It's LIVE, well almost!

The WTO website announced the viewing of the compliance proceedings of the much talked about Boeing Subsidies case about which I have blogged here, here and here.

"At the request of the parties in the dispute “United States — Measures Affecting Trade in Large Civil Aircraft (Second Complaint) — Recourse to Article 21.5 of the DSU by the European Union” (DS353), the panel has agreed to show to the public a video recording of the non-confidential portions of its hearing. The screening is scheduled for 31 October 2013 at the WTO."

Though it is not live, it is a recording of some parts of the hearing.

What lies next - a webcast perhaps?

Airbus subsidies - it goes on!

For those following the epic Airbus dispute (DS 316) at the WTO it seems to be a never ending case. From the Panel to an Appellate body decision and now to a lengthy compliance proceedings - the dispute has seen it all. The recent move of Airbus to locate a plant in the US does not seem to have cooled down tempers. Many have argued that only a political settlement between the two countries can end this long standing dispute.Apart from the legal intricacies involved, the case reiterates the role subsidies play in boosting industries - and subsidies are not limited to the developing world. it cuts across economies and geographies.

(http://www.airbus.com/company/americas/us/locations/)

The latest oral submission of the US in the case at the WTO gives an overview of what the US feels are the subsidies Airbus receives. The submission made in the compliance proceedings is rather hard hitting so had to quote some of it here:

"1. What is most remarkable about this dispute is how little has changed in the last eight years. In spite of the longest, most complex WTO dispute ever, and the largest-ever findings of subsidization and serious prejudice, the EU has done nothing to change its WTO-inconsistent behavior. It has withdrawn only a few tiny subsidies, and has taken no meaningful steps to remove the adverse effects of the $15 billion in subsidized financing that it left untouched. And then, just as the original panel was completing its work, the EU granted Airbus more than $4 billion in subsidized financing for the A350 XWB with the same core terms as LA/MSF for earlier aircraft, and once again with a massive benefit. 

2. The market situation has not changed in a meaningful way, either. Where subsidies caused Airbus’s market share to skyrocket in the years leading up to 2006, they have allowed Airbus to retain that market share today. Thanks to subsidies, Airbus overcame major setbacks, including the A380 production and design flaws, the failure of its initial proposal for the A350, and the failure and premature end of the A340 program in 2011. Thanks to the EU’s relentless subsidies, the U.S. large civil aircraft industry continues to lose billions of dollars’ worth of sales and market share to Airbus every year.

3. Instead of taking meaningful compliance action, the EU seeks to convince the Panel that the same arguments it raised before the original Panel now justify inaction in the face of the DSB recommendations and rulings rejecting those arguments. Its arguments are certainly lengthy, but that does not mask their fundamental lack of substance. ..."

This case is not only a landmark case to understand the concept of subsidization under the Agreement on Subsidies and Countervailing Measures but is also a reminder of the fact that a dispute settlement proceeding need not necessarily offer immediate remedies of removal of subsidies that may be adversely impact one's industry.

  

         

Airbus-Boeing battle takes a new turn

While the Airbus-Boeing dispute continues at the WTO between Europe and the US, news of Airbus assembling it's new aircrafts in Alabama, US provided an interesting insight. Airbus has just walked into Boeing's territory. With both the US and EU alleging that the other has given huge subsidies to its respective airline manufacturers, is Airbus's move the beginning of the end of the dispute?

What next? A Boeing assembly plant in Germany?

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?

Compliance time in the Airbus-Boeing dispute?

The Airbus-Boeing subsidies for large civil aircrafts dispute is a longstanding one. With the Appellate Body of the WTO giving its decision in both cases and coming to the conclusion that large subsidies were given by the U.S. and the EU in case of Boeing and Airbus respectively the stage is now set for a prolonged wrangling over what constitutes compliance. I have blogged about the issue here, here and here.

In a USTR press release, the United States submitted indicated it had complied with the Appellate Body decision. The submission made to the WTO is here. The submission showed that NASA, U.S. Department of Defence, Federal Government, State of Washington and City of Wichita were the stakeholders in the complex quagmire of subsidy disbursement.

The highlights of the claims of compliance were:

"3. The National Aeronautics and Space Administration (“NASA”) has modified the rights accorded to the parties under the contracts listed in Annex A so as to make them consistent with commercial practice. These modifications apply to all of the NASA contracts covered by the recommendations and rulings of the DSB. NASA has made identical modifications, as necessary, with regard to contracts subsequent to those covered by the recommendations and rulings of the DSB, without prejudice to the U.S. view that those contracts were not subsidies causing adverse effects to EU interests. These contracts are also listed in Annex A. 

4. NASA has terminated the Advanced Composites Technology, High Speed Research, Advanced Subsonic Technology, High Performance Computing and Communications, Quiet Aircraft Technology, Vehicle Systems, and Research and Technology Base programs, and reduced funding for aeronautics research contracts with private parties under other aeronautics research programs. NASA has changed its policies so as to remove limitations on access to the results of NASA research and development efforts, including by ceasing the use of limited exclusive data rights (“LERD”) clauses. NASA has implemented a policy of seeking greater prompt disclosure of the results of its sponsored research when it purchases research and development services from private entities. 

5. The U.S. Department of Defense (“DoD”) has modified the rights accorded to the parties under the cooperative agreements, technology investment agreements, and Other Transactions listed in Annex B so as to make them consistent with commercial practice. The modifications apply to all of the DoD assistance instruments covered by the recommendations and rulings of the DSB. DoD made identical modifications with regard to contracts subsequent to those covered by the recommendations and rulings of the DSB, without prejudice to the U.S. view that those contracts were not subsidies causing adverse effects to EU interests. These contracts are also listed in Annex B. 

6. DoD has ceased funding of the following programs: Dual Use Application and Dual Use Science and Technology (Program Element (“PE”) 0602305F); Navy Manufacturing Technology (“ManTech”) (PE 0603771F); Air Force ManTech (PE 0708011F); Defense Advanced Research Projects Agency research on the Joint Strike Fighter (PE 0603800E); Army research related to the Comanche (PE 0604223A); Air Force research on the B-2 (PE 0604240F); and Air Force research on A-6 Squadrons (PE 0604240F). 

7. The United States enacted legislation terminating the Foreign Sales Corporation and Extraterritorial Income (“FSC/ETI”) tax benefits. 

8. The United States has confirmed that Boeing did not use FSC or ETI tax benefits after 2006. 

9. The State of Washington is applying rates of Business and Occupancy Tax (“B&O”) for aerospace manufacturing and retailing consistent with Article 5(c) of the SCM Agreement. 

10. The City of Wichita is applying its Industrial Revenue Bond (“IRB”) program in a manner consistent with Article 5(c) of the SCM Agreement. It has not provided any IRBs to Boeing since 2007." 

The compliance report indicates either a modification or a cessation of many programs hitherto being implemented by NASA, DoD, the Federal Government as well as the State of Washington. While the opinion whether this actually constitutes compliance or is sufficient to determine that a “genuine and substantial relationship of cause and effect” no longer exists between the subsidies subject to the recommendations and rulings of the DSB and any adverse effects within the meaning of Article 5(c) of the SCM Agreement is a matter of interpretation, this is a classic example of domestic measures being impacted by global trade rules. National policies being implemented by various agencies in the context of U.S. Aircraft manufacturing needed to be modified in order to comply with a WTO decision. Whether this is a sufficient modification or compliance to the WTO decision is a different issue. The EU would certainly dispute the claim of compliance unless there already has been an understanding on this diplomatically and politically.

Over to the EU to provide its list of compliance measures with respect to Airbus subsidies?

Update: The EU HAS disputed the claim of compliance by the U.S. More on that for tomorrow!