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

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  • Andrea E. Goldstein
  • Steven M. McGuire

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. Copyright 2004 Blackwell Publishing Ltd.

Suggested Citation

  • Andrea E. Goldstein & Steven M. McGuire, 2004. "The Political Economy of Strategic Trade Policy and the Brazil-Canada Export Subsidies Saga," The World Economy, Wiley Blackwell, vol. 27(4), pages 541-566, April.
  • Handle: RePEc:bla:worlde:v:27:y:2004:i:4:p:541-566
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    References listed on IDEAS

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    1. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
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    8. Hiemenz, Ulrich & Agarwal, Jamuna Prasad & Langhammer, Rolf J. & Nunnenkamp, Peter & Spinanger, Dean, 1991. "The international competitiveness of developing countries for risk capital," Open Access Publications from Kiel Institute for the World Economy 747, Kiel Institute for the World Economy (IfW).
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    Cited by:

    1. Vértesy, Dániel, 2017. "Preconditions, windows of opportunity and innovation strategies: Successive leadership changes in the regional jet industry," Research Policy, Elsevier, vol. 46(2), pages 388-403.
    2. Vertesy, D., 2014. "Successive leadership changes in the regional jet industry," MERIT Working Papers 046, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Armando Castelar Pinneiro & Regis Bonelli, 2008. "Nuevas Actividades Exportadoras en Brasil: Ventaja Comparativa, Políticas o Auto-Descubrimiento?," Research Department Publications 3257, Inter-American Development Bank, Research Department.
    4. Daaniel Vertesy & Adam Szirmai, 2010. "Interrupted Innovation: Innovation System Dynamics in Latecomer Aerospace Industries," Globelics Working Paper Series 2010-02, Globelics - Global Network for Economics of Learning, Innovation, and Competence Building Systems, Aalborg University, Department of Business and Management.
    5. Lourdes Casanova & Andrea Golstein & André Almeida & Matthew Fraser & Ramón Molina & Henning Hoeber & Carlos Arruda, 2009. "Multilatinas to Global Latinas: The New Latin American Multinationals," IDB Publications (Books), Inter-American Development Bank, number 62498, February.
    6. Goldstein, Andrea, 2002. "EMBRAER: from national champion to global player," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    7. Armando Castelar Pinneiro & Regis Bonelli, 2008. "New Export Activities in Brazil: Comparative Advantage, Policy or Self-Discovery?," Research Department Publications 3256, Inter-American Development Bank, Research Department.
    8. Jorge Niosi, 2010. "Building National and Regional Innovation Systems," Books, Edward Elgar Publishing, number 14006, April.
    9. Tilman Altenburg & Wilfried Lütkenhorst, 2015. "Industrial Policy in Developing Countries," Books, Edward Elgar Publishing, number 14726, April.
    10. McGuire Steven, 2014. "Global value chains and state support in the aircraft industry," Business and Politics, De Gruyter, vol. 16(4), pages 1-25, December.

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