DISPUTE SETTLEMENT

Note

This summary has been prepared by the WTO Secretariat’s Information and External 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.

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The authorization was granted as a result of the WTO's rulings in DS316 which found that the European Union and certain EU member states failed to remove subsidies for the European aircraft manufacturer Airbus which had caused harm to Airbus's US rival Boeing in the form of lost and impeded sales of Boeing aircraft. 

The United States told the DSB that the level determined by the arbitrator is the largest amount ever awarded by a WTO arbitrator and documents the US point that the EU’s subsidies to Airbus have for decades caused massive harm to the US economy.

Nevertheless, it is the US preference to find a negotiated outcome with the EU that ends all WTO-inconsistent subsidies, an objective it has had from the outset, the United States said. But that can only happen if the EU genuinely terminates the benefits to Airbus from current subsidies and ensures that subsidies to Airbus cannot be revived under another name or another mechanism.

The United States said that for 15 years the US has indicated its desire for such an agreement but that the EU had consistently failed to engage in serious discussions. The US added that it hoped the countermeasures will encourage the EU to agree to a genuine cessation of its WTO-inconsistent subsidies and the adverse effects that flow from them.

The European Union said that the arbitrator's decision raises serious concerns. First, there is no analysis in the report of the amount of benefit or the alleged price effects; the alleged volume effects are largely based on the assumption that Airbus or its products should not exist.  Second, awarding recurring annual countermeasures for an indefinite period in response to non-recurring measures, the benefit and adverse effects of which are constantly diminishing, is a breach of the rule that countermeasures must be commensurate with the degree and nature of adverse effects. 

Third, the EU said, the award disregards the risk of over-counting resulting from cumulating nullification or impairment from both orders and deliveries at the same time. Fourth, the award contains a finding that the hypothetical impedance associated with six country markets where impedance was found coincides with the total number of aircraft [47] that Airbus sold in those markets, without any US effort to substantiate that assertion. And fifth, the award systematically avoids taking into account the treaty terms that support the view that the volume effects of competing subsidies cancel each other out.

The EU noted that in DS353 the EU has already obtained findings that the US is out of compliance with respect to both Washington State tax subsidies and FSC tax breaks, and is currently pursuing its own arbitration proceedings in the dispute.  It expects the same principles applied by the arbitrator in DS316 will be applied in that case. The EU warned that applying countermeasures now would be short-sighted; both the EU and the US have been found at fault by the WTO dispute settlement system, and the mutual imposition of countermeasures would only harm global trade and the broader aviation industry.

Canada also intervened, saying it was sympathetic to the EU concerns about the need for arbitrators to take account of the current situation with regards to compliance efforts but that it also understood the need for arbitration and compliance proceedings to be separate and the need to avoid an endless loop of litigation.  Canada called on the US to show restraint, declaring that the health of an increasingly integrated aircraft industry, the WTO's dispute settlement system and the global economy depended on it.

Next meeting

The next regular meeting of the DSB is scheduled for 28 October.

More information on WTO dispute settlement is available here.

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