Details of WTO's Decision on EU Airbus Subsidies

(See ITT’s Online Archives or 05/19/11 news, 11051936, for initial BP summary of the AB’s findings in “European Communities - Measures Affecting Trade in Large Civil Aircraft” (aka the Airbus dispute, DS316).)

Upheld Panel Finding that Three Subsidies Harmed U.S.

The WTO summary states that the AB upheld the Panel's finding that the following subsidies provided by the European Union and certain member state governments to Airbus are incompatible with Article 5(c) of the Subsidies and Countervailing Measures Agreement (SCM Agreement) because they have caused serious prejudice to the interests of the U.S.:

• Launch aid for several planes - the principal subsidies covered by the ruling are financing arrangements (known as Launch Aid or Member state financing) provided by France, Germany, Spain, and the UK for the development of the A300, A310, A320, A330/A340, A330-200, A340-500/600, and A380 large civil aircraft (LCA) projects.
• Equity infusions - certain equity infusions provided by the French and German governments to companies that formed part of the Airbus consortium.
• Infrastructure measures -- certain infrastructure measures provided to Airbus.¹

Subsidies Displaced Boeing Exports, Caused Lost Sales for A320, A340, A380

The AB found the effect of the subsidies was to displace exports of Boeing single-aisle and twin-aisle LCA from the EU, Chinese, and Korean markets and Boeing single-aisle LCA from the Australian market.

Moreover, the AB confirmed the Panel's determination that the subsidies caused Boeing to lose sales of LCA in the campaigns involving the A320 (Air Asia, Air Berlin, Czech Airlines, and easyJet), A340 (Iberia, South African Airways, and Thai Airways International), and A380 (Emirates, Qantas, and Singapore Airlines) aircraft.

Found Certain R&D Programs, Grants, Transfers & Facilities Did Not Harm U.S.

However, for different reasons, the AB excluded certain measures from the scope of the finding of serious prejudice. In particular, the finding under Article 5(c) of the SCM Agreement no longer includes the:

• 1998 transfer of a 45.76% interest in Dassault Aviation to Aérospatiale;
• special purpose facilities at the Mühlenberger Loch industrial site in Hamburg, Aéroconstellation industrial site and associated facilities (taxiways, parking, etc.) in Toulouse;
• various research and technology development (R&TD) measures that had been challenged by the U.S.

Reversed Findings on A380 Prohibited Subsidy, Displacement, 90 Day Withdrawal

According to the WTO, the AB disagreed with the Panel’s views on when subsidies can be considered as being de facto contingent upon anticipated export performance. Consequently, it reversed the Panel's findings that the financing provided by Germany, Spain and the United Kingdom to develop the A380 was contingent upon anticipated exportation and thus a prohibited export subsidy.

It also reversed the Panel's findings of displacement in Brazil, Mexico, Singapore, and Chinese Taipei, and of threat of displacement in India.

In addition, the AB rejected the U.S.’ cross-appeal of the Panel finding that it had not been established that certain other member State financing contracts constituted prohibited export subsidies. As a consequence, the AB reversed the Panel's recommendation that the EU withdraw prohibited subsidies within 90 days. The AB also reversed certain other findings.²

EU Should Remove Adverse Effects or Withdraw Subsidy

The Appellate Body states that the EU should take appropriate steps to remove the adverse effects or withdraw the subsidies. According to USTR, once the AB adopts the report, such actions would normally have to be taken within six months.

U.S. Could Impose Countermeasures If EU Fails to Comply

USTR states that in either case, should the EU and the relevant member states fail to comply with these recommendations by the deadline, the U.S. could seek the right to impose countermeasures. If the EU and the member states assert compliance, but the U.S. disagrees, the U.S. could also seek to have any disagreement referred back to the Panel.

U.S. Says Central Arguments Affirmed, Inconsistent Measures Worth $18 Billion

The U.S. Trade Representative has issued a number of press releases stating that the U.S. won the dispute, as the AB ruling affirms the central findings of the Panel. In addition, USTR estimates the EU launch aid and other subsidies at $18 billion. USTR has previously stated that this figure dwarfs the $2.6 to $5 billion in subsidies a corresponding panel found against the U.S. and Boeing. Press releases available here, here and here. (See ITT’s Online Archives or 04/01/11 news, 11040129, for BP summary of the panel ruling, which both sides are appealing, against U.S. subsidies to Boeing.)

EU Says Key Findings on A380 Aircraft & Repayable Launch Aid Overturned

The European Commission also claims certain victory, noting the number of Panel rulings overturned by the AB. In particular, the EC pointed to the AB: (i) finding that support provided by Germany, Spain and the UK for the launch of Airbus' A380 aircraft was not a prohibited export subsidy; and (ii) rejection of the U.S. appeal that other instances of Repayable Launch Investment were export subsidies. EC press releases available here and here.

¹Namely, the lease of land at the Mühlenberger Loch industrial site in Hamburg; the right to exclusive use of an extended runway at Bremen airport; regional grants by the German authorities in Nordenham; and Spanish government grants and regional grants by Andalucia and Castilla-La Mancha in Sevilla, La Rinconada, Toledo, Puerto Santa Maria, and Puerto Real.

²The AB also found that the U.S.' claims regarding an alleged unwritten launch aid/member State financing program were outside its jurisdiction. In addition, the AB reversed the Panel’s findings regarding the rate of return that a market lender would have demanded for launch aid/member State financing loans because they were not based on an objective assessment; but found that a benefit was conferred even on the basis of the EU’s calculations.

(See ITT’s Online Archives or 07/01/10 news, 10070124, for BP summary of the Panel’s report in the Airbus case.

See ITT’s Online Archives or 04/01/11 news, 11040129, for BP summary of the Panel’s report in the Boeing case.)