US challenges EU compliance in Airbus case

As mentioned in an earlier blog the European Union had submitted its compliance to the Dispute Settlement Body recommendations regarding subsidies pertaining to Airbus. The United States challenged this compliance.

As per the WTO website, the EU announced it has taken appropriate steps to bring its measures fully into conformity with its WTO obligations and to comply with the DSB recommendations. The EU said it had ensured full implementation. The EU expressed serious concerns that despite its compliance report, the US had already made a request under article 22.2 of the Dispute Settlement Understanding (DSU) for authorisation to suspend concessions and that the US had also initiated consultations under Article 21.5 of the DSU.

Reacting to the European Union's compliance report, the United States submitted:

" On 1 December 2011, the EU transmitted a document ("EU Notification") to the United States purporting to explain how the EU has complied with the recommendations and rulings of the DSB.  The United States has carefully reviewed the notification and considers that the actions and instances of inaction set out therein failed to withdraw the subsidies or remove their adverse effects.  In addition, US review of the EU Notification indicates that the EU and certain member States are providing subsidies with respect to the production and development of large civil aircraft that are inconsistent with the SCM Agreement.  In particular, the following subsidies are being accorded by the EU and certain member States:

•        forgiveness of outstanding obligations to the Governments of France, Germany, Spain, and the United Kingdom under LA/MSF agreements for the A300B, A300B2/B4, A300-600, A310, A310-300, A320, A330/A340 Basic, A330-200, and A340-500/600;
•      termination of French, German, Spanish, and UK LA/MSF agreements for the A300B, A300B2/B4, A300-600, A310, A310-300, A320, A330/A340 Basic, A330-200, and A340-500/600 on non-commercial terms or in a manner that did not withdraw the subsidy;
•           French, German, Spanish, and UK LA/MSF agreements for the A380;
•      French, German, Spanish, and UK LA/MSF for double-aisle large civil aircraft, including the A350XWB;   the 1987, 1988, 1992, and 1994 French capital contributions into Aérospatiale;
•       KfW’s 1989 capital contribution into Deutsche Airbus GmbH and the 1992 transfer by KfW of its 100 percent equity interest in Deutsche Airbus to MBB;
•       Spanish regional development grants to the EADS/CASA facilities at La Rinconada/San Pablo, Tablada, and Puerto de Santa Maria, Spain, and the Airbus España, S.L. facilities in Illescas and Puerto Real;
•     German regional development grant for an A380-related facility of Airbus Deutschland GmbH in Nordenham, Germany;
•            use of the runway extensions at Bremen Airport under the amended taking off and landing fee schedule;
•      use by Airbus of the Mühlenberger Loch industrial site subject to the amended lease agreement between Airbus Deutschland GmbH and Projektierungsgesellschaft Finkenwerder mbH & Co. KG;
•       subsequent share transactions and cash transactions and cash extractions involving subsidy recipients;
•       subsequent investments in Airbus A320 and A330 large civil aircraft programs;  and
•      any amendments, revisions, implementing or related measures to the subsidies described above.

            The United States considers that the actions and events listed in the EU Notification do not withdraw the subsidies or remove their adverse effects for purposes of Article 7.8 of the SCM Agreement and that the EU has therefore failed to implement the DSB’s recommendations and rulings.  The United States further considers that the EU subsidies listed above are inconsistent with Articles 3.1(a), 3.1(b), 5(c), 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement."

    The United States has sought for consultations before counter measures are imposed. Would be interesting to see the result of this round of this long winding dispute. Would the consultation lead to the middle path of a negotiated settlement and understanding of what subsidies are permissible and impermissible? Would it lead to a trade war between two traditional trading partners?