Fairchild Industries' effort to curb shipments to the United States of Brazilian-made Bandeirante short-haul airplanes is adding new troubles to the increasingly strained trade relations between the United States and debt-ridden Brazil.
Though U.S. Ambassador Anthony Motley has assured the Brazilians it is unlikely Fairchild will succeed in having tariffs imposed on imports of the plane, Brazilian officials are preparing to make the Bandeirante a test case before the International Trade Commission.
Embraer, manufacturer of the Bandeirante, is 51 percent owned by the Brazilian Air Ministry, and company President Osires Silva said he had successfully lobbied for support in Brasilia.
"Our plane is a big contribution to the political conflict" developing in the area of international trade, he said.
Silva said Embraer's lawyer in Washington, Donald Santarelli, would disprove Fairchild's allegation that imports of the 19-seat Bandeirante have injured the Germantown, Md.-based aerospace and communications firm. There are 82 Bandits, as the Brazilian plane is called, in operation with U.S. regional feeder airlines, and 92 have been purchased or are on order.
"We are going to show it's an excess of zeal on Fairchild's part to consider the Bandeirante responsible" for a decline in its sales, Silva said. There can be no damage to Fairchild from an airplane of different specifications, he said, pointing out that the Fairchild Metro 3 plane is pressurized, while the Bandeirante is not. According to those familiar with the dispute, pressurization adds significantly to the cost of an airplane, and it is the Bandit's lower price and financing arrangements that have provoked the trade complaints by Fairchild.
Silva said Embraer lawyers would use the testimony of satisfied U.S. buyers to show that the plane, which has carried more than a million passengers in four years of service in the United States, is not cutting the Metro 3 out of the market.
"Today, the regional air market is filled by foreign manufacturers because U.S. companies did not have the vision to fill this gap. U.S. consumers will certainly have to pay more" for regional transport if the ITC recommends to Commerce Secretary Malcolm Baldrige that import duties should be imposed, Silva said. The ITC is scheduled to make a preliminary ruling in the case on Tuesday.
Silva said Fairchild's suit, which alleges a 44 percent export subsidy through Brazilian credit schemes, is based on wrong information. "We are not . . . beneficiaries," Silva said. The export subsidy arrangement is at the heart of the Brazil-U.S. trade dispute and has been the subject of delicate correspondence from senior administration officials.
Silva said Embraer would offer "extremely strong" lines of argument to show export subsidies on the Bandeirante were no more than 9 percent. "Using arguments which may or may not be accepted, we can also show that the subsidy is in fact 3 percent, and we could even put forward the argument that the plane is not subsidized at all," he said.
Embraer plans to go on the offensive by charging that Fairchild was receiving subsidies from the U.S. Department of Defense for research and development, then was using those funds for civil aviation work, Silva said.
Silva said it would be a legal absurdity for the U.S. government to impose import taxes against the Bandeirante, on which 54 percent of the components are U.S.-made. He said the Bandeirante generated more employment in the United States -- in manufacture of components and in services -- than Fairchild could by increased sales of its Metro 3 plane.
"We are going to prove that we are generating more employment than Fairchild would if we lost the case. But we're not going to lose the case," an ebullient Silva said from the Embraer factory in the industrial town of Sa o Jose dos Campos, close to Sa o Paulo.
"I don't believe we will lose, but if we do, there's no doubt that the import penalty will not be as high as 44 percent," Silva said. This opinion accords with the tone of U.S. diplomatic opinion in Brazil, which holds that Fairchild's suit will, like the majority of cases brought before the ITC, be thrown out. U.S. Ambassador Motley expressed his private opinion in this respect to the Brazilian press and, according to diplomatic officials, was quick to regret commenting on a case still pending.
Silva mentioned sanctions that Brazil's aviation industry could take against the protectionist tendencies in the United States. He denied that Embraer, which is assembling Piper light planes under license, would cut back on imports of U.S. components, but suggested that Brazilian purchases of passenger aircraft might be prejudiced.
Silva pointed out that from 1979 to 1981, Brazil sold $106.9 million of airplanes in the United States, while in the same period it imported $631 million of U.S. planes. He specifically mentioned an order for nine Boeing 757s to be delivered to the third domestic airline, Transbrasil, by 1986. According to Transbrasil President Omar Santana, the airline has indefinitely delayed firming up the order because of unsatisfactory financing terms offered by the U.S. Export-Import Bank. One of the subcontractors on the Boeing 757 is Fairchild.
Unlike Brazil's two other domestic airlines, Transbrasil has no immediate intention of deserting Boeing in favor of the European Airbus and has made a firm order for three 767 planes to be delivered next year, as part of the re-equipment of its fleet.
Before traveling to Britain's Farnborough air show to look over new Airbus models, Transbrasil's Santana said, "We're going to look at all possibilities," and emphasized the attractive financing terms offered by the European consortium that makes Airbus.
Embraer's Silva pointed out that Transbrasil, now the only Boeing client in Brazil, could make a "gesture of good faith toward the Brazilian government," which closely oversees civil aviation policy. He pointed to the possibility of the Brazilian government withdrawing loan guarantees for companies that wish to purchase U.S.-made planes, though there was no way the Brazilian government could tell Transbrasil which planes to buy.
A legal source close to Transbrasil's negotiations pointed out that all foreign aircraft purchases in Brazil are overseen by an interministerial panel that includes a representative of the Air Ministry, half owner of Embraer. To secure government loan guarantees, all purchase plans must be approved by the committee.