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WTO disputes

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

(AB-2010-1/DS316)

September 30, 2010

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European Communities and Certain Member States - Measures Affecting Trade in Large Civil Aircraft - third party submission executive summary [PDF 41 KB]

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
  • 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
    348.
  • 6 Appellant Submission of the European Union, paragraph
    27.
  • 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
    1359.
  • 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
    298.
  • 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
    53.
  • 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
    2009.
  • 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.

Last Updated: 9 January 2014
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