It is Time for the U.S. and EU to Resolve the Longstanding Disputes on Subsidies to Airbus and Boeing

On October 13, the arbitrator in the European dispute against the U.S. — United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint) — issued the decision on what amount of retaliation the EU is entitled to take based on the failure of the United States to bring itself into compliance with earlier panel and Appellate Body reports. See WT/DS353/ARB, 13 October 2020. The arbitrator found that the EU can take retaliation up to USD 3,993,212,564 each year. Retaliation can be taken on goods, under the SCM Agreement and/or under GATS. The arbitration report is embedded below.

The U.S. had been authorized to retaliate against goods and services (other than financial services) from the EU and certain member states to the tune of USD 7,496.623 million in late 2019, which retaliation is in place. WT/DS316/ARB, 2 October 2019.

The two disputes are the longest running active disputes in the history of the WTO extending over 15-16 years. The US case against the EU and certain member states goes back to 6 October 2004 with the EU case against the U.S. going back to 27 June 2005. The cases have soaked up a huge amount of the capacity at the WTO for disputes over the years and led to large delays for other disputes.

Most outside observers assumed that the ultimate resolution of the disputes would be a reworking of the Agreement on Trade in Civil Aircraft. Sixteen years since the first request for consultations was filed (by the U.S.), it is possible that the U.S. and EU may finally be ready to work through their differences in bilateral talks.

The EU is seeking a removal of the U.S. retaliatory tariffs on EU goods to speed the process, and believes such action is appropriate in light of actions by EU member states to address the subsidies not previously addressed after retaliation was authorized. See European Commission, Directorate-General for Trade, Boeing subsidy case: World Trade Organization confirms EU right to retaliate against $4 billion of U.S. imports, 13 October 2020, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2192.

The United States has a different view of the arbitration decision and notes that the arbitrator did not address the removal of the subsidies in April 2020 — six months before the arbitration decision — by Washington state which subsidies constitute the full basis for the $4 billion retaliation calculation. USTR claims the EU has no basis to retaliate in light of the removal of subsidies and indicates action by the EU would “force a U.S. response.” But the U.S. has also indicated a willingness to find a resolution to the disputes and has put forward a proposal to the EU. See USTR, October 13, 2020, EU Has No Legal Basis to Impose Aircraft Tariffs; WTO Award Relates Only to Now-Repealed Tax Break, Rejects EU Request on Other Measures, https://ustr.gov/node/10267.

The two press releases from today are embedded below.

Thus, despite the public posturing by the EU and the U.S., the stage at last seems to be set for the U.S. and EU to see if they can reach agreement on the road forward with revised agreed rules on subsidization for civil aircraft.

Unlike during the Uruguay Round when the U.S. and EU had the field to themselves at least for large civil aircraft, there are additional players at present and changing market dynamics. Thus, any bilateral agreement between the two, if intended to embrace subsidization rules for civil aircraft by all producers, will need at some point to bring in other WTO Members.

Time will tell whether the long duration of the disputes and the failure to bilaterally resolve the issues years ago will complicate the ability of the U.S. and the EU to achieve a result that each can live with and, as important, which will achieve discipline on other Members’ producers.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

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