The WTO and the audacity of primary source documents

Airbus A380 MSN004 F-WWDD

The World Trade Organization appellate body released today a final ruling on the 2004 Airbus launch aid complaint filed by the US on behalf of Boeing. Flightglobal’s reporting on the ruling deputy editor Kerry Reals and mylsef was titled WTO appellate body partially upholds Airbus subsidy ruling, capturing the reaction of the US and European, along with both Boeing and Airbus. To read the complete statements from Boeing and Airbus, you could easily get a very different impression of the final result of the complaint. 
The Boeing take: The World Trade Organization’s Appellate Body today confirmed that Airbus received $18 billion in illegal “launch aid” and other subsidies from European governments.

The Airbus take: The World Trade Organization (WTO) report released today constitutes the final blow to the Boeing-sponsored myth that government support to Airbus somehow caused harm to Boeing.

As often happens, the appellate ruling is far more ambiguous and far from clear cut. Though what is clear is that neither Boeing nor Airbus interpretations of the ruling leave room for nuance, beyond the rhetorical battle. The war of words being what it is, I wanted to step past press releases from airframers and the statements of government officials and provide access to both the summary of the ruling (below) directly from the WTO, a way to read the complete appellate ruling (PDF) and the original October 2004 complaint and complete June 2010 report that inspired the appeal.

Summary of key findings

The Appellate Body today upheld the Panel’s finding that certain subsidies provided by the European Union and certain Member state governments to Airbus are incompatible with Article 5(c) of the SCM Agreement because they have caused serious prejudice to the interests of the United States. The principal subsidies covered by the ruling include financing arrangements (known as “Launch Aid” or “Member state financing”) provided by France, Germany, Spain, and the UK for the development of the A300, A310, A320, A330/A340, A330-200, A340-500/600, and A380 LCA projects. The ruling also covers certain equity infusions provided by the French and German governments to companies that formed part of the Airbus consortium. Additionally, it covers certain infrastructure measures provided to Airbus, namely, the lease of land at the Mühlenberger Loch industrial site in Hamburg, the right to exclusive use of an extended runway at Bremen airport, regional grants by the German authorities in Nordenham, and Spanish government grants and regional grants by Andalucia and Castilla-La Mancha in Sevilla, La Rinconada, Toledo, Puerto Santa Maria, and Puerto Real. The Appellate Body found that the effect of the subsidies was to displace exports of Boeing single-aisle and twin-aisle LCA from the European Union, Chinese, and Korean markets and Boeing single-aisle LCA from the Australian market. Moreover, the Appellate Body confirmed the Panel’s determination that the subsidies caused Boeing to lose sales of LCA in the campaigns involving the A320 (Air Asia, Air Berlin, Czech Airlines, and easyJet), A340 (Iberia, South African Airways, and Thai Airways International), and A380 (Emirates, Qantas, and Singapore Airlines) aircraft.

However, for different reasons, the Appellate Body excluded certain measures from the scope of the finding of serious prejudice. In particular, the finding under Article 5(c) of the SCM Agreement no longer includes the 1998 transfer of a 45.76% interest in Dassault Aviation to Aérospatiale; the special purpose facilities at the Mühlenberger Loch industrial site in Hamburg, Aéroconstellation industrial site and associated facilities (taxiways, parking, etc.) in Toulouse, or the various research and technology development (R&TD) measures that had been challenged by the United States (Spanish PROFIT Programme, grants under Second, Third, Fourth, Fifth, and Sixth EC Framework Programmes; 1986-1993 R&TD grants by French government; Luftfahrtforschungsprogramm I, II, and III German grants; grants by Bavarian, Bremen, and Hamburg authorities; civil aircraft research and development and aeronautics research programmes by the UK government). The Appellate Body also reversed the Panel’s findings of displacement in Brazil, Mexico, Singapore, and Chinese Taipei, and of threat of displacement in India.

Moreover, the Appellate Body disagreed with the Panel’s views on when subsidies can be considered as being de facto contingent upon anticipated export performance. Consequently, the Appellate Body reversed the Panel’s findings that the financing provided by Germany, Spain and the UK to develop the A380 was contingent upon anticipated exportation and thus a prohibited export subsidy under Article 3.1(a) and footnote 4 of the SCM Agreement. The Appellate Body also rejected the United States’ cross-appeal of the Panel finding that it had not been established that certain other member State financing contracts constituted prohibited export subsidies. As a consequence, the Appellate Body reversed the Panel’s recommendation that the European Union withdraw prohibited subsidies within 90 days. The Appellate Body also found that the United States’ claims regarding an alleged unwritten launch aid/member State financing programme were outside its jurisdiction. In addition, the Appellate Body reversed the Panel’s findings regarding the rate of return that a market lender would have demanded for launch aid/member State financing loans because they were not based on an objective assessment; but found that a benefit was conferred even on the basis of the European Union’s calculations. Finally, with respect to the actionable subsidies that have been found to cause adverse effects to the interests of the United States, the Panel’s recommendation that the European Union “take appropriate steps to remove the adverse effects or … withdraw the subsidy” stands.

The Panel in this case was established in July 2005. The Panel circulated its Report to WTO Members on 30 June 2010; and the European Union filed a Notice of Appeal on 21 July 2010.

A separate dispute brought by the European Union against the United States for subsidies allegedly provided to Boeing is currently before the Appellate Body. The panel report in that dispute was circulated to WTO Members on 31 March 2011. Both the European Union and the United States have appealed aspects of that panel report.

6 Responses to The WTO and the audacity of primary source documents

  1. Lee May 19, 2011 at 3:07 pm #

    Very illuminating. My own (admittedly) superficial reading of the various news reports had me feeling that Boeing was about done. One could get a little cynical regarding the WTO.

  2. Gustiewing May 19, 2011 at 5:13 pm #

    It’s time to stop this ridiculous dispute that neither side has the possibility to win outright. There’s nothing to prove or disprove anymore. It’s probably fair to say both sides benefited from subsidies of one type or another, maybe one side more than the other. But hey, are Airbus and Boeing not engineering companies, can’t they sort this out as engineers do and find a satisfactory resolution WITHOUT THE NEED TO RESORT TO GREEDY AND EXPENSIVE LAWYERS AND ACCOUNTANTS? Go to the NEGOTIATION table and find a solution, a compromise like good engineers do even with the most complex of problems. After all, isn’t what they design/build: Aircraft, a design compromise between various disparate factors: weight, strength, comfort, reliability, etc. Go figure!

  3. Kinbin May 19, 2011 at 7:27 pm #

    Following from Gustiewing, its the engineers that need to create “meaningful” jobs and meaning for the lawyers and accountants.

    Or they will end up merely defending ‘alleged rapists’, con artists, and druggie entertainers.

  4. Aero Ninja May 20, 2011 at 2:43 am #

    Gustiewing, the problem with your solution is that it is lawyers and accountants who run the companies demanding the WTO protests, which are then launched by governments run by lawyers and accountants.

    Sort of a Catch-22 there.

  5. Paulo M May 20, 2011 at 5:03 pm #

    The problem with how clear as mud this case has become, and how long it has been going, is that a potential rival could be set up with enough cash and develop a competing aircraft, bring it to the market before the case was concluded.

    Boeing has launched one clean sheet program (787), and several major derivate programs (777F, 747-8F/747-8I) shortly before and/or after it enlisted US government trade representative action at the WTO — and every single one of those will be in service before the WTO has its last words on this huge trade dispute.

    One major emerging economy that used unfair trade rules that allowed domestic companies to gain a competitive advantage over foreign rivals (in effect having the foreign companies transfer/surrender critical design technology), repealed the laws a few years later when trade partners began accessing trade action at the WTO, but critically, when domestic rivals had could stand on their own feet. And saying simply that “trade partner x’s” trade action was illegal because it had repealed the offending laws..

    I wonder if Bombardier is Gamesa today..

  6. Howard May 23, 2011 at 10:25 am #

    What this mainly points out is that the WTO is pretty much incapable of dealing with such detailed, highly complex cases like the Aircraft subsidies. The Appellate Board overturned years worth of work in a matter of weeks. Just shows how screwed up the WTO is.

    In the end it will come down to a negotiated settlement. The EU and US aren’t going to start a trade war over this. It will be very similar to what happened with Canada and Brazil. Both “win”, then stare at each other across a table call the other guy bad names, them merrily carry on doing exactly what they were doing before.