Appellate Body Issues Report Regarding US Tax Breaks for Civil Aircraft Production
(Source: World Trade Organisation; issued Sept. 4, 2017)
On 4 September 2017, the WTO Appellate Body issued its report in the case “United States – Conditional Tax Incentives for Large Civil Aircraft” (DS487).
Summary of Key Findings
The United States appealed the Panel's finding that, with respect to the First and Second Siting Provisions, considered jointly, the business and occupation (B&O) aerospace tax rate is a subsidy de facto contingent upon the use of domestic over imported goods under Article 3.1(b) of the SCM Agreement.
For its part, the European Union appealed the Panel's findings that the European Union did not demonstrate that the First and Second Siting Provisions, considered separately or jointly, make the United States' aerospace tax measures de jure contingent, or that the First Siting Provision makes such measures de facto contingent, upon the use of domestic over imported goods under Article 3.1(b) of the SCM Agreement.
In addressing the European Union's interpretation claims, the Appellate Body ruled that the Panel, in its de jure contingency analyses of the First and Second Siting Provisions, did not articulate a legal standard under Article 3.1(b) of the SCM Agreement requiring the use of domestic goods to the complete exclusion of imported goods.
Neither did the Panel articulate such a legal standard in assessing the de facto contingency of the First Siting Provision. The Appellate Body therefore rejected the European Union's claims that the Panel erred in its interpretation of Article 3.1(b) in the context of its de jure contingency analyses of the First and Second Siting Provisions, as well as its de facto contingency analysis of the First Siting Provision.
The Appellate Body rejected the European Union's claim that the Panel erred in its application of Article 3.1(b) of the SCM Agreement in finding that the First Siting Provision does not make the aerospace tax measures de jure contingent upon the use of domestic over imported goods.
The Appellate Body also rejected the European Union's claim that the Panel erred in its application of Article 3.1(b) by unduly restricting the scope of the evidence from which it assessed de jure contingency with respect to the Second Siting Provision. In addition, the Appellate Body did not consider that the Panel committed error under Article 11 of the DSU in setting out the scope of application of the Second Siting Provision.
In addressing the appeal by the United States, the Appellate Body considered that the Panel did not properly establish that the Second Siting Provision entails a de facto condition requiring the use of domestic over imported goods.
The Appellate Body did not consider that the Panel's analysis and reasoning provided a sufficient basis for its finding that the Second Siting Provision makes the B&O aerospace tax rate de facto contingent upon the use of domestic over imported goods. Therefore, the Appellate Body reversed the Panel's finding that the B&O aerospace tax rate is a prohibited subsidy under Article 3.1(b) of the SCM Agreement.
Having reversed the Panel's sole finding of inconsistency under Article 3.1(b) of the SCM Agreement, the Appellate Body made no recommendation in this dispute.
The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
Click here for the WTO’s home page for this dispute.
WTO Will Move On to Judge Actionable Boeing Subsidies to 777X
(Source: Airbus; issued Sept. 4, 2017)
TOULOUSE, France --- In a new round of the more than decade-long spat at the World Trade Organisation (WTO), the Appellate Body (AB) has today reversed a 28 November 2016 report which found that the Washington State tax subsidies that paid for Boeing’s development and manufacture of the 777 X aircraft were “prohibited” under the Agreement Subsidies and Countervailing Measures (ASCM).
However, an ongoing separate review in the DS353 case has confirmed that those subsidies are illegal and actionable causing massive harm to Airbus. An obligation for their withdrawal or removal of their adverse effects remains applicable.
In total, combining the different WTO’s rulings addressing the illegal subsidies to Boeing, the total impact of the subsidies is estimated to add up to US$ 100 billion in lost sales to Airbus.
Airbus reiterates its long-stated view that this transatlantic spat, which lead the WTO to a huge amount of serious work and a large number of important panel reports over many years, can only finally be resolved by negotiations aimed at finding a global agreement to come to a level playing field in government support for the large civil aircraft industry.
Airbus would like to take this opportunity to thank the European Commission and the governments of France, Germany, the UK, and Spain for their continued efforts to defend the industry and fair trade practices at the WTO.
“Boeing illegal subsidies are still illegal and need to be removed. If it is a “No” or a “No No” does not make big difference in global fair trade & play”, says Rainer Ohler, Airbus Executive Vice President Communications. “The “game” is far from over.”
While the legal procedures continue Airbus is providing a more playful perspective on the topic. Check out our new mobile app called “WTO Warriors” for iOS and Android devices, available in the AppStore and on GooglePlay”.
Airbus is a global leader in aeronautics, space and related services. In 2016, it generated revenues of € 67 billion and employed a workforce of around 134,000. Airbus offers the most comprehensive range of passenger airliners from 100 to more than 600 seats. Airbus is also a European leader providing tanker, combat, transport and mission aircraft, and is one of the world’s leading space companies. In helicopters, Airbus provides the most efficient civil and military rotorcraft solutions worldwide.
WTO Appellate Body Rejects EU Allegations of Prohibited Subsidies to Boeing
(Source: US Trade Representative; issued Sept. 4, 2017)
WASHINGTON, D.C. --- The World Trade Organization (WTO) today issued an Appellate Body report rejecting the case brought by the European Union (EU) alleging that the United States provided so-called “prohibited” subsidies to Boeing. The EU challenged seven Washington State tax measures, alleging that they were contingent on Boeing’s use of domestic fuselages and wings instead of imported fuselages and wings. The Appellate Body disagreed, giving the United States a complete victory in this dispute.
This finding comes on the heels of a WTO compliance panel finding in June in a separate dispute that 28 of 29 U.S. programs challenged by the EU were consistent with WTO rules. In that dispute, the compliance panel found that only a single Washington State tax program has limited effects contrary to WTO rules. That panel’s findings are now on appeal before the Appellate Body.
These findings in the two aircraft cases brought by the EU are in sharp contrast to the findings of a different compliance panel in a dispute brought by the United States challenging the EU’s “launch aid” and other subsidies to Airbus. In September 2016, that WTO compliance panel found that the EU had failed to achieve compliance with its WTO obligations, and had further breached WTO rules by giving Airbus billions of dollars in additional subsidies. The EU subsidies appear to cause tens of billions of dollars in harm to Boeing.
“European governments have provided billions of dollars in illegal subsidies to Airbus for years, yet they have tried and failed to create a false equivalence with the United States and Boeing.” said U.S. Trade Representative Robert Lighthizer. “Just as the EU lost on nearly all claims against the United States in June 2017, today’s WTO report further confirms that the EU cannot justify their own illegal subsidies by hiding behind groundless claims against the U.S. The EU should immediately come to the table on a solution that will end all its WTO-inconsistent subsidies.”
After many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease its subsidization of Airbus, in 2004 the United States brought a WTO challenge to EU subsidies. The EU responded by challenging what it claimed were even larger subsidies to Boeing by the United States. Then, in 2014, the EU launched a second case against the United States, alleging that certain Washington tax measures were contingent on Boeing’s use of domestic fuselages and wings, in breach of the WTO’s prohibited subsidies provisions.
Today’s report is with respect to that 2014 case and ends that dispute with a complete victory for the United States.
With respect to the two prior, long-standing disputes, two separate WTO panels addressed the claims brought by the United States and the EU, respectively. The two processes resulted in two very different sets of WTO findings and subsequent respondent actions. Click here to read more about these disputes.
WTO Reverses Ruling Against Washington State Tax Incentive
(Source: Boeing Co.; issued Sept. 4, 2017)
CHICAGO --- The Office of the U.S. Trade Representative (USTR) achieved a significant victory today in its long-running dispute with the European Union over aerospace subsidies.
The WTO Appellate Body announced a reversal of last November's prohibited subsidy ruling against a tax incentive for the production of the Boeing 777X in Washington state. It also upheld an earlier dismissal of the EU's claims against the remainder of the incentives. Today's ruling confirms that the tax treatment Boeing (NYSE: BA) and others are receiving in Washington state is not a prohibited subsidy.
In addition to reversing the previous ruling on the tax incentive, the new ruling ends the most recent of two WTO cases the EU brought against the United States in retaliation for the successful U.S. challenge of the massive subsidies European governments provide to Airbus.
"The WTO has rejected yet another of the baseless claims the EU has made as it attempts to divert attention from the $22 billion of subsidies European governments have provided to Airbus and that the WTO has found to be illegal," said Boeing General Counsel J. Michael Luttig. "No further appeal of today's decision is available to the EU," he added.
"The latest of the false claims Airbus and its government sponsors have made has now been rejected by the WTO. The EU and Airbus, meanwhile, continue to be in flagrant breach of WTO rulings and must eliminate the massive illegal subsidies the WTO said a full year ago had not been addressed, or risk U.S. sanctions against European exports," Luttig said.
"Airbus has a long history of putting European taxpayer money at risk through the unsecured loans that created and continue to sustain the company. Now Airbus and its sponsor governments are putting other European exporters at risk of U.S. sanctions by blatantly ignoring WTO rulings and bringing counterclaims against the U.S. that have no basis in law or in fact," Luttig said.
"By contrast, Boeing has supported U.S. government actions to comply with its WTO obligations. We supported and facilitated changes to Boeing contracts with NASA and the U.S. Department of Defense for R&D work that the WTO deemed inconsistent with its rules," Luttig said.
"This was a sweeping and clean win for the United States," he added. "It is now up to the European Union to comply with the WTO findings against it, and end the enduring practice of launch aid, which Airbus' government supporters have continued to provide to each and every Airbus model."