Is the World Trade Organisation Agreement on Subsidies and Countervailing Measures an appropriate...

Is the World Trade Organisation Agreement on Subsidies and Countervailing Measures an appropriate rulebook for the Boeing v Airbus Dispute?

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Introduction

When considering how the World Trade Organisation (WTO) Agreements have

impacted upon the laws and legal systems of the WTO member states it is

necessary to examine the Agreements in practice. A central issue to this analysis is

how the system has responded to the role played by governments in supporting their

own domestic industries. Governmental intervention in the civil aircraft industry is

one area in particular where states have had cause to resort to the WTO in this

regard.

This intervention is explainable in light of the historic role of governments in providing

direct or indirect assistance to the civil aircraft industry, which is arguably necessary

given the enormous development costs in the aircraft industry, as well as national

prestige, export potential, employment and the important overlap with defence

production.1 Irrespective of rationales, GATT/WTO subsidy disciplines as they relate

to the civil aircraft sector have tried to strike a balance between two opposing

considerations. They must constrain government attempts to distort trade in a way

that appreciates the important role governments play in the early development of

enterprise in one of the most capital-intensive industries.

In this essay I hope to examine how the WTO Agreement on Subsidies and

Countervailing Measures (SCM Agreement)2 has impacted upon the laws and legal

1Richard Cunningham and Peter Lichtenbaum , “The Agreement on Trade in Civil Aircraft and other Issues

Relating to Civil Aircraft in the GATT/WTO System” in Patrick Macrory, Arthur Appleton and Michael Plummer

(eds), The World Trade Organization: Legal, Economic and Political Analysis (Springer US 2005) at 1167.

2 Agreement on Subsidies and Countervailing Measures, April 15, 1994, Article 1, Marrakesh Agreement

Establishing the World Trade Organization, Annex 1A. Legal Instruments – Results of the Uruguay Round vol.

31, 33 I.L.M. 81 (1994) [hereinafter ‘SCM Agreement’].


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systems of the WTO member states by analysing the events leading to and the

consequences of the WTO rulings DS316 and DS317/DS353 for both the European

Union (EU) and the United States (US). It has been over ten years since the first

requests for consultations were made and the dispute resolution process is still

ongoing. Each of the complaints have passed the panel3 and appellate4 stages and

both parties have claimed compliance with the findings.5

With the enforcement stage now underway, this essay will focus on the possible

responses of both the EU and the US as they attempt to comply with their obligations

in the aftermath of the latest development in the largest trade dispute in history, the

so called ‘Airbus dispute’. Particular scrutiny will be given to the effectiveness of the

WTO in ensuring compliance with its decisions and whether or not the Agreement on

Subsidies and Countervailing Measures is an appropriate rulebook for the Boeing

and Airbus dispute.

History of the Dispute

Industrie Airbus

“When the European Airbus was first mooted, the Americans first ignored it, then

patronised it and eventually mocked it.”6 But from its humble beginning as the

consortium Airbus Industrie (Airbus) formed under French law in 1970 as a

3 Panel Report, European Communities, WT/DS316/R (June 30, 2010); Panel Report, United States,

WT/DS353/R (March 31, 2011).

4 Report of the Appellate Body, European Communities, WT/DS316/AB/R (May 18, 2011)]; Report of the

Appellate Body, United States, (Second Complaint), WT/DS353/AB/R (March 12, 2012).

5 Communication from the European Union, WT/DS316/17 (December 1, 2011); Communication from the United

States, (Second Complaint), WT/DS353/15 (September 23, 2012).

6 Stephen Aris, Close to the Sun: How Airbus Challenged America’s Domination of the Skies (Aurum Press Ltd

2002) at 65.


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Groupement d'intérêt économique (GIE)7, Airbus was soon causing panic on the

other side of the Atlantic. The American government was to be particularly critical of

what they regarded as the lack of transparency and financial accountability of the

GIE structure8 and had obvious suspicions about an organisation that paid neither

taxes nor published any accounts. The American stakeholders “came to regard

Airbus Industrie as some sort of government-sponsored Trojan horse whose mission

was to defeat the forces of honest American private enterprise in a thoroughly

underhand and un-American manner.”9

The multinational personality of Airbus also lent sway to American fears of the

company being placed on a pedestal by the European Communities (EC) and

becoming its National Champion.10 The objectives of Airbus also lend weight to this

hypothesis, Airbus being founded at a time when American firms controlled over

94% of the market,11 in order to “restore Europe’s position in the civil aerospace

market by offering jet airliners in competition with the three major American airframe

builders: Lockheed, McDonnell Douglas and Boeing.”12 It has been overwhelming

successful in this regard with 41.5% of the market based on aircraft deliveries (to

Boeing’s 43%).

7 The GIE configuration would survive until 2001, when Airbus Industrie was reorganised as a simplified joint

stock company in the form of Airbus SAS.

8 Matthew Lynn, Birds of Prey: The War between Boeing and Airbus (Mandarin 1996) at 122.

9 Aris note 6, at 59.

10 Which it has, see Jason Thompson, “Aerospace and Antitrust: How the European Union Supports its Interests

to the Detriment of United States’ Companies” (2006) 14 U.Miami Int'l & Comp.L Rev. 311 at 311-337.

11 Hans-Joachim Braun, “Innovation in Flight from the Perspective of Europe”, (2003) in Roger D. Launius and

Janet R. Daly Bednarek (eds), Reconsidering a Century of Flight, at 78-79.

12 Steven McGuire, Airbus Industrie: Conflict and Cooperation in US-EC Trade Relations (MacMillan Press Ltd;

1997) at 1.


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Perhaps most importantly Airbus has “become a powerful symbol of what can be

achieved by European political and economic cooperation."13 However, the

symbolism of Airbus was irrelevant across the Atlantic and during the 1970s the US

viewed the fledgling manufacturer “as an example of the unfair and predatory trade

and industrial policies pursued by America’s trading partners that were damaging US

industry.”14 All of this tension reached boiling point in April 1978, when Eastern

Airlines, then one of the biggest American airlines, announced that it would buy 23

A300s from Airbus with an option of nine more in a deal worth $778 million.15 This

sale attracted huge amounts of media coverage in the US and “can be fairly said to

have started the trade dispute”.16

1979 Agreement

In 1979 an Agreement on Trade in Civil Aircraft17 was signed by both parties18 which

sought to clarify the rules governing the industry. It not only brought the aircraft

industry within the scope of the General Agreement on Tariffs and Trade (GATT)

framework, but also included limitations on the extent of state aid. It aims “to

eliminate import duties on all aircraft (excluding military aircraft),”19 but this first

attempt to establish a rule book for both sides was unsuccessful as it had no real

impact on the laws and legal systems of the major signatories: the US and the EC.

13 Ibid, at 2.

14 Ibid.

15 Aviation Week and Space Technology, 108(16), 27 April 1978, at 24; Lynn, note 8 at 130.

16 McGuire, note 12, at 52.

17 Agreement on Trade in Civil Aircraft, 12 April 1979, GATT B.I.S.D. (26th Supp.) [hereinafter ‘1979 Agreement’].

18 The 1979 Agreement now has thirty members: Canada, the European Union (with 20 member states being

signatories in their own right), Egypt, Georgia, Japan, Macao, Norway, Switzerland, Chinese Taipei and the

United States.

19 Rafiqul Islam, International Trade Law of the WTO (OUP Australia and New Zealand 2006) at 479.


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Although a Committee on Trade in Civil Aircraft was established on the pretext of

governing disputes between signatories, “the United States quickly discovered that it

was without teeth; as soon as any cases of what they regarded as unfair competition

were brought, the committee promptly dismissed them. It was soon apparent that the

agreement did not outlaw anything; the Americans had been gulled by some skilled

drafting.”20

The July Agreement

In light of the ineffectiveness of the 1979 Agreement, the rivalry stewed during the

1980s, when “the US government’s approach to the Airbus question was settled.”21

In March 1986 “a high-level negotiating team was dispatched to Europe”22 to begin

talks with EC officials. When these talks broke down in 1991 the second aspect of

the US policy came into play, as the US brought a GATT complaint against the EC,

arguing that the German Government was providing exchange rate guarantees to

Deutsche Airbus in violation of the Subsidies Code (1979 Code) concluded in the

Tokyo Round of GATT Negotiations (1973-1979).23 It was claimed by the Europeans

that the national treasuries lent under just as stringent commercial rules as those

governing large loans from banks in “arrangements strictly comparable to US

companies.”24 However, the US failed to aggressively pursue the action due to the

20 Lynn, note 8 at 192.

21 McGuire, note 12 at 120.

22 David Thornton, Airbus Industrie: The Politics of an International Industrial Collaboration (Palgrave Macmillan

1995) at 135.

23 Ibid, at 137.

24 Bill Gunston, Airbus: The Complete Story (J H Haynes & Co 2009) at 43.


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uncertain definition of the term "subsidy"25 and the fact that domestic subsidies were

neither "per se prohibited ...[nor] expressly actionable" under GATT.”26

In March 1992, the GATT Subsidy Dispute panel ruled in favour of the US,27 but the

EC subsequently blocked the adoption of the report which was possible at that time

under GATT Law. This ability to block the adoption of a report was one of the major

flaws of the GATT and was thankfully discontinued under the WTO system. The US

responded by filing another action before the GATT. Faced with the prospect of

continuously having to block panel reports on it subsidies to Airbus, the EC became

more willing to negotiate. While the dispute slowly made its way through the GATT

procedure both parties entered negotiations and on July 17th 1992 the EC concluded

a bilateral agreement with the US.28

It has been argued that “GATT was central to the conclusion of the 1992

Agreement…its crucial importance lay in the fact that the GATT panel ruled that the

main GATT Subsidies Code could be used to hear aircraft cases.”29 However, it is

submitted that the necessity to pursue such an agreement outside of the GATT

framework so as to guard against the" potential failure of the GATT,”30 was an

equivocal acknowledgment of the perception that there existed many "failures of the

25 See infra at 8-9.

26 Jennifer Manner, “How to Avoid Airbus II: A Primer for Domestic Industry” (1992) 23 CAL.W.INT'LL.J. 139 at

150.

27 German Exchange Rate Scheme for Deutsche Airbus, SCM/142, GATT Panel Report (Unadopted), 4 March

1992.

28 Agreement on Trade in Large Civil Aircraft 17 July 1992, OJ 1992 L 301/32. [hereinafter ‘July Agreement’].

29 McGuire, note 12 at 168-169.

30Shane Spradlin, “The Aircraft Subsidies Dispute in the GATT's Uruguay Round” (1995) 60 J.AIRL. &COM.

1191, at 1207.


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GATT dispute settlement system."31 Furthermore this serves to display that the

1979 Code had no impact on the law and legal systems of the two sides in the

action. The catatonic state of the GATT dispute resolution procedure, in which the

adoption of a report could easily be blocked, meant that the July Agreement even

established a mechanism of dispute resolution outside of the GATT.

Nevertheless “the subsidy dispute with the United States remained far from

resolved,”32 as it was within the framework of the July Agreement that throughout the

1990s Airbus continued to receive the subsidies which the US had expected it to

end. The tipping point for the US appears to have been the “$3.2 billion in launch aid

committed by European Union governments to the development of Airbus A380, an

aircraft designed to compete directly with Boeing's 747.”33 This was a declaration of

war against one of the quintessential symbols of American industrial strength and

provided the US rationale for terminating the July Agreement on 6 October 2004.

It would appear then, that the July Agreement had little impact on the laws and legal

systems of the EC and the US during its brief lifetime, as both Boeing and Airbus

continued to receive billions of dollars in subsidies, both directly and indirectly.

However, before discussing the WTO disputes themselves it is important to examine

the concept of a subsidy under international trade law and the impact of the 1996

SCM Agreement for the EC and the US in the lead up to the dispute itself.

31 Benjamin L. Brimeyer, “Bananas, Beef, and Compliance in the World Trade Organization: The Inability of the

WTO Dispute Settlement Process to Achieve Compliance from Superpower Nations” (2001) 10 MINN.J.Global

Trade 133, at 137.

32 Thornton, Note 22 at 147.

33 George Johnston, “Subsidies to Airbus and Boeing: WTO Compatibility and the Way Forward” (2005) 6

Bus.L.Int'l 293, at 296.


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The SCM Agreement

While a ‘subsidy’ can be defined as a “payment by a government to a firm or

household that provides or consumes a commodity,”34 the role of subsidies remained

undefined for decades:

“In the early years of the GATT, the focus of trade negotiations was on cutting

tariffs… Rules on subsidies, set out in Articles XVI and VI of the GATT,

provided weak multilateral disciplines and authorised GATT Contracting

Parties to take domestic action against injurious subsidies in the form of

countervailing measures.” 35

Although there were some attempts under GATT to tighten up the rules relating to

subsidies through the 1979 Code, significant progress in this area did not come until

the SCM Agreement, which “departs from the sharp distinction between export and

domestic subsidies and instead defines subsidies in terms of a financial contribution

by a government conferring a benefit on the recipient"36 in Article 1(1). Although

lacking a preamble, the main object and purpose of the SCM Agreement has been

determined by the Appellate Body in relation to its text as being “to increase and

improve GATT disciplines relating to the use of both subsidies and countervailing

measures.”37 As such it is clear that the SCM Agreement directly seeks to have an

impact on the laws of member states and does this by splitting subsidies into three

34 Paul Samuelson and William Nordhaus, Economics (19th edn, McGraw-Hill, 2010) at 982.

35 Simon Lester, Bryan Mercurio and Arwel Davies, World Trade Law: Text, Materials and Commentary (2nd edn,

Hart Publishing UK 2012) at 421.

36 Andreas F. Lowenfeld, International Economic Law (Oxford 2002) at 76.

37 Appellate Body Report, United States-Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat

Products from Germany, WT/DS213/AB/R (November 28, 2002) at 73.


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categories: prohibited, actionable, and non-actionable.38 If a WTO member suspects

prohibited subsidies are being provided they can request consultations under Article

4(1), as was done on October 6 2004.

The WTO Disputes

Background

The July Agreement was terminated the same day the US filed its most recent

dispute with the WTO Dispute Settlement Board (DSB). The US requested

consultations39 under Article 3(2) of the WTO Dispute Settlement Understanding

(DSU)40 with the EC, as well as with Germany, France, the United Kingdom, and

Spain. Article 3(2) for the first time codified procedures for members to listen to the

pleas of other member states within 30 days, something which was lacking under the

GATT framework.

The American request was made on the basis that the subsidies to Airbus violated

various provisions of the SCM Agreement41 and Article XVI:1 of the GATT 1994 and

were causing and continuing to cause nullification or impairment of benefits within

38 Ryan Lee, “Dogfight: Criticizing the Agreement on Subsidies and Countervailing Measures Amidst the Largest

Dispute in World Trade Organization” (2006) N.C.J.INT'LL. &COM.REG.at 128.

39 Request for Consultations by the United States, WT/DS316/1 (October 12, 2004).

40 Understanding on Rules and Procedures Governing the Settlement of Disputes, April 15, 1994, Marrakesh

Agreement Establishing the World Trade Organization, Annex 2, Legal Texts-The Results of the Uruguay Round

of Multilateral Trade Negotiations, 1869 U.N.T.S. 400, 33 I.L.M. 1125 [hereinafter DSU].

41 Provision of grants and government-provided goods and services to develop, expand, and upgrade

manufacturing sites for the Airbus A380; provision of loans on preferential terms; assumption and forgiveness of

debt resulting from launch and production and development financing; provision of equity infusions and grants;

provision of R&D loans and grants, and any other measures involving a financial contribution to the Airbus

companies. Furthermore that the launch aid for the A340 and A380 constituted illegal export subsidies

contravening Article 3. All causing adverse effects to the United States in a manner contrary to Articles 5 and 6.


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the meaning of Article XXIII:1. Given the fact that aircraft production in the US

directly or indirectly affects nearly 80 per cent of the economy42 and with a

presidential election impending, it was a challenge motivated by both political and

economic considerations. This challenge was accepted by the EC who also

requested consultations with the US, mirroring the American claim with Boeing

taking the place of Airbus.43

Consultations were held in November 2004 and in January 2005 both the US and

the EC agreed to a framework for negotiating a new bilateral pact. Crucially, unlike

the July Agreement, this pact was to be agreed upon under the auspices of the

WTO. However, they did not reach agreement by the framework’s April 11th deadline

and after the US discovered that EC member states had committed $1.7 billion in

new risk-free launch aid subsidies for Airbus, the US utilised Article 4(7) of the DSU

and requested that a panel be established under Article 6 of same.44 The EC also

alleged similar disparate treatment, namely that Boeing received US$24 billion in

subsidies in the form of contracts with the US military, and tax breaks from the State

of Washington, where the aircraft manufacturer is based and renewed its

allegations45 requesting that a panel be established. 46

42 Raj Bhala and Kevin Kennedy, World Trade Law (1st edn, Lexis Law Publishing 1998), at 1307.

43 Request for Consultations by the European Communities, WT/DS317/1 (October 12, 2004).

44 Request for the Establishment of a Panel by the United States, WT/DS316/2 (June 3, 2005).

45 Subsidies for the production of the Boeing 7E7, NASA and Department of Defence R&D subsidies, Foreign

Sales Corporation/Extraterritorial Income Exclusion Act subsidies, National Institute of Standards and

Technologies subsidies, Research and Experimentation tax credits, NASA procurement contracts and

infrastructure related caused adverse effects to the interests of the EC and material injury or threat to material

injury to the EC large civil aircraft industry contrary to Articles 5 and 6 of the SCM Agreement and Article III:4

GATT 1994.

46 Request for the Establishment of a Panel by the European Communities, WT/DS317/2 (June 3, 2005).


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DS353/317

As regards the EC complaint additional consultations were held on issues the US

had objected to as outside scope on August 3rd 2005 and these panel issues led to

the formation of the DS353 panel which held its meetings in September 2007 and

January 2008. The Panel notified the parties on four occasions that it was going to

require more than the 6 months allowed under Article 12 of the DSU. The Panel

issued its final report on March 31st 2011 and both parties immediately filed appeals.

After holding hearings in August and October 2011, the Appeals Body issued its

report on March 12th 2012 bringing the substantive portion of the DS353 to a close.

DS316

Although the US complaint proceeded quicker, the EC also raised objections akin to

the US objections in DS317. This caused the US to file an additional Request for

Consultations and then ask for a panel to address the matters raised. However, it

allowed this new panel to lapse after the DS316 panel rejected the EC objection to

the temporal scope of the proceedings. The DS316 panel held its meetings in March

and July 2007 and also had to notify the parties on four occasions that it would be

unable to abide by the time requirements set down in the DSU. The DS316 panel

released its final report on June 30th 2010 and both side again filed Appeals. After

hearings in November and December the Appeals Body circulated its report on May

18th 2012. The DSB adopted the Appeals Body report and the Panel DS316 report

as modified, at its meeting on June 1st 2011.


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Compliance Proceedings

The dispute is currently playing out within the sphere of the DSU compliance

procedure. The DSU stresses the importance of implementation: "Prompt

compliance with recommendations or rulings of the DSB is essential in order to

ensure effective resolution of disputes to the benefit of all Members.”47 The SCM

Agreement does not contain a reasonable period of time for prohibited

subsidisation,48 at the panel stage the panellists must instead recommend immediate

withdrawal and a specific time frame for this to happen.49 The DSB continues to

monitor the implementation of the recommendations and rulings50 and any member

may raise the issue of implementation at any time.51 The specific issue and its

implementation will be included on the DSB meeting agenda until the subsidy is

resolved,52 this means that the subsidy issue remains under surveillance even if

measures have been taken for non-compliance.53

It is within this compliance procedure that the effect of the SCM Agreement on the

laws and legal systems of the US and of the EU will now be critically analysed. It is

important to note in this context that prohibited subsidies, under the SCM

Agreement, bypass the twenty day compensation negotiations and proceed with

countervailing measures immediately.54 This can be criticised due to the fact that

47 DSU, note 40, Art 21.1.

48 SCM Agreement, note 2, Art 4.7.

49 Ibid.

50 DSU, note 40, Art 21.

51 Ibid, Art 21.6.

52 Ibid.

53 Ibid, Art 22.8.

54 Ibid, Art 4.10.


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unless the DSB decides by consensus to reject the request for countervailing

measures (which would require the prevailing party to sit by and do nothing), the

request is virtually guaranteed.

Impact of the DS353/317 dispute on the Laws and Legal System of the United

States

Six months after the DSB's adoption of the panel and appellate reports on March

23rd 2012, the United States proclaimed that it had "fully complied with the

recommendations and rulings of the Dispute Settlement Body in this dispute."55 It

stated that NASA and the Department of Defence had revised each of the contracts

found to be in violation of the SCM Agreement, had revised or terminated other

policies and programs, and that the state and local measures were no longer in

effect.56 It additionally stated that through these actions, "any adverse effects of the

subsidies in question have ceased to exist."57 The EC thought otherwise. On

September 27, 2012, it requested authorisation to impose countermeasures against

the United States in the amount of $12 billion annually to address continuing

subsidies and the continuing adverse effects of the covered subsidies.58 It also

requested consultations with the Unites States, the first step in adjudicating

compliance with the WTO's rulings.59

55 Note 5.

56 Ibid.

57 Ibid.

58 Recourse to Article 22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM Agreement by the European Union,

WT/DS353/17 (September 27, 2012).

59 Recourse to Article 21.5 of the DSU by the European Union, WT/DS353/16 (September 25, 2012).


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But what impact will this decision have on the laws of the United States? It is clear

from the Uruguay Rounds Agreements Act (URAA)60 that direct effect of WTO law is

excluded. The URAA does not, however, specifically exclude possible indirect effect

which is important when domestic law is ambiguous and capable of being interpreted

consistently with the WTO agreements. Case law leaves open the question of

whether US courts will require agencies such as NASA or the Department of

Defence to interpret their statutory mandates in relation to Boeing consistently with

the WTO agreements as understood by WTO panels and the Appellate Body. To

date, this has not occurred as both agencies do not wish to so. “However, the

possibility has been kept alive that a US court might, in the future, assess whether

an agency interpretation of its statutory mandate is consistent with the Appellate

Body’s understanding of the WTO agreements…There are strong parallels between

this position and that in the EU, albeit that caution is also required when drawing

analogies.61

Impact of the DS316 dispute on the Laws and Legal System of the European

Union

On December 1, 2011, the EC notified the DSB that it had "taken appropriate steps

to bring its measures fully into conformity with its WTO obligations, and to comply

with the DSB's recommendations and rulings," and that it had removed all subsidies

and adverse effects covered by the DSB's rulings.62 Specifically, it stated that it had

"secured repayment of [Member State Financing (MSF)] loans and terminated MSF

60 Pub.L. 103-465, 108 Stat.4809 (1994), 19 U.S.C.3501 [hereinafter ‘URAA’].

61 Lester et al, note 35 at 129.

62 Note 5.


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agreements, increased fees and lease payments on infrastructure support to accord

with market principles, and ensured that capital contributions and regional aid

subsidies . . . are no longer capable of causing adverse effects."63 However, the

United States disputed that these measures brought the EC into compliance, and

requested authorisation from the DSB to take countermeasures totalling between $7

and $10 billion per year in the form of a suspension of concessions under GATT and

the General Agreement on Trade in Services (GATS).64 The United States also

accompanied this request with a request for consultations to facilitate resolving the

dispute65 and the WTO later referred the matter back to the original panel, at the

United States' request, to determine compliance.

Article 47 of TEU provides that the EU has legal personality just in the same way as

the WTO has, while Article 216 of TFEU deals specifically with the way in which the

EU enters into international agreements. While it is clear that international

agreements can have legal effect given the fact that Article 216.2 of TFEU provides

that these international agreements are binding on the EU and its member states,

the WTO compliance proceedings are likely to have as little effect on the laws and

legal system of the EU as on those of the US.

The exclusion of the direct effect of WTO law before the EU courts is suggested by

the preamble of the Council decision which implemented the WTO Agreement and

its Annexes. This exclusion has been confirmed by the EU courts and the Nakajima

63 Ibid at 4.

64 Recourse to Article 7.9 of the SCM Agreement and Article 22.2 of the DSU by the United States, WT/DS316/18

(December 9, 2011).

65 Recourse to Article 21.5 of the DSU by the United States WT/DS316/19 (December 9, 2011).


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exception has been interpreted restrictively. Under this exception, the general rule is

that GATT and WTO obligations are only binding on EU rules where those rules

have been introduced specifically to implement those obligations such as to permit

the review of EU law in light of WTO law. Therefore on direct effect, the EU position

is very similar to that in the US. This is often a very political issue and in particular

the ECJ position is that the EU will not alter its laws in accordance with the WTO

Agreements unless such an alteration is reciprocated by other members, usually the

US.

Finally, “with regard to indirect via consistent interpretation, the crucial question is

whether this principle will be sued to overturn interpretations of EU law and WTO law

which are preferred by the EU institutions.” 66 As such it is unlikely that the EU will

interpret its laws on subsidies so as to disallow them, as is required under the SCM

Agreement as interpreted by the Appellate Body. As in the US, there is no clear

indication that this has occurred in the EU to date.

Conclusion

It is clear then that despite the threat of using authorised sanctions or countervailing

measures, WTO members can still thwart compliance and leave their laws and legal

systems untouched. Alternatively, when adversaries are both guilty they may choose

to allow no result and affect no changes to laws or legal systems, as in the Canada-

Brazil aircraft dispute.67

66 Lester et al, note 35 at 137-138.

67 Brazil-Export Financing Programme for Aircraft (Brazil- Aircraft); Canada – Measures Affecting the Export of

Civilian Aircraft (Canada- Aircraft).


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The DSU is a significant improvement from GATT and “is a place where the United

States and the European Communities can resolve their trade disputes though third-

party adjudication and still conduct their trade relations effectively and responsibly,

without the need for any special procedures."68 However, the process is flawed and

cannot be applied to large civil aircraft for two reasons: First, all large civil aircraft

manufacturers benefit from subsidies, whether Airbus or Boeing, Bombardier or

Embraer. Alleged subsidy violations can never be defeated when both sides succeed

with their claims. For example, on the 31st March 2011 while Boeing’s press release

stated that the “WTO Ruling Exposes Massive Airbus Advantage From Illegal

Subsidies”,69 Airbus’ declared that “Truth goes public: WTO condemns massive

illegal Boeing subsidies”.70

Secondly, the DSU lacks a reliable compliance mechanism. The remedy for non-

compliance under the DSU is self-help, which is problematic because it relies on the

individual complainant to serve as enforcer when a losing member resists a ruling.

The fact that it is in the best interests of both sides to refrain from engaging in a trade

war results in perpetual noncompliance and the SCM Agreement is less likely to be

enforced. “The presence of a government subsidy is evidence that the State has an

interest in that industry. When a member is devoted to maintaining non-compliant

68William Davey, “The WTO Dispute Settlement System: The First Ten Years” (2005) J.Int. Economic Law 17 at

34.

69 <http://boeing.mediaroom.com/2011-03-31-Boeing-WTO-Ruling-Exposes-Massive-Airbus-Advantage-From-

Illegal-Subsidies>

70 <http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/truth-goes-public-wto-condemns-

massive-illegal-boeing-subsidies/>


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behaviour, the DSU is unlikely to be effective.”71 Furthermore determining

compliance would be very difficult even for a party inclined to do so, due to the

complexity of the case.72 Given that it is now commonplace for countries losing a

case in the WTO to restructure their offending laws superficially and claim

compliance and with both the US and the EU maintaining non-compliance with

religious devotion, their laws and legal systems will remain the same. This will be to

the detriment and benefit of both parties.

71 Lee, note 38, at 153.

72 Nils Meier-Kaienburg, “The WTO's "Toughest" Case: An Examination of the Effectiveness of the WTO Dispute

Resolution Procedure in the Airbus-Boeing Dispute Over Aircraft Subsidies” (2006), 71 J.AIRL. &COM at 228-

230.

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