Monday, October 8, 2012

Subsidies to Boeing - Has the U.S. complied?

The dispute over U.S. subsidies to Boeing is heating up at the WTO. I had recently blogged about the claim of compliance put forward by the U.S. at the WTO here. A European Union challenge was inevitable. The challenge would have been on both the claim of compliance as well as to what extent the U.S. has complied with the Appellate Body's decision.

The EU challenge is a detailed rebuttal of the U.S. claim of doing away with the subsidies to Boeing. Rejecting the claim of the U.S. that it had complied with the Appellate Body decision in terms of removing the subsidies or removing the adverse effects thereof, the EU has insisted that subsidies continue to be provided by the U.S. to Boeing in violation of the ASCM.

"The actions and events listed by the United States in its 23 September 2012 notification do not withdraw the subsidies or remove their adverse effects, as required by Articles 4.7 and 7.8 of theSCM Agreement. 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. These subsidies are also prohibited subsidies, as they are contingent on export performance, as well as on the use of domestic over imported goods. Accordingly, in the view of the European Union, the UnitedStates has failed to achieve compliance with the recommendations and rulings of the DSB."
The EU request for consultations on compliance lists out the subsidies allegedly continued to be provided by NASA, Department of Defense, Federal Aviation Administration, Washington State and local subsidies, State of South Carolina. The gist of EU's challenge is here:
"The European Union has carefully reviewed these assertions and measures, and considersthat, after the end of the implementation period, the United States maintains a series of subsidies,within the meaning of Article 1.1 of the SCM Agreement. Those subsidies are specific, within themeaning of Articles 1.2 and 2 of the SCM Agreement. Those specific subsidies presently benefit thedevelopment, production and sale of Boeing's 737NG, 737 Max, 747, 767, 777 and 787 families ofLCA, as well as any other future derivatives of these LCA families, including of the 777.Collectively, and under the conditions of competition present in the LCA markets, those subsidies cause present adverse effects, or threat thereof, to EU interests, inconsistently with Articles 5(c), 6.3(a), 6.3(b) and 6.3(c), including Articles 6.4 and 6.5, of the SCM Agreement. The effects of those subsidies adversely impact sales, market shares and prices of Airbus' A320, A320neo, A330, A350XWB and A380 families of LCA. Specifically, the subsidies cause present serious prejudice, or threat thereof, to EU interests, in the form of: (i) displacement and impedance of EU imports into the United States, within the meaning of Article 6.3(a) of the SCM Agreement; (ii) displacement and impedance of EU exports to other third country markets, within the meaning of Article 6.3(b) of the SCM Agreement (including on the basis of Article 6.4 of the SCM Agreement); and, (iii) significant price undercutting, price suppression, price depression, and lost sales, within the meaning of Article 6.3(c) of the SCM Agreement (including on the basis of Article 6.5 of the SCM Agreement)."
The EU challenge brings to the fore the complexity of the multilateral legal system. What constitutes a subsidy? When does it cause an adverse affect? What constitutes compliance? It also indicates that a dspute is not over even after the Appellate Body has pronounced its decision. In high profile cases, the battleground shifts to issues of compliance and whether circumstances exist wherein adverse affects have been removed.

The EU has also sought countermeasures for the continued non-compliance by the U.S. of the Appellate Body decision:

         " Accordingly, the European Union's countermeasures would consist of one or more of the following:
(1) suspension of tariff concessions and other related obligations under the General
Agreement on Tariffs and Trade 1994 on a list of US products to be established indue course;(2) suspension of concessions and other obligations under the SCM Agreement; and,(3) under the General Agreement on Trade in Services, suspension of horizontal orsectoral commitments contained in the consolidated EU Schedule of SpecificCommitments, as supplemented to incorporate the individual Schedules of SpecificCommitments of its Member States, with regard to all principal sectors identified inthe Services Sectoral Classification List."

Are we going to see any political settlement to this dispute? A plurilateral civil aircraft manufacturing agreement with the U.S., EU, China and Brazil as parties? The Airbus Boeing dispute offer many lessons for WTO watchers - the complexity of dispute settlement, the jurisprudence of subsidies under the ASCM, the long winding dispute settlement proceedings as well as the importance of domestic interests in international trade disputes. We still haven't heard the last of the Airbus dispute. I know books have been written about this dispute - it never ceases to fascinate me.


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