The Seemingly Unending Airbus-Boeing War has Entered into its Endgame

The World Trade Organization delivered its judgment on the United States’ complaint against the European Union for illegal government subsidies to Airbus, but the judgment on the European Union’s counter-complaint against the United States for providing subsidies to Boeing is still pending.

By: Eddie Kim, staff member

On October 2, 2019, World Trade Organization (WTO) delivered its judgment on the United States’ complaint against the European Union for illegal government subsidies to the jet maker, Airbus. In its decision, WTO authorized President Trump to impose tariffs on approximately $7.5 Billion worth of European goods—the largest in the trade organization’s history. The judgment on the European Union’s counter-complaint against the United States for providing subsidies to Boeing is still pending.

The Airbus-Boeing dispute was initiated by the United Sates in 2004, when it submitted a complaint to the WTO alleging violation of the Subsidies and Countervailing Measures Agreement (SCM Agreement) and GATT 1994 by the European Union and its member states—namely, France, Germany, Spain, and the United Kingdom. In the same year, the European Union submitted a complaint against the United States for its alleged illegal subsidies to Boeing. The long dispute entered its endgame after multiple decisions by the WTO Panel, appeals to the Appellate body, and commencement of arbitration between the two parties in early 2012. In sum, the designated Arbitrator under the WTO found that subsidies by the European Union to Airbus resulted in adverse effects to the United States’ airline industry within the meaning of Article 7.10 of the SCM Agreement. It authorized the United States’ request to take “countermeasures with respect to the European Union and certain member States” up to “USD 7,496.723 million annually.”

Under Article 1 of the SCM agreement, certain direct and indirect supports—in forms of tax breaks or financial grants among others—by the government entities are deemed subsidies if the contributions result in conferred benefits. Additionally, in order for a complainant to have cause of action, the subsidies must be specific to an industry or an enterprise as defined by Article 2. Such subsidies are prohibited under Article 3 of the agreement, especially if they unfairly advantage the domestic industry of the providing State, creating adverse effects or serious prejudice to the industry of another State. The same agreement also spells out instances when an injured State can be eligible for countermeasures for the damages done.

The initial complaint filed by the United States in 2004 alleged the European Union’s subsidies to Airbus in forms of “Launch Aid” or “Member State Financing” (LA/MSF), loans from the European Investment Bank, infrastructure related grants, corporate restructuring measures, and research and technological development funding. Additionally, it was alleged that these subsidies caused adverse effects to the US interest within the meaning of Article 5 and 6 of the SCM Agreement. Finally, the United States claimed that part of the LA/MSF measures are prohibited export subsidies within the meaning of Article 3 of the SCM Agreement. In 2011, the Appellate Board upheld part of the decision of the Panel that certain LA/MSF and non-LA/MSF measures constituted specific subsidies causing serious prejudice to the interests of the United States within the meaning of Art. 5(c) in the large civil aircraft sector.

Most relevant to the Arbitrator’s decision released on October 2, 2019, is that as of December 1, 2011, the European Union (and the Member States named above) had failed to take appropriate steps to “remove the adverse effects of, or withdraw, the relevant subsidies” in accordance to Articles 7.8 and 7.9 of the SCM Agreement. The Compliance Panel of WTO found this to be true on September 22, 2016, which was upheld by the Appellate Board, albeit based on a narrowed reasoning based on the LA/MSF subsidies for A380 and A350XWB Aircrafts. As of October 14, 2019, the WTO approved the United States’ request for authorization to take countermeasures.

Not surprisingly, the European Union expressed some dissatisfaction in response to the Arbitrator’s decision. Some of the issues pointed out by the bloc was that the Arbitrators did not take into account the fact that Airbus no longer produces the A380 aircrafts and based its judgments on erroneous calculations. As of July 2019, EU has shared proposals with the United States regarding “clearly identified existing identified aircraft subsidies and on future support to [their] respective aircraft sectors.” In the alternative, the EU has compiled a list of U.S. products that it may tariff as countermeasures to the expected tariff imposition by the United States. The final decision on the EU’s complaint is due in 2020. To be sure, WTO has already broadly ruled in favor of the EU, and against the US’s subsidies for Boeing. Thus, the final decision in 2020 will be focused on the amounts of counter-tariffs that may be imposed by the EU. Whilst the judgment of WTO on the EU’s complaint is pending, the United States has started imposing tariffs on European goods as of October 18, 2019. On October 31, 2019, the two parties initiated talks of possible negotiations, but no concrete decisions have been made as of this writing.

Eddie Kim is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. Eddie graduated from University of California, Los Angeles in 2017 with B.A. in Business Economics.