On May 18, 2011, the World Trade Organization’s (WTO’s) Appellate Body published its report, European Communities and Certain Member States—Measures Affecting Trade in Large Civil Aircraft (DS316). The Appellate Body affirmed, for the most part, an earlier ruling by a WTO dispute settlement panel that found various subsidies provided by the European Union and certain of its Member States to aircraft manufacturer Airbus to be WTO inconsistent. However, the Appellate Body overturned several aspects of the panel’s prior decision, most significantly the panel’s finding that Airbus had received prohibited export subsidies for its A380 jetliner. 

The Appellate Body report comes within two months of a WTO panel decision in a parallel case on large civil aircraft (LCA) brought by the European Union against US government-support to Boeing. On March 31, 2011, a WTO panel in that case published its report finding that the United States granted $5.3 billion in WTO-inconsistent subsidies at the federal, state, and local level to Boeing during the period 1989-2006. (For more information, see our article “WTO Panel Issues Ruling on Dispute Concerning US Measures Affecting Trade in Large Civil Aircraft”). The European Union has appealed that decision and a ruling is expected in February 2012. 

In the Airbus case, both the United States and the European Union have claimed victory.

The United States counts it as a win because the Appellate Body backed the panel’s finding that financing and infrastructure measures provided by France, Germany, Spain, and the United Kingdom for the development of several models of Airbus aircraft were inconsistent with the WTO Subsidies and Countervailing Measures (SCM) Agreement. The Appellate Body agreed with the panel that these subsidies caused serious prejudice to the interests of the United States. The Appellate Body affirmed the panel’s finding that the effect of these subsidies was to displace exports of Boeing LCA from markets in Europe, China, Korea, and Australia. It rejected, however, the finding that Boeing was displaced from markets in Brazil, Mexico, Singapore, Taipei, and India. The Appellate Body also upheld the panel’s finding that these subsidies caused Boeing to lose sales related to Airbus’ sales campaigns for its A320, A340, and A380 aircraft. According to the United States, European aid to Airbus amounted to $18 billion in subsidies over the course of 40 years.

For its part, the European Union is touting success because the Appellate Body dismissed the panel’s finding that aid from Germany, Spain, and the United Kingdom for the launch of the A380 constituted prohibited export subsidies under the SCM Agreement. In making this finding, the Appellate Body disagreed with the panel’s analysis of what must be demonstrated to establish that subsidies are, in fact, tied to anticipated exportation, and established a new test for de facto export contingency. The panel had reasoned that, in order to find that the granting of a subsidy is in fact tied to anticipated exportation, a subsidy must be granted because of anticipated export performance. The Appellate Body rejected the panel’s test as too subjective because it focused on the motivation of government officials for granting the subsidy and not on whether the granting of the subsidy was designed to promote future exports. Instead, the Appellate Body stated that a subsidy is de facto export contingent if “the granting of the subsidy [is] geared to induce the promotion of future export performance by the recipient.” Factors surrounding the granting of the subsidy, including its design and structure, must be examined to determine the existence of de facto export contingency. According to the Appellate Body, a subsidy will be found to be de facto export contingent “when the subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy.” In the end, the Appellate Body ruled that there were insufficient facts on the record for it to determine whether the A380 subsidies in question met its new test for de facto export contingency.

Notwithstanding claims of victory by both sides, the Appellate Body’s decision has not ended the transatlantic dispute over government support for LCA. The European Union has 180 days to comply with the ruling, but with the appeal in the Boeing case still pending, the European Union and the United States may try to negotiate a settlement to the dispute. If a settlement cannot be reached, the United States can return to the WTO dispute settlement process to ensure that the European Union fully complies with the Appellate Body’s decision.  

For more information about the matters raised in this Legal Update, please contact Duane Layton at +1 202 263 3811, Paulette Vander Schueren at +32 2 551 5950 or Margaret-Rose Sales at +1 202 263 3881.

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