Disputes Roundup: Airbus, Renewable Energy Cases Move Forward at WTO

25 January 2012

With 2012 still in its infancy, two high-stakes trade cases are already set to take major strides in the coming months. At its second meeting of the year, the WTO's Dispute Settlement Body (DSB) established a panel to hear the EU's complaint against the Canadian province of Ontario's green energy support programme. A week prior, EU and US officials met in Geneva to discuss Brussels' claim of having eliminated subsidies to civil aircraft manufacturer Airbus that had been deemed WTO illegal.

WTO to hear EU and Japan together over Ontario feed-in tariff

The WTO could soon be required to rule on the relationship between green energy support and national stimulus measures, with the DSB announcing on Friday 20 January that it would be establishing a panel to hear the EU's complaint over the Canadian province of Ontario's feed-in tariff (FIT) programme for renewable energy (DS426).

As a dispute panel has already been established to hear Japan's complaint over the same matter (DS412), the two proceedings will be merged.

Japan and the EU claim that Ontario's support programme for renewable energy unfairly discriminates against foreign companies, as it mandates the use of domestic over foreign products. The controversial "domestic content" provision requires up to 60 percent of all input to be produced and sourced in Ontario (see Bridges Trade BioRes Review, April 2011).

As Japan had initiated formal proceedings more than a year before the EU, a first panel hearing over Japan's claims was already scheduled to take place next week (see Bridges Weekly, 7 September 2011). These proceedings will now be suspended in order to harmonise timetables for the two disputes. A meeting between the two complainants to organise this process could take place as early as this week.

Formal panel proceedings, however, are not expected to start before the end of March.

Though the EU had requested consultations on the matter already in summer 2011, the panel request followed only last week. Sources close to the case suggest this considerable gap between the failure of consultations and the EU's panel request might partially be explained by the complainants hoping that the case could be resolved otherwise. A heated election process in Ontario in autumn 2011 - where the FIT programme itself took centre stage - had fuelled hopes for such a scenario. With the Liberal governmental party staying in office, however, the FIT programme has been endorsed.

Though renewable energy subsidisation in and of itself is not being challenged in the dispute, experts suggest most WTO members would prefer the global trade body not to rule on a dispute so close to the larger climate change mitigation and trade debate. Also, many EU members have their own similar FIT programmes, thus causing them to shy away from litigation.

Canadian policy experts further warn that even a victory for Japan and the EU at the global trade body could still result in eventual disappointment, as in this case Canadian provinces cannot be forced by the federal government - which is accountable to the WTO - to bring their measures into compliance.

Japan and the EU contend that Ontario's law violates most-favoured nation treatment rules in the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMS), since the FIT regime requires dedicated amounts of Ontario-originated green energy goods and services. Moreover, the complainants both contend that the measure constitutes a prohibited subsidy under the WTO's Subsidy and Countervailing Duty Agreement (SCMA).

Facing staunch opposition against the Ontario Renewable Energy Act, the provincial government had introduced the measure, arguably, to boost domestic support.

With 2011 in the books and the continuity of the FIT ensured for now, this dispute will moving forward. For an in-depth analysis of the FIT case, see Bridges Trade BioRes Review, April 2011.

WTO appoints arbitrator for trade damages in Airbus case

In another high-profile trade spat, EU and US officials met in Geneva on 13 January to evaluate Brussels' claims that it has brought its subsidies to civil aircraft manufacturer Airbus - which had been deemed WTO illegal - into conformity with the global trade body's rules (DS316). The meeting was not formally part of the ongoing WTO proceedings, but was instead convened by the two parties in order to determine the next steps.

On the same day, the WTO appointed an arbitrator to handle Washington's US$7 to 10 billion countermeasures claim (see Bridges Weekly, 14 December 2011), in response to allegations that Brussels has not met its WTO obligations in the Airbus case (see WT/DS316/20).

Despite the WTO's appointment of an arbitrator, the arbitration proceedings will be suspended until a parallel WTO compliance panel - examining whether the measures taken by the EU comprise compliance - has finalised its work.

This agreement on the sequencing of procedures also extends to any possible arbitration stemming from an EU claim against the US for similar illegal subsidies to Airbus competitor Boeing. That case is currently at the appeals stage at the WTO.

A WTO Appellate Body report in May 2011 found that EU member states were providing Airbus with subsidies that violated WTO law, and called for the EU to withdraw illegal support to the aircraft manufacturer or remove its adverse effects within six months (see Bridges Weekly, 25 May 2011). In December, the EU submitted a compliance report that detailed thirty-six measures taken by its members to comply with the ruling (see Bridges Weekly, 7 December 2011).

The trade war between the US and EU over subsidies to aerospace giants Airbus and Boeing is the world's largest trade dispute, affecting a market worth more than US$ 2 trillion.

Dispute panels formed for China anti-dumping cases

Also at its 20 January meeting, the DSB established panels to review two cases regarding anti-dumping duties imposed by China: one on US chicken broiler products (see DS427), and another on EU X-ray scanners (DS425).

This was Washington's second request for a panel in the poultry import case, after the first request had been deferred following Beijing's objection. The second panel request cannot be blocked; instead, a panel is automatically established.

China had launched investigations on imports of US chicken in September 2009 and subsequently imposed high duties in 2010; until 2009, the US had been China's largest chicken broiler products supplier. The announcement in September 2011 that Washington would be launching a formal dispute on Chinese poultry duties had largely come as a surprise to trade observers (see Bridges Weekly, 28 September 2011).

The EU request was also in front of the DSB for the second time. Brussels argues that China's anti-dumping duties on European x-ray scanners are inconsistent with WTO rules, but it believes that the creation of a panel will lead Beijing to remove the duties.

The next meeting of the Dispute Settlement Body is scheduled for 22 February.

ICTSD reporting: "U.S., EU Begin Next Step in Airbus Subsidies Case," AVIATION WEEK, 16 January 2012; "EU, U.S. meet over Airbus," WALL STREET JOURNAL MARKET WATCH, 14 January, 2012.

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