WTO Disputes on Australia Plain Packaging, EU Airbus Subsidies Enter Next Phase

13 September 2018

Geneva delegates working on WTO disputes had a busy month of August, advancing a series of cases to the next stage that cover topics such as Australia’s policy on plain packaging for tobacco products and the EU’s subsidies for Airbus, the aerospace industry giant. China also filed a series of new cases last month, two of which challenge certain aspects of US policies regarding its renewable energy sector. 

Compliance panel set to review EU changes to aerospace subsidy policy 

On the long-running Airbus case, the WTO’s Dispute Settlement Body (DSB) agreed in late August to establish another compliance panel to review the EU’s latest changes to its government support for Airbus and see if these are in line with global trade rules. 

The case (DS316) was originally launched by the United States in 2004, while the EU has its own disputes against the US regarding the latter’s support for Boeing. The Airbus and Boeing cases are famous both for the massive commercial scale of the sector involved, as well as for the sheer length and complexity of the adjudicative process. 

The WTO’s Appellate Body had confirmed that the EU and US each violated some aspects of global trade rules in their support to their respective aerospace sectors. The cases subsequently entered the compliance phase, where the global trade arbiter was asked to review whether the EU’s and US’ changes to their policies were sufficient to bring them in line with WTO rules. For the US case on Boeing, an Appellate Body is still reviewing compliance (DS353). 

In May, the Appellate Body found that the revised EU measures still constitute subsidies to Airbus and have caused “adverse effects” to the US’ interests. Shortly thereafter, the EU notified the DSB that it had withdrawn the remaining subsides and worked on ameliorating the adverse effects, declaring that its policies were now fully in line with WTO rules – a claim that the US countered. (See Bridges Weekly, 17 May 2018

In July, Washington then asked the arbitrator to resume its work to assess the level of countermeasures that the United States is allowed to put in place. Meanwhile, Brussels submitted a consultations request and subsequently asked twice for another compliance panel to review whether the new changes are enough to resolve the remaining issues.

If full compliance is found in this new compliance proceeding, the DSB’s authorisations for countermeasures would lapse “by operation of law,” as confirmed by past WTO law practice. 

Australia tobacco packaging dispute: two reports appealed, two adopted 

Separately, the DSB last month adopted two panel reports in the disputes filed by Cuba (DS458) and Indonesia (DS467) concerning Australia’s tobacco packaging policy, while Honduras (DS435) and the Dominican Republic (DS441) have appealed the reports in their respective cases. 

Those reports are the result of years of litigation between Canberra and the four countries, while ultimately saw Australia win a victory on all complaints earlier this year, in what was greeted by proponents as a powerful affirmation of the country’s approach to tackling the public health risks posed by tobacco. Australia’s plain packaging policies set strict rules on how tobacco products can be sold, such as by prohibiting the use of logos or other promotional images, while requiring graphic public health warnings and uniform sizing and colouring for those same packages. 

A dispute panel ruled in June that when evaluating the policies in tandem with Australia’s various other tobacco control measures, it was clear that Canberra’s policies were within the boundaries set by global trade rules. (See Bridges Weekly, 5 July 2018

Honduras’ appeal, filed in July, targeted the panel’s findings under the WTO’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement on Technical Barriers to Trade (TBT Agreement). 

For example, Honduras contested the panel’s interpretations of particular legal terms in those agreements and how the panel approached their legal applications, and has asked the Appellate Body to reverse those findings. Honduras also argues that the panel failed to make an objective examination of the evidence on how plain packaging help lower demand for tobacco products, and thus disagreed with the panel’s findings that Australian measures were not unjustifiable and “not more trade-restrictive than necessary” for the stated objective. 

One month later, the Dominican Republic also requested an Appellate Body review, incorporating by reference the claims made by Honduras. While Cuba and Indonesia did not appeal, leading to those panel reports being adopted at August DSB session, those two countries did make interventions criticising the panel’s findings. 

“As a result of the panel’s decision, plain packaging requirements may now be applied to alcoholic beverages for religious or moral reasons,” said Indonesia, according to a Geneva trade official. This dispute signals “the beginning of a slippery slope to fundamental disruption of global consumer markets.” 

Australia, for its part, stated that its measures have the backing of top experts in the public health field, including from the UN’s top health agency, the World Health Organization. Furthermore, Australia noted that several other WTO members are working to enact their own versions of plain packaging as part of their public health policies. 

Regarding the new appeals, Australia said that “we remain firmly committed to defending our legitimate public health measure in those appellate proceedings.” 

China challenges US financial incentives in renewable energy sector 

In mid-August, China filed a case (DS563) targeting financial incentive programmes maintained by select US states and one major city – namely, the states of Washington, California, and Michigan, as well as the City of Los Angeles. These programmes, China says, encourage the installation and use of systems that generate and distribute renewable energy. 

China listed five packages of US policies that it says take the form of investment cost recovery, financial incentives for installation, renewable energy credits, or fixed rates for transmitted electricity. Under each policy, China claims that the use of domestically manufactured resources, such as locally-produced solar photovoltaic modules, is a condition for accessing extra financial incentives. 

China claims that those measures violate the US’ non-discrimination obligations, and are prohibited subsidies under WTO law. 

This is not the first time that the US has faced a WTO challenge on its renewable energy policies. India submitted a similar complaint (DS510) in 2016, and a panel was composed five months ago to hear the dispute, where China is also a third party. 

Last month, China also challenged (DS562) the US’ safeguard tariffs on solar cells and modules, which Washington imposed in January. WTO rules allow for the use of safeguards, subject to certain conditions, in cases of sudden increases in imports that either do or could negatively affect a country’s domestic industries. However, China argues that the US safeguard tariffs were applied in a way that violate certain substantive and procedural requirements, and also run afoul of the US’ non-discrimination and transparency obligations under the General Agreement on Tariffs and Trade (GATT).

Regarding this US safeguard measure, several WTO members, such as the EU and various Asian economies, have requested  consultations with the US involving the WTO’s Committee on Safeguards, given that WTO rules envision that a member applying safeguards must provide adequate compensation for exporting members whose products would take a hit. Details of this compensation are meant to be sorted out during those talks. (See Bridges Weekly, 25 January 2018

Without an agreement on terms, those exporting members would have the right to suspend their tariff concessions or other GATT 1994 obligations, though this must be done within a set timeframe. 

In April, after consultations failed to lead to agreed compensation, China, Japan, and South Korea each notified the Goods Council about their proposed suspensions of concessions, each of which are set to take effect within three years, though the exact details vary. They also mention that these could come into force sooner if WTO dispute proceedings determine that the US safeguards are indeed violations of global trade rules. 

In parallel, South Korea filed a WTO dispute (DS545) in May on those safeguard measures, and subsequently submitted a panel request in August, when China filed a similar dispute on the subject. While the first request was blocked by the US, a second request from Seoul would lead to a panel automatically being established. 

ICTSD reporting.

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