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FM AMEMBASSY OTTAWA
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UNCLAS SECTION 01 OF 04 OTTAWA 000748 
 
SENSITIVE 
SIPDIS 
 
STATE FOR E, EEB/TRA, EEB/BTA, WHA/CAN 
 
STATE PASS USTR (SULLIVAN AND MELLE) 
 
 
TREASURY FOR YUAN AND TVARDEK 
 
E.O. 12958: N/A 
TAGS: EIND EFIN EAIR ECON EINV PREL CA
SUBJECT: Treasury Discussions with Canada Regarding Export Credits 
for Bombardier C-Series Aircraft 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) SUMMARY:  On September 2, Treasury DAS for Trade and 
Investment Sharon Yuan, Treasury Director for Trade Finance Steve 
Tvardek, Embassy EMIN, Embassy Commercial MC and Senior ECON FSN met 
with officials from key GOC departments and representatives from 
Canada's export financing agency to discuss the issue of Canadian 
export financing in U.S. markets for Bombardier C-Series aircraft. 
The central USG message, based on interagency talking points, was 
that export financing for Bombardier's new larger aircraft would 
almost certainly trigger pressure for matching domestic financing 
for Boeing aircraft in the U.S.  Canada was urged to adopt the Home 
Market Understanding (HMU) utilized by the U.S. and European Union 
for more than 25 years, which prohibits the use of export credits 
into the markets of producers of competing aircraft or "home 
markets".  The Canadian officials seemed to appreciate the 
opportunity to explore the broad implications of Bombardier's entry 
into a new market area but their immediate willingness to adopt the 
Home Market Rule or similar measure seems unlikely.  A key potential 
issue for Canada was their wish to see Brazil and other 
aircraft-producing nations similarly bound. 
 
Joint Meeting with Finance, DFAIT and PCO 
----------------------------------------- 
 
¶2. (SBU) On September 2, Treasury, Embassy EMIN, CMIN and ECON FSN 
held a joint meeting with GOC officials from the Departments of 
Finance, Foreign Affairs and International Trade (DFAIT), and the 
Privy Council Office(PCO).  Treasury outlined concerns based on 
interagency talking points regarding possible export credit to 
Bombardier C-Series (BCS) aircraft via Export Development Canada 
(EDC).  In particular, if EDC were to support BCS exports to the 
U.S. market, it would create an uneven playing field because there 
is no domestic financing available for Boeing.  Within the current 
economic climate, Canadian export credits would create a competitive 
disadvantage for Boeing in its home market (and similarly for Airbus 
in the U.S. market as well as in its own home markets).  Both U.S. 
and the European Airbus consortium countries are fully implementing 
the OECD Aircraft Sector Understanding (ASU) including its "Purpose" 
section which: "avoids distortion of competition among 
Participants..." by adhering to the HMU which proscribes export 
financing into producer or "home" markets for competing aircraft. 
Treasury urged that Canada, as a new producer of a competing 
aircraft, adopt the HMU as well. 
 
¶3. (SBU) Of secondary importance is the issue of classification for 
BCS - Category 1 or Category 2 - to be discussed again at the ASU 
technical meeting in Paris on October 1, 2009.  While the U.S. 
expects to have a final position on classification for the October 
meeting, Treasury stressed that the primary concern is that the BCS 
is, and is being marketed as, a direct competitor to Boeing's 737 
family of aircraft, as well as the Airbus 318, 319, and 320 series, 
regardless of classification. 
 
¶4. (SBU) Canada responded that the ASU provides a satisfactory 
process for new aircraft financing for Canada and their current 
position was to wait and see how the classification process unfolded 
Qposition was to wait and see how the classification process unfolded 
in October before considering additional actions. 
 
¶5. (SBU) Treasury stressed that the uneven playing field would force 
the USG to explore a variety of options, including possibly 
providing domestic countervailing financing to Boeing.  This could 
trigger a contagion effect in which the USG and the Europeans could 
be forced to become significantly involved in domestic aviation 
financing and Canada could find itself in a race to the bottom. 
 
¶6. (SBU) Canada responded that it is an experienced player in export 
credit financing and is not trying to carve out a position of 
competitive advantage outside of existing international rules. 
Furthermore, competition in regional jets from Brazil/Embraer has 
been a key factor guiding Canadian decision making (including 
adherence to the ASU because Brazil was also bound by the 
agreement).  At several points in the exchange, Canadian 
interlocutors stated that Canada would be strongly opposed to tying 
its hands on export financing for the BCS if Brazil were not 
similarly constrained.  Canada considers the Embraer 195 to be a 
competitor to the BCS, especially in the U.S. market.  Treasury 
reasserted its understanding that Bombardier was marketing the 
 
OTTAWA 00000748  002 OF 004 
 
 
C-Series to U.S. airlines as an alternative to Boeing 737s, and that 
this was supported by the plane's technical characteristics. 
 
¶7. (SBU) When asked, GOC officials confirmed that since Canada had 
previously given domestic financing to Bombardier to match Brazil's 
Embraer financing for Canadian buyers, it would be prepared, without 
major concern, to do so again if Ex-Im financed Boeing sales to 
Canada in competing aircraft. 
 
¶8. (SBU) Canada noted that the HMU was precipitated by problems with 
the disequilibrium between Boeing and Airbus and that a similar 
disequilibrium exists for Canada vis-`-vis Brazil and Embraer. 
 
¶9. (SBU) Canada expressed concerns that the HMU was unwritten - an 
opaque agreement among governments that could foster protectionism 
and anti-competitive behavior and might be susceptible to anti-trust 
actions.  Treasury responded that the spirit of the HMU was to 
foster a more competitive environment among developed economies by 
requiring market financing, in accordance with the principles of the 
ASU preamble.  While a legal regime would be optimal it was not 
possible given the EU's regulatory considerations.  Furthermore, 
despite its unwritten status, the obligations were clearly 
understood by participants and the HMU has been in operation for 
over 25 years.  Although Canada questioned how it was possible to 
uphold the spirit of the ASU by going outside of it.  Treasury 
offered a clarification that the HMU did not contradict the ASU and 
was fully in line with it, including its "Purpose" preamble. 
 
¶10. (SBU) Canada asked a number of follow-up questions: 
-- Was there was any pressure from U.S. airlines to retain foreign 
export credit?  Treasury responded that the USG's concern was 
competition in aircraft financing, not airline operations. 
-- Does any new U.S. legislative action have to be taken in order to 
authorize domestic Ex-Im financing? Treasury responded in the 
negative.  A legal structure already exists to allow immediate 
action. 
-- Are Boeing and Airbus engaged in self-financing activities? 
Treasury affirmed that this was probably the case. Canada noted that 
the larger U.S. producers have more self-financing options than does 
Bombardier. 
-- What is the US content in the BCS? Estimates around the table 
suggested that American content exceeds 60 percent. 
 
¶11. (SBU) The Canadians were asked to outline the nature of the 
relationship between EDC and GOC and also the procedures for 
financing.  They responded that EDC was an arm's-length Crown 
Corporation but that the GOC would occasionally consult regarding 
particular transactions.  This point was clarified during the 
subsequent meeting with EDC where it was revealed that on Corporate 
Account transactions (source of Bombardier financing), EDC operates 
with a great deal of autonomy.  There is also a "Canada Account" 
where high-risk projects of a national interest may be funded.  GOC 
provides funds and decision-making for Canada Account transactions 
and EDC operates as a conduit. 
 
Concluding Messages 
------------------- 
 
¶12. (SBU) Comment:  Canadian participants in the inter-ministerial 
meeting seemed divided between those willing to consider broader 
economic and foreign policy interests and those narrowly-focused on 
Bombardier's interests. End comment. 
QBombardier's interests. End comment. 
 
¶13. (SBU) Treasury underscored the importance of acting quickly 
because of aggressive Bombardier sales campaigns unrolling in the 
U.S.  If Bombardier were promising to secure EDC financing , GOC 
might find itself in the position of having to either support or 
repudiate these offers  before having carefully considered the 
policy issue.  Similarly, once USG interventions were set in motion 
in response to Canadian financing, it would be very difficult to 
return to the status quo because aggressive manufacturers might 
capture the process.  To this, a Finance official responded, 
"Message received."  Canada proposed to continue a dialogue on the 
issue with U.S., while Treasury emphasized that such a dialogue 
should lead to a fruitful conclusion. 
 
¶14. (SBU) A number of the Canadian officials stated that any 
arrangement that involved denying access to export credits would be 
 
OTTAWA 00000748  003 OF 004 
 
 
a "non-starter," especially in the context of a global credit 
crisis.  One official attempted to frame the issue from the Canadian 
perspective during a period when governments around the world were 
taking extraordinary steps to save domestic economies and opening up 
new sources of credit.  He opined that the Minister of Finance would 
"go ballistic" if they told him that the US was asking Canada to 
stop making lawful interventions in the aviation credit market at a 
time when the US is "intervening everywhere else to Canada's 
detriment".  (Comment: Canada has been particularly hard hit 
recently by Buy American provisions for sub-federal spending, Black 
Liquor credits and softwood disputes in the forest sector, and 
Country of Origin Labeling in the meat sector. In addition, the 
large domestic financing programs in the U.S. in response to the 
recession are seen by Canada as in some cases providing effective 
subsidization to U.S. domestic industries. End comment) 
 
¶14. (SBU) Some of the Canadians present expressed a preference for 
'tweaking' the ASU rather than adopt the HMU in order to find an 
acceptable solution.  While there seemed to be good will on both 
sides, Canada expected that other aircraft-producing states would 
have to be brought to the table before the issue was resolvable. 
 
Meeting with Export Development Canada 
-------------------------------------- 
 
¶15. (SBU) Similar to earlier presentation to the GOC 
inter-ministerial group, Treasury set out concerns regarding BCS 
export credits in the U.S. market.  Canada was encouraged to let 
aircraft compete on their own merits in a competitive environment. 
 
 
¶16. (SBU) EDC made assurances that no commitments had been made to 
Bombardier regarding C-Series financing and none will be made until 
the aircraft is classified.  However, a comfort letter has been sent 
to a potential BCS buyer outlining an ASU-compliant financing 
process in general terms.  After classification, EDC will look at 
potential sales on a case-by-case basis using current risk 
assessment and transaction evaluation tools.  EDC noted that the ASU 
provides certainty of credit but not its price. 
 
¶17. (SBU) When asked, EDC said it did not have an opinion regarding 
the possibility of Ex-Im financing for competing Boeing aircraft 
into Canada.  EDC confirmed that it had supplied funds to Bombardier 
for aircraft other than the BCS to counter Embraer sales in Canada. 
 
¶18. (SBU) EDC asked whether potential U.S. domestic financing for 
Boeing would match EDC financing for Bombardier.  Treasury affirmed 
that this would likely be the case. 
 
¶19. (SBU) EDC echoed GoC concerns about Canada's vulnerability if 
Brazil were not similarly bound by HMU and the plausibility of 
Embraer 195 as a substitute for BCS.  Treasury responded that in the 
Southwest Airlines case, the airline was looking to replace 737s, 
not regional jets.  Treasury made that point that there would 
inevitably be overlaps at the margins between Category 1 and 
Category 2 aircraft- breaking points would be contentious but that 
the BCS's main competitors were Category 1 aircraft. 
 
¶20. (SBU) The meeting concluded with EDC speculation on future 
prospects for Bombardier.  In the past, Bombardier had received EDC 
financing for around 40 percent of its sales but now it is up around 
Qfinancing for around 40 percent of its sales but now it is up around 
75 percent.  EDC estimated that the financial strength of Bombardier 
was not sufficient for them to finance C-Series purchases on their 
own.  Also, Bombardier's business jet business would soon be 
eclipsed by the C-Series - with United States and European Union as 
key markets. 
 
¶21. (U) Attending the meetings for USG Treasury: Sharon Yuan, Deputy 
Assistant Secretary, Trade and Investment; and Steve Tvardek, 
Director, Trade Finance.  Embassy Ottawa: Eric Benjaminson, Minister 
Counselor for Economic Affairs; Stephan Wasylko, Minister Counselor 
for Commercial Affairs and Laura Dawson, Senior Economic Specialist. 
 
 
 
¶22. (U) Attending for GOC Finance:  Jim Haley, General Director, 
International Trade and Finance; Lise Carrihre, Senior Chief, 
International Trade and Finance; John Layton, Chief, Trade Rules, 
 
OTTAWA 00000748  004 OF 004 
 
 
International Trade and Finance; and Kim McIntyre, Economist, 
International Trade and Finance. GOC DFAIT:  Ian Burney, Assistant 
Deputy Minister, International Business Development, Investment and 
Innovation; Julie Insley, Director, International Trade Portfolio 
and Strategic Analysis (including international financing); Nadine 
Mawle, Senior Policy Analyst, International Trade Portfolio and 
Strategic Analysis; and Peter McLachlan, Commercial Policy Analyst. 
GOC Privy Council Office: Kathleen Cooper, Policy Analyst, Economic 
and Regional Development Policy.  EDC: Glen Simpson, Senior Advisor, 
Financing Centre of Expertise and International Relations Team; Taso 
Georgiou, Director, Aerospace Team; and Caroline Dabrus, Director, 
Financing Centre of Expertise and International Relations Team. 
 
¶23. (U) This cable was cleared by Treasury DAS Yuan and Director 
Tvardek.