European Communities and Certain Member States - Measures Affecting Trade in Large Civil Aircraft
September 30, 2010
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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
H.E. Mr. Michael Punke, Ambassador, Permanent Mission of the United States, Geneva
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,
A. Executive Summary
1. Applicability of the 1992 Agreement
- 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
- 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.
- 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
- 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
- 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
- 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.
- 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.
- 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.
- 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
- 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.
- 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
- 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
- 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
- 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
- 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.
- 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
- 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
- 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
- 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
- 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
- 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
- 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.
- 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).
- 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).
- 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
6. Infrastructure Measures
- 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".
- 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
- 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
1 The 1992 Agreement concerning the application of the GATT Agreement on
Trade in Civil Aircraft on trade in large civil aircraft, between the European
Communities and the United States.
2 Appellant Submission of the European Union, paragraph
701 (footnote 878).
3 Panel Report, European Communities - Measures Affecting
the Approval and Marketing of Biotech Products, WT/DS291/R, WT/DS292/R,
WT/DS293/R, Add.1 to Add.9, and Corr.1, adopted 21 November 2006, DSR 2006:III-VIII.
- 4 EC -Biotech (Panel), paragraph 7.71 (emphasis added).
5 Appellate Body Report, China - Measures Affecting
Trading Rights and Distribution Services for Certain Publications and Audiovisual
Entertainment Products, WT/DS363/AB/R, adopted 19 January 2010, paragraph
6 Appellant Submission of the European Union, paragraph
7 Panel Report, European Communities and Certain
Member States - Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R,
30 June 2010 ('Panel Report') paragraph 7.644 (emphasis added).
- 8 Launch Aid/Member State Financing.
9 Panel Report, Canada - Measures Affecting the Export
of Civilian Aircraft, WT/DS70/R, adopted 20 August 1999, as upheld by Appellate
Body Report WT/DS70/AB/R, DSR 1999:IV, 1443.
10 Panel Report, Australia - Subsidies Provided to Producers
and Exporters of Automotive Leather, WT/DS126/R, adopted 16 June 1999,
DSR 1999:III, 951.
- 11 Appellant Submission of the European Union, paragraph 1323.
- 12 Appellant Submission of the European Union, paragraph 1324.
- 13 Appellant Submission of the European Union, paragraph 1331.
- 14 Or export earnings that are, in fact, earned.
15 Or export earnings that are foreseen, whether or not the export earnings are,
in fact, earned.
16 Appellant Submission of the European Union, paragraph
17 Panel Report, paragraph 7.1625, and the First Written Submission of the United
States before the Panel, paragraph 724.
18 Appellant Submission of the European Union, paragraph
19 Panel Report, Korea - Measures Affecting Trade in Commercial
Vessels, WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749.
- 20 Korea -Commercial Vessels, paragraphs 7.559-7.560.
- 21 Appellant Submission of the European Union, paragraph 393.
22 US - Upland Cotton (Article 21.5 - Brazil) (AB) paragraph 374, quoting
the US - Upland Cotton (AB), paragraph 438 (who in turn quoted the US - Wheat Gluten (AB), paragraph 69) (original footnote omitted).
- 23 Panel Report, paragraph 7.1984.
- 24 Appellant Submission of the European Union, paragraph 399.
- 25 Other Appellant Submission of the United States, paragraph 41.
26 Other Appellant Submission of the United States, paragraph
27 Panel Report, United States - Laws, Regulations and
Methodology for Calculating Dumping Margins, WT/DS294/R, adopted
9 May 2006, as modified by Appellate Body Report WT/DS294/AB/R, DSR 2006:11,521.
See Panel Report, paragraphs 6.91 - 6.96, 7.519 and 7.520.
28 Appellate Body Report, United States - Continued Existence
and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February
- 29 US - Continued Zeroing (AB), paragraph 181.
- 30 Panel Report, paragraph 7.501.
- 31 Panel Report, paragraph 7.531.
32 Appellant Submission of the European Union, paragraph
1029, quoting the Panel Report in United States - Measures Treating Exports
Restraints as Subsidies, WT/DS194/R and Corr.2, adopted 23 August 2001,
DSR 2001:XI, 5767, paragraphs 8.63 and 8.73.
- 33 Appellant Submission of the European Union, paragraph 1030.
- 34 Panel Report, paragraph 7.1182.
35 Panel Report, paragraph 7.1181, referring to the Appellate
Body Report in Canada - Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377, paragraph 157.