The Trade Dispute DS353 United States - Measures Affecting Trade in a Large Civil Aircraft

Outline of the Problem

There are certain issues regarding the law and the legal interpretations that the European Union and the United States appeal, that were developed by the Panel Report, regarding the trade dispute DS353 United States-Measures affecting trade in a large civil Aircraft-Second complaint. The complainant was the European Union, and the Respondent was the United States (World Trade Organization 1). The third parties in the panel include Brazil, Australia, Korea, Japan, Canada, and China. The panel was created on 17th February 2006 to consider the complaint that the European Union presented regarding the number of measures the United States, that affected trade in large civil aircrafts (LCA).

The claim was that the United States provided subsidies to their local producers of LCA, including Boeing Company and McDonnell Douglas Corporation, before it was merged with Boeing and such subsidies were prohibited as well as actionable under the Agreement on Subsidies and the Countervailing Measures (SCM Agreement) (World Trade Organization 1). The claims that were presented by the European Union to the panel all related to the measures from the three US states and municipalities, as well as US Federal Government measures, that provided Boeing subsidies. These measures resulted in Boeings LCA division getting subsidies of up to $19.1 billion between 1989 to 2006. There were also estimations form the European Communities that Boeing would get an additional $4.6 billion in subsidies if the measures are pursued between 2007 and 2024 (World Trade Organization 1).

The European Communities claim before the panel was to find the fact that the United States had acted inconsistently with the SCM Agreement obligations, that the various measures provided by the US Federal Government and the States of Kansas, Illinois, Washington and its municipalities provided actionable subsidies to Boeing LCA division, hence causing prejudice to the European Community interests, in terms of price suppression, lost sales, displacement and impedance and the significant suppression in terms of price with regards to the future orders of Airbus families of LCA (World Trade Organization 1). The third complaint was that the United States acted inconsistently with the obligations regarding the support to the LCA industry developed in 1992 Agreement between the European Community and the United States government, regarding GATT Agreement application on trade on civil aircraft and trade in large civil aircraft.

The Panel issued a report, and were not satisfied that the European Communities established state measures constituting subsidies within the SCM Agreement in the following: The Washington States sales tax exceptions in construction services as well as equipment, leasehold tax exemption and the State of Kansas assurance of the KDFA bonds. Areas found within the Federal Government that constituted subsidies with meanings of Articles 1 and 2 of the SCM Agreement include NASA payments made to Boeing for procurement contracts under aeronautics, and its facilities, USDOD payments to Boeing for 23RDT&E programs as well as access to its facilities and the tax exemptions and exclusions provided to Boeing under the FSC/ETI legislation (World Trade Organization 1). With regards to these reports, the Panel was not persuaded that the European Communities demonstrated that these measures constituted specific subsidies.

Stakes based on Outcome

The panel concluded the following based on European Community claims: that the aeronautics and R&D subsidies was a threat to displacement and also impedance of the European Community exports from the third country markets; that the effects of FSC/ETI subsidies and the Washington State B&O tax subsidies in a single 100-200 seat single isle LCA product market would suppress Airbus prices in sales, considering that it competed with Boeing, hence causing it to incur a drop in sales and to displace and impede exports from the European Communities to the third world country markets (World Trade Organization 1). Insufficient evidence was found regarding the effects of B&O tax reductions on their own. Other findings indicated that subsidies of the B&O tax alone affect the prices of Boeing 787 as it would be suppressed significantly causing significant lost in sales, or rather displacement or impedance of European Communities imports to the United States or its exports to third countries. The Panel was dissatisfied with the fact European Communities had presented that through the effect Boeing LCA pricing behavior, the subsidies would cause serious prejudice to the interests of the European Communities in any of the LCA product market that was relevant to the dispute (World Trade Organization 1). The European Union notified the DSB in April 2011 that they wanted to appeal the legal interpretations that had been developed by the Panel earlier. This indicates that the dispute was not solved and that further consultations were required to take place. The European Union stands to gain in this dispute given the fact that they have an upper hand that the United States violated a majority of the articles in SCM Agreement, and the fact that there has sufficient evidence on their hands, and facts.

The dispute between the United States and the European Union, is mainly a battle of economies, implying that every party is finding a way to ensure their LCA products survive in the market. The US government is trying its best to subsidize Boeing, and even implementing tax exception in some of their activities to ensure that they retain their market share in the global marketplace (World Trade Organization, 1). On the other hand, the European Community sees a threat to its Airbus market share considering that these companies produce LCA. It fears that with these subsidies, Boeing will dominate the LCA trade in the market hence driving it out of business. Linking this phenomenon with the political economy of trade policy, we observe that every country is trying to guard its self-interests regarding the LCA trade. The dispute that is presented in this case requires that a scrutiny and examination of relevant legislation on the pronouncement of granting authorities to determine if the subsidies are in pursuant to the same subsidy scheme (World Trade Organization 1). The subsidies that are presented could also have an overarching purpose that is more concrete than just a mere policy that provides assistance for economic growth (Cohn 58). With the identification of the proper subsidy scheme, is limited to the certain enterprises as described by Article 2.1 as an enterprise or industry or rather a group of industries or enterprises. The economic model developed by Heckscher-Ohlin contains a description of the personal interests that are contained in a given policy (Cohn 56), and in our case, the subsidies that are granted to Boeing by the US government could be beyond, just subsidies, and it could be the reason why European Community is weary of them.

Politics

Large disputes such as this automatically end up in a political realm especially if it affects more than one country. Every country must guard its interests, and it is the reason why such dispute rises to the realms that are not expected (Cohn 168). Involvement of third parties who are mainly nations who are mainly allies of a given state makes it political. In our case, Brazil, Canada just to name a few are allies to the United States, and therefore, their contribution to the dispute settlement is crucial towards strengthening the trade ties between them as well as its allegiance. In addition, the fact that the United States involved Federal Government in subsidizing such a large company makes it political, because it is obvious that the government had its vested interests in the company considering that it contracts it for some of its expeditions. The European Union as a whole consists of countries with similar trade interests, and with this regards, they fight as a unit to ensure that fairness is struck with regards to LCA trading. The trade agreements that are developed by countries are politically influenced; therefore, it becomes a dispute when one country as in our case, the United States, fail to comply with some of its requirements (Cohn169). The European Union develops and solidifies its case based on the SCM Agreement, to question relevant measures adopted by Boeing and the United States government and other bodies such as NASA.

Nature of the Case

The dispute presented in this case is more of reassignment protection, considering that the European Union is submitting its second complaint regarding measures affecting trade in large civil aircraft. The European Union is appealing certain issues of the law and certain legal interpretations. It requested for consultations in under Articles 21.5 of the DSU(World Trade Organization 1). The dispute is still ongoing with the latest activity taking place on 18th September 2017, is the fact that DSB was not able to circulate the Appellate Body report it had appealed by the end of the 60-day period. This was a result of the complexity of the compliance proceedings, and time needed for adaptation and compliance worth additional procedures to protect business confidential information and the highly sensitive business information. Based on the following information, it is difficult for one to establish that there is a political link regarding the dispute. It is highly likely that the dispute presents a lot of complexity with regards to compliance with the existing regulations and also the newly formed ones(World Trade Organization 1).

Considering the nature of the dispute, and failure of the United States, to comply with the DSB recommendations, it is clear that the United States is protecting its interests hence presenting difficulty, especially in conclusion of this dispute. The United States and the European Union, have two options, either to wait for the panel to undertake its proceedings, regardless the time it will take to conclude the dispute, or dissolve the existing agreement, and the European Union adopt the same measures as the United States to ensure that they remain competitive in the market. Because there has been a request to suspend the proceedings, it is clear that United States will continue to impose subsidies to Boeing until a major agreement is reached which will ensure that the United States complies with SCM Agreement and it could take many years.

Work Cited

Cohn, Theodore. Global political economy. Routledge, 2015.

World Trade Organization. United States Measures Affecting Trade in Large Civil Aircraft Second Complaint. World Trade Organization, 2012. Web. 8 Nov. 2017.