesses, subsidies are an important form of government intervention for aircraft manufacturers to meet deadlines. Unjustly though taxpayers are forced to gamble on the success of the subsidized projects. According to Marcio Chalegre Coimbra – Academia.edu. (n.d.). In my opinion I think both Bombardier and Embraer should collectively complain to the WTO to lift some of those subsidy practices. Because the legimitacy of subsidies lies only in that other countries are also subsidizing their own companies.

Both of these manufacturers are competitive firms that demand government help only because the other is receiving government help as well. According to Marcio Chalegre Coimbra – Academia.edu. (n.d.). Both Embraer and Bombardier have been ruled against by the WTO in breaking subsidy practices. Which can only mean that for them to stay competitive and profitable they must continue to take low interest federal loans and subsidy’s to remain in business and meet those deadlines, which are hard to make without government intervention. Canada has already been awarded the right still unexercised to apply $1.4 billion in trade sanctions against Brazil over a seven-year period. According to Business – CBC News. Instead of affecting economic trade between the two countries, both Embraer and Bombardier should agree to a fair competitive business practice.

2. Do you think that such matters should be considered internal and therefore not fall under the jurisdiction of the WTO?

The competition between Embraer and Bombardier is external and is governed by the trade and subsidy practices of the WTO. However, the help they are receiving and the competitive edge that is making them capable to meet deadlines for dates is internal from government help in subsidy’s or low interest rate loans. The matter of government intervention in helping some of it’s own companies is a given. But in the case of Bombardier moving it’s C-series jet final production stage to the States leaves a stark reminder to the government that businesses will leave if the boat is sinking or if the Loonie is dropping. In my opinion I believe if you are a member of such an organization such as the WTO, you should follow the practices and regulations to set a social norm for other countries with competing companies.

But in the case of business, anyone will jump on the first opportunity to gain an edge. The trading system has been so structured, and its rules so lopsided that without major change to correct the imbalances and inequities and inbuilt asymmetry in the rules, developing countries can never hope to industrialize and compete with highly industrialized nations. According to failings of the WTO (n.d.). In my opinion I think such matters are internal but also external, the WTO has trade imbalances that do not allow countries such as Brazil a fighting chance. So to continue in competing with Bombardier, Embraer should be allowed subsidy’s of which Bombardier is also receiving. The jurisdiction of the WTO can only be relevant if it revamps it’s trading system to allow developing countries to compete with already highly industrialized nations.

3. Why do you believe that the Canadian and Brazilian governments are still so willing to subsidize export industries?

I believe that both the Canadian government and Brazilian government are seeking economic growth, or boosting overall wealth for their nations. As mentioned in the previous question, this could be a problem if an export industrialized company seeks to move final production elsewhere. The two main arguments are political and economic. Politically intending to protect the interest of certain groups often at the expense of others. Economically intending to boost overall wealth for the respective nation and standard of living. The most common political argument is to protect jobs, which often ends up having the reverse effect as it hurts consumers and is self-defeating. As mentioned in Question 1, subsidy’s are a forceful gamble for taxpayers who are unaware they are gambling on the success of a certain export industry.

The most common problem associated with governments protecting domestic industries is that at times they can be inefficient industries that require a large bailout. Liquidation of GM and Chrysler would have cut 2.63 million jobs from the U.S. economy in 2009, according to a study by the Center for Automotive. U.S. said it lost about $10.5 billion on its investment of $49.5 billion. According to GM Bailout Ends as U.S. Sells Last of ‘Government Motors’. Which might be to the same effect for either the Canadian government or the Brazilian government if they continue to subsidize export industries. After all the government support I believe businesses may have more to gain from government support in opening protected markets to imports and foreign direct investment, than from government efforts to protect domestic industries from foreign competition.

References:

Bombardier and Embraer can compete without government support | Marcio Chalegre Coimbra – Academia.edu. (n.d.). Retrieved from http://www.academia.edu/1099841/Bombardier_and_Embraer_can_compete_without_government_support

WTO says Canada’s Bombardier loans break trade rules – Business – CBC News. (n.d.). Retrieved from http://www.cbc.ca/news/business/wto-says-canada-s-bombardier-loans-break-trade-rules-1.314746

Four-year old Brazil-Canada dispute shows up failings of the WTO. (n.d.). Retrieved from http://www.twnside.org.sg/title/four.htm

GM Bailout Ends as U.S. Sells Last of ‘Government Motors’ – Bloomberg. (n.d.). Retrieved from http://www.bloomberg.com/news/2013-12-09/gm-bailout-ends-as-u-s-sells-last-of-government-motors-.html