On April 18 2013 a World Trade Organisation (WTO) compliance panel heard arguments from the United States that the European Union had failed to comply with the ruling against its support of the large civil aircraft sector.(1) The long-running dispute has pitted the two major traders against each other in multiple disputes as both complainant and respondent. In EC – Large Civil Aircraft (DS316) the original panel found, and the Appellate Body upheld, that the European Union's support of Airbus projects through launch aid and other actionable subsidies was inconsistent with its obligations and must be brought into line with the Agreement on Subsidies and Countervailing Measures. The recent hearing was held by a compliance panel established under Article 21.5 of the Dispute Settlement Understanding, whereby a complainant such as the United States may challenge the respondent's actions to implement the recommendations and rulings of the WTO.
The United States stated to the Article 21.5 panel that the European Union had taken no actions to bring its WTO-inconsistent programmes into line with its obligation not to provide grants that result in serious prejudice to another WTO member's industry. Importantly, the United States raised concerns to the panel over the European Union's decision to offer more than $4 billion in launch aid and other subsidies for the A350XWB aircraft, even after the original panel had found this type of aid to violate the European Union's WTO obligations.(2) The United State's concern over support of the A350XWB aircraft is noteworthy because this particular project was not covered by the original panel report, since the project was initiated after the dispute was already underway.
The European Union responded that it has either removed the subsidies or eliminated any adverse effects, which has brought its programmes into compliance. It has questioned the United States' claims as having no objective evidentiary support to show non-compliance.(3) Concerning the challenged launch aid to the A350XWB, the European Union argued that this was not a "measure taken to comply" with a ruling that had not covered the specific measures in question for this type of aircraft, and that the WTO compliance panel therefore had no jurisdiction to hear such arguments.(4)
The key question of commercial interest in this compliance hearing is the panel's scope of authority. The United States has argued that the European Union not only has not brought its illegal programmes into compliance with WTO obligations, but also has further continued to provide those very same types of support to other Airbus projects, notably the A350XWB. For the United States, the European Union's attempts at compliance have included inaction with respect to the originally challenged subsidies and positive action to provide further WTO-inconsistent support. The European Union's contentions that any such programmes are outside the scope of the dispute would require the panel to take a narrow view of the procedural rules at issue under the Dispute Settlement Understanding. However, in the past, WTO panels have taken a broad view of the term 'measures taken to comply' to also include subsequent measures with a close nexus to the original measures found to violate the WTO agreements. If the compliance panel follows the EU view, then the United States would be forced to institute a new set of dispute settlement proceedings to challenge launch aid to the A350XWB. This turn of events would surely prolong the already extensive proceedings between the European Union and the United States, a dispute that as the European Union points out "places a huge burden on the WTO dispute settlement system".
Another question is the clarification that the panel will need to provide in terms of what it means to "withdraw" the subsidy or take "appropriate steps to remove the adverse effects" in the context of non-recurring subsidies, some of them granted in the past or fully disbursed. The WTO system of remedies is based on the principle of prospective application of remedies. In one case only so far, Australia – Leather, has a panel suggested that repayment of subsidies was necessary in order to withdraw the subsidy. The conclusion of the panel in Australia – Leather was heavily criticised by the WTO membership at the time of adoption of the report for not abiding by this principle. At the same time, effective remedies appear to be necessary if the disciplines on government subsidisation are to have a meaningful effect. If past subsidies that continue to cause adverse effects remain without an effective remedy, the system could be weakened significantly.
While the WTO disputes may continue, the recently launched free trade agreement negotiations between the European Union and the United States may provide an alternative forum to reach a settlement, or perhaps to agree on new and acceptable subsidies disciplines. Indeed, the two traders will likely engage on a number of subsidies-related issues in their talks on the Transatlantic Trade and Investment Partnership. It is possible that this bilateral forum may produce a settlement that has long been elusive through the multilateral system of the WTO.
For further information on this topic please contact Jasper M Wauters or Jordan Shepherd at King & Spalding LLP by telephone (+41 22 591 0804), fax (+41 22 591 0880) or email (email@example.com or firstname.lastname@example.org).
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(1) Bloomberg BNA, April 25 2013. See http://news.bna.com/itln/ITLNWB/split_display.adp?fedfid=30409401&vname=itrnotallissues&jd=a0d7p7u8q7&split=0.
(3) See EU opening statement http://trade.ec.europa.eu/doclib/html/151046.htm.
(4) See EU closing statement http://trade.ec.europa.eu/doclib/html/151044.htm.