The flights take off once again - Subsidies dispute back into action

I thought the Boeing-Airbus Subsidies dispute at the WTO had reached the final stages of issues of compliance. 

I have blogged about the dispute here, here and here. But if Reuters is to be believed there is some fresh ammunition for the EU against alleged subsidies that US is giving to Boeing for its latest aircraft.

"The European Union is considering raising the pressure on the United States in the world's largest trade dispute by challenging tax breaks that encouraged planemaker Boeing (BA.N) to keep production of its latest jet in Washington state, people familiar with the matter said on Friday. 

The potential move would open a tense new phase in the decade-old formal trade dispute over aircraft industry aid, as Brussels and Washington argue about whether they have complied with rulings by the World Trade Organization, which in turn could set the tone for sanctions. 

Both the EU and United States claimed victory when the WTO ruled between 2010 and 2012 that billions of dollars of support for Boeing and European rival Airbus (AIR.PA), in a pair of cases spanning thousands of pages but lacking a final resolution."

The two subsidy cases highlight the role played by "Subsidies" in supporting local industry, the complexity of dispute settlement process at the WTO, the issue of compliance of decisions at the WTO as well as the efficacy of the process itself.

Over to the Article 21.5 compliance process to assess the new claim?

Airbus-Boeing dispute - public screening

For those interested in the Airbus Boeing subsidy case, the WTO panel hearing the compliance proceedings in DS316 is making parts of the proceeding public by showing a video recording of the proceedings as announced here. Another step in moving towards transparency? The next step could perhaps be an online video of the proceeding for those who cannot reach Geneva?

I have blogged about the Airbus Boeing dispute earlier here, here, here and here.

Rethink on subsidies required?

The Airbus-Boeing dispute is one of the longest trade disputes that has dominated the WTO dispute settlement mechanism for years now. I have blogged about the issue here, here and here. Both the aircraft manufacturing giants allege, through their respective governments, that the other is a recipient of illegal subsidies that need to be scrapped. The WTO Appellate Body in both the cases has come to the conclusion that there have been illegal subsidies in both the cases. The dispute has reached the final stages of compliance and counter measures.

A recent piece in the Chicago Tribune tracing the history of the dispute called for a stop to the "launch aid" given by Europe to Airbus.

"In a surprising move that puts a welcome spotlight on launch aid, Germany reportedly held back the final 600 million euros of loans that it had promised. Alas, the decision has nothing to do with restoring fair trade practices. Germany is withholding its contribution to ensure that it gets a fair share of the jobs from the aircraft manufacturing it subsidizes.

 Nevertheless, even an internal European dispute over launch aid is a step in the right direction.Launch aid has got to go. The trade dispute between the world's leading markers of commercial aircraft has gone on too long. It must be resolved before it erupts into an all-out trade war — which could happen in relatively short order, by WTO standards."

While launch aid remains on the Airbus side, large subsidies on the Boeing side too needs to be addressed against which the WTO Appellate panel has found incompatible with WTO law. While China is normally in the dock for "subsidizing" its industry, the Airbus-Boeing dispute highlights the "all-pervasive" nature of subsidies in both the developed and developing worlds. Renewable energy is the next big area where the battle over subsidies is going to be fought. What should the international legal framework be in the context of renewable energy subsidies? Should it be different from aircraft subsidies as suggested by Gulzar here? Should we move towards a new phase of differentiation between different types of subsidies? Does the ASCM allow such a distinction? Do we need a rethink obout subsidies under WTO law?

Long running trade disputes and the WTO

The WTO dispute settlement is praised for its effectiveness and enforceability. In the international context, it is one of the few "judicial systems" that has credibility as a rule based system that offers penalties and has a greater prospect of implementablity without being drowned in the power play of world politics.

However, the time taken to resolve certain disputes does cast a shadow on the efficacy of the system. Though the DSU has mandated clear time frames, some politically sensitive disputes have lingered on. The WTO recently was witness to the signing of a "historic" trade agreement between the EU and Latin American countries ending a nearly 20 year old dispute over bananas. This traces the long journey of the dispute at the WTO.

Will we see a similar bilateral or plurilateral agreement over the issue of subsidies to manufacture of large civilian aircrafts which is epitomized by the Airbus-Boeing dispute that is slowly nearing a decade now?

Airbus Boeing dispute - State support a hard reality

The Boeing-Airbus dispute at the WTO dispute settlement mechanism has been debated and discussed widely. Incidentally books to have been written on the subject. It offers a classic case of the failure of the dispute settlement system to provide a verdict in a timeframe. I have blogged about it here, here and here.

Jennifer Smith has a good synopsis of the two longest (and perhaps biggest) disputes at the WTO here. She has traced the history of both the disputes (Airbus and Boeing) and summarized the issues involved. Stressing on the importance these two cases have on the economy of the U.S. and the EU, she notes:

"These disputes may prompt negotiation of a new agreement regarding civil aircraft subsidies, and mayhave an impact on production and export competition in the civil aircraft industry. Civil aircraft are a top U.S. export, have a larger trade surplus than any other manufacturing industry ($47.2 billion), and support more U.S. jobs through exports than any other industry. The cases also have broader implications for the WTO system. Because of their massive factual records, both cases have already significantly impacted the WTO’s dispute settlement process. The cases also gave the WTO dispute settlement system an opportunity to flesh out anti-subsidy rules agreed to by WTO members in 1994 – they thus provide a potential roadmap for future challenges to government support programs for key industries. 

The industries involved and the records in the disputes were of an unprecedented magnitude. The disputes involve the largest dollar value by far of any WTO case to date — more than $2 trillion for the total plane market.The WTO had to bend its own procedural rules to handle the cases. Normally, WTO Panels aim to issue reports within six months.In both the Airbus and Boeing cases, the Panels’ decisions took more than five years."

The impact the two cases have on the WTO dispute settlement system is immense. It has tested the limts of the system as well as offered new jurisprudence on the interpretation of the ASCM and the extent to which the State can support industry. Commenting on the implications of the Airbus and Boeing disputes for the WTO DSM she rightly concludes:

"Furthermore, the disputes indubitably have far-reaching consequences – not only for Airbus and Boeing, or the United States and EU. The massive factual records at issue in the disputes tested the WTO dispute resolution system nearly to its limits. The inability of the system to issue findings in the disputes in a timeframe anywhere near the schedule provided for in WTO rules suggests the system may need additional resources or procedures to effectively handle such complicated disputes in the future. If the system does not provide parties with a timely and meaningful dispute resolution mechanism in such large cases, its relevance may diminish. 

In addition, the disputes demonstrate how difficult – yet necessary -- it is to effectively discipline subsidies that, even though they are not expressly contingent on exports or domestic content, nonetheless have massive trade-distorting effects. In the case of de facto export subsidies, the Appellate Body has established a test requiring a demonstration that the subsidy is “geared to induce the promotion of future export performance” – how difficult this test will be to meet in fact is likely to be the subject of future disputes. In addition, the disputes provide a roadmap of the kind of evidence that is required to demonstrate that domestic subsidies have caused serious prejudice and are thus actionable under WTO rules. It is vitally important that these rules be administrable and enforceable if the SCM Agreement is going to provide an effective means of disciplining not only the most blatant prohibited subsidies, but also the full array of subsidies that distort global trade."

I am just amazed at the extent to which countries go to support local industry when jobs and national growth are concerned. State support for aircraft manufacturing is clearly evident here. A talk about a plurilateral agreement covering aspects of State support for aircraft manufacture is being made. While subsidies are frowned upon by the ASCM, here are two cases that clearly stand out as classic examples of generous State support for industry in violation of the ASCM. While these two industries are important for the U.S. and EU economies (even to the extent of justifying a plurilateral agreement) what prevents other WTO countries from supporting "national" industries that provide lot of jobs in their respective countries. What implications does a longstanding dispute have on the compliance of the ASCM by other countries? In both cases the Appellate Body has given its decision. The complexity of the subject has resulted in the battle shifting to the area of compliance. While, at the end of the day, these cases might cull out fine jurisprudential principles for the interpretation of the ASCM, it is undeniable that State support for local industry is a hard reality in both the developed and developing world. Would countries have the moral authority to insist that States do not support particular industries when in fact it is such a hard reality?

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.

 

Airbus Boeing story - Is the flight going to land at all?

One of the longest and most complex WTO disputes has been between the US and EU concerning alleged subsidies to Airbus and Boeing aircraft manufacturers. I have blogged about it here, here and here. Some analysts have argued that the settlement of the long standing dispute can be only achieved "politically" and not "judicially". 



A book titled "Boeing versus Airbus" on the dispute captures the genesis and journey of the two largest aircraft manufacturers, their practices and challenges.

"Long one of America’s most successful and admired corporations—and its biggest exporter—Boeing struggled to maintain 50 percent of the market share for commercial aircraft after being overtaken by the European upstart Airbus in the late 1990s. But Airbus did not remain on top for long. By 2006, the company suffered from mismanagement and had adopted the kind of complacent, risk-averse culture that had once characterized its competitor. 

Incorporating interviews he conducted throughout the industry—with everyone from company leaders, past and present, and Wall Street analysts to design engineers and factory workers—John Newhouse takes us inside these two firms to help us understand their struggle for supremacy in a business based as much on instinct as on economics. He examines the critical issues that Boeing has faced in recent years, including its difficult merger with McDonnell Douglas, its controversial move from Seattle to Chicago, and a series of corporate scandals that made front-page news. And he analyzes the troubles that have beset a once ascendant Airbus, notably an institutional structure aimed at satisfying the narrowly focused interests of its European stakeholders. Newhouse also explores the problems that now face Boeing and Airbus alike: potential competition from China and Japan, the challenge of serving burgeoning Asian markets, and the need to undo years of mismanagement. "

More recently, Simon Lester has beautifully analysed the international legal dimensions of the dispute in an ASIL insight titled "The Airbus—Boeing Subsidy Dispute: With Both Parties in Violation, Is There an End in Sight?". The Appellate Body in the US- Aircraft case found the US in violation of the SCM Agreement since the US Government was providing subsidies to Boeing inconsistent with its obligations under the Agreement. Will the US comply with the AB decision and withdraw all subsidies or will it await the EC - Aircraft case? He summaries the dilemma of the US in terms of compliance here:

"The United States now faces a difficult task in implementation.  The subsidies at issue come from a wide range of government entities at the federal, state, and local levels.  An orderly, coordinated withdrawal of all the subsidies will be difficult to achieve.  Instead, the United States may focus on particular federal subsidies over which the Executive Branch has the most control.  It may hope that by changing these subsidies in some way and to some degree, it can achieve compliance even if particular subsidies remain.  Complicating the matter is that some federal subsidies have already been subject to WTO dispute recommendations (the FSC/ETI subsidies), and some new state subsidies (in South Carolina) have recently been instituted. In all likelihood, this dispute will eventually see an EU challenge to U.S. compliance attempts, as currently underway in EC—Aircraft. Of course, there is always the possibility that the parties will settle. However, with the way the United States continues to press forward in EC—Aircraft, this seems unlikely." 

The Airbus and Boeing disputes bring to the fore many questions:

1. The enormous time the disputes have taken call into question the efficacy of the DSM. Delay in resolution of disputes is often experienced in national judicial systems. The very basis of arule-based, effective multilateral trading system is a well oiled judicial system to address trade disputes promptly. The delay in resolution of these disputes does not augur well for the system.

2. Will compliance be a victim in these two disputes? Just as the US mulls over its options in the Cloves Cigarettes case against Indonesia, will non-compliance (and consequent facing of retaliation) be an option? While it may be economically worthwhile for the US to do so against Indonesia, would it be suicidal to do it here and face crippling trade retaliation from its largest trading partner the EU? Would it lead to a trade war between the two largest trading partners?

3. Are complex, trade disputes best solved "politically"? After 7 years of long winding legalese and arguments, the two members have not been able to resolve the dispute. Are the stakes so high that the dispute needs to be resolved at the political level by addressing trade offs and negotiating a settlement? In that sense, can non-compliance continue by trading partners willing to "politically" resolve it? What impact does this have on the sanctity of a rule based trading system which seeks to discipline countries for non-compliance and violations of WTO obligations?

Boeing vs. Airbus - Settle it!

While the WTO dispute on subsidies between Airbus and Boeing seems to be far from over, this  editorial in the Seattle Times seems to suggest that the best way forward for the two aircraft carrier giants is to settle it amicably.

"The two aerospace giants have the option to negotiate a settlement on how government support, loans and subsidies are interpreted, and that is the best route, however improbable.

...

A negotiated settlement of the seven-year-old dispute is preferable to endless pursuit of sanctions and penalties. Truly define the grievances and establish some measure of oversight to stop the behavior that stirs WTO finger wags."

An earlier piece in 2010 in the Seattle Times by the Airbus trade adviser summarizes the irony of the WTO dispute between the two aircraft manufacturers.

"At present, there are only two firms capable of integrating and manufacturing large civil aircraft. Instead of supporting open competition, the U.S. at the behest of Boeing brings a dispute in the World Trade Organization and Europe retaliates. After five years of pouring over thousands of pages of data, and many millions of dollars in legal fees, the final result on two disputes is still awaited from an overwhelmed WTO. The total legal costs of Boeing's feud could probably fund the launch of a whole new aircraft program.

Unfortunately, these two WTO cases have enabled future competitors to look at how Boeing and Airbus funded their aircraft programs. Under WTO dispute-settlement rules, both parties had to hand over confidential information to substantiate their claims. Watching from the sidelines were "interested parties" such as the Canadians, Brazilians, Chinese, Russians and Japanese. As a result, potential subsidized competitors have their eyes on a share of the Boeing/Airbus market. Boeing and Airbus are now being forced to upgrade their respective 737 and A320 programs to remain competitive and maintain market share. Boeing's misdirected WTO litigation has enabled others to take on the duopoly.

The global alignment of economic power and technology leadership is changing. Boeing has given composite wing technology to its Japanese business partners and outsourced much of its manufacturing to others in the interest of "shareholder value" and the harvesting of its product line. One wonders, in the end, whether Boeing may have set the stage for the destruction of its strategic value to the United States."

 Signs of competition are already showing up with the Chinese aircraft manufacturer Comac partnering with Boeing.

"Boeing will work with Commercial Aircraft of China (Comac) on fuel-efficient technologies after forming a partnership with a plane maker that's mounting a challenge in the world's fastest-growing aviation market."

One would have to see if the two parties, through their respective governments decide to settle the dispute "amicably". For the moment the only thing that both aircraft manufacturers agree on is their opposition to the EU ETS scheme!

Subsidies, Boeing and WTO - It goes on

The Appellate Body (AB) of the WTO made public its report on subsidies given to Boeing by the United States. While the 576 page judgement of the three member AB will require detailed analysis, the key finding of the AB is here:

"1351. We realize that, after more than five years of panel proceedings and eleven months of appellate review, a number of issues remain unresolved in this dispute.  Some may consider that this is not an entirely satisfactory outcome.  Our mandate under Article 17 of the DSU does not permit us to engage in fact-finding.  However, wherever we have found that there are sufficient factual findings by the Panel or undisputed facts to complete the analysis, we have done so with a view to fostering the prompt settlement of this dispute in accordance with Article 3.3 of the DSU. 

1352. The Appellate Body recommends that the DSB request the United States to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the  SCM Agreement, into conformity with its obligations under that Agreement.  More specifically, having regard to the recommendation made by the Panel in paragraph 8.9 of its Report and the provisions of Article 7.8 of the  SCM Agreement, the Appellate Body recommends that the United States take appropriate steps to remove the adverse effects found to have been caused by its use of subsidies, or to withdraw those subsidies."

With both sides claiming victory as blogged here, this promises to be a long fight regarding the violation of the SCM Agreement. Just as the Airbus case saw the EU submit compliance and the U.S. disputing it, there is no doubt that this dispute will go that way. The U.S will submit to the WTO the appropriate steps it has taken to remove the subsidies, while the EU will dispute its effectiveness. Is the solution a political compromise or will the threat of a third competitor (China) end this largest trade dispute?

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? 

Obama visits Boeing

Recent reports of President Obama visiting the Boeing plant in Washington made an interesting read.






 This NYT report said,

" President Obama, wrapping himself in one of the country’s most glamorous exports, Boeing’s new 787 Dreamliner, vowed on Friday to boost government help for American companies seeking to sell their goods overseas.

“I want us to sell stuff,” Mr. Obama said as he finished a trip to the West Coast, calling on Congress to continue supporting export financing agencies and announcing an array of plans aimed at helping manufacturers.

As this is an election year, Mr. Obama went for the ultimate photo op, using the spectacle of a new United Airlines Dreamliner as his backdrop to ask Congress not to cut financing for the Export-Import Bank, the American export credit agency."

Another report suggested,

" Obama, on the final stop of his three-day swing through California and Washington, will tour a Boeing production facility and speak to a crowd of several hundred workers inside the final assembly building for the company's new 787 Dreamliner.

Boeing has become a poster child for a thriving manufacturing sector and American export business, and one Obama will use to highlight a battery of steps he believes will help nudge large and small businesses to achieve similar success.

Obama is directing the Export-Import Bank, which helps finance U.S. companies that want to sell their goods abroad, to more aggressively support firms that face competition from foreign businesses unfairly subsidized by their governments in violation of "international disciplines."

As part of that effort the Bank will also launch a new pilot program for small businesses, providing 6-12 month loans of up to $500,000 to help them grow their exports, officials said Thursday night."

The reports were interesting for a number of reasons: The President identified the interests of Boeing with US national interests. Thus growth in manufacturing and exports which is part of the national trade policy is fuelled by domestic industry's growth. Is the "export" financing initiative in consonance with the SCM Agreement? In the backdrop of the Airbus-Boeing dispute (blogged about it earlier here and here) that has plagued the industry for long, it is surprising that the President did not allude to it (atleast the reports did not make mention of them, unless I have missed something). Any reactions from Airbus on the visit? Any visit of top European leaders to the Airbus plant in Europe?

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?

DSB to meet over Airbus

The Dispute Settlement Body of the WTO in its list of items proposed for its meeting on 19th December, 2011 includes Surveillance of implementation of recommendations adopted by the DSB in, interalia :


" European Communities and certain member states - measures affecting trade in large civil aircraft:  status report by the European Union (wt/ds316/17)."


The fate of the statement of the European Union, and challenged by the United States in the Airbus case as it is popularly known, would come up before the DSB today.

Boeing Airbus imbroglio - Its still in mid air

The European Union has submitted that it has complied with all the obligations as per the Dispute Settlement Panel Report. Submitting a 36 point compliance report, it stated that by taking these measures it has complied fully with all the DSB's rulings and recommendations. The United States has disputed this.


The statement of the European Union of December 1, 2011 is found here. It includes termination of MSF agreements, bringing to an end capital contributions, amendment of take off and landing fee schedule for the use of the runway extensions at Bremen airport, termination of LCA agreements and an "omnibus" point 36 - Attenuation, through the action or steps taken, with respect to the subsidies and through further intervening causes, of any causal link to the point that it no longer constitutes "'a genuine and substantial relationship of cause and effect' between the subsidies and the alleged market phenomenon".


The European Union had similarly requested a panel against the United States with respect to prohibited and actionable subsidies provided to Boeing by the United States. The matter is before the Appellate Body and a decision is expected soon.


The European Union, with respect to the Boeing dispute,  had earlier come out with documents here, here and here that allegedly spell out the subsidies Boeing gets from the US that is not consistent with the WTO obligation of the Unites States.





In a statement "Support to Boeing and Airbus : Separating the Myths from the Facts" the European Union alleges that Boeing gets huge, unjustified subsidies from NASA and the Department of Defense. Both the R&D subsidies that Boeing receives and the subsidies it receives on its military and space programmes provides considerable benefits for its civilian aircraft business.Further, the statement alleges that the the "inflated" military contracts to Boeing "cross-subsidises" its civilian programme.


In another statement a list of State and local subsidies, NASA subsidies, Department of Defense subsidies, National Institute of Standards and Technology subsidies, US Department of Labour subsidies and Federal tax incentives that Boeing has allegedly received have been provided.


The interplay of domestic policy and WTO obligations are to the fore here. A member country has no absolute freedom in this policy space


The end to the saga of allegations and counter allegations between the United States and European Union with respect to Airbus and Boeing is nowhere in sight. With the United States challenging the compliance of the European Union in the Airbus case and the Appellate Body report awaited in the Boeing case both the disputes have a long way to go.

Airbus-Boeing dispute - US formally seeks authorisation for taking countermeasures

The United States on 9th December, 2011 has formally sought authorisation from the WTO Dispute Settlement Body to take countermeasures against the European Union and France, Germany, Spain and UK in the Aircraft case.

It stated,

" The United States considers that the European Union ("EU") and France, Germany, Spain, and the United Kingdom ("certain member States") have failed to comply with the recommendations and rulings of the Dispute Settlement Body ("DSB") in the dispute  European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (DS316) ("EC – Large Civil Aircraft").  Pursuant to Article 22.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and Article 7.9 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), the United States requests authorization from the Dispute Settlement Body ("DSB") to take countermeasures with respect to the European Union ("EU") at an annual level commensurate with the degree and nature of the adverse effects caused to the interests of the United States by the failure of the EU and certain member States to withdraw subsidies or remove their adverse effects in compliance with the recommendations and rulings of the DSB.  This amount corresponds to the annual value of lost sales, of imports of US large civil aircraft displaced from the EU market, and of exports of US large civil aircraft displaced from third country markets.  The amount will be updated annually using the most recent publicly available data.  Based on currently available data in a recent period, the United States estimates this figure to be between $7 and $10 billion per year."

The countermeasures that the United States has sought in this regard are :

"  In considering what countermeasures to take, the United States followed the principles and procedures set forth in Article 22.3 of the DSU.  As required by Article 7.9 of the SCM Agreement, the countermeasures are commensurate on an annual basis with the degree and nature of the adverse effects determined to exist.  The United States considers that it is neither practicable nor effective to suspend concessions or other obligations on imports of EU goods up to a value of approximately US $10 billion.  The United States also considers that, given the degree and  nature of the adverse effects, the circumstances are "serious enough" within the meaning of Article 22.3(c) of the DSU.  Therefore, the United States may suspend  concessions or other obligations under the  General Agreement on Trade in Services. The countermeasures would consist of one or more of the following: 

(1) suspension of tariff concessions and related obligations (including most-favorednation obligations) under the General Agreement on Tariffs and Trade 1994 on a list of products of the EU and certain member States to be drawn from the harmonized Tariff Schedule of the United States; and 

(2) suspension of horizontal or sectoral concessions and obligations contained in the US Schedule of Specific Commitments with regard to all services defined in the Services Sectoral Classification List, except for financial services (sector 7)"

Airbus-Boeing dispute set for mid air collision

Reportage about the Airbus Boeing trade dispute after the Airbus reported compliance to WTO obligations is rather minimal considering the fact that the dispute itself is decades old.

In a press release European aircraft manufacturer averred,

"Europe has implemented the WTO findings and thus brought the parties into full conformity with WTO obligations. In May this year, the World Trade Organization (WTO) report resulted in a decisive victory for Europe, confirming that European partnership with Airbus is legal and that government support to Airbus did not cause material injury to Boeing. Whilst pleased with the WTO’s substantial affirmation of the European position in the decision, Airbus respects that the decision did contain limited findings of subsidy effects requiring action within six months of the decision.

“We only needed to make limited changes in European policies and practices to comply with the Appellate Body’s report; we did what we needed to do and we did it in the agreed timeframe,” said Rainer Ohler, Airbus’ Head of Public Affairs and Communications. “Today, we call on the US and Boeing to do the same next year. We realize that this will mean substantial sacrifice for Boeing due to the far broader scope and scale of WTO findings of US subsidy to Boeing."

The trade imbroglio between the two giant manufacturers has a long, chequered history of decades, if not years. In an article in the Global Economy Journal in 2004, Robert J. Carbaugh and John Olienyk traced the history of the dispute between the two.

"In the late 1980s, the U.S. government and the European Union initiated negotiations centering on  the limitation of subsidies to producers of commercial jetliners.  This process culminated with the implementation of a bilateral agreement in 1992, the provisions of which were more limiting than other rules of the World Trade Organization regarding subsidies.  The agreement called for a ceiling on the amount of direct government support for new aircraft programs (launch-aid subsidies) at 33 percent of  the total development costs.  It also established that such support would be repaid at an interest rate no less than the government cost of borrowing and within no more than 17 years.  In addition, the agreement established limits on indirect subsidies that result from civilian applications of programs financed by the military or entities such as the National Aeronautics and Space Administration.  Such support was capped at 4 percent of the total revenue from the sale of a firms large commercial jetliners.  In contrast to the system of repayable launch-aid support, there was no requirement for reimbursement of indirect support (Lynn, 1997).

 Like any compromise, the 1992 agreement forced each side to give up something that it coveted.  Prior to the agreement, European governments had been providing launch-aid subsidies that amounted to as much as an estimated 75 percent of development costs for a new  aircraft.  This amount would now be substantially reduced.  While Boeing has not been the recipient of this of launch aid support from the U.S. government, it has been the recipient of indirect support in the form of technological benefits resulting from government sponsored R&D programs and plentiful military contracts.  The 1992 agreement was thus an attempt to restrain the subsidy programs in both Europe and the United States.  It produced a tenuous truce, and over the ensuing decade the issue of subsidies was pushed to the back burner. 

 In the years since the agreement was signed, however, Airbus has steadily captured larger and larger market share.  While the majority of large commercial airliners currently in service worldwide were produced by Boeing, the share of new orders going to Airbus has been steadily on the rise.  The market share of new orders for Airbus planes was just 30 percent in 1992.  That number exceeded 50 percent for each year from 2000 through 2004, and in 2003 Airbus actually delivered more new aircraft than Boeing for the first time.    This dramatic growth has been a major concern for Boeing and for U.S. policy makers concerned about a growing current account deficit and sluggish recovery from recession (McGuire, 1997). 

Trade representatives from the EU and the United States engaged in negotiations in the fall of 2004 in an attempt to modify the agreement, but those negotiations failed, and in October, 2004,  the United States withdrew from the  1992 agreement and filed a complaint with the WTO alleging that the Europeans had violated the agreement by providing illegal subsidies to Airbus.  The EU responded quickly by filing its own complaint, charging that Boeing had received Amassive subsidies in violation of the 1992 agreement.  In what may become the biggest dispute in the history of the WTO, Boeing complained that Airbus has received a total of $15 billion in subsidies since 1992, and $40 billion in aid since its inception.  The European Union countered that Boeing has received $23 billion in support from the U.S. government (U.S. International Trade Commission, 1998)."

A Congressional Research Study on US-EU trade relations in 2008 highlights the tension between the US and EU in view of this conflict as one of the areas of conflict. It aptly summarises the dispute,

"Claims and counter-claims concerning government support for the aviation industry have been a major source of friction in U.S.-EU relations over the past several decades.  The disputes have focused primarily on EU member-state support for Airbus Industrie, now a part of Europe’s largest aerospace firm, EADS (European Aeronautic Defense and Space Company).  According to the Office of the U.S. Trade Representative (USTR), several European governments (France, U.K., Germany and Spain) have provided massive subsidies since 1967 to their aerospace firms to aid in the development, production,  and marketing of the Airbus family of large civil aircraft.  The U.S. has also accused the EU of providing other forms of support to gain an unfair advantage in this key  sector, including equity infusions, debt forgiveness, debt rollovers, marketing assistance, and favored access to EU airports and airspace.

For its part, the EU has long resisted U.S. charges and argued that for strategic and economic purposes it could not cede the entire passenger market to the Americans, particularly in the wake of the 1997 Boeing-McDonnell Douglas merger and the pressing need to maintain sufficient global competition.  The Europeans have also counter-charged that their actions are justified because U.S. aircraft producers have benefitted from huge indirect governmental subsidies in the form of military and space contracts and government-sponsored aerospace research and development."

Terming it as one of the forces for conflict between the US and EU trade relations, a negotiated settlement was not conceived. It is interesting to see how member countries actively engage in disputes involving large private corporations. In the case of the US, the CRS study opined that in US trade policy discourse " private sector concerns are formally considered in the trade policy making process.  As a result, denial of market  access opportunities is a priority concern for U.S. trade policymakers." It is also not surprising to find that Germany's state owned development bank, Kreditanstalt für Wiederaufbau (KfW), will buy a 7.5 percent stake in the European Aeronautic Defence and Space Company  from Stuttgart-based carmaker Daimler in 2012. 

I wonder if that would be a similar trend with Indian trade policy makers when the interests of large, Indian corporations are effected worldwide? Would the Indian Government intervene aggressively in the WTO when Indian private sector interests are involved in international trade disputes?

Perhaps the significance of the airline industry dispute to the economies of the two trading partners and hence aggressive involvement has been explained by Robert J. Carbaugh and John Olienyk.

" In this battle over subsidies, the stakes are extremely high.  Both Airbus and Boeing are sizable contributors to economic activity in Europe and the United States.  Their contributions to technological progress and employment are significant, and the economies of both the EU and the United States reap substantial benefits from their presence.  These aerospace firms also provide large spillover benefits for the world economy at large, since each producer is increasingly engaged in outsourcing worldwide.  In addition, there are the geopolitical issues.  The national security argument for nurturing and protecting aerospace companies has a long tradition in both regions.

In light of these considerations, one view is that if left alone, both the United States and the EU would probably  be content to support their respective aerospace firms through financing, tax breaks, loan guarantees, and support for  research and development.  Given the huge costs of developing and manufacturing a new jetliner, neither Boeing nor Airbus can afford to get it wrong.  If either Boeing or Airbus manufactures a jetliner that no one wants to buy, while its competitor is producing one that airlines will purchase, the firm might not be around to make up that error, unless government is there to save the firm from itself."

The current dispute also exemplifies the trend of large private trade interests being fought under the prism of national interest at the WTO.One view is that in a free, global, market economy the most efficient player must survive and the Government should stay out of the scene. The other view is that the larger interests of the economy are at stake.Well it is not as simple as that I guess. Globalised, free trade policies are not as simple as they sound. Whether the Airbus-Boeing dispute will result in a mid air collision or a safe landing to both the airline manufacturers, only time will tell.