WTO Panel Issues Mixed Ruling on EU Compliance in Airbus Case

29 September 2016

A panel has found that the EU and four of the bloc’s member states have not taken enough steps to bring some WTO-inconsistent subsidies for aerospace giant Airbus in line with global trade rules, while at the same time deeming that some of the US’ claims on whether certain subsidies qualify as “prohibited” were not sufficiently proven.

The aircraft trade case (DS316) has been underway for nearly 12 years, when the US first requested consultations with the EU, along with the specific member states of France, Germany, Spain, and the United Kingdom. The 28-nation bloc was then known as the European Communities at the WTO.

Together with two parallel cases filed by the EU against allegedly illegal subsidies that the US provides to Boeing – its own aircraft manufacturing giant – these disputes have undergone various twists and turns over the years. They also encompass jointly the WTO’s largest trade dispute in terms of the aerospace market’s commercial value.

The compliance panel review focused mainly on “launch aid” loans aimed to help support Airbus manufacturers in both designing and developing their aircraft, along with various types of support that did not fall under the launch aid category, including those related to capital and infrastructure.

According to the panel, the EU and the above-mentioned individual member states have failed take away the WTO-inconsistent subsidies or their “adverse effects,” both when it came to the launch aid as well as certain preferential loans, research and development aid, and other support.

Regarding the subsidies’ ramifications, the panel said that these effectively limited the US’ ability to export large civil aircraft to Australia, China, India, the EU, Korea, Singapore, and the United Arab Emirates – thus contravening select provisions of the WTO’s subsidy rules. This, in turn, has had deep ramifications for the “interests of the United States,” according to the panel.

However, the panel said that the US “failed to demonstrate” that the launch aid provided by France, Germany, Spain and the UK for the Airbus A80 and Airbus A350XB constituted prohibited import substitution subsidies – in other words, aid given depending on the production of domestically-made inputs. The US also did not manage to prove that these same subsidies were export performance-contingent, a type of aid that is also banned under WTO rules, according to the 22 September report.

US, EU officials respond

“This report is a sweeping victory for the United States and its aerospace workers. We have long maintained that EU aircraft subsidies have cost American companies tens of billions of dollars in lost revenue, which this report clearly proves,” said US Trade Representative Michael Froman in response to the ruling.

The US argues that the subsidies at fault hurt its domestic industry to the tune of several billions of dollars, with trade officials also noting that they would push to enforce global trade rules with all partners, even their closest ones.

For its part, the European Commission noted that the WTO panel had determined “that all previous repayable support to other aircrafts, such as the A320, had ended,” and that it had not agreed with the US’ claims that Airbus models A350 XWB and A380 were receiving prohibited subsidies.

However, the EU did call some of the panel’s findings as “unsatisfactory,” adding that the 28-nation bloc is reviewing the outcome in greater depth as it weighs its next steps.

The EU’s executive arm notes that both sides can appeal the outcome, while not confirming whether it will do so and on what specific grounds. It also flagged the two EU disputes against the US on alleged subsidies for Boeing as ones to watch (DS353 and DS487). The former case is also at the compliance stage, with a panel ruling expected in December, while the latter is a much newer dispute that is undergoing an initial review by a panel. (See Bridges Weekly, 26 September 2012 and 26 February 2015)

Next steps

Under WTO rules, either party can appeal the compliance panel’s ruling, which would mean that the case would then go to the organisation’s Appellate Body for review. The latter court generally will not interfere with the factual findings of the panel, usually focusing instead on facts of law or legal interpretation.

The two sides currently have a sequencing agreement in place, reached in 2012, outlining their shared understanding of how the dispute proceedings will take place.

The agreement stipulates that either party can ask that the compliance panel report be adopted at a meeting of the WTO’s Dispute Settlement Body (DSB) held at least 20 days after the report has been circulated, unless it is appealed.

Arbitration proceedings to determine possible “countermeasures” that the US can take against the EU for non-compliance have been put on hold, with the sequencing agreement explaining that these can be resumed pending the outcome of the compliance proceedings, should either side ask.

ICTSD reporting.

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