Tuesday, March 6, 2012

Airbus Boeing - Essentially a "political" dispute?

The Airbus-Boeing dispute at the WTO is perhaps one of the most long drawn disputes in the multilateral trading system revolving around the permissibility and extent of subsidies within the SCM framework. The dispute is so central to the US-EU relationship that even a book on the turbulent dispute  titled "Boeing versus Airbus"  took shape. I have earlier blogged about the dispute here, here, here, here, here and here.

Recent reports that the the AB gave its judgement in an appeal by the European Union against the United States in subsidies related to Boeing have reopened issues pertaining to the dispute. The details of the AB report are not public yet. (Does the AB always circulate the order to parties in private before making it public?)

The ChinaPost in this piece reported
"The decision, given confidentially, was made on a European Union appeal against U.S. government aid to Boeing, and trade officials hoped the details will be released by mid-March.
After the ruling was transmitted to the EU and the United States, an EU diplomat said he could not comment, though he did indicate that EU-U.S. negotiations might be the only path to a solution.
The WTO decision brings to a head a battle between the aerospace giants in the world's most costly trade dispute, but trade officials expressed doubts that it would settle the core issues."
An interesting aspect in this piece is the suggestion by the EU trade spokesman that the dispute could be solved only at the "political" level between the EU and US. 
Today's ruling, when it is made public, will provide us with a clear picture of where the two parties stand in the aircraft disputes,” EU trade spokesman John Clancy said from Brussels.
“We said all along that only negotiations at the highest political level can lead to a real solution and we hope that today's report provides momentum in that direction.
“The real challenge remains to find a mutually acceptable approach to maintain a healthy and viable aircraft industry producing safe and more environmentally friendly aircraft,” said Clancy."
Is this an indication of the limitations of the Dispute Settlement Mechanism (DSM) of the WTO? The DSM is considered to be the jewel in the crown of the multilateral trading system due to its importance in a rule based system and a legal basis for settling disputes rather than depending on power relations and negotiations between trading partners. After several years of the dispute, and the Panel and AB having pronounced its decisions after giving sufficient opportunity to the parties and weighed the evidence, it is surprising to note that a suggestion for a "political" settlement is being put forth. Does this imply that no matter what the DSM rulings are, ultimately political decisions matter relating to compliance? While subsidies and their impact are essentially "political" questions having a deep impact on domestic politicy space, is it not the understanding that decisions against internationally accepted obligations need to be curtailed so as to not to undermine multilateral trading rules? Is not the efficacy of a rule based system in question if disputes need to be settled "politically" rather than "judicially"? While trade rules are negotiated and made "politically", once made, should not countries agree to a "judicial" interpretation and enforcement of the same? While politically settling disputes between the US and EU might be one between equal trading partners, does not the equation change between unequal trade powers? 


Steve Craven said...

Politics in the WTO? Always. This is inevitable for any institution that does not have an independent enforcement mechanism. The principal power of dispute settlement in the WTO is moral suasion - and it is surprisingly effective, which can be seen from our consternation when a few high profile cases, such as Boeing v. Airbus, become continuing political contests. The mainstream almost never picks up on the more numerous, but smaller, cases that are amicably resolved.

One might even argue that the present system tilts in favor of the smaller parties. The big countries really don't want to weaken the system by ignoring the dispute settlement process on smaller cases. That doesn't serve their larger interest in a smoothly operating trading system.

Srikar said...

It would be naive to assume that the DSM operates in a vacuum! I was just surprised that after almost 7 years of a keenly fought dispute, the Airbus Boeing dispute was going the "political" way. In a sense, a few large cases determine the efficacy of the system. I do agree however that the DSM has been extremely successful in a large number of smaller, low profile cases. With the developing, emerging world ready to utilise the DSM to pursue their trading interests, it would be interesting to see how the larger trading partners react?