The long-standing disagreement between the US and the European Union (EU) over the aircraft dispute at the World Trade Organisation (WTO) moved forward with the Appellate Body of the WTO ruling that not all of the subsidies provided by the EU are prohibited.
This dispute is important because it provides a significant direction to the policy space available to member countries of the WTO under the Agreement on Subsidies and Countervailing Measures of the WTO. The dispute, that has been on since 2004, began with the US approaching the dispute settlement body of the WTO by nullifying the “Bilateral EU-US Agreement on Trade in Large Civil Aircraft” signed in 1992. The EU also filed a complaint on subsidies provided to Boeing by the US. The ruling on both cases is expected to set the stage for rival companies in other countries like Brazil and Canada to look at what is permissible to support the over $70 billion civil aviation industry.
The WTO body held that the Repayable Launch Investment for the A380 granted by Germany, Spain and the UK is not a prohibited export subsidy; all research and development programmes in the EU (European, national and regional) are fully compatible with WTO rules, especially relevant when compared to the findings on the National Aeronautics and Space Administration (Nasa) and Department of Defence support in the Boeing case; and the French government’s transfer of its interest in Dassault Aviation to Aerospatiale in 1998 was not a subsidy.
However, an important aspect of the ruling is that EU’s practice of “launch aid” loans to develop new aircraft models provided Airbus with below-market-rate financing, giving it an unfair advantage over its US rival. This point has been welcomed by the US officials who stated that the WTO ruling shows that the EU was heavily subsidising its aircraft manufacturer.
Earlier in the dispute over Boeing the WTO’s dispute panel report had stated that the American manufacturer received over $5 billion in subsidies that hurt the rival aircraft company of the EU- Airbus. The panel report on US subsidies is on appeal and under scrutiny by the Appellate Body that may, as in the case of EU, look at the subsidies in the US in a different light.
The dispute panel in the case of EU had also concluded that the EU subsidises Airbus to the tune of several billions of Euros thereby hurting the American company. The EU will have up to six months to roll back the subsidies. If the EU does not remove its subsidies then the US can go back to the WTO seeking to stop market access for EU products equivalent to the market that may be lost by the US due to the EU action.
State subsidies for high-technology industries have become a very important issue of discussion at the WTO as also the free trade agreement (FTA) negotiations among different countries. The WTO Agreement on Subsidies and Countervailing Measures has clearly provided the various conditions for prohibited and acceptable subsidies. Developing countries have been looking closely at the various programmes in developed countries that provide an unfair advantage to domestic industry.
Beijing has been at the receiving end of most countries on the issue of subsidies. Countries have been of the view that China has been strongly subsidising several sectors, making it difficult for other countries to access global markets. The EU recently launched an anti-subsidy duty on China on high-end paper. Many analysts have been of the view that developed countries are worried that some large developing countries are rapidly catching up with the developed world in many products that the rich countries felt were their areas of expertise. They are, therefore, carefully scrutinising all elements of state support to industries.
The debate on state subsidies to the manufacturing sector is expected to become more intense with countries feeling that there is a need to provide adequate funding to keep industry competitive on the face of global competition. Developing countries, specifically want to understand the policy space available to countries to move up the value-chain in the manufacturing sector.
The EU-US case at the WTO provides enough data to look at what is permissible and what will be challenged under the Agreement on Subsidies and Countervailing Measures.
The author is Principal Adviser with APJ-SLG Law Offices
