European Communities and Certain Member States - Measures Affecting Trade in Large Civil Aircraft

(AB-2010-1/DS316)

September 30, 2010

Service List

Parties to the dispute

Mr. John Clarke, Minister, Charge d'affaires, a.i., Permanent Delegation of the European Union, Geneva (also on behalf of France, Germany, Spain and the United Kingdom)

H.E. Mr. Michael Punke, Ambassador, Permanent Mission of the United States, Geneva

Third participants

H.E. Mr. Roberto Carvalho de Azevedo, Ambassador, Permanent Mission of Brazil, Geneva

H.E. Mr. John Gero, Ambassador, Permanent Mission of Canada, Geneva

H.E. Mr. Sun Zhenyu, Ambassador, Permanent Mission of the People's Republic of China, Geneva

H.E. Mr. Shinichi Kitajima, Ambassador, Permanent Mission of Japan, Geneva

H.E. Mr. Park Sang-ki, Ambassador, Permanent Mission of the Republic of Korea, Geneva

A. Executive Summary

1. Applicability of the 1992 Agreement

  1. The European Union argues that the Appellate Body must examine whether the 1992 Agreement1 is a "relevant rule of international law applicable in the relations between the parties" within the meaning of Article 31(3)(c) of the Vienna Convention on the Law of Treaties 1969 ("Vienna Convention").2
  2. The Appellate Body has not previously considered the meaning of "the parties" in Article 31(3)(c) of the Vienna Convention. However, the term was considered by the panel in EC -Biotech (Panel)3, which found that Article 31(3)(c) of the Vienna Convention should be interpreted to "mandate consideration of rules of international law which are applicable in the relations between all parties to the treaty which is being interpreted" 4 Australia submits that this is the correct interpretation -it is supported by the text of Article 31(3)(c), and by the broader context of Article 31.
  3. In examining the object and purpose of Article 31(3)(c) itself, as opposed to the treaty, the European Union has misapplied Article 31(1) of the Vienna Convention. Article 31(1) requires consideration not of the object and purpose of an individual term of a treaty, but of the treaty overall. This interpretation is consistent with the findings and approach of the Appellate Body in China - Publications and Audiovisual Products (AB)5

2. Applicability of the SCM Agreement to Pre-1995 subsidies

  1. Australia disagrees with the European Union argument that the Panel erred by "concluding that all alleged actionable subsidies granted by the European Union prior to 1 January 1995 were not excluded from the temporal scope of this dispute, and thereby fall under the obligation contained in Article 5 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement")."6
  2. The "benefit" that is "thereby conferred" under Article 1.1(b) of the SCM Agreement, and the effect of the subsidies on the United States under Article 5 of the SCM Agreement, have not necessarily "ceased to exist" under Article 28 of the Vienna Convention simply because the "act" or the "fact" (within Article 28 of the Vienna Convention ) of the provision of the "financial contribution" has already occurred under Article 1.1(a)(1) of the SCM Agreement. The provisions of Article 5 of the SCM Agreement (which are concerned with the effects caused through the use of a subsidy) can thus apply with respect to a subsidy granted prior to 1 January 1995.

3. "In Fact" Export Contingency

  1. Australia notes that the Appellate Body has stated that "the existence of this relationship of contingency, between the subsidy and export performance, must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy, none of which on its own is likely to be decisive in any given case". However, in Australia's view, the Panel placed undue emphasis on one fact in the "total configuration of the facts" - the motivation of the grantor of the subsidy.
  2. In Australia's view, a consideration of the "facts" should go beyond a consideration of whether or not "the subsidy was granted because the granting authority anticipated export performance".7 A government's motivations for granting a subsidy may be relevant, but will not necessarily be "highly relevant" to the question of contingency.
  3. Australia considers that the facts the Panel found in this dispute demonstrate a close relationship between the granting of the subsidy and anticipated exportation or export earnings. In Australia's view, the Panel does not convincingly explain why these facts were not sufficient to find that "the granting of [the] subsidy ... [was] in fact tied to actual or anticipated exportation or export earnings" in respect of the French A380, French A340-500/600, Spanish A340-500/600 and French A330-200 LA/MSF8 contracts. Nor does the Panel convincingly explain why the "additional evidence" in respect of the German, Spanish and UK A380 LA/MSF contracts meant that "the total configuration of the facts" demonstrated the relationship of contingency in respect of those contracts. In Australia's view, it would have been helpful if the Panel had distinguished the facts before it from those in respect of the Technology Partnerships Canada programme in Canada-Aircraft (Panel)9 and those in respect of the grant contract in Australia-Automotive Leather II,10 both of which were found to constitute "in fact" export subsidies.
  4. The European Union argues that footnote 4 to the SCM Agreement ".. .comes into play when a panel does not have before it direct evidence of the "granting of a subsidy.. .".11 In Australia's view, there is nothing in the text of footnote 4, or the jurisprudence, to limit its applicability to situations where there is no "direct evidence" of the granting of a subsidy made legally contingent upon export. Rather, footnote 4 comes into play where a complaining Member alleges that "that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings".
  5. The European Union submits that the term "actual" in footnote 4 ".. .means an export that exists (that is, has already taken place) at the moment when the measure is enacted and a subsidy is deemed to exist within the meaning of Article 1; whilst the term "anticipated" (juxtaposed to the meaning of the term "actual") means an export in the future...".12 The European Union states that "what the provision requires" is "the imposition by the granting Member of a requirement that the recipient export in order to obtain (or retain) the subsidy".13 Australia considers that the European Union's argument undermines the standard for "in fact" export contingency.
  6. In Australia's view the ordinary meaning of the term "actual" in the context of footnote 4 involves an element of certainty; that is, it refers to an exportation that does, in fact, occur.14 Further, the ordinary meaning of the term "anticipate" in the context of footnote 4 involves an element of probability; that is, it refers to an exportation that is foreseen but that may not occur.15
  7. Australia notes that the European Union has raised a concern regarding potential discrimination "against small or export dependent economies" because "the relative smallness of a domestic market (that is, the necessary fact of export) could be determinative in a finding of export contingency".16 Australia requests that the Appellate Body be mindful of these concerns in developing its reasoning in this dispute.

4. Adverse Effects

  1. The United States argued that the "subsidized product" for the purpose of its claim under Part III of the SCM Agreement was the "family of Airbus large civil aircraft".17 The European Union "appeals the Panel's findings ... that as a matter of law it had no discretion to divide a broad single "subsidized product" as alleged in a complaining Member's request for establishment and that it need not independently and objectively assess the scope of the "subsidized product", as defined by the United States".18
  2. Australia notes that in Korea - Commercial Vessels19 the panel indicated that it is "always for the complaining party to determine the basis and nature of its own complaint" and that it "will then be the complainant's burden to demonstrate the causal relationship between the subsidy and the particular . effects that it alleges".20
  3. In the context of a claim under Part III of the SCM Agreement, if the complaining Member frames its complaint in such a way that it is unable to show that the other Member has caused "through the use of any subsidy ... adverse effects" to its interests then its claim will fail. There is no requirement in the SCM Agreement that a panel "make the case" for the complainant.
  4. The European Union argues that the Panel "improperly presumed causation, and failed to complete the required "chain of causation" under the ... counterfactual scenarios it posited".21
  5. In order for it to be found that a Member has caused "through the use of any subsidy ... serious prejudice to the interests of another Member", the effects set out in Article 6.3 of the SCM Agreement must result from a chain of causation that is linked to the impugned subsidy and there must be a "genuine and substantial relationship of cause and effect" between the impugned subsidy and the effect. 22
  6. Australia considers that a legitimate tool to use in this context is the "counterfactual" - that is, a consideration of the situation that would have existed in the absence of the impugned subsidy. Australia notes that the Panel found "that there are multiple possibilities for the LCA industry in the counterfactual world that would exist in the absence of subsidies to Airbus".23
  7. However, two of the Panel's four counterfactuals envisage that Airbus might have been selling LCA in competition with United States' manufacturer(s) (albeit different LCA than it was able to sell having received the subsidies). Australia agrees with the European Union that a "finding that subsidies [resulted] in "different" competition ... raises fundamental further questions - namely, if not the particular LCA that Airbus actually launched, sold and delivered, which LCA, if any, could a non-subsidised Airbus have launched, sold, and delivered in each of the sales campaigns and markets at issue during the reference period?"24
  8. The Panel did not determine which (if any) Airbus LCA would have been competing with Boeing in each of the markets and campaigns it considered if either of the two scenarios had eventuated. Nor did it determine what the result of that competition would have been. The Appellate Body will need to carefully consider whether such determinations should have been undertaken by the Panel as part of its consideration of whether the EU had caused "through the use of any subsidy ... serious prejudice" to the United States.

5. Launch Aid Programme

  1. The United States seeks review of the Panel's conclusion that it had not demonstrated the existence of "the Launch Aid Program".25 It argues that the Panel should have "followed the approach in the Appellate Body report in US-Continued Zeroing".26
  2. The Panel appears to have considered that the manner in which the United States had framed its submissions required it to effectively apply the test that was developed for "as such" claims in US - Zeroing (EC) (Panel)27 If the Appellate Body finds that the Panel was incorrect in effectively applying the test that was developed for "as such" claims in US - Zeroing (EC) (Panel), then the Appellate Body decision in US-Continued Zeroing (AB)28 will become relevant.
  3. Australia notes that the failure of the United States to prove that "the Launch Aid Program" would necessarily be continued into the future is of less relevance when considering an alleged measure that consists of "ongoing conduct" under US-Continued Zeroing (AB).
  4. Australia also notes that, in US-Continued Zeroing (AB), the "measures at issue" consisted of "the use of the zeroing methodology in successive proceedings, in ... 18 cases, by which duties are maintained over a period of time".29 The Appellate Body will need to consider whether the alleged measure before it now - "the consistent, up-front provision by the Airbus governments of a significant portion of the capital that Airbus needs to develop each new LCA model"30 over a period of some 30 years - is amenable to the application of its reasoning in US-Continued Zeroing (AB).
  5. To the extent that the Appellate Body shares the Panel's concern that "future LA/MSF would [not] necessarily involve the provision of loans ... at below-market interest rates"31, Australia notes that if a future round of LA/MSF was provided at market interest rates then this would mean that "the Launch Aid Program", as described by the United States, had either not been used in that instance and/or no longer existed. Any dispute settlement action in respect of that round of funding that relied on the existence of the "Launch Aid Program" would thus necessarily fail.

6. Infrastructure Measures

  1. Australia notes that "a subsidy shall be deemed to exist" under Article 1.1 of the SCM Agreement if "there is a financial contribution by a government ... i.e. where . a government provides goods or services . other than general infrastructure . and a benefit is thereby conferred".
  2. The European Union argues that "the creation of infrastructure ... are not the type of actions which qualify as "financial contributions"32 and "[o]nly the provision to an economic operator (as opposed to creation) of infrastructures "other than general infrastructures" is captured by the notion of financial contribution since this government action is capable of distorting trade".33
  3. Australia considers that, for the infrastructure in question, it is artificial to separate their "creation" from their "provision" in this way - the infrastructure in question was "created" specifically for the entity to which it was provided (that is, Airbus). On the issue of whether a "benefit" was "thereby conferred" within Article 1.1(b) of the SCM Agreement by the provision of those particular "goods or services" to Airbus, the Panel correctly noted that "a benefit will be conferred whenever a financial contribution is granted to a recipient on terms more favourable than those available to the recipient in the market".34 Australia considers that the Panel correctly determined that those "goods or services" were "granted to [Airbus] on terms more favourable than those available to [Airbus] in the market".35