Is the World Trade Organisation Agreement on Subsidies and Countervailing Measures an appropriate rulebook for the Boeing v Airbus Dispute

Is the World Trade Organisation Agreement on Subsidies and Countervailing
Measures an appropriate rulebook for the Boeing v Airbus Dispute?
1
Introduction
When considering how the World Trade Organisation (WTO) Agreements have
impacted upon the laws and legal systems of the WTO member states it is
necessary to examine the Agreements in practice. A central issue to this analysis is
how the system has responded to the role played by governments in supporting their
own domestic industries. Governmental intervention in the civil aircraft industry is
one area in particular where states have had cause to resort to the WTO in this
regard.
This intervention is explainable in light of the historic role of governments in providing
direct or indirect assistance to the civil aircraft industry, which is arguably necessary
given the enormous development costs in the aircraft industry, as well as national
prestige, export potential, employment and the important overlap with defence
production.1 Irrespective of rationales, GATT/WTO subsidy disciplines as they relate
to the civil aircraft sector have tried to strike a balance between two opposing
considerations. They must constrain government attempts to distort trade in a way
that appreciates the important role governments play in the early development of
enterprise in one of the most capital-intensive industries.
In this essay I hope to examine how the WTO Agreement on Subsidies and
Countervailing Measures (SCM Agreement)2 has impacted upon the laws and legal
1
Richard Cunningham and Peter Lichtenbaum , “The Agreement on Trade in Civil Aircraft and other Issues
Relating to Civil Aircraft in the GATT/WTO System” in Patrick Macrory, Arthur Appleton and Michael Plummer
(eds), The World Trade Organization: Legal, Economic and Political Analysis (Springer US 2005) at 1167.
2
Agreement on Subsidies and Countervailing Measures, April 15, 1994, Article 1, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1A. Legal Instruments – Results of the Uruguay Round vol.
31, 33 I.L.M. 81 (1994) [hereinafter ‘SCM Agreement’].

2
systems of the WTO member states by analysing the events leading to and the
consequences of the WTO rulings DS316 and DS317/DS353 for both the European
Union (EU) and the United States (US). It has been over ten years since the first
requests for consultations were made and the dispute resolution process is still
ongoing. Each of the complaints have passed the panel3 and appellate4 stages and
both parties have claimed compliance with the findings.5
With the enforcement stage now underway, this essay will focus on the possible
responses of both the EU and the US as they attempt to comply with their obligations
in the aftermath of the latest development in the largest trade dispute in history, the
so called ‘Airbus dispute’. Particular scrutiny will be given to the effectiveness of the
WTO in ensuring compliance with its decisions and whether or not the Agreement on
Subsidies and Countervailing Measures is an appropriate rulebook for the Boeing
and Airbus dispute.
History of the Dispute
Industrie Airbus
“When the European Airbus was first mooted, the Americans first ignored it, then
patronised it and eventually mocked it.”6 But from its humble beginning as the
consortium Airbus Industrie (Airbus) formed under French law in 1970 as a
3
Panel Report, European Communities, WT/DS316/R (June 30, 2010); Panel Report, United States,
WT/DS353/R (March 31, 2011).
4
Report of the Appellate Body, European Communities, WT/DS316/AB/R (May 18, 2011)]; Report of the
Appellate Body, United States, (Second Complaint), WT/DS353/AB/R (March 12, 2012).
5
Communication from the European Union, WT/DS316/17 (December 1, 2011); Communication from the United
States, (Second Complaint), WT/DS353/15 (September 23, 2012).
6
Stephen Aris, Close to the Sun: How Airbus Challenged America’s Domination of the Skies (Aurum Press Ltd
2002) at 65.

3
Groupement d'intérêt économique (GIE)7, Airbus was soon causing panic on the
other side of the Atlantic. The American government was to be particularly critical of
what they regarded as the lack of transparency and financial accountability of the
GIE structure8 and had obvious suspicions about an organisation that paid neither
taxes nor published any accounts. The American stakeholders “came to regard
Airbus Industrie as some sort of government-sponsored Trojan horse whose mission
was to defeat the forces of honest American private enterprise in a thoroughly
underhand and un-American manner.”9
The multinational personality of Airbus also lent sway to American fears of the
company being placed on a pedestal by the European Communities (EC) and
becoming its National Champion.10 The objectives of Airbus also lend weight to this
hypothesis, Airbus being founded at a time when American firms controlled over
94% of the market,11 in order to “restore Europe’s position in the civil aerospace
market by offering jet airliners in competition with the three major American airframe
builders: Lockheed, McDonnell Douglas and Boeing.”12 It has been overwhelming
successful in this regard with 41.5% of the market based on aircraft deliveries (to
Boeing’s 43%).
7
The GIE configuration would survive until 2001, when Airbus Industrie was reorganised as a simplified joint
stock company in the form of Airbus SAS.
8
Matthew Lynn, Birds of Prey: The War between Boeing and Airbus (Mandarin 1996) at 122.
9
Aris note 6, at 59.
10
Which it has, see Jason Thompson, “Aerospace and Antitrust: How the European Union Supports its Interests
to the Detriment of United States’ Companies” (2006) 14 U.Miami Int'l & Comp.L Rev. 311 at 311-337.
11
Hans-Joachim Braun, “Innovation in Flight from the Perspective of Europe”, (2003) in Roger D. Launius and
Janet R. Daly Bednarek (eds), Reconsidering a Century of Flight, at 78-79.
12
Steven McGuire, Airbus Industrie: Conflict and Cooperation in US-EC Trade Relations (MacMillan Press Ltd;
1997) at 1.

4
Perhaps most importantly Airbus has “become a powerful symbol of what can be
achieved by European political and economic cooperation."13 However, the
symbolism of Airbus was irrelevant across the Atlantic and during the 1970s the US
viewed the fledgling manufacturer “as an example of the unfair and predatory trade
and industrial policies pursued by America’s trading partners that were damaging US
industry.”14 All of this tension reached boiling point in April 1978, when Eastern
Airlines, then one of the biggest American airlines, announced that it would buy 23
A300s from Airbus with an option of nine more in a deal worth $778 million.15 This
sale attracted huge amounts of media coverage in the US and “can be fairly said to
have started the trade dispute”.16
1979 Agreement
In 1979 an Agreement on Trade in Civil Aircraft17 was signed by both parties18 which
sought to clarify the rules governing the industry. It not only brought the aircraft
industry within the scope of the General Agreement on Tariffs and Trade (GATT)
framework, but also included limitations on the extent of state aid. It aims “to
eliminate import duties on all aircraft (excluding military aircraft),”19 but this first
attempt to establish a rule book for both sides was unsuccessful as it had no real
impact on the laws and legal systems of the major signatories: the US and the EC.
13
Ibid, at 2.
14
Ibid.
15
Aviation Week and Space Technology, 108(16), 27 April 1978, at 24; Lynn, note 8 at 130.
16
McGuire, note 12, at 52.
17
Agreement on Trade in Civil Aircraft, 12 April 1979, GATT B.I.S.D. (26th Supp.) [hereinafter ‘1979 Agreement’].
18
The 1979 Agreement now has thirty members: Canada, the European Union (with 20 member states being
signatories in their own right), Egypt, Georgia, Japan, Macao, Norway, Switzerland, Chinese Taipei and the
United States.
19
Rafiqul Islam, International Trade Law of the WTO (OUP Australia and New Zealand 2006) at 479.

5
Although a Committee on Trade in Civil Aircraft was established on the pretext of
governing disputes between signatories, “the United States quickly discovered that it
was without teeth; as soon as any cases of what they regarded as unfair competition
were brought, the committee promptly dismissed them. It was soon apparent that the
agreement did not outlaw anything; the Americans had been gulled by some skilled
drafting.”20
The July Agreement
In light of the ineffectiveness of the 1979 Agreement, the rivalry stewed during the
1980s, when “the US government’s approach to the Airbus question was settled.”21
In March 1986 “a high-level negotiating team was dispatched to Europe”22 to begin
talks with EC officials. When these talks broke down in 1991 the second aspect of
the US policy came into play, as the US brought a GATT complaint against the EC,
arguing that the German Government was providing exchange rate guarantees to
Deutsche Airbus in violation of the Subsidies Code (1979 Code) concluded in the
Tokyo Round of GATT Negotiations (1973-1979).23 It was claimed by the Europeans
that the national treasuries lent under just as stringent commercial rules as those
governing large loans from banks in “arrangements strictly comparable to US
companies.”24 However, the US failed to aggressively pursue the action due to the
20
Lynn, note 8 at 192.
21
McGuire, note 12 at 120.
22
David Thornton, Airbus Industrie: The Politics of an International Industrial Collaboration (Palgrave Macmillan
1995) at 135.
23
Ibid, at 137.
24
Bill Gunston, Airbus: The Complete Story (J H Haynes & Co 2009) at 43.

6
uncertain definition of the term "subsidy"25 and the fact that domestic subsidies were
neither "per se prohibited ...[nor] expressly actionable" under GATT.”26
In March 1992, the GATT Subsidy Dispute panel ruled in favour of the US,27 but the
EC subsequently blocked the adoption of the report which was possible at that time
under GATT Law. This ability to block the adoption of a report was one of the major
flaws of the GATT and was thankfully discontinued under the WTO system. The US
responded by filing another action before the GATT. Faced with the prospect of
continuously having to block panel reports on it subsidies to Airbus, the EC became
more willing to negotiate. While the dispute slowly made its way through the GATT
procedure both parties entered negotiations and on July 17th 1992 the EC concluded
a bilateral agreement with the US.28
It has been argued that “GATT was central to the conclusion of the 1992
Agreement…its crucial importance lay in the fact that the GATT panel ruled that the
main GATT Subsidies Code could be used to hear aircraft cases.”29 However, it is
submitted that the necessity to pursue such an agreement outside of the GATT
framework so as to guard against the" potential failure of the GATT,”30 was an
equivocal acknowledgment of the perception that there existed many "failures of the
25
See infra at 8-9.
26
Jennifer Manner, “How to Avoid Airbus II: A Primer for Domestic Industry” (1992) 23 CAL.W.INT'LL.J. 139 at
150.
27
German Exchange Rate Scheme for Deutsche Airbus, SCM/142, GATT Panel Report (Unadopted), 4 March
1992.
28
Agreement on Trade in Large Civil Aircraft 17 July 1992, OJ 1992 L 301/32. [hereinafter ‘July Agreement’].
29
McGuire, note 12 at 168-169.
30
Shane Spradlin, “The Aircraft Subsidies Dispute in the GATT's Uruguay Round” (1995) 60 J.AIRL. &COM.
1191, at 1207.

7
GATT dispute settlement system."31 Furthermore this serves to display that the
1979 Code had no impact on the law and legal systems of the two sides in the
action. The catatonic state of the GATT dispute resolution procedure, in which the
adoption of a report could easily be blocked, meant that the July Agreement even
established a mechanism of dispute resolution outside of the GATT.
Nevertheless “the subsidy dispute with the United States remained far from
resolved,”32 as it was within the framework of the July Agreement that throughout the
1990s Airbus continued to receive the subsidies which the US had expected it to
end. The tipping point for the US appears to have been the “$3.2 billion in launch aid
committed by European Union governments to the development of Airbus A380, an
aircraft designed to compete directly with Boeing's 747.”33 This was a declaration of
war against one of the quintessential symbols of American industrial strength and
provided the US rationale for terminating the July Agreement on 6 October 2004.
It would appear then, that the July Agreement had little impact on the laws and legal
systems of the EC and the US during its brief lifetime, as both Boeing and Airbus
continued to receive billions of dollars in subsidies, both directly and indirectly.
However, before discussing the WTO disputes themselves it is important to examine
the concept of a subsidy under international trade law and the impact of the 1996
SCM Agreement for the EC and the US in the lead up to the dispute itself.
31
Benjamin L. Brimeyer, “Bananas, Beef, and Compliance in the World Trade Organization: The Inability of the
WTO Dispute Settlement Process to Achieve Compliance from Superpower Nations” (2001) 10 MINN.J.Global
Trade 133, at 137.
32
Thornton, Note 22 at 147.
33
George Johnston, “Subsidies to Airbus and Boeing: WTO Compatibility and the Way Forward” (2005) 6
Bus.L.Int'l 293, at 296.

8
The SCM Agreement
While a ‘subsidy’ can be defined as a “payment by a government to a firm or
household that provides or consumes a commodity,”34 the role of subsidies remained
undefined for decades:
“In the early years of the GATT, the focus of trade negotiations was on cutting
tariffs… Rules on subsidies, set out in Articles XVI and VI of the GATT,
provided weak multilateral disciplines and authorised GATT Contracting
Parties to take domestic action against injurious subsidies in the form of
countervailing measures.” 35
Although there were some attempts under GATT to tighten up the rules relating to
subsidies through the 1979 Code, significant progress in this area did not come until
the SCM Agreement, which “departs from the sharp distinction between export and
domestic subsidies and instead defines subsidies in terms of a financial contribution
by a government conferring a benefit on the recipient"36 in Article 1(1). Although
lacking a preamble, the main object and purpose of the SCM Agreement has been
determined by the Appellate Body in relation to its text as being “to increase and
improve GATT disciplines relating to the use of both subsidies and countervailing
measures.”37 As such it is clear that the SCM Agreement directly seeks to have an
impact on the laws of member states and does this by splitting subsidies into three
34
Paul Samuelson and William Nordhaus, Economics (19th
edn, McGraw-Hill, 2010) at 982.
35
Simon Lester, Bryan Mercurio and Arwel Davies, World Trade Law: Text, Materials and Commentary (2nd
edn,
Hart Publishing UK 2012) at 421.
36
Andreas F. Lowenfeld, International Economic Law (Oxford 2002) at 76.
37
Appellate Body Report, United States-Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat
Products from Germany, WT/DS213/AB/R (November 28, 2002) at 73.

9
categories: prohibited, actionable, and non-actionable.38 If a WTO member suspects
prohibited subsidies are being provided they can request consultations under Article
4(1), as was done on October 6 2004.
The WTO Disputes
Background
The July Agreement was terminated the same day the US filed its most recent
dispute with the WTO Dispute Settlement Board (DSB). The US requested
consultations39 under Article 3(2) of the WTO Dispute Settlement Understanding
(DSU)40 with the EC, as well as with Germany, France, the United Kingdom, and
Spain. Article 3(2) for the first time codified procedures for members to listen to the
pleas of other member states within 30 days, something which was lacking under the
GATT framework.
The American request was made on the basis that the subsidies to Airbus violated
various provisions of the SCM Agreement41 and Article XVI:1 of the GATT 1994 and
were causing and continuing to cause nullification or impairment of benefits within
38
Ryan Lee, “Dogfight: Criticizing the Agreement on Subsidies and Countervailing Measures Amidst the Largest
Dispute in World Trade Organization” (2006) N.C.J.INT'LL. &COM.REG.at 128.
39
Request for Consultations by the United States, WT/DS316/1 (October 12, 2004).
40
Understanding on Rules and Procedures Governing the Settlement of Disputes, April 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 2, Legal Texts-The Results of the Uruguay Round
of Multilateral Trade Negotiations, 1869 U.N.T.S. 400, 33 I.L.M. 1125 [hereinafter DSU].
41
Provision of grants and government-provided goods and services to develop, expand, and upgrade
manufacturing sites for the Airbus A380; provision of loans on preferential terms; assumption and forgiveness of
debt resulting from launch and production and development financing; provision of equity infusions and grants;
provision of R&D loans and grants, and any other measures involving a financial contribution to the Airbus
companies. Furthermore that the launch aid for the A340 and A380 constituted illegal export subsidies
contravening Article 3. All causing adverse effects to the United States in a manner contrary to Articles 5 and 6.

10
the meaning of Article XXIII:1. Given the fact that aircraft production in the US
directly or indirectly affects nearly 80 per cent of the economy42 and with a
presidential election impending, it was a challenge motivated by both political and
economic considerations. This challenge was accepted by the EC who also
requested consultations with the US, mirroring the American claim with Boeing
taking the place of Airbus.43
Consultations were held in November 2004 and in January 2005 both the US and
the EC agreed to a framework for negotiating a new bilateral pact. Crucially, unlike
the July Agreement, this pact was to be agreed upon under the auspices of the
WTO. However, they did not reach agreement by the framework’s April 11th deadline
and after the US discovered that EC member states had committed $1.7 billion in
new risk-free launch aid subsidies for Airbus, the US utilised Article 4(7) of the DSU
and requested that a panel be established under Article 6 of same.44 The EC also
alleged similar disparate treatment, namely that Boeing received US$24 billion in
subsidies in the form of contracts with the US military, and tax breaks from the State
of Washington, where the aircraft manufacturer is based and renewed its
allegations45 requesting that a panel be established. 46
42
Raj Bhala and Kevin Kennedy, World Trade Law (1st edn, Lexis Law Publishing 1998), at 1307.
43
Request for Consultations by the European Communities, WT/DS317/1 (October 12, 2004).
44
Request for the Establishment of a Panel by the United States, WT/DS316/2 (June 3, 2005).
45
Subsidies for the production of the Boeing 7E7, NASA and Department of Defence R&D subsidies, Foreign
Sales Corporation/Extraterritorial Income Exclusion Act subsidies, National Institute of Standards and
Technologies subsidies, Research and Experimentation tax credits, NASA procurement contracts and
infrastructure related caused adverse effects to the interests of the EC and material injury or threat to material
injury to the EC large civil aircraft industry contrary to Articles 5 and 6 of the SCM Agreement and Article III:4
GATT 1994.
46
Request for the Establishment of a Panel by the European Communities, WT/DS317/2 (June 3, 2005).

11
DS353/317
As regards the EC complaint additional consultations were held on issues the US
had objected to as outside scope on August 3rd 2005 and these panel issues led to
the formation of the DS353 panel which held its meetings in September 2007 and
January 2008. The Panel notified the parties on four occasions that it was going to
require more than the 6 months allowed under Article 12 of the DSU. The Panel
issued its final report on March 31st 2011 and both parties immediately filed appeals.
After holding hearings in August and October 2011, the Appeals Body issued its
report on March 12th 2012 bringing the substantive portion of the DS353 to a close.
DS316
Although the US complaint proceeded quicker, the EC also raised objections akin to
the US objections in DS317. This caused the US to file an additional Request for
Consultations and then ask for a panel to address the matters raised. However, it
allowed this new panel to lapse after the DS316 panel rejected the EC objection to
the temporal scope of the proceedings. The DS316 panel held its meetings in March
and July 2007 and also had to notify the parties on four occasions that it would be
unable to abide by the time requirements set down in the DSU. The DS316 panel
released its final report on June 30th 2010 and both side again filed Appeals. After
hearings in November and December the Appeals Body circulated its report on May
18th 2012. The DSB adopted the Appeals Body report and the Panel DS316 report
as modified, at its meeting on June 1st 2011.

12
Compliance Proceedings
The dispute is currently playing out within the sphere of the DSU compliance
procedure. The DSU stresses the importance of implementation: "Prompt
compliance with recommendations or rulings of the DSB is essential in order to
ensure effective resolution of disputes to the benefit of all Members.”47 The SCM
Agreement does not contain a reasonable period of time for prohibited
subsidisation,48 at the panel stage the panellists must instead recommend immediate
withdrawal and a specific time frame for this to happen.49 The DSB continues to
monitor the implementation of the recommendations and rulings50 and any member
may raise the issue of implementation at any time.51 The specific issue and its
implementation will be included on the DSB meeting agenda until the subsidy is
resolved,52 this means that the subsidy issue remains under surveillance even if
measures have been taken for non-compliance.53
It is within this compliance procedure that the effect of the SCM Agreement on the
laws and legal systems of the US and of the EU will now be critically analysed. It is
important to note in this context that prohibited subsidies, under the SCM
Agreement, bypass the twenty day compensation negotiations and proceed with
countervailing measures immediately.54 This can be criticised due to the fact that
47
DSU, note 40, Art 21.1.
48
SCM Agreement, note 2, Art 4.7.
49
Ibid.
50
DSU, note 40, Art 21.
51
Ibid, Art 21.6.
52
Ibid.
53
Ibid, Art 22.8.
54
Ibid, Art 4.10.

13
unless the DSB decides by consensus to reject the request for countervailing
measures (which would require the prevailing party to sit by and do nothing), the
request is virtually guaranteed.
Impact of the DS353/317 dispute on the Laws and Legal System of the United
States
Six months after the DSB's adoption of the panel and appellate reports on March
23rd 2012, the United States proclaimed that it had "fully complied with the
recommendations and rulings of the Dispute Settlement Body in this dispute."55 It
stated that NASA and the Department of Defence had revised each of the contracts
found to be in violation of the SCM Agreement, had revised or terminated other
policies and programs, and that the state and local measures were no longer in
effect.56 It additionally stated that through these actions, "any adverse effects of the
subsidies in question have ceased to exist."57 The EC thought otherwise. On
September 27, 2012, it requested authorisation to impose countermeasures against
the United States in the amount of $12 billion annually to address continuing
subsidies and the continuing adverse effects of the covered subsidies.58 It also
requested consultations with the Unites States, the first step in adjudicating
compliance with the WTO's rulings.59
55
Note 5.
56
Ibid.
57
Ibid.
58
Recourse to Article 22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM Agreement by the European Union,
WT/DS353/17 (September 27, 2012).
59
Recourse to Article 21.5 of the DSU by the European Union, WT/DS353/16 (September 25, 2012).

14
But what impact will this decision have on the laws of the United States? It is clear
from the Uruguay Rounds Agreements Act (URAA)60 that direct effect of WTO law is
excluded. The URAA does not, however, specifically exclude possible indirect effect
which is important when domestic law is ambiguous and capable of being interpreted
consistently with the WTO agreements. Case law leaves open the question of
whether US courts will require agencies such as NASA or the Department of
Defence to interpret their statutory mandates in relation to Boeing consistently with
the WTO agreements as understood by WTO panels and the Appellate Body. To
date, this has not occurred as both agencies do not wish to so. “However, the
possibility has been kept alive that a US court might, in the future, assess whether
an agency interpretation of its statutory mandate is consistent with the Appellate
Body’s understanding of the WTO agreements…There are strong parallels between
this position and that in the EU, albeit that caution is also required when drawing
analogies.61
Impact of the DS316 dispute on the Laws and Legal System of the European
Union
On December 1, 2011, the EC notified the DSB that it had "taken appropriate steps
to bring its measures fully into conformity with its WTO obligations, and to comply
with the DSB's recommendations and rulings," and that it had removed all subsidies
and adverse effects covered by the DSB's rulings.62 Specifically, it stated that it had
"secured repayment of [Member State Financing (MSF)] loans and terminated MSF
60
Pub.L. 103-465, 108 Stat.4809 (1994), 19 U.S.C.3501 [hereinafter ‘URAA’].
61
Lester et al, note 35 at 129.
62
Note 5.

15
agreements, increased fees and lease payments on infrastructure support to accord
with market principles, and ensured that capital contributions and regional aid
subsidies . . . are no longer capable of causing adverse effects."63 However, the
United States disputed that these measures brought the EC into compliance, and
requested authorisation from the DSB to take countermeasures totalling between $7
and $10 billion per year in the form of a suspension of concessions under GATT and
the General Agreement on Trade in Services (GATS).64 The United States also
accompanied this request with a request for consultations to facilitate resolving the
dispute65 and the WTO later referred the matter back to the original panel, at the
United States' request, to determine compliance.
Article 47 of TEU provides that the EU has legal personality just in the same way as
the WTO has, while Article 216 of TFEU deals specifically with the way in which the
EU enters into international agreements. While it is clear that international
agreements can have legal effect given the fact that Article 216.2 of TFEU provides
that these international agreements are binding on the EU and its member states,
the WTO compliance proceedings are likely to have as little effect on the laws and
legal system of the EU as on those of the US.
The exclusion of the direct effect of WTO law before the EU courts is suggested by
the preamble of the Council decision which implemented the WTO Agreement and
its Annexes. This exclusion has been confirmed by the EU courts and the Nakajima
63
Ibid at 4.
64
Recourse to Article 7.9 of the SCM Agreement and Article 22.2 of the DSU by the United States, WT/DS316/18
(December 9, 2011).
65
Recourse to Article 21.5 of the DSU by the United States WT/DS316/19 (December 9, 2011).

16
exception has been interpreted restrictively. Under this exception, the general rule is
that GATT and WTO obligations are only binding on EU rules where those rules
have been introduced specifically to implement those obligations such as to permit
the review of EU law in light of WTO law. Therefore on direct effect, the EU position
is very similar to that in the US. This is often a very political issue and in particular
the ECJ position is that the EU will not alter its laws in accordance with the WTO
Agreements unless such an alteration is reciprocated by other members, usually the
US.
Finally, “with regard to indirect via consistent interpretation, the crucial question is
whether this principle will be sued to overturn interpretations of EU law and WTO law
which are preferred by the EU institutions.” 66 As such it is unlikely that the EU will
interpret its laws on subsidies so as to disallow them, as is required under the SCM
Agreement as interpreted by the Appellate Body. As in the US, there is no clear
indication that this has occurred in the EU to date.
Conclusion
It is clear then that despite the threat of using authorised sanctions or countervailing
measures, WTO members can still thwart compliance and leave their laws and legal
systems untouched. Alternatively, when adversaries are both guilty they may choose
to allow no result and affect no changes to laws or legal systems, as in the Canada-
Brazil aircraft dispute.67
66
Lester et al, note 35 at 137-138.
67
Brazil-Export Financing Programme for Aircraft (Brazil- Aircraft); Canada – Measures Affecting the Export of
Civilian Aircraft (Canada- Aircraft).

17
The DSU is a significant improvement from GATT and “is a place where the United
States and the European Communities can resolve their trade disputes though third-
party adjudication and still conduct their trade relations effectively and responsibly,
without the need for any special procedures."68 However, the process is flawed and
cannot be applied to large civil aircraft for two reasons: First, all large civil aircraft
manufacturers benefit from subsidies, whether Airbus or Boeing, Bombardier or
Embraer. Alleged subsidy violations can never be defeated when both sides succeed
with their claims. For example, on the 31st March 2011 while Boeing’s press release
stated that the “WTO Ruling Exposes Massive Airbus Advantage From Illegal
Subsidies”,69 Airbus’ declared that “Truth goes public: WTO condemns massive
illegal Boeing subsidies”.70
Secondly, the DSU lacks a reliable compliance mechanism. The remedy for non-
compliance under the DSU is self-help, which is problematic because it relies on the
individual complainant to serve as enforcer when a losing member resists a ruling.
The fact that it is in the best interests of both sides to refrain from engaging in a trade
war results in perpetual noncompliance and the SCM Agreement is less likely to be
enforced. “The presence of a government subsidy is evidence that the State has an
interest in that industry. When a member is devoted to maintaining non-compliant
68
William Davey, “The WTO Dispute Settlement System: The First Ten Years” (2005) J.Int. Economic Law 17 at
34.
69
<http://boeing.mediaroom.com/2011-03-31-Boeing-WTO-Ruling-Exposes-Massive-Airbus-Advantage-From-
Illegal-Subsidies>
70
<http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/truth-goes-public-wto-condemns-
massive-illegal-boeing-subsidies/>

18
behaviour, the DSU is unlikely to be effective.”71 Furthermore determining
compliance would be very difficult even for a party inclined to do so, due to the
complexity of the case.72 Given that it is now commonplace for countries losing a
case in the WTO to restructure their offending laws superficially and claim
compliance and with both the US and the EU maintaining non-compliance with
religious devotion, their laws and legal systems will remain the same. This will be to
the detriment and benefit of both parties.
71
Lee, note 38, at 153.
72
Nils Meier-Kaienburg, “The WTO's "Toughest" Case: An Examination of the Effectiveness of the WTO Dispute
Resolution Procedure in the Airbus-Boeing Dispute Over Aircraft Subsidies” (2006), 71 J.AIRL. &COM at 228-
230.

Is the World Trade Organisation Agreement on Subsidies and Countervailing Measures an appropriate rulebook for the Boeing v Airbus Dispute

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