Info Service on WTO and Trade Issues (Oct19/06)
Geneva, 3 Oct (D. Ravi Kanth) – The United States and the European Union seem to be heading towards a trans- Atlantic trade war, after Washington announced it will swiftly impose tariffs on $7.5 billion worth of European Union goods as a result of a ruling from a panel of arbitrators at the World Trade Organization.
The WTO arbitrators pronounced on 2 October that Brussels failed to comply with the Dispute Settlement Body (DSB) recommendations against launch aid provided to Airbus by the EU member states.
After securing the green light from the WTO Arbitrators to impose retaliatory measures to the tune of about $7.5 billion annually on goods and services from the European Union due to Brussels’ failure to comply with a WTO ruling against launch aid and other subsidies to Airbus, the US Trade Representative Ambassador Robert Lighthizer indicated that Washington will submit a list of EU goods for retaliatory tariffs that would go into effect on 18 October.
The US has called for a special WTO DSB meeting on 14 October in order to receive the final authorization.
In a sharp response, the EU trade commissioner Cecilia Malmstrom made it clear that “if the US decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same.”
She said the retaliatory measures by the US would “only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time.”
The panel of WTO Arbitrators – Mr Faizullah Khilji, Mr Scott Gallacher and Mr Thinus Jacobs – ruled that the US can go-ahead to slap counter-measures on the EU goods and services since Brussels failed to remove the illegal subsidies provided to Airbus despite the WTO Dispute Settlement Body recommendations against launch aid provided by the EU governments to Airbus.
The panel said the amount of $7.5 billion is commensurate with the adverse effects suffered by Airbus’ US rival Boeing in terms of lost sales and impeded deliveries of its aircraft due to launch aid/member state financing (LA/MSF) for large civil aircraft granted by France, Germany, Spain, and the United Kingdom.
The panel, however, disagreed with the US demand for imposing $10.56 billion annually in countermeasures.
Surprisingly, the EU did not indicate any lower figure. Brussels repeatedly urged the arbitrators to defer the ruling until the second compliance panel issued its report on the US failure to implement the WTO ruling on the subsidies provided by American federal and state governments to Boeing.
The panel turned down the EU’s demand to delay the ruling, saying it was neither legally necessary nor legally appropriate to await the outcome of the second compliance proceeding concerning the US failure to implement the WTO ruling against Boeing.
The panel ruled that, in the light of its mandate set out in Article 7.10 of the WTO’s Subsidies and Countervailing Measures (SCM) Agreement, it determined the maximum level of countermeasures based on the value of the adverse effects during the December 2011-2013 reference period.
But the arbitrators chose not to quantify any adverse effects that may have arisen after the end of that time-period.
According to the panel of arbitrators, the adverse effects were determined in relation to five sales campaigns that Airbus won during the December 2011-2013 reference period and that Boeing would have won in the absence of LA/MSF subsidies, as found in the first compliance panel proceedings.
These sales campaigns resulted in orders for 104 Airbus aircraft in the twin-aisle and Very Large Aircraft product market, the panel pronounced.
Since 2004, the US and the EU have been locked in a tit-for-tat trade dispute over the subsidies provided to Airbus and Boeing respectively.
After the EU’s Airbus captured a significant share of the world market for civil aircraft in early 2000, the US chose to launch the massive trade dispute against Airbus, saying that the European company benefited largely because of launch aid/member state financing (LA/MSF) for large civil aircraft granted by France, Germany, Spain, and the United Kingdom.
During a press conference with the Finnish President Sauli Niinisto at the White House on Wednesday (2 October), the US President Donald Trump claimed that the WTO has delivered favorable rulings over the past three years to the US after ripping the country for a long time.
In a press statement issued on 2 October, the US Trade Representative Ambassador Robert Lighthizer claimed that “for years, Europe has been providing massive subsidies to Airbus that have seriously injured the US aerospace industry and our workers.”
“Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose countermeasures in response to the EU’s illegal subsidies,” the USTR said.
“Accordingly, the United States will begin applying WTO-approved tariffs on certain EU goods beginning October 18. We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”
The USTR said the award of $7.5 billion annually is by far the largest award in WTO history – nearly twice the largest previous award.
The EU trade commissioner Cecilia Malmstrom said while the EU takes note of the decision of the World Trade Organization’s (WTO) arbitration panel in the Airbus case, and the level of possible countermeasures, it would be imprudent to apply countermeasures at this juncture.
“Both the EU and the US have been found at fault by the WTO dispute settlement system for continuing to provide certain unlawful subsidies to their aircraft manufacturers,” she said.
The EU commissioner also indicated that Brussels would impose retaliatory measures, saying that “if the US decides to impose WTO authorized countermeasures it will be pushing the EU into a situation where we will have no other option than do the same.”
At a time when Boeing is under massive international criticism following two deadly crashes of the Boeing 737 Max 8 aircraft, the WTO arbitration award is a blessing in disguise to deflect attention away from Boeing to Airbus, said analysts familiar with the ruling.
Boeing is fighting numerous legal cases launched by victims of the two crashes of 737 Max 8 aircraft in American courts.
Moreover, all 737 Max 8 aircraft are now effectively grounded the world over after the Ethiopian Airways crash on 10 March.
[At the same time, civil aviation authorities and regulators in several countries, disillusioned by disclosures of US regulators accepting Boeing’s own safety certifications, without independent checks by its own safety inspectors, appear to be no longer willing to clear Boeing aircraft flights to their countries, or be allowed to overfly their airspace, merely on the basis of US clearance. SUNS]