Following-up on Roger Alford's post over at Opinio Juris and Tomer's post on this blog, the WTO panel hearing on one part of the Aircraft dispute (DS316, involving alleged subsides to Airbus) took place last week. As Roger and Tomer noted, the hearing was transparent to a limited degree, in that a tape of parts of the hearing could be viewed afterwards at WTO headquarters. Unfortunately, the most interesting part, the questions from the panel and the parties' answers, was not included in this viewing.
In an effort to improve transparency in a small way, we have in the past enlisted people to attend the viewings of these hearings and report about them on this blog. This time the reporter was Valéria Guimarães de Lima e Silva, who is pursuing a Masters in International Law and Economics at the World Trade Institute in Bern, Switzerland (she also holds a PhD in International Law from the University of São Paulo (USP), Brazil). If anyone wants to follow-up with her about the viewing, you can contact her at valeria_glsilva@yahoo.com.br. Her report follows.
Report of the Second Panel Meeting in DS316, by Valéria Guimarães de Lima e Silva
On July 27, 2007, a public viewing of the statements of the parties in the second meeting of the Panel in the WTO dispute DS316 (European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft) took place at the WTO headquarters. The second meeting itself had taken place two days before and was recorded and edited in such a way that the questions and answers part was not made public. Although the oral statements of the parties have been made public in their respective official websites (the US statement can be found at http://www.ustr.gov/assets/Trade_Agreements/Monitoring_Enforcement/Dispute_Settlement/WTO/Dispute_Settlement_Listings/asset_upload_file177_10235.pdf and the EC statement can be located at http://trade.ec.europa.eu/doclib/docs/2007/july/tradoc_135386.07.2007.pdf), it might be useful to give a brief insight of the key points emphasized by the parties in the meeting.
In this dispute, the US arguments focus on Parts II and III of the SCM Agreement, which refer respectively to prohibited and actionable subsidies. The US argues in general that a) certain EC member States conferred US$15 billion through Launch Aid Program to Airbus; b) the Launch Aid and other alleged measures (research and development grants, equity infusions, infrastructure and infrastructure-related grants, etc.) constitute subsidies under Art. 1 of the SCM Agreement and c) such subsidies are specific under Art. 2 of the SCM Agreement. Applying this rationale to Part II, the US claims that certain provisions of the Launch Aid are export subsidies and therefore prohibited under Art. 3 of the SCM Agreement, while in relation to Part III of the Agreement the US argues that the subsidies cause or threaten to cause adverse effects to its interests within the meaning of Arts. 5 and 6 of the SCM Agreement. According to the US, the subsidies granted to Airbus produced two main mechanisms of market distortions, namely “the effect of Launch Aid on Airbus’s launch decision, and therefore on the products that Airbus is able to offer” and “the effect of Launch Aid on Airbus’s ability to price aggressively while at the same time maintaining a rapid program of new product launches” (para. 163), resulting in a decrease of Boeing’s market share in the large civil aircraft market. In the second meeting of the Panel, the US oral statement stressed the aforementioned allegations as well as the fact that the European Communities did not dispute the existence of the Launch Aid and other measures nor that these confer a benefit on Airbus’ large civil aircraft production, but rather that they constituted a prohibited or actionable subsidy within the meaning of the SCM Agreement.
By its turn, in its second oral statement the EC asked the Panel to apply agreements not covered by the WTO (such as the 1992 Agreement on large civil aircraft signed between both parties to the dispute and the 1979 Agreement on Trade in Civil Aircraft) rather than relevant provisions of the SCM Agreement or the Agreement itself. Furthermore, the EC argued that many of the financial contributions challenged by the US were conferred up to 40 years ago and to entities that no longer exist due to various corporate restructurings and change of ownership. It also claimed that there was no Launch Aid Program but rather different series of individual loans provided by individual countries in connection with different programs, which therefore could not be characterized as subsidies under the SCM Agreement. Moreover, the EC defended that the infrastructure grant conferred by some of its member States were not specific subsidies to Airbus, but rather aimed at the development of a region. The EC also contested the amount of benefits submitted by the US and the basis for its calculation, presenting much lower numbers, considering that the total amount of support does not exceed 650 million euros, and considering this to be a de minimis level of support. In connection with adverse effects, the EC contested the allegation that the US large civil aircraft producer, namely Boeing, is currently suffering from any adverse effects, since both Airbus and Boeing are competitive duopolies experiencing a demand higher than their production capacity; as a result, as argued by the Executive Vice President of Airbus in its oral statement in the second meeting of the Panel, there is less of an incentive to discount heavily the prices of Airbus aircraft. In relation to adverse effects claimed by the US in the period of 2001-2005, it was claimed that Boeing’s decrease of market share was a result of the 9/11 events combined with Boeing’s lack of focus on its customers’ needs.
Naturally there are many other issues at stake, including the debate around the ordinary meaning of words of certain provisions in the SCM Agreement and how they should be interpreted by the Panel according to each of the parties. The report presented herein simply intends to provide an overall idea about the main issues at stake in the current dispute without exhausting them.
The current dispute is not an isolated case among the parties. It represents another round of the previous dispute between Boeing and Airbus in the sphere of antitrust that took place a decade ago, when the European Commission analyzed the viability of the merger between Boeing and McDonald Douglas. The approval of the merger by EC authorities, after long and highly politicized discussions between the respective governments of the companies, allowed the emergence of the global duopoly of Boeing and Airbus in the market of large civil aircraft. These companies have competed fiercely and the intersection between competition and trade is also visible in the arguments raised by the parties in the present dispute.
Furthermore, the reported dispute is not the only one between the EC and the US related to claims of subsidies to large civil aircraft in the WTO. On the very same day of the submission of the request for consultations by the United States, the European Communities submitted a request for consultation on similar grounds, alleging violation of the SCM Agreement by the United States as a result of subsidies conferred to Boeing, mostly through military contracts (DS317). Later, each party submitted second complaints on the same issue (DS347, submitted by the United States against the European Communities; DS353, submitted by the European Communities against the United States). The current set of disputes seems to be a déjà vu of the Embraer-Bombardier disputes under the WTO, but in a much larger scale: it is expected to be one of the largest and most costly in the history of the WTO.
