Monday, May 25, 2015

EU Scores Gains In Airbus Subsidies Ruling By World Trade Organization Appellate Body

GENEVA—The European Union has succeeded in easing the impact of a World Trade Organization dispute ruling condemning government subsidies for Airbus, but the United States said its 20-year campaign against illegal “launch aid” loans for the company has been vindicated by the WTO’s final verdict on the issue.

The WTO’s Appellate body issued a ruling May 18 maintaining the panel’s finding that France, Germany, Spain, and the United Kingdom—Airbus’ government backers—provided illegal subsidies to Airbus in the form of launch aid loans as well as in the form of certain infrastructure support and equity infusions.

The Appellate Body agreed with the panel that launch aid loans provided a benefit to Airbus because the interest rate charged on the loan was more favorable than that which Airbus could have secured through private lenders.

The Appellate Body also upheld the panel’s findings that the subsidies, used to develop the entire Airbus civil aircraft fleet, caused serious prejudice to Airbus’ main rival, the Boeing Co., in the form of displacement of exports and lost sales for Boeing aircraft both in Europe and in Australia, China, and South Korea. But it overturned the panel’s finding of similar market displacement in Brazil, Mexico, Singapore, Taiwan, and India.

Reversal of Finding on Prohibited Subsidies

In an important reversal, the Appellate Body overturned the panel’s finding that launch aid provided by Germany, Spain, and the United Kingdom for the development of Airbus’ super jumbo A380 passenger jet also constituted prohibited subsidies under WTO rules because they were contingent upon export of the aircraft.

The Appellate Body concluded that the interpretation of WTO rules used by the panel to determine the subsidies were prohibited was incorrect, wiping out the findings against Airbus. It went on to say that it did not have enough factual evidence on hand to issue its own findings.

The Appellate Body’s findings on prohibited subsidies will make it more difficult for the United States to ensure that these subsidies are removed quickly and fully. Under WTO rules, prohibited subsidies must be “withdrawn” within 90 days of the formal adoption of the ruling by WTO members.

In contrast, actionable subsidies found to cause serious prejudice to another WTO member must either be withdrawn, or the adverse effects of the subsidies removed, within six months of formal adoption of the ruling.

Launch Aid Not a Program

In addition, the Appellate Body rejected a U.S. appeal against the panel’s findings that launch aid loans to Airbus did not constitute a program per se but were instead aircraft-specific loan commitments. A finding in favor of the United States could arguably have pulled future launch aid loans to Airbus within the scope of the ruling—such as planned loans for Airbus’ new A350-XWB mid-size jet, a rival to Boeing’s new 787 “Deamliner”—rather than requiring the United States to challenge future loans through new WTO dispute settlement proceedings.

A report on the World Trade Organization Airbus-Boeing case in International Trade Reporter, published May 19, 2011, should have said as follows: “The Appellate Body also reversed a panel finding by concluding that certain research and development grants, equity infusions, and infrastructure support provided for Airbus, while constituting subsidies, did not cause harm to Boeing and therefore were not illegal under WTO rules.”

U.S. officials said they planned May 19 to request a special meeting of the WTO’s Dispute Settlement Body on May 29 to formally adopt the Appellate Body’s findings.

In a May 18 statement, EU Trade Commissioner Karel De Gucht said he was pleased with the Appellate Body’s reversal of the panel’s findings.

“The U.S. central claim that Airbus received prohibited export subsidies has been dismissed in its entirety,” he declared.

The EU added that while the Appellate Body maintained that certain government subsidies were actionable and caused serious prejudice to Boeing, “the economic impact of these support measures … has been found to be very limited.” In particular, the impact of launch aid loans “is nowhere near the alleged amount of $15-$20 billion” claimed by the United States and Boeing.

Airbus, Boeing on Future Aid

Airbus for its part welcomed the Appellate Body ruling as a “decisive victory for Europe” and claimed the ruling would not prevent EU member states from providing future launch aid grants to Airbus.

“It is good to see that the WTO has fully green lighted the public-private partnership instruments with France, Germany, Spain and the U.K.,” Airbus’ president and CEO Tom Enders declared. “We now can and will continue this kind of partnership on future development programs.”

Boeing countered that the Appellate Body ruling affirms the WTO panel’s landmark 2010 decision that European subsidies to Airbus are illegal.

“The WTO has concluded that launch aid and other illegal Airbus subsidies distorted the market, harmed U.S. industry, and now must end,” Boeing president and chief executive officer Jim McNerney said.

Boeing said that the Appellate Body’s ruling confirms that Airbus received $18 billion in illegal subsidies, including $15 billion in launch aid loans—of which $4 billion was used to develop the firm’s A380 super jumbo jet—and $3 billion in other support condemned by the WTO.

That figure dwarfs the $2.7 billion in U.S. government subsidies to Boeing condemned as illegal by a WTO panel in a separate case brought by the EU, Boeing said. That ruling is currently under appeal.

U.S. Claims Victory

Tim Reif, general counsel for the Office of the U.S. Trade Representative, insisted the Appellate Body’s ruling was a victory for the United States.

“The WTO Appellate Body confirmed the underlying panel findings that European government subsidies have supported the creation of every model of large civil aircraft that Airbus has produced,” he declared. “Those subsidies have significantly distorted the global market for large civil aircraft. … Without those illegal subsidies, none of the large civil aircraft manufactured by Airbus would have been produced when and as they were.”

Reif said the illegal subsidies caused Boeing to lose sales to Airbus involving hundreds of airplanes to nearly a dozen carriers around the world. That is significant “in an industry where selling 50 airplanes can mean the difference between a great year and a terrible year,” he declared.

“We expect the European Union and the Airbus governments to refrain from future launch aid disbursements,” Reif added…

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