The U.S. case against the EU
In 1992, the U.S. and the EU signed a bilateral agreement on government support for large civil aircraft permitting Airbus to receive loans up to 33% of the development costs of a programme and Boeing to receive direct grant subsidies up to 3% of the U.S. civil aviation industry turnover.
On 6 October 2004, Boeing prompted the U.S. to unilaterally and unexpectedly withdraw from the 1992 agreement and to file a complaint at the WTO over all EU support ever granted to Airbus. The U.S. – and Boeing – claimed that Airbus receives billions of WTO-inconsistent subsidies even though much of the support had previously been agreed to by the U.S. in the 1992 Agreement.
After years of proceedings, in 2010 and 2011 a WTO panel and then the WTO Appellate Body respectively found that the loans provided by the EU countries were (1) not prohibited, and (2) only constitute a subsidy if the interest rate due is below market rates. It also found that all research and development programmes in the EU are fully compatible with WTO rules and rejected the U.S. challenge to support for the A380 production sites in France. The WTO found that other capital contributions to Airbus made in the 1980s, and infrastructure support, were actionable subsidies. And it found that Boeing had lost a number of sales, and had lost some market share, as a result of the EU support. The WTO directed the EU to either (1) withdraw the remaining subsidies, or (2) remove the effects of the subsidies.
In response, in December 2011, the EU presented a comprehensive set of actions taken to address the WTO findings and recommendations. The U.S. asserted that the EU had failed to comply. And WTO proceedings were launched to review the EU’s measures taken to comply.
The resulting compliance proceedings concluded in May 2018. The WTO Appellate Body found that the EU had complied with the WTO findings with respect to the loans for the launch of the A300, A310, A320, A330 and A340 programmes. And it rejected repeated U.S. claims that loans for the A380 and A350 XWB were prohibited. As such, the only programmes that were still subject to WTO recommendations was support for the A380 and A350.
The EU therefore took a number of additional measures to comply with the WTO Appellate Body findings. A WTO compliance panel was established to assess whether there still is a subsidy element in the loans, and whether that subsidy element has an impact on Boeing.
Refusing to wait for the outcome of those compliance proceedings, the U.S. requested authorisation from the WTO to apply countermeasures on the EU, commensurate with its estimate of the effects of the EU subsidies (USD 10 billion per year). In October 2019, the WTO – refusing to take into consideration the deliberations of the ongoing compliance panel – authorised the U.S. to impose tariffs on USD 7.5 billion worth of EU products, on an annual basis. As a result, on 18 October 2019 – despite the ongoing compliance proceedings, U.S. airlines overwhelmingly imploring the U.S. administration not to do so, and the EU offering to settle this case – the U.S. imposed 10% tariffs on aircraft from the EU, as well as 25% tariffs on a range of other products from the EU.
In the meantime, the WTO compliance panel issued its report on 2 December 2019. It found that, because the A380 no longer is being marketed, the loans provided for its development no longer cause Boeing to lose sales. Consequently, the USD 7.5 billion in tariffs the U.S. was authorised to impose in October should immediately be reduced by the value of lost sales no longer found to exist. The panel also found that the amendments made to the A350 loan agreements are not sufficient to fully align the loans with market conditions. The EU does not agree with the legal and factual findings that are the basis for the panel’s conclusion and therefore appealed the decision. Unfortunately, as the US is blocking appointment of judges at the WTO, that appeal is now stuck and cannot proceed. As such, the EU cannot obtain the confirmation from the WTO that it has taken appropriate measures to comply with the WTO recommendation.
In an effort to get out of this impasse, bring an end to this dispute and remove any justification for the US to apply tariffs on EU goods, in July 2020 Airbus decided to amend the French and Spanish A350 RLI agreements to what the WTO considers the appropriate interest rate and risk assessment benchmarks. In so doing, Airbus has demonstrated that it has left no stone unturned to find a way towards a solution.
The December 2019 report of the WTO compliance panel that found the amendments made to the A350 loan agreements were not sufficient to fully align the loans with market conditions, could be appealed by the EU or the U.S. However, as USTR is blocking the appointment of WTO Appellate Body judges, the appeal may not be heard until USTR agrees to unblock the situation.
In parallel, in October 2020, the WTO announced its decision that the European Union will be authorised to impose tariffs on USD 4 billion of US goods exported to the EU every year, including Boeing aircraft.
Why does free trade matter to Airbus?
Why did Boeing/USTR launch this dispute?
What’s happened lately in this dispute?
Who wins in this dispute?
Is there any way out of this?
Airbus is a global actor, with production worldwide. It invests in its communities to be close to its customers. It inaugurated its its Final Assembly Line at Tianjin, China, in 2008. And in 2015, Airbus opened its first commercial aircraft production site in Mobile, Alabama. This site is a USD 600 million, 53-acre site that produces up to 60 A320 family aircraft per year. Mobile also is where the final assembly line for A220 family aircraft destined for U.S. markets is located. Airbus’ presence in the U.S. and the overall U.S. aerospace industry is massive. And any restrictions on the sale of Airbus aircraft, have a direct impact on the communities where Airbus does business, such as Alabama and Tianjin.
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