"Illegal" program ruling may boost military support (a World Trade Organization decision could lead to government aid for defence programs).

A recent World Trade Organization (WTO) ruling against a Canadian industrial program may encourage greater government support for military programs. In March the WTO ruled that support to the aerospace industry provided by Technology Partnerships Canada (TPC) is a prohibited subsidy under international trade agreements. The ruling came just weeks after the federal budget boosted annual funding to the TPC from $250 million to $300 million.

The WTO review of the Canadian program arose from a dispute between Bombardier Inc of Montreal and a Brazilian aerospace firm, Embraer, which saw each company call on the WTO to rule on alleged government subsidies to its rival. The WTO ruled both governments at fault. Ottawa has appealed, but if the appeal decision - due in August - upholds the WTO ruling, then the government must revamp the TPC program.

Technology Partnerships Canada is rooted in the earlier Defence Industry Productivity Program (DIPP), which subsidized aerospace and other industries involved in military (and commercial) production for export from 1969. Following aerospace industry protests at the 1995 announcement that DIPP funds would be suspended pending a Cabinet review, the government created the TPC in early 1996. The new program has a broader mandate than its predecessor, providing support not only to aerospace and defence industries, but also to companies producing environmental technologies and "enabling" technologies (such as advanced materials and information technology applications).

The government reports that about two-thirds of TPC program funding has gone to aerospace and military projects at a time when the proportion of civilian aerospace sales is on the rise, reaching 78 per cent of total sales in 1998 according to industry figures. This support is justified as a response to national government programs elsewhere. According to the program's annual report, "while most national governments around the world support their aerospace industries through their defence budgets, Canada has taken a novel approach in demonstrating its support through conditionally repayable investments through Technology Partnerships Canada."

Within the context of widely-acknowledged, worldwide subsidization of the aerospace industry, the WTO decision may be penalizing Canada for success in building an aerospace industry that is not dependent on military orders. In contrast to other nations, such as the US, the UK, and France, where large aero-space sectors look to military procurement as a base and source of subsidy, Canada over the course of over twenty years has shifted its aerospace markets to largely foreign civilian customers. In responding to the WTO ruling, Canada will be challenged to avoid mimicking other governments by increasing federal spending on military equipment as a means of supporting the industry.