Tzvetomira Svetieva
DS-316
Chris Zeek
European Communities
Large Civil Aircraft
Respondent:
European Communities
Complainant:
United States
Third Parties:
Brazil, Canada, China,
Japan, Korea, Australia
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WTO Measures at Issue within
the Agreement on Subsidies and Countervailing Measures
(SCM): Art. 1, 2, 3.1, 3.2, 5, 6.3, 6.4,
I. Launch Aid
II. Infrastructure
III. European Investment Bank
IV. Corporate Restructuring
V. R&D
2
Germany Plans €1-Billion Loan for Airbus A350 (Link)
Wall Street Journal (3.24.10)
(Mar.21.2010)
Plane Poker:Airbus Plays New
Engine Card
September 30,2010 (Link)
Brussels Claims WTO Panel
Backs Case Against Boeing.
Financial Times (September 16, 2010)
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Related Agreements
Agreement on Trade in Civil Aircraft
• 1980 Plurilateral Agreement applicable only to WTO Members
that have accepted it.
• Requires signatories to eliminate tariffs on civil aircraft,
engines, flight simulators, and related parts and components,
and to provide these benefits on a nondiscriminatory basis to
other signatories.
1992 -U.S.-EU Agreement on LCA
•
•
Bilateral Agreement permitting direct, repayable Launch Aid
programs up to 30% of all development costs and indirect aid
up to 3% of domestic LCA industry sales
2004 US unilaterally withdrew and requests WTO consultations
amid declining market shares for LCA, and growing EC support
for Airbus A380/A350 lines
4
Timeline
• October 2004 - US requested consultations with EC.
EC responded with counter-request. (DS-353)
• January 2005 - Consultations Begin
• April 2005- Consultations Fail.
• May 2005 - US files request for panel with Dispute
Settlement Board (DSB) with WTO.
• July 2005- DSB establishes Panel
• March 23, 2010. Final Report Issued by DSB Panel
• July, 2010 Appeals Filed by US and EC
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Determining Subsidy Recipient and Product
Subsidy Recipient: Concluded that Airbus SAS,
Airbus LCA, and Airbus Industrie Consortium
constitute a single entity.
Definition of Light Civil Aircraft: Parties agreed to
define Large Civilian Aircraft (HTC 8802.40) as as large
(weighing over 15,000 kilograms) "tube and wing" aircraft,
with turbofan engines carried under low-set wings,
designed for subsonic flight and transporting 100 or more
passengers and/or a proportionate amount of cargo across
a range of distances serviced by airlines and air freight
carriers.
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7
Scope of Subsidized Product & of “Like Products”
Key U.S. Arguments
1. "Family" Structure enables
shared benefits in marketing,
production, maintenance,
and development
2. Classifications by seating
capacity and aisle numbers are
arbitrary and do not reflect
LCA production, pricing, or
marketing.
Key E.C. Arguments
1. 5 distinctive product markets
of LCA classified along Seat
Capacity and Aisle Count.
2. Different models of Airbus LCA,
benefit from different alleged
subsidies, as separate and
distinct "subsidized products".
3. Corresponding "like product" is
the entire Boeing LCA family
3. No basis for products which
compete in distinct markets to be
grouped together as a single
subsidized product.
4. The Airbus LCA family
competes directly with Boeing
LCA Family.
4. NO "Like Product" exists within
Boeing Family for 2 Airbus LCA.
(A380/A350)
8
Panel Determination
Of the Subsidized Product in Question:
"The United States is entitled to frame its case as it chooses, and
so long as the subsidized product it has identified, Airbus [LCA], does
in fact benefit from the subsidies in dispute, we will not intervene to
alter its identification of the subsidized product."
On Determination of "Like Product": "..there are multiple ways in which
the market for large civil aircraft could be divided into segments, and
there is no obvious or necessary..[reason] that individual Airbus
model families should be considered separate subsidized products
based on the number of seats in each model family.
A single "like product"- comprising all Boeing LCA, corresponds to the
subsidized product defined as ALL Airbus LCA.
9
The United States Defines "Launch Aid" As:
A system of intergovernmental institutions and
dedicated bureaucracies providing preferential
financing designed to offset the enormous
costs and extremely high risks that characterize the
development of LCA.
Launch aid primarily consists of long-term
unsecured loans at zero or below-market rates of
interest, with flexible repayment schedules that are
contingent on the successful delivery of the
financed aircraft.
10
Not "Launch Aid”Member State Financing (MSF)
The EC denies the existence of "Launch Aid" as a cross-country
"program" or "system".
The EC asserts that the terms of each instance of member state
financing are negotiated on a deal-by-deal basis; as a consequence,
they vary considerably depending on the Airbus LCA program at
issue.
According to the EC, the US challenge of a "launch aid program" is
without merit.
"Member State Financing" (LA/MSF) is expressly agreed under the
bilateral EU-US Agreement provides for government funding to
Airbus with loans repaid with interest under terms specified in the
Bilateral Agreement.
11
Launch Aid as Subsidy
Key U.S. Arguments
1. Not individual grants, but ‘Launch
Aid’ program as a whole.
2. Launch Aid as a program is
subsidy within Article 1 of the SCM
Agreement because it provides
financial contribution and
confers benefit specific to Airbus.
3. There is a benefit because
• funds cover extremely high
costs and risks;
• repayment of Launch Aid is
success-dependent;
• repayment of Launch Aid is
back-loaded;
• Launch Aid carries belowmarket interest rates; and
• WTO has already found that
Launch Aid-type financing
confers a benefit.
Key E.C. Arguments
1. E.C. refutes the US portrayal of MSF
loans as a cross-country "program"
or "system.
2. US failure to establish the existence of
a MSF program also means that
Launch Aid cannot constitute a
financial contribution.
3. US failure to establish the existence of
a MSF program also means that
Launch Aid cannot confer a benefit.
4. US erroneously relies on the nature of
MSF loans at issue to assert that
these confer a benefit.
5. The interest rate charged for the loan
is the only measure against which it
can be determined whether individual
instances of MSF loans confer a
benefit.
12
Panel: Launch Aid/MSF
The United States established that:
• Each of the challenged LA/MSF measure constitutes a
specific subsidy within SCM Articles 1 and 2.
• German, Spanish, and UK Launch Aid/MSF programs
directed to the A380 are subsidies contingent
on export performance and are prohibited within
Article 3.1 of the SCM Agreement.
...but failed to establish:
• Existence of specific A350 LA/MSF Programs
• Existence of LA/MSF Program separate from
individual LA/MSF grants and loans.
• Specific Subsidies exist for Airbus LCA models other
than the A380.
13
Infrastructure as a Subsidy
WTO SCM Agreement defines an infrastructure
subsidy as:
1.1
For the purpose of this Agreement, a
subsidy shall be deemed to exist if:
(a)(1)(iii) a government provides goods or services
other than general infrastructure, or purchases
goods;
(b)
and
a benefit is thereby conferred.
14
When is Infrastructure more than just "General"?
EC: Infrastructure is general when it "benefits society as
a whole and reflects legitimate economic development
policies”. Challenged measures constitute "general
infrastructure” because:
(i)
(ii)
(iii)
government actions, related to basic installations,
facilities and services needed to support economic
development;
further public policy objectives
are designated for public use because they are
publicly accessible, because they "enable" members
of the public at large, or because they provide
common goods to the public.
15
...more than just General Infrastructure?
US: "General" infrastructure is infrastructure that is accessible to all
or nearly all users on a universal, non-discriminatory basis, where
there are no limitations on use.
And that:
A.
Infrastructure must include, involve, or affect all or nearly
all the parts of a whole territory or community; or must be
completely or nearly universal, as opposed to partial,
particular, or local.
B.
Infrastructure that includes, involves, or affects only a certain
enterprise or group of enterprises, or that is limited in
application does not constitute "general" infrastructure.
C.
Simply because a government creates infrastructure for
reasons of "public policy" or to "foster economic development"
or to perform a public task does not make it "general”.
16
Determination of "General" Infrastructure:
• No type of infrastructure is inherently "general"
• Determination if infrastructure is "general" is based on case
by case evaluation of whether there exist any limitations on
access to, or use of, the infrastructure:
• Considering the circumstances surrounding the creation of
infrastructure
• Understanding of infrastructure's future use
• Evaluate whether Infrastructure was created for the
particular needs of the entity or group which has the right to
access or use of that infrastructure.
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Determination of Subsidies
Infrastructure as Subsidies
General Infrastructure
- Conversion of previously
protected Mühlenberger Loch
wetlands into an industrial
facility to enable A380
production.
- Road Improvements at ZAC
AeroConstellation facilities
- Lengthened Runway at
Bremen Airport to facilitate
delivery of A380 materials and
equipment (Wings)
- ZAC AeroConstellation/EIG
Facilities
18
European Investment Bank ("EIB") Loans
Key U.S. Arguments
1. "EIB” has subsidized the
development of Airbus LCA.
2. The EUR 700 million EIB
provided to EADS for A380 is
a loan and constitutes a
financial contribution within
the meaning of Article 1 of the
SCM Agreement.
3. The loan confers a benefit
because it is on terms that are
more favorable than those
available in the market.
4. The loan provided to EADS in
2002 is a specific subsidy.
Key E.C. Arguments
1. EC rebuts the US assertions that
the EIB r subsidised the
development of Airbus LCA
through loans provided to EADS.
2. The US failed to establish a case
for repaid EIB loans.
3. EC argues that in any event, the
challenged EIB loans do not and
did not confer "benefits", and
are therefore not "subsidies",
within the meaning of Article 1 of
the SCM Agreement.
4. EIB financing is not specific.
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Panel Determination:
"EIB" Loans as Subsidy
-The panel found that each of the 12 challenged loans provided by the
European Investment Bank (“EIB”) to various Airbus entities between
1988 and 2002 is a subsidy.
- None of these subsidies was specific, and therefore [the panel]
dismissed the US claims in respect of the EIB loans from further
consideration.
20
Corporate Restructuring as Subsidy
SCM Article 1.1(a)(1)(i): Equity infusions among the types of
"direct transfers of funds" constituting financial contribution.
-Plans involved Daimler-Benz AG (Daimler-Benz) acquiring control of
MBB (Deutsche Airbus) through a newly created aerospace
subsidiary, Deutsche Aerospace AG (Dasa).
- US subsidy claims are specific to a portion of the Deutsche Airbus
restructuring whereby KfW acquired a 20% percent equity interest in
Deutsche Airbus in 1989, and the subsequent sale of that interest to
MBB in 1992 at less than market value.
-A series of commitments by the German government significantly
limited any risk to Daimler-Benz.
-Restructuring involved direct transfer of funds benefiting Airbus and
was inconsistent with private investor practices in Germany.
21
R&D Assistance as Subsidy
Key U.S. Arguments
1. E.C. "Framework Programs" subsidize
Airbus by funding its research and
development efforts with grants that
constitute financial contribution
because these grants are among the type
considered as "direct transfers of funds“
in the SCM Agreement.
2. These grants confer benefits because
they "place the recipient in a better
position than the recipient otherwise
would have been in the marketplace."
3. Each Framework Program has a subbudget that is specific to the aeronautics
industry, and because research proposals
must be aeronautics-related.
4. R&D funding in grants that the EC
provides to Airbus under the EC
"Framework Programs" constitutes
specific subsidies.
Key E.C. Arguments
1. US overstated the amount of support
given to Airbus SAS under research
and technology ("R&T") programs.
E.C. demonstrates that the US inflated
the amount of R&T support.
2.
The E.C. asserts that total amount of
R&T support provided to Airbus
between 1995 and 2005 was the
minimum.
3.
EC maintains that E.C. Framework
Programs are not specific. The US
allegation that "aeronautics-specific
sub-budgets exist under each
Framework Program" is factually
incorrect. Specificity must be
assessed for the program as a whole.
22
Panel Determination:
R&D Assistance as Subsidy
The panel found that certain grants are specific
subsidies after determining the amounts of the
challenged grants at issue.
However, the panel concluded that certain grants are
not specific subsidies.
23
Adverse Affects: United States
Subsidies cause adverse effects to its interests within the
meaning of Articles 5(a) & (c) of the SCM Agreement.
Cause or threaten to cause: (i) "injury" to the US LCA industry
and (ii) "serious prejudice" to US interests
Effect of the Subsidies:
(a) Displace or impede imports of US LCA into the EU
(b) Displace or impede exports of US LCA to 3rd Markets
(c) Enable price undercutting by EC LCA as compared with
the price of US LCA in the same market
(d) Cause price suppression, depression, and lost sales in the
same market,[6.3(a), (b) and (c) of the SCM Agreement]
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Adverse Effects: European Communities
• Certain Airbus LCA,(A380/A350) have no competitive
US LCA counterparts
o Subsidies to these aircraft cannot have adverse
effects on US
o No adverse effects to United States' interests
• The effect of any subsides to any of the Airbus LCA
"families" are negligible.
• Any beneficial effects of challenged subsidies were
largely felt decades ago, and are not likely to create
present adverse effects.
25
United States' orders of Airbus and Boeing LCA, 2001-2006
300
250
200
Boeing
Airbus
150
100
50
2001
2002
2003
2004
2005
2006
E.C. LCA Market Share
Market Share (Quantity of LCA delivered in the European Communities)
80%
% LCA EC Market Share
0
70%
60%
50%
Airbus
40%
Boeing
30%
20%
10%
0%
2001
2002
2003
2004
Year
2005
2006
26
Panel: US has Established
• Determined Subsidies worked to displace imports of US
LCA to European Market and constitutes serious
prejudice to US interests.
• Determined Subsidies worked to displace US exports to
3rd Markets. (Australia, Brazil, China, Korea, Mexico,
Singapore, India)
• Contributed to significant loss of sales in the same
market.
Determinations are within the meaning of SCM Article 5(c)
and Article 6.3(b)(c)
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Panel: US has not Established
• Subsidies had the effect of price undercutting.
• Subsidies had the effect of price suppression
• Subsides had the effect of price depression
• That the use of subsidies had caused injury to the US
domestic industry for LCA
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Recommendations
DSU Article 3.8: Where there is an infringement of the
obligations of a covered agreement (SCM Agreement), the
EC and certain member states nullified or impaired benefits
accruing to the United States.
SCM Article 4.7: Panel Recommends that the Members
withdraw the prohibited subsidies. (within 90Days)
SCM Article 7.8: Where any subsidy causes adverse
effects, the members granting each subsidy should "take
appropriate steps to remove the adverse affects" or
withdraw the subsidy.
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QUESTIONS?
Airlines Herald
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