The Political Economy of Strategic Trade Policy and the Brazil–Canada Export Subsidies Saga

Abstract

In this paper we study the on‐going trade dispute between Canada and Brazil on export subsidies in the aircraft industry and the reasons for its escalation. This is a peculiar case of strategic trade policy insofar as the good, i.e. regional jets, is heavily dependent on sub‐systems that are imported in the two countries. The hypothesis that the dispute solely derives from the search for rents and externalities is therefore incomplete. Without downplaying the role of interest politics, we argue that in both countries ideas about the goals of trade policy have an important place in explaining why this dispute drags on. For Canada, the belief in a rules‐based trading regime has led it to strongly oppose violations, while insecurity about its competitiveness has led to a variety of government schemes to support firms in advanced sectors like aerospace. For Brazil, its place as a leader of the developing world acted as a rallying point for government and firms alike. The research also argues that the WTO process has actually made a resolution of the dispute more difficult by making it too costly for firms and countries to comply with the costs of losing.

Is an Export Subsidy a Robust Trade Policy Recommendation Toward a Unionized Duopoly?

“…As to the first result, if the result of robustness cannot be obtained in the simplest case, it can hardly be obtained in more sophisticated cases. As to the second result, on the one hand, in reality we observe that governments set trade policies to please particular industries (see Goldstein and McGuire, 2004). This means that governments can be very sensitive to special interest lobbying.…”

Brazil’s Challenges of Post-interventionist Bargaining

“…Most importantly, its irrational trajectory could not be explained by standard explanatory variables. Rather, the dispute reveals the influence of domestic players (Goldstein & McGuire, 2004).…”

Embraer and the growth of the Brazilian aircraft industry

“…Nevertheless the competition in the international market is tightening considerably. There are several new entrants to the international market: companies from China, Russia and Ukraine in addition to its traditional competitor Bombardier (Goldstein and McGuire, 2004).…”