WTO Panel Rules on US Compliance In the Boeing Dispute
(Source: World Trade Organization; issued June 9, 2017)
• ASCM Art. 3.1(a) (prohibited subsidies – export subsidies): The Panel upheld the EC claim that FSC-related subsidies provided to Boeing were inconsistent with Art. 3.1(a), but rejected the EC claim that certain Washington State tax measures were contingent upon export performance. These findings were not appealed.
• ASCM Arts. 5(c) and 6.3 (serious prejudice – displacement, lost sales and price suppression): The Appellate Body agreed with the Panel, although for different reasons, that the NASA and USDOD measures enabled Boeing to launch its technologically advanced 787 in 2004, thereby causing significant lost sales in sales campaigns in Australia, Iceland, Kenya and Ethiopia; threat of displacement and impedance in Australia; and significant price suppression.
With respect to the tied tax subsidies, the Appellate Body reversed the Panel’s findings of serious prejudice and completed the analysis to make a more limited finding that these measures caused significant lost sales to Airbus in two sales campaigns in the 100-200 seat LCA market.
The Appellate Body further conducted a collective assessment of two groups of subsidies namely, the “remaining subsidies” and tied tax subsidies. The Appellate Body found that the price effects of the industrial revenue bonds issued by the City of Wichita (one of the remaining subsides) complemented and supplemented the price effects of the tied tax subsidies, thereby causing serious prejudice within the meaning of Art. 6.3(c) in the 100-200 seat LCA market.
• ACSM Arts. 4.7 (recommendation to withdraw a prohibited subsidy) and 7.8 (remedies – to remove adverse effects or withdraw the subsidy): Having found that the recommendations in prior related cases (see US – Tax Treatment for “Foreign Sales Corporations”) remained operative, the Panel refrained from making any new recommendation under Art. 4.7 in respect of the FSC-related subsidies provided to Boeing.
The Appellate Body took note of this, and stated that to the extent it upheld the Panel’s findings with respect to actionable subsidies that caused adverse effects or such findings had not been appealed, the Panel’s recommendation pursuant to Art. 7.8 stands. Art. 7.8 provides in relevant part that “the Member granting each subsidy found to have resulted in such adverse effects, ‘take appropriate steps to remove the adverse effects or … withdraw the subsidy’”.
3. OTHER ISSUES
• The initiation of procedures under ASCM Annex V: The Appellate Body interpreted para. 2 of Annex V to mean that the DSB’s initiation of the information-gathering process in a serious prejudice dispute occurs automatically when there is a request for its initiation and the DSB establishes a panel; there is no requirement of positive consensus to initiate such a procedure.
Click here for the WTO’s June 9 statement, on the WTO website.
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EU Secures Another Important Win In the WTO Boeing Dispute
(Source: European Commission; issued June 9, 2017)
The WTO ruling confirms that the United States has taken no appropriate action to comply with its obligation to withdraw subsidies declared illegal by the WTO's Appellate Body in 2012, or to remove their adverse effects.
Today's ruling backs the EU position, finding that the US has not only failed to remove the existing subsidies but has extended them and added significant new distorting subsidies, including incentives from South Carolina and a US Federal Aviation Administration R&D programme. The panel also found that US subsidies to Boeing continue to cause severe damage to Airbus in lost sales and market opportunities.
‘Today's ruling is another victory for the EU, its industry and EU workers in this strategic sector. The panel agrees that the US has simply ignored existing WTO rulings and has continued to subsidise Boeing,' said EU Trade Commissioner Cecilia Malmström. ‘We will continue to firmly defend our industry to ensure we have a level-playing-field. EU companies must be able to compete on fair and equal terms. Today's panel report is an important step in that direction.'
In 2012, the WTO ruled that the United States had granted massive subsidies to Boeing in violation of WTO rules. Between 1989 and 2006 Boeing benefited from NASA, US Department of Defense and Washington State/Kansas subsidies totalling over $5 billion. The subsidies allowed Boeing to sell its aircraft more cheaply, to the detriment of Airbus. The illegal subsidies include export support, direct grants, free access to facilities, technology transfer at no cost, and tax abatements.
Today's findings add to another WTO ruling of November 2016 in which – for the first time in the aircraft disputes – the WTO found the US guilty of providing prohibited subsidies to Boeing of around $5.7 billion. These subsidies by Washington State were conditional on the use of domestic over imported goods. Under WTO rules, these are the worst kind of subsidies and they caused further severe harm to Airbus' market position.
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In Major Win for the United States, WTO Compliance Panel Rejects 28 of 29 EU Claims
(Source: U.S. Trade Representative; issued June 9, 2017)
The panel found only one state-level program, which had an average value of $100-110 million in the 2013-2015 period, to be contrary to WTO rules. The United States disagrees and plans to appeal this limited finding.
The findings today are in sharp contrast to another panel’s report last year in the United States’ dispute concerning the EU’s “launch aid” and other subsidies to Airbus. In September of 2016, that WTO panel found that the EU failed to remove existing WTO-inconsistent subsidies and had further breached WTO rules by giving Airbus billions of dollars in additional subsidies, which continue to cause tens of billions of dollars in harm to Boeing.
“For years, European governments have tried to justify their massive subsidization of Airbus by falsely claiming a need to offset U.S. subsidies to Boeing,” said U.S. Trade Representative Robert Lighthizer. “The WTO report confirms what we have always said: the United States does not provide subsidies even remotely comparable to the uniquely large and uniquely harmful EU subsidies to Airbus. It is time for the EU to stop making excuses and instead to join us in negotiating a settlement to remove all WTO-inconsistent subsidies so that our world-class aircraft manufacturers can compete on a level playing field.”
Under WTO rules, the panel report will be adopted if either party so requests within 60 days of the report’s circulation, or either party may appeal the report before it is adopted.
Background
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.
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.
The United States’ Claims Against the EU
In 2011, the WTO found that the EU provided Airbus $17 billion in subsidized financing from 1968 to 2006, and that European “launch aid” subsidies breached WTO rules because they were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and to lose market share throughout the world.
In response, the EU removed two minor subsidies, but left most of them unchanged. The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for the A350 XWB.
The United States filed a complaint in March 2012 alleging that the EU not only had failed to comply with the WTO’s findings but had further breached WTO rules through the new subsidized financing for the A350 XWB.
The WTO established a compliance panel to evaluate that question, leading to findings issued in September 2016 that the EU had not taken any affirmative steps to withdraw its earlier subsidies and had granted new subsidies that caused tens of billions of dollars of adverse effects to Boeing, bringing the total of subsidized financing of Airbus to $22 billion. The EU appealed that compliance panel report; the matter is still pending before the WTO Appellate Body.
The EU’s Claims Against the United States
The report issued today has its origins in the EU’s original 2004 case alleging the U.S. provided unlawful subsidies to Boeing. In that case, the WTO found that the United States provided Boeing with $3.2-4.3 billion in subsidized research and development funding and income tax benefits, with far more limited market effects than the EU’s subsidies to Airbus.
In response to the WTO’s findings, the United States modified the research and development funding and revoked the income tax benefit to remove any adverse effects to the EU. The EU then filed a complaint in October 2012 alleging that the United States failed to comply with the findings against it. The WTO established a compliance panel to evaluate that question, resulting in the report issued today which rejects 28 of 29 EU claims.
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WTO Condemns Boeing’s Non-Compliance and New Subsidies
(Source: Airbus; issued June 9, 2017)
-- Today’s WTO compliance panel report finds Boeing subsidies causing Airbus to lose hundreds of aircraft sales with an estimated value of US$ 15-20 billion
-- Illegal subsidies to Boeing have, over time, resulted in over US$100 billion in total lost sales for Airbus
-- Harm to Airbus will only increase if dispute is pushed out further, in case of likely U.S. appeal
TOULOUSE, France --- The United States has failed to comply with WTO rulings in the more than decade-long ongoing transatlantic battle over commercial aircraft subsidies. This was reported today by the World Trade Organization’s (WTO) Compliance Panel in the DS353 dispute (EU vs U.S.), which relates to billions of dollars in subsidies granted to The Boeing Company.
In March 2012, the WTO’s Dispute Settlement Body ruled that a number of subsides provided by the U.S. to Boeing were illegal, and were to be withdrawn within six months, or alternatively that their adverse effects were to be removed. In September 2012, the U.S. claimed that it had taken all necessary steps to achieve compliance. Today, the EU prevailed in demonstrating the continuing existence of a number of illegal subsidies, including R&D support provided by NASA and the Department of Defense (DoD), and the multi-billion dollar tax breaks from Washington State. The EU has also prevailed in demonstrating continuing adverse effects caused by some of those subsidies.
For a further five years, and by failing to comply with the WTO rulings, the U.S. has continued to provide tremendous benefits to Boeing in the form of unfair and anti-competitive subsidies, resulting in an additional loss of sales of at least 300 aircraft, with an estimated value of US$ 15-20 billion.
In total, combining this with the WTO’s ruling at the end of 2016 in the DS487 dispute, addressing the illegal subsidies for the 777X, as well as prior rulings in DS353, the total impact of the subsidies is estimated to add up to US$ 100 billion in lost sales to Airbus.
Tom Enders, CEO of Airbus, stated: “The amount of money involved completely distorts trade. There is absolutely no place for these unfair and anti-competitive practices in today’s modern and dynamic global marketplace, and the WTO should make it clear that no government or company can escape from their international responsibilities”.
Enders added: “I salute the EU for what again is a great victory for fair trade in commercial aviation. The clarity provided by the WTO in continuous rulings over a decade is impressive and far reaching: First, the WTO stated that the US subsidy system provides largely for illegal grants while the European reimbursable launch investment system based on loans is principally compliant with international trade law.
“Today, the WTO panel has demonstrated how Boeing continues to seek the benefits from this extensive illegal support, at the great expense of a level playing field in the worldwide aviation industry.”
After the original ruling was published in 2012, the U.S. further increased their subsidies to Boeing, with measures such as the provision of incentives for the production of the 787 in South Carolina, U.S. Federal Aviation Administration funded R&D programmes, increased tax reductions from Washington State, and the award of additional NASA and DOD R&D funding and support. Today, the Panel agreed with the EU that it was correct for these additional measures to be included within the scope of the proceedings.
The Panel found that the non-withdrawn subsidies continue to cause adverse effects in the form of significant lost sales for Airbus. In particular, the Panel found that the B&O tax reductions from Washington State caused Airbus to lose at least US$ 16 billion worth of sales to Boeing. This finding could ultimately lead to the imposition of billions of dollars worth of trade sanctions against the U.S.
It is expected that today’s ruling will be appealed. However, there is no indication that U.S. arguments will be any different from the ones advanced before, despite the clear position of the WTO. With the additional time the U.S. will be buying with any such appeal, the harm to Airbus caused by subsidies will only continue to increase.
Fabrice Bregier, COO of Airbus, commented: “Over the course of this seemingly never-ending dispute with Boeing, it has become very clear that Boeing is using these cases for PR and Lobbying purposes rather than enabling a serious discussion on a level playing field in the commercial aircraft sector. That is not only regrettable but will soon be seen as a shot in their own foot in light of the current and future competitive environment in our industry.”
The first half of 2017 has seen the large commercial aircraft market move into unchartered territory. While we saw the first flights of new market entrants C919 and MC-21 took place, Boeing filed a local trade remedies petition at the US International Trade Commission against Bombardier, with the intention to exclude the C Series from the U.S. market.
“It seems to be clear that Boeing is doing all it can to maintain the status-quo from which it has illegally profited for all these years. Airbus looks forward to the day that this ridiculous dispute can be put to bed and we can focus our full attention on investing in further innovation and engaging in healthy competition,” Bregier added.
Airbus would like to take this opportunity to congratulate the European Commission and the governments of France, Germany, the UK, and Spain for their continued success at the WTO. Airbus is extremely grateful for the inordinate number of man-hours and immense effort which have been invested in this dispute so far.
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Boeing Thanks U.S. Trade Representative for Winning Major WTO Compliance Ruling
(Source: Boeing Co.; issued June 9, 2017)
"Today, the EU and Airbus suffered yet another resounding defeat in this decade-long dispute. It is finally time for them to comply with their global trade obligations and eliminate and remedy the $22 billion of launch aid and other illegal subsidies that are harming U.S. aerospace companies and American workers," said Boeing General Counsel J. Michael Luttig.
The World Trade Organization (WTO) confirmed that the United States has complied with virtually all of the WTO's decision in the counter-case the EU filed against the United States in 2006. The EU and Airbus claimed in this case that Boeing benefitted from tens of billions of dollars of subsidies and focused their arguments on research and development contracts that Boeing received from the National Aeronautics and Space Administration and the Department of Defense.
"The WTO again categorically rejected Europe's and Airbus' claims. The WTO originally dismissed 80 percent of the allegations the EU first made, and today stated unequivocally that the United States has complied with virtually all of the WTO's findings on the remaining amount," Luttig said.
In addition to holding that the U.S. had complied with its prior ruling concerning various U.S. government research and development contracts with Boeing, the WTO today also dismissed EU claims against the investment incentives Boeing received in South Carolina, other older state and local tax incentives, the FAA CLEEN program, and seven of eight tax incentives from Washington State.
"Today's ruling on U.S. compliance stands in sharp contrast to the WTO's finding last September that the EU had done virtually nothing to comply with the WTO's decision against the illegal, market-distorting launch aid subsidies provided to Airbus for 40 years. On top of that, the WTO also found that the EU has continued to make even more illegal subsidies to Airbus by providing launch aid to yet another product, the A350," Luttig continued.
"The United States and Boeing are committed to abiding by WTO rules and proving it with action. It's time now that the EU and Airbus step up to their WTO obligations – or face significant U.S. sanctions in the year ahead," he said.
Under WTO rules, tariffs for non-compliance are levied based upon the harm the subsidies are causing annually, which USTR in this case estimates is in the $7-10 billion range.
"Airbus and its government sponsors have come to the end of the road. The WTO has now said the EU has provided Airbus $22 billion in illegal subsidies and they have refused to eliminate or remedy those illegal subsidies, as they are required to do. The WTO has also now said that the US is virtually in full compliance with its obligations and the WTO's rulings. It is past time for the EU and Airbus to comply with the WTO's rulings," Luttig said.
Luttig also stressed the vast difference in the WTO subsidy findings against the United States versus Europe. The sole remaining investment incentives found to be inconsistent with the WTO rules—a reduction in Washington state's business and occupancy tax rate for aerospace—amount to a cut in the tax to be paid of around $100 million a year. In contrast, the WTO has found repeatedly that Airbus has benefitted from $22 billion in illegal EU subsidies.
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