WTO: 2005 NEWS ITEMS
Dispute Settlement Body 13 June 2005
EC and US block each other's first requests for panels in Airbus/Boeing disputes
At the Dispute Settlement Body meeting on 13 June 2005, the European Communities and the United States blocked each other's first requests for panels in their Airbus/Boeing disputes. The DSB agreed to revert to these matters at a future meeting.
This summary has been prepared by the WTO Secretariat’s Information and Media Relations Division to help public understanding about developments in WTO disputes. It is not a legal interpretation of the issues, and it is not intended as a complete account of the issues. These can be found in the reports themselves and in the minutes of the Dispute Settlement Body’s meetings.
European Communities and Certain Member States — Measures Affecting Trade
in Large Civil Aircraft
The US request for a panel (WT/DS316/2) was deferred by the DSB following the objection by the EC. The US said that the EC and some of its member states (France, Germany, Spain and the UK) had provided subsidies to Airbus inconsistently with their obligations under several provisions the SCM Agreement and the GATT 1994. The US said that every major Airbus aircraft model had been financed, in whole or in part, with government subsidies mostly taken the form of “launch aid”, and that the subsidies attracted no or low rates of interest and repayment was tied to, and entirely dependent on, sales of the financed aircraft. According to the US, if a particular aircraft did not do well, there was no obligation on the part of Airbus to repay the loan.
The US stated that apart from the launch aid, the member states of the EC had written off several billions of euros worth of debt owed by Airbus, had made numerous equity infusions and grants into Airbus companies that private investors would not have made and, together with the EC, had provided billions of euros to Airbus for civil aeronautics research and development. The US stated that these numerous subsidies had helped Airbus to capture over 50 per cent of the market for large civil aircraft and it was time that these subsidies were halted.
The EC expressed disappointment over the decision by the US to request a panel, and said that the path chosen by the US would spark what was likely to be the biggest, most complicated and costly legal dispute in WTO history. The EC said that the US action was unwarranted considering that the concerns of the US could have been addressed in the DDA negotiations and within the framework of the 1992 Agreement between the EC and the US. The EC maintained that the claims by the US were purely speculative and had no proper legal basis, such as the claim that the EC and its member states would grant subsidies to support the development of the new A350. The EC said that the WTO Agreements did not allow Members to bring cases against perceived threats of subsidisation. The EC stated that consultations had not and could not have been held on a non-existent measure raising questions about the real motives of the U.S. According to the EC, the true intention behind the US action was to seek to influence the market in favour of Boeing.
The EC added that consultations had not been held on a number of the challenged measures and that the US request was framed broadly making it difficult to understand what the claims of the US were. The EC said that the US appeared also to be challenging subsidies allegedly provided to certain suppliers of Airbus, thus enlarging the scope of the dispute. The EC concluded that in light of the foregoing, it could not accept the establishment of a panel at this current meeting of the DSB and was determined to fully defend its legitimate interests and ensure that conditions of fair competition prevailed in the production of civil aircraft.
DS317: United States — Measures Affecting Trade in Large Civil Aircraft
The EC request for a panel (WT/DS317/2) was deferred by the DSB following the objection by the US. The EC said that its action was in response to the claims by the US and that it was rather the subsidies provided by the U.S. to Boeing which were distorting the market for large civil aircraft. The EC said that it would have preferred the resolution of this dispute within the 1992 Framework Agreement and had engaged in good faith negotiations to revise this Agreement on the basis of an Understanding reached on 11 January 2005. The EC added that following the rejection of its efforts to secure a rapid, fair, equitable and balanced agreement on subsidies for Large Civil Aircraft and the resumption of action by the US at the WTO, the EC had no option other than to also reactivate its WTO claim.
The EC said that the evidence amassed by the EC over the years demonstrated that Boeing had been benefiting and continued to benefit from massive subsidies provided by both state and federal governments in breach of the SCM Agreement and the 1992 bilateral agreement between the parties. According to the EC these subsidies had been utilized by Boeing in the development, production and sales of its civil aircraft. The EC alleged that Boeing had also received subsidies totalling over $22 billion in the past decade from NASA, the Department of Defence and the Department of Commerce. It said that the new 787 plane being developed by Boeing would, for example, receive subsidies amounting to 70 per cent of its development costs and that Boeing would only contribute 15 per cent.
The EC added that it was widely acknowledged in US congressional circles that non-competitive “military” contracts at inflated prices benefited Boeing's civil aircraft business. In other words, there was cross-subsidization which benefited the development of civil aircrafts, according to the EC. It also alleged that Boeing had been allowed to use research, test and evaluation facilities owned by the US government to its benefit and had also benefited substantially from tax breaks provided by a number of state governments and the federal government. The EC concluded that the numerous subsidies received by Boeing were distorting trade in the large civil aircraft sector and that the EC was determined to fully defend its legitimate interests.
The US expressed disappointment over the decision by the EC to request a panel. It said that the EC's request was too broad and lacked any merit, and that not all the items identified by the EC in its panel request, including the “High Speed Research Program Technology Transfer Control Handbook”, could be regarded as “measures”. The US added that the EC's panel request was defective and did not meet the legal requirements spelt out in the DSU, that of the 28 subsidy programmes listed in the panel request, 13 had not been the subject of consultations between the parties.
With respect to military contracts, the US said that the claim by the EC lacked any merit, as Airbus and its parent companies, EADS and BAE Systems, had also participated in the US defense market, and had received billions of euros in military procurement and R&D funding, particularly with respect to the development of the A400 and the Eurofighter. The US concluded that in light of the foregoing, the US could not accept the establishment of a panel at this current meeting of the DSB.
(i) European Communities — Export Subsidies on Sugar
The EC stated that it was the intention of the EC to implement the
recommendations and rulings of the DSB in a manner that respected its WTO
obligations. The EC said that it had begun evaluating its options for
doing so and would require a reasonable period of time to implement the
recommendations and rulings of the DSB. The EC said that it was willing to
modify its legislation governing the sugar sector and adopt subsidiary
legislation on that basis, and that it was ready to meet with Australia,
Brazil and Thailand to discuss this matter further.
Australia, Brazil and Thailand welcomed the statement by the EC and said that they were ready to consult with it under Article 21.3 of the DSU with a view to reaching agreement on the reasonable period of time for implementation.
(ii) Dominican Republic — Measures Affecting the Importation and Internal Sale of Cigarettes
The Dominican Republic said that it intended to fully implement the DSB's
recommendations and rulings in this case and had already begun evaluating
its options for doing so. It said that it would need a reasonable period
of time to fulfil its obligations and had commenced consultations with
Honduras pursuant to Article 21.3(b) of the DSU.
Honduras welcomed the statement and urged prompt implementation of the DSB's recommendations and rulings.
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The next regular meeting of the DSB will take place on 20 June 2005.
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