The first hearings were held last month in the high-profile World Trade Organization (WTO) dispute between the United States and the European Union over subsidies to rival aircraft makers Airbus and Boeing.
After months spent debating how to share information pertinent to the dispute, both sides we able to agree to the public airing of the hearings, although the closed-circuit transmissions were closely censored to protect confidential information.
The Airbus-Boeing dispute began in October of 2004 when the US challenged so-called ‘launch aid,' provided by several European governments and the EU itself to Airbus to help it develop new aircraft.
Almost simultaneously the EU commenced a similar WTO claim alleging illegal hidden subsidies being provided to Boeing at the US federal and state levels. The first written submissions were recently filed in this case, and hearings are expected to be held in July.
In its claim the United States argues that the aid provided to Airbus breaches WTO rules because it was given in the form of loans that are only repayable if the new aircrafts being funded turn a profit. According to the US, with the benefit of this aid Airbus does not take a commercial risk when attempting to design and develop new aircraft, something which gives it an unfair advantage over Boeing.
For its part, the EU claims that the loans provided to Airbus by it and member states are given under commercial terms and are therefore legal. According to the EU, Airbus has borrowed 11 billion Euros since 1992 and has repaid 13 billion Euros so far, while continuing to repay loans at the rate of 300 to 400 million Euros a year.
Furthermore, the EU says the loans given to airbus since 1992 were legal under the terms of the bilateral EU-US Agreement on Trade in Large Civil Aircraft signed in 1992.
"This form of support is expressly agreed under the bilateral EU-US Agreement and has been used on three of the nine Airbus aircraft launched since 1990. It provides for government funding to Airbus repaid with interest under terms specified in the Bilateral Agreement (loan rates of return are cost to government plus 1%, and interest and principal is repaid on deliveries, even before the programs break-even)," says the EU in a recent press release.
The treaty, which limited the subsidies each party could provide to its respective aircraft maker, bound the two countries until the United States unilaterally withdrew in the summer of 2004, shortly before beginning its WTO claim.
The EU has called the US's withdrawal from the agreement unjust, and in a transcript of the recent hearings EU representative Pieter Jan Kuijper accused the US of attempting to re-write history by challenging as prohibited subsidies financing which it approved of under the agreement.
A problem with the EU's argument, which is being exploited by the US, is that WTO precedent prevents panels from looking at agreements outside the WTO framework. If this is applied strictly the fact the EU and US had an agreement making these subsidies legal between them, will be of no concern to the panel.
The US for its part claims that it approached the EU in 2004 looking for a new agreement that would end launch aid and other subsidies; it further contends that it was forced to withdraw from the existing bilateral agreement when the EU refused to negotiate and instead committed to new subsidies for Airbus's newest model the A350.
Subsidies to goods under the WTO are governed by the Agreement on Subsidies and Countervailing Measures (SCM Agreement). Generally, the agreement defines a subsidy as a ‘financial contribution' by a government or public body which confers a benefit.
The SCM Agreement divides subsidies into three categories: prohibited, actionable, and non-actionable. Prohibited subsidies are banned outright; actionable subsidies are allowed but may permit other countries to launch protective measures against the offender, while non-actionable subsidies are permitted.
In its claim the US is alleging several violations of the SCM agreement. In particular the US says that launch aid provided for the development of the A340 and A380 aircraft violates Article 3 of the SCM Agreement, which deals with prohibited subsidies.
Article 3 defines prohibited subsidies as those tied to export performance or the use of domestic over imported goods. The US argument is that the launch aid provided for the development of the A340 and A380 is tied to export levels because Airbus has to export these aircraft in order to turn a profit on them so that it can pay back the loans.
The US is also claiming violations of Articles 5 and 6 which deal with actionable subsidies. Articles 5 and 6 define actionable subsidies as those that cause ‘adverse effect' to other members.
The US argues that EU launch aid is causing it adverse affects by making Airbus more competitive in relation to Boeing. If the panel does find adverse effects, the US may be authorized to take countermeasures such as imposing duties on EU aircraft. The EU says that these US arguments are undermined by the "economic reality, as Boeing is in excellent financial health."
(For more information on the Airbus-Boeing dispute go to the WTO site at: http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm - the US dispute is listed as DS316, while the EUs counter claim is listed as DS317)
