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European Communities Large Civil Aircraft

Tzvetomira Svetieva Chris Zeek. European Communities Large Civil Aircraft . Respondent: European Communities Complainant: United States Third Parties: Brazil, Canada, China, Japan, Korea, Australia. DS-316.

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European Communities Large Civil Aircraft

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  1. Tzvetomira Svetieva Chris Zeek European Communities Large Civil Aircraft Respondent: European Communities Complainant: United States Third Parties: Brazil, Canada, China, Japan, Korea, Australia DS-316

  2. WTO Measures at Issue within the Agreement on Subsidies and Countervailing Measures (SCM): Art. 1, 2, 3.1, 3.2, 5, 6.3, 6.4, I. Launch Aid II. Infrastructure III. European Investment Bank IV. Corporate Restructuring  V. R&D

  3. Wall Street Journal  (3.24.10) Germany Plans €1-Billion Loan for Airbus A350(Link) (Mar.21.2010) Plane Poker:Airbus Plays New Engine Card  September 30,2010 (Link) Brussels Claims WTO Panel Backs Case Against Boeing. Financial Times (September 16, 2010)

  4. Related Agreements Agreement on Trade in Civil Aircraft • 1980 Plurilateral Agreement applicable only to WTO Members that have accepted it. • Requires signatories to eliminate tariffs on civil aircraft, engines, flight simulators, and related parts and components, and to provide these benefits on a nondiscriminatory basis to other signatories. • 1992 -U.S.-EU Agreement on LCA • Bilateral Agreement permitting direct, repayable Launch Aid programs up to 30% of all development costs and indirect aid up to 3% of domestic LCA industry sales • 2004 US unilaterally withdrew and requests WTO consultations amid declining market shares for LCA, and growing EC support for Airbus A380/A350 lines

  5. Timeline October 2004 - US requested consultations with EC. EC responded with counter-request. (DS-353) January 2005 - Consultations Begin April 2005- Consultations Fail. May 2005 - US files request for panel with Dispute Settlement Board (DSB) with WTO. July 2005- DSB establishes Panel March 23, 2010. Final Report Issued by DSB Panel  July, 2010 Appeals Filed by US and EC

  6. Determining Subsidy Recipient and Product Subsidy Recipient:Concluded that Airbus SAS, Airbus LCA, and Airbus Industrie Consortium constitute a single entity. Definition of Light Civil Aircraft: Parties agreed to define Large Civilian Aircraft (HTC 8802.40) as as large (weighing over 15,000 kilograms) "tube and wing" aircraft, with turbofan engines carried under low-set wings, designed for subsonic flight and transporting 100 or more passengers and/or a proportionate amount of cargo across a range of distances serviced by airlines and air freight carriers.

  7. Key E.C. Arguments 5 distinctive product markets of  LCA classified along Seat Capacity and Aisle Count. Different models of Airbus LCA, benefit from different alleged subsidies, as separate and distinct "subsidized products". No basis for products which compete in distinct markets to be grouped together as a single subsidized product. NO "Like Product" exists within Boeing Family for 2 Airbus LCA. (A380/A350) Scope of Subsidized Product & of “Like Products” Key U.S. Arguments  "Family" Structure enables shared benefits in marketing, production, maintenance, and development  Classifications by seating capacity and aisle numbers are arbitrary and do not reflect LCA production, pricing, or marketing. Corresponding "like product" is the entire Boeing LCA family The Airbus LCA family competes directly with Boeing LCA Family. 

  8. Panel Determination Of the Subsidized Product in Question: "The United States is entitled to frame its case as it chooses, and so long as the subsidized product it has identified, Airbus [LCA], does in fact benefit from the subsidies in dispute, we will not intervene to alter its identification of the subsidized product." On Determination of "Like Product": "..there are multiple ways in which the market for large civil aircraft could be divided into segments, and there is no obvious or necessary..[reason]that individual Airbus model families should be considered separate subsidized products based on the number of seats in each model family. A single "like product"- comprising all Boeing LCA, corresponds to the subsidized product defined as ALL Airbus LCA.

  9. The United States Defines "Launch Aid" As: A system of intergovernmental institutions and dedicated bureaucracies providing preferential financing designed to offset the enormous costs and extremely high risks that characterize the development of LCA. Launch aid primarily consists of long-term unsecured loans at zero or below-market rates of interest, with flexible repayment schedules that are contingent on the successful delivery of the financed aircraft.

  10. Not "Launch Aid”- Member State Financing (MSF)  The EC denies the existence of "Launch Aid" as a cross-country "program" or "system". The EC asserts that the terms of each instance of member state financing are negotiated on a deal-by-deal basis; as a consequence, they vary considerably depending on the Airbus LCA program at issue. According to the EC, the US challenge of a "launch aid program" is without merit. "Member State Financing" (LA/MSF) is expressly agreed under the bilateral EU-US Agreement provides for government funding to Airbus with loans repaid with interest under terms specified in the Bilateral Agreement. 

  11. Key E.C. Arguments E.C. refutes the US portrayal of MSF loans as a cross-country "program" or "system. US failure to establish the existence of a MSF program also means that Launch Aid cannot constitute a financial contribution. US failure to establish the existence of a MSF program also means that Launch Aid cannot confer a benefit. US erroneously relies on the nature of MSF loans at issue to assert that these confer a benefit. The interest rate charged for the loan is the only measure against which it can be determined whether individual instances of MSF loans confer a benefit. Launch Aid as Subsidy Key U.S. Arguments  Not individual grants, but ‘Launch Aid’ program as a whole. Launch Aid as a program is subsidy within Article 1 of the SCM Agreement because it provides financial contribution and confers benefit specific to Airbus.  There is a benefit because funds cover extremely high costs and risks; repayment of Launch Aid is success-dependent; repayment of Launch Aid is back-loaded; Launch Aid carries below-market interest rates; and WTO has already found that Launch Aid-type financing confers a benefit.

  12. Panel: Launch Aid/MSF The United States established that: Each of the challenged LA/MSF measure constitutes a specific subsidy within SCM Articles 1 and 2. German, Spanish, and UK Launch Aid/MSF programs directed to the A380 are subsidies contingent on export performance and are prohibited within Article 3.1 of the SCM Agreement. ...but failed to establish: Existence of specific A350 LA/MSF Programs Existence of LA/MSF Program separate from individual LA/MSF grants and loans. Specific Subsidies exist for Airbus LCA models other than the A380. 

  13. Infrastructure as a Subsidy WTO SCM Agreement defines an infrastructure subsidy as: 1.1       For the purpose of this Agreement, a subsidy shall be deemed to exist if: (a)(1)(iii)  a government provides goods or services other than general infrastructure, or purchases goods; and (b)       a benefit is thereby conferred.

  14. When is Infrastructure more than just "General"? EC:  Infrastructure is general when it "benefits society as a whole and reflects legitimate economic development policies”. Challenged measures constitute "general infrastructure” because:  (i) government actions, related to basic installations, facilities and services needed to support economic development;  (ii) further public policy objectives (iii) are designated for public use because they are publicly accessible, because they "enable" members of the public at large, or because they provide common goods to the public.

  15. ...more than just General Infrastructure? US: "General" infrastructure is infrastructure that is accessible to all or nearly all users on a universal, non-discriminatory basis, where there are no limitations on use. And that: A. Infrastructure mustinclude, involve, or affect all or nearly all the partsof a whole territory or community; or must be completely or nearly universal, as opposed to partial, particular, or local. B. Infrastructure that includes, involves, or affects only a certain enterprise or group of enterprises, or that is limited in application does not constitute "general" infrastructure. C. Simply because a government creates infrastructure for reasons of "public policy" or to "foster economic development" or to perform a public task does not make it "general”.

  16. Determination of "General" Infrastructure: No type of infrastructure is inherently "general"  Determination if infrastructure is "general" is based on case by case evaluation of  whether there exist any limitations on access to, or use of, the infrastructure: Considering the circumstances surrounding the creation of infrastructure Understanding of infrastructure's future use Evaluate whether Infrastructure was created for the particular needs of the entity or group which has the right to access or use of that infrastructure. 

  17. General Infrastructure - Road Improvements at ZAC AeroConstellation facilities Determination of Subsidies Infrastructure as Subsidies - Conversion of previously protected Mühlenberger Loch wetlands into an industrial facility to enable A380 production. - Lengthened Runway at Bremen Airport to facilitate delivery of A380 materials and equipment (Wings) - ZAC AeroConstellation/EIG Facilities

  18. European Investment Bank ("EIB") Loans Key E.C. Arguments EC rebuts the US assertions that the EIB r subsidised the development of Airbus LCA through loans provided to EADS. The US failed to establish a case for repaid EIB loans. EC argues that in any event, the challenged EIB loans do not and did not confer "benefits", and are therefore not "subsidies", within the meaning of Article 1 of the SCM Agreement.  EIB financing is not specific. Key U.S. Arguments  "EIB” has subsidized the development of Airbus LCA. The EUR 700 million EIB provided to EADS for A380 is a loan and constitutes a financial contribution within the meaning of Article 1 of the SCM Agreement. The loan confers a benefit because it is on terms that are more favorable than those available in the market. The loan provided to EADS in 2002 is a specific subsidy. 

  19. Panel Determination:"EIB" Loans as Subsidy -The panel found that each of the 12 challenged loans provided by the European Investment Bank (“EIB”) to various Airbus entities between 1988 and 2002 is a subsidy. - None of these subsidies was specific, and therefore [the panel] dismissed the US claims in respect of the EIB loans from further consideration.  

  20. Corporate Restructuring as Subsidy SCM Article 1.1(a)(1)(i): Equity infusions among the types of "direct transfers of funds" constituting financial contribution. -Plans involved Daimler-Benz AG (Daimler-Benz) acquiring control of MBB (Deutsche Airbus) through a newly created aerospace subsidiary, Deutsche Aerospace AG (Dasa). - US subsidy claims are specific to a portion of the Deutsche Airbus restructuring whereby KfW acquired a 20% percent equity interest in Deutsche Airbus in 1989, and the subsequent sale of that interest to MBB in 1992 at less than market value. -A series of commitments by the German government significantly limited any risk to Daimler-Benz. -Restructuring involved direct transfer of funds benefiting Airbus and was inconsistent with private investor practices in Germany.

  21. Key E.C. Arguments US overstated the amount of support given to Airbus SAS under research and technology ("R&T") programs. E.C. demonstrates that the US inflated the amount of R&T support. The E.C. asserts that total amount of R&T support provided to Airbus between 1995 and 2005 was the minimum. EC maintains that E.C. Framework Programs  are not specific. The US allegation that "aeronautics-specific sub-budgets exist under each Framework Program" is factually incorrect.  Specificity must be assessed for the program as a whole. R&D Assistance as Subsidy Key U.S. Arguments E.C. "Framework Programs" subsidize Airbus by funding its research and development efforts with grants that constitute financial contribution because these grants are among the type considered as "direct transfers of funds“ in the SCM Agreement. These grants confer benefits because they "place the recipient in a better position than the recipient otherwise would have been in the marketplace." Each Framework Program has a sub- budget that is specific to the aeronautics industry, and because research proposals must be aeronautics-related. R&D funding in grants that the EC provides to Airbus under the EC "Framework Programs" constitutes specific subsidies.

  22. Panel Determination:R&D Assistance as Subsidy The panel found that certain grants are specific subsidies after determining the amounts of the challenged grants at issue.  However, the panel concluded that certain grants are not specific subsidies.

  23. Subsidies cause adverse effects to its interests within the meaning of Articles 5(a) & (c) of the SCM Agreement.   Cause or threaten to cause: (i) "injury" to the US LCA industry and (ii) "serious prejudice" to US interests Effect of the Subsidies: (a) Displace or impede imports of US LCA into the EU (b) Displace or impede exports of US LCA to 3rd Markets (c) Enable price undercutting by EC LCA as compared with the price of US LCA in the same market (d) Cause price suppression, depression, and lost sales in the same market,[6.3(a), (b) and (c) of the SCM Agreement]  Adverse Affects: United States

  24. Adverse Effects: European Communities • Certain Airbus LCA,(A380/A350) have no competitive US LCA counterparts • Subsidies to these aircraft cannot have adverse effects on US • No adverse effects to United States' interests • The effect of any subsides to any of the Airbus LCA "families" are negligible. • Any beneficial effects of challenged subsidies were largely felt decades ago, and are not likely to create present adverse effects.

  25. United States' orders of Airbus and Boeing LCA, 2001-2006 E.C. LCA Market Share

  26. Panel: US has Established • Determined Subsidies worked to displace imports of US LCA to European Market and constitutes serious prejudice to US interests. • Determined Subsidies worked to displace US exports to 3rd Markets. (Australia, Brazil, China, Korea, Mexico, Singapore, India) • Contributed to significant loss of sales in the same market. Determinations are within the meaning of SCM Article 5(c) and Article 6.3(b)(c)

  27. Panel: US has not Established • Subsidies had the effect of price undercutting. • Subsidies had the effect of price suppression • Subsides had the effect of price depression • That the use of subsidies had caused injury to the US domestic industry for LCA

  28. Recommendations DSU Article 3.8: Where there is an infringement of the obligations of a covered agreement (SCM Agreement), the EC and certain member states nullified or impaired benefits accruing to the United States. SCM Article 4.7: Panel Recommends that the Members withdraw the prohibited subsidies. (within 90Days) SCM Article 7.8: Where any subsidy causes adverse effects, the members granting each subsidy should "take appropriate steps to remove the adverse affects" or withdraw the subsidy.

  29. QUESTIONS? Airlines Herald

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