TWN Info Service on WTO and Trade Issues (May18/14)
18 May 2018
Third World Network

AB rules partially against EU over Airbus subsidy compliance
Published in SUNS #8682 dated  17 May 2018

Geneva, 16 May (Kanaga Raja) - The Appellate Body (AB) of the World Trade Organisation (WTO) has affirmed that the European Union and four of its Member States (France, Germany, Spain and the United Kingdom) have failed to comply with an earlier WTO panel ruling over measures related to the design and development of large civil aircraft (LCA) by the European aircraft manufacturer Airbus.

[The AB, however, reversed several of the compliance panel's findings in respect of the ruling against Airbus on Article 7.8 of the SCM Agreement that required the EU members to take action to withdraw a subsidy that has expired or doe s not exist at the end of the implementation period, nor required to take appropriate measures to remove adverse effects of past subsidies. The AB ruled that there was no compliance requirement in respect of subsidies that had ceased to exist in 2011, and as such dismissed several of the US claims. The AB, however, upheld the compliance panel's findings that the subsidies that continued to exist after 2011 had enabled Airbus to bring on the market the LCAs and thus affected or caused serious prejudice to Boeing's market.

[In effect the rulings of the compliance panel and of the AB confirm that Airbus received billions of dollars in subsidies from EU members, in violation of the SCM agreement, and that this enabled the development and bringing on to the market of the LCAs by Airbus.

[An appeal against compliance panel rulings on the EU's counter-dispute against the US over the subsidies that Boeing has received (estimated equally at billions of dollars) is pending before the AB and is expected to be issued later in the course of the year. That ruling, when it is issued, is expected to show that Boeing LCAs too (single aisle, two-aisles) have received heavy subsidies running into billions of dollars in violation of the SCM agreement.

[The two rulings show how the two major trading entities, the US and the EU , have been subsidising in billions of dollars the development and marketing of LCAs, dominating the global market, but are quick to point their fingers at developing countries including China and India for the relatively trifling amounts of subsidy they provide to their marginal subsistence farmers, and how the entire WTO and its multilateral trading system is skewed against developing countries, with the US and EU resisting reforms to set this right. SUNS]

The original panel in the US dispute against the EU over Airbus, and the compliance panel have both defined an LCA as "large (weighing over 15,000 k g) "tube and wing" aircraft, with turbofan engines carried under low-set wings, designed for subsonic flight." LCAs are designed for transporting 100 or more passengers and/or a proportionate amount of cargo across a range of distances serviced by airlines and air freight carriers.

In its ruling issued on Tuesday, the Appellate Body recommended that the DS B request the European Union to bring its measures found in its report, and i n the panel report as modified by its report, to be inconsistent with the SCM (Subsidies and Countervailing Measures) Agreement, into conformity with its obligation s under that Agreement.

According to a prior procedural agreement between the US and the EU, the US may now request a WTO arbitrator to proceed to determine the level of retaliation that the US may impose on the EU as a result of its non-compliance with the WTO rulings.

The US claimed "an important victory" in its dispute with the EU over alleged subsidies to Airbus. A press release issued by the Office of the US Trade Representative (USTR) on Tuesday said that in December 2011, the EU claimed to have removed the more than $18 billion in subsidized financing to Airbus that the WTO had previously found to be WTO-inconsistent.

The United States disagreed and in September 2016, a WTO compliance panel found that the EU had failed to comply, finding that only two of the 36 "steps" the EU claimed to have taken to comply were even "actions."

According to the USTR press release, the WTO Appellate report confirmed today that the United States was correct; the EU remains out of compliance with its WTO obligations.

"President Trump has been clear that we will use every available tool to ensure free and fair trade benefits American workers," USTR Ambassador Robert Lighthizer said.

"This report confirms once and for all that the EU has long ignored WTO rules, and even worse, EU aircraft subsidies have cost American aerospace companies tens of billions of dollars in lost revenue. It is long past time for the E U to end these subsidies. Unless the EU finally takes action to stop breaking the ru les and harming US interests, the United States will have to move forward with countermeasures on EU products," he said.

In a separate press release issued by the European Commission Directorate-General for Trade, the EU welcomed the report by the Appellate Body.

The press release maintained that the report rejects the vast majority of the US allegations that the EU had not complied with the WTO findings. It said the Appellate Body definitively dismissed all US claims that any of the EU support is outright "prohibited" under WTO rules.

"Today the WTO Appellate Body, the highest WTO court, has definitively rejected the US challenge on the bulk of EU support to Airbus, and agreed that the EU has largely complied with its original findings," said EU Trade Commissioner Cecilia Malmstrom.

"Significantly, it dismissed the vast majority of the US claims that this support had damaged Boeing's aircraft sales. The EU will now take swift action to ensure it is fully in line with the WTO's final decision in this case. Also, we lo ok forward to the upcoming ruling by the Appellate Body on US compliance with the WTO findings of the massive and persistent government support to Boeing," she added.

According to the press release, the Appellate Body found that the majority of EU support to Airbus challenged by the US had expired in 2011. It ruled that under WTO rules the EU is not required to take any further action regarding state support that no longer exist, such as the alleged support for the A300, A31 0, A320 and A330/A340 aircraft models.

This ruling leaves the EU with only a few remaining compliance obligations in order to bring itself fully into line with WTO rules. These are linked to repayable loans provided to the newer A380 and A350 XWB models. There are no obligations that remain regarding single-aisle aircraft, according to the press release.

The EU and the US had each appealed certain issues of law and legal interpretations developed in the Panel Report, European Communities and Certain Member States - Measures Affecting Trade in Large Civil Aircraft - Recourse to Article 21.5 of the DSU by the United States (compliance panel report).

The Panel was established on 13 April 2012 to consider a complaint by the United States regarding the alleged failure on the part of the European Union and certain of its member States to implement the recommendations and rulings of the Dispute Settlement Body (DSB) in the original proceedings in EC and certain member States - Large Civil Aircraft.

(A full report on the Appellate Body's findings will appear in a forthcoming issue of SUNS.)