By Marcelo Rochabrun, Tim Hepher and Andrea Shalal

(Reuters) – Brazil on Thursday ditched a trade complaint against Canada over aircraft subsidies and called for wider negotiations between all aircraft producing nations to halt a slide toward aircraft trade wars, sidestepping the World Trade Organization.

The abrupt move by Brazil, home to the world’s third largest planemaker Embraer, comes as larger rivals Airbus and Boeing remain locked in a 16-year-old fight at the WTO that led to tit-for-tat transatlantic tariffs.

While the two giants dominate the market for large passenger jets, Brazil has for years fought its own battles over the regional jet market against Canada’s Bombardier. Their rivalry spawned its own series of mutual trade complaints.

In 2017, Brazil complained to the WTO about Canadian support for the Bombardier CSeries jet, which it claimed had received $3 billion in unfair subsidies.

But the dispute never progressed beyond procedural wrangling and in 2018 the loss-making CSeries was sold to Europe’s Airbus and renamed A220. Canada denies giving unfair support.

“Brazil remains convinced of the strength of its case. Nevertheless, it has become clear that the dispute could not effectively remedy the impacts of such large-scale subsidies on the commercial aircraft market,” Brazil’s foreign ministry said.

It noted the market had changed since Brazil filed its WTO complaint because Airbus was now assembling some A220s in the United States.

Brazil said it would focus “with renewed impetus” on launching negotiations to define more effective rules on government support to commercial aviation.

FINANCING PACT

Embraer welcomed the proposal, which the government said could be based on a successful aircraft financing pact between aircraft producing nations at the Organization for Economic Co-operation and Development in 2007, and updated 4 years later.

That resulted in caps on export agency financing even as some of the same nations feuded over production subsidies, which have a more visible impact on high-tech manufacturing jobs.

“We believe we should look for something similar on the funding of development and production of commercial aircraft to create a level playing field,” Embraer Commercial Aviation Chief Executive Arjan Maijer said in an interview.

A new U.S. administration and increased public support to help aviation survive the COVID-19 crisis and tackle climate change could spur a deal, he added.

“We are going to see funding come to the market due to Covid and we see environmental challenges ahead of us as an industry, with funding flowing for that as well,” he told Reuters.

Longer term, analysts say there is growing awareness of growing competition from China, increasing pressure for a deal.

U.S. President Joe Biden is seen as more open to multilateral negotiations than his predecessor but for now is holding tariffs in place until a review of Trump-era policies.

William Reinsch, a former U.S. Commerce official and expert at the Center for Strategic and International Studies, said Brazil’s move was “a recognition of reality” since the WTO dispute settlement system was not functioning smoothly.

“Even if it pursued the case and won, the remedy is not likely to be helpful to Brazil’s aircraft industry.”

Earlier on Thursday, Airbus reiterated calls for a negotiated settlement to end its long-running spat with Boeing, already the world’s largest corporate trade dispute.

Chief Executive Guillaume Faury called U.S. and European tariffs “lose-lose” and said the time had come to negotiate.

Other parties were not immediately available.

(Reporting by Marcelo Rochabrun; Editing by Christian Plumb, Emelia Sithole-Matarise, Kirsten Donovan)

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