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It's a Bird, It's a Plane: Some Remarks on the Airbus Appellate Body Report (EC and Certain Member States – Large Civil Aircraft, WT/DS316/AB/R)

  • MICHAEL HAHN (a1) and KIRTIKUMAR MEHTA (a2)
Abstract
Abstract

The emergence of Airbus transformed the market structure of the LCA industry into a duopoly of similar-sized full-range manufacturers. The financing of Airbus's upfront investment expenditures came in a significant proportion from public funds, which violated, in the US's opinion the SCM Agreement. While the Appellate Body follows this view of things to a large extent, it does so in a measured way: the category of per se illegal export subsidies is interpreted with a view to the manipulation of normal market conditions; the distortion on competitive conditions matters, not the increase of exports as such. Other aspects of subsidies law clarified are the relationship between effect and subsidy. They are closely related but not identical; rightly, the report operates from the premise that the SCM Agreement's regime focuses on the effect, and not on the subsidy as such, which is a manifestation of a political choice by a sovereign Member state. The Appellate Body affirms that a subsidy has a ‘life’, a shorthand for a beginning and an end: it follows that the effect of a subsidy is not bound to be permanent but is bound to terminate. It is to be regretted that the Appellate Body avoided clarifying to what extent partial privatization, hence sale of assets at market prices to private investors, ‘extinguish’ subsidies.

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1 The notice of appeal is dated 12 August 2010, and the Report was circulated on 18 May 2011. However, it is a fair assumption that the Appellate Body Secretariat was starting to work on this Report significantly earlier.

2 See Douglas A. Irwin and Nina Pavcnik (December 2001), ‘Airbus versus Boeing Revisited: International Competition in the Aircraft Market’, NBER Working Paper No. 8648.

3 European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft – Request for Consultations by the United States, WT/DS316/1.

4 Cf. McGivern Brendan (2010), ‘Aircraft Subsidies and WTO Rules: The Airbus Decision’, 35:4/5Air and Space Law, 305315.

5 Appellate Body Report, Airbus, paras. 571 (issues raised by the European Union) and 572 (issues raised by the United States).

6 For a timely and comprehensive overview, cf. Mavroidis Petros C., Messerlin Patrick A., and Wauters Jasper M. (eds.) (2008), The Law and Economics of Contingent Protection in the WTO, Cheltenham, UK: Edward Elgar Publishing; Bacchetta Marc and Ruta Michele (eds.) (2011), The WTO, Subsidies and Countervailing Measures, Cheltenham, UK: Edward Elgar Publishing; Rubini Luca (2010), The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective, New York: Oxford University Press; Poretti Pietro (2009), The Regulation of Subsidies within the General Agreement on Trade in Services of the WTO: Problems and Prospects, Alphen aan den Rijn, The Netherlands: Kluwer Law International; Adamantopoulos Kostantinos and Pereyra-Friedrichsen Maria Jesus (2007), EU Anti-subsidy Law and Practice, London: Sweet & Maxwell; Benitah Marc (2001), The Law of Subsidies under the GATT/WTO System, Alphen aan den Rijn, The Netherlands: Kluwer Law International; Böhm Fabian (2007), Strukturen internationalen Subventionsrechts: EG-Beihilfenrecht und WTO-Subventionsrecht aus rechtsvergleichender Perspektive, Frankfurt: Peter Lang. For valuable context cf. Stoler Andrew L. (2010), ‘The Evolution of Subsidies Disciplines in GATT and the WTO’, 44:4Journal of World Trade, 797808; Steger Debra P. (2010), ‘The Subsidies and Countervailing Measures Agreement: Ahead of Its Time or Time for Reform?’, 44:4 Journal of World Trade, 779796.

7 Procedurally, it is of great interest to determine whether the decision of the Appellate Body only covers specific subsidies or, rather, a subsidy program. If the latter is the case, new manifestations of that program are covered by the pertinent decision of the DSB and thus allow the complainant to resort to procedures under Article 21.5 DSU, and thus to speedier resolutions. If the former is the case, any dissatisfaction caused due to harm incurred will have to be resolved by a new complaint: see para. 7.514 et seq. of the Panel Report and para. 471 et seq. of the Appellate Body Report.

8 See the wording of Article 5 SCM: ‘No Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members, i.e.: (a) injury to the domestic industry of another Member; (b) nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 1994; (c) serious prejudice to the interests of another Member.’

9 Appellate Body Report, Airbus, para. 655 et seq., in particular 681–690.

10 Ibid., para. 711. As a consequence of the European Union's mistaken interpretation of Article 5 (and 6) SCM, it ‘conflate[d] present adverse effects, which must be demonstrated under Article 6.3, with present subsidization, which need not’ (ibid., para. 712).

11 Ibid., para. 709.

13 [Footnote in the original] For this reason, we disagree with the Panel, at paragraphs 7.224, 7.225, and 7.266 of the Panel Report, insofar as it suggests that a consideration of ‘intervening events’, such as the ‘extinction’ and ‘extraction’ of subsidies, are not relevant under an adverse-effects analysis.

14 Appellate Body Report, Airbus, para. 724.

15 Appellate Body Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R; see Gene M. Grossman and Petros C. Mavroidis (2003), ‘United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom: Here Today, Gone Tomorrow? Privatization and the Injury Caused by Non-Recurring Subsidies’, in Henrik Horn and Petros C. Mavroidis (eds.), The WTO Case Law of 2001, Cambridge: Cambridge University Press, pp. 170–200; see also Shadikhodjaev Sherzod (2012), ‘How to Pass a Pass-Through Test: The Case of Input Subsidies’, 15:2Journal of International Economic Law, 621646.

16 Appellate Body Report, United States – Countervailing Measures Concerning Certain Products from the European Communities, WT/DS212/AB/R.

17 Emphasis added.

18 Appellate Body Report, US–Countervailing Measures on Certain EC Products, para. 127.

21 Appellate Body Report, Airbus, para. 746.

22 Ibid., paras. 836 and 837.

23 Ibid., paras. 923–928.

24 Mavroidis et al. (2008), above note 6, p. 293.

25 For prohibited subsidies, the normal rules of the DSU do not apply. Given that they are ranked at the highest order of WTO violation, deadlines are shortened significantly; cf. Green Andrew and Trebilcock Michael (2007), ‘Enforcing WTO Obligations: What Can We Learn from Export Subsidies?’, 10:3Journal of International Economic Law, 653683.

26 Cf. Reid v. Covert, 354 US 1, at 35–36: ‘military justice has been a rough form of justice emphasizing summary procedures, speedy convictions and stern penalties’.

27 Brazil – Export Financing Programme for Aircraft, Second recourse by Canada to Article 21.5 of the DSU (WT/DS46/RW/2) 26 July 2001 (Brazil–Aircraft (Article 21.5–Canada)).

28 An Illustrative List to the SCM (Annex I) offers a nonexhaustive list of prohibited export subsidies which indicates 12 types of support measures.

29 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R (Canada–Aircraft).

30 Ibid., para. 174 (italics and emphasis in the original).

31 Ibid., paras. 169 and 175. The Appellate Body Report on United States – Tax Treatment for ‘Foreign Sales Corporations’ – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, 55 (US–FSC (Article 21.5–EC)), citing prior relevant case law, provided its understanding of the evidentiary standard associated with a proof that a de jure export subsidy indeed occurred: ‘We recall that in Canada–Autos, we stated: … a subsidy is contingent “in law” upon export performance when the existence of that condition can be demonstrated on the basis of the very words of the relevant legislation, regulation or other legal instrument constituting the measure … [F]or a subsidy to be de jure export contingent, the underlying legal instrument does not always have to provide expressis verbis that the subsidy is available only upon fulfilment of the condition of export performance. Such conditionality can also be derived by necessary implication from the words actually used in the measure.’ US–FSC (Article 21.5–EC II), para. 112; see also Australia – Subsidies Provided to Producers and Exporters of Automotive Leather (Article 21.5 – US), WT/DS126/RW and Corr. 1, adopted 11 February 2000 (Australia–Automotive Leather II (Article 21.5–US)), paras. 9.36–9.66.

32 For an understandably partial and excellent analysis see Flett James (2012), ‘From Political Pre-occupation to Legitimate Rule against Market Partitioning: Export Subsidies in WTO Law after the Appellate Body Ruling in the Airbus Case’, 7:2Global Trade and Customs Journal, 5058.

33 Appellate Body Report, Airbus, para. 1063.

35 Ibid., para. 1064.

36 [Original Footnote 2342] Appellate Body Report, Canada–Aircraft, para. 172 (original emphasis).

37 Appellate Body Report, Airbus, para. 1044 (emphasis added).

38 Appellate Body Report, Airbus, para. 1050: ‘The standard for de facto export contingency is therefore not satisfied by the subjective motivation of the granting government to promote the future export performance of the recipient.’

39 Ibid., para. 1046.

40 Ibid., para. 1050.

41 See the analysis by Konstantinos Adamantopoulos and Vassilis Akritidis (2008), ‘Article 3 SCMA’, in Rüdiger Wolfrum, Peter-Tobias Stoll, and Michael Koebele (eds.), Max-Planck Commentaries on World Trade Law, Vol. IV (WTO–Trade Remedies), Leiden, The Netherlands: Martinus Nijhoff Publishers, pp. 471–486.

42 The Appellate Body subscribes to the notion that assessments should be made in the ‘real world where people live, work and die’: Appellate Body Report, EC – Measures Concerning Meat and Meat Products (Hormones), WT/DS26 and WT/DS48, para. 187.

43De jure export contingency is demonstrated on the basis of the words of the relevant legislation, regulation or legal instrument. Proving de facto export contingency is a much more difficult task’: Canada–Aircraft, para. 169 et seq.

44 Appellate Body Report, Airbus, para. 1049.

45 Emphasis added.

46 Appellate Body Report, Airbus, para. 1053.

47 Public Papers of the Presidents, Dwight D. Eisenhower, 1960, pp. 1035–1040, quoted after http://www.h-net.org/∼hst306/documents/indust.html (last visited 13 August 2012).

48 Article 11 DSU.

49 Sutton John (1998), Technology and Market Structure: Theory and History, in particular Chapter 16, ‘A Complex Case’, on civil aircraft, Cambridge, MA: MIT Press, pp. 415471.

50 Appellate Body Report, Airbus, para. 1119.

51 6.3 Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case where one or several of the following apply: (a) the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member; (b) the effect of the subsidy is to displace or impede the exports of a like product of another Member from a third country market; (c) the effect of the subsidy is a significant price undercutting by the subsidized product as compared with the price of a like product of another Member in the same market or significant price suppression, price depression or lost sales in the same market; (d) the effect of the subsidy is an increase in the world market share of the subsidizing Member in a particular subsidized primary product or commodity as compared to the average share it had during the previous period of three years and this increase follows a consistent trend over a period when subsidies have been granted.

52 Appellate Body Report, Airbus, para. 1158 et seq.

53 Ibid., para. 1203.

54 Ibid., para. 1216.

55 Ibid., paras. 1297–1300.

56 United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R (the Boeing Report), for which the same Appellate Body Members were responsible that had been in charge of the Airbus Report.

57 Cf. Smis Stefaan and Van der Borght Kim (1999), ‘The EU–U.S. Compromise on the Helms-Burton and D'Amato Acts’, 93:1American Journal of International Law, 227236.

58 Cf. above note 43.

59 EC and Certain Member States−Large Civil Aircraft, WT/DS316/17.

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