TWN Info Service on WTO and Trade Issues (July10/12)
26 July 2010
Third World Network

European Union appeals WTO Airbus panel ruling
Published in SUNS #6971 Thursday 22 July 2010

Geneva, 21 Jul (Kanaga Raja) -- The European Union on Wednesday formally appealed the panel ruling in the dispute brought against it and certain EU Member States by the United States over the billions of euros in subsidies provided to the Airbus aircraft manufacturing company.

The panel report, made public on 30 June, had been tabled by the US for adoption at a special meeting of the Dispute Settlement Body (DSB) Wednesday afternoon. Following the filing of the appeal by the EU, the DSB meeting has been cancelled. The normal duration of the appeal process is usually 90 days, but given the intricacy and complexity of this major dispute, it would not be a surprise to find this process taking months instead.

Meanwhile, the European Commission has complained over the delay in the issuance of the interim report of its own complaint against the US over alleged subsidies to the aircraft manufacturer Boeing (originally expected in mid-July but now put off till mid-September), and said that "the time lag between this case, and the United States' case against support to Airbus has constantly increased over the six years this dispute has been running and the gap is now at nearly a year."

As a result, the Commission said that a wrong impression has been created that Airbus has received some WTO-incompatible support, whereas Boeing has not (see below).

In a massive 1,000-page report that was made public on 30 June, the panel ruled that decades of launch aid - of more than 15 billion euros - and other subsidies provided by the EU and its Member States Germany, France, the United Kingdom and Spain to Airbus were illegal under WTO rules. (See SUNS #6957 dated 2 July 2010 for details of the ruling.)

The US claimed a "landmark" victory in the dispute, arguing amongst others that the panel had found that every instance of launch aid provided by certain EU Member States for new Airbus aircraft over the last forty years, as well as other subsidies the US had challenged, caused adverse effects to the interests of the US and therefore were WTO-inconsistent subsidies.

On the other hand, the European Commission said that the panel found amongst others that European support did not result in any job losses in the US or lost profits to the US aircraft industry. The panel also rejected the allegation that support for Airbus caused "material injury" to the US aircraft industry, and found that EU support did not damage Boeing's pricing or profitability and did not lead to a loss of jobs at the company.

The dispute over measures imposed by the European Communities (the European Communities became the European Union following the entry into force of the Treaty of Lisbon) and certain Member States affecting trade in large civil aircraft was first brought by the US in 2004 and a panel was established in July 2005.

The EU subsequently initiated a counter-dispute against the US, challenging various US Federal, State and local subsidies benefitting Boeing, totaling $23.7 billion in what it says is WTO-inconsistent subsidies over the past two decades and up to 2024.

An interim ruling in this dispute was originally expected on 16 July, but its publication has now been put back to mid-September.

In a press release issued on 8 July, the European Commission said that it was "extremely disappointed" to learn of this additional delay into the issuing of the interim panel report in the Boeing case (DS353).

"The time lag between this case, and the United States' case against support to Airbus (DS316) has constantly increased over the six years this dispute has been running and the gap is now at nearly a year," said the Commission.

"It creates the wrong impression that Airbus has received some WTO incompatible support, whereas Boeing has not. Only when we have received both panel reports will both sides have a more complete picture of the dispute," it added, pointing out that at the moment "we only have half the story."

The Commission said it was "very concerned that these delays decrease the chance for a negotiated settlement, which is - as publicly stated by both sides - the desired outcome to this dispute."

In a separate press release on 21 July, announcing the lodging of the appeal, the EU said that its appeal covers a number of findings by the panel including that certain instances of Repayable Launch Investment (RLI) for the A380 aircraft are export subsidies; a causal link between Airbus support and any adverse effects to Boeing has been established; and certain infrastructure measures taken by EU Member States for which Airbus pays market-based rent constitute subsidies.

The appeal also covers a number of important "cross-cutting issues" such as changes in ownership of assets and companies, the extinction, extraction, removal or withdrawal of the subsides, and the issue of pre-1995 subsidies.

"The WTO dispute settlement system rightly allows for appeal to correct any legal errors of the panels. This dispute is too important to allow the legal misinterpretations of the panel to go unchallenged. What is more, not appealing would allow for an unhelpful precedent for the WTO membership as a whole," said EU Trade Commissioner Karel De Gucht.

In its notice of appeal to the Appellate Body, the EU said that it is restricting its appeal to those errors that it believes constitute serious errors of law and legal interpretation that need to be corrected.

In its appeal, the EU requests the Appellate Body to reverse, modify or declare moot and of no legal effect the findings, conclusions and recommendations of the Panel, with respect to the following errors of law and legal interpretations contained in the Panel Report, including amongst others:

-- On the legal irrelevance of pre-1995 subsidies (Section VII. C. 2 of the report), the EU said that the Panel erred in its interpretation and application of Article 5 of the Subsidies and Countervailing Measures (SCM) Agreement when concluding that all alleged actionable subsidies granted by the European Union prior to 1 January 1995 were included in the temporal scope of these proceedings.

-- On the identity of recipient, pass through, extinction, extraction and withdrawal of subsidy (Section VII. E. 1 of the report), the EU said that the Panel erred in its interpretation and application of the SCM Agreement, in particular Articles 1, 4.7, 7.8, 5 and 6.3, by failing to distinguish the recipients of the alleged subsidies over time, and by failing to properly account for sales, transfers and changes in ownership of assets and companies and the extinction, extraction, removal or withdrawal of the alleged subsides.

-- On Member State Financing (MSF) issues (Section VII E. 2 of the report), the EU amongst others said that the Panel erred in failing to take account of Article 4 of the 1992 Agreement (bilateral agreement between the EU and the US) in interpreting and applying the notion of "benefit" under Article 1.1(b) of the SCM Agreement. Also, to the extent that the Panel has made findings with respect to the relevance of the number of sales over which full repayment is expected to the appropriateness of the market rate of return, the Panel made an error under Article 1.1(b) of the SCM Agreement.

-- On export subsidy findings (Section VII E. 4 of the report), the EU said that the Panel erred in its interpretation and application of Article 3.1(a) and footnote 4 of the SCM Agreement, including but not limited to the terms "subsidies", "contingent/condition", "tied-to", "actual or anticipated" and "export performance".

-- On European Investment Bank (EIB) measures (Section VII E. 5 of the report), the EU said that if the United States appeals the Panel's findings on the lack of specificity of the EIB measures, then the European Union appeals the Panel's findings that such measures confer a benefit and requests the Appellate Body to rule that the Panel erred in its interpretation and application of Article 1.1(b) of the SCM Agreement and failed to make an objective assessment of the law and the facts as required by Article 11 of the DSU in its findings that the challenged EIB measures confer a benefit.

-- On infrastructure (Section VII E. 6 of the report), the EU said that the Panel erred in its interpretation and application of Article 1.1(a)(1)(iii) of the SCM Agreement in finding that the Muhlenberger Loch measures, the Bremen runway extension and the ZAC Aeroconstellation measures constitute financial contributions. The Panel also erred in its interpretation and application of Article 1.1(b) of the SCM Agreement in finding that the Muhlenberger Loch measures, the Bremen runway extension and the ZAC Aeroconstellation measures confer a benefit on Airbus Deutschland and Airbus France.

-- On Aerospatiale equity contributions (Section VII E. 9 of the report), the EU said that the Panel erred in finding that a "benefit" was conferred by virtue of capital contributions within the meaning of under Article 1.1(b) of the SCM Agreement by the French State to a state-owned company, Aerospatiale and in its interpretation of the term "benefit" in Article 1.1(b). The Panel also erred in its interpretation and application of Article 1.1(b) of the SCM Agreement and Article 11 of the DSU (Dispute Settlement Understanding) in making findings without a sufficient evidentiary basis concerning reasonable market-based rates of return, and in the absence of coherent reasoning in its assessment of evidence concerning the performance of Aerospatiale's peers.

-- On R&TD issues (Section VII E. 10 of the report), the EU said that the Panel erred in its interpretation and application of Article 2.1(a) of the SCM Agreement when concluding that R&TD support granted under each of the Framework Programmes constituted specific subsidies.

-- On adverse effects (Section VII F of the report), the EU said that the Panel erred in its interpretation and application of Articles 5( c), 6.3(a), 6.3(b) and 6.3( c) of the SCM Agreement in finding that the effect of the subsidies constitutes serious prejudice to the interests of the United States, including displacement of imports from the European Union, displacement of exports from certain third country markets or threat thereof and significant lost sales in the same market.

Under the subheading of displacement or threat thereof, the EU said that the Panel erred in its interpretation and application of Articles 5( c), 6.3(a) and 6.3(b) of the SCM Agreement and Articles 12.7 and 11 of the DSU when it found that there is only one, rather than several distinct product markets, and by finding that it could therefore assess displacement, significant price suppression and price depression on the basis of a single product market, thereby exaggerating the extent of the displacement and price suppression and depression it found.

The EU also said that the Panel erred in its interpretation and application of the provisions of the SCM Agreement and of the DSU when it found that there was displacement in the markets of Mexico and Brazil, although the United States did not lose market share in those markets; when it found that the subsidies caused displacement in the EU market; when it found that the subsidies caused displacement in the third country markets of Australia, Brazil, China, Chinese Taipei, Korea, Mexico and Singapore; and when it found that the subsidies caused a threat of displacement in the third country market of India. +