1. Brief overview of government relations
Government relations teams are looking after the relations between public and private sectors. It is aimed at strengthening and fostering discussions on the elaboration of measures and government decision-making, targeting the best scenario for the country and the society itself.
These relations can occur at different levels, according to the legislative competences of the Union, states and municipalities, concretized in legal and public policies - actions that reaffirm the State's interests. Such policies are prepared by public entities, each according to their specific assignment by the Federal Constitution of 1988.
The private entities’ relation to the public institutions represents the practice of government relations in a domestic sphere. Based on this premise, Government relations emerge to bridge the gap between the private sector and public agents, establishing an alignment in favor of the national interest. The operationalization of the concept can be interpreted as a large genre that encompasses activities such as: regulatory monitoring - monitoring of legislation and other measures -, evaluation of positions, identification of stakeholders, lobbying, and advocacy.
Lobbying, exercised in a lawful manner, seeks open communication between the private sector and the public sector, and, internally, within the private sector itself, seeking greater defense of the representative sector. Another practice that surrounds lobbying is advocacy, a mechanism used by the common civil society, through determined sectors or single-handed efforts, to influence the State at the time of creation, or possible modifications, of measures.
Lobbying is more practiced by those who seek direct negotiation, in defense of their interests, with the public entities, and by those who already have an influence on the market. On the other hand, advocacy, as much as it seeks the same negotiation, is practiced by those who do not have so much influence, but both seek to defend their point of view.
From a practical point of view, larger multinational companies already have structured departments with qualified professionals for government relations; in order to anticipate and plan for the case of a national or international event that may influence their activity.
From the information extracted from the websites of 3 large companies – Unilever, Bayer and Vale – they all have the common objective of institutional dialogue at different levels of government and with other interested groups or private sector entities, in favor of the defense of their interests on several fronts. The three of them operate internationally, which benefits them in terms of structure and makes them capable of having a dedicated team for this concern.
It is understood, then, that companies with significant market power are in sync with the international scenario, due to the level of sophistication of their operations. Such care is taken that companies invest in their own structure for the development of activities in government relations before the Brazilian State, foreign governments and international organizations, or to hire specialized offices to perform such functions.
The profession of Government Relations is supported by the Federal Constitution of 1988, in its fifth article, which guarantees freedom of expression and publicity of the decisions of public bodies. Not only that but, in 2018, the Ministry of Labor also recognized the profession by adding one of its niches - lobbying - to the list of the Brazilian Classification of Occupations (CBO).
The Chamber of Deputies approved Bill No. 1.202-C/2007, which aims to amend the old law that regulated lobbying and bring updates to the activity.
From an international perspective, the importance of having a specific area of government relations within companies revolves around the possibility of influencing external decisions of the host country, such evaluating pros and cons of a certain international agreement, presenting problems before specialized public agents etc.
The WTO (World Trade Organization), which serves as a forum for the negotiation of international rules and for the resolution of conflicts between member countries, has also been the setting for the defense of the interests of the national private sector, especially in the involvement of sensitive issues such as the imposition of tariff and non-tariff barriers and trade defense measures.
WTO's Dispute Settlement Body (DSB) has already analyzed issues raised by the Brazilian government about trade measures considered illegal and potentially distorting in terms of competitiveness and free trading.
It should be noted that Brazil is one of the founders of the multilateral trading system and, in recent years, has had a more active participation in international negotiation discussions, as well as being a major user of the WTO dispute settlement system.
It was from the Uruguay Round (1986/1994) that Brazil became a more active participant, breaking its secondary position exercised until then, and becoming the third largest plaintiff in the DSB.
Brazil ranks third in terms of the number of cases as a plaintiff, behind only the European Union (2nd) and the United States (1st). This greater Brazilian activity is the result of an intense work of government relations of sector associations and companies that seek the interface with the government - often long and expensive to both parties, but which can bring benefits to the company that is in the background.
A better situation of the international scene, with the support of private institutions, would only benefit a country when it comes to international relations and international trade. Based on this assumption, Brazil starred in a remarkable clash in the international arena against Canada, in the case that became known as Embraer versus Bombardier, two great powers in the aircraft sector, which had their measures questioned, condemned and modified.
The objective in the explanation of the case is to demonstrate how an organized and structured work of defense of interests in the aeronautical sector by Embraer, together with the Brazilian government, could generate good results in favor of the national interest.
2.1. ANALYSIS OF THE EMBRAER V. BOMBARDIER CASE: Companies’ background
The analyzed case exemplifies the importance of such a profession within WTO’s range, lasting approximately 25 years (1996 - 2021), and should serve as a basis for demonstrating the importance of a specialist in international affairs in each company.
The dispute took place between Brazil and Canada, "Measures Affecting the Export of Civilian Aircraft", due to subsidies provided by both countries to national aviation companies, Embraer and Bombardier.
Embraer was created in 1969 with the support of the national government and was a mixed-capital company, focused on the trade of aircraft intended for dual civil and military use, with the capacity to carry 15 to 21 passengers. Over the years, the company's focus changed and turned to the international trade of commercial aircraft, but it went through a debt process and was then privatized in 1994.
After the purchase, the groups of shareholders invested in the company and turned to both the domestic and foreign markets, including receiving investment from the National Bank for Economic and Social Development (BNDES). Embraer was also part of a program developed by the Brazilian federal government, known as the Export Financing Program (Proex), developed in 1991, in which the State assumed the additional costs that companies should pay when obtaining international financing to cover their risk.
After considerable investment of the Brazilian government, Embraer entered the international market from 1999 in a stronger form, becoming a major competitor in the aircraft sector and resulting in pressure from Bombardier to its government to question the validity of the government support received by its competitor. According to BNDES's numbers, the company's exports over the years have been significantly impacted since the creation of the program.
In 1999, the volume of sales was 47%, with noticeable growth at the beginning of Proex, reaching a peak of 63% in 2003. It suffered a decrease until, in 2010, when it was 34%.
The Canadian company began its work in 1942, as a family business in Quebec (Canada), focused on the construction of special snowmobiles. Over time, the company grew and expanded to other cities in the Canadian province and, in 1970 it opened the way for international business.
As the company grew, the field of action also spread, from subway trains to aircraft. In 1996 and 1997 the Canadian government provided government support to the company, which became known as the Canada-Quebec Subsidiary Agreement on Industrial Development and totaled US$ 291 million.
Given the government support of both countries, the companies involved in the case were able to grow and be competitive. This aroused the distrust of competing companies, leading them to call their states to investigate whether these supports were truly legitimate under WTO rules. If proven that they were not, the option at stake would be to call the WTO DSB and start a trade dispute, so that the respective government would cease the illegal subsidies, a result that materialized and will be explained below.
2.2 Functioning of the Dispute Settlement Body (DSB)
The DSB has the premise of mediating disputes between States, and its decisions have a granting nature, to bring greater security to the provisions defined in the Uruguay Round. It is then up to the warned country to comply with its determinations.
The first phase of conflict resolution is called "consultations". In it, the plaintiff in the lawsuit requests the respondent country to survey legislation and trade positions in order to request changes based on the agreements signed by both.
The second phase is called the "panel", which resembles the structure of an arbitral tribunal. In it, there are three figures chosen by the parties, who must analyze petitions and oral statements made in hearings, and at the end issue a report "on the compatibility of the questioned measures in relation to the WTO agreements". An appeal against this decision can be made, which must be presented to the "Appellate Body”, and its subsequent decision must be respected by the parties.
The last stage is the "implementation" of the decision, in which the favorable response to the plaintiff generates the duty of the respondent to adapt the questioned legislation to reestablish the balance between parties. It is important to note that if the decision is not implemented within the stipulated period, the parties may agree on compensation.
In the case of the disputes between Brazil and Canada, almost all of them went through all the phases of the WTO DSB procedure. Therefore, in the next point, the work will address how the dispute itself occurred, highlighting the professionals involved on both sides.
2.3 The dispute itself
In 1996, Canada initiated a process before the WTO - as a result of pressure made by the Canadian company - about Brazilian measures applied to the airline sector, alleging that they would be characterized as subsidies and that these violated Article 3 of the Agreement on Subsidies and Compensatory Measures, which prohibits the following subsidies for signatory countries:
Article 3: Except as provided for in the Agreement on Agriculture, the following subsidies as defined in Article 1 shall be prohibited: (a) subsidies that are de facto or de jure linked to export performance, either individually or as part of a set of conditions, including those indicated by way of example in Annex I 5; (b) subsidies tied de facto or de jure to the preferential use of domestic products to the detriment of foreign products, either individually or as part of a set of conditions.
In 1998, the first panel of the case called “D46 - Brazil — Aircraft Export Financing Program”, took place. The decision of the members indicated that the measures applied by the Brazilian State were contrary to the provisions of the agreement, that is, they argued that Brazil was providing unauthorized subsidies.
After the publication of the decision, Embraer publicly expressed its opposition to the decision and provoked the Brazilian government to appeal to the Appellate Body, noting that a possible trade war would not be beneficial to both sides. Brazil then appealed, but the Appellate Body upheld the initial decision. The following year, Canada requested a new panel on the grounds that Brazil had not complied with the decision.
The second panel was established and those responsible for analyzing the case understood that, in fact, Brazil had not followed the determinations of the decision, an understanding that was maintained by the Appellate Body. In 2000, the Canadian government requested the approval of countermeasures, as a form of retaliation for non-compliance with the decision and the procedure was referred to arbitration. In a statement, Embraer claimed that the Brazilian government followed WTO guidelines, and that the same could not be said of the Canadian government.
The company concluded by saying that it believed in Brazil's dexterity in "firmly opposing this inadmissible stance by Canada." The last movement of this case occurred in 2001, and Brazil was still to change Proex, which occurred later on.
The second clash between Brazil and Canada called "DS 70: Canada — Measures that affect the export of civil aircraft", began in 1997. The objective was for the Canadian government to provide clarification on the prohibited subsidies for aircraft exports, which would violate the provisions of article 3, paragraph "a" of the Agreement on Subsidies and Compensatory Measures, linked to the Canada Account Program - similar to Proex. The panel was established in 1998 and the following year the decision was handed down, and the Brazilian claim was partially upheld.
Canada appealed the decision the same year to the Appellate Body and the decision was upheld on appeal. Soon after, the Brazilian government requested a new panel to implement the decision, alleging its non-compliance by the Canadian State, resulting again in a partially upheld report. The appellant in this last decision was Brazil, but the Appellate Body understood that the arguments found no connection with the facts. The last move was made in 2000, when "Canada declared its intention to implement the DSB's recommendations in relation to the Canada Account Program", but no significant changes were made.
In response, the penultimate dispute called "DS 71: Canada – Measures affecting the export of civil aircraft" and was implemented by Brazil, having started in 1997 with the same basis as the DS 70 case - already explained previously - and had the same procedure as the previous ones. This dispute was initiated because, from the point of view of the Brazilian government, the program continued to affect the international trade of aircraft, in an unlawful manner.
The last chapter started in 2017 by Brazil with the support of Embraer and ended in 2021, after having followed the procedure of the DSB, when the Foreign Ministry announced its interest in ending the litigation due to subsidies directed to Bombardier.
The decision to withdraw was supported by the Brazilian company, which stated that the DSB, was not the most appropriate way to resolve the conflict at that time, since Bombardier withdrew from the commercial aviation sector. Therefore, the company suggested that the differences were to be resolved through negotiations centered on supporting the commercial aviation sector.
Trade disputes between countries are more common than they seem. Brazil has positioned itself when companies exercise the right to request the defense of their interests in international spheres. As much as the disputes between Brazil and Canada have ended, it does not mean that the discussions about aeronautical subsidies will not happen again, since the international market is constantly changing. It is the role of the companies that operate in the foreign market and the country's government to be attuned to the decisions and aid of each country to be able to defend their interests. In other words, it is continuous work.
2. Conclusion: How does a Government relations professional benefit the private sector in international trade disputes
As previously discussed, Brazil held several debates with Canada before the WTO dispute settlement body, with the ideal of protecting Embraer from the improper competition from Bombardier - which received government subsidies at the time. In addition, it is true to say that the country has moved in defense of policies that directly benefit Embraer, as was the case with Proex.
It is necessary, then, to highlight the agents behind the disputes discussed above. At first, it is possible to highlight the role of the ambassador, responsible for representing Brazil before the DSB.
In 2001, Itamaraty has created a sector specialized in conflicts before the WTO, which had as its first president the diplomat Roberto Carvalho de Azevêdo. This sector began its work defending the country against 12 active cases, but they had a small number of participants. Currently, the General Coordination of Litigation has trained professionals focused only on critically analyzing the DSB procedure.
Returning the analysis to the private sector, it is also worth mentioning that the heads of government relations of the companies participating in the dispute realized losses of their companies after receiving the subsidies. Regarding Embraer, after a series of moves, the company had a large purchase of aircraft canceled, and consequently a loss of approximately US$ 100 million. In addition, in retaliation for Brazilian subsidies, Bombardier adopted the practice of removing qualified labor working in the Brazilian company.
On the other hand, Bombardier has also suffered from a marketing point of view. During an aircraft sales dispute, the buyer opted for the Brazilian product - US$2 million cheaper - which resulted in a loss of approximately US$ 300 million for the Canadian company.
In this scenario, there was a movement by the two companies to pressure their respective governments to act on the subsidies provided. This is the role of the government relations sector.
The professional who works in this area has the responsibility of following both the decisions of their country and those of the other countries where the company operates, so that it is possible to protect rights provided for in international agreements among other regulations.
To become a professional in Government it is necessary to be aware of all the fronts of the company's activity, aimed at both the national and international markets. The actions of this professional in international trade, especially in this case, involved: i) regulatory monitoring; ii) contact with the government; iii) defense of the subsidy received; iv) assistance in disputes with relevant market data and information, as well as preliminary legal analysis of possible violations and v) discussion of subsidies from other countries to competitors and the losses suffered.
Embraer has released several notes over the years showing its position regarding the disputes and decisions rendered by DSB. In some cases, even encouraged the Brazilian government to move in a certain direction. Not only that, but they have actively assisted the Union at the time on the drafting of petitions with the Brazilian government before the DSB.
From these findings, it can be said that the performance of the Government relations professional in the specific case was fundamental, and without him both companies would not have been aware of the initiatives of their respective governments, technical robustness on the analysis of the context and existing violations and, finally, influence on the procedure before the WTO.
In addition to regulatory monitoring, it should also be noted that the Government relations department also fulfills the function of mapping stakeholders to influence and negotiate with the Executive, Legislative and Judiciary Branches. In other words, it is the role of this professional to understand which groups have similar interests so that the power of persuasion is greater in solving the problem faced. In the case of Embraer, possible stakeholders are other companies that have benefited from the Proex subsidy and organizations in the Brazilian civil aviation sector (including producers of aviation auto parts, and airlines).
However, such work cannot be temporary or superficial, it is necessary that the professional is properly qualified and performs a perennial activity, so that the partnership between companies and public entity is not broken so easily and that in case of new demands communication occurs in an easier way.
It is through open communication, both with the public sector and with the stakeholders, made by the Government relations’ actor, that the company manages to achieve the objective of obtaining a direct and efficient negotiation in defense of its interests. Therefore, this professional should have greater prominence and recognition, since his activities are always related to the sector in which he operates.