Exclusive: Brazil considers WTO challenge to Bombardier state funding

By Alonso Soto and Lisandra Paraguassu

BRASILIA (Reuters) – Brazil may launch a trade challenge against Canada over state funding to struggling planemaker Bombardier Inc that could hurt Brazilian rival Embraer, Foreign Minister Jose Serra told Reuters on Thursday.

Serra, a former presidential candidate who took over the ministry two months ago, said a $1 billion investment in Bombardier from the province of Quebec was a “subsidy” and gave the company an unfair advantage against Embraer.

“We are studying opening (a challenge) again as in the past,” Serra said in an interview. “Why the need for that subsidy from Quebec?”

It was the first time a senior Brazilian official has publicly acknowledged the possibility of a challenge to the Canadian state funding at the World Trade Organization (WTO).

A new dispute at the WTO would again pit two of the world’s biggest planemakers and stoke tensions between major economies fighting for a piece of the global trade market at a time of sluggish growth.

Brazil is reeling from one of its worst economic recessions in generations that has cost nearly two million jobs in the last year.

Quebec decided to buy a near 50-percent stake in the long-delayed CSeries jet program, which is billions of dollars over-budget. The investment will be made in two installments of $500 million, the first on June 30 and the second Sept. 1, according to deal inked by both sides on June 23.

Bombardier is also in talks with the Canadian federal government over a possible investment in the aircraft program.

Embraer has threatened to challenge the state funding, which it says gives Bombardier an unfair advantage in sales campaigns where its new CSeries is up against Embraer’s E-Jets.

Brazil and Canada have locked horns repeatedly at the WTO over the past two decades regarding state support for Embraer and Bombardier, the world’s biggest commercial planemakers after powerhouses Boeing Co and Airbus Group.

Any dispute over Canadian aid to Bombardier this time could also drag Boeing and Airbus, whose planes would compete with the CSeries passenger jet.

(Reporting by Alonso Soto; Editing by Andrew Hay)