Thursday, September 27, 2012

EU rejects U.S. complaince claims in the Boeing case - Back to the WTO

I had blogged about U.S. reports of compliance in the Boeing subsidies case before the WTO. As expected, EU was not satisfied. While details of the EU challenge are not known, it is clear that the WTO would become the stage once again for a legal battle. Reports of EU challenging the claim of  compliance were reported here and here. The WTO website provides this information about the EU request for consultation.
"The EU says it has reviewed the announced US measures and considers that the US maintains a series of subsidies. In its requests for consultations, the European Union says that the actions and events listed by the United States in its 23 September 2012 notification to the DSB (notifying compliance) do not withdraw the subsidies or remove their adverse effects, as required by the Agreement on Subsidies and Countervailing Measures. 

The communication by the EU also says that instead, after the end of the implementation period on 24 September 2012, the United States “maintains specific subsidies that cause present adverse effects to EU interests”. The communication also says that “in the view of the European Union, the United States has failed to achieve compliance with the commendations and rulings of the Dispute Settlement Body (of the WTO)
EU Trade Commissioner in a press release reacting to the USTR claim of compliance indicated that it would go back to the WTO to challenge the claim of compliance by the U.S.
"On 24 September 2012, the EU received the compliance notice from the US in the WTO Dispute Settlement case 353 ("Boeing case"). The EU reviewed the measures presented by the US to assess if these were sufficient to comply with WTO rules, as the US claimed. 
The lack of information in the US notification unfortunately facilitated a quick review which suggests that the US has neither withdrawn the illegal subsidies granted to Boeing, nor removed their adverse effects. The EU even has indications that the US could have actually granted more illegal subsidies to Boeing in the meantime. 
As a consequence, the EU feels obliged to challenge US non-compliance in the WTO Boeing ruling. To that end, the EU is requesting that the United States enter into consultation regarding the notification it made on 24 September 2012. 
"We had expected that the US would have finally complied in good faith with its international commitments and would have abided by the WTO rulings that clearly condemned US subsidies to Boeing" said EU Trade Commissioner Karel De Gucht. "We are disappointed that this does not seem to be the case. So, the US leaves us with no other choice but to insist on proper compliance before the World Trade Organisation. We are confident that this process will finally lead to a level playing field in the aircraft sector."
Possible ways forward:
1. EU challenges the the U.S. claim of compliance at the DSB in the WTO.  
2. The WTO either rules that there is compliance or non-compliance. If non-compliance is established, the EU seeks retaliatory measures.  
3. U.S. and EU realize that the 7 year old dispute does not have a chance of a legal settlement - a political compromise is the only way forward in the interests of the aircraft manufacturing industry. A simple fact sheet about the dispute is found here.
4. A political settlement could be in the form of accepting that a certain level of subsidies is inevitable and neither side would pursue the matter. An international (plurilateral) agreement relating to large aircraft manufacturing and the contours of subsidization between the two players with the possible joining of China, Brazil and other major aircraft manufacturers to sanctify subsidization.

The Airbus-Boeing case is an interesting case that brings into focus many aspects of international economic law and policy:

1. A dispute that is a long pending one at the WTO - has taken nearly a decade for settlement

2. Role of subsidies in the domestic policy space where governments support local industry

3. The inadequacy of the legal system to handle complex polticio-economic situations of state intervention. It is also an indication that trade rules do not reflect the harsh reality of state support and national policies.

4. The legal quagmire of what constitutes "compliance" can ensure that cases linger on for sometime at the DSB. The battle is not over when the Apellate Body decides on a measure's compatibility with WTO law. The next battleground for legalese to take over is the issue of whether the country has actually complied with the ruling or not.

Would now be eager to see U.S. reaction to EU's rejection of its claim of compliance as well as U.S. challenge to EU's claim of compliance in the Airbus case. This is never ending isn't it?

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