Bridges Weekly Trade News Digest • Volume 9 • Number 27 • 27th July 2005
Panels To Be Established For EU-US Aircraft Dispute
A 20 July meeting of the WTO Dispute Settlement Body (DSB) decided to establish separate WTO dispute panels to determine whether the EU and the US have been illegally subsidising their respective civil aircraft manufacturers, Airbus and Boeing.
The US charges that the governments of France, Germany, Spain and the UK have subsidised Airbus with amounts exceeding USD 15 billion over the past 30 years. It is challenging the EU under articles of the WTO Subsidies and Countervailing Measures Agreement that pertain to prohibited subsidies as well as ‘actionable’ ones, which are challengeable though their adverse effects must be proven.
The EU subsidies in question are so-called ‘launch aid’ subsidies for the development of new civil aircraft. These consist of both interest-free or below-market-rate loans and the tying of repayment obligations to sales, allowing partial or non-repayment if the aircraft is not successful.
The US alleges that these subsidies have made the Airbus aircraft projects commercially feasible, and links them to significant price undercutting, price depression and lost sales for Boeing (see BRIDGES Weekly, 1 June 2005).
The EU has argued that several of the claims made against it cannot be considered by the WTO panel, since they were not raised by the US during the consultations held in November 2004 following the parties’ initial decision to seek WTO dispute settlement. One of these claims targets launch aid for the Airbus 350 aircraft, which is currently under development. The EU counters that it has yet to make a decision on providing launch aid to the A350, and thus there is no subsidy. The US insists that Airbus has sought subsidies from many EU member governments, and that Germany has already included launch aid for the A350 in its national budget.
A second panel will examine the EU’s counter-claim that the US has subsidised Boeing with more than USD 22 billion since 1992 through research and development contracts from the US Department of Defence and the National Aeronautics and Space Administration (NASA). The EU contends that the research and development of Boeing’s civil aircraft are paid for through military budgets. Military expenditures, however, are largely exempt from WTO disciplines. EU Trade Commissioner Peter Mandelson has alleged that the figure would be even higher if tax breaks given to Boeing under the Foreign Sales Corporation Act had been included. Tax benefits under that legislation were found to be in violation of WTO law in 2002; the US repealed it in 2004 (see BRIDGES Weekly, 27 October 2004).
After the 20 July meeting, both parties expressed regret that the dispute had gone this far. The US said that it was "ready and willing" to negotiate, but that the EU was only willing to reduce the subsidies — not end them. Brussels, on the other hand, stated that it had made a "genuine attempt" to settle the matter, but that the US unfortunately was not prepared to move an inch.
The process and outcome of this dispute, which is said to be the biggest, most difficult and costly legal dispute in the history of the WTO, may prove to have far reaching impacts on the dispute settlement system as well as on the ongoing review of the dispute settlement mechanism.
In spite of the decision to establish the panels, the Boeing-Airbus dispute, which has kept the EU and the US bickering for more than a decade, may still be in for a long haul. Not only must the parties agree on the composition of the two panels, they must carry out the procedure set out in Annex V of the SCM Agreement for determining whether subsidies constitute ’serious prejudice’ to the interests of another Member. The parties are required to disclose information on the existence and amount of subsidies, the value of the subsidised firms’ total sales, as well as other information necessary to analyse the adverse effects caused by the subsidised product.
The US may object to handing over information from the US Department of Defence’s research and development program, considering it to be too sensitive. The security exceptions in Article XXI of the General Agreement on Tariffs and Trade (GATT) exempt Members from having to disclose information that they deem "contrary to… essential security interests."
Nevertheless, this possibility is not the main concern for now, since the EU blocked Annex V proceedings from being initiated as soon as the panel is established. The EU wants the information gathering to begin only after it reaches a procedural agreement with the US covering the process’s scope and guidelines, as well as the selection of a facilitator to lead it.
The panels are not expected to issue rulings until late 2006 at the earliest and the reports are then assumed to be appealed. However, many experts believe that the cases will be settled outside the WTO dispute settlement system since the panels are expected to find violations of the WTO subsidy rules by both parties, thus leaving open the possibility of trade retaliations reaching billions of dollars.
ICTSD reporting; "WTO to launch probe into Boeing-Airbus dispute", FINANCIAL TIMES, 21 July 2005; "The DSB establishes panels to examine aircraft subsidy disputes", WTO NEWS 20 July 2005; "Statement on Boeing, Airbus and the WTO", EU TRADE COMMISSIONER STATEMENT, 31 May 2005; "WTO Sets Separate Aircraft Subsidy Panels; EU, U.S. Battle Over Data Collection Process", WTO REPORTER 21 July 2005.