Making Sense of the WTO Panel’s Ruling on US Complaints
(Source: defense-aerospace.com; issued July 1, 2010)

By Giovanni de Briganti
PARIS --- The outlandish claims and counterclaims issued in the wake of the June 30 release of the World Trade Organisation’s 1,076 page report on the complaint filed by the US makes a reality check particularly necessary. And reality falls far short of the “landmark victory” claimed by the US Trade Representative, or the “sweeping legal victory” claimed by Boeing.

First of all, it should be noted that, while this is the WTO ruling on the US complaint against Airbus, the European Union made a reciprocal complaint against US subsidies, on which a ruling is due in mid-July.

Unhappily, because of the WTO’s arcane rules, this second ruling will be initially circulated only to the parties involved in the case, and will not be made public for several months. This means that it will not be possible to know until the end of the year where Airbus and Boeing, and their government backers, actually stand is terms of illegal subsidies and, crucially, whether the subsidies caused significant damage to their competitor, in which case monetary redress can be sought and obtained.

The key document in understanding the WTO panel’s ruling is the Conclusions and Recommendations document (5 pages in PDF format) also released on June 30. This summarizes its findings in a fairly straightforward way.

Essentially, the panel ruled in favor of the United States mostly on points relating to the history and the setting up of Airbus, and found for example that the German government's transfer of its ownership share in Deutsche Airbus to the Daimler Group; the equity infusions that the French government and Crédit Lyonnais provided to Aérospatiale, and various infrastructure benefits provided to the European group, such as the provision of the Mühlenberger Loch (Germany) and ZAC Aéroconstellation (France) industrial sites, or the lengthening of the Bremen Airport runway, were illegal subsidies. Some development aid received by Airbus, worth some hundreds of millions of Euros, were also ruled illegal.

Most significantly, the panel agreed [paragraph 8.1 (a) ii] with the US that “the German, Spanish and UK A380 LA/MSA (Launch Aid / Member State Financing—Ed.) measures are .… prohibited export subsidies,” which is a major blow to the European position that its launch aid to Airbus is entirely legal.

But the panel does not say that the A380 subsidies are inherently illegal; it says they are illegal because “they are contingent …upon anticipated export performance, and [are] therefore prohibited export subsidies.” In other words, all the EU needs to do to make them legal is to remove their link to the export performance of the aircraft, and voilà!, Bob’s your uncle.

And, elsewhere [paragraph (8.3 (a) iii], the panel also found that the US had failed to prove “that the French A380, German A380, Spanish A380, UK A380, French A340-500/600, Spanish A340-500/600 and French A330-200 LA/MSF measures are subsidies…,” which contradicts its previous statement on the A380.

On the other hand, the panel found that the US failed to prove the most significant part of its complaint [see paragraph 8.3], i.e. that launch aid for the development of various Airbus programs were illegal subsidies, and that these subsidies harmed Boeing and the US economy to the tune of hundreds of billion dollars.

The panel also ruled that cannot be considered illegal subsidies the loans and a 2002 credit facility made to Airbus by the European Investment Bank (EIB) and the research and technological development funding provided by the European Communities and certain EC member States.

The panel found that the US failed to prove that “the effect of the subsidies is significant price undercutting by [Airbus],” and that it also did not prove that, “through the use of the subsidies, the European Communities and certain EC member States cause injury to the United States' domestic industry.”

Finally, it is also worth noting that the panel did “not make any suggestions concerning steps that might be taken to implement [its] recommendations,” rendering its findings essentially toothless.


Click here for the WTO’s summary of the case (HTML format)


N.B.:
-- The acronym LA/MSF, widely used throughout the WTO documents, means Launch Aid / Member State Financing.

-- The conventional sign [***] indicates that commercially sensitive information has been redacted.

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