TWN Info Service on WTO and Trade Issues (Oct19/12)
17 October 2019
Third World Network

US authorized to retaliate to tune of $7.5 billion in Airbus dispute

Published in SUNS #8997 dated 15 October 2019

Geneva, 14 Oct (Kanaga Raja) – The WTO Dispute Settlement Body (DSB) on Monday authorised the United States to take countermeasures against the European Union and four EU member states at a level not exceeding USD 7,496.623 million annually.

The countermeasures are a result of the failure of the European Union to comply with a WTO ruling over subsidies provided by the EU and certain member states (Germany, France, Spain, and the United Kingdom) to the European aircraft manufacturer Airbus.

On 2 October, a panel of WTO arbitrators had ruled that the United States may impose countermeasures at a level not exceeding US$7,496.623 million annually over the failure of the EU and the four member states to remove subsidies to Airbus which had caused harm to the US aircraft manufacturer Boeing, in terms of lost and impeded sales of Boeing aircraft.

In what is the largest retaliatory award in the history of the WTO, the three-member panel of Arbitrators said the countermeasures may take the form of (a) suspension of tariff concessions and related obligations under the GATT 1994, and/or (b) suspension of horizontal or sectoral commitments and obligations contained in the United States’ services schedule with regard to all services defined in the Services Sectoral Classification List, except for financial services (see SUNS #8990 dated 4 October 2019).

In its statement at the DSB on Monday, the US noted that the Arbitrator in this matter has released its decision as to the level of countermeasures commensurate with the adverse effects caused by the subsidies of the EU, including its member states Germany, France, Spain and the United Kingdom, to large civil aircraft.

That figure is nearly $7.5 billion each year, it said.

“The level determined by the Arbitrator is larger by far than the largest amount previously awarded by a WTO arbitrator, and documents the point that we have been making all along – that the EU’s subsidies to Airbus have for decades caused massive harm to the US economy,” said the US.

Accordingly, the US said that it has requested DSB authorization to impose countermeasures under Article 7.9 of the Subsidies and Countervailing Measures (SCM) Agreement and Article 22.7 of the Dispute Settlement Understanding (DSU) consistent with the award.

The US said that it is its preference to find a negotiated outcome with the EU that ends all WTO-inconsistent subsidies.

“That has been our objective from the outset. But that can only happen if the EU genuinely terminates the benefits to Airbus from current subsidies and ensures that subsidies to Airbus cannot be revived under another name or another mechanism,” the US maintained.

For 15 years, the US has indicated its desire for such an agreement, it said, adding that during this period, there have been no countermeasures, and the EU has consistently failed to engage in serious discussions.

“We hope the countermeasures will encourage the EU to agree to a genuine cessation of its WTO-inconsistent subsidies and the adverse effects that flow from them,” the US said.

In its statement at the DSB, the EU took note of the decision of the arbitration panel in this dispute, and the level of possible countermeasures.

“This decision marks another milestone in the 15-year long aircraft saga. We will reach another milestone of this saga with the upcoming decision in the arbitration proceedings in the Boeing case,” it said.

The EU said what it sees in the Arbitrator’s report raises serious concerns.

Having reviewed the report, it said it disagrees with the report on the basis of which the US has put forward its request today.

First, the EU noted, there is no analysis whatsoever in the report of the amount of benefit or the alleged price effects.

The alleged volume effects are largely based on the assumption that Airbus or its products should not exist.

Notably, the EU said it is told that, without the measures, the A380 would never have been launched.

This conclusion is at odds with the facts and evidence and does not accurately reflect the prior findings by the Appellate Body, it said.

The USTR assertion – in the press release issued upon the publication of the award – which claims that “the Appellate Body agreed that [w]ithout the subsidies, Airbus would not have existed … and there would be no Airbus aircraft on the market” has no basis in the Appellate Body rulings previously adopted in the course of this dispute.

Second, said the EU, awarding recurring annual countermeasures for an indefinite period in response to non- recurring measures, the benefit and adverse effects of which are constantly diminishing, is a breach of the rule foreseen in the SCM Agreement that countermeasures must be commensurate with the degree and nature of adverse effects, and contradicts the existing case law.

The award of recurring annual countermeasures is all the more striking with respect to the A380 even though the adjudicator knows that the A380 programme has been terminated.

This ignores the principle of representativeness, leads to countermeasures that are not commensurate with the adverse effects, and contradicts the Members’ long-held view – which was confirmed by the US itself during the proceeding – that compliance obligations are prospective only.

Third, the EU argued, the award disregards the risk of over-counting resulting from cumulating nullification or impairment from both orders and deliveries at the same time.

This disregards the basic principles of economic valuation and again leads to countermeasures that are not commensurate with the adverse effects.

Fourth, the award contains a finding that the hypothetical impedance associated with the six country markets where impedance was found coincides with the total number of aircraft (47) that Airbus sold in those markets, without any effort by the United States to substantiate that assertion.

Fifth, said the EU, the award systematically avoids taking into account the treaty terms that refer to the “non- subsidised like product”, which clearly support the view that the volume effects of competing subsidies cancel each other out.

It said in DS353 (ongoing arbitration proceeding in the EU complaint against the US over subsidies to Boeing), the European Union has already obtained multilateral findings that the United States is out of compliance with respect to both Washington State tax subsidies and FSC (foreign sales corporations).

It is currently pursuing its own Article 22.6 DSU proceedings against the United States in DS353. With respect to the same issues, the same principles will be applied in that case, it said.

From a systemic point of view, in order to provide security and predictability to the multilateral trading system, and not least for the sake of procedural fairness, that is the only acceptable course to follow, the EU maintained.

It said that unlike the United States, the European Union has made a substantial further effort to comply that is currently under consideration by a second compliance panel.

The result of that proceeding will shortly be known. The European Union will be insisting that, as a matter of law, the outcome of that proceeding is fully and immediately reflected in the level of sanctions imposed by the United States.

“Finally, we have taken very careful note of the arbitrator’s repeated and heavy reliance on the proposition that, as long as the defending Member is “out of compliance”, because they do not have a multilateral determination of compliance, or a mutually agreed solution, or an unconditional and unequivocal acknowledgement of compliance from the complainant, the full amount of any retaliation remains due,” said the EU.

It recalled in this respect that the possibility of a “multilateral determination of compliance” will be at serious risk in the very near future in the absence of a functioning multilateral dispute settlement system, and the United States bears the responsibility if that situation were to materialise.

The content of this report demonstrates why the existence of appeal review on legal issues is essential within the WTO system, said the EU.

“We are continuing to review the report and we fully reserve all our rights to challenge its findings at the appropriate time and in the appropriate forum.

“Unlike the United States, we well understand that, even if we strongly disagree with the report that forms the basis of the US request, we cannot prevent the DSB from granting authorization to suspend concessions or other obligations consistent with this award, absent a DSB decision by consensus to reject the request, because that authorization will be granted automatically or by operation of law (that is, ipso jure).

“Nevertheless, we wish to re-state that we disagree with the content of the decision, including for the reasons outlined above.”

The EU said that it will monitor very closely the application of the US countermeasures and called on the US to respect the level authorized by the WTO.

In conclusion, the EU reiterated that it remains of the view that even if the US obtains authorisation from the DSB today, opting for applying its countermeasures now would be short-sighted.

Both the EU and the US have been found at fault by the WTO dispute settlement system.

In the parallel Boeing case, the EU will in some months equally be granted right to impose additional counter-measures.

The mutual imposition of countermeasures, however, would only harm global trade and the broader aviation industry, the EU warned.

“As we have consistently stated, we remain ready to work with the United States on a fair and balanced solution for our respective aircraft industries. Pending progress in finding such a solution, and while reserving our rights in this regard, it is not our intention to seek reporting from the United States with respect to any of the above matters,” said the EU.

In an intervention, Canada said that it was sympathetic to the EU’s concerns about the need for arbitrators to take account of the current situation with regards to compliance efforts.

But it also understood the need for arbitration and compliance proceedings to be separate and the need to avoid an “endless loop” of litigation regarding any claim of compliance.

Canada called on the US to show restraint, pointing out that the health of an increasingly integrated aircraft industry, the WTO’s dispute settlement system and the global economy depended on it.