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?

Fossil fuels, renewable energy and WTO rules

An ASIL insight into subsidies, renewable energy and fossil fuels throws open larger issues of trade, environment protection and world trade rules.

Timothy Meyer questions the dichotomy between the differential treatment between subsidies given to fossil fuels vis a vis those provided to renewable energy.

"The existence of domestic content requirements in renewable energy programs is likely a political condition for passage by governments that wish to show that they are not subsidizing foreign investors. But this political necessity has rendered government support for environmentally-helpful renewable energy programs vulnerable to challenge before the WTO in a way that environmentally-harmful fossil-fuel subsidies are not, creating tension once again between trade and climate objectives."

Who will bell the cat? 

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?

Renewable energy support programs - Need for a new law?

Came across this recent paper titled "Governing Clean Energy Subsidies: What, Why, and How Legal?" on renewable energy programs and WTO law which was very similar to the analysis I had made in my paper.Tracing the various forms of support renewable energy programs get across the world and the rising tensions it causes in trade relations especially related to compatibility with WTO law, the authors have recommended some steps to address the issue:    

"Recommendation 1: International institutions with rules governing trade, energy flows and climate change need greater coordination.
A new framework for trade rules on clean energy subsidies could consider not only the adverse and non-adverse impacts on other countries, but also the purpose of the measure: energy access, boosting clean energy generation capacity, building a domestic manufacturing base, or expanding export potential. If subsidies were used, for instance, for extending grid connections to RE sources (whether project developers are domestic or foreign firms), they should not be challenged. Again, if subsidies were offered to acquire intellectual property for emerging clean energy technologies, no adverse impact is caused even as a country is able to expand its clean energy generation capacity. Currently, however, such exceptions are not explicitly permitted under WTO rules, and until these issues are resolved, such policies might continue to attract trade disputes. Therefore, there might be a case for clarifying rules for sustainable energy under future trade-related initiatives for sustainable energy, including possibly a separate agreement – a Sustainable Energy Trade Agreement (SETA) – that could set out key principles for what would be permissible subsidies, especially if they are for non-mercantilist purposes like increasing clean energy generation capacity or offering energy access.

Recommendation 2: Common metrics to count subsidies can help to increase transparency.
Unless clean energy subsidies are measured in a transparent manner, there could be greater danger of misinterpretation and potentially more trade disputes arising. Use governmental, intergovernmental (United Nations Sustainable Energy for All initiative) and non-governmental sources of information on clean energy subsidies but standardise them to enable inter-country comparisons.

Recommendation 3: The relationship between rationalising fossil-fuel subsidy programmes and the use of subsidies to promote clean energy sources should be further investigated.
The G-20 could be an ideal forum to undertake analysis and discuss this relationship.

Recommendation 4: Establish the purpose of government support.
Currently, no forum exists where governments can discuss their reasoning for clean energy support programmes.

Recommendation 5: Meanwhile, independent assessments of alleged adverse impacts of subsidy policies could reduce the threat of unilateral trade sanctions or other penalties.
These assessments could occur through WTO Trade Policy Reviews, at the Committee on Regional Trade Agreements, or the United Nations Industrial Development Organization. Such assessments could also examine the impact of subsidies in promoting clean energy research, development, deployment and commercialization." 

Experts have called for a new international legal framework for renewable energy within the WTO. WIll the rise in trade disputes in the renewable energy sector, the decision in the Canada Feed-in tariff case and growing importance of renewable energy in the energy mix of several countries force members to the negotiating table? Or with the Doha round faltering, is this too much to ask?

Hat tip to R.V.Anuradha for alerting me on this one!

China's 2nd WTO decade

A report in a China news daily about the need for more market reforms to take advantage of the WTO caught my attention. China has known to have taken advantage of its membership since 2001 but experts claim that now that advantage is wearing off and more needs to be done.

"To overcome that tension, Erixon suggested both sides roll out market reforms, with China liberalizing more sectors, getting away from its high level of reliance on State-owned enterprises, and giving domestic companies greater access to capital markets."

Moving away from State owned enterprises, market reforms - will China herald the next big "capitalist" reform push? Will be interesting to see how China approaches its second decade in the WTO.Less subsidies and more market reform?

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?

Subsidies, State Aid and renewable energy

State support to renewable energy is widely prevalent in both the developed and developing worlds. It is a major tool to pursue the growth of clean technologies and environmental friendly policies. However they do raise critical issues in the context of subsidies rules under the Agreement on Subsidies and Countervailing Measures (ASCM). My paper on some of the support programs in the EU, US and Japan is found here.

German Energy Blog came up with this interesting post regarding state support in the context of the EU called "State Aid" to renewable energy.In an earlier ruling of the ECJ, the Court had held that FiT did not constitute State Aid.As quoted in the above blogpost:

"In an earlier ruling (ref. no. C-379/98) handed down in 2001 concerning the predecessor of the EEG, the Electricity Feed-in Act (StrEG), the Court of Justice of the European Union (CJEU), decided that “that a statutory provision of a Member State which, first, requires private electricity supply undertakings to purchase electricity produced in their area of supply from renewable energy sources at minimum prices higher than the real economic value of that type of electricity, and, second, distributes the financial burden resulting from that obligation between those electricity supply undertakings and upstream private electricity network operators, does not constitute State aid within the meaning of Article 92(1) of the EC Treaty” (now after amendment Art. 107 TFEU)."

Will the EU reconsider the concept of State Aid? Would State Aid to the renewable energy sector be cut? What implications does this have to the many programs in the EU supporting renewable energy? Would there be a review of all schemes in the light of the ASCM?

My paper is on the IELP blog!

My paper on "Renewable Energy Programmes in the EU, Japan and the US and their compatibility with WTO law" was referred to on the IELP blog here in the context of the Canadian FiT case. 

Thank you, Simon Lester.

Prof.Lenz comments on my paper

I am grateful for Prof.Lenz for so kindly reading my working paper on Renewable Energy programs and WTO law compatibility and offering a critique by email (both on substantive points and on avoidable typos!). It is both an honour and humbling.

He also commented on the paper in his blog Lenz Blog here:

"I am pleased that my blog made it into one of the footnotes. And I am also pleased to note that the book takes the view that feed-in tariffs are subsidies under WTO law. That’s because I am of the opposing view on that point, which makes it possible to discuss the issue. 

Srikar’s theory relies on one point I would call into question. In his opinion, delivering electricity services is a function normally performed by government. 

That’s just not true. Look at all the industrialized countries and show me one where the government provides electricity. 

It is true that some less developed countries may have not privatized this function. But that does not make it one “normally” provided by government. 

And it is true that this will lead to a different treatment of the issue, depending on which way electricity is organized somewhere. But that’s just the normal consequence of that different structure, which each country is basically free to choose. 

In contrast, I agree completely that local content requirements for generating equipment are a clear case of violating the national treatment requirement under Article 3 of GATT. 

And I also agree with the analysis that restricting the feed-in tariff to electricity generated nationally is at least very dubious under exactly the same standard, though just about everybody seems to do it that way. 

I think that is an important point when discussing international trade in electricity. If you discuss a Regional Comprehensive Economic Partnership Agreement for Asia, as will happen next year, it might be of interest to include language that requires everyone to extend their feed-in tariff programs to imported electricity. 

I think doing that would be very helpful when building the Asia Super Grid. In the absence of getting that done, one might consider to call for Japan paying a feed-in tariff specifically for energy generated in the Mongolian Gobi desert. I recall having done that recently. 

Of course, people could object that this would be violating the most-favored nation rule of the WTO, so one would need to ask if it may be justified under the Enabling Clause."

While I agree with Prof.Lenz that many industrialized countries do not have public sector electricity utilities, it is a reality in a large number of countries. I have often felt that multilateral trade rules do not presume the diminished role of the State. States, in varying degree, do play active roles in the economy. The argument that guaranteed tariffs are more "regulatory"in nature and not what governments "normally" do, will lead to a discriminatory situation where states play a more active role in the renewable energy sector. While the intent and impact of the guaranteed tariff in both cases would be the same, the country where the state is more involved will be adversely effected. As I have suggested in my paper:

"Merely because the measure is a “regulatory” measure as opposed to a direct transfer of funds, need not, ipso facto, exempt it from the characteristic of being a financial contribution. The intent of the measure is of primary importance. The provision of a guaranteed price support is to encourage the RE sector as compared to the non-RE sector. The nature of the market in many countries is such that the Government does not play an active role in the electricity market in terms of actually producing, transmitting and distributing electricity. Hence, the participation of private electricity utilities is a normal feature. If not for these private entities, the function of producing electricity and also providing price support directly to producers of RE would have vested with the government and would have normally been followed by governments. Thus, even though the price support mandate has the characteristic of a regulatory measure, it does delegate a function that is normally performed by government. In this sense, FiTs that involve private electricity entities paying guaranteed prices due to a government mandate can also be considered as financial contributions. Not doing so would lead to a discriminatory situation wherein countries in which governments play a more active role in FiTs (in terms of running electricity utilities and guaranteeing payments) would fall under this category of subsidies, while countries only “mandating” or “regulating” the payment, falling outside the radar of this provision. This would discriminate against developing and LDCs where the government tends to play a more active role in providing services. While this is not to comment on the more efficient or desirable way of providing the service (public or private), the interpretation of Article 1 of the ASCM should not lead to this discriminatory situation. Thus, it could be argued that FiTs, which provide a guaranteed tariff, do constitute a financial contribution and hence amount to a subsidy."

I may be totally wrong here. But I think there is a valid legal argument on both sides. It would probably be resolved when an FiT is challenged at the dispute settlement proceeding sometime soon!


 
 

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.

 

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!

China-US lock horns at the WTO, yet again

Tit for tat season at the WTO dispute settlement? September 17th saw two cases for request for consultations:

1.The United States notified the WTO Secretariat of a request for consultations with China on “China’s measures providing subsidies such as grants, loans, forgone government revenue, the provision of goods and services and other incentives contingent upon export performance to automobile and automobile-parts enterprises in China”.The details of the nascent dispute are found here. 

2.China notified the WTO Secretariat of a request for consultations with the United States on countervailing and anti-dumping measures applied to a wide range of products exported by China to the US. Among the products cited by China, affected by the measures, are paper, steel, tyres, magnets, chemicals, kitchen appliances, wood flooring, and wind towers. Further information will be available within the next few days in document WT/DS449.

The United States and China continue to play out their trade wars at the WTO. After the China Electronic Payments case, Mineral export restrictions case, the U.S. has taken on the alleged subsidies in the automobile sector. China is likely to request for consultations against alleged US subsidies to renewable energy programs.

Stewart and Stewart has done this study on the Chinese automobile sector that outlines the support given by the Chinese State to its automobile sector. How much of it violates the WTO Agreements, especially the ASCM, requires a thorough legal analysis. The study concludes:

"Many nations view their automotive sectors as economically and politically important, and support those industries through an array of government policies. In the case of China, however, these policies appear to be preying on other countries’ industries and violating China’s international trade obligations. When China joined the WTO, it committed to eliminate domestic content requirements and other programs that discriminate against imports, cease forced technology transfers, terminate export subsidies, and limit export restrictions. This report reveals that such practices continue to be routine in China’s automotive sector. Not only are such requirements still on the books and implemented in practice, China has recently proposed expanding such policies to cover new-energy vehicles and parts. These policies have fueled a massive increase in China’s vehicle and parts production and its rising exports to the rest of the world. If these policies intensify under the 12th Five-Year Plan, the effects will be felt not only in China, but in the United States and other automotive markets around the world."

Surcharged times at the WTO dispute settlement mechanism.  

Chinese solar panels - EU takes on China

News of the EU planning to initiate antidumping investigation against Chinese solar manufacturers is doing the rounds here, here and here. Considering the sensitivity of the issue, reports of a Chinese delegation rushing for negotiations is reported here.Renewable energy and subsidies provided to it has been a contentious area in international trade relations.

Brussels Blog of the FT reported on the impending trade war here. The EU is essentially contending that Chinese made solar panels are being "dumped" in the EU at a price much lower than what it is in China  causing harm to EU solar panel manufacturers.

Some thoughts on stakeholders, interests and realities of subsidies in the renewable sector:

1. The price of Chinese solar panels being less, benefits the EU consumer. It also enhances adoption of renewable energy technology and assists in climate mitigation efforts.

2. The antidumping investigation essentially seeks to protect the local EU industry.

3. Subsidies in the renewable energy sector are a common phenomenon across geographies. While the Chinese State might be supporting its manufacturers, EU and its member states too provide subsidies in various forms to its manufacturers. While the fact that this is a reality may not be relevant in an antidumping investigation, it surely useful in countering a high moral position taken by country that challenge subsidies.The recent investigation by China against state level subsidies in the U.S. is a trend in this direction.

4. Climate change activists claim that the proliferation of cheap, affordable technology has benefitted the adoption of clean energy technologies. Thus, the goals of an environmentally sustainable world and trade rules that frown upon subsidization of renewable energy seem to be incompatible. Of course, this discussion does not take place in an antidumping investigation.

The EU investigation and subsequent Chinese response at the WTO would have a bearing on how countries react to subsidies in the renewable energy sector. Till now no case in the dispute settlement mechanism deals with this issue. The Ontario Feed-in Tariff case is the first. Would a Chinese challenge to an EU finding of dumping be the next big renewable energy case at the WTO?

View from China on protectionism

China's association with the WTO has been mixed and a lot of literature on its development in the multilateral trading system exists. I have extensively blogged about China and the multilateral trading system here, here, here, here and here. Critics of China often argue that while China has made use of the multilateral trading system to its advantage and its stake in international trade has substantially increased, it still employs many protectionist measures that hinder free trade. Its use of subsidies and State capitalism also comes in for close scrutiny. 

While the fact whether China violates WTO rules is not an issue I am addressing in this piece as that would depend on the specific measures, I was drawn to an article in a Chinese daily that depicted the "Chinese" view on protectionism and free trade. Referring to the Chinese Premier's remarks urging countries to keep bilateral and regional trade open and inclusive and safeguard the multilateral trade system at the recently concluded G-20 Summit at Mexico, the paper said:

"China has become the biggest victim of international trade frictions for 17 consecutive years, a view given by the Chinese government and echoed by the Global Trade Alert, an independent think-tank on global trade. China has also come under repeated attacks on the issues of intellectual property rights and renminbi exchange rates.

The phantom of protectionism looms even larger this year, as the trade remedy investigations into Chinese goods increased 80 percent in the first three months compared to last year.

For the highly-integrated global economy, nations should bear in mind the "all in the same boat" psyche in this time of crisis. But instead, major western economies have resorted to protectionist measures to impair free trade -- giving the lame excuse of opposing inequality.

No doubt the prolonged sluggishness in the US and European economies and their high unemployment rates have brought about intense domestic pressure, notably in an election year for many countries. However, this should not be the rationale for raising trade barriers.

...

However, China's moves have been harassed by protectionism. The latest example was the US government's anti-subsidy and anti-dumping probes into made-in-China solar panels, the first clean energy case that received trade remedy investigations.

As the architect of the current trade rules, the United States and EU enjoy abundant benefits while developing nations are relatively disadvantageously placed. They should be treated fairly and should not fall into victim of faulty rules."

This is perhaps the Chinese viewpoint. To paraphrase:

1. China contributes a lot to the global economy and is a huge market for US and EU exports. These exports haven't declined over the years thus indicating that China has not adopted a protectionist tendency. 

2.China has been the subject of increased protectionism by the developed world, especially with respect to anti-dumping and countervailing measures.

3.China is the victim rather than a perpetrator of protectionist measures. the developed countries are actually protectionist.

The truth may be somewhere in the middle. There is ofcourse no mention in the above report of the active role of the State in development, the level of transparency of policies both within and outside the country as well as legal reforms in consonance with the Chinese Accession Protocol. Leila Choukroune has extensively written about this issue. Countries often take a high moral ground when criticising protectionist measures of other countries but follow exactly the same steps when in a similar situation. Is this the norm? Are declarations of abjuring protectionism and furthering the path of freer multilateral trade mere statements of intent rather than actual action? It is simpler to proclaim being non-protectionist than being one I guess. That applies equally to countries across the spectrum.