Appellate Body findings
On March 23 2012 the World Trade Organisation's (WTO) Dispute Settlement Body adopted the Panel and Appellate Body reports in respect of the challenge brought by the European Union of subsidies granted to Boeing by the United States in the dispute known as United States – Measures Affecting Trade in Large Civil Aircraft.(1)(2)
The Appellate Body upheld most of the panel's earlier findings in respect of about $5.3 billion-worth of subsidies that were granted to Boeing by the United States through three groups of subsidies:
- research and development (R&D) subsidies that were instrumental in the development of the new 787 Dreamliner;
- tied tax subsidies, such as foreign sales corporation/extraterritorial income subsidies and Washington State business and occupational tax subsidies; and
- various other support measures with less direct ties to the production and sale of Boeing's large civil aircraft.
The Appellate Body largely upheld the panel's findings that the R&D subsidies granted by the National Aeronautics and Space Administration and the US Department of Defence for the development of the Boeing 787 caused serious prejudice to the European Union's interest in the form of significant lost sales and significant price suppression in the 200 to 300 seat market, in which the Boeing 787 competes with the Airbus A330 and A350.
The Appellate Body disagreed with the manner in which the panel had examined the existence of adverse effects caused by the tied tax subsidies and other support measures. When completing the analysis, the Appellate Body found that the tied tax subsidies, as complemented and supplemented by certain other support measures, had caused adverse effects in the form of significant lost sales only in the 100 to 200 seat market.
The standard recommendation made by the Appellate Body is that the United States remove the adverse effects found to have been caused by its use of subsidies or withdraw those subsidies. The deadline for implementing this ruling is within six months of its adoption (ie, by September 23 2012). The manner in which the United States is to comply with the recommendations is not prescribed.
In response to the Appellate Body report, both sides claimed victory. The European Union considers that the judgment vindicates its claim that Boeing benefited from subsidies, while the United States maintains that the decision brings into sharp focus the fact that illegal aid given to Airbus – which it considers amounted to about $18 billion – was far greater than any subsidies made available to Boeing.
The Boeing report must be read against the background of the challenge brought by the United States of subsidies provided to Airbus by the European Union and certain member states in the dispute known as EC and Certain Member States – Measures Affecting Large Civil Aircraft.(3) In that case, the WTO found that Airbus had benefited from several subsidy programmes, including so-called 'launch aid', for its various models. On December 1 2011 the European Union notified the WTO that it had fully complied with the WTO's ruling in that dispute, since it had withdrawn the actionable subsidies and removed their adverse effects, as requested by the WTO. The United States requested consultations with the European Union on this matter, as it considers that the European Union has failed to comply fully with the WTO's recommendation. In particular, the United States considers that illegal launch aid subsidies are being provided to the newest Airbus model, the A350, which competes with Boeing's 787 Dreamliner. On March 30 2012 the United States requested that an implementation panel under Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes be established to examine whether the European Union had brought itself into compliance with the recommendations of the Dispute Settlement Body.
The fact that the Appellate Body upheld the panel's finding that actionable subsidies had been granted to Boeing's 787 Dreamliner is thus important in the context of a possible settlement negotiation between the European Union and the United States. Any other finding would likely have weakened the position of the European Union. Essentially, it seems that any discussion between the European Union and the United States will now focus on the treatment of subsidies bestowed, or alleged to be bestowed, on the competing aircraft: the Boeing 787 and Airbus A350.
Also noteworthy is the procedural victory of the European Union in the context of the discussions about the extent to which a WTO member can block the initiation of an information-gathering procedure under Annex V of the Agreement on Subsidies and Countervailing Measures. This procedure can play an important role in the context of a WTO challenge of subsidies when most of the information on subsidy programmes, their amounts and effects on the market of the subsidising member or a third country are unavailable to the member wishing to challenge such subsidies. The Appellate Body made it clear that the initiation of this procedure is automatic and that the Dispute Settlement Body need not take a decision by positive consensus in order to start this process. As soon as a member brings a serious prejudice challenge under the Agreement on Subsidies and Countervailing Measures and requests the initiation of this procedure, the procedure must be initiated. For various reasons, the United States had refused to agree to the initiation of this procedure.
For further information on this topic please contact Jasper M Wauters at King & Spalding LLP by telephone (+41 22 591 0803), fax (+41 22 591 0880) or email ([email protected]).
(2) The WTO Appellate Body's report can be found at http://www.wto.org/english/tratop_e/dispu_e/353abr_e.pdf.