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Airbus - World Trade Organization

The United States and the European Union reached a deal 15 June 2021 to end a damaging dispute over subsidies to rival plane makers Boeing and Airbus and phase out billions of dollars in punitive tariffs. U.S. Trade Representative Katherine Tai said the two sides have come to terms on a five-year agreement to suspend the tariffs at the center of the dispute. She said they could be reimplemented if U.S. companies are not able to “compete fairly” with those in Europe. “Today’s announcement resolves a long-standing irritant in the U.S.-EU relationship,” Tai said, as President Joe Biden met with EU leaders in Brussels. “Instead of fighting with one of our closest allies, we are finally coming together against a common threat.”

After US President Joe Biden and EU Commission chief Ursula von der Leyen spoke 05 March 2021, both sides decided to suspend tariffs used in the longstanding Airbus-Boeing dispute for the next four months. Von der Leyen said that “as a symbol of this fresh start, President Biden and I agreed to suspend all our tariffs imposed in the context of the Airbus-Boeing disputes, both on aircraft and non-aircraft products, for an initial period of 4 months." It hardly covered all outstanding issues which were left to fester ever more under the four-year presidency of former president Donald Trump, but the EU gladly took whatever it could get from the first personal exchange between the two.

The suspension gave a four-month window to address the more fundamental issues. In the aircraft dispute, the US was allowed to impose tariffs on $7.5 billion of EU exports to the US and as a result of the deal, EU tariffs would be suspended on $4 billion of US exports. The tariff suspension will affect everyone from French winemakers to German cookie bakers in Europe and US spirits producers among many others. “Lifting this tariff burden will support the recovery of restaurants, bars and small craft distilleries across that country that were forced to shut down their businesses during the pandemic," the US Distilled Spirits Council said.

The United States won the largest arbitration award in World Trade Organization (WTO) history in its dispute with the European Union over illegal subsidies to Airbus. The 02 October 2019 award of $7.5 billion annually is by far the largest award in WTO history—nearly twice the largest previous award. This followed four previous panel and appellate reports from 2011-2018 finding that EU subsidies to Airbus break WTO rules. Today’s decision demonstrates that massive EU corporate welfare has cost American aerospace companies hundreds of billions of dollars in lost revenue over the nearly 15 years of litigation.

“For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers. Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose countermeasures in response to the EU’s illegal subsidies,” U.S. Trade Representative Robert Lighthizer said. “Accordingly, the United States will begin applying WTO-approved tariffs on certain EU goods beginning October 18. We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”

On October 18, the United States imposed tariffs of 10 percent on large civil aircraft and 25 percent on agricultural and other products, with the bulk of these tariffs being applied to imports from France, Germany, Spain, and the United Kingdom – the four countries responsible for the illegal subsidies. In light of the lack of progress in efforts to resolve this dispute, the United States initiated a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs.

On 6 October 2004, the United States requested consultations with the Governments of Germany, France, the United Kingdom, and Spain (the "member States"), and with the European Communities ("EC") concerning measures affecting trade in large civil aircraft. According to the request for consultations from the United States, measures by the EC and the member States provide subsidies that are inconsistent with their obligations under the SCM Agreement and GATT 1994. The measures include: the provision of financing for design and development to Airbus companies ("launch aid"); the provision of grants and government-provided goods and services to develop, expand, and upgrade Airbus manufacturing sites for the development and production of the Airbus A380; the provision of loans on preferential terms; the assumption and forgiveness of debt resulting from launch and other large civil aircraft production and development financing; the provision of equity infusions and grants; the provision of research and development loans and grants in support of large civil aircraft development, directly for the benefit of Airbus, and any other measures involving a financial contribution to the Airbus companies. The subsidies in question include those relating to the entire family of Airbus products (A300 through the A380).

The measures at issue in this dispute are more than 300 separate instances of alleged subsidization, over a period of almost forty years, by the European Communities and four of its member States, France, Germany, Spain and the United Kingdom, with respect to large civil aircraft ("LCA") developed, produced and sold by the company known today as Airbus SAS. The measures that are the subject of the US complaint may be grouped into five general categories: (i) "Launch Aid" or "member State Financing" (LA/MSF); (ii) loans from the European Investment Bank; (iii) infrastructure and infrastructure-related grants; (iv) corporate restructuring measures; and (v) research and technological development funding. The United States claims that each of the challenged measures is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, and that the European Communities and the four member States, through the use of these subsidies, cause adverse effects to the US interests within the meaning of Articles 5 and 6 of the SCM Agreement. In addition, the United States claims that seven of the challenged LA/MSF measures are prohibited export subsidies within the meaning of Article 3 of the SCM Agreement.

On June 30, 2010, a World Trade Organization (WTO) dispute settlement panel publicly released a decision finding that EU member state governments' provision of launch aid, and certain other kinds of financial support to Airbus (a subsidiary of EADS), was at odds with WTO subsidies rules. The panel found that the launch aid had the effect of displacing U.S. aircraft sales in Europe and certain third country markets and contributed to significant lost sales of U.S. aircraft in the U.S. market. In addition, the panel found that UK, German and French launch aid provided in connection with the Airbus A380 is a prohibited subsidy, in as much as it was contingent on export performance. The EU and the U.S. each filed appeals, seeking a reversal of certain aspects of the panel's decision (in the case of the U.S., it argued, among other things, that the panel erred in finding certain launch aid not be to de facto export contingent). In a separate WTO dispute, the EU charged the U.S. with providing subsidies to Boeing that are inconsistent with WTO rules.

Before evaluating the substance of the US claims, the panel resolved a number of preliminary issues, including the temporal scope of the dispute, whether certain measures were subject to consultations, the adequacy of the identification of measures in the request for establishment, and requests for enhanced third party rights. In addition, with respect to the identity of the subsidy recipient, the panel concluded that, notwithstanding changes in corporate structure, Airbus SAS was the same producer of Airbus LCA as the Airbus Industrie consortium, and that therefore all of the alleged financial contributions provided to entities in the Airbus Industrie consortium found to constitute subsidies would be considered to subsidize Airbus LCA, and would be taken into account for purposes of the analysis of adverse effects. The panel also rejected the European Communities' argument that various transactions had "extinguished" or "extracted" the benefit of subsidies, or constituted "withdrawal" of subsidies.

Turning to the allegations of subsidization, the panel found that each of the challenged LA/MSF measures constitutes a specific subsidy. However, the panel found that the United States had failed to establish the existence, as of July 2005, of a commitment of LA/MSF for the A350 constituting a specific subsidy, and that the United States had failed to demonstrate the existence of a "LA/MSF Programme" as a distinct measure, separate from the individual grants of LA/MSF. Finally, the panel concluded that the United States had established that the German, Spanish and UK A380 LA/MSF measures are subsidies contingent in fact upon anticipated export performance, and therefore prohibited export subsidies, but that the four other measures challenge in this respect are not prohibited export subsidies, either in law or in fact. The panel found that each of the 12 challenged loans provided by the European Investment Bank ("EIB") to various Airbus entities between 1988 and 2002 is a subsidy, but that none of these subsidies was specific, and therefore dismissed the US claims in respect of the EIB loans from further consideration.

The panel concluded that Airbus would have been unable to bring to the market the LCA that it launched as and when it did but for the specific subsidies it received from the European Communities and the governments of France, Germany, Spain and the United Kingdom. The panel did not conclude that Airbus necessarily would not exist at all but for the subsidies, but merely that it would, at a minimum, not have been able to launch and develop the LCA models it actually succeeded in bringing to the market. Thus, the panel considered that Airbus' market presence during the period 2001-2006, as reflected in its share of the EC and certain third country markets and the sales it won at Boeing's expense, was clearly an effect of the subsidies in this dispute. However, the panel rejected the US argument that the specific subsidies in this dispute provided Airbus with significant additional cash flow and other financial resources on non-market terms which allowed it to price its aircraft more aggressively than it would otherwise be able to without those subsidies, or that the effect of LA/MSF on cost of capital was such that it enabled Airbus to lower prices of LCA during the period 2001-2006. Therefore, the panel concluded that the United States had failed to demonstrate that an effect of the subsidies was the significant price depression or price suppression observed during that period.

Overall, the panel concluded that the United States had established that the effect of the specific subsidies found was (i) displacement of imports of US LCA into the European market; (ii) displacement of exports of US LCA from the markets of Australia, Brazil, China, Chinese Taipei, Korea, Mexico, and Singapore; (iii) likely displacement of exports of US LCA from the market of India; and (iv) significant lost sales in the same market, and that these effects constituted serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement. However, the panel concluded that the United States had not established that the effect of the specific subsidies found was (i) significant price undercutting; (ii) significant price suppression; and (iii) significant price depression. In addition, the panel concluded that the United States had not established that, through the use of the subsidies, the European Communities and certain EC member States cause or threaten to cause injury to the US domestic industry.

On 21 July 2010, the European Union appealed to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel. On 12 August 2010, the Chairman of the Appellate Body advised the DSB that on 5 August 2010, the European Union requested to amend its Notice of Appeal dated 21 July 2010. On 11 August 2010, the Appellate Body authorized the European Union to amend its Notice of Appeal. On 19 August 2010, the United States appealed to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel.

On 17 September 2010, the Chairman of the Appellate Body notified the DSB that it would not be able to issue its report within 60 days due to the considerable size of the record and the complexity of the appeal. The Appellate Body will hold oral hearings in the appeal in November and December 2010, and will provide thereafter an estimate for circulation of the report.

In May 2011, the Appellate Body confirmed that the EU and four of its member States (Germany, France, the UK, and Spain) conferred more than $18 billion in subsidized financing to Airbus and had caused Boeing to lose sales of more than 300 aircraft and significant market share throughout the world. In fact, in looking at the effect of the EU subsidies, the original WTO panel that first heard the case and the Appellate Body agreed that “[w]ithout the subsidies, Airbus would not have existed … and there would be no Airbus aircraft on the market. None of the sales that the subsidized Airbus made would have occurred.” None of these findings were altered in the May 2018 compliance appellate report, which confirmed that the EU provided additional billions of euros in subsidized financing to Airbus.

In contrast, the WTO rejected the EU assertion in the EU’s counter-complaint that U.S. subsidies were responsible for the viability of large civil aircraft production in the United States. The WTO found that only a single Washington State tax measure that provided Boeing with additional pricing flexibility was inconsistent with WTO rules.

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Page last modified: 30-06-2021 12:03:56 ZULU